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Capital Finance International

Spring 2018

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Editor’s Column Looking for a Floor

Although increasingly hard to envision, decentralized cryptocurrencies may have a place somewhere in the financial universe. For now, the forty or so digital currencies with a market cap in excess of $1bn more often than not resemble a Ponzi scheme whereby value is determined by the speed of circulation rather than by aggregate supply. It’s a Wild West out there with hordes of adventurers – on both sides of the equation – jumping on the crypto bandwagon, looking to make a quick buck – as in actual greenbacks. There is now a wide variety of virtual money being traded from dogecoin, an elaborate prank, to dentacoin, a cryptocurrency for dentists which already boasts a market cap of close to $2bn.

Editor’s Column

Earlier this year, the alt-coin universe welcomed the petro – Venezuela’s attempt to source some desperately-needed cash. The country’s government claims to have raised $5bn in pre-sales from buyers in 133 countries. Russia, however, declined an offer to accept payment in petros for an outstanding $3.15bn debt, suggesting the Venezuelan government use the proceeds of the initial coin offering instead. Meanwhile, bitcoin continues its downward slide crashing through the $7,000-mark in a plunge that saw the pioneering currency lose some 60% of its value in barely four months – looking for a bottom that apparently isn’t there. In the US, the price to “mine” a single bitcoin in March stood at almost $5,000 – a possible floor. Bitcoin miners in South Korea ($27,000 / bitcoin) and forty other countries are already operating at a loss. Undeniably, blockchain technology has a great many useful applications, including in fintech; however, running a currency is not one of them 8

– at least not without a complete overhaul of the financial-economic system as we know it. Bitcoin and similar initiatives that bypass central banks represent a return to gold standard days whereby the value of a currency was linked to that of a scarce and finite commodity. As such, cryptocurrencies are an attempt to do away with monetary policy altogether and undermine the power of the state to issue fiat money – the bits of inconvertible paper, or numbers on a computer screen, that we attach value to. Bitcoin was launched in 2009 as a hard money alternative – a currency supported by the users for the users, one outside the system and requiring no intermediation. Its designers consider soft (fiat) money the root of all economic evil. However, the idea of a democratic coin taking over the world has since been discarded as mining operations professionalised and now require large investments in specialised hardware and oodles of power. Mining coin is no longer a pursuit for the masses. Moreover, disputes about its future and the need to scale up have already fractured the bitcoin community making a mockery of the promise, hardwired into the legacy system, to never issue more than 21 million coins. Last August, the first bitcoin fork came into existence – bitcoin cash. Since then another two forks have appeared: bitcoin gold and bitcoin diamond. Another one – bitcoin platinum – turned out to be a fake copy of the original fool’s gold. Apart from all sorts of practicalities, such as the outlandish power requirements of bitcoin transactions, it is highly questionable that doing away with central banks and their monetary policies may be desirable – except, perhaps, in the case of Venezuela and similar countries with severely mismanaged and dysfunctional currencies. Hard money implies deflation: the continuous revaluation of a currency discourages its use as a means of exchange. Deflation grinds any economy to a halt – it, and not inflation, is the enemy. | Capital Finance International

Bitcoin and its many colourful offshoots are deflationary by design, perhaps because its designers are motivated by politics in a classic case of the road to hell being paved with good intentions. However appealing, the quasi-anarchist notion of marginalising central banks and straightjacketing government spending implies a return to a barter economy or even worse – a barter economy based on a Ponzi scheme. What could possibly go wrong? Some of the world’s most respected economists are now plotting a depoliticised alternative cryptocurrency. Chairman Jacob Frenkel of JPMorgan Chase International, Nobel Laureate Myron Scholes, Dan Galai who co-created the Vix volatility index, and other academics have joined forces to create “saga” – aka the thinking man’s cryptocurrency. The new coin will differ radically from current offerings: for starters, saga will be tied to reserves of fiat currencies deposited at commercial banks. It will also do away with anonymity and comply with anti-money laundering legislation. Saga does not want to conquer the world or undermine financial authority and merely aims to become a complementary global reserve currency. The official launch of the anti-bitcoin is expected in Q4 2018. The imminent appearance of saga begs the question: why use it in the first place? People and businesses can just keep using whatever currency they already trust. Saga exposes the flaws of cryptocurrencies by replicating normal fiat money – a seemingly pointless exercise. Much ado about nothing and, as such, not unlike bitcoin in its various guises. There may – somewhere, sometime – be a legitimate place and role for cryptocurrencies – it just hasn’t been found yet.

Wim Romeijn Editor,

Editor’s Column

> Letters to the Editor

“ “ “ “

However interesting Yanis Varoufakis’ book on economics, the fact remains that he was unable to actually accomplish anything for his country in its hour of need. It is all good and well to know and prove that those who hold the purse strings are wrong, unless you can change their minds that knowledge is of little practical use. Yanis Varoufakis may know a lot about economics, he seems rather clueless when it comes to dealing with reality. GEORGE ALEXIOU (Thessaloniki)

Thank you for your write-up on British Airways. It is most refreshing to read about a legacy carrier with pluck and an eagerness to innovate. I am a frequent flier on BA long-haul flights and have found the onboard service impeccable, even when seated in coach. I am pleased that the airline is determined to expand its footprint and up the frequency of its flights. Good job. WILLIAM S JACKSON (New York)

Your coverage of the rather peculiar Brexit phenomenon has been outstanding. As Project fear turns to Project Real, the UK has now been reduced from a rule maker to a rule taker. Though it would perhaps be unfair to call the country a vassal state of the EU, it is getting perilously close to that status. There is not a single aspect to Brexit from which benefits may be derived. Now it seems that Britain won’t even get its fish back since quotas and fishing right have been transferred – in perpetuity! – to Spanish and Dutch trawlers in return for a quick profit. As I’ve suspected throughout this ordeal, the UK – most regrettably – will have to comply with whatever the EU decides. Luckily, Michel Barnier has proven a gentleman equipped with the patience of a saint. YOLANDA JONES-DANEMAN (Manchester)

Spot on. The World Economic Forum has outlived its usefulness. It is actually sad to watch all these people loaded up with selfimportance gather in some Swiss town to figure out how the rest of us should be living – sustainable or otherwise. What amazes me most is that these folks do not at all seem aware of their behavior which can only be described as preposterous. The forum is no longer about allowing the high and mighty an opportunity to chitchat among themselves: it has become an event for lecturers who know best and wish to bestow their vast knowledge on others less enlightened. FEDERICO DA ROCHA MELLO (Brasília)


Spring 2018 Issue

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Until you provided a few valuable insights, I was quite unaware of the size, role, and importance of the European Investment Bank (EIB). It would seem to be the unnoticed giant of multilateral development banks. I look forward to the EIB expanding its operational scope to include non-member states. Now that China has set up its own multilateral development bank, it would seem logical for Europe to follow suit. That could perhaps in time offer an alternative source of financing to countries uncomfortable with accepting funds from a bank that is – in essence – controlled by a dictatorship, albeit one of “the people”. PIERRE DE COURT-LAMBERT (Dakar)

Thank you for highlighting one of the world’s most famous living composers of classical music. Arvo Pärt has provided me, and millions of others, with beautiful and soothing music, offering solace after a hard day at the office and joyful Sunday mornings. I had no idea about his background and life story and was surprised at both. Arvo Pärt is a most wonderful hero indeed. FRANCISCO CARRANZA (Montevideo)

I’m afraid Americans are being led down the garden path by their president. Mr Trump’s attitude of spend-now-worry-later spells disaster. It is amazing that journalists and commentators forget that Mr Trump’s business had to file for Chapter 11 bankruptcy protection all of four times. It is what happens when you borrow recklessly and are not concerned about returning the money. The trouble is that Mr trump will no longer be president when the bill comes due. He’ll be fine, the taxpayer not so much. FRANK A WILSON (Houston)

UAE: Dubai

Your coverage of the much-derided European defense effort was most opportune. This is a continent that is done with waging war. While at it, Europeans were pretty good at fighting each other and people elsewhere around the world. So, I for one am pleased that Europeans have, perhaps belatedly, come to their collective senses. Given that Russia need not be the enemy even with Vladimir Putin in charge, there is no need to arm Europe to the teeth. As it is, the continent is well defended. Increased military cooperation between EU member states makes much more of a difference than buying additional hardware. KLAUS ROLFSON (Bonn)


Editor Wim Romeijn


Assistant Editor Sarah Worthington


Executive Editor George Kingsley Production Editor Jackie Chapman

Editorial Tony Lennox Kate Stanton Steve Dyson John Marinus Ellen Langford Naomi Majid

Columnists Otaviano Canuto Evan Harvey Tor Svensson Lord Waverley

Otaviano Canuto, World Bank: Services as Engine for Development (14 – 15)

Nasdaq: Driving ESG (16 – 18)

Cover Story: The End of Easy Money (30 – 37)

Distribution Manager Len Collingwood

Subscriptions Maggie Arts

MECASA Representative Sohail "Sol" Kiani

Director, Operations Marten Mark

Publisher Mark Harrison

Capital Finance International Meridien House 69 - 71 Clarendon Road Watford Hertfordshire WD17 1DS United Kingdom T: +44 203 137 3679 F: +44 203 137 5872 E: W: Editorial on p20-25 © Project Syndicate 2018

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DEWA: The Electricity & Water Utility of the Future (132 – 133)

IFC: Green Growth in South Asia (187 – 189)

Asian Development Bank (ADB): Green Bond Market (198 – 199)

UNCDF: Mobilising Deposits (200 – 201) | Capital Finance International

Spring 2018 Issue


As World Economies Converge

Otaviano Canuto

Evan Harvey

Nouriel Roubini

Preston Byrne

Edmund S Phelps

Martin Feldstein

Tor Svensson

Mohamed S Younes

Book Review

Spring 2018 Special Swiss Corporate Excellence: Keys to Lasting Success

48 – 79


40 – 47

EY Germany

Arche Associates

NLB Asset Management

Banca Agricola Commerciale

Arca Fondi SGR



Obituary - Stephen Hawking

Porsche Schweiz


80 – 105 Awards

Rewarding Global Excellence

106 – 125


Pangaea Securities

West African Power Pool

Aquashield Oil & Marine Services

Barclays Africa

Natal Joint Municipal Pension Funds

African Risk Capacity

126 – 153

Middle East



The Access Bank UK

Afghanistan International Bank


Lucid Investment Bank

Tanqia Siyana

AAN Digital Services

Islamic Bank of Afghanistan

GCC Board Directors Institute

154 – 161

Editor’s Heroes Men and Women Who are Making a Real Difference

162 – 175

Latin America

Banco Económico

LatAm Logistics Properties


EY Argentina

176 – 183

North America

World Bank



184 – 201

Asia Pacific


BSC (BIDV Securities Company) New World Development


Lembaga Tabung Haji (TH)

Asian Development Bank



Final Thought | Capital Finance International


> Otaviano Canuto, World Bank:

Can Services Replace Manufacturing as an Engine for Development? Manufacturing expansion has been a vehicle for job creation, productivity increases, and growth in non-advanced economies since the second half of the last century. First in Latin America, followed by Asia, and a renewal of production systems in Eastern Europe, rising manufacturing levels served as a channel to transfer labour from low-productivity occupations to activities using more modern technologies coming from abroad.


his was facilitated by the easier cross-border transferability of manufacturing technologies relative to other sectors, particularly of labourintensive segments in the recent era of production fragmentation and value chains. Once certain minimum local conditions were in place, convergence toward productivity levels in frontier countries was relatively faster than in other sectors. Columnist

Two issues are now casting a shadow over possibilities of replicating or deepening such a process. First, the very same “footloose” nature of manufacturing also leads to its high sensitivity to minor changes in overall competitiveness factors, such as labour costs, real exchange rates, business environment, infrastructure, and others. Over time, this has led to waves of relocation and spatial concentration in specific countries in the developing world for each of the tiers of sophistication in value chains. Chart 1 depicts the large variation of experiences with manufacturing employment and gross value added between emerging markets. Second, ongoing technological changes reducing the weight of labour costs are threatening to unwind some of the motivation for transferring manufacturing to non-advanced economies – as we approached in the previous issue of Capital Finance International. The historic recent experience of using manufacturing exports as a platform for high growth will likely become harder to expand, sustain, or obtain in the case among latecomers. At the very least, one may say that the bar in terms of requisites of infrastructure, business environment, local availability of skilled workers, and other competitiveness factors is going up. Natural resource-based activities offer opportunities for technological upgrades, productivity increases, exports and – volatile but positive – economic growth, but not the 14

"There is more complementarity than substitutability between productivity and competitiveness factors between manufacturing and services." massive job creation of manufacturing. As such, a question increasingly asked is whether services could eventually foot the bill in terms of quantity and quality of job creation in developing countries. Would ongoing technological changes lead to higher transferability of technologies and tradability of services? To what extent local manufacturing bases would still matter as a precondition for production of services? Those are among the questions approached by Mary Hallward-Driemeier and Gaurav Nayyar (2017, Trouble in the making? ISBN: 9781 4648 1174 6). They call attention to how advances in information and communications technologies (ICT) have made some services – financial, telecommunications, and business services – increasingly tradable. That process has been making feasible the diffusion of technology and the possibility of exporting in addition to attending local demands. The authors also highlight the high potential of reaping economies of scale in those services highly impacted by ICT, especially as very low marginal costs are incurred by adding units to production. R&D intensity has risen, with as an example, expenditure in business services rising close to 17% in 2005-10 from 6.7% in 1990-95. On the one side, like manufacturing, opportunities for local technology learning and | Capital Finance International

raising productivity in developing economies may be created by increasing international tradability and technology transferability. On the other, unlike labour-intensive manufacturing, those services are not expected to be a strong source of jobs for unskilled labor. The low-end services that remain users of unskilled labour are less likely to create opportunities of productivity gains. With exceptions – the authors mention construction and tourism services – there is less scope in the services sector to yield simultaneously high productivity increases and job creation for unskilled labour, at least as compared to what manufacturing-led development provided in previous decades. How about the connection between manufacturing and services? Besides the increases of demand for stand-alone services with high income elasticity, what are the prospects for the demand for services accompanying the current transformation of manufacturing? To what extent supply and demand for these manufacturing-related services benefit from local manufacturing bases? Hallward-Driemeier and Nayyar call attention to the rising “servicification” of manufacturing, as the latter is increasingly “embodying” and “embedding” services, while the share of component manufacturing and final assembly in value added declines (see chart 2). The relevance of embodied services in manufacturing products has risen either as inputs (design, marketing, distribution costs, etc.) or as trade enablers (logistics services or e-commerce platforms). Furthermore, services are also increasing embedding facilities that come bundled with, or are added to, manufactured products. They point out apps for mobile devices and software solutions for “smart” factories. They conclude (p.162):

Spring 2018 Issue

Manufacturing employment share, %

% of total

Chart 1: Manufacturing employment and gross value added. Note: DM = Developed Markets; EM = Emerging Markets; GVA = gross value added.

Source: IIF, A Primer on Premature Deindustrialization, October 19, 2017.

Chart 2: Value Added of Services in Manufacturing, 1970s versus 21st Century.

Source: Hallward-Driemeier, M. and Nayyar, G. “Trouble in the Making?: The Future of Manufacturing-Led Development”, World Bank, Washington D.C., 2017.

of a product while also exploiting stand-alone opportunities beyond manufacturing. In sum, the challenges to achieve, simultaneously, the employment of unskilled workers and substantial increases in productivity are becoming taller. Furthermore, those horizontal productivity and competitiveness factors - including local accumulation of capabilities, low transaction costs, infrastructure improvement, etc. - that were crucial for a broad and deep manufacturing-led development are now extended to services. There | Capital Finance International

is more complementarity than substitutability between productivity and competitiveness factors between manufacturing and services. There is no alternative but to raise the bar domestically if a developing country wants to enjoy any of these as engines of growth. i ABOUT THE AUTHOR Otaviano Canuto is an Executive Director of the World Bank and a Member of the OMFIF Advisory Council. The opinions expressed in this article are his own. Follow him on Twitter: @ocanuto 15 Columnist

While a range of “stand-alone” services and some embedded services can provide growth opportunities without a manufacturing core, the increasing servicification of manufacturing underscores the growing interdependence between the two sectors. Given this deepening interdependence, policies that improve productivity across different parts of the value chain will result in the whole being greater than the sum of its parts. The agenda therefore should be to prepare countries to use synergies across sectors to participate in the entire value chain

> Evan Harvey, Nasdaq:

What’s Driving ESG? A Top Ten List The prevalence and prominence of sustainability as a vital concept in the world - let alone the business community - is now clear. It has been driven by a host of dynamics that are both native to, and external from, business: environmental catastrophe and social crisis, economic disparity, and political dysfunction. Yet business must wrestle with the practical implications of sustainability in order to endure and prosper. That is why we tend to focus on the environmental, social, and governance (ESG) implications of sustainability. Columnist


here sustainability connotes a broad philosophy, ESG refers to specific data. Corporate performance indicators, investor algorithms, regulatory schemas, and framework recommendations are all rooted in the proper calculation of ESG data. Right now, the global ESG data story may be incomplete, perhaps even inadequate, but there is a lot to wrestle with. How will the data improve? What are our expectations? Who is setting the standards? This list is intended to provide a brief answer to some of those questions.

"Companies frequently throw up their hands in dismay, assaulted by forces left and right in search of more and more ESG data."

This exercise is meant to bring some order and understanding to a wide open field. Companies frequently throw up their hands in dismay, assaulted by forces left and right in search of more and more ESG data.

2018). ESG specialist firms like PAX, Parnassus, Aviva, and Boston Common Asset Management have been making hay in ESG for a long time - and even bigger firms are following suit. State Street, Blackrock, and Vanguard have all unveiled new ESG strategies since the beginning of the year.

1. INVESTORS On one hand, the investment community appears to be fixated on ESG. Blackrock chairman Larry Fink pens a public letter every year, focused on the long-term benefits that ESG measurement, reporting, and evaluation can provide. Groups of investors - ranging from small advocacy groups (Ceres Investor Network on Climate Risk and Sustainability) to like-minded practitioners (The Forum for Sustainable and Responsible Investment) to very diverse petition projects (UN Principles for Responsible Investment) - have been banding together for years to socialise ESG investment strategies. But that effort has also generated some criticism. Beyond paper pledges and conference panels, how are investors really using ESG data? “Any macroeconomic analysis and investment strategy focused on long-term, fundamentalsdriven performance should incorporate ESG factors as a key pillar of its analysis,” according to fixed income specialist Franklin Templeton. “ESG speaks to an economy’s potential as an investment destination and the sustainability of that investment” (Global Macro Shifts, February 16

2. INDEXERS & INNOVATORS The problem with top ten lists is twofold: no single entry gets the attention it deserves (case in point: #1 above) and many reasonable entries must of necessity be left out. I will try to deal with the latter by using some creative categorisation. The current category includes ESG indexers, such as MSCI and RobecoSAM - easy enough but also a broad array of product “innovators” of many kinds. Many companies, for example, are innovative in the internal management and external reporting of ESG performance data. In most cases, they are not driven by protocol but rather a desire to change the paradigm; Microsoft, Unilever, Intel, and Novo Nordisk leverage ESG to create an entirely new relationship with their stakeholders. But many product innovators are finding entirely new ways leverage ESG. The green bond and climate bond revolution, for example, would not have caught fire without the underlying data— and we have the Climate Bond Initiative actively setting best practices. Datamaran, an AI-driven “non-financial risk management” tool, uses | Capital Finance International

sophisticated analytics to search and benchmark ESG data signals, among other things. 3. EXCHANGES Stock exchanges first started getting into the ESG reporting space decades ago, in Johannesburg and Brazil most prominently. But what was once exceptional has now become the norm: thanks to the work of the UN Sustainable Stock Exchanges (SSE) and the WFE Sustainability Working Group (SWG), almost half of the stock exchanges on the planet have provided (or have committed to provide) ESG reporting guidance to their issuers. Nasdaq Helsinki was recently rated the most sustainable stock exchange in the world by Corporate Knights; more than half of its large listings disclose significant environmental metrics. Exchanges in London, Hong Kong, and Singapore (all in the top half of the Corporate Knights ranking) have recently rolled out ESG listing requirements. Many of these exchanges are leveraging ESG in other ways too - as indexers, bond issuers, ETF listing venues, and even providers of corporate services with an ESG angle. And the industry itself has tilted in another way: exchanges with an ESG-related business model, such as IEX and the Long Term Stock Exchange, have gathered some momentum. 4. GOVERNMENTS The regulatory push for better, more complete and comprehensive ESG data is truly worldwide. In most cases, government regulators are seeking better reporting from public companies. The Nonfinancial Reporting Directive in Europe (2014/95/ EU) does just this, requiring certain companies to file an ESG-focused declaration with their annual reports. Local country governance codes have been commonplace in the Nordics, but now we are seeing new ones emerge in Japan. New legislation in China (February 2018) focuses on mandatory environmental disclosures; UK rules mandate human rights and anti-slavery disclosures. France raised the stakes by requiring investors to more transparently report climate and social risks in their portfolios. Governments

Spring 2018 Issue

are also getting in on the green bond trend; U.S. municipalities brought more than $11B in green bonds to market last year (Moody’s Sector InDepth, March 2018). In the US, there were ESG-related efforts underway - the Dodd Frank reform bill, Department of Labor guidance for retirement plans, a seeming turn by the SEC towards revising decades of stale reporting protocols (Regulation SK) - but that momentum has slowed. Yet American companies are still voluntarily disclosing ESG data in record numbers, and multinationals are being caught up in the web of ESG reporting requirements abroad. 5. NGOS The range of non-governmental organisations (NGOs) with a focus on ESG is very broad. We could list dozens of United Nations projects and agencies here: the UN Environment Program, UN Women, the Economic and Social Council (ECOSOC), and the 2030 Agenda for Sustainable Development (the impetus for the Sustainable Development Goals, or SDGs), to name a few. But other, more highly specialised groups have been making ESG-related inroad, specifically with the business community. Shift, for example, translates UN principles into actionable plans for business, creating partnerships between economic stakeholders to report on - and hopefully remediate - human rights issues. And there are too many to mention in the environmental space: the Natural Resources Defense Council (NRDC) and the World Wildlife Fund (WWF) come quickly to mind. The WWF has even advocated for better ESG practices in the Southeast Asia banking community.

7. HUMAN CAPITAL There are significant performance pressures coming from within organisations as well. The concept of human capital management (HCM), | Capital Finance International

17 Columnist

6. SUPPLIERS & SUPPLY CHAINS How are smaller companies drawn into the ESG debate? Small suppliers tend to be part of large corporate supply chains, and those large corporations are increasingly being asked to expand the scope of their ESG oversight and control. Competition for contracts now commonly requires an ESG performance disclosure, especially when doing business with government agencies. Consider the rise of the supply chain consultancies and standards-setters, such as EcoVadis, Enablon and the Sustainable Purchasing Leadership Council (SPLC). These firms tend to evaluate the sustainable pedigree of suppliers, so that corporate purchasers can be sure they engage with ESG-compliant vendors. Other entities (CDP, IBM Watson, McKinsey) provide ESG-related supply chain services. Various industry associations have been focused on ESG - most notably, the Responsible Business Alliance (formerly the Electronics Industry Citizenship Coalition), which has been driving supply chain responsibility for member companies (Apple, IBM, Samsung, Sony) since 2004.

the cultivation of collective economic value for an employee population, is inevitably tied to ESG concerns, as workers increasingly gravitate towards socially responsible and transparent companies (see studies by Nielsen, 2015, and Horizon Media, 2017). The prospect of recruiting and retaining top talent, especially in a tight market, seems to inevitably touch upon ESG metrics. A growing awareness of corporate culture is also driving adoption. The relative happiness and productivity of employees used to be a matter for HR departments and line managers. But, as a 2015 Deloitte survey of 3,300 executives in 106 countries found, “top managers say culture is the most important issue they face, more important than leadership, workforce capability, performance management, or anything else.” “A company’s approach to HCM—employee development, diversity and a commitment to equal employment opportunity, health and safety, labor relations, and supply chain labor standards, amongst other things - will vary across sectors but is a factor in business continuity and success.” This statement was made in a recent Blackrock Investment Stewardship letter (March 2018) that also indicated a more active investor engagement strategy on ESG matters, which is a sensible move. Intangible assets based on human capital grew from 17% of S&P500 market value in 1975 to 84% in 2015 (Ocean Tomo, 2015). Columnist

8. ACADEMICS & ANALYTICS Good HCM (and by extension, good ESG practices) can impact the company in other, measurably financial ways - as illustrated by one of the most compelling academic papers in this area (The Materiality of Human Capital to Corporate Financial Performance, Harvard Law School, 2015). Authors Larry Beeferman and Aaron Bernstein make a strong case for “the positive correlation between human resource initiatives and investment outcomes such as total shareholder return, return on assets, return on earnings, return on investment and return on capital employed.” In addition to the environmental and social pressures that drive individual companies to consider ESG, there is a body of academic research (Eccles and Serafeim, Harvard; Todd Cort, Yale) that points to macroeconomic benefits as well. Recent meta studies have been able to convincingly integrate a great deal of underlying academic research in order to make a grand case - ESG and Financial Performance: Aggregated Evidence from More than 2000 Empirical Studies (2015) and From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance (2015). Lastly, a number of firms now fund an analyst or team of analysts devoted to ESG research. A current scan of job boards confirms that Institutional Shareholder Services (ISS), PIMCO, and JP Morgan are actively looking to fill such a role right now. 18

9. MEDIA Companies always want to be included in “best of” lists and counted among the “greenest companies.” Popular media outlets (Newsweek, Forbes, and Fortune) have been driving this dynamic for years, and companies frequently make changes to their ESG strategy and reporting in order to qualify. The benefit of inclusion goes beyond brand value and good PR. FTSE Russell analysed the Fortune 100 Best Companies to Work For and made a startling discovery: An equally-weighted index of the public companies on the list returned 11.66% annually over the last two decades, beating other relevant benchmarks by nearly 5% (The Best Companies to Work For Are Beating the Market, Fortune, 2/28/18). Traditional media companies have created sustainability-focused side projects (Bloomberg Sustainable Finance) or ceded some ground to new, socially fuelled enterprises that focus on ESG, such as GreenBiz. Serious environmental, social, and governance issues have been prominently featured on television (VICE, The Years of Living Dangerously) and in movie theatres (The Big Short, An Inconvenient Truth, Gasland), which considerably raises the profile of ESG concerns with the general public. 10. RANKERS, RATERS, AND REPORTERS This is probably the largest and most nebulous category. Twenty years ago, there were only a few firms that focused on developing ESG reporting standards - such as the Carbon Disclosure Project (now CDP) and the Global Reporting Initiative (GRI), which still stands tallest in the field. I would argue that no other institution has done more around the world to create, standardise, and promote ESG performance metrics than GRI. Even though I currently sit on the Global Sustainability Standards Board, which operates under the auspices of GRI, my opinion would not vary on this matter. But there is so much more to this space than just the GRI Standards. Technical reporting structures (COSO, ISO), financial disclosure protocols (SASB), and framework aggregators (CDSB) are all integrating ESG considerations. Newer firms have become mainstream (eRevalue) or been acquired by the mainstream (Sustainalytics and Morningstar). Despite the laundry list of institutions and projects cited above, some notable ESG drivers have been left out. Various business alliances, such as the World Business Council for Sustainable Development (WBCSD), have proven quite influential. The WBSCD (which is made up of CEO members) has even produced a Guide to the SDGs (2017) that directly focuses business leadership on practical ways to integrate ESG matters. These kinds of cross-boundary ESG projects may yet unlock real strategic potential and long-term value for many different stakeholders. i ABOUT THE AUTHOR Evan Harvey is director of Corporate Responsibility at Nasdaq. | Capital Finance International

Spring 2018 Issue

AIM FEATURES 2018 | Capital Finance International


> Nouriel Roubini and Preston Byrne:

The Blockchain Pipe Dream


redictions that Bitcoin and other cryptocurrencies will fail typically elicit a broader defence of the underlying blockchain technology. Yes, the argument goes, over half of all “initial coin offerings” to date have already failed, and most of the 1,500-plus cryptocurrencies also will fail, but blockchain will nonetheless revolutionise finance and human interactions generally. In reality, blockchain is one of the most overhyped technologies ever. For starters, blockchains are 20

less efficient than existing databases. When someone says they are running something “on a blockchain,” what they usually mean is that they are running one instance of a software application that is replicated across many other devices. The required storage space and computational power is substantially greater, and the latency higher, than in the case of a centralised application. Blockchains that incorporate “proofof-stake” or “zero-knowledge” technologies | Capital Finance International

require that all transactions be verified cryptographically, which slows them down. Blockchains that use “proof-of-work”, as many popular cryptocurrencies do, raise yet another problem: they require a huge amount of raw energy to secure them. This explains why Bitcoin mining operations in Iceland are on track to consume more energy this year than all Icelandic households combined. Blockchains can make sense in cases where the speed/verifiability tradeoff is actually worth

Spring 2018 Issue

it, but this is rarely how the technology is marketed. Blockchain investment propositions routinely make wild promises to overthrow entire industries, such as cloud computing, without acknowledging the technology’s obvious limitations. Consider the many schemes that rest on the claim that blockchains are a distributed, universal world computer. That claim assumes that banks, which already use efficient systems to process millions of transactions per day, have reason to migrate to a markedly slower and less efficient single cryptocurrency. This contradicts everything we know about the financial industry’s use of software. Financial institutions, particularly those engaged in algorithmic trading, need fast and efficient transaction processing. For their purposes, a single globally distributed blockchain such as Ethereum would never be useful. Another false assumption is that blockchain represents something akin to a new universal protocol, like TCP/IP or HTML were for the Internet. Such claims imply that this or that blockchain will serve as the basis for most of the world’s transactions and communications in the future. Again, this makes little sense when one considers how blockchains actually work. For one thing, blockchains themselves rely on protocols like TCP/IP, so it isn’t clear how they would ever serve as a replacement. Furthermore, unlike base-level protocols, blockchains are “stateful” - meaning they store every valid communication that has ever been sent to them. As a result, well-designed blockchains need to consider the limitations of their users’ hardware and guard against spamming. This explains why Bitcoin Core, the Bitcoin software client, processes only 5-7 transactions per second, compared to Visa, which reliably processes 25,000 transactions per second. Just as we cannot record all of the world’s transactions in a single centralised database, nor shall we do so in a single distributed database. Indeed, the problem of “blockchain scaling” is still more or less unsolved, and is likely to remain so for a long time.

"Today’s coin mania is not unlike the railway mania at the dawn of the industrial revolution in the midnineteenth century."

Although we can be fairly sure that blockchain will not unseat TCP/IP, a particular blockchain component – such as Tezos or Ethereum’s smart-contract languages – could eventually set a standard for specific applications, just as Enterprise Linux and Windows did for PC operating systems. But betting on a particular coin, as many investors currently are, is not the same thing as betting on adoption of a larger protocol. Given what we know about how opensource software is used, there is little reason to think that the value to enterprises of specific blockchain applications will capitalise directly into only one or a few coins. | Capital Finance International

A third false claim concerns the “trustless” utopia that blockchain will supposedly create by eliminating the need for financial or other reliable intermediaries. This is absurd for a simple reason: every financial contract in existence today can either be modified or deliberately breached by the participating parties. Automating away these possibilities with rigid “trustless” terms is commercially non-viable, not least because it would require all financial agreements to be cash collateralised at 100%, which is insane from a cost-of-capital perspective. Moreover, it turns out that many likely appropriate applications of blockchain in finance – such as in securitisation or supply-chain monitoring – will require intermediaries after all, because there will inevitably be circumstances where unforeseen contingencies arise, demanding the exercise of discretion. The most important thing blockchain will do in such a situation is ensure that all parties to a transaction are in agreement with one another about its status and their obligations. It is high time to end the hype. Bitcoin is a slow, energy-inefficient dinosaur that will never be able to process transactions as quickly or inexpensively as an Excel spreadsheet. Ethereum’s plans for an insecure proof-of-stake authentication system will render it vulnerable to manipulation by influential insiders. And Ripple’s technology for cross-border interbank financial transfers will soon be left in the dust by SWIFT, a non-blockchain consortium that all of the world’s major financial institutions already use. Similarly, centralised e-payment systems with almost no transaction costs – Faster Payments, AliPay, WeChat Pay, Venmo, Paypal, Square – are already being used by billions of people around the world. Today’s coin mania is not unlike the railway mania at the dawn of the industrial revolution in the mid-nineteenth century. On its own, blockchain is hardly revolutionary. In conjunction with the secure, remote automation of financial and machine processes, however, it can have potentially far-reaching implications. Ultimately, blockchain’s uses will be limited to specific, well-defined, and complex applications that require transparency and tamper-resistance more than they require speed – for example, communication with self-driving cars or drones. As for most of the coins, they are little different from railway stocks in the 1840s, which went bust when that bubble – like most bubbles – burst. i ABOUT THE AUTHORS Nouriel Roubini, Nouriel Roubini is CEO of Roubini Macro Associates and professor of Economics at the Stern School of Business, NYU. Preston Byrne is a fellow of the Adam Smith Institute and sole member at Tomram Consulting. 21

> Edmund S Phelps:

Will China Out-Innovate the West?


rom the early nineteenth century to the early twentieth century, Western countries attributed their economic growth to the discoveries of scientists and navigators. A country needed only the “zeal” to develop “obvious” commercial applications, and build the facilities to meet demand for new products. Until recently, the Chinese believed the same thing. But now, Chinese businesspeople and entrepreneurs are increasingly showing not only the entrepreneurial drive to adapt to new 22

opportunities, but also the desire and capacity to innovate for themselves, rather than simply copying what’s already out there. Indeed, more and more Chinese companies are realising that they must innovate in order to get – and stay – ahead in the global economy. Several companies – notably Alibaba, Baidu, and Tencent – made breakthroughs by offering digital-age infrastructure that facilitates innovative activity. And industrial firms have recently moved into robots and artificial intelligence. | Capital Finance International

For its part, China’s government is evidently supportive of Chinese businesses developing a capacity to produce indigenous innovations. It no doubt recognises that such innovations are all the more valuable when innovation remains weak in the West, where growth in total factor productivity (TFP) has continued its long slowdown. In recent years, China’s government has introduced initiatives aimed at increasing both entrepreneurship and innovation. It has

Spring 2018 Issue

allowed to increase, leading to the entry of new firms. The key insight is that when existing enterprises are protected from new market entrants bearing new ideas, the result will be less innovation and less “adaptation” to a changing world, to use Friedrich Hayek’s term. Another argument can be made. In any modern economy, virtually every industry operates in the face of a largely unknowable future. The more companies an industry has thinking about a problem, the more likely a solution is to be found. A company that has been kept out of an industry might know something that all the companies in the industry do not. Or some unique experience may have furnished an individual with “personal knowledge” that is impossible to transmit to others who have not had the same experience. Whatever the case, society benefits – through lower prices, more jobs, better products and services, and so forth – when outsiders with something to add are free to do so. All of this was known to the great theorists of the 1920s and 1930s: Hayek, Frank Knight, and John Maynard Keynes. And now it is known to the Chinese, who understand that a country benefits when companies – each with its own thinking and knowledge – are free to compete. The West seems to have forgotten this. Since the 1930s, most Western governments have seen it as their duty to protect established enterprises from competition, even when it comes from new firms offering new adaptations or innovations. These protections, which come in myriad forms, have almost certainly discouraged many entrepreneurs from coming forward with new and better ideas. History is rife with evidence of the value of competition. In post-war Britain, into the 1970s, industries were controlled by exclusive clubs within the Confederation of British Industry, which barred new entrants. By the time Margaret Thatcher became prime minister in 1979, TFP had stagnated. But Thatcher put a stop to the confederation’s anti-competitive practices, and Britain’s TFP was growing again by the mid1980s. We are now seeing something similar in China. By 2016, China’s TFP growth rate had been slowing for a number of years. But since the reforms that year, it has been increasing. shortened dramatically the process for forming a new company. It has built a vast number of schools, where Chinese children learn more about the world they will face. And it recently facilitated the entry of foreign experts to work on new projects in the business sector. The authorities have also recognised the importance of allowing more competition in the economy. Individuals should be freed up to start new companies, and existing companies should be freed up to enter new industries.

Competition solves a lot of problems – a point that is increasingly lost on the West. At the World Economic Forum’s annual meeting in Davos, Switzerland, in January, Chinese officials discussed basic reforms that the government introduced two years ago to increase competition. Under the new policy, excess capacity now signals that supply should be allowed to contract and prompt redundant firms to exit the market. Of course, excess demand signals that supply should be | Capital Finance International

The West must address its great TFP slowdown, which has lasted since the late 1960s. Ending protection of incumbents from new entrants possessing ideas for new adaptions and innovations is a good place to start. i ABOUT THE AUTHOR Edmund S Phelps, the 2006 Nobel laureate in Economics, is director of the Center on Capitalism and Society at Columbia University and the author of Mass Flourishing. 23

> Martin Feldstein:

Why Are US Interest Rates High and Rising?


ong-term interest rates in the United States are rising, and are likely to continue heading up. Over the past 20 months, the yield on tenyear Treasury bonds has more than doubled, from 1.38% to 2.94%. Why is this happening?

About half of the 1.56-percentage-point rise is attributable to an increase in the real interest rate, as measured by the inflation-indexed tenyear Treasury bonds, whose expected real yield 24

has risen from zero in July 2016 to 0.82% now. The other half of the rise in the interest rate reflects the increase in the expected rate of inflation from 1.38% to 2.12%.

rates is particularly important for share prices, because higher inflation raises nominal profits in a way that offsets the inflation component of higher interest rates.

High and rising interest rates have important effects on the economy, especially on the prices of stocks and of homes. Because extremely low interest rates during the past decade caused equity prices to rise to unprecedentedly high levels, the shift to higher interest rates will slow and depress share prices. The level of real interest

The interest rate charged on home mortgages reflects the long-term yield on Treasury bonds, with the rate for 30-year mortgages rising a full percentage point during the past 20 months. House prices reflect nominal interest rates as well as real interest rates. Higher nominal interest rates limit the number of qualified homebuyers | Capital Finance International

Spring 2018 Issue

of the federal funds rate will pull up the longterm bond rate. During the past decade, the Fed also intervened in the long-term market as part of its “unconventional monetary policy” aimed at stimulating the economy. The Fed bought Treasury bonds and mortgage-backed securities, increasing its balance sheet from $900 billion in 2008 to about $4.5 trillion now. Those bond purchases bid up the price of bonds and caused their yields to decline. The Fed is now in the process of shrinking its balance sheet, forcing the market to buy more bonds and therefore raising interest rates. Changes in expected inflation have a direct effect on long-term interest rates. Growing confidence in economic expansion and falling unemployment has raised investors’ expectation of future inflation, pulling up the nominal interest rate on ten-year bonds. Inflation has still remained very low, with the consumer price index up only 2.1% over the past 12 months. But with an unemployment rate of just 4.1% and a weakening dollar, investors’ expected rate of inflation is increasing. The expected inflation rate over the next ten years implied by the inflationindexed bonds rose 0.3 percentage points in the 14 months after July 2016, but then increased 0.8 percentage points in the next five months. Future evidence of increasing inflation will be reflected in higher long-term interest rates. The widening budget deficit and rising national debt will also push up long-term interest rates. The federal budget deficit is projected to increase from about 3.5% of GDP in recent years to 5% in 2018 and for the rest of the decade. The debtto-GDP ratio has doubled in the last ten years, to 75%, and is projected to rise to nearly 100% during the coming decade. My own forecast assumes an even greater rise in the debt level, owing to continued increases in government spending and extensions of recent reductions in personal income tax. As a result, the government’s net sale of bonds will rise from about $700 billion a year in 2017 to more than $1 trillion in 2019 and about $1.5 trillion in 2027. The cumulative increase in the debt during the decade will therefore be about $10 trillion. Getting the market to absorb those bonds will require higher real interest rates. Washington, D.C.: Federal Reserve building

by increasing the monthly interest payments for any size of mortgage. The US Federal Reserve’s monetary policy has an important effect on long-term interest rates. Although the Fed traditionally controlled only the short-term federal funds rate, investors’ response to a change in that rate depended on their expectation of how long the rate change would last. If an increase in the short-term rate were expected to persist or to be an indicator of further increases in the future, the long-term rate

would also rise. During the period of monetary easing that followed the 2008 financial crisis, the Fed cut the federal funds rate to just 0.15% and declared that it would remain low for a long period of time. Not surprisingly, that caused the long-term rate to fall from 3% at the beginning of 2014 to 1.5% in mid-2016. The Fed has now started to raise the short-term rate and has said that it will continue to do that gradually for the next few years, aiming at a rate of nearly 3% in 2020 and beyond. That doubling | Capital Finance International

All of this could make new savers happy, as returns on savings – which have been subject to severe financial repression for most of the last decade – begin to rise. But higher interest rates could leave homeowners and shareholders vulnerable to losses. i ABOUT THE AUTHOR Martin Feldstein, professor of Economics at Harvard University and president emeritus of the National Bureau of Economic Research, chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984. 25

> Tor Svensson:

Jerome Makes His Debut Both the stock market and economic growth are doing just fine. Unemployment is down. The US is in a good shape - or so it would seem. Yellen has left the building; Powell has taken his seat.


new age of tighter money has dawned. After hovering just north of zero percent, the Fed raised its benchmark base rate was by another quarter percentage point to the target range of 1.5%-1.75%.

During Jerome “Jay” Powell’s first meeting of the Federal Open Market Committee, which sets the rates, the freshly-minted chairman of the Federal Reserve plotted a hawkish path and signalled further tightening all the way through 2020. Mr Powell wanted to make his mark - and he has done so. Mr Powell expects President Trump’s tax cuts to improve productivity in the US. He doesn’t think that trade conflicts and other events will significantly affect the economic outlook. The Fed chairman and his team are quite bullish on the US economy. They raised their growth forecast for Q1 2018 GDP to 2.7% - up from 2.5% in December 2017. Inflation seems stuck at the desired 2%. However, the ghost of inflation now and again puts in an appearance, such as when early rate hikes call for an explanation. Market watchers agree that in about two years’ time the Fed base rate could be as high as 3.4%. Some even predict a 5% base rate by 2020. Columnist

All in all, the Mr Powell considers the performance of the US economy just peachy - a smooth-running engine producing prosperity, albeit perhaps not yet for all. His rosy outlook is supported by two facts - neither of one particularly solid: the absence of trade wars and the still-standing Chinese banking system which, happily, failed to produce a meltdown. The question now is: how long will this good fortune last? The present growth spurt is mainly powered by the built-up inertia - the tail winds, if you will of the sustained stimulus that kept things moving, sort of, after the Great Recession when near-zero interest rates and quantitative easing conspired to keep the economy alive. Though this twin response eventually did the trick, it also just about doubled the US national debt, expanded the federal deficit, and inflated a neat asset bubble. Now, Capitol Hill has given its blessing to President Trump’s wager to double down on 26

"Market watchers agree that in about two years’ time the Fed base rate could be as high as 3.4%. Some even predict a 5% base rate by 2020." both deficit spending and the debt in an almost Reaganesque way - boosting spending and slashing taxes. Recent job reports show the labour market at its strongest in two decades. Even manufacturing jobs have been on the rise since Trump’s inauguration amidst all his protectionist bluster. Business confidence has steadily grown under this president’s watch. US banks are still loaded up with cheap money. The country also indirectly benefits from the cash injected into their economies by the Bank of Japan, the European Central Bank, and to a much lesser degree, the Bank of England - some of which ends up on US shores. Meanwhile, US consumers are flashing their plastic again: the volume of consumer loans has increased significantly. Banks have boosted their portfolio of corporate bonds and lending, issuing structured notes, swaps, and derivatives like there is no tomorrow. This tidal wave of credit is pushed along by (still) low interest rates and financial deregulation - a fancy word for the lowdoc environment known from, say, ten to fifteen years ago. The laws of nature, and particularly the one thought up by Murphy, state that once the tail winds trail off, headwinds will take their place. Zombie companies kept alive on cheap credit are in for stormy weather once they are actually expected to pay for all money as interest rates shoot up. Also, higher T-bill and T-note rates will make the rolling over of government debt a much more expensive proposition, adding pressure to already strained public finances. Not that President Trump seems to mind. His runs his | Capital Finance International

country as he did his businesses: to the brink of financial Armageddon. Apparently, he has not yet discovered that there is no Chapter 11 for countries. Central banks are, at least nominally, independent. Central bankers are supposed to be prudent and pursue the stability of the system. As such, central bankers are the opposite of commercial bankers who will boost their loan portfolios, turn a blind eye to credit risks, and rake in profits - all before doomsday comes - as it inevitably must when the taxpayer may kindly bail them out. Basel 3 equity capital requirements will prove razor thin when the NPLs start piling up. In their desperate search for yield in a zero-interest universe, institutional and private investors have also taken on extra credit risk. To keep up with the analogies: the piper will eventually demand his due. This is the cue for the central banker to nonchalantly stroll onto the scene and assume his role as party-pooper. Since the Dow Jones peaked at around 26,600 in January, the stock market has been jittery. Volatility indices shot through the roof. The market has already retreated by about 10%, give or take. Further “adjustments” are not unlikely. The reallocation of assets in global portfolios towards fixed income instruments is expected to dampen the appetite for stocks - stunning the bull market, if not slaughtering the beast altogether into bite-sized pieces. The QE of yore has massively boosted asset prices to the merriment of the wealthy and the one percenters. It has tilted the economic playing field yet a bit more to the side of rent-takers to the detriment of those who actually work for a living. Salaried workers at the lower end of the pay scales have yet to feel adoration. US household spending and business investment volumes have tapered off since Q4 2017 even though the labour market is now close to full capacity. Wages are rising, but do so at a glacial pace. So, new kid-on-the-block Jerome Powell is here to spoil the party just as the fun had started. Alas,

Spring 2018 Issue

central bankers do not derive their livelihood from caring for the working poor - that is not their job. Central bankers are merely paid to keeping the financial system on on even keel - and if that system happens to increase inequality: too bad. Or as ECB president Mario Draghi (ECB Chairman) joked: A man needs a heart transplant. Says the doctor: “I can give you the heart of a 5-year-old boy.” Says the man: “Too young.” “Then, how about one of a 40-year-old banker?” The man: “They don’t have a heart.” The doctor: “And what about the heart of a 75-year-old central banker?” “I'll take it,” exclaims the patient: “It’s never been used!” Joking aside, Super Mario seems somewhat less excited about the economic prospects of Europe and stated that his ECB will continue its assets buying programme and keep rates low. The ECB recently left its refinancing rate untouched at 0%. The rate paid by ECB on overnight deposits stayed unchanged as well at -0.4%. Depositors pay for the privilege to entrust their funds to the ECB. Robust global growth and the Juncker Plan have at long last added some pizzaz to the European economy. However, that growth rests precariously on a few structural issues such as higher unemployment levels, a dearth of risk-bearing venture capital, and unfortunate demographics with the baby boom generation getting ready to call it quits. These are not things the Fed has to worry about. With Germany at the helm of monetary policy, easy and cheap money is largely unavailable for pursuits other than the refinancing of government debt, stabilising the banks (Deutsche Bank), and serving large corporates. In Europe there are no tax cuts for salaried workers. There is no money either for young couples which does no favours to the continent’s demographical mismatch. There is precious little capital to invest in job creation along the battered fringes of the continent.

Lrwest I forget: at 5% the servicing of the current national debt demands a cool trillion annually. President Trump is about to supersize that bill. Way to go. i ABOUT THE AUTHOR Tor Svensson is the Chairman of Capital Finance International. | Capital Finance International

27 Columnist

A sizeable portion of the cheap dosh doled out by the ECB actually ends up the other side of the Atlantic, where it may obtain instant yields underwriting the outsized US current account deficit. The Fed is not an institute of fools - no, seriously - and knows all this. A rate hike, however modest, helps attracts more of this money. The cash is much-needed, given the imminent ballooning of the national debt as Americans once again embark on a military spending spree and, try to source some additional cash to revamp the country’s severely deteriorated infrastructure.

> Mohamed S Younes: Columnist

Sourcing Opportunities in Egypt


he Egyptian government launched a Comprehensive Economic Reform Program in mid-2014 aiming to improve the macro-economic environment and achieve fiscal and monetary stability. The outcome of the structural adjustments exceeded estimates. Foreign investment in Egyptian securities hit $19 billion as of December 2017 since the 28

flotation of the pound in November 2016. This reflects investors’ confidence in the actions taken to restructure the Egyptian economy. Egypt is a country with diversified investment opportunities both in terms of sectors and size of investments (from small projects to mega projects), which makes it an attractive target for different types of private equity funds. | Capital Finance International

The budget deficit declined during the first half of fiscal year 2017/18 to reach 4.4% of GDP, down from 5.0% of GDP during the first half of 2016/2017. The Ministry of Finance expects Egypt’s budget deficit to decline to 9.5% of the GDP in fiscal year 2017/18 compared to 10.9% of the GDP in fiscal year 2016/17. Furthermore, the ministry expects GDP growth to reach 5.0% in fiscal year 2017/18.

Spring 2018 Issue

"Egypt is a country with diversified investment opportunities both in terms of sectors and size of investments (from small projects to mega projects), which makes it an attractive target for different types of private equity funds." The Ministry of Finance’s forecasts came in line with the International Monetary Fund’s expectations, which forecasted Egypt’s budget deficit at 9.2% of GDP and GDP growth of 4.8% in fiscal year 2017/18. Moody’s expects Egypt’s GDP growth to accelerate to around 5% by 2019 and 5.5% by 2021. Fitch Ratings revised the outlook for Egypt’s long-term foreign and local-currency issuer default ratings (IDRs) to positive from stable and affirmed IDRs at a B rating. Fitch said that Egypt has achieved “significant progress” with its economic reform program. Concord International Investments believes a number of changes took place recently, making 2018 more attractive for Egypt with various investment opportunities and a number of catalysts boosting the economy: on one hand, the 200 bps interest rate cut plays in favour of companies across different sectors that have been delaying capex plans due to the high cost of funds; on the other hand, lower interest rates will have positive impact on the equity market. Moreover, a number of legislative initiatives have been recently passed in order to attract further FDI and improve the investment climate in Egypt. The most important of these is the new investment law, which aims to ease procedures for initiating investment in Egypt. It also provided investors with a number of guarantees and incentives for their investments in Egypt.

Mega infrastructure expenditures have been taking place over the last three years amounting to LE 22.5billion. Egypt’s electricity supply has been doubled, including the addition of 30 | Capital Finance International

In addition, natural gas production commencement will be the main driver for the forecasted limited widening trade deficit with the new discoveries amounting to 30.0 billion cubic feet. Egypt’s Zohr natural gas field has now started production, bringing the country closer to its goal of energy self-sufficiency. Gas production from Zohr field is expected to contribute to savings of up to $700m annually and is anticipated to reach $2 billion - $3 billion annually when the field reaches full production. The country is set to achieve selfsufficiency in the supply of liquefied natural gas (LNG) before the end of 2018. The completion of the project's first phase and a gradual increase in production are set to be completed by mid-2018. Egypt is on its way to become a regional hub for energy trading, and a strategic centre to export energy that is produced from Egypt’s own resources or energy imported from neighbouring countries. The above-mentioned factors should play an important role in transforming the Egyptian economy. Concord is committed to Egypt because there is a strong demand in most sectors of the economy; the 2011 uprising created additional pent up demand. The firm’s analysts view Egypt as a market where investors can still find very attractive opportunities with a significantly improved foreign exchange and current account positions. i ABOUT THE AUTHOR Mohamed S Younes is the Chairman of Concord International Investments Group. 29 Columnist

"A number of legislative initiatives have been recently passed in order to attract further FDI and improve the investment climate in Egypt."

A tax dispute settlement law was also introduced to facilitate the resolution of a high percentage of court cases related to tax issues. The resolutions cover all types of taxes such as corporate income, salary, stamp, and sales taxes. Furthermore, parliament ratified the final draft of the Universal Health Care Act on December 18, 2017. The law will be implemented over a maximum of fifteen years. This new act will cost approximately LE 588 billion each year. No doubt the implementation of the law would have positive impact on the pharmaceutical and healthcare sectors along with the ongoing investments that take place in those sectors.

gigawatts by the end of fiscal year 18/19. The government energy policy has been focusing on increasing supply through improving the efficiency of existing plants and networks, building new plants, and diversifying sources of primary power. Moreover, the government is securing reliable and diversified fuel mix and attracting private sector investment through increasing daily production of natural gas from 3.8 billion cubic feet to 7.7 billion cubic feet by the end of fiscal year 18/19; increasing the share of renewable energy in the energy mix and establishing the Gas Regulatory Affairs, an independent regulatory entity, monitor tariff use, distribution, shortage of gas, and transportation facilities, etc. Concord believes investing in infrastructure and energy sectors not only pushes up the GDP growth and decrease unemployment, but also attracts FDI.

Jerome Powell Chair of the Federal Reserve:


It had to happen and it just did. The untold joys of expansive monetary policy as the engine of growth in lean times are, of course, always of a temporary nature. As the global economy emerges with a vengeance from years of lacklustre growth, the need to keep interest rates at, or close to, zero has all but disappeared. Fiscal policy has returned to the fore as the main driver of events.

Cover Story


ost countries reacted quickly to the economic turnaround and busily set about clearing the debris accumulated during the Great Recession that kicked off with the 2008-9 banking crisis; paying down public debt and rebalancing spending deficits - echoing classic Keynesian thought. This is the path chosen by the more successful economies of Europe such as Germany, Sweden, Switzerland, and The Netherlands which now keep their national budgets firmly in the black. Member states of the Eurozone have reduced deficit spending, on average, to just 1.2% of GDP. Public debt, which ballooned during the banking crisis, is also shrinking remarkably fast. In fact, the picture couldn’t possibly be rosier in places such as Germany. The country sees 30

"With its outsized current account deficit - now amounting to roughly $450 billion or 2.4% of GDP - the US needs its 'kind strangers' as much as the UK does." its economy grow at a healthy pace (2.9%) and reports an almost dizzying 7% expansion of industrial production. The German economy is nearing full employment and creates wealth as never before with a current account surplus equal to 7.8% of the country’s GDP - $291 billion in hard numbers - sparking the ire of President Trump in the US.

Others in Europe take a merry ride on the tailcoats of this Wirtschaftswunder 2.0: Spain, Portugal, France, Belgium, and Italy all saw their performance indicators snap into positive territory. Outside the Eurozone, things are quite peachy as well with Poland and the Czech Republic coming in at close to 5% GDP growth with balanced budgets and budding current account surpluses. Admittedly, the Eurozone countries are still being pushed forward by the exceptionally generous policies of the European Central Bank which is reluctant to unwind its long-running bond buying programme that injected nearly €2.5 trillion into the economy over a three year period. ECB policymakers are discussing ways to wean the patient, now apparently fully recovered, off the meds. However, the bank will want to carefully | Capital Finance International

Spring 2018 Issue

Jerome Powell

manage rate expectations. With a trade war looming and ample room for growth in the labour market, the ECB is determined not to spoil the party. The view from Washington is a different one. Going by the tweets emanating almost daily from the White House, the US economy is in a poor state and stands in need of plenty fiscal support and tariff protection whilst being preyed upon by evil people conspiring to cart away the bread and butter of hardworking folks. Curiously, that is not how corporate America sees things. The National Federation of Independent Business (NFIB) reports that company bosses and owners have become an optimistic bunch. Their believe in a better future now stands at its highest since 1983. At big corporations, CEOs are also upbeat with Business Roundtable - their lobby group - claiming that confidence in the economy has never been higher. Meanwhile, consumer confidence, as measured by the Conference Board, surged to a 17-year high and looks set to increase even further.

Most analysts agree that both businesses and households have now learnt to tune out President Trump’s blustering tweets and focus instead on the fundamentals. “Those fundamentals were strong before Mr Trump was sworn into office and have remained fairly strong throughout,” says Senator Chris van Hollen (D-MD) pointing out that the US economy created more jobs in each of the four years of President Obama’s second term in office than in President Trump’s freshman year at the White House - “and the present administration benefits from a global economic upswing too.” In all fairness to the much-maligned US president, the $1.5 trillion in tax cuts approved last December did help move things along as did the administration’s decision to dismantle regulations deemed unfriendly to business. However, the Trump White House seems well aware of the dangers implied in the current disconnect between political and economic realities. President trump wrapped up his first year in office with the lowest approval rating of any president in living memory. According to performance | Capital Finance International

management consultant Gallup, Mr Trump’s first-year approval rating averaged out at just 39%. Surveys show that most Americans find their president divisive and not really fit for public office. The bright spot is that a majority of those queried agree that the president is helping rather than hurting the economy with his policy initiatives. Perhaps it is a case of learning how to love The Donald. All the same, GOP leaders are quite worried as they eye the November midterm elections when the full House of Representatives is up for grabs as well as 33 of the 100 seats in the US Senate. For Republicans, the first omens spell disaster. In a mid-March congressional by-election (“special election” in the US) in Pennsylvania, Democrat candidate Conor Lamb, a former marine and federal prosecutor, swept to victory in the staunchly Republican and affluent Allegheny County district where President Trump won by a twenty point difference in 2016. More disconcertingly, a surprise visit by the president in person just before the election did nothing to sway public opinion. In nineteen other by-elections that have so far taken place this year, Democrats have fared surprisingly well. In Kentucky’s 49th district, Democrats trailed by an embarrassing 49 points in the last presidential vote just two years ago, but went on to claim an astonishing 37-point win in the February congressional by-election - an almost unprecedented swing of 86 percentage points. 31

Cover Story

The buoyant spirit reigning on the work floor and at corporate offices only serves to confirm the suspicion that Washington’s grip on events in the nation is not quite as tight as those inside the Beltway like to believe. The political pandemonium in the capital, mostly caused by a barely functional federal administration, has so far failed to derail the country which seems to simply ignore the unedifying turf wars and scandals to plot its own course.

Professor Jason Furman of the Harvard Kennedy School of Government in Cambridge, Massachusetts, and former chairperson of President Obama’s Council of Economic Advisers, likens the US economy to a supertanker which is not easily steered off course or stopped: “The uncertainty seen in the White House has only been a small negative. No one making business or consumption decisions is seriously affected by these things.”

Analysts of the Washington maelstrom are worried that the Trump Administration may have overreached with its bullish trade policy which already has started to affect domestic prices for steel and aluminium, eliciting complaints from contractors and manufacturers who fear their already razor-thin margins may evaporate. US businesses are alarmed at the administration’s determination to pick a fight with China by imposing tariff surcharges on $50 billion worth of imports from that country - a move aimed at addressing the $375 billion deficit in bilateral trade. Whilst corporate America shares President Trump’s concerns about China’s unfair trade practices, such as the theft of intellectual property, dumping, currency manipulation, and restrictions on inward trade and investment, most business leaders consider tariff walls counterproductive as these are widely expected to cause significant added costs to both US manufacturers and consumers. The National Retail Federation (NRF) came out swinging against the tariffs on Chinese goods, saying ordinary Americans should not be expected to pay the price for China’s misbehaviour. “Middle class Americans are just now beginning to see the benefits of the tax reform and the tighter labour market in their paycheques. A trade war will soon erase these gains,” says NRF president Matthew Shay. The farming and aerospace sectors are also concerned that President Trump may have put a target on their backs. US farmers sold almost $13 billion worth of soybeans to China in 2017 whilst aircraft manufacturers that year exported over $16 billion in planes and parts to the country. The Information Technology Industry Council mobilised a group of 46 industry and trade associations for a lastditch appeal to the president reminding Mr Trump that his new tariffs would trigger a “chain reaction of negative consequences” for the US economy and likely provoke retaliatory measures that could stifle exports and raise the cost of doing business. However, not everybody jumped on the bandwagon. Defence contractor Lockheed Martin said it welcomed the measures and the administration’s focus on protecting “the intellectual property of the US defence and aerospace industry.”

Cover Story

So far, President Trump seems underwhelmed by the opposition to his more hands-on trade policy. He did, grudgingly, exempt European steel and aluminium producers from the tariff surcharges, after his trade envoy Robert Lighthizer was told in no uncertain terms by EU Trade Commissioner Cecilia Malmström to expect immediate tit-for-tat retaliatory tariffs on US exports to Europe. Brussels was in no mood to compromise and scored an easy victory by flexing its collective muscle and calling the president’s bluff. The trade war President Trump is almost hell-bent on starting is part of a larger policy initiative that seeks to Make America Great Again via easy-to-digest populist measures. After all, bashing the Chinese and blaming them for assorted domestic ills, real or imagined, is fun and goes down well with President Trump’s blue collar electorate which at any time could wake up and go Democrat. 32

Not one to read the small print or overthink complexities, President Trump has imposed a simple, if not simplistic and almost unidimensional, economic policy that calls for the US to bully and spend its way out of trouble. The bullying bit is all about building tariff walls and the spending bit is all about a relaxed attitude to fiscal propriety. Parallel to the mammoth tax cut, a bewildering number of spending initiatives have been unfurled. Amongst them, an additional $80 billion for the military in 2018, $63 billion on various programmes to keep Democrats from filibustering, and a $200 billion initial outlay to begin fixing the country’s degraded infrastructure - for a grand total well in excess of $1 trillion. As a result, the budget deficit is set to balloon to over 6% of GDP by 2020 - a level it is expected to stay at for the foreseeable future. Putting paid to the popular notion that Republicans - or conservatives in general - are budget hawks and prudent minders of the exchequer, President Trump has reverted to his role a big spender. That got him into trouble as a businessman - with his companies filing for bankruptcy four times - and may now get his country into trouble as well. The extra federal spending comes at an inopportune moment - it always sort of does. The budget is already 4.5% in the red and the national debt stands at almost $19 trillion - or 104% of GDP. Just before ending her four-year term at the Federal Reserve, Janet Yellen warned of a surge in US public debt; a development, she told Congress, that should keep people awake at night. Expressing “significant concern” over the trajectory and sustainability of the debt burden, Mrs Yellen told lawmakers she worries about the feasibility of the multi-decade outlook presented by the Congressional Budget office which she deemed overly optimistic. She also said that no economic study has ever managed to prove a direct link between lower taxes and higher levels of investment: “We have only empirical information to go by and that is sketchy at best.” Mrs Yellen did, however, call on Congress to prioritise investments in education, innovation, and infrastructure - the primary drivers of productivity and, hence, prosperity. She warned that the “dismally slow” growth of productivity hampers the longer-term US economic outlook. Republicans failed to take heed. The federal budget and the revised tax code pay but scant attention to the key areas highlighted by Mrs Yellen and are geared to spur short-term growth to the inevitable detriment of long-term well-being. As the Trump Administration prepares to spend its way to the mid-term elections and beyond, the US economy - for all its outward appearance of strength may look considerably less resilient when examined up close. Job growth has slowed in January and February and now hovers around a level last seen in 2016 when GDP growth amounted to a paltry 1.8%. The US job market may even be less robust than it seems. Unemployment statistics ignore people who have given up on searching for a job. In 2000, some 82% of Americans aged between 25 and 54 were gainfully | Capital Finance International

Spring 2018 Issue

employed. That number has dropped to 79%, signalling the existence of a hidden pool of labour with about 3.7 million potential workers. It is one explanation for the rather mysterious absence of strong wage pressures and the attendant lack of inflationary pressure. Which leads to the question of cheap money - is it here to stay or will it go? For now, the Federal Reserve (see the accompanying profile of its chairman Jerome Powell) seems unwilling to go either way. Yes, the Fed will push its base rate up, but is expected to do so hesitantly and in the tiniest of baby steps. The Fed has but little wiggle room, knowing full well that for now the US economy has barely left the recovery stage. An underreported sign of its somewhat less than robust health is the surprising weakness of the US dollar which has retreated 10% against the euro and - more important - also 10% against a trade-weighted basket of world currencies since Q1 2017. The depreciation has forex traders mystified: the upward revision of economic forecasts, monetary tightening, fiscal stimulus, and even a tax reform that encourages capital inflows should all have contributed to a stronger dollar. Worse than that, markets actually expect the dollar to lose about a quarter of its value over the next ten years given the discrepancy in interest rates. The benchmark 10-year US Treasury bond now pays 230 basis points above its German equivalent and 280 basis points over rates of similar bonds in Japan. The weakness of the dollar may, of course, also be part explained by the now significantly better economic performance reported in Europe and some Asian markets. However, the money made here is not finding its way to the US just yet. Notwithstanding the enticement of higher interest rates, global markets prefer to hang on to their cash, sending a clear signal that the US economy, in their opinion, is not on a sustainable footing. This is a problem for - and offers a quandary to - both President Trump and Mr Powell over at the Fed. With its outsized current account deficit - now amounting to roughly $450 billion or 2.4% of GDP - the US needs its “kind strangers� as much as the UK does. Should those kind and moneyed strangers decline the invitation to fund the deficit, added enticements are called for i.e. higher rates. There is a reason why the likes of Germany, Japan, and Switzerland insist on keeping at the right side of the current account equation: large deficits inevitably lead to constraints on monetary policy by restricting the freedom of action enjoyed by central banks. The Fed in the US may wish to tread a carefully plotted path between growth and inflation, but kind strangers may not be so impressed and decline a stroll. Just imagine China becoming seriously upset with the White House’s antics on trade and reducing its exposure to its markets. That would perhaps not quite be the end of the world as we know it, but all the same: perish the thought. | Capital Finance International


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Chances are, that with Mr Trump in charge, cheap money will soon be but a faint memory. A saving grace, he does not need to bear all the blame for the predicament and may share that honour with a number of predecessors who also failed to address the structural and underlying issues that cause the US economy to remain stuck in its boom-and-bust cycles. i

> Jerome

Powell: The Debut of a Hawkish Dove

He spoke only three times publicly in his new job, and three times the markets tanked. More disconcertingly, he also flip-flopped during two key speeches on Capitol Hill, seamlessly moving from monetary hawk to dove within the space of a few days.


he new chairman of the US Federal Reserve, Jerome H Powell (65), in office since February 5, is already suspected of possessing a “toxic touch” - markets seem to dislike, if not slightly mistrust, him. That may be understandable and constitutes somewhat of a traditional welcome meted out to new Fed chairpersons. After Alan Greenspan took the job in 1987, markets went on a downward slide as well. In 2006, Ben Bernanke received a similar treatment, albeit slightly less pronounced. Within 48 hours of Jerome Powell succeeding Janet Yellen as chairman of the Fed, the Dow Jones recorded its largest point loss in history, tumbling 1,032 points to close at 23,860 and finish its biggest weekly decline since the dark days of 2008. Traders, always eager to find a culprit for their losses, promptly blamed the Federal Reserve for being behind the curve on taming inflation and failing to show its teeth. Fear was - and still is - driving the market, sidelining the bulls and creating an environment in which anxiety sets the tone. Volatility indices are up across the board as the market searches for direction.

