CFI.co Winter 2017-2018

ww

Capital Finance International

Winter 2017 - 2018

GBP 9.95 // EUR 14.95 // USD 15.95

AS WORLD ECONOMIES CONVERGE

Werner Hoyer, President of the European Investment Bank (EIB):

A MOSTLY UNSEEN HAND ALSO IN THIS ISSUE // WORLD BANK: OVERLAPPING GLOBALISATIONS // EIB: EUROPEAN GROWTH FMO: GREEN BONDS // BRITISH AIRWAYS: BRING ON THE COMPETITION WORLD ECONOMIC FORUM 2018 (WEF): BACK TO THE BASICS? // UNCDF: ENGAGING THE PRIVATE SECTOR

60 YEARS OF ADVENTURE AND DISCOVERY

For those who are driven.

The new Flying Spur V8.

Performance and determination have helped deliver you success. Now stay ahead with cutting edge technology in a handcrafted interior – all serenely positioned behind a 4.0 litre V8 engine that can carry you to 183 mph and propel you to 60 mph in less than five seconds.

The name ‘Bentley’ and the ‘B’ in wings device are registered trademarks. © 2015 Bentley Motors Limited.

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

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

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

Pilot’s Watch Double Chronograph Edition “Antoine de Saint Exupéry”. Ref. 3718: Our dreams are the navigators that pilot us through life’s deeps and shallows. But only few of us have the courage to pursue them. Antoine de Saint-Exupéry, on the other hand, possessed a rare gift that allowed him to discover the world without fear of the unknown and gave him the strength to make his dreams come true. With this masterpiece of the watchmaker’s art, IWC expresses its profound admiration for a man who enchanted the world with his unfettered imagination. The watch’s split-second chronograph is a

commemoration of the countless hours he spent conquering the skies in his P-38 Lightning, a reminiscence of aviation at its truest and most original, which the professional pilot and writer championed throughout his life. It was only here that he found the inspiration for his literary oeuvre, whose poetry touched people all over the world and whose timeless elegance is echoed in the design of this wristwatch. Available in a limited edition of 1000, it celebrates the passion and lust for adventure that is intrinsic to every dream. And reminds us every second to boldly live out our dreams.

I WC . E N G I N E E R E D FO R M E N .

J O I N TH E CO NVE RSATI O N : # B _O R I G I NAL I WC S C H A F F H AU S E N B O U T I Q U E S: PA R I S | LO N D O N | R O M E | M O S COW | N E W YO R K | B E I J I N G | D U B A I | H O N G KO N G | G E N E VA | ZU R I C H I WC .CO M

For more information please call +41 52 635 63 63 or contact info@iwc.com

ENGINEERED FOR MEN WHO LIVE THE DREAMS THAT OTHERS CHASE.

Editor’s Column

Editor’s Column

Mind and Matter

Nano replicators, brain-computer interfaces, machine learning, artificial intelligence: there is no end to the technologies that promise humanity a life of leisure, spent in the lap of luxury whilst nibbling from the cornucopia of plenty. Exhausting physical labour will be a thing of the past – a medieval-like daily torture routine banned from civilised society. Taxing mental work is likely to suffer a similar fate.

Sure, in isolated valleys a few luddites may still survive and live by the sweat of their brow just as today a few tribes esconded deep in the Amazon rainforest shun modernity and prefer to keep to their timeless ways.

True, the first of the eight millennium development goals (MDGs) has been reached five years ahead of schedule: to cut the 1990 global poverty rate by half. In a quarter century, well over a billion people have been lifted out of extreme poverty and onto the lower rungs of the middle class.

Even so, inequality in the distribution of assets and income has worsened significantly. A few boats rise much faster than most. Of course, inequality cannot and should not be eliminated – past attempts to do so have ended in disaster.

However, when a busload of billionaires sits atop half the world’s assets, something, somewhere has gone seriously wrong.

The rest of us – happily addicted to gadgets and apps – may quickly become superfluous. Without a need to produce anything meaningful – there’s an app (or replicator) for that – we can focus on consumption. The premise that made Karl Marx famous – from each according to his ability, to each according to his need – may be cut in half, the first part having been made redundant.

Technology promises to change all that, democratising access to things just as the internet democratised access to information.

There are a few snags though. If things can be replicated out of thin air – the promise of mechano-synthesis and molecular assemblers – would the vast asset portfolios held by the überrich still be worth something? And if not, how would they react to the wholesale subversion of their interests?

Supposing that intelligent machines – powered, perhaps, by organic computers – are half-smart, they’ll soon enough figure out that humans have no place in the overall equation and represent but a useless appendix to an otherwise perfectly-tuned machine. It is like Richard Dawkins’ selfish gene finding a way to ensure its existence without the need to build an organic shell to host it.

These are some of the doomsday scenarios that keep modern philosophers busy and nerds excited. Meanwhile in India, an estimated 600 million people make do without indoor plumbing and some 260 million are still not connected to the grid. In Sub-Saharan Africa, around 400 million people get by on $1.90 or less per day.

8

Revolutionary change may be upon us, evolution represents a much safer bet. As technological progress picks up ever greater speed, humans – with all their frailties and petty concerns – will remain delightfully flawed, ensuring life’s rich diversity. As such, we may not fit into an intelligent machine’s equation, but that device surely owes deference to its creator who, meanwhile, should not remain idle. All eight MDGs need to be fully met – and then expanded upon so that nobody is left behind.

Wim Romeijn Editor, CFI.co CFI.co | Capital Finance International

Geneva, Switzerland: United Nations

Editor’s Column

> Letters to the Editor

“ “ “ “

Your literary critic concluded that Yuval Noah Hariri possessed all the ingredients but never quite got to the cooking bit in his book Homo Deus. I couldn’t agree more and was unable to supress a chuckle at the comment.

Mr Hariri paints vast vistas of a machine-shaped world in which fail-prone humans provide but a footnote. That is a picture of doom I cannot share.

MOSHE HODGE (Tel Aviv, Israel)

I do find the quest for foreign direct investment quite: well, quixotic. Plenty of multilaterals seek to mobilise the billions to generate trillions and that is all good. However, to convince the billions to move to where they are needed most, one must address deficient governance. Scarcely a day goes by without some mega scandal erupting somewhere in the developing world, often involving dignitaries caught with their hand in the cookie jar. If not that, bizarre policies scare investors away.

Development is not all that complicated and merely requires the rule of law and common sense policies. Apparently, both are found lacking in the places that could benefit most from them.

ASHAN CHATTI (Cairo, Egypt)

Mr Kenneth Rogoff is quite right in his assertion that US economic and fiscal policies are geared to boost the incomes and assets of the one-percenters. The Trump tax plan just draws on the earnings of the next generation, saddling them with an even higher debt than the one sustained by the current cohort of taxpayers.

It is time to rescue the middle class. Trickledown economics has failed on all fronts and caused much harm to those least able to afford it.

JILL ASHER (Portland, Oregon, US)

Mohamed A El-Erian notes that the lessons from the 2008 financial crisis have already been largely forgotten. A larger point, perhaps, is the overreliance on economic growth as a product of financial leverage and liquidity.

What this boils-down to is that economic actors have become too dependent on the banking industry. Once, long ago, bankers were deemed boring as they shuffled about other people’s money. All of a sudden, banks have become very powerful actors without whom nothing happens.

This is not good for business – or sustained economic growth – since banks thrive by blowing bubbles.

WILLIAM T MOORHOUSE (Liverpool, UK)

10

Winter 2017 - 2018 Issue

“ “ “

Thank you for pointing out that Wikileaks is no longer a relevant actor. Mr Assange, still holed up in his tiny room, should move on with his life and seek some other worthwhile pursuit. He moment has come and gone. However, I do fear his mental state may have deteriorated over the years spent at the Ecuadorian embassy in London. Is it not time to grant Mr Assange a modicum of reprieve and send him back to sunny Australia? That would be a most welcome humanitarian gesture.

PER NORDSTRÖM (Malmö, Sweden)

It is a disease of modern times: whilst economies boom, wages stagnate. Central bankers are aware of this curious phenomenon but have so far failed to help address its causes. Perhaps it’s not within their purview or remit to tackle this problem.

During the 1980s and 1990s trade unions lost most of their bargaining power. In some countries, including the UK, laws have been introduced that severely restrict the activities of trade unions. That has disturbed the balance of power between labour and capital to the benefit of the latter. It also delinked rises in productivity from the level of wages.

Strangely enough, CEOs cash in sizeable bonuses when they deliver shareholder value. However, that value is created by workers who get squeezed time and again. Perhaps the time has come to rethink and rebalance the distribution of economic power by enacting legislation that affords trade unions a bigger say.

JOACHIM BRENNER (Hamburg, Germany)

Switzerland: Davos

I particularly enjoyed your magazine’s profile of Zero Freitas, the Brazilian businessman and vinyl collector. Though ever so slightly over the top, it is encouraging to see that some people can muster a passion for something different from the pursuit of lucre. Mr Freitas seems completely obsessed by vinyl and probably aims to buy up all records in the world.

Whilst harmlessly indulging, he also helps preserve the world’s music on a format that is probably more resistant to technological progress and the ravages of time than MP3s and such, which after all only exist in the digital domain and are virtual by nature. As such, Mr Freitas is my hero.

ANTONIO LOPÉZ NUÑES (Buenos Aires, Argentina)

11

Editor Wim Romeijn

>

Assistant Editor Sarah Worthington

COVER STORIES

Executive Editor George Kingsley Production Editor Jackie Chapman

Otaviano Canuto, World Bank: Overlapping Globalisations

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

Cover Story: European Investment Bank (EIB) A Mostly Unseen Hand

(14 – 16)

(28 – 29) Columnists Otaviano Canuto Evan Harvey Tor Svensson Lord Waverley

Cover Story: EIB - European Growth (30)

Distribution Manager Len Collingwood

Subscriptions Maggie Arts

Commercial Director William Adam

Director, Operations Marten Mark

Publisher Mark Harrison

Capital Finance International Meridien House 69 - 71 Clarendon Road Watford Hertfordshire WD17 1DS United Kingdom T: +44 203 137 3679 F: +44 203 137 5872 E: info@cfi.co W: www.cfi.co Editorial on p17-23 © Project Syndicate 2018

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

12

FMO: Green Bonds (45 – 47)

British Airways: Bring On the Competition (54 – 55)

World Economic Forum (WEF): Back to the Basics?

(104)

UNCDF: Engaging the Private Sector (180 – 181)

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

FULL CONTENTS 14 – 33

As World Economies Converge

Otaviano Canuto

Nouriel Roubini

Joseph E Stiglitz

Joschka Fischer

Tor Svensson

Lord Waverley

EIB

34 – 41

Winter 2017 - 2018 Special: European Defence - Meeting Future Threats

42 – 65

Europe

FMO

United Waters International

Heathrow Airport Holdings

COGEFI Gestion

British Airways

Blue Lagoon

Cyprus Cooperative Bank

Simon Bloom Consultancy

66 – 93

CFI.co Awards

Rewarding Global Excellence

94 – 105

Africa

Wafacash

106 – 133

Middle East

SBM Securities

Fidelis Finance

Dubai’s Department of Finance

GCC Board Directors Institute

Lucid Investment Bank

Century Financial Brokers

Tawreeq Holdings

Kuwait International Bank

Capital Bank of Jordan

MEFIC Capital

134 – 141

Editor’s Heroes

Men and Women Who are Making a Real Difference

142 – 155

Latin America

CABEI

LatAm Logistic Properties

ENGIE Energía Perú

Aluz Clean Energy

Unity Ducruet

Ernst & Young

156 – 163

North America

Peabody

Daniel A Witt

Hildegunn Kyvik Nordås

Magnus Lodefalk

164 – 181

Asia Pacific

Bank Ganesha

Red & White Consulting Partners LLP

BOD Tech

ICBC

Containers Printers

Learn to Trade

UNCDF

182

Final Thought CFI.co | Capital Finance International

13

> Otaviano Canuto, World Bank:

Overlapping Globalisations Current technological developments in manufacturing are likely to lead to a partial reversal of the wave of fragmentation and global value chains that was at the core of the rise of North-South trade from 1990 onward. At the same time, China – the main hub of the global-growth-cum-structural-change of that period – may attempt to extend the previous wave through its One Belt, One Road initiative.

GLOBAL VALUE CHAINS SEEM TO HAVE PLATEAUED… Production and trade globalisation thrived from 1990 onwards. The removal of barriers to trade and technological advances that led to reduction in trade and communications costs ushered in years of sustained trade expansion. The decline in the costs of shipping goods and of managing complex production networks allowed the vertical and spatial cross-border fragmentation of manufacturing within highly integrated global production networks or global value chains (GVCs), where large swaths of lower-wage workers from Asia and Eastern Europe could be combined with the use of technology managed across borders.

CFI.co Columnist

GVCs facilitated a process of growth-cumstructural-transformation with substantial total factor productivity increases in the countries wherein the foregoing GVCs were incorporated.

Foreign trade was instrumental for the substantial movement of population from low-value, lowproductivity activities to the production of modern tradable goods. China represents a special case both in terms of speed and magnitude (see chart 1). High global GDP growth took place with an increasing weight of non-advanced economies, which helped to spark the commodity supercycle in the 2000s and a transmission of global dynamism to natural resource-rich countries.

However, there are signs that such a strong wave has reached its peak. The elasticity of global trade relative to global GDP has been dampened by more than what circumstantial post global financial crisis (GFC) trade-dampening factors would suggest. Given the state-of-art of manufacturing technology, unbundling, and fragmentation of production processes may have approached a plateau. Furthermore, the scope for export-led hyper-growth has narrowed as the pattern of current-account imbalances prevailing prior to the GFC is unlikely to return. … AND WILL BE IMPACTED BY NEW TECHNOLOGIES AND THE RISE OF A SERVICES ECONOMY The directions taken by technological trajectories and aggregate demand in advanced economies seem to point toward a broad alteration of the balance of locational advantages for production 14

"The elasticity of global trade relative to global GDP has been dampened by more than what circumstantial post global financial crisis trade-dampening factors would suggest." fragments, decreasing the weight of labour costs and augmenting the relevance of local availability of complementary intangible assets.

As approached by Arbache (2016) and HallwardDriemeier and Nayyar (2017, Trouble in the making? ISBN: 9781464811746), Industry 4.0 is labour-saving, particularly on the content of unskilled labour. Customisation of products is raising the relevance of proximity to markets over production costs. Domestic consumption and GDP in advanced economies are “dematerialising” as a reflection of technological changes and the higher income elasticity of demand for sophisticated services. These and other trends suggest that a double whammy on production and exports of non-advanced economies may take place: a partial reversal of off-shoring and a slower growth of outlets for their typical exports.

While the limitations on extending, or replicating the manufacturing export-led, fast-growth experiences of the recent past are clear, the ultimate impact of those trends on local production is less so, for reasons pointed out

by Hallward-Driemeier and Nayyar (2017). As an illustration, if local income in non-advanced economies can expand for push factors other than foreign demand for manufactures, and new technologies – as it may be the case with 3-D printing – turn out to be scale-reducing, rather than scale-enhancing, one may watch the emergence of geographically disperse “micromanufacturing” activities. Population increases, urbanisation and poverty reduction may entail the maintenance of strong domestic demand for manufacturing goods in the future ahead.

Of course, it must be acknowledged that investments in appropriate infrastructure, training CFI.co | Capital Finance International

local technicians, and enhancing business environments – e.g. property rights – to reduce transaction costs and risks are preconditions: “New technologies place higher demands on the availability and reliability of ICT services, the data ecosystem, skills, and intellectual property rights” (Hallward-Driemeier and Nayyar, 2017, p.113-4).

The authors also showed in detail how “the manufacturing sector is not monolithic (…) and there is heterogeneity in [the] employmentproductivity-trade space” across subsectors (p. 17) (see chart 2). As new technologies are affecting those subsectors at different paces, there will remain a – although shrinking – range of entry points for producers with low wage costs and sound business environments.

The bar in terms of local requisites of infrastructure, labour training, and soundness of business environments in non-advanced economies is being raised. And that is a precondition for keeping growth and avoiding the income gap relative to advanced economies to yawn, now that the East Asian type of spectacular manufacturing export-led growth seems to have become harder to obtain.

CHINA IS LEVERAGING WHILE REBALANCING… China has initiated a rebalancing toward a new growth pattern, one in which domestic consumption is to rise relative to investments and exports, while a drive toward consolidating local insertion in GVCs to move up the ladder of value added is also to take place. That rebalancing has been pointed out as one of the factors behind the recent global trade slowdown, given China’s weight in the world economy and a recent trend of import substitution.

China is in a league of its own and its rebalancingcum-upgrading will condition other emerging markets and developing economies. If it lets lowskill labour-intensive manufacturing activities go, a new wave of further GVC dislocations might open opportunities for countries currently endowed with cheap and abundant labour – under the overall global conditions outlined in the previous item.

Winter 2017 - 2018 Issue

90% 80%

On the other hand, the densification of local parts of GVCs will represent a competitive challenge to medium-range manufactures produced in other middle-income countries. The net result will also depend on the leakages outward of its domestic demand as it rebalances toward a more consumption- and service-oriented economy. It is worth highlighting that China has already begun an attempt to leapfrog to new technologies as one can gauge by the pace of increase of operational stocks of industrial robots in manufacturing (see chart 3).

70% 60% 50% 40% 30% 20% 10% 0% China

EAP

ECA 1994

LAC 2000

MNA

2005

SAS

2010

SSA

HIC

2015

Chart 1: Share of global manufacturing value added in China, global regions, and high-income countries, 1994–2015.

Source: Hallward-Driemeier and Nayyar (2017, p. 45).

JP-Japan

China’s exceptionality in terms of size and speed of growth-cum-structural-transformation in the high era of GVCs had a counterpart in terms of ultra-high investments and export ratios to GDP. The transition toward a less investmentand export-dependent growth model has been taking place from a starting point of very low consumption ratios (see chart 4, left side).

Besides high ratios of profit to wages, low levels of public social spending lead to high household savings (see chart 4, right side). No wonder rebalancing toward a consumption-based growth model was expected to be gradually pursued or otherwise GDP growth rates might collapse, rather than slide down from two digits. The change of growth pattern is requiring timeintensive structural reforms.

DE-Germany North America KR-Rep. of Korea CN-China 0

500

1000

2018

2015

1500 2010

2000

2500

2005

3000

2000

3500

4000

1995

Chart 3: Operational stock of industrial robots in manufacturing, selected countries and regions, 1995–2018.

Source: Hallward-Driemeier and Nayyar (2017, p. 21).

4500

Furthermore, like elsewhere, fears of a quasicollapse of the global economy in the aftermath of GFC were followed by countercyclical policies.

In the case of China, a Great Quantitative Easing (QE) took the form of a combination of “shadow

CFI.co Columnist

Chart 2: Manufacturing subsectors, grouped by pro-development characteristics, 2013. Source: Hallward-Driemeier and Nayyar (2017, p. 21).

CFI.co | Capital Finance International

15

humongous foreign-exchange reserves out of low-interest-bearing US and other foreign government securities. New markets for Chinese companies, such as high-speed rail firms, as well as for exporting some of the country’s vast excess capacity in cement, steel and other metals would follow.

More recently, Mr Xi has also offered Latin American countries access to China’s One Belt, One Road initiative. Also, after US President Donald Trump announced that his country would pull out of the Trans-Pacific Partnership (TPP) led by his predecessor President Obama, Premier Xi suggested the Regional Comprehensive Economic Partnership (RCEP) as an alternative, with seven of the twelve TPP members as potential members.

Chart 4: China - low consumption, low social spending. Source: IMF (2017).

270 240

% of GDP

210 180 150 120 90 60 30

42.1

49.7

49.3

49.3

51.4 29.3

59.3 55.2

40.0 17.5

23.0

26.4

27.2

18.1 96.9

98.3

113.3

119.1

117.4

127.2

113.6

7

8

9

10

11

12

13

35.5

58.0

58.7

44.8

39.0

32.9 138.9

153.6

165.1

14

15

16

0 Corporate Debt

Household Debt

Government Debt

Chart 5: Total social debt in China. Source: JP Morgan, Global Data Watch, June 23, 2017.

TRADE AND GLOBALISATION WILL BE MOVING ALONG PARALLEL, OVERLAPPING PATHS The evolution of trade and globalisation along the path stemming from new technologies, the rise of the services economy and the reshuffle of GVCs previously tackled here points to an increasing convenience of trade, investment, and intellectual property rights agreements.

Not by chance, former US President Obama pushed forward attempts to conclude plurilateral agreements like TPP and an equivalent treaty with Europeans (the Transatlantic Trade Investment Partnership – TTIP). By side lining China from both, pressure would be laid on it to accommodate and adapt its own policy and regulatory framework. Regardless of President Trump’s rebuttal of the TPP afterwards – and the fact that its package could have conceivably been unbundled and not necessarily taken as a whole – it contains an agenda convenient as a support to the new stage of globalisation.

In parallel, One Belt, One Road may well constitute a new growth wave of Chinese exports and investments, giving a new life to the previous pattern of trade integration through its infrastructure build-out in many other countries, most of them in emerging markets. Prerequisites in terms of policy and regulatory harmonisation would not be as high as the one embedded in TPP and TTIP.

CFI.co Columnist

Chart 6: China - one belt, one road. Source: Xinhua.

banking” and capital expenditures on housing and infrastructure, with a high role played by special purpose vehicles (SPVs) associated with subnational entities. Restraints have occasionally been applied but the attainment of official target growth rates has been accompanied by overcapacity in some heavy-industry sectors as well as increasing debt leverage (see chart 5).

Chinese authorities have announced their intent to dampen such trajectory before vulnerability to a sudden stop reaches any critical point.

16

… AND MOVING TO SPAN ITS ECONOMY OUTSIDE In late 2013, Chinese President Xi Jinping announced two new investment and trade initiatives for China and the surrounding region: the Silk Road Economic Belt and the TwentyFirst-Century Maritime Silk Road, together known as One Belt, One Road (see chart 6).

Investments in infrastructure therein – besides the acquisition of foreign assets elsewhere – may become a way to partially diversify China’s CFI.co | Capital Finance International

In principle, now that potential crowding-out effects of TTP and TTIP on China are dismissed, both globalisation processes may evolve in parallel, if the new globalisation pattern can proceed in the absence of formal plurilateral agreements and the One Belt, One Road takes off at length.

They might even reinforce each other through the channel of transmission of global growth if they succeed. That will depend, of course, on how far current anti-globalisation backlashes manage to introduce sand in globalization wheels. i ABOUT THE AUTHOR Otaviano Canuto is an executive director at the World Bank. All opinions expressed here are his own and do not represent those of the World Bank or of those governments Mr Canuto represents at its board. Follow him on Twitter: @ocanuto

Winter 2017 - 2018 Issue

EUROPEAN FAMILY OFFICE WINTER SYMPOSIUM February 26-27, 2018 | One Great George Street, London, UK

The 7th Annual European Family Office Winter Symposium will explore the challenges and opportunities in today’s global investment climate. This family office event is the premier event for high net worth individuals and family offices. Private investors and asset managers from around the world will visit this intimate setting to discuss the latest trends and issues in the industry. The program blends educational discussion panels led by thought leaders, and pre-arranged One-to-One meetings. This symposium aims to provide an educational environment for productive networking and the fluid exchange of ideas.

Sponsorship and Exhibiting Opportunities are Available If you are interested in attending, sponsoring, speaking or exhibiting at this event, please call 212-532-9898 or email info@opalgroup.net Register To register, visit us online at www.opalgroup.net or email us at marketing@opalgroup.net Ref code: EFOWSC1802

CFI.co | Capital Finance International

17

> Nouriel Roubini:

The Plot Against America’s 99%

U

S President Donald Trump, in partnership with congressional Republicans, is pursuing tax cuts that will blow up the fiscal deficit and add to the public debt, while benefiting the rich at the expense of middle- and working-class Americans. Once again, Trump has not hesitated to betray the people he conned into voting for him.

18

After multiple failed attempts to “repeal and replace” the 2010 Affordable Care Act (Obamacare), US President Donald Trump’s administration now hopes to achieve its first legislative victory with a massive tax giveaway that it has wrapped in the language of “tax reform.” To that end, Republicans in the US Congress have just unveiled a bill that, if enacted, could vastly widen the deficit and CFI.co | Capital Finance International

increase the public debt by as much as $4 trillion over the next decade.

Worse still, the Republican plan is designed to funnel most of the benefits to the rich. It would lower the corporate tax rate from 35% to 20%, reduce the tax on capital gains (investment profits), eliminate the estate tax, and introduce other changes that benefit the wealthy.

Winter 2017 - 2018 Issue

Like the Republicans’ health-care proposals, their tax plan offers little to struggling middleand working-class households. Trump continues to govern as a pluto-populist – a plutocrat pretending to be a populist – who has not hesitated to betray the people he conned into voting for him.

Before releasing the current plan, congressional Republicans passed resolutions to reduce taxes by $1.5 trillion over the next decade. But the actual tax cut will likely be much larger. The proposal to lower the corporate tax rate to 20%, for example, implies a $2.5 trillion tax cut, once other tax cuts in the plan are considered.

To keep the tax cuts below $1.5 trillion, one would have to keep the corporate rate at or above 28% and broaden the tax base.

To make up for this difference, the bill proposes a cap on the mortgage-interest deduction for homeowners, and on the deductibility of property tax, as well as eliminating other tax benefits for the middle class. It would eliminate or cap the income-tax deduction for state and local taxes – again, squeezing the middle class to cover tax cuts for the rich.

The problem is that eliminating the state and local tax deduction would provide just $1.3 trillion in revenue over the next decade. And because this change would hurt middle-income families, many Republicans in high-tax states such as New York, New Jersey, and California will oppose it. If congressional Republicans and the Trump administration end up keeping the state and local tax deduction, their tax cuts will add $3.8 trillion to the public debt over the next decade.

Moreover, Republicans want their tax cuts to be permanent. Yet they are trying to enact their bill through the congressional budget reconciliation process, which requires any tax cuts that add to the deficit after ten years to be temporary.

Even if the Republican plan really did keep the cuts at $1.5 trillion, it still would not comply with this rule.

Trump and congressional Republicans argue that tax cuts will boost economic growth, and thus revenues. But standard dynamic scoring models show that increased growth would offset the cost by only one third, at most: the US would face $1 trillion, rather than $1.5 trillion, in lost revenues.

"Trump and congressional Republicans argue that tax cuts will boost economic growth, and thus revenues. But standard dynamic scoring models show that increased growth would offset the cost by only one third, at most."

So, how will the Republicans fudge these fiscal rules? For starters, like President George W Bush’s administration, they will set the personal income tax cuts to expire after ten years. This will give them plenty of time to enjoy the political gains of tax cuts – starting with the midterm elections in 2018 – long before the bill comes due.

But corporate tax cuts are another matter, because making them temporary would defeat CFI.co | Capital Finance International

the purpose. Companies operate with a much longer time horizon than households, and are unlikely to boost investment in response to cuts that last only ten years.

To get around this problem, Trump and the Republicans might decide to bend or manipulate congressional rules. Or they might rely on unorthodox and untested economic models to claim that their cuts actually are revenue-neutral, and will have a much larger impact on growth than what standard models project.

Most mainstream economists would estimate that a tax cut of the size being proposed would increase US potential growth by 20 basis points, at most, taking the growth rate from around 2% to 2.2% over time. Yet Trump and his advisers have clung to the false claim that growth will increase to 3% or even 4%.

If this far-fetched projection sounds like voodoo economics all over again, that’s because it is.

Voodoo economics came into parlance in the 1980 presidential election, when George HW Bush criticised Ronald Reagan for claiming that his planned tax cuts would pay for themselves.

Bush was vindicated just a few years later, when the Reagan administration’s tax cuts blew a huge hole in US public finances.

And yet Republican administrations have persisted in pursuing unsustainable and undesirable tax cuts benefiting primarily the rich, leading to ever-larger deficits and trillions of dollars of additional public debt. The Republicans’ eagerness to pass reckless tax cuts once in power gives the lie to their claims of fiscal rectitude.

Making matters worse, America’s pluto-populist president is peddling a tax plan that will further increase economic inequality at a time when income and wealth gaps are already widening, owing to the effects of globalisation, trade, migration, new labour-saving technologies, and market consolidation in many sectors.

Given that the rich tend to save more than middle- and working-class people, who must spend a larger proportion of their incomes on basic necessities, the Trump tax plan will do little for economic growth; it may even decrease it. And it will add far more to the US’s excessively high public-debt burden. It is fake reform, brought to us by an alt-fact administration and a party that has lost its economic bearings. 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 E Stiglitz:

The Globalisation of Our Discontent

G

lobalisation, which was supposed to benefit developed and developing countries alike, is now reviled almost everywhere, as the political backlash in Europe and the US in recent years has shown. The challenge is to minimise the risk that the backlash will intensify, and that starts by understanding – and avoiding – past mistakes.

Fifteen years ago, I published Globalisation and Its Discontents, a book that sought to explain why there was so much dissatisfaction with globalisation within the developing countries.

Quite simply, many believed that the system was “rigged” against them, and global trade 20

agreements were singled out for being particularly unfair.

Now discontent with globalisation has fuelled a wave of populism in the United States and other advanced economies, led by politicians who claim that the system is unfair to their countries.

In the US, President Donald Trump insists that America’s trade negotiators were snookered by those from Mexico and China.

So, how could something that was supposed to benefit all, in developed and developing countries alike, now be reviled almost everywhere? How can a trade agreement be unfair to all parties?

CFI.co | Capital Finance International

To those in developing countries, Trump’s claims – like Trump himself – are laughable.

The US basically wrote the rules and created the institutions of globalisation. In some of these institutions – for example, the International Monetary Fund – the US still has veto power, despite America’s diminished role in the global economy (a role which Trump seems determined to diminish still further).

To someone like me, who has watched trade negotiations closely for more than a quartercentury, it is clear that US trade negotiators got most of what they wanted. The problem was with what they wanted. Their agenda was

Winter 2017 - 2018 Issue

set, behind closed doors, by corporations.

It was an agenda written by and for large multinational companies, at the expense of workers and ordinary citizens everywhere.

Indeed, it often seems that workers, who have seen their wages fall and jobs disappear, are just collateral damage – innocent but unavoidable victims in the inexorable march of economic progress.

But there is another interpretation of what has happened: one of the objectives of globalisation was to weaken workers’ bargaining power. What corporations wanted was cheaper labour, however they could get it.

This interpretation helps explain some puzzling aspects of trade agreements. Why is it, for example, that advanced countries gave away one of their biggest advantages, the rule of law? Indeed, provisions embedded in most recent trade agreements give foreign investors more rights than are provided to investors in the US. They are compensated, for example, should the government adopt a regulation that hurts their bottom line, no matter how desirable the regulation or how great the harm caused by the corporation in its absence.

There are three responses to globalised discontent with globalisation. The first – call it the Las Vegas strategy – is to double down on the bet on globalisation as it has been managed for the past quarter-century.

This bet, like all bets on proven policy failures (such as trickle-down economics) is based on the hope that somehow it will succeed in the future.

The second response is Trumpism: cut oneself off from globalisation, in the hope that doing so will somehow bring back a bygone world. But protectionism won’t work. Globally, manufacturing jobs are on the decline, simply because productivity growth has outpaced growth in demand.

"To someone like me, who has watched trade negotiations closely for more than a quartercentury, it is clear that US trade negotiators got most of what they wanted. The problem was with what they wanted."

Even if manufacturing were to come back, the jobs won’t. Advanced manufacturing technology, including robots, means that the few jobs created will require higher skills and will be placed at different locations than the jobs that were lost. Like doubling down, this approach is doomed to fail, further increasing the discontent felt by those left behind.

Trump will fail even in his proclaimed goal of reducing the trade deficit, which is determined by the disparity between domestic savings and investment. Now that the Republicans have gotten their way and enacted a tax cut for billionaires, national savings will fall and the trade deficit will CFI.co | Capital Finance International

rise, owing to an increase in the value of the dollar (fiscal deficits and trade deficits normally move so closely together that they are called “twin” deficits). Trump may not like it, but as he is slowly finding out, there are some things that even a person in the most powerful position in the world cannot control.

There is a third approach: social protection without protectionism, the kind of approach that the small Nordic countries took. They knew that as small countries they had to remain open. But they also knew that remaining open would expose workers to risk. Thus, they had to have a social contract that helped workers move from old jobs to new and provide some help in the interim.

The Nordic countries are deeply democratic societies, so they knew that unless most workers regarded globalisation as benefiting them, it wouldn’t be sustained. And the wealthy in these countries recognised that if globalisation worked as it should, there would be enough benefits to go around.

American capitalism in recent years has been marked by unbridled greed – the 2008 financial crisis provides ample confirmation of that. But, as some countries have shown, a market economy can take forms that temper the excesses of both capitalism and globalisation, and deliver more sustainable growth and higher standards of living for most citizens.

We can learn from such successes what to do, just as we can learn from past mistakes what not to do. As has become evident, if we do not manage globalisation so that it benefits all, the backlash – from the New Discontents in the North and the Old Discontents in the South – is at risk of intensifying. i ABOUT THE AUTHOR Joseph E Stiglitz, recipient of the Nobel Memorial Prize in Economic Sciences in 2001 and the John Bates Clark Medal in 1979, is university professor at Columbia University, co-chair of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress at the OECD, and chief economist of the Roosevelt Institute. A former senior vice-president and chief economist of the World Bank and chair of the US president’s Council of Economic Advisers under Bill Clinton, in 2000 he founded the Initiative for Policy Dialogue, a think tank on international development based at Columbia University. His most recent book is Globalization and Its Discontents Revisited: Anti-Globalization in the Era of Trump.

21

> Joschka Fischer:

Saudi Arabia’s Revolution from Above

A

fter becoming the heir apparent to the Saudi throne earlier this year, Crown Prince Mohammed bin Salman has quickly consolidated his power and begun to usher in a period of radical change. But as he overhauls the country's domestic and foreign policies, he is also heightening the risk of another conflict in the Middle East.

Seven years after the Arab Spring unleashed a wave of revolutionary fervour across in most of 22

the Middle East and North Africa, Saudi Arabia is finally catching up, albeit in its own unique way. A younger generation is demanding that the arch-conservative kingdom modernise, and it is being led not by revolutionaries in the streets, but

by Mohammed bin Salman (MBS), the country’s 32-year-old crown prince and heir apparent.

and particularly for the US. But, as a country caught between the Islamic Middle Ages and Western modernity, it has always abided extreme contradictions. State-of-the-art infrastructure and American-style shopping malls have come to Mecca and Medina, home to Islam’s most important holy sites.

In terms of population and geography, Saudi Arabia is one of the largest Arab countries, and its staggering oil wealth has made it an indispensable strategic partner for the West,

But, even to this day, Saudi Arabia is home to an anti-Western tribal society, ruled by one family, the House of Saud, as an absolute monarchy since the country’s founding in 1932. Its moral and

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

legal codes appear medieval to most outsiders.

And it adheres to the extreme reactionary version of Islam known as Wahhabism, a Salafist doctrine that influences many of today’s most radical Islamist groups.

Owing to the long-term decline in oil prices and the need to provide education and employment to a fast-growing young population – who might otherwise turn to extremism – King Salman and MBS have apparently concluded that the country needs to modernise. To avoid a slow decline, or even an eventual disintegration, they are taking measures to open up the country, not just economically, but socially and culturally, too.

Earlier this month, MBS – who seems to have studied Chinese President Xi Jinping’s own consolidation of power – ordered what the Saudi government has described as an anti-corruption purge. Already, dozens of high-level princes, former ministers, and wealthy and influential businessmen have been arrested and had their accounts frozen. The purge came not long after an announcement that Saudi women will no longer be banned from driving cars or attending public sports events. Clearly, the new leadership in Saudi Arabia intends to orchestrate a veritable revolution from above.

But, lest we forget, the last autocratic ruler in the Middle East who attempted to bypass his country’s Islamic clergy and carry out a top-down revolution was the Shah of Persia, Mohammad Reza Pahlavi. He and his “White Revolution” were eventually swept away by Iran’s Islamic Revolution in 1979.

One can only hope that MBS’s revolution will fare better. If it fails, the radical Salafists who could then assume power in Riyadh will make the Iranian mullahs look like liberals. If it succeeds in modernising the leading bastion of reactionary Islam, the stage would be set for other countries throughout the Islamic world to do the same.

As part of his agenda, MBS has also launched an aggressive new foreign policy, particularly toward Iran. The modernisers around MBS know that the revolution’s success will require breaking the power of Wahhabism by replacing it with Saudi nationalism. And in order to do that, they need a compelling enemy. Shia Iran, with which the kingdom is competing for regional hegemony, is the ideal foil.

"Its staggering oil wealth has made it an indispensable strategic partner for the West, and particularly for the US."

These domestic considerations help to explain why Saudi Arabia has thrown down the gauntlet and escalated tensions with Iran in recent months. Of course, from the Saudis’ perspective, they are merely picking up the gauntlet that Iran already threw down by interfering in Iraq, Syria, Lebanon, Bahrain, Qatar, Yemen, and other countries.

So far, the battle for regional hegemony between Saudi Arabia and Iran has been limited to CFI.co | Capital Finance International

proxy wars in Syria and Yemen, with disastrous humanitarian consequences. Neither side, it seems, wants a direct military conflict. And yet that outcome can hardly be ruled out, given recent developments. In the Middle East, a cold war can turn hot rather quickly.

Over the long term, the Saudi-Iranian rivalry will shape the Middle East in much the same way that the Israeli-Palestinian conflict once did.

Consider, for example, an episode that occurred just hours before MBS launched his anticorruption purge: Lebanese Prime Minister Saad Hariri, while visiting Saudi Arabia, announced his resignation from office. According to Hariri, the Iran-aligned Shia militant group and political party Hezbollah, with which his government had a power-sharing relationship, had made governing Lebanon impossible, and may have been plotting his murder.

But Hariri, whose father, former Lebanese Prime Minister Rafic Hariri, was assassinated in 2005, raised more questions than answers. Why leave office now? Was he acting under Saudi pressure, and, if so, to what end?

Shortly after Hariri’s announcement, Saudi Arabia intercepted a missile that Houthi rebels in Yemen had fired at Riyadh. According to Saudi Arabia, because the Houthis are backed by Iran, their attempted missile strike was tantamount to an Iranian “act of war.”

This flurry of unusual developments in such a short span of time can hardly be a coincidence.

The question now is whether civil war will return to Lebanon, and whether Saudi Arabia will try to involve Israel and the US in a confrontation with Hezbollah to push back against Iran.

For now, the Saudis lack the power to do that on their own. In recent years, Saudi Arabia has suffered major defeats in the regional struggle for hegemony. The Sunni minority has been ousted from power in Iraq; and Bashar al-Assad’s Iranbacked regime has managed to hold on to power in Syria. MBS may be looking for ways to offset these defeats, in Lebanon or elsewhere.

Saudi Arabia’s revolution from above is a highrisk endeavour that neutral observers must regard with ambivalence. Although it cannot be allowed to fail, given what that would entail, its success is likely to be accompanied by a dramatic increase in regional tensions and the possibility of war.

