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Modi set for third election victory as India’s economic boom continues – Industry roundup: 4 June

Modi third election win due as India’s economic growth streak continues

Counting of the votes has begun as India concludes its weeks-long national election. Although a predicted landslide victory now looks unlikely, the results are expected to confirm a historic third term in office for Prime Minister Narendra Modi and his ruling Bharatiya Janata party (BJP). The election, the longest and largest in India’s history with almost one billion eligible voters, began in mid-April.

Modi has been buoyed by his economic record over the past 10 years, a period of robust growth for India. The country went from the ninth largest economy globally to the fifth largest over the period, despite a sharp setback in 2020 during the early months of the Covid-19 pandemic. India also experienced the largest percentage growth in gross domestic product (GDP) over the decade compared to other major economies.

Data published late last week showed that India’s robust economic growth was maintained in the fiscal year that ended in March. GDP increased by 8.2%, according to the Statistics Ministry, cementing the country’s status as the world’s fastest growing major economy. The rate of growth even surpassed the Modi government’s forecast of 7.6%.

For the final quarter of the fiscal year from January to March, GDP expanded at a faster-than-expected rate of 7.8%, compared with the same period in 2023. GDP had risen by 8.6% in the October-December period.

“We expect economic activity to moderate a bit further over the coming quarters, but India will remain a global outperformer,” said Ankita Amajuri, assistant economist at Capital Economics. Assuming that Modi wins a third term, “any deceleration (in the economy) will be mild,” he forecast.

Sustained expansion will propel India higher up the ranks of the world’s biggest economies, with many analysts forecasting the country will reach number three by 2027 behind only the US and China.

India is widely regarded as the obvious alternative to China for countries and companies looking to diversify their supply chains, particularly as the relationship between Washington and Beijing sours. Many of the world’s biggest companies, including Apple supplier Foxconn, are already expanding their operations there.

“After China, India is the only economy that can achieve economies of scale, due to its large market,” wrote Nomura economists in a recent report, adding that it is among the few that is attracting investor interest across a variety of sectors.

Despite the euphoria surrounding the growth figures, economists say there are enormous challenges facing the Indian economy in the next decade. The new government has the task of creating hundreds of millions of jobs for a population that remains largely impoverished.

With an average age of 29 years, India’s population is one of the youngest globally, but the country is not yet able to reap the potential economic benefits from its favourable demographics.

A recent report by the Interrnational Labour Organisation (ILO) found that educated Indians aged between 15 and 29 are more likely to be unemployed than those without any schooling, which reflects “a mismatch with their aspirations and available jobs.” Youth unemployment rates in India are now higher than global levels, it added.

Another major long-term threat to the Indian economy is climate change. The country is paticulalrry vulnerable to extreme heat and some places there are pushing the limits of human survivability, experts say.

Last week, India’s capital territory of Delhi recorded its highest-ever temperature of 49.9 degrees Celsius (121.8 degrees Fahrenheit), and the oppressive heat wave forced authorities to impose water rationing.

Rising mercury levels in India risks reversing progress on poverty alleviation, health and economic growth, experts say. The country is “expected to lose about 5.8% of daily working hours due to heat stress in 2030,” warned a United Nations’ Economic and Social Commission for Asia and the Pacific (ESCAP) report in April.

“The problem is most severe for outdoor workers, particularly those employed in agriculture and construction, but also relevant for indoor factory workers,” it added.


Economic challenges for Mexico’s first female leader

Mexico’s first female leader, President-elect Claudia Sheinbaum will take office on 1 October from her predecessor and political mentor, nationalist President Andrés Manuel López Obrador. He leaves a stable economy reflected in a strong currency, but also challenges including a security crisis and a widening budget gap.

The most pressing task for the incoming president and former mayor of Mexico City, economists say, will be to lower the fiscal deficit that her predecessor increased in his last year in office to complete infrastructure projects and step up welfare spending.

Sheinbaum’s other big challenges range from managing migration and delicate relations with the United States to tackling pervasive criminal violence and mitigating climate change. Priorities include lowering a poverty rate that exceeds 30% and addressing the increasing effects of climate change in a country facing drought and water shortages.

In this year's budget, Mexico's public deficit stands at 5.9%, the largest in decades. As she seeks to cut spending, Sheinbaum will have to decide what to do with Pemex, the world's most indebted oil company, which has become a drag on public finances.