Cover Story

Just as the Fed announced its sixth consecutive rate hike since the financial crisis, Mr Powell admitted - before the nation - that his bullish outlook was founded on “very uncertain” premises and conceded that he may well be underestimating the longer-term economic effects of the tax cuts and the increased spending of the Trump Administration. Whilst he singled out wage growth as the “ultimate signal” of a tight job market, Mr Powell also admitted that, so far, wage pressures have been “modest” at best. GROWING INTO THE ROLE His debut underlined that Jerome Powell is not quite yet used to his role as, arguably, the world’s most powerful central banker. Regrettably, he also lacks solid backup. The Fed’s seven-member board of governors is now down to just three with six of the bank’s seven committees chaired by either Randal K Quarles or Lael Brainard, two holdouts, with Jerome Powell acting as chair of the Committee of Board Affairs.

"Mr Powell’s apparent dismissal of his predecessor’s cautious attitude, and his seesawing between bullish and bearish economic outlooks, has left many without guidance." Talking about the labour market, Mr Powell’s analysis seems at odds with the Fed’s own preemptive policy of raising interest rates in order to suppress inflation - which still sits well below the official 2% target. Though the US jobless rate stands at a seasonally-adjusted 4.1% - a seventeen-year-low - the absence of wage pressures indicates the job market is far from saturated. However, the underlying strength of the US economy may ultimately not be as formidable as it seems (see main article). GDP Now, compiled and published by the Federal Reserve Bank of Atlanta and as close to a real-time indicator of economic activity as available, has been downgraded sharply from a January annualised growth rate of well over 5% to barely 1.8% in March. Meanwhile, the San Francisco Fed published an update to its 2015 study that shows the central bank consistently overestimating actual growth rates - and responding, often way too early, with a tightening of the money supply. Jerome Powell appears determined to continue the tradition. His problem now is to square the Fed’s natural urges with the expansive policies pursued by the Trump Administration. To the president, the sky is the limit. In a sense, the US economy has become addicted to stimulus first quantitative easing on a massive scale and now, if only because the Fed’s bloated balance sheet started to look funny, with likewise massive tax cuts which leave an extra 1.1% of the nation’s GDP in the hands of businesses and private individuals. Whilst it shouldn’t matter who spends the money - the state, private enterprise, or people - the revised tax code does leave the federal government, at least initially, a few trillions

short at a time when the administration can ill afford fiscal setbacks. The trouble with President Trump’s tax code is its tilt towards wealthier people who most likely will not spend the windfall, but save the money instead. If they do let the money roll, it is to bankroll imported luxuries. A NOTE OF CAUTION FROM THE IMF The International Monetary Fund warned that though the US economy may see solid growth over the next two years, payback is expected from 2020. At a meeting in mid-March of G20 finance ministers and central bank governors in Buenos Aires, Argentina, those present sounded a cautious note, expressing concern over future growth once fiscal support is withdrawn or expires. However, for the moment Mr Powell tries to avoid a showdown between his Fed and the Trump Administration. At some none-toodistant point in the future, the inevitable must happen: as the president floors the accelerator, the Fed must start pushing back in a tug of war that may further confuse markets, heaping on additional volatility. Fed-watcher Tim Duy of the University of Oregon helpfully pointed out that the inflation concerns of the last two decades have amounted to much ado about nothing. Professor Duy suspects there may be some hidden slack in the economy conspiring against an inflationary spurt and mentions digitisation and globalisation as the two wildcards. The boring choice to replace Janet Yellen as chair of the US Federal Reserve, if not necessarily a safe one, the appointment and confirmation of Jerome “Jay” Powell was met with yawns on Wall Street - bankers and traders alike are just relieved that President Trump did not go for the esoteric or extravagant. In fact, President Donald Trump wanted someone without any overly strong convictions at the helm of the Fed - someone in between a hawk and a dove, and most of all a chairperson who wouldn’t instantly try to derail his administration’s expansive fiscal policies. Jerome Powell was the right man at the right time. As an added bonus, he also favours rolling | Capital Finance International

34 CEO: Kristalina Georgieva

Spring 2018 Issue

United States Capitol

back some of the financial regulation introduced in the wake of the 2008-9 banking crisis. Mr Trump likes to keep a light regulatory touch.

- the first time in almost fifteen years that a president reached across the aisle for a nominee to such a key position.

Mr Powell is perhaps, as Winston Churchill would have put it, a modest man with much to be modest about. It just so may happen that a modest man - as opposed to a high-flying egotripper - is what this sensitive moment in time calls for.

At the Fed, Mr Powell was mostly known for not rocking the boat. Though markets appreciate a business-as-usual approach, they severely dislike a taciturn Fed chairperson. Mr Powell’s apparent dismissal of his predecessor’s cautious attitude, and his seesawing between bullish and bearish economic outlooks, has left many without guidance. An old metaphor seems to apply: Mr Powell is driving the economy by looking only in the rearview mirror. Knowing what happened in the past, whilst making decisions that steer the future, almost guarantees a time lag - definitive knowledge probably arrives too late to act on it.

A LAWYER IN CHARGE Mr Powell, a graduate of Georgetown University Law School, made his career as a lawyer in New York before becoming an investment banker. In 1992, he was appointed under-secretary of the Treasury for Domestic Finance in the administration of George HW Bush, a position he held for two years. He managed to escape the worst of the fallout at Bankers Trust - his next stop - quitting as managing director just as the bank got into legal trouble over large losses from derivatives trading, duping its poorly clients in the process. | Capital Finance International

Now Jerome Powell is asked to perform a similar trick, i.e. not lose his cool and recognise that economic realities have changed. In the present low interest environment, the level of private savings still exceeds the level of private investment. Substantial inflows of cash from outside the country augment the difference, exercising downward pressure on inflation and requiring, amongst others, outsized budget deficits to ward off deflation by artificially depressing the savings rate. For all its undeniable power, the Fed doesn’t have a particularly noteworthy track record when it comes to ensuring stable and sustainable growth. In fact, looking far back, the US economy remains subjected to pronounced boom and bust cycles - the internet bubble of the 1990s, the housing boom that followed, and now inflated equities; each upward swing followed by a rather violent market correction. Mr Powell’s job is to break with that tradition and continue to build on the groundwork laid by his predecessor: not being too cautious, nor too generous. Perhaps a job for a hawkish dove after all. In any case, it’s all in a day’s work for the world’s pre-eminent central banker. i 35

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Soon after, Mr Powell accepted a partnership at The Carlyle Group from where he departed to found Severn Capital Partners, a private equity firm prowling the market for opportunistic investments. In 2011, during the Obama Administration, Mr Powell was nominated to join the Federal Reserve Board of Governors

Mr Powell has to fill big shoes. During her single four-year-term as Fed chairperson, Janet Yellen stoked inflation close to target, capitalised the financial system, and drastically cut unemployment. She vacated the chair without any black marks, largely thanks to her early abandonment of ingrained structural and policy models. This gave Mrs Yellen the liberty to keep calm during times of expansive fiscal policies, convinced that the neutral or natural rate of interest had declined significantly due to profound changes in the US economy. That insight, valuable beyond measure, enabled the

Fed to keep interest rates lower, and for longer, than it otherwise would have. It is fair to say, that without Mrs Yellen’s calculated gamble, the US economy would still be in the boondocks.

> US

Trade Policy: End of the Liberal World Order

The established wisdom, first formulated and then imposed by the United States, says that trade encourages nations to maintain peace. In the decades following the end of World War 2, the US erected a new world order based on the premise that cross border trade creates common interests which conspires against the outbreak of hostilities and gently push nations towards cooperation.


rade opened China to the world. The promise of trade also helped the countries of Eastern Europe break free of Moscow’s orbit. Trade can reconcile old foes such as when it allowed the US and Vietnam to forgive and forget their senseless war. Losing sight of the bigger picture for want of historical insight, President Donald Trump is about to celebrate in grand style the reopening of four blast furnaces in the rustbelt states of the Midwest. The party may signal the start of a trade war. United States Steel Corporation announced it will resume production at Granite City Works, idled in January 2016, as the company expects a significant boost in demand following the administration’s snap decision to slap a 25% tariff on imported steel - and 10% on imported aluminium. The pickle line, cold mill, and hot strip mill at the Illinois plant are being sped up as well to accommodate the anticipated rush of new orders. US Steel said it plans to rehire up to 500 workers previously laid off. Mexican-owned Republic Steel is also ready to recommission two of the four blast furnaces at its Lorain (OH) mill, shuttered early 2016, creating around a thousand jobs and adding up to two million tonnes of pig iron to its output. Washington is ecstatic at the news from Illinois and Ohio.

Cover Story

Though president Trump exempted NAFTA trading partners Canada and Mexico from the new tariffs on steel and aluminium imports, he warned both countries to address US concerns during the renegotiation of the free trade agreement currently underway. Additional exemptions may be granted to other trading partners that toe Washington’s line. Turning his ire to China, President Trump demanded the government in Beijing draw up a plan to shrink its bilateral trade surplus by $100 billion. Chinese Commerce Minister Zhong Shan coyly suggested an easing of restrictions on the sale of high-tech and military goods as a quick way of bridging the gap.

"With Russia and China in the hands of dictators, and the US and UK governed by latter-day plutocracies, only Europe and Japan remain standing as outposts of the liberal world order." VEXED Whilst expressing a willingness to cooperate with the Americans, Chinese trade envoy Liu He protested that the US trade deficit cannot be cut by fiat: “That is not a market-oriented way of conducting business.” China has been vexed by the sudden ascendancy of trade policy maverick Peter Navarro (68), a left-wing economist and long-time critic of free trade. Prof Navarro was reportedly invited to join the Trump Administration soon after the president’s son-in-law and senior advisor Jared Kushner, tasked with investigating China’s trade practices, turned to Amazon for inspiration. Here, Mr Kushner found and ordered Death by China: Confronting the Dragon - A Global Call to Action. The book, co-written by the professor, received moderate praise as a welcome wake-up call despite its xenophobic tone and tiresome hyperbole. The New York Times deplored Prof Navarro’s “inflammatory language, cheesy graphics, and lack of solutions which undercut and invalidate an otherwise important argument.” Formerly a bit-player in the Trump White House, Prof Navarro shot to the top and now has the president’s full attention - for however long that lasts. His luck changed days after the departure of former Goldman Sachs president and chief operating officer Gary Cohn who resigned as chief economic advisor over the decision to impose tariffs on imported steel and aluminium. Prof Navarro is now tipped as Mr Cohn’s successor even as Vice-President Mike Pence and Treasury

Secretary Steve Mnuchin in private voiced their misgivings over his unorthodox approach. However, President Trump sees in the professor a kindred spirit if not a political soulmate. The president’s new best friend is not known to follow convention or heed the unwritten rules of diplomatic protocol. Prof Navarro has repeatedly railed against China, calling the country’s currency manipulations and import restrictions the greatest threat to US national Security in living memory. He also accuses Beijing of deploying “weapons of job destruction” in its quest to become the world’s sole superpower. In his book, Prof Navarro details a few outlandish notions that take him well into crackpot territory. In one of the more remarkable passages, the professor cautions against the use of mobile phones assembled in China as these devices may contain explosives that conceivably can be triggered remotely and instantly kill millions of unsuspecting users. BARRAGE TO FOLLOW It is this man who convinced the US president to impose punitive tariffs on steel and aluminium, invoking threats to national security, and possibly unleashing the dogs of a global trade war. The measure is but a first warning shot with a sustained barrage to follow in case recalcitrant trading partners fail to take heed. The Trump Administration, with prof Navarro as its trade whisperer, is determined to bend the World Trade Organization (WTO) to its will and tilt the global playing field to favour US exporters. Though a number of countries, including Canada, have already initiated proceedings against the US at the WTO - with many more mulling the same course of action - big players such as China and the European Union are unwilling to wait for the outcome of lengthy arbitration consultations. EU Trade Commissioner Cecilia Malmström did not mince her words when she met US Trade Representative Robert Lighthizer in Brussels and demanded European steel mills be exempted from the tariffs. Earlier, Commission President Jean-Claude Juncker had already jokingly suggested to slap retaliatory duties on Harley Davidson bikes, Levi’s jeans and bourbon. | Capital Finance International

36 CEO: Kristalina Georgieva

Spring 2018 Issue

President Donald Trump

Whilst “frank exploratory talks” were taking place in Brussels, President Trump stoked the fires with a tweeted attempt at sarcasm accusing the “wonderful countries” of the European Union of treating the US “very badly” with “horrific barriers” to US exports. The president went on to promise additional taxes on “cars, etc.” in case the Europe Union fails to meet his demands. Brussels is keenly aware that the US Administration’s anger is directed as much at the European Union as it is at China. Professor Navarro considers Germany nothing less than China’s European twin - to peas in a pot. The EU also realises that the perceived threat to US national security from imported steel and aluminium is but a legal fig leaf. Though the World Trade Organization allows the imposition of additional tariffs and/or quotas over national security concerns, it usually rejects such barriers when challenged. In 2002, the European Union lodged, and won, an appeal with the WTO over US moves to introduce a 30% surcharge on imported steel. After the Bush Administration went ahead anyway, the EU retaliated with a series of compensatory tariffs targeted at goods produced in congressional swing states, sowing considerable political discord and causing President George W Bush to fall out with his brother Jeff Bush, then governor of Florida, over the hurt caused orange growers who were shut out of European markets.

Mr Juncker was not far off the mark. The US imports mostly specialised steel from the EU that can no longer be produced domestically. Thus, the new tariffs hurt US manufacturers who are unable to source their steel elsewhere and must absorb - or pass on - the higher cost, losing competitiveness in the process. US canneries are almost entirely dependent on packaging steel produced by Tata Steel in The Netherlands. The food processing sector, one of the few US export success stories and already struggling with the slimmest of margins, fears it may lose hard-won market share as a result. Moreover, of the eleven integrated steel mills in the US, four of the largest are fully- or part-owned by foreign corporations, including ArcelorMittal of Luxembourg, the world’s largest steelmaker, and Kawasaki Steel of Japan. A large portion of the 112 specialty mills in the US is also foreignowned. Any revival of the US steel industry stands to benefit non-US corporations as well. Regardless of tariff walls, most American steel mills are beyond salvation - too old, already dismantled, or reduced to brown fields - and no investor is brave or dumb enough to consider building new steel works in the US on the back of protectionist legislation which may be withdrawn or amended at any time. Whilst a few steelworkers may return to their old jobs, they’ll constitute but a tiny fraction of the approximately 320,000 or so who lost their jobs in the US steel industry since 1973 - when production attained its peak at 137 million metric tonnes. These blue-collar jobs will not come back. The world of The Deer Hunter is no more. | Capital Finance International

Automation - not free trade - is to blame. According to the American Iron and Steel Institute, labour productivity has increased fivefold since the late 1970s from an industry average of 10.1 man-hours per tonne of finished steel in 1978 to barely 1.9 man-hours in 2014 - the latest year for which reliable statistics are available. These impressive gains in productivity coincided with the opening up of world markets, spurring competition, driving down prices, and increasing efficiencies. The reimposition of tariffs may throw a lifeline to steel mills that didn’t quite manage to keep up with global dynamics but will not help them or indeed US industry as a whole - regain their leading edge. “FREE-ISH” TRADE As the architect of today’s global trade structure retreats behind walls, others - perhaps less benign - get a chance to step in. Early 2017, President Xi Jinping of China presented himself at the World Economic Forum in Davos, Switzerland, as the new champion of global “free-ish” trade, tracing new silk roads on the world map and promising untold billions in investments to those countries willing to help shape the Chinese Century. Now made into his country’s strongman and set to rule for life as the reincarnation of Chairman Mao, President Xi pays lip service to free trade as long as it suits China. Domestically, Xi Jinping is no less of a mercantilist than Donald Trump. With Russia and China in the hands of dictators, and the US and UK governed by latter-day plutocracies, only Europe and Japan remain standing as outposts of the liberal world order. They must now prepare to live their finest hour. i 37

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UNION TO STRIKE BACK Instead of asking for exemptions, Mrs Malmström merely reminded Mr Lighthizer of the EU’s disappointment and, crucially, of the union’s ability to strike back. The trade commissioner also suggested the US Administration read up on history, alluding to the 2002 trade conflict. She left little room for doubt that the EU will swiftly

respond to any protectionist measure adopted in the US. For good measure, commission president Jean-Claude Juncker added: “We also can do stupid.”

> Book Review

Atlas Shrugged Meets Mad Max: Billionaires Heading for the Hills The lone Trump supporter amongst the billionaires of Silicon Valley, venture capitalist and angel investor Peter Thiel (50) – worth an estimated $2.6bn – has all but given up on the future. Convinced that systemic collapse is but a few keystrokes away, Mr Thiel acquired a 477-acre sheep station on New Zealand’s sparsely-populated South Island where he hopes to survive Armageddon.


lready in 2011, the German-born businessman – Mr Thiel is an American by choice – managed to fast-track his application for Kiwi citizenship by securing ministerial sponsorship. Though Mr Thiel had only visited the country briefly and claimed no intention to live there, the New Zealand government of the day swiftly granted his request on the basis of vague promises to support local IT start-ups and promote the country’s business interests overseas. Mr Thiel is by no means alone in his love of New Zealand. The country has become a promised land for moneyed preppers, a sort of latter-day Galt’s Gulch where Ayn Rand’s Real Men of Genius – the vilified heroes of Atlas Shrugged – find the freedom to pursue their lucre without hindrance or guilt. Far away and separated from evil by vast seas, pristine New Zealand has thus become the Mount Ararat of people with more money than trust in tomorrow. SNAKE OIL Take the trailblazing Peter Thiel who also sports a loony side. Mr Thiel, for example, swears by the rejuvenating power of parabiosis – the snake oil which, amongst a great many other things, claims that blood transfusions sourced from young people can add years to the recipient’s lifespan by reversing the ageing process. In a 2016 Vanity Fair interview, Mr Thiel took a strong stand against confiscatory taxes, totalitarian collectives, and – remarkably – the ideology of the inevitability of the death – “of every individual.” Just as he is currently able to buy citizenships, Mr Thiel shortly expects to buy life as well. Mr Thiel and many of his fellow doomsters are part of a cult that coalesced around a rather obscure libertarian treatise published in 1999 and written by James Dale Davidson – an advisor to the über-rich on how to extract profit from 38

"Whilst Nietzsche declared God dead, modern man – the pessimist living in near-constant fear of some apocalyptic event and powerless to take charge of his own destiny – seeks meaning where there is none: after all, science tells us that we are but stardust and, as such, apparently of no lasting consequence." adversity – and William Rees-Mogg – a former editor of The Times and father of Jacob ReesMogg, esteemed dealer in alt-truths and enfant terrible of Brexit Britain. The Sovereign Individual: Mastering the Transition to the Information Age is, at first glance, an unlikely candidate for cult status – the book’s lame title doesn’t hold much promise. However, inside, the authors present an apocalyptic view of a future derailed by disruptive technologies that shatter democracy and obliterate the nation state – both condemned as protection rackets devised by the mediocre many to steal the thunder of the talented few – aka liberalism.

depth: the book is actually well structured, well written, and well argued. However, to those not in possession of the proverbial silver spoon, the book is a dark read indeed. Then again, the dystopia of some may be the utopia of others. And so it is with Mr Thiel who can already now picture himself on his throne, ruling as a sovereign individual over his fiefdom whilst the world is being consumed by synthetic pestilence, vengeful artificial intelligence, nuclear winter, or some other cataclysmic event. The book’s authors point to New Zealand as the likeliest stage for the resurgence of human society, albeit in its feudal 2.0 guise. An enterprising journalist found that Messrs Davidson and Rees-Mogg already in the mid1990s anticipated the end times and bought a large ranch on the southern tip of New Zealand’s North Island. There, they were joined by former finance minister Roger Douglas who in the 1980s almost singlehandedly disassembled New Zealand’s welfare state and reshaped the country’s economy by selling off state assets and deregulating its markets – thus creating the very conditions that now proof irresistible to millionaire preppers.

FLIGHTS OF FANCY From this echo chamber in which Atlas Shrugged meets Mad Max arises a brave new world led by a “cognitive elite” – a class of individual sovereigns each of whom commands vast resources and shapes local government to suit his or her needs, subjecting those less gifted (and sovereign).

DARK THOUGHTS It is almost as if Mr Thiel and his fellow survivalists – Marc Andreessen (founder of Netscape), Reid Hoffman (founder of LinkedIn), Sam Altman (Silicon Valley grandee) et al – cannot wait for the eschatological script to unfold and hit the global reset button. In that particular sense, the affluent Silicon Valley or New York doomsayer is no different from the Primitive Baptist in Topeka, Kansas, who prays every day for the end-times sequence of Great Tribulations, Rapture, and Second Coming to begin.

Though this all sounds rather esoteric, if not farfetched and exceedingly fanciful, The Sovereign Individual is, alas, not at all a tract that can easily be dismissed for lacking in intellectual rigour or

What unites the millionaire doomsters and the members of the Westboro Baptist Church is a pitch black view of humanity and the conviction that before – way before – everything used | Capital Finance International

Spring 2018 Issue

that improvements in the human condition are likely to continue, he ventures into the realm of judgement. Just as Aristotle warned never to call a life good until it has ended, celebrating humanity’s progress is perhaps a bit premature in a world ruled by Donald, Vlad, Kim, Ali and other assorted wingnuts and gunslingers. Prof Pinker is, however, ahead of the curve and delivers a passionate appeal for an urgent reappraisal of science and reason in the face of growing scepticism. In fact, wherever and whenever experts are dismissed and reason is replaced by alt-truth, things tend to go horribly wrong. From Brexit Britain to Trump’s spendnow-pay-never America and the schizophrenic Iran of the ayatollahs, the exit of reason heralds without fail the arrival of chaos. Prof Pinker attributes humanity’s good fortune almost exclusively to achievements originating from the Enlightenment when humanism, science, and reason replaced blind faith, superstition, and myth – and allowed humankind to tackle its problems systematically. The Sovereign Individual: Mastering the Transition to the

Enlightenment Now: The Case for Reason, Science, Humanism,

Information Age by James Dale Davidson and William Rees-Mogg

and Progress by Steven Pinker – Viking (€17.00) – ISBN 978-

– Touchtone (€24.40) – ISBN 978-0-6848-32722-2.


to be so much better. Hope is not something appreciated, let alone cherished, by doomsters, survivalists, and other societal hypochondriacs.

by Thomas Hobbes in Leviathan, is largely responsible for the steep decline in violence. The nation state that emerged in the 16th and 17th centuries claimed a monopoly in the legitimate use of force, strongly inhibiting individual coercive action. Libertarians and individual sovereign wannabees traditionally consider any neutering of humankind’s more base impulses and instincts a direct assault on their individual freedom to dominate others. Hence, any agent or agency that limits or restrains those “freedoms” is suspect and even inimical.

The antidote to this soul-numbing affliction is Professor Steven Pinker, a Canadian-American psychologist and writer roundly hated by all who sustain doubts and keep dark thoughts. Prof Pinker isn’t one to confuse pessimism with profundity; in fact, he strenuously objects to being called Panglossian, arguing that in Candide, Voltaire did not at all satirise the optimism of the Enlightenment but instead had Professor Pangloss justify the religious theodicies that dismiss human suffering as irrelevant since creation is by its very definition a work of divine perfection. To Steven Pinker, professional optimist, Prof Pangloss – a literary figure hailed as the greatest philosopher of the Holy Roman Empire – is a pessimist at heart because he does not believe in a better world. ENTER LIGHT In Enlightenment Now, Prof Pinker presents a striking manifesto for science, reason, humanism, and progress – all the things rejected by the cognoscenti now flocking to the ends of the earth. His new book follows the path beaten by The Better Angels of Our Nature (2011) which showed, over 832 pages, how violence has declined across the world to an all-time low thanks to the interplay of four motivators – empathy, reason, self-control, and morality (the four “better angels”) – which nudge humans towards cooperation and altruism. In The Better Angels, Prof Pinker drove libertarians up the wall with his assertion that social contract theory, such as first described

In his latest book, Prof Pinker adds insult to injury by claiming that we are now also healthier, safer, happier, and better educated than at any time in history. The upbeat professor informs his readers that over the past quarter century, every single day some 137,000 people managed to climb out of poverty. In other news: between 2003 and 2013, Kenya’s population saw ten years added to its life expectancy. And, outside a few African trouble spots, famine has now been banished. Finally, for more than half of humanity there is no time like the present: whilst full equality may not yet have been attained, modern women enjoy historically unprecedented levels of freedom. Prof Pinker piles on data to prove, sometimes to beyond the point of reason, that life has never been so good. However, he does not claim that progress is unidirectional or irreversible. The professor admits that the world is still far from perfect and that humanity has a long way to go before progress has run its course. PAST PERFORMANCE NO GUARANTEE Even in history, past performance is no guarantee of future results. Thus, when Prof Pinker states | Capital Finance International

Of late, the Enlightenment is, of course, blamed for nearly all ills of modern society such as the materialism that deprives life of its (imagined) inner meaning and the utilitarian rationalism that dehumanises and even, it is claimed rather preposterously, opens the road to Auschwitz. Whilst Nietzsche declared God dead, modern man – the pessimist living in near-constant fear of some apocalyptic event and powerless to take charge of his own destiny – seeks meaning where there is none: after all, science tells us that we are but stardust and, as such, apparently of no lasting consequence. For some, this lack of ulterior purpose – i.e. existential flatlining – is severely unsettling and requires a deity, or sacred cause, to be called into existence and provide meaning. Not so Prof Pinker who cheerfully insists that increased trust in science and reason runs in tandem with human progress across all metrics. Regrettably, Enlightenment Now suffers from a deficiency common to Anglophone thinkers who usually lump European philosophy together under the “postmodernist” catch-all: the writer stubbornly refuses to understand the true meaning of Nietzsche regarding the great German philosopher at best as a crypto-fascist avant-lalettre. Thus Prof Pinker misses out on a vast body of thought and a rich cultural universe that could have provided him with added ammunition. What makes Prof Pinker’s work both interesting and a valuable antidote for doomsday fears is its well-argued message to keep calm and carry on – and be happy as science works hard at removing whatever still troubles us – from cancer to climate change. Simplistic, perhaps, but surely a lot better – and much more sensible – than to stock up on canned beans, lock and load the AR15, and head for the hills – or New Zealand. i 39

> Spring 2018 Special

Swiss Corporate Excellence: Keys to Lasting Success


ome to some of the world’s largest and most iconic companies, Switzerland is a source of corporate excellence and has been so for well over a

Switzerland also boasts the world’s largest employment agency, Adecco; one of its largest cement makers, Holcimn; and Europe’s leading drug wholesaler, Alliance Boots which also operates around 3,300 pharmacies in the UK and ten other countries.

Thanks to the country’s much-cherished and long-standing neutrality - which made the Swiss reluctant to join any multi- or supranational organisation; Switzerland only joined the United Nations in 2002 - its companies have always looked at the wider world without prejudices or preconceived notions. Switzerland never possessed any captive markets such as colonies which forced its businesses to compete, harder than most, for market share.

Small wonder the Swiss economy provides an excellent living standard to the country’s 8.4 million people and consistently features in the global top-ten for GDP per capita currently estimated at well over $78,000 (PPP).


Anywhere in the world, Made in Switzerland equates to superior quality. Anyone would be hard pressed to find something Swiss poorly made. It is not just that the country’s workers perform their jobs with clockwork precision, Swiss companies too have traditionally been run to the highest standards of governance. In fact, long before corporate governance became a hot topic, Switzerland’s largest corporations had already been put on a sustainable footing. And it is not just big banks and insurance companies that Switzerland is known for: engineering behemoth ABB, food giant Nestlé, and the leading pharmaceutical companies Novartis and Roche Group all sprang from this small land-locked country in the heart of Europe. Perhaps not a household name, global commodities trading powerhouse Glencore International, based in Baar just north of Lucerne, employs more than 60,000 people in 40 countries. The company trades in bulk commodities such as metals, minerals, oil, cotton, coal, and cotton amongst others. Another almost hidden Swiss corporate, Xstrata, is one of the world’s largest mining companies with about 70,000 on its payroll. Xstrata is a major supplier of copper, ferrochrome, and vanadium - the last two byproducts of coal used in the manufacture of high-grade stainless steel.

Long a safe haven for capital fleeing economic and political uncertainty - but no longer hiding place for ill-gotten financial gain - Switzerland battles the sort of problems other countries can only dream about: too much money coming in, seeking shelter, and pushing up the value of the franc. The Swiss now charge depositors for the privilege of parking their funds in the country with negative interest rates. So far, this has barely stemmed inward financial flows. Amazingly for a country without vast mineral resources, Switzerland maintains a current account surplus bordering 10% of its GDP - outpacing even Norway. It is one of the world’s largest creditor nations. Whilst not every country in the world can be or become a Switzerland, the Swiss do show what dogged dedication to excellence in both public and corporate governance can establish. The nation may have become a byword for boring - nothing ever happens there to cause a ripple, let alone a great kerfuffle - the Swiss are quite content to leave others to take care of generating noise whilst they diligently continue to work, gathering riches, and embellishing their national home already a vast collection of Kodak Moments. The following pages present but a tiny sample of Swiss corporate excellence - and of the way the country’s CEOs deal with any stray headwinds. If anything, these profiles show a people dedicated to excellence; corporate leaders who - by upbringing and training - are unfamiliar with the mundane or the mediocre. Their passion for excellence holds perhaps the key to corporate sustainability - a lasting success story. i

Switzerland: Geneva

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Spring 2018 Issue | Capital Finance International


> ANDRÉA MAECHLER Managing Safe-Haven Inflows Last year, the Swiss National Bank (SNB) has made over Sfr 2bn from the negative interest rate (-0.75% on overnight deposits) it charges commercial banks. The bank also has to intervene almost continuously to keep the upward pressure on the Swiss franc in check. Over the last decade, the franc has appreciated by over 50% against a weighed currency basket of the country’s main trading partners. In January 2015, the bank scrapped the hard exchange rate floor it had kept in place to stave off any unwanted appreciation of the franc. At the time, the move was seen as a valiant attempt to decouple the bank from the ECB’s (European Central Bank) massive bondbuying programme. The bank now maintains an informal soft floor of around 1.08 franc per euro. In a testament to the resilience of the Swiss economy, the sharp appreciation of the franc barely caused a ripple, leaving the country’s high trade surplus intact. What it did do was to somewhat reduce the rate at which the bank amassed foreign currency reserves - which at the time amounted to a staggering $480bn (now close to $800bn) - and allay public fears, admittedly unfounded, that the issuing of such large volumes of “new” francs would lead to runaway inflation. A member of the SNB governing board since late 2014 and the first woman to be admitted to the bank’s inner sanctum, Andréa Maechler has problems most other central bankers can only dream about. However, those luxury issues are real and require careful managing. “Yes, we are big but not overly so,” she said, dismissing concerns over the bank’s bloated reserves which now outstrip the country’s GDP. Pointing to China’s $3tn in currency reserves, Mrs Maechler argues that Beijing wields considerable more influence than Bern does. Even so, the SNB is no bit player. The bank’s board has looked for ways to leverage its newfound wherewithal and considers authorising the government to deploy the reserves to curry favour abroad such as in talks with the European Union or to lure foreign firms to the country. The SNB’s holdings are mostly made up of government bonds though about a fifth of the total is invested in stocks, including Apple, Starbucks, and Facebook. Mrs Maechler explains that the bank limits its equity stake in any given company to no more than 3% in order to avoid conflicts of interest. Though eager to raise its benchmark interest rate sooner rather than later, the SNB fears that renewed global trade tensions may trigger an uptick in safe-haven inflows that would again drive up the value of the Swiss franc. In its March 15 monetary policy update the bank called the 42

franc “highly valued” and signalled it was not making plans for any interest rate hike. One of the bank’s three governing board members, Mrs Maechler welcomed the ECB’s first tentative moves to wind down its quantitative easing (QE) programme but said it was still too early to consider any tightening of the SNB’s own expansive monetary policy: “We do have an independent monetary policy, but as long as the interest rates are going to stay low around us, it’s very unlikely that we’ll be able to raise rates, whether they are still in a negative interest rate or above.” With inflation hovering around 0.5% in 2017 - the highest in seven years yet still at the low end of the targeted range - the SNB decided to | Capital Finance International

leave its benchmark interest rate unchanged at -0.75%. Some market watchers do not discard a deeper dip into negative territory should the run on the franc materialise. The SNB has a reputation for bluntness when the market moves in an undesirable direction. “We are a small and open economy, and we still have lower rates than abroad. If we didn't, the pressure on the Swiss franc would be more accentuated, more difficult, and would have negative implications for our economy.” Mrs Maechler said that the bank is thus likely to continue its interventions on the forex market in order to ease the pressure on the franc: “The currency remains strongly overvalued at around 10% above its long-term average.”

Spring 2018 Issue

> MARC LANGENBRINCK Finding and Keeping the Exact Right Competitive Angle Mercedes-Benz is enjoying a great run. Its cars have set new sales records in Switzerland, Spain, Belgium, Portugal, and Poland - and elsewhere. In fact, the iconic German carmaker just reported its 60th consecutive month of record sales. Last year, the company did particularly well in Asia, registering double-digit growth in key markets such as India (+25.7%) and China (+18.6%). Mercedes-Benz Schweiz CEO Marc Langenbrinck may also smile as his brand reigns supreme in the country’s highly competitive luxury car segment. It is now also the country’s second best-sold brand by unit. In 2017, Mercedes-Benz Schweiz reported a massive 12.1% increase in its unit sales, gaining considerable market share by units sold. Sitting atop a vast dealer network that exudes a corporate culture of excellence, Mr Langenbrinck notes that his “the-best-or-nothing” approach has proven successful: “We not only put in plenty of hard work, but also possess the agility, expertise and, indeed, the passion to deliver on our promises.” The days of salespeople preying on unsuspecting customers who had strayed, inadvertently or otherwise, into a showroom are definitely - and thankfully - gone. Today’s dealers are professionals who thrive on the quality of their product and - as the customer-facing end of a vast and complex organisation - are charged with keeping up the company’s enviable reputation as the purveyor of superior mobility products. The change entails much more than use of business-speak: it includes finding the exact right competitive angle and fitting the product to the customer - rather than the other way around. “I am convinced that we are not only a car brand, but a company driven by an agile corporate culture that keeps us ahead of the competition and right on the edge to best serve our customers.” Mr Langenbrinck points out that few others can match Mercedes-Benz’ extensive and well-diversified product portfolio: “We are able to deliver tailor-made solutions for any mobility need – one of the numerous reasons why we became the number one luxury car manufacturer not only in Switzerland but worldwide.” With a corporate culture centred on purpose, passion, and power, Mercedes-Benz smoothly and almost imperceptibly accelerates as it plots a course forward. The company is justifiably proud to be the only European brand included in the top ten of the prestigious Best Global Brands ranking compiled annually by Interbrand, the world’s largest brand consultancy. Even more impressively, Mercedes-Benz does not

need to appeal to gimmickry to make it to the top and stay there. The carmaker has received ample praise for its marketing strategy, driven exclusively by the quality of its cars. “I am delighted that we found many new customers who have discovered – and realised – their passion and dream to drive a car with a star. I would think that we reflect the ‘zeitgeist’ of most target groups and meet their highest expectations with regards to design, top-notch technology, and customer centricity. Our brand represents modern luxury, pioneering spirit, and excellent quality. This enabled Mercedes-Benz Schweiz to sell over 25,000 units in the Swiss market in 2017.” Switzerland is the only market besides Germany where Mercedes-Benz has launched a pilot programme to deploy its fully-electric eActros trucks. The vehicles participating in the trial fall into the 18 to 25 tonne range and boast an | Capital Finance International

autonomy in excess of 200 kilometres. A number of premier logistics companies have already signed up for the programme and submitted glowing reports. Mercedes-Benz is also close to introducing its eCanter light-duty truck, the eSprinter van, and Citaro - an electric city bus. On the cutting edge in both the passenger car and truck segments, Mercedes-Benz and its Swiss subsidiary are facing the future with full confidence that, whatever shape the transition to electric mobility takes, the brand will continue to dominate the luxury car segment it has ruled since time immemorial. Worryingly - for its competitors - Mercedes-Benz has now ventured outside its traditional territory to claim a major share across all segments of the car market including the lower end where its application of superior technology, meticulous attention to detail, and automotive finesse is rewriting the rules and democratising access to a car with a star. 43

> NICOLAS HAYEK JR Keeping with the Times

This borders on the stereotypical: Switzerland and watches. Not only are the Swiss expert crafters of intricately designed heirloom-quality mechanical timepieces, they also know a thing or two about quartz regulated digital wristwatches. As Asian watchmakers flooded the market with cheap discardable quartz watches in the 1970s and 1980s, the Swiss promptly responded with Swatch - short for second watch - and successfully reclaimed their global dominance in this particular industry. Launched in 1983, Swatch Group is listed on the SIX Swiss Exchange though the business, now a global corporation, is managed by Nicolas Hayek Jr - son of the company’s founder. The Hayek family owns a 39% stake in the business. Mr Hayek Jr has aggressively expanded the business, following his father’s original concept - to mass produce cheap yet stylish and hip wristwatches using a minimum number of parts. Some of the earlier Swatch models contain no more than fifteen parts. Today’s watches boast around fifty parts which provide added functionality whilst still allowing for a fullyautomated production process. Mr Hayek Jr introduced an exceptionally comprehensive product line to cater to specific segments of the market and to accommodate often quick shifts in taste and style. In a nod 44

to the country’s heritage, Swatch in 2013 introduced the world’s first machine-assembled mechanical watch - the highly successful Sistem 51 which has an old-fashioned winding mechanism, albeit one that keeps ticking for up to ninety hours. The Sistem 51’s inner workings are on full display through its back. What sets Swatch apart from its peers - electronic or otherwise - is its enviable marketing savvy and dedication to simplicity and elegance. Unique for a maker of cheap accessories, Swatches have never gone out of fashion or become tainted by an uncool image as often happens with brands situated at the lower end of the market. Though still sold at an almost unbeatable price point, Swatches are invariably considered hip and fashionable. The watches simply refuse to go out of style. Mr Hayek Jr has also taken Swatch Group into new territory with his Flik Flak brand of kid watches. Originally launched in 1987, the children brand’s product catalog was significantly expanded and now rivals that of the adult Swatch line. Not necessarily appreciative of the monicker that imitation is the highest form of flattery, Mr Hayek Jr has been an early advocate of online policing against counterfeit products. Cheap knockoffs from the Far East, blatantly stealing the Swiss | Capital Finance International

company’s design features and technology, have become somewhat of a problem, disappointing customers and chipping away at the bottomline. Mr Hayek Jr has repeatedly appealed to global online retailer Amazon to proactively police its marketplace and ban counterfeit products - and their resellers - from the site. Swatch Group has refused to partner with Amazon until that company cleans up its act. The Swatch Group today comprises a full range of brands, catering to all segments of the market, besides its signatory and iconic original product. In its luxury range, the company features heritage brands such as Breguet (founded in 1755), Glashütte Original, and Omega. Other brands under the Swatch Group umbrella include famous names such as Tissot, Ck Calvin Klein, and Longines. The group owes much of its phenomenal growth to strategic acquisitions which, over time, have created a veritable corporate powerhouse. One of its latest acquisition has been HW Holding, owner of the Harry Wilson jewellery and watch company of New York for a reported Sfr 711 million. Mr Hayek Jr’s sister Nayla was duly installed as its CEO. The US company made headlines when it bought the world’s largest flawless blue diamond, now known as The Winston Blue.

Spring 2018 Issue

> CHRISTIAN MUMENTHALER Insuring Future Growth company that mainly invests in risk pools with long-term growth potential.” In 2016, the company took a severe hit with its exposure to the wildfires in Alberta’s (Canada) oil patch which displaced around 88,000 inhabitants of Fort McMurray and destroyed more than 2,400 homes and other buildings. The fires scorched the town and spread from Northern Alberta into neighbouring Saskatchewan, impacting mining operations in the Athabasca oil sands and interrupting supplies. The final damage amounted to C$10bn (€6.2bn / £5.5bn). Swiss Re carried around 80% of the losses sustained. The company was praised for its quick response to the emergency in Canada but saw its net income fall to Sfr 315m (€269m / £237m) from Sfr 3.4bn (€2.9bn / £2.6bn) in 2016. Swiss Re is in preliminary talks with Japan’s SoftBank which mulls acquiring a sizeable minority stake in the company - an idea that enjoys the strong support of the reinsurer’s CEO.

The new frontier of insurance runs through cyberspace. Hacking has professionalised and is no longer the preserve of lone bespectacled teenagers with more brains than brawn trying to prove the point they failed to make during recess. Today’s hackers are organised into clandestine, yet professionally-run, businesses and have targets and quotas to meet. The threat from cyberspace has become so large and immediate that the insurance industry is asking governments to provide a backstop in case of large and sustained attacks. Christian Mumenthaler of Swiss Re, based in Zurich and the world’s second-largest reinsurance company, argues that cyber attacks are no different from terror strikes and warrant a similar response.” So far, the CEO has found no government willing to engage and talk about the topic. Mr Mumenthaler worries about the accumulation of risk, a concept used by insurers to describe a large number of policyholders exposed to the same risk at the same time - potentially causing a massive avalanche of claims that could undermine the industry’s ability to respond.

“We thrive on risk diversification; risk accumulation is the enemy and leads to uninsurability which, in turn, stifles our clients’ businesses - and our own.” The number of cyber security breaches reported by companies worldwide shot up by almost 28% last year. The average cost per incident rose to $3.6m (€2.9m / £2.6m).

The industry still has plenty room for growth. Mr Mumenthaler is particularly eager to tap into the underdeveloped insurance markets of emerging economies where penetration is still low: “We are keen to help close the protection gap in high-growth markets where insurance coverage is simply not yet available or too expensive. Swiss Re coordinates with governments and local institutions to insure people and businesses. As a result, insurance penetration is steadily improving.” Swiss Re maintains a global network with offices in 25 countries.

Mr Mumenthaler notes that hackers increasingly adopt destructive techniques that deprive businesses of their data: “Ransomware attacks are the start of something possibly even more sinister such as the hijacking of industrial control systems or the insertion of malicious data with the intention to corrupt company records and make them unusable.”

The Swiss executive also seeks to remedy persistent gaps in industrialised countries where insurance is both available and affordable but people still do not take out coverage. In California, for example, only about 12% of home owners have bought coverage against earthquakes. Surveys have detected a widespread conviction that earthquake insurance is prohibitively expense. Others expect the state to help in case of a major quake. “Interestingly, those surveys also show that people are actually willing to pay considerably more for insurance coverage than the actual price of the product. In other words, for insurers California is a major growth market.”

In charge of Swiss Re since July 2016, Mr Mumenthaler is determined to leverage Swiss Re’s deep knowledge of specific segments of the insurance market - natural catastrophes, nuclear incidents, biometrics, and pandemics, amongst others - to take the company forwards. “We are transitioning into a risk knowledge

Looking to make the world more resilient, Mr Mumenthaler would like to reshape his company into a repository of relevant knowledge - a purveyor of data that powers the future: “When people hear of Swiss Re, I’d like them to see a long-term thinker and not just an ordinary reinsurance company.” | Capital Finance International


> SUSANNE RUOFF Holding the Postal Realm Together The iconic yellow Swiss postal buses plying mountain roads to deliver mail and passengers with unfailing punctuality to remote villages and hamlets are the unlikely focal point of a scandal that has caused a political storm in the country. Whilst two directors of PostBus - an autonomous subsidiary of Swiss Post - have already resigned, parent company CEO Susanne Ruoff has so far managed to deflect criticism and cling on to her job. Mrs Ruoff escaped the public’s wrath thanks to her remarkably successful tenure at the helm of Swiss Post - a company that transcends the mundane profit-and-loss business world and occupies a cherished niche in the national psyche. As other postal services struggle to adapt to the gig economy and the onslaught of disruptors, wholly state-owned Swiss Post has consistently managed to turn a profit. Enjoying the continued backing of the board of directors, Mrs Ruoff maintains that she was unaware of the illegal accounting practices at PostBus and has vowed to push through administrative and organisational reforms to avoid future wrongdoings. Swiss Post is split in commercial and publicservice units. The latter are by law prohibited from turning a profit and must return any excess cash to the federal government and the cantons. For reasons not yet entirely clarified, PostBus obfuscated its earnings via elaborate accounting tricks. Instead of returning its profits to the exchequer, PostBus held on to the funds in order to keep the volume of subsidies intact. Federal investigators have uncovered Sfr 78m (€66.6m / £58.8m) in undeserved subsidies which have since been repaid to the tax office. No one seems to have profited personally from the scheme - all money has been accounted for in what may well turn out to be a uniquely Swiss affair. Mrs Ruoff denies having pressed PostBus to boost its earnings, warning that cooking the books can never be excused. The CEO did admit that she repeatedly asked PostBus to further optimise its operational efficiency and turnover. Federal transport minister Doris Leuthard came out in full support of Mrs Ruoff and praised Swiss Post for its transparency in dealing with the matter. A minuscule blemish on an otherwise spotless career, Mrs Ruoff’s time at Swiss Post is spent manoeuvring the company to deal with new realities as the business enters an increasingly paperless world. As she steers the company and all of its 62,000 workers - into largely uncharted territory, Swiss Post remains reluctant to downsize its operations. In a country split by mountain ranges into relatively isolated regions, 46

and a nation speaking four distinct languages, the Swiss postal service has long been instrumental in maintaining social and cultural cohesion. As such, the company is the recipient of generous subsidies - and a depository of trust. Mrs Ruoff is determined to safeguard that heritage. She has publicly recognised the damage done by the irregularities at PostBus. Interestingly, the company’s reputation is so strong that, according to a recent poll, most Swiss would have no issue with crosssubsidisation as long as it benefits the quality of service. However, by cheating PostBus crossed a line. The company also ran into trouble in France where its subsidiary CarPostal was accused of unfair trading practices for using €44m (£39m) in Swiss subsidies to drop its fares to below cost in an attempt to gain a competitive edge - and market share. Investigators are now looking into a possible link between the accounting irregularities detected at PostBus and the losses sustained at CarPostal. A court in Lyon ordered the company to pay €11m (£9.7m) in ompensation to its duped competitors. | Capital Finance International

Looking to directly confront disruptive start-ups entering the market, Swiss Post earlier this year acquired a 51% stake in bicycle courier service Notime which mainly serves the country’s larger urban areas. Notime provides same-day delivery of parcels and documents. Plans are afoot to exploit synergies between Notime and classic mail delivery routes in order to gain an advantage over newcomers to the market. Founded in 2014, Notime offers a platform to online sellers that is considerably cheaper to use, and much faster, than existing parcel post services. Mrs Ruoff said the acquisition allows Swiss Post an early entry into a market segment poised for accelerated growth. Though beset by issues surrounding troubled PostBus, Mrs Ruoff has managed to limit the fallout and keep Swiss Post running smoothly - and profitably - across its different market segments, including the financial services industry where PostFinance ranks as one of the country’s top five retail banks, serving over three million clients and generating an operating income (2016) in excess of Sfr 2.2bn (€1.9bn / £1.66bn).

Spring 2018 Issue

> SERGIO ERMOTTI Clearing the Debris serve blue chip companies, governments, and large institutions. Despite the bank’s remarkable resilience in the face of multiple crises, UBS has been unable to lure back US investors. Its performance on Wall Street has been consistent but lags behind the five big US banks. Whilst market watchers point to the weak results at UBS’ investment bank, which saw profits drop by 84% in 2017, Mr Ermotti looks for clues elsewhere and sees opportunities in the improved delivery of corporate client solutions which still offer plenty room for growth. In a conference call to analysts, Mr Ermotti late last year called for patience and pointed to the bank’s ability to grow its business sustainably in a notoriously lumpy business segment where a handful of deals can make all the difference and wild profit swings are quite common. Mr Ermotti also emphasised that UBS is not the investment bank with the highest valuation but the wealth manager with the lowest valuation in the world. He strongly disagrees with the general perception that US banks enjoy an edge because they tackled their problems earlier than European ones: “The assertion simply doesn’t hold up to scrutiny.” Mr Ermotti does, however, reserve some of his ire for over-cautious European regulators whom he accuses of taking the breath out of the continent’s financial services industry: “Regulation in Europe has already reached its high point. Any further tightening of the screws is pointless and can only result in a loss of competitiveness for Europe’s financial sector.”

He is Europe’s best-paid banker with take-home pay hitting €12.1m (£10.7m) in 2017 - equating to a cool €4,000 (£3,500), give or take, per hour. For that remuneration UBS boss Sergio Ermotti (58) has delivered his bank’s shareholders a 50% return on their investment since taking the reins of the financial behemoth in November 2011. Called in to plug the holes, polish the tarnished reputation, and return UBS to health, Mr Ermotti masterminded the bank’s “big shrink”. The corporate retrenchment included the loss of some 11,000 jobs, a repositioning of priorities, and the merger of scattered business units such as the US wealth management division and the international private bank which were joined to form a single operation with €1.9tn (£1.7tn) under management. Much of Mr Ermotti’s valuable time was spent to erase UBS’ severely damaged image as the

investment bank that crashed. In the aftermath of the banking crisis, UBS was forced to write down over €40bn (£35bn) in bad loans mostly as a result of its exposure to subprime mortgages in the US - resulting in a record loss of close to €14bn (£12.4) in 2008, the worst in Swiss corporate history. The bank also had to absorb €1.2bn (£1.06bn) in fines over its involvement in the Libor scandal. At the time, US Assistant Attorney General Lanny Breuer described UBS’ role in the rigging of the benchmark interest rate as “simply astonishing”. In 2015, the bank was also fined €277m (£245m) for manipulating foreign exchange markets. US regulators also sanctioned Deutsche Bank and HSBC. The UBS shaped by Mr Ermotti has emerged stronger and leaner from those bad days whilst remaining one of the world’s bulge bracket banks - a select group of global investment banks that | Capital Finance International

Venturing onto thinner ice, Mr Ermotti also regularly lashes out at moves to curb banker pay which he considers both unnecessary and unfair, and an attempt by regulators to court favour with the public: “This discussion is kept going by people who may be frustrated that they do not make this kind of money.” Mr Ermotti explained that UBS’ bonus pool, shared amongst almost 48,000 employees, shrank by 17% last year to €2.5bn in the wake of a 48% drop in the group’s profits. Frank and competent, Mr Ermotti not usually minces words and is not in the business of making friends - he’d much rather make a profit instead. Admired, albeit sometimes grudgingly, he has managed to turn the mighty UBS ship around after it sprang a serious leak during the banking crisis. With the lessons learned, and much the wiser for it, Mr Ermotti is now building a new bank that takes the long view - the same one that built the bank in the first place. In that sense, Sergio Ermotti has brought UBS back to its Swiss roots - less flash and more depth. 47

> Europe

European Union: Turning the Tables President Trump may enjoy his Twitter-powered banter and bluster; he is not quite getting his way - at home or abroad. As US relations with the European Union and others sour, President Trump pours out one problem after the other, blaming all and sundry - and particularly the muchmaligned EU - for his country’s perceived ills. One day German car manufacturers bear the brunt of his anger, the next day it is the turn of French cheesemakers or Spanish solar panel producers. He also blasts European attempts at introducing a levy on digital revenues, criticises the continent’s renewed push to meet the emission targets of the Paris Accords, and - of course - continues to moan about relaxed attitudes towards defence spending.

48 | Capital Finance International

Spring 2018 Issue | Capital Finance International



nlike previous frictions such as those over the war in Iraq, today’s issues tend to unify Europe around the need to manage any damage Washington is able to inflict. The continent is no longer split over US demands. President Trump is almost unanimously considered an unknown quantity - one made of a substance yet undetermined. The demands and complaints of previous US presidents were much easier to understand and address. Trump is not just attacking Europe; he also dislikes multilateral trade and would - if he could - do away with the World Trade Organisation (WTO) altogether. As such, President Trump seems determined to disassemble the postwar world order, built by his country, and replace it with with something he hasn’t quite yet decided on. Transatlantic trade spats and political misunderstanding are, of course, nothing new. A US president with a devil-may-care attitude, however, is. Even hardcore Atlanticists such as German Chancellor Angela Merkel and Dutch Prime Minister Mark Rutte are now openly calling for a united Europe and a concerted effort to push back. Chancellor Merkel said that the EU must do more to increase the continent’s self-reliance - a statement unthinkable but twelve months ago. After closing its ranks - a remarkable feat in and of itself - to deal with the fallout from Brexit, and noting its resounding success in the negotiations that followed, the EU feels much emboldened to take on the US without too much willingness to compromise or accommodate. Though Poland not currently in Brussel’s good books - and the three Baltic states would prefer a soft diplomatic response, the overriding sentiment in the EU capital is to hit back with retaliatory duties without any further ado. Should the White House even so insist on imposing surcharges on European steel and aluminium, the EU is expected to break with its ineffective policy of flattering and distracting the US president in the hope that he suffers another, possibly less damaging, epiphany. An added difficulty in dealing with Washington is the absence of sensible and even-keeled top officials such as Colin Powell or Condoleezza Rica who grasped the bigger picture and understood America’s role, and responsibilities, in the world. It now transpires that President Trump’s anger, and his staff’s rather monumental ignorance of world affairs, has vindicated Europe’s approach by showing that countries can better solve real-world problems when acting in concert. Thus, Trump’s America First brought EU member states closer together under their own banner - Europe First. That idea was first formulated during the 2015 climate change discussions in Paris, when the

"Even the impending departure of the United Kingdom from the EU hasn’t caused more than a ripple on the continent. Top of the bill at UK news outlets for months on end, Brexit barely deserves mention in continental media." nations of Europe pushed ahead and endorsed the agreement, leaving the US the odd one out. Instead of buckling under the double whammy of Brexit in the UK and the election of Donald Trump in the US, the European Union emerged stronger than before, with member states successfully resisting attempts to sow division. Even notoriously recalcitrant member countries such as Poland and Hungary dared not stray too far from Brussels. The already upbeat mood received an added boost as Euro-sceptic parties suffered a string of defeats at the polls. Voters in Austria, Italy, The Netherlands, Germany, and France rejected the narrow-nationalist arguments of populist candidates and elected pro-EU politicians instead, delivering a debilitating blow to all those who had prophesied the imminent collapse of the union. The political defeat of the nationalists was so thorough a trashing that many have since changed their tune. In France, Marine Le Pen no longer advocates leaving the union or reintroducing the franc. In Italy, the irreverent Five Star Movement of comedian Beppe Grillo performed a similar U-turn. In The Netherlands, now home to Europe’s fastest-growing economy, Geert Wilders lost both the election and his lustre. His slightly more stylish spin-off Thierry Baudet is riding high in the opinion polls but so far has only attracted former Wilders voters who are tired of their man’s ineffective and repetitive rants. Germany welcomed backed its GroKo (Grand Coalition) government with Angela Merkel at the helm. The bloc of disgruntled voters blaming the EU for their countries’ ills - imaginary or otherwise - remains stable, hovering around the 15% mark of the electorate. Even the impending departure of the United Kingdom from the EU hasn’t caused more than a ripple on the continent. Top of the bill at UK news outlets for months on end, Brexit barely deserves mention in continental media. The admirable panache shown by EU top negotiator Michel Barnier, who doggedly kept to his brief and proved

unmovable in the face of often flippant or fanciful British demands, was widely praised - and that was pretty much it. The highly-anticipated falling out over the future funding of the EU budget still less than 1% of the union’s GDP - once the UK stops its contributions, failed to materialise with member states wisely agreeing to kick this particular can down the road where - for now - it belongs. Slowly, the realisation dawned that what had been built in Europe over seventy years was just too precious to sacrifice on whatever altar proffered by cynical populists of the Nigel Farage variety - here today (to wreck it) and gone tomorrow (fishing). The World Economic Forum deposited its two cents by pointing out that Germany, France, Luxembourg, and The Netherlands - four of the six founding members of the EU - have all significantly outperformed both the UK and the US economically over the past sixty years. The two others - Belgium and Italy - are not far behind. For all its deficit spending and borrowing, the US economy has trailed the EU for three years running and is expected to keep lagging for the foreseeable future. As the US Administration gets ready to double the country’s already humongous national debt of $21tn - in good times (!) concerned investors increasingly see Europe, and particularly the Eurozone, as a safe haven ruled by old-fashioned values of thrift, prudence, and carefully balanced budgets. After a difficult start, and suffering from flaws in its design, the euro has been put on a solid footing with the European Central Bank flexing its considerable muscle mass, signalling its ability, willingness, and readiness to defend the common currency against all comers. A poll by Eurobarometer taken in May 2017 shows that at 73%, support for the euro now stands at an all-time high whilst only one in every five citizens of Eurozone countries would prefer to revert to national currencies. EU monetary authorities are now polishing up the euro edifice with plans to erect a European Monetary Fund to assist troubled member states and create a limited fiscal facility to help absorb asymmetric shocks that affect only one, or at most a few, member states such as Ireland which stands to suffer considerably with Brexit. A year or two ago, few would have thought the European Union capable of reinventing itself and turning the tables on a set of circumstances that conspired against it. In many quarters, the EU was dismissed as yesterday’s news, a toothless tiger, if not a pitiful anachronism. It now appears the union has a considerable reserve of spunk left which it means to dole it out to whomever doubts its resolve. i

"Unlike previous frictions such as those over the war in Iraq, today’s issues tend to unify Europe around the need to manage any damage Washington is able to inflict." 50 | Capital Finance International

Spring 2018 Issue

> Meets the EY Germany Management Team:

Hubert Barth & Julie Linn Teigland HUBERT BARTH Country Managing Partner EY Germany Hubert Barth (49) has over 25 years of experience in the professional services industry, mainly in accounting and transaction advisory services. He started his career after earning a degree in business administration at the University of Tübingen in 1992 at PwC in Frankfurt and has lived in Berlin, New York, and Munich. In 1998, Mr Barth qualified as a German public auditor and German tax advisor. In 2003, he switched to Allianz Global Investors as head of Financial Management and Risk Control. He joined EY as a partner in the Financial Services Organisation in 2006. At EY, he has held various leadership positions in the European and German organisation. For a number of years, he has led the Bavarian practice and coordinated EY’s market activities across Germany on the basis of the objectives of the firm’s current corporate strategy – Global Vision 2020.

Country Managing Partner EY Germany: Hubert Barth

Effective as of July 1, 2016, Ernst & Young GmbH’s supervisory board appointed Hubert Barth as Country managing partner of EY Germany. He is also responsible for the assurance business in Germany, Switzerland, and Austria. Throughout his career, Mr Barth has audited well-known companies in the industrial and financial sectors and supported numerous company transactions. Furthermore, Mr Barth is specialised in the valuation of financial services institutions. He has given advice in numerous projects with regard to regulatory issues, financial accounting, credit portfolios, risk management, and financial instruments. In addition to his work at EY, he lectures at the Munich Business School. Mr Barth is married and has three children. His hobbies include reading, skiing, and taking part in triathlons. JULIE LINN TEIGLAND Managing Partner EY Germany, Switzerland, and Austria (GSA) Julie Linn Teigland (48) was born in Michigan, USA, and has been living in Germany for around thirty years. Her career began at Arthur Andersen, where she turned her knowledge of both sides of the Atlantic into specialisations, focusing first on accounting and subsequently on tax (under US and German tax law). She advised real-estate investment funds on international transactions before becoming head of the finance and accounting department of the international project developer Tishman Speyer Properties in 1998.

Managing Partner EY Germany, Switzerland, and Austria (GSA): Julie Linn Teigland

In 2001, Mrs Teigland joined EY where she built up human capital services in Mannheim and took on responsibility for EY’s strategic growth portfolio for Europe, the Middle East, India, and Africa (EMEIA). From 2002 onward, she focused her time in assurance, advising, and auditing many growth companies and serving large international clients with an increasing focus on life sciences. Prior to her current role, Mrs Teigland held various leadership positions within EY such as EMEIA strategic growth markets leader, managing partner for EMEIA markets, and has been a member of the area executive committee for EMEIA since 2012. In 2016, Mrs Teigland was appointed managing partner of EY in Germany, Switzerland, and Austria. | Capital Finance International

With over 28 years of experience in professional services, Mrs Teigland is leading one of the largest EY regions in EMEIA and has clearly prioritised EY’s market organisation and digital transformation. She is a strong advocate of digital solutions and is deeply connected to the central European network of tech leaders. She is equally recognised as a leader in progressing parity issues across the globe. Mrs Teigland is a prominent voice of the W20 global agenda and is a member of the UN EQUALS advisory board connecting the public and private sector in the advancement of digital equality. Julie Linn Teigland lives with her husband and four children in Heidelberg. i 51

> EY Germany:

Champion in Professional Services

When a company with over 10,000 employees is soon celebrating its 100th birthday, it doesn’t really run the risk of being considered hip and unconventional. And if assurance services play a major role on top of that, well then the start-up scene coolness that’s all the rage with Generation Y seems to fade far into the distance. Managers in grey suits? Auditors, tax consultants and advisors with no sense of fun? Traditional old economy business with files, figures, and facts?


f this is what comes to mind, then you will be surprised to discover one of “Germany’s Top Employers 2017.” So what makes EY Germany special? What can a globally integrated assurance and advisory company offer in the age of blockchain and big data? How digital is its business and how does it help clients master this transformation? Let’s start with the files. The days in which auditors carried tonnes of folders around with them are long gone. Similar to other industries, EY and particularly assurance services are becoming increasingly digital. This benefits clients, since it means greater transparency and security, and also benefits employees, due to the fact that they will be able to fully concentrate on activities that demand specialised knowledge and outstanding judgment. To make the auditing process more efficient and transparent, EY continuously incorporates innovative technologies into its work. Process mining, data analytics, robotics, and artificial intelligence are the digital revolution’s magic words, and show where the future is taking the company. As a result, the quality of audits will become better and better – where auditors used to only be able to conduct random spot checks, they will now be able to analyse entire quantities of data and make more well-founded risk assessments.

Stuttgart: EY Germany Headquarters


"EY Germany isn’t showing any signs of slowing down; it is on top of professional services." But it isn’t just their audits that are digital. EY’s consultants from advisory and tax are also busy integrating new technologies into their traditional value chain. Wherever data needs to be analysed, protected, and secured, value chains managed in the cloud, or production and sales become interconnected as a result of Industry 4.0, digital technologies are vital to meeting clients’ requirements.

Old economy? Not a trace. On the contrary – this disruptive change is turning the world upside down, and anyone that wants to play a role in the digital economy of the future needs to be actively driving this transformation or risk being driven and ultimately pushed out of the way. This revolution is hitting every industry – established business models, production processes, and sales channels are under pressure and forcing basically every company today to reinvent themselves. And as a leader in transaction advisory services EY Germany is well positioned in helping to reshape its clients.

Cybersecurity, for instance, is one of the prime examples that demonstrates how the company is using the tools of digitisation to avoid the risks being created by digitisation.

But this transformation isn’t just affecting EY’s clients, but the company as well. As an auditing and advisory firm, this means two things: on the one hand, an opportunity, since its clients have a significant need for guidance and expect it to prepare them for the digital future. But on the other hand, a challenge, since the company also needs to realign its own business strategy and change from an operative, technological, and cultural perspective.

In the field of tax consulting, today digital technologies also help EY identify risks, handle rapidly growing quantities of data, and use them in a beneficial manner. This is why the company is also expanding its teams in this area to include data scientists, in order to marry classic knowhow and IT expertise and develop new solutions together with its clients.

And even with almost 100 years under its belt, EY Germany still is a champion in reinventing itself and improve anywhere it offers new services. To achieve this, it has recently acquired three renowned consulting firms – the strategy advisors OC&C Strategy Consultants, the digital specialists etventure, and Kivala HR, a consultancy firm that specialises in the digitisation of human

Stuttgart: EY Germany HQ interior | Capital Finance International

Spring 2018 Issue

resources. As a result of these acquisitions, the company has rounded out its portfolio of consulting services and can offer its clients an entire package of services from one source – from strategic development to transforming operative business models to the digitisation of human resources, IT architecture, risk management, finance, taxes, and legal. The objective is clear – EY wants to be the preferred partner of companies in all industries when it comes to their transition into the digital economy. Regardless of whether for auditing, tax advice, or transaction and management consulting – the company offers the right solution for every aspect of the transformation process along the entire value chain. EY uses its services to help its clients master digital transformation and remain successful in their market. By doing so, it is simultaneously securing its own business success – in the previous fiscal year, EY Germany grew by more than 16% and further expanded its market position as the second-largest auditing and consulting firm. In this context, focusing on key industries is one of the aspects driving this growth. This is why the company provides consulting services across all sectors, from life sciences and the automotive industry, to major retailers, or the financial sector. In almost all of EY’s projects, the focus is on the transformation of business models and business processes. This also increasingly applies to assurance, as auditing and transformation go hand in hand – if a client’s business model or regulatory requirements change, this also has an effect on the company’s finances. And the additional major auditing contracts it was recently awarded also confirm that clients view the company as the right partner for their financial transformation. For example, the year-end audit of Commerzbank’s financial statements was another contract EY was awarded from a company listed on Germany’s DAX stock index. As a result of winning three other major banking clients, it is now the auditor of five of the ten largest banking groups in Germany. Furthermore, last year it maintained its position as the leading auditor and advisor to medium-sized companies and was awarded numerous new audits. As a globally integrated company, EY is the preferred auditor and advisor to Germany’s Mittelstand (SMEs) – and will help its clients successfully master the challenges of digital transformation. To do so, the company isn’t only investing heavily in technology, but also in talented individuals. As such, last year it hired more than 1,500 new employees. In addition to classic professions like auditor, tax advisor, and management consultant, it now also employs mathematicians, medical scientists, architects, and engineers. Transformation consulting is a service that particularly requires multidisciplinary teams with a variety of different skills. This means its clients’ transformation and that of the company itself are taking place simultaneously – in order to guide its clients down this path in the best possible way, it needs to travel down and master this path itself. EY Germany isn’t showing any signs of slowing down; it is on top of professional services. The fact that the company is closing in on the proud old age of 100 is exactly why it’s never too early to begin reinventing itself. i

Berlin: EY Germany | Capital Finance International


> Arche Associates:

From Family Office to Wealth Management


rche Associates consists of three independent companies. Clients may benefit from the advice of one or more of these entities:

Arche Wealth Management was created and approved in 2013 after repeated client demands to provide tailor-made portfolio management services.

Arche Family Office is the first multi-family office to have obtained the approval, in 2012, of the Luxembourg Ministry of Finance. Arche Family Office is at the service of wealthy clients in search of expertise, transparency, and independence in the overall management of their private wealth.

