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Friday, May 26, 2006


Mathematician Kurt Godel prevents me from saying so 'completely'—but, there's truth in math. And there's math in music. Modus ponens: there's truth in music. There's also rhythm in music and rhythm in the markets. And lessons in both--you just have to listen.

The Who's Roger Daltry belted out: "we won't be fooled again". Depeche Mode sang "never again is what you swore, the time before.” As is said of history, it doesn't necessarily repeat itself—but it does rhyme. Despite the wisdom from the school of rock, bubble after bubble occurs, separated roughly by the memory of a generation. We seem to fall victims to the same hyperbole disguised through time.

President Reagan wasn’t quite Diogenes, but he had a healthy dose of cynicism and even channeled Depeche Mode with his own Policy of Truth: "Trust, but verify". Here's a story why: A few years ago the founder of a technology company (to remain unnamed) gave a talk to a few of us. He explained the rise in popularity and media coverage behind a technology that he would go on to sell commercially, which I now call the “Secondary Source Fallacy”.

Here’s what happened: This company founder had about 10 really close friends. And one year he noted that two of them were using this particular technology. One year later, he observed that four of his friends were using it.

So he went ahead and wrote a proselytizing article in a small technology journal with a readership of a few hundred people that said usage of this technology was growing 100% annually. Now of course he knew, and we all know that such a sample size (going from n=2 to n=4) is meaningless and insufficient—but it didn’t stop Business Week from running a full cover story on this technology. And the coup for this entrepreneur was that the magazine repeated the statistic and said that this technology was doubling in use every year. Of course they footnoted it “Source: [that little dedicated technology journal]”.

So the entrepreneur then took liberty to go out to investors and market that “according to Business Week, the market is doubling…” The only thing that was really doubling was his unjust credibility. But the credulous investors cut him some pretty large checks and the hype cycle lasted long enough for him to cash out.

Let’s turn to a game:

To play you must pick a number from 0 to 100. But to win you must pick a number that you think will be as close as possible to 2/3 of the average of what everyone else’s guess will be. So, if you think everyone would pick 50, you should pick 2/3 of that which would be 33. But if everyone else realizes this also, then you should pick 22. But if everyone else is thinking this also then you should go down to 14.

You can see taken to its mathematical extension where this is going—all the way to zero. But we know from personal experience and from markets that people don’t behave as mathematical theories predict. In fact, many people in the above game pick numbers of 50, many do in fact pick zero, but the best odds you have of winning typically hover around you picking a number between 15 or 20. That’s because most people go two degrees of what other people think and not further.

I often refer to such games as Keynesian beauty contests. From the man himself:

“...professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view.

It is not a case of choosing those which, to the best of one’s judgment, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth, and higher degrees.”

Like a game of chess—it’s not enough to think a few moves ahead—you must think at least one move ahead of the number of moves your opponent thinks. Or as I’ve previously recounted more colloquially: two guys are in the woods when a bear comes running. One starts running, the others shouts, “it’s no good—you’ll never outrun a bear.” The running guy turns back and says, “I don’t have to. I only have to outrun you.”

by josh wolf


Wednesday, May 17, 2006

Overview of FEMIP 2005 Achievements

An overview of the Facility for Euro-Mediterranean Investment and Partnership (FEMIP) activities in 2005 shows that remarkable results have been obtained with a total volume of signatures amounting to Euro 2.2 bn for 23 new operations in Mediterranean Partner Countries , slightly over the already significant figure realised in 2004.

Following completion of the 2005 activities, the total volume of projects signed by FEMIP since its inception in 2002 rose to Euro 7.2 bn for 76 operations supporting the modernisation of economies, the establishement of a propitious climate for investment, the development of private sector, and the creation of job opportunities.

Throughout this second full operational year since the reinforcement of FEMIP decided by the European Council in December 2003, lending activities and special “reinforced FEMIP” operations reached assigned targets, as ongoing economic and financial dialogue was further strengthened between European countries and Mediterranean partners.

Consolidation of FEMIP operational activities

Lending and Risk Capital Activities

FEMIP Department has managed to bolster new commitments in favour of private sector in the Mediterranean region, with around half of total projects signed aimed at supporting SMEs and Foreign Direct Investment. More specifically, while private sector projects represented 49% of total volumes signed in the year, they represented circa 60% of the number of projects signed in the region (14 private sector projects out of a total of 23).

As for risk capital operations totally directed to the private sector, they rose to EUR 45 m (2%), more than doubling last year amounts .

In terms of sector allocation, the bulk of the lending was directed towards the infrastructure sector (EUR 1,269 m or 58%), comprised of transport (EUR 640 m or 29%), energy (EUR 529 or 24%) and telecoms (EUR 100 m or 5%). Global Loans to support SMEs accounted for EUR 650 m (30%), while industry and environment for EUR 140 m (6%) and EUR 90 m (4%) respectively.

In terms of geographical distribution, 42% (6 projects for a total of EUR 930 m) of signatures occurred in Turkey, reflecting the big boost in local and foreign investment into the country given by the prospect of future accession to the EU, 38% in the Near East (10 projects for a total of EUR 834 m) and 20% in the Maghreb (6 projects for a total of EUR 430 m). 2005 also saw the resumption of FEMIP operations in West Bank/Gaza strip, with two operations signed, with particular emphasis being put on improving electricity infrastructure as well as providing support to SMEs.

A significant increase compared to 2004 was registered in disbursements. This marked increase in disbursements, representing approximately 80% of new annual commitments, can be seen as reflecting the special emphasis placed over project implementation.

