CFI.co Winter 2014-2015

Capital Finance International

Winter 2014 - 2015

GBP 4.95 // EUR 5.95 // USD 6.95

AS WORLD ECONOMIES CONVERGE

Klaus Schwab, Chairman of the World Economic Forum:

MODERN DAVOS MAN ALSO IN THIS ISSUE // WORLD BANK GROUP: GOVERNANCE SWF // UNPRI: RESPONSIBLE INVESTING UNCDF: FINANCIAL INCLUSION // WGB: MENA JOB CREATION NASDAQ’S FRUCHER ON SUSTAINABLE STOCK EXCHANGES // MIGA: FRAGILE FDI

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CFI.co | Capital Finance International

Winter 2014 - 2015 Issue

AN ICON JUST GOT LARGER

THE NEW NAVITIMER 46 mm

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You need more than luck to get ahead.

The new Flying Spur V8.

Breathtaking performance and attention to detail don’t happen by accident. And the best way to experience them is surrounded by cutting edge technology in an exquisitely handcrafted interior. All serenely positioned behind a 4.0 litre V8 engine that can propel you to 183 mph and 60 mph in under five seconds – enough to keep you ahead of everyone.

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The name ‘Bentley’ and the ‘B’ in wings device are registered trademarks. © 2013 Bentley Motors Limited.

Winter 2014 - 2015 Issue

Flying Spur V8 fuel consumption – EU Drive Cycle* in mpg (l/100 km): Urban 18.4 (15.4); Extra Urban 36.7 (7.7); Combined 26.8 (10.6).

CO2 Emissions 246 g/km. EPA Drive Cycle* in USmpg: City driving 15.0; Highway driving 24.0; Combined 18.0.

For more information call +44 (0)845 689 1629 from UK, +1 (0)866 369 4450 from USA or +44 (0)117 244 1804 from elsewhere or visit www.bentleymotors.com. #FlyingSpurV8 CFI.co | Capital Finance International 5 *Fuel consumption figures subject to Type Approval and EPA Approval. Model shown: Flying Spur V8.

Editor’s Column Navigating the River of Endless Progress

From its first issue, CFI.co has been reporting on the convergence of world economies. This is rather more than just a convenient catchphrase: It reflects a changing world that has mostly agreed on a development model which produces tangible results and helps lift billions out of poverty.

Although you perhaps wouldn’t think it by watching the news, wars and political violence are at a historical low. Poverty levels have also been reduced massively. The United Nation’s Millennium Development Goals and the subsequently adopted Sustainable Development Goals have traced a path forward. Surprisingly, a growing number of countries are now firmly committed to carrying out the necessary reforms and policies that unlock their potential.

Problems remain, and some countries are more successful than others. That was to be expected.

However, even frontier markets are slowly moving ahead. Before long, they may benefit from a trickledown effect as the manufacturing hubs of Asia start exporting jobs overseas. This is already happening to a modest degree with Chinese companies setting up shop in Africa.

Editor’s Column

New issues have cropped up as well and clamour for attention. Climate change is one of them. It poses a serious threat which cannot be ignored. As Charles Anderson, Director of the United Nations Environment Programme Finance Initiative (UNEP FI), points out in this issue: “Business as usual cannot continue. The earth’s resources will simply run out.”

Rather than tackling this issue by creating a brave new world and populate it with selfless human beings driven to excellence by love rather than profit – as Naomi Klein seems to propose in her latest work (reviewed in this issue) – society is already now finding ways to progress while reducing its footprint. Industrial design is coming up with innovative ways to factor waste reduction and recycling into products. Recycling-oriented design

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avoids the use of hazardous materials and those that are unfit for re-use.

As economies converge, new players on the world market such as China, Brazil, India, Bangladesh, and others will start contributing to the required change with policy initiatives of their own. As the necessity for global action on climate change and resource scarcity becomes increasingly clear, the now multipolar world will undoubtedly produce a vast range of solutions.

Countries like Brazil and India are already signalling that they wish to let go of the argument that environmental policies hamper economic growth and deny their populations the prosperity enjoyed by those responsible for the current state of affairs. Instead of restricting economic growth and corporate profitability, the embrace of sustainability as a guiding principle for governance in both the private and public spheres may in fact drive global GDP to new and yet uncharted heights.

Betting on de-growth – Orwellian doublespeak for a global depression of unprecedented depth and duration – as Mrs Klein does in This Changes Everything: Capitalism vs. the Climate – seems a choice bereft of optimism. Mrs Klein, and those advocating for the Economy for the Common Good and other utopian schemes, consistently underrate the power of innovation and the resourcefulness of people. While the earth may be running out of resources, humans find ever more ingenious ways of coping with the resulting challenges.

The Global Agenda Councils of the World Economic Forum (WEF) compile an annual list of issues that are expected to dominate public debate in the year to come. For 2015, the WEF think-tank expects deepening income disparities and jobless economic growth, amongst others, to remain the world’s most pressing concerns, along with lack of leadership.

The latter problem has become painfully clear as US President Obama’s inspiring Yes We Can message was watered-down to Well We Tried.

CFI.co | Capital Finance International

According to the Pew Research Center’s Global Attitude Survey, Americans are more concerned about North Korea’s and Iran’s pot shots at nuclear power status than they are about climate change and financial instability.

US leadership is being sorely missed. The world stands not so much in need of the US as a global arbitrator or policeman, but as a beacon of moral rectitude and freedom. Currently it is neither.

The awesome power of greed unlimited caused the global financial meltdown of 2008 while the land of the free now unashamedly spies on the rest of the world – friend and foe alike – without mustering the least respect for the privacy of others. As far as Washington is concerned, we are all terrorists until proven otherwise and even then suspicions linger.

While the US sadly retrenches into mindless militarism, reducing even highly complex issues to the us-vs-them level pioneered by Fox News, the rest of the world is moving on – merrily or otherwise.

As it is doing so, new alliances are cemented and, indeed, economies converge.

There is actually quite a bit of good news to report on and analyse: The World Economic Forum holds its annual meeting from January 21 to 24 and CFI.co went out into the wider world to report on the actual accomplishments of the Davos Men. We looked behind the headlines to report on the real impact of all the talk and lofty ideas. If there is a central theme to this issue of CFI.co, it is one of modest optimism: The end is not quite nigh.

Doomsayers get no say as we’d much rather focus on what can be (realistically) done to further the cause of humankind. It turns out quite a lot: We’ve only just begun navigating the endless river of progress.

Wim Romeijn Editor CFI.co

Editor’s Column

Amsterdam

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Letters to the Editor

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Your article on the possible pitfalls of resource-financed infrastructure was most enlightening since a growing number of countries are now flush with capital yet suffer from severe infrastructure deficits. This would seem a no-brainer if it were not for politicians trying to hijack funds to further their own ambitions and score quick and easy points with voters. Non-competitive bidding on proposed projects and deficient procurement systems pose serious threats and may indeed contribute to a further deterioration of transparency in public administration. It is therefore heartening to note that the World Bank is aware of these dangers and actively tries to address the issue.

STANLEY GREENE Abuja (Nigeria)

More than just another of the countless green initiatives that are unleashed, the concept of sustainable stock exchanges does indeed seem to promise something worthwhile. As a meeting place for investors and companies, stock exchanges sit at the crossroads of economic life. It is here that decisions are made. As such, anyone looking to change the way business is conducted could do worse than to engage stock exchanges. However, it would be interesting to highlight the limits imposed by the fiduciary obligations corporations have to shareholders. The US Supreme Court has ruled that corporate managers must prioritise profit maximisation above any and all other considerations. How does this square with sustainability?

DWIGHT HUME Cedar Rapids (USA)

Thank you Mr Stiglitz for pointing out that most markets are in fact rigged to favour big business and the wealthy. However, the term you coined for this – ersatz capitalism – does perhaps not quite cover the rather sinister character of the phenomenon.

Your ersatz capitalism is, in fact, nothing more than a reverse interpretation of Robin Hood. We are now again taking from the poor and giving to the rich. The Occupy Movement may not have enjoyed a lasting impact, but we may rest assured that eventually the poor will lose their patience. It would be extremely unwise to passively wait for this to happen.

FEDERICO CAPUTO Bilbao (Spain)

We have but little to fear from President Putin’s Russia. We have now learned that the country’s phenomenal foreign exchange reserves were massively overstated and amount to not much more than $200bn. And even most of that money is not readily available and cannot be used to help offset the shortfall in financing caused by the sanctions.

The Russian bear may roar mightily; its paws are largely harmless. While any form of entente would be welcome indeed, Europe should not allow itself to be intimidated by the rumblings from Moscow.

MARCIA BIELBY Toulouse (France)

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Winter 2014 - 2015 Issue

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While it is nice that Thomas Piketty has concluded that – all things being equal – wealth accumulates at a higher clip than the economy grows, it is astonishing that he needs almost 700 pages to prove his point.

The fact that money attracts even more money is well known and kind of an open door. Nonetheless, the fact that thanks to Mr Piketty wealth inequality is now firmly back on the agenda is nothing short of astonishing.

Only a few years ago the chatter was all about making cash and mindlessly celebrating those best at it. While there is nothing inherently wrong with the pursuit of money, it tends to become a problem when the playing field is tilted towards the haves.

FRANK GRASSO Aberdeen (UK)

On behalf of the management and staff of Mobil Oil Nigeria plc, I want to thank CFI.co for honouring us with this award. It is recognition for the hard work our organisation puts into ensuring that we have a safe environment to work in. As an affiliate of the largest integrated oil and gas company in the world, this award confirms that our safety standards are indeed global and implemented wherever we operate.

The award will spur us to even greater focus on our HSE culture as we remain dedicated to our mantra that “NOBODY GETS HURT.” TUNJI OYEBANJI Chairman and Managing Director of Mobil Oil Nigeria, Lagos

How interesting to read that the government of Vietnam is keen to improve the dynamics of the country’s economy by setting the remaining stateowned companies on a corporate – and hence a more competitive – footing. The commitment to improving transparency and the quality of corporate governance has already brought impressive results and will undoubtedly clear the path to sustained and significant future growth. It is particularly heartening to see that both Vietnamese businesses and government entities are now fully dedicated to opening up the burgeoning local economy and promote the country’s integration into the regional and global economy.

PHILIP KOCHANSKI Hong Kong (PRC)

While a renaissance is always a welcome event, the one now unfolding in India may be a bit over-the-top. Dispatching a satellite to orbit Mars is indeed a feat worthy of note, but one may question the usefulness of such a mission. Why not do something noteworthy to combat extreme poverty or develop a policy that accelerates development so that India’s tens of millions of marginalised people may become part of mainstream society? India is a land of vast opportunity. It’s the world’s largest – and perhaps even greatest – democracy. It should set the pace and become a shining beacon to all. Enough already of policies that aim to restrict or guide the country’s development. Unleash that tiger!

CONRAD ROSENWALD Berlin (Germany)

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Editor Wim Romeijn

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Assistant Editor Sarah Worthington

COVER STORIES

Executive Editor George Kingsley

Cover Story: Klaus Schwab - Portrait of a Man on a Mission

Production Editor David Graham

Editorial William Adam Ivan Chapman Diana French David Gough-Price Ellen Langford John Marinus

Columnists Otaviano Canuto Ross Jackson Tor Svensson

Photo: Bloomberg/Getty Images

(28 – 29)

UNPRI: Responsible Investing (110 – 114)

UNDERSTANDING THE POLICY LIFE-CYCLE The process of public society has a number of classic stages which interact in a dynamic fashion: identification, information gathering, decision-making, implementation, evaluation, termination and renewal. Investors need to understand their role for each.

MIGA: Fragile FDI UNDERSTANDING THE POLICY LIFE-CYCLE (116 – 117)

Distribution Manager Len Collingwood

The process of public policy has a number of stages which interact in a dynamic fashion: identification, information gathering, decision-making, implementation, evaluation, termination and renewal. Investors need to understand their role for each.

Subscriptions Maggie Arts

Commercial Director Jon Gerben

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: info@cfi.co W: www.cfi.co

Printed in the UK by The Magazine Printing Company using only paper from FSC/PEFC suppliers www.magprint.co.uk

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WBG: MENA Job Creation

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(122 – 124)

IDENTIFICATION

Decisions need to be made on what, whether and how to proceed. This will involve discussions about the issue, the information needed, the key actors to be consulted and the policy options that may be available.

Policy processes may be initiated by investors concerned about gaps in regulatory frameworks (e.g. Ceres call for the SEC to require the disclosure of climate change related information in SEC filings), or about weaknesses in the implementation of regulation (e.g. the Code for Responsible Investing in South Africa was catalysed by investors concerned that asset owners were not sufficiently active in terms of corporate governance).

NASDAQ’s Frucher on Sustainable Stock Exchanges (174)

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INFORMATION GATHERING

This will involve reviews of the available evidence, and discussions with key stakeholders and opinion formers. It will also include some initial analysis of the issue in question, of the options for action, and of the merits of alternative courses of action.

Investors can contribute by providing information on current practice (e.g. the insurance industry provided this input on Solvency II), and through providing practical support to policymakers (e.g.

Japanese investment trade bodies helped to co-ordinate policymakers’ dialogue with investors on the Japanese Stewardship Code).

World Bank Group: Governance SWF (180 – 182)

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UNCDF: Financial Inclusion (184 – 185)

CFI.co | Capital Finance International

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CONSIDERATION AND DECISION-MAKING

When making a decision on the policy measures to be adopted, policymakers will assess the likely effectiveness of the options available (including the ‘do nothing’ option), the financial costs and benefits of taking action, and the political implications of taking action.

Winter 2014 - 2015 Issue

FULL CONTENTS 12 – 35

As World Economies Converge

World Bank

Nouriel Roubini

Mohamed A. El-Erian

Ross Jackson

Tor Svensson

Book Review: This Changes Everything

Mercury Capital Advisors

Cover Story: Klaus Schwab

WEF: The New Global Context

36 – 47

Grey Eminences

48 – 57

Europe

Nordea Asset Management

Rajneesh Narula

ALJ Finansman

58 – 74

CFI.co 2014 Awards

Rewarding Global Excellence

75 – 77

At Loggerheads

78 – 117

Africa

World Bank Group

CRC Credit Bureau

Travant Capital Partners

Chase Bank Kenya

African Re

Luxury Living

Positive Insights

WAICA Re

Goldlink Insurance

Britam

State Bank of Mauritius

Luisa Nenci

Exxon Mobil Oil Nigeria

Alexander Forbes Group

Principles for Responsible Investment

MIGA

118 – 135

Middle East

World Bank

Burgan Bank

Baz Real Estate Company

UNEP FI

Ahli United Bank

Arab Bank

136 – 147

Editor’s Heroes

Ten Men and Women Who are Making a Real Difference

148 – 157

Latin America

HMC Capital Group

Recovering the Magdalena River Waterway

BONUS Banca de Inversión

158 – 169

Asia

Colombo Stock Exchange

Asia Plantation Capital

Zed Constructions

170 – 186

Emerging Economies Perspective

Corporate Knights Capital

Sandy Frucher

UNCTAD WEF 2014 Roundup

World Bank Group

UNCDF

Market Insight

CFI.co | Capital Finance International

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> Otaviano Canuto, World Bank Group:

Navigating Brazil’s Path to Growth Brazil’s macroeconomic management faces four major immediate challenges.

The response to them will be strengthened if economic agents could have some indication of how the Brazilian economy will be steered back to a growth route.

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he first challenge will be the upward realignment of domestic regulated prices in a context of inflationary pressures that are still high. Since the second half of 2012, inflation has remained near or above 6.5% – the upper limit of the target.

In recent years, the main inflationary factors – services and non-tradable goods – appear to be slowing down. However, the ongoing correction of regulated prices, until recently repressed, has still some way to go (Chart 1).

Difficulties to decelerate inflation will be compounded by another potential challenge: the pressure towards local currency depreciation that will likely accompany the process of normalisation of US monetary policy. Some increase of interest rates is expected for 2015. At the very least there will be higher volatility of interest and exchange rates. This tends to lower the attractiveness of Brazilian securities.

In fact, one can assume that the Brazilian real

“Since the second half of 2012, inflation has remained near or above 6.5% – the upper limit of the target.” would have already lost significant value were it not for the foreign currency hedge transactions massively offered by the central bank since the “taper tantrum” of last year (the notional value of which has now reached $ 100bn).

Flows of foreign direct investment have remained stable since 2011, but have no longer been sufficient to cover the current account deficit of the balance of payments since last year, when the latter surpassed 3.5% of GDP. (Chart 2) To the extent that some retrenchment in portfolio capital inflows takes place, the pressure to devalue the real will increase. The challenge then will become an opportunity for the partial

recovery of industrial competitiveness which was eroded in recent years. This occurs only as long as the effects of a devaluation is not negated by a subsequent inflation spurt.

INFLATIONARY PRESSURES The third challenge will be to respond to such inflationary pressures without resorting to massive doses of monetary tightening, in addition to the restrictive policy already in effect, while those adjustments in relative prices (exchange rate and regulated prices) take place. The Brazilian economy is now in its fourth year of low growth with industrial production remaining stagnant at levels close to those of 2010 (Chart 3). Bank credit has not decreased more only because of the expansion of public banks’ portfolios. Today, these exceed in volume the total lending by private banks (Chart 4).

Fiscal policy will be the key to addressing this challenge, insofar as it can reduce the burden of responsibility placed on monetary authorities.

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Headline Inflation

Tradables

Non-tradables

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May-14

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Feb-14

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Nov-13

Chart 1: Inflation. Source: IBGE

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May-13

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CFI.co Columnist

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Winter 2014 - 2015 Issue

Strictly speaking, if the answers to these four major immediate challenges are taken as credible, improvements in confidence and expectations of private agents will facilitate the crossing of turbulences. This will be the case particularly if private investments – in decline since the middle of last year – start to reflect a higher optimism about future macroeconomic performance.

PLAN UPFRONT Therefore, a plan to return to growth must be presented upfront. There is now a widespread understanding that a systematic increase in Brazil’s “total factor productivity” (TFP) will be needed from now on if the growth-with-socialinclusion that prevailed in the 2000s is to make a comeback. For this to happen, workers need to benefit from more and better education.

However, there are other areas where Brazil can find sources of increased TFP while the country is working on improving its education system.

Chart 2: Foreign Direct Investment and Current-Account Deficits. Source: Central Bank of Brazil

The first of these other areas is infrastructure. In addition to its role as gross fixed capital formation, sustainable investments in infrastructure would alleviate transportation bottlenecks that have become increasingly tight in the recent past. The reduction of wasted resources, as a consequence of such investments, would not only cause productivity gains, but also more robust private investment in other sectors. Here, it will be necessary to fine-tune the division of responsibilities between the public and private sectors.

Additionally, horizontal productivity gains could be achieved through reforms in various operating parameters of the private sector. For example, the annual Doing Business Report, published by the World Bank for 189 countries, indicates that a Brazilian company today spends 2,600 manhours per year just to pay taxes.

Chart 3: GDP by Sectors (Quarterly GDP, Q1 2008 = 100). Source: IBGE

goal (Chart 5). A reversal of fiscal and para-fiscal expansionism – through the injection of funds by the treasury into public banks – would ease the requirement in terms of higher interest rates that, in turn, help keep inflation in check.

Source: IIF, Central Bank of Brazil

The primary public sector surplus has shrunk since 2012 and is unlikely to reach this year’s

CFI.co | Capital Finance International

Simplifying the tax system should be, in our judgment, an immediate priority. The bang for the buck, in terms of a reduction in the waste of resources, would be significant and be felt across the board. Improving the legal and tax frameworks in which the labour market operates should also be high on the agenda. Brazil is a country where – compared to its peers in levels of per capita income – private companies invest the least in the training of personnel. Disincentives embedded in current tax and labour laws are among the reasons for this poor performance.

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CFI.co Columnist

Chart 4: Bank Credit Outstanding (percent of GDP).

Such review of the fiscal stance would meet the fourth great challenge, which is to reverse the perception of fiscal deterioration of recent years thus mitigating the risk of losing the “investment grade” ratings of Brazil’s public debt. Given the limits to ambitious change in fiscal targets, mostly due to inflexibility in the current structure of public expenditures, establishing multiannual targets for primary balances and/or caps on public spending-to-GDP ratios would enhance the credibility of any fiscal adjustment effort.

The average in Latin America and the Caribbean, and the OECD are 367 and 176 respectively.

Building permits take 460 days to be issued in Brazil, against 225 days elsewhere on the continent and 143 days in the OECD. These numbers indicate that human and material resources are wasted on activities that do not generate value. This is harmful to both the competitiveness of businesses and, at macro level, Brazil’s TFP.

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Primary Fiscal surplus

Net debt (RHS)

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CFI.co Columnist

Chart 5: Primary Fiscal Balances and Public Debt. Source: Brazilian National Treasury

UNFRIENDLY The foreign trade chapter of the Brazilian business environment is also noted as unfriendly to investments and technological innovation.

Transaction costs and difficulties to access technologies, equipment, and supplies from outside have limited the local scope for innovation, productivity increases, and competitiveness.

Physical investments in logistics infrastructure will bring a positive contribution in this case.

However, a re-evaluation of the costs of the complex structure of tariff and non-tariff barriers by which the country protects its market, is also highly due.

The third area that holds the potential of contributing significantly to TFP and economic growth is a review of public spending.

International experience has shown how 14

transparency, result evaluation, accountability, and competition in public procurement reduce corruption and improve the quality of public spending. There is also evidence that the quality of public services (education, health, etc.) responds positively to the presence of incentives that reward good performance. Improvements in the quality of public spending would provide gains not only as a significant part of GDP, but also as part of the production inputs used by the private sector.

Potential gains in TFP to be accrued with the review of public spending go beyond the search for more efficiency and effectiveness. To the extent that one may locate benefits and public subsidies that do not find justification in terms of poverty reduction or needs of the productive system, their elimination would make room for CFI.co | Capital Finance International

tax reductions or a redirection of the freed-up resources.

Brazil therefore has four major short-term macroeconomic challenges and three broad areas of medium-term reform where it is possible to increase its potential for economic growth.

Fixing the short term while launching long-term growth foundations will be essential in retaking the course of sustainable development and social inclusion. After all, it is easier to navigate angry seas when one keeps sights of the true north. i

The opinions expressed here are the author’s and should not be attributed to the World Bank.

Follow Otaviano Canuto on Twitter: www.twitter.com/ocanuto

> Ross Jackson:

Nero Politics Meet Limits to Growth Nero – the last emperor of the Roman Empire - is best remembered as the man who fiddled while Rome burned. I see a direct parallel to the collective of current world leaders who are ignoring vital threats to our very survival while fiddling with far less important issues – mostly to do with the creation of short-term economic growth or greater world dominance. I will cite two recent publications to make my point.

REVISITING THE LIMITS TO GROWTH The first is a study by Dr Graham Turner of the University of Melbourne revisiting the famous Limits to Growth (LtG) study of 1972 and comparing its global computer model projections with actual developments over the subsequent forty years [1].

The original study was rather controversial. Many pundits interpreted it as a “doomsday” report.

Others pronounced it as a failure because we did not run out of oil by 2000. Most commentators totally misread what the report actually said. It did, in fact, not make any predictions; rather it computed a number of scenarios based on various assumptions.

The most interesting scenario is probably the one the authors called the “standard model” which projected what would likely happen in a business-as-usual scenario with industrial production, pollution, population, food supply, and resources. These are all dynamically linked with many feedback mechanisms in the LtG model.

CFI.co Columnist

What Dr Turner found was that the actual data since 1972 track very closely with the LtG “standard model” in all areas: Industrial production, pollution, population, food supply, etc. His study drew on extensive data from United Nations statistics, the BP Statistical Review, the US National Oceanic and Atmospheric Administration, and other reliable sources.

THE INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE REPORT The second publication is the IPCC Climate Mitigation report of April 2014 [2]. The diagram below sends a very clear and sobering message: In spite of the Kyoto Protocol goal of reducing

“The questions I want to deal with here are why is this being allowed to happen and what may we do about it?”

CO2 emissions by 7% from 1990 to 2012, and in spite of other promises of climate action, total emissions continue to rise inexorably each year.

In the period 1970-2000, the annual increase was 1.3%. From 2000 to 2010, the rate increased to 2.2% per annum. The actual increase for the period from 1990 to 2010 – when we should have been reducing emissions – was almost 30 %.

The IPCC report is totally consistent with the LtG “standard model”. We are on a catastrophic business-as-usual path, essentially doing nothing to change the state of affairs. Rome is burning while our leaders are fiddling.

The questions I want to deal with here are why is this being allowed to happen and what may we do about it?

WHY? In my opinion, the answer probably lies in the increased influence of the business community on politicians. This has been going on for about thirty years now as a result of the dominance of neoliberal economics.

This economic paradigm – and in particular the rules of the WTO - gives free reign to multinational corporations to pretty much do as they please: Produce their products in Asian sweatshop nations without any regard for environmental or social consequences; use transfer pricing and tax

shelters to avoid paying taxes where they sell their products; and undercut more environmentally responsible products from local companies that do not share these advantages.

Due to their vast size, these corporations always have the ear of leading politicians who, in turn, vie for their favours: “Please invest here.

Please create jobs.” Nation states are reduced to competitors for the favours of the 0.1% who own the majority of these behemoths and whose wealth has exploded under neoliberalism.

Nation states are forced to cut back on welfare in order to pay their pound of flesh. Around 300 multibillionaires now own as much as the 3 billion poorest citizens of the world.

Another result of neoliberalism is the increasing dominance of financial speculation relative to investments in the real economy. Recent figures from the UK show that only 8% of bank lending goes to the real economy while the rest goes to speculative purchases of existing assets. The pattern is the same everywhere and this is why we will continue to experience asset bubbles.

The situation is worst in the USA where the “corporatocracy” has actually purchased Congress outright. Democracy has effectively been eliminated from the equation. The situation in Europe is marginally better but subject to the same forces. In the European Union, no major legislation is possible if it goes against the express wishes of the major industrial corporations.

Hence the failure of the EU Emissions Trading System, among other things.

WHAT CAN WE DO? Rejection of neoliberal economics and leaving the WTO to form an alternative trading block based on good governance and sustainability

“In my opinion, the answer probably lies in the increased influence of the business community on politicians.”

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CFI.co | Capital Finance International

Winter 2014 - 2015 Issue

(environmental, social, and economic). These are some of the suggestions I put forward in Occupy World Street [3]. However, realistically speaking, this is not likely to happen until after the green curve above turns south and we have a totally new situation. Once we are there, existential necessity rather than corporate wish lists will determine the course of events.

In the meantime, the best hope for avoiding a collapse is for the business community to realise that its own interest is best served by taking radical action before it is too late. The siphoning off of wealth from the real economy, from the welfare state, from developing countries, and from ordinary citizens has been so successful for the 0.1% that many ordinary workers can no longer afford to purchase the products they make. If the business community does not act decisively, then they will go down along with the rest of us.

One key thing that the business community could do is to tell their politician friends that the time has come for an effective climate solution. I am not talking about more “reduction targets” and more voluntary schemes like Kyoto. By now, we all know that they do not work.

Rather, I am talking about putting an absolute ceiling on CO2 emissions, with subsequent annual declines. That is the only way to prevent overheating of the planet. Several well thought out schemes exist, although they are not on the table for discussion in the COP meetings yet. But they could be. In Occupy Wall Street, I have put forward one such proposal that is fair and will work. I have also referred to two other similar proposals that would also work.

The positive thing about this approach is that a high price on carbon will provide the incentive for private investment in new technologies that will be environmentally friendly. We can put to work the enormous innovative potential in the private sector for solving real problems instead of the current focus on asset speculation.

Think of the enormous potential of getting all that speculative money back into the real economy.

So this is my message to the business community: Get real, real fast. i

Rome: Nero

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CFI.co Columnist

Refernces [1] Graham Turner and Cathy Alexander, “Limits to Growth Was Right: New Research Shows We’re Nearing Collapse”, The Guardian (UK), September 2, 2014.

[2] “Summary for Policymakers” in “Climate Change 2014, Mitigation of Climate Change”, IPCC, April, 2014.

[3] Ross Jackson, “Occupy World Street: A Global Roadmap for Radical Economic and Political Reform”, Chelsea Green, 2012.

> Nouriel Roubini:

The Return of Currency Wars

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EW YORK – The recent decision by the Bank of Japan to increase the scope of its quantitative easing is a signal that another round of currency wars may be under way. The BOJ’s effort to weaken the yen is a beggar-thy-neighbor approach that is inducing policy reactions throughout Asia and around the world.

competitiveness relative to Japan, are easing their own monetary policies – or will soon ease more. The European Central Bank and the central banks of Switzerland, Sweden, Norway, and a few Central European countries are likely to embrace quantitative easing or use other unconventional policies to prevent their currencies from appreciating.

Central banks in China, South Korea, Taiwan, Singapore, and Thailand, fearful of losing

All of this will lead to a strengthening of the US dollar, as growth in the United States is picking

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CFI.co | Capital Finance International

up and the Federal Reserve has signaled that it will begin raising interest rates next year. But, if global growth remains weak and the dollar becomes too strong, even the Fed may decide to raise interest rates later and more slowly to avoid excessive dollar appreciation.

The cause of the latest currency turmoil is clear: In an environment of private and public deleveraging from high debts, monetary policy has become the only available tool to boost

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demand and growth. Fiscal austerity has exacerbated the impact of deleveraging by exerting a direct and indirect drag on growth. Lower public spending reduces aggregate demand, while declining transfers and higher taxes reduce disposable income and thus private consumption.

In the eurozone, a sudden stop of capital flows to the periphery and the fiscal restraints imposed, with Germany’s backing, by the European Union, the International Monetary Fund, and the ECB have been a massive impediment to growth. In Japan, an excessively front-loaded consumption-tax increase killed the recovery achieved this year. In the US, a budget sequester and other tax and spending policies led to a sharp fiscal drag in 2012-2014. And in the United Kingdom, self-imposed fiscal consolidation weakened growth until this year.

Globally, the asymmetric adjustment of creditor and debtor economies has exacerbated this recessionary and deflationary spiral. Countries that were overspending, under-saving, and running current-account deficits have been forced by markets to spend less and save more. Not surprisingly, their trade deficits have been shrinking. But most countries that were over-saving and under-spending have not saved less and spent more; their currentaccount surpluses have been growing, aggravating the weakness of global demand and thus undermining growth.

As fiscal austerity and asymmetric adjustment have taken their toll on economic performance, monetary policy has borne the burden of supporting faltering growth via weaker currencies and higher net exports. But the resulting currency wars are partly a zerosum game: If one currency is weaker, another currency must be stronger; and if one country’s trade balance improves, another’s must worsen.

“Given fiscal drag and private deleveraging, lack of sufficient monetary easing in recent years would have led to double and triple dip recession (as occurred, for example, in the eurozone).”

Of course, monetary easing is not purely zero-sum. Easing can boost growth by lifting asset prices (equities and housing), reducing private and public borrowing costs, and limiting the risk of a fall in actual and expected inflation. Given fiscal drag and private deleveraging, lack of sufficient monetary easing in recent years would have led to double and triple dip recession (as occurred, for example, in the eurozone).

But the overall policy mix has been sub-optimal, with too much frontloaded fiscal consolidation and too

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much unconventional monetary policy (which has become less effective over time). A better approach in advanced economies would have comprised less fiscal consolidation in the short run and more investment in productive infrastructure, combined with a more credible commitment to medium- and long-term fiscal adjustment – and less aggressive monetary easing.

You can lead a horse to liquidity, but you can’t make it drink. In a world where private aggregate demand is weak and unconventional monetary policy eventually becomes like pushing on a string, the case for slower fiscal consolidation and productive public infrastructure spending is compelling.

Such spending offers returns that are certainly higher than the low interest rates that most advanced economies face today, and infrastructure needs are massive in both advanced and emerging economies (with the exception of China, which has overinvested in infrastructure).

Moreover, public investment works on both the demand and supply sides. It not only boosts aggregate demand directly; it also expands potential output by increasing the stock of productivity-boosting capital.

Unfortunately, the political economy of austerity has led to sub-optimal outcomes. In a fiscal crunch, the first spending cuts hit productive public investments, because governments prefer to protect current – and often inefficient – spending on public-sector jobs and transfer payments to the private sector. As a result, the global recovery remains anemic in most advanced economies (with the partial exception of the US and the UK) and now also in the major emerging countries, where growth has slowed sharply in the last two years.

The right policies – less fiscal austerity in the short run, more public investment spending, and less reliance on monetary easing – are the opposite of those that have been pursued by the world’s major economies. No wonder global growth keeps on disappointing. In a sense, we are all Japanese now. i

ABOUT THE AUTHOR Nouriel Roubini is Chairman of Roubini Global Economics and a professor at NYU’s Stern School of Business.

Copyright: Project Syndicate, 2014. www.project-syndicate.org 19

> Mohamed A. El-Erian:

A Year of Divergence

I

n the coming year, “divergence� will be a major global economic theme, applying to economic trends, policies, and performance. As the year progresses, these divergences will become increasingly difficult to reconcile, leaving policymakers with a choice: overcome the obstacles that have so far impeded effective action, or risk allowing their economies to be destabilized.

The multi-speed global economy will be dominated by four groups of countries. The first, led by the United States, will experience 20

continued improvement in economic performance. Their labor markets will become stronger, with job creation accompanied by wage recovery. The benefits of economic growth will be less unequally distributed than in the past few years, though they will still accrue disproportionately to those who are already better off.

The second group, led by China, will stabilize at lower growth rates than recent historical averages, while continuing to mature structurally.

They will gradually reorient their growth models CFI.co | Capital Finance International

to make them more sustainable – an effort that occasional bouts of global financial-market instability will shake, but not derail. And they will work to deepen their internal markets, improve regulatory frameworks, empower the private sector, and expand the scope of market-based economic management.

The third group, led by Europe, will struggle, as continued economic stagnation fuels social and political disenchantment in some countries and complicates regional policy decisions. Anemic growth, deflationary forces, and pockets of

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excessive indebtedness will hamper investment, tilting the balance of risk to the downside. In the most challenged economies, unemployment, particularly among young people, will remain alarmingly high and persistent.

The final group comprises the “wild card” countries, whose size and connectivity have important systemic implications.

The most notable example is Russia.

Faced with a deepening economic recession, a collapsing currency, capital flight, and shortages caused by contracting imports, President Vladimir Putin will need to decide whether to change his approach to Ukraine, reengage with the West to allow for the lifting of sanctions, and build a more sustainable, diversified economy.

The alternative would be to attempt to divert popular discontent at home by expanding Russia’s intervention in Ukraine. This approach would most likely result in a new round of sanctions and counter-sanctions, tipping Russia into an even deeper recession – and perhaps even triggering political instability or more foreign-policy risktaking – while exacerbating Europe’s economic malaise.

Brazil is the other notable wild card.

President Dilma Rousseff, chastened by her near loss in the recent presidential election, has signaled a willingness to improve macroeconomic management, including by resisting a relapse into statism, the potential benefits of which now pale in comparison to its collateral damage and unintended consequences.

If she delivers, Brazil would join Mexico in anchoring a more stable Latin America in 2015, helping the region to overcome the disruptive effects of a Venezuelan economy roiled by lower oil prices.

Moscow: Stalin Skyscraper

“Fortunately, there are ways to ensure that 2015’s divergences do not lead to economic and financial disruptions.”

This multi-speed economic performance will contribute to multi-track central banking, as pressure for divergent monetary policies intensifies, particularly in the systemically important advanced economies. The US Federal Reserve, having already stopped its large-scale purchases of long-term assets, is likely to begin hiking interest rates in the third quarter of 2015. By contrast, the European Central Bank will pursue its own version of quantitative easing, introducing in the first quarter of the year a set of new measures to expand its balance sheet. The Bank of Japan will maintain its pedal-to-the-metal approach to monetary stimulus.

CFI.co | Capital Finance International

Of course, there is no theoretical limit on divergence. The problem is that exchange-rate shifts now represent the only mechanism for reconciliation, and the divide between certain market valuations and their fundamentals has become so large that prices are vulnerable to bouts of volatility.

For the US, the combination of a stronger economy and less accommodative monetary policy will put additional upward pressure on the dollar’s exchange rate – which has already appreciated significantly – against both the euro and the yen. With few other countries willing to allow their currencies to strengthen, the dollar’s tendency toward appreciation will remain strong and broad-based, potentially triggering domestic political opposition.

Moreover, as it becomes increasingly difficult for currency markets to perform the role of orderly reconcilers, friction may arise among countries. This could disturb the unusual calm that lately has been comforting equity markets.

Fortunately, there are ways to ensure that 2015’s divergences do not lead to economic and financial disruptions.

Indeed, most governments – particularly in Europe, Japan, and the US – have the tools they need to defuse the rising tensions and, in the process, unleash their economies’ productive potential.

Avoiding the disruptive potential of divergence is not a question of policy design; there is already broad, albeit not universal, agreement among economists about the measures that are needed at the national, regional, and global levels.

Rather, it a question of implementation – and getting that right requires significant and sustained political will.

The pressure on policymakers to address the risks of divergence will increase next year. The consequences of inaction will extend well beyond 2015. i

ABOUT THE AUTHOR Mohamed A. El-Erian, Chief Economic Adviser at Allianz and a member of its International Executive Committee, is Chairman of President Barack Obama’s Global Development Council and the author, most recently, of When Markets Collide.

Copyright: Project Syndicate, 2014. www.project-syndicate.org 21

> Tor Svensson:

CFI.co Columnist

Considering High Debts, Cheap Oil, and the Use of Helicopters

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ith economic growth in the Eurozone as rare as hoarfrost on a summer’s morning, unemployment remains at an unacceptably high level. This in no small part due to austerity policies rooted in German deficit-spending angst which threatens to perpetuate the downward spiral and stifle tax receipts, thus requiring yet more belt-tightening.

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German fears notwithstanding, public debt expressed as a percentage of the GDP is still on the rise. As economies flat-line or shrink, public deficits persist and thus debt-to-GDP ratios worsen.

Perhaps a few countries have already reached the tipping point at which they are no longer able to grow their way out of debt. In the UK, CFI.co | Capital Finance International

job creation and economic growth seem to have resumed and the deficit is shrinking. However, the debt-to-GDP ratio is still going up and now stands at nearly 80%. Even with interest rates at a historic low, the UK government is only able to serve the interest on its current debt by issuing yet more debt – and a bit more to fund miscellaneous spending. Future cuts in public spending may not be sufficient to reduce the

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deficit. Indeed, tax revenue may fall as more people get on the dole and the economy stalls.

Italy’s debt-to-GDP ratio now hovers around 137% – and is trending relentlessly northwards. Now debt deflation is knocking at the door as economic activity diminishes. Clearly, Italy’s position is untenable and a debt default may be lurking on the horizon.

France’s debt trap is similar, albeit to a lesser degree. What impact will the threat of defaults have on the euro and on the international financial system?

Economic growth is mostly the result of either improved productivity or an increased population – or a combination of the two. It is hard to imagine Europe ever again producing growth at a clip that outpaces rising debt levels. The continent’s population is aging with the demographic pyramid getting topheavy and pension liabilities becoming the proverbial 800 pound gorilla. Also, Europe is not well-served by its generally less-than-dynamic business model – permeated as it is with countless petty rules and regulations – or its largely dysfunctional financial system which fails to properly provide credit to small and medium-sized businesses.

For a mature economy with an already high productivity, growth is hard to come by – just ask the Japanese. Growth in the US would be spectacularly less spectacular if the country’s increased population size were to be taken out of the equation. In about 35 years, the US population grew from barely 200 million to over 315 million. Waging war also does wonders for a country’s GDP, especially if it manages to pick paper tigers for enemies. On the other hand, the US benefits nicely from shale gas and its proclivity for technological innovation.

“It is hard to imagine Europe ever again producing growth at a clip that outpaces rising debt levels.”

Conversely, for the countries of the Gulf Region and the adjacent peninsula, cheap oil may serve to emphasise the urgency of transforming their economies from carbon-based to knowledge-based.

CFI.co | Capital Finance International

At the World Economic Forum (WEF), scheduled to take place from January 21-24, issues such as these will undoubtedly be reviewed. However, the 2,500 or so invited participants are also expected to discuss matters perhaps less grand, but no less important, such as corporate social responsibility (CSR) and sustainability as expressed in ESG (environmental, social, and governance) parameters.

CFI.co considers both CSR and ESG sustainability as the twin pillars that will sustain the drive to global prosperity for decades to come. It goes without saying that in the contemporary world businesses can no longer afford to ignore the best interests of all stakeholders, including the possibly inconvenient ones. At CFI.co, we continually strive to highlight examples of good governance and sustainable business, including those found in frontier markets.

Talking about governance: The time may have come for the powers-that-be in Brussels to trace a bold future for the European Union; one that encourages accelerated growth at rates high enough to see both unemployment and relative debt levels drop significantly. These are issues that need be tackled now.

As the European Central Bank mulls a massive quantitative easing (QE) stimulus package, questions aplenty arise concerning the outcome of such an approach. Elsewhere, QE has primarily boosted asset prices and thus exacerbated wealth inequality.

QE also seems to have largely failed at stimulating growth, inflation, and/or job creation. Why not slash business and payroll taxes instead, or – if the situation gets dicey like it did in Japan – follow Milton Friedman’s advice and drop vast quantities of high-denomination banknotes out of helicopters. That should stoke the inflationary fires if nothing else will. i

ABOUT THE AUTHOR Tor Svensson is the Chairman of Capital Finance International.

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CFI.co Columnist

Austria: The Parliament in Vienna

Under normal circumstances, the fall in oil prices – which tumbled from a high of $100+ per barrel to barely $60 – should come as a most opportune shot in the arm for the moribund economies of Europe.

However, due to pre-existing deflationary pressures, the drop in oil prices only adds to the gloom. To make matters worse, cheap oil also undermines energy preservation efforts and the viability of renewable energy projects.

Meanwhile, the Russians seem not that happy. The country’s over-reliance on energy exports, its ill-advised geopolitical adventures, the biting sanctions that followed, and the dogged pursuit of domestic policies that could benefit from transparency and a measure of common sense, can all very well transform Russia before long into a basket case, albeit one equipped with nuclear weapons.

> Cover Story:

The New Global Context - Uncertainty Unveiled

By Wim Romeijn

Cover Story

The emergence of a global market place may already be grinding to a halt. Before long, economic integration, a process only just begun, could be derailed or superseded by fast-paced political, social, and technological developments over which states and their governments often have but limited control. That won’t do.

Switzerland: Davos

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Cover Story

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T

his New Global Context, now being unveiled in ways both surprising and exciting, is what will drive discussion at the 45th Annual Meeting of the World Economic Forum (WEF) in Davos, Switzerland. The four-day event, split into a series of agendas, brings together leaders from government, business, academia, and civil society. Over 2,500 participants are expected to descend on Davos to exchange thoughts, ideas, and views on most any topic under the sun: from deforestation to gender issues to cyberspace governance and way beyond.

In a world subject to profound change, increased situational awareness and contextual intelligence become essential tools for stakeholders that wish to help trace vectors of development rather than be overtaken by them. The WEF offers a platform that, due to its scope, allows invitees an unparalleled opportunity to broaden horizons and deepen knowledge.

Modesty is not part of the Davos happening.

The WEF bills the event as nothing less than a venue that helps shape the global agenda for the upcoming year. And such it is indeed. Being a forum that attracts both policy- and decision makers, the WEF also attracts considerable flak, some of which hails from globe-trotting antiglobalisation activists who unfailingly turn up to disrupt affairs.

More substantial criticism is levelled by the likes of MIT (Massachusetts Institute of Technology) Professor Emeritus Noam Chomsky who regularly censures the WEF for being “out of touch” with the needs, aspirations, and living conditions of common people. Indeed, the Davos Man – a neologism to describe the wealthy international elite whose members pay no heed to borders or nations – seems under threat from a reemergence of nationalism, sectarianism, and isolationism in various corners of the world.

Cover Story

BEST HOPE? Rather than a standard-bearer of the perceived evils of capitalism-without-borders, the Davos Man – for all his failings – still seems to offer the best hope for sustained global development that eventually, and perhaps inevitably, will overcome widespread ills such as poverty, violence, and ignorance. Far from personifying an excuse for the unbridled application of borderless capitalism or corporatism, the Modern Davos Man has read, or at least perused, the writings of Thomas Piketty – our latter-day Marx – and has sustainability values foremost on his/her mind.

Today, no self-respecting CEO, investor, or policymaker can do without at least paying tribute to environmental, social, and governance standards of quality. With climate change now nestled at, or near, the top of the global agenda, the reduction of noxious emissions is the thread that links the various agendas and debates.

New at this year’s meeting are the Transformation 26

“In a world subject to profound change, increased situational awareness and contextual intelligence become essential tools for stakeholders.”

Maps that will allow participants to better identify and understand the drivers of change.

These maps – akin to tag clouds – were drawnup by over a thousand experts, representing a bewildering array of fields of knowledge, at the November 2014 Summit on the Global Agenda – allegedly the world’s largest brainstorming session – which took place in Dubai.

Also, each year the Global Agenda Councils, a network of expert volunteers, comes up with an outlook that provides insights into specific regional and global challenges from the perspective of most stakeholders involved. In the introduction to the 2015 Outlook on the Global Agenda, former US Vice-President Al Gore identifies growing income inequality as one of the most pressing issues that need be addressed: “Over the last 25 years, the average income of the top 0.1% of the US population has grown twenty times faster than that of the average citizen.”

TROUBLING DISCONNECT Jobless growth is another issue causing worry: “Economies may be growing, but the number of available jobs is largely failing to keep pace,” writes Mr Gore who goes on to warn of the danger persistently high unemployment levels has to governments. A perceived lack of leadership and a weakening of parliamentary democracy suggest “a troubling disconnect between the public and the authorities that govern them.”

Writing on income inequality, UN Special Advisor Anima Mohammed concludes that robust economic growth by itself has not been effective in reducing the gap between the excessively rich and the desperately poor: “Deep challenges remain, including poverty, environmental degradation, persistent unemployment, political instability, violence, and conflict. These problems are often closely related to inequality.”

The 68.7% of the world’s population with assets valued at under $10,000 collectively own just about 3% of global wealth. On the other extreme of the scale, the 0.7% of humanity with more than a million dollars in property, own fully 41% of global wealth. The 2014 Pew Global Attitude Study found that in Sub-Saharan Africa over 90% of people consider income inequality a “big problem.” The corresponding number in the United States is, at 80%, in a similar ballpark.

While the concern is clearly there, and indeed tops the trends, politicians have been slow to react. Even in countries with governments that actively pursue income equalisation policies – CFI.co | Capital Finance International

such as Brazil, Mexico, and Rwanda – the gap has proven hard to shrink, let alone bridge.

“Addressing inequality is good for business as it creates a new demographic of consumers, thus widening the market for profits and services and increasing profit opportunities, especially for women,” writes Mrs Mohammed who is UN Secretary-General Ban Ki-moon’s special advisor on post-2015 development planning.

POT-SHOT While a cheap and cheerful pot-shot to take, Mr Gore was perhaps not the most fortunate of available choices as a messenger of global trends that cause worry and merit exhaustive debate.

The former vice-president has gained some notoriety for walking away from discussion and dismissing those brave enough to challenge his convictions. He famously quipped that it is “kind of silly” to discuss the science behind climate change and refused to engage Bjørn Lomborg – author of The Sceptical Environmentalist, director of the Copenhagen Consensus Centre, and a self-styled techno-optimist – on whether climate change should have precedence, or not, over investments in health and education.

As a repeat non-debater – and one with an outsized personal carbon footprint to boot – Mr Gore seems rather lost in the cacophony of expert voices that characterises the Global Agenda Councils. Also, Mr Gore may indeed personify the lack of leadership that is the third trending issue raised by the councils. If the World Economic Forum proves but one thing, it is that leaders must listen and learn, and act and adapt. Though relativism offers a philosophical slippery slope, the truth may indeed have more than one side to it – however inconvenient that may be.

WEF: AN EXPLAINER Committed to “improving the state of the world,” the World Economic Forum is a Swiss foundation that sprang from the European Management Forum organised since 1971 at the Davos Congress Centre in Graubünden with support from the European Commission and a number of trade organisations. Initially conceived as a venue to acquaint European captains of industry with US-style management techniques, the forum quickly broadened its brief after the collapse, in 1971, of the Bretton Woods global monetary framework. The forum shifted its focus from purely business management to include economic and social issues.

After the Yom Kippur War of October 1973, the forum’s scope was expanded yet again to now include politicians as well. Offering a nonpartisan platform devoid of national identity – or with a set agenda or objective other than promoting global understanding and prosperity – the event soon attracted droves of national leaders eager to meet peers, and even opponents, on neutral ground.

The formula proved exceptionally successful. On

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the brink of war over Turkish underwater research conducted in the vicinity of Greek islands, in 1988 Turkey and Greece agreed on a “no-war” approach to their differences at the annual meeting of the now rechristened World Economic Forum. To this day, the Davos Declaration ensures lasting peace in the Aegean Sea. Then in 1992, South African President WF de Klerk met in Davos with both Nelson Mandela and Chief Mangosuthu Buthelezi, founder of the Inkatha Freedom Party, to discuss the postapartheid future of their country. Two years later, Davos was the stage of yet another historic meeting between foes when Israeli Foreign Minister Shimon Peres shook hands with PLO Chairman Yasser Arafat and both proceeded to lay the groundwork for the Cairo Agreement, successor to the Oslo I Accord, regarding limited self-rule for Gaza and Jericho.

DON’T CALL US… The World Economic Forum Foundation is funded by 1,000 member companies, mostly blue chips with an annual turnover northwards of $5bn, which also dispatch their most senior executive officers to Davos to take part in the discussions.

Participation is by invitation only and includes, besides business leaders, politicians, academics, religious leaders, and representatives from nongovernmental organisations (NGOs), the media, and multilateral organisations.

Besides its flagship event in the Swiss Alps, the World Economic Forum organises an increasing number of meetings and networks around the world that bring and bind together young leaders, social entrepreneurs, researchers, educators, health professionals, and others. Each year, the WEF organises a series of regional mini-Davos promoting closer liaising between corporations, governments, academia, and NGOs. In 2015, regional meetings are planned in East Asia (Indonesia), Latin America (Mexico), and Africa (South Africa).

The 2015 annual meeting in Davos – an Alpine resort town of some 11,000 inhabitants – will also showcase the fifty or so initiatives currently being undertaken by the WEF. Over 250 sessions are scheduled to take place besides a number of off-piste meetings featuring an overview by prominent experts of the state-of-the-art in more exotic and diverse fields of endeavour such as nanotechnology, quantum physics, literature, music, astronomy, and architecture.

Curiously enough, the WEF found that most high-net-worth individuals are willing – if not positively eager – to engage but struggle with a lack of specific expertise. In a nutshell: they do not quite know where and how to start. The WEF study was presented to the public at Art Basel Miami Beach – the biggest contemporary art fair in the US displaying the work of over 4,000 artists represented by 267 galleries from 31 countries. While perhaps not artsy, the WEF study attracted the attention of the gathered – and deep-pocketed – art lovers congregating at the event.

Abigail Noble, head of impact investing initiatives at the WEF, said: “We’re just making sure that there’s a little bit of a moderating voice, hopefully getting ahead of the potential hype or bubble.

Though I am very passionate about impact investing, I do recognise it might not be for everybody. We want to make sure that decisionmakers within family offices begin by asking the right questions of the sector and of themselves.”

As a worthy concept, impact investing has been around since 2007. However, it has only recently gained a little traction. The WEF estimates that worldwide approximately $50bn worth of assets is being managed to extract a maximum of impact. According to WEF numbers, about $4tn is held globally by family offices – private companies used as vehicles for the management of family fortunes.

Some prominent names have already signed up for impact investing. Steve Case, cofounder of America Online (AOL), and eBay founder Pierre Omidyar were amongst the early adopters of impact investing. In Brazil, where the WEF organised a round-table for ultra-high-net-worth individuals in August 2014, the event attracted more people than seats at the table. Mrs Noble thinks family offices can play “a key role” in the evolution of impact investing: “They generally have more discretion over their assets than do managers that are subject to regulation such as those presiding over pension funds and insurance companies.”

The WEF readily admits in its report that impact investing may include higher upfront costs and a measure of liquidity risk, normally associated with venture capital underwriting start-ups. As such, impact investing is not right for all: “It’s got a lot of potential but that doesn’t mean that it’s without flaws,” concludes Mrs Noble.

MEASURING IMPACT Gauging the real impact of WEF initiatives and proceedings is a daunting task. For all the talk taking place and initiative being displayed at Davos, the real impact on people’s life is mostly channelled through projects, both large and CFI.co | Capital Finance International

THE TOP 10 TRENDS

ACCORDING TO THE GLOBAL KNOWLEDGE NETWORK

1. Deepening Income Inequality 2. Persistent Jobless Growth 3. Lack of Leadership 4. Rising Geostrategic Competition 5. Weakening of Representative Democracy 6. Rising Pollution in the Developing World 7. Increasing Occurrence of Extreme Weather Events 8. Intensifying Nationalism 9. Increasing Water Stress 10. Growing Importance of Health in the Economy

small, undertaken by businesses, foundations, and state entities. Thus, the World Economic Forum is but a venue – albeit the world’s most important one – for those concerned with the future of the world to swap ideas, experiences, and knowledge.

Since the turn of the century, the forum has opened up considerably, raised its public profile, and presented a more humane persona in an attempt to remove any appearance of being the scene of backroom dealings. Voices critical of unfettered globalisation have been invited in as well. Though select media are welcomed as active participants in the debates taking place, the working press – as opposed to their invited brethren – are still kept at bay and remain confined to processing reams of often selfcongratulatory releases.

Admittedly, organisers have to toe a fine line in order to keep the annual Davos meeting true to its original character as a safe and secure venue – if not haven – for thought leaders and other people of great consequence. Understandably, the WEF is loath to see its main event reduced to a stage for posturing, electioneering, and grandstanding of either the political or nationalist kind.

As it is, tangible results from the meetings may best be found by observing the slowly changing attitudes of both big business and government.

An unexpectedly large number of global trends were first brought to the fore at Davos meetings.

Subsequent changes in attitudes, ultimately benefiting countless millions around the globe, can often be traced back to exchanges between decision makers facilitated by the forum.

As such, the WEF is to economic thought what the Cannes International Film Festival is to the movie industry: a platform for the display of new ideas, ingenuity, and creative leadership that challenges established beliefs, shatters dogmas, and clears intellectual cobwebs. If it didn’t exist, it would urgently need to be invented.

Global convergence, a process now threatened by the sudden return of sectarianism, is of too great a value to be allowed an early demise. Rather than a peril, globalisation offers opportunity. It is now up to the Modern Davos Man to ensure these opportunities benefit all, instead of just the select few. i 27

Cover Story

IMPACT One of the more transcending topics at the 2015 meet – and quite possibly a new buzzword – is impact investing. In its most basal of forms, the concept entails the maximising of profits while doing good deeds. Amongst the exceedingly wealthy – aka high-net-worth and ultra-highnet-worth individuals – impact investing has become the hottest trending topic after the WEF in December 2014 released a study cum manual entitled Impact Investing: A Primer for

Family Offices. The document aims to encourage stewardship amongst the affluent while impact investing aims to capture their imagination – and assets.

> Cover Story:

Klaus Schwab - Portrait of a Man on a Mission

By Wim Romeijn

Cover Story

L

ong before Google came up with the motto, Don’t Be Evil was the sort of maxim Professor Klaus Schwab regularly employed to remind students and businesspeople of their responsibilities beyond turning a profit. Prof Schwab (76) advocates for the stakeholder concept which argues that the most efficient way to pursue one’s own interests is to incorporate those of all others affected by the endeavour.

Simple though it seems, the idea that cooperation beats confrontation has become the premise of a business philosophy now gaining traction globally.

The stakeholder concept rests at the heart of 28

sustainability which, in turn, encompasses three considerations: environmental, social, and governance (ESG). The excitement sustainability currently elicits amongst corporate leaders and politicians alike is – if nothing else – proof that the German professor was right all along. Others were perhaps just a bit slow on the uptake.

losing its pre-eminence as a factor of production.

It is being replaced by the forces of innovation. As talent gains in importance, money becomes less relevant. Prof Schwab expects this shift to impact economics worldwide and ultimately result in an ideology that emphasises personal freedom and social responsibility as drivers of development.

Now that the wider world seems to have caught up with him, Prof Schwab again surges ahead concluding, perhaps rather boldly, that, “capitalism, in its current form, has no place in the world around us.” Though readily admitting that capitalism is not yet broke, Prof Schwab does think it needs plenty fixing. For one, capital is gradually

IVORY TOWERS EXIT Professor Klaus Schwab is a man on a mission.

He wants to make the world a better place by appealing to common sense rather than political dogma. Though a science not yet fully understood, economics – the art of making a living – holds the key to humanity’s advancement. Not partial to

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small-scale thinking or a life of pondering spent within the confines of academia’s ivory towers, Prof Schwab set out in 1971 to improve the world around him.

Switzerland: Geneva

Klaus Schwab

Klaus Schwab – from 1969 to 2002 first lecturer and then professor in Business Policy at the University of Geneva – soon broadened the scope of the annual get-togethers in Davos to include economic and social issues, and later still, politics.

The World Economic Forum in its present form got its start in 1987 and, under Prof Schwab’s stewardship, has grown into a global organisation employing some 500 staff and mobilising many thousands in networks, councils, and platforms – all aimed at facilitating cooperation through the exchange of ideas and experiences.

BEYOND GLOBALISATION Just as most politicians only understand the countercyclical spending part of Keynesianism, most corporate participants of the Davos meetings seem to have ears only for the globalisation bit of the message. This gave rise to the Davos Man, a name coined by the conservative US political scientist Samuel P Huntington in 1977 to describe global elites who have no use for either borders or governments and thrive in a climate where states wither as their demise facilitates the emergence of a transnational elite.

COMMON GROUND The Davos formula of success is based on impartiality. The annual meeting is not a stage for waving flags or broadcasting convictions – it is a common ground. Prof Schwab’s outsized success in creating a neutral platform for thought and action, brought a new, and perhaps unexpected, set of challenges to the fore.

This was not quite the force Prof Schwab had intended to unleash with the World Economic Forum. In fact, Prof Schwab seems quite uncomfortable with the Davos Man whose, at times deplorable, antics have given globalisation a bad rap it did not deserve. Indeed, one of the main topics a`t the upcoming meet in Davos concerns the threats to global economic integration from a rise in sectarianism, political isolationism, and nationalism.

Size, it would seem, is a mixed blessing. With an annual budget of about $200 million, offices in New York and Beijing besides its headquarters in Cologny near Geneva, and organising numerous large events around the world, the WEF has a reach stretching far beyond Davos. The foundation is sponsored by a hundreds of member companies that each contribute to the budget annually, either as “strategic partners” (SFr 500,000) or “industry partners” (SFr 250,000). In return for their investment, the corporate sponsors receive exposure, media support, and a seat on discussion panels. They also get to be part of the ultimate forum for movers and shakers.

In a rare unguarded moment, Prof Schwab in January 2014 sighed that he must “constantly fight” to keep corporate interests from setting the agenda of the Davos meeting and dominating the proceedings. “We fight the commercialisation of the meeting. The forum is a great place precisely because business leaders are reminded that they have to take global public interest into account.”

Prof Schwab realises that quite a few captains of industry see Davos merely as a place to meet with, and fête, potential clients and conduct business.

Still, he hopes that the message get through. It often does, although not always in the way it was intended to.

CFI.co | Capital Finance International

The 2015 Davos summit is, however, one that may signal change and see the debut of the Modern Davos Man who is much more aware of social responsibilities than his predecessor ever was. Prof Schwab is actively looking to redefine the Davos Man into someone more in tune with his own stakeholder concept.

As it happens, the time seems right for such a makeover: corporate social responsibility and sustainability are becoming more than just the obligatory footnotes in annual reports. Corporations worldwide are finding that embracing such esoteric values, and elevating them to guiding principles, actually helps solidify bottom-lines. Cooperation is an improvement over confrontation and translates into bigger profits down the line. And those profits will now benefit all stakeholders, rather than just the select few holding the purse strings.

As the 45th Annual Meeting of the World Economic Forum gets underway, the circle is almost complete and Prof Schwab may yet see his original stakeholder concept vindicated. The Modern Davos Man – paradoxically a throwback to earlier times as much as the harbinger of an improved world – may yet rise to the occasion. i 29

Cover Story

“Prof Schwab’s outsized success in creating a neutral platform for thought and action, brought a new, and perhaps unexpected, set of challenges to the fore.”

The epic journey that followed started innocently enough with a meeting of 444 business leaders at the Davos Congress Centre to discuss inclusive management styles. Thus, the European Management Forum came into being – the forerunner of the World Economic Forum (WEF).

The venue was well chosen as a stage for transformation: in 1928 Albert Einstein visited the resort town – then a sanatorium for tuberculosis patients – and delivered a landmark lecture on his Theory of Relativity.

> Mercury Capital Advisors:

Customisation and Global Presence Headquartered in New York, and with offices in London, Tokyo, Singapore, Dubai, San Francisco, Boston, and Washington DC, Mercury Capital Advisors competes via a differentiated platform with product offerings across private equity, hedge funds, real estate, credit, distressed, venture capital, and infrastructure, as well as secondaries, co-investments and direct equity transactions. The company has a preferred distribution partner in Latin America with branches in Chile, Peru, Brazil, and Columbia.

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ercury Capital Advisors seeks to engage with the best and most successful fund managers in their respective areas of expertise, while maintaining strong relationships with many of the largest, most established institutional investors in the world. The firm supports this diverse client base by combining its global presence and experience with a bespoke service orientation consistent with the firm’s boutique ethos.

Coalescing deal management and advisory practices with a coordinated sales and marketing process, professionals at Mercury work collaboratively to develop and maximise fundraising programmes geared towards helping clients not only grow their assets, but also increase brand recognition. In 2015, Mercury will complement its growth trajectory with the establishment of an electronic portal to initiate access to high-net worth investors through the registered investment advisor (RIA) community.

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“With approximately 300 years of collective distribution and origination experience, its professionals have senior level backgrounds in alternative investing, mergers and acquisitions, investment banking, high yield, legal, and consulting disciplines.�

FUNDRAISING As a full-service placement agent, Mercury focuses on providing each client with a customised and highly coordinated approach to the fundraising process. This begins with the development and implementation of a targeted marketing strategy tailored to the unique needs of each fund manager.

