In the past decade, leaving aside the Covid-19-induced recession, Spain’s economy has performed better than the European average. The year 2024 looks to be no different; Spanish GDP is expected to expand to double the average in the euro area: between 1.9% and 2.1%, according to different estimates, versus a range of 0.8% to 1% for its peers. And this is likely to remain true in 2025 as well.

“Things are going great, but the engines of growth are being exhausted.” says Miguel Cardoso, chief economist for Spain at BBVA Research.

A generous fiscal policy, which has helped support the economic expansion, is expected to turn more restrictive soon. Productivity growth remains anemic, and the cost of labor is rising faster in Spain than elsewhere in the region. A dearth of reasonably priced homes only adds to the strain caused by higher inflation and social security costs. Meanwhile, the solid export numbers that turned the current account positive, after decades in the red, are likely to take a hit due to weaker demand from Spain’s European neighbors.

The reforms that followed the financial 2008-2009 crisis fixed the banking system, spurring a multitude of acquisitions that has sharply reduced the number of institutions and made the industry more stable, says Juan Dolado, professor of economics at Carlos III University in the Madrid’s greater metropolitan area. After a decade of restructuring, Spanish banks are showing record profits.

“The issue now is that they have extra profit, if anything,” says Dolado, noting the controversial 4.8 % tax the government has imposed on revenue from interest and fees at the largest Spanish banks.

In May, Banco Bilbao Vizcaya Argentaria (BBVA) launched a hostile €12.23 billion bid over smaller rival Banco de Sabadell. The aim is to create a lender with more than 100 customers and assets above €1 trillion—second only to Santander in Spain. After the drastic consolidation that reduced the number of Spanish lenders to 10 from 55 before the 2007-2008 global financial crisis, the Spanish government opposed this deal saying that such a merger could be harmful to customers and jobs.

If banks are more solid today, private lending remains subdued, with limited demand in a climate of low private investment.

 “We are struggling to understand the weakness of investment ourselves,” says Oriol Carrera Baquer, senior economist at Caixabank, although this could change with lower interest rates and a pickup in manufacturing across Europe.

“Firms have postponed investment decisions,” says Francisco Quintana, director of investment strategy at ING in Madrid, and lower rates could prompt them to make their move in the coming months. Another factor is the €120 billion in EU recovery funds that Spain is expected to receive.

“In total, Spain is going to get 10% of its GDP, and the execution is halfway through, with a likely acceleration this year and next,” Quintana says.

More fundamental changes are highlighted by Spain’s shift from a traditionally in-the-red current account, thanks to energy imports, along with a positive trend powered by tourism—around 15% of GDP—and new export categories including automobiles and services.

BBVAs Cardoso notes that services like IT, translations and aspects of consultancy are acquiring a larger presence, suggesting that Spain’s export surge is less dependent than it was previously on the whims of its European neighbors.

“We do not know much about where our exports of services go,” says Cardoso. “We know that quite a bit goes toward Europe, but also another bit goes to the US and Latin America. Those might be related to Spanish firms providing services to their subsidiaries, but they might also be related to high value-added services that were produced in the US. Given the appreciation of the dollar against the euro and the higher growth of wages, it has become more profitable to produce those services from Spain.”

Prospects are bright for investment banking, as well, say some close observers. Despite a dip in the total value of deals, the market for mergers and acquisitions in Spain remained relatively strong last year, according to Barcelona-based law firm Cuatrecasas.

Cuatrecasas expects a slight increase in M&A activity in 2024, assuming interest rates stabilize, the gap between sellers’ and buyers’ valuation of target companies narrows, and banks retain their “considerable amount of dry powder.”

“Strategic sectors will remain dominant,” a recent Cuatrecasas report predicted. “Investors will continue to opt for and be active in strategic sectors, particularly in the technology and energy sectors (probably focusing on renewable energies).”

Renewable energy is “the jewel of the crown,” says ING’s Quintana, and the list of 2023 deals is substantial. Canadian asset manager Brookfield bought the 50% of Spanish renewable energy company X-elio that it still did not own from the US buyout fund KKR for €1.8 billion. French fund Antin launched an €866 million bid for Opdenergy. Amazon reported €670 million of new investments in renewables, while Spanish utility Iberdrola sold a 49% stake in its portfolio of 1,200 megawatts of green energy to Norges Bank for €600 million.

EU budget requirements for member states are still under discussion, but Spain, whose 2023 deficit was around 3.6% of GDP, is expected to tighten up its public spending.

Some economists are pushing structural reforms aimed at improving the country’s productivity by boosting education and creating a less fragmented job market, for example. But political uncertainty remains a nagging problem.

In Madrid’s latest show of volatility, Prime Minister Pedro Sanchez announced that he was stepping down last month, but then, after five days of street demonstrations and statements of support from political allies, he announced he would remain in office. Behind the high drama is a degree of political paralysis that some observers find more disturbing.

“But I don’t think [Sanchez’s about-face] is really that meaningful for the evolution of the economy,” says Caixabank’s Carrera. “Right now, we have a Parliament that is very divided and polarized. This means that it is hard to push forward meaningful structural reforms. And this is what matters.”

For the better part of a decade, Turkey has hardly presented itself as a happy hunting ground for investors. Since the attempted coup of 2016, when it lost its sovereign investment grade rating, erratic policymaking—especially on the monetary side—and a succession of short-lived appointments to the central bank have combined to keep foreign money on the sidelines.

The Turkish lira has lost some 80% of its value against the US dollar over the past five years, hitting an historic low of more than 30 to the dollar in January. Inflation remains high, at around 65%, with the current account a worrying 4% to 5% of GDP.

Yet those who wrote Turkey off after last May’s presidential election, which saw Recep Tayyip Erdogan return for a third five-year term as president, have so far been proven wrong.

In February, an inaugural $500 million bond offering by the Turkey Wealth Fund (TWF) attracted orders totalling some $7 billion, suggesting the country will be active on bond markets this year; some $10 billion is expected to be issued this year, similar to the 2023 total. The TWF holds shares in some of Turkey’s leading companies, including Turkish Airlines, Borsa Istanbul and local energy giant Botas, leading observers to anticipate further offerings, particularly as the yield on the five-year bond dropped to 8.3%, below the targeted level above 9%. Turkish five-year dollar bonds are currently trading with a yield around 7.6%, which is competitive for an emerging market.

Tourism last year reached record arrivals of almost 50 million visitors, up 10% from 2022, and income from tourism rose 17% to $54 billion. In January, the auto industry notched record export earnings of almost $2.8 billion. Both were good news for the current account deficit.

Fatih Karahan, the new governor of the Central Bank of the Republic of Turkey, has shown greater determination than his predecessor to bring inflation to heel. Interest rates now stand at 45%, versus 8.5% nine months ago, and a complex web of unorthodox financial regulations is slowly being dismantled. Turkey watchers were also reassured that the change of governor—the seventh since 2016—was not the result of presidential dismissal; Karahan’s predecessor resigned for a range of reasons, some personal.

Analysts say the credible team of Karahan and Finance Minister Mehmet Simsek, appointed after last year’s elections, has helped transform Turkey’s prospects. Simsek—previously deputy prime minister, and an analyst with Merrill Lynch prior to that—is seen as guiding policymaking, and his presence reassures markets.

“Turkey had no choice but to return to rationality,” says Erich Arispe, Turkey analyst with Fitch Ratings, says of the new team. “This time last year, our sovereign rating was B with a negative outlook; now it’s B with a stable one.” He warns, however, that some clouds are still on the horizon.

“The big question is how durable the policy adjustment is, and how much political space there is for monetary and fiscal tightening,” Arispe argues, even though policymakers are insisting they will do whatever it takes to reduce inflation. The hit to growth—which is expected to fall this year to 2.5% versus 4.5% in 2023, when the economy was buoyed by preelection spending—will be considerable if inflation is to be significantly reduced.

Early signs are that the tightening is working, but some analysts think rebalancing will take longer than many expect.

