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BusinessDay 12 Apr 2018

Thursday

Thursday 12 April 2018 FT FINANCIAL TIMES C002D5556 BUSINESS DAY A1 World Business Newspaper University crackdown raises fears for Turkish academic freedom Detention of antiwar students seen as indicative of growing intolerant of dissident LAURA PITEL The hilltop campus of prestigious Bogazici University in Istanbul was long viewed as a sanctuary. But in recent weeks, its tranquility has been shattered. Armoured vehicles have entered the campus, police have raided libraries and accommodation blocks and more than two dozen students have been detained. The clampdown was triggered by a fight over Turkey’s military operation in the Syrian Kurdish enclave of Afrin. A student society set up a stand offering sweets in honour of those killed in the operation. Other students objected and a scuffle broke out. The dispute prompted a furious response from President Recep Tayyip Erdogan, who slammed the antiwar protesters as “communist, traitor youth”. “We won’t give these terrorist youth the right to study at these universities,” he vowed. Turkish officials insist that the arrests are a legitimate security measure aimed at quashing support for the outlawed Kurdish militant group that was the target of Afrin campaign. But critics view the clampdown at the state institution as a fresh salvo in a wider assault on academic freedom in Turkey. “Students don’t want to come to university because there are still undercover police on campus,” said Cihangir Oz, a first-year student. “People don’t feel safe. Everyone is asking: how can we create a scholarly environment when police are in the library and in the dorms?” Bogazici staff are proud of the university’s reputation for liberalism and have staunchly guarded its independence. In the 1990s, they defied the secularist generals by allowing female students to wear the Muslim headscarf on campus. But now, many fear, the Deal aims to ease border delays but two of the biggest economies have refused to sign university will no longer be able to avoid the growing pressure. Umut Ozkirimli, a Bogazici graduate and political science professor at Lund University in Sweden, said: “This is just the latest step in a process that has been going on for some time now. Everyone knew that Bogazici and the private universities could not remain unscathed. And now it has started.” The early years under Mr Erdogan’s Justice and Development Party (AKP) were viewed by many as a golden era for scholarly freedom, with space opened up for debate on subjects long considered taboo. But critics say that as the Turkish president has adopted an increasingly majoritarian style of leadership, infused with a religious form of Turkish nationalism, he has grown more intolerant towards dissidents. Mr Erdogan was enraged by a petition in 2016, signed by more than 2,000 academics, that criticised his government’s military operations against an outlawed Kurdish militia. The Turkish president described the signatories as terrorist supporters, prompting a wave of sackings and arrests. The crackdown accelerated in the wake of the violent coup attempted in 2016, which was followed by a vast purge of state institutions. A total of 5,800 academics were dismissed from their jobs, according to a tally by Turkey’s Human Rights Joint Platform. Some had ties to the Gulen movement, the Islamic fraternity accused of orchestrating the putsch, but others were leftists and liberals who maintain that they have no links to the group. Mr Erdogan also used the special powers granted under a state of emergency imposed in the wake of the failed coup to bestow himself with the power to directly select university rectors. One of his first appointments was at Bogazici, where he chose an engineering professor whose sister is an AKP member of parliament. Africa free trade pact raises hopes of prosperity JOHN AGLIONBY Venezuela stopped bond payments in September Page A3 While Charles Oppong and three other drivers prepared to spend a ninth night sleeping under their trucks at a border post, officials from Ivory Coast and Ghana blamed each other for such hold-ups. Pointing the finger at his Ghanaian counterparts, an Ivorian official complained that Ghana insisted on closing the border at 6.30pm every day. But 500m away, a Ghanaian immigration officer retorted that his country’s laws were “perfect”, adding that “the difficulties are with our neighbours”. Mr Oppong and his frustrated colleagues said there was a disagreement over how much duty should be paid as they crossed from Ivory Coast. Yet their cargo was hardly contentious — all they were transporting was empty milk cartons. “Hopefully we’ll get it sorted tomorrow,” he said. “But we’re luckier than some people. Some cargo is delayed here for a month.” Such problems are common across Africa as poor logistics, bureaucratic bottlenecks, decaying infrastructure and corruption are blamed for stymieing trade across the continent’s borders. Ivory Coast and Ghana are both members of the Economic Community of West African States (Ecowas), which allows Continues on page A2 UK businesses call for post-Brexit alignment with EU regulations CBI presents report on 23 sectors of the UK economy GEORGE PARKER Large swaths of the economy will be damaged if the UK deviates too far from EU regulations after Brexit, according to a new report from the CBI business lobby. Carolyn