Mexico is notorious for crime. It was evident during the election season, which was marred with violence – several candidates were killed.

“The ominous spread of organised crime and flourishing cartels is the most daunting problem Sheinbaum will need to confront,” says Michael Shifter, an expert at the Inter-American Dialogue think tank in Washington DC.

Roughly 80 people are murdered every day in Mexico, including around 10 women and girls, despite outgoing Obrador’s “hugs not bullets” policy of tackling crime at its roots. More than 100,000 people are missing and desperate relatives organise their own searches for remains.

If Sheibaum is unable to halt the “dramatic deterioration” in Mexico’s security situation, advancing her economic and social policy agenda will be “extremely difficult”, Shifter said.

The environmentalist-turned-politician has committed to eradicating impunity and, similar to Obrador, addressing the root causes of violence by bringing in measures such as expanding youth programmes. She has also vowed to reinforce the National Guard and intelligence agencies and enhance coordination with police and prosecutors.

Sheinbaum inherits a fiscal deficit of almost 6% of the gross domestic product (GDP), the largest in a quarter of a century, despite Obrador’s austerity pledges.

“The most important challenge for the next administration will be to correct the high fiscal deficit,” said Victor Ceja, chief economist of financial services firm Valmex.

To fund direct aid programmes for 25 million young, elderly, and disabled Mexicans and implement necessary reforms, the president-elect must find ways to increase state revenue.

“There’s a lot she needs to spend money on, and there’s no money,” said Pamela Starr, a professor at the University of Southern California. “The infrastructure is creaking. Electricity is a problem.”

Against this are more positive trends. Although the Mexican peso came under pressure in the immediate aftermath of Sheinbaum’s victory, the currency remains one of the best performers against the US dollar in the past two years.

Geopolitical trends are also favourable for Mexico’s current economic prospects. Amid growing US-China tensions – likely to persist regardless of who wins this November’s US elections – there is optimism that Mexico will benefit from the relocation, or ‘nearshoring’, of supply chains. There are signs this is starting to materialise as Mexico has overtaken China as the US’s largest trading partner.


Turkish economy grew by 5.7% in Q1 on robust domestic demand

Turkey’s economy expanded by 5.7% in the first quarter of 2024, official data shows, marking one of the world's highest growth rates at the start of the year that matched market forecasts, driven by robust domestic demand despite tight monetary policy, a slowdown in the economies of main trading partners and devastating earthquakes in February.

Growth is expected to moderate during the rest of the year as the central bank’s The Central Bank of the Republic of Türkiye’s (TCMB) series of aggressive interest rate hikes in response to high inflation weigh on economic activity.

Treasury and Finance Minister Mehmet Şimşek said thanks to rule-based, predictable policies, the country is heading toward more balanced and sustainable growth this year. ʺIndicators for Q2 indicate that the balancing of the economy continues. We see balanced growth in 2024, with a positive contribution from net foreign demand,ʺ Şimşek said

Vice President Cevdet Yılmaz said that Türkiye has maintained uninterrupted economic growth for 15 consecutive quarters in an environment where "political stability and security ensure economic predictability."

The country's gross domestic product (GDP) reached lira (TL) 8.8 trillion (US$285.57 billion) in the January-March period, the Turkish Statistical Institute (TurkStat) said. The annualised national income has reached a new historical peak of nearly US$1.16 trillion, Yılmaz wrote on social media platform X, formerly Twitter.

Turkey has become the fastest-growing economy compared to European Union (EU) and G-20 countries that have announced their first quarter data, said Trade Minister Ömer Bolat.

The central bank raised its benchmark policy rate by a total 4,150 basis points in a tightening cycle since last June, the latest one to 50% in March, citing deterioration in the inflation outlook. For the past two months it opted to,keep the one-week repo rate unchanged, considering the lagged effects of the monetary tightening, and vowed to tighten further if the inflation outlook worsens.

Annual inflation is expected to hit around 75%bthis month according to officials and market forecasts. It is seen declining in the second half due to the tighter policies. Earlier this month, the central bank revised up its year-end inflation forecast to 38% and said it would "do whatever it takes" to avoid any longer-term deterioration of inflation outlook.

