Grey2White Initiative

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(Article Reprinted by Popular Demand)

Hypothesis:

Given Ukraine’s current economic and geopolitical situation, one of the most beneficial  steps the US government, business and NGO community can take, is to encourage significant external and internal direct investment into the country’s economy.

Although the US Government has had some success in attracting and supporting American direct investment into Ukraine, those investment amounts are far from sufficient. US investors new to the Ukrainian market are wary of the country’s reputation for corruption, difficulty in doing business, threats from Russia and lack of financing options.

A second and much more viable economic development option, would be to support and enable direct investment by the successful Ukrainian business people who have amassed sufficient capital and are much more comfortable and adept in investing in their home market.

One problem with pursuing that option are high Western standards, which often preclude US government development agencies and public US investors from working with this potential class of investors.  This is due to the fact that for the last twenty-five years, practically all business people in Ukraine had to operate under a certain set of conditions widely considered “grey” and in many cases “black” in the West.

Some of these “grey” conditions are lack of financial transparency, inadequate corporate governance, use of yellow press, use of cash, as well as offshore accounts to conduct operations, bribery and use of adverse political influence.

In their attempts to succeed, some folks in Ukraine went beyond previously acceptable business norms and crossed the proverbial line even further by engaging in criminal “black” behavior – graft, extortion, corruption, tender rigging and illicit drug trade.

To date, these grey conditions have presented significant challenges for the IFIs, development agencies and regulated financial US investors. Yet, it is vital to recognize the necessity to find an acceptable solution that allows Ukraine’s economy to reap significant benefits from the anticipated increase in direct investment and low-cost, long-term financing.

It is also very important to understand that the proposed Grey2White (G2W) initiative aims to broaden and scale up very important development and capacity building work already undertaken over the last quarter century by IFIs, such as IFC and EBRD, USAID; development agencies such as OPIC and USTDA and financial investment communities. Those initial efforts, although quite effective, focused on a relatively small sample of Ukrainian companies and were undertaken during a different stage of the country’s development.

Initiative

The G2W initiative will only work with those companies and individuals, who will be able to create meaningful economic impact in Ukraine, after undergoing the conversion process.  G2W will not in any way target those convicted of the “black” behavior, as their reputation gap is un-bridgeable within the scope of the project.

Thus the question becomes, is it possible for US stakeholders to create an environment and a broad platform from which so-called “grey” Ukrainian businessmen seeking to utilize US financing, equipment, services and franchises, as part of their major investment programs, become “bankable” under Western standards? If the answer is “Yes.”This type of conversion will provide hundreds of millions, if not billions of dollars in direct economic benefit and enhanced geopolitical security to Ukraine and the US.

If the answer is “No,” these businessmen will either be forced to forgo the planned capital investments, or seek alliances with other grey, or black global actors in countries like Russia, China, Brazil, Iran, etc.

It is the fundamental belief by the creators of the proposed initiative that given a concerted effort by the US and Ukrainian stakeholders to develop and implement realistic procedures to increase corporate transparency, introduce financial standards, address any existing reputation issues head-on and provide reputable outside management and board oversight, it is possible within short to medium time-frames to bring these so called “grey” businessmen and their respective projects up to elevated western standards, mitigate investment and reputation risks and affect substantial economic growth in Ukraine.

Thus we hereby propose the following:

Select three-four financially viable projects sponsored  the “grey” Ukrainian actors and use them as a pilot to develop, refine and implement an effective conversion strategy to bring that project up to acceptable Western standards.

From the government side, we propose to involve the US Commercial Service, USTR, US Embassy, Ukrainian Embassy, Cabinet of Ministers of UA, members of the US Congress focused on UA issues, OPIC, regional Governors and local administrations in Ukraine, IFC, USTDA and the US EXIM Bank (when that Agency resumes its activities in Ukraine).

Among the NGO stakeholders we would like to see US-Ukraine Business Council (USBC), AMCHAM, Transparency International, Freedom House, Atlantic Council and US Ukraine Foundation. Additionally, reputable international law firms, audit firms, press, appropriate private individuals, corporate off-takers, financial market regulators, as well as relevant providers of US goods and services should be involved.

The framework of the proposed initiative shall be as follows:

  • Initial Sponsor/Project assessment and preliminary due diligence
  • Project selection and stakeholder awareness and involvement
  • Project G2W Team building (attys., directors, advisers, auditors, suppliers, investors etc.)
  • Full due diligence and implementation plan for the Western financial, FCPA and governance standards
  • Investor cultivation and underwriting of the financing package
  • Project development and implementation
  • Monitoring and compliance

To kick off the proposed initiative, we propose an intensive education and awareness-building campaign designed to simultaneously involve all the stakeholders.

After the initial buy-in into the initiative is secured, work will begin on developing the pilot projects.

During the pilot project phase, the G2W pilot project team will be seeking to achieve specific and tangible goals:

  • Fully assess the existing reputation risks, possible political influence issues, suitability for OPIC/IFC financing and Political Risk Insurance for the US project participants
  • Prepare a legal due diligence report by a world-class law firm
  • Recruit highly reputable and competent outside board members to the Project’s Board
  • Design a comprehensive PR/IR strategy to inform stakeholders of the project and its ongoing developments
  • Design and implement transparent financial audit, reporting and management accountability standards
  • Develop ways to tangibly measure economic effect of the pilot project
  • Continue to promote the initiative and seek to move it from the pilot project phase to full-blown implementation.

(to be continued)

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ExportBOOST Helps US Companies Double Their Exports

By: Alexander Gordin

Fi3E BadgeInternational trade is thought to have its routes in 19th century BC with Assyrian merchants. Over centuries the business of exports changed dramatically with evolution in transport modes, advent of Incoterms, standardized shipping containers and computerized customs clearance.

