ReviewUSIS

• UK General Election coverage: Decision time• Greece on brink of exiting Eurozone• Tidal makes waves in digital media• Nikkei 225 Index hits record 20,000• Shell's acquisition of BG Group• Bundestag attempts new rent brake policy• Technology startup investment soars

May 2015 UoSInvestment.com

Contents

Contents USIS Review May 2015

Editors, Contributors & Sources

Editor’s Letter 3

Special ReportUK election: Decision time for the UK 4

Economics & Global AffairsWill Greece leave the Eurozone? 6Bundestag sets rent brake in motion 7Mauritius' Economic Miracle 8Sub Saharan African Growth 9

TechnologyBiotech start-ups lead fake meat revolution 10Tidal's got 99 problems... and Spotify is one 12Is wearable technology the future? 14Samsung's sterling performance 15

Banking & FinanceTech companies face increasing uncertainty 16Awe as Nikkei Index tops 20,000 17Sterling in a downward spiral 18 Investments & StrategyInvestment in tech startups hit record highs 20Ha-Joon Chang's Alternative Economics 22Shell acquire BG Group 25

SpotlightChief Economist at Lloyds Bank; Trevor Williams 26

A Word from the Editor

It is my pleasure to welcome you to the fifth edition of the USIS Review. I am extremely proud and impressed with the team's effort and performance this month. Their high quality articles stand as a testament to the commitment and dedication they have shown during the prepara-tion for this edition.

This issue's Special Report considers each of the three main political parties in the UK in the run-up to the General Election on 2nd May 2015. The Economics & Global Affairs team examine the deepening debt crisis in Greece and their uncertain future in the Eurozone. Additionally, the team report on the current 'rent brake' legislation in Germany. The Banking & Finance team have researched the broader implications of the recent depreciation of Sterling in the foreign ex-change markets, provided a stock analysis of technology companies and reported on the recent surge in the Nikkei 225 index. The investment and strategy team examine the validity of the free market economics principle, the latest surge in technology startup investments and the recent acquisition of BG Group by Shell. Our Spotlight this month reflects on the career path of a recent guest speaker; and Chief Economist at Lloyds Bank, Trevor Williams.

I very much hope you enjoy reading this month's issue of the USIS Review and we look forward to compiling the next issue.

Matthew Smith Editor-in-Chief

USIS Review May 2015 Editor’s Letter2 3

Editor: Matthew Smith

Vice Editor: Mehr Hussain

Deputy Editors: Ross McWhir , Rachel Quartly, Joshua Timmons

Contributors: Katie Brookes, Connor Brown, Edward Burton, Simon Cummins, David Gooddy, Adilah Hameed, Mehr Hussain, Charlotte Jackson, Elizabeth Lanigan, Ross McWhir, Rachel Quartly, Charlotte Ridley, Matthew Smith, Joshua Timmons, Jordan Waite, Conor Wilde and Thomas Wilson Sources: Bloomberg, Bloomberg Businessweek, Thomson Reuters, Financial Times, Economist, Investors Chronicle, Wall Street Journal, Investopedia, Mergermarket, Yahoo Finance, Company Press Releases, Company Annual Reports

Our Partners

4 USIS Review May 2015Special Report

UK General Election

UK election: Decision time for the UKAs the UK prepares for the General Election, the main party leaders aggressively campaign for votes.

"The ordinary working people party – Britain only succeeds when working peo-ple succeed.- The Labour Party"The Labour Party is regarded as one of the ‘big three’ political parties in the UK. They are a left of centre party, formed to repre-sent the interests of the ordinary working people. Their guiding principles include so-cial justice, strong community values, and rights, matched by responsibility.

Labour's main policies, outlined in their manifesto, include the need to build a strong economic foundation. This can be achieved by balancing the books, creating jobs for young people, and controlling for the growing socio-economic problems as-sociated with immigration.

Labour takes the compelling position that the UK should be stricter in its assessment of immigration. They want to tackle illegal immigration with more thorough entry and exit checks and introduce more laws on working migrants for companies in the UK. This would enable a sustainable net balance of migrants to the country and en-

sure they have the skills that can benefit the economy.

In an attempt to balance the books, Ed Miliband has vowed to achieve a positive net fiscal surplus, in addition to bringing the national debt down to sustainable lev-els. The UK government debt amounted to £1.56 trillion, or 81.58% of total GDP. Labour aims to reduce this by refusing to borrow additional funds to invest in new spending.

It is plausible for the nation to get ‘back on track’ financially, but the Conservatives raise the point that Labour could increase borrowing by £30 billion. Working families also have the potential to be hit with over £3000 of tax rises; another major drawback of the decision to vote Labour.

Additionally, Labour intends to recruit 5,000 more healthcare workers and to in-troduce more safety checks to identify peo-ple at risk to reduce pressure in hospitals.

"The choice at this election is sticking with the plan that's working - The Conservative Party "The Conservative Party are Britain's largest right of centre political party. The main as-

pect of their campaign is their commitment to a long-term economic plan. This aims to build a stronger economy to help secure a better future for Britain. The main points of this plan are; to reduce the deficit, cut income tax and freeze fuel duty, to create more jobs, cap welfare, and work on con-trolling immigration whilst also delivering the best schools and skills for young people.

When looking at these main points, it is in-teresting to note that most Conservatives are in favour of immigration. They want a well-managed immigration system. This leads to questioning how quickly and ef-ficiently they will be able to work on con-trolling the number of immigrants. Never-theless, a benefit of Cameron's immigration pledge is that migrants must wait four years before they can claim certain benefits. Those who fail to find work after six months will subsequently be removed.

The Conservative Party's manifesto includes the ‘right-to-buy pledge’ and is said to be the wrong solution by housing campaigners. The Party have vowed 1.3 million housing association tenants the right to buy homes.

However, experts have said this will not solve the housing crisis. Cameron has been

Special Report

UK General Election

USIS Review May 2015

accused of ‘broken promises’ throughout the protracted and arduous campaign, over taxes, immigration and foreign policies.

In the first television debate, Cameron was criticised by Jeremy Paxman, ‘you talked about broken Britain and fixing it. You ha-ven't’. The Prime Minister remained con-sistent when driving home the Partiy's cen-tral message; "'the choice at this election is sticking with the plan that's working.’"

"Working to build a stronger economy in a fairer society, enabling everyone to get ahead in life.'"- The Liberal Democrats "The Liberal Democrats will seek to prove that they have retained their liberal funda-mentals by governing in the national inter-est, as part of the coalition government.

Since the formation of the coalition Govern-ment in 2010, the Liberal Democrats have created one million new jobs, revitalised apprenticeship schemes, and given twen-ty four million people a £700 tax cut. This will increase to £825 in 2015, an increase of 17.85%. The Liberal Democrats’ drive to-wards sustainable growth and equality of opportunity has been met with both sup-port and opposition.

In hindsight, the Labour years have been dominated by an economic crisis in 2008

and controversy, with regards to the Iraq War. Miliband's commitment to balancing the books requires excessive borrowing and the Conservatives’ plan to reward those at the top raises questions of inequality. Thus, the Liberal Democrats provide a refreshing alternative.

However, despite Clegg's good intentions, criticism has been levied from all directions at Liberal Democrat rhetoric. Nicola Stur-geon, leader of the Scottish National Party (SNP), has accused the Liberal Democrats of pushing millions into relative poverty as a natural consequence of engaging with, and backing, the Conservatives Party's austerity cuts.

Additionally, the Liberal Democrats lost huge support amongst the student popula-tion in response to higher tuition fees. This dispelled any notion of credibility in the party.

Since 2010, the Liberal Democrats have made a tangible difference through ensur-ing that the Government pursue a more moderate fiscal policy than what the Con-servatives had initially outlined.

It has become evident in the various tel-evised leaders debates that Nick Clegg is attempting to capitalise that message through strong local campaigning. Clegg's party has overseen the funding for road maintenance, particularly in his constitu-

ency; Sheffield Hallam, and participated in the multi-billion dollar investments into the rail industry.

The Liberal Democrats will proceed to in-troduce a High Value Property Levy on res-idential properties worth over £2 million, in a bid to gain credibility and support from the low and middle income earners.

Is this the end of single party politics? The question remains, who will work with who in potentially another coalition govern-ment and how effective will this be?

Katie Brookes BA Business Management

Matthew Smith BA Economics

Conor Wilde MChem Chemistry

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Economics & Global Affairs USIS Review May 2015

Will Greece leave the Eurozone?The International Monetary Fund (IMF) and the European Central Bank (ECB) set wheels in motion by engaging Greek authorities.

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The Greek Economy has been in a financial crisis for over five years and now the newly elected Prime Minister; Alexis Tsipras, has been left to pick up the pieces.

