Koller: It applies to most parts of the world. If you are a purely local business, in Europe or Asia, for example, then it’s less of an issue. But, if the US were to experience a severe recession, it would probably affect everybody. And then, of course, there are those businesses that are directly impacted—companies that export, import or compete with US companies. A lot of companies, even if they appear to be local, they’re competing with US-based companies, or they’re trading with US-based companies. So, the impact is felt far beyond the US.

GF: Are more companies growing frustrated with US volatility and seeking opportunities in Europe and the APAC region?

Koller: For most companies, it takes years to build or to change strategies from a geographic perspective. Some of the companies I talked to are thinking about these things, but, at this stage, you don’t just break into a market in a couple of months. If you want to build a business in a new country, or if you want to change your supply chain, these things take time. So it depends. If your supply chain is highly specialized, that could take years to restructure. If your supply chain is simple or there are lots of other producers, and you can switch from one country to another, that’s a little bit easier.

Bringing things back to the US is also very time consuming—no matter what industry it is. People are thinking about it and making plans, but for the most part, the timeframe of any kind of major structural change is fairly long, and you don’t want to commit to it until you probably know more about what’s going on.

GF: In this latest edition of your book, did you touch upon digital assets or how companies are building their own reserves?

Koller: We don’t address it, and I’ll tell you why. For the most part, a lot of what people are talking about is not a currency. We call it a cryptocurrency, but it’s not a currency. It is a speculative investment. And the nature of these speculative investments is unlike a stock or a bond. There’s no inherent valuation. We won’t know what the answer is eventually. It’s purely a function of supply and demand of investors and sentiment for many of these cryptocurrencies. It’s like investing in vintage automobiles or fine art. It’s nothing more than that. As far as I’m concerned, that’s why we don’t touch on it, because you can’t do anything with it, and then I wouldn’t understand why a company would put money into that. Because you’re really betting on market sentiment. You’re betting on other investors wanting to get into that market and pushing up the price.

GF: What about stablecoins?

Koller: Stablecoins are cryptocurrencies tied to real-world assets, usually the US dollar or another fiat currency. The more reputable ones are backed 1:1 by actual reserves. From a corporate valuation perspective, they’re not particularly interesting. If a cryptocurrency is simply pegged to the dollar but involves additional transaction costs, it doesn’t offer much advantage over using dollars directly.

There’s been talk for decades about something replacing the US dollar as the world’s reserve currency—whether the euro, the yuan, or others—but those alternatives face their own challenges. For a currency to be viable for transactions, especially everyday purchases, it needs to have a stable value. That’s why something backed by the dollar or another relatively stable fiat currency is necessary.

However, stablecoins don’t really factor into the strategic decision-making of most companies or investors unless they’re directly involved in currency or cryptocurrency markets. And that’s a niche area I’m hesitant to speculate on.

GF: Are there certain basic mistakes that happen at a company that hurts valuation or leads to their failure?

Koller: It’s rarely that a company is fundamentally unsound. The real issue is often the gap between how companies value themselves and how the market values them. Many CEOs and CFOs believe their companies are undervalued, but when we analyze hundreds of companies each year—using discounted cash flow models and peer comparisons—we usually find valuations are within 10% of fair value. That margin is small and can fluctuate day to day.

Companies, on the other hand, often have financial projections that are inconsistent with their market values, because the market doesn’t give them credit for things that they hope to achieve, unless they have a strong track record. For example, if an industry grows at 4% annually and a company projects 6% growth, the market may only price in 4%. If the company hits just that, it’s not a failure—investors never expected more. It’s not a disaster from a valuation perspective, because investors didn’t expect that anyway.

The bigger issue is the disconnect we saw in the dotcom bubble. There’s sometimes a disconnect, you might argue, with some of the big mega [magnificent seven] stocks. One of the characteristics I look for, in terms of potential overvaluation, is who are the investors in a company. And, in particular, what share of retail investors? And if you see a very high share of retail investors inside in a stock, that is often a sign of overvaluation. Retail investors don’t crunch the numbers. They typically buy based on emotion and hype. It may be a great company, but that doesn’t mean you should pay 100 times earnings for it.

GF: Could that also complicate M&A strategies?

Koller: Yes, although that does create an opportunity. Very few companies have the guts to take advantage of it. If my shares are overvalued, that’s the time when you can use those shares to buy something, and that’s great. We’ve seen a couple of those, but not that often.

GF: Over the eight editions on valuation, what’s the most surprising change that you’ve seen in how companies wrestle with value?

Koller: The most surprising thing isn’t how much companies have changed, but how little they have. And it’s not just because we’ve written a book, but other academics have done research. Many companies remain too short-term oriented. Large firms still try to cost-cut their way to success, which only works for a limited time. And while innovation continues, it often comes from smaller companies rather than the big players.

One positive shift has been the steady decline of conglomerates. More companies are breaking themselves up into simpler, more focused entities. This trend, certainly evident in the US and to some extent in Europe as well, has improved management effectiveness and is favored by investors who value focus and clarity. That’s probably the most meaningful change—the breaking up of complex companies into smaller ones.

GF: Do the recent headlines of Google and Meta being under scrutiny and possibly broken up exemplify that trend?

Koller: I can’t speak specifically to Google or Meta, because their business units are more interconnected than, say, a company making both valves and toothpaste—where there’s clearly no synergy. What matters isn’t size but complexity, especially when businesses don’t share customers, technologies, suppliers, or distribution channels. That’s when it makes sense to consider breaking them up.