ABOUT THE AUTHOR Joschka Fischer was German foreign minister and vice-chancellor from 1998-2005, a term marked by Germany's strong support for NATO's intervention in Kosovo in 1999, followed by its opposition to the war in Iraq. Mr Fischer entered electoral politics after participating in the antiestablishment protests of the 1960s and 1970s, and played a key role in founding Germany's Green Party, which he led for almost two decades.

23

> Tor Svensson:

Dollars and Current Account Deficits The “old anglophone world” and the New World run sustained current account deficits which are financed by excess cash from East Asia and Europe. This significantly adds to the net worth (or net international investment position NIIP) of the c/a surplus countries.

T

he heavily indebted US can sustain its twin deficits – public and current account – thanks to the dollar. The country can print its way out of almost any tight spot. Notwithstanding the rhetoric, the tax reform that was just introduced will not shrink the deficits, but add to them.

and also enjoy a sizeable c/a surplus. It should be mentioned that Germany’s c/a surplus is also driven by the private sector’s under-consumption and/or an excessive saving rate.

"The US still is the world’s financial superpower financing its continued

The latest tax cuts in the US will add to what already now is the world’s largest c/a deficit.

The expected increase in consumer demand is expected to drive up imports worsening the trade balance – one of the main constituents of the current account.

overspending by expanding

The current account (c/a) simply measures the overall flow of money: a surplus means more money comes in than goes out. As such, current accounts are a broad metric and include trade, transfer payments, and basically any other cross border financial transaction.

its monetary base."

Current account deficits are both empirically and in economic theory caeterus paribus (everything else equal) linked to government spending (fiscal) deficits. Government overspending acts as an economic stimulus which in turn may widen a pre-existing c/a deficit.

An economy sustaining a c/a deficit needs an equal surplus on its financial account in order to keep its balance of payments zeroed – as it must as per definition. Thus, a country with a c/a deficit needs to attract funds to its capital account which may be done by adjustments to interest rate and/or exchange rate which attracts outside money.

So far all of this has not been a real problem.

The US still is the world’s financial superpower financing its continued overspending by expanding its monetary base. The country’s creditors know that come what may, the US can pay back whatever it owes for it controls the means of payment. That, by the way, was the main reason for the creation of the euro – to shape an alternative global reserve currency and move away for a unipolar currency world to a bipolar (…) one.

The biggest examples of such sustained twin deficits are the US, UK, Brazil, and Italy. On the other side of the spectrum, countries such as Germany, The Netherlands, Denmark, and Switzerland typically run a balanced budget

Surplus Countries/Regions

Deficit Countries/Regions

A ME R I C A

Other 7%

% % ey 4

nc e3 Fra

CFI.co | Capital Finance International

Turk

5%

Current Account Balance as a % of total surplus/deficit countries/regions 2017. Source: Economist, Hever Analytics, IMF, CFI.co.

24

Canad

UK 12%

7%

CFI.co Columnist

%

lia & Austra and 3% al New Ze

GS

ia 3%

Russ

PII

China 12%

cs

USA 53% tin ca La eri Am % 10

rdi

P E 4 8%

Japan 15%

RO

No

68

EU

Tigers 18%

Germany Austria Switzerland BeNeLux 33%

S

Other 9%

a 5%

Winter 2017 - 2018 Issue

"The First Law of Economics: For every economist’s perspective on deficits, there will be another one with a contrary point of view – as well as others with yet different outlooks."

"The Second Law of Economics: They are all wrong."

For now, the dollar is still the world’s main reserve currency and used as the anchor that stabilises the world’s financial system. The dollar is still also the favoured currency for international transactions and rules capital markets and cross border trade. Moreover, American banks continue to dominate the world stage.

Last year was also very much one in which the world got richer in terms of GDP growth and stock market appreciation. This extra wealth may lessen the urgency or need to address c/a deficits making it more of a cash flow finance issue than a real threat to the global system.

The truth is: Nobody knows.

The First Law of Economics: For every economist’s perspective on deficits, there will be another one with a contrary point of view – as well as others with yet different outlooks.

The Second Law of Economics: They are all wrong.

Germany saves massively, but its demographics are all twisted. Meanwhile, the US keeps spending freely, saddling future generations with debt – but who cares? Or rather, who can sell an austerity package after decades of flatlining middle class incomes.

“Annual income twenty pounds, annual expenditure nineteen pounds, nineteen shillings, and six pence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” i ABOUT THE AUTHOR Tor Svensson is the Chairman of Capital Finance International.

CFI.co | Capital Finance International

25

CFI.co Columnist

This is what the inimitable Mr Micawber had to say about spending in Charles Dickens’ David Copperfield:

> Lord Waverley:

CFI.co Columnist

Sanctions - The United Kingdom Acts

T

he United Kingdom Government has introduced the Sanctions and AntiMoney Laundering Bill to Parliament.

Provisions for continuity of current sanctions arrangements post BREXIT have become necessary. Failure to do so would put the United Kingdom in breach of its international obligations.

Whilst the United Kingdom has long played a leading role on the global stage in tackling threats to international peace and security, one method of influence increasingly used by the international 26

community is the imposition of sanctions.

Sanctions encompass a range of measures, such as travel bans, asset freezes, trade restrictions and broader economic measures.

In recent years they have been employed in relation to Russia’s invasion of Ukraine and the conflict in Syria, and to put pressure on Iran to come to the negotiating table. Anti-money laundering regulations are also increasingly important in this globalised world and vital if the international community is to continue to protect itself from financial crime. The effectiveness CFI.co | Capital Finance International

of these measures depends on the consistent enforcement of technical and procedural controls mandated by the Financial Action Task Force, an international organisation of which the United Kingdom is a founder member.

Flexibility to allow differing components would be helpful. Whilst travel bans, asset freezes, trade restrictions and broader economic measures are specified, any mechanism however to specifically place more emphasis on removing corruption from the world stage, alongside that on money laundering, would be propitious for inclusion

Winter 2017 - 2018 Issue

be introduced by smaller and more coherent regional or economic groupings, such as the G7 and European Union members. Regional fora to discuss and implement sanctions have the benefit of speedier action without as much compromise on principles compared with the UN. Many crises require more timely responses while UN bodies conduct their reviews and investigations.

On another note, regional groupings carry more weight in terms of “who is in the right”, as typically those in regional groupings are neighbours. For example, African Union sanctions on African states could carry more moral weight, as it would not be seen as a group of western nations punishing a poor African state. I took note of the general theme of ‘Africa for Africans by Africans’ whilst chairing vehement remarks made recently

by HE the President of Namibia.

The underpinning of sanctions as a transatlantic set of initiatives is also fundamental. This might serve also as a brake on occasional future excesses by the United States. We must all be in step. If in step however, what should be done about the effects of extraterritorial components unilaterally instigated by others—for example, the US HelmsBurton legislation, a United States federal law which strengthens the United States embargo against Cuba? Whether it be Cuba or elsewhere, it is often western banks and companies which, against their individual corporate interests and without consultation, shoulder considerable burden.

However, the overall balance must be got right.

We are headed possibly towards a differing geopolitical and geo-economic world. Care needs to be exercised for sanctions not to become a “them and us” circumstance. Some suggest possible future axes in the making by those to the East standing between themselves and the ideals of the West.

London: Palace of Westminster

The use of sanctions for economic or regime change purposes, or targeted sanctions on individuals for human rights abuses—a mechanism short of more drastic measures— is on the increase. Understanding how best to measure those sanctions against their intended

purpose and ensure that the unintended do not suffer disproportionally, and when expedient how to allow leaders on the receiving end to save face, are all challenges. The need is sometimes to allow or provide an assured exit route for those facing international justice or a route back to a state of peace and reconciliation for conflicted peoples.

I would welcome a global review of sanction processes. Knowing when and how to instigate sanctions as a tool of policy does not require multilateral-level consideration by a body such as the United Nations. More effectively, it should CFI.co | Capital Finance International

A recent comment from a UK Foreign Minister encapsulates one aspect of the challenges. He noted that we live, “not in a world where isolation works”. I concur. i ABOUT THE AUTHOR Lord Waverley (JD) (Member, House of Lords, London) is the founder & CEO of SupplyFinder. com.

Contact: jd@supplyfinder.com 27

CFI.co Columnist

in future sanctionable objectives. Defining corruption can be a nebulous challenge, but it often extends to poor governance. It is essential to exert pressure to improve governance where needed, particularly in relation to the recipients of UK aid funds.

While a clear set of objectives exist we should be mindful of states not being boxed into a corner or blind alley with little or no exit strategy.

Any possible reciprocal sanctions programmes might have dramatic and untoward long-term adverse repercussions. If sanctions become a wedge between differing ideals, certain eastern economic powers might decide they are more in kilter with those in the East than the West.

Presumed groupings and informal alliances are much more variable than we might think. So, sanctions achieving their end, and not beyond, are crucial.

Werner Hoyer President of the European Investment Bank (EIB):

A MOSTLY UNSEEN HAND

By Wim Romeijn

In late-December, President Werner Hoyer of the European Investment Bank shared his experiences and insights with CFI.co chairman Tor Svensson and editor Wim Romeijn.

H

Cover Story

e leads an institution more than twice as large as the World Bank, yet remains virtually unknown outside financial circles. Werner Hoyer (66) started his second six-year term as president of the European Investment Bank Group, comprising the European Investment Bank (EIB) and the European Investment Fund, on the first of January. A powerful financial tool for implementing EU policy initiatives as formulated by the European Council, the EIB is the only bank owned by the EU member states and, as such, represents the long-term interests of the European Union. During his first tenure, Mr Hoyer managed to increase the Group´s annual financing volume from €55bn in 2012 to €84bn last year with a corresponding jump in supported investments to €287bn.

A significant part of that growth stems from the European Commission’s Investment Plan for Europe (IPE) – colloquially known as the Juncker Plan – which so far saw the EIB Group approve €51bn in co-financing for investments totalling €256bn. The Juncker Plan’s stated aim – “to get Europe back to work” – is largely on track to be achieved in the three-year period envisioned at the time of its unveiling in November 2014.

28

“Whilst our growth has been tremendous, it is not the prime metric that motivates us as a bank.”

The job, however, is not yet done. It never quite is. The bank now stands ready to, amongst other initiatives, offer substantial support to countries most likely to be seriously affected by the UK’s impending exit from the union – such as Ireland.

In September, the EIB launched a €300m midcap lending programme specifically directed at Irish companies, thereby offering direct support to businesses. In 2017, the EIB provided around €1bn worth of financing in Ireland – a record volume for the country. The new programme aims to close the funding gap that existed for mid-sized companies seeking between €7.5m to €50m in investments. Up to now, the EIB provided direct financing to large corporations and channelled funds earmarked

for SMEs via privately-owned banks, leaving midcaps largely out of the picture.

“Whilst our growth has been tremendous, it is not the prime metric that motivates us as a bank,” says Werner Hoyer: “Our mandate calls for the bank to support EU policy and help foster the cohesion of the internal market. The bank’s professionals are as competitive and experienced as their peers at commercial banks but operate on a slightly different premise which does not necessarily include ever-growing balance sheets.”

Mr Hoyer, a native from Wuppertal, Germany, explains that the EIB’s priorities mirror those of the European Council and include climate change action, improving SME access to financing, and encouraging technological innovation, amongst others: “These are key areas that supplement the bank’s historic mission to help finance infrastructure development – the basis of the bank when it was set up sixty years ago.”

STEPPING UP TO THE PLATE The EIB came into its own as the 2008/9 financial crisis crossed the Atlantic to strike Europe. “During the first phase of the crisis, the

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

President: Werner Hoyer

EIB’s job was to protect European companies and ensure their continued access to finance.

The bank rallied to the cause and leveraged its own capital towards that end. However, by the time I arrived, towards the end of 2011, the balance sheet had reached its limit.”

“In order to implement the second phase of the response to the crisis – the one that called for growth and job creation – the EIB needed, and was granted, a capital injection which allowed the bank to act in a counter-cyclical manner and become a driver of growth. In a unique move, the member states for the first time ever approved a €10bn pay-in increase in the bank’s capital.

It was a truly amazing and significant moment.

Since its founding in 1958, EU member states had contributed just €14bn in actual cash towards the EIB’s capital.”

The EIB’s own funds, currently just shy of €70bn, represent around 12% of the bank’s approximately €580bn balance sheet total. As multilaterals go, EIB numbers are unusually big.

Annually, the bank places anywhere from €60bn to €90bn in bonds on the world’s capital markets.

“At any given time, there is about €500bn in EIB bonds floating around. This level of borrowing requires us to maintain a highly competitive and rigorous orientation in order to keep the trust of investors.”

In a show of its force, the EIB set out to leverage its €10bn capital injection to generate, within three years, €180bn or so of investments. “We managed to reach that goal nine months early, which constituted a major success”, says Mr Hoyer. The remarkable achievement did not remain unnoticed in Brussels. It also piqued the interest of Jean-Claude Juncker who, at the time, was preparing his – ultimately successful – bid for the presidency of the European Commission.

Mr Juncker turned to the EIB for inspiration and asked Mr Hoyer to help him devise a comprehensive plan to kick-start the then mostly flat-lining European economy.

NEW REALITY “By 2014, the situation had changed for the better. There was ample liquidity and interest rates were near zero. Moreover, there was no shortage of good, solid, and much-needed projects that required financing. However, all that liquidity was not flowing into these projects, perhaps because of reluctant investors, a malfunctioning of markets, or a more generalised aversion to risk. Mr Juncker then took the very courageous decision, together with Budget and Human Resources Commissioner Kristalina Georgieva [now CEO of the Word Bank], to convince the European Parliament to take €16bn out of the EU budget, money earmarked for subsidies and grants, and put those funds in a guarantee facility [European Fund for Strategic Investments – EFSI] with a €5bn top-up in EIB CFI.co | Capital Finance International

cash, for a grand total of €21bn. To this sum, we can then add a multiplier effect of fifteen for a €315bn impact on the European economy.

So that was, in a nutshell, the big adventure we entered into a few years ago.”

The Juncker Plan delivered on its promise.

With around 80% of the funds committed, a preliminary impact analysis has found that the plan added at least 0.7% to the union’s collective GDP and – even more importantly – created over 690,000 jobs. The plan also unlocked credit to around 540,000 SMEs. “Impressive though these numbers are, this is just the short-term effect of the Juncker Plan. Over the longerterm the question becomes what the initiative means for Europe’s productivity levels, its competitiveness, and its position in the world. It would be fair to conclude that the plan’s impact is cumulative and will produce much higher figures over the next ten years or so.”

Mr Hoyer attaches significance to the Juncker Plan’s medium to long-term effects. He notes that, during the financial crisis Europe turned inward in order to put its house in order: “Meanwhile our main competitors in Asia and North America moved forwards in terms of competitiveness. We must catch up now that the need of counter-cyclical action and intervention has diminished. Economies are back on track, growth has returned, and jobs are being created: we can now concentrate our efforts on addressing the structural weaknesses of European industry.”

In this, Mr Hoyer cautions against competing on labour cost. He proposes to invest in technology, research, innovation, and education instead: “The education of the future workforce is the key to growth, yet is often ignored. Just a few member states manage to meet he education and 29

Cover Story

In effect, the EIB benefits, albeit perhaps indirectly, from the European Central Bank’s hawkish approach to crisis management and solution as defined by its president’s now (in)famous 2012 intervention. Mario Draghi’s unequivocal assurance that the ECB will do “whatever it takes” to save the euro, fundamentally changed the course of events.

Those three words almost instantly calmed jittery

markets and provided a solid backbone for the European Union’s determination to tackle the crisis. The EIB has never drawn upon its credit lines with the ECB but the mere fact that they exist and are vast is enough to make the bank into the proverbial 800-pound gorilla ready to deal with any, and all challenges.

research targets set by the European Council. We have to boost our competitiveness by investing in education and research.”

Cover Story

PHILOSOPHICAL SHIFT The largest of the three pillars sustaining the Juncker Plan – the European Fund for Strategic Investments – represents a shift in philosophy as it moves private investments into higher-risk projects previously underwritten by public funds.

“As such, it represents a much more effective way of allocating the EU’s resources. It also does away with the subsidies-and-grants mentality and ensures a higher impact of EU policy initiatives.”

Mr Hoyer makes no excuses as he bluntly concludes that the EU has not yet fully developed its tremendous potential. “It has done a particularly poor job in telling the true European story as it relates to politics, business, culture, and other fields. However, my own convictions have not suffered as a result and I fully believe that after the horror year of 2016, with Brexit and the uncertainty in the US, Europe will bounce back. In fact, that bounce is already happening right now, attesting to the resilience of our common project.”

BREXIT Twice minister of state at the German Foreign Office – in the fifth cabinet of Chancellor Helmet Kohl (1994-1998) and in the second cabinet of Chancellor Angela Merkel (2009-2012), 30

Werner Hoyer was intimately involved with the drafting and redrafting of European treaties and the complex negotiations resulting from those efforts. Mr Hoyer enjoys a reputation as an ardent advocate of the European project and is not usually lost for words when addressing its detractors or critics. In 2011, still at the Foreign Office and in charge of German-French relations, he chastised Denmark for mulling the reintroduction of border controls in words not normally heard from a top diplomat.

The UK’s decision to exit the European Union is not one Mr Hoyer cheers: “It is not only a terrible mistake, but hurts the British people and all member states of the European Union as well. It is a sad thing and a defeat for us all.

Unfortunately, the hit will be felt hardest by the British people themselves. However, it also affects the EIB. Remember that member states have only paid in just above €20bn. That modest sum has a huge multiplier effect as previously described. Now, you take out part of that paidin capital and the leverage works in reverse.

The UK owns 16% of the bank’s shares and we must now see how we can mitigate this loss. We are, however, quite optimistic as the remaining member states are fully behind the bank. In fact, the president of the European Council, Donald Tusk stated at the end of the last summit that ‘the EU is committed to preserving the financing activity of the EIB Group and its business model throughout and after Brexit’.”

THE UNKNOWN BEHEMOTH The European Investment Bank is the world’s largest multilateral lender – by far – with 2.5 times the financial firepower of the much better-known World Bank. It is not a bank that conducts its business with fanfare. Its mostly unseen hand helped reshape European markets and create new ones such as those for project finance and green bonds. In 2007, the EIB introduced the world’s first-ever climate-aligned bond, effectively creating a new asset class that has now ballooned into a €600bn global market.

In 2015, the bank put in a repeat performance with Tera Neva, a climate-awareness bond that allows investors to align their financial and energy transition goals. The bond is linked to the Ethical Europe Climate Care Equity Index and has already received €500m from institutional investors.

An innovator par excellence, albeit more of a silent partner than a rambunctious one, the EIB’s own trajectory closely matches the ascendancy of the European Union from a group of six founding members in the late 1950s to a collective spanning the continent. The bank has outgrown its original mission to provide infrastructure funding and is now situated at the cutting edge of EU policy, successfully deploying its financial might to implement the shared vision of the union’s member states. It is, as such, the largest multilateral bank many Europeans have never heard of. i

CFI.co | Capital Finance International

BOO N I R I TA B G LPIN E H W IS O R E AT H H G DIN N A P EX

ST

Winter 2017 - 2018 Issue

P X E

S T R

HUGHES CRAFT DISTILLERY, ONE OF THE MANY BUSINESSES ACROSS THE UK THAT SUPPORT HEATHROW EXPANSION

Heathrow is Britain’s biggest port by value for global markets outside the EU and Switzerland, handling over 30% of the UK’s exports. Expansion will double our cargo capacity and create new domestic and international trading routes, helping more businesses across Britain reach out and trade with the world.

Heathrow expansion is part of the plan to strengthen Britain’s future.

That’s why we are getting on with delivering Britain’s new runway.

Building for the future TRADE INFO IS BY VALUE FOR 2016, EXCLUDES EXPORTS TO EU AND SWITZERLAND AND SOURCED FROM uktradeinfo.com FOR MORE INFORMATION, PLEASE VISIT: CFI.co | Capital Finance International www.heathrowexpansion.com/uk-growth-opportunities/trade-export-growth/

31

> Book Review

Talking to My Daughter about the Economy by Yanis Varoufakis

Crash Course in Economics: Major Systemic Fail He needed just nine days to write the book, and it shows. Yanis Varoufakis, the former Greek minister of finance and self-proclaimed scourge of capitalism, is a prolific writer of mostly slim volumes that aim to either set the record straight or emphasise the grave injustices suffered by the have-nots and those unable to deal with societal change.

I

n the latest addition to his oeuvre, Mr Varoufakis sets out to explain the workings of capitalism to his young daughter Xenia, believing, as the ancient Greek did, that citizens of a democratic society need a solid grasp on the basic premises of economic thought. In writing his primer Talking to My Daughter about the Economy, Mr Varoufakis had to find ways to reduce complex issues to simple equations, explaining the choices available to policymakers in terms a twelveyear-old understands. The first term he scrapped was capitalism. The writer uses “market society” instead – so far, so good.

The book’s starting point is the invention of money which, Mr Varoufakis notes, originated as a register of debt. Throughout the ages that followed, money and debt remained twins of roughly equal value until feudal societies gave way to free markets and debt became a prime mover of events. As businesses discovered that growth and profits more often than not required them to procure credit, debt levels ballooned and started to cause periodic meltdowns. Mr Varoufakis concludes that, contrary to popular belief, the Industrial Revolution was not powered by coal but by debt.

Economics outside an academic or government section can be fun. Take the law of supply and demand which is illustrated using the value of cigarettes in prisoner of war camps and prisons.

No matter where in the world people are locked up, cigarettes invariably become the means by which other goods and services are exchanged.

An increase in the supply of cigarettes would instantly depress their value whilst, conversely, a scarcity of smokes resulted in price rises – inflation. Mr Varoufakis tells his daughter how, before long, non-smokers would hoard cigarettes and would loan them out to those desperate enough to pay interest – bankers.

The writer owes a debt of gratitude to BritishAmerican economist Richard A. Radford whose 1945 essay on the economics of PoW camps provided much of his inspiration.

32

"Not well-versed in anthropology, Mr Varoufakis can surely do better at economics. However, his world is a bipolar (…) one, inhabited only by the rich – who possess both abundant power and money – and the poor who possess neither."

Explaining the intricacies of digital currencies such as bitcoin, Mr Varoufakis helpfully points out their many dangers as harbingers of deflation. Due to the absolute limit on the number of bitcoins that can be mined, the currency is particularly prone to crashes from which recovery is nearly impossible as no additional money can be injected into its closed system.

In his book, Mr Varoufakis’ goes to great lengths to argue that money equals power.

Hence, economics is not a neutral pursuit, but an eminently political one. From this it follows that bankers are the brokers of power, ultimately deciding who may sit on the throne as their proxy. Mr Varoufakis displays a profound dislike of bankers and reserves his greatest vitriol for them. He notes, not unreasonably, the surprising number of Goldman Sachs bankers in the Washington corridors of power. Mr Varoufakis is particularly irked by the bankers’ insistence on privatising profits and socialising losses, arguing that financiers dispensing too much credit should be allowed to go bankrupt and disappear penniless from the scene – a helpful warning to others driven by greed.

Where Mr Varoufakis shines is in his remarkably ability to downplay the importance of his chosen profession: economists, he writes, are “mostly incredibly limited people” who sustain “exalted CFI.co | Capital Finance International

notions” of their own abilities. The read that follows is livened-up with numerous references to history and popular culture: Icarus, Charles Dickens, Frankenstein, Doctor Faustus (on debt relief), The Matrix (a Marxist metaphor), and Star Trek all have a minor role to play in a grand plot that is not awarded a happy ending.

Mr Varoufakis describes the market society as a truly joyless place that offer no room for “genuine pleasure” and destroys the “nature of the human experience” by commoditising everything it touches – including labour and resourcefulness.

It is at this juncture that Mr Varoufakis wanders off track – he takes a walkabout. In order to admire the lost nature of the human experience, he takes Xenia to precolonial Australia – a vast and isolated continent inhabited by a people who “collaborated beautifully” with each other in order to satisfy basic needs and leave plenty of time for the pursuit genuine pleasure – storytelling, painting, ceremony, and recitals – all the while living close to, and in perfect harmony with, nature.

In this idyll, reality is not allowed to intrude.

Anthropologists agree that the life of aboriginals was far from easy-going or relaxed, foraging up to sixteen hours per day for something edible.

Aboriginal women were commodified and traded at puberty often against their will.

Not well-versed in anthropology, Mr Varoufakis can surely do better at economics. However, his world is a bipolar (…) one, inhabited only by the rich – who possess both abundant power and money – and the poor who possess neither.

Those who have a little bit of the two – aka the middle class – do not feature at all. Poor Xenia is presented with a worldview denuded of subtleties and awash with conspiracies to keep the poor in their preordained place such as organised religion and the mass media whose sole function it apparently is to fabricate and maintain consent for the policies that preserve the status and wealth of the powers that be.

Winter 2017 - 2018 Issue

"In the end, Mr Varoufakis failed to observe his own conclusion that economics is first and foremost a political pursuit. It cost him his job."

Xenia is also left wondering about alternatives to capitalism. Apart from heading to the outback and wandering about in search of food whilst feeling one with nature, Mr Varoufakis’ palette offers no alternatives other than “authentic democracy” which he then promptly fails to detail apart from a call to collective ownership of technology and the means of production. The latter seems to contradict Mr Varoufakis’ well-documented appreciation of entrepreneurship and individual initiative.

A latter-day Marxist – albeit it one devoid of pesky dogmas – the writer seems to forget that his “authentic democracy” was first tried out about a century ago and did not bring either prosperity or democracy.

Xenia may be forgiven for thinking her father is a dreamer – or a hopeless romantic. Mr Varoufakis is not willing to abide by rules or convention. Whilst he does apply generous helpings of logic and reason to the discussion of economics, he fails to understand that the science is not an exact one but one driven by human frailties and foibles. There is precious little logic to it: markets do pretty much as they please and are mostly driven by herd mentality, existentialist angst, and unreasonable expectations. To understand economics – insofar as humanly possible – one should study societies, their history, their culture, and their individual members.

During his time as finance minister, Mr Varoufakis repeatedly clashed with his EU peers. He came to loathe his German colleague Wolfgang Schäuble and his Dutch sidekick Jeroen Dijsselbloem for refusing to even entertain the idea of a write-off on Greek government debt. Though Mr Varoufakis’ arguments – had they been heard – were sound, they failed to take political reality into account – no German or Dutch government can survive by granting debt relief to a nation engaged in creative bookkeeping.

In the end, Mr Varoufakis failed to observe his own conclusion that economics is first and foremost a political pursuit. It cost him his job. i CFI.co | Capital Finance International

33

> Winter 2017-2018 Special

European Defence: Meeting Future Threats

L

ooking to address gender equality in the cabinet, governments in Europe and elsewhere often cannot resist the temptation to put a woman in charge of national defence – traditionally a man’s world. However, what started as a politically expedient trend has now become somewhat of a tradition. In an age of shrunken military spending, close cooperation between erstwhile rivals has become the norm as synergies are explored and pursued. And, yes, as a matter of fact, women have been much better at working together.

Nowhere is the need for military cooperation greater than in Europe. Whilst EU member states jointly spend almost €230bn each year on defence, the continent’s scattered military industrial complex – the almost perfect antithesis of what President Dwight D Eisenhower had in mind when he warned of its dangers in his 1961 farewell address – ensures that the European defence buck produces not a bang, but a poof at most.

The EU nations’ collective spent on defence is the second-highest in the world after, of course, the United States which dumps almost three times as much on its military.

Still, that €230bn of the EU is no trifle and represents more than triple the amount President Vladimir Putin – the continent’s perceived bogeyman – spends on his defence establishment: some €65bn or an impressive 5.4% of Russia’s GDP. By comparison, EU member states spend on average just 1.4% of their GDP on defence outlays.

Though fear of the Russian bear may be slightly exaggerated – and the antagonism towards the beast rather misplaced – it merits no doubt that Europe has neglected its defence since the decline and fall of the Soviet Empire. NATO Secretary General Jens Stoltenberg was exceedingly happy to report late last year that member states had increased their defence budgets by well over 4% in 2017. The downwards trend has finally been broken.

34

The European Union is now determined to seize the moment and add a military vector to its structure. The long-cherished plan to create a credible European defence union received a formidable boost with the imminent departure of the United Kingdom from the EU. That, and the turning tide of defence spending, have now shaped a unique window of opportunity for the EU to carry out its mission. However, the endeavour is one that will likely require a generation or more to attain a level of effectiveness similar to the EU’s political and economic prowess. As such, a fully-functional European defence union is a distant vista rather than an immediate solution.

That need not be a pressing problem. Contrary to the alarmist view that Europe is all but defenceless, the continent’s armed forces can field about a million troops, supported by well over 7,000 main battle tanks and more than 9,000 pieces of heavy artillery. Moreover, EU member states can put some 2,000 fighter jets into the air and 518 ships out to sea, including three carriers and 48 attack submarines.

The trouble is that all this apparent might lacks both structure and coordination. For example, European air forces use no less than ten different fighter jets. Command structures vary wildly as well, as do protocols, communications networks, and other essential bits and pieces that tie a fighting force together. The EU’s priority is to create a semblance of order in this military cacophony by streamlining procurement and setting up a kernel of a unified command structure.

It is a worthy goal to pursue for the world’s largest economic and political bloc of nations.

If Europe wishes to keep its considerable clout in a world subject to subtle, yet decisive, shifts in power, the continent must end its dependency on US military might. Largely thanks to the EU, Europe is no longer a bit player – a fragmented continent split down the middle by two superpowers. Rather, it has now become one of the main players in a multipolar world and, with that, comes a degree of military responsibility. i

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

CFI.co | Capital Finance International

35

> MARÍA DOLORES DE COSPEDAL Seeking More Bang Almost nobody saw her coming. In barely ten years, María Dolores de Cospedal went from a political nobody to become Spain’s minister of Defence – the second woman to claim that job – and partake in the secretive Bilderberg Conference, an invitation-only event where the world’s behind-the-scenes powersthat-be meet to review global affairs and trends.

Mrs Dolores de Cospedal reached Madrid by stealth after serving first as a regional senator of the Castilla-La Mancha Region – a political backwater – and later as its president. She deftly managed to escape the fallout from a series of scandals surrounding the Partido Popular (PP), the conservative ruling party, convincing investigators that she had never accepted any of the top-up payments handed out to numerous PP officials who sought to supplement their incomes.

The episode did, however, convince Mrs Dolores de Cospedal to refrain from accumulating jobs and salaries.

In a party that struggles to attract female politicians, Mrs Dolores de Cospedal soon found an open road to the top. Cleared from any and all wrongdoing, she is now being tipped as the likely successor to PP President Mariano Rajoy, the Spain’s prime minister since 2011. In order to prove her savvy, she must first make her mark as minister of Defence and stand her ground in the usually acerbic politics of Spain.

Mrs Dolores de Cospedal was appointed to the job only about a year ago and has since worked hard to push the country’s notoriously traditionalist military establishment into the 21st century. This represents an enormous undertaking. Whilst the Spanish government already in 2013 published an ambitious white paper on the country’s cyber security strategy, the role envisioned for the military amounts to little more than a footnote.

The need for increased cyber security became apparent during the recent political upheaval in Catalonia when it transpired that Russia-backed agitprop stoked the fires by swamping social media networks with incendiary messages.

As a result of the 2008/9 financial crisis which hit the country harder than most, Spain’s national defence budget has shrunk by over a third. The cuts grounded the air force’s sole electronic eavesdropping plane and its fleet of aerial refuelling aircraft, limiting the range of its F18 fighter jets. A plan to lease three Airbus A330 multi-role tanker transports was put on hold because of budgetary constraints. With the early retirement of the Príncipe de Asturias, the country’s only carrier, the vessel’s air wing of eight Harriers was also disbanded. A flight of six remaining Harriers now operates from the much smaller Juan Carlos I assault ship which lacks proper storage facilities.

36

The cuts to the defence budget axed a total of seventeen warships besides a number of mechanised army units. Mrs Dolores de Cospedal is credited with reverting this downward trend and has managed to secure modest spending increases aimed at pushing, over the next decade or so, defence outlays to 1.5% of GDP from their current level of barely 1.2%. She also is working on a detailed plan to obtain more bang for the proverbial buck by CFI.co | Capital Finance International

forcing the military establishment to embrace rationalisation and efficiency: “We now need to fight to better control spending patterns in order to make best use of the scarce resources available.”

As long as she manages to extract the most out of the defence budget, Mrs Dolores de Cospedal remains in line for higher office. In Spanish politics, she is the one to watch.

Winter 2017 - 2018 Issue

> URSULA VON DER LEYEN Close Cooperation The first woman to preside over Germany’s Ministry of Defence, Ursula von der Leyen was appointed by Chancellor Angela Merkel to re-establish order at the demoralised department. Mrs Von der Leyen is one of the longest-serving members of the German cabinet and has been at the chancellor’s side since the start of her first term in office in 2005.

Leading the Ministry of Defence since late 2013, Mrs Von der Leyen has worked tirelessly to rid the German Bundeswehr of its deplorable reputation amongst young people.

With recruitments levels dropping almost precipitously due to alarming reports of bizarre hazing rituals and sexual harassment, Mrs Von der Leyen moved decisively to restore discipline and make a career in the military more attractive. Thus, she earmarked €100m for day care facilities at army barracks and mandated transfers to be timed according to school term dates. The minister also fired the commander in charge of training programmes for failing to maintain discipline.

A firm believer in cross border cooperation – a must for any German defence minister – and spending rationalisation, Mrs Von der Leyen in 2015 signed a ground-breaking deal with the Dutch Marine Corps to allow the German Seebataillon – the country’s naval infantry – the use of the Netherlands navy’s amphibious joint support ship and its two landing platform docks – ships of a type not available to the German Marine.

Earlier this year, Mrs Von der Leyen announced concrete plans to develop a new-generation European fighter jet with France in an attempt to amalgamate the existing Eurofighter and Rafale programmes. It is expected that before long Sweden (Gripen) will be invited to join the undertaking. Later this year, Germany and France are expected to set out a definitive roadmap for the programme.

Perhaps unwittingly, the announcement was a (Brexit) snub to the British and its leading arms purveyor BEA Systems which has not been asked to join the effort. To the ill-masked horror of the UK government and others in Europe, Mrs Von der Leyen came out as a firm supporter of a United States of Europe modelled on the Swiss Federation. For this, she promptly received a slap down from Chancellor Merkel. Talk about a USE remains verboten.

A behind-the-scenes driver of initiatives that aim to shape and underpin a common European defence, Mrs Von der Leyen is quite sanguine when it comes to bolstering Europe’s military capabilities. Almost immediately after the June

23, 2016, UK referendum on EU membership, she rejoiced publically in the outcome, explaining that London had consistently paralysed efforts to integrate European security policy.

Mrs Von der Leyen has money to spend. Germany agreed in 2015 to significantly increase it defence spending – with 6.2% annually – in order to approach the NATO norm of 2% of GDP. The country is expected to splash around €130bn on military hardware from now until 2030 and add 7,000 soldiers to its 60,000-strong army.

CFI.co | Capital Finance International

To avoid a free-for-all and combat waste, Mrs Von der Leyen tasked KPMG – one of the big four auditing companies – to suggest improvements to the currently nebulous procurement process.

She has already demanded, and received, compensation from Airbus for its delivery of two A400M Atlas transport planes which were not only late in arriving but suffered from manufacturing faults as well. Mrs Von der Leyen has also criticised BAE systems for its below-par Typhoon fighter jets and is reportedly seeking damages.

37

> ROBERTA PINOTTI Top Performance on a Shoestring For Italian Defence Minister Roberta Pinotti it is all about attaining economies of scale. Whilst EU member states spend over €226bn annually on their military and can field a million plus combat troops, a large chunk of the cash is wasted on competing programmes – often jealously guarded as national flagships – and multiple structures and processes that work alongside, rather than with, each other. Italy has been one of the principal drivers behind PESCO, the EU’s Permanent Structured Cooperation agreement which was launched in December as a first step towards the creation of an EU army.

“It took all of sixty years to get to this point. It is, however, encouraging that most EU countries now at last agree that close cooperation can no longer be postponed.” In office since early 2014, Mrs Pinotti has ordered an updated white paper to spell out and detail her country’s defence aims. All of the 23 nations that signed up for PESCO are expected to clearly outline their military priorities so that commonalities may be identified and programmes set up to meet demand more efficiently. The EU has freed €1.5bn for a European Defence Fund that is to underwrite research projects and coordinate procurement processes.

Italy boasts the EU’s third largest defence budget with outlays ascending to almost €34bn (1.1% of GDP) annually. The country squarely aims to up its military profile in the post-Brexit EU. That, however, necessitates a significant boost in defence spending and improved efficiency in the allocation of the available resources. Last year, Minister Pinotti secured €12bn in stopgap funding for bolstering the country’s military capabilities. A 2015 naval law already set aside €5bn for the building of a new class of littoral combat ships.

In a major shift, Italy last year adjusted its traditionally staunchly pro-NATO policy to one which attaches equal importance to both the transatlantic alliance and EU defence initiatives.

Mrs Pinotti is particularly pleased that President Emmanuel Macron of France has now dropped his initial opposition to the takeover of the STX OSV (formerly Chantiers de l’Atlantique) naval yards in St Nazaire and Lorient by Italy’s Ficantieri, Europe’s largest shipbuilder with yards in the United States, Norway, Romania, Brazil, and Vietnam.

Representing the social-liberal Partito Democratico (PD), Mrs Pinotti must tread carefully in order not to offend those on the left of her who oppose any increase in defence spending. The PD was founded in 2007 with the merger of various progressive parties and coalitions and comprises, amongst others, 38

remnants of Italy’s now defunct Communist Party. However, the recent influx of refugees in the hundreds of thousands has muted calls for further cuts in military expenditure.

Judging Italy’s efforts by spending metrics alone, paints a distorted picture. For domestic political reasons, parts of the country’s defence establishment are financed through other departments. That helps explain how Italy is CFI.co | Capital Finance International

able to sustain an apparently outsized 184ship navy structured around two carrier groups, supplemented by three amphibious assault ships. Italy remains the foremost power in the Mediterranean and manages to do so on the proverbial shoestring. The country also maintains its various international commitments and keeps in excess of 7,000 military personnel stationed outside its borders. It is a performance few in the EU can equal.

Winter 2017 - 2018 Issue

> ANK BIJLEVELD The Relentless Pursuit of Synergies

Upon re-entering national politics after an absence of seven years, newly-appointed Dutch Minister of Defence Anke Bijleveld was promptly dubbed “the little general”. Standing just 1m57 tall in a cabinet of physical, if not necessarily political, giants, Anke Bijleveld immediately sprang to national attention when she attended the full cabinet’s first official meeting at the royal palace in The Hague dressed in a bright yellow outfit – complete with a faux spider climbing her left shoulder – which instantly made the minister stand out amongst the subdued tones of her colleagues’ attire.