Arche Private Advisors was established in 2015 and consults, structures, and accompanies its clients’ investments in real estate.


The creation of Arche Associates is based on a deep conviction: private wealth should benefit | Capital Finance International

from innovative solutions tailored to individual needs. The group is based in Luxembourg. Its sense of anticipation and its political stability combined with relevant legal and tax structures have prompted Arche Associates to choose Luxembourg to offer a range of high-level services demanded by an international clientele. Luxembourg







Spring 2018 Issue

professionalisation and institutionalisation of the family office and wealth management business. TAILOR-MADE SERVICE Arche Wealth Management is regulated by the Supervisory Board of the Financial Sector (CSSF) in Luxembourg. The Arche Wealth Management team is totally dedicated to its clients and has extensive financial market experience. Offering great stability, Arche perfectly understands the situation of the families and remains constant and close dialogue with them. Through the selection of the world’s best investment funds giving access to a flexible allocation, Arche provides a professional and specialised service in all traditional asset classes, as well as in custom-built structured products and private equity investments. Arche takes pride in providing sophisticated solutions specifically tailored to the client’s needs. Operating as an independent firm, Arche avoids any conflict of interest and works exclusively for the client’s benefit. Arche is also managing dedicated thematic investments to benefit from specific trends. Arche Wealth Management creates portfolios with a customised allocation, at the same time maintaining a close dialogue with the clients. Transparent reports are provided in order to follow the evolution of the portfolios. The portfolios are assembled to reflect the firm’s market convictions whilst taking into account the specific orientations agreed upon with the client. Arche manages on a discretionary basis and also offers an advisory management service in order to analyse the situation in accordance with market dynamics. Arche provides continuous portfolio monitoring with a high response capacity. Arche Wealth Management selects the best management specialists in the world. Arche Wealth Management’s investment committee relies on a network of strategists to help develop and put into perspective its own market scenario.


"The firm’s objective is to create a steady appreciation of its clients’ capital by producing positive returns whilst maintaining risk and volatility at a level agreed upon with the client." | Capital Finance International

Clients, entrusting the management of all or part of their assets, may retain their historical custodian bank(s). Clients can also benefit from the network of custodian banks with which Arche Wealth Management has negotiated competitive pricing conditions. ASSET ALLOCATION The firm’s objective is to create a steady appreciation of its clients’ capital by producing positive returns whilst maintaining risk and volatility at a level agreed upon with the client. Arche’s investment philosophy is based on the following points: 55

Rudy Paulet (Associate founder, Arche Associates S.A.), Frédéric Otto (President of the Executive Committee (CEO), Associate founder, Arche Associates S.A.), Didier Bensadoun (Associate founder, Arche Associates S.A.), Franck Payrar (Associate founder, Arche Associates S.A.)

• The core portfolio relies on selections of the best expertise over flexible asset allocation funds that provides an anchor in the market by adapting the allocations depending on market conditions. • To enhance returns, the portfolio relies on specific investments (thematic funds such as robotics, biotechnology, etc.). • Absolute return strategies and structured products to diversify and increase the portfolio’s protection. INNOVATION The firm’s great growth prospects are made possible thanks to Arche’s pursuit of innovative solutions. The exclusive partnership developed with the National Bank of Canada is an illustration 56

of this inextinguishable thirst to provide clients with reasons to come and reasons to stay. This international partnership with Quebec’s main bank offers Arche’s clients custodian bank services as well as a multitude of investment solutions in Canada, all in all making it possible to diversify the risk of holding assets by placing them on the North American continent. The partnership provides access to structured products that are unique in their design as well as to real estate investment opportunities in Canada. Arche always looks for new ideas, products, and concepts. Another example of Arche’s innovative vision is the development of a partnership with Swiss Life | Capital Finance International

and the National Bank of Canada authorised by the Insurance Commission of Luxembourg. This agreement allows Arche’s clients to use the National Bank of Canada (NBC) as the custodian of a life insurance contract by Swiss Life. It offers a unique solution that combines the benefits of a Luxembourg life insurance whilst diversifying risk by placing assets in Canada and taking advantage of Arche’s asset management expertise. With independence, transparency, innovation and excellence driving the company’s success since its inception only five years ago, Arche Wealth Management will continue to be innovative and fulfil clients' needs. i

> NLB Asset Management:

Shaping Slovenia’s Asset Management Sector


runo Abramovič and Aleksandra Brdar Turk took over the leadership of NLB Asset Management after the financial crisis of 2009 with a view to transform the company into the largest asset manager in Slovenia. They placed an emphasis on high quality cost-effective products which allow clients to easily secure their financial well-being. At the end of 2008, NLB Asset Management Company managed €236m and became the third largest asset management 58

company in Slovenia with a market share of 12.6%. Today, the company manages more than €1.2bn in assets and has increased its market share to 30.2% - making the firm the largest asset manager in Slovenia. Just because the corporate goal has been reached, NLB Asset Management does not rest; with continuous innovation and the development of new products the firm strives to offer costeffective solutions that help clients secure their financial future. | Capital Finance International

The activities of NLB Asset Management are split into two parts: mutual funds and discretionary portfolios. Mutual funds represent the bulk of the business, with over €800m in assets under management. The company sells mutual funds exclusively through the branches of NLB d.d. and counts with over five hundred financial advisors. The decision to invest a lot of energy and hard work into the professional development of financial advisors and their sales skills has been rewarded. NLB Asset Management is by far the

Spring 2018 Issue





800 25%

700 600


500 15%

400 300


200 5%

100 0

0% 2010





AuM (in EUR million)




Market share

Mutual Funds: AuM and Market Share

achieved by targeting the mass market where clients can create a cost-effective savings plan in any sub fund with a payment of only €40. This form of savings plan has been very successful in the last few years and the satisfaction of clients confirms its popularity. The quality of management is also confirmed by the main financial magazine which conducts an annual independent evaluation of investment funds in Slovenia. In recent years, NLB Asset Management sub funds have been in the top ten each year. Wealthier clients of NLB Asset Management are addressed through the NLB Bank’s Private Banking Department. These clients are offered discretionary portfolios. The entry threshold to this service amounts to €250,000. The firm offers seven typical portfolios and a special portfolio, where the clients can select the region or group of companies for a bespoke approach. In addition to mutual funds and discretionary portfolios, the firm offers an intermediate route – management between funds. The entry threshold for this service is €100,000. Clients are able to choose between predetermined portfolios or an optional portfolio, where the client chooses the sub funds he or she sees as the most promising. Ljubljana, Slovenia: Dragon Bridge

"Mutual funds represent the bulk of the business, with over €800m in assets under management."

most successful seller of investment products in Slovenia. Clients generally buy investment products that suit their investment profile and financial goals. NLB Asset Management manages eighteen sub funds that make up the NLB Asset Management umbrella fund with two additional funds being launched shortly, making a total of twenty managed sub funds, each with different investment policies. Very good results are also | Capital Finance International

The decision to focus on cost-effective products with disciplinary management has shown to be very successful especially during the financial crisis of 2008 which strongly affected all other Slovenian asset management firms. The company’s largest sub fund, NLB Funds – Balanced Global, is the best-selling mutual fund in Slovenia. It contributed to the company’s strong market position and satisfied clients due to the small loss of value. This sub fund kept its best-selling position till today and remains the largest mutual fund in Slovenia with assets exceeding €300m. 59

The NLB Asset Management Team

NLB Asset Management provides exceptional transparency in all client operations. All of the investments in each of the sub funds are disclosed monthly so that clients know how their savings are managed. Clients of discretionary portfolio management receive even greater transparency as they get a quarterly report on the management, the achieved returns, the costs, and an overview of the events and trends that drove the capital markets and contributed to the profitability. In its fourteen years of operation, NLB Asset Management has gone from zero to €1.2bn in managed assets and to over 30% market share thanks to disciplined management, cost sensitivity, and the exceptional skills of its financial advisors. This organic growth took place without any acquisitions, making this result even more remarkable. THE NLB ASSET MANAGEMENT TEAM Since the foundation of NLB Asset Management 60

in 2004, the company has strived to offer its clients effective investment products. The company puts strong emphasis on professionalism and the cost-control of mutual funds. Thanks to disciplined management and demanding negotiations with business partners, the expense ratios for NLB funds are considerably lower than the average of the Slovenian competition. Lower ratios are the result of a multi-year effort to which the entire team of asset managers and back office contributes. NLB Asset Management employs a team of very remarkable professionals in the field of asset management and financial analysis. The teams’ high professional qualifications is confirmed by the company’s five CFA (Chartered Financial Analyst) holders which guarantees the highest possible standard in the field of investment and | Capital Finance International

financial analysis. In addition, the company has two experts with the FRM license (financial risk manager). The firm pursues strict standards prescribed by the CFA institute and it is also the only Slovenian company with the Asset Management Code of Professional Conduct. NLB Asset Management has fourteen employees who are directly involved in managing mutual funds and discretionary portfolios, which include asset and risk managing and also financial analysis. Together they have almost 150 cumulative years of work experience. Financial experts of NLB Asset Management are also regularly involved in providing comments of events concerning financial markets in Slovenia. The company has a two-member management board consisting of Kruno Abramovič, CEO, and Ms Aleksandra Brdar Turk, member of the management board. Eight heads of individual fields report directly to the administration. i



Spring 2018 Issue




Heathrow is Britain’s biggest port by value for global markets outside the EU and Switzerland, handling over 30% of the UK’s exports. Expansion will double our cargo capacity and create new domestic and international trading routes, helping more businesses across Britain reach out and trade with the world. Heathrow expansion is part of the plan to strengthen Britain’s future. That’s why we are getting on with delivering Britain’s new runway.



> Banca Agricola Commerciale:

San Marino Financial Powerhouse


he Republic of San Marino is a country situated in central-northern Italy. With just over 61 square kilometres and about 33,000 inhabitants, San Marino is the third smallest country in Europe, after the Vatican State and Monaco, and the oldest republic in the world. Although it is not a member of the European Union, its national currency is the euro and its official language Italian. 62

San Marino Historic Centre and Mount Titano was listed as a UNESCO World Heritage site in 2008, for the beauty of its many ancient buildings and the spectacular location of its castles. According to the legend, the foundation of the republic is associated with a stonemason from Arbe in Dalmatia, named Marino. San Marino is today a city-state with a highly developed economy whose leading sectors are industry, finance, trade, and of course tourism. | Capital Finance International

This ancient republic is one of the most attractive tourist destinations in Europe and welcomes over two million visitors every year. San Marino has a per-capita GDP adjusted for purchasing power of $63,000, which is amongst the highest in the world. In Europe it is preceded only by Luxembourg and Norway. The considerable economic resources are one of the main reasons for the high quality of San Marino citizens’ life.

Spring 2018 Issue

The key factor in the success of the San Marino economy is represented by its size and its institutional structure, which guarantees great “proximity” between institutions and system stakeholders, thus ensuring “direct” and “immediate” dialogue. This makes for a high regulatory implementation speed and an “intelligent” framework capable of adapting to the changing needs of the markets and fully meeting the sophisticated requests of foreign investors. San Marino is compliant with all international standards and best practices on anti-money laundering and double taxation, and is on both the OECD white list and the Italian one. In October 2014 it signed the OECD multilateral agreement on the automatic exchange of information (Common Reporting Standard). Industry is characterised by an effective system of small and medium-sized enterprises whose leading sectors are mechanics, construction, furniture, and ceramics: the main commercial partner is Italy, but relations are also excellent with Germany, France, and the UK. The financial sector is extremely evolved and develops along a double dimension: domestic, in support of local families and businesses, and international, in response to the sophisticated demand from foreign operators. In this context, BAC Group is the main and most advanced banking group of the San Marino financial system. BANCA AGRICOLA COMMERCIALE (BAC) Founded in 1920 as a private and independent merchant bank by a group of San Marino entrepreneurs, Banca Agricola Commerciale (BAC) is today an international reality proud of its consolidated retail vocation, whereby it is constantly close to the needs of households and businesses: with a market share of over 20%, it is the “reference bank” in the San Marino market. Mount Titano: Republic of San Marino fortress of Guaita

"With a business model that is strongly oriented to customers and a specialised offer, BAC has its distinctive features in trust, responsibility and competence." | Capital Finance International

With a business model that is strongly oriented to customers and a specialised offer, BAC has its distinctive features in trust, responsibility and competence. Trust as an indispensable basis for an optimal relationship with customers; responsibility towards companies and professionals, who have found in BAC their privileged partner, and competence, through technological and organisational evolution, as well as an effective application of international best practices. 63

The three main business areas of BAC Group are: products and services for families and individuals, investment and life insurance instruments and financial services for companies, as well as for government institutions. BAC Group is made up of the holding company, the commercial bank (BAC), and specific companies: San Marino Life, an insurance company providing life insurance products with advanced financial content; BAC Fiduciaria, a trust company for the management of assets; and BAC Investments SG, a savings management company. Through a capillary network of ten retail branches, BAC covers the entire territory of San Marino and meets the needs of families, professionals, and businesses. Furthermore, thanks to its specialisation, BAC Group offers excellent consulting support to both large companies and so-called high net worth individuals. BAC’S CEO Born in Cesena (Italy) in 1960, Luca Lorenzi graduates in Economics and Business from the University of Bologna. After various experiences at commercial banks, insurance companies, and leasing companies, Mr Lorenzi becomes general manager of ISEFI (a financial services company listed on the Milan Stock Exchange), and then joins UniCredit Group where he is appointed general manager of UniCredit Leasing, the first European leasing group.

CEO: Luca Lorenzi

In this context, Mr Lorenzi accepts prestigious appointments in various foreign companies of the UniCredit Leasing group, working in Vienna, Warsaw, Sofia, Munich, Zagreb, and other European capitals where UniCredit is active. The international experience gained during these years is fundamental for his managerial growth, both in terms of managing diversity and understanding international markets. In 2009, at the European Leasing Award in Berlin, he is appointed Leader of the Year, whilst UniCredit Leasing wins the award for best European company.

Headquarters: Banca Agricola Commerciale Spa

Marco Perotti (Deputy General Manager) & Luca Lorenzi (CEO)

Republic of San Marino: Statue of Liberty

Republic of San Marino: Mount Titano, third tower view

In 2010, he moves to UniCredit Bank as regional manager of the most important commercial area of the bank – central-northern Italy which includes the historic and rich regions of EmiliaRomagna, Tuscany, Umbria, and Marche. In October 2010, he is appointed president of the Italian Banking Association for EmiliaRomagna, and holds office until September 2016. In November 2016, Mr Lorenzi is appointed CEO of BAC and chairman of SM Life. i 64 | Capital Finance International

Spring 2018 Issue

Mega Property Sale 9 - 11 April 2018 Dubai World Trade Centre



Real Estate Show in the GCC

19,129 Attendees





Participating Countries











> Arca Fondi SGR:

Maximising Portfolio Performance


rca Fondi SGR was born from the history and experience accumulated by Arca SGR, founded in October 1983 by twelve popular banks in Italy. Arca Fondi SGR is an asset management company also authorised to manage individual portfolios of institutional 66

clients. Arca Fondi SGR is owned by Arca Holding. As of December 31, 2017, the shareholder structure looks as follows: • BPER Banca - 32,8% • Banca Popolare di Sondrio - 21,1% | Capital Finance International

• Banca Popolare di Vicenza in L.C.A. - 20% • Veneto Banca in L.C.A. - 20% • Others - 6,1% The distinctive feature of Arca Fondi SGR is independence: none of its shareholders exercises control.

Spring 2018 Issue

Today, Arca Fondi SGR is one of the leading independent asset management companies operating in Italy. Assets under management are about €32bn: • €25.8bn mutual funds - market share 2.9% • €3.5bn Arca Previdenza Open Pension Fund market share 18.9% • €0.7bn under management for institutional clients • €1.6bn as investment manager at Sidera Funds Sicav Institutional assets under management are assets held by pension funds (contractual and pre-existing), retirement funds, and foundations; by banks and large companies portfolios; by insurance companies, other mutual funds or by Sicavs. GOVERNANCE Arca Fondi SGR was one of the first asset management companies to adopt the Protocollo di Autonomia drawn up by Assogestioni, the Italian association of asset managers. The protocol is aimed at the implementation of a sound and adequate company framework to manage conflicts of interest in order to protect subscribers and to safeguard management decisions. Continuity and autonomy in operations and governance serve as a guarantee that the protection of the customer’s interests will always be Arca Fondi SGR’s constant objective and priority. BRAND RECOGNITION With one of the largest distribution networks in the Italian asset management industry, and the long-standing presence of its brand in the marketplace, Arca Fondi SGR is ranked by Italian investors as one of the country’s best-known asset managers. Over time the company has also developed strong ties with its customers. With a highly innovative product range and the introduction of multi-manager solutions, Arca Fondi SGR has succeeded in satisfying the changing needs of Italians investors, developing business with customers in various market segments DISTRIBUTION NETWORK Arca Fondi SGR can count on a large distribution network, one of the most important and extensive of such networks in Italy. This allows Arca Fondi SGR to distribute its products across the entire country.

"Continuity and autonomy in operations and governance serve as a guarantee that the protection of the customer’s interests will always be Arca Fondi SGR’s constant objective and priority." | Capital Finance International

The distributor network is made up of more than 120 regulated financial institutions operating through more than 8,000 branches, a team of independent financial advisors, and on-line channels. AWARDS In recent years Arca Fondi SGR has received several awards for Italian mutual funds and 67

CEO and General Manager: Ugo Loser

pension fund such as: • Il Sole 24 Ore – Premio Alto Rendimento: Arca Fondi SGR – Fondi Italian BIG – Miglior Gestore 2013, 2014, 2015, 2016. • Morningstar Fund Awards: • Prima Società Italiana per Rating Morningstar nel Morningstar Rating Analysis of European Investment Funds – 2016. • I° Classificato – Fondo Arca Obbligazioni Europa – Miglior Fondo nella Categoria Bilanciati Prudenti – 2015. • European Funds Trophy: Arca Fondi SGR - Best Italian Asset Managers 8 to 15 rated funds 2013, 2014, 2015, 2016, 2107. • Milano Finanza Insurance & Previdenza Awards: Arca Previdenza - Premio Tripla A – 2014, 2015. • Istituto Tedesco Qualita’ e Finanza: II Classificato – Top Gestore Fondi Italia BIG 2017, 2018. • Milano Finanza Global Awards: Arca Fondi SGR Leone D’oro Milano Finanza – Miglior Campagna Multimediale – 2016. • Milano Finanza Global Awards – Premio Tripla A: • I° Classificato – Fondi Italiani BIG – Miglior Gestore – 2013. • I° Classificato – Arca Bond Paesi Emergenti – Miglior Fondo Obbligazionario Emergente – 2013. • I° Classificato – Arca Rendimento Assoluto t5 – Miglior Fondo Flessibile – 2013. • I° Classificato – Arca SGR – Maggior 68

Numero di Rating AAA – 2012. • I° Classificato – Arca Rendimento Assoluto t3 Tripla A – 2012. • I° Classificato – Arca Rendimento Assoluto t5 Ttripla A – 2012. • Premio Internazionale Le Fonti 2016: • Ugo Loser: CEO dell’ Anno Risparmio Gestito – 2016. • Arca SGR: Società di Gestione dell’Anno Branding & Comunicazione Finanziaria – 2016. • Capital Finance International: Vincitrice Europea del Best Emerging Markets Debt Manager – Europe – 2015, 2016, 2017. ASSET GROWTH • Acquisition of OPTIMA OICRs (AUM €927m). • Acquisition of VEGAGEST OICRs (AUM €540m) and BPVI OICRs (AUM €793m), and institutional mandates (AUM €1,074m). • completed acquisition of CARIGE OICRs (AUM €3,260m), pension fund (AUM €422m), and investment advisory on segregated account. This deal added a new distributor of Arca products - Gruppo Banca Carige with more than 600 branches in Italy. Arca Fondi SGR aims to create significant added-value for its customers on a continuous basis over time. The company manages both broadly style-neutral portfolios, in order to deliver consistently good long-term performance comparable with benchmarks (both total return | Capital Finance International

products), according to its proprietary risk parity methodology. ARCA Fondi SGR manages: • Traditional products and mandates: the allocation involves the balancing of investments between different asset classes (defined by industry or geographic area). • Total return products and mandates: regardless of the trend of the financial markets, these products, whose volatility is limited, are aimed at achieving a positive return over a predefined time horizon. • Products employing the multi-strategy multimanager approach: these products incorporate innovative strategies not directly correlated to the trend of the traditional equity and bond markets. UGO LOSER – CEO AND GENERAL MANAGER OF ARCA FONDI SGR (SINCE 2011) Mr Loser has a degree in Economic and Social Sciences from Bocconi University of Milan. Prior to joining Arca he accumulated investment banking and management consulting experience at: • Finlabo SIM and Banknord SIM (director). • Bain & Company Italy, a promoter of asset and risk management (partner). • Paribas (senior strategist for the European market of derivatives on fixed income). • Goldman Sachs International (executive director of fixed income research). i

Spring 2018 Issue

> Meets the Managing Partners of EMK:

Edmund Lazarus and Mark Joseph

Edmund Lazarus


dmund graduated 1st Class in Politics, Philosophy and Economics at Oxford, worked for Bain & Co., S.G. Warburg and Merrill Lynch before becoming a member of the Global Investment Committee of Morgan Stanley Capital Partners and then founding Bregal Capital in 2003 where he was Managing Partner from 2009. He has been married to Carol for 20 years and has two girls and two boys. Mark graduated from the University of Manchester in Economics, qualified as a Chartered Accountant with PwC, worked at S.G. Warburg and UBS where he was Managing Director of TMT before becoming a founding Partner of Oakley Capital Private Equity in 2007. He has been married to Abbie for 17 years and has a daughter and a son. Edmund and Mark worked together at S.G. Warburg early in their careers. They developed the Enterprise Management Knowledge or "EMK” approach to investing by discussing each investment they made and distilling the key elements of success: The need for a core entrepreneurial growth thesis not priced into

Mark Joseph

the initial investment. The central importance of developing the best possible executive leadership in every key position. A central focus for the investment team on developing and acting on proprietary intellectual property. In aggregate Edmund and Mark have led 27 investments deploying £1.2bn so far delivering nearly 4 times multiple of cost on realised investments and a 35% IRR. Across these investments on average they have achieved a 30% compound annual growth rate in EBITDA, approximately half of this growth being organic and the other half some 111 add on acquisitions to accelerate the strategic development of the businesses. This has transformed the scale of the companies they have backed with substantial growth in employment and wealth creation for all stakeholders. They have also helped companies internationalise, supervising operations not only across Europe and North America but across Asia, Latin America, and Africa. Edmund and Mark have had particular success with technology related businesses for example in IT education, internet price comparison, | Capital Finance International

internet match making, data centres and proxy networks; business services companies involved in outsourcing, utility services and waste BPO; consumer services especially in education including private schools & universities, test preparation and training; and in industrial businesses in heating and logistics. Edmund spun out from his predecessor firm Bregal Capital to found EMK with Mark bringing with him c.£1bn of net asset value under management in 2016. Early in 2017 Edmund and Mark closed EMK Fund I at its hard cap of £575m having raised money from many of the most experienced and prestigious investors in private equity both in the US and Europe. The EMK team has in aggregate worked with Edmund and/or Mark for close to 50 years which provides continuity and consistency of approach and culture. Edmund and Mark and the team invest significantly alongside their investors to ensure alignment of interest both with their limited partners in the EMK Funds and with the management teams and entrepreneurs they support. i 69


Capital’s Approach to Responsible Investing


MK Capital believes strongly in the principles of responsible investing, with a focus on ensuring high environmental, social and governance (“ESG”) standards across our portfolio and operations. We believe that improving ESG performance in our portfolio companies will lead to enhanced value creation by helping to capture opportunity and avoid risks that occur at the intersection of sustainability and commerciality. 70

As a commitment to our stakeholders and the communities in which EMK Capital and its portfolio companies operate, we have: • Adopted a Responsible Investing policy based on the UN Global Compact and the Principles for Responsible Investment • Become a signatory to the Principles of Responsible Investment EMK Capital’s Responsible Investing policy is aimed at ensuring ongoing and | Capital Finance International

systematic evaluation of ESG considerations and performance. The policy considers ESG considerations both when assessing new investments and during the portfolio management phase, identifying and targeting areas for improvement, and reporting against specific targets for each portfolio company. As part of our acquisition due diligence we cover ESG considerations before making a new investment, in particular evaluating the

Spring 2018 Issue

target’s current ESG profile, any issues and/or immediate areas for improvement. Once a target has been acquired, our policy identifies ‘minimum requirements’ in terms of compliance and internal processes that apply to any portfolio company regardless of its sector / activities (i.e. uniform across the portfolio). The minimum requirements include the following objectives: • Company-wide waste reduction and recycling programmes that work to minimise waste going to landfill and promotes reuse • Use of green energy sources where possible and the development of an energy conservation agenda with clear targets • Sound labour practices and business ethics in regard to employees • Encouragement of charitable giving by employees and other stakeholders as appropriate • Creating and implementing a set of ESG policies in line with the United Nations Global Compact and the United Nations Principles for Responsible Investment Following acquisition, the deal team and company management together perform an ‘ESG scan’ of the relevant company identifying key areas of focus. Based on the findings from the ‘ESG scan’, performance against minimum requirements are evaluated and a number of near, medium and long-term targets (above the minimum requirements) are agreed with management within each of the environmental, social and governance areas. The implementation of improvements to achieve the agreed targets are progressed with the respective management teams on an ongoing basis, but formally reported on twice per year for each company in the portfolio. We view the reporting as imperative in ensuring that the deal team and portfolio company management are held accountable for delivering on ESG objectives, and that the ESG targets are seen as part of the broader value creation plan.

"EMK Capital is passionate about implementing and delivering on the principles of responsible investing, and believe it to be imperative to continually seek to develop and improve our efforts."

There are numerous examples of how the focus on ESG performance has delivered significant improvement across the portfolio managed by EMK: • Reconomy: In 2012, Reconomy undertook a detailed ESG / sustainability review assisted by external consultants from Spring Associates to assess the impact of Reconomy’s business operations and develop the way in which to embed sustainability into its core business principles. The result has been a sustained drive towards better performance on ESG, including a number of initiatives such as ‘sustain-a-bale’, which is a custom-built compactor compressing lightweight waste streams, increasing skip utilisation and on-site segregation of waste and thereby reducing the environmental footprint of the operations • Morrison Utility Services: For Morrison, which was managed by EMK team members | Capital Finance International

from 2008 to 2016, Health & Safety strategy is a central company priority. The company has consistently been seeking new ways to improve its Health & Safety performance. In 2014, Morrison launched ‘Aiming for Zero Harm’, a five year Safety, Health, Environment & Quality strategy aimed at reducing further its very low level of accidents. Morrison has received recognition for its impressive Health & Safety record through numerous awards, contributing to its ever improving reputation, in particular; ‘2016 RoSPA Order of Distinction (15 consecutive Golds) Award for Health and Safety’ and ‘2015 RoSPA Construction Commercial Industry Sector Award’ for the third consecutive year – the company's sixth sector award in the last ten years. Notably, in 2015 Morrison achieved the following: i) an industry-leading Accident Frequency Rate of 0.02 against a target of 0.08 and industry average nine times more frequent (this equates to 1 accident for every 5,000,000 hours worked), and ii) a continued downward trend of accidents achieving a 95% decrease over the last 15 years • Cognita: As a schools group, Cognita is uniquely placed to drive charitable activities at a local level involving teachers, pupils and parents, both doing good through the specific initiatives undertaken but also by demonstrating by example the importance of charitable activities and behaviour to children at a relatively young age. Cognita aims to teach all of its pupils to have a charitable approach to life and “to learn to give”. Cognita has numerous examples of charitable initiatives driven both locally and centrally involving its communities: • Cognita ‘Light Up Learning Solar Buddy’ event providing solar lights for children living in challenging environments without electricity • Cognita ‘Global Beach Clean’ initiative where pupils undertake beach cleans by removing plastic from local beaches • Cognita charity fundraising events, e.g. the Stamford American International School’s 4th of July event in Singapore or St. Andrews International School’s annual golf tournament in Thailand In addition our ESG focus does not only to apply to EMK’s portfolio companies, but also to EMK’s own operations. EMK have put policies in place to limit energy and paper usage, and to ensure that waste is sorted and recycled as appropriate. Finally, all individuals at EMK are encouraged to donate time and funds to charitable institutions of their choice. As outlined above, we at EMK Capital are passionate about implementing and delivering on the principles of responsible investing, and believe it to be imperative to continually seek to develop and improve our efforts and ensure that we learn from best practices across the industry. We consider responsible investing both a value creation and risk mitigation tool, but also fundamentally the right thing to do. i 71

> Meets the Group CEO of KBC:

Johan Thijs


BC Group barrelled ahead in the wake of the financial crisis and hasn’t looked back since. What explains your remarkable success as a bank and a creator of shareholder value? There are a multitude of reasons. One of the main drivers is the focus is on the fulfilment of financial needs of our customers. That mindset is really at the centre of our business and operational model. Paramount in that approach is our bank-insurance model which creates a one stop shopping opportunity for our customers. More from a technical side, our income diversification is now really up to speed. KBC is one of the few institutions in Europe to have been working very hard for many years on the implementation of an income diversification strategy, both through insurance (non-life and life insurance business) and asset-management (which is boosting our fee and commission business). This pays off in terms of profitability and in terms of return on equity. Another important driver is our focus on cost and on how we run our business in the most efficient manner. That obviously helps our profitability to rise as well. Apart from these technical drivers, we have since 2012 a group-wide corporate culture called PEARL. PEARL is an acronym. It stands for Performance, Empowerment, Accountability, Responsiveness and Local embeddedness, and it has been an important factor in achieving strong results and a driver for innovation in our group. All of KBC’s approximately 43,000 employees “breathe” PEARL. They are “Team Blue”, not just individual employees. This common force and joint attitude is an important steering factor for our company as we are convinced that our people really can make the difference in becoming the reference in our industry. Under this PEARL umbrella, we introduced a uniform way of steering the whole group – every country, every entity, every type of business line – along the same lines. Not only financial parameters are commonly shared, but also the way of working and mindset. The metrics we use to follow up this PEARL approach may be different for each country, but the parameters are the same. These metrics are followed up, country by country, entity by entity. Every local CEO is accountable for his results. That has been in place for the last five years. And I can assure you it drives the whole group towards the same mindset; towards the same drive for performance and customer centricity. 72

"I am also convinced that customers will judge us more and more on our degree of sustainability. This is why sustainability is embedded in our business strategy." Our success is also driven by our group strategy, consisting of two parts. The first is “more of the same”, referring to what has made KBC so successful over the last five years: a bankinsurance company, focused on sustainable growth, putting the customer at the centre of its attention and, in doing so, picking up its role in society. That strategy remains the same. The second part, “but differently”, refers to what is becoming different: the way how we are going to achieve this success. We are facing a change in customer behaviour which we observe as a pattern in all types of industry. Customer behaviour today is heavily influenced by digital change, by the fact that everything is always and immediately accessible and available through the digital channels. Our customers are used to convenience, to ease of use, to 24/7 availability in all consumer industries. And they expect the financial sector to do exactly the same. They want a convenient, easy-to-use, 24/7 bank-insurance availability. This is something which is easily said, but not necessarily easily implemented because it requires a fundamental change in the mindset of all of our staff members. As a matter of fact, this not only about the fancy frontoffice applications like smartphone or tablet banking, or internet solutions. It also means a fundamental change for our back-office systems and applications. KBC reduced its core operating markets by half, from twelve to six. Are you ready to increase this number? As a matter of fact, we substantially reduced our geographic scope as part of the strategic reorientation agreed with the European Commission after the financial crisis of 2008. At the same time, some thirty subsidiaries, entities, and business lines were sold or wound down, which wasn’t evident under the then prevailing market circumstances. We decided to focus on bank-insurance in five core countries (Belgium, Czech Republic, Slovakia, Bulgaria, and Hungary) and to maintain our banking activity in Ireland. This deliberate focus hasn’t changed since and still forms the heart of our strategy. | Capital Finance International

In 2017, Ireland was relabelled into “core country”. There are plenty of elements which were driving that decision. One of the main drivers is the digital revolution all over Europe, which is clearly taking place in Ireland. Ireland is one of the most advanced countries in terms of smartphone usage, internet penetration, etc. It also has a very young population, and perhaps that’s one of the reasons that they are potentially among the most advanced in terms of digital savviness. Another element was the fact that the economy in Ireland is recovering fast from the crisis years and the forecast for the next coming years remains extremely positive. If you combine these elements, Ireland becomes very attractive to build a new type of digital frontrunner bank. In Bulgaria, we acquired UBB and merged it with CIBANK, our Bulgarian banking entity since 2007. Together with DZI, our local insurance franchise, KBC today is the largest bankinsurance group in the country. Now we can really deploy fully our bank-insurance model. How do you envision future growth - organic or via acquisitions? Both are possible and pursued. Organic growth in all our core countries comes first. Strengthening our market share in a sustainable manner is paramount to us because it helps us to become a relevant player in each and every market in which we currently are present. Growth through acquisitions is another option. If an asset becomes available in one of our core markets we will always look into it. However, we impose ourselves strict financial and strategic criteria. Any acquisition clearly needs to fit our strategy and has to be perfectly aligned with our financial targets. If it doesn’t add value in the mid- and the long-term in terms of return on equity, the answer will be no. To make it more specific: in Bulgaria, we recently acquired UBB and its UBB-MetLife joint venture, while in Ireland we look for organic growth. These are the two examples of how we strengthen our position with respect for our core strategy. This strict approach also means we exclude growth in other countries than our six core markets, or in other financial business models like investment banking. How do you leverage advances in fintech - and possible disruptors in the financial services industry? The main disruptor to our business in the coming years will not be technology. Digitisation is only an instrument. The main driver for disruption today and tomorrow will be the changing customer behaviour. This fundamental change

Spring 2018 Issue

At the same time, we are going to compete with completely new competitors. Today, someone may be inventing in his garage something which tomorrow will be a disruptive technology that completely changes our world. This uncertainty makes the future very challenging for the banking sector. To cope with this, KBC heavily invests in innovation, both internally as through collaboration with promising fintechs. Rather than fighting innovation, you’d better embrace it and integrate it in your business model. That is your best guarantee to stay relevant. Reviewing the present state of financial services industry, what are the trends to watch out for? We are underestimating the immense impact artificial intelligence will have on our society. Any type of cognitive and repetitive work can essentially be handled by machines. This means that many jobs in the industry will be partially or fully impacted. It will also create new opportunities, new tasks, and new jobs. Therefore, we constantly have to retrain and reallocate our employees to the new normal. And let’s be aware, we will need today people to build and maintain those ground-breaking new systems. What also worries me is the hype around cryptocurrencies. Although I marvel at the underlying blockchain technology, prudence is called for. The whole Bitcoin craze reminds me a little of a pyramid scheme. You get a small group of people at the controls, creating artificial scarcity not backed by any reference framework. Next thing you know, everyone wants a piece of the action, and you’ve got prices going through the roof. And in the opposite direction, eventually.

Group CEO: Johan Thijs

affects our future business model and the way we deal with customers. Banking customers expect a 24/7 availability and instant response to their financial needs. Just as they are used to the same kind of convenience in e-commerce.

Our underlying processes will have to be able to provide that convenience, requiring substantial investments in redesigning not only our core systems but especially the mindset of all our employees. | Capital Finance International

I am also convinced that customers will judge us more and more on our degree of sustainability. This is why sustainability is embedded in our business strategy. It ensures that our sustainability principles are incorporated into all our activities and grounded in every part of the organisation. The fact that sustainability parameters are part of our remuneration policy up to the executive level, clearly illustrates this. But sustainability also means that, as a bank-insurer, we can enhance the positive impact our day-to-day operations have on society. To us, corporate sustainability primarily means being able to respond autonomously to the expectations of all our stakeholders, not only today but also going forward. That is a much broader interpretation than the traditional approach, which is usually based on the environment, philanthropy, and corporate governance. We seek at all times to achieve the right balance between business objectives and sustainability targets. This approach is fully in line with our position as an all-round bank-insurer which aims to play a prominent economic role for its private individual, SME, and mid-cap client base. i 73

> Obituary:

Stephen Hawking (1942-2018) By John Marinus


he word battle used in connection with any ailment is an odd euphemism, but particularly so in the incurable and progressive. There is no battling ALS; one by one it robs the you of your motor functions and, as yet, there is nothing we can do about it. There is no dignity won by naked lies; don’t condescend to the afflicted, certainly not to the giants amongst them. You embarrass only yourself. To suffer and endure to the very last muscle is heroic enough. Public appearances by the late Stephen Hawking were always protracted affairs. As the professor composed a sentence on his monitor, at first with hand-clicker, but then, after losing what mobility he had in his arms, by a sensor attached to his glasses and activated by moving his cheek muscle, a silence would be maintained in the invariably packed auditorium. Was this the courtesy afforded to an invalid, or reverence awaiting further pronouncement? Either way, this ambiguity certainly accommodates our culture’s appetite for figures of barely accessible genius. Of course, he was a man; let those who remember him as an esteemed colleague, imposing professor, dear friend, father, and husband remember his wit, determination, kindness, what have you: it’s not really for the rest of us. Science has a pantheon of its own. Apotheotic language, but an obituary is no occasion to humanise an icon: the man died last March, it doesn’t get much more human than that. The contrarian impulse is to – however courteously – deflate slightly the fervour and add a hearty dose of perspective to proceedings. Was his status in popular culture proportional to his contribution to science? The romantic retorts that it doesn’t matter; the Hawking we mourn is cultural shorthand for the life cerebral, whose motor neurone disease and bleak prognosis when he was a postgraduate at Cambridge plays as atrophy of the mortal bonds. His popular science books adorn millions of bookcases complete with yet pristine spines (more than can be said for the author's), whose cautions about the potential dangers of extra-terrestrial civilisations, climate change, and AI are lent an eerie weight by the synthetic voice with which they are pronounced (DECtalk dtc01 Perfect Paul). Of course, name recognition is not divided up in proportion to accomplishment. There is a decent case to be made that Stephen Hawking was the most important physicist of the last half century, but the scientific laity doesn’t revere his colleagues and co-authors in order of contributions made, and that’s no great shame: it’d be exhausting if we did; it just indicates that we need only a few figures to fill the role. 74

“Only by a rapid whirling on his heel could he hope to comprehend the panorama in the sublimity of its oneness.” - Edgar Allen Poe, Eureka FOOL’S ERRAND Sobriety here is a fool’s errand but we can at least make a stolid attempt to avoid hagiography and focus on his place in cosmology rather than in the cosmos. Please note that an obituary, even more so than scientific theory, cannot be exhaustively descriptive. Theoretical physicists like evidence, but they don’t have the patience of Nobel committee members. Their work stands on its parsimoniousness and consistency with the established theory and existing evidence: as long as it makes sense they’ll run with it. Professor Hawking is associated with the triumph of the Big Bang Theory over the steady state model of the universe, and indeed his thesis pointing out flaws in the Hoyle–Narlikar Theory of Gravity – building on the work of Roger Penrose to disprove any problems arising from singularities – was considered devastating. But there had already been a marked redshift amongst cosmologists from the steady state model, especially following the discovery of cosmic microwave background radiation. As proponents, Frank Hoyle and Jayant Narlikar had tweaked their steady state model, accounted for the low temperature of the cosmic microwave background, and proposed the existence of “C-fields” which would keep the density of the expanding universe constant. But Hawking showed it was to no avail, and instead proposed the expanding universe as a black hole in reverse (though confidence in this model wains on going back to the first 10−43 seconds of the universe, the so-called Planck Epoch). The latest incarnation of the quasi steady state model was proposed in 1993 but still falls way outside mainstream cosmology. The discovery in 1998 that the expansion of the universe was accelerating has been just as vexing for the standard model which now incorporates dark energy and matter, just as much an ad hoc bodge job as anything the steady state proponents could come up with. This isn’t a slight, just the nature of theoretical physics. It’s the best we have got so we are running with it. | Capital Finance International

In an article published in 1983, titled The Wavefunction of the Universe, Hawking together with James Hartle proposed a model of the early universe. Just as there are no dimensions of space for the universe to expand into, nor are there dimensions of time outside the universe. The idea of a beginning makes sense only once there is a universe in which for it to occur. The inconveniently named Imaginary Time – imaginary only in the sense that it is expressed in what mathematicians call imaginary numbers, not in the sense of fanciful (or at least no less fanciful than anything else in theoretical physics that nonetheless has prediction power) – uses a method called “Wick rotation” to represent time as a plane rather than a line. Traveling in space on this plane, you’ll come to a point where you loop back: this gives a closed yet boundaryless universe. Looking for a beginning in time would be like looking for the beginning of north at the north pole. This model was proposed to satisfy the Wheeler–DeWitt Equation and is an effort to resolve general relativity and quantum mechanics. PRECARIOUS WATERS The opposing shores of modern physics are separated by some seriously precarious waters. On one side is the elegant well-trodden coast of general relativity, on the other are the brackish but fertile swamps of quantum field theory. Bridging the two, means traversing the maelstrom of the singularity where spacetime collapses in on itself. Classical and statistical mechanics, and even the best thought-out metaphors break down. The plunge is precarious (google “spaghettification”); the scaffolding wobbles unnervingly as if made of string, and – holy hell – do the builders bicker. Yet it already has wheelchair access. Black holes are points of tremendous density warping spacetime such that anything too close (that is on the wrong side of the event horizon), even light, is unable to escape its gravity. For the most part they behave like any other massive objects and describing them doesn’t mean breaking out any tools more exotic than general relativity. Karl Schwarzschild somehow described the geometry of a non-rotating black hole in his solution of Einstein’s field equations in 1916. Roy Kerr did the same for rotating black holes in 1963. In 1965, Roger Penrose showed that a gravitational collapse resulting in an event horizon (as shown possible by Chandrasekhar, Oppenheim, and Volkoff) necessarily become a singularity. In 1967, Werner Israel showed that Schwarzschild’s black holes have spherical symmetry, and this was generalised to all black holes with Stephen Hawking and Brandon Carter showing that Kerr black holes were axisymmetric.

Spring 2018 Issue

John Preskill, Kip Thorne, Stephen Hawking

So, event horizons all centre on a singularity (except possibly the one shrouded by the Planck Epoch) and are fully described in terms of classical mechanics with no reference to information about the matter that formed or subsequently fell into them and is now inaccessible to the outside universe. This describes the problematic “no-hair theorem� first expressed by John Wheeler, that there is nothing else to a black hole, not even a single hair. An event horizon as described by David Finkelstein is: “a perfect unidirectional membrane: causal influences can cross it in only one direction�. They seem like pure functions of general relativity, yet the universe is probably lousy with them: mercilessly taking in matter, giving back nothing, not even heat – apparently destroying it all. Either black holes violate the second law of thermodynamics or these one-way causal, unobservable systems, these quantum systems do somehow emit something, while also not emitting. This is the toe board where we find Stephen Hawking: black hole thermodynamics and quantum gravity. In 1970, Hawking with James M Bardeen and Brandon Carter proposed the four laws of black hole mechanics, drawing an analogy with thermodynamics, and incorporating quantum mechanics. Uncertainty governs our interaction with things at the quantum scale. Models of the subatomic do not concern hard values but rather functions of probability. Following from the uncertainty principle the Casmir Effect shows that even a vacuum is a mess of spontaneously appearing pairs of virtual particles which immediately annihilate. Provided they appear and extinguish at the same rates the time average of energy in the system remains the same. Pairs of virtual particles appear near the event horizon, one may be caught in its gravitation and its antiparticle escapes; this causes the black

hole to lose energy and following Einstein’s formula E=mc2 the mass of the black hole also decreases. Thus, the black hole loses mass and emits radiation. BLACK BODY RADIATION This is the basis of black hole thermodynamics. Jacob Bekenstein made this analogy explicit and showed Hawking’s earlier conclusion that black holes do not get smaller to be false. The quantum effect does allow black holes to emit black body radiation giving it entropy (a measure of natural tendency to disorder). The temperature of the radiation produced is inversely proportional to the area of the event horizon, and the smaller the black hole gets, the quicker it loses mass and eventually evaporates. Hawking showed the entropy to be exactly one quarter proportional to the area of the event horizon, giving us the Hawking-Bekenstein formula measuring what we refer to as Hawking radiation.

đ??´đ??´đ??´đ??´đ?‘?đ?‘? 3 đ?‘†đ?‘†BH = 4đ??şđ??şâ„?

In a lecture given during a symposium in honour of his 60th Birthday, Hawking said he would like this formula, at once a testament to his fallibility and his brilliance, to be placed on his tombstone. Black holes are compatible with the laws of thermodynamics but there remains another problem: the information paradox. Hawking radiation differs from thermal radiation in one major aspect. Thermal radiation contains information (the interaction of particles as understood in quantum theory as a wave function) of whatever went into the system. But Hawking radiation does not, as it does not relate | Capital Finance International

to any matter or energy beyond the event horizon. This implies that information is destroyed in the black hole, which is impossible according to quantum mechanics. Hawking held firmly to the validity of the no-hair theorem and accepted a wager from John Preskill that information was in fact not destroyed, a bet Hawking conceded in 2004.1 Gerard 't Hooft and Leonard Susskind put forward a strong proposal that the information is encoded on the surface of the black hole: the holographic principle, grounded in string theory. But this issue is unlikely to be resolved while our understanding of gravity jars with our understanding of the other fundamental forces. There are four fundamental forces: the nuclear strong force, nuclear weak, electromagnetic and gravity. The first three are far stronger, are each associated with a sub atomic particle whose interactions are modelled probabilistically as quantum fields. An analogous mediating particle has not been found for gravity which is understood to be a consequence of the curvature in spacetime; there is no quantum field model for gravity and therefore no unified theory. This elusive goal is commonly referred to by the awkwardly profound term “Theory of Everything�, and harmonising gravity with quantum mechanics defined the rest of Hawking’s career, indeed that of most theoretical physicists. Hawking had his money on string theory, but we already know that doesn’t count for much. The first observation of a black hole has been just around the corner for a while now; the likely candidate, Sagittarius A, is the one at the centre of our galaxy. Until then, the best we can manage is to detect where a black hole ought to be. A point in empty space – apparently being orbited by stars – is the probable location of a supermassive black hole. Another way of detecting a black hole is via the accretion disk: superheated matter circling the event horizon and observable as x-rays. 75

SOUND PERTURBATIONS In 2014, the South Pole Telescope – studying the cosmic microwave background – detected polarisation matching predictions of gravitational waves driving inflation in the early universe that were made by Alan Guth and Andrei Linde, who were working from Hawking and Hartle’s model of the early universe. The next year, gravitational waves were for the first time observed emanating from the merger of two black holes. Hawking radiation is too faint against the cosmic background to be detected. In an experiment in 2014 Jeff Steinhauer observed sound perturbations emitting from a sonic black hole, a superfluid flowing at the speed of sound, somewhat analogous to Hawking radiation.

its value is still contentious). The “k” is the Boltzmann constant, after Ludwig Boltzmann4 and defines the relation between temperature and the kinetic energy, (statistical mechanics and thermodynamics). The symbol “c” is the speed of light in a vacuum; according to Einstein’s special relativity the maximum speed at which all conventional matter and hence all known forms of information in the universe can travel. “ℏ” (h-bar) is the reduced Planck’s constant which gives the ratio of the energy and angular momentum (it’s spin) of the quantum. “S” again is entropy as defined by Rudolf Clausius in his “second fundamental theorem in the mechanical theory of heat” (later referred to as thermodynamics). The “BH” stands for Black Hole.5

This lack of experimental or otherwise observed hard evidence meant that Stephen Hawking did not meet all the criteria of the Nobel Prize, and now – as they are not awarded posthumously – never will. This specific lack of recognition does not detract from his standing in cosmology. Hawking did receive the Wolf Prize in Physics in 1988, the next prestigious award in the field which has gained a reputation for identifying future winners of the Nobel Prize.

A physics equation, it would appear, is a painstakingly composed and brusque piece of verse, some of the greatest minds of each generation contributing but a single character – with their colleagues through the centuries editing and agonising over the precise composition. The supersession of a life’s work being not only likely but the point of the whole enterprise. Yet this verse reveals something fundamental about the workings of the universe.

Hawking was made a fellow of the Royal Society in 1974, one of the youngest scientists to receive that honour. In 1979, he was appointed to the Lucasian Chair of Mathematics at Cambridge. The chair once occupied by Isaac Newton though it wasn’t motorised2 in his day. He was awarded a CBE in the 1982 New Year Honours, made a Companion of Honour in 1989 (though in the 1990s he turned down a knighthood), and received the Presidential Medal of Freedom in 2009.

Stephen Hawking 8 January 1942 - 14 March 2018 is survived by his three children Robert, Lucy, and Timothy Hawking. i ABOUT THE AUTHOR John Marinus is a freelance writer based in the Netherlands. Footnotes 1 Hawking was a bookie’s delight. Besides the wager with Preskill, Hawking bet colleague Kip Thorne in 1975 that Cygnus X-1 would turn out not to be a black hole. The forfeit was a subscription to a magazine of choice. Thorne choose

Besides A Brief History of Time, Hawking also authored and co-authored eleven popular science books as well as six children’s books together with daughter Lucy Hawking.

Penthouse. He struck again with a $100 bet made with Gordon Kane that the Higgs boson would never be found. Of course, it was, and it only took digging up a sizable chunk of the Swiss countryside. Hawking did get fourth time lucky at least: betting Neil Turok that primordial gravitational waves would be detected, resulting in the confirmation of inflationary big-bang theory.

A funeral ceremony was held in Cambridge on the March 31; his ashes will be interred in Westminster Abbey in a ceremony to be held on Friday, June 15.

2 This terrible joke appears in at least two of Hawking’s books. Incidentally, Hawking appeared as himself in the opening of the final episode of Star Trek: The Next Generation in which he wins a hand of poker playing against Isaac Newton, Albert Einstein, and the android Commander Data – who will be appointed to the

There would appear to be an agreement that Stephen Hawking belongs alongside Newton, in the fundaments of Westminster Abbey at least. Consider again that formula he wished for his epitaph. Annoyingly, Hawking’s solution to the formula given by Jakob Bekenstein provides an exact proportion of area to entropy as of one quarter, so the formula can be simplified to S=A/4, and of course all the symbols given hide pages and pages of workings out3 - but for our purposes this will do.

Lucasian Chair sometime in the 24th century.

3 The area of a sphere for example is 4π r^2. Although – come to think of it – that would only describe non-rotating black holes. This stuff is more complicated than it looks.

4 There is precedent for equations as epitaphs. Visit Zentralfriedhof in Vienna and above a bust of Ludwig you’ll find S = k log W Boltzmann's entropy formula. Except this expression was given by Max Planck. In his 1920 Nobel Prize lecture Planck said: “This constant is often referred to as Boltzmann's constant, although, to my knowledge, Boltzmann himself never introduced it – a peculiar state of affairs, which can be explained by the fact that Boltzmann, as appears from his

“A” denotes the area of the event horizon. “G” is the gravitational constant which though fundamental to Newton’s classical mechanics was first measured by Henry Cavendish 71 years after Newton’s death (and to this day 76

occasional utterances, never gave thought to the possibility of carrying out an exact measurement of the constant.”

5 Or so it would seem. The author assumes the BH stood for Bekenstein and Hawking and still thinks that is the case. | Capital Finance International

Spring 2018 Issue


Vying for a Top Spot in the Global Insurance Market


IACI SAINT HONORE Group is one of the leading providers of brokerage and consulting services in the French insurance market, supporting large and mid-cap companies in the management of their property and personal insurance risks in France and around the world. The group designs and develops customised solutions for its corporate clients in property and casualty, marine and cargo, employee benefits, retirement, HR strategy, and total rewards. The group also has a notable presence in international mobility through its main affiliate, MSH International.

involvement of our employees into the drivers of our success. This has been made possible by a human resources policy which cares about the performance and well-being of each and every one of our staff members,” says Pierre Donnersberg, chairman of the SIACI SAINT HONORE Group. The group’s expansion globally, and across all of its markets, is built on talented men and women who are recognised experts in their fields. Every day, they assist thousands of companies in the protection of their human capital and the coverage of their risks. SIACI SAINT HONORE will continue to invest heavily to guarantee a world-class quality of service and to earn and keep the trust of our 3,500 corporate clients.

The company services cover the entire value chain from risk management consulting to the management of insurance plans. The firm currently has more than 2,500 employees worldwide, insures 2.5 million individuals, and reported a turnover of €350 million in 2017. SIACI SAINT HONORE offers its clients 360° coverage of their risks by offering global solutions and insurance packages to internationallymobile individuals, expatriates, and employees as well as to large industrial risks. In Europe, SIACI SAINT HONORE maintains operations in France, Luxembourg, Switzerland, and Germany. Elsewhere, it is present in Canada, United Arab Emirates, Saudi Arabia, Singapore, and China. A lot of its business focuses on expatriates and internationallymobile employees. As a result, one of its current challenges is to develop property and casualty, and marine solutions in these countries. The company is growing rapidly in each of its markets. This growth is supported by a continued dedication to excellence in the

The exterior of Season, the new headquarters in Paris

Chairman: Pierre Donnerbserg

delivery of services - an exciting challenge for its teams. To meet this challenge - one which is both human and technological – all the requirements are being met to acquire new skills and invest in innovation. “Our ambition, to become a global player and the European leader in our sector, is sustained by strongly-held values which are shared by our teams all over the world. Our added value lies in the excellence of our teams, forged through impeccable technical ability, availability at all times, and real entrepreneurial enthusiasm. We have made the quality of working life and the

To ensure sustainable and strong growth, SIACI SAINT HONORE strives to develop a culture of excellence at all levels of its business. The group is dedicated to the creation of value for its clients, employees, partners, and shareholders. Through trust and affinity, it builds a personalised relationship with each of its clients and offers services and solutions tailored to suit their needs. With the enthusiasm of its employees and their role as shareholders, the group creates the human and material conditions required to be available and attentive to the needs of its clients at all times. Since its beginnings, the group has placed independence at the core of its organisation to defend the clients’ interests and safeguard their economic and social performance in all circumstances. This culture of innovation is rooted in the company’s DNA and helps the company to anticipate changes in markets and risks, and to find solutions which guarantee the security and development of its clients. This culture of excellence is above all a state of mind. i Photo credit: Adrien Daste

View from Season, SIACI SAINT HONORE's headquarters | Capital Finance International


> Porsche Schweiz:

Minding the Heritage, Shaping the Future Based on an Interview with Tor Svensson

At the 2018 Geneva International Motor Show, Porsche caused more than a ripple of excitement, not with its revamped 911s - a company staple since its debut in 1963 - but with the voluptuous Mission E Cross Turismo - unveiling the all electrical concept Cross Utility Vehicle (CUV). Production of the highly-anticipated Mission E - invariably described in the trade press as Tesla’s worst nightmare - is expected to start next year. With over 600HP, the Mission E barrels from 0-100 km/hr in under 3.5 seconds, approaching to within a whisker the industry benchmark set by the Porsche 911 GT2 RS.


n Switzerland, the excitement was palpable. Though perhaps a bit late to the game - the company doggedly refused to embrace experimental technologies and pass the inevitable teething troubles on to its customers - Porsche’s first all-electric Mission E is also the first true luxury e-sports car delivered by a major manufacturer - one that is able to sustain production levels and possesses the engineering prowess and experience to deliver on its promises. At Porsche Schweiz, CEO Michael Glinski is ready to deploy his team’s passion for the brand to ensure a smooth transition to electric. Recently, Mr Glinski added a customer experience manager to his staff charged with optimising the brand’s response to feedback from owners: “It is all about taking care of customers' excitement

“Of course, our business is run along strictly professional lines, but within those confines there remains plenty of room for passion - and that is precisely what sets Porsche Schweiz apart.” Michael Glinski

factor throughout the car’s lifecycle. A Porsche owner needs to know and feel that the company is a true partner that can be depended upon.”

HERITAGE AND QUALITY To call Porsche Schweiz merely customercentric does an injustice to the business: “We are not guided by standardised customer relation practices. At Porsche Schweiz, we maintain the highest standards as a matter of course, but refuse to compromise and subject our buyers to the indignity of a faux-bespoke approach that in reality is little more than a one-size-fits-all policy with a few added bells and whistles. By contrast, buying a Porsche, let alone driving one, is a unique experience. At Porsche Schweiz, we understand this and have tailored our entire operation to reflect the heritage and quality of the brand and the attendant experience.” Porsche and Switzerland have a history that reaches back in time to the legendary 356 the company’s first production car and without doubt one of the coolest speedsters ever made. The brand would possibly not have existed but for an attentive Swiss car buff and salesman who in 1948 placed the first-ever order at the struggling factory then located in Gmünd in Kärnten, Austria: five 356s and an option for fifty more. Rupprecht von Senger also convinced Ferrie Porsche - son of the celebrated Dr Ing Ferdinand Porsche - to showcase his 356 at the Geneva Motor Show where it promptly caused the normally underwhelmed and rather stoic Swiss to lavish abundant praise on its remarkable design with journalists waxing lyrical about this never-before-seen cross between a Volkswagen and an Auto Union racing car.

Geneva International Motor Show 2018: Oliver Blume, Chairman of the Executive Board of Porsche AG, and Michael Mauer, Vice President Style Porsche, presenting the concept study Mission E Cross Turismo.

78 | Capital Finance International

The original aluminium-bodied 356s sold in Switzerland by Mr Von Senger have since become the holy grail of car collectors as has the 356 SL Gmünd Coupé which won the 1951 24 hours Le Mans in its class and recently resurfaced – meticulously restored – in the garage of US talk show host Jay Leno. The car, now valued in the millions, is powered by a mighty flea: Porsche’s legendary 1,100cc air-

Spring 2018 Issue

cooled and naturally-aspirated four banger with twin Solex carburettors delivering all of 45HP. THE VIEW FROM ABOVE Porsche Schweiz builds on that rich heritage in the knowledge that Swiss car enthusiasts kickstarted the brand - and have remained loyal to it ever since. Mr Glinski recognises that the country’s legendary network of autobahns, crisscrossing the Alps and meandering through lush green valleys hemmed in between snow-capped mountains, calls for an equally legendary motor. The upcoming Mission E Cross Turismo is the latest incarnation of just such a car. It comes with features that would certainly inspire Q as he contrives surprising new tools for Agent 007 such as an autonomous drone, esconded in the boot, which is released, controlled, and captured by remote controls located on the dashboard’s touchscreen. The camera-equipped drone follows the car as it travels, shooting high-def video and beaming the footage back in real-time.

Geneva International Motor Show 2018: Michael Glinski, Managing Director of Porsche Schweiz AG discussing client strategy and innovation with Tor Svensson, Chairman of

Nearly every town in Switzerland boasts a car club, often based at an abandoned airfieldturned-speedway. In this universe Porsche reigns supreme. The passion of the enthusiasts is shared by the Porsche Schweiz CEO: “This culture helps us a lot and preserves the brand’s high-profile as well. Of course, our business is run along strictly professional lines, but within those confines there remains plenty of room for passion - and that is precisely what sets Porsche Schweiz apart.” CHIEF MOTOR HEAD Arriving at Porsche Schweiz from the company’s headquarters in Zuffenhausen, a northern district of Stuttgart in Baden-Württemberg, Mr Glinski is the corporate match of a motor head - he lives and breathes the brand. Before taking over as CEO of Porsche Schweiz, on the first of January, Mr Glinski served six years as area director for Western Europe. Prior to that, he was finance director at Porsche France and area sales manager for Italy, Spain, and Latin America.

Oliver Blume and Michael Glinski

In Switzerland, Mr Glinski is charged with the implementation of Strategy 2025 - an ambitious undertaking to shape the future of the sports car with a full lineup of exquisitely crafted vehicles that blend history, and the values by which Porsche is known the world over, with innovative technologies, including electro-mobility, digitisation, and connectivity.

A clear focus on motorsport: the new Porsche 911 GT3 RS.

Porsche 356

The ultimate aim of the forward-looking strategy is to embrace new technologies without becoming addicted to them. Throughout its history, Porsche has never been about gimmicks and gadgets; the brand has successfully withstood the temptation to deviate from its mission to deliver a superior driving experience - in both built-quality and performance. | Capital Finance International

A cornerstone of Strategy 2025, the Mission E now nearing its launch date stands as a testament to that resolve: the upcoming member of Porsche’s fabled product portfolio pays a subtle yet powerful tribute to the company’s original 356, evoking the speedster’s luscious curves and promising to revolutionise the luxury performance car segment just as the first Porsche did. i 79


AWARDS 2018 SPRING HIGHLIGHTS Once again brings you reports of individuals and organisations that our readers and the judging panel consider worthy of special recognition. We hope you find our short profiles interesting and informative. All the winners announced below were nominated by audiences and then shortlisted for further consideration by the


panel. Our research team gathered additional information to help reach a final decision. In many cases, senior members of nominee management teams provided the judges with a personal view of what sets their companies and institutions apart from the competition. As world economies converge we are coming across many inspirational individuals | Capital Finance International

and organisations from developing as well as developed markets - and everyone can learn something from them. If you have been particularly impressed by an individual or organisation’s performance please visit our award pages at and nominate.

Spring 2018 Issue


Professional services firm EY Germany is dedicated to empowering businesses to do their best. The firm´s young and dynamic team of assurance and advisory professionals excels at finding novel ways to do audits in the digital age, support companies in their transformation of business models, and improve performance in the relentless quest for perfection – or the closest to it. Recognised and celebrated for its pursuit of high performance and efficiency, EY Germany´s accounting and advisory team has set itself an ambitious goal: to strengthen the confidence in the economy by helping the interconnected financial world to work better

every day. Now the country´s second-largest professional services firm, EY Germany is determined to take the lead in helping clients deal with – and prosper in – the new economy shaped by digital transformation. EY Germany also enjoys a decisive edge when helping companies operating cross border, being part of the world´s most internationally integrated professional services firm. It is the only large corporate services company in Germany to maintain specialised US and digital tax expert desks. As the leader in transaction advisory services, EY Germany has also established a dedicated Chinese business

desk including professionals from China to offer clients access to their insights on business culture and help them to successfully do transactions with Chinese partners. EY Germany´s services blanket the entire spectrum of the business universe. As such, the company assumes the role of knowledgeable partner to its clients. The judging panel applauds the holistic approach of EY Germany. The firm has, in fact, become a portal for businesses attuned to changing times and ready to fully exploit new opportunities. The judges declare EY Germany winner of the 2018 Best Assurance & Advisory Services Team Germany Award.



At the core of any corporate sustainability strategy sits a solid risk mitigation framework. At the Dubai Electricity and Water Authority (DEWA) that framework – compliant with the strict ISO31000 standard – was developed inhouse to facilitate and accelerate the utility’s decision-making processes and allow for a clear and multidimensional overview of risk in real-time. DEWA supplies water and electricity to more than 800,000 residents of the Emirate, based on the highest levels of availability, reliability, and quality. DEWA adopts best international practices, and the latest integrated management systems in the field of enterprise risk management because they are closely related to DEWA’s

strategic planning. In addition, DEWA takes precautionary measures to avoid all forms of risk. DEWA is recognised globally as an industry leader for its innovative, and in many instances ground-breaking approach to the provision world-class levels of both electricity and water services. The company has raised the bar for the entire utilities sector by cutting wastage and spillage, carefully managing the distribution of resources while providing a vastly superior service to clients, characterised by simplified procedures, short response times, and the excellence of its front office. DEWA was able to revolutionise the utility business by adopting a corporate strategy | Capital Finance International

that engages all stakeholders. By pursuing full transparency and maintaining open and short lines of communication, the company encourages its staff to come up with innovative solutions that increase operational efficiencies. DEWA also reaches out to the communities and economic sectors in order to gauge both market demand and sentiment. The judging panel recognises – and applauds – the company’s relentless pursuit of excellence across all aspects of the utility business. The judges agree that DEWA has reinvented the utilities business and now stands at its apex. As such, DEWA is declared winner of the 2017 Outstanding Contribution to Sustainable Utilities Delivery Global Award. 81


Financial inclusion has been one of the more powerful engines of development available to policymakers and businesses alike. It has the ability to boost the formal economy to the detriment of the informal market and draws in people previously shunned by financial services providers. In Colombia, home to one of South America’s best-performing economies, Credivalores – Crediservicios is helping people of modest means gain access to regulated and secure financial services. The company is one of the country’s largest non-banking financial institutions and has introduced tens of thousands of small entrepreneurs, sole traders, day labourers and others to credit cards.


The importance of this drive stretches well beyond offering customers a chance to flash plastic: holders of cards issued by Credivalores – Crediservicios are able to establish solid credit records which, in turn, unlock access to commercial banks. The company uses a differentiated business model, directing its efforts away from Colombia’s big cities to concentrate on hitherto underserved towns and villages. Almost 70% of the applications Credivalores processes are from customers who seek to obtain their first-ever credit card. Most have never before been inCentre contact with the formal financial system. Close to half of Credivalores’ cardholders pursue independent

economic activities and do not receive regular payslips – the very reason these people are shunned by banks. Tapping into a niche market ignored by its competitors – a market that is set to gain in importance as Colombia’s economy barrels ahead – Credivalores – Crediservicios proves that the pursuit of a high social impact makes perfect business sense. The company has now gained an edge over the competition that it will not soon let go of. The judging panel congratulates Credivalores – Crediservicios on its vision and declares the company winner of the 2017 Best Social Impact Credit Providers Colombia Award. 3.5 4






All measurments are in units

Logotype - Century Gothic Bold The logotype is juxtapositioned on the right based on the height of the TaHa logo. Enlagred to balance the strength of the logo. The Tagline is placed at the centre of the logotype. The distance between the logotype and the tagline is half unit.

For over half a century, Lembaga Tabung Haji (TH) has provided an avenue for Malaysian pilgrims to save gradually for hajj. Set up in 1963 as a statutory body under the purview of the Malaysian’s Government, TH has helped millions embark on their pilgrimage to the Holy Cities of Makkah and Madinah. TH has more than 50 years of experience in hajj and Islamic fund management. Being the only hajj institution in the country with deposits exceeding RM70 billion, TH endeavour to strengthen the economy of the Malaysian Muslims by capitalising on its available funds and resources. With almost 9.5 million depositors served through a nationwide network of 125 branches and 6,000 touch points, TH is Malaysia’s premier 82

Islamic financial institution and a catalyst to the financial strength of the country’s Muslim community. TH maintains a well-diversified portfolio of Sharia-compliant investments both in its home market and overseas. As an early adopter of Islamic finance, TH foresaw the rise in demand for Sharia-compliant products and services, thus invested significant resources to reap positive returns in the said dynamic growth sector. TH also has sizeable stakes in Islamic banking, plantations, construction, real estate and property development, among others. In Australia and the United Kingdom, TH has benefited from the recent boom in construction and property development. Being amongst the top employers | Capital Finance International

in the country, TH hires more than two thousand employees and train more than three Logo version by Johan Design Associates as of May 13,2013 hundred interns, every year. As part of building sustainable businesses, TH places a significant emphasis on giving back to the society by executing various corporate social responsibility programmes, nationwide. The judging panel notes that TH continues to be a driver of innovation in its services to the Malaysian pilgrims and considered a role model for hajj management amongst the Muslim countries. The judges are pleased to offer Lembaga Tabung Haji the 2017 Best Diversified Sharia-Compliant Services Leadership Asia Pacific Award.