CFI.co | Capital Finance International

The firm also assists in the preparation of all marketing materials and data room items, as well as in the execution of the full marketing/ roadshow process from fund launch to final closing. Core competencies range from emerging markets, metals and mining, energy, special situations, and power to intellectual property, agriculture, health care, consumer, and technology.

SECONDARIES, CO-INVESTMENTS, AND DIRECT EQUITY INVESTMENTS Mercury has extensive experience raising capital for secondaries, co-investments, and direct equity investments. These transactions may be executed in the context of an ongoing fundraising or as a distinct process. The firm has successfully raised capital for a number of these opportunities since inception, providing clients with capital-raising services specific to a variety of different asset classes, in addition to offering strategic advice on deal dynamics, negotiations, and communications.

Winter 2014 - 2015 Issue

“In 2015, Mercury will complement its growth trajectory with the establishment of an electronic portal to initiate access to high-net worth investors through the registered investment advisor (RIA) community.”

ADVISORY In addition to fundraising, Mercury also offers standalone advisory services to its general partner clients. These services include a comprehensive review of a client’s portfolio and strategy, guidance on the developments of key marketing and investor due diligence materials, in-depth fund performance analysis, advice on market conventions – including fund structure, terms and other investor conditions – and coaching with respect to presentation style.

GIVING Giving back and forging relationships with the community are key components of Mercury’s culture. The firm supports a number of charitable organizations, three of which were founded by Mercury employees or their spouses.

ABOUT MERCURY CAPITAL Mercury Capital Advisors is among the world’s elite institutional capital-raising and investment advisory enterprises. With approximately 300 years of collective distribution and origination experience, its professionals have senior level backgrounds in alternative investing, mergers and acquisitions, investment banking, high yield, legal, and consulting disciplines.

Since 2003, professionals at Mercury have completed more than a hundred mandates ranging from $200 million to over $10 billion, and have raised in excess of $130 billion in commitments. The firm covers more than 2,000 limited partners globally including sovereign wealth funds, public and corporate pension funds, insurance companies, endowments, family offices, foundations, funds of funds, and consultants. i

New York: Freedom Tower

CFI.co | Capital Finance International

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> Book Review:

Plus ça Change, Plus c’est la même Chose

By Wim Romeijn

This Changes Everything: Capitalism vs. the Climate by Naomi Klein Naomi Klein has seen the future and it does not look good. Right at the beginning of her new book – This Changes Everything: Capitalism vs. The Climate – Mrs Klein rhetorically asks: What Is Wrong with Us? She then proceeds to answer the question in great detail over the following 560+ pages of the tome.

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ndeed, there is plenty wrong with us. We consume way too much and, by doing so, deplete the earth’s resources and warm it up to boot, potentially unleashing a vast and terrifying range of disasters. The culprit is, of course, capitalism and its sibling, consumerism. These evil twins reduce people to helpless beings that covet superfluous products and useless services.

Mrs Klein’s solution is seductively simple: Just do away with capitalism. She strongly disagrees with those who argue that climate change may be tackled by the adoption of smart policies designed to steer future growth in a more sustainable direction. That clearly won’t do.

According to Mrs Klein, the status quo cannot be maintained and radical change is called for if disaster is to be averted at the eleventh hour.

The shrill tone that environmentalists – born again or otherwise – usually employ to deliver their message never fails to amaze. Oftentimes debate is stifled at the very get-go by the taking of uncompromising positions that advocate the downfall of economic and political systems built on centuries of societal tinkering.

LEVERAGING THE CLIMATE In her most recent book, Mrs Klein not just addresses climate change; she seeks to use the impending disaster as leverage to deal with social ills such as enduring poverty. The massive investments required to save the world are to benefit the have-nots as well:

“It could bring the jobs and homes Martin Luther King dreamed of; it could bring jobs and clean water to native communities; it could at last turn on the lights and running water in every South African township. Climate change is our chance to right those festering wrongs at last – the unfinished business of liberation.”

“Interestingly enough, the huge investments with which Mrs Klein proposes to right both climate change and social wrongs are to be coughed up by a shrinking economy.”

Interestingly enough, the huge investments with which Mrs Klein proposes to right both climate change and social wrongs are to be coughed up by a shrinking economy. De-growth is to replace the capitalist promise of endless growth. Only by imposing a lasting economic depression is it possible to cut emissions by the required degree to decelerate global warming. People will have to cut back on consumption and corporations need to reduce – and even eliminate – profits.

Mrs Klein warns that governments must again engage in long-term planning with the free market relegated to the margins, if not the history books. This will do nicely if de-growth is to be the objective of humankind’s collective efforts.

Though held in great esteem as a debater, Mrs Klein falls woefully short on the specifics of a shrinking world economy. She pays much attention to the need for systemic change but fails to explain how the resulting economy is to function, i.e. how global society should manage “de-growth” (Orwellian doublespeak for economic depression) and still ban poverty.

The few answers Mrs Klein does provide bespeak of an utter negation of common human character traits. Capitalism’s much-deplored triumph is but

the product of the natural propensity of people to better their lot. Since the dawn of time, keeping up with the Joneses has encouraged folks to find ways of self-improvement either through work or innovation. Somehow, going down with the Joneses lacks the same appeal.

Are we – in Mrs Klein’s world of de-growth – to work hard but consume ever less, or are we to sit back, relax, and refrain from consuming anything beyond the most basic necessities to sustain our now rather empty, and quite possibly dreary, lives? What if one of us should rebel against this dystopian world and decides, as a latter-day Winston Smith, that he wants to consume more than his fair share and is willing to put in an effort to do so?

NO CHOICE Mrs Klein repeats ad nauseam that global society has no choice: It is systemic change and de-growth or die (or fry). Environmentalists advocating gradual adaptation and those who express a trust in technological progress and innovation, are summarily dismissed as capitalist running dogs. Admittedly, Mrs Klein does not quite use that expression, but she comes close – calling those who dispute the urgency of the need for a de-growth revolution, a “bunch of nutcases” and “hard-core ideologues.”

Rather than offering a depressing read, Mrs Klein has written a book that overflows with optimism: To her, climate change may just be the catalyst that brings about a more just world order. There is, however, plenty wrong with the amalgamation of all issues plaguing humanity into a single challenge to be tackled with, of all things, degrowth.

First, de-growth is a “solution” devoid of any sense of reality: All attempts at forging a new man are doomed to fail – it runs counter to nature and has been tried before with regrettable

“Mrs Klein’s solution is seductively simple: Just do away with capitalism.”

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CFI.co | Capital Finance International

Winter 2014 - 2015 Issue

Naomi Klein

CFI.co | Capital Finance International

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“Global warming, in fact, changes little to nothing: The seismic systemic shift that Mrs Klein advocates will simply not occur as it denies human nature.” results. Second, climate change is one issue, and world poverty quite another.

Trying to unify these problems is akin to the search for the Theory of Everything that keeps hordes of physicists gainfully employed. The theory may very well exist; it has not yet been found. Notwithstanding her impressive intellectual powers and prowess, Mrs Klein has so far not unearthed a unified approach to all the world’s ills.

While it may be politically correct to applaud anyone drawing attention to the Armageddon that awaits a warming world, Mrs Klein sorely misses the point in This Changes Everything.

Global warming, in fact, changes little to nothing: The seismic systemic shift that Mrs Klein advocates will simply not occur as it denies human nature.

Also, climate change-inspired degrowth will not get rid of world poverty.

It is nothing short of ludicrous to state otherwise. If a reasonably prosperous world cannot eliminate human want, one with only half as much wealth at its disposal will certainly not succeed.

Implicitly recognising that de-growth is highly unlikely to succeed, Mrs Klein happily concludes that the world is doomed. This fate, however, is not quite sealed. Human ingenuity knows few, if any, bounds – something Mrs Klein has entirely overlooked. While humankind will muddle on, conquering peaks and navigating valleys, some of us will undoubtedly come up with innovations that may yet save the day.

Rather than lamenting the destructive ways of human development and proposing an impossible way out of the resulting predicament, it may perhaps be a good idea to focus human ingenuity and place our collective trust in the genius of man. i

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Winter 2014 - 2015 Issue

> CFI.co Meets the Mercury Capital Advisors Group:

The Four Who Make It Happen

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ercury Capital Advisors Group is collectively run by its four person management committee. Michael G. Ricciardi, managing partner and cofounder is head of the firm. Over the course of his 36-year career, he was managing director and head of the Private Equity Funds Group at Merrill Lynch. Mr. Ricciardi was formerly head of Global Fixed Income Distribution at PaineWebber and a member of the Operating Committee of the firm. Prior to this, Mr. Ricciardi was a managing director of Citicorp Securities and head of distribution for all fixed income and equity products worldwide.

He was also head of Domestic Fixed Income, sat on the Board of Directors of Citicorp Securities, and was a member of its Executive Committee.

In 1982, Mr. Ricciardi received a Master’s degree in Business Administration from Harvard Business School where he was elected class marshal to lead commencement exercises. He graduated Phi Beta Kappa from Georgetown University in 1978 where he received a Bachelor of Arts degree, magna cum laude, in Economics and received the Robert A. Duffey Prize as the University’s Outstanding Scholar Athlete.

Alan A. Pardee is also a managing partner, cofounder, and a member of Mercury Capital’s Executive Committee. He was previously a managing director and chief operating officer of the Merrill Lynch Private Equity Funds Group, in which he served for nearly twelve years. For two years, he concurrently served as global head of the Merrill Lynch Real Estate Private Capital Group within the Global Commercial Real Estate Division.

Mr. Pardee joined Merrill Lynch in 1995 in the Global Communications Group, originating and executing M&A and corporate finance mandates in investment banking before joining the Private Equity Funds Group in 1998. He earned a Bachelor of Arts Degree from Princeton University with a major in the Woodrow Wilson School of Public and International Affairs and an MBA and a certificate in Public Management from the Stanford University Graduate School of Business.

Enrique Cuan is a managing partner and cofounder as well, and is also a member of Mercury Capital’s Executive Committee. He was previously a managing director and head of International Distribution for the Merrill Lynch Private Equity Funds Group. Mr. Cuan is responsible for advising institutional investors

From left: Alan A. Pardee, Managing Partner and Co-Founder; Michael Manfredonia, Partner, COO and CFO; Michael G. Ricciardi, Managing Partner, Co-founder, and Head of Firm; Enrique Cuan, Managing Partner and Co-Founder.

in Europe and Asia (ex-Japan and Korea) on their alternative investments in private equity, real estate, infrastructure, hedge funds, venture capital, mezzanine, and distressed funds.

Mr. Cuan’s investors include the largest sovereign wealth funds, central banks, insurance companies, pension funds, funds of funds, and institutional family offices in these regions. Mr. Cuan graduated cum laude from Tufts University with a Bachelor of Arts degree in Economics and French Literature.

Michael Manfredonia is chief operating officer and chief financial officer of Mercury Capital Advisors. Prior to joining Mercury, he was employed by Goldman Sachs and Co. for twenty four years and was most recently chief financial officer of their Human Capital Management Division which employed more than 700 people and had an annual budget in excess of $1 billion.

Mr. Manfredonia graduated cum laude from Rutgers University with a Bachelor of Arts degree in Psychology and German Studies and was awarded an MBA in Professional Accounting from the Rutgers Graduate School of Management. He is a Certified Public Accountant in the State of New York.

Mercury has prosecuted several large global fundraisings, among them: CFI.co | Capital Finance International

• Vornado Capital Partners - $800 million for their fully integrated real estate investment trust, and one of the largest owners and managers of commercial real estate in the United States with a portfolio of over 100 million square feet, primarily located in the New York and Washington, DC areas.

• Providence Debt Fund III - $1.75 billion for Benefit Street Partners, the middle market credit platform of Providence Equity Partners.

The Fund was oversubscribed by nearly $1bn.

• Madison International Real Estate Liquidity Fund V - $825 million for their fifth fund focused on buying “direct secondary” ownership interests in Class A quality commercial real estate assets from existing investors seeking liquidity.

• SSG Capital Partners III - $915 million for their third fund focused on special situations and distressed investments in the Asia-Pacific region.

• Forest City Enterprises, Inc. - $2.05 billion, Mercury co-advised with Goldman Sachs, Forest City Enterprises on their joint venture agreement with Queensland Investment Corporation to recapitalise and invest in a portfolio of eight regional retail malls.

• Gaw Real Estate Fund IV - $1.025 billion for their fourth fund targeting investments in real estate across the Asia-Pacific region.

• Alpha Asia Macro Trends Fund II - $1.65 billion focused on real estate strategies that leverage prominent macro trends in Asia. i

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> Winter 2014 - 2015 Special:

Grey Eminences An Ode to the Powers behind the Throne

G

rey eminences – pulling strings, dispensing wisdom, and making things happen – have been around since the dawn of humanity. From the moment a hierarchy emerged, those at its apex needed confidants to trust and sustain their hold on power.

as does Hitler’s private secretary Martin Bormann.

The office brings with it enormous powers but bears but few responsibilities other than stroking the vanity of the leader in charge and perhaps save him or her from the worst of follies. However, some grey eminences do end up steering their charges towards greatness.

Such it was in the Egypt of the pharaohs where during the 18th Dynasty, Senenmut – the son of commoners hailing from Iuny (modern Armant just south of Thebes) – rose to the lofty position of Steward to the God’s Wife Hatshepsut during the reign of Thutmose II. After his charge was crowned pharaoh, Senenmut became High Steward of the King and Overseer of the Granary and the Royal Works.

The grey eminences we shed some light on in this issue of CFI.co are influential people. Some, such as Deutsche Bundesbank President Jens Weidmann control the purse strings of an entire continent while others have the ear of the most powerful man in the world. Each is working for a noble idea, be that unifying a troubled continent, furthering national interest, getting the high and mighty to swap ideas and experiences, or making sure that corporations do not abuse their power.

Just as those who followed him throughout the ages, Senenmut made sure his master did well and prospered by it. However, the first adviser to be donned with the title grey eminence was François Leclerc du Tremblay – a Capuchin friar invariably dressed in a grey robe – who served “His Eminence” Cardinal Richelieu, French secretary of state for foreign affairs in the early 1600s and named chief minister to King Louis XIII “The Just” in 1624.

The original éminence grise ingratiated himself to both the queen and the papal envoy at the Conferences of Loudun where he managed to avoid a schism by skilful behind-the-scenes negotiations. Since then, grey eminences come in a great many different shades: Some are more grey than eminent while others hover at the verge of colour only to retreat at the last moment.

Though generally benevolent, over the course of history more than a few grey eminences descended to darker machinations. Rasputin springs to mind

That is what grey eminences do as powers behind the throne. It is often a thankless job that, when done well, results in laurels going elsewhere. Grey eminency is not for the vain or those who crave public recognition. On the other hand, conspiracy theorists are, as usual, wide off the mark when they attribute sinister plots aimed at world domination to the machinations of behind-the-scenes operators. Alas, there is no union or association of grey eminences, the role being a lonely one best performed without too much exposure.

While calls for more transparency are generally justified, people in high places also need confidants and wise men and women who can act as sounding boards. So it has been throughout the ages and so it should probably stay. Let this then be a celebration, of sorts, of all those who inspire political and corporate leaders to greatness and do their utmost to keep them from committing acts of foolishness to which they – and indeed every one of us – is, at times, inclined. i

Neuschwanstein Castle in the Bavarian Alps of Germany

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Winter 2014 - 2015 Issue

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> MARGRETHE VESTAGER Shining Away from the Spotlight confronted and pressed for answers, she often appeals to platitudes and sweeping statements, occasionally proffering a faint smile to disarm opposition.

Such was the case during the confirmation hearings the European Parliament held in October for the commissioners-designate.

Grilled on obscure and complex issues, Mrs Vestager repeatedly apologised for not having memorised specific “400 page” dossiers but assured bemused members of parliament that their questions merited “further consideration.”

Smiles were elicited when Mrs Vestager told her interrogators that she would happily come back at a future occasion “much wiser and more insightful.” Her nomination was confirmed without much ado.

Dull but honest. That was not just the impression Mrs Vestager left in Brussels; it is also her most formidable strength as both a politician and a public administrator. In Denmark, as at the EU in Brussels, flamboyant highflyers often have short careers. When progress is the product of compromise, a well-developed sense of pragmatism ensures longevity.

Mrs Vestager honed her skills in Denmark’s Social Liberal Party which she represented in parliament since 2001. She has held three ministerial posts and became deputy primeminister in 2011. Mrs Vestager resigned from that position in September in order to be nominated for a seat in the European Commission.

As one who prefers to operate slightly away from the limelight, Mrs Vestager will undoubtedly feel at home in Brussels. Few in Europe realise the vast powers that EU commissioners wield. At the head of the Directorate-General for Competition, Mrs Vestager is to take on corporate behemoths as Google and Gazprom that are currently being investigated for possible infringement of antitrust legislation.

There is nothing she will not do to get a deal done. A pragmatist first and foremost, Danish politician and future EU Commissioner for Competition Margrethe Vestager knows how to bring parties together and forge agreements. During her reign as Denmark’s minister for economic affairs, Mrs Vestager in 2012 successfully negotiated a bail-in deal that imposes losses on investors and bondholders in case of bank failures. This legislation eventually became the basis for new EU regulation on government rescues of failing banks.

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During Denmark’s turn at the rotating EU presidency, also in 2012, Mrs Vestager convinced her fellow ministers for economic affairs to agree to an overhaul of bank capital requirements and to the adoption of a more stringent legal framework for the derivatives market.

Though by no means constrained to operating in backrooms, Mrs Vestager comes into her element away from the spotlight. When CFI.co | Capital Finance International

If allegations are substantiated, fines imposed by the European Commission can be hefty. In 2004, US software maker Microsoft was ordered to pay EUR497 million for anti-competitive practices. Four years later, the company was fined an additional EUR899 million for failing to make amends.

During her confirmation hearing, Mrs Vestager told the European Parliament that she will be quite ruthless with companies flouting antitrust rules: “We need fines so big that they take away any undue profits made.”

Winter 2014 - 2015 Issue

> DICK CHENEY The Tail that Wags the Dog about themselves and their nation’s heroic fight against terrorism.

This staggering lack of nuance brought the Bush-Cheney White House perilously close to embracing the “might is right” principle. It also helped make the world into a much more dangerous place which, in a bizarre twist, Mr Cheney now warns his fellow Americans about almost incessantly.

In October, the former vice-president predicted – yet again – a “mass casualty attack” on the US that will pale 9/11 by comparison. Mr Cheney then used the fact just unveiled as an argument for strong leadership that does not shirk from using enhanced interrogation techniques – Orwellian doublespeak for torture – to prevent tragedy.

With his trademark bomb-them-back-to-theStone Age approach to most any foreign policy issue, Mr Cheney continues to harvest much praise domestically. While US President Obama may be paralysed by doubt, Mr Cheney stands firmly at the opposite end of the spectrum, not in the least troubled by any discernible qualms.

The former vice-president is, however, a shrewd politician equally at home in the legislative and executive branches of government. He started his career as White House chief of staff in the short-lived administration of President Gerald Ford. From there he progressed to the House of Representatives where he became the house minority whip in 1989. That same year Mr Cheney was asked by President George HW Bush (The Elder) to take over as secretary of defence. In that capacity, Mr Cheney prepared and executed Operation Desert Storm to near perfection.

Dick Cheney represents what is conceivably the best example of a tail wagging the dog. Seldom, if ever, has a US vice-president exerted more influence over his master than Dick Cheney had over George W Bush.

Not content with sitting pretty, cutting ribbons, and dispensing nods of approval, Mr Cheney took the none-too-proverbial bull by the horns and set policies whenever the big boss became nonplussed by events that overtaxed his rather finite powers of perception. As this occurred with an alarming frequency, Mr Cheney ended up taking the lead in both GW Bush administrations – if not by design then certainly by default.

Mr Cheney is a man of snap decisions; thinking too long and deep on any given issue – carefully weighing the pros and cons – is not his forte. This is a man who divides the wider world into “us and them,” and acts accordingly. Such a clearly defined, albeit slightly less than sophisticated, worldview significantly facilitates the decision making process.

While serving his president, Mr Cheney tirelessly advocated for displays of both US strength and resolve. He promptly got what he wished for: Wars in Afghanistan and Iraq – countries that had stepped out of line and harboured a great many “thems” – which set the Islamic world on fire while making most Americans feel pretty good

CFI.co | Capital Finance International

Outside of politics, Mr Cheney established a reputation as a solid business administrator. From 1995 to 2000, he was CEO of oilfield services company Halliburton and oversaw its merger with Dresser Industries. Though not directly named as a defendant, Mr Cheney remains embroiled in a long-running class action suit brought against Halliburton by disgruntled shareholder for flouting accounting transparency rules.

Tough and single-minded, Mr Cheney put his stamp on US politics for over a decade.

Considered by some a war criminal ripe for the International Court of Justice in The Hague, he is hailed by many others as the archetypical American political operator: Decisive, ruthless, and unapologetic to boot. Though this is not necessarily a good thing, it is quite the opposite of those presently inhabiting the White House.

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> SERGEY GLAZYEV Much More Than Meets the Eye inconsiderable influence extends to nearly all foreign policy issues.

Mr Glazyev authored over forty books and a multitude of research papers, mostly on Russia’s position in the wider world. Since 2008, he is a member of the prestigious Russian Academy of Sciences. In 2004, Mr Glazyev ran for president as an independent candidate after the leadership of the leftwing nationalistic Rodina Party, which he helped found in 1999, refused to endorse his candidacy. In 2007, Mr Glazyev retired from politics with a sneer to Vladimir Putin who he accused of stifling political debate and crowding out the opposition.

In a perfect example of the “Putinesque” tendency to keep enemies closer, Mr Glazyev was invited to join the Kremlin’s inner circle in 2012. Here he thrived and was able to put his anti-Americanism on full display. This, however, may bode ill: Only last month Mr Glazyev caused some unease after declaring that the smaller regional wars now wreaking havoc in various corners of the world were actually instigated by the United States in preparation for World War III: “Because America is in decline, it needs war in order to prevail over China, weaken the European Union, and undermine Russia. Only this way will the US be able to control Eurasia.”

It would be a serious mistake to write Mr Glazyev off as a crackpot. His intellectual powers are not inconsiderable. As a doctor of philosophy, a respected economist, and a tireless crusader against corruption and the power of the oligarchs, Mr Glazyev is not a political featherweight and commands respect even from those, like Mr Putin, whom he initially opposed and attacked.

Sergey Glazyev, one of the closest advisers to Russian President Vladimir Putin, has a predilection for preaching doom and gloom, especially when it comes to the economic prospects of recalcitrant Ukraine. Mr Glazyev is wholly convinced that the force of arms is superfluous to getting Kiev back in line.

An economist and philosopher by training, Mr Glazyev predicts that the West will instantly give up on the Ukraine once the true extend of that country’s financial needs becomes apparent.

“Unless the Ukraine receives the $120bn required to stave off a meltdown of its economy now, some $300bn will be needed at a later stage to undo the damage wrought. Without Russia and the Eurasian Customs Union, the country simply stands no chance.”

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Pundits in Moscow suspect that Mr Glazyev’s economic analysis of the Ukraine convinced President Putin to scale down military operations in the eastern part of the country and reduce the level of support offered to proRussian separatists. Mr Glazyev considers it much smarter to relax and sit back waiting for winter to bite and finish the job.

While considered an oddball by some for his periodic nationalistic rants, Mr Glazyev has the attention of the powerful in the Kremlin. He plies them with often well-founded arguments that underpin the natural desire of Mr Putin and the members of his cabinet to assert Russia’s might in the world. While formally in charge of furthering the Eurasian Customs Union, one of President Putin’s pet projects, Mr Glazyev’s not CFI.co | Capital Finance International

With the recent ascendancy of the so-called “siloviski” – the hardliners – Mr Glazyev has now gained a prominence that was denied him as a politician. As tensions with the West escalate and sanctions tighten, Mr Glazyev is increasingly called upon to find answers. He is currently working on a draft proposal to restrict the outflow of foreign exchange. This year, investors are expected to withdraw an estimated $150bn from Russia. Mr Glazyev appears to favour the introduction of capital controls in the form of a tax on funds being moved abroad.

He has also suggested decoupling the rouble from the market and fixing its exchange rate.

With a great say in both financial matters and foreign policy, Mr Glazyev is a man to watch closely for clues on deciphering Russia’s next move.

Winter 2014 - 2015 Issue

> AHMET DAVUTOĞLU Mending Bridges East and West transparency in government. He is also willing to resume negotiations on the status of Northern Cyprus though his earlier two-state solution was unceremoniously brushed aside by the Greek.

Prime-Minister Davutoğlu is now said to even consider complying with a ruling by the European Court of Human Rights which ordered Turkey to pay EUR90m in damages to the Republic of Cyprus for the 1974 invasion. Turkey’s refusal to pay has soured its relationship with the EU and also derailed previous peace initiatives.

While nudging his country closer to the European Union, Prime-Minister Davutoğlu also proposes a discrete mending of ties with Israel. Though most comfortable operating in sophisticated Ottoman behind-the-scenes fashion, Ahmet Davutoğlu makes no secret of the fact the he sees his country primarily as a bridge between east and west. That may perhaps be an open door, but Prime-Minister Davutoğlu now wants Turkey to actually derive significant benefits from her geographical location.

Turkey’s much-criticised reluctance to directly take on the extremists of the Islamic State in neighbouring Syria and Iraq is part of this geopolitical strategy. A firm line has been drawn in the sand, properly guarded by armour and other instruments of war, but no assault will take place as long as the militants stay on their side of the border. An opponent of Syrian President Assad and sympathetic in principle to the groups that try to overthrow his regime, the Turkish prime-minister is looking for – but not really finding – moderate fighting factions to support.

For close to a decade Ahmet Davutoğlu lent his vast knowledge of political and international affairs to those holding power in Turkey. President Recep Erdoğan is one of many who regularly turn to Mr Davutoğlu for advice on complex or sensitive matters.

Last August, as Mr Erdoğan assumed the presidency after winning the July 1 election with almost 52% of the vote, he promptly put Ahmet Davutoğlu forward as his prime-minister. Mr Davutoğu, formerly foreign affairs minister and a political scientist well-respected in academia, is now the friendly face of the at times combative Erdoğan Adminddeleteistration. He also operates quite independently of the president.

At Marmara University, where he obtained tenure as a professor in 1999, Assistant-Professor Yüksel Taskin believes that for the past twenty or so years Mr Davutoğlu has worked diligently, and often stealthily, towards his ultimate goal

of becoming the country’s prime-minister: “Now that Ahmet Davutoğlu has attained that objective, he is not going to be anyone’s puppet.”

A grey eminence who stepped out of the shadows, Prime-Minister Davutoğlu has put on display a vast range of intriguing ideas that he thinks will make Turkey into a regional power of note – and a stabilising force to boot. He wants to gradually do away with the passiveness that characterised the country’s foreign policy for the past few decades.

While still pursuing the mostly silent NeoOttoman policy he introduced as minister of foreign affairs, Prime-Minister Davutoğlu now also want to reinvigorate his country’s battered relationship with the European Union. The stalled ascension bid is back on the table.

In order to appease European fears, the prime-minister has pledged constitutional reforms to address workers’ rights and improve CFI.co | Capital Finance International

However, Prime-Minister Davutoğlu is about more than just foreign policy initiatives aimed at raising Turkey’s profile. On the domestic scene, he has vowed to rid the state apparatus of top civil servants suspected of being in league with the conservative Gülen Movement which is often described as an Islamic Opus Dei. Prime-Minister Davutoğlu accuses the followers of Fethullah Gülen, a former imam now exiled in the United States, of forming a corrupt parallel state. He holds the movement directly responsible for the civil unrest that rocked the country last year.

Using a mix of pragmatism, passion, and nostalgia, Prime-Minister Davutoğlu is putting Turkey back on the map, ensuring that the country remains key to any long-term solution of the problems suffered by the region. Mr Davutoğlu may perhaps not steer Turkey into a position that is to everybody’s liking, he certainly keeps an eye out for his country’s best interests.

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> JENS WEIDMANN Spend Less, Work Harder Analysis Group until Chancellor Angela Merkel called him to her inner circle of financial advisers in 2006.

Following his appointment to the presidency of the DB in 2011, Mr Weidmann adopted a certain aloofness towards Chancellor Merkel’s vociferous insistence on imposing Teutonic fiscal discipline across the Eurozone in general and the unruly Mediterranean countries in particular. Mr Weidmann coolly observed that a fiscal union seemed the only viable option with which to stave off a repeat of the debt crisis. He then promptly proceeded to state that such a solution falls outside the realm of the politically attainable. The second part of the comment was undoubtedly meant to reassure Chancellor Merkel that her central bank chief was not about to embrace the dreaded notion of a transfer union.

Though pundits predict that Mario Draghi will ultimately prevail and get authorisation to expand the ECB’s balance sheet with an additional €1 trillion, he can ill afford to alienate the Deutsche Bundesbank. Any ECB victory must contain elements of compromise such as an iron-clad commitment not to provide direct aid to troubled countries via the buying up of sovereign debt.

As the ECB opens up to unconventional measures to kick-start the moribund economies of Europe, Mr Weidmann plugs away diligently in the background to limit the damage, appealing to his colleagues in France and Italy to prod their governments for reforms and reminding all who care to listen that monetary policy alone is no panacea for the Eurozone’s many ills.

Deutsche Bundesbank (DB) against Mario Draghi, his counterpart at the European Central Bank (ECB).

As the latter steps on the accelerator, the former applies the brakes. While both bankers slug it out, most countries of the Eurozone remain in economic limbo with lacklustre growth and high unemployment levels.

To the uninitiated, it would seem that Mr Weidmann couldn’t care less that the fiscal prudence and austerity he proposes ends up negatively affecting Europe’s social fabric.

However, the German central banker is wholly convinced that in the long run, economies are best served by balanced budgets and modest – and preferably shrinking – debt burdens. Fighting 42

inflation, a typically German obsession grounded in history, remains of paramount importance to Mr Weidmann – no matter that inflation in the Eurozone is now barely measurable.

It is not often that Mr Weidmann falls out of character and steps into the public arena for a showdown. Schooled in classical monetarist fashion, Mr Weidmann usually keeps out of sight.

He worked at the International Monetary Fund (IMF) in Washington from 1997 to 1999 and returned to Germany to become secretary of the influential Council of Economic Experts. From here it was but a small jump to the Deutsche Bundesbank. At the German central bank, Mr Weidmann headed the Monetary Policy and CFI.co | Capital Finance International

Mr Weidmann has by now gained a welldeserved reputation for stating the – at times – painfully obvious in a kind and reasoned way that is unlikely to cause offense. He dismissed recent calls for Germany to step up its spending and thus help out struggling economies, with the observation that such a move would probably not benefit Greece as much as it would China.

US economist Paul Krugman – 2008 winner of the Nobel Memorial Prize in Economic Sciences – accused Mr Weidmann of adhering to a set of “misguided policies” that will eventually lead to the demise of the euro and the falling apart of the Eurozone. While finding the discussion interesting on an academic level, the DB president flatly refuses to buy into the notion that problems may be solved by throwing vast quantities of money at them. He prefers to follow a path of slightly more resistance by calmly insisting that governments do the right and sensible thing: Spend less and work harder.

Winter 2014 - 2015 Issue

> MOHAMED OULD ABDEL AZIZ A Pragmatist Claiming Centre Stage

It is a long lane that has no turning. The life of Mauritanian president Mohamed Ould Abdel Aziz is marked by quite a few abrupt twists and turns.

In August 2008, Mr Abdel Aziz masterminded the military coup that toppled the democratically elected government of President Cheikh Abdallahi.

International rebuke duly followed. The African Union (AU) declared Mr Abdel Aziz persona non grata and banned him from traveling anywhere in the continent.

Contrary to other coup leaders in West Africa, Mr Abdel Aziz never seemed quite at ease wielding dictatorial powers. After he assisted in the removal of President Maaouya Taya in 2005, Mr Abdel Aziz insisted the military shorten their hold on power and convoke elections. As commander of the elite Presidential Guard Battalion, thenColonel Aziz had ways of imposing his will. It also enabled him to ensure fair and largely fraud-free elections.

Now, barely six years later, Mr Abdel Aziz is the chairman of that same African Union. He also was re-elected to a second term as president of Mauritania. Though a coup leader twice over, President Abdel Aziz is no longer an outcast. In fact, during a recent visit to Washington he was lavishly praised by US Secretary of State John Kerry who repeatedly called Mr Abdel Aziz a “key leader” and congratulated him on his election to the chair of the AU.

However, three years later Mr Abdel Aziz – now a general – again found himself at odds with a president, this time over alleged attempts at creating a single party state and financial mismanagement. The president was promptly removed in a bloodless coup and a High Council of State instituted to prepare the country for a return to democracy within a year.

The secret to Mr Abdel Aziz’ good fortune is perhaps his insistence on order and dislike of Islamic fundamentalism. It helps that he generally pursues his goals without resorting to open violence even though few in Nouakchott doubt that President Abdel Aziz retains a strong grip on the army.

That timetable was kept almost to the day and on August 5, 2009, Abdel Aziz was sworn in as president – a grey eminence at long last emerging from the shadows. Last June, President Aziz was re-elected to a second term in office receiving 82% of the vote in a field of five contenders.

Some opposition parties, still sour over the 2008 coup, boycotted the election. However, almost 57% of registered voters turned up at the polls.

CFI.co | Capital Finance International

Observers dispatched by the African Union judged the electoral process “relatively” fair and peaceful.

In Abdel Aziz, the African Union has now found a chairman who is a pragmatist first and foremost.

Elected to the job at the beginning of 2014, Mr Abdel Aziz is concentrating his efforts on aligning Africa in order for the continent to speak with one voice as it reasserts its place and role in the world. At the opening session of the 69th General Assembly of the United Nations, President Abdel Aziz said that, “as Africa strives to become an area free of scourges, wars, and conflicts – and a place where justice, good governance, and respect for human rights prevail – we need unity in purpose and resolve.”

As a skilful operator with more political substance than rhetorical fluff, AU Chairman Abdel Aziz has actually a better chance than most at pushing Africa’s development agenda forwards.

Notwithstanding his earlier peccadilloes as a coup plotter, Mr Abdel Aziz has become the voice of reason in a region not devoid of turmoil. Mauritania’s constructive approach to the unsettling events in neighbouring Mali have made President Abdel Aziz into a regional leader of note and his country into an oasis of stability.

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> MARY JO WHITE Pushing Back Softly but Relentlessly and hacktivist who in January 2013 committed suicide rather than admit to charges of computer and wire fraud for allegedly systematically downloading academic journals and other papers from the JSTOR digital library.

Forbes Magazine named Mrs White the 73rd most powerful woman in the world. This may very well underestimate the lady. In September, Mrs White called high frequency traders to task as she slapped a record-setting $16 million fine on Latour Trading for failing to comply with capital requirements and creating fictitious trading positions to mask the issue.

In its search for a successor to outgoing US Attorney General Eric Holder, who announced his resignation in September, the Obama Administration has placed Mrs White on its shortlist of candidates acceptable to both sides of the aisle in the US Senate. In an increasingly rare bipartisan move, the senate last year confirmed Mrs White unanimously to the chair of the Securities and Exchange Commission.

At the SEC, Mrs White’s tenure has been challenging. For one, the House of Representatives is not overly excited about her attempts at pushing though a major overhaul of financial regulation that goes beyond the already approved Dodd-Frank Reform Act. She also has to content with the near-constant threat of lawsuits brought by financial entities jealous of their prerogatives.

Mrs White even caused irritation in the White House by openly questioning the wisdom of the Financial Stability Oversight Council’s decision to designate large asset managers as posing a systemic risk. Mrs White argued that systemic risk must be reduced through a stricter regulation of both products and practices rather than by naming specific companies as possible culprits of any future event.

Over the course of her career, Mary Jo White, the current chair of the US Securities and Exchange Commission (SEC), has accumulated much experience going after mobsters, terrorists, and financial fraudsters. As New York district attorney, a position she held for nearly a decade, she helped bring down amongst others, John Gotti Jr – aka Teflon Don – the notorious boss of the Gambino crime family who was, much to his own surprise, sentenced to life in prison without parole and passed away in 2002 at age 61.

Some consider Mary Jo White slightly less 44

implacable when it comes to putting away misbehaving business leaders. According to Rolling Stone Magazine – one of the few remaining bastions of investigative reporting – while heading the litigation department at law firm Debevoise & Plimpton, Mrs White used her influence to shield a Morgan Stanley executive from the fallout of allegations made by a whistle blower.

However, Mrs White was also instrumental in having all charges dropped, albeit posthumously, against Aaron Swartz – the computer programmer CFI.co | Capital Finance International

She is now fighting yet another turf war with the Public Company Accounting Oversight Board, created in the wake of the Enron disaster, over regulatory competencies.

As she aims to restore public confidence in the capital markets – battered by the popping of two large bubbles in less than a decade – Mrs White has to allay public fears that the system is rigged.

This forces her to tread a fine line between the need for strict regulation and the necessity of maintaining free markets. It is a line she has not strayed from. Mrs White’s steady pace may not have won her many friends; she does receive a fair degree of admiration. Then again, the chair of the SEC seldom wins popularity contests.

Winter 2014 - 2015 Issue

> PETER CARINGTON The Sole Survivor of a Bygone Era The first casualty of the 1982 Falklands War, and one of the last scions of the empire-building Eton / Sandhurst generation, Lord Peter Carrington played a major – if not always visible – role in British conservative politics between 1946 and 1982. A failure to foresee the Argentine invasion of the Falkland Islands caused him to resign from the Foreign Office and exit domestic politics.

However, the 6th Baron Carrington was not ready for retirement yet: In 1984 he became the 6th secretary-general of NATO, succeeding Joseph Luns. That same year, Lord Carrington was appointed chancellor of the Order of St Michael and St George, a prestigious position he was to hold for ten years.

Ever active behind the scene, Lord Carrington in 1991 led an ultimately doomed diplomatic initiative aimed at the orderly disassembly of Yugoslavia. The plan entailed granting each of the country’s constituent republics full independence.

Last May, Peter Carington celebrated his 95th birthday. He is the last surviving member of the Churchill ministry of 1951. Though not a full cabinet member, Lord Carrington served the third government of Prime-Minister Winston Churchill as parliamentary secretary to the Ministry of Agriculture and Fisheries.

From this humble perch Lord Carrington rose fast: high commissioner to Australia, first lord of the Admiralty, leader of the House of Lords, secretary of state for defence, secretary of state for energy, and finally secretary of state for foreign and commonwealth affairs. Outside government, Peter Carington held an impressive number of directorships and other positions of note and influence.

An inside man at home in that rarefied atmosphere discreetly inhabited by earls, viscounts, barons, and a few men of slightly less elevated station, Lord Carrington was a natural to chair the Bilderberg Conferences. In this setting, for most of the 1990s, he mingled with the world’s high and mighty as experiences were swapped, solutions cooked up, and ideas debated. An Atlanticist though-and-through, Lord Carrington laboured unswervingly for the deepening of transatlantic relations and understanding.

Recently on Radio 4, Lord Carrington lamented the collapse of the Soviet Union and the end of the Cold War: “While the bipolar world wasn’t conducive to a strengthening of international cooperation and quite expensive in terms of defence, it did impose a discipline on nations that has now disappeared.”

Lord Carrington considers the current lack of constraints on countries to be responsible for the emergence of many smaller wars: “Previously nobody dared do anything which could conceivably bring about a nuclear war. If the Cold War had still been going on, Yugoslavia would never have broken up because people would have been too frightened. Saddam Hussein would never have invaded Kuwait. Afghanistan would never have happened.”

With so many offices and duties to fulfil, it should come as no surprise that Lord Carrington at times landed on the wrong side of history. During the troubles in Northern Ireland, he reportedly sanctioned the use of torture while minister of defence in 1971.

Later, in 1979, Lord Carrington chaired the Lancaster House Conference which brought the Rhodesian Bush War to a close and Zimbabwe CFI.co | Capital Finance International

into existence. Lord Carrington’s stated preference for entrusting the newly independent country to Robert Mugabe and his fellow revolutionaries, helped pave the way to Africa’s most enduring autocracy.

However, these few blots on an otherwise impeccable reputation in no way detract from Lord Carrington’s remarkable career as one of Britain’s last true insiders for who honour and country meant so much more than just a sound bite or a set of principles to be jettisoned at convenience.

Note from the editor: Whereas Mr Carington’s surname is spelled with a single r, his hereditary title Baron Carrington is spelled with double r. It is Lord Carrington because Peter Carington took his seat in the House of Lords (in 1940) as the 6th Baron Carrington.

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> HENRI DE CASTRIES Pragmatism with a Human Touch Bilderberg Group friends help friends. And for that to work, these friends need plenty of privacy.

The topics discussed at the group’s annual meetings, billed as informal affairs, are not divulged. In 2008, a highly unusual press statement was released by the American Friends of Bilderberg which explained that the group does not propose resolutions, take votes, or issue policy statements.

Though the Bilderberg Group maintains an, again, informal secretariat in the Dutch university town of Leiden, it does not have any permanent members aside from those sitting on the steering committee. The guest list for the annual conference changes each year and names get dropped, and others added, for no apparent reason. Usually, no more than 150 people receive an invitation to attend a Bilderberg meeting. The one thing attendees have in common is that they are either European or North American. Bilderberg is a strictly Atlantic affair.

The group was started in the 1950s to stem the tide of growing anti-Americanism in Europe. Its Belgian, Dutch, and Polish founders wanted to create a forum to foster transatlantic cooperation and understanding with a view to strengthening the political, economic, and military ties between Europe and the United States.

On the American side, it was initially the CIA that answered the Bilderberg call. The stage was set for conspiracy theorists the world over to see the Bilderberg Group as set on world domination. However, nothing could be further from the truth. While the group Mr De Castries discreetly helps steer does include people wielding significant chunks of power, the collective now also embodies the demise of the West’s influence in a multipolar world.

Business managers often point out that people are the greatest asset of any company. In interviews, CEOs unfailingly express a debt of gratitude to their dedicated workforce. However, this debt does not prevent them from sending a few workers home every now and then to prop up share prices and assure investors that their business remains lean and mean.

Henri de Castries, CEO of French insurance company AXA, is much the exception to the rule: He actually does as he preaches. Mr De Castries runs a people-centred company and takes a genuine interest in the well-being of those who work for it. He is happy to take time for a chat and will personally address any grievances detected. Mr De Castries is a charmer as well.

He is famous for gracefully chastising financial analysts who insist on maximising short-term 46

profits to the detriment of long-term corporate health. More importantly, he gets away with it and has remained the darling of the investor community.

More than just the CEO of a company that last year netted €4.5bn in income, Mr De Castries is also chairman of the Steering Committee of the Bilderberg Group – a somewhat secretive conclave of leaders from business and politics instigated in 1954 by Prince Bernhard of The Netherlands who was to fall from grace for his dubious role in the Lockheed Affair of 1976.

The affability Henri de Castries is known for stands him in good stead at the Bilderberg Group. Here, it is all about building solid private relationships that allow for behind-thescenes consultations should issues arise. At the CFI.co | Capital Finance International

Behind-the-scenes manoeuvring and the trading of favours between friends remain of paramount importance to smoothing differences, facing common challenges, and clearing misconceptions. If Russian President Vladimir Putin had a close personal friend of some societal standing in the West, he might have been told to stop acting like a spoilt brat.

That is how the Bilderberg Group is supposed to work; as a conduit for common sense to prevail.

As such, Mr De Castries is the right man for the job: He is known to severely dislike power-tripping and prefers to infuse cold pragmatism with a warm human touch. Meanwhile, the Bilderberg Group is at the cusp of outliving its usefulness.

As a geopolitical concept, Atlanticism has now joined the dodo in the realm of the extinct.

Winter 2014 - 2015 Issue

> VALERIE JARRETT The Power of Whispers One of only three senior advisers to US President Barack Obama, Valerie Jarrett holds more power than anyone else in the world, with the possible exception of her employer. That latter assertion is, however, questionable. It was Valerie Jarrett who in 1991, while deputy chief of staff to Chicago Mayor Richard Daley, hired Michelle Robinson, then employed at a private law firm and engaged to Barack Obama, to work at City Hall.

Before accepting the job, Michelle Robinson arranged for Ms Jarrett to meet her fiancé for what would turn out to be a dinner that changed the course of contemporary history. Michelle Robinson accepted the job and a little later got married. For her part, Valerie Jarrett soon became a mentor to the Obamas and introduced the couple to the powers that be in Chicago – the same ones that would eventually propel Barack Obama’s political career to heights then still unsuspected.

As the newly-elected president prepared to move into the White House in 2009, Ms Jarrett was one of the first to knock on the door as the cochair of the transition team charged with getting the incoming administration up and running.

Since then, she officially holds the position of Assistant to the President for Intergovernmental Relations and Public Liaison. If anything, the cumbersome length of the job title is meant to hide the fact that Ms Jarrett has a say on nearly any topic likely to be discussed in the Oval Office and the adjacent corridors of power.

Currently, Ms Jarrett heads the White House offices of Public Engagement, Urban Affairs, Sports, and Intergovernmental Affairs. She also chairs the Council on Women and Girls and the Task Force to Protect Students from Sexual Assault. In fact, there is little that Ms Jarrett doesn’t control. In the polarised world of Washington politics, that much power begets plenty animosity.

Recently, Ms Jarrett was widely criticised for using her Secret Service security detail as a personal valet service having agents run errands outside the official agenda. Republican Senator Pat Roberts from Kansas, no great friend of the Obama Administration, in October told talk radio host Hugh Hewitt that he is convinced of Ms Jarrett’s involvement in the politically-motivated targeting of conservative groups by the Internal Revenue Service (IRS). Senator Roberts said that an investigation into this affair by the Senate Finance Committee was called off at the behest of the White House.

Conservative groups revel in describing Ms Jarrett as President Obama’s Rasputin for the

sway she holds over the first family. They point to her outsized staff of 36 as proof that Ms Jarrett is running the Obama Administration, if not by stealth than by omnipresence. Her guidance is said to be responsible for an untold number of failures such as the US policy for the Middle East and the overreach of the intelligence community.

As the Obama Administration seems increasingly stuck and confined to responding rather than setting the agenda, it is perhaps unsurprising that Ms Jarrett receives part of the blame. Former Obama speechwriter Chris Matthews recently lambasted the president for being “intellectually lazy” and “listening to the same voices all the time.” Even Jonathan Alter of Bloomberg News, CFI.co | Capital Finance International

author of a hurray-book on Obama, now wonders if the president has become “atrophied into a little world peopled only by Valerie Jarrett and his wife Michelle.”

In both the pro- and anti-Obama camps, there is little doubt that Ms Jarrett is the power behind the throne in the White House. There is a growing consensus that her prominence may not be all that beneficial to either President Obama or the nation. So far, however, there are no signs that Ms Jarrett’s influence over events at the White House is diminishing. As it befits a true éminence grise, the lady seems stoically unimpressed and unfazed by the criticism levelled against her.

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> Europe:

The Great Sag and a Surprising Role for Helicopters After an absence of some 140 years, the Great Sag is now once again alive and well in Europe. The continent is haunted by the spectre of deflation and a return of the Long Depression – the 23 year period up to 1896 that started with the Panic of 1873 when prices crashed on the Vienna Stock Exchange and financial contagion spread throughout the continent and, indeed, the world.

Austria: Vienna Hofburg Imperial Palace

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D

uring the Long Depression price levels decreased while economies struggled with anaemic growth. Not to be confused with the Great Depression of the early 1930s that caused a much sharper, albeit shorter, economic decline, the Long Depression saw unemployment levels and bankruptcies rise steadily while states doggedly pursued excessively tight monetary policies.

If history has a tendency to repeat itself, this is it.

And, if we are to ignore history’s lessons, Europe will face another decade or so of lacklustre growth and rising unemployment. The European Central Bank (ECB) has applied liberal dosages of “notquite” quantitative easing (QE) despite fierce opposition from the fiscally prudent Germans.

However, throwing vast amounts of money at banks has so far utterly failed to reanimate European economies.

The continent now finds itself stuck in a liquidity trap. With interest rates already close to zero, financial authorities have little room for manoeuvring other than pumping out cash.

This they do with almost unparalleled gusto but without any discernible result. It would seem that no matter how much the monetary base is expanded, demand refuses to pick up.

In November, the Eurozone’s annual inflation rate descended to a barely measurable 0.3% – perilously close to crossing into deflationary territory – a clear and present danger. With oil prices in apparent freefall, it will take ever more voluminous injections of money to keep any inflation going at all.

Europe now faces the same Zero Lower Bound (ZLB) problem that Japan experienced during the 1990s – aka The Lost Decade. ZLB issues arise when monetary policy fails to lower nominal interest rates because they are already close to zero. Following the teachings of Milton Friedman, who advocates central banks increase the monetary base in ZLB situations, the ECB now mulls buying up government bonds wholesale.

However, for now the ECB’s massive QE programme – this time “quite” – is being held in reserve as the monetary equivalent of the big stick to be employed in case existing measures, that aim to shore up the bank’s balance sheet by up to EUR1tn, fail to produce the desired results. Plans to buy up corporate and sovereign bonds may only be implemented in Q1 2015 in yet another example of ECB foot dragging.

“While the tug of war over QE continues, some question its expediency on other grounds.”

Meanwhile, ECB President Mario Draghi is still busy assuring markets that he will act in the most decisive of ways to meet the 2% inflation target set by his bank. In fact, Mr Draghi has been saying this for a long time now, hoping perhaps that it will eventually come true.

Not all members of the ECB’s Executive Board seem willing to back up Mr Draghi’s tough talk.

Yves Mersch (Luxembourg) and, predictably enough Sabine Lautenschläger (Germany) argue that any bond-buying scheme runs the risk of encouraging already troubled countries to postpone necessary reforms. Italy and France have been mentioned in this regard.

The budget hawks may have to succumb to the will of the QE crowd – now apparently dominant in the ECB Governing Council. Investment analysts have taken note and are already changing their tune. The new mantra is: Don’t Fight the ECB. In its outlook for 2015, the French Société Générale expects European economies to get a significant boost from both the EBC’s EUR1tn war chest and the lower oil prices. SocGen strategists conclude that the time to be bearish on Europe has now passed and gave the Paris CAC 40 benchmark a target of 5,000 in December 2015 – up 14% from its current level.

The Germans, Dutch, Austrians, and Finns are fighting an increasingly desperate rearguard action to ensure that any bond-buying programme does not end up rewarding the fiscally imprudent.

Mrs Lautenschläger noted that a cost / benefit and risk / opportunity analysis of ECB bond buying does not result in a positive outcome: “There are very few shared competencies in fiscal policy. As long as this is the case, the ECB’s purchase of government securities is inevitably linked to a serious incentive problem.”

Mr Mersch remarked that is would seem “unwarranted” to further depress interest rates on government bonds now that yields on long-

term treasury papers issued by both Italy and Spain are lower than the interest paid on similar US securities. The yield on Spanish ten-year bonds stands currently at 1.9% while Italy pays 2.03%. US Treasury ten-year bonds carry a yield of 2.26%. By comparison, the ten-year UK gilt finds eager buyers at 1.93%. Meanwhile, German bond yields are down to 0.73%.

While the tug of war over QE continues, some question its expediency on other grounds.

Channelling vast amounts of money to banks, in the hope that they will pass in on to consumers and businesses as credit, seems a rather cumbersome – and possibly quite inefficient – way of providing lifeblood to an ailing economy.

Japan has tried this repeatedly and on a grand scale. The country has now slipped into recession for the fourth time since 2008.

Prime-Minister Shinzō Abe is ready to try another approach – give money directly to the people and have them spend it merrily however they see fit.

Prime-Minister Abe may have taken a cue from Mark Blyth, professor of international political economy at Brown University, and Eric Lonergan, a fund manager in the City and author of the book Money: The Art of Living.

Messrs Blyth and Lonergan caused quite an uproar with an essay published last September in Foreign Affairs magazine in which they sustain that central banks should give money directly to the people in order to stimulate a sickly economy.

The concept of Helicopter Money is an old one and was originally inspired by Milton Friedman’s famous quip that price deflation can easily be tackled by “dropping money out of a helicopter.”

Dismissed as an old joke by most American economists, and a possible measure of last resort by some of their more daring European colleagues, helicopter money now seems a reality in Japan.

Blyth and Lonergan argue in Foreign Affairs that free money was bound to happen, given the dire strait of government finances globally. And, indeed, once moralistic objections are dealt with, helicopter money is not such as outlandish idea as it may seem at first glance.

Most economists agree that it would be a cheap and cheerful way to get inflation going. And, that is precisely the whole point of the painful exercise the ECB is currently engaged in. Simplistic, silly, and even bizarre: Sure, helicopter money may not win any academic beauty contests, but if it works – why not? i

“In November, the Eurozone’s annual inflation rate descended to a barely measurable 0.3% – perilously close to crossing into deflationary territory – a clear and present danger. With oil prices in apparent freefall, it will take ever more voluminous injections of money to keep any inflation going at all.”

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Winter 2014 - 2015 Issue

> CFI.co Meets the Head of Responsible Investments at Nordea Asset Management:

Sasja Beslik

S

asja Beslik, head of Responsible Investments at Nordea Asset Management, spends a fair chunk of his time on the road visiting projects around the globe to evaluate environmental and social impacts. Much more than the latest fad, to Mr Beslik the concept of responsible investment is part and parcel of asset management. It is also ingrained into Nordea’s corporate DNA. “Responsible investment is a long-established tradition at our bank, as indeed it is throughout the Nordic World. We believe in the power of sustainable investments as a tool to contribute to the well-being of future generations,” explains Mr Beslik.

“Worldwide, the investment landscape has changed. As an angle for investors to consider, sustainability is here to stay. The question that remains is how the concept will be implemented.”

Mr Beslik recognises sceptics abound and may argue that incorporating ESG (Environment, Social, and Governance) parameters into investment decisions detracts from the bottom line. “Cynics may have different views and that is just fine. As it happens, we believe that when looking at risks that could affect the return on investment, sustainability must enter into the mix.”

At heart a do-gooder with a pronounced penchant for the pragmatic, Mr Beslik cannot easily be dismissed as a tree-hugger in a suit. “I am not bound to my desk or spending my days shuffling around paper. At Nordea, we take a hands-on approach and this means that I’m travelling on average around 130 days a year to visit projects in the field and see what companies are actually doing on the ground.”

Mr Beslik was trained as a journalist and economist. A war correspondent for a few years, he has seen perhaps more than his fair share of human suffering. “At a certain point I became too involved with what I was seeing and wanted to do something more than just report.” After a stint as a consultant on ethical and social issues for a number of multinational companies, Mr Beslik joined ABN AMRO Asset Management as global head of engagements before arriving at Nordea.

In 2007, Sasja Beslik was voted Sweden’s most influential young professional under 40. In 2013, he was knighted, receiving the Royal Order of the Seraphim from King Carl XVI Gustaf.

Mr Beslik has come a long way since stepping off the ferry in Ystad, South Sweden, in 1993 with about twenty Deutschemark in his pocket and a

Head of RI: Sasja Beslik

plastic bag containing his meagre belongings. On the run from the Bosnian Army that had ordered him into its ranks as cannon fodder, Sasja Beslik was looking for a new home and found it in Sweden.

Even as a banker, Sasja Beslik has not lost the ability to speak frankly and call things by their proper name. “Climate change poses a bigger threat to humanity than terrorism. I have little patience with business leaders that talk the talk but refuse to walk the walk. Quite frankly, I’m not at all interested in chatter about values.

I need to see how these values are applied to actions, products, and services. My generation is tired of hearing bullshit. If some mobile phone manufacturer goes on-and-on about sustainability, yet fails to produce a single ecofriendly phone, I cannot take them too seriously.”

Mr Beslik also does not accept arguments put

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forward by some financiers that sustainability is “fuzzy” or bad for growth: “The progress of time, and the resulting change in values, bothers some people. I call them the 80s Generation. They see corporations merely as vehicles that produce profits for their owners. However, a business is not an island, but part of the wider community. In fact, companies that are in tune with the times, and behave in a socially responsible manner, tend to produce larger profits. There are plenty of examples that prove this.”

Nordea may be a case in point. The bank weathered the storm unleashed by the 2008 global financial meltdown deftly without incurring the mega-losses that had other financial institutions creaking at the seams. “The philosophy imposed by Nordea’s top management paid off handsomely at that time and was shown to be extremely valuable in averting risk.” i

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> Nordea Asset Management:

Pinch, Push, and Shift…

While financial markets globally have undergone substantial stress and change, an increasing number of mainstream investors see ESG (Environmental, Social, and Governance) integration as a way to improve their long-term financial performance and to respond to the increasing client demand for sustainable investments.

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his trend offers companies opportunities to attract long-term investors while, at the same time, reduce shareholder turnover by aligning their investment strategy with the real needs of their business and laying down the foundation for a sustainable future. Asset owners see ESG integration as an opportunity to generate longterm performance while fulfilling their fiduciary obligations, while investment managers see it as a way to improve risk management in the financial performance of their investment portfolio.

For listed companies, long-term investors constitute a more attractive investor base. First, compared to short-term investors, they generally invest over a period of time that is better aligned with companies’ business cycles and long-term sustainability strategy. Second, by holding shares over a greater period of time, long-term investors reduce share turnover, which is costly for companies. While short-term investors have exacerbated what Dominic Barton at McKinsey calls “quarterly capitalism,” long-term investors allow companies to reconnect investment strategies with the real needs of their business.

Nordea Asset Management believes that aligning ESG issues with core business agendas can help companies create shareholder value in three measurable ways.

PINCH Downside risks should be reduced or “pinched,” especially in a global marketplace that is increasingly volatile, resource-constrained, and socially engaged. One way to do this is by integrating ESG and financial reporting, which can increase transparency, improve understanding of ESG risks, and help drive targeted mitigation strategies.

“Nevertheless, it is the stated ambition of Nordea Asset Management to leverage ESG analysis and engagement solutions in order to embed ESG across all investments processes.”

Improved transparency can also help build trust with customers, investors, and employees, creating a halo effect that makes it easier for a company to earn forgiveness when things go wrong, while getting more credit for the things it is doing right.

PUSH Companies can also leverage social and environmental issues to create new product and service innovations that drive revenue and reduce operating costs. Deloitte’s research on innovation shows that leaders on ESG issues are over 400% more likely to be considered innovation leaders.

SHIFT Weaving ESG factors into the fabric of a company can improve shareholder value over time by permanently shifting the expected share price to a higher level, creating a valuation premium.

Part of this shift comes from pinch and push,

which strengthen a company’s brand, reduce risk, and fuel innovation. Another part comes from improved operating efficiency and reduced waste, which can significantly reduce costs and increase profitability.

In addition, a strategic approach to ESG issues can boost a company’s value by helping to attract financial and human capital. Responsible enterprises attract more funding and enjoy a lower cost of equity capital than their less responsible counterparts. They also have an easier time attracting talent – especially younger workers, who tend to be particularly conscious of social and environmental issues. These effects can help create a lasting competitive advantage.

Growing consensus indicates that ESG analysis adds value to investments. For asset owners, ESG integration may soon reach a tipping point: There is good reason to think that ESG considerations will become a regular component of investment decision-making in the future.

The process developed at Nordea Asset Management is now gradually being implemented. It offers an approach that is considered particularly promising, although it will take time to obtain the full results and conclusions of the ESG integration effort.

Nevertheless, it is the stated ambition of Nordea Asset Management to leverage ESG analysis and engagement solutions in order to embed ESG across all investments processes.

The company is committed to assisting clients with the adoption of responsible investment strategies that enhance long-term investment performance.

Today, Nordea Asset Management offers an opportunity to steer investments towards the

“Weaving ESG factors into the fabric of a company can improve shareholder value over time by permanently shifting the expected share price to a higher level, creating a valuation premium.”

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Winter 2014 - 2015 Issue

“For asset owners, ESG integration may soon reach a tipping point: There is good reason to think that ESG considerations will become a regular component of investment decisionmaking in the future.”

FACT BOX

Nordea Asset Management takes returns with responsibility to a new level to ensure competitive, consistent, and responsible returns on all funds All Nordea Asset Management’s products now include environmental, social, and governance (ESG) data as one of the factors used in assessing investments. The aim is to ensure better and more consistent returns on customers’ investments.

Environmental, social, and governance issues are increasingly a source of both risk and opportunity. Therefore, we seek to integrate ESG issues into our investment analysis methodology. Potentially, this is a source of better performance and, at the very least, it is a way of controlling risk in an investment portfolio. Good returns for our customers are the focus of Nordea Asset Management which necessitates taking ESG issues into account in all the company’s investment products.

This has the added advantage of increasing transparency. Nordea Asset Management customers will know at all times how ESG issues are handled. This information can in turn be passed on to the customers’ stakeholders as part of their communication on how money is being invested. “Money that has been earned in a responsible way should also be invested in a responsible way,” says Allan Polack, CEO of Nordea Asset Management.

future and once again rebuild portfolios for the long term. Responsible investments will create opportunities and rewards, but this will also mean challenging the pernicious orthodoxy of short-termism. As an inflection point in the global economy and the global environment is reached, the imperative for change has never been greater. i

Stockholm, Sweden

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> Playing to Win or Playing to Survive?

Urbanisation and the Knowledge Economy

By Rajneesh Narula

I

t is no surprise that cities around the world have been expanding over the last few decades, but quite how rapidly that process unfolds is breath-taking.

According to the UN’s World Urbanisation Prospects, 2014 is a turning point. For the first time in human history, a majority of the world’s population lives in cities, with rural areas accounting for just 46% of the total. To place this in perspective, in 1950, 70% of the population lived in rural areas, and projections suggest that by 2050 less than a third of mankind will live in the countryside.

The fact that more and more people are moving to urban areas has rather serious and profound implications. Some are mundane, in the sense that they are not new. Many countries plan with a focus only on survival and to avoid disasters: How do you handle the pressures of providing basic infrastructure for all the new arrivals?

Countries in today’s global world need to consider more sophisticated implications: Playing to win requires a focus on sustainable growth. Countries like India, Brazil, and Egypt have struggled with this reality for decades.

The inability to take a more aggressive stance towards tomorrow is generally associated with the problems of underdevelopment: Where is the money to do more?