Mrs Bijleveld needs all the attention she can get. Her appointment to the Ministry of Defence was welcomed as the definitive proof that the scandal-ridden department remains a political backwater and an afterthought when it comes to budgetary allocations. Since the Berlin Wall came down in 1989, Dutch military expenditure has been slashed by half to barely €9bn annually.

Instead of fielding two full divisions – one mechanised – the country can now barely muster a few brigades.

However, with the economy in the ascendant and mounting threat levels all-round, the government of Prime Minister Mark Rutte has now reluctantly decided to revert the trend, promising to boost defence spending to at least €900 million

annually by 2020. Mrs Bijleveld has assured NATO partners that The Netherlands supports the 2% (of GDP) norm and will “grow” towards attaining that distant goal. Mr Humphrey would undoubtedly have completed the sentence with “in the fullness of time.”

Mrs Bijleveld will continue the policy of her predecessors to seek succour in close cooperation with the neighbours. Plans are afoot to tightly integrate the country’s air force with the Belgian “air component” and pool resources, training programmes, and tasks such as the quick reaction squadrons both countries keep on permanent alert to intercept intruders.

As of this year, a single Belgian or Dutch squadron will be responsible for guarding the entire Benelux airspace. The transport and airborne refuelling wings of the two countries will also be merged. The new unit with two tankers, fourteen transport planes, and a modest fleet of VIP jets will be based at Melsbroek airbase near Brussels.

The move follows the successful integration of the Dutch and Belgian navies which now operate under a single command seated in Den Helder.

Under the agreement, Belgium is responsible for the operations and upkeep of the shared fleet of (twelve) mine clearance vessels while CFI.co | Capital Finance International

The Netherlands keeps the (twelve) destroyers, frigates, and ocean-going patrol vessels shipshape. The Dutch also provide significant replenishment and amphibious resources. This way, both countries are able to maintain a shared green water navy with added expeditionary capacity.

Mrs Bijleveld’s main challenge is to align procurement policies and processes with Belgium. That represents an uphill battle since the Belgians traditionally buy most of their military hardware in France whilst The Netherlands was thus far able to maintain its own defence industry, including naval yards, mostly supplemented with US or UK-sourced kit.

Both countries did agree to pursue economies of scale by shopping together. The first real test of this intend comes when Belgium at long last decides which fighter plane is to replace its worn-out F16s. The Dutch were an early-adopter of the Joint Strike Fighter and propose to pool maintenance and operational resources should Belgium also opt for the JSF. The trouble is that neither The Netherlands or Belgium are fully convinced of the need for a robust increase of their defence spending.

Synergies and the pursuit of maximum efficiency go only so far.

39

> MARISE PAYNE, AUSTRALIA Survivalist Australia is determined to boost its punch with an outlay of A$200bn ($152bn/€128bn) on new military hardware. The recently unveiled ten-year spending programme is to give teeth to the defence white paper released in 2016 which maps threats to the stability of the wider Indo-Pacific Region and suggests appropriate responses. Minister of Defence Marise Payne, a senator for New South Wales and former minister for Human Services, is charged with carrying out the ambitious plan. This requires the minister to tread a fine line between Chinese sensitivities and American bluster.

Mrs Payne admitted that her country’s regional environment has become “more complex” but denied the charge that the proposed investments in capital ships and fighter planes equips Australia for the next war with the weaponry of the last one. The white paper calls for significant efforts to bolster the country’s cyber, space, and information warfare capabilities. Mrs Payne emphasised that some 800 new positions will be created in armed forces branches dedicated to defend against unconventional and asymmetrical threats. In April 2017, Australia and China formally agreed not to raid each other’s intellectual property and trade secrets via cyber-attacks.

Still, the grand buying-spree Mrs Payne has now embarked on seeks to re-arm Australia for classic warfare and includes, amongst others, “regionally superior” submarines, major surface combatants, and offshore patrol vessels – a dozen of each. Additionally, Australia is in the market for 72 F-35 Joint Strike Fighters, 15 maritime surveillance aircraft, and a host of other hardware such as in-flight refuelling planes, transport helicopters, and replenishment vessels.

“The focus on countering China is misplaced.

We are in the wrong century when expecting the principal threat against Australia’s security to come from China’s power projection,” says Professor Greg Austin of the Australian Centre for Cyber Security at the University of New South Wales in Canberra: “We should be much more concerned about the emergence of an Islamic state in our region and, indeed, about cyber warfare – perils that cannot be met with destroyers and frigates.”

Mrs Payne seems to agree that an “area denial policy” for China makes little sense without the full backing of the United States – an unattractive proposition as long as President Trump is calling the shots. Moreover, longtime China watchers doubt that Australia even appears on Beijing’s radar. The aggressive policies pursued in the South China Sea are 40

mainly directed at nearby countries and, as such, pose no direct – or indirect – threat to Australia.

A survivalist in the often vicious sectarian infighting for which Australia’s Liberal Party is known, Marise Payne has so far managed to stay well above the fray in what is derisively known as the “philosophers’ club” – the government of Prime Minister Malcolm Turnbull which is CFI.co | Capital Finance International

widely accused of ignoring bread-and-butter political issues. An able administrator, Mrs Payne clearly prefers a cautious and pragmatic approach over grandstanding. As such, she is considered particularly well placed to ensure Australia’s national defence remains securely pivoted on US cooperation – intensified during the Obama Administration – whilst enabling the country to meet new threats with the panache for which it is well-known – and respected.

Winter 2017 - 2018 Issue

> FLORENCE PARLY Sales Push French ministers of Defence are expected to not just administer the country’s armed forces, but help sell military hardware as well. A political outsider, Florence Parly was recruited into the cabinet by President Emanuel Macron and Prime Minister Édouard Philippe and given the mission to shake and shape up the French defence establishment and ensure its €41bn budget (1.7% of GDP) is allocated more efficiently. Meanwhile, Mme Parly is also tasked with ensuring the survival, if not profitability, of France’s large defence contractors, most of which barely managed to survive the lean years.

She started, rather boldly, by weaning Belgium away from its tentative decision – more of an inclination grounded in tradition – to replace its ageing fleet of 57 F16 fighters with costly USbuild Joint Strike Fighters, offering the neighbours less costly Dassault Rafales instead. The €4.1bn deal includes a number of sweeteners such as technological and economic partnerships.

Aircraft manufacturer Dassault is being prodded

by Mme Parly to submit a formal bid. The company is reluctant to do so after the cashstrapped Belgians unveiled far-reaching plans to integrate their diminished “air component” with the Dutch air force which already flies the JSF and is well known for its hostility towards Frenchmade military kit.

Undeterred, Mme Parly promised to put more than 150 Belgian companies in the Rafale’s production loop. The Dassault Rafale is the problem child of the French defence industry and has so far only been sold to India, Egypt, and Qatar. In order to recoup the plane’s €46bn development cost, more users need to be found pronto. Brazil, Singapore, Switzerland, and a host of other countries already declined to purchase the fighter jet. Luckily, in early December Qatar agreed to increase its original 2015 order of 24 Rafales by a dozen – and take out an option for an additional 36 – to replace its now decidedly antique Mirages.

Thinking outside the box, Mme Parly has also been instrumental in getting the proposed Sahel Force closer to realisation. This multilateral undertaking aims to create a 5,000-strong standing force with one battalion each from the Francophone Sahel G5 – Mali, Mauretania, Burkina Faso, Niger, and Chad. The force, which enjoys the financial backing of the EU and Saudi Arabia, is to operate alongside UN and European peacekeeping missions in the region and help fight Islamic extremism. It will, of course, be equipped with French weaponry.

rigorous in France than elsewhere in Europe, ensuring the country’s forces were largely kept intact. The 180-ship Marine Nationale was able to preserve its air strike and assault capabilities with one large nuclear-powered aircraft carrier and three amphibious warfare ships that double as helicopter carriers.

On the home front, Mme Florence Parly faces a much less challenging environment. Cuts to the defence budget have been markedly less

The air force and army also successfully managed to escape the worst of the chopping blade. Having become slightly blasé and too CFI.co | Capital Finance International

outspoken for political comfort, the country’s military brass did require reigning in. After expressing his dismay with the government’s initial defence spending plans on – of all places – Facebook, Army Chief of Staff General Pierre de Villiers was forced into early retirement.

However, the general’s last stand may not have been in vain as Minister Parly unveiled plans to up defence spending by $1.7bn annually in order to reach NATO’s recommended 2% of GDP. 41

> Europe

Poland and Hungary: The EU’s Next Challenge

It is one the largest beneficiaries of EU funds, yet also one of the least appreciative of Brussels’ largesse. Each year, Hungary receives almost 3% of its national income from the European Union. For the past decade, fully 95% of all public works programmes in the country have been co-financed by the European Investment Bank (EIB) and other EU entities. Considering multiplier effects, public and private EU funds now generate 6,3% of Hungary’s gross national income. On a per capita basis, no other member state collects more (€470) than Hungary does.

Budapest, Hungary: Parliament

42

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

CFI.co | Capital Finance International

43

T

he numbers are supplied by the Centre for European Policy (CEP – Centrum für Europäische Politik) in Freiburg, Germany. The think tank evaluates EU legislative initiatives against the premises of the ordoliberal economic thought of the Freiburg School – the classic German take on liberalism that looks to the state as the ultimate arbiter and guarantor of the properly functioning free markets. An apparent paradox – guided liberalism – ordoliberalism is the foundational stone of German’s enduring economic success.

The CEP is not known as a collective of EU acolytes and regularly lambasts the union on regulatory overreach. However, the centre’s director, Matthias Kullas, is growing rather tired of the lies and misunderstandings surrounding the EU’s financial support system: “With our recent research on the benefits of EU membership we wanted to pour clean water into the glass” Mr Kullas has all but given up on the UK where the debate has become rather toxified after a decades-long campaign, mostly fought in sensationalist papers and fuelled by downright lies and half-truths, to vilify the EU and blame Brussels for nearly all domestic ills. The country’s current foreign secretary, Boris Johnson, happily contributed to the caricature, writing creatively from the Belgian capital – in his former guise as Brussels correspondent for The Daily Telegraph – on the EU’s supposed attempts to ban pink sausages and prawn-flavoured crisps, impose community-wide standards on the smell of manure, and reclassify snails as fish – none of it bearing the remotest relationship to actual events. Mr Johnson later admitted during a BBC interview that he particularly enjoyed “chucking rocks and wielding this weird sense of power.”

LOST CAUSE Brexit, the crowning achievement of the EU slanderers, has convinced most in Brussels that the UK is a lost cause as far as EU membership is concerned. All that now remains is the winding down of a most unfortunate relationship – a task as complicated as uninteresting to EU officials for there are no glories or saving graces to be had.

Whereas Brexit may be likened to a chronicle of a separation foretold, the trouble brewing in the east represents a much greater challenge. Hungary and Poland, part of EU10 group of mostly East European countries that joined in 2004, seem genuinely troubled by their loss of sovereignty and the demand they conform to EU rules as contained in the acquis communautaire – the procedural “handbook” all members states have to recognise as the last word on sound governance.

Over more than 170,000 pages, the acquis spells out the rights, obligations, and procedures that support the European edifice. One of those obligations is to maintain an independent judiciary.

This prevented the curiously-named Law and Justice Party (PiS) in Poland from carrying out plans that would have given the government considerable say in the nomination of judges. In July, the European 44

"Poland is quickly becoming a major inconvenience in Brussels.

In addition to the questionable reform of the judiciary, the country has also flirted with restrictions to the freedom of the press, curtailing the editorial independence of public broadcaster Telewizja Polska."

Commission opened legal proceedings against Poland, adding credence to its threat to haul the country before the European Court of Justice.

President Andzej Duda defused the crisis at the eleventh hour by vetoing the proposed judicial overhaul. However, Prime Minister Beata Szydło was quick to protest that the country cannot give in to “outside pressure.”

Though her display of fierceness was mostly intended for a domestic audience, Mrs Szydło couldn’t be more wrong: EU rules on governance and shared democratic values are set in stone and, as such, not subject to negotiation or interpretation. At a summit with six former Soviet states in Brussels, EU president, Donald Tusk, chided the Polish prime minister for undermining the union’s “fundamental values” and for “serving the Kremlin’s plan.” The latter quip was merely meant to yank Mrs Szydło’s chain. The Polish prime minister and the EU president, a fellow Pole and her predecessor in office, are not on the best of terms – to put it mildly. Mrs Szydło regularly accuses Mr Tusk of meddling in Polish politics.

MAJOR INCONVENIENCE Poland is quickly becoming a major inconvenience in Brussels. In addition to the questionable reform of the judiciary, the country has also flirted with restrictions to the freedom of the press, curtailing the editorial independence of public broadcaster Telewizja Polska, now the exclusive domain of pro-government sycophants whose tone is eerily reminiscent of communist agitprop. Meanwhile, police turn a blind eye to neo-Nazi protesters openly displaying swastikas and other outlawed fascist symbols and paraphernalia while people peacefully, albeit loudly, protesting the illegal logging in the Białowieża Forest – still ongoing despite a ban issued by the European Court of Justice – were arrested by the dozen and subjected to shockingly intrusive physical searches.

Just as in nearby Hungary, the ruling party in Poland is able to maintain its iron grip on power thanks to the favourable economic climate that causes government spending to balloon without any negative side effects. The thus far feeble response from Brussels has also emboldened Central and Eastern European leaders with authoritarian tendencies.

The unashamedly nationalistic prime minister of Hungary, Viktor Orbán, visibly enjoys baiting the EU whenever an opportunity arises. Mr Orbán clearly CFI.co | Capital Finance International

enjoys cosying up to Vladimir Putin who twice visited Budapest this year at the invitation of his new best friend. The Russian president makes no secret of his desire to deploy the Hungarian prime minister as his straw man inside the EU. Mr Orbán is only too happy to comply and will latch his, and his country’s, fortune to anyone – President Trump in the US and President Recep Tayyip Erdoğan in Turkey come to mind – who has a beef with Brussels.

Prime Minister Orbán’s barely concealed anger originates from his grandstanding during the refugee crisis that started in 2015 when he flatly, and rather bombastically, refused to accept Hungary’s share in the EU’s resettlement programme. It is not so much that the European Union disagrees with Mr Orbán’s objections as it is his rejection of EU solidarity that causes offense. Whilst Greece and Italy took the brunt of migrant arrivals, Hungary simply declined to share the burden, forgetting rather conveniently that neighbouring countries welcomed well over 200,000 mostly destitute Hungarians fleeing the violent Soviet military takeover that followed the 1956 uprising.

PYRRHIC VICTORY In fact, for all his blustering, Mr Orbán has little to complain about. Not only has the EU proved particularly generous to his country, Brussels has also come around to his point of view that more must be done to secure the union’s borders and prevent people from departing on a perilous journey to the promised continent. Whilst Hungary – and Slovakia – lost their case against the EU’s refugee resettlement policy at the European Court of Justice, Brussels’ legal victory turns out to be a pyrrhic one.

Even French President Emanuel Macron, duly echoed by German Chancellor Angela Merkel, is now calling for the establishment of migration centres in Niger, Chad, and elsewhere to interrupt the flow of people north – an old idea of Mr Orbán.

The Hungarian prime minister is right when he proclaims to be winning the argument – he is.

However, Mr Orbán has not made any friends in the process. Contrast this to the other three members of the Visegrad Four – Poland, Slovakia, and the Czech Republic – who were also vehemently opposed to the resettling of refugees but expressed their objections in a less visceral way and were spared the outcast status now suffered by Mr Orbán.

Cavorting with the likes of Putin and Erdoğan just to annoy Brussels doesn’t score points, nor does it make any sense for a rather smallish landlocked country dependent on EU markets and cash for its continued prosperity – even one saddled with a tonne of chips on its national shoulder. Especially considering that the cause of the fracas has now all but disappeared. The Brexit-minded British just discovered that in a battle of wills between big and small, big wins. The Visegrad Four just proved that, inside the EU, solid arguments can, and do, hold sway. – no need for shouting. Perhaps Poland and Hungary will gain valuable insights from both recent experiences. i

Winter 2017 - 2018 Issue

> FMO:

Pushing the Green Envelope Based on an interview with Linda Broekhuizen

Tor Svensson, Chairman of CFI.co, discussing sustainable finance with Linda Broekhuizen, CIO of FMO, at FMO headquarters in The Hague, Netherlands.

I

ts name – Platform Carbon Accounting Financials (PCAF) – lacks a certain je ne sais quoi, but its intentions are beyond reproach. For the first time, twelve banks have agreed to a single methodology for measuring the carbon footprint of their investments and loans. It took two years to hammer out the formula which is deemed crucial for gauging the environmental impact of financial services providers and for determining trends. The data also allow banks to fine-tune their policies and develop more effective strategies.

PCAF is an initiative of twelve Dutch banks, pension funds, insurers, and asset managers. The platform originates from the Dutch Carbon Pledge signed at the 2015 Paris Climate Change Conference and is open to new members. The investment management arm of insurance company Achmea joined last year. PCAF enables financial services providers to set targets and monitor compliance and progress. The measurement of the financials’ carbon footprint is, however, merely a means to an end: the decarbonisation of investment and loan portfolios in line with the Paris Cop 21 Agreements on Climate Change.

In its first report, released in early-December, the platform presented an enhanced measuring model that includes government-issued bonds,

project finance, mortgages, listed equities, and corporate financing. The method assigns the carbon emissions of any given undertaking proportionally to stakeholders.

PCAF expects its methodology and data to set industry-wide benchmarks. The platform hopes to engage the country’s large pension funds – jointly managing a staggering €1.7tn in assets – which have been slow in developing carbon accounting practices. PCAF differs markedly from other initiatives to assess the role of financials in climate change inasmuch as the platform measures impact only and does not quantify risk.

One of the largest private sector bilateral development banks in the world, MFO (Netherlands Development Finance Company) is a founding member of the PCAF and enjoys a reputation for pushing the green envelope.

The bank has been doing so for half a century.

FMO sustains some €9bn in investments in 85 countries and was one of the first to decisively move towards the greening of its portfolio. Last year the bank issued its third sustainability bond, attracting over fifty investors who put in €500m. The funds raised are earmarked for climate mitigation and adaptation projects. Part of the resources will also be leveraged to support financial inclusion initiatives.

CFI.co | Capital Finance International

Over a third of FMO’s investment portfolio is deployed in Asia with India representing the bank’s largest market. FMO has partnered with YES Bank to promote environmental awareness and explore green business opportunities.

Whilst India needs around €2tn in investments if the country is to meet its 2030 climate change targets, the market has not yet reached maturity, according to FMO Chief Investment Officer Linda Broekhuizen: “Local investors have not yet embraced green targets and foreign investors are not comfortable, or able, to take on rupee exposure. Once gwreen targets are put in place, and a transparent legal framework has been erected, green bonds will become much more common in India.”

Mrs Broekhuizen is, however, adamant that green bonds do not sacrifice yield: “While in certain smaller markets, concessional funding may go to green investments and drive overall pricing/yield down, the Indian market is too big for such an effect. With international investors focusing more heavily on green issues, it is likely that more and more funding will flow towards green bonds, which should then lead to pricing efficiencies for the issuers in the future.” i 45

> FMO:

Unlocking Scale Potential of Green Bonds in India Lessons from Global Markets The global green bonds market has gone from strength to strength in recent years, with issuance for 2017 already exceeding $100bn, some $20bn more than the total issuance in 2016 and the first time this benchmark has been breached.

A

ccording to the Climate Bonds Initiative (CBI) State of the Market report 2017, “the climate-aligned bond universe now stands at $895bn outstanding – a jump of $201bn from the 2016 figure. This total is comprised of unlabelled climate-aligned bonds at $674bn and labelled green bonds at $221bn.”

This is an impressive figure but pales into insignificance compared to the $90tn total worth of global bond markets. And the $100bn annual issuance also needs to be measured against the OECD’s estimate that to keep average temperature rises below 2°C, $800bn must be invested every year to 2020 in renewable energy, energy efficiency, and lowemission vehicles alone.

Green bonds are debt instruments whose proceeds are being used to finance low carbon and climate resilient infrastructure/assets.

They will be a crucial tool in financing the decarbonisation of the global economy that will be necessary to meet the targets of the Paris Accord and limit average temperature rises to well below 2°C. Of the green bonds issued so far, 80% of the proceeds have gone to the transport and energy sectors.

The first issuers were multilateral development banks such as the World Bank, the International Finance Corporation, the European Investment Bank, and the Asian Development Bank. They continue to be the largest issuers, but they have been joined by issuers from countries including the USA, China, a number of European nations, India, and Brazil. France recently became the second nation to issue a sovereign green bond, after Poland and Fiji became the first emerging market sovereigns to do so. Nigeria is expected to become the first African sovereign issuer before the end of 2017.

Sub-sovereign bond issuers such as New York City and Cape Town have also joined the party.

Some 70% of global greenhouse gas emissions 46

"Green bonds will be a key tool for financing climate resilient infrastructure in cities, more of which are expected to implement green bond programmes in future." come from cities, and many of the world’s most populated cities sit on coastlines, rivers and flood plains. For this reason, they are particularly vulnerable to negative impacts from a changing climate. Green bonds will be a key tool for financing climate resilient infrastructure in cities, more of which are expected to implement green bond programmes in future.

At the same time, issuance from corporates and commercial banks has grown. Many banks are stepping up to the challenge – banks such as HSBC, Barclays, and Bank of America have all made $1bn-plus commitments to issue green bonds. These commitments often fit into wider green financing programmes – JPMorgan Chase, for example, said this year that it wants to facilitate $200bn of green financing by 2025, while Goldman Sachs, Bank of America, and Citi have pledged to invest $150bn, $125bn and $100bn respectively.

ROOM TO GROW However, says the CBI, when it comes to green bonds, the market has fantastic growth potential because demand from institutional investors continues to outstrip supply. “There is significant headroom for more quality green issuance, particularly from banks and corporates. Increasing bank-based and corporate issuance is now a vital component in meeting climate finance targets & country climate plans.” Corporate issuance is growing – S&P Global Ratings reports that the sector tripled last year to $28bn and the CBI says CFI.co | Capital Finance International

$32.6bn of corporate green bonds were issued in the year to the end of October.

In September 2017, State Bank of India announced that it planned to take advantage of this demand by raising up to $3bn in the country’s biggest overseas green bond issue.

FMO’S EXPERIENCE FMO is the Dutch development bank and has been investing in the private sector in developing countries and emerging markets for almost half a century. With a committed portfolio of €9.0bn, FMO is one of the larger bilateral private sector development banks globally, with investments in more than 85 countries. FMO has strongly embraced green and sets ambitious annual targets to grow the

Winter 2017 - 2018 Issue

green asset base. FMO partners with institutions like India’s YES Bank, who have also embedded the theme in their core strategy and contribute strongly to a greater awareness of the topic and its business potential.

$300bn compared to less than $25bn for India.

Growth has come quickly – the country issued a negligible amount in 2015 yet is the joint leading green bond issuer for 2017, alongside France and the US.

In May 2017, FMO successfully priced its third EUR Sustainability Bond, a 6-year €500m transaction that attracted more than fifty investors. The proceeds will fund projects aimed at climate change mitigation (renewable energy and energy efficiency) and climate change adaptation, as well as inclusive finance projects (microfinance and SME financing). It followed a debut €0500m issue in 2013 and a second one for the same amount in 2015. More than a third (36%) of FMO’s eligible asset portfolio is in Asia, with India the biggest market at 13% of this portfolio. Most of FMO’s renewable energy investments in the country are in wind and solar power projects.

Much of this comes down to strong government backing linked to the country’s commitment to peak CO2 emissions by 2030 at the latest, lower the carbon intensity of GDP by 60%–65% below 2005 levels by 2030 and increase clean energy to around 20% of the total.

INDIA’S MARKET RIPE FOR EXPANSION India is one of the top ten global green bond markets and, according to the CBI, “to date, Indian issuers have been leaders in demonstrating best practice by having most labelled green bonds receive a review or certification from an external body”. Having bonds certified by external parties has been instrumental in ensuring international investor confidence in the green credentials of the Indian green bond market.

As banks’ balance sheets are becoming increasingly constrained by sector exposure limits and capital ratio requirements, we expect capital markets to play a bigger role with the investments of $2.5tn required to meet India’s 2030 climate change mitigation targets, of which around half from the private sector. “There are many bond issuers who could easily be issuing green bonds,” says the CBI. “For example, India rail bonds would qualify.

Investor demand for green products is growing, the potential now exists for India to attract significant international capital via a robust green bond market to meet national climate and development goals.”

However, the market remains in its infancy, with both issuers and investors still unsure of the benefits of green bonds, says Linda Broekhuizen, FMO’s chief investment officer.

The market is also held back by the lack of a local currency market – just a small fraction of the market is denominated in rupees, in part because local investors have yet to embrace green bonds and in part, because many potential foreign investors are not able to take rupee exposures. It appears that local investors do not have any meaningful green targets yet. If such targets were to be put in place, this could significantly boost green bond issuances and ultimately the greening of the economy.

One concern investors may have is that by buying into a green bond they will be sacrificing

“There is a strong government programme to invest in green initiatives, specifically via the larger state-owned banks,” says Mrs Broekhuizen. The private sector can buildon the groundwork laid down by such public programmes, she adds.

Chief Investment Officer (CIO): Linda Broekhuizen

yield, but that is a misplaced fear, Mrs Broekhuizen adds. “While in certain smaller markets, concessional funding may go to green investments and drive overall pricing/yield down, the Indian market is too big for such an effect.

With international investors focusing more heavily on green issues, it is likely that more and more funding will flow towards green bonds, which should then lead to pricing efficiencies for the issuers in the future.”

But for the Indian green bonds market to grow, it needs a favourable environment, with the right regulations and incentives in place, along with transparent rules and principles, she explains.

Green bonds currently face restrictions that do not apply to project financing, for example, while foreign investors face additional hurdles if they want to invest in India. To illustrate, currently foreign investors need to go through an auction in order to get an investment limit allocated.

Whether or not a limit will be available and at which price, leads to a high level of uncertainty.

If this specific barrier, and others, were reduced or removed altogether for green bonds, it would boost investment in the green bond sector significantly.

Mrs Broekhuizen further adds that green should not be misconceived as being restricted to renewable energy. The scope can be, and is, much larger and extends to green vehicles, energy efficient offices, household equipment, and so on. The opportunities are out there.

LESSONS FROM CHINA? A comparison with China is instructive – CBI ranks it as the top “climate-aligned bond” country, responsible for more than 80% of green bonds in Asia, with issuance of more than CFI.co | Capital Finance International

India has its own ambitious targets to cut emissions and decarbonise its economy, and green bonds can play a huge part in meeting those goals. The sustainable investor base is slowly but surely expanding, and investor appetite will increase further if India aligns its financial sector more with international best practice.

In this regard, there are already encouraging signs of progress. The Indian Green Bonds Council was formed in 2016 and this year the Securities Exchange Board of India (SEBI), the corporate regulator, released guidelines for listing green bonds that will bring greater transparency and certainty to the Indian green bond market.

With the imperative of tackling climate change, air pollution, and other sustainability issues, a positive policy environment and strong government support, India’s green bond market is well-placed to thrive in years to come. i ABOUT THE FMO FMO is the Dutch development bank. As a leading impact investor FMO supports sustainable private sector growth in developing countries and emerging markets by investing in ambitious projects and entrepreneurs.By reaching out to underserved markets, we invest in some of the world’s most challenging business environments. The countries that we work in often have a fragile private sector, little job security and high poverty rates. FMO believes that a strong private sector leads to economic and social development, and has a more than 45-year proven track record of empowering people to employ their skills and improve their quality of life. FMO focuses on three sectors that have high development impact: financial institutions, energy, and agribusiness, food & water. With a committed portfolio of EUR 9.0 billion spanning over 92 countries, FMO is one of the larger bilateral private sector developments banks globally. For more information please visit www.fmo.nl. This article has previously been published in CFO Insights.

47

> United Waters International:

No Chemicals, No Sludge, No Dangerous Materials – Just Biological Healthy Drinking Water

U

nited Waters International AG (UWI) in Zug, Switzerland, constitutes a veritable reservoir of knowledge of cost effective water purification. The company, set up in 2005, holds the exclusive worldwide rights to BioEcoTech – a biological groundwater purification method developed and refined during three decades of research in Sweden by civil engineer Rudolf Martinell and his team of biochemical scientists.

BioEcoTech, to which UWI now holds all the patents, was the result of a sustained research effort supported by the KTH Royal Institute of Technology and The Royal Swedish Academy of 48

Science. The first facility using the technology was built forty years ago in Sweden and remains in operation. Since then, over fifty water plants have been built, documented, and certified in the Scandinavian countries, Switzerland, Slovakia, and Austria. The largest installation, in the Slovakian capital Bratislava, distributes clean water to 300,000 people every day.

Continuous development and refinement since has enabled BioEcoTech to remove all major contaminants commonly found in groundwater.

Over the past few years, United Waters International AG has launched BioEcoTech CFI.co | Capital Finance International

5. Gen. The fifth generation of the technology is fully industrialized, scalable, and operates independent of geological conditions – substantially increasing its application and marketability. It was awarded by Chinese ministry of water as the best technology in the world out of 28 tested one’s.

The unique purification process naturally enhances microbial oxidation underground and is environmentally clean: it uses no chemicals and produces no sludge or other dangerous byproducts like other technologies. BioEcoTech also eliminates the need for back-flush water

Winter 2017 - 2018 Issue

is inserted into the system is oxygen (ambient air). BioEcoTech does not use any chemicals or dangerous materials in its purification process. What BioEcoTech does is accelerate a natural occurring process. What takes at least a century in nature, the technology captivates and replicates in a matter of days. This enables the purification of all the most common contaminates in groundwater such as iron, manganese, nitrate, arsenic and other heavy metals, pesticides, etc.

United Waters International’s team possesses a unique technical expertise and includes some of the leading water specialists in the world with a collective experience of 150 years. The team includes professionals in geology, hydrology, biology, and chemistry, and has built and operated dozens of water plants.

The additional new BioGreen sensational product line has been developed by United Waters, where complete purification process is embedded inside standard containers enabling immediate supply of healthy drinking water after its installation. These systems are widely scalable from 300 - 2500 m³/day/unit.

UWI is backed by strong shareholders and boasts a well-recognised management team supported by an advisory board consisting of leading businessmen, scientists, and professors from academia. Together with industry experts and financial investors committed to offering a long-term environmentally sound, and efficient product to the world, UWI has managed to rapidly build a strong position in the world market.

NYKÖPING FACILITY (EXAMPLE) The water plant outside the city of Nyköping, about one hundred kilometres south of Stockholm, has a production rate of 17,000 m³ per day (5,5 million m³ annually). The plant was built in two stages: the original plant was set up in 1981 and then expanded in 1993.

and is exceptionally energy efficient, resulting in low operational and maintenance costs.

The technology is also reliable with a proven lifespan over 30+ years and typically five to fifteen times lower cost than comparable conventional technologies that employ chemicals. In addition, the power consumption is circa 80% less than on conventional systems used today.

NATURAL WATER PURIFICATION BioEcoTech is a natural biological process that uses semi-aerobic microbes, a natural component of the soil. The only element that

Surface water is extracted at a depth of between six and seven metres from Lake Yngaren. The intake is situated a few hundred metres from the shoreline. The water is transferred to the plant through fifteen kilometres piping and surface-infiltrated into three basins, with an area totalling one hectare, of stratified glaciofluvial deposits. The process of surface infiltration ensures that the groundwater recharge is sufficient for the actual groundwater withdrawal.

After purification, the infiltrated surface water effectively attains the same characteristics as groundwater except for its elevated concentrations of iron and manganese. The infiltrated surface water reaches a zone of the plant where the oxygen content is optimised for microbial iron and manganese oxidation – a process that is controlled and maintained by BioEcoTech. The microbial iron oxidation begins CFI.co | Capital Finance International

at the outer border of the zone. When sufficient organic carbon is available in form of dead iron oxidisers the microbial process begins.

BioEcoTech plants are dimensioned to last for a minimum of one hundred years. Facilities ensure the consistent removal of heavy metals from the groundwater before it reaches the production well. This avoids clogging. The potable water is withdrawn from a depth of about thirty meters and ready for distribution to consumers.

DIFFERENT FROM MOST United Waters International is a business that is unique by technology and by business model: whilst a commercial enterprise, the company takes the long view, navigating a fine line between the pursuit of profit and the triggering of a social impact: “Whilst we want to do and to be good, we also wish to be professional in our approach. That said, we have a technology that is revolutionary in its simplicity and, as such, is able to have an outsized impact on people’s lives. Therefore, we supply SWISS MADE products with 30 years warranty.”

UWI CEO Thorbjörn Laag was an environmentalist before it became fashionable to be so and a savvy businessman. “The potable water sector is set for exponential growth. The trouble with this is that few of its larger players are interested in serving mid-sized markets of, say, between 25,000 and half a million consumers. As a forward-thinking technology, BioEcoTech and BioGreen are precisely cut out to help municipalities in the world over ensure a dependable supply of exceptionally clear drinking water. Moreover, our technology is delivering better, healthier drinking water at a lower price than available with conventional treatment facilities.”

UWI already maintains a presence in India and China, and is ready to expand in Europe and North America as well. According to Mr Laag, the world’s emerging markets have now recognised the need to invest considerable resources in updating and expanding water utilities: “As regulatory and governance environments improve, United Waters International is able to commit its knowhow and resources to help meet the looming water crisis. Therefore, United Water donates 10-20% of net profit to local leading universities and scientists to improve and better development in water technologies.”

Mr Laag insists that large corporates and chemical-based solutions do not help solve the problem – or meet demand: “Quite often it is a political thing, for want of a better expression.

Administrators, and indeed the world as such, need to wake up to reality in order to find proper and lasting solutions to vastly improve access to potable healthy water. UWI has those solutions without appealing to rocket science or using vast infusions of chemicals to cheaply treated water and bring it back to its most healthy form.” i 49

> CFI.co Meets the CEO of Heathrow Airport Holdings:

John Holland-Kaye

J

ohn Holland-Kaye became chief executive officer of Heathrow Airport Holdings in July 2014. His previous roles at Heathrow include delivering the new Terminal 2 which opened successfully in June 2014, growing commercial income, and improving overall passenger experience. Heathrow is now rated by passengers as the best airport in Western Europe and one of the top ten airports worldwide. Mr Holland-Kaye’s focus as CEO is on making Heathrow a great place to work, transforming passenger experience, and building strong relationships with local communities.

"Mr Holland-Kaye’s focus as CEO is on making Heathrow a great place to work, transforming passenger experience, and building strong relationships with local communities."

Prior to joining Heathrow, Mr Holland-Kaye worked in housebuilding, in both the UK and US, with Taylor Wimpey, and in brewing and leisure retail in the UK with Bass plc. His early experience was as a strategy consultant advising leisure and FMCG companies in the UK, US, Australia, and the Philippines.

Mr Holland-Kaye is married. The couple has two daughters.

KEY CAREER DATES 2014 – Present Chief executive officer, Heathrow Airport Holdings 2012 – 2014 Development director, Heathrow Airport 2009 – 2012 Commercial director, Heathrow Airport 2002 – 2009 Divisional CEO, Taylor Wimpey 1995 – 2002 Managing director, National Sales Division, Bass Brewers 1986 – 1995 Strategy consultant, LEK Consulting 50

CEO: John Holland-Kaye

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

> CFI.co Meets the CFO of Heathrow Airport Holdings:

Javier Echave

J

avier Echave serves as chief financial officer of Heathrow Airport Holdings since May 2016.

He is responsible for leading the organisation financially and to give passengers the best airport service in the world whilst delivering £1bn+ EBITDA growth over the current regulatory period.

Mr Echave did so by enabling a volume based strategy and transforming Heathrow’s approach to cost and investment. He leads the investment appraisal of Heathrow’s multi-billion capital plan - working with airlines, the Department for Transport and the CAA to ensure Heathrow’s expansion plans are financeable and provide value and service for passengers while keeping airport charges close to current levels.

Mr Echave’s responsibilities also include the management of Heathrow’s £13bn debt portfolio through a multi-rating, multicurrency funding platform. Me Echave is a member of Heathrow Airport Holdings board of directors, chairman of Heathrow’s Fire Safety Board, and alternate company’s director at NATS Holding board of directors.

Mr Echave joined Heathrow in January 2008 and his achievements include establishing Heathrow’s current capital structure and positioning Heathrow as a strong credit in the financial markets, collaborating to transform passenger service, and delivering an ambitious cost efficiency programme, setting Heathrow’s financial investment appraisal capability and leading the transformation of the Business Finance team to become a genuine strategic business partner.

Prior to joining Heathrow, Mr Echave worked in infrastructure, services, and facility management in the UK and Spain with Ferrovial.

Mr Echave is married. The couple has two sons.

KEY CAREER DATES • 2016 – Present Chief financial officer, Heathrow Airport Holdings • 2013 – 2016 Finance director Operations, Investment, and Performance, Heathrow Airport • 2011 – 2013 Head of Central Finance, Heathrow Airport • 2008 – 2011 Corporate finance manager, Heathrow Airport • 2003 – 2008 Finance manager Planning and Performance, Ferrovial i

CFO: Javier Echave

CFI.co | Capital Finance International

51

> COGEFI Gestion:

One-Stop Investment Boutique with Institutional Standards COGEFI Gestion has nurtured a unique wealth and asset management expertise over two decades by servicing both private and professional investors always having in mind what defines COGEFI: The proximity with its partners and investors. This proximity being part of the firm’s DNA translates into a unique customer service approach where each investor or partner is closely taken care of by both the sales and fund management departments, with a unique entry point.

C

OGEFI Gestion, a full-fledged asset manager regulated by the AMF (French Financial Markets Regulator) since 1997, is a wholly-owned subsidiary of COGEFI Group, an investment company regulated by the French ACPR (Prudential Supervision and Resolution Authority). The equity capital of COGEFI Group is predominantly family-owned, ensuring a strong alignment of interests with investors.

COGEFI Gestion claims a European active management expertise with high conviction resulting in a portfolio construction free from index pressures. The firm is focused on longonly discretionary strategies. Its portfolios are deliberately concentrated to deliver performance in line with the risk return profile of each fund. COGEFI Gestion selects stocks and bonds displaying an asymmetric risk reward profile to achieve enhanced returns with controlled volatility. Stock and bond picking is predominantly based on fundamental/micro analysis, however constantly benchmarked against macro environmental trends and market parameters. COGEFI Gestion manages ten funds (seven open ended UCITS and three dedicated FIAs) suitable for retail and professional investors such as private banks, asset managers, insurance companies, IFAs, wealth managers, and family offices.

COGEFI Gestion shares a common set of principles with its core and long term investors: the firm only invests in financial products that it is familiar with and has control over. Moreover, the firm wants to keep pure portfolios, i.e. portfolios where the performance is only driven by its conviction stock or bond choices – or a mix of both – but not through complex derivatives, unless for hedging purposes and even then only in very limited instances. At present, none of the firm’s funds include complex derivative products.