Spring 2018 Issue



Raising almost $230m with its initial public offering (IPO), Houston-based National Energy Services Reunited (NESR) aims to identify and seize exceptional opportunities in the oil and gas services industry in the Middle East and elsewhere. A special purpose acquisition company, NESR offers investors a possibility to benefit from its expertise in finding value in businesses primed for takeover and expansion. Investor funds are held in escrow until suitable candidates have been tagged and approved by shareholders who may redeem their shares before any funds are committed. Late last year, NESR announced the formation of a regional oilfield services company for the Middle East and North Africa

after it agreed to take over Gulf Energy SAOC and National Petroleum Services. The new group employs over 3,000 people in more than a dozen countries and offers a full array of drilling, completion, and production services. NESR raised an additional $250m from private investors to enable closing on both transactions. A $100m backstop facility was added to provide liquidity for any potential redemptions requested by shareholders. NESR was careful to keep in place the management of the individual companies to ensure continued access to the available expertise. The anticipated synergies will drive strong growth and allow the group to expand into new markets and strengthen its position

across the region. NESR is particularly pleased to offer a comprehensive palette of services that includes the servicing of complex wells in Saudi Arabia, Oman, and elsewhere. The judging panel notes that NESR insists on keeping to the most exacting standards of corporate governance in order to best serve the interests of all stakeholders. NESR is the first special purpose acquisition company to move into the global oilfield services sector. The judges agree that, as such, NESR enjoys optimum exposure to the upside of a booming industry. The judging panel declares National Energy Services Reunited winner of the 2017 Most Promising Energy Value Creation IPO United States Award.


C100 M62 Y0 K20

In pioneer markets, excellence in corporate governance lifts companies above the median and into the field of vision of international partners who may contribute additional skills, resources, and ideas. This is how Afghanistan International Bank (AIB) managed to become the country’s largest and most profitable financial services provider in under a decade. Founded in 2004 by two domestic corporate groups and a binational US/ Afghan company, AIB was designed from the ground up to meet, and exceed, international standards and adhere to global best practices. This determination allowed AIB to become the preferred partner of multilateral lenders, development agencies, diplomatic missions,

charitable institutions, and numerous government entities. Thanks to its operational efficiency and strict compliance with all relevant international regulations such as anti-fraud and anti-money laundering legislation, AIB is the only privately- owned Afghan bank trusted with US dollar clearing facilities by international banks. AIB maintains clearing relationships with both Standard & Chartered and Commerzbank. From AIB House, the bank’s corporate headquarters in Kabul, AIB manages seven full-service branch offices in the country’s largest cities – effectively establishing a nationwide presence. For AIB, | Capital Finance International

virtue sits at the very core of its corporate DNA and adds to the bottom line: earning the trust of its clients – and indeed the nation – allows the bank to take in an estimated 23% of all domestic deposits. The judging panel has followed AIB’s remarkable progress for the past five years. The judges’ have seen how the bank spares no effort to meet its obligations and discharge its responsibilities. In fact, the judges agree that AIB is the one Afghan bank everybody trusts without any reservation – a testament to the power of sound corporate governance. The judging panel is delighted to offer Afghanistan International Bank the 2018 Best Corporate Governance Afghanistan Award. 83


The Natal Joint Municipal Pension Funds (NJMPF) provide retirement benefits for municipal workers in South Africa’s KwaZulu-Natal Province. NJMPF encompasses two defined benefit funds and one defined contribution fund that allow members access to a range of products closely matched to life’s evolving circumstances. Founded in 1942 and with over SAR 18bn in assets under management, the NJMPF is recognised for its adherence to the highest standards of corporate governance and sound investment policies which have become industry benchmarks. NJMPF was one of the first in South Africa to leverage the power of new technologies such as big data analysis and artificial intelligence to further improve service levels and communication with members, streamline procedures, and lower overheads. In particular, the fund maintains a number of initiatives to disseminate financial literacy and gain insights into the financial challenges faced by members.

Last year, NJMPF introduced a crossplatform app that enables members to quickly access their accounts and obtain an overview of the fund’s investments. The app also contains a micropædia of financial terms and affords NJMPF a direct channel of communication with its members. By furthering financial literacy and advocating for positive changes in financial behaviour, the fund helps set in motion a behavioural transformation that benefits the wider community. With approximately 20,000 active contributors and around 10,000 pensioners in 55 municipalities, NJMPF takes much stock in gauging member satisfaction. The fund regularly conducts in-depth market studies in order to determine demand and has engaged an independent polling company to evaluate the reach of the new app and map its actual use. The NJMPF has also been at the forefront of a nationwide drive to reduce the

number and volume of unclaimed benefits. The fund has implemented a number of programmes and seconded its most experienced professionals to trace around 1,500 beneficiaries who are owed in excess of SAR 80m. The fund works in close collaboration with social services agencies to track claimants who have dropped off the radar, often due to tragic circumstance, and stand in dire need of help. The judging panel tips its collective hat to the NJMPF and its professionals who spare no effort to help members receive their benefits. The fund stands as a testament to the need for financial literacy, showing that small contributions add up to a secure future. For the third consecutive year, the judges wholeheartedly agree to recognise the achievements of NJMPF. The Natal Joint Municipal Pension Funds is declared winner of the 2018 Most Innovative Pension Fund South Africa Award.


The future is made today. To Banco Económico that means laying a solid foundation, grounded in common sense and shaped by ethics, that can support and sustain long-term growth. Founded in 2014 but built on a corporate legacy stretching back to the 1800s, Angola’s Banco Económico possesses an institutional skillset matched by few. The bank’s operational wherewithal is backed up by an exceptionally strong corporate governance framework that includes carefully matched checks and balances – put in place to ensure both optimum performance and full compliance with domestic and 84

international regulations. By weaving a network of interlocking committees, Banco Económico manages to maintain streamlined internal and external procedures that, in turn, enable the bank to respond swiftly and decisively to changing circumstance – an absolute must in Angola’s transitioning economy. By adhering to international best practices and maintaining a worldclass corporate governance structure, Banco Económico has become a valued partner to global businesses operating in the country. The bank enjoys a nationwide reputation for excellence in customer service and operational | Capital Finance International

efficiency, not least because of its sustained investment in technology. Internally, Banco Económico keeps an open culture that prioritises collaboration and encourages innovation. The judging panel agrees that the most resilient and profitable banks, paradoxically, often resemble glass houses: structural strength is derived from transparency. The judges congratulate Banco Económico with its achievements and declare the bank winner of the 2017 Best Bank Governance Angola Award.

Spring 2018 Issue


At home in a market that is driven by small and medium-sized businesses and characterised by an unparalleled entrepreneurial spirit, QNB Alahli has significantly strengthened its operations in Egypt to become one of the country’s leading financial services providers. The Egyptian subsidiary of Qatar National Bank – the largest bank in the Middle East and Africa with well over 1230 branches throughout the region and beyond – QNB Alahli has capitalised on its trust in the power of SMEs to push growth and deliver sustained development. The bank has effectively tapped into the resourcefulness of Egyptian entrepreneurs to drive and expand its own operations in the country. A partner to the local business

community, QNB Alahli has become the vehicle of choice for multilateral financiers to distribute credit amongst small businesses, start-ups, and companies owned by minorities or disadvantaged people. The EBRD (European Bank for Reconstruction and Development) called upon the knowledge and expertise of QNB Alahli to help shape and implement its ground-breaking Egypt Women in Business programme. QNB Alahli is recognised for its professionalism delivered via streamlined internal and external procedures that enable the bank to maintain an operational nimbleness that belie its vast size and global reach. QNB Alahli is thus able to offer Egyptian SMEs

access to a comprehensive array of world-class products and services that not only covers their banking needs but also provides a platform for growth. The judging panel has tracked the performance of QNB Alahli for a number of years. The judges note that the bank fares well regardless of overall market conditions and, perhaps just as importantly, manages to support its SME customers through the peaks and troughs of the economic cycle. The judging panel is therefore pleased to offer QNB Alahli its continued recognition and declares the bank winner of both the 2018 Best SME Bank Egypt Award and the 2018 Best Retail Bank Egypt Award.


Shattering benchmarks and shaping one of Southeast Asia’s most dynamic markets, BSC (BIDV Securities Company) has been instrumental in empowering Vietnamese businesses. The oldest and largest stock broker in the country, BSC successfully prepared and carried out a number of major IPOs such as the $245m stock placement for Binh Son Refining and Petrochemical which was concluded in January. The much-anticipated IPO brought 7.79% of the company’s capital into public ownership with foreign investors picking up about half the shares offered. Attesting to the strength of BSC, the IPO was oversubscribed

2.7 times and raised almost $100m more than expected. Leveraging the buoyancy of the country’s stock market, the Vietnamese government has embarked on a sustained drive to engage private investors by opening up state-owned corporations to private ownership. The resulting buzz amongst local and overseas investors has led to a marked increase in business at BSC which is one of only a select few Vietnamese brokerages able to bring in outside capital. Thanks to its strong execution and peerless analysis of the local business environment, the firm has earned the trust of foreign investors. | Capital Finance International

BSC has now been a market clearing member of Vietnamese derivatives market and will shortly offer covered warrants as well. The firm has invested significant resources in its IT backbone with a view to further expanding the range of its services. The judging panel has followed developments at BSC for a number of years. The judges note that the firm has consistently managed to anticipate trends as one of the world’s most exciting markets opens up. The judges agree to declare BSC (BIDV Securities Company) winner of the 2018 Best Securities Broker Vietnam Award. 85


A Hong Kong real estate powerhouse, New World Development Company (NWD) has kept a near-perfect synchronisation with its times and environment since its founding in 1970. The company first helped drive Hong Kong’s property boom and then turned its attention to the mainland as China opened up to both pragmatism and investors. NWD deftly and consistently managed to optimise its exposure to economic upswings, delivering a long string of large-scale projects that meet both current and future consumer demand. NWD started investing in mainland China over a quarter of a century ago – long before other developers woke up to the possibilities. The company currently maintains a Chinese investment portfolio bordering $17bn.

NWD also pioneered a sustainable business model that emphasises the need to engage all stakeholders and includes environmental concerns. The company is lauded for its nononsense approach to raising investment funds with streamlined roadshows that present an uncluttered overview of new projects and undertakings, clearly spelling out both risks and rewards in a straightforward manner much appreciated by the investment community. NWD’s ground-breaking profitpeople-planet (3P) approach supplements the corporation’s relentless pursuit of excellence in design and execution – a quest that prioritises aesthetics and craftmanship. In fact, NWD gave rise to the Artisanal Movement in architecture

which aims to create bespoke spaces that invoke passion, appeal to the senses, and spur the imagination – and do so without an overbearing presence. As such, the movement borrows from the past to shape the future and deliver subtle perfection from concept to detail. The judging panel congratulates NWD on its pursuit of corporate harmony. This company, a constituent of the Hong Kong Hang Seng Index, has sourced – and maintained – an exquisite operational balance which allows it – and its stakeholders – to grow and prosper steadily. The judges are pleased to declare New World Development Company winner of the 2017 Best Investor Relations Team Hong Kong Award.


Italy’s leading independent asset manager, Arca Fondi SGR bundles the strength, experience, and executorial prowess of a number of regional and local banks. With around €32bn in assets under management, mostly in mutual funds, Arca Fondi SGR maintains one of the largest distribution networks in the country. The firm offers its products via more than 120 regulated financial services providers that jointly operate well over 8,000 branch offices. Arca Fondi SGR customers enjoy direct access to a team of seasoned financial advisors for investment solutions tailored to 86

suit individual needs and designed to meet different risk profiles. The firm has gained wide recognition for its style-neutral investment portfolios which closely track benchmarks and employ a proprietary risk parity strategy – honed to perfection over many years. Arca Fondi SGR born from the history and experience of Arca SGR SpA, was founded in October 1983 by 12 popular banks. Arca Fondi SGR caters to both individual and institutional investors. The firm is also regularly engaged by commercial banks aiming to tap into Arca Fondi SGR’s reservoirs of expertise. Arca Fondi SGR | Capital Finance International

also pioneered a multi-strategy multi-manager approach that includes innovative strategies to buck overall market trends and thus improve the predictability of results. The judging panel notes that Arca Fondi SGR has displayed a knack for sourcing opportunity, particularly in emerging markets. The judges have tracked the firm’s performance for a number of years and are impressed by the results. The judging panel is pleased to offer Arca Fondi SGR the 2017 Best Emerging Markets Debt Manager Europe Award.

Spring 2018 Issue


The name evokes a certain je ne sais quoi. Valentino, the landmark Italian fashion house named after its founder, has redefined and perfected style since the early 1960s with a perfect melange of suave subtlety and luxurious extravagance. The company’s designers unfailingly set the tone in the fashion world with collections that push the boundaries of convention and explore new frontiers without ever going over the top. The brand received wide acclaim from the specialist press at the 2018 Paris Fashion Show, the industry’s flagship event, where even critics not usually given to handing out praise broke with tradition and

penned raving reviews citing exquisite colour juxtapositions – always arresting but never jarring. Reaffirming ownership of its signatory house style, Valentino’s creative director Pierpaolo Piccioli showcased in Paris a haute couture at its most dreamily elevated without ever coming close to – or even within striking distance of – the caricatures often trying to steal the show with appeals to the extremely ridiculous or utterly impractical. The fashion house has generated a great deal of excitement on the trading floor as well in anticipation of its possible float. Owned by a Qatar-based privately-owned investment company, Valentino has reportedly

mulled offering up to 25% of its share capital on the Milan Stock Exchange. Though the IPO has been suspended for now, investors recognise exceptional value due to Valentino’s well-established reputation for excellence in corporate governance. The judging panel notes that Valentino has resisted the urge to stray from its core business. The company has powered its growth organically, leveraging the peerless competencies that made it into the true last emperor of the fashion world – and this emperor is indeed very well clothed. The judges are honoured to offer Valentino the 2018 Best Fashion Corporate Governance Award.


For proof that a client-centric approach in financial services yields superior results, look no further than AnandRathi – the premier Indian wealth manager and investment bank which last year grew its business by an astonishing 80%. The firm is recognised as one of the country’s foremost – as well as most innovative – providers of financial solutions to private, corporate, and institutional clients. AnandRathi was set up in 1994 and quickly canvassed the nation with well over 1,200 branch offices and associate brokers. The firm also maintains a presence in Dubai and is a member of India’s most important

bourses, including the Bombay and National stock exchanges, and the National Commodities Exchange. AnandRathi owes a significant part of its remarkable corporate success to its staff which now comprises over 2,500 professionals. Comprehensive skill development programmes enable staff members to stay well ahead of their peers and accumulate the expertise that forms the core of the firm’s business. Already receiving much acclaim for its research department, AnandRathi has also stayed well ahead of the technological curve. The company now offers its clients a trading | Capital Finance International

platform optimised for mobile devices which allows clients to trade whilst on the go and check and evaluate their positions at all times. The judging panel has followed AnandRathi’s corporate trajectory since 2014 and recognised the firm’s progress with three awards. The judges agree that the company has kept pace and managed to expand its already formidable lead with new products and services. The judges feel justified in declaring AnandRathi winner of the 2018 Best Wealth Manager India Award.



Pangaea Securities is an independent Zambian owned and managed corporate finance advisory and brokerage business that has helped shape the securities markets of Southern Africa since its inception in 1994. As one of the founding members of the Lusaka Securities Exchange, it has consistently been selected by leading domestic and international corporate clients to advise on and complete numerous corporate finance transactions. The firm is one of only a select few that offer both local expertise and global reach. Pangaea Securities has formed a crack team of highly motivated professionals that delivers the highest quality services to its ever-expanding client base. The firm is also recognised for nurturing local talent by enabling promising professionals to hone and

expand their skill set through advanced training programmes. Throughout its 20+ year history, Pangaea has constantly sought to develop and introduce new products and services into its markets. When the company identifies an unmet market need, its entrepreneurial DNA kicks in and it works hard to meet that need. It has introduced a holistic approach to the business by engaging all stakeholders in any given transaction or undertaking in order to maximise a successful closing while minimising risk. Furthermore, the firm pursues a sustainable business model that ensures high quality services for clients and strong returns for investors. Pangaea Securities’ management team is the only one in Zambia

able to successfully complete highly complex transactions involving multiple jurisdictions as evidenced by its impressive track record and deal book. Pangaea is also recognised for its unwavering commitment to the highest level of corporate integrity. The firm values good corporate citizenship and maintains a number of CSR initiatives. Pangaea Securities aims to make a significant contribution to national and regional development by providing alternative sources of funding and furthering environmental, social and governance (ESG) standards. The judging panel commends the firm on its achievements. The judges declare Pangaea Securities winner of the Best Emerging Markets Financial Advisory Team – Southern Africa 2018 Award.


Facing escalating insurance costs and increased downtime due to rising threat levels, Nigeria’s offshore oil and gas operators have turned to private security contractors for relief. However, only a handful of companies can deploy the security assets required to face off increasingly well-armed thugs, pirates, and vandals. Aquashield Oil and Marine Services maintains an impressive fleet of guard and combat vessels, including eight fast intervention security vessels (FISV) that can log speeds of up to 25 knots and give chase with fast RIBs. Four of Aquashield’s FISVs have been designed and built to the company’s exacting specifications. 88

The other four ships are former navy patrol vessels with proven capabilities in higher intensity confrontations. The Aquashield fleet also includes two large platform supply ships, anchor handling supply tugs, and minor vessels such as construction barges and dredges. No other Nigerian maritime security company is able to mobilise such a vast array of security assets as Aquashield. The company works in close collaboration with the Nigerian Navy and is allowed to field armed naval personnel. Aquashield also maintains a comprehensive communications network that allows for proper threat assessment and tracking. Additionally, the company boasts | Capital Finance International

full search and recovery (SAR) capabilities and offers inshore (harbour) escort services to commercial vessels. The judging panel notes that Aquashield Oil and Marine Services is a company that commands respect by both its size and dedication to operational excellence. Its mere presence in any quadrant of Nigeria’s turbulent waters has an immediate calming effect that allows the company’s customers to keep the oil and gas flowing – adding to the nation’s prosperity. The judges are pleased to offer Aquashield Oil and Marine Services the 2018 Best Maritime Security Services Nigeria Award.

Spring 2018 Issue


A pioneer in the collection and treatment of wastewater, Siyana processes in excess of 22,000 cubic metres of residential and industrial effluents each day at its state-of-the-art facility in Fujairah – one of the seven constituent emirates of the UAE. The company was the first privatelyowned wastewater utility in the Middle East and one of only a select few to be included in the Expoval Project – a research and development programme managed and funded by the German government. Siyana also spearheads the deployment in the Middle East and Africa of containerised solar-powered wastewater treatment plants that provide clean drinking water to remote communities. Siyana has partnered

with Water4All of The Netherlands to set up a pilot plant in the UAE that employs ultrafiltration technology which allows for the chemical-free processing of tertiary-treated effluent. The company now intends to manufacture compact wastewater treatment facilities in the UAE. Since it won a 33-year concession from the Emirate of Fujairah in 2004, Siyana has consistently raised the bar for the entire industry, keeping not just apace but well ahead of economic developments, expanding its collection and distribution networks and commissioning treatment plants in a timely fashion to help boost growth. The company has invested more than $230m of its own money in system and network upgrades with a view to preserving a leading

edge. The judging panel notes that Siyana also supplies over 1.3 billion gallons of high-quality effluent to local farmers – enough to irrigate close to 7,000 hectares of land – using its own distribution network. Thanks to Siyana, Fujairah farmers no longer need to use much more expensive desalinated or well water to irrigate their crops. The judges agree that the relentless pursuit of operational efficiencies through high-tech solutions is key to the successful management of scarce water resources. Siyana provides those solutions. The judges are pleased to grant Siyana the 2018 Most Innovative Wastewater O&M Team Middle East Award.


Surveilling the market with cognitive computing and behavioural analytics, and leveraging the power of machine learning, Nasdaq’s Buy-side Compliance, formerly Sybenetix, helps hedge funds and asset managers monitor their portfolios’ compliance in a constantly shifting regulatory environment. A pioneer in its field, Sybenetix was acquired last year for an undisclosed sum by Nasdaq as part of its sustained push to remain at the leading edge of the fintech revolution. Earlier, Nasdaq also entered into a strategic alliance with Digital Reasoning which uses natural language processing to analyse the context and content of human communication and thus provide early warning to surveillance analysts. Both companies fit seamlessly in Nasdaq’s broader strategy to buy into

specialised expertise in order to stay in sync with regulatory and technological evolutions, while still continuing to enhance its SMARTS surveillance technology -- which is sold into the bank, exchange and regulator sectors -- with these types of capabilities. The Nasdaq Buy-side Compliance software uses algorithms to learn the behaviour of people within an organisation. Applied to trading floors, for example, the software can sniff out rogue traders well before irreparable damage is inflicted. As increasingly complex and comprehensive regulations come into force - such as the second iteration of the Markets in Financial Instruments Directive (MiFID II) in Europe - financial services providers are scrambling to adjust to the more dynamic and transparent reality about to take shape. | Capital Finance International

In the process, a $2bn market for new MiFID II-ready systems and platforms was created. Nasdaq is riding that wave with a product suite of unequalled power. Its software fully complies with the more than 7,000-pagelong MiFID II - a volume of instructions equal to about five times the length of Tolstoy’s War and Peace, a classic literary doorstopper. The judging panel recognises the immensity of Nasdaq’s achievement; not only does the company’s software contain indepth knowledge of every imaginable financial regulation framework, it is also able to spot any deviation from the rules, or other operational anomaly, in real-time. The judges agree to name Nasdaq winner of the 2018 Most Innovative Compliance Management System Global Award. 89


Taking the know-your-customer into new territory, Arche Associates subscribes to the philosophy that wealth management needs to be a fully transparent and friction-free conduit that allows clients to reach a future crafted to their personal needs and aspirations. Ideally, the wealth manager dissolves into the background as the unseen hand that gently shapes resilient portfolios. Based in Luxembourg, Arche Associates maintains three separate companies that each serve a different customer demographic with the same relentless dedication to excellence and the cultivation of trust. Arche Wealth Management, Arche Family Office, and Arche Private Advisors benefit

from synergies and shared expertise whilst maintaining a differentiated approach to the design of investment portfolios. Known and celebrated for their attention to detail, finesse, and professionalism, the advisors at Arche Associates manage a number of thematic investments that seek to optimise exposure to especially promising sectors and industries. The firm is recognised for spotting trends early on and carefully building up positions long before the overall market wakes up. Arche Associates maintains a spotless track record for finding alpha within the customer’s carefully assessed risk parameters. Arche Associates has registered strong growth on the back of its innovative client-

focussed approach to wealth management, establishing long-term partnerships with customers in order to allow for the steady appreciation of the capital entrusted to the firm. The judging panel fully agrees that wealth management revolves around the twin core values of trust and transparency. Arche Associates has taken these timeless principles to the next level by adding a vital third ingredient – segmentation by investor demographic. No two investors are quite alike. By recognising this simple yet often ignored fact, Arche Associates has set itself apart from the herd. The judges are pleased to present Arche Associates with the 2018 Best Wealth Manager Luxembourg Award.


In Sweden, the engineers of Cimco Marine developed the world’s first truly highpower diesel outboard engine. The OXE Diesel Outboard generated so much demand that the manufacturer had to accelerate expansion plans by turning to the stock market. In July 2017, the company celebrated its IPO and debuted on Nasdaq First North, generating considerable excitement amongst investors who eagerly snapped up its shares. By the close of its first day of trading, Cimco Marine shares had soared by 23% over the issue price, reflecting solid investor confidence in the company’s ability to successfully leverage – and monetise – its technological edge. 90

The development of the OXE Diesel power plant represents a marine tech breakthrough that called for an out-of-the-box approach to outboard engine design. To increase both endurance and reliability, Cimco Marine engineers decided to ditch the prone-to-failure bevel gears and transfer shafts usually found in outboards with belt technology that allows for high torque transfers and a considerable increase in the engine’s endurance. Complying with NATO’s single fuel directive and thanks to its unequalled reliability, the OXE Diesel outboard is particularly popular with the military and law enforcement agencies. In order to meet demand from marine and | Capital Finance International

fisheries patrol agencies, Cimco Marine also offers a 150 hp model. The judging panel is always happy to consider nominations of engineering companies that venture into uncharted waters, pushing the technological envelope, and identifying – and meeting – pent-up demand for a product not yet developed. Cimco Marine is such a company. Now that its high power OXE Diesel outboard engine is readily available – and making more than just proverbial waves – its absence can no longer be conceived. The judges are therefore pleased to grant Cimco Marine the 2017 Best Industrial Exporter IPO Sweden Award.

Spring 2018 Issue


Opening a decisive lead over its competitors in the highly dynamic gaming industry, Ladbrokes Coral Group has raised the stakes by leveraging the power of corporate governance to up efficiency throughout the organisation, streamline internal and external processes, and enhance overall transparency. The company revisited its entire supply chain including Affiliates and human resources policies, demanding compliance with the same high ethical standards and implementing a zero-tolerance policy – colloquially known as one-strike-and-you’reout. As a result, Ladbrokes let go of a large number of affiliates, suppliers, and other stakeholders who failed to meet the grade. The massive undertaking has

netted a slim, nimble, and widely-respected organisation that moves forward under a uniform set of corporate policies. Ladbrokes also increased its competitive prowess, outsmarting others in the gaming industry and consolidating the company’s long-held top position. Ladbrokes is recognised globally as a responsible corporate citizen and a dependable partner to regulators. The company actively strives to stay a few steps ahead of regulators by identifying early-on areas of possible concern. This way, Ladbrokes manages to avoid conflict and safeguard its hard-won reputation. Whilst the entire gaming industry has belatedly awoken to the need to improve corporate governance models, Ladbrokes set the trend and built up a significant lead.

Using its edge, the company pioneered an omnichannel delivery model that allows players to use a single account and its associated virtual wallet for all of Ladbrokes retail, online, and mobile verticals – greatly enhancing customer experience. The judging panel agrees that in today’s highly competitive and global business environment, excellence in governance is no longer a mere luxury but a necessity for sustained growth. Ladbrokes’ experience illustrates what may be accomplished when the full power of governance is unleashed. The judges congratulate Ladbrokes Coral Group on its achievements and declares the company winner of the 2018 Best Corporate Governance Gaming Industry Europe Award.


Founded almost twenty years ago on the premise that the rapport between clients and their banks usually offers plenty room for improvement, Vallstein of The Netherlands has developed WalletSizing – a comprehensive bank relationship management (BRM) system that increases transparency by monitoring and reporting costs to determine, amongst other parameters, the return on solvency. In essence, WalletSizing turns the tables by allowing customers a comprehensive and detailed view of their banking relationships, including – crucially – the importance of their business to financial services providers and the revenue derived from that. Thus, WalletSizing enables users to precisely ascertain the cost-

benefit ratio of their banking operations. Deploying the knowledge-is-power adage, WalletSizing users are able to effectively gauge their bank’s overall performance and – if needed – negotiate a better overall deal. However, the software aims to optimise the client-bank relationship rather than squeeze the last penny out of it. WalletSizing allows customers to pinpoint the ideal equilibrium between costs and benefits, and construct a relationship that produces a win-win scenario for both parties. Uniquely, WalletSizing considers hidden revenues and capital requirements under the evolving rules of the Basel Accords. It also includes a complete set of benchmarks. | Capital Finance International

WalletSizing redefines, and vastly expands, the traditional assessment of banking costs and fees, and propels treasury management into next-gen territory. The judging panel commends Vallstein on producing and fine-tuning a product that moves way beyond spreadsheets to create actual value for clients and banks alike. It puts an often-misinformed relationship on a solid equal footing. The judges are happy to note that since last year Vallstein has continued to update and expand its products which are now indispensable in any corporate setting that values efficiency. The judging panel declares Vallstein winner of the 2018 Best Bank Relationship Management Solutions Global Award. 91


Empowering the Afghan business community and helping local entrepreneurs seize opportunity and expand trade, Islamic Bank of Afghanistan makes a significant contribution to the country’s economic development. From its earliest days the bank has served the Afghan private business sector with a full range of premier products and services, including cross-border transactions. Islamic Bank of Afghanistan is also recognised as a preferred partner to state bodies, multilateral organisations, diplomatic missions, and non-profit entities, amongst others. The third-largest bank in the country with deposits totalling $210 million and a staff of more than 800 professionals, Islamic Bank

of Afghanistan maintains a nationwide network of 62 branch offices. The bank is a subsidiary of Azizi Group – the country’s largest financial services provider and a corporation with a large regional footprint. As such, Islamic Bank of Afghanistan is able to structure and execute complex deals on behalf of its clients, spanning multiple jurisdictions. The bank initiated and supports a number of corporate social responsibility programmes such as a sustained effort to reduce the number of unbanked people and businesses in the country. The bank’s comprehensive CSR portfolio also includes high-impact initiatives to promote gender equality and skills development.

On the commercial side, Islamic Bank of Afghanistan introduced facilities to help fund the transition to renewable energy with an innovative credit line for solar power generators. The judging panel has followed the trajectory of Islamic Bank of Afghanistan for a number of years and agrees that the institution has been, and indeed continues to be, a foundational pillar of the exceptionally resilient Afghan business community. As such, the bank merits recognition for its considerable achievements. The judges are therefore pleased to name Islamic Bank of Afghanistan winner of the 2018 Best Business Bank Afghanistan Award.


Deploying the power of excellence in corporate governance to raise funds and ensure sustained profitability, Colombo Land & Development Company (CLDC) has managed to successfully complete a number of high-end real estate developments in Sri Lanka that helped transform the Colombo skyline. CLDC has been recognised as a pioneer in corporate governance, adopting best practices and maintaining the highest global standards of transparency and accountability in order to ensure continued investor confidence. The approach has allowed the company to obtain a listing on the Colombo Stock Exchange 92

and consistently outperform its peers. CLDC has tirelessly promoted the importance of solid corporate governance as a driver of economic progress. Moreover, the company consistently aims to take the interests of all stakeholders into account – including those of the surrounding communities. Raising institutional integrity has enabled CLDC to keep and expand its leading edge as a developer of premier properties. Building on the success of its Liberty Plaza extension and renovation project, the company is now laying the groundwork of Liberty Towers and Retail Mall which is set to become a | Capital Finance International

Colombo landmark and fully exploits the synergies available in a mixed commercialresidential setting. The judging panel is keen to promote and recognise excellence in corporate governance. The judges strongly believe that governance is key to unlocking shareholder value and securing the long-term growth that benefits all stakeholders. The judging panel is both pleased and honoured to declare Colombo Land & Development Company winner of the 2018 Best Real Estate Corporate Governance Sri Lanka Award.

Spring 2018 Issue


An airline for discerning millennials, Air France offshoot Joon took to the sky last December serving short- and medium-haul European routes from its Paris hub at Charles de Gaulle airport. Joon emulates the gentle approach pioneered by British low-cost carrier EasyJet, shunning the abysmal customer practices common at carriers situated at the bottom of the market. Joon was set up to relieve parent company Air France from the need to compete on price on routes to popular holiday destinations. Later this year, the company

starts long-haul flights to Fortaleza (Brazil), Mumbai, Mahé (Seychelles), and Cape Town using four rebranded Air France Airbus 340s. It also expects to incorporate the widebody Airbus 350-900 into its fleet. Though on course to compete for passengers with Norwegian, to date the only other low-cost long-haul carrier, Joon for now seeks to exploit routes to destinations not yet fully discovered by the travelling public. The carrier also offers full onboard connectivity to get the attention of iPhone-addicted youngsters and introduced an alternative inflight menu

including vegan food options. In keeping with its youthful branding, Joon employees sport tight jeans and body-hugging polos – and carry a genuine smile. The judging panel commends Joon on its corporate branding, recognising the exercise goes much deeper than just the customer-facing image. Joon is an attempt to engage with travellers, anticipating their needs and broadening their horizons – all that with a distinctive French touch. The judges agree to declare Joon winner of the 2018 Best Airline Branding Europe Award.


Egypt thinks big. New megacities are being planned alongside vast economic zones that are to provide a crucial impulse to the country’s development. The country has partnered with Saudi Arabia and other regional powers to secure financial backing for its comprehensive development blueprint. Private and institutional investors are being courted as well. Opportunities abound for those looking in the right places and willing to tap into local expertise. Concord International Investment Group, a leading New York-based fund manager specialised in Egyptian securities, has more than eighty professionals at its Cairo office dedicated

to tracking exceptional value. The firm was the first to set up both close-ended and open-ended country funds in Egypt. It also established the first – and to date only – UCITS (undertaking for collective investments in transferable securities) fully invested in Egyptian securities. With such a large presence in Egypt, Concord is widely recognised as the go-to firm for investors eyeing opportunities in the country. Concord funds have repeatedly received a five-star rating by independent investment research company Morningstar. Concord funds also feature regularly in the top ten of best performing funds as compiled by Standard & Poor’s. | Capital Finance International

Building on its regional expertise, Concord also established Tulip Investments which is now the largest mutual fund focussed on Turkey – another growth market. The judging panel has followed Concord for a number of years. The firm has consistently outperformed its peers, displaying a keen sense of timing, and claiming three previous award. Concord leverages its considerable management expertise to build up local businesses and execute carefully crafted and perfectly timed exit strategies. The judges congratulate Concord International Investment Group on its win of the 2018 Best Asset Manager Egypt Award. 93


One of only a select few banks in South America with a triple A credit rating, Ecuador’s Banco de la Producción S.A. – Produbanco – illustrates the power of corporate governance to bolster resilience and drive growth. Late last year, the bank breached the 700,000 customer mark and further expanded its nationwide network to 115 full-service branch offices. Facing the public with a commitment to excellence in the delivery of services, Produbanco has managed to claim

additional market share, further improve its financial performance, and strengthen the already solid fundamentals. The bank, one of the largest in the country, is part of Grupo Promerica which has emerged as a regional corporate powerhouse with a presence in nine countries. Produbanco is widely recognised as a pioneer in the implementation of a solid corporate governance structure that not only serves as the bank’s operational backbone but

also underpins its performance and helps push sustained growth. The pursuit of corporate transparency also helps the bank mitigate risk whilst ensuring full engagement with all stakeholders. The judging panel has followed Produbanco for a number of years. During that time, the bank has consistently met or surpassed industry benchmarks. The judges agree to declare Produbanco winner of the 2018 Best Bank Governance Ecuador Award.


Home to some of the country’s most gifted whizz kids – now grown into seasoned professionals – Tracom Services of Kenya is in the business of pushing the tech envelope and helping customers seize digital opportunities and prosper by exploiting the latest online delivery channels. The company has developed a number of innovative payment and online banking platforms that offer solutions tailored to the needs of the local market. Tracom Services offers a full suite of fully adaptable and scalable IT packages for the financial services industry. The software development studio and certified hardware centre one of the largest and most admired in East and Central Africa, 94

maintains a number of development hubs with offices spanning across the East and Central African region. Tracom Services offers a number of ready-made and bespoke payment solutions that are designed to fit seamlessly into existing operations, empowering businesses, and providing instant scalability. From its corporate beginnings, Tracom Services has kept its leading edge by embracing innovation and helping both private and public sector customers with cost effective solutions that significantly improve day-today operations by simplifying and automating internal processes – such as reporting and risk assessment requirements. | Capital Finance International

Tracom Services helps its customers gain the nimbleness that is needed to stay or surge ahead of the competition. The firm partners with top hardware companies such as Ingenico, Diebold Nixdorf, Idemia (OTMorpho), Evolis, Cardag, among others that are recognised for their innovative approach to payment processing. The recognises the power of seamless, single-click payment processing: well-designed systems can deliver business growth rates that shatter benchmarks. The judges name Tracom Services winner of the 2018 Best Enterprise Payment Solutions East Africa Award.

Spring 2018 Issue


The daily task of delivering a dependable supply electrical power to the end-consumer may, at first glance, may seem none too exciting, though its execution and maintenance is far from a simple job. As it happens, the Ease of Doing Business Report 2018 the World Bank ranked the UAE, represented by Dubai Electricity and Water Authority (DEWA) in the first place worldwide in getting electricity category – nowhere on earth getting electricity to a property is easier and faster than in the emirate. This feat can be fully ascribed to the operational excellence of DEWA which is widely recognised – and admired – as the world’s most efficient utility company. Business customers

requiring oodles of power can obtain a 150KW power hook-up in under ten days. Moreover, the application process entails just two steps. DEWA effectively helps Dubai attain the bright future the emirate aims for. Highest efficiencies do not appears out of thin air. DEWA invests considerable resources to find novel ways to up the corporate ante. The utility regularly organises creativity labs, workshops, and seminars to encourage out-of-the-box thinking. At these events, frank exchanges of ideas and experiences help the company’s workers and management come up with ways to further improve service levels, remove bottlenecks, and increase competitiveness.

DEWA’s Customer Minutes Lost (CML) is also a global benchmark. DEWA is a model in efficiency with customers losing just 2.68 minutes per year– another world record. Thanks to the company’s state-of-the-art hardware, transmission and distribution losses remain limited to just 3.3% – about half the rate considered normal elsewhere in the world. The judging panel has monitored DEWA for a number of years and remains convinced that the Dubai utility represents the gold standard of the industry. The judges agree that DEWA is the clear winner of the 2017 Best Energy Demand Strategy GCC Award.


In an unusual move, the judging panel has granted a personal award to Sam Camilleri, CEO and principal officer of the Natal Joint Municipal Pension Funds (NJMPF) since 2007 and one of South Africa’s best-known advocates for financial literacy. Mr Camilleri has the natural ability to bring out the best in people. He leads by example and displays a genuine interest in fellow workers and their challenges and aspirations. Mr Camilleri strongly believes in lifelong learning and has initiated numerous skill development programmes with a view to

increasing both job and customer satisfaction levels. Mr Camilleri is recognised throughout the industry for his professional acumen. Under his leadership, NJMPF became one of South Africa’s flagship funds, celebrated for setting new performance benchmarks and raising the bar on governance. NJMPF is now considered one of the country’s top retirement fund administrators – and one of the first to adopt a full set of ESG (environmental, social, and governance) standards. Throughout his distinguished | Capital Finance International

career, Mr Camilleri has insisted on pursuing a sustainable business model – one driven by incremental and accumulative change. At NJMPF this approach built a resilient organisation primed for exponential growth whilst keeping to the human dimension. Few pension funds are as close to their members as NJMPF – a true hallmark of quality. The judging panel is pleased to offer Sam Camilleri of the Natal Joint Municipal Pension Funds the 2018 Outstanding Leadership Pension Fund Industry South Africa Award.



As one of France’s largest insurance brokers, SIACI SAINT HONORE manages the entire risk chain using a holistic approach to best serve – and empower – its clients. Though offering solutions in all segments of the market, the firm is particularly known for its coverage of industrial risk and social protection with an emphasis on human resources management and cross-border mobility. Employing well over 2,200 professionals, SIACI SAINT HONORE maintains a full-circle vision of risk that is easily adaptable and scalable to the needs and requirements of corporations whose footprint spans multiple jurisdictions. The firm partners with its

customers to form long-term relationships that allow for the implementation of bespoke solutions. SIACI SAINT HONORE takes pride in its ability to offer the exact amount of coverage in any situation, enabling customers to focus on running their business. The firm was an early adopter of a streamlined model for all its internal processes that includes short lines of communication. This allowed SIACI SAINT HONORE to maintain its operational nimbleness even as the firm’s business volume increased significantly. The company currently serves over 3,500 corporate and more than 2.5 million individual customers. SIACI SAINT HONORE is the main insurance

broker for the civil engineering and logistics sectors. Thanks to both its expertise and experience, the company offers ready-made solutions that dovetail with industry needs and can be put into place at short notice. The judging panel agrees that a good insurance brokerage acts as an unseen – and regrettably often also underappreciated – partner to corporate success and personal development. SIACI SAINT HONORE understands that more than most. The judges find that the firm’s outstanding performance merits recognition and declare SIACI SAINT HONORE winner of the 2018 Best Insurance Brokerage France Award.


Founded in 1990 with the backing of multilateral financial institutions and one of the first venture capital funds in India, GVFL – formerly Gujarat Venture Finance Limited – is the go-to place for investors seeking to maximize their exposure to the buoyant Indian economy – powered by the country’s famously resourceful entrepreneurs. The fund has a stellar track record and set up eight different funds which have participated in over eighty companies. So far, GVFL has successfully exited sixty businesses it helped built up with strategic investments and its own expertise in management and corporate governance. A 96

total initial commitment amounting to $2m was transformed into value realisation worth over $16 m on exit from one of the investee companies, recently. The venture capital manager is particularly known – and praised – for its knack to pick winning start-ups early on in their development. The GVFL team draws on its own experience and expertise to unlock growth and empower the companies adopted by the fund to seize both opportunity and market share laying the groundwork for accelerated and sustained expansion. GVFL works in close cooperation with commercial banks and financial | Capital Finance International

institutions to source funds. The firm enjoys a solid reputation and is trusted by its partners to consistently deliver strong returns. GVFL recently launched a fund focused on technological disruptors and companies that seek to leverage their leading edge in specialised high-tech sectors. The judging panel commends GVFL on its foresight. The firm not only knows how to identify exceptional opportunity, it is also peerless in the creation of value. The judges agree to name GVFL winner of the 2018 Best technology Venture Fund Manager India Award.

Spring 2018 Issue


Belgium’s KBC Group, the country’s largest bancassurer, has been particularly successful in creating shareholder value. In fact, the bank ranks first in the world for total shareholder return over the period 2012-2016. Since the present CEO took over management of the company in 2012, the group’s share price has increased seven-fold. KBC Group is a favourite amongst investors and clients alike for its relentless pursuit of excellence in corporate governance which, in turn, optimises performance. KBC emerged in 1998 from the merger of two Belgian banks and an insurance provider, though the group can trace its corporate roots to the late 19th century. Today, the bank serves more than ten million customers

around the world and employs close to 43,000 professionals whose mission is to “enable and protect the dreams of clients”. KBC Group has been exceptionally successful in exploring and exploiting the synergies between its constituent parts. It remains the only financial group in the world to offer fully integrated banking and insurance products at no additional charge. Even so, KBC Group ranks first on the list of Europe’s most profitable financial institutions – a position it has held on to for three consecutive years. After the 2008 financial crisis, the financial group consolidated its global operations, introduced a renovated corporate culture, and fine-tuned its overall strategy. The changes proved exceptionally successful and

offer a textbook example of how to properly steer a large corporation towards sustained profitability. The judging also notes that KBC Group maintains a leading technological edge. In Ireland, new customers can open an account in under five minutes via their mobile phone. Accountholders can now also apply online for a personal loan or overdraft facility in just five simple steps. The judges agree that KBC Group constitutes a prime example of a bank that deploys its excellence in corporate governance – and the trust generated as a result – to power its growth and keep up with the financial services industry’s fast-changing landscape. The judging panel is therefore pleased to offer KBC Group the 2018 Best Bank Governance Europe Award.


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The leading issuer of credit cards in Bahrain, and indeed a pioneer of card-based transactions in the kingdom, CrediMax offers a full range of products and services to both private individuals and merchants. Established in 1999 and now a wholly-owned subsidiary of one of Bahrain’s largest commercial banks, CrediMax has consistently managed to stay at the leading edge of both innovation and security with a bestin-class approach to its business. CrediMax has grown from a mere card issuer to a full service card and payment

management company with a diversified line of products that enable shoppers and merchants alike to conveniently – and smoothly – complete their transactions in a minimum of time. As the company grew its business, CrediMax adopted an organisational structure that ensures lean operational processes whilst keeping in place a robust framework of risk policies and tools. Over the years, CrediMax has accumulated a vast reservoir of knowledge that now allows the company to expand the scope and depth of its business without sacrificing the operational | Capital Finance International

nimbleness for which it is known. The judging panel congratulates CrediMax on the launch of MaxWallet, its ground-breaking digital wallet – a QR-enabled mobile payment solution that gives users a quick and secure way to complete face-to-face transactions. The judges agree that CrediMax has been particularly successful in adapting to the new digital and mobile payments environment. The panel declares CrediMax winner of the 2018 Best Digital Wallet GCC Award. 97



One of the specialised institutions of the Economic Community of West African States (ECOWAS), the West African Power Pool (WAPP) interconnects and integrates the national power grids of member states to create a single unified electricity market with a view to providing a resilient and dependable supply of power to people and business. West Africa is a hotbed of economic activity. The countries of the region are determined to unlock their potential and have set in motion a number of initiatives aimed at increasing cross border cooperation and exploring synergies. WAPP is one of those initiatives. Recognising that accelerated economic growth requires a reliable and abundant supply of cheap electrical power,

WAPP was created in 1999 by the ECOWAS Heads of States and seven years later, established as a specialised institution of ECOWAS. Based in Cotonou, Benin, the WAPP helps the fourteen mainland member states of ECOWAS with the development of regional power generation and distribution. The entity also has been assigned a key role in promoting and facilitating the interconnection of member states’ domestic electricity grids. WAPP is currently working on a large-scale of network interconnection projects, power generation projects and the construction of the Information and Coordination Center. These works will allow by 2020, the completion of the interconnection of all the ECOWAS

mainland countries and the commencement of the competitive electricity trade. The WAPP also acts as an intermediary with multilateral and supranational organisations that provide funding for power projects in West Africa. The judging panel congratulates the promotors of this initiative, amongst whom former Burkina Faso power utility (SONABEL) Director General, Siengui Apollinaire KI – now WAPP Secretary General. Mr KI tirelessly advocates for improved cross border cooperation pointing out that integration of the West African power market provides a welcome and a necessary boost to regional growth. The judges are pleased to offer WAPP the 2018 Outstanding Contribution to Power Integration in West Africa Award.


Its platforms execute trades with a notional turnover exceeding $4.3bn per day in forex and derivatives transactions for well over 280,000 clients in 90 countries. Since its foundation in 2005, MultiBank Exchange Group has grown into one of the world’s largest trading groups with a paid-up capital of over $300m. MultiBank was set up in California but now boasts a global footprint with offices in Europe, Australia, and Asia. It is regulated by the national market authorities of Germany and Australia, amongst others. MultiBank is recognised as an early 98

adopter of new technologies, including the electronic communication networks (ECNs) that instantly link smaller market participants with tier-1 liquidity providers via an ECN broker. The technology is set to dramatically change forex and derivatives trading, substantially increasing overall market dynamics. MultiBank has fully embraced electronic exchange technology as a driver of the industry’s future. By staying at the forefront of developments, the company has earned the trust of large banks and non-bank financial services providers that now use trading | Capital Finance International

platforms developed in-house by MultiBank as well as its peerless brokerages services. The judging panel has followed MultiBank for a number of years and has watched – and admired – the company’s steady progress as it broached new markets, expanded its products and services, and pushed innovation ahead of its peers. The judges are pleased to offer MultiBank Exchange Group, a repeat winner, the 2018 Best Forex ECN Platform Europe and Asia Award.

Spring 2018 Issue


Lightning-fast technological change, shifting legislation, and demanding consumers – the iGaming industry needs to constantly adapt in order to survive. The most dynamic sector of the online economy, iGaming is set to double its revenue to almost $60bn by 2020. For companies able to drive that change, and push the industry’s proverbial envelope, the rewards are considerable. With a state-of-the-art iGaming platform developed in-house, Stox offers business clients a shortcut to the deployment

and management of online games. The firm creates an entire iGaming environment, precisely tailored to meet customer needs, including cross and up-sell facilities, revenue management, and a promotions that create brand loyalty. The company also ensures the continuous updating and upgrading of customers’ games in order to keep and expand its leading edge. The Stox platform allows for quick deployment and easy integration with the customer’s front-end, wallet API, and CRM

interface. Moreover, the company’s platform allows for omni-channel strategies in order to maximise exposure to potential paying users. The judging panel commends Gibraltar-based Stox on its corporate and operational transparency. The judges also note the company’s strong commitment to technological excellence. The judges are please to name Stox winner of the 2018 Most Responsible Remote Gaming Operator Europe Award.


The Sultanate of Oman has made great strides in improving its food security. The Oman National Food Security Strategy aims to ensure that by 2040 – barely two decades away – the country has attained self-sufficiency in food. That goal is now well within reach as Omani farmers and businesses bring the desert alive with state-ofthe-art technology – weaving an intricate web of producers, processors, logistics, and research that is to transform the sultanate into the regional bread basket. At the base of this formidable agricultural edifice stands the Oman India Fertiliser Company (OMIFCO), set up by the

governments of the two countries to underwrite the sustained push towards full food security. The company operates a world class fertiliser plant with two production lines each for anhydrous ammonia and granular urea. Since the start of operations in 2005, the $1bn facility has continuously been operating at full capacity. OMIFCO is an early-adopter of corporate social responsibility policies that involve the wider community and ensure the interests of all stakeholders are represented at board level. The company maintains a number of initiatives that encourage entrepreneurship, environmental stewardship, and skills | Capital Finance International

development and lifelong learning. Under OMIFCO’s Entrepreneurship Programme, small business owners may access a wide range of educational resources that allows them to unlock growth and “Scale Up to Success”. The judging panel commends OMIFCO on its proactive pursuit of sustainable business practices. The company not only helps secure an abundant supply of cheap, nutritious, and high-quality food, it also goes above and beyond to help forge an even better future. The judges are pleased to offer the Oman India Fertiliser Company the 2018 Best Sustainable Agribusiness Oman Award. 99


inspired by potential

Driving and enhancing the Company as a Platform (CaaP) model, India’s corporate IT solutions provider ValueLabs has implemented its signatory OneCompany model of engagement that helps businesses develop and market their products and/or services and keep in touch with customers – all the while driving revenue and claiming additional market share. “Inspired by Potential”, ValueLabs transforms ideas and concepts into real-life applications that power corporates of all sizes. The firm sprang from an initiative to supply advanced software free of charge to Indian schools unable to buy commercially available educational programmes. Twenty-odd years later, and now a major supplier of corporate

IT solutions, ValueLabs remains true to its founding philosophy centred on perfection, love, unselfishness, and strength. The firm’s applications help clients stay well ahead of the digital curve with often ground-breaking technologies that empower businesses and allow them to reach new customers, improve existing relationships, and move into unexplored markets. ValueLabs’ solutions are particularly strong in tracing roadmaps to perfection, identifying pain points and managing end-to-end operations along the way. The OneCompany approach is a holistic way of running a business: ValueLabs will often bootstrap IT solutions in order for

prospective clients to fully realise the potential – some things are better shown than discussed. The judging panel recognises the uniqueness of ValueLabs’ approach to corporate IT. Instead of deploying fragmented systems, cobbled together to suit the needs of single departments and precariously joined, the company seeks to implement companywide solutions that bundle and coordinate already available corporate strengths into a single force that empowers businesses to reach their objectives. The judges are pleased to offer ValueLabs the 2018 Most Innovative IT Solutions Partner India Award.


India’s largest independent financial services provider, IIFL Holdings is also the preferred partner of businesses and investors seeking to maximise their exposure to the country’s buoyant economy. Set up in 1995, IIFL has established a peerless reputation for its in-depth knowledge of India’s corporate environment. The firm’s research department regularly produces ground breaking sectoral studies that unearth gems particularly valued by domestic and overseas investors. IIFL closely monitors and evaluates well over 350 publicly listed companies and counts more than 300 of the world’s largest 100

institutional investors amongst its clients. The firm has helped a large number of companies on their way to a public listing and is without equal when it comes to designing and implementing a successful IPO strategy. A testament to the quality of its services, IIFL generates a significant number of repeat business and referrals – the firm has become the go-to place for business owners desirous of going public and entering the corporate major league. Over the past 12 months, the firm has been involved in some of the most marquee and unique capital market transactions out of India, | Capital Finance International

a testimony to strong corporate and investor relationships. With a nationwide network of over 2,200 service points, IIFL is without equal when it comes to placement and distribution as well. However, the judging panel considers that IIFL’s dedication to transparency, efficiency and excellence in the delivery of services forged the company’s greatest asset – the trust of the market. The judges note that IIFL now is a hallmark of quality. The judging panel agrees to name IIFL Holdings winner of the 2018 Best IPO Lead Manager India Award.

Spring 2018 Issue


Entering the hotly disputed Top 5 of insurance companies in Italy, Alleanza Assicurazioni has further improved its performance across the board, covering all key metrics. Last year, the company completed the digitisation of its vast distributor network, doubled its NPS (net promotors score) to 17.3%, and significantly increased customer satisfaction indices. Alleanza Assicurazioni now prepares to introduce Smart Capital – a novel savings account that dovetails with other hybrid products offered by the insurer such as Valore Alleanza which was launched in April 2017 and has already attracted over 27,000 savers who deposited a total in excess of €600 million.

With over €35 billion of assets under management and around two million customers, Alleanza Assicurazioni has positioned itself in the market as the preferred assurer of the younger demographic. The company exudes a modern image which is complemented by a state-of-the-art IT backbone ensuring the smooth delivery of services and facilitating cross marketing efforts that allow customers to design tailor-made packages with both insurance and savings products. Alleanza Assicurazioni is recognised for its early adoption of a workforce management platform that enables the company’s consultants to quickly respond to customer demand. The

company also moved into the mobile internet universe with a fully digital and dematerialised cycle management of customers who may now complete nearly all transactions online via mobile devices. Already now, two out of every three customers transact their business with the insurer online. The judging panel commends Alleanza Assicurazioni on its remarkably consistent performance. The judges agree that the company’s determination to excel in customer service helps underwrite and sustain its corporate growth. The judging panel is pleased to offer Alleanza Assicurazioni the 2018 Best Insurance Solutions Provider Italy Award.


The power of technology is being deployed to rid society of violent crime. Once more of an art than a science, ballistics has evolved to a point beyond reasonable doubt. The guesswork of yore that allowed plenty of wiggle room for defendants to evade justice has been replaced by the detailed analysis and pinpoint accuracy of advanced ballistics. Few companies have done more to push ballistics into the digital age of highresolution imagery, analysis, big data, and powerful computers than UK/Barbados based Pyramidal Technologies. The company’s ALIAS (Advanced balLIstics Analysis System) suite of solutions breaks new ground with capabilities not seen anywhere else. ALIAS employs a scanning technology offering nanometre vertical resolution that is sharp enough to resolve tool

marks that are less than the width of a human chromosome. As such ALIAS represents a remarkable feat of technology. The system – a suite of interlocking modules that may be used jointly or separately to dovetail with the client’s requirements – uses an open architecture and can easily be connected to already existing firearms management databases. Pyramidal Technologies’ ALIAS consists of three domains – forensic ballistics, firearms registration and criminal intelligence. The domains are complementary and may be linked to provide an end-to-end solution. The systems are continually updated and upgraded to include new features, and further improve existing ones, in order to maintain and expand its leading edge. ALIAS is primarily directed at law enforcement, justice and military organisations. | Capital Finance International

The system is operational in Canada, Europe, Mexico, South America and the Caribbean and was also part of the EU Odyssey Project. The judging panel commends Pyramidal Technologies on its achievements in advanced ballistic and its success in building a system that produces solid evidence time and again. In particular, the Judges noted that Pyramidal Technologies had contributed significantly to secure societies with the deployment of ALIAS as part of a National Security initiative for Firearms Registration in the Dominican Republic, where escalating firearms violence was reduced, year upon year, resulting in hundreds of lives saved. The judges are delighted to offer Pyramidal Technologies the 2018 Best Forensic Technology Global Award. 101


Present in London, Lagos and Dubai’s International Financial Centre (DIFC), The Access Bank UK is a premier financial services provider. It is part of one of the largest banking groups of Nigeria, Access Bank Plc, which has geographical footprint spanning eight countries in West Africa, Sub-Saharan Africa and UK. The Access Bank UK squarely aims for the top and has imbued its staff with a sense of pride in being part of Africa’s most respected financial institution. At The Access Bank UK, the pursuit of excellence in corporate governance and superior operational performance are linked by a finely tuned

human resources framework that encourages innovation, skills development, and personal growth. This has been externally recognised by their accreditation by Investors In People Gold Standard. As a result, staff turnover rates are amongst the lowest in the industry. The Bank maintains a number of partnerships with educational and professional institutes to allow apprentices to acquire skills and develop their aptitudes. This way, the Bank ensures its continued access to an exceptionally promising talent pool. The Access Bank UK enjoys a wellearned reputation for structuring complex trade

deals covering multiple jurisdictions. The Bank has its corporate roots in trade finance and offers exporters and importers in both the UK, Sub-Saharan Africa and the MENA region a full and competitive suite of services that unlocks the buoyant markets of Sub-Saharan Africa and enables the seamless processing of traderelated documentation. The judging panel has followed the corporate trajectory of The Access Bank UK for a few years and notes that the bank maintains its leading edge. The judges are pleased to offer The Access Bank UK the 2018 Best Africa Trade Finance Bank Award.


Seeking to forestall a doubling of electricity rates over the next ten or so years, the government of Thailand has opened the sector to competition and streamlined regulation in order to entice new players to enter the market and new trends to set the tone. As talk of renewables moves to action and new producers come online, the industry is ready for a shakeup. Already enjoying a significant edge over the competition, BCPG Public Company enjoys optimum exposure to the growth potential of renewable energy in its many forms - solar, wind, and geothermal. The company is one of 102

Thailand's largest independent power producers injecting 182 MW of clean energy into the country's national grid. Elsewhere in Asia, the company has over 190 MW of installed capacity of solar power in Japan, 20 MW of wind power in the Philippines and 182 MW of geothermal in Indonesia. It is well on its way to push its portfolio to beyond the 1 GW barrier in 2020. The company is particularly interested in community-based initiatives that enable consumers to also become producers, slashing power bills and supporting sustainable development initiatives. To that end, BCPG | Capital Finance International

invests in power producers already online and promising projects. The company leverages its knowledge and ability to source funds to help alternative energy start-ups reach maturity. The judging panel agrees that the future belongs to renewables and commends BCPG on its achievements as the Thai energy sector opens up and presents opportunity. BCPG has shown an ability to move quickly and decisively to occupy and hold new ground. The judges are pleased to grant BCPG Public Company the 2018 Best Clean Energy Community Solutions Southeast Asia Award.

Spring 2018 Issue


African countries have continued to grapple with the high costs imposed by climate change, natural disasters, and extreme weather events. In its bid to assist Member States in managing their climate risks, the African Union, in 2013, set up the African Risk Capacity (ARC) as a specialised agency. ARC helps African governments reduce the burden of directly financing the high response costs to climate disasters by deploying modern risk mitigation, pooling, and transfer mechanisms that enable Member States to swiftly meet challenges without a contingent, pressing demand on the national exchequer. African Risk Capacity uses state-ofthe-art technology to map and track weather

events around the continent and employs predictive software to pinpoint potential trouble spots. This allows the agency to properly gauge the intensity of the expected event, calculate the number of people at risk, and prepare a targeted response even before disaster has struck. The approach also significantly reduces the cost of relief efforts and improves response times. ARC uses Africa RiskView, a software developed by the UN World Food Programme, to correctly estimate needs and rally resources. The African Risk Capacity now forms the core of a Pan-African disaster response system, in line with the African Union’s overall strategy for managing extreme weather events and the effects of climate change.

Working with its stakeholders, the experience of ARC in quantifying and pooling risk also helps countries shape sustainable development policies that have a direct and positive impact on the lives of millions of Africans. The judging panel applauds the foresight of the African Union in setting up ARC to bolster the continent’s resilience in dealing with climate risks. The judges agree that the importance of the African Risk Capacity will only increase with its effective technical and financial solutions in addressing climate risk. The judging panel is therefore pleased to give to African Risk Capacity the 2018 Most Innovative ESG Risk Protection Provider Africa Award.


Italy’s CheBanca! leverages the power of technology to simplify its front office procedures and thus vastly improve the customer experience. Deploying data analytics, artificial intelligence, and robot advisory techniques, CheBanca! has managed to streamline both internal and external processes, saving on operational costs, slashing processing times, and improving the overall quality of its services. Recognised in Italy and abroad for its innovative, if not revolutionary, approach to retail banking, CheBanca! – the human digital bank – has succeeded in preserving a personal touch. Though its back office operations are

driven by marvels of technology, the bank’s customer-facing business is all about providing account holders with products and services tailored to meet their needs. In fact, thanks to its use of advanced analytics, CheBanca! is often able to anticipate customer needs and offer timely solutions. CheBanca! has, in a way, reinvented the wheel and as such represents an interesting business case. The bank was designed from the ground up as a technology-driven financial services provider. CheBanca!’s operational structure is such that new IT developments can be easily incorporated in order for the bank to | Capital Finance International

maintain its leading edge. CheBanca! was set up in 2008 and is part of Mediobanca, one of Italy’s largest financial groups. The judging panel notes that CheBanca! has ditched convention to embrace invention. It not merely pushed the envelope but did away with the container altogether and rewrote an entire business. Even more importantly, the bank has consistently registered solid growth and captured a significant share of the market. The judges are delighted to offer CheBanca! the 2018 Most Innovative Digital Smart Bank Italy Award.



Determined to provide streamlined, integrated, and easily accessible financial services, Guaranty Trust Bank (Ghana) has vastly expanded its online platform and distribution channels. The bank cuts across demographic and social strata to offer its comprehensive suite of products and services to all Ghanaians, in the process reducing the number of people without access to bank accounts. Anyone with a moderately smart mobile phone is able to open an account with just a few taps and swipes. Bank *737# allows users to initiate the process of opening an account at GTBank online. Once the relevant information has been submitted the

system generates a code that may be brought into any one of the bank’s branch offices to quickly complete the application. By special arrangement with the country’s telecom providers, contact with GTBank is free of charge – no airtime or data traffic is billed to the user. GTBank allows customers to zero their accounts without running the risk of closure. The nifty app developed by the bank enables instant money transfers, online bill payments, and the topping up of pre-paid phones. The app also instantly connects users to a help line where agents are ready to answer all queries thus ensuring a human touch

amidst all technological marvels. The judging panel applauds all initiatives that promote financial inclusion. GTBank’s innovative *737# app redefines the concept of digital banking. It was designed from the ground up as a tool to simplify the entire banking experience making it much less daunting to users who may otherwise be reluctant to enter a branch office. The judges are pleased to note that the Ghanaian bank, a repeat winner, remains committed to innovation and operational excellence. The judging panel agrees to declare Guarantee Trust Bank (Ghana) winner of the 2018 Best Digital Bank Ghana Award.


Displaying both resilience and determination, Caixa Económica Montepio Geral – one of Portugal’s oldest banks – has survived and indeed prospered throughout the ages thanks to its ability to quickly adapt and meet shifting market conditions with aplomb and a keen eye for opportunity. Founded in 1840 and headquartered in Lisbon, Caixa Económica Montepio Geral traces its corporate origins to a mutual savings entity. Today, Montepio stands at the apex of a business group that also includes insurance, fund and asset management, and property management companies. The Montepio Foundation, one of Portugal’s most recognised 104

charitable institutions, channels the group’s corporate social responsibility programmes and initiatives. In January, Montepio’s management revealed a much higher than expected capital ratio, beating market expectations with the bank’s Tier 1 ratio significantly exceeding the tighter requirements that only come into force later this year. The achievement allows Montepio to consolidate and expand its activities. The bank continues to play a major role, as it has done for many decades, in the development of Portugal’s business environment, placing particular emphasis on supporting young entrepreneurs and start-ups. | Capital Finance International

Deeply rooted in the country’s corporate establishment, Montepio is able to close the generational divide between young and established entrepreneurs, coupling ambition and drive with experience and knowledge for superior results that help underpin the country’s economy. The judging panel congratulates Montepio on its hands-on approach to business development. The judges agree that the bank is peerless when it comes to navigating the buoyant Portuguese economy. The judges declare Caixa Económica Montepio Geral winner of the 2017 Best Heritage Bank Portugal Award.

If it can survive being ejected from a plane, it can survive near enough anything.

Spring 2018 Issue

Should you treat your Bremont MB watch with respect? Not really. We don’t. We freeze it, we bake it, and we shake it. For hours on end. Then we shoot it out of a plane. Just to make sure it’s as tough as we claim it is. What’s more, it has been assembled and tested at our headquarters in Henley-on-Thames. So don’t worry about looking after a Bremont MB. It can look after itself.

British Engineering. Tested Beyond Endurance. | Capital Finance International


> Africa

Returning to Accelerated Growth Home to half of the world’s fastest-growing economies, most of Africa is already now working towards its long-promised bright future. After a few lean years brought about by the end of the commodities super cycle, most of the continent’s top performers have pushed through the structural reforms needed to ensure the sustained growth that is required to absorb – and cash in on – the coming demographic dividend. By 2030, just a dozen years hence, the continent is expected to harbour more than 1.7 billion people with a combined – household and business – annual spending power of at least $6.7 trillion.

