Indonesia has ambitions on “OPEC-like” cartel for nickel

A growing number of reports over recent weeks suggest that Indonesia is seeking to establish a cartel similar to OPEC for the world’s major producers of nickel.

Indonesia is home to around quarter of the world’s reserves of nickel, the metal used in battery-making. The country wants to expand its role as a major source of nickel for electric vehicle (EV) batteries as demand grows for greener transport across the markets of North America, China and Europe.

It is proposing the creation of an OPEC-like organisation to coordinate supply. OPEC, aka the Organisation of Petroleum Exporting Countries, includes the biggest oil producers such as Saudi Arabia and other Middle East countries. The influential alliance coordinates supply and prices of oil among members.

An Indonesia-led cartel for battery metals would likely face opposition from both the European Union (EU) and the US. Nonetheless, Indonesia’s Investment Minister Bahlil Lahadalia pitched the idea to Canada’s International Trade Minister Mary Ng at a meeting on the sidelines of the recent Group of 20 Summit in Bali, according to a ministry statement. The government also held talks with Australia, which together with Indonesia holds the world’s largest reserves with around 21 million tons each.

However, at present the Philippines and Russia are respectively the world’s second and third-largest nickel producers. In addition, Russia accounts for almost 20% of the global supply of Class 1 nickel, which is the grade needed for batteries, according to the International Energy Agency (IEA).

An alliance of mineral-rich countries will help to unite government policies and push the development of the downstream industry, Lahadalia said. Indonesia produced one million tons of nickel last year, while Australia and Canada had combined production of 290,000 tons, according to a US Geological Survey.

The idea is the latest by Indonesia after a series of initiatives to meet the ambition of becoming a global battery hub for EVs. Its decision to ban exports of nickel ore since 2020 has prompted the European Union to submit a complaint with the World Trade Organisation (WTO).

“Through such collaboration, we hope all nickel producing countries can benefit from the creation of additional value of the commodity, equally,” said Lahadalia. 

Camellia Huang is Investment Analyst at Aubrey Capital Management, which recently increased its exposure to Indonesia. She says that is well known that the country has abundant natural resources including nickel deposits which make it the largest global supplier of the raw material. In 2021 Indonesian mines accounted for over 35% of global supply. This year, output has increased by 41% meaning that, year-to-date, Indonesia has supplied 47% of the world’s nickel.

“The dominant position in this market meant that, in 2020, Indonesia’s government decided to take advantage of the growing demand generated by the electric vehicle manufacturers and banned raw nickel exports,” Huang confirms. “As a result, battery and EV manufacturers such as CATL and Tesla have formed partnerships with local companies – as evidenced by Tesla’s US$5 billion nickel purchasing contract to develop domestic refining and processing facilities. This has led to a lasting job and wealth creation rather than just a simple revenue stream from exports.”

She adds: “The rise of commodity prices has been benefiting Indonesia’s trade balance and fiscal position. This in turn allowed the government to increase the 2023 infrastructure budget by 8% and set a circa US$90 billion investment target for next year. Other initiatives such as easing regulations to enable further job creation, increasing minimum wage by 7% and increased support for the national health insurance programme will help consumer confidence of the population that exceeds 270 million – of which, Generation Z and the millennials make up over half.”

China’s Eximbank partners in US$1 billion ASEAN infrastructure fund

Asian asset management firm ARA, now owned by real estate platform ESR Cayman, has closed a US$1 billion infrastructure fund with Export-Import Bank of China (Eximbank).

The China-ASEAN Investment Cooperation Fund1 II (CAF II) will invest in ASEAN countries across various infrastructure, energy resources including renewables, and information and communications Technology (ICT) sub-sectors, with a “strong focus’ on sustainability and environmental, social and governance (ESG) standards.

ARA Private Fund’s infrastructure arm, ARA Infrastructure, has also been appointed as an investment adviser by Eximbank, the main anchor sponsor of the fund.

Eximbank, Gezhouba Group Overseas Investment Corporation, China Road & Bridge Corporation, and ARA are collectively committing US$1 billion to CAF II.

ESR acquired ARA last year in a US$5.2 billion deal. Both have traditionally focused on logistics real estate but have expanded into the data centre space. ESR is developing facilities in Japan, South Korea and Hong Kong.

Jeffrey Shen and Stuart Gibson, ESR Co-founders and co-CEOs, said: “We are very proud of our ARA Infrastructure team for setting up the largest ASEAN-focused private infrastructure fund. We thank our partners and investors for their support and recognition of our Group’s sterling fund management expertise and track record as APAC’s largest real asset manager.”

Chen Bin, Vice President of Eximbank, said: “I’m very glad to see that with the strong support of government departments and the joint efforts of respective LPs, CAF II is now set up. We hope CAF II can help enhance connectivity, trade, and investment cooperation between China and ASEAN countries, so as to contribute to the economic cooperation and trade in the region.”