More broadly, while the trend toward focused companies has been positive, many firms remain too short-term oriented. They often blame the stock market, but that’s not entirely fair. Our research shows that about 75% of investors—whether retail, index funds, or institutions—are long-term holders. The problem is that companies tend to pay too much attention to the loudest voices, which are often short-term traders. There’s still a lot of room for companies to take a more long-term approach, and that’s work that continues.

GF: In past editions or in this new edition on valuations, has there been any sort of trend or surprising development you noticed?

Koller: One major trend we’ve seen is the globalization of equity markets over the last 35 years. Today, the shareholder-base of large companies in Europe, Japan, and Taiwan often looks very similar to their US peers. As an individual investor, you can easily buy hundreds of international funds or even individual foreign stocks—and the same goes for investors abroad buying US equities. So, from a capital markets perspective, things have truly globalized.

However, corporate behavior still varies by region. On average, European companies continue to earn lower returns on capital than their US counterparts—though the gap has narrowed, and some of the best-performing companies in various industries are European. In Asia, there’s still a noticeable emphasis on size and prestige over value creation. I’m surprised that focus persists. While it’s slowly shifting, many companies still prioritize growth and scale rather than returns, which often results in lower valuations compared to US firms—unless they’re high-growth global competitors.

GF: What will modern finance look like in the future?

Koller: I’m hopeful that AI will help us value companies more effectively. Right now, it’s good at tasks like summarizing and researching quickly, and over time it may become more capable. But while tech—and AI in particular—makes up a large share of the stock market, it still represents a relatively small part of the broader economy. Most people still need housing, food, clothing, travel—those businesses aren’t going away.

AI will be used across many industries to improve customer experience, reduce costs, or enhance products, but it’s not fundamentally going to change things. Valuations are going to be disproportionate towards those companies.  But the real question is: Will companies use AI to actually boost profits, or will those gains be passed on to consumers, like with many past innovations? For investors and executives, the key is understanding whether AI is a true source of competitive advantage. That distinction will vary by industry, but it’s central to how we think about value in the future.

United States, decisions by the Trump administration have increasingly been subject to legal scrutiny and challenged in court, and what’s legal one week may be overturned the next. As economists at BNP Paribas aptly describe it, the legal status of trade decisions moves like a yo-yo.

Meanwhile, formal and informal trade talks between sovereign nations continue moving up and down. Financial markets reflect this instability with sharp reactions. But for the corporate world, time doesn’t stop. Daily decisions must be made—regardless of the uncertainty hanging over long-term strategies. Questions abound: Will multinational infrastructure projects go ahead? Will financing for wind and alternative energy initiatives hold firm? These are difficult questions, and for many, the answers remain elusive. And yet, in this uncertainty, one sector shows remark- able resilience: innovation. In this issue, we’re proud to present our annual awards for innovation and innovators, along with a selection of some of the most dynamic innovation labs around the world. Unsurprisingly, artificial intelligence leads the way, both in concept and in real- world application. Many of the financial institutions and fintech firms recognized this year are not just adapting to the future—they are helping to shape it.

The innovations profiled by our global team of reporters and analysts are impressive on their own merits. But more striking is the broader trend they represent. Despite economic and political volatility, organizations across the financial and technology spectrum—banks, startups, consulting firms, and independent labs—are continuing to invest aggressively in R&D. Why? Because innovation is not a luxury. It’s a necessity.

This strong commitment to innovation suggests something profound: in uncertain times, looking forward becomes more important, not less. Innovation, in this context, is not merely a growth strategy—it’s a survival strategy. And in many ways, it proves to be counter-cyclical. When the present is unstable, thinking ahead becomes not just prudent, but essential.

Andrea Fiano | Editor At Large | afiano@gfmag.com

Financial institutions and corporations must navigate uncertainty and be prepared to operate under different scenarios. They cannot isolate themselves while waiting for clearer conditions. Our coverage on tariffs and trade in this issue examines tools and strategies in this highly uncertain climate to understand how corporations and financial institutions cope with the current situation and how AI seems to have even greater relevance now for many of them.

This month’s cover story focuses on a topic that clearly should be on corporate executives’ radar: the growing relevance of cryptocurrencies not just for investors, but also for corporate activities and reserves. We also examine the increasing importance of stablecoins worldwide, particularly in the US.

The annual Best Bank awards are a key component of this month’s issue, as they present the largest selection of winners by country and region worldwide. The best banks we select, often after difficult decisions among strong local or regional competitors, are not necessarily the largest— even if they often are—but the best overall considering factors like leadership and reputation, risk management, quality of services offered, involvement in innovation, and, naturally, economic performance. Again, as is often the case with this magazine, we celebrate outstanding performance frequently achieved against a challenging economic or political climate in their country or region. It may sound obvious, but it is often taken for granted: There are remarkable achievers in every economic environment.

Andrea Fiano | Editor at Large | afiano@gfmag.com

Global uncertainty—economic and geopolitical—remains high. We go to press shortly after the announcement of a 25% tariff on all imported cars and related parts in the US, with additional announcements expected in the coming days. Reciprocal tariffs from other countries against the US are widely anticipated in the weeks and months ahead. These developments will undoubtedly affect economic forecasts worldwide as the extent and duration of the tariffs remain uncertain.

Recent outlooks from research institutions seem to agree on an expected economic slowdown in the US, though not necessarily a recession, with stronger negative consequences for its neighbors, Canada and Mexico. However, all forecasters are emphasizing the uncertainty surrounding any predictions, given how much is still unclear regarding global tariffs.