“Fourth-quarter GDP data showed that private spending has accelerated despite an increasingly restrictive policy stance,” ING economist Muhammet Mercan and emerging markets strategist James Wilson told clients in February, “while leading indicators point to further GDP acceleration in Q1 this year. This implies there is still a long way to go.”

The good news is that much of that continued growth reflects strong investment, with machinery equipment and the construction sector both looking healthy. The planned construction of four new airports, a new superfast train that aims to connecting Istanbul to Ankara in just 80 minutes by 2035, and investments worth 210 billion Turkish lira ($6.5 billion) in the southern city of Mersin following the construction of Turkey’s first nuclear power plant there, all suggest that Erdogan has not lost his passion for big infrastructure projects.

Most analysts remain upbeat about the private-sector impact of the return to orthodoxy and higher interest rates—and a depreciating lira, which has dropped 40% since last year’s elections.

The European Bank for Reconstruction and Development “has been active here for 15 years, and we feel [Turkey] is vibrant and very resilient,” says Rafik Selim, the EBRD’s lead regional economist in Istanbul. Last year, the bank invested a record €2.5 billion ($2.7 billion) in Turkey, including sums sent in response to the February earthquake and substantial commitments to green projects, bringing total investments to €19.5 billion in 440 projects, making Turkey the EBRD’s biggest country of operation.

“The private sector and small to midsize enterprises will be key drivers of growth,” Selim says, “as Turkey takes advantage of its big domestic market and of major nearshoring opportunities, made more attractive by the close long-term relationship with the EU.”

Turkey has made strides in investment in human capital, Selim notes, particularly in the less-developed eastern part of the country—and in digital transformation and renewables. Significant investments in solar and wind energy will bolster long-term sustainability and improving energy security, key for a country not blessed with abundant fossil fuel sources.

In March, the government unveiled a 57-point, two-year investment action plan “to facilitate and simplify the legislation, administrative and judicial processes related to the investment environment,” giving priority to projects promoting digital and green transformation.

The big challenge now will be for Turkey to step up its efforts to attract foreign direct investment. In a recent speech, Burak Daglioglu, head of the Presidential Investment Board, noted that the country had attracted $262 billion in foreign investment since 2003, helping it transition from a low-middle income country with per capita income around $3,000 a year to a high-middle income economy with an average of $13,000 per capita and foreign companies accounting for 8.4% of private-sector employment.

Difficult economic conditions have encouraged a brain drain in recent years, however, along with large-scale capital outflows, which last year amounted to some $20 billion. Although much of this could be characterized as hot money, the pullback suggests that Turkey could be doing more to attract long-term investment from abroad.

“Although FDI is positive in net terms—last year it was $10.6 billion, or around 1% of GDP—it is not as high as it was or as Turkey really needs,” warns the EBRD’s Selim, who points out that in the boom years of 2005 to 2008, enthusiasm for Turkey’s then reform path pushed FDI to around 3% of GDP. The reasons are many, including the Covid pandemic, wars in Ukraine and Gaza, and a global trade downturn. “Turkey is not disconnected from what’s happening in the wider region,” Selim cautions.

On the plus side, it seems investor confidence is returning. The Borsa Istanbul All-Share index is up more than 20% in dollar terms this year, outperforming other indexes—although with inflation still running around 65%, real interest rates remain negative.

The positive response to last month’s Turkish bond issuance is another plus; foreign capital inflows are critical. Should confidence in the lira fall too far, however, observers say authorities need to be prepared for all contingencies, including a rise in the current account deficit and unmanageable pressure on the Lira Deposit scheme, which offers individuals protection against exchange rate fluctuations and is currently worth some $80 billion. “Even in time of stress, unlike other similarly rated countries, Turkey has been able to maintain market access,” Fitch’s Arispe notes.

Ahead of local elections at the end of March, Erdogan had promised voters that the focus on growth would resume once Turkey surmounts “the difficulties” it must tackle in 2024. Analysts greeted that reassurance of no deviation from the current orthodox monetary policy as good news.

“Investors need stability and certainty, not least that the return to orthodox economic policies will be sustained,” EBRD’s Rafik says.

With Kuwaiti lenders embracing new technologies through fintech partnerships and substantial in-house innovation investment, all of the emirate’s major banks now offer a wide array of digital products and services. “Kuwait’s banking market is experiencing a surge in digital banking solutions as customers increasingly opt for convenient online banking solutions,” says Abdulwahab Al-Rushood, acting group CEO of Kuwait Finance House (KFH), the country’s biggest bank. He predicts investment in digital will continue to grow rapidly.

With a majority of Kuwaitis under the age of 35, demographics are a driving force. “This young population is typically more adept at and dependent on technology for managing their daily lives, including their financial transactions,” says Salah al-Fulaij, Kuwait CEO of National Bank of Kuwait (NBK). 

The Central Bank of Kuwait (CBK) is encouraging change. In 2022, it rolled out a licensing process for digital banks. For now, neobanks remain the side projects of established local lenders—NBK launched Weyay, Boubyan Bank has Nomo, and KFH has Tam—but other applications from other financial institutions and telecom operators are reportedly in the pipeline.

The CBK is also encouraging cloud computing, digital onboarding, and enhanced cross-border payment systems. While Kuwait may appear more conservative than neighboring Dubai, the regulator is moving in the same general direction, seeking to “create a balance between utilizing and encouraging technological growth in the field of financial services and the protection of the Kuwaiti financial and banking sector,” explains CBK Governor Basel A. Al-Haroon.

Kuwaiti banks are already “focused on what’s coming next,” says Abdullah Al-Tuwaijri, CEO of Private, Consumer, and Digital Banking for Boubyan Bank, one of Kuwait’s fastest-growing lenders. “The technological turbulence is changing the way banks would generate revenue, by extending services beyond banking. Banks that become early adopters to new market trends will own the future.”

That future holds great promise. “The next phase of evolution will be even more dynamic” with the integration of AI and other emerging technologies, says Talal Bader Al-Othman, vice president of asset management at ABK Capital.

Banks are likely to leverage data-driven insights to enhance personalized services and streamline operations, Al-Rushood predicts. “There will be more reliance on AI and robotics, as adopting generative AI promises improvements in decision-making, profitability, fraud detection and prevention, and risk management.” Alongside AI, open banking—sharing data between banks and third-party providers through APIs—is the big change on everyone’s mind.

Historically, Kuwaiti banks have focused tightly on the domestic market, except when they follow rich Kuwaitis on their ventures in London, Paris, Geneva or New York. But today, they are increasingly looking to expand across the fast-growing Persian Gulf region.

“We will maintain our strategic focus on the Gulf Cooperation Council [GCC] projects market, which is poised for another significant phase of expansion,” says Al-Fulaij. NBK has a presence in Saudi Arabia, Bahrain and the United Arab Emirates, he notes, and is hoping to capitalize on “the remarkable growth observed in project-award activity surging.” Total contracts awarded in the GCC in 2023 reached $205 billion, according to Middle East Business Intelligence: an 88% year-on-year increase.

Aside from megaprojects, Kuwaiti banks are looking to bring added value to wealth management, notably in digital services. Last April, Boubyan’s Bank of London and the Middle East (BLME) subsidiary signed a strategic partnership with Abu Dhabi Commercial Bank and its Islamic subsidiary Al Hilal Digital Bank to roll out Boubyan’s neobank, Nomo, to customers in the United Arab Emirates. In May, the bank also opened BLME Capital, an investment subsidiary of BLME, Europe’s second-biggest Islamic bank, in Riyadh. Tuwaijri says it is “open to explore new markets.”

Populous Egypt is among the most attractive destinations for Kuwaiti banks. NBK’s subsidiary in Cairo has delivered “exceptionally strong results” thanks to a “strong financial position and ambitious digital agenda,” says Al-Fulaij. KFH, which acquired Bahrain’s Ahli United Bank in 2022, also has expanded its network beyond Bahrain: Saudi Arabia, Egypt, Turkey, Malaysia, Germany and more. “We will consider any opportunity for further growth,” says Al-Rushood.