Most nation states in the third world cannot — even where there is political and social will — provide basic infrastructure to their rapidly growing population because they simply do not have the revenues to make the capital investment needed. Developing countries are already challenged by poor planning, limited resources, and inefficient bureaucracies. Such limitations aggravate the problem of insufficient basic infrastructure, from non-existent sewage systems to underfunded schools, and intermittent electricity supply. Thinking of tomorrow’s needs today seems a luxury.

Indeed, it is not easy to deal with the mundane, much less the longer term complex issues of global competitiveness. However, to thrive in a world economy whose hallmarks are change and competition, it is insufficient to think defensively of maintaining the status quo.

The reality of globalisation means that few states can afford to be complacent about the structural transformation needed to compete in tomorrow’s world.

Revenues in the modern state come from taxes, and taxes derive from commercial economic 54

“The fact that more and more people are moving to urban areas has rather serious and profound implications.” activity, which itself depends upon basic infrastructure. In many sub-Saharan countries, the cost of generating a reliable electricity supply through private generators is the single largest running cost for businesses, often greater than their payroll. This is a core policy issue today in almost every capital city, from Cairo to Copenhagen: How do you encourage entrepreneurs to start new firms, how do small firms become larger and employ more people?

Indeed, how do firms of all sizes remain innovative, profitable, create employment while staying in the formal sector?

This imperative is even greater in the developing world, where unemployment figures are high, and most commercial activity stubbornly remains in the informal sector. As cities receive increasing internal emigration from rural areas by a population with “traditional” skills associated with labour intensive activities such as agriculture, how do you keep these people employed?

Unfortunately, in today’s world, jobs that can absorb unskilled agricultural emigrants are increasingly far and few between. The labour-intensive manufacturing sector in most developing countries is simply growing too slowly (and in some countries, such industries are shrinking) to be able to absorb these workers. Generally speaking, the jobs that are available tend to require rather more skills than these workers have and are mostly in the service sector.

At the very least, workers need basic numeracy and literacy skills to work as a shopkeeper, a waiter, or even to sell phone cards on the street. Low skills and productivity equate to low wages, and because of the problems of setting up formal activities (again, due to inefficient bureaucracies or the absence of basic infrastructure) such low-wage jobs are also in the informal sector and do not CFI.co | Capital Finance International

necessarily provide those that are successful the opportunity to expand. In other words, they do not generate taxes, put greater pressure on the existing infrastructure, and are unlikely to offer greater wages over time, or help support expanding families.

The simple answer would be education, but as with all matters of development, simple answers are rarely easy to execute. For the issue here is not simply about immediate needs of society or of providing people with subsistencelevel employment. Job creation should be sustainable, because populations are growing, and as more people migrate to cities, the problem becomes greater with time.

The problem of basic skills and education remains, but the reality of the 21st century is that for a country to compete in open markets, more is needed. It is no longer a matter of basic education, but specialised education and training. For developing countries, it has been hard enough to meet the goal of universal literacy. But globalisation and liberalisation mean that domestic firms (and jobs) in activities which were protected by distance and tariffs are now exposed to foreign firms and imports.

New sectors and industries that offer greater potential for sustainable employment growth require far higher skills, at the very least, postprimary and possibly increasingly, tertiary-level skills. Appropriate institutions with the right quality of experts to teach are hard to come by in developing countries. Besides, specialised skills are also not always easily assimilated through learning-by-doing, so that people will have difficulty entering such jobs without the appropriate certification, and firms that want to establish themselves and survive in international competitors need management, equipment and capital to thrive.

Many countries have nurtured the tourism and hospitality sectors, but few have created low cost training centres and skills development schemes that fit such sectors. More broadly speaking, ICT skills are required for a growing variety of hitherto low-skilled activities.

The state sector has struggled to meet the provision of these basic social goods (such as basic infrastructure and education) at a nominal cost to society, even in developed countries, where debates are rampant about the degree to which these can be privatised. Indeed, in many places – rich and poor alike – the quality of public education has deteriorated to the point

Winter 2014 - 2015 Issue

that families that can afford to do so prefer to seek education through the private sector.

These problems are not unique to the developing countries, and to a fair degree these same issues are debated within the OECD countries. Even in developed economies, there is a growing structural mismatch between the skills available, the skills needed in the market, and the challenges of structural unemployment.

How do you retrain car mechanics to be nurses, or construction workers to be school teachers?

Although almost all the rich countries subsidise education at least until the secondary level, they have also not all been able to tackle the question of specialist training and skills with equal efficiency, or how to respond to rapid changes in demand due to structural transformation and new industries by changing the supply and retraining of appropriately qualified people.

This brings us to the question facing policy makers that has only recently begun to receive the attention it deserves. Every society makes available certain resources that are “universally” deemed to be goods that should be easily available without discrimination to all citizens, such as healthcare, education, security, roads, police, clean water, etc. Society has deemed them as being necessary for moral, economic, or social reasons, aimed to reduce inequality and polarisation within countries. The definition of such “social” goods varies from country to country, but even so there is some consensus across countries that society at large benefits when education is freely available, rather than exclusively only to those who can afford it.

In the knowledge economy that typifies the 21st century, it is no longer enough to think of “generic” secondary (or tertiary) training as the optimal level of education, much less a primary education. A number of governments today regard high-speed internet connectivity as an essential service and the ability to use computers as a basic skill in an interconnected world, in much the same way as access to public transportation, potable water, and electricity were regarded just a generation ago.

Modern economies must rethink how education is provided and delivered, and reconsider the breadth and specialisations available, so that the workforce is suitable for an outward-looking, knowledge-intensive economy, and the range of new opportunities and threats associated with it. i

ABOUT THE AUTHOR Rajneesh Narula is a British economist and academic. He is professor of International Business Regulation and director of the John H Dunning Centre for International Business at Henley Business School, University of Reading in Reading, UK. CFI.co | Capital Finance International

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> ALJ Finansman:

Sophisticated Credit Processing Empowers Toyota ALJ Finansman AS is a financial services company specialised in extending car loans in Turkey. ALJ Finans serves as a partner of the ALJ-owned Toyota distributor in Turkey and provides new and used car loans via Toyota dealers.

A

LJ Finans offers instalment loans to customers wishing to buy a new or pre-owned vehicle. Disbursement of the loan is made directly to the sellers on behalf of the customers at the time the delivery of the vehicle is made. Loan repayments are made by the customers to the finance companies.

ALJ Finans has operations all over in Turkey. The company’s head office is located in Istanbul.

At Toyota dealerships and elsewhere, the brand customers see and experience is Toyota Finance.

As such it is not unlike a white label product.

ALJ Finans is the major player of Toyota Finance operations.

ALJ Finans offers different types of credit solutions to its customers through the dedicated software, ALJet, which is used at the point of sale by the dealers for credit application, quotation, application tracking, CRM, reporting, and other processes related to credit information.

ALJ Finans products and services are designed to differentiate Toyota in the Turkish automotive market and its products can be easily customised based on the customer’s profile.

The main objective of the financial services tools is to make Toyota an affordable brand for everyone.

ALJ GROUP BACKGROUND The ALJ (Abdul Latif Jameel) business was established in the Kingdom of Saudi Arabia almost six decades ago. The head company, ALJ Co Ltd, was formed in 1980. Since then it has grown into an internationally diversified group of companies, with operations in the United Kingdom, Monaco, Turkey, Morocco, Algeria, Egypt, Syria, China, and Japan.

ALJ Group is the largest independent distributor of Toyota, Lexus, and Daihatsu vehicles in the world. It is also active in the fields of real estate, financing, software solutions, advertising and media, and distribution and sales of electronics and household appliances.

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ALJ employs more than 14,000 people worldwide. The group also operates Saudi Arabia’s largest consumer finance company.

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The ALJ Group is known for its focus on putting “Guests First”. i

A history of engineering innovation.

More than 60 years ago, Schlumberger logged its first well for Shell D’Arcy in Owerri. Ever since, we have worked in Nigeria sharing best practices and learning how to overcome challenges in the industry and in the community. Today, we continue our commitment by fostering technical innovation to improve customer performance at global and local scales.

As part of our Global Citizenship initiatives—Schlumberger Excellence in Educational Development (SEED), One Laptop Per Child, and Science Project Challenge—we support and encourage the development of Nigerian talent in the sciences in secondary schools, and at universities through our University Relations and Faculty for the Future fellowship.

In 2012, Schlumberger invested more than USD 1.2 billion into research and engineering because we believe that innovation, collaboration, and understanding are driven by diversity. And with 125 R&E facilities worldwide, Schlumberger remains dedicated to developing advanced technologies that help customers meet the challenges of today, tomorrow, and the next 60 years.

Find out more at

slb.com © 2013 Schlumberger. 13-OF-0077

ANNOUNCING

AWARDS 2014 WINTER HIGHLIGHTS Once again CFI.co 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 CFI.co audiences and then shortlisted for further consideration by the

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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 and

CFI.co | Capital Finance International

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 www.cfi.co and nominate.

Winter 2014 - 2015 Issue

> NORDEA ASSET MANAGEMENT: ESG AWARD WINNER IN EUROPE, 2014

According to the CFI.co Judging Panel, ‘Nordea well understands the benefits that accrue to investors when managers consider environmental, social and corporate governance factors in the asset selection process. This company has been working consistently over the years to integrate ESG assessment fully into

its investment decision making. Nordea has shown clear focus and a strong determination to exclude investments that violate their ESG principles and it is clear to us that their products are all the better for this rigorous examination.

Board composition, audit policy and compliance procedures reflect good corporate governance

policy and practice at Nordea. Risk management here is exemplary and our winner does all possible to conduct business as profitably as possible but with integrity. We are delighted to name Nordea as winner of the CFI.co award for Best ESG Investment Process, Europe.’

> HMC CAPITAL GROUP: BEST CAPITAL MARKETS BOUTIQUE, LATIN AMERICA, 2014

HMC, with offices in Brazil, Peru and Colombia - as well as home country Chile – is very well placed to service client needs throughout Latin America. And, according to the CFI.co

Judging Panel, ‘HMC does so with skill and aplomb. Their quest for asset efficiency is well rewarded through the efforts of a talented and highly experienced team of financial services

professionals. We are very happy to announce the win of this sub region award in the name of HMC Capital Group.’

> JAPAN EXCHANGE GROUP CLAIMS BEST SUSTAINABLE STOCK EXCHANGE ASIA 2014 AWARD

At the start of 2013, the merger of the Tokyo Stock Exchange and the Osaka Securities Exchange created the Japan Exchange Group – the world’s third largest bourse with an aggregate market capitalisation in excess of $4.6tn (2013).

The JPX Group has developed a number of CSR (Corporate Social Responsibility) initiatives aimed, amongst others, at fomenting entrepreneurship and disseminate financial management skills.

The JPX Group also compiles

various rankings of listed companies according to sub-sets of ESG (Environment, Social, and Governance) criteria. These “theme issue lists” provide investors with valuable and unique insights on non-financial data of publicallyheld companies such as ESG performance and women empowerment.

In March of 2014, the JPX Group hosted the third annual Responsible Investment Asia Conference to analyse sustainable finance with participation from regulators, institutional CFI.co | Capital Finance International

investors, asset managers, corporate leaders, and financial services providers, amongst others.

The impressive number of initiatives sustained by the JPX Group to further CSR and ESG values left the CFI.co Judging Panel with little room for doubt. The judges are both pleased and honoured to extend the Best Sustainable Stock Exchange Asia 2014 Award to the Japan Exchange Group.

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> SCHLUMBERGER NIGERIA: BEST SUSTAINABILITY AWARD 2014

In over forty countries, oilfield services company Schlumberger is actively engaged in promoting science, technology, engineering, and math (STEM) education through its SEED (Schlumberger Excellence in Education Development) programme. The company is fully committed to share its corporate culture which prioritises science and learning.

SEED is the embodiment of this passion. The programme counts on the volunteer work of hundreds of educators to reach students

and engage them in global challenges such as climate change, energy, and water which may be addressed by science.

In Nigeria, SEED has collaborated with over 34 schools and the Nigerian Academy of Science to promote science education.

Participating schools work on research projects aimed at igniting a passion for science in students.

The CFI.co Judging Panel considers SEED an exemplary initiative and applauds

Schlumberger for its sustained commitment to STEM education. As production processes become ever more complex, demand for engineers and scientists are expected to increase by leaps and bounds over the next few decades. A technology company par excellence, Schlumberger seems to not just recognise this need, but address it in a hands-on manner as well. The CFI.co Judges unanimously decided to hand Schlumberger Nigeria for the second consecutive year its Best Sustainability Award.

> BEST GREEN BANK CAPE VERDE 2014: BANCO INTERATLÂNTICO

Banco Interatlântico aims and succeeds in remaining close to its customers in both the retail and corporate segments of the market. The third largest of Cape Verde banks, Banco Interatlântico has gained a well-deserved reputation for service-mindedness. Here, servicewith-a-smile comes naturally. Due to its close proximity to customers, the Banco Interatlântico is uniquely positioned to be a true partner in ventures and lives.

The CFI.co Judges are particularly impressed by the number and scope of social projects sponsored or undertaken by the Banco Interatlântico. Employees are encouraged to bring worthy causes to the management’s attention. The bank also works in partnership with government ministries, schools, and other not-for-profit entities to further cultural, social, and educational projects.

Corporate social responsibility and

sustainability are well-defined core values of Banco Interatlântico that are applied to day-today operations as a matter of course – not just policy and the Panel was particularly impressed by the efforts the bank is making in improving both its understanding and reporting on sustainability issues. The CFI.co Judging Panel has therefore no hesitation in naming Banco Interatlântico Best Green Bank Cape Verde 2014.

> BINDMANS LLP: BEST EMPLOYMENT LAW TEAM UNITED KINGDOM 2014

Bindmans LLP was established forty years ago by Sir Geoffrey Bindman QC with a view to “protecting the rights and freedoms of ordinary people.” Since then, Sir Geoffrey has represented the family of James Hanratty who was controversially convicted and hanged for the A6 murders that took place in 1962. Sir Geoffrey has been a legal advisor to Amnesty International and represented the satirical magazine Private Eye – a veritable magnet for libel cases – during much of the 1980s.

The CFI.co Judging Panel considers Bindmans a rising star in employment law and draws attention to the firm’s fine work in the jurisprudence-poor area where labour law and human rights overlap. The judges also took note of Bindmans’ solid track record on cases 60

involving mental health law.

Recently, Bindmans secured a high-profile win in a wrongful dismissal case for Robina Husain-Naviatti, the former deputydirector of Forensic Therapies, a Londonbased charity providing counselling services to inmates of British prisons. Mrs Husain-Naviatti was dismissed from her job after blowing the whistle on the embezzlement of public funds.

In another case, Bindmans successfully argued that animal rights beliefs are protected under the 2010 Equality Act in the case of a worker who lost his job at a garden centre after voicing concerns over hunting and other practices he considered harmful to animals. Bindmans’ lawyers accept cases brought by both employers and workers.

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Bindmans’ employment law team has accumulated vast stores of experience in the early recognition of settlement opportunities. The team relentlessly strives for excellence in both arbitration and negotiation.

Almost needless to mention, this team counts on determined and skilful litigators as well.

The firm’s Head of Employment Shah Qureshi is a member of the Employment Lawyers Association (ELA) and part of a working group evaluating proposals put forth by the government on trade union membership rules.

In December 2014, Mr Qureshi questioned the benefit of “yet more red tape on top of the already onerous requirements trade unions face with regard to their membership and the conduct of ballots.”

Winter 2014 - 2015 Issue

> THREE TIMES A WINNER: SBM IS NAMED BEST BANK MAURITIUS, 2014

SBM Bank (Mauritius) Ltd has been named the country’s Best Bank for three consecutive years of the CFI.co Banking Awards programme. The Judging Panel expressed a special commendation of SBM on this exceptional achievement. Despite economic challenges in operating countries, SBM’s recent financial performance has been very satisfying.

The Panel points out that,’ consecutive year winners typically move from strength to strength – even when times are tough – and that has certainly been the case with SBM. The third year win gives an indication of the fundamental strength of this outstanding bank that was established some forty years ago. SBM now has over 1200 employees and operates

throughout Mauritius with branch offices in India and Madagascar. Our 2014 winner has a twenty percent share of the domestic market and a capitalisation of $1 billion. This is a solid, dependable bank with exemplary operating efficiency and great services and products. Well done SBM.’

> UBS: BEST GREEN BANK SWITZERLAND 2014

Picture a world in which large power plants spewing noxious fumes into the atmosphere have been made redundant and replaced by solar panels, wind turbines, and other small-scale and environmentally sound ways of providing plentiful non-polluting energy. That is how Swiss financial services company UBS sees the none-too distant future taking shape.

In a brief sent to investors in August 2014, the world’s largest private bank states unequivocally that centralised power generators are on their way out. According to UBS analysts, these facilities are just “too big and inflexible” which will shortly make them “irrelevant.” As if on cue, German utility company E•ON in

December revealed plans to split its business into two successor companies – one generating power from fossil fuels and the other from renewables.

This will enable E•ON to divest its interests in carbon-based energy generation and concentrate its resources on sustainable technology.

The uncanny prescience displayed

by UBS researchers underscores the bank’s dedication to not just clean energy, but environmentally sound business endeavours in general. UBS considers the shift away from fossil fuel but one of a series of major developments that will open up a world of opportunity to those willing to recognise the signs and step in on the ground floor.

Being green entails much more than just ditching incandescent light bulbs or only buying free-range eggs; it requires seeing the truly big picture, spotting trends, and identifying early-on viable new technologies. Though the CFI.co Judging Panel has no doubt that UBS will have replaced the light bulbs, the judges attach far greater importance to the fact that the Swiss bank employs its vast resources – not least its research brawn – to help empower green technology, thus facilitating the shift away from resource depletion towards full sustainability.

The panel has therefore no reservation in handing UBS the Best Green Bank Switzerland 2014 Award.

> THREE TIMES A WINNER: BURGAN BANK TAKES OUR 2014 AWARD

Burgan Bank is once again the standout winner of our award ‘Best Private Bank, Kuwait.’

This is the third consecutive year of success and the CFI.co Judging Panel offers congratulations on this outstanding achievement.

The Panel comments that, ‘this

bank powers ahead impressively in terms of financial performance and is a very astute and successful asset manager that protects and helps clients build upon their accumulated wealth. Burgan understanding of the problems and opportunities in the region – and further CFI.co | Capital Finance International

afield – is exemplary and provides confidence and comfort to clients. We are extremely impressed by the professionalism here and have no hesitation in confirming this award to Burgan.’

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> NIGERIAN UNDERWRITING AWARD FOR 2014

Goldlink Insurance Plc - listed in 2008 and a very well respected name in the country - is the winner of CFI.co’s 2014 award for ‘Best Underwriting Team, Nigeria’. This accolade comes with the congratulations of the Judging Panel and a particular mention of the company’s

outstanding services and highly innovative products.

Our winner is one of the best capitalised insurance companies in Nigeria – underwriting life and general business with Motor and Life as specialisation.

Goldlink takes pride in settling claims promptly and focuses strongly on customer care. Compliance and risk management here is first rate and the panel considers this company as a very worthy winner.

> NORTON ROSE FULBRIGHT: BEST INSURANCE TEAM LEGAL UK 2014

Behind the scenes, the CFI.co Legal Awards Programme is a proper field of dispute with strong contenders vying for top honours. The judges at times struggle to maintain equanimity as the pros and cons of nominees are debated, often with moderate vehemence. When – after all is said and done – a legal firm is found to merit an award twice in a row, the arguments put forth must have carried considerable weight.

Norton Rose Fulbright is indeed a legal foe to behold when seen from the opposite bench. The firm fields no less than 3,800 lawyers distributed over nine global practice groups operating across six key industry sectors.

Their collective legal expertise and accumulated experience ensure clients a level of service almost unmatched in the industry. The dispute teams have recently been overhauled to further bolster client confidence in the firm’s acumen.

Norton Rose Fulbright is now fully geared up for expansion into new markets. The firm is focusing on continental Europe and Asia for future growth and has targeted India in particular as a most promising jurisdiction. Norton Rose Fulbright has also established an international construction group with members from its London, Dubai, and Hong Kong offices, and is now putting the finishing touches on an electronic system that

helps clients manage potential disputes with a view to mitigating the risk of litigation.

The CFI.co Judging Panel, not unfamiliar with dispute, praises Norton Rose Fulbright for its proactive management style that inspires confidence and offers comfort as well in the knowledge that the firm stands by its clients wherever and whenever a need arises. The judges draw particular attention to the firm’s vast expertise in insurance law, regulation, and practice. After careful deliberation, the CFI.co judges’ unison verdict was delivered: Norton Rose Fulbright is the 2014 recipient of the Best Insurance Legal Team UK Award.

> SILK INVEST LIMITED: BEST FRONTIER MARKETS FUND MANAGEMENT AFRICA 2014

At home in frontier markets, Silk Invest Limited sees opportunity rather than risk and channels funds to entrepreneurs aiming to extract the most from rapidly expanding middle classes and the buoyant economies they drive. With a vision that local presence – the financial equivalent of boots-on-the-ground – is essential to not just success but to the mitigation of residual risk as well, Silk Invest operates an expanding network of branch offices staffed by local professionals who are thoroughly familiar with the surrounding 62

environment and know the do’s and don’ts – and ins and outs – of indigenous business culture.

The CFI.co Judges expressed keen awareness of the exceptional expertise required to successfully operate in frontier markets.

While these up-and-coming markets may offer challenges to the uninitiated, Silk Invest couples exceptional financial proficiency to deep local knowledge in order to offer its clients a golden opportunity to monetise the growth of frontier markets whilst contributing to their further CFI.co | Capital Finance International

development.

The CFI.co Judging Panel was rather fascinated by the solid bridge Silk Invest has laid between the City of London and some of the world’s most exciting markets. The Judges consider this link – beneficial to all stakeholders – of paramount importance as frontier markets will, within two decades, be home to over half the world’s population. Without hesitation, the Judges bestowed the Best Frontier Markets Fund Management Africa 2014 Award on Silk Invest.

Winter 2014 - 2015 Issue

> METLIFE: BEST INSURANCE COMPANY USA 2014

MetLife, the holding corporation of the Metropolitan Life Insurance Company, is one of only a select few US insurance companies that didn’t touch any of the bailout monies being disbursed during the 2008 financial crisis. Exceedingly wellmanaged and in business since 1868, MetLife has now completed the sale of its banking and mortgage divisions to concentrate on the company’s core activities. MetLife is one of the world’s leading insurance companies with a presence in over sixty countries and providing services to about ninety million customers.

The CFI.co judges feel somewhat humbled by MetLife’s impeccable corporate track record. The company has been awarded

considerable recognition for its progressive workplace practices, solid corporate social responsibility policies, and stalwart support for diversity. Considering that a happy staff makes for like customers, the CFI.co Judging Panel sees MetLife’s commitment to the human dimension of its business as an example worthy for others to follow.

The judges noted that MetLife seems to have been at the receiving end of public policy when it was recently labelled a systemically important financial services institution (SIFI) by the Financial Stability Oversight Council. The company may now face tougher capital and liquidity requirements.

While there is no way denying that MetLife is large, it is also important to remember that the company voluntarily bought over $1bn worth of publically-traded shares to prop up the stock market and help restore confidence in the wake of the 9/11 terrorist attacks.

Throughout its long existence, MetLife has time and again displayed a sense of social responsibility that is matched by few. The CFI.co Judging Panel feels therefore entirely justified in presenting MetLife with the Best Insurance Company USA Award for the second consecutive year.

> BUILDING TRUST AND ENSURING GOOD BUSINESS CONDUCT: OUR CORPORATE GOVERNANCE WINNER IN WEST AFRICA

Lafarge Africa Plc is the worthy winner of the CFI.co 2014 award for ‘Best Corporate Governance, West Africa’.

Lafarge Africa Plc, formerly known as Lafarge Cement Wapco Nigeria Plc, was created during the past year through the combination of Lafarge’s other Nigerian operations: Ashakacem Plc, United Cement Company Limited (Unicem), Atlas Cement Company Limited and Lafarge’s

South African assets with Lafarge Cement Wapco Nigeria Plc. The company was renamed Lafarge Africa Plc.

The Judging Panel was impressed by the Lafarge’s efforts to protect the interests of the minority shareholders throughout the process. We note that a non-executive board subcommittee was set up to lead the negotiations for Lafarge Wapco, an independent valuation

was prepared by Standard Chartered Bank, that KPMG issued a fairness opinion and that the board’s audit committee assessed the transaction and approved the same before bringing it forward to the AGM. We also note Lafarge chose not to vote its shares at the AGM. Overall, corporate standards at Lafarge Africa are very high with policies and practices in place. We congratulate this enterprise and wish it all success.’

> WAICA RE WINS THE CFI.CO AWARD FOR INSURANCE INDUSTRY INNOVATION IN WEST AFRICA

According to the CFI.co Judging Panel, ‘West African Insurance Companies Association (Waica Re) shows innovation by addressing the challenges of the market and responding intelligently and promptly to identified needs. Waica Re, established in March 2011, seeks to develop a diversified insurance sector with a strong

reinsurance capability in the sub region in order to help support financial and economic growth.

Waica Re is owned by insurance companies in Ghana, Liberia, Nigeria, Gambia and Serra Leone.

The company follows international best practice and is clearly concerned about good governance.

With offices in Freetown, Accra and Lagos, the CFI.co | Capital Finance International

Waica Re organisation is very responsive to client needs and there is evidence here of strong and effective teamwork. Staff training is exemplary and Waica Re makes good use of advanced modern technologies. We are pleased to confirm the award Most Innovative Reinsurance Team, West Africa, 2014. Waica Re is our winner.’

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> GLOBAL SUSTAINABILITY AWARD GOES TO ASIA PLANTATION CAPITAL

The CFI.co Judging Panel applauds the efforts of Asia Plantation Capital, winner of the 2014 award for ‘Best Sustainable Forestry Management Team, Global’. This award recognises APC’s outstanding contribution to sustainability since 2002 and acknowledges their effective focus and strong results in an

area of the very highest importance.

The Judges comment that, ‘Our winner has projects across four continents and assets owed / under management that are expected to exceed $1 billion in value in the not-too-distant future.

APC works sensitively with local communities to provide much needed investment and social

and cultural support in order to discourage deforestation and illegal logging activity. We are happy to note that locals employed by APC are very well treated and provided with meaningful opportunities to improve their economic prospects in ways that protect and nourish the environments in which they live.’

> CRC CREDIT BUREAU RECEIVES AWARD AS BEST LOAN APPLICATION SERVICES PROVIDER NIGERIA 2014

The availability of reliable credit information is the cornerstone of business. Without it, no company – large or small – can expect to avoid risk or, indeed, expand its customer base.

CRC Credit Bureau specialises in facilitating lending to consumers and small and mediumsized enterprises. In Nigeria, and elsewhere, SMEs are the drivers of progress. Any business empowering SMEs deserves accolades.

In Nigeria, CRC Credit Bureau

provides outstanding services as a credit bureau. The company was set up by eleven leading domestic financial institutions and Dun & Bradstreet – one of the world’s oldest and most respected credit information providers. Its enviable heritage and impeccable credentials have allowed CRC Credit Bureau to claim the top spot in its sector.

Focused on providing credit information to the financial services companies

and other lenders, CRC Credit Bureau is a key partner to banks and consumer credit companies as well. The company has developed processes that produce quick decisions in order to keep in tune with Nigeria’s business dynamics, and indeed help set the pace. The CFI.co judges applaud CRC Credit Bureau for its peerless standard of service and feel confident in granting the Best Loan Application Services Provider Nigeria Award 2014 to the company.

> BEST REGIONAL BANK, GCC, 2014: THE CFI.CO AWARD WINNER IS AHLI UNITED BANK B.S.C.

The CFI.co Judging Panel congratulates Ahli United Bank B.S.C. (AUB) on being a truly regional bank and the worthy winner of the 2014 GCC banking award. The Panel commented that, ‘this bank set out to be a regional player at the time of its establishment fourteen years ago and has succeeded admirably. Unlike other GCC banks that have one massive single market 64

dependence, AUB has a balanced presence across the region and thus has powerful access to all the regional markets. Despite the regional challenges, AUB continues to deliver outstanding performance which clearly demonstrates the success and viability of its core business model based on prudent and diversified geographic growth, proactive risk CFI.co | Capital Finance International

management, intelligent cost spending and continuous focus on developing cross border business opportunities. Furthermore our winner’s products and services throughout the region are considered to be outstanding. This award comes with a special commendation of the judges.’

Winter 2014 - 2015 Issue

> MORGAN STANLEY: BEST INSTITUTIONAL BROKER UAE 2014

When the going gets tough, the likes of Morgan Stanley get, well, going. In a market besieged by a lack of liquidity as multiple IPOs sucked money out of the primary market, the UAE now seems poised for a post-Q1 2015 return to much-improved liquidity as dividends are distributed and the investors’ scare of cheap oil wears off.

Till then, investors may find succour – and consistently solid returns – with Morgan Stanley, the conduit of choice for those seeking

to unlock the riches offered by buoyant markets in the US and elsewhere.

With untold billions idling on the side lines, the UAE remains an exciting place for a brokerage to be. Present in the Emirates since the 1970s, and with a regional office since 2006, Morgan Stanley offers local investors unparalleled access and exposure to global markets. By its omnipresence, Morgan Stanley manages to direct institutional investors to the greenest pastures – wherever they happen to sprout.

Morgan Stanley has again received from CFI.co readers and visitors a significant number of nominations for the Best Institutional Broker UAE Award. The Judging Panel agrees that the company has amply demonstrated its class by deftly sidestepping hazardous markets and leading its clients to safe – and lucrative – havens. The CFI.co judges are therefore not the least hesitant to declare Morgan Stanley winner – for a second consecutive year – of its Best Institutional Broker UAE Award.

> IN THE FRONTLINE FOR INVESTMENT OPPORTUNITIES IN AFRICA

Frontline Capital Advisors Ltd. (FCA) is the worthy winner of our 2014 award as ‘Best M&A Advisory Team, Ghana’. The firm sets out to provide international investors with the means to properly take advantage of the potential of Africa. FCA has advised government and is

doing much to improve financial offerings in Ghana.

The CFI.co Judging Panel comments that, ‘this young company is growing fast and for very good reasons. The partners are extremely well qualified, have good international work

experience and can be counted on to deliver innovative financial solutions. There is a passion here to showcase Africa as a really exciting opportunity for well informed investors. We share this passion.

> DAR AL TAMLEEK: BEST SHARIA COMPLIANT HOME MORTGAGE PROVIDER SAUDI ARABIA 2014

The leading mortgage provider in the Kingdom of Saudi Arabia, Dar Al Tamleek is in the business of making the dream of home ownership come true. Since 2008, the company has helped over 20,000 families buy the home of their choice.

Dar Al Tamleek adheres to Islamic Law and has established a 3-member board of religious scholars to ensure full Sharia compliance. The board meets regularly to review the company’s programmes, policies,

and procedures which are expected to meet stringent guidelines as contained in distinct fatwas. This way, Dar Al Tamleek is able to deliver consistency in the application of Islamic Law which, in turn, boosts customer confidence and satisfaction.

The Dar Al Tamleek Sharia Board is composed of eminent experts on Islamic Law and how it pertains to finance and contract law.

Dar Al Tamleek takes exceptional care to offer its clients only those products and services that CFI.co | Capital Finance International

are best suited to their individual needs and circumstances.

The CFI.co Judging panel considers Dar Al Tamleek’s dedication to the well-being of its customers exemplary. As such, the company has raised the bar and, indeed, offers a model worthy for others to follow. The Judges therefore feel confident in extending the Best Sharia Compliant Home Mortgage Provider Saudi Arabia 2014 Award to Dar Al Tamleek.

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> MAHINDRA GROUP: CORPORATE LEADERSHIP AWARD ASIA 2014

A driver of economic growth in India and around the world, the Mahindra Group of companies employs over 180,000 people in over a hundred countries and is good for an annual turnover of close to $17bn. Forged from roots in the post-war steel industry, Mahindra soon diversified into other sectors. The company was encouraged to do so by Permit Raj, a system as cumbersome as elaborate adopted immediately after independence by the Indian government in an attempt to regulate industry and plan economic development.

A living and prospering testament to the adage “what doesn’t kill you, makes you stronger,” the Mahindra Group today has a paneconomic presence that stretches from aerospace and agribusiness to logistics, real estate, and the hospitality sector. Amongst the largest corporate behemoths of India, the company unified its

diverse business operations in 2011 under the banner Mahindra Rise. The restyled brand aims to emphasise the company’s long-standing dedication to the wellbeing of not only its workers, but all those affected by its activities.

For its part, the CFI.co Judging Panel wishes to stress that the Mahindra Group practiced corporate social responsibility (CSR) long before it became the fashionable thing to do.

In fact, the judges remarked that the company was already reaching out to the wider community in 1953 when its cofounder KC Mahindra started a trust to foster literacy and promote access to higher education through scholarships and grants.

The CFI.co judges were impressed by the number of CSR programmes, developed not only at group level but also by individual

Mahindra companies around the world. These initiatives range from a partnership with the NBA (the US National Basketball Association) aimed at bringing basketball to the Indian masses, to Mahindra Excellence in Theatre Awards that offer recognition to performing arts talent.

The Mahindra Group is led by Harvard-educated Anand Mahindra, grandson of one of the company’s founders, who as chairman and managing director has shown great dexterity in keeping the vast conglomerate finely attuned to the ever changing business climate. Under his leadership, Mahindra Group has further expanded both its geographical footprint and business lines. The CFI.co Judging Panel wishes to confer its Corporate Leadership Award Asia 2014 on Mahindra Group. The company received the same award in 2013.

> BONUS BANCA DE INVERSIÓN SAS CLAIMS TWO AWARDS:

MOST INNOVATIVE PROJECT ADVISORY TEAM LATIN AMERICA 2014 & OUTSTANDING DEAL STRUCTURING COLOMBIA 2014

The economic contribution that effective infrastructure development has on economic growth is hard to overstate. There are numerous local and international firms providing project management services to support infrastructure development. The difference that these teams can make has a real and often immediate impact.

The CFI.co Judging Panel was delighted to see some very strong entries for the Most Innovative Project Advisory Team Latin America 2014. However, one team in particular stood out in the Judges’ mind: BONUS Banca de Inversión, a Colombian investment bank, has a track record that speaks for itself. Its

performance is most impressive as well.

BONUS has rapidly become the project advisory team of choice in Colombia.

The close-knit team has managed to successfully blend its multidisciplinary skillsets to produce innovative and effective solutions that consistently provide competitive and timely results. The BONUS team has managed to build high levels of confidence within the international financial community, not least through a meticulous attention to relevant detail.

This has allowed BONUS to structure original solutions. The Judging Panel was extremely impressed with the work done to

structure the financing of the Magdalena River Waterway Project that aims to drive internal transportation costs down and thus increase Colombia’s competitiveness in global markets.

The Judges made the unusual decision to grant BONUS a second award for Outstanding Deal Structuring Colombia 2014 for this ground-breaking project. The skills and experience BONUS has honed and gathered in Colombia are already resulting in a demand for their services outside the country. BONUS’ practices shine as an example of how local teams of experts can leverage their regional knowledge and understanding to outperform and outclass global competitors.

> THE 2014 CFI.CO AWARD FOR BEST HSE STANDARDS, WEST AFRICA, GOES TO MOBIL OIL NIGERIA PLC

Mobil Oil Nigeria Plc traces its proud history back to 1907. This top petroleum products marketing player now operates extensively and very successfully throughout all states in the country. The CFI.co Judging Panel confirms that 66

their 2014 award for Best Health Safety and Environment Standards (Oil & Gas), West Africa goes to this outstanding organisation which they say, ‘always places HSE concerns at the heart of their operating strategy. Mobil Oil Nigeria is not CFI.co | Capital Finance International

only an exemplar of industry efficiency but also conducts itself according to the very highest ethical standards. We congratulate Mobil on this award which is well deserved.’

Winter 2014 - 2015 Issue

> AUERBACH GRAYSON: BEST FRONTIER MARKETS INSTITUTIONAL BROKERAGE USA 2014

Act globally, think locally. This motto encompasses the philosophy of New York-based international brokerage firm Auerbach Grayson.

Serving US institutional investors, the firm has established a strategic presence in nearly 130 markets via exclusive partnerships with each country’s leading brokerage or bank. Auerbach Grayson now stands atop the world’s largest network of brokers and analysts.

Originally focused on investment opportunities in Europe, the firm has expanded into emerging and frontier markets

in every corner of globe. Auerbach Grayson places great emphasis on exhaustive, locallyconducted research, compiled in accordance with international standards, for distribution to the firm’s clients in the US. The firm’s strong commitment to providing high-quality data, captured first-hand by the very best of local professionals, was noted by the CFI.co Judging Panel which commends Auerbach Grayson on its dedication to research excellence and the resulting discovery of exceptional investment opportunities.

The CFI.co judges are not the only ones taking note of the winning formula employed by Auerbach Grayson: In early 2013, the firm allowed Morgan Stanley to acquire a minority stake in order for that bank to gain access to emerging and frontier markets where it had no presence. The CFI.co judges are mightily impressed by the way the firm has driven its expansion and are happy to concede the Best Frontier Markets Institutional Brokerage USA 2014 Award to Auerbach Grayson.

> ADVANCED MICRO DEVICES: BEST CSR NORTH AMERICA 2014

Semi-conductor manufacturer AMD (Advanced Micro Devices), founded in 1969 by a group of enterprising and ambitious engineers, remains true to its roots and – as such – is the one chip manufacturer that dares face-off erstwhile allmighty Intel.

Over the past several years, AMD has been revamping its business operations, culminating in a consolidation of activities into two divisions: Computing and Graphics, and Enterprise, Embedded, and Semi-Custom.

The restructuring has, however, not affected the company’s long-standing focus on corporate social responsibility. CSR programmes were, in fact, strengthened.

AMD management strongly believes that corporate behaviour is as important to longterm success as are product innovation and other drivers of profit and market share. The over 10,000 people employed by the company are inspired to give their best while management ensures that AMD excels in corporate citizenship. As a core value, CSR permeates the entire organisation.

The company goes to great lengths to incorporate social and environmental best practices into its day-to-day operations. AMD also believes in supplier responsibility and expects its contractors to adhere to similarly high ethical standards.

In 2012, the Enough Project, a non-

profit organisation campaigning against the use of “conflict minerals,” ranked AMD as one of the electronics companies doing most to avoid sourcing raw materials from warzones.

Education is another main concern for AMD. As the world’s largest purveyor of graphic chips that power computer games, AMD seeks to inspire avid gamers with a more educational approach through the company’s Change the Game initiative.

The CFI.co Judging Panel commends AMD for consistently staying well ahead of the curve on corporate citizenship. After careful consideration, the judges decided to offer AMD the North America CSR Award 2014.

> AFRICA RE - AFRICAN REINSURANCE CORPORATION: BEST REINSURANCE COMPANY AFRICA 2014

Established in 1976 on a recommendation of the African Development Bank as a way to help reduce the drain of foreign currency from the continent, the African Reinsurance Corporation (Africa Re) is a joint effort of 41 states to provide local insurers with an alternative to global reinsurance companies.

With its head office in Lagos, Nigeria, six regional offices, and subsidiaries in South Africa and Egypt, Africa Re canvasses the entire continent. The corporation has been

a driver of the accelerated growth experienced by the insurance and reinsurance sectors in Africa. After revamping its marketing practices and further increasing the range of its services, Africa Re has managed to capture a significantly enlarged market share.

Though Africa Re receives a 5% cession on all reinsurance business generated by insurers operating in its member states, most of the corporation’s revenue – up to 91.7% as at December 2013 – is now sourced from CFI.co | Capital Finance International

voluntary cessions.

The CFI.co Judging Panel applauds the sustained effort of Africa Re to assist with the development of a strong African insurance industry which, in turn, facilitates business, trade, and overall economic development.

The Judges particularly mentioned the essential nature of the services provided by the corporation and felt no hesitation in naming Africa Re the worthy recipient of the Best Reinsurance Company Africa 2014 Award.

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> PROPERTY DEVELOPER BAZ WINS 2014 AWARD FOR SHARIA COMPLIANCE

The CFI.co Judging Panel names Baz Real Estate Modern System Company as ‘Best Sharia Compliant Leisure Property Developer, GCC, 2014’ noting that, ’the firm’s sincere and consistent focus on providing great services and innovative Sharia compliant products for their customers is

obvious and highly commendable.’

Baz gets top marks from the panel for formulating holiday ownership opportunities that fit in with the traditional ways of the Middle East. Mushaa Shares ensures that their real estate offerings comply fully with the

requirements of the Sharia. Further, Baz is to be congratulated on delivering an outstanding service to owners and has developed some very interesting and high quality real estate projects.

> AUSTRALIA AND NEW ZEALAND BANKING GROUP (ANZ): BEST SME BANK AUSTRALIA 2014

Apart from its home markets, the Australia and New Zealand Banking Group (ANZ) has a presence in thirty countries. The bank planted a solid and sizeable stake in the Asia Pacific Region to make the most of the growth opportunities available. However, ANZ – repeatedly at or very near the top of the Dow Jones Sustainability Index – has not lost sight of its domestic market.

The bank’s expanding international network is being effectively used to boost business at home.

The CFI.co Judging Panel was pleased to note ANZ had doubled the funds available to small and medium-sized enterprises (SMEs) in a commendable effort to help these critically important businesses take full advantage of the current economic upswing.

ANZ has been at the forefront of the development of financial tools and instruments geared to the specific needs of SMEs. The bank has also placed its own expanded regional

footprint at the disposal of entrepreneurs looking to cash in on the growth of Asian Pacific economies.

Impressed by the level of dedication and expertise ANZ has brought to bear on the strengthening of small and medium-sized businesses – as ever engines of growth and job creation – the CFI.co Judging Panel is glad to present the bank with the Best SME Bank Australia Award 2014.

> MERCURY CAPITAL ADVISORS GROUP BEST FUND RAISING TEAM GLOBAL 2014

Mercury Capital Partners have perfected flat management within the company, creating a team where everyone takes responsibility for their actions and strives to exceed expectations. The CFI.co Judging Panel felt that through an emphasis on teamwork, Mercury Capital Advisors Group have been able to leverage the nearly three centuries of combined experience to deliver an impressive track record.

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The company has effectively used both internal and external feedback to foster and develop skills, entrepreneurial spirit, and maintain strong relationships and understanding with all stakeholders.

Mercury Capital Advisors Group has created an extended family that makes for a winning approach when it comes to the globalised world of fundraising, ensuring that clients enjoy excellent access to institutional CFI.co | Capital Finance International

investors across the world.

With an unwavering belief in teamwork, Mercury Capital Advisors Group has amply demonstrated that the power of the group – and the highly effective use of its collective knowledge and experience – makes for a winning approach. It gives the CFI.co Judges particular pleasure to recognise Mercury Capital Advisors Group as the Best Fund Raising Team Global 2014.

Winter 2014 - 2015 Issue

> GRUPO BANCOLOMBIA: BEST INVESTMENT BANK COLOMBIA 2014

Colombia is cashing in on its peace dividend: the country’s economy is expected to grow by no less than 5% in 2015. The bulls have also returned to drive stock market upwards with the benchmark Colcap index on December 17 registering its biggest jump in 45 months as investors lined-up for an end-of-year rally.

Grupo Bancolombia, the country’s largest bank with assets exceeding $68bn, is exceptionally well-poised to make the most of the economic upswing and, indeed, help power it. Earlier this year, the bank revealed that it stands ready to help finance the government’s ambitious infrastructure development programme. Grupo Bancolombia’s chief

financial officer José Humberto Acosta said that he expects the bank to dedicate up to 10% of its assets to this project over the coming years.

The Grupo Bancolombia investment team bundles the knowledge and expertise of around sixty professionals who structured close to $40bn in deals over the past five years. The team leverages Bancolombia’s growing international footprint to forge complex transactions that adhere to the highest international standards and deliver timely and precision-made solutions to clients.

The CFI.co Judging Panel took note of Grupo Bancolombia’s innovative approach to financial services such as its recent decision

to streamline internal processes – hundreds of outdated procedures were ditched and papershuffling was reduced to a minimum – enabling staff to further improve customer service. The judges also remarked on Grupo Bancolombia’s consistently high ratings on corporate social responsibility and sustainability rankings.

The remarkably wide range of financial services offered by Grupo Bancolombia and, even more importantly, the bank’s unwavering commitment to excellence, leave the judges in no doubt that Colombia’s premier financial services provider can claim, for the second year in a row, the CFI.co Best Investment Bank Colombia Award.

> COLOMBO STOCK EXCHANGE: MOST SUSTAINABLE GROWTH EXCHANGE ASIA 2014

With investor confidence solid and a booming economy, the Colombo Stock Exchange (CSE) is in a bullish mood. Thanks to exceptionally strong economic growth (7.3% in 2013), sustained over an impressive number of years, Sri Lanka has been able to maintain its lead in South Asia and is well on the way to attain the government’s stated goal of reaching a per capita income of at least $4,000 in 2016 ($3,194 in 2013).

The Colombo Stock Exchange is one of the most advanced in the region and offers investors a fully-automated trading platform. So far this year (year-to-date), the CSE All Share

Index has gained almost 26%, reflecting the optimism prevalent in this market. Standard & Poor’s Sri Lanka 20 Index (S&P SL20), which replaced the now discontinued Milanka Price Index, last September crossed the 4,000 mark and has since added another 1.5%.

Sri Lanka is an exciting place to be for investors and the Colombo Stock Exchange is often their first port of call. The CFI.co Judging Panel came away impressed from a close-up study of this underreported exchange and feels that the CSE offers first-rate services to both investors and listed companies. The Judges noted that

technology has been put in place – and is being used both efficiently and effectively – to further improve transparency and competitiveness.

Elected member of the World Federation of Exchanges (WFE) in 1998, and a founding member of the South Asian federation of Exchanges (SAFE), the Colombo Stock Exchange is firmly inserted into the global market place and makes a significant and consistent contribution to Sri Lanka’s now accelerated development. It is for this reason that the CFI.co Judging Panel is pleased to present the CSE with the award for Most Sustainable Growth Exchange Asia 2014.

> BANCO COMERCIAL E DE INVESTIMENTOS: BEST COMMERCIAL BANK MOZAMBIQUE 2014

É daqui.

In a country where still only 17% of inhabitants enjoy access to institutionalised financial services, there is room to grow. With the largest branch network in Mozambique, the Banco Comercial e de Investimentos (BCI) is singularly well-poised to reap the benefits of increased financial inclusion.

Mozambique has become the darling of Africa. The country showcases the continent’s newfound vigour with robust and sustained economic growth reaching 7% in 2013. The boom is nowhere near running out of steam with this year’s projected GDP increase attaining a staggering 8.5%. In 2015, the economy is slated for an 8.2% expansion.

Founded in 1996 by Mozambican businessmen as an investment bank, the growth trajectory of Banco Comercial e de Investimentos closely tracks that of its country.

BCI now operates in a highly competitive and thriving market that amply rewards initiative with yet more opportunity.

The CFI.co Judging Panel was both pleasantly surprised and deeply impressed by the fact that Banco Comercial e de Investimentos provides a broad range of services to retail clients as well as businesses both large and small. Moreover, the bank does so effectively.

BCI maintains credit lines destined for specific agricultural sectors such as the CFI.co | Capital Finance International

poultry industry and rice farms. With assistance from the French development agency AFD (Agence Française de Développement), BCI has set up a number of credit facilities for small and medium sized enterprises (SMEs) as well. The bank also works closely with the Portuguese Business Cooperation Fund (Fundo Empresarial de Cooperação Portuguesa) to help finance small businesses and start-ups.

Deeply impressed by the vitality and professional expertise displayed by the Banco Comercial e de Investimentos, the CFI.co Judges are happy, and indeed thrilled, to extend the Best Commercial Bank Mozambique 2014 Award to BCI. 69

> EXCELLENCE IN GOVERNANCE: ALEXANDER FORBES TAKES BEST CORPORATE GOVERNANCE AWARD SOUTH AFRICA 2014

A leading provider of financial and risk services worldwide, South Africa-based Alexander Forbes attaches supreme importance to good corporate governance. The company fully subscribes to the guidelines contained in the 2009 King III Report on corporate governance.

The CFI.co Judging Panel notes that Alexander Forbes expends considerable effort ensuring that its code of corporate governance

is strictly adhered to in all the company’s operations. The Alexander Forbes management system comprises both a code of ethics and sets of policies that prioritise compliance.

This solid framework facilitated the company’s relisting on the main board of the Johannesburg Stock Exchange from where it retired in 2007 after being taken over by a private equity consortium. As of July 2014, Alexander

Forbes – Africa’s largest retirement fund administrator – is once again listed on the JSE.

The Johannesburg Stock Exchange is known worldwide as a pioneer in promoting excellence in corporate governance. The CFI.co judges are of the opinion that Alexander Forbes will prove an excellent addition to the JSE as a company with an exemplary track record on corporate governance.

> EMIRATES: OUTSTANDING CONTRIBUTION TO AIRLINE CSR GLOBAL 2014 AWARD & CORPORATE LEADERSHIP UAE 2014 AWARD

Some companies just keep on flying high, soaring way above their peers and setting the pace for an entire industry. One such company is Emirates – flag carrier of the United Arab Emirates and the airline of choice for the discerning passenger. For a third year running, and with no apologies from the CFI.co Judging Panel, Emirates has successfully laid claim to a most enviable set of twin awards it may now consider its own: Outstanding Contribution to Airline SCR and Corporate Leadership UAE.

For the CFI.co judges, Emirates epitomises the corporate renaissance engulfing the Arabian Peninsula in general and the

member states of the Gulf Cooperation Council (GCC) in particular. In a way both exciting and surprising, business is being reinvented here with highly innovative approaches to corporate management, human resources, and day-to-day operations.

Emirates has displayed an uncanny ability to deliver sustained growth in one of the toughest industries of all: airlines operate on the thinnest of margins and turning a profit flying passengers and cargo around is no mean feat. Doing just that for 26 consecutive years is almost unheard of. Yet in May 2014, Emirates announced a solid $1.1bn profit (up 32% over

2013) on a revenue of almost $24bn (up 13% over 2013). The company also added more than 8,000 workers to its payroll and now employs over 75,000 people, representing 160 nationalities.

The judges remain deeply impressed with Emirates’ continued investment in technology – ranging from the latest fuelefficient planes to flexible route optimisation and tailored arrivals which adjust speed and flight profiles to fit landing slots. This dedication to technological perfection enables Emirates to outmanoeuvre its competitors, and soar above the fray, with both style and flair.

> BEST COMMERCIAL BANK, JORDAN: ONCE AGAIN, ARAB BANK WINS THE CFI.CO AWARD

Arab Bank, established 84 years ago, operates in thirty countries with over 600 branches across five continents. The bank is seeing increasing volumes of business from Asia and has a fine record of infrastructure project financing in the Middle East. Arab Bank also 70

has a deservedly strong reputation for providing trade finance services.

According to the CFI.co Judging Panel, ‘performance indicators at Arab Bank are highly satisfactory with strong growth and pleasing results during the recent years under CFI.co | Capital Finance International

review. We have no hesitation in naming Arab Bank as Best Commercial Bank, Jordan, 2014 and are delighted to note that this is a second consecutive year win for this splendid bank.’

Winter 2014 - 2015 Issue

> MEDALLION COMMUNICATIONS INC. AWARDED BEST INTERCONNECTIVITY SOLUTIONS TEAM AFRICA 2014

With facilities in Lagos and Abuja, Medallion Communications Inc. provides interconnectivity services to 29 Nigerian telecom operators – including all the major Internet service providers, mobile phone operators, landline companies, and value added service suppliers. As a “carrier hotel” and “meet point” for providers, Medallion Communications allows Nigeria’s deregulated and dynamic telecom sector to flourish by providing optimal interconnectivity for a highly complex market with a growing number of players.

The company is also in charge of routing all international fibre-optic traffic through its data centres. With voice traffic increasing by well over 1,000% in a few short years, Medallion Communications has amply demonstrated its ability to respond decisively and quickly to changing market conditions. As a harbinger and facilitator of the on-going IT revolution, Medallion Communications has expanded its services to include a local Google cache that reduces demand on international bandwidth and thus offers providers a significant cost saving.

Carrier hotels and meet points, such as the ones Medallion Communications maintain, are essential to the smooth operation – and indeed expansion – of telecom markets.

Nigeria is very much the happening place in Africa when it comes to telecommunications.

By positioning itself at the heart of this exciting market, offering first-class services through a lean-and-mean business model, and taking the long-term approach, Medallion Communications is the clear choice for the Best Interconnectivity Solutions Team Africa Award 2014.

> BENTLEY MOTORS: BEST CUSTOMER SATISFACTION MIDDLE EAST 2014 AWARD

Bentley Motors Middle East keeps on barrelling ahead – with unmatched style and panache – in the markets lining the southern shores of the Arabian Gulf. Demand for the exquisitely crafted motorcars, such as the Flying Spur, remains exceptionally strong, as does their peerless quality. The latter comes courtesy of a workforce of craftspeople and artisans who take great pride in their skills and make sure that each vehicle leaving the production line of the Bentley works in Crewe, Cheshire, stands as a lasting monument to their collective dedication to perfection.

That unrelenting drive for ultimate quality is also present at Al Habtoor Motors, Bentley’s long-standing partner in Dubai.

Al Habtoor Motors’ Prestige Division now operates the largest Bentley workshop in the

world – a state-of-the-art facility more akin to an automotive luxury care home than a garage. Here, Bentley’s – from the latest models to timeless classics – are lovingly, if not passionately, maintained by a staff trained to the highest standards of automotive care.

It is precisely this unique standard of care that has propelled Bentley to the very apex of the luxury car market in the UAE. Bentley has now sought to express the company’s appreciation for the loyalty of its UAE customers by releasing the beyond-exclusive Majestic Edition of the Mulsanne motorcar to the local market. Only fifteen Mulsanne Majestics have been crafted for exclusive sale in the Gulf Region. The limited edition Mulsanne – offering an ultra-luxurious and quite peerless driving experience – was unveiled at the British

embassy in Dubai to select invitees.

The CFI.co Judging Panel is impressed. No other car manufacturer has shown a better understanding of the luxury segment. In this most rarefied of environments, a splendid vehicle alone is not enough to guarantee lasting success and customer satisfaction. By showing that it deeply cares for the well-being of both drivers and vehicles – and by proactively intervening to ensure that absolutely nothing is allowed to detract from this stress-deprived state of affairs – Bentley Motors proves that it fully deserves to be King of the Road. The CFI.co judges have been quite unable to find a single argument against granting Bentley Motors the Best Customer Satisfaction Middle East 2014 Award. It is the second year Bentley Motors has successfully claimed this title.

> FUTUREVIEW WINS THE CFI.CO 2014 AWARD FOR FINANCIAL ADVISORY

FutureView Financial Services Ltd., registered by the national stock exchange and licenced by the Securities and Exchange Commission, has been declared winner of the CFI.co award for ‘Best Financial Advisory Team, Nigeria’.

The Judging Panel was very

impressed by the history of good solid progress at the company during the past twenty years and commented that, ‘this is a firm that aims for and achieves best international practice in investment banking and boasts a team of seasoned and highly talented professionals. Customer CFI.co | Capital Finance International

satisfaction levels are high at FutureView and this is a firm of integrity that has earned the trust of its clients. Our winner is a leading player in Nigeria offering services to government, HNW individuals, institutional investors and corporates of all sizes.’

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> PROVENTUS ADVISORS: OUR CORPORATE FINANCE AWARD WINNER IN ECUADOR

The CFI.co Judging Panel is pleased to announce boutique firm Proventus Advisors as winner of their 2014 award for ‘Best Corporate Finance Advisory Team, Ecuador’. The Panel comments as follows: ‘We see strong analytical skills and a high level of innovative thinking at Proventus. Working

to international best practice but with a keen understanding of local markets would appear to be their key to success. The managing partners have global expertise and it shows. These partners are making the effort to put together a team that is capable of working to their own very high standards

- and the plan is working well. Proventus lists as its clients some of the really big corporate names in Ecuador and appears to be doing a very good job on their behalf. We congratulate this winner and hope and expect Proventus to move confidently from strength to strength over the coming years.’

> ZED CONSTRUCTIONS: BEST RESIDENTIAL DEVELOPER BANGALORE 2014

For the past decades, Bangalore has championed growth in India. IT is the main driver of the city’s fast-paced expansion and has made Bangalore into a multicultural and dynamic hub boasting an excellent social infrastructure as well as an ever-improving physical one. Being home to an increasing number of professionals, the local real estate market is highly competitive and caters to discerning buyers.

Since 1992, Zed Constructions has been at the forefront of real estate development in Bangalore, consistently delivering row houses, apartments, and villas besides commercial

properties. Zed Constructions’ residential projects, totalling well over 200,000 square metres, are characterised by an excellent priceto-quality ratio ensured by an in-house design team with an eye for both detail and cost.

Now in business for close to a quarter century, this family-run company will shortly welcome its third generation into the business.

Poised to take full advantage of the uptake in demand for quality housing, Zed Constructions is in the process of erecting a high-rise luxury residential tower on a site it acquired in Sarjapur – a town just to the southeast of Bangalore that

is widely expected to become the next boom district with a number of large corporations and a university already setting up shop.

The CFI.co Judges commend Zed Constructions on its keen sense for strategic positioning and for being able to thrive in what is arguably India’s most dynamic real estate market – and doing so without losing sight of the basics such as on-time delivery, affordability, and quality. The Judges felt exceedingly comfortable in extending the Best Residential Developer Bangalore 2014 Award to Zed Constructions.

> PISON HOUSING COMPANY: BEST HOUSING FINANCE ADVISOR NIGERIA 2014

Emerging markets are exciting places to conduct business. However, the pitfalls are often almost as large as the rewards. This is where the expertise delivered by Pison Housing Company steps in: minimising risk for the real estate investor without limiting the upside in the process. Since its founding in 2005, Pison has endeavoured to gather and process copious amounts of data on the Nigerian housing market so that real estate investors may reach wellinformed decisions.

With a housing deficit estimated at 17 million units and strong demand from 72

buyers and renters alike, Nigeria’s real estate market is becoming buoyant and attracting plenty attention from investors. Pison Housing Company helps individuals and corporations design financing structures, instruments, and strategies that assure excellent yields while aggressively reducing risk. The company also maintains a close relationship with the investor community to ensure short lines of communication and increase the company’s already impressive deal-making power.

The CFI.co Judging Panel was struck by the amount of effort consistently put in by CFI.co | Capital Finance International

Pison Housing Company to map, segment, analyse, and classify the Nigerian residential and commercial real estate markets. The judges noted that Pison has blazed a trail that is now used to manage a $950 million of real estate and housing finance portfolio.

The company’s research is also readily being used by the World Bank and the International Finance Corporation. The CFI. co Judging Panel congratulates Pison Housing Company on receiving the award Best Housing Finance Advisor Nigeria 2014.

Winter 2014 - 2015 Issue

> JULIUS BÄR GROUP: BEST PRIVATE BANK SWITZERLAND 2014

Managing the assets of private clients across the globe, Julius Bär Group maintains offices in over twenty countries with an emphasis on Europe and Asia – the bank’s two home markets. The Julius Bär Group, one of the world’s oldest and largest private banks, has embarked on a significant expansion project. In July 2014, the group acquired the private banking division of Israel’s Bank Leumi. Earlier in the year, the venerable Swiss bank also upped its stake in the Brazilian private bank GPS Investimentos e Participações to 80%.

The Julius Bär Group has also trained

its sight on the Middle East. The bank recently celebrated the tenth anniversary of its landing at the Dubai International Financial Centre and is now working hard to offer clients a full suite of Sharia-compliant products and services.

Julius Bär CEO Boris Collardi suggested that the changing economics of private banking may result in additional acquisitions.

In a recent interview, Mr Collardi explained that regulatory costs are on the increase and while market and risk appetites of clients have been subdued: “Margins are now lower and that leads to consolidation.”

The CFI.co Judging Panel has nothing but praise for Mr Collardi’s management of the Julius Bär Group. He initiated a somewhat overdue revamp of the bank’s ageing IT systems and also stylishly implemented a process of growth that has kept the bank well ahead of the market curve.

In his five years at the helm of the Julius Bär Group, Mr Collardi has increased the volume of assets under management by a solid 85% to over $282bn in 2014. The CFI.co judges congratulate the bank on its enduring success and are pleased to name Julius Bär Group, for a third consecutive year, Best Private Bank Switzerland.

> THE CFI.CO CORPORATE GOVERNANCE AWARD GOES TO AGTHIA IN THE UNITED ARAB EMIRATES

Agthia Group PJSC is a leading food and beverage company in the UAE and this country’s corporate governance winner in the 2014 CFI.co awards programme. The Judging Panel wishes to congratulate Agthia on this achievement and notes

that, ‘the obvious and well-focused commitment to good governance and corresponding compliance matters is exemplary and this firm conducts its business in a highly transparent manner. Agthia are good and very professional communicators

and thoroughly deserving of this year’s award.

Investors are well served, the company produces an admirable company report and it is clear to us that Agthia seeks out feedback and responds well to all stakeholder concerns.’

> BEITMISK: BEST SMART-CITY DEVELOPMENT TEAM, MIDDLE EAST

The BeitMisk residential dream project extends over 655,000 sq metres at Metn, Lebanon and offers the most glorious views of the country’s Mediterranean coast and the guarantee of a very pleasant temperate climate. Only fifteen minutes away from Beirut, this outstanding development was inspired by the wonders of nature and the sublime local landscape.

CFI.co’s judges made this award

after considering not only the futuristic aspects of the development but also the fit of BeitMisk into the unchanging world. This is a pioneer smart city doing things the right way. Cutting edge communications technology is in place for residents but there is also the sense of oneness with nature. Sustainability concerns informed the provision of all utilities here and water management methods are very effective.

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Residents are assured of fast internet connections and the most advanced in-home monitoring systems. They also enjoy an impressive art centre. But at the same time the developer promises that the great views will never disappear. For every tree that is removed another is planted and the care given to ecological matters is clear to all those who visit or are lucky enough to live at BeitMisk.

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> POSITIVE INSIGHTS IN AFRICA: OUR 2014 MARKET RESEARCH WINNER

The CFI.co Judging Panel congratulates Positive Insights, Ghana, on their sterling achievements in data collection and analysis since the firm’s establishment in 2008. These strong efforts have resulted in the CFI.co award ‘Best Market Research Team, Africa, 2014’ and, with

it, a special commendation from the panel.