“We think that the proposed tariffs, as announced, would deliver a big hit to the auto industry, stoking higher costs, higher prices, and a sharp decline in US sales,” comments Solita Marcelli, CIO Americas at UBS Global Wealth Management. “The tariffs could also disrupt supply chains, deter investments and significantly raise consumer prices. They might also ignite trade disputes with Europe, Japan, and South Korea.”

Our mission, and what guides the coverage in this magazine, is to focus not only on uncertainties and challenges, but also on ongoing regional and global trends, industries on the rise, and emerging opportunities. This issue exemplifies that approach in several ways. It begins with our cover story on the rapidly growing space industry, which has the potential to impact multiple sectors. It also features our annual Investment Banking Awards, which recognize top performers across regions, countries, and specific sectors—even amid a slowdown in M&A activity and debt and equity issuance. Our Asia-Pacific regional report highlights new financial developments and products in one of the world’s fastest-growing regions. And, of course, our Middle East supplement shines a light on several strong economic realities alongside emerging trends, such as massive investments in sports by Middle Eastern investors and sovereign wealth funds, in the region and in the West.

Andrea Fiano | Editor at Large
afiano@gfmag.com

Global Finance: What would you recommend to CEOs and CFOs navigating this climate of uncertainty due to US tariffs and trade policy as they determine their near- and long-term strategies?

Wilbur Ross: Yes, reshoring and nearshoring were some things that would develop momentum in any event. President Trump is going to accelerate that.

Whatever plan people had for relocating production, it would be wise to accelerate it. Now, whether that means moving operations to Mexico or the US, that’s another question. But the days when a company could make one component in one country, a second in another, and a third in yet another—then bring them all to a fourth country for assembly—are ending.

Therefore, it should be more of a question of to what degree you relocate facilities and whether or not to do so, and to a degree where to relocate them. The rules of origin will be much more important to Canada, but particularly to Mexico, than before. So, as long as one incorporates that into their thinking, I think relocation is the wise move to make.

GF: Is the message different for CEOs and CFOs outside the US?

Ross: Yes, it could be if they adopt policies similar to Trump’s. We are moving toward an era where what has been called “protectionism” becomes much more of a centerpiece of everyone’s trade policy. But what Europe must do to be effective is to deregulate some. The regulatory burden that European governments impose on their companies is a real impediment to reshoring. Europe has become too intrusive in the business community.

Trump has also said he will require his cabinet members to cancel an even higher ratio of existing regulations relative to any new ones they implement—higher than what we had the first time. The first time, you were required to cancel two for each one you put in. He may be pushing for as many as eight, but certainly more than two. That’s one thing.

Tax policy is the other thing. You have to look at Trump’s trade activities in the context of what he is doing overall. Between deregulation and reducing corporate taxes, he’s changing the economic attractiveness of being in the U.S. regardless of tariffs. And then when you load on top of that, a bit sturdier tariff policy, you have a combination of factors that will prove very powerful.

GF: Which means that you also think this will be the outcome of the current situation?

Ross: Okay, well, there will naturally be a lag. You can’t build a new facility of any size in 10 minutes. There may be some near-term dislocation as we face higher tariffs, but we don’t yet have the increased production to offset them.

Now, that’s not a universal problem. Many of our industries operate at only 70–80 percent capacity. Therefore, not only will they be able to meet increased demand, but this will also help them absorb part of the tariff on imported components. When production increases from 70 or 80 percent capacity, the marginal costs are very small. You’ll have that factor and probably another factor—currency readjustment. How that plays out will have an important impact on how well industries do globally in each area.

To that end, if U.S. Federal Reserve Chairman Jerome Powell is slow to reduce interest rates while Europe moves at a faster pace, that will clearly have implications for currencies.

One of my concerns for Europe is that if they lower interest rates too quickly relative to the U.S., it could have real impacts on their currency. That would hurt imports but help exports. If I were a European manager, I would be more eagle-eyed than ever about the outlook for currency fluctuations.

GF: Looking at the various industry sectors, are there sectors that deserve tariffs? Are there also sectors that should not see tariffs in these negotiations?

Ross: Well, I have focused more on those who might need it than those who might not. However, pharmaceuticals are a big import to the U.S. Since U.S. drug prices are already higher than others, I don’t think hefty tariffs on pharmaceuticals would be particularly well-fitting to our economy.

But they’re going in on the really big item—the automobile. Automobile manufacturing has caused a fair degree of factory expansion here and in Mexico. In the automotive industry, you must look at the U.S. and Mexico combined because of the concept of rules of origin. In those areas, it’s inevitable. So, I think you’re right—it will vary somewhat by industry. But for the most part, most manufacturing businesses probably don’t expect there will be more tariff burdens.

GF: Would large U.S. exporters, such as technology manufacturers, be affected negatively by this?

Ross: Well, Europe doesn’t have the technological content we have so far. The giant companies in Europe are not comparable to what we call “The Magnificent Seven” over here. Europe’s response seems to have been antitrust and tax complaints, trying to hold back American companies rather than doing things that would effectively build up a European champion.

GF: What of those U.S. industry sectors geared more toward exports? Are they at risk because of tariff reciprocity in the near term?

Ross: Well, apparel is a significant import from Asian countries, and it wouldn’t surprise me if that were to continue. Some of those brands, such as the European brand Zara, have become very, very powerful players in the US. It’s a Spanish company, but it mainly produces its material in Turkey. Meanwhile, Vietnam and Mexico have become big competitors in what we used to call sneakers. So, some things will remain there that will not be affected by the tariffs.