Yet for all the progress and record $2.3 trillion amount, exports in the US still remain a complex and not terribly efficient process. Multiple players involved in exports are still largely silo(ed). Even at large companies export related functions like international sales, legal, shipping, banking, financing and insurance often have difficulty communicating with one another. Concepts such as international payment protection mechanisms, US content policy, or US flag shipping requirements are often misunderstood. Generally business approach to managing export transactions is reactive, rather than proactive. Situation is even more difficult in small and mid-size businesses where resources are significantly more scant. A relatively small percentage of businesses export. Of those that do, a large portion exports to only one country. Expanded exports of goods and services represent amazing possibilities not only to help companies grow their profits and shareholder returns, but also to benefit our nation’s economy by creating new jobs and generating additional tax revenues. President Obama’s National Export Initiative has served as a catalyst to spur job growth and along with general economic recovery led to a resurgence of manufacturing activity. More needs to be done, and companies should focus on exports as a fundamental part of their business activities, rather than an afterthought.

The entire export ecosystem is ripe for disruption and entry into the technological age. I can envision a day in the very near future when shipping containers of foodstuffs, plane loads of licensed computer equipment, dozens of Ro Ro tractors, or construction cranes will be as simple as buying individual items on eBay or Amazon. Of course handling export transactions is infinitely more complex and requires signed multilingual contracts, letters of credit, export credit and freight insurance, licensing, quality inspections and complex shipping arrangements. Thus the disruption process that is being put in place needs to account for the nuanced complexity that characterizes exports. Step one of the transformation is already on the way.

ExportBoost™ – a  curated service guaranteed to help small and mid-size companies to at least double their present exports in 18 months – was recently unveiled

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by the Broad Street Capital Group (“BSCG”) . Specifically developed for US manufacturers and distributors with revenues of between $5 and $750 million and for providers of professional services , ExportBoost™ uses proprietary export building met

hodology and tools such as: Fi3E™ Export Indices, XPORTINSURE™, FinanceABLE™ and EZShip™ to greatly simplify export operations and mitigate international business risks.

ExportBoost™ was designed to help small and medium companies who are either experienced exporters, or just looking to start their international expansion to significantly grow their exports. ExportBoost™ service has two tiers – one where the exporter is guided by the Broad Street Capital’s professionals and implements the program internally and the second where Broad Street Capital Group implements ExportBoost™ on its client’s behalf. In either case, the clients will be offered a unique guarantee, should they follow the program and their exports do not at least double in 18 months, Broad Street Capital Group will refund all the fees paid by the clients for the ExportBoost™ service.

ExportBoost™ is part of the product portfolio being developed by the Broad Street Capital Group, and its partners. to greatly streamline and finance international trading operations. The project code named “Barbell” is scheduled to be unveiled at the Broad Street’s annual conference later this year.

From Goldsmiths to Bankers

A History of English Clearing Banks

Publisher’ Note: Today’s post contains a look at a fragment of Merchant Banking history and is brought to you courtesy of the Museum of Merchant Banking and International Trade (MoMBIT.org)

Introduction
Although banking as we know it has its roots in the seventeenth century, many of its features can be traced back to ancient times.

Before the introduction of a monetary system there were many instances of transactions involving credit in primitive communities. Early Pacific civilisations used strings of beads as a means of recording debts, even before they were a means of exchange. The Chinese dynasties are full of instances of note issues recorded back as far as 14BC under the Emperor Wu-Ti, who used a form of paper money made from stag skin.

In Greece, Babylon and the Roman Empire an extensive international trade demanded banking facilities, such as the lending of money, its exchange in foreign trade and travel, and the safe keeping of deposits. The Greek system was adopted by Egypt and also influenced Rome. The break up of the Roman Empire led to a decline in banking, and, at the same time, usury laws imposed by the Church put restraints on lending.

However, banking did not cease completely as the Lombard merchants developed banking in Venice and Genoa in the 12th century.

The Middle Ages
In medieval times an English village community had no need for ‘banking’, but for the merchants in the growing towns, trading at home and abroad, a knowledge of money became essential.

Since the Christian Church forbade the lending of money for interest, Jewish immigrants to England, who were barred from ordinary trade, living frugally and no bound by the laws of the Church, filled the need for money lenders.

Jews, like many foreigners, had come to England at the time of William the Conqueror. Saxon England had required few money lenders but the Roman and Anglican kings employed Jews to supply them with ready cash in anticipation of their revenue. The Jews became the King’s ‘sponges’ and his Exchequers, collecting his revenue and lending their own money on usury. The Jews became a hated race but survived due to their protection by the King’s troops. Many became rich, like Aron of Lincoln in the reign of King Henry II.

In 1290 to appease popular feeling the King withdrew his protection from the Jews, who were subsequently treated cruelly by their Christian neighbours and driven out of England, not to return until Stuart and Hanoverian times.

Italian influences
After the Jews were banished in the thirteenth century, a vacuum was left to be filled by Italian merchants from the great trading ports of Northern Italy. Lombard Street, which is still today the heart of London’s financial quarter, takes its name from Lombardy in Italy. Their vocabulary has left us with the words cash, debtor, creditor and ledger; the cryptic letters �.S.D. have only partly been discarded by decimalisation. Perhaps the most significant is the fact that these merchants conducted their business on benches or ‘bancos’ and it is from that work that our ‘bank’ is said to be derived.

