CFI.co Spring 2019

ww

Capital Finance International

Spring 2019

£9.95 // €14.95 // $15.95

AS WORLD ECONOMIES CONVERGE

President of Brazil, Jair Bolsonaro:

AIMING FOR FREE MARKET LIBERALISATION ALSO IN THIS ISSUE // MIGA (WORLD BANK): BUSINESS PRIORITY TO WORK WITH ALL PEOPLE // UNCTAD: FDI FLOWS IBM: FOURTH INDUSTRIAL REVOLUTION // ADB: TECHNOLOGICAL REVOLUTION // OTAVIANO CANUTO: CHINA’S REBALANCING ACT WFE: ENCOURAGING INVESTMENT IN EMERGING MARKETS // UNCDF: INTERNATIONAL MUNICIPAL FINANCE

Mercedes-AMG G 63, 585 HP (430 kW), 13.6 l/100 km, 311 g CO2/km (average of all new models sold: 133 g CO2/km), CO2 emissions

Stronger than Time.

The new Mercedes-AMG G 63.

An exceptional vehicle for exceptional people.

from fuel and/or electricity consumption: 72 g/km, energy efficiency category: G.

60 YEARS OF ADVENTURE AND DISCOVERY

Some go to heaven, others go everywhere

**

Illustrated Models: Levante S - engine: V6 60° 2979 cm3 - max power: 430 HP at 5750 rpm - max torque: 580 Nm at 5000 rpm - max speed: 164 mph (264 km/h) 0 - 62 mph acceleration: 5.2 secs - fuel consumption (combined cycle): 10.9 l/100 km - CO2 emissions (combined cycle): 253 g/km. The data may not refer to the model represented.

The Greenhouse gas CO2 is main responsible for the global warming; the average CO2 emission of all offered vehicles in Switzerland is of 133 g/km.

Levante. The Maserati of SUVs. Yours. From CHF 80’600.–* Maserati Levante Diesel: Fuel consumption (combined cycle): 7,2 l/100 km Gasoline equivalent 8,2 l/100 km – CO2 emissions (combined cycle): 189 g/km** – Efficiency class G CO2 emissions from fuel combustion and/or power supply: 32 g/km.

*

Editor’s Column In Search of Logic and Reason

if its people are kept idle. Having workers slave away at subsistence jobs also fails to produce discernible progress.

Not all roads lead to Rome. In the universe of development economics, a vast landscape of conflicting views and recommendations, most policy ideas simply do not produce the desired outcome. Moreover, logic and reason are often lost when well-meaning ideologues get a chance to subject entire nations to their brainwaves, resulting in lost decades and generations.

Forever trying to reinvent the wheel, or improve on its original design, most economists are happy to suggest new ways, or shortcuts, to achieve growth. Multilateral entities such as the World Bank and the International Monetary Fund frequently adjust their policies to reflect new global concerns – climate change, sustainability, etc. – which countries looking for help must accept without demur.

Whilst the intentions are invariably good, poverty endures.

The much-celebrated worldwide reduction of extreme poverty may be ascribed to the commodities boom of the 2000s as much as to sensible policymaking. In fact, the end of the resource super cycle caused an alarming number of economies to slide into recession.

Editor’s Column

In this issue, CFI.co examines both the work of multilateral organisations and the different development models that have been put to the test. One conclusion that may be drawn is that the road to prosperity offers no shortcuts. The countries that have managed to attain significant levels of development did so by embracing good governance, sensible policies, and hard work – a winning combination.

There is, of course, a need to recognise particular challenges facing specific countries. However, the notion that underdevelopment is caused by adverse circumstance – as opposed to sustained mismanagement – serves only as an excuse for the acceptance of substandard performance by sovereign states. That may be the politically correct attitude; it also condemns nations to not be all they could be.

Without wishing to oversimplify economic thought, prosperity is a direct result of productivity. All the rest serves to shape an environment conducive to growth – and increased productivity. No nation can aspire to riches 8

There is a reason why manufacturing moved away from Europe and North America to low wage countries: workers can be put to better use in more profitable sectors. The oft-heard lament that the industrialised nations of the west no longer assemble things – from television sets to big ships – misses the point: these countries are much better off outsourcing their manufacturing so that they may concentrate on complex services, technology, and other advanced pursuits. Having come up in the world, China is now also moving production overseas. It too wants to escape the middle income trap by refocusing on economic endeavours that add more value.

As an economic concept, productivity is a rather boring one; it fails to stir the imagination and doesn’t convey much about the present performance of the economy under consideration. However, the GDP (PPP) per hour worked numbers do tell a tale. Their global ranking runs parallel to that of the world’s most competitive economies as compiled by the World Economic Forum. With one hour of work, a Norwegian adds $75 to his country’s GDP. At the other end of the spectrum, a Bangladeshi working as hard as his Nordic peer only manages to add $2.

The keys to higher productivity are education and capital accumulation. These allow GDP growth to outpace employment levels. Thus a peculiarity of highly productive economies is that they may sustain significant levels of unemployment. In the Top Ten of most productive countries (sourced from The Conference Board, a business research group), seven countries are full members of the European Union and one – Norway, the country with the highest output per hour worked – is an associate member.

This overlooked statistical nugget shows that, for all the doom saying, Europe is far from a spent economic force. Whilst the EU may have more than its fair share of challenges, the bloc remains the world’s largest economy and its most competitive and productive one. As such, the EU also holds some lessons that others may wish to emulate.

Sadly, though, Europe fails to appreciate its own success.

Petty short-term considerations – immigration foremost amongst them – threaten to derail the greatest nationbuilding project in this history of mankind. Think that is an overblown assessment of what dreary Brussels bureaucrats aim to accomplish? Please, think again.

Wim Romeijn Editor CFI.co | Capital Finance International

Editor’s Column

Dubai

> Letters to the Editor

“ “ “

Few people possess a more engaging personality than Madeleine Albright: the lady is not only a walking – and thankfully talking – encyclopaedia, she also offers wise insights from which current world leaders could benefit.

Perhaps, Albright is one of the last titans of diplomacy, an honour she shares with Henry Kissinger. The two could hardly be more different, but share a common personal history which made them into globalists – or at least proponents of the sensible version of globalism before that concept was hijacked by the economic forces now calling the shots.

CHRIS YOUNG (Kansas, USA)

Many companies – mostly state-owned – have tried to break the Airbus/Boeing duopoly that rules the civil aircraft industry. China is working on its own version of the short to medium haul Airbus A320 workhorse (7,100+ produced) and Russia now follows suit with its MC-21. Brazil’s Embraer too wants in on the action. It would seem that developing and manufacturing a safe and economical airliner now has become a pursuit of nations out to prove a nationalist point. Therein lies a danger: building large aircraft may satisfy cravings for international recognition, it is usually best not to mix business and diplomacy.

REYNALDO RAMOS (Curitiba, Brazil)

You have reported extensively on plans to build huge solar power plants in the sun-drenched countries of North Africa that could provide cheap renewable energy to the countries of Europe. If I’m allowed to say: These plans are quite silly. Isn’t it bad enough that Europe depends to an alarming extent on natural gas supplies from Russia? Are we in Europe to switch from one unruly provider for another one? Most countries of North Africa have just experienced severe civic upheaval. While Europe should do all in its power to promote democracy and good governance in North Africa, it would be unwise to mortgage the continent’s future to energy supplies from this region.

DIETER KLEIN MÜNSTER (Germany)

10

Abu Dhabi

Spring 2019 Issue

“ “ “

Your profile of Sir Keith Starmer was well-timed and as such very opportune. Starmer is one of the few grown-ups left in the British Labour Party and does not suffer from the over-the-top ideological fer-vour that taints Jeremy Corbyn. They only way for Labour to lay claim to Number 10 is for Corbyn to step aside and let someone a bit more in touch with reality take over.

Whilst Corbyn is a formidable politician with plenty of appeal amongst younger voters, his plans for the nation are quite detached from reality and may cause an already difficult situation to deteriorate sharply.

CHARLEY MARRIS (Manchester, UK)

It is heart-warming to see a war-ravaged country such as Angola rise out of the ashes and become a model of development. However, one can only hope that the country’s leaders are not blinded by the glittering gold and keep their focus firmly on providing a framework for sustained and broadbased development. It is absolutely essential that Angola encourages the growth of a solid middle class. Only this way can political stability and economic progress be assured for generations to come.

KATHRYN VOGLE (New York, USA)

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 (New York (USA)

11

Editor Wim Romeijn

>

Assistant Editor Sarah Worthington

COVER STORIES

Executive Editor George Kingsley Production Editor Jackie Chapman

Editorial Tony Lennox Kate Stanton Brendan Filipovski John Marinus Ellen Langford

Columnists Otaviano Canuto Evan Harvey Tor Svensson Lord Waverley Ian Fletcher

Distribution Manager William Adam

Subscriptions Maggie Arts

Commercial Director John Mann

Otaviano Canuto China’s Rebalancing Act (14 – 16)

Ian Fletcher Fourth Industrial Revolution: The Moral, Ethical & Societal Implications (22 – 25)

UNCTAD FDI Flows (26 – 28)

MIGA (World Bank) Business Priority to Work With All People (38 – 41)

Director, Operations Marten Mark

World Federation of Exchanges

Publisher Anthony Michael

(54 – 55)

Capital Finance International Meridien House 69 - 71 Clarendon Road Watford WD17 1DS United Kingdom T: +44 203 137 3679 F: +44 203 137 5872 E: info@cfi.co W: www.cfi.co Editorial on p18-21, 180-181, 198 © Project Syndicate 2019

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

12

Encouraging Investment in Emerging Markets

Asian Development Bank Technological Revolution (190 – 192)

UNCDF International Municipal Finance (194 – 196)

CFI.co | Capital Finance International

Spring 2019 Issue

FULL CONTENTS 14 – 41

As World Economies Converge

Otaviano Canuto

Nouriel Roubini

Joseph Stiglitz

Ian Fletcher

James Zhan

Tor Svensson

Lord Waverley

Keiko Honda

42 – 49

Spring 2019 Special: Empowerment & Entrepreneurship

50 – 93

Europe

Toledo Capital AG

Håvard Halland

World Federation of Exchanges (WFE)

Justin Yifu Lin

The Access Bank UK

Arca Fondi SGR

Blackstone Resources AG

Scottish Friendly

SIG

Supernovae Labs

Mansion

Banca Agricola Commerciale (BAC)

Alexander A Engebretsen

CBRE

Caisse de Refinancement de l’Habitat (CRH)

MAX

North Macedonia

Electric Networks of Armenia (ENA)

Absa

Ostoul Capital Group

94 – 113

CFI.co Awards

Rewarding Global Excellence

114 – 127

Africa

Air Senegal

PwC

128 – 151

Middle East

QNB ALAHLI

American University of Beirut

KPMG Lower Gulf Ltd

Mouwasat Medical Services

Averda

Investment House

ICBC Dubai (DIFC) Branch

Deloitte

IMF

152 – 159

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

160 – 173

Latin America

Produbanco

Banchile Inversiones

Corporación Zona Franca Santiago

EY

174 – 181

North America

Victoria Mutual Group

Robert J Shiller

182 – 197

Asia Pacific

Anand Rathi Wealth Services Ltd Afghanistan International Bank (AIB)

Asian Development Bank

New World Development Company Limited

UNCDF

Lakshay Mathur

198

Final Thought CFI.co | Capital Finance International

13

> Otaviano Canuto, Center for Macroeconomics and Development:

China’s Rebalancing Act is Slowly Addressing Sliding Growth Figures

C

hina’s economic growth has been sliding since 2011, while its economic structure has gradually rebalanced toward lower dependence on investments and current-account surpluses.

Steadiness in that trajectory has been accompanied by rising levels of domestic private debt, as well as slow progress in rebalancing roles between private and public sectors. With the ongoing trade war with the US still unfolding, it remains unclear which growth pace China’s rebalancing will follow.

THE NECESSITY OF REBALANCING China’s GDP growth last year (6.6%) was the lowest in the past two decades. The IMF’s update of its World Economic Prospects in January brought a forecast of 6.2% for China in 20192020. See Chart 1.

CFI.co Columnist

China’s slowdown was expected, as signs of relative exhaustion were clear by the beginning of the decade. Back in 2011, when I was a vicepresident at the World Bank, I represented the institution at the 10-Year anniversary of China's access to the World Trade Organisation (WTO) at the Hall of People in Beijing. In my remarks to then-President Hu Jintao, I conveyed some of the thinking that was to be fully displayed in 2013 in a joint report by the World Bank and the Development Research Centre of the State Council, PRC.

"China has the potential to continue its dynamic growth, quadruple per capita income to about $16,000, and become the world’s largest economy by 2030."

China has the potential to continue its dynamic growth, quadruple per capita income to about $16,000, and become the world’s largest economy by 2030. But, to realise that potential, China needs to overcome emerging new challenges, adapt its growth model to avoid the middle-income trap, reduce its large trade surpluses to mitigate tensions with trading partners, and increasingly play an active leadership role in global forums and multilateral institutions.

China will need to increase services and consumption. By 2030, the World Bank estimates that China’s service sector could expand from 43% of GDP today to almost 60%.

Consumption could also expand to 60%, from about 50% today.

Given China’s rising real wages, the country will need to upgrade to higher value-added industries, and progressively shift its labourintensive production to lower-cost locations in

Chart 1: Chinese year-on-year GDP growth. Source: 4X Global Research, “Chinese growth slowdown – project fear?”, January 30, 2019.

14

CFI.co | Capital Finance International

Asia and Africa. This shift implies an increase in outward FDI. China also needs to reform its state-owned enterprises to boost private sector growth and competition. Finally, to ensure sustainable growth, China will need to shift to a greener growth model.

In his final remarks at the 2011 event, President Hu Jintao said: "China will unswervingly commit to the opening-up strategy to help itself grow, and promote global development."

The Chinese pattern of rapid growth with structural change had been accompanied by rising economic imbalances, just as the main pillars of growth seemed to be gradually weakening. High and sustained GDP growthrates were based on elevated investment-to-GDP ratios – which were only possible with low shares of wage income and domestic consumption, as well as with cheap and repressed finance.

Another factor was dynamic markets abroad which were willing and capable of absorbing an expansion of Chinese exports – something that could not be indefinite, given the size of China’s economy. Growing income disparities were a domestic flipside of that model, a potential source of social strain along with changes in the external environment. As former Premier Wen Jiabao said in 2007, the country’s economic

Spring 2019 Issue

growth trajectory was “unstable, unbalanced, uncoordinated and unsustainable”.

Three mutually reinforcing paths of transformation were ahead, with a structural slowdown of growth on the cards.

Chart 2: China’s GDP sector structure (left) and investments and current account as shares of GDP (right). Source: IMF.

Chart 3 – Consumption- and investment-to-GDP: China vs emerging markets and advanced economies (left) and Social Spending as % of GDP (right). Source: IMF.

First, the productivity increases seen through transferring resources from low-productivity agriculture activities to industry — a typical feature of economies moving from low- to middle-income levels — had, to a large extent, already happened. On the demographic front, the old-age-dependency ratio had started to rise.

Gains in economic efficiency and technological progress – based on absorption of existing, imported technologies – would have to be increasingly replaced with local innovation. The set of second-generation policy reforms necessary for that would require time, whereas low-hanging fruit, in terms of productivity increases, would be less available.

Second, a sector-structure rebalance was expected. Higher shares of services and consumption, following rising wages, with a decrease in exports, savings and investment ratios-to-GDP, should accompany the increased reliance on domestic sources of aggregate demand. Government consumption was also to rise to meet social demand, as well as the needs of operations and maintenance. The income gap between coastal areas and middle and western regions should fall as the labour pool shrank.

The popular perception of rising prosperity would probably be higher than before, with rising purchasing power – despite lower GDP growth rates due to lower investment-to-GDP ratios and total factor productivity increases harder to obtain.

Third, a shift up the value chain in tradable and non-tradable activities should underpin the previous paths of change. A transition to more sophisticated production processes was already being pursued.

Chart 4 – China: Credit growth and debt-to-GDP (left) and Performance of State-Owned Enterprises (SOEs) vs private firms.

Sources: (left) David Lodge & Michel Soudan, “Credit, financial conditions and the business cycle in China”, ECB Working Paper Series 2244, February 2019; (right) IMF, China 2018 Article IV Consultation, July 2018.

While moving to a less spectacular growth trajectory, China would be morphing into a mass-consumer market economy, combined with supply capacity increasingly reliant on growth of “total factor productivity”.

Chart 5 – China: Payments for the use of U.S. intellectual property and GDP. Source: Santacreu, A.M. and Peake M. “A Closer Look at China’s

Supposed Misappropriation of U.S. Intellectual Property”, Economic Synopses 2019 n.5, Federal Reserve Bank of St. Louis, February 08.

CFI.co | Capital Finance International

On the other hand, the transition toward a less investment- and export-dependent growth model took place from a starting point of very low consumption-to-GDP ratios (Chart 3, left side). Besides high profit to wages ratios, low levels of public social spending have led to high household savings (Chart 3, right side). No wonder rebalancing toward a consumption-based growth model was expected to be gradually 15

CFI.co Columnist

Clarity of the roadmap did not mean an easy ride.

Chart 2 shows how the GDP sector structure has been evolving as expected, and how reliance on investment and current-account surpluses has diminished.

pursued, as GDP growth rates might have collapsed, rather than sliding down. The change of growth pattern would require time-intensive structural reforms. In 2017, private consumption and investment were, respectively, 39% and 44% of GDP. In the rest of the world, 60% is the average consumption to GDP ratio (Chart 3, left side).

avoiding a deeper growth downslide by maintaining policies in place tends to become more difficult, with decreasing returns from investment-cum-debt at the margin. With an increasing amount of capital investment needed to yield incremental units of output, for China to hold steady would require everincreasing levels of debt.

Fears for the global economy in the aftermath of the Global Financial Crisis were followed by countercyclical policies. In the case of China, a “great Quantitative Easing (QE)” took the form of a combination of “shadow banking” and capital expenditure on housing and infrastructure, with a high role played by special purpose vehicles (SPVs) associated with subnational entities (Canuto and Zhuang, 2015). Lending by nonbank entities through shadow finance accounted for about two-fifths of new credit by 2016.

THE US-CHINA TRADE WAR The ongoing trade disputes have been sparked by the US with a double motivation: to force changes in bilateral trade-flows in its favour, as well to prompt changes in Chinese policies and practices regarding technology transfer. China’s rebalance toward raising its presence in higher value-added stages in global value chains have included a resource to piggybacking at low costs on external technological sources. To this end, forced technology transfers have been imposed on foreign investors interested in attending domestic markets, besides non-recognition of intellectual property, subsidies to state-owned companies, non-tariff barriers, and similar measures. That has happened even as China’s payments for the use of US intellectual property have increased faster than the former’s GDP (Chart 5).

Two features of China’s economic policies – although instrumental to sustaining the smoothness of the downslide – have become sources of concern.

The first is that the attainment of official target growth rates along the gradual slide depicted in Chart 1 has been accompanied by overcapacity in some heavy industry and construction sectors, as well as increasing debt leverage of corporates and households. Chinese authorities have alternated measures to dampen such debt trajectory before vulnerability to a sudden stop reaches any critical point with periodic loosening of fiscal, monetary and financial restrictions to avoid drastic declines in growth rates. This is depicted in the evolution of corporate and household debt as well as in the comparison of credit and nominal GDP growth rates (Chart 4, left side).

CFI.co Columnist

Secondly, the “reform of state-owned enterprises to boost private sector growth and competition” I mentioned in 2011 - and at the time referred to by Chinese authorities as part of a “rebalance between public and private sectors” - has stalled. Credit is still preferentially channelled to state businesses, and competition between private firms and SOEs remains uneven in sectors where the latter was thought to open space. While large state-owned banks keep lending to SOEs, infrastructure and real estate investments are supported by shadow finance. Performance indicators (Chart 4, right side) suggest that the absence of reform of state-owned businesses has come at a cost in terms of productivity and real returns foregone.

The motivations of tackling financial risk and avoiding a sharp growth slowdown point have been pursued with policy-tuning via targeted measures of tax cuts, de-risking and regulatory changes. A difficulty stems from decreasing returns in terms of additional output obtained with the maintenance of high investments and debt accumulation. China’s public capital stock per-head exceeds those of comparable economies, residential and infrastructure investments increased dramatically, and export-led growth faces rising challenges.

Over the decade, China has thwarted “incoming financial disruption”, and retains sufficient fiscal space and foreign reserves to implement any official bail-outs that may be needed. On the other hand, 16

On the trade side of the confrontation, the negative impact on China’s exports in 2018 has added challenges to keeping growth, even if secondary to the ones we have approached. On technology transfer policies, Chinese authorities may be prepared to offer something meaningful. Given the fact that their ambitions regarding technological breakthrough are now increasingly hinging on local, tacit and idiosyncratic knowledge – see my article on the Autumn issue of Capital Finance International – the Chinese cost-benefit calculation toward finding alternative forms of local technology support may well coax them to reaching some agreement. That would allow them to focus on the domestic challenges of rebalancing without the additional burden of trade confrontation.

BOTTOM LINE China’s economic growth has been sliding since 2011, while its economic structure has gradually rebalanced toward lower dependence on investments and currentaccount surpluses. Steadiness in that trajectory has been accompanied by rising levels of domestic private debt, as well as slow progress in rebalancing roles between private and public sectors. In the ongoing trade war, it remains unclear at which growth pace China’s rebalancing will tend to settle. Given China’s weight in the global economy – on trade, investment and financial flows – fingers are crossed in favour of its success in rebalancing. i ABOUT THE AUTHOR Otaviano Canuto is principal of the Center for Macroeconomics and Development, a senior fellow at the Policy Centre for the New South and a nonresident senior fellow at Brookings Institution. He is a former vice-president and a former executive director at the World Bank, a former executive director at the International Monetary Fund, and a former vicepresident at the Inter-American Development Bank.

Otaviano has been a regular columnist for CFI.co for the last six years. Follow him on Twitter: @ocanuto CFI.co | Capital Finance International

The superlative-charged chronograph. 50 mm case in BreitlightÂŽ. Exclusive Manufacture Breitling Caliber B12 with 24-hour military-style display. Officially chronometer-certified.

B RE IT L ING . C O M

> Nouriel Roubini:

A Mixed Economic Bag in 2019

A

fter the synchronised global economic expansion of 2017 came the asynchronous growth of 2018, when most countries other than the United States started to experience slowdowns.

Worries about US inflation, the US Federal Reserve’s policy trajectory, ongoing trade wars, Italian budget and debt woes, China’s slowdown, and emerging-market fragilities led 18

to a sharp fall in global equity markets toward the end of the year.

The good news at the start of 2019 is that the risk of an outright global recession is low. The bad news is that we are heading into a year of synchronised global deceleration; growth will fall toward – and, in some cases, below – potential in most regions.

CFI.co | Capital Finance International

To be sure, the year started with a rally in risky assets (US and global equities) after the bloodbath of the last quarter of 2018, when worries about Fed interest-rate hikes and about Chinese and US growth tanked many markets.

Since then, the Fed has pivoted toward renewed dovishness, the US has maintained solid growth, and China’s macroeconomic easing has shown some promise of containing the slowdown there.

Spring 2019 Issue

Whether these relatively positive conditions last will depend on many factors. The first thing to consider is the Fed. Markets are now pricing in the Fed’s monetary-policy pause for the entire year, but the US labor market remains robust. Were wages to accelerate and produce even moderate inflation above 2%, fears of at least two more rate hikes this year would return, possibly shocking markets and leading to a tightening of financial conditions. That, in turn, will revive concerns about US growth.

Second, as the slowdown in China continues, the government’s current mix of modest monetary, credit, and fiscal stimulus could prove inadequate, given the lack of private-sector confidence and high levels of overcapacity and leverage. If worries about a Chinese slowdown resurface, markets could be severely affected. On the other hand, a stabilisation of growth would duly renew market confidence.

A related factor is trade. While an escalation of the Sino-American conflict would hamper global growth, a continuation of the current truce via a deal on trade would reassure markets, even as the two countries’ geopolitical and technology rivalry continues to build over time.

Fourth, the eurozone is slowing down, and it remains to be seen whether it is heading toward lower potential growth or something worse. The outcome will be determined both by national-level variables – such as political developments in France, Italy, and Germany – and broader regional and global factors.

Obviously, a “hard” Brexit would negatively affect business and investor confidence in the United Kingdom and the European Union alike. US President Donald Trump extending his trade war to the European automotive sector would severely undercut growth across the EU, not just in Germany.

Finally, much will depend on how Euroskeptic parties fare in the European Parliament elections this May. And that, in turn, will add to the uncertainties surrounding European Central Bank President Mario Draghi’s successor and the future of eurozone monetary policy.

"There may be enough positive factors to make this a relatively decent, if mediocre, year for the global economy."

Fifth, America’s dysfunctional domestic politics could add to uncertainties globally.

The recent government shutdown suggests that every upcoming negotiation over the budget and the debt ceiling will turn into a partisan war of attrition. An expected report from the special counsel, Robert Mueller, may or may not lead to impeachment proceedings against Trump. And by the end of the year, the fiscal stimulus from the Republican tax cuts will become a fiscal drag, possibly weakening growth.

Sixth, equity markets in the US and elsewhere are still overvalued, even after the recent correction. As wage costs rise, weaker US earnings and profit margins in the coming months could be an unwelcome surprise. With highly indebted firms facing the possibility of rising short- and long-term borrowing costs, and with many tech stocks in need of further corrections, the danger of another risk-off episode and market correction can’t be ruled out.

Seventh, oil prices may be driven down by a coming supply glut, owing to shale production in the US, a potential regime change in Venezuela (leading to expectations of greater production over time), and failures by OPEC countries to cooperate with one another to constrain output. While low oil prices are good for consumers, they tend to weaken US stocks and markets in oil-exporting economies, raising concerns about corporate defaults in the energy and related sectors (as happened in early 2016).

Finally, the outlook for many emergingmarket economies will depend on the aforementioned global uncertainties. The chief risks include slowdowns in the US or China, higher US inflation and a subsequent tightening by the Fed, trade wars, a stronger dollar, and falling oil and commodity prices.

Though there is a cloud over the global economy, the silver lining is that it has made the major central banks more dovish, starting with the Fed and the People’s Bank of China, and quickly followed by the European Central Bank, the Bank of England, the Bank of Japan, and others.

Still, the fact that most central banks are in a highly accommodative position means that there is little room for additional monetary easing. And even if fiscal policy wasn’t constrained in most regions of the world, stimulus tends to come only after a growth stall is already underway, and usually with a significant lag.

There may be enough positive factors to make this a relatively decent, if mediocre, year for the global economy. But if some of the negative scenarios outlined above materialise, the synchronised slowdown of 2019 could lead to a global growth stall and sharp market downturn in 2020. i ABOUT THE AUTHOR Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

19

> Joseph Stiglitz:

From Yellow Vests to the Green New Deal

I

t’s old news that large segments of society have become deeply unhappy with what they see as “the establishment,” especially the political class. The “Yellow Vest” protests in France, triggered by President Emmanuel Macron’s move to hike fuel taxes in the name of combating climate change, are but the latest example of the scale of this alienation.

There are good reasons for today’s disgruntlement: 20

four decades of promises by political leaders of both the center left and center right, espousing the neoliberal faith that globalisation, financialisation, deregulation, privatisation, and a host of related reforms would bring unprecedented prosperity, have gone unfulfilled.

While a tiny elite seems to have done very well, large swaths of the population have fallen out of the middle class and plunged into a new world CFI.co | Capital Finance International

of vulnerability and insecurity. Even leaders in countries with low but increasing inequality have felt their public’s wrath.

By the numbers, France looks better than most, but it is perceptions, not numbers, that matter; even in France, which avoided some of the extremism of the Reagan-Thatcher era, things are not going well for many. When taxes on

Spring 2019 Issue

the very wealthy are lowered, but raised for ordinary citizens to meet budgetary demands (whether from far-off Brussels or from well-off financiers), it should come as no surprise that some are angry.

The Yellow Vests’ refrain speaks to their concerns: “The government talks about the end of the world. We are worried about the end of the month.”

There is, in short, a gross mistrust in governments and politicians, which means that asking for sacrifices today in exchange for the promise of a better life tomorrow won’t pass muster. And this is especially true of “trickle down” policies: tax cuts for the rich that eventually are supposed to benefit everyone else.

When I was at the World Bank, the first lesson in policy reform was that sequencing and pacing matter. The promise of the Green New Deal that is now being championed by progressives in the United States gets both of these elements right.

The Green New Deal is premised on three observations: First, there are unutilised and underutilised resources – especially human talent – that can be used effectively. Second, if there were more demand for those with low and medium skills, their wages and standards of living would rise. Third, a good environment is an essential part of human wellbeing, today and in the future.

If the challenges of climate change are not met today, huge burdens will be imposed on the next generation. It is just wrong for this generation to pass these costs on to the next. It is better to leave a legacy of financial debts, which our children can somehow manage, than to hand down a possibly unmanageable environmental disaster.

"By the numbers, France looks better than most, but it is perceptions, not numbers, that matter."

Almost 90 years ago, US President Franklin D. Roosevelt responded to the Great Depression with his New Deal, a bold package of reforms that touched almost every aspect of the American economy.

But it is more than the symbolism of the New Deal that is being invoked now. It is its animating purpose: putting people back to work, in the way that FDR did for the US, with its crushing unemployment of the time. Back then, that meant investments in rural electrification, roads, and dams.

Economists have debated how effective the New Deal was – its spending was CFI.co | Capital Finance International

probably too low and not sustained enough to generate the kind of recovery the economy needed. Nonetheless, it left a lasting legacy by transforming the country at a crucial time.

So, too, for a Green New Deal: It can provide public transportation, linking people with jobs, and retrofit the economy to meet the challenge of climate change.

At the same time, these investments themselves will create jobs.

It has long been recognised that decarbonisation, if done correctly, would be a great job creator, as the economy prepares itself for a world with renewable energy. Of course, some jobs– for example, those of the 53,000 coal miners in the US – will be lost, and programs are needed to retrain such workers for other jobs.

But to return to the refrain: sequencing and pacing matter. It would have made more sense to begin with creating new jobs before the old jobs were destroyed, to ensure that the profits of the oil and coal companies were taxed, and the hidden subsidies they receive eliminated, before asking those who are barely getting by to pony up more.

The Green New Deal sends a positive message of what government can do, for this generation of citizens and the next.

It can deliver today what those who are suffering today need most – good jobs.

And it can deliver the protections from climate change that are needed for the future.

The Green New Deal will have to be broadened, and this is especially true in countries like the US, where many ordinary citizens lack access to good education, adequate health care, or decent housing.

The grassroots movement behind the Green New Deal offers a ray of hope to the badly battered establishment: they should embrace it, flesh it out, and make it part of the progressive agenda. We need something positive to save us from the ugly wave of populism, nativism, and protofascism that is sweeping the world.. i ABOUT THE AUTHOR Joseph E Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute. His latest book, People, Power, and Profits: Progressive Capitalism for an Age of Discontent, will be published in April.

21

CFI.co Columnist 22

CFI.co | Capital Finance International

Spring 2019 Issue

CFI.co Columnist

CFI.co | Capital Finance International

23

B

y enabling and accelerating the convergence of our physical, digital and biological worlds, 4IR has the power to change every aspect of our daily lives. It will unleash new journeys of discovery that will, in turn, force society to challenge a number of its core values and principles. As technological advancements continue to push new boundaries, we will constantly need to re-evaluate and balance the benefits of those advancements against the moral, ethical, social and economic impacts.

A DOUBLE-EDGED SWORD The 4th IR won’t be dominated by any single technology or mega-corporation. Rather, it represents a convergence of many different elements that impact our interactions and experiences in the physical and virtual worlds.

New game-changing technologies will straddle the traditional, physical world, reshape the digital landscape and facilitate human interconnectivity, using science, mathematics and biotechnology.

Many of these technologies are nothing short of astonishing, pushing the limits of what is acceptable to society, versus what is technologically possible – transforming science fiction into science fact.

CFI.co Columnist

On one hand we are witnessing an explosion in ground-breaking technologies that push the boundaries of our imagination, enabling radical new business models and providing solutions to problems that could previously only have been imagined. But these breakthroughs will come with real, if not unintended, risks to our lives and communities when they start to blur the boundaries between the physical, digital and biological. We, as citizens and recipients of these transformational changes, must acknowledge the payoff we are taking and how much we are prepared to risk or sacrifice to achieve new technological advances.

OUR SMART-HUMAN WORLD Over the past few years, artificial intelligence (AI) has become increasingly embedded in our lives, as personal assistants in our homes or as machine-learning applications in our businesses. In the Fourth Industrial Revolution, AI will become a more integral part of our culture, helping us make better-informed decisions and enhancing human cognition. In coming years, we can expect to see AI take a place around the boardroom table, providing real-time analyses, debate, counter-arguments and recommendations – based on the best data.

"Humans will be biologically interconnected with the future technology, developing an interdependency and reliance on its outcomes." topics without prior training. Project Debater can create an opening speech by searching billions of sentences on the relevant topic, processing text segments to remove any redundancy, and selecting the strongest claims and evidence to form themes for a narrative.

It then pieces together the selected arguments to create and deliver a persuasive speech.

Finally, it listens to the opponent’s response, digests it, builds a rebuttal, and creates an interactive conversation in real-time to support its perspective. This represents another breakthrough in humans and machines working together, and emphasises the importance of opening our minds to new and alternative points of view.

QUANTUM COMPUTING We are witnessing an unprecedented and exponential growth in the use and understanding of personal and corporate data. Organisations will soon need to find ways to harness and manipulate that data more efficiently and profoundly. Current systems and architectures don’t scale well enough; the future of complex data computing may lie in the power of quantum.

Quantum computing can be viewed in this way: When a traditional computer reads a book, it does it line-by-line and page-by-page. Quantum reads an entire library – simultaneously. Or, put another way, what might take a traditional systems a million years to perform a task, a quantum computer could complete in seconds.

Quantum represents a new paradigm that has the potential to reinvent the worlds of business, science, education and government.

Data simulations of environmental, industrial, chemical or pharmaceutical processes are representative of the sort of opportunities that

In February 2019, IBM’s Project Debater became the first AI system able to debate with humans on complex topics. The core technology breaks new ground in AI, including data-driven speech writing and delivery, listening, comprehension and the ability to model human dilemmas for more informed decisions. It sets a whole new benchmark for AI systems that listen, learn, understand and reason, since it can debate 24

CFI.co | Capital Finance International

quantum computing can serve. Analysing the genetic makeup of plants, gene-sequencing to develop drought-tolerant crops, and creating self-repairing paints – at the molecular level – would be possible.

Quantum computing’s algorithmic power could also be used to advance the next generation of machine-learning technologies that use selfadaptive neural networks, in real time, to drive autonomous robotics. With its exponential speed, quantum could become the tool of choice in healthcare, being particularly well suited today to oncology. But it’s a double-edged sword – quantum computer security must be addressed.

Given the current development of quantum computing power, potentially all electronic applications would become insecure. In theory, quantum computers could provide a vehicle for hackers to crack our numeric PIN codes in seconds. Developers will need to create new security protocols to protect algorithms from quantum hackers at source. This is known as post-quantum cryptography or homomorphic encryption. This is another area that IBM has already developed to safeguard future blockchain algorithms for example.

Immersive security remains one of the highest priorities for business. As globalisation becomes prevalent and more companies merge, share and expand, securing a diverse set of interconnect assets becomes vital. Quantum cryptography represents an opportunity to build security tools at a much deeper level. Companies must improve education and prepare well in advance by developing “quantum readiness” strategies.

MIRRORING THE HUMAN BRAIN Neuromorphic computing has been around since the 1980s, but is only now starting to enter the mainstream. Biologically inspired, energy-efficient computer chips mimic the neurobiological architectures of our nervous system, mirroring the brain’s synapse function.

This hybrid analogue-digital chip architecture can form deep neural networks made up of a billions of neurons – the lightbulbs – and multiple billions of synapses – the wires, all independently learning. This technology opens up new possibilities for making the

Spring 2019 Issue

world smarter, and more connected. This next evolution of neuromorphic technology promises a breakthrough in computing power, revolutionising self-learning artificial intelligence, education, manufacturing, healthcare and self-driving cars.

It also delivers key advantages around energy efficiency, execution speed, and robustness.

A HUMAN TECHNOLOGY PLATFORM We are on the brink of a new era of genetics, which will change the way we see and interact with the environment around us. It enables the use of our personal biology as a technology platform, whereby the body’s natural electricity becomes a conduit for wireless data transfer, connecting us through wearables and sensors to activate smart devices in the physical world.

These types of innovations will lead to a world of immersive experiences and interactions with everything we touch or sense. New biometric models are also emerging around memorydriven DNA computing, which uses human DNA, biochemistry and molecular biology as its storage mechanism, instead of traditional silicon-based media.

This new field of science, while in its infancy, demonstrates a different way of thinking, exploring the use of chemical reactions on biological molecules to perform computation.

In the data-centric world of 4IR, there could be the ability to store information for hundreds or thousands of years, with minimal maintenance.

Just one gram of human DNA can store billions of gigabytes of data, opening up all sorts of possibilities for smart-human connectivity, molecular simulation, backing up our biometric functions, or maybe in the future, our brains.

Science tells us that the human body holds approximately 20,000 genomes, our genetic makeup and the code of life itself. Genome technology is an integral part of the future foundation of medicine, and warrants serious consideration. Imagine holding our individual patient record on a strand of our DNA, and being able to share and monetise our biometric data with a globally interconnected healthcare ecosystem focused on the individual.

The outcome would be personalised, tailor-made treatment and medicines. This would drive down the cost of treatment and facilitate a move into preventive maintenance models, as well as an ability to forecast life-threatening illnesses.

We are seeing tangible examples of these technologies being used today to benefit humankind. Young entrepreneurs – millennials

MORALS, ETHICS AND IMBALANCE We are entering an era of transparency, where everything we do can be analysed, connected or shared. It's a world where nothing seems to be off-limits. What makes the Fourth Industrial Revolution different and perhaps harder to comprehend is that humans will be biologically interconnected with future technology, developing an interdependency and a reliance on its outcomes. This carries an air of inevitability that must be countered by the human element, to be supported by trust and inclusivity, and moral and ethical behaviour. If we lose sight of the positive and negative impacts of technology’s transformation of society, we risk leaving people feeling disenfranchised, unsure of their role.

Ethics and accountability will play a major role in addressing the imbalances within society, but this level of awareness and responsibility isn’t taking place in many areas. According to a recent study by IBM’s Institute For Business Value – Artificial Intelligence Ethics – executives are either unprepared for the changes or don’t understand the magnitude of what’s coming their way. While they recognise that AI is becoming central to business operations, they must consider how to address and govern potential ethical issues.

Executives believe data responsibility is the most important issue related to AI ethics, which suggests they are more focused on impacts on their enterprise rather than on society at large.

Only 38% of Chief Human Resource Officers (CHROs) surveyed indicated their organisation had an obligation to retrain or upskill workers impacted by AI. This represents a real challenge to the workforce; business leaders should see the bigger picture, recognising their moral and ethical obligation to do the right thing. Governments will have an active role to play in enacting legislation for AI ethics and data transparency.

Most executives (91%) acknowledge that there is some need for regulation to address AI ethics requirements.

CONCLUSION The Fourth Industrial Revolution represents a transformational moment that will be limited only by our imagination and ability to innovate.

In addition to the transformational technologies, we are witnessing the appearance of economical mega-trends such as “the sharing economy” (collaborative consumption), “self-sovereign identity” (monetisation of personal data), and CFI.co | Capital Finance International

the "Circular Economy" (extracting the optimum value from resources or assets). These all contribute to the new emerging landscape that is unrecognisable today.

Society and businesses are woefully unprepared to absorb the magnitude of change. If businesses are to thrive and be ready for 4IR – recognising the interconnected evolution from human-to-automation-to-digital-to-smart human – they must adopt agile business practices, and develop continuously evolving 10-year plans based on innovation and transformational disruption, rather than the short-term, tactical strategies of today.

This mighty double-edged sword that we now hold, together with its moral dilemmas and potential societal impact, yields enormous power. As citizens, developers, entrepreneurs and leaders, we owe it to the next generation to use this technology to make the world a better place to live in. I believe that when we look back on this moment in history, we will realise this was the start of an amazing and evolutionary human journey. i ABOUT THE AUTHOR Ian Fletcher was educated in the UK, building a successful career in IBM Global Services.

With over 30 years’ experience in technology and business consulting services, Ian leads the IBM IBV C-suite Study for MEA. Ian also runs IBM’s thought leadership programme, advising clients on business transformation and strategy.

Ian specializes on the impact of the Fourth Industrial Revolution and, in turn, its impact on the C-suite and society.

ABOUT IBM IBM is a leading cloud platform and AI solutions company. It is the largest technology and consulting employer in the world, with more than 380,000 employees, serving clients in 170 countries.

ABOUT IBM INSTITUTE FOR BUSINESS VALUE IBM Institute for Business Value, part of IBM Services, develops fact-based strategic insights for senior business executives.

Author: Ian Fletcher, IBM Institute for Business Value Director MEA

25

CFI.co Columnist

However, another dilemma appears here – elitism. Having our genome read may also open us up to risks of segmentation by gender and economic circumstances, influencing decisions on whether or not a company will insure you based on your lifestyle or family history. Moral and ethical questions come with this connected world we are entering.

who look beyond technological change to focus on the more consumable elements – ask how it can be accessed. A great example is Ayann Esmail, a 14-year-old entrepreneur who is the co-founder of Genis. He uses nanotechnology and quantum physics to significantly reduce the time and cost of gene sequencing. Genis allows an average person to sequence the genome, and to have access to personal medical treatments and bio-hacking tools. In 2008, the cost of extracting one genome was in the millions. Now it costs around $1,000.

> UNCTAD:

FDI Flows Fall Again in 2018

By James Zhan

Tax reforms in the United States caused foreign direct investment (FDI) flows to fall again in 2018 as North American firms repatriated earnings, mostly out of Europe.

P

reliminary data from UNCTAD show that the repatriation of earnings was one of the reasons for a 19% contraction in global FDI flows last year – to $1.2 trillion from $1.47 trillion in 2017, continuing the hefty retreat of the previous year, which marked a 23% drop. Developed countries hurt most as flows to these shores receded by 40%. At an estimated $451bn, flows to developed economies were at the lowest level since 2004, below the slumps seen in 2009 (at $652bn) and 2014 (at $595bn) (figure 1).

FDI flows to Europe declined by 73% decline in foreign investment with several countries registering sizeable divestments, bringing total flows to the continent to a meagre $100bn.

While M&A deal-making remained active – rising 23% by value – it was not enough to offset the outflow of investment caused by the repatriation of earnings by North American firms.

The effect from the tax changes may linger, as the US did not put a time cap on the tax advantage, and profits repatriated so far are still relatively small compared with the total accumulated profits overseas of United States multinational enterprises (MNEs). The removal of the provisions triggering tax liabilities upon repatriation might prolong lower, reinvested earnings by US firms in the future indefinitely, ushering in a period of structurally lower global FDI levels.

Transition economies

"The global outlook is for a correction in 2019, even as the fundamentals remain weak."

Before 2018, US FDI outflows were almost entirely accounted for by reinvested earnings as US multinationals refrained from bringing overseas earnings home to avoid tax liabilities.

The reforms that came into effect in January 2018 reduced those liabilities and firms duly started repatriating accumulated overseas profits.

In the first two quarters of 2018, reinvested earnings by US firms were less than $200bn, compared with $168bn in the same period in 2017, a net effect of $367bn. These negative flows resulted in the declines in global FDI flows, especially in Europe. The full extent of repatriations is likely to have been substantially larger as the effect on global FDI flows was mitigated by the fact that a large part of repatriations came from offshore entities and jurisdictions that are excluded from UNCTAD’s FDI statistics. Reinvested earnings did revert to a positive value of $42bn in the third quarter, but as indicated, this reversal is not expected to be maintained.

Developed economies

Developing economies

Developing countries were relatively unaffected by the US earnings repatriation, where FDI flows notched up by 3% to $694bn. This brought developing countries’ share of total global flows to 58%, and half of the top 10 recipients of FDI are now developing countries (figure 3).

The gloom from the decline in foreign investment masks some other positive features of last year’s FDI make-up, notably a rise of almost one-third (29%) in the value of announced greenfield projects, which are a productive form of investment and a gauge for future trends.

On a regional basis, European countries that are major host countries of US firms were most affected by the repatriations. Ireland and Switzerland, for instance, both saw net outflows of FDI last year (of -US$121bn and -US$141 bn, respectively).

Nevertheless, the completion of several M&A megadeals resulted in higher flows to the United Kingdom (up 20% to $122bn), the Netherlands (up 11% to $64bn) and Spain (where inflows trebled to $70bn).

Notable megadeals with a significant impact on FDI numbers included the acquisition of Sky (United Kingdom) by Comcast (United States) for $40bn, the acquisition of Spanish highway operator Albertis by a consortium comprising Atlantia (Italy), ACS (Spain) and Hochtief (Germany) for $23bn.

Cross-border M&As in the Netherlands more than doubled from $15bn to $39bn. The estimate for FDI flows to Germany shows a decline (down 59%

$44

World total

-8%

2500

2000

$694

1500

+3%

1000

500

0

58% 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Figure 1.

26

CFI.co | Capital Finance International

2017

2018*

$1.2 tn $451 -19%

-40%

Spring 2019 Issue

to $12bn), but it does not yet take into account FDI flows that will result from the merger between the chemical group Linde (Germany) and Praxair (United States). Cross-border M&A sales of French assets halved to $20bn, lowering FDI flows to the country (down by 42% to $28.9bn) (figure 2).

Foreign investment in the US also fell, by 18%, mainly because US assets featured less prominently among M&A megadeals completed in 2018. In 2016 and 2017, US assets featured in 12 of the 20 largest deals completed – but only in six in 2018, of which one was a divestment. Net M&A sales of United States assets declined by a third to $201bn. Those in Canada increased from a net divestment position in 2017 to $38bn. FDI flows to other developed countries rose by 17% to $88bn. Completions of cross-border M&A deals in Australia and Japan contributed to an increase in flows by 39% to $61.5bn and 18% to $12.4bn respectively.

Figure 2: FDI inflows, by region, 2017-2018* (billions of dollars). Source: UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics).

Developing Asia saw investment rise by 5% to $502bn with East and South-East Asia – the largest investment host region – accounting for one-third of all FDI, and receiving most of the investment growth in developing countries. In East Asia, flows to China (including Hong Kong) held steady at $142bn (+3%) and $112bn respectively – the former attracting investment in manufacturing while the latter attracted money to the services sector. The main FDI growth engine was South-East Asia, where flows rose for the third consecutive year to a new peak (up 11% to $145bn). Most of the growth was driven by Singapore ($77bn) thanks to a 94% jump in M&As. But other major recipients in the region also continued to attract sizeable FDI inflows. Indonesia received $21bn; flows to Thailand rose 60% to $11bn, and greenfield projects in the region doubled to $140bn. FDI to South Asia rebounded from a dip in 2017 to $56bn (+8%) on the back of a 7% rise in India ($43bn) and record flows to Bangladesh ($3bn) and Sri Lanka ($2bn). Flows to West Asia were flat at $26bn. Turkey attracted the largest share of FDI flows (about $11bn, a similar level to the previous year).

Figure 3: FDI inflows - top 10 ost economies, 2017 and 2018* (billions of dollars). Source: [as figure 2, above]

Latin America and the Caribbean experienced a net outflow (-4%, to $149bn), against the backdrop of slow economic recovery in the

Table 1: FDI inflows, cross-border M&As and announced greenfield projects, by region, 2017–2018 (billions of US dollars).

CFI.co | Capital Finance International

27

region. In South America, FDI declined by some 6% dragged down by lower flows to Brazil and Colombia. The challenging economic situation and election-related uncertainty deterred foreign investors in Brazil, where flows declined by 12% to $59bn. Despite currency turbulence, flows to Argentina were buoyed by a mega deal in the media industry, where Telecom Argentina (ultimately owned

by United States-based Fintech Advisory Inc) bought Cablevision SA for almost $6bn. Flows into Chile and Peru rose by 31% and 23%, respectively, sustained by higher copper prices, greenfield project announcements and M&As in mining and services industries.

Africa saw FDI flows rise by 6%, to $40bn, albeit with most of that growth accruing to only few countries. The big, diversified economies of Egypt and South Africa were the biggest gainers – the former receiving flows of $7.9bn (up 7% from the previous $7.4bn), while South Africa saw flows rise more than fivefold to $7.1bn from $1.3bn after a steep slump the previous year. By contrast, Africa’s two largest oil producers saw fortunes reversed: Angola saw net outflows of $5.1bn and FDI in Nigeria slumped by 36%, to $2.2bn, as Ghana overtook the oil producer as top investment host in West Africa.

The global outlook is for a correction in 2019, even as the fundamentals remain weak. The greenfield project announcements bode well, although the increase was almost entirely in developing regions, and even there will accrue mostly to East and South-East Asia. A number of risk factors temper expectations, however, notably the deteriorating macroeconomic environment. Most recent forecasts are pessimistic about the outlook for the global economy. Financing conditions are tightening, industrial production in major economies is readying to shift down a gear, and trade tensions could intensify.

FDI growth has been endemically anemic since the global financial crisis, and on a downward trajectory since 2013, in the face of policy factors and the return of protectionist tendencies. The digital economy has prompted a shift towards intangibles in international production, while a foreign direct investment returns have declined significantly over the past five years. The medium-term prospects will be affected by these structural factors. i ABOUT THE AUTHOR James X Zhan is senior director of investment and enterprise at the United Nations Conference on Trade and Development and lead editor of the World Investment Report.

28

> Tor Svensson, Chairman CFI.co

Commercial Real Estate: Attractive Investment Opportunities in Europe The slow growth eurozone is maintaining low and negative rates, which makes German commercial real estate stand out.

I

n this low- and negative-interest rate environment, commercial real estate in Europe represents an attractive opportunity for institutional investors.

“Commercial real estate in Europe is now super attractive,” says real estate expert Mike Smith, from Firstchoicespain.com.

Quantitative Easing by the European Central Bank has pumped-up real asset values, and those of commercial real estate, on the continent.

Historically, the USA and the UK have been the world’s leading recipients of international real estate investments. Now factors such as their political climate and currency outlook, as well as the desire for diversification and expanded exposure to the euro have some investors giving Europe’s commercial market more than a second look.

Europe’s truncated interest rates make yields hard to come by. Deposits with the central banks in Frankfurt, Zurich and Copenhagen all have negative interest rates – and thus, they charge for holding cash. In Germany, government bonds – and even some corporate notes – have negative rates. Across Europe, bank deposits after fees and charges are often also in negative territory – even with credit risk accepted.

Retail: Trend in initial rental yield. Net initial yield in central retail locations in %.

What is a poor institutional investor to do?

CFI.co Columnist

An institutional investor in this context means an asset manager of a pension fund, a sovereign wealth fund, a family office, or corporate investors with more than, say, €25+ million available in liquid cash.

Commercial real estate is any non-residential property that is exclusively used for business activity for profit-making purposes. The commercial market has a variety of sub-sectors, which includes retail (stores and malls), office space, warehouses, and supply-chain logistics centres. Industrial real estate (used for manufacturing) as well as hospitality (hotels and resorts) are also considered sub-sectors of commercial real estate.

In retail, agility and innovation remains key.

In the words of Colliers International, the commercial real estate brokers: “In Europe, the retail sector continues to evolve rapidly, as a 30

Office: Trend in initial rental yield. Net initial rentals in central office locations in %.

Figure 1. Explanation: net initial yields for office/retail properties are calculated from the net annual rent and total purchase price including additional costs. Top 7: Index of top locations Berlin, Dusseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart. Regional 12: Index of

regional centres Augsburg, Bremen, Darmstadt, Dresden, Essen, Hannover, Karlsruhe, Leipzig, Mainz, Mannheim, Munster and Nuremberg.

multitude of factors contribute to the decline of some retailers, yet the success of others.”

Elsewhere in this issue of CFI.co, David Casas Alarcón, from CBRE Group, describes across CFI.co | Capital Finance International

sub-segments the generally strong commercial real estate market in Europe today. Growth and value-creation opportunities remain, and he highlights some in the alternative sector, such as student housing, healthcare and leisure.

Spring 2019 Issue

Figure 2: Bond yields picking up again in the USA, while bunds are only just edging above zero.

Yields of bunds and us government bonds in %. Source: Datastream, OECD.

Spain the low risk yields are only slightly above than those in Germany.

Other countries also benefit from innovation and market changes. New low-cost destinations such as Poland are experiencing significant growth for corporate outsourcing solutions. Luxembourg, benefits from top location, low taxes and an attractive lifestyle. Europe is full of pockets of value-creation for agile investors.

Despite some economic headwind in Germany, the country remains on-course for growth.

“Economic conditions for commercial real estate markets in the top German locations of Berlin, Cologne, Dusseldorf, Frankfurt, Hamburg, Munich and Stuttgart could scarcely be better,” says DZ Hyp.

The office sector in Germany is driven by strong employment and emigration. Many new companies opt to work in a “living room” atmosphere, with shared space. Says DZ Hyp bank in Germany: “Co-working is currently a hot topic in the office market. A few years ago, this was a virtually unknown concept.”

According to Savills, there are around 550 flexible work spaces in Germany, and the office market has hybrid working space and business centres professionally managed by international providers.

Commercial properties in Germany remain popular for investment purposes, and there is a supply shortage. DZ Hyp again: “First-class properties are rare, and generate only meagre yields, prompting investors to increasingly look outside prime locations and to focus more on properties which have weaknesses.”

For European property, the old adage “location, location, location” still holds true. Says Smith: “For commercial and industrial real estate, a location with access to infrastructure such as rail and road networks is vital.”

According to DZ Hyp: “German companies remain very calm in the face of international risks. The continuing, relatively wide, gap between positive assessment of current conditions – and more sceptical expectations – have often served as a warning sign in the past, and may be indicative of a forthcoming economic slowdown.

CFI.co | Capital Finance International

Rental yields (or cap rates) for prime commercial properties in the top seven German cities have fallen below 3% per annum (see figure 1). High demand has led to a steady decline in yields. “While prime office and retail properties were still generating initial rental yields of around 5% 10 years ago, the corresponding figure today is closer to 2%,” says DZ Hyp. This yield has to be taken in the context of German government bond (bunds): interest rates are negative for shorter maturities. A 10-year bund pays no interest. In addition, short rates have recently been frozen for the foreseeable future by the ECB (see figure 2).

Many institutional investors stay very riskaverse, and are not in search of excessive capital growth in a complicated global environment.

For those international investors seeking eurodenominated investments, safety, diversification and yield (however low), commercial real estate in countries such as Germany and the Netherlands still has much appeal. Low interest rates are poised to keep commercial real asset prices high, with the economy ticking over with non-spectacular growth. The eurozone is worse off than Germany, and forces rates to stay low.

This favourable climate keeps investor demand for German commercial real estate solid. i ABOUT THE AUTHOR Tor Svensson is the Chairman of Capital Finance International (CFI.co) and CFI.co Commercial Real Estate.

31

CFI.co Columnist

The continental European real estate market is often seen through the lenses of key dominating cities such as Paris and Amsterdam, and those of the main four cities in Germany. However, commercial opportunities are broader than that. The Nordics (Denmark, Norway, Sweden, Finland) and the Baltics (Estonia, Latvia, and Lithuania) offer better yield than Germany.

Spain’s economy is growing and offers eurodenominated real asset investments of quality – as well as special opportunities. However, in

The top German cities generally have no real “overhang” of properties. High demand, combined with a lack of stock, are driving up office rents – in particular, in Class A and Class B locations.

Current survey results nevertheless show that sentiment in German boardrooms remains positive – partly due to the fact that sectors which are very strongly geared to the domestic market remain extremely buoyant. First and foremost is the construction industry, where companies are struggling to keep up with orders”.

Seeking an Early Congress Victory:

BOLSONARO UNVEILS HIS

PENSION REFORM AGENDA

By Wim Romeijn

In Brazil, spending on pensions absorbs a third of federal tax revenues.

For close to 40 years, successive presidents have promised – and failed – to reform the country’s complex pension system. It combines welfare state generosity with pioneer-market funding, and represents a resilient leftover from the corporatist development model pursued from the late 1960s to the mid-1990s.

Cover Story

P

ension law, anchored in the country’s constitution and touching the interests of powerful lobby groups, is not easily amended. Previous governments have succeeded in pushing through a few, mostly cosmetic, changes to the system. The build-in largesse which allows most public sector workers to retire in their early 50s after paying-in to the system for just 30 years, was described as a ticking time bomb by the administration of former president Michel Temer.

“Reform either takes place in perfect order, or perfect disorder.

That is the only choice available.”

Temer’s administration last year organised a media campaign to explain to the population the inequities of a regime that enables people to work a little and retire early. Temer failed to rally the two-thirds majority in both houses of congress needed to overhaul the system.

shape in 2010, is set to inverse by 2060, as people live longer and the fertility rate declines.

In about 40 years, a third of Brazil’s population will be older than 65 – a demographic that grows by 3.5% each year.

The time bomb reference relates to Brazil’s aging population. The age pyramid, an almost perfect

The number of employed people increases by only 0.7% per year. According to a study by the

32

Antônio Delfim Netto

OECD (Organisation for Economic Co-operation and Development), pension pay-outs as a percentage of contributors’ salaries are on par with those in France (77%) and just a fraction behind Denmark’s (81%).

Numbers from the National Development Bank (BNDES) show that between 1988 and 2017, expenditure on pensions rose from 2.5% of GDP to 8.5%. A slowdown of the average economic growth rate, and a gradual – but significant – rise in the minimum wage contributed to the increase.

Originally created in the early 1950s as a way to promote greater equality, Brazil’s pension system is now seen to add to disconcerting levels of inequality. Statistics show the benefits awarded to the public sector represent a central problem. The deficit of the federal state pension scheme, which covers about a million retired

CFI.co | Capital Finance International

Spring 2019 Issue

Bolsonaro now has to push his reform package through congress, where his administration faces an uphill battle. That battle may yet turn out to be easier than the ones his predecessors faced.

Though lacking a majority in the Chamber of Deputies – home to a bewildering array of some 30 political parties – the informal, but so far surprisingly stable, bloc that supports the Bolsonaro Administration commands 302 seats – just six shy of the number needed to approve changes to the constitution.

There is a certain urgency, Guedes stressed, because the reform of the pension system is central to a wider push for fiscal consolidation, which aims to bridge the widening gap between revenues and expenditures.

As federal tax receipts dwindled to 29% of GDP, government spending ballooned to 39% of national income. Guedes explained that bigticket items were first on his to-do list; pension reform will be followed by an updating and simplification of the federal tax code, and the privatisation of state enterprises. Guedes aims high. “If I propose to sell 100 companies,” he said, “congress may eventually approve the sale of perhaps 25.”

Guedes’ ultimate aim is to re-establish the fiscal stability that is needed to restore investor confidence, return to a path of sustained growth, and create jobs. On pension reform, Jair Bolsonaro is not in a mood for compromise.

He warned Brazilians in February that they must work longer before receiving a pension.

Bolsonaro, a member of congress for 27 years, consistently voted against pension reform. He now deplores his voting record. “After things were properly explained,” he admitted, “I can now see that I was wrong.”

Although Bolsonaro’s administration was off to a slow start, the core of his cabinet has been working behind the scenes to lay the groundwork for a number of free-market liberalisations to pull Brazil out of the economic doldrums.

President: Jair Bolsonaro

public servants, is significantly larger than that faced by the general pension system, which serves 33 million retired private sector workers.

The current administration of President Jair Bolsonaro has rather bravely placed pension

Economy Minister Paulo Guedes said the aim was to save up to $345bn in expenditure on pensions over the next decade. Guedes admitted that the military would be exempted from the new rules, with its pension entitlements untouched.

CFI.co | Capital Finance International

The presence of generals at the top table turned out to be less awkward than anticipated. Most of Bolsonaro’s military appointees have exercised a moderating influence on the cabinet, steering clear of political controversy, and appealing to reason rather than emotion.

The technocrats, led by Guedes, are free to apply their touch – while Bolsonaro trusts that the political inertia following his election will see the reform package sail unscathed through congress. i 33

Cover Story

Former finance minister Antônio Delfim Netto, who first tabled pension reform in 1982, warns that reform may be slow in coming but will eventually arrive by force of logic – and numbers.

“Reform either takes place in perfect order, or perfect disorder,” he said. “That is the only choice available.”

reform at the core of its policy platform. New legislation was prepared in secret to avoid public pressure before the plans were ready. That moment came towards the end of February, when it was announced that retirement age was to be raised to 65 for men and 62 for women – with a 12-year transition period.

The cabinet comprises three tribes: technocrats, ideologues, and military brass. Though the ideologues were central to getting Bolsonaro elected, the group has suffered from in-fighting, and has lost most of its lustre.

> Paulo Guedes and Privatisation:

Unwilling to Exclude Any of Brazil’s Crown Jewels

Cover Story

B

razil’s all-powerful minister of economy Paulo Guedes (69) is looking south for inspiration.

Guedes has long mulled a Pinochetstyle approach to economic management. He is determined to introduce a set of contemporary monetarist policies similar to those that, he says, saved Chile from bankruptcy some 40-odd years ago – after a disastrous flirtation with socialism, not unlike Brazil’s own dalliance with leftist policies.