With deep pockets and expanding tech offerings, Kuwaiti banks are ready to step up their game.

For at least a decade, one of the Gulf’s most democratic monarchy has been paralyzed by a political tug-of-war between leaders pressing to open the economy and those who would prefer to preserve a tightly controlled oil-rentier state. Today, the deadlock appears to be breaking.

Last month, Mohammad Sabah Al-Salem, Kuwait’s new prime minister, presented his government’s action plan to Parliament, including a package of fiscal and economic overhauls. The emirate, he said, can no longer “sustain a welfare state solely on depleted natural wealth.” The measures under discussion include allowing Kuwait to borrow on the international markets; letting commercial banks into the market for property loans, ending a monopoly long enjoyed by Kuwait Credit Bank; and widening the tax base with new corporate taxes on local companies. 

While most countries in the region are diversifying away from oil and gas, such sales still account for over 90% of both exports and revenue in Kuwait. Civil service wages and subsidies for FY 2024/2025 reportedly will make up 79.4% of public spending. Any threat to Kuwaitis’ somewhat cossetted lifestyle is bound to provoke controversy; but the new prime minister, who had held several state positions before resigning in 2011 to protest corruption, is reportedly popular among Kuwaitis, even in influential financial circles.

The country’s economic growth typically mirrors global energy market fluctuations. When oil prices were high in 2023, GDP recorded an 8.9% increase, according to IMF data. Last year, amid OPEC+ production cuts, it barely reached 0.1%. But the emirate’s oil and gas reserves have historically been a strong safety net, and it has plenty of funds for stormy weather.

“Kuwait’s financial institutions stand out not only as some of the largest and most resilient in the region but as some of the most profitable as well,” says Salah al-Fulaij, Kuwait CEO of National Bank of Kuwait (NBK), the country’s oldest bank and second-largest lender, with over $120 billion in assets.

The emirate’s juggernaut is the Kuwait Investment Authority, one of the world’s biggest sovereign funds, with over $800 billion and a net asset position that averages 470% of GDP. Local banks, both conventional and Islamic, are also exceptionally well capitalized and profitable. “The banking sector is a cornerstone of the economy,” says Ali H. Khalil, CEO of the Kuwait Financial Centre (Markaz), an asset management and investment banking firm. “This financial robustness not only cushions [the banks] against market volatilities but also positions them to capitalize on growth opportunities.”

Besides having its pockets full, Kuwait handles money with care. Citing “strong prudential oversight by the central bank,” the International Monetary Fund, in its latest Article IV mission statement, notes that “the impact of global banking sector turbulence on Kuwait’s banks has been muted.”

Kuwaiti lenders recorded strong financial results last year, notes Abdulwahab Al-Rushood, acting group CEO of Kuwait Finance House (KFH), the emirate’s biggest bank, which posted a record $1.5 billion profit in the third quarter (see sidebar, page 80). Banks also “showed strong financial-soundness indicators in terms of asset value, capital adequacy and liquidity ratios,” he says.

According to Central Bank of Kuwait (CBK) data, local lenders chalked up a collective 46.7% in year-on-year net profit growth for the first nine months of 2023, while their overall capital adequacy ratio stood at 18.3%, liquidity coverage at 178.2%, and net stable funding at 112.5%. These are “well above required ratios,” the regulator reports. Nonperforming loans were low, at 1.7%. “The Kuwaiti banking sector is able to face future challenges from a position of strength on the back of a more supportive economic environment,” says Basel A. Al-Haroon, governor of the Central Bank of Kuwait (CBK).

While the emirate has the coffers to stomach external shock, the CBK is one of the parties pushing for economic changes. “Large financial assets underpin Kuwait’s economic resilience, but these assets alone cannot substitute for the fiscal and structural reforms that would offset the risks of lower oil prices, low oil demand in the future, and rising marginal cost of production,” the World Bank warned in 2022.

The new prime minister’s government, appointed in January, was Kuwait’s ninth in four years; but if observers in finance are right, the ninth time might be the charm. As the minister of finance, former banker Anwar Al-Mudhaf raises particularly high expectations from industry stakeholders. “The stock market has reacted positively,” Markaz CEO Khalil notes. “The government’s new initiatives to diversify the economy are particularly favorable for the banking sector. By broadening the economic base, these initiatives will likely lead to increased business for banks.”

The new team also signals an “optimistic outlook” for NBK’s al-Fulaij. “Proactive stance on fiscal and structural reforms is expected to enhance economic stability and diversify revenue sources beyond oil,” he says. “Increased political stability and cooperation between the government and Parliament bode well for the swift implementation of crucial reforms, improving the overall investment climate and fostering a more conducive environment for businesses.”

The long-awaited new debt law, allowing Kuwait to access international debt markets, “would provide a structured approach to managing public finances and ensure prudent fiscal operations, issues the rating agencies have regularly highlighted as a weakness in their assessment of Kuwait’s sovereign ratings,” al-Fulaij says.

The new mortgage law could also be a “significant growth catalyst,” says Khalil. CBK data places total loan facilities in Kuwait at around 50 billion Kuwaiti dinars (about $162 billion). With a backlog of some 140,000 home applications for an average anticipated loan of 90,000 dinars per home, the retail loan book is expected to surge by some 12.6 billion dinars, Khalil notes. “This law will result in an annual loan growth of 5.25% incrementally over the current organic growth. Banks expect their loan volume to surge; but they remain unsure how that will translate into profits, since the new rules around mortgage pricing remain to be decided.

The government’s pledge to enact new corporate taxes on local companies follows Kuwait’s adherence in November to the OECD/G20 framework on Base Erosion and Profit Shifting.“Widening the tax base may impact corporate profits but will have a net positive impact on businesses, as the additional government revenue would be deployed in Kuwait’s non-oil sector,” Khalil predicts.

The fiscal and financial market restructuring dovetails with efforts dating back several years to attract foreign direct investment (FDI) by turning Kuwait into a trading hub connecting Europe, Asia and Africa—not unlike neighboring Dubai. To encourage capital transfers, Kuwait concluded the privatization of its stock exchange in 2019, prompting both MSCI and FTSE to upgrade the emirate’s status to emerging market.

“As Kuwait continues to develop and diversify its economy, investors are drawn to the opportunities presented by this dynamic and promising market,” says Talal Bader Al-Othman, vice president of asset management at ABK Capital.

According to the UN Conference on Trade and Development, Kuwait’s FDI inflow grew by 16.8% annually, to $758 million in 2022 from $348 million in 2017, but that number remains below target. Last year, FDI weighed only 0.2% of GDP, nine times lower than the regional average. Al-Othman, however, is optimistic. “Since the start of 2024, we have witnessed a significant upswing in investor interest,” he notes.

A year and a half after its $11.6 billion acquisition of Bahrain’s Ahli United Bank (AUB), Kuwait Finance House (KFH) is putting the finishing touches to the merger.

Late last year, the Central Bank of Bahrain approved AUB-Bahrain as a licensed Islamic lender, completing a conversion process that had begun several years earlier. The bank will now offer products and services compliant with Shariah law prohibiting interest-based loans or investments in activities like gambling or alcohol. In January, KFH also received approval from the Capital Markets Authority of Kuwait to execute the merger by amalgamation between KFH and AUB-Kuwait.

Sealed in 2022, the KFH-AUB merger was the region’s first cross-border consolidation. The deal creates the largest bank in Kuwait and the second-largest Islamic bank in the world, with $120.8 billion in combined assets.

Luiz Inácio Lula da Silva seems to log more time on his souped-up Airbus than he does at the Alvarado Palace, the presidential mansion in Brasília.