But remember, the real purpose of the tariffs—and one that I hope will be achieved long term—is to let the rest of the world know exactly what they must do to bring our tariffs down, namely, to bring down their own tariffs. The unexpected result of the new US tariff policy could very well be lower tariffs in the long term.

Take India, for example. India’s tariffs are extremely high on most products. Prime Minister Narendra Modi wants to industrialize India. It’ is a logical place to be competitive with China if they can meet their infrastructure needs, because Indians have very good quality manufacturing skills, technological skills, and engineering skills. They have a large population base, so there’s no reason they can’t compete. What’s been holding them back has been the need for more roads and railroads. You need things like that in the way of transportation infrastructure to be much more highly developed for India to flourish. There’s a good chance that PM Modi will do that.

Vietnam has already benefited greatly from the pressures being put on China, which will probably continue. However, Vietnam has a much smaller economy and population base, so it can’t remotely replace China.

Global Finance: Do you see a significant difference in how the second Trump administration approaches tariffs, compared to its first term, when you were Secretary of Commerce?

Wilbur Ross: The biggest difference is that we were charting uncharted waters in the first term. Namely, nobody really knew if [President Trump] had the statutory authority to put in steel tariffs, aluminum tariffs, refrigerator tariffs, or washing machine tariffs. So, we dredged up old legislation, some from 1976 and some from 1972, which were tested in court and upheld by and large.

The first thing was that it took a lot of time in the first administration to ensure we had the power to do some of the things he wanted. Now that that’s been established and he was happy with the results, the President is using tariffs much more broadly. He’s using them as a revenue measure, a diplomatic measure, and for all sorts of other purposes, such as trying to control fentanyl smuggling and controlling the border. That’s the first difference.

The second difference is that he has much more public support in general and with the Republican Party. The last time around, he was much more controversial at inauguration than this time. You saw that in the popular vote. But even more importantly, last time around, he had relatively little control over the Republican Party. There were a lot of free traders still in, particularly the Senate among the Republicans. Most of them have now retired. So that’s a big difference. And you’ve seen his ability to control the Congress in some of the notions he’s been able to force through this time, now by very skinny votes. Still, essentially this time the Republican Party in the Congress is pretty well unified behind the Trump agenda. They were not the first time.

And the last factor that’s different is back when he was in his first term, there was still the global perception that free trade was the big objective, and the business community still was very much of the view for more internationalization, more globalization of supply chains. Now, particularly because of COVID-19, there’s a rethinking of that. At this point, many business executives recognize that every time they add another country to their supply chain, they’re adding a point of vulnerability.

There was the beginning of a shift from globalization to localization, making factories closer to their consuming markets. That was coming even independently of Trump.

GF: Do you feel the administration has an overarching plan for tariff implementation, or is it being far more reactive to the situation? What did President Trump not get from the United States-Mexico-Canada Agreement (USMCA) that he wants now?

Ross: Oh, well, that’s a very good question. To answer this, we need to look at the two parts of USMCA. As you know, Mexico has been a huge beneficiary of our moves against Chinese exports to the US. Because the peso has been struggling as a currency and Mexican wage rates haven’t increased much, they are quite competitive with China when you factor in shorter shipping distances, lower in-progress inventory costs, and reduced transportation expenses.

However, Mexico hasn’t really lived up to the free trade agreement we made with them. It has not liberalized its oil and gas sector as it was supposed to, and it hasn’t made its courts more impartial—an important component of the deal. Third, with the rise of electric vehicles and digital manufacturing moving to Mexico, we need to modify the rules of origin somewhat.

I want to add that I’m not a part of the administration (now), nor am I their spokesperson. These are my personal opinions.

So, you’ll remember that under USMCA, 60%–70% of the content had to come from countries with a wage rate above $15 an hour. That rule was meant to ensure that the benefits of trade shifting to Mexico would be shared between Mexico and the U.S. Now that the types of products moving there have changed, we need to refine the rules of origin accordingly. So, those adjustments were needed anyway when it comes to Mexico.

What’s new is the fentanyl issue. Trump has been pressing Mexico on fentanyl and border security for a long time. But if you recall, during his first administration, he got Mexico to deploy 20,000 troops to the border by threatening tariffs. So that strategy isn’t new—he’s just actually implementing it this time.

In terms of Canada, things are a little different. Until now, he hadn’t needed to push Canada on fentanyl and border security. The Canadians made a big mistake in how Prime Minister Justin Trudeau responded. Trudeau’s initial reaction was, “Well, it isn’t that big a problem. It’s only a few kilos of fentanyl.”

Two kilos of fentanyl coming in from Canada can kill a lot of people. Second, we believe that as Mexico cracks down on cartels, those operations may shift to Canada. That’s why we want Canada to be prepared to address the issue.

Similarly, Trump had been pressing Canada on dairy products and softwood lumber since his first term. But for the first time, he’s decided to take a step further on softwood lumber by opening up the U.S. Forest Reserve. We have plenty of milling capacity for home building and other purposes, but the supply of stumpage (harvestable timber) has been somewhat limited. Now, that restriction is being lifted. That structural change led him to conclude that Canada’s share of softwood exports should be reduced. So, the factual situation has changed, and his response to it has evolved accordingly.

GF: What lessons did you learn from President Trump’s negotiation style when first negotiating the USMCA? To remove some of the tariffs, he’s asking for the end fentanyl smuggling, cessation of illegal immigration and Canada to become the 51^st state. How much of this is negotiation and how much is trolling?