34

Just as his boss, President Jair Bolsonaro, often seems enamoured with a bygone era when military leaders stepped-in to save the day, Guedes looks back to the heydays of the “Chicago Boys” and the monetarism which set Chile on a path to sustained growth.

Guedes should know: in the early 1980s, he held a professorship at the Universidad de Chile.

However, he returned to Brazil in 1983 after seeing the monetarist policies suggested by Milton Friedman’s Chicago Boys fail a year earlier.

Chile’s economy imploded and the country’s GDP retreated by over 14% in a 12-month period.

Friedman, winner of the 1976 Nobel memorial Prize in Economic Sciences, has since argued that the Chilean government’s decision to peg the peso to the dollar caused the downturn.

The professor, now 97, denies ever suggesting such a currency peg. The quickly overvalued local currency drove investors away and boosted consumption, which resulted in a current account deficit and ballooning external debt.

CFI.co | Capital Finance International

Spring 2019 Issue

Three decades later, Guedes remembers the lessons and the pitfalls. Fiscal deficit needs to be bridged, and debt brought down.

Market-watchers agree that with Guedes at the helm, there is little chance of muddling along. There is an irascible side to Brazil economic tsar that may well help him implement his more radical policy initiatives, such as the privatisation of some – or all – of the country’s 147 state enterprises. Guedes repeatedly emphasises that he is unwilling to exclude any of Brazil’s crown jewels. “There are no holy cows.”

This is where he may clash with Bolsonaro – and a few generals as well. Bolsonaro, a dyed-in-the-wool nationalist, will not easily be persuaded to let go of iconic state-owned corporate behemoths such as oil producer Petrobras, power generator Eletrobras, or financial services provider Banco do Brasil.

These companies are widely considered of strategic importance to the development of the country, and sit at the core of a wider and ongoing nation-building exercise which started in the early 1960s.

Interestingly, the seven military men with a seat in the cabinet have so far remained silent on Guedes’ intention to shed prized possessions. Instead of rallying to the nationalist cause, the uniformed cabinet brigade has kept to the middle of the road, refusing to engage with the more politically active members of the Bolsonaro administration.

Perhaps they are aware that Guedes, if obstructed, may field the most awesome of weapons at his disposal: the threat of resignation, which could send markets into a tailspin. Much like the pension reform legislation he tabled, Guedes’ privatisation drive seeks to re-establish the long-term fiscal equilibrium that is needed for a path of sustained growth – as opposed to the boomand-bust rollercoaster ride which is Brazil’s “normal”.

Minister of Economy: Paulo Guedes

Fully and firmly in control of the Brazilian economy, Guedes inspires confidence among local and global investors. Since Bolsonaro’s inauguration in January, the Ibovespa stock market index has jumped by about 10%, reaching an all-time high of 98,588 in early CFI.co | Capital Finance International

In the first days of March, markets went into a holding pattern in order to gauge the mood in congress after the government unveiled its pension reform plan. Guedes insists that his initiative be approved largely as-is to put the country’s finances on a sustainable footing.

Slowly, the contours are emerging of a possible clash between Bolsonaro, who keeps his eye on his popularity ratings, and Guedes, who abhors the idea of disappointing investors with a watered-down reform package that ultimately may impose social pain without much financial gain.

Guedes wishes to emulate the Chilean experience with privately-managed pension funds providing depth and liquidity to the local capital market, enabling these to domestically generate the resources needed for sustained growth. Guedes repeatedly points out that during almost 30 years, the Chilean economy expanded at an average annual rate bordering 6%. This awarded the country a per-capita income nearly twice as high as Brazil’s. According to Guedes, Chile’s success in creating a domestic source of investment capital proved the single-most important factor in the growth of its economy.

Whilst Guedes’ proposed solutions to address Brazil’s multiple deficits are well reasoned and founded in a proper understanding of the country’s complex economic dynamics, congressional approval and subsequent implementation are dependent on political considerations that stretch beyond his remit.

Some of Bolsonaro’s core constituencies have already expressed their disappointment with Guedes approach. A relative newcomer to Brasília’s often hectic and confusing political scene, Guedes remains first and foremost a technician. A successful banker, respected professor of economics, and a widely-read columnist, Paulo Guedes is, in fact, a political neophyte.

The trouble is that solutions to Brazil’s economic woes have never been all that difficult to produce. It is their implementation that has proved complicated. Bolsonaro’s predecessors often decided to kick the proverbial can down the road. Guedes argues that Brazil is running out of road, and that congress needs to act.

With the economy fragile and growth anaemic, the minister has a point when he demands congress acquire a sense of urgency. To succeed, he must ram that point home and trust his president – a veteran of congressional power politics – to find the means. i 35

Cover Story

"The new normal that Guedes envisions includes an adherence to standards of excellence in economic governance."

The new normal that Guedes envisions includes an adherence to standards of excellence in economic governance. As luck would have it, Bolsonaro is not much interested in the economy – though he admits that business needs to thrive in order for the country to grow. Chile’s Augusto Pinochet also admitted to a lack of interest in economic affairs, and decided to outsource the management of the economy to the University of Chicago.

February before moderate profit-taking hit the market.

> It

May Have Been a Man’s World, but Women are Key to the Future

A debate in November with women MPs from around the world graced the Chamber of the UK House of Commons to celebrate achievements and to discuss the further empowerment of women internationally.

T

his historic event, which marked the 100th anniversary of the first women in Britain to stand for election to parliament, placed this important subject into sharp focus. It was a vivid demonstration of how elected women are shaping the political agenda for the future.

The power of the oratory that day, combined with sensitivities addressed, was such that the debate was one of the most inspirational I have witnessed in the Chamber. Contributions focused on four key areas of policy: ending violence against women, promoting the economic empowerment of women, championing voluntary access to family planning, and breaking barriers to equal access to education for girls.

Many issues emerged, including that of restrictions placed on the role of women in some societies. A common theme was that of violence against women. It was harrowing to hear, at first-hand, of the struggles faced by women standing for election, and of the violence that sometimes followed. Congresswoman Marisa Glave, of Peru, illustrated the level of political harassment in Peru: two out of five women in authority have suffered aggression.

CFI.co Columnist

It is evident that urgent legislative reforms are needed to protect women in the public realm from violence, and such reforms must be universally rolled out. Recently in the United Kingdom, we have witnessed gross intimidation targeting Anna Soubry MP, a member of the UK parliament, and worse, the tragic death of Jo Cox MP. It was encouraging to learn of individual nationstates strengthening domestic legislation to combat the problem. The Istanbul Convention seeks the prevention of domestic violence, and has been ratified by 46 countries and the European Union. Oana Bîzgan MP, of Romania, spoke of her pride that “the first law in Romania that punishes harassment, especially street harassment, of women” passed into law. “This is an important achievement,” she noted. “For the first time, we have a clear punishment for the perpetrators.” Women’s ability to seek criminal redress for domestic and street violence should be high up on the legislative agendas of all countries.

36

"Through globalism and advances in technology, we are living in times of unparalleled change – and with this change comes the responsibility to tackle the issue of inequality for once and for all."

Overcoming the structural inequalities that exist within labour markets is a challenge which must be confronted by legislative bodies, with enhanced protections as the desired outcome.

Deputy Speaker Shiva Maya Tumbahangphe, of the House of Representatives, Nepal, made the point that “policy alone is not a solution to these issues; there must be a way of implementing policy”. Implementation hinges on legislatures’ ability to engage with stakeholders. The private sector has a significant role to play, and a responsibility to deliver. Over the past couple of decades, we have seen notable strides in the ratification of legislation to promote gender inclusion. Globally, however, there is a long way to go.

Much attention was given that day to the need for equal pay for equal work, and to the structural inequalities that exist within labour markets. Inequalities, such as remuneration for part-time work and the need for women to seek low-wage, often insecure professions – such as care work and hospitality – must be addressed through improvements to legislation. Better protection must be provided to women to ensure that they are not recruited into junior positions simply because of their gender. Opportunities for career progression must be protected during breaks for pregnancy and childcare.

A report by the World Bank found that 90% of 143 countries contained at least one legal discrepancy restricting women’s economic opportunities. These legal differences, and the familial, cultural and religious barriers faced by women, are depriving economies of growth and CFI.co | Capital Finance International

employment opportunities. The European Bank for Reconstruction and Development (EBRD) has made headway by working with several countries to remove the regulatory barriers that limit women from being economically active.

The economic activity of women must be viewed not just as a mechanism for social justice, but as the tool for reducing global poverty. A stronger role for women contributes to economic growth and therefore the strengthening of opportunities for women is central to sustainable development. This should start with a greater investment in better healthcare and improvements for access to education for women. As Heidi Nordby Lunde MP, from Norway, pointed out “the chain of good policies starts with the rule of law, to provide, protect and enforce necessary sexual and reproductive healthcare and rights”.

Throughout the world today, millions of women do not have access to basic healthcare, let alone voluntary family planning. Without these fundamentals, an equal playing field will never be created. All hopes for achieving the United Nation’s Sustainable Development Goal Five of Gender Equality will be lost.

Through globalism and advances in technology, we are living in times of unparalleled change – and with this change comes the responsibility to tackle the issue of inequality for once and for all. We must evaluate social attitudes and existing conventions if we are to encourage social change. With digital advances, it is now possible for businesses to offer more flexible solutions allowing women to take on entrepreneurship. It is these changes that must be promoted as best practice, and offered as an international standard.

Economic inclusion is the solution to global development, wealth creation and stability, but a fundamental change in implementation – and the coming together of the private and public sectors – are required if we are to achieve the complete economic empowerment of women.

The encouraging words of Tamara Adrian, Member of the National Assembly, Venezuela, reminds us of the struggle that – if we get it right – will fundamentally change our world for the better. “I feel profoundly that equality is a very powerful force,” she said. “At the end of

Spring 2019 Issue

the road, no matter what, I guess that equality will prevail.”

The sustainability of a market economy rests upon there being a solid foundation of inclusion. Opportunities for growth are missed by the limited potential for women to engage in business. The Boston Consulting Group has identified women as “the most underutilised asset in the world”. In 2019, when women comprise more than 50% of graduates, and make 80% of all purchasing decisions globally (OECD; Deloitte), we still face seeing fewer women-led businesses. The barriers of inadequate access to finance, and lack of access to managerial training, are a major global hinderance.

Globally, the private sector creates nine out of 10 jobs. The economic empowerment of women needs to be at the forefront of global business development strategy. The role of the private sector and the responsibilities of the public sector are central. We have entered a differing geopolitical and geo-economic world, and the importance of the public sector working with the private sector on inclusion is paramount.

International bodies, such as the United Nations, have a vital role to play in disaggregating gender data to equip policy makers with an accurate assessment of where actual gender gaps remain.

A markedly more appropriate representation in legislatures is a necessity. Lady Hale, a member of the UK Supreme Court, is calling for parity on the bench.

These challenges will only be resolved with a change in the mindset of decision makers.

Men have the responsibility to step-up to the task of ensuring co-operation to achieve these essential outcomes. Until that time when more men stand up for what is right, much will remain to be done. i Links Women MPs of the World debate: UK parliament (bit.ly/2tUYch0) International Women’s Day debate: House of Commons (bit.ly/2Tn1J73) International Women’s Day debate: House of Lords (bit.ly/2VPxPFv)

CFI.co Columnist

ABOUT THE AUTHOR Lord (JD) Waverley Member House of Lords, London

Founder SupplyFinder.com

jd@lordwaverley.com 37

> MIGA Exclusive Interview:

Business Priority to Work With All People Interview from February 2019, with Keiko Honda, Executive Vice-President and CEO of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). She spoke with Tor Svensson, Chairman of CFI.co.

CFI.co: You have been at the head of MIGA for almost six years. Is there a key lesson that this journey has taught you about making socioeconomic development impact?

Keiko Honda: There are two key lessons I’ve learned. First, private solutions, in addition to private finance, can add value in development for many cases. Private enterprises are typically more flexible and more nimble so they get off the ground quickly.

For example, I have seen private enterprises catch up on construction delays by identifying issues and fixing them quickly - this kind of agility can make a big difference. Private investors also know they need to cooperate with local communities, so they talk and work with them. We, of course, disclose our performance guidelines so investors know what is expected of them. The reason I emphasize this is that a lot of people expect that a product or project brings in money, but it’s not just about money. It’s also about the solutions investors can bring.

Second, what we are missing is not always money, but more investable projects. Private investors need to recover their investments – so, for example, tariffs should cover the cost for the projects that we ask private investors to work on. Of course, this is not unusual for the mobile phone industry, for example, but the power sector is more complicated. We should mainstream the upstream policy work MIGA has been doing with the World Bank. I see under the spirit of the World Bank Group that we understand the needs and concerns about affordability for the longer term, and also how we can leverage private investment.

This has been working well and we aim to do this more so that overseas development assistance is targeted at projects for which private investment cannot be leveraged.

CFI.co: In which sectors, and in which countries, is this shortfall of investable projects and available finance particularly clear?

Keiko Honda: I would say most middle to lowerincome countries don't have enough power, and around the world, about a billion people still do not have access to power. We’ve helped address 38

Executive Vice President & CEO: Keiko Honda

this in the last five-and-a-half years, helping at least 47 million people gain access to power through the projects that we are guaranteeing.

CFI.co: How has your background as an MBA from Wharton – as well as working for McKinsey and Bain – aided you at MIGA? Keiko Honda: At the World Bank, we have a lot of people that majored in development finance or economics, and many of them worked in development finance institutions. I, on the other hand, majored in finance at business school, which provides a foundation for working in development finance.

At MIGA I also draw on my experience from working with numerous firms, including CFI.co | Capital Finance International

insurance companies and private equity firms.

I analysed strategic options that I developed for clients at McKinsey, and the experience there helps me to have an understanding of what motivates and constrains them.

CFI.co: How critical are gender finance and inclusive finance for transformation, empowerment and development?

Keiko Honda: Research shows that leveraging all people, including women, helps expand economies. Therefore, it is a business priority to work with all people.

MIGA has instituted a Gender CEO Award, and this year's theme was Women Leading Climate Finance.

Spring 2019 Issue

The reason we began this award is that we want to raise awareness on gender equity. Therefore, among private investor clients, we try to identify individuals who contribute to increasing awareness on gender issues in developing countries. We have a Diversity and Inclusion team that works with the management team to identify great candidates.

CFI.co: SDG goal #9 includes bridging the digital divide. Could you give examples of how MIGA makes a difference?

Keiko Honda: It is important that all people have ways to access information, so bridging the digital divide is a high priority. Globally, a third of the population still does not have access to CFI.co | Capital Finance International

telecommunications. MIGA has been helping private investors roll out mobile and broadband networks in countries such as Central Africa, Indonesia, Sierra Leone and Mali.

CFI.co: We know from field research that when people get a mobile phone, it increases their productivity and professional standing. Suddenly 39

"Much research shows that leveraging all people, including women, helps the economy to expand. Therefore, it is a business priority to work with all people."

MIGA’s Support of Sustainable Development Goals: Core areas of expected development results, FY14-FY19H1. Source: MIGA.

40

CFI.co | Capital Finance International

Spring 2019 Issue

MIGA: SUPPORTING SDGs WITH HIGH-IMPACT POWER AND TELECOM INFRASTRUCTURE PROJECTS Investment guarantees are an essential instrument for driving investment into the SDGs. In the words of Keiko Honda, executive vice-president and CEO of the Multilateral Investment Guarantee Agency (MIGA), her organisation’s guarantees “help private sector projects access finance that would otherwise be unavailable to them, or help countries to obtain access to financing at lower rates for large amounts and longer tenures than governments typically are able to obtain on their own”.

MIGA has supported projects that have advanced the UN’s Sustainable Development Goals, providing power to more than 38 million people, creating an estimated 90,000 jobs, and reducing greenhouse gases (GHGs) by 3.2m metric tons (infographics - left).

As of the 2017 financial year, the organisation has issued $19.5 bn in guarantees in countries including Myanmar, Afghanistan, Senegal, Bangladesh and Zambia.

Governments need to learn more about what drives private investors and foreign direct investment. Governments could set appropriate tariffs or provide support to get projects off the ground. Honda believes that governments can do a lot to further FDI: “What we’re missing these days isn’t the money. What we’re missing is investable projects.”

One of the solutions is risk-sharing. Risk (actual and perceived) is one of the most crucial determinants for investors, so reducing it – and sharing it – is an important component to ensuring a project is attractive to the investment community.

MIGA’s underlying philosophy is to work with countries to ensure development goals are realised. The institution’s position can get high-risk projects off the ground by providing guarantees that deliver development impact.

“We know that mobile phones and telecommunications infrastructure is one of the highest-risk sectors in conflict countries,” Keiko Honda said. “Even though that risk is high, MIGA wants to continue working on these projects anyway, because we know just how vital that infrastructure is in delivering development outcomes.”

MIGA’s toolbox contains essential instruments to drive private investment in developing countries, in particular those with high risk and high socio-economic development impact.

By Tor Svensson, CFI.co

"A lot of the work we do on gender issues is not 'super central', but we definitely want to demonstrate that we care. Therefore, among private investor clients, we try to find somebody who is definitely contributing to the gender issue in developing countries." they can communicate, and they can get access to financial services. We all know how critical that is in today's age – and how poorer societies that do not have that access remain trapped in the digital divide, and stuck with its socio-economic consequences.

Keiko Honda: I agree.

CFI.co: MIGA’s efforts to bridge the digital divide are impressive. One of the lessons we have learned here at CFI.co, from working with emerging and frontier economies across the globe, is that frequently, you also need power.

Digital infrastructure without power is not exactly great – as the UN has also found. We have initiated an awards programme with multilaterals and the private sector on this topic, and one of the initiatives we have is a program where we identify champions that help bridge the digital divide. Would you say that's a worthwhile focus, and an important area for the sustainable development goals?

Keiko Honda: I agree, and I would say a lot of people can leapfrog development with the assistance of digital infrastructure. Second,

access to mobile phones improves productivity and gives flexibility on when and where to work.

I think in the near future people will start to have multiple jobs, and broadband communications infrastructure will be essential. i ABOUT KEIKO HONDA Keiko Honda is Executive Vice President and Chief Executive Officer of the Multilateral Investment Guarantee Agency (MIGA), the political risk insurance and credit enhancement arm of the World Bank Group. MIGA supports crossborder equity investors and lenders by providing coverage against currency inconvertibility and transfer restriction, expropriation, war and civil disturbance, breach of contract, and nonhonoring of financial obligations. Honda works to further the World Bank Group’s mission of ending extreme poverty and boosting shared prosperity. To that end, MIGA’s portfolio supports investments in regions where capital is most scarce. MIGA is now the leading political risk insurance provider in fragile and conflict affected countries. As part of a personal commitment to raising the visibility of female leaders, Honda launched MIGA’s first Gender CEO Award in 2016. The award acknowledges the achievements of a woman CFI.co | Capital Finance International

leader among MIGA’s clients, and showcases the importance of women in leading and spurring private sector activity in developing countries.

In a personal capacity, Honda is also a member of the Investments Committee of the United Nations. Previously, Honda was the first woman Senior Partner at McKinsey & Company in Asia.

During her 24 years at McKinsey, she supported financial institutions after several financial crises. Honda also served as a visiting associate professor at Hitotsubashi University Graduate School and as a professor at Waseda University Graduate School. Prior to that, Honda worked for Bain & Company, and Lehman Brothers. Honda holds a bachelor’s degree in consumer economics from Ochanomizu University and an MBA from the University of Pennsylvania’s Wharton School, where she was selected as a Fulbright Scholar.

41

> Spring 2019 Special

Empowerment & Entrepreneurship

G

littering skyscrapers housing luxury apartments and ultra-modern offices spring up from hi-tech oases across the United Arab Emirates. These days, many of the plush corner offices in those high-rise buildings are occupied by Emirati women.

The UAE is a young county, established in 1971, and it’s made rapid progress developing a mighty economy and the infrastructure to support it.

And the country’s strategic plan for female empowerment and the development of its human capital is gaining ground. Women have had a profound impact – in government, banking and business – on the success of the UAE in terms of its socio-economic advances.

Spring 2019 Special: Empowerment & Entrepreneurship

The UAE has become a modern global hub for commerce and culture, all while retaining its heritage of traditions. Women and men are granted equal constitutional rights in the UAE, and within the first few years of its inception, local women had united to give voice to their concerns in government-sanctioned organisations.

However, UAE leadership recognises that gender inequality still remains an issue, and it has developed a comprehensive plan to tackle it.

Although women remain under-represented in the workforce, the UAE has been making strides to correct the imbalance, and unlock the full potential of its people. Education is a cornerstone of the UAE Vision 2021 plan, which aims to sustain the country’s social and economic development and lead to a more diversified, sustainable and knowledge-based future. Emiratis understand that education is

42

the key to prosperity and stability; it is one of the pillars for development, recognised by the federation’s founding father, Sheikh Zayed bin Sultan Al Nahyan. He is credited with unifying the Emirates with ideals that continue to inspire the nation nearly half a century later. His vision was of a country, and a culture, that would serve as a model of tolerance and respect, sustainable growth and empowered communities. And he recognised women as crucial to that social progress.

Each year, the World Economic Forum (WEF) calculates Global Gender Gap scores in terms of economic participation and opportunity, educational attainment, health and survival, and political empowerment. The annual scores and country profile analyses help track the progress of gender parity in the nation and worldwide.

The UAE’s focus on education has placed it third in the rankings for the Middle East and Africa (MENA) region.

Emirati women comprise 70% of graduating students today, and female literacy rates stand at 96%. The UAE prioritises science, technology, engineering, and mathematics (STEM) studies, and nearly half of its STEM degree graduates are women. Young women are earning the government’s respect and recognition for advancing the sciences in fields ranging from artificial intelligence and robotics to nuclear energy and gene therapy.

Women’s empowerment and protection have long been a focus of UAE leadership, and the Emirates intends to leverage the momentum of that progress to galvanise further development. i

Spring 2019 Special: Empowerment & Entrepreneurship

43

> DR AISHA BINT BUTTI BIN BISHR SMART DUBAI DIRECTOR GENERAL Secure, Transparent, and Efficient: Key Words for Blockchain-Driven Smart City

Spring 2019 Special: Empowerment & Entrepreneurship

Blockchain may not hold all the answers, but Aisha Bint Butti Bin Bishr – the bold tech lady of Dubai – believes it could provide the bedrock of streamlined efficiency, transparent accountability and security that the Smart Cities of tomorrow will require.

Bin Bishr, director general of the Smart Dubai Office, heralds the disruptive tech behind cryptocurrency as the most direct path to solidifying Dubai’s reputation as the world’s benchmark Smart City.

“Blockchain has immense untapped potential for many different industries; ranging from healthcare to transportation to energy,” she says. “Dubai is the global leader in committing to adopt this transformational technology to ultimately improve the lives and happiness of its citizens.”

Blockchain’s record-keeping technology is the underlying source of security and accessibility that makes cryptocurrency so appealing. Blockchain technology knits blocks of digital information together in a chain of transparent, permanent, unalterable transactions, with each modification resulting in an additional link in the data chain. Bin Bishr aims to harness blockchain’s potential for intelligent urban planning and propel the city towards its objective: to become the first fully blockchain-powered Smart City in the world.

Dubai is surging towards its targets.

“Dubai has established itself, and in record time, as a global destination for innovators and entrepreneurs in the Blockchain industry,” she says. “Guided by the vision of our leadership, the emirate has become synonymous with bravely embracing avant-garde technologies and utilising them to create an advanced, connected, and seamless urban experience for its residents and visitors.”

“Beyond this, Dubai is also acting as a pioneering catalyst and collaboration platform to innovations in blockchain technology and its application.”

There are several strategies in place to ensure Dubai maintains its momentum and vanguard position in the tech revolution. The city recently completed the first phase of a blockchain-powered paperless initiative aimed at aligning government services to a more modern model of convenience and mobility. The six government entities that participated in phase one successfully reduced their paper usage by 57%. Smart Dubai plans to completely transfer the city’s government internal transactions and public services to digital platforms by the end of 2021.

Aisha Bint Butti Bin Bishr celebrates the milestone. “The full digital transformation and elimination of paper transactions by 2021 is now closer than ever. The results we’ve achieved so far demonstrate that the transition towards a paperless government will reflect positively on the government services offered to people in Dubai, improving their lives in the process.

This, in turn, brings us even closer to achieving our objective of making Dubai the happiest and smartest city in the world.”

The initiative promises to save residents, visitors, and the government hundreds of hours – not to mention more than 130,000 trees felled each year for paper pulp – which promise to boost the emirate’s competitiveness and stimulate economic growth.

To share the knowledge gained through Dubai’s tech transformation for the benefit of emerging Smart Cities worldwide, Smart Dubai has launched the Smart Cities Global Network. “At Smart Dubai, we firmly believe that embracing technology and embedding it in the very infrastructure of cities is at the core of smart city development. The Smart Dubai Office is extending its hand in partnership to all

individuals and entities that share our passion for emerging technologies and encourage the exchange of knowledge and skills.”

The collaborations and partnerships arising through the Smart Cities Global Network underpin Dubai’s claim as the global hub of Smart City research and development. “It cements Dubai’s global prestige, and the city’s soft power that comes with knowledge, further transforming the city into a laboratory for experimenting with and implementing bold pilot projects and breakthroughs,” said Bin Bishr.

To attract tech talent to Dubai, she has extended an invitation to compete in Smart Dubai’s Global Blockchain Challenge. “To build a truly smart city we must establish and empower a holistic blockchain ecosystem,” she says. This includes building the advanced infrastructure for the technology to thrive, attracting talent and empowering start-ups to implement their innovations.

For the challenge, 20 shortlisted startups pitch their ideas at the Future Blockchain Summit to claim cash prizes worth a total of $45,000 – and the chance to implement their ideas in Dubai.

"Dubai is the global leader in committing to adopt this transformational technology to ultimately improve the lives and happiness of its citizens."

44

CFI.co | Capital Finance International

Spring 2019 Issue

> REEM AL HASHIMY UAE MINISTER OF STATE FOR INTERNATIONAL CO-OPERATION Manifesting a Vision of Solidarity at All Levels

organisation committed to breaking the cycle of poverty through education — exemplifies the Emirati approach to gender empowerment.

“When I began working with Dubai Cares over a decade ago, we decided to strive to eliminate the underlying obstacles to girls’ primary education,” she said. “I cannot overstate the impact, on whole communities, of providing a safe and healthy environment for girls to learn. Investing in women’s and girls’ empowerment through education is one of the key indicators of a nation’s social and economic progress and development, and I am excited to see how we can promote this further through our recently attained alternate board seat on the Global Partnership for Education.”

Women participate in the country’s gender empowerment programmes as beneficiaries and as implementors. Through the UAE’s global health programs, for example, nearly 5,000 local female vaccinators in Pakistan are hired to administer polio vaccinations to community children, and their efforts have led to significant reductions in the contagion.

Al Hashimy believes universal healthcare

Spring 2019 Special: Empowerment & Entrepreneurship

Last year marked the centenary of the birthday of the UAE’s founding father, Sheikh Zayed bin Sultan Al Nayhan, a ruler who envisioned a future of unity and solidarity for his people.

He believed that investments in the population to improve welfare, expand knowledge, and enhance capabilities would deliver the greatest dividends for society as a whole.

His teachings have taken root in the heart of his people — and inspired them to take up the mantel of service and solidarity. Reem Al Hashimy, as Minister of State for International Co-operation, is striving to manifest the late ruler’s vision of solidarity at national and international levels.

“I’m proud that this powerful statement on human capital not only fuels our national priorities, but is an integral part of our international development work,” Al Hashimy wrote in an op-ed published in Vogue Arabia.

“I am also acutely aware of the advantages that my fellow countrymen and I have as a direct result of Sheikh Zayed’s vision, with all the related benefits of stability, good healthcare, and education.

“That is why I believe that, if we are to accomplish the goals of poverty eradication set out in Agenda 2030, we must work together to make sure that all children have a fair start in life, with the opportunity to survive and thrive.

It is the only way to break down the barriers that perpetuate the cycle of poverty.”

Al Hashimy insists that obstacles that hinder a woman from contributing to her own social, economic, and cultural development will also hold back the development of society itself.

“The UAE is a testament to the advantages of promoting gender equality, as the country has benefitted enormously from making girls’ education and women’s empowerment a cornerstone of its own development; as of 2015, Emirati women represent around 40% of the local labour market, up from just 2% in 1975. This has not happened by good will alone, but is the result of strong leadership and legislation.”

As Minister of State for International Co-operation, Al Hashimy is dedicated to spreading Emirati goodwill beyond its borders by sharing the benefit of its experience and resources through its foreign aid work. “This is why women and girls’ empowerment is one of the three focus areas of the UAE Foreign Assistance Policy for 2017-2021,” she said.

Al Hashimy extends the kingdom’s altruism abroad through international aid initiatives and with support to its donor entities. Dubai Cares — the UAE-based global philanthropic

access to be a great equaliser and a crucial component of sustainable global development.

“Extending access to basic healthcare,” said Al Hashimy, “could free children of some of the world’s most devastating diseases, and give them the opportunity to grow up and contribute to society.”

Al Hashimy also serves as the chair of the UAE’s National Committee on Sustainable Development Goals (SDGs), and she’s on a factfinding mission to paint “an accurate picture of where we stand, broken down by gender”.

Through a partnership with the UAE, Stanford University, and the Bill & Melinda Gates Foundation, a ground-breaking study on gender norms and health was commissioned with a publish date anticipated for this year.

The study aims to draft a roadmap for realising SDG objectives by examining the links between gender norms, ill health, and poverty.

“Without being armed with the full facts in this way,” said Al Hashimy,” we will never know if we are making progress for men and women equally, or if there are unique barriers holding women back.”

"The UAE is a testament to the advantages of promoting gender equality."

CFI.co | Capital Finance International

45

> NOURA BINT MOHAMMED AL KAABI UAE MINISTER OF CULTURE AND KNOWLEDGE DEVELOPMENT UAE Inclusiveness and Internationalism Make for Thriving AI-Backed Creativity

Spring 2019 Special: Empowerment & Entrepreneurship

The founding father of the United Arab Emirates, the late Sheikh Zayed bin Sultan Al Nahyan, once referred to science and culture as the cornerstones of civilization, progress, and nation-building.

His strong leadership is a beacon that still guides the nation today. Throughout 2018, the country celebrated the late ruler’s 100th birth year with events and initiatives designed to promote the values that most defined his rule — tolerance, respect, openness, and unity.

As the UAE Minister of Culture and Knowledge Development, Noura bint Mohammed Al Kaabi ensures that the late founder’s tenets shine through in the initiatives under her patronage.

Al Kaabi oversees initiatives that enhance Emirati society, and advance the UAE Vision 2021 plan. “Our mission is to continue fostering an environment that values culture, exchange, and creativity,” she said. “To do so, we must follow in the footsteps of the late Sheikh Zayed, and celebrate the cultural diversity that this united nation stands for.”

The minister plans to reinvigorate awareness of the country’s rich diversity.

“We aim to stimulate the culture and arts sector by unleashing the creativity of talented individuals,” Al Kaabi said, “and introducing innovative national cadres that promote the cultural movement.”

Emirati cultural and creative industries fuel economic growth and enrich society, and the ministry is launching a study to track the arts’ contribution to the country’s GDP. Al Kaabi believes the industry’s vast potential and economic benefits will be maximised through advancements in technology, particularly in the fields of digitalisation and artificial intelligence (AI).

The ministry embraces technology, and the crucial role it will play in revolutionising industry. It has launched an electronic platform, titled the UAE Cultural Map, which provides detailed information about Emirati cultural facilities and events, and uses AI-derived data to help experts “decipher milestones to shape the future of Islamic arts”.

Al Kaabi sees the ministry as a bridge connecting the UAE government with a future as a global leader of AI-driven creativity and culture. “Although AI may disrupt some jobs, it will also impact job creation,” she says. Experts believe that by 2020, AI will create more than two million jobs worldwide.

To signal the UAE’s long-term commitment to this, the government has established

incentives to entice start-ups to develop AIdriven products and programmes. “Building the ecosystem to support this large paradigm shift requires the collaboration of all sectors,” Al Kaabi says, “as well as a ‘systems leadership’ approach to ensure technology develops alongside the cultural norms needed to guide it.

“A strong regulatory framework based on shared values of ethics and inclusivity is necessary to ensure that the next technological

wave lifts everyone with it, and builds strong, happy, and successful generations for decades to come.”

In addition to her duties as minister, Al Kaabi also serves as the chair of the media production house twofour54, as well as the Media Zone Authority – Abu Dhabi (MZA), the organisation which liaises with foreign businesses regarding their legal and regulatory obligations in the free zone.

"We must follow in the footsteps of the late Sheikh Zayed, and celebrate the cultural diversity that this united nation stands for."

46

CFI.co | Capital Finance International

Spring 2019 Issue

> DR AMINA AL RUSTAMANI BUSINESS LEADER Enjoy What You Do, and Success is Sure to Follow

Al Rustamani attributes the district’s success in large part to d3’s attractive legal framework. “What made these projects successful is two factors: the Dubai factor, and … the commitment of the government to make this a free zone, and really operate as a free zone.”

The facilitator was confident in her ability to steer the project towards a stylish and sustainable future, but she was surprised by the number of female fashion designers who have answered the call to creativity. “In our culture you would expect to find more male designers,” she says. “We have a few, very interesting, success stories of male UAE nationals as jewellery designers, and so on. However, I see here that the interest of female designers is much higher than expected. In any case, I always say that gender does not matter, it is

all about talent, and the right support for it to develop.”

Al Rustamani has had to work hard to earn the respect of her colleagues, most of whom are men. But the entrepreneur challenges the notion that Emirati women lack professional opportunities.

“There’s always this challenge to fit in and excel, but once you prove that you are competent, you will earn society’s respect,” she says. “I was exposed to different sectors where I used to be the only female in the room. The challenges we often hear about actually don’t have anything to do with the sector or the culture.

“It is all about believing in yourself and putting your efforts in to really move forward.

This is a piece of advice that applies to both males and females: enjoy what you do.”

"I always say that gender does not matter, it is all about talent."

CFI.co | Capital Finance International

47

Spring 2019 Special: Empowerment & Entrepreneurship

Champions of a hi-tech, innovation-led economy have played a crucial role in the establishment of the United Arab Emirates’ status as a premium business destination.

Champions like strategic business facilitator Amina Al Rustamani, a trailblazer who has shattered a few glass ceilings in her rise through the ranks. She stepped down from her position as Telcom Group CEO at the end of 2017, but not before she had cemented her flagship project, the Dubai Design District (d3), as a powerful incubator of creative enterprises.

The d3 project is the crown jewel of her contributions from the helm of the Telcom Group, and one that has proven a global draw for fashionistas and creatives.

Al Rustamani is dedicated to the sustainable growth and prosperity of her country and its economy. In alignment with UAE aspirations, she has overseen the creation of various industry-focused business communities.

“The UAE has set ambitious goals to strengthen its position as an innovation-led, knowledge-based economy,” she says, “and it’s our responsibility to support these goals by developing talented youth and inspiring creativity.”

Al Rustamani worked to transmute the objectives outlined in the UAE Vision 2021 plan into specific strategies for implementation.

The plan details areas of focus for sustainable growth including smart services, innovation, entrepreneurship, competitiveness, and economic diversification.

Al Rustamani has served as the chair of the Dubai Design and Fashion Council (DDFC) since its creation in 2014. The council was founded by royal decree to raise the profile of Dubai as a regional and global destination for design and fashion. The council aims to stimulate trade and tourism, develop local talent, and entice big-name brands to set up in Dubai.

Her shrewd business acumen has ensured the success of d3, with rental occupancy exceeding 90% at the end of 2018. Designed to be a rival to fashion hotspots such as New York, London, and Milan, the district has become an international hub of fashion and design. Haute couture brands are calling the d3 fashion oasis home.

Establishing the district as an international design hub was a thrilling prospect for Al Rustamani. “Every project has its own challenges and, to be honest, this sector has been something completely different for me,” she says. “But you really learn so much also from challenges, you learn how to reverse your thinking and look for efficiencies.”

> SHEIKHA FATIMA BINT MUBARAK WOMEN´S RIGHTS ACTIVIST / MOTHER OF THE UAE Emirati Advances Fuelled by Womens’ Empowerment

Spring 2019 Special: Empowerment & Entrepreneurship

There is much to celebrate in the living legacy of Sheikha Fatima bint Mubarak, a figure so revered in the United Arab Emirates that she is often referred to as the Mother of the Nation.

Mubarak is the widow of the UAE’s founding father, the late Sheikh Zayed bin Sultan Al Nahyan. He is remembered for the values upon which he built the nation — wisdom, respect, sustainability, and human development.

Mubarak is known as a champion of women’s empowerment in the UAE and beyond.

Zayed ruled the Emirates for nearly 40 years, laying the foundation for a strong, stable, and unified nation, and Fatima was there every step of the way, helping to shape a society that increasingly recognises and rewards women’s contributions.

From the beginning, she felt that women’s empowerment would be a spark for the entire society, and launched initiatives and organisations to that end. She founded the country’s first women’s assembly and union in the early 1970s to support female aspirations, and in the early 2000s she launched the Family Development Foundation and the Supreme Council For Motherhood And Childhood. She is also chair of the General Women's Union.

Fatima recalls the support the late Sheik gave her throughout his reign, and is pleased to see younger generations reaping the benefits.

She notes the high attendance of female students from grade school to university, proving that Emirati girls are serious about their studies and their futures.

“Now women have become ministers, members of the Federal National Council, engineers, physicians, diplomats, lawyers, judges, prosecutors, professors, lecturers, officers, pilots in air defence, investors, businesswomen and other positions in which they have proved their capacity and efficiency in work and creativity, side-by-side with their male counterparts,” Fatima said.

The UAE’s dedication to the mission sets a high example for other members of the Middle East and Africa (MENA) region. “Women have always been partners to men in contributing to the progress of nations,” she says. “Promoting their role and status in society is among the major drivers of social renaissance and development.

“We could even go as far as to say that the non-involvement of women represents backwardness in itself.

“The UAE is proud of the contributing role women play in its development. Emirati women are cognisant that preserving customs and

traditions facilitates, rather than hinders, their empowerment in the different work fields.”

Mubarak strives to ensure that working women have the support they need to juggle the responsibilities of running a business and raising a family. She takes pride in the proliferation of UAE social departments and initiatives offering protection and support, including family legal guidance and shelters for victims of human trafficking. Her philanthropic activism continues to lead her abroad on diplomatic missions of aid, and her Global Humanitarian Campaign this year was launched with the aim of "following the footsteps of Zayed”.

As an active supporter of the Fund For Refugee Women, she recently donated $1m (Dh3.67m) in national foreign aid to the organisation. "The UAE leadership continues to step-up its efforts to ensure the stability of

displaced persons and refugees, with the aim to return to their homeland feeling safe and secure." The UAE's refugee aid policy “reflects the values of tolerance, love, and brotherhood between peoples” exemplified by her late husband.

The UAE continues to prioritise women’s empowerment as a crucial engine of the nation’s sustainable development. There is new legislation to address the gender pay-gap, and resources to enhance women’s leadership opportunities. Fuelled by the far-sighted vision and tireless efforts of women like Sheikha Fatima bint Mubarak, the Emirates has made significant strides.

These efforts further the development of the population as a whole as it moves ahead with an innovation-driven ecosystem and a knowledgebased economy.

"The UAE is proud of the contributing role women play in its development. Emirati women are cognisant that preserving customs and traditions facilitates, rather than hinders, their empowerment in the different work fields."

48

CFI.co | Capital Finance International

Spring 2019 Issue

> FATIMA AL JABER AL JABER GROUP COO UAE ‘Superhero’ Flies High, but Keeps Her Feet on the Ground

in government, she can find a job. If she wants to study, there are all sorts of education venues and places to study. The choices are all there.”

Al Jaber is grateful that her family encouraged her to pursue her dreams, and taught her about the transformative power of education. Influenced by the construction projects developed by the family business, Al Jaber pursued a degree in architectural engineering which opened the door to a career in the Abu Dhabi municipal government.

As she advanced through the ranks, she pondered her frequent status as sole female representative. “I often find myself in places where I am the only woman, and I always think to myself: Why is this still the case? I always encourage women to aim for places, even if

there aren't that many women there. One woman entering a male-dominated space will open the way for many more to follow, because they will be inspired by her dedication and success.”

Al Jaber believes collaboration is crucial to the realisation of the UAE’s empowerment goals, and she encourages women to establish a support network of mentors and advisors — male and female.

“I always say that men are not competitors, but friends and people who you can talk to, and ask for help. Some of the best ideas come from simply talking and brainstorming.

“I encourage young women and men to pursue their dreams together. Our visionary leaders have created an environment in the UAE where both can do so.”

"I often find myself in places where I am the only woman, and I always think to myself: Why is this still the case? I always encourage women to aim for places, even if there aren't that many women there."

CFI.co | Capital Finance International

49

Spring 2019 Special: Empowerment & Entrepreneurship

She may not wear a cape, but Fatima Al Jaber merits superhero status. The Emirati entrepreneur’s life is a finely tuned juggling act, a delicate balance between professional ambition and family dedication.

Al Jaber is Chief Operating Officer of her family’s construction conglomerate, the Al Jaber Group, the largest private sector employer in the United Arab Emirates. She’s a tireless advocate for gender equality, and spearheads initiatives for women’s empowerment — all the while fulfilling the duties of her traditional role as a wife and mother of five children. She oversees more than $5m in assets and more than 50,000 employees, and serves on the board of the Abu Dhabi Chamber of Commerce – the first Emirati woman to be elected to the position.

Striking the right balance is no simple task, says Al Jaber. “It is not easy. You need a superwoman to do this. It’s not really comfortable; sometimes you really have to be cruel to yourself – and your child, too.”

This is an especially difficult challenge for Middle Eastern women entering the workforce, as conservative religious principles dictate that women’s foremost responsibility is that of wife and mother. “You want to have a good family.

You cannot just let it go,” says Al Jaber. “You have to really juggle between these things.”

But she encourages women with entrepreneurial drive to pursue their dreams, despite the challenges. “Challenges create determination in our life — for me. I enjoy working in environments like this, because this is really when you can make things happen.

“Maybe because we are women, we always challenge ourselves to be better. It is in our nature. Always, women have to work harder than men in order to accomplish their goals. It is not because they are not able to do it, but it is the entire environment around them (that) is really challenging them to do so.”

In recent years, the UAE has rolled out programmes and initiatives to encourage female empowerment and enterprise, so younger generations of Emiratis won’t have to fight the same gender biases as their grandmothers.

Al Jaber is proud of the kingdom’s dedication to women’s empowerment, and encourages female entrepreneurs to seize the opportunities available to them.

“Everything is there; if a woman wants to start a business, she can. If she wants to work

> Europe

Increasing the Level of Difficulty: Slower Growth or Recession?

In 2018, Europe was preoccupied with politics: Brexit, the slow exit of Angela Merkel, the new Italian government, protests in France, GreeceMacedonia, the rise of populism, and of course Trump. In 2019, the economy will re-emerge as a key focus.

50

CFI.co | Capital Finance International

Spring 2019 Issue

CFI.co | Capital Finance International

51

W

ill growth continue to slow, or will the Euro Area fall into recession as global economic risks overtake it? Whatever the result, rather than being a distraction from politics, the economy will probably intensify the political challenges.

ECONOMIC GROWTH CONTINUES TO SLOW The Euro Area is heading for a second straight year of slowing economic growth. In 2017, GDP growth was at 2.4%, while 2018 is expected to be around 2%. In 2019, the IMF has forecast 1.9% (World Economic Outlook, Oct 2018), while the World Bank has forecast 1.6% in 2019, 1.5% in 2020, and 1.3% in 2021 (Global Economic Prospects, Jan 2019).

Some key countries will fare worse. Germany and Italy recorded negative growth in the third quarter of 2018, with notable decreases in industrial production. In contrast, EU members in Eastern Europe are experiencing strong growth.

Slower growth in the Euro Area is not in itself cause for concern. Despite the downward trend and negative growth in Germany and Italy, the forecasts represent continued solid economic growth. The underlying fundamentals are robust for most countries: inflation is under control, consumer spending is healthy, and Euro Area unemployment is at 10-year lows. The Euro Area looks set to add to the five straight years of growth since 2014.

WILL GLOBAL RISKS PUSH EUROPE INTO RECESSION? Europe’s slowing growth must be seen in the context of increasing global risks to economic growth. These include the risk of a US recession, aggressive US trade policies, and the risks from further tightening by the US Federal Reserve. If any of these risks are realised, Europe, particularly the Euro Area, may fall into recession.

The US economy appears very strong with low inflation and a strong labour market, but the stock market correction from August 2018, and the flattening (and sometimes inverting) yield curve for US treasuries suggests that the US markets are predicting slower growth. Many market-watchers are spooked by the possibility of a recession in 2019 or 2020. A US recession may become a self-fulfilling prophecy.

US trade policies entered a new era in 2018 with the March tariff on steel and aluminium, renegotiation of NAFTA (now USMCA), and the trade skirmish with China. The US has demonstrated that it will play hard on trades issues, even with traditional allies such as Canada and Europe. The steel and aluminium tariffs have had a negative impact on European exports. More tariffs cannot be ruled out.

Europe also needs to be prepared for any collateral damage from a potential trade war between the US and China. Comments after 52

"Slower growth in the Euro Area is not in itself cause for concern. Despite the downward trend and negative growth in Germany and Italy, the forecasts represent continued solid economic growth." the G20 meeting in Buenos Aires gave hope of a resolution but subsequent reports suggest that negotiations will be complex, particularly as the US leverages a stronger hand with probable slower growth in China.

Another key global risk is continued monetary tightening by the US Federal Reserve in 2019, and the ensuing risk of financial contagion for, and from, emerging markets. Last year marked the long-feared end of cheap liquidity in emerging markets. As the US Federal Reserve tightened liquidity, countries like Argentina and Turkey were put into a tail-spin by markets.

Advanced economies, including those in the Euro Area, remain vigilant for any potential financial contagion from emerging markets. Fed chair Jerome Powell has since tried to tone down any hawkish sentiment, and will proceed with more care. The world will be watching the Fed even more closely in 2019.

WHAT CAN EUROPE DO? If any of these global risks are realised and the Euro Area falls toward recession, what can Europe do? The ECB and national policymakers appear to have few working levers to stimulate growth. The official ECB interest rate has been below zero since 2014, while the ECB capped Quantitative Easing at the end of 2018. The ECB’s rate would thus need to rely on tools at the margins such as a new round of Targeted Longer-Term Refinancing Operations (TLTROs): discounted multi-year loans to banks. Perhaps the ECB’s biggest remaining lever to mitigate any recession is to do nothing, refraining from raising interest rates in 2019.

Unlike 2007 and 2008, many European governments (including France, Italy, and Spain) have few fiscal buffers to deal with any potential recession in 2019 or 2020. Italy has a public debt to GDP ratio of 133%, Spain 98.8%, and France 97.7% (latest figures are from 2017).

Countries such as Germany and the Netherlands do have fiscal buffers, but they alone cannot mitigate a Euro Area-wide recession.

The lack of fiscal buffers will probably feed back into domestic political pressures and anti-EU rhetoric. In the event of a recession, countries with little fiscal space will be tempted to increase their fiscal spending beyond comfortable levels, CFI.co | Capital Finance International

which will incur the ire of the ECB, and the more fiscally conservative countries in the EU. Local leaders may then deflect this by stirring up antiEU sentiment – a familiar path. As the economy re-emerges as a key focus, the tensions between many governments, like the new government in Italy, and the EU will probably intensify.

NEED FOR PRODUCTIVITY GROWTH Beyond mitigating the next recession, what Europe (and all advanced economies) really need is a new wave of structural reforms to reignite productivity-led economic growth. This includes Labour market reforms to increase flexibility and participation, as well as productivity through better vocational education and technology.

In 2017, French President Emmanuel Macron introduced labour market reforms. These included changes to the funding of vocational education and the capping of awards for workplace disputes settled in court. These have already had a positive economic impact, according to many commentators, and will help France through any recession. Macron however has resisted German-style Hartz labour flexibility reforms (part of Schroder’s 2010 Agenda).

Hartz reform supporters claim that Germany’s economic growth in the 2000s was largely because of the reforms, which reduced unemployment benefits, removed incentives for early retirement, and increased labour-market flexibility. Opponents claim the reforms had little impact, and that Germany instead. benefitted from a boom in global economic growth (the opposite of current events).

Whatever its role in strengthening the German economy, the German electorate did not take kindly to the Hartz labour reforms. and replaced the Schroder-led SPD with the Merkel-led CDU. European governments face a similar challenge today. Economies need a new wave of structural reforms, but they are unlikely to be popular in the face of slowing growth. One of the key electionpromises of the new Italian government was the removal of labour market reforms by the previous government, designed to increase labour market flexibility. It seems that economic events are set to make European politics even more interesting in 2019. i

Spring 2019 Issue

> Toledo Capital AG:

Trust – You Can’t Buy It, But This Swiss Family Office Has Earned It For all the technological innovations in the world of finance, when high-networth individuals seek asset management and wealth planning, one factor never changes: it all comes down to trust.

A

nd while that is the bedrock of the relationship, in today’s international financial climate trust must be supported by a sturdy structure of regulation.

Uri Krausz is the founder and CEO of Zurichbased Toledo Capital AG. Toledo is a one stop shop, providing clients the world over with a comprehensive package of wealth management, family office services, and investment opportunities – all regulated according to the highest European standards (FINMA and AIFM).

Since the company’s inception, Toledo’s handpicked team has gained respect for facilitating wealth performance and stable returns.

Behind the sophisticated and complex wealth management skills lies a brilliant but downto-earth financier. Krausz, born and raised in Zurich, is intimately aware of the languages, culture and mentality of the Swiss banking system. He provides clients with Swiss precision, professionalism and level of service – as well as innovative solutions.

Krausz has extensive experience in the Swiss banking system, and has held high-level management positions in the UBS and Credit Suisse banks. It was when it became apparent that bank regulations prevented him from providing clients with certain financial services that he decided to open Toledo Capital AG in 2010.

Through this boutique, multi-family office for external financial management, he was able to provide clients with the holistic services he wasn’t previously able to offer.

of its clients, and with the best risk-to-return ratio.

And while banks have their own profit centres, a family office has no conflict of interest. That means that Krausz will never push specific products; he seeks the best investment, with no agenda other than to achieve the best wealth performance for each client.

Another advantage Toledo offers is consolidation of all accounts, for an overview of all investments, which allows for full and efficient diversification to reach targets.

Swiss banking has undergone a transformation since transparency laws came into effect, obliging banks to disclose clients’ information to their home countries. Switzerland continues to be the country of choice for banking and investment, thanks to the country’s political and economic stability, and its banks retain the cachet of being among the most secure in the World.

Toledo’s family office offers the added advantage of controlling hidden costs which – even in the Swiss precision banking culture – occur with annoying frequency. Toledo carefully examines all client correspondence for a complete, accurate, transparent and, most importantly, personal record of all transactions.

No less important is the trademark customer service. Unlike the banks, Toledo invests in the most advantageous manner for the total wealth

As a large-scale investor, Toledo procures bank fees for its custodian service that are significantly lower than average. i

CFI.co | Capital Finance International

53

> World Federation of Exchanges (WFE):

Encouraging Investment in Emerging Markets Hinges on Co-operative Effort

By Nandini Sukumar

Emerging market exchanges and policy makers are keen to encourage international investors, who play an important role in the development of emerging economies’ public markets.

I

nternational investors can provide additional capital, enhance liquidity, promote greater competitiveness and adherence to standards of corporate conduct, and help to balance local retail and institutional participation. World Bank data estimated the level of net international portfolio equity inflows into emerging markets between 2000 and 2017 to be more than $955bn.

Established in 1961, The World Federation of Exchanges (WFE) is the global industry association for exchanges and clearing houses.

Headquartered in London, it represents more than 250 market infrastructure providers, including standalone Central Counterparties (CCPs) that are not part of exchange groups.

Of our members, 37% are in Asia-Pacific, 43% in EMEA (Europe, Middle East and Africa) and 20% in the Americas. Nearly 70% of our members are located in emerging or frontier markets. Supporting the growth and development of these markets is a core strategic pillar and mandate of the WFE in a variety of forms, from conducting capacity building to leading business development workshops and undertaking marketleading research.

The WFE has an active Emerging Markets Working Group (EMWG) with 28 members, whose role is to develop relevant learning and information-sharing sessions for EM exchanges, and to propose EM-relevant research topics.

Since the establishment of the group in 2015, the WFE has published four emerging marketsfocused research reports, and this article focuses on the two most recent publications, from December 2018 and January 2019. These were interconnected reports on the relationship of international investors to emerging markets.

The WFE’s report Attracting International Investors To Emerging Markets – from December 2018 – identified the factors that seek to attract international portfolio investment into EM equities. The paper looked at foreign investment 54

"Exchanges and policy-makers can work together to ensure the creation of enabling investor environments that allow for the growth of different investor groups, which will, in turn, help emerging public markets thrive in the long-term." inflows to emerging equity markets, as well as foreign trading activity, and identified factors that are related to increases in both areas.

The report found that factors associated with increases in foreign investment inflows included: • Emerging market equity returns, with just a one-percentage point increase in domestic returns being associated with a $24.4m increase in monthly inflows; • Markets with higher corporate governance standards, with additional foreign inflows as high as $756m over the sample period; and • A country’s inclusion in the MSCI Index, the use of IFRS reporting, and requiring or encouraging English-language disclosure.

The report further discovered positive factors linked to higher levels of foreign trading activity, such as: • Larger and more liquid markets, with a onepercentage point increase in turnover velocity associated with a 1.3% increase in the value of foreign trading, and a 0.84% increase in the number of foreign trades; • Reduced trading fees; and • The introduction of market structure enhancements, such as the ability to short-sell and engage in securities lending and borrowing.

While the research observed a range of factors that benefit the development of emerging markets, it also outlined the factors that are associated with foreign investment outflows and CFI.co | Capital Finance International

can hinder the development of emerging market such as: • Emerging market volatility, suggesting that foreign capital tends to withdraw from emerging markets during periods of higher domestic market turmoil, consistent with the idea of a ‘flight to safety’; and • Explicit barriers to investment, such as the presence of restrictions on capital inflows, with markets imposing these restrictions seeing a reduction in inflows equal to $302 million over the sample period.

The report concluded with a number of actions that exchanges and policy-makers can take to enhance the attractiveness of their jurisdiction to foreign investors and traders. These include prioritising the adoption of high corporate governance standards, reducing or eliminating barriers to investment such as capital gains and dividends taxes, reducing or minimising costs of transacting in the market, and introducing market structure features, such as short-selling, and securities lending and borrowing.

A second, qualitative WFE report published in January 2019 entitled Investing In Emerging And Frontier Markets – An Investor Viewpoint followed on from the findings of December 2018’s quantitative paper. The second paper provided an understanding and analysis of the investor perspective by discussing what encourages, or discourages, international investors’ participation in emerging markets.

This report, written with the support of the European Bank for Reconstruction and Development (EBRD), aims to provide exchange operators, securities regulators and policy-makers with greater insight into the factors that drive investment decisions, as reported by investors.

Given the contribution that international investors make to emerging and frontier markets – providing capital to the local economy, participating in risk sharing, and helping to reduce price volatility – a better understanding of investor motivation is key.

Spring 2019 Issue

The key findings of the report were: • Financial returns are important, but the broader investment strategy will guide how they evaluate returns, and how they decide where to invest; • Smaller ‘frontier’ markets struggle to attract the same levels of attention as their emerging market counterparts; • Lack of certainty about ownership of shares would prevent investors from investing in a market; • Corporate governance (or lack thereof) was a particular challenge in emerging market investing, as was government interference, and, in some markets, the length of time it took to open investment accounts; • Liquidity was a concern, measured in different ways by different investors (e.g. at market level versus at individual stock level). Some investors required a minimum liquidity threshold to invest, whereas others adopted a long-term investment strategy; • The importance of market infrastructure features (including the presence of an electronic trading platform, ability to short-sell, presence of market-makers, and the ability to engage in securities lending and borrowing) varied across respondents. Notable exceptions were the existence of a delivery versus payment (DVP) settlement system, and the presence of global custodians; and • Environmental, social and governance (ESG) factors are important when evaluating investments. In some instances, poor ESG performance would deter investors, while others said they would engage with companies to look for improvement on relevant metrics.

The report concluded with recommendations for emerging market exchange operators and relevant regulators and policy-makers. These include: • Reducing the direct and indirect costs of investment (the time and effort required to open an investment account, and the costs of obtaining information); • Enhancing the corporate governance of listed firms and educating them about the relevance of ESG factors to their business, and by extension, investors; • Investing in market infrastructure enhancements to contribute to the improvement

of the market over time; and • Developing the local investor base, including strong, local asset managers.

The findings of these WFE reports reiterate just how important and interlinked international investors are to the development of EM economies. Exchanges and policy-makers can work together to ensure the creation of enabling investor environments that allow for the growth of different investor groups, which will, in turn, help emerging public markets thrive in the longterm. i ABOUT THE AUTHOR Nandini Sukumar is the Chief Executive Officer of the World Federation of Exchanges (WFE), the global association for exchanges and CCPs. The WFE represents more than 250 exchanges and clearing houses globally, educating stakeholders on the vital role played by market infrastructures in the real economy, and as a standard setter, finding the consensus on issues among the global membership. Sukumar is Vice Chair of IOSCO’s Affiliate Members Consultative Committee and Chair of the AMCC’s DLT Workstream.

Sukumar has been CEO of the WFE since March 2015. Prior to this, she served as Acting Chief Executive Officer from November 2014, having been recruited by the WFE Board as Chief Administrative Officer in May 2014 to run the Federation on a daily basis and work with its global network of members as a proponent of the benefits of fair, orderly, public markets. Sukumar came to the WFE after a 14-year career at Bloomberg where she created, grew and ran their coverage of market structure, exchanges and UK regulation.

ABOUT THE WORLD FEDERATION OF EXCHANGES (WFE) Established in 1961, the WFE is the global industry association for exchanges and clearing houses. Headquartered in London, it represents over 250 market infrastructure providers, including standalone CCPs that are not part of exchange groups. Of our members, 37% are in Asia-Pacific, 43% in EMEA and 20% in the Americas. WFE exchanges are home to nearly 48,000 listed companies, and the market capitalisation of these entities is over $70.2 trillion; around $95 trillion (EOB) in trading CFI.co | Capital Finance International

annually passes through the infrastructures WFE members safeguard (at end 2018).

The WFE is the definitive source for exchangetraded statistics, and publishes over 350 market data indicators. Its free statistics database stretches back more than 40 years, and provides information and insight into developments on global exchanges. The WFE works with standard-setters, policy makers, regulators and government organisations around the world to support and promote the development of fair, transparent, stable and efficient markets. The WFE shares regulatory authorities’ goals of ensuring the safety and soundness of the global financial system.

With extensive experience of developing and enforcing high standards of conduct, the WFE and its members support an orderly, secure, fair and transparent environment for investors; for companies that raise capital; and for all who deal with financial risk. We seek outcomes that maximise the common good, consumer confidence and economic growth. And we engage with policy makers and regulators in an open, collaborative way, reflecting the central, public role that exchanges and CCPs play in a globally integrated financial system.

Author: Nandini Sukumar

55

> Håvard Halland and Justin Yifu Lin:

Disrupting Multilateral Climate Finance

A

recent report by the United Nations Intergovernmental Panel on Climate Change (IPCC) warns that to avoid the direst consequences of global warming, societies must make social and economic changes on a scale with “no documented historic precedent.” As we have noted previously, only institutional investors – like pension funds, sovereign wealth funds, and insurance companies – hold enough financial firepower to address climate change.

However, to minimise risk, institutional investors generally prefer to allocate their capital to operational infrastructure that is already generating stable revenue - rather than to new projects. For the same reason, their investments are focused in advanced economies, which in recent decades have received more than 70% of private-sector investment in infrastructure. Climate change requires institutional investors to move beyond these limitations, for which they need help to mitigate the associated risks. This is why we believe the world needs a new global climate finance facility (GCFF), exclusively targeted at mobilising institutional investor capital, and designed to address the shortcomings of current multilateral initiatives.

Aside from several promising enterprises, governments and multilateral finance institutions (MFIs) are struggling to mobilise private capital at a scale relevant to climate change. Crucially, institutional investors have been largely absent from multilateral initiatives to mobilise private capital. There are several reasons for this. First, MFIs and institutional investors have different priorities. The activities of MFIs are based on member countries’ policy goals and client countries’ needs, and do not always reflect investor demand. By contrast, institutional investors are commercial actors beholden to pensioners and other stakeholders; they will not invest in projects that are deemed too risky or unlikely to yield adequate financial returns. To attract the interest of institutional investors, MFIs therefore need to offer terms that are competitive with those of the private asset management companies that institutional investors use. Moreover, many institutional investors are unfamiliar with infrastructure investment in general, let alone in emerging markets. MFIs must therefore also build capacity to address these investors’ concerns about engaging in unfamiliar sectors and regions.

56

Second, there is a disconnect between promoting private investment in low-income and fragile countries, and mobilising private capital for climate action in middle-income countries, where carbon emissions are far higher. Whereas green investments in the first group of countries may appeal mainly to a small set of specialised private investors and “impact investors,” larger sums of private capital, including from institutional investors, could be mobilised in the second group. At the moment, however, MFIs’ policies do not distinguish sufficiently between these two types of contexts, which require entirely different strategies, resources, and institutional structures.