In January and February, inflation climbed 6.7% and 4.53%, respectively, largely due to a big minimum wage hike and an array of new-year price updates. In March and April, the rise slowed to around 3.2%. Annual inflation stood at 69.8% year-over-year last month.


IFC launches US$4 billion MSME finance platform for emerging markets

IFC, a member of the World Bank Group, launched a new initiative to aid financial service providers in delivering funds to small businesses in emerging markets, with a particular focus on those owned by women and those in the agriculture and climate sectors.

The MSME Finance Platform (the Platform) will provide a financing package of up to US$4 billion from IFC’s own account to banks, non-bank financial institutions, microfinance institutions, and innovative digital lenders that focus on micro, small, and medium enterprises (MSMEs). This support will be available to both new and existing IFC clients.

The Platform will also use various forms of credit enhancement to mobilise private capital, including an innovative Catalytic First Loss Guarantee, aiming to attract an additional $4 billion in financing from eligible financial service providers to expand lending to these businesses.

“Micro, small, and medium enterprises form the backbone of most developing economies, yet they face significant financial barriers that hinder their potential,” said Makhtar Diop, Managing Director of IFC. 

“Our new financing platform addresses these challenges head-on, empowering financial service providers to extend critical support to these businesses, particularly those that are women-led or environmentally focused.”

MSMEs constitute over 90% of all firms and account, on average, for 60-70% of total employment and 50% of gross domestic product (GDP) worldwide. However, according to the SME Finance Forum, there is currently a roughly $5.7 trillion financing gap for MSMEs.

In emerging markets, MSMEs and the informal sector are essential to economic growth, job creation, and poverty alleviation. Recent crises have financially weakened financial service providers, limiting their ability to meet increasingly stringent lending requirements. 

As a result, businesses in emerging markets and developing economies are experiencing a credit contraction due to tighter credit conditions, rising interest rates, and a limited appetite for risk. As the largest development finance institution supporting the private sector in emerging markets, IFC is well-positioned to assist financial service providers.

IFC will leverage its risk capital to extend first loss protection to eligible financial service providers, which often have ample local currency liquidity but limited exposure to MSMEs due to the segment’s perceived high risk. 

Through this mobilisation approach, the MSME Platform aims to create a financing solution through capital optimisation structures and potentially redirect substantial amounts of local currency financing to businesses.

The Platform will be supported by the International Development Association’s Private Sector Window (IDA PSW) to help de-risk the credit and foreign currency exposures in projects in low-income countries. 

Up to US$100 million will come from the IDA PSW Blended Finance Facility (BFF). Additionally, resources from the Global SME Finance Facility (GSMEF) and the Women Entrepreneurs Opportunity Facility (WEOF) will be allocated to support and incentivise lending to businesses in the agriculture sector and women-owned MSMEs.


Malaysia pledges US$100 billion-plus in semiconductor industry investment

Malaysia’s Prime Minister, Anwar Ibrahim, has pledged at least 500 billion ringgit (US$107 billion) of investment for its semiconductor industry to boost the Southeast Asian country’s position in the global supply chain.

Malaysia is a major player in the semiconductor industry, accounting for 13% global testing and packaging. It has attracted sizeable dollar investments from leading firms in recent years, including Intel and Infineon.

Anwar said the investment being sought would be for integrated circuit design, advanced packaging and manufacturing equipment for semiconductor chips.

Malaysia also wants to establish 10 or more local companies in design and advanced packaging for semiconductor chips, with revenues between US$210 million to US$1 billion, Anwar said in a speech at an industry event. The government will allocate US$5.3 billion in fiscal support to meet these targets, he added, although without offering a timeline for the targets to be met.


Saudi entrepreneurs set up fintech to spur open banking in GCC

Jeddah-based fintech startup Thimsa aims to streamline business payments with direct bank transfers as it launches a beta platform in the United Arab Emirates (UAE) and Bahrain, targeting the region’s open banking growth. 

Co-founded by two Saudi entrepreneurs along with a financial expert, the startup seeks to facilitate instant business-to-business (B2B) pay-ins and payouts, while also offering eInvoice and subscription features. 

The projected growth of open banking in the Gulf Cooperation Council (GCC) countries has motivated Rayan Azab and Salah Khashoggi to partner with Dubai-based fintech entrepreneur Ash Kalra to spearhead the venture after four years of market research. 