Greece has relied on loans from European creditors and the IMF since 2010. They owe the IMF approximately one billion Euros which matures next month.

Some analysts also question whether the Greek economy is slipping back into reces-sion. The Greek economy has experienced a 2.5% reduction in growth rates over the past two years. It should be noted that it was only last year that they emerged from a six-year recession that wiped out over a quarter of GDP.

Greece is contractually obliged to pay ap-proximately two billion Euros in debt pay-ments and servicing costs. Yet, they have failed to provide any information on how they will use this money to generate eco-nomic reform in the country. However, the Syriza Government, elected in January, has promised to end crippling austerity meas-ures. Furthermore, they have raised a num-ber of concerns about Greece's future in the Eurozone.

President Obama has also been involved with the discussion and has told reporters,

in a Washington press conference with It-aly's Prime Minister, that Greece needs to initiate reform, reduce bureaucracy and collect taxes. Nonetheless, the Greek gov-ernment has vowed to stimulate the lethar-gic economy. Greek Finance Minister, Yanis Varoufakis has confidently stated that his government would meet all obligations to all its creditors, in a concerted effort to end speculation.

Varoufakis' promise seems rather uncon-vincing. The government is experiencing further shortages in liquidty in the financial system. It is unable to borrow on the global bond markets, due to its poor credit rating. There are growing concerns as to whether the government can pay their pensioners and government workers.

There are also further concerns and compli-cations. The EU's deadline states that the EU must come to an agreement with the Greek government over terms for a new loan. The IMF has stated that they will refuse to let Greece delay any scheduled payments, as the IMF needs to protect its reputation as a global lender.

According to Al Jazeera, the ECB appears to be attempting to increasingly harm the Greek economy in order to increase pres-sure on the new Greek government to agree

to its demands.

The IMF has projected that the economy will grow by 2.9% this year. Although, the mandates pursued by the ECB have discour-aged investment and consumption and have not providied sufficient supporting measures to stabilise the economy. This will have the effect of slowing Greece's econom-ic recovery. It is extremely noticeable that this is not a disagreement about money or fiscal sustainability, in the eyes of the ECB, but rather it is more about politics.

Additionally, Greece's major creditors are dismissing the option of allowing the coun-try to drop out of the Eurozone. As long as Tsipras is willing to meet the creditors key demands.

If Greece wants to remain a member of the Eurozone, the government has to take a different approach to please lenders. The deadline for Greece's future is approaching. In this short space of time Greece must hon-our their debt repayment obligations and satisfy the demands of creditors, including the IMF and the ECB.

Adilah Hameed BA English and History

Europe

USIS Review May 2015 Economics & Global Affairs

Bundestag sets rent brake in motionBundestag have imposed a 'rent brake' to calm a rental housing market, which has been limiting affordable housing.

Substantial rents in Germany's biggest cities prompted the German Bundestag to pass a new law known as the ‘Rental Price Brake.’ It is expected to be in place in numerous parts of Germany as early as spring this year. Only 46% of Germans actually own their homes, which is the lowest level in the European Union. This ‘rent brake’ will aim to restrict the ever-increasing rent prices, allowing for the growth of affordable housing.

Rents have only soared in Germany's largest and most affluent cities, like Hamburg, Ber-lin, Munich and Frankfurt. However, rents were also seen rising in smaller university towns, such as Münster. Hamburg has expe-rienced average annual rises of between 4% and 5% since the financial crisis. Approxi-mately 40,000 people moved to Berlin last year alone, where rents rose 1-2% annually..

Within Germany there is a great deal of public sector housing, which is owned di-rectly by the Federation, the Länder, or the towns. This housing is affordable, which has meant that rents are lower, as a natural con-sequence of less competition in the in the housing market within these areas. There were nearly 2.5 million social housing units that existed between 2002-2012 but only around 1.5 million remain. House building in less affluent areas has unfortunately di-minished due to the attractiveness of the luxury sector.

Despite the good intentions of the rental brake, it is unlikely that this will dampen rising rents in Germany's biggest towns and cities. The current law in place limits rent increases under an existing lease, based on local housing costs. Whereas, the brake concerns new leases: preventing landlords from charging rent that is more than 10% above the local average for a similar prop-erty.

However, it does not apply to renovated flats, yet modernisation is ever growing. Nor does it cover furnished flats or new-builds. Moreover, the law does not apply throughout Germany but only in selected areas, only if the Länder implement it and then only for five years at most. Therefore, the effectiveness and performance of the policy will have ambiguous effects, and will be dependent on localities.

The rental brake is to be implemented in “tight” markets only, and it is down to the 16 federal states to determine if they are within a “tight” market. Berlin, will be ap-plying the brake to all its eligible housing as soon as the law takes effect. As with all price controls, a black market is likely to ap-pear, crippling supply. Thus, holding back investment is likely to deter renovations of decrepit properties, since they must be lavish to justify higher rents. It may also discourage construction, as the exemption for new properties might not last. Alterna-

tively, landlords may stay within the rent cap, but start asking for a significantly larg-er supplementary payment for the use of kitchen equipment (typically paid separate-ly in German rental properties).

Home-ownership is beginning to slowly in-crease, with some €190 billion of property changing hands in 2014, up 50% from 2009. With this healthy demand, house prices are rising too, between 2010 and 2014 they rose by 47% in Munich and 41% in Berlin. A prosperous property market would help move Germany away from an export-driv-en growth model. Moreover, the lack of social housing needs to be addressed, as this would help to take pressure off the over-stretched housing market. Building more houses would help to lift Germany's flagging investment rate, which is currently below average for a developed country at 20% of GDP.

Likewise, increased spending on home im-provements would help raise consumption too. The German Bundestag have stated only 400,000 people will benefit from this law when there are in fact 35 million ten-ants. As a natural consequence, questioning whether this truly is a ‘rental brake’ or mere-ly a short term solution that is destined to fail.

Katie Brookes BA Business Management

Europe

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USIS Review May 2015 Economics & Global Affairs

Challenges ahead for Sub- Sahara Africa Sub-Sahara Africa braces for tough times as oil prices fall, heightened geopolitical risk and Ebola threaten the status quo.

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The latest IMF economic forecast suggests that they have a pessimistic outlook on the future of the Sub-Saharan African area. The region faces risks from low growth in major trading partners, a sharper-than-expected tightening of global financial conditions and mounting domestic security threats. The IMF has approved a $130 million fund-ing package to help cover a portion of the financing gap. The average current account deficit is not expected to narrow. Trade imbalances owe to weak prospects for commodities, import demand volumes in emerging markets, and to continuing high levels of imports.

The Ebola outbreak in West Africa is a key challenge, with significant humanitarian losses in Sierra Leone and Liberia. Although the rate of new infection has slowed, the IMF has warned of the sustained impact on the largest sectors. This may result in financing gaps for fiscal accounts and up-ward pressure on inflation. West Africa's Ebola outbreak is the key short-term risk. Unless contained, it threatens to affect overall regional growth by creating ashort-age of labour.

Public health infrastructures and institu-tional capacities are inadequate to deal with the outbreak. If the epidemic were to hit the transportation hubs in Ghana and Senegal, disruptions to cross-border trade and supply chains would hurt the entire sub-region. Heightened fears of Ebola would further undermine confidence, in-

vestment, and travel. Geopolitical insecu-rity and violence, precipitated by domestic, international and intra-regional conflicts, have become leading regional risks.

Countries that have depended on favour-able international capital flows to finance current account deficits are particularly vulnerable. The continent's biggest econo-my, Nigeria, is faced with a formidable chal-lenge; to cope with a "significant adverse shock" from falling oil prices, and a 2.5% reduction in growth.

China is the one of the largest trading part-ners and is currently the biggest lender to the region. This means slowing growth in China is likely to lead to higher funding costs for banks, which could reduce the appetite of Chinese companies for invest-ments within the region. Moreover, security threats remain severe. It is becoming less attractive for investors who are reacting to the instability and uncertainty by cutting their losses and withdrawing funds from the region.

South Africa, is also grappling with chal-lenges with its economic output. The country's economic growth will fall short of 2013 figures. Real GDP expanded 0.6% quarter-over-quarter in the second quarter 2014, erasing the 0.6 percent contraction in the first quarter. Elsewhere in the re-gion, growth, driven by strong investment in mining and infrastructure and by private

Africa

consumption, held up well, especially in the region's low-income countries.

Sub- Saharan coutnries are net exporters of oil. Fiscal and current account balanc-es worsened significantly in the region's oil-exporting countries. This reflects ambi-tious infrastructure investment agendas fi-nanced with shrinking oil revenues. Angola and the Democratic Republic of Congo are economies that are heavily reliant on oil exports and have nowhere to seek refuge in the current times of low oil global prices.