106 | Capital Finance International

Spring 2018 Issue | Capital Finance International



o far, most of the continent’s remarkable growth has taken place in a vacuum, as far as Western economies are concerned: between 2014 and last year, US exports to Africa fell from $38bn to barely $22bn. Over the same period, EU exports to Africa have largely flatlined whilst imports decreased from about €150bn to slightly over €100bn. Overall, Africa represents little more than 7% over the EU’s total trade volume with the rest of the world. Contrast that to China which has seen its exports to Africa increase sevenfold since 2005 to $103bn last year. Demand for goods and services is nearly insatiable as millions gradually climb out of poverty and onto the lower rungs of the middle class embracing a lifestyle that brings products and services formerly considered the exclusive preserve of the affluent few into the mainstream – creating economies of scale that invite fierce competition. Over the next few years, fully 43% of Africans will be firmly established in the middle class (up from 39% now), driving economic growth and reshaping markets. This is how Ethiopia barrels ahead with economic growth forecasted at 8.5% or higher in 2018. The pace of development is unrelenting. According to the IMF, the country has registered an average annual growth of 10% over the past decade. Ethiopia is now being hailed as Africa’s own China and the next low wage pit stop for global corporations. The country’s government is aware of the opportunity and is putting in place the infrastructure required for a manufacturing hub such as the $5bn Grand Renaissance Dam which is expected to inject up to 6,000MW into the national grid and the $4bn Chinese-backed railway which now connects Addis Ababa to Djibouti and its port slashing transit times from 72 hours to just twelve. Plans are afoot to build a rail connection to Mombasa in Kenya as well. Ethiopia is, however, determined to avoid the mistakes made with the Mombasa to Nairobi railway which fails to turn a profit and has become somewhat of a white elephant. An elaborate policy framework was implemented that strongly encourages shippers to use the Addis Ababa to Djibouti line for the project to pay itself back and generate sufficient cashflow for continued maintenance and upgrading. Ivory Coast is set to claim the runner-up title of fastest-growing African economy, expecting to add 7.2% to its GDP. Ghana and Senegal also put in a commendable performance with 7% and 6.4% respectively. Suffering foreign exchange shortages, Nigeria continues to underwhelm: Africa’s largest economy may register at most 2.1% growth. 108

"In Africa, the music is back on but the party hasn’t started yet. Growth has returned across the continent. The prospects are tremendous. All systems are set for go. Take off is expected at any time." At the spring meeting of the boards of governors of the International Monetary Fund (IMF) and the World Bank Group (WBG) Africa captured the limelight. WBG Chief Economist for Africa Albert Zeufack pointed out that most countries along Africa’s eastern and western seaboards are emerging quickly from years of modest growth whilst Central Africa is still struggling: “Average growth across the continent’s 52 economies is coming in at 3.1% this year and is expected to be slightly higher in 2019-20. Two of the continent’s largest economies – Angola and South Africa – are undergoing significant transitions which should result in stronger and sustainable growth. Higher prices for oil and natural gas coupled to improved business sentiment helps Angola rebound whilst increased business confidence and lowerthan-expected inflation drives up domestic demand and investment in South Africa.” However, Mr Zeufack cautions that the positive trends rest upon two assumptions: that commodity prices remain stable and that African countries continue their commitment to macroeconomic and structural reforms. Another point of slight concern is the rising level of debt and its composition. Most countries have been moving away from concessionary and long-term financing towards short term maturities and market-led debts. “This exposes African countries to new types of complex risks that they may not be well-equipped to handle. Additionally, not all are taking on credit to invest. A significant part of the funds raised is earmarked for consumption.” As a result, risk of debt distress indicators are increased with 18 countries now at high risk versus only eight in 2014. CNBC Africa anchor man Gugulethu Mfuphi put it more succinctly: “In Africa, the music is back on but the party hasn’t started yet. Growth has returned across the continent. The prospects are tremendous. All systems are set for go. Take off is expected at any time.” i | Capital Finance International

Spring 2018 Issue

> Meets the Pangaea Securities Management Team:

Tapping Into Growth Pangaea Securities has a board of directors that provides independent and strategic leadership and an executive management team responsible for the day-to-day running of business. DR JACOB MWANZA – CHAIRMAN Dr Jacob Mwanza is a highly regarded leader with more than forty years of business management experience. He served as governor of the Central Bank and deputy chancellor of the University of Zambia. Dr Mwanza currently serves as chairman on the board of a selected number of companies including Zambeef Products, Shepard Foundation, and Kafue Sanctuary. He is also a representative to the International Monetary Fund on Sub-Saharan Africa economic and social affairs. At 82, Dr Mwanza brings a wealth of expertise, experience, and guidance to the team. He holds a PhD from Cornell University in the United States. BRUCE BOUCHARD – EXECUTIVE DIRECTOR Bruce Bouchard is an investment banking/ corporate finance professional with over thirty years’ experience in structuring and providing a broad range of financial services and products in developing countries, with a primary focus on Africa. From 1994-2006, he was one of the early investment bankers active in developing Zambia’s capital markets. Working with selected corporate clients, Mr Bouchard was instrumental in bringing new products and services to the Zambian market. He served as chairman of the Lusaka Stock Exchange from 1998 to 2001.

Chairman: Dr Jacob Mwanza

Mr Bouchard also works in an advisory capacity for USAID and the Power Africa Initiative, the $7bon programme launched by former US President Obama in 2013. He has an MBA in Finance from Southern Methodist University, an MA in International Studies/Economics from the Johns Hopkins School of Advanced International Studies, and a BA in International Studies from the Johns Hopkins University in the US. CEASER SIWALE – CHIEF EXECUTIVE OFFICER Ceaser Siwale has over fifteen years of investment banking experience in Africa. He joined Pangaea in 2001 and was appointed managing director and CEO in 2005. Under his leadership, Pangaea has spearheaded and successfully concluded many landmark transactions in Zambia and other African markets, raising over two billion US dollars in different forms of capital for clients across numerous sectors. Mr Siwale is a frequent speaker at different fora and a respected business leader both locally and internationally. In 2013, he was a runner-up for

Executive Director: Bruce Bouchard

Chief Executive Officer: Ceaser Siwale

the Forbes Southern African Young Entrepreneur of the Year. In 2017, he was voted Local Lead Manager by Private Equity Africa magazine, with the following citation: “..held in high international esteem for his performance and effectiveness, vision and leadership, innovation, creativity, professionalism, exceptional managerial skills, business skills, and CSR.” In the same year, Africa Report listed Mr Siwale as one of fifty up and coming Africans in the financial sector. Mr Siwale

believes in putting the team first, encouraging initiative and individual growth, including by “letting people jump into the deep end and consequently create self-belief.” | Capital Finance International

Mr Siwale is a member of the Lusaka Securities Exchange Investment Committee and also a member of the Zambia Development Agency Board. He is a certified financial advisor with an FCCA certificate and a degree in Economics. i 109

> Pangaea Securities:

Sourcing Funds to Power Africa’s Growth

Pangaea Securities has played a significant role in changing Zambia and the broader region’s narrative of “funding gaps and deficits” to “opportunities and growth”. Boasting over twenty years of serving as a bridge between assets and capital, the firm has participated in, and concluded a number, of landmark transactions that have significantly contributed to economic growth and development in Africa.


angaea is a leading Zambian-owned and -managed corporate finance advisory and brokerage firm. Based in Lusaka, but operating with a global footprint, Pangaea is one of only eight brokers licensed by the Securities and Exchange Commission (SEC). It is a founding member of the Lusaka Securities Exchange (LuSE) and its single largest trader. Over the last twenty plus years, Pangaea has accounted for over 55% of the year-on-year turnover of the exchange. Pangaea was founded in 1994 by Eric Postel, who has a passion for bringing financial expertise to emerging markets. In 2013, Mr Postel was appointed by then US President Barack Obama to head USAID’s Bureau for Economic Growth, Education, and Environment and, subsequently, the Bureau for Africa. He served in this capacity until the end of President Obama’s second term in office. In 1998, Pangaea merged with EMI Securities, an investment banking and financial services group based in Zambia, to become the largest broker for transactions on the LuSE. The combined company became known as Pangaea/ EMI Securities. In 2008, the shareholders behind Pangaea/EMI sold the business to Moscow-based Renaissance Capital (RenCap). The firm was renamed Pangaea Renaissance Securities. In 2012, RenCap consolidated its global operations with a retrenchment to investments in Russia, South Africa, Nigeria, and Kenya. Chief executive officer Ceaser Siwale led a management buy-out of Pangaea Renaissance Securities which is now wholly Zambian-owned and has returned to its original name, Pangaea Securities. As a result of the many regional and international firms with which it has partnered in concluding

"As a testament to its disruptive nature and approach, Pangaea has had the distinction of completing the first-ever rights issue in Zambia." corporate finance transactions, Pangaea is uniquely positioned to deliver innovative and client-focused solutions combining hands-on local knowledge with world class transaction expertise. It is a full-service investment advisory firm and stockbroker with access to the largest pool of international fund managers seeking investment opportunities in Zambia. IMPACT Throughout its existence, Pangaea has constantly sought to develop and introduce new products and services to its markets. As a testament to its disruptive nature and approach, Pangaea has had the distinction of completing the first-ever rights issue in Zambia; issuing the country’s first-ever corporate bond; being joint advisor and sponsoring broker in the largest initial public offer (Celtel Zambia at $190m) at LuSE; and undertaking the largest mandatory offer in Zambia’s capital market history resulting in Bharti Airtel owning 96.5% of Airtel Zambia, up from 79.0%. The firm was also instrumental in raising $60m for Zambeef through a rights issue in Zambia and an AIM listing in London in 2012 – a first for a

Zambian company. In 2018, Pangaea Securities was awarded the sole advisory mandate in the largest corporate action ever over the LuSE – a $380m bid for CEC Plc. In addition, Pangaea has concluded several other landmark transactions in the last two decades, including listing the first mining company on the LuSE through the issuance of depository receipts by the Toronto-listed parent – First Quantum Minerals and raising $70 million for Zambian Breweries through a rights issue that was fully subscribed and the largest in Zambia to-date. The firm also advised on the sale of Airtel towers to IHS; the sale of Zambia’s leading fertiliser company to Yara of Denmark; and raising $65m for Zambeef in 2016, in line with restructuring the company’s balance sheet through a combination of an equity issuance and, in 2018, the sale of a 50% shareholding in CEC-Liquid Limited, Zambia’s leading broadband wholesaler. Over the years, Pangaea’s management team has proven its ability to identify and execute deals, work strategically with key stakeholders, and return significant value to investors. It has emerged as one of Zambia’s and Africa’s leading investment advisory, and securities trading firms, providing world class advisory services and products to clients that include government, corporations, financial institutions, and high-networth individuals. Pangaea is committed to giving back to the community it operates in and has, as part of its corporate social responsibility programme, supported a home for the elderly, a foundation for children with cancer, and a performing arts initiative empowering homeless and other vulnerable children. Furthermore, Pangaea has worked closely with secondary schools, colleges,

"Over the years, Pangaea’s management team has proven its ability to identify and execute deals, work strategically with key stakeholders, and return significant value to investors." 110 | Capital Finance International

Spring 2018 Issue

and universities in Zambia by providing seminars and access to Zambian case studies of historic capital market transactions. NEXT STEPS The unmet demands that come with Africa’s unprecedented population growth (including a large population of young people), growing middle class, rapid urbanisation and digital transformation, create great opportunities and markets that did not previously exist. And whilst there is no shortage of entrepreneurs, or businesses and large corporates seeking to meet these demands and exploit the continent’s potential, there is no matching availability of capital and innovative funding solutions. The local banking sector’s liquidity constraints limit efforts to exploit the market potential and the available opportunities. Further, the “missing middle” is still ignored for being too small for the international providers of alternative forms of capital. Yet, this segment is potentially the source of the next generation of captains of industry. An analysis of the last two years shows that African economies face their biggest challenges from deteriorating market conditions and heavy reliance on commercial bank lending. Pangaea has taken these challenges as opportunities and positioned itself to add value to the existing gaps. The firm has developed, and is in the process of implementing, a threeline business model that will provide holistic financial services and solutions. The structuring of these services into three core subsidiaries will see Pangaea expand beyond corporate finance advisory to include asset management and merchant banking services – a first in Zambia. Pangaea will leverage its strong track record, highly adept team, extensive knowledge, relationships, and position in the regional markets to become the ultimate platform for local and international providers of capital and owners of assets seeking to transact in the region. Pangaea believes that individuals and businesses need innovative financing solutions and financial services that integrate 21st century technology whilst taking into account the nuances of the region. Similarly, the firm believes systems and processes need to be tailored to dovetail with the local context, taking into account the different market dynamics, opportunities, and constraints. Pangaea aspires to the highest ethical standards, integrity and empathy in all its work. The firm has supported investments through equity participation, not just for the need for financial returns but supporting platforms that it believes would be transformational to their communities in the near future. Maintaining this commitment to Africa’s economic growth and development through sustainable investment, Pangaea’s mission is to assist African governments, state owned entities, industrialists, and entrepreneurs to access affordable domestic and international capital. i | Capital Finance International


> Barclays Africa:

Opening Doors for Sustainable SME Growth on the Continent By KeaObaka Mahuma


t Barclays Africa Group, to be renamed Absa Group Limited in due course, we recognise the importance of small and medium enterprises (SMEs) as catalysts for economic growth and job creation. In Africa, SMEs represent a significant part of the economy as they constitute about 90% of private 112

business; contribute more than 50% of country employment rates, and as much as 40% of GDP in most African countries. SMEs therefore play a crucial role in stimulating growth, generating employment, and contributing to poverty alleviation and social development. It is for this reason that they are a central focus of our business. | Capital Finance International

As a responsible corporate citizen, the bank lends its support to the agenda of promoting a thriving SME sector in Africa. Whilst financial support is a key driver of the success of SMEs, access to markets and building business skills are also significant challenges to address. This is why our support to SMEs is three-pronged, that is:

Spring 2018 Issue

providing them with access to finance, access to markets and access to business development support. Access to markets, funding, and nontraditional support is a complex recipe for a successful business. By investing in individuals, communities, and enterprises, Barclays Africa Group, through its various intervention programmes, is changing the African business landscape, one entrepreneur at a time. ACCESS TO FUNDING Considering that a significant number of SMEs in Africa fail in their first two years of operation – mostly due to cash-flow problems, amongst others – it is clear that improved financial support will empower more SMEs to realise their ambition and contribute to sustainable economic growth. Our reality is that despite the vast opportunity for providing finance to SMEs in Africa, traditional approaches to lending expose very real challenges. These challenges include a lack of financial records, insufficient collateral and a poor credit record. These limit SMEs’ access to notable funding requirements, such as working capital facilities. To overcome these hurdles, in partnership with government and corporates, we need to continue to innovate lending solutions for the SMEs. Such solutions do not only improve access to finance but also lower the cost of financing and optimise much needed operating cash flow for SMEs. In addressing SME challenges, Barclays Africa Group always seeks innovative in our approach to providing pioneering solutions. For instance, we can advance funding to SMEs that have been awarded valid and viable contracts by corporate and public entities. Cash-flow principles are the primary lending drivers as opposed to traditional collateral or security-based lending. In South Africa, the bank has committed more than R250million per annum in non-traditional lending aimed entirely at the SME sector in the country. This is in order to fund SMEs that typically would not meet the normal lending criteria required by banks.

"As a responsible corporate citizen, the bank lends its support to the agenda of promoting a thriving SME sector in Africa." | Capital Finance International

We have also created specialised non-traditional funding solutions to assist SMEs, such as: • The Women Empowerment Fund which provides finance to women entrepreneurs who have the skills/expertise and demonstrable potential relevant to the business and or the industry/ sector. The funding is available for all women SMEs who do not have sufficient security to start their businesses or purchase an existing one under ‘normal’ banking lending criteria. • The Development Credit Fund which is also offered to SMEs with insufficient security for existing business and start-ups. Clients/ applicants need to provide an own contribution which will be determined by the risk grading pertaining to the industry. • The SME Fund which is offered to BEE SMEs who have been awarded contracts or tenders by Government/Parastatals who require the working 113

capital to deliver the contract/order. This funding also applies to entrepreneurs who lacks or have insufficient security/collateral. • The Thembani International Guarantee Fund supports business with a minimum of 51% BBBEE black ownership in South and Southern Africa and or in countries where Absa has operations. The fund offers 50% and 75% guarantees to SME clients. ACCESS TO MARKETS Access to markets is perhaps a more pressing obstacle facing SMEs than access to funding. Small businesses also often struggle to penetrate existing markets, or create new ones, especially when competing against established businesses. The market exists, but the linkages don’t. As a bank, we are committed to developing sustainable SMEs by linking them into the supply chains of big corporates. We believe that access to markets is one of the biggest challenges faced SM’s; after all a business without customers cannot succeed. As a bank we believe that to support SMEs gain access to markets, large corporates must get involved. Major corporations spend billions of dollars annually procuring products and services from other companies. Recent studies have shown that small businesses grow within a few years of becoming part of a corporate supplier base. In the African context there is considerable development impact to be gained from localising procurement. Yes it is true that a vast array of procurement challenges and constraints face the corporate buyer when identifying and locating suitable suppliers. These include concerns with the SME’s inability to deliver on contracts due to capacity constraints, underdeveloped networks, insufficient working capital – to name but a few. There are, of course, a few practical ways to get corporates involved. In addition to providing access to finance, they should consider making their procurement processes transparent and easily accessible to SMEs. Barclays Africa Group’s Procurement Portal, developed in partnership with a local fintech creates the linkages between buyers and suppliers. SMEs on the portal are validated and verified. They are located using various searchable fields such as geographic location, size or black economic empowerment credentials. To date there are about 67 000 registered SMEs and almost 7 000 registered corporate buyers actively using the portal. The portal is part of the bank’s value proposition to go beyond banking and open doors by addressing a primary obstacle facing SMEs. Furthermore, the bank’s presence in 10 countries across the continent creates opportunities for these entrepreneurs and emerging small businesses beyond South Africa’s borders. ACCESS TO BUSINESS DEVELOPMENT SERVICES SUPPORT Another critical challenge facing small businesses is structural in nature. SMEs fail, not for lack of technical ability alone, but rather because of a 114

lack of general business skills. In South Africa, Barclays Africa Group has seven Enterprise Development Centres located across the country with the purpose of providing a supportive environment to SMEs. The centres have led to the costs traditionally associated with starting and running a business being reduced considerably. These centres offer a range of services, including everything from providing access to infrastructure (computers and printers) and meeting rooms, to providing training seminars on various business topics. The topics dealt with range from tax issues and labour regulation to financial skills training. Mentoring and coaching services are also provided. Through our focus on business development support, we have helped tens of thousands of SMEs develop their businesses through training, business tools, seminars and networking. By offering non-traditional support, the bank hopes to bring more small businesses online and make it easier for entrepreneurs to establish and grow their businesses. ABOUT BARCLAYS AFRICA GROUP Barclays Africa Group Limited (Barclays Africa) is listed on the Johannesburg Stock Exchange and is one of Africa’s largest diversified financial services groups. As of June 2017, Barclays PLC is a minority shareholder in Barclays Africa Group. The group offers an integrated set of products and services across personal and business banking, corporate and investment banking, wealth and investment management, and insurance. It operates in ten countries, with approximately 40,000 employees. The group’s registered head office is in Johannesburg, South Africa and owns majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania (Barclays Bank Tanzania and National Bank of Commerce), Uganda, and Zambia. The group also has representative offices in Namibia and Nigeria. i ABOUT THE AUTHOR KeaObaka Mahuma is head of SME, Enterprise and Supply Chain Development at Barclays Africa Group.

Author: KeaObaka Mahuma | Capital Finance International

Spring 2018 Issue

> Meets the Secretary General of the West African Power Pool:

Siengui Apollinaire Ki Siengui Apollinaire Ki was appointed Secretary General of the West African Power Pool (WAPP) in July 2015 after a long and successful career in the power sector. Mr Ki started his career nearly thirty years ago at the Burkina Faso National Power Utility (SONABEL) where he held various positions and became the Director General in 2011. He was also the resident expert of the ECOWAS (Economic Community of West African States) Emergency Programme for Power Supply to The Gambia in 2014 - 2015.


t the WAPP Secretariat, reporting directly to the WAPP Executive Board and with the support of his staff in the secretariat, Mr Ki is working tirelessly towards the achievement of the strategic objectives of WAPP. WAPP is a specialised institution of the ECOWAS. Currently, it covers the fourteen mainland countries of that regional community. WAPP was created in 1999 by the ECOWAS heads of state and governments in order to address effectively the issue of power supply deficiency within West Africa. Established in 2006 in Benin with the vision to integrate the national power system operations into a unified regional electricity market, WAPP is working hard on the development of power generation and transmission infrastructures of ECOWAS member states as a prerequisite to creating an Electrcity Market in order to provide their citizens a reliable and cost effective electricity supply. The WAPP 2012-2025 investment programme in the Revised ECOWAS Electrification Master Plan provides for the realisation of 16,000 km of power transmission lines, 7,092 MW of hydropower, 2,375 MW of thermal power and 800 MW of renewable energy, at an aggregate cost of US$ 26.416 billion. This master plan is currently being updated and it is expected that the outcome, envisaged in November 2018, shall be much more ambitious in terms of generation, with a greater proportion of renewable energy. Several generation and transmission priority projects have been completed with due support from WAPP technical and financial partners, its member utilities and under an innovative publicprivate partnership. Whilst pursuing the implementation of its ongoing priority projects and taking care of the capacity building of both its member utilities and the staff of its secretariat, WAPP is carrying out its activities for the actual creation of the regional electricity market.

Secretary General: Siengui Apollinaire Ki

The ongoing activities and their achievements, within the allotted time, will facilitate the debut | Capital Finance International

of the envisioned competitive electricity market by 2020. i 115

> West African Power Pool (WAPP):

Creating a Regional Electricity Market


he West African Power Pool is a specialised institution of the Economic Community of West African States (ECOWAS) and covers its fourteen continental members. The WAPP has thirty members – power utilities involved in the generation, transmission, distribution, and trade of electrical power. Some are government owned, others are private companies or public-private partnerships (PPPs). Following the recurrent difficulties associated with electricity supply in the sub region during the 1980s, ECOWAS commissioned a study that made a number of observations: 116

• Existence of abundant energy resources in the region; • Unequal distribution of these resources; • Insufficient installed/available generation capacities in member states; • Supply/demand imbalance characterised by chronic load shedding. Hence the decision of the ECOWAS heads of state and governments to create, in 1999, the WAPP, in order to pool the energy resources in the sub-region with a view to addressing effectively the issue of power supply deficiency within West Africa. | Capital Finance International

The WAPP was established in 2006 in Benin as a specialised institution of ECOWAS with the vision to integrate the national power system operations into a unified regional electricity market. The WAPP is working hard on the development of a power generation and transmission infrastructure within the region in order to provide its citizens a reliable and cost effective power supply. To this end, the WAPP uses a compass – the ECOWAS Master Plan for Generation and Transmission of Electric Power – a plan adopted for the first time by the heads of state in 1999 and regularly updated.

Spring 2018 Issue

Project implementation strategies

The investment programme of the last update of the master plan, covering the period 2012 – 2025, provides for the realisation of 16,000 km of power transmission lines, 7,092 MW of hydropower, 2,375 MW of thermal power, and 800 MW of renewable energy – all for $26.42 billion. This master plan is currently being updated and it is expected that the outcome, envisaged in November 2018, shall be much more ambitious in terms of generation, with a greater proportion of renewable energy. With due support from its technical and financial partners (TFP) gathered within the WAPP Donors Coordination Committee, its member utilities and under an innovative public and private partnership, several generation and transmission priority projects have been completed. At the present, nine countries out of the fourteen ECOWAS mainland member states are interconnected. Implementation of on-going projects envisions the complete interconnection of all the fourteen mainland

ECOWAS member states by 2020 as well as a consolidated electricity market. Projects in progress include: • Construction of the OMVG energy project (1,700 km of 225 kV line to interconnect Senegal, Guinea, Guinea Bissau, and The Gambia), works launched in March 2017; • Construction of the CLSG project (1,300 km of 225 kV line to interconnect Côte d'Ivoire, Liberia, Sierra Leone and Guinea), works launched in June 2017; • Development of the WAPP North Core project (830 km of 330 kV line to interconnect Nigeria, Niger, Benin, and Burkina Faso): completion of preparatory studies, closing of financing and forthcoming launch of call for tenders; • Development of the Guinea - Mali interconnection project (720 km of 225 kV line): completion of preparatory studies, closing of financing and forthcoming launch of call for tenders; • Development of a 450 MW regional gas | Capital Finance International

power plant in Benin (Maria Gleta) and in Ghana (Domunly/Aboadze): ongoing pre-investment studies; • Development of a 150 MW solar power park in Burkina Faso and Mali: ongoing pre-investment studies; • Construction and equipping of the WAPP Information and Coordination Centre (ICC) from which the operation of the transmission networks of the fourteen ECOWAS mainland countries shall be coordinated and the regional electricity market managed; the works were launched in 2017. WAPP shall intensify the implementation of its priority projects whilst at the same time engage in the capacity reinforcement of personnel from its member utilities as well as staff from its secretariat, in a bid to achieve a vibrant regional electricity market. Supported by all its partners, the WAPP is determined to light up the entire West Africa. i 117

> Aquashield Oil & Marine Services:

Securing Nigeria’s Offshore Oil and Gas Assets


quashield Oil & Marine Services limited (AQS) is a Nigerian-owned company incorporated in 2009 to carry out maritime security and offshore support services for the oil and gas and marine industries. AQS provides services for several clients including international oil companies.


In the defence market, AQS is a private maritime security company that has signed a memorandum of understanding with the Nigerian Navy for the provision of armed naval personnel on board its ballistic and non-ballistic, fuel-efficient fast security patrol vessels to ensure maritime security coverage | Capital Finance International

to offshore assets within Nigeria’s territorial waters. AQS is currently involved in a very sensitive contract for the provision of long-range security escort services to secure multi-million dollarassets for a major player in the oil and gas

Spring 2018 Issue

sector. This project is quite challenging because AQS escorts an average of two marine assets per day using its state-of-the-art ballistic vessels that are equipped with cutting-edge technology. In starting work on a new project, or with a new client, AQS carries out due diligence before its team of professionals assess the scope of the work in order to develop a comprehensive work plan to ensure the efficient delivery of services. In analysing the scope of the work, AQS doesn’t compromise on safety, standards, or integrity. This to ensure that the outcome is as expected. AQS continually strives to maintain its technological edge to deliver superior services and ensure that its work is consistently successful. AQS is committed to provide cutting-edge and innovative maritime solutions to its clients, anchored on professionalism, integrity, and high ethical standards whilst returning value to all stakeholders in the business. To achieve this, AQS has ensured that professionalism and integrity have been inculcated as part of its business culture and are applied to all its dealings with clients. The firm’s approach to client services is to be courteous and highly professional in a collaborative manner to ensure that services are optimally rendered as required. After every job completed, AQS sends out feedback forms to clients for a comprehensive assessment of its performance. This allows the company to sustain its quality and identify areas with room for further improvement. This feedback enables AQS to continually fine-tune its standards in order to maintain its standing as one of the preferred private maritime security company in Nigeria. The defence market includes the provision of armed naval personnel on board patrol vessels to ensure maritime security coverage to both assets offshore and those located within Nigeria’s territorial waters. The sector was created as a result of the upsurge in militancy between 2007 and 2008 in Nigeria and the Gulf of Guinea. At the time, the spiralling wave of piracy and other forms of maritime criminality demanded collaboration with the Nigerian Navy. This became a challenge to oil companies which appealed to private maritime security providers to fill the gap in safeguarding vessels and offshore installations.

"AQS continually strives to maintain its technological edge to deliver superior services and ensure that its work is consistently successful." | Capital Finance International

Other challenges faced by AQS include the reluctance of financial institutions to support the business by classifying it belonging to the oil and gas sector rather than the maritime sector. Other issues concerned the lack of uniform standards. The internal culture at AQS centres on team work with an ownership mentality where every member of the staff carries out their task diligently whilst 119

"AQS is currently embarking on a proposal to determine the possibility of a synergy between relevant government agencies and the company for the deployment of sophisticated nonmarine hardware to increase the security cover for protected marine assets." providing efficient and qualitative maritime security services to clients. AQS cultivates this culture by implementing firm and resultoriented policies that reward hard work and seek to increase efficiency. The future of the business may be challenging but also looks bright as uniform standards are now being put into place to ensure that companies who do not have what it takes to render such highly sensitive services are not engaged. This benefits those companies, such as AQS, which have made significant investments in provider world-class marine security services. AQS is currently embarking on a proposal to determine the possibility of a synergy between relevant government agencies and the company for the deployment of sophisticated non-marine hardware to increase the security cover for protected marine assets. This proposal aims to make maritime security more efficient and proactive. In the broader defence market AQS foresees increased cooperation amongst the nations bordering the Gulf of Guinea nations based on the European Union’s Atalanta Operation in the waters surrounding the Horn of Africa which 120

provides protection to vessels of the World Food Programme and combat piracy.

involving sub-sea pipe-laying operations for Addax Petroleum Nigeria.

MANAGEMENT Nasir M Saulawa, an entrepreneur per excellence with a vast experience in marine and offshore security, started his career as a cadet officer with the Nigerian Ports Authority in 1993 whilst studying Nautical Science at the Maritime Academy of Nigeria. After completing his studies, he obtained a certificate of competency from the Nigerian Maritime Authority (NMA) and quickly rose to the rank of chief mate.

The security challenges in the Niger-Delta Region led to the foundation of Aquashield Oil and Marine Services. As a seasoned mariner with plenty of security experience, Mr Saulawa became one of the pioneers of offshore security in Nigeria. i

In 2000, Mr Saulawa joined Adnan Mansoor (Damas Marine) where he served in various capacities from chief mate to captain. He subsequently moved to the Glasgow College of Nautical Studies where he obtained a certificate of competence master unlimited. From 2004 to 2007, Mr Saulawa worked with various companies in the UK, including Everards Arklow shipping of Ireland, Gulf Shipping, and British Petroleum tankers in different capacities from second mate to captain. June 2007, he re-joined Damas Marine as operations manager and oversaw projects | Capital Finance International

CEO: Nasir M Saulawa

Spring 2018 Issue

> Unlocking

the Africa Skies

Two decades in the making and suffering numerous delays, the Single African Air Transport Market (SAATM) cleared the final few hurdles and came into force late January promising to revolutionise air travel across the continent. The open skies agreement was signed during the African Union’s (AU) annual summit in Addis Ababa. It is the first of twelve Agenda 2063 initiatives that aim to build a continent-wide framework to encourage and support social and economic transformation by improving connectivity, removing barriers, and fostering cooperation. Next up are the African passport allowing for freedom of movement and the Continental Free Trade Area (CFTA).


o far, only 23 of the African Union’s 55 member states have joined the open skies agreement, including Ethiopia, Kenya, and South Africa – the three leading aviation powers of the continent. Full implementation is expected to take place gradually as each of the signatories is required to take a number of steps to remove restrictions, coordinate procedures, and match policies. The AU’s Civil Aviation Commission expects six or seven nations to take the lead with others to follow as the full range of benefits is demonstrated. The growth of Africa’s airline industry has long been hampered by price and route restrictions that were put in place to protect flagship carriers but shackled the sector instead, driving up ticket prices whilst pushing down operational efficiencies. Though serving the world’s second largest continent, African carriers account for barely 3% of global passenger numbers. According to the latest World Bank data, the continent’s airline industry last year lost over $800m. Many legacy carriers only survive with government support – a testament to domestic failing instead of national pride. The continent’s network of routes is so poorly structured and served that passengers travelling within Africa often have to connect in Qatar, Turkey, France, or Spain to reach their destination. SAATM aims to change all that by allowing competition to slash prices and increase the number of routes.

In 2014, Fly540 had to shutter its operations in Angola and Ghana due to regulatory

restrictions. The Nairobi-based price fighter now only serves its buoyant domestic market and maintains a single international route to Juba in neighbouring South Sudan. The slow and inevitable demise of statesupported legacy carriers such as Air Zimbabwe – run into the ground by the sonin-law of the now dethroned Robert Mugabe – has allowed much nimbler competitors to fill the void. – now also defunct, a victim of its own success – jumped on the lucrative Johannesburg-Harare route when Air Zimbabwe, carrying a $330m debt burden, grounded its planes in an attempt to avoid seizure by unpaid creditors. offered tickets at a fraction of the normal price but ultimately folded due to a lack of official support at the Harare end of its route. The open skies agreement signed in Addis Ababa is a second try to liberalise Africa’s airline industry upon which some eight million jobs depend. In fact, SAATM is but a renewed promise to implement the 1999 Yamoussoukro Decision that provides for the deregulation of the sector, eliminating restrictions on ownership, routes, frequencies, capacities, and fares. Earlier attempts to ratify the decision faced procedural and legalistic obstacles. The current agreement is seen is a valuable tool to limit the incursion of large European and | Capital Finance International

Middle Eastern carriers which already now claim over 80% of Africa’s intercontinental traffic and a sizeable share of intra-African passenger volumes. Opposition to the open skies agreement has come mostly from national industry bodies such as the Airline Operators of Nigeria (AON) which claims that its members are unable to compete with state-sponsored carriers: “This is because the Nigerian airlines source funding at 28% interest whilst our competitors borrow at single digit rates,” says AON chairperson Nogie Meggison. In the past, over fifty Nigerian airline operators have collapsed due to a lack of funding or inadequate government policies. Mr Meggison said that regional differences in taxation also conspire against Nigerian carriers. The AON chair called on the government to come up with a sustainable policy to support the domestic civil aviation sector and encourage its consolidation in order for strong players to emerge: “Africa will not continue to wait for Nigeria when the rest of the world is progressing with open skies and free market economies just because the country’s business environment inhibits the evolution of strong carriers.” The stakes are high as the open skies agreement at long last comes into force. The African airline industry is poised for rapid growth with annual passenger numbers forecasted to balloon from 77m in 2017 to well over 300m by 2025. Though wary of grand AU initiatives that often fail to cause any measurable impact, industry experts are moderately optimistic that SAATM will take hold in at least a number of key markets. The well-run and properly funded airlines of Kenya and Ethiopia may stand to benefit most as they already possess numerous intercontinental routes that feed into domestic and regional networks which may now be significantly expanded. i 121

Special Feature

Low cost carriers such as, operated by South Africa’s Comair and one of the continent’s first no-frills airlines, have struggled to expand outside their home market. Kulula. com was only able to fly international routes via deals with competing carriers such as Kenya Airways and Air France.

"The growth of Africa’s airline industry has long been hampered by price and route restrictions that were put in place to protect flagship carriers but shackled the sector instead, driving up ticket prices whilst pushing down operational efficiencies."

> Natal Joint Municipal Pension Funds:

Excellence in Retirement Fund Management

The Natal Joint Municipal Pension Funds / KwaZulu-Natal Joint Provident Fund (NJMPF) is a self-administered non-profit organisation, responsible for three retirement funds – Natal Joint Municipal Pension Fund (Superannuation), Natal Joint Municipal Pension Fund (Retirement), and as the KwaZulu-Natal Joint Municipal Provident Fund, a defined contribution fund.


he three funds provide retirement benefits for municipal employees in the Province of KwaZulu-Natal, South Africa.

The fund was established in 1942 by provincial ordinance. Over its 76 years of existence NJMPF has continued to keep abreast of the changing landscape of the retirement fund industry and consistently provides excellent benefits and services to its members. The NJMPF has more than USD $1,42 billion of assets under management. The vision of the fund is to provide superior retirement service and benefits to its members, beneficiaries, and pensioners. The fund’s mission is to serve the best interests of its members by ensuring a high standard of retirement services to provide financial security. This mission is accomplished through the fund’s responsibilities, which includes pension administration and the collection, reconciliation, and sound investment of contributions through adherence to prudent investment risk parameters. The values of the NJMPF include: • Honesty and integrity, • Effectiveness and efficiency, • Transparency and accountability, • Sustainability and protecting member’s vested rights, and • Stakeholder satisfaction. MEMBERSHIP PROFILE The NJMPF membership stands at approximately 30,000 people. This number includes current members, pensioners, dependants, or beneficiaries. These are the major groups to whom the Fund directs its communications regularly. Although the official business language in South Africa is English, more than half of its membership finds it difficult or impossible to understand the concept and detail of a retirement fund unless it is written or explained in their home language of isiZulu. 122

"The mobile app allows the NJMPF to reach its membership much quicker and at a fraction of the cost of traditional methods of communication." The fund’s active membership base is spread throughout the Province of KwaZulu-Natal (KZN) and incorporates members in urban towns and cities (55%) as well as semi-urban and rural areas (45%). The active membership amounts to approximately 20,000 with a 62% male and 38% female gender split. The members’ age can be interestingly grouped into 40 years and younger (42%), 40 to 54 years (43%), whilst 15% are within 10 years of normal retirement age. The educational and income spread amongst members include 38% semi-literate and modestly paid, 39% highly skilled or with tertiary education, and 23% white collar or well skilled and sufficiently paid. Beneficiaries consist of widows, widowers, children, and other qualifying dependents of deceased members. The pensioner children group makes up 9% of the total of 10,000 pensioners. Widows/widowers outnumber pensioners and the average pension is low. Pensioners rely on their increases and bonuses to survive financially and financial literacy information, communication, and education helps them move closer towards improving their standard of living. The AFM allows for a central venue for all NJMPF stakeholders to be communicated with and informed. INNOVATION During 2017, NJMPF introduced a mobile application – The Fund in the Palm of Your Hand – to provide clear and consistent investment | Capital Finance International

information and promote timely and accurate communication/education on topics of financial literacy such as different investment types – unit trusts, bonds, shares, equities, property, and others. Through the mobile app, the NJMPF introduces a new method of communication and educating which is beneficial for both the fund and its members. The mobile app allows the NJMPF to advance its financial literacy educational initiatives and address the specific challenges of the its membership whilst promoting positive change in financial behaviour and attitudes. This has a ripple effect on communities where members reside and benefits the broader society as well. Examining change in behaviour and attitudes on financial literacy is a process rather than an event, therefore a gradual and sustained approach, including periodic evaluations, is called for to ensure that members make sound financial decisions. The mobile app allows the NJMPF to reach its membership much quicker and at a fraction of the cost of traditional methods of communication. The mobile app also allows the elimination of third party links whilst it improves the dissemination of knowledge due to the ability to reach members in remote communities. The NJMPF informed its members about the mobile app through roadshows, training workshops, bulk SMS, social media such as Facebook and Twitter, bulk emails, newspaper adverts, and word of mouth. One of the major challenges facing businesses in South Africa is the high cost of data transmission. During roadshows and municipal visits, NJMPF representative carry internet routers to allow members to download the app and access it at no cost. The fund also involved its employees by making the development and rollout of the

Spring 2018 Issue

mobile app a key performance indicator to encourage participation and excellence in the execution of the project. Furthermore, instead of outsourcing the project, the NJMPF created the app in-house, reducing development costs and ensuring optimum quality control. The fund has used several yardsticks to gauge the success of its mobile app – the number of downloads, surveys by phone and email, and inhouse consultations. Other parameters include the number of members opting to increase their contributions to the fund for retirement or saving purposes following the use of the app. An independent research company will be engaged to examine the changes in financial literacy levels of members using the app. UNCLAIMED BENEFITS In its 2017 annual report, the Financial Services Board (FSB) reported unclaimed benefits in South Africa have grown to USD $3 billion billion owed to around four million beneficiaries in Q1 2017. Public sector retirement funds such as the Government Employees Pension Fund have been excluded from these figures as they are not regulated by the board. The FSB emphasises that the primary purpose of pension funds is to pay benefits to their members and they must, therefore, find ways to trace and pay these beneficiaries. It adds that retirement funds must take all reasonable steps to trace and pay their members and beneficiaries who remain untraced. A newly launched online search tool is a fantastic way for the industry to use a central point for members to submit enquiries. It is up to all the funds to ensure the data is updated to enable the tool to become a highly effective resource. When the FSB reported in 2016 on the level of unclaimed benefits in the retirement funding industry, the Natal Joint Municipal Pension Fund realised the extent of the industry wide problem and committed to a renewed focus on the unclaimed benefits within the fund. CEO and Principal Officer Sam Camilleri set up a project team to tackle the problem. Starting with R80 million owed to over 1,500 members and beneficiaries, the fund put a plan and associated processes into place for effectively tracing these members – collating documentation and processing and paying benefits. Leadership from the top and team work were real factors for success. Through Mr Camilleri’s leadership, the team was motivated to take on the task and set goals for feedback sessions. The team was headed by two senior members of management – one who drove the projects from a statistical point of view and the other who worked closely with the staff – encouraging their progress and identifying the processes that worked most effectively. Weekly meetings with the chief operating officer meant that progress was constantly reported on

and each finalised trace or claim was celebrated. “Success leads to success and statistics drove everything,” says Mr Camilleri. “The team would wait with bated breath every time the stats were released to see if their efforts were making a difference. Sometimes there were cheers, sometimes groans.” Files were distributed equally to the various teams for follow up, and a competitive environment soon emerged. It became a matter of pride for teams to be the top achievers when the statistics were released. Persistence became the mantra of the various teams. Team members would phone various people repeatedly to the point of becoming a nuisance, just to get some leads to enable them to contact the members and other beneficiaries. NJMPF faces the unique challenge of its membership which is spread across 55 municipalities throughout KZN. Thus, there is no single point of contact at a single organisation to make enquiries relating to past members or dependants. Communication across such a wide geographic area, with so many different pay offices and a sizable number of past members | Capital Finance International

living in rural areas is challenging. Good relationship management with officials from other municipalities continues to be a critical success factor in the NJMF’s operations. “One of the ways we used was tracing by using various agents – first traditional tracing using big call centres in urban centres and then others closer to the ground working in the rural areas. We rotated them and only gave up that route after at least two agencies had an opportunity to trace,” explains Mr Camilleri. “Asking our attorneys to peruse court records for executors of estates helped with some culde-sac cases; contacting prisoners and getting their families and social workers to assist us worked well and one really good story was finding someone who had reached retirement age whilst serving a 10-year sentence and didn’t realise he had a benefit. We recently paid him out a significant amount in pension back-pay and a lump sum. He can start his new life from a steady launch pad. Another case is having lost contact with the family of a 15-year-old girl, we recently tracked her down as an adult and 123

paid her out over R 100,000. It was particularly rewarding to locate a hearing impaired member, who had been living in a retirement home, after eight years. His cousin, who can communicate with him, expressed his deepest gratitude for the windfall which will greatly assist the pensioner.” Mr Camilleri continues: “It is these feel-good stories that help motivate the staff to keep the momentum going.” The operation has resulted in heightened awareness by all staff members of the importance of having up-to-date contact information of members and beneficiaries. It also forms part of the fund’s Treating Customers Fairly strategy and which all staff are measured against in their quarterly performance reviews.” “Today we can report our claims two years and older have been split into unclaimed and unpaid claims. Unpaid claims are classified as members we have contact with and who need to send us outstanding information before payment can be made. These are followed up often and good progress is being made. Unclaimed benefits are cases where, despite numerous attempts, the fund cannot trace the member or the family. Here the total is USD $300,000 million involving 158 members. Of this amount due, almost 15% is interest accrued from date of benefit. Most of these dates back to before 2009 and will remain difficult to trace and pay. At only 0.02% of member assets, the NJMPF feels that significant strides have been made and the project labelled a success.” “To keep the momentum going and staff motivated, we continually look for creative and innovate ways to ensure communication with our membership stays current. NJMPF uses every available opportunity to motivate members to ensure the fund has their latest contact details and information of their next of kin. The revamped website, newsletters, roadshows, workshops, annual feedback meetings, and human resource and payroll officers constantly push this message.” INCREASES FOR PENSIONERS The NJMPF has been able to provide an inflation-

CEO and Principal Officer: Sam Camilleri

beating benefit where the pension increases well exceed inflation. From July 2015 to July 2017 the fund’s pensioners have received monthly increases totalling 25.09%. These increases and bonuses surpass inflation – reflecting an improved standard of living for pensioners. If the market performs well, pensioners also receive a bonus in November equal to an additional month’s pension. Special increases are awarded from time to time, the most recent being the 8.33% increase on 1 January 2016. The graph below shows the effect of the pension increases and lump sum payments over the past six years versus inflation. RETURNS In 2017, the funds’ investment returns relative to the investment markets and the long-term benchmarks set by the Committee of Management have shown a satisfying performance. One million rand invested in the provident fund on January 1, 2000, had grown to R 9,5 million by March 31, 2017. A successful investment process requires a deliberate decision-making system. This means

trustees have to implement investment strategies which are guided by the Pensions Fund Act Regulations 28, Financial Services Board (FSB) Circular PF 130, CRISA Codes, and King Four Principles whilst monitoring performance against benchmarks, communicating and educating stakeholders on saving including providing definitions on some of the investment terms. The fund believes that it is more likely to achieve its objectives if investment practices and portfolios are structured to deliver consistent performance. This balanced investment approach uses some of the world's best managers who excel in their specific areas of expertise and combine their complementary processes to provide the highest level of diversification and discipline to the investment portfolio. During 2016/17 Mosaic Investment Consultants, an independent consultant was commissioned by the National Fund for Municipal Workers (NFMW) with the intention to collect returns data for a representative sample of municipal pension funds for the sole reason to provide a survey that will enable these pension funds to compare their portfolio returns (and risk metrics) to that of peers. The NJMPF was the best performing fund over seven years compared to its peers. The fund has achieved excellent short and longterm investment performance which has enabled the NJMPF to increase and improve benefits to members of the defined benefit funds whilst providing high returns to our Provident Fund members. The Provident Fund is ranked fifth out of 25 over one year and eighth out of 22 over five years, and third out of 17 over ten years in the Alexander Forbes Global Best Investment View. This makes the fund one of the country’s most consistently superior performing investment managers. Furthermore, the fund has dramatically outperformed its five-year benchmark of CPI plus 5%, which totalled 10.7% pa compared to an outcome of 13.9% pa. i

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> African Risk Capacity:

African Innovation in Action


or the third consecutive year, the African Risk Capacity (ARC) won the award for the Most Innovative ESG Risk Protection Provider in Africa. The winning streak recognises an inherent quality of ARC that runs through its policy, practice, and identity: innovation. From the beginning, ARC was designed as an innovative solution to a pressing issue – climate disasters in Africa – and


the institution has continued forging new paths forward through research and collaboration. THE PROBLEM According to the World Bank, global economic losses due to adverse natural events were estimated at $4.2 trillion between 1980 and 2014. These losses increased from $50 billion a year in the 1980s to nearly $200 billion a year | Capital Finance International

in the last decade. Presently, global economic losses average to nearly $300 billion a year with almost 75% of the losses attributable to extreme weather events. Paired with increasing losses from natural disasters is an increasing humanitarian funding gap. In 2017, the amount of funding received was $11.6 billion short of the $23.5 billion

Spring 2018 Issue

required to respond to the needs of 93 million people – nearly a 50% funding gap. This was a dramatic increase from the $4.4 billion required a decade earlier, which received 85% of the necessary funding to save and protect populations impacted by natural disaster and conflict. As climate change creates more frequent and catastrophic natural disasters, the traditional humanitarian funding model will continue to be strained as needs outpace resources. ARC offers a sustainable solution to the systematic challenges in disaster risk financing faced in Africa. Established as a Specialized Agency of the African Union, ARC helps African governments to better plan, prepare, and respond to natural disasters across the continent by using innovative technology, financial tools, and practices. HOW ARC WORKS ARC is comprised of two entities: ARC Agency is an African Union institution that builds the disaster risk management capacities of African governments, and ARC Insurance Company Limited (ARC Ltd) is a mutual insurance company owned by capital contributors to the risk pool, including African governments holding insurance policies. ARC Agency bolsters the abilities of African governments and local experts to quantify their disaster risk to certain perils, create contingency plans for the rapid utilisation of resources, and transfer disaster risk through different means such as insurance. ARC workshops break down silos to foster coordination between policymakers in agriculture, climate change, disaster management, and finance, thereby facilitating an efficient disaster response before a crisis occurs. After thorough capacity building, governments are eligible to purchase an insurance policy from ARC Ltd that would cover their losses against transferred risk each agricultural season.

"The winning streak recognises an inherent quality of ARC that runs through its policy, practice, and identity: innovation."

ARC Ltd offers parametric insurance policies that deliver rapid payouts based on objective thresholds selected by the government. Throughout the growing season, parameters such as rainfall are monitored through Africa RiskView, ARC’s proprietary software that quantifies risk and translates them into the costs of humanitarian intervention. Once the risk threshold is crossed, payouts are disbursed immediately. Because the insurance policies are linked to predetermined contingency plans, responses are implemented quickly. Through the monitoring in Africa RiskView and predictable contingency-linked capital, ARC offers a comprehensive disaster risk management package that provides early warning, early planning, and early financing. DISRUPTING THE HUMANITARIAN STATUS QUO The existing model of humanitarian assistance typically involves a lengthy appeal process launched by governments to the international community after the occurrence of the natural disaster. As the crisis progresses, governments wait for capital that may arrive long after countless | Capital Finance International

lives and livelihoods are lost – if funding is received at all. The ARC model disrupts the current state of humanitarian funding in Africa by offering an alternative for governments to proactively address disaster risk and receive predictable financing to launch a rapid national response when a natural disaster occurs. ARC opens access to capital at critical early moments before disaster response costs grow exponentially. Studies estimate that every dollar spent through ARC on early action saves $4.40 dollars in humanitarian assistance spent after a crisis unfolds. CUTTING-EDGE TECHNOLOGY Africa RiskView is the technical software underpinning ARC’s comprehensive disaster risk financing package. Using satellite rainfall data, Africa RiskView enables countries to identify and map the populations most vulnerable to drought events and monitor the predicted impact of rainfall on agriculture throughout the growing season. Because the impact is measured in a dollar amount, Africa RiskView empowers governments to respond more efficiently to disasters by providing an integrated platform that enables governments to plan ahead, monitor risk, access financing through insurance, and respond quickly to affected populations when disaster strikes. ARC works continuously to develop the precision and coverage options in Africa RiskView. Different rainfall indexes, additional parameters like the effect of ground temperature, and features specialising in pastoral rangeland are being explored to create a more robust monitoring and insurance tool. Moreover, as ARC develops risk transfer tools for more perils, such as river floods, tropical cyclones, and outbreaks and epidemics, Africa RiskView will expand its features to manage more types of disaster risk in Africa. ITERATIVE, RESPONSIVE, AND COLLABORATIVE A dedication to learning and improvement lies at the core of innovation. ARC ensures that a cycle of learning, evaluation, and development are built into its work with Member States and partners. ARC hosts regional workshops among its Member States to share knowledge across borders and collectively confront the borderless impacts of climate change. Results of these workshops and the ARC Conference of Parties prompt the adaption of the ARC programme and development of new products to meet Member States’ needs. The pilot programmes for river flood, tropical cyclone, and outbreaks and epidemics were initiated at Member States’ requests to address prevalent catastrophic perils. Evaluations from ARC’s donors – the UK, Germany, Canada, Sweden, Switzerland, and the Rockefeller Foundation – feed back into streamlining ARC’s process. Collaborations with our implementing partners are also essential in improving ARC’s product development and expanding insurance coverage across Africa. Partnerships with the African Development Bank, the UN Economic Commission for Africa, the AMES and others will lead to new innovations for responding to disasters earlier and more sustainably with African interests and minds at the core. i 127

> Middle East

Saudi Arabia: Dawn of a Reformed Kingdom There are changes afoot in the kingdom. They may well reshape the country to beyond recognition. For the first time in its history, women are invited to play an active role in the nation’s economy and abuses of power for personal gain are no longer tolerated. Crown Prince Mohammed bin Salman - the future ruler of Saudi Arabia - has both ambition and a plan. He also has been touring world capitals - London, Washington, and others - to provide details, explain his vision, and solicit support. The crown prince has not been disappointed and is being hailed as his country’s great hope, although sticky issues, such as the war in Yemen, remain and slightly dampen the spirits but not by much.

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rince Salman recognises a looming problem when he sees one: the heydays of oil are nearly over and if the kingdom doesn’t want to revert back to a large empty sandbox, its economy needs to be diversified and put on a more sustainable footing. That realisation comes just in time as the kingdom’s erstwhile abundant reserves - not such much of oil as of ready cash are shrinking fast, necessitating the introduction of a 5% value-added tax - extremely modest by most standards but an alarming novelty in Saudi Arabia. After flooding the world with cheap oil in a largely failed attempt to flush the fracking industry out of the market, Saudi Arabia seems to have given up on that rather Quixotic - and very expensive - pursuit in order to concentrate its collective efforts on shaping a truly modern nation. Unveiling the biggest budget in its history - all of $261 billion - for the current fiscal year, the government clearly expect to net a windfall from the new taxes. The kingdom also introduced surcharges on tobacco products (100%) and fizzy sugary drinks (50%). Prince Salman, not at all insensitive to public opinion, also cut the salaries of his ministers, imposed a wage freeze on civil servants, and stopped numerous major construction projects which he wants audited before ordering a resumption of work. This succession of moves is meant to plug a $97 billion hole in the budget - which would help recover investor confidence in the kingdom’s long-term financial health. Investors have been fleeing Saudi Arabia in droves, last year taking an estimated $64 billion with them. The Ritz Hotel episode, whilst understandable and - up to a point - even laudable, did not do much in that regard. It did, however, send a clear message that a new wind is blowing through the kingdom and that family ties may no longer have the value they once did. Prince Salman is determined to wean his country off its oil dependency. That is a tall order: the proceeds of the sale of fossil fuels

"Prince Salman recognises a looming problem when he sees one: the heydays of oil are nearly over and if the kingdom doesn’t want to revert back to a large empty sandbox, its economy needs to be diversified and put on a more sustainable footing." underwrites 87% of the 2017 budget. To develop alternatives, the kingdom needs the help of foreign investors. The proposed sale of a slice of state-owned oil company Aramco now delayed over listing issues until early next year - will help set the tone and signal that Saudi Arabia is open for business. The partial privatisation of the company is a key element of Prince Salman’s modernisation plans - not just a way of raising some additional cash. Launched in 2016, the crown prince’s Vision 2030 sketches a society centred on a liberalised economy with a vibrant private sector no longer looking to the government for all answers or support. The vision’s targets are ambitious, perhaps overly so considering that its hour zero is but twelve years hence. At the moment it seems unlikely - though not entirely impossible - that the Saudi economy will have reduced its dependency on oil exports to below 50%. The envisioned increase of non-oil government revenue by a factor of five also seems rather farfetched. Whilst the Saudi government has made noises before about the need for deep economic reform - typically coinciding with oil gluts - mid-1980s and late-1990s - the difference with the present is that back then the country’s leadership

was merely going through the motions and displayed little vision and almost no interest in transforming society. Crown Prince Mohammad bin Salman - MbS for cognoscenti - is cut from a different cloth: he well and truly believes that the kingdom can no longer afford to remain stuck in time - and in its profligate old ways not with the end of the oil era in plain sight. Vision 2030 is a carefully and thoughtfully crafted programme - not some hastily drafted exercise in wishful thinking - that, whilst optimistic, also recognises the dangers of postponing yet again the kingdom’s reform agenda. Its prioritising of the private sector is somewhat of a novelty - and a welcome one. Prince Salman and his government are only too aware that the demographics conspire against them. The kingdom’s well-educated young people need plenty of good jobs - something only private businesses can supply in the numbers required. The days when Saudi youth were unthinkingly absorbed into the kingdom’s civil service are past. Government jobs are no longer a given. Vision 2030 also touches on the need for educational reform in order to clear the present mismatch between the skills taught at schools and universities and those in demand by the private sector. The vision, of course, also means to address the paradox that 60% of the Saudi workforce is made up of foreigners whilst the kingdom’s unemployment level hovers around an estimated 30%. Saudisation is not a new idea and has been talked about since the late 1970s. However, plans were never implemented, as at the time most young Saudis shunned the jobs on offer. Until quite recently, working in a shop or office was frowned upon by young people as unworthy pursuits best left to others. Though not a great reformer, King Abdallah, who passed away in 2015, must receive recognition for laying the groundwork on which Crown Prince Salman now wants to erect a modern kingdom. The late king’s social reforms, whilst exceedingly modest in their scope, did pry open Saudi society just enough for reformers to move to the fore. i

"Vision 2030 also touches on the need for educational reform in order to clear the present mismatch between the skills taught at schools and universities and those in demand by the private sector. The vision, of course, also means to address the paradox that 60% of the Saudi workforce is made up of foreigners whilst the kingdom’s unemployment level hovers around an estimated 30%." 130 | Capital Finance International

Spring 2018 Issue


An Holistic Approach to Banking in Egypt

QNB ALAHLI is one of the leading financial institutions in Egypt and was established in April 1978. The bank is ranked as the second-largest private bank in Egypt. In March 2013, QNB Group acquired 97.12 % of QNB ALAHLI which included the full stake of Société Générale amounting to 77.17 % along with 19.95% acquired from free float shareholders.


NB ALAHLI is a full-service bank organised around several diversified business lines, serving corporate, individuals, professionals and financial institutions through a wide range of products. The bank established a number of subsidiaries in many specialised fields, contributing to best positioning the bank in Egypt’s financial and banking activities: QNB ALAHLI Leasing (founded in 1997), QNB ALAHLI Life Insurance Company (established 2003), and QNB ALAHLI Factoring Company (2012). The bank provides its services for more than 950,000 clients, served by more than 6,000 banking professionals and dynamic teams supported by a multinational platform with a network of over 215+ branches covering all the Egyptian governorates. In addition, an expansive network of 450+ ATMs and over 15,000 point-ofsale machines are set to serve clients nationwide. Further, a distinctive customer service (call centre) operates round the clock, seven days a week. Moreover, the attention and importance allotted to social responsibility, along with the bank’s understanding of the interconnected relation between societal development and organisational success is what drove the bank to participate in many charity projects in accordance with QNB group values, goals and principals. QNB ALAHLI succeeded to maintain its status as a strong player in the Egyptian market and was admirably able to achieve remarkable growth in loans and deposits portfolios, growth of market share, increase returns, and maintaining sound asset quality and cost ratios. ON THE CORPORATE SIDE QNB ALAHLI provides dedicated products in corporate banking, financial advisory, project financing, structured financing, trade financing, cash management, and foreign exchange. With its competitive offering, QNB ALAHLI has managed to establish strong bonds with its various corporate customers whether large domestic

Chairman & Managing Director: Mr Mohamed EL-Dib

corporations, subsidiaries of multinational companies, midcaps, as well as SMEs. ON THE RETAIL SIDE QNB ALAHLI has managed to capitalise on the bank’s leading position as a pioneer in developing and industrialising a world-class retail banking service. QNB ALAHLI adapted a unique market segmentation approach to be able to structure products and solutions that meet the requirements of each segment with a personalised approach and a wide variety of innovative payment solutions. ON THE SME SIDE QNB ALAHLI applies a unique business model supported through dedicated business lines offering three specialised programmes addressed to SMEs – consulting, financing, and services. | Capital Finance International

QNB ALAHLI services are extended to SME owners, businessmen, and managers to obtain reliable investment opportunities and various depositary products as well as loans for their personal needs. With all the above, QNB ALAHLI is keen to employ its quality resources to support the Egyptian economy and help its development by consistently expanding the financial services coverage and promoting financial inclusion. It is worth mentioning that QNB ALAHLI is considered one of the few Egyptian banks to win 22 awards over the past three years – 2015, 2016, and 2017 – from three international financial institutions - Global Banking & Finance Review, International Finance Magazine, and Capital Finance International.” i 131


The Electricity & Water Utility of the Future


ubai Electricity and Water Authority (DEWA) was formed on January 1, 1992, by a decree issued by Sheikh Maktoum bin Rashid Al Maktoum to take over and merge the Dubai Electricity Company and the Dubai Water Department which had been operating independently. Both utilities were established in 1959 through the foresight and initiative of Sheikh Rashid bin Saeed Al Maktoum, the late ruler of Dubai, as government-supported bodies responsible for providing electricity and water, respectively, to the people of Dubai. Today, DEWA is one of the most advanced utilities in the world with a global reputation for efficiency and reliability in every facet of its operations. It is working to achieve the Dubai Clean Energy Strategy 2050, launched by His Highness Sheikh Mohammed bin Rashid Al Maktoum, vice-president and prime minister of the UAE and ruler of Dubai to transform Dubai into a global hub of clean energy and green economy, by providing 75% of Dubai’s total power output from clean energy by 2050. The DEWA 2021 strategy is aligned to the UAE Centennial 2071, the UAE Vision 2021, and the Dubai Plan 2021 to secure a happy future and a better life for future generations, raise the country’s status as the best country in the world, and rank first in everything it does. In addition, DEWA works to achieve and support Dubai’s Demand Side Management Strategy, to reduce energy and water demand by 30% by 2030, and the Dubai Carbon Abatement Strategy to reduce carbon emissions by 16% by 2021. DEWA has a workforce of over 11,000 employees and manages the entire chain of electricity and water, from production and then transmission to distribution to its customers. DEWA’s vision is to become a sustainable innovative world-class utility. DEWA is widely recognised for its many local and international achievements, in line with the vision of and diligence of its corporate leadership. The UAE, represented by DEWA, ranked first in the world in providing electricity in the World Bank’s Doing Business 2018 report. DEWA also won the Global Excellence Award from the European Foundation for Quality Management (EFQM), as the first organisation outside Europe and the first to win as a first132

time applicant of this prestigious award. Through this pioneering achievement, DEWA is now in the platinum category, which is the highest international ranking of the Global Excellence Index. DEWA’s global achievements confirm the success of its effective and sustainable practices in improving energy efficiency in both supply and demand. DEWA succeeded in reducing electricity line losses from 7% to 3.3% and unaccounted for water from 42% to 7.1% - establishing new global benchmarks. Customer minutes lost (CML) reached 2.68 per year compared with 15 minutes for leading utilities in Europe and the USA. The fuel efficiency of DEWA’s latest power plants increased to about 90%. The generation efficiency increased by 28.86% from 2006 to 2017. DEWA’s necessary investments total AED 81 billion over the next five years, to meet growing demand for electricity and water in the emirate. This will provide significant investment opportunities, contribute to the growth of | Capital Finance International

the green economy, and create a competitive advantage in the UAE for clean energy and energy efficiency. DEWA launched three smart initiatives to make Dubai the smartest and happiest city in the world. The Shams Dubai initiative encourages customers to install photovoltaic panels on their rooftops to generate electricity from solar power, and is achieving great success. The Green Charger initiative establishes the infrastructure for electric vehicle charging stations. The Smart Applications through Smart Meters and Grids Initiative is designed to speed up service delivery and response, to ensure reconnection in case of any unplanned interruptions, while rationalising smart energy consumption by monitoring consumption details simultaneously and at any time, using smart meters. This works to achieve society’s happiness, and to support the sustainability of resources. DEWA is committed to keeping pace with the Fourth Industrial Revolution, and being familiar with global technological developments,

Spring 2018 Issue

provided by disruptive technologies, in the main sectors of DEWA’s work. DEWA launched the Future Centre for Customer Happiness, which uses smart and digital platforms, with Artificial Intelligence (AI) and robots for customer service. DEWA is also the first government organisation to launch Rammas, a virtual employee, making use of artificial intelligence technology to answer customer enquiries. Rammas responds

to enquiries in both English and Arabic through a 24-hour chatbot. Rammas is available seve days a week via DEWA’s website, on DEWA’s Facebook, through iOS and Android platforms, Amazon’s Alexa service, Robots, and Google AI. DEWA has recruited robots as staff at DEWA and inaugurated the blockchain initiative for Green Charger, which provides customers with several benefits. DEWA also launched a leasing initiative in cooperation with public and private organisations. It allows participating agencies

to automate the lease renewal process, obtain a lease contract, and connect electricity and water services. Innovation is a part of DEWA’s DNA and throughout the years, DEWA’s efforts in creating innovative solutions have culminated in great results, saving both time and efforts. The company is keeping pace with the Fourth Industrial Revolution, and adopting Artificial Intelligence(AI), robotics and Internet of Things (IoT) technologies to support the Dubai 10X initiative, which is set to propel Dubai towards the future, for a better future for generations to come. DEWA launched a new initiative that reimagines the concept of service organisations, and creates a new digital future for Dubai through Digital DEWA, the digital arm of DEWA. Digital DEWA will enable the company to apply a pioneering model for service organisations based on innovation in renewable energy, storing energy, Artificial Intelligence (AI), and digital services. DEWA aims to shift the status quo of services organisations and transform into the first digital organisation in the world, with self-control systems for storing renewable energy and expanding the areas of use of AI and digital services. i

The Mohammed bin Rashid Al Maktoum Solar Park | Capital Finance International


> The Access Bank UK:

Investing in Staff and Customers The Access Bank UK is a wholly-owned subsidiary of Access Bank PLC, a company listed on the Nigerian Stock Exchange. The Access Bank UK provides Trade Finance, Commercial Banking, Private Banking and Asset Management products and services for clients of Access Bank Group in their dealings with Organisation for Economic Cooperation and Development (OECD) markets and support companies wishing to invest in and trade in Sub-Saharan Africa, MENA and Asian markets.


he Access Bank UK is licenced and regulated by the UK’s Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). The Access Bank UK – Dubai Branch, situated in the iconic Gate Building of Dubai International Financial Centre (DIFC), is regulated by the Dubai Financial Services Authority (DFSA). Like its parent, The Access Bank UK is committed to developing a sustainable business model for the environment in which it operates. This is reflected in a moderate appetite for risk, a passion for customer service, and a commitment to build long-term relationships by working in partnership with customers. The Access Bank UK plays a key role in the Group’s vision to become the World’s Most Respected African Bank. As such, The Access Bank UK refuses to chase unsustainable yields as a route to growth. Instead, the Bank focusses on building its business through the strength of customer relationships. Herbert Wigwe, Chairman and Non-Executive director, said: “The Access Bank UK was founded to establish a credible, sustainable OECD hub for the Access Bank Group. This was achieved with commendable efficiency whilst also becoming a successful and profitable business in its own right. Fundamental to the Bank’s growth is our operational culture built upon strong customer relationships and the delivery of high quality services.” Founding CEO & MD: Jamie Simmonds

“Many high net worth customers who use The Access Bank UK for trade finance and commercial banking services also use our asset management and private banking for their UK personal financial interests. Such duality has proved beneficial for customers at a time when business and financial environments across Sub-Saharan Africa, Europe and the USA remain challenging,” The Access Bank UK provides a number of services to support business activities in Sub134

Saharan Africa and across the world. The Bank was awarded Confirming Bank status by the International Finance Corporation as part of its Global Trade Finance Programme, thereby strengthening its trade finance capabilities further. The Access Bank UK was the first Nigerian Bank in the UK to be appointed as correspondent bank to the Central Bank of Nigeria to undertake infrastructure work on behalf of the Nigerian government. The Bank also issues letters of credit on behalf of the Nigerian government | Capital Finance International

and Nigerian National Petroleum Corporation (NNPC). Recently the Bank was awarded Capital Finance International Best Africa Trade Finance Bank for the third consecutive year. The Access Bank UK’s commercial banking team offers relationship-based service for corporate and individual customers. The Bank offers a wide range of products and services with a choice of competitive rates, market leading systems, and top-quality service.