Fairbairn, head of the CBI, said the opportunities for business afforded by future regulatory freedom from Brussels were “limited” and that the majority of sectors want to stay close to current rules. She said that any gains from deregulation in some sectors are “vastly outweighed by the costs that will be incurred if the UK’s rules change so much that it reduces smooth access to the EU’s market”. The CBI said it had spoken to thousands of companies across 23 industries to provide Theresa May and her IMF chief warns trade war could rip apart global economy Lagarde says countries should ‘steer clear of protectionism’ CHRIS GILES Christine Lagarde warned on Wednesday that the rules that underpin global trade were “in danger of being torn apart” by protectionist forces in what the IMF managing director said would be “an inexcusable, collective policy failure”. Speaking at the University of Hong Kong, Ms Lagarde warned of the gathering threats of a trade war and the rapid rise in public and private debt around the world. But she stresses that the global economy continued to grow strongly and remained optimistic about the remainder of 2018 and 2019. Tit-for-tat tariffs announced by the US and China have sparked fears of a damaging trade war between the world’s two largest economies. “The multilateral trade system has transformed our world over the past generation. But that system of rules and shared responsibility is now in danger of being torn apart. This would be an inexcusable, collective policy failure,” she warned. Her concerns came in the week before finance ministers from around the world gather in Washington to discuss what the IMF chief said China accelerates opening to foreign financial groups Page A4 negotiators with a detailed breakdown of the kind of Brexit sought by business leaders. Asked whether Eurosceptic enthusiasm for breaking loose from Brussels might prevail, Ms Fairbairn said: “There are trade offs between control and access. Our ambition is simple: to make sure that kind of ideological debate can be properly informed.” The CBI survey, “Smooth Operations”, found that in 18 of the sectors surveyed, companies favoured convergence after Brexit: regulations that were either close to or identical to those in the rest of the EU. Ms Fairbairn said that Britain should seek a say over shaping those rules after Brexit, even if it would no longer have a formal say in the European Parliament, European Commission or the EU Council, where laws were “darker clouds looming” on the horizon. Ms Lagarde criticised the thinking of Donald Trump’s administration, while also directing her ire at Germany’s trade imbalances and the lack of proper protection of intellectual property and inefficient state subsidies in China. Tariffs “not only lead to more expensive products and more limited choices, but they also prevent trade from playing its essential role in boosting productivity and spreading new technologies” Ms Lagarde said, as she called on countries to “steer clear of protectionism in all its forms”. She hit at the Trump administration’s focus on the US bilateral trade deficit with Beijing, saying this was the result of complicated global supply chains in which China ran a significant trade deficit with other countries from which it imported component parts. She said the Trump administration should look closer to home to improve its overall trade deficit. “The US, for example, could help tackle excessive global imbalances by curbing gradually the dynamics of public spending and by increasing revenue — which would help reduce future fiscal deficits.” are made. “Alignment will need to come with mechanisms for influence and enforcement that benefit both sides,” she said, arguing that non-EU members such as Albania and Turkey had some say through EU agencies. Ms Fairbairn said there was “good engagement now” with ministers on the priorities for the EU trade negotiation; in the early months of Mrs May’s premiership relations between the CBI boss and prime minister were frosty. The report identified some sectors that were more enthusiastic about the possibility of regulatory divergence after Brexit, including shipping, waste and environmental services and water. It said that the agriculture, food and drink sector saw “limited opportunities” for divergence from EU rules, as did the hospitality trade. Germany, meanwhile, should use its excess savings, which drives its trade surplus “to boost its growth potential — including through investments in physical and digital infrastructure”. And in a passage aimed at China, she said an important trade policy reform package “includes better protecting intellectual property, and reducing the distortions of policies that favour state enterprises”. “Let us redouble our efforts to reduce trade barriers and resolve disagreements without using exceptional measures,” Ms Lagarde urged. The IMF managing director also sought to highlight fears for the continued growth of public and private debt, which IMF research to be published next week will say has reached an alltime high at $164tn. “Compared to its 2007 level, this debt is now 40 per cent higher, with China alone accounting for just over 40 per cent of that increase,” Ms Lagarde said. Without action being taken to reduce the build up of debt, countries were more vulnerable to shocks, as are the banks and corporate sectors of countries where debts had grown quickly, especially China and India.