In contrast, Ethiopia is at the focal point of emerging economies' interest with various delegations of foreign investors seeking investment opportunities. Ethopia had a grand five-year Growth and Transforma-tion Plan which ran from 2010, and is ex-pected to end by 2015. This aimed to build sustainable means of economic, social and environmental development. Overall, Sub-Saharan growth rates should remain in the top 30 percent in the medium run. The region needs continuous and cohesive pol-icy action in the face of a tumultuous future.

Decision makers need to push ahead with tough structural policies that will diversify these nations. Building a wider portfolio of interests, in terms of reducing their depend-ency on oil exports, should see a reduction in risks. Project selection and management could be improved with greater transpar-ency and accountability in the use of public resources.

Consequently, monetary policy has to strike a balance between the need to contain in-flationary pressures, which might in some cases stem from currency depreciation, and the risk that high real interest rates could hamper growth. It is also crucial for the re-gion to take care of poverty rates; which re-main high and widespread inequality.

Mehr Hussain BA Economics and Politics

USIS Review May 2015Economics & Global Affairs

Africa

Mauritius' Economic MiracleMauritius defies all expectations and has achieved organic, sustainable growth rates.

If we were to describe a country that pro-vides free higher education, healthcare (in-cluding brain and heart surgery) and free transportation systems, you may believe that this country is teetering on the brink of fiscal collapse, or is extremely wealthy. We have seen through the last decade that some of the richest countries that have at-tempted to provide free higher education are now reeling it back in because their country “cannot afford it”.

There is, however, one underdog that has the ability to maintain this. Mauritius is located just off the east coast of Africa. It is neither extremely wealthy, nor is it en-gulfed in debt. Before the British rid its colo-nial routes and gave Mauritius its autonomy in 1968, massive doubt began to surface re-garding the future sustainability of Mauri-tius' impressive growth rate.

Economists, academics and military leaders came to the general consensus that Mau-ritius should stay in alliance with Britain. This was not just because it would enable the military to use Mauritius’ advantageous tactical island position, but because of the genuine fear that Mauritians would not be able to build their own economy, or improve on the social welfare system.

James Meade, a nobel prize winning econo-mist wrote in 1961, "It is going to be a great achievement if the country can find produc-tive employment for its population without a serious reduction in the existing standard of living … The outlook for peaceful develop-ment is weak.”

Contrary to Meade's belief, Mauritius has gone on to grow a diverse economy spread across various sectors. It also has one of the world's most progressive and dynamic so-cial systems and a well-founded democratic political system.

Some analysts view this as a “growing peri-od” which will end soon. However, this view is instantly dispelled. The growth in Mau-ritius’ economy has been steady, at around 3-5% for the past 30 years, thus organic and sustainable. This growth is not inor-ganic - like China's 13% growth which then slumped or India's 10% growth which also slumped. This organic growth can partly be attributed to the fact that 85% of Mau-ritians own their own home. Similarly, the fact that their diversified economy spreads the risks through tourism, finance and tex-tile industries, allows the country to avoid the negative effects of fluctuations in gen-eral economic activity. It could even be due

to their minuscule military budget as they realise that making enemies and relying on military enforcement and arms trade is not the best direction to follow to achieve economic development. This may also ex-plain how the income of Mauritians has grown from $400 around the time of their independence to $9,200 in 2014, a 2200% increase.

Perhaps Mauritius can be a socioeconomic model for developed countries. Lowering economic risk through ownership, diversi-fied sectors, emphasis on a strong commu-nity and investing what would be military budgets back into their society has resulted in decades of stable growth for Mauritius. As a result, they can afford free education, free healthcare and transport. It is time to learn from Mauritius.

Connor Brown LLB Law (European and International)

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Technology USIS Review May 2015

Biotech start-ups lead fake meat revolutionChanging the way we eat; Is artificial meat set to flood the low-end markets?

The prospect of widely available, artificially produced, meat is a concept usually met by consumers with fear and apprehension. But is it time to put aside our concerns and face the reality that the production and com-mercialisation of ‘fake meat’ may actually be a necessity rather than a whimsical spec-ulation? The recent introduction of a num-ber of biotech startups, wanting to change the way we eat, has attracted wide interest from entrepreneurs and venture-capital firms, who think that the food industry has become too inefficient and is in need of an overhaul.

Meat-eaters may be shocked to hear that supermarkets are currently considering replacing some of their meat lines with substitute products, developed from ‘arti-ficial meat’. As Bill Gates and many others frequently remind us, industrial-scale meat production drains our planet of resources and releases more greenhouse gases than major industries, such as transportation. However, until recently, this has normally meant resorting to vegetarianism and the consumption of foods that do not directly imitate the flavours and textures of meat. The crux of the problem is essentially how to get meat-lovers on board. A number of recent tech companies have claimed they have the answer. According to these biotech startups, they have developed ways of imi-tating meat that even meat-eaters would struggle to differentiate.

Pea protein burgers to 3D printed steak

‘Beyond Meat’ is one example of a fake meat tech startup that has gained a lot of mo-mentum, with investment from the likes of Bill Gates and Biz Stone (the founder of Twitte). Ethan Brown, founder of Beyond Meat, initially set up the company with the view of finding an alternative to the most environmentally inefficient sector of the food industry; beef production. The re-markable fact about Beyond Meat is that the main ingredient in their ‘Beast Burger’ (a beef burger equivalent) is a vegetable protein isolated from peas. Their products

are therefore incredibly nutritious, with one patty containing 42% of your daily-recom-mended protein allowance. Beyond Meat's mission is to reduce global meat production by 25% by 2020. To do this, they will target their products towards the masses, by offer-ing affordable, nutritious and tasty alterna-tives.

‘In vitro’ or ‘test-tube’ meats, which involve producing cultured meat from a sample of real animal stem cells, are currently under-going production trials. According to scien-tists, cultured meat can be scaled and may offer something closer to real meat than any other technologies in development. By its nature, it would offer a more accurate representation of the complex flavours and textures of meat. The first in vitro burger, produced in 2013 by Professor Mark Post and his team at Maastricht University, cost a staggering $335,000 to manufacture. They claim the costs of production have now fall-en to only $11.36 per burger, but it is still expected to take between 10 and 20 years

Biotechnology

before this technology becomes commer-cially viable. After all, not many of us would be willing to fork out over $11 for a burger that doesn't even contain any real meat, just for its cruelty-free and resource-friendly ad-vantages.

Another technology that has the potential to revolutionise the meat industry is 3D printing. Justin Rockefeller has recently in-vested in New York-based company Mod-ern Meadow, which has created a ‘steak chip’ by growing animal tissue in a labora-tory and then using a 3D printer to build up layers of meat into the size of a potato chip. The authenticity of these chips was so great that Justin went as far as to say, ‘it tasted just like a salty chip. It was delicious’. Mod-ern Meadow co-founder, Andras Forgacs, admits it costs thousands to make just one pound of meat and that the technology still has quite a way to go before it can become widely used.

However, it's not only meat that is getting a

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facelift. Milk and other dairy products are also undergoing scientific tests to develop realistic, animal-free substitutes. A group of scientists at Oakland, California's bio-tech hacker space, ‘Counter Culture Labs’, are using mail-order DNA to get yeast cells to make milk proteins, which can then be turned into cheese. Rather than using soy, almond milk or other vegan substitutes, they found their recipe by identifying 11 proteins found in cow's milk. The result? A tasty alternative that retains all the envi-ronmental and nutritional benefits of real cheese.

Artificial meat will enter the low quality meat market

Dr Sarah Bonny of Murdoch University says that, while artificial meat is unlike-ly to revolutionise how we eat any time soon, conventional meat production will still be insufficient for future demand. According to the United Nations, livestock uses 30% of the world's ice-free landmass and produces 14.5% of all greenhouse gas emissions. In order for the meat industry to satisfy the 2050 predicted population of nine billion, it would need to increase in production by 50-73%. The World Health Organisation insists that farmers will need to engage in creative thinking and planning in order to ensure food is grown and preserved efficiently to feed the pop-ulation. Current predictions suggest that, unless substantial change or innovation is

undertaken, the industry will not be able to cope with any more than 8 billion inhabit-ants. That shortfall, coupled with concerns about animal welfare and the environmen-tal impact of livestock production, could, for the first time, make artificial meat accept-able to meat-eaters. According to Dr Bonny, meat substitutes manufactured from plant or insect proteins are likely to generate the most competition for conventional meat as they have the lowest barriers to commer-cialisation. These substitutes are expected to enter the market in the lower quality meat section as this is the area that already has a blurred division between ‘artificial’ and ‘real’ meat. The Journal of Integrative Agriculture agrees, predicting that steaks, chops and other ‘middle meats’ will rise to the premium end of the red meat section, with artificial meat supplying the higher volume, lower cost side of the industry.