Third, MFIs need to raise their presence on institutional investors’ collaborative platforms, take on more risk, strengthen partnerships with local strategic investment funds, and adjust their governance structures to conform with the corporate governance principles to which private investors are accustomed. According to a recent G20 report, MFIs also should also strengthen their capacity to mobilise equity investment.

Finally, with few exceptions, existing multilateral initiatives – such as the Green Climate Fund and the Clean Technology Fund – mobilise private capital at the project level, rather than at the portfolio level. But, because most institutional investors manage large amounts of capital with small investment teams, they typically do not have the capacity to invest directly in individual projects; they need a vehicle or fund to channel their investments.

In light of these challenges, investor control is the key to mobilising private capital for greeninfrastructure. Private investors are extremely hesitant to relinquish control to public entities, owing to fears that public bodies can be swayed by political influence and may not invest on commercial terms. To assuage these concerns, MFIs must emphasise the independence of the investment allocation process. One interesting model in that regard is that of India’s National Investment and Infrastructure Fund (NIIF), a $6 billion government-sponsored investment fund that has been highly successful at mobilising institutional investors’ capital.

The Indian government holds a fixed 49% minority share in the NIIF itself, and in the company that manages it, with private and institutional investors controlling the majority shares. The NIIF operates like a standard CFI.co | Capital Finance International

Spring 2019 Issue

commercial investment fund, and the government has only two representatives on the six-member board. The fund’s investment committee, which makes all investment decisions, is made up entirely of investment professionals, who like the NIIF’s staff are recruited mainly from the private sector.

These curbs on public-sector control are designed to free the NIIF from possible political influence, thereby reassuring investors that the fund operates on fully commercial terms within its policy-defined mandate.

To mobilise institutional investor capital for financing the fight against climate change, MFIs must start functioning more like private investment organisations, according to a recent paper by researchers at Stanford and Maastricht universities.

But large institutions change slowly, and the urgency of climate action requires disruptive changes, rather than incremental reforms. That is why a new GCFF, targeted at mobilising capital from institutional investors and modeled on the NIIF structure, may be an important part of the answer.

To be sure, while MFIs would be minority investors in the proposed GCFF, they would still play a key role in helping private investors assess risks in new contexts. MFIs would also need to share these risks, and supply technical support based on their expertise across a broad range of sectors and regions. Critically, to reassure MFIs that their AAA credit rating and preferred-creditor status would not be threatened, the GCFF’s budget would need to be “ring-fenced” from MFI budgets.

In general, MFIs inhabit a different world from the institutional investors whose capital they seek to mobilise. To attract enough private capital to advance climate-change solutions, MFIs must start to treat large institutional investors as their partners and clients. A new GCFF, with the right resources and high-level support, would help drive the required change. i ABOUT THE AUTHORS Håvard Halland is a visiting scholar at the Stanford Global Projects Center, Stanford University. His research focuses on strategic investment funds, sovereign wealth funds, development finance, and climate finance. He was previously a senior economist at the World Bank.

Justin Yifu Lin, former Chief Economist of the World Bank, is Dean of the Institute for New Structural Economics and the Institute of South-South Cooperation and Development, and Honorary Dean at the National School of Development, Peking University. His recent books include Going Beyond Aid: Development Cooperation for Structural Transformation and Beating the Odds: Jumpstarting Developing Countries.

57

> The Access Bank UK

More Than Banking: It’s All About the Customer Service For Go-Ahead Organisation The Access Bank UK believes in growing its business through the power of relationship-building.

T

he bank – a wholly-owned subsidiary of Access Bank PLC, a Nigerian Stock Exchange-listed company – understands, anticipates and meets client needs through its passion for building and strengthening long-term customer relationships.

It refuses to chase unsustainable yields as a route to growth.

The bank operates independently within the group and provides trade finance, commercial banking and asset management services for clients of Access Bank Group in their dealing with OECD (Organisation for Economic Co-operation and Development) markets. It supports a broader range of companies wishing to invest in, and trade with, Sub-Saharan African, MENA and Asian markets.

With the vision of becoming established as the world’s most respected African bank, it remains focused on delivering a tailored service through its commitment to personal, business and corporate relationships.

Like its parent, The Access Bank UK commits to developing a sustainable model for the environment in which it operates. This is displayed in the bank’s moderate appetite for risk.

The Access Bank UK is licenced and regulated by the UK’s Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), and its Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA). With offices in the UK, Dubai and Nigeria, the bank is able to deliver a wealth of expertise that significantly benefits customers in the MENA region, supported by its wide range of correspondent banks and the global trading partners.

Relationship-building has been at the heart of the bank’s vision since it was founded in 2008. It’s a policy that has enabled it to deliver strong and sustainable results. “The bank recorded across-the-board growth during 2018, a year which was also notable for our measured expansion into Sub-Saharan Africa,” said Jamie Simmonds, CEO and Managing Director, “where we celebrated a decade of continuous growth. We were also pleased to recoup the investment in our 58

Founding CEO & MD: Jamie Simmonds

CFI.co | Capital Finance International

Spring 2019 Issue

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

key Dubai operation, in only its second full year of operation.

“All of our strategic business units continued to perform well, with all posting double-digit income growth over the previous year. The importance of Dubai as a conduit to Nigeria and the rest of Africa was borne out by a 213% increase in income, to £2.1m.”

The bank’s trade finance operation continues to be its largest strategic business unit. “Income grew by 20% year-on-year to £23.7m,” said Simmonds, “of which £9.3m was accounted for by correspondent banking, representing annual growth of 45%. This is an exciting development

and supports our decision to expand this key service into other African countries, including Ghana, Kenya and, particularly, Tanzania.”

The bank has followed a number of key customers into these new territories, to support their plans to establish pan-African businesses. “This is a further measure of the solidity of the bank’s relationships with these customers, and of the trust they have shown in us.”

Operating income grew significantly to £53m, a year-on-year increase of 47%, and pre-tax profits once again grew – by 50%, to £33m.

“Our balance sheet grew by 36% year-on-year to £1.9bn, and our share capital increased to CFI.co | Capital Finance International

£197m, an increase of 26% year-on-year,” Simmonds says. “It was also pleasing to note that there was significant improvement across all of our key ratios.”

The Cost Income ratio ranks amongst the best for financial institutions operating in the bank’s markets – at 38% – against ongoing investment in staff, which grew by 15%. Pre-tax return on equity (RoE) rose to 18.3% from 16.6% in 2017.

Despite an increase in cost of funds, following an increase in LIBOR rates, the return on assets (RoA) for the bank grew modestly to 2.05% from 2%. “It is also pleasing to note that we had no non-performing loans (NPLs) on our lending book,” Simmonds added.

59

The relationship-based culture has given Access Bank UK a sustainable and flexible business model – and the platform to innovate and respond quickly to customer needs. “The bank’s growth has flowed naturally from the strength of dynamic customer relationships,” Simmonds said, “and the trust that comes from the continuity of delivery by the same team: year-in, year-out.

“It is a proven strategy to which we remain committed, and which underpins the bank’s operational philosophy.”

The Access Bank UK was awarded Confirming Bank status by the International Finance Corporation as part of its Global Trade Finance programme, strengthening its trade finance capabilities. It was the first Nigerian Bank in the UK to be appointed, as correspondent bank to the Central Bank of Nigeria, to undertake infrastructure work on behalf of the Nigerian government.

The Bank is led by a team of accomplished individuals determined to deliver superior financial solutions for businesses and individuals. It is firmly committed to diversity in the workforce; individual ownership is encouraged while fostering team spirit. The Access Bank UK continues to invest in the development and skills of its staff. This is borneout internally by the length of time staff spend with the bank, and externally by accreditation from Investors in People of Gold Standard.

Last year The Access Bank UK completed its transition in becoming a direct member of the UK payment-clearing system, Bacs (Bankers’ Automated Clearing Services), C&CCC (Cheque and Credit Clearing Company’s Image Clearing System) and Faster Payments. This is key indicator of growth within the bank.

Jamie Simmonds said it was “a great landmark for us”, enabling the bank to build a sustainable platform with direct entry into the UK paymentclearing system. “We have a clear commitment to strong customer service, and we anticipate and respond quickly to market needs with the right technology, products and services. Joining the UK payment-clearing system is a clear example of meeting the needs of our customers.”

The Access Bank UK has won the CFI.co award for Best Africa Trade Finance Bank for four consecutive years, in 2016, 2017, 2018 and 2019. Jamie Simmonds was awarded the CEO Award 2018 from Finance Monthly, and the bank was also awarded the Best African Trade Finance Bank 2018 award from International Finance.

These awards recognise The Access Bank UK’s central location and its compelling ability to assist investors and customers looking to invest or develop trade links from Asia through the Middle East to Sub-Saharan Africa. i 60

The Access Bank UK: offices in the heart of the City of London

Spring 2019 Issue

T HE HO M E OF C LU B - W OR K IN G

12 Hay Hill, Mayfair, London W1J 8NR T: +44 (0) 7952 6000 E: membership@12hayhill.com CFI.co | Capital Finance International

www.12hayhill.com

61

> Arca Fondi SGR:

Asset Management Taken to a New and Consistent Level

I

taly’s ARCA Fondi SGR it is an asset management company, owned by ARCA Holding SPA, and authorised also to manage individual portfolios of institutional clients.

by 12 popular banks. Shareholder structure is BPER Banca 32.8 %, Banca Popolare di Sondrio 21.1%, Banca Popolare di Vicenza L.C.A. 20 %, Veneto Banca L.C.A. 20%, and others 6.1%.

The company was born from the history and experience of ARCA SGR, founded in 1983

The distinctive feature is independence: none of the company shareholders has control.

62

CFI.co | Capital Finance International

Arca Fondi SGR is one of the leading independent asset management companies operating in Italy.

Asset under management are about €32bn. That is comprised of €25,8bn in mutual funds, market share 2.7%; €3.5bn ARCA Previdenza Open Pension Fund, market share 18,0% (market share percentage value at September 30, 2018);

Spring 2019 Issue

€0.7bn under management for institutional clients, and €1.9bn as Investment Manager at Sidera Funds SICAV (Société d'investissement à Capital Variable is a publicly traded open-end investment fund structure offered in Europe).

Institutional assets under management are assets held by pension funds (contractual and pre-existing), retirement funds, and foundations; by banks and large company portfolios; by insurance companies; and other mutual funds or

by SICAVS. GOVERNANCE ARCA Fondi SGR was one of the first companies to adopt the Protocollo di Autonomia (Protocol of Autonomy), aimed at the implementation of a sound and adequate company framework to manage the conflicts of interest in order to protect subscribers and to safeguard management decisions, drawn up by Assogestioni, the Italian association of asset managers.

Continuity and autonomy in operations and governance serve as a guarantee that the protection of the customer's interests will always be ARCA Fondi SGR's primary objective and priority.

BRAND RECOGNITION With one of the largest distribution networks in the Italian asset management industry and the long-standing presence of its brand in the marketplace, ARCA Fondi SGR is ranked by Italian investors as one most well-known asset managers in Italy.

Over time, the company has developed stronger ties with its customers. With a highly innovative product range and the introduction of multimanager solutions, ARCA Fondi SGR has succeeded in satisfying the changing needs of Italians investors, developing business with customers in various market sectors.

DISTRIBUTION NETWORK ARCA Fondi SGR counts on a widespread distribution network, one of the most important and extensive in Italy. This allows ARCA Fondi SGR to distribute its products across the entire country.

The distributor network is made up of more than 120 financial regulated institutions operating across more than 8,000 branches and on-line channels, with a team of independent financial advisors.

"With a highly innovative product range and the introduction of multi-manager solutions, ARCA Fondi SGR has succeeded in satisfying the changing needs of Italians investors, developing business with customers in various market sectors."

CFI.co | Capital Finance International

AWARDS In recent years ARCA Fondi SGR has received several awards for Italian mutual funds and pension funds, including CFI.co’s Best Emerging Markets Debt Manager (Europe) award in 2015, 2016, 2017 and 2018.

63

CEO and General Manager: Ugo Loser

ASSET GROWTH Acquisition of OPTIMA OICRs (Assets Under Management, or AUM, €927m); acquisition of Vegagest OICRs (AUM €540m) and BPVI OICRs (AUM €793m) and Institutional mandates (AUM €1.074m). The company has completed acquisition of Carige OICRs (AUM €3.260m), pension fund (AUM €422m) and investment advisory on segregated account.

This deal added a new distributor of ARCA products, Gruppo Banca Carige, with more than 600 branches in Italy.

ARCA Fondi SGR aims to create significant added-value for its customers on a continuous basis over time. It manages style-neutral portfolios, in order to deliver consistent, long64

term performance comparable to benchmark, both total return products, according to its risk-parity methodology.

ARCA Fondi SGR manages traditional products and mandates. The allocation involves the balancing of the investments between the different asset classes (defined by industry or geographic area). It also manages total return products and mandates. Regardless of the trend of the financial markets, these products, whose volatility is limited, are aimed at achieving a positive return over a pre-defined time horizon. Products employing the Multi-Strategy Multi-ManagerTM approach are also managed. These products incorporate innovative strategies not directly correlated to CFI.co | Capital Finance International

the trend of the traditional equity and bond markets.

Ugo Loser has been the CEO and general manager of ARCA Fondi SGR since 2011. He has a Degree in Economics and Social Sciences from the Bocconi University of Milan, and prior to joining ARCA he had experience in investment banking and management consulting. He was director at Finlabo SIM and Banknord SIM, a partner at Bain & Company Italy (promoting the practice of asset and risk management), and was a senior strategist for the European market of derivatives on fixed income at Paribas. Loser was also the executive director of Fixed Income Research at Goldman Sachs International, and is a member of the Executive Board of Assogestioni. i

Spring 2019 Issue

> At the Top of his Game:

Ali Hawa from Mansion Group Has His Values in Right Place Straight-talking, fearless and fair: with more than a decade at the frontline of one of the world’s most competitive businesses, Ali Hawa is a gaming industry veteran who’s worked his way to the top – and loves the view.

H

awa cut his teeth as a customer service agent at the Mansion Group.

Ten years later, he heads up the risk and compliance department. It’s a journey built on honesty, integrity, and a cliché so obvious it’s often ignored: the customer comes first.

“We always think of the client first,” says Hawa.

“I remember sitting at a management meeting and being disturbed by a staff member, raising a customer concern that called for my immediate attention. I would always deal with that matter first before returning to continue the meeting.

That’s how it should be.”

Hawa is on the money. In the ferociously competitive online gaming business, customer care is the key to success. These days, most operators offer an identical suite of games, more often than not sharing the same software platforms. With so little to differentiate the product, attracting and retaining clients is a subtle combination of the personal touch and added value.

Having worked in real estate and recruitment, Hawa started his career at Mansion as a customer service agent, dealing with client’s needs, complaints, and questions. It’s a challenging role that gave him a first-hand insight into the betting business. Clearly Hawa liked what he saw; moving upwards and onwards into a management role as a marketing supervisor. A few years later, he took the opportunity of a riskmanagement job, and is now a director at the company he loves.

“Here at Mansion, I have the good fortune and opportunity to work with a highly-skilled and talented team of professionals,” he says. “Last year, Mansion launched a new sports book.

Normally, a project like this would take at least 18 months to realise. The team here cracked it in a few months, all the time managing to stay on top of the day-to-day business. It was a fantastic effort from all involved.”

In recent years, the online gambling industry has been subject to an extraordinary level of

Director of Risk & Compliance: Ali Hawa

public scrutiny. Regulation, compliance, and political mores have turned Hawa’s role at Mansion into a delicate balancing act. It’s a challenging environment.

“We need to get the mix right. Critically, we must ensure our compliance is in place and second to none. We also have a responsibility to be competitive and fair. We need to offer our players the best possible customer experience in a secure environment.

“Regulators are constantly reviewing protection mechanisms for consumers. It’s something we hope they will continue to do on a consistent CFI.co | Capital Finance International

basis, providing guidance and feedback to the industry.”

Colleagues describe Hawa as honest, down-toearth, and laid back. For him, respect is a twoway street. “I have two rules for those working in my department: to be honest, and to treat everyone with respect.

“Even though I now have the director title, I will always sit and talk to an agent in exactly the same way as I would with the chief executive.

I do so with respect. It should be mutual. They know where they stand – and they know where I stand,” he says. i 65

> Mansion:

Strong Foundations

By Paul Cullen

F

or a Spurs fan, it was not a game to remember. The opening day of the 2006 – 2007 season. Away against Bolton Wanderers, Tottenham conceded two goals: a header from Kevin Davies and a stunning 43-yard strike from Ivan Campo, beating keeper Paul Robinson from well outside the box.

Tottenham were decidedly below-par.

The result, however, was not the day’s main talking point. For the many Spurs fans, who had 66

made the 191-mile journey from White Hart Lane to Bolton, the question was this: who is our new shirt sponsor and who or what exactly is Mansion?

In 2006, a relatively unknown gaming company called Mansion brokered a four-year shirt sponsorship deal, with Tottenham Hotspur Football Club. It would end up being a great season for both Spurs and Mansion. The club would rally: ultimately finishing fifth in the Premier League and securing the club’s second CFI.co | Capital Finance International

consecutive UEFA spot. For Mansion, it was the start of a journey: from post-Match of the Day pub talking point to a widely recognised, award winning, global gaming brand.

Let’s be honest: in 2003, Mansion crashed the party. Since 1997, the entrepreneurs, the originators, and the innovators had created the brave new world of online gambling. It was an insanely lucrative business, awash with invention and money.

Spring 2019 Issue

Mansion lumbered into the room. Eager to flex its muscle, the privately-owned business would fight its way to the top table.

Mansion initially launched two brands: MansionCasino and MansionPoker. In 2005, in partnership with the Fox Sports News network, it produced the Emmy Award-winning Poker Dome Challenge.

It was great television but MansionPoker never took off.

Next stop: football. This time, Mansion got it right. Its investors were happy to strike the necessary deals to gain a foothold in the betting business. They also had their sights set on penetrating the market; a high-end Premier League club would unlock these doors.

Although their numbers are not disclosed, the Mansion Group’s ongoing commitment to professional football sponsorship, and a legacy that includes clubs like Manchester City, Crystal Palace, and its current shirt sponsors Bournemouth, strongly suggests that top level football sponsorship was a punt that paid off.

Sixteen years later and the Mansion Group is in peak condition. It’s buff. It’s trim. It’s hench. The solid financial foundations, combined with a committed, canny, and cautious management team, have seen turnover double, with profits up 200% since 2016. A remarkable result in the current marketplace.

Coming from a financial background, CEO Karel Manasco, is proud to have steered the company in delivering such growth. “Being careful with our resources and learning how to maximise them, has allowed us to double our profits without impacting the service and ensuring we remain compliant,” he said.

Caution has been key to Mansion’s resilience and resurgence. In the past two years, the Gambling Commission has taken a sledgehammer to any online casino or sportsbook foolhardy enough to play fast and loose with customer safeguarding.

"Getting the balance right between marketing and customer management is a job, and a challenge, that I relish."

Ali Hawa

As recently as November 2018, three online casinos were hit with fines of £14 million, for failing to protect vulnerable gamblers and prevent money laundering. This follows a slew of hefty fines, earlier in the same year, against some of the industry’s biggest players.

Notably absent: Mansion Group. In 2018, it was a tuxedo and bow tie night for Risk and Compliance Director Ali Hawa. He picked up the CFI Award for Most Responsible CFI.co | Capital Finance International

Online Gambling Operator; an award that recognises regulatory diligence.

“To have received this honour is a great recognition of the hard work of our dedicated teams. Throughout the significant growth of Mansion, we have continued to focus our efforts on responsible gambling. We are constantly striving to provide the best possible customer experience,” says Hawa.

“You could argue that compliance is one of the less exciting aspects of the business but it is critical to our on-going success. If we treat our customers fairly and with respect, they will return and continue to gamble with us.

That’s sound business. Getting the balance right between marketing and customer management is a job, and a challenge, that I relish.”

Also updating her resume, with a clutch of new awards, is Mansion Managing Director and COO Shelly Suter-Hadad. Winner of the 2018 iGaming Leader of the Year award, Suter-Hadad has spearheaded the recent rebrand of Casino.com and the launch of the Mansion Group’s new sportsbook MansionBet. The root to branch rework of Casino.com wowed the industry and delighted punters.

Finally, one of the most ‘enviable domains’ in the online casino marketplace has a website to match its url. Impressive enough to earn Mansion the prestigious 2018 ‘Online Casino Operator of the Year’ award at the International Gaming Awards.

It’s an accolade Suter-Hadad is thrilled to win. “To get this award is a fantastic acknowledgement of the hard work that our teams have put in, and the strides forward that we have taken. We have to strike a balance between responsibility and playability. Casino.com was long overdue for an update. We pulled out all the stops to deliver a thrilling online gaming experience that will both wow our customers and satisfy the regulators,” she said.

Politicised, controversial, regulated, the online gambling business has been weaving its way through bylaws and bureaucracy for more than two decades. As its competitors have fallen foul of intensified scrutiny, Mansion continues to invest in best-in-class compliance tools. These state-of-the art monitoring tools ensure that both their own brands and linked affiliates play by the rules.

Like Forrest Gump’s shrimping boat, Mansion has sailed its way through a storm of regulation and come out on top. The business has taken the classic maxim that ‘with success comes responsibility’ and flipped it. The truth is, for Mansion, ‘with responsibility has come success’. i 67

> Blackstone Resources AG:

How the Battery Revolution Could Save Mankind

By James Eagle

It’s difficult to imagine, but batteries could help save mankind. Their rise represents the biggest unheard of structural trend of the twenty-first century.

W

hat will accelerate demand is the electric vehicle. Yet it’s a journey we should have taken more than a hundred years ago. If we had, then the immense environmental damage caused by the age of oil in the twentieth century would have been avoided.

Believe it or not, the first vehicles on our roads were electric and not powered by gasoline. For instance, the 1912 Baker Electric was an allelectric car used in New York that was served by an extensive network of charging stations. They were driving around New York’s streets more than 100 years before the modern-day Tesla.

At the time electric cars were the vehicle of choice because they vibrated less, smelt nicer and were quieter than gasoline cars.

By the 1920s, however, highways were being constructed, linking up cities across the US, while huge petroleum reserve discoveries were made. This made combustion engine cars much cheaper and more appealing: they offered a greater range; they were faster and they were cheaper to build.

"We are now seeing the use of graphite anodes to increase energy capacity in lithium batteries, which will also decrease charge times and increase the number of charging cycles." the optimal crystalline structures for these batteries to operate.

Battery metals are now in huge demand thanks to the emergence of electric vehicles. Shortages and supply chain breakages are likely to happen in the future, which will push battery metal prices significantly higher. That’s why battery metals are now being called the new gold.

We are now seeing the use of graphite anodes to increase energy capacity in lithium batteries, which will also decrease charge times and increase the number of charging cycles. Silicon nanowires are also being inserted into these graphite anodes to further enhance performance, which is an approach Tesla has taken.

However, this is still not enough.

mega-factories. In 2015, there were only three in existence globally. Today, there are over 50 and Tesla has now built a giga-factory. But there is still a long way to go. Battery tech will need to improve even more.

At Blackstone Resources, we expect a radically different technology to succeed and we believe this will be solid-state technology. These are batteries that use a solid electrolyte to regulate the flow of current between the anode and the cathode, rather than the liquid electrolyte that is used in lithium-ion batteries.

First, the cost of manufacturing batteries needs Since the emergence of the lithium-ion battery, to fall to make building electric cars profitable. they are now back in favour. These batteries Many auto manufacturers are already rolling are being created wider and longer to allow out their own all-electric vehicles, with Chinesemore materials to be packed in. Meanwhile, based BYD and Tesla being the most prolific to new cooling technologies are being developed date. However, the cost of battery technology will to squeeze in more battery packs at higher have to fall even more to support this trend. densities. There have also been significant Metals and materials from lithium-ion in passenger EVs improvements in cathode designs, demand where the We are now starting to see battery battery costspacks fall, battery metal mix has been perfected to create thanks to the rapid emergence of lithium-ion 1912 Baker Electric. Source: wallpaperup.com

Thousand metric tonnes

8,000

MANGANESE LITHIUM COBALT

7,000

NICKEL

6,000

GRAPHITE

5,000 4,000

ALUMINUM

3,000 2,000

COPPER

1,000 2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Planned increase of battery production: Metals and materials demand from lithium-ion battery packs in passenger EVs. Source: Electric Vechile Outlook 2018, Bloomberg New Energy Finance.

Source: Electric Vechile Outlook 2018, Bloomberg New Energy Finance

68

CFI.co | Capital Finance International

Spring 2019 Issue Auto Manufacturers have ambitious plans to produce all-electric cars 20 new cars planned by 2025

By using a solid electrolyte, you can build batteries that are smaller and offer higher energy densities and have longer lifespans.

19 new cars planned by 2025

This technology could also provide even cheaper mass energy-storage in the future.

Although solid-state technology is not in mass production right now, energy-storage infrastructure is being built nonetheless. For instance, this energy storage facility pictured on the bottom left was built by a company called Fluence to enhance regional grid reliability.

The concept of energy-storage is similar to how water companies use reservoirs to ensure there is a constant supply of fresh water, even in droughts.

If we can store renewable energy, then we can ensure a constant supply of it, which would remove our reliance on fossil fuels.

12 new cars planned by 2025

15 new cars planned by 2025

13 new cars planned by 2025

Two models set for 2020 BYD S2

6 new cars planned by 2022

BYD e1 ROADSTER set for 2020 ROADSTER

4 new cars planned by 2021

It would also make electric vehicles a lot greener than they are today because right now we largely use electricity generated by fossil fuels to power them.

GWh Capacity 60 50

50GWh

40 35GWh

34GWh

30 20 10

Korea

0 China

Downstream, Blackstone Resources has long-term plans to invest in battery technology after launching its research and development programme last year. Blackstone Resources is now planning to set up a production facility in Germany, which will be supported by a â‚Ź200 million investment funded between us, the German state and EU subsides.

Excludes plug in hybrids

Source: Blackstone Resources, BYD, Tesla, VW, BMW, KIA, Audi, Nissan, Ford & Chervolet, 31/03/2019. Excludes plug in hybrids.

Poland

Blackstone Resources has already invested heavily in upstream battery metal mining projects. These include politically secure North American cobalt, rare earths from Norway, manganese in Colombia, molybdenum from Mongolia and lithium from Chile. The mining companies we invest in not only search, develop and extract battery metals, but in some cases have also invested significantly in the refineries that bring these metals to market.

Source: BYD, Tesla, VW, BMW, KIA, Audi, Nissan,all-electric Ford andcars.

Chevrolet, 31.03.2019 Auto manufacturers have ambitious plans to produce

United States

The evolution of the battery industry will bear some similarities to the oil and gas industry. With oil and gas, it was the integrated oil majors that achieved the most success. They invested all the way upstream in exploration and downstream in refining oil and distributing it. This is the path Blackstone Resources plans to take with batteries.

Lithium-Ion Megafactory capacity by 2021. A huge 11-fold increase led by China (30GWh to 372GWh). Source: Blackstone Resources.

Building a vertically integrated battery-focused company, makes sense to us. Our plan is to source the battery metals ourselves and tap into the manufacturing innovation of Germany. This is a country after all that has been building and pushing auto technological boundaries for more than 100 years.

We believe the world has now realised that global warming is happening and this will spark a new wave of unpredictable innovation in renewable energy. I’m sure battery technology and the battery metals it uses, will be an important part of this story.

This is how we believe batteries could one day help save humanity. i

30 megawatt storage system that offer a 4 hour duration for San Diego Gas & Electric in Escondido, California. Source: Fluence.

Blackstone Resources AG Blegistr 5 6340 Baar Switzerland

CFI.co | Capital Finance International

w: www.blackstoneresources.ch e: IR@blackkstoneresources.ch t: +41 41 449 61 63 f: +41 41 449 61 69 BLS:SW // FRAU | STU | BER: 4BR 69

Spring 2019 Issue

> Rolf Stangl:

Learning Every Step of the Way and Realising Potential

R

olf Stangl is a Swiss and German citizen and has served as SIG’s CEO since 2008. Stangl joined the company in 2004 and has held a number of positions across the organisation, including head of corporate development / mergers and acquisitions, chief executive officer of SIG Beverage (a division subsequently divested) and chief marketing officer. Prior to joining the Company, Stangl served as an investment director for small- and mid-cap buyouts at a family office in London, and was a senior consultant with Roland Berger Strategy Consultants in Germany. Stangl holds a Bachelor’s degree in Business Administration from ESC Reims and ESB Reutlingen.

“I became CEO of the company shortly after it entered into private equity ownership,” he says.

“That was the start of a fascinating 10 years in which we not only significantly increased profitability and capital efficiency, but also grew the company on a steady basis – even during the 2008-2010 financial crisis.

“We learned a lot on the way – from transactional to more strategic topics. Having been squeezed by currencies and the recovery in raw material prices in 2011, we now have local sourcing and a natural hedge in key markets in place. We hedge our commodity exposure in a systematic way.

The strategic learnings included a determined focus on growing the business, which has meant changes in our footprint, the way we do business and our culture.”

In 2007 more than 75% of the company’s sales were in the EMEA (Europe, Middle East and Africa) region, with the highest concentration in Europe, “which is a mature market”, Stangl says.

“So geographic diversification was vital, and today 55% of our sales are in growth markets outside EMEA. Of course, that brings some challenges in terms of managing volatility, but there is nothing I find more invigorating than visiting our operations in Asia Pacific or South America and seeing just how much potential there is for us.”

SIG has passionate teams who are focused on unlocking growth opportunities. Europe was always the bedrock to support growth abroad, notably in Asia Pacific and the Americas.

“Globally, we have an excellent, qualified and driven team that is proud to be in this industry, and is committed to its customers. And our

CEO: Rolf Stangl

customers are loyal to us – many of our key accounts have been with us for more than 25 years.”

SIG has established true partnerships through co-investing in capital equipment and through its strong track record in engineering and innovation, always focusing on customers and the end-consumer.

“Sustainability is part of our DNA,” says Stangl.

“In fact, it dates back to the company’s inception in 1853, when its site overlooking the Rhine waterfalls in Switzerland was chosen in order to secure a renewable source of energy.

“Our carton packs are fairly unique in terms of "nature inside", being on average made with 70-80% renewable materials. We were the first to achieve 100% global coverage of Forest Stewardship Council (FSCTM)1 chain-of-custody CFI.co | Capital Finance International

certification for liquid packaging board, and are leading the way in many sustainability metrics.”

SIG’s return to SIX Swiss Exchange in September 2018 was a natural next step in the company’s growth strategy. “This strategy is underpinned by the strong macro fundamentals of our business,” Stangl says. “Growth is being driven by demographics and urbanisation, as middleclass populations in developing markets expand and consume more.

“Globally, there is increasing demand for convenience and on-the-go consumption, for which our packs are ideally suited. And with sustainability now front-of-mind for both customers and consumers, we can point to the fact that the carbon footprint for our packs is up to 70% lower than for other forms of packaging.” i FSCTM licence code: FSCTMC020428

1

71

> SIG:

Staying On-Track – From Train Carriages to Smart Containers SIG is known in Switzerland for a rich industrial heritage which began in 1853 with the production of railway carriages.

O

ver the ensuing centuries, the group has transformed itself. Today, it exists as a highly specialised business focusing on aseptic carton packaging systems and solutions. The products packed are consumed daily all over the world, and the industry continues to grow, driven by demographics and rising disposable income.

ASEPTIC CARTON PACKAGING Products packed aseptically use the Ultra High Temperature (UHT) process. They are heated at a high temperature for two to four seconds, and then immediately cooled before being poured into sterilised packs. These products have a longer shelf-life – up to 12 months – compared with other forms of packaging. Aseptic carton packaging is the most widely used substrate for liquid dairy products, and can also be used for non-carbonated soft drinks and for food products such as soups and sauces. As well as being the most cost-efficient packaging solution for most product sizes, it offers a high level of protection against air and light so that nutrients, vitamins and taste are protected, maintaining natural goodness. This is important for an increasingly health-conscious market.

ENVIRONMENTALLY FRIENDLY The growth in e-commerce sales also favours aseptic cartons, as the packages are lightweight and easy to transport and their long shelf-life ensures that the products do not spoil during transportation. By eliminating the need for refrigerated transport and storage, they reduce CO2 emissions. They are fully recyclable, and are made primarily from renewable resources.

"The advantages of the SIG offer lie in its proprietary filling technology and sleevebased system." solutions, providing more than 270 options.

Proprietary filling machines are at the core of the company’s customer operations. Through its filling system, SIG offers a high level of flexibility in terms of fast change-over times between carton sizes and shape formats. This limits change-over downtime, and allows for greater asset utilisation. The system offers a high level of reliability and low waste rates for packaging and the filled product.

SIG’s unique sleeve system enables customers to fill a wide range of products with different viscosity levels and particulates. Consumers can enjoy milk, yogurt and drinks with fruit or cereal pieces, as well as chunky soups or passata with tomato pieces.

BROADENING THE GLOBAL FOOTPRINT Over the last 10 years, SIG has steadily invested and expanded its presence in growth markets.

This began with an initial expansion from Europe into Asia Pacific, followed by Middle East joint ventures and a move into the Americas. Today, growth markets represent 55% of the company’s business – and SIG continues to expand.

SIG’S UNIQUE TECHNOLOGY The advantages of the SIG offer lie in its proprietary filling technology and sleeve-based system. It provides customers with a system comprising the filler, sleeves (cartons which have been printed, creased and cut in SIG factories), closures and service.

In 2018, the first SIG filling lines were placed in India, which represents the second-largest aseptic carton market in Asia Pacific. The company has also entered Japan – the thirdlargest aseptic carton market in the region – through a joint venture with Dai Nippon Printing (DNP). In South America, it is expanding into countries beyond Brazil, leveraging existing Brazilian manufacturing infrastructure.

The sleeve-fed system allows for a range of packaging formats, volumes and opening

SOLUTIONS FOR THE RISING BILLIONS SIG solutions are increasingly tapping into

72

CFI.co | Capital Finance International

Spring 2019 Issue

"Quality and delivery are paramount for SIG." the rapidly expanding segment of the “rising billions” – who are new consumers. The flexibility of its system, in combination with special sleeve compound structures, allows customers to deliver affordable solutions and to hit the right price points in markets such as India, Bangladesh and rural South East Asia.

At the other end of the spectrum, the company’s technology enables it to drive growth beyond the traditional liquid dairy and non-carbonated soft drink segments. Following key food and beverage product trends, it continues to penetrate fastgrowing, premium-priced categories such as plant-based dairy alternatives, dairy- or juice-based drinkable snacks and breakfasts, warm or hot on-the-go drinks, flavoured or functional waters, protein or sports drinks, and nutraceuticals.

SIG supports its customers from marketing research and concept development through to prototyping and testing, helping them create innovative and differentiated food and beverage products. By combining engineering know-how with advanced technology, it helps to transform filling plants into “smart” and connected factories. And with new digital technologies and intelligent marketing tools, SIG can turn physical packs into interactive brand tools that ensure new levels of transparency, traceability and consumer engagement.

With Languiru, one of the largest dairy producers in southern Brazil, SIG successfully piloted an integrated system that collects productquality data at every stage of the process – from collection of the raw milk to the supermarket shelf – and stores all the information in one database.

Consumers can access information about an individual product with their smartphone, while the company gains smart-factory benefits with valuable insights into optimising production and logistics.

Quality and delivery are paramount for SIG, never more so than in the field of aseptic packaging and sensitive food and dairy products. This is accomplished through the highly engineered sleeve system – with the filling line at the core, and a world-class service network. It has around 550 service engineers present across the world who are embedded in customers’ operations, ensuring that the fillers are completely sterile and run with maximum efficiency.

At the heart of the business is the promise of guaranteed quality and food safety. i 73

> Banca Agricola Commerciale (BAC):

Banking in the World’s Oldest Republic Means Dedication to Democracy, Freedom, Growth Banca Agricola Commerciale (BAC) was established in San Marino, the world’s oldest republic, in 1920. San Marino is synonymous with democracy, freedom – and values based on cultural and economic growth.

B

AC began as a private and independent business bank by a group of San Marino entrepreneurs, in collaboration with Credito Romagnolo, a leading Italian banking institution. In 2012, the Banca Agricola Commerciale Istituto Bancario Sammarinese became the main private bank of the Republic of San Marino.

Today, the BAC is an international fixture, proud of its consolidated retail vocation, allied to the needs of families, professionals and businesses.

This focus makes it a "reference bank" for the San Marino area, a territory with a history and individual socio-economic characteristics.

San Marino is a privileged territory for the development of new investment projects, and an interesting partner for economic activities based on innovation. The business framework is favourable for foreign investments for many reasons, including institutional and social stability, and its legal system and tailored solutions for investors. It also offers international compliance, flexibility, swift decision-making, and an established financial structure.

BAC has a network of branches throughout San Marino, and serves the business community and investors via corporate, private and retail branches.

For the past 15 years, BAC has consolidated its market position by establishing three subsidiaries, which have further strengthened and improved the leading position that the group occupies. The subsidiaries are BAC Fiduciaria, a company dedicated to fiduciary business, San Marino Life, the first San Marino life insurance company, and BAC Investments SG, a Sammarinese savings management company focused on growth and protection of its clients' assets.

The BAC Group aims to be an ideal partner in the protection and management of family assets and businesses. It distinguishes itself with the quality of its services and products, with a specialised approach to customer service with dedicated structures to ensure the principles of 74

CFI.co | Capital Finance International

Spring 2019 Issue

BAC intends to give a boost to international activity via collaboration agreements established with leading financial and industrial groups.

Relations with foreign financial entities are directly managed by BAC. The bank makes use of its subsidiaries for their specific areas of competence, and works to consolidate financial relationships and establish solid economic ties. The objective of BAC Investments SG is to provide professional collective investment services: promotion, institution and organisation of the schemes, as well as the administration of relations with the participants.

BAC Investments SG offers management services on the individual basis of investment portfolios for third parties, and is limited to the units of mutual investment funds of its own institution.

The subsidiary also manages a service of study, research and analysis in economic and financial matters. loyalty and fairness. Trust, responsibility, and competence characterise BAC today.

countries characterised by high economic growth and financial systems with strong potential.

The bank has a strong history of relationships with international customers. BAC International is a department dedicated to foreign markets, responsible for research, development and commercial management of the bank's and subsidiaries' relations with foreign counterparts – institutional, commercial or private. It pursues geographical diversification, promoting internationalisation by establishing relations with

This activity is carried out by BAC general manager Marco Perotti, who can count on multilingual specialists within the organisation who have a high level of technical awareness of private and corporate banking. The financial centre of San Marino offers considerable potential for foreign investors in terms of direct taxation and incentives for the management of savings, with competitive advantages in terms of taxation.

CFI.co | Capital Finance International

The management company has established the first Sammarinese open investment funds regulated by the provisions of the Community Directive 85/611/EEC (and subsequent additions and amendments, concerning the co-ordination of the laws, regulations and administrative provisions concerning collective investment in transferable securities).

The investment team boasts extensive experience in the sector, covering all global markets. i 75

> Marco Perotti:

A Breakdown of BAC’s Offerings from the GM

B

AC general manager Marco Perotti is Italian by birth, hailing from Verona.

He was born in 1966, and has more than 30 years of experience in the banking sector. For BAC, his main role is to spearhead the team pursuing geographical diversification.

Key is the promotion of internationalisation – establishing relations with countries that show impressive economic growth, and have financial systems with strong and reliable potential.

Marco Perotti, just over thirty, was Head of Development department, Private Banking and Financial Promoters in “Rolo Banca 1473 SpA”.

Subsequently, for eight years (2004/2011), co-director for Triveneto regions of Unicredit Banca SpA. Until 2016, Corporate Sales & Development MGMT of Unicredit SpA. Since July last year, he has held his GM role at BAC, and he is the chair of San Marino Life and BAC Fiduciaria, he is also Deputy Chairman of BAC Investments SG SPA, the new company of Banca Agricola Commerciale, that has established the first Sammarinese open investment funds, Reported below.

“The BAC Global Cauto fund category is a mixed-bond fund, mixed portfolio and currency diversification with a maximum share investment of 20% of the total value of the fund's assets.

“The BAC Global Prudente category is a balanced type of fund, a balanced prudential dynamic with mixed portfolio and currency diversification with equity investment average of 30% (maximum limit to 40%) of the total value of the fund's assets.

“The BAC Global Bilanciato fund category is a balanced type of fund: balanced with a mixed portfolio and currency diversification, and an average equity investment of 40% (maximum limit to 50%) of the total value of the fund's assets.”

The BAC Global Dinamico category is a balanced stock type, “an aggressive balance” with mixed portfolio and currency diversification and an average equity investment of 60% (maximum limit to 75%) of the total value of the fund's assets.

The BAC Global Equity fund category is an international equity fund, equity with a mixed portfolio, and currency diversification with an equity investment average of 80% (maximum limit 100%) of the total value of the fund's assets. i 76

GM: Marco Perotti

CFI.co | Capital Finance International

Spring 2019 Issue

> Carlo Giugovaz:

Thought-Leader Who Bets on Banking Industry Innovation Among the pioneers of the digital banking age and one of most recognised innovator and FinTech thought leaders in Europe.

H

e has more than 35 years’ experience in banking industry and started out on a new path – that of entrepreneur – by founding Supernovae Labs, a business accelerator for fintech start-ups and financial institutions.

Over the first years, Giugovaz has contributed to many high-profile companies, including PwC, where he held the position of senior auditor and senior consultant for more than eight years. He also worked as engagement manager during a five-year-stint with McKinsey & Company and as Esprit Projects Commissioner for the European Commission in Brussels.

Then came the banking appointments to Intesa San Paolo (individual marketing manager and strategic marketing manager), and UniCredit, where for more than 16 years he held positions including head of retail in the Central Region of Italy, head of UniCredit Direct Bank and head of multichannel banking (Italy and Central Eastern Europe).

Since 2017 Carlo Giugovaz has been hired

by Efma as the Italy and Switzerland country manager, as director of the Fintech and innovation Council and as senior advisor for Efma Advisory Services. His position in Efma dovetails with his on-going vision of Digital, Innovation and Banking Transformation, as well as with his influential and mediation capabilities.

Giugovaz is now the CEO of Supernovae Labs, leading an international team serving some of most innovative Italian banks by choosing the best fintech ideas and solutions in the market to seize new business opportunities and close digital gaps. In three years, Supernovae Labs has created a selective portfolio of more than 110 fintech brand new solutions ranging from AI, big data, open banking platforms, to digital empowerment, data monetization, instant lending and deposits.

He has a passion for doing business. His distinctive strength is a blend of competences – strategy, marketing and sales, technology, finance and organization – seasoned in years of challenging projects and managerial positions.

Over the course of his international journey,

CEO: Carlo Giugovaz

he has learned how to leverage technologies to respond to customers’ specific needs and acquired an in-depth digital know-how of banking industry.

Giugovaz is a leader who takes care in every aspect of his role, from problem solving, to commitment to success and peopleCFI.co | Capital Finance International

management, from creative thinking, customer experience to calculating risks and impacts. He has spoken on a wide range of retail, banking and open innovation issues at global events and at MBA (Bocconi, Politecnico di Milano, Bologna Business school) devising a clear vision about forthcoming banking scenario and how to successfully compete within it. i 77

> Marc Nocart, CEO of Caisse de Refinancement de l’Habitat (CRH):

A Revitalised Economic Model that Aligns the Interests of Banks, Regulators, and Borrowers WHAT EXCITED YOU ABOUT THE BUSINESSES YOU WORKED FOR DURING YOUR EARLIER CAREER, AND WHAT EXCITES YOU ABOUT THE BUSINESS YOU NOW LEAD? I have spent most of my career in asset finance, which has given me the opportunity to learn about a variety of industries, asset classes and their specificities. It has also allowed me to learn about a wide range of problematic issues, such as regulatory frameworks.

The excitement of my job comes from the opportunity to be creative and propose funding solutions. Although there are some similarities, today’s world is a very different one to that of the 2008 financial crisis. There are drastic differences between a “normal” profit centre and an institution working for the common good.

What is unchanged is the need to provide clients with interesting funding to develop their activities. In my previous career in asset-backed financing, we were aiming at funding on the individual merits of a portfolio. Nowadays, the assets come as a security, complementing the initial corporate credit risk.

Asset finance exposed me to a variety of clients, operating within various countries, challenging our creativity to solve specific problems of various asset classes, in the quickly changing landscape of capital markets.

In the course of 2013, CRH abruptly became a casualty of the evolution of the regulation, making its economic model unviable for shareholders. In the meantime, it has had to adapt itself to meet the requirements of the ECB, since its balance sheet was over €30bn.

My goal is to enable CRH to get out of this standby situation, and become an institution adapted to its new regulatory and market environment. I want it to resume its position as a significant player in the financing of the French mortgage market.

WHAT IS CRH EXACTLY? CRH was born in 1985, as the French State, looking for developing home ownership across the country, decided to create a funding tool that would contribute supporting its housing policy.

At that time, financial markets were not that developed. The idea was to gather banks in a platform to help them get cheaper long-term 78

CEO: Marc Nocart

funding through covered bonds, which could be further extended to mortgage borrowers.

CRH is equipped with an efficient dedicated, specific, legal framework which provides investors with an unchallengeable security package. So we have in CRH a privately held credit institution, dedicated to the refinancing of residential mortgages, whereby all its members are both shareholders and borrowers of the company.

Our operations are very simple: we pool the funding request of our members, borrow CFI.co | Capital Finance International

accordingly and lend them back the proceeds, by matching all the characteristics of the covered bonds issued: currency, amount, interest rate, and maturity.

WHAT IS CRH RISK PROFILE? CRH has a strong risk profile. Our debt – exclusively covered bonds – is rated AAA/Aaa (Fitch/Moody’s).

We have no other debt, nor do we take any deposits, and our assets are entirely financed by core equity. Our minimum legal OC is 25%, on which CRH can make additional requests.

Spring 2019 Issue

Our cover pool is exclusively made of prime residential-only domestic mortgages (or loans guaranteed by a suitable financial insurance), in compliance with CRR Article 129, to which CRH has added some restrictions.

All of this is closely monitored by our inspection department, representing 50% of our headcount.

So far, the underlying French residential real estate market has been really performing, thanks to a loan-to-income lending practice, with proved sound during the financial crisis.

CAN YOU TELL US ABOUT CRH ACHIEVEMENTS SO FAR? Well, beyond the €90bn of debt issued by CRH so far, what is really noticeable was its capacity, in the aftermath of the Lehman default, to raise long-term liquidity at an acceptable cost for the refinanced banks, whereas a standalone reach of such objectives in a realistic way was very challenging.

This resilience aspect will certainly gain in importance, as we see increased volatility in the markets.

WHAT MAKES CRH SPECIAL IN THE BANKING UNIVERSE? The unusual feature is of course the fact that we are a non-profit institution; it is graved into our by-laws. We make our living from the revenues of the investment of our regulatory equity, which does not exclude, if this has proven insufficient, additional support from our shareholders.

The other strong feature of CRH is the fact that it lends only to its shareholders, who are severally liable for CRH capital requirement. In terms of governance, this liability is extremely powerful.

WHAT DOES CRH BRING TO THE PARTY? CRH provides an alignment of interest between banks, regulators, and end borrowers.

To borrowing banks, CRH provides a competitive diversification of the sources of funding, and an evidenced resilience to market stress, because this model has been valued by the market as a credit risk on the French banking system.

HOW DO YOU SEE CRH, WHAT IS YOUR STRATEGY? Given the fact that our way to operate is really specific – I do not know of any similar structure in the EU – I believe that CRH cannot depart from its original DNA: it must serve the general interest.

CRH is a market place vehicle, a status it has reached with great success, as we gather loan originators representing about 78% of our domestic market.

I am confident that this role could even be further consolidated, provided CRH follows the developments of its own market.

Of course, another raison d’être of CRH is to offer resilience, by remaining a reference issuer, with a very simple, transparent structure, easily understood by market participants.

TALKING ABOUT FURTHER PENDING EVOLUTION OF REGULATIONS, WHAT ARE YOUR VIEWS REGARDING THE NEW COVERED BOND DIRECTIVE PROJECT, AND WHAT COULD BE THE IMPACTS FOR CRH? I welcome the idea of harmonising as much as possible the available financial tools across the EU, if this can increase the attractiveness of the Eurozone. So far, from the beginning, the European Commission has taken a very pragmatic approach on this topic, and, despite unavoidable confronting views among the parties at stake, I am convinced that the consensus of not disrupting well-functioning markets will prevail. I would not expect drastic changes, at least as far as CRH is concerned.

We do not know whether an additional label would be implemented, but in such a case we would expect CRH to be eligible.

WHAT IS YOUR TARGET FOR 2019?

CRH has already proceeded to some necessary adaptations, and the expectations about the new CRR2 have thankfully cleared the economic uncertainty upon the future of the CRH business model that has been looming for about three years.

Now we can re-join the concert of the active covered bond issuers, leaving behind us our stand-by status.

To the regulator, CRH provides more creditrisk protection (the capital contributed to CRH is above the one banks allocate themselves in their books), an additional, independent, collateral monitoring, and a delayed call to the ECB for emergency liquidity support.

This year shows a good alignment of planets for this come-back: the upcoming termination of the TLTRO, which would certainly free some collateral, the expected trend of repricing, following the end of the CBPP3, which would possibly discriminate a little bit more between signatures, and of course a signature that has not recently solicited the markets at all.

To the end borrowers, CRH is remaining faithful to its legal mission; it does not make any mark-up on the raised financings, whose cost benefits are passed to them thanks to the fierce competition among market makers.

Definitely this come-back will not be an opportunity shot; now that things have cleared out it is our firm intention to be a regular issuer, taking great care of our signature in the markets. i

CFI.co | Capital Finance International

79

> CBRE - Adapted Retail & Alternative Assets:

Rental Trends Adjusting With the Times

By David Casas Alarcón, CBRE Property Management Accounting Lead

Economic growth is driving increased demand for retail and alternative real estate assets, while spare capacity is gradually being eroded, particularly in the big cities.

T

his could mean further rental growth in 2019 and 2020, especially for prime properties.

The continuing adjustment in consumer trends has been the catalyst for retail to reinvest in the aspects of physical shopping that the online experience can’t provide – but which remain relevant to shoppers. There have been high levels of take-up from food and beverage and leisure operators in prime centres, as landlords use these avenues to increase dwelltime, and improve the overall social experience of retail.

Asset managers should, however, remain focused on how their offering fits with target customers.

Smaller convenience centres must avoid copycat offers that mimic regional malls by carefully creating food and beverage / service options that are more tailored to the type of shopping these centres attract. Food and beverage accounted for nearly 20% of all leases in Europe in the second half of 2018. In smaller centres we are seeing some growth in the use of service providers (hairdressers, beauticians and opticians) as well-

"Although e-commerce only makes up around 9% of total retail sales for Western Europe, this is will continue to grow, and the store is no longer the only viable way to purchase goods." placed convenience malls start to become truly local centres.

The level of retail investment in continental Europe remains strong and well above the 10year average, also reflecting the contribution of maturing markets in CEE. However, negative sentiment from the UK and the US is affecting distribution and reducing the numbers of buyers in the market. More than just e-commerce penetration, these two markets are suffering from structural challenges that include council business rates costs (UK) and a heavy reliance on department store anchor tenants over-servicing retail space.

Figure 1: Retail investment, Europe (excluding UK) rolling 4-quarter totals. Source: CBRE Research.

80

CFI.co | Capital Finance International

While these threats are not as pressing elsewhere in Europe, there is an underlying level of uncertainty. As a result, investors have become far more selective in their choice of assets.

LARGE STORES AND LOCAL SERVICE Retailers are being far more selective in their chosen store format and network development.

Although e-commerce only makes up around 9% of total retail sales for Western Europe, this is will continue to grow, and the store is no longer the only viable way to purchase goods. Nevertheless, with many larger retailers rationalising their store networks, the demand for larger store units is rising. A strategy of having fewer, larger stores is allowing retailers to maximize the contribution of every retail location. These strategic locations provide the opportunity for stores to be at the heart of the retailer’s omnichannel strategy, focus on providing in-store experiences and an avenue for customers to interact with products. While this may not necessarily generate in-store sales, the relationship between a positive store experience and online sales remains strong.

Spring 2019 Issue

Figure 2: Investor sector exposure to alternatives, EMEA. Source: CBRE Research.

Figure 3: Eurozone prime office yields and 10-year government bond yields (%), 2001-2023. Source: CBRE Research.

Although prime areas can attract large occupiers using space for flagship stores, this is not necessarily the case for more local assets and high streets. This is where the greatest divergence between successful and failing retail is likely to exist. But assets, retailers and, increasingly, service providers that truly cater to the convenience aspects of retail could thrive by offering higher levels of convenience than online channels.

A growing trend of localism is also supporting occupier demand in these smaller conveniently placed assets. Retailers from food and entertainment options to bookshops are thriving in the right locations. Consumers are embracing original retail environments and products that have local credentials or claims, as they consider

these products to be more sustainable, of higher quality and healthier than non-local alternatives.

MOMENTUM FOR EASTERN EUROPE As retailers become more reluctant to expand in prime European locations, they are turning to the cities where expansion has not been as widespread but economic and retail fundamentals remain positive.

In the shopping centre market, there is a strong divide between east and west. In Europe, prime rental prospects appear muted, with real rental decreases expected in weaker properties and locations as brands appear more selective on their store portfolios. Key cities in Central and Eastern Europe (Warsaw, Budapest and Prague) are more buoyant, with retailer demand and rents growing CFI.co | Capital Finance International

in prime centres and secondary assets appearing more stable than their Western European equivalents. This is driving construction levels, as most European shopping centre construction is happening in eastern European capitals. While construction of new shopping centres in western Europe is subdued, centres in the better locations are using extensions to expand their leisure and food and beverage options, making these centres more experiential and more defensive against changes in consumer preferences.

INVESTORS ENGAGING WITH ALTERNATIVES Investors are taking an increasingly favourable view of opportunities in the alternatives sector.

Student housing is the most popular in this respect, followed by retirement living, healthcare and leisure. The key attractions of the sector from 81

an investor perspective are the availability of higher yields than traditional property investment classes, asset diversification, income stability and capital growth potential. These priorities will set the tone for 2019.

However, if investors are to realise their ambitions for increased exposure to alternatives, they will need to cross borders and engage with real estate structures and sectors that are, in many cases, not within their range of experience.

Some major institutions are already engaged in cross-border investment in a range of alternative real estate sectors, AXA-REIM being a notable example. Nevertheless, there has been a change in the number of investors taking such a holistic view. These include investors new to the sectors as well as those who, having developed expertise in one specific area, are now diversifying.

RISKS MORE APPARENT The economic outlook is positive at least for the next two years, but there are various risks.

Property investors should be particularly alert to the prospect of a sharper-than-expected rise in interest rates. This could put upward pressure on yields, and could be associated with an emerging market default in view of the level of greenback-denominated debt held in some of these economies. i ABOUT THE AUTHOR David Casas Alarcón is an economist at the university of Malaga, Spain, with more than 10 years of experience in the real estate and finance industries. In 2012, he took over the role of Outsourcing Analyst for Capgemini Consulting, where he advised the company’s real 82

estate clients on the most efficient solutions for financial process externalisation. Since 2016, Alarcón has been part of the CBRE Corporate Outsourcing Hub in Warsaw, which drives the finance process transformation for property management and other CBRE business lines across Europe, Middle East and Africa (EMEA) region, delivering efficiencies and compliance.

ABOUT CBRE CBRE Group, Inc is a commercial real estate services and investment firm. It is the largest company of its kind in the world. It is based in Los Angeles, California and operates more than 450 offices worldwide and serves clients in more than 100 countries.

Their team collaborates across a complete spectrum of integrated services to help investors achieve optimal asset and portfolio management.They strategically position assets in the most diverse markets, through the most challenging market conditions - making significant investments each year in their service platform to deliver cutting-edge solutions. This includes employment of the highest industry standards in all of their processes to ensure regulatory compliance, consistency and service excellence.

CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services.

The CBRE Global Investors subsidiary sponsors real estate investments via investment funds and direct investments that it manages. As of September 30, 2018, the division had US$104.5 billion in assets under management.

The Trammell Crow Company subsidiary is the largest commercial real estate developer in the United States, according to Commercial Property Executive's annual ranking.

ABOUT CBRE PROPERTY MANAGEMENT With a network across the Americas, Europe, Africa, the Middle East and Asia Pacific (EMEA), CBRE leverages global best practices and realtime data to improve Real Estate operational performance.

CFI.co | Capital Finance International

Author: David Casas Alarcón

Spring 2019 Issue

> AAE:

Cashing-In on Car Wreckage Proves Profitable in Norway In 2013, disruptor Alexander A Engebretsen (AAE) founded an IT company, inCosys AS, and planned, led and sold two pilot projects, where inCosys automated and digitalised parts of the Scandinavian insurance industry.

Founder: Alexander A Engebretsen (right)

E

ngebretsen and two other appraisers developed Finnvrak.no, a marketplace for car wrecks – and insurance companies and workshops are sending turnovers through the roof.

Marketplace participants are insurance companies and approved car repair workshops.

The service saves time and simplifies the process for claims handlers, appraisers and workshops doing transactions associated with insurance write-offs.

“We have a no-cure, no-pay model, and take 25% of the profits the insurance companies make from using the service,” says Engebretsen.

The system can be explained with an example: a car with a value of £10,000 is crashed, and the damage is appraised at £8,000. If the wreckage value is £2,000, the vehicle will be put out for auction.

“Previously, appraisers approached car repair shops locally,” Engebretsen says. “We approach workshops nationally in the country we work in, and achieve much higher prices – on average, 56% higher.

of the company, responsible for conducting daily processes.

“Not only are the wrecks sold at a higher price, and the process costs significantly lower, we also work towards preventing social dumping, money laundering and the ‘chop-up’ of stolen cars.”

inCosys’s first year of operation led to revenue of NOK17m (£1,503,930) with profits, and the company received support from SkatteFUNN, a government programme designed to stimulate research and development in Norwegian trade and industry.

Today, more than 800 approved workshops in Norway are affiliated with the service – as are major insurance companies and claims-handling services. “Last year we generated NOK5m (£442,332) in value for our customers,” he says – but notes that individuals do not have access to the service in Norway for now because of governmental regulations.

Alexander A Engebretsen has been a freelance consultant for several insurance companies, experience which allowed him to work closely with different personalities from different professions and cultures. This exposure to the everyday operations of businesses in different sectors has resulted in constant interaction with diverse industries and cultures.

In addition to being the project manager of inCosys, Engebretsen is the CEO and chairman

Engebretsen also buys, refurbishes and sells real estate, and invests in other companies. i

CFI.co | Capital Finance International

83

> Comfort Food for the Soul:

MAX Makes the Difference with Sustainable Values and Green Burgers If you want to change the world with your product, you’d better have an amazing product – and Sweden’s Max Burgers is changing the world, one meal at a time.

T

he Swedish food chain with restaurants in five countries is fighting carbon emissions and cooking up the tastiest food in Sweden with its climate positive burgers.

More detail on that environmental battle in a moment. First, the taste – because MAX chief sustainability officer Kaj Török, is a realist as well as an idealist. The key to everything, he believes, is creating that holy grail of the fast food industry: The Best Burger.

“If you ask a Swede why they visit a MAX restaurant, most of them won't say it's because we're doing something good for the climate,” he says. “They will say it’s because we have the best tasting burgers. We can’t work to make the world better without having the best tasting burgers.”

It’s no idle boast; according to a survey by ISI Wissing, which analysed 250 brands, Max had the industry’s most-satisfied customers – for the 11th year in a row. The first MAX restaurant opened in 1968, and the company is still firing on all cylinders.

Now to that the link with corporate carbon footprints: “All our burgers are climate positiveruns the MAX Burgers website introduction. “If we’re going to keep global warming under two degrees, we need to reduce greenhouse gas emissions and, at the same time, remove some of the carbon dioxide we’ve already emitted. Becoming climate neutral is not enough.”

MAX measures all its product emissions. That includes all greenhouse gas emissions “from the farmers’ land to our guests’ hand”. Co-workers, customers’ and suppliers’ travel to and from MAX restaurants is factored-in, along with the total amount of waste.

And when 100% isn’t enough… add 10. “We plant trees that absorb and store carbon dioxide from the atmosphere as they grow. Not only do we carbon-offset the emissions from all our food, we go further to capture the carbon dioxide equivalent of another 10% of our emissions.”

Over the years, MAX Burgers has implemented hundreds of measures to reduce the emission of greenhouse gases. “We have the widest climate analysis in the restaurant industry since to s 84

Chief Sustainability Officer: Kaj Török

CFI.co | Capital Finance International

Spring 2019 Issue

2008,” says Török. “In the food industry, I don't think there's more than a handful that make as wide an analysis as we do.

“I think more companies should do this, but they don't want to face the fact that they are polluting more than most people realise. That’s the ugly truth. They will see their business in a totally new way, understand what they're doing in a totally new way.

“I think every company that wants to exist a couple of decades down the road should do this now, to reduce risks. You need to get experts on board on this, but there are a lot of experts in the world. For a large company the cost of that analysis is low; for a small company, it can be a bit expensive.”