The Italian merchants arrived at a time when England was changing from a feudal community, with virtually all its wealth in land, to a commercial society in which surplus money needed to be stored and used for profit. This happened in the sixteenth century after a long and stable government under the Tudors, which saw an age of discovery and the beginnings of colonisation; a time of expansion of trade at home and abroad. Moreover, as the Reformation spread throughout Europe, King Henry VIII, at the end of his reign in 1546, repealed the usury laws. Before this the Church disallowed the lending of money with interest; now money could be lent “upon interest according to the King’s Majesty’s Statute at 10 per cent”.

This Act was carried further by his daughter, Queen Elizabeth I, and so the foundation of the modern banking system was laid.

Englishmen of business followed the example of the Italian merchants. In particular, Sir Thomas Gresham, who as a pioneer of lending and borrowing money in the country, became the greatest of the London merchants and is now looked upon as the “Father of English Banking”. He served Henry VIII; Edward VI; Mary I and Elizabeth I and founded the Royal Exchange in Cornhill, London, as a meeting place for merchants to conduct their business.

Goldsmith to Banker
In the early days the goldsmith had exchanged foreign currency, keeping some in hand to supply travellers abroad and melting down the rest in the course of their basic trade. They had also become recognisable and reliable keepers of money and values for people without their own safe custody facilities.

This function was to become more important when, in 1640, Charles I destroyed the reputation of the Royal Mint as the best place for safe custody by seizing the gold. The Royal Mint, originally known as the “Mynte” from the Latin “moneta” meaning money, stood on Tower Hill in London and was the centre for English coinage.

Even though Charles I later repaid the money the damage had been done and the confidence lay with the goldsmiths, who paid interest and gave receipts. In 1640 Oliver Cromwell borrowed money from the goldsmiths to help his army in the Civil War, and in 1663, Charles II borrowed �1,300,000 to build a sailing fleet; this he was unable to repay and the Exchequer suspended the repayment. Anxiety naturally arose about the lender policies of the goldsmiths, since, as a side line, it was becoming a risk business, and so they were to develop ‘banks’ as separate entities from their usual business.

The new men were bankers but they were still goldsmiths. Samuel Pepys gives us some examples. In 1667 Alderman Edward Blackwell changed Dutch money for him and “discoursed with him about remitting of this �6,000 to Tangier, which he promised to do by the first post.” The goldsmiths retained their previous business in dealing with plate; as Pepys “called at Alderman Blackwell’s and there changed Mr Falconer’s state cup, that he did give us this day, for a tankard, which came to �6. 10s. 0d at 5s. 7d. an ounce, and 3s. 0d. in money, and with great content thence away to my brothers.”

Goldsmith bankers, as they were known, had developed into an efficient system of private banking in London and were to develop into the famous banking firms, of which some still exist today. Coutts & Company, now affiliated to the National Westminster Bank, dates from 1692. The firm of Duncombe and Kent at the Grasshopper in Lombard Street, is now part of Barclays (formerly Martins). Barclays itself was incorporated in 1896 by the amalgamation of twenty private banks, among which was Gosling & Sharpe, descended from the famous goldsmith shop of “Ye Three Squirrels” in Lombard Street, which flourished under Major Henry Pinckney in Cromwell’s time.

The receipts given by goldsmiths for deposits have been compared to modern day cheques. However, it would seem that their similarities, as with Bills of Exchange, was their negotiable nature. Drawn notes only became known as cheques a century later.

The cheque could be compared with a drawn note, by which a depositor addressed a letter to his goldsmith authorising the payment to his creditor of the sum owed. The creditor would then take this ‘note’ to the depositor’s goldsmith and there receive the sum in cash.  READ MORE

Trump scrambles Ex-Im Bank politics

The politics around the Export-Import Bank just got much weirder.

President Donald Trump is reaching for a compromise in the debate raging around the bank, aiming to keep the agency open while putting an outspoken, ultra-conservative opponent of the institution at the helm.

In doing so, Trump has confused the politics around the export credit agency, which had been a major boost to American manufacturers such as Boeing, GE and Caterpillar before Republicans took steps to crimp the flow of financing.

The formerly anti-Ex-Im Trump abruptly changed his tune on the bank last week when he called it “a very good thing” and announced plans to nominate two board members. That was a major step toward bringing the agency back to its full working capacity.

Then, two days later, he nominated for the chairmanship former Rep. Scott Garrett (R-N.J.), a vocal foe of the bank who has also come under fire in the past for his comments about homosexuality. That set up a political tightrope that both supporters and detractors of the agency may have trouble navigating.

Democrats who champion the agency because they say it creates jobs and promotes manufacturing are uneasy about supporting a social conservative who might try to hamstring the bank from within. Sen. Chris Van Hollen (D-Md.), a member of the Banking Committee, which will vet the nominees, said appointing Garrett as chair would put thousands of American jobs at risk.

Then there are conservative Republicans who have been critical of the bank and are now cheering Garrett’s nomination.

“For too long, the bank has been a clear example of corporate welfare run amok — benefiting special interests and foreign companies at the expense of U.S. taxpayers,” said Sen. Pat Toomey (R-Pa.), who also sits on the Banking Committee. “I am confident that Congressman Garrett will chart a new course for the bank that puts U.S taxpayers first.”

The result is a 180-degree flip-flop, where lawmakers and interest groups who had expended significant resources and political capital to rein in the bank could shift to support Trump’s nominees, while its biggest champions could be left behind.

“We’re encouraged and optimistic that [Garrett] would be able to substantively reform the Export-Import Bank, make it work better in the meantime,” said Chrissy Harbin, vice president of external relations at the conservative advocacy group Americans for Prosperity. “And then when the reauthorization comes up again … we’d encourage D.C. to have the same conversation about the possibility of letting it expire once and for all.”