An uncertain future

However, there are still major concerns sur-rounding the production of artificial meat. Not only are there huge cost implications, there are also unknown health risks and ethical issues that will need to be managed. As it stands, there are no biological muta-tions or potential diseases known to arise from this technology, however it is still in its infancy and this could all change within the coming years. Some experts suggest that artificial meat production could actually decrease the risks of disease and epidemics

TechnologyUSIS Review May 2015

Biotechnology

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by reducing the close human-animal interac-tions that currently take place. Despite the apparent revolution surround-ing improved production techniques, the real scope of this technology lies in whether companies can deliver on taste, texture and eating satisfaction. With only between 5% and 11% of consumers currently willing to try in vitro meat, it is going to take a lot more than a couple of new ingredients before this technology can become a real alternative for meat-eaters. And who knows - we may even find ways to mitigate methane emissions from livestock and other environmental im-pacts before artificial meat becomes com-mercially viable.

It will certainly not be in the immediate fu-ture when we see test-tube meat featuring in our day-to-day meals, but it seems likely that this technology will creep into commercial manufacturing at some point or another. This is most likely when the pressure of popula-tion growth becomes too much for the meat industry to sustain. Changing the mindsets of consumers takes time and moving away from meat is perhaps one of the biggest asks of all. Will we be unable to fight our primitive desires for meat or will increasing pressures on global resources and the environment ul-timately force us to rethink our options?

Rachel Quartly BSC Geography

Technology USIS Review May 2015

Tidal's got 99 problems… and Spotify is oneThe launch of Jay-Z's ‘Tidal’ has reignited debate over the future of the music streaming industry

From vinyl to tape, tape to CD, CD to down-load – the way we consume music has nev-er stood still for long, and recent growth in digital streaming services suggests we're undergoing yet another transition.

The British Phonographic Industry (BPI) reported that 14.8bn tracks were streamed in the Britain last year, representing an in-credible year-on-year growth of almost 100% on 2013's 7.5bn. However, it is not merely in Britain where these trends are ob-served; the International Federation of the Phonographic Industry (IFPI) note that the number of worldwide paying subscribers to such services grew nearly three-fold be-tween 2011 and 2014, from 11 million to 28 million – and there are many millions more on ‘free’ ad-supported membership tiers. Il-lustrating the switch in consumption mod-els, the growth in streaming revenue almost exactly matches the decline in digital music download revenues. The figures are clear; the streaming industry is blossoming, and we are increasingly turning to services such as Spotify to provide the soundtrack to our day.

It's not all good news for Spotify

However, the curators these services rely on for content – the musicians - have not em-braced the streaming industry quite like they did digital downloads; the most infa-mous example being Taylor Swift's decision last November to pull her entire catalogue of music from Spotify – a behemoth in the music streaming business, with 60 million active users, of which over 20% are paying subscribers. She made her objection clear in an opinion piece for the Wall Street Journal earlier that year, claiming that, as a form of art, all music should have a value, and the availability of a ‘free’ tier on Spotify under-mines this fact. Indeed, when you consider how much an artist like Swift would earn from album sales, the money she would earn from Spotify pales in comparison. As Scott Borchetta, the CEO of Taylor's record label, points out, the amount of money she earned from domestic streaming in the year previous to her departure amounts only to

around 50,000 record sales ($500,000) – no small amount, but nothing significant for the present biggest pop star in the world either.

Swift is not the only one to have spoken out about the music streaming industry. Four time platinum award winning artist Beck went as far to say that “what Spotify pays [him] isn't enough to pay the musicians [he] works with”, insofar that if it were his only income stream, he wouldn't be able to make music at all. Subtle, yet not insignificant, nods have been made in a similar fashion by artists such as Coldplay and Ed Sheeran, who released new material on streaming services after general release on CD or dig-ital download, prompting those who wish to listen sooner to pay full price – or perhaps their true value, as Taylor might suggest.

Is Tidal the artist-led solution?

This collective disapproval led to musical heavyweights such as Kanye West, Be-yoncé, Madonna and Rihanna getting to-gether in New York last month to launch a new, artist-backed streaming service called Tidal, spearheaded by rapper-turned-en-trepreneur Jay-Z. It is much like existing services, but instead offers only two tiers, priced at £9.99 and £19.99 a month; the more expensive of which offers ‘studio qual-

ity’ sound, whilst the former offers a similar feature set (and price) to Spotify's premium offering. By increasing the price and not of-fering a free tier, Jay-Z hopes to hand over a larger per stream royalty payment to mu-sicians than competitors, such as Spotify, which pays between $0.0006 and $0.0084 per stream. Whilst it's not clear exactly how much more Tidal will put back in the pock-ets of musicians, perhaps it is telling that Taylor Swift's music is available in full on the service.

Tidal's launch, however, left a sour taste in the mouths of many. Music fans took to social media to criticise the new service merely as an avenue for the rich to get rich-er, masquerading as a revolutionary social justice movement (Alicia Keys’ hyperbo-le-laden speech lauded Tidal as something so powerful that it would make everyone in the room “experience some kind of en-ergy”). It's hard to see it as otherwise, when the 16 artists who helped launch the service have a combined net wealth of over $2.5bn. Designed to address the flaws in the Spoti-fy model, it risks sending the industry into reverse.

A success story in combatting piracy

One of the biggest successes of Spotify is driving individuals away from piracy and

Digital Media

12 TechnologyUSIS Review May 2015

Digital Media

13

into thinking this is an entirely recent phe-nomenon: even with CD's, the record label can expect to earn more than twice as much as the artist on an average £8 album sale. Similarly, with iTunes, the artist gets a 10% cut of a typical $10 album download, whilst Apple takes a healthy 30%. It is therefore a mistake to attribute this problem to the dig-ital streaming industry alone, and is some-thing that artists have taken far too long to address. Unfortunately, if ‘addressing’ the issue means driving consumers away from a service that improves its pay-outs the more popular it gets, it won't take long for consumers to switch back to illegally down-loading their music and for musicians to face a declining revenue stream.

Artists must not cannibalise the success of Spotify

At a time of declining digital sales and ram-pant piracy, Spotify is the only thing the in-dustry has seen that comes close to tackling the problem. A free entry point and a £9.99 premium subscription has proven to be the sweet-spot for music hungry consumers, and trying to undermine this success by pulling material from the service and high-er prices will only send people back to not paying for their music at all – the market has determined what money people are willing to part with, and the industry must work within these boundaries.

As one of the 16 backers of the project, Ri-hanna recently debuted her newest single ‘American Oxygen’ exclusively on Tidal, much to the dismay of her fans. To para-phrase the response – ‘if it's not on Spotify, it's as good as not released at all’. It's telling, perhaps, that a week later, the song became available to stream on Spotify. Kanye West, too, appears to have removed all his tweets that made reference to the fledgling ser-vice.

Perhaps Spotify isn't the problem, and Tidal isn't the solution after all?

Jordan Waite BA Economics

the pockets of millionaire musicians.

This sets a worrying precedent for the prof-itability of the company. In 2014, TIME mag-azine reported that Spotify made a loss of $80m in 2013, despite generating over $1bn in revenue. Spotify maintains that it will become profitable once it reaches a criti-cal mass of users, and it is set to meet this target if it sustains its current growth. Giv-en that Tidal offers little more than Spotify at up to double the price, whilst sustaining higher royalty pay-outs to rights holders, it's hard to see how it expects to turn a profit any time soon. But if people are not willing to pay more for other services and Spoti-fy maintains that it pays enough to rights holders, what is the solution?

Reconsidering the relationship between rights-holders and content-creators

A differing perspective is that musicians need to reconsider their relationship with record labels, who share the balance of power over their music. Spotify claims to pay out 70% of its revenue to rights holders, and reports that current per month royalty payments for the most streamed album are ‘upwards of $400,000’, and that when the service reaches 40m paying subscribers, a global hit album can expect to earn over $2m per month, ‘based on present growth trajectory’. The problem is that only a small fraction of this makes its way directly to the artist - an amount that depends on the contractual agreement with their record label. But consumers must not be fooled

back to legal alternatives. A study by Co-lumbia University found that more than half of 18 to 29 year olds said they pirate less music when offered a free, legal alternative. The statistics ring true; there has been a sig-nificant decline in piracy in the markets in which Spotify is available. For instance, in Norway, the number of songs copied ille-gally in 2012 was just one fifth of the num-ber copied in 2008. Spotify is confident that ensuring access to a free tier is essential in capturing those users who would other-wise pirate their music, and then converting them to paid users. Without a free tier, as artist Lily Allen points out, Tidal risks people “swarming back to pirate sites”. Particularly in relation to casual listeners, musicians face a choice: either accept the going-rate from Spotify, or let people drop off the legal framework and lose the potential revenue altogether.