Expensive or not, the detailed breakdown by consultant company U&we proves that the MAX products really do help fight climate change. What is coming to light, in 2019, is that a plant-based diet is a huge step in the right direction. Again, MAX is on the case with vegan and vegetarian options, along with fresh, healthy alternatives to the standard side-order of chips (fries, for our American readers).

“Our ‘green’ burgers are fully vegetarian or plantbased,” Török says. But you won’t be stinting yourself with this healthy option of soy protein and vegetables: “It really tastes great and has good texture.” And for younger customers, still addicted to bad stuff? The Crispy Nuggets and Crispy No Chicken burger taste like… chicken.

Surprise. There are tasty halloumi cheese treats as well. Everything on the menu has “an extremely low climate impact”, Török stresses.

“We're changing the industry,” he says, with justifiable pride. “The biggest thing we can do to reduce our climate impact is to make sure that green burgers taste at least as good as red meat burgers.”

The number of “flexitarians” – those who would like to go vegetarian, but are sometimes tempted by real meat – is growing. And this subset of diners can rest assured that their occasional hankerings are as guilt-free as possible. “All the meat we use in Sweden is from here – and we have strong animal welfare standards. So it’s taste, animal care and health that are the driving forces.”

With success comes growth, and MAX Burgers has its eye on expansion. “We're expanding in CFI.co | Capital Finance International

Poland,” says Török. “We have four restaurants there now. We have restaurants in Norway, Denmark and in Egypt. We're going to expand, but one of the things with our expansion is that since we are a family owned company it is on our own money. Our franchise business is also quite modest so far. Today 90% of our restaurants are owned by the (founding) Bergfors family – which also means we have control and make sure that quality is high, and that we do things properly.

Family values must be kept.”

Török admits MAX Burgers is choosey about those it brings on-board. “We would love to find the right amount of franchisees in a country that shares our values,” he says. “If someone wants to open up 50 restaurants in the UK, and we feel that we share the same ideas, that would be awesome. Or in France, or in Germany. But we're picky about our partners.”

MAX Burgers’ Plan A is working as it should; the company has doubled its turnover every fourth or fifth year. “So that's what we're going to keep doing,” says Török.

“We want to be the best burger chain in the world.

We don't have to be the biggest.” i 85

Spring 2019 Issue

> Karen Darbinyan, Chairman of Electric Networks of Armenia (ENA):

Regulated Metering is Key to New Development Models in Power Generation Industry

Chairman: Karen Darbinyan

T

he Chairman of Electric Networks of Armenia, Karen Darbinyan, has 30 years of experience in power engineering systems.

Regulated metering is the key element of the market-driven development model for the Armenian electricity market, which has reached a new stage of technological development.

Darbinyan is one of the thought leaders of the development project.

“Household electricity consumption increases every year,” he said. “People have more and more home appliances in their houses and apartments, causing the energy use by residential and utility buildings to continuously go up. In this situation, electricity metering systems assume key importance.

“With cost reduction policies being universal, the introduction of automated electricity control and metering systems (AECMS) may become the most effective measure for it.”

For businesses, one of the most important things is what setup they have for their automated metering system. These “information and

"With cost reduction policies being universal, the introduction of AECMS may become the most effective measure for it." metering systems” are so-called due to the multifunctional nature of the equipment and the attendant top-level software. This makes it possible to implement centralised automated control, the measuring of technological parameters (for instance, electricity consumption, current, and tension), remote control of power facilities, collection and delivery of real-time or analytical data, the forecasting of different technological situations, and more.

By using the data coming from its metering sites, the company can develop a set of effective energy saving initiatives, for example to reduce its expenses and cut production costs. These are called “smart” systems. They benefit the company and their “intelligent” contents can be customised to meet the needs of any business.

Today AECMS processes are based on PLC (power-line communication) and Wi-Fi, data CFI.co | Capital Finance International

transmission technologies that make it possible to ensure reliable metering of electricity consumed by every customer.

PLC was developed in the middle of the 20th Century, but has only recently been implemented in the telecommunications field. It is based on using an electric power transmission system as a conductor for carrying data. Wifi, which allows an electronic device to exchange digital data using radio waves, was created in 1991. The two technologies in tandem allow each meter to transmit data on electricity consumption to the DCTU, from where it can be transmitted, upon request, along mobile communications channels to a control unit (a regular PC).

Even this new technology is giving way to more modern developments. State-of-the-art systems now use cloud technology, where a DCTU is permanently connected to the Internet, allowing users to get data with the help of online services.

Special software controls the collection, storage and display of data.

Those data contain information about consumption and power quality: parameters such as voltage, frequency and load current. i 87

> New Era for ENA:

Generating Change, As Well As Electricity When Tashir Group of Companies purchased the shares of Electric Networks of Armenia (ENA), a new era began.

E

NA introduced an unprecedented investment programme, at a cost of $726m, and instigated negotiations with a number of investment banks to find the sources for its implementation.

The project was implemented in early 2016, and funding sourced from EBRD, ADB and the company’s own assets. Improvements were made in power distribution quality segments, reduction of losses, reduction of operational costs and expenditure through technology and economic indicator efficiency, and the installation of telemechanics and telecommunication systems.

Efforts were also made to embrace and enforce labour-safety rules and conditions, improve recording and registration systems, expand

distribution networks, implement works on new subscribers’ connections, install an automated operation system (MIS) and implement international standards (ISO).

With these as the main directions of the investment programme, positive development was an assured outcome – and ENA evolved to become a more stable, more modern and more efficient company.

Armenia has improved its ranking in the World Bank’s Ease Of Doing Business index – now in 17th spot, compared to 66th in the previous report. One of the criteria in the index revolves around electricity connection, and it tells a tale for the region. In 2015, when ENA was acquired

by Tashir, Armenia was still further down the

"This drive includes the implementation of corporate governance in accordance with the standards of the UK code, and the implementation of relevant ISO International Management Standards."

88

CFI.co | Capital Finance International

Spring 2019 Issue

ranks, at the 99th spot with Bulgaria, Ecuador, and Paraguay. That’s an 82-point increase in three years.

Over recent years, ERA, the Public Services Regulatory Commission, the Municipality of Yerevan and other government bodies have worked to improve the grid-connection process.

It is now digitalised, with a reduction of the steps and requirements needed for connection. Total time required for the process has been cut by 50%.

Electric Networks of Armenia continues to improve the connection index to further reduce waiting time. The current three-step process will soon become two.

The overall aim is to promote the development of the national economy and welfare of the Armenian people by providing reliable, high quality, affordable electricity.

To ensure the sustainable development of the company, meet the needs and expectations of the beneficiaries, and minimise external challenges and internal risks, the company has identified a set of directions for strategic development.

The primary objective is to increase the level of controllability and management efficiency of the company.

This drive includes the implementation of corporate governance in accordance with the standards of the UK code, and the implementation of relevant ISO International Management Standards. Also included are the modelling and optimisation of business processes (on the basis of BMPS), and complex automation of the management information system (on the basis of ADMS and ERP). Structural reforms, aimed at the centralisation of management, procedures and the formation of organisational structure, are made in accordance with the business architecture of the company.

For the public offering of shares (IPOs) on international stock markets, the level of automation will be improved to manage energy losses and billing. The company will be modernised and expanded, with new infrastructure to improve safety, reliability and quality of power supply. These advances will reduce technological losses and ensure the availability of capacity to meet growing demand.

The company’s asset-management system also benefits, with a transition from a management model of planning and preventive work, to a model based on risk-assessment and objectives.

Law reforms aimed at perfection of the regulatory framework for regulation of the company’s main activity will be implemented.

Corporate social responsibility policies are boosted by the financing and organisation of charitable, educational and environmental activities. i 89

> Name-Change

Ordeal is Just Part of Reformation for North Macedonia The Prespa Agreement – reached in June last year under UN auspices, resolving a dispute over North Macedonia’s name – means the start of a period of transformation.

A

fter winning the 2017 Macedonian election, Prime Minister Zoran Zaev vowed to resolve the decades-old name dispute with Greece. UN-sponsored negotiations began in January last year, and Zaev and Greek Prime Minister Alexis Tsirpas met while attending the World Economic Forum at Davos. After ongoing negotiations, international diplomacy and signs of good faith, the Prespa Agreement was signed on June 12. Both countries agreed to the name North Macedonia to replace the unwieldy provisional UN reference of “Former Yugoslav Republic of Macedonia”, and the name used by Macedonia itself (and recognised by over 130 countries), “Republic of Macedonia”. In return for the namechange, Greece promised to forgo its objections to Macedonia’s NATO and EU membership. The 28-year-old disagreement had finally ended.

Hidden Gems: North Macedonia

The resulting transformation is about more than the name alone. Possible ascension to EU membership by the newly named Republic of North Macedonia promises to bring with it reforms, more foreign investment and increased trade, regionally and globally. In many ways, this process has already begun.

North Macedonia is no longer the ex-mine / exsalad bowl of ex-Yugoslavia. Economic reforms and FDI have already changed the financial landscape. Politics and society are evolving, with Albanian becoming the second official language this year. Opportunities abound as the country targets EU membership. In February this year, NATO signed the ascension protocol. Greece was the first country to ratify the protocol, and once it has been ratified by all permanent members, North Macedonia will become a full member.

North Macedonia has been working with NATO since 1995, and provided aid during the 1999 Kosovo conflict, including help for refugees from Kosovo. In 2001, NATO helped end the conflict in North Macedonia between the government and the ethnic Albanian National Liberation Army.

North Macedonia’s NATO membership is an important step on the path to European integration. It provides an extra degree of security for the country’s internal stability, which should encourage increased foreign investment.

90

"Politics and society are evolving, with Albanian becoming the second official language this year. Opportunities abound as the country targets EU membership."

North Macedonia first applied for EU membership in 2004, and it was granted candidate status in 2005. It began reforms to harmonise its laws and regulations with EU Acquis. Two weeks after the signing of the Prespa Agreement, the European Council agreed to begin EU-ascension talks in June this year, as long as Macedonia makes progress against a checklist of concerns.

Ascension and EU membership would lockin key political and economic reforms. EU countries already represent around 63% of North Macedonia’s imports and 81% of its exports, by value and destination. These numbers are likely to increase, with the removal of trade tariff-quotas on both sides. Macedonian exports are likely to benefit from the positive effects of adoption of EU standards and “Made-in-the-EU” product badging.

North Macedonia and the EU entered into a Stabilisation and Association Agreement in 2004, so there are no export duties on Macedonian exports to the EU, and most quota-tariffs have already been removed. Quota-tariffs remain on wine, and were re-introduced on steel products last year in the fall-out of US President Donald Trump’s tariff row with China. Steel is North Macedonia’s fifth-largest export by value overall, while wine is growing. In terms of EU imports, North Macedonia has quotas on a range of dairy and agricultural imports. EU membership will see increased competition here, and will require adjustment for local companies, and lower prices for local consumers.

North Macedonia, however, has not been idly waiting for EU membership. It has transformed itself economically and politically since independence. Government reforms and FDI have transformed exports, improving the country's balance of trade.

CFI.co | Capital Finance International

In politics, the 2001 Ohrid Framework Agreement has greatly improved relations between the Slavic-Macedonian majority and the ethnic Albanian minority. The agreement marked a watershed in relations with the country’s ethnic Albanian minority. The agreement was negotiated as part of the end of hostilities with the Kosovo Liberation Army in 2001. Key provisions include the decentralisation of powers to local governments, and the recognition of the Albanian (or any minority) language as an official language in local council areas where the Albanian (or minority) population is at least 20%. In January 2018, Albanian was made an official language in parliament and for many national institutions. On January 14 this year, the law making Albanian the second official language of Macedonia was introduced as part of a deal the government made with various Albanian parties in return for their votes in favour for Macedonia’s name change. These political reforms will probably ensure greater political and domestic stability, and will be well received as part of Macedonia’s possible EU ascension.

Such reforms would have been unthinkable 20 years ago, reflecting the transformation of Macedonia’s politics.

During the 2000s, the North Macedonian government introduced several economic reforms to encourage FDI and local business.

The two key reforms were the establishment of the Technology and Industrial Development Zones (TIDZs) and the streamlining of business regulations. The current government is building on these reforms, and has introduced measures to help local companies work with companies in the TIDZs, and to begin exports.

TIDZs were legislated in 2000 with the first tenant beginning operation in 2007. There are 14 TIDZs spread throughout the country, with at least seven having tenants. They represent a range of industries, including automotive components, chemicals, and engineering machinery. TIDZ tenants are exempt from custom duties, VAT, and – in the first 10 years – personal income tax and corporate tax. The government also helps with building and utility costs.

The TIDZs boast several success stories, including the development of an informal

"North Macedonia has not been idly waiting for EU membership. It has transformed itself economically and politically since independence.

Government reforms and FDI have transformed exports, improving the country's balance of trade."

91

Hidden Gems: North Macedonia

Prime Minister of North Macedonia: Zoran Zaev Photo: European Commission

"Macedonia’s economic and political transformation shows that it is a serious candidate for EU membership. The path to accession will encourage further transformation and lock-in reforms. Macedonia’s attraction to international investors is set to increase." automotive cluster, which includes companies producing buses, seat covers, electric wiring, and catalytic converters. The catalytic converter company, Johnson Mathey, has become one of Macedonia’s largest overall exporters.

The impact of the TIDZ companies can clearly be seen in the composition and growth of Macedonia’s exports. At independence, they were dominated by mining, manufacturing and food (chart 1). Following the growth of TIDZ companies from 2007, exports of machinery, transport equipment, and chemicals (including catalytic converters) grew from a 7% exports share to 50%; exports as a percentage of GDP went from 38% in 2007 to 55% in 2017.

Hidden Gems: North Macedonia

The increase in TIDZ exports has transformed Macedonia’s Current Account Deficit (CAD), which has fallen from -7.3% of GDP in 2007 to -0.7% of GDP in 2017. Critics have attacked the preferential treatment of foreign companies.

The government has responded by introducing reforms to help better commercial relationships with TIDZ companies, and by providing incentives to increase exports.

The Macedonian economy has benefitted from a streamlining of business regulations. Macedonia inherited a relatively bureaucratic administration system from socialist Yugoslavia, reflected in Macedonia’s 2006 World Bank Ease of Doing Business Ranking of 94. Macedonia began to simplify regulations and systems through reforms called the “regulation guillotine”. It reduced the number of days needed for starting a company from 48 days to three. It did this through the creation of a central registry for company registration in 2016, and the introduction of an electronic registration platform in 2011.

Other regulatory reforms include the introduction of an electronic property cadastre in 2010, defining the dimensions and location of land parcels described in legal documentation, and the introduction a risk-based approach to customs inspections. Together these and other regulatory changes have put Macedonia in the top 10 for Ease of Doing Business; the current rank is 10, a remarkable improvement from the ranking of 94 in 2006. The government is hoping to continue the improvement in regulations and public administration with an

Chart 1: Composition of Macedonian Merchandise Exports by Product Type (SITC) from 1990 to 2018. Source: NBRM.

92

CFI.co | Capital Finance International

emphasis on developing innovative electronic solutions for public administration.

Further reforms will be needed for EU ascension.

France, the Netherlands and Denmark want to see more progress in the rule of law, and in the fight against corruption. To its credit, the current government is committed to this; the 2015 wire-tapping scandal marked a low-point. The current government’s initial efforts are positively reflected in the latest Corruption Perception Index results from Transparency International, which shows Macedonia's corruption ranking reversing some of its recent upward trend, falling from 107 in 2017 to 93 in 2018. To help reduce corruption further, Macedonia can implement previously agreed to measures to increase the safeguards against political and judicial corruption.

Macedonia’s economic and political transformation shows that it is a serious candidate for EU membership. The path to accession will encourage further transformation and lock-in reforms. Macedonia’s attraction to international investors is set to increase. i

Economic Transformation...

At the very heart of who we are at Credit Bank is the desire to transform the social-economic welfare of our people by offering innovative financial solutions.

Our solutions cut across businesses and individuals empowering you to grow.

+254 709 072 058 customerservice@creditbank.co.ke www.creditbank.co.ke

ANNOUNCING

AWARDS 2019 SPRING 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

94

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

CFI.co | Capital Finance International

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

Spring 2019 Issue

> UBS: BEST BANK SUSTAINABILITY LEADERSHIP GLOBAL 2019

The Sustainable Development Goals (SDG) developed by the United Nations provide a roadmap of the action that must be undertaken – now – to avert environmental catastrophe, and to protect the planet for generations to come. As one of the largest and most influential financial institutions in the world, Swiss bank UBS has put its shoulder to the wheel, and its capital heft behind the drive for a sustainable future. UBS prefers to lead by example, and the efforts it has made towards SDG research enables clients, collaborators, policymakers and peers to make

informed decisions on the path towards the SDG goals. UBS offers its private, corporate, and institutional clients a range of opportunities for impact investing, enabling them to make a difference – while still getting the returns they expect. The bank focuses its sustainability efforts on finance, philanthropy, and community engagement, as well as establishing a business model for sustainable growth, responsible stewardship of resources, and expansive social contribution. It underpins its long-term success with educational and entrepreneurial support

for the communities in which it operates. UBS initiatives include, as the tip of this iceberg, a social enterprise that allows cocoa farmers to stake their claim in the industry, an academy to prepare underprivileged students for university, and a non-profit programme that trains, equips, and pays locals to administer basic health care.

UBS takes seriously its role as an architect of a sustainable future, and the CFI.co judging panel applauds its efforts. Congratulations to UBS, the 2019 winner of the award for Best Bank Sustainability Leadership (Global).

> ARCA FONDI SGR: BEST EMERGING MARKETS DEBT MANAGER EUROPE 2018

For more than 35 years, Arca Fondi SGR is one of Italy’s leading independent asset management companies. With steely resolve and strategic manoeuvring, it has navigated a choppy year of challenging markets – and the Milan-based company forecasts more favourable conditions ahead. Arca Fondi leads the way in safety and security, and is more than capable of holding a steady path towards its targets. Despite the underperforming bond indices and volatile stock markets of the past year, Arca Fondi’s smart diversification strategies have delivered smooth progress for the firm. It boasts a far-

reaching distribution network of more than 100 regulated financial service-providers, and has more than 8,000 branches. It also has dedicated financial advisors and online channels to provide customers with support and service. For more than 30 years, the company has driven its growth and expansion with the guiding principles of trust, integrity, and respect. Its responsible stewardship has earned the long-term loyalty of its customers and clients. With over €31bn in asset management and 650,000 subscribers, Arca Fondi SGR offers financial planning, portfolio

management, and investment services to private customers and institutional clients in Italy and abroad. The CFI.co judging panel has followed the firm’s trajectory for some time – this is the fourth consecutive year in which it has won a CFI.co award – and is pleased to see it has weathered the past stormy year with aplomb. The judges point to the firm’s tradition of pioneering product development and exceptional customer care as deserving of recognition, and name Arca Fondi SGR winner of the 2018 award for Best Emerging Markets Debt Manager (Europe).

> APPLIED SCIENCE UNIVERSITY: MOST INNOVATIVE COMMUNITY IMPACT RESEARCH UNIVERSITY MIDDLE EAST 2019

“Through open collaboration and dedicated research, all are enriched and strengthened” – that’s something of a mantra for Applied Science Private University (ASU), a leading education institution in Jordan. ASU has forged strategic partnerships with universities in Australia, USA, Canada, Italy, the UK, and around the Arab world to exchange scientific knowledge and spur innovative research. Over the past two decades, ASU has received top ratings from national and global accreditation associations — one of the few private institutions in the Middle East to achieve such distinction. In addition, it is the first private university in the Middle East to achieve four stars in the QS Stars Rating, with five stars awarded in five different criteria including teaching, employability, internationalization, facilities and Inclusiveness. That vote of confidence has helped to boost the university’s

international enrolment, with 53 nationalities represented on campus. The university offers 26 undergraduate and six graduate degree programmes through eight faculties — including Engineering, Pharmacy, Business, Information Technology, Nursing, Law, Arts and Humanities, Art and Design. ASU aims to set new standards for excellence in scientific research and community service. Through partnership with one of the biggest hospitals in Jordan, it provides crucial training opportunities for students as well as vital services for the local community. The campus features state-of-the-art laboratories — including one of the largest anatomy labs in the region — where students enjoy hands-on learning and gain practical real-world experience. Engineering students are encouraged to develop and test energy solution ideas at the university’s Renewable Energy CFI.co | Capital Finance International

Centre. Information technology students support the university through the Virtual Development Company and innovation lab incubated in their faculty, providing the university with specialised software. Students from diverse faculties actively engage in entrepreneurship projects supported by ASU to establish start-up companies. Lecture halls are equipped with audio-visual and telemedicine capabilities, enabling interactive collaboration with other research centres worldwide. ASU students show strong civic commitment and log many hours of community service along with their studies, further polishing the university’s golden standard of success through service. The CFI. co judging panel congratulates Applied Science Private University, the 2019 winner of the Most Innovative Community Impact Research University (Middle East) award.

95

> PICTET: THE BEST THEMATIC INVESTING SOLUTIONS GLOBAL 2018

Pictet is one of the most respected names in the world of asset and wealth management with CHF 496 billion AUM (as at December 2018). Founded in Geneva in 1805, Pictet has maintained its principles of succession and in 213 years there have been only 42 partners, with an average tenure of 21 years. This has allowed the company to establish strong traditions and values which translate into long and trusted relationships with its clients. Always the pioneer, Pictet was one of the first asset managers to develop a thematic fund strategy, launching its water fund almost 20 years ago,

followed by more thematic funds including the innovative Digital Fund in the summer of 2008 when there were only five million iPhones in the world, compared to over the billion in use today. Pictet has built on its early success by creating highly specialist investment teams from diverse backgrounds with a deep understanding of the themes. Understanding how to create such teams has helped set Pictet apart from its competition and enabled them to develop new thematic investment products.

The Group´s adherence to the UN Principles for Responsible Investment and the integration

of high ESG standards has helped enhance returns and mitigate risk . These factors have resulted in the funds not only delivering financial results but have also contributed to the delivery of SDGs and sustainable solutions.

Given the increasing demand for responsible investment solutions, the CFI.co judging panel felt Pictet Group, with its ability to identify strong thematic investment solutions that deliver strong rewards for its clients whilst funding positive change, deserved the recognition of the award for The Best Thematic Investing Solutions Global 2018.

> SCOTTISH FRIENDLY: BEST MUTUAL INSURER UK 2019

As a mutual, Scottish Friendly strives to create wealth and provide assurance – for policyholders, rather than shareholders. The Glasgow-based firm has served its members for more than 150 years, delivering reliable returns that are reinvested for stakeholders’ long-term benefit. Scottish Friendly launched a growth strategy in 2006 that prioritised diversification and organic growth, and mergers and acquisitions have since been strong drivers of the firm’s expansion. Membership has risen to 594,000, and assets-under-management to an impressive £2.8bn. Scottish Friendly invites new members to take advantage of its suite

of financial solutions and services, including life insurance policies, savings plans, and investment products. The firm offers back-office support services and bespoke insurance products for other financial service organisations through strategic partnerships. Its proven resilience throughout uncertain times has given Scottish Friendly a competitive edge towards meeting its growth objectives, with a large-stake acquisition in a major company anticipated by the end of this year. The company’s consistent growth is driving recruitment, and Scottish Friendly expects to increase its workforce by up to 40 employees

during 2019. The Scottish Friendly team carries out comprehensive focus-group studies to identify its customers’ continuously changing needs. It encourages members to prepare for life’s unexpected twists and turns with insurance products that offer peace-of-mind, and to grow their wealth with savings and investment plans that deliver tangible results. It has an active outreach programme to encourage younger customers to start planning their future — now.

The CFI.co judging panel has no hesitation in offering Scottish Friendly the 2019 award for Best Mutual Insurer (UK).

> BANCHILE INVERSIONES: BEST INSTITUTIONAL INVESTMENT SERVICES CHILE 2018

Banchile Inversiones has leveraged over three decades of fine-tuned fiduciary experience to become one of the most prominent players in the Chilean financial market. As a subsidiary of the Banco de Chile, Banchile Inversiones operates with the backing of one of the country’s largest financial conglomerates. The firm’s investment efforts are divided between its two subsidiaries: Banchile Administradora General de Fondos (AFG) handles asset management, while Banchile Corredores de Bolsa is responsible for brokerage activities. Banchile’s AFG team 96

has exemplary capital market knowledge, technical expertise, and network. Banchile AFG distribution covers pension fund, private bank, family office, and insurance company markets. The firm’s diversified portfolio includes investment opportunities in Latin American equities as well as global mutual funds. Banchile saw a 34 percent year-onyear increase in net income in 2017, fuelled in part by a 10 percent rise in assets under AFG management. As one of the country’s leading financial services providers and with CFI.co | Capital Finance International

assets under management totalling more than $9.5bn, Banchile AFG has contributed to the upward trend of the Chilean financial market.

Banchile headquarters are in the country’s capital, Santiago, which has recently been called “Sanhattan” in reference to its position as a regional financial hub. The firm has contributed greatly to the sustainable growth of the Chilean economy, leading the CFI.co judging panel to present Banchile Inversiones with the 2018 award for Best Institutional Investment Services (Chile).

Spring 2019 Issue

> SBM SECURITIES LTD: BEST STOCKBROKER INDIAN OCEAN 2019

Globalisation can elevate small countries with the right skill resources and infrastructure to challenge larger world players for more of the market share.

The island nation of Mauritius entices foreign companies to establish operations with its favourable tax structure and entrepreneurial incentives — which SBM Securities Ltd aims to leverage to establish the country as an international hub for financial services. SBM Securities Ltd serves its parent company, SBM Holdings Ltd, as the stockbroking arm of the group, and is licensed by the Financial Services Commission (FSC) as a full-service investment dealer. It operates under the umbrella of

SBM Capital Markets, and is the only bank in Mauritius to be granted an investment license.

It employs a team of dedicated professionals with an impressive track record of navigating local and international finance markets. SBM Securities Ltd offers investment products for individual or institutional clients, from shares, bonds and mutual funds to IPO listings, underwriting services and dual currency investments. The company has streamlined its corporate structure to pool resources across the group and broaden its spectrum of products and services. It has overhauled its internal IT portal to maximise efficiency and access to

information, and will this year launch an app to give customers on-the-go control of their investments. SBM Securities Ltd bustled through a busy 2018, adding three listings to the Stock Exchange of Mauritius, and extending the work schedule of its trading desk to allow greater access to all markets, including the US and Asia. SBM Securities Ltd first attracted the attention of the CFI.co judging panel in 2017 for its comprehensive suite of investment tools. The judges are delighted to honour SBM Securities’ continued development with fresh recognition —the 2019 award for Best Stockbroker (Indian Ocean).

> PYRAMIDAL TECHNOLOGIES: BEST FORENSIC TECHNOLOGY GLOBAL 2019

To properly address the escalating nature of crime, Pyramidal Technologies is proactive when it comes to innovative solutions that can be used to help create more civil societies and provides law enforcement and judicial systems with vital tools to ensure offenders are held accountable under the law. The company has leveraged the power of technology to elevate forensic ballistics from subjective opinion to databacked science. Pyramidal Technologies has driven the technological evolution of forensic ballistics and firearms registration by offering its flagship product, ALIAS, to support justice departments, police and military forces and government agencies worldwide. ALIAS

combines a next generation scanning system, using interferometry, with a sophisticated software front-end, including advanced intellectual property for “Correlation”, to capture and compare firearms evidence in the form of bullets and cartridge cases. The majority of profits are reinvested into the evolution of ALIAS through ongoing R&D in order to ensure that law enforcement officials are equipped with the best methods available to identify violent offenders. Pyramidal Technologies is carrying out its efforts through ongoing strategic discussions with government leaders worldwide with regard to issues of national security and public safety as it relates to firearms. The CFI

judging panel is familiar with the company’s contribution to civil societies, having recognised Pyramidal Technologies for its forensic fortitude in previous awards. The judges are pleased to see the company and its partnerships continue to flourish and contribute to public safety, such as to reduce violent crime, including gang and drug related murders. For example, firearm homicides in the Dominican Republic have been cut in half over the past five years through a National Security initiative using ALIAS as a principle solution. Without hesitation, the judges declare Pyramidal Technologies as winner, for the third year, of the 2019 award for Best Forensic Technology (Global).

> TRACOM SERVICES: BEST ENTERPRISE PAYMENT SOLUTIONS AND BEST ECOMMERCE PAYMENT SOLUTIONS EAST AFRICA 2019

Kenya is a hub for East African financial services and investments, and has become a headquarters for the tech teams driving a mobile money revolution. Tracom Services, based in Nairobi, delivers solutions from hardware to software and services — all backed by the latest technology that increasingly defines the country’s business ecosystem. Tracom is leveraging a successful 10-year history of innovation-led growth and reliability to respond to customer needs and

market demands, grow its client base and penetrate new markets. The firm maintains two research and development centres, in Kenya and Tanzania, embracing the power of modern technology to deliver solutions. Kenya is a leader in fintech innovation, and Tracom has expanded its established suite of products to deploy fresh eCommerce solutions. Tracom’s eCommerce offerings are an extension of the work it’s been doing so well over the past decade — creating CFI.co | Capital Finance International

secure payment gateways to streamline clients’ day-to-day business operations for optimal efficiency and scalability. The company has put its extensive knowledge to good effect, and its strong growth and market expansion have caught the eye of the CFI.co judging panel for the third consecutive year. The judges congratulate Tracom Services on winning dual awards in 2019: Best Enterprise Payment Solutions and Best eCommerce Payment Solutions (East Africa).

97

> KPMG LOWER GULF LIMITED: BEST FINANCIAL ADVISORY TEAM GCC 2019

Over its nearly five decades of operations, KPMG Lower Gulf Ltd has developed one of the most specialised and capable financial advisory teams in the Gulf Cooperation Council (GCC) countries. KPMG LG’s crack team of financial advisors empowers clients to author their own success stories. The company’s advisors focus on specialised sectors of finance, continually enhancing and updating their expertise in deal advisory and restructuring, consulting, risk management, and financial infrastructure advisory services. The firm boasts

an internationally experienced leadership team of more than 100 partners, directors, and associate directors who head a workforce of 1,250 professionals. The firm is a trusted partner in the GCC region, with five offices in the UAE (Dubai, Abu Dhabi, and Sharjah) and a market presence in Bahrain, Qatar, Egypt, Kuwait, Lebanon, Jordan, Oman, Yemen, and Saudi Arabia. Most of KPMG LG’s staff have local and international experience, as well as an intimate understanding of regional markets and business practices. As

part of the KPMG global network, the firm can draw on the knowledge and resources of 207,000 people working in member firms around the world — 153 countries and territories in total — to deliver effective solutions, and exceptional client value. The CFI.co judging panel recognises that the firm’s expertise and strength of purpose have achieved strong and consistent growth over recent years. The judges are pleased to offer KPMG Lower Gulf Limited the 2019 award for Best Financial Advisory Team (GCC).

> QNB ALAHLI: BEST SME BANK EGYPT 2019 AND BEST RETAIL BANK EGYPT 2019

Reforms are helping Egypt’s economy to recover, and Qatar National Bank ALAHLI is part of the success story. QNB ALAHLI is a leading financial institution with a retail-banking client base more than a million strong. QNB ALAHLI clients range from individuals and large corporates to small and medium-sized enterprises (SMEs), and the bank’s tradition of providing quality and service has cemented generational relationships. QNB ALAHLI offers a comprehensive suite of retail banking services through a multichannel platform, including

a network of 216 branches and electronic services. This reflects the bank’s spirit of innovation, and ensures secure and convenient account control. Accelerated financial inclusion is a key strategy for sustainable economic growth, and QNB ALAHLI addresses this with products tailored for targeted market segments.

QNB ALAHLI offers youth accounts to engage clients at an early age, green loans to finance energy efficient projects, and “pro” packages to support self-employed professionals. Another avenue for fostering economic prosperity

lies in its SME support. QNB ALAHLI’s SME portfolio comprises more than 20% of its total lending, and its subsidiaries provide valueadded products and services for SMEs’ daily operations. The CFI.co judging panel has followed QNB ALAHLI’s story for a number of years, and believes that the bank’s prudent riskmanagement has delivered yet another year of strong liquidity and continued growth. The judges unanimously approved QNB ALAHLI’s 2019 award for Best SME Bank and Best Retail Bank (Egypt).

> MOUWASAT MEDICAL SERVICES: BEST SPECIALISED HEALTHCARE LEADERSHIP GCC 2019

Healthcare is an industry that has seen remarkable growth and improvement in the Middle East over the past few decades – and the title of Mouwasat Medical Services stands out in the sector. Since its foundation in 1975 by Mohammed Sultan Al-Subaie, Mouwasat has remained true to its mission of always putting the needs of patients first, so those in need of medical treatment know they are in the best hands. Mouwasat is committed to the continuous improvement of its services. It employs only the best medical practitioners from around the globe, and prides itself on being at the vanguard of technology, and 98

in research. The company has been accredited by the US Radiology Authority and the American College of Pathology, and is recognised for its advanced IT systems. Mouwasat has been rewarded with growth throughout its existence, and has recently announced a 100% increase in its capital through a share issue to finance its strategic growth plan, and to expand its medical network. Sound financial management and strong corporate leadership are largely responsible for the company´s long-term ability to adapt to areas of specialised medicine, and to develop centres providing pioneering treatment CFI.co | Capital Finance International

in fields as diverse as endoscopic surgery and obesity, dermatology, cosmetic surgery, and fertility. Mouwasat has been at the forefront of education, and regularly organises medical symposia. The CFI.co judging panel has been impressed by the company´s ability to manage, operate and maintain hospitals, health centres and pharmacies to such a consistently high level – while increasing capacity in a sustained way.

The judging panel feels that Mouwasat deserves recognition for its managerial performance, and unanimously grants it the 2019 award for Best Specialised Healthcare Leadership (GCC).

Spring 2019 Issue

> AIR SENEGAL SA: MOST PROMISING REGIONAL AIRLINE WEST AFRICA 2018

The Senegalese government has high hopes that its national airline, Air Senegal SA, will lift the country and its economy to new heights. Under the country’s Plan Emergent Senegal (PSE), the national airline was reinstated with a new focus and strategy: ownership, autonomy, and expansion. Air Senegal SA transformed the problems of its predecessors into a solid foundation for success by investing in asset acquisitions to ensure its own autonomy.

Founded in late 2016 and led by former Airbus

Senior Vice President Philippe Bohn, Air Senegal SA purchased two brand new ATR turboprops to serve its domestic and regional network. In a short time, the airline has expanded its regional services to include international destinations and added two Airbus 319s to its fleet. In February 2019, Air Senegal SA opens a daily route between Dakar and Paris and welcomes the first of its newest fleet additions – two Airbus A330-900 Neos, the latest of the line, with optimised fuel efficiency and passenger

capacity. The airline feels confident in its goal to establish Dakar’s Blaise Diagne International Airport as the regional air hub for West Africa – and itself as the region’s air transport leader. The Air Senegal SA team is composed of motivated and talented employees who prioritise customer safety and satisfaction and adhere to European standards with diligence and transparency.

The CFI.co judging panel has no reservations in offering Air Senegal SA the 2018 Most Promising Regional Airline (West Africa) award.

> PRODUBANCO (BANCO DE LA PRODUCCION SA): BEST BANK GOVERNANCE ECUADOR 2019

Produbanco has been fostering economic development in Ecuador since its inception in 1978. With good corporate governance at the heart of its operations from day one, Produbanco has earned a reputation for principled business conduct and forward-looking compliance strategies. The bank carefully oversees the resources under its management, always ensuring that its governance is irreproachable, and that its risk-management practices identify, measure and analyse potential negative impacts. Produbanco limits board membership terms to two years, ensuring a regular influx of

fresh thinking and fresh talent, all the while maintaining a laser-sharp focus. The bank’s enviable track record resulted in external financing from European multilaterals in 2018, further boosting its capacity to foster economic development. Produbanco offers products and services for the complete financial lifecycle of its customers, from saving accounts for individuals to credit lines and payroll services for corporate clients. Its organisational structure enables it to identify and adopt international best-practice, supporting customer segments and contributing to economic, social, and environmental

sustainability. Produbanco is a member of the Promerica Group, one of Latin America’s leading financial service providers. Bank practices, products, and processes are standardised across the network for maximum impact across the region. Produbanco has a market presence in nine countries – Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Ecuador, the Grand Cayman and the Dominican Republic. The CFI.co judging panel cites the bank’s excellent solvency and profit margins as the final points to seal the deal: Produbanco takes the 2019 award for Best Bank Governance (Ecuador).

> THE INTERNATIONAL BUTLER ACADEMY: BEST PRIVATE BUTLER TRAINING GLOBAL 2018

Everyone knows that the butler did it, but few know just what it is that butlers do. When Robert Wennekes founded The International Butler Academy 20 years ago, he did so with vast experience and knowledge of the industry. He had worked as butler, personal assistant and executive manager to an American billionaire for six years, and returned to Europe to take up the position of head butler for an eminent Austrian family. In his next assignment, at the US Embassy in Berlin, he was awarded a certificate for Outstanding Service by the

White House. While working as head of the domestic staff division at executive search firm Egon Zehnder, he realised there was a shortage of butlers to meet the exacting requirements of his clients. He decided to create The International Butler Academy, and the skill of the trainers and the quality of the curriculum made the school a resounding success. Although imitators started springing up, the academy has maintained the number one spot in the field. In 2014, the academy acquired Huize Damiaan, a mansion in the CFI.co | Capital Finance International

Netherlands. This imposing establishment boasts 135 rooms, all equipped with the tools and products the students will need once in private service. The academy runs three 10week training programmes a year – and the courses are always fully booked. The CFI.co judging panel recognises the unique nature of the academy and its unrivalled level of instruction. The judges unanimously agreed that The International Butler Academy was a worthy winner of the 2018 award for Best Private Butler Training (Global).

99

> THE ACCESS BANK UK LTD: BEST AFRICA TRADE FINANCE BANK 2019

With a presence in the financial hubs of London, Dubai and Lagos, The Access Bank UK is strategically positioned to unlock promising investment opportunities in emerging markets. The Access Bank UK is a subsidiary of the parent company Access Bank Plc, whose expansive branch network covers eight countries in West and Sub-Saharan Africa. The Access Bank UK’s exemplary corporate conduct has contributed to its continuous growth and consistently reliable returns. Despite growing in size and scope, The Access Bank UK has maintained its moderate

risk appetite and its focus on building close relationships with its customers this has enabled it to create bespoke financial solutions to meet the needs of individual clients and markets — most recently with a suite of new products to assist with cash-flow issues of customers in Nigeria. The bank first attracted the attention of the CFI.co judging panel for its expert knowledge of the market in Sub-Saharan Africa and its seamless facilitation of international trade. Since its first CFI.co award win in 2016, The Access Bank UK has experienced strong

and sustainable growth across-the-board: pretax profits for 2018 are up 62%, returns on investments are paying out ahead of schedule, and there is access to a broader range of countries and markets including Ghana, Rwanda, Kenya, and Tanzania. The bank has accomplished this by following a model of clear and prompt communication between staff and customers. For the fourth consecutive year, the CFI.co judges are pleased to present The Access Bank UK with the 2019 award for Best Africa Trade Finance Bank.

> FARADAY VENTURE PARTNERS: BEST START-UP INVESTMENT PARTNER SPAIN 2018

Unlike traditional Venture Capitalist firms, the Spanish firm Faraday Venture Partners operates as a private investment club offering investors, without access to deal flow, the opportunity to diversify their investment by investing in the best start-ups in Spain and wider Europe. Its Partners range from individual investors to small funds and family offices, each of which pays an annual membership fee to receive an equivalent of 10 Investment Opportunity Reports annually.

In return Faraday accompanies and advises its Partners throughout the entire investment cycle, from the initial search and project analysis to the final exit strategy and liquidation of stakes.

As one of Spain’s most active private investors’ clubs, Faraday embraces portfolio diversification for its investors with ticket minimums of €2,000 and a carefully curated selection of innovative

start-ups from all sectors that it regularly offers for investment to its Partners. The firm leverages its extensive national and pan-European networks to identify start-up projects with the potential for swift scalability and the promise of above-average returns on investments within a 3 to 5-year period. Faraday currently serves 170 active Partners with assets under management of over €10 million and investment stakes in 24 start-ups. Since its launch in 2011, Faraday has been able to offer its Partners a total of 23 divestment opportunities in 9 different companies, with multiples on money invested ranging between 1.1X and 10.7X and having paid out capital gains of over €1 million. Aside from expert advisory services and sound investment management, Faraday offers its Partners quarterly networking events

bringing together its Partner-base, primarily composed of entrepreneurs and financial and investment service professionals and the CEOs of its investee companies to foment crossindustry relationships. It also runs bi-annual Investment Workshops and provides investee companies with hands-on operational advice, and a Collective Advantages Program. The CFI. co judging panel applauds the firm’s business proposition that offers private and first-time investors the opportunity to invest in the Venture Capital asset class for a minimum ticket of €2,000, allowing investors to adequately diversify their investment portfolio and enjoy increased returns typical for the asset class. The judges congratulate Faraday Venture Partners on its 2018 award win for Best Start-Up Investment Partner (Spain).

> eDreams ODIGEO: BEST ONLINE TRAVEL PARTNER GLOBAL 2019

Headquartered in balmy Barcelona, eDreams ODIGEO knows a thing or two about iconic travel destinations. The eDreams ODIGEO group is the World’s fifth-largest online travel company, encompassing five brands — Opodo, eDreams, Go Voyages, Travellink, and Liligo. The company was founded in 2000 with support from US and European venture capitalists, and has a global reach, with a market presence in 43 countries on five continents. eDreams ODIGEO served more than 18 million customers in 2018, pairing its passion for travel with the latest tech advances – including machine-based learning 100

(MBL) – to deliver lightning-fast, personalised deals for travellers, and a booming eCommerce platform for its affiliates. The customer-centric company ensures that the more it grows, the better positioned it is to meet the needs of its expanding client base and affiliate network. The launch of new products, including a “Cancel for any Reason” option, underscores the company’s commitment to customer satisfaction. eDreams ODIGEO’s consistent growth dovetails with its continuous investments in technology — from the company’s tech team and infrastructure to its tech research and outreach programmes. The CFI.co | Capital Finance International

company sponsored a 24-hour “hackathon” last year, a competition where 100 IT developers in 15 collaborative environments hunkered down to brainstorm ideas, develop code, and beta-test solutions for tangible industry improvements.

The CFI.co judging panel has followed eDreams ODIGEO’s trajectory for several years, and remains impressed with the company’s bold use of technology to deliver bespoke travel solutions and satisfy wanderlust. The judges are pleased to present eDreams ODIGEO with the 2019 award for Best Online Travel Partner – its fourth CFI.co win.

Spring 2019 Issue

> ANAND RATHI PRIVATE WEALTH MANAGEMENT: BEST WEALTH MANAGER INDIA 2019

Leading Indian wealth management firm Anand Rathi Wealth Services Limited has been enjoying an exceptionally productive period, achieving unprecedented traction in its target market of the high net-worth individuals (HNIs) segment. In the last six years, the company’s asset under advisory has grown from Rs. 4,500 crore to Rs. 17,500 crore. With more and more clients embracing the objective-driven wealth management approach, the company has carved a niche for itself as being the alternative to target-led wealth management firms. Anand Rathi Wealth Services has employed over 600 people and operating from 9 locations - Mumbai, Delhi, Bengaluru, Hyderabad, Chennai, Pune, Kolkata, Gurgaon and Dubai– to meet its growing customer base. The Anand Rathi Group ventured into Private Wealth Management

business in 2002, under the leadership of its Chairman, Mr. Anand Rathi. This innovative financial solutions company provides wealth management services to high net worth individuals (HNIs). In 2007, when Mr. Rakesh Rawal took over the mantle of the company, he took Anand Rathi Private Wealth to soaring heights. Under Mr. Rakesh’s leadership, a mathematically constructed Financial Strategy was created with aim of providing consistent returns at the least possible risk for clients. This unique strategy became the game changer for the company’s success. The company boasts of a stellar client-retention rate and forging lasting relationships. The company has four tenets of wealth management, which reiterates its stand of keeping 'client-first'. These include fearless advisory, data-backed recommendations,

uncomplicated approach, and transparent implementation. Anand Rathi Wealth Services spares no expense in its research efforts, and offers data-driven investment advisory that inspires client confidence. The company promises an uncomplicated investment process, from the initial financial strategy through the evolution of the Relationship Manager-Client relationship. The CFI.co judging panel has followed this success story for several years, first recognising Anand Rathi Wealth Services in the 2015 awards programme. The judges are delighted to see the firm continue its upward trajectory and Anand Rathi Wealth Services Limited - for the fifth consecutive year - welldeserved recognition, this time the 2019 award for the Best Wealth Manager (India).

> AVERDA: MOST INNOVATIVE WASTE MANAGEMENT SERVICES MIDDLE EAST 2018

A clean environment improves lives, safety, and sustainability. Dubai-based industrial engineering company Averda should know: it manages municipal, industrial, and residential waste across three continents. Capitalising on waste-as-energy breakthroughs, Averda transforms residual waste into refuse-derived fuel (RDF) using an environmentally friendly process. Averda’s adaptable thermal treatment reduces waste volume by 90 percent, resulting in a viable by-product that can be used for power or heat, or sold for profit. The Averda story

began in 1964, and in tech terms the company was way ahead of its time; 54 years later, it continues to be a pioneer of waste management technology. Clean cities thrive and prosper, inspire residents and communities to take action, and attract forward-thinking businesses.

Averda first came to the attention of the CFI. co judging panel in 2017, winning an award for its conscientious management of landfill sites and disposal of e-waste. Averda has maintained its promising trajectory, providing creative, techbased solutions for one of the world’s most

challenging issues. Since the 2017 award win, the company has secured several major projects — proving that it is forging ahead with continuous innovation. Averda’s powerful partnerships combine third-party image capture with analytics to improve routing and collection efficiencies and perform quality assurance checks. For its continued dedication to creating a cleaner world, the CFI.co judging panel names Averda winner of the award for Most Innovative Waste Management Services (Middle East) – for the second consecutive year.

> TEBYAN REAL ESTATE DEVELOPMENT: BEST LANDMARK PROJECT PARTNER UAE 2019

In the real estate world, location (location, location) is key, and Tebyan Real Estate Development – with headquarters in the luxurious Dubai Marina – is perfectly positioned. The firm’s operational bases are in stunning high-rise towers, the latest of which shoots up from the marina skyline to create a shining new standard of style, amenity and quality. The flagship project, Sparkle Towers, is the result of some powerful and stylish collaborations. Tebyan extends an invitation to buyers who would like to reside among the stars in “a space marvelled by Swarovski”,

referencing the iconic company responsible for the towers’ crystal-adorned lobby and common areas. The towers feature a façade that glitters in the evening marina waters as more than 1,500 lights illuminate the development’s 373 opulent apartments and penthouses. The rooms are finished with the finest materials, from marble and ceramic flooring and granite countertops to crystal-encrusted door plaques. Tebyan Real Estate Development stands out in the marina, and its emphasis on quality is evident in the lavish detail of its twin towers. Consolidating CFI.co | Capital Finance International

the expertise and experience of several major real estate investors and developers, the Tebyan team has a proven track record of development in Saudi Arabia, Jordan, and Dubai. Tebyan will launch projects worth more than AED1.5bn over the coming two years, adding three more deluxe developments to its portfolio. The CFI. co judging panel was swayed by the Tebyan’s sumptuous style and quality, and announces Tebyan Real Estate Development the winner of the 2019 award for Best Landmark Project Partner (UAE).

101

> IBERDROLA: BEST GREEN ENERGY IMPACT BOND EUROPE 2019

Spanish electric utility giant Iberdrola, the country's largest energy group by market capitalisation and the global leader in wind energy, closed its third issue of green hybrid bonds in February. The issue was six times oversubscribed and raised €800m – €100m more than Iberdrola raised last year. The group was the largest corporate issuer of green bonds in the world in 2016 and 2017 and was the first Spanish company to launch the ecological product in 2014. In total, Iberdrola has issued 13 green bonds: 2 of them private and 11 public, including one through Avangrid, an American subsidiary of which the company

owns an 81.5% stake; 3 of them have been hybrids. In total, nearly €9bn. It also offers green bank loans and sustainable credit lines.

Iberdrola committed to the hybrid green bond strategy in its most recent Strategic Plan, and funds will be used to finance offshore wind farms. As well as taking its corporate social and environmental responsibility seriously, Iberdrola delivers an increasing, inclusive, and sustainable social dividend. It has been developing sustainable solutions to generation problems by increasing clean energy products, storage capacity, digitalisation, and by using of smarter grids. The company's generation

capacity is over two thirds emissions-free, and it aims to be carbon-neutral by 2050. For each Green Financing instrument, Iberdrola reports annually on total funds allocation and sets out the achieved benefits in sustainability. The environmental rating agency Vigeo Eiris has given Iberdrola its highest level of assurance and recognises its advanced ESG performance.

This commitment to high standards in the governance of the bond and the transparency of its reporting process impressed the CFI.co judges' panel, which has announced Iberdrola as winner of the 2019 award for Best Green Energy Impact Bond (Europe).

> SUPERNOVAE LABS: BEST FINTECH ACCELERATOR ITALY 2018

Supernovae Labs, Italy’s leading accelerator for fintech startups dedicated to financial institutions is pioneering new collaborations between finance and FinTech. In 2016, Carlo Giugovaz founded Supernovae Labs after gaining over 35 years of experience in the financial sector with the ambition to facilitate relevant and impactful business changes, by creating a rich ecosystem and recognizing the innovative potential of the market. With a new Open Innovation approach, Supernovae Labs offers an integrated range of banking services and operates as a bridge

between emergent startups and established financial systems, where collaboration is key to creating benefits for all the partners involved.

Supernovae Labs supports and accelerates the best startups on the market, accompanying their business journey by creating bespoke valueadded solutions based on the specific needs of each partnership. The company is well versed in fintech trends, offering business solutions including regtech (regulatory technology), AI-powered chatbots as well as roboadvisory.

Supernovae Labs collaborations enable

financial institutions to invest in innovation at marginal costs while providing startups and digital entrepreneurs with access points to banking and insurance markets. Supernovae Labs’ operating offices are in Milan, and it benefits from a European network presence.

The CFI.co judging panel believes that Supernovae Labs has proven itself a capable player in the digital innovation ecosystem – and that warrants a win! Congratulations to Supernovae Labs, winner of the 2018 Best FinTech Accelerator (Italy) award.

> TANDEM & STARK: BEST CONSTRUCTION PROJECT COST SERVICES TEAM AFRICA 2019

Before breaking ground on a new construction project, budget and time constraints must be carefully considered and calculated — and then respected. In Kenya, and across the wider East and Central Africa region, the consultancy firm Tandem & Stark has earned a reputation for delivering projects on-time and on-budget. Like many success stories, this one sprang from humble beginnings: Tandem & Stark’s first workspace was a garage. The firm flourished and has grown to become one of the leading consultancy firms in Africa. It prepares a detailed roadmap for each project, 102

outlining customer objectives and expectations in clear terms, and ensures strict adherence to budget and timeframe. Tandem & Stark counts its workforce as one of the key drivers of its success. The dedicated team boasts many years of experience in the construction industry, and possesses intimate knowledge of regional markets and international trends.

The company aims to provide value-added construction cost engineering services by partnering with customers throughout a project’s development. Tandem & Stark specialises in creating bespoke solutions, and has a proven CFI.co | Capital Finance International

track record of delivering top-notch construction cost-control and quantity surveying. It uses the latest tech advances to optimise the accuracy of estimates and stay on top of deadlines, as well as to increase overall efficiency. The company has recently expanded its services to include project management, where it applies the same thorough methodology. The CFI.co judging panel is pleased to see Tandem & Stark continue its upward trajectory, and confers the 2019 award for Best Construction Project Cost Services Team (Africa). This is the third consecutive year for Tandem & Stark to receive an award from CFI.co.

Spring 2019 Issue

> VICTORIA MUTUAL: BEST FINANCIAL ADVISORY TEAM CARIBBEAN 2019

Since its launch, way back in 1878, Victoria Mutual has been a champion of financial inclusion. The Kingston-based company has devoted itself to empowering Jamaicans who had been financially excluded, providing them with savings and loan services, including mortgages and pension funds. The company is committed to staying abreast of the changing financial needs of its clients, and has developed strategic business units to offer them wealth management, money transfer, and real estate and insurance services. Victoria Mutual is a leader in wealth creation and protection, and remains true to its goal of empowerment. Its team believes that

education is the key to that empowerment, and has developed public outreach platforms to provide communities with the financial literacy needed to plan for their future. The programmes introduce mortgages as a vehicle for home ownership — a dream it hopes to make an attainable reality for all Jamaican citizens. In 2018 alone, over 2,000 Jamaicans benefited from Victoria Mutual’s educational home ownership sessions. The building society’s sophisticated risk‐management strategy and governance policies have delivered a 23% increase to its loan portfolio from September 2017 to 2018 — while the market has grown

by just 12%. The wealth management team provides Jamaican businesses with vital information on raising capital, and has become a leading arranger of bonds for corporate clients.

The positive performance of Victoria Mutual’s equity and pension funds, its high rates of customer satisfaction and the engagement of its team caught the attention of the CFI.co judging panel. Victoria Mutual is a company that cares, and the judges are delighted to recognise its efforts in financial literacy education, as well as its sage stewardship. Congratulations to Victoria Mutual, the 2019 winner of the Best Financial Advisory Team (Caribbean) award.

> BANCHILE INVERSIONES: BEST STOCK BROKERAGE CHILE 2018

For more than three decades, Banchile Inversiones has been a leading and trusted provider of financial services in Chile. Banchile Inversiones is a subsidiary of the Banco de Chile, one of the most dominant financial conglomerates in the country. The company’s focus is two-fold: its brokerage activities are handled through its subsidiary Banchile Corredores de Bolsa, while asset management is handled through its subsidiary Banchile Administradora General de Fondos. With more than 300,000 clients and

$11bn worth of international and local shares, Banchile Inversiones commands the largest share of the market, boasting a 20 percent market share. In terms of traded volume, its brokerage firm is among the biggest in the country, claiming a 13 percent share of the market. Clients of Banchile’s brokerage firm range from institutions and organisations to high-net-worth individuals and retail customers.

The brokerage firm provides sales, trading, and advisory services in equities, fixed income,

currencies, and derivatives. Banchile has a topranked research department and is nationally renowned as an industry leader in finance research. Largest is not always best, but the CFI.co judging panel felt that in the case of the Chilean market, it is. Banchile has been a major player in helping the capital markets deliver sustainable economic growth to Chile, and the panel is delighted to declare Banchile Inversiones as the 2018 winner of the Best Stock Brokerage Chile award.

> AIR AUSTRAL: BEST AIRLINE STRATEGIC PARTNERSHIP AFRICA AND THE INDIAN OCEAN 2019

A strategic alliance can convert competitors into colleagues – as well as maximising profits and expanding operations. Air Austral, based on the island of Reunion, off the coast of Madagascar, has signed a Privileged Partnership Agreement (PPA) with Kenya Airways and Air Madagascar.

The partnership aims to strengthen each individual airline, as well as the co-operative alliance, with plans to share technical and training resources. Each carrier can now offer customers

a wider slice of the globe to explore, and each gains access to its partners’ destinations through code-sharing pacts. Air Austral’s established network includes direct flights to destinations in Europe, Asia, and the Indian Ocean, and the partnership opens new destinations for the airline by establishing Nairobi as an African mainland hub. Air Austral and its partners expect the co-operative exercise to optimise operations through improvements in flight scheduling and CFI.co | Capital Finance International

capacity exchange. Air Austral has owned an equity stake in Air Madagascar since late 2017, further solidifying the link between the two airlines. The CFI.co judging panel believes that the alliance creates ample room for commercial and operational synergies, and congratulates Air Austral on winning the 2019 award for Best Airline Strategic Partnership (Africa and the Indian Ocean). This is the second 2019 CFI.co award win for Air Austral.

103

> AFGHANISTAN INTERNATIONAL BANK: BEST CORPORATE GOVERNANCE AFGHANISTAN 2019

Strong corporate governance puts the proper checks and balances in place to ensure sustainable success, something vitally important for organisations and businesses in pioneer markets. The Afghanistan International Bank (AIB) was founded in 2004 to drive economic development in the country. It has spent the past 15 years building a reputation as a reliable partner of international finance expertise, and for its local market competence. AIB’s new corporate headquarters, in one of the most stylish and accommodating office buildings in

the country, is a fitting home for an institution on the move. AIB board members ensure that the bank’s governance code continues to meet the highest international standards and best-practice benchmarks, acting as a catalyst for growth for the nation and its people. AIB implements the latest and most relevant safeguards to protect the institution – and its shareholders – against any fraudulent or illicit financial associations. The bank’s exacting anti-fraud and anti-money laundering regulations have contributed to its trustworthy

reputation, and earned AIB the distinction of serving as a clearing facility for multiple currencies. The bank has consistently earned a vote of confidence from its stakeholders: clients, staff, investors and advisors. Having followed AIB’s progress – and made multiple awards for its excellence – the CFI.co judging panel is well aware of the bank’s merits. The judges congratulate Afghanistan International Bank on winning yet another accolade: the 2019 award for Best Corporate Governance (Afghanistan).

> BIAT (BANQUE INTERNATIONALE ARABE DE TUNISIE): BEST BANK GOVERNANCE TUNISIA 2019

Banque Internationale Arabe de Tunisie (BIAT) was founded in 1976, and has developed a solid reputation for its business performance and corporate governance. BIAT had banking products with a net worth of $270m (834.5 m TND) in 2018, and boasts a leading position in the Tunisian financial markets. BIAT employs more than 2,000 dedicated team members to support the business development needs of clients in national and international markets.

The bank’s network has more than doubled in size over the past decade, with 204 agencies across Tunisia. BIAT has developed a strategic roadmap for success, and it starts with good

governance. The plan is determined by a separation of powers and is regularly updated to maintain its relevance. BIAT partners with an independent international rating agency to provide transparency in its social responsibility and performance. The bank leads by example in terms of good corporate citizenship, and has created a supportive and rewarding work environment for its employees. It has developed a comprehensive code of corporate social responsibility that reflects its commitment to driving economic growth and social progress.

It offers investment funds to SMEs across various industries to fuel development in

Tunisia’s interior regions. The BIAT Foundation For Youth, founded in 2014, manages outreach programmes that provide cultural, educational, and entrepreneurial activities for young Tunisians. The foundation aims to reduce social inequalities, and to encourage academic excellence, build skills and foster creativity. The CFI.co judging panel is pleased to recognise a financial institution with strong market performance and an outstanding commitment to civic responsibility. The judges present Banque Internationale Arabe de Tunisie with the 2019 award for Best Bank Governance (Tunisia).

> INVESTMENT HOUSE: BEST INVESTMENT BANKING SOLUTIONS MIDDLE EAST 2019

One path to sustainable success lies in customer care, something that Investment House has at the heart of its business strategy. The Qatar-based firm strives to surpass the requirements of its clients.

Investment House is one of the fastest-growing investment banks in the Middle East, providing a broad range of financial advisory services to individual and institutional investors throughout the region. Qatar represents a promising segment of the Gulf Co-operation Council (GCC) investment market, and Investment House 104

has been a leader in the sector for nearly two decades. The firm fulfils the strict regulatory and governance mandates required by Qatar Central Bank, as well as those required by Shariah law.

Investment House aims to mitigate risk, and its clients have come to trust it to consistently deliver high yields. From brokerage and portfolio management to mergers and acquisitions, Investment House offers reliable services that deliver results. Investment House also offers advisory services, including business valuation, CFI.co | Capital Finance International

restructuring consultation, financial planning, and due diligence. With its presence firmly established in the GCC, Investment House is spreading its international reach, with planned expansion into the US and Europe. Customer satisfaction is the firm’s main priority, and it envisions a future of shared growth and prosperity. The CFI.co judging panel applauds the firm’s client-centric focus, and presents Investment House with the 2019 award for Best Investment Banking Solutions (Middle East).

Spring 2019 Issue

> METLIFE INVESTMENTS LIMITED: BEST PRIVATE PLACEMENT TEAM EMEA 2019 MetLife Investments understands the importance of preparation. Investment managers at the Londonbased firm put in the necessary work to remain at the top of the class, building a reputation for thorough and reliable research. MetLife Investments Limited offers a range of financial services, but its specialities are leveraged loans and private equity investments. The company offers bespoke investment solutions, matching specific markets with dedicated specialists. The team’s personalised service and focused expertise has led to long-lasting relationships based upon mutual trust and growth. The company’s Corporate Private Placement strategy aims to cultivate high quality private debt, characterised by enhanced yield and strong diversification. The team structures investments as fixed- or floatingrate debt, and tailors them to meet the maturity and diversification specifications of their clients.

Asset-liability management is in the company’s

DNA, and its disciplined approach to riskmanagement has allowed MetLife to underwrite its own business, and deliver on its promises to clients. The company was incorporated in 1992 as a subsidiary of the MetLife Investment Management (MIM) platform. As part of the MIM platform, the team joins a collaborative network of 900 investment professionals, contributing to and benefiting from MetLife’s insightful research into macroeconomic investment strategies.

Parent company MetLife is a global leader with a 150-year history in financial services, operations in more than 40 countries, and leading market positions in the United States, Japan, Latin America, Asia, Europe, and the Middle East.

The CFI.co judging panel was impressed by way the Metlife Investments Ltd team has taken full advantage of its network and affiliations, and names the company winner of the 2019 award for Best Private Placement Team (EMEA).

