Dear,
As we commented in the previous article, the war in Ukraine has accelerated the process of the energy crisis that has been brewing for years. In fact, when humans extracted the first barrel of oil and built an industrial society on top of it, they were taking the first steps toward the demise of the oil economy.
Capitalism is a system that needs continuous growth to sustain itself, and as industrial growth involves the consumption of limited resources, it is unsustainable on a planet of finite resources.
Unsustainability is intrinsic to the industrial society of the last 200 years. But when a system evolves in an unsustainable way, there comes a time when it becomes unstable, and that is what most of the people will find unexpectedly in the coming months.
The scarcity of resources, fundamentally energy, will weaken economic growth very soon. Weak growth, combined with the largest debt in the history of capitalism, results in an economic environment of capital scarcity.
The price of oil jumped from 60 to 120 USD per barrel in the last 12 months, and some analysts predict that the price could reach 200 USD per barrel in the coming months.
In my opinion, this analysis is incorrect, the price of oil cannot remain above 100 USD per barrel for a long period of time, because a significant part of the demand cannot support these price levels and disappears. This destruction of demand is nothing more than a destruction of capital. The coupling between energy consumption and economic growth has been amply demonstrated in economic science. And again weak growth, combined with excess debt (the largest in the history of capitalism) makes us enter into a new economic environment of capital scarcity.
For years, economists have taught us that it was necessary to fight against oligopolies and monopolies to facilitate economic growth. This was the case in an economic environment with abundance of natural resources, but this is no longer the case, nor will it be for a long time.
For example, the concentration of GDP and the increase in inequality is nothing more than a consequence of the scarcity of capital.
Thus, we are entering an environment of scarcity of capital and its distribution is concentrated in fewer and fewer economic agents, and this has consequences.
From the perspective of Capital Optimization, the critical success factor is to identify the economic agents and processes best adapted to the new environment. These economic agents will be able to gain market share with the disappearance of their competitors, and thus compensate for the reduction in unit margin, which will be inevitable in this environment of capital scarcity.
Approximately 70% of the world's GDP runs on SAP systems, and while the new economic model deepens the concentration of GDP, this percentage will grow. This makes SAP the key player in the capital optimization process.
Add to the above the collaboration/communication scenarios that the Internet of Things or Artificial Intelligence (SAP Leonardo) is bringing, which multiplies the potential of SAP in its role as the main integrator of business processes between companies.
With all this, SAP has become much more than a software system and it is in fact the "language" spoken by most of the world's GDP.
However, financial services have remained isolated from this integration process, but this has placed them in an untenable position.
The optimization of solvency and liquidity is based on the same principle as the optimization of inventory, transport costs or production capacity. All system optimization processes are based on the second law of thermodynamics which, in a nutshell, tells us that an optimization process requires reducing the entropy of the system with information.
Communication theory teaches us that the transmission of information is more efficient using a standardized communication language, and that the efficiency grows with the number of agents using the same standard. If SAP has become the standard communication language for 70% of the world's GDP and growing, there is no alternative, the financial system must speak SAP for optimizing capital.
If the previous statement is true, why has the financial system remained disconnected from the integration and standardization process that has occurred in the non-financial economy?
There are multiple reasons, but the main one is that the pressure to optimize capital was never high enough.
Many of us believed that the financial crisis of 2008 represented the beginning of the end of a financial system driven by volume and not by capital optimization, and for a few months it gave that impression. But the “Too Big to Fail”, the Troubled Asset Relief Programs, the Bailouts, the Quantitative Easing Cycles and the growth of Shadow Banking made it clear that this was not the case.
However, as a physicist, I knew that an unsustainable system someday becomes unstable, and decided to work on a capital optimization model, that would be necessary when the capital scarcity made the financial system unstable.
This day has come; the combination of weak growth, as a consequence of the scarcity of energy resources (although not only energy), and the excess of debt (the largest in the history of capitalism) makes it urgent to transform the financial system, from a model based on volume to a model based on capital optimization.
Our system, built on SAP technology, integrates with the processes of the real economy (managed with SAP), and determines its capital and liquidity consumption. With this information, it proposes financial instruments that cover deficits or excesses of capital and liquidity, adjusting the price to the risk of the operation.
Making an analogy, it works like inventory replenishment and optimization processes, in which we reduce the cost of inventory obsolescence, sharing information on real demand, transport capacity, etc., but optimizing solvency and liquidity instead of inventory obsolescence.
We are confident that this value proposition creates a significant competitive advantage in today's capital-scarce environment. And the advantage will increase while the environment worsens, as unfortunately it will happen.
We are working on presenting our system to the market and looking for business partners and investors. If you are interested, do not hesitate to contact me at ferran.frances@capitency.com
Looking forward to reading your opinions.
Kindest Regards,
Ferran Frances.
www.capitency.com
Join the SAP Banking Group at: https://www.linkedin.com/groups/92860
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Ferran.frances@capitency.com
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