His jet-setting started in November with the COP27 climate summit in Sharm El-Sheik, where the then president-elect was “welcomed like a rock star,” according to the French newspaper Le Monde. He promised to clean up after his predecessor, climate skeptic Jair Bolsonaro, who oversaw a notable uptick in deforestation in the Amazon.

Since his inauguration in January for a second stint (on top of two terms from 2003-2011), Lula has visited over a dozen countries, outpacing even his American counterpart Joe Biden for his presence on the global arena.

Yet “Brazil remains closed,” states veteran Brazilian businessman Roberto Teixeira da Costa in a new book, “Is Brazil Afraid of the World? Discussing Brazilian Foreign Affairs and Challenges.” Of the world’s 15 largest economies, Brazil has ranked “among the lowest” when it comes to the importance of international trade to its economy, he said in the book. This even before Bolsonaro turned Brazil into a “pariah,” says the author, who founded and served as the first president of the Brazilian Security and Exchage Commission (CVM) and is currently chairman of the Arbitrage Chamber of the São Paulo Stock Market (Bovespa).

Relative to its size, Brazil scores lower than one would expect on international participation in all realms, including trade and historic incoming and outgoing FDI. Teixeira da Costa doesn’t blame foreign bullies for blocking Brazil. Instead, he quotes former President Fernando Henrique Cardoso: “Nothing makes Brazilians happier than isolation.”

Part diagnosis, part prescription, Teixeira da Costa’s book may serve as a primer for those who wonder why a continent-size nation of 215 million is often marked down as absent during important international roll calls. For Brazilians, it poses a series of Socratic questions designed to fuel debate, concluded reviewer Marcelo Consentino in the daily Estado de São Paulo.

“The thesis of the book is that Brazil fails to recognize the role it should play in international relations, and instead accepts a secondary role,” Teixeira da Costa says. “Brazil should become a protagonist.”

Many well-informed, well-meaning, and experienced Brazilians remain unconvinced, at least when it comes to the “just do it” modus operandi. “Brazil’s capacity is modest,” says Paulo Roberto de Almeida, a diplomat and director of international relations at the Institute of History and Geography of the Federal District University in Brasília. “First, because of its level of economic development, the average strength of its military force, and the limited resources devoted to international cooperation.”

National pride matters, as it does everywhere, but practical considerations loom large—including a longing to put to rest an old joke. Granted a permanent visa by President Getúlio Vargas during World War II, exiled Austrian writer Stefan Zweig published a book titled, “Brazil, Land of the Future.” Cynical Brazilians began to quip, “Land of the future, and always will be.”

Teixeira da Costa believes that greater international integration can help Brazil address sticky domestic problems, notably poverty and inequality, and help muffle that ostensibly antiquated joke. Brazil perennially ranks near the bottom on the Gini Coefficient, which measures economic inequality. At 12.4% in December 2022 (CEIC Data), Brazil’s low domestic savings rate means that it cannot go it alone. “We have to attract [foreign] investment,” said Teixeira da Costa.

Based on historical data, one would expect inflows from the United States and Europe. These traditional partners must shore up supply chains, given weaknesses revealed by Covid-19 restrictions and fallout from the Russian war in Ukraine. Brazil shores might seem to offer safe ports.

Reticence could be traced in part to the now infamous Custo Brasil (Brazil Cost), which Teixeira da Costa defined in the book as: excessive bureaucracy; high and complicated taxes; high labor costs; high social security costs; frequent regulatory changes; excessive legislation; and conflicts among federal, state and local governments. One example: As a technologically advanced, post-lockdown world adopts more flexible and creative working relationships, Brazilian labor laws remain mired in a model designed for early-20th century factories. “All of this insecurity messes things up,” says Lika Takahashi, head of equity strategy at Fator Asset Management in São Paulo, while referring to a few recent debates over big issues in Congress.

Abrupt alterations and intergovernmental conflicts create uncertainty. This inconsistency is particularly evident in the foreign policy realm.

Of the post-dictatorship presidents since 1985, Teixeira da Costa points to Cardoso and Lula as “particularly active abroad.” (He could have included Fernando Collor de Mello. Before his impeachment on corruption charges, Collor cut tariffs, facilitated foreign investment, hosted the 1992 Earth Summit in Rio de Janeiro, and signed the Mercosur regional pact with Argentina, Paraguay and Uruguay.)

Look at the contrasts between the Cardoso and Lula administrations. Cardoso proved “more balanced,” as Teixeira da Costa said in our interview, whereas Lula focused on South-South relations and what some would call “Third World-ist” policies. Now consider what the book calls the “Bolsonaro administration’s blind march toward Donald Trump’s America.” Add to that the lack of reliable foreign policy interlocutors in Congress or the business community. You can understand why outsiders might get weirded out.

One external actor appears willing to wade through the weirdness: China. As with the United States, Teixeira da Costa devoted an entire chapter to Brazilian-Chinese relations. Even under the watch of Trumpista Bolsonaro, “In the first half of 2020, for every dollar Brazil exported to the United States, US$3.4 went to China,” states the book.

Given his South-South proclivity and enthusiasm for the BRICS+, Lula might be expected to lean more firmly into China for FDI. With 11 members, the new BRICS+ accounts for over one-third of global GDP and nearly half of world population, though it is top-heavy with China on both accounts.

When it comes to prescriptions, Teixeira da Costa can seem exceedingly nitpicky and refreshingly specific. Do problems exist at all levels of government and business? Yes. And they can all be addressed. Poor language skills and understanding of the world? More and better education in those realms. If your company is big enough, the board should be required to examine opportunities abroad. Navel-gazing industrial associations should lift their heads and look around.

The 20th century Brazilian composer and poet (and career diplomat) Vinicius de Moraes, perhaps best known for his collaborations with Tom Jobim and other Bossa Nova personages, wrote the song “Medo de Amar (Afraid to Love).” A quarter of a century after de Moraes was expelled from the foreign service by the military dictatorship, it might be time for Brazil to overcome its fear of the global stage.

Or maybe it is time for Brazil to just get down and dirty. In the book, Teixeira da Costa recalls a comment he made in the 1990s to Bill Clinton’s special envoy to the Americas, Mack McLarty: “He who does not make dust, eats dust!” According to the Brazilian, they still get a laugh out of that one.

The earthquake that hit the ancient city of Marrakech the morning of September 8 was a calamity in more ways than one. Over 2,500 people were killed in the disaster, and thousands more injured and driven from their homes. But the quake also disrupted a tentative economic recovery in Morocco. Growth in the North African kingdom had stagnated at 1.2% in 2022, due to spillover effects from the war in Ukraine, the economic slowdown in the eurozone, and a severe drought that caused agricultural production to shrink 14%.

Prior to the earthquake, growth was expected to pick up, reaching 3% this year, according to S&P Global.

“The rebound in agricultural output and robust performance by the country’s main export-oriented sectors, notably tourism and automotive, supported economic growth since the start of the year,” Remy Carasse, director, Sovereign Ratings S&P Global, said before the quake hit. 

In April, Fitch maintained a BB+ rating for Morocco, praising it for sticking to tough fiscal controls in the face of post-pandemic economic shocks. The same month, foreign reserves stood at $41 billion, equivalent to six months’ worth of imports. Also in the spring, Morocco issued $2.5 billion worth of eurobonds and secured approval for a two-year, $5 billion flexible credit line from the International Monetary Fund (IMF), a precautionary measure aimed at enhancing investor confidence and a “consecration of the solidity of the country’s economic policy frameworks,” said Abdellatif Jouahri, governor of Bank Al-Maghrib, the kingdom’s central bank.

Morocco’s recovery was still fragile prior to the earthquake, however. Inflation hit 6.6% in 2022 and peaked above 10% in February; in response, Bank Al-Maghrib has gradually hiked interest rates by a total of 150 basis points. To cushion the combined impact on modest households of a stringent fiscal belt-tightening program and soaring consumer prices, the authorities extended subsidies on basic goods like wheat, gas, electricity and transports.