Ross: I met President Trump by representing his creditors in the Trump Taj Mahal. I was in a very adversarial position against him. His style is very aggressive and very strong in negotiations. You see that coming through in the trade. It wasn’t quite as aggressive last time, partly because he has done a lot of business, including some real estate development in foreign countries.

Last time, he was not an expert in the more intricate aspects of trade. He’s learned a lot from the interactions that we have had with other governments then and now.

His style of negotiating is one of pushing for things very, very hard and being willing to take punitive action if he doesn’t get what he wants. You saw that with Ukraine.

With Panama, he was able to create an environment where all of a sudden, Hutchison Whampoa, turned over control of not just the two key Panamanian ports, but many other ports that it was operating. He would never have thought through that level of detail in Trump 1.0. Now he knows more about potential targets. And every time he succeeds, like with the Panama Canal, which as you remember, didn’t get that much press because it was accomplished without much hooting and hollering. Hutchison made a very good commercial decision to sell those ports to a syndicate organized by BlackRock.

One way of responding to Trump’s new policies is asking, “Well, okay, here’s something that he wants. Maybe I can turn that to my immediate commercial advantage.” Given that Hutchison did pretty well with the port sale, that’s not a bad role model for other companies.

GF: You seem very optimistic overall regarding the new administration’s trajectory and its trade policy.

Ross: Well, I am, but with one big caveat: It has to be coupled with enactment of his tax and deregulation policies. Remember, if Congress doesn’t act, the tax cuts that he enacted in his first administration will automatically go away, which would amount to a tax increase on corporations. Coupled with the tariff policy, it would be a heavy burden. That’s why it’s important that this happens.

It’s also quite important to bring down the cost of government. I’m a big fan of what Elon Musk and Trump are doing, even though I’m sure they will go too far in some cases because they’ve been moving so quickly. In some cases, they’ll have to recalibrate their course, but it’s important that Trump’s overall policies are brought to bear. It would be much better for our economy if his whole package were to go through rather than just the trade package.

In the defense sector, one of his big objections to Europe, and to a degree Canada, is that they haven’t been paying their fair share of NATO. And that’s put an undue burden on the US.

That’s changing. Indeed, some Europeans are talking about going well beyond the 2% of GDP for defense that had been NATO’s target.

You have to look at the whole set of programs. Cutting down on the ability of able-bodied people to get big [government] benefits, in many cases getting more compensation than when they were working. That will go away and will be a constructive thing for our economy because we need a higher degree of workforce participation. To grow more rapidly, we need the workforce participation rate to rise above 63%.

GF: Do you have any other concerns?

Ross: Well, there’s always the danger when you’re trying to change a lot of things in a lot of geographies all at the same time. There’s always the danger of overextending and making real mistakes. He needs to move rapidly and on all fronts for a domestic political reason: Anything requiring congressional action that isn’t completed by September will be difficult to pass, because by then, everybody in Congress will be focusing on the midterms, and they’re going to be less inclined to do anything that’s controversial.

GF: Are there any issues in which you part company with the current administration?

Ross: There are areas where we do disagree. For example, as you’re probably aware, I wrote an editorial in The Wall Street Journal supporting the Nippon Steel takeover of U.S. Steel, which is directly antithetical to US government policy. So, while I’m broadly in sync with what they’re doing, there are some very specific parts where we naturally disagree—very much.

Geopolitics is dominating the news these days. Uncertainty about the future of the global economy, political decisions by key governments, and the ongoing conflicts in Ukraine and the Middle East are central to public discourse. However, this uncertainty does not mean we can pause our activities until greater clarity emerges.

In other words, the need to report and analyze issues relevant to our audience remains unchanged, despite evolving trends and uncertain outcomes. While many key players may be cautious or even silent in commenting on recent events, we must continue to provide insights.

This month’s cover story examines the growing gap between the global need for green infrastructure and the funding available to support it. More traditional projects seem to receive a disproportionate share of funding, while more advanced and innovative initiatives struggle to gain backing. Is there enough money to fund all of this? The answer depends on who you ask.

In line with this, we present extensive coverage of Latin America, Central America, and the Caribbean in a special supplement that addresses various topics, from currencies to trade. This issue also highlights our annual Sustainability Awards, a topic that continues to spark debate worldwide in financial and political circles. Despite the divisiveness, there are clear outperformers who deserve to be recognized and celebrated.

Additionally, we analyze Kuwait’s current economic trends, focusing on ongoing reforms and efforts to diversify the economy.

Our monthly Global Salon addresses a topic transcending geopolitical uncertainty: accounting fraud detection. The conversation with Joanne Horton from Warwick Business School was stimulating and insightful, prompting us to dedicate more space to it than usual. This discussion reinforces our belief that, while geopolitical instability remains a key concern, it doesn’t overshadow the other crucial issues that authorities, corporations, and consumers continue to face.

Andrea Fiano | Editor at Large
afiano@gfmag.com

Trump, now in his second term in the White House, has made tariffs and the deportation of undocumented immigrants the topics of the day—but that is certainly not all our readers have on their minds. Questions regarding inflation and interest rates abound, as do those about currencies and the future of globalization.

Forecasting future scenarios is more complicated than usual, requiring guesses about how much of Trump’s announced plans will be implemented and when. And yet, technology cannot wait, even as it is shaped by regulation (or deregulation) and incentives. Recent developments in artificial intelligence (AI) between the U.S. and China—with new data and performance updates on China’s DeepSeek and the financial markets’ strong reaction—confirm intense competition in this key area. This underscores the ongoing contest for global technological leadership in AI.