However, it's not just the lack of a free tier that risks pushing users away from Tidal – the upper tier is simply too expensive in itself. Priced at £19.99 per month, only se-rious audio-philes are going to be prepared to hand over £240 a year to listen to music in ‘studio quality’ rather than standard (the difference is indistinguishable to those listening on your average set of speakers). Given that the average US adult spends less than $5 a month on music, the uptake of the $9.99 tier (£9.99 in the UK) of Spoti-fy already represents a doubling in average spend per month, so it's hard to imagine an-yone is willing to quadruple their spend by subscribing to Tidal's top tier, merely to line

Technology

Wearable Technology

Is wearable technology the future?The first revolutionary steps into a new era of digital health give mankind a glimpse into the future.

One day mankind will look back and won-der how we ever slept peacefully without machines watching over us.

In the last few years, meaningful steps have been made towards this, somewhat idyllic, image of the future. The release of the Ap-ple [NASDAQ: AAPL] Watch, on the 24th April 2015, will almost certainly be the most significant step yet. This is partly due to the technology itself but, perhaps more signif-icantly, can be attributed to the hordes of die-hard Apple fans that, for the purposes of scientific advancement, constitute po-tential data collection points.

In the first week of 2015, customers around the world purchased half a billion dollars’ worth of apps and in-app purchases on Ap-ple's App Store. Particular notice should be paid to one of the major software develop-ments, that Apple have announced. This is a platform called “ResearchKit” which links medical researchers with this online cus-tomer base, or network of data points.

One fantastic example of the amazing po-tential of this platform is “Share the Jour-ney”, developed by Sage Bionetworks. This app, designed for survivors of breast cancer, uses a combination of specific questions and tasks to monitor various symptoms.

Dr Kathryn Schmitz, of The University of Pennsylvania was involved in the creation of “Share the Journey”, and described how this innovation allows scientists to collect “research quality data from a huge number of participants”. Increasing the available data pool, mathematically speaking, reduc-

es the percentage uncertainty in the results. This can help efforts to accurately identify risk factors and can help efforts to save lives.

Organisations such as the Mount Sinai Hospital in New York are already planning clinical trials that will be conducted using this platform. Yvonne Chan, Director of Personalised Medicine and Digital Health, commented that "This is a new era”, and “this is truly revolutionising the way clinical research could be done in the future.”

This “uber-bullish" estimate deserves every skeptical comment it has attracted. It is sim-ply far too soon to say which, if any, compa-ny will dominate this market. However, in-vestors seem unable to forget Apple's track record. The success of iTunes showed how a single, easy to use, platform could ultimate-ly change the balance of power in a sector.

The great potential of this field is such that the progress embodied by the Apple Watch and similar devices, such as Sam-sung's “Gear S”, can be seen as insufficient. Although the Watch can provide move-ment and heart beat data, it is not able to measure other critical indicators, such as glucose level or blood pressure. The obvi-ous scope for second and third generation developments provide convincing evidence for a monumental upside in a long term Apple stock purchase. Apple may well have a huge impact in countries, such as the US, where healthcare is provided privately. The consumer, who can more accurately predict their healthcare requirements, potentially has far more power when negotiating in-surance premiums.

The morality of such a development is hotly contested. Is it right for your insurer or gov-ernment to know so much about you? Will this technology increase the divide between rich and poor? These questions may well slow the development of institutionalised usage of wearable technology. However, in the long term, the march of technology in this direction seems inevitable.

One of the key restrictions on sales, for de-vices such as the Apple Watch, is the low penetration of debit and credits, especial-ly with regard to their internet banking facilities, among many growth-market consumers. For example, Nigeria has just 19% penetration, according data from the Worldbank, and Ghana has only 11%. For comparison, the US has a penetration of 72%. Companies, such as Apple, whose devices require online payment for apps or other digital content, such as smart watches, must wait for this infrastructure to develop before they can be introduced to these markets.

Finally, it deserves to be underlined that wearable technology is not limited to watches; other products may have the abili-ty to access a far wider market.

To some extent, more realistic, future “wear-ables” may not even be wearable. The same bio-metric scanning technology, that we hope to see in future watches could be far sooner adopted in shirts as they do not re-quire small sensors. The potential for inno-vation in this field is limitless, in the scope of its potential humanitarian applications.

In conclusion, recent developments in the field of wearable technology grant us a glimpse of the future. As always, this has profound implications, and potential for responsible investment opportunities. This is almost certainly an area that deserves significant scrutiny, and which may well re-ward early investment.

Simon CumminsBA History and Philosophy

14 USIS Review May 2015

Samsung's sterling performanceSamsung mark a glittering start to a new addition to the smartphone market on pre-sale orders.

15

The launch of the Samsung Galaxy S6 and S6 Edge on April 10th has stormed to a re-cord breaking number of pre-sale orders from leading phone companies. T - Mobile have doubled the number of pre-sale or-ders, compared to the launch of the S5.

The smartphone is set to boost Samsung's profits to the highest they have been in the past three quarters. In contrast, the Sam-sung Galaxy S5 failed to lure Android buy-ers and as a consequence profits declined rapidly towards the end of last year.

The company's boss has admitted that the S6 Edge is limited edition. Samsung's CEO JK Shin has disclosed that the curved edge is hard to manufacture, which will limit the availability of the device. Although the CEO has not admitted the reason behind this, rumours do suggest that this is due to the curved glass protecting the display.

Despite this glitch, JK Shin expects the new cutting edge smart phone to outsell its pre-decessor, the S5 and the most demanded Samsung phone, the S4. Samsung have also admitted that the new phones will charge in half the time of the iPhone 6, whilst getting to 40 percent charge in just over 10 minutes.

Nevertheless, the gold Galaxy S6 and Gal-axy S6 Edge releases will see some delays in the United States. The gold Galaxy S6 and gold Galaxy S6 Edge will not be availa-ble until May 1st. T-Mobile's early Galaxy S6 Edge pre-orders have come with some sur-prises of their own.

What makes the S6 edge stand out from its sibling?

According to many reports, T-Mobile Gal-axy S6 Edge users have encountered some screen defects. Needless to say, that the new Android S6 is losing touch with its tech-nical features. EE have also used the launch of the new S6 and S6 edge to their advan-tage, as they have created a system which allows people to call and text using nothing but Wifi.

It has been suggested that the S6 is almost identical to the S5 but has a different dis-play with the curved screen, which suppos-edly adds extra functionality to the device.

The S6 Edge and the S6 comes in three dif-ferent sizes, 32GB, 64GB and 128GB, and in four different colours gold, black, white and green. The Galaxy S6 and Galaxy S6 Edge also come with built-in wireless charging, giving the phone a truly remarkable unique selling point. The most notable change, alongside dismissing the option of a re-moval battery and micro SD card slot, is the large change in price.

In the case of the S6, the home button now has the option of being a fingerprint scan-ner that is touched based rather than swipe based. This is all too familiar...

Have you got Déjà vu right now?

In a bid to challenge the smartphone dom-inance of HTC and Apple, the Korean Com-pany has eliminated the famous plastic covering, instead with a metal body clad. Additionally, the Galaxy S6 and Galaxy S6 Edge are set to join the Galaxy Note 4 and Galaxy Note Edge, with the aim of com-peting against the HTC One M9, iPhone 6 and iPhone 6 Plus. All these new features, possessing similar traits to the rival iPhone, makes JK Shin's statement at a conference in Seoul “creating what is needed most at this moment rather than trying to get ahead of rivals”, seem rather ludicrous.

Adilah Hameed BA English and History

Telecommunications

USIS Review May 2015 Technology

17

Awe as Nikkei 225 index tops 20,000 A fifteen year wait ended as the Nikkei 225 index surpassed 20,000 indicating a resurging stock market.

Investors watched Japan on Friday as the country's benchmark Nikkei 225 index traded above 20,000 for the first time since April 2000. The Tokyo Stock Ex-change's benchmark Nikkei index briefly reclaimed the psychologically important 20,000 peak last seen in April 2000, 15 years ago.

The Nikkei 225 index reached 20,006.00 in the first few minutes of trading, rising 0.34 percent from Thursday, April 9th, fol-lowing gains on Wall Street and a stronger dollar on an encouraging US jobs report. The index later came off its high, to sit at 19,917.62, a 0.10% loss from Thursday.