A2 BUSINESS DAY C002D5556 Thursday 12 April 2018 FT Africa free trade pact raises hopes of prosperity... NATIONAL BlackRock’s gun-free funds show ethical investing is a good bet The investment manager is creating options for those who want to avoid firearms BROOKE MASTERS Americans fed up with gun violence now have the chance to speak with their purses. Last week, BlackRock, the world’s largest investment manager, said it was creating several options for investors who want to avoid AR-15 rifles and other civilian firearms. Gunmakers and most gun retailers will now be excluded from BlackRock’s broader socially responsible mutual and Continued from page A1 for duty-free shipments for products made in the 15-country bloc. That Mr Oppong and his fellow drivers were held up demonstrates the challenges for politicians and businesspeople trying to deepen economic ties. The hope is that such issues will soon be consigned to history following the signing last month of a landmark continent-wide free trade agreement. The African Continental Free Trade Area, which was signed by 44 African leaders, aims to reduce 90 per cent of tariffs to zero from the current average of 6.1 per cent. “We now have the construction for meaningful intercontinental trade,” Nana Akufo-Addo, Ghana’s president, said after the deal was signed. “An increase in trade is the surest way to develop fruitful relations between our countries, enhance development and attain prosperity.” There is big potential, analysts say. Africa boasts a market of 1.2bn people and a combined economic output of $2.5tn, according to the African Union. And the population is expected to double by 2050, the UN says. But intra-African trade accounts for only about $170bn, or 18 per cent, of the continent’s total annual formal commerce, according to the African Export-Import Bank. This compares with about 68 per cent for the EU. The UN’s economic commission on Africa estimated that if the new trade deal was fully implemented intra-African trade would swell at least 50 per cent within five years. But translating the leaders’ dreams into reality will be difficult. The continent’s two largest economies, Nigeria and South Africa, are among 11 governments that have refused to sign the agreement. Their leaders’ claims that they need to protect nascent domestic industries illustrate how national interests can hamper greater continental integration. Parfait Kouassi, an Ivorian businessman and deputy chairman of the country’s chamber of commerce, said he was “very sceptical” about the trade deal’s short-term prospects because of “so many officials’ narrow-minded thinking”. He recently wanted to build a medicine factory in Benin but “it just couldn’t happen because of the bureaucracy”. “If I want to export pharmaceuticals from here to [neighbouring] Burkina Faso I have to export them first to France,” Mr Kouassi said. Arancha González, executive director of the International Trade Centre, an agency mandated by the UN and World Trade Organization, acknowledged that implementation would be challenging, partly because Africa is “55 markets that are the product of history rather than the product of enlightened thinking”. exchange traded funds. Such funds have historically excluded companies that make cluster bombs, nuclear reactors and cigarettes, while favouring companies that are rated socially responsible. BlackRock’s institutional investors will be offered an even more targeted option: they can screen gun stocks out of their endowments and include gun-free index funds in their employees’ pension plan choices without going the whole hog on ethical investing. Zuckerberg This level of pointed shunning is unprecedented for BlackRock. The investment manager began looking at the issue after the February massacre of 17 people at Marjory Stoneman Douglas High School in Florida sparked widespread protests against the US’s lax gun laws. The move also comes shortly after BlackRock’s chief executive, Larry Fink, warned companies that financial performance was not enough — they must also “make a positive contribution to society”. That is a noble idea, but investors have long been wary about the potential impact on their portfolios of trying to do good, while also doing well financially. “Sin stocks” — companies that sell alcohol, tobacco, weapons and gambling — have historically done better than the broader market. And Norway’s recent experience tends to back this up. Its sovereign wealth fund began excluding such stocks from its Zuckerberg faces off with lawmakers over regulation Social network has ‘broader responsibility’ than just following the law, founder says BARNEY JOPSON Mark Zuckerberg said he was open to the “right regulation” of Facebook but did not commit to any specifics in a disasterfree grilling on Capitol Hill that added more than $17bn to the company’s market value. Investors responded positively to the Facebook founder’s five-hour testimony in front of a Senate committee, where lawmakers criticised the social network for how it exploits its users’ data and for the leak of information on 87m users to the research firm Cambridge Analytica. Facebook shares have been battered by concern that a string of controversies could tempt lawmakers to introduce profit-crimping regulation, but they rose throughout Mr Zuckerberg’s testimony and ended up 4.5 per cent. Mr Zuckerberg told senators he agreed that “we have a broader responsibility than what the law requires” to police the platform. He said he was not opposed to Congress introducing new laws to govern the company, but fended off attempts to pin him down on details and dodged a request to publicly advocate for one proposed bill. “Our position is not that regulation is bad,” Mr Zuckerberg said. “Our question is what is the right framework, not whether there should be one.” Facing persistent questions over the ethics of Facebook monetising users’ personal information, Mr Zuckerberg also left the door open to creating a paid form of Facebook with no ads, saying: “There will always be a version of Facebook that is free.” Chuck Grassley, the Republican chairman of the judiciary committee, said many Facebook users still did not understand