> BANCO ECONÓMICO: BEST BANK GOVERNANCE ANGOLA 2019 The future is digital – and Angolan commercial and investment bank Banco Económico should know. The financial institution has an innovation-driven growth strategy designed to propel company and country to greater prosperity. Banco Económico was founded in 2014 and it differentiates itself from the competition with attractive saving plans, profitable investment solutions, and strong ethical standards. The bank has a new hand on the tiller, with CEO Pedro Cruchinho stepping up to guide development and fortify its already solid governance practices.

Additional levels of governance and a network of interlocking committees and commissions provide Banco Económico with an overarching understanding of the rapidly evolving Angolan economy. With the conviction that “there are no successful businesses in failing societies”, Banco Económico aims

to be a transformative agent for economic development, and a catalyst for social responsibility. The bank has programmes in place to support environmental, educational and cultural initiatives. It funds scholarships, sponsors a cultural museum, donates medical equipment and supplies, and has begun to construct community schools. The bank leads by example and has mobilised its workforce — which it counts as a key strength — to take up the mantle of social responsibility. After following the bank’s development over the past few years, the CFI.co judging panel is pleased to see it has maintained its strong ethical compass, self-sufficient status and high liquid capital assets. Banco Económico – with two previous CFI.co award wins to its name – has been announced as winner of the 2019 Best Bank Governance (Angola) award.

> OSTOUL CAPITAL GROUP: BEST BOUTIQUE INVESTMENT BANK EGYPT 2018 Founded only three years ago with the sole intention of becoming one of the biggest financial institutions in Egypt, Ostoul Capital Group is a fully-fledged investment institution and an industry pioneer. Along with its two subsidiaries; Ostoul Securities Brokerage and Ostoul Consultancies, the Cairo-based company offers a diverse range of services including brokerage services, portfolio and asset management, custody, private equity, investment banking and consultancy services in addition to being a listing agent and Nilex sponsor. With an acute business vision, aggressive strategies, and a competent banking-experienced board, the Group’s brokerage arm managed to rank in the top 20 brokerage firms with a total turnover value of EGP 225 million within its first year. By the

end of 2018, Ostoul still ranked among the top 20 but with a whole year total turnover of EGP 5.64 billion. Through its custody arm, Ostoul is able to enlist companies with the Depository system, a service which landed it an assets base worth more than EGP 12 billion by the end of 2018. In addition, Ostoul became a bond trader to be alongside the top ranked brokers; CIBC, Beltone and EFGHermes. This only shows the perseverance of Ostoul to become a leader in financial services in Egypt. With Ostoul’s prominent list of shareholders, renowned client base and solid and highly experienced team, the Group was able to cement its presence in such a short time. The CFI.co judging panel thus concurs: Ostoul Capital Group wins the 2018 award for Best Boutique Investment Bank (Egypt).

CFI.co | Capital Finance International

105

> FIRST FORTE CONSULTANCY: BEST REGIONAL BUSINESS DEVELOPMENT SERVICES UAE 2019

First Forte is a multi-disciplinary company offering professional services, consultancy advice and business solutions to clients in the Gulf Cooperation Council (GCC) region. Its clients include institutional asset managers, family offices, and ultra-high-net-worth individuals – and many of the relationships it has forged have lasted for decades. Trustworthiness and good corporate governance are paramount for the First Forte team, which focuses on introducing investment opportunities to GCC clients. First Forte has been

successful in sourcing an independent deal-flow and in placing junior resource and mediumsized transactions in sectors including financial services, technology and real estate. First Forte’s principal, Mohamed Mughal, is a consummate professional with a prior career at JPMorgan. For the regional sovereigns, he remains the “go-to” business expert. With an international network of “extended family” across the globe, First Forte is in a prime position to introduce innovative investment opportunities to customers in the

Kingdom of Saudi Arabia, Kuwait, Oman, Bahrain, and, of course, in the “home turf” of Dubai and Abu Dhabi – as well as the rest of the UAE. The firm has a strong track record, and the CFI.co judges recognise that during its long tenure, it has earned a reputation for having the clients’ interest at heart – as well as for creating value in an honest and transparent way. The judges had no hesitation in presenting First Forte with the 2019 award for Best Regional Business Development Services (UAE).

With a focus on the future and an emphasis on quality service, Air Austral is amplifying its destination network and updating its fleet to provide passengers with the best possible travel experience. Air Austral is headquartered in the French overseas department of Reunion, an island off the coast of Madagascar. It connects Reunion to Europe with daily direct flights to Paris and weekly ones to Marseilles. The airline also offers direct flights to destinations

in Asia (Thailand, India, and China) and the Indian Ocean (South Africa, Madagascar, the Comoros, Mauritius, Mayotte, and the Seychelles). More than 100 additional destinations are covered through codeshare partnerships and aviation alliances. Through freshly forged strategic partnerships, Air Austral has opened the gate to the African continent with new codeshare flights to Kenya from Reunion and Madagascar. The company

has signed a Privileged Partnership Agreement for enhanced shared flight scheduling and technical training. Air Austral benefits from a financial management team capable of steering the company to sustainable profit.

The CFI.co judging panel believes the airline’s fiscal responsibility will carry it to new heights, and presents Air Austral with the 2019 award for Best Airline Financial Management Team (Indian Ocean).

> AIR AUSTRAL: BEST AIRLINE FINANCIAL MANAGEMENT TEAM INDIAN OCEAN 2019

> ICBC DUBAI (DIFC) BRANCH: BEST INTERNATIONAL BANK BOND ISSUER EMEA 2018

The Industrial and Commercial Bank of China Limited (ICBC) ranks no. 1 in the Banker’s Top 1000 World Banks ranking, and first on the Forbes Global 2000, and the Fortune Global 500 in the list of the world’s biggest commercial banks from 2013 to 2018. ICBC also ranks no. 1 in the Brand Finance 500 for global banks brand values. It is a public company in terms of work force and customer base, with 2017 assets totaling more than $4 trillion.

ICBC was the first Chinese bank to establish operations in the Middle East, and since 2008 it has worked to build mutually beneficial business 106

opportunities between Chinese and MENA region corporations and investors. It contributes to the region’s development as a global hub of trade and finance, with a proactive approach to green finance and international expansion.

ICBC recently became the biggest bond-issuer on Nasdaq Dubai with two bonds worth $700m each, increasing its listings to $3.56 bn.

ICBC Dubai (DIFC) Branch always pays equal attention to social responsibility, by promoting green finance. In accordance with the energy development strategy and natural resources in CFI.co | Capital Finance International

MENA countries, it gives strong support to clean coal power, solar energy, and hydro power, etc. and renewable energy development. It also has presence in financing projects involving people’s livelihood, like public transportation. The CFI. co judging panel recognises the strong growth projections for the ICBC Dubai (DIFC) Branch, and commends the company’s continued focus on sustainability. The judges are pleased to present ICBC Dubai (DIFC) Branch. with the Best International Bank Bond Issuer (EMEA) award — for the second consecutive year.

Spring 2019 Issue

> CORPORACIÓN ZONA FRANCA INDUSTRIAL DE SANTIAGO:

BEST ESG INDUSTRIAL FREE ZONE LATAM & CARIBBEAN 2019

By seeking progress and prosperity for the community as a whole, businesses can potentiate the economic and social development of the regions in which they operate. In the Dominican Republic, the Free Zone Corporation of Santiago (CZFS) attracts major international brands keen to take advantage of the park’s accommodating regulatory framework.

Companies can engineer a financial boost for themselves, and improve quality of life for communities, as well as the country. CZFS was founded in 1974, and its journey has been

characterized by sustainable growth in scale and scope, as well as in production capacity and environmental and societal impacts.

Over the years, the zone has doubled its manufacturing facilities – two million squaremeters in area – and increased the scope of its community enrichment programs. CZFS opened the doors to a community clinic in January, and upcoming projects include a housing complex, a commercial and business center, and an industrial garden. These developments serve the entire community, not

just those linked to the free zone. CZFS is a strong advocate of educational opportunity and environmental responsibility, and invests in initiatives to empower the population and safeguard the planet. The CFI.co judging panel recognizes the zone’s robustness of service, and the sound nature of its environmental, social, and governance (ESG) policies. The judges had no hesitation in naming the Corporación Zona Franca Industrial de Santiago as winner of the 2019 award for the Best ESG Industrial Free Zone (LatAm & Caribbean).

> COMMERCIAL BANK OF CEYLON (CBC): MOST RESPONSIBLE BANK SRI LANKA 2018

Respect, responsibility, and vision are some of the guiding principles that have driven the sustainable growth of the largest private bank in Sri Lanka, the Commercial Bank of Ceylon (CBC). Established in 1969, the bank’s long history of superior standards of practice has led CBC to be consistently listed as one of the World’s top banks — the only Sri Lankan bank to have received such distinction. CBC clients can access financial services at the 255 branches and 657 ATMs strategically spread across Sri Lanka via the convenient

online and mobile banking platforms, or at any of its international subsidiaries in Bangladesh, Myanmar, the Maldives and Italy. CBC is a pioneer of responsible financing, and has shown remarkable efficiency in balancing the interests of all its stakeholders while optimising the trade-off between risk and return. The bank has developed a comprehensive Social and Environment Management System (SEMS) to provide a framework to ensure all practices comply with national laws and regulations, as well as with global initiatives. The scope

of SEMS extends from the bank’s internal operations to its supply chain and lending requirements. Strict adherence to SEMS checkpoints requires customers to adapt sustainable practices to be eligible for bank loans, and prompts suppliers to maintain environmental compliance. The CFI.co judging panel recognises CBC for setting a banking benchmark for good governance and ethical standards, and congratulates the Commercial Bank of Ceylon on the 2018 award win for Most Responsible Bank (Sri Lanka).

> DEXI.IO: BEST DATA EXTRACTION SOLUTIONS GLOBAL 2019

There’s gold in the web — digital gold from mountains of raw data — and Dexi.io offers to mine it and turn it into ingots of pure market insight. The digital disruptor uses nextgeneration web-scraping software, intelligent automation and advanced Application Programming Interface tools. Dexi.io has developed an internet-extractor robot that sets it apart from the competition. Bots created by, and controlled from, the platform scour the web for valuable information and distil it into

actionable market data. The company predicts that early adopters of its products will become the first “data superpowers” of tomorrow. The Dexi.io community of implementation partners is growing, with more than 50,000 companies around the world signed-up, together proving Dexi to be a powerful partner capable of complex data harvesting and processing. The company maximises benefits from gathered data with automation controls, Natural Language Processing and artificial intelligence.

CFI.co | Capital Finance International

Dexi.io has developed a breakthrough model for data management to handle the large caches of raw information. Over the past two years, Dexi. io has deployed more than 30 million research robots, and processed 700 TB of data through intelligent automation — the equivalent of almost 200 years of continuous research. The CFI.co judging panel commends the company’s practical approach to codifying and evaluating data, and presents Dexi.io with the 2019 award for Best Data Extraction Solutions (Global).

107

> SHELL LIVEWIRE: BEST YOUTH ENTREPRENEURSHIP ENGAGEMENT PROGRAMME GLOBAL 2019

It’s common knowledge that when a country’s startups thrive, so too does its economy. In light of this widely accepted axiom, the British-Dutch oil and gas company Royal Dutch Shell (Shell) launched an expansive programme to develop enterprise around the world – especially in the communities in which it operates. Founded in 1982, the LiveWIRE programme empowers young people to switch from employee to employer, from seeking employment to providing it. Shell LiveWIRE programmes, which operate in 15 countries around the world, have benefited over 9.2 million young entrepreneurs since its

inception. As the sixth largest oil and gas company in the world, Shell has a long history of successful business management, and the expertise it’s accrued over the years makes it an excellent partner to help launch young entrepreneurs’ careers. Shell LiveWIRE programmes provide promising youth with the necessary knowledge and support to “transform their enterprising ideas into a viable and sustainable business”.

The LiveWIRE programme is divided into five modules: Bright Ideas, Business Planning and Management Training, Business Startup, Post Startup Support, and Performance Measurement

and Refinement. The Bright Idea module centres young entrepreneurs with a 20-question checklist intended to help spark a great idea and develop it into a viable business plan through guided critical thinking. The remaining modules help to finetune the plan, identify possible financing sources, provide mentorship, and maximise impact through global Key Performance Indicators (KPIs). The CFI.co judging panel applauds Shell’s commitment to – and investment in – global enterprise and presents Shell LiveWIRE with the 2019 Best Youth Entrepreneurship Engagement Programme (Global) award.

> CENTRAL BANK OF THE DOMINICAN REPUBLIC: BEST CENTRAL BANK GOVERNANCE CENTRAL AMERICA AND THE CARIBBEAN 2018

For a central bank to function at peak performance, autonomy is crucial. The Central Bank of the Dominican Republic (BCRD) was founded as a decentralised and independent organisation in 1947 according to Dominican monetary and financial law, to be responsible for the establishment of the regulatory regime of the country’s monetary and financial system.

BCRD has the legal and institutional strength to enable the independent execution of its policies and ensure the stability of the national currency and economy. BCRD acts as issuer and executor of the exchange and monetary systems, and the implementation of its monetary policies have contributed to the Dominican Republic's

economic growth — and to a significant reduction of national poverty. Since 2012, BCRD has operated under an Inflation Targeting Scheme, which has reduced the level and volatility of inflation in the Dominican Republic, helping to anchor expectations of economic agents around BCRD inflation targets and to increase the credibility of its monetary policy. Human capital is recognised as the bank's greatest asset, and personnel training is supported through education: the bank provides training programmes, as well as assistance for postgraduate degrees for its staff. The BCRD team is educated, as well as specialised, with some 450 workers holding

postgraduate, master, or doctorate degrees.

The responsible fiduciary models employed

by BCRD have delivered stable economic growth to the Dominican Republic, averaging around six percent over the past four years.

BCRD is rated as "stable" by the Fitch rating agency, and achieved a BB rating in long-term, foreign currency Issuer Default Ratings in 2018. The CFI.co judging panel believes the organisational framework of efficiency, ethics, and transparency has contributed to BCRD's trajectory of success. The Central Bank of the Dominican Republic wins the 2018 Best Central Bank Governance (Central America and the Caribbean) award.

> GHANA INVESTMENT PROMOTION CENTRE (GIPC): BEST INVESTMENT PROMOTION AGENCY AFRICA 2019

Democratic Ghana is full of valuable natural resources, and home to a thriving economy. The country has benefited from considerable recent foreign direct investment (FDI), enjoys enviable investor confidence, and is certainly a country to watch in Africa. Ghana ranks high on governance, the rule of law, individual freedom, and safety.

It is also one of the fastest-growing countries in the world. Traditionally an agricultural and agro-processing market, other sectors are now showing promise. Opportunities abound in 108

financial services and telecommunications, and investors are also considering Information and Communications Technology (ICT), tourism, and manufacturing. The Ghana Investment Promotion Centre (GIPC) has twice been honoured in recent years as the Best Investment Promotion Agency in West and Central Africa.

That recognition came at the Annual Investment Meeting (AIM) Awards in Dubai, UAE, underlining and endorsing the GIPC’s ability to attract major projects that contribute to economic growth and CFI.co | Capital Finance International

national development. The well-managed centre provides a one-stop shop for investors, who recognise Ghana’s promising future and value the centre’s transparent structuring of large projects. The CFI.co judging panel considers Ghana an outstanding opportunity for investors – and the GIPC an efficient and helpful gateway.

The judges’ confidence is reflected in a second consecutive CFI.co win for GIPC: the 2019 award for Best Investment Promotion Agency (Africa).

Spring 2019 Issue

> BANCO SANTANDER CHILE: BEST INTERNATIONAL BANK GOVERNANCE CHILE 2019

In terms of loans and deposits, Banco Santander Chile reigns as one of the country’s market leader.

It also sets the bar high in terms of governance, with principles rooted in honesty, diligence, and respect. For Banco Santander Chile, the end never justifies the means; it is committed to transparent and ethical conduct in every facet of its operations, from the market to the environment.

The bank’s consistent capital solvency and efficient management have earned a strong show of confidence from international industry-rating

agencies. It supports small and medium-sized enterprises and values long-term partnerships.

Banco Santander invests considerable resources in professional development programmes, and the executive team encourages staff to work their way up the corporate ladder “in-house” through promotion. The bank is a staunch supporter of workers’ rights, and actively engages with union representation. Banco Santander Chile serves more than three million customers through a network of 380 branches. It recently launched

a new branch design model, the Work Café, a refreshing combination of office and café with spacious co-working areas which are open to members of the public – whether clients or not.

Banco Santander Chile empowers its staff to create market-relevant innovations and solutions – and to execute the strategies to realise them.

The CFI.co judging panel believes the bank’s methodology merits recognition and presents Banco Santander Chile with the 2019 award for Best International Bank Governance (Chile).

> CO-OP LEGAL SERVICES: BEST ESTATE ADMINISTRATION AND PROBATE SERVICES PROVIDER UK 2019

The experience of bereavement is always difficult and businesses providing services to those recently bereaved need to ensure their teams are empathetic and compassionate. The Co-op has a strong heritage looking after bereaved families and Co-op Legal Services helps families to achieve the closure they need as swiftly as possible with their high-tech, hands-on team.

Co-op Legal Services sends representatives to the homes of families who have lost a loved one to assist them with all the necessary paperwork to begin the probate process and estate administration. Documents are scanned at the client’s home and synchronised to the company software system to get administration

under way immediately. Each client’s case is assessed using intelligence in the software and assigned the ideal team member for the individual case.

Co-op Legal Services has combined face-toface services, underpinned by technology in the field and in-house, on an end-to-end case management platform, to provide a unique high quality service. The Co-op invests in technology solutions to enhance customer service and ensure quick liquidation and distribution of estates. The Co-op’s track record of continuous improvement is a point of pride, and the organisation embraces each opportunity to expand and enhance its

services for the benefit of its clients. The Coop manages more than £2bn in estates each year, and has 600 staff in offices spread from Manchester to London, Bristol, Sheffield, and Stratford-upon-Avon. In addition to probate services and estate administration, Co-op Legal Services offers advice and assistance in family and employment law, will-writing, personal injury claims, and conveyancing.

What most impressed the CFI.co judging panel was the Co-op’s commitment to client care.

Without reservation, the judges present Co-op Legal Services with the 2019 award for Best Estate Administration and Probate Services Provider (UK).

> ABSA: BEST SME PARTNER BANK AFRICA 2018

Amalgamated Banks of South Africa (Absa) was founded in 1991 through the merger of financial services providers UBS Holdings and Allied & Volkskas. Fourteen years on, Barclays Bank purchased a controlling interest in Absa – its largest-ever investment outside the United Kingdom. In early 2018, Barclays reduced its stake to below the 15 percent mark, which reinvigorated the Absa brand after a $1bn investment from Barclays to cover separationrelated expenses. Absa, under the earlier company style of Barclays Africa Group, was the winner – for three consecutive years,

2015 to 2017 – of CFI.co’s SME Partner Bank award. The CFI.co judging panel has insisted that Absa be recognised again for its performance in 2018 because, in the judges’ unanimous view, Absa’s policies and programmes in support of Small and Medium Enterprises (SMEs) continue to lead the way throughout the African continent. The award is made to recognise outstanding efforts in support of a vital economic sector: SMEs are responsible for a third of Africa’s economic output. The Absa Enterprise Development Programme helps to stimulate economic CFI.co | Capital Finance International

growth by providing training for entrepreneurs, as well as business development support and access to markets. Competitive funding rates at Absa further encourage SME development.

The driving force at Absa is the notion of “Africanacity”: a quintessentially African ability to find ways of getting things done.

The judging panel takes the view that Absa is continuing to get things done for SMEs, and responds admirably to the sector’s needs.

Without hesitation, CFI.co confirms Absa as the 2018 winner of the award Best SME Partner Bank Africa.

109

> 12 HAY HILL: BEST BUSINESS AND LEISURE PRIVATE MEMBERS’ CLUB MAYFAIR

Situated in the heart of Mayfair, London´s most exclusive area, the private members’ club 12 Hay Hill boasts a set of top-end facilities. The founders were aware that London features many clubs, some geared towards a traditional clientele, with Chesterfield sofas and formal dining rooms, and others featuring shared office spaces for younger entrepreneurs hosting meetings in more contemporary surroundings. The 12 Hay Hill founders saw a gap in the market for a club which offered both ambiences and facilities. At the Mayfair establishment, members have access to

office suites with fast internet, audio-visual and conference call facilities, as well as reception and call-taking services. Staff are on hand around the clock and there are luxurious leisure facilities which allow members to relax, enjoy a cocktail or two, and wine and dine clients and associates in the artistically designed restaurant, bar and lounge. 12 Hay Hill is the pioneer of the concept of “clubworking”, meeting the needs of a young, cosmopolitan clientele. In addition to serviced office suites offering room service, the club has nine meeting rooms providing discreet

areas for board meetings and/or private dining. It also hosts regular events to host leaders from the worlds of business and politics, including the 12 Hay Hill Davos Debrief conference in partnership with The Financial Times. Members can organise their own events in these plush surroundings, taking advantage of the facilities and services on offer. The CFI.co judges were impressed by the range of amenities and spectacular setting of 12 Hay Hill, and unanimous in announcing it winner of the 2019 award for Best Business And Leisure Private Members Club (Mayfair).

> DLM ADVISORY PARTNERS: BEST STRUCTURED FINANCE AND SECURITISATION TEAM WEST AFRICA 2019

The Chairman/CEO of DLM Advisory Partners (DLMAP), Sonnie Ayere believes that prime investment opportunities abound in the West African markets – particularly in the non-bank Financial Intermediary sector. Identifying, and capitalising on, such opportunities requires local expertise and market finesse — both qualities DLMAP possesses in abundance.

DLMAP is the advisory and capital-raising arm of Dunn Loren Merrifield Group (DLM).

Founded in 2009, DLM is a full-service financial investment house that delivers bespoke and innovative solutions to sovereign/sub-sovereign entities and private & non-private corporations.

DLMAP provides best-in-class deal structuring and execution of advisory and capital-raising

services. Principal services provided by the DLMAP team include financial advisory and restructuring, debt capital raising – in particular, structured finance & securitisation, equity capital raising, underwriting, mergers & acquisitions and company set-up advisory.

Structured finance and securitisation deals are DLMAP’s specialties – it is worthy of note that the firm has acted as sole arranger to more than 80% of the structured finance transactions. DLMAP also boasts of executing all the securitisation transactions in Nigeria’s capital markets till date. The firm boasts strong leadership that pushes the market to accept new structures – for the benefit of its stakeholders – and executes complex

transactions with simplicity and grace. DLMAP’s pioneering achievements include issuing the first floating-rate corporate bond, the first future flows securitisation transaction, structuring the first “AAA”-rated corporate bond, and realising the longest corporate bond maturity in Nigerian capital markets. Through strategic partnerships with government agencies, DLMAP offered the first Residential Mortgage-Backed Securities on behalf of the Federal Mortgage Bank of Nigeria.

The CFI.co judging panel gave the company an award win in 2015 and is delighted to confirm DLM Advisory Partners as the 2019 winner of the award for Best Structured Finance and Securitisation Team (West Africa).

> NEW WORLD DEVELOPMENT CO LTD: BEST INVESTOR RELATIONS TEAM HONG KONG 2019

A goliath of the Chinese real estate market, New World Development Company (NWD), has left an indelible mark on the country’s architectural heritage — and developed a thriving, synchronised ecosystem across diverse industries and services. The group manages a property portfolio comprising well-equipped residential complexes and retail projects, as well as iconic, mixed-use commercial buildings. Since its launch in 1970, NWD has contributed to China’s economic growth and advances in infrastructure through strategic investment and expert management.

110

At the close of 2018, NWD had assets under management valued at HK481.3bn (£46.5bn), and property sales hit a record high at more than HKD28.3bn (£2.74bn). NWD connects customers in residential, professional, and retail communities. It has an eye for inspired aesthetics, and a focus on ease-of-use.

Diversification is a key strength of the NWD strategy, with projects ranging from transport hubs to sports centres. It has expanded into the wellness and healthcare sectors through its HUMANSA health brand, and into the insurance market with the acquisition of FTLife CFI.co | Capital Finance International

Insurance – further strengthening NWD’s aim for synergy across sectors. NWD is publicly listed on the Hong Kong Hang Seng Index, and has three subsidiaries: NWS Holdings, New World Department Store China, and New World China Land. NWD first came to the attention of the CFI.co judging panel in 2017, when it won an award for its pioneering, sustainable business model, and its no-nonsense approach to raising investment funds. The judges are pleased, once again, to present New World Development Company with the 2019 award for Best Investor Relations Team (Hong Kong).

Spring 2019 Issue

> ELECTRIC NETWORKS OF ARMENIA: BEST ESG ENERGY PROVIDER CAUCASUS 2019 Electric Networks of Armenia was created in 2002 from the merger of four regional state companies to unite distribution and sales in the sector. The company provides electricity to more than a million customers, and its grid covers 36,000 kilometers. In 2016, ENA began a $726m reconstruction and modernization program, on target for completion in 2027. The investment is to update and improve existing substations and powerlines, replace outdated equipment, and expand the automated reading system.

It also includes the connection of new customers. There is full compliance with the European Bank for Reconstruction and Development’s (EBRD) standards, and is meticulous in its maintenance of oil storage to prevent pollution. It strictly enforces

biodiversity conversation, and embraces sustainable management: development and environmental issues must be addresses without compromising future generations.

Corporate Social Responsibility is taken seriously, and ENA designs and implements targeted social programs with local communities and NGOs. From funding a medical diagnostics lab and helping orphanages to supporting local cultural events, the company plays an active role in the community. ENA offers its staff a comprehensive social package, including professional development and training. The judges took these factors into account before awarding Electric Networks of Armenia the 2019 award for Best ESG Energy Provider (Caucasus).

ELECTRIC NETWORKS OF ARMENIA

> TOLEDO CAPITAL AG: BEST WEALTH MANAGEMENT SERVICES SWITZERLAND 2019 At Toledo Capital AG, investment advisors aren’t seduced by short-term investment speculations. They play the long game, with stable diversification strategies for the preservation and transmission of multigenerational wealth. The boutique, multifamily firm was founded in the thriving international finance hub of Zurich to provide wealth management services for high-net-worth individuals and families, worldwide. Clients’ interests and objectives set the course for the firm’s investment strategies. Toledo Capital creates investment profiles for each client, with carefully calculates risk-return ratios and the adhoc reporting of portfolio performance.

The firm allocates financial and human resources to the personalised creation of each client’s monthly portfolio performance report. Its status as an independent asset

manager ensures the firm is not influenced or limited by bank policies. It also enables Toledo Capital to give clients the focus and attention that they deserve. Working hand-in-hand with clients, Toledo Capital advisors use their financial prowess to cherry-pick from the investment solutions that promise an optimal balance of risk and reward for each portfolio. To achieve clients’ investment goals, Toledo Capital encourages diversification across jurisdictions, classes, and currencies, to create a balanced investment portfolio mixing higher risk opportunities with others carrying low risk, and predictable returns. The CFI.co judging panel applauds the firm’s client-centric and far-reaching focus, and names Toledo Capital AG as the winner of the 2019 award for Best Wealth Management Services (Switzerland).

> TANDEM: BEST NEO BANK UK 2019 When Tandem Money Ltd was founded six years ago its mission was twofold. Firstly, to improve its customers' lives by making banking more accessible therefore helping them to understand their money and make the best use of it. Secondly, to use highly sophisticated data models to connect with customers in whole new ways. The bank had a unique launch with 11,000 investors-cum-customers who it calls it “cofounders” to demonstrate the closeness of the relationship. Tandem differentiates itself from other banks in the way its people always consider how well a new initiative will work for the customer and how it helps to solve real money problems; that is something that has been embedded in its culture from day one. The app is particularly user-friendly and shows the customer their balance, upcoming bills and how much they can spend, it sends

alerts when a bill increases, or a payment is received and helps reduce bills by finding better deals thereby saving them money. In January 2018, Tandem acquired Harrods Bank, gaining 10,000 new customers, a major coup for a 'challenger' bank and the following month it launched a credit card which guarantees the holder cashback on every purchase and no exchange fees when spending abroad. In April of the same year, it introduced a fixed term savings account with market-leading rates. Having enjoyed rapid growth, including a second acquisition, the money management app Pariti, Tandem is very much looking to the future with 500,000 customers in the UK and is currently expanding in Europe and Asia. The judging panel took all these factors into account when naming Tandem as Best Neo Bank UK 2019.

CFI.co | Capital Finance International

111

> VODACOM RDC: BEST MOBILE NETWORK OPERATOR DR CONGO 2019

In the Democratic Republic of the Congo (RDC), there are few companies with guiding principles to match those of Vodacom RDC. The telecom provider is driven by a mission to help communities by improving life today, and building a brighter tomorrow. To achieve this, Vodacom RDC seeks the highest calibre of professionals to recruit – and invites only those who embody the company ethos to join the team. Vodacom RDC boasts a staff retention rate of 98%, and is considered one of the country’s best employers. It offers month-long internship opportunities, introducing university students to the diverse sectors and skills of

the telecom world – from engineering and computer sciences to marketing and finance.

As a subsidiary of Vodacom in South Africa, the company enjoys strong brand recognition, and has claimed a healthy portion of the market share. Vodacom RDC has invested more than $1bn in infrastructure to connect communities countrywide with a high-quality, reliable network at competitive pricing. It takes pride in being the most innovative telecom in the Congo, and was first operator to launch 4G services, with connection speeds upwards of 20Mb/s.

The company aims to enhance the lives of its clients by committing to international best-

practice, giving outstanding customer service, and maintaining a proactive corporate social responsibility (CSR) programme. Vodacom RDC excels in its corporate civic duty, supporting Congolese communities with educational programmes and healthcare initiatives.

It encourages sustainable environmental solutions by providing solar panels to disadvantaged societies in rural areas. The CFI. co judging panel cites the company’s spirit of innovation and inclusion as the deciding factors in naming Vodacom RDC winner of the 2019 award for Best Mobile Network Operator (DR Congo).

> CheBanca! - MOST INNOVATIVE DIGITAL SMART BANK ITALY 2019

The revolutionary digital platform that Milanbased CheBanca! has developed is its operational heart, offering customers convenient, anytime, anywhere, multi-channel access to a range of services. Constant upgrades and improvements to the platform continue to elicit praise, and while it is a point of corporate pride, CheBanca! has never lost sight of the importance of fostering meaningful relationships with its clients and customers. Established in 2008 as a high-tech subsidiary of Mediobanca – one of Italy’s leading financial groups – the bank now boasts more than 837,000 customers, and

over €23bn in funding. Since its inception, the bank has been at the vanguard of innovation in Italian financial markets, employing advanced analytics, big data, and robot consultancy to unlock customer insights, enhance services, and streamline workflows. CheBanca! is constantly analysing data and encouraging digital dialogue to anticipate customers’ needs and develop smart solutions and relevant promotions. The CheBanca! loyalty programme tracks customers’ banking activity and awards points that can be cashed in for rewards ranging from gourmet bites and entertainment to high-

tech gadgets and travel. The latest technology enables the bank’s teams to manage customer relationships in a personal manner, always recognising those clients as individuals.

The emphasis the bank has placed on tech innovation serves only to underline its human focus and capability, from imaginative problemsolving skills to friendly front-end services. For the second consecutive year, the CFI.co judging panel is delighted to present CheBanca! with the award for Most Innovative Digital Smart Bank (Italy) 2019.

> NATIXIS: MOST INNOVATIVE TRADE FINANCE SOLUTIONS AFRICA 2019

Natixis is a French multinational financial services firm specialized in asset & wealth management, corporate & investment banking, insurance and payments. It designs customised solutions to help clients fulfil their ambitions and realise projects worldwide. The company boasts a workforce of some 16,000 employees in 38 countries across Americas, Asia-Pacific, Europe, the Middle East and Africa. A subsidiary of Groupe BPCE, the second-largest banking group in France, Natixis leverages its resources, talents and energy to serve the long-term interest of 112

its clients: corporations, financial institutions, sovereign and supranational organizations, and the customers of Groupe BPCE’s networks.

Natixis trade solutions facilitate clients’ import and export activities, and its secure banking service for international transactions affords clients peace-of-mind. In 2018, Natixis acted as the sole arranger and agent for a successful tender — a trade finance facility of $415m — between commodity trader Trafigura and EPSE, the state-owned Ethiopian Petroleum Supply Enterprise monopoly in charge of importing CFI.co | Capital Finance International

refined petroleum products. The innovative method of securing commodity receivables unlocked new funding sources for traders and investors, regionally and internationally. As an early adopter of digitalisation, Natixis partnered with IBM and Trafigura to modernise practices and workflows of the global crude oil trade using blockchain, yielding a platform with enhanced transparency, security, and efficiency. The CFI. co judging panel was unanimous: Natixis is the winner of the 2019 award for Most Innovative Trade Finance Solutions (Africa).

> Africa

Uganda Wakes to Promise of Oil, but the Black Stuff in Your Cup is Still Part of the Programme

Uganda will begin oil production in 2021. The IMF estimates that it will add 0.5 to 4 percentage points to Uganda’s GDP for at least 40 years.

This, however, is not Uganda’s first experience with black gold. Coffee beans have dominated Uganda’s exports and economy for more than 60 years. Since 1986, the industry has prospered, reducing poverty and propelling Uganda towards middle-income status. Oil will replace coffee as the top export, but coffee exports will ensure some income diversification. The government has ambitious plans to further increase coffee output and revenue, but so far – despite enormous efforts – output has struggled to reach targets.

Have we seen peak coffee in Uganda? The bean’s importance to the Ugandan economy is beyond question. Even with recent diversification, it represents 19% of total export value (2017). Its importance has withstood the country’s political and economic transformation since independence.

Coffee has ensured a flow of foreign currency and has kept the trade balance healthy.

It has also played a major part in poverty reduction; 1.7 million household grow coffee, mostly small landholders in rural areas with an average plot size of 0.18 hectares. Coinciding with the deregulation of the industry from 1991, and a rise in coffee prices, headcount at the national poverty line has more than halved. Some commentators say coffee is largely responsible for that. Oil is coming, but Uganda has already benefited enormously from black gold.

Coffee cultivation was introduced to Uganda in 1900 by French priests who had been experimenting with Arabica plants in Tanzania. Robusta coffee plants were indigenous, and soon came to dominate the local industry. Robusta grows at a lower altitude and tends to be more pestresistant. Today around 80% of exports are robusta, and 20% arabica.

114

CFI.co | Capital Finance International

Spring 2019 Issue

CFI.co | Capital Finance International

115

I

n the 1930s, the government began to play an active role in the industry. It set up the first institution to oversee coffee quality. In the 1940s, the government helped increase output by promoting robusta plantings. By 1958, coffee had become the chief export by value, overtaking cotton, Uganda’s original cash crop. In 1969, when a single export desk was created (with complete government control over exports), the industry was at the peak of government regulation. The world price for coffee was high, but heavy export taxes stunted growth.

The years 1971 to 1986 were difficult times for Uganda. The horror of the Idi Amin regime (1971 to 1979) was followed by a power struggle between Milton Obote and Yoweri Museveni (1980 to 1986). The people and economy suffered. Uganda lost 3.5% of its 1971 population, and GDP decreased by around 3% per year. The coffee industry survived the instability because of its crucial place in the export market, and because coffee cultivation requires few inputs, harvests do not need to be sold immediately, and there were back-channel exports to neighbouring countries.

The Museveni era saw a return to growth in output and exports. In 1991, the government deregulated the industry and made sound macroeconomic decisions. World coffee prices also increased during the 1990s leading to a peak in exports in 1995 and 1996 (chart 1).

Since the 2000s, the government has embarked on a number of ambitious plans to increase output. Vietnam is held up as a model: it increased output from one million bags in the 1980s to over 25m bags today (coffee beans are typically exported in 60kg bags). The Ugandan government’s latest plan, part of the larger Operation Wealth Creation, began in 2013. Its goals include increasing output to 20 million bags, increasing yield by three to four times, increasing land under cultivation by 20%, and a 15% increase in price through stronger branding. Since 2013, there has been a large increase in the planting of higher-yield seedlings.

In 2016/17, more than 172 million seedlings were planted.

Under Operation Wealth Creation, output remains short of the 20m bag target (1.2m tonnes); 2017’s output was 5.2m bags (312,000 tonnes). The government has responded by pushing out the original target date from 2020 to 2025-30.

The barrier to increased output does not appear to be the price of coffee; it remains high for Ugandan arabica and robusta. The challenge appears to be in the availability of workers – and climate change.

Uganda’s population is increasing, but the population is moving away from agriculture, both physically and in terms of employment. It is difficult to find more people willing to grow 116

600

600

500

500 Value (RHS)

400

400 300

300 200

Tonnes (LHS)

200 100

100

0

0 1961

1966

1971

1976

1981

1986

1991

1996

2001

2006

2011

2016

USD, millions

Tonnes, thousans Chart 1: Ugandan Coffee Exports. Source: FAO. 12

1.5

10

1

8

0.5 Temperature changes (RHS)

6

0 Yield (LHS)

4

-0.5

2

-1 1986

1991

1996

2001

2006

2011

Thousand Tonnes per Hectare

2016 Degrees Celsisus*

Chart 2: Yield and Temperature Change.

*Difference between annual mean temperature for the given year and the mean from the baseline period (1951-1980). Source: FAO.

coffee, especially young farmers. Like most developing countries, Uganda is continuing to urbanise. In 1987, 90% of the population lived in rural areas. Twenty years later, the percentage in rural areas has fallen to 77%. The decline is likely to be worsened by the rise of the oil industry.

Workers are moving away from agriculture into manufacturing and service jobs. Table 1 shows that young Ugandans tend to find employment in services and manufacturing. The solution is to increase the scale of farms, improve labour efficiency, and to increase yields. The government has been promoting better growing practices and higher yield varieties, but yields have decreased since the early 2000s.

The second challenge is more difficult to address: climate change.

Scientists have long predicted that a rise in average and minimum temperatures will push the suitable altitude for coffee cultivation hundreds of meters higher. If true, this will probably decrease the amount of land under coffee cultivation. The area under arabica cultivation is already small. A shift of a few hundred meters is not possible in many cases, because it would mean a move into national parks and areas with poor soil. Robusta

cultivation may decrease or shift areas, but it will face competition from other crops.

Climate change also affects the amount and distribution of rainfall. Droughts and rain at the wrong time have a big impact on yield. Droughts leave plants more vulnerable to pests. Yields can differ by up to a factor of three between a good and bad years.

The impact of climate on yields can be seen in chart 2, which shows yields falling, since 2001, as temperatures have risen.

Climate change can be mitigated by new practices (such as shade growing), increased irrigation, new strains of plants, and the prioritisation of new growing areas. Such solutions take time and it is not clear that their impact will be large enough to ensure that the government’s output target of 20m bags can be met.

Coffee is still king, but its peak output may be close at-hand, and may be smaller than envisioned by the government. Oil will replace coffee as Uganda’s key commodity, but coffee will continue to play an important role. The degree of importance will depend on the strength of oil output, climate change, and the ability to increase scale and efficiency. i

2016/17

Agriculture

Manufacturing

Services

14-17 18-30 31-64 No Education Primary Secondary Post Primary Secondary / Specialised Training

62.0 37.8 41.3 64.7 49.7 26.6 7.1

18.2 16.6 16.0 14.2 16.1 19.1 16.1

19.8 45.6 42.7 21.2 34.2 54.3 76.9

Table 1: Percentage of employed persons by sector, age, and education. Source: Ugandan National Statistical Office.

CFI.co | Capital Finance International

SBM CAPITAL MARKETS LTD THE INVESTMENT BANK FOR AFRICA

Corporate Finance

Fund Management

Brokerage

• • • • • •

• • • • •

• • • •

ECM DCM M&AS Structuring Corporate Valuations Capital Raising

Pension Fund Advisory and Management CIS Management Portfolio and Wealth Management Services Product Engineering Distribution of Financial Products

Trading Local Markets Trading on International Markets Listing Underwriting

SBM Capital Markets Ltd is regulated and licensed by the Financial Services Commission (FSC) Mauritius and holds Investment Banking licence.

This document has been prepared from sources SBM Capital Markets Ltd believes to be reliable but we do not guarantee its accuracy or completeness. Any information including facts and opinions is expressed as of the date of writing.

The price and value of investments and any income that might accrue could fall or rise or fluctuate. Fixed income securities carry interest rate risk, with bond prices usually falling when interest rates rise and vice versa. This effect is usually more pronounced for longer-term securities. Fixed income securities also carry inflation risk, liquidity risk, call risk, credit risk and default risks for both issuers and counterparties. Mutual Funds are subject to market risks and there is no assurance or guarantee that the objectives of the fund will be achieved.

SBM Capital Markets Ltd is in no way guaranteeing the expected returns given in the document. These are only indicative and are subject to changes in market conditions and availability of instruments.

The FSC does not vouch for the financial soundness of the products or for the correctness of any statements made or opinions expressed with regard to it.

T: (230) 202 1169 | E: sbmcml@sbmgroup.mu | www.sbmgroup.mu

> Precision, Comfort, Service:

Three Watchwords That Are Serving Air Senegal Proud

Senegal is a rapidly developing West African country in full economic expansion, and in the drive to lead it to emergence, in 2016, an airline company was created: Air Senegal.

T

he ambition assumed – and affirmed – is that Air Senegal wants to position itself as one of the leaders in air transport in Africa. The company has acquired the necessary resources – financial, technological, logistical and human – to become a dynamic national asset capable of competing with major airlines.

The quality of Air Senegal’s management team, and its crew members, allows it to align its ambition with the most demanding international standards.

Air Senegal obtained its air operating permit in April 2018, and made its first commercial flight the next month, on May 14. Today, the

118

company is following a logical expansion to establish a worthy reputation on the African continent.

Philippe Bohn, former Africa director of the EADS group (now Airbus group), has been at the head of Air Senegal since August 2017.

"We are fortunate to have strong political support aimed at boosting the aviation sector worldwide,” he said.

“Air Senegal is the lever of the development policy of the Emerging Senegal Plan (PSE) initiated by the Head of State, President Macky Sall. It is important for us to take up this exciting challenge, and make this company one of the best in Africa.“ CFI.co | Capital Finance International

AIR SENEGAL: FLAGSHIP PROJECT Air Senegal is a project under the Emerging Senegal Plan (PSE). It was set up by President Macky Sall with the initial aim of meeting demand for domestic air transport before meeting the need for regional and intercontinental links.

The company is the result of a well thought-out, rational strategy based on solid foundations.

The logic runs thus: “A growing economy must ensure the movement of goods and people.”

It is with this logic in mind that the PSE is developing vectors in road, maritime, rail and, finally, air transport. Air Senegal is an integral part of the PSE and the Senegalese President's

Spring 2019 Issue

policy framework to enable the country to achieve unprecedented development by 2035.

PROFESSIONALISM AND RIGOUR Air Senegal has chosen an experienced international management team, headed by Bohn, supported by experienced and dedicated flight and technical staff, trained to the highest international standards.

To support him in his missions, Bohn chose Jérôme Maillet as the company's second manager. As a serial entrepreneur in aviation, Jérôme Maillet has participated in the launch of three airlines over the course of his career.

Those airlines are Volotea (a low-cost Spanish airline linking European capitals to regional cities), Air Côte d'Ivoire (for which Maillet drew up the business and investment plans) and Congo Airways (a company that received the Airline of The Year award from the African Airlines Association (AFRAA).

"Airline jobs are precision jobs, so it is important to recruit the best people," says Bohn. His search for the best led him to Cheikh Seck, one of Senegal's leading pilots, and a former captain on the A330 and A380 jets at Emirates.

"There are high quality Senegalese pilots,” Bohn says, “generally working elsewhere – since there was no longer an airline company here in Senegal. It was a real challenge to identify them, and convince some of them to join us, to come back home to participate in this adventure.”

Cheikh Seck is now Chief Operating Officer of Air Senegal, responsible for leading the recruitment of pilots and organising the most stringent, challenging and specialised tests – criteria designed to net the best-of-the-best.

The experienced Air Senegal team also includes Eric Iba Gueye, director of network and customer experience (another team member with an expansive knowledge of the airline sector).

A FLEET AT THE CUTTING EDGE Air Senegal has a fleet of four aircraft, two Airbus A319s, under operational lease from Lessors Avolon & Apollo, and two ATR 72-600s.

These craft cover duties for domestic and subregional networks. After the Ziguinchor region (Senegal), Air Senegal set out to conquer several new destinations: Abidjan (Côte d'Ivoire), Praia (Cape Verde), Bamako (Mali), Bissau (Guinea Bissau), Conakry (Guinea Conakry) and Banjul (Gambia).

Senegal's national carrier has also signed a firm order for two Airbus A330neo wide-bodied aircraft – Air Senegal is the first buyer for these craft on the African continent. This new version of the A330 is Airbus' best-selling long-haul aircraft. The A330neo combines low operating costs, long-distance flight capabilities and high levels of comfort.

119

The ceremony to hand-over the first Airbus A330 took place in January this year. The aircraft, dubbed Casamance, will be delivered in March, after which it will operate the Dakar-Paris-Dakar route. Philippe Bohn, proud of this acquisition, said Air Senegal was relying on “a winning strategy that translates into the purchase of new, latest-generation aircrafts with high added value and the operation of intercontinental routes with high profitability”.

the Ministry of Defence, the National Office of Studies and Research in Aerospace (Onera) and continued his career in the FC group Oberthur, for which he created the international management team.

Bohn is promoted as vice-president of Africa and Latin America, next to the president of VIVENDI (now VEOLIA), Henri Proglio. Before taking over as head of the Senegalese national airline, Philippe Bohn was Africa director of the EADS group (now

Two important goals for the airline were to offer passengers unparalleled service and comfort, Bohn says. While waiting for the delivery of the first A330neo, the company is serving the DakarParis-Dakar route with an A340 rented to the operator Hi Fly. With this line, the company hopes to achieve its objective: a turnover of €110m in 2019 – and €340m by 2022.

To continue its expansion on the intercontinental market, Air Senegal will welcome its second A330neo, named Sine Saloum, this summer.

The national pavilion plans to serve several other destinations, including hubs such as New York, Sao Paulo, London, Dubai.

Bohn has been instrumental in the development of Air Senegal. He was appointed as the airline’s manager in August 2017 by President Sall.

Bohn served for a long time as Advisor for International Affairs to the president of the oil group Elf-Aquitaine. He then joined an agency of 120

CEO: Philippe Bohn

CFI.co | Capital Finance International

Airbus group). In 2011, he became business development director of the Airbus group.

He has specialist knowledge of aviation, with experience in civil and military aeronautics industries. He also has a profound relationship with, and respect for, the African continent. He defines himself as "a human engineer", and has published a book on the processes of decisionmaking, entitled Profession: An Agent Of Influence. i

Legal advice and support when you need us most

Our aim is to be your trusted ‘legal expert’, someone you can turn to for help and guidance.

Offering legal protection for you and your family. coop.co.uk/legalservices

Legal Services Co-op Legal Services is a trading name for Co-operative Legal Services Limited which is authorised and regulated by the Solicitors Regulation Authority under registration number 567391. Registered under Company Number 05671209. Registered office is 1 Angel Square, Manchester M60 0AG.

> Absa:

Innovative Bank that’s Unlocking Customer Value in Digital Realm When South African financial services provider the Absa Group launched its strategy for growth, it set out to become a technology pioneer, and to lead the tech-curve – locally and globally.

A

bsa (formerly Barclays Africa Group Limited, and originally Amalgamated Banks of South Africa) offers personal and business banking, credit cards, corporate and investment banking, wealth and investment management as well as simpler, customer-centred services. It focuses on its customers – always -- and uses HumanCentred Design (HCD) thinking to spearhead its commitment to scalability and being digitallyled.

“For Absa, this means transforming the current business, making it more open and connected, orientating it for customer growth with digital, pre-emptive customer engagement and simpler, customised offerings,” says Bongiwe Gangeni, deputy CEO of Retail and Business Bank SA, Absa Group. “We are selectively pushing the innovation envelope. There are already several demonstrable proof-points where we are bringing this ambition to life. Our retail franchise has taken the lead in providing first-to-banking digital solutions for our customers.”

Absa pioneered the launch of ChatBanking on Facebook and messaging platform WhatsApp, becoming the first bank in the world to offer the service. In August last year, Absa also launched Samsung Pay, a system that allows customers to store their bank details on a Samsung smartphone and make payments at points-of-sale – a first for the South African market. In Kenya, Absa successfully launched Timiza, a system designed to enable Kenyans to access loans, pay bills, do airtime top-up and buy insurance, forex, and access other services. Those initiatives are currently being rolled-out.

“Because we aspire to become a banking group which Africa can be proud of, we are also mindful of our responsibility to service our customers in the most remote areas on the African continent,” says Gangeni. “This is why we partnered with retailers, post offices and similar organisations in Kenya, Tanzania and Uganda to service customer cash needs.”

CHANGING THE GAME FOR SMEs As part of the bank’s “customer-first” ethos,

122

Deputy CEO (Retail and Business Bank SA, Absa): Bongiwe Gangeni

innovation transcends retail and business bank experiences. With technology proliferation, South Africans increasingly demand greater speed and convenience.

ease to accepting card payments. SmartPay is an offering that has been developed with SMEs in mind, aimed at saving time and money for business owners.

SmartPay, the bank’s latest development, aims to put small and medium enterprises (SMEs) on the front foot and brings a greater level of

Absa will bundle SME-specific products under a SmartPay umbrella. The first is a mobile pointof-sale (mPOS) device, the Link 2500. SmartPay

CFI.co | Capital Finance International

Spring 2019 Issue

removes all the dependencies of a traditional mPOS system and provides merchants with card payment-acceptance, combined with the functionality of a traditional point-of-sale and the mobility of an mPOS device. SmartPay removes all the device limitations that can prevent businesses from accepting payments, and offers an all-in-one, on-the-move product.

No more paper receipts, no more smartphones with applications, restricted network coverage or Bluetooth pairing – the new payment device comes standard with dual SIM cards to ensure optimal network coverage.

INNOVATION IN DIGITAL MOBILE APPS Being aware of the evolving needs of its customer base is something of a mantra for the Absa Group. As a society develops, so does its banking and transactional behaviour. Absa recently announced its Banking App with artificial intelligence-driven benefits – another African “first”. Customers can switch their beneficiaries by simply taking a photo of the beneficiary details – the app automatically imports those details in real-time.

“In our quest to drive greater customer convenience, we are harnessing the power of AI to make things a little easier for customers,” says Aupa Monyatsi, managing executive, virtual channels at Retail and Business Banking. “Essentially, by activating an icon on our app, users can also ask a bot to action a request.”

Absa’s app has benefited from a range of new features in recent months. Customers can now view their Unit Trust balances and invested funds using the Banking App, and access a range of bespoke product offerings, such as credit-limit increases, personal loans and overdrafts (scoring dependent).

“We have partnered with fintechs and startups through our innovation hub, based in Cape Town,” says Monyatsi, “providing support, resources and the ability to develop best-inclass technology solutions in digital innovation to our customers. We have a Sandbox Hub of APIs (software interfaces), SDKs (tools to develop software applications) and code that fully comply with bank security and regulations suitable for corporate developers, fintech and start-ups to select and use in applications.

“Leveraging AI will be central to Absa’s approach of creating best-in-class offerings which are underpinned by ground-breaking technology, and augmented by a ‘customer-obsessed’ approach. New conveniences will enable customers to pay their rent using CashSend.

Buying prepaid electricity and airtime in virtual realms is a game-changer for Absa.”

Over the past three years, Absa has partnered with local education authorities to launch a Girls In Technology programme – where it mentors, teaches coding and exposes young learners to its tech experts to encourage them to pursue CFI.co | Capital Finance International

technology related careers. “Since we launched the program in 2015, almost 200 young learners have been though the programme,” Monyatsi reports.

“In addition, we have run a We Think code initiative that gives students exposure to software engineering through two years of workplace experience. Candidates are put through rigorous technical assessments to gain entry into the programme. With a forwardlooking take on learning, this programme uses a peer-to-peer approach and has eliminated the need for formal classes, teachers or formal tuition.”

Absa’s Digital Academy aims to identify and attract technical talent and create opportunities for success. It offers a practical learning experience at the Digital Academy, followed by workplace experience (for top performers.

The best overall performers are offered permanent employment opportunities. The Academy Programme promotes a real-world and industry standard environment and platform which enables young software developers to grow technically as well as tactically. The interns solve real problems with innovative solutions, from ideation to deployment. Since the launch, 166 Interns have been placed within Absa for workplace experience; 67 have been employed on a permanent basis, and 63 have been employed on a fixed-term contract. i 123

> Ostoul Capital Group:

From Little Things, Big Things Grow: Ostoul’s Acorn Becoming an Oak

A

t a time when the risk of setting up a fully fledged investment institution that offers an incomparable range of services was exceptionally high, Ostoul Capital Group still took on the challenge and over a mere span of three years, managed to cement its position in an extremely competitive market.

The stability of the Egyptian Stock Market over the past decade encouraged the establishment of Ostoul Capital Group in 2015 with the sole intention of becoming one of the largest financial institutions in Egypt.

Ostoul’s highly qualified and experienced team was determined to engrave the company’s name among the top-20 providers of similar services and within a short three years, Ostoul was indeed able to achieve its target through solid investment strategies, sound technical approaches, secure fundamental tactics, and a firm operational and managerial system.

The success story started off with the set up of the brokerage arm of Ostoul in 2015 – with only 21 clients in place. To secure recognised status in the brokerage world, Ostoul succeeded in obtaining a number of crucial operational licenses including online trading, same-day trading, margin trading, GDRs trading and foreign securities trading.

operations. That line has now been extended to reach $5.7m (EGP100m) if needed.

With a solid plan in place, Ostoul succeeded in heading the brokerage firms in terms of growth for 2016, jumping 79 slots, from 111th position in 2015 to the 32nd in 2016. Then, in 2018, it leapt to an overall ranking of the 19th – with a whole-year total turnover of $321m (EGP5.64bn). The client base also grew to include a total of 940, with the assets under management standing at $28.9m (EGP507m) as of December 2018. Ostoul Brokerage has a presence in two Cairo districts, and is broadening its coverage with the launch of further branches throughout the country.

With a list of prominent shareholders in place, Ostoul Capital Group was established with the intent of incorporating all the licenses that would guarantee its clients a comprehensive bouquet of investment-related services.

By April 2016, Ostoul was licensed to provide the services of private equity, asset management and fund management. With an acute business vision, aggressive strategies, and a competent bankingexperienced board, Ostoul’s portfolio management assets under management grew from a mere $261,877 (EGP4.6m) in 2016 to an outstanding $7.2m (EGP127m) in February 2019.

Ostoul also became a listing agent in September 2016, and was the first company to obtain a Delivery vs Payment (DVP) line starting from $1.14m (EGP20m) in less than one year of

124

CFI.co | Capital Finance International

Ostoul is in the process of launching its first equity fund this year. In November 2017, it acquired the license to act as custodian, a service which earned it a client base of 306, with an assets value of $588m (EGP 10.34 bn) and with $398m (EGP7bn) in the pipeline due to Ostoul’s additional service of registering companies with the Central Depository System. In the same month, Ostoul also became an official Nile Stock Exchange sponsor.

Besides these services, Ostoul provides advice and solutions in mergers and acquisitions, loan and equity fundraising, sourcing new investment opportunities and divestitures or partial shares sales. In this specialised area, it provides client support throughout the deal cycle from initiation to completion, including due diligence, valuation, deal structuring, fundraising, documentation and negotiation.

Ostoul is aware of the country’s growing projects and future development plans, and went on to establish Ostoul Financial Consultancies in 2016 to assist investors in making informed business decisions through a variety of services including the performance of economic and financial research and studies, valuations, feasibility studies and the provision of solid business plans.

With all the right tools and expertise in place, Ostoul Capital Group’s vision is to continue to grow – and engrave its name, once again, at the top of the tree – this time among the top 10 service providers – within the shortest time possible. i

Spring 2019 Issue

> Partners Who Put Their Faith in Egypt’s Burgeoning Economy

Aly El Ghannam Chairman & Marwan El Khedry Managing Director

A

ly El Ghannam and Marwan El Khedry – “The Partnership”, as they choose to be called – established Ostoul Capital Group in Egypt in 2015.

With more than a quarter of a century of experience between them in the capital market, private banking and investment management fields, “the partnership” put their expertise – gleaned from positions in prestigious banks, brokerage firms, portfolio and fund-management companies – to good use.

They established Ostoul Capital Group with the avowed intention that it would become one of the leading investment banks in the market. Their extensive exposure to the Buy and Sell sides of the Capital Market also added value to the structuring of the institution.

Having been involved with a wide range of prominent clients as well as having maintained strong ties with the regulators and authorities, the two men were able to envision what clients would need and worked on providing the biggest range of financial services to accommodate a diverse range of clients.

They went on to develop a solid and fully fledged investment house, and made sure that the group’s list of shareholders bore some of the most reputable and prestigious names from diverse fields and industries.

When Ostoul Brokerage Services, a subsidiary of Ostoul Capital Group was granted the trading license in 2015, many believed it was taking on

a huge challenge by entering the market at a time of instability and volatility.

El Ghannam and El Khedry decided to take that risk, and pressed the “Go Ahead” button, with firm confidence in the promise and potential of the Egyptian Economy and Stock Market.

“The Partnership” was proven right when the Egyptian Economy started presenting robust results since the adoption of an economic reform programme at the end of the fiscal year 2015/16. The package was designed to leverage Egypt's strengths and tackle core challenges head-on, as well as focus on growth, job creation and social inclusion.

November 2016 was a turning point in the Egyptian Economy, when the Central Bank of Egypt took the long-awaited decision to liberalise the local currency against foreign currencies to boost confidence in the economy.

By the end of 2018, both the International Monetary Fund (IMF) and the Economist Intelligence Unit (EIU) revised upwards the projected real GDP growth for Egypt. Bloomberg agreed, using the IMF projections to break down sources for world GDP growth, and anticipated Egypt’s contribution to reach 1.3% from 20182019.

Egypt is witnessing improvements on all economic fronts, with a strong GDP growth, a lower budget deficit, dollar sources on the rise, the subsidy bill dropping, inflation easing and above all the stock market performing exceptionally well.

CFI.co | Capital Finance International

The country is determined to emerge as a favourable investment destination, with a unique value proposition for global investors. Since the stock market is a leading indicator, Ostoul strongly believes that 2019 is a year during which the market will outperform to reflect the positive results of the economic reform program, backed by declining interest rates in the coming future.

“Perseverance in Profit Making” was the slogan “the partnership” decided to take up for their institution to express the depth, meticulousness and patience they take on in making the right investment decisions. They set their mission to provide various well researched investment strategies as well as tailor made models to suit each client’s needs and preferences aiming to accomplish the best returns possible while minimizing the risks that may arise in such a market. With an in-house research team, technical analysts, custodian and broker in place, Ostoul succeeded in achieving the most difficult equation of maintaining high levels of integrity, diligence, competence, credibility and efficiency.

Just as “the partnership” had believed since the start of Ostoul, the Egyptian Economy went on to significantly improve in a few years as backed up by some of the renowned names in the field; IMF, the World Bank, Moody’s, S&P and Fitch and with the growing faith “the partnership” still has in the Egyptian Market, Ostoul Capital Group along with its subsidiaries will work hard to achieve even more to become among the top 10 service providers in the shortest time possible. i 125

> PwC:

CEOs’ Confidence in Business Growth Dips as Global Economy Seen to Falter

By Dion Shango, CEO for PwC Southern Africa

CEOs around the world are less optimistic about the strength of the global economy than they were a year ago – and less sure of their organisations’ ability to grow revenues in the short and the medium term.

T

hose chief executives are less bothered by broad existential threats that topped the business agenda last year – terrorism and climate change – and more concerned about factors that affect the ease-of-doing-business in the markets where they operate. Also of concern are any factors that affect overall business confidence and willingness to invest.

These are some of the key highlights from PwC’s 22nd annual Global CEO survey of over 1, 300 chief executives around the world, released at the recent World Economic Forum in Davos.

PwC has been conducting the surveys since 1997, and this year the study looked to the past and the future to analyse the predictive power of CEOs. It found a strong correlation between chief executives’ expectations for their own organisations’ revenue growth, and actual GDP growth the following year.

In other words, CEOs’ revenue confidence can be considered a leading indicator of the direction of the global economy.

The prevailing sentiment gleaned from this year’s survey is one of caution. In South Africa, economic and policy uncertainty have caused business leaders to ponder the prospects for future growth.

The unease about global economic growth is lowering CEOs’ confidence about outlook in the short term, with 35% saying they are “very confident” in their own organisation’s growth prospects over the next 12 months – down from 42% last year. In South Africa, only 18% of CEOs are “very confident”.

The same holds true for the medium-term (threeyear) outlook; just 30% of South African business leaders (global: 36%) are “very confident” about their business prospects for growth over the next three years. North America, Central and Eastern Europe, Asia Pacific, and the Middle Est have all hit record lows. North America’s CEOs report the most radical loss of confidence; the overall lowest level reported is (as in 2018) in Central and Eastern Europe.

126

"CEOs’ revenue confidence can be considered a leading indicator of the direction of the global economy."

This relative pessimism is not that surprising, and most major economic models have adjusted their 2019 forecasts downward. In fact, many economists see a slowdown as overdue. In addition, international trade tensions, political upset and uncertainty, and stricter monetary and fiscal policy all play out differently – but with the same general results across regions.