The launch comes as open banking is projected to account for over US$124 billion worth of transactions in the GCC region alone by 2031, up from US$14 billion in 2020, with an annual growth rate of 22%, according to a report by Allied Market Research. 

In an interview with Arab News, Azab said: “The journey took about three to four years, but realistically, we started this year with the different experience we have.” He added that they have studied the market and know that fintech usage in the region is one of the highest in the world thanks to a young, vibrant generation across the GCC.

“We have advised and partnered with in a couple of other fintech companies, and then we decided (to found the company) since the open banking regulation has been implemented in the last few years,” Azab said. 


Israel launches digital shekel CBDC challenge

The Bank of Israel has unveiled its Digital Shekel Challenge, following the announcement of a central bank digital currency (CBDC) sandbox in April.

The central bank is inviting participants from Israel and abroad to participate in developing innovative use cases. Inspired by the Bank for Settlements (BIS)and Bank of England’s Project Rosalind, the Challenge will focus on connecting to the CBDC system using APIs. The closing date for applications is 11 July.

The Bank has suggested a variety of use cases, including split payments, micropayments, various types of conditional payments and sub wallets.

Contestants will be selected based on several criteria; the top two are the innovative nature of the use case and its compatibility with Israel’s economic needs. The third is the extent to which it meets the outlined objectives of the digital shekel.

Those objectives include: competition; innovation; redundancy and resilience of the payments array; cross-border; payments privacy; and reducing the use of cash by making the Digital Shekel more accessible to population groups that frequently use cash.

The design of the digital shekel as well as central bank communications have stressed the need for Israeli banks to become more competitive. For example, the digital shekel could be interest bearing. Should banks fail to pass on rate increases to depositors, the central bank could possibly do so directly.

While the CBDC is designed as a two-tiered system, in other countries it is more closely tied to banks. Israel has emphasized that a CBDC wallet supplied by a non-bank payment provider will still be able to top up from a bank account.


APAC ʺadvancing in cross-border carbon capture and storageʺ

The Asia-Pacific (APAC) region is rapidly emerging as a key player in the carbon capture and storage (CCS) sector, according to research by Rystad Energy.

The Norway-based independent energy research and business intelligence company reports that Asian countries are intensifying their decarbonisation efforts, despite challenges for several countries in the region, such as unsuitable geological conditions for carbon capture, utilisation and storage (CCUS).

Rystad’s research highlights Australia, Malaysia and Indonesia as emerging hubs in the APAC region, driven by the carbon dioxide (CO2) storage potential in their depleted oil and gas reservoirs and stricter environmental regulations, despite recent improvements and updates in policy.

The increasing recognition of the potential of these reservoirs, combined with the urgency to reduce emissions spurring demand for CO2 storage, position the region to attract a substantial portion of the up to US$15 billion in anticipated investment in CCUS across APAC, which is expected over the next decade.

The report identifies Southeast Asia as a promising contender in the region, offering some of the most cost-effective CO2 storage options across the APAC region. This attractiveness has prompted countries like Japan and South Korea, eager for cross-border solutions, to forge alliances with counterparts such as East Asian companies, as well as Southeast Asian and Australian players.

Notable among these are Malaysia’s Petronas, Indonesia’s Pertamina and Australian companies like Santos and Woodside Energy. This growing regional collaboration is fuelled by the high population density and constrained domestic infrastructure in certain Asian nations, compelling them to explore storage solutions beyond their borders.

Momentum is already building on policies in Australia, Malaysia and Indonesia to address regulatory gaps and pave the way for them to become key CO2 storage hubs in the region. The availability of depleted oil and gas fields, combined with ample storage capacity, infrastructure viability and supportive regulations, further incentivizes CO2 storage initiatives in these countries.

ʺThe race is on for CO2 mitigation leadership in APAC,ʺ says Sohini Chatterjee, Senior Analyst, Rystad Energy. ʺPolicymakers are taking steps to close regulatory gaps to fully unlock the CCS value chain and create a friendly investment environment through project incentives. Ultimately, the region with the most cost-effective solutions and a clear path for CO2 storage will win. Strong government action, encompassing financing and establishing a standardized CCS framework, will also be vital.ʺ


UK challenger bank SilverRock secures banking licence

UK start-up challenger SilverRock Bank has received authorisation with restrictions by the Prudential Regulation Authority (PRA). It follows the completion of a £50 million (US$63 million) funding round that is expected to see the bank through its mobilisation and full launch phases.