Spring 2018 Issue

The Access Bank UK DIFC Branch: situated in the iconic Gate Building of Dubai International Financial Centre

The Global Private Bank has been built around a passion for delivering excellent service. The Access Bank UK delivers innovative investment solutions to discerning clients who value trust, integrity, and accountability as well as investment performance. The Bank takes a proactive approach to product and service delivery and offers unique investment solutions which are tailored to customers’ needs by a highly experienced private banking team. The Access Bank UK’s Dubai branch offers a broad range of products and services to assist

customers with trade and investment needs in Nigeria and Sub-Saharan Africa. The DIFC branch is committed to building a long-lasting relationship in the region in line with the approach that has proven so effective for The Access Bank UK. The combination of the Dubai office together with a presence in the UK and Nigeria delivers a wealth of expertise that significantly benefits customers in the MENA region. The Access Bank UK takes time to build long-term relationships and works closely with its customers to understand their goals | Capital Finance International

in order to create a strategy designed to meet their needs. The Bank provides constant support and development opportunities to its employees, which reflects in their dedication and professionalism. The Bank is led by a team of accomplished individuals determined to deliver superior financial solutions for business and individuals. Its staff are highly experienced, and many have spent time working in the Sub-Saharan, West African and international marketplaces. The Bank is firmly committed to the diversity of its 135

"Many high net worth customers who use The Access Bank UK for trade finance and commercial banking services also use our asset management and private banking for their UK personal financial interests." workforce and encourages a sense of individual ownership whilst also fostering team spirit. The Access Bank UK helps its employees realise their potential through the provision of continuous learning opportunities and the tools and training to support professional growth. Jamie Simmonds, Chief Executive Officer and Managing Director said: “Our people are fundamental to the Bank’s continued development. They provide the skills that deliver our focus on service and customer relations. Reflecting this, during the year we selectively recruited additional members to the team and also invested more in professional development. We were the first Nigerian bank to achieve Investors in People accreditation. We have now advanced our status to Gold. We believe that our consistently low staff turnover rate reflects in part the advances we have made in training and development. The Bank is currently working in partnership with BPP Professional Apprenticeships and Chartered Institute of Personnel & Development (CIPD) programmes�. JAMIE SIMMONDS Jamie Simmonds was appointed Chief Executive Officer and Managing Director of The Access Bank UK in January 2008. He studied at Harvard Business School and completed the Executive Management Programme. Mr Simmonds is also an associate of the Chartered Institute of Bankers, a certified financial adviser, and a member of the Association of Foreign Bankers. He has a wealth of experience in the financial services industry, holding a series of director roles at National Westminster, Coutts, Royal Bank of Scotland, Gerrards, and Close Brothers. He has a proven track record in the start-up and turnaround of financial services businesses, delivering sustainable benefits for all stakeholders. He has extensive knowledge of both Corporate, Retail, and Private Banking services. i 136

The Access Bank UK: offices in the heart of the City of London | Capital Finance International

Spring 2018 Issue

> Meets the CEO of Afghanistan International Bank:

Tony Barned

CEO: Tony Barned


ony Barned was named the CEO of Afghanistan International Bank in 2016, having previously served as senior advisor to the former CEO and chair of the bank’s audit committee since 2008. Based in Kabul for most of the year but travelling regularly to Singapore, Dubai, and London, Mr Barned oversees the day-today operations of the bank, through his close relations with the board, the workforce and external financial and government bodies across Afghanistan and globally. Since assuming the role of CEO, Mr Barned has worked to raise AIB’s professional standards, developing the bank’s reputation as holding the highest level of integrity and financial proficiency in Afghanistan. AIB has been consistently recognised for its strong corporate governance by the for the past six years and has further been named as the Best Bank in Afghanistan in The Banker’s annual Best Bank Awards. As well as the establishment of a reputable corporate culture, Mr Barned has engaged with

"Mr Barned has worked to raise AIB’s professional standards, developing the bank’s reputation as holding the highest level of integrity and financial proficiency in Afghanistan." employees from across the bank to develop a globally-comparable offering of banking products, including credit cards and lending programmes. Through this, the bank has grown into Afghanistan’s leading financial institution with the largest asset base and the highest profitability amongst private banks. AIB also holds the highest private bank deposit base whilst paying no interest. To further raise the corporate culture of the bank to international standards, Mr Barned has been closely involved in the promotion of internal programmes to improve career opportunities for | Capital Finance International

female employees. Through the establishment of a women-only committee within the bank, he has worked with committee leaders to ensure equal treatment of women in their roles whilst also providing ancillary services, such as a crèche for children, in order to guarantee successful and meaningful employment for all AIB’s staff. The bank is seen across Kabul as the number one destination for young women and graduates to begin their careers and is testament to Mr Barned’s acute awareness of the importance of international standards within AIB’s banking practice. Mr Barned has over forty years of experience in global commercial banking and finance, gained from holding senior positions at a number for leading financial institutions such as Booz Allen & Hamilton, The Bank of Ceylon, and Barclays. He has, additionally, worked in emerging and frontier economies for a considerable proportion of his career, including Singapore, India, Bangladesh, Sri Lanka, Malaysia, and South Korea. He is also an associate of the Chartered Institute of Bankers. i 137

> Afghanistan International Bank:

Building on Success


ounded in 2004, Afghanistan International Bank (AIB) has established itself as Afghanistan’s premier financial institution and a pioneer in the country’s banking industry. With around 800 employees and 36 branches across the major Afghan cities, including Kabul, Herat, and Mazar e Sharif, the bank has built up a comprehensive offering of products, catering to private clients, businesses, and satisfying the needs of its international correspondent bank relationships which have further cemented AIB‘s position as the most reputable financial organisation in Afghanistan. AIB has continued to grow in recent years, posting consistently positive financial performance figures despite a comparatively challenging financial and security-related climate across the country. The bank’s 2017 annual report reveals a growth of 4.7% in assets to year-end 2017, to AFN 60.93 billion, with revenues also climbing 13% to AFN 2.27 billion. The bank’s new product launches have included a new Islamic credit card and the introduction of an inhouse printing and card personalisation system. AIB also commenced a new agreement with the World Food Programme to enable direct payment of beneficiary families through a pre-paid card. Strong financial performance and a dedication to fostering sustainable economic development in Afghanistan has become a key differentiator for AIB, and one which has been the focal point for a number of important relationships with international financial institutions in the last year. The IFC acquired a 7.5% equity stake in the bank, with the option to purchase a further 7.5% within two years. AIB has also continued its correspondent bank relationships around the world, maintaining

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"Strong financial performance and a dedication to fostering sustainable economic development in Afghanistan has become a key differentiator for AIB." in particular its longstanding partnership with Standard Chartered Bank. The relationship, which exists in order to assist customers with their international trade transactions and international dollar clearing, is complemented by further correspondent relationships with the State Commercial Bank of Turkmenistan and Asaka Bank, in Uzbekistan. Correspondent partnerships continue to be of important value to AIB and underline the importance the firm has placed upon professional ethical banking in accordance with international standards of governance. These relationships further demonstrate the regard with which the bank is held within the international banking community, despite relative challenges in the form of the country’s poor risk profile in comparison with other international banks. LOCAL LINKS Developing AIB’s services and operations to an international standard is a trait present not only in the bank’s day-to-day operations; it also resonates in the bank’s outlook as regards local connections, as well as its initiatives regarding employment and staff opportunities. Amongst AIB’s priorities over the last year have been the

AIB's female employees

138 | Capital Finance International

development of its lending schemes with local businesses, particularly those based in Kabul and Herat, through its partnership with the Afghan Credit Guarantee Foundation (ACGF). This partnership allows small and medium-sized enterprises to overcome the issue of securing financing for capital expenditure in a country where conditions for lending are difficult, allowing them to find financing they otherwise would not have had access to, and to flourish. A number of stand-out success stories exist. • A motorcycle assembly company based in Kabul received a loan of $600,000 from AIB, which was guaranteed by the ACGF, and allowed the company to expand its working capital, acquire new showrooms, and hire additional dealers in remote provinces. The company has now reached fixed assets of $4 million, despite continuously challenging economic conditions. • A mineral water and juice business in Kabul received a loan from AIB of $146,000 in December 2016. With the company’s operations formerly focused on the production and distribution of mineral water, the loan allowed the company to install a new line of machinery and to establish a juice production line, thereby increasing production capacity to attract new market share. WOMEN’S INITIATIVES Closer to home, AIB has also dedicated itself to the career development of its female employees through a number of initiatives that provide equal opportunities for the 118 women employed at the bank. By playing an active and positive role in furthering the careers and ambitions of its female staff and supporting the women and their families in their lives outside the workplace, AIB has set the benchmark for the country’s other finance firms in relation to its initiatives to promote women’s careers.

Spring 2018 Issue

Central to this work has been the establishment of a Women’s Committee, made up of eight members, which functions to ensure that the bank’s female-focused initiatives are driven by women. These initiatives include a zerotolerance policy for harassment or sexism, further education to help women reach their career goals, on-site childcare while women are at work, and weekly C-level meetings to ensure the voices of women are heard and their needs are quickly catered for. 2018 OUTLOOK AIB will continue to prioritise its local and international relationships in the coming year, building upon the already-established reputation for integrity and good governance the bank has developed recently. The bank will also continue to work closely with staff to develop its human resources and to provide

staff with a safe and fulfilling environment for their work. More broadly, the bank will relocate to a new | Capital Finance International

head office in Kabul in the spring – a major milestone in AIB’s development that will reflect the important position the bank holds in the Afghan banking sector. i 139

> Meets the CEO and Founder of Vallstein:

Q&A with Hugo van Wijk FIRST OF ALL, CONGRATULATIONS ON WINNING THE 2018 AWARD FOR BEST BANK RELATIONSHIP MANAGEMENT SOLUTIONS. THE JUDGING PANEL COMMENDED YOU FOR FURTHER IMPROVING A PRODUCT THAT CREATES VALUE FOR CLIENTS AND BANKS ALIKE. WHAT CAN YOU SPECIFICALLY TELL US THEN ABOUT THE MOST RECENT DEVELOPMENTS? Well, thank you. Indeed, there have been a lot of important developments in the past twelve months. As you know, the Basel Committee finalised Basel 3 in December 2017. A key objective here was to reduce variability in how banks measure risk-weighted assets. This has direct implications on how much regulatory capital banks must hold to support any specific client-relationship. Therefore, the correct analysis and integration of these new rules into our WalletSizing solutions was of course essential. We’ve done that. It’s at the very core of our unique value added. Secondly, innovation in fintech continued, but we’ve also seen increased attention and activity from the side of the regulatory authorities – called regtech – to try and keep up with the new possibilities and threats that some of the new fintech solutions may represent. It’s important to stay on top of this to ensure our clients can make sense of it all. CAN YOU GIVE US AN EXAMPLE? Fintech solutions in, for example, funding or payments may raise questions about the monitoring of credit risk, protection of investors - which may be retail clients placing funds looking for yield, know-your-customer, and compliance. Almost by definition fintech solutions are web-based and cross-border. That poses challenges for regulation. It is almost impossible for regulators to keep up. That, in turn, poses challenges for clients, because you thus can’t count on the regulator to keep the entire financial system safe. I recall that in the credit crisis that is now behind us the then chairman of the Basel Committee, Nout Wellink, noted in a speech in 2010 that “there are limits to what supervision can do. We cannot supervise everything, even if we wanted to. And we have to realise that more supervision also creates a moral hazard problem.” Mr Wellink then also pointed out specifically that clients have to take their own responsibility as well and use common sense when engaging in financial products. This still is completely true today, and in fact it has become even more relevant in view of these fintech developments I just mentioned.

"Helping our clients to actually execute on their own responsibility and applying common sense when engaging with financial products and financial service providers is precisely at the very core of what we provide with our bank relationship management (BRM) solutions." and financial service providers is precisely at the very core of what we provide with our bank relationship management (BRM) solutions. It is what we have been doing since the very beginning of our firm almost twenty years ago, in 2000. And so this has only become more important. The complexity and the amount of products, client-, and pricing data that can be taken into consideration have only increased. Of course, data-mining capabilities and analytical solutions to work with big databases and such have developed as well but these do not always generate real value added that provides true insight and common sense. Let me give a specific example here. In cash management there has been lot of development in charges reconciliation. Most of the large international banks have improved

HOW DOES THIS IMPACT VALLSTEIN? For us, helping our clients to actually execute on their own responsibility and applying common sense when engaging with financial products 140 | Capital Finance International

their capability to provide customers with specified invoices for their cash management fees, covering sometimes literally hundreds of individual banking products ranging from fees for check deposits to account maintenance and direct debit costs. Different banks use different product labels in spite of attempts at standardisation, for example with AFP codes in the US. Same products have different prices in different countries. So, it is quite possible to build up databases with thousands of individual pricing points and then provide some kind of benchmarking in cash management. But really, frequently that in our view results in nonsense and false business intelligence on perhaps an impressive looking dashboard. THAT IS QUITE A CLAIM: PLEASE EXPLAIN. If you have thousands of pricing points on cash management products collected in a database and you get the question from a client: “Can you please give me the best practice price from your database for an urgent (non-SEPA) cross border payment from Italy for a company like ours?” you can look in that database and come up with a price based on such correlation. It looks impressive but in fact it’s meaningless. Correlation is not causality. The best practice price for any individual banking product usually is zero as a bank is typically willing to waive something in the context of the overall relationship. But you never get all products for free of course. Aiming for the lowest benchmark price on one product is like pushing on a waterbed. So, what always matters in the end is the totality of the bank relationships you have, and the ability to view an individual banking product in terms of the entire banking wallet and associated annual revenue & return generation allocated to such bank.

Spring 2018 Issue

CEO and Founder: Hugo van Wijk

"Understanding the full equation provides the correct causal insight into the bank relationship and is the only sound basis for sustainable optimisation between you and your bank." Understanding the full equation provides the correct causal insight into the bank relationship and is the only sound basis for sustainable optimisation between you and your bank. So, although our bank fee management solution, that indeed just as easily can process huge billing files with these thousands of pricing points, is able to provide also such benchmarking in terms of lowest price, rather helps our clients steer away from that and instead provide a much better analytical insight opening up into optimisation opportunities in the context of the entire wallet.

And of course, our bank fee management solution does all the usual stuff such as billing audits and reconciliation, identification of overbilling of bank charges, and so on. That is important housekeeping in financial control as well, that fortunately most companies nowadays take seriously too. WHAT ARE YOUR PLANS FOR THIS YEAR? Our own direct client base continues to show healthy growth and we continue to enjoy very strong business momentum also through our | Capital Finance International

partnerships with e.g. Bellin and KPMG in German-speaking countries and wider Europe. We have seen a very good increase in our US clients – and we’re very glad about the positive client feedback we have been receiving. Most of our clients are very international and our research environment now spans more than 300 banks and 80 countries world-wide. For 2018, we plan to test a very innovative development with clients in Portugal. It is a perfect market to run such a pilot as they are very open to new technologies. We look forward to telling you more about that next year. i 141

> Lucid Investment Bank:

Private Equity Propeller for Mid-Sized Companies


ucid Investment Bank is established with a forte on high-end corporate financial advisory, offering various financial and advisory services such as capital finance (equity, debt, and mezzanine), mergers and acquisitions, growth, and turnaround solutions, with special focus on structuring and managing private equity and other alternative investments.


These services are designed to provide Lucid’s individual and institutional investors with a tailored class of investments that complements their investment portfolio and improves their riskadjusted returns. It is well established that private equity investments have always been one of the driving forces in the development of many economies. | Capital Finance International

While Lebanon is still a developing economy, it is crucial to foster and boost equity schemes to help companies develop into institutions. This allows, first and foremost, to grow and sustain the current level of employment and successively enlarge the employment market to cater for a growing workforce. Lucid took advantage of the shortage of smart

Spring 2018 Issue

"Lucid therefore creates significant value for these companies, their shareholders, and ultimately the Lebanese national economy." financing in Lebanon to structure private equity investments allowing selected companies to achieve and sustain significant growth. Lucid typically targets middle market companies, since these often show the highest levels of growth which is the main driver of a private equity deal. One of Lucid’s most distinguished roles is to provide its expertise to these moderately-risked firms accompanying them in their next growth phase and turning them into attractive and highreturn investment prospects. In stark contrast to local commercial banks that usually refrain from funding mid-sized firms on the basis of their own merit – and would rather rely on the net-worth of their owners – Lucid focused on this market niche and established itself as a support to various well-performing and promising mid-sized companies. Lucid therefore creates significant value for these companies, their shareholders, and ultimately the Lebanese national economy. Lucid strives to create significant added value to both the mid-sized companies and its individual and institutional investors.

Lebanon: Marina in Zaitunay Bay

"Lucid took advantage of the shortage of smart financing in Lebanon to structure private equity investments allowing selected companies to achieve and sustain significant growth."

At the company’s level, Lucid engagement can take on many aspects: • Actively assisting in the formulation of strategy to achieve the growth objectives as well as the perceived economic added value. • Since it is challenging for mid-sized companies to secure debt financing without tangible securities or personal guarantees, Lucid establishes dedicated private equity funds to satisfy the funding needs of these companies mostly on a risk-sharing basis. • Providing immediate access to seasoned global industry specialists who enjoy an outstanding track record both in terms of investments and operations as a result of the company opening its capital to allow value-add professional investors to take an active role in the company’s strategic management. • Fully contributing Lucid’s corporate finance and advisory skills through the bank’s active participation at the company board level and involvement in the decision making process. • Activating Lucid’s established and wide network to access high profile business partners as well as financial and/or strategic investors to explore partnership opportunities that would significantly increase the company’s revenues. • Leveraging Lucid’s know-how and experience from previous and existing growth cases where the bank succeeded in institutionalising the business and in introducing best in class policies | Capital Finance International

Chairman and General Manager: Wael El Zein

and procedures while achieving high standards of governance and financial accountability/KPIs. The proper corporate governance increases the chances of attracting foreign investments, which in turn increases value on many levels. • Identifying, planning and executing the best possible exit maximizing value for all the parties. At Investor’s level (high net-worth individuals and institutional investors) Lucid: • Provides access to bespoke deals that are usually not easy to identify and secure on individual basis. • Represents and protect their interest through the private equity fund which a minority investor cannot achieve alone. • Offers highly transparent investments with each private equity fund dedicated to an investment in a single company. • Diversifies the investors’ overall investment portfolio. • Provides relatively higher returns realised at exit with occasional dividend distribution. • Identifies, plans, and executes the best possible exit on their behalf using Lucid’s advanced exit planning and execution capabilities as well as Lucid’s established network of investment banks who could assist in securing the perceived exit whether in sell side or buy side capacities. i 143

> Tanqia Siyana:

The GCC’s Wastewater Treatment Trailblazer

Pioneering firm Tanqia Siyana – the first privately held wastewater collection and treatment utility in the UAE and wider Middle East – is moving forward at an accelerated pace with its system expansion, in tandem with the robust demand in growth experienced by UAE’s Emirate Fujairah. Here, Ibrahim Elwan – Tanqia Siyana’s executive chairman – reveals the market dynamics and investments behind the firm’s finely-tuned expansion strategy up to 2037, alongside the renewable innovations and pilot projects set to ensure the company’s lasting – and wide-reaching – legacy as a wastewater treatment trailblazer.


ike much of the Arabian Gulf Region, the UAE has long faced water scarcity – a challenge only set to intensify as growth and development continue across the federation of seven emirates. Indeed, after outperforming the rest of the GCC in terms of economic growth last year, the UAE is set to almost double its growth rate to 3.4% in 2018, according to recent forecasts by the International Monetary Fund (IMF). Maintaining such momentum of the economy – and for the advancement of society in general – will require a considerable ramp-up in the capacities for water treatment, and collection and treatment of wastewater, connecting new industrial and residential developments, upgrading existing ones, and improving water treatment quality, to make sustainable growth a reality. With manufacturing and tourism two of its most vibrant sectors, the emirate of Fujairah is becoming an attractive destination for investment and advancement in the UAE, with a flurry of new residential and industrial developments set to rise from the ground in the years ahead. And securing a reliable and high quality potable water supply for the city of Fujairah and surrounding communities – one that is treated and delivered as efficiently and reliably as possible – has been the unerring focus of Tanqia Siyana since the wastewater treatment specialist was granted a 33-year concession by the Government of Fujairah back in 2004. As the first privately-held wastewater collection and treatment utility – not only in the UAE but also throughout the wider Middle East – Tanqia Siyana is undeniably a pioneer in the market. Meaning respectively ‘purify’ and “maintenance” in Arabic, Tanqia Siyana, encapsulate in two words summarizing the mission of a company that has become a regional reference point for how efficiently and reliably wastewater systems can operate, even in highly challenging conditions. Now, as the company pushes ahead with the ambitious expansion of its wastewater treatment 144

"Substantial progress has been made in the development of the key market for effluent, and in developing the network to deliver it to key demand centres." plant and associated network infrastructure, the true mettle of this expert player is truly coming to light. A FINE BALANCING ACT Aside from operating in one of the most arid climates in the world, Tanqia Siyana needs to accommodate what Mr Elwan refers to as an “imbalance” created in the concession area by an expanding economy and the “exceptionally high” rate of water consumption that has more than doubled over the past decade to become one of the highest in the world today. This dynamic has clearly compounded an already difficult task for Tanqia Siyana, although it is one that the firm has clearly responded to with no shortage of vision and vigour. Back in 2005, Tanqia Siyana secured a loan from the Royal Bank of Scotland (RBS) – under the guarantee of the Government of Germany – to finance the greenfield wastewater collection and treatment system. And, with that loan having been retired last year, the award-winning company is now moving forward with its longterm plan to vastly expand the installed capacity at its wastewater treatment plant (WWTP). “Tanqia SIyana’s plan for the financial years 2018 through to 2037 is for new four trains – of 8,000m3/day each – to be added, as the demand for wastewater services increases,” advises Mr Elwan. “And to ensure flexibility in meeting the forecast demand, the detailed design for the entire new 36,000 m3/day has already been completed and approved by the Government of | Capital Finance International

Fujairah.” The forecast demand for wastewater services indicates that the first two trains – of 8,000 m3/ day each – will be urgently required in the second quarter of 2019, at the latest. “This would meet the forecast demand for Tanqia Siyana’s services in the concession area of 31,951m3/day by 2024,” states Mr Elwan, who goes on to report that contracts for the civil and electromechanical works have already been awarded, and construction is set to commence shortly. Regarding the volume of wastewater collected and treated by Tanqia Siyana today, Mr Elwan advises that the peak volume of inflow collected and treated in FY2017 was about 22,000m3/ day. “This exceeds the installed capacity of the wastewater plant (16,000m3/day),” he points out. “Nonetheless, the plant can cope because of its design, which allows it to handle – for short intervals throughout the year – peak demand for treatment of up to 30% more than its installed treatment capacity.” SUSTAINABLE SUPPLY STRATEGIES However, until the installed treatment capacity is doubled, Tanqia Siyana’s executive chairman believes that balancing the demand for services in 2018 and the first half of 2019, with management of the installed treatment capacity – and forecast of inflow – will be challenging. “This imbalance is created by the high growth of the economy because of immigration (of both national and expatriate workforces) to the concession area, and as a consequence of exceptionally high water consumption, which has increased at an average annual rate of 8% over the past decade – from 170 litres per capita per day in 2007 to 370 litres per capita per day in 2017,” he informs. Fortunately, the government’s gradual increase in water tariffs is successfully correcting this issue, as Mr Elwan points out: “In the past three years, water tariffs were increased by FEWA by as much as 50%, and by 33% for the households in Abu Dhabi. This is a courageous policy

Spring 2018 Issue

decision – a sustained increase in tariffs is what would be required to achieve effective restraint in consumption of water. Indeed, the sustained increase in water and wastewater tariffs is the only means that has been tested globally and been found to successfully restrain growth in water demand – that is, by inducing the rationalisation of consumption.” Concurrently, accelerating the substitution of desalinated and underground water with less expensive effluent in non-potable applications would be another desirable move. “This would obviously decrease the demand for investments in water and wastewater infrastructure,” Tanqia Siyana’s executive chairman asserts. “Accordingly, the UAE has issued a directive to increase the use of effluent throughout all sectors – and such a mandate is now being pursued throughout the country,” he reports, adding that successful substitution would require the further treatment of tertiary-treated effluent to allow for increased substitution in key applications throughout the economy. “The cost of further treatment is lower than desalination – it would also be lower than the cost of pumping underground water, if its pricing of underground water incorporated a depletion premium that reflects its scarcity,” he continues. “Increasing the availability of further treated effluent would require a sustained increase in tariffs for desalinated water, to induce commercial substitution of further treated effluent for potable water.” AN EFFECTIVE NETWORKER In alignment with Tanqia Siyana’s growing treatment capabilities, expansion of the firm’s wastewater collection network has been a significant development over the past decade – in terms of the number of kilometres covered, number of properties and customers connected, and the total population serviced by the network – as Mr Elwan is keen to describe. “Under the greenfield wastewater system in the concession – that is, Phases I and II – the network to be constructed was 169 km on June 30, 2007, while the length of the network, including the pressure mains, had grown to reach 440 km by December 31, 2017 – an average annual rate of increase of around 10% over the past decade,” he tells us. “Meanwhile, the number of connected properties increased from 5,231 to 6,800 over the same period, and number of customers rose from 13,441 to 20,536.” In terms of potential upcoming infrastructural projects to further expand the collection network, Mr Elwan praises the government of Abu Dhabi’s decision to develop Sheikh Mohamed bin Zaid City (MBZ City) – a new city in the concession area. “This noteworthy development plan would involve tying the new city to Tanqia Siyana’s wastewater system to collect the wastewater generated and deliver it to the wastewater treatment plant – and, in turn, deliver effluent to MBZ City for landscaping.” Phase I of the internal network in MBZ City will cover about 45km, with | Capital Finance International

connection to Tanqia Siyana’s system stretching a further 22.5km – and both such developments will be financed by the government of Abu Dhabi. In addition, FEWA is executing the effluent distribution line connecting Tanqia Siyana’s system to MBZ City. “Construction is underway on Phase I of MBZ City, which is expected to be ready for occupancy by Q4 2018,” reports the executive chairman. “The internal and external network connection to MBZ will be owned, operated, and maintained by Tanqia Siyana, adding a further 67.5 km to the company’s existing 440km-long network. REACHING OUT TO COMMUNITIES On the subject of effluent distribution, at the time we last spoke to Mr Elwan a year ago, construction was soon to commence on Tanqia Siyana’s effluent distribution network (EDN) – a response to the strong demand that exists for irrigation amongst the area’s farming communities, with an estimated 3,879 farms covering 6,585 hectares (65,847,000m2) of land. Annually, it is estimated that Tanqia Siyana’s new EDN would provide 1.3 billion gallons of effluent, which would act as a substitute for higher-value desalinated and underground water. “Substantial progress has been made in the development of the key market for effluent, and in developing the network to deliver it to key demand centres,” reports Mr Elwan, whose company last year generated 1.587 billion gallons of high-quality effluent at its plant. “The new EDN will deliver effluent to Bidya and Dhadna – located respectively about 24km and 37km from our plant. There, the effluent will be used for agriculture irrigation, as a substitute for the desalinated and underground water currently being used.” Construction is now underway on the EDN pipeline between Tanqia Siyana’s plant, Bidya, and Dhadna – the work is being executed by stateowned FEWA (the Federal Water & Electricity Authority) and will be completed by Q3 2018. Tanqia Siyana will then maintain and operate the pipeline. In addition, FEWA is financing a pipeline in Tanqia Siyana’s concession area that would deliver the firm’s effluent to MBZ City. In addition, Tanqia Siyana is promoting extension of its EDN to planned new residential properties – particularly for single-family properties for landscaping, with the use of specialised effluent network. “We’re currently preparing a report and the estimated cost related to taking advantage of the construction of the wastewater network in MBZ City. Doing so would require excavation for the lines and house connections to install the effluent network and the connections to singlefamily houses in the city,” Mr Elwan advises, adding that the report will be discussed with the authorities. INVESTING IN EFFICIENCY All expansions following completion of the greenfield system – as per the concession 145

agreement – have been financed from Tanqia Siyana’s internally-generated revenue, and such investments have been substantial, totalling AED 850 million (over $231m) to date for the wastewater system (including greenfield system). Furthermore, since 2008 Tanqia Siyana’s investment in the expansion was about AED 122 million (over $33m), all related to the extension of the network to connect new properties to the wastewater system. Given the substantial financial outlays that Tanqia Siyana has made over the past decade or so, there is little wonder why the company has placed energy efficient technologies and processes as a key focal point, and is today pursuing numerous projects related to that. “Expansion I will cover the cost of the first two trains of the total of four trains to increase the plant’s installed treatment capacity from 16,000 m3/day to 32,000 m3/day,” reports Mr Elwan. “In addition, installation of a stateof-the-art sludge dewatering unit to handle 31 tonnes/day of sludge will be powered with a roof solar energy system.” Beyond that, conversion of the plant’s mammoth rotors – used in the Fujairah plant to deliver the oxygen required for biological breakdown of solid matter in the influent – from electricity to solar energy powered operation has further bolstered Tanqia SIyana’s energy efficiency goals. Another initiative is the installation of a solar power plant, which will serve as the primary source of power supply for Tanqia Siyana’s facility, and shift power from the grid to back-up sources. “The proposed 10MW solar power farm will provide primary energy for the existing two trains and the two new trains set to come online, while electricity supplied by FEWA will be used as standby power,” informs the executive chairman. “The feasibility study for the solar power farm has already been completed, and the design and land requirements identified, with installation due to commence by end of 2018.” INNOVATION FOR A WATER-SCARCE WORLD In the last conversation with Mr Elwan, we discovered how Tanqia Siyana’s WWTP in Fujairah – designed according to 2008’s German design standards and equipped by Germany’s most reputable manufacturers – was playing a key role in developing technologies for the future advancement of wastewater treatment plant design around the world. This was due to its starring role as one of only seven utilities worldwide to be selected as a partner for the socalled EXPOVAL project – a €7.5 million Germangovernment-funded R&D project. And today, Tanqia Siyana’s renown for innovation continues to perpetuate itself – not least through Tanqia Siyana Environment, a subsidiary of Elwan Group. “Tanqia Siyana Environment entered into a joint venture with the new owners of Water4all and Jotem – both Dutch-based water treatment specialists,” reports the executive chairman, adding that Tanqia Siyana Environment will be the venture’s major shareholder in the Middle 146

East and Africa region. The focus of the new tie-up is on manufacturing solar-powered auto-treatment plants that can be installed in containers for treatment of surface water for human consumption. “Two container-housed pilot plants of about 52,000 m3/year treatment capacity – each powered by solar panels – will be set up at our plant in the UAE,” reveals Mr Elwan. “These will further treat part of the tertiary-treated effluent, to produce water stripped of any contaminants. This will be achieved using ultrafiltration technology combined with an electro-coagulation unit, thus negating the need for any water treatment chemicals to be used. The resultant further-processed effluent will meet the stringent standards of the World Health Organization (WHO) and the State of California relating to the reuse of effluent for irrigation of edible vegetables. However, as a minimum requirement of WHO’s standards, Tanqia Siyana Environment intends to monitor the quality of water generated, to assess its compliance over a period of two years,” he continues. “Once the process setup for compliant, reliable water quality has been verified, the containerised units would be manufactured in the UAE alongside other possible locations in the target markets of water-scarce, low-income countries across the Middle East and Africa – in areas that currently only have access to potentially unsafe water resources such as surface and groundwater.” IMPRESSIVE ACHIEVEMENTS As Tanqia Siyana nears the halfway mark of its 33year concession period, the company can reflect on more than a decade of outstanding performance, alongside an array of accolades demonstrating that such achievements have not gone unnoticed. Recent awards include the Recognition of Entrepreneurial Company Award, bestowed on Tanqia Siyana in 2017 by the World Confederation of Business. Last year also saw the company receive an Appreciation Certificate from the Ministry of Energy, and the Best Environment, Social, and Governance (ESG) Utility Management Team in the Middle East Award for 2017. Other accolades include recognition as Best Wastewater Utility Management Team – Middle East, awarded to Tanqia Siyana by Capital Finance International for 2016, alongside Best Infrastructure Utility Service Provider in the UAE 2015, awarded to the firm by the Global Banking & Finance Review. While unarguably impressive, such awards are merely an indication of the pioneering potential of Tanqia Siyana going forward. Aside from the management team’s ambitious – yet financially astute – expansion strategy for meeting Fujairah’s burgeoning water requirements, the firm’s development of solar-powered pilot plants with water-scarce emerging markets top of mind suggests that Tanqia Siyana’s influence and achievements will be to the benefit of many more communities and businesses in the years ahead. i | Capital Finance International

Spring 2018 Issue

> Meets the CEO of AAN Digital Services:

Sameh Mishreky


ameh Mishreky is a strategic thinker with a blend of financial and operational experience. With twenty years of achievements in leading financial and management teams under his belt, Mr Mishreky is excellent at anticipating market changes, mitigating business risks, and translating problems into profitmaking successes. He successfully created an ecosystem of companies within the GCC region that operate together as an integrated operation that covers the different areas of the digital services domain. As the CEO of AAN Digital Services, Mr Mishreky plays an active role in developing the group’s overall strategic plans. He has been instrumental in restructuring management and rewriting company policies, resulting in high employee satisfaction levels. During his twenty-year period in Kuwait, Mr Mishreky held various senior management positions and is credited with having increased AAN’s corporate foothold in the market and building brand value. During his tenure as group CEO since 2014, Mr Mishreky has successfully brought about important and far-reaching reforms in the organisation. His presence and strategic plans refocused the company to fully embrace sustainable and profitable growth. Mr Mishreky drove up profits and expanded the workforce. He also ensured that AAN Digital Services offers a level of customer care that is second to none. In fact, everyone at AAN, from developers working the back office to the clientfacing team, is fully aware of the need to ensure that customer satisfaction is always the end goal. Mr Mishreky also took the plunge to further improving corporate governance standards. This brought about profound changes in policies, structures, and processes. His vision not only proved that the company was on the right track but also testifies to his resilient leadership and remarkable foresight. Mr Mishreky promotes innovation, supports creative thinking, and nurtures the inventive spirit of his employees whilst keenly sharing his experiences and expertise on the subject at business forums nationwide. What has been achieved in the last three years at AAN Digital Services would not have been possible without his visionary leadership and the appointment of a team of high-performing individuals – a team that was quick to recognise, understand, and accept the transformational changes that were being made in the organisational structure to best achieve company

CEO: Sameh Mishreky

goals. He regularly asks: “Is the product meeting the client’s needs? And does the customer thank us?” His positive outlook on problem-solving has caused AAN Digital Services to evolve into a dynamic and diverse enterprise with a growing portfolio of companies that reach consumers across the region, through retail, franchising, and other distribution channels. This growth is reflected in the steadily increasing annual returns. AAN Digital Services Holding Company has also | Capital Finance International

displayed an uncanny ability to identify, and snap up, promising start-ups. Its seed capital provides opportunities for accelerated growth via tried-and-proven strategies, enhancing shareholder value in the process. Mr Mishreky expends considerable effort in leveraging local expertise to drive growth. He also drove the company to invest heavily in the development of local managerial and operational skills. Thus, AAN Digital Services Holding Company has gained wide recognition as a valuable partner to various businesses in the region. i 147

> AAN Digital Services:

Transformative in Telecom


he company formally known as Hits Telecom Holding Co developed a vision to become a leading provider of digital solutions and services.

The holding company, AAN Digital Services, established an ecosystem that embraces digital transformation and created a group of entities that focusses on different aspects of digital technologies. These days, internet technology and connectivity are essential building blocks of 148

the digital services domain. As a result, AAN has established Qanawat Telecom in Saudi Arabia, Kuwait, and the UAE. Qanawat is the leading telecommunication services distributor in the three countries with Mobily in Saudi, Ooredoo in Kuwait, and Du in Dubai. The Qanawat team was able to gain an extensive track record in the telecommunication market by providing different operators services – including data, GSM, and fixed – through the setup of | Capital Finance International

a highly developed and technology-oriented distribution network which represents the bridge between operator and consumers. With the market moving towards digitalising and smart-everything trends, Qanawat has taken the initiative to respond to the huge transformation by offering a unique and wide range of products and solutions that add value to clients. These initiatives are also in line with AAN’s main objectives to sustain business growth and

Spring 2018 Issue

Things (IOT) and providing leading edge solutions by partnering with Galaxy Wind, a company that masters the technology on hardware, architecture, and communication for smart homes and smart buildings. In the future, these smart solutions are set to impact and affect an individual’s life in positive ways. These smart solutions create an easier and more luxurious way to control and monitor homes. Moreover, these products and solutions, despite their initial set up cost, will eventually help individuals save money as it allows people to use their tools and appliances in a very effective and efficient way. Qanawat also established a subsidiary company that provides digital IT services called Qanawat Technology Solutions for the digital SME segment. QTS specialises in SME cloud applications, SME cloud resources, SME online ads, vertical based solutions, remote service delivery, Google Analytics, and digital marketing. As digital content is one of Qanawat’s important services, the company partnered with ICFLIX and other application providers to meet entertainment needs. ICFLIX is a streaming and video-on-demand platform for Bollywood, Hollywood, Arabic content movies, and television series. Qanawat is constantly looking for partnership opportunities in other sectors like e-commerce and mobile applications. E-HEALTH AAN Digital Services also managed to successfully enter the e-health sector by forming a partnership with Balsamee, a UK-based multinational community and wellness platform with full mobility and empowerment for both clinicians and individuals – the two sides of the medical sector. Balsamee in cooperation with AAN Digital Services is focussed on continuous patient-centric care by providing different platform components such as insurance policy and claims management systems, patient management and communication systems, care providers interface and clinical systems, reporting statistics and decision-making modules as well as cloud-based virtual health records. These platforms will help to increase the awareness of the eco-system, provide the ability to monitor patient status continuously, and reach people to deliver medical services at any point in time and space, which as a result will lead to improved population health management. increase revenues. Qanawat continues to ensure that users’ needs in both the virtual and physical world are covered by offering advanced products that ensure users are always able to stay connected. Qanawat has signed a partnership agreement with GlocalMe to be their exclusive distributor in the Middle East and Africa. GlocalMe is a service that provides global internet coverage anywhere in the world, using a Wi-Fi device,

and an application with an easy to use interface, all at an affordable price. STRATEGIC PARTNERSHIPS It was not enough for Qanawat to rebuild its market position as a pioneer in digitising the telecom business. The company was seeking to go beyond that, which was when they started to source strategic partnerships in the region, in order to become a digital multi-service provider. Qanawat managed to enter the Internet of | Capital Finance International

According to Sameh Mishreky, AAN Digital Services’ CEO, the way the company stands out as a digital service provider is because of its strategy of building and empowering digital capabilities. AAN’s various ventures and strategic partnerships provide its clients with a unique set of offerings and have pioneered the transformation of practices across the industry. With the help of Mr Mishreky, the firm has updated its long-standing corporate processes and practices, in order to achieve transformative ways to future profitability. i 149

> Islamic Bank of Afghanistan:

Aiming for the Top Spot

CEO: Amer Khalil-ur-Rehman


mpowering the Afghan business community and helping local entrepreneurs seize opportunity and expand trade – Islamic Bank of Afghanistan makes a significant contribution to the country’s economic development. From its earliest days, the bank has served the Afghan private business sector with a full range of premier products and services, including cross-border transactions. Islamic Bank of Afghanistan is also recognised as a preferred partner to state bodies, multilateral organisations, diplomatic missions, and non-profit entities, amongst others. The bank initiated and supports a number of corporate social responsibility programmes such as a sustained effort to reduce the number of unbanked people and businesses in the country. The bank’s comprehensive CSR (Corporate Social Responsibility) portfolio also includes high-impact initiatives to promote gender equality and skills development. On the commercial side, Islamic Bank of Afghanistan has introduced facilities to help fund transition to renewable energy, with innovatively structured credit lines and financing solutions for solar power generators. Islamic Bank of Afghanistan is present in about 30 out of Afghanistan’s 34 provinces and maintains 32 branches in Kabul as well. The bank has also


put in place agency arrangements to cover the remaining provinces. One third of the branches in the country belong to the banking group. In order to meet public demand and increase its outreach in an economy that is still 91% unbanked, Islamic Bank of Afghanistan has converted its conventional business to faith sensitive banking. The bank’s customer service department strives for excellence and focusses on the four “Ts” team, technology, theology, and TAT (turnaround times): Best Team (development and capacity building of staff): Islamic Bank of Afghanistan employs over 1,180 people of whom around 700 are part of the core banking staff. These professionals have received on average 25 days of training in Islamic banking and the new Islamic core banking system software. Thus far, the bank has invested over 17,500 employee training days in capacity-building alone. Remarkably, over 1,500 days have been spent by staff in overseas training programmes. Best Technology (latest state-of-the-art): The bank purchased the latest Sun T7 hardware and Oracle’s Flex Cube Core (Islamic) banking system which were deployed in two steps, going live on the first of April. The bank is now also implementing Oracle’s latest OBDX, Oracle’s Business Digital (E) | Capital Finance International

Experience, covering latest state-of-the-art digital banking. Best Theological Banking (faith sensitive banking related to Sharia compliance in financial services in both letter and spirit): In addition to local Islamic banking regulatory requirements, Islamic Bank of Afghanistan follows accounting, auditing, governance, and Sharia standards issued by the AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions). The bank’s manuals, systems, policies, and procedures have been developed with help from E&Y (Ernst & Young), one of the top leading consulting firms in this area. Various structural and procedural checks and controls are in also place to strengthen this. The bank maintains a Sharia Board, Sharia Department, and Sharia Advisor, amongst others. Best TAT: Customer Service Excellence equals to the sum of: best team, best technology, and best theological banking. Islamic Bank of Afghanistan wants to be the best in everything it does. In order to build the best team the bank not only focusses on capacity building but also on a healthy working environment – Islamic Bank of Afghanistan wants to become the best bank to work for. Moreover, the bank is determined to achieve excellence in the delivery of customer services by using the best technology available. i

Spring 2018 Issue

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> GCC Board Directors Institute:

Pursuing Excellence in Governance By Jane Valls

“If you could improve your effectiveness, as a director, as a board, would you not want to?” That’s the question I ask directors.


hese days, more and more attention is paid to the qualifications of senior management to carry out their responsibilities. However, there has never been any formal qualification required to run an organisation – and none to be a director. So this gives rise to the importance of directors’ training and development. Successful governance depends first and foremost on the skills, dedication, and integrity of the company's leaders. And the heart of sound corporate governance lies in the boardroom with directors’ responsibility and accountability. Directors, and senior management, therefore need to fully understand the underlying principles of good corporate governance. They need to understand best practices and how to adapt and implement them in their organisation. Boards also need to ensure the development of a business culture which is conducive and receptive to sound business principles. A sound corporate culture is essential. The tone starts at the top and boards must be concerned with the reputation of their organisation. The awareness of the importance of corporate governance must permeate all the way through the organisation and boards must ensure that good policies and procedures are in place to prevent and detect any violations of regulations. And the role of the chairman of the board is crucial. Chairmen need to understand their role is to lead the board; to facilitate board decisions and board dynamics. Their role is not to manage the company. I see many boards which could be so much more effective if they had proper corporate governance practices in place. Apart from anything else, busy directors benefit from good governance, from efficiently run board meetings, good board and committee processes, and keeping up to date with the latest director trends.

“Behavioural psychologists and organisational learning experts agree that people and organisations cannot learn without feedback. No matter how good a board is it is bound to get better if it is reviewed intelligently.” (Sonnenfeld 2002: 113)

business environments. So it is only right that directorship has finally begun to be seen as a profession, or at least a discipline, requiring specific professional training and development. Director development and board induction should be mandatory. For the developing countries in the Gulf Region, the importance of good corporate governance is a key consideration. It is an important part of our individual national visions. It is a sine qua non if we are to attract more foreign direct investment. The implementation and the maintenance of sound corporate governance practices and structures at every level of our societies is imperative for the continued well-being and development of our economies. A key part of our mission at the GCC Board Directors Institute is to build better board director capabilities and we do that by sharing best board practices and developing effective skills and competencies. Our Board Director Development Programmes are based on our eight dimensional competency matrix for board effectiveness:

Director coaching is also becoming popular and helps to bring out the best in individual directors to enable the board to work better as a team. Executive coaching for directors is usually based on one-to-one coaching to help individual directors address specific professional development issues or assist them in taking on a new role. It is particularly relevant for new or prospective directors, for non-executive directors and as part of a board development programme. Improving the effectiveness of the board is a priority for leading organisations everywhere. The heightened level of accountability and responsibility which requires boards to improve their own performance means that boards need to carefully review the board’s roles and responsibilities and then determine whether it is performing adequately to protect the interests of all stakeholders. So board evaluation is now a key activity for the board. The purpose of the exercise is to ensure that boards are staffed and led appropriately, that board members are effective in fulfilling their obligations, that reliable processes are in place to satisfy important oversight requirements; and that key board activities are being addressed. Evaluations should take into account context, key issues and sensitivities as well as performance. For a board that is tackling an evaluation for the first time, it is best to start with some general discussion at the committee level and then follow this at board level. Board evaluation is not a one-size-fits-all proposition and needs to be tailored to the culture and goals of a particular board and company in order to be effective. The key to success is for the board to be actively engaged in the assessment process. It is equally important to be clear about the objectives of the

“Companies don’t fail, Boards do.” – Gillen Seanus (Volkswagen emissions scandal) So if you believe that prevention is better than cure; including the knowledge of the principles and the practice of corporate governance in mainstream director development is essential. The role of the director has evolved. Companies operate in more and more complex globalised 152

We offer a wide range of board director workshops to broaden and deepen directors’ knowledge and skills because we believe that professional director development is not just a one off, but a continuing journey of honing skills and updating knowledge mixed with practical boardroom experience and application. So our programmes offer directors the opportunity to share knowledge, experiences, effective practices, and challenges faced by their boards as well as network with likeminded individuals in an informal environment – either an open workshop where they can also network or in the privacy and confidentiality of their own board room. | Capital Finance International

Spring 2018 Issue

GCC BDI’s proprietary board evaluation tool assesses the effectiveness of boards based on our eight dimensions of board effectiveness and combines survey as well as one-on-one interviews – all conducted in a non-attributive and confidential manner – to produce a fact-base and a road map of improvement opportunities.

“The challenge for boards is to prevent crises in the organisations they govern. Performance evaluation is a key means by which boards can recognise and correct corporate governance problems and add real value to their organisations.” – Kiel, Geoffrey C and Nicholson, Gavin J (2005) Evaluating Boards and Directors. The following are some common characteristics of high-performing boards: • Clarity regarding role and focus; • An effective chairperson; • A balanced board team; and • A culture of trust and respect.

assessment process and what they really want to accomplish. There are a few different approaches, which can be mixed and matched, in undertaking board evaluations, depending upon the board’s needs, prior experience, chemistry and appetite for the process. They include: Survey – Any survey should be carefully tailored and designed for a specific company and its board, and be constructed by drawing from the corporation’s bylaws, committee charters, the roles and responsibilities of directors, and corporate governance guidelines. The survey should produce reliable results and feedback is usually presented in the context of a goal-setting process with the board, intended to improve performance and educate the board. Interviews – Board director interviews are often used prior to a board assessment — particularly where boards have not previously done an evaluation — to gain an understanding of the issues on directors’ minds. Typically, professional external evaluators interview directors individually and confidentially using a structured questionnaire that takes into account the company’s bylaws, charters, guidelines, and codes of conduct and ethics. Based on the results of the interviews, the governance committee provides anonymous feedback to the board, often in the form of a narrative report that is organised thematically according to key areas for board improvement. Group Evaluation – During a group evaluation, a trained consultant engages the board and the CEO in an interactive dialogue. Working against a backdrop of general best governance practices and the specific bylaws and guidelines for the company, the discussion focuses on how a board can improve its performance. This approach works best when directors are able to talk candidly and openly, and have a limited amount

of time to devote to the process. Once again, feedback is geared to setting goals for the board to improve its performance and the real value of the assessment exercise is derived through the final session when the board evaluates the findings and discusses what measures, if any, to act upon. Boards should view evaluations as a valuable opportunity to refocus on critical issues and improve performance. Of course, evaluations on their own are not enough and need to be followed up to have the maximum impact. This includes engaging directors in discussion about the results, following through with a plan of action for addressing points that arise from the discussion, and assigning follow-up responsibilities to the governance committee or the board chair. In order to be truly effective, board evaluations should be done on a consistent annual basis. Board evaluations will and should change somewhat from year to year; priorities may shift depending on the critical issues facing the board. Questions should be relevant to the board’s current tasks and should be based on the needs of the board at the particular time when the evaluation is planned. Moreover, questions should be targeted to focus on areas of board performance, not CEO and staff performance, which also are essential exercises, but discrete ones from evaluating the board. The prime objective of board evaluation is therefore to improve the performance of the board and the company. Assessment is merely the tool. A well-planned and well-executed board evaluation that focuses on the unique culture, bylaws and needs of the board can reveal issues that hinder optimal board performance. Identifying and addressing these issues, and reinforcing the appropriate board roles and responsibilities, can yield significant benefits to the board, the company and all stakeholders. | Capital Finance International

High-performing boards will focus on a common set of tasks, which include responding to executive strategy and contributing to rigorous debate, monitoring the implementation of the strategy through the operational plans, overseeing the quality of leadership and management, ensuring that individuals are developed and that effective succession plans are in place, maintaining a governance framework that adds value to the business and safeguarding and enhancing the company’s values and reputation. The board evaluation will help the directors to take a step back and appraise all these questions. The proverbial buck stops with the board of directors so they have to fully assume their role and responsibilities. It is this corporate leadership that will ensure full confidence in our regional capital markets. i ABOUT THE AUTHOR Jane Valls is the Executive Director of GCC BDI.

Author: Jane Valls




On Dictators 2.0 and Other Remarkable People


wo of this issue’s heroes are trying to dislodge presidents who may perhaps best be described as dictators 2.0 autocratic leaders who will cling to power and squash dissent but not in the primitive ways of yore. For all his stuffing of ballot boxes, Vladimir Putin does enjoy high popularity ratings. He is a smart man. President Putin knows that by keeping aloof from the political fray, feigning ignorance of whatever scandal has Russian tongues wagging, he becomes the elder statesman in whom people may deposit their trust - and vote. Chances are, he would have won the election without appealing to the alchemists. Contrast that to the childish US president who insists that the world should be made privy to his every random thought - he suffers many of those - not realising that by doing so he exposes himself for the buffoon he is. And then there is Xi Jinping of China who puts on a great show in the Great Hall of the People where he got 2,958 of the 2,564 delegates of the National People’s Congress to remove the term limits on the presidency. He may now rule for life. The three members of congress who abstained, the two who voted against, and the one whose vote was invalid are fine - they were told how to vote and need not fear for their lives. President Xi Jinping is a cynical man. The two dictators 2.0 - President Trump is excused - represent difficult targets for opposition politicians advocating political reform. By playing to the masses, and exploiting popular sentiment, Messrs Putin and Xi find it relatively easy to stay in power and dismiss dissent as an expression of foolishness. Ksenia Sobchak in Russia and Joshua Wong in Hong Kong beg to disagree and remind people that the new normal is not, well, normal. Who’d a thunk it? Young people growing up and coming of age in Russia and China have never

known democracy - it remains an almost exotic phenomenon they have heard of but never seen. What it boils down to is that the likes of Mr Putin and Mr Xi don’t trust their people to make smart choices - in fact, both treat their fellow citizens as children who need the care and protection of a stern but loving father. Ms Sobchak and Mr Wong know better and insist on political reform. They, and others like them, face an uphill battle and deserve support. Ms Sobchak and Mr Wong are brave people. Other heroes featured are singer-songwriter Khaira Arby from Mali and US basketball star player Jayden Brown, both of whom also faced uphill battles - and won. Mrs Arby escaped from a control-freak husband to become her country’s voice, delivering a message of hope and nostalgia. Mr Brown is a budding intellectual who temporarily interrupted his academic pursuits to make some serious money in the US National Basketball Association - a most sensible guy. At seventy, German philosopher Peter Sloterdijk would undoubtedly have a thing or two to say about very smart people in sports. In fact, Mr Sloterdijk has a well-rounded, and often highly original, opinion on pretty much everything under the sun. He has also become the conscience of the nation, bumping the venerable Jürgen Habermas off his lofty perch - quite an accomplishment and one delivered with a smile. Mr Sloterdijk is a wise man. In France, stand-up comedian Yassine Belattar was named Clown of the Republic by his peers. Mr Belattar tells it as it is and needs no tonguein-cheek to do so. In his latest show he asks the nation what it means to be French. It turns out that being French is rather boring. Mr Belattar then wonders why it is that the French remain so reluctant to accept others - those with a different sounding surname or perhaps another complexion - into their society. The result is hilarious - Mr Belattar is a funny man. i

> PETER SLOTERDIJK Shaping a Multipolar National Debate

A prolific writer, publishing some sixty books over a career spanning four decades, German philosopher Peter Sloterdijk recently celebrated his seventieth birthday. Europe’s leading intellectuals and academics flocked to Mr Sloterdijk’s native Karlsruhe to pay tribute. Chancellor Angela Merkel chipped in with a congratulatory letter praising Germany’s most controversial thinker for his contributions to culture. Mr Sloterdijk enjoys a popularity that in Germany is normally reserved for football players. His late-night talkshow on national television - In a Glass House: The Philosophical Quartet (Im Glashaus: Das Philosophische Quartett) - ran for close to ten years and obtained consistently high ratings. His lectures at the University of Art and Design in Karlsruhe are always packed, drawing student from all faculties. Yet, Mr Sloterdijk is hard to pin down. He has steadfastly refused to elaborate a single grand thesis and is happy to shine his philosophical light on any topic, no matter how esoteric or trivial, from the sexuality of the Neanderthals to the travails awaiting German pensioners wishing to renew their driving license, meandering off into the primitiveaggressive behaviour of motorists. Whilst enunciating his carefully crafted thoughts, Mr Sloterdijk frequently appeals to irreverence - he enjoys a good laugh even at his own expense - becoming the odd one out in a nation that still equates dryness to seriousness. His 1983 publishing debut - A Critique of Cynical Reason (Kritik der zynischen Vernunft)- instantly identified the author as an original thinker - one

not bound by established convention or boxes. In the two-volume book which runs to well over a thousand pages, Mr Sloterdijk reviews both philosophical and popular cynicism as a societal expression in European history. An unlikely candidate for best-seller status, the book outsold all other philosophical works published in Germany since 1945 - and still remains in print. Mr Sloterdijk gained a global following with the Spheres trilogy, his magnum opus spanning nearly 3,000 pages, which he touts as the book Martin Heidegger should have written as a companion volume to On Being and Time - On Being and Space. Whilst deploring the poor political and personal choices made by Mr Heidegger - who joined the Nazi Party in 1933 as a born-again antisemite and promptly broke with his Jewish mentor and champion Edmund Husserl who had secured him the rectorate of the University of Freiburg - Mr Sloterdijk has played a leading role in restoring the philosopher’s severely tarnished reputation. He draws extensively on Heidegger’s work - in particular On Being and Time - to cast and explain contemporary life whilst he remorselessly deals with his fellow countrymen’s “polite illusions”, displaying, for example, no sympathy for Chancellor Merkel’s bold decision to open Germany borders to Islamic refugees. He also repeatedly dismisses the welfare state as a “fiscal kleptocracy” and brands the country’s political establishment a “lethargocracy”. Though most Germans thoroughly enjoy Mr Sloterdijk’s painful digs at their collective accomplishments,

progressive politicians denounce him as a stooge for the rightwing Alternative for Germany (Alternative für Deutschland) party. However, Mr Sloterdijk is no closet-fascist - not even close; he merely wishes to stir up a nationwide debate and has frequently warned that the vacuous acceptance of globalisation as the cure for all societal ills and the engine of growth inevitably leads to a resurgence of provincialism. Already fifteen years ago, Mr Sloterdijk predicted that before long society would look back nostalgically on the time when a clownesque politician such as the late Jörg Haider from Austria was considered a menace. Times have caught up with the philosopher. Mr Sloterdijk fears that only a few politicians truly grasp the magnitude of the challenges ahead. In German politics, he can only muster some enthusiasm for the near-libertarian Free Democratic Party (FDP - Freie Demokratische Partei) which argues that the country’s welfare state has become hypertrophied and now only creates resentment on both sides of the fiscal divide - amongst those who pay taxes and those who receive benefits. Heaving his massive frame onto a bicycle Mr Sloterdijk’s estranged father was Dutch - the philosopher embarks on an ode to inventors - his favourite subject - whilst deftly navigating local traffic. He expresses both delight and anger at the invention, by a German man, of the retractable dog leash which now constitutes a grave danger to cyclists who may become entrapped. Philosophy, it turns out, need not restrict itself to existentialist questions and proves equally useful to describe and help understand the mundane. If there is one great, yet often ignored, accomplishment Mr Sloterdijk may be celebrated for, it is perhaps his thorough disassembly of the Frankfurt School (Frankfurter Schule) - the school of social theory and philosophy that forged postwar Germany and created a fertile middle ground between capitalism, communism, and fascism. When Jürgen Habermas - arguably Germany’s greatest living philosopher and the leading exponent of the Frankfurt School - stated that Mr Sloterdijk’s work contains “fascist implications”, his colleague did not take long to strike back with a debilitating blow: “The days of hyper-moral sons of national-socialist fathers are coming to an end.” The country’s intellectuals may, perhaps in a reflex, have sided with Mr Habermas but the truth was out for all to see. Suddenly, Mr Sloterdijk became the Frankfurt School’s philosophical antipode - ending sixty years of unipolar national debate.

"Philosophy, it turns out, need not restrict itself to existentialist questions and proves equally useful to describe and help understand the mundane." 156 | Capital Finance International

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> KSENIA SOBCHAK Stooge or Promise? She never had any real chance of winning the Russian presidency and in the end only managed to obtain 1.53% of the vote - at least according to the official tally. Ksenia Sobchak did, however, manage to put issues on the agenda the Kremlin would prefer to ignore. She appeared on state-run national television to denounce the annexation of Crimea as an illegal act. Ms Sobchak also called for the legalisation of soft drugs and expressed strong support for the LGBTQ community - livening up the usually sycophantic news broadcasts. Russia’s very own it-girl, regularly gracing magazine covers and an instantly recognisable television personality and socialite, Ksenia Sobchak was famously dismissed by President Vladimir Putin as “a poor copy” of Paris Hilton. That didn’t deter Ms Sobchak from leveraging her celebrity status to draw attention to the issues she deems important such as public health and education. In that she was surprisingly successful, considering that other presidential hopefuls experienced great difficulty in getting airtime. Ms Sobchak decided to run for the presidency late last year to give a voice to young voters: “Over the past seventeen years a whole new generation has grown up that wants to see a different Russia - one that is civilised and European.” Initially accused of driving a wedge through the opposition with her surprise candidacy - leading to speculation that she could be a Kremlin-backed spoiler encouraged to run in order to keep up the charade of democratic process - Ms Sobchak’s campaign soon gained some traction as she surprised friend and foe with firm liberal convictions delivered with a panache and ready wit not normally seen in beauty queens. During a brief visit to the US, she impressed an initially sceptic audience of students and Russophiles at Columbia University by expertly dealing with tough questions. Asked what she was doing in the US just days before the polls were to open, she explained that Americans needed to know that Vladimir Putin “is not Russia” and not all of her countrymen support his aggressive policies towards the West: “To ordinary Russians, America is not the enemy.” Ms Sobchak went on to make all the right noises: Russia must fix its resource curse-spoiled economy, institute the rule of law, welcome back foreign investors, get big business out of government, stop meddling in the affairs of neighbours, and recognise that Crimea belongs to Ukraine. On the stump in Russia, Ms Sobchak

accused president Putin of rigging the elections. She may have been right; observers reported some 140,000 irregularities. Vladimir Putin, who announced his decision to seek a fourth term at the eleventh hour and only made a few campaign appearances, claimed 77% of the popular vote, breaking his 2004 record (72%) and avoiding a run-off. Rich, famous, and fabulous - and feisty too Ksenia Sobchak got the inside scoop on Russian politics at an early age. She was just eleven when her father Anatoly Sobchak was elected mayor of St Petersburg. Prof Sobchak was a confidant and strong supporter of Boris Yeltsin who in 1991 secured the country’s presidency in the first elections to take place after the collapse of the Soviet Union. Perhaps more importantly, Prof Sobchak became a mentor to Vladimir Putin whom he appointed as deputy mayor, thus giving the former KGB operative his first taste of politics. The two knew each other from law school where Mr Putin attended Prof Sobchak’s lectures. On the campaign trail, Ksenia Sobchak declined to directly attack President Putin. The

courtesy was returned - with only a few exceptions - as Ms Sobchak at no time represented an electoral menace to the Russian president. She provided some colour to an otherwise exceedingly dull campaign such as when she emptied a glass of water over the bombastic leader of the nationalistic Liberal Democratic Party after he had called her a “fool and a whore” during a televised debate. Brave though she was, Russia-watchers do not think Ms Sobchak stands a chance of becoming a fixture in politics. All eyes, and bets, are on Alexei Navalny, the country’s most popular opposition leader who was barred from running for office by the Central Electoral Commission over alleged financial misconduct. Mr Navalny, who has been in and out of prison repeatedly, rejected Ms Sobchak’s offer to join forces against President Putin. He accused her of “endless lying” and of doing President Putin’s bidding by sowing division in opposition ranks. During the lively exchange, broadcast on her YouTube channel, Ms Sobchak kept calm and vowed to build up her own party apparatus for the next elections - six years from now.

"Over the past seventeen years a whole new generation has grown up that wants to see a different Russia - one that is civilised and European." | Capital Finance International


> KHAIRA ARBY Fighting Jihadists with Music

In Mali, she is the grande dame of the country’s exceptionally rich music scene: Khaira Arby - aka The Nightingale of the North. Mrs Arby is celebrated throughout her country and the world; for many of her fans, she also embodies Mali’s irrepressible spirit. Her haunting rendition of traditional Tuareg songs brings tears of joy to audiences as she plucks at the chords of national remembrance with tales of salt mines and camel caravans to the sound of electric guitars and the ngoni, Mali’s traditional lute. In 2012, the singer had to flee for her life as a motley army of secessionists and jihadists linked to Al-Qaeda overran her native Timbuktu, declaring the historic city at the southern end of Trans-Saharan trade routes capital of Azawad, their short-lived state. After the takeover, rebel leaders immediately ordered the arrest of Mrs Arby, promising to cut out her tongue if captured. A spokesperson for Ansar Din (Followers of God) explained that “Satan’s music” would be banned and replaced by Koranic verses as per the will of God. “Declaring war on music wasn’t a particularly smart move of the jihadists in a country that thrives on it,” remembers Mrs Arby who fled to the relative safety of the capital Bamako. One of the world’s poorest countries, Mali is home to an astonishingly vibrant music scene and considered the true birthplace of blues. The country was an unlikely candidate

for an Islamic state organised on the ultraconservative Wahhabi interpretation of Sharia Law. Shaped by a unique, mystical, and gentle brand of Sufi Islam mixed with animist traditions, Malian society instinctively rejected the jihadists’ uncultured barbarism. “I have no clue what these people actually wanted. What I do know is that their religious police raided my recording studio and smashed about $150,000 worth of instruments and recording equipment.” Religious strife also disrupted the annual Festival of the Desert which offered a stage to musicians from far and wide, including Peter Gabriel, Jimmy Buffet, Led Zeppelin frontman Robert Plant, and - of course - Bono of U2 fame who performed alongside, and jammed with, the best Malian artists. Since its expulsion from Timbuktu, the event travels the world as the Festival-in-Exile, a self-described loudspeaker of tolerance and resilience. Once known as the city of poetry and learning, Timbuktu - situated on the upper reaches of the Niger River and the southern shores of the Sahara Desert - only recently emerged from years of sectarian violence, trying to recapture its lustre as an outpost of culture, scholarship, and plurality. Music too has returned to Timbuktu, as has Khaira Arby. In early January, the singer performed for the first time in six years in the city at a heavily guarded

venue packed to capacity with thousands of her fans. The music flowed and the tears followed. Mrs Arby’s return was made possible by Timbuktu Renaissance - an initiative of the Brookings Institution and the government of Mali - which aims to help rebuild the fabled city by leveraging its culture and heritage to jump-start development. The organisation offers financial support to creative industries and the arts, including literature, architecture, music, and film. Praised for her robust voice and unambiguous lyrics, Khaira Arby sings in the languages of the desert - Sonrhai, Tamaschek, Bambara, and Arabic - aiming for maximum social impact and blasting practices such as forced marriages and female genital mutilation. In order to pursue a career in music, she divorced a controlling husband who wanted to keep her locked up. Ever since she has wondered why, in a country of beautiful women, men go to war. Whilst in forced exile, Mrs Arby toured the world with performances in Europe and in North America. A cousin of legendary guitarist Ali Farka Touré (1939-2006) - one of Africa’s most-renowned musicians and, according to documentary-filmmaker Martin Scorsese, carrier of the blues’ original DNA - Khaira Arby represents a powerful force that now helps resurrect and reconcile a country and a nation ravaged by war, but by no means defeated by it.

"I have no clue what these people actually wanted. What I do know is that their religious police raided my recording studio and smashed about $150,000 worth of instruments and recording equipment." 158 | Capital Finance International

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> JOSHUA WONG Teenager vs. Superpower The sharp end of the pro-democracy movement in Hong Kong, student activist Joshua Wong is getting up close and personal with the Chinese powers-that-be who are in no mood to permit or tolerate political dissent. He may be just 21 and baby-faced, but it so happens that Mr Wong is quite headstrong and refuses to give up on his goal democratic reforms for the former British colony, now a special administrative region of the People’s Republic. The public face of the 2014 protests and leader of the Umbrella Movement, Joshua Wong received two prison sentences, totalling nine months, for his participation in the events which started at Hong Kong’s universities after the Standing Committee of the National People’s Congress - a select group of caretaker lawmakers that sits when China’s rubber-stamp parliament is not in session - mandated the selective prescreening of candidates for the election of the region’s chief executive. Initially organised by the Occupy Central with Love and Peace (OCLP) movement as a civil disobedience campaign, others such as the Hong Kong federation of Students and the Civil Human Rights Front soon joined in, fuelling the staunchly nonviolent protest movement and causing the Chinese leadership to fear a repeat of the 1989 Tiananmen Square debacle when martial law was declared and troops with automatic weapons and supported by tanks cleared the landmark Beijing square of demonstrators who for six weeks had been venting numerous grievances and demanding freedom of speech. The military intervention caused hundreds - possibly thousands - of deaths and showed the world that for all its accomplishments, China remained a repressive state incapable of treating its citizens with respect. As Mr Wong knows only too well, little has changed. He already served his first sentence and has now appealed the second one. He is momentarily free on bail. “They can lock up our bodies, but not our minds,” says Mr Wong who vows to continue his fight for democratic reform and now leads the Demosistō Party, founded in 2016, which demands Chinese authorities comply with the terms of the Basic Law - the region’s mini constitution - which calls for the chief executive and members of the legislature to be elected by universal suffrage according to “internationally accepted” standards. Whilst in prison, Mr Wong met the very thugs hired by the Chinese authorities to roughen up protesters and sow unrest as agents provocateurs: “Strangely enough we got along quite well. There was no animosity whatsoever;

they are not interested in politics and were just paid to do their job and afterwards reverted to a life of petty crime.” Mr Wong has been an organiser of protests since, barely fifteen, he mobilised around 120,000 high school students in 2011 to demand the government shelve its new “brainwashing” education curriculum - which it reluctantly did. He has been making headlines ever since: “Others in the movement were sent to prison on much longer sentences, yet the media somehow always highlights me. It is not that the attention to our cause is unwelcome, but there are others with more stories to tell.” The Chinese leadership seems at odds on how to handle Mr Wong, meting out almost symbolic sentences but stopping just short of silencing him. The prison terms also preclude Mr Wong from running as a candidate for his Demosistō Party. He has challenged the suspension of his political rights in court. Even so, the party managed to get one of its own elected in a by-election last March, beating a pro-China candidate whose campaign enjoyed the overt backing of the authorities. Meanwhile, China is careful not to push its luck by going directly after Mr Wong and other

dissidents for fear of radicalising the protest movement and undermining Hong Kong’s fragile political stability. Mr Wong is, however, discouraged from accepting overseas speaking engagements and was recently deported from Thailand on a technicality at the request of Beijing. He also got into hot water over a publicly broadcast Skype video call with backers in Singapore. Mr Wong, however, fails to follow Beijing’s script and continues his campaign to strengthen the Umbrella Movement by reaching out to sympathisers elsewhere in the world. His remarkable life story is now featured in Teenager vs. Superpower, a documentary available globally - though of course not in China - on Netflix and in line for an Oscar nomination. “Ideally the people who previously associated Hong Kong with Jackie Chan and Bruce Lee, may spare us another thought by realising that our city is also a place fighting for democracy.” Early 2018, Mr Wong and two of his fellow leaders in the Umbrella Movement, were nominated for the Nobel Peace Prize by the US Congressional Executive Commission on China on the recommendation of its chairman, senator Marco Rubio (R-FL).