Last month’s disaster compounds these problems. The earthquake has once again disrupted agriculture, which represents 13% of the country’s GDP, and tourism. Reconstruction is expected to be costly, hampering economic growth into next year. An estimate by the US Geological Survey has the quake reducing Moroccan GDP by anywhere from 1% to 9% as the country struggles to rebuild housing and key infrastructure, and a lost harvest forces it to rely on foreign suppliers.

Morocco’s recovery will be another severe test of the free-market, investor-friendly, fiscally conservative path the government has now followed for decades. After a severe economic crisis in the 1980s that culminated in hunger riots and the adoption of an IMF/World Bank structural adjustment plan, Morocco has remade its economy.

“We really learned from our mistakes,” says Hassan Benabderrazik a Rabat-based economist. “We had our backs to the wall and there was suddenly a realization that our policies were no longer working and that we had to renew all our approaches profoundly. It started with the liberalization of foreign trade, meaning the end of a protectionist logic and cuts in custom duties. Then there was a financial-markets reform and a fiscal reform. Basically, we opened up to the world.”

In the late 1990s and early 2000s, Morocco signed free-trade agreements with the European Union and the US that created better conditions for foreign investment and boosted the competitiveness of Moroccan companies.

“Morocco completely changed axes,” says Benabderrazik. “What appeared to us as a natural East-West regional integration strategy with Mauritania, Libya, Algeria and Tunisia failed, and now we are following a South-North logic. Our first partner is the eurozone. We also took great advantage of the Brexit to strengthen our relations with the UK and the African continent.”

Heavy investment in infrastructure including electricity, water, roads, ports, airports, trains, and telecommunications and internet, along with tax incentives and adjustments in corporate law, have made Morocco a favored business destination. Multinationals such as Procter & Gamble, Coca-Cola, Colgate, Mondelez, Abbott, Whirlpool, Dutch automotive group Stellantis, Unilever, L’Oréal, Renault, Swiss Nestlé, Siemens, Samsung, and Volvo have all opened branches and factories in the kingdom.

Last year, the authorities amended Morocco’s Investment Charter to further boost private investment, aiming to raise it from one-third to two-thirds of all investment by 2035. Other recent reforms include restructuring the welfare system to increase health-care coverage while increasing the tax base.

Even the pandemic and the war in Ukraine had their silver linings, making Morocco a destination for European companies looking to outsource operations while keeping them relatively close by, to reduce transportation costs and avoid logistical hurdles and shortages and protect themselves from reputational damage.

“Economic growth will benefit from the completion of additional large-scale projects, the expansion of Morocco’s export capacity, the promotion of the private sector, and the implementation of socioeconomic reforms,” Carasse predicted before the earthquake. “A series of business-friendly reforms seeks to prioritize investment in digitalization and the modernization of the legal, institutional and regulatory framework.”

While foreign direct investment in Morocco decreased by 6% to $2.1 billion in 2022, greenfield investment quadrupled to $15 billion, highlighted by Total Eren’s (Luxembourg) plan to build a $10 billion hydrogen and green ammonia production plant. Morocco holds a staggering 70% share of the world’s phosphate reserves and is the fifth-largest exporter of fertilizers globally, but it also ranks among the world’s top 10 economies by international investment in renewable energies, according to the United Nations Conference on Trade and Development’s latest World Investment Report.

As the UNCTAD report suggests. the energy transition has become an opportunity and a priority for Moroccan authorities.

“We have a lot of sun and wind, which means we have the potential to produce renewable energies in better economic conditions than Europe,” says Benabderrazik. Green energy could help the country reduce its reliance on coal and lower the cost of electricity production, he argues, making the economy more competitive. Morocco is also exploring solutions to water scarcity, including several desalination projects powered by green energies.

The financial sector is also a strong point for Morocco as local lenders scale up across Africa and the Middle East. Today, three of Africa’s top 10 banks by assets are Moroccan; they were expected to continue growing through mergers and acquisitions this year.

Even before the earthquake, however, Morocco’s economic transformation left it facing numerous challenges.

“Morocco still has a large informal economy, wide income disparities between more and less developed areas, and high unemployment, especially youth unemployment,” Caresse noted. “These structural weaknesses, although they are lessening, weigh on the Moroccan economy.” Prior to the quake, S&P Global expected GDP per capita to increase gradually in coming years but remain below its peers.

In 2022, unemployment stood at 11.8% and remained especially widespread among youth and women.

Another hurdle is over-reliance on agriculture, which still accounts for 30% of employment and makes the economy especially vulnerable to global warming. Last year’s drought resulted in a 67% year-over-year loss in production, forcing the country to ban exports of certain crops.

Along with the overriding need to save lives and rebuild following a devastating natural disaster, Morocco expects to feel the consequences of the economic slowdown in Europe. Eurozone GDP is expected to grow only 0.9% in 2023, compared to 3.5% last year.

Moroccan entrepreneurs, however, are resilient. According a pre-quake PWC survey, 73% of the kingdom’s CEOs remain confident their companies can weather an economic slowdown at home and abroad.

Vietnam enjoys a wealth of the features that foreign capital has come to love. In an aging world, it boasts almost uniquely favourable demographics, as 40% of its population of 100 million are under 25. It has a 1,300-kilometer land border with China, and therefore direct access to that market of 1.2 billion consumers; low wage costs; and a large, well-educated labor force. Its manufacturing base, meanwhile, benefits from the problems of its neighbor to the north, and through its membership in ASEAN, it has tariff-free access to 800 million more people across Southeast Asia.

Outside investors are getting the message.

“The 2023 outlook for the business environment in Vietnam shows promising signs of improvement,” says Thierry Mermet, CEO of Source Of Asia (SOA), a consultant to companies looking for business opportunities in Vietnam and ASEAN. “The capital from foreign direct investments reached around $10 billion [over Q1 of 2023], showing a rise of 0.5% compared to the same period last year.” SOA projects the pattern to continue. “Our projections for the next quarter are looking just as positive. Companies are actually expecting similar levels of foreign direct investment to keep coming in.”

Longer term, he says, “Vietnam is really cementing its position as one of the top three places where European business leaders want to invest.” According to the Business Confidence Index report from EuroCham, he notes, “3% more leaders have picked Vietnam as one of their top three investment choices. It’s a solid indicator that we’re on the right track.”

Ninety countries have invested in Vietnam in the first half of this year; the top five are Asian countries, with South Korea in first place, accounting for $81 billion and Singapore second with $72 billion. Japan follows in third position with nearly $70 billion committed. Notably, while the US trails in seventh position with investment capital of $USBN, it is also Vietnam’s first key export partner, accounting for almost $110 billion in 2022.

“Thomson Medical Group is one of the largest Singaporean private providers of health care services for women and children, and is  set to buy FV Hospital [in Ho Chi Minh City] in what’s being called the biggest health care deal in Vietnam,” says Mermet. Valued at $381 million, the deal not only opens up a market presence in Vietnam for Thomson but positions the country “to leverage growing medical tourism opportunities from our neighboring countries.”

Another indicator of Vietnam’s pull is homegrown electric vehicle manufacturer VinFast, which recently became the world’s third-largest automaker by market capitalization, behind Tesla and Toyota.

“With shares surging 20%, VinFast’s valuation hit an impressive $191.2 billion,” notes Barry Elliott, vice president of Tomkins Ventures and a supply chain guru long active in Vietnam. “This not only signals a promising future for the EV industry in Southeast Asia in general, but also exemplifies Vietnam’s emerging prowess in manufacturing.” VinFast now has plans to establish a plant in North Carolina.

Vietnam is also benefiting from the fallout of the US-China trade war, as higher US tariffs on a wide range of Chinese exports drive companies to switch their manufacture of exports away from China toward alternative hubs in Asia.

“This trend has been further reinforced by the Covid-19 pandemic,” says Elliott, “as protracted disruptions created turmoil in global supply chains for many industries, including automobiles and electronics.” The Japanese government nudged the trend along in 2020 by introducing a subsidy program for Japanese companies relocating production out of China, either back to Japan or to certain other designated countries.