Founded in 1994, Eximbank acts as a financial arm of the Chinese government to implement state policies in industry, foreign trade, diplomacy, and the economy. Its loans have previously funded a data centre in Cameroon.

Nigeria “needs functional financial market to hedge risks”

Nigeria’s financial professionals need to have a functional financial market to address currency volatility and the country’s rising interest rates, says their representative body.

The call came at the recent conference “Getting through the uncertainties of supply chain disruption, currency volatility and inflation”, held in Lagos by the Association of Corporate Treasurers of Nigeria (ACTN) and FMDQ Securities Exchange.

FMDQ Group’s chief executive, Bola Onadele, commented that the Nigerian finance market has a chequered history and lacks the product diversity and depth to help the nation effectively manage financial risks.

He said with food and energy prices hitting record highs, inflation is rising around the world and the prospect of a “cost of living” crisis looms for many people across the globe. Inflation had doubled in 37 of 44 advanced economies over the past two years, and Nigeria had not been spared from the worst effects of these global shocks.

“To combat rising inflation, the Monetary Policy Committee of the Central Bank of Nigeria (CBN) has raised interest rates thrice this year to 15.5%, its highest level since 2006. Despite this and several other efforts geared towards protecting the economy, currency volatility and rising interest rates remain very important financial risk factors for all corporate treasurers in Nigeria today,” he said.

ACTN’s President and Chairman of Council, Mrs. Victory Olumuyiwa, said the conference was a platform inspired by the Corporate Treasury Practitioners’ commitment to making positive and impactful contributions to the global relevance of its Nigerian business economies while contributing to strengthening the country.

“This conference is the first in the series of strategic engagements to inform, educate, highlight, partner and deliver on what will become the foundation for growing the relevance of Nigerian business economies with a focus on our global relevance,” she said.

US convenience stores challenge card giants

America’s National Association for Convenience Stores (NACS) is challenging card processing restrictions imposed by Visa and Mastercard through a new commercial that calls on them to allow additional networks to process bank card transactions.

The group, a member of the Merchants Payments Coalition (MPC), references Visa’s sponsorship of the FIFA World Cup by calling out the company for refusing to allow competition over swipe fees. The advert depicts a soccer game held in a packed stadium. As players attempt to score goals, images of credit cards and messages from the ad’s narration appear.

Free market competition – Main Street businesses do it every day and consumers are the winners,” says a narrator. “But what happens when we let credit card companies play by different rules? Americans pay the highest swipe fees in the world, up to 3% or more, nearly $1,000 a year in unfair hidden fees for families. That’s why Main Street businesses and consumers support the Credit Card Competition Act. It takes free market competition to have fair fees.”

Doug Kantor, MPC executive committee member and NACS general counsel commented: “Visa is spending untold millions of dollars to promote competition in soccer even though it refuses to allow competition over swipe fees and how transactions are routed.

“Visa says it wants to give football fans from around the world the best way to pay, but it should start by allowing competition over the hidden fees that are charged every time soccer fans and other consumers use a credit card. “If competition is good on the soccer field, it’s good on the swipe fee playing field as well.”

The commercial follows a letter sent by the MPC to members of the US House and Senate, signed by more than 1,800 retailers nationwide, that request the legislators support the Credit Card Competition Act. The act would allow at least two unaffiliated networks to process credit card transactions that carry the Visa or MasterCard brand, including networks like American Express, Discover, NYCE, Star and Shazam. It excludes networks that foreign governments support.

HSBC predicts pound will rally against dollar

The pound sterling, which recently neared parity with the US dollar for the first time in 37 years, will benefit from a rebound in global sentiment next year predicts HSBC, which says that the UK's ills are now well understood and incorporated into the market.

The pound to dollar exchange rate (GBP/USD) has lost 12% in value over 2022 on fears of a deep UK recession and as global equities fell into a bear market, confirming the strong positive correlation between the exchange rate and global sentiment.

However, the forces that pushed USD higher over recent months are fading and 2023 will be a year in which the tide turns against the greenback, the bank believes. “The USD has performed v very well over the last 18 months, but a number of the forces that propelled it towards its highest valuation in decades are seen losing ground,” says Paul Mackel, Global Head of FX Research at HSBC.

The dollar has benefited from the downward impetus to global growth, but this momentum “is starting to show signs of petering out suggesting the low point of the cycle could be approaching, especially relative to very bearish consensus expectations.”

The sharp rise of US interest rates resulting from the Federal Reserve’s fight against inflation has been another key source of support, but this too should wane. “USD rates remain elevated compared to other currencies, but the speed of further gains is likely to slow from here,” says Mackel.

“A bottoming in global growth dynamics alongside and a stabilisation in yields may provide a better backdrop for risk appetite, which could further weigh on the USD,” he adds.

The GBP meanwhile displays the inverse relationship to risk: when risk is ‘on’ the pound rises, but when it is ‘off’ it falls. “GBP has had a very strong tie to risk appetite in recent years, and so a rebound in global sentiment will also help to boost GBP from somewhat undervalued levels,” says Mackel.