Quality of service is the mantra at Positive Insights and the Panel is impressed by this winner’s clear concern in providing a costeffective service. According to the Panel, ‘high levels of professional efficiency in evidence at

all levels. Staff training here is to a very high standard and good use is made of the social networks. Fieldwork costs are kept at reasonable levels through intelligent and significant savings on overhead costs.’

> DELIVERING TIMELESS VALUES: PRUDENTIAL WINS BEST INSURANCE COMPANY UK AWARD 2014

Riding high on the back of a strong dollar and with ample exposure to growth markets such as Indonesia, Prudential has weathered last year’s perfect storm of forex volatility, election uncertainty, and extreme climatic events to come out on top - again.

It is what the market has come to expect from the UK’s leading insurance company. A growing number of analysts have now tagged Pru stock – traded on the London, New York, Hong Kong, and Singapore exchanges – as set to deliver exceptionally strong returns in 2015. An almost 18% growth in earnings over the past five months has whetted investor

appetite. With a price-to-earnings-to-growth (PEG) of 1.1, Prudential stock is considered by many analysts a bargain not to be ignored.

The company has been in business since 1848 and had established itself already firmly at the top of the UK insurance industry by the turn of the century. The Pru earned the lasting respect of the nation as it unfailingly paid out policies on the lives of up to a third British service personnel killed in action during World War I.

Today, Prudential serves around 26 million customers worldwide and employs over 25,000 people. The company has expanded

rapidly in the growth markets of Asia from where it now draws fully half its customers.

The CFI.co Judging Panel tips its collective hat to the Pru’s management for its strategic foresight in positioning the company for sustained future growth, ensuring excellent returns to customers and investors alike. The judges find it heart-warming to see how Prudential keeps up in a fast-paced and ever-changing business climate delivering dependability and inspiring trust – timeless values. The judges are happy indeed to name – for a second year running – Prudential the Best Insurance Company UK.

> HSBC BANK BRASIL: BEST PENSION FUND ADVISORY TEAM BRAZIL 2014

With one pensioner for every three workers, Brazil – for all its economic prowess – is likely to get old, before it gets rich enough to meet its pension liabilities. As the state’s pension system crumbles and dives ever deeper into the red, an increasing number of employers and workers look to private pension funds for salvation.

A growth market par excellence, Brazil’s private pension funds are attracting new clients in droves as politicians struggle – and largely fail – to fix the hugely underfunded stateadministered system. Over three decades ago, 74

HSBC was one of the first to spot the opportunity and entered headlong into the Brazilian market.

That head start paid off handsomely and today, HSBC Bank Brasil is the leading private pension fund administrator in the country with a 35% share of a burgeoning market.

That is not to say the going has been particularly easy. Research show that most Brazilians are quite reluctant to think about old-age, let alone save for it. Cumbersome regulations – i.e. miles of red tape – mar the industry’s growth. It takes savvy administrators to overcome the limitations of a system yet to be CFI.co | Capital Finance International

fully perfected.

The CFI.co Judging Panel detected a peerless level of professionalism in the ranks of HSBC Bank Brasil – not just people who give it their level best, but experts at providing bespoke solutions to both individual and corporate clients.

With unequalled experience in administrating private pension funds in Brazil, HSBC Bank Brasil stays well above the fray – and the hype – to provide its clients with services they can count and bank on way into the future. The judges are happy to grant HSBC Bank Brasil the 2014 Best Pension Fund Advisory Team Brazil Award.

Winter 2014 - 2015 Issue

> Change the Economy – Save the World

By Christoph Greil, PhD student of public international law at the University of Vienna

A call for a more social and ecologically sustainable economic system: Capitalism does not offer a way to achieve the Sustainable Development Goals (SDGs). Therefore, a fundamental change needs to be made to the values and rules of our economic system. Most of all, corporate practices and objectives need to be brought into line with the SDGs and effective mechanisms must be devised to ensure that companies conduct their business in such a way that social and environmental goals are met.

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Currently, the world’s biggest problems are growing poverty levels and the systematic destruction of nature. The latest scientific wake-up call concerning the social drawbacks of our global economic system is Thomas Piketty’s Capital in the Twenty-First Century. In this hefty tome, the French economist shows with shocking empirical clarity that wealth in the hands of a small minority is growing exponentially while an increasing number of people no longer derive a decent standard of living from income generated by their labour.

Also, a sizeable group of people is becoming marginalised and completely isolated from economic benefits.

Mr Piketty’s book is rather heavy stuff for devotees of capitalism, economic deregulation, and free trade in its current raptorial neoliberal appearance. In order to shrink the growing wealth gap within states and between states, Mr Piketty suggests measures of redistribution such as a global wealth tax, progressive income taxation, a comprehensive welfare state, as well as stronger regulations of the financial sector.

While these measures would increase distributive justice, and therefore reduce poverty, the Piketty-recipe does not alter the structural tendency – inherent to capitalism – towards unequal distribution, nor does it address global environmental challenges. A valid economic system does

By Wim Romeijn, Editor, CFI.co

Not even the most rabbit of yesteryear’s MarxistLeninists would have dared propose the draconic economic measures now advanced by those rather ill-guided but undoubtedly well-meaning souls embracing the Economy for the Common Good – a concept apparently devised to press the global economy into an environmental straightjacket and – as a sort of afterthought – promote social inclusion, justice, and equality.

I

f the road to hell is indeed paved with good intentions, the Economy for the Common Good will not disappoint. According to believers, there is but a single path leading to the common good: no deviation is allowed for as global resources are finite and social issues pressing. The presumed gravity of the situation imposes solutions that are not to be argued with on pains of being branded an apologist for environmental destruction.

Proponents of the Economy for the Common Good seem plagued by pessimism. Human resourcefulness – i.e. technology – is not to be trusted upon to provide solutions to common problems.

The Economy for the Common Goods largely aims to find a problem to a ready-made solution.

Take persistent global poverty, one of the many ills identified as driving yet another nail in capitalism’s coffin. The doomsayers wholly ignore the plain fact – established by most any statistical yardstick

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– that world poverty levels have been slashed over the past quarter century or so. According to UN and World Bank numbers, 43% of the world’s population lived below the poverty line in 1990. Last year, abject poverty affected about 14% of people worldwide.

Though the remaining redoubts of poverty may prove difficult to eliminate, it is hard to deny that progress was made and has been quite remarkable. Solid economic growth provided the main impetus for this progress. However, it is precisely economic growth that the Economy for the Common Good – a misnomer if there ever was one – aims to restrict in order to avoid exhausting the world’s resources.

In fact, de-growth is called for in order to stay within the ecological boundaries of our planet. And not a little bit of it either: the global economy needs to shrink by half in order to be sustainable. Capitalism – conceived to generate growth and wealth – is not equipped to accomplish this.

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At Loggerheads - Contrasting Views

he Economy for the Common Good is a new alternative concept of free market economy which ensures that those companies which behave in a socially and environmentally responsible way, gain an advantage.

This takes much more than traditional measures of corporate social responsibility.

> The Danger of Good Intentions

“Change the Economy – Save the World” continued: not only need to ensure a fair distribution of wealth, but must also respect the environmental boundaries of our planet.

OVERSHOOT DAY On August 19, Earth Overshoot Day was reached – the day mankind has exhausted this year’s ecological budget. We need to reduce our ecological footprint and global resource consumption by half in order to be sustainable. As a matter of principle, ecological boundaries are of an absolute nature and not compatible with the capitalist paradigm of infinite economic growth.

Most economic transactions involve the consumption of resources. Indeed, we need to significantly decrease the size of resourceintensive economic branches in most of the world’s industrialised regions in order to stay within the planetary boundaries. Although a switch to green energy is inevitable, we should not rely too much on technological progress for the required reduction of our ecological footprint.

This challenge is at least as much about reducing our usage of resources and energy. Earlier this year, I met with a member of the Austrian parliament who had participated in a high-level meeting organised by the Inter-Parliamentary Union a few years ago.

The main task of the discussion group was to find out which political measures are needed in order to achieve the UN Millennium Development Goals or the subsequent Sustainable Development Goals.

At Loggerheads - Contrasting Views

Remarkably, most participants concluded that it is practically impossible to achieve either of those goals within the capitalist economic system. I agree. The values and rules of capitalism are not compatible with the social and environmental goals we so urgently need to achieve.

The paradigms of capitalism – infinite economic growth, profit-maximisation, and fierce competition – result in a strong incentive for companies to reduce costs (…no matter the cost…) in order to survive. Distributive justice and ecological sustainability will always be of secondary or lesser importance. We can see the results: A growing gap between rich and poor, on both a national and a global scale, and the collapse of nature.

Defenders of global free trade argue that poverty is being eliminated as the number of people having less than a dollar a day to spend shrinks. However, such claims distort reality and say little about global poverty overall. The broader picture shows a growing divergence between rich and poor in absolute numbers.

It is quite ironical that business-as-usual will destroy the vital planetary eco-systems life depends on, while politicians of all ideological stripes clamour for more economic growth as the end-all-be-all of poverty reduction. Some believe that all problems produced by the current economic system may be solved by regulation.

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HALF THE BATTLE However, regulation can only restrict the economic playground. This is only half the battle. It is equally important to change the rules of the game.

As long as profit-maximisation remains the singlymost important corporate motivator, companies cannot be expected to strive for environmentally sustainable production or to care excessively for the well-being of their personnel.

FINANCIAL REFORM Furthermore, the current financial, banking, and monetary systems stand in need of reform. The financial system – which has developed into a cancer-like structure over the last decades – needs to be shrunk and brought back to serve its original purpose of providing money for the real economy through the granting loans to responsible projects or by liaising with investors.

If the SDGs are to be attained, we must fundamentally change the values and rules of doing business and must effectively ensure compliance of all economic actors with social and environmental goals. An answer may perhaps be found in a new and aspiring economic concept called Economy for the Common Good.

All forms of gambling are to be done away with.

Purely speculative investments like complex financial products and high-frequency trading should be abolished. A mere financial transaction tax is not enough to accomplish this. The minimum holding period for shares in a company should be synchronised with the production cycles of the real economy. Stocks should be traded on a purged type of stock exchange. Each company should undergo a compulsory eco-social check before being listed.

This approach aims to change the goals of doing business: Cooperation instead of competition; maximisation of the common good, instead of mere profit-maximisation; and the assumption of an optimal company size, instead of the limitless growth. Moreover, Economy for the Common Good provides a clever mechanism which ensures corporate compliance: It changes the framework of incentives.

On the basis of an annual compulsory assessment, companies receive points for socially and ecologically responsible behaviour such as, for example, horizontal and vertical cooperation with other business; ensuring proper payment and working conditions for all stakeholders; maintaining sustainable production and resource usage processes; renouncing excessive production levels; avoiding immoral marketing practices; and refusing the manufacturing and sale of unnecessary or unhealthy products.

This is eco-social behaviour that goes far beyond the traditional concept of corporate social responsibility. Transparency of the criteria employed is ensured by the establishment of a democratically legitimate Matrix for the Common Good which defines the socially and ecologically acceptable corporate behaviour that begets points.

Companies that act in socially and ecologically responsible ways obtain more points than those that fall short and will therefore receive fiscal and legal benefits that allow for a competitive edge visà-vis businesses stuck in classical capitalist ways.

Appropriate eco-social behaviour – the common good – becomes the goal of doing business. It pays for companies to act responsibly.

Aligning corporate objectives with eco-social goals is the only effective way to achieve the Sustainable Development Goals, especially those concerning distributive justice and environmental sustainability. Beside this, regulation, taxes, the reallocation of existing wealth from rich to poor and to the state, limits on income and inheritance, and other measures ensuring the required reduction of pollutant emissions and resource usage may be necessary. It may be necessary to set up an international authority to oversee the distribution of pollution and resource usage permits per region and economic sector.

CFI.co | Capital Finance International

The fiat money system should be abandoned as well. This allows banks to create money out of thin air when loans are requested. The granting of loans should only be undertaken by banks that have a 100% capital cover. There should be strict eco-social project assessments before any loan is granted. Interest rates should be low too – just in an amount to cover the bank’s administrative efforts.

Money should only be issued by a state-owned central bank to a degree that allows for the payment of products and services supplied to the state by private companies. New money is brought into circulation at a rate equal to the absolute growth of the national economy. If the state’s expenditure is higher than the estimated economic growth in absolute numbers, the state will have to use its own means of covering the deficit. It will do so mostly through taxes. On an international scale, compensation payments for countries with aggressive export-strategies could encourage economic balance. Finally, it is self-evident that tax havens need to be closed.

In 2015, three international conferences of the utmost importance will take place: On climate change, Sustainable Development Goals, and on the financing of development. Whatever the SDGs will look like in their final version: The success of this concept will depend not so much on the concrete number of goals formulated, but rather on the clarity and effectiveness of the policies adopted for their implementation. Any post2015 agenda for the SDGs that does not include a fundamental change in the economic rules is destined for failure.

It is necessary to align the objectives of business with the social and environmental goals we now need to achieve and to ensure that companies act far more responsibly than they have over the past decades. The three international conferences scheduled for 2015 offer a golden opportunity to obtain a strong political commitment in terms of achieving global distributive justice and ecological sustainability. i

Winter 2014 - 2015 Issue

“The Danger of Good Intentions” continued: Though the Economy for the Common Good does include a free market (of sorts), private initiative is to be severely restricted. Business are expected to serve …wait for it… the common good. They do so by being exceedingly responsible and altruistic. “Unnecessary products” and those deemed harmful may not be manufactured lest the offending company be subjected to punishing taxes. Poor Adam Smith, his invisible hand was up to no good.

The Economy for the Common Good contains a few other gems of utopian thought. An international authority is to oversee the allocation of resources and the issuing of pollution permits. Successful countries must make compensation payments to those less fortunate while banks must maintain full capital reserves and not provide any credit beyond this point.

Let’s throw a few numbers at this scenario. By halving the world’s economic output, global GDP would descent to barely $40tn. Nominal per capita income averages would tumble from about $7,200 to slightly over $3,500 annually.

The Economy for the Common Good aims to promote distributive justice. However, with GDP slashed by about 50%, there is significantly less income to distribute.

Everyone’s is the poorer for it. The good news is, of course, that being quite poor, people will have less money to spend on products and services that damage the environment or exhaust the planet’s resources. This seems to be the point.

So, in a nutshell, the answer provided by the Economy for the Common Good to today’s many pressing questions is a single one: become quite poor and give up any and all hope of material comfort or solace. While it shouldn’t be objectionable to anyone that those people adhering to, and disseminating, such radical thoughts renounce material comforts and seek shelter in caves, it is another matter for them to dictate others to do likewise.

Human beings are gatherers and as such have an inclination to collect and accumulate stuff. It is how nature wired us to be. We are, of course, also social beings and usually measure our success – or failure – against the efforts of those around us and the rewards they obtain.

Attempts to change human nature seem pointless.

Rather than findings solutions to pressing global issues in the modification of human DNA, it may be wiser to seek answers by appealing to our collective intelligence and resourcefulness. Climate change, world poverty, and rising inequality must indeed be addressed. Doing so in ways that are bound to fail and disappoint is both unacceptable and irresponsible. This is not the time to engage in wishful thinking. i CFI.co | Capital Finance International

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At Loggerheads - Contrasting Views

In and of itself, the Economy for the Common Good – the brainchild of Austrian publisher and activist Christian Felber – is not a bad idea insofar as it attempts to place limits on corporate greed and position human wellbeing at the centre of economic life. Mr Felber goes off track when he argues that “selfish values” should be replaced as drivers of economic life with “relationship and constitutional values.” Mr Felber insists, as does Naomi Klein in her latest book This Changes Everything, on denying basic traits of human nature.

> Africa:

Countdown to African Brands of Global Renown As a rapidly expanding African middle class comes into economic play, an increasing number of entrepreneurs is catering to the strong demand for luxury products and services that previously were the exclusive domain of big-name North American and European brands.

South Africa

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Winter 2014 - 2015 Issue

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hen George Soros described Africa as “one of the few bright spots on the gloomy global economic horizon,” the world took note. Mr Soros may have understated reality. According to the McKinsey Global Institute, which tracks the evolution of the world’s economy, consumer spending in Africa is set to rise from about $1tn now to well over $1.4tn in 2020. Air travel is growing at about nine percent annually and luxury hotels are popping up all over – ten are currently being built in Lagos, Nigeria, alone.

The much-touted Asian tiger economies are being overtaken – if not quite devoured yet – by Africa’s lions. Over the last decade, Africa was home to six of the world’s ten fastest-growing countries. Since 2005, growth rates of Africa’s ten best-performing economies have outstripped those of the Asian tigers in all but three years.

There is, however, some catching up to do. The African Development Bank classifies anyone earning between $2 and $20 per day as belonging to the middle class. Applying this metric, about 313 million Africans are now established in that income bracket – fully double the number reported twenty years ago.

Swaady Martin-Leke

Though people earning between $2-4 daily remain vulnerable and may easily slip back into poverty, the bank estimated no less than 120 million Africans are stable in the middle class. The latter number is expected to rise to a staggering 1.1 billion people by 2060 at which time people living below the poverty line will have become a minority.

Interestingly enough, investors’ views on Africa are highly dependent on their bravery. The Africa Attractiveness Survey, conducted by the Big Four accountancy firms, clearly shows that investors who have taken the plunge are extremely happy and confident: “Their experience is generally one of growth and progress, and of political and economic vibrancy,” concludes the study. Those that stay out of Africa most often cite corruption and political risk as discouraging investments and a good reason for keeping a safe distance.

Take Nigeria: Hit by repeated terrorist attacks and suffering from a slightly less than stellar (though improving) reputation on transparency and governance, the country’s gross domestic product grew five-fold between 2000 and 2012.

Or Ghana, the world’s fastest-growing economy in 2011 when GDP jumped 13% upwards.

Russian investment bank Renaissance Capital – a pioneer in emerging market research – predicts the imminent arrival of a consumer boom in Nigeria and other fast-moving African economies. Half of the stable Nigerian middle class – people earning between $500-600 monthly – have arrived at an income level that allow fridges, freezers, air conditioners, and other durable consumer goods to be acquired.

White goods are far from the only items being 80

eagerly sought by the newest members of Africa’s middle class. Gourmet tea and chocolate, made from select and locally-sourced ingredients, are a growth market as well, though perhaps less spectacularly so. In Côte d’Ivoire, former GE executive Swaady Martin-Leke has set her sights on building nothing less than a global luxury brand with YSWARA, the lifestyle company she founded in 2012 to market specialty teas.

Mrs Martin-Leke has since branched-out into gourmet foods, fragrances, and home accessories.

With shops in four countries and a world class website driving online sales, YSWARA is growing by leaps and bounds offering top-quality products to a ready market. Africa’s luxury industry is still in its infancy with continent-wide sales estimated at $1.5bn and growing by at least 6% annually.

By comparison, the global luxury market moves close to $300bn per year. Thus, there is room for optimism and almost limitless growth.

“Rising affluence, higher disposable income levels, and the reverse brain drain all contribute to the accelerated growth of the African luxury market,” says Mrs Martin-Leke: “From a source of raw materials for indulgence products, Africa is now launching its own forays into this buoyant sector using the latest marketing techniques to offer the more meaningful brand interactions customers clamour for.”

In Ethiopia, local businesswoman Bethlehem Tilahun Alemu aims to disprove the shibboleth that “Africa and African do not understand how to create prosperity.” Mrs Tilahun Alemu owns and runs soleRebels, the continent’s fastest-growing footwear business. In 2014, she started a second CFI.co | Capital Finance International

promising venture, The Republic of Leather with a view to help bring about a “total remake” of the luxury leather goods industry.

Mrs Tilahun Alemu currently employs over a hundred people at her shoe factory in Addis Ababa and makes no secret of her wish to take charge of her own destiny: “Ethiopians and other peoples of Africa must wrestle control of their own narrative from people and elites with a vested interest in positioning the country as ‘needing help’ and specifically needing the ‘help’ they happen to be offering.”

Marketing the footwear she produces through massive online retail outlets such as Amazon, Whole Foods, and Urban Outfitters, Mrs Tilahun Alemu’s company is present in over thirty markets and in the process of opening shops in the UK, Austria, Switzerland, and Taiwan. Basing her business firmly on sustainability values and fair trade principles, Mrs Tilahun Alemu has no doubts that her latest venture will also prove successful: The Leather Republic was conceived and built from the ground up as a global brand. Think Big has arrived in Africa.

All over Africa, small businesses are tapping into vast global markets via the Internet, using up-todate web practices and well-conceived marketing techniques. Now breaking out of their initial niche markets, these companies are amongst the fastest-growing of the continent. It is but a question of time before investors discover the true potential of this new generation of Internet-savvy and global-thinking African entrepreneurs and take their businesses to the next level, establishing trendsetting brands of global renown. i

Winter 2014 - 2015 Issue

> CFI.co Meets the CEO of Travant Capital Partners:

Sanyade Okoli

S

anyade Okoli returned to Africa in 2006 following nearly two decades of living in the United Kingdom. She was driven by a strong passion to play her role in the development of Africa and was highly optimistic about the “emerging Africa” story at the time.

Mrs Okoli joined a team of highly experienced finance professionals to establish Travant Capital Partners in 2007 after initially working with Ocean and Oil Holdings, a leading principal investments company based in Nigeria.

A key strategic objective of the Travant founding team was to revolutionise the growing Nigerian investment landscape based on skills and experience acquired over decades of working in some of the world’s leading investment banking, professional services, and multi-national firms.

The team was determined to harness opportunities within the nascent private equity market in Nigeria at the time, which had hitherto been dominated by a few players, and established the Travant Private Equity Fund I (TPEFI), which successfully raised over $100 million in capital commitments by its first close in 2008.

Mrs Okoli’s doggedness, management skills, and determination to achieve results proved critical in navigating the company through difficult times following the contagion effects of the global financial crisis and the exit of several key members of the Travant management team. These were in addition to several other challenges faced by the business as a result of systemic issues faced by the Nigerian financial services industry in 2009 and a general economic downturn.

These challenges necessitated a shift in the company’s previous strategy and business model which resulted in the emergence of Travant’s financial advisory practice as the firm secured mandates from some of the biggest players in the Nigerian financial services industry during the period. Mrs Okoli notes that “in order for Travant to survive the downturn, we had to embrace innovation and display tenacity. Where others folded ignominiously, Travant Capital managed not merely to survive, but to prosper.”

Mrs Okoli openly expresses her passion and optimism about private sector development on the continent and believes creating innovative home-grown solutions is critical to unlocking Africa’s growth potential. She is determined to demonstrate tangible success stories to further emphasise the possibilities that exist across the continent and observes that “only a few

CEO: Sanyade Okoli

overseas investors understand it takes both local knowledge of existing business culture as well as expertise to invest successfully in Africa.”

Despite a well-balanced understanding of the significant challenges experienced by entrepreneurs and investors doing business in the local environment, Mrs Okoli remains optimistic about creating truly sustainable businesses that are able to compete on a global scale and continues to stress that there are several business sectors that offer excellent growth prospects.

As part of ongoing efforts to help bring about this change, Mrs Okoli has overseen Travant’s transition into a full-scale financial, business, and investment advisory practice and is also passionate about assisting in the growth of Africa’s small and medium scale enterprises (SMEs).

Travant recently established an SME development practice along with its other service offerings which is targeted at businesses with strong growth potential. Mrs Okoli provides strategic oversight of CFI.co | Capital Finance International

Travant Capital’s financial and business advisory practice. She executes mandates for both private and public sector clients covering mergers and acquisitions, capital raising, debt restructuring & sustainability, business transformation, and public private partnership advisory, etc.

Under her leadership, Travant also actively explores investment opportunities in Nigeria and other countries in West Africa as part of its strategy to become a reference point for entrepreneurial investments within the West African sub-region.

Mrs Okoli has held management positions in both the United Kingdom and Nigeria including a senior finance role at British Telecom. She has been on the board of Dorman Long Engineering, a portfolio company of TPEFI since 2010 and is currently part of the governance team overseeing the corporate transformation of the organisation.

A native of Sierra-Leone, Mrs Okoli holds a Master’s degree from Cambridge University and qualified as a Chartered Accountant with Arthur Andersen, UK. i 81

> Chase Bank Kenya – Chase Woman:

Excellence in Women-Specific Financial Services

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esearch has shown time and again that women drive the global economy.

For banks, they are also exceptionally powerful and reliable customers, yet the women’s market still remains underserved. Facilitating improved access to credit and other financial services by womenrun small and medium-sized enterprises (SMEs) remains a big challenge. To tackle the issue, Chase Woman was setup in 2009 by Chase Bank Kenya. Chase Woman was specifically conceived 82

to tap into the women’s market with the mission to propel their businesses and thus help create wealth.

dedicated team of professionals was formed to enable Chase Woman’s fast-paced growth. The team has since grown to ten people.

Chase Woman formulated a business case in 2009 and two years later focus groups were organised to identify and map the unique needs of women. In that same year the Chase Bank Kenya designed a range of financial products that answered these needs. In 2012, the launch of Chase Woman took place. Within the year, a

In 2014, the Chase Woman team focused on the building of more awareness of their womenspecific services and continued to ensure the proper service delivery. New partners were sought to enhance the range of services offered.

CFI.co | Capital Finance International

The department’s strategy is to focus on

Winter 2014 - 2015 Issue

three main pillars: Individual women, female entrepreneurs, and women groups. This broad approach covers salaried and self-employed women as well as women entrepreneurs. Women groups, such as church assemblies and investment clubs, could not be left out as they offer important venues for support, education, and a range of social activities.

Chase Woman’s key initiatives include providing access to finance through lending partners, offering access to markets by providing networking platforms, and delivering capacity-building opportunities besides maintaining its now wellestablished excellence in service and financial advice carefully tailored to women clients.

In line with meeting the unique financial needs of women and creating exciting banking experience, Chase Woman is now in the process of setting up its first branch office dedicated to female clients in a Nairobi upmarket suburb. In 2015, four additional branches are slated for inauguration. The first branch is designed to accommodate longer banking hours, a crèche, and a range of women-friendly amenities.

Through the use of social media platforms, Chase Woman is changing the way women bank by empowering them with financial information and advice, providing an innovative user experience, simplifying payments, and focusing on clientcentred services. Chase Woman listens and responds to online chats on different social media channels. The division also engages with women to keep track of their concerns, suggestions, and their financial requirements and the ways to meet them.

The Chase Bank moto of The Relationships Bank has also transcended to niche audiences like Chase Woman. Partnerships with established companies such as Kenya Weddings has helped Chase Woman grow and commit to this audience. Some topics include the Rainy-Day Fund, Why Every Lady Needs It, How to Save for Your Dream Wedding, and Financial Tips for Newlyweds. The partnership involves providing financial solutions and advice to women on topics that matter most to them.

“In 2014, the Chase Woman team focused on the building of more awareness of their womenspecific services and continued to ensure the proper service delivery. New partners were sought to enhance the range of services offered.”

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According to the Financial Access Survey of 2006, only 19% of Kenyans have access to the institutionalised financial system. Through the Vision 2030 Initiative, Kenya aspires to move from its present state to being a newly industrialised middle-income country. Broadening access to financial services is an essential component of this development policy. Chase Woman aims to be a key contributor to the national drive to further financial inclusion and, as such, to help the nation attain the goals set forth in the Vision 2030 Agenda. i

Pantone 2738C

83

> CFI.co Meets the GMD and CEO of African Re:

Corneille Karekezi Mr Corneille Karekezi, group managing director and CEO of the African Reinsurance Corporation (African Re), was appointed to his position on July 1, 2011 after a two year transition.

M

r Karekezi has enjoyed a long and distinguished career at African Re. He served on the board of the company from 2003 to 2005 and re-joined Africa Re in July 2009 to serve as deputy managing director before ascending to the position of deputy managing director / chief operating officer in 2010.

Mr Karekezi’s professional career started in 1991 at the Société d’Assurances du Burundi (SOCABU) – Burundi’s leading insurance company – as chief accountant / reinsurance manager. Here he soon rose through the hierarchy to become head of the company’s Finance Department.

In 1995, Mr Karekezi joined SONARWA, the leading insurance company in Rwanda as deputy head of the Commercial & Technical Department. Just a year later, he headed all the technical departments (Motor, Fire, Accidents & Miscellaneous Risks, and Life).

In early 2001, Mr Karekezi was appointed deputy managing director.

After successfully conducting the strategic transformation of SONARWA from a statecontrolled company to a private corporation with an equity strategic partnership, Mr Karekezi was appointed chief executive officer in February 2008.

Mr Karekezi holds a Bachelor’s Degree in Economics (Burundi), a Master’s Degree in Management (Burundi) and a Master’s Degree in Business Administration (UK). He is fully fluent in English, French, and Swahili and has gained wide recognition for his significant contributions to the development of the insurance industry in Africa.

Mr Karekezi currently holds seats on several boards of continental companies and institutions. He is the vice-chairman of Africa Re South Africa Ltd and Africa Retakaful Corporation (Egypt). Mr Karekezi is also chairman of Shelter Afrique, the leading Pan-African housing finance company, and member of the Executive Committee of the African Insurance Organisation (AIO). i 84

GMD and CEO: Corneille Karekezi

CFI.co | Capital Finance International

> Luxury Living:

Music Delivered the Old-Fashioned Way

By Wim Romeijn

T

The news of its death was greatly exaggerated. Sales of vinyl records are spinning through the roof. According to Nielsen – an American company that monitors global media usage – sales of records are on track to exceed six million in 2014, up fully 40% over 2013 – the year in which digital music sales, peddled by the likes of iTunes, took its first dip ever, sliding 5.7%. The 86

only media segment growing at a higher rate than vinyl is on-demand streaming (up 42%).

In Britain, the resurgence of vinyl records reached a milestone in November 2014 passing the one million mark for the year. The British Phonographic Industry (BPI), a trade association, predicts that vinyl sales will amount to 1.2 million for the entire year. Worldwide vinyl CFI.co | Capital Finance International

sales revenue has exploded from barely $55m in 2007 to well over $210m in 2013. Though representing only about 3-6% of total music sales, vinyl is now firmly back in business with most major recording artists releasing their work on long-play records as well as on CDs. The vinyl record is not the only timeworn technology currently being resuscitated. Valves

Winter 2014 - 2015 Issue

(aka tubes in the US) – glass bottle-like devices from a distant era when semiconductors were yet to be fully developed – are also making a rather unexpected comeback.

RITUAL Connoisseurs swear by the combination of these two analogue audio technologies. Playing vinyl on a turntable hooked-up to a valve amplifier has – reportedly – no equal in the digital domain. It requires something of a ritual as well. Lowering the diamond needle onto the spinning long-play record, a dry plop comes through the speakers followed by soft scratching noises giving way, eventually, to a majestic soundstage.

“For the generation that grew up with sterile CDs and MP3s, the music captured in vinyl is nothing short of mesmerising. This explains why record sales are mostly driven by young people. They have embarked on a voyage of discovery and found that not all forms of progress necessarily lead to improvement,” says Peter Qvortrup of Audio Note, a UK company that designs, builds, and markets high-end valve-based audio equipment.

While contemporary digital gear boasts impressive technical specifications, the numbers do not necessarily translate into listening pleasure. In fact, a small but vociferous fringe of the growing “bottlehead” movement insists on employing 1920s technology for sound amplification.

Considering that the perfect amplifier would be represented by a wire producing a gain in amplitude, “single-enders” base their gear on a design first proposed by engineers EH Loftin and SY White in the January 1929 edition of Radio News. In its most basic version, this Loftin White circuit has but four components: two valves, a capacitor, and an output transformer that couples the circuit to a loudspeaker.

UNIMPRESSIVE SPECS The specs of the Loftin White amplifier look rather unimpressive. Its power output is positively feeble at only a couple of Watts, distortion is nothing short of horrendous, while the frequency range is only slightly better than that of a telephone receiver. Yet when hooked up to a suitable speaker, this flea-powered amplifier brings music to life as few other devices can, creating a massive soundstage in which an exquisite sense detail is not drowned out. In a words: valves swing in a way that is both unique and captivates listeners.

“In Britain, the resurgence of vinyl records reached a milestone in November 2014 passing the one million mark for the year. The British Phonographic Industry (BPI), a trade association, predicts that vinyl sales will amount to 1.2 million for the entire year.”

CFI.co | Capital Finance International

Audio engineers are mostly at a loss to explain why equipment that underwhelms in the lab, outperforms kit of impeccable specification. In its 1998 study The Cool Sound of Tubes, the Institute of Electrical and Electronic Engineers (IEEE) draws attention to a few lesser-known technical parameters that may help explain the resilience of valve technology. Higher operating voltages tend to result in a wider dynamic range while valves also do not suffer from excessive 87

clipping at high volume levels. Instead of clipping into raw distortion as semiconductors do, valves smoothly adapt and cope gracefully when faced with overloading.

Though these technical contemplations may extend far beyond the interest of even the most dedicated music-lover, they may help explain why valves – an ancient technology – have not been remanded to museums. UK valve amp manufacturer Audio Note finds ready buyers for its kit. Hand-build amplifiers costing up to £100,000 are being shipped regularly. Even “entry-level” kit goes for multiple thousands of pounds and finds many eager buyers.

EXTINCTION UNDONE In Switzerland, venerable record player manufacturer Thorens has been resuscitated – after its 2000 bankruptcy in Germany – and now stand once again at the apex of turntable technology. Business is good and getting better by the year. An entire new range of record players has been launched ranging from budget models to exotic and massive high-end models.

Another classic that simply refuses to fade into oblivion is British SME (Scale Model Equipment) in West Sussex. In the 1950s, the company successfully moved into precision engineering.

With designs that have remained unaltered for almost half a century, SME tone-arms still are state-of-the-art.

The British excel in timeless design. A few 88

years back, sound equipment manufacturer Quad reintroduced a range of classic gear to great acclaim and with results surpassing all expectations. Established in 1926, Tannoy is another well-known name in British audio equipment manufacturing, famed for its loudspeakers designed specifically for use with valve amplifiers. Tannoy’s proprietary dual concentric speakers – using a single driver for the entire frequency spectrum – power systems that have not changed since the late 1940s and still have but few peers.

Electronics shops in Hong Kong now feature their apparently timeworn products alongside the latest miniature gadgets and other devices of digital technology. In Tokyo, an entire shopping district is dedicated to hi-fi enthusiasts with a penchant for the nostalgic. The Akihabara District is advertised as the audiophile’s dreamland. Shops as Kounan Denki, Akizuki, Sato Musen and many others cater to the discerning listener and are now seeing business boom thanks to the renewed interested in retro technology.

In even the world’s most advanced recording studios, bristling with digital paraphernalia, audio engineers still make ready use of valveequipped microphone amplifiers, limiters, expanders, gates, and whatnot from the 1950s and 1960s in order to get the warmth that modern devices are just incapable of delivering in bits and bytes.

The remarkable resilience of both vinyl records and their equally old-fashioned ancillary gear poses some interesting questions regarding the uses of technological progress. While today’s equipment offers unparalleled ease of use and convenience – streaming vast libraries of digital music, controlled by smartphone apps, around the home – sound quality has, in fact, deteriorated. Most of today’s manufacturers no longer seek to compete on high fidelity – a concept originally coined to describe the quest for equality between live and reproduced sound – preferring instead to offer ergonomic advantages.

CHINA TAKES NOTE The back-to-the-future trend in audio has been noted in China as well. Originally a source for tooling machines for the manufacturing of valves – equipment carted to the scrapyard elsewhere in the world – China has now become the world’s largest supplier of both valves and valve-based equipment. New valve manufacturing plants have sprung up, old designs dusted-off, and retired engineers invited back to share their almost-lost knowledge and skills in the rather darkish art of sticking anodes, cathodes, heaters, and grids into a glass bottle.

CFI.co | Capital Finance International

While not likely to become mainstream anytime soon, or indeed ever, both vinyl and valve technology have retreated from the brink of extinction, saved by the curiosity of a generation of music lovers increasingly bored with existing technology. As retro becomes hip, out goes the new, and in comes the old. i

Winter 2014 - 2015 Issue

> Positive Insights:

A Passion for Excellence in Research

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ositive Insights (formerly Positive Trading Investment) was incorporated in 2008 as a trading platform to provide a high-quality data collection and analysis solution across Africa and the Middle East. The company offers its full range of marketing services within an open and transparent framework designed to achieve common goals and establish long-lasting cooperative relationships with clients.

At its core, the company revolves around a peerless team of highly-trained and knowledgeable research professionals with unequalled experience in both African and Middle Eastern markets. The present name was adopted in 2012 to better convey the company’s focus on data collection and analysis for both private and public sector entities.

Positive Insights aims to provide cost-effective solutions based on thorough research that enhance productivity through the timely delivery of data. The company adheres to the highest professional standards and follows global best practices.

The company is run by seasoned research professionals who excel in the use of state-ofthe-art technology to successfully execute even the most demanding of projects. Thanks to its unequalled level of technical expertise, Positive Insights has grown exponentially and now is an international group that leads the field in multicountry data collection and analysis in Africa and the Middle East. The company has recruited from the ranks of academia the best and brightest research professionals in sociology, psychology, statistics, and project management to help canvas all major markets.

Acting Managing-Director Ojo Samuel Oluwagbenga has more than twelve years’ worth of experience in market research. Mr Samuel is a graduate in View of the Swiss SMC University where he is about to obtain a Master of Business Management. He also attended University of AdoEkiti from which he obtained a degree in business administration and in Olabisi Onabanjo University in Ogun State from which he obtained a Diploma in marketing. He is a member of European Society for Opinion and Market Research (ESOMAR) and some other local market research association in Africa.

MISSION MANAGEMENT Positive Insights is currently one of the best research fieldwork companies operating in Africa and the MENA region. Its professionals continuously offer extensive training programmes

Acting Managing-Director: Ojo Samuel Oluwagbenga

to team members and have successfully implemented global standard operating procedures (SOPs) that ensure projects are carried out to perfection. Each case entrusted to Positive Insights is handled by a dedicated service manager who guarantees that all requirements are adhered to and met. The company’s wider team stands at the ready to offer expert assistance at every stage of the process.

While the project manager is in overall charge of the mission and the main conduit of communications between the client and the Positive Insights team, the operation supervisor remains in charge of personnel. As such, the operation supervisor ensures the screening and recruitment of talented people who are able to carry out fieldwork studies to the company’s exacting standards of quality and the client’s full satisfaction.

Each project undertaken is also assigned a quality controller whose job it is to ensure proper field reporting procedures are followed, monitor progress, and check the quality of the preliminary results submitted.

Positive Insights has an in-house team of skilled data processors which is responsible for managing date entry. All work is double-checked to ensure CFI.co | Capital Finance International

the correct metrics are in place. This team also provides a full range of data tabulation services.

Data is delivered in a variety of formats to best suit the client’s needs.

All members of the company’s team of interviewers are subjected to thorough training programmes that include mock interviews and other simulations. Over 80% of the team’s members are recruited from universities and colleges.

At Positive Insights, excellence is not so much an attitude as it is a habit deeply ingrained in the company’s DNA. The provision of premium services is underpinned by top-quality fieldwork, data analysis, and the timely delivery of results.

The company is able to fully commit to its clients’ needs thanks to a comprehensive international network that is linked to a flexible framework of problem-solving procedures put in place to tackle even the most challenging of assignments.

Positive Insights functions best as a valuable extension to a client’s own research team, cooperating closely throughout the entire research cycle from design to final delivery. The company ensures ultimate success by understanding all nuances of research and how these are affected by cultural differences and peculiarities. i 89

> World Bank Group:

Remittances - A Vital Channel for Global Cash Flows

By Massimo Cirasino and Carlo Corazza

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nvision the world economy as a complex, interconnected array of financial engines whose propulsion helps reinforce one another’s momentum. One of the component engines is a small but significant one that, until a few years ago, was not recognised for the powerful contribution it makes to the global financial system.

Sustaining the welfare of about 700 million people around the world – and representing the only source of income to provide food, healthcare, housing, and education to millions of families – this small-enginethat-could sometimes also powers the creation of family-run businesses and entrepreneurial ventures.

This engine may seem relatively small, yet its sustained output has supported the growth of the overall global economy, lifted entire regions out of poverty, and eased the burden on governments to provide social benefits by allowing hard-working families to generate their own incomes.

The engine described is remittances – the personto-person, low-value and (mostly) cross-border cash transfers that migrants send home to their families.

These financial flows are generated by enterprising migrants who have accepted jobs in wealthier countries – or in the more dynamic regions of their home country – and who make patient, often arduous efforts to squeeze savings out of already tight budgets.

Money is sent back home to relatives and friends through an array of methods – ranging from sophisticated electronic payment services to unregulated bargaining with bus drivers and friends.

Each of these remittance mechanisms exacts a cost, through the need to convert currencies, maintain electronic systems, or remunerate the various layers of intermediaries who take part in the transfer chain.

IMPLICATIONS Because of the importance of remittances to 700 million people or more worldwide, international financial experts are increasingly focusing their attention on the most vital implications of worldwide remittance flows. The cost of such transfers has been an important issue on the G8 and G20 financial agenda since about 2006, and a great deal of progress has been achieved in helping migrants save money by using more efficient and lower-cost remittancesending services.

The World Bank estimates that, since 2006, about $54 billion has been saved by remittance-senders thanks to the global effort for the reduction of remittance costs. That sum is equivalent to the entire gross domestic product of countries such as Costa Rica or Tunisia.

For many millions of hard-working people and their needy families, remittances are often the 90

only potential access-point for any type of financial services. Remittances, in fact, are often the gateway to the financial world for both remittance-senders and beneficiaries.

Nonetheless, those who advocate greater financial inclusion note that only a small percentage of remittance flows generates a “butterfly effect,” leading to the expansion of financial-services use that goes beyond the simple remittance transaction itself.

As the need has grown for specialised services that meet the needs of both senders and beneficiaries, the financial sector has risen to the challenge and created more efficient pathways for transferring money across borders.

However, an additional, and more worrisome, factor has recently made the remittances issue even more complex. Over the last 18 months or so, major commercial banks worldwide have decided to “derisk” their operations in an attempt to reduce their chances of falling prey to any possible moneylaundering scheme or of tolerating any pathways that might allow money to reach terrorist organisations.

This development had a serious impact on the global flow of remittances.

BANKS ESSENTIAL Banks play an essential role in the transfer chain that allows, say, someone in Los Angeles to hand over $200 cash at a money-transferring storefront and have the equivalent sum – about $1,500 Guatemalan quetzals – delivered, within seconds, to Chiquimula, Guatemala. Without the active participation of the banking industry in the clearing and settlement of transfers along the various steps of the international cash-transfer process, many money-transfer operators would be unable to operate. A reduction in the number of operators would have a dramatic impact on the level of competition which, in turn, would increase the overall cost of remittances to many developing economies.

Banks surely consider many factors when deciding whether or not to back away from the remittances market. A common denominator is the concern for attracting deeper scrutiny to operations and, thus, face exposure to potentially severe penalties for possible violations of anti-money laundering (AML) laws and measures on combating the financing of terrorism (CFT).

To reduce such risks, many banks have abandoned the remittances market, gauging that the modest amount of revenue they might obtain do not justify the cost of ensuring compliance, as required by regulatory entities, with restrictive legal frameworks.

Yet, as many banks withdraw from the remittances market, they are also removing crucial transactional capabilities from the marketplace – thus making it more difficult – and more expensive throughout the CFI.co | Capital Finance International

entire system – to transfer money.

Due to the shrinking number of banks involved in international money-transfer operations, more and more operators are “being driven underground.”

These operators now seek solutions that are barely legal – and, ironically, often use systems that are too complex to be properly monitored by AML/CFT watchdogs. Paradoxically, the attempt to avoid AML/ CFT violations is triggering an even more acute crisis throughout the international money-transfer system, exposing countries to the risk that ever-larger part of their cash flows are taking place in less-transparent and less-monitored circuits and instruments.

CONCERN As a result, the tightening-up of the international cash-transfer system may result in less efficiency and higher costs. Remittances may become more expensive and offer fewer opportunities to the people who most need access to safe, formal, affordable financial services: the poor of the world.

International organisations and standard-issuing bodies like the G20, the World Bank, and the Financial Action Task Force are concerned about this problem. They are working with governments that seek to safeguard the integrity of their markets even as they recognize the need for remittance-flows to continue reaching their destination in safe, lower-cost ways.

The financial industry is similarly focused on continuing to serve their customers with wellregulated, well-monitored payment systems, thus preventing flows of remittances from being diverted into ill-regulated underground channels.

The international remittances system is facing increasing complexities, but regulatory and standardsetting institutions are committed to continue to work in tandem with the financial industry to avoid the danger that the international cash-transfer system may suffer a costly contraction. As standard-setters and industry leaders consider measures to keep the remittances system flowing smoothly, they should remember the important stabilising role played by multibillion-dollar cross-border transactions in ensuring global financial security as well as the vital human role that remittances play in helping hardworking migrants, toiling far from home, support their needy families in impoverished economies that desperately need capital for day-to-day survival. i ABOUT THE AUTHORS Massimo Cirasino is the World Bank Group manager for Financial Infrastructure and Access and head of the Payment Systems Development Group.

Carlo Corazza is a Senior Payment Systems Expert in the Finance and Markets Global Practice of the World Bank Group.

Winter 2014 - 2015 Issue

> CRC Credit Bureau:

Setting the Standard for Financial Empowerment and Informed Decision-Making CRC Credit Bureau Limited was licensed in 2009 by the Central Bank of Nigeria to provide credit information and reporting services in Nigeria. At the time, credit penetration stood at around five percent only, with bank loans going to only large corporates and high-net-worth individuals. Non-performing loans (NPLs) represented over 30% of the total credit volume while consumer and mortgage credit was virtually non-existent.

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anks were conducting their lending operations in the dark. Meanwhile, borrowers received less than optimal services and overall, little to no attention was being paid to risk-based pricing.

CRC was established to promote informationsharing in Nigeria’s lending industry. Its mission is “to deliver innovative products and services that enable stakeholders make informed decisions and build credible profiles that enhance access to credit for strategic growth.”

The company was founded by eleven of the country’s leading financial institutions with support and participation from Dun & Bradstreet – a globally revered firm dedicated to the provision of commercial data. CRC also enlisted the support and services of the International Finance Corporation (IFC) and Accenture with a view to offering world class credit bureau services from day one. CRC boasts of a robust technological backbone, adheres to international best practices, and benefits from the over 170 years of experience which Dun & Bradstreet contribute.

With a clear understanding of Nigeria’s financial services industry, CRC’s strategic foray into the market was to engage in live operations with the country’s commercial banks. Today, CRC’s drive for excellence in data quality and the company’s comprehensive industry coverage have been much appreciated by all stakeholders. The company’s operations currently covers 24 states in Nigeria.

In its repository, all relevant credit information is held for the benefit of the Nigerian lending industry, including commercial banks, investment banks and discount houses, mortgage banks, microfinance banks, and the special purpose vehicle development banks. Non-bank institutions such as retailers, finance houses, asset management companies, insurance companies, pharmaceutical corporations, cooperative societies, non-bank microfinance institutions, and car dealerships are now all members of the credit bureau.

CRC positions itself as the market leader in Nigeria, driven by operational excellence, product

needed to meet the challenges of the global economy.

Regarding CRC’s impact, the company’s Managing Director Ahmed Tunde Popoola said, “We have changed the way lending is done, improved access to credit, and enhanced credit penetration in Nigeria.” Accurate and reliable data from CRC have awarded lenders an opportunity to reach effective and informed decisions. CRC has also enabled the proactive management of portfolio risk, helped reduce non-performing loans to under five percent, and facilitated debt collection efforts.

According to the 2015 Doing Business Report, Nigeria now ranks 52nd out of 189 countries in access to credit. In 2009, Nigeria ranked 87th out of 108 countries surveyed. Credit penetration has also moved up to over 30%.

MD and CEO: Ahmed Tunde Popoola

leadership, and customer relations. The leadership position is borne out of a number of factors such as the ownership structure, corporate governance, experienced board and management, technology, robust customer dispute resolution mechanism, and innovation. Though the company started live operations with a single product – the Credit Information Report (CIR) – it currently serves customers with a wide array of products and services such as self-enquiry, portfolio monitoring, batch processing, and data management. In addition, CRC has set up a financial education centre to enhance the capacity of Nigerians in the use of credit bureau services and in risk management solutions.

The CRC Financial Education Centre (CFEC) has been instrumental to the ability of CRC to become part of Nigeria’s financial infrastructure.

The centre offers industry-specific training with a view to making credit bureau services in Nigeria both far-reaching and effective. CFEC offers other financial training programmes that are designed to equip participants with the requisite skills CFI.co | Capital Finance International

CRC looks to the future with a lot of optimism.

According to Mr Tunde Popoola, the company will very soon introduce new products to the country focused on fraud detection, credit scoring, and the rating of small and medium-sized enterprises.

“These products are aimed at further boosting the confidence of our users and enable them access to an even wider array of services. In 2015, we also hope to cover the whole country. In addition, new segments of the economy would sign up to the use of credit bureau products which will enable us to deepen our database and thus help drive business. New client segments we have targeted include telecom services providers, informal lenders, and utility companies.”

The key to CRC’s remarkable success is the company’s experienced management team led

by Managing Director and CEO Ahmed Tunde Popoola. Mr Popoola has around thirty years of experience in both the public and the private sectors of the Nigerian economy. His specialty is in entrepreneurship, finance, and risk management. Together with his team, Mr Popoola has deployed his knowledge and experience to create significant value for all stake holders in the still very young company. i 91

> WAICA Re:

Reinsurance Boosting Regional Integration WAICA Reinsurance Corporation is a public limited liability company incorporated in March 2011 under the Companies Act 2009 of Sierra Leone.

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n the years following the creation of West African Insurance Companies Association (WAICA) in 1973, the founders had the desire to establish a reinsurance organisation to help mitigate the effects of the limited reinsurance capacity within the West African insurance industry.

To fulfil this ambition, it was considered prudent to start off by creating a reinsurance pool which hopefully would someday grow into a fully-fledged reinsurance corporation. Today, the WAICA Reinsurance Pool has indeed been turned into the WAICA Reinsurance Corporation – a dream come true.

Apart from the provision of reinsurance capacity, the establishment of WAICA Re is a good example of regional socio-economic integration. The corporation has an authorised share capital of US$ 100 million, of which US$ 24,311,603 has been issued at a value of US$ 28,095,856.

WAICA Re has its headquarters in Freetown, Sierra Leone, with major operating centres in Accra, Ghana and Lagos, Nigeria. The company’s mission is to provide reinsurance capacity through a highly motivated workforce and the use of advanced technologies with which to deliver a peerless service to clients while creating value for shareholders.

“Through the support of its brokers, the company provides reinsurance capacity for not only West African markets, but also for diaspora markets elsewhere in Africa, Middle East and other regions.”

WAICA Re truly operates as a global reinsurance business. Through the support of its brokers, the company provides reinsurance capacity for not only West African markets, but also for diaspora markets elsewhere in Africa, Middle East and other regions. The company is also active in the Middle East and other regions.

In order to ensure close proximity to the region’s major markets, WAICA Re manages operating centres in Accra, Ghana and Lagos, Nigeria.

WAICA Re has claimed a market share of almost 40% in Nigeria and 25% in Ghana.

WAICA Re aims to facilitate the development of a diversified insurance sector in the region by providing greater reinsurance capacity with a view to widening the economic and financial development of West Africa.

From the very start of its operations, the company has boasted an exceptionally strong corporate governance structure. Its General Assembly meets annually in various WAICA member states. The WAICA Re Board of Directors comprises ten members of high repute in the insurance/reinsurance and banking industries.

The company’s management team proactively oversees the day-to-day operations of the office to ensure that business targets are met.

WAICA Re presently provides only non-life cover in its transactions; essentially treaty and facultative reinsurance business to its numerous cedents in West Africa and beyond. WAICA Re conducts business for the following insurance classes: Fire, engineering, marine cargo/hull, general accident, motor, bond, liability, and special risk (aviation & oil and gas).

The WAICA Re Board of Directors convenes four times a year and consists of three standing board committees: Audit and Finance, Establishment and Remuneration, and Strategy and Operations.

External and independent auditors (KPMG) are appointed annually to report to both the Board of Directors and the General Assembly on the financial position of the company. i

WEB www.waicare.com EMAIL waicareinsurance@waicare.com info@waicare.com TEL 00232-76-368359 (SL) 00233-244-684-127 (Ghana) 00234-70801-14385 (Nigeria) ADDRESS 2nd Floor Maritime House Government Wharf Wallace Johnson Street Freetown

“Apart from the provision of reinsurance capacity, the establishment of WAICA Re is a good example of regional socio-economic integration.”

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> Goldlink Insurance:

Synergies Driving Corporate Growth In February 2008, Goldlink Insurance became a public liability company listed on the Nigerian Stock Exchange with a paid-up capital in excess of ₦5.1b (£20m). Since obtaining its listing, the company has grown exponentially and is now widely considered one of an increasing number of Nigerian corporate success stories.

I

ts client-centred philosophy and full commitment to building trust and confidence through the delivery of firstclass services, in addition to maintaining effective partnerships with clients, have propelled Goldlink Insurance’s sustained growth.

The company not only expanded its client base, but also gathered a wealth of knowledge and experience on current trends and innovations, placing it at the cutting-edge of the Nigerian insurance industry.

Goldlink Insurance underwrites both life and general businesses such as fire and special perils, liability policies, property and pecuniary, motor insurance, life & pension, oil & gas, travel insurance besides many others. This broad range of products gives the company a competitive edge and enables it to cater to the insurance needs of nearly all sectors of society.

According to Gbolahan Olutayo, CEO of Goldlink Insurance, the company’s success and growth may be attributed to its unrelenting pursuit of excellence in service delivery. “This not only draws in new clients, it also ensures exceptionally high retention rates of existing customers,” says Mr Olutayo.

Despite the, sometimes challenging, and tough business climate, synergies between proven service protocols and state-of-the-art technologies have powered Goldlink Insurance business prowess. “The technology put in place has facilitated the automation and optimisation of our internal and external processes. This enables us to deliver our services to clients with peerless reliability and efficiency which, in turn, ultimately ensures success in all our operations.”

Goldlink Insurance boasts a young and dynamic management team with some of the most seasoned professionals in the industry. The

“In 2013, Goldlink Insurance paid a total sum of ₦1.4billion (in excess of £5 million) in claims received from its clients.

The General Business Division paid out over £2.1m while the Life Division disbursed more than £3.2 million.” company distinguishes itself by its famously swift settlement of claims. Goldlink Insurance considers prompt settlement procedures and policies essential to reassuring both its clients and the wider public that indemnity and compensation will be provided when loss is suffered. This culture – more than just a policy – significantly contributes to a further increase in public trust.

In 2013, Goldlink Insurance paid a total sum of ₦1.4billion (in excess of £5 million) in claims to some of its clients. The General Business Division paid out over £2.1m while the Life Division disbursed more than £3.2 million.

Goldlink Insurance has also pioneered a vast array of innovative products and services in Nigeria. Among these are Online Third Party Motor Scratch cards for ease of access to product from mobile phones. House Protect Plus Scratch card – a micro insurance product to protect house against fire incidence – was launched with a view to increase insurance penetration.

In order to keep up with innovations and identify market trends and opportunities, Goldlink Insurance maintains an in-house Research and Business Development Unit which works tirelessly to develop new customeroriented products that meet the ever-changing needs of clients. The Research and Business Development Unit also strives to strengthen the company’s presence in rural areas and to widen its geographical footprint.

Given the size of its business operation and structure, Goldlink Insurance has developed a strict compliance culture. The board and management both ensure the company adheres to all the rules imposed by relevant regulatory entities. Currently, Goldlink is the only insurance company in Nigeria that has in its employment an ISO 31000 (G31000) certified risk management professional as the head of its Compliance and Risk Management Unit.

Consequently, all of Goldlink’s risk management activities and processes are compliant with the ISO 31000 standard. The company has successfully managed to implement both an enterprise risk management framework and an overall risk management structure. Goldlink’s Zero Fines and Penalties Policy, duly reflected in the company’s books, aims to assure clients that all operations are carried out within the confines of legitimacy and acceptable standards. i

In the same vein, Goldlink is the first insurance company to launch a school safety policy. It recently established a partnership with the Lagos State government and the state’s Safety Commission to boost safety at schools.

“It recently established a partnership with the Lagos State government and the state’s Safety Commission to boost safety at schools.”

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> CFI.co Meets the MD and CEO of Goldlink Insurance:

Gbolahan Olutayo In its implacable drive to improve service delivery by Nigerian insurance operators and to increase insurance penetration in the country, in 2012 the National Insurance Commission (NAICOM) – the sector’s regulatory entity – launched a restructuring campaign that resulted in new management taking over a number of Nigerian insurance companies.

I

t was during this time that Gbolahan Olutayo was called upon to take over the reins at Goldlink Insurance as managing director and CEO. His mandate was to navigate the business through what would become a major reference point in the history of the company. The new NAICOM regulations spelt doom for some companies while for others mergers and acquisition became the order of the day. At this time, insurance companies had the choice between sinking and swimming. However, under Mr Olutayo’s leadership, there was only one option for Goldlink Insurance – to swim.

“Mr Olutayo’s tenacity came to the fore as he explored and encouraged innovation throughout the organisation.” were reformulated and given priority. His concern for the physically challenged – particularly for visually impaired persons – is both admirable and commendable. The company sponsors several foundations and organisers of a number of activities that aim to improve the welfare of the people concerned.

Mr Olutayo came to Goldlink Insurance with a wealth of experience garnered within the Nigerian insurance industry which enabled him to succeed in his new assignment. Mr Olutayo’s expertise cuts across risk and claims management, marketing, and insurance product development. He succeeded in repositioning the company for greater efficiency and profitability.

Within a short time span, Mr Olutayo managed to accumulate a number of commendable achievements.

Recently, during one of such drive, Mr Olutayo was busy serving tables and making himself useful in many other ways. Gestures such as these contribute in no small measure to endear the company to clients and the wider society.

In recognition of his efforts to stabilise and promote the fortune of the company by generating public confidence, Mr Olutayo was voted Insurance Man of the Year in 2014 on the platform of Business Today Online – an online financial news magazine.

One of the first noticeable results of his leadership was to raise the company’s operations to meet the new standards set by the regulatory body. He achieved this by first putting the company’s books in order and raising the level of compliance, thereby entrenching international best practices within the day-to-day operations of the company.

Mr Olutayo’s tenacity came to the fore as he explored and encouraged innovation throughout the organisation. This promptly resulted in an improved bottom line, notwithstanding stiff competition and a tough business environment.

Mr Olutayo also upheld and improved the company’s prompt claims settlement culture which he considers the acid test for any insurance business. According to Mr Olutayo, the only way to test the integrity of any insurance company is by analysing its attitude to claims pay-outs.

The Goldlink Insurance CEO is an ardent advocate

Mr Olutayo joined Goldlink Insurance in 1992 as head of Corporate Clients Services where he laid the groundwork for the establishment of a more efficient and rewarding relationship with the company’s clients. Later, Mr Olutayo headed the Lagos Central Office. From this position he was appointed CEO in 2012.

MD and CEO: Gbolahan Olutayo

of team building. He also enjoys the solid support from the company’s staff which translates into a more agile decision-making process. This style of corporate leadership empowers Goldlink Insurance to succeed in today’s highly dynamic business world. It also ensures a proactive approach to matters of corporate governance.

Goldlink Insurance takes its corporate social responsibility (CSR) seriously. Under Mr Olutayo’s leadership, the company’s CSR policies CFI.co | Capital Finance International

Mr Olutayo’s experience covers portfolio risk management, claims management, marketing, and insurance product development. He is a member of the Nigerian Institute of Management and the Chartered Insurance Institute of London and Nigeria. He has attended several professional courses within and outside the country. Before joining Goldlink, Mr Olutayo worked with Crusader Insurance, Fidelity Bonds (incorporated insurance brokers), and the British-American Insurance Company in various management positions. i 95

> Britam:

Driving Insurance Penetration in Kenya

F

or a long time, the uptake of insurance in Kenya has remained low at both corporate and individual level. Compared to more developed markets, insurance penetration is still limited.

Close to half of Kenya’s population has little or no access to insurance. The general lack of a savings culture is considered one of the main factors contributing to low insurance penetration, as are low disposable incomes for the majority of the 96

population and the perceived credibility crisis the industry suffers. Additionally, tax incentives that encourage people to acquire life insurance products are deemed inadequate.

Britam is a diversified financial services group listed on the Nairobi Securities Exchange. The group has interests across East Africa, and offers a wide range of financial products and services in insurance, asset management, banking, and real estate.

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In Kenya, one of the main reasons for the low insurance penetration is a dearth of products tailored to meet the needs – and fit the purse – of the less affluent demographic. Over the last four decades, Britam has been at the frontline of the industry using innovation and technology to develop micro-insurance products that meet the ever-growing needs of the market and are specifically designed to deepen insurance coverage at the bottom of the demographic pyramid.

Winter 2014 - 2015 Issue

AFFORDABLE INSURANCE Among the ground-breaking microinsurance products developed by Britam is Kinga Ya Mkulima – a product that offers farmers of modest means, and their families, healthcare and funeral expenses coverage at affordable premiums ranging between 60 shillings and 350 shillings per month (EUR 0.54 - EUR 3.10).

Developed in partnership with Majani Insurance Brokers, a subsidiary of the Kenya Tea Development Agency, Kinga Ya Mkulima targets the more than 560,000 small-scale tea farmers spread throughout the country’s tea growing zones. Since its launch, Kinga Ya Mkulima has been a big success and helped bring insurance to clients who previously would not have considered taking out coverage.

Despite being a regional economic powerhouse, Kenya has been unable to provide universal healthcare to its people. About 97% of the population – some 39 million Kenyans – lack access to affordable healthcare and are without insurance coverage. Over the past decade, Kenya has aggressively been chasing the dream of offering all citizens universal healthcare.

In its quest, the government has come up with numerous strategies.

These include expanding healthcare facilities, the hiring of more medical practitioners, and structural reforms of the National Hospital Insurance Fund (NHIF). The elimination of maternity fees at public hospitals and clinics was hailed as a critical achievement and one that will help drive down significantly child mortality rates and ensure safe deliveries.

This year, working in partnership with Safaricom and Changamka, an integrated health finance provider, Britam launched Linda Jamii, a revolutionary family health product that seamlessly complements the company’s sustained efforts to use available technologies to make affordable healthcare readily available.