DRAMATIC DROP The US retains its lead as the expected top market for growth over the next 12 months, but there has been a dramatic drop in votes – from 46% in 2018 to just 27% in 2019. China saw its popularity fall from 33% in 2018 to 24% in 2019. As a result of the on-going trade conflict with the US, China’s CEOs have diversified their markets for growth, with only 17% selecting the US as likely growth leader – down from 59% in 2018. The other three countries rounding the top five for growth include Germany at 13%, down from 20%; India at 8%, down from 9%, and the UK at 8%, down from 15%.

conflicts, policy uncertainty, and protectionism have replaced terrorism, climate change, and an increasing tax burden in the top 10 lists of threats to growth.

While each region cites a different “Number One” threat, there is broad consistency in what keeps CEOs up at night. Policy uncertainty is among the most extreme concerns in every region, and ranks in the top three everywhere except North America (where it is number seven) and Asia-Pacific (number six). The availability of key skills makes the top 10 list in every region, and the top three in Asia-Pacific, Central and Eastern Europe, and Africa.

South African CEOs’ concerns around a broad range of business, societal and economic threats continue to increase. CEOs are “extremely concerned” about social instability (South Africa 68%; global 18%), uncertain economic growth (South Africa 68%; global 24%), populism (South Africa 55%; global 28%), exchange rate volatility (South Africa 49%; global 26%), and trade conflict between the US and China (South Africa 100%; global 88%).

Of business threats, 33% of South African CEOs (34% globally) said they were ‘extremely concerned’ about the availability of key skills, 38% (30% globally) cited cyberthreats, and 38% (28% globally) listed the speed of technological change as concerns.

South African CEOs named the US (25%) followed by China, the UK and Kenya (20%) as the most important countries for their organisation’s overall growth prospects over the next year. While most CEOs still believe in globalisation, they appear to be less interested in expansion outside their home markets. Instead, organisations are narrowing their focus and staying local.

DATA AND ARTIFICIAL INTELLIGENCE This year’s survey revisited questions about data adequacy first asked in 2009. It was found that CEOs continue to face issues with their own data capabilities, resulting in a significant information gap that remains 10 years on. Despite billions of dollars of investments made in IT infrastructure over this time period, CEOs report they are still not receiving the comprehensive data needed to make key decisions about the long-term success and durability of their business.

THREATS TO GROWTH As indicators predict a global slowdown, CEOs have turned to navigating the surge in populism in the markets where they operate. Trade

Leaders’ expectations have risen as technology advances, but CEOs are keenly aware that their analysis capabilities have not kept pace with the volume of data which has expanded

CFI.co | Capital Finance International

Spring 2019 Issue

100

6

50

4 3

Global GDP growth 0

2 Change in global CEO confidence

1 0

Change in CEO confidence (% point)

Global GDP growth (constant prices, y-y%)

5

(50)

(1) (2)

(100) 2008

PwC

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

What do CEOs know about the future? How confident are you about your organisation’s prospects for revenue growth over the next 12 months? (summary change in CEO confidence). Source: PwC.

5

CEOs’ curbed confidence spells caution

"As CEOs focus more on execution, search for revenue growth, work to address data and talent issues, implement emerging technologies, and seek to capture related benefits and value, they should not retreat from the broader conversation on establishing new societal frameworks to meet evolving human needs – and foster sustainable prosperity." exponentially over the past decade. When asked why they do not receive comprehensive data, CEOs point to the lack of analytical talent (global 54%; South Africa: 50%), followed by “data siloing” (global: 51%; South Africa: 63%), and poor data reliability (global: 50%; South Africa: 41%).

Eighty-five percent of CEOs globally (South Africa 90%) agree that artificial intelligence (AI) will dramatically change their business over the next five years. Nearly two-thirds (globally) view it as something that will have a larger impact than the internet revolution.

Despite the bullish view on AI, 23% of CEOs globally (South Africa 28%) have no current plan to pursue it. In addition, 33% globally (South Africa 32.5%) have taken a “very limited approach”.

CLOSING THE SKILLS GAP There is no quick-fix to close the skills gap that is worrying many chief executives. 46% (global, 38% South Africa) see significant retraining and upskilling as the answer, with 17% (South Africa 20%) also citing establishing a strong pipeline directly from education as an option.

What is clear is that governments and businesses need to co-operate to help their people adjust to the disruptive impact of new technologies, such as data analytics and AI. A culture of adaptability and lifelong learning will be critical to spreading the benefits of AI and related technologies throughout society. In addition, improved STEM (science, technology, engineering, and math) skills will be important in allowing people to perform the new roles and tasks that will come

with AI and robotics. Soft skills like creativity and empathy will also be important in making people adaptable and employable.

As CEOs focus more on execution, search for revenue growth, work to address data and talent issues, implement emerging technologies, and seek to capture related benefits and value, they should not retreat from the broader conversation on establishing new societal frameworks to meet evolving human needs – and foster sustainable prosperity.

In addition to this experience, Dion Shango has enjoyed exposure to other sectors and industries throughout his career by virtue of being involved in the audits of companies and organisations such as the South African Reserve Bank, Vodacom and Montecasino.

In recent years, his client base has included Exxaro Resources Limited, Harmony Gold Mining Company Limited and Sasol Oil.

Every leader is affected by challenges, but no individual organisation in either the public or private sectors can tackle them alone. i ABOUT THE AUTHOR Dion Shango was appointed as PwC’s Southern Africa CEO on July 1, 2015 – the first black African to be appointed to the role.

Prior to his current appointment, he acted as Leader of PwC’s Energy, Utilities and Mining (EU&M) Group. He was recently elected as PwC’s new Africa CEO, with effect from July 1, 2019. Shango was voted-in in an electoral process involving some 400 PwC Africa partners across the continent. PwC’s Africa region extends across three market areas – Southern Africa, East Africa and West Africa.

Since being admitted to the partnership in 2008, Shango has led engagements on complex and multinational businesses and has serviced a number of listed clients, mostly within the mining industry. He has extensive experience reporting under IFRS, and of financial reporting in the mining industry.

CFI.co | Capital Finance International

Author: Dion Shango

127

> Middle East

FinTech and Capital Markets in the Middle East & Central Asia Source: IMF, lightly edited excerpts from “Financial Inclusion of Small and Medium-Sized Enterprises in the Middle East and Central Asia”, 19/2/19

Alternative channels, especially capital markets and fintech, could facilitate greater SME financial inclusion, either by supporting the supply of bank credit or by opening new financing channels. Cross-country experience shows that a range of policy and institutional conditions are required to develop these channels in the Middle East and Central Asia (MENAP and CCA) regions.

Capital Markets international experience shows that capital markets can play a significant role in serving the specific financing needs of SMEs. Such a role can be direct but also (and possibly more important) indirect by helping channel funding to OFintermediaries thatENTERPRISES have solved microeconomic FINANCIAL INCLUSION SMALL AND MEDIUM-SIZED IN MENAPthe AND CCA challenges of lending to small businesses. Such intermediaries include banks, which raise funds in capital markets and may intervene at various stages of Figure 16. Types of Fintech for SME Finance the SME life cycle.

P2P/Marketplace Business Lending Online platform collects contributions from investors towards a loan to business

Examples: Lending Club (USA), Beehive (USA)

Equity-based Crowdfunding

Reward/donation-based Crowdfunding Online platform allows individuals or institutional investors to provide funds in exchange for non-monetary rewards/ products/philantropic motives

Online platform allows individuals or institutional investors to purchase equity issued by a business

Examples: Kickstarter (USA), Zoomaal (Lebanon)

Examples: Crowdfinance (UK), Eureeca (UAE)

FREE

Balance sheet business lending Online platform lends directly to the business from its balance sheet

Examples: • OnDeck (USA), CAN Capital (USA)

Invoice lending

Merchant and e-commerce finance

Online platform provides liquidity to businesses in form of (discounted) payments for outstanding customer invoices

Online platform that does not have lending as its core business, but has rich information about its customer base that it could potentially use to provide credit products

Examples: BlueVine (USA), MarketInvoice (UK)

Examples: Amazon (USA), Alipay Financial (China)

Figure 1: Types of FinTech for SME Finance. Source: IMF Staff.

Source: IMF Staff.

dom, the nine largest banks were required to share SME data with external 6

I

n the initial stages, when firms generate little revenue and present high information asymmetry, access to most sources of formal financing is limited and entrepreneurs rely on their own savings or seed capital. Start-up companies with growth potential but elevated risks may attract venture capital and specialised (for example, private equity) funds. As SMEs grow and build a performance track record, sources of credit such as bank loans or asset-based lending may become increasingly available, and loan securitisation may also help mobilise new financing. Finally, developed SMEs may issue debt and equity through over-the-counter or exchange markets.

FinTech FinTech is changing SME financing and has generated growing interest among policymakers. Developments in recent years illustrate the potential of FinTech as an alternative source of financing. In the United Kingdom, for instance, four banks accounted for 80 percent of SME lending before the global financial crisis, and the supply of SME bank credit supply was sharply reduced during the crisis. In response, the authorities required banks that denied credit to SMEs to refer them to alternative lending providers, which led to rapid growth in peer-to-peer lending, from fewer than 1 percent of new SME loans in 2014 to more than 3 percent by 2017. FinTech innovations can support SME financing, including credit provision and equity capital, both by facilitating bank credit supply and by opening new lending channels.

OPENING NEW CHANNELS OF SME LENDING Financing FinTech allows the development of alternatives to traditional (bank) SME lending.

New electronic platforms have emerged that have led to a scaling up of crowdfunding, peerlending, and other channels (Figure 1 Figureto-peer 17. Fintech Ecosystem on the previous page).

FinTech IN THE MENAP AND CCA REGIONS FinTech is nascent in the MENAP and CCA regions, but its development has accelerated in recent years. FinTech investments are still low in both regions compared to global levels, but they are increasing rapidly in some countries.

The UAE, Lebanon, Jordan and Egypt host three-fourths of the MENAP startups and have established large FinTech accelerators.

In the CCA region, FinTech has been developing mostly in Kazakhstan. FinTech companies in both regions have focused primarily on payment solutions, marketplace lending, and crowdfunding, including for SMEs. A combination of government and countryspecific factors have played a role in FinTech growth. In addition to the availability of private capital, FinTech development has been boosted through government measures ranging from funding support to the establishment of attractive regulatory and legal framework for accelerators and incubators, and for foreign investors (UAE, Kazakhstan).

A larger and well-regulated FinTech sector would benefit MENAP and CCA countries.

Both regions are characterised by a high share of youth and migrants in the population, increasing use of digital commerce, a large informal economy, and a strong need for economic and financial diversification.

DFS The Dubai Financial Services Authority, as the financial regulatory agency of the special economic zone, the Dubai International Financial Centre, is leading efforts to develop and regulate FinTech in the region.

The FinTech Hive accelerator (the Hive) was launched in 2017 at the Dubai International Financial Centre, and the innovation testing license was developed by the financial services authority to allow start-up FinTech companies to grow and test their products in a friendly regulatory environment. Some of the Hive cohorts’ participants go on to receive licenses from the financial services authority.

In this context, FinTech could underpin greater financial inclusion of SMEs and underbanked population groups. However, demand for The Dubai Financial Services Authority FinTech-based SME finance remains largely uses open-market consultations to develop Potential Role of Alternative Financing Channels unmet, and constraints identified by firms regulations such as crowdfunding platform include: difficulties in hiring and retaining rules. In 2018, it joined the Global Financial talent; the limited availability of private capital; Innovation Network initiative. As a result of these and, low financial literacy. Legal and regulatory efforts, the Dubai International Financial Centre frameworks that address these constraints while is today home to several successful FinTech protecting financial stability and consumer companies that provide SME financing, such as protection would help promote innovation and Eureeca (equity) and Beehive (a crowdfundingfinancial inclusion in both regions. based lending platform). i

Infrastructure

Legal system

Government policies

Regulatory environment

Data connectivity and internet use

Permitting legal Fintech environment

Financial and digital literacy

Digital incubators and accelerators

Digital payments systems

Financial free zones

Fintech and innovation in state development programs

Level-playing field for newcomers to SME lending

China

UAE

Singapore

UK

Figure 2: FinTech Ecosystem. Source: IMF Staff.

Source: IMF Staff.

130

REGULATORY TECHNOLOGY (RegTech) New technologies can help lower regulatory compliance costs, which are a key obstacle to SME credit. Many banks in the MENAP and CCA regions need to perform AML/CFT due diligence for new accounts, which makes servicing SME accounts costlier. FinTech solutions offered by companies such as Suede and BearingPoint (Abacus) can reduce these and other compliance costs by embedding regulatory requirements into IT protocols and allow real-time compliance monitoring. Knowyour-customer and AML/CFT procedures can also be made more efficient by analysing digitalised client and partner transaction data and writing contracts on distributed ledgers (Trulioo).

CFI.co | Capital Finance International

Spring 2019 Issue

> QNB ALAHLI:

Bank Leads by Example, and With Gusto and Dedication QNB ALAHLI, established in 1978, is one of the leading financial institutions in Egypt and the country’s second-largest private bank.

I

t is a full-service bank, organised around several diversified business lines serving corporate clients, SMEs, individuals, professionals and financial institutions through a wide range of products.

The bank has established a number of subsidiaries in specialised fields, contributing to the position of the bank in Egypt’s financial and banking activities: QNB ALAHLI Leasing (founded in 1997), QNB ALAHLI Life Insurance Company (2003), and QNB ALAHLI Factoring Company (2012).

The bank provides services for more than a million clients, who are served by more than 6,500 banking professionals and dynamic teams supported by a multinational platform.

There is a network of 220 branches, covering all Egyptian governorates, more than 460 ATMs and over 20,000 point-of-sale machines to serve clients nationwide.

A distinctive customer-service call-centre operates around the clock, seven days a week.

The attention and importance accorded to social responsibility – along with the bank’s understanding of the interconnected relation between societal development and organisational success – has driven the bank to participate in charity projects in accordance with QNB group values, goals and principles.

QNB ALAHLI has maintained its status as a strong player in the Egyptian market and achieved remarkable growth in loan and deposit portfolios, market share, increase returns, all the while maintaining sound asset quality and cost ratios.

On the corporate side, QNB ALAHLI provides dedicated products in corporate banking, financial advisory, project financing, structured financing, trade financing, cash management, and foreign exchange. QNB ALAHLI has managed to establish strong bonds with its corporate customers – large domestic corporations, subsidiaries of multinational companies and midcaps – as well as SMEs. QNB ALAHLI applies a unique business model, supported through dedicated business lines,

Chairman & Managing Director: Mohamed Osman El-Dib

offering specialised programmes addressed to SMEs – consulting, financing, and services. It was the first major bank to achieve its Central Bank of Egypt target – SME loans comprising 20% of total loans portfolio – a year ahead of time. (It recorded a figure of 23%.)

On the retail front, QNB ALAHLI has capitalised on its position as a pioneer in developing and industrialising a world-class retail banking service. The bank adapted a market segmentation approach to structure products CFI.co | Capital Finance International

and solutions that meet specific requirements with a personalised approach and innovative payment solutions.

QNB ALAHLI is keen to employ its resources to support the national economy and aid future development by expanding its services coverage and promoting financial inclusion. QNB ALAHLI is one of the few Egyptian banks to win 35 awards over the past four years – 2015, 2016, 2017 and 2018 – from reputable international financial institutions. i 131

> Fadlo Khuri, President of the American University of Beirut:

Go-Ahead University Counters Conflict and Despair with its Policy of Inclusion

Liberal, ethical education is bringing hope to Lebanon, the MENA region, and the World.

T

he Middle East and North Africa (MENA) region faces many challenges beyond the seemingly uncontainable and unending regional conflicts that capture the world’s attention.

Half of the population in many MENA countries is under the age of 25. Too many young people fail to reach their potential, and despair is real because of the absence of education and employment. There are limited opportunities for socio-political empowerment for Arab youth, and the consequences are predictably awful.

Higher education is becoming increasingly unaffordable, and this has the effect of worsening social cohesion and increasing economic disparity. Without investment in the future capacity to attract and educate the best and brightest students – regardless of their ability to pay – and recruit and empower the most talented faculty and staff, what does the future hold?

Recognition of this situation was one of the central reasons why I returned to Lebanon in 2015 to take up the position of 16th president of the American University of Beirut (AUB) – where I had been an undergraduate more than 30 years earlier. For me it was a once-in-a-lifetime opportunity to make a real and lasting impact, something I have prepared for my entire life.

AUB is the oldest, most impactful, most prestigious university in the Arab World. It has accomplished and influential alumni and is the region’s most highly rated faculty, attracting some of the best and most innovative students, as well as dedicated staff.

The university is the second-largest employer in Lebanon (after the government), and the largest private employer. It has a thriving, liberal ethos, and it is, in every sense, a community of scholars and truth-seekers – in a region where such discourse can be dangerous.

In 1866, the founders of AUB envisioned a university that would provide hope for a better future – hope through service, resulting in transformative education. So how best to maintain that? By widening access to elite 132

CFI.co | Capital Finance International

Spring 2019 Issue

institutions for the most under-represented groups in society, increasing the diversity of campus with young people from all areas of the Arab world, and beyond.

Financial aid and institutional scholarships are powerful weapons in the arsenal of organisations, like AUB, that want to change the world. The university hosts comprehensive scholarship programmes for more than 450 students, cofunded with USAID, the Middle East Partnership Initiative, MasterCard Foundation, and the AlGhurair Foundation. These initiatives go beyond the traditional provision of financial support for excluded groups by adding civic engagement and leadership elements, as well as targeted academic support, psychosocial support, and career education.

Students from all backgrounds are given opportunities to pursue excellence at AUB, without fear of failure. Across-the-board, they are constantly looking to make a difference and a positive impact on the society around them.

In today’s Lebanon, and the Arab World, there is a lack of functioning, transparent, and ethical civic societies. AUB’s goal is nothing less than a civically engaged community that serves as an example for Lebanon and the Arab world. Only then can we achieve a true global impact.

The big questions of our age are far from simple, and cannot be tackled from any single

perspective. The specialisation of AUB’s professional faculties – for agricultural and food sciences, business, engineering and architecture, health sciences, medicine, and nursing – allows academics and students to address the specific and urgent questions of the day. But AUB is also making significant investments in undergraduate education and student-support services, and will put even more emphasis on the liberal arts and general education programmes hosted by the university’s foundational Faculty of Arts And Sciences. It takes a whole university, united in the production and transmission of knowledge, to make a lasting impact.

AUB makes a significant contribution to the production of knowledge and devising solutions to major challenges, and the intention is for that contribution to grow. That is why AUB has re-introduced academic tenure – the hallmark of academic excellence – against the trend in modern higher education. The institution is rekindling faith in the future by offering more impactful and sustainable PhD programmes, and investing in AUB’s centres-of-excellence for research.

There is no doubt that education is the great equaliser in modern society. It brings together young people from different backgrounds, helping them overcome fear of the other and encouraging debate and dialogue. This safe CFI.co | Capital Finance International

environment allows students to become the “gate protectors” of peace. Circumstances in post-war Lebanon have resuscitated that fear of the other that led to the atrocities of the 197590 civil war. During those terrible years, AUB was an island of tolerance, of commitment, of shared liberal and secular values. Its fruits were then – and remain today – the best hope for emerging generations beset by self-doubt, exclusion, oppression, and expatriation.

Every day, the campus welcomes 9,500 students who want to learn and adapt and create their own future, in their own civil society. There are 1,200 full- and part-time instructional, clinical, and research members in the faculty who want to teach the next generation, heal the sick, and create knowledge to make tomorrow a better day.

They are not waiting for the outside world to save the Middle East. They are not relying on their governments to light the path forward. They are finding ways to create their own opportunities.

The role of higher education is to empower students in that quest. The true proof of character is not when things are going smoothly, but when there are seemingly insurmountable obstacles to overcome. Life may not be fair, but it is good, and there is always an opportunity to achieve great things.

Future leaders of the MENA region who graduate from AUB will be equal to the challenge. i 133

> Proud Moments, Courage and Positive Thinking:

The Joys of Life for a Go-Ahead Chief Exec KPMG Lower Gulf Ltd is one of the leading audit, tax and advisory firms in the UAE and Oman, where it has been operating for almost half a century.

I

t has representation across the region, in Saudi Arabia, Bahrain, Kuwait, Qatar, Egypt, Lebanon, Jordan and Yemen. The company has 1,250 professionals across six offices in Dubai, Abu Dhabi, Sharjah and Muscat, and KPMG Lower Gulf’s partners and directors have a wealth of regional and international experience. That experience has stood them, and KPMG, in good stead over the past 46 years.

The firm is part of the global KPMG network of professional services firms in 153 countries and territories, which has 207,000 people in cooperation around the world. That means KPMG Lower Gulf can deliver services based on local market knowledge, backed up by a global system of professionals and resources.

Despite some tough economic conditions, KPMG Lower Gulf’s business in the UAE, Oman and in the wider Middle East–South Asia regions has been growing consistently over the past five years.

“We have a dedicated financial sector focus with its own advisory teams, serving banks, insurance companies, regulatory authorities and commercial enterprises,” says CEO Nader Haffar. “The deal advisory and restructuring team has been involved in some of the largest recent transactions in the UAE.”

"We have invested substantially in digitalbased client solutions within our Digital and Innovation practice."

The company is consistently at the forefront of technology use, Haffar says. “We have invested substantially in digital-based client solutions within our Digital and Innovation practice,” he says. “The KPMG Digital Village team is working closely with Abu Dhabi Global Market on its fintech bootcamp, to showcase game-changing solutions for today’s business challenges.”

The firm’s core differentiator lies in its people, and their ability to use their competence and experience to better serve its clients. It invests in professional development programmes for its staff and partners.

“The KPMG Business Academy provides external training to people in the industries in which we operate,” Haffar explains. “Our ‘Emiratisation’ and ‘Omanisation’ programmes are vital as accessing local talent is fundamental to our success, and part of our responsibility to play a part in developing the local talent pool.”

The financial services consulting team focuses on strategy, transformation and harnessing data and technology including fintech, artificial intelligence (AI) and blockchain. The financial risk management team assists clients in the provision of risk strategy, governance, and culture.

KPMG is collaborating with ADGM Academy, Abu Dhabi HR Authorities and Abu Dhabi Accountability Authorities to deliver Pre-Audit Qualification Training to provide 90 UAE nationals with the knowledge and education that will likely equip them to enroll in the profession and in professional services.

The infrastructure finance advisory department provides public-private partnership consulting, true-value and risk mitigation. KPMG Lower Gulf’s regional head of infrastructure is also global head of infrastructure finance.

KPMG Lower Gulf was particularly proud to be an Official Supplier of the 2019 Special Olympics World Games in Abu Dhabi, and an Official Sponsor of the Global Youth Leadership Summit. “We were delighted to contribute to the

134

CFI.co | Capital Finance International

CEO: Nader Haffar

Spring 2019 Issue

world’s largest humanitarian sporting event and global movement,” says Haffar, “and to help the community. It was a life-changing moment for those staff who volunteered to help.”

Haffar was born and raised in Damascus, and left Syria when he was 18 to study in the US. There he spent the next 18 years studying and working.

Why the move to America? “Education is very important in my family,” he says, “and it was my dream to go to the US where the education is second to none.”

He chose industrial engineering for his first degree, because he sought a bridge between business and engineering. Graduating top of his class, he was snapped up by UPS (United Parcel Service), which supported him for his Master’s degree in engineering management at Columbia.

An executive degree in leadership from Harvard followed, and Haffar worked on the client and professional services side of operations, the latter for “Big Four” firms.

Seeking to bridge the gap between East and West, Nader and his Syrian-Canadian wife returned to the Middle East, where they have remained for the past 20 years. This is where his roots are, Haffar says, adding: “I feel I’m playing a small, humble role in the growth of this ‘monument’ that is rising up and in front of us.”

His role model while growing up was his father, because of his work ethic, honesty and integrity.

He also admires Warren Buffet: “He’s smart and successful but remains humble and keeps it simple; and his personal KPIs are based on who really loves you.” Haffar’s own motto is “Perseverance – stick to the plan and things will work out.” As well as being positive, courage is key – he arrived in the US not speaking a word of English.

He enjoys jazz and show jumping in his spare time, but helping others, and bringing out the best in them, is what Haffar likes best. His most gratifying moment came at the Special Olympics which recently took place in the UAE. KPMG was an official supplier, and “putting the medals on those athletes, I felt I was touching the angels,” he says.

Prior to taking up the CEO role, Nader Haffar served as head of the firm’s Management Consultancy practice, overseeing substantial growth in that part of the business. He has a long and distinguished career with KPMG, and considerable experience across the Middle East, having also worked with the firm in Saudi Arabia.

With 26 years’ experience in management consulting, his areas of expertise range from business and digital transformation to operational modelling and strategy. He has held leadership positions on many global accounts, and advised senior leaders in the private and public sectors. His professional experience spans many countries including the US, Saudi Arabia, Kuwait and the UAE. i 135

> Mouwasat Medical Services:

From the Shores of the Arabian Gulf to the Heights of Modern Healthcare Mouwasat Medical Services (MMS) was founded in Saudi Arabia in 1975 by Mohammed Sultan Subaie, and the group’s first hospital was built on the shores of the Arabian Gulf in Dammam, in the heart of the eastern region.

T

he 31,500 square-metre, 240-bed Mouwasat Hospital was built to the highest standards, and hosts more than 100 clinics operating daily from 8am to midnight. The hospital has single and double, as well as luxury hotel suites with more than 80 beds. The establishment caters for all age groups, medical needs and specialist surgical requirements.

The steady development of MMS continued over the years, and in September 2009 it became the first Saudi Healthcare company to be listed on the stock market. The legal entity of the company was converted from a Closed Saudi Joint Stock Company to Listed Company.

Mouwasat Medical Services has a total of 1200 beds. Currently the company has the following projects: 1. 200 Beds long term care in Dammam 2. 200 Beds Digital Hospital in Madinah 3. 200 Beds Digital Hospital in Yanbu The hospitals have 24-hour emergency departments, staffed by teams of healthcare professionals who ensure urgent care is available for all ages and medical needs. The departments are run by professional consultants. All Mouwasat Hospitals are accredited by the Joint Commission International (JCI), The Central Board for Accreditation of Healthcare Institutions (CBAHI).

Plus 18 separate departmental accreditations e.g. CAP, American Association of Blood Banks (AABB) etc.

Dammam hospital has been granted a Centre of Excellence Award in Obstetrics, Neurosurgery and Orthopedic Surgery, and its laboratories are accredited by the College of American Pathologists (CAP).

Mouwasat Hospital Dammam is one of two private hospitals in Saudi Arabia to offer Radiology Services ratified – since 2016 – by the American College of Radiology (ACR). The hospital has also introduced an electronic information system ratified by the European Healthcare Information and Management Systems Society (HIMSS) Stage 6.

136

CFI.co | Capital Finance International

Spring 2019 Issue

MMS seeks to constantly advance its services, and is committed to best-use of information technology. Shortly MMS will be looking at getting HIMMS 7.

The hospital’s Radiology Department has stateof-the-art equipment where the latest technology and equipment support the work of its medical staff and enable 24-hour diagnostic procedures.

Intervention radiology is one of the most developed services at Dammam Hospital.

The MMS pays great attention to patients’ experiences, and has developed a patient

call centre operation equipped with the latest technology, best-in-class processes, and talented staff. A measurement programme to gauge the quality of patient experience was launched to assure the maximal satisfaction, and an assessment system was implemented to monitor the level of services provided.

Excellence in radiotherapy nuclear medicine, and pharmacy, is constantly pursued by the MMS, which invests in the latest technology.

The MMS drive for quality is at the base of all operations, and quality is built-in at every step of its projects and developments, from design CFI.co | Capital Finance International

and development to finish and furnishings. Top quality equipment and the latest technology are always a prerequisite, and MMS remains committed to recruiting and retaining top-notch healthcare providers to ensure the best specialist to care.

The MMS strategy is to expand and develop services to meet the kingdom’s developing and changing needs. A healthcare transformation is under way in Saudi Arabia, and the new landscape provides its own incentive for constant and consistent upgrades on the road to Vision 2030. i 137

Successful traders don't follow the pack, they time their trades perfectly and possess strong trading psychology.

Do you have what it takes?

FxPro.co.uk

Risk Warning: Trading CFDs involves significant risk of loss.

FxPro UK Limited is authorised and regulated by the Financial Conduct Authority (registration no. 509956).

FxPro Financial Services Limited is authorised and regulated by the Cyprus Securities and Exchange Commission (licence no. 078/07) and authorised by the Financial Services Board (‘FSB’) (authorisation no. 45052) 138

CFI.co | Capital Finance International

Spring 2019 Issue

> Averda:

Muck, Brass and a Golden Attitude to Managing the World’s Waste Problems The term “waste management” might not immediately make you think of engineering excellence or digital innovation, but these qualities are at the heart of the Averda DNA.

T

he international company has offices in Dubai and London, and operates in Gabon, Ireland, Lebanon, Morocco, Oman, Qatar, the Republic of the Congo, Saudi Arabia, South Africa, the UAE and the UK – and its roots lie in engineering.

disproportionately it is affected by issues related to climate change and poor waste management.”

Averda collects, transports, contains and recycles waste of every conceivable kind: wood, concrete, household trash, hazardous chemicals and biological matter. Underpinning everything the company does is a genuine desire to make the world a healthier and cleaner place.

Across the cities and communities it works in, Averda is reaching out to schools and community organisations to show people how to sort and recycle their trash. It also gives support for initiatives from third parties that educate on environmental issues.

“We want this to be a better place to be – for today and for tomorrow’s generations,” says Averda CEO, Malek Sukkar. “Our exposure to the developing world never fails to show us how

This passionate belief in investing for tomorrow helps to explain the Averda passion for innovation.

“We know that by creating better technologies we can recycle more to create more reusable

Polluted seas and rivers, a deluge of plastic, harsher and drier summers are all of concern to Averda, dedicated to solutions – and therefore to education.

CFI.co | Capital Finance International

matter,” says Sukkar. “We also know that the technologies and ideas we are deploying help all of us to dispose of things in a more responsible way and serve our customers better.”

Averda diligently serves 62 million people, 24 hours a day, seven days a week, always striving for excellence. “That is why we have snatched this Corporate Leadership Award from CFI,” says Sukkar. “It’s the second year in a row for us, and we’re really pleased to be recognised for the way our love for the environment translates to what we do and how we do it.”

Collecting waste is never glamorous. But, being recognised for being the best at doing what Averda loves to do – innovate waste management services – makes every dirty-day-made-clean well worth it. i 139

> Investment House:

Shari’ah-Compliant Company Moves from Shining Past to Exciting Future

T

he Investment House is one of the pioneering investment companies in Qatar.

Established in 2001 as a private Qatari shareholding company, and one of the fastestgrowing companies in the GCC, the Investment House was licensed by the Central Bank of 140

Qatar to offer all of its services in compliance with Shari’ah law.

The Investment House company provides qualitative investment services to clients, offering unique investment opportunities in almost all sectors. The company has been offering diversified investment products in CFI.co | Capital Finance International

various parts of the world since its inception, affirming its vision of leading the investment field and delivering on its mission to provide innovative, value-added investment solutions to clients in local, regional and international markets. It does this through a range of competitive investment services that are Shari'ah-compliant. While doing so, the

Spring 2019 Issue

company remains highly committed to its values of loyalty, integrity, excellence, trust and participation.

SERVICES The Investment House offers a host of services, including portfolio and fund management, asset and wealth management, banking investments, mergers and acquisitions, public and private offerings, private financial services, consultation, and a trading room. This diversity ensures the needs of investors and the market are fulfilled, achieving the highest returns on investments.

The Investment House is managed by a dedicated team of professionals with experience and insight, who can create investment solutions that meet clients’ risk appetite and provides the type of returns they expect. The team's ability is in finding the right opportunities; and creating high-quality, innovative opportunities that attract an ever-expanding client base.

Those clients have absolute confidence in the investment solutions the company is providing.

The company is headed by CEO Saeed Salah Al Marri, leading specialised teams in wealth management, asset management, marketing, customer service, and the supporting administrative teams.

Since its establishment, the company has introduced a range of investment products and opportunities. The company has made investments of $ 1.5 bn in vital sectors, such as local and international stock exchanges and real estate, equity funds, real estate funds, pension funds and portfolio management. It has investments across the Middle East, North Africa, Europe, and North America. Through asset management, the company always pursues the greatest returns possible by diversifying its investments, the geographical regions it invests in, and the investment terms, creating a wide spectrum of services.

Qatar: Doha

"The company has been offering diversified investment products in various parts of the world since its inception, affirming its vision of leading the investment field and delivering on its mission to provide innovative, value-added investment solutions to clients in local, regional and international markets."

CFI.co | Capital Finance International

Through wealth management, the Investment House seeks to continuously expand its client base, offering investment solutions that take into account the nature of the investment they are looking for. The wealth management team assists clients to achieve their investment objectives by creating innovative investment solutions that suit their aspirations. It takes into account the economic prospects of the markets and nature of investments, by considering all aspects of the anticipated risks compared to the expected returns of each investment.

Through its public and private offerings service, the Investment House offers a 141

CEO: Saeed Saleh Al Marri

service to companies, starting from studies and consultations up to processing all the procedures of private and public offerings. Its experienced, specialised team offers clients the chance to achieve sustainable growth.

The Mazaya Qatar is proudly one of the proud achievements of management. The deal was achieved in two phases; the first involved completing the private offering with a capital of QR500m. The role of the Investment House in this phase was to act as the financial advisor of the incorporation of Mazaya. And a second phase, the initial public offering to raise QR500m was achieved and the Mazaya Qatar shares were successfully traded in the Doha Stock Exchange.

To expand its range of services, the company offers a direct trading service in international currencies and equities through its trading room, providing innovative Islamic solutions to ensure that the customers benefit from the trading of currencies and stocks in accordance with Shari'ah law. The trading room team 142

provides customers with a wide range of services around the clock and on all business days. These services not only facilitate and execute sales and purchase orders, but also provide news insights and basic and technical market analysis tools. The services also include monitoring the accounts, providing substantive technical support, opening accounts and transferring funds promptly, and providing the latest versions of software for electronic trading.

The trading room, which is fully equipped with the latest devices, is the crown jewel of the services the company is offering to its customers.

This large diversity of investments ensured the company the biggest client base. The clients from government agencies are the mainstay of the company's client base. The company also has clients from private companies and organisations and a wide range of individual investors. The diversity of its customers reflects the success of the company in providing investment services that meet the various investment requirements and cover most of the CFI.co | Capital Finance International

market sectors, providing a preferred investment platform for its clients.

The Investment House has many surprises that will be revealed in the near future. The company has many potential, qualitative medium to large investment opportunities. This will significantly increase the company’s investments in Shari’ah compliant solutions, covering various regions of the world and opening for its current and future customers investment windows with attractive returns and diverse nature that provide them with the solutions they expect. One of the opportunities the company is expected to reveal is a huge investment of $10 bn in the energy sector. The project will be the largest of its kind globally and will provide financing services to energy projects in almost all the regions of the world.

The Investment House reiterates that it will always be an innovative investment platform that provides solutions to its clients to fulfil their investment needs, and to maintain its reputation as the preferred investment destination. i

Spring 2019 Issue

What kind of world do we want to live in?

At the American University of Beirut, the Maroun Semaan School of Engineering and Architecture is leading the way to a better tomorrow in the Arab world and beyond.

Through excellence in education and research, MSFEA answers the hardest questions and empowers individuals to make their own meaningful life paths.

Towards a more viable, livable, and equitable world.

For more information visit our webpage: www.aub.edu.lb

# B o l d l y A U B | a u b . e d u . l b / B O L D LY A U B C A M P A I G N CFI.co | Capital Finance International

143

> ICBC Dubai (DIFC) Branch:

Industrial and Commercial Bank of China (ICBC), upholding its values of “Integrity leads to Prosperity”, endeavours to provide outstanding financial services to its clients and achieve sustainable and coordinated economic, environmental and social development.

Robust Player to

From China Comes a China, ICBC is always by your side, providing Bond with the MiddleIn24x7 East services with 16,000 branches, 27,000 self-

service banking outlets, over 100,000 ATMs and The Industrial and Commercial Bank of China Ltd (ICBC), recognised as one through its online and mobile banking platforms. of the world’s leading banks, has a history of consistent development and ICBC carries the flag of supporting the real-econendeavour – traits that continue today. omy and e�ectively operates an inclusive financial CBC has more than seven million system that benefits all. It actively promotes corporate and 600 million individual "Collaborating with governments, sovereign institutions and clients. To serve a customer base of that green finance injecting more than RMB 1 trillion size, ICBC has amassed 16,000 domestic leading corporate clients, ICBC’s Middle East operation is and more than 400 overseas branches, in green economy, supporting the development with subsidiaries across 47 countries and riding the wave of the region’s strategic sector of infrastructure regions. of green bond market. Infusing energy to a vibrant investment, economic diversification and green development."

Along with cutting-edge e-banking systems and a economy, ICBC finances start-ups and innovation diversified and comprehensive range of financial products and services comes an ambitious new projects. ICBC also endeavours to finance povproject to create a solid link between China and the Middle East. erty-relief projects and fulfills the corporate social ICBC started its journey to serve the Middle East responsibility. region in 2008, and maintains five branches

I

in the GCC region. The business lines include accepting deposits, financial products or credits advisory, provding credit, dealing in investments as principal/agent, managing assets, arranging deals in investments and custody.

The bank’s Middle East operation continues to hold a leading position in terms of total assets and business lines among the foreign banks operating in the buoyant region.

Collaborating with governments, sovereign institutions and leading corporate clients, ICBC’s Middle East operation is riding the wave of the region’s strategic sector of infrastructure investment, economic diversification and green development. As joint underwriter and joint book runner, ICBC Dubai (DIFC) Branch arranged the first sovereign Panda Bond issue in the region.

In support of UAE Energy Strategy 2050 and Saudi Vision 2030, ICBC funded a series of clean energy projects in the MENA region, which include several large scale thermo-photovoltaic and clean coal-power projects.

ICBC proactively participates in the Belt and Road Initiative, and takes competitive advantage of the key roles that the Middle East region has played as a converging point of the maritime and land trading routes.

ICBC has taken care and effort to connect China and the Gulf region with cultural understanding and solid corporate relationships.

144

In UAE, ICBC is recognised as a trust-worthy bank.

With branches in Abu Dhabi and Dubai International Financial Centre, ICBC roots deeply into the local market while covering the GCC region.

ICBC actively supports the mutual beneficial cooperation between China and UAE. Following the principle of openness, transparency, and win-win cooperation, ICBC maintains strong relations with the local financial institutions and government related entities of UAE Through diversified products

ICBC- Bridging Financ Boosting Socio-econo

CFI.co | Capital Finance International

Spring 2019 Issue

nancial Cooperation, conomic Development

na (ICBC), to Prosperg financial ainable and and social

such as syndicated loan, bond investment, trade finance, financial lease, project guarantee, settlement, ICBC provides supports to various industries including aviation, infrastructure, renewable energy, transportation, hospitalities, etc., which boosted the diversification of local economy, and facilitated the economic and trade cooperation between China and UAE.

, providing 7,000 selfATMs and platforms. real-econve financial promotes B 1 trillion velopment o a vibrant innovation nance povorate social

Across the world, ICBC is actively performing social responsibility. ICBC has established 422 institutions in 45 countries and regions and indirectly covered 20 African countries as a shareholder of Standard Bank. The bank has also established correspondent bank relationships with 1,548 overseas banking institutions in 143 countries and regions, which enables the bank to provide cross-market, cross-border global banking services across six continents. ICBC has been consciously integrating its social responsibilities with its development strategy and operation activities, while actively participating in promoting local socio-economic development.

orthy bank. ai Internaeeply into CC region. neficial colowing the nd win-win ations with rnment red products

Believing that integrity leads to prosperity, ICBC will firmly grasp the development opportunities in economic and trade exchanges between China and UAE, and utilize the geographical advantage of UAE to link three continents Asia, Europe and Africa as well as cherish the trust and support of the local community.

ICBC will continuously rely on its UAE networks and exert its advantages to make greater contributions to Sino-UAE economic, trade and financial cooperation.

cial Cooperation, omic Development

CFI.co | Capital Finance International

General Manager: Zhang Junguo

Chairman of the ICBC Middle East Regional Committee is Zhang Junguo, who is also senior executive officer (SEO) of ICBC Dubai (DIFC) Branch and general manager of ICBC Abu Dhabi branch. “Integrated management is key in attaining cross time-zone and cross-market advantages,” he said. “We are keen to contribute to the region’s development. In the process of serving our clients, we stressed the green economy and environment protection. By actively participating in the Belt and Road Initiative, we aim to expand our business horizon to be the bridge between China and the Gulf region.”

Zhang appeared in the list of the 50 Most Influential Expats In The UAE 2018 compiled by Forbes – recognition of the contributions by ICBC and Zhang himself to the regional economy.

Looking to the future, Zhang said: “Pursuing our corporate value of ‘Integrity Leads to Prosperity’, we will seize the development opportunities brought about by the economic, trade and cultural exchanges between China and the Gulf region and leverage on the geographic advantage of the region to bridge Asia, Europe and Africa.

“We appreciate the trust and support given from all the stakeholders. We assure greater effort to contribute to the Gulf region, and to society as a whole.”

Joining hands with local and global Chinese corporations, the bank has strengthened its focus on the quality of financial services to energy, oil and gas, shipping, aviation services and construction sectors.

ICBC has achieved top ranking, for consecutive years, in the Global 2000 list by Forbes, the Top 1000 World Banks compiled by The Banker, and Fortune’s Global 500 Commercial Banks. i 145

> Improved M&A Environment Across the GCC:

Healthcare Deal Sentiment Remains Optimistic

By Simi Nehra

Over the past decade, the direct investment climate in the Gulf Cooperation Council (GCC) region has witnessed an unprecedented shift in sentiment.

I

nterest appears to have moved from real estate, retail and food and beverage industries to healthcare, education, FinTech, e-commerce and digital products.

By its very nature, the market is cyclical.

However, the one sector in which M&A prospects seem positive in 2019 and 2020 is healthcare.

This is because certain regional investors are pursuing consolidation in the United Arab Emirates (UAE) in an effort to manage increasing costs and remain competitive. A growing number of healthcare groups are also looking to enter other GCC countries.

In January 2019, the 44th Arab Health Exhibition at the Dubai World Trade Centre attracted more than 4,000 exhibitors from 66 countries, and over 80,000 visitors1 – the largest annual medical trade fair in the Middle East and North Africa (MENA) region. The conference reflected renewed commitment from international private healthcare companies to develop the highest standards of healthcare across the region. There was a sense of government support for those aims, and there is likely to be more investment in the sector over the next decade to meet the UAE Vision 2021, among other regional governmental development plans. There is also a great deal of support for the development of university hospitals and healthcare vocational training academies.

QUESTION OF VALUE While the UAE has seen rapid development of its healthcare facilities and numerous entrants in the past decade, valuations appear to have softened. But, due to demographics and consumer demand, other markets present tremendous opportunities for growth.

In the UAE, general healthcare multiples have softened to seven to nine times earnings before interest, tax, depreciation and amortization (EBITDA). This contrasts with 2014, when it was not uncommon to see deals done at over 12 times EBITDA. In other markets, valuations are mixed with several buyers chasing fewer assets; high single-digit EBITDA multiples are not unusual.

146

"Greenfield opportunities in the GCC are creating significant investor value."

Closing deals in other GCC markets may present different dynamics. For example, the UAE healthcare market is fairly well developed and relatively well organised. In other parts of the region, many hospitals are non-government run, and sometimes family owned. As a result, certain markets may currently lack the same degree of cohesion that comes with integrated healthcare groups operating across the various medical verticals. This makes it more challenging for strategic or financial players to invest. The deals for assets of this nature are not based on conventional valuation methods and should be evaluated differently.

Greenfield opportunities in the GCC are creating significant investor value. However, the investor or healthcare provider must have the appetite to build and develop a new facility, which may take two years to commission. In the current market, it would probably take a further two years to build up a patient base and break even. Four years is a long time to wait for a return on investment – especially in the current market, where many shareholders expect a financial return in the first year.

VISIONARY The shift can be seen in the value paid on completion. In 2015, UAE-based NMC Health acquired the Dr Sunny Healthcare Group for $64m – a value close to 10 times EBITDA. More recently, in Saudi Arabia, NMC Health acquired an 80% stake in Riyadh-based Al Salam Medical Group for $37 million, paying less than seven times EBITDA2.

While per-barrel oil prices have to some extent stabilised around the $50–$60 mark, one would CFI.co | Capital Finance International

expect investment mandates to reignite and realign towards profitable, scalable businesses in the region.

In line with neighbouring countries, the UAE has favourable GDP growth forecast rates of about 2.9% for 2019, according to The Economist Intelligence Unit. KPMG Lower Gulf has advised on seven healthcare M&A deals since 2015, involving regional healthcare providers and investors. While the pipeline is encouraging, deals are taking up to nine months to complete.

The climate is improving, especially for larger deals, where timelines can be as little as six months.

Healthcare investors are still keen to expand their operations as they see growth, scalability and margin security in specialised areas such as fertility and maternity, dental, cosmetology and beauty, paediatrics, cancer care, diabetes, cardiac care, recovery and rehabilitation.

MORE THAN SKIN DEEP The high-growth areas of cosmetology and beauty also seem to have attracted significant attention from the investment community, due to high margins and repeat clientele (largely attributed to long-term, regular treatments such as Botox, laser and face lightening).

And trends appear to be shifting. This is a high-growth sector which is now attracting men. Treatments are non-invasive and easy to administer, with fewer regulatory requirements compared with an in-patient hospital. Clinics are also easily accessible, typically located in strategic locations such as malls and community centres.

Regional markets present a potentially huge opportunity for existing area brands and providers. There is a large, young population and governments are driving social change. The cosmetology sector tends to invest in improving technology, products and treatments, for example laser hair-removal, which often attracts new patients. Hair transplant procedures also have potential, subject to regulatory approval, along with dental procedures.

Author: Simi Nehra

Atypically, cosmetic treatments are not usually covered by insurance, and more than 90% of the revenue is paid directly by patients. This allows providers to avoid dealing with cumbersome insurance contracts. In some cases, a poorlynegotiated or inherited insurance contract can turn a world-class healthcare facility into a white elephant.

investments in healthcare to remain buoyant in the foreseeable future as there is a need to provide for the rapidly expanding population. i

HEALTH-TECH Technology is also a key factor to improving financial returns on a healthcare investment.

Digital technology holds the potential to transform a business in several ways, maximising efficiency and saving time and costs. Virtual reality has also helped patients in rehabilitation clinics, while Artificial Intelligence algorithms can support data analytics on medical records and create optimal treatment plans new drugs.

ABOUT THE AUTHOR Simi Nehra is currently Head of M&A for KPMG in the UAE, where he assists private equity and corporate clients within the region. He is also responsible for developing best-practice M&A and coordinating both local and international deal flow. Last year, the team picked up the MergerMarket Middle East’s Pharma, Medical & Biotech M&A Financial Advisor award.

Arab Health 2019 opens in Dubai. Emirates 24/7, published January 29, 2019.

2 NMC Health website, Acquisitions Report; Gulf Business.

1

Healthcare M&A deals in the UAE are expected to see more conservative pricing in the next two years, due to the possible high level of saturation and competition. We expect the market to consolidate and small players to be consumed by larger players due to their area of sought-after specialism.

During his time in the region, Simi has advised on over 100 multi-sector transactions and led several advisory mandates for a range of enterprise size: $15 million to $100 million. He also has provided transaction advisory services to high profile initial public offerings (IPOs) on the UAE financial markets and to UAE government entities.

With rising operating costs, increased regulation and pressure from insurers, retaining star doctors is sometimes a challenge. Some seemingly overwhelmed doctor-entrepreneur groups may decide to exit due to margin compression and the inability to stay profitable. Outside of the UAE, on the other hand, we expect deals and

Simi has over 17 years of corporate finance experience, and has worked across the UK, UAE and wider GCC markets. He has worked for a broad client base that includes: private equity firms, large investor groups, sovereign wealth funds, family offices, corporates and venture capitalists.

CFI.co | Capital Finance International

147

> Deloitte:

Construction Hitches in the GCC Lead to Calls for Positive Change

By Cynthia Corby

Construction plays an important role in GCC countries’ long-term economic development plans and national visions, driving the involvement of the public sector towards delivering successful cities.

W

hilst external factors – such as the tightening infrastructure expenditure and reduced volume of project awards – have had a negative impact on the construction sector, but there is an appreciation of the need to focus on traditional challenges that seem to affect contractors’ profitability and project delivery.

It can seem paradoxical that the same markets that welcome innovation and change – and have significant, planned investments in exciting new capital projects – still have a long way to go to embrace alternative approaches to construction project delivery, and overcome the challenges that adversely affect project performance.

Deloitte recently conducted a C-Suite survey with regional construction companies to gain insights on a range of issues affecting the industry.

The key findings: • Construction project margins are under significant pressure • The average time for contractors to receive payment for completed work is more than 200

"Market participants are eager to see positive change in the industry – not least through morebalanced contractual relationships." days, and they have to indirectly fund projects themselves – with a knock-on effect on the supply chain • The number of disputes has increased in recent years, and many resolution timeframes have stretched to over two years • Access to finance is more difficult to come by than in previous years – mainly as a result of more stringent credit committee approvals, rather than a decline in lenders’ liquidity.

A highly competitive and price-conscious market has unfortunately led to a “lowest bid wins” model that has seen price as the deciding factor for awards. When you have choice in a highly

61%

70% 60% 50% 40% 30% 20% 10% 0%

50%

44% 33%

28%

Increase 28%

22%

22%

11%

Revenues

Stable Decrease

Operating Margins

Financing costs

Figure 1: Views of respondents on likely changes in financial metrics of their company over the next 12 months.

WIP to receivables, 83 days

2016

Receivables to cash, 85 days

WIP to receivables, 114 days

2018

0

50

Receivables to cash, 129 days

100

150

200

Figure 2: Average time taken to receive payments for work done.

148

CFI.co | Capital Finance International

250

competitive market, clients can demand quality and the lowest price – but this is not a sustainable approach for contractors or developers. Pressure to reduce costs to win work has often resulted in frequent disputes, and led to eroded profit margins, which ultimately affect project delivery.

The ambition and scale of investment in infrastructure and capital projects in the GCC region is significant. There are currently planned projects worth more than $2.5tn. The biggest market, by a large margin, is Saudi Arabia, with more than $1.2tn worth of unawarded work, followed by the UAE at $716bn. Other markets range from $60bn (Bahrain) to $215bn (Kuwait) (Source: MEED Projects).

These capital projects are the fundamental building blocks of the GCC states’ national transformation programmes.

However, successful delivery demands a more sophisticated contracting environment. Studies highlight continued project delays and cost overruns caused by a variety of issues around the volume of variations on contracts due to design changes. In a sector that has traditionally been reluctant to embrace new approaches, this causes significant cost overruns.

Market participants are eager to see positive change in the industry – not least through more-balanced contractual relationships. Other positive changes include greater stakeholder collaboration focused on delivery; a sensible approach to risk allocation; quicker ways to resolve disputes; innovative delivery models; and the adoption of global standards that will prove attractive to international project financiers and investors.

Alternative models and digital innovations would help to break the traditional delivery structures that have begun to disrupt capital project delivery. The industry would benefit from the increased use of off-site methods, digital engineering, and Building Information Modelling (BIM). It would also benefit from adopting a digital mindset, with data and analytics at the core, so that real-time information can aid decision-making.

Spring 2019 Issue

Author: Cynthia Corby

Moving forward, private sector capital is expected to play a bigger role – whether through PPPs or fully private projects. Attracting international investors will demand market improvements, including less adversarial relationships and a more balanced approach to risk allocation; solutions to prolonged payment periods; appropriate credit support arrangements, and allowance for

35% 30% 25% 20% 15% 10% 5% 0%

26%

26%

22%

22% 11%

11%

11% 2%

Easily available

Bahrain Kuwait Oman Qatar

Somewhat available

29%

Neutral 2016

4% 9% 6%

$2,564bn

6%

Saudi Arabia 46%

Figure 4: Projects pipeline in the GCC, by country, as of January 2019 ($bn).

As developers look for ways to build assets at a cost that’s recoverable through an acceptable ROI, there has to be more focus on the wholelife cost rather than just the initial capital cost.

This paradigm shift will drive the change required

35% 33%

Figure 3: Views on availability of finance.

UAE

exchange-rate adjustments for critical projects and the opportunity to commit long-term to the region.

Somewhat hard to get

Very hard to get

2018

in terms and conditions and in a collaborative approach between stakeholders.

Changing the GCC contracting environment to have a more balanced approach to risks and rewards will not only make pricing more sensible, it will also enable more efficient and effective delivery of large capital projects for owners. This shift will not be easy, and requires the commitment of everybody in the industry, but it has the potential to be hugely beneficial and rewarding for all involved. i CFI.co | Capital Finance International

ABOUT THE AUTHOR Cynthia Corby is the Middle East Construction Industry Leader for Deloitte & Touche Middle East. Cynthia chairs industry conferences and writes articles on industry issues. Cynthia is an author and founder of the GCC Powers of Construction Publication issued by Deloitte & Touche Middle East, which includes expert views on construction opportunities and trends in the region. Her current portfolio of clients includes all the major construction companies audited in the UAE as well as number of international referral assignments.

Cynthia is an audit partner in Dubai office with over 20 years of experience in the profession.

Prior to joining Deloitte Dubai in January 2006, and was a partner at Baker Tilly, United Kingdom, where she was the partner in charge of the audit department and prior to that she was with Deloitte in South Africa for 10 years. Cynthia was the first Female Audit Partner appointed in Deloitte & Touche (ME) in 2006 and is also the Director of Audit Operations for the Middle East, leading the practice comprising circa 1700 people.

Cynthia has worked with businesses ranging from quoted companies to large and small owner managed entities in the Middle East, United Kingdom and South Africa controlling overall service delivery. She has experience in advising on corporate transactions, including acquisition due diligence and group re-organisations. She is the Lead Partner for many International Subsidiaries with the Middle East operations head quartered in Dubai, reporting to the parent company auditors.

149

> IMF:

Benefits from Financial Inclusion of SMEs in the Middle East and Central Asia Source: lightly edited excerpts from “Financial Inclusion of Small and Medium-Sized Enterprises in the Middle East and Central Asia”, 19/2/19

T

he importance of financial inclusion is increasingly recognised by policymakers around the world. According to a new study by the IMF: Small and mediumsized enterprise (SME) financial inclusion, in particular, is at the core of the economic diversification and growth challenges many countries are facing. In the Middle East and Central Asia (MENAP and CCA) regions, SMEs represent an important share of firms, but the regions lag most others in terms of SME access to financing.

Improving SME financial inclusion can help increase economic growth, job creation, and the effectiveness of fiscal and monetary policy and could also contribute to financial stability. In the MENAP and CCA regions, the potential benefits are particularly high: annual economic growth could, in some cases, be boosted by up to 1%, potentially leading to about 16 million new jobs by 2025 in these regions.

"SMEs have a key role in driving employment, especially in developing economies."

In recent years, a growing number of countries have also developed national strategies to address key obstacles to household and firm financial inclusion.

benefits to the economy and stronger demand for credit.

Finally, specific policy and regulatory frameworks are needed to encourage the development of SME financing through greater reliance on capital markets and new technologies. The policy framework proposed in this paper can help support policymakers in formulating and implementing country-specific reform strategies for greater SME financial inclusion. The IMF and other international organisations have important roles to play in providing analytical input and concrete policy advice based on the various aspects of this framework, building on lessons from international experience.

USION OF SMALL AND MEDIUM-SIZED ENTERPRISES IN MENAP AND CCA

um-sized Enterprise in the Economy

ber of

A

International experience suggests that many factors can help scale up SME bank credit, Firms including: • Economic fundamentals and financial sector characteristics, such as macroeconomic stability, limited public sector size (to avoid crowding out SME access to credit), financial sector soundness, a competitive banking system and, more broadly, a competitive and open economy that could boost SME investment and demand for credit.

• Institutional factors, such as strong governance and financial regulatory and supervisory capacity, credit information availability, and a supportive business environment, including modern collateral and insolvency frameworks, and legal systems that allow to adequately enforce property rights and contracts.

In addition, alternative channels can facilitate greater SME access to financing, including by supporting the supply of bank credit. Crosscountry experience shows that capital markets can play such a role at various stages of SME development. Similarly, fintech can both help reduce constraints on bank credit (for example, credit information or competition) and open new channels for SME financing. Both capital markets and fintech are still nascent in the MENAP and CCA regions.

MENAP

EMDE

LAC

EDA

A key conclusion is that partial approaches, such as policies focusing solely on direct public financing or guarantees, are unlikely to yield large benefits. Rather, meaningful, safe, and sustainable SME access to financing requires a holistic approach covering the key building blocks listed above, from macroeconomic to legal and regulatory aspects. This approach can also trigger a virtuous circle ofin greater transparency 2.

SME Share TotalSME Employment and reduced informality, bringing about broader

(Percent)

Small (<20)

BENEFITS FROM INCREASING SME FINANCIAL INCLUSION Economic Growth Closing the SME financial inclusion gap with respect to emerging market and developing economies would help increase annual economic growth in some MENAP and CCA countries by up to 1%. Analyses presented in Annexes 3–5 complement the existing literature on

Medium (20–99)

Large (100 and over) 100 90 80 70 60 50 40 30 20 10

EDE

MENAP

World average

SSA

CCA

LAC

EDA

0

A range of policies and reforms have already been implemented across countries to support SME financial inclusion. These include direct Figure 1: Small and medium-sized Enterprise in the economy - SME share in total employment (%). Source: World Bank Enterprise urveys, latest available data. interventions to enhance bank credit, such Surveys, latest available data. Note: EDE = Emerging and Developing Europe; SSA = Sub-Saharan Africa; CCA = Caucasus and Central oping Europe; = Sub-Saharan Africa; CCAcredit = Caucasus and Central Asia; MENAP =andMiddle Africa, and as SSA through state-owned SME banks, Asia; MENAP = Middle East, North Africa, Afghanistan, Pakistan; East, EMDE = North Emerging Markets andAfghanistan, Developing Economies; LAC = guarantee schemes, and interest regulations.

America the Carribean; EDA = Emerging and Developing Asia; SME = small and Asia; medium-sized kets and Developing Economies; LAC rate = Latin AmericaLatin and theand Carribean; EDA = Emerging and Developing SMEenterprise. = small and 150

CFI.co | Capital Finance International

• Own savings • Venture Capital & • Venture Capital & Figure 12. SME Financing—Key Sources • Angel and Venture Private Equity Private Equity Capital Investors Macro Impact and • Fintech solutions (P2P, Start-up Small EnterpriseJob Creation Medium Enterprise crowdfunding)

• Own savings • Angel and Venture Capital Investors • Fintech solutions (P2P, crowdfunding)

• Venture Capital & Private Equity

• Venture Capital & Private Equity

Macro Impact and Job Creation

• Capital Markets & Issue Spring 2019 Bank Credit Large Enterprise

• Capital Markets & Bank Credit

Bank Credit

Source: IMF Staff.

Bank Credit

Figure 13. SME Financing and Capital Markets Figure 2: SME financing - key sources. Source: IMF staff.

Source: IMF Staff.

Saving Sources

Figure 13. SME Financing and Capital Markets Households

Saving Sources

Institutional investors

Households

Specialized funds

Institutional investors

Figure 3: SME financing and capital markets. Source: IMF staff.

financial inclusion by providing evidence of specifically from SME financial Specialized funds inclusion.

Source: gains IMF Staff.

Static and dynamic regression frameworks based on cross-country macro-level data suggest that closing the SME financial inclusion gap vis-àvis emerging market and developing economies could increase growth by an average of 0.3 percentage point annually.

Source: IMF Staff.

Estimates of gains in employment and labour productivity growth based on firm-level data and combined with growth accounting calculations indicate potentially higher GDP growth gains (about 1 percentage point). Finally, countryspecific approaches using dynamic stochastic general equilibrium (DSGE) model calibrations suggest that relaxing key constraints to SME access to financing could yield long-term cumulative growth benefits of about 5% in certain MENAP and CCA countries.

Channels

SMEs’ lifecycle

Seed capital and angel investors, venture capital

Launch

Channels Debt and assetbacked securities

SMEs’ lifecycle

Seed capital and angel Non-financial investors, venture capital corporations

Launch

Debt and assetbacked securities Equity securities

Growth

Maturity Growth

Non-financial corporations Job Creation SMEs have a key role in driving employment, especially in developing Equity securities economies. SMEs are the largest contributor to employment across all country income groups.

They are also large contributors to employment growth. Research find that SMEs (fewer than 100 employees) account for nearly half of the workforce in the average country and that small firms (fewer than 20 employees) are the highest contributors to employment growth. They also find that the youngest firms have the highest employment growth. In the MENAP and CCA regions, greater SME financial inclusion could help raise the employment rate, potentially creating about 16 million jobs by 2025.

22

Analyses and literature suggest that giving firms 22 leads to an increase of access to formal financing 1 percentage point in their annual employment growth and of 2.4 percentage points in their CFI.co | Capital Finance International

labour productivity growth. These estimated gains are much larger for SMEs (1.3 percentage points Maturity and 2.3 percentage points, respectively) than for large firms (0.8 percentage point and 1.8 percentage points).