Bank of Japan partners on digital yen development

While Japan was recently singled out as one of the countries “blowing cold” on the concept of a central bank digital currency (CBDC) – see Industry Updates 10 November – its central bank is continuing to experiment with a potential digital yen.

The Bank of Japan (BoJ) has begun a collaboration with three megabanks and regional banks to conduct a CBDC issuance pilot, reports local news agency Nikkei. The pilot aims to provide demo experiments for the issuance of Japan’s national digital currency, starting next spring.

The trial is expected to see the BoJ cooperate with major private banks and other organisations to detect and solve any issues related to customer deposits and withdrawals on bank accounts. According to the report, the pilot will also involve testing the offline functionality of Japan’s possible CBDC, targeting payments without the internet.

The CBDC experiment is scheduled to have a duration of about two years, with the BoJ making its decision on whether to issue a digital currency by 2026, the report notes.

The announcement comes as countries around the globe increasingly launch CBDC research and development initiatives, with countries such as China at the forefront. A few, such as Denmark have dropped out of the race although no central bank has ruled out the possibility of launching a CBDC completely.

Fitch predicts growth for Islamic finance in Bangladesh

The Bangladeshi Islamic finance industry is set for further growth over the medium term, driven by rising public demand, new branch openings, and supportive government policies, a Fitch Ratings analysis predicts.

Many conventional banks are focusing on Islamic products, either by opening new Islamic branches or windows, or by converting into full-fledged Islamic banks. Islamic capital markets remain nascent, but the government started issuing domestic sovereign sukuk in 2020, with its fourth auction in April 2022. This supports fiscal funding diversification and enables Islamic banks and takaful firms to invest their liquidity. Structural issues include underdeveloped regulations and a weak banking sector.

Fitch says that more lax prudential requirements have supported Islamic banking growth and motivated conventional banks to provide Islamic products. The regulator, Bangladesh Bank, has set the statutory liquidity ratio limit for Islamic banks at only 5.5%, against 13% for conventional banks. Islamic banks also benefit from higher prudential limits, such as an advance-deposit ratio at 92% in contrast to 87% for conventional banks. Fitch expects the Bangladeshi Islamic finance industry to surpass US$58 billion by the year end.

Bangladesh’s positive economic growth prospects – real GDP growth of 5% is forecast for 2023 – due to rising private consumption, exports of ready-made garments, government spending and investment, should support Islamic and conventional banking performance over the medium term.

The Islamic finance industry faces long-standing challenges, including Islamic banks’ limited branch and digital banking networks in rural areas – where 61% of the Bangladeshi population resided in 2021, according to the World Bank. Fitch says that its regulatory framework is underdeveloped, with a lack of sukuk investment options and Islamic derivatives or hedging instruments, low awareness of Islamic products, lack of standardisation, inadequate fintech usage, lack of incentives for sukuk issuers, and under-skilled human capital.

The Bangladeshi financial sector is also underdeveloped in general. The banking sector’s asset quality, capitalisation, governance and regulatory quality are weak, especially for public-sector banks. Banking penetration remains very low and around 47% of Bangladesh’s adult population lacked a bank account in 2021, and 8% of adults cited religious reasons for not having them, according to the World Bank. Insurance and takaful penetration was also very low at 0.5% in 2021. While a challenge, it underpins the high long-term growth potential for the Islamic finance in Bangladesh, which has the fourth-largest Muslim population in the world.

One in 10 data breaches directed at finance sector

As National Computer Security Day approaches on 30 November, latest data from the UK Information Commissioner’s (ICO) reveals the finance, insurance and credit sector is one of the top offenders for data breaches.

The ICO’s ongoing data security report has been analysed by UK data breach solicitors, Hayes Connor, to highlight the industries most affected by data breaches.

They report that the sectors with the highest percentage of data breaches since 2019 are as follows:

·         Health                                                                   19%

·         Education and Childcare                                      14%

·         Retail and Manufacturing                                        9%

·         Local Government                                                   9%

·         Finance, Insurance and Credit                                 9%

·         Legal                                                                        8%

·         General Business                                                     7%

·         Charitable and Voluntary                                          5%

·         Central Government                                                 4%

·         Land or Property Services                                        4%

Joint third with the finance, insurance, and credit sector is local government and retail, all making up just under one in 10 cases. This amounts to around 2,929 data breaches within each of the 3rd place sectors, out of the total 32,541 data breaches since 2019. At the top was the healthcare sector, making up almost one in five cases.

In the finance, insurance and credit sector, it takes over 72 hours to report 37% of their data breaches, which is against ICO regulations and is leaving the sector vulnerable to large fines.

Christine Sabino, Legal Director at Hayes Connor, said: “What’s concerning is the public puts a lot of trust in industries such as the health, government, and education sectors, with the expectation that their data is going to be handled securely. With so many of these data breaches being caused by human error, it’s very clear that these industries are in dire need of data handling training, at the very least.”