"Others in the movement were sent to prison on much longer sentences, yet the media somehow always highlights me. It is not that the attention to our cause is unwelcome, but there are others with more stories to tell." | Capital Finance International


> YASSINE BELATTAR Clown of the Republic

The Paris king of comedy likes to make people wince - either in agony or in shock. His jokes and comments frequently unleash a firestorm on social media where the holier-than-thou brigade rules and expresses its faux-indignation in no uncertain terms. Yassine Belattar, a guy who revels in poking fun at both the establishment and established thought, has received numerous death threats - too many, in fact, to count. The latest show of President Emmanuel Macron’s favourite stand-up comedian deals with the meaning of being French - a topic that is meant to cause both laughter and outrage. Mr Belattar was the first comic to perform at the Bataclan Theatre when it reopened after the November 2015 terrorist attack that left 89 people dead. He came on stage asking the audience, including then-president François Hollande, to remain calm: “Don’t be afraid. I know it’s a bit scary to see an Arab bloke walking into a theatre…” He then went on to lacerate dim-witted French jihadists and tear into the liberal elite peddling politically correct phrases and niceties at fancy dinner parties. Mr Belattar has little time for national sensitivities or traumas and no interest at all to toe the official line. He is, however, a bit disappointed in French society which refuses to accept him - and many others born and raised in the country - as equals: “People whose families haven been French for two or three generations are often still treated as

newcomers and must battle every day to be fully accepted. It’s like when a man loves a woman and that woman says I’ll never love you.” Talking about his own background, Mr Belattar mentions five family members who fought in the French Army during the Second World War: “There are lots of people in the banlieues with a similar story to tell. Yet, nobody seems to be listening.” What he most wants his audience to understand is that people with nonGallic sounding surnames lead lives as banal as everyone else: “There is absolutely no difference: we deal with the same concerns, suffer the same irritations, and are as fed up with things as anyone in a Breton striped shirt and sporting a beret whilst hurrying home for lunch, carrying a baguette and a bottle of red.” The leftwing press is not amused. Marianne, a widely-read weekly news magazine, called Mr Belattar “pseudo-funny and venomous”, and declared him a danger to the French Republic.” The comedian was also accused of being in “denial of Islamism” and of stoking division. Others have called for the curtailing his airtime on radio and television, apparently unworried that the muzzling of a comic is not a particularly liberal thing to do. However, fellow comedians have rushed to Mr Belattar’s defence, naming him Clown of the Republic. After the verbal lashing meted out by Marianne, an audience at one of his shows in Paris promptly stood up and burst into La

Marseillaise in support of the beleaguered comic. Still, Mr Belattar deplores the lack of mental acuity and understanding prevalent in some circles: “It is as if the entire nation’s thoughts need to be straightjacketed and any deviation from the prescribed line is considered a direct attack on cherished institutions that must remain unassailable. I fear that other comedians may now be writing their lines with fear in their stomachs.” A close friend of Emmanuel Macron - likewise despised by the unfailingly vociferous hardline French left - Mr Belattar repeatedly accompanied the then-candidate on campaign visits to the Paris banlieues, introducing him to the “other side”. Soon after Mr Macron secured the presidency, Mr Belattar told his friend that from now on he would be in opposition: “This is where a comedian should always stand - it is his job to poke fun at those in power in the best tradition of the king’s buffoons.” Musing on the differences between French and British comedy, Mr Belattar points to the elaborate and exquisitely crafted poetic universes created across the English Channel - la Manche by Rowan Atkinson (Mr Bean), John Cleese (Monty Python), and many other masters of comedy: “By contrast, French comedians are perhaps a bit more irreverent and certainly more acidic. They march onto the stage cutting to the chase and, without any further ado, grab the audience and lead it to a place not normally visited. The French don’t do subtlety.”

"Don’t be afraid. I know it’s a bit scary to see an Arab bloke walking into a theatre…" 160 | Capital Finance International

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> JAYLEN BROWN Hard Work Pays Off The number three pick in the 2016 NBA draft - the much anticipated annual event when the US basketball association’s now thirty teams select promising new players - Daylen Brown was placed under contract by the Boston Celtics and has since claimed a leading role on the court, propelling his team to second place in the Eastern Conference within striking distance of the finals. Mr Brown (21) - all 2.01m of him - is going places. Whilst at high school in Marietta, Georgia, he established his reputation during the state basketball championship when he decided the cliffhanger with 0.6 seconds to spare, scoring two free throws to land his team a 5958 win. He was subsequently rated a five-star recruit by ESPN, receiving countless accolades, and ushered into the University of California, Berkeley, where he committed to play for the Golden Bears home team averaging 14.6 points and 5.4 rebounds per game. At Berkeley, Mr Brown did more than throw balls through hoops; upon arrival he immediately signed up for a number of courses, including at postgraduate level. He mastered Spanish and actively partook in the university’s Cultural Studies of Sport in Education master degree programme. A gifted student, Mr Brown plans to perfect his Spanish language skills and learn three other languages before his 25th birthday. He also plans to finish his studies. A scholar and an introvert by nature, Mr Brown has ambitions beyond basketball, displaying an avid interest in history and philosophy. Some sports commentators have speculated that Mr Brown is too much of a budding intellectual to play professional baseball. However, Mr Brown has grown a thick skin and refuses to take the bait when confronted with open or subliminal racism. Growing up in the south, he has pretty much seen it all and remembers how spectators came to watch games dressed in monkey suits, throwing bananas onto the court, and hurling the n-word at him. “Life may have changed a lot and people will no longer tell you certain things to your face; however, racism changed as well and certainly still exists today.” At Berkeley, Mr Brown discovered subtle forms of racism hidden in curriculums, social strata, and even civil discourse. It soon became clear to him that in US society, some are destined to win and become the nation’s leaders whilst others must lose and populate the country’s prisons: “That’s basically how America works - it’s a machine that needs people up top and people down low.” Mr Brown joined football quarterback Colin Kaepernick, currently a free agent, who in 2016 started the ongoing national anthem protest

against police brutality and racial inequality by refusing to stand up during the playing of The Star-Spangled Banner and pay respect to the flag. Mr Brown agrees with the protest’s premise and considers Mr Kaepernick’s initiative both timely - and necessary: “After President Trump called on team owners to fire players who refused to stand to attention, more than two hundred players joined in. This had a major impact and made people think and talk about the issues that matter. Colin speaks for many people who are uncomfortable with their assigned role in life including me.” The Celtic new star player does not intent to dedicate his entire life to sports. In fact, he longs for a return to academia: “I miss Berkeley. There, I was learning something new every day.

Though I’m in a good place now, I need to keep a well-balanced head instead of a single-minded one.” For Mr Brown that means taking piano lessons. He just spent a year teaching himself how to play, practising every day as a way to deal with the pressures of a professional athlete. As with everything that Mr Brown does, which incidentally is quite a lot, he seeks perfection hence the piano lessons. In order to show star-struck kids that there is more to life than professional sports, Mr Brown last year set up his own YouTube channel where he posts short documentaries showing his pursuits during, and outside of, the basketball season. He named his channel - and his Twitter and Instagram accounts - FCHWPO: Faith, Consistency, Hard Work Pays Off. That’s the man in a nutshell.

"He named his channel - and his Twitter and Instagram accounts - FCHWPO: Faith, Consistency, Hard Work Pays Off. That’s the man in a nutshell." | Capital Finance International


> Latin America

Learning to Love Free Trade Almost by stealth, the Pacific Alliance has consolidated its position as Latin America’s main trade bloc. During a virtual summit by video link in March, the leaders of Chile, Colombia, Mexico, and Peru agreed to speed up plans to reach out to partners elsewhere along the Pacific Ring and quickly establish associate membership agreements with Australia, New Zealand, Singapore, and Canada. A third round of negotiating with these countries has just been successfully concluded.

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n a joint statement released after the meeting, the four presidents declared their firm intention to secure additional comprehensive trade deals in order to promote greater competitiveness and develop value chains. They also reaffirmed their commitment to the implementation of the regional Strategic Vision 2030 which includes a string of sustainable development goals, and aims amongst others to up productivity levels and further strengthen economic integration. In Latin America, economic integration plans come a dime a dozen. The continent’s FTA (Free Trade Agreement) spaghetti bowl includes the Andean Pact, Latin American Free Trade Association, and Mercosur – to name but a few. Whilst the nations of Latin America have long tried to resurrect the great liberator Simon Bolívar’s attempts at forging a united continent, most initiatives failed miserably at the point where the dream meets reality. Until recently, the continent’s arguably two most important powers – Brazil and Argentina – remained firmly wedded to their protectionist development model first introduced in the late 1940s, and later supported by the UN’s Economic Commission for Latin America (CEPAL), as a shortcut to full industrialisation. Though policies promoting import substitution have been largely scrapped, local industry is still shielded from global markets by considerable tariff walls and other barriers to free trade. This helps explain why Latin American businesses have never been able to establish a global footprint – safe for a very few exceptions such as Brazilian airplane manufacturer Embraer, now the world’s third-largest producer of civilian aircraft. The Mercosur free trade bloc, set up with much fanfare in 1991 between Brazil, Argentina, Uruguay, and Paraguay, has languished since its foundation – immobilised by repeated economic recessions, see-sawing trade policies, and the lack of political will to take its lofty aims serious. Economic observers assess the health of the bloc by looking at the length of tailbacks at border crossings between Brazil and Argentina. The miles of idle trucks piling up on each side of the border invariably prove a precise gauge of Mercosur’s workings. Argentina, in particular, has been slow in realising the upside of free trade. In 2012, the country’s government put up yet another non-tariff barrier to trade, demanding that businesses submit a Sworn Affidavit of Intention to Import before purchasing any merchandise outside Argentina. The document serves no discernible purpose other than to add yet another bureaucratic nuisance to the travails of the country’s importers. As recently as 2015 and in a highly unusual move, Argentine authorities stopped the importation of books citing health concerns over the use of possibly toxic ink by US, UK, and Spanish publishers. No other country in Latin America throws up barriers,


"In the Latin American context, Chile was the first country to wholeheartedly embrace free trade, already in the early-1980s introducing a flat-rate regime that now taxes imports at 6%." tariff or otherwise, to stop printed matter from freely crossing borders. In the Latin American context, Chile was the first country to wholeheartedly embrace free trade, already in the early-1980s introducing a flat-rate regime that now taxes imports at 6%. Mexico also disassembled most of its protectionist legislation, opening its economy to the world – and in particular to its North American partners. Both countries are now amongst the most globalised in the world. Chile alone boasts over twenty FTAs with 58 countries covering well over 90% of its imports and affording its businesses preferential access to more than 4.2 billion potential customers. The four member states of the Pacific Alliance are still the only ones in the region truly convinced of the economic blessings unlocked by free trade. The bloc, founded in 2011, deliberately kept a low profile and has so far been reluctant to expand its geographic footprint in the region, fearing the curse that seems to rest on grand plans to integrate Latin American economies. The alliance represents four of the most consistently successful economies of the region and is unwilling to accept new member states that are not yet politically ready to embrace free trade. Panama and Costa Rica have expressed an interest to join, as has Canada which, according to former Mexican Foreign Minister Sergio Alcocer, would make a seamless fit. The Pacific Alliance is, however, eager to strengthen ties with other trade blocs such as NAFTA, Mercosur, ASEAN, and the European Union. At the instigation of France, the EU is set to formally begin negotiations with the alliance later this year. What sets the Pacific Alliance apart from other similar initiatives is its ambitious approach to integration. Member countries have already agreed to set up joint diplomatic missions in order to extend their reach. The first Pacific Alliance embassy was opened last year in Accra, Ghana, where none of the member states had a prior diplomatic presence. In Morocco and Algeria, Chile and Colombia have combined their representations whilst Peru and Colombia now share an embassy in Vietnam. The alliance has also been busy opening shared trade offices in countries where its member states were previously underrepresented. | Capital Finance International

The Pacific Alliance has also enabled the creation of an integrated equity market. The stock exchanges of Santiago, Lima, Bogotá, and Mexico City have been merged into MILA – Mercado Integrado Latinoamericano with a combined market cap in excess of $1.25tn – levelling with the twin Brazilian BM&F Bovespa exchange. Stock brokers may now trade on a common platform whilst corporations can access a much larger pool of funds whilst investors enjoy a much deeper and liquid market. The alliance’s member countries have also successfully pushed for initiatives such as Pacific Arc, an informal initiative that periodically brings together the leaders from the eleven Latin American countries along the continent’s west coast. Pacific Arc offers a space for the exchange of ideas and experiences. It also contributes towards the emergence of a pool of expertise in dealing with cross border trade and investment flows and allows governments to identify and clear bottlenecks. Though most of the Latin America’s free trade agreements suffer from poor implementation and adherence – the Pacific Alliance representing a both notable exception and a how-to instruction book – FTAs cover more than 70% of all trade in the region. Of the 270 FTAs in effect globally, 70 include Latin American signatories. However, much remains to be done in order to coordinate and streamline rules of origin and include new forms of trade such as e-commerce. There now exists broad consensus on the benefits of free trade which did not exist before. Even the governments of Argentina and Brazil no longer dispute that fact, although old customs die hard as new realities dawn. In a recent report, the United Nations Conference on Trade and Development (UNCTAD) notes that the value of world trade has nearly quintupled over the last two decades from $5tn to almost $24tn, lifting over a billion people out of poverty. UNCTAD does, however, propose a more nuanced approach to free trade – one that includes sustainable development goals (SDGs) in order to help address some of the inequities caused by the free flow of goods and services. Though UNCTAD most certainly has a valid point, caveats to free trade are often seized upon by its opponents to justify non-tariff barriers. A case in point are the surcharges introduced by the US administration of President Donald Trump who considers his country’s gaping trade deficit with the world in general, and China in particular, an inequity that needs to be addressed. Whilst recognising that free trade is almost never truly free – just look at the length of an average FTA which runs for hundreds, and sometimes thousands, of pages – significantly opening up economies to outside competition offers undeniable advantages which are just now being discovered throughout Latin America as the continent’s nations get ready to leave the fringes of global affairs and move centre stage. i

Spring 2018 Issue

> Banco Económico:

Maintaining the Most Rigorous Standards By Sanjay Bhasin – CEO Banco Económico

Banco Económico is one of the major banks in Angola, assuming a market positioning based on a strong customer segmentation strategy and on the development of customised and innovative products and services. Currently, the bank has a network of 61 branches in 17 provinces throughout the country, which are joined by 12 business centres in several provincial capitals – Benguela, Cabinda, Huambo, Huila, and Luanda – as well as a private centre and three Umoxi Centres operating in the country’s capital.


n 2017, for the second year running, Banco Económico has received the Best Bank Governance in Angola Award. We are quite proud of this recognition because it confirms the bank’s commitment to further improve and fine-tune its governance model in line with the highest standards of the international bank industry. Banco Económico’s board of directors delegates the bank’s management to the executive committee which is responsible for the implementation of the chosen strategy and the management of all operations. The bank’s governance model adopts several procedures aimed at maximising the effectiveness of the bank’s activities. To ensure a constant and effective monitoring of the bank’s most strategic business activities, the executive committee has a number of specialised committees – credit, business, treasury, risk, control, and resources – which work together with the different departments to monitor the bank’s main performance indicators. The credit committee analyses and approves loan operations proposed by the commercial departments, with an opinion from the Risk Department. The business committee analyses the bank’s commercial activity and proposes future improvements and innovations. The treasury committee analyses market conditions and the liquidity position, monitors financial flows, and approves payments, while

"The need to adopt the most rigorous standards on corporate governance is seen as fundamental by Banco Económico and it is placed at the centre of its business model." ALCO analyses the balance sheet evolution in its assets, liabilities, and profits and losses. ALCO also establishes the financial policy based on the macroeconomic outlook, investments to be made, and legal reserves to be met. The risk committee analyses the different risks of banking activity, with a special focus on the credit risk of the loans portfolio as well as reputational and strategy risk. It is also the committee’s job to suggest measures for improving and controlling risk. The analysis and compliance of main regulation changes and internal control procedures falls under the reach of the control committee. The resource committee monitors and decides on the main organisational, operational, and IT projects. Banco Económico distributes its different business, support, and control areas into departments and offices which are grouped into divisions, reporting to the respective executive director. This areas division is made in order to

ensure a proper segregation of functions and allow for specialisation. In addition to the supervision of the audit board and the external auditor, as required by current regulations, Banco Económico has set up other control functions – risk, compliance, and internal audit – in line with the present legislation. The need to adopt the most rigorous standards on corporate governance is seen as fundamental by Banco Económico and it is placed at the centre of its business model. With a solid, effective, and innovative governance model it is easier for the bank to be focused on the development of products and service solutions which anticipate consumer trends and answer to the needs of different types of clients. Banco Económico’s positioning strongly relies on the segmentation of products and services, amongst which are leasing, trade finance, investment banking, digital banking, savings and investment solutions, insurance, forex hedging products, and real estate and pension investment funds. Through a structure based on specialised business areas, Banco Económico has different products and services customised to the needs of different economy sectors such as oil and gas, trade finance, investment banking, corporate and entrepreneurship – as well as to the main economic activities that are vital to the country’s sustained development. i

"With a solid, effective, and innovative governance model it is easier for the bank to be focused on the development of products and service solutions which anticipate consumer trends and answer to the needs of different types of clients." | Capital Finance International


> LatAm Logistics Properties:

Efficiency for Growth

The logistics real estate market in Latin America is experiencing high demand. LatAm Logistic Properties is seeking to capitalise on this demand by way of its best-in-class offerings in its target markets. LatAm aims to make a positive impact on local economies and communities by developing world class efficient warehouses in underserved markets.


ts commitment is to support multinational blue-chip and leading regional / local companies in achieving their operational goals, thereby increasing the accessibility and affordability of goods in these markets. LatAm believes efficiency is the key to growth. The company has implemented best practices in construction and design of Class-A warehouses. These efficiencies help their customers reduce operating and logistics costs and enhance supply chain capabilities that directly benefits the local household. For this reason, Capital Finance International named it the Best Industrial Real Estate Developer in Central and South America in 2017. LatAm’s strategic vision is to minimise its ecological footprint by developing energyefficient buildings. The company has developed


"LatAm’s strategic vision is to minimise its ecological footprint by developing energyefficient buildings." the first industrial park with a Certification of Excellence in Design for Greater Efficiencies (EDGE)*, which means it has achieved approximately 20% reduction in energy, water, and material use when compared to its peers. One of LatAm’s highest priorities is to have a positive long-term impact in the communities it serves. The company wants its presence in the region to create lasting community impact, by | Capital Finance International

being a conduit of growth for new services and products in its served markets. It also opens investment by multinationals in these regions who need state of the art logistics facilities to help meet their growth goals. LatAm Logistic Properties is well positioned to help drive growth in the markets it serves. By providing underserved markets with leading building design to maximise efficiencies, it provides its customers with opportunities for growth that were unavailable to them before. Its focus on sustainable design with positive community impact will ensure it solidifies and maintains its position as a long-term market leader providing unique service offerings and solutions in the region. i

*EDGE is a certification approved by the International Finance Corporation, which has co-financed LatAm projects with FMO.

Spring 2018 Issue

> Latin

America: Electoral Super Cycle Kicks Off

As voters in Mexico swing to the revolutionary left, those in Brazil move to the far right. However, in both countries the campaign for the upcoming presidential elections is dominated by candidates promising to eradicate corruption and fight crime. This year, almost two in three Latin Americans will be asked to vote a new president into power. National elections are expected to take place in Costa Rica (April 1), Paraguay (April 22), Colombia (May 27), Mexico (July 1), and Brazil (October 7).


oreover, on April 22 Venezuela celebrates a national exercise in electoral fraud as the country’s increasingly authoritarian president Nicolás Maduro hopes to secure a renewed mandate. In order to obtain the desired outcome, President Maduro outlawed all opposition to his regime. The country has now joined Cuba as an outpost of dictatorial rule in Latin America. For decades the continent’s only functional democracy, Venezuela is now the lone outlier – suspended from regional trade blocs and a humanitarian disaster in the making. THIRD TIME’S A CHARM Former Mexico City mayor Andrés Manuel López Obrador (64) – AMLO for short – is determined to succeed on his third try. A rabble-rouser much loved for his passionate take-no-prisoners style of politics, AMLO narrowly lost the 2006 and 2012 elections, mostly due to unfortunate impromptu statements that wandered off-script and showed a candidate eager to upset the apple cart. Now again running well ahead of the pack, AMLO has so far managed to stay on-message, assuring businessmen and investors alike that they have nothing to fear whilst promising fire and brimstone to those abusing power or privilege. According to pollsters, four in five Mexicans rank corruption alongside violence as the nation’s most pressing issue.

CROSSBENCHER SUPREME Having found the far left to be as corrupt as the mainstream – if not more so – voters in Brazil are ready to swing to the other extreme by dispatching former military officer and archconservative Jair Bolsonaro (63) to the Pálacio do Planalto in Brasília. A member of parliament since 1991, Mr Bolsonaro has eased towards the far, nearfascistoid, right. He expresses strong support for the military dictatorship that ruled the country from 1964 to 1985, dismisses LGBT rights as “unholy and unwholesome,” and suggests torture as a convenient way to extract confessions from suspected criminals. Mr Bolsonaro also calls for the summary execution of anyone found guilty of having committed a premeditated crime. An expert user of social media – he boasts almost five million followers on Facebook alone – and clearly courting controversy as a way to capture and keep the limelight, Jair Bolsonaro is a oneman political extravaganza – he feels out of place in any structured setting. Since taking up his seat in parliament, Mr Bolsonaro has switched political parties no less than eight times, going wherever he feels most revered or best served. However, for all his rage and fury, Mr Bolsonaro is also one of Brazil least effective members of parliament, managing to get only one proposal approved out of 171 tabled.

The more Mexico’s elites fear AMLO, the greater his popularity. Voters in Mexico and elsewhere on the continent now demand real change and seem no longer willing to put their trust in moderates, turning instead to radicals and outsiders to tackle the issues and deliver the results that evaded the outgoing cohort of presidents.

The newspaper also reminded its readers that Mr Bolsonaro in 1999 admitted that he actively evades taxes: “It’s money down the drain.” Infamous for his exceedingly bold statements – the verbal equivalent to shooting from the hip – Mr Bolsonaro in 2017 caused an uproar by saying that a copper who doesn’t shoot and kill criminals should be expelled from the | Capital Finance International

In a country that is home to nineteen of the world’s fifty most violent cities, Mr Bolsonaro’s tough stance on crime is appreciated. Though he transmits a populist and often dumbed down message, the former army captain’s strongest support comes from well-heeled Brazilians, the very demographic that used to back moderate candidates. Described in his military personnel record as a “man of excessive financial ambition, yet lacking logic, rationality, and balance,” Jair Bolsonaro’s electoral appeal stems largely from his commonness: he mirrors and represents the average Brazilian – struggling against the odds, battling a rigged system that discourages social mobility, and fiercely proud of a country that holds great promise but gives little. As such, his rage is directed against the machine and its owners. Mr Bolsonaro wants to make Brazil Great – not “Again” for it would definitely be a first. On the campaign trail, Mr Bolsonaro’s message is straightforward: jobs and guns. “With me at the helm, people will have jobs and guns. They’ll be able to walk the streets at night without fear.” LEADERSHIP VACUUM Whilst Latin America’s electoral super cycle proves that, with the sole exception of Venezuela, the continent’s democracy is alive and well, the region suffers from a severe, and slightly embarrassing, lack of charismatic leaders – people with a clear and realistic vision of the future. Instead, political cowboys are chomping at the bit to take over and provide complex issues with simple, if not simplistic, solutions. Only a few countries have thus far managed to prosper by uninspiring leadership: the presidents of Uruguay, Chile, and Peru – countries with solid economies and boring politics – may not set their world ablaze or promise to deliver miracles but do offer good governance within the confines of the rule of law. Alas, boring is not what Latin American voters seem to be looking for this year. i 167

Special Feature

In December, AMLO courted disaster whilst on the stump in Guerrero State – one of the most crime-ridden in Mexico – when he suggested an amnesty for cartel bosses and their henchmen as a way of re-establishing order or a semblance thereof. After howls of indignation that reverberated across party lines, he quickly withdrew the proposition.

One of the leading contenders for the presidency, Jair Bolsonaro owes his undeniable popularity to a carefully pruned reputation for honesty. He is one of only a handful of politicians not yet directly or indirectly involved in some corruption scandal or other. However, that may soon change. Brazil’s largest daily Folha de São Paulo discovered that Mr Bolsonaro owns fifteen properties with an estimated total worth of around €4m. Digging through public records, the paper’s investigators discovered that most of the properties were acquired for a fraction of their true value.

force. Earlier, he assured – on camera – a fellow member of congress that he wouldn’t rape her: “You don’t deserve that.” He later apologised for the remark, albeit rather half-heartedly.

> Kandeo:

Deploying the Power of Private Equity


In Latin, Kandeo (candeo) means “grow brilliant” which perfectly sums up the firm’s mission. Kandeo seeks to make its underlying assets shine and grow brilliantly; firstly, in financial results and secondly, in social and environmental key impact indicators. Kandeo applies this mentality not only in the operation of its underlying assets, but also in how it approaches operations inside the fund.


n 2009, Eduardo Michelsen Delgado, CEO and managing director, conducted an industry-wide LATAM research project on private equity, with the ground support of experienced consultants from one of the most prestigious management consulting firms globally. The study identified key obstacles (in terms of risks) related to private equity investment in Latin America ex-Brazil, as well as key opportunities (in terms of industry potential). Regarding key obstacles, two major risks were identified. The first one was exit risk. Latin America ex-Brasil has stale capital markets. As a result, considering IPOs as tangible potential exits can prove to be a mistake. As a result, a strong private transaction market is crucial to mitigate deep discounting or keeping assets on the fund books too long affecting IRR. The recommendation was to focus on an industry or group of industries that have a significant number of private transactions in the region. The second risk identified was deployment. Midmarket companies in the region are normally family owned businesses that do not understand the role of private equity. They seek capital normally when companies are in trouble and do not see a capital provider as a key partner, despite an awareness of the necessity of having an organisation several times larger than its

a2 Funds | aUS$ 377 AUM | a14 Investments a15 First-Rate Institutional Investors aOffices in Colombia, Mexico, Peru, and Miami current size. Therefore, the mitigator should have a local, reputable, and respected team with a proven track record to add operational value to underlying assets. Potential targets clearly see the value in association beyond capital and will be more prone to sharing control (at lower multiples of entry as well). In relation to key opportunities, the top ten growing industries in the region were identified. Two filters were applied: first, industries with strong output in countries that did not implement regulatory reform after the crisis, were filtered out. Second, industries with low barriers to entry were also ruled out. From the remaining list, the industry with lowest penetration, highest growth, and largest number of private transactions in the region was selected.

by the traditional banking system in Colombia, Mexico, and Peru, were targeted. Kandeo believes that both social and environmental objectives are not exclusive of financial results, but rather complement them. A very hands-on, detailed effort at the local underlying asset level is required to guarantee both financial results as well as environmental and social impact. An integral part of Kandeo’s strategy implementation comes from developing governance at the grassroots level of the underlying assets within which it invests. The following outlines the process of the manner in which Kandeo generates social impacts and incorporates ESG elements in the investment process:

Once the risks and mitigators were identified, the industry was chosen, and the strategy defined. Private, alternative financial services companies serving people and small/medium sizes companies that are not served efficiently

Sector Focus – Kandeo generates its principle social impact through its investment thesis, which is to invest in both companies that provide financial services to people, as well as in companies that are not sufficiently served by the

A mechanic at Mareauto Colombia, a vehicle rental agency that operates the AVIS franchise in the Andean region, installs a specialised

Colombian laborer improves productivity with a power-tool sold

oil filter that will forever eliminate the vehicle’s need for oil changes.

and financed by Rayco, a retailer in Colombia.

168 | Capital Finance International

Spring 2018 Issue

Colombia: Bogotá

Clients from the Mexican microfinance company, Progresemos,

Mexican nopales farmer stands among her crop that has been made possible through a loan from the Mexican microfinance institution

participate in the company’s business education course.

Siempre Creciendo.

traditional financial system. Given that Kandeo operates in emerging markets where financial inclusion is an important systematic challenge, all its companies inherently generate important social impacts through their core business operations.

processes. This management system serves to consistently improve the company’s performance in social and environmental aspects while effectively managing risks that could affect the company’s operations and/or the reputation of its investors.

ESG Due Diligence – Each new potential investment includes a detailed social and environmental due diligence process to identify the key social and environmental risks present in the operation, as well as operational inefficiencies and areas for improvement.

New Impact Initiatives – Throughout the investment period, Kandeo will consistently look for opportunities to integrate new social and environmental initiatives that generate operational efficiencies and/or additional social and environmental impacts. Kandeo is able to leverage its extensive global network to supply both operational and financial resources that support the successful implementation of these projects and derive the maximum impact of each.

Social & Environmental Management System – Once the investment is made, Kandeo will assist the company in developing an integrated social and environmental management system, which includes areas such as risk identification and mitigation, internal and external communication channels, and ongoing reporting and improvement

Finally, Kandeo is proud to say that the hard work its portfolio companies have exerted while | Capital Finance International

striving for excellence has not gone unnoticed. For example, in 2016 a partner company, Progresemos, won the Best SME Financing Company Mexico by the Global Banking and Finance Review, and was named a Great Place to Work by the international organisation bearing the same name. Rayco, a Colombian retailer, was featured in the Third Edition of The Latin American Private Equity (LAVCA) Deal Book & ESG Cases, which highlighted the company’s initiative to provide agricultural and hand tools to rural Colombian laborers. Acceso Crediticio, a vehicle and taxi financing company in Peru, received the Emerging Innovation in Financial Services award at the XIX Inter-American Microenterprise Forum (FOROMIC) presented by the Inter-American Development Bank, a grant from the international development agency MEDA, and a platinum rating from the internationally recognised impact rating organisation GIIRS. i 169

> Produbanco:

Committed to Innovation Banco de la Producción (Produbanco) has remained focused on the four pillars of its long-term strategic plan: 1) Execute responsible risk management; 2) Maintain market dominance in corporate banking; 3) Expand in small and medium-sized enterprises (SMEs), commercial middle market, personal banking, and credit and debit card; 4) Implement cutting-edge strategies in omni-channel banking which has yielded stellar results in the face of mounting operating challenges for Ecuadorian banking.


rodubanco intends to achieve these goals by reinforcing its customercentred culture, enhancing interrelationships between the different market segments, and strengthening relationships with existing customers. The bank believes in using the most innovative technology available and exploiting the strengths of the Produbanco brand and corporate image to push its objectives forward. Given that the successes the bank has recently achieved have been among its hardest won – especially when set against the backdrop of Ecuador’s languishing economy – it would be reasonable to assume that the bank will prosper by an even greater degree going forward, as oil prices rise and the economy begins to recover. As such, one suspects that the best days continue to lie ahead for this Latin American powerhouse. Produbanco is arguably best known for its unwavering commitment to excellence in the delivery of services. In November 2016, the bank opened a new head office and simultaneously introduced a new corporate identity. The new


"An essential part of Produbanco’s strategy is a strong focus on innovation based on technological developments with the aim of providing better experiences for customers." corporate image is aligned with that of Grupo Promerica and its various regional banks to showcase the bank’s regional presence and prowess. An essential part of Produbanco’s strategy is a strong focus on innovation based on technological developments with the aim of providing better experiences for customers. This is reflected in the new digital account “Be Produbanco” which provides online users with a great tool for their personal finances without ever having to visit a bank branch. The innovative app, which can be downloaded for free, allows customers to open an account without | Capital Finance International

the need to visit a branch. This solution helps manage financial resources with total ease and security. The application can be accessed from any mobile device with an internet connection. The most crucial of Produbanco’s recent innovations has been the launch of its new version of the mobile application, which allows customers to check their account and credit card balances and transactions and make transfers, payments for services and airtime top-ups. Useful and pertinent banking information is now at the customer’s fingertips, including the nearest locations of branches and ATMs, as well as information about the latest banking products and special offers. The bank has now established the solid foundations of its omni-channel project, which provides the customer with a consistent format for its banking services across all consumer devices. Thus, it enables user-friendliness and usability irrespective of whether a customer wishes to access a service on a mobile phone or a desktop computer. As such, customers are

Spring 2018 Issue

given a seamless technological network on which to complete their bank transactions. Within the bank’s strategic plan, Produbanco directs its priorities and efforts towards the digital transformation plan. The bank is focused in short term digital enhancements for their customer base and medium and long term flexibility to allow for the best and most automated user experience possible. CARBON NEUTRAL Produbanco is also at the forefront of the global shift towards clean-energy adoption – and moving away from activities that generate carbon emissions. Last year was the third in a row that Produbanco received a Carbon Neutral Certification which is given to organizations intent on promoting activities that reduce and offset carbon emissions generated by their own operations. The bank also runs several energy-awareness campaigns to ensure its employees have sufficient knowledge about their resource usage. Emissions have further been offset via the sponsorship of 950 hectares of forest in the Zamora Province which has enabled the bank to fully offset its emissions. In so doing, the bank provides a shining example of ecological efficiency and of how to go about using resources carefully. Produbanco’s commitment to the environment has led the bank to introduce the Green Lines credit programme in 2016 – a financing facility with preferential conditions for qualifying companies, targeting various productive sectors in the country. It supports improvements in the use of resources, environmental mitigation, and energy efficiency. The product provides capital and knowledge transfer for companies, projects, and financial institutions that aim to reduce their environmental impact. At the end of 2017, Produbanco placed a total of $30 million in its Green Lines loan portfolio. Produbanco’s corporate social responsibility initiatives continue to achieve impressive results. The undertakings are largely focussed on promoting financial literacy in Ecuador. The main objective is to raise awareness about the importance of actively managing personal finances. The bank provides training on fifteen practical aspects of daily finance, the use of e-channels, and security measures. Again, technology lies at the heart of this Produbanco endeavour. The bank uses several media channels to spread these messages. Elsewhere, Produbanco is heavily involved in assisting Ecuador’s underprivileged communities. Its most important association is with the Su Cambio Por El Cambio Foundation which provides crucial support in the rescue, education, and social reinsertion of approximately 6,000 vulnerable children and adolescents. The bank has also assisted in materially improving the quality of life of around 400 families in eighteen 18 communities within the Bolívar Province – the poorest in Ecuador. Involvement in these communities included important nutritional and dietary advice and support for more than 300

Executive President: Ricardo Cuesta Delgado

children and adolescents, in addition to the development of a structured programme to care for 80 senior citizens. Since September 2016, Produbanco has been part of Global Contract, a United Nations initiative through which the bank has voluntarily committed to align its operations and strategies with the universal principles of human rights, labour, and environmental standards and the fight against corruption – all issues closely linked to the 2030 Agenda for Sustainable Development Goals (SDG). Additionally, Produbanco have made publicly available their ninth Corporate Social Responsibility Report, based on Global Reporting Initiative (GRI) for CSR reports parameters, version G4. GRI is a non-profit organisation that has set up an integrated framework for the presentation of information on sustainability, with principles and indicators that enable organisations to assess and report their performance in economic, environmental, and social matters. The Corporate Social Responsibility Report presents Produbanco’s performance and achievements regarding its environmental, social, and internal governance priorities. It moreover describes how the bank forges relations with all stakeholders. MEET THE EXECUTIVE PRESIDENT Executive President Ricardo Cuesta Delgado of Banco de la Producción SA Produbanco obtained a degree in Economics and Latin America Studies from Florida International University. He completed his studies with specialised courses in strategic planning, management development, | Capital Finance International

financial marketing, treasury, and corporate and consumer credit amongst others. During his career as a finance professional, Mr Cuesta Delgado has occupied top management positions both in Ecuador and outside the country at major financial institutions such as Citibank (Mexico, Panamá, Ecuador), Banco Aserval (Ecuador), and Sociedad Financiera y Banco MM Jaramillo Arteaga (Ecuador). Mr Cuesta Delgado was executive president of Banco Promerica in Ecuador and for the last four years has been the CEO of Banco de la Producción S.A Produbanco of Promerica Group. Mr Cuesta Delago has been an active member and director of entities linked to the financial sector such as ABPE (Association of Privately-Owned Banks in Ecuador – president of the board), Fondo de Liquidez den Banco Central de Ecuador (Liquidity Fund of the Ecuador Central Bank – principal director), AIFE (Association of Financial Institutions in Ecuador – president of the board), Risk Rating Qualification Committee of Thompson Bankwatch (member), and Administrative Council of the Mexican Registry of Credit and Collections (member). Additionally, Mr Cuesta Delgado worked for Citibank NA (New York) as a senior instructor for corporate seminars on credit and risk, consumer credit, and developing management skills. For Visa International (USA), Mr Cuesta Delgado gave seminars on principles of consumer credit as they pertain to markets in South and Central America. i 171

> Ernst & Young:

Argentina Enacts a Comprehensive Tax Reform By Sergio Caveggia, Flavia Cimalando, and Vanina Manteiga

One of the main concerns of the Argentine government is the enactment of tax and social security reform. Late December last year, a new law came into force that amends income tax, valued added tax, tax procedural law, criminal law, social security contributions, excise tax, tax on fuels, and tax on real estate transactions.


he law also establishes a special regime comprising an optional revaluation of assets for book and income tax purposes. Some aspects of the reform

include: Corporate income tax rate reduction: Companies used to be subject to a 35% corporate income tax rate. The law decreases that rate to 30% per January 1, 2018, and 25% as of January 1, 2020.

"It is expected that the gradual changes to tax and social security laws currently underway will encourage long-term investment in the country."

Dividends withholding tax: 7% for profits accrued during fiscal years 2018 and 2019, and 13% for profits accrued as of 2020. Additionally, the law repeals the equalisation tax (i.e. a 35% withholding applicable to dividends distributed in excess of the accumulated taxable income) for income accrued as of January 1, 2018.

from 5% to 15% (depending on the type of asset to be revalued) to the valuation difference. This tax cannot be deducted from the taxable income calculation. Taxpayers are allowed to depreciate the new basis in future fiscal periods. The comparison between the tax paid for basis increase versus the net present value of the higher depreciations would define the financial convenience of this option.

Even though the combined effective rate (corporate income tax rates plus dividend withholding rates on the after-tax profit) will be close to the prior 35% rate, this change is aimed at promoting the reinvestment of profits. The new also amends the income tax law in certain critical aspects, such as thin capitalisation rules, transfer pricing, and limitations on exempt activities and entities, among others.

VAT: The new law creates a system to reimburse VAT credits resulting from the purchase, manufacture, preparation, or importation of fixed assets (other than automobiles) that remain as a VAT credit for the taxpayer after six months. The regulation will establish the method, terms, and conditions for this reimbursement.

Recognition of inflation: The new law reestablishes the adjustment for inflation procedures for new acquisitions and investments carried out in fiscal years starting 2018 and the application of an integral inflation adjustment mechanism under certain circumstances such as the wholesale price index is higher than 100% for the 36-month period before the end of the fiscal period. Step up in basis: The new set of regulation for the option to step up the assets basis and allow tax taxpayers to equalise, to some extent, historical cost to market values. Not only fixed assets are eligible for this, but also interests in other companies and intangible assets. The revaluation is subject to a special tax which will be determined by applying rates ranging 172

Tax procedural law and criminal tax law: The new law also increases the fine for tax omission from the 50%-100% range to 100% of the omitted tax, while the legal maximum for fines for tax fraud is reduced from ten times the tax evaded to six times. The law also modifies the provisions for the reduction of penalties under certain circumstances and sets forth the release of penalties if the taxpayer regularises the situation voluntarily by filing an amended tax return before the tax authorities notify the beginning of a tax audit. Regarding criminal tax law, the change modifies the thresholds for tax evasion. Moreover, the law allows criminal proceedings to be dropped, provided the taxpayer accepts and settles, fully and unconditionally, the obligations evaded within thirty business days after the legal | Capital Finance International

notification to the taxpayer of the criminal charge is filed. This benefit is granted only once. EMPLOYER CONTRIBUTIONS: SOCIAL SECURITY TAX THRESHOLD As from the first half of 2018, a salary threshold is set whereby private and public nongovernment employers shall be exempt from paying social security taxes. Such salary threshold shall be adjusted once a year until it reaches ARS 12,000 in 2022 ($602) or its equivalent in 2022 value. PAYROLL TAX RATE There are currently two payroll tax rates that the companies may use to calculate their social security contributions, depending on the activity and the total amount of annual sales: 21% and 17%. With this reform, the government gradually unifies the rates from 2018 through 2022, setting as from that period a general 19.5% rate for all employers, regardless of their activities and total annual sales. Consequently, those companies that are currently applying the general payroll tax rate (17%) will apply a higher rate as of 2022, while those, which are currently applying the 21% rate, will reduce its social security costs. On the other hand, the labour reform drafted by the Ministry of Labour, Employment, and Social Security, has been scrapped after the government failed to reach a consensus with business people, labour unions, and the opposition in Congress. However, the government aims to make some gradually amendments to employment contract law. It should be noted that the regulation of the new is still pending. This is a comprehensive tax reform package that needs detailed regulations to give more certainty to each amendment. Moreover, it is expected that the productive financing law which replaces the Capital Market Law will be submitted to the Congress later this

Spring 2018 Issue

years. Turnover tax reforms (local tax imposed by the Argentine provinces on gross revenues) are also on the agenda of the different provinces. Finally, we believe that the labour amnesty that was included in the draft of the now scrapped labour reform will be drafted and approved by Congress in the near future since it seeks to reduce informality in some key sectors of the economy where unreported labour is high, such as construction, farming, and the textile industry. The government intends to register about 300,000 undeclared workers per year

ABOUT THE AUTHORS Sergio Caveggia is a tax partner currently in charge of the Transaction Tax Area in Argentina. He joined EY Argentina in 1994 and has developed a strong expertise over 23 years in international taxation and mergers and acquisition. Mr Caveggia is a certified public accountant. He graduated from University of Belgrano in Argentina and holds a postgraduate certificate in Business and Management from Universidad Católica Argentina (UCA).

over seventeen years in tax advisory services, tax planning, and due diligence for local and international companies. Mrs Cimalando is a certified public accountant and obtained a bachelor’s degree in Business Administration from the University of Buenos Aires, Argentina.

It is expected that the gradual changes to tax and social security laws currently underway will encourage long-term investment in the country. i

Flavia Cimalando is a senior manager of the Transaction Tax Area in Argentina. She joined the tax division of EY Argentina in 2000. Mrs Cimalando has developed a strong expertise

Vanina Manteiga is a senior manager within the Transaction Tax practice of EY Argentina. She joined EY in 2010 and has thirteen years’ experience in labour, human resources, and social security issues. As social security manager, she has performed several due diligence processes in connection with numerous business transactions. Mrs Manteiga has a bachelor’s degree in Human Resources from Universidad Argentina de la Empresa.

Author: Sergio Caveggia

Author: Flavia Cimalando

Author: Vanina Manteiga | Capital Finance International


> Venezuela:

The Awesome Purchasing Power of Huggies It takes an income of about 150 times the official minimum wage to house and feed a family of four in Venezuela for a month. In January, staples such as rice, cooking oil, and bread suffered price increases well over 80% on average. The state-funded “food bonus” most workers are entitled to in December amounted to all of Bs 9,300 ($0.10) which would barely cover the tip in an eatery of the cheap and cheerful kind. The minimum wage – just increased from Bs 456,507.0 to Bs 797,510.4 (mind the precise number) – buys about a dozen eggs and three litres of milk; it is worth less than $8.00


fficially Venezuelans are very rich indeed. At the exchange rate of ten bolivares to the dollar, the minimum wage amounts to almost $80,000 per month. However, only close friends and family of those in power have access to foreign currency at the official rate; all others must turn to the black market where a single dollar commands about Bs 103,000. For the privileged few, however, inflation has brought untold riches. Take a ten dollar note to a moneychanger and receive a cool Bs 1,030,000. Now, using friends of friends in high places get permission to buy dollars from the bank at the official rate. That million plus bolivares now turns into 100,000 greenbacks ready for dispatch to anywhere in the world. But wait, that friend wants his cut – 50%. No worries, that ten dollar note still produced $50,000 in one morning. Next time, try a hundred dollars. This is how Venezuela, sitting atop the world’s largest reserves of oil and natural gas, ruined its economy, bankrupted the nation, and reduced its people to beggars. Corruption is no longer a byword for Venezuela: it defines the country. THE BLAME GAME Yet, President Nicolás Maduro – the undisputed leader of the band of incompetents that rules and ruins the country – insists that his government has done all the right things and is but a victim of an international conspiracy orchestrated by the White House in collusion with most Western powers. To prove his point, sort of, the president in January ordered all air and sea connections severed between his country and the three Dutch islands – Aruba, Curaçao, and Bonaire – dotting the Spanish Main. The islands have already received the first boat refugees from Venezuela and are now putting resources in place to cope with a mass exodus. Early January, the bodies of


"Yet, President Nicolás Maduro – the undisputed leader of the band of incompetents that rules and ruins the country – insists that his government has done all the right things and is but a victim of an international conspiracy orchestrated by the White House in collusion with most Western powers." four Venezuelans, drowned whilst trying to reach a safe haven, were recovered by a Dutch coast guard vessel. In a rambling address broadcast on national television followed by a number of confusing tweets, President Maduro explained that evildoers were carting off Venezuela’s riches – gold, gemstones, and even barrels of oil – to the Dutch Antilles: “This has to be stopped now.” Nonplussed, the government in The Hague promised its full cooperation but noted dryly that trade between the mainland and the islands mostly comprises fresh fruits and vegetables. Meanwhile, a reporter for Bloomberg News ignored repeated threats against his life to map the routes plied by Venezuelan pirates as they trade guns, drugs, and women for diapers on the lawless beaches of southwest Trinidad, just ten miles across the Gulf of Paria from Venezuela. The fishermen of Cedros and Icacos no longer cast their nets; they are now into cross-border trade. Flour and rice bought in Trinidad is worth five times as much on the other side of the gulf. The return trip is also pretty lucrative. Even after the government upped the price of gasoline by 1,300% last year, a gallon still costs only $0.40 in Venezuela – about a sixth of the price charged at the pump in Trinidad. | Capital Finance International

THE DIAPER STANDARD However, diapers are the gold standard of the Gulf of Paria traders – and indeed in all of Venezuela. Veritable mountains of Huggies and Pampers are hauled over the tranquil waters of the gulf. Traders have put in place a diaper arbitrage mechanism to ensure a level playing field. Diapers quotes are available online, in real-time, and updated continuously. Orders are taken, waiting lists assigned, and warehouse space leased with armed guards posted so that investors and speculators alike may store their precious commodity safely. The buying power of diapers surpasses that of most other commodities. Prices for medicines, foodstuffs, and car parts are now habitually quoted in packs of Huggies or Pampers. A good supply of diapers unlocks riches off-limits to others. Countless lives have been saved by diapers when a few packs produce medication not available to doctors or hospitals. Around the Gulf of Paria, the Venezuelans – driven as much by greed as by desperation – control the smuggling business. Fishermen wishing to turn a quick profit need to navigate carefully to avoid the pirates nestled in the mangrove forests of Cotorra Island and in hideouts along the adjacent coast. If feeling generous, the pirates only take the cargo and the outboard engines. Otherwise, they take lives as well. The Venezuelan coast guard, national guard, and navy are in on the act and take a cut from the profits. Every so often, the government in Caracas orders a clampdown to reaffirm its authority. However, within days business as usual resumes. FROM RICHES TO RAGS Some twenty years ago, the coast of Güiria State was home to a large fishing and marine services industry that brought the region plenty prosperity. From this stretch of the coast, the world’s fourth-

Spring 2018 Issue

largest tuna fleet set sail for the Caribbean and Atlantic, landing 10,000 tonnes or more every month. Big trawlers from Asia, the US, and Latin America supplied local canneries with sardine, crab, octopus, and numerous other species. At the time, the town of Güiria boasted large repair yards with floating drydocks to service fishing ships from around the world, employing thousands of skilled and well-paid workers. All that changed in 1998 with the election of Hugo Chávez to the presidency. Ships, yards, plants, and other facilities were expropriated, nationalised, and entrusted to a new state-owned company run by “experts” brought in from Cuba. The government fleet of ships, rust buckets mainly, now idles in port with most vessels bound to the quayside, often half-sunken, inoperable for a lack of spares. The overall catch dwindled from 554,000 tonnes landed in 1997 to barely 60,000 tonnes last year. Seven canneries have ceased production, and thousands of workers laid off, because there is not enough fish to process.

The single tuna cannery still in operation is unable to secure the aluminium needed for the tins and now sells its fish in plastic pouches – a watery mush that looks most unappetising. One half of the unemployed fishermen and yard workers of Güiria have become traders whilst the other half preys on them and the loot brought in from Trinidad – an oasis of calm and prosperity by comparison. The pirates deploy “go-fasts” – rigid hull inflatables with twin 200HP outboard engines that can outrun anything afloat in the gulf. They carry automatic weapons and satellite phones to coordinate their operations with the coast guard. The local garrison conducts a brisk business in small arms taken from its armoury: a Colt AR-15 semi-automatic smuggled across the gulf fetches $7,000 in Trinidad whilst an AK103 assault rifle may touch $20,000- Military grade ammunition goes for $2 a pop. Trinidad lacks naval assets to impose some order in its part of the Gulf of Paria. The country turns | Capital Finance International

a blind eye to Venezuelans trading cocaine, guns, and protected jungle species for diapers or food. Boats from the mainland also put ashore young women hoping to make it to a Port of Spain cathouse. Notwithstanding the pirates, business is booming with some of the more daring fishermen making three round trips a day, pocketing enough money to buy off the pirates. The lawlessness of the villages and towns bordering the Gulf of Paria is but the outward sign of a nation on the brink of anarchy. In Güiria State, Venezuela has ceased to exist: the central government has little to no say over state affairs and merely goes through the motions of exercising its power where it has none. The Cuban “experts” have now returned home, escaping with their lives but not their reputation, leaving behind an almost post-apocalyptic wasteland – a dystopian society where nothing is quite what it seems although – perhaps reassuringly – power still grows out of the barrel of a gun. Indeed, some things never change. i 175

> North America

United States: Family Farms Going Under The American family farm is facing a severe cash crunch not seen since the Dirty Thirties when the Great Depression was followed by a prolonged drought, delivering twin knockout punches that created the Dust Bowl, wiped out untold thousands of homesteads, drove some four million people out of the Plains states, and paved the way for industrial farming.

176 | Capital Finance International

Spring 2018 Issue | Capital Finance International



ver the past four years, net farm incomes have dropped by a staggering 45%. According to the US Department of Agriculture (USDA), farmers and ranchers may expect to lose another 8.7% of their net income this year as prices for corn, wheat, beef, and dairy products show no signs of sustained recovery. Though net farm incomes reached a record high in 2013, the slump that followed took most by surprise for its almost unprecedented depth and the speed with which it hit. Farm Aid, a charity set up in 1985 by Willie Nelson and Neil Young to help raise money for distressed farmers, warned late last year that a new wave of foreclosures is about to be unleashed as debtto-income ratios reach record highs, land values plummet, and working capital evaporates. Farm solvency ratios have deteriorated for five years running whilst liquidity ratios stand at their lowest since 2002. Meanwhile, large-scale farming is booming as large agri-corporations are the new darlings on Wall Street, pursuing vast economies of scale that slash commodity prices and drive individual farmers out of business. An in-depth study commissioned by Farm Aid concluded that commodity prices are not likely to rebound in time to prevent a sharp rise in the rate of foreclosures to a level not seen since the 1980s when – at the peak in 1985 – US farms were being abandoned or repossessed at an almost unimaginable rate of 250 per hour. The weak cash position of most family farmers has forced banks to tighten credit and impose onerous conditions that small and midsized farmers struggle to meet. The Federal Reserve Bank of Kansas reported in January that banks have significantly upped their requirements for collateral and reduced the volume of funding available to farmers. Quoted at $4.41 per bushel, the January 2018 wheat price remains firmly below the break-even point of most family farmers. As a result, the acreage dedicated to wheat has shrunk to its lowest level since record keeping began in 1919. Milk prices have recovered slightly to $15.80 per hundredweight (cwt), a level still well below what dairy farmers need to turn a profit. In January, Western United Dairymen petitioned the California government to allow for an emergency increase of over-base milk prices in order to help the dairy sector survive. The very survival of farming is indeed at stake. A study by the Centers for Disease Control and Prevention (CDC) found that agricultural workers – farmers, ranchers, labourers, lumberjacks, and fishermen – are twice as likely to take their own life as military veterans – the demographic usually deemed most at risk for suicide. Amongst farm workers, the suicide rate is five times higher than for the general population. The actual rate may be higher still: farmers will often stage their suicide as an accident involving machinery. Whilst US family farmers overwhelmingly supported Donald Trump’s bid for the presidency – the GOP candidate received 62% of the rural vote – the now year-old administration has been oblivious to the looming crisis. In fact, President Trump instructed a


lukewarm audience of farmers in Nashville to get up and give him a standing ovation when those present failed to offer one of their own volition. The Trump Administration has so far only reached out to agribusinesses and industrial farming operations granting numerous tax breaks. The USDA calculated that the new US tax code – touted as the greatest tax break ever – will actually raise the tax bill of the lowest-earning 20% of farming families. The department was not spared either: USDA will lose 21% of its budget, hampering its ability to help struggling farmers. Almost unreported, the rollback of the Grain Inspection, Packards, and Stockyards Act (GIPSA) – a dull yet crucial bit of legislation – exposes family farmers and ranchers to the full might of the country’s large meatpacking conglomerates who may now dictate conditions at will. A preview of the fate that awaits US ranchers is offered by the country’s poultry farmers who are already at the mercy of large agribusinesses exercising near-monopolistic powers. “Fully 70% of poultry farmers live below the poverty line. They are bound by an unfair contract system, mostly rigged against their interests and kept in place by a few large packers that set prices and deny farmers fair market value for their labour and products,” says former Missouri Lieutenant-Governor Joe Maxwell who currently heads the Nebraska-based Organization for Competitive Markets (OCM) which advocates for stronger antitrust legislation in order to loosen the stranglehold of large corporations over the nation’s food supply. As the Trump Administration prepares its first farm bill – containing cash outlays of around $900bn over the next decade – family farmers hope and pray, perhaps against better judgment, for a measure of relief. The farm bill is a recurring theme in US politics – a piece of legislative Americana first conceived during the Great Depression and renewed every five to ten years. The bill is usually riddled with riders and provides for almost anything from direct crop subsidies and wildlife conservation to disaster relief, crop insurance, and food stamps. In fact, about 80% of the funds allocated via the farm bill are earmarked for the Supplement Nutritional Assistance Program – formerly known as food stamps. The bit that directly affects farmers is mostly geared towards the needs of large agricultural corporations with a few crumbs thrown at family farmers. However, members of the Republican-led House Agriculture Committee – charged with writing a first draft of the bill – have publicly acknowledged that small and mediumsized farms need help. The committee successfully fought the administration’s plans to chop $70bn off the 2018 farm bill and managed to limit the damage to $10bn. However, those same committee members admit that decisive action is unlikely. Rural voters are now slowly recovering their senses: support for President Trump has slumped to slightly under 40%. The realisation has set in that the radical revamp needed to stave off disaster and save the family farm is not going to take place during the Trump presidency. The most US farmers can hope for is a chance to survive in order to, perhaps, prosper in a distant future. i | Capital Finance International

notable example is the ASEAN Governance Scorecard Initiative – first i with support from the Asian Developm and now also backed by IFC – which benchmarks for individual companie and improve specific governance In addition, Myanmar can leverage Spring 2018 Issue network of governance practitioners, Governance will also play a crucial role in the representatives from ASEAN capita corporatisation of Myanmar’s state-owned authorities and institutes of directo entities. State ownership remains high in the advantage as the country continues to country, particularly in the infrastructure sector; without commercially oriented reforms including corporate governance, this can hinder overall market efficiency and drag economic growth. prudent governance rules for listed companies is a continuous process. In Asia alone, there are ongoing or planned efforts to update listed company rules in China, Indonesia, the Philippines, and Vietnam, amongst others. Myanmar should glean much learning from these efforts.

> World Bank:

World Bank Group Unveils New Initiatives in Investment Policy and Promotion

SMEs At the other end of the spectrum, small and medium-sized enterprises (SMEs) are the backbone of the Myanmar economy and comprise more than 95% of all firms. Continued market | Capital Finance Internatio

By Christine Zhenwei Qiang, Roberto Echandi, and Peter Kusek


or many developing countries, foreign direct investment (FDI) has become the largest source of external finance, surpassing official development assistance, remittances, or portfolio investment flows. In 2016, more than 40% of the nearly $1.75 trillion of global FDI flows was directed to developing countries, providing much needed private capital. The benefits of FDI, however, extend well beyond attracting capital. In today’s global economy, better paying jobs depend on the production of new and better goods and services, and on finding more efficient ways to produce them. FDI is a key vehicle to enable the transfer of technical knowhow, and managerial and organisational skills. It also helps countries diversify their exports and improve access to foreign markets. FDI thus has a significant potential to transform economies through innovation, enhance productivity, and create better-paying and more stable jobs, both in sectors attracting FDI as well as in the supportive industries. Despite the increasing role FDI plays for developing countries, the financing required to achieve the Sustainable Development Goals (SDGs) remains large and largely unmet. To meet the SDGs, private investment will have to expand into new territories. For countries seeking to increase levels of private investment, what policies or approaches should they prioritise? What drives the investment decisions of multinational corporations? Research from the World Bank Group seeks to answer these questions. A recent survey of 750 executives from multinational corporations – presented in the Global Investment Competitiveness Report – finds that investment decisions are driven not only by the characteristics of individual investment projects, but also by the underlying conditions in a country. The survey confirms that above all, a country’s political stability and security matters for investment decisions. The legal and regulatory environment in a country was also important. Laws that are in line with international best practices combined with transparent and predictable administrative processes can make or break a country’s desirability as an investment location. Surprisingly, low labour costs and low tax rates were a critical factor to only one in five interviewed executives. Indeed, further research suggests that investment incentives – such as low

"In today’s global economy, better paying jobs depend on the production of new and better goods and services, and on finding more efficient ways to produce them." tax rates and tax holidays – are generally effective only when investors are wavering between similar locations as a new base for their exports. When investment is motivated by a desire to access a domestic market or extract natural resources, incentives are generally ineffective. LESSONS FROM WHAT WORKS: THE INVESTMENT REFORMERS NETWORK Knowing what matters to investors gives policymakers an edge when it comes to attracting FDI. Armed with this information, policymakers can design rules and regulations designed specifically to influence the decisions of potential investors. Yet, it is nearly impossible to apply a one-size-fitsall approach to investment policy and promotion. Investors prioritise different investment factors depending on their business goals. Moreover, different types of investment affect development in different ways. For instance, investments leveraging a country’s natural resources will have different effects on socio-economic development and respond differently to investment climate factors than investments seeking to sell to the domestic market.

Further, maximising FDI extends beyond attracting new investments. Governments must address policy challenges throughout the investment lifecycle, from attraction to entry, expansion, and linkages with the local economy. Lawmakers need a nuanced understanding of all these factors to generate benefits from FDI. The problem is that policymakers often face a shortage of hard evidence regarding what works. The World Bank Group, which regularly works with its client governments to help them articulate a vision for investment and prioritise reforms to achieve their goals, is uniquely positioned to help fill this knowledge gap. Its new Investment Reformers Network recognises countries which have made effective reforms relevant to international investors and shares these success stories with other governments. By doing so, the network increases the visibility of transformational investment policy and promotion reforms and rewards those governments that have been especially committed to reform. The network highlights their reform stories for other governments to emulate and to increase investor awareness of the reforming economies as potential destinations for foreign investment. Such recognition also helps to bolster the political will for client governments to continue advancing evidence-based investment policy and promotion agendas. At the first meeting of the Investment Reformers Network in October 2017, the World Bank Group recognised from its portfolio of client governments twelve countries, which have achieved significant investment policy and promotion reforms – Armenia, Ethiopia, Georgia, Ghana, Guinea, Kazakhstan, Mongolia, Myanmar, Pakistan, Saudi Arabia, Serbia, and Tunisia.

Figure 1: FDI Inflows, Global and by Development Group, 2005-2016. Source: Statistics and World Investment Report 2017, UNCTAD. | Capital Finance International


Ethiopia’s development strategy has started to deliver positive results. In 2016, the country’s GDP grew by 7.6%, making Ethiopia one of the world’s fastest growing economies. Furthermore, its FDI inflows have increased from $278 million in 2012 to nearly $4 billion in 2016. The recent establishment of major FDI manufacturing projects in the country’s industrial parks, such as the PVH-led investment in Hawassa with its planned 60,000 jobs, shows promise for the success of Vision 2025.

Figure 2: What influences investors' decisions? In a survey of 750 executives of multinational corporations, political stability and friendly regulatory environment were top investment decision drivers. Source: Global Investment Competitiveness Report.

REDUCING UNCERTAINTY THROUGH REFORMS Governments can take specific actions to encourage and attract FDI that benefits their own local firms and businesses. Investment incentives or investment guarantees are frequently used to boost local economy’s competitiveness for FDI. In some industries, this type of de-risking can help, however, fundamental weaknesses in a country’s investment climate must be addressed first. Even the most generous incentive packages are unlikely to sway investors if they cannot obtain a business license, enforce contracts, or get a construction permit. Encouraging transparent and predictable conduct within government agencies can go a long way to boost investors’ confidence in a particular location. Limiting or eliminating bureaucratic inefficiencies, complex regulations and procedures, and unpredictable or arbitrary government conduct can signal that a country is open for business.

Figure 3: FDI in Ethiopia is on the Rise. FDI inflows to Ethiopia increased from $278 million in 2012 to nearly $4 billion in 2016.

Source: World Bank Group.

Participants of the Investment Competitiveness Forum, hosted by the World Bank Group in October 2017, discuss policies to reduce investor uncertainty. LEARNING FROM ETHIOPIA Ethiopia is in the process of a potentially historic economic transformation. Showing bold leadership in Africa, the government’s economic strategy has focused on the transformation of agriculture, the development of manufacturing sector, and the fostering export diversification. Ethiopia’s Vision 2025 strategy aims to achieve

an annual growth rate of 11% and create two million manufacturing jobs in medium and large firms. By 2025, Ethiopia envisions an economy increasingly driven by exports and manufacturing. To achieve this vision, the government is promoting FDI to accelerate industrialisation, boost and diversify exports, and better integrate its market with the global economy. Under this plan, targeted and high quality FDI will play a key role in job creation, export promotion, and in developing domestic capabilities.

Finally, investment protection can be even more critical than investment promotion. Government efforts should aim to encourage investors to stay in the country and expand their operations. Policy initiatives should include strengthening investor protection guarantees, providing proactive investor aftercare, and managing grievances. To maximise the gains from foreign investments, developing country governments must adopt effective reform strategies, champion reform at the highest political levels, and strengthen interagency coordination. They must also balance the public interest with investor preferences to ensure that the host country truly benefits from FDI. An effective FDI policy does not favour foreign investment over domestic; rather, it links the two to build a relationship between firm and host country that is mutually beneficial. i

"To maximise the gains from foreign investments, developing country governments must adopt effective reform strategies, champion reform at the highest political levels, and strengthen interagency coordination." 180 | Capital Finance International

Spring 2018 Issue

Participants of the Investment Competitiveness Forum, hosted by the World Bank Group in October 2017, discuss policies to reduce investor uncertainty.

ABOUT THE AUTHORS Christine Zhenwei Qiang, a Chinese national, is Practice Manager for Investment and Competition of the World Bank Group’s Macroeconomics, Trade & Investment Global Practice. Her teams advise client governments in over 100 countries on catalyzing competition and private investment through legal, policy, regulatory and institutional reforms. Christine joined the World Bank Group in 1998. Prior to joining the Investment Climate Department in 2011, she was Lead Economist at the Policy Division of the Global ICT Department of the World Bank Group. Her main responsibilities included overseeing the Bank Group’s analytical agenda on ICT policies, private investment in telecom infrastructure, economics and impact analysis, as well as leading operations and policy dialog in Asian countries. She has published many journal articles, book chapters and reports on private sector development, economic growth and productivity. She has a PhD in Economics and a M.S.E. in Computer Science and Engineering from Johns Hopkins University and a BA in German Language and Literature from Shanghai International Studies University in China. Roberto Echandi is the Investment Policy Global Lead in the Macroeconomics, Trade and Investment Global Practice of the World Bank Group. Prior to joining the World Bank Group, he was Director of the Program on International Investment at the World Trade Institute (WTI) of the University of Bern. Appointed Ambassador

of Costa Rica to Belgium, Luxembourg and the European Union (2007-2010). He also served as the Chief Negotiator of Costa Rica to the negotiations of the Association Agreement between the European Union and Central America. Echandi undertook his doctoral and LL.M. studies in International Trade Law at the University of Michigan School of Law at Ann Arbor, Michigan; his M.Phil. in Latin American studies with emphasis in economic integration at the University of Oxford. He has published extensively on the legal and political economy dimensions of investment issues, dispute settlement, trade in services and regional economic integration in the Americas. Peter Kusek leads the Applied Research Program on Investment and Competition at the World Bank Group’s Macroeconomics, Trade and Investment Global Practice. His team produces new research

on investment, develops analytical tools, and implements novel diagnostic approaches supporting economic policy reforms in developing countries. Kusek specializes in foreign direct investment and advises developing country governments on investment climate reforms. Kusek has led several flagship publications, including the Global Investment Competitiveness Report and Investing Across Borders Report. Prior to joining the World Bank Group, Kusek worked on small-enterprise development in Bangladesh, on microfinance in Tanzania, and on structural reforms at the Ministry of Finance of the Czech Republic. He was also program manager at the Center for Strategic and International Studies, a Washington-based foreign and security policy think tank. Peter holds a master’s degree in economic policy and international development from Princeton University’s Woodrow Wilson School of Public and International Affairs.