52

investors in France and Europe to invest into mutual funds through their usual brokers on an exchange, just as they do for stocks, bonds, or ETFs. COGEFI Gestion is the first independent asset management boutique to join the Euronext next-gen straight-through-processing and cutting-edge trading platform since its launch, demonstrating the firm’s willingness to constantly adapt to the evolving needs of investors in terms of automated and digitised investment solutions, including the ones developed by fin-techs and robo-advisors.

COGEFI Headquarters: Located in the heart of the historic cultural and shopping district of Paris.

COGEFI Gestion’s reasonable size makes the firm very nimble and agile, allowing the fund management team and its seasoned professionals to quickly adapt to fast evolving markets and constant regulatory changes.

While long-term investors can rely on a long and proven track record – most of the firm’s funds have a very long history with an average of thirteen years – COGEFI Gestion strives to keep an eye on innovation.

As an example, the firm recently listed two share classes of its flagship funds: COGEFI Rendement I (FR0010451369) and COGEFI Prospective I (FR0010765719) on the Euronext Fund Service Paris, an innovative and complementary distribution channel allowing private, professional, and institutional CFI.co | Capital Finance International

In addition, the equity management team has strengthened its quantitative analysis with the implementation of a brand new proprietary stock screening tool named CAST (COGEFI Analysis Screening Tool) which should considerably improve the day-to-day work of the equity analysts and fund managers. CAST relies on an innovative stock selection methodology combining factors and parameters such as momentum, risk, growth, valuation, and profitability.

COGEFI Gestion’s fund management team has recently won several awards including two Triple A ratings from Citywire and one AGEFI award evidencing the intrinsic talent of each of its fund managers over time. The CFI.co award naming COGEFI Gestion as Best Portfolio Management Team France 2017 finishes the year on a high note.

Thanks to the numerous recognitions received in 2017 and the continuous trust and support of investors, COGEFI Gestion can envisage its development with confidence and a high faith in the future while constantly keeping in mind to deliver a best-in-class service to both existing and future investors. i

Winter 2017 - 2018 Issue

> Brexit

Notes: Border Trouble

Post-Brexit, the UK will remain part of the EU customs union and quite possibly of its single market as well. That is the gist of the tentative agreement reached on December 08 in Brussels between both parties. The UK’s continued membership of the customs union was spelled out in the form of an apparently iron-clad guarantee that Ireland will have no hard border. The reintroduction of checks along the almost 500km-long border separating the Republic of Ireland and Northern Ireland – the six counties that in 1922 choose not to join the Irish Free State and keep their allegiance to the crown – runs counter to the terms of the 1998 Good Friday Agreement which put an end to the sectarian violence in the province.

T

he emergence of a post-Brexit hard border would risk a return to the dark days of The Troubles. Though nobody – not the government of the Republic of Ireland, nor the EU or, indeed, Her Majesty’s Government – wants to seal off the border or erect any kind of barrier no matter how unobtrusive, the UK’s declared intention to exit the European Union mandates some form of control, not so much of people as of merchandise. After the UK’s departure from the union, the now invisible line dividing Eire becomes an EU external border.

Brexit supporters – and particularly those who favour a no-deal split followed by trade on WTO (World Trade Organization) terms – fail to understand the implications of their stance: no border in Northern Ireland precludes the UK from obtaining its WTO schedules (lists) – the non-discriminatory terms of trade negotiated with, and examined by, the organisation’s members. The important bit concerns the nondiscriminatory nature of WTO schedules: the terms of trade need to be equal for all members.

This crucial principle, also known as mostfavoured nation (MFN) status, is spelled out in Article 1 of the General Agreement on Tariffs and Trade (GATT) which governs the trade in goods – it forms the very foundation on which the global regime of cross border trade was erected.

Absent a border in Northern Ireland, the UK effectively states – as far as the WTO is concerned – that it is open for business to all and will not inspect, control, or tax any of its imports at any of its border crossings. Thus, the country would declare itself the only true free trade nation in the world – a highly impractical proposition that would run afoul of countless international (judicial) treaties, becoming an outlaw country in the process.

Whilst this may be good news to the cocaine producers of Colombia and the XTC pill pushers of The Netherlands, it would also place the UK an impossible position: unilaterally declared terms of trade need not be reciprocated. In other words, the UK blindly accepts whatever the world dumps on it without British exporters enjoying the same freedom when they venture into other markets.

Simply put: no border in Northern Ireland means no border anywhere in the UK. The declaration signed in Brussels between Prime Minister Theresa May and President Jean-Claude Juncker of the European Commission clearly – and, for all its precise diplomatic language, unequivocally – states that the Irish border will remain invisible. The only logical conclusion from this is that the UK will remain part of the EU’s customs union and single market.

CFI.co | Capital Finance International

Whilst Norway is not a member of the European Union, nor of the customs union, the country is part of the single market and accepts the EU’s four freedoms. As a result, the country’s almost 1,700km-long border with EU member Sweden looks open, but is not. In 2016, almost 230,000 vehicles were checked by customs agents on both sides of the border looking mostly for bootleggers.

Turkey is, of course, not an EU member, nor does the country participate in the single market. It is, however, in a customs union with the EU. Even so, the flow of trade is subjected to rigorous inspection when moving to or from the union.

Switzerland is a special case: it remains outside the EU and the customs union whilst it participates partially in the single market – adhering to its four fundamental freedoms, including the freedom of movement of persons.

Switzerland cemented its relations with the EU in over 210 treaties which, taken together, apply most of EU law to the country. To prevent the Swiss from applying EU law selectively (picking and choosing), all treaties contain a guillotine clause which states that the a breach of any single treaty invalidates the lot of them.

A truly transparent border in Ireland necessitates continued UK membership of both the customs union (to ensure tariff parity) and the single market (to ensure regulatory alignment). A special – and undoubtedly complicated – Swisstype deal may be called for: one that places the UK outside the EU, as per its explicit request, but leaves all else unchanged – including the freedom of movement disliked by most Brexiters. The Swiss tried to wriggle out of that in 2014 but were reminded by Brussels of the guillotine clause. Hereupon the Swiss government immediately ceased all further attempts at discouraging EU nationals from claiming their right of abode. i 53

Special Feature

Preferential terms of trade are only available on the basis of bilateral or multilateral free trade agreements (FTAs). Even so, border controls remain in place to check for compliance. The only way to reduce invasive checks is for two or more countries to join in a customs union, adopting a single external tariff structure. A single market goes a few steps further by aligning regulation and eliminating non-tariff barriers to trade. Only this completely eliminates the need for border controls.

"Switzerland is a special case: it remains outside the EU and the customs union whilst it participates partially in the single market – adhering to its four fundamental freedoms, including the freedom of movement of persons."

> British Airways:

Bring On the Competition Crisis? What Crisis? The European airline industry may have suffered a number of embarrassing bankruptcies in 2017, the continent’s big carriers – International Airlines Group (British Airways, Iberia, Air Lingus, Vueling), Lufthansa, Air France-KLM, Ryan Air, and EasyJet – have seen their market capitalisation rise significantly, in some cases with more than 50%. Standardisation and economies of scale carried the day even as fuel costs increased.

T

his year, the global airline industry expects profits to soar 11% on average and reach $38.4bn. IATA Chief Economist Brian Pearce notes that after a six-year decline in passenger yield, that metric is now also set for a 3% boost.

Strong demand and improved fleet management combined with cost containment will drive profits at European airlines to $11.5bn in 2018 – up from $9.8bn last year. IATA based it forecast on an average oil price of almost $74 per barrel.

After the demise of Monarch and Air Berlin, and Alitalia’s bankruptcy – which provided rich pickings for the cash-laden super carriers – consolidation is not expected to play a major role in 2018. In Europe, the exit of both Monarch and Air Berlin failed to impact overall capacity as the aircraft, landing slots, and crews of the carriers were almost immediately taken over by more successful rivals and absorbed into their networks.

As super carriers emerge, regulators are facing increased difficulty in ensuring the industry’s long-term competitiveness. While at present the European market is still fiercely competitive, that dog-eat-dog scenario may not last. Ticket prices are on the rise and governments now display more willingness than before to help their flag carriers gain a competitive edge.

Heathrow: Concorde Room

54

“A large proportion of our premium customers is also regularly travelling economy – there are, in fact, only very few customers who exclusively fly premium class. So it is up to us to offer excellence in every cabin.”

ON MERIT ONLY The most quintessential of European flag carriers, British Airways refuses to play that game and is determined to compete solely on merit.

IAG managed to acquire the winter and summer slot portfolios of defunct Monarch at Gatwick Airport for an undisclosed sum, allowing British Airways to continue its expansion.

IAG chief executive Willie Walsh said the extra slots will allow BA to add new destinations to its network and increase frequencies on existing routes. An earlier plan to award the Gatwick slots to Level, IAG’s new long-haul no-frills airline, was shelved. Level launched in March last year in response to the success of Norwegian Long Haul which resuscitated the concept of low-cost intercontinental flight originally pioneered by Laker Airways in the UK and Braniff Airlines in

787-9: First cabin

CFI.co | Capital Finance International

the US. Level currently flies out of Barcelona-El Prat Airport and is set to commence operations at Paris Orly in July.

Meanwhile, Monarch’s slots at Luton were snapped up by Hungarian low-cost carrier Wizz Air which deployed two additional aircraft at the airport, bringing the total up to seven.

IAG also managed to acquire, for the proverbial song-and-dance, the insolvent Austrian carrier Niki for a reported $44m. Rival Lufthansa which was willing to offer $240m for Niki, Air Berlin’s feeder airline LGW, and a combined fleet of about twenty aircraft. The Germans pulled out of the deal at the last minute after the European Commission voiced its concerns over Lufthansa’s dominating position on a number of routes. IAG CEO Willie Walsh, visibly delighted with the deal, said that Niki will receive a €16.5m cash injection to provide the company with liquidity.

The Austrian carrier is to become a subsidiary of Spanish low-cost airline Vueling which will also take on board about 740 former Niki workers.

“Niki was the most financially viable part of Air Berlin and its focus on leisure travel means it’s a great fit with Vueling. This deal will enable Vueling to increase its presence in Austria, Germany, and Switzerland and provide the region’s consumers with more choice of low-cost air travel.”

Winter 2017 - 2018 Issue

Late October, IAG beat market expectations with a disclosure that 2017 operating profits are expected to top €3bn – a jump of 21% over 2016. Analysts are quite bullish on IAG after British Airways in December announced plan to close its principal final salary pension and defined pension schemes and launch a more flexible retirement plan instead. The move will help BA address its $3.7bn pension deficit.

MANAGING A PARADOX AT BA How to manage an apparent paradox – and make a profit while doing so. It is a challenge well suited to British Airways CEO Alex Cruz, the eminently likable Spaniard who transformed Vueling from a struggling low-cost carrier into a vibrant, successful airline, carefully plotting a course midway between the no-frills low-cost model of Ryanair and company and the uninspiring model pursued by most legacy carriers. In fact, some industry experts credit Mr Cruz with the shaping of the centre ground – home to economyplus airlines where cheap fares and high-yield passengers meet. It is where the battle for hearts, minds, and wallets of passengers will unfold.

“In the longer term, the mid-market is likely to become the real fighting ground,” says Mr Cruz.

Since his arrival at British Airways in 2016, Mr Cruz has nudged the company towards a sort of centre ground: one which sees customers being offered low prices, yet with a premium service.

He admits that to compete with some of the long-haul low-cost providers, changes have had to be made: “Already before I arrived, British Airways realised the need for changes to its cost structure. At Gatwick, we now have nearly achieved what we wanted. British Airways is thoroughly refurbishing its Gatwick-based fleet of Boeing 777s. The aircraft will include a smaller business class, a fairly large premium economy section, and a large economy cabin – a layout not

CEO: Alex Cruz

A380: over the White Cliffs of Dover

unlike those used by Emirates, Etihad, and many other airlines. This configuration, combined with many other improvements at Gatwick, puts us in an interesting competitive position vis-à-vis Norwegian, WestJet, and other carriers that are playing the price game.” A similar strategy is likely to be implemented at Heathrow.

Mr Cruz is adamant that the barebones low-cost model is not one British Airways will emulate: “It is not the British Airways model.” British Airways, Mr Cruz explains, is determined to connect with consumers and offer every customer a premium experience and the absolute best short haul product in the business.

“A large proportion of our premium customers is also regularly travelling economy – there are, in fact, only very few customers who exclusively fly premium class. So it is up to us to offer excellence in every cabin.” In January, British Airways introduced a buy-on-board meal service.

In line with its determination to stand out on excellence, the company engaged the likewise quintessentially British retailer Marks & Spencer to provide an on-board gourmet experience. BA is also in the process of equipping its long-haul fleet with ultra-fast wireless internet – a mammoth job that started earlier this year: “This represents nothing less than a major revolution. At the moment, there is no airline in Europe offering a Wi-Fi connection that supports video streaming.

We are quite excited that British Airways will be the first carrier to offer this service.”

BRITISH PLUCK Under Mr Cruz, BA has rediscovered its British pluck: “We do not lose time or expend any effort in fighting the competition on legal grounds or complaining about the way they are structured. From our side there is no lobbying going on to restrict access or otherwise impede their operations. We just do not care. However, we do pay close attention and consider strong competition a prime motivator for upping the ante.”

CFI.co | Capital Finance International

Whilst the nimble flag carriers from the Middle East managed to capture a significant share of the medium and long haul markets by offering a remarkable quality/price proposition that took Europe’s flag carriers – including BA – off guard, British Airways was the first of the majors to respond in kind: “The Mideast carriers are a tremendous force in today’s aviation market.

They also helped create untold thousands of jobs in Europe by their wholesale ordering of Airbus planes. At BA, we welcome the competition, rather than complain about it. We just have to be as good, or better, as they are. Everything they do, adds to British Airways determination to become better yet.”

Mr Cruz recognises that the Mideast carriers are “fabulously” well-run: “They had us rethink our own model and made us realise that in order to succeed British Airways needed to equal or better the lavishness these airlines offer both on board and in their airport lounges. And, I’m happy to report that we are succeeding. The effort is bearing fruit. Now, premium passengers arriving at Heathrow are met at the aircraft by a beautiful Jaguar which whisks them in supreme comfort to their connecting flight. You wouldn’t expect that kind of service at LHR from a carrier such as BA. Yet, we are learning from the competition and, more importantly, we are delivering.”

“British Airways has now entered a new phase of investing in the customer experience. Last year, we committed £400m and over the next few weeks we’ll unveil additional investment plans.

This way, we are showing our passengers that the unique spirit they may have experienced flying British Airways some years ago is coming back with tremendous strength.” Mr Cruz concludes by emphasising that British Airways is so much more than just another carrier. In a sense, the CEO has utilised the best bits of the company’s legacy – those things and feelings its competitors cannot equal – to forge an airline ready to take on any and all comers in the market of its own choosing. i 55

> Blue Lagoon:

An Otherworldly Experience Originally founded to unlock the extraordinary benefits of geothermal seawater, Blue Lagoon integrates science, sustainability, nature, and design – creating experiences that take the mind and body to new dimensions of wellbeing. In April of 2018, the company will open the Retreat at Blue Lagoon Iceland—a place in the mineral-rich waters and moss-covered lava fields where hospitality, rejuvenation, fine dining, and exploration will be the hallmarks of a unique journey.

2965 U

ORIGINS Chosen in 2012 as one of National Geographic’s 25 Wonders of the World, the Blue Lagoon is a place where the interplay of architecture, design, and geothermal seawater brings forth a world of wonder and wellness.

The water’s unique powers were first discovered in the early 1980s when local residents began to bathe in the warm blue reservoir that had formed in the lava field beside the Svartsengi Resource Park – a geothermal power plant producing green energy. Engineers at the facility had expected the water to seep through the lava and return to the earth’s volcanic aquifers.

However, owing to the precipitation of silica in the fluid, proper drainage did not occur and a beautiful body of water took shape.

"Blue Lagoon is a place where the interplay of architecture, design, and geothermal seawater brings forth a world of wonder and wellness."

Some people came to the water for healing.

Others for pleasure. But all who came, left with a profound sense of wonder.

The lagoon eventually became the focus of intense scientific study, giving birth in 1992

Blue Lagoon: The Retreat

56

CFI.co | Capital Finance International

to Blue Lagoon Limited, a company dedicated to the research and development of the water’s primary elements: silica, algae, and minerals.

In 1995, with research confirming the healing properties of Blue Lagoon geothermal seawater, Blue Lagoon Ltd launched a renowned line of skin care products. This was followed in 1999 with the opening of the modern-day spa facility and, in 2005, a clinic hotel for the treatment of psoriasis.

Today, many decades after the first inquisitive souls began venturing into the water, the Blue Lagoon has blossomed from a humble curiosity into a wonder of the world. Indeed, the story of the Blue Lagoon continues to be written with every guest who enters the water.

Winter 2017 - 2018 Issue

SUSTAINABILITY AND SOCIETAL UPLIFT The dynamic, sustainable relationship between man and nature is the cornerstone of Blue Lagoon's philosophy. This relationship informs every aspect of the guest experience. From the healing water that fills the lagoon to the electricity that lights the complex, every coordinate of the visitor journey draws its power from the earth’s geothermal resources. In short, wellness at Blue Lagoon is inseparable from the wellspring of renewable energy brought forth at the Svartsengi Resource Park.

lava flows. The company strives to preserve the sanctity of this precious environment and thus cultivates, in all its endeavours, a harmonic relationship with nature. Environmental impact is minimised while architecture is designed to merge with the land – integrating the forms, shapes, and materials of the terrain. This intrinsic respect for nature can also be seen in the walkways that have been built through the lava fields. These paths allow guests to wander through the centuries-old moss, experiencing its aesthetic vitality without damaging it.

Located on Iceland's Reykjanes Peninsula in the heart of the Reykjanes UNESCO Global Geopark, Blue Lagoon is surrounded by a vast array of volcanic phenomena: craters, fissures, mud pools, steam vents, hot springs, and moss-covered

Blue Lagoon's connection with nature is encapsulated by its motto: a society without waste. During the course of the company’s evolution, the aspirations embedded in this phrase have spawned countless initiatives that CFI.co | Capital Finance International

foster both societal wellbeing and environmental balance.

To engender a healthier society, Blue Lagoon funds a broad spectrum of philanthropic causes in the areas of youth sports, the arts, health, and fitness – contributing to the wellbeing of the communities on the Reykjanes Peninsula.

Environmental balance is manifest in the closed eco-cycle from which most of Blue Lagoon's resources – geothermal seawater, electricity, heating, hot water – are derived. In the extraction and use of geothermal energy, nothing is wasted, while greenhouse gas emissions from the power plant are incorporated into the production of methane, a clean gas. More recently, scientists at Blue Lagoon’s R&D centre have discovered ways 57

Founder and CEO: Grímur Sæmundsen

to cultivate algae with CO2—a significant step in the company’s goal to eliminate its carbon footprint and generate a sustainable future.

In the arena of corporate social responsibility, the company places the wellbeing of its employees and guests at the centre of its operations.

Enjoyment and relaxation are key, but safety is paramount. This truth reverberates through the company’s four brand values, which were chosen by the staff: We respect; We care; We bring joy; and We create memories.

But these have become more than linguistic assertions. They are the guiding lights that animate Blue Lagoon’s existence, inspiring the company and each of its employees to continually reach for higher ground.

THE RETREAT AT BLUE LAGOON ICELAND Built into an 800-year-old lava flow, the Retreat at Blue Lagoon Iceland was conceived and created to expand the horizons of the Blue Lagoon experience. It encompasses a subterranean spa, a luxury hotel, a mineral-rich lagoon, and a restaurant that honours and reinvents Iceland’s culinary traditions.

Covering more than 4,000 square metres and descending three metres into the lava, the Retreat Spa was designed to give guests the ability to commune with the natural wonders of geothermal seawater in a tranquil, luxurious environment.

58

The Retreat Lagoon is sourced from the same volcanic aquifer as the Blue Lagoon. With its lava walls, hidden corridors, waterfall, and terraced concourse, this mineral-rich expanse creates an elevated experience of the powers of the Blue Lagoon.

The Retreat Hotel encompasses 62 suites ranging in size from 40 to 220 square metres.

Encircled by the otherworldly waters of the Retreat Lagoon, each space was conceived to erase the boundary between interior design and exterior enchantment, bringing guests into harmony with nature while catalysing a sense of wonder.

The Retreat’s signature dining establishment, Moss Restaurant, occupies the highest point at Blue Lagoon, endowing guests with remarkable perspectives on the volcanic horizon. With a la carte and set menus that move effortlessly from the mountains, to the farmlands, to the rivers, to the oceans, each dish opens the door to the living heritage and diverse delights of Icelandic cuisine.

Aspiring to create transformative wellness experiences, the Retreat at Blue Lagoon Iceland represents a bold new milestone for a company that was born from a humble body of blue water on the Reykjanes Peninsula. i FOUNDER AND CEO: GRÍMUR SÆMUNDSEN Born in 1955, Grímur Sæmundsen is a doctor CFI.co | Capital Finance International

of Medicine (MD) by education. As the founder and CEO of Blue Lagoon Iceland, he has led the company’s growth and development since 1992, orchestrating its transformation from an entity focused on health and wellness into a dynamic enterprise that also encompasses travel, leisure, skin care, research & development, and sustainability.

BACKGROUND Mr Sæmundsen earned his MD from the University of Iceland in 1981 and later received a degree in sports medicine from London Hospital College. In 1990, he left his medical practice, becoming both a pioneer and entrepreneur in Iceland’s healthcare and pharmaceuticals industries. During the course of his career, Mr Sæmundsen has established multiple companies and spearheaded a host of innovative projects and initiatives in the public and private sectors. He has also been a leading figure in the Icelandic business community – particularly in the travel industry. His most notable endeavour is Iceland’s renowned Blue Lagoon, a site that brings together all of his passions for health, nature, sustainability, and science.

THE RETREAT With the opening of the Retreat in 2018, Mr Sæmundsen’s original vision for the Blue Lagoon as a centre of sustainability, health, and wellbeing galvanised by the riches of geothermal seawater will take on an extraordinary new dimension. i

Winter 2017 - 2018 Issue

> Brexit

Notes: Democratic Deficit

E

urosceptics often decry the European Union’s perceived democratic deficit and strenuously object to being ruled by “faceless unelected bureaucrats.”

In the UK, where Euroscepticism is particularly fashionable, they wish for legislative powers to be devolved to Westminster and executive powers to Whitehall.

Interestingly, and tellingly, one of the first acts of Prime Minister Theresa May upon moving into Number 10 in the wake of the June 23, 2016, referendum was to deny parliament a say in the upcoming Brexit proceedings – a decision she had to revisit weeks later by order of the Supreme Court.

Eurosceptics are quite fond to voice their supreme distaste of the faceless unelected bureaucrats who rule their lives from Brussels, never once questioning the oxymoron contained in the allegation: no bureaucrat is ever elected to his post by the way of a popular vote.

The charge levelled against the EU for sustaining a democratic deficit stems mostly from a lack of familiarity with the, admittedly complicated, way the union was set up – or forged over the years as it grew from a friendly cabal of six nations traumatised by war in the late 1950s to a behemoth with 28 member states stretching from the North Cape to the Canary Island and from the far-flung Azores to the Black Sea. Whereas initially the EU, in its former guises as the European Coal and Steel Community and the European Economic Community, was designed and set up to prevent the continental powers from unleashing another world war, the construct eventually became a tool for furthering democracy.

In 1981, Greece was hurriedly absorbed into the community as a way to secure its fragile democracy, then under near-constant threat for the country’s unruly colonels. As both Portugal and Spain emerged from decades-long rule by dictators, both countries were quickly ushered in for the same purpose.

As a promoter of democracy and its associated values, the charge of the EU sustaining a

democratic deficit is a particularly painful one for Brussels to suffer. The accusation relates primarily to the difficulty EU citizens perceive in their ability to relate to an outsized and distant entity that is seen, but rarely noted, to rule their lives.

The EU’s democratic legitimacy rests on two pillars: the directly elected European Parliament and the Council of Ministers which jointly with the European Council (of heads of national governments) represent the peoples of Europe.

The much-maligned European Commission – the EU’s civil service – is appointed by the European Council for a five year term with commissioners’ nominations ratified by the European Parliament.

The trouble is that the commission – which is responsible for the day-to-day government of the union – has the power to initiate legislation, which then needs to be approved by both council and parliament. The 750 members of the European Parliament (MEPs) are only allowed to discuss, amend, and vote on legislation proposed by the commission. Contrary to members of national parliaments, they do not have the right to table their own bills. However, the democratic deficit stemming from this limitation is, whilst regrettable, also negligible: in national parliaments across the EU fewer than 15% of legislative initiatives tabled by members make it into law.

A union of 28 states that all value their often hard-fought sovereignty cannot function along the same lines as national governments which, by their very nature, enjoy full power. The EU can only be ever as powerful as its member states allow it to be. If the EU suffers a democratic deficit – a highly contentious notion to begin with – it results from the need to respect each member state’s sovereignty. As an added benefit, this also ensures the full transparency of the EU law-making process: each legislative initiative that makes it through the council and parliament needs, in turn, to be ratified by national parliaments.

Where the perceived democratic deficit may be most pressing is within the rather obscure confines of the Eurogroup – officially an informal annex to the Council of Ministers – which includes the nineteen ministers of finance of the Eurozone. The increasingly powerful Eurogroup works towards the establishment of a fiscal union and – at a later date – a European Ministry of Finance with far-reaching powers to keep profligate spending in check. So far, the Eurogroup has not been subject to parliamentary scrutiny.

A number of ideas have been floated to remedy this situation, including a suggestion to restructure the European Parliament in such a way that only members from Eurozone countries would be elected by popular vote. Under this plan, MEPs from non-euro member states would be nominated by their national parliaments, much as all MEPs were before European elections were introduced in 1979.

Formerly a weak collective mostly home to politicians outmanoeuvred in their domestic arenas, the European Parliament has been significantly reinvigorated with the 2009 Treaty of Lisbon which established a co-decision procedure that mandates the approval of new legislation by both the European Council and the European Parliament. The co-decision procedure also awards parliament the right to inspect and vote on the EU’s budget – which, btw, is rigorously audited by independent external experts. These added powers have given the parliament, as the direct representative of EU citizens, a big stick for keeping the council – and the commission – in line.

The idea would help to further rationalise EU spending patterns and represents a possible next step towards a true European Federation.

It requires, however, a modicum of faith in the intentions of the union and those of its members.

Though most will not say it out loud in order not to antagonise those of a more sceptical disposition, nearly all EU member states subscribe to the preamble of the 1957 Treaty of Rome – the foundational document of the EU – which details the ultimate objective of the exercise: “To lay the foundations of an ever closer union among the peoples of Europe, [resolved] to ensure the economic and social progress of their countries by common action to eliminate the barriers which divide Europe […].”

Another novelty introduced with the Lisbon Treaty was the creation of a highly visible council president to act as the union’s leader. This has raised the profile of the council which is now the only forum where important decisions are made by the heads of government of all member states.

The European Commission – mistakenly seen as almighty – has no voice in the council and is merely charged with carrying out its instructions – pending approval by parliament.

The 1957 treaty – including its preamble – has been ratified six times since then, also by the UK which – again interestingly and tellingly – in 2014 secured an opt-out of the “ever closer union” bit. It seems there was just no way to satisfy British Eurosceptics. Lacking a firm, or even tentative, belief in the value of the project, any excuse – including something as vague as a democratic deficit – constitutes grounds for its dismissal. i

CFI.co | Capital Finance International

59

Special Feature

The first, and most important, condition imposed on countries wishing to accede to EU membership is the existence of “stable institutions guaranteeing democracy, the rule of law, human rights, and respect for, and protection of, minorities.” As both Poland and Hungary discovered recently, any member state that is deemed to violate these democratic principles will immediately be called upon to rectify its behaviour. Such backsliding countries may be hauled before the European Court of Justice, receive sanctions, or – in extreme cases – see their membership suspended.

Miscreants may eventually be expelled from the union altogether.

"Eurosceptics are quite fond to voice their supreme distaste of the faceless unelected bureaucrats who rule their lives from Brussels."

> CFI.co Meets the CEO of Cyprus Cooperative Bank:

Nicholas Hadjiyiannis

N

icholas Hadjiyiannis holds a degree in Quantity Surveying from the University of Reading, UK, and a Master’s in Shipping Trade and Finance from City University Business School in London.

He holds more than twenty years of extensive international banking and financial professional experience, starting his career in 1995 as an investment analyst in London. He moved into the field of investment advisory and private banking with Bank of Cyprus, Athens, for two years, continuing thereafter with a ten-year career at Merrill Lynch, in both Athens and London, and BNP Paribas in Cyprus and Geneva. He returned to Cyprus with his family in 2007 to take up a job with Cyprus Popular Bank, leaving in the summer of 2013 from a position of divisional manager Wealth Management.

Mr Hadjiyiannis moved into the private sector in the field of family office services for international private clients while in November 2013 he was appointed member of the board of directors of the Cooperative Central Bank (CCB) Cyprus. He was elected chairman of the board serving successfully for two years. In December 2015, he was appointed CEO of the bank.

He is a fellow member of the Royal Institute of Chartered Surveyors (FRICS) UK and was certified by the UK Financial Services Authority (FSA) and the New York Stock Exchange (NYSE).

He also holds professional investment advising licenses from the Cyprus Securities and Exchange Commission (CySEC).

Mr Hadjiyiannis lectured on the topics of finance and investments at the American College in Athens, the University of Nicosia, and the European University in Cyprus. He is a member of the board of directors of the Cyprus Employers and Industrialists Federation, President of the Cyprus Institute of Financial Services, an executive member of the board of directors of the European Association of Cooperative Banks in Brussels, and vice chairman of the Cyprus Banks Association. He is a member of the advisory board of Postgraduate Studies at the Costas Grammenos Centre for Shipping, Trade, and Finance of City University Business School in London.

Mr Hadjiyiannis said that, “We are trying to build on the traditional values of the Cyprus Cooperative Bank, which actually are the traditional values of our society, in order to stay close to the people and try to respond to their needs regarding banking services. So, we are looking to offer holistic banking services in a simple and responsible way. We are transforming this 108 years of cooperative history 60

CEO: Nicholas Hadjiyiannis

and culture into a modern, local, competitive and, responsible bank.”

Commenting the NPL issue, Mr Hadjiyiannis said: “We set up a strategic cooperation with Altamira Asset Management, one of the biggest players in the Eurozone. It is a specialized NPL service company that has worked alongside the Spanish Banco Santander, BBVA, and others in dealing with this problem. We created Altamira Asset Management (Cyprus) to take over the management of the NPLs.” CFI.co | Capital Finance International

“We are confident that through this strategic cooperation we will on-board international expertise and practices from more developed banking systems and economies that dealt successfully with these challenges. This will allow us to set aside legacy issues and step forward with a clean balance sheet, focusing exclusively with growing the bank, funding the economy, and providing an attractive return on equity to our shareholders.

This will assist in unlocking our potential as the biggest retail bank in the country supporting our move into mainstream retail banking.” i

Winter 2017 - 2018 Issue

> Brexit

Notes: Project Fear

A

fter suffering some initial and minor difficulties, they fully expect the UK to become the shining star of a new world order – an Empire 2.0 – a low to no regulation haven of free enterprise, free trade, and free beer. No, that last one was made up; but listening to Brexiters explaining the marvels of life outside the EU realm, the idea takes hold that all of the world’s ills, and most certainly those that afflict the UK, share a common denominator – one found in the reportedly drab, wet, and boring capital of Belgium where the sovereignty-devouring beast resides, gobbling up nations and extinguishing their unique traits.

Even though the UK remains, for now, a full member of the European Union – as of yet, nothing has changed – Brexiters jump on any morsel of good news to proclaim their intellectual and moral superiority over the experts, denouncing their Project Fear as the work of scaremongers and traitors. The fact that no economist of any repute is willing or able to predict a favourable outcome of the exercise is hailed as definitive proof that the informed opinion of anyone with more than a few O Levels to their name is not to be trusted.

In the run-up to the June 23, 2016, Brexit referendum, the well-oiled leave campaign shunned economics, appealing instead to emotion: who wants to be ruled from – of all places – Belgium by bureaucrats earning a small fortune to ponder the curvature of bananas?

Reason never came into play as EU myths proliferated, lies became alt-truths, and fake news ruled the airwaves. Against this onslaught, the remain campaign did little more than preach caution and warn of grave dangers – Project Fear.

So far, Brexiters have proved a resilient lot, brushing off setbacks, such as the exit payment nobody considered before the vote, as minor inconveniences caused by resentful continentals, trembling at the mere thought of a successful post-Brexit UK. The script for when reality hits, as it inevitably must, is already written and well-rehearsed: any trouble experienced after the country’s departure from the union is to be squarely blamed on vengeful and small-minded Eurocrats who, as pitiful foreigners, cannot be expected to have a developed sense of fair play.

but you must not state it in a self-assured way, because this is a democratic country and others may be of a different opinion.”

Thus it came to be that the experts lost out.

It just so happens that public opinion begs to differ and bravely ignores reality. The remain campaign’s most-damning mistake was to focus on economic minutiae as opposed to the bigger picture. Brexiters’ assertion that the UK, once outside the EU, is free to trade with the world and seal its own trade deals is easily dismissed by pointing out the fact that the EU already has well over fifty full free trade agreements (FTAs) in place with third countries and is preparing another forty or so. In other words: on its own, the UK has some catching up to do – the country is already now able to trade freely on a truly global scale. However, Brexiters cannot really be bothered with such simple facts since they do not conform to their strongly-held views.

Turning your back to the world’s largest and most prosperous bloc of nations – and exiting its 50+ FTAs – cannot produce beneficial results. All other metrics derive from this simple statement: the impact on the City, the Irish border, the UK’s position in the world, the country’s multiple and alarming deficits – all are derived from the reality that, before long, the UK will stand on its own in a very large and not always friendly world. That is the real Project Fear. It matters little that the UK may, for now, consider itself one of the world’s larger economies; compared to the other big boys – the US, China, India, and the EU – it is a rather smallish market and, shortly, an island gateway to nowhere.

Moreover, Brexit comes – as major events usually do – at a most inopportune moment in time.

CFI.co | Capital Finance International

Even after numerous cutbacks, the budget is still far from balanced and remains in the red to the tune of 3% of GDP. Gross government debt borders 90% of GDP, leaving little room for large-scale interventions to meet or counter any economic setbacks. The picture is particularly stark when compared to the upswing taking place on the continent where – with only a few exceptions (France, Spain) – budgets are fairly balanced, with surpluses in a number of key economies such as Germany, The Netherlands, and Sweden. Debts loads have also lightened significantly and remain on a downward trend.

Most disconcertingly, the UK has so far not managed to tackle its outsized trade deficit which, despite the slump in the pound’s value, still amounts to a whopping $171bn. The wider and much more significant current account deficit, whilst shrinking slowly, now hovers around $130bn, or 4% of GDP, emphasising the UK’s continued dependence on the “kind strangers” identified by Bank of England Governor Mike Carney as the ones underwriting the country’s economy.

Meanwhile Project Fear, misnamed as it is, unfolds with GDP growth coming in significantly lower (-0.9%) than expected and shaving about £350m a week from the economy’s potential – coincidentally the exact same amount promised voters by the leave campaign as a post-Brexit windfall. An analysis commissioned by the Financial Times concluded that the government last year lost out on about £9bn in fiscal revenue due to the loss in economic output.

Within the context of accelerated global growth, the UK is fast becoming a laggard. The government is well aware of the trend and now seeks assurances from the European Union that the country’s impending exit will not disturb cross-border trade. However, the government still lacks a well-defined vision for the country it wishes to shape once the departure has been finalised, leaving EU negotiators in Brussels guessing about the UK’s true intentions. That, perhaps, is the greatest challenge: nobody seems to know what to do next. Once platitudes and jingoism are removed, Brexiters offer no vistas other than imaginary sunny uplands whilst remainers have all but given up on talking sense.

Thus Project Fear becomes anybody’s guess – the less educated, the better. i 61

Special Feature

Hungarian-born humourist George Mikes (19121987) who dissected life in his adopted country in How to Be a Brit, noted: “The British are a brave people. They can face anything, except reality.” The author was also eerily prescient when he concluded (in the late 1940s) that: “In England it is bad manners to be clever, to assert something confidently. It may be your own personal view that two and two make four,

"Turning your back to the world’s largest and most prosperous bloc of nations – and exiting its 50+ FTAs – cannot produce beneficial results."

Due to its aversion the fiscal probity, the UK is caught up in a counter-cyclical movement that sees the country battling multiple deficits just as the economy enters its post-boom phase. As the economies of mainland Europe barrel ahead, boosted by a re-established fiscal equilibrium and shrunken debt loads, the UK finds itself spending busloads (with apologies for the irresistible pun) of money it doesn’t quite have.

> Cyprus Cooperative Bank:

New Perspectives

Cyprus Cooperative Bank is one of the largest credit institutions in Cyprus. It was established in 1937 and provides a wide range of financial and insurance products and services. The bank represents a unique combination of tradition, history, dynamism, and innovation as it has evolved from the merger of a number of Cooperative Credit Institutions that have played a decisive role in the development of the Cypriot financial system – each one contributing in its own unique way to shape the current dynamic organisation.

I

n December 2016, the bank took the bold decision to proceed with the legal merger of the 18 Cooperative Credit Institutions (CCIs) with the bank, creating a single banking entity – the Cyprus Cooperative Bank (CCB).

The vision of CCB it to be a viable, vital, dynamic, and leading component of the Cypriot banking system. The overall mission of CCB’s strategy is to create value for its shareholders by supporting households, businesses, and local communities in a socially responsible manner. More importantly, CCB aims to adopt an operating model that promotes the creation of innovative banking products and processes whilst achieving a competitive banking model by using its broad stakeholder base.

CCB is the largest retail bank in Cyprus, with the largest branch and ATM network in the country.

It is a Cypriot-owned financial institution with members and customers being mainly Cypriot households and small and medium-sized enterprises (SMEs). The main activities of CCB is the provision of retail and financial banking to private households and medium-sized enterprises in Cyprus. Furthermore, it has the largest customer base and is a market leader in domestic deposits. Household loans are CCB’s cornerstone product. In addition, through its strong links to the communities and local markets, CCB is a significant provider of SME and agricultural loans.

CCB is regulated by the Central Bank of Cyprus and supervised by the ECB and SSM. CCB is a full member of the European Association of Cooperative Banks and a member of the European region of the International Cooperative Alliance.

VALUES CCB aims to enhance the long-term value of 62

"The vision of CCB it to be a viable, vital, dynamic, and leading component of the Cypriot banking system." the bank whilst retaining its customer-centric model and further improving customer service by embracing the following values: Social Responsibility: CCB’s social responsibility approach is governed by the principles of transparency, respect, equality, and fairness; values that drive CCB’s relationship with its shareholders, customers, members, employees, and society. Socially responsible banking establishes a deep and solid relationship with society and creates significant long-term value for the organisation and the economy as a whole.

Simplicity: CCB aims to provide the appropriate services/products and lending solutions to clients’ financing and risk management needs. Its customer-centric business model is characterised by simplicity, responsiveness, and respect to the customers/members and society.

