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The WTO Reborn?

The WTO Reborn?

By Arvind Subramanian

NEW DELHI – For too long, the World Trade Organization has languished, to lift a reference from T.S. Eliot, by the “waters of Leman” (Lake Geneva). Once the world’s preeminent multilateral trade forum, the WTO has been steadily marginalized in recent years, and recent rebukes of globalization, such as the United Kingdom’s Brexit vote and the election of Donald Trump as US president, suggest that this trend will accelerate. But these outcomes may actually have the opposite effect, owing to three key developments that could enable the revival of the WTO – and of the multilateralism that it embodies.

The first development is the decline of alternative trade arrangements. The WTO reached its peak in the early 2000s, a few years after the Uruguay Round of global trade negotiations concluded, and a time when more countries – most notably China – were acceding to the organization.

But major trade players like the United States and the European Union subsequently shifted their focus from multilateral trade agreements to bilateral, regional, and mega-regional deals. The mega-regionals – namely, the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) – posed a particularly grave threat to the WTO. Yet those are precisely the deals that the Trump administration is rejecting, or at least postponing.

European integration had a similar impact on the WTO, as it provided an alternative platform for managing intra-European trade. But the European project has fallen on hard times, the most salient sign being the UK’s impending departure from the EU. After Brexit, the WTO will probably become an important forum for Britain’s trade relations with the world. Any further disintegration of the EU will only bolster that trend.

Of course, it is possible that regional trade agreements in Asia and elsewhere will continue to flourish. But new leadership would have to emerge. And no single systemically important country today meets the rigorous requirements of such leadership: internal political stability, economic dynamism, relatively contained risk, and a steadfast commitment to open markets.

However counterintuitive that may sound, a second development that bodes well for the WTO’s revival is voters’ increasing rejection of hyper-globalization. Hyper-globalization is essentially “deep” integration. It goes beyond creating open markets for goods and services to include increased immigration (in the US and Europe), harmonizing regulations (the ambition of the TPP and the TTIP), and intrusive adjudication of domestic policies (the investor-settlement procedures under NAFTA and the TPP). In the EU’s case, it even entails a common currency. For such integration, regionalism is much more effective than the WTO.

Now that “deep” is out, the WTO could once again become an attractive forum for trading countries to do business. Make no mistake: there will still be a lot of globalization for the WTO to facilitate and manage, not least because of the inexorable march of technology. The mesh-like structure of trade and investment connecting countries, embodied in global value-chains – what Aaditya Mattoo of the World Bank and I have called “criss-crossing globalization” – will prevent significant backsliding.

The third development that could reinvigorate the WTO is a more protectionist stance by the Trump administration. If the US raises tariffs or implements a border-adjustment tax favoring exports and penalizing imports, its trade partners are likely to turn to the WTO for adjudication, given the organization’s demonstrated dispute-settlement capability.

The WTO could, therefore, become the place where US trade policies are scrutinized and kept in check. The universality of WTO membership, previously seen as an impediment to countries eager to move ahead with new rules and agreements, could be its main strength, as it implies a high degree of legitimacy, which is essential to minimize trade tensions and the risk of conflict.

In my book Eclipse, I argued that multilateralism offered the best means for ensuring the peaceful rise of new powers. But it seems that the same argument could apply equally well to the management of receding powers.

But the WTO’s revival will not happen automatically. Willing stakeholders must actively pursue it. The most obvious candidates for the job are the mid-size economies that have been the greatest beneficiary of globalization, and that, unlike the US and some European countries, are not currently under pressure from a globalization-averse public.

The champions of multilateralism should include Australia, Brazil, India, Indonesia, Mexico, New Zealand, South Africa, the United Kingdom, and possibly China and Japan. Because none of them is large (with the exception of China), they must work collectively to defend open markets.

Moreover, they must open their own markets not only in the traditional areas of agriculture and manufacturing, but also in new areas such as services, investments, and standards. In doing so, these countries would also be responding to the increasingly transactional approach to sustaining openness that the larger traders are being compelled to adopt.

The world needs a robust response to the decline of hyper-globalization. Multilateralism, championed by mid-size trading economies with a strong interest in preserving openness, may be it. To the shores of Leman they must now head.

Arvind Subramanian is Chief Economic Adviser to the Government of India.

Copyright: Project Syndicate, 2017.

About The Author

Sanlam 2018 Annual Results

7 March 2019


Sanlam’s 2018 annual results provides testimony to its resilience amid challenging operating conditions and negative investment markets

Sanlam today announced its operational results for the 12 months ended 31 December 2018. The Group made significant progress in strategic execution during 2018. This included the acquisition of the remaining 53% stake in SAHAM Finances, the largest transaction concluded in the Group’s 100-year history, and the approval by Sanlam shareholders of a package of Broad-based Black Economic Empowerment (B-BBEE) transactions that will position the Group well for accelerated growth in its South African home market.

Operational results for 2018 included 14% growth in the value of new life insurance business (VNB) on a consistent economic basis and more than R2 billion in positive experience variances, testimony to Sanlam’s resilience in difficult times.

The Group relies on its federal operating model and diversified profile in dealing with the challenging operating environment, negative investment markets and volatile currencies. Management continues to focus on growing existing operations and extracting value from recent corporate transactions to drive enhanced future growth.

The negative investment market returns and higher interest rates in a number of markets where the Group operates had a negative impact on growth in operating earnings and some other key performance indicators. This was aggravated by weak economic growth in South Africa and Namibia and internal currency devaluations in Angola, Nigeria and Zimbabwe.

Substantial growth in Santam’s operating earnings (net result from financial services) and satisfactory growth by Sanlam Emerging Markets (SEM) and Sanlam Corporate offset softer contributions from Sanlam Personal Finance (SPF) and Sanlam Investment Group (SIG).