SilverRock will predominantly partner with non-bank and specialist lenders to support them with forward flow agreements and portfolio acquisitions, with current growth plans projecting a target balance sheet of £3 billion by 2029.

According to its website, SilverRock excludes direct lending from its agenda and instead it aims to become the UK’s “go-to bank” for funding as a service solutions for lenders.

The bank will commit to purchasing loans or assets regularly from its lending partners, offering a reliable source of funding for lenders while diversifying the bank’s own investment portfolio.

The company will look at asset types including residential owner-occupied mortgages, residential BTL mortgages, SME-focused asset-backed finance, commercial BTL mortgages, and unsecured lending. Lending is scheduled to start later this year.

Alan Jarman, who has 38 years of retail and corporate banking experience and been integral to three bank licence applications previously, has been confirmed as SilverRock’s CEO. “This is the first time that a bank has been established in the UK to focus support on non-bank and other lenders,” he noted.

Jarman believes that this market had the potential for “significant expansion” as the sector responds to new and emerging customer needs. “Our focus is on ensuring the borrowing needs of SMEs and consumers in non-standard credit markets can be met,ʺ he adds. “That approach will in turn support and facilitate innovation among lenders, enabling them to better respond to the challenges and opportunities in the UK market.”

Veronika Lovett, co-founder of Esme Loans, has been named as chief commercial officer and deputy CEO.


Dutch neobank Bunq aims to attract digital nomads

Dutch neobank Bunq is reportedly aiming to return to the UK after four years. Founder and CEO Ali Nikham says that the company hopes to obtain a banking licence from British regulators.

“I hope we’ll get somewhere by the end of the year, maybe early next year, because the UK’s processes may be slightly different to Europe because it’s a different regulatory area,” Niknam said in an interview at the Viva Tech conference in Paris. “I don’t know when they’re going to say yes, but so far I have little reason to believe that we won’t be successful.”

Bunq had launched in UK in 2019 but had to exit the country the following year due to Brexit. The law changes associated with that shift meant that European financial institutions were unable to use their own authorizations to do business in the U.K.

By returning to the UK, Bunq hopes to attract the country’s 2.8 million “digital nomads” — ex-pats, remote workers and others not bound to one country.

“These individuals have embraced a lifestyle that combines work with travel, leveraging technology to work remotely from anywhere in the world,” a recent report by noted.“As this concept gains momentum, countries worldwide … are recognising the potential economic, tourism and innovation benefits and are introducing special visas or residency programs tailored to attract remote workers.”

For example, Japan earlier this year said it was launching a digital nomad visa, which enables uses to visit nearly 50 countries to live and work in the country for up to six months at a time. South Korea also introduced a “workation visa” earlier this year, which allows remote workers employed by foreign companies to stay for up to one year.

Bunq could struggle to get approved, as rival fintech Revolut has spent years trying to obtain a banking licence in the UK.

“We’re working as hard as we can, the UK regulator has been very responsive, dialogue is ongoing, I don’t know how long it’s going to take, but things seem to be moving,” Niknam said.

Earlier this year Bunq’s shareholders signed a commitment letter to provide €29 million (US$31 million) of capital to fund the company’s growth. The new commitment followed the majority shareholder’s injection of €125 million up to December, Bunq said in its 2023 annual report, which also noted the company now has more than 11 million users.


Qatar Central Bank launches digital currency project

Qatar Central Bank (QCB) has announced completion of the development of infrastructure for its central bank digital currency (CBDC) project. The initiative will serve as a proactive step to keep pace with the rapid global developments in this field, it added.

The Bank confirmed that, after successfully completing the study, it will proceed with testing and developing selected applications for the CBDC to settle large payments with a group of local and international banks in a trial environment designed according to the latest advanced technologies.

The project will focus on the applications of the CBDC to increase access to capital markets for operating banks in the country, enhance domestic settlement, and improve the efficiency of securities transactions.

This project, due to enter its first experimental phase extending to October 2024, aims to achieve a set of primary objectives, including leveraging artificial intelligence technologies, distributed ledger technology (DLT), and emerging technologies and establish a strong foundation to enhance liquidity by expanding participation in financial market facilities, considering the aspects related to information security during project implementation.

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