the extent to which their personal information was “collected, protected, transferred, used and misused”. “At a minimum, consumers must have the transparency necessary to make an informed decision about whether to share their data and how it will be used,” Mr Grassley said. “The status quo no longer works.” John Kennedy, a Republican senator, put it more bluntly. “Your user agreement sucks,” he said. Mr Kennedy, who advised Facebook to rewrite its user agreement in plain language, told Mr Zuckerberg: “There’s going to be whole lot of bills introduced to regulate Facebook. It’s up to you to decide whether they pass.” Quizzed by Ed Markey, a Democrat, over a bill that would require any company that gathers personal data to secure explicit consumer permission to reuse it, Mr Zuckerberg said: “In principle that makes sense — and the details matter.” The Facebook founder also had reasonably warm words for Europe’s new rules on data privacy, known as the General Data Protection Regulation. “I think that [Europeans] get things right,” he said, while noting that “we have somewhat different sensibilities in the US”. Several Republicans put forward reasons to be cautious about new regulation, warning that it could turn into a barrier to entry that prevents start-ups from challenging incumbents with more resources to comply. Mr Zuckerberg concurred. “I agree with the point that when you’re thinking through regulation, across all industries, you need to be careful it doesn’t cement in the current companies that are winning.” Facebook has unveiled a barrage of initiatives designed to show Mr Zuckerberg is already addressing public and political concerns, and more carefully considering the implications of new features. In its latest reform, announced just hours before the hearing, Facebook said it was introducing a “data abuse bounty” programme to reward people who report any misuse of data by app developers. Asked by John Cornyn, a Republican, about Facebook’s erstwhile “move fast and break things” motto, Mr Zuckerberg elicited laughter from the room by saying: “Our current motto is move fast with stable infrastructure.” Beyond privacy, senators also raised issues of free speech and Russian meddling in US elections. “One of my greatest regrets in running the company is that we were slow in identifying the Russian information operations in 2016,” Mr Zuckerberg said. His testimony offered a muddled answer to questions about Facebook’s contact with special counsel Robert Mueller, who is investigating whether Donald Trump’s presidential campaign colluded with Russians. The company was “working with” Mr Mueller, Mr Zuckerberg said. “I actually am not aware of a subpoena. I believe that there may be”. Mark Zuckerberg opens hearing with an apology Facebook has done a U-turn in recent days by saying it now backs the Honest Ads Act, a narrow piece of legislation that would require tech groups to reveal more about the origins of political ads. Mr Zuckerberg, however, declined to pledge to lobby for it. As Lindsey Graham, a Republican, suggested consumers had no alternative to Facebook, Mr Zuckerberg said: “The average American uses eight different apps to communicate with their friends and stay in touch with people. Ranging from texting apps to email.” Asked whether Facebook had a monopoly, Mr Zuckerberg said: “It certainly doesn’t feel like that to me.” broad based equity investments in 2004. That decision has cost it about 0.1 percentage points a year. On the other hand, the fund calculated that excluding individual companies over specific environmental, human rights and other ethical issues had boosted its returns by 0.04 percentage points annually. Over a 12-year period, the fund estimated that ethical investing cut returns by 1.6 per cent compared with its equity benchmark. Hard questions for India’s private sector banks Doubts over performance of non-state lenders ICICI and Axis after surge in bad loans SIMON MUNDY A landmark moment for India’s male-dominated business sector came in the summer of 2009, when Chanda Kochhar and Shikha Sharma took charge of its two largest private-sector banks by assets. Both women had risen rapidly through the ranks at fast-growing ICICI Bank, and were the final two candidates in its search for a new leader. When Ms Kochhar won out, Ms Sharma swiftly departed for the top job at Axis Bank, another of the private lenders that were eating into the dominance of state-owned banks. But just as the two women’s career paths closely tracked each other on their way to becoming India’s first female private-sector bank heads, their lengthy tenures now threaten to come to an abrupt, near-synchronous end. The public drama surrounding them reflects growing scrutiny of lending standards at India’s large banks, and of the ability of major companies’ boards to hold their top executives to account. And as calls grow for the privatisation of India’s ailing state-run banking sector, it has highlighted the fact that some of the biggest existing private-sector banks face serious questions over their performance. On Monday evening, Axis’ board announced a sudden about-turn in its leadership plans. It had earlier granted Ms Sharma a three-year contract extension that would have kept her in charge until June 2021 — but she will now depart at the end of this year. The move followed local media reports that the central bank was resisting the extension, after Axis was hit by a surge in non-performing corporate loans. While India’s state-controlled banks have been the worst hit by rising business loan defaults, ICICI and Axis have been much more badly affected than other private lenders. Both have had a strong focus on corporate banking since their inception, and took part in an enthusiastic wave of industrial lending over much of the past decade. At 7.82 per cent and 5.28 per cent respectively at the end of December, ICICI’s and Axis’ respective bad loan ratios were by far the highest among private-sector lenders. But while Ms Sharma’s position was weakened by criticism of Axis’s financial performance, Ms Kochhar has been hit by allegations of a more serious nature.

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