Improvement and Innovation: CCB operates in a constantly changing and dynamic environment that calls for improved, competitive, and modern services/products to be offered to its customers/ members. CCB aims to re-design its IT service model and proceed with its digital transformation through alternative channels and multi-channel integration.

CFI.co | Capital Finance International

The financial crisis in Cyprus was taken as an opportunity for change and improvement. CCB took the necessary actions to transform itself into a better functioning credit institution through its recapitalisation and restructuring. CCB has succeeded in becoming a solid and robust organisation by adopting the best European and international practices and by seizing the opportunity to network and interact with important international consultants and entities.

Although CCB has been reformed, it remains the “peoples’ bank”, retaining its customercentric model and values of transparency and ethical banking to entrench peoples’ confidence, protection, and trust. It contributes to society and local communities by supporting local interests and local community projects, funding culture, social welfare and education, providing suitable solutions to households, and playing an important role in developing and supporting local SMEs, agriculture and trade.

This economic and social contribution is essential to the CCB’s future and constitutes a precondition to be a meaningful cooperative and remain successful in the long term for its members, clients, employees, and society.

Accordingly, the need for the CCB to be closer to its customers and to its origins is a prerequisite to achieve its ambition.

CCB is connected to the future of Cyprus through its members and clients. CCB is distinguished as a cooperative bank by contributing to sustainable welfare and prosperity of Cyprus whilst maintaining a competitive and attractive model, due to the size, both in terms of domestic market share and financial capacities, of the branch network and the strong presence and knowledge of local and regional communities.

HISTORICAL BACKGROUND CCB was founded in Cyprus in 1937 as a

Winter 2017 - 2018 Issue

"The main objective is to restore its market access, achieve excellent customer service, enhance and diversify revenue streams, improve operational performance by focusing on cost efficiency and effectiveness, improve asset quality, preserve solid capital position and sustain high liquidity."

Cooperative limited liability company. The fast growing development of cooperative societies imposed the need of a central body and thus, CCB was established to facilitate the operations and respond to the short-term borrowing needs of cooperative enterprises and farmers.

COOPERATIVE CREDIT SECTOR CCS (constituted by the bank and the 18 CCIs) was recapitalised in March 2014 with €1.5bn of state aid based on the provisions of the memorandum of understanding (MoU) agreed between the Republic of Cyprus and the Troika.

Thus, the Republic of Cyprus became the major shareholder with a 99% ownership of CCB. In December 2015, CCB prepared the amended restructuring plan in order to allow for an additional capital injection of €175m by the Recapitalisation Fund and strengthen the capital buffers of the bank. The significant increase in the minimum capital required through the 2015 Supervisory Review and Examination Process by SSM and the sizable additional provisions requested on the basis of stress assumptions and new macro-

economic forecasts, which were booked in the Q3 2015 results, have created the need of additional capital. The purpose of the amended restructuring plan is to achieve further rationalisation of the CCB through operational/ organisational integration and operational efficiencies as well as to restore CCB’s access to capital markets.

In an effort to achieve harmonisation, as well as an enhanced organisational and management structure, a number of mergers took place, beginning from 2002. The number of CCIs operating throughout Cyprus prior to these mergers, stood at 361. In October 2013, the CCB commenced the process of merging the CCIs into 18 entities, in line with the provisions of the restructuring plan. The process was completed in March 2014.

At the Extraordinary General Meeting held on the 30 December 2016, the shareholders of CCB approved the legal merger of the 18 CCIs with CCB. The legal merger is expected to increase the value of CCB and strengthen its efforts to form a modern corporate governance CFI.co | Capital Finance International

framework, which will in turn enable it to become more transparent, competitive, and attractive to future investors.

On July 7 2017, the ECB board of directors approved the legal merger of the 18 CCIs with CCB and set July 1st 2017, as the effective date of transfer of the assets and liabilities of each CCI to CCB. On 24 July 2017, the Deputy Registrar of Cooperative Societies registered the new Bylaws of the bank and the new name of the bank which was changed to Cyprus Cooperative Bank Ltd. GOALS The objectives of CCB demonstrate leadership in how it should deliver its mission in a sustainable manner given the realities of the times and especially the current economic and financial environment. The main objective is to restore its market access, achieve excellent customer service, enhance and diversify revenue streams, improve operational performance by focusing on cost efficiency and effectiveness, improve asset quality, preserve solid capital position, and sustain high liquidity. i 63

> Simon Bloom Consultancy:

Born Silver Spoon in Hand

W

hen considering who is to blame for the shirtsleeves-to-shirtsleeves-inthree generations phenomenon, it seems logical to assume the buck stops with the third generation. If they were at the helm when the ship crashed into the rocks, who else can be responsible?

But as Simon Bloom explores in his book Passing the Buck: How to Avoid the Third Generation Wealth Trap, there are more factors involved in a family business’ downfall. However, it is important to consider the experience of the third generation or G3 individual.

GRASS ROOTS From birth, G3 individuals are privileged. To them, the trappings of wealth seem a birth right – an entitlement. Most actually start to believe they deserve such a lifestyle despite having done nothing to earn it.

Many of the third generation are what Mr Bloom describes as “demotivated and directionless without a natural sense of purpose.” Mr Bloom argues that often G3’s lack the innate desire to achieve something themselves since they already have everything. This lack of ambition coupled with a sense of entitlement is a very dangerous combination.

If an individual struggles to find his/her place in life and is not bound by the usual constraints of money or work, he/she will often become bored and frustrated. These toxic emotions combined with an endless supply of money can lead to substance abuse, which is used to fill the void.

INDULGENCE AND APATHY The potential lack of motivation and ambition experienced by G3 may be made worse through their parents and grandparents indulgent lifestyles. Often G1s, who may have experienced tougher times before achieving success with their business, have a desire to give their children and grandchildren everything they never had.

"Essentially, G3 individuals need space and support to develop their own sense of self and worth. Self-esteem is critical to building meaning in life."

G3 individual may find a place without having to work too hard to get it.

There are many G3s who have been very successful in their own right and while they might not have chosen to continue the family business, they have contributed meaningfully to society. These individuals will likely have been taught the importance of hard work. They may also, from a young age, have been shown the huge disparities of wealth across the world and come to appreciate their own fortunate position.

Essentially, G3 individuals need space and support to develop their own sense of self and worth. Self-esteem is critical to building meaning in life.

G3s may be the final pair of hands on the wheel when the family business crashes, but they were not in the driver’s seat for the entire journey. G1 and G2s need to take responsibility for their descendants by ensuring G3s are ready, willing, and able to take over the running of the business. i ABOUT THE AUTHOR Simon Bloom is an author, a family enterprise consultant and CEO and founder of Simon Bloom Consultancy. He works with family enterprises to help multi-generational families with the organisational, relational, and personal aspects of their lives. www.simonbloom-consultancy.com

For G2 parents who are witnessing an aimless child, the temptation is there to offer them a secure place in the business which may not only be a bad strategy for the firm, but provides even less incentive for the G3 to venture out on their own.

The realities of joining the world of work for the first time may also be demotivating for a G3 individual. If they have been afforded an allowance which outstrips any salary they can hope to be paid for an entry level job. And so attention returns to the family firm where the 64

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

AIM FEATURES 2018

CFI.co | Capital Finance International

65

ANNOUNCING

AWARDS 2017 WINTER HIGHLIGHTS Once again CFI.co brings you reports of individuals and organisations that our readers and the judging panel consider worthy of special recognition. We hope you find our short profiles interesting and informative.

All the winners announced below were nominated by CFI.co audiences and then shortlisted for further consideration by the

66

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.

Winter 2017 - 2018 Issue

> DUBAI ELECTRICITY AND WATER AUTHORITY (DEWA):

OUTSTANDING CONTRIBUTION TO SUSTAINABLE UTILITIES DELIVERY GLOBAL 2017

At the core of any corporate sustainability strategy sits a solid risk mitigation framework. At the Dubai Electricity and Water Authority (DEWA) that framework – compliant with the strict ISO31000 standard – was developed inhouse to facilitate and accelerate the utility’s decision-making processes and allow for a clear and multidimensional overview of risk in real-time. The platform also enables the company to better assess its exposure to risk and manage the array of responses, each one tailored to provide an immediate and effective response to any given event.

DEWA is recognised globally as an

industry leader for its innovative, and in many instances ground-breaking, approach to the provision of both electrical power and clean water. The company has raised the bar for the entire utilities sector by cutting wastage and spillage, carefully managing the distribution of resources while providing a vastly superior service to clients, characterised by simplified procedures, short response times, and the excellence of its front office.

DEWA was able to revolutionise the utility business by adopting a corporate strategy that engages all stakeholders. By pursuing full transparency and maintaining open and

short lines of communication, the company encourages its staff to come up with innovative solutions that increase operational efficiencies.

DEWA also reaches out to the communities and economic sectors in order to gauge both market demand and sentiment.

The CFI.co judging panel recognises – and applauds – the company’s relentless pursuit of excellence across all aspects of the utility business. The judges agree that DEWA has reinvented the utilities business and now stands at its apex. As such, DEWA is declared winner of the 2017 Outstanding Contribution to Sustainable Utilities Delivery Global Award.

> AUDI: MOST PROMISING ELECTRIC VEHICLE MANUFACTURER GLOBAL 2017

Audi is going electric – and doing so in style. The German car manufacturer is a latecomer to the scene but for a reason: it refuses to build and sell a vehicle that is powered more by wishful thinking than robust engineering.

Also, Audi declines to compromise on quality, durability, and performance. Recognising that the electric vehicle industry is still in its infancy and struggling with a number of growing pains, the company has preferred to concentrate its efforts on research and development, allowing its gifted engineers ample time to produce a car that meets and exceeds Audi’s high standards.

The extended lead time is set to

pay off in 2020 when Audi will release its first lineup of electric-powered vehicles. True to style, the rollout will be evolutionary rather than revolutionary in nature with 48-volt hybrids leading the charge. A series of E-Tron cars, with a fully electric powertrain is set to follow two years later, including a sports car developed jointly with Porsche. The E-Tron GT is to be based on Porsche’s Mission E design – a four-door sports sedan packing a serious punch with over 600 horsepower and a range of over 500km.

With car manufacturers scrambling to claim a share of an expanding market, electric vehicles are being sold that simply lack the CFI.co | Capital Finance International

technology to impress. Acceleration may be top notch, but range, drive, and convenience are often found lacking. Thus, it is both refreshing and encouraging to find a manufacturer not eager to hop on the bandwagon but willing to help the technology mature first and build an electric car second.

The CFI.co judging panels finds this slightly contrarian approach commendable for drivers who know that once Audi puts out an electric car, it will be the one to buy. The judges are pleased to offer Audi the 2017 Most Promising Electric Vehicle Manufacturer Global Award.

67

> SAPPHIRE WIND POWER: BEST ESG POWER PRODUCER PAKISTAN 2017

Completing all its projects on-time and on-budget, Sapphire Wind Power has taken the lead in the currently unfolding transformation of the energy market. The Pakistan company adheres to a business model that allows for the creation of tangible value. Its projects benefit from onsite oversight by expert professionals and are unfailingly considered bankable. In fact, thanks to its solid reputation Sapphire Wind Power is able to maintain a number of projects running simultaneously whilst meeting – and exceeding – expectations.

Committed to deliver clean, green,

and affordable energy solutions anywhere in the country, Sapphire Wind Power follows wellestablished international best practices that support, amongst others, capacity building and skill development. Additionally, the company implemented a robust corporate social responsibility (CSR) policy framework to reach out to communities and lend its knowhow to help lift thousands out of poverty.

Sapphire Wind Power works in close harmony with a number of international development financiers and agencies. The company is known for its corporate transparency

and adherence to the latest ESG (environmental, social, and governance) standards. It is currently working on a number of projects such as a triple 50MW facility in the Gharo-Jhimpir wind corridor in the southeast of the country. Sapphire Wind Power is also involved in the design of a 40MW sized hybrid wind/solar power generator.

The CFI.co judging panel is pleased to note and recognise the company’s dedication to furthering the renewable energy revolution and declares Sapphire Wind Power winner of the 2017 Best ESG Power Producer Pakistan Award.

> WESTINVEST GESELLSCHAFT FÜR INVESTMENTFONDS: BEST REAL ESTATE FUND MANAGER GERMANY 2017

Private and institutional investors looking to tap into Europe’s buoyant property market are increasingly turning to Germany’s WestInvest for solutions that offer both solid returns and moderate risk. Founded in 1989 and part of the Deka Group since 2004, WestInvest maintains a number of funds shaped to meet the requirements of different investor classes.

A number of specialty real estate funds serve the needs of institutional investors who look for solid and consistent long-term returns.

WestInvest is known for its pursuit of high quality commercial property that produces a stable and predictable cashflow. The firm is 68

part of the Deka Group’s real estate business division (and is, hence, doing business as “Deka Immobilien”) which in turn is well on track to meet its stated objective of becoming one of Europe’s Top-5 real estate fund managers.

The business division is also a pioneer in the implementation of comprehensive and rigorous risk mitigation strategies and strict and transparent corporate governance policies that aim to bolster investor confidence and ensure client funds are invested according to wellestablished protocols and parameters.

Over the past few years, both WestInvest and the overall real estate business CFI.co | Capital Finance International

division have registered significant growth attesting to the firm’s success in the allocation of its clients’ resources. In February, WestInvest and and its sister company Deka Immobilien Investment forked out £435m for the London headquarters of Facebook on Rathbone Square.

The firm is also eying other opportunities in London.

The CFI.co judging panel is pleased to note that WestInvest has successfully increased its exposure to the upside of the European real estate market. The judges declare WestInvest winner of the 2017 Best Real Estate Fund Manager Germany Award.

Winter 2017 - 2018 Issue

> EMK CAPITAL: BEST ESG-RESPONSIBLE INVESTMENT TEAM UK 2017

A veritable repository of investment and corporate management expertise, UK-based EMK Capital uses the power of ESG standards and responsible investment principles to reinvigorate businesses, ensuring optimum returns. The approach enables EMK Capital to minimise the risks that usually result from clashes between sustainability and commerciality EMK Capital – Enterprise Management Knowledge – adheres to the ten principles as defined by the United Nation’s Global Compact – an initiative to encourage the worldwide business community to adopt sustainable and socially responsible corporate policies. EMK Capital also signed up to the

six Principles of Responsible Investment – a UN supported global network of investors who have incorporated non-financial considerations into their decision-making processes in order to improve sustainability and work towards a more stable global financial system.

EMK Capital is focused on investments in businesses where it can support growth and change. The firm has the capability to invest significant funds behind businesses that fits its investment criteria, and typically makes majority investments with a three to seven year investment horizon. EMK Capital is predominantly active in the business services, consumer and industrials sectors. The firm

boasts considerable experience in driving transformative growth, supporting exceptional management teams and enabling corporate transformation. Its investment approach includes a focus on driving revenue growth and improving overall efficiency, and helping management develop the skills, and access the tools, necessary to attain and sustain success.

The CFI.co judging panel notes that EMK Capital prioritises the human element and leverages ESG standards to implement best practices and ensure sustainable growth. The judges are pleased to declare EMK Capital winner of the 2017 Best ESG-Responsible Investment Team UK Award.

> THE CENTRAL AMERICAN BANK FOR ECONOMIC INTEGRATION (CABEI): BEST GREEN BOND ISSUER LATIN AMERICA 2017

CABEI last year launched its first-ever green bond. The four-year ZAR denominated bonds were sold to retail investors in Japan and raised ZAR 1,032,000 equivalent to US$72,865.918.

The move came in the wake of a decision by the bank’s authorities to promote, support, and help underwrite initiatives and projects aimed at mitigating climate change effects. In the same vein, the bank has been accredited by the Green Climate Fund to channel financial resources to the public and private sector of its Member Countries to implement adaptation and mitigation projects to support the country efforts to deal with Climate Change.

Founded in 1960, CABEI´s objective is to promote the economic integration and the balanced economic and social development of the Central American region, which includes

the founding countries and the non-founding regional countries, attending and aligning itself with the interests of all of its member countries. CABEI seeks to maximize the impact of its operations on Sustainable Economic Development of the Region and Sustainable Development Goals (SDGs) of the of the 2030 Agenda for Sustainable Development.

The bank is recognized as a pioneer of sustainability in Central America and during the period 2010-2015, 67% (US$5.11 billion) of its approvals included activities on mitigation and adaptation to Climate Change. Moreover from 1960 to 2016 CABEI has approved energy projects of more than US$5,800 million, which increased installed capacity for approximately 5,920 MW (mostly from renewable sources) which accounted for CFI.co | Capital Finance International

more than 38.0% of the total power generated in the region.

The bank has its headquarter in Tegucigalpa (Honduras), and has offices in Guatemala, El Salvador, Nicaragua and Costa Rica, with an advanced process to open offices in Panama in 2017. CABEI has also welcomed Non-founding regional members such as Belice, Panama, and Dominican Republic as well as extra-regional members such as the Republic of China Taiwan, Mexico, Argentina, Colombia, and Spain.

The CFI.co judging panel congratulates CABEI on its successful entry into the buoyant green bond market and declares the bank winner of the 2017 Best Green Bond Issuer Latin America Award.

69

> CONTAINERS PRINTERS: MOST INNOVATIVE PACKAGING TEAM SOUTHEAST ASIA 2017

A lean and nimble business centred on serving their customers’ constantly evolving needs promptly, Containers Printers from Singapore is pushing the boundaries of packaging solutions with technology that is both environmentally sound and ergonomically convenient. The company is a major supplier of flexible laminates, metal packaging, spray can components, and other product delivery solutions all of which can be shaped and branded to the customers’ requirements.

Containers Printers is recognised for its excellence in quality control. The company pioneered a number of eco-friendly packaging

solutions that meet or exceed all relevant international standards. Containers Printers’ products are present in over thirty countries.

The company secured ISO certification early-on and adheres to strict ESG standards. Transparency and regulatory compliance are considered essential to maintain corporate leadership. The company refuses to engage with businesses suspected of benefiting from child labour or other reprehensible practices.

The adoption of advanced risk mitigation processes has allowed Containers Printers to become a preferred partner of food

and pharma companies. The company’s plants are continuously updated and upgraded to keep ahead of the technological curve. Production facilities are designed with a view to easy and speedy reconfiguration. This ensures full adaptability to customer needs.

The CFI.co judging panel is pleased to note that Containers Printers follows a holistic in-house approach to packaging and branding, thus keeping all steps of the production cycle under its own control. The judges declare Containers Printers winner of the 2017 Most Innovative Packaging Team Southeast Asia Award.

> BOD TECH: BEST SOCIAL VALUE CREATION TECHNOLOGY LEADERSHIP MYANMAR 2017

With its buoyant economy and an exceptionally enterprising population eager to learn, grow, and prosper Myanmar is quickly becoming yet another Asian Tiger. However thus cub is to be powered and reared by technology. The country is busy building up its network infrastructure and putting into place the backbone that will allow businesses of all sizes to unlock access to both the domestic and global market.

At the leading edge of this wave is BOD Tech, a company designed from the ground up to empower local businesses through technology. The firm, attracting talented young 70

IT professionals and assorted hipsters, is perfectly in tune with the country’s new age of optimism unbound and opportunity aplenty.

BOD Tech has dedicated considerable resources to O2O (online-to-offline) and LM (licensing management) platforms for a number of business sectors, including the travel and leisure industry, ecommerce, and food delivery. The firm’s products are designed to help entrepreneurs at the grassroots level such as home business owners. However, BOD Tech’s platforms are fully scalable and, as such, applicable to business of any size.

CFI.co | Capital Finance International

The firm pioneered cloud-based computing in Myanmar and was the first in the country to offer SaaS (software-as-a-service) which allows corporations, government entities, and social organisations to use their resources more efficiently whilst increasing accessibility.

The CFI.co judging panel agrees that Myanmar offers exciting opportunities to IT companies that got in on the ground floor such as BOD Tech and are now fully exposed to the upside. The judges declare BOD Tech winner of the 2017 Best Social Value Creation Technology Leadership Myanmar Award.

Winter 2017 - 2018 Issue

> KUWAIT INTERNATIONAL BANK (KIB):

FASTEST-GROWING ISLAMIC BANK MENA 2017 AND BEST SHARIA-COMPLIANT BANK MENA 2017

A consistent top performer in Islamic banking, Kuwait International Bank (KIB) has steadily increased its profits whilst keeping strong financial fundamentals in line with the institution’s adherence to Sharia Law. Whilst depressed oil prices add to Kuwait’s and the wider region’s challenges, KIB has deftly managed to register positive results across all performance indicators, further enhancing its financial position and adding to shareholder equity. As a result, the bank had its long-term IDR (issuer default rating) affirmed at A+ with a stable outlook, reflecting the country’s likewise solid sovereign rating.

With a view to becoming Kuwait’s Islamic bank of choice, KIB moved ahead with the implementation of its strategic plan which includes, amongst other initiatives, a drive to update and expand the already robust governance model with new management committees and a review of the delegation of authorities structure in order to enhance effectiveness. The plan also aims to broaden the scope of KIB’s customer service to ensure the bank solidifies its leading edge and reputation for excellence.

KIB maintains an active recruitment policy with which it manages to attract some of the country’s best and brightest young people

who inject an added degree of vitality and help the bank connect with multiple demographic segments.

he CFI.co judging panel has closely followed the trajectory of the bank over a number of years. KIB stands head-and-shoulders above the crowd. A recognised pioneer of Shariacompliant banking, KIB has successfully claimed CFI.co awards in 2015 and 2016.

The judges feel no hesitation in again declaring Kuwait International Bank a clear winner. KIB is granted both the 2017 Fastest-Growing Islamic Bank MENA Award and the 2017 Best ShariaCompliant Bank MENA Award.

> LEARN TO TRADE: MOST TRANSFORMATIVE FOREX EDUCATIONAL PROGRAMME ASIA PACIFIC 2017

It is not a magic money tree, nor is it likely to produce a million-dollar-plus windfall; however, forex trading – when done the right way – may help grow the nest egg or bolster incomes. The catch is trading properly whilst steering clear of the many pitfalls.

Forex trading is no different from other potentially lucrative pursuits: knowledge is key to lasting success. Whilst many firms offer rudimentary learning instruments to novice traders, none have an educational toolbox as complete as the one available at Learn to Trade, a company set up in 2003 by an Australian

master trader who, at age 27, cashed out of the business and into retirement. The formula of that early success now forms the foundation of the Learn to Trade syllabus.

The company maintains a comprehensive suite of staggered learning programmes that enable students to acquire a solid understanding of global forex markets and trading practices and strategies. With that knowledge, traders can branch out into more specialised courses and hone their skills with the help of experienced mentors during workshops or one-on-one sessions. Learn to Trade also CFI.co | Capital Finance International

features a live trading platform that allows students to put their knowledge to the test in a safe environment.

The CFI.co judging panel notes that Learn to Trade has already helped over 250,000 students become confident and safe traders.

The company offers seminars and workshops across the world to maintain in close contact with its students. Last year, the CFI.co judges handed Learn to Trade its first award win and have decided to do so again, handing Learn to Trade the 2017 Most Transformative Forex Educational Programme Asia Pacific Award.

71

> PEABODY: BEST ESG-RESPONSIBLE MINING COMPANY GLOBAL 2017

Though environmental concerns will alter the energy mix, fossil fuels – for now – remain essential to ensure the reliability, continuity, and scalability of supply. In fact, fossil fuels satisfy up to 80% of global primary energy demand and coal is very much a part of that. The good news is that coal’s environmental footprint can be decreased, offset, and thus neutralised in multiple ways to help achieve the world’s environmental goals. That is the approach of Peabody, the world’s largest private-sector coal company.

Insisting pragmatism works best, Peabody has set aside significant collateral to cover future mine restoration activities.

With demand for coal picking up and prices recovering from their 2016 low, the company

is able to dedicate significant resources to meet its ambitious environmental goals.

Recognised for the early adoption of sustainable mining practices, Peabody in 1954 launched its first land reclamation initiative – nearly a quarter century before US law mandated such programmes. Over the past decade, Peabody has spent $177 million to restore over 49,000 acres of land. In 2016, the company accelerated its restoration activities reclaiming 80% more land than was disturbed.

In addition, the company continued reductions in total greenhouse gas emissions and has improved greenhouse gas intensity at its mining operations 21% over the past five years.

Peabody is a leading voice in advocating for the deployment of HELE (high

efficiency, low emissions) power stations and is investing considerable resources in the development of CCUS (carbon capture, use, and storage) technologies in pursuit of nearzero emissions from coal-fuelled generation.

Whilst aware of the controversies surrounding coal mining, the CFI.co judging panel strongly believes that, for now, coal cannot be dispensed with as a source of energy. The judges agree that coal mining in particular benefits from strict adherence to ESG standards. Peabody recognises its corporate responsibilities better than most – and acts upon them. As such, Peabody is declared winner of the 2017 Best ESG-Responsible Mining Company Global Award.

> BANCO ANGOLANO DE INVESTIMENTOS: BEST SOCIAL IMPACT BANK ANGOLA 2017

Sowing remarkable resilience in the face of an economic downturn caused by the collapse of oil prices, Banco Angolano de Investimentos (BAI) has steadily managed to generate solid financial results, growing both its net income and profitability. Set up in 1996 as the first privately-owned bank of the country, BAI has become one of Angola’s largest financial services providers with a network of 144 branch offices and 11 business centres covering the entire country.

Though almost three-quarters of the bank’s dealings originate from the business sector, BAI includes a fast-growing retail banking pillar erected on the basis of a 72

full-service approach that includes multiple insurance products. Transformed into a group two years ago, BAI also comprises a separate insurance business, a micro-finance bank, and a wholly-owned subsidiary in Cape Verde. BAI also retains a share in the International Bank of São Tomé e Príncipe and Angola’s Private Investment Fund (FIPA).

BAI developed a number of corporate social responsibility initiatives to promote financial inclusion, improve education and healthcare, and lessen poverty. The bank’s micro-finance operations has received wide recognition for its success in helping budding entrepreneurs set up and consolidate their CFI.co | Capital Finance International

businesses.

BAI receives assistance from the International Monetary Fund (IMF) to ensure continued compliance and facilitate the implementation of its 2016-2021 Strategic Plan which envisions the bank as Angola’s best financial services provider across all business segments.

The CFI.co judging panel commends BAI on its hands-on attitude and determination to grow and prosper through excellence. The judges are therefore pleased to offer Banco Angolano de Investimentos the 2017 Best Social Impact Bank Award.

Winter 2017 - 2018 Issue

> ICBC DUBAI (DIFC) BRANCH: BEST INTERNATIONAL BANK BOND ISSUER EMEA 2017

An exceptionally well-diversified range of products and services has helped Industrial and Commercial Bank of China (ICBC) maintain its competitive edge in the, sometimes choppy, markets of the Middle East, gaining resilience and adding to its already considerable weight. The bank’s presence in the region stretches back to 2008.

In fact, ICBC was the first of the large Chinese banks to recognize the growing importance of the Middle East as a global hub for trade and financial services.

The largest of China’s Big Four banks,

and indeed the largest bank in the world by total assets (approx. $3.6tn), ICBC has become a major player in the Middle East as the region’s business ties with China strengthened. Milestones include the 2015 issue of a $500m bond, listed and traded on Nasdaq Dubai. Thus, ICBC became the first Chinese bank to successfully launch a dollar-denominated bond in the Middle East. The bank has issued a number of similar bonds since.

across four distinct business lines – corporate, treasury, trade and FI – ICBC Dubai (DIFC) Branch offers its clients direct and

seamless access to the world’s principal market, backed up by the bank’s vast global network and its unequalled expertise in providing a full suite of premier financial services.

The CFI.co judging panel notes that ICBC Dubai (DIFC) Branch has embarked on a strong growth path whilst maintaining its privileged position within the bank’s structure as one of its most profitable units. The judges are delighted to offer ICBC Dubai (DIFC) Branch the 2017 Best International Bank Bond Issuer Award.

> EESTI ENERGIA: BEST ENERGY-SAVING APP BALTICS 2017

It would seem that the entire world is being “appified” – any human endeavour, curiosity, and chore may be distilled into an app.

This is not an unwelcome development: apps add convenience to life and help users save both time and money. Already some years ago, electricity companies and other utilities discovered the power of the app universe.

However, none have produced an app as comprehensive as the one produced by Eesti Energia – the main energy company of Estonia which, incidentally, boasts the world’s most advanced e-government.

No surprise then that an Estonian company should put out the power app against

which all others are measured. Running on both Android and iOS smart devices, Eesti Energia’s app presents customers with a number of ways to save on their energy bill, switch power plans, contact customer service, and check their consumption by the hour, day, or month, amongst others. All Eesti Energia customers have been provided with smart meters that allow for remote reading. With the app upgrade shortly being introduced B2B customers can also monitor their consumption.

The app detects unusual electricity usage patterns which can be caused by faulty wiring or defective appliances and immediately alerts the customer. The app also continuously CFI.co | Capital Finance International

monitors the energy market and notifies users of tomorrow’s expected electricity prices and the best hours to plug in heavy duty domestic appliances.

Eesti Energia is the country’s main power generator and distributor. The company is also the world’s largest shale oil producer.

With operations in Latvia, Lithuania, Finland, Jordan, and the United States.

The CFI.co judging panel commends Eesti Energia for pushing the IT envelope and offering customers unparalleled ease of access to its services. The judges are pleased to offer Eesti Energia the 2017 Best Energy-Saving App Baltics Award.

73

> BANCO PROCREDIT: BEST GREEN BANK ECUADOR 2017

In Ecuador, Banco ProCredit has pioneered green financing since 2012. In that year the bank introduced its EcoCredit financing service which underwrites investments in energy efficiency, renewable energy, and assorted environmental measures aimed at improving sustainability and performance of local industry. EcoCredit is especially geared towards meeting the needs of small and medium-sized enterprises (SMEs) as they adjust business operations to the requirements of the green economy by modernizing technology and innovating their products in order to meet the needs of international markets.

Banco ProCredit has found that

businesses manage to significantly increase profit margins when incorporating compliance with up-to-date ESG (environmental, social, and governance) standards into day-to-day operations. Apart from energy efficiency, EcoCredit is contributing with the change of energy matrix in the country by financing production of electricity from renewable sources, such as solar, wind, hydro and biomass.

Banco ProCredit is recognised industry-wide for setting the example – and, indeed raising the bar. The bank maintains an internal Environmental Management Unit charged with monitoring all operations and processes for their environmental impact. The

unit sets ambitious goals and continuously gauges progress and compliance. Additionally, the bank instituted an environmental committee comprised of all departmental heads and the members of its management board. The committee meets regularly to analyse and set corporate policy with a view to improving sustainability.

The CFI.co judging panel commends the Ecuadorian bank on its pro-active hands-on approach to environmental issues. Thus, the bank manages to stay well ahead of the curve – and the competition. The judges are delighted to offer Banco ProCredit the 2017 Best Green Bank Ecuador Award.

> SNAM RETE GAS: BEST BOND ISSUER CORPORATE GOVERNANCE ITALY 2017

Italy’s Snam Rete Gas, the country’s principal natural gas transporter with pipeline network stretching almost 33,000km, has maintained and expanded its corporate success for over seventy years thanks to a solid governance framework that allowed the company to gain the trust of all stakeholders – including suppliers, customers, and investors. Snam Rete Gas is recognised as a pioneer in pushing health and safety standards for its close to 3,000 workers and was an early adopter of strict environmental standards.

Snam is Italy’s leading natural gas 74

transportation (Snam Rete Gas) and storage (Stogit) utility in Italy and ranks third in the regasification segment (GNL Italia). Listed on the Borsa Italiana since late 2001, the formerly state-owned company attained a market capitalisation of close to €15bn. Besides Italy, Snam maintains operations in France, Austria, and the UK.

The company was one of the first in Italy to establish a comprehensive enterprise risk management (ERM) unit which reports directly to the CEO. The unit is a cornerstone of the company’s structured approach to identify, CFI.co | Capital Finance International

assess, manage, and control risk.

Earlier this year, Snam Rete Gas unveiled a €5bn five-year investment plan that, amongst others, aims to help the country reduce its carbon footprint by supporting the transition to a low-emission economy.

The CFI.co judging panel agrees that Snam Rete Gas remains at the forefront of technological developments and has successfully leveraged its solid governance structure to keep its leading edge. The judges declare Snam Rete Gas winner of the 2017 Best Bond Issuer Corporate Governance Award.

Winter 2017 - 2018 Issue

> DUBAI ELECTRICITY AND WATER AUTHORITY (DEWA): BEST ENERGY DEMAND STRATEGY GCC 2017

The mundane task of delivering a dependable supply of electrical power to the end-consumer may, at first glance, seem none too exciting, its execution and maintenance is far from a simple job. As it happens, the Ease of Doing Business Report compiled annually by the World Bank places Dubai at the apex of the power distribution category – nowhere is getting electricity to a property easier and faster than in the emirate.

This feat can be fully ascribed to the operational excellence of the Dubai Electricity and Water Authority (DEWA) which is widely recognised – and admired – as the world’s most efficient utility company. Business customers requiring oodles of power can obtain a 150KW

power hook-up in under ten days. Moreover, the application process entails just two steps.

DEWA effectively helps Dubai attain the bright future the emirate aims for.

Supreme efficiencies do not appear out of thin air. DEWA invest considerable resources to find novel ways to up the corporate ante. The utility regularly organises creativity labs, workshops, and seminars to encourage out-of-the-box thinking. At these events, frank exchanges of ideas and experiences help the company’s workers and management come up with ways to further improve service levels, remove bottlenecks, and increase competitiveness.

DEWA customer facing front office

is also a model of efficiency with customers losing on average just three minutes and twenty seconds to get their queries answered – another world record. Thanks to the company’s state-ofthe-art hardware, transmission and distribution losses remain limited to just 3.3% - about half the rate considered normal elsewhere in the world.

The CFI.co judging panel has monitored DEWA for a number of years and remains convinced that the Dubai utility represents the gold standard of the industry.

The judges agree that DEWA is the clear winner of the 2017 Best Energy Demand Strategy GCC Award.

> ENGIE ENERGÍA PERÚ: BEST ESG POWER PROVIDER PERU 2017

In Peru, ENGIE is one of the country’s principal power generators with an installed capacity exceeding 2,500MW. The company operates five thermoelectric plants and two hydroelectric facilities.

ENGIE logotype_solid_BLUE_CMYK

Since it started operations in Peru in 14/04/2015 1997, ENGIE Energía Perú has demonstrated its willingness to become a benchmark in the local electricity market. This intent has strengthened in the last six years, with ambitious investment plans, high operating standards, an orderly financial management, a business strategy focused on high-value clients, a culture aimed at enhancing human talent and safety, and relations that add value to the company’s neighbour communities.

In line with its corporate greening strategy, ENGIE Energía Perú has dedicated resources for the construction of a solar power 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com

plant in Moquegua, some 1,100 kilometres south of Lima. The region is to host a number of large solar power facilities. ENGIE’s Intipampa plant entails a $55m investment and will inject 40MW into the national power grid.

RÉFÉRENCES COULEUR

ENGIE Energía Perú is part of the French global power utility ENGIE, with C100% operations in 70 countries. Globally, ENGIE develops its businesses (power, natural gas, energy services) around a model based on responsible growth to take on the major challenges of energy’s transition to a lowcarbon economy: access to sustainable energy, climate-change mitigation and adaptation and the rational use of resources. In 2015, the company unveiled an ambitious plan to move away from fossil fuels. ENGIE has earmarked more than $22bn for investment in renewables and decentralised energy technologies that use CFI.co | Capital Finance International

smaller high efficiency generating facilities with much reduced carbon footprints.

A recognised pioneer of corporate sustainability, ENGIE Energía Perú has incorporated sound environmental management according to strict ESG (environmental, social, and governance) standards in all day-to-day Zone de protection 1 Zone de protection operations and2 processes. The company’s Zone de protection 3 prudential management of risk has allowed it to close 2017 without any environmental incidents or non-compliance marks.

A repeat winner, ENGIE Energía Perú is not an unknown entity to the CFI.co judging panel. The judges are pleased to note that the company consistently improves its environmental record and is determined to excel in sustainability. The judges are therefore happy to declare ENGIE Energía Perú winner of the 2017 Best ESG Power Provider Peru Award.

75

> TAWREEQ HOLDINGS: BEST SME SUPPLY CHAIN FINANCE SOLUTIONS MENA 2017

Helping businesses of all sizes reach their full potential and make the most of every opportunity, Tawreeq Holdings of Dubai offers a comprehensive array of Sharia-compliant supply chain finance (SCF) products to clients throughout the Middle East and North Africa. Leveraging the power of new technologies, Tawreeq Holdings seeks to empower corporates whilst offering investors an alternative and highly-attractive alternative asset class.

Supply chain finance comprises solutions that optimise the management of working capital, freeing up liquidity otherwise stuck in supply chain processes. Tawreeq

Holdings also helps its clients mitigate risk with strategies to ease business insolvency concerns.

The firm’s securitisation programmes allow for improved cash flow management and are structured to improve the financial flexibility of corporates.

Tawreeq Holdings also offers a full suite of factoring and reverse factoring facilities.

Thanks to its use of advanced cloud computing – including its own Tawreeq SCF platform – the firm is able to source quick solutions to any given challenge.

Set up in 2014, Tawreeq Holdings has quickly managed to meet the pent-up

demand in the region for premier sophisticated financial services tailored to the needs of small and medium-sized enterprises (SMEs) and other corporates. The company counts on seasoned professionals to respond dynamically to changing market conditions and thus maintain its leading edge.

The CFI.co judging panel applauds Tawreeq Holdings for its multidisciplinary approach to corporate finance. The judges agree to name Tawreeq Holdings winner of the 2017 Best SME Supply Chain Finance Solutions MENA Award.

> CENTURY FINANCIAL BROKERS (CFB): BEST GLOBAL FINANCIAL MARKETS BROKER EMEA 2017

With almost three decades worth of experience under its corporate belt, Century Financial brokers (CFB) of Dubai is one of the world’s leading CFD (contract for difference) providers. In fact, the firm is recognised as one of the pioneers of the industry. CFB is fully licensed by the regulatory authorities of Dubai and adheres to strict quality standards for investment strategies, services, and reporting.

Moreover, the firm is a broker and clearing member of the Dubai Gold and Commodities Exchange (DGCX).

Clients of Century Financial Brokers gain access to a next-generation trading platform 76

that is continuously updated and expanded to maintain its competitive edge. Traders enjoy the ability to instantly respond to market dynamics using multiple devices. The firm’s mobile trading apps replicate the platform on iOS and Android devices, allowing for on-the-go trading anytime, anyplace.

CFB maintains well over 10,000 trading products across all asset classes, enabling investors to diversify their portfolio and, thus, mitigate risk. The firm’s platform also features a full set of risk management tools that help optimise the profit potential while minimising exposure to downsides. Traders can CFI.co | Capital Finance International

enter stop-loss orders at a small premium in order to ensure exact pricing.

Additionally, CFB boasts a complement of advisory and support services that has raised the bar for the entire brokerage industry and is available to all traders, regardless of their portfolio’s size.