Key features of the 2018 annual results include:

Net result from financial services increased by 4% compared to the same period in 2017;

Net value of new covered business up 8% to R2 billion (up 14% on a consistent economic basis);

Net fund inflows of R42 billion compared to R37 billion in 2017;

Adjusted Return on Group Equity Value per share of 19.4% exceeded the target of 13.0%; and

Dividend per share of 312 cents, up 8%.

Sanlam Group Chief Executive Officer, Mr Ian Kirk said: “We are satisfied with our performance in a challenging operating environment. We will continue to focus on managing operations prudently and diligently executing on our strategy to deliver sustainable value to all our stakeholders. The integration of SAHAM Finances is progressing well. In addition, Sanlam shareholders approved the package of B-BBEE transactions, including an equity raising, at the extraordinary general meeting held on 12 December 2018. Our plan to implement these transactions this year remains on track.”

Sanlam Personal Finance (SPF) net result from financial services declined by 5%, largely due to the impact of new growth initiatives and dampened market conditions. Excluding the new initiatives, SPF’s contribution was 1% down on 2017 due to the major impact that the weak equity market performance in South Africa had on fund-based fee income.

SPF’s new business sales increased by 4%, an overall satisfactory result under challenging conditions. Sanlam Sky’s new business increased by an exceptional 71%. Strong growth of 13% in the traditional individual life channel was augmented by the Capitec Bank credit life new business recognised in the first half of 2018, and strong demand for the new Capitec Bank funeral product. The Recurring premium and Strategic Business Development business units also achieved strong growth of 20%, supported by the acquisition of BrightRock in 2017. Glacier new business grew marginally by 1%. Primary sales onto the Linked Investment Service Provider (LISP) platform improved by 5%, an acceptable result given the pressure on investor confidence in the mass affluent market. This was however, offset by lower sales of wrap funds and traditional life products.

The strong growth in new business volumes at Sanlam Sky had a major positive effect on SPF’s VNB growth, which increased by 7% (14% on a comparable basis).

Sanlam Emerging Markets (SEM) grew its net result from financial services by 14%. Excluding the impact of corporate activity, earnings were marginally up on 2017 (up 8% excluding the increased new business strain).

New business volumes at SEM increased by 20%. Namibia performed well, increasing new business volumes by 22% despite weak economic conditions. Both life and investment new business grew strongly. Botswana underperformed with the main detractor from new business growth being the investment line of business, which declined by 24%. This line of business is historically more volatile in nature.

The new business growth in the Rest of Africa portfolio was 68% largely due to corporate activity relating to SAHAM Finances, with the East Africa portfolio underperforming.

The Indian insurance businesses continued to perform well, achieving double-digit growth in both life and general insurance in local currency. The Malaysian businesses are finding some traction after a period of underperformance, increasing their overall new business contribution by 3%. New business production is not yet meeting expectations, but the mix of business improved at both businesses.

SEM’s VNB declined by 3% (up 6% on a consistent economic basis and excluding corporate activity). The relatively low growth on a comparable basis is largely attributable to the new business underperformance in East Africa.

Sanlam Investment Group’s (SIG) overall net result from financial services declined by 6%, attributable to lower performance fees at the third party asset manager in South Africa, administration costs incurred for system upgrades in the wealth management business and lower earnings from equity-backed financing transactions at Sanlam Specialised Finance. The other businesses did well to grow earnings, despite the pressure on funds under management due to lower investment markets.

New business volumes declined by 13% mainly due to market volatility and low investor confidence in South Africa. Institutional new inflows remained weak for the full year, while retail inflows also slowed down significantly after a more positive start to the year. The international businesses, UK, attracted strong new inflows (up 57%).

Sanlam Corporate’s net result from financial services increased by 4%, with the muted growth caused by a continuation of high group risk claims experience. Mortality and disability claims experience weakened further in the second half of the year, which is likely to require more rerating of premiums in 2019. The administration units turned profitable in 2018, a major achievement. The healthcare businesses reported satisfactory double-digit growth in earnings, while the Absa Consultants and Actuaries business made a pleasing contribution of R39 million.

New business volumes in life insurance more than doubled, reflecting an exceptional performance. Single premiums grew by 109%, while recurring premiums increased by a particularly satisfactory 56%.

The good growth in recurring and single premium business, combined with modelling improvements, supported a 64% (71% on a comparable economic basis) increase in the cluster’s VNB contribution.

Following a year of major catastrophe events in 2017, Santam experienced a relatively benign claims environment in 2018. Combined with acceptable growth in net earned premiums, it contributed to a 37% increase in gross result from financial services (41% after tax and non-controlling interest). The conventional insurance book achieved an underwriting margin of 9% in 2018 (6% in 2017).

As at 31 December 2018, discretionary capital amounted to a negative R3.7 billion before allowance for the planned B-BBEE share issuance. A number of capital management actions during 2018 affected the balance of available discretionary capital, including the US$1 billion (R13 billion) SAHAM Finances transaction. Cash proceeds from the B-BBEE share issuance will restore the discretionary capital portfolio to between R1 billion and R1.5 billion depending on the final issue price within the R74 to R86 price range approved by shareholders.

Looking forward, the Group said economic growth in South Africa would likely remain weak in the short to medium term future, and would continue to impact efforts to accelerate organic growth. The outlook for economic growth in other regions where the Group operates is more promising. Recent acquisitions such as the SAHAM transaction should also support operational performance going forward.

“We remain focused on executing our strategy. We are confident that we have the calibre of management and staff to prudently navigate the anticipated challenges going forward,” Mr Kirk concluded.

Details of the results for the 12 months ended 31 December 2018 are available at