The Nikkei was also boosted on Friday, April 10th, by Japan's Fast Retailing, which accounts for 9.9% of the Nikkei 225 mak-ing it the largest contributing factor which rose 2.5 percent to 49,700 Yen. The retailer raised its forecast for annual profit by 20% to 120 billion Yen ($998 million),

citing strong domestic and international sales at its Uniqlo stores. Aeon, a Japanese supermarket, jumped 5.5%, making it the biggest gainer on the Nikkei 225. The super-market operator forecast profit of 42.5 bil-lion Yen for this fiscal year, beating analyst estimates for 36.7 billion Yen.

Japanese stocks have climbed this year as the Bank of Japan (BoJ ) supported the mar-ket with an unprecedented asset-buying programme, while domestic pension funds tweak their allocation targets to favour eq-uities.

Abenomics, the three-pronged economic revival programme implemented by Prime Minister Shinzo Abe, is showing signs of progress with companies raising wages. The Japanese economy is still struggling out of a recession from the second to fourth quar-ters of last year, but weak growth and sub-dued inflation has convinced investors that more stimulus is needed. The BoJ maintains

a plan to expand the monetary base at an an-nual pace of ¥80tn ($667bn), a quantitative easing (QE) programme that has been in place since April 2013.

While Japanese economic data has stayed on the weak side, the Nikkei 225 is very much a global stock market, driven more by interna-tional than domestic factors. The weak Yen means Japanese exports are cheaper, putting Japan in a good position to strengthen their Current Account. This, coupled with strong eco-nomic data from the United States, along with a strong USD, will likely bolster the Nikkei 255 index further.

Edward Burton BA Accounting and Financial Management

USIS Review May 2015 Banking & Finance

Stock Markets

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Tech companies face increasing uncertainty

side of the business. Apple is going to intro-duce Apple Pay, an e-payment system which we have seen before from Google known as NFC payments. However, this hasn't had much success mainly due to retailers not accepting this sort of payment.

This year is also primed for tech IPO'S, Snap-chat, Spotify, Pinterest and Uber have all shown interest in public stock listings. Pin-terest may be the biggest stock since Twitter and Facebook. Although the company cur-rently has no form of income, steps are be-ing taken to introduce advertising revenue, and with 6 more times traffic than Twitter, Pinterest is definitely attracting the atten-tion of investors. Spotify may also be filing for an IPO after asking Goldman Sachs to raise $500 million in funds. An IPO could value Spotify at a massive $10 billion and has a strong subscription base of 10 million which is growing.

Large tech companies face competition from low cost manufacturing competitors; an example of this is the Raspberry Pi com-puter, which is on sale for an outstanding $35, whereas other CPU processors could cost in excess of $100. Low cost products have also become very popular in the mo-bile phone market; Oneplus a mobile phone tech start-up has received huge attention upon the release of an affordable phone, priced at $300. This has caused Oneplus to make a recorded $300 million during 2014

Banking & Finance USIS Review May 2015

Stock Markets

and with two new phones coming out this year; Oneplus may see a relatively large in-crease in profit.

Google have had somewhat of a trouble-some year, the main factor contributing to this is the constant government interfer-ence over privacy policies and lawsuits filed by the EU.

Google faces a fine of up to $6 billion from the EU in an anti-trust lawsuit which is equal to a quarter of profit. This isn't the first time Google has been under intense inves-tigation by the authorities and various reg-ulatory bodies. There have been multiple lawsuits in the U.S and attempted congress bills such as SOPA which have made inves-tors feel bearish about Google stock.

Although, Google is in the process of de-veloping innovative products such as a self-driving car and interchangeable phone with parts, these products may not be seen until 2020 at the latest which is driving down the price of the stock. Another prob-lem Google is facing is that social media sites such as Facebook and Twitter and driving away their advertising revenue to-wards their own sites and since advertising is Google's main source of revenue this is worrying investors.

What is being done to combat this? Well for starters, Google is diversifying its market and spending up to $11 billion in developing products for new markets. Whether this risk will pay off in the long term is difficult to predict currently but investors will be keep-ing a very close eye on these developments.

David Gooddy BA Accounting and

Financial Management

The success of tech companies in 2015 will depend on a number of factors. We see the introduction of new products such as smart watches, virtual reality gaming, Windows 10 and a number of new smartphones. If sales of these items do well we may see companies such as Samsung and Sony hit high share prices.

Having said this, tech companies face an increasing risk of cyber-crimes. Last year Microsoft and Sony were both hit by outag-es on their gaming networks after hackers attacked servers. This subsequently caused the share price of Sony to fall by as much as 2% and has led to a loss of $170m in profits.

Apple has been one of the most puzzling stocks of the year with the stock lacking energy and trading comfortably at $124 per share to $126.

The above chart shows a technical analy-sis of Apple, as you can see there is an up-ward trend in the stock and analysts have commented that the stock is bullish in the long term. The Apple Watch may drive the stock even further; however some analysts only see this as the beginning and see Ap-ple heading towards a trillion dollar mar-ket capitalisation within 12 months. FBR Capital Markets Managing Director Daniel Ives commented that Apple may be able to reach a $185 share target if they are able to focus some of their efforts on the software

Technology companies are observing challenges and opportunities amid increasing volatility and tighter regulatory requirements.

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Sterling in a downward spiralSterling weakens sending cost-push inflationary pressures through an economy dependent on imports.

In a blow to both our summer holiday cash and the current government's election hopes, sterling has plummeted to a five year low against the dollar of $1.461, raising a huge red flag over the UK economy just before the General Election on May 7th.

The pessimism looming over the pound has been attributed to a raft of weak economic data which reveals that industrial produc-tion and construction both unexpectedly slowed during February.

The news comes as data from the Debt Management Office shows that foreign in-vestors sold a net £14bn of gilts (UK treasury securities) over the two months of January and February, pointing to a lack of offshore optimism towards the UK economy.

Britain's building sector caused the biggest stir as it registered a surprise 0.9% contrac-tion in February, which was far below econ-omists’ expectations of 2.2% growth and failed to reverse a 2.5% shrink in January. The data marks a second annual decline in construction industry growth, down 1.3% from the previous year. The numbers sug-gest that in the first quarter of 2015 UK eco-nomic growth will be weaker than the lowly

0.6% seen at the end of last year, providing ammunition to those calling for a further increase in monetary easing policy and sup-porting the case that interest rates must re-main on hold.

With a further month of looming uncer-tainty before the General Election, analysts from top banks are warning of a ‘Lehman moment’ for the pound which could plunge

to levels reminiscent of the depths of the fi-nancial crisis.

With the prospect of a Labour government, which could be bad for the deficit or a Con-servative government, that could take us out of Europe, volatility has been higher than ever in the GBP/USD market and looks set to continue for some time after the elec-tion.

Banking & Finance USIS Review May 2015

Exchange Rates

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The real possibility of a hung parliament casts uncertainty over the pound and has the potential to lead to further weakness. International investors seem to have taken this uncertainty badly, and some senior an-alysts have warned of a possible ‘re-rating’ of the UK economy as investors look to oth-er G7 countries for stability.

The current account deficit reached 5.5% of GDP last year and may soon be flirting with 6%, the worst in Britain's peacetime history. The official line is that this is chiefly an anomaly caused by short term distortions in investment income, but foreign inves-tors are growing wary of this benign story. The worry, and reality, is that cash is drain-ing out of the UK like water down an open plughole. This has warranted the bank of England's Financial Policy Committee to place the current account at the top of its list of “domestic risks”.

The deficit points to the fact that Britain has needed to use money from foreign in-vestors to facilitate domestic spending.

Bank of England governor Mark Carney has touched on the subject in the past, stating that the record current account deficit was “not an immediate cause for alarm” but adding; “Nonetheless, sustained borrowing from abroad to consume at home is hardly a recipe for a balanced and sustainable ex-pansion.”

Although the current account deficit re-mains manageable, there is concern over what may happen if the UK economy suffers some kind of financial shock, and whether this deficit would make it more difficult for the economy to recover.

Despite this new worrying data, the UK re-mains one of a few major economies in the world which isn't keeping investors awake at night. With the Eurozone and Japan bat-tling stagnation, China facing the prospect of a hard landing and the US poised to hike interest rates there are many reasons to re-main cautiously optimistic.

Whilst the new data is weak, there is hope

that the UK economy will stabilise after the uncertainty of the general election. The cur-rent account deficit remains in the sights of the Bank of England who will aim to manage it to ensure that the UK can move forward and beyond the poor first quar-ter economic growth figures. The Bank of England's target is to be experiencing in-flation by the end of the year, allowing for the possiblity of short periods of deflation. So whilst the road ahead looks rocky for the pound, there is plenty of faith in it's resur-gence. Joshua Timmons

BEng Aerospace Engineering

USIS Review May 2015 Banking & Finance

Exchange Rates

Investments & Strategy USIS Review May 2015

Startups

Investment in tech startups hit record levelsLondon-based tech startups have received record levels of investment in 2015, indicating growing confidence in this sector.