“Since 2020, Vietnam has been one of the preferred destinations for Japanese firms choosing to shift their production to the ASEAN region in the first round of subsidy allocations,” Elliott notes. “This trend continues.”

The US, meanwhile, is boosting its economic and technical ties with Vietnam as Beijing grows more assertive in the region.

The recently disclosed establishment of a “comprehensive strategic partnership” give the US a diplomatic status that Vietnam has so far reserved for only a handful of other countries: China, Russia, India, and South Korea. The move was confirmed by a senior Biden administration official and two people in Hanoi familiar with the matter.

The deal, expected to be announced officially during President Biden’s state visit to Vietnam in September, is the latest step by his administration to deepen relations in Asia. For Hanoi, the closer relationship with Washington provides a critical counterweight to Beijing’s influence.

“This shows that Hanoi is willing to risk angering Beijing but sees the move toward Washington as necessary, given how aggressively China is flexing its military muscle in the region,” says Derek Grossman, senior defense analyst at the Rand Corporation. “If you have the US on the same pedestal as China, that is saying a lot to Beijing, but also to the rest of the region and to the world. That’s saying the US-Vietnam relationship has come a long way since 1995,” when the two countries normalized relations.

On a recent trip to Ho Chi Minh City, Jacqueline Poh, managing director of Singapore’s Economic Development Board (ED,B) met with startups in financial services, robotics, and renewables. She noted the great influence of a returning diaspora with deep experience abroad, tagged approvingly by the Vietnamese as “sea turtles.”

“All have a can-do spirit, support for each other, and gumption,” says Poh. ”This heady mix has created a conducive local startup ecosystem.”

Poh also cited the growth of the Vietnam-Singapore Industrial Parks (VSIPs), the first of which were established in 1996 and now number 17 across 10 locations “The existing 14 VSIPs have garnered $18.7 billion in investment so far and have created 300,000 jobs in Vietnam,” she notes.

Incentives driving the rise in foreign direct investing, says Carsten Ley, founder and managing director of Asia PMO, which advises companies on operations in Vietnam, is a “China plus one” risk mitigation model aimed at forestalling on China by building redundancy in at least one other regional center. As a case in point, Ley cites Apple, which recently moved iPod production from China to Ho Chi Minh City, where most manufacturing is located. “Many Korean companies are also investing,” he says: “Samsung, LG on the IT side. Lego just opened a huge factory outside Ho Chi Minh.”

As this suggests, Vietnam is now moving up the value chain from shoes and garments toward high tech, including Vietnamese fintechs such as payment providers Momo, ZaloPay, and VNPay, and foreign startups.

“As a consequence of this and other factors,” says Ley, “a rapid growth in capital expenditure is expected, reflecting continued strong foreign direct investment by multinationals as well as domestic infrastructure spending.”Given the volume of large-investor interest, it’s no surprise that venture capital is becoming a presence in Vietnam as well. My Tran, principal of local VC investor Jungle Ventures, previously spent a year and a half at VinaCapital Ventures, which is the country’s largest local VC firm and now focuses on pre-A and A-stage investments.

Now based in Ho Chi Minh City—her firm “it’s called Jungle Ventures because we invest very diversely in emerging markets”—My focuses on industries including technology in Southeast Asia and India. Jungle Ventures’ five current investments in Vietnam include Kiotviet, a maker of POS/store management software; Edupia, the country’s largest on-line education company with over 500,000 student subscribers; Medici, an insurance and health care provider; Timo, a digital bank; and Dat Bike, the biggest electric bike manufacturer in South Asia.

VC funds in Vietnam are sourced from all over the world, My notes, with a growing interest from the west, including the US. Yet she acknowledges two main challenges.

“The regulatory framework, especially for financial services, is complex,” she says. “There are foreign ownership limits. But it is possible to invest in insurance, for example, up to limits.”

The second challenge is language and communication; Vietnamese over age 40 did not learn English in school, although it is now taught to all.

These issues notwithstanding, My remains confident. “The best is yet to come,” she says.

One of the world’s most economically shut off countries a decade ago, Saudi Arabia is now the fastest growing G20 nation and the Middle East’s most vibrant economy, thanks at least in part to Vision 2030, a radical reform program initiated by Crown Mohammed bin Salman in 2016.

“The Saudi economy is booming, spurred by high oil prices, a strong pickup in private investment and reform implementation,” said the International Monetary Fund in its latest Article IV publication.

The crown prince’s leadership has suffered the disfavor of Western governments, owing to the murder of Saudi journalist Jamal Khashoggi, a broad crackdown on dissent, and a long and bloody war in Yemen. But Saudi banks, among the wealthiest in the region, are riding the economic growth wave. Local lenders started 2023 on very solid ground; last year, the combined annual net profit of the top five banks reached $13.7 billion, and in the first four months of 2023, net profits at the top 10 banks increased another 2.7%.

“Saudi banks are globally among the best capitalized in a well-regulated environment,” says Asad Ahmed, managing director at global consulting firm Alvarez & Marsal’s Dubai office. “They are a key sector of a strong economy that has shown good growth and resilience.”

In June, Moody’s upgraded the Saudi banking system from stable to positive, noting, “Demand for credit is high and loan performance is improving, and this is likely to translate into robust profit for banks.” The aggregate capital adequacy ratio is strong, the IMF noted, pointing to Riyadh’s recent adoption of global compliance requirements including IFRS9 and the Basel III post-crisis reforms, while “profitability—driven by net interest margins—is high and above pre-pandemic levels, and the non-performing loans ratio is low and declining. … Strong performance of banks is underpinned by ongoing efforts to modernize the regulatory and supervisory frameworks.”

Reorganizing Assets

The Saudi financial sector has thoroughly reorganized over the past few years, in line with Vision 2030. The leadership’s master plan to diversify the economy away from oil, which still accounts for 70% of revenue and exports, includes consolidating the local banking sector to create regional players, cut costs and boost efficiency.  

Last year, National Commercial Bank and Samba Financial Group merged to create Saudi National Bank, the Arab world’s third-biggest lender with over $250 billion in assets. A year prior, Saudi Arabian British Bank joined forces with Alawwal Bank to create Saudi Awwal Bank, the kingdom’s fourth -argest lender with total assets worth $84 billion.

In line with the authorities’ ambitions, Saudi banks are expected to support the country’s rapid transformation: from funding infrastructure projects to boosting Saudi homeownership to increasing small to medium-size enterprises’ share of the economy. Between 2011 and 2022, Saudi banks’ loan volume increased at a 9.6% compound annual growth rate while deposits grew 6.8%, according to Boston Consulting Group, citing figures from the Saudi Central Bank (SAMA).

But while Saudi Arabia has ample liquidity, boosted in recent years by high global energy prices, a total economic revamp will also depend on its ability to attract foreign direct investment.

“The local banking system alone will not be able to cater to all the needs,” argues Mohamed Damak, senior director and head of Islamic finance at S&P Global Ratings, “and therefore, the country is working on the development of the local capital market and, at the same time, allowing some space for international players to help resources mobilization.” 

The strategy to mobilize international capital includes attracting foreign banks to set up in Saudi Arabia; the central bank has simplified the licensing process to encourage them to do so. In February, Bank of Jordan, Egypt’s Bank Misr, National Bank of Egypt, Oman’s Sohar International, Bank of China and the Trade Bank of Iraq were granted banking business licenses. They will join 16 other foreign banks including Deutsche Bank, BNP Paribas, JPMorgan Chase, Standard Chartered, Emirates NBD, First Abu Dhabi and Qatar National Bank, which have all entered the market in the past few years.