“The group has interests across East Africa, and offers a wide range of financial products and services in insurance, asset management, banking, and real estate.”

Linda Jamii is both an inpatient and outpatient medical programme with added funeral expenses benefits. It comes with a maternity cover and an income replacement benefit of 500 shillings per day to compensate for lost income during hospitalisation. In order to target clients in the lower income bracket, the product will have an annual premium of only 12,000 shillings (EUR 107) per family.

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Linda Jamii has adopted a microsaving model which uses the mobile money transfer service M-Pesa as the collection platform for premiums. The service allows premiums to be paid in instalments. Partial benefits kick in after half of the premium owed has been paid.

Benefits include an annual 50,000 shillings (EUR 445) outpatient cover per family, a 200,000 shillings (EUR 1,780) inpatient cover, and a 40,000 shillings (EUR 355) last expense paid on death of either the principal or the spouse.

STRATEGY FOR GROWTH Following the company’s growth strategy, Britam this year acquired a 99% stake in the Real Insurance Company. This resulted in the creation of one of the largest insurance groups in the region with operations in seven countries: Kenya, Uganda, Tanzania, Rwanda, South Sudan, Malawi, and Mozambique.

In acquiring Real Insurance, Britam is looking for opportunities to strengthen its presence in both the local and regional market and become a leader in all the businesses sectors it is involved in.

The satisfactory completion of this acquisition has enabled Britam to implement a long-term strategy for the expansion of its general insurance business and for the broadening of the company’s presence in key geographical areas that include some of the most promising growth frontier markets in Africa.

Britam has also invested heavily in technology. The company recently rolled out an ambitious IT-powered business transformation project that will run for the next three years. The main aim of this project is to further enhance Britam’s corporate performance and help create a high-performing, customer-centric, and intelligent organisation by 2016.

Meanwhile, Britam continues to expand its presence in rural areas by maximising the use of existing synergies between distribution channels and outlets. Currently, the company boasts a countrywide agent network comprised of over 1,700 financial advisors. Britam has set up branches in various parts of the country including Kitengela, Machakos, Kitui, Nanyuki, Isiolo, Kakamega, Kericho, and others.

Britam’s strategy is squarely aimed at creating a top performing financial services group that consistently delivers superior value to shareholders. i 97

> Travant Capital Partners:

Harnessing Local Knowledge and Capabilities for Investment Success The rise of Africa as a viable trade and investment destination has generated tremendous hype and kindled interest over the past few years.

However, international players still battle to navigate the African business environment despite its tremendous potential. The major differentiating factor between success and failure rests in the ability to identify the distinct characteristics of the local environment and develop strategies best-suited to achieve market dominance.

R

ecent GDP rebasing exercises conducted by several African countries, including Nigeria, are now beginning to better reflect the actual and potential size of African economies over the next few years. However, adopting a continental approach to exploring business opportunities has been responsible for the inability of many international businesses to establish their footprint on the continent’s fast growing services and consumer markets.

African operating environments are as diverse as the 54 countries that make up the continent as there are a multiplicity of languages, cultures, legal and regulatory institutions, and consumer preferences. Developing winning business models, whilst ensuring that investments and ventures promote inclusive growth and strengthen local value chains, remains a significant challenge.

The potential rewards of striking this balance present too compelling a business case to ignore.

Securing strategic alliances still remains the most practical alternative to bridging this gap.

FINDING THE WINNING FORMULA The business environment in Nigeria, and across West Africa in particular, is in a constant cycle of change as the transition from informal to more structured markets gradually unfolds.

Anglophone and Francophone West Africa require strikingly different go-to-market strategies as colonial legacies, local norms, demographics, and infrastructure coverage have contributed in no small measure to shaping their different economic structures. This unique characteristic of most African countries necessitates an indepth understanding of the market fundamentals to ensure that business decisions are sound and 98

“The business environment in Nigeria, and across West Africa in particular, is in a constant cycle of change as the transition from informal to more structured markets gradually unfolds.� possess the necessary flexibility to adapt to their ever-changing economic, social, and political landscapes.

Even though observers point to the need for improvements in the ease of doing business on the continent, several indigenous and multinational businesses have still been able to effectively overcome inherent challenges to develop highly successful businesses that demonstrate characteristics associated with long-term sustainability. African businesses are beginning to pull away from being owner-centric ventures to becoming more institutionalised commercial entities. This is increasingly evident by the large influx of venture capital and private equity investment on the continent and the continued increase in transaction size in comparison to the previous decade.

As more local and international investors pursue opportunities to tap into the enormous growth prospects within the region, understanding the nuances of the institutional and operating environment will increasingly become a major differentiating factor for players seeking to exert dominance in key economic sectors.

CFI.co | Capital Finance International

KNOWING THE MARKET Both indigenous and international financial, and business advisory professionals continue to play active roles in identifying new opportunities for value creation and capacity optimisation within African markets. Country offices of some of the leading investment banking and professional services firms can now be spotted in Johannesburg, Lagos, Nairobi, and Accra.

These are involved in raising capital for African businesses and trading their equity instruments privately or on international exchanges. Even the corporate bond markets now attract interest from global institutional investors.

Nonetheless, developing a dominant brand and articulating a winning strategy within the investment advisory space is dependent on a combination of factors ranging from the ability to provide high-quality client-focused service offerings and also proffering solutions anchored on insights and informed understanding of the local terrain. Professional advisers must thus combine a global mind-set with strong technical competencies, and deep local knowledge, and expertise.

Although it is unanimously recognized that there is no one-size-fits-all approach to meeting client needs, increasing the likelihood of optimising client returns whilst meaningfully contributing to inclusive growth and development on the continent is anchored on partnering with firms that have the requisite experience to manage the collective interests of the various stakeholders.

THE BUSINESS PARTNER OF CHOICE Driven by a clear understanding that the private sector is the engine to stimulate sustainable and inclusive growth across the continent,

Winter 2014 - 2015 Issue

Travant Capital has constantly pursued a strategy and business model that focuses on cultivating strategic partnerships with its clients. Travant’s approach to advisory services is not only anchored on building long-term business relationships, but also on playing a key role in facilitating entrepreneurship and industrialisation across Africa.

Based in Lagos, West Africa’s commercial nerve centre, Travant has adopted an Africanoriented approach to providing value-added services since 2007. The business model, which covers financial and business advisory, and private equity investments, has allowed the Travant team to build strong competencies and capabilities over the years.

Having played an active role in managing investments and advising clients within the Nigerian economy during the global financial crisis in 2008, and also during the oil price boom which began in 2010, Travant has demonstrated commendable deftness in navigating through economic downturns and optimising opportunities in favourable macroeconomic environments. The Company was one of the first local players in the private equity space in Nigeria and successfully raised over $100m in commitments as far back as 2008.

THE TRAVANT VALUE PROPOSITION Travant Capital prides itself on its ability to assist clients in navigating through a business environment that is slowly transitioning to a more structured economy but still faces the

legacy challenges associated with informality.

The firm has been proactive in assisting the scaling-up process beyond its core business and is actively involved in several professional advocacy groups and not-for-profit initiatives aimed at improving the business climate, providing support for small and medium scale enterprises, and promoting increased participation of women in formal economic activities across Nigeria and West Africa.

TRAVANT SERVICE OFFERINGS In line with its client-centric philosophy and strategic intent, Travant Capital services clients ranging from leading financial services institutions to family-owned businesses and high growth potential start-ups.

Financial advisory service offerings include: • Mergers and acquisitions; • Equity and debt capital raising; and • Transaction services.

Business advisory services include: • Market entry strategy definition; • Business transformation/turnaround advisory; • Start-up support; • Business performance management; and • Project management assistance.

Travant Capital is also the fund manager of the Travant Private Equity Fund I, a Mauritian registered fund, and is currently managing its investment in Dorman Long Engineering Ltd, an established indigenous engineering, CFI.co | Capital Finance International

procurement, and construction (EPC) company operating across the oil and gas, power, and manufacturing value chain in Nigeria and the Gulf of Guinea.

Experience gathered from the management of portfolio companies has greatly assisted in finetuning the firm’s financial advisory capabilities to service both large corporates and potential startups as well as driving its enterprise development strategy, which focuses on improving corporate governance, processes, people, and technology across medium and small-scale businesses.

The service team is made up of professionals with decades of experience and a track record of working in some of the leading multi-national, financial and professional services firms both locally and internationally, which gives a distinct advantage in adopting a “glocal” approach to the execution of its mandates and exceeding client expectations.

Travant understands the difficulties faced by existing and potential business owners and investors seeking opportunities for value maximisation on the African continent, and is strategically placed to provide client-focused and socially responsible solutions. Doing business in Africa is not devoid of risk and will require looking beyond a short-term horizon.

However, by extending conventional parameters and partnering with professionals with the right expertise, there is tremendous potential to develop new capabilities and create competitive advantages. i 99

> CFI.co Meets the CEO of SBM (Bank) Mauritius Ltd:

Jairaj Sonoo Mr Jairaj Sonoo, Chief Executive-Banking (Indian Ocean Islands) of the SBM (Bank) Mauritius Ltd, boasts no less than 35 years of experience in finance. At SBM, Mr Sonoo has enjoyed a fruitful career, spanning 32 years, during which he held various positions, including those of Executive Vice-President (Indian Operations) and Head of Retail Banking.

S

ince his appointment as Chief ExecutiveBanking (Indian Ocean Islands) in 2012, after a short two-year sojourn at a local commercial bank, Mr Sonoo also became an executive director of the bank. He considers his appointment as the highest achievement attained over the course of his professional career.

Mr Sonoo places particular emphasis on dialogue and proximity. He believes these concepts to be the cornerstones of all relationships and expects his collaborators to pursue a similar simple, direct and transparent mode of interaction.

Mr Sonoo’s leadership style is more akin to that of a facilitator, especially as he thoroughly understands the day-to-day operations of each and every one at SBM as a result of having himself experienced the various aspects of the banking business. Mr Sonoo is also a peopleoriented executive who appreciates the value of participative leadership and trusts that his approach will lead to successful teamwork and collaboration.

The aim of the SBM executive is to offer services that closely match the needs of the bank’s clients. This is of paramount importance to Mr Sonoo. Being part of the service industry, the bank’s team of professionals is continuously called upon to demonstrate the highest standard of services – delivered with a human approach – in all dealings.

PROMOTING A SUSTAINABLE ECONOMY SBM believes in the promotion of a sustainable economy by facilitating access to banking services to Mauritians at large. It also acts in the interest of its stakeholders by catering to their ever changing needs through its innovative range of products and services – tailored to enable these stakeholders to reach their objectives in life.

SBM Group has registered excellent financial results over the past years despite the challenging global economic conditions the bank faced.

Mr Sonoo considers it a personal mandate to

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CEO: Jairaj Sonoo

contribute in helping the SBM brand shine on both the local and regional banking landscapes.

He puts special emphasis on the group’s international operations and the implementation of its expansion plans in the years to come. Much attention is also paid to enhance and further improve customer experience, transformation, innovation and proximity, all of which are believed to be the key drivers and strategies for the enduring success of banks in general and those engaged in retail banking in particular.

SBM is also mindful of its corporate social responsibility and the attendant endeavour for equality and diversity. Both these operational

CFI.co | Capital Finance International

philosophies are moulded in SBM’s cherished corporate tradition.

Mr Sonoo is a strong believer in, and promoter of, corporate social responsibility which he sees as a significant contributor to the development of any country and especially those less fortunate.

As such, SBM will continue its endeavour and initiative of providing funds for development projects, focusing on the empowerment of vulnerable social groups through education.

Going forward, Mr Sonoo intends to steer the bank yet closer to the surrounding community through the organisation of more proximity events. i

Winter 2014 - 2015 Issue

> The Profitability of Sustainable Companies:

Towards a Rating System

By Luisa Nenci

A Green Economy (GE) is growing if economic prosperity goes hand-in-hand with sustainability – developing investments in green sectors and in greening brown sectors. Some investors are already screening companies through enhanced qualitative parameters. However, these practices usually lead investors to companies operating in a green sector (for example renewable energy projects) and not to “normal” companies in the process of implementing a green business model.

T

hese latter companies may be adopting cleaner production processes as part of an integrated strategy to maximise profits by making more efficient use of inputs (such as energy, water, and raw materials), thereby minimising waste and pollution. This is different from a conventional pollution abatement which captures or converts waste during production and thus increases capital and operating expenditures.

Environmental gains – if included in the company’s evaluation procedure – will also produce financial benefits: cleaner production improves profitability, creditworthiness, and brand loyalty. Many cleaner production initiatives yield paybacks in 3 to 24 months because process re-engineering not only decreases pollution but manufacturing costs as well. Cleaner production initiatives also help companies comply with environmental regulations and obtain a competitive edge on international markets.

This study focuses primarily on how and why people – consumers, businesses, non-profit organisations, government agencies, and financial institutions – make decisions regarding the use of valuable resources taking into account imperfect data, risk, and uncertainty.

Furthermore, it analyses this decision process and considers how it could be restructured so that people are encouraged to take decisions that result in a more favourable impact on both the environment and society.

In a purely economic approach, businesses pollute because this is the most economical way to address practical issues considering current economic factors. The consequences of many decisions for the environment are difficult or even impossible to gauge. In the environmental field, identification and quantification risk involves managing variability and uncertainty.

In this context of uncertainty, the second phase

“In a purely economic approach, businesses pollute because this is the most economical way to address practical issues considering current economic factors.

The consequences of many decisions for the environment are difficult or even impossible to gauge.” of the decision-making process determines how much risk is acceptably based on the identification of a certainty (confidence interval) assigned to future events.

Having information usually reduces the uncertainty of a decision. However, sometimes even with proper data, people behave in a manner that causes environmental degradation.

This begs the question: Why? There are various answers to this question.

Ethics may be lacking: people pollute because they lack the moral and ethical fortitude to refrain from doing so. A sense of ethics, such as a concern for the well-being of future generations – are important in environmental economics.

Efficiency, risk treatment, and ethical considerations can guide private and social choices related to the environment because a win-win solution is created. While the former is primarily a guide to avoid wasteful use of resources, the latter refers to the adequate management of the consequences of human actions and has to do with ensuring fair treatment to all parties.

CFI.co | Capital Finance International

SOCIAL AND ENVIRONMENTALLY RESPONSIBLE BUSINESS The narrow and exclusive focus on short-term profits has led to counterproductive and negative consequences for both business and society. In order to support broad and shared value creation processes, a number of firms have been working with stakeholders – shareholders, employees, customers, suppliers, the surrounding community, etc. – implementing corporate social responsibility (CSR) policies.

Instead of focusing on a generic responsiveness toward society, a stakeholder management perspective turns, first, on the importance of locating and classifying stakeholders – who are typically defined as “any group or individual who can affect, or is affected by, the achievement of the organisation’s objectives,” and, second, to detect, scan, and respond to social demand in order to achieve legitimacy and increase acceptance and prestige which, in turn, support long-term value creation.

An extensive and in-depth review of about 250 empirical and theoretical contributions allowed the mapping of the principal mechanisms by which CSR efforts may contribute to improved corporate performance, leveraging stakeholderrelated drivers.

A THEORETICAL FRAMEWORK Studies have proven that CSR policies universally carry a favourable rate of return. As a whole, and despite a generally positive attitude towards CSR, periodic reviews have challenged the validity of studies that link investment in CSR to an improved bottom-line, rekindling the debate on the business case for CSR. Pavie and Filho (2008) state: “There is a positive correlation between corporate social and financial performance. This relation tends to be bidirectional and simultaneous and a firms’ reputation is an important moderator of this.

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The various measures of financial and social performance are behind this relation.”

Even though the real impact of the CSR efforts on corporate performance is still questionable, the general inconsistency of the results obtained has to be attributed to the complex relationship between social and economic performance. This is ruled by situational, company- and facilityspecific elements that are difficult to detect by most analytical approaches.

THE SOCIAL AND ENVIRONMENTAL CREDIT RATING (SECR) SYSTEM The innovative proposal of my research is the development of a SECR and ethical rating system for the evaluation of medium-risk companies.

This system is to include parameters based on the principles of environmental economics.

The inclusion of social and environmental responsibilities of a given business into the rating system will upgrade the evaluation, encouraging the adoption of eco-friendly choices through credit and investment rewards.

Because this rating system will focus on the profitability of CSR policies – such as transparency, social responsibility, and accountability standards that stretch to beyond the minimum legal requirements – which reduce overall corporate risk and allow companies to access less expensive credit lines.

The main function of the rating system is to constitute a tool that efficiently provides a concise indication and summary of the comprehensive scrutiny conducted by independent analysts. The ethical rating will imply a methodologically impartial assessment based on the recognition of shared principles by companies. This rating represents a condensed and easily understandable judgement.

A well-designed set of indicators will measure key interactions between social, environmental, and economic criteria of different companies across selected sectors. Three principal groups of indicators relevant to the Green Economy (GE) concept can be considered: • Define an exclusion list of sectors in which investors do not want to take positions; • Define the social and environmental impacts and benefits of individual sectors; • Define key sectors for GE investment.

Key sectors of the green economy include energy, building, transport, manufacturing, tourism, waste management, as well as critical ecosystem and resource-based sectors of agriculture, forests, fisheries, and water management.

The rating thus created will fill in the existing gap between the evaluation of micro projects – which normally have a low level of risk – and the full environmental impact assessment study required for large companies and big projects.

Moreover, companies and projects with a

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Winter 2014 - 2015 Issue

Hypothesis 1

Relationship between

1968-1997

1998-2007 Variance of ρ (σ2ρ)

k

Total Sample Size

33,878

Mean Corrected Correlation (ρ) 0.3648

0.1896

455

170,737

Mean Corrected Correlation (ρ) 0.1797

249

24,055

0.4671

0.1891

352

117,940

0.1659

0.117

139

9,823

0.1246

0.1097

103

52,797

0.2093

0.1139

k

Total Sample Size

CSR and CFP (entire set)

388

CSP without corporate environmental performance and CFP Corporate environmental performance and CFP

Variance of ρ (σ2ρ) 0.1166

Table 1: Relationship between CSR and Corporate Financial Performance (CFP). [k: number of correlation coefficients]

medium environmental risk level are generally small and medium enterprises (SMEs).

THE FRAMEWORK The framework, described above, will be implemented in order to set up a rating system that is based on an ethical review that investigates aspects related to social and environmental economic activities. This rating system will be closely complementary to a traditional evaluation because it can’t be the sole reference parameter for investors.

Taking into consideration the Sustainable Values ABIS (Academy of Business in Society, 2009) Research Project findings and recommendations: “The role of the ratings agencies has not been considered and they have not been involved.

However, a number of commentators have emphasised that they could and should be incorporating ESG risks into their assessments.

We have not explored the dialogue and relationships inside companies between the CR/ Sustainability function and the investor relations function, and within the investment community between ESG analysts and financial analysts and how this can be improved. The Value Creation Framework represents an important breakthrough, but the next step would be to show the interactions between improvements to the individual drivers of non-financial performance with one another.”

This strategy will be theoretically tested to assess a specific hypothesis: implementing an ethical rating system will promote investments in sustainable companies because socially and environmentally responsible businesses usually perform better.

The implementation of the concept of sustainability involves the assessment of the impact of corporate activities on society and the environment. That impact will be evaluated and included into the ethical rating via the selection of measurable parameters whose relevance will be tested through the analysis of real cases concerning companies that surpass median sectorial outcomes.

The implementation of the SECR has been developed from an original sample of 22,877 Spanish companies which are categorised according to their functional dimension, sector of economic activity, and geographically location. A theoretical model was developed with the idea

“The role of the ratings agencies has not been considered and they have not been involved. However, a number of commentators have emphasised that they could and should be incorporating ESG risks into their assessments.” that if banks can differentiate projects based on environmental risks, this may help companies show their achievements in sustainability.

For example, two sectors – construction and consumer – of the sample have been distributed on a matrix according to their financial credit merit (CM). The environmental impact which characterises their sectors were identified as green credit merit (GCM). Results show that if projects are funded with a rating of at least 50%, the bank will grant loans to at least 173 projects (≈ 7%) which are financially viable but may not be environmentally-friendly.

When a comparison is made between CM and green energy credit (GCMen) or waste (GCMw) where a specific environmental parameter is taken into account, results increase to funding 416 projects (≈ 17%) with a clear negative impact on energy (GCMen) and circa 10% with a clear impact on waste (GCMw).

growth is achievable. By defining the benefits created by investing in a green company, it is easy to conclude that the incremental costs of green growth is negligible compared to the costs of inaction.

However, there are important barriers to overcome, such as institutional inertia, the disadvantage of being the first, and a natural resistance to change.

A strong political and business vision is needed to undertake the transformation. More competitive solution are required because these reduce business risk by replacing environmental and social risk with the long-term management of physical and human resources. Improved management reduces the risk of fines for pollution or dumping, or to lose talented or experienced employees due to a contrary public opinion. Companies will gain competitiveness in terms of both financial budget and the financial management of cash flows.

The goal of green finance is to mobilise the largest possible green capital, sharing environmental and social objectives with the public. Mobilising private capital towards green investments will boost performance by increasing corporate competitiveness.

Multiplying green public investments creates a win-win-win solution: economic growth receives a boost, environmental impact is reduced, and social equity is assured. i

Therefore, this (preliminary) analysis suggests that the GCM can significantly affect credit rating because it may include specific warnings about possible compensation of profitability and environmental quality. The increased sensitivity to the specific indexes GCMen and GCMw is due to fact that an improved definition of the environmental impact of projects helps in their evaluation and in better remediation techniques.

The strong correlation between standard credit score and the more generic GCM is determined from the fact that if a bank decides to use an environmental credit rating, a first evaluation screening will involve a company’s green reputation or lack thereof.

CONCLUSIONS Bridging the gap between current investment flows and what is needed to achieve sustainable

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Author: Luisa Nenci

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> SBM Group:

Getting Geared Up for Regional Expansion Established in 1973, SBM Bank (Mauritius) Ltd - a subsidiary of SBM Holdings Ltd - is a leading financial services institution in Mauritius. The SBM Group is also present in India, Madagascar, and Myanmar. SBM Holdings Ltd is the second largest listing on the Stock Exchange of Mauritius (SEM), with a market capitalisation of more than $1 billion as per December 31, 2014.

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n Mauritius, SBM has a strong franchise with a market share of over 20% in domestic advances and deposits. It caters to a wide range of customer segments including personal, small and medium-sized enterprises (SMEs), corporate, cross-border, and financial institutions.

SBM offers an extensive suite of products and services that encompasses deposits, lending, trade finance, cards, leasing, treasury, insurance, and investment products as well as a range of payment services. The bank also boasts multichannel capabilities including branches, ATMs, POS (points of sale), Internet, mobile, and call centre.

In India, the SBM Group operates four branches, serving mainly a corporate client base with a small share of retail clients, especially for deposit products. Besides deposits, services include lending, treasury, and cash and trade transaction services. The SBM subsidiary in Madagascar operates two branches, serving a client base consisting of Mauritian companies operating in Madagascar, large multinationals, exporters, large reputable local companies, and institutional investors. The product range comprises advances, deposits, and transactions processing as well as Internet banking services.

SBM also has a representative office in Myanmar.

Building on its strengths and success in Mauritius, SBM now plans to expand in targeted markets in the region such as East Africa, India and neighbouring South East Asian countries,

CEO: Mr Jairaj Sonoo

Indian Ocean Islands, and the Middle East (Dubai). The bank is currently building up its capabilities in line with its growth ambitions.

The SBM Group has been restructured and is now listed on the official market of the SEM as SBM Holdings Ltd. A major objective of the restructuring exercise was to segregate nonbanking activities from banking operations and to ring-fence capital, as well as to provide greater strategic focus.

AWARDS AND RECOGNITION SBM’s sound fundamentals and strong prospects have earned it recognition at both local and international level.

SBM is the first and only Mauritian bank to attain a Bank Financial Strength Rating of C- as of 2007. The bank has a robust risk management framework in place and is fully compliant with Basel II as well as Basel III. Furthermore, SBM was ranked among the

“Among these large banks, SBM ranks within the top 150 globally and first in Mauritius based on qualitative parameters such as return on capital, return on assets, and capital to assets ratio.�

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“One of SBM’s key CSR projects is the unique SBM Scholarship Scheme for bright and needy students, including disabled students, run independently under The SBM Education Fund.

So far, around 1,500 scholarships have been awarded.”

Top 1,000 World Banks by The Banker magazine.

Among these large banks, SBM ranks within the top 150 globally and first in Mauritius based on qualitative parameters such as return on capital, return on assets, and capital to assets ratio.

SBM has received many awards including the Bank of the Year – Mauritius award from The Banker in 2001, 2002, 2004, 2013, and 2014; Best Bank – Mauritius award in the Euromoney Awards for Excellence in 2004, 2005, 2006, and 2013; and Best Bank – Mauritius award from EMEA Finance in 2009. It was awarded Best Bank Mauritius by Capital Finance International (CFI.co) for three successive years, namely in 2012, 2013, and 2014. In 2014, SBM was awarded Best Retail Bank in Africa by African Banker magazine.

CORPORATE SOCIAL RESPONSIBILITY The Group’s corporate social responsibility (CSR) policy focuses on economic empowerment and combating poverty through education. One of SBM’s key CSR projects is the unique SBM Scholarship Scheme for bright and needy students, including disabled students, run independently under The SBM Education Fund. So far, around 1,500 scholarships have been awarded.

SBM’s efforts in the CSR field have earned it the Overall Winner of the BDO CSR Awards 2010 as well as Winner in the Education and Sports category.

EQUALITY AND DIVERSITY PROGRAMME Equality exemplifies SBM’s recognition of the close links between all economic agents, irrespective of their role, and of the importance of ensuring that people are treated justly and given fair chances. Whether in terms of customers, employees, business segments, revenue streams, risks or ideas, diversity generates self-reinforcing dynamics which help SBM grow into a yet stronger and balanced organisation. i

In Pictures: SBM Tower at night

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> Mobil Oil Nigeria:

Leading the Industry in Efficiency

T

he story of Mobil Oil Nigeria plc (MON) dates back to 1907 when Socony Vacuum Oil Company began marketing operations, through the sale of Sunflower Kerosene.

n 1951, the company became a limited liability business with a change in name from Socony Vacuum to Mobil Oil Nigeria Limited. Twenty-seven years later, in 1978, the company obtained a listing on the stock exchange and assumed its current name and status.

MON is one of the major oil marketers and a key player in the marketing of fuels, lubes, and special products in Nigeria. Currently, it operates more than 200 retail outlets in all 36 states of the country including Abuja, the federal capital territory.

In a planned and systematic approach, the company continues to upgrade the image of its retail outlets to standards excellence. This encompasses the installation of environmental protection devices such as flexible plastic piping and double-walled underground tanks. The company’s product haulage by tanker truck continues to raise the bar in transportation safety.

MON consistently records zero work-related accidents in both its own workforce and that of its contractors.

The company also operates a lube oil blending plant (LOBP). This modern state-of-the-art, high-tech LOBP with a capacity of 450,000 barrels is widely regarded as one of the most sophisticated of its kind in Africa.

MON posts superior returns to its shareholders and continues to lead the industry in efficiency and brand image. The company continues to be the industry’s benchmark for ethics, safety, operational excellence, and quality standards.

Its talented and diversified workforce remains the company’s most prized asset. Through their efforts, Mobile Oil Nigeria has met – and in many cases exceeded – its key objectives. MON cherishes its workforce and invests significantly in the upgrading of their knowledge and leadership skills required to maintain the company’s core values of integrity and professionalism.

Customer focus remains the cornerstone of the business and MON continues to receive complimentary feedback regarding the quality and value of its products and services. As a caring corporate citizen, MON actively supports health, malaria, and Ebola control; science and mathematics education, youth and women empowerment, and charity programmes directed at improving the living conditions of those less privileged. i 106

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> CFI.co Meets the Chairman and Managing Director of Mobil Oil Nigeria:

Adetunji Oyebanji

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detunji Oyebanji, chairman and managing director of Mobil Oil Nigeria (MON), joined the company in December 1980 and has held several positions such as regional branch manager and fuels services manager. Mr Oyebanji also held a number of offshore positions as the company’s executive director in both Cameroun and Ethiopia, and manager for wholesale fuels for Africa and the Middle East. He also managed the Exxon Mobil Petrol and Chemicals Company.

Chairman and MD: Adetunji Oyebanji

Mr Oyebanji was first appointed to the Mobil Oil Nigeria board in 2002. After several foreign assignments, he regained his seat on the board in August 2007. Fourteen months later, Mr Oyebanji was appointed MON chairman and managing director.

“Mr Oyebanji has attended numerous training programmes, including a two year developmental assignment at Mobil’s corporate HQ in USA.” Mr Oyebanji has attended numerous training programmes both at home and abroad including a two year developmental assignment at Mobil’s corporate headquarters in Virginia, USA, starting in 1993. He obtained a Bachelor of Science degree in economics from the University of Lagos in 1979. Mr Oyebanji also obtained an MBA in Marketing from City University in London, UK. Mr Oyebanji is a member of several professional bodies and a fellow of the National Institute of Marketing of Nigeria. He is an alumnus of the Thunderbird School of Global Management in Arizona, USA, and of the Lagos Business School Senior Management Programme. i CFI.co | Capital Finance International

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> Alexander Forbes Group:

Three Strategies for Growth Alexander Forbes Group Holdings Limited, a specialised financial services group headquartered in South Africa, successfully listed on the main board of the Johannesburg Stock Exchange (JSE) on Thursday 24 July, 2014. The company focuses on employee benefits solutions for institutional clients and the financial wellbeing of individual clients, in particular employees of the group’s institutional clients.

T

he main services provided by Alexander Forbes Group include retirement funds and asset consulting, actuarial consulting, investment and administration services, employee risk benefits and healthcare consulting, multimanager investment and platform solutions, individual financial advice, and personal lines insurance.

fund assets under management were R60.6 billion as at 30 September 2014. Alexander Forbes, through Investment Solutions, is the largest multi-manager investment company in Sub-Saharan Africa, with assets under administration and management of R300 billion as at 30 September 2014 compared to 30 September 2013, of which R269 billion were assets under management.

The group’s primary clients comprise both the private and public sector market segments, including employers, retirement funds, investment and other special purpose funds on the institutional side, and individual members and beneficiaries of these retirement funds, as well as the wider individual market, on the retail side. Alexander Forbes’ principal geographic focus is South Africa, where it has been in operation since 1935 and is a market leader in its core businesses. The company is also present in Sub-Saharan Africa, the UK, and other selected jurisdictions which have employee benefits legislative frameworks similar to South Africa.

KEY STRENGTHS Alexander Forbes believes that the following competitive strengths contribute to its success and distinguish the company from its competitors: • Market leader in institutional employee benefits and multi-manager investments in its home market in South Africa and in other SubSaharan African countries; • Institutional integrity within a high performance culture; • Well-positioned to respond to changing industry and regulatory dynamics; • Successful track record of organically developing new businesses and creating shareholder value; • Holistic offering across the value chain; • Deep understanding of the retail (individual) member base to support the retail growth initiative; • Leading and scalable multi-management platform; • Well-positioned to capture the Sub-Saharan African growth opportunity; • Long-standing institutional client relationships with high market shares and high customer retention rates; • Predictable revenue base and cash generative model;

Alexander Forbes, through Alexander Forbes Financial Services Proprietary Limited (“AFF”), is a leading employee benefits consulting, actuarial, investment and administration services provider and retirement fund administrator, with retail assets under advisement of R52.3 billion as at 30 September 2014.

Its flagship umbrella retirement fund, the Alexander Forbes Retirement Fund (AFRF), remains one of the largest of its kind in the market measured by assets, and total umbrella

• Capital efficient business model; • Continuous investment in systems and core infrastructure; and • Stable and experienced management team.

Alexander Forbes intends to capitalise on its unique market position and improve the performance of its operations by continuing to grow its core institutional businesses and pursuing the retail, public sector, and Sub-Saharan Africa growth strategies. These growth strategies are group-wide initiatives focused on leveraging the core institutional client base and the group’s market positioning in its core businesses.

RETAIL GROWTH STRATEGY Historically, the group’s various retail businesses have functioned independently. In the last few years, as part of the group’s strategic intent, a conscious decision was taken to drive the retail growth strategy with greater focus, including the establishment of a dedicated retail cluster (Retail Cluster) under a single business leader.

While retaining the specialised focus in each of the respective business lines, the Retail Cluster seeks to use the group’s trusted advisor status with its clients and provide them with a common, holistic client experience to help secure their financial wellbeing, and at the same time better leveraging the client base to deepen vertical sales integration.

The cornerstone of the retail growth strategy is to leverage off the group’s strong relationships with the institutional clients of the pension funds it administers, and build earlier and deeper relationships with the individual clients within the respective funds.

“The cornerstone of the retail growth strategy is to leverage off the group’s strong relationships with the institutional clients of the pension funds it administers, and build earlier and deeper relationships with the individual clients within the respective funds.”

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Head Office: Alexander Forbes

Alexander Forbes reports solid trading results underpinned by strategic growth: • Operating income net of direct expenses increases 17% to R2 377 million for the six months to 30 September 2014 • Profit from operations before non-trading items increases 16% to R544 million • Investment Solutions assets under management and administration surpasses R300 billion • 70 000 new members under administration since September 2013 PUBLIC SECTOR GROWTH STRATEGY Alexander Forbes already has significant public sector business and, based on recent public sector market research, believes that there is further potential to grow its position by mapping its current integrated value offerings and providing innovative consulting and administration services and solutions in response to identified needs in both the institutional and retail segments.

Alexander Forbes established a dedicated team, the Public Sector Division, in order to focus resources on growing its public sector client base. This team’s focus is on setting the overarching public sector strategy and supporting the implementation thereof through effective engagement strategies in order to build lasting relationships with public sector clients and stakeholders and communicate Alexander

Forbes’ holistic value proposition to both new and existing clients.

After identifying opportunities and building the new business pipeline, this team also assists the various Alexander Forbes businesses in tendering for new business and retaining existing public sector clients.

SUB-SAHARAN AFRICA GROWTH STRATEGY Many countries in Sub-Saharan Africa are expected to experience medium to high economic growth rates over the medium term.

Financial services markets in a number of these countries are still at an early stage of development, which represents an opportunity for Alexander Forbes to grow into these relatively underdeveloped and underpenetrated markets, building on AfriNet’s success in Namibia, Botswana, Kenya and experience in developing CFI.co | Capital Finance International

businesses in Nigeria, Uganda, and Zambia.

Pension and social security reforms are among the key criteria taken into account in connection with the group’s expansion in Sub-Saharan Africa.

The group aims to take advantage of favourable legislative changes to expand its operations in the region in the short to medium term. In addition, the continued expansion of South African companies into other parts of the African continent in search of incremental growth presents further opportunities for Alexander Forbes to follow its corporate clients as they expand. In expanding into new territories, AfriNet plans to continue to leverage off its institutional experience and expertise, replicating the successful South African business model, while adapting to the specific domestic commercial and regulatory environment in each country. i 109

> Principles for Responsible Investment:

Investors Must Commit to Engaging Policymakers

UNDERSTANDING TH

The process of public society has a number of cla

By Helene Winch gathering, decision-making, implementation, evalu each.

The recent mobilisation by institutional investors over the climate change issue has captured media attention around the globe, clearly demonstrating the power investors have when it comes to engaging policymakers.

W

hile investor engagement with policymakers is not new, what has changed over the past decade is the emergence of responsible investors seeking policy change that promote sustainable value creation.

This goal dovetails with the needs and interests of policymakers who are interested in long-term economic growth, competitiveness, job creation, environmental protection, and social stability.

In a report published earlier this month, the United Nations-supported Principles for Responsible Investment (PRI) examined the case for long-term investors to engage public policymakers. For some the case is already clear, but for most, it’s not.

The report surveyed PRI’s 1,300 signatories and found that 92% support further work to address obstacles to sustainable financial markets that lie within “market cultures, structures, and regulations.” A further 76% ask the PRI to influence public policy with respect to responsible investment.

However, of 814 investors completing the PRI’s annual reporting framework, only 332 state that they have in fact engaged with policy makers.

We needed to know the reasons behind this shortfall.

STUMBLING BLOCKS TO MORE WIDESPREAD ENGAGEMENT The report found various reasons why organisations are failing to actively engage with policy makers. Some express scepticism about whether public policy engagement will make a difference. Others are concerned about the costs and timeframes involved, and that competitors will free-ride on their work. Most say that their organisation lacks understanding on how to influence policy processes or they fear that policy engagement is the same as political lobbying.

Equally, policy makers can distrust investors.

“Investors say they speak on behalf of their beneficiaries, but that is not always the case,”

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UNDERSTANDING THE POLICY L BREAKING DOWN THE BARRIERS

“The importance of publicThe process To facilitate the has PRI aseeks to of engagement, public policy number of stag explain the range of policy options; regulation fashion: identification, information gathering, dec policy for long-term can be mandatory, stewardship is not, some evaluation, termination and renewal.

Investors nee investors has grown in regulation is national, some cross-border, some each. to capital markets, some specific to recent years as governments applies pension funds, and so on. look to institutional PRI breaks this down into three categories. investors as a source of long- The First, “wider economic policy,” for example, term financing.”

Japan’s Abenomics, or Germany’s energy policy.

Second, “financial sector regulation and policy,” like the US’ Dodd-Frank or Europe’s Solvency II. And finally, “ESG regulation and policy,” like the Code for Responsible Investing in South Africa Decisions need 224 to be made on (CRISA) or France’s Grenelle Laws articles and how to proceed. This will i and 225.

01

one policy maker told us. Another reminded us that “investors are often not the most important stakeholder.” These sentiments explain why investors are often consulted late in the policymaking process, if at all. And, while some of these concerns might be legitimate, there can also be a lack of understanding by the policymaker of the varying needs and interests of market participants.

IDENTIFICATIO

about the issue, the informatio

Within ESG regulation actors and policy are to bethere consulted and the various tools available to policymakers.

At its that may be available. simplest, a policymaker can enforce mandatory exclusions, like cluster munitions. Policymakers Policy processes may be initiated by investors concer can also force investors, or the companies in regulatory frameworks (e.g. Ceres call for the SEC to which they hold positions, to report on how they disclosure of climate change related information in S manage environmental, social, and governance about risks.weaknesses in the implementation of regulatio

The importance of public policy for longterm investors has grown in recent years as governments look to institutional investors as a source of long-term financing. Similarly, investors have become increasingly aware for Responsible Investing in South Africa was catalyse asset owners were not sufficiently ac of the impact of environmental, social, and concerned To promotethat active ownership, a number of economic factors on their ability to deliver long- corporate governments have introduced stewardship governance). term returns, engaging policy makers to tackle codes, including Japan’s, to encourage foreign questions of market failure, such as climate investment in companies. Stewardship codes are change, misaligned incentives, and information voluntary, but generally speaking, market forces asymmetry. This means that both sides must encourage compliance. Finally, policymakers find a way to put aside their differences can require ESG integration, as we see with so that meaningful discussions about ESG Grenelle’s article 225, requiring companies, (environmental, social, and governance) issues including financial entities, to report on their can be effected. commitment to sustainable development, and on the environmental, social, and societal “The aim of policy engagement is not to replace impact of business activities. the market, but correct it,” says Nick Robins, This will involve reviews of co-director of a United Nations Environment Policy engagement is not easy. It requires time, the available evidence, and Programme inquiry into sustainable financial patience, and resources. It also requires stamina. discussions key markets. “Well-developed policy can end Policy engagement can be across with multiple and opinion innovation bottlenecks in order to promote departments, or even stakeholders countries. Perhaps, in formers.

It willofalso include some initialitanalysis research and development, develop market the case tackling climate change, never of the issue question, of the can, options for action, standards and generate higher returns. Active, ends.inPolicy and politics at times, also and engaged owners will also lead to greater analogous.

Investors need to beof objective, of theseem merits of alternative courses action. accountability and governance between engaging on facts. shareholders and corporations.”

Investors can contribute by providing information on

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INFORMATION GATHERING

current practice (e.g. the insurance industry provided this input on Solvency II), and through providing practical support to policymakers (e.g.

Japanese investment trade bodies helped to

Winter 2014 - 2015 Issue

CASE STUDY: SOLVENCY II Strengthening financial sector regulation has been a priority in the wake of the global financial crisis.

However, in addressing one set of policy problems, it is not uncommon to create others. The Solvency II Directive, which sought to strengthen risk management in the insurance sector, may actually increase the sector’s focus on short-term financial performance and reduce its ability to invest in areas such as unlisted assets, infrastructure and private equity.

In the late 1990s, there was wide recognition that the insurance sector was lagging behind banking in terms of risk-based regulation. There was pressure to establish a new regulatory framework for the European insurance industry.

The need to modernise the regulatory framework received further impetus in the early 2000s following the market collapse post-Enron. The agenda was strongly supported by insurance companies, who wanted to be able to better manage their risks, and by regulators who wanted all risks (e.g. balance sheet, credit, market, operational) to be assessed and reported so they could get a better picture of the risk profile of the industry.

Solvency II was intended to consolidate relevant legislation and bring the legislation up to date with modern insurance practices. The framework has three main pillars: • Pillar 1 sets out the minimum capital and solvency capital requirements for insurers, i.e. the ability to withstand a 1-in-200 year financial event lasting for one year.

• Pillar 2 sets out requirements for the governance and risk management of insurers, as well as for the effective supervision of insurers.

• Pillar 3 focuses on disclosure and transparency requirements.

Following preparatory work and extensive consultation with regulators and stakeholders, a legislative proposal was presented to the European Parliament in 2007, and the final version of the Solvency II Directive was adopted in November 2009.

Insurance companies played an active role in the discussions surrounding Solvency II. Much of this was led by trade bodies, such as Insurance Europe, the Pan-European Insurance Forum and the Chief Risk Officers Forum.

CFI.co | Capital Finance International

These trade bodies invested significant time in identifying priority issues and in developing a common agenda concerning these issues for the industry as a whole. This included whether solvency capital would be calculated using a formula developed by regulators or whether the industry could use its internal models, and the specific amount of capital that needed to be held against liabilities.

Following the financial crisis, the industry recognised the implications of market volatility and pressed for changes to reflect the nature of the risks and the characteristics of the liabilities.

In particular, ways of reconciling the fact that assets were to be valued on a mark-to-market basis while liabilities were valued on a risk-free basis were considered.

This meant that insurance companies were exposed to market movements on assets but not on liabilities, which created problems in volatile economic conditions, and ignored the fact that insurance investors may not have needed to sell at these points in the economic cycle, thus reducing the incentive to invest in long-term infrastructure.

The insurance industry therefore engaged intensively with the European Commission to introduce appropriate corrective mechanisms for this problem.

In 2013, a compromise was agreed that addressed investor concerns by allowing them to use mark to market valuations for both their liabilities and their assets.

Following an EU Parliament vote in March 2014, the Solvency II Directive was scheduled to come into effect on 1 January 2016.

Solvency II is a case study of how financial services can work effectively with policymakers to deliver the desired policy goals, in this case strengthening the industry’s risk management processes in an economically effective manner.

However, it also highlights the risks of unintended consequences; in this case, the unintended consequence is that Solvency II may reduce insurance companies’ willingness to invest in longterm infrastructure. This is because the standard risk-based approach in Solvency II results in longer term investments carrying higher capital charges.

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UNDERSTANDING THE POLICY LIFE-CYCLE The process of public society has a number of classic stages which interact in a dynamic fashion: identification, information gathering, decision-making, implementation, evaluation, termination and renewal. Investors need to understand their role for each.

UNDERSTANDING THE POLICY LIFE-CYCLE The process of public policy has a number of stages which interact in a dynamic fashion: identification, information gathering, decision-making, implementation, evaluation, termination and renewal. Investors need to understand their role for each.

01

IDENTIFICATION

Decisions need to be made on what, whether and how to proceed. This will involve discussions about the issue, the information needed, the key actors to be consulted and the policy options that may be available.

Policy processes may be initiated by investors concerned about gaps in regulatory frameworks (e.g. Ceres call for the SEC to require the disclosure of climate change related information in SEC filings), or about weaknesses in the implementation of regulation (e.g. the Code for Responsible Investing in South Africa was catalysed by investors concerned that asset owners were not sufficiently active in terms of corporate governance).

02

INFORMATION GATHERING

This will involve reviews of the available evidence, and discussions with key stakeholders and opinion formers. It will also include some initial analysis of the issue in question, of the options for action, and of the merits of alternative courses of action.

i

Investors can contribute by providing information on current practice (e.g. the insurance industry provided this input on Solvency II), and through providing practical support to policymakers (e.g.

Japanese investment trade bodies helped to co-ordinate policymakers’ dialogue with investors on the Japanese Stewardship Code).

03

CONSIDERATION AND DECISION-MAKING

When making a decision on the policy measures to be adopted, policymakers will assess the likely effectiveness of the options available (including the ‘do nothing’ option), the financial costs and benefits of taking action, and the political implications of taking action.

Investors may contribute to formal consultation processes (such as those that led to the French Grenelle II legislation and that informed the Japanese Stewardship Code). They may also publicly set out their views and lend explicit support to their preferred policy options.

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04

IMPLEMENTATION Depending on the case in question, further guidance or rules may need to be developed, and decisions need to be made regarding responsibilities for implementing the policy measure in question.

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EVALUATION This involves reviewing the effectiveness, the dependability, the cost, the intended and unintended consequences, and other relevant features of the policy measure in question.

Investors can contribute by providing evidence of the impacts and implications of the policy measure in question (e.g. Ceres produces annual reports tracking the number of companies reporting on climate change in their SEC filings and analyses the quality of these disclosures). Investors can also advise on how the policy measure may be strengthened or on whether the policy measure is no longer relevant.

06

TERMINATION OR RENEWAL Termination may be explicitly built into the policy measure, the policy measure may lose relevance or may not be implemented. It is frequently the case that terminated policy measures reappear in another form, such as in another piece of legislative or led by another agency.

Both the French Grenelle II legislation and the European Solvency II legislation can be seen as examples of legislation renewal, where the new legislation revised, updated and, in some ways, replaced existing bodies of legislation.

In many cases, the policy process is ongoing – requiring a long-term stance for effective engagement from investors.

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“Investors should collaborate to pool resources and achieve greater impact, and ensure that traditional investor bodies incorporate responsible investment in their policy engagement.”

To scale up public policy engagement, investors can use the “5C” checklist; commit, construct, clarify, collaborate, and communicate.

By committing to public policy engagement, a long-term investor will adopt a formal position statement, allocating necessary resources.

Investors can assemble a structured process that promotes engagement in policy, clarifying the key policy issues that are of concern to the organisation.

Investors should collaborate to pool resources and achieve greater impact, and ensure that traditional investor bodies incorporate responsible investment in their policy engagement. Finally, investors must communicate, reporting annually on policy engagement to savers and beneficiaries.

Likewise, policymakers must actively seek the input of long-term investors, ensuring key individuals and organisations are properly represented on relevant working groups and advisory panels. Policymakers would do well to better understand the needs and interests of long-term investors and their end beneficiaries, recognising how these differ from other institutional investors, banks, and companies.

FUTURE OUTLOOK Heading into 2015, there will be no shortage of critical policy decisions where responsible investors will need to collaborate and commit.

At the international level, three stand out.

The first is the G20 discussions on long-term financing to close the infrastructure funding gap, and the need to ensure that these policies fully incorporate environmental, social, and governance factors.

The second is the launch of the new set of Sustainable Development Goals, where there is a sharper focus on how to mobilise private capital alongside essential public finance.

The third is the climate change negotiation, culminating in the Paris Conference in December 2015 where the initial compilation of pledges made in New York will need to come to fruition.

These three priorities are of course deeply intertwined. And one of the real contributions that investors can make is to show why a joinedup policy framework is so badly needed to avoid unintended consequences of regulatory change and deliver a truly efficient allocation of capital for the long-term interests of the world’s savers.

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Author: Helene Winch

Investors have great power at their disposal and can effect change. The good news is that policymakers appear to have their office doors open. Jean-Claude Juncker, president of the European Commission, said in an October 2014 speech: “We are facing an investment gap. We have to work to bridge that gap”. The time is now.

CFI.co | Capital Finance International

ABOUT THE AUTHOR Mrs Helene Winch is director of public policy and research at Principles for Responsible Investment (PRI) – an investor initiative in partnership with UNEP Finance Initiative and UN Global Compact. i

Winter 2014 - 2015 Issue

> CFI.co Meets the Head of Women Banking at Chase Bank Kenya Limited:

Marianne Nyangi Marianne Nyangi is the Head of Women Banking at Chase Bank Kenya Limited. She was tasked with setting up the Chase Bank Women’s Programme in 2013, and is responsible for the execution of the Women Banking Strategy and the growth of Chase Woman in the Kenya market.

With more than fifteen years of experience in the banking industry, Ms Nyangi had a successful career in institutional banking prior to heading women banking. She previously worked for Barclays Bank of Kenya and Fina Bank Ltd.

M

s Nyangi explains that Chase Bank Kenya has successfully segmented its customer base in order to offer tailor-made services to clients. The approach was started six years back when the bank decided to target the Asian community as a specific segment. The strategy worked well and has since been applied to the Expatriate community. Chase Bank Kenya also caters to Muslim clients with a range of Shariacompliant services. “While this was going on, we noticed that women have different expectations than men do; that got us thinking about the women’s market,” says Ms Nyangi.

Utilizing the in-house expertise available at Chase Bank Kenya, the Bank was able to develop specialised services designed to suit the needs of customers. “We have a young motivated workforce, over 55% of whom are women. We are now showing the world that we are serious about women and that women are treated equally. We want to be recognized as the bank of choice for women in Kenya.”

Last year, Chase Bank Kenya set up a mentoring club, where more experienced ladies are able to guide younger women coming into the bank and offer work/life balance and career development support. Though the women banking unit was initially focused on high-net-worth women, it is now broadening its efforts to include women entrepreneurs: “We have sub-segmented this further to encompass women groups and young women. We want to reach women at all levels, so they can grow with us.”

The Bank places great emphasis on due diligence and has its officers conduct onsite visits to verify that business are, in fact, owned or operated by women and meet all the criteria. “We started doing this when we realised that some customers were only saying the business was women-owned when in fact it was not.”

Head of Women Banking: Marianne Nyangi

Ms Nyangi explains that Chase Woman carefully analyses the nature of the business, looks at invoices and talks to suppliers and customers in order to truly understand the dynamics involved.

“We look at a woman entrepreneur’s account behaviour for a three- to six-month period of time.

This enables us to take unconventional collateral.

Chase Woman accepts chattel mortgages of business assets; debentures on company assets, as well as shares in the Nairobi Stock Exchange.

For small microloans from 50,000 to 200,000 Ksh, ($575 to $2,300), women may guarantee each other. Chase Woman also looks at the guarantor’s identification and evaluate her on the CFI.co | Capital Finance International

strength of her bank account behaviour.”

Chase Woman offers micro-credit facilities as well. “One of our goals is to take a woman from being unbanked to being fully banked.

So we offer microloans at preferential rates through a government provided fund, the Women Enterprise Fund. It has become very popular.”

Currently, Chase Woman serves about 8,000 clients. However, exponential growth is expected and the bank intends to grow to 30,000 clients.

Most new clients will be owners of small and medium-sized businesses.

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> MIGA (World Bank):

FDI - Treading Carefully into Fragile and Conflict-Affected Situations

By Petal Jean Hackett

More than 1.5 billion people – about one in five of the global population – live in what the World Bank Group terms “fragile and conflict-affected situations” (FCS). For many investors, these countries are “no-go” zones due to their weak governance systems, limited financial and institutional capacity, and elevated levels of violence. These are often considered insurmountable barriers.

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ccording to UNCTAD (United Nations Conference on Trade and Development), last year FDI (foreign direct investment) into fragile and conflict–affected markets was only about 4.5% of the total volume of investments destined for emerging markets or less than one-tenth of FDI into the BRIC countries.

However, it is precisely these countries that are most in need of the financing, skills, and technology that foreign investors can bring.

Countries affected by conflict and fragility often lack basic infrastructure such as housing, schools, factories, communications networks, roads, and trade links. These may all have been severely degraded or destroyed during conflict.

Foreign investment can help bring much needed financing and expertise to close this infrastructure gap.

Similarly, displacement of populations and the disruption of training programmes may have seriously diminished human resources available to these countries. Foreign investors may be able to offer job opportunities, including training and skill rehabilitation. Furthermore, investments can have a stabilising effect on conflict itself.

The World Bank’s 2011 World Development Report explores how lack of economic opportunities and high unemployment often elevate the risk of conflict, especially when combined with internal and external stresses and weak institutions. First-mover FDI can also enhance confidence in a country as an investment destination, encouraging successive generations of investors to take advantage of the opportunities presented by a rebuilding process.

IS IT WORTH IT? Benefits of such investments do not rest only with the host countries. Investors who accept the challenge are usually rewarded with returns that are higher than those to be found in other developing economies. At the World Bank Group’s

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“With demand for electricity growing at an estimated eight percent annually, increased generation is urgently needed in Côte d’Ivoire.”

Multilateral Investment Guarantee Agency (MIGA), we use UNCTAD data to analyse the rate of return on inward investment and found that, for the period 2006-2011, the average rate of return on investments into fragile and conflictaffected countries was approximately 50% higher than the average for investments into low-income countries as a whole.

It may go without saying that investors moving into these high-risk environments employ various risk mitigation techniques, and tend to use political risk insurance at higher levels than investors active in the emerging market class as a whole.

Combining the FDI data with data from the Berne Union - the leading association of public, private, and multilateral insurance – we found that 2013 political risk insurance coverage for developing countries overall was about double the coverage for FDI on a global basis (7% versus 15%).

to these countries and last year, it launched a Conflict-Affected and Fragile Economies Facility (CAFEF) which combines donor contributions with MIGA guarantees to insure even more investment projects in places affected by conflict.

The facility, which has a twenty-year lifespan, operates as a first-loss mechanism, enabling MIGA to assume higher risk and insure more projects in the most difficult contexts. Current contributors to CAFEF include the governments of Canada, Sweden, and the UK. RESTORING INFRASTRUCTURE IN CÔTE D’IVOIRE: THE AZITO THERMAL POWER PLANT After a decade of political turmoil, Côte d’Ivoire emerged from conflict in 2011 and began the long process of recovery. The World Bank, the International Finance Corporation (IFC), and MIGA stepped in, alongside other partners, to support the government’s rebuilding efforts.

Specifically, MIGA and IFC are helping to mobilise private finance for Côte d’Ivoire’s critical power needs.

When we drill down to look at political risk insurance issuance for fragile and conflictaffected countries, political risk insurance coverage jumps to about 59%. Over the period 2006-2013, political risk insurance coverage for all countries, developing countries and fragile and conflicted-affected countries registered at 4.5%, 13% and 35%, respectively.

With demand for electricity growing at an estimated eight percent annually, increased generation is urgently needed in Côte d’Ivoire. In 2012, shortly after the civil crisis of 2010/2011, MIGA and IFC together supported the expansion of the Azito Thermal Power Plant, which will see the existing 290 megawatt simple-cycle plant converted to a combined-cycle plant with increased capacity of 430 megawatts. Upon completion the facility will become one of the largest independent power generators in sub-Saharan Africa. The conversion to combined-cycle also has strong environmental benefits for the country, helping avoid 225,000 tons of carbon dioxide emissions per year.

For MIGA, supporting investment into the countries that need it most is a key part of its operational strategy and essential to achieving the World Bank Group’s twin goals of ending extreme poverty and boosting shared prosperity. Over the last three years, MIGA has tripled its exposure

Given the critical nature of the infrastructure needs in post-conflict Côte d’Ivoire, launching the project within a short time after the conflict ended was imperative. In this context, participation

by MIGA and IFC was critical in mobilising private investor participation. IFC arranged a

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Côte D’Ivoire: Azito Thermal Power Plant

$350 million debt package, consisting of $125 million on its own account with the balance coming from five European development finance institutions and the Banque Ouest Africaine de Développement (West African Development Bank). MIGA provided the equity investor and lead sponsor, Globeleq, with a guarantee against the risk of breach of contract for an amount up to $116 million. This ground-breaking transaction was recognised as “African Power Deal of the Year 2012” by Project Finance International.

RISKS, REWARDS, AND TOOLS While the risks associated with investing in fragile and conflict-affected situations should not be underestimated, such opportunities do warrant careful consideration given their higher return on investment (on average) and the broad range of available risk mitigation tools. MIGA is committed to its mission of promoting FDI into developing countries and hopes to expand its activity further in fragile and conflict-affected contexts over the coming years. i

MIGA’s commitment to stimulating investment at a crucial moment in Côte d’Ivoire’s history means that we have also insured other recent infrastructure and power projects during the postcrisis period, totalling $840 million in exposure.

ABOUT THE AUTHOR Petal Jean Hackett is an economist at the Multilateral Investment Guarantee Agency, the political risk insurance and credit enhancement arm of the World Bank Group.

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Author: Petal Jean Hackett

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> Middle East:

Tunisia - Hope Springs Eternal It was an unlikely place for a revolution to unfold and is now as surprising a stage for a full-fledged democracy to take hold. Tunisia has become the bellwether nation of the Arab World. With the election, on December 21, of BĂŠji CaĂŻd Essebsi to the presidency, Tunisian voters signalled a strong desire to put their country on an even keel. They also firmly rejected political and religious radicalism, opting instead for moderation and modernity.

Tunisia: El Djem

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resident-elect Essebsi received close to 55.7% of the popular vote and vowed to form an inclusive government willing to work in tandem with opposition forces for the betterment of the nation.

Mr Essebsi’s post-electoral promise encapsulated more than just the political sweet talk expected of a victor; it sought to distance Tunisia from the adversarial and confrontational civic realities all too common elsewhere in the region.

In the heady days following the Jasmine Revolution that ousted long-time President Zine Ben Ali in January 2011, Mr Essebsi was appointed prime-minister of a transitional government. Over the next ten months, he managed to pull the country back from the brink of civil war without imposing checks on the newfound freedoms. Mr Essebsi also succeeded in carving out a space for the moderate Islamist Ennahda Movement (Renaissance Party) without disturbing the delicate political balance.

INCLUSIVE APPROACH PAYS OFF The inclusive approach Mr Essebsi practiced as prime-minister paid off handsomely. Though the Ennahda Movement won over 37% of the vote in the October 2011 election for a Constituent Assembly, it immediately agreed to cooperate with the two runner-up parties – the secular and leftist Congress for the Republic (Al Mottamar) and the social-democratic Ettakatol – to form a broad coalition government.

The leadership of the Ennahda Movement goes to great pains to express its support for economic liberalism and political pluralism, vociferously rejecting radical Islamism. In January 2014, the movement also stepped aside without demur to make way for a neutral caretaker government charged with the final drafting of the constitution and the preparing of elections.

Though Ennahda did not field a candidate for the presidential vote, the movement managed to obtain 69 seats of the 217-strong national assembly in the October 26 parliamentary election. Mr Essebsi’s Nidaa Tounes (Call for Tunisia) party won 85 seats. Ennahda leaders explained their party’s absence from the presidential ballot as a way of ensuring political pluralism. “We want to send a positive message to the Tunisian people and politicians and do not want to dominate all contests,” explained the movement’s spokesperson Zied Ladhari on the eve of the vote. Pointedly, the movement abstained from endorsing any of the 27 presidential candidates.

“The leadership of the Ennahda Movement goes to great pains to express its support for economic liberalism and political pluralism, vociferously rejecting radical Islamism.”

It is, however, widely expected that Ennahda will be granted a prominent role in the Essebsi Administration scheduled to assume power on January 14. President-elect Essebsi is an 88-yearold lawyer and former diplomat and minister of Foreign Affairs who has been active in politics since the early 1940s when he joined the New Constitutional Liberal Party (Neo Destour) and the fight for independence from France. As a lawyer, he vigorously defended fellow activists accused of sedition by the French administration.

ESSEBSI: THE MAN After Tunisia gained independence in 1956, Mr Essebsi became an advisor to President Habib Bourguiba, eventually landing various ministerial posts and an ambassadorship to Paris. He resigned from government in 1972, expressing frustration over the lack of democratic progress.

Mr Essebsi returned to politics in 1981 to serve as minister of Foreign Affairs under PrimeMinister Mohamed Mzali. He survived the cabinet shake-up caused by the bread riots of 1986 and the removal of President Bourguiba from power on health grounds a year later. In 1990 and 1991, Mr Essebsi presided over the Chamber of Deputies before retiring from political life.

A skilful political operator, President-elect Essebsi may turn out to be the type of leader the wider region has been clamouring for: secular, pragmatic, experienced, and – even more importantly – not easily spooked by visions of Islamism gone wild. As such, the president-elect is much a product of his country’s democratic exceptionalism. Since the political reforms of the mid-19th century, Tunisia has held on to a fairly strict separation of church and state. The postindependence presidency of Habib Bourguiba also helped establish a solid middle class, nurtured by a good public education system, gender equality, and social reform.

Militant Islamism failed to gain a foothold as popular dissatisfaction with the secular state was minimal, safe for a few outbursts. Habib Bourguiba may have presided over a one-party state that proclaimed him president-for-life (in 1975), political repression – while fierce – never reached the intensity prevalent in neighbouring

Libya or in Egypt. Also, the Tunisian Army stayed mostly out of politics and when the generals did proffer an unsolicited opinion, they came down on the side of peaceful change.

The birthplace of the Arab Spring on December 17, 2010, when street hawker Mohamed Bouazizi set himself on fire to protest harassment by municipal officials and sparked a popular uprising, Tunisia is now writing the closing chapter of an era that saw five presidents chased out of office and major uprisings take place in nine countries. With the threat of radical Islamism removed and a constitutional government willing to accept dissent, the country has a good chance of tackling the formidable economic challenges it still faces.

Tunisia offers more hope than any other country affected by the upheavals of the Arab Spring. The country’s unique political makeup also insulates it well against any jihadi spillover from Libya or Syria. It does not seem too far-fetched to hail Tunisia as a possible model for the wider region.

SLIGHTLY BOISTEROUS The country – young, excited, and even slightly boisterous – now needs all the support it can get.

At 15.7%, unemployment remains the largest challenge, and the most dangerous one to ignore.

In its outlook for 2015, the African Development Bank (ADB) expects the Tunisian economy to return to accelerated growth now that political uncertainties have been removed. The bank noted that the key tourism sector has proved surprisingly resilient with receipts up 2.6% over 2013. The export industry is humming along nicely as well on the coattails of a 10% depreciation of the dinar against the euro.