As startups in Silicon Valley - the epicenter of the tech world - continue to flourish, the ripples appear to be increasingly felt else-where. This certainly appears to be the case in London, as investment in the technology sector has hit a record high, suggesting that the City's attractiveness continues to rise.

Technology firms in the capital have gained over half-a-billion dollars in backing since the beginning of the year. In the first quar-ter of 2015, tech startups such as WorldRe-mit, Farfetch and Shazam have received multi-million pound funding. In sum, Lon-don's tech companies attracted over $680m (£459m) in venture capital, illustrating an increase of around 66 per cent when com-pared to the same quarter of the previous year.

Investments in the first three months of the year have therefore exceeded the pre-vious record of $411.6m secured in the final quarter of 2014. Furthermore, the record figure also amounted to more than the to-tal investment recorded in the sector for the whole of 2012. At the current rate, invest-

ments in London's tech startups are on track to break past $2 billion this year.

Significant investments into London were made by some of the most well-known global venture capital funds, including Sil-icon Valley firm Andreessen Horowitz in-vesting in online payments company Trans-ferWise ($58m) and virtual worlds creator Improbable ($20m).

Amongst other companies gaining sub-stantial investment, WorldRemit, the mon-ey-transfer startup, raised the most of any other in the first quarter of 2015 - a $100 million round in February. Such an invest-ment will allow WorldRemit to extend its existing reach of 50 send countries and 117 receive countries, and expand partnerships with Mobile Money wallets operated by tel-ecoms companies in Africa, Asia and Latin America.

Alternatively, another industry that has been strong in London is the wider area of e-commerce, and specifically retail and fashion technology. Among these, Farfetch,

which aggregates offerings online from smaller boutiques, took in an $86 million round led by DST. The online retailer has been growing from strength to strength since it was launched in 2008 by José Neve. This latest investment means that it joins the "Unicorn Club" - an elite group of busi-nesses that were started since 2003 and are valued at over $1 billion by public or private investors.

News of such large investments from around the world in London's tech industry has sparked suggestions that it is fast be-coming a ‘technological hub’. Commenting on the suitability of the City as a tech pow-erhouse, Ismail Ahmed, founder and CEO of WorldRemit said, “London is the ideal place to start a fintech [financial technology] company, as it is a technology hub as well as a financial services hub.”

He continued, “There is an abundance of world-class talent in the city, and the con-venient time zone, which enables commu-nication with Asia and the Americas in same working day, is an attractive factor for us as

20

an international money transfer service.” Similarly, Eileen Burbidge, London technol-ogy ambassador and venture capital firm Partner at Passion Capital, said: “This quar-ter is the most exciting yet in London's tech development, as we have seen companies based in the capital attract substantial new investments from some of the world's most tech-savvy and influential investors.”

Also, agreeing with the sentiments of Ahmed and Burbidge was Gerard Grech, CEO of Tech City UK, a technology cluster lo-cated in Central and East London aimed at being comparable in the future with Silicon Valley. He comments, “2015 looks set for the record books as the UK earns its position as a global tech leader.” Arguing that it has been a great 6 months for the London tech industry with the likes of WorldRemit, Far-

fetch, JustPark, TransferWise and Shazam “smashing” through their funding targets, he suggest that the increase in venture capi-tal investment into London in the first quar-ter of 2015 comes as “no surprise” due to the wealth of innovation. “With 44,000 people working in the fintech [financial technolo-gy] space alone and record levels of invest-ment in 2014,” Grech comments that the capital is the ‘engine of Tech Nation’.

However, such optimism must be greeted with a certain degree of caution. Despite high and increasing levels of investment, many of the British companies that get backed by investors then decide to move, or at least increase their presence, in the US. In reality, an influx of US cash may not always result in building the capital's tech scene, as the availability of finance for companies as

USIS Review May 2015 Investments & Strategy 21

they grow larger is often cited by European start-ups as the reason they relocate to Sili-con Valley.

Nonetheless, the figures appear to indicate that London-based technology start-ups are proving they can access the interna-tional capital they need to grow into major global companies. Although critics may suggest that the UK technology start-up scene has been somewhat over-hyped, re-cent successes have proven that there is scope to believe in such hype.

Ross McWhir BA Economics and Philosophy

Investments & Strategy USIS Review May 2015

Alternative Economics

Ha-Joon Chang's Alternative Economics Ha-Joon Chang challenges the widely regarded ’free market economics’ principle.

As an Economics student, I am used to hav-ing the free market ideology professed as gospel at every given opportunity. This is ac-centuated as the best economic model for growth and development; however, I feel Economics isn't enough of an exact science for this to be an undisputed truth.

The support for alternative thinking for Economics is gathering much pace, allow-ing students to challenge the philosophy of Laissez-Faire Economics. To coincide with Ha-Joon Chang's visit to Sheffield, this ar-ticle summarises his key thoughts on free market policies expressed in his excellently written ’23 Things They Don't Tell You About Capitalism’ book from 2010. Several of these points will challenge the way you view eco-nomic theories and models that have been presented as fact by reductionist lecturers and textbooks alike.

To challenge free market advocates, you must first recognise the fact that a truly free market doesn't exist. Free market policies aim to eliminate regulations and restric-tions on economic activities, claiming they create barriers for resource allocation.

However, a truly free market is neither fea-sible nor desirable. Certain restrictions ex-ist that even the most ardent free market economists wouldn't contest, such as an-ti-slavery and child labour laws. Thus, these rules have become so accepted that they are ignored in the argument of free markets. Free market economists fail to recognise where to draw the line and thus are chas-ing an idealistic free market which is not possible. Restrictions and regulations aren't spoilsport activities; they are necessary im-plementations for a successful economy.

Another concept taken for granted in sev-eral economic models is that of ‘rationality’. This assumption underpins several eco-nomic theories and states that, given all the information available, people will make the best decisions. When this strong assump-tion is relaxed, several models become meaningless. I am not arguing that humans are inherently irrational, but the main issue

with the rationality assumption is that, even given all necessary information, humans are bounded by their ability to process it. For instance, in the Management School, we have access to an incredible wealth of data on the Bloomberg Terminals. Just because I have access to the accounts and news of thousands of financial assets, does that mean I am suddenly going to make millions on asset markets? No, because my ability to benefit from it is limited by my understand-ing of it. Thus, it is difficult for me to make the best decision given the wealth of infor-mation at my disposal.

The crisis of 2008 demonstrates this per-fectly, if bankers and hedge fund managers were rational, why were so many incorrect decisions made? Given the information available, surely activities such as sub-prime lending were irrational. When this fantastical assumption of pure rationality is relaxed, it is far easier to appreciate why some economic models are so wide of the

mark when explaining reality.

My next points concern the labour market, while textbooks will persuade you that wages are purely supply and demand deter-mined, the main factor in wage determina-tion is certainly political. This is because the main determinant of the labour supply is the level of immigration permitted by gov-ernment legislation. This means that the government can heavily influence the me-dium term wage level through immigration policy.

I also wish to bring to your attention the over exaggeration of the value of education on productivity. While I am not suggesting education is a bad thing, it has many bene-fits aside from the labour market; its neces-sity for a productive economy is overstated. We are taught that education is essential to increase an economy's human capital, and this has only been reinforced by the recent government obsession with educa-

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Alternative Economics

tion spending. However, I would argue that most knowledge generated from schooling has little impact on productivity.

Thus, education has a diminishing impact on productivity at best. I would suggest that most higher education courses act as a signalling process to employers to display transferable skills. The likelihood is that I won't have to find a Cournot equilibrium price in my career, but having an Economics degree signals to employers that I have at-tributes such as time-management, deter-mination and numerical skills.

This obsession with education has reduced the value of a degree whereby ‘everyone’ has one, thus its value diminishes. To stand out in the graduate labour market, students feel the need to undertake Master's degrees and PhDs in order to compete, despite learning little productivity boosting material. As economies benefit from technological ad-vances, the requirements of those operat-

ing machines falls, meaning that education has even lower returns to productivity. This has subsequently created a resource misal-location due to market failure; if left to the free market this will only continue to occur, intervention is required to prevent these ef-fects worsening.

Another economic ‘truth’ that is taken for granted in most academic teachings but I wish to challenge is the assumption that agents operate purely in self interest. In sev-eral theories, such as consumption, invest-ment and political theory, we are taught that agents only seek to maximise their own welfare, ignoring any consideration for other parties. While this is another conven-ient assumption to make before creating models to forecast people's behaviour, it is a very reductionist one. There are many other factors to consider which have differ-ent effects on people's behaviour. Evidence for this is the ‘work to rule’ strike method, whereby dissatisfied workers only work

to the terms stated in their contract and do little extra. The fact this is proven to re-duce output implies that workers usually do extra work that they are not contractu-ally obliged to do. This evidence of acting in spite of one's self interest challenges the economic presumption which is strongly assigned to many theories, and again pro-duces misleading conclusions.