Last month, at the annual National Retail Federation show in New York—one of the world’s largest and an impressive showcase of retail and consumer technology—two key topics stood out: AI and payments. Often, they were intertwined with new platforms, futuristic robotics, and groundbreaking offerings.

This month’s cover story focuses on real-time payments and, more specifically, their shift from the consumer space to the corporate world. The amount of money moved worldwide in less than 10 seconds is staggering, and the potential for further growth is enormous. But there’s more: some emerging economies, like India, are ahead of advanced markets in payments innovation. This mirrors what happened in telecommunications two decades ago when cellular technology leapfrogged landlines in emerging markets—enabling digital banking and payments without the need for physical banks or tellers.

Andrea Fiano | Editor at Large
afiano@gfmag.com

Our cover story this month focuses primarily on tariffs and their far-reaching consequences. It also explores the potential for a chain reaction across several global regions that could affect economic growth and inflation worldwide. Much remains uncertain regarding the size and timing of tariffs worldwide, but the early statements of the incoming US administration force some serious considerations.

An example of this uncertainty came from the US Federal Reserve. As expected, it cut interest rates a quarter point in December but changed its 2025 forecast, triggering a negative reaction in financial markets. The Fed now anticipates a half-percentage-point reduction in rates later this year—half of what was previously expected—signaling a lighter easing cycle and opening a debate on whether low interest rates will return soon. Fed Chairman Jerome Powell likened the slowdown in rate cuts to driving at night on a foggy, unfamiliar road, reflecting the broader uncertainties around the incoming US administration’s policies. The market’s response offers an early glimpse of the potential economic fallout from tariffs, particularly their impact on inflation. Meanwhile, the political fallout from a contentious congressional budget fight over funding the US government raises the stakes for the opening months of Donald Trump’s presidency.

This month, we gave Global Salon considerable attention in the magazine. Two professors, Baruch Lev of NYU Stern School of Business and Feng Gu of SUNY at Buffalo’s School of Management, discuss the results of their recent study and book on over 40,000 M&A deals worldwide, which have an astonishing 70% failure rate. Lev and Gu analyze the main reasons for this high failure rate, focusing on company size, sectors, and issues like manager incentives and due diligence. They offer practical advice on how to minimize the risks of failure.

This issue also includes our annual FX awards, which are dedicated to the memory of our late colleague Gordon Platt. These awards are presented in an environment of continued volume growth and increasing emphasis on technological innovation.

Andrea Fiano | Editor at Large
afiano@gfmag.com

The conversation followed up on our discussion last year of the exit of some foreign banks from African markets and the new emphasis this places on the expansion of domestic banks, including pan-African institutions. We also discussed the continent’s progress at developing capital markets, banks’ efforts to develop a climate finance market, and the continuing need to upgrade infrastructure, so that it can support a larger financial sector.

Global Finance: Last year, we discussed the departure of a number of high-profile foreign banks from Africa. What challenges does the continent face with regard to getting them back—and building a more robust banking sector in general?

Paula Leynes Felipe: In many of the markets where we work, there’s a recognition of the need for reform; countries are aware that only through a robust, well managed banking system can outside investment be attracted back. One good recent example is in Ethiopia, where the central bank recently promulgated a number of new regulations that have made the foreign exchange market more competitive. That, plus other reforms, are expected to drive interest from investors.

We at the IFC, together with our World Bank counterparts, are very active in providing our support to reforms that will strengthen the financial sector.

Admassu Tadesse: It’s a good question whether the tide of exits is abating or not; we saw another European commercial bank exit from South Africa a month or so ago. And so the trend continues. I think the time has come when we need to start talking about the global cost of business in terms of Africa. Because global regulations have become very onerous and an obstacle for many banks. It’s not because of what’s happening in Africa, but it creates very strong disincentives for international banks to serve banks from low-rated jurisdictions. And I think this requires more attention. Globalization has had very good effects in terms of improving connectivity over the years, but now you’re seeing a pullback.

We’ve stepped in, like other international banks, and have made efforts to bridge the gap, but the scale of the challenge remains significant. We can’t quite cover it. You even see it in terms of ratings, where the jurisdictions continue to be under heavy pressure, and there’s a lot of debate around whether something is being missed there.

The continent has started to rebound in terms of growth; 2024 will be better than 2023. But we’re still sitting at the 3% levels. That’s not enough, given population growth, and so I think we’re too comfortable with lackadaisical performance. Without attracting more investment and getting fixed capital formation to happen, it’s just going to be a very difficult situation. We have a demographic dividend that’s very attractive; everybody talks about the future where one in four people in the world will be African. But for that to be a good story, we need to make sure that those growth levels come up, and money and finance is the lifeblood of growth.

We also have a problem with perceptions being made even worse by regulations. If you’re a global bank, and you get fined $10 billion for one thing that went wrong, obviously it’s a huge disincentive.

GF: What challenges do domestic banks face in attempting to fill the gap?

Tadesse: For the past 20 to 30 years, we’ve seen an explosion in the growth of pan- African banks, and I think that trend continues. They’re getting stronger and bolder, and some of them have even made the right decision, in my view, to exit other emerging markets and consolidate their pan-African positioning.

A much bigger challenge, however, is access to medium to long-term funding, and we know that the growth agenda of Africa depends on creating long-term assets in infrastructure and industry, the corporate sector, and small- to medium-sized enterprises. The bottom line is, we don’t have enough savings in Africa. The Asian ecosystem can finance itself because they’re saving 30%, 35%, even, in some cases, 45%. That surplus is able to be intermediated, and you don’t need to rely so much on foreign savings. We need foreign savings.