Democrats on the Banking Committee have reservations about Garrett, including Sens. Heidi Heitkamp (D-N.D.), Joe Donnelly (D-Ind.) and Catherine Cortez Masto (D-Nev.).

Cortez Masto said she was pleased that Trump was committing to making the bank functional. Still, she has concerns about Garrett, “given his past opposition to Ex-Im’s mission, not to mention his divisive rhetoric toward LGBT families.”

“This Garrett nom is a Catch-22,” one Senate Democratic aide said. “We need to confirm him to have a quorum, but he could be a cancer inside the agency.”

Last November, Garrett lost a seat he had held since being elected to Congress in 2002. A key moment in the race came in 2015, when POLITICO reported that he told fellow GOP members that he wouldn’t support the National Republican Congressional Committee because it backed gay candidates.

Financial companies that had been campaign backers during his years as a senior member of the House Financial Services Committee pulled back.

Garrett later denied that he objected to gay candidates and said his problem was with support for same-sex marriage.

He lost to a well-funded Democratic challenger, Josh Gottheimer, but stayed plugged in to the emerging Trump team. While in Congress, Garrett served with Vice President Mike Pence and is said to be close with the former Indiana congressman. He also counted White House counselor Kellyanne Conway as a constituent and campaign donor. A December meeting at Trump Tower was well-publicized.

Garrett could not be reached to comment on this story.

Beyond Congress, his nomination also puts big American manufacturers in an awkward spot. They need more board members at the bank to provide a quorum that’s necessary to approve deals with more than $10 million. Yet they are unsure what changes might be in store given Garrett’s past comments and promises from senior administration officials like White House Budget Director Mick Mulvaney to put “reformers” at the helm.

For now, major users of the bank are focusing on the fact that Trump has put forward any nominees rather than worrying about who they are.

“Generally speaking, between the president’s comments and naming of two nominees, it’s really encouraging,” said Kate Bernard, a Boeing spokeswoman. Boeing, she added, has experienced the loss or delay of three satellite sales since the bank first fell victim to political crossfire in 2015, so giving the bank back its quorum to “shake loose” projects that remain in the pipeline is the most crucial step at this point.

There’s no question, however, that the Garrett nomination “raises some eyebrows in the business community” and “sends some mixed messages given his previous history in the House,” said one bank proponent who asked not to be named.

Garrett established himself as a consistent and outspoken opponent of the bank while in Congress, twice voting against its reauthorization in the past five years. In 2014, he expressed skepticism that attempts at reform would ever be successful, and he pushed hard the following year to let the charter expire.

“We have the opportunity to save capitalism from cronyism and to fulfill a promise to the American people to work for them instead of a select few with special connections in Washington,” Garrett said in May 2015.

“For the sake of the American taxpayer and the preservation of the free enterprise system, Congress should put the Export-Import Bank out of business.”

The White House noted that history of opposition toward the bank in discussing his appointment, saying Trump chose him “to both usher in reforms and prioritize small businesses.”

“Former Rep. Scott Garrett has passionately spoken out on some of the problems that the Bank’s previous activities created,” a White House spokeswoman said in an email. “He will be a key voice for reform.”

61ae8-exim-bank1The current nominees represent only a temporary fix: Garrett and former House Financial Services Chairman Spencer Bachus (R-Ala.), who Trump picked to sit on the board of directors, would both have to be approved to restore the bank to full working capacity. What’s more, they’ll provide a quorum that will only last until July 19, when acting Vice Chairman Scott Schloegel’s term expires. At that point, the bank would lack a quorum once again if no additional members have been confirmed before then.

But in the meantime, major users of the bank fear that the administration is trying to reshape the agency in a way that would hurt large companies that have traditionally benefited from it. Various administration officials have hinted at their own ideas for reform.

Mulvaney, who was a critic of the bank while a member of Congress, told CNBC last week that Trump’s nominees would make sure the bank “sticks to its knitting.” Commerce Secretary Wilbur Ross told the network in a separate interview that he wanted a reformed bank to “help small businesses more.”

Some reforms will be put into place as soon as Garrett and Bachus — or any two nominees — are confirmed and a board with at least three members votes to approve them. The bank’s 2015 charter included a slate of changes for the bank, and while a majority have been completed, a handful require a board quorum to be implemented — something the bank has lacked since its reauthorization was passed almost a year and a half ago.

Two of the outstanding requirements involve appointing a chief ethics officer and chief risk officer. A third involves the bank’s lending to small businesses and “increases the authority of staff to approve applications for up to $25 million in export financing for small business working capital and insurance products.”

But beyond that, bank observers say there is little a chairman can do on his own to change the bank’s operations.

And while he could attempt to direct export credit assistance more often to smaller businesses, “there’s not a ton of discretion,” said Peter Cohn, an analyst with Height Securities.

“So I don’t know that we’re going to see a whole lot more than window dressing on that front,” he said.

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Dollar’s Rise Threatens Manufacturing Recovery

Greenback surges to 14-year high in wake of Trump win and Fed move, making U.S. goods more expensive abroad

 By ANDREW TANGEL and JOSH ZUMBRUN WSJ.com

An employee works on the interior of a Boeing Dreamliner 787 in North Charleston, S.C. Boeing last week cited 'fewer sales opportunities and tough competition' when it laid out plans for further layoffs. An employee works on the interior of a Boeing Dreamliner 787 in North Charleston, S.C. Boeing last week cited ‘fewer sales opportunities and tough competition’ when it laid out plans for further layoffs. PHOTO: BLOOMBERG NEWS

The U.S. currency, which has strongly appreciated over the past two years, surged to a 14-year high in the wake of Donald Trump’s election and the Federal Reserve’s decision to raise interest rates, adding a wrinkle to the president-elect’s pledge to boost factory employment.