Building a Regional Tech Hub

Saudi Arabia also wants to position itself as a regional fintech hub, and its startup and fintech markets are growing exponentially, thanks partly to strong government and institutional support. Last year, Saudi fintechs raised $239 million, up 167% from 2021, according to Magnitt, a Dubai-based research firm. The kingdom saw 147 fintechs set up in 2022 from only 10 in 2018, but it hopes that is just a start. Last year’s fintech roadmap published by the government predicted that Saudi Arabia will be home to at least 525 fintech firms by 2030, creating 18,000 jobs and adding $3.5 billion to annual GDP. The authorities have also pledged to increase the share of bank SME loans from 5.7% in 2019 to 20% by 2030.

“There’s been a 180-degree shift in the attitude toward business in general,” says Amer Siddiki, a former Saudi banker who co-founded Themar, a Shariah-compliant crowdfunding platform in 2020. “It’s a fintech boom. The growth is there. The numbers are there. I meet so many people who are moving to the country just for that. There are lots of young, tech-savvy people, a lot of enthusiasm, a lot of vibrant energy. I feel the region now is coming out of its shell, and the world was not expecting it.”

Local lenders are stepping up their game in the digital space, be it through in-house development, acquisitions or investments in startups, innovation hubs or incubator programs. An open banking framework approved late in November, which allows third-party providers to access banks’ customer databases with application programming interfaces (APIs), is pushing Saudi lenders one step further, to practically reinvent themselves. 

All Saudi banks are currently working on fitting their operations to the new requirements, as open banking is now compulsory. In June, local lender Bank Albilad was the first to complete the process. As of that same month, 12 tech companies received their open banking licenses from the central bank. 

For foreign businesses, partnering with a locally licensed firm can be a way to penetrate a fast-evolving market without too much hassle. This was the case for London-based Strabo, a global consumer portfolio-tracking platform that has started expanding in Saudi Arabia through a partnership with Lean Technologies, the kingdom’s largest API provider.

“This means we have coverage of all of the top financial institutions there,” says Ben Waterman, co-founder of Strabo. “In years to come, this should be a pretty exciting opportunity.”

Saudi Arabia is also looking to be a leader in big data and artificial intelligence, a market that could grow to $150 billion in revenue in the GCC over the next several years, according to a recent study by McKinsey.

In this fast-changing environment, challenges remain. Entrepreneurs often cite the high cost of compliance in Saudi Arabia as an obstacle to growth. In a survey of 100 Saudi fintechs late last year by Impact46, a Riyadh-based asset management firm, and the global entrepreneur network Endeavour, half of respondents indicated they were spending more than $100,000 a year on compliance. 

“For us, the biggest challenge is the central bank requirements on cybersecurity,” says Siddiki. “I’m not saying it’s not right, but it’s a big drain on cash flow. We did not forecast those numbers.”

Access to talent is another difficulty. Local labor laws make it compulsory for tech firms to hire Saudi nationals for several key positions, such as compliance and cybersecurity.

“It’s going to be difficult to find the guys and to be able to hire those guys, because usually they are coming from banks that are ready to pay big amounts to keep them,” says Siddiki.

That said, strong liquidity positions and government support give the Saudi financial sector a leg up in its quest to become a regional leader and major world player. In parallel, the development of local capital markets will play a role in completing the kingdom’s economic transformation. Seven years from now, will these advantages be enough?

Lithuania is rapidly gaining a reputation among foreign investors as the most-friendly of the three Baltic states. The country’s reputation, built on digitalization, is also bolstering its appeal to tech startups from around the world.

Having made significant strides in digital, Lithuania is leveraging its flexibility to shape a future as a Baltic hub for tech startups and digital solutions. Test spaces for developers are among the benefits it offers.

Education and language skills—around 85% of young professionals in Lithuania are proficient in English, according to Invest Lithuania—government-funded initiatives, and Lithuania’s fintech sector has grown from a niche player in 2014 to employ over 40,000 workers, and its cybersecurity space now comprises over 110 companies employing 3,500 workers.

Growth in fintech and cybersecurity is bolstered by the sharpened focus of its universities and technology colleges on science, technology, engineering and mathematics (STEM). The country was ranked second of 63 countries in digital technological skills availability in 2022, according to the Institute for International Management Development’s IMD World Competitiveness Yearbook.

Focus on Talent

Lithuania’s focus on investor appeal is more comprehensive, however. In the early 90s, it developed a strategic network including seven free economic zones, or FEZs, which today are recognized as pivotal to its success in attracting FDI. Inward investment to Lithuania grew markedly after the country joined the EU in 2004 and the Organization for Economic Co-operation and Development in 2018.

Foreign and indigenous enterprises locating to one of the seven FEZs benefit from tax incentives including no tax on corporate profits during the initial 10 years of business, rising to 7.5% over the following six.

Lithuania also stands out within the EU for providing an e-government one-stopshop for public information and services. Enterprises benefit from a fast online system for registration and payment of taxes; tax returns are filed electronically using i.MAS, an IT-based tax administration system. Its deep pool of digital skills talent, too, is a major factor in attracting institutions like Danske Bank to capital city Vilnius.

“We have been outperforming our initial goals every year” since establishing a subsidiary in 2012, says Aistė Gataveckienė, head of functions and data services at Danske Bank in Lithuania.

“Our journey has been more than a successful. That’s down to the amazing team of overachievers we have found here.”

MobilePay, the mobile payments app used across the Nordic and Baltic regions, emerged from Danske Bank’s product development team in Lithuania.

The government aims to maintain its skills advantage. In January, to help attract highly qualified specialists in the priority skill areas of IT, it offered one-off relocation grants of $3,200 to move to Lithuania. The program includes financial incentives for employers that hire highly skilled employees, foreign and native, from abroad, in the form of tax breaks up to a maximum $5,400 for every worker hired.

Lithuania currently has income tax treaties with 47 countries in the EU, Eastern Europe, North America and Asia. The MII is expected to introduce a tax reform package by the end of this year, tailored specifically to attract skilled foreign IT and engineering talent. Under the proposal, an 8% income tax rate would be applied to the salaries of foreign talent relocating to Lithuania and a tax exemption for foreign startups would be extended from one year to two.

Inward investment accounted for almost 3.1% of Lithuania’s GDP last year, and Invest Lithuania, the state business development agency, has supported the entry of

428 international companies since 2010.

These “client companies,” which include Citco, Oracle, Wix, Cognizant, Intrum, SEB, Telia, Swedbank, Revolut and ThermoFisher Scientific, now employ over 25,000 personnel in Lithuania. Newer arrivals include German-owned abat Group, a systems analysisprogram development and services supplier to Mercedes, Volkswagen, BMW and DHL, with operations in Europe and North America. The firm found the AI integration and cloud computing talent it needed to help grow its global business inVilnius, says Thomas Bätge, CEO of abat Lithuania.

“We looked for qualified SAP experts fluent in foreign languages and for talents we could train up for consultancy positions and to work with both our local and global operations,” he notes. “As a location,

Vilnius has a vibrant high-tech sector and an attractive and stable environment. It has government support for new businesses, a high degree of digitalization and an urban infrastructure that’s attractive to employees and employers alike.”

UK fintech Hokodo has established a new business-to-business payments operations hub in Lithuania to complement its existing international payment solutions operations in London and Paris. The Lithuanian hub will initially serve Hokodo’s clients in the Central European, Nordic and Baltic markets. Hokodo purchased the Vilnius-based payments startup H Pay & Go in June as a strategic bolt-on to support its core business. Significantly, the acquisition included an electronic money institution (EMI) licence from the Bank of Lithuania.

“We needed an EU country with a regulator that is respected and recognized internationally and one that has the experience in dealing with fintechs as well as new financial business models,” says Richard Thornton, Hokodo’s co-founder and joint CEO. “We wanted access to a talented and educated workforce; a pool of people with payments experience across a range of disciplines such as antimoney laundering compliance, credit risk and payment operations. And we looked for a market strong in European languages skills. Lithuania ticked all these boxes.”

Aside from tax concessions, tech startups benefit from two government-funded initiatives—the Business Start-up Visa program and the Lithuanian Business Angels Network—aimed at reducing overhead and entry costs and easing access to markets in Europe, North America and Asia.