According the ADB Economic Outlook, Tunisia should have no trouble stepping up growth rates since it is particularly well inserted into global value chains. The country may now perhaps also reap the full rewards of its free-trade agreement with the European Union as new industrial sectors, such as aeronautic and automotive component manufacturing, are being developed.

However, the incoming government must also deal with some potentially explosive legacy issues. The widespread use of direct subsidies to keep food and fuel prices in check is a severe drain on the government’s finances and limits its ability to set policy. A rationalisation of public spending priorities is urgently called for as are labour and capital market reforms. If anyone can deliver these reforms without causing tempers to flare, it is the ever unperturbed Mr Essebsi. i

“The country may now perhaps also reap the full rewards of its free-trade agreement with the European Union as new industrial sectors, such as aeronautic and automotive component manufacturing, are being developed.”

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> CFI.co Meets the Senior Executive Vice President of Burgan Bank:

Robbert-Jan Voogt

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s one of the leading brands of the Kuwaiti banking sector, Burgan Bank Group prides itself on growing strong locally, regionally, and internationally through a sound execution of a solid plan. The group currently operates in a strategic pool of economic and business opportunities by attaining trust through excellence as its core objective.

BURGAN PRIVATE BANKING UNDER ROBBERT-JAN VOOGT’S LEADERSHIP Today, Burgan Private Banking is one of the leading names in private banking and wealth management among Kuwaiti banks catering to the needs of elite clients, offering personalised investment and financial services to high and medium net worth clients. The bank launched a private banking division in 1999 and has since created a solid ground for itself. Under the leadership of Robbert-Jan Voogt, regional head of private banking, the bank is able to offer an excellent product range both locally and internationally through its strong local and international alliances.

Robbert-Jan Voogt has been heading the regional private banking unit of Burgan Bank since September 2013. Through his determination and combined teamwork, Burgan Bank was able to continue receiving the Best Private Bank in Kuwait Award for three consecutive years by Capital Finance International, one of the world’s leading journals on banking and finance.

The awards were achieved as a result of the nominations and referrals that Burgan Bank continued to receive, along with its continuous commitment towards implementing international best practices which solidifies the delivery of a trusted premium private banking service to its clients. The bank has also been commended for proving its strong financial performance and successful asset management that protects and helps clients build upon their accumulated wealth.

With years of experience rotating through multiple roles within the private banking industry, Mr Voogt’s journey with private banking started since 1996 in Amsterdam, Netherlands. In the following years, he has played key roles developing private banking strategies in the banking sector in Europe, Asia, and the Middle East until he finally settled in Kuwait in 2013. Today, Mr Voogt is both the chief operating officer and regional head of Private Banking at Burgan Bank, based in Turkey, applying his thought leadership within the bank’s private banking sector.

Senior Executive Vice President: Robbert-Jan Voogt

EFFECTIVE PRACTICE AND COMPETITIVE EDGE Maintaining its deep-rooted presence in the banking industry, backed by the strength of the Burgan Bank Group, and following the change of the principal shareholder, the Burgan Bank Turkey Private Banking Unit (PBU) has been launched in January 2013, while Jordan Kuwait bank’s PBU has been launched earlier in 2006, seven years after Kuwait’s launch of the unit.

advisory and wealth management services which include investment vehicles and traditional banking services to high-net worth individuals.

Clients are offered a wide variety of traditional and exclusive banking products and services that meet their complex banking needs. Whether undertaking a routine transaction or accessing more complex services, Burgan Private Banking meets one’s banking needs.

In the private banking segment, Burgan Bank offers structured treasury and capital market products and alternative investment options, in addition to deposit and standard treasury products. Most of the clients are concerned about the risks of fluctuating markets and volatile currencies and interest rates and the impact these may have on their wealth.

The bank’s primary target audience in private banking is comprised of high net worth business owners and senior executives of companies which are the corporate and commercial customers of the bank. At the end of 2013, almost half of the bank’s customers in the private banking segment had corporate and commercial relationships with Burgan Bank. This current level contributes to the creation of cross-selling opportunities between business lines – an extremely important target for the Bank.

Burgan private bankers use their expertise in risk management to help preserve wealth and avoid losses caused by market uncertainties. As well, they use the local market knowledge and global accessibility to provide customers with new ways to earn high returns all centred on the customer’s risk and reward profile.

PRIVACY AND SATISFACTION Burgan Private Banking provides personalised CFI.co | Capital Finance International

Burgan Bank will continue anticipating and understanding client needs, to help achieve their immediate and long-term wealth goals.

Through its record of excellence and sustained improvement of its offerings, the bank pledges on maintaining strong personalised relationships with its clients, based on trust and excellence. i 121

> World Bank MENA Chief Economist:

Towards a New Social Contract in the Middle East and North Africa

By Shanta Devarajan

A snapshot of the Middle East and North Africa (MENA) Region today reveals a diverse and discouraging picture (Figure 1). Syria, Iraq, and Libya are suffering from violent conflict that has devastated people’s lives, infrastructure, and national economies, with spill overs to neighbouring countries.

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snapshot of the Middle East and North Africa (MENA) Region today reveals a diverse and discouraging picture (Figure 1). Syria, Iraq, and Libya are suffering from violent conflict that has devastated people’s lives, infrastructure, and national economies, with spill overs to neighbouring countries.

The “Arab-Spring” countries of Tunisia, Egypt, and Yemen are in the midst of turbulent political transitions. They, as well as countries undergoing more gradual transitions, such as Jordan and Morocco, are experiencing slow economic growth and worsened macroeconomic imbalances. Until the recent fall in oil prices, the resource-rich GCC (Gulf Cooperation Council) member states had been growing rapidly, but they now too face problems of unemployment and undiversified economies.

But a longer-term perspective – a movie rather than a snapshot – indicates a more homogeneous region and a more hopeful future. Despite differences in their current circumstances, MENA countries have been following more or less the same development model since independence.

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“But a longer-term perspective – a movie rather than a snapshot – indicates a more homogeneous region and a more hopeful future.”

In this model, there was a social contract between the state and citizens, whereby the government would subsidize food, fuel, and water, and provide health and education for free.

The public sector was the main employer. In turn, the private sector was based on privilege rather than competition, with evidence from Tunisia and Egypt that the privileges were often enjoyed by politically connected families. Most governments were considered autocratic, albeit to different degrees.

Furthermore, through the first decade of the 21st century, this common social contract delivered similar and relatively successful results. Annual economic growth averaged 4-5 percent. Extreme

poverty (people living on less than $1.25 a day) was effectively eliminated. Almost everyone completed primary school, and enrolment rates in secondary and tertiary education – for both men and women – were high and rising.

MENA registered the fastest decline in child mortality rates in the world (Figure 2). Contrary to perceptions, inequality – as measured by conventional indicators such as the Gini coefficient – was lower than in comparable countries elsewhere and either constant or declining.

Yet, in 2010-11 this same region saw widespread protests that led to the overthrow of the government in power in Tunisia, Egypt, Libya, and Yemen, and greater political opening in Morocco and Jordan. Why? Alongside numerous political, social, and cultural explanations, there is an economic one: The old development model had reached its limits.

Governments could no longer afford to subsidize food and fuel, provide free health and education, and keep such a large share of the labour force employed. Faced with unsustainable fiscal

Real GDP Growth Rate

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Figure 1: Economic growth in MENA. Source: World Bank, MENA Economic Monitor, October 2014.

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The combination of lack of jobs and poor services meant that the middle class was stagnating, breeding resentment and alienation among the population. In Egypt, when extreme poverty was falling rapidly, the share of the population earning $4 or $5 a day had hardly changed since the 1990s (Figure 3). In Tunisia, when incomes were rising at four annually, the percentage of people who said in a Gallup Poll that they were “thriving” declined every year.

200 150 100 50 0 1970

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Figure 2: Rapid decline in child mortality in MENA. [Mortality rate, under-5 (per 1,000 live births): population-weighted averages]

The few jobs that were available, were allocated based on connections rather than merit. In a Gallup Poll survey, the percentage that agreed with the statement, “Connections (wasta) are critical to getting a job,” was 80 percent (Figure 4).

Source: Iqbal and Kiendrebeogo (2014), “The Reduction of Child Mortality in MENA: A Success Story.”

deficits, governments cut back (or slowed the growth of) public employment. But the private sector, having been protected from competition, could not grow fast enough to absorb the large number of educated young people entering the labour force.

exceeding 25 percent. Men who could not afford to be unemployed, took highly insecure jobs in the informal sector. Women, including educated women, dropped out of the labour force. At 25 percent, MENA has the lowest female labour force participation rate in the world.

In particular, there was little room for the young small and medium enterprises – typical engines of job creation around the world – to grow. The causes were the host of business regulations that restricted entry and exit, especially in sectors such as banking, transport, and telecommunications in Tunisia where the Ben Ali family had a significant interest.

Meanwhile, although it delivered basic health and education, the public system was falling short on quality. Secondary-school students, even those from high-income countries like Qatar and UAE, were scoring poorly in international standardised tests. In Egypt, about seventy percent of the students used private tutoring.

Students in secondary schools and universities were not being taught the skills that the market demanded, creating job vacancies alongside high unemployment.

The resulting high cost of these services made it difficult for Tunisia’s labour-intensive export sector to take off. Similarly, energy subsidies, by favouring energy-intensive and therefore capitalintensive firms, discriminated against younger, smaller, labour-intensive firms. There is also some evidence from Egypt that these subsidies went disproportionately to politically-connected firms.

The result was the highest unemployment rate in the developing world, with youth unemployment

With doctor absentee rates of 20-30 percent in public clinics in Egypt, Morocco, and Yemen, patients, desperate for care, resorted to private clinics. As one woman put it, “You can go to the private clinic and lose your money, or to the pubic clinic and lose your life.” In addition, subsidised energy and water contributed to chronic power cuts and water shortages, hurting industry and agriculture.

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Figure 3: Egypt - population living on $4 and $5 a day (% of population living below poverty line).

Source: World Bank, World Development Indicators.

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In short, the people protesting in the streets were calling for a new social contract, one where the government, instead of being the employer of first and last resort, would enable the private sector to grow and create jobs. And one where citizens could hold the state accountable for quality services, rather than the other way around.

Unfortunately, the aftermath of the Arab Spring has been so turbulent – and in some instances so violent – that economic performance in almost every country declined. Economic growth fell from an average of almost five percent a year to two percent. Fiscal deficits increased to the point where some countries’ debt reached dangerous levels. Unemployment increased, especially for women and young people. The unemployment rate for young Egyptian women currently stands at over sixty percent.

To quell the political unrest, some governments increased subsidies and public sector employment. In Syria and Libya, bloody civil wars have made it difficult, if not impossible, to address the underlying economic distortions that triggered the uprising in the first place. And in those countries that have not had an uprising, but are facing the limitations of the old development model, reform progress has been slow, not least for fear of triggering an uprising.

In this situation, what can be done? While each country’s situation is different, the fact that they all followed the same development model, and are facing the same limitations to that model today, suggests two common elements of a new social contract.

1. Fostering competition in domestic markets. Policies and regulations that promote competition, including competition from foreign companies, will reduce the risk of political capture and allow SMEs to grow and create jobs.

2. Strengthening accountability in the delivery of public services. Institutional arrangements that enable students and patients to hold teachers and doctors accountable – vouchers, empowered school management committees, etc. – will contribute to improving the quality of service delivery.

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100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Figure 4: “Connections (wasta) are critical to getting a job.” Source: Gallup World Poll, 2013. [legend: dark red - ‘agree’ / light red - ‘not agree’]

Although not sufficient, two concrete steps can further both these elements significantly. One is the replacement of energy subsidies (which account for five to ten percent of GDP in the region) with targeted cash transfers. Not only will this reform enable the poor – who now receive only a small fraction of the subsidy – to benefit more, but it will reduce the advantage enjoyed by large, capital-intensive enterprises, thereby promoting SMEs’ growth. Such a reform will also reduce some of the other distortions caused by energy subsidies, such as air pollution, congestion, and the depletion of water resources.

Finally, it will reduce the fiscal deficit.

The second, albeit controversial, step would be to provide poor people with cash so that they can “buy” education and health services in the private sector. At present, there is a thriving private market in these services, but only those with means can use them. Instead of pouring more money into the free, public system (which does not seem to be delivering quality services), it is worth exploring whether protecting poor people with cash transfers, and regulating the private system, would lead to better outcomes.

It will certainly strengthen citizens’ ability to hold providers accountable.

Needless to say, the application of these principles will be different across countries. For countries in conflict, the short-term demands of humanitarian assistance and peace-building will have to take precedence. However, these principles could be part of a post-conflict recovery program. The demand for a new social contract was explicit in the transition countries, but it is equally relevant to other countries that are suffering from high unemployment, sluggish 124

private sector growth, and weak accountability Agre in public services. The principles could also be relevant for the GCC where the effectiveness of the development model of oil rents’ being distributed through public employment and subsidies is being questioned.

In applying the approach, it is important to recognise that the proximate effects of a policy reform or investment may not be the relevant indicator. For instance, a public-sector investment that creates jobs, but maintains or reinforces the oligopolistic structure of the private sector, would not be contributing to the new social contract. Conversely, a reform that leads to a more open economy, allowing domestic entrepreneurs freedom to participate, may at first blush appear to be destroying jobs (those in the protected firms), but is in fact promoting the competitive private sector that is needed for the new approach to function.

Moving to the new development model will be neither easy nor quick. But the facts that (i) MENA countries made outstanding progress on poverty reduction and human development; (ii) in 2011, people rose up to demand what is their due, namely jobs and quality services; and (iii) we now understand the limits of the old development model and the contours of the new one; signal that the people of the MENA region will emerge from their present-day difficulties and realise their goals of a dynamic private sector, quality public services, and accountable government. i

The views expressed in this article are not necessarily those of the World Bank.

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ABOUT THE AUTHOR o agee Mr Shantayanan Devarajan is the Chief Economist of the World Bank’s Middle East and North Africa Region. Since joining the World Bank in 1991, he has been a Principal Economist and Research Manager for Public Economics in the Development Research Group, and the Chief Economist of the Human Development Network, of the South Asia Region, and of the Africa Region. He was the director of the World Development Report 2004, Making Services Work for Poor People. Before 1991, he was on the faculty of Harvard University’s John F. Kennedy School of Government. The author or co-author of over 100 publications, Mr. Devarajan’s research covers public economics, trade policy, natural resources and the environment, and general equilibrium modeling of developing countries. Born in Sri Lanka, Mr. Devarajan received his B.A. in mathematics from Princeton University and his Ph.D. in economics from the University of California, Berkeley.

ABOUT THE OFFICE OF THE CHIEF ECONOMIST The Office of the Chief Economist of the World Bank’s MENA Region (MNACE) seeks to bring the best possible knowledge to bear on the development problems of the region. In addition, MNACE leads the formulation of the Bank’s regional strategy, while overseeing the country strategies.

The chief economist is responsible for the quality of economic analysis in the Bank’s products in the region. Finally, the office helps to build a community of economists working on the MENA region.

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> Baz Real Estate:

Fully Sharia-Compliant Timeshares Since 1990, Baz Real Estate Company has taken responsibility for the development of the tourism facilities in the Middle East by introducing the holiday ownership concept to the market. The company participated in the structuring of the first timeshare resort in the Middle East. It was built in Hurghada, Egypt.

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he project soon proved a great success which encouraged Baz Real Estate to broaden its horizon and enter both the European and North American timeshare markets. The positive results were enough to attract many international companies to the Middle East. It was a tough job to introduce the product in a formula suited to Middle East traditions and needs. This was due to timeshare’s lack of flexibility.

Royal Holidays was the right answer to the needs of the company’s clients. The major innovation introduced by Baz Real Estate was the design of a points system by the close of 1996. The resulting product achieved an exceptionally high degree of customer satisfaction.

The achievements accumulated in this field, provided Baz Real Estate with enough power to tackle the next challenge. By the end of 2000, the company completed building the unique formula of our product combining the strong elements of both holiday ownership and the points system introduced with Royal Holidays.

The formula was introduced in the Middle East market in June 2003 by applying it on Zazam Grand Hotel at holy Makka under the commercial name Sokouk Zamzam. It was completely Shariacompliant. The product achieved great success by the end of June 2006 with a total turnover of $900 million.

“In addition to inventing the product, marketing and selling it, Baz Real Estate established the Baz Hotel managed with Sharia-compliant Mushaa shares.”

Alam in Egypt. In July 2011 Baz Real Estate introduced Baz Sarajevo to the market. Lately, the company has launched Mushaa shares of Park Suites in Istanbul.

In addition to inventing the product, marketing and selling it, Baz Real Estate established the Baz Hotel managed with Sharia-compliant Mushaa shares.

MUSHAA SHARES (UNDIVIDED SHARES) We strongly believe that Islamic rules are valid for all times and in all places. Thus: Back to the origin!

Sharia Adaptation – Forms of Ownership Incomplete Ownership can take two forms: Proven ownership of the asset itself without owning its benefits, or owning the benefits of the asset without the ownership of the asset itself. Incomplete ownership is where the asset ownership and the ownership of asset benefits are not combined.

Sokouk Zamzam was the joint station that harks back to the origins. Baz Real Estate realised from the first instance that holiday ownership can fit within the Mushaa ownership rules which are stipulated and properly organised Islamic Rules.

Islamic Law permits the benefits ownership without the asset and can be dispensed with in all types of legal acts. This is what makes it different from the concept of usufruct, which is merely a permission for personal use.

By this time all elements had been completed to announce and introduce the final formula of our Sharia-compliant product under commercial name Mushaa shares which applies to undivided shares of complete ownership. Baz Real Estate started marketing the product with Copthorne Hotel in Dubai in June 2006. After one year, the company introduced Manazel Alain Hotel in Makka. Then in April 2009, Baz Real Esate started Mushaa shares of Baz Marina at Marsa

Benefits Ownership has the following characteristics: • It can initially be exchanged between the beneficiaries.

• The benefits owner guarantees the asset against damage or defect which may be caused by him.

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Complete Ownership is the ownership of the asset itself combined with the owning its CFI.co | Capital Finance International

benefits. A majority of jurists have stated that benefits ownership can be inherited.

Private ownership may also be divided into two types: Independent private ownership whereby the asset is owned by one person only, and common private ownership whereby the ownership of the assets is shared between two or more people.

The focus here is on complete common private ownership.

Usage dividing comprises the division of shared benefits, in terms of time and/or place: • Time usage dividing: Where each partner benefits from the complete shared asset for a certain period of the year pro-rata their shares.

• Place usage dividing: Where each partner benefits continuously of a certain part of the shares asset pro-rata their shares.

• Time and place usage dividing: Where each partner benefits from a certain part of the shared asset and for a certain period of the year pro-rata their shares.

The focus here is on usage and the dividing of time and place at the same time, which defines the value of benefits before acquisitions reasons occur.

OWNERSHIP TYPES AS PER UNDIVIDED SHARES Undivided Shares in the Islamic Legislation In case the ownership of the benefits is limited to a certain number of years, then the Mushaa Shares represent a private shared ownership of the benefits of the asset excluding ownership of the asset itself, where each partner benefits from certain part of the asset and does so for a certain period of the year pro-rata their shares, with the partner’s waiver of pre-emption.

In case the ownership of the benefits is not specified with certain number of years, the Mushaa is a complete common private ownership.

What Is the Mushaa Asset?

The Mushaa asset is Park Suites and includes

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Baz Marina: Marsa Alam

Baz Marina: Marsa Alam

Manazel Al Ain: Macca

Manazel Al Ain: Macca

the land and all its buildings as described in previous pages.

Undivided Shares Mechanism A unique mechanism enables the Mushaa shares system to deal with both Hijri and Gregorian calendar years in parallel. It offers the perfect solution to consider the reflections of the Hijri calendar change of seasons on the Gregorian calendar.

The Gregorian calendar has been divided into 52 weeks allocated within different seasons of the year. The accommodation units are classified in terms of area, view, and floor location and other necessary factors. These factors are weighted on scientific basis considering market demand.

Total Mushaa shares are thus distributed to the accommodation units, pro-rata the weighted value.

Mushaa shares of each unit are then distributed to the weeks of the calendar year pro-rata the weighted value of the seasons.

To join the Mushaa shares system, the needed period of the chose unit must be selected.

The total number of Mushaa shares equals the shares allocated for such period that must be purchased.

The Mushaa shares owner may use his allocated unit and period or exchange it with another period and/or unit.

BENEFITS OF UNDIVIDED SHARES Accrual The Mushaa shares owner may use the owned Mushaa shares, all or partially, during the next one year.

Exchange The Mushaa shares owner may exchange the unit and/or the period allocated to him, for another unit and/or period, within his available balance of Mushaa shares.

Flexibility The Mushaa shares owner may split the week into two periods, mid-week (Saturday to Wednesday) and weekend (Wednesday to Saturday), and in most cases, booking by night and its multiples is applicable.

Hosting The Mushaa shares owner may gift his shares subject to issuing a Guest Certificate.

Leasing The Mushaa shares owner may lease his Mushaa shares in compliance with the rules CFI.co | Capital Finance International

and regulations applied in this respect, or assign the programme manager to take over this task, where he adds the owner unit to the rental pool under the following terms and conditions: • If the lease order is placed 90 days prior to the check-in date, the leased Mushaa shares value will be equivalent to the original value.

• If the lease order is placed more than 60 days & less than 90 days prior to the check-in date, the leased Mushaa shares value will be equivalent to 80% of the original value.

• If the lease order is placed more than 30 days & less than 60 days prior to the check-in date, the leased Mushaa shares value will be equivalent to 60% of the original value.

• If the lease order is placed less than 30 days prior to the check-in date, the leased Mushaa shares value will be equivalent to 30% of the original value.

• At the end of the concerned year, 20% of the net rental revenue will be deducted for commission and management expenses. The remainder will be distributed between the Mushaa shares owners pro-rata their leased Mushaa shares value.

Nevertheless, by considering the depth of the Islamic Rules, we have been working to perfect the Mushaa shares system where ownership definition, exchange, and inheritance are builtin. i 127

> Burgan Bank Group:

The Journey of Innovation in a Fiercely Competitive Financial Marketplace Throughout its journey, and inspired by accomplishments and accolades, the Burgan Bank Group has carved-out an enviable niche in the highly competitive industry. It managed to do so thanks to a resilient and prudent growth strategy. The bank is now poised to solidify its position as a highly innovative, customer and investor-centric brand. Even as the bank’s main focus remains on serving corporate clients and financial institutions, it has succeeded in augmenting its retail and private banking customer base.

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he group is consistently working to strengthen its position as the best quality financial services provider through value driven strategies that aim to improve customers’ banking needs in Kuwait, and indeed across the region where it maintains subsidiaries. The bank witnessed, and continues to benefit from, a significant turnaround in profitability, operational growth, and an increased number of recognitions by leading entities across the banking sector.

Over the years, the group’s success story has been characterised by its continually improving performance, mainly through the development of a robust and expanded revenue structure, diversifying its funding sources and maintaining a solid capital base.

IN THE BEGINNING Established in 1977, Burgan Bank – a subsidiary of the financial conglomerate KIPCO – is the latest entrant in Kuwait’s commercial banking domain. The bank, which initiated its business as a small Kuwaiti financial institution, has become the country’s third largest bank in terms of assets, and currently has five subsidiaries in which it is the majority shareholder. These include Gulf Bank Algeria (AGB), Bank of Baghdad (BOB in Iraq and Lebanon), Jordan Kuwait Bank (JKB), Tunis International Bank (TIB), and the fullyowned Burgan Bank Turkey.

In 2005, Burgan Bank adopted both a new corporate identity and a strategy as a key parts of Bright Future – a project to be implemented over a period of five years. The strategy, focused on the retail side of the business, aims to undertake an internal restructuring of branches, services, and products. This involves a branch strategy unique to the region that categorises 128

“Over the years, the group’s success story has been characterised by its continually improving performance, mainly through the development of a robust and expanded revenue structure, diversifying its funding sources and maintaining a solid capital base.” and remodels branches into one of three types: Financial Centres, Solutions Branches, and Transaction Branches. These are to suit the specific banking and financial needs of distinct customer segments and profiles. The bank also enhanced its customer services practices through the introduction of a new Customer Experience Management (CEM) Division and the Customer First Initiative which spells out how integrating technology, systems, and staff expertise can enable the bank to better meet the needs and preferences of customers.

GEOGRAPHIC FOOTPRINT EVOLUTION Between 2006 and 2007, the overarching strategy of Burgan Bank Group’s wide geographic reach has been put into place. In 2008, Burgan Bank managed to transform its business from a local financial institute to a regional one under the umbrella of its Bright Destiny by acquiring Jordan Kuwait Bank, which was also has a presence in Cyprus. The group’s story later expands to Algeria with the acquisition of Algeria Gulf Bank, to Iraq with Bank of Baghdad – which is active in Lebanon as well – and to Tunisia through the acquisition of Tunis International Bank.

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This geographic expansion was followed by a fortified balance sheet in 2010 wherein the bank issued the largest bond ever raised by a private sector issuer with the longest tenure of ten years.

The bonds were issued at a discount and paid coupons semi-annually in arrears. The bond was then assigned a long-term rating of A3 by Moody’s and BBB by S&P. Currently, the bond is rated Ba1 after a review by Moodys in 2013 on GCC (Gulf Cooperation Council) banks’ subordinated debt. This followed a change in methodology.

The ten-year subordinated LT2 bond was issued in fixed and floating rate tranches. This tenure was the longest in Kuwait’s history.

In 2012, the Bank issued KD100 million bonds due in 2022 at the principal amount, rated BBB+ by Capital Intelligence. The ten-year subordinated LT2 bond was issued in fixed and floating rate tranches.

Between 2010 and 2013, Burgan Bank has conducted a successful turnaround of the group’s profitability. Burgan launched innovative and unique products, backed by best practices and excellence in many areas and, most importantly, delivered a total shareholder return that is higher than the industry average. With a resilient and prudent regional strategy, combined with focused execution, each of the subsidiaries continues to perform well and deliver even in non-expansionary cycles. This was implemented in an exceptionally tough operating environment, which was characterized by volatility, low investment, and low job creation.

The bank’s growth was reinforced by its success in implementing its home-grown formulae 4×4 strategy, which insulates it from market volatility and the vicissitudes of economic cycles. The formula has been instrumental in delivering a

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Capital Finance International, one of the world’s leading journals on banking and finance. The bank was also presented with various other awards such as Best Private Bank 2011, the coveted International Platinum Star for Quality Award, and the Best Technical Award. In 2012, the bank received the Best Banking Group in the MENA Award as well as the Best Corporate Bank in Kuwait Award. Additionally, the bank also won the coveted Best Bank Branding Award, Best Private Bank Award, as well as the Best Private Bank in Kuwait Award in both 2012 and 2013 from leading financial entities.

In 2013, Burgan Bank Group was named MENA Bank of the Year and Best Banking Group in MENA for the second consecutive year. The bank also won the much sought-after Best Domestic Retail Bank of the Year Award as well as Best Private Bank in Kuwait for the third year running

by Capital Finance International, followed by the Best Employee Development in GCC Award.

In 2014, Burgan Bank won the coveted Best Domestic Cash Management Bank of the Year and the Best Investor Relations in GCC Awards.

The bank also bagged the Best Private Bank in Kuwait 2014 award from Capital Finance International for the fourth consecutive year.

FINANCIAL PERFORMANCE During the first nine months of the year, net profit surged by 177% reaching KD48.7 million.

Operating income surged to KD200.8 million while operating profits before provisions soared to KD112.6 million. The bank’s balance sheet continues to remain strong with a constant enhancement of asset quality. The capital adequacy ratio stands at 18.6% under Basel II. Approaching the end of the year, the bank continues to benchmark the Kuwaiti financial market by initiating a capital optimisation plan which was concluded through the rights issuance.

Total proceeds from the rights issuance reached KD102.6 million, with exercised shares reaching 125% by existing shareholders, reflecting their continued trust in the bank’s performance and its future prospects.

solid financial and operating performance in addition to promoting effective risk management and internal controls.

The strategy worked as a catalyst for exploring new markets and for cementing the bank’s position as a trusted financial powerhouse in the region. Over the years, Burgan Bank has grown to become a leading corporate banking services provider by offering a wide range of specialised products and services that provide cost-effective end-to-end banking solutions.

In 2014, the bank again decided to issue an additional Tier 1 capital where the pricing took place following successful investor meetings in Europe, Asia, and the Middle East. The securities were structured to comply with the new Basel III

global guidelines and were the first issuance of its kind by a Kuwaiti bank. Both the additional Tier 1 and Tier 2 issuances were well oversubscribed with a strong demand from both regional and international investors.

PIONEERING THE FINANCIAL MARKETPLACE Excellence is one of the bank’s four key values.

Burgan Bank continually strives to maintain the highest standards in the industry. The bank was re-certified in 2010 with the ISO 9001:2008 certification in all its banking businesses, making it the first bank in the GCC – and the only one in Kuwait – to receive such accreditation.

Burgan Bank was able successfully claim the Best Private Bank in Kuwait Award for three consecutive years. The award is extended by CFI.co | Capital Finance International

The hard work, dedication, and commitment exerted by the bank’s executive management team are reaping the results planned for across all levels. The bank heavily invests in developing its financial products and services to meet the changing and growing demands of its wide range of clients, markets, as well as the societies it operates in. The bank continues to provide added value services and convenience for its customers through the implementation of best practice methodologies.

The goal remains to provide excellence in banking services that shoulder today’s needs with the objectives of tomorrow. By continuing to meet and surpass the needs and requirements of a growing and diverse customer base, the sole ambition remains to become the top trusted bank in the region. i 129

> UNEP FI:

Charles Anderson “Business as Usual Not an Option” Sustainability as a set of corporate guidelines doesn’t just make sense, it makes money. Anyone still doubting this premise runs the risk of getting behind the times or worse – see returns on investment diminish and, quite possibly, vanish. Sustainability is not limited to preserving the world’s resources, safeguarding human rights, and keeping climate change in check: it aims to create a durable framework for business to drive global prosperity.

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t the United Nations Environmental Programme Finance Initiative (UNEP FI) in Geneva, work centres on dispelling myths, gathering proof, and offering guidelines on sustainability. UNEP FI is a public-private partnership between the UN Environmental Programme and around 200 leading banks, investment funds, and insurance companies.

In the 1990s, UNEP FI originated a shift in investor behaviour by suggesting that the incorporation of environmental, social, and governance (ESG) values into financial analyses can significantly mitigate risk. The partnership was also instrumental in drawing up the six Principles of Responsible Investment (PRI) that offer concrete ways for (mostly) institutional investors to include ESG parameters when allocating assets across different classes. The PRI initiative, unveiled in 2006 at the New York Stock Exchange, has already gathered close to 1,300 signatories representing well over $35tn in assets.

NO OPTION “Business as usual, is no longer an option,” says UNEP FI Director Charles Anderson, former CEO of New Zealand’s largest life and health insurance company Sovereign. Mr Anderson readily admits to becoming moderately frustrated by the oftrepeated, but ultimately false, dichotomy of sustainability versus growth: “Running a business on sustainability values creates jobs and adds to the bottom line. It is the smarter way of doing business. Waste and energy usage is reduced which increases productivity and, hence, profitability.”

Uncommonly outspoken, Mr Anderson can see few, if any, downsides to incorporating ESG values into business practices: “There is a surprisingly high correlation between corporate performance and sustainability. Companies embracing ESG values generally enjoy a more robust financial health and are, as such, also more attractive to lenders and investors.”

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the first responsibility of both business and fund managers, the US Court of Appeals for the Ninth Circuit in 2006 unexpectedly upset the applecart.

In San Francisco, the judges ruled that mining company Rio Tinto Zinc has to answer a complaint brought by the citizens of Papua New Guinea for corporate policies that fanned a civil war which claimed the lives of an estimated 15,000 people.

This landmark ruling dragged corporate social responsibility right into the financial arena where it has since stayed.

UNEP FI Director: Charles Anderson

Mr Anderson fully expects sustainability principles to take hold as production and consumption patterns slowly change: “Awareness is growing all the time and emerging economies such as China, Brazil, and Bangladesh bear watching. These countries, and others, are becoming initiators of change. They produce fresh policy initiatives, tailored to local circumstance, that enrich and expand our knowledge base.”

“Sustainability opens up a vast array of opportunities to corporations and investors alike.

Industrial designers are finding new ways to create products in a resource-poor manner. Businesses around the world are developing more efficient recycling processes. In most of the world’s markets, private sector players are stepping up to the plate to champion the cause of sustainability.”

LAGGING The US market, however, is lagging in the adoption of sustainability principles due to concerns over fiduciary responsibilities. Though the US Supreme Court has so far maintained that maximising the return on invested capital is CFI.co | Capital Finance International

Attitudes in the US are slowly adapting to the new reality. “I always need to restrain myself some when talking about this, but the fact remains that we simply cannot persist in the old ways.” Mr Anderson sees reason for moderate optimism. The California Public Employees’ Retirement System (CalPERS), the largest of its kind in the US and long known for shareholder activism, has now begun to include sustainably managed companies in its famed Focus List.

CalPERS manages over $300bn in assets.

Companies on its Focus List tend to outperform the overall market by a significant margin – aka the CalPRES Effect. The fund’s managers, impervious to criticism from “old school” pundits, argue that without incorporating ESG values into investment decisions, they cannot possibly guarantee the long-term returns required and expected.

In the UK, a recent court ruling mandates pension funds to take sustainability into account when setting investment policies while in France they are obliged to do so by law. UNEP FI is currently working on a number of studies regarding fiduciary responsibility as it relates to sustainability.

Mr Anderson: “This year will see a number of major intergovernmental events take place that may help create a positive enabling environment.

Perverse subsidies need to be eliminated and private sector finance is set to receive a more prominent role. Things are moving, and in the right direction too.” i

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> CFI.co Meets the MD and CEO of Ahli United Bank:

Adel A El-Labban

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s chief executive officer and managing director of Ahli United Bank (AUB), Adel El-Labban is responsible for the management of the commercial, retail, and private banking and wealth management businesses of AUB and its subsidiaries and managed affiliates in Bahrain, Kuwait, Egypt, Iraq, Oman, Libya, and the UK. In 2000, he was instrumental in the founding of AUB out of a merger of the United Bank of Kuwait plc and Ahli Commercial Bank BSC. Mr El-Labban has since spearheaded AUB’s transformation and expansion into a full-fledged pan-regional banking group. Previously, he was CEO and director (1999-2000) of the United Bank of Kuwait plc, London’s first Middle Eastern-owned bank.

From 1990 to 1999, Mr El-Labban led the Cairo-based Commercial International Bank (CIB) through a decade in which it became Egypt’s largest private-sector bank and its most profitable financial institution. In 1994, he founded and became the first chairman of the Commercial International Investment Company (CIIC), a CIB managed affiliate and Egypt’s first diversified investment bank and private equity house. He also founded the Commercial International Brokerage Company and the Commercial International Portfolio Management Company.

Earlier in his career, Mr El-Labban served as vice-president of corporate finance with Morgan Stanley’s Investment Banking Division in New York (1988-1990), and manager for loans and syndications at Arab Banking Corporation (ABC) in Manama, Bahrain (1984-1987).

Mr El-Labban holds a BA in Economics (Highest Honours) and a MA in Economics (academic fellow) from the American University in Cairo (AUC). He was recognised Arab Banker of the Year by the Union of Arab Banks (2009) and Distinguished AUC Alumni by the American University in Cairo (2003). He was also honoured with the Lifetime Achievement Award by The Banker Middle East in 2011.

In 2011, Mr El-Labban was the recipient of the Outstanding Contribution to Financial Services in the Middle East Award by Euromoney – one of the leading and most respected international financial publications. The award aims to honour leaders of the banking industry who over the years have made major contributions to advancing the financial services sector in the Middle East. Euromoney commended Mr ElLabban’s contribution and stated:

MD and CEO: Adel A El-Labban

“Mr El-Labban has made a name for himself as one of the most effective chief executives of his generation. The leadership he provided at the helm of some of the region’s most successful banks, whether in Cairo, London, or Bahrain, was instrumental in consistently raising the bar for banking in the Middle East. While never losing sight of fundamentals, his vision and innovations were the driving force behind CIB’s transformation into Egypt’s leading private sector bank and in AUB’s first decade of unparalleled growth and achievements.”

Professional Recognition • Outstanding Contribution to Financial Services in the Middle East Award, Euromoney (2011) • Lifetime Achievement Award, Banker Middle East (2011) • Arab Banker of the Year, Union of Arab Banks (2009) • Distinguished AUC Alumni, American University Cairo (2003) CFI.co | Capital Finance International

Academic Honours and Activities • Lecturer Economics Programme, American University Cairo (1992-1995) • Vice-President Student Government (1976) • Outstanding Junior (1975) and Senior (1976) Academic Awards • University President’s Cup in Scholarship as Graduating Senior (1976) Public Engagements • Director, Bahrain Association of Banks (2013 - to date) • Board member, Bahrain Stock Exchange (2006-2012) • Former Trustee, Egypt General Authority for Investment & Free Zones (2006-2009) • Director, Bahrain Institute of Banking & Finance (2005) • Frequent contributor – through conferences, op-ed pieces, and lectures – to public policy debates in Egypt and Gulf. i

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> Arab Bank:

Harnessing the Strength of a Vast Network Since its establishment in 1930, Arab Bank has continuously expanded its footprint throughout the Middle East and North Africa (MENA) region and beyond. Today, Arab Bank has over $47bn in assets and the largest Arab banking branch network in the world with over 600 branches in 30 countries. “Our extensive network, experience in connecting the world to the MENA region, and cross-border capabilities constitute Arab Bank’s biggest competitive advantages,” says Nemeh Sabbagh, Arab Bank’s CEO.

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he strength of Arab Bank’s business model has been reflected in the consistency of its performance. In 2013, the bank posted record growth, with net profits rising by 43% from $352m to just over $500m. “Arab Bank reported record growth in net profits in 2013 not only by increasing operating revenues, but also by controlling operating expenses.” Mr Sabbagh added that the bank has continued to improve the quality of its credit portfolio with the provisions coverage ratio for non-performing loans in excess of 100%, excluding the value of collaterals held.

“In the last three years there has been an emphasis on growing and maintaining sustainable earnings from our client base on both the corporate and retail levels, and this will remain our aim in the future.”

Arab Bank Group reported net profit after tax and provisions for the nine months period ending 30 September 2014 of $614.2m, up by 10% from $559.1m in the same period last year. The bank registered an increase in loans and advances vs.

September 2013 of 2.2% to reach $23.7bn and customer deposits grew by $1.1bn to reach $34.1bn, an increase of 3.5%.

Mr Sabbagh says he is confident about the prospects for further growth at Arab Bank in all its core business areas. Continued expansion in corporate banking, for example, will be supported by the regional roll-out of Arab Bank’s online trade finance and cash management platforms, which Mr Sabbagh says have been well received by the bank’s corporate customers.

Growth in retail banking, meanwhile, will be supported by Arab Bank’s strategy of offering programmes that cover individuals’ entire life

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CEO: Nemeh Sabbagh

cycle in line with the increasingly sophisticated requirements of the bank’s customer base.

HARNESSING THE POTENTIAL OF PROJECT FINANCE Another important growth area for Arab Bank is project finance. “We have also continued to play a major role in the project finance field, leading or participating in several deals across the region, which includes financing renewable energy and infrastructure development projects,” adds Mr Sabbagh.

emphasizes that the bank is also committed to providing a range of services to smaller companies. “Another important initiative has been the expansion of the bank’s SME financing operations and the launch of a specialized unit to provide comprehensive financial solutions to meet the needs of this dynamic and rapidly developing sector,” he says.

Arab Bank is also responding to rising demand for a full range of treasury products and services.

“Arab Bank’s clients at both the corporate and individual levels are increasingly looking to the bank for their treasury and foreign exchange requirements,” Mr Sabbagh says. “As a result, Treasury’s volume of foreign exchange transactions with corporate customers enjoyed strong growth.”

INVESTMENT IN TECHNOLOGY Continuous investment in technology is pivotal to Arab Bank’s commitment to offering its customers services at the highest standards through innovative banking channels. In addition to the bank’s award-winning internet banking services for corporate and individual customers, Arab Bank has recently launched its Arabi Mobile banking application in Jordan, Palestine, UAE, Qatar, Egypt, and Bahrain, which Mr Sabbagh says will be introduced across the rest of the region this year.

While Arab Bank’s customer base is mainly comprised of large corporations, Mr Sabbagh

“Recent technological investments have also gone into creating a greater sense of convenience CFI.co | Capital Finance International

and flexibility for customers online,” he adds. In terms of technology investments for the corporate segment, Arab Bank’s online cash management and trade finance platforms have been developed to give customers a single touch-point allowing them to optimise the management of their accounts, liquidity and trade operations.

STRONG LIQUIDITY AND CAPITAL RATIOS Maintaining comfortable liquidity ratios remains a key strategic goal for Arab Bank, which had a loan-to-deposit ratio of 63.1% and a capital adequacy ratio of over 14% at the end of the third quarter of 2014. “We will continue to maintain ample liquidity to support our operations and protect our shareholders and customers,” says Mr Sabbagh.

“This has always been and will continue to be one of the pillars on which Arab Bank is built.

We are committed to maintaining a high capital adequacy ratio that exceeds limits set by Basel, the Central Bank of Jordan and other regulatory bodies in the countries where we operate.” i 133

> Ahli United Bank:

Record Performance in a Challenging Environment The Bahrain-based Ahli United Bank (AUB) is one of the most successful commercial banks in the Gulf and the wider Middle East & North Africa (MENA) region with full banking presence in Bahrain, Kuwait, Egypt, Iraq, Oman, and Libya besides an OECD platform through its fully-owned UK subsidiary. Ahli United Bank operates a network of 135 branches. AUB has become a strong regional player with a diversified business model conceived and designed to withstand singular market disturbances.

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UB reported a net profit attributable to its shareholders of $376.3 million for the nine months that ended 30 September 2014. This reflected an increase of 30.1% over the core net profit of $289.3 million achieved over the first nine months of 2013. AUB’s record performance clearly demonstrates the success and viability of its core business model based on prudent and diversified growth in operating income across business segments, proactive risk management, intelligent cost optimisation, and a continuous focus on developing crossborder business opportunities.

The YTD (September 30, 2014) cost-to-income ratio improved to 28.4% (YTD September, 2013: 29.6%) largely as a result of intelligent spending processes closely aligned to business needs though without affecting the ability to efficiently service clients and to invest in future growth.

PRUDENT STRATEGY A combination of prudent credit strategy responsive to market signals, early problem recognition, and quick remedial action for problematic accounts, along with a conservative provisioning approach has resulted in the containment of the NPL (non-performing loan) ratio to 2.1% (December 31, 2013: 2.3%) with a very conservative NPL coverage ratio of 172.4% (December 31, 2013: 155.5%).

Bahrain: Ahli United Bank

AUB’s record performance was achieved through the realisation of group-wide synergies and efficiencies, a uniform customer-centric technology-based product rollouts, and improved performances across all business segments (commercial, retail, and private banking) despite operating in a very challenging business environment.

Islamic Banking is a key component of AUB’s business model and accounted for 38% of the group’s total assets and 37% of net profits in 2013. AUB offers its Islamic banking customers a wide range of Sharia-compliant retail, corporate, wealth management, and treasury products. AUB’s subsidiary in Kuwait is the second-largest Islamic bank in that country.

“In November 2014, International Finance Corporation (IFC) – a member of the World Bank Group – converted its optionally convertible subordinated debt amounting to $100 million held in AUB, into AUB ordinary shares.”

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“AUB continues to seek opportunities, where viable, to further expand its banking franchise through value accretive organic or inorganic means.”

In Oman, AUB’s 35% owned affiliate Ahli Bank launched Islamic banking services in 2013 and was profitable already in its first year of operations.

AUB has solid credit ratings from leading rating agencies of the world: BBB+/Stable by S&P and Fitch, and A-/Stable by Capital Intelligence.

IFC EXERCISES OPTIONS In November 2014, International Finance Corporation (IFC) – a member of the World Bank Group – converted its optionally convertible subordinated debt amounting to $100 million held in AUB, into AUB ordinary shares. Post conversion, IFC along with the IFC Capitalisation Fund (IFC Fund), holds a 5.2% share in AUB. IFC’s decision to exercise the conversion option, following the IFC Fund’s accelerated conversion of its mandatory convertible preference shares (MCPS) in October 2013, is a testament to IFC’s desire to further strengthen its long-standing partnership and collaboration with AUB to expand financial services in the MENA region.

AUB continues to seek opportunities, where viable, to further expand its banking franchise through value accretive organic or inorganic means.

This entails a continuous, dynamic, and focused approach to ensure the effective deployment of capital resources across the AUB Group’s current and targeted markets in the Gulf and the wider MENA region. i

Bahrain

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>

THE EDITOR’S HEROES

Transformative Movers and Shakers

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eroes are, more often than not, transformative. They are likely to change realities for the better, find new paths, and pioneer innovative solutions to age-old problems.

Such it is with the heroes featured in this issue of CFI.co – to a fault people who battle the odds in non-conventional ways. The results are generally quite surprising and definitely noteworthy.

Besides being transformative, heroes are essentially movers and shakers – be that in business, science, culture, or politics. As such, they are likely to run into opposition of one sort or the other. Doers beget critics and thus it has always been.

To some of the more sceptical market analysts, IBM’s chief executive Dinni Rometty is not so much transforming one of the world’s largest corporations, as she is steering a rudderless giant from a bygone area into oblivion. We beg to disagree and see in Mrs Rometty a corporate leader with a vision and one who brings the bigger picture into sharp focus and – by so doing – obtains a new lease on life for an icon of American business.

Heroes need not necessarily be visionaries, but having a vision surely helps. Both King Abdullah II of Jordan and President Catherine Samba-Panza of the Central African Republic – two names perhaps not often appearing jointly in a single sentence – share a vision of lasting peace and democracy.

King Abdullah II wants to keep the peace, while President Samba-Panza tries to make peace: Two heads of state determined to further the cause of democracy, albeit in radically different settings.

Another president is engaged in a similar struggle. President Masoud Barzani of the Iraqi Kurdistan Region not only managed to set up a fairly well-functioning democracy; he did so while battling extremists on nearly all sides. Slowly but surely, and without stepping on too many toes, President Barzani is carving out a Kurdish homeland that could well become a model for the wider region.

From Egypt hails a hero both surprisingly young and magnificently talented. Barely 18-years old, Ahmed Emad Eldin rose to fame in no-time flat by designing the cover for the new Pink Floyd album. So what’s so

special about that? Well, Pink Floyd cover designs have withstood the ravages of time and fashion to become icons in their own right. The band hasn’t released a new album in twenty years and The Endless River – a compilation of previously unreleased tracks – is to be the very last ever.

Politicians are, again, well-represented in this issue’s collection of heroes. Greek shipping magnate Evangelos Marinakis is merely a councilman in Piraeus but he wields a big stick with which he rather merrily pokes fellow politicians in order to swing them into a more proactive approach of the country’s many woes. Making some feel quite uncomfortable with his can-do attitude, Mr Marinakis is certainly someone to watch. The same can be said of Marina Silva who failed in her bid for the presidency of Brazil but has in no way been knocked out of the political arena. She’ll be back four years from now.

Not quite the has-been yet, former US President Bill Clinton stays very much with the times. His many global initiatives have brought leaders from government, business, and academia together to exchange ideas on basically every issue under the sun.

Amazingly enough, the lives of over 400 million people worldwide have already been impacted by Mr Clinton’s peerless ability to amicably bang heads together and extract positive change.

The Rockefellers couldn’t be absent from CFI.co’s list of heroes after it was announced that the Rockefeller Brothers Fund was exiting oil – the bedrock of its very existence.

The fund is set to divest itself from all holdings in fossil fuel-related companies to focus on clean energy, delivering a cue others are likely to follow.

Also engaged in the furthering of alternative fuels, two brothers from The Netherlands who took a few principles of elementary physics, bolted them together, and found a way to provide essentially free heating for houses, shops, and offices. Their ingenious, yet simple, device is now ready for market and set to, well, conquer the world.

For that is what true heroes end up doing: Conquering the world with novel ideas and concepts or with older ones repackaged afresh. i

Austria

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> KING ABDULLAH II An Insistent Appeal to Moderation and Reason “In response to rising unrest following the Arab Spring of 2011, the king agreed to a curtailment of his powers with the creation of a Constitutional Court and an independent Elections Commission.”

As Jordanians look back on twenty years of peace with Israel, they find little reason to celebrate the anniversary of the peace treaty between the two countries in anything more than a perfunctory manner. Minister of Parliamentary Affairs Khaled Kalaldeh summed up the national feeling when he remarked that “contact with Israel doesn’t mean love.”

Since the historic handshake of PrimeMinister Yitzhak Rabin and King Hussein at the Wadi Araba Crossing in 1994, the relationship between the two former enemies has been cordial, but suffering the occasional cold. Jordan is concerned over continued violence around the Temple Mount in Jerusalem, an area it still considers part of the country even though it was lost to Israel over fifty years ago. The stalled negotiations between Israel and the Palestinians are another source of ongoing frustration.

While the vast majority of Jordanians believe true peace with Israel remains impossible as long as the Palestinian issue is not properly solved, their king is fully aware that the country’s delicate geopolitical position in the volatile region necessitates some kind of accommodation with 138

its powerful neighbour. King Abdullah II remains a lone voice of reason in a region where shouting is still the norm.

While retaining a big slice of executive power, King Abdullah II has made great strides towards the introduction of parliamentary democracy.

In response to rising unrest following the Arab Spring of 2011, the king agreed to a curtailment of his powers with the creation of a Constitutional Court and an independent Elections Commission.

Early general elections were held in 2013 and the king consulted with the new parliament on the appointment of his cabinet – a historical first. Though the Islamic Action Front, the Jordanian branch of the Muslim Brotherhood, boycotted the vote, most Jordanians seemed unconcerned. Through careful manoeuvring, King Abdullah II managed to avoid an escalation of political tensions.

The king also initiated an ambitious reform policy aimed at liberalising Jordan’s economy.

Growth has since averaged at 6-7% annually, lifting many out of poverty. Both the transport and telecommunications sectors were privatised and six “special economic zones” created to CFI.co | Capital Finance International

encourage investment and foster start-ups.

The Jordanian monarch is now busy at avoiding a spill-over of the political violence wreaking havoc in next-door Iraq and Syria. So far, Jordan has managed to keep extremists outside the country. By consistently delivering high economic growth and committing to sizeable and ongoing investments in education and healthcare, the Jordanian government hopes that the country remains a veritable oasis of peace and tranquillity in the region.

In order for that to happen, King Abdullah II needs all the help he can get – even from Israel. The king recently gave a nod of approval to a $15bn energy deal that ensures the supply of natural gas to the country from Israel’s recently developed Leviathan offshore field.

This deal ends Jordan’s dependence on erratic gas supplies from Egypt which are subject to sabotage by Islamist militants operating in the Sinai Peninsula.

Jordan is now also part of the international coalition fighting the Islamic State and offers its airbases to fighter jets from Belgium and The Netherlands. King Abdullah II is acutely aware that Islamic extremists are further destabilising the region and may draw in support from disenfranchised masses desperate for change of any kind.

Contrary to some other rulers, King Abdullah II realises full well that his government must simply deliver the goods in order to survive and, indeed, prosper. Improvements in governance, education, and social services – pushing the standard of living up – offer the only viable solution for the maintenance of a peaceful society devoid of radicalism. The force of arms can only accomplish so much and whilst ISIS needs to be checked, the best way by far of dealing with the extremists is to show that moderation actually gets the job done.

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> MARINA SILVA Insistence That May Yet Pay Off

“The dichotomy between development and the environment is one I cannot accept.

The two are part of the same equation.”

Brazil may not yet be ready for her, but Marina Silva is the name to watch. The former senator for Acre, a small state in the western part of the Amazonian rainforest, and presidential candidate for the Socialist Party, Marina Silva was tipped as the likely successor to President Dilma Rousseff before her campaign tanked just days before the polls opened for the first of two electoral round on October 5. Marina Silva ended in third place with barely 21% of the vote – a good show, but not quite good enough.

Perhaps it was too much to ask. Marina Silva is black, from a modest background, evangelical, incorruptible, and an environmental activist to boot. She survived five bouts of malaria while growing up on a rubber tree plantation and battled hepatitis and metal poisoning as well.

Taken in by nuns after both her parents passed away, she became the first of her family to learn how to read and write. Marina Silva was sixteen when she passed her literacy exam.

Working her way through college as a housemaid, she obtained a degree in history from the Federal State University of Acre in 1984. By now politically active, she helped form

the state’s first labour union. Ten years later, Acre voters sent Marina Silva to the federal senate in Brasília. Here, Brazil’s youngest-ever senator fought tirelessly for social justice and sustainable development – concepts at the time mostly seen as quixotic and detrimental to private business interests.

Elected on the ticket of the Workers’ Party, Marina Silva was invited to join the first cabinet of President Luiz Inácio da Silva – aka Lula – in 2003 as minister for environmental affairs.

From that lofty perch, she proceeded to insist on plausible environmental impact studies for any major project undertaken in the country.

Not only did Marina Silva draw the ire of big business, she also frequently upset fellow ministers bent on short-tracking large development projects such as the upgrading of the 4,476 kilometre-long BR163 highway – linking the more developed southern states with the Amazon Region – and the proposed diversion of the waters of the São Francisco River to irrigate farmland in four drought-stricken states of North-eastern Brazil.

In 2008, Marina Silva resigned from the CFI.co | Capital Finance International

cabinet after a rather public row with Lula’s chief of staff: The same Dilma Rousseff who went on to become president and last October claimed a second term in office. At the time, Dilma Rousseff accused her colleague of wilfully blocking economic growth by denying development projects construction permits.

“The dichotomy between development and the environment is one I cannot accept. The two are part of the same equation. It is not possible to further economic development without taking biodiversity and environmental conservation into account,” said Mrs Silva just days after returning to her seat in the senate.

A while later, she left the governing Workers Party and joined the Greens to become their candidate for the presidency. In the 2010 election, Marina Silva won 19% of the popular vote in a performance that surprised nearly all pundits. Though ending in third place and eliminated from the decisive second round of voting, she had become a force to be reckoned with in Brazilian politics.

In 2014, Marina Silva again tried for the presidency, growing her support another two percentage points and winning in major urban centres such as Brasília, Rio de Janeiro, and Vítoria.

The reason she’s the one to watch is simple: Brazilian voters admire candidates who keep on defying the odds to prove conventional political wisdom wrong. It took two crushing defeats (in 1994 and 1998) before voters in 2002 allowed Lula into the Palácio do Planalto – the futuristic presidential palace in Brasília.

Marina Silva – consistent in her message, upright, and self-made – possesses many qualities that are both admirable and absent in most of her peers. As the need for a shift towards sustainable development policies becomes clearer as time progresses, Marina Silva can very well hitch a ride on the changing times. Wornout economic models are, yet again, failing Brazil as it seeks to rediscover the path to economic growth. If she manages to stay on message, Marina Silva may yet make it all the way to the top.

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> STEPHEN HEINTZ Getting the Rockefellers Out of Oil The Rockefellers are set to join the Occupy Movement – sort of. The family that built its legendary fortune on oil will now abandon nearly all investments in fossil fuel. The surprising announcement was made in September at the eve of a United Nations summit on climate change that took place in New York.

The Rockefeller Brothers Fund (RBF), a philanthropic entity with approximately $860m in assets, is managed by Stephen Heintz who joined the organisation in 2001 after a distinguished career in the non-profit and public sectors. The fund joins a growing number of charitable institutions that have recently decided to move investments away from fossil fuel and into cleaner alternatives.

According to Arabella Advisors, a US consultancy that helps investors allocate resources in socially and environmentally beneficial ways, some 180 institutions and wealthy individuals have over the past few years pledged to divest assets in excess of $50bn. Mr Heintz revealed that the Rockefeller Brothers Fund is in the process of liquidating all its positions in coal companies and corporations involved with tar sands.

Mr Heintz cautioned that the divestment drive will take time: “We are moving soberly, but with real commitment.” The RBF president also said that the fund will hang on to some stocks of fossil fuel companies in order to keep its say at shareholder meetings.

Mr Heintz considers the move away from fossil fuel a “logical step” that would meet with the approval of the five Rockefeller brothers who created the fund in 1940 as the primary vehicle of their family’s many philanthropic undertakings.

“Just as John D Rockefeller moved the US from whale oil to petroleum in the late 19th century, the current generation needs to help bring about the next shift. We are quite convinced that if John D Rockefeller were alive today, as an astute businessman looking out into the future, he would be moving out of fossil fuels and investing in clean, renewable energy.”

In 2010, the RBF Board of Trustees already decided to set aside 10% of the endowment for investment in sustainable development with a focus on clean energy and businesses that advance energy efficiency and thus mitigate the effects of climate change. Steven Rockefeller, one of the trustees, said that he foresees financial problems for companies that possess

more fossil fuel reserves than can be burned without contributing significantly to climate change: “We see this as having both a moral and economic dimension.”

Repeatedly tipped as one of the most influential voices in the non-profit sector, Mr Heintz recognises that divestment may ultimately not impact fossil fuel companies to any noticeable degree due to their immense market capitalisation. However, it does send an important signal. Divestment activism started as a fringe movement on college campuses just a few years ago and has now become mainstream.

The Rockefeller family has long been actively involved with environmental issues

and even tried to convince Exxon Mobile, the largest successor to Standard Oil, to mend its environmentally damaging ways – without much success. Also, a $2m fund set up by the Rockefellers in the 1980s to spur the development of renewable energy alternatives failed to survive: “We were too early,” said RBF Chairwoman Valerie Rockefeller Wayne.

However, now RBF President Heintz has few doubts: It is the time to act. “We fully expect the percentage of mission-aligned investments, including those targeted to clean energy development, to grow in the coming years as the organisation seeks solid investments that advance both its programme and long-term financial goals.”

“Mr Heintz considers the move away from fossil fuel a ‘logical step’ that would meet with the approval of the five Rockefeller brothers who created the fund in 1940 as the primary vehicle of their family’s many philanthropic undertakings.”

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> AHMED EMAD ELDIN Resonating with Pink Floyd

Album cover: “The Endless River”

He wants to be a doctor and has just started his freshman year at med school, but a different path may be mapped out for 18-year-old Ahmed Emad Eldin. The Egyptian youngster shot to world fame after being asked to design the cover of the highly anticipated Pink Floyd album – the band’s first in over two decades.

Showcasing his graphic design work on a portfolio website landed Mr Eldin the commission coveted by nearly all the world’s best graphic artists. Pink Floyd’s creative director Aubrey Powell contacted Mr Eldin by email, asked for a few ideas, and received a bundle of exceptionally creative artwork in reply. “I got to thinking about

the intersection of life, nature, and what is beyond the world — what takes you to new limits and creates millions of different amazing feelings,” says the unassuming artist whose work now graces the cover of The Endless River.

It is not unlikely that Mr Eldin’s artwork is destined to become as instantly recognisable as the cover of The Dark Side of the Moon, Pink Floyd’s 1973 album that established the band firmly at the pinnacle of progressive rock. With his design now splashed over billboards from Berlin, Paris, and London to New York, Los Angeles, and Mexico City, Mr Eldin has already become the hottest name in graphic design.

“When I first saw Ahmed Eldin’s design it had a direct Floydian resonance. It is enigmatic, yet open to interpretation,” explains Audrey Powell who knows, as few others do, what to look for in cover art. At the height of the swinging sixties, Mr Powell set up the Hipgnosis design studio in London that was to produce an impressive number of iconic album covers for many of the greatest bands of that golden era: Led Zeppelin, Electric Light Orchestra, 10cc, Paul McCartney & Wings, Yes, etc.

Hipgnosis is now defunct. The studio fell victim to the digital era in which demand for premier cover artwork collapsed as CDs offered but limited printable real estate. Its cofounder Storm Thorgerson – of The Dark Side of the Moon fame – passed away in 2013. Still, Mr Powell felt the need to rescue the studio’s legendary fame one last time for the release of a new Pink Floyd album, an event as momentous as there will ever be on the music scene.

As if on cue, Ahmed Eldin’s design came to the rescue. It fits in seamlessly in the wellestablished Pink Floyd tradition of highly original and slightly mystical album covers. “The most amazing is perhaps that the surreal image of a lone man in a skiff punting his way across the clouds to the sunset masterfully sums up the music of the new album. Pink Floyd album covers have always contained a subtle message. This one does too. But the main thing is people can read what they want into it. There is no need to spell it out,” said Mr Powel on BBC Radio 6 Music.

Meanwhile in Egypt, Mr Eldin continues his medical studies, shying away from the limelight.

In a rare interview with Vice Magazine, the young artist admitted to being slightly overwhelmed: “It is an honour for anyone to work with such a great, legendary band. However, I still want to be a doctor, but I’d like to continue to make art as well.”

Ahmed Eldin said he first started dabbling in graphic design five years ago, at age 13: “Seeing artwork on the Internet motivated me to try this for myself.” Mr Eldin’s sudden rise to fame stands as a testament not just to the power of the web, but also to the vast reservoir of talent available outside the Berlin-Paris-New York corridor, waiting to be tapped.

“It fits in seamlessly in the well-established Pink Floyd tradition of highly original and slightly mystical album covers.

‘The most amazing is perhaps that the surreal image of a lone man in a skiff punting his way across the clouds to the sunset masterfully sums up the music of the new album.’”

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> CATHERINE SAMBA-PANZA Determined to Bring Peace and Democracy

She promises elections and works vigorously towards that ultimate goal, but will not stand as a candidate. President Catherine Samba-Panza of the Central African Republic is trying to rally all stakeholders behind a concerted effort to pacify the warn-torn country and rebuild its wrecked civil society. She is bravely fighting an uphill battle.

With help of a United Nations peacekeeping force, President Samba-Panza hopes to stem the political violence. However, the Anti-balaka rebel movement is gaining strength and now regularly strikes in the capital Bangui. Meanwhile, former

fighters of the disbanded Séléka rebel movement run amok in the countryside.

Though initially sectarian in nature, the violence in the Central African Republic has become indiscriminate. Over the past year, the United Nations repeatedly warned that a fullblown civil war is in the making and appealed to all sides to lay down arms. However, the irregular militias lack a clear command structure and are difficult to engage with in talks.