The CFI.co judging panel congratulates CFB on its full-service approach to the brokerage business. The judges declare Century Financial Brokers winner of the 2017 Best Global Financial Markets Broker EMEA Award.

Winter 2017 - 2018 Issue

> BANCO FINCA: BEST SOCIAL IMPACT BANK ECUADOR 2017

Set up in 1993 as the Ecuadorian affiliate of a global network of microfinance institutions, Banco FINCA grew out of a foundation that supports social enterprises and other initiatives aimed at empowering disadvantaged people, allowing them to take charge of their own future. A fully-licensed bank since 2008, Banco FINCA offers its clients a full suite of services, including savings accounts, insurance products, money transfers and, of course, microcredits.

From its headquarters in Quito, Banco FINCA operates a network of twelve

branches and representative agencies. The bank’s nationwide presence ensures close proximity to its target demographic. Banco FINCA believes in the transformative power of small business and actively supports budding entrepreneurs who seek to set up shop. Thanks to the bank’s microcredits, thousands of people have been able to open small factories, shops, and social enterprises, significantly improving their livelihoods in the process.

Banco FINCA helps its clients successfully navigate the local bureaucracy and offers workshops on business administration.

The bank acknowledges the importance of entrepreneurial skill development as an essential component of its social impact.

Banco FINCA also puts in considerable effort to discover and plot the needs of its clients in order to offer products and services that are relevant and dovetail with demand.

The CFI.co judging panel recognises the importance of encouraging and supporting small and micro enterprises for they are the engines of sustainable growth. The judges unanimously agree to offer Banco FINCA the 2017 Best Social Impact Bank Ecuador Award.

> LUCID INVESTMENT BANK: BEST WEALTH MANAGEMENT BANK LEBANON 2017

The bank of choice for both corporates and high-net-worth individuals, Lucid Investment Bank helps reaffirm Lebanon’s solid reputation as a premier financial centre. Set up in 2011 by professionals with ample experience – and an enviable track record – in corporate finance, strategy, and management, Lucid Investment Bank main focus is on helping Lebanese and regional companies – ranging from start-ups to well-established corporate conglomerates – manage their finances efficiently and in a way, that contributes to sustainable growth.

Lucid Investment Bank also boasts significant experience and knowhow on mergers

and acquisitions from identifying and vetting targets to cross border deal completion and the attendant legal complexities. Additionally, the bank maintains a corporate strategy and management consulting division that assists businesses wishing to broach new markets and increase competitiveness.

As the owners and major shareholders of the bank’s corporate clients quite often are high-net-worth individuals, Lucid Investment Bank successfully branched out into wealth management. The bank now offers a comprehensive array of products and services tailored to meet the needs of the wealthy.

CFI.co | Capital Finance International

Thanks to its excellent performance, Lucid Investment Bank has been able to tap into Lebanon’s outsized and highly successful diaspora, serving as a bridge between expats and their homeland.

The CFI.co judging panel commends the Lebanese investment bank on its twopronged approach and sees ample room for the sort of synergies that lead to sustained growth. The judges are pleased to declare Lucid Investment Bank winner of the 2017 Best Wealth Management Bank Lebanon Award.

77

> RED & WHITE CONSULTING PARTNERS: BEST BUSINESS TRANSFORMATION CONSULTANCY BOUTIQUE 2017

The business engineers of Red & White Consulting Partners leverage both their knowledge and experience to deliver superior and transformative results for the firm’s clients.

The Singapore company has established a solid track record for unlocking the potential of businesses: breaking through ceilings, broaching new markets, and upping the ante on corporate efficiency, adaptability, and branding.

Red & White Consulting Partners adheres to a holistic approach to overcoming challenges, including the financial, business, and human aspects that together form the triad

on which sustainable growth is based. The firm’s professionals encourage critical thinking, poking holes in established wisdom in order to source innovative ways of removing the barriers that hamper business development.

The firm organises regular workshop programmes that allow clients to analyse their attitudes to business and detect synergies that improve overall efficiency. Red & White Consulting Partners was set up in 2013 by two veteran bankers who believe in the power of data-driven solutions to common issues facing businesses as they expand and adapt to changing market conditions. The firm has

worked with clients across the world and in all sectors of the economy from manufacturing and financials to airlines, NGOs and retailers.

The CFI.co judging panel commends Red & White Consulting Partners on its hands-on no-nonsense approach to business engineering. The firm consistently offers practical solutions that closely fit the client’s profile and deliver tangible results. For the second consecutive year, the judges agree to recognise the firm’s achievements. Red & White Consulting Partners is named winner of the 2017 Best Business Transformation Consultancy Boutique Award.

> CITY MART HOLDINGS (CMHL): BEST RETAIL CORPORATE CITIZEN SOUTHEAST ASIA 2017

It all began with a tiny grocery store in downtown Yangon close to the Boyoke Aung San Stadium. That was in 1996. Today, City Mart is Myanmar’s largest supermarket chain – and much more besides – and an icon of the country’s buoyant retail sector. Putting the client centre stage clearly pays off.

City Mart Holdings (CMHL) is a winner on all fronts and a leader across all sectors it ventured into. The company operates pharmacies, bookstores, upscale supermarkets, departments stores, bakeries, convenience outlets, and cafeterias. As such, City Mart 78

Holding Co Ltd is exceptionally well-exposed to the tremendous upside of the Myanmar market as the country gets ready to join the select club of Southeast Asian tiger economies.

Moreover, City Mart Holdings stands as a proud testament to the empowerment of women. Not only is fully two-third of its staff female, women effectively run the business, occupying 75% of the holding’s management positions.

From its modest beginnings, City Mart has expended significant efforts to value its staff and engage the wider community, including CFI.co | Capital Finance International

business partners, suppliers, and – of course – customers. Teamwork and a relentless dedication to excellence in both day-to-day operations and customer care has allowed the company to outpace the competition and maintain – and indeed expand – its leading edge.

The CFI.co judging panel is impressed by the growth trajectory of City Mart Holdings and considers the company a shining example worthy for others to follow. As such, City Mart Holdings (CMHL) is a natural winner of the 2017 Best Retail Corporate Citizen Southeast Asia Award.

Winter 2017 - 2018 Issue

> SECURITY BANK CORPORATION: BEST DIGITAL BANK PHILIPPINES 2017

Frugal as a rule, but ready and willing to invest if the proposition is right, Security Bank Corporation of the Philippines is known for its agility. The bank leverages its size to move fast and decisively in order to help its customers seize exceptional opportunity. As a midsize bank, Security Bank has over the years branched out into the wholesale market, serving large corporate and institutional clients with a nimbleness not previously available in this segment. Thanks to its customised corporate electronic banking and cash management solutions Security Bank managed to quickly establish itself as a major competitor in the wholesale banking market.

The bank is particularly strong in the Filipino-Chinese community. Since its founding in 1951, Security Bank has grown from a middle-market focused bank to a full-service

universal bank currently ranked fifth largest among private domestic universal banks by total assets and capital. The bank is known among investors for its superior shareholder returns, cost efficiency and asset quality.

Today, Security Bank, which is rated investment grade by Moody’s, aims to expand its retail operation. To do so it has revamped its entire I.T. network, including the customerfacing front-end which was redesigned by a group of millennials hired for the purpose.

Its retail banking offering includes highly differentiated services such as All Access deposit account with free life insurance, cardless ATM withdrawals, location-based mobile selling which enhances credit card transaction experience, and Business Express Loan for small-business owners. Human Switch Kit makes it very easy for potential customers

to open deposit accounts -- the bank, after receiving their online application, sends its representative from the branch nearest to the customer to personally assist in account opening. Customers also enjoy faster and paperless branch transactions, priority banking and digital banking.

The CFI.co judging panel commends Security Bank Corporation for pushing the technological envelope with innovative products, services, and apps that not just meet today’s needs but are ready as well to face the future.

The bank has paid special attention to integrate its digital offerings with the facilities available to clients via its branch network. The judges are pleased to offer Security Bank Corporation the 2017 Best Digital Bank Philippines Award.

> SBM SECURITIES: BEST STOCKBROKER INDIAN OCEAN 2017

One of the main drivers of Mauritius’s push to become the premier financial hub of the countries lining the Indian Ocean basin, the publicly-listed SBM Group is one of the island nation’s largest financial services providers.

In addition to its 42 domestic branches, the group has established a presence in India, Madagascar, and more recently Kenya, where it acquired earlier this year a majority stake in Fidelity Commercial Bank, now renamed as SBM Bank Kenya.

One of the group’s wholly-owned subsidiaries, SBM Securities Ltd, offers a comprehensive range of investment and trading options, including real-time access

to the Stock Exchange of Mauritius. The firm is the only stockbroker on the island offering access to Government of Mauritius Bonds on the secondary market, in addition to operating a global fixed income desk. SBM Securities’ services also include underwriting and listing services. Thanks to its privileged access to retail clients of the SBM Group, the firm is able to handle the on-boarding of investors, organise road shows, and assist corporates with the preparation of their IPO.

SBM Securities was the first Mauritius broker to offer both domestic and overseas clients access to derivatives trading.

The SBM Securities trading desk operates on CFI.co | Capital Finance International

extended hours to offer clients full exposure to European equity markets and the opening of the major US exchanges.

The CFI.co judging panel agrees that Mauritius enjoys a solid reputation as a financial centre, and within that, SBM Group is recognised as one of the most experienced and best-equipped service providers. The judges note that SBM Securities was the lead broker for the placement of $165m depository receipts for the Afreximbank, with the funds raised locally from overseas investors. The judges are pleased to offer SBM Securities the 2017 Best Stockbroker Indian Ocean Award.

79

> CAPITAL BANK OF JORDAN: BEST SME BANK SERVICES JORDAN 2017

One of the country’s main financial services providers, Capital Bank of Jordan caters to both retail and corporate customers and maintains a dedicated division to serve small and mediumsized enterprises (SMEs) with a full range of products and services tailored to meet the specific needs of this most dynamic sector.

Recognising the difficulties many promising SMEs used to experience in accessing financial services, Capital Bank of Jordan tapped into the market with a full suite of flexible and scalable services that are designed to allow

smaller businesses to seize opportunities and expand operations.

Capital Bank of Jordan was set up in 1995 and has since registered robust growth.

The bank is particularly well-equipped to help facilitate cross-border trade. Capital Bank started its corporate life as Export & Finance Bank. As such, the bank is able to help SMEs broach new markets and make full use of its international experience. Moreover, Capital Bank of Jordan partners with a number of multilateral finance organisations that allow the bank to extend its

reach.

A domestic network of ten fullservice branches helps the bank maintain close proximity to its customers. Capital Bank of Jordan also holds a majority stake in National Bank of Iraq (NBI) and established a presence in the Dubai International Financial Centre (DIFC).

The CFI.co judging panel agrees that sustainable economic growth calls for a strong SME sector. The judges are pleased to offer Capital Bank of Jordan the 2017 Best SME Bank Services Jordan Award.

> MEFIC CAPITAL: BEST PRIVATE EQUITY FUND MANAGER SAUDI ARABIA 2017

A full service financial services company in the Kingdom of Saudi Arabia, MEFIC Capital is active in all segments of the investment banking and consultancy sector. The company helps both individual investors and corporates attain their financial objectives via a holistic approach grounded in experience and expertise. MEFIC Capital is owned by Ahli United Bank of Bahrain, The Arab Investment Company (TAIC), and a number of ultra-highnet-worth individuals. The firm was set up and licensed in 2007 and has since received ample recognition for its pioneering role in the further 80

development of the buoyant KSA securities markets.

MEFIC Capital maintains four distinct, yet closely integrated, business lines: asset management, wealth management, corporate finance and advisory, and custody services. Its brokerage is one of the most efficient in the kingdom and offers a number of structured products that enable optimised returns whilst minimising exposure to risk.

Thanks to its thorough understanding of local and regional market conditions, and its affiliation with one of the region’s top banks, CFI.co | Capital Finance International

MEFIC Capital’s investment banking arm is considered without equal when it comes to debt and equity placements, mergers and acquisitions, and initial public offerings (IPOs).

The CFI.co judging panel notes that MEFIC Capital also maintains a comprehensive corporate responsibility programme focused on skill development and the creation of job opportunities for young professionals. The judges are pleased to offer MEFIC Capital the 2017 Best Private Equity Fund Manager Saudi Arabia Award.

Winter 2017 - 2018 Issue

> AAN DIGITAL SERVICES HOLDING COMPANY KSC KUWAIT:

BEST CONVERGED COMMUNICATIONS LEADERSHIP GCC 2017

Seizing telecom investment opportunities across the Middle East and Africa, Kuwait’s AAN Digital Services Holding Company has managed to build up a sizeable and extremely well-rounded portfolio of assets in markets with plenty of upside – those in which mobile phone penetration is still relatively low – and poised for exponential growth. In more mature telecom markets, the company has looked for – and found – niche sectors from where to stage and drive expansion.

The holding company has stakes across the entire mobile value chain. However, it maintains particularly strong positions in

mobile network and virtual mobile network operations. AAN Digital Services Holding Company has also displayed an uncanny ability to identify, and snap up, promising startups. Its seed capital provides opportunities for accelerated growth via tried-and-proven strategies, enhancing shareholder value in the process.

The Kuwaiti company expends considerable effort in leveraging local expertise to drive growth. The company also invests heavily in the development of local managerial and operational skills. Thus, AAN Digital Services Holding Company has gained

wide recognition as a valuable partner in the development of a robust telecom infrastructure that boosts mobile penetration, ups APRU (average revenue per user), and thus helps establish an environment conducive to growth.

The CFI.co judging panel commends the company on impressive track record and ability to deliver solid returns – dividends, management fees, and capital gains – whilst minimising material risk. The judges are pleased to declare AAN Digital Services Holding Company winner of the 2017 Best Converged Communications Leadership GCC Award.

> CYPRUS COOPERATIVE BANK: BEST SOCIAL IMPACT BANK CYPRUS 2017

A prime mover in the country’s financial system, and indeed one of its mainstays, Cyprus Cooperative Bank (CCB) stands on the cusp of a major expansion drive that will see the bank debut on the stock exchange as it raises fresh capital to underwrite growth and the further development of its business. A number of prestigious global investment banks in Paris, Frankfurt, and London have already expressed an interest in helping CCB structure its highly-anticipated IPO.

Cyprus Cooperative Bank was set up in 1937 as a central bank to the country’s cooperative credit societies. As such, CCB was

instrumental in driving national development, meeting the short-term borrowing needs of the farming community via the associated credit coops. Now a full-service bank, and Cyprus’ largest financial services provider, CCB remains true to its heritage by engaging with all sectors of society in order to gauge demand and identify opportunity.

CCB is a major player in the International Co-operative Alliance (ICA) which brings together and represents coop movements from around the globe. Founded in 1895, ICA is today the largest non-governmental organisation in the world. Through its international contacts

CFI.co | Capital Finance International

Cyprus Cooperative Bank sources innovative solutions and expertise that enables the bank to continuously update and upgrade its products and services, ensuring client satisfaction and maximising the social impact of the bank’s operations.

The CFI.co judging panel values CCB’s continued dedication to excellence in both operations and governance. For a second consecutive year, the judges wish to recognise the bank’s progress. The judging panel declares Cyprus Cooperative Bank winner of the 2017 Best Social Impact Bank Cyprus Award.

81

> COGEFI GESTION: BEST PORTFOLIO MANAGEMENT TEAM FRANCE 2017

One of France’s premier investment services providers, COGEFI maintains a wide range of mutual funds open to both domestic and foreign investors via the new Euronext Fund Service Paris to which the firm recently subscribed.

COGEFI Gestion, one of the group’s principal components, now offers investors multiple automated channels to access Euronext’s wide range of funds. Euronext Fund Services Paris emulates the success of the first such facility which has been operating since 2007 in Amsterdam.

By joining the Paris-based Euronext Fund Services, COGEFI Gestion offers asset managers a complementary distribution

channel that uses cutting-edge technology and features unmatched flexibility that identifies market trends early on and allows investors quick access to both mutual (UCITS) and alternative investment (AIF) funds. The service also enhances transparency and is continuously updated to keep pace with regulatory evolution.

COGEFI Gestion enjoys a wellestablished reputation for outperforming the overall market and setting new benchmarks.

The firm is home to some of the most successful portfolio managers in the business with a number of its professionals receiving the coveted Citywire Triple A rating.

Founded in 1962, COGEFI is

recognised as a pioneer in wealth management.

The firm’s professionals consistently follow a results-oriented approach without losing sight of the human dimension. This corporate culture allows COGEFI to truly partner with its clients and establish long-term relationships based on trust and mutual understanding.

The CFI.co judging panel is pleased to note COGEFI Gestions’ low-key high-performance approach to portfolio management. The judges commend the firm on its achievements and declare COGEFI Gestion winner of the 2017 Best Portfolio Management Team France Award.

> CARTIER SAÂDA: BEST HERITAGE EXPORTER MOROCCO 2017

Cartier Saâda sits, quite literally, at the top of Morocco’s food chain. The company brings more than half a century’s worth of knowhow and experience to the table in the production, packaging, and marketing of superior quality fruits and vegetables.

Cartier Saâda is based in Marrakesh – one of the country’s four fabled Cities of Kings. Here, crops are grown on the fertile crescent of plains and hills that is sheltered by the Atlas Mountains rising to the east. Home to an exceptionally rich variety in plant life, the region is known as Morocco’s garden and produces a year-round bounty of exquisite fruits and vegetables.

82

Cartier Saâda was founded in 1947 as a family business – it is now listed on the Casablanca Stock Exchange – with a view to professionalising the countless artisan canneries and processors of the district and establishing a regional hallmark of quality.

From its earliest beginnings, the company has displayed a remarkable sensitivity to social issues, offering jobs and training to disadvantaged people and promoting a growing number of initiatives to improve the local community.

Cartier Saâda’s expanding range of products includes canned olives and apricots, teas and infusions, and condiments, amongst CFI.co | Capital Finance International

others. The company also produces readymade tapenades and taktouka and eggplant salads in addition to canned couscous legumes.

Cartier Saâda is known and appreciated for the superior quality of its products which enabled the company to become one of Morocco’s top processed food exporters.

The CFI.co judging panel congratulates Cartier Saâda on its corporate trajectory, tapping into Marrakesh’s cornucopia of riches and offering consumers wide and far a taste of Morocco. The judges are pleased to offer Cartier Saâda the 2017 Best Heritage Exporter Morocco Award.

Winter 2017 - 2018 Issue

> WAFACASH: BEST MONEY TRANSFER SERVICES MOROCCO 2017

Morocco owes around 7% of its GDP to its diaspora of more than eight million people.

To tap into this vast market that moves in excess of €5bn annually, Wafacash has teamed up with online money transfer service WorldRemit. Now, money transfers from anywhere in the world into Morocco can be finalised in seconds with a convenient app. Wafacash’ unequalled market penetration ensures that remittances can be sent almost instantly to any of the company’s 1,620 pick-up locations in Morocco. Already in 1995, Wafacash managed to become the first Maghreb partner of Western Union.

Set up in 1991 as a branch of

the Attijariwafa Bank Group, one of the largest financial services providers in Africa, Wafacash has established a stellar reputation for operational efficiency and customer service.

The company, initially called Wafa Monétique, pioneered the money transfer market in Morocco and has received wide recognition for its efforts to further financial inclusion. Its Visa Electron card, launched in 1997, helped democratise access to bankcards. Over the years, the company diversified its range of products with the inclusion of foreign exchange services and consumer loans offered via its corporate sibling Wafasalaf. The company also introduced the

innovative Floussy Card – an electronic wallet not connected to a bank account.

The CFI.co judging panel notes that Wafacash has been exceptionally successful in exploring synergies. The company now boasts a vast range of tightly-integrated product range that provides its customers with unparalleled convenience and ease of use. The judges have closely followed the firm’s trajectory for a number of years and agree that Wafacash again merits recognition for its achievements. The judging panel declares Wafacash winner of the 2017 Best Money Transfer Services Morocco Award.

> BANCA AGRICOLA COMMERCIALE: BEST BANK GOVERNANCE SAN MARINO 2017

Recently repositioned as an international financial services provider, San Marino’s Banca Agricola Commerciale (BAC) now allows individual and corporate clients from outside the mountaintop republic to benefit from the expertise accumulated during almost a century of banking. Founded in 1920, Banca Agricola Commerciale has long been recognised as San Marino’s bank of reference for its adherence to standards of governance that far exceed those considered part of global best practices.

In both its day-to-day operations and long-term performance, BAC inspires an

unusually high level of trust. As a result, the bank boasts a client retention rate that has repeatedly raised industry-wide benchmarks.

BAC maintains a comprehensive array of products and services for both retail and corporate customers. The bank enjoys a reputation for closely engaging with its clients in order to gauge – and promptly meet – their needs as well as any future requirements.

With a tightly integrated branch network, BAC keeps in close proximity to its clients. The bank’s up-to-date technological backbone and its operational efficiency ensures CFI.co | Capital Finance International

that international BAC clients may now enjoy the same excellence in the delivery of financial services. The bank squarely aims to build longterm relationships with its clients based on trust, simplicity, and transparency.

The CFI.co judging panel commends Banco Agricola Commerciale for its consistency.

For BAC, good corporate governance is not a pursuit of a passing nature. Instead, good governance forms part of its corporate DNA. The judges are pleased to offer Banca Agricola Commerciale the 2017 Best Bank Governance San Marino Award.

83

flexible and sc Solutions that our clients.

> THE SIMPSONS: MOST SOCIETAL IMPACT TELEVISION SERIES 2017 Integration and Operations

Managed IT Services

IT Security Services

MEEZA’s Providing a ri End-to-End comprehensive portfolio of C recognised systems portfolio of Managed Security Serv integrator and his character traits from John F Kennedy whilst an aesthetic of quotations.

IT Services provides tothatprovide cy Elvis Presley’s personal pill-pushing physician Dr

The CFI.co judging panel notes rapidly establishing George Nichopoulos provided the inspiration for L’Osservatore Romano, the official newspaper of for clients IT protection ar expertise in the area the eager-to-please local quack – “you’ve-tried-the the Vatican and mouth-piece of the pope, branded and the clock to p ofnow-try-the-rest” Smart Cities and Riviera, orInfrastructure best, – Dr Nicholas accident-prone Homer Simpson a “model father” grant thewilfully reliability critica Internet simply Dr Nick. of Things. for never failing his family. The client’s paper

With a cast of 153 regular andand praised the series forthey providing a mirror of the availability recurring characters joining the core family of fiveneed “religious andSystems. spiritual confusion of our times” in IT

Simpsonology – the study of life in Springfield – has turned into a serious academic pursuit. Already the longest-running cartoon series in television history with 29 seasons and 627 episodes, The Simpsons depicts not just contemporary life but dissects the wider society as well. Prescient and omniscient in surprising ways, the series predicted Donald Trump’s arrival in the White House (Bart to the Future – S11E17), the FIFA corruption scandal (You Don’t Have to Live Like a Referee – S25E16), the voting machine debacle (Treehouse of Horror XIX – S20E04), and Apple’s FaceTime (Lisa’s Wedding – S06E19), amongst many others.

The series – the product of a collective of geeks and high-brow intellectuals – takes it cue from history. Mr Burns, the evil owner of the Springfield Nuclear power plant and the town’s richest and greediest inhabitant (Forbes estimated him to be worth some $7.3bn), is loosely based on Alvin Brewster, the scheming owner of the fictional Nitro Chemical plant in This Gun for Hire – an obscure LA noir classic from 1942. Womanising Springfield mayor Joseph Fitzgerald “The Edge” Quimby takes

(Homer, Margie and their children: rebel rouser and particularly mentioned the episode (Homer Bart, aspiring intellectual Lisa, and little “what’sthe Heretic – S04E03) in which Homer ascends her-name” Maggie), The Simpsons represent a to heaven to have words with God about the complete universe – a veritable Planet Simpson. meaning of life. At the end of a stairway to heaven, The makers’ attention to detail is legendary – Homer finds God seated behind a desk adorned nothing that appears on screen is there without with a plaque that reads “I Believe in Me.” a reason. Some elaborate scenes – such as the

As the series that brought the split-second camera pan just before the couch gag counterculture mainstream, and was awarded cult – can only be appreciated by hitting pause at the status even as it did so, Planet Simpson seems to exactMEEZA’s moment. Almost every scene is a reference come alive.

It is a real place: a playground State-of-the-art Datahave Centres offers the highest level of avai to something else and whilst most viewers pick up where trends and events are explored and TiertoIII and constructed Centres in Qatar on allusions Stardesigned Wars and Jaws, true Simpsons parodied –Data sketching both the futility and valueand the on aficionados ferret out and lay bare direct links to of life. The judges do notEast know and the meaning of Africa.

Middle North literature, science, and assorted theorems. As a life either but agree that The Simpsons’ take on collage of cultural phenomena, The Simpsons it has many merits and warrants recognition with is often considered television’s first and most the 2017 Most Societal Impact Television Series successful foray into postmodernism, defined as Award.

MEEZA Data Centres

> MEEZA: BEST IT SECURITY GCC 2017

In the IT security landscape, change comes quickly and poses an often lethal threat to business. Breaches of security with the attendant loss of data integrity and privacy can lead to both reputational damage and financial ruin.

A basic antivirus programme of the install-andforget variety no longer suffices to keep intruders at bay. Today’s networks and datacentres call for advanced permanent monitoring, scanning, logging, and analysis of both external and internal threats.

MEEZA, a Qatar-based IT security company, offers a range of services that together ensure the resilience of client networks and allow 84

for full regulatory compliance. The company’s advanced security monitoring service scrutinises critical IT assets round the clock and instantly flags and reports incidents. To detect suspicious activity, MEEZA uses self-learning algorithms that check for network traffic that deviates from historic patterns.

MEEZA also helps clients boost their IT security by mapping vulnerabilities and weighing future threats. The company offers cost effective solutions that maintain the operational flexibility required from companies in today’s fast-paced global market. MEEZA recognises IT security as a main pillar of corporate risk CFI.co | Capital Finance International

mitigation strategy. The company also helps clients meet increasingly strict logging, privacy, and reporting standards with its universal log management service.

The CFI.co judging panel notes that IT security is no longer a corporate afterthought. Security breaches can and do result in reputational damage that is hard to contain and even more difficult to revert. Fielding a team of highly-trained IT security professionals and deploying cutting-edge technology, MEEZA offers a level of assurance seldom seen in the business.

A repeat winner, MEEZA is named recipient of the 2017 Best IT Security GCC Award.

Winter 2017 - 2018 Issue

> OREY FINANCIAL: BEST ONLINE BROKERAGE IBERIAN PENINSULA 2017

A principal player in Portugal’s capital market since 2004, Orey Financial has been recognised as a driver of innovation, introducing a number of new products and solutions both domestically and internationally.

As an online broker, the firm is tightly focussed on the development and deployment of ground-breaking investment and asset management strategies. Orey Financial’s online brokerage is the largest of its kind in Portugal, leading the sector with a full suite of products and services and a state of the art platform that offers investors real-time access to global market trends and data. The firm also maintains

a presence in next-door Spain where it has registered sustained growth since its debut in 2008.

Orey Financial also offers clients a portfolio management advisory service and has lent its expertise to a number of start-up real estate funds. Already in 2007, the firm introduced a novel urban renovation fund to help finance the renewal of run-down urban centres.

Via Orey Capital Partners, the firm ventured into the private equity sector with a fund dedicated to logistics management.

Part of Portugal’s flagship Orey Group, which traces its origins to 1886, Orey

Financial benefits from the group’s experience – and remarkable resilience. As a hallmark of quality, Orey Group managed to grow and prosper throughout the country’s chequered history. In 2007, the group expanded its footprint to include Brazil.

The CFI.co judging panel notes that Orey Financial has consistently outperformed the overall market and has established a solid reputation for transparency and excellence in governance. The judges are pleased to declare Orey Financial winner of the 2017 Best Online Broker Iberian Peninsula Award.

> NLB SKLADI: BEST VALUE INVESTMENT PRODUCTS AND SERVICES SLOVENIA 2017

The asset management arm of the NLB Group, the largest financial services provider in Slovenia, NLB Skladi has sparked renewed interest from domestic investors seeking to hedge against inflation in a low-returns environment.

With interest rates on most savings and deposit accounts still hovering just north of 0%, savers of all sizes have flocked to NLB Skladi in search of alternative investment vehicles.

The asset manager has not disappointed. The firm has set up a number of mutual funds – both fixed and variable income – which it designed and manages in-house with

the exception of the popular Japan Fund for which NLB Skladi engaged outside expertise.

The firm has been particularly successful in attracting clients from NLB Bank account holders. The upside is considerable, given that around 75% of Slovenian savings are kept passively in deposit accounts.

Founded in 2004, NLB Skladi is one of the country’s youngest asset managers. Even so, the firm has established a solid track record, repeatedly outperforming both local and regional benchmarks. Whilst containing only about 2% of the firm’s total assets under management, the CFI.co | Capital Finance International

Slovenian Equity Fund has proved exceptionally popular with small investors. As such, the fund has become NLB Skladi’s flagship product that has allowed the firm to draw in new savers and promote its other funds.

The CFI.co judges panel notes that NLB Skladi has invested considerable resources to build a winning team of analysts and fund managers in order to maintain its leading edge.

The judges declare SNL Skladi winner of the 2017 Best Value Investment Products and Services Slovenia Award.

85

> COVERWALLET: BEST COMMERCIAL INSURANCE START-UP UNITED STATES 2017

New York-based CoverWallet helps small businesses efficiently navigate the often bewildering maze of commercial insurance policies and find the coverage best suited to their specific needs. CoverWallet provides a smart online platform that helps businesses understand the coverage they need, get quotes instantly, and monitor and manage everything, including policies, claims, and certificates of insurance.

CoverWallet works as a concierge service for the insurance needs of professionals and small and medium size businesses.

Harnessing data with thoughtful design and technology allows the company to instantly tailor insurance policies and optimise pricing, providing the best coverage while saving business owners time and money.

CoverWallet has the capability to offer a full suite of insurance products to protect businesses for risks they might face, from general liability and workers compensation on through to cyber security breaches and executive wrongdoing.

The company, set up by successful tech entrepreneurs, has attracted top talent

and investors to build a platform of unrivalled ease of use. The company’s platform is the first to be considered an all-in-one destination to understand, purchase, and manage commercial insurance products.

The CFI.co judging panel recognises the need – and demand – for an agile online platform that streamlines and simplifies the commercial insurance business. The judges feel that CoverWallet has succeeded brilliantly where others stumbled or failed. CoverWallet is declared winner of the Best Commercial Insurance Start-Up United States Award.

> AMEE UK: BEST SUPPLY CHAIN SUSTAINABILITY UNITED KINGDOM 2017

Mapping financial and environmental risk for corporates of all sizes, UK data provider AMEE enables businesses to access a wealth of information on global best practices and trends that help mitigate risk, up resilience, and enhance sustainability. Founded in 2007 with a view to assessing and classifying environmental data, AMEE provides its clients with the tools needed to adapt to the effects of climate change and put into place corporate policies that encourage innovation and collaboration to successfully meet environmental threats to the bottom line.

AMEE – Avoidance of Mass Extinctions Engine – seeks to empower 86

businesses and ensure their lasting competitiveness by facilitating access to data on how others are coping with the challenges – essentially showing what works, and what does not, in any given business. In other words, AMEE stops businesses from reinventing the wheel.

Recognising that corporates around the world – and their complex supply chains – face increasing social, economic, and environmental pressures, AMEE believes that solutions are available by amassing data from diverse global sources. This also helps establish new relationships between companies dealing CFI.co | Capital Finance International

with similar threats. AMEE strongly believes that the compilation of vast data sets and providing easy access to analytical algorithms that find patterns and highlight trends helps build resilient businesses and makes for a more sustainable economy.

The CFI.co judging panel agrees that the analysis of big data often outputs surprising and useful results. The judges commend AMEE on its foresights and insights. The judging panel declares AMEE UK winner of the 2017 Best Supply Chain Sustainability United Kingdom Award.

Winter 2017 - 2018 Issue

> BANK GANESHA: BEST BANK GOVERNANCE INDONESIA 2017

Adherence to solid corporate governance principles pays the highest dividends in times of economic trouble. Or, put in another way: When the going gets tough, the tough … embrace corporate governance. Indonesia’s Bank Ganesha proves the point: the challenging economic environment of the past three years has not derailed the bank’s growth trajectory – or, indeed, slowed its expansion. Last year, Bank Ganesha registered a 157% jump in profits on a 39% stronger revenue stream. The bank improved its performance across all relevant metrics: profitability, capitalisation, deposit volumes, and loan book.

Following its successful IPO in

February 2016, Ganesha Bank not only swiftly implemented the Governance Guidelines for Public Companies but also optimised and finetuned its governance structure. Particular attention was given to improve stakeholder relations with a view to ensuring the full transparency of decision-making processes.

The bank also expanded its risk management and mitigation framework with real-time active monitoring procedures and strengthened internal control systems.

The optimised corporate governance structure has allowed Bank Ganesha to remain extremely agile which, in turn, enables the bank to respond quickly to changing market dynamics

– seizing opportunity and growing its market share. The bank has also invested considerable resources in the professional development of its staff with skills and talent management programmes.

The CFI.co judging panel considers the sustainable business model deployed

by Bank Ganesha an example of how good governance has the ability to boost operational resilience and guarantee a solid bottom line.

The judges wish to recognise the bank’s achievements and offer Bank Ganesha the 2017 Best Bank Governance Indonesia Award.

> CATOCA: BEST ESG MINING OPERATIONS ANGOLA 2017

Angolan diamond miner Catoca, the largest contributor to the country’s exchequer, last year pulled around eight million carats from its concession in the Lunda-Sul Province which sit squarely atop an exceptionally rich kimberlite pipe reaching a depth of over 600 metres. The mine – the fourth-largest of its kind in the world – is a joint venture which includes Russia’s Alrosa, the global leader in diamond mining by volume and home to some of the industry’s most recognised geologists.

Catoca employs well over 3,300 people. The company consistently ranks amongst Angola’s top employers and, as such, attracts the country’s most talented professionals.

Catoca is also recognised for its comprehensive corporate social responsibility programme which supports numerous initiatives to promote public health, education, and social mobility.

In addition, Catoca maintains an equally wideranging environmental responsibility programme that includes ongoing land restoration and reforesting projects and strict effluent reduction and treatment procedures.

Catoca extracts around 75% of all the diamonds mined in Angola. Besides the LundaSul mine, the company participates in seven other concessions, lending its peerless expertise and experience. Catoca’s Integrated Quality Management System includes environmental CFI.co | Capital Finance International

and occupational safety provisions that guide day-to-day operations and form part of a wider risk mitigation framework designed to ensure the sustainability of the company’s operations.

The CFI.co judging panel has followed Catoca’s corporate trajectory for a number of years. The judges’ note the company’s consistent compliance with ESG (environmental, social, and governance) standards. The judges have agreed to recognise Catoca’s achievements for a second successive year. The company is declared winner of the Best ESG Mining Operations Angola 2017.

87

> MEDALLION COMMUNICATIONS: BEST INTERCONNECTIVITY SOLUTIONS TEAM AFRICA 2017

Connecting Nigeria to the world, Medallion Communications maintains state-of-theart switching centers and traffic clearing houses that allow the country’s telecom service providers to offer their clients world class services. Medallion Communications Limited (Medallion) is a foundational telecommunications infrastructure servicing company focused on providing carrier neutral critical network infrastructure for use by the industry.

Medallion Communications designs, implements, and operates traffic clearinghouses that function as nodes where telecom operators can seamlessly interconnect their networks, share resources, and reduce overhead. The company observes strict carrier neutrality and offers settlement services that allow operators to easily reconcile traffic, thereby reducing

bureaucracy and ensuring efficient bill processing.

Medallion datacenters are today the most connected facilities in West Africa. It is the region’s number one peering point connecting the sub-region to the rest of the world. No other facility has the same number and concentration of International Submarine Fiber Operators (Mainone, Glo1, SAT3, WACs, ACE, etc); Long Distance Operators (Phase3, MultilinksTelkom, MTN, Airtel, Globacom, etc); Metro Fiber Operators (Broadbase, 21st Century, VDT, IPNX, Suburban, etc); Critical National Content Operators (Nigerian Internet Exchange, Google, Nigerian Internet Registration Agency, VAS providers, etc); ISPs (Netcom Africa, Internet Solution, Vodacom, Layer3, Skyvision, etc).

Medallion is the number one go-to facility for

fast, efficient, and cost effective hosting and connectivity services when time to market and affordability is essential. Medallion is the chosen hosting company of choice for the major value added service providers and premium rated operators in Nigeria and international companies seeking to do business in Nigeria.

The CFI.co judging panel agrees that a robust telecom backbone is key to sustained business growth. As Africa go digital, network interconnectivity gains in importance. The judges commend Medallion Communications on both its achievements and dedication to operational excellence. Medallion Communications is declared winner of the 2017 Best Interconnectivity Solutions Team Africa Award.

> FIDELIS FINANCE BF: BEST SOCIAL IMPACT SME FINANCE - BURKINA FASO 2017

Financing small and medium sized enterprises (SMEs) needs in West Africa to unlock their potential for sustainable growth, Fidelis Finance BF provides credit for the acquisition of equipments and the increase of working capital. The firm, set up twenty years ago, has accumulated a deep reservoir of knowledge and is recognised for its expertise in empowering businesses to seize opportunities for expansion.

Fidelis Finance maintains a comprehensive range of credit products and services and is able to tailor its offerings to 88

their clients’ exact requirements. In addition to straightforward loans, the firm also has leasing, long-term rental, rent-to-buy, and factoring products specifically aimed at SMEs. Fidelis Finance partners with a number of multilateral credit providers and development banks to boost its performance. The company has established a solid reputation for transparency and adherence to high standards of corporate governance. Fidelis Finance maintains operations in Burkina Faso and Côte d’Ivoire.

Recognising that accelerated development is most effectively delivered CFI.co | Capital Finance International

and sustained via SMEs, Fidelis Finance has pioneered a number of innovative ways to best serve the regional business community with a view to becoming West Africa’s leading provider of corporate financial services. To that end, the firm recently opened a branch in Abidjan.

The CFI.co judging panel commends Fidelis Finance on its hand-on approach to SME finance and notes that the firm delivers a full suite of products. The judges agree to declare Fidelis Finance winner of the 2017 Best Social Impact SMEs Finance - Burkina Faso Award.

Winter 2017 - 2018 Issue

> BLUE LAGOON: OUTSTANDING CONTRIBUTION TO ECO-TOURISM - GLOBAL 2017

One of the 25 wonders of the world according to National Geographic, the Blue Lagoon near Reykjavík, Iceland, draws guests from all over of the world for a dip in its mineral-rich waters sourced from rock strata two thousand metres below the earth’s surface. The high silica and algae content that gives the lagoon’s water its milky blue hue also helps soothe and nurture the skin and reduce afflictions. The Blue Lagoon Skin Care line is based on the unique ingredients of the geothermal seawater; Silica and Algea.

Harvested by way of a zero-waste process, Blue Lagoon skin care line adheres to the highest mandates of eco-friendly sustainability.