Another program, the government-funded GovTech sandbox, was launched in 2021 to drive public-sector innovation in the fintech and digital domains. The initiative is run by GovTech Lab Lithuania. Under GovTech, public authorities can apply for funding to procure pilot solutions—digital and new technologies—customized for public-sector use.

“It’s an initiative with global ambitions,” says Birutė Bukauskaitė, CEO of MITA. “We want Lithuania to become the launch pad for successful GovTech companies with ground-breaking and globally attractive solutions.”

The Bank of Lithuania launched its first regulatory test sandbox in 2018. A year later, the central bank launched LBChain, Lithuania’s first blockchain-based regulatory sandbox for international startups as well as financial and fintech companies. LBChain combines regulatory and technological infrastructures.

An ‘Unfair Tax’ on Banks?

If tech investors and entrepreneurs enjoy an open door in Lithuania, foreign banks may think twice, with the advent in May of a Temporary Solidarity Contribution (TSC) levied on bank profits.

Payable by all banks and credit institutions, the tax is charged against 60% of bbanks’ net interest income that exceeds the four-year average by more than 50%. The TSC is projected to raise $450 million annually to shore up government spending in 2023 and 2024.

Central bank chair Gediminas Šimkus says the levy will not become a “longterm tax,” but will target a variable share of banks’ profits. The International Monetary Fund observed that the TSC could be perceived as “a tax on foreign investments.”

“This is an unfair tax on banks,” says Eivilė Čipkutė, president of the LBA. The central bank counters that these fears are overblown. “The banking sector maintains very high profitability,” Šimkus says. “Banks are earning large profits, and this trend should continue in to the future. The levy will be applied in a precise way, and we do not consider it extreme.”

Time, of course, will tell. But Šimkus’s comments suggest the government is confident that Lithuania has succeeded in nurturing a cohort of digital operators and innovators who won’t be put out by a one-time revenue raiser that doesn’t affect them directly.

Colombia’s strong economic turnaround coming out of the Covid-19 pandemic was fueled by a dual focus on energy sustainability and tourism, producing a 10.6% jump in GDP growth in 2021—the highest recorded growth since the government’s statistical authority started keeping records in 1975.

President Gustavo Petro’s ambitious proposals to reform health, pensions, work, and taxation laws are aimed at reducing historical inequality. To achieve their goal, however, will require mobilizing a workforce some 60% of whom are under age 35. Reducing Colombia’s dependency on oil will provide investor opportunities if existing sectors can be expanded or new ones created. Agroindustry and the renascence of Colombia’s manufacturing capabilities are two prime options to increase employment.

“The economic environment in Colombia is currently good, but the future depends on the decisions of Petro’s government, especially regarding private investment.” says Daniel Suchar, a Latin American independent analyst.

One of the first tests of Colombia’s status as an investment target concerns oil contracts. A key component of Petro’s campaign promises was to halt the sale of new concessions. The fate of current contracts is expected to be decided later this year.

“The current contracts that are signed and underway will be sufficient for the next 15 years,” says Daniel Velandia Ocampo, head of research and chief economist at Credicorp Capital. “In that period, the world will not demand as much fossil fuels and demand for oil will reduce, so Colombia must prepare for that moment without risking the country’s self-sufficiency.”

That means $20 billion in 2022 exports would need to be replaced with alternatives.

In December 2020, Colombia pledged to reduce its greenhouse gas emissions by 51% by 2030 and work toward achieving carbon neutrality by 2050. Measures include establishing a local green bond market to finance environmental, climate and sustainability initiatives.

In September and October 2021, Colombia issued 10-year sovereign green bonds for a total of COP1.5 trillion ($327.1 million), the first such issued by auction in local currency in the world.

Whatever the result of discussions on current extractive contracts, experts stress that the energy transition must be gradual and careful. “The next few months are going to be important, because in Colombia, oil, gas and coal represent half of exports and are a very important source of tax revenue. In some years they can represent 20% of total government revenue,” says Velandia.

The Battle Over Reforms

Labor reform proposals presented in mid-March center on minimizing outsourcing, defining job tenure and increasing wages for nighttime and holiday work. The country’s business leaders, however, argue that these changes could increase labor costs by 15%. Congressional review of the Petro government’s proposal is ongoing, with results expected in May-June.

Throughout the reform discussion, Colombia’s state institutions, already regarded as strong, have stood firm. The government has repeatedly stated there will be no constitutional changes, and Finance Minister José Antonio Ocampo has emphasized that all reform proposals will conform to fiscal law.

Colombia’s fiscal rule establishes a debt limit of 71% of GDP and a debt anchor of 55% of GDP. The Structural Net Primary Net Balance (BPNE) means the higher the country’s debt, the less money available for primary spending. The “Social Investment Law” 2155 of 2021 created an Autonomous Fiscal Rule Committee, an independent technical body that monitors the fiscal rule that was suspended for two years during the Covid-19 pandemic. Law 2155 is a roadmap to return to those financial spending limits.

“The president is convinced that everything related to social security, health and pensions must have a very strong state apparatus in the middle,” says Velandia. “This will reduce the role of private health-care operators and private pension funds.”

Agriculture’s Key Role

Agriculture and agrochemicals are expected to be another major focus of Petro’s government. The victory of his Humane Colombia party was fueled by support from rural areas and the capital, Bogotá. Colombia has 20 million arable hectares, yet only uses seven million, and ongoing discussions with the 25 guerilla and paramilitary groups that remain from the longtime Colombian civil conflict are aimed at returning this land to productive use. The government proposes to achieve this, and bring about peace, by offering formal land transfers to rural workers.

Logistically, Colombia benefits from having 12 large cities: only Mexico and Brazil benefit from similar networks of decentralized, high-consumption-capacity cities in Latin America. This allows companies to establish themselves away from Bogotá, bolstered by investment in mass transit.

Foreign direct investment in Colombia increased 26.1% year-on-year in 2021, reaching $9.85 billion in 2022, equivalent to 2.58% of GDP. Over 200 foreign companies have entered the Colombian market in the past five years.

In 2022, those with an established footprint announced investments of more than $300 million, including General Motors with a $50 million package to modernize its light-vehicle plant, which has assembled over 1.5 million vehicles in Colombia since 1956. Late last year, PepsiCo announced a $126 million modernization plan. The company employs over 4,000 people in Colombia, producing annual revenue of over $2.3 billion.

China continues to bet on the country through its Small and Medium Business Corporation. The CVCC, which has yet to receive presidential approval, would include a tax-free trade zone with 25,000 warehouses, a seaport and an airport on the Caribbean coast at Sol de Oriente; four of the proposed ports would be situated around Urabá, providing access to both the Caribbean and the Pacific.

Cargill, Kimberly-Clark, L’Oréal and Nestlé have also announced significant expansion plans.

Some four million visitors arrive every year to Colombia and, according to analyst firm Future Market Insights (FMI), the agritourism industry is set to grow from $3.7 billion in 2022 to $7.1 billion in 2032. Tourism contributes 2% of Colombia’s GDP and is the second overall export behind oil, generating 52% of foreign exchange.     

Challenges remain, including inflation and a still-volatile political landscape. The International Monetary Fund concluded its Article IV consultation with Colombia at the end of March, noting that the economy was going through a “necessary transition” toward a more sustainable growth path. Despite headline inflation growing to 13.3% year-on-year in February, Colombia remains on course to reach its inflationary targets by the end of 2024.

“While downside risks persist and remain elevated, Colombia’s very strong economic fundamentals, policies and policy frameworks support its resilience,” the IMF report said, adding that access to a $9.8 billion flexible credit line gives Colombia enhanced resilience in most risk scenarios.

Colombia remains an attractive proposition for investors, with incentives that include low, 9% tax rates for new hotels, eco-hotels and theme parks, combined with a resilient economt, growing middle class and established urban markets.