President Samba-Panza has asked the UN and France for help in rebuilding her country’s

virtually non-existent armed forces. Great care is being taken to form an army that represents all ethnicities and welcomes former rebel fighters into its ranks. At present, the Central African Armed Forces has as many decrepit tanks as words in its name – four.

President Catherina Samba-Panza was appointed interim head of state on January 23, 2014 after her name was picked from a list of eight candidates by representatives of both rebel movements. The National Transitional Council, set up to function as an interim parliament, subsequently sanctioned her appointment after two rounds of voting. Mrs Samba-Panza is nonpartisan, a corporate lawyer by trade, and a successful businesswoman.

She has incessantly called for both Antibalaka and Séléka rebels to cease fighting and return to the negotiating table without fear of reprisals. President Samba-Panza has also said that the violence is not so much inspired by religious differences as it is caused by abject poverty and a failure of governance. She aims to remedy that.

Attempts to assuage the Séléka militias backfired with the appointment of a Muslim prime-minister. The rebels were, in fact, outraged as they do not consider Prime-Minister Mahamat Kamoun one of their own. As a result, the group declared war on President Samba-Panza’s government of national unity. Not to be outdone, the Anti-balaka group, drawing its support from the Christian community, also intensified fighting finding an excuse in unsubstantiated accusations against President Samba-Panza in regard to the alleged pilfering of aid money.

In between, an embattled president is trying to keep a nation together seemingly bent on selfdestruction. However, what President SambaPanza does know is that the Central African Republic, notwithstanding all its problems, remains a viable country. The state may indeed have failed miserably in the past, President Samba-Panza is determined to finish both her mandates: To end the cycle of violence and to pave the way to democratic elections in 2015.

It is this almost single-minded determination that merits international support. Fighting what has now become common banditry, the SambaPanza government needs help in checking the rebels’ progress in order for a process of national reconciliation to take place. The price for not actively supporting the transitional government is the birth of yet another failed state and a possible future haven for extremists.

“Fighting what has now become common banditry, the Samba-Panza government needs help in checking the rebels’ progress in order for a process of national reconciliation to take place.”

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> BILL CLINTON Words of Real Value

As nations and economies converge, interdependencies are created between people and give rise to new challenges. To strengthen the capacity of people to deal with these and the other changing realities of the contemporary world, the Bill Clinton Foundation was created by the former US president. The foundation, which in 2012 received more than $250m in donations, is focused on four key areas: Health security, economic empowerment, leadership development, and ethnic and religious understanding.

The foundation’s remarkable growth, and its success, may be ascribed to Mr Clinton’s exceptional ability to bring together public and corporate leaders. This former president knows how to bridge divides and find a common denominator even between people of wildly differing worldviews.

The foundation has spun off a number of ambitious projects such as the Clinton Health Access Initiative – now a separate organisation – that aims to broaden access to the treatment of diseases such as malaria, tuberculosis, and HIV/AIDS. The organisation has successfully managed to obtain cost-reduction commitments from major pharmaceutical companies. Thanks to the initiative, second-line drugs for the treatment of HIV/AIDS patients is now available for as little as a dollar per day in most African countries.

The Clinton Foundation’s flagship programme

is the Clinton Global Initiative (GCI), launched in 2005, that offers global leaders a forum to discuss innovative solutions to problems affecting the world. The annual CGI meeting in New York coincides with the opening of the United Nations General Assembly. Since its start, the CGI has welcomed 150 heads of state, 20 Nobel laureates, and hundreds of CEOs, philanthropists, and leaders from non-governmental organisations.

The initiative has a growing number of permanent members, including presidents of both countries and corporations, who are asked to adhere to a specific action plan and propose a realistic timetable for the implementation of measurable change. In line with Mr Clinton’s unifying way of working politics, members are encouraged to share ideas and experiences.

Since its inception, nine years ago, over 2,300 “Commitments to Action” have been made, affecting the lives of more than 400 million people across the world.

It is mostly because he can bring people together and inspire the pursuit of common goals that Mr Clinton has no trouble raising cash for his foundation. Notwithstanding allegations of improprieties made by diehard opponents on the far right fringes of US political life, the Clinton Foundation receives the full support, and significant chunks of cash, from donors beyond reproach such as the government of Norway, the

Bill & Melinda Gates Foundation, and the Dutch National Lottery.

After leaving the White House in 2001, Mr Clinton has not faded from public view. Though briefly considered a liability by campaign managers as his wife vied for the Democratic ticket in 2008, Mr Clinton has proven himself the elder statesman time and again. He has helped secure the release of two American journalist from North Korea and was made UN special envoy to Haiti in 2009. After that country was struck by a massive earthquake in 2010, Mr Clinton went back at the request of President Barack Obama to coordinate US relief efforts.

Showered with honorary degrees from the world’s top universities, awards, accolades, and merits of all sorts, Mr Clinton is perhaps the personification of the US president the international community would like to see return to power: A skilful politician who doesn’t divide the world into “us and them,” but who actually manages to bring people together.

He is an excellent administrator as well. Not only did Mr Clinton preside over the longest US economic boom since the end of World War II, he also did well for himself; paying off several million dollars in legal fees and earning over $100m, mostly from books deals and speaking engagements. The interesting twist is that Mr Clinton actually has something of value to say.

“He has helped secure the release of two American journalist from North Korea and was made UN special envoy to Haiti in 2009. After that country was struck by a massive earthquake in 2010, Mr Clinton went back at the request of President Barack Obama to coordinate US relief efforts.”

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> EVANGELOS MARINAKIS A Councilman of Note

“By not remaining on the side lines while the country tries to climb out of the economic abyss, Mr Marinakis may have exposed himself to fierce criticism from those who question his motives; he also showed his true colours as a patriot more than businessman.”

Though the past made him a rich man, Evangelos Marinakis now wants to break with it.

Elected councilman in Piraeus, Mr Marinakis aims to introduce new models for the management and development of the port city: “This is something people with experience in private business can and must provide.”

That sort of experience is not lacking in Greece’s perhaps most powerful councilman.

Mr Marinakis is a shipping magnate with an estimated personal net worth of $750m and CEO of Capital Product Partners, a tanker company listed on the NASDAQ stock exchange with a fleet of thirty vessels traversing the world’s oceans. Since 2010, he also owns the Olympiacos Football Club of Piraeus boasting the best team in the country with no less than 41 Greek League titles to its name.

In the May elections that landed Mr Marinakis a seat on the city council, Olympiacos VicePresident Yannis Moralis won the mayoral race in Piraeus. Though the city is now firmly in the hands of Mr Marinakis and his close associates, this is not necessarily a disaster in the making as some would have the nation believe.

In Greece, big business has traditionally steered well clear of politics – at least on the surface. Governments of all ideological stripes have usually preferred to let big business do 144

its thing without too much interference. Greek corporate moguls returned the favour by not publically expressing any opinions on national affairs. However, and in light of the crisis that hit the country, Mr Marinakis now considers this arrangement quite unsuitable for facing the challenges ahead.

Through his extensive international business activity, and the close ties he keeps with many foreign government officials for example in Japan and elsewhere where he does business, Mr Marinakis is trying to attract foreign investment in the country and notably in Piraeus.

Mr Marinakis has repeatedly stated his believe that the traditional political labels of left and right have little meaning: “Support for my candidacy comes from across the political spectrum. I believe that we can be something quite different and new; something not tainted by party politics.”

As one of the richest men in Greece, Mr Marinakis has done his part in ameliorating the social ills that were caused by the sharp economic downturn that followed the debt crisis.

He supports an impressive number of charity and humanitarian projects throughout the country and recently mobilised the Olympiacos squad to help UNICEF raise money for the vaccination of children.

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Mr Marinakis has also been buying up Greek debt on the secondary market for pennies on the dollar in order to help ease the country’s financial burden. The bonds acquired are handed to Greek Debt Free, a private organisation that aims to rally Greek tycoons to prop up government finances by taking bonds out of the market where they may now be had at steep discounts.

By not remaining on the side lines while the country tries to climb out of the economic abyss, Mr Marinakis may have exposed himself to fierce criticism from those who question his motives; he also showed his true colours as a patriot more than businessman. Mr Marinakis’ hometown Piraeus has been particularly hard hit. Cargo volumes and shipping traffic were down while unemployment shot up to 26% until, in 2010, the Chinese state-owned shipping conglomerate Cosco leased half of the port for $650m from the Greek government. Since then, the Chinese side of the port has seen its cargo volume triple while the Greek side languishes with little, if any, uptake in traffic.

It is precisely this lopsided development that Mr Marinakis aims to tackle as a politician.

A lone councilman may perhaps not be able to accomplish all that much, but one of Mr Marinakis’ standing may yet cause a few surprises.

Winter 2014 - 2015 Issue

> GINNI ROMETTY Steering a Behemoth onto the Cloud

Considered the world’s most powerful woman in business in 2012, IBM Chairperson and CEO Ginni Rometty is steering her company to the cloud. Not one to set modest goals, Mrs Rometty wants IBM to reclaim its dominant position by identifying the next high-profit areas of computing and moving decisively into them. She is also looking to tap into yet underdeveloped markets by partnering with large local players.

In China, IBM teamed up with Internet provider Tencent to develop and market cloudbased services to business customers. While not a household name in the West, Tencent provides Internet connectivity and value-added services to literally hundreds of millions customers. In the US, Mrs Rometty recently signed a deal with Twitter to help that platform expand into the corporate market. IBM is to provide Twitter with a suite of business apps that connect directly to the vast amount of consumer data gathered by the social network.

Though Mrs Rometty has not mentioned any numbers, she did indicate that the revamped company will see its revenues soar before long.

For the past ten quarters, IBM has suffered shrinking revenue streams. Mrs Rometty is not only moving IBM onto the cloud, she is also shedding underperforming business units and “rebalancing” the workforce.

From a supplier of hardware, IBM is now in the process of becoming a company of creative ideas. Last year, it committed over $1bn to porting its peerless natural language analytics engine Watson to its Bluemix cloud services platform which is now in direct competition with similar offerings from Google and Microsoft.

With Bluemix, IBM also managed to expand its partnership with German business software provider SAP which was actively being courted

by Amazon.

Though Mrs Rometty expects cloud services to bring in at least $7bn by 2015, she has not entirely moved the company away from its hardware roots. IBM is set to launch a new family of superscalar multiprocessors developed inhouse and designed specifically to power cloud servers. In a first, Mrs Rometty decided to make the Power8 processor’s design freely available under an open source license in an attempt to set a new standard. The company has also set aside $3bn to develop microchips that are not based on silicon.

A native from Chicago, Mrs Rometty graduated with high honours from Northwestern University’s School of Engineering and Applied

Science in 1979. After obtaining a degree in computer science and electrical engineering, she briefly worked for the General Motors Institute before joining IBM in 1981 as a systems engineer.

Throughout her career at IBM, Mrs Rometty has worked to involve the company in business analytics and away from hardware. As such, she is seen as making amends for the wrong bet the company placed in the early 1980s when it handed the development of software for its then-revolutionary 8086 processor architecture to outside parties – first to Digital Research (now defunct) and then to start-up Microsoft, which took the bait.

While transforming IBM into a company of ideas, Mrs Rometty has continued the somewhat controversial share buyback programme she inherited from her predecessors, committing another $5bn to propping-up the stock in a

clear sign that the company is not lacking in confidence when it comes to the future. Since the turn of the century, IBM has spent $108bn on buying back shares.

Mrs Rometty manages a company that stands at a crossroads. Her decision to largely get out of the hardware business was a particularly smart one as most large corporations – IBM’s premier market – are now renting IT infrastructure rather than buying it. Still, it will be quite a feat to reshape a company the size of IBM. With a revenue of close to $100bn annually, some 430,000 employees, and a market cap of almost $170bn, IBM is everything but nimble.

Others before her have tried – and failed – to change IBM’s corporate direction. However, with her bold and decisive moves, devoid of ambiguity, Mrs Rometty may very well succeed and thus reinvigorate one of the icons of US business.

“Her decision to largely get out of the hardware business was a particularly smart one as most large corporations – IBM’s premier market – are now renting IT infrastructure rather than buying it.”

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> MASOUD BARZANI Walking a Tightrope

“I will hand over executive power to the person chosen by the people.

It is therefore of paramount importance that a process be put in place to allow for the democratic transfer of power.”

The world’s largest nation without a country, the Kurds are slowly carving out a few slices of real estate to call their own. Decades of war and civil strife have weakened and toppled governments that stood between the Kurds and their aspiration to statehood.

In Syria, around the town of Sere Kaniyeh, local Kurdish leaders have managed to establish a de-facto independent enclave largely untouched by either government forces or rebel fighters. Run by the Democratic Union Party – aligned with the Kurdistan Workers’ Party (PKK) – the region is a haven of peace and the “third point” in the revolution that is levelling Syria.

In neighbouring Iraq, the Kurds are firmly in charge of their own autonomous region. Covering an area of almost 80,000km2 and home to well over eight million people, the Iraqi Kurdistan Region is a nation-building exercise on the grandest of scales. It also comes with more than an average set of challenges.

Leading the way is Masoud Barzani, scion of family of successful entrepreneurs and elected president of the autonomous region in 2009 with close to 70% of the vote. In 2013, the Iraqi Kurdistan Parliament extended President Barzani’s mandate by two years in order to 146

gain additional time for the drafting of a new constitution.

President Barzani has repeatedly stated that he is not interested in running for re-election once his term expires in 2015: “I will hand over executive power to the person chosen by the people. It is therefore of paramount importance that a process be put in place to allow for the democratic transfer of power.”

While the 111-strong parliament in Erbil shapes and frames the region’s political future, President Barzani has suspended all efforts at obtaining full independence. Though he has not renounced the idea of Kurdish statehood, the fight against the Islamic State (IS) now requires his government’s full attention.

President Barzani is walking the proverbial tightrope as he tries to stave off the ongoing offensive by Islamist militants who are not just encroaching on the autonomous region but also on other Kurdish enclaves in Iraq and Syria. So far, President Barzani has deftly managed to keep relations with Turkey on a civilised footing, although that country’s government remains wary of facilitating the delivery of both humanitarian aid and military supplies to embattled Kurdish enclaves besieged by IS. CFI.co | Capital Finance International

A skilful negotiator and behind-the-scenes operator, President Barzani did manage to get both Turkey and Iran to discreetly supply his government with arms to fight IS in Kobane, a Kurdish town on the Turkish-Syrian border. The president revealed in mid-October that Turkey is also offering medical assistance to hundreds of Kurdish fighters wounded in the Battle of Kobane, including some forty members of the PKK – still outlawed by Ankara.

President Barzani has gathered an impressive level of foreign support for his efforts to forge a secular democratic state out of the turmoil.

Though not without critics, he has established the trappings of an emerging democracy. Longstanding feuds between President Barzani’s own Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK) have been plastered over and replaced with a unified approach to the establishment of a Kurdish statein-being and the fight against IS.

Perhaps not without flaws – he was criticised for insufficient financial transparency – President Barzani has been a bulwark against both the political and religious extremism that, at times, seems endemic to the wider region. He also offers a Kurdish voice distinct from the PKK and is, as such, much more acceptable to regional powerbroker Turkey without whose blessing any initiative to form a Kurdish state would seem doomed to failure.

Winter 2014 - 2015 Issue

> RODERICK AND FLORIS WOLTERS Freezing the Sun Rummaging through the archives of Twente Technical University, two enterprising students struck gold: An experiment carried out around the turn of the century but not taken to the next level.

After a bit of tinkering, the brothers Roderick and Floris Wolters managed to improve on the original design and finish the job with stellar results. They then rushed to the patent office and started Solar Solutions World Wide to bring their invention to the market.

The Wolters brothers have found a way to reduce heating costs to zero for private homes and most businesses. Their system extracts energy from water. As water starts to freeze, it releases vast amounts of energy moments before the liquid turns to ice.

A water reservoir – essentially a bag measuring nine metres square – is installed in a crawl space or a basement with its contents being warmed by a few solar panels. A small heat pump is connected to cool the water down to -1 degree Celsius. This process, an endless cycle, produces copious amounts of energy – up to eighty times the amount put in and enough to heat an entire house even through the dead of winter.

The Solar Freezer is now ready for market.

Demo setups have shown the system’s viability with results that exceeded expectations. The first housing societies have come knocking on the start-up company’s door and the Wolters brothers are confident that before long their Solar Freezer will be a household name. “It is somewhat of a no-brainer: The setup does not require extensive modifications to the building, is not at all invasive, and is a plug-and-play affair. Once properly installed, it just keeps running with minimal maintenance,” says Roderick Wolters.

The brothers estimate that well over 80% of the Dutch housing stock can accommodate the Solar Freezer without any alterations to the building. The installation cost may be recouped in about 6-7 years. Fiscal incentives and direct subsidies can shave two or three years off this timeframe.

The average household in The Netherlands spends about €2,000 annually on heating, mostly for natural gas. “This entire bill can be wiped out unless the cooking range is gaspowered in which case a savings of about 97% may be obtained. Moreover, our system is of course carbon-neutral and as such in sync with

Floris Wolters (left) and his brother Roderick (right) of Solar Solutions Worldwide accept the Jan Terlouw Innovatieprijs (Innovation Award) 2014 from Mr Terlouw (centre), an acclaimed author, scientist, and former minister of economic affairs and member of parliament. The award is given out annually by the kiEMT Foundation of the Netherlands to the most innovative entrepreneur in the field of sustainable energy. Photo: John Voermans

present environmental concerns,” explains Roderick Wolters.

The brothers set up their company on the campus of Twente University in Enschede and receive the full support of the institution. The premises of Solar Solutions World Wide are part of the university’s “Knowledge Park,” an incubator for innovative businesses devised and run by students.

The university’s business developer Kees Schöller is excited: “The Wolter brothers have so far been involved with three successful startup companies which they passed on to others as new opportunities arose. However, this is the first time they have struck out on their own with a proprietary technology that promises to revolutionise the way heating is provided to homes and businesses.”

Manon van Essen of the Dutch Homeowners Association is also thrilled: “The Solar Freezer may indeed solve the issue of energy storage.

For a long time, we’ve been trying to figure out how to store solar energy for release at moments when it is most needed. This system seems to offer a way to do just that.” Mrs Van Essen explains that most homeowners are less than excited to feed their excess solar energy into the public grid: “They’d much rather save that energy for their own use.”

Though encouraged by the massive and positive response to their invention, the Wolters brothers are not about to order Maseratis or sail into the sunset aboard a private yacht. They remain first and foremost brilliant tinkerers with a passion for technology and the ways in which it can contribute towards a better world.

“The Wolter brothers have so far been involved with three successful start-up companies which they passed on to others as new opportunities arose. However, this is the first time they have struck out on their own with a proprietary technology that promises to revolutionise the way heating is provided to homes and businesses.”

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> Latin America:

Brazil and China - When Two BRICS Meet The delegations of Brazil and China acted in unison at December’s Climate Change Conference in Lima, Peru. Both were unsparing in their criticism of the “skimpy pledges” made by wealthier nations to assist lesser developed countries meet the challenges of global warming. Whereas according to the Organisation for Economic Cooperation and Development (OECD), over $100bn in support is needed annually by 2020, the US, EU, and Japan have so far only promised to contribute about $10bn.

Peru: Lima

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T

his prompted China’s chief climate negotiator Xie Zhenhua to remark, rather dryly, that the modest amount pledged is “far removed” from the $100bn shortly needed per year. Mr Zhenhua’s Brazilian colleague José Antonio Marcondes de Carvalho expressed gratitude for the $10bn promised but also noted that the goal is “nowhere near.”

In 2009, OECD member states pledged “to mobilise” up to $100bn annually by 2020 from private and public sources to help fight climate change. However, the first fund-raising effort by the UN’s Green Climate Fund (GCF) only scooped-up $9.7bn from 22 countries. The fund now hopes to leverage its relatively small hoard of cash and find private sector investors willing to commit to initiatives aimed at helping less fortunate nations cope with climate change.

At the Lima conference, both Brazil and China expressed concern about the legal enforceability of any future global climate treaty. “We are worried about backsliding and fear that the treaty’s wording may end up being too flexible and allow governments to wriggle out of any deal,” said Mr De Carvalho in a thinly-veiled reference to Australia whose government backtracked on commitments assumed by earlier administrations and only at the very last moment, and after much prodding, agreed to contribute $200m to the GCF. In Lima, Brazil and China were quite happy to remind the wider world that, according to the United Nations Environment Programme (UNEP), both countries are well on track to meet their emission reduction goals by 2020.

As evidenced at December’s UN meet in Peru, increased cooperation and coordination along a new Brasília – Beijing axis holds the promise of significantly impacting world affairs. Bilateral trade increased six-fold between 2003 and 2009 to $36.7bn and kept on blossoming to reach $83.3bn in 2013. China has now become Brazil’s most important trading partner and its most profitable one as well, obtaining an annual surplus in excess of $10bn.

While Brazil and China have both aspired to world-power status for a considerable time, the transformation from emerging economies to emerging powers was a slow and often tortuous process. Development has been largely out of sync: While Brazil boomed in the 1960s and 1970s, China struggled to free itself from the Cultural Revolution. However, when in the early 1980s Deng Xiaoping allegedly proclaimed “to get rich is glorious”, and unleashed his country’s economic might, Brazil – plagued by inflation and burdened by debts – was about the enter its lost decade.

Writing in the Brazilian Foreign Policy magazine, research fellow Niu Haibin of the Shanghai Institutes for International Studies (SIIS) concluded that both countries have at least 15

150

years to go before gaining widespread international recognition as world powers: “The 2008 financial crisis shrunk the gap with the established powers.

Both China and Brazil have gained a measure of recognition with the reshuffling of shares in the World Bank and the International Monetary Fund. Both emerging powers have also enjoyed better insertion into the global economic system through their enhanced role in the G20.”

Since 1993, the Chinese and Brazilian governments are aware that close cooperation and the coordination of their foreign policies can have an outsized impact on global affairs. Both countries are dominant powers in their respective regions, pursue their ambitions in non-military fashion, and complement each other surprisingly well on the trade front.

A remaining challenge concerns the traditionally inward-looking character of Brazilian and Chinese politics. Unaccustomed to assuming a prominent role on the world stage, Brazilians only recently have begun to discuss their country’s manifest destiny. However, public debate on the matter remains muted and a clear vision seems absent in all but the highest levels at the Palácio de Itamaraty in Brasília.

Meanwhile, China seems hugely interested in all things Brazilian, opening a string of Brazil Study Centres at universities throughout the country and actively encouraging students to include Portuguese language courses in their syllabi.

In the other direction, interest is modest but growing. For the moment, though, Brazilians are still more concerned with the faltering domestic agenda than they are with foreign policy issues.

Though slightly more prosperous than China on a GDP-per-capita basis (PPP), Brazil’s wealth is unevenly distributed and a great many social ills persist. Somewhat less dynamic economically, Brazil is also plagued by outdated legislation that hampers business, rather than encourage entrepreneurship.

With fully 85% of Brazil’s exports to China consisting of soy beans, iron ore, and crude oil, bilateral trade is not empowering the industrial development of the country. Brazil is also slightly disappointed that its new best friend in the Far East has yet to back the country’s bid to obtain a permanent seat on the United Nations Security Council.

The Chinese government must eventually address the impression in Brasília – for the moment still faint and barely noticeable – that it only cares for access to Brazil’s vast natural resources. Both countries acting in unison, as they did at the recent UN Climate Change Conference, signals a willingness in Beijing and Brasília to sync agendas with a view to pursuing common goals.

A few hiccups notwithstanding, the matrix is firmly in place and will be increasingly employed to further both countries’ interests on the world stage. i CFI.co | Capital Finance International

Brazil: Rio de Janeiro

Winter 2014 - 2015 Issue

> CFI.co Meets the Co-Founders of HMC Capital Group:

Ricardo Morales & Felipe Held

Co-Founders: Ricardo Morales and Felipe Held

RICARDO MORALES Ricardo Morales co-founded HMC in 2009.

He retired from LarrainVial (LV) where he was partner, managing-director and head of Latin America institutional sales. During his tenure at LV, the company enjoyed market leadership in offshore distribution from third parties within the Latin American pension fund market. Mr Morales was responsible for the internationalisation of the company and opened offices in Mexico, Peru, and Colombia.

He created an asset management division in Peru which he then joined as a board member.

In that capacity, Mr Morales concentrated his efforts on securing the placement of the first regional private equity and real estate funds.

That experience allowed Mr Morales to close exclusive agreements with firms like Blackstone and Och-Ziff Capital Management to further develop business in the region. Along with Felipe Held, he originated and managed the equity derivatives business at LV, including the exclusive relationship with Goldman Sachs for trading ETFs (Exchange Traded Funds) in

the Southern Cone countries for institutional clients.

Prior to joining LV, Mr Morales worked at the CNA insurance company as portfolio manager.

He started his career in 1997 as an equity research analyst at LarrainVial.

Mr Morales received his master’s degree in macroeconomics and financial economics from the Pontificia Universidad Católica de Chile. He received a degree in business administration (cum laude) from the Francisco Marroquín University in Guatemala.

FELIPE HELD Felipe Held co-founded HMC Capital in 2009.

Prior to this, he worked at the LarrainVial Investment Bank which operates throughout Latin America. Mr Held started as a trader and joined the international distribution division a few years later. Subsequently, he became head of distribution responsible for derivatives and alternative investments for institutional and high-net-worth clients in the region. Mr Held CFI.co | Capital Finance International

developed a platform with international banks, providing structured products, options, and swaps to institutional and private investors in Latin America. He was also head of international sales and trading for Latin American pension funds via an agreement with Goldman Sachs.

Mr Held is an accomplished entrepreneur and member of company’s board of directors.

Mr Held graduated in business administration from the Adolfo Ibañez University (Santiago, Chile). He earned a master’s degree in finance at the same institution.

Over the past five years, HMC has developed a strong presence in the main markets of Latin America – Brazil, Colombia, Chile, and Peru – providing a bridge between international asset managers and private equity firms and Latin American investors. More recently, HMC has started to develop niche strategies dedicated to Latin America in an effort to develop the local financial markets together with institutional investors such as pension funds and multilateral organisations. i 151

> BONUS Banca de Inversión:

Structuring PPP Projects in Colombia BONUS is a financial consulting firm with experience in project structuring and diverse financial products valuation for the public and private sectors.

The firm has been active for nine years, during which time it has structured projects with an aggregate investment of over $25 billion. The added value given by the firm is based on its comprehensive approach to every structuring process by unifying the financial, legal, and risk aspects, which jointly represent the foundation of any successful project.

B

ONUS has served as an interinstitutional catalyst through which the interests of each project’s stakeholders are aligned, such stakeholders being, in general, the private sector (investors, constructors, insurance companies), the public sector (Ministry of Finance, National Planning Department, National Infrastructure Agency), and the banking sector.

In the recent years, BONUS Banca de Inversion has established itself as a major player in the infrastructure business, where it works actively advising several agents involved in the most important projects in Colombia. BONUS works with government grantors interested in awarding PPP projects, sponsors eager to obtain the financial close desired, private investors seeking to submit PPP projects on a private initiatives basis, and local development banks demanding advice in the design and development of their financial products.

The below table shows the Key Transactions BONUS Banca de Inversión S.A.S. has closed this year.

BONUS: A LEADING FINANCIAL ADVISOR IN COLOMBIA During the past year, the national government of Colombia has awarded ten infrastructure projects based on the public-private partnership scheme (PPP). Out of these projects, BONUS has

Project Magdalena River Waterway PPP Prosperity Highways: Conexión Norte Prosperity Highways: Río Magdalena 2 Prosperity Highways: Conexión Pacífico 1 Prosperity Highways: Conexión Pacífico 2 Prosperity Highways: Conexión Pacífico 3 152

“In the recent years, BONUS Banca de Inversion has established itself as a major player in the infrastructure business, where it works actively advising several agents involved in the most important projects in Colombia.” structured six, which total approximately 66% of the total approved investment awarded by the government.

These transactions are actually a part of two mega-projects: The Magdalena River Waterway ($857 million) and the Prosperity Highways ($5,184 billion) awarded in 2014. These are probably the largest and most ambitious infrastructure programmes ever planned and executed in Colombia, something that added a great amount of pressure on every stakeholder.

BONUS’ role in the process was not limited to the development of financial models and cash flow projections: It extended to a full range risk, financial, and contractual consultancy through which the firm was able to act as the middleman between all actors involved. BONUS had to align the interests of constructors, banks, insurance

companies, government public, and many others.

agencies,

The projects, structured under a PPP scheme, received government contributions (which come from the general national budget) throughout the concession contract’s life. The total amount of approved government contributions amounts to $10.696bn. Approximately 70% of that amount will be directed to projects structured

by BONUS. This amounts to approximately $7.620bn.

Over the last two years, BONUS has managed to claim a leadership role in the projectstructuring sector under PPP schemes thanks to the development of innovative and successful tools that allowed for the satisfactory award and execution of each of the projects detailed above. Also, as can be seen in the table below, BONUS has acquired such broad expertise that it develops its role as advisor to the grantor on an individual basis. Other key players in Colombia need to join forces between them to keep up with BONUS’ pace.

Finally, it is important to highlight that BONUS constantly seeks innovative projects and tools, which enable the company to maintain its leadership in the infrastructure sector. In support of this, BONUS has been working on two projects with particular conditions. The first of these

Project Value (USD $ Millions)

Date the Contract was Awarded by Grantor

$857 $898 $962 $1,466 $764 $1,094

August 15th, 2014 October 17th, 2014 October 22nd, 2014 June 3rd, 2014 May 22nd, 2014 July 15th, 2014

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general

Winter 2014 - 2015 Issue

Navegabilidad Río Magdalena 14%

Conexión Pacífico 3 19%

Conexión Norte 13%

Puerto Salgar Girardot 4%

Cartagena Barranquilla 12%

Autopistal al Río Magdalena 2 18% BONUS 66%

Conexión Pacífico 2 14%

is involves the National Planning Department (Departamento Nacional de Planeación - DNP) in a project that aims to identify, structure, and implement strategies to channel resources of the private sector to leverage development and operation of social infrastructure focused on high- quality and accessible public spaces. This project is a pioneer in the infrastructure sector since it is entering an uncharted area in terms of PPP in Colombia.

Mulaló Loboguerrero 7%

Perimetral de Cundinamarca 11%

Conexión Pacífico 1 22%

BONUS is also working with the Financial Fund of Development Projects (Fondo Financiero de Proyectos de Desarrollo - FONADE) in a project focused on the design and structuring of a PPP model for the $ 500m “Rancheria River Project,” considering the different services involved in order to ensure a sustainable and comprehensive system.

The Rancheria River Project aims to provide CFI.co | Capital Finance International

irrigation, drainage, and flood control in a total area of 18,030 hectares in the department of La Guajira. Within this project, a multipurpose deal is being structured that is to supply irrigation, water supply aqueducts, and power generation facilities, taking into consideration all the social, regional development, and other elements necessary to complete the construction of the missing works and to consider its future operation and maintenance. i 153

> HMC Capital Group:

Premier Investment Network in Latin America HMC is a Latin American financial services and investment company established in 2009. HMC has offices in Chile, Brazil, Peru, and Colombia.

This network enables the company to effectively approach and serve the most important markets and clients of the region. Local experience, market knowledge, independence and commitment, strengthens and positions their clients for better asset efficiency.

H

MC also assists both institutional investors and high-net-worth (HNW) clients in obtaining best-of-class asset managers and establish longterm relationship in the region. HMC’s placement agent business is to manage and execute the entire capital raising process in Latin America and help international companies with third party distribution and private placements.

allows the firm to capture and structure different opportunities in the market.

The HMC Wealth Management Division provides advisory, portfolio consolidation, and investment recommendations to high-net-worth individuals throughout the region, offering unparalleled institutional treatment.

As of September 2014, the firm has over $3.6bn of assets under active management and distribution of which 80% is sourced from institutional investors and the remainder from high-net-worth individuals. HMC clients benefit from the following services: • In-house market intelligence used to design effective strategies and generate investment ideas.

• Strong regulatory and back office support.

• Unique investment tools & advice.

• Exclusive products and investment opportunities.

According to Claudio Guglielmetti, one of the partners, HMC early on identified the need to provide HNW clients with the same level of service normally awarded to institutional investors only: “It is for this reason that we equipped our private banking unit with a highly advanced technological platform which helps identify risks before they can impact positions.”

The main advantages of HMC can be summarised as follows: • HMC provides financial and investment services in Latin America in four key areas: Institutional Distribution, Asset Management, Wealth Management and Corporate Finance.

• HMC has offices in Chile, Brazil, Peru, and Colombia in order to effectively approach the most important markets and managers of the region.

• HMC cultivates a unique global vision that

The HMC team is comprised of three board members, fourteen senior managing directors, and thirty professional analysts. Back office support is provided by ten experienced assistants. The partners’ vast experience and varied backgrounds provide important synergies.

HMC Private Banking provides global asset allocation advisory services to HNW clients through offshore and locally recognised platforms. At the end of 2013, HMC merged its private banking unit with Global Advisors, creating HMC Global Advisors with more than 400 clients and over $500m worth of assets under management.

Its expertise of Latin American and international markets allows HMC Global Advisors to provide a wide array of products, investment opportunities,

and counterparties. HMC Global Advisors has an experienced investment team with more than fifteen professionals and partners, each boasting on average twenty years of experience in private banking and global markets.

The company’s global vision and its state-of-theart technology platform for portfolio design and construction provides clients with up-to-date investment and risk information on global asset allocation, optimising the risk / return ratio.

HMC has an exceptionally strong network covering the entire sub-region that gives the firm a strong distribution capacity as well as solid advisory capabilities on debt structuring, mergers and acquisitions, and suitable business models.

ASSET MANAGEMENT HMC Asset Management develops business and investment opportunities for its clients focused on alternative asset classes. Investment Funds structuring capacity in Chile, Perú and the whole region. HMC has identified and developed investment opportunities on alternatives; such as Credit, Private Equity, Secondaries and Real Estate Nevasa HMC Administradora General de Fondos is focused on the institutional segment in Chile and operates under a business model that combines the specialisation on third party funds management with international firms advisory.

The division has more than $350m in assets under management.

“According to Claudio Guglielmetti, one of the partners, HMC early on identified the need to provide HNW clients with the same level of service normally awarded to institutional investors only.”

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“HMC has a solid base of institutional clients in Latin America; such as Pension Funds, Insurance Companies and Family Offices.”

Nevasa HMC looks to explore opportunities in the market provided by the Capital Markets Reform III Act. Nevasa HMC aims to develop local products for institutions by attracting the best global asset managers in different investment strategies such as private equity, equities, and Credit.

Currently, the Chilean funds are Fondo de Inversión Nevasa HMC PNTN, Fondo de Inversión Nevasa HMC CIP VI, Fondo Mutuo BRZ Brazilian Equities, Fondo de Inversión Nevasa HMC CVC and Fondo de Inversión NEVASA HMC Renta Fija.

HMC has a solid base of institutional clients in Latin America; such as Pension Funds, Insurance Companies and Family Offices. HMC has one of the most experienced teams in Latin America and boasts a strong track record, pioneering the investment development of local markets and deep networking in the institutional and HNW segments.

PARTNERSHIPS HMC has an exclusive joint venture with Itajuba Investimentos creating HMC Itajuba Capital. To provide extensive coverage for our clients, HMC has partnered with the first Brazilian placement agent for institutional clients, founded in 2007 and regulated by the CVM (Comissão de Valores Mobiliários).

Itajuba Investimentos has offices in São Paulo and Rio de Janeiro.

HMC is focused on offering its clients the benefit of local expertise and an opportunity to tap into the partners’ vast experience in the region. The firm furthermore aims to provide important synergies, introduce local managers to a broader client base, and introduce international asset managers to local investors. i CFI.co | Capital Finance International

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> Recovering the Magdalena River Waterway:

Challenge Accepted

H

istorically, Colombia has suffered from a deficient and incomplete transportation network that isolated the country from overseas markets and made even domestic communication between provinces and regions a challenge.

Numerous geographical, economic, and political factors that have profoundly impacted Colombia’s development over the years.

Traversed by the Andes mountain range, the country’s topography makes the development of an adequate transportation network a particularly expensive proposition. Additional challenges were posed by internal strife – now abated – and weak political institutions.

Colombia’s recently reoriented trade policy, introduced by the administration of President Juan Manuel Santos, has already led to the signing of a series of free trade agreements with some of the world’s largest markets such as the USA, EU, Canada, EFTA (European Free Trade Association), and a host of other countries like Chile and South Korea.

This new approach aims to open up the economy.

That requires the government to adequately prepare the groundwork in order to maximise benefits and strengthen the national economy, thus increasing Colombia’s competitiveness in the global marketplace. To achieve this, there is but one job to tackle: The country needs to vastly expand, develop, and improve its infrastructure.

It is with this objective in mind that a Public Private Partnership (PPP) programme was devised to usher in a new era of innovative project funding. The programme aims to empower the infrastructure development drive by offering a financing vehicle capable of removing the obstacles that historically blocked transport.

“President Santos has proclaimed the updating of Colombia’s transport infrastructure a priority of his administration’s economic policy.” record-breaking levels of fiscal and foreign direct investment, the international community has now taken a keen interest in Colombia – a country on the rise.

The question the nation now faces is how to consolidate recent accomplishments and assure sustainable growth well into the future. The momentum cannot be sustained much longer without an infrastructure that matches, in size and quality, the larger and more open economy of the country.

Infrastructure bottlenecks may easily become economic death knells. However, the national government is keenly aware of the magnitude of the task ahead. President Santos has proclaimed the updating of Colombia’s transport infrastructure a priority of his administration’s economic policy.

With weak and inefficient networks connecting the country to overseas markets, logistical expenses currently account for 18.6% of the cost of doing business in Colombia. This is 4.3 percentage points higher than the Latin American average. Public policy is focused not only on upgrading the outdated and overburdened road network, but also on creating and restoring

The centrepiece of this programme is the Magdalena River Waterway PPP. This megaproject is set to transform the country’s main river into a pivotal transportation artery and the backbone of an extensive logistics network. Conceived as a major component of a new transportation grid, the waterway project ran into a series of challenges caused by a misalignment of public and private sector interests. Other stakeholders – municipalities, financial institutions, etc. – asked for s slot at the negotiating table as well.

SUSTAINABLE GROWTH: HOW TO REACH IT? After a decade of accelerated economic growth, major advances on the security front, and

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Magdalena River Waterway

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alternative modes of transportation such as railand waterways.

One of the main problems identified by the Santos Administration is the lack of options available to shippers. Roads carry around 80% of all goods transported. In this context, the Magdalena River Waterway Project, aimed at restoring the river’s navigability, offers a valuable alternative.

In the more distant past, the Magdalena River used to be one of Colombia’s most important transportation arteries, however it has been neglected for most of the 20th Century.

The Project: The Magdalena River Waterway PPP The project has been conceived as the key element of a drive to significantly decrease the cost of shipping cargoes from Bogotá – Colombia’s capital – and the surrounding central region to the Caribbean Sea. It is also designed to increase the range of options available to shippers of goods from the country’s central and northern regions.

The waterway project was awarded by Cormagdalena (Corporación Autónoma Regional del Río Grande de la Magdalena), the agency set up specifically to recuperate the river’s navigability, under a PPP contractual scheme.

The contract comprises the construction of canals between Puerto Salgar/La Dorada and Barrancabermeja – a distance of 256km – encompassing rock-filled trench coats and dykes, as well as dredging and maintenance work between Puerto Salgar/La Dorada and Bocas de Ceniza – the river’s mouth – over a distance of 908km.

The project’s contract amounts to $857 million and contains a CAPEX (capital expenditure)

Winter 2014 - 2015 Issue

Recovering of navegability in the Magdalena River

Barranquilla

Atlantic ocean

908 Km

Total lenght of the project

652 Km

of dredging and maintanance activities

256 Km

of channeling works

USD 1,2 Billions

Barrancabermeja

Total cost of project

USD 476 Millions CAPEX

70% represented in channeling works and 30% in dredging and maintanance activities

8,2 Millions

of Tons-year (growth in the transit of barges with capacity of 7.200 Tons, which equals 180 trucks)

Puerto Salgar

1,5 - year

5 - year

Pre-construction phase

Construction phase

segment of $476m with 70% of that amount earmarked for canal building and the remainder destined for dredging and maintenance work. The financial closing is expected to be approximately $683m and will require an equity contribution of $174m.

The contract is to run for a 13.5-year estimated term which includes a five year construction phase and a seven year maintenance period.

During the maintenance period, the private partner will need to guarantee a minimum depth of at least seven feet along the entire length of the waterway. The navigating channel must be maintained at a width of at least 52 metres with a curvature radius of 900 metres.

These specs will contribute to an exponential growth in the volume of cargo travelling the river. The waterway will be plied by barges with a capacity of 7,200 ton each – equivalent to about 180 trucks. This volume is even more impressive when considering that today, no cargo at all is carried over the river.

A CHALLENGING PROJECT TO STRUCTURE The project’s execution is envisioned with a new type of concession mode of which there are but a few examples in the world – and none in Colombia. As such, its structuring posed a considerable challenge. Both Cormagdalena and BONUS Banca de Inversión, the latter in its capacity as the financial and legal advisor of the project, encountered several obstacles along the way including often disruptive clashes between the interests of the private and public sectors.

Facing this scenario, BONUS decided early-on to apply the principles of competitive dialogue as a way to encourage an open and ongoing discussion between stakeholders – both private and public – regarding perceived threats and

7 - year Maintanance phase

hazards. These talks were aimed at improving the project and ensure better conditions for everyone involved.

BONUS coordinated this process, serving as a mediator looking to align the interests of the parties involved. Additional studies were required as well as a both a revaluation and redistribution of risk – a point of crucial importance for private investors and banks alike.

A competitive dialogue had never been used before as a negotiating tool in Colombia. Its successful deployment contributed in no small degree to the refinement of the project. The preoperational stage was extended to allow time for the necessary environmental permits to be issued. The construction phase was also enlarged as a risk mitigation measure to enable proper placement of rock-filled structures and increased dredging. Both construction and operational risk distribution was addressed in case the river’s water levels rise to above their ten-year average.

These and other measures, ensure the private sector that its investment is secure. Moreover, the solid framework arrived at facilitated access to debt resources both domestically and internationally. For its part, the public sector embarked on an inter-institutional effort to secure funding from national, state, and municipal governments as well as from the partly state-owned Ecopetrol oil company.

The issues described above generated a special challenge for both Cormagdalena and BONUS who needed to conciliate all elements with a viable technical, legal, and financial figure that would assure the sustainability of the project. This resulted in the drafting of the entire concession contract with its technical specifications. This CFI.co | Capital Finance International

was not just a construction contract since it provides for works that are meant to stay with higher quality standards over a long term (30 years or more). It measures the compliance of service indicators that ease the navigability and transportation of goods and natural resources in almost perennial conditions during the contract execution.

A CATALYST FOR NEW INVESTMENTS AND ECONOMIC GROWTH The situation of the Magdalena River is akin to the chicken or egg conundrum. Private investment, such as commercial quays, were never made because the river wasn’t navigable.

Public investments in dredging were never made because there were no ports to benefit from a navigable river.

This dilemma was at long last solved thanks to the government’s determination in taking the first and most important step: Structuring a project that is viable financially, legally, and technically. The Magdalena River Waterway Project has now become a reality. The Navelena SAS consortium, headed by Odebrecht, won the public bid to execute the contract (works and dredging). As of today, Cormagdalena has received more than forty requests for river ports concessions, representing investments totalling over $1.2 billion.

Ultimately, this shows how the project has become a catalyst for investment in the Colombia’s transportation infrastructure. It is expected to have several ramifications. The country’s main population centres – Bogotá, Medellín, and Cali – will be more efficiently interconnected. Each centre will enjoy easy access to a major port.

Medellín will benefit most in terms of economic development and international trade. The city will be connected by both road and river networks to the Caribbean coast, and by road and rail systems to the Pacific coast. Colombia’s manufactured goods and natural resources – including coal, oil, nickel, and agricultural crops – will be easier and cheaper to ship and this become more competitive. Additionally, with alternative means of transportation, possible labour strikes and attacks by rebels will have a smaller impact on the flow of commodities and, therefore, on the national economy.

The transportation infrastructure projects now envisioned reflect Colombia’s geopolitical orientation and its needs. The country will continue to develop and strengthen its access to both the Pacific Ocean and the Caribbean Sea, recognising their enormous importance to the full exploitation of the new free trade agreements and to the maintaining of the current economic momentum. An outlet to the largest consumer market in the world, the Magdalena River Waterway will continue to drive Colombia’s development trajectory as a pivotal corridor for transportation, connectivity, and general economic growth. i 157

> Asia:

Beijing - Billions for a Breath of Fresh Air Beijing municipal authorities recently earmarked close to $50 billion and unveiled a series of draconian measures in a last-ditch attempt to clean up the city’s air by 2017. Early this year, the Shanghai Academy of Social Sciences released a study on air pollution affecting metropolitan areas around the world in which researchers bluntly concluded that Beijing has become “almost unfit for human habitation.”

Hong Kong and Shanghai fared barely better. According to the comparative study, the cleanest city to live in is Stockholm, followed closely by Calgary in Alberta, Canada.

China: Beijing

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n 2013, Beijing’s 21 million or so residents endured no less than 189 days of heavy air pollution during which PM2.5 (particulate matter with a diameter of 2.5 micrometres or less) reached a density as high as 160 micrograms per cubic metre.

Chinese environmental authorities consider 35 micrograms of PM2.5 the maximum for good air quality. In Europe, that number is 25 micrograms, while in the US the maximum PM2.5 allowed is just 12 micrograms per cubic metre.

Fang Li, the second in command at the Beijing Municipal Environmental Protection Bureau, emphasised that the measures announced constitute “a first” for the city as they replace a set of guidelines that aimed – but failed – to check pollution levels. “We have now set specific targets to curb emissions. Local governments and individuals polluters will receive decreasing annual quotas. Any excess pollution will be met with stiff fines and other sanctions.”

According to the World Health Organisation (WHO), air pollution is responsible for the premature death of an estimated six million people worldwide. A 2013 study conducted in the European Union found that there is no safe level for PM2.5 which are particularly dangerous.

Researchers have found that for every 10μg/m3 increase, lung cancer rates jump by 36%.

POLLUTED SMOG These and similar findings prompted Beijing Mayor Wang Anshun to announce an “all-out effort” to fight the “smog” (wumai) – as the polluted pea-soup regularly blanketing the Chinese capital is called in official parlance.

Popular demand for action is rising as well. Social media platforms such as Facebook and Twitter are increasingly used to share air quality readings made by individual users.

Beijing activists may have taken a cue from Poland where the inhabitants of Krakow successfully used social media to campaign – and obtain – a ban on coal burning for domestic heating. Facebook pages and tweets were effectively employed to stage protests and gather signatures for petitions.

When municipal authorities considered retreating from an all-out ban, they were promptly inundated by messages of disapproval delivered over social media networks and soon realised their folly. The ban was immediately voted into place.

Beijing City Hall now seems determined to take the initiative and address air pollution head-on before it get further out of hand. The total cost of the clean-up operation is expected to reach over ¥1 trillion ($161 billion) to be bankrolled by both the public and private sectors. The stated goal of the exercise is to reduce PM2.5 density by at least a quarter come 2017. Polluting industries will be encouraged to move away from the city and coal burning is to be reduced. The plan also contains measures to promote the use of clean energy.

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“Beijing City Hall now seems determined to take the initiative and address air pollution head-on before it get further out of hand.”

Private equity firms are actively being charmed to become part of the solution. Always on the prowl for early growth stage opportunities, Northern Light Venture Capital (NLVC) was one of the first to seize the moment and partner with local manufacturers of air purifying equipment.

BURNED FINGERS In the US, private equity investment in clean technology is on the wane after venture capitalists severely burned their fingers on thinfilm photovoltaic products manufacturer MiaSolé.

Though the Santa Clara, California-based company had attracted around $500 million in venture capital over four funding rounds and received a $100 million federal tax credit, it was sold to Chinese solar panel manufacturer Hanergy for a mere $30 million in January 2013 – the proverbial song and a dance.

In China, the risk is considered much lower since most clean technology companies need but a fraction of the funds their US competitors require in order to reach the break-even point: “Whereas a US company may require $100 million to become profitable, in China it often requires $20 million or less. The downside is limited, though the upside remains pretty much the same,” says NLVC Managing-Director Lei Yang.

In tandem with developments in the US, clean technology investments have decreased in China from a high of $4.1bn in 2010 to just shy of $2bn last year. The tide, however, is turning thanks to large-scale policy initiatives such as the one in Beijing that now includes a slew of, previously absent, compulsory elements.

Also, the slump that followed the collapse in valuation of China’s solar panel manufacturers which caught many investors unawares has now been largely confined to the past. Valuations have now accommodated at more rational levels, awakening renewed investor interest. Average allocations in clean energy are moving up from 10% of investors’ portfolios to 15%.

Northern Light is taking the long view, moving funds into companies that develop fuel cell technology which may eventually offer a viable

alternative to coal. The firm has already picked four fuel cell companies that it considers bestowing money on.

THE ESOTERIC APPROACH Others are looking for more esoteric ways to fight air pollution. Dutch designer and engineer Daan Roosegaarde has been meeting with Beijing Mayor Ansun to promote his electronic vacuum cleaner – a device that is to be installed in municipal parks and will suck the smog out of the sky. Next summer, a prototype of Mr Roosegaarde’s vacuum is ready to be installed. “The idea is to create a few clean places in the city so that people may rediscover the joy of breathing clean air and become excited about fighting air pollution all over.

The vacuum cleaner uses buried coils of copper wire to create an electrostatic field that charges smog particles and “sucks” them to the ground.

This process, developed by the Delft Technical University in The Netherlands, forms a halo-like column of clean air.

Not satisfied with just clearing up the Beijing smog, Mr Roosegaarde aims to sell it as well. A mobile version of his device, mounted on a pole and looking much like a miniature pagoda, will capture the charged smog particles and press them into tiny cubes. A thousand cubic metres of smog results in a cubic millimetre carbon crystal – i.e. a tiny diamond made out of smog.

“We take a problem and turn it into something highly desirable. Smog jewellery could get people talking about the issue and, just as important, taking pride in the fact that they helped clean up the Beijing air.”

A glimpse, quite literally, of what is possible came last November when Beijing city hall ordered all factories within a 180km radius closed, banned half of all vehicles or the streets, sent civil servants on compulsory leave, and closed banks, schools, and some shops in order to guarantee a week of pristine air for the APEC (Asia Pacific Economic Cooperation) CEO Summit.

The draconian measures – on par with those taken for the 2008 Summer Olympics – brought blue skies back over Beijing. Almost instantly, APEC Blue became an Internet meme and something widely considered too good to be true. The city appeared in all its splendour. Broad avenues previously disappearing into grey mist, now revealed majestic vistas against a backdrop of distant, but clearly visible, mountains. Children, normally confined indoors, were seen playing outside – kicking soccer balls and running about without facemasks or, indeed, a care in the world.

The canopy of APEC Blue lasted but for a week.

However, it did give the inhabitants of China’s capital city a glimpse of what may eventually be achieved if the drive for clean air, now given a welcome boost by the municipal administration, is successful. i

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CFI.co Chairman and CEO of Colombo Stock Exchange:

Mr Vajira Kulatilaka, Chairman Mr Rajeeva Bandaranaike, CEO

Chairman: Mr Vajira Kulatilaka

CEO: Mr Rajeeva Bandaranaike

MR VAJIRA KULATILAKA Chairman Mr Vajira Kulatilaka was appointed chairman of the Board of Directors of the Colombo Stock Exchange (CSE) with effect from June 5, 2014.

Mr Kulatilaka has served on the CSE Board of Directors since October 2009. He is designated as director and chief executive officer of NDB Capital Holdings PLC and overlooks the operations of the Investment Banking Cluster of the NDB Group. The group comprises of NDB Investment Bank Limited, NDB Securities Pvt Limited, NDB Wealth Management Limited, NDB Zephyr Partners (Pvt) Ltd, and NDB Capital Limited, Bangladesh.

Bank Limited, NDB Securities Pvt Limited, NDB Wealth Management Limited and NDB Capital Limited – Bangladesh, NDB Zephyr Partners Pvt Ltd, and Resus Energy PLC.

Mr Kulatilaka carries over thirty years of experience in the finance sector and capital market of Sri Lanka. Prior to joining NDB Investment Bank Limited, he functioned as chief executive officer at CKN Fund Management (Pvt) Limited. Mr Kulatilaka has been instrumental in managing some of the largest IPO’s in Sri Lanka.

He is a chartered financial analyst and has obtained a BSc Degree in Civil Engineering with first class honours from the University of Moratuwa. Mr Kulatilaka also obtained a MEng in Industrial Engineering and Management from the Asian Institute of Technology. Furthermore, he obtained qualifications as a fellow member of the Chartered Institute of Management Accountants UK.

MR RAJEEVA BANDARANAIKE CEO Mr Rajeeva Bandaranaike is the chief executive officer of the Colombo Stock Exchange. He has served in a senior management capacity at the stock exchange in trading, clearing and settlement, branch development, marketing, human resources and has led several market development initiatives. Mr Bandaranaike counts over twenty years at the Colombo Stock Exchange. He also served as the chief executive officer of two listed companies and counts a total of 25 years’ experience in financial services.

Mr Bandaranaike holds a degree in Law (LLB) from the Open University of Sri Lanka, a Master’s in Business Administration (MBA) from the University of Southern Queensland, Australia, a post graduate diploma in Marketing from the Chartered Institute of Marketing (UK), and the Stock Broker Certification form the Securities Institute of Australia. i

Mr Kulatilaka currently holds directorships at NDB Capital Holdings PLC, NDB Investment

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> Colombo Stock Exchange:

Premier Source for Wealth and Value Creation The Colombo Stock Exchange (CSE) is the operator of the stock market in Sri Lanka. Share trading in Sri Lanka has a history of over 100 years. The CSE today is one of the most modern exchanges in South Asia, providing an automated multi-asset class trading platform and an automated clearing, settlement, and depository infrastructure. The market capitalisation is over $3bn and 294 companies are listed on the exchange.

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he CSE has a large established pool of foreign and local institutional and retail investors. Approximately 35 % of the market is comprised of foreign and local institutional investors. Retail investors make up the remaining 65%. The CSE is accessible through a network of thirty institutions licensed to trade equities and six institutions licensed to trade listed debt.

Internet based trading facilities are provided by all stockbrokers and the stock exchange has regional offices in eight provinces of the country proving accessibility to retail investors.

The CSE is a company limited by guarantee and was established under the Companies Act No 17 of 1982. It is licensed by the Securities & Exchange Commission of Sri Lanka (SEC).

The CSE is a mutual exchange and has fifteen full members and thirteen trading members licensed to trade both equity and debt securities, while six members are licensed to trade in debt securities only. All members are licensed by the SEC to operate as stockbrokers. All members are corporate entities and some are subsidiaries of large financial institutions.

The companies listed on the exchange represent twenty business sectors. The performance of the market is measured by two indices: the broad index – All Share Price Index (ASPI) – measures the price movement of all listed equity securities, while the S&P Sri Lanka 20 Index (S&P SL20) measures the twenty most liquid stocks.

In 2014, the CSE performed exceptionally well.

At the close of trading on December 31, the ASPI showed a year-to-date growth of 23.4%, placing the CSE as one of the top performing markets globally.

During the year, the S&P SL20 crossed the 4000 mark for the first time since its launch, while the ASPI crossed the 7500 mark. In 162

“In 2014, the CSE performed exceptionally well. At the close of trading on December 31, the ASPI showed a yearto-date growth of 23.4%, placing the CSE as one of the top performing markets globally.”

2014, purchases by foreign investors attained their highest level in history. The CSE has seen a net foreign inflow for the last three consecutive years, signalling the strong level of confidence among foreign investors in the growth of the Sri Lankan economy and the capital market.

The CSE, in association with the Securities and Exchange Commission of Sri Lanka, has initiated an ambitious capital market development plan to transform the Colombo Stock Exchange into a world class facility. The exchange has embarked on the following development initiatives: IMPROVING THE DEPTH AND BREADTH OF THE MARKET • Encouraging and building a framework to attract institutional investors through measures such as increasing liquidity and the reclassification of the CSE as an emerging market in MSCI emerging markets index • The development of a strong local investor base • Innovation and diversification of the product range beyond equities and corporate debt.

IMPROVING MARKET INFRASTRUCTURE • Setting up a Central Counterparty through a joint initiative between the CSE, the Central bank, and the Securities and Exchange Commission of Sri Lanka to create a facility to clear and settle CFI.co | Capital Finance International

all financial products including government debt securities and other financial derivative products • The development of a broker infrastructure and systems with the introduction of new and enhanced order management and back office systems and building risk management capabilities for brokers and the exchange.

IMPROVING STAKEHOLDER CONFIDENCE • Improve both the regulatory framework through the new SEC Act and the enforcement of regulatory actions • Improve and strengthen corporate governance among listed companies.

GOVERNANCE • The conversion of the CSE into a demutualised entity with the ultimate objective of listing the CSE. THE ORGANISATIONAL DEVELOPMENT OF THE CSE The transformation of the CSE into a world class organisation will take place through: • Product innovation • The upgrading of clearing, settlement, and depository infrastructures • The diversification of revenue streams • The training and upgrading of skills of CSE staff • Moving to a performance-based culture in order to improve efficiency • The rearrangement of the organisational structure • The realignment of IT services to facilitate future infrastructure developments and systems.

The CSE seeks to be the preferred choice for the creation of wealth and value. It aims to do this by encouraging issuers to raise capital through the exchange, increasing the number of active investors, providing facilities to trade diversified products, and ensuring balanced regulation to maintain market integrity and investor confidence. i

Winter 2014 - 2015 Issue

> CFI.co Meets the The APC Forestry Team:

A Vast Reservoir of Expertise in Sustainable Forestry

As companies today scramble to adopt sustainable practices that have a positive impact on the environment, Asia Plantation Capital (APC) – from its inception more than ten years ago – has led from the front by adopting sustainability as a core value and, as such, an integral part of its business philosophy.

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ith more than thirty years’ worth of experience and considerable expertise in senior management, CEO Barry Rawlinson implements and oversees Asia Plantation Capital’s business plans in accordance with the company’s strategy on ethics and sustainability.

Mr Rawlinson believes that businesses today need to start taking their responsibilities seriously and while corporate social responsibility (CSR) projects are commendable, they should not be undertaken simply “for the sake of it.”

CSR is an integral part of APC’s holistic approach to sustainability, and one that Barry has helped drive forward. It encompasses a variety of programmes designed to build, develop, and nurture the communities around which APC has interests. This in turn serves to lower the incidence of illegal logging and has led directly to a decrease in deforestation which impacts climate change.

Roger Hargreaves, a qualified independent financial advisor, is chairman of APC Thailand and works in tandem with the CEO. After relocating from the UK, Mr Hargreaves became drawn to more sustainable agroforestry investments such as cash crops and forestry.

After intensive study under the agricultural head – an agarwood grower himself – of the Laos premier agricultural university, Mr Hargreaves moved to Thailand to join the APC team. He currently thrives in the multifaceted logistics role in which he is engaged.

As APC expanded into Northern Thailand, Jinda Thonkambai joined the team as a senior director and quickly developed flourishing

plantations within the North East Area with her extensive knowledge of the region and her strategic know-how. Mrs Thonkambai lives in the farming and forestry district of Sakon Nakhon – where a significant portion of APC Thailand plantations are located – and attributes these accomplishments to her practical experience in the agroforestry industry.

Setting the pace for APC’s current operations and future developments is fellow director Juthamas Hargreaves. Her depth of legal knowledge and experience in the real estate industry makes her a key figure in locating sustainable and cost effective plots for development.

Responsible for accounts and finance, Sopist Poonyabhadra is APC’s financial controller. She received her Bachelor’s degree in Accountancy from one of Thailand’s top seats of learning – the Chulalongkorn University – and her Master’s in Public and Private Management from the National Institute of Development Administration. Mrs Poonyabhadra has nearly 30 years’ experience in accounting and finance in various industries around the world. She uses her considerable expertise to produce financial models and detailed analysis on plantations for APC’s sustainable investments.

Overseeing all human resources management functions and general administration is Shusee Kidmai, APC’s human resources and administration manager. With thirty years’ experience in HR, and having secured an impressive array of qualifications from Thailand’s top universities, Mrs Kidmai formulates and conducts training programmes to educate all APC employees on sustainability and corporate social responsibility.

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Supervising the plantations is Forestry Director SE Asia Marciano L Gecolea. He is a licensed forester and forestry auditor equipped with a Master’s degree and has gained more than fifteen years’ experience in agroforestry, watershed, environmental, and consultancy management from working with governments, large corporate organisations and the World Bank. Over the years, Mr Gecolea has written and published several scientific papers on the science of sustainable forestry management and is widely regarded as a leading expert within the industry with his knowledge on sustainability of plantations.

Under the direction of Marciano are Thailand Head of Forestry Boonchuay Jomkhamsee and Senior Forestry Officer Chaiwad Boonchaiya.

Both received Bachelor of Science degrees in Forestry from Kasetsart University before gaining extensive experience in forestry management and silviculture. They manage APC’s plantations in a safe and sustainable manner. This is a responsibility that both approach with passion.

Last, but by no means least, Sirichai Chaobangrak coordinates all the plantations owned by APC and conceives and organises special events. Mr Chaobangrak has an outstanding academic record, gaining his qualifications at the Rajamangala University of Technology, Srivijaya. He has authored two internationally published papers covering his research. After a spell in the Thai Armed Services, where he attained the rank of second lieutenant, Mr Chaobangrak has taken up a position with APC Thailand in order to pursue his passion for sustainable and environmentally beneficial plantation management. i 163

> Asia Plantation Capital:

Leading the Way in Sustainable Forestry and Agriculture As companies today scramble to adopt sustainable practices that have a positive impact on the environment, Asia Plantation Capital (APC) – from its inception more than ten years ago – has led from the front by adopting sustainability as a core value and, as such, an integral part of its business philosophy.

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arly recognition of the fact that sustainability is not merely about green practices, has enabled Asia Plantation Capital to implement a more holistic approach to sustainability. This includes partnering with local communities; raising the standards of education, improving living conditions, and providing for societal improvements through cultural and economic development. This is in addition to a number of environmental initiatives that are mandatory for all companies.

