FOLLOW THE MONEY WORKSHOPMacro- and micro-economic storytelling

Dr. Ales Pustovrh, ABC Pospeševalnik

Dr. Aleš Pustovrh

Freelance Contributor for The Economist Intelligence Unit,

ABC Pospeševalnik,

Ekonomska Fakulteta

:00 – 9:45

Aleš Pustovrh

Presentation of a real world case where

macroeconomics and political

economics are critical to an

understanding of events (e.g., Brexit or

one of the attendee’s proposed

stories). Introduction to basic principles

and vocabulary of macroeconomics;

brief introduction to political economy

10:00 – 10:45

Aleš Pustovrh

Further introduction to political

economy. Presentation of a real world

case where a knowledge of

microeconomics is valuable (e.g.,

competition policy regarding mobile

phone providers or an attendee case).

Introduction to basic principles and

vocabulary of microeconomics

•Gathering data

•Analyzing data and developing the idea

•Presenting your idea !

Good project work requires…

MACRO-ECONOMICSfield of economics that studies the behavior of the

aggregate economy –

country economy as a whole

Case study – Slovenian budget in 2016 and 2017

‚Proračunski primanjkljaj se je lani zmanjšal skoraj za polovico – z 1,277 milijarde

evrov v letu 2015 na 687 milijonov evrov.‘ – Dnevnik, 18.1.2017

How do you report this ? Is this good or bad or irrelevent news that most people will not care about ?

Case study – different opinions among experts

Kljub tako občutnemu znižanju primanjkljaja pa Marko Jaklič z ljubljanske

ekonomske fakultete ocenjuje, da za kakšno »zmagoslavje« ni nobenega razloga.

»Če upoštevamo, da smo v konjunkturi, bi morali imeti presežek,« meni Jaklič.

Maks Tajnikar: ni razloga, da se ne bi primanjkljaj znižal tudi letos, bo lahko vlada

kljub fiskalnemu pravilu in zahtevam Bruslja lažje uresničila že izvedene

»odpustke« kot tudi dane obljube. Med drugim sporazum s sindikati javnega

sektorja, spremembe socialne zakonodaje, dvig najnižjih pokojnin, zdravstveno

reformo…

Data on the budget- Current data on expenditure and revenue of public sector:

http://www.mf.gov.si/si/delovna_podrocja/javne_finance/tekoca_gibanja_v_javni

h_financah/konsolidirana_bilanca_javnega_financiranja/

- Budget planning – current budget for 2016:

http://www.mf.gov.si/si/delovna_podrocja/proracun/sprejeti_proracun/2016/spre

jeti_proracun_republike_slovenije_za_leto_2016/

- Up-to-date official analysis:

http://www.mf.gov.si/si/delovna_podrocja/javne_finance/tekoca_gibanja_v_javni

h_financah/bilten_javnih_financ/

- Newspaper reports: https://www.dnevnik.si/1042759993/slovenija/lanski-

proracunski-primanjkljaj-150-milijonov-evrov-nizji-od-predvidenega

First observations

• We spend more than we get revenue – 9 bln EUR expenditure from the budget,

8,31 bln EUR income. This creates a deficit of 687 mio EUR.

• This deficit was much larger in 2015: 1.277 mio EUR

• Even the deficit we were planning for 2016 was larger: 839 mio EUR.

• Slovenia has a primary budget surplus – we‘ve paid 1,05 bln Eur for interest on

our loans, without those we would have a surplus of 364 mio EUR.

• THESE ARE FACTS THAT SHOULD BE REPORTED.

Analysis:We need to compare this in time and space

In order to do so, we usually compare deficit with GDP – it is a proxy for

measuring if we will be able to finance our expenditure.

In 2016, we do not have the estimated GDP yet. Officially, UMAR was predicting

exactly 40 bln Eur of GDP for 2016 (but they are usually wrong !). This means we

had a estimated budget deficit of 1.7 % of GDP.

• We need to compare this for Slovenia for longer time period (the best result

since 2008 – but we have never had a surplus – ever !)

• We need to compare this with other countries (Germany – surplus !)

• Official data source: EUROSTAT - http://ec.europa.eu/eurostat/data/database

Analysis: What does that mean ?

• Can we spend

more now ?

• YES, but…

What does it mean ?

• …not necessarily ! We made commitments to the EU and our lenders that we

will keep lowering the deficit and try to repay our debts !