Set up in 1992, the Blue Lagoon company has built a hotel spa hugging the shore of the man-made lagoon where visitors 2965 U may luxuriate in a refined atmosphere of Nordic minimalism, dipping in and out of the steaming lagoon whilst enjoying a healthy snack in between or a fine meal at the Lava Restaurant.

The company also maintains a scientific facility to research the medicinal properties of the water.

Blue Lagoon stands at the apex of Iceland’s exceptionally rich eco-tourism universe.

The lagoon’s very existence is owed to the country’s pioneering efforts in renewable energy.

The lagoon was formed to capture the effluents of

the Svartsengi geothermal power station. Due to increased visitor numbers, Blue Lagoon company has now embarked on an expansion project – The Retreat - Blue Lagoon Iceland, a luxury hotel and spa – which it expects to complete later this year.

The CFI.co judging panel notes that Blue Lagoon has become Iceland’s main tourist draw and, as such, showcases the country’s natural wonders. Blue Lagoon company represents and embodies the Icelandic Style which has proved such a hit with visitors. The judges are pleased to offer Blue Lagoon the 2017 Outstanding Contribution to Eco-Tourism Global Award.

> CIBANCO: BEST GREEN BANK MEXICO 2017

Convinced that sustainability principles will drive future business – and profits – CIBanco has developed a comprehensive range of products and services that allow businesses to prepare for, and adjust to, the new era of corporate operations shaped by environmental concerns. CIBanco has signed on to the UN Global Compact – an initiative that encourages businesses all over the world to adopt, and report on, advances on sustainability such as compliance with the latest environmental, social, and governance (ESG) standards.

At CIBanco, companies willing

and able to lower the environmental impact of their operations qualify for preferential credit lines. Facilities are also available for corporates seeking to eco-proof business by switching to renewable energy sources or by greening offices, warehouses, and plants.

CIBanco is part of a larger group of companies that also includes a fund manager and a stock brokerage, amongst others. The group has operations in both Mexico and Spain.

In the latter country its CITDA investment bank is market leader in the securitisation of assets.

The bank started in 1983 as a foreign CFI.co | Capital Finance International

exchange bureau for corporate customers. A full banking licence was obtained in 2008. Today, CIBanco is one of Mexico’s leading financial services providers with a solid reputation for corporate transparency and excellence in governance.

The CFI.co judging panel agrees with CIBanco that sustainability principles are key to enduring corporate success and, indeed, survival. The judges are pleased to grant CIBanco the 2017 Best Green Bank Mexico Award.

89

> BOTSWANA INVESTMENT AND TRADE CENTRE (BITC): BEST DIRECT INVESTMENT PROMOTION TEAM AFRICA 2017

Botswana is, without doubt, one of Africa’s gems: the country consistently reaps regional top honours on global rankings of governance, ease of doing business, and economic performance. An exceptionally stable political climate, a fully independent judiciary, and a rigorously observed human rights legislation make Botswana stand out and shine as a regional, and indeed continental, beacon of freedom and tranquillity.

The country is also wide open for business. Botswana offers a vast array of opportunities, underpinned by its highly educated workforce, business-friendly environment, and – perhaps best of all – an efficient and knowledgeable investment

promotion agency: the Botswana Investment and Trade Centre (BITC) which offers advice and guidance to those seeking to establish a presence in the country.

Strategically located in the very heart of the Southern African Region, Botswana is ideally suited as a base from which to serve this economically vibrant and buoyant part of the continent. BITC is the proud custodian of the Botswana brand, now well-recognised globally.

The centre organises the annual Global Expo Botswana trade fair which aims to showcase the country and forge lasting partnerships with foreign investors.

Established by act of parliament, BITC operates as an integrated agency – a

one-stop shop for investors. Over the years, the centre has become one of the principal drivers of the country’s economy. BITC also helps domestic business tap into foreign markets and maintains a well-stocked toolkit to help exporters seize opportunity. The centre values sustainable business practices and leads by example.

The CFI.co judging panel is always excited to hear from Botswana. The judges consider the country a worthy example for others to follow. The judging panel agrees that BITC does a stellar job of promoting Botswana the world over and wishes to offer the centre the 2017 Best Direct Investment Promotion Team Africa Award.

> ACADEMY OF ROCK: OUTSTANDING CONTRIBUTION TO MUSIC EDUCATION ASIA PACIFIC 2017

South East Asia is about to rock and it’s not just the economy that is moving and shaking.

The Singapore-based Academy of Rock, set up in 2007 and now recognised as the region’s premier music education venue, offers a whole raft of qualifications not previously available to aspiring rock stars. The institution has implemented a comprehensive and wellstructured curriculum that gives contemporary music students an educational grounding similar to those enjoyed by classical music performers.

The academy works in close cooperation with the music industry in order 90

to provide students with a maximum of opportunities. The Academy of Rock recently opened its own state-of-the-art recording studio to expand its programme with courses on creative music production techniques. The academy organises and hosts a large number of masterclasses and clinics with internationallyrenowned artists. Students are prepared for graded music exams and diplomas which are fully accredited by UK regulators and include UCAS points.

True to its motto that it’s never too early (or too late) to rock, the academy launched Jungle Jam, a series of books designed for 0-5 CFI.co | Capital Finance International

year olds. Jungle Jam is slated to expand into an online music platform for young children and will provide a seamless transition to the academy’s Early Years Programme which is set to be launched next January.

The CFI.co judging panel noted that the Academy of Rock is currently pursuing deals with Netflix and Disney, and has also embarked on regional expansion with franchises in a number of countries. The judges are pleased to offer the Academy of Rock the 2017 Outstanding Contribution to Music Education Asia Pacific Award.

Winter 2017 - 2018 Issue

> ELISA: BEST DIGITAL CORPORATE RESPONSIBILITY FINLAND 2017

It has been selected as one of the best places to work in Finland and in October made the Climate A list of companies that excel in environmental impact reporting. Elisa is one of Finland’s oldest, and most recognised, telecoms.

Over its 135-year-long history the company has claimed a great many mileposts such as the launch of the world’s first GSM network in 1991, followed sixteen years later, by the world’s first commercial UMTS (3G) mobile network. Today Elisa is the market leader of mobile and fixed network services in Finland and number two in Estonia.Pushing the envelope of the telecoms

business in part of Elisa’s identity. The company serves over 2.8 million customers in Finland and Estonia with state-of-the-art technology. Earlier this year, Elisa successfully field-tested a 10Gbps symmetrical fibre optic grid bringing the roll-out of the company’s vastly enhanced network closer.

Elisa anticipates a spike in demand for ultra-fast connections as the Internet-of-Things takes shape and more devices come online.

Increased connectivity also demands enhanced security and digital responsibility.

Elisa has long been recognised as a pioneer in cybersecurity, ensuring both the resilience

and reliability of the networks it operates. The company is also mindful of the environment, working towards the reduction of its carbon footprint via improved operational and managerial efficiencies. An Energy Efficiency Team constantly monitors compliance with the company’s environmental objectives.

The CFI.co judging panel commends Elisa on its four-pronged approach to corporate responsibility: digital, environmental, social, and economic. The judges are pleased to offer Elisa the 2017 Best Digital Corporate Responsibility Finland Award.

> KANDEO FUND: BEST ESG PRIVATE EQUITY TEAM LATIN AMERICA 2017

As a group, investment managers are particularly fond of buzzwords and novel trends that promise to combine high alpha, low beta, and – perhaps most important of all – a beneficial impact on people and the environment. These days, any self-respecting portfolio manager is all about impact investments and compliance with environmental, social, and governance (ESG) standards.

However, only a select few firms actually do as they say. Kandeo Fund is such a firm. The Latam based private equity firm is a favourite amongst impact investors seeking to extract both solid returns and social benefits.

Kandeo Fund manages a sizeable portfolio of financial assets that is fully geared towards

supporting small businesses and low-income workers. The firm prioritises investments that include gender equality and financial inclusion goals.

Kandeo Fund recognises that big changes often start with small initiatives. For example, the fund offers low-cost financing to farmers and labourers for the acquisition of new tools – creating a safer and more productive work experience in the process. The fund also dispenses microloans and home mortgages.

Kandeo Fund maintains significant investments in Colombia, Peru, and Mexico and has sourced funds in the US, Canada, Germany, and elsewhere. The firm boasts a solid track record in deploying resources for maximum CFI.co | Capital Finance International

verifiable impact. As such, Kandeo Funds has earned the trust of investors which, in turn, boosts its portfolio – and the social impact of its investments.

Thanks to its exceptionally experienced management team, including professionals from Latin America’s largest corporates, Kandeo Fund repeatedly outperforms the overall market whilst, at the same time, improving the lives of countless people.

The CFI.co judging panel commends the firm on its commitment to excellence in impact investing. The judges’ are pleased to declare Kandeo Fund winner of the 2017 Best ESG Private Equity Team Latin America Award.

91

> NORDEA ASSET MANAGEMENT: BEST ESG INVESTMENT PROCESS EUROPE 2017

Delivering solid returns responsibly.

Nordea Asset Management strives – and succeeds – to optimise risk-adjusted returns for its customers. The firm, part Nordea Bank, covers all asset classes in Europe, North America, and a growing number of emerging markets. As part of one of the Nordic region’s largest financial services providers, Nordea Asset Management benefits from significant economies of scale not available to its peers.

The firm enjoys a well-established reputation as a pioneer of responsible investing, carefully considering all environmental, social, and governance aspects of a given corporation

or asset class before any funds are committed.

Nordea Asset Management adheres to a comprehensive code of conduct that reflects the firm’s sound ethical values.

The firm implemented a multiboutique strategy that entails the establishment of segregate teams for different asset classes.

The approach also includes supplementing internal competencies with outside expertise so that clients may benefit from optimised investment processes driven by deep sectorial knowledge.

This bespoke strategy enables Nordea Asset Management to propose a wide

array of solutions under any and all market conditions. As such, the firm is one of only a select few that manages to leverage the strength of a boutique investment approach whilst enjoying the scalability and stability of a large financial institution.

The CFI.co judging panel has followed the trajectory of Nordea Asset management for a number of years. The judges are pleased to note that the unique approach of the firm continues to yield excellent results.

Nordea is declared winner of the 2017 Best ESG Investment Process Europe Award.

> GCC BOARD DIRECTORS INSTITUTE: OUTSTANDING CONTRIBUTION TO CORPORATE GOVERNANCE GCC 2017

Since 2007, the GCC Board Director’s Institute (BDI) – a non-profit entity – has helped further improve corporate governance standards throughout the Middle East. The organisation was set up by the region’s largest corporations and receives support from the world’s leading business consultancy firms. Now with almost a thousand members, the GCC Board Directors Institute represents the region’s largest network of business executives and hosts a number of events such as its flagship annual Chairman Summit. The organisation also offers a series of 92

workshops that allow leading CEOs to hone their skills and evaluate progress.

The only Middle Eastern directors institute admitted to the Global Network of Director Institutes, BDI is recognised for its dedication to the promotion of the highest standards in corporate governance. The institute works closely with regional regulatory entities to produce guidelines for board members and facilitate the flow of information between parties.

BDI has successfully adapted a vast array of global best practices to local circumstance and CFI.co | Capital Finance International

actively supports initiatives that aim to enhance board members’ capabilities – believing, as it does, that enduring success in business can only be sustained through excellence in corporate governance.

The CFI.co judging panel notes that BDI also encourages diversity on director boards and emphasises the importance of engaging with external evaluators to gauge effectiveness. The judges declare GCC Board Directors Institute winner of the 2017 Outstanding Contribution to Corporate Governance GCC Award.

Winter 2017 - 2018 Issue

> BARCLAYS AFRICA GROUP: BEST SME PARTNER BANK AFRICA 2017

Africa is on the move and the pushing is being done by SMEs – small and medium-sized enterprises. Small businesses account for more than a third of the continent’s economic output and are its main source of jobs. Africa is home to millions of budding entrepreneurs eager to tap into local and even global markets. Their ambition is often as great as their business savvy. The bottleneck that often stops Africa’s up-and-coming businesses from seizing opportunity is access to financing – both for working capital and expansion drives – and business knowledge.

Barclays Africa Group, present in twelve countries and listed on the Johannesburg

Stock Exchange, was one of the first to identify – and meet – the needs of Africa’s SMEs. The bank reached out to entrepreneurs with a fullyfeatured business portal that helps users gain access to skills development and mentorship programmes, amongst others.

The highly-valued portal enables businesspeople to find public and private procurement contracts and prepare their bids.

The bank encourages its larger corporate clients to list their needs and requirements on the portal and thus connect with SMEs.

The bank also actively supports fintech innovation through RISE, a community of entrepreneurial movers and shakers that brings

together start-ups and established businesses to form a fertile pool that breeds innovation.

The CFI.co judging panel is particularly impressed with the bank’s continued efforts to help SMEs source opportunities.

By doing so, Barclays Africa Group helps an already dynamic sector grow and prosper. The judges are aware that they have recognised the bank’s SME-friendly policies twice before and appreciate the consistency displayed by the group. The judges’ have no hesitation in recommending Barclays Africa Group for a third win and therefore offer the bank their 2017 Best SME Partner Bank Africa Award.

> DEPARTMENT OF FINANCE, GOVERNMENT OF DUBAI:

SMART FISCAL PLANNING – MOST INNOVATIVE STRATEGIC GOVERNANCE PROGRAMME EMEA 2017

Dubai state departments and entities are pushing the envelope on governance, raising the bar across the board and providing excellence – and speed – in the delivery of services. Their unrelenting dedication to sound governance ensures, amongst others, top fiscal efficiency.

The Department of Finance (DoF) of the government of Dubai offers a prime example of how to responsibly manage public resources. The department has put in place a comprehensive policy framework – Smart Fiscal Planning (SFP) – that allows for performance-based budgeting and automates the government’s planning and fund allocation processes.

The innovative approach implemented by DoF significantly improves operational efficiencies across the entire state apparatus by assuring baseline funding requirements. SPF takes into account the interests of all stakeholders and produces a wealth of hard data that, in turn, support decision making. Introduced at the start of 2014, the phased rollout of the SPF programme is now well underway with full implementation expected in early 2020.

SPF represents a holistic approach to public finances unlike any other in the world.

The programme seeks to eliminate spending CFI.co | Capital Finance International

bottlenecks whilst improving transparency, accountability, and – crucially – financial and strategic planning. Thus, SPF fine tunes and perfects the budgeting process, ensuring fiscal sustainability.

The CFI.co judging panel is, quite simply, impressed. The judges expressed a collective wish for others to adopt a similar smart programme in order to improve fiscal rectitude. The panel commends the government of Dubai on its foresight and declares the Department of Finance winner of the 2017 Smart Fiscal Planning – Most Innovative Strategic Governance Programme EMEA Award.

93

> Africa

Addis Ababa: City-Wide Construction Site

Visiting Addis Ababa in 1935 to report on the impending Second ItaloAbyssinian War, British writer Evelyn Waugh described Ethiopia’s capital city as being in a “rudimentary stage of construction.” Thirty years later, Polish correspondent Ryszard Kapuściński noted the “wooden scaffoldings scattered” of a “large village amid eucalyptus groves” blanketing the undulating landscape.

Little has changed since then. The trees are gone and Addis Ababa may have grown into a bustling metropolis of some five million; its skyline is still shaped by the carcasses of denuded buildings in various stages of construction or decomposition.

Addis Ababa, Ethiopia: Lion of Judah Statue

94

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

CFI.co | Capital Finance International

95

T

he city was founded in 1886 by Emperor Menelik II whose consort Taytu Betul had grown rather tired of moving the royal encampment about the country and decided to put her foot down at a hot spring just south of Mount Entoto. Three years later work began on a royal palace and progressed even as a viral cattle disease decimated the country’s livestock and caused the Great Famine which killed an estimated four million people between 1888 and 1892. Today, the Menelik Palace houses the prime minister’s office and is where ambitious plans have been drawn up to tackle Addis Ababa’s urban sprawl and create some order out of the long-established chaos.

Addis Ababa has not escaped the urbanisation wave that ballooned cities all over Africa and transformed, often in a single generation, sleepy capitals into vast megalopolis straining under a buckling infrastructure not designed to serve the needs of millions. At the time of the coup that ousted Emperor Haile Selassie in 1974, Addis Ababa had a population of barely 500,000. By 1991, when a rebel army toppled the Marxist Derg regime after a civil war that left an estimated 1.4 million dead, the city had swollen to 2.3 million inhabitants. The World Bank expects Addis Ababa’s population to double over the next ten or so years.

Still, Ethiopia is a latecomer to urbanisation.

Around 80% of the country’s one-hundredmillion inhabitants live in the countryside and though migration has picked up, urban growth, whilst robust, has so far trailed that of similarlysized cities elsewhere in Africa.

Both a challenge and opportunity, Addis Ababa’s accelerated growth coincides with an economic boom that has pushed Ethiopia into the middleincome bracket. The third-poorest country in the world just seventeen years ago, Ethiopia saw its GDP explode in the new millennium, registering an expansion of 277% between 2000 and 2016 – the third highest globally for countries with more than ten million inhabitants and outpaced only by Myanmar (+356%) and China (+388%).

In its latest worldwide forecast, the International Monetary Fund (IMF) expects Ethiopian GDP to grow by an annual average of 6.2% through to 2022 which would see per capita income rise to a respectable $2,600 (2011 dollars). A relatively stable political environment undoubtedly contributed to the growth spurt as did urbanisation: according to World Bank estimates, fully half of the 10.8% average annual growth recorded between 2004 and 2014 came from the services sector – in particular tourism and transportation.

Farming, the traditional mainstay of the economy, performed well thanks to the much-improved availability of enhanced and disease-resistant seeds and fertiliser. However, it is industry that holds most promise. An economic footnote until recently, the manufacturing sector is burgeoning, 96

"The country’s government seems determined to meet the increased demand for housing and urban services such as electricity, internet, and drinking water by planning ahead and scaling up the 2006 master plan." doubling in size every six years and leading the US Center for Global Development to predict that Ethiopia may well become the New China.

The country’s government seems determined to meet the increased demand for housing and urban services such as electricity, internet, and drinking water by planning ahead and scaling up the 2006 master plan – now officially ditched but still discretely referred to – for Addis Ababa.

Under the Integrated Housing and Development Plan (IHDP) over a quarter million subsidised housing units have been delivered to their new owners.

IHDP is the largest and most ambitious, by far, of public housing programmes in Africa. It aims to build well over a million units. The plan is financed entirely from public resources without any help or input from foreign donors. Massive social housing projects such as Koye Feche on the south-eastern edge of the city, shortly to welcome over 200,000 people, are being built by local contractors employing many thousands of workers. It is estimated that IHDP has created nearly 200,000 semi-skilled jobs since its unveiling in 2006.

Though the drab-looking Soviet style housing blocks and high-rises springing up along the city’s periphery seem uninspiring and even soulnumbing, they represent a quantum leap in urban dwelling from the shantytowns that are now progressively being razed to the ground.

Housing units are allocated by lottery and occupied by their lucky winners even before all services have been connected. In Bole Dimtu, just east of Koye Feche, thousands of residents suffer erratic water supply and deficient waste removal services. Local parks have become rubbish dumps and now represent a serious health hazard.

Dismissed as inevitable growing pains by city officials, the inconveniences do not seem to dampen demand. New homeowners are happy to leave the hovels behind and have seen the value of their new property rise steadily. As new miniature cities emerge around the capital, inner city slums are being cleared. Over the next triennium, authorities hope to raze more than 3,000 dilapidated government-owned homes, mostly constructed from wood and mud during the communist years. The aim is to recover an area of some 360 hectares in downtown Addis Ababa. This prime land, some of it valued at over $15,000 per square meter, has already been earmarked for lease to private developers and CFI.co | Capital Finance International

re-zoned for residential and office towers with a minimum of nine floors with a view to creating a modern business district.

However, the clearances demolish more than just slums; they also break up and disperse vibrant communities. Residents and small business owners are often evicted with only a few days’ notice though are entitled to a new plot of land and financial compensation. Those who can afford the rent or mortgage are awarded priority access to apartments in new social housing estates. Because all land is owned by the state, compensation is only paid for the buildings, mostly run-down and worth very little.

Though the law states that relocation must occur within a one kilometre radius of the previous dwelling, evicted downtown residents often end up fifteen or more kilometres away – far from jobs, schools, family, friends, and the lucrative footfall available in the city centre.

As Addis Ababa’s footprint grows in size, the city encroaches on tribal land held and administered by the Oromo – the largest of the country’s nine ethnic groups. In 2016, urban sprawl triggered violent protests when the capital city’s border were redrawn to include part of Oromia. In clashes between protesters and security forces more than 400 people are said to have been killed. Though the annexation of Oromo land has since been reversed, the violence released long-simmering tensions. The Oromo feel excluded from both the country’s economic progress and its political decision-making process which is still largely the preserve of the Amhara who represent 27% of the population and whose language, Amharic, is the most wide spoken.

Whilst Ethiopia has received much praise for its proactive urban planning policies, and the almost unprecedented scale on which they are implemented, the country is by no means the democracy former US President Barack Obama famously imagined it to be during his 2015 state visit. The Ethiopian People’s Revolutionary Democratic Front (EPRDF) has won every election held over the past two decades and claims all 537 seats in parliament. Nearly all opposition politicians are either in prison or abroad. Press freedom is severely restricted with critical bloggers regularly arrested under the draconian provisions of anti-terrorism laws.

Mirroring developments in Paul Kagame’s Rwanda – another of Africa’s star performers – Ethiopia is depicted as proof that rapid economic growth can only be delivered by moderately repressive governments who take their cue from China’s shut-up-and-build experience. The model is seen to work well but carries within the seed of its own destruction as the approach will only find acceptance as long as it delivers tangible results.

Then again, this is Ethiopia; a country that has consistently travelled along a path of its own making, proving pundits wrong whilst ridiculing even the most reasoned of predictions. i

Winter 2017 - 2018 Issue

> CFI.co Meets the Director General of Wafacash:

Samira Khamlichi

B

ridging worlds and bringing people together: there is more to the remittance business than just shuffling cash across borders. In Morocco, Wafacash has been pushing the envelope for over a quarter century tapping into both its domestic market and the country’s estimated 3.5 millionstrong diaspora. The company, a wholly-owned subsidiary of the Attijariwafa Bank Group, the fourth-largest financial services provider on the African continent.

Wafacash managing director Samira Khamlichi explains that the industry is highly dynamic and constantly undergoing change as new technologies mature and open new possibilities: “We are in a growth market as more and more people leave their home country in search of opportunity elsewhere. It is only logical that, once abroad, these people will want to send part of their earning home to support family members left behind. Moroccans, in particular, are keen to preserve close family ties wherever they are in the world. That specifically includes sharing their newfound wealth.”

With its large diaspora, Morocco derives significant benefits from incoming remittances which add more to the economy than the entire tourism sector. No surprise then that the country’s cash transfer industry is amongst the most sophisticated in the world, setting new global performance standards.

Director General Samira Khamlichi (left) and Commercial Development & Partnerships Director Samira Lazraq (right).

All the big names of the business are present in the country – from Western Union and MoneyGram to disruptive newcomers – and the competition is exceptionally fierce. However, Wafacash remains the undisputed leader, setting the pace of the overall market and benefiting from the synergies created by belonging to the country’s largest financial services group.

Mrs Khamlichi emphasises Wafacash’ clientcentric approach: “we do not just sit and wait for people to make use of our services, but go out into communities here in Morocco and abroad to showcase the many ways Wafacash can help maintain families together over great distances and add convenience to sending and receiving remittances.”

Thanks to its size and reach – Wafacash maintains a nationwide network of well over 1,700 service points and agents – the company is the preferred partner of global players such as Western Union who wish to unlock and gain access to Morocco’s outsized remittances market.

The business has changed considerably from its early days: “In the 1990s, sending cash often involved cumbersome and time-consuming procedures. Wafacash has been at the forefront of a drive towards simplification and convenience.

Today’s technology allows cash to be sent in a number of novel ways – think: web-based and mobile services – and that progress has not reached its end-point.”

Already present in over 400 cities and towns in Morocco, Wafacash established a number of strategic partnerships to extend its own global reach, offer additional products, and maintain proximity to the more than five million people that regularly use its services. The company maintains a presence in 24 countries and whilst tilting towards Europe, where the largest Moroccan diaspora is concentrated, also maintains offices in North American and countries of the Middle

East – new destinations for Moroccans seeking opportunity.

Wafacash has established subsidiaries in Senegal and Cameroon in order to replicate its successful formula and tap into new markets.

Interestingly, the company enjoys a stellar reputation as a driver of financial inclusion. Mrs Khamlichi: “The promotion of financial inclusion is part of our corporate DNA. We offer a range of CFI.co | Capital Finance International

services specifically designed to meet the needs of people who are as of yet unbanked such as no-frills current accounts, mobile accounts, debit cards, and consumer credit products that add convenience to life and allow people shunned by traditional commercial banks access to services they were previously denied.”

Mrs Khamlichi explains that Wafacash longstanding outreach initiatives – whereby company reps venture into communities to ascertain needs, aspirations, and challenges and gauge response – pays off when it comes to designing products: “We want to know our customers and adjust our offerings to best serve their needs so that we can say: we here you and, even more importantly, we are here for you.”

Wafachash’ success in furthering financial inclusion has led a number of central banks in Africa to invite the company to share its knowledge and experience. “Being part of a large bank, enables Wafacash to expand beyond the basic payment services offered by mobile network operators. We have a well-established track record for increasing the banking rate and are now ready to deploy that experience in new markets in West Africa and Sub-Saharan Africa.” i 97

> SBM Securities:

Premier Broker SBM Securities Ltd, licensed by the Financial Services Commission (FSC) as an investment dealer and full-service dealer (including underwriting), is the stockbroking unit of the SBM Holdings. Starting as a stockbroking company offering only local stocks to its clients, SBM Securities has evolved into an international stockbroking company offering a diversified product range to its clients and enjoying broad market access. Today, SBM Securities is recognised as one of the leading brokers in Mauritius and the wider region.

W

ith a dynamic and versatile team, SBM Securities offers various types of financial products to its clients who enjoy the flexibility to trade on a single account that enables realtime transactions across the world: • Equities • Exchange Traded Funds (ETFs) • Bonds • Depositary Receipts • Mutual Funds • IPOs • Structured Products • Futures • Options There are two dedicated teams within the trading desk of SBM Securities. Whilst one team covers the Mauritian Stock Market in realtime, the international team covers the Asian and European markets and ends the day with the US markets.

SBM Securities was the first broker on the island to set up a secondary MUR bond desk and is today an active global fixed income trader.

"SBM Securities was the first broker on the island to have set up a secondary MUR bond desk and is today an active global fixed income trader."

LOTTOTECH IPO The company also acted as co-sponsoring broker for Lottotech IPO (a Mauritius-based company) where SBM Securities on-boarded more than 3,000 new clients for the purchase of the shares, raising MUR 270m for the issue.

AFREXIMBANK DEPOSITARY RECEIPTS The SBM Securities team worked on the structure, legal documentation, road shows, capital raise, issue, and listing of the Afreximbank depositary receipts where $165m were sourced making it the largest issue raised in Mauritius prior to listing. It was also a first for a Mauritian Stockbroking company to act as a depositary.

CONVERSION OF PHYSICAL SHARES OF SBM HOLDINGS The team handled the conversion of 12,000 shareholders of SBMH from share certificates to demat accounts. The conversion involved the on-boarding of the 12,000 shareholders as clients of SBM Securities.

98

SBM: Markets covered

CFI.co | Capital Finance International

SBM Securities has been recognised as the Best Stockbroker Indian Ocean 2017 based on various criteria: It is the first Mauritian broker to offer both domestic and overseas clients’ access to derivatives trading; its trading desk operates on extended hours to offer clients full exposure to European equity markets and the major US exchanges; and one of the most important milestones accomplished by SBM Securities and recognised by the judging panel is the placement of $165m depository receipts for Afreximbank, the highest ever capital raised on the Stock Exchange of Mauritius (SEM), for which SBM Securities acted as the lead broker.

SBM GROUP SBM Group is one of the largest banking and financial services institution in Mauritius.

With a market Capitalisation of MUR 707m on 30 September 2017, the group’s holding entity, SBM Holdings, is the third largest listed Company on the Stock Exchange of Mauritius.

Present in the local financial domain since

Winter 2017 - 2018 Issue

1973, the SBM Group has been instrumental in laying the foundations of a solid Mauritian economy. Over time, as the financial needs of the population evolved, the group introduced the services of fund management, stockbroking, and registry through the creation of different subsidiaries.

In 2014, in line with International best practices, the SBM Group separated its activities under different clusters, namely the banking, non-banking, and non-financial clusters.

SBM (NBFC) HOLDINGS LTD SBM Group, with a vision to be the leading and most trusted financial services provider in Mauritius and beyond, has today a much better focus on its non-banking operations with a dedicated team under SBM (NBFC) Holdings.

The rapid growth of the existing companies, creation of new companies offering new services and key achievements have led to a series of firsts in the world of finance.

SBM (NBFC) Holdings has a diverse range of services. It was the first entity to be granted an investment banking license by the Financial Services Commission. It also regroups the services of broking, fund management, registry, fund valuations, insurance, and factoring.

MANAGEMENT

Independent Non-Executive Chairman: KC Li

KC Li, an economist, has held different prominent positions in the public sector, including advisor to the minister of Finance and chairman of the Stock Exchange Commission.

He launched the first unit trust and the first property fund in Mauritius in 1989. Mr Li was also board member of the State Trading Corporation, the National Remuneration CFI.co | Capital Finance International

99

CEO: Kris Lakshmana Lutchmenarraidoo

Head: Anoushka Bhuttoo

Board, the National Economic and Social Council, and the University of Mauritius.

manager. He then moved on to occupy the highest positions in various prominent entities such as Mauritius Leasing Company, Mauritius Post, Mauritius Post and Cooperative Bank, La Prudence Mauricienne Assurances, and Mauritius Union Assurance Co. More recently, he was the group managing director at Phoenix East Africa Assurance Company based in Kenya, supervising operations there and in Tanzania, Uganda, and Rwanda. Mr Lutchmenarraidoo holds a banking diploma from the FinAfrica Institute in Milan, Italy.

In 1992, Mr Li started his own private consulting firm and served as consultant to the United Nations Economic Commission for Africa (UNECA) and the UN Industrial Development Organization (UNIDO). In 1993, he founded the Mauritius International Trust Co (MITCO), one of the first professional firms licensed to provide international tax and investment advisory services in Mauritius.

Mr Li was also a member of the parliament of Mauritius from 2010 to 2014 and sat on its Public Accounts Committee. He sits on the board of directors of several emerging markets and hedge funds, including private equity, infrastructure, and real estate funds in Africa and Asia.

Mr Li also sits on the board of the State Insurance Company of Mauritius (SICOM) and Afreximbank. He is currently the independent non-executive chairman of SBM Holdings (SBM Group), the second largest banking group in Mauritius and a publicly-listed company.

Kris Lakshmana Lutchmenarraidoo is currently the chief executive of SBM (NBFC) Holdings.

He is a seasoned banking professional with over forty years’ experience across the banking and financial services sectors. During the thirteen years (1973-1986) he spent at SBM, Mr Lutchmenarraidoo held various positions across the bank such as branch manager, head of Internal Audit, and assistant general 100

Starting from a sales and marketing background, Anoushka Bhuttoo joined the stockbroking world more than eleven years ago. She has over ten years of management experience.

A member of the management team of SBM Financial Services, which is the non-banking and investment arm for SBM Group, Mrs Bhuttoo presently heads SBM Securities and is a director of the Stock Exchange of Mauritius (SEM) as well as a director of the Central Depository and Settlement Co (CDS) in addition to being the president of the Port Louis Stock Broking Association.

She holds a BA (Hons) in Economics – First Class from the MS University of Baroda, India. She also studied for the professional post graduate diploma in Marketing from the Chartered Institute of Marketing and is an associate member of the Chartered Institute of Securities and Investment. A key milestone in her career has been the structuring of and capital raising for the Afreximbank depositary receipts issue. i CFI.co | Capital Finance International

> Fidelis Finance:

Ready for Expansion Fidelis Finance is a non-banking financial institution (NBFI) which aims to provide innovative financial services tailored to small and medium-sized enterprises (SMEs) in Burkina Faso. In April 2015, the firm opened a branch office in Côte d’Ivoire. For the past twenty years, Fidelis Finance as an innovative leasing and factoring company, has financed the SMEs’ investment and working capital needs empowering their capabilities to grow and create value.

L

ast year, Fidelis Finance increased its portfolio by over 25%. The firm has paid out dividends to its shareholders for the past four years. Fidelis Finance possesses significant experience and expertise in business financing. Over the past five years, the firm financed close to 3,300 different projects helping almost 2,900 entrepreneurs realise their potential.

Partnering with key multilaterals bodies such as the African Development Bank (ADB), West African Development Bank (BOAD), and a number of Europe’s DFI, development finance institutions (like EIB, FMO, Responsibility, Incofin) has allowed Fidelis Finance to embark on a path of accelerated growth and to further develop its business model which is based on a cash-flows analysis lending. As a result, Fidelis Finance is able to offer a range of financial services tailored to specifically meet SMEs' demand.

The firm currently seeks to double its portfolio and triple its impact on SMEs with an attendant rise in value and job creation. In order to sustain its growth, Fidelis Finance is bringing online a new IT backbone to expand the scope of its services and ready the company for regional expansion. Fidelis Finance also maintains a number of initiatives to help in the skills development of its staff.

Up to 2000, Fidelis Finance was exclusively a leasing company whose first two fiscal years had led to a capital requirement of 60% of the initial share capital of xof500 million. In order to make the structure sustainable, a two-pronged approach was followed: first, to define a strategic plan for the development of the company which served to convince the three historic shareholders of the company to invest again to bring the share capital up to xof1,000 million, and second to mobilise adequate and sufficient lines of credit to ensure the development of the portfolio. After 18 months this challenge was met and the promises of the business plan were kept. New 102

Future Headquarters

financial products were also introduced. The first dividends were distributed after the third year of the plan and at the end of the five-year plan the shareholders were able to recover the portion of the capital initially invested.

The launch of a plan to take control of the main historic shareholder in 2006/2007 halted, for three long years, the project to develop Fidelis Finance in the Sub-Saharan region and undermined the growth of activities. By the end of 2010, the firm’s management implemented an MBO-based takeover strategy that resulted in an exit of the capital of the three historical shareholders and an increase of the share capital to xof4,593 million plus a widening of the shareholding with world-renowned institutions.

New board directors were recruited with the CFI.co | Capital Finance International

proven experienced banker, Mr Brahim Anane, as Chairman.

This latest restructuring has allowed Fidelis Finance to strengthen the governance and related processes of the company, upgrade its human and technical skills, mobilise the resources needed to expand the business portfolio, create a branch in Côte d’Ivoire and, as of today, increase the company's SME portfolio to more than xof25,000 million in outstanding credit. A new business plan up to 2021, adopted by the board aims to increase the total assets of the company from xof33,000 million to xof128,000 million in 4 years; a challenge for the CEO, Mr. Abdoulaye K. Sory and his devoted team. i

Exchange Rate: EUR 1 = xof655.957

Winter 2017 - 2018 Issue

> CFI.co Meets the CEO of Fidelis Finance:

Abdoulaye Kouafilann Sory Fidelis Finance CEO Abdoulaye Kouafilann Sory, a dedication to empower entrepreneurs’ capabilities.

IS IT TRUE THAT YOU STARTED YOUR FIRST BUSINESS AT THE AGE OF EIGHT? What an unexpected question! Surely this information must come from a member of my family. Put simply, at the age of eight I invested a xof 800 nest egg, given to me by my mother, to buy a goat which, breeding from the third year, earned my family on average xof125,000 a year for five years. Three years after I left for college, the rest of the herd was sold. My elder sister, who had received the same amount at the time, had a nice outfit made for her for the tabaski [sheep festival]. The income from my investment three years later, ensured that each year, the cost of the festive costumes for my two younger brothers and sister were covered. This is a story that my mother loved to tell.

DOES YOUR PASSION FOR CONTRIBUTING TO VALUECREATION STEM FROM THERE? I am not sure. Even if my childhood was spent with a very enterprising father, as a young schoolboy I dreamed of becoming a pilot. After struggling to get into technical high school, I did not manage to get into the stream that would have allowed me to go on to aviation school after obtaining my baccalaureate. As a result, I found myself in the field of quantitative management techniques and subsequently continued my studies at graduate and post-graduate levels in management and economics. I obtained two masters degrees, one in Management and the other in Economics in, respectively, Ouagadougou and Grenoble. Then I obtained a DEA and a Masters in Economics at Pierre Mendès France University in Grenoble.

These years of study have developed in me the passion for organisational systems oriented towards value-creation.

THIS PASSION WAS SO STRONG THAT YOU LEFT THE CENTRAL BANK OF WEST AFRCA STATES (BCEAO) IN 2000 TO TAKE CHARGE OF FIDELIS FINANCE WHICH, AT THE TIME, WAS IN ITS INFANCY. That’s correct. But, my professional experiences before the BCEAO also put me in touch with the world of the micro-enterprise. Indeed, after my studies, I joined Food and agriculture organization (FAO) in Ouagadougou in July 1991. Recruited as deputy manager, I was sent to Bobo-Dioulasso [the economic capital of the country] to join a project aimed at developing the dairy sector financed by the United Nations Development Program (UNDP) and FAO. Our mission was to help organise farmers’ groups in the region and promote dairy production – from daily collection to industrial processing and on to the marketing of fresh dairy products.

CEO: Abdoulaye Kouafilann Sory

Afterwards, I joined the British NGO ADD which financed income-generating micro-projects for the benefit of disadvantaged people. From 1993 to 1996, we supported these people to create their micro-enterprises and to manage and develop similar initiatives in four Sub-Saharan countries: Burkina Faso, Côte d’Ivoire, Mali, and Benin.

At the time I joined Fidelis Finance – after spending a few years at the central bank to better understand the mechanism of monetary creation and the process of defining monetary policies and the assessment of their impact on economic factors – I had already some knowledge of the financing needs of businesses. With this wealth of experience and always relying on competent and committed people, I led the restructuring of Fidelis Finance and forged the company into a major player in the financing of SMEs throughout the Sub-Saharan Region.

CFI.co | Capital Finance International

DO YOUR PROFESSIONAL CHALLENGES LEAVE TIME FOR SOMETHING ELSE IN YOUR DAY? AND WHAT ARE YOUR STRENGTHS? Yes of course, and fortunately my days outside of work are shared between my family – my wife and our two children with whom I always find love, energy and advice – and the organisations and associations to which I belong in order to learn to rediscover myself and also to discover how, amongst other things, I may be of use to my community. At the age of ten, I was already Boy Scout and at 22 I joined the Junior Chamber International (JCI) and even became its national president in Burkina Faso in 1998. In 2001, I was the founding president of the Ouagadougou Sapphire Lion’s Club. I am also a member of several professional associations in which, for the most part, I have assumed or hold leading positions. Faith, my family, and my eagerness to provide quality services remain my main assets in meeting the challenges facing all business leaders. i 103

> WEF:

Back to the Basics?