APC is the owner and operator of a diverse range of commercial plantation and farming businesses, and is part of the Asia Plantation Capital Group of associated companies. Established officially in 2008, although operating privately since 2002, Asia Plantation Capital owns and/or operates diverse plantations and agricultural projects on four continents with operational projects at various stages in Thailand, Malaysia, China, Laos, India, Cambodia, Sri Lanka, Myanmar, North America and Europe.

APC also serves as plantation and agricultural managers and advisors to several private equity funds that focus on the forestry, farming, and renewable energy sectors. In excess of $600 million worth of plantations and biological assets are currently owned and/or under management on behalf of private clients. This asset base is expected to grow over the next decade with a near-horizon forecast of $1 billion.

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“As a direct result of the research conducted, Asia Plantation Capital has now become the largest commercial grower of aquilaria trees in Southeast Asia.”

KEY CONCEPT At the heart of Asia Plantation Capital’s mission statement is the intention to become the world’s leading operator of sustainably managed forestry and agricultural plantations. These operations range from project evaluation and plantation management, through to forestry product distribution. APC regards corporate responsibility as going far beyond the securing of profits for shareholders and investors to incorporate all stakeholders and contribute positively to the environment and the wider society.

Barry Rawlinson, the company’s CEO, explains: “Sustainability is one of the key concepts around which our company has been built and although there have been challenges along the way, we have stuck, steadfastly, to our mission, the values of sustainable practices, and building up the communities that we are part of. The greatest reward for us has been the positive impact we have on local communities. This entails a never ending commitment. We continuously strive to develop and improve our efforts in sustainability.”

APC takes specific measures when acquiring plantations, and carefully designs each

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subsequent stage to ensure sustainability. At each phase – from initial plantation stock and land selection, to the inoculation techniques and end processing – systems and processes are subjected to rigorous scientific analysis and review.

The company is committed to research and development, and is constantly developing and enhancing techniques and technologies to expand the growth of the aquilaria tree, bamboo, teak, and other agroforestry projects in an environmentally friendly manner. To achieve this, Asia Plantation Capital has established an international board of scientific research advisors comprised of experts in the field, garnered from leading universities.

“We are constantly looking at ways to improve and update our practices with research from this board, while embracing new industry developments and standards,” says Mr Rawlinson.

“Forestry and agriculture management has a very direct and immediate impact on the world in which we live, and APC is always cognisant of the vital role we play in ensuring the sustainability of the environment, and society as a whole.”

THE AQUILARIA TREE As a direct result of the research conducted, Asia Plantation Capital has now become the largest commercial grower of aquilaria trees in Southeast Asia. From this tree, APC produces 100% pure, natural, and sustainable oud oils for

Winter 2014 - 2015 Issue

the international fragrance market, as well as the medical and incense industries.

All aquilaria trees are harvested through a process that ensures sustainability, and sold to the international market with CITES (Convention on International Trade in Endangered Species of Wild Fauna and Flora) certification. This demonstrates that the crop is grown, harvested, and transported in an ethical and sustainable manner. The company stands firm in promoting the use of certified wood and wood products as the best way to prevent deforestation, protect biodiversity, and combat poverty.

In Hong Kong, the formerly abundant aquilaria tree (which gave the island its name Fragrant Harbour), has almost been wiped out as a species, with the exception of a small farm on the island.

Asia Plantation Capital is currently working closely with that farm to reintroduce the tree in greater numbers and to ensure that it is grown and harvested in a sustainable fashion. It is hoped that in due course the tree will once again become a significant part of the territory’s flora.

Another of Asia Plantation Capital’s core business principles concerns the care for local communities. The company works closely with communities to help reduce deforestation and illegal logging operations that were previously seen as the main source of income in some regions of Asia. Sustainability is more than just keeping things green; it’s also about investing in people.

Apart from their work in agricultural renewal and restoration, APC employees are assured of good working conditions and the upholding of their human rights. Local labour is employed at all APC’s plantations. Workers are remunerated at a level substantially higher than the average wages prevalent in their country. Employees are guaranteed an 8-hour work day, and enjoy ample rest periods. In Sri Lanka, staff and their families are provided with free land on which to grow their own crops. Asia Plantation Capital also finances employees in the purchase of their own homes, or in the upgrading of their existing accommodation.

A regulated system of intercropping on plantations is employed, ensuring that trees are provided with cover and protection during the early years by crops that are planted between them. This system introduces nutrients to the soil that help the trees’ development and also provides additional revenue and food for employees. It is an exercise that is used widely in ethical plantations around the world. All surplus food crops are sold on the local market, providing extra income for plantation workers.

Asia Plantation Capital also actively participates in building up the communities in which it operates. The company supports local schooling programmes with the provision of educational material and by investing in cultural infrastructure and other important projects designed to enhance the quality of life. i CFI.co | Capital Finance International

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> CFI.co Meets the CEO of Zed Constructions:

KN Zubair Ahmed On Christmas day 1965, at a mission hospital in the sleepy historical town of Mysore, a baby was delivered free-of-charge. Sharing his birthday with the Son of God, was the son of an honest official working for the government of Karnataka. The diligent dreamer KN Zubair Ahmed was born and bred in a simple family. Learning the basic values of honesty and integrity from his father, Zubair grew up to be a young man of principles and with a brilliant academic record. Subsequently, honesty also became the mantra of his life.

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fter high school, Zubair was extremely passionate about motocross racing and cricket. Besides being an ace skipper to the Mysore University cricket team, Zubair bagged several national and international awards in motocross racing. During such an event in Singapore, he had the very first encounter with his dream.

“He spent several sleepless nights preparing to get 100 percent marks in the first-year Civil Engineering courses.”

Even as early as the mid -80s, Singapore – with its flashy, tall, and brilliant cityscape – held Zubair in rapture. It was here that the young mind started spinning infinite dreams and vistas of a similar future scene for his native land. The first seeds of his success story were thus sown: a vision for his very own construction business.

city of his dreams – Bangalore. It is truly said that dreams alone cannot steer success towards the dreamer. Right decisions, taken at the right time, go a long way to fulfilling those dreams.

Apart from the local language and the belief that Bangalore is generous towards all talented young professionals, Zubair did not know much about this busy city – be it the roads or its fastpaced life.

In the 1986, Zubair went to university to study electrical engineering. He spent several sleepless nights preparing to get 100 percent marks in the first-year Civil Engineering courses. This would enable him to specialise in the subject which could take him nearer to the fulfilment of his dreams. He did succeed with flying colours! The completion of the engineering course in 1992 saw not just a trained civil engineer enter society, but also a fully-equipped ambitious young man.

In that same year, Zubair married Salma – a most enterprising lady – and together they stepped out of Mysore and headed for the big

With great determination and minimal resources, Zubair established Zed Constructions – the business of his aspirations. It was the early 1990s, and by this time Salma – whom Zubair affectionately refers to as his “better full” as opposed to better half – was a successful interior designer, had become intimately involved in all his projects.

Creating beautiful interiors in her own signature style, she expertly added to the value of all of Zubair’s constructions. Officially, Zed Constructions was a partnership venture – a true union of expertise, willpower, and unadulterated

hard work. From here, there was no turning back as one project culminated successfully and sowed the seeds of several others.

Today, Zubair and Salma have several commercial, residential, and institutional properties to their credit and are members of the prestigious Confederation of Real Estate Developers’ Associations of India (CREDAI).

Their buildings house multinational companies, hotels, banks, educational, and health institutions in Bangalore. Since 2008, Salma has been closely involved with various preeducational institutions and personally oversees an eminent Canadian International preschool.

Several prestigious awards and recognitions later, ambition and aspirations are still limitless for this motivated couple. In order to cater to the huge demand for office space and technology centres in India’s IT city, Zubair will shortly be developing technology parks in and around Bangalore.

Revered is the one who respects his roots and serves his land with humility and gratitude. In the near future, Zed Constructions plans to set up its very own International Residential School at Mysore – the sleepy town where it all started.

Even after 22 years, Zubair – now chairperson and managing director of Zed Constructions – believes that he has a great many more miles to go. For him, the journey has only just begun. i

“In order to cater to the huge demand for office space and technology centres in India’s IT city, Zubair will shortly be developing technology parks in and around Bangalore.”

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> Zed Constructions:

To the Highest Pinnacles of Accomplishment The Zed Construction Group was the vision and brainchild of Mr KN Zubair Ahmed, who in the 1980s visualised a cityscape for Bangalore similar to that of other emerging cities in the world. Officially established in 1992, Zed Constructions is a company of eminent, experienced, and passionate builders and engineers.

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ince its inception, the company has seen rapid growth and is now among the foremost premium property developers of Bangalore. The business is a partnership of Managing Director and Chairman Zubair Ahmed and his wife Salma Zubair Ahmed. Zed Constructions has added several residential, commercial, educational, and health facilities to Bangalore’s skyline.

The journey began in the early 1990s at a time when the real estate sector of Bangalore was gathering momentum. The so-called Apartment Culture had not yet taken hold in the city. Also, the IT boom was just getting underway. However, the real estate sector was characterised by a dearth of reputable players: there were but very few construction companies willing and able build apartment complexes. Demand for such buildings was nearly absent.

As Zed Constructions pioneered the building of apartment blocks and towers, its foresight was dismissed as a regrettable error in judgment.

At the time, ready buyers were few and far in between. However, Zed Constructions soon saw its decision vindicated. It claimed a niche as one of the first premium construction companies, displaying remarkably high standards of quality unequalled by its peers.

From the very beginning, Zed Constructions’ consistency in maintaining the highest standards in both workmanship and materials employed attracted the attention of homebuyers who appreciated the top-quality finish, aesthetics, and affordability of the estates designed and built by Zed Constructions. A faultless record of

on-time delivery added to the company’s already enviable reputation.

and three million sq. ft. (approx. 279,000m2) of office space Bangalore’s bustling metro area.

WIDESPREAD RECOGNITION With a vision of rapid growth and solid leadership, Zed Constructions has ceaselessly – and successfully – worked towards gaining widespread recognition as one of only a select few top names in the highly competitive premium real estate sector.

At present, Zed Constructions is involved in development of Information Technology Parks that will host a number of large national and international technology copanies in and around Bangalore City. Additionally, the company plans to establish its own international residential school at Electronic City, covering over sq. ft.

200,000 of space and provided with world-class amenities and facilities. Work also progresses at an accelerated pace on several other residential, commercial, and retail projects.

With Times Square – a residential project on the densely inhabited Marathalli-Koramangala junction of Bangalore – as its flagship construction project, Zed Constructions has come a long way in the 22 years the company has been present in the Bangalore real estate development sector. Numerous commercial establishments, row houses, and residential and retail buildings offer tangible proof of the dynamism that Zed Constructions has brought to the city’s real estate market.

Amongst the most eye-catching developments made possible by the company are the renowned international residential schools along Bannergatta Road; apartment complexes such as Shanti Nikethan in Koramangala and Benson Pearl Apartments in Benson Town; Zed Square, a software technology park also in Koramanagala; residential villas at Electronic City; and the recently delivered high-end luxury apartments of the Zed Enclave.

Presently, the Zed Constructions portfolio of successfully completed jobs includes more than sixty projects, totalling about two million sq. ft. (approx. 186,000m2) of residential property

SOLID REPUTATION The solid reputation now enjoyed by Zed Constructions has been erected on a number of core values that guide the company in all its operations. When buying land, a principled approach is taken that involves painstaking legal research into the authenticity of all relevant paperwork before funds are released to the selling party. Planning, construction, and build-quality closely follow the exacting standards set by the regulatory bodies of real estate developers. This due diligence is applied as a matter of course and underwrites Zed Constructions’ dedication to the safety and well-being of its customers.

The company remains in close contact with local housing authorities in order to keep abreast of changes in norms and regulations.

Zed Constructions projects adhere to the Green Building Approach and comply fully with all relevant environmental regulations. Attention is awarded to essential – but often overlooked – issues such as adequate sewage clearance,

“With a vision of rapid growth and solid leadership, Zed Constructions has ceaselessly – and successfully – worked towards gaining widespread recognition as one of only a select few top names in the highly competitive premium real estate sector.”

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ground water preservation, rainwater harvesting, power conservation through solar energy, and treading lightly on the natural environment surrounding projects.

From the first sketches depicting a project-in-being, Zed Constructions follows all the guidelines and codes provided by local and national authorities and other regulatory entities. The company ensures all permits are in place before the first spade enters the ground and maintains strict timelines. This helps Zed Constructions secure loans from all leading banks as well. As a result, the company’s customers experience hallmark transparency and convenience throughout the home-buying process.

The same approach and philosophy is rigorously applied to all commercial and retail projects undertaken by Zed Constructions. This customercentric methodology – going by the rulebook, keeping up-to-date with regulatory developments, and adhering to environmental regulations – ensures transparency, quality and the application of ethical best practices.

A NAME TO RECKON WITH Zed Constructions hard-won reputation for excellence and quality in all its dealings has made the company a name to reckon with in the Bangalore realty sector. The list of satisfied customers now runs into the thousands. These people will readily vouch for the brand and spread the word to others who aspire to become part of the Zed Constructions family.

With its experience, professionalism, quality work, punctuality, and customer-driven approach, Zed Constructions has been honoured with awards, certifications, and memberships. The company is a member of the prestigious Confederation of Real Estate Developers’ Associations of India (CREDAI), the premier trade body of private real estate developers which represents over 9,000 developers in 22 of the country’s states and maintains 150 city-level member associations across India.

Recently, Zed Constructions has also been honoured with the prestigious Best Residential Developer Award 2014 by Capital Finance International (CFI. co) – a London-based organisation that identifies individuals and businesses that add true value in today’s world of converging economies. The award is well-deserved and recognises long years of unstinted efforts, courageous perseverance, wellconceived and timely projects, impeccable work ethics, dedication to customer satisfaction, and transparency in transactions.

The legacy of Zed Constructions is soon to be carried on by the next generation with Owaiz Ahmed, Mr Zubair Ahmed’s son, expected to take the reins of the business set up by the diligent pioneer. No less talented than his father, the son is presently working towards a degree in architecture from the prestigious BMS College of Engineering in Bangalore while contemplating innovative strategies that will take Zed Constructions to higher pinnacles of accomplishment. i CFI.co | Capital Finance International

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> Corporate Knights Capital:

Sustainability Reporting - Empowering Responsible Investing for Long-Term Prosperity

By Doug Morrow and Michael Yow

Last September, the Rockefeller Brothers Fund announced its pledge to divest its fossil fuel holdings as part of a larger divestment movement that aims to derive the industry of up to $50bn. Later that month, the Montreal Carbon Pledge was launched where investors commit to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis. To date, investors representing assets under management of $1.2 trillion have committed to the pledge.

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dd to the above the fact that there is currently about US$45 trillion of assets under management by 1,314 United Nations Principles for Responsible Investment (UNPRI) signatories – up from only $4 trillion back in 2006. UNPRI signatories commit to integrate six principles covering environmental, social, and governance issues into their investment decision making and ownership practices.

Clearly, responsible investing is growing in importance – not only because it is good for our planet’s long-term prosperity but also because there is mounting evidence that it can lead to superior investment returns. For instance, by subjecting equities from the high-carbon sectors in a given index to a performance test, related to normalised greenhouse gas emissions, and removing the ones with a below-average performance relative to sector peers, it is possible to obtain a portfolio of securities with a lower carbon footprint while achieving superior total returns compared to the original index.

“The increased investor appetite for responsible investing has been made possible in part by the remarkable rise in the availability of sustainability data.”

THE LOW CARBON US In the simulated case below, the “Low Carbon US” achieves a 56.7% reduction in normalised greenhouse gas emissions with the bonus of an extra 7.8% in total returns compared to the original index over the time period January 1, 2008 to August 31, 2014.

For instance, on October 17, 2014, the Singapore Stock Exchange announced its intention to adopt a comply-or-explain mechanism for sustainability reporting for all its listed companies. When implemented, this piece of regulation will add to the inventory of close to 170 policies in force around the world that are meant to encourage or mandate corporate sustainability reporting.

The increased investor appetite for responsible investing has been made possible in part by the remarkable rise in the availability of sustainability data. Over the past decade, the number of corporate sustainability reports –

MORE, NOT BETTER While the number of sustainability reports has increased substantially, a closer look reveals some important findings. In its latest analysis of sustainability disclosure trends among the

Figure 1: Historical Performance of the Low Carbon U.S. vs. S&P 500 (January 2008 – August 2014).

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the most common format for corporations to disclose their periodic environmental, social, and governance performance – has grown to 7,445 in 2013, from a mere 644 in 1999. A combination of heightened investor demand, activism, and mostly regulatory intervention, coupled with a move towards greater transparency initiated by leading corporations, have all combined to drive increased sustainability disclosures.

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Clearly, a majority of companies are still not transparent enough to allow investors to make well-informed investment decisions over the long-term horizon by integrating foundational sustainability criteria. A point has been reached where virtually all of the large companies which would have engaged in the reporting of the basic sustainability metrics have done so already and the remaining large companies likely have little or no intention of doing so under present circumstances.

INVESTORS DEMAND DATA This is in stark contrast to investors’ growing interest in building sustainable investment strategies. Despite the notable progress made in corporate sustainability reporting, as is shown above, there is still much room for improvement – not only in terms of quantity but also in terms of consistency and timeliness. While virtually every company has reported on their financial performance six months after their year-end, only 63% of these companies have disclosed their sustainability performance by then.

Figure 2: Sustainability Metrics Reporting by Large Listed Companies, 2012.

world’s stock exchanges, Corporate Knights Capital found that a sizable chunk the world’s large listed companies are failing to disclose their performance on the seven basic sustainability metrics – employee turnover, energy, greenhouse gas emissions (GHGs), injury rate, payroll (total employee compensation), waste, and water. These seven basic indicators are objective measures of corporate sustainability performance that are broadly relevant for companies in all industries.

Moreover, they are generally accepted as being the most widely tracked core sustainability metrics by various stakeholder groups including investors.

For instance, only 39% of the world’s 4,609 large listed companies disclosed their GHGs for the year 2012. For water, that percentage is 25%. As for employee turnover rate, it is a paltry 12%. While disclosure rates vary by sector, it means that a majority of the world’s large companies are still not disclosing these

seven basic sustainability metrics – in the case of GHGs, arguably the most universally recognised strategic sustainability issue, it has not been reported by 61% of the world’s large listed companies. Even more disconcerting is the finding that only 128 (2.8%) of the all the world’s large listed companies disclosed all the seven basic sustainability metrics for the year 2012.

Essentially, the remarkable rise in the number of sustainability reports has not been accompanied by a similar increase in the reporting of the basic sustainability metrics.

Equally troubling is that disclosure rates on the seven basic sustainability indicators appear to be plateauing. As one illustration, the number of large listed companies that disclosed their energy use increased by 88% from 2008 to 2012 but only by 5% from 2011 to 2012. A similar reporting slowdown is occurring on the other six metrics.

It is therefore not a surprise that In October 2014, the United Nations Principles for Responsible Investment (UNPRI) and Ceres’ Investor Network on Climate Risk (INCR) launched an initiative to convey investors’ demands for more timely, comparable, and material disclosure of corporate sustainability information to the International Organization of Securities Commissions (IOSCO) in order to inform their investment decisions.

The IOSCO stands in a critical position in this regard through its direct relationship with member stock exchange regulators. Investors of all description are encouraged to demand swift and decisive action from the IOSCO to provide greater clarity around sustainability reporting requirements, ideally to be integrated as part of existing financial disclosures.

The necessary tools are already available.

For instance, IOSCO can take inspiration

Figure 3: Basic Sustainability Metrics Reporting by Large Listed Companies, 2008 – 2012.

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from UNCTAD’s Best Practice Guidance for Policymakers and Stock Exchanges on Sustainability Reporting Initiatives to facilitate a consistent implementation of corporate sustainability reporting requirement among member exchanges. This guidance is a voluntary technical aid to assist stock exchanges and regulators who have responsibility for corporate reporting practice and are contemplating the introduction of a new initiative – or further development of an existing one – to promote corporate sustainability reporting.

JOHANNESBURG MODEL The relative success of the Johannesburg Stock Exchange in spurring sustainability disclosure amongst listed companies through the implementation of the listing requirement incorporating the King III Code of Corporate Governance stands as a benchmark for aspiring investors and stock exchanges around the world. Ceres’ Investor Listing Standards Proposal, Recommendations for Stock Exchange Requirements on Corporate Sustainability Reporting, which engages global stock exchanges via the World Federation of Exchanges (WFE) on a possible uniform reporting standard for sustainability reporting by WFE members may also serve as a basis for the implementation of corporate sustainability reporting requirements among member exchanges.

Likewise, governments stand in a pivotal position to influence corporate sustainability reporting and are encouraged to renew their efforts in this direction. Existing policies around the world vary in many respects in terms of whether they are mandatory or voluntary, broad or narrow (i.e. applies to various industries as opposed to only one or few specific industries), and prescriptive or principles-based (i.e. states which specific items of sustainability performance metrics are to be reported and how).

These wide differences in the type of policies may in part explain the differences in disclosure performance by the large listed companies of the seven basic sustainability metrics among the world’s stock exchanges as shown in Corporate Knights Capital’s latest report on corporate sustainability disclosure trends. However, it was found that there is a strong association between policies that are mandatory, broad, and prescriptive and better corporate sustainability disclosure performance. Policy-makers may use this finding as a framework to identify case studies and benchmarks for implementation in their own jurisdictions.

DISCLOSURE FRAMEWORKS The advent of non-governmental standard-setters such as the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and voluntary disclosure frameworks such as the CDP and the Climate Change Reporting Framework, have without any doubt helped to popularise sustainability reporting.

However, there exists a proliferation of fragmented 172

and often competing reporting standards and frameworks when it comes to sustainability reporting which may bring confusion to both the reporters and the users.

A rapid and successful conclusion of the work among the participants to the Corporate Reporting Dialogue will bring about much needed clarity and comparability in corporate sustainability reporting which will encourage more corporations to embrace more coherent and useful disclosures of sustainability performance. The Corporate Reporting Dialogue brings together financial reporting standardsetters and sustainability reporting frameworks to promote greater alignment, consistency, and comparability between corporate reporting requirements, standards, and frameworks. An endorsement by the major groups of users of corporate disclosures – both financial and nonfinancial – of the outcome of the work of the Corporate Reporting Dialogue will also help in determining the de facto global standard in corporate reporting.

The explosion in corporate sustainability reporting over the last ten years or so has certainly helped to fuel the remarkable rise in responsible investing. Responsible investing is a much heralded practice whereby investment decisions consider long-term economic, social, and environmental sustainability. However, current corporate sustainability reporting practices are at odds with the needs and level of interest from investors such that a renewed effort is needed to bring sustainability reporting to the next level.

Governments, regulators both private and public, business and non-business organizations, and investors all have an important role to play to make this happen. i

ABOUT THE AUTHORS Doug Morrow has eight years of experience in the equity research and consulting industries, with a focus on environmental, social and governance (ESG) investment research and product development. He is currently Associate Director of Thematic Research at Sustainalytics. Prior to joining Sustainalytics he worked for three years at Corporate Knights Capital, where he helped launch the world’s first suite of sustainable smart beta indices, and at ICF International (ICF) where he consulted for the Inter-American Development Bank, The Blackstone Group and the International Finance Corporation. Doug also worked for three years at Innovest, where he helped develop one of the world’s first carbon tilted corporate bond indexes (in partnership with JP Morgan Chase) and long/short equity products (with UBS). Doug is a member of the United Nation’s International Standards of Accounting and Reporting (ISAR) Group of Experts on Sustainability Reporting and the Association of Chartered Certified Accountants (ACCA) Global Forum for Sustainability. His work has been cited in the Financial Times, New York Times, CFI.co | Capital Finance International

Business Week, Environmental Finance and The Globe and Mail.

Michael Yow is the lead analyst at Corporate Knights Capital. Michael works with clients to analyze and benchmark their sustainability performance and disclosure practices so that they become industry leaders. He leads the corporate sustainability assessment function, including the annual Global 100 Most Sustainable Corporations in the World ranking. He is in charge of research on various sustainability topics and is the coauthor of an annual report assessing corporate sustainability disclosures among the world’s stock exchanges. Michael is also involved in academic research work at York University. Before joining Corporate Knights Capital in 2011, Michael worked as a consultant in international financial and fiduciary services. Michael holds a Master in Business Administration from the Schulich School of Business, York University.

ABOUT CORPORATE KNIGHTS CAPITAL Corporate Knights Capital is an investment advisory and research firm based in Toronto, Canada, with over a decade of experience quantifying corporate sustainability. Corporate Knights Capital’s parent, Corporate Knights, Inc., publishes the world’s largest circulating responsible business magazine, and serves as the secretariat for the Council for Clean Capitalism.

It is a global leader in building investment strategies that integrate high quality corporate sustainability data. Corporate Knights Capital is a certified B Corporation and a proud signatory of the United Nations Principles for Responsible Investment. Its mission is to accelerate the transition to long term, sustainable capitalism by building world-class investment portfolios for the global investment community.

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> Sustainable Stock Exchanges - A Conversation with Nasdaq Vice-Chairperson:

Sandy Frucher WHAT IS THE SUSTAINABLE STOCK EXCHANGE MOVEMENT? When we talk about the sustainable stock exchanges project specifically, we’re talking about a UN-based project that has been in the works for several years now. This initiative aims to explore how exchanges can work together with investors, regulators, and companies to enhance corporate transparency, and ultimately performance, on ESG (environmental, social and corporate governance) issues and encourage responsible long-term approaches to investment.

WHAT CAN EXCHANGES DO TO DRIVE CHANGE? There’s a range of mechanisms available to exchanges. They could petition the government or their local regulator for a rule change, create their own listing rule, separate companies into higher and lower performance tiers, provide best practices guidance, and so on. Many exchanges, including NASDAQ, already offer expertise and guidance to their listed companies about the value, purpose, and structure of ESG disclosures.

If asked, we will connect CEOs with expert NGO partners, so that progress may continue.

But there’s another parallel – but no less global – effort going on as well. The Sustainability Working Group (SWG) investigates the material need (if any) for exchanges to seek, standardise, and/or publish environmental, social, and corporate governance (ESG) data. Through careful analysis of existing data forms and reporting frameworks, group members seek to understand the real impacts, both positive and negative, on our business. Furthermore, the SWG reflects upon the role of exchanges in the formation and sustenance of a fair, open, and transparent economy – and the proper leverage that exchanges may exert in promoting more sustainable business models.

WHAT IS THE DOWNSIDE? ARE THERE RISKS ASSOCIATED WITH THIS PROJECT? We really need to find global consensus on these issues. If every exchange believes that ESG metrics are material disclosures, then virtually every public company in the world will disclose ESG metrics. It’s that simple. There are very few exchanges that would unilaterally mandate change. The true pioneers in our industry South Africa, Brazil, and now many of the Asian markets – decided to move forward anyway, just because they believed it was the right thing to do.

HOW MANY EXCHANGES ARE INVOLVED? The UN SSE project started with five founding members: NASDAQ, BM&F BOVESPA in Brazil, Borsa Istanbul, the Johannesburg Stock Exchange, and the Egyptian Exchange. It has since grown to include eleven others, including Deutsche Börse, NYSE (now ICE), Kingston (Jamaica), Bombay, Bogotá, Lima, London, Mexico City, Lagos, Bangkok, and Warsaw.

Evan Harvey of NASDAQ chairs the WFE sustainability working group, with Corli LeRoux of the Johannesburg Stock Exchange as the vicechair. Other participants include Brazil, both the Bombay and the National Stock Exchange of India, Istanbul, Malaysia, Deutsche Börse, Egypt, NYSE/ICE, Japan, Mauritius, Shenzhen, Singapore, and Toronto. We also have other kinds of exchanges in the mix, like CBOE (Chicago Board Options Exchange) and CME (Chicago Mercantile Exchange), which broadens the scope of our work.

CAN YOU GIVE US AN UPDATE ON PROGRESS? WHAT ARE THE LATEST DEVELOPMENTS? At the WFE (World Federation of Exchanges) annual meeting in Seoul, Korea in October, we presented a chairperson’s statement and draft working group guidance to the WFE working committee, including original research illustrating the current state of exchange ESG 174

reporting. I was elected to another 3-year term on the WFE Board of Directors. Juan Pablo Córdoba, CEO of the Colombia Exchange, was elected Chairman. Bahrain Bourse, Euronext, the Nigerian Stock Exchange, and BATS (Better Alternative Trading System, in Lenexa, Kansas) were also confirmed for WFE membership.

On a WFE panel discussion with IOSCO Secretary General David Wright, I made my case for the materiality of sustainability (or ESG) metrics. I honestly believe that some of these indicators – the way we consume or preserve carbon and other resources, for example – are absolutely indicative of long-term strategy and viability.

Investors want this data. They would be better informed by it, and thus more willing and able to make long-term investments. I was pleased to hear that Mr Wright seemed to agree with me on this point. We’ll see if IOSCO will get involved, but I hope they do.

WHY ARE EXCHANGES GETTING INVOLVED? Exchanges are in a unique position. We have a unique relationship with the markets we make and the companies that list with us. It is regulatory, certainly, and exchanges bear the burden of representing investor interests as vigorously (perhaps even more vigorously) than those of our stockholders or stakeholders. But we also have business relationships with these companies.

In a real sense, we are partners, and we want these companies to succeed, thrive, and list on the market for many years to come. So how can we help to accomplish that? By demonstrating the value of best practices, and even requiring companies to behave in certain ways.

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WHY DID YOU GET INVOLVED IN THIS? DOES THE PROJECT RESONATE WITH YOUR PERSONAL BELIEFS OR VALUES? First and foremost, I absolutely believe that this is the best thing not only for our business, but for the general health of the markets. But yes, I also have a deep and longstanding commitment to some of the key ideas here: Environmental protection, economic empowerment, fair and efficient business practices, market transparency, and so on. I believe that investors have the right to know much more about the companies they invest in. Exchanges are essential in this struggle. In some ways, we have to rebrand ourselves as economic engines for good – which is what we aspire to be.

WHAT IS THE FUTURE? WHERE IS THIS MOVEMENT HEADED? The status quo will not suffice. Our planet is in peril, and the residual consequences of climate change, resource scarcity, and economic inequity will wreak havoc. Even the most robust and redundant systems can fail, especially if you’re willing to accept bad data or indulge bad judgment. As leaders, we have both the right and the responsibility to observe new evidence, revise our opinions, and create a better future. A few simple changes to our corporate disclosure rules, to our evolving interpretation of materiality, to the way we run our boardrooms and fill our break rooms – can help create a fair, sustainable, and inclusive market. i

> UNCTAD World Investment Forum 2014:

Seeking Ways to Unlock the Idle Trillions

By Wim Romeijn

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s the United Nations Conference on Trade and Development (UNCTAD) celebrated its fiftieth anniversary, business and government leaders from across the world gathered in Geneva in October for the biennial World Investment Forum (WIF). The UNCTAD-sponsored four-day event brought together policymakers, investors, and development professionals as well as representatives of academia, research centres, and non-governmental organisations.

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The fourth edition of the forum aimed to offer stakeholders a venue to present ideas, showcase opportunities, and swap experiences. This time, the forum focused on sustainable development and poverty reduction in general and more particularly on how to encourage the private sector to take an active role in defining the United Nations post-2015 development agenda of sustainable development goals (SDGs).

gathering with an appeal to take a cue from private sector approaches to innovation: “Collaboration and partnership can ensure that investment in sustainable development is inclusive and aligned with national priorities.” Mr Ki-moon reminded the participants that they have a unique opportunity to contribute to the improvement of the livelihoods of billions of people around the world.”

UN Secretary-General Ban Ki-moon opened the

Director-General Michael Møller of the United

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Nations Geneva Office emphasised that the World Investment Forum goes to the very heart of the UN’s mission: “These are not merely technical debates but hold the promise of breaking down the silos between public and private stakeholders in development.”

UNCTAD Secretary-General Mukhisa Kituyi noted in his opening speech that investors are becoming increasingly aware of the opportunities awaiting them in developing countries. These countries, in turn, are now more conscious than ever of the need for providing the legal and economic frameworks required by investors. “More is being done to attract investment and ensure it makes a positive impact on societies,” said Mr Kituyi.

SETTING POLICIES Recognised as one of the world’s premier events that offers a platform for the setting of development policies at the highest level, the WIF also aims to promote an inclusive dialogue on best practices.

Minister of Economic Affairs Al Mansouri of the United Arab Emirates went to Geneva to share insights into his country’s push towards sustainability and economic diversification.

Non-oil sectors now represent fully 60% of the UAE’s economic output while growth is predicted to remain stable at around 5% annually. In Geneva, Minister Al Mansouri said that shaping and maintaining an enabling business environment proved key to the UAE claiming 21% of all foreign direct investment flowing to the wider Middle East region. “By encouraging innovation, research, and development, the UAE formulated a holistic approach to sustainable development that has not disappointed.”

The forum was attended by more than two thousand delegates from over 140 countries. A like number of business leaders and development professionals attended the event. Even Chelsea striker Didier Drogba made an appearance and appealed to the forum’s participants to make a “solid impact” on sustainable growth by releasing investments: “As much as we can do to raise money for poverty relief through charities, this will never be enough to get the job done. You, however, can make it happen and I fully expect you will.”

“This time, the forum focused on sustainable development and poverty reduction in general and more particularly on how to encourage the private sector to take an active role in defining the United Nations post-2015 development agenda of sustainable development goals (SDGs).”

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The forum was divided in over forty separate events, including ministerial roundtables, minisummits, and sessions on a wide range of topics related to the financing of sustainable development initiatives. In its World Investment Report 2014, UNCTAD concluded that $3.9tn are needed annually to attain sustainable development goals.

Current levels of investment cover barely a third of the funds required to banish abject poverty from the world. So far, no solution has been found to bridge the $2.5tn annual funding gap. Though many ideas were presented and initiatives proposed, the leaders gathered in Geneva failed to produce a coherent plan to address the issue. Though that may indeed not have been the idea behind the forum, a concerted global effort is needed to up investment streams to the required level.

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“According to UNCTAD calculations, large private corporations have in excess of $5tn available for investment.”

PILE OF CASH According to UNCTAD calculations, large private corporations have in excess of $5tn available for investment. This pile of cash is currently sitting on the side lines – or lying idle on balance sheets – awaiting assignment to projects. Though these funds are not moving yet, the mere idea of unlocking this vast store of investment capital has an increasing number of countries scrambling to update legislation in order to become more investor-minded and friendly.

Thus, the idle trillions are already causing progress by convincing both governments and private parties to clean up their acts and get serious. The result of these subtle, yet profound, changes were on full display in Geneva. While the talk was all about sustainable investment, most conversations – both on and off stage – soon veered off in the direction of governance and its importance as a core driver of sustainable development.

While widely recognising that significant progress on improving governance standards has already taken place, most WIF participants readily agreed that much remains to be done – not just by the corporates, but by governments as well. In its 2014 Trade and Development Report, UNCTAD researchers concluded that greater policymaking flexibility is required if the global development goals of the post2015 agenda are to be met.

EXCHANGES TAKE THE LEAD Meanwhile, stock exchanges – and to a slightly lesser extend their regulators – have taken the lead in the dissemination of governance best practices. In Africa, the Johannesburg Stock Exchange pioneered innovative listing and reporting requirements that encourages private companies to focus on good governance as part of a broader push to sustainability that also includes environmental and social considerations. The example set by JSE has since been followed by the Egypt Stock Exchange, a founding member of the Sustainable Stock Exchanges (SSE) Initiative, and more recently by the Nigeria Stock Exchange (NSE).

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“According to NSE CEO Oscar Onyema a recent pilot project has shown that corporations willing to improve governance standards may expect their stock to outpace the average index by up to 300%.”

The Egypt Stock Exchange in particular has been a relentless advocate of sustainability as a prime driver of economic growth.

EGX Executive-Chairman Mohammed Omran delivered a passionate plea at the 4th SSE Global Dialogue on Tuesday in Geneva and called on all and sundry to embrace ESG (environmental, social, and governance) values to facilitate and boost wealth creation via stock exchanges. Mr Omran said companies embracing corporate sustainability principles have fared much better on the trading floor of his exchange than those that so far have not changed course.

A similar experience was reported from Lagos where the Nigerian Stock Exchange is working on a number of initiatives to further governance best practices amongst the 223 listed companies. According to NSE CEO Oscar Onyema a recent pilot project has shown that corporations willing to improve governance standards may expect their stock to outpace the average index by up to 300%.

Charles Anderson, director of the United Nations Environment Programme Finance Initiative, was adamant that sustainability requirements are not a burden on private business, but rather a boon: “I get somewhat upset when people tell me that ESG burdens companies with extra costs.

That is nonsense and has been proven to be so time and again. Sustainability adds to the bottom line and increases profitability.

Anyone who argues against this, ignores the facts.”

While issues remain and standardised metrics for measuring ESG performance are lacking, most delegates came away from the forum convinced that the vectors of development are now set: sustainable development is no longer merely a catchphrase but an increasingly welldefined set of principles to empower all stakeholders as progress is made towards a more equitable world.

As UNCTAD Secretary-General Mukhisa Kituyi noted, “the momentum is building and our collective efforts to ensure that global investment contributes to sustainable development are bearing fruit.” i CFI.co | Capital Finance International

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> World Bank Group:

Sovereign Wealth Funds Investing at Home - Opportunity Fraught with Risk

By Håvard Halland, Alan Gelb, and Silvana Tordo

Following the recent discoveries of large oil and gas deposits in East Africa, a number of countries in the region are in the process of establishing, or are discussing the creation of, sovereign wealth funds (SWFs) as a means to stabilise the effect of volatile currency inflows and to save for future generations.

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dditionally, like several other SWFs established over the last decade, some East African governments are considering a role for the planned funds in economic development, as strategic investors in the national economy. The use of SWFs as a tool for strategic domestic investments opens up a range of new possibilities for deepening undercapitalised domestic financial markets and crowding in private capital to infrastructure in priority sectors such as power and transport. However, the approach also carries significant risk, and previous experience suggests great caution is warranted. What are the most important risks, how can these be mitigated, and what type of domestic investments should a SWF undertake, if at all?

NEW OIL AND MINERAL PRODUCERS ARE SETTING UP FUNDS Sovereign wealth funds hold about $6.5 trillion in assets. Responding to the funds’ objectives to sterilise large export windfalls, save for future generations, and balance risks and returns, their holdings have traditionally focused on external assets – primarily securities traded in major markets but also real estate and other investments. Some SWFs with longterm investment horizons have invested in infrastructure, but these investments have mainly been in other countries, in high-return existing infrastructure or low-risk new projects located in middle and high-income economies.

Until recently, domestic greenfield infrastructure investment was largely uncharted territory.

A number of the SWFs established since the turn of the millennium have been set up to undertake strategic domestic investment, including several of the Gulf funds, Kazakhstan’s Samruk-Kazyna and Malaysia’s Kazanah. During the last three years, Nigeria and Angola have established funds with a domestic investment function. More are in the making or are being discussed, including in Kenya, Morocco, Myanmar, Mongolia, Tanzania, Uganda, Mozambique, and Sierra Leone. Most of these funds will be capitalised by revenue from oil or mineral exports.

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“Sovereign wealth funds hold about $6.5 trillion in assets.”

WHY INVEST AT HOME? The interest in SWFs as a tool for strategic domestic investment is driven by four distinct factors. First, although several high-income countries have strategic investment funds, the countries currently contemplating strategic investment functions for their planned funds tend to be low and middle-income with a large infrastructure deficit and looking for ways to increase infrastructure investment.

Second, amongst governments and international financial institutions, there has been a loosening in the interpretation of the permanent income hypothesis, which holds that countries should save enough of their revenues from nonrenewable resources abroad to maintain a permanent income flow into the indefinite future. If returns are higher at home than abroad, or if future generations can be expected to be wealthier than the current one, it might make sense to save less and invest more at home now.

Third, the global financial crisis and shrinking aid flows have led to decreased availability of long-term finance for developing countries.

These have been looking to supplement foreign capital with their own.

Fourth, public investment in low-income countries frequently poses significant management and governance challenges, including low capacity, weak governance and regulation, and lack of coordination among public entities.

Given this type of shortcomings, many countries have not been able to offset the depletion of their natural resources by investment in produced capital, as is required to maintain wealth and CFI.co | Capital Finance International

sustain growth (Hartwick Rule). In this type of setting, some governments may see a fund as a means to improve the quality of public spending, and crowd in private investors to strengthen investment discipline.

WHAT ARE THE RISKS? Several well-performing SWFs hold a significant share of domestic assets in their portfolios.

Examples are Singapore’s Temasek, with approximately 25 percent, and the New Zealand Superannuation Fund with about 17 percent.

Public pension funds tend to be even more concentrated in their home country or region, frequently with domestic assets dominating the portfolio. These funds invest at home because it is the profitable thing to do, and their superior knowledge of home markets allows for high portfolio concentration in domestic assets.

However, unlike Temasek, New Zealand’s fund, or public pension funds, most of the recent or planned SWFs are so-called resource funds, and from a risk perspective it is useful to consider resource funds separately, as a subclass of SWFs. Two aspects set resource funds apart from other SWFs, and from public pension funds. Firstly, since resource funds are capitalised by proceeds from oil, gas, and mineral exports, the inflow of large amounts of foreign currency can lead to destabilisation and appreciation of the exchange rate, and inflation of asset bubbles.

Secondly, the political economy of resource funds differs from that of other SWFs, and from development banks, since resource funds do not need to raise capital in financial markets, and do not rely on pension contributions, fiscal surpluses, or taxes that affect a significant share of the electorate. In addition, the groups bearing the costs of extraction tend to be underrepresented in the political and economic decision making process. The lack of a strong constituency, such as pension contributors or lenders, combined with the conflict of interests arising from the government’s combined role as owner of the fund and promoter of its investments, make resource funds highly vulnerable to political interference.

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Political meddling can in turn put the wealth objectives of the funds, as well as the quality of domestic investments, at risk. Funds may be captured by political factions and used to avoid parliamentary scrutiny of spending on politically motivated projects, and could undermine central bank ability to achieve monetary policy goals by capping foreign exchange reserves and channelling excess currency inflows to a resource fund not controlled by the central bank.

THE COMPLEXITY OF MULTIPLE OBJECTIVES Additional risk is generated if the fund’s domestic investment mandate is defined to include development objectives. An infrastructure project may provide economic externalities, such as the stimulation of private investments and jobs, which are not fully captured by its financial return. Economic externalities, however, are notoriously hard to measure, and no generally accepted method currently exists for trading off financial returns against the wider economic and social returns represented by positive externalities.

If fund management can no longer be assessed on the basis of the fund’s financial performance, assessment becomes very difficult. This increases the fund’s vulnerability to political interference.

One way to address this problem would be to allow funds to undertake domestic investments only on a strictly commercial basis, as is the case of, among others, Temasek, the New Zealand fund, and most public pension funds.

However, many resource-rich low-income countries have underdeveloped equity markets, and the risk related to investment in greenfield infrastructure is frequently too high for these investments to be initially attractive to commercial investors.

All options face trade-offs. According to the traditional approach, oil and mineral revenues that are not saved abroad or held for shortterm stabilisation purposes should be invested through the government budget, where direct parliamentary oversight can ensure accountability, macroeconomic coherence, and overall consistency of the public investment programme. This approach helps to stabilise spending in the face of uncertain resource rents and to maintain budget discipline.

On the other hand, low capacity, weak governance, and the lack of coordination among public entities could severely undermine the efficiency and effectiveness of a public investment programme.

Also, a large SWF is vulnerable to being raided by future, less prudent, governments. If the fund has, or engages, the necessary expertise it could act as a specialised investor, helping to crowd in private investors through well-designed PPPs. CHECKS AND BALANCES The risks of mandating or permitting resource funds to undertake domestic investment can hardly be eliminated. But can they be mitigated CFI.co | Capital Finance International

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“To be able to establish operations of such complexity, Nigeria has been able to draw on an extensive diaspora that includes highly experienced international bankers – ex-Wall Street, City of London, and elsewhere. In-house investment management, or direct investing, permits SWFs to avoid paying fees to private-equity firms, which typically charge 2% on assets and take 20% of profit.” and managed? Clearly, to avoid contributing to asset bubbles, macroeconomic volatility and exchange rate appreciation, there needs to be coordination with overall fiscal and monetary policy, especially if the fund is large relative to the size of the national economy.

knowledge on effective corporate governance – including the Santiago Principles, the Revised Guidelines for Foreign Exchange Reserves, and general principles of corporate governance – including for state owned enterprises, published by the OECD.

There should also be a clear separation between the type of investments that can be undertaken by the fund, and investments that should go through the government budget. In that regard, allowing the fund to undertake only investments that can be expected to yield a commercial or quasi-commercial return can strengthen the integrity and discipline of the investment process.

Investments that do not fulfil this condition – such as schools, local roads, and rural health clinics – should go through the budget.

Independent nominating committees, as well as clear skill requirements, can facilitate the independence of boards. Ownership and supervisory roles should be clearly separated. To operate as an expert investor, the fund needs to be staffed with qualified professionals, just like any investor in the financial sector. Strategic and greenfield investments require special expertise.

Sector-specific expertise may be needed as well.

Allocations to domestic investment should not be in the form of a mandated share but determined on the basis of competition with the returns on foreign assets. When domestic returns are low or there are indications of asset bubbles, investment should be channelled abroad.

The meaning of quasi-commercial is important.

The quasi-commercial space can be defined as a specific and limited markdown from the benchmark risk-adjusted interest rate on foreign assets, or a differential in the length of the investment horizon with respect to the benchmark. If the investment is expected to yield significant positive economic externalities, then a limited and well-defined markdown from the benchmark rate may be considered.

Investing with private investors, pooling with other SWFs, and co-financing with regional development banks could help funds to reduce risk, bring in additional expertise, and enhance the credibility of investment decisions. As an example, the Nigeria Infrastructure Fund, the domestic subsidiary of the Nigeria Sovereign Investment Authority, has signed cooperation agreements with the Africa Finance Corporation, the International Finance Corporation (IFC) and, for power sector investments, with General Electric. Limiting investments to minority shares would serve to reduce risks of politically motivated allocations.

Finally, funds need strong corporate governance, professional staffing, transparent reporting, and independent audit. There is a large body of 182

Consistent with good practice, SWFs investing domestically should issue accessible public reports covering activities, assets, and returns.

Where part of the portfolio is invested in “strategic” projects or projects with returns expected to be below market, these should be reported on separately. Internal audit should report directly to the board, and external audit be undertaken by an internationally reputable firm that is independent of the owner.

CHALLENGES AHEAD The guidelines outlined above are generic, and will need to be expanded and supplemented according to country context. For example, the Nigeria Infrastructure Fund (NIF) has recently announced plans to set up a credit enhancement facility that will leverage its own investments with capital from external investors. Risk mitigation for this type of structure will depend on reinsurance and liability arrangements. If successful, the facility will represent a milestone in the definition of new potential roles for SWFs. To be able to establish operations of such complexity, Nigeria has been able to draw on an extensive diaspora that includes highly experienced international bankers – ex-Wall Street, City of London, and elsewhere. In-house investment management, or direct investing, permits SWFs to avoid paying fees to privateequity firms, which typically charge 2% on assets and take 20% of profit.

However, smaller countries with less available capacity may to a large extent need to outsource complex investment functions. The incentive structures of outsourcing arrangements – to CFI.co | Capital Finance International

minimize moral hazard, as well as provide checks and balances – will be vital to these funds’ success. In the end, the fundamental question might not be if countries choose or not to use SWFs for domestic investment, but how such investments are implemented, and to which extent these decisions reflect sound economic and financial criteria. i ABOUT THE AUTHORS Håvard Halland is a natural resource economist at the World Bank, where he leads research and policy agendas in the fields of resourcebacked infrastructure finance, sovereign wealth fund policy, extractive industries revenue management, and public financial management for the extractive industries sector. Prior to joining the World Bank, he was a delegate and program manager for the International Committee of the Red Cross (ICRC) in the Democratic Republic of the Congo and Colombia. He earned a PhD in economics from the University of Cambridge.

Alan Gelb is a senior fellow at the Center for Global Development. He was previously with the World Bank in a number of positions, including director of development policy and chief economist for the Africa region. His research areas include the management of resource-rich economies, African economic development, results-based financing, and the use of digital identification technology for development. He has written a number of books and papers in scholarly journals. He earned a B.Sc. in applied mathematics from the University of Natal and a B.Phil. and D.Phil. from Oxford University.

Silvana Tordo is a Lead Energy Economist Sustainable Energy Department, Oil, Gas and Mining Unit of the World Bank. Her area of focus includes upstream oil and gas sector policies and strategies, legal, regulatory and institutional frameworks, taxation and petroleum contracts, sovereign wealth funds, and local content. Prior to joining the World Bank in 2003 Silvana held various senior management positions in new ventures, negotiations, legal affairs, finance, and mergers and acquisitions. Her experience includes a wide range of business development activities in the oil and gas sector.

> UNCDF:

A Roadmap for Financial Inclusion Nephathli is a man from Lesotho, formerly a mineworker in South Africa.

His family’s main source of income is the profit made on the sale of chickens and eggs. Nephathli’s income varies from month to month depending on how many eggs or chickens are sold. His children are trying to make a living.

However, they are struggling to find a stable income leaving Nephathli responsible for the entire family. Three of his nine children have passed away, leaving behind orphaned grandchildren.

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ephathli and his wife keep their cash in a safe place at home rather than in a bank. He also tries to save a little every month, mostly to pay for his grandchildren’s school fees. “I was not able to even open a bank account because of the little money that I get.” While Nephathli acknowledges that a bank would be a good place to borrow money from in order to buy a dairy cow or a tractor, he feels he does not qualify not having a bank account or the money for one.

Lesotho is characterised by a poor, but not indigent, population maintained largely through social support structures and remittances.

While the adult population enjoys some access to banking services, these are by no means universally provided.

However, the kind of financial services that people use (including high-cost bank accounts, low-value community or home-based savings, high-cost informal loans, funeral cover, and informal remittances) are not helping to lift them out of poverty, but are merely offering ways to “get by.” Thus, financial access measured in terms of uptake is not the issue in Lesotho but rather how to extend the reach of these services. The bigger question is: How can financial services be leveraged or re-engineered to more effectively alleviate poverty and support economic growth?

MAKING ACCESS POSSIBLE The recent MAP (Making Access Possible) diagnostic and planning framework in Lesotho was able to identify the financial inclusion priorities by unpacking and understanding the

“However, the kind of financial services that people use are not helping to lift them out of poverty, but are merely offering ways to ‘get by.’” current customer needs and their usage of existing services. When filtering the financial inclusion priorities through the lens of actions most likely to contribute to poverty alleviation and economic growth, three key roadmap priorities were identified: Directly improve household welfare through efficiency gains and risk mitigation; take small steps towards enhanced growth via highly targeted productive credit and inward investment promotion; and increase financial sector intermediation to support investment and growth.

MAP is a UNCDF (United Nations Capital Development Fund) multi-country diagnostic and planning framework to support financial inclusion through a process of evidence-based country diagnostic and stakeholder dialogue, leading to the development of national financial inclusion roadmaps that identify key drivers of financial inclusion and recommended action.

MAP is a powerful tool towards the achievement of financial inclusion goals and aspirations across the globe. Through its inclusive approach and stakeholder engagement, and a

comprehensive diagnostic, and practical, actionoriented strategies/roadmaps, MAP can enable governments and stakeholders to translate their high-level aspirations to reality. MAP generates key data that can be used in efforts to enhance decision-making and monitor progress as called for by the GPFI (Global Partnership for Financial inclusion).

MAP is set apart from other financial inclusion initiatives in a number of ways. It combines three key components: A country diagnostic, a country-level stakeholder process and roadmap, and a global learning, dissemination, and advocacy drive to impact the financial inclusion agenda in a unique way. MAP is evidence based, customer centric and data driven, enabling factual and insightful discussions across a range of financial inclusion issues.

The MAP analytical framework and methodology amalgamates three tested approaches including UNCDF’s collaborative country-level programming framework (deployed in forty countries) that does not preconceive the role of different stakeholders but seeks to work within the practical realities to optimise and coordinate the efforts.

BROADENING THE ECOSYSTEM It is increasingly recognised that it takes a broader ecosystem of providers to deliver the diverse set of financial services that the poor require as opposed to a singular focus on micro-finance institutions only. Strategies that remain focused on only one of these providers such as microfinance institutions, private sector, cooperatives, or a single activity such

“It is increasingly recognised that it takes a broader ecosystem of providers to deliver the diverse set of financial services that the poor require as opposed to a singular focus on micro-finance institutions only.”

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Why MAP? MAP value proposition

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Holistic viewpoint • Examines the inter-linkages across: – Financial sector: demand, supply & regulation – Product markets

Welfare focus • Provides welfare prioritized recommendations – Recognises the value of formal Focused recommendations and informal in the market – Localised financial services • Pragmatic approach • Identify opportunity in the market and assist with supportive regulation

Customer centricity

• Customer’s needs are the central driver of analysis

Departure point

• Current public policy – builds off established foundations • Enabling the market

Why MAP? MAP value proposition.

as institution-building are missing the bigger picture and also unlikely to enable systemic change that will drive universal financial inclusion. This is based on the view that competitive markets are the means through which innovation and competition will result in falling transaction costs together with the scale and sustainability required to overcome the significant levels of exclusion that remain (Porteous, 2004, Honohan and Beck, 2007).

Financial transactions play an integral role in the daily lives of most people, especially those living in poverty. Yet, they are compelled to use informal, often sub-optimal services. Research has shown that poor households use a range of informal methods to manage their daily needs, including storing savings at home, with others, and with banking institutions; joining savings clubs, savings-and-loan clubs, and insurance clubs; and borrowing from neighbours, relatives, employers, moneylenders, or financial institutions. These mechanisms are not ideal, particularly in protecting the poor from shortterm and long-term household risks and shocks.

Greater financial inclusion can contribute to multiple developmental priorities as laid out in the Post-2015 Development Agenda and the Sustainable Development Goals (SDGs) currently being negotiated at the United Nations.

By reducing vulnerability to economic shocks and boosting job creation, financial inclusion can be a key driver of both poverty reduction and inclusive economic growth while at the same time promoting greater equality.

Increased financial inclusion for women has been shown to lead to their enhanced economic

and social empowerment. Without inclusive financial systems, poor people must depend on incomplete or inferior informal mechanisms to deal with shocks. While building assets and small enterprises, they must rely on their limited earnings.

Reflecting the high priority placed by governments on financial inclusion, some 38 countries have made a commitment to expand financial inclusion as part of the Maya Declaration launched by the Alliance for Financial Inclusion (AFI). Many of these commitments include the adoption of national strategies for financial inclusion – and MAP can help in the development of these.

It is hoped that through the efforts of global programmes like AFI and the Maya Declaration, together with the powerful analysis and diagnostics provided by MAP, people like Nephathli can benefit from access to appropriate financial services. By understanding the needs and demands of households like Nephathli’s, policies as well as product and service solutions can be developed that better serve their needs and reduce inequalities of access. With greater access to a range of financial services, poor and low-income households and businesses can, increase consumption, manage risks, and expand income, and build assets. i

GREATER CONSTRAINTS For firms, particularly small and start-up firms that are subject to greater constraints, access to finance can be associated with innovation, job creation, and growth. For these reasons, access to financial services can play a key role in the transformative Post-2015 Development Agenda across the three dimensions of sustainable development, economic, environmental and social. This explains why financial inclusion appears as targets under a number of likely SDGs being considered by the UN General Assembly.

Financial inclusion has also become a priority for policy-makers and regulators in financial sector development globally. Since 2009, the G20 has noted the importance of financial inclusion, particularly in its contribution to financial sector deepening, and has noted its contribution to economic growth. The G20 has gone further by setting out Nine Principles of Financial Inclusion and has underscored the importance of data with the adoption of the Basic Set of Financial Inclusion Indicators.

The MAP diagnostic and planning framework enables governments and other stakeholders to better understand the financial inclusion context in their country, by providing data and insights on demand for and supply of financial services as well as the policy, legal, and regulatory framework.

“The recent MAP (Making Access Possible) diagnostic and planning framework in Lesotho was able to identify the financial inclusion priorities by unpacking and understanding the current customer needs and their usage of existing services.”

CFI.co | Capital Finance International

ABOUT UNCDF UNCDF is the UN’s capital investment agency for the world’s 48 least developed countries. It creates new opportunities for poor people and their small businesses by increasing access to microfinance and investment capital. UNCDF focuses on Africa and the poorest countries of Asia, with a special commitment to countries emerging from conflict or crisis. It provides seed capital – grants and loans – and technical support to help microfinance institutions reach more poor households and small businesses, and local governments finance the capital investments – water systems, feeder roads, schools, irrigation schemes – that will improve poor peoples’ lives.

UNCDF programmes help to empower women, and are designed to catalyze larger capital flows from the private sector, national governments and development partners, for maximum impact toward the Millennium Development Goals. For more information, please visit www.uncdf.org and subscribe for news, follow @UNCDF on Twitter and UN Capital Development Fund on Facebook.

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In Real Estate, Boring Is Good as Is Stability

P

erfection is a moving target. Good luck nailing it. Such is the plight of the real estate investor: The perfect market – should it exist outside the realm of fancy – moves about the globe at a pace not fit for the frail of heart.

Property, being very much the essence of a fixed asset, cannot possibly keep up. As the surrounding market moves up, down, or sideways, real estate stays put.

It may be a shocker, but enticing returns are perhaps not quite as important to most real estate investors as they are to others looking to put their money to work. For the property investor, political stability and – even more importantly – the rule of law, jointly form the bedrock on which great portfolios are built.

Today, some of the most profitable real estate markets are to be found in Africa. Take Nigeria, a nation of some 170 million, and – quite conceivably – one of the more exciting places for investors to be. If you can make it there, you can make it anywhere! Perhaps.

Since 2003, Nigeria’s GDP has expanded at an average annual rate of about 7.3%. The country now boasts the largest economy in Africa and the 26th largest globally. Construction accounts for just slightly over 3.1% of Nigeria’s GDP. Clearly there is room for growth.

Nigeria’s housing deficit is estimated at some 17 million units. Annual demand runs upwards of 700,000 residential units, yet each year only about a 100,000 new dwellings get built.

So, this would seem like a no-brainer, right?

Please, do stop and think again before hopping on a flight Lagos-way.

Market Insight

While the numbers make Nigeria look quite interesting, if not possibly attractive, its laws and common practices detract from the picture.

“As far as the real estate investor is concerned, Berlin is very much an emerging market.” come into force. That may be tomorrow or in ten years from now. What we do know is that, when rental controls are imposed, as they eventually will be, yields will plummet.

Couple this none-too-rosy picture to a rather dysfunctional land and property registry system, and a notoriously over-regulated construction industry, and suddenly you know why Nigeria faces a housing deficit. Just try building there: Fully 20% of your costs will consist of regulatory fees.

As the real estate investor continues to scan the globe for property hotspots, he or she may very well take a look at Germany, and more particularly at Berlin. Surprisingly enough, the German capital is an excellent place to stall your money in bricks and mortar.

As far as the real estate investor is concerned, Berlin is very much an emerging market.

Bless the Berlin Wall. Its tearing down, now 25 years ago, opened up vast tracts of land for development. It’s all about location, and the wall was exceptionally well placed – cutting right through the heart of the city.

Berlin is a veritable heaven for property developers and buy-to-let investors. While elsewhere in Germany a property price bubble is in the making, Berlin is still emerging from its Cold War era vacuum.

The eastern part of the city is home to countless apartment and office blocks, factories, and former government buildings that are right now being snapped up at bargain-basement prices for redevelopment into luxury residential estates.

The country’s court system is rather cumbersome.

Pity the landlord who depends on it to evict a non-paying, or otherwise misbehaving, tenant.

In Nigeria, property management often involves trickery and even thuggery. Here, the strong arm is not the law. Moreover, the odd bribe may need be disbursed as well.

The rather sinister-looking Karl Marx Academy – where an entire generation of communist party drones was formed to ideological righteousness – has now been transformed into a collection of bright, ultramodern, and exclusive lofts, penthouses, suites, and garden homes. These are provided with all the amenities moneyed hipsters require for their decadent lifestyle. The irony of it all…

In booming Lagos rental yields currently hover around 4%. That’s because the rent control law has not been implemented. Nobody really knows when this law, which is already on the books, will

The “epicentre of cool,” Berlin currently offers real estate prices comparable to Athens with a basically unlimited upside. The city is, after all, the capital of Germany – Europe’s economic powerhouse.

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Rental yields in Berlin’s central districts are just shy of 5%. However, the really interesting story is the widely expected rise in property prices. Berlin has a long way to go to catch up with the likes of Frankfurt, Hamburg, and Munich.

Check this: Berlin is dirt-cheap. The average residential property price is about EUR2,900 per square metre. The number for Munich is EUR4,800 while in London a square metre is valued at well over EUR11,000. Please keep in mind that Berlin is not some provincial backwater.

With interest rates at near zero, a solid economic outlook, and a stable political environment, there would seem to be few – if any – downsides to investing in Berlin real estate.

It is, perhaps, ever so slightly boring.

Such is most definitely not the case in Dubai and the wider UAE. After the troubles following the 2008 market crash, the Dubai real estate market has rebounded impressively. Moreover, the Emirates have buoyant markets, free from excessive regulation, and with solid legal frameworks in place. To real estate investors, the UAE offers that rarest of combinations: Opportunity and stability.

The new Real Estate Investor Protection Law – Tanweer – is now ready and waiting for the court’s approval. This law is the first of its kind not just in the Middle East, but in the world.

In essence, the law offers investors who are duped by less-than-scrupulous real estate developers a short-track procedure to seek redress and obtain a full refund of their capital.

With this law, Dubai now offers the real estate investor a climate that is hard to beat. While property prices are shooting through the roof, with average residential prices rising more than 27% over the last year, market analysts still see no bubble. In fact, the surge is slowing somewhat with growth projected at more moderate, but sustainable, clip for 2015 and beyond.

Interestingly enough, this down-shifting is not the result of investor doubt or reluctance, but of soft state interventions such as the mortgage cap. In a real estate market that has matured considerably since the crash of 2008, authorities are very much aware that housing bubbles must be avoided by sensible legislative initiatives that may dampen overly excited markets to the benefit of all stakeholders. As a real estate investor, what more could you possibly want? i

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