• Check the deficit targets for 2017:

http://www.mf.gov.si/si/delovna_podrocja/proracun/sprejeti_proracun/

• Some signs are not too promising:

http://www.delo.si/gospodarstvo/finance/bruselj-v-sloveniji-tveganje-krsitve-

proracunskih-pravil-eu.html

• Analyse why the deficit is lower than expected: expenditure was low, but also

tax receipts !

Conclusion

• If we want to keep our obligations (and we are legally obliged to do so !) we

need to keep lowering our deficit.

• But tax receipts are only 2.7 % higher that last year – in spit of fast growth

(close to 3 % in real terms, probably more than 3 % in nominal terms – check

Stat.si for nominal data, not real data since they use fixed prices) !

• The reason for low deficit is strong control over budget expenditure !

• Essentially, austerity measures !

Political economy

Technically, it is clear what needs to be done: we need to keep lowering the

deficit.

• In the past, we succeeded due to austerity measures. We‘ve increased the

taxes but failed to collected more of them.

• Now, at least 2 of the coalition parties are opposing austerity measures in spite

of the legal requirements to continue lowering deficit (there are good economic

reasons for that, too). But technically&economically this is not a question.

• This is a political question ! Next year, the elections are coming and each party

wants to get more money for its voters.

ANY

QUESTIONS ?

MICRO-ECONOMICSStudy of the economic behavior of

individual units of an economy

(such as a person, household, firm, or industry)

Case: Cimos

Data sources for micro

◻Annual reports:

http://www.cimos.eu/index.php?page=letna_p

orocila&item=99

◻However: good analysis of Cimos ! -

http://www.drugisvet.com/naslovnica/ali-res-

resujemo-cimos.html

ANALYSIS - MICRO

◻How much is Cimos worth ? Why ?

◻Simple rule: calculate its net present value by

adding and discounting its future positive and

negative cash flows.

◻You have all the data in teh annual reports –

for the past (use cash flow or EBITDA)!

Analysis

◻However, how will you know about the future ?

◻However, these calculations might have

different results for different investors !

⬜The calculation for the government is different

(unemployment benefits) than for the current

owners (banks) than for the single investor left.

Analysis

◻This depends on the plans that will influence their

future cash flows.

◻Who knows what will happen in next 5-10 years with

CIMOS ?

Analysis: what can happen ?

◻Scenario 1: It goes bankrupt

◻Scenario 2: It continues the same way it has in the

past

◻Scenario 3: It is bought and sold its assets

Analysis

◻If it goes bankrupt it will cost the government

(actually 2 government !) unemployment

benefits and lost taxes that would be paid. In

Slovenia, there are 2000 employees.

⬜Outside Slovenia another 3000.

Analysis

◻CIMOS Group is still making app. 30 million

EBITDA per year. But the core company‘s

EBITDA has fallen to 15 million in 2015 (do not

forget they also have the 2016 data already but it is not

public yet).

◻It could fall further is revenue from sales fall

faster than its costs. !

Analysis

◻Rule of thumb I use: 5 years EBITDA is the value of

the company. In CIMOS: 150 million EUR.

◻ The offer from potential buyer is 105 million + 70 million

into equity = 175 million EUR

◻This is based on the assumption it will continue

to be as profitable as before ! But…

Analysis

◻But the company still has 190 million EUR of

loans and obligations (270 mil. In the whole

group) and app. 235 million EUR of assetss

(320 in the whole group).

◻Quite big difference between the core

company and the group !

Analysis

◻And CIMOS‘es customers are very reluctant to

continue working with company that is in very

bad financial situation: it has only 42 million EUR

capital but 270 million obligations (15%:85%).

They might prefer to buy from its competitors if

its financing structure does not improve (that is

why the acquirer wants to invest 70 mil EUR in

equity).

WHAT WILL

HAPPEN ?

Most common mistakes I see in the articles

◻Send questions by email and just publish answers (no

insights !) - TAKE YOUR TIME TO DO PROPER ANALISYS

◻Using one-sided sources – challange yourself with

reading the opinions that you do not agree with !

◻Non-critical quoting of sources (all they say) – a lot of the

sources have agenda (remember the mayor from the

morning)?

Most common mistakes I see in the articles

◻Too much focus on non-stories and ingorant

about other stories (CIMOS vs. OUTFIT7)

•Gathering data

•Analyzing data and developing the idea

•Presenting your idea !

Good project work requires…

• Structure

• Written text

• Emphasis (design elements, graphs…)

• Delivery (passion)

• DIFFERENTIATION

Rules for good presentations…