Certainly, a strengthening dollar is a sign of rising optimism for the U.S. economy as the stock market also soars to new highs. Prospects of higher inflation and rising interest rates encourage investment in U.S. assets, reflecting growing hopes for better returns.

A strengthening dollar increases the currency’s purchasing power: If imports are cheaper, U.S. consumers would have more money to spend. That in turn could boost retail sales, a key driver of economic growth, and engender more confidence in the U.S. overall.

However, while good for U.S. consumers and companies that purchase components abroad, the dollar’s rise promises to hit U.S. manufacturers reliant on sales in overseas markets.

Many have started to dial back revenue forecasts and look for ways to cut costs. 3M Co. and United Technologies Corp. have signaled a strong dollar could make it harder to boost sales in 2017.

Manufacturing here in the U.S. has become a lot more challenging than we’d anticipated.

—Neal Keating, Kaman’s chief executive

Kaman Corp., a Bloomfield, Conn.-based maker of airplane parts, has seen its European rivals’ prices drop as the euro declined against the dollar. To compete, Kaman has invested in facilities in Germany, and acquired a company with operations in the Czech Republic.

“Manufacturing here in the U.S. has become a lot more challenging than we’d anticipated,” said Neal Keating, Kaman’s chief executive.

Some dealers of Harley-Davidson Inc. motorcycles and Caterpillar Inc.’s bulldozers and excavators are bracing for the companies’ Japanese rivals to capitalize on the yen’s weakness against the dollar to undercut them on price. Caterpillar has said the yen’s weakness makes competition harder. Harley declined to comment.

In interviews, several business leaders said Mr. Trump’s pledges to promote business would more than counter the sting of a stronger dollar, especially if there are lower taxes and lighter regulatory burdens. They are hopeful Mr. Trump’s plan to overhaul infrastructure will spark economic growth, and that higher domestic sales could make up for any decline in exports.

“There’s bigger fish to fry,” said Mike Haberman, president of Ohio-based construction-equipment maker Gradall Industries Inc., which exports about 20% of its products. “I’m not panicked about the dollar.”

Jerry Johnson, president of the farm, ranch and agriculture division of Blount International Inc., a Portland, Ore., maker of outdoor products, said the strong dollar may be offset by declining import prices. About 50% of the components used in Blount’s products—they include mowers, log splitters and rotary cutters—come from overseas, Mr. Johnson said.

The dollar has been relatively weak against most of the world’s major currencies over the past decade. This helped U.S. exports rebound swiftly following the financial crisis.

By the end of 2010, exports reached record levels and continued to grow, hitting $598 billion per quarter in 2014. Employment in manufacturing began to recover, and optimism grew the U.S. could be entering a manufacturing renaissance.

The dollar has since risen sharply against currencies such as the yen and the euro. Meanwhile, the British pound dropped in the wake of the country’s June vote to leave the European Union. Earlier this month, the U.S. Federal Reserve raised rates, and hinted at more tightening next year.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, hit a 14-year-high last week.

Bond yields have been rising amid expectations of more growth and inflation during Mr. Trump’s administration. The dollar rally could undermine his agenda by making exports more expensive and imports cheaper.

Collateral Damage

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Trump transition team officials didn’t respond to a request for comment.

For some companies, a stronger dollar will likely limit interest in expanding domestic manufacturing.

China’s yuan has fallen to its lowest level against the dollar in eight years, a move that could entice manufacturers to keep factories there rather than following in the steps of those that have brought some operations back to the U.S.

Mexico’s peso is down 13% against the dollar since the election, making it more tempting to move U.S. factories south of the border, despite Mr. Trump’s vows to punish firms that shift jobs abroad.

Emerson Electric Co. last week said the stronger currency worsened the extent of its orders’ decline from September through November by 2 percentage points. Overall, they fell by 7%.

Boeing Co., the nation’s largest exporter, last week cited “fewer sales opportunities and tough competition” when it laid out plans for further layoffs at its commercial-airplane unit next year after cutting staff by 8% in 2016.

Boeing didn’t mention currency fluctuations. The strengthening dollar has helped rival Airbus Group SE, which for years wrestled with an appreciating euro. Boeing declined to comment. An Airbus spokesman said the tailwind the company gets from the dollar is muted because 40% of its plane parts are purchased from the U.S.

Many manufacturers have begun to reduce their workforces; employment in manufacturing fell by 51,000 from January 2015 through November 2016, according to Labor Department data.

Ben Herzon, senior economist at Macroeconomic Advisers, an independent economic forecasting firm, conducted a simulation for The Wall Street Journal to illustrate how a further 10% increase in the strength of the dollar would ripple through the U.S. economy.

Over the next three years, companies would gradually adjust, by among other things boosting capacity at foreign plants while reducing at home, changing their supply chain or increasing the use of automation.

If the dollar doesn’t strengthen further, inflation-adjusted gross domestic product would cumulatively rise by 6.3% over the next three years. If it strengthens by a further 10%, that growth would be 1.8 percentage points lower, or 4.5%, according to Macroeconomic Advisers’ simulation.

The pain of a further 10% dollar rise would be especially concentrated in U.S. factories. Manufacturing production would be 3.6 percentage points lower under a strong dollar, inflation-adjusted imports would be 3.6 percentage points higher, and real exports from the U.S. to the rest of the world would be 6.2 percentage points lower.

Initially, U.S. consumers would stand to benefit by paying lower prices for imported goods.

“It’s good for consumers, as long as they’re still working,” said Mr. Herzon. As time goes on, this benefit will also be offset by the job loss in the manufacturing sector, he said.