GF: The other principal source of investment is capital markets, but in many African economies, they are still in their infancy. Privatization, in some cases, is helping to kick-start the sector. How is this playing out in your markets?

Fábio Eurico Correia: Angola, at this point, has one of the most developed markets in Southern Africa, but our financial assets amount to more or less 7% of South Africa’s. In regard to country comparisons, South Africa is a huge financial market, accounting for US$400 billion. Second is Nigeria with US$150 billion, and third is Kenya, with around US$48 billion. Fourth is Angola, with US$27 billion. This is for fiscal year 2023. So we are fourth in the Sub-Sahara, and looking to Nigeria and to South Africa, which are the big brothers in our region.

The state has been selling state-owned companies; when the operation was complete, it totaled more or less $50 million: not a huge amount, but it gave a lot of confidence, because it was totally liquid. Other means of doing these transactions are not so liquid; they involve letters of guarantee, other banks, other interim carries. There is a lot of work to be done going forward.

Felipe: The capital markets are a big focus for the IFC, and we recognize that they are at various stages of development across the continent. Generally, you have a limited investor base, a lot of which are large banks. There is also the need for capacity building for the issuers themselves, as well as the framework around capital markets.

In our role as a development institution, we try to provide support for markets. Currently, we are working closely with the Ethiopia Capital Markets Authority in launching a capital markets framework there.

GF: Ethiopia is launching an equity market.

Felipe: In November. They recognize the potential of utilizing the capital markets to generate long-term financing. We have teams in both Ethiopia and in Rwanda, supporting the government in developing a legal and regulatory framework that will incentivize investors to participate, since it’s very important to have transparent principles by which these capital markets operate, and also visibility to investors. We’ve also participated in some interesting transactions, particularly in Tanzania, both with NMB Bank and CRDB Bank, where we anchored their bond issuances, which are focused on sustainability and climate finance. We see the capital markets as a way for financial institution issuers to introduce important thematic areas for investors to participate in.

Tadesse: Capital markets are indeed an area of growth. Stock markets have really expanded in number on the continent; today, we have not far from 30. Of course, the problem is that they’re not deep, and they’re inactive, generally speaking. It’s one thing to get them up and going; it’s another to get significant activity to happen. There have been some lessons learned. One of the advantages of the South African exchange is it combines equity and debt instruments. Even if you have a lull in equity, you could have significant fixed income activity, or vice versa. There’s always going to be liquidity, because in many cases, if you’re able to integrate the banks themselves to do interbank lending through the exchange, then that is a regular flow that keeps the exchange active.

But that doesn’t address the underlying issue that there just are not enough firms with listings. In the case of Angola, some state-owned entities are now moving to list. In the case of Ethiopia that you mentioned, 10% of the largest telecoms company [Ethio Telecom], which is owned by the state, is going to be listed.

It’ll take time, of course, for all of this to build up critical mass. The foreign or non-domiciled investors have exited some of these stock exchanges, because, when you’re a foreign investor and you come into a stock market, you’re facing exchange rate risk, and you’re also facing the dynamics around interest rates.

Correia: Local interest rates have risen 20% to 25% range; but in the other hand, these equity investments, in certain private and local companies, are not tied to country risk/bond pricing as we knew it; and therefore, can surpass inflation and state bond securities yields. Thus, it’s a matter of carefully analyzing sector and company opportunities.

Tadesse: I think the good news is inflation is cooling worldwide, but it was 7.1% last year, and that’s been a big problem, frankly, for many of our exchanges. You actually had massive outflows; I’ve seen some countries where it was scary how much outflows there were. But this is why the whole question of the business environment is so important.

We had an experience not long ago where we helped a local investor list a company in a very small African country, and it was a very exciting moment, all the bells ringing and so on. But because the market was not active, even though the company was profitable and the valuation was going up, the stock price was not moving on the exchange. And now they want to delist. They have some holders of the equity who want to exit, but now you have an exchange, and the price is determined by the exchange. But for you to exit two years after you invest, you want to see the profits that have been retained, reflected in the price.

GF: Otherwise, it’s a loss.

Tadesse: Otherwise it’s a loss. You have to have a capital gain. These are some of the challenges we see. If you’re on the exchange, you’re subject to market forces, and if there’s no movement, you have a static price.

But I must tell you, we were very excited about the Ethiopia exchange, and we bought 10% of it, and we’ve been seeing some interesting developments. And so, it’s a question of size.

GF: Climate finance is attracting more and more investor attention. What is your perspective?

Felipe: It’s high-priority for the continent. IFC has committed to align 100% of new investments from July 2024 with the Paris Agreement. In the last fiscal year, IFC’s climate commitments in Africa totaled $2.69 billion, included $1.51 billion in own-account investments and a further $1.18 billion in mobilization. In addition, we also committed a record 29 investment transactions that are focused on gender; we feel gender financing is beyond diversity. It really is good business for banks.

In South Africa, between 2020 and 2023 we deployed about $1.6 billion in climate finance, and we strongly supported the green build-ing industry there, through our “Scaling Up Climate Finance in the Financial Sector” program. We’re working right now with the Johannesburg Stock Exchange as part of this program as part of our comprehensive approach to promote climate finance.

We’re also working with the Banking Association of South Africa to raise awareness and attract banks to the opportunity of investing in climate finance, including through the capital markets. Elsewhere in Southern Africa, we  recently did a pioneering capital market investment  in Madagascar.

