In 2008 the world's financial institutions suffered huge trading losses, but over the past six months the top 12 investment banks have managed to claw back some $136 billion, before expenses, because of the rush by companies and governments to raise capital in order to bolster their finances. Given that the US and European governments were the very ones that injected billions in order to save their banking systems, it does appear a little bizarre that the margins on European government bond sales for investment bankers have increased by 25 to 50 percent. Furthermore, with the equity and commodity markets strengthening, investment banks are making gains from high trading volumes and price volatility, and once again rewarding their employees handsomely. 

 

However, as things revert to some semblance of normality, this windfall is unlikely to last, as government funding on generous terms peters out, bid-offer spreads tighten considerably and regulatory changes begin to have an impact and spread because, inter alia, of measures taken against the advantages enjoyed by less-than-robust regulatory regimes such as tax havens. A further risk is that the economic recession may be prolonged, thus reducing the opportunities to profit from equity underwriting fees and high-margin merger and acquisition advisory work. 

 

Indeed, in June the World Bank revised its prediction for the world economy, declaring that the global recession this year will be deeper than it previously predicted, and warning that capital flight from developing nations will increase unemployment and exacerbate poverty. The World Bank also expressed concern that because the capital inflows of developing countries from exports, remittances and foreign direct investment have plummeted from $1.2 trillion in 2007, to a mere $363 billion today, this could impact severely on the world's poor and it urged bold action in order to give recovery a boost. The International Monetary Fund, on the other hand, appears more optimistic and has revised its estimates slightly upward.

 

In this edition of Euroasia Industry magazine, our country review covers Japan, which, having experienced a period of rapid growth during the 1980s, that ended with the bursting of the real estate bubble in 1992, then had to deal with high levels of business bankruptcies, a banking system in crisis, sky-rocketing government debt, deflation and rising unemployment. Today, the scene is not so dissimilar; but Japan has the advantage over the rest of the world of having recently been there before. With the global recession impacting greatly on the poor in developing countries, we look at the potential of the rule of law to stimulate economic development by facilitating enterprise. We also look at some of the very real and adverse consequences of global warming that could uproot between 200 million and 700 million people by 2050, leading to a 'human tsunami'. Two ways in which such a disaster can, perhaps, be averted is by substituting renewables for fossil fuels and by improving energy efficiency. Our industry review looks at the former and our science and technology report looks at the potential of the 'smart grid' to help effect the latter. In this edition you can also read about the Sabanci business dynasty, whose business acumen and altruistic impulses have helped transform Turkey culturally, socially and even politically, no less, and which seems destined to continue to play an important role in the country's democratisation process and its efforts to join the European Union.