Write to Andrew Tangel at Andrew.Tangel@wsj.com and Josh Zumbrun at Josh.Zumbrun@wsj.com

Broad Street Capital Group to Advise on $75 million financing for the Tier III Data Center Project

(London, UK – June 24, 2016) On this historic day of the “Brexit” referendum, Broad  Street Capital Group announced that it has been appointed as the exclusive financial adviser for for financing of a state-of-the-art data center in the Baltic States.  The proposed $100 million project, called AmberCore DC, will launch in 2017 and will be financed through a combination of owner and investor equity, coupled with senior debt to be provided by the UK Export Finance (UKEF). Lithuania_Page_1

CBRE of London and PACT Consulting Inc., based in Bethesda, Md., have been selected as the data center’s marketing consultants and will be responsible for introducing anchor clients to the project.

“We are delighted to serve as the financiers for this  project,” stated Alexander M. Gordin, Managing Director of Broad Street Capital Group. “With the worldwide explosion of cloud computing services, significant demand exists for quality data hosting facilities in emerging markets. Not only does the proposed project enjoy a strategic location and terrific connectivity, but it is also being developed by an experienced, highly reputable teleport operator and satellite services provider with a diverse international clientele. Despite strong geopolitical winds, which have slowed the project down over the last 24 months, the owners persevered and have remained completely committed to the project. “, said Gordin

“We aim to attract large European  and US-based corporate customers from the IT, oil & gas and financial sectors. who are interested in a professional Tier III certified data center facility strategically located in close proximity to some of the fasted growing emerging markets,” said Vitaliy Malashevskiy, Director of Ambercore DC and a co-owner of Satgate UAB, the project’s sponsor.

The AmberCore DC project will be the second high-tech facility in the Baltic States for the SatGate Group. It will be scalable up to 30MW of power and 5,000 racks, due to the modular design approach, which will utilize the latest cooling technologies to maximize the efficiency and minimize power consumption.

“This project will showcase the latest technological advances, and will open up a superb opportunity for UK and U.S. cooperation with the Baltic region countries,” Gordin added.

About Ambercore DC – a project company formed to develop a TIER III data center strategically located in the Baltics. To date, the project’s sponsors have invested over $6 million in property acquisition, design, engineering, development, certification and marketing of the project. The design has been certified TIER III by the Uptime institute. It is the only facility in Europe with proprietary access to an adjacent uplink/downlink teleport facility, which has been developed and is being operated by its parent company – Satgate UAB

Fi3E BadgeAbout Satgate UAB  – SatGate UAB is a leading satellite services provider, based in Lithuania. Operating a unique satellite teleport facility located near of Vilnius, SatGate provides a full range of satellite communication services in Europe, the Middle East and Central Asia to ISPs, telecoms, the oil and gas industry, and other corporate and private customers. SatGate integrates and manages turn-key communication solutions of any complexity. For more information, please visit http://www.satgate.net

WP_20130620_022About Broad Street Capital Group-Based in the World Trade Center’s Freedom Tower in New York City’s financial district, Broad Street Capital Group is an international private merchant bank, which since 1988 has served several foreign governments, multiple state-owned companies, as well as SMEs in emerging markets. The Firm focuses on arranging project financing in the $50-500 million range, providing political risk mitigation, export management services and cross-border market development advisory. Although the Firm has clients ranging from Bangladesh to Oklahoma, its primarily geographic focus is on the countries of Eastern and Central Europe and Central Asia.

The  firm works closely with all trade and development agencies of the U.S. Government and Export Credit Agencies of several European and North American countries.  Since its inception, Broad Street Capital Group has been involved in multiple high-profile cross-border transactions in IT/telecom, aerospace, healthcare,  energy generation, food security, nuclear safety, hospitality and franchising sectors. The firm’s current advisory portfolio exceeds $675 million.  For more information, please visit www.broadstreetcap.com, or contact Rustem Tursynov at info@broadstreetcap.com

BroadStreetCapitalGroupServices_Page_1

 

Broad Street Capital Group’s new assignments in Ukraine total over $300 million

Ukraine - Proprietary Fi180 Country Profile - page 1 of 4(June 15th, 2016, London, UK)  Broad Street Capital Group announced today that it will act as the Financial Developer and Exclusive Financial Adviser on two complex, high-profile financing assignments in Ukraine. The underlying projects for these assignments deal with Ukraine’s energy security, food security and infrastructure development.

In the first assignment, Broad Street Capital Group , will serve as the Project’s Financial  Developer, and will be part of a mandated financing consortium, which will consist of a major banking institution, a Development Agency of the US Government, a US lending trust and an internationally renowned law firm.  The financing consortium will evaluate and structure a cutting-edge $250 million capital markets transaction to finance US supply and construction contract to build a national energy safety facility to be located in the Kyiv region of Ukraine.

In the second assignment, Broad Street Capital Group will serve as the exclusive Financial Adviser, whose role will be to secure up to $75 million in long-term debt financing, provided by a development agency of the US Government.  The funding will be part of the financing required to develop and construct a major grain terminal in the Odessa region of Ukraine.

“We are delighted to serve as financiers for these two cutting-edge projects” stated Alexander M. Gordin, managing director of Broad Street Capital Group. “Our assignments should serve as catalysts and spark broad-based financing of worthy infrastructure projects. The financing climate in Ukraine has been extremely challenging over the last few years, but despite continued difficulties, the prognosis is quite optimistic. We look forward to being part of Ukrainian financial renaissance, as that country rebuilds itself and finds a way to regain its economic footing.”