Relaxing key constraints to SME access to financing could yield long-term cumulative growth benefits. These constraints, which may force SMEs to operate at a suboptimal scale, include asymmetric information, the higher costs of serving SMEs, limited financial literacy, and insufficient collateral requirement and recovery frameworks.

In the Middle East and Central Asia region, Arab countries have the highest level of youth unemployment in the world (25% on average), and more than 27 million young people will enter those. i 151

>

THE EDITOR’S HEROES

Making the World Great Again

P

laying by the rules of convention, unquestioningly accepting whatever thoughts or actions are deemed normal, does not a hero make. In fact, our quarterly cohort of heroes shares but a single common denominator: they push boundaries.

This issue’s heroes – a tiny and perhaps even eclectic selection out of a huge field of candidates – features people from nearly all walks of life; from screen queen Meryl Streep who dared stand up to President Trump to Tim Cook, the CEO of Apple who is not a boat rocker.

In fact, he values – almost Zen-like – tranquillity and good manners. Often wrongly dismissed as yet another corporate stiff, Mr Cook is not any less gifted than his predecessor, the late Steve Jobs, who of course could do nothing wrong.

Mr Cook’s genius is of a different kind. A highly competent business administrator, he not only rescued Apple from financial ruin but made the company into the world’s largest corporation.

One for the history books, he still has plenty room for growth. The largest corporation to have ever existed – the Dutch East India Company – enjoyed an annual revenue almost five times the $256bn Apple raked in last year.

That is Lucy Worsley’s cue to appear on stage.

The likeable BBC presenter has single-handedly put the fun back into history. Dressing up in period costumes and re-enacting the foibles of queens and dames, Ms Worsley is clearly having a good time explaining the inner workings of royal courts whilst spinning a fascinating yarn.

The establishment raises both eyebrows (…) and objections at Ms Worsley’s light-hearted, if not frivolous, approach to history. She is, however, no fluke and boasts well-established academic credentials. Anyone who piques popular interest in history is to be applauded if only because the past is bound to repeat itself.

Thus, we have been forewarned.

Jean-Claude Juncker, president of the European Commission, is acutely aware of the dangers that ignorance of history breeds. In fact, the entire European Union is merely an exercise, albeit a very large one, to stop the continent from recycling its chequered past. The EU, often vilified and blamed for matters it does not (yet) control, constitutes one of mankind’s largest experiments in nation building. It aims,

152

no less, to do away with petty patriotism – in the celebrated words of British lexicographer Samuel Johnson (1709-1784) “the last refuge of the scoundrel” – and create lasting peace and prosperity. The EU has managed to do just that for about six decades, a veritable eon in Europe’s restless history. Mr Juncker – moody, boisterous, a little vindictive, and very smart – has deftly managed to keep the union together in the face of multiple threats to its existence: the UK’s departure, the flood of refugees seeking shelter from war, pestilence, and famine, and openly hostile governments in both Russia and the United States.

US billionaire Thomas Kaplan tries to defuse tension through art. In just fifteen years, Mr Kaplan assembled the largest privately-owned collection of Dutch masters, including eleven Rembrandts, a Vermeer (the only one remaining outside museums), and hundreds of other major works. The fijnschilders of the Dutch Golden Age mostly – though not exclusively; they still had to make a living – depict common people going about their daily business, such as Paulus Potter’s The Young Bull which shows a caring farmer with his prize possession in an otherwise quite unremarkable setting. This was a revolutionary concept at a time when artists painted mostly saints, heavenly scenes, and royalty striking pompous poses. Rembrandt and his generation broadened the concept of art. Mr Kaplan, in turn, hopes that his paintings can build bridges and create mutual understanding, by drawing attention to commonalities as opposed to stressing differences. Mr Kaplan has dispatched his marvellous collection on a world tour, starting at the Louvre in Paris.

Tennis megastar Serena Williams, now expecting her first child, is another advocate for unity. Though she thankfully refrains from lecturing the world – are you reading this, Bono?

– her entire attitude represents a statement.

Needing to work perhaps twice as hard as her contemporaries to overcome prejudices, Ms Williams became one of the best tennis players ever to grace the courts. And the grace is hers, including outburst of joy, anger, and frustration.

Ms Williams shows that even the truly great are just as human as the rest of us – or, better yet, that greatness resides in every individual – precisely the point Rembrandt tried to make in the 17th century. i

CFI.co | Capital Finance International

CFI.co | Capital Finance International

153

> SERENA WILLIAMS Writing Her Own Script for Success She is the only woman to rank amongst the world’s highest paid athletes, claiming a spot nearly dead centre on the annual list compiled by Fortune Magazine. Serena Williams is not just a sports phenomenon – she has become a brand and a statement.

An exuberant winner – with signature leaps of joy, fist pumping, and other festive expressions – Serena Williams break the mould: she not only outshines her opponents on and off the court, she also inspires a generation of African-American girls who may revel, without a shred of shame, in excellence. Ms Williams resolutely shattered the notion that great accomplishments must remain devoid of swagger: she is good – the best – and makes no excuses for it.

With no less than 23 grand slam titles to her name, Serena Williams has been likened to a tennis machine, albeit a most charming one. Chris Evert, who reigned supreme during the 1980s, called her “a once-in-a-century phenomenon” whilst John McEnroe thinks she is the greatest tennis player of all time.

In a class all her own, Ms Williams doesn’t stick to the pre-arranged script and displays zero tolerance for anything even remotely resembling racism. In fact, she can be quite outspoken.

In Wimbledon, playing Heather Watson in 2015, she menacingly wagged her finger at the stand after the crowd had become a bit too boisterous in its support for the home favourite: “don’t try me.” She went on to dispatch Ms Watson 6-2, 4-7, and 7-5. Always graceful, and magnanimous in victory, she congratulated her opponent afterwards on “the toughest match yet”. Wimbledon was not the first incident. In 2009, during the US Open, Ms Williams verbally doused a linewoman in four-letter worded abuse after repeated dubious calls. She won’t hold back and shows joy, humour, and rage in almost equal measure.

Up to recently perceived as a predominantly “white” sport, tennis has not always been kind to Serena Williams. During a 2001 match against Kim Clijsters at Indian Wells, California, the crowd booed, jeered, and racially abused the then 20-year old, cheering her every unforced error in a vituperative outburst; unashamedly – and very loudly – cheering for the Belgian player over the American one. Raising a clinched fist reminiscent of John Carlos and Tommie Smith’s iconic Black Power salute at the 1968 in Mexico City, an already-then combative Serena Williams managed to defeat the talented Kim Clijsters before refusing play Indian Wells.

Ms Williams ended her unspoken boycott of the venue in 2015, returning to donate her prize money to the Equal Justice Initiative and

drawing attention to the mass incarceration the characterises the US justice system. Whilst the tennis press gleefully celebrated Ms Williams “maturity” – implying that she was childish in standing up to racism – they utterly missed her sense of candour, class, and largesse – and her courage too. She will make an appearance at her own convenience in recognition that Indian Wells needs her more than she needs the venue.

The California facility near Palm Springs boasts the second-largest outdoor tennis stadium in the world and is now home to the BNP Paribas Open – the fifth-largest tournament globally. In 2009, the 29-court venue was saved from bankruptcy

by Oracle CEO and co-founder Larry Ellison.

Hardened against racism by her father Richard, and long-time French coach Patrick Mouratoglou, and now primed for enduring success, Ms Williams, expecting her first child, emphasises that she is playing to win – not winning to promote any cause. Should anyone entertain other thoughts, she will not remain quiet.

Having cruised past Steffi Graf’s 22 Grand Slam singles titles, Serena Williams has scaled to a historic height. Ms Williams is, however, not done yet but from now on will write her own script – in her own time.

“In a class all her own, Ms Williams doesn’t stick to the pre-arranged script and displays zero tolerance for anything even remotely resembling racism.”

154

CFI.co | Capital Finance International

Spring 2019 Issue

> TIM COOK Taking Care of Business He wants to be remembered as a good and decent man. Not that he’s going anywhere, anytime soon: Apple CEO Tim Cook (56) is determined to take proper care of the legacy left by the company’s visionary founder Steve Jobs (1955-2011) who is the closest thing the IT universe has to a deity.

Mr Cook, in contrast, does not at all aspire to immortality: he merely wishes to perpetuate the ethos of his predecessor – attention to detail, beauty in simplicity, and a relentless dedication to perfection.

It is by no means easy to walk in the great man’s shoes. Apple-diehards – a breed contemptuous of anything not graced by a halfeaten fruit – have accused Mr Cook of blandness and a lack of originality, two great sins. However, Tim Cook is perhaps best explained as a loving and caring father who coaches a contrarian and slightly rebellious adolescent to maturity.

No longer the exclusive domain of the selfanointed über hip, Tim Cook’s Apple has grown up and can now be depended upon to consistently deliver quality. Though the company is no longer at the absolute cutting edge of technology, ceding ground to relative newcomers and even to – horror of horrors – old-school tech giants such as Microsoft, Apple can still be relied upon to push holistic processes that bring together a host of devices which, until quite recently, were largely unaware of each other’s existence.

What most of the specialist press fails to pick up on is that Tim Cook doesn’t like to boast or talk about projects under development – preferring instead to keep things under wraps until the technology has matured and is ready for market. The tip of the veil is occasionally lifted to show investors that Apple has not fallen asleep at the proverbial wheel such as when the company confirmed speculation that it is working on a selfdriving automobile which may be manufactured in-house. Detroit has been warned.

With a leadership style that remains firmly focused on people, strategy, and execution, Mr Cook leaves it largely to the company’s engineers to come up with new products. He is not necessarily looking to replicate the original success of the iPhone – though that would be nice – but prefers to find ways to tightly integrate Apple’s current products – opting for evolution rather than revolution.

Under Mr Cook, the company has become an oasis of peace with a zero-tolerance policy towards people with disagreeable personalities and larger-than-life egos. A number of Applewatchers – yes it is a thing – have remarked that Steve Jobs usually kept troublemakers

aboard, recognising that their contributions to the company often outweighed their abrasive personalities. Tension and disagreement may have helped Apple scale great heights, it is not the way by which Mr Cook wants to further the company. That is not to say Tim Cook can’t be curt and dismissive of others: shareholders who objected to Apple’s views on climate change and sustainability were told to “get out of the stock” if they did not share those concerns.

As an excellent corporate administrator, Mr

Cook helped the company survive its near-fatal downturn during the latter half of the 1990s when revenues plummeted and the company was saved from bankruptcy by a $150m cash injection from none other than Microsoft. Under Mr Cook’s guidance Apple shot back, seeing its revenues multiply from a low of barely $6bn in 1998.

Whilst others in the company were tinkering with the next-biggest-thing in computing, Tim Cook was working the spreadsheets – taking care of business.

“Under Mr Cook, the company has become an oasis of peace with a zero-tolerance policy towards people with disagreeable personalities and larger-than-life egos.”

CFI.co | Capital Finance International

155

> LUCY WORSLEY Bringing the Past to Life

Books are the carriers of civilisation. Without them, history is silent, literature dumb, and science crippled. That certainty has changed, quite a bit, since US historian and author Barbara Tuchman (1912-1989) celebrated books as vessels of – and portals to – knowledge. Perhaps more fleeting in nature, and lacking depth, television has nibbled away at, if not supplanted, the book’s dominance in the dissemination of history.

Sometime in the mid-1990s, large media conglomerates discovered a market for popular history – one they had largely ignored up to then.

Seemingly overnight, multiple television channels popped up to explore past worlds. Not to be left behind, publishers churned out new magazines charting humanity’s progress throughout the ages.

Academia, instead of rejoicing in the interest for their arcane pursuits, mostly deplored the invasion of its ivory towers by the curious masses which tended to dispense with nuance and clamoured for the clarity offered by primary colours. Aghast at the demand for superficiality, the dons who diligently and jealously keep watch

over academic propriety, accuse popular historians of dumbing down past events, steamrolling over dissenting viewpoints, and adorning the wheels of progress with unbecoming bells and whistles to create extravaganzas that never quite were.

Thus it was that Lucy Worsley (43), chief curator at Historic Royal Palaces and armed with impeccable Oxford credentials, got caught in the crossfire when she was invited to produce and present popular history programmes for the BBC. Considered by some to single-handedly sustain the BBC Four channel, Ms Worsley revels in dusting off history to unlock the past to millions of viewers. Quirky, puckish, and often downright funny, Lucy Worsley’s trademark style has brought history mainstream and boosted the usually rather dismal ratings of the highbrow channel.

Ms Worsley’s popularity is now such that her take on the six wives of Henry VIII debuted on the flagship BBC One network in December 2016. Fellow historian David Starkey is having none of it and wondered – out loud – why his female colleagues appearing on television are

“usually quite pretty”. However, Mr Starkey, a constitutional historian and known for an acerbic tongue that earned him the sobriquet “rudest man in Britain”, may have been munching sour grapes.

His own television series on the charismatic Tudor king and his multiple wives, broadcast in 2001, proved slightly less memorable.

A few historians lost it altogether with the notoriously subversive Terry Deary of Horrible Histories fame calling Ms Worsley spiteful, criticising her “posh little voice and play-acting”.

The bête noir amongst British historians, Mr Deary, who penned over 200 history books for children and is one of the country’s best-selling authors, dismissed Ms Worsley’s day job as a waste of time: “Royal palaces do not need curators; they are best left to rot away.”

Ms Worsley remains unfazed. She called Mr Starkey “an old owl” and wisely refused to engage with Mr Deary: “I admit to being an entry-level historian and don’t mean to have the last word on anything or put across an authoritative view that is not to be challenged. I try to show that history can, in fact, be fun. While doing so, I may step on a few toes.”

Away from the cameras, Mrs Worsley is much less flamboyant, admitting to a penchant for frugality and a minimalist lifestyle. According to friends, she is also quite reserved. The Guardian called her that rarest of beings: an introverted show-off. Ms Worsley, an accomplished author, last month stormed the best seller lists with Jane Austen at Home, a 400-page tome that sheds new light on the most famous of chroniclers of Victorian domestic life.

Much anticipated, the book promptly set off a storm in a teacup – now dubbed Pride and Plagiarism – over liberties taken with a 2013 biography of Jane Austen by Paula Byrne.

The issue revolves mostly around Mrs Byrne’s discovery that the desk at which Jane Austen wrote most of her oeuvre afforded a sea view as depicted in an until recently ignored portrait of the author. This setting, it is argued in both books, linked Jane Austen’s Hampshire home to the world beyond.

Though hardly an issue to disturb most readers, it testifies to Ms Worsley’s enhanced status that her every word is weighed and measured against known fact and established academic convention. So far, no-one has inveighed against Ms Worsley’s credentials as a historian of note. With her television programmes and books she provides a welcome bridge between unassailable academia and the easilydigestible histrionics proffered by less scrupulous merchandisers of the past.

“Royal palaces do not need curators; they are best left to rot away.”

156

CFI.co | Capital Finance International

Spring 2019 Issue

> THOMAS KAPLAN Building Bridges with Art He has more Rembrandts – eleven paintings and two drawings – than any other private art collector. Billionaire investor, philanthropist, and art lover Thomas Kaplan made a veritable killing trading in precious metals and went on to further monetise his keen sense of opportunity as chairman and chief investment officer at The Electrum Group. He is, however, not your average 10-figure moneybags. Mr Kaplan read history at Oxford University where he obtained in rapid succession his bachelor’s, master’s, and doctoral degrees.

Early on, Thomas Kaplan developed an interest in the commodity drivers of geopolitics.

His doctoral dissertation on the Malayan Emergency (1948-1960) and the postindependence counterinsurgency investigated the influence of natural resources on conflict.

The research convinced him that commodities can be deployed as hedges against the predictable foolishness of governments. Mr Kaplan has been an avid, and exceptionally successful, trader of commodities ever since.

Now worth an estimated $1.5bn, Mr Kaplan uses the power of art – particularly that produced during the Dutch Golden Age – to build bridges, forge alliances, and create goodwill. Earlier this year, he loaned 68 works from his massive private collection to the Louvre in Paris where they are on display since February – a selection of paintings from Mr Kaplan’s celebrated Masterpieces of the Leiden Collection, named after Rembrandt’s birthplace and containing not just the master’s canvasses but also those of his pupils – fijnschilders (fine manner painters) such as Gerrit Dou, Gabriël Metsu, and Ferdinand Bol – and of his teacher Pieter Lastman and studio assistant Jan Lievens.

The exhibition features the first Rembrandt Mr Kaplan bought – “portrait of a lady aged 62 perhaps Aeltje Pietersdr. Uylenburgh” – and aims to present a comprehensive overview of the Dutch Golden Age that span just five generations but resonated for centuries afterwards and influenced the work of Goya, Picasso, Francis Bacon, and many others. Usually reluctant to deal with private collectors, the Louvre instantly let go of its airs when Mr Kaplan offered the museum an opportunity to showcase parts of his 250-paintings strong collection. However, he kept his lone Vermeer – “a young woman seated at the virginals” – in New York. The work, not to be confused with a similar one from the same painter owned by the National gallery in London, is the only confirmed privately-owned Vermeer.

Mr Kaplan’s love for Rembrandt, his coterie of fijnschilders, and Dutch Baroque came at an early age and was kindled at the Amsterdam Rijksmuseum, home to the world’s largest collection of Dutch seventeenth-century paintings, where his parents took him repeatedly.

“Even as a little kid, I was floored by the beauty of the old masters and the richness of inner life that they were able to capture.” Tomas Kaplan first visited the Rijksmuseum aged eight and has returned many times since.

True to his investor roots, Mr Kaplan started buying up Dutch masters only about fifteen years ago after receiving a tip from British art historian and independent curator Sir Norman Rosenthal, at the time exhibitions secretary at the Royal Academy in London. Sir Rosenthal revealed that the old masters had fallen on hard times and were quite unfashionable – and cheap. So, the investor went on a buying spree, at one time snapping up almost three quarters of the fijnschilder paintings that came on the market. Most he indeed managed to acquire for a song and a dance, but when faced with stiff competition, Mr Kaplan went straight into war mode, outbidding any comers.

His greatest coup came when he landed The

Goldfinch by Carel Fabritius, widely considered Rembrandt’s most gifted pupil, who left only thirteen paintings. Aged 32, Carel Fabritius lost his life in 1654 when a gunpowder magazine in Delft exploded, levelling a quarter of the city including the artist’s studio where most of his work was kept. Only thirteen Fabritius paintings survived the blast and Mr Kaplan managed to get the only one privately owned – thus claiming the holy grail any well-heeled private art collector craved for. When approached on Mr Kaplan’s behalf by a dealer, the painting’s owner, a Viennese count, only asked a single question: “Will your client pay a Rembrandt price?” Mr Kaplan did.

After the Louvre, The Masterpieces of the Leiden Collection is set to embark on a world tour with exhibitions scheduled in Shanghai, Beijing, Moscow, St Petersburg, and Abu Dhabi.

It is Thomas Kaplan’s way of question otherwise depressing political realities: “Rather than silently acquiescing to the building of walls or the burning of bridges, my wife and I are using the most powerful tools we have, Rembrandt and our passion, to build the connections that bind people together rather than tear us apart.”

“Even as a little kid, I was floored by the beauty of the old masters and the richness of inner life that they were able to capture.”

CFI.co | Capital Finance International

157

> JEAN-CLAUDE JUNCKER Gives as Good as He Gets He is the man eurosceptics, and quite a few others, love to hate – the embodiment of all that is wrong with the European Union and the face of the “faceless bureaucrats” who rule from Brussels.

Jean-Claude Juncker (62), a former prime minister of Luxembourg and in public office since 1984, is known – and much feared – as a shrewd political operator; it is how he got the top job at the European Commission which effectively runs the EU as its executive branch.

For a man sitting on such a lofty perch, Mr Juncker is unusually blunt and rarely holds back when describing the inner workings of the union, his take on politics, or any other pursuit. At the height of the Greek banking crisis, Mr Juncker flatly denied that the long-suffering country was about to get kicked out of the Eurozone for misbehaviour. When it transpired that European finance ministers had entertained precisely that scenario in his presence, he memorably explained: “When it becomes serious, you have to lie.”

Equally unforgettable was Mr Juncker’s comment on the 2005 referendum in France over the proposed EU constitution, which was ultimately rejected: “If it’s a yes, we will say, ‘on we go’, and if it’s a no, we will say, ‘let’s continue’.”

Perhaps a bit disconcerting, Mr Juncker just loves to taunt the British – since long the union’s most reluctant member and now the first one to flirt with departure. Last May in Florence, he delivered a speech in French, coyly explaining – to roaring applause – that English is “slowly and surely” losing its importance on the continent. A gratuitous, and untrue, comment made only to pique the British.

Such antics have provided British tabloids with ample fodder to attack the man they singled out as their main enemy. However, Mr Juncker gives like for like, is not easily intimidated, and has a famously thick skin. Even so, he does find the criticism levelled at the EU increasingly tiresome, arguing, not without reason, that the union has become the preferred scapegoat for failing domestic policies, not just in the UK but elsewhere too.

Calling the upcoming Brexit both a failure and a tragedy, Mr Juncker is passionate in his defence of the union: “It is the UK that wants to leave the union, not the other way around. The failure resides in the fact that British voters have not been properly informed and were handed lies and half-truths instead.”

At times acerbic and always on the verge of losing his patience, though never quite getting there, Mr Juncker has managed to hold Europe together, doing a much better job than his often rather hapless predecessors in explaining the achievements of Europe and pointing out the importance of keeping the fractured continent together in an increasingly hostile world dominated by large blocs.

Mr Juncker understands that in order to create internal cohesion, the EU needs to better explain the outside forces that conspire against the project – quite possibly the largest peaceful nation-building exercise in history. Though perhaps not particularly brilliant at geopolitics, Mr Juncker does grasp the importance of turning a threat into an opportunity. The increased hostility towards a united Europe as expressed in the Anglophone world represents a belated clash of worldviews – laissez faire vs social democracy (or the Chicago vs the Freiburg schools of economic thought) – which can be used to create a sharper distinction that adds to a sense of European identity – the holy grail of the European Union.

Condemned for his reportedly excessive fondness for cognac and cigars, Mr Juncker remains quite unapologetic of his Burgundian lifestyle, dismissing critics as puritans who adhere to a misplaced sense of gravitas. If

anything, Mr Juncker prefers a bit of swagger, kissing a diminutive Belgian prime minister on his bald head, patting another Belgian minister on his rotund tummy, and jovially welcoming Premier Viktor Orbán of Hungary with a vigorous handshake and a slap on the cheek, introducing the notoriously sour leader as “the apprentice dictator from Budapest”, all the while keeping a broad smile.

Not above mischief, Jean-Claude Juncker is nonetheless a force to be reckoned with: he is a passionate advocate for European unity, strongly believes in cross border cooperation, and embraces humanistic values. A pragmatist above all, Mr Juncker knows that principled inflexibility is of no practical value in a multilateral setting such as the European Union. A politician who honed his now formidable skills in one of the EU’s smallest member states, he realises that wheeling and dealing is part of the game. Now wielding considerable power a president of the European Commission, Mr Juncker deploys his almost peerless dexterity in deal-making to forge an ever closer union of the peoples of Europe – as per the 1957 Treaty of Rome on which the entire EU edifice was erected. Ignore him at your peril – he dispatches self-described “tough” prime ministers for breakfast. With a shot of cognac on the side.

“Not above mischief, Jean-Claude Juncker is nonetheless a force to be reckoned with: he is a passionate advocate for European unity, strongly believes in cross border cooperation, and embraces humanistic values.”

158

CFI.co | Capital Finance International

Spring 2019 Issue

> MERYL STREEP Inexplicable Magic She takes no prisoners and is terrifying. At this year’s Screen Actors Guild Award in Los Angeles, Hugh Grant confessed to being properly intimidated

by Meryl Streep, his co-star in the 2016 British comedy-drama Florence Foster Jenkins. “Normally, people you’re frightened of get better in reality, when you meet them it is often not as bad as you thought.

This, however, was frightening throughout. I’m still frightened of her.”

Not so US president Donald Trump who branded the grand dame of Hollywood “overrated” after she chided the then-president-elect for mocking a disabled reporter. Adding his voice to the abuse hurled at Mrs Streep on social media, Mr Trump also called the actress “flunky” and denied he ever made fun of a disabled person: “Couldn’t do it.”

In her acceptance speech for the Cecile B DeMille lifetime achievement award at the 2017 Golden Globes, Mrs Streep (67) cautioned against the erosion of moral values. Whilst not mentioning Mr Trump by name, the actress stressed that the occupant of the “most respected seat in the country” gave a performance – imitating a disabled reporter – that sank her heart: “I still can’t get it out of my head because it wasn’t in a movie. It was real life.”

“This filters down into everybody’s life, because it kind of gives permission for other people to do the same thing. Disrespect invites disrespect. Violence incites violence. When the powerful use their position to bully others, we all lose.”

One of only six actors to have won three Academy Awards, Meryl Streep is considered the voice of the Hollywood liberal elite, even though the Los Angeles Times tentatively concluded no such body exists. The paper’s year-long investigation into the film industry’s portrayal and espousal of American values started off on the premise that Hollywood is merely an industrial complex run by white men for the benefit of their peers. “These men prefer to make films and television shows about other white men, who are often alienated, wield guns, and fight to survive as individuals against a corrupt or sinister system,” wrote columnist Mary McNamara.

Still, the perception not only lingers but has intensified since Donald Trump took up residence in the White House. Meghan McCain, daughter of the senator and 2008 Republican presidential nominee John McCain, promptly tweeted: “This Meryl Streep speech is why Trump won. And if people in Hollywood don’t start recognising why and how — you will help him get re-elected.”

However, anyone less out-of-touch with moral values than Mrs Streep is hard to imagine. She enjoys a well-earned reputation for directness,

established during the shooting of Out of Africa when she took on – and triumphed over – director Sydney Pollack (1934-2008). “She was so direct, so honest, so without bullshit. There was no shielding between her and me at all,” remembered Mr Pollack afterwards.

Whilst the film proved a hit at the box office and received much acclaim, a few critics remarked that Meryl Streep somehow never seemed to play herself. Her technical finesse of the seventh art is such that the persona disappears – or morphs seamlessly into the character portrayed. Yet, Mrs Streep is decidedly not devoid of personality. She has battled against the popular notion that the US film industry is a last bulwark of progressive liberal elites, drawing attention to the modest origins of most of her fellow movie stars and their political diversity.

Mrs Streep has long advocated for women’s rights and donated her one million dollar fee for The Iron Lady – in which she memorably portrays Margaret Thatcher – to the National Women’s History Museum. She also established two scholarships at the University of Massachusetts Lowell for English and Math majors. Quite exceptional for a well-known personality in the US, Mrs Streep admits to not belonging to any church, temple, or synagogue, saying that she doesn’t believe in the power of prayer: “It’s a horrible position as an intelligent, emotional, yearning human being to sit outside of the available comfort. But I just can’t go there.”

She does, however, believe in “love and hope and optimism – you know, the magic things that seem inexplicable.” Nothing, though, to be afraid of.

“Meryl Streep is considered the voice of the Hollywood liberal elite.”

CFI.co | Capital Finance International

159

> Latin America

Scandals, Crises, Promises and Reality – Another Look at Brazil and its Emerging Political Mores

Policies alone do not get an opposition candidate elected. More typically, such an appointment comes in the wake of an economic downturn, a scandal, or a crisis. Policies are referred to in debates, but it is the promise of much-needed change that captures votes.

In 2018, Brazil was ripe for change. It was recovering from the worst recession since 1983. The “Car Wash” scandal had claimed two presidents. The “wash” in question was exposed in a money laundering investigation; it found that executives at Petrobras (the state owned-oil company) were receiving kick-backs when awarding million-dollar construction projects. Added to these woes, the country’s murder rate had increased by 40% since 2010.

Enter Jair Bolsonaro: a strong voice who galvanised the right with promises to get tough on crime, corruption, and to increase economic growth. On January 1, he was sworn in as president. Now it is time for promises to become policy.

In 2015-16, Brazil’s experienced its worst recession since 1983 (chart 1). Between 2006 and 2012, Brazil grew strongly as the price of its key exports (especially iron ore) increased. From 2013 the trend reversed.

The decrease in export income hit the confidence of foreign and domestic investors, which was exacerbated by the outbreak of the Car Wash scandal (an investigation into corporate and political racketeering).

Unemployment went from 6.5% in Q4 2014 to 13.7% in the first quarter of 2017.

Like an ebbing tide, the decrease in export prices and investment revealed the underlying structural problems in the Brazilian economy. Brazil’s competitiveness, outside of commodities, is weak. Business is a heavy tax and regulation burden; geography makes infrastructure essential but expensive. High tariffs and a history of import substitution means most domestic businesses are insular, rather than innovative.

USD per ton 160

%

8 World Iron Ore Price (RHS)

6

140

4

120

2

100

0

80

-2

60

Cover Story

Real GDP Year-Ending % change (LHS) -4

40

-6

20

-8 2007

0 2008

2009

2010

2011

2012

Chart 1: Brazil's GDP and World Iron Ore Price. Source: Federal Reserve Economic Data.

160

2013

2014

2015

2016

2017

2018

Cover Story

161

B

razil is also facing a time bomb of pension spending. The Brazilian pension scheme is very generous: workers can retire at 55 with 70% of their salary. Added to that is the fact that Brazil’s population is ageing fast, and living longer. In 2014, pension spending was 4.6% of GDP; in 2018 it was 12% of GDP. By 2060 it is expected to be 17% (the OECD average is around 11%). On top of this is the problem of unfunded pension liabilities, currently running at 3% of GDP. Together these factors put pressure on government debt – already at 75% of GDP. It rose quickly during the recession, causing Brazil to lose its investment-grade status.

During the election campaign, Bolsonaro made several general promises to the economy. He vowed to cut government waste, taxation, and minimise the regulatory burden on business.

He said he would unlock growth through the privatisation of key state-owned enterprises. He also talked tough on pension reform.

Since his election, Bolsonaro has begun cutting government waste by merging government ministries. He has reduced the total number of ministries from 29 to 22. This includes the controversial merging of the Environment and Agricultural ministries, and that of the Culture, Sports, and Social Development Ministries.

There are savings in these mergers, but ideology also appears to be at play. The newly merged entities are not just the sum of their parts, but also likely reflect a new pro-development and conservative social bias.

On the issue of pension reform, there have been conflicting reports but no official announcements.

It was reported that Bolsonaro, during his first week in office, was planning an increase in the pension age (57 for women and 62 for men). (That is less than the figures proposed by his predecessor – 62 for women and 65 for men.) Recent leaks suggest a tougher stance (65 for men and women).

Whatever the final position, any change passing congress will face difficulty. Bolsonaro’s party

has only 10% of the seats, and other parties will fear public backlash from any changes.

Bolsonaro needs to live up to his tough election rhetoric. Without the bitter medicine of reforms, Brazil faces a difficult fiscal future – with the prospect of further credit downgrades.

Bolsonaro’s privatisation and competition policies also remain unclear. Bolsonaro has introduced legislation to increase foreign competition in the banking sector. Despite initial hesitation, he endorsed Boeing’s increased share from a spinoff of Brazilian aircraft manufacturer Embraer.

Although the company was privatised in 1994, the government retains some veto power over Embraer. It seems unlikely that Brazil’s two giant state-owned enterprises, Petrobras and Electrobras, will be privatised.

At Davos, Bolsonaro reiterated election promises to open-up Brazil’s economy and to better integrate it to the world stage; no new policies or indications of potential trade agreements have so far been given.

Bolsonaro’s biggest impact on the economy has been the appointments he has made to key ministries. He has selected pro-business and proreform technocrats, rather than horse-trading the positions for the political support of other parties.

In particular, the appointment of economist and former investment banker Paulo Guedes to Minister of Economy has excited the business community. Guedes has a PhD in economics from the University of Chicago, and is a staunch neo-liberal economist. While the appointments bode well, detailed policies are still awaited.

The rise of violent crime is another key political issue in Brazil. Between 2010 and 2017, the country’s murder rate increased by 40%. It now outstrips Colombia’s, is 50% higher than Mexico’s, and is more than five-times than the USA’s (chart 2).

The issue was a key in Bolsonaro’s election campaign. He leveraged his military background, and talked tough. He promised to relax guncontrol laws, in the belief that armed citizens deter violent crime. Such laws are strict in Brazil,

and in 2005, private gun sales were almost completely banned following a referendum.

On January 15, Bolsonaro issued a decree making it easier for many citizens to buy firearms and eliminating discretionary police checks.

There are also plans to allow citizens to carry guns in public. Unless ratified by congress, however, the decree will only last 120 days.

In early February, Justice Minister Sergio Moro announced new anti-crime initiatives. The laws include tougher sentencing for repeat offenders, and reduced punishment for police who kill suspects during operations. These measures reflect Bolsonaro’s rhetoric, but will they be effective at reducing the murder rate? Police may appreciate less restriction on the use of their firearms, but will they appreciate the increased number of guns in the street?

Corruption has been a perennial problem in Brazilian politics, but Operation Car Wash in 2014 marked a peak. The scandal led to the impeachment of former president Dilma Rousseff and a 12-year jail sentence for former president Luiz Inácio Lula da Silva. Rousseff’s replacement, Michal Temer, was then charged in 2017 over unrelated corruption allegations. His approval ratings fell below 10%, and he chose not to run for president in 2018.

During his campaign, Bolsonaro talked tough on corruption, and duly appointed the popular lead prosecutor from Operation Car Wash – Sergio Moro – as Minister of Justice.

Bolsonaro’s stance on corruption is now being tested. In January, allegations of bribery were made against Bolsonaro’s son, Flavio, by the Financial Activities Control Council (COAF).

Newspaper reports have recently linked Flavio Bolsonaro to underworld figures in Rio de Janeiro, putting Bolsonaro’s anti-corruption credibility at risk.

Bolsonaro has taken some steps to turn his election rhetoric into policy, but it remains to be seen if he can bring about the change that voters want, and need. i 40 Murder Rate 35

Colombia

30

Brazil

25 20

Cover Story

Mexico 15 10

Uruguay USA

5 0

2006

2007

2008

2009

2010

2011

2012

2013

Chart 2: Number of Murders per 100,000 people. Source: UN Office on Drugs and Crime.

162

CFI.co | Capital Finance International

2014

2015

2016

Spring 2019 Issue

CFI.co | Capital Finance International

163

> Produbanco:

With Backing of the People of Ecuador – Still Going Strong

Banco de la Producción SA – Produbanco to its friends – has 40 years of successful service to the people of Ecuador behind it.

T

he bank started out as a specialist in the corporate sector. In 2014, it consolidated with Banco Promerica Ecuador after Promerica Financial Corporation (Grupo Promerica) – a large financial group with nine banks across Latin America – acquired a majority percentage of its shares.

Produbanco is one of its most successful banks, having earned outstanding risk ratings and international recognition. It focuses on staying true to the pillars of its long-term strategic plan.

Those pillars are: • To advance digital transformation through cultural transformation • To be a data-driven organisation • To let customer behaviour drive strategic segmentation • To push for decentralised growth in every sector, globally

164

"The bank’s desire to provide the highest possible standard of customer service is unrivalled in Ecuador."

• To practice responsible asset and risk management • To remain committed to sustainability and corporate social responsibility.

The bank’s institutional priority is to create a memorable, trouble-free experience for its customers, whether they interact with the bank physically or via digital channels.

“We intend to achieve these goals by reinforcing our customer-centred culture, enhancing interactions between our different market segments and strengthening relationships with

CFI.co | Capital Finance International

existing customers,” says Produbanco executive president Ricardo Cuesta Delgado.

The bank’s desire to provide the highest possible standard of customer service is unrivalled in Ecuador. “The extent of the effort our various teams exhibit in order to cultivate the best, most profound relationships with each individual customer is remarkable,” says Mr Cuesta. “Our teams utilise all available resources to facilitate this mission — from many of the best banking professionals in the industry to the smart utilisation of the state-of-the-art technological resources.”

Produbanco offers a diverse suite of products, each meticulously designed to satisfy the most pressing needs of specific customer segments.

These include tailored products for millennials, environmentally conscious clients, and frequent travellers.

Spring 2019 Issue

internal governance priorities, and describes how the bank forges relationships with its stakeholders.

Produbanco is also at the forefront of the global shift towards clean-energy adoption and in 2018 – for the fourth year in a row – received Carbon-Neutral certification. In 2016, Produbanco launched its Green Line Programme, offering customers preferential conditions – including capital grace periods and capital and loan-repayment terms – and providing an affordable line of credit for SMEs with a rigorous examination of risk. The SARAS credit-rating methodology was implemented in the internal credit process. Produbanco´s SME customers have benefited from a total of $100m in disbursements that have been allocated.

To fulfil the Green Line Programme, at the end of 2018 Produbanco developed the first green savings account on the market to attract resources destined exclusively to green line loans.

Executive President: Ricardo Cuesta Delgado

An essential part of Produbanco´s strategy is its focus on innovation, using technological developments to provide better customer experiences. This focus, coupled with an analysis of millennial behaviour, is encapsulated in the “be Produbanco” digital account, which allows digital users to manage their personal finances without ever having to visit a bank branch.

Produbanco launched its self-service branch in 2018, a service concept that allows customers to carry out transactions through interactive equipment rather than the cashiers and advisors of a traditional bank. The concept helps customers transition into the digital era with simple yet elegant design and multifunctional ATMs and automated kiosks. Customers can access the bank´s website to be assisted via videoconference with an executive who will advise on products and services, and respond to any enquiries.

“We have established strategic alliances with fintech start-ups to integrate innovative services to our mobile apps,” says Mr Cuesta. “Two years ago, we partnered with Payphone, a start-up at the forefront of innovation, to launch the first mobile payment system of the country. It allows customers to make payments with credit and debit cards through a smartphone, without revealing credit and debit-card information to vendors.

“Now, we have fully integrated the Payphone platform inside our mobile apps to have the option to make payments directly from the app without carrying the physical debit or credit card.”

Produbanco’s corporate-social-responsibility initiatives continue to achieve impressive results, largely focusing on delivering financial education to various stakeholders in Ecuador.

Produbanco’s main objective is to raise awareness about the importance of the responsible management of personal finances.

It provides training on practical aspects of daily finance, including the use of e-channels and safety measures.

Produbanco is actively involved in assisting Ecuador’s underprivileged communities. Its most important partnership is with the Su Cambio Por El Cambio (Your Change For Change) Foundation. This foundation has provided crucial support for some 6,000 vulnerable children and adolescents. It has improved the quality of life of around 400 families across 18 communities within the province of Bolívar, the poorest in Ecuador.

Since September 2016, Produbanco has been part of Global Compact, a United Nations initiative. Produbanco has aligned its operations and strategies with the universal principles of human rights, labour and environmental standards, and the fight against corruption.

These issues are closely linked to the 2030 Agenda for the UN’s Sustainable Development Goals (SDG).

Produbanco has made its 11th Corporate Social Responsibility report available to the public.

The report presents Produbanco’s performance and achievements in environmental, social and CFI.co | Capital Finance International

MEET THE EXECUTIVE PRESIDENT Executive president Ricardo Cuesta Delgado of Banco de la Producción SA Produbanco obtained a degree in Economics and Latin America Studies from Florida International University. He took specialised courses in strategic planning, management development, financial marketing, treasury, and corporate and consumer credit.

During his career, Mr Cuesta has occupied top management positions in Ecuador and abroad at major financial institutions including Citibank (México, Panamá, Ecuador), Banco Aserval (Ecuador), and Sociedad Financiera y Banco MM Jaramillo Arteaga (Ecuador). Mr Cuesta was executive president of Banco Promerica in Ecuador, and for the past five years has been the CEO of Banco de la Producción SA Produbanco of Promerica Group.

Mr Cuesta has been an active member and director of entities linked to the financial sector, such as ABPE (Association of Privately-Owned Banks in Ecuador), where he is president of the board. He is principal director of Fondo de Liquidez del Banco Central del Ecuador (Central Bank), president of the board at AIFE (Association of Financial Institutions in Ecuador), and a member of the Risk Rating Qualification Committee of Thompson Bankwatch and the Administrative Council of the Mexican Registry of Credit and Collections.

Mr Cuesta has worked for Citibank NA in New York as a senior instructor for corporate seminars on credit and risk, consumer credit, and developing management skills. For Visa International (US), he gave seminars on principles of consumer credit relevant to South and Central American markets. i 165

> Brokerage in Chile:

An Investment in Effort and Time Brings Rewards

B

anchile Inversiones has worked for 35 years to gain the status of the most important investment company in Chile.

It was off to a good start, as a subsidiary of the most respected and most experienced bank in the country, Banco de Chile. Banchile Inversiones is the investment company preferred 166

by Chileans. It has had a solid and unblemished reputation, and has won the trust of more than 300,000 clients, maintaining sustained leadership in the market.

Its mission is to work long-term with clients by providing them with a personalised service â&#x20AC;&#x201C; with all the trajectory, professionalism and confidence CFI.co | Capital Finance International

for which the Banco de Chile is famous. Banchile Inversiones has a high degree of specialisation in its products, using state-of-the-art technology and granting expert attention to the field of investments for each investor profile.

In an increasingly demanding and sophisticated world, being able to count on broad and

Spring 2019 Issue

differentiating investment solutions is a duty that Banchile Inversiones has taken as its own.

Banchile Inversiones consists of Banchile Corredores de Bolsa SA and Banchile Administradora General de Fondos SA (General Fund Manager SA), specialist companies and leaders in their respective fields. This structure generates synergies that allow the company to expand its offering of investment products, consolidating the integral service that characterises it in the Chilean market.

Banchile Administradora General de Fondos SA offers a complete range of investment products, focused on Chilean and international markets. Among these are mutual funds, balanced and structured funds, real estate funds, investment funds and administration mandates.

Investment portfolios are strategically structured according to the company’s assessment of its markets. General Fund Manager SA is recognised as the most powerful specialist team in the country.

Over the last few years, Banchile Inversiones has been one of the leading brokerages in terms of revenues and volumes traded, covering nearly 13% of the national brokerage market. With a team of specialists for the stock market, as well as currencies, derivatives and fixed income.

Teams advise clients in decision-making, and support them in the management of their portfolios, delivering fast and efficient responses to all requests. It has at its disposal the most up-to-date and comprehensive information regarding the different markets.

Banchile Corredores de Bolsa provides in parallel the custody service that allows it to leverage its assets to carry out investment operations and safeguard its financial instruments.

Santiago, Chile: Plaza de Armas

"The challenge is to keep growing. If we do not grow, we can’t give the opportunities we want to give to our people."

CFI.co | Capital Finance International

Products on offer include: • Purchase and sale of national and international stocks • Short selling • Purchase and sale of US dollars and euros • Fixed income in domestic and foreign currency PRIDE IN ITS WORK HAS PAID OFF Banchile Inversiones’ performance led to its highest profit between January and September of 2018, totalling $16,207m.

That’s an increase over the previous year of 40.8%.

167

25.00%

20.00%

15.00%

10.00%

5.00%

0.00% Banchile

Santander

BCI

Banco Estado

Security

Larraín Vial

Bice

Others

Market Share: Assets Under Management (AUM) in international and domestic markets (total). Banchile AGF

The general manager of Banchile Inversiones, Hernán Arellano, is proud of the path the company has taken to achieve its goals.

"Everything we have achieved has been through our motto of ‘Passion for our customers, passion for excellence, and passion for our community.

“The challenge is to keep growing. If we do not grow, we can’t give the opportunities we want to give to our people. We have to consolidate what we have achieved – and go for more. We are all involved in the drive to achieve better things.”

Digital Platforms Banchileinversiones.cl and App Mi Inversión are part of the technological assets that Banchile Inversiones has for its clients.

These are platforms at the forefront of the market, where customers can operate autonomously and review the status of their investments online.

Banchile Inversiones uses social networks to assess the potential of new customers and is involved in youth training and technological advancement to ensure constant refreshment of its brand image.

Arellano said all members of the company should feel equally proud of Banchile’s achievements in a hyper-competitive industry. “Banchile Inversiones is in a fast and dynamic business,” he said, “so whatever we want, we will achieve it through collaboration."

Arellano stressed that the new agreements and advances the company has made, in Peru and Colombia, as well as Chile, presented business opportunities.

“We are going to engage with those markets, and that will allow us to grow," he said. i

CEO: Hernán Arellano

Banchile Inversiones - reasons for success:

Teams of recognised specialists

168

Broad range of products and services

Largest distribution network in Chile

CFI.co | Capital Finance International

Leaders in technological innovation

Spring 2019 Issue

CFI.co | Capital Finance International

169

> Corporación Zona Franca Santiago:

Celebrating 45 Years of Development

C

orporación Zona Franca Santiago (Santiago Free Zone Corporation, or CZFS) is celebrating 45 years as a leader in the Dominican Republic’s economic development.

It was founded on April 21, 1974, as a source of formal employment, and has become recognised as a point of reference for excellence and innovation.

CZFS manages and develops Víctor Espaillat Mera Industrial Park (PIVEM) located at the north-west side of Santiago de los Caballeros, the second socio-economic development pole of the country, and one of the fastest-growing cities in the Caribbean and Central America.

In recent years, the corporation has gone through an intense process of institutional reorganisation to expand its operations and manufacturing facilities. It has diversified its investments into other productive commercial and service sectors, while continuing to develop economic and social investment programmes that benefit surrounding communities.

170

"The main projects comprising the productive social investments made by CZFS are based upon the pillars of health, education, entrepreneurship and environment."

This sustained, innovative dynamic of the CZFS is evident in particular in its own park, which has extended its built infrastructure for the campus area from 725,000 square metres to 200,000,000. CZFS has also created and expanded its service offer with the inclusion of entities specialised in all levels of training and teaching, savings and credit facilities, medical care, community programmes, and business environmental management – as well as human resources management for entrepreneurship and employability.

The process of transformation from industrial premises to a true "productive city” has strengthened the competitive position of the enterprises established there, and transferred CFI.co | Capital Finance International

value to nearby communities. Behind these achievements lies the method the leaders of the corporation have used to monitor this continuous growth process.

The CZFS has been able to integrate participatory planning and management tools for its sustainable development, according to its potential and limitations, and the expectations and aspirations of its stakeholders. Always considered are the development objectives of the local community, to achieve and distribute benefits for all.

The main projects comprising the productive social investments made by CZFS are based upon the pillars of health, education, entrepreneurship and environment.

These programmes have benefited many people in the Dominican Republic, and provided PIVEM collaborators and the surrounding community with opportunities that reinforce their wellbeing.

They have also granted Santiago and the Northern Region with the necessary tools for its residents lead rewarding, productive lives. i

Spring 2019 Issue

171

> EY:

Argentine Tax Reform in a Nutshell, From the Experts

By Sergio Caveggia & Marina Kulik

Argentina last year introduced a comprehensive tax reform dealing with the indirect transfer of shares and participations by non-residents.

L

aw No. 27,430 has been generally applicable from January 1, 2018. It states that income obtained by nonresidents, derived from the divestiture of shares and interests of a company, fund, trust or any other entity organised abroad that holds direct or indirect assets in Argentina, is subject to income tax under certain conditions.

These assets may be shares, interests, trusts of an entity organised in Argentina, permanent establishments or other assets of any nature.

This report refers to the indirect transfers of Argentine companiesâ&#x20AC;&#x2122; shares. On December 27, 2018, Argentina published, in the Official Gazette, Decree 1170 that addresses more regulations on the indirect transfer of shares.

CONDITIONS The tax will be triggered on the sale or transfer by non-residents of shares or other participations in foreign entities when the following two conditions are met: i. The market value of the non-Argentine entity whose shares are being transferred is determined, at least in 30%, by the market value of the assets located in Argentina, and ii. The participation of the non-Argentine entity being transferred represents, at least, 10% of the equity of such entity.

The two mentioned thresholds should be considered at the moment of the transfer, or during the 12 prior months.

The taxation of indirect transfers will not be applicable when it is irrefutably demonstrated that they take place within the same economic group. The decree clarifies that this condition is met when non-residents meet, directly or indirectly, a participation threshold of at least 80% for two years before the indirect transfer takes place. For a subsequent sale to a third party, the tax cost basis is equivalent to the cost basis of the original acquirer of those shares.

"The taxation of indirect transfers will not be applicable when it is irrefutably demonstrated that they take place within the same economic group."

In addition, the decree establishes an antiavoidance rule under which the exemption will not apply when the transfer is performed with the purpose or main objective of achieving more favourable tax treatment.

In order to assess the market value threshold (30%) in the case of argentine shares not publicly traded in stock exchanges, a thirdparty valuation report, prepared in accordance with future regulations to be stablished by tax authorities, is required.

GRANDFATHERING RULE The capital gains tax on indirect transfers would only apply to the transfer of shares acquired after the entry into force of the tax reform. Indirect sales will not be subject to tax even if the abovereferred conditions of points (i) and (ii) are met if the shares of the non-Argentine entity being transferred belonged to the seller as of December 29, 2017.

This is a key aspect to evaluate when planning an acquisition or divestiture of Argentine assets, because, generally, all structures in place as of December 29, 2017 would be grandfathered and no capital gains would apply on indirect sales.

TAX DETERMINATION AND PAYMENT Provided that the seller does not reside in, and the funds do not arise from, a non-cooperative

jurisdiction, income subject to capital gains tax will be assessed in proportion to the assets held in Argentina at a 15% rate. Tax rates may be reduced per application of Double Taxation Treaties (Argentina has 20 tax treaties in force as of the date of this contribution).

For foreign beneficiaries, the net gain is presumed to be 90% of the gross sales price, which would mean an effective tax rate of 13.5% of the gross sales price (15% capital gain rate multiplied by 90% presumed net income).

Alternatively, the law allows the possibility of calculating the net income by deducting from the sales price the actual tax basis allowed under Argentine regulations. The taxpayer can choose the method to apply.

If the acquirer is not an Argentine resident, the tax should be paid to Argentine Tax Authorities by the local legal representative of the foreign seller (if any). Or transferred by the foreign seller through an international bank transfer.

PUBLIC COMPANIES The transfer or disposition of shares of a nonresident listed company may also trigger indirect capital gains tax provided that the mentioned conditions of points (i) and (ii) are met.

The income obtained by foreign beneficiaries will be tax-exempt only if such income is derived from the sale of shares that are publicly traded in stock exchanges or stock markets under the supervision of the Argentine Securities and Exchange Commission (CNV).

Such income is interest income or capital gains from the sale of public securities, negotiable obligations, and certificates of deposit of shares issued abroad that represent shares issued by entities domiciled or located in Argentina (ADRs).

In the case of ADRs, the new rules confirm that the source of the income is determined by the place where the original issuer of the shares is located.

"The capital gains tax on indirect transfers would only apply to the transfer of shares acquired after the entry into force of the tax reform."

172

CFI.co | Capital Finance International

Spring 2019 Issue

Non Resident

Foreign Vehicle

Conditions: 1)

2)

FMV of the non-Argentine entity >= 30% FMV of the assets located in Argentina, at the moment of the transfer or during the 12 prior months; and, The participation being transferred >= 10% of the equity of the foreign vehicle, at the moment of the transfer or during the 12 prior months.

Exclusions: •

Foreign vehicle being transferred belonged to the seller as of December 29, 2017.

•

Transfers within the same economic group under certain circumstances.

•

Shares publicly traded in stock exchanges or stock markets under the supervision of the Argentine Securities and Exchange Commission (CNV).

Foreign Vehicle

Assets in Argentina

DOUBTS ABOUT THE SYSTEM As mentioned, the indirect transfers made within the same group of companies are exempt from income tax provided that certain requirements are met.

However, income earned by non-residents from the direct sale of Argentine companies’ shares (taxable since September 23, 2013) has no exemption. The direct transfer of Argentine shares within the same group of companies is subject to tax on capital gains in Argentina.

This contrast of situations in which the direct transfer, within the same group, is subject to tax – while the indirect transfer is exempt – requires additional regulations to understand whether the lawmakers’ intention was to afford a different treatment, or an omission that needs to be corrected.

Another clear issue which is unclear is the application of the “grandfathering” rule. Indirect transfers are subject to income tax when the foreign entities governed by the regulation were acquired after December 29, 2017. This regulation refers to foreign companies that indirectly sell (or transfer) the Argentine companies’ shares.

A possible interpretation is that the buyer that acquired (after December 29, 2017) the

shares of a group of companies which corporate structure (with an indirect interest in Argentina) existed before such date, and decided to transfer the shares from another foreign company within the group of companies (not the acquired company, but a subsidiary of such a company) will not be subject to income tax in Argentina because the selling company had held the shares prior to the transfer.

The other interpretation is that the fact that the group of companies changed its shareholders after December 29, 2017, means that the indirect sale of an Argentine company’s shares are subject to tax regardless of which is the selling company (provided that certain requirements are met). Argentine tax authorities’ clarifications are expected on this particular issue.

CONCLUSIONS As from December 30, 2017, non-residents should consider that transfers or contributions of shares made abroad – regardless of how many levels above the Argentine company they are conducted – may trigger income tax in Argentina, even in the case of certain listed companies.

The disposition of shares subject to income tax are indirect transfers to third parties, provided conditions mentioned above in points (i) and (ii) are met.

"Non-residents should consider that transfers or contributions of shares made abroad – regardless of how many levels above the Argentine company they are conducted – may trigger income tax in Argentina."

In contrast, indirect transfers will not be subject to income tax, even though the conditions mentioned in points (i) and (ii) are met, if the interests in the foreign company were held prior to December 29, 2017, or if the exemption for transfers within the same group of companies applies. i ABOUT THE AUTHORS Sergio Caveggia is a tax partner currently in charge of the Transaction Tax area in Argentina.

He joined EY Argentina in 1994, and has developed expertise over 24 years in international taxation and merger and acquisition matters. He is highly experienced in inbound and outbound investments, buy side, sell side and restructuring services within the Transaction Tax area.

Caveggia has served in a variety of industries and has also been involved in many due diligence procedures performed in the past 20 years. He has given lectures in national universities and is a frequent speaker in tax seminars. He has also written several articles dealing with Argentine tax issues He is a Certified Public Accountant who graduated from University of Belgrano in Argentina. He obtained his Tax Specialist’s Degree at the University of Belgrano, and has a postgraduate certificate in Business and Management from Universidad Catolica Argentina (UCA). He is also a member of the Professional Council of Economic Sciences of Buenos Aires and the Argentine Fiscal Association.

Marina Kulik is a Certified Public Accountant who graduated from the University of Buenos Aires, Argentina. She is currently an executive director of the Transaction Tax Area in Argentina. She joined the tax division of EY Argentina in 2000.

Author: Sergio Caveggia

Author: Marina Kulik

CFI.co | Capital Finance International

Kulik has developed a strong experience in tax-advisory services, tax planning, tax-free reorganisations, tax compliance and tax audits.

She has wide experience in conducting buyside and vendor tax due diligence processes in numerous companies in different industries, and in providing tax-structuring services aimed at implementing tax-efficient domestic transactions.

173

: |

> North America

Trump Administration Won’t Let Ideal of Multilateral Free Trade Affect Country’s Bottom Line

During his election campaign, US President Donald Trump called NAFTA (the North American Free Trade Agreement), "the worst trade deal ever", and promised to re-negotiate it – or break it.

174

CFI.co | Capital Finance International

Spring 2019 Issue

CFI.co | Capital Finance International

175

T

he establishment was not surprised

by Trump’s trade views, as they were already known, but as his campaign grew in strength the world began to realise that US trade policy was going to have its biggest change since Nixon’s abandonment of the gold standard.

The renegotiated NAFTA, and Trump’s abandonment of the Trans Pacific Partnership (TPP), underlie a change in American trade policy. Trump blamed NAFTA for lost American jobs, and for the US trade deficit with Canada and Mexico. But the new focus of US trade policy is not mercantilism or protectionism; nor is it just about Trump and tougher tactics.

The objective is free trade as a tool for the US economy and industry, not as an ideal.

Prior to NAFTA, the US’s only trade agreement was with Israel. NAFTA itself was born out of a 1979 Ronald Reagan election campaign promise for a free trade agreement with Canada.

It became the template for all US trade policies, and even shaped World Trade Organisation (WTO) policies on issues such as intellectual property rights.

The agreement was controversial in all three countries. Ross Perot ran as an independent in the 1992 US presidential election opposing the NAFTA negotiations. He famously said that it would cause a "... giant sucking sound going south", as US jobs shifted to Mexico. In the 1993 Canadian election, Jean Chretien promised to re-negotiate NAFTA if elected (he was ultimately was content with assurances in a side-letter). In Mexico, the Zapatista Uprising began the day NAFTA came into effect.

As time passed, opposition to NAFTA subsided.

Critics' worst fears were never realised, and while there was some disappointment with economic growth and convergence in Mexico, there was an uptick in productivity in Canada.

Agricultural trade between the three countries tripled, and the US car industry increased its international competitiveness by spreading its supply-lines. Mexico benefitted most, as it had started from a lower base. Its own exports to the US between 1993 and 2016 increased by a whopping 1242% for cars and 536% for parts. US foreign investment in Mexico grew enormously, as did Canadian investment in the US. Points of contention remained, particularly over Canadian softwood exports and whether the US could use countervailing measures, but

"Trump walked away from the TPP in his first month in office – despite nine years of US negotiations and Obama's signature to the agreement in 2016."

NAFTA had no sunset clause. It was now part of the furniture.

Trump’s campaign promise marked the beginning of the end of NAFTA. He tapped into long-standing disillusionment in many US towns and cities where industries and jobs had been damaged by 40 years of globalisation.

The president assigned much of the blame to NAFTA and the US's other free trade policies.

Among those selected to serve on the Trump administration was Trade Representative Robert Lighthizer, an attorney who had served as deputy Trade Representative under the Reagan administration. Lighthizer is an outspoken critic of China and its trade practices who believes in free trade, but not at the expense of US selfinterest. In a New York Times article, he argued against dogmatic adherence to free trade, and for pragmatism and flexibility. He saw trade policy as “… merely a tool for building a strong and independent country with a prosperous middle-class”. Trump had found a kindred spirit, and Lighthizer had found a long-sought opportunity to return US trade policy to Reagan pragmatism.

Trump and Lighthizer played tough in the NAFTA re-negotiations. Lighthizer started off with strong demands, which became known as the "poison pills". The first seven rounds of negotiations saw little progress. In March 2018, the US imposed global tariffs on steel (25%) and aluminium (10%), detrimental to Canada and Mexico. Deadlock remained. In June 2018, the US began talking separately to Mexico; the Canadians were taken by surprise when those negotiations culminated in an accord in August 2018. Canada returned to the table and – after threats of exclusion – they also signed the agreement.

The new agreement, technically an amendment of NAFTA, has been dubbed the USMCA (United States, Mexico, and Canada Agreement). It was

signed in November 2018, and is in the process of being ratified. Key changes in USMCA demonstrate the Trump administration’s goal to use trade policy as a tool in industry policy.

It was stipulated that cars imported to the US from Canada or Mexico must have 40% of their value (45% for trucks) made in factories where the minimum wage is $US16. A quota tariff was also introduced for Canadian and Mexican car and car-part imports. While Canada has room for manoeuvre under both its quotas, Mexico is already very close to its quota of 2.6m cars exported to the US. The aim is to bring US car jobs back from Mexico, and to stop further jobs from going south. The US was also able to gain some increased access to the highly regulated Canadian dairy market using articles that were part of TPP negotiations.

Trump walked away from the TPP in his first month in office – despite nine years of US negotiations and Obama's signature to the agreement in 2016. During his election campaign, Trump complained about the TPP's lack of protection against currency manipulation. He also expressed fears that China would join the agreement, despite a lack of evidence. Articles on currency manipulation and a so-called "China Clause" were duly included in the agreement. USMCA includes many articles from the TPP (now in force between the 11 remaining countries, including Canada and Mexico, and renamed the CPTPP).

The replication of many of the TPP articles in the USMCA shows that Trump and Lighthizer are not opposed to free trade, or protectionist.

However, the failure to proceed with TPP, and the inclusion of the currency manipulation and China clauses in the USMCA, show that this US administration will not self-sacrifice for the sake of furthering multilateral free trade.

Canada and Mexico were the first countries to experience the new US trade policy. The new tactics are, like Trump himself, tough and confrontational. The strategy is strong-arm, and the goal is no longer a shining ideal but pragmatic free trade – with American interests first. The US will now use the USMCA as a template going forward, in the same way NAFTA was used. The next step – and a bold strategic move – is trade talks with China.

The World may not like this new American trade policy, but it cannot walk away from the table, at least for now. i

"Canada and Mexico were the first countries to experience the new US trade policy. The new tactics are, like Trump himself, tough and confrontational. The strategy is strong-arm, and the goal is no longer a shining ideal but pragmatic free trade – with American interests first."

176

CFI.co | Capital Finance International

Spring 2019 Issue

> Courtney Campbell, Victoria Mutual Group:

Fervour and Effort for a Truly Inclusive Jamaica

P

resident and CEO Courtney Campbell joined the Victoria Mutual Group in April 2016, and it came as no surprise to anyone that he was approached to take the reins of the iconic Jamaican business.

Campbell had already developed a reputation of excellence. His 30-plus years’ experience in banking included leadership roles at some of the region’s biggest and most profitable businesses. But Campbell’s motivation to join the Victoria Mutual Group had little to do with career ambition and more to do with purpose.