Consolidation of “Reinforced” FEMIP” new operational instruments

2005 also saw the consolidation of the new operational instruments created within the framework of the “Reinforced FEMIP” over the course of 2004:
By the end of the year, 26 technical assistance operations for an overall value of EUR 21.3 m had been contracted under the FEMIP Technical Assistance (TA) Support. Geographically these funds were divided as follows: Maghreb 50%, Near East 35% and Turkey 15%. Over 60% of the funds were allocated to the infrastructure, environment, water and wastewater sectors, reflecting to a large extent the Bank’s traditional areas of activity in the region. Direct private sector support, mainly directed at strengthening the lending capacities of intermediary banks for global loans and setting-up new investment funds, continued to absorb 30% of all TA funds.

2005 was also the first full operational year for the FEMIP Trust Fund (FTF). By year-end, the FTF had reached a total size of EUR 33.5 m in funds committed provided by 16 different donors (15 Member States, plus the European Commission). Over the course of the year, seven projects, for a total amount of EUR 3.4 m, were approved by the FTF Assembly of Donors.
Three Special FEMIP Envelope (SFE) operations were approved in 2005 in Morocco, Jordan and Lebanon in provisions to higher risk operations.

Fostering Dialogue amongst Euro-Mediterranean Partners

Institutionnal Forum

The FEMIP 5th Ministerial Meeting took place in Skhirat-Rabat, Morocco, on 20 June 2005 and reviewed the policy issues confronting Mediterranean Partner Countries in their quest for sustained and sustainable growth and development. Discussions between the 35 Euro-Mediterranean Finance Ministers addressed water and sanitation issues and the development of the region’s transport, banking and financial sectors. For the first time, the meeting was twinned with the Euro-Mediterranean ECOFIN Council.

On this occasion, the FEMIP Representative Office in Morocco was officially inaugurated with the objective of ensuring coordination with the local authorities, the banking sector and enterprises. This action further strenghened FEMIP direct presence in the field, with a total of three offices located outside the EU, in Cairo, Tunis, and Rabat.

The outcomes of the next FEMIP Expert’s Committee meeting held in Vienna on 21 and 22 March 2006 and the results of the workshop on “Harmonisation of Procurement Procedures in the Mediterranean Region” organized by the EIB on 21 November 2005 in Luxembourg will serve as a basis for the works of the 6th Ministerial meeting which is scheduled to take place on 25 and 26 June 2006 in Tunis.

Euro-Mediterranean Partnership

2005, which has been designated as the “year of the Mediterranean”, was concluded with the celebration of the Xth anniversary of the Barcelona Declaration during the Euro-Mediterranean Summit in Barcelona on 27-28 November. In a context where demands for an enhanced political and social partnership emerged, the role of FEMIP as an efficient financial and cooperation tool was commended and confirmed in the “Five Year Work Programme” consistently with the Euro-Mediterranean ambitions for a free-trade area by 2010.

Furthermore, FEMIP took part in several activities held on the margins of the Summit including:
• The “Euro-Mediterranean Cities Conference”, Barcelona, 25-26 November 2005
• The “Euro-Med Regional Conference”, Barcelona, 25-26 November 2005

FEMIP also actively contributed to the “First Euro-Mediterranean Ministerial Conference on Transport” held in Marrakech on 15 December 2005 by the UK Presidency of the EU and the European Commission, in collaboration with the Moroccan Government.

On 21 November 2005, as a result of its substantial role in developing economic and financial dialogue between the two sides of the Mediterranean, the EIB was granted the status of permanent observer to the Euro-Mediterranean Parliamentary Assembly.

Ongoing Dialogue with Partners from the Private Sector

A series of activities on specified subjects were promoted throughout the year in collaboration with other financing institutions and Mediterranean Partner Countries.

• The “Euro-Mediterranean Investment Summit” held in Marseille, on 13-14 January 2005 explored the concrete actions that could speed up progress in investments and exchanges in the Mediterranean region.

• On 17 March 2005, the EIB held a conference in Istanbul “Investing in Turkey” on the role of private and public sector promoters from Turkey and abroad with regard to Turkey’s EU Accession.

• On 28-29 November 2005, the “Regional Forum on the Investment Climate in the Southern Mediterranean Region and the Middle East” was held in Cairo, jointly organized by the European Commission, the World Bank Group and the EIB in collaboration with the Egyptian Ministry of Investment.

Reinforced Cooperation with International Financial Institutions

In the framework of the Strategic Partnership signed on 3 May 2004 between the European Commission, the EIB and the World Bank concerning their action in support of the economic and social development in the Mediterranean Partner Countries, the EIB and the World Bank Institute decided to step up their cooperation in the field of the knowledge economy by signing the “Work programme 2005-2006” in May 2005.

On 13 May 2005, a letter of intent was signed by the EIB and the European Development Finance Institutions (EDFIs) to promote joint financing of private sector projects, enhancement of institution-wide coordination, joint technical work and policy dialogue. The letter of intent confirmed the already strong cooperation existing between the EIB and the EDFIs formalized within the Framework Agreement on Financial Cooperation and Exchange of Services adopted in January 2003.

Following discussions which had started in 2004, the EIB, the European Commission, and the African Development Bank Group (ADB) signed a Memorundum of Understanding in August 2005 to enhance the effectiveness of their co-operation in supporting the development programmes in the African countries. Priority areas of cooperation include joint financing of projects supporting private sector and regional cooperation, and information exchange on debt relief, poverty reduction and macro-economic reform.

On 13 December 2005, the EIB, Agence française de développement (AFD) and KfW Entwicklungsbank (KfW) concluded an agreement designed to enhance their cooperation in the Mediterranean countries and African, Caribbean and Pacific States in which they operate.
This agreement represents a milestone in the partnership policy promoted by the EIB aimed at coordinating the efforts of all European development players within a formal but pragmatic framework.

Helen Kavvadia

Principal Communications Officer


Monday, May 08, 2006