 

About Broad Street Capital GroupWP_20130620_022

Based in the World Trade Center’s Freedom Tower in New York City’s financial district, Broad Street Capital Group is an international private merchant bank, which since 1988 has served several foreign governments, multiple state-owned companies, as well as SMEs in emerging markets. The Firm focuses on arranging project financing in the $50-500 million range, providing political risk mitigation, export management services and cross-border market development advisory. Although the Firm has clients ranging from Bangladesh to Oklahoma, its primarily geographic focus is on the countries of Eastern and Central Europe and Central Asia.

The  firm works closely with all trade and development agencies of the U.S. Government and Export Credit Agencies of several European and North American countries.  Since its inception, Broad Street Capital Group has been involved in several high-profile cross-border transactions in IT/telecom, aerospace, healthcare,  energy generation, food security, nuclear safety, hospitality and franchising sectors. The firm’s current advisory portfolio exceeds $675 million.  For more information, please visit www.broadstreetcap.com, or contact Rustem Tursynov at info@broadstreetcap.comBroadStreetCapitalGroupServices_Page_1

Seasons Greetings and Best Wishes in the New Year!

BSCGHolidayWishes2014

Why Weak Currencies Have a Smaller Effect on Exports

Because manufacturers increasingly use components from abroad to make things, exports now incorporate a lot more imports

Workers at a Robert Bosch GmbH plant in Blaichach, Germany, use touchscreen panels on the automobile gasoline direct injector valve assembly line. Germany is an export powerhouse.
Workers at a Robert Bosch GmbH plant in Blaichach, Germany, use touchscreen panels on the automobile gasoline direct injector valve assembly line. Germany is an export powerhouse. PHOTO: KRISZTIAN BOCSI/BLOOMBERG NEWS

As various central banks loosened monetary policy this year, some economists predicted another cycle of beggar-thy-neighbor currency wars, in which countries race each other to become the cheapest exporter.

But it hasn’t panned out that way, and now a growing body of evidence suggests why: A shift in trade dynamics is blunting the impact of a weak local currency.

This could be all the more relevant now, when the monetary policies of the world’s most powerful central banks—the Federal Reserve and the European Central Bank—are heading in very divergent directions, possibly taking the value of their currencies along with them.

When a country loosens its monetary policy, interest rates fall and investors tend to pull their money out in search of higher yields elsewhere, pushing down the currency’s value.

That is still happening. But the dynamic isn’t affecting trade flows as much as expected. What has changed is where businesses source the things they need to make the products they export. Manufacturers once found most components needed to make their goods at home. Now they increasingly look abroad for such inputs. As a result, exports now incorporate a lot more imports.

It is still the case that when a currency such as the euro weakens, it reduces the price of goods sold by German manufacturers in the U.S. But it also increases the price of the things that German manufacturers import to make those exported goods.

Containers at the Port Newark Container Terminal in Newark, N.J.
Containers at the Port Newark Container Terminal in Newark, N.J. PHOTO: JULIO CORTEZ/ASSOCIATED PRESS

Measuring the impact of global supply chains on trade flows is the task of a project undertaken by the Organization for Economic Cooperation and Development and the World Trade Organization.

Using detailed figures from economies around the world, economists at the two bodies have measured how much foreign content there is in each nation’s exports, confirming a significant increase since the mid-1990s. The foreign content of Switzerland’s exports, for instance, increased to 21.7% in 2011 from 17.5% in 1995, while the imported content of South Korea’s exports almost doubled, to 41.6% in 2011 from 22.3% in 1995.

Economists at the International Monetary Fund and the World Bank have used those measures to assess whether currency movements have the same impact they once did on exports and imports. They found that the effect has in fact reduced over time, by as much as 30% in some countries.

Policy makers are beginning to take note. “As countries become more vertically integrated via global value chains, exchange-rate variations will have a diminishing impact on the terms of trade,” said Benoît Coeuré, a member of the European Central Bank’s executive board and one of its thought leaders, speaking in California last month. He concluded the process will reduce the role of currency moves as “shock absorbers” that direct global demand toward weaker economies from stronger ones.

Japan offers the clearest indication that big currency depreciations don’t deliver the export boost they once did. In early 2013, the Bank of Japan launched a massive stimulus program that increased the supply of yen and led to the currency’s sharp depreciation against the dollar and the euro.

That strategy was a key element of Japan’s package of measures designed to lift the economy out of a long period of stagnant growth. But what followed was something of an anticlimax. The yen’s weakening had little impact on Japanese exports, and failed to restart economic growth. Puzzled policy makers pointed to the weak state of demand in the global economy, but even if that were the case, Japanese exporters should have gained market share.

A similar pattern has emerged in the wake of the ECB’s January decision to launch its own program of quantitative easing. Like the yen, the euro weakened, continuing a decline against the dollar that started in early 2014 and now amounts to roughly 20%.

In early 2015, the launch of QE was expected to boost eurozone growth by aiding exports. But once again, the impact of a weakened currency has been modest. Indeed, in the three months to September, eurozone growth was held back by a more rapid growth of imports over exports, while industrial output flatlined.

Experts believe it takes about 12 to 18 months for foreign-exchange moves to have their full impact on trade flows, so the effect would have been felt by now in both the eurozone and Japan. The euro started weakening against the dollar in early 2014, while Japan is about three years into its currency depreciation.

Those disappointments don’t mean currency movements caused by the great divergence between the Fed and the ECB won’t have any impact. That is a key concern for U.S. businesses in the wake of the Fed’s decision this month to raise interest rates for the first time in almost a decade—just weeks after the ECB moved its policy in the opposite direction. Many economists still expect the U.S. to suffer some slowdown in exports, while the eurozone enjoys some pickup. Already in the first 10 months of 2015, the U.S. trade deficit widened by 5.3% from a year earlier, reflecting a decline in exports.