Furthermore, free market advocates often try to convince people of ‘trickle down eco-nomics’, which aims to justify short term in-equality and upward income distribution as a long term benefit of all. The analogy is that the wealth created by the rich will ‘trickle down’ to the working class and make every-one richer. While this is a satisfying analo-gy, in practice it simply doesn't occur. This is because free market policies that make the rich richer, such as deregulation and tax cuts, create a permanent income inequality increase. We are taught that a reduction of rules and restrictions allows greater profit

USIS Review May 2015 Investments & Strategy

Acquisitions

Shell swoops and acquires BG GroupShell have acquired BG Group in an unsurprising £47 billion takeover

It's a deal that has finally ended years of speculation. The acquisition of BG Group (LSE: BG) by Royal Dutch Shell PLC (LSE: RDSA) for $70bn, has been expected for some time. BG Group, Britain's third largest energy provider experienced a 20% fall in its share price in the 12 months through to April 2015. This was due to unstable man-agement, volatile relationships with stake-holders and troubled operations. The oil giant, Shell, has subsequently taken advan-tage of this instability in an attempt to ex-pand its market share. By the time the deal is finalised early in 2016, Shell is expected to have a market capitalisation of $250 billion. This is subject to the constraints imposed by regulatory bodies and contractual obli-gations.

It is hoped the takeover will consolidate market share for Shell and compensate for the fall in oil prices over the previous year. Shell said the mega-takeover would allow it to boost its growth strategy in liquefied natural gas and deep water. Acquiring BG will allow Shell to add 25% to oil and gas reserves and 20% to the production market and in deep water oil exportation off the Brazilian coast.

Ben van Beurden, CEO of shell highlights this benefit “BG will accelerate Shell's fi-nancial growth strategy, particularly in deep water and liquefied natural gas two of

shell's growth properties and areas where the company is already one of the industry leaders.” The competitiveness of BG's natu-ral gas position could allow hell to surpass American competition.

However, this acquisition is cause for con-cern for Shell's investors, who worry about the long-term future of the company. They worry that reserves aren't being replaced quickly enough. This takeover has also come at a cost of the shareholders contentment; who believe that management are wasting cash on acquisitions, which could have been given to the loyal cohort of shareholders.

The acquisition demonstrates the way the money has shifted in the energy industry. Shell highlighted the increasing attractive-ness of transport, refining and distribu-tion activities, offering less risk and bigger margins. Together, both produced 45 mil-lion tons of liquefied natural gas last year, nearly 20% of the total global output. This horizontal integration is hoped to increase Shell's market dominance.

Shell is currently more gas focussed than oil, however, the acquisition implies that gas is more promising than oil. BG will boost Shell in the global gas market. However, the global gas industry has high start-up costs, making it difficult for new competitors to enter. Low prices are proving a challeng-

ing environment for the profitability of the new company and could make for exciting market prospects over the next 12 months. However, BG has promising operations in-cluding growth assets in Australia and Bra-zil and a highly competitive liquefied natu-ral gas business.

This highly anticipated takeover might lead to more takeovers occurring. An example of this might be Tullow, a British oil and gas explorer. Tullow have increasing share prices since the acquisition of the BG deal, having fallen since last summer. This may be because small firms such as Tullow, with enthusing but often high-risk plans are ma-jorly exposed in the current environment.

However, the takeover also suggests that gi-ants in the field are no longer exempt from potential takeovers. Often regarded as ‘too big to buy’, BG has been subject to a takeo-ver.

Another potential downfall of the takeo-ver is the ever-increasing negative balance sheets. Shell is undertaking a huge task; BG's net debt currently stands at $12 billion. It is questionable as to whether it is a good idea to accept this additional debt and the stresses these debts create, especially with tumbling oil prices. It may have been wis-er for Shell to take over a smaller company who specialises in horizontal drilling and hydraulic fracturing, as they are proving that they are better at cutting excess costs and are better at adapting to recent mar-ket fluctuations. Perhaps this merge is best summarised by The Economist's metaphor: “Dinosaur's may mate to ensure the survival of their species. But this is an age of mam-mals”.

Charlotte RidleyBA Business management

Elizabeth LaniganBA Business managment

2524 Investments & Strategy USIS Review May 2015

Alternative Economics

seeking opportunities which creates better resource allocation, the basis of capitalism. However, such a relaxation of rules allows the rich to increase wealth quicker than the poor (for instance through income and capital gains tax cuts). This creates inequal-ity but doesn't create the growth needed to justify it. If anything, the side effect of these policies, greater macroeconomic stabili-ty, has contributed to recessions. Since the 1980s, when developed economies adopted free market policies on a wider scale, growth has slowed, inequality has widened and the frequency of recessions has increased. As the poor have a higher marginal propensi-ty to consume, the money saved by the rich

as a result of these policies could be put to better use economically in the hands of the poor, supporting the multiplier and thus economic growth and equality. Thus, it begs the question, are these free market policies that preserve the wealth of the rich but hin-der growth promoted for that very reason?

In conclusion, while Economics is taught as an exact science, the fact we suffer from huge economic problems proves this isn't the case in reality. Economics should be taught as more of a puzzle, we should be taught to challenge these questionable pre-sumptions as they hinder decision making in real life scenarios. While I accept rational-

ity and self-interest are convenience based, they seriously undermine the conclusions of several studies and models. As students, I feel we are taught to accept more than chal-lenge them. When we do challenge them, we realise that the free market isn't the per-fect economic miracle it is presented as. Ha-Joon Chang concludes “free market policies have rarely made countries rich in the past and rarely will in the future.”

Thomas WilsonBA Economics

Spotlight

Trevor Williams

26 USIS Review May 2015

Trevor Williams - Chief Economist at Lloyds A look back at the career of recent guest speaker; Trevor Williams, who is now Chief Economist at Lloyds Bank.

Trevor Williams graduated from the Uni-versity of London with a BA (Hons) and Masters Degree in Economics. Whilst he was studying for his PhD, Trevor was em-ployed as a lecturer at various universities across London. Williams was offered a po-sition as an economist for the UK Civil Ser-vice whist still in his studies and it was a few years after this that he joined Lloyds bank-ing Group, which has lead him to become a renowned voice within the banking sector.

Trevor is currently the Chief Economist at Lloyds bank and leads the research team that supports the bank's trading and sales activities. This team provides an in-depth analysis and reports on topical economic, financial and industry issues. He regular-ly writes articles for publications and is a member of the Institute for Economic Affairs Shadow Monetary Policy Com-mittee. The committee is made up of City economists and academics, who form a group that has to meet once a quarter to monitor the Monetary Policy Committee's Bank Rate decisions and to make rate rec-ommendations of its own. The MPC (Mon-etary Policy Committee) that Williams is a member of, is the oldest ‘Shadow’ MPC, as it was set up two months after the official MPC began in July 1997.

Williams is also a visiting Professor of Bank-ing and Finance at the University of Derby, whilst occasionally lecturing at universities across the UK such as Cardiff, Birmingham

and Manchester. The University of Sheffield was lucky enough to have a recent visit from Trevor Williams, courtesy of Sheffield Man-agement School, where he gave an interest-ing presentation on the ‘Risk and Vulnera-bilities in the world economy’. As previously stated, Trevor Williams reg-ularly appears in the financial press. He writes for various Lloyds TSB publications and other media such as MoneyFacts, The Sunday Express, City am and Economia. He is also on the editorial board of Economia and the Journal of Corporate Treasury Man-agement. A recent publication by Williams to feature in Economia was that entitled ‘The International Market on our doorstep’.

In the article, Trevor states that there is a large opportunity for small and medium businesses to expand into the internation-al market that is ‘right on our doorstep’ and that it is important for businesses to explore all available opportunities that could help a firm identify new markets and expand.

Williams has also had one of his books re-cently published. In April 2014, as part of The Wiley Finance Series, Trevor has his book entitled, ‘Trading Economics: A guide to the use of Economics Statistics for Trad-ers and Practitioners’ printed. The publica-tion is a practical guide to understanding how key economic and market statistics drive financial market trends and how to navigate them to your advantage.

The renowned economist is also the co-founder of the charity ‘Through the Looking Glass’, which aims to help young people from less affluent areas, learn about city professions. The charity gives young people an introduction into various profes-sions, an opportunity to meet people from leading firms and the chance to acquire tips for starting a career in those professions.

Charlotte Jackson BA Business Management

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