There are many aspects of climate that are now getting a lot of attention from banks: not just green building, but renewable energy and sustainable finance. As it broadens out, it cuts across many of our activities on financial inclusion at IFC. In Egypt, we’ve collaborated with the Central Bank of Egypt in addition to Commercial International Bank and others, promoting climate finance.

In smaller markets, we’ve also started working on raising the awareness. What we’ve seen over the last few years is that financial institutions view climate finance as not only sitting somewhere in their CSR [corporate social responsibility] activities, but really being a significant business line for the bank. So that’s what we’re trying to replicate across the markets. There’s a clear demand; the climate finance gap in Africa runs into the hundreds of billions of dollars per year, both for mitigation and adaptation. There’s definitely a role for financial institutions to support that. The important thing is for financial institutions to be able to use the right credit perspective in assessing these financing opportunities.

GF: You mention South Africa and Egypt as two flagship countries for climate finance. Is it growing in other countries where the IFC is active?

Felipe: In West Africa and across all regions, because banks see the opportunity for this, especially in countries where the government laid it out as a primary objective. The financial sector plays a big role in realizing these objectives. The challenge for ourselves is, how we replicate this in other markets so that they also benefit from what we’ve seen in these two flagship markets.

Correia: Our bank is starting to develop these programs. It’s not huge yet. It’s in its early stages. We have oil and gas companies, and we know that’s the biggest impact they have. As a banking entity, we have a small part of the overall worldwide impact. But still, we have a role, mainly in financing new developments. These companies must comply with the government’s requirements—that is, the Ministry of Environment, etc. So they must be approved.

Tadesse: There are some exciting developments, clearly, where various institutions and partners are trying to help Africa move up in getting some significant financing going. But if you look at the numbers, the commitment so far is $300 billion, and the estimated amount required to achieve the continent’s climate action plans of is $2.8 trillion.

GF: Less than 12%.

Tadesse: Exactly. There’s a huge opportunity to leapfrog. South Africa and Egypt are, of course, the flagships, because they’re the biggest emitters in Africa. But there needs to be much more effort to ensure that the other countries embark on a greener path as they industrialize.

The bottom line is, if we don’t get carbon credit markets to work, the countries that are not involved in the production of carbon are going to say, “Well, there’s no credibility here.” But the voluntary side of the equation is nowhere near what needs to happen.

I’m hoping that in the years to come, we can use carbon credits as a key to unlock green development in Africa, because countries like the Democratic Republic of Congo (DRC) have massive carbon sinks. They can make a huge contribution to the reduction of the global greenhouse gas problem. But again, every strong economic concept is not being unlocked in practice.

Felipe: There’s one more thing to add. If you want financial institutions to participate, from a risk perspective, they need to understand what exposure they’re taking. We’ve seen a number of regulators mandate having good climate risk assessment frameworks for banks to employ in these types of transactions. But if we’re going to look at this as a business, it has to be aligned with how the rest of the institution looks at their own lending portfolio. That kind of rigor, but also being cognizant of the specific factors that drive climate risk, has to be part of the banking discipline in growing your loan portfolio. And it’s not there yet. It’ll take some work for banks to be in a place where they have the capacity to assess this in the right way. But also, again, part of what we do within IFC is we try to get banks on that path of understanding climate risk and incorporating it in their overall credit risk management framework. Because, again, it’s going to affect the overall asset portfolio at the back.

GF: Non-African observers are particularly interested in African efforts at greater economic and market-centered cooperation and integration. What is the status of these efforts?

Tadesse: One positive thing that came out of these last few years of shock after shock—poly-crisis, as they refer to it—is Africans have realized that the one thing that they have control over is integrating their own economic space:  to create a more attractive environment for investment, but also to enable Africans to be a bit more resilient in the face of a lot of uncertainties at a global level. The treaties that have been in the headlines recently—the African Continental Free Trade Area is one—are intended to help the whole continent create a much stronger value proposition for investors.

I talked about small countries that had difficult experiences with listing. Imagine creating a combined capital market for Africa. Companies in a lot of these small countries could list on a continental exchange, as opposed to tiny, small exchanges. And it applies to other markets, not just capital markets.

There’s a lot of movement in that direction. Of course, the big countries sometimes are not as committed, because they know they already have the scale, so it’s the small countries that are sometimes pushing harder. But the treaties are getting much more attention—for example, on free movement. There are subregional arrangements where people don’t need visas to travel anymore; countries like Rwanda, Mauritius, and Seychelles have abolished visas.

But of course, it’ll take time, and we need industrialization to happen. For Angola and the DRC to trade, one of the two of them needs to have something the other doesn’t have. And the problem is we don’t have enough diversification of the economies. But export processing zones and industrial development zones are being pushed. And of course, energy is critical to all of this, and the climate agenda. Because if we don’t have a transition framework that allows African countries to build affordable energy, industrialization will be prohibitive.

But I’m very excited about the prospects of green hydrogen and some other new technologies, if we can unlock it. And I think countries like Namibia, Mauritania, and Senegal will be in a position to take advantage.

Correia: I will give you a qualitative answer. For green energy to really get to a usable scale, infrastructure, communications infrastructure, and ease of doing business will be the key factors. Angola’s neighbor countries, from north to south, are the Republic of Congo, the Democratic Republic of Congo, Zambia, and Namibia. But for me, it’s easier to go to Dubai, Portugal, or Brazil. If we really want to increase this network of help within African countries, it must be easier to travel.