And as the economists from the IMF and World bank have noted, the degree to which a currency movement boosts or reduces exports depends on how large their foreign content is. For the economy as a whole, the foreign share of U.S. exports is at the lower end of the global range, at around 15%, compared with more than 25% in Germany.

“It’s more complicated as a story for the U.S. because of the low foreign content,” saidSebastian Miroudot, a trade economist at the OECD.

Write to Paul Hannon at paul.hannon@wsj.com

Shutdown of U.S. Ex-Im Bank Puts Companies in a Financing Bind

IT-USExportsReprint_Page_2
Ethiopian Airlines had to scramble at the last minute this summer when it needed to pay for a plane it ordered from Boeing Co. MMBAMM years ago.

The East African carrier got the aircraft last month but, instead of owning it, the airline is leasing the plane from a bank, said Chief Executive Tewolde Gebremariam. It couldn’t secure a loan for the purchase because it lacked a financing guarantee from the U.S. Export-Import Bank.Amid a clash over spending priorities, congressional Republicans effectively shut down the U.S. Ex-Im Bank by failing to reauthorize the agency at the end of June. That means the bank can’t make new loans or provide loan guarantees to foreign companies so they can buy American products and services. And American companies can’t renew their export-credit insurance policies.

The shutdown was a blow to many companies in the U.S. and abroad that are fighting for revenue in a sluggish global economy. Many foreign companies like Ethiopian Airlines are looking to do business with trusted American suppliers, while U.S. companies are searching abroad for new customers.

A strong dollar and weaker growth hamper those efforts. U.S. exports of goods and services were down 3.5% from a year earlier in the first seven months of 2015. Exports fell 3.2% in August, according to the Commerce Department.Declining exports, combined with a lack of U.S. Ex-Im Bank funding, is “a double-whammy,” said David Ickert, finance chief of Air Tractor Inc., which makes small aircraft for the agriculture industry. Softer prices for crops such as soybeans have growers in places like Brazil and Argentina ordering less equipment, he said.Air Tractor, based in Olney, Texas, typically uses export-credit insurance from the U.S. Ex-Im Bank. Foreign customers typically account for over half of the company’s sales, but Mr. Ickert expects that figure to drop to 30% this year. “There are definitely some multiple headwinds we’re facing right now,” he said.

Many foreign companies say they can’t secure financing from commercial banks without some kind of government-backed financing or guarantee, which most developed countries offer through their own Ex-Im banks.Ethiopian Airlines’s Mr. Gebremariam said he hopes to buy more than two dozen planes from Boeing in coming years, but will consider going to European rival Airbus Group SE if the U.S. Ex-Im Bank stays out of business.“There’s definitely an impact on our expansion and growth,” he said. “Some economies in Africa are considered high risk, so banks wouldn’t be able to finance us directly without Ex-Im backing.”

In a letter sent to Boeing officials last week, Comair Ltd., an aviation company based in South Africa, said a continued lack of U.S. Ex-Im Bank support would force the airline to borrow in foreign currency. But doing so, given the volatility of its local currency, the rand, would “expose Comair to too great an exchange-rate risk on its balance sheet,” said CEO Erik Venter.Boeing said such sentiments reflect private conversations it has been having with customers for months. “They want to keep buying American, but the uncertainty over the future of the Export-Import Bank is forcing them to consider other options,” said a company spokesman. Boeing, a strong proponent and major beneficiary of the bank, expects it to reopen. But an extended shutdown would prompt Boeing to consider moving work offshore to compete for contracts that require Ex-Im backing, Chairman Jim McNerney said last month.General Electric Co. MMGEMM is already doing so, to make it easier for its customers to use Ex-Im funding from other countries, such as Canada, France and Hungary. In Hungary, where GE has manufacturing facilities, the export-import bank is providing a loan to Bresson AS Nigeria Ltd., a power-generation company, to buy GE turbines for new plants in Nigeria, said Barakat Balmelli, a financial adviser to Bresson on the deal.

Hungarian officials are looking to increase their level of new export-import-related lending to €1 billion, or about $1.1 billion, by the end of the year. Last month the government expanded agreements between its Ex-Im Bank and local Hungarian commercial banks.

Ms. Balmelli said Bresson chose to work with Hungary’s Ex-Im Bank partly because of the U.S. shutdown. “You have other countries changing their policies to accommodate these new business opportunities while the U.S. is just fiddling about,” she said.61ae8-exim-bank1

Last week, the U.S. Ex-Im Bank’s Republican supporters moved to bring the bill reauthorizing the bank to a vote. The procedure would force a vote on the bill, which is backed by nearly all Democrats and many Republicans, later this month.

Meanwhile, small U.S. companies, which can’t relocate or move jobs overseas, are feeling the brunt of the bank’s closure. W.S. Darley & Co., a maker of firetrucks and related gear, said the shutdown already has cost it a contract worth about $7 million.

The customer’s loan didn’t get final Ex-Im Bank approval, and since W.S. Darley’s contract was contingent on that financing, “that sale could just be gone,” said Chief Operating Officer Peter Darley.

With projects falling out of the pipeline, employees at the Itasca, Ill., company are worried about their jobs, he said. “It hurts us. We had a lot of good momentum,” he said, referring to building firetrucks for foreign cities and towns.

Featured Image -- 2741“We might be losing projects we’re not aware of,” he said. “If a buyer knows that Americans don’t have an open Ex-Im, they might not even knock on the door, or invite us to the bid table.”

Write to Kimberly S. Johnson at Kimberly.Johnson@wsj.com

http://www.wsj.com/articles/shutdown-of-u-s-ex-im-bank-puts-companies-in-a-financing-bind-1444093160

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