Authors: Christine Zhenwei Qiang, Roberto Echandi and Peter Kusek. | Capital Finance International


> Gibson:

Guitar Legend on the Ropes "You know, I imagine a lot of you wanna know why I call the guitar Lucille. Lucille has practically saved my life two or three times. No kidding, it really has." From My Lucille – BB King


ne of the three Kings of the Blues Guitar alongside Albert King and Freddie King, BB King was born under a good sign on a Mississippi cotton plantation in 1925.

Riley B King (1925-2015) acquired his taste for music in church and launched his career in local barrelhouses and on AM stations with a $15 Sears Roebuck Silvertone on which he had mastered three chords. Inspired by King Biscuit Time – the longestrunning radio show in the US, broadcast daily since 21 November 1941, and birthplace of blues greats such as Sonny Boy Williamson, Pinetop Perkins, and Robert Lockwood Jr – Riley B King went pro and joined the Famous St John’s Quartet to tour the delta. Lured to Memphis by the promise of steady gigs, he eventually signed up with WDIA, one of the first black-owned stations in the country, where Riley B King became the Beale Street Blues Boy. The on-air personality was soon shortened to Blues Boy before being further abbreviated to BB. The initials stuck. In 1948, BB met T-Bone Walker – the legendary inventor of jump and electric blues – and his fate was as good as sealed. The acoustic guitar made way for electric and before long Lucille took to the stage – a Gibson. BB King risked his life for that $30 Gibson, rescuing the instrument out of a dance hall set alight during a fistfight between two men over a woman called Lucille. To remind him of the twin follies– entering burning buildings and fighting over women – BB King decided to call all his guitars – the one saved from the blaze and those that followed – Lucille. BB King’s Lucille is a Gibson by unwritten, yet unbroken, rule – the king does not play instruments made by others. In that he is not alone: on his duckwalk that heralded the arrival of Rock ‘n’ Roll in 1955, Chuck Berry famously carried a Gibson (ES-350T). So does Angus Young, the AC/DC schoolboy, who performs his one-legged duckwalk whilst squeezing an almost incendiary lead tone out of a Gibson SG Standard. Led Zeppelin lead guitarist Jimmy Page, to whom Angus Young owes an enormous debt of gratitude, played Gibsons (such as a double-neck 182

"Whilst Gibson has perhaps lost that special touch, the company still possesses enough of an aura to amaze even the best of guitarists – and a new generation of musicians now waking up to life outside the realm of digits." EDS-1275 on Stairway to Heaven and The Song Remains the Same), as did Pete Townshend of The Who (SG Special), Joe Walsh of The Eagles (Les Paul Standard), Frank Zappa (ES-5 Switchmaster), Jan Akkerman of Focus (L5), and Keith Richards of The Rolling Stones (assorted Firebird and ES models), amongst a veritable rollcall of guitar virtuosos past and present. Yet, the 124-year old Nashville guitar factory is in serious trouble and may soon have to petition the courts for Chapter 11 bankruptcy protection. The company – officially Gibson Brands – must cancel debts of up to $145m before July 23 in order to keep the bailiffs at bay. A further $377m tranche of secured notes is set to mature on August 1. Standard & Poor’s already lowered Gibson Brands corporate credit rating to CCCminus – near the bottom of junk status. Moody’s assigned a likewise depressing Caa3 rating citing “substantial credit risk” and an unsustainable capital structure. Though known and celebrated for its peerless guitars, Gibson diversified into consumer electronics in 2011 with the acquisition of Stanton Group – makers of Cerwin Vega, KRK, and Stanton DJ semi-pro audio gear. A year later, newly-formed Gibson Pro Audio took a significant stake in Japanese consumer electronics giant Onkyo Corporation which was increased over time to 16.5%. Gibson also secured a majority stake in TEAC and, in 2014, bought the consumer electronics business of Royal Philips of The Netherlands. The company also owns Baldwin Pianos. Last year it shut down Cakewalk, a professional sound | Capital Finance International

recording software package in a first attempt at a corporate reorganisation. Gibson Brands has now also announced the “streamlining” of its Philips product line and the “monetising” of underperforming business segments. Expect more plant closings. POWERS THAT BE However, Gibson Brands’ troubles extend to beyond its electronics division. The company has repeatedly run afoul of environmental legislation – and political sensitivities – as it sourced hardwood for its acoustic and electric guitars. Twice the US Fish and Wildlife Service raided the company’s factories in Nashville and Memphis seizing wood imports from Madagascar and India which had been mislabelled on customs forms. CEO and co-owner Henry Juszkiewicz agreed to a $300,000 fine but insists that his company was unfairly targeted and accused the Justice Department of “legal overreach.” Mr Juszkiewicz promptly appealed to Republican Tea Party members for support, which he received, arguing that arch rival Fender uses the same hardwood, imported from the same German supplier, without suffering raids. Part of the rosewood and ebony wood the company managed to reclaim from the Fish and Wildlife Service was used for the fretboards on a special edition Government Series of guitars, finished in a dull grey tone and marketed under the slogan Fight the Powers That Be. Power, however, is now vested in a core group of bondholders who fear the company will founder unless drastic measures are taken. They want Henry Juszkiewicz to resign as CEO and entrust the company to a new management team. A tug of war is about to begin. Bondholders raised the alarm after CFO Bill Lawrence suddenly quit late last year, barely twelve months into his job. Following Mr Lawrence’s hasty departure, Gibson Brands unveiled plans to sell off property, business segments, and stock holdings in order to raise cash. Mr Juszkiewicz and two of his mates from Harvard Business School bought Gibson in 1986 for a reported $5m from its Ecuadorian owner Norlin Music. At the time, the company languished with sales barely topping $10m annually – and

Spring 2018 Issue

haemorrhaging money. It was saved by the business savvy of its new owners and, crucially, by Saul Hudson – aka Slash – of Guns N’ Roses whose brilliant guitar work, as brutal as original, made his instrument of choice – a Gibson Les Paul – an immediate object of intense desire in the eyes of millions of fans and aspiring rock stars. The 1987 release of Guns N’ Roses debut studio album Appetite for Destruction afforded Gibson a new lease on life. Mr Saul “Slash” Hudson is still the brand’s global ambassador.

Gibson is to the electric guitar what Stradivarius is to the violin. Gibsons are nearly indestructible even in the hands of rock guitarists. Built like a brick house and requiring only minimal care, a Gibson will outlive its owner and traverse generations. In a corporate environment that thrives on built-in obsolescence and inconsequential marketing-driven tinkering, a company that manufactures a product for the ages is not just an oddity but a financial disaster in the making.

SURVIVAL MODE Market analysts believe that a stand-alone guitar division can profitably be spun off from the longsuffering group, thus ensuring the survival of the iconic brand, albeit under new ownership. Industry watchers agree that Gibson is probably too big to fail as a purveyor of choice guitars and point to Fender for a blueprint of a profitable future.

The zeitgeist also turned against Gibson and the art of guitar-making as newer generations of musicians went digital and Chinese factories churn out copycat guitars that reach retailers for $50 or less and are, actually, not all that bad. Gibson’s attempt at keeping up with the times – and the demand for gizmos – backfired badly in 2015 when the company decided to outfit its entire line of guitars with the G-Force automatic string tuner. The device proved erratic and made tuning actually more difficult than before. As a result, second hand prices for 2015 vintage Gibson guitars have hit rock bottom. The gadget has since been dropped.

Arizona-based Fender Musical Instruments Corporation – home to the Stratocaster and the Jazzmaster – has refused to stray from its core business and remains doggedly focussed on designing and manufacturing the guitars and amplifiers demanded by the market. As Gibson diversified and became an audio electronics company, Fender consolidated and remained a musical instruments manufacturer. However, Gibson is, at least in part, also a victim of its own success.

AMERICANA Proudly made in the US of A since the late 1800s, first in Kalamazoo, Michigan, and from 1984 in Tennessee, Gibson already enjoyed a solid reputation when it introduced the legendary Les Paul range of guitars – in custom, standard, | Capital Finance International

special, and junior versions – in 1952. The series, still in production, was designed by, and named after, jazz, country, and blues guitarist Les Paul (1915-2009), widely considered a pioneer of the solid body electric guitar and credited with the first use of the sound-on-sound recording technique – a precursor to multitrack recording. Since then, the company has launched a full range of electric and acoustic guitars to almost universal acclaim. Of late, however, quality has sagged and the brand seems to coast on its rich heritage. Gibson guitars still command top dollar with some models retailing for $5,000 or more. The price differential with imports is exceptionally steep and no longer entirely justified on the basis of quality alone. Cognoscenti looking for the “real thing” increasingly turn to the Heritage guitar company set up by former Gibson luthiers in the old Kalamazoo plant. Here, innovation is a swear word and guitars are made the old fashioned way – by hand, one at a time. Whilst Gibson has perhaps lost that special touch, the company still possesses enough of an aura to amaze even the best of guitarists – and a new generation of musicians now waking up to life outside the realm of digits. There may be better guitars out there for less money – ESP (Japan) and PRS Guitars (US) are making serious inroads – but none of them carry the heritage of an original Gibson – especially one to which a personal history or anecdote is attached. i 183

> Asia Pacific

China: The Regressive Power In a barely reported speech at last year’s 19th quinquennial Communist Party congress, President Xi Jinping of China reached out to the wider world, generously offering his country’s “wisdom and approach” to solving the many challenges facing mankind. The president later clarified that he doesn’t seek to export China’s political or economic model. The country merely wishes to detail its particular, and spectacularly successful, development model to those who yearn for the inside scoop on China’s shortcut to riches.

President Xi Jinping

184 | Capital Finance International

Spring 2018 Issue | Capital Finance International



bserved from the outside, contemporary China very much looks like a champion of capitalism with the Shanghai skyline as its flashy business card. The country is home to twelve of the world’s hundred most valuable companies. China is also the world’s largest exporter. It sits atop some $3.1 trillion in currency reserves, boasts a fairly robust current account surplus, and works hard to consolidate and expand its position as a creditor nation. On its way to the top of the NIIP ranking (net international investment position), China now only needs to best Germany and Japan. Yet, China is not a market economy. For all its capitalist bling, the country remains a oneparty state with a planned economy. It just so happens that the Chinese turn out to be much better planners than the micro-managing Soviet economists of former times. Instead of trying to precisely control production levels, input requirements and countless other variables, the country’s leaders set out grand goals and visions which they expect to be met. The state encourages, cajoles, and buys compliance. It also offers opportunities that no savvy entrepreneur can ignore. These often come sprinkled with easy credit for new strategic pursuits. Though the country’s leaders use every opportunity to declare their government innocent of imposing its will on others, the reality on the ground says otherwise. Only days after the Philippine government lodged a meek complaint over China’s attempt to claim sovereignty over the disputed Scarborough Shoal in the South China Sea, Beijing sanitary authorities ordered an import and sales stop of bananas from The Philippines citing health reasons. German carmaker Mercedes Benz was forced to make a formal apology after posting a quote from the Dalai Lama on its corporate website. Countries signing up to the much-touted Belt and Road Initiative in the hopes of receiving part of the $1tn earmarked for infrastructure development must agree to settle any disputes in Chinese courts or use China-based arbitration panels. As it behoves a leader of a one-party state, President Xi Jinping delivers speeches that go on for hours on end. China watchers carefully dissect his words to distil hidden messages and detect minute changes in policy. However, at the last congress there was no need to do so. President Xi clearly signalled a tightening of the Communist Party’s grip on the country. He warned of severe challenges facing China as the country consolidates its many achievements and lays the groundwork for future growth. The president promised to tackle “longoverdue problems” such as the reform of state-run enterprises, the strengthening of financial sector regulation, and improve the coordination between fiscal and monetary policy. Not a word however on political reform apart from a reaffirmation of the communist party’s supremacy. President Xi also ensured that China will continue to welcome foreign investments. However, the tightening of the party’s hold on events has some


"The removal by the National People’s Congress of the term limits on the presidency allows Xi Jinping to rule the country for as long as he fancies, making somewhat of a mockery of the declared goal to transform China into a full-fledged democracy in seventeen years’ time." worried that the country may introduce new barriers to foreign-owned businesses as it pushes for the strengthening of domestic corporations. The China 2050 plan, unveiled last year, calls for the development of indigenous technology to power the next stage of growth. The plan sees China becoming a “moderately prosperous” country by 2020, a “modern socialist” country by 2035, and a “prosperous, powerful, democratic, harmonious, and beautiful socialist” country by 2050. The middle stage is perhaps the most interesting one because a policy framework is now being put into place to transform China into a fount of scientific and entrepreneurial innovation – presumably one no longer in need of stealing technology developed elsewhere. According to President Xi, his push dovetails with the Great Leap Forward as it aims to realise the New China Dream first expressed in 1949 when the People’s Republic was proclaimed by the communists after emerging victorious from the Second Chinese Civil War. Whilst the aims of President Xi’s grand vision are lofty and commendable, they also require a heap of salt. The removal by the National People’s Congress of the term limits on the presidency allows Xi Jinping to rule the country for as long as he fancies, making somewhat of a mockery of the declared goal to transform China into a fullfledged democracy in seventeen years’ time. The 2,924-strong congress – the largest parliamentary assembly in the world – remains a toothless body tasked with duly rubber stamping its approval to whatever legislative initiative the executive puts before the delegates. Then again, the Chinese definition of democracy differs significantly from the one the employed by the West. Even so, on local and regional level Chinese voters wield considerable powers and regularly force the removal of unpopular and/or corrupt officials. In China, democracy ends at the city limit. The idea – long popular amongst China watchers – that the country’s increased prosperity would eventually lead to calls for democracy has failed to materialise. In fact, as long as the leadership can command robust economic growth – and the attendant rise in incomes – the Chinese seem happy to keep quiet and accept authoritarian rule. | Capital Finance International

However, this does not mean that the Chinese people are appreciative of the regime’s absolutist character. In March, a short video clip that had gone viral was promptly removed by censors; it showed a reporter theatrically rolling her eyes as one of her more sycophantic colleagues posed yet another open-door question to some pompous official gloating with self-importance. The clip was not only taken offline but internet searches for a “woman in a blue dress” were blocked as well. Pretty much the only way for the Chinese Communist Party to lose its grip on events is for the country’s economy to tank. Growth without freedom is bearable; a recession without the freedom to complain, apportion blame, and eject the culprits is not. Since China embarked on its growth path, the country has not experienced a slowdown. This, more than anything else, explains the resilience of its upper caste. It follows that as long as China’s economy fares well, its politics are unlikely to change. Expected to supplant the United States as the world’s largest economy, China getting a chill will undoubtedly result in the world catching a cold. Thus, wishing for the country to open up politically becomes a self-defeating proposition. There is, however, a way to encourage the Chinese government to soften its stand that does not require brinkmanship. This includes dampening the West’s optimism that China will come to behave in more predictable and acceptable ways as it develops. President Donald Trump’s rather unrefined approach to trade matters may – inadvertently – hold the key: the Chinese are very familiar with the bending of rules and the application of raw power, and as a rule will want to avoid a direct confrontation with the madman wielding a formidable stick. Kowtowing to Beijing in the hope of gaining access to the country’s buoyant and lucrative market is an approach that simply does not work. Moves afoot in Europe to stop Chinese companies acquiring high-tech firms fit into a new realpolitik that aims to encourage China to open up its markets and let go of its mercantilist policies. For all its personnel changes Team Trump has so far remained remarkable consistent in its aim of rerouting global supply chains away from China. The European Union, though not as outspoken on the topic, is discreetly working towards the same end. Business leaders are also no longer advocating policies to seek to accommodate Beijing’s often quite unreasonable demands and now speak of “promise fatigue”. Slowly the contours are emerging, not of a New China, but of the Real China – not a responsible stakeholder in world affairs, but a power bent, ultimately, on rewriting the global agenda to suit its particular needs and convictions. That is not, per se, an unreasonable aim for a world power. However, others need not agree or sign up. In fact, China’s proposition is a particularly disagreeable one for it sets the clock back on personal freedom and expression. That is not progress. i

Spring 2018 Issue

> IFC on Climate Smart Investment:

A Gateway for Green Growth in South Asia By Ms Alzbeta Klein, IFC Director and Global Head for Climate Business

Today in India, with a tap of a smartphone, a manufacturer instantly books shipping services for his/her goods through a virtual marketplace. BlackBuck’s online platform has rapidly grown to connect over 350 shippers with a network of over 80,000 freight truckers, much like the Übers and Olas of passenger ridesharing applications. Using this profoundly simple idea, BlackBuck is bringing unprecedented efficiency and transparency to transport logistics in the world’s fastest growing economy.


his innovative and climate-smart business model, and many others like it across South Asia, sheds light on how the private sector in the region has adapted to global economic headwinds, capitalising on climate-related opportunities for rapid growth. A recently issued report by the International Finance Corporation (IFC) – a member of the World Bank Group – Climate Investment Opportunities in South Asia finds an aggregate investment opportunity of $3.4 trillion in key sectors such as green buildings, transport including electric vehicles, urban infrastructure, renewable energy, and climate smart agriculture in the region’s transition towards a low-carbon growth path. Although a significant portion of this investment potential lies in India due to the scale of its markets and size of its population, there is substantial untapped opportunity for growth in the rest of South Asia. WHERE ARE THE INVESTMENT OPPORTUNITIES? Businesses in South Asia are now taking a leadership role in transitioning the region towards a low-carbon and climate-resilient economy, benefitting from unmistakable signalling from state and local governments. Recognising that inaction could cost the region more than $73 billion per year on average through 2100, the governments of Bangladesh, Bhutan, India, the Maldives, Nepal, and Sri Lanka have each established climate action targets as signatories to the 2015 Paris Agreement. These policies are creating a favourable environment for businesses to invest in ambitious climate-smart technologies and account for climate risks inherent to their business models. There are several areas in the region that hold the greatest promise: Climate-smart urban infrastructure: The Climate Investment Opportunities in South Asia report finds that 250 million more people are expected to inhabit South Asia’s cities by 2030. This

"Although a significant portion of this investment potential lies in India due to the scale of its markets and size of its population, there is substantial untapped opportunity for growth in the rest of South Asia." will create a $1.5 trillion opportunity for green buildings investment between 2018 and 2030. In few countries is this more apparent than in India whose urban population is expected to grow to 590 million, or 40% of the total, by 2030. Movement of India’s young, large, and growing labour force to urban areas is creating a significant investment opportunity to create climate-smart urban infrastructure to accommodate this shift. Ground-breaking public-private partnerships, such as street lighting renovation in cities like Bhubaneswar, are demonstrating how the private sector can rise to meet ambitious targets set by the government. By tying private sector rewards to energy saved by the city, this agreement has accommodated retrofitting of nearly 20,000 street lights throughout the city and created a centralised control and monitoring system. The IFC is replicating this project across the country in Jaipur, Berhampur, Cuttack, Rourkela, and Sambalpur – collectively reducing greenhouse gas emissions by nearly 50,000 metric tons per year while making streets safer for citizens. The need for modern, climate-smart infrastructure is no less vital in rural areas. In Bangladesh, where approximately 70 million | Capital Finance International

people lack access to grid-based electricity services, and another 60 million have only sporadic access, there are new clean energy solutions. IFC’s Lighting Bangladesh initiative aims to provide access for 2.5 million people in the country to clean, affordable energy by catalysing the country’s private sector market for modern off-grid lighting products, home systems, and mini-grid connections. With a role to serve in both urban and rural communities, alow-carbon transportation infrastructure is also emerging as an attractive private sector investment opportunity that will play a key role in driving future economic activity. For example, Bhutan’s 2040 Integrated Strategic Vision outlines the construction of 2,500 kilometres of rural roads by 2040, expanding and improving highways, and introducing low carbon inter- and intra-city public transport services. In particular, the country has announced plans to replace its entire fleet of cars with electric vehicles and has partnered with Nissan Motor and Mahindra & Mahindra to replace the entire public-sector and taxi vehicle fleet with electric vehicles in its capital city, Thimphu. The government has provided tax exemptions for the importation of electric vehicles to further promote their uptake. Clean energy: Rising to meet demand for access to energy, South Asia can unlock over $411 billion in renewable energy investments, not including hydropower projects, through 2030. This significant financing requirement cannot be fulfilled entirely by public funds given competing government priorities and the sheer scale of investment required. Businesses and investors across the region are already acting to increase their green investment. In 2015, 293 companies pledged to invest in $100 billion worth of renewable energy projects in India by 2022 as part of the country’s RE-Invest Summit. 187

Climate-smart agribusiness: Climate-smart investment opportunities in the region are also abundant in sectors beyond infrastructure and energy. In Nepal, agribusiness employs almost 66% of the working population and contributes a third of the country’s GDP. Highly vulnerable to climate change, the country has prioritised resilience to ensure food security by promoting resource efficient technologies and local crops – creating an investment opportunity of $4.8 billion through 2030. To help lay the foundation for future investments in its agribusiness sector, Nepal has partnered with the Pilot Program for Climate Resilience, which aims to increase revenues of farmers and agribusinesses throughout the region by identifying and promoting high yield climate resilient soil and seed varieties and water management practices.

Figure 1: South Asia's climate-smaart investment potential 2018-2030 ($ billion). By fully meeting climate targets South Asia can unlock nearly $3.4 trillion in climate-smart investment © IFC.

Financial innovation plays an important role helping South Asian companies adapt and thrive in increasingly climate-vulnerable industries. Bangladesh’s agribusiness sector, for example, contributes 20% of the country’s gross domestic product but is highly vulnerable to frequent natural disasters – making lenders reluctant to extending finance to the sector. Responding to this unmet need, Green Delta Insurance has developed weather index-based insurance products for smallholder farmers and financial institutions lending to the industry, helping to minimise the impact of crop losses caused by drought, flooding, and cyclones. Once fully subscribed, these products are expected to cover 75,000 farmers across Bangladesh, helping the country realise a potential $9.1 billion in climatesmart agribusiness investments through 2030. CONTINUED SIGNALLING REMAINS CRITICAL Despite this admirable progress, unlocking trillions more in finance for climate-smart projects in key sectors such as transport, green buildings, waste, water, agriculture, and renewable energy will require further appropriate reforms. By intensifying their upstream engagement with the private sector and streamlining processes for project development and approval, South Asia’s governments can more efficiently channel funds towards catalytic market-creating investments. For example, Sri Lanka has announced plans to introduce standardised e-procurement and permitting processes for climate-related projects. Meanwhile, Bangladesh and Nepal are pursuing public-private partnerships for public transport infrastructure and hydropower, respectively. These proactive investment policies are helping reduce project transaction and administrative costs while providing developers more certainty with more predictable returns on investment.

Ravi Saini sells fruit under new street lighting in Jaipur. © Iwan Bagus/IFC.

In Sri Lanka, the government’s target to shift away from imported fossil fuels to achieve energy selfsufficiency by 2030 through domestic renewable energy has attracted significant private sector interest. In 2017, the IFC extended its long-term partnership with the Commercial Bank of Ceylon, 188

committing $100 million to help the bank expand its lending for private sector renewable energy and energy-efficiency projects in the country. These projects are expected to create up to 23,250 new jobs while saving over 165,000 tonnes of greenhouse gas emissions annually. | Capital Finance International

Often these infrastructure projects and publicprivate partnerships occur at the local or city level, where creditworthiness is a bottleneck to accessing the long-term resources needed to finance projects. Introducing credible accounting frameworks, financial management systems, and independent audit can help these projects

Spring 2018 Issue

Agriculture employs two-thirds of the population in Nepal. ©Simone McCourtie/World Bank.

"South Asia’s governments have already taken significant steps towards outlining and fulfilling their nationally determined contributions as per the Paris Agreement." achieve investment-grade creditworthiness and tap into international capital markets. For example, in 2017 the Indian city of Pune raised $30 million in financing for urban water infrastructure through a municipal bond. Its creditworthiness was earned by modernising its tax collection system, developing a debt policy, and offering state guarantees and escrow accounts for funds. Targeted sector-specific incentives aligned with national climate goals can also help create opportunities for private sector engagement. For example, India has introduced auctions for solar power, Sri Lanka has a green buildings code and evaluation system, Bhutan has a target for electric vehicles deployment, and Maldives is integrating resilience into its new urban infrastructure development. These policies can be supplemented by campaigns to raise awareness among companies, financiers, and the public to increase demand for climate-smart investments. IFC’s new report offers recommendations to help unlock private sector financing for climate-smart investment opportunities in key sectors of interest to businesses in South Asia. Demonstration projects can be implemented to signal commercial viability and raise awareness in the market. Streamlining procurement and processes through measures such as e-procurement will help to encourage public private partnerships. All of this will help to create markets for climate business. With the right policy frameworks in place, trillions more in climate-smart investment will follow. South Asia’s governments have already taken significant steps towards outlining and fulfilling

their nationally determined contributions as per the Paris Agreement. However, to fully meet their climate-friendly development goals, countries in the region will need to scale and replicate their progress across sectors. Attracting private finance through incentives, financial innovation, and business models targeted at sector specific local conditions will help create markets for climate business essential to achieving these targets. i ABOUT THE AUTHOR As the Director and Global Head of IFC’s Climate Business, Alzbeta’s role is to facilitate business growth, provide thought leadership, fundraise and facilitating all work related to renewables, climate-smart agribusiness, green bonds and other climate business areas. Prior to her current appointment, she was a director and global co-head of Agribusiness, Manufacturing and Services Investments group where she managed over $13 billion of assets in emerging markets, leading a group of 400 bankers in 60 IFC offices worldwide. During the past 20 years, Alzbeta worked in many areas of IFC and rose through the ranks, including serving for two years as the Chief of Staff to IFC’s former CEO Mr Lars Thunell. In her current position, Alzbeta revitalized and grew IFC Climate Business which now accounts for a quarter of all IFC investments. She created and currently executes the new climate business strategy which envisages further growth of business anchored in new technologies and their facilitating role in business growth, particularly in emerging markets. Her team also piloted and implemented carbon pricing for the Corporation’s largest investments, and a corporate disclosure of carbon footprint. | Capital Finance International

Alzbeta joined IFC from the Export Development Corporation (EDC Canada) and the Canadian Imperial Bank of Commerce (CIBC). She received Master’s degree in Economics from the University of Ottawa, Canada, where she also studied for her doctorate; engineering degree from Prague University, Czech Republic; and executive education from Harvard Business School and INSEAD. She holds a Chartered Financial Analyst (CFA) designation. She has served on several corporate and non-profit boards, including New York University Stern Center for Sustainable Business Advisory Board, Hans Merensky (South Africa), Grupo Los Grobo (Argentina), ShoreCap Investment Fund (US) and as the founding board member of the Chartered Financial Analyst (CFA) Society in Russia. Alzbeta currently resides in Washington, DC with her family. She speaks five languages and is an accomplished four times marathoner.

Author: Alzbeta Klein


> BSC (BIDV Securities Company):

Building on a Solid Foundation


IDV Securities JSC (BSC) is a Vietnambased provider of financial investment services formally established and operating since 1999. The company went public in 2010 and is listed on the Ho Chi Minh City Stock Exchange (HSX). The company counts on almost 190 professionals – all with graduate or post graduate degrees – to provide a wide range of financial products and services to institutional and individual investors both domestic and foreign.


Last year proved particularly successful for BSC. The firm’s sales grew by more than 37% and its after tax profit came in at VND 174bn - a 45% increase over 2016. Enjoying access to the large client base and branch network of the Bank for Investment and Development in Vietnam (BIDV), its parent company, BSC managed to expand its operations and rapidly improve the quality and range of its products and services. Thus, the company saw its own client base grow from around 80,000 at the | Capital Finance International

end of 2015 to almost 117,000 by the end of last year. BSC claims a leading position on the lists of government bond auction members and bidding brokers according to the ratings on Hanoi Stock Exchange (HNX). In stock brokerage, BSC is consistently ranked amongst the ten largest securities dealers on both the Hanoi (HNX) and Ho Chi Minh City (HSX) stock exchanges.

Spring 2018 Issue

Thanks to its expert staff, the BSC Investment Banking Division has closed high profile transactions with companies such as Binh Son Refining and Petrochemical Company (IPO), Vietnam Airline Company (IPO), Vietnam National textile and Garment Group (IPO). BSC also acts as the share divestiture advisor of PENM Partners at Eurowindow and strategic share purchase advisor of CJ Cheijidang at Vissan JSC. BSC has successfully offered bond issuance advisory services to Thanh Thanh Cong Group (VND 1,100bn), and Lilama Corporation (VND 800bn). The most high-profile transaction that BSC has completed recently was advising Binh Son Refining and Petrochemical Company on its IPO. This IPO attracted a total of 4,079 investors, including 74 foreigners. Demand for Binh Son’s shares exceeded supply by 2.7 times. The IPO raised $245 million for the Vietnamese government. The successful completion of these and other transactions are the solid foundations that enable BSC‘s operation to build its corporate future. BSC’s research and analysis activities are focused on continuously improving its team and thus offer strong backup to the front office. Thanks to its broad and deep database, BSC is providing high quality reports to meet the requirements of investors. In December 2017, the BSC research and analysis team was honoured by Euromoney with many awards: Top 2 for Best Analyst for Diversified Financials, Top 3 for Best Strategist, Top 3 for Best Economist, Top 3 for Best Small Cap Analyst, Top 2 for Best Analyst for Automobiles & Components, and Top 2 for Best Analyst for Insurance, amongst others. Aiming to become the premier investment bank in Vietnam, the entire BSC team worked extremely hard to provide clients with comprehensive and reliable financial services. Since Vietnam Stock Market officially kicked off the trading of its Futures Contract Index in August 2017, BSC has immediately become one of seven securities companies taking part in the derivatives market, providing securities and investment advisory services to clients wishing to trade on the Futures Contract Index. In order to provide covered warrant offer products, BSC is issuing additional shares to increase its charter capital in 2018 to at least VND 1,000bn. BSC’s additional share issue is slated to complete during Q1 2018.

"BSC’s contribution to the development of Vietnam’s financial markets has been recognised by many domestic and foreign organisations." | Capital Finance International

BSC’s contribution to the development of Vietnam’s financial markets has been recognised by many domestic and foreign organisations. It has been honoured as the Best Debt Capital Market House and Best Investment Bank by Southeast Alpha Asia and Finance Asia 2015, and Best Investment Management 2016 and 2017 by World Finance. Along with the development of the Vietnam stock market, BSC is determined to add to its corporate success both regionally and globally over the coming years. 191

Mr Doan Anh Sang

Mr Do Huy Hoai

THE BSC MANAGEMENT TEAM The constant growth and business development of BSC over the last seventeen years are the direct result of the continuous effort and dedication of the company’s entire staff. Doan Anh Sang, BSC’s current chairman of the board, boasts well over thirty years of experience in the financial services sector. Mr Sang is also deputy general director of the Bank for Investment and Development of Vietnam (BIDV). Vice-Chairman and CEO of BIDV Securities Co Do Huy Hoai is responsible for the company’s day-to-day operations. Mr Hoai has worked for 28 years in the banking sector with an emphasis on stock market operations and transactions. BSC’s continued success and its many achievements may be ascribed to the firm’s long-standing adherence to proper management techniques. As such, BSC has been a noticeable presence in Vietnam’s securities industry since the establishment of the country’s twin stock exchanges. Manager of Banking Investment, Nguyen Thi Thuy, has more than eighteen years of experience in the field of auditing, finance, and securities, including more than ten years with BSC. Ms Thuy has managed many outstanding consulting projects such as providing detailed advisory for issuing warrant-linked bonds for the Vietnam Construction and Import-Export JS Company (VCG), for the bond issue of Vincom (VIC), and for the listing BIDV shares and bonds amongst others. Ms Thuy has earned an MBA at the FrenchVietnamese Centre for Management Education (CFVG) and has received additional training in corporate finance and mergers and acquisitions at the Asian Institute of Technology in Japan. Tran Thang Long, manager of research and analysis of BSC, has specialised in deep market research for over a decade. His team provides 192

Mr Tran Thang Long

Ms Nguyen Thi Thuy

strong back-up to BSC clients, investors, and other departments. Mr Long is a reliable source of information and regularly publishes updated market-coverage reports. By providing potential investors with thoughtful corporate insights, the Research and Analysis Division directly contributes to the success of IPOs of major companies.

within the organisation. Every employee is awarded opportunities to gain experience and develop skill sets. The focus is not merely on investing in human resources, but also on the ability to perform in a professional working environment. BSC has managed to attract and retain highly qualified professionals who are committed to look after the long-term interests of the company. • BSC has successfully managed to nurture and cultivate its corporate image and identity.

With a view to becoming a full-fledged investment bank in Vietnam, BSC management promotes skills development and innovation amongst the firm’s employees. In order to achieve the objective in the near future, BSC has set up a number of programmes and initiatives that serve three core principles: • The development of the customer network: In essence, it is crucial to concentrate on both the governmental business sector and industryleading private businesses. This undoubtedly creates a vast network of customers which enables the cross-selling of products and services and allows for synergies. • Additionally, BSC aims to develop its HRM team in order to further increase efficiencies | Capital Finance International

In recognition of its achievements the company has received a number of prestigious awards from both stock exchanges (HNX and HSX), the Ministry of Finance, and international entities for its contribution to the development of the Vietnamese securities market. Moreover, BSC actively fulfils its corporate social responsibility via a number of programmes that aim to alleviate poverty and promote education. BSC is also actively engaged with efforts to reduce and eliminate illiteracy. CSR initiatives are undertaken in all parts of the country. i

Spring 2018 Issue

> New World Development:

The Artisanal Evolution

Adrian Cheng: Executive Vice Chairman & General Manager of the New World Group, has set a clear vision and strategic goals in constantly enhancing and creating value for the stakeholders.


ew World Development Company (Hong Kong stock code: 00017; US ADRL NDVLY) was publicly listed in Hong Kong in 1972 and is a constituent stock of the Hong Kong Hang Seng Index. The Group is adhering to its development policy of gaining a foothold in Greater China while aggressively expanding its businesses in Hong Kong and Mainland China. At the close of 2017, the total asset value of the Group amounted to HK$468.1 billion. Adrian Cheng, Executive Vice Chairman & General Manager of the New World Group, has set a clear vision and strategic goals in constantly enhancing and creating value for the stakeholders. Leveraging on the spirit of The Artisanal Movement in pursuit of perfection, the Group is striving to promote the diversified culture brand name of New World and go beyond the boundaries of traditions with innovative ideas, so as to provide clients with customer-oriented experience and allow them to enjoy the extraordinary in the ordinary. Recently, the Group launched a number of unique residential projects in Hong Kong, including Mount Pavilla, a sculpture park around a Home

and Family theme that promotes an innovative lifestyle concept that relates people to nature and art to life; and The Pavilla Bay, a meticulously designed project with distinctive superyacht features which impressed the market with their quality and sales performance. Spending behaviour of the younger generation is driven by the shopping experience and personalised brands, which has initiated the evolution of the experiential consumption operating model. The revolutionary business model of K11 created by Adrian, which incorporates museum retail with art elements and unique experiences, proves a success and this concept will be further implemented in Greater China. Victoria Dockside is the upcoming catalyst of New World which will become a new landmark drawing all the attention. This three million square foot investment property will offer unparalleled experience of art, design, and leisure, commanding a panoramic view of Victoria Harbour in Hong Kong. Meanwhile, New World remains fully confident of the economic prospect of Mainland China. With a view to proactively optimising its business portfolio, New World will work in concert with the Belt and Road Initiative and the development of | Capital Finance International

the Greater Bay Area and continue to strategically invest in key cities and develop iconic projects with great potential, so as to provide a quality living environment and fantastic experience for the market. New World endeavours to maintain a high standard of corporate disclosure in compliance with the legal and regulatory requirements and believes that delivery of clear messages regarding the company’s strategy, business development, and prospects will enhance and create value for stakeholders. The outstanding performance of the Group in investor relations has gained recognition from the market, with more than fifty international awards garnered in 2017 regarding investor relations, corporate governance, and annual reporting, in recognition of its commitments to excellent investor relations and corporate governance. As a unique culture brand, New World will work towards a multifaceted development, keeping abreast of social culture and caring for people’s life. With the passion for and insistence on The Artisanal Movement, the Group will continue to strive for innovation and excellence, give full play to a sustainable corporate culture and create value for the stakeholders. i 193


At Home in India’s Dynamic Start-up Scene

With two special liquidity events, the year has begun on an exciting note for GVFL, a premium venture capital firm in India. GVFL successfully exited from one of its early stage investments handing over the reins of e-infochips - an India- and US-based global product engineering services firm – to Arrow Electronics, a US Fortune 200 company for $300 million.


GVFL made a 7.4x return on the transaction. This was followed by another successful exit: GVFL divested from Axio Bio Solutions, a biotechnology company producing haemostatic dressings for an 39% IRR. Both transactions created significant buzz in India’s start-up ecosystem and established the robustness of the country as an important incubator haven in terms of value creation for investors. As an early stage investor and pioneer in India’s VC industry, it was a very gratifying journey and valuable experience for GVFL team. GVFL was incorporated in 1990 at the initiative of the World Bank at a time when venture capital was not well-known in India. Since then, the firm has managed eight funds and seen the full lifecycle of the VC industry. Today, technologybacked companies play a key role in growth of India’s economy and the domestic startup scene has become the third-largest in the world. Venture capital firms provide the fuel for this remarkable growth engine as they invest in start-ups. GVFL, as a well-respected provider of venture capital, is well-poised to monetise the opportunities offered by the country’s vibrant start-up ecosystem. What differentiates GVFL is its learning curve and its ability to spot the right opportunities – and nurture, scale-up, value-add, and exit the adopted start-up at the right time. Sanjay Randhar, Managing Director of GVFL and a veteran of the Indian financial services industry, believes that, “in the VC business, you cannot unwind your investment position after only a short run. Hence, the ability to make right decision is critical and comes through lifecycle experiences. Over the years, we have developed robust evaluation matrices as a Series A investor and always have access to large pool of investment opportunities. Early stage investing is in our DNA and experience helps us to identify the ones we can commit to.” Technology-backed start-ups excite the GVFL team. High speed internet, mobile, data, IoT 194

"With its extensive experience, access to a wide range of investment opportunities and the ability to produce excellent indepth evaluations, GVFL has created an optimised platform to channel the resources of global investors to the right investment opportunities." (Internet of Things), and cloud infrastructure have given birth to new age businesses without geographical limitations. GVFL’s recent investments in video analytics (Vidooly), big data analytics using a cognitive platform (Formcept), and unified cyber security (Sequretek) are making global imprints. Mihir Joshi, GVFL President who has seen multiple VC lifecycles emphasises that, “in order to be successful as a provider of venture capital, one needs to focus on scalable business models with a unique proposition, backed by high quality team. We say a big no to high cash burn or capital-intensive business models or businesses operating within an environment characterised by regulatory uncertainty.” India is amongst the fastest growing economies in the world. Its large domestic market, the increase in discretionary spending, and an economic environment shaped by businessfriendly policies all help boost future growth. India has become a favourite investment destination for many global investors. However, investment in alternative assets – and especially early stage investing – has posed a challenge to global investors who may find it difficult to navigate the local ecosystem. India is different than most other countries: the analysis of an investment opportunity goes beyond excel spreadsheet numbers, market studies, and | Capital Finance International

other set parameters. Local experience allows fund managers to evaluate or forecast a number of challenges, deal with market dynamics, customer acquisition, supply chain, regulatory environment, and legal enforceability, amongst others. With its extensive experience, access to a wide range of investment opportunities and the ability to produce excellent in-depth evaluations, GVFL has created an optimised platform to channel the resources of global investors to the right investment opportunities. “This platform approach, where GVFL does all the leg work and creates end-to-end partnerships, constitutes a stellar proposition as it creates a win-win for all,” says Mr Randhar. GVFL has a clear vision for growth over the next three years which includes (a) harvesting superior returns from its existing portfolio which has grown well and matured for monetisation, (b) continuing the momentum of marquee investments from its start-up fund, and (c) launching more funds focussed on early growth stage companies. With this growth strategy firmly in place, the AuM of GVFL is likely to triple to more than $ 250 million over the next couple of years. i

Sanjay Randhar, Managing Director

Spring 2018 Issue

> Meets the Group MD & CEO of Lembaga Tabung Haji (TH):

Datuk Seri Johan Abdullah


atuk Seri Johan Abdullah holds a Master’s Degree in Business Administration (Finance) from Morehead State University, Kentucky, USA and a Bachelor Degree in Business Administration (Finance) from Eastern Michigan University, Michigan USA. Mr Abdullah has extensive experience in corporate finance, capital market and Islamic banking. Prior to joining Lembaga Tabung Haji (TH), he was the Group Managing Director and Chief Executive Officer of BIMB Holdings Berhad (BHB) since May 2008. He served as a Board Member in various subsidiary companies within the BHB Group. From January to April 2008, he held various roles in Bursa Malaysia Bhd, serving as its Deputy Chief Regulatory Officer. He was involved in the operations of the Stock Exchange during his tenure as the Head of Issues and Listing Division from 1999 to December 2007. He was also the Senior Vice President of Securities Issue from January 2002 to December 2004, and became the Vice President of Listing from January 1999 to December 2000.

In January 2015, Mr Abdullah joined TH as Deputy Group Managing Director and Chief Executive Officer and was subsequently appointed to helm TH as the Group MD and CEO on July 1st, 2016. Mr Abdullah acknowledges the enormous responsibility placed on his shoulders with this position. These include responsibility to the Nation and for the Muslim community considering TH’s role to facilitate Muslims fulfilling the 5th pillar of Islam. As leader of this internationally renowned pilgrim fund board, he strives to accomplish TH’s vision to be the pillar of the Ummah’s economic success as well as continue to excel in hajj management. Mr Abdullah holds firm to the belief that the desire and sincerity to deliver is further enhanced by the efforts and commitment by his team to fulfil the responsibility entrusted upon them to facilitate pilgrims performing their hajj. Meanwhile, Mr Abdullah has also been an advocate to improve and enhance TH’s corporate governance and good business practices. This aspect is constantly reviewed to ensure that measures to integrate integrity, accountability and transparency are effective and given emphasis in TH’s daily operations. Under Mr Abdullah leadership, TH completed its new Tabung Haji Hotel and Convention Centre (THHCC) located beside KLIA Sepang, which will be operational this year. The KLIA complex

Group Managing Director & CEO: Datuk Seri Johan Abdullah

is part of a strategic investment to better serve and provide prospective pilgrims the ease and convenience upon their departure to the Holy Land. He is optimistic that the new complex will generate recurring income for TH whilst being dedicated for pilgrimage operations during the hajj season. Mr Abdullah realises that asset allocation wise, TH has a big exposure in listed equities, which depends on trading gain and dividend income. This may not be sustainable in the future. Therefore, TH is working towards increasing its exposure in strategic assets or investments that can provide recurring, stable and sustainable income. TH has allocated RM2 billion for investments into real estates in the United Kingdom and Australia, which will continue to provide TH with good investment returns. On the local front, apart from property developments in Klang Valley, he has given emphasis on TH’s mixed development projects in the Tun Razak Exchange (TRX) which is expected to become a leading emerging international financial city and global Islamic finance hub. | Capital Finance International

Mr Abdullah realises that TH is instrumental in the formation of the country’s Islamic banking. TH’s involvement in Islamic Finance sector is through its subsidiary BIMB Holdings Berhad (BHB), the only listed Islamic Financial holdings company in Malaysia. This status has given BHB a unique ability to offer end-to-end shariah compliant financial services to the market, from banking (Bank Islam) to takaful (Takaful Malaysia) and stockbroking (BIMB Securities). TH continues to safeguard and support Bank Islam status as the pioneer of the country’s Islamic banking and ultimately become a global leader in the industry. Apart from real estate and Islamic finance, TH also involves in various shariah compliant economic activities such as plantations, constructions, property development, oil and gas, information technology and hospitality. Under his stewardship, Mr Abdullah will continue to ensure that TH remain relevant as well as creating economic value for stakeholders through diversified and sustainable investment activities. i 195

3.5 4 3.5





3 units he


All measurments are in units

> Lembaga Tabung Haji:

Helping Pilgrims


Logotype - Century Gothic Bold

ncorporated in 1962, Tabung Haji is a manifestation of the government’s concern over the welfare of Malaysian Muslims in relation to their pilgrimage to the Holy Land to perform the fifth pillar of Islam. The journey to Makkah, generally used to cost lifetime savings to most Malaysian Muslims with lots of sacrifices and hardships. The economic plight of these Muslims in general and particularly after performing the Hajj was very distressing and has had adverse economic implications on the lives of their families.

The logotype is juxtapositioned on the right based on the height of the TaHa logo. Enlagred to balance the strength of the logo. The Tagline is placed at the centre of the logotype. The distance between the logotype and the tagline is half unit.

Logo version by Johan Design Ass

For many years this predicament remained in the background until royal professor Ungku Abdul Aziz of the University of Malaya, a reputed academician and an authority on rural economy, presented the idea of setting up the body to manage Muslims’ fund for their pilgrimage without impoverishing and sparing them from financial hardship on their return. Hence, the birth of Lembaga Tabung Haji (TH) as the premiere Islamic financial institution in Malaysia, a statutory body setup by the Government of Malaysia in 1963. It is governed by the Tabung Haji Act 1995 (Act 535) as a sole pioneer in Islamic financial institution to facilitate the Muslim community’s savings for the pilgrimage. Since its establishment 55 years ago, TH remains an iconic Malaysian institution by achieving a number of successes and experiences in managing hajj as well as superior Islamic funds which have become sources of inspirations and examples for many Islamic Institutions overseas. TH strives to manage various facilities for the welfare of the country’s hajj pilgrims in a comprehensive and systematic manner, ranging from the best and halal savings management, as well as investment activities to provide additional value to hajj management and Hibah (bonus) payments to depositors. TH focuses on providing excellent and satisfactorily Hajj services to Malaysian pilgrims and its consistent track record has gained world recognition as a role model for innovative Hajj Management and Islamic financial services among the Islamic countries. TH has more than 9.3 million depositors and a network of 125 branches with more than 6,000 touch-points nationwide. TH also has an operating office in Jeddah, Kingdom of Saudi Arabia under the purview of the Malaysian Consulate. Being the only hajj institution in the country managing more than RM70 billion of deposits 196

TH Headquarters in Kuala Lumpur | Capital Finance International

Spring 2018 Issue

Hajj Complex, Sepang

10 Queen Street Place

TH Pilgrims

Unilever Office Leatherhead, Surrey

TH Service Counter

(2017), TH endeavor to strengthen the economy of the Malaysian Muslims by capitalizing on its available funds and resources. TH continues to establish its presence in the marketplace, both domestically and abroad by venturing into several economic sectors in accordance with Islamic principles such as investment; plantation in Indonesia; Islamic finance; information technology; oil and gas, hospitality, property investment, development and construction in United Kingdom and Australia. TH investments in the real estate market in and outside the country is to diversify its investment portfolio within the Strategic Asset Allocation framework and reap the benefits of capital appreciation while enjoying steady returns over the long term. In 2012, TH ventured into global property market with the acquisition of an office building

in Central London at 10 Queen Street Place. In 2013, TH expanded its property portfolio in the United Kingdom with the purchase of Unilever Head Office in Leatherhead, Surrey. Subsequently in 2016 TH took ownership of the Centrica HQ Building in Windsor, Berkshire. Apart from the UK, other property investments include those in Australia and Saudi Arabia. For 2017, TH recorded an unaudited gross income almost RM4.5 billion, an increase of more than RM1.0 billion (31%) compared to the financial year 2016 of RM3.4 billion. TH also recorded an unaudited net profit after zakat of RM3.4 billion, an increase of RM0.9 billion (37%) compared to almost RM2.5 billion in the financial year 2016. In the financial year 2017, TH has spent nearly RM300 million for a pilgrimage subsidy, apart from several value-added services like guidance, counseling, health services, financial counters, | Capital Finance International

hajj personnel and hajj guide team amongst others, without any additional fees. For 2018, TH is expected to cover a higher hajj subsidy which is TH's largest corporate social responsibility to ensure the welfare of the Malaysian pilgrims are well taken care of while they are performing their pilgrimage. Meanwhile, some of TH’s latest developments include its new Tabung Haji and Hotel Convention Centre (THHCC) located beside KLIA Sepang, which will be operational this year. The new complex will feature a 333-room hotel, Exhibition Centre, infrastructure, landscaping with world class convention facilities. The THHCC will replace the existing hub of Hajj operations at Kelana Jaya, Selangor to accommodate the growing number of pilgrims. The KLIA complex is part of TH’s investment activities and duty to better serve the prospective pilgrims. i 197

> Asian Development Bank:

Helping to Shape the Green Bond Market By Ingrid van Wees

Leading climate experts at last year’s COP23 conference in Bonn highlighted that we have only three years to safeguard our climate. There is no more room for delay in implementing the 2015 Paris Agreement on climate change.


ne of the milestones to be achieved by 2020 is to expand the green bond market to at least 1% of the global bond market, currently about $90 trillion. For this to happen, sovereign issuers must be completely on board. In Asia, as elsewhere, the green bond market is now on policy makers’ radar. This is why Asian Development Bank (ADB) is supporting an initiative led by the People’s Republic of China (PRC) to issue more green bonds within the Association of Southeast Asian Nations (ASEAN), based on key principles like harmonisation, quantification, and transparency. Pushing for more ASEAN member countries to issue green bonds is part of a broader effort to mobilise more investment to address the climate challenge. ADB estimates that developing Asia needs to invest an annual $1.7 trillion until 2030 to build a climate-resilient and sustainable infrastructure. Of this amount, $200 billion per year alone should be allocated to adaptation, and $41 billion more for climate-proofing vulnerable infrastructure. These amounts far exceed levels of investments achieved to date. Average annual renewable energy investments over the past five years amounted to just $130 billion. So, where can we find more money to build lowcarbon infrastructure in developing Asia? The public sector to date provides 90% of the region’s overall infrastructure investment flows, mainly sourced from tax revenues. The rest is covered by multilateral development banks like ADB and the private sector. But the latter plays a minor role, accounting for just 0.4% of total investment. We can mobilise other sources of funds such as retail savings, pensions, or insurance funds to complement loans from banks, which are reluctant to support infrastructure projects that are often sub-investment grade and have long tenures.


"Green bonds allow tapping into new segments of long-term capital like environmentally conscious groups of people, and thus help diversify the investor base." For some of these investors it is important that the investment risk is mitigated, for example, by using a blend of concessional and commercial funds. Another option is to leverage local currency bond markets which are attractive for infrastructure investments that only earn in local currency because they reduce the foreign exchange risk. Significant progress has been made in the PRC, India, and some ASEAN countries. In ASEAN+PRC, local currency bonds outstanding by the second quarter of 2017 exceed 70% of GDP, a significant jump from the average 58% over the past five years. Many governments already directly finance infrastructure investments by issuing government bonds. Vietnam issues bonds to specifically mobilise funds for public infrastructure projects. Such bonds can certainly be used for financing green projects, and therefore could be tagged as green bonds. If other Asian governments start doing the same, there is enormous potential for rapid growth in the region’s sovereign green bond market. They should follow the example of Fiji, which last year became the first Asian sovereign issuer of a FJD100 million ($48.13 million) green bond.

sovereign’s commitment to meeting its Nationally Determined Contributions to reduce greenhouse gas emissions under the Paris Agreement in the medium term. This, in turn, encourages green business and shows citizens that their government is taking environmental issues and climate change seriously. Finally, green bonds allow tapping into new segments of long-term capital like environmentally conscious groups of people, and thus help diversify the investor base. There are however some challenges on both the supply and demand sides. On the supply side, developing Asia’s local currency green bond market is still characterised by a lack of liquidity, limited diversification of bond structures, and the absence of a large regular stream of bankable projects. On the demand side, consistent demand from socially responsible investors is still pretty much restricted to Japan and only recently the PRC. This hampers the market’s growth potential. Initiatives in advanced economies in Europe and the United States to decarbonise endowment, pension, or sovereign wealth funds – whether for economic reasons or to promote socially responsible investments – are yet to gain traction in developing Asia. Mandatory requirements to diversify domestic investment portfolios are likewise missing across the region. Sovereign governments could increase the pool of dedicated funds available to invest in green (and social) bonds by enacting regulations that integrate environmental, social, and governance (ESG) factors into the investment process and mix.

Sovereign issuers in developing Asia see green bonds as an opportunity to set a benchmark for other domestic issuers and increase liquidity through a growing local currency green bond market.

But there are reasons to be optimistic. The publication in March 2017 by the PRC government of its green bond guidelines created impetus that helped the market to take off.

Issuing green bonds also demonstrates the

ADB developed its project selection, allocation, | Capital Finance International

Spring 2018 Issue

and reporting framework for green bonds in 2015. The rationale was to allow ADB to tap into a growing universe of social responsible investors out of the US and Europe, diversify ADB’s investor base and sources of funding and promote development of an international green bond market. Since the inaugural $500 million 10-year green bond in 2015, ADB has issued a dual-tranche 3/10-year in 2016 for $1.3 billion, a dual-tranche 5/10-yr in 2017 for $1.25 billion, an INR5 billion 3.75-year in 2017, as well as numerous private placements and uridashis. ADB’s experience on the green bond programme is that it has allowed the bank to diversify its borrowing programme into an investor base not previously active in ADB’s regular issues (and who have now started buying more of ADB’s regular bonds as they have become more familiar with the credit). There has also been an increase in awareness for ADB’s activities on the borrowing and lending side, both externally and internally. Something that we are still trying to get a firmer handle on is the definition of a green investor as many accounts espouse to be “green” simply to get preferential allocation (as we prioritise placing bonds with accounts that have dedicated green funds/mandates). As a result, we are in regular dialogue with our dealers to verify how an investor defines themselves as “green”.

Based on our experience, sovereigns looking into issuing green bonds should take into account five fundamental concerns:

Last, efforts to promote green bond markets and national strategies for sustainable low- carbon development should be clearly linked.

First, green bond proceeds need to be used within a strong framework. Sovereigns that normally borrow in capital markets for general budgetary purposes should develop a robust green bond framework based on transparency to shore up investor confidence. The framework should be developed in consultation with key stakeholders like dealers, second opinion providers, and rating agencies.

There is a lot of potential for growth in the local currency green bond market in developing Asia, as long as sovereigns establish an enabling environment, and strong frameworks are applied. The key constraint will likely be the number and size of bankable green investments. i ABOUT THE AUTHOR Ingrid van Wees is vice-president Finance & Risk Management at the Asian Development Bank.

Second, sovereign issuers should set the standard for third party verification and/or thirdparty audit of their green bonds. Third, treasury departments should collaborate with relevant government agencies to establish a green bond framework and require investment managers to acquire knowledge and a license on impact investments and ESG factors to ensure credibility. Fourth, sovereigns should create an enabling environment for other issuers to follow suit, including guidelines/standards coupled with fiscal support measures such as tax incentives. A good example is the green bond grant scheme proposed by the Monetary Authority of Singapore. | Capital Finance International

Author: Ingrid van Wees



Building the Business Case for Mobilising Small Balance Deposits By Pamela Eser and Kirsten Weiss


n 2015, 193 countries adopted the United Nations Sustainable Development Goals (SDGs), a set of 17 goals focused on eradicating poverty and its impact, combating inequalities, protecting the planet, and creating a peaceful world. Finance and economics are significant levers in achieving these goals – particularly combating poverty and reducing inequalities. These income inequalities are significant. According to one estimate, less than 1% of the world’s population controls over 40% of global wealth. However, approximately 66% of the world's population holds a tiny 3% of global wealth. A range of financial innovations and inputs will be required to achieve the SDGs, and the United Nations Capital Development Fund (UNCDF) will continue to play a role. The UNCDF believes that innovations such as small balance deposit mobilisation (SBDM) can help achieve the goals set. One way to define economic growth is a nation’s capacity to increase its productivity. Savings have long been considered an engine for change because sufficient savings allow for the accumulation of fixed capital. For example, the Harrod-Domar economic model suggests increased savings lead to increased investment and higher economic growth.

60 50 40 30 20 10 0 East Asia & Pacific

Europe & High-Income Latin America Middle East Central Asia OECD & Carribbean

Instituion, Female (% over age 15+). Grey: Saved at a Financial Instituion, Income, Poorest (% over age 15+).

bank from a rural area may be prohibitive in terms of time or cost. Or the amount saved by the rural poor may be too small for formal institutions to consider. As a result of such barriers, most unbanked resort to informal ways of savings. And the poor do save. They must save in order to manage unexpected crises, to smooth incomes, and to plan for family events. Lacking formal accounts, they save cash under their mattresses or invest it in livestock, jewellery, or join informal savings groups where money might be held in a communal cash box. These informal groups are typically composed of women.

Unfortunately, despite this recognition, people in developing countries do find it difficult to access affordable deposit services that meet their small balance needs. It is estimated that some two billion adults do not even have a bank account on which to park their money. This deficient access to banking services is particularly pronounced amongst women and people in rural areas. According to the World Bank’s 2014 Findex Report, in Sub-Saharan Africa only 34% percent of adults possessed a bank account and 16% held formal savings. The study found that only 4% of the unbanked reported that they do not have an account because they do not need one. Instead, other barriers prevent formal savings. Travel to a

UNCDF’s global initiative, MicroLead – which receives support from Mastercard Foundation, Bill & Melinda Gates Foundation, and LIFT Myanmar – has been providing grants and technical assistance to financial institutions in Africa and Asia to support experimentation in mobilising small balance deposits for rural markets through


Sub-Saharan Africa

Figure 1: Savings Data - 2014 Findex Report. Blue: Saved at a Financial Instituion (% over age 15+). Orange: Saved at a Financial

While these informal schemes are more convenient than formalised savings, they carry attendant risks, such as theft and social pressure to “share the wealth” with extended family. The poor in developing nations want and need savings accounts. So why are banks and other financial institutions so reluctant to reach out to this underserved market? The answer is painfully simple: cost. While the need for SBDM is strong from the client perspective, the business case is less so from the perspective of financial institutions, which must confront the costs of managing tiny deposits on a daily or weekly basis; of shifting staff and procedures in an established organisation; and of investing in promising new developments such as digital financial services (DFS) or alternative delivery channels (ADCs). Cost is a critical issue because without a profitable means of mobilising these tiny deposits, any attempt to do so will prove be unsustainable.

One criticism of this model is that developing nations find it more difficult to accumulate savings. However, the role of savings in financing the development agenda is gaining in prominence. For example, point 43 of the Addis Ababa declaration recommends “financial regulations that can create appropriate exceptions to capital requirements, reduce entry and exit costs to encourage competition, and allow micro-finance institutions to mobilise savings by receiving deposits.”

South Asia | Capital Finance International

the use of alternative delivery channels, such as digital finance, and linking informal savings groups to formal financial institutions. Now, as the MicroLead programme comes to its conclusion, it is analysing and sharing lessons learned on the economics of small balance deposit mobilisation. Two recent publications from UNCDF capture the lessons learned from MicroLead partner financial institutions which experimented and innovated around SBDM. The first document, Pulling Levers Toward Sustainability, a Framework for Small Balance Deposit Mobilisation, maps different SBDM paths financial institutions can follow. It concludes that profitability depends on both the environmental conditions the institution lives in as well as the choices it makes. The paper identifies twelve choices, called “levers,” which financial institutions can pull to move the needle on profitability of SBDM. “Getting it right isn’t the same for every institution,” says author Barbara Magnoni of EA Consultants. “If you’re a tiny institution, building a huge infrastructure might not make sense to you, or having an agreement with a mobile network operator might be wonderful, but they might not give you the time of day because you’re too small. The type of financial service provider you are often helps identify which levers you can pull in order to make small balance deposit mobilisation sustainable. These levers will vary by business model, by the institution’s scale, clients, market, and regulatory framework.” To date, none of MicroLead’s partners have profitably been able to mobilise these tiny deposits, ranging from $40 to $2,000. “But these are longterm plays,” says Ms Magnoni. “So, if you think about Latin America as an example, in Bolivia, many financial institutions started taking small balance deposits almost two decades ago. Now they’re almost independent of foreign funding. And the institutions really rely on deposits as a funding

Spring 2018 Issue

source. But that takes time, and there need to be certain conditions in the macroeconomic context to support that. For example, the economy has to be growing so people can save more. Certainly, countries that are poised for growth can leverage that opportunity.” The world’s unbanked shouldn’t have to wait two decades to achieve the SDGs. Fortunately for developing countries worldwide, the move toward SBDM is already well underway. Digital financial services such as mobile banking show a great deal of promise in shortening this timeframe, enabling institutions to cost effectively reach rural areas and clients to save small amounts of money conveniently. The second UNCDF publication produced by the MicroLead programme is a series on DFS – How to Succeed in Your Digital Journey: A Series of Toolkits for Financial Service Providers. This series explores the different paths financial institutions can follow to implement DFS. The series includes six business models and attendant case studies of MicroLead partners and other African FSPs. These six models explore the different steps financial institutions can follow in their DFS implementation approach. Financial institutions are free to start anywhere in this framework, but the higher up they decide to start, the heavier the efforts generally required. The MicroLead DFS case studies clearly demonstrate a path to profitability, with institutions such as NBS Bank in Malawi showing a clear upward financial trend. DFS enables financial institutions to reach the last mile of unserved populations. Today, these new technologies are reducing the costs for financial institutions throughout the developing world to serve hard-to-reach rural populations. To date, MicroLead partners have mobilised over $637 million in voluntary savings from women clients and reached over two million customers. i ABOUT THE AUTHORS Pamela Eser is a financial inclusion expert and global head of MicroLead and Forcibly Displaced at the UN Capital Development Fund. As head of the MicroLead programme, she helps financial service providers in Africa and Asia in their deployment of digital financial services and alternative delivery channels thereby enabling these institutions to profitably and sustainably reach last mile populations, particularly rural women. Under her leadership over the past nine years, MicroLead has reached over two and a half million rural customers and grown into a $60 million fund. Mrs Eser has over 25 years of experience in finance, including investment banking and international financial inclusion. Kirsten Weiss worked for over twenty years in development finance in Eastern Europe, Africa, and South-East Asia. She now works as a writer and communications consultant for UNCDF MicroLead.

Figure 2: The Six DFS Business Models | Capital Finance International


Brexit Saga: Three Buckets Too Many

Almost two years on from the Brexit vote, the British government still has not quite managed to come to terms with the realities of exiting the European Union. Prime Minister Theresa May and her divided cabinet – representing a kakistocracy of sorts – is busy drawing imaginary red lines and finding novel ways to square circles. Mostly though, the cabinet negotiates with itself, hammering out solutions that are increasingly detached from reality such as Mrs May’s “three buckets” strategy unveiled last year in Florence, and relaunched in February, which – unsurprisingly – was shot down twice by Brussels.


ooking to secure maximum access to the EU single market whilst dispensing with the European Court of Justice (ECJ), freedom of movement, contributions to the budget, and the constraints of a customs union, the British government insists on keeping the good bits of the EU as it replaces full membership with a “deep and special” relationship yet to be defined.

Final Thought

Late February, Prime Minister May succeeded, at long last, to unify the cabinet around the esoteric concept of “managed divergence” – a term invented for the occasion. Upon closer examination, this again represents an à la carte approach whereby some economic sectors follow EU rules and others gradually write their own whilst – thankfully? – maintaining high standards similar to those on the continent.

"As the Brexit rubber hits the road and Project Fear slowly becomes reality, the prime minister is torn between the caution demanded by reason and the valour owed to history." one groups those industries that will go their own way whilst sharing the overall regulatory goals of the union; and a third one comprised of segments destined to keep in tune with union law because doing so makes economic sense.

Prime Minister Leon Varadkar of Ireland quickly surmised the latest British proposal as yet another attempt at cherry picking: “It is not possible for the UK to be aligned to the EU when it suits and not when it doesn’t.” EU president Donald Tusk called the proposal “an illusion” and reminded the UK government – once more – that it faces a binary choice: “It’s either a free trade agreement or the single market.”

Mrs May’s buckets are interconnected and sectors may move from one bucket to the next as the need arises or expediency demands. As such, the buckets form part of the UK’s aspiration to exit the European Union whilst preserving friction-free access to the mainland for goods and – crucially – services. It is not clear, however, what London is willing to offer in return. Prime Minister May has been clear that remaining inside the custom union and single market is out of the question since that would include acceptance of the ECJ’s jurisdiction and freedom of movement in addition to continued contributions to EU coffers.

The three buckets Mrs May carries about each contain different economic sectors, grouped according to their proposed alignment with EU legislation. One bucket holds sectors that need to immediately ditch union regulation; another

Meanwhile in Brussels, EU chief negotiator Michel Barnier is still waiting for the UK to present a realistic proposal that acknowledges the country’s departure from the union and sketches a future relationship based on that

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fact. Mr Barnier has shown the patience of an angel as he time and again needs to explain that third countries cannot reasonable expect to receive benefits reserved for member states. The problem is, of course, that the British have bitten off more than they can chew. No bulldog or iron-cast lady, Theresa May – visibly out of her depth and surrounded by political sharks – lived her finest hour as she sent her Article 50 notice to Brussels not quite realising the enormity of the undertaking. As the Brexit rubber hits the road and Project Fear slowly becomes reality, the prime minister is torn between the caution demanded by reason and the valour owed to history. Unable to make a choice, or to discipline her cabinet, Prime Minister May muddles along driving even her closest friends to desperation. After meeting Mrs May in February, Prime Minister Mark Rutte of The Netherlands, her closest ally on the continent, indicated that he is now ready to give up on the British: “There is only so much a friend can do to help.” In Brussels, Mr Barnier and his official wonder – out loud – how long it will take before the British understand that, for all their exceptionalism, they can’t have it both ways. It may turn into a long wait, requiring an extension to the 29 March 2019 deadline. In fact, the longer it takes, the likelier it is that Brexit becomes an ongoing exercise – a meaningless negotiation that only ends when the British elect a government with the guts to call an end to the folly. i

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