Campbell found, in the story of Victoria Mutual, a meaningful alignment with his own goals. Victoria Mutual was established to help economically marginalised Jamaicans, and Campbell, a man of strong religious conviction, is motivated to help where he can.

His mission coincides with that of Victoria Mutual: to spread financial inclusion. Campbell realised that his role would allow him to follow his life’s purpose.

He is driven to change the status quo in Jamaica, which currently has an unequal society, especially with respect to key products associated with financial well-being.

Jamaica’s mortgage penetration and savings rate lags behind regional peers, and the disparity between the rich and poor is stark.

The national savings rate is relatively low, at 11% – Trinidad and Tobago rates are at 25.9%. According to 2017 data, Jamaica has the lowest mortgage penetration measured by mortgages as a percentage of GDP. Through the efforts of the Victoria Mutual Group, which includes money transfer services, pensions management, wealth management, property services in addition to the savings and loan products offered by the building society, Campbell is leading a charge against that inequality.

Campbell, a lay preacher, believes in democratising access to investment options, a move being effected through the work of Victoria Mutual Wealth Management. The inequality caused by inadequate pensions savings is being tackled by Victoria Mutual Pensions Management. Home ownership and savings numbers are being fortified by the work being done by his team at the Victoria Mutual Building Society and Victoria Mutual Property Services.

President & CEO: Courtney Campbell

Through a dedicated effort to provide financial education, those who receive remittances via Victoria Mutual Money Transfer Services are being encouraged to save more. These are some of the ways CFI.co | Capital Finance International

in which Campbell is working to achieve financial wellbeing for all Jamaicans. He believes in his team and urges them to be led by passion, urgency, and an ambition to achieve a better Jamaica for all. i 177

> Victoria Mutual Group:

Building on Dreams, With Some Solid Foundations Victoria Mutual Group was established just over 140 years ago on the shared dream of a group of clergymen who wanted to create a more equal society for hardworking but economically marginalised Jamaicans.

I

n this dream, all people had access to home ownership, and could achieve financial independence. The business has grown significantly over the years in its drive to make that dream come true.

Victoria Mutual has increased its offerings and has a reach that has expanded into other regions.

What has remained consistent is the purpose of the business: to help members and clients to own their homes and achieve financial independence.

Victoria Mutual Group is composed of The Victoria Mutual Building Society, Victoria Mutual Wealth Management, Victoria Mutual Pensions Management, Victoria Mutual Property Services, Victoria Mutual Money Transfer Services, and VM Finance (UK). British Caribbean Insurance Company is an affiliate company.

The wide range of the group’s offerings enables the team to effect its mission to empower Jamaicans in many different ways. And the team is committed to the cause. Since 2016 the group has been involved in a transformation process led by its president and CEO, Courtney Campbell, who will position the business to impact even more lives.

This involved a revision of strategic goals to become a modern mutual and a strong integrated financial group, supported by a clearly defined mission and core values. Group chief strategy officer Kathya Beckford provides leadership support in the area.

Group human resources, led by chief human resources officer Laraine Harrison, has been driving structural change, ensuring the optimal framework for achieving the group’s bold ambitions. This has included a dedicated training, development and talent management programme which has been yielding impressive results.

Thanks to the group’s HR efforts, two-thirds of vacancies within the organisation are now filled internally. The group prioritises engagement and implements inventive ways to inform and inspire its team members. This effort is supported by assistant vice-president Clover Moore and her corporate affairs and communications team.

They have created a weekly internal video 178

"The wide range of the group’s offerings enables the team to effect its mission to empower Jamaicans in many different ways." series - the VM Insider - as well as a monthly internal newsletter – Mutually Inclusive. These productions showcase victories and provide useful and engaging information. The team also stages investment, mortgage and savings bootcamps where the team receives guidance on how best to achieve financial wellbeing.

An Employee Value Proposition was created to explicitly declare Victoria Mutual’s commitment to the financial and professional progress of its team. The group has also adopted a “Great Place to Work” agenda with flexi-work arrangements and a relaxed dress code for a modern workforce.

Victoria Mutual has modernised its performance appraisal system and refreshed its Culture of Accountability programme, which ensures team alignment with the values of the organisation.

In 2017 the group made amendments to the rules of the mutual, which were approved by its members. The change was led by the group’s chief legal, risk and compliance officer and corporate secretary, Keri-Gaye Brown. The rules had not been changed in 30 years, and this important move has facilitated the introduction of new products including auto, commercial, and unsecured loans, as well as the introduction of new service delivery channels.

Victoria Mutual has also introduced specialised lending in the UK, where it operates three representative offices. The launch of the new products has been led by Peter Reid, head of building society operations, and his team of experts who are committed to offering the service and products that members and clients have been requesting. The team works closely with the Michael Neita-led Victoria Mutual Property Services to help members and clients select, purchase and manage properties to achieve financial empowerment.

CFI.co | Capital Finance International

Efforts to empower members and clients are spread across the Victoria Mutual Group.

Victoria Mutual Wealth Management, led by Rez Burchenson, is engaged in building wealth for clients through the strategic application of its team members’ expertise.

This involves introducing innovative investment solutions which are best-in-class, allowing ordinary Jamaicans to build wealth, and growing small and medium businesses, with various products and services. This is aimed at an important segment of the Jamaican economy, benefitting many.

Victoria Mutual Pensions Management, led by Conroy Rose, is focused on addressing the low rate of participation in pensions arrangement in Jamaica, where pension coverage falls below comparable developing countries.

Victoria Mutual Money Transfer Services, led

by Michael Howard, ensures that, alongside its provision of remittance services to its customers, it focuses heavily on providing financial education to encourage customers to save.

Victoria Mutual has been a pioneer in forging relationships with members of the diaspora, and was the very first Jamaican financial institution to establish overseas representative offices to serve this segment. The first VMBS overseas representative office was established in the UK, and it now also operates offices in the US, in Florida and New York.

Victoria Mutual is engaged in a bold digital transformation strategy. The aim is to reimagine the way in which services are delivered, in keeping with modern mutual ambitions and the group’s commitment to delivering worthy products and services. The transformation is being led by COO Rickardo Ebanks and assistant vice-president of digital transformation, Sheena Wedderburn-Reid.

The drive enhances customer experience, convenience, and accessibility, as well as introducing products that are easily accessible.

The future will see investment in technology, implementing process automation, and upgrading locations across Jamaica to reflect more modern capabilities, look and feel.

Spring 2019 Issue

Mortgage Bootcamp: Our Mortgage Bootcamp series is designed to help our team members learn all

Wealth Talks: Wealth Talks is a series which aims to spread financial education. It features experts

the steps they need to know to own their own homes. It can be a real family affair.

from the VM Group and the wider Jamaica breaking down complex financial information for guests.

Governor General’s Visit: Jamaica’s Governor General His Excellency The Most Honourable Sir Patrick Allen visited our Half-Way Tree location in November 2018, in celebration of Victoria Mutual’s 140th

UK Listening Tour: Our Senior Leaders go on an annual tour to the United Kingdom to engage with our

anniversary celebrations.

Members there. The tour helps our senior leaders stay on top of our Members’ preferences and desires.

Half-Way Tree Branch: Our Half-Way Tree Branch was also redesigned in keeping with our Modern Mutual thrust.

Significant branch upgrades have begun, with new offices in Fairview, Montego Bay, which feature intelligent ABMs (iABMs) and a modern setting with a strong digital focus. Customer feedback has been positive. The Half-Way Tree location was recently transformed, and now boasts two iABMs. Transaction migration, automated back-office functions, and upgraded web and mobile technologies are on the horizon.

There is increased emphasis on mergers and acquisitions, and in January, a special unit was created for this purpose. Headed by group chief investment officer Devon Barrett and supported by assistant vice-president Adam Harris, the team is focused on local and regional opportunities.

Victoria Mutual is proudly “customer-obsessed”, and has appointed a group chief customer and brand officer Judith Forth-Blake. She ensures

The Victoria Mutual Group's iconic Knutsford Boulevard, New Kingston location.

that customer service is constantly improved and processes and products are designed and managed in an effective way for customer satisfaction.

In 2018, the Victoria Mutual Group was awarded six of seven sectional awards, as well as the coveted Large Business Category Award, at last year’s Jamaica Customer Service Association’s Service Excellence Awards. It top-scored in leadership, training and capacity, monitoring and measurement, reward and recognition, complaints management and international benchmarks.

In keeping with its strategic objective to be a model corporate citizen, it officially launched, in 2018, the VM Foundation, giving greater structure and focus to philanthropic efforts.

Headed by Naketa West, the VM Foundation CFI.co | Capital Finance International

focuses on leadership and nation building, youth empowerment and improving health and family life. It hosts a scholarship programme that provides financial support to students at the secondary and tertiary levels, among other projects.

Victoria Mutual provides financial education to empower members and clients – because it cares. It believes in giving them the information they need to make the best financial decisions for themselves and their families. It participates in public and private speaking engagements and hosts periodic Wealth Talks, led by the VM Wealth team.

Exciting times at the Victoria Mutual Group. The business is buzzing and is on a path to growth.

More lives will be positively impacted. For Victoria Mutual, this is the most important thing. i 179

> Robert J Shiller:

Morality and Money Management The death on January 16 of Jack Bogle, the founder of the investment company Vanguard Group, was met with a slew of flattering obituaries. Of course, obituaries often praise their subjects. But Bogle’s seemed more laudatory than usual. And I think there is a reason: Bogle was an unusually morally directed man.

O

f course, we cannot judge his success by his personal wealth. When Bogle established Vanguard in 1975, he set it up as a nonprofit. The company has no outside shareholders; all profits are reflected in lower fees, not dividends.

By metrics other than founder wealth, the Vanguard Group is a huge success. It invests for 20 million people in 170 countries. It has $4.9 trillion in assets under management. It may be the world’s most significant investment company.

But this does not mean that we must agree with everything Bogle said, or malign others who are not nonprofit. His is not the only way to be moral.

Bogle’s morality was rooted in his conviction that trying to beat the market is futile. This was reflected in his 2007 book The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. His investment strategy is “the only way,” and the opening paragraph of the tenthanniversary edition sums it up: “Successful investing is all about common sense. As Warren Buffett, the Oracle of Omaha, has said, it is simple but it is not easy. Simple arithmetic suggests, and history confirms, that the winning strategy for investing in stocks is to own all of the nation’s publicly held businesses at very low cost.”

This means that one should simply invest in an index fund that represents the whole market and then call it a day. But it is a little odd to be quoting Buffett in support of such a strategy, given that the Oracle of Omaha owes his fame (and his moniker) entirely to his ability to outperform the market.

Bogle’s statement is best interpreted as applying to his audience of individual retail investors.

180

"Because the market portfolio is the average investment for all investors, the average investor can do no better than the average for the market."

Because the market portfolio is the average investment for all investors, the average investor can do no better than the average for the market.

But the excitement of the market causes people to lose sight of that. As Bogle puts it in his book: “The stock market is a giant distraction from the business of investing.”

He is right about the distraction. People look for excitement, and the stock market is one game they can play. People will gamble anyway, if not in the stock market, then in a casino. On the other hand, it is no doubt better overall if people learn lessons about business and real economic activity, rather than card-counting tricks. There may be rough rides for some, but the hurly burly of the stock market is also a sign of a vibrant economy.

Advising people simply to hold the market is advising them to free-ride on the wisdom of others who do not follow such a strategy. If everyone followed Bogle’s advice, market prices would turn into nonsense and would provide no direction to economic activity.

I remember exactly when I began to appreciate the complexity of the moral issues money management entails: October 8, 2009. I received a phone call from the eminent MIT economist Paul Samuelson, who had been my CFI.co | Capital Finance International

Jack Bogle

Spring 2019 Issue

"The problem is that attention to these markets requires intelligent and hard-working people to help others in their investing." teacher when I was a graduate student in the early 1970s. He was 94 years old at the time, and two months later he died. I was so impressed by the call that I took notes on it in my diary.

Samuelson was responding to my recent publications advocating expanded insurance, futures, and options markets to mitigate the financial risks – for example, those related to housing prices and occupational incomes – that ordinary people face. He said that these markets could, if pitched to the general population, turn into “casino markets,” with people using them to gamble, rather than to protect themselves.

He then brought up the example of Bogle, who “gave up a billion dollars for a concept,” Samuelson said. “He could easily have cashed this in,” but he didn’t. “The miracle that was Vanguard came from Bogle’s principles.”

I thought he was right. In the long run, markets reward principled people. But there is still need for an expanded set of risk markets, because these markets can – and do – carry out useful functions, including risk management, incentivisation, and orienting business.

The problem is that attention to these markets requires intelligent and hard-working people to help others in their investing. Theirs is not a zero-sum game, for they help direct resources to better uses. And these people must be paid.

Even Vanguard, which now has a number of different index funds, hires investment managers and charges a management fee, albeit a low one.

Not every fund needs a low fee. We live in a world where constant and rapid change and innovation require more attention, and attention is costly. While many financial managers are at times unscrupulous, a higher management fee is not always a sign that something is wrong.

But Bogle is still a hero of mine, because he provided an honest product and was motivated by a sincere desire to help people. And he should be a hero to all, because he showed that markets eventually recognise integrity. i ABOUT THE AUTHOR Robert J Shiller, a 2013 Nobel laureate in economics, is Professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

181

> Asia Pacific

Is Australian Housing Boom Finally Coming to an End?

Australia has enjoyed a two-decade housing boom. House prices have grown rapidly, but so has household debt (currently around 120 per cent of GDP). Warnings of an Australian housing bubble, and bust, have been routine since the early 2000s.

Until now, the Australian housing market has ignored the doomsayers; it even passed through the 2008 financial crisis relatively unscathed. But decreasing prices since 2017 have led many commentators to say that the long boom has finally ended. Why now? And if this is true, could Australiaâ&#x20AC;&#x2122;s 27 years of uninterrupted economic growth be at risk?

There are several reasons for the house-price boom. Government policies, foreign investors, strong population growth, and Australiaâ&#x20AC;&#x2122;s economic growth have ensured strong demand. On the supply side, financial deregulation in the 1980s (the Campbell and Wallis Inquiries) increased the supply of credit, allowing demand to be realised, while supply constraints, particularly in Sydney, have kept prices high.

Prior to financial deregulation in the 1980s, housing loans in Australia were hard to come by. Housing credit was tight and bank managers miserly. After deregulation, the supply of credit increased, and the housing market boomed in the late 1980s. The 1990-91 recession slowed things down, but as unemployment recovered, the housing market began to pick up again â&#x20AC;&#x201C; and the long housing boom began.

Australia: Sydney

182

CFI.co | Capital Finance International

Spring 2019 Issue

CFI.co | Capital Finance International

183

A

ustralia has enjoyed a record-breaking 27 years of uninterrupted economic growth. It weathered the 1997 Asian financial crisis, the dot-com bubble, and the 2008 financial crisis. This period of growth has resulted in sustained employment, income growth, and confidence in the economy.

All these factors helped sustain the demand for housing. Strong immigration and population growth have also helped. Since 1997, Australia’s population has increased by around 36%, with net migration contributing 21 percentage points of this growth. Much of this growth has been in the capital cities, especially Sydney and Melbourne, where house prices have risen most sharply.

Government policies also contributed to strong housing demand during the boom, with tax deductions for negative gearing, and the first home-owners’ grant. Tax deductions for annual losses on investment houses (negative gearing) have a long history in Australia, but in 1985 the Hawke Labor government allowed housing losses to be deducted against personal income. The aim was to increase investment in housing. It worked.

Many analysts claim, however, that this has led to aging baby boomers over-investing in property, and inflating the housing boom.

The first home-owners’ grant (AU$7,000) was introduced in July 2000 to offset any negative impact on the demand for new houses from the introduction of Australia’s first comprehensive consumption tax, the Goods and Services Tax (GST). The grant amount was doubled in 2008 in response to the 2008 financial crisis. The number of first home owner’s spiked in 2001 (up 29%) and in 2009 (56%), pushing up prices.

Foreign buyers have also contributed to the boom – and now the decline – but at the margins, not as a main driver. Official statistics from the Foreign Investment Review Board (FIRB) show that approvals for foreign buyers grew slowly from a small base in the 2000s. They increased rapidly in 2013, and then peaked in 2015-16. At this peak, approvals for foreign buyers were equivalent to 5.5% of total domestic loan commitments. In

2016-17, approvals for foreign buyers fell 67%, with FIRB and Chinese authorities applying stricter criteria. While the data is not exact, China appears to be the main country of origin for foreign buyers.

While demand has been strong, supply has lagged.

Construction has not kept pace with population growth, particularly in the capitals. Sydney has also faced unique geographical constraints, being surrounded by rugged bushland. State and local governments have tried to respond by increasing density along Sydney’s train corridors.

The two-decade boom has hit minor bumps along the way, in 2004, 2008, 2010, and 2015. The 2017 decrease (Sydney down 5.7% and Melbourne down 4%, according to the ABS Residential Price Index) has not yet surpassed earlier decreases. Despite this, 2017 has been called the “end of the boom” because one of the key drivers behind the decrease, increased prudential supervision, has limited the scope for future credit growth, and is likely to persist. The market has a new brake.

In December 2014, Australia’s Prudential Regulatory Authority (APRA) introduced an annual credit-growth benchmark for investor loans (10%).

This was followed by a benchmark for interestonly lending in 2017 (30% of new lending). The Australian Securities and Investment Commission (ASIC) also put pressure on banks by shaming poor practices through published reviews.

According to The Reserve Bank Stability Review (October 2018), APRA had become concerned by the rapid growth in investor loans in 2013 and 2014 and wanted to restrict their growth and the growth of other risky classes of loans, including interest-only loans. APRA was also concerned by rising household debt levels – high since the 2000s, and starting to outstrip income in 2014.

Banks responded to the supervision by introducing different interest rates for investor loans and interest-only loans. By 2017, investor interestonly loans were 100 bps higher than standard owner-occupier loans, while standard investor

loans and interest-only owner-occupier loans were over 50 bps higher. Banks also tightened their lending practices in response to ASIC’s reviews.

The effects on investor loans and interest only loans have been stark, and possibly one of the main drivers in the 2017 decrease (chart 2, source: Bloomberg). It also explains the “end of the housing boom” comments. With tighter prudential controls on banks, particularly in the growth areas of investor loans and interest-only loans, there is little scope for housing prices to increase rapidly, as they did during the boom, unless there are large increases in income; or households start to believe in a new housing boom with an accompanying “wealth effect”. A key source of speculative froth has been removed.

The increased prudential supervision is unlikely to be removed any time soon. It will remain as a partial brake on prices for the foreseeable future.

The boom began with financial deregulation, but ended with increased prudential supervision.

While the end of the boom has begun, the key questions are: What will the trough look like? And, after 27 years, is Australia at risk of a recession?

The trough appears to be in sight. While Sydney’s house prices may continue to fall this year, Melbourne’s are expected to return to growth.

Australia also has room to react with monetary and fiscal policy if households become distressed.

Commentators, however, will be very interested to see the effect of the Labor Party’s proposed changes to negative gearing if it wins this year’s election.

Australia looks safe from recession for now.

Economic growth and the labour market remain strong (unemployment is around 5%), and inflation under control (around 2%). The end of the housing boom may have a negative wealth effect for consumers, but so far it has yet to affect consumer confidence. The situation needs to be monitored if house prices continue to fall.

Currently, the bigger threats appear to be external: a US-China trade war, a slowing Chinese economy, and the threat of a slowing US economy. i

Index* 120

120 AUD

100

100

80

80 Price to Disposable Income Ratio (RHS)

60

60

1990-1 Recession 1970s Stagflation

1981-3 Recession

40

40 Real House Price Index (LHS)

20

20 The Long Housing Boom

0 1970

0 1975

1980

1985

1990

1995

2000

2005

2010

2015

Chart 1: Real House Prices and Price to Income Ratio. Australia has enjoyed a two-decade housing boom. Between 1997 and 2015, house prices increased by over 279% in nominal terms and 144% in real terms. *Seasonally Adjusted, 2010 base. Source: OECD.

184

CFI.co | Capital Finance International

Spring 2019 Issue

> Anthony Barned and Ronald Stride:

Pair Help Build Financial Infrastructure in a Country Coming Back From Conflict

CEO: Anthony Barned

A

t Afghanistan International Bank (AIB), Anthony Barned (CEO) and Ronald Stride (chairman) have the goal of building the most professional company in the country.

The bank provides essential banking services to the developing country, and – just as importantly – a model for good governance.

“Good governance is the foundation for everything we do, and the reason we have been able to maintain such a competitive advantage in the country for so many years,” says Stride, chairman of AIB since 2010. “It is the reputational bedrock for our customers, and their deposits, and it allows us to maintain the correspondent banking relationships and international clearing facilities that others in the country cannot.”

As the only bank in Afghanistan with the ability to clear in US dollars, AIB plays a crucial role in the quietly growing domestic economy. Barned and Stride have been at the helm of the company for years, and their focus on governance and KYC (Know Your Customer) procedures has been the guiding strategic principle.

The pair first met in the late 1990s at Booz Allen Hamilton Singapore, and both have extensive

Chairman: Ronald Stride

experience in major banking restructure and reorganisation projects across Asia. In the late 2000s, the opportunity to forge a world-class entity in the challenging Afghanistan economy was a considerable draw, and the two men’s careers coincided once more.

“Of course, the situation has been very difficult at times,” says Barned. “When I joined the bank in 2009, the insurgency was not even at its peak.

But people need banking services to conduct their lives, and as the security situation improves the country needs robust institutions to develop the economy, and wider society. We’re very proud of the role we have played in that process.”

Outside of formal corporate governance, AIB has been leading the way in creating careers for women in Afghanistan. AIB’s female workforce represents 17% of headcount, and the bank is actively encouraging women to pursue managerial careers, with a stated goal of C-level representation. “One of the most rewarding outcomes of our focus on both governance and opportunities for women has been the ripple effect on other organisations,” says Barned.

With increasing confidence that the worst of the conflict is over – and having achieved growth and sector-leading results throughout the hardships CFI.co | Capital Finance International

of the past decade – Barned and Stride are cautiously optimistic about the future.

“In the near term, we expect to see continued sluggish growth, and we will be maintaining a conservative posture,” said Stride. “But depending on the outcomes of this year’s elections and peace talks, we could have a brighter outlook in 2020, and the bank is very well positioned to continue supporting the country’s growth.”

CEO Anthony Barned joined AIB in 2009 as a senior adviser to the CEO and Board, and chairman of the Audit Committee; he was appointed CEO in 2015. He has more than 40 years’ experience as a commercial banker and consultant to the financial services industry. Prior to joining AIB, he was CFO for the Bank of Ceylon in Sri Lanka.

Before that, he spent 10 years at Booz Allen Hamilton and Boston Consulting Group, working on reorganisation projects across Asia.

Ronald Stride, chairman, joined the Board of AIB in 2009, and was appointed chairman in October 2010. He has more than 30 years’ experience of advising financial institutions across Asia, and previously enjoyed a long career at Booz Allen Hamilton, rising to become managing partner for Asia. He has acted as a senior adviser to major Thai, Indonesian, and Egyptian banks. i 185

> Afghanistan International Bank:

Fostering Economic Development as Afghanistan Rebuilds and Restructures The banking system is the engine room of any economy, providing capital to build infrastructure and help companies grow. It broadens financial inclusion and acts as a bridge with the rest of the world.

T

his is particularly important in an economy such as Afghanistan’s. Today, the Afghanistan International Bank (AIB) sits at the heart of the country’s recovery as it rebuilds for the future.

Afghanistan’s recent economic growth has been sluggish as a result of political uncertainty and a reduction in international grants, but there are signs of growing confidence and momentum.

Peace talks with the Taliban bring the potential for improvements in national security, while upcoming elections promise to deliver more political certainty. Strengthening export volumes in agricultural and industrial sectors are also boosting Afghan economic prospects.

The banking sector needs to sit front-andcentre of this change, allowing individuals and businesses to capitalise on these improvements. A major objective for the Afghanistan International Bank (AIB) has been to assist in developing the Afghan economy. In 2018, it played an important role in rebuilding Afghanistan’s infrastructure. It participated in nearly double the number of development projects over the previous year, providing guarantees and related support to international construction companies. These totalled AFN 3.21 billion (£31.9m), involving 34 infrastructure projects including roads, railways and telecommunications.

Support from international partners has been an important part of the rebuilding programme.

Over the past decade, the Afghanistan economy has received billions of dollars in international assistance. Money coming into Afghanistan needs to be channelled and directed to the right areas, and again, AIB has played an important role in this process. It remains the only bank in Afghanistan that can clear in US dollars and other international currencies.

AIB has also built long-standing relationships with major international banks – notably 186

Standard Chartered Bank and Commerzbank – and with major regional banks such as State Commercial Bank of Turkmenistan, and Aska Bank in Uzbekistan. This year, it added the Crown Agent Bank in the UK, Bank CenterCredit in Kazakhstan, and TransCapital Bank in Russia. The latter will enable AIB to remit payments to virtually all Commonwealth of Independent States (CIS) countries.

Business lending is also a vital part of helping Afghanistan drive growth for the future. For every economy, small and medium-sized enterprises (SMEs) are an engine of growth, creating employment. Supporting these businesses is a key part of AIB’s day-to-day operations.

It was the first bank in the Afghan market to reduce the interest rate for SME borrowing to 7.5% annually, extending the offer in 2019 to support local manufacturers and domestic producers. The facility is available only in the AFN currency, and has helped small businesses grow and create jobs. Since the launch, AIB has approved AFN 172 million in new loans, of which AFN 100 million has already been distributed to companies.

Lending is backed by the Afghan Credit Guarantee Foundation (ACGF), a Colognebased charitable organisation supported by the German government, USAID, and the World Bank. ACGF was set up to improve access to finance for SMEs in Afghanistan by providing credit guarantees and technical assistance to partner institutions. This has allowed AIB to ease collateral requirements and lower interest rates for customers. ACGF guarantees range from 36% to 72% of SME loans, reducing the need for collateral. AIB signed a new contract with the foundation for 2019, allowing it to continue to support SMEs. Broadening financial inclusion is integral to the ongoing development of Afghanistan – it helps individuals to make payments reliably and manage family finances, and to access credit CFI.co | Capital Finance International

Spring 2019 Issue

and save. Remittances from Afghan expatriates have been vitally important in supporting the rebuilding of the country – and a strong banking network facilitates this process. Once again, AIB aims to be at the forefront of access to banking services. It is making significant inroads into providing digital banking for its customers, important in a country where infrastructure is still limited. In this way, it is making significant strides in banking the previously unbanked.

At the heart of AIB’s services for governments, companies and individuals is integrity and trust.

The Global Financial Crisis was a memorable lesson in what happens when people lose faith in the banking system. Banks must operate with integrity – or risk failing in what they were set up to do. This is particularly important in Afghanistan. AIB is clear that it needs to operate with globally recognised standards of corporate governance to help international and domestic counterparties build trust in the Afghan banking system.

AIB has received widespread recognition for its efforts. It has won the Best Bank In The Country award by The Banker magazine for seven consecutive years. It has also won the Best Corporate Governance – Afghanistan 2018 award from CFI.co – for the fifth year in a row. Because it has focused so strongly on standards, including governance and knowyour-customer (including awareness of the threat of money-laundering). This trust and integrity is firmly in the bank’s DNA. As part of this focus on governance, AIB has recognised that diversity brings real value. It has taken a leading role in the development and the promotion of women – 17% of the workforce is now female, and the bank is focused on encouraging and developing women on the “management track”. It has put in place creche and taxi services, and encourages tertiary studies alongside positions in the bank.

This is just one of the many ways AIB is seeking to improve its governance standards every year.

The bank believes it could achieve even more, should the current stringent lending standards be relaxed. As it stands, real estate collateral for loans in Afghanistan must be 125% of loan value. AIB is better capitalised than most Western banks, and would like the freedom to choose its own lending requirements on a commercial basis, relying on its board to act on wisdom, rather than on regulation.

AIB is playing a vital role in the recovery of the Afghan economy. It sits as an industry leader, with global standards of governance, and is acknowledged to be the nation’s most respected and most trusted financial institution.

As Afghanistan emerges from a period of economic and political instability, AIB will be there to help drive it forward. i 187

> The

Ball the Indian Government Should Be Dodging – MUDRA

By Lakshay Mathur

T

he numbers look staggering: $33,705,600,000 (2.4 trillion rupees).

This is the total disbursement under the Indian government’s flagship MUDRA scheme for the year 2018 as per the annual reports of the Pradhan Mantri Mudra Yojana (PMMY) 2017-18. Recently, the central Reserve Bank of India cautioned the finance ministry about a spike in non-performing assets (NPAs) to the tune of 110,000 million rupees, of which a significant portion was loaned to women entrepreneurs (40%).

The relevant factor is that the RBI’s warning comes at a time when the financial system is already grappling with the IL&FS crisis, which has given a major jolt to the banks, the most recent one being the IndusInd Bank; and not more than two weeks have elapsed since the central bank issued a stern warning to the states on the farmloan waiver.

The MUDRA NPA conundrum might be an addon to the existing banking crisis.

WHAT IS MUDRA? Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme of the Narendra Modi government, launched in 2015 to enable the small enterprises to come into the formal financial system and get affordable credit to run a business. Any Indian citizen with a business plan for a non-farm sector income generating activity with a credit need of less than one million rupees is eligible for loan under the scheme. The loan can be given by any bank, microfinance institutions (MFIs) or nonbanking finance companies (NBFC).

The scheme is further subcategorised into three products/schemes: Shishu (up to 50,000 Rs), Kishore (above 50,000 and up to 0.5 million Rs) and Tarun (above 0.5 million and up to 1 million Rs). For refinancing purposes, a MUDRA bank has been established with a responsibility to regulate and refinance all MFIs which are in the business of lending to micro, small and medium enterprises (MSMEs).

With the informal sector accounting for 90% of India’s non- agricultural workforce, analysts have pointed that the Indian GDP can rise by 15% if the data of informal sector is incorporated in the GDP series.

WHAT WENT WRONG? After the RBI red-flagged the NPA rise in the MUDRA scheme, the Indian Finance Ministry has directed all banks to march past all loans sanctioned under the Pradhan Mantri Mudra

188

Yojana, as the NPAs have crossed 110,000 million rupees within three years of the launch of the scheme.

consequences. Such is the case with MUDRA bank. The bank is a lender, consultant, regulator, think tank and an agent of social change.

A lot of pressure has mounted on banks to meet the loan disbursal targets in order to give a push to the scheme. Yearly targets are given to banks, with geographical targets also in place, laying special emphasis on the lagging states.

WAY FORWARD Right from the era of bank nationalisation, India has chosen to use public sector banks as a policy instrument rather than a profit-making business.

Private banks have been discouraged. If the objective of a sustained credit growth is to be achieved, a reform must include competition in banking and entry of private banks with improved regulation and supervision norms.

In order to meet the target, verification of the credentials of loan-seekers has been compromised. This has given rise to bogus loan beneficiaries. According to a report from MicroSave (PMMY: Behind the Numbers), customers were handpicked by the bank branches based on the “50-Metre Rule” and “personal relations”. The 50-Metre Rule was meant to offer loans to customers residing within 50 metres of the bank branch. In several cases, loans were offered regardless of whether people wanted them or not.

In several instances, the loans were being issued without any collateral or security, making it cumbersome for the banks to take action against the defaulters. With no collateral or security, they are more like personal loans. Even a credit guarantee by the government is not enough to cover huge losses.

Implementation of demonetisation and compliance cost of Goods and Services Tax (GST) severely depleted the small businesses’ capability to repay their loans. Due to RBI’s strict Prompt Corrective Measure (PCA) norms, NBFCs were not able to raise money – which in turn led to a fall in credit growth for small businesses.

There has been no refinancing support from the government because of budget constraints.

The government, through the Mudra agencies, refinances the banks and NBFCs, which in the present scenario cannot be possible because of the inadequacy of the budget to cover the loan size.

Direct government intervention (which, in the present case, MUDRA is) to ensure equity had previously driven the governments to nationalise banks and bring priority sector lending (a role given by the RBI to banks to lend money to some specific sectors such as agriculture and allied services, housing, MSMEs). Such directed growth has not ended well in the past. In fact, it has led to large scale corruption and repeated recapitalisation through taxpayers’ money.

Overburdening one institute with too many objectives and roles can have disastrous CFI.co | Capital Finance International

Credit assessment of every loan seeker is necessary to determine if the person would be able to repay. Fintechs and new technologies play an important role in conceiving different ways to perform credit assessment of people who do not have a credit history. Tools such as driving licences, social media tools, tax returns and GST returns are used to ascertain cash flows.

These tools can also be used by government or public sector banks (PSBs) to assess the creditworthiness of people opting for loans under the mudra scheme.

Former Central bank governor Raghuram Rajan, in his letter on NPAs to the Parliamentary Estimates Committee, explained with great detail the NPA crisis prevailing in the country’s financial system and presented a way to avert such crises in the future. According to the report (in public domain), bad loans originated during the time when economic growth was strong (2006-08).

Driven by this fillip, bankers became overoptimistic and made mistakes.

Rajan has also attributed banking fraud to this crisis. The report talks about a solution to avert the recurrence of such a crisis: improving governance of PSBs and distancing them from the government. The formation of the bank board bureau to recruit chiefs of government-owned banks and financial institutions is a step in the right direction.

Strengthening of recovery processes by making the bankruptcy law (Insolvency and bankruptcy code 2016) and the out-of-court restructuring process speedy and hassle-free. The government should tread carefully while setting Brobdingnagian credit targets or waiving loans.

Often due diligence is compromised in order to achieve the targets which leads to creation of future NPAs. The government should cut the gordian knot that is strangling India’s financial market and dodge the mudra NPA ball.i

Spring 2019 Issue

> Rakesh Rawal, CEO of Anand Rathi Wealth Services Ltd

Makings of a Great CEO: Professionalism, Humility and being a Good Human What excited you about the businesses you worked for during your earlier career, and what excites you about the business you now lead?

Rakesh Rawal: In my earlier career I worked for Hindustan Unilever. What excited me in those days was how successfully a business can be run in India. That it can be done in the most ethical manner, and with complete professionalism. Every decision taken by the company was thought-through and backed by data and mathematics. I am glad I was part of that wonderful journey.

The second thing that I did in my journey was to run my own business. The excitement of doing that is always high. What excites me about my current business is that it started off as an experiment in wealth-management, which was genuinely customer-centric – in an Indian and global environment. This concept was dying, so we were standing alone to explore this experiment. Whether we would succeed or not was up in the air. Now, after 12 years, I believe that this thought has taken shape and gathered momentum. I believe that, in the future, and under the stewardship of (deputy CEO) Feroze Azeez, this will create a name not only in the Indian echelons of business, but globally. That excites me.

What is special about the management style at your organisation, the team you lead, and the workforce?

Rakesh Rawal: There is nothing special about what we do. I think the only principal that we follow is that we do not create a distinction between the relationships that we build at home, with friends and on the personal side, and the relationships that we build at office. It is strange that (businesses) spend 60% of their waking life in the office, but follow methods of relationship-building which are not the best. I question that, and say “Why should 60% of my waking life not also be as joyful as the 40%?”. If you treat your colleagues as friends, in a genuine fashion, you end up building a culture which is a differentiator, and a much happier culture. A happier person is more likely to give great output, and that leads – as a corollary – to phenomenal returns for the business.

How would you characterise short to mid-term prospects for the industry in which you operate?

Rakesh Rawal: I think that the prospects of the wealth management industry – short- to midterm, as well as long-term – are endless. The economy is growing at a sustainable rate of 7-8%. This then automatically leads to a large

CEO: Rakesh Rawal

number of billionaires created – and they need to be serviced. This industry is constrained by supply rather than demand. So, I think that the prospects for this industry are phenomenal.

What are the personal and business strengths that qualify you as a corporate leader?

Rakesh Rawal: There are just two parts - one, the ability to think and strategize and two, the courage to implement differentiated ideas where you do not have the security of numbers. Third, being a good human being and encourage people to be good human beings and show to them that good human beings can be No. 1, hugely successful and so much enjoyable to lead a life rather than a rat in the rat race. Fourth, humility in a person classified by the world as successful is mandatory. My Guru used to say, CFI.co | Capital Finance International

'Be like the Bamboo tree, the higher you grow, the deeper you bow.' This trait is admired, acceptable and sustainable across the world.

Look at the industry and world leaders such as Sundar Pichai, Indira Nooyi and our Indian Prime Minister Narendra Modi. These practices are not applicable only to the wealth industry but all the industries as well.

What are your short-term hopes for the future of your business and the industry as a whole?

Rakesh Rawal: I believe that for the next 20 years, our business should grow at a 25% compounded rate, in all terms – assets under management, revenue and number of hires. I think that the industry has immense potential, and I am sure my competition will have healthy growth as well. i 189

> Asian Development Bank:

How Asia Can Emerge a Winner From Technological Revolution

By Bambang Susantono

The potential developmental gains from digital and online technologies are massive, but basic information and communications technology infrastructure must be in place.

T

echnological advances are having a profound impact on the way people live, interact, and do business. These advances bring with them opportunities for enhanced productivity, as well as new products and services. Mobile apps have improved people’s daily lives and are transforming entire economies. Innovations such as FinTech, Internet of Things, big data, artificial intelligence, blockchain, and cloud computing are benefitting e-commerce, finance, education, and healthcare sectors. These are advances that define the Fourth Industrial Revolution.

Developing countries in Asia stand to benefit immensely from this new era. The application of digital and online technologies can be of massive importance, and has the potential to help emerging economies leapfrog development.

To turn this potential into reality there is considerable work to do, and many countries are simply not ready. In some, less than half the population has access to the Internet. Information communications technology (ICT) infrastructure is the foundation of digital economies. Without reliable Internet connectivity, digital services – including smart phone apps – cannot be

"The application of digital and online technologies can be of massive importance, and has the potential to help emerging economies leapfrog development." used. Developing countries require basic ICT infrastructure before they can jumpstart their own digital revolutions.

Governments alone do not have the resources to build the necessary foundations, and the private sector often faces barriers to investment. The international development community has a crucial role to play.

At my own organisation, the Asian Development Bank (ADB), we believe that ICT can play a key role in helping developing Asia achieving the UN’s Sustainable Development Goals.

Throughout the Asia and Pacific region, ADB is helping the public and private sectors to invest in

telecommunications infrastructure and Internet connectivity, especially in badly served and unserved areas.

Over the last 8 years, ADB has approved about 450 projects that have ICT components. One comparative advantage of ADB is that it can assist its developing member countries to build ICT infrastructure in areas that are not commercially viable. For example, ADB is financing a submarine cable system between Palau and Guam to provide affordable broadband Internet to broader populations in Palau. Meanwhile, in Myanmar— one of the undeveloped telecommunication markets in Asia—ADB’s private sector operations are supporting the construction of 5,000 telecom towers.

ADB will incorporate digital technologies in many areas of operations, including smart cities, e-government, and e-commerce. In education, computer-based adaptive learning and remote technologies will boost learning in schools.

Telemedicine, artificial intelligence, and the use of big data will have the potential to improve health services. FinTech will help those living in poverty to access financial services.

Industrial Revolutions: Four episodes of technological breakthrough. Source: ADB Asian Development Outlook 2018 (based on Schwab 2017).

190

CFI.co | Capital Finance International

Spring 2019 Issue

In Pakistan, ADB is supporting the extension of smart public transport systems in Peshawar. This includes use of a diesel-hybrid plug in electric buses, smart card-based fare collection and a real-time passenger information system â&#x20AC;&#x201C; and even a bicycle-sharing system. The system will improve the quality of not only public transport but also city air, and should attract private sector investments.

In Mongolia, ADB's health sector projects are connecting health centres through ICT in five provinces and in two districts of the capital, Ulaanbaatar. Previously, patients had to travel to the provincial capital to seek medical treatment, and all patient records were typed by health

workers. Now residents no longer face these expensive trips and health workers send patientsâ&#x20AC;&#x2122; medical histories to the provinceâ&#x20AC;&#x2122;s central database.

It is imperative that governments take advantage of such digital platforms and improve the efficiency of public service delivery.

In a small country like Fiji, for example, where land is a valuable resource and 92% of it is ancestral domain, there is a clear need for an efficient, transparent information system to update and monitor land records, and create new ones. ADB is therefore piloting there a digital land registry that uses blockchain technology.

CFI.co | Capital Finance International

Blockchain is gaining traction in industries and governments for its ability to record transactions in a verifiable manner.

Many countries have started national initiatives to digitalise their economies: Digital Thailand, Digital India, Taza Koom in the Kyrgyz Republic, and Digital Azerbaijan. Most developing countries recognise the need to address gaps in knowledge, and to develop capacity to carry out these initiatives.

While new technology will produce machines that take over certain jobs from humans, it can also create jobs that did not exist in the past.

A recent ADB study, How Technology Affects 191

TECHNOLOGICAL ADVANCEMENTS THAT DEFINE THE FOURTH INDUSTRIAL REVOLUTION

Artificial intelligence (AI) is the science and engineering of rational, intelligent machines that act, work, and solve problems the way humans do. Machine learning—or “deep learning,” a subset of AI—is the science of teaching computers to learn and apply data without being explicitly programmed.

Quantum computers are powerful machines that run new types of algorithms to process information more holistically. They may one day enable revolutionary breakthroughs in the discovery of new materials and drugs, the optimization of complex synthetic systems, and AI.

Biotechnology covers a broad range of technologies that employ living organisms to make products such as drugs and therapeutics, nutritional compounds, biofuels, and materials with novel functions.

three-dimensional objects using computeraided design, allows the construction of complex objects with less material than traditional manufacturing.

Blockchain technology is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually anything of value. This type of technology powers cryptocurrencies such as Bitcoin and Ethereum.

New generation robotics such as sewbots, Baxter, and the leichtbauroboter (lightweight robot) intelligent industrial work assistant, better known as LBR iiwa, open new possibilities for automating tasks on factory floors, particularly in light manufacturing such as textiles and apparel.

Three dimensional (3D) printing, a manufacturing process that additively builds

Source: Cited in ADB Asian Development Outlook 2018, based on various sources.

"There is considerable anxiety about how automation, robotics, ever-expanding computing power, and artificial intelligence will affect jobs, especially for moderately skilled workers carrying out tasks that can be automated or done by computers."

Jobs, found that technological advances have transformed the two billion-strong Asian labour market, helping to create 30 million jobs annually in industry and services over the past 25 years, driving up increases in productivity and wages, and reducing poverty.

If we use new technology better, the benefits of the digital revolution can be massive. However, it can also be disruptive. There is considerable anxiety about how automation, robotics, ever-expanding computing power, and artificial intelligence will affect jobs, especially for moderately skilled workers carrying out tasks that can be automated or done by computers. Balancing these worries, according to an ADB study, economic growth driven by new technologies will create more jobs and offset job losses. But people need to be prepared for these new jobs. Digital literacy is essential to take full advantage of opportunities and to benefit from services that will become available.

To help this process, ADB has increased financial support for technical and vocational education and training in many countries. In Sri Lanka, for example, ADB supported the country’s technical and vocational training systems to provide job opportunities for graduates with ICT skills.

Governments will need to prevent workers being left behind by ensuring they are protected from the downside of new technologies, and are able to take advantage of new opportunities. Societies, institutions and policymakers will need to think carefully about skills development, retraining, and means to support those workers displaced by disruptive technologies.

Countries also need appropriate regulatory environments to ensure adequate protection of 192

personal data and to ensure privacy. Consumers must be protected against cybercrime and fraud, and illegal activities such as money laundering and terrorism-financing must be prevented.

If developing Asia addresses these issues and prepares properly, then it has little to fear and much to gain from the technological revolution. i ABOUT THE AUTHOR Bambang Susantono is the Vice President for Knowledge Management and Sustainable Development of the Asian Development Bank (ADB). He is responsible for ADB’s knowledge management through direct oversight of the Sustainable Development and Climate Change Department, Economics Research and Regional Cooperation Department, and Department of Communications.

Among other tasks, Dr Susantono supervises the development of ADB’s flagship publications and reports, including macro, micro and regional economic research and financial integration.

He coordinates ADB's operations research to support its investments and provides strategic leadership on ADB’s commitment to the global sustainability and climate change agenda, as well as safeguards. He also anchors ADB communication on development issues and access to information.

Transportation Engineering, and City and Regional Planning from the University of California Berkeley. He earned a Bachelor’s degree in Civil Engineering from the Bandung Institute of Technology.

ABOUT THE ASIAN DEVELOPMENT BANK The Asian Development Bank was founded in 1966 as a financial institution that would be Asian in character and foster economic growth and cooperation in one of the poorest regions in the world. ADB assists its members, and partners, by providing loans, technical assistance, grants, and equity investments to promote social and economic development. Under its new long-term Strategy 2030, ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific region, while sustaining its efforts to eradicate extreme poverty. ADB is composed of 67 members, 48 of which are from Asia and Pacific.

Prior taking up his position at ADB, Dr Susantono was the Acting Minister, and Vice Minister of Transportation of Indonesia, and Deputy Minister for Infrastructure and Regional Development at the Office of Coordinating Ministry for Economic Affairs.

Dr Susantono holds a PhD in Infrastructure Planning, and has Master’s degrees in CFI.co | Capital Finance International

Author: Bambang Susantono

Spring 2019 Issue

> New World Development Company Limited:

New World Ecosystem Leading to a New Era

N

ew World Development Company Limited (NWD), founded in 1970, was publicly listed two years later in Hong Kong.

New World Group’s core business areas include property development, property investment, infrastructure, services, and hotels in Greater China. It is a constituent stock of the Hong Kong Hang Seng Index, a premium brand infused with a personality defined by The Artisanal Movement.

As of December 31, 2018, the total asset value of the Group amounted to some HK$481.3 billion (£46.8bn).

2018 was an exciting year for New World Group.

Under the leadership of Adrian Cheng, Executive Vice-chairman and General Manager of the Group, NWD set records in residential property sales and secured several large-scale projects. The Group has also made efforts to be well positioned in the Greater Bay Area – with encouraging results.

Hong Kong’s Victoria Dockside, a landmark at the core area of Tsim Sha Tsui waterfront in Kowloon, has been progressing well. K11 ATELIER, the grade A offices at the site, achieved full period contribution, the occupancy has surpassed 80% – and the latest rental rate has hit new heigths in the district.

The Group was awarded the development rights of commercial development in SKYCITY, with an area of 3.8m square feet at Hong Kong International Airport. It will invest HKD20bn (£1.94bn) for its construction.

Meanwhile, the contract for the design, construction and operation of the Kai Tak Sports Park has been awarded to a subsidiary of the Group and NWS Holdings. Following the success of Hong Kong Convention and Exhibition Centre, the Kai Tak Sports Park will build on the Group’s reputation by creating another landmark for Hong Kong – the largest sports park in the region.

For the development in Mainland China, the Group focuses on the Greater Bay Area, and capitalises on its resources and experiences.

Through New World China – its property flagship in Mainland China – the Group acquired premium projects in Qianhai and Prince Bay in Shenzhen, the Eastern Transportation Hub in Guangzhou Zengcheng and above the Hanxi Changlong metro station in Guangzhou Panyu. These projects will add synergy to Group's portfolio, further developing the Greater Bay Area.

Executive Vice-chairman and General Manager: Adrian Cheng

In November, 2018, New World China launched a new corporate campaign called "Soul of the City", which was based on the idea of social and cultural heritage. Focusing on urban complexes, and through its strategic masterplan, New World China provides a quality living environment and extraordinary experience to the market. The Group is seeking opportunities to increase land reserves in Mainland China. Currently, the total area of core landbank has reached seven million square metres, almost half of which is in the Greater Bay Area, in Guangzhou and Shenzhen.

In 2018, the Investor Relations (IR) Department achieved good performance and recognition from the market, based on the Group’s outstanding business development. The IR Department has always followed innovative and enterprising spirits, and won 61 international awards in the year. The IR team met hundreds of institutional investors and analysts in Hong Kong, Mainland CFI.co | Capital Finance International

China and overseas, and organised more than 20 investor events.

The IR Department will make persistent efforts to convey New World brand and development concepts to the capital market through active and effective communication, to create valuable returns for stakeholders.

The Group will continue to promote The Artisanal Movement by extending ambitions beyond current boundaries – and creating a unique ecosystem, by transforming from a product-centric institution to an ecosystem-centred one.

Through its "Collect, Connect, Collide" philosophy, the Group links its business units with internal and external resources to build a strong brand entity with distinctive platforms.

The Group is introducing a new lifestyle for customers by changing and disrupting the market. i 193

> UNCDF:

Revolutionising International Municipal Finance is Focus of Bid to Tackle Climate Change and Open Global Markets

By Jaffer Machano, Municipal Investment Finance Program Manager, UNCDF

“They have been drivers of progress throughout history, and now – as the knowledge economy takes full flight – they are poised to play a leading role in addressing the challenges of the 21st Century,” wrote former Mayor of New York City Michael Bloomberg in a piece he penned in 2015.

B

loomberg was referencing the remarkable power of cities as drivers of innovative and critical solutions, most notably to the threat of climate change.

He also correctly acknowledges one of the key barriers preventing investments in climate resiliency and sustainability, especially in the developing world. “To borrow money in the capital markets, for instance, cities need a credit rating; outside of the United States and Europe,” he wrote, “however, many lack them.”

This one sentence speaks to a larger, undeniable reality: that the kind of global financial system that accommodates local government finance in the developing world simply does not exist This is why the United Nations Capital Development Fund (UNCDF) has partnered with United Cities and Local Government (UCLG) and the Global Fund for Cities Development (FMDV) to create the first international fund focused on enabling access to municipal finance, which will have a target starting value of $250 million.

But that is just one prong of the reform effort that began in earnest last year at the HighLevel Meeting On Municipal Finance in Malaga, Spain. The second prong involves advocating and advancing a comprehensive strategy that would fundamentally change investment decision-making as it relates to municipal finance—from calling on central governments to ensure fair and reliable national transfers to highlighting investments in intermediary cities and advocating for change in the international financial architecture to disaggregate national and subnational debt.

"What cannot be overlooked is the fact that cities in developing countries are effectively blocked from capital markets."

That is an essential point. A joint report published by the OECD and UCLG found that subnational tax revenues as a percentage of GDP in federal countries was nearly three times higher than those revenues in more centralised countries. For those fortunate local governments, the political autonomy they possess in a federal system also comes with fiscal capability and better service delivery to the community. For local governments in centralised countries, the opposite is the case.

To understand the motivation for this bid for global financial reform, it is best to start with an appreciation of the exact challenge Mayor Bloomberg spoke of.

FROZEN OUT Much of the international conversation regarding local economic development or municipal finance has traditionally focused on fiscal centralisation; specifically, how it drains subnational governments of revenue and growth.

194

Author: Jaffer Machano

CFI.co | Capital Finance International

What cannot be overlooked is the fact that cities in developing countries are effectively blocked from capital markets. According to the World Bank’s Low Carbon Liveable Cities Initiative, only 4% of the 500 largest cities in developing countries are considered “investment grade” by international standards. This data point is more disheartening when just $1 invested in creditworthiness can help mobilise $100 of greater investment, according to the World Bank. From a practical standpoint, municipal governments are unable to procure the infrastructure projects, place bankable investments in the pipeline, or explore financing mechanisms to finance climate resiliency projects – a fundamental reason for the climate resiliency infrastructure divide between developed and developing countries.

To focus solely on climate resiliency, despite its enormous importance, is to have an incomplete appreciation for what is at stake. Ensuring that cities and communities are sustainable encompasses far more than SDG 11 of the Sustainable Development Goals. Practically every goal under the SDGs runs through sustainable cities, from clean water and sanitation to

Spring 2019 Issue

affordable clean energy, to sustainable goals relating to industry, innovation and infrastructure.

Municipal finance will also be critical to achieving the kind of sustainable urban development necessary to end poverty. To support future job creation in the context of the Fourth Industrial Revolution, it is necessary to create – by 2030 – between 470 million and 600 million jobs.

Ensuring that this job creation is not consolidated to the developed world, thus becoming a driver of global wealth inequity and poverty, requires local development in Least Developed Countries (LDCs). And that requires the global financial system we seek. Not the one that we have.

THE TEN-YEAR OLD LESSON Ten years ago this April, the G-20 unveiled an intervention package intended to confront the worst economic crisis since the Great Depression of the 1930s. A core element of the package was leveraging capital of more than a trillion dollars to drive global trade, spur demand, and unlock credit. Another element involved efforts to change the decision-making environment so that the choices and policies that led to grave economic shocks, even if they were Black Swan events, would rarely be implemented again – from increasing capital requirements to implementing domestic and international oversight.

It doesn’t take the threat of the dissolution of global credit markets to draw an invaluable lesson from the G-20’s response. If global financial reform is necessary, that reform effort needs to have two prongs: one focusing on the systems that enable the access of capital, and the other on the decision-making ecosystem that drives capital flows.

The first prong emerged during last year’s HighLevel Meeting on Municipal Finance, with the decision to create the first international fund for municipal investment – a fund jointly designed

by United Cities and Local Government, the Global Fund for Cities Development, and the UNCDF. The core of the fund’s work will be providing capital to bankable projects, marrying international capital with the commercial, actionable intelligence that comes from local governments’ awareness of local needs. The fund will also rely on innovative financing tools, including blended finance where we would leverage concessionary capital to catalyse private sector investment. And at this year’s High-Level Conference in Malaga, the investment manager who will independently establish, structure, fundraise and manage the prospectively $250 million fund will be named.

The fund will also act as a catalyst in attracting investors for worthy commercial projects in cities within developing markets. This effort will support the reforms needed to further deepen the access to capital by cities in these parts of the world.

The other prong involves changing the decision-making environment by changing the 195

perceptions of international finance actors from governments and institutional investors to organisations and enterprise philanthropists.

The goal is to get these actors to understand how investment in local governments can advance global interests, as well as deliver real return on investment. That is why we are advocating for and working to enact other policy measures based on recommendations from last year’s conference in Malaga.

One approach is utilising the tools of financial innovation. Luckily, there are a variety of innovative financing tools at our disposal: promoting municipal investment bonds as financial intermediaries, with commercial guarantees that can raise capital; influencing asset allocation strategies of institutional investors; and blended finance vehicles. These tools will go a long way towards minimising risk and catalysing greater investment at the local level.

Another approach is to increase and sharpen the investment focus on intermediary or secondary cities. While the attention on municipal investment for sustainable development has increased, much of that focus has been on megacities with populations of a million or more. As a result, intermediary or secondary cities needing support to build legal frameworks, administrative capacity, and access to capital markets are overlooked. That is despite the fact that many of these cities feature large, fully formed economies. One reason these secondary cities have been ignored by investors is a simple misunderstanding of risk, thinking that these cities are too risky.

Finally, and perhaps most importantly, we are advocating for a dramatic change in public accounting when it comes to debt, specifically to address the challenge Bloomberg outlined.

Developed economies are able to separate different types of debt for the purposes of their creditworthiness profile. But developing markets do not have that luxury. That means that municipal governments must carry the weight of national debt as their creditworthiness is assessed. Our response is to address public accounting on national debt, relative to subnational debt; to seek ways to adequately account for municipal debt independent of national debt, especially when local governments borrow in local currency.

This will go a long way towards creating a more level playing field for localities in LDCs, while providing would-be investors and donors a better understanding of the potential risks and returns on their investments.

level. Most investors understand the need to invest in subnational debt. The overriding question investors and donors have is not “why invest”, but “how can I invest?” Our work intends to offer a strong answer to both questions.

Our optimism, however, stands closely with our sense of urgency. The adverse consequences we risk experiencing in the future are as acute and as grave as the consequences associated with 2008 and 2009. There is no path to achieving practically every worthy global interest we have – scaling climate resiliency, eliminating poverty, and continuing economic growth – that does not run through local finance.

A new global financial system to support local finance will ensure that cities continue their tradition of driving progress throughout history.

In the process, those cities will be positioned to do more than be a part of 21st Century history.

They will be able to write it.

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.

FINANCING PROGRESS; ADVANCING HISTORY There is one source of optimism that fuels our work to reform the global financial system.

Despite the challenging environment relating to municipal finance, interactions with investors and donors have shown that they are interested in subnational investment at the international 196

CFI.co | Capital Finance International

Spring 2019 Issue

CFI.co | Capital Finance International

197

> Kenneth Rogoff:

Modern Monetary Nonsense A number of leading progressive US politicians advocate using the Federal Reserve's balance sheet to fund expansive new government programs. Although their arguments have a grain of truth, they also rest on some fundamental misconceptions, and could have unpredictable and potentially serious consequences.

J

ust as the US Federal Reserve seems to have beaten back blistering tweets from President Donald Trump, the next battle for central-bank independence is already unfolding. And this one could potentially destabilise the entire global financial system.

A number of leading US progressives, who may well be in power after the 2020 elections, advocate using the Fed’s balance sheet as a cash cow to fund expansive new social programs, especially in view of current low inflation and interest rates. Prominent supporters of this idea, which is often referred to as “Modern Monetary Theory” (or MMT), include one of the Democratic Party’s brightest new stars, congresswoman Alexandria Ocasio-Cortez. Although their arguments have a grain of truth, they also rest on some fundamental misconceptions.

Final Thought

Fed Chair Jerome Powell could barely contain himself when asked to comment on this new progressive dogma. “The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong,” Powell insisted in US Senate testimony last month. He added that US debt is already very high relative to GDP and, worse still, is rising significantly faster than it should.

Powell is absolutely right about the deficit idea, which is just nuts. The US is lucky that it can issue debt in dollars, but the printing press is not a panacea. If investors become more reluctant to hold a country’s debt, they probably will not be too thrilled about holding its currency, either.

If that country tries to dump a lot of it on the market, inflation will result. Even moving to a centrally planned economy (perhaps the goal for some MMT supporters) would not solve this problem.

On Powell’s second point, that US debt is already high and rising too fast, there is far more room for debate. True, debt cannot rise faster than GDP forever, but it may do so for quite a while. Today’s long-term, inflation-adjusted interest rates in the US are about half their 2010 level, far below what markets were predicting back then, and far below Fed and International Monetary Fund 198

"It would be folly to assume that current favorable conditions will last forever, or to ignore the real risks faced by countries with high and rising debt." forecasts. At the same time, inflation has also been lower for longer than virtually any economic model would have predicted, given current robust US growth and very low unemployment.

What’s more, despite being at the epicenter of the global financial crisis, the US dollar has become increasingly dominant in global trade and finance. For the moment, the world is quite content to absorb more dollar debt at remarkably low interest rates. How to exploit this increased US borrowing capacity is ultimately a political decision.

That said, it would be folly to assume that current favorable conditions will last forever, or to ignore the real risks faced by countries with high and rising debt. These include potentially more difficult risk-return tradeoffs in using fiscal policy to fight a financial crisis, respond to a large-scale natural disaster or pandemic, or mobilise for a physical conflict or cyberwar. As a great deal of empirical evidence has shown, nothing weighs on a country’s long-term trend growth like being financially hamstrung in a crisis.

The right approach to balancing risk and reward is for the government to extend the maturity structure of its debt, borrowing long-term instead of short-term. This helps to stabilise debt-service costs if interest rates rise. And if things get really difficult, it is far easier to inflate down the value of captive long-term debt (provided it is not indexed to prices) than it is to inflate away shortterm debt, which the government constantly has to refinance.

True, policymakers could again resort to financial repression, and force citizens to hold government debt at below-market interest rates, as an CFI.co | Capital Finance International

alternative way of reducing the debt burden.

But this is a better option for Japan, where most debt is held domestically, than for the US, which depends heavily on foreign buyers.

Having the Fed issue short-term liabilities in order to buy long-term government debt turns policy 180 degrees in the wrong direction, because it shortens the maturity of US government debt that is held privately or by foreign governments.

Contrary to widespread opinion, the US central bank is not an independent financial entity: the government owns it lock, stock, and barrel.

Unfortunately, the Fed itself is responsible for a good deal of the confusion surrounding the use of its balance sheet. In the years following the 2008 financial crisis, the Fed engaged in massive “quantitative easing” (QE), whereby it bought up very long-term government debt in exchange for bank reserves, and tried to convince the American public that this magically stimulated the economy. QE, when it consists simply of buying government bonds, is smoke and mirrors. The Fed’s parent company, the US Treasury Department, could have accomplished much the same thing by issuing one-week debt, and the Fed would not have needed to intervene.

Perhaps all the nonsense about MMT will fade.

But that’s what people said about extreme versions of supply-side economics during Ronald Reagan’s 1980 US presidential campaign.

Misguided ideas may yet drag the issue of US central-bank independence to center stage, with unpredictable and potentially serious consequences. For those bored with the steady employment growth and low inflation of the past decade, things could soon become more exciting. i ABOUT THE AUTHOR Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. The co-author of This Time is Different: Eight Centuries of Financial Folly, his new book, The Curse of Cash, was released in August 2016.

Luxury, in the extremes.

Bentayga.

Introducing the extraordinary SUV. Visit BentleyMotors.com/Bentayga or book an appointment with: Bentley Abu Dhabi +971 2 2222 445 Bentley Al Khobar 800 4400 101

Bentley Bahrain +973 1 7238 822 Bentley Doha +974 4 4114 411

Bentley Dubai +971 4 3058 999 Bentley Jeddah 800 4400 101

Bentley Kuwait +965 2 4735 199 Bentley Oman +968 2 4500 217

Bentley Riyadh 800 4400 101

The name ‘Bentley’ and the ‘B’ in wings device are registered trademarks. © 2017 Bentley Motors Limited. Model shown: Bentayga.