C

oncerned over widening geopolitical fissures, the World Economic Forum (WEF) has embarked on a quest to map and leverage global commonalities. The 2018 WEF summit in Davos centres on Creating a Shared Future in a Fractured World.

The organisers note that economic prosperity and social cohesion are no longer twin values.

In a nod to the rise of cold pragmatism, they also acknowledge that realpolitik has now found applications outside its original Cold War realm.

Interestingly, the WEF also finds that the social media-driven ballooning of the chattering classes has not led to a corresponding increase in mutual understanding – or the emergence of a collective purpose. If anything, the internet in all its guises has shown humanity to be at cross-purposes.

The annual get together of global powerbrokers and their hangers-on in the Swiss Alpine resort – billed as a “true summit of summits” – is to kick start the repair of the global commons.

All the usual suspects – Ginni Rometty, Christine Lagarde, et al – are present to make the case for a renewed and vigorous commitment to international collaboration. Over 2,500 others from nearly all walks of life have been asked to attend the invitation-only event. The buzzword of the 2018 has also been set: multi-stakeholder collaboration, albeit without the hyphen to give the freshly-minted term a more contemporary look.

In Davos, convoluted corporate jargon reaches new heights – or lows depending on the reader’s tolerance of twaddle. Take this wonderful example: “WEF communities and organisational capacity dedicated to driving positive change through 14 distinct System Initiatives, participants at the meeting will contribute to multiple agendas.” George Orwell would have a thing or two to say about that.

Small wonder then that the WEF in its brief of the event notes that citizens everywhere yearn for responsive leadership. Hint: this is probably not what the proverbial man/woman in the street imagines responsive leadership to look like. After all, it is for the benefit of that person going quietly about his/her business that the cognoscenti make their annual trek to Davos.

The 48th annual WEF general meeting struggles to focus on a viable course of action – or a set of well-defined topics – that appeals to an audience outside the rarefied atmosphere of its own collective. Apart from the specialist press, coverage of the proceedings is minimal and often limited to curious yet telling anecdotes such as the 1,700 or so private jets that ferry the VIPs to their Swiss mountain retreat where they then express grave concerns over global warming and concoct grand plans to limit CO2 emissions.

104

"It is for the benefit of that person going quietly about his/ her business that the cognoscenti make their annual trek to Davos."

But, those sour grapes of the pathetically privatejet-deprived majority must not be allowed to stand in the way of the common good or the WEF mission to make the world a better place. How can anybody be against such a noble pursuit?

Oxfam, always ready to play ball, will undoubtedly remind the assembled high-flyers that just a few dozen of them own half the world’s assets.

Enough already of the negativism and onto “system leadership via platform engagement.”

Huh? In Davos, there are no less then fourteen system initiatives that all aim to “shape the future” in a particular segment such as economic progress, food security, mobility, production, and consumption – to take but a sample. Via these system initiatives – workgroups just hasn’t got the same ring to it – the World Economic Forum deploys its organisational capacity – including its formidable “convening power, insight generation, and platform technology” – to drive change.

Despite its reluctance to deflate its onerous language – a spade is just that and not a humanpowered earth moving implement – the WEF has an important, perhaps even crucial, role to play.

Originally conceived as an informal gathering where the world’s movers and shakers could lower their guard, engage in chitchat, share a few drinks and meals, and voice their frustrations, the WEF has now become a venue for grandstanding, posturing, and talking down to the little man/ woman. This is most decidedly not what Klaus Schwab – the likeable German professor who founded the forum – had in mind when he first invited a few friends and acquaintances for a meet up in Davos.

Tone down the self-aggrandising rhetoric, return to the basics, do as you preach, set more modest goals, and connect with the people and issues that cause concern. In other words: instead of charting the erosion of the social contract between states and their citizens – yet another pearl from the 2018 meeting’s brief – set an example by addressing universal concerns such as the absurd level of inequality and the prevalence of rulers – both political and corporate – who make all the right noises but still refuse to do the right thing. That’ll be tuppence, please. i CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

184

CFI.co | Capital Finance International CFI.co | Capital Finance International

105

> Middle East

Jordan: A Lesson in Crisis Management A sponge that soaks up displaced people by the millions, Jordan saw its population swell six-fold in barely half a century. Since 2013, the Hashemite Kingdom welcomed over three million new inhabitants, including more than 1.4 million refugees from war-torn Syria in addition to a million or so undocumented workers from North Africa and Asia.

106

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

CFI.co | Capital Finance International

107

T

he country has a long history of receiving people seeking refuge from war. Well over two million Palestinians settled in Jordan after the 1948 ArabIsraeli War and 1967 Six-Day War. Representing around 30% of the kingdom’s population, most Palestinians have been granted citizenship. To date, Jordan remains the only Arab country to have fully integrated the displaced people from Palestine into its own society. Over the years, their refugee camps have become new cities, offering inhabitants a full complement of urban services and plugged into the country’s wider infrastructure.

Predictably, the arrival of over 1.4 million Syrian refugees has stretched to the limit the Jordanian government’s ability to provide adequate relief. Though the international community has pledged generous support, funding for the Jordan Response Platform (JRP) for the Syrian Crisis last year fell about 40% short of the $2.7bn required – leaving a gap of around $1bn.

Jordan has pioneered a resilience-based approach to the refugee crisis that emphasises the need to turn a humanitarian challenge into an economic opportunity. In order to provide more than just the immediate support required, the JRP has been framed as part of Jordan 2025, the country’s longterm development blueprint. The platform implements a comprehensive plan that spans a three-year period and includes both emergency and resilience vectors, the latter one seeking to absorb the newcomers into Jordanian society by providing access to housing, education, and jobs whilst minimising the impact on host communities.

The 2017-19 JRP budget amounts to $7.6bn.

Most, if not all, of the bill must be financed by others. At a donor conference in Amman early 2017, Prime Minister Hani Al-Mulki stressed that Jordan is in no position to commit significant resources of its own to the JRP budget given the tight fiscal restraints imposed by the International Monetary Fund. Though the IMF lavishes praise on the country for its adherence to the terms of the Extended Fund Facility granted in 2014 and renewed last year, the fund’s executive board also asked Jordan to persist in its gradual fiscal consolidation efforts.

The IMF did, however, back Jordan’s call for greater donor support to help the country cope with the refugee crisis. The new JRP budget had now been fully subscribed even though not all donor pledges have yet been fully honoured.

However, ideas are worth at least as much as cash. After a surprisingly forceful intervention

by Queen Rania of Jordan at the 2016 World Economic Forum in Davos, Switzerland, the thinking on refugees changed – rather dramatically. In Davos, Queen Rania chastised businesses for limiting their corporate social responsibility towards refugees to sending a

108

"Jordan has pioneered a resilience-based approach to the refugee crisis that emphasises the need to turn a humanitarian challenge into an economic opportunity." few blankets. The queen suggested CEOs of large corporation deploy their core skills to find ways of integrating refugees into their global supply chains. The idea – both novel and forcefully presented – immediately hit home.

At a donor conference in London, in early 2016, the Jordan Compact was hammered out: a $2bn assistance and investment programme. In return for the funds, Jordan promised to set up five new special economic zones (SEZs) and grant 200,000 work permits to refugees who will be employed alongside local workers. Crucially, the Jordan Compact managed to bypass the country’s ineligibility for concessional loans. As an upper-middleincome country, Jordan is deemed too rich to be considered for most development aid programmes.

The World Bank promptly engaged by approving a $300m Programme for Results to support labour market reform and small businesses, and attract investors. Via a new Global Concessional Financing Facility – an initiative to address refugee crises in middleincome countries set up in the wake of the Jordan Compact – the World Bank was able to extend loans at rates normally reserved for the poorest countries.

Even more importantly, the European Union decided to grant tariff and quota-free access to products from Jordanian businesses whose workforce includes at least 15% of Syrian refugees. That rule has since been relaxed after garment manufacturers experienced difficulties in hiring people from refugee camps. Most are unaccustomed to factory work or able to make more money at jobs in the informal economy. Now Jordanian employers can meet their refugee quota on a single production line and still enjoy unfettered access to European consumers.

Whilst fully committed to the compact, the World Bank seems to agree that results have been slow in coming. Key to the compact’s success is the shaping of a business environment that CFI.co | Capital Finance International

appeals to foreign investors. The opening of EU borders to Jordanian manufactures, and the removal of onerous conditions for preferential market access, underpin a new kind of partnership that offers a framework for future crises. Moreover, it complies with the express wish of most EU member states to find ways of helping displaced people in-situ as opposed to relocating refugees inside the union.

Richard Baldwin, professor of International Economics at the Graduate Institute of International and Development Studies in Geneva, remains optimistic that the Jordan Compact will prove successful: “Whilst, say, German companies find it difficult to absorb migrant labour into their highly sophisticated production processes at home, they also transfer part of their manufacturing to other countries whereby market access and geographic proximity are key. Turkey is a preferred host country because it has a customs union with the EU and is close by: if refugees can walk the distance, German managers can fly it.”

Professor Baldwin sees no reason why Jordan cannot also benefit from offshoring: “Perhaps it may take some time for corporates to discover the benefits of routing part of their operations through Jordan, but the upside is there. Before it was not.” UK supermarket retailer Asda has been one of the first to catch on and last year sourced a number of suppliers in Jordan’s SEZs who committed to hiring refugees.

In Jordan, support for initiatives such as the compact and the work of the response platform is surprisingly high. This is perhaps explained by royal patronage. King Abdullah II repeatedly assured the nation that for every job created for a Syrian refugee, five new jobs would appear for Jordanians. Moreover, the monarchy also retains its original – and unspoken – compact under which nationals enjoy privileged access to government jobs and those in closed occupations, whilst newcomers trade political obeisance for economic non-interference. This long-standing practice allows Syrian refugees – even the many hundreds of thousands not recognised as such by the UN High Commissioner for Refugees (UNHCR) – to set up shop or work in the shadow economy, largely without fear of prosecution. Though perhaps far from perfect, the coordinated Jordanian response to the mass arrival of Syrian refugees represent a paradigm shift in the management of humanitarian crises. The country’s glasshalf-full approach is novel insofar as it takes the long view and seeks to extract opportunity from what could have turned into a crippling crisis. With the help of others such as the World Bank, European Union, and major donor countries, a solution has now been put in place – albeit one not yet fully exploited – that affords refugees a chance to settle down, get to work, and build a new life away from the horrors of war, all the while adding to the host country’s good fortune. i

Winter 2017 - 2018 Issue

> CFI.co Meets the Director General of Dubai’s Department of Finance:

Abdulrahman Saleh Al Saleh

A

bdulrahman Saleh Al Saleh is the director general of the government of Dubai’s Department of Finance (DOF). He is also the chairman of the Dubai Financial Support Fund.

Prior to joining DOF, Mr Al Saleh spent four years as the senior executive director for Corporate Affairs of Dubai Customs (DC).

In this role, Mr Al Saleh was responsible for managing the corporate support departments for DC, which included Finance, HR Management, HR Development, and Admin Services.

"He also chaired a number of committees in Dubai Customs such as those that prepared the introduction of VAT, the Employee Affairs Committee, and the Executive Credit Policy Committee."

He also chaired a number of committees in DC such as those that prepared the introduction of Value Added Tax (VAT), the Employee Affairs Committee, and the Executive Credit Policy Committee. He was also a member of the Reform & Modernisation Programme Committee and the Information Technology Steering Committee.

Prior to this, Mr Al Saleh held numerous finance and accounting positions for government departments on a local and federal level. He gained experience in chairing and participating in various organisational and strategic committees including the Executive Credit Policy Committee and Task Force for Indirect Taxation.

Mr Al Saleh is a member of Dubai’s Supreme Fiscal Committee and also a board member of Dubai World. He is also a board member of the Federal Tax Authority and a board member of Emirates National Oil Company (ENOC).

Mr Al Saleh was a member of the Higher Committee for the Regulation of the Audit Profession in UAE (2002-2006). He is a fellow member of the Chartered Institute of Management Accountants in the UK, and holds an Executive MBA from the American University of Sharjah. i

Director General: Abdulrahman Saleh Al Saleh

CFI.co | Capital Finance International

109

> Dubai Department of Finance:

Smart Fiscal Planning Dubai Government’s Department of Finance (DOF)'s initiative, the Smart Fiscal Planning (SFP) programme, aims to strengthen and automate the emirate’s fiscal planning and budgeting processes and eventually allow the Dubai government to implement performance based budgeting. The DOF-led programme is expected to result in savings running into the hundreds of millions of dirhams, and has been sponsored by His Highness Sheikh Ahmed Bin Saeed Al Maktoum, the chairman of the Dubai government’s Supreme Fiscal Committee. It also falls within the framework of the Smart Government Initiative launched by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, vice president and prime minister of the UAE and ruler of Dubai.

T

he programme is representative of the strategic direction that will be taken by the Dubai government and is an expression of the vision of the Department of Finance, which seeks to enhance the transparency of financial processes and support stable economic growth by increasing the efficiency and effectiveness of the administration of public funds.

His Highness Sheikh Ahmed Bin Saeed Al Maktoum emphasised the importance of the role played by a unified fiscal planning system in promoting fiscal sustainability and supporting the achievement of the emirate’s strategic plan.

All Dubai government entities have been urged to work with the DOF in achieving the programme’s objectives.

BIG SAVINGS According to Abdulrahman Al Saleh, the director general of DOF, the Smart Fiscal Planning Programme will save the Dubai government hundreds of millions of dirhams in expenses, streamline processes, and directly impact the achievement of DOF’s vision of sound management of public finance.

Furthermore, through efficient management of public resources, the programme will enable the DOF to move towards the achievement of its strategic objectives in accordance with Dubai’s strategic plan and will strengthen the integrity and effectiveness of fiscal operations as well. Mr Al Saleh went on to emphasise the importance of the continuing professional development for all finance personnel across the Dubai government as a prerequisite for enduring growth and progress.

DOF expects the Smart Fiscal Planning Programme to result in substantial savings as it will increase the accuracy of projections, enabling the DOF to link them to the strategic plans of government entities and to the overall strategic plan for the Emirate of Dubai.

110

"The Smart Fiscal Planning Programme signals the beginning of a total transformation of all fiscal planning, budgeting, and strategic planning activities throughout Dubai government departments which will enable DOF to optimise resource allocation and administration of public funds."

Moreover, efficiencies in all stages of the planning and budgeting process that will result from the successful implementation of the programme will translate into significant savings and increased transparency of all fiscal processes, enhancing the effectiveness of the administration of public funds.

The programme addresses weaknesses in fiscal planning and budgeting processes and systems at Dubai government entities and will link fiscal planning with strategic planning whilst transitioning the Dubai government to performance-based budgeting. Budget processes will be automated using Oracle Hyperion Public Sector Planning and Budgeting application, the world’s most advanced application for public sector strategic and fiscal planning.

The system was implemented during the 2016 budget cycle, with a gradual transition to performance budgeting, which will take place in accordance with a comprehensive plan for the transformation of government-wide fiscal processes spanning several stages.

FAR-REACHING CHANGES Arif Ahli, executive director for Budget and Planning at DOF revealed that the Smart Fiscal CFI.co | Capital Finance International

Planning Programme signals the beginning of a total transformation of all fiscal planning, budgeting, and strategic planning activities throughout Dubai government departments which will enable DOF to optimise resource allocation and the administration of public funds.

Mr Ahli went on to say that on-going advances in budget preparation, execution, and administration have become inevitable due to the challenges faced by governments. He emphasised the need for continuous education and development of finance personnel; controlled, continual development of processes and functions; and the importance of involving and supporting all government entities throughout all stages of change.

DECENTRALISED GOVERNANCE According to Mohammad Zaitoon, director of System Development Division at DOF, and the director of the reform programme, performance budgeting has proven to be the best fit for the Dubai government as it is premised on the concept of decentralised decision making and administration across government entities, which is consistent with the approach followed by the Dubai government. He added that the reform will provide a governance framework which will enable decentralised planning, allocation, and administration of public resources.

Mr Zaitoon has revealed that the programme objectives will be accomplished in coordination with more than thirty experts and consultants in public sector finance, process reengineering, change and quality management, and information technology applications. “In keeping with the Smart Government initiative launched by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, smart devices will play an integral role in the SFP Programme, enabling users to perform selected functions, such as the retrieval of key performance indicators, strategic and fiscal planning activities, and approval of specific transactions in accordance with the approval matrix for the Dubai government,” he added.

Winter 2017 - 2018 Issue

COLLABORATION WITH LEADING CONSULTING FIRMS During the preparations for the SFP programme in 2013, DOF appointed KPMG and PDP Consulting firms, specialists in public fiscal policy, fiscal planning, and systems implementations, as its consultants for the programme. They contributed their fiscal, economic, and technical expertise and their experience with global organisations and finance ministries to design best practices for the Dubai government’s fiscal planning and budgeting functions.

As part of their scope, the consulting firms provided the Dubai government with a comprehensive plan detailing all stages of the transformation and automation associated with the programme. The first two stages of the programme were completed in 2014 and 2015 respectively. They involved the automation of budget preparation and administration processes using Hyperion. The transition of the Dubai Government to performance based budgeting is expected to be complete by the year 2020.

“We are extremely pleased to enter into this partnership with DOF and support them with their new developmental projects to achieve fiscal discipline and sustainability,” said Vijay Malhotra, the chairman of KPMG Lower Gulf.

“We have been in the UAE for the last forty years and are committed to working with the Dubai government’s initiatives towards creating enhanced systems and processes. The project also aims to design the roadmap for a comprehensive and integrated performance based budgeting system for top-down strategic resource allocation, and strategic and operational planning system,” he added.

“The vision to transform Dubai into one of the smartest cities in the world has been translated into a clear plan that has as its basis a fundamental premise for success – integrating and therefore simplifying the planning and budgeting processes of Dubai government entities,” said Abdulrahman El Thehaiban, vice president Middle East and Africa at Oracle.

“Information technology is at the heart of creating a Smart City, and we are delighted and honoured to be a partner with the DOF to transform Dubai’s Smart City aspirations into reality.”

FOURTH PHASE LAUNCHED Late 2016, DOF launched the fourth phase of its Smart Fiscal Planning (SFP) Programme. The launch ceremony was attended by senior officials of thirty-five government entities. Launching the new phase followed the DOF’s remarkable progress in implementing the previous phases.

Meanwhile, efforts are still being made in order to complete the comprehensive system to automate the preparation of budgets and implementing it across the entire government of Dubai. In this regard, the DOF remarked that the Dubai fiscal plan for the years 2017-2019 is being fully executed through the programme for the first time.

Hyperion System Architecture

“The SFP programme has been able to shift quickly towards the targeted performance budgeting,” said Mr Al Saleh. “DOF seeks to leave clear footprints in this continuous process, which is represented in establishing a solid platform upon which will stand the pillars of the future work in preparing the fiscal planning for the emirate, and linking it to the emirate’s strategic plan and economic situation, in order to ensure solvency and financial sustainability of the emirate.”

“We are keen to harness new technologies and adapt them for the benefit of the government through the ties of close cooperation for the transformation of Dubai into the smartest and happiest city, as His Highness Sheikh Mohammed bin Rashid Al Maktoum wishes.”

INNOVATIVE FISCAL PLANNING The SFP system consists of several interrelated applications: TAKHTEET (Planning), MUBADARA (Initiative), and EDARA (Management), according to Mr Ahli who confirmed that the 2017 budget for Dubai government “was fully developed through SFP for the first time in the history of the government's financial work”.

“The launch of the fourth phase is a giant step, with which budget preparation process will start taking a new path entirely based on digital innovation and transformation”, Mr Ahli explained. “Thirty-five governmental entities prepared their budgets for the year 2017 using TAKHTEET. The system was used by more than 630 users, with different roles ranging from auditors to budgets preparers and controllers. In the future, more than one thousand users will use the system and accompany completing the comprehensive application at the level of the targeted governmental entities.”

THE PLANNING APPLICATION 'TAKHTEET' TAKHTEET is the primary application entrusted with budget planning and preparation, according to Mr Zaitoon. “The purpose of this application CFI.co | Capital Finance International

is to prepare the fiscal plan for the Dubai government in light of the macroeconomic projections, debt sustainability, and operational requirements. Moreover, TAKHTEET is used to automate the process of submitting the budget in a way that gives government departments the ability to plan, prepare, review, and approve the budget within the required standards to ensure sound corporate governance”, he explained.

The service was launched in 2015 as a pilot in three government entities: the General Directorate of Residency and Foreign Affairs, the Department of Economic Development, and DOF. Then, it was applied in a more comprehensive manner through the year 2016 on 35 entities.

THE INITIATIVE MANAGEMENT APPLICATION 'MUBADARA' MUBADARA application, on the other hand, works on introducing new government policy initiatives and strategies, according to Mr Zaitoon who stressed the importance of the role played by the central governmental entities in reviewing new initiatives to ensure connectivity, compliance, and to determine strategic priorities. Initiatives include human resources, capital projects, capital assets, and operational initiatives. The objective of the MUBADARA application is to allow government entities to introduce new initiatives related to Dubai 2021 Strategic Plan, as well as other initiatives that help the governmental departments reach their strategic objectives.

THE BUDGET MANAGEMENT APPLICATION 'EDARA' EDARA application is the main tool to manage the budget process transfers and promote it among various programmes, projects and entities, as well as issuing statutory reports by line agencies on implementing the approved budget. The application’s main objective is to establish a mechanism to review and adopt any changes made to the budget, as well as to enable the budget teams at the government entities to monitor and implement it. i 111

> CFI.co Meets the Chairman of GCC Board Directors Institute:

Mohammed Al-Shroogi

M

ohammed Al-Shroogi is Investcorp’s co-chief executive officer, responsible for placement, investor’s relations, and administration. He became chairman of GCC Board Directors Institute in 2015.

Over the course of a career that began more than four decades ago, Mr Al-Shroogi has built and nurtured a wide network of strategic business relationships across the Middle East and North Africa, spanning key regulators, central banks, financial institutions, corporates, and senior government officials.

Mr Al-Shroogi joined Investcorp in 2009 as president of the firm’s Gulf business. He oversaw the development of private equity investment business in the MENA and Turkey region. Investcorp is now the largest private equity investor in the Gulf Region. He also was instrumental in rebuilding the Placement and Relationship Management Team after the financial crisis and this team is now raising more capital in alternative investments than any other firm in the Gulf Region.

Mr Al-Shroogi was appointed co-CEO in 2015, upon the founding chief executive officer’s retirement. Since then he has been instrumental in a number of growth initiatives for the firm. These include broadening the client base and deepening market share with a wider product offering like core US real estate, club and co-investment private equity deals, and European real estate. He is also spearheading an initiative for distribution of Investcorp’s products in Asia.

Prior to joining Investcorp, Mr Al-Shroogi was division executive for the Middle East and North Africa region and CEO for the United Arab Emirates at Citigroup.

In addition to being co-CEO of Investcorp, he currently serves as chairman of L’Azurde Company for Jewelry, a Saudi joint stock company; chairman of GCC Board Directors Institute (GCC BDI); member of the board of trustees for Bahrain Centre for Studies & Research; member of National US – Arab Chamber of Commerce, Washington DC; member of the board of Injaz Al Arab; and board member of the Crown Prince’s International Scholarship Program (CPISP).

Chairman: Mohammed Al-Shroogi

Mr Al-Shroogi has been a member of the Bahrain Shura Council, member of the board of trustees at Bahrain University, and a member

of the Bahrain Economic Development Board, as well as serving as chairman of Investcorp Saudi Arabia Financial Investments Company.

112

CFI.co | Capital Finance International

Mr Al-Shroogi holds a BA in Commerce from Kuwait University and has attended the Harvard Management Executive Program. i

Winter 2017 - 2018 Issue

CFI.co | Capital Finance International

113

> GCC Board Directors Institute:

Journey to Success

The GCC Board Directors Institute (GCC BDI) is the Gulf Region’s pre-eminent organisation for boards and directors. It is a registered not-for-profit company launched in 2007 by a coterie of four leading corporations: Saudi Aramco, SABIC, Investcorp, and Emirates NBD.

T

he institute’s mission is to make a positive impact on the economies and societies of the region by promoting professional directorship and raising the level of board effectiveness.

GCC BDI also enjoys the support of four leading advisory firms – Allen & Overy, Heidrick & Struggles, McKinsey & Company, and PricewaterhouseCoopers – and actively partners with regional regulatory authorities: the Emirates Securities and Commodities Authority, the capital market authorities of both Saudi Arabia and Oman, the Central Bank of Bahrain, and the Qatar Financial Centre Regulatory Authority.

The organisation’s overarching objective is to enhance GCC board member capabilities and further their understanding of best practice board governance. The body achieves this through creating a regional network of board members via a vibrant alumni community and disseminating high quality corporate governance knowledge.

Khalid Al Dabbagh, controller at Saudi Aramco and a GCC BDI board member, explains: “GCC BDI is contributing to elevating the debate on governance and enhancing board dynamics in the region. Furthermore, it has created opportunities and platforms to share this collective experience.

We are proud to be one of the original founding members and congratulate the institute on its achievements over the past ten years.”

In the last decade, the organisation has been recognised as a key driver in raising corporate governance higher up on the region’s agenda.

GCC BDI is the only regional body of its kind to be accepted as a member of the Global Network of Director Institutes.

"The organisation’s overarching objective is to enhance GCC board member capabilities and further their understanding of best practice board governance."

Since its inception, GCC BDI has hosted over one hundred events and workshops across the region and released 38 research studies and papers. The organisation has grown its member network to include more than one thousand individual alumni who, together, represent the most influential group of senior board directors and business leaders in the Gulf Region.

GCC BDI’s workshops and seminars cover vital board leadership education, including the areas of corporate governance, board evaluation, board diversity, and corporate leadership. For example, upcoming workshop titles include Foundations of Directorship, Mastering the Boardroom, Getting the Best out of Board Committees, Joint Venture Directorship, and Risk Prevention and Crisis Management. GCC BDI’s external board evaluation services are also much in demand. Services such as these help to raise awareness of sustainable business practices across the region and help to bolster the region’s economy as a whole – now and in the future.

The organisation’s highest profile event is its annual Chairman Summit which brings together GCC and international expert panellists to discuss regional corporate issues. The summit offers an excellent platform for networking and peer sharing.

In November 2017, GCC BDI conducted this landmark event for the fifth time – the 5th Annual Chairman Summit was held in Riyadh on the theme of The World in Transition in collaboration with Morgan Stanley investment bank. Over 130 high profile chairmen from across the GCC and international expert panellists exchanged views on tapping capital markets and driving diversification as the region, and in particular the Kingdom of Saudi Arabia, undergoes enormous political and economic transition.

The fifth GCC BDI Chairman Summit also saw the launch of GCC BDI’s Bi-Annual Survey. The study, which promotes professional directorship, represents ten years of corporate governance knowledge and experience in the Gulf.

The 2017 GCC BDI survey shows that while there has been much improvement in corporate governance in the GCC in the last ten years, there is still more to do and the key areas of focus for improvement is still board composition and directors’ capabilities. In a rapidly changing business climate, a high-performing board requires agile directors who can grasp concepts quickly. Directors need to be fiercely independent thinkers who consciously avoid groupthink and are able to challenge management—while still contributing to a productive and collegial boardroom environment.

A strong board includes directors with different backgrounds and individuals who understand

"A strong board includes directors with different backgrounds and individuals who understand how the company’s strategy is impacted by emerging economic and technological trends."

114

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

how the company’s strategy is impacted by emerging economic and technological trends.

Diversity is a key element of good board composition. Diversity includes not only gender, race, and ethnicity, but also diversity of skills, backgrounds, personalities, opinions, and experiences. However, the pace of adding more independent directors and more diversity, and particularly gender diversity, to GCC boards has been slow. Gender diversity on boards in this region is still stubbornly one of the lowest in the world, although there are some encouraging signs of change.

In addition to better board composition, the survey shows that regulators are increasingly recommending that boards introduce the role of a professional board secretary and conduct annual board evaluations. These are both subjects that need more focus and attention as boards still do not fully understand the benefits of a professional board secretary and a well-executed external board evaluation as key drivers of board performance and effectiveness.

Also in line with international standards, regular annual professional director development is another area that regulators are focusing on, in order to ensure better awareness of board roles and responsibilities.

RAISING STANDARDS Each year, the organisation has increased its activities and deepened its reach in the region, staying true to its mission to “advance the development of corporate governance by equipping board members and executives with the cutting-edge know-how required to sustain effective practices.”

In a wider recognition of success, GCC BDI was named as winner of the 2017 Outstanding Contribution to Corporate Governance GCC Award by Capital Finance International (CFI.co).

According to the judge’s report, the organisation has “successfully adapted a vast array of global best practices to local circumstance and actively supports initiatives that aim to enhance board members’ capabilities – believing, as it does, that enduring success in business can only be sustained through excellence in corporate governance.”

Jane Valls, executive director of GCC BDI, says: “We are proud to say that in the last ten years, our organisation has developed a unique combination of local experience and understanding, strong corporate governance knowledge, practical director expertise and tried and tested programmes. Our members are our greatest ambassadors.”

Mohammed Al Shroogi, co-CEO of Investcorp adds: “Ten years is a wonderful milestone of achievement for the GCC Board Directors Institute and Investcorp is happy to have been associated with the institute since its inception.

We wish GCC BDI a long and successful

Executive Director: Jane Valls

road ahead in its mission to raise the level of professional directorship in the region.”

accredited trainer with the Ethics Institute, as well as being a certified ethics officer.

Mrs Valls concludes: “We look forward to continuing our mission to make a positive impact on the economies and societies of the region. GCC BDI continues to focus on knowledge sharing and encourage professional director development. Our programmes are designed to balance theory and practice, rich discussions and debate, based on reallife experiences. Corporate governance is the cornerstone of all the national visions in the GCC and GCC BDI will continue to expand its activities to meet the needs of the region and to support the development of the local economies.”

From 2010 to 2015, Mrs Valls was the CEO of the Mauritius Institute of Directors (MIOD), one of the leading Institutes in Africa. She was the first chairperson of the African Corporate Governance Network from 2013 to 2015, a network which she helped to found, bringing together seventeen institutes of directors from across the African continent.

EXECUTIVE DIRECTOR JANE VALLS Jane Valls joined the GCC Board Directors Institute (GCC BDI), based in Dubai, in January 2016 as executive director.

Mrs Valls has over fifteen years of international experience in corporate governance and working with board of directors. She is an accredited corporate governance trainer with the International Finance Corporation (IFC), part of the World Bank Group, and is an CFI.co | Capital Finance International

Before joining the MIOD, Mrs Valls held senior positions and directorships in a wide range of business sectors with leading companies including British Airways, Air Mauritius, Sun International and The Rogers Group, amongst others, as well as running her own management and training consultancy.

Mrs Valls holds a BA Hons in French and Italian from Birmingham University, UK. She was awarded an honorary doctorate degree by the University of Middlesex for services to business, women’s empowerment, and social justice, and she was decorated by the Republic of Mauritius as a Commander of the Order of the Star and Key of the Indian Ocean (CSK) for services to corporate governance. i 115

> Lucid Investment Bank:

Seizing Investment Opportunities in Lebanon and Beyond

O

riginally started as a corporate finance advisory in 2003, Lucid Investment Bank SAL is regulated and licensed by the Central Bank of Lebanon. Since its very start, the bank has successfully executed more than one hundred investment banking transactions ranging in size from $5m to $200m. These transactions included capital finance, sell side mandates, mergers, origination and structuring of private equity and other investment opportunities, turnaround solutions, and other strategic advisory services.

Lucid Investment Bank’s vision is to be recognised by high net-worth individuals in Lebanon and the Lebanese diaspora as their trusted and preferred investment banker in fulfilling both corporate and private wealth needs. Lucid Investment Bank differentiates itself in Lebanon and beyond as the most active private equity player, generating on a yearly basis competitive alternative investments for its clients whilst providing significant added value to the companies it invests in through its private equity structures.

Lucid Investment Bank was founded by its chairman and general manager Wael El Zein and its vice-chairman Samir Taleb, and board member Dr Kamel Abdallah. Since its inception, several high quality investors and entrepreneurs have joined Lucid Investment Bank to form a very solid shareholder base.

Chairman and General Manager Wael El Zein is an investment and commercial banker with over thrity years of experience in Lebanon, US, UK, and the GCC. He is specialised in private equity, growth and turnaround solutions, and exit planning and execution Mr El Zein boasts fifteen years of commercial banking experience, where he last held the position of assistant general manager for a Lebanese commercial bank. Mr El Zein holds a Master’s in Business Administration from the George Washington University and a Bachelor degree in Computer Science from the American University of Beirut. i 116

Chairman and General Manager: Wael El Zein

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

“Being a global provider of quality food is more than a commitment. It's our mission, put into practice during over 25 years of operations, through a consistent and sustainable strategy.�

www.minervafoods.com

CFI.co | Capital Finance International

117

MAIN SUPPORTERS

OFFICIAL MAGAZINE PARTNER

OFFICIAL CHINESE MEDIA

OFFICIAL ONLINE TRADESHOW CHANNEL

OFFICIAL CIC COUNTRIES MEDIA

Winter 2017 - 2018 Issue

> Century Financial Brokers:

Trusted Financial & Investment Services Founded by Sulaiman Baqer Mohebi in 1989, Century Financial Brokers was established with a vision to provide its clients impeccable services, accessible trading instruments and financial products and a wealth of investment opportunities spanning the global financial markets. Since its inception, the Dubai-based firm has emerged as a leader of the financial services industry in the Middle East, offering cutting-edge online trading solutions with an emphasis on customer care and satisfaction.

C

entury Financial Brokers (CFB) has earned its reputation as a regional pioneer in its industry, driving innovation throughout 28 years in business. This lively and customer-centric institution has been on a path of continuous improvisation; being led by its visionary CEO Mr. Bal Krishen, who has a full-career experience in the relevant field.

Mr. Krishen has been attributed to lead the team of professionals, managing the present business with a keen eye on the future of the company with an intimate knowledge of its past (having spent over twenty years at CFB). Mr. Krishen has been an inspirational leader in the business who embodies the company’s core values- Trust, Expertise and Innovation. Having joined CFB in 1997, his meteoric rise, parallel to the rise of the institution itself, has made him a perfect role model for aspiring professionals. A philanthropist and entrepreneur with over 25 years of financial expertise across various investment fields covering bonds, real estate, equities, currencies, commodities, and capital appreciation products, Mr. Krishen is a true pioneer in mapping and developing investment strategies.

CFB has the credit of being the first company in the region to offer margin trading in the global financial markets and the first to offer online trading facility, to operate a 24-hour dealing room, and to provide CFD trading through the most advanced trading platform the market has to offer. For nearly three decades, CFB has provided a diversified range of financial products and a wide array of professional services to its private and corporate investors alike. The firm has raised the bar of client expectations in the region and has met the challenges with ease.

CFB's clients are provided with a host of premium services that includes market research updates, training in trading and online platform functionality, a personal trade advisor, a dedicated 24-hour customer service desk, access to customised analysis, research, and support.

The company's bespoke services and flexible investment solutions, coupled with round-the-

CEO: Bal Krishen

clock comprehensive market information, and training and education programs that continue to empower investors, and allow them to make the most informed investment decisions available.

The momentum CFB has gathered since its beginnings shows no signs of slowing down and has seen the company extend its network throughout the Middle East and the Gulf Region. With its visionary leadership in full control, CFB looks CFI.co | Capital Finance International

set to grow further in the region, whilst staying true to its core values and the commitment to provide the highest quality services and solutions to private and corporate investors and tailoring financial solutions for locals and expatriate clients alike. Century Financial Brokers is licensed by the Central Bank of UAE and regulated by the Securities and Commodities Authority. The firm remains Dubai’s oldest and most trusted investment services provider. i 119

> Tawreeq Holdings:

Innovation for Growth Tawreeq Holdings is a UAE, Luxembourg and Morocco-based group specialising in comprehensive supply chain finance (SCF) solutions for small and medium-size enterprises (SMEs) and their corporate clients across the MENA region, connecting them to regional trade hubs in Africa, Asia, and OIC markets. Tawreeq pioneered a novel approach by introducing the world’s first comprehensive Sharia-compliant supply chain finance solutions, innovating the way MENA does business while offering alternative financial instruments to investors.

T

he Tawreeq Holdings Group has expanded rapidly since its launch in 2014 and now includes Tawreeq Holdings Africa, Dar Al Tawreeq Forfaiting and Factoring Services, iSCF Capital Limited (regulated by the DFSA), Tawreeq SCF Investments, Tawreeq Global Sukuk (regulated by the FSRA), and HMR Consulting.

Tawreeq Holdings, through its subsidiaries, offers a suite of (SCF) solutions that cater to the needs of all stakeholders. Tawreeq specialises in factoring – an alternative working capital liquidity solution for SMEs; reverse factoring for large and mid-size corporates to match their receivables and payables whilst improving treasury management; securitisation structured to provide corporates with financial flexibility by benefiting from a reliable and revolving liquidity facility; investments – structured investments in supply chain finance and short-term sukuk; and tailored SCF advisory and consultancy services for businesses and financial institutions.

Tawreeq Holdings offers factoring through its flagship InvoiSME Factoring Programme – a unique receivables financing facility that serves the largest number of SMEs in the region. The InvoiSME Factoring Programme focuses on facilitating working capital liquidity to SME suppliers through a streamlined online platform, efficiently facilitating access to finance.

Tawreeq Holdings also introduced Tawreeq Marketplace, a global marketplace for working capital that bridges the gap between businesses and funders. The cloud-based platform gives businesses access to liquidity while connecting financial institutions to underlying competitive

"Tawreeq Holdings, through its offerings, pursues a holistic approach to ethical supply chain finance and is proud to be breaking barriers and expanding the SCF market across the MENA Region." yielding opportunities in supply chain finance transactions. Tawreeq Marketplace streamlines SCF operations and transactions, converting complex multi-layered documentation into a simple, timely, and transparent online process.

In addition to offering comprehensive SCF solutions to SMEs and corporates, Tawreeq Holdings specialises in offering unique investment opportunities in supply chain finance through multiple segregated cell securitisation vehicles in Luxembourg and structured short-term sukuk offerings. The investment programmes provide the market with a competitive alternative asset class investment focused on the real economy, with credit enhancements, and able to provide a yield superior to other available shortterm alternatives.

Tawreeq Holdings, through its offerings, pursues a holistic approach to ethical supply chain finance and is proud to be breaking barriers and expanding the SCF market across the MENA region. i

"Tawreeq Marketplace streamlines SCF operations and transactions, converting complex multi-layered documentation into a simple, timely, and transparent online process."

120

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

> Tawreeq Holdings:

Advancing the Business Ecosystem in the MENA Region with Supply Chain Finance

By Haitham Al Refaie

The Middle East and North Africa (MENA) is a diverse and promising region for growth thanks to its strategic location and vibrant society and growing middle class. Businesses in the region are steadily growing with increased focus on regional diversification and private sector competitiveness. However, businesses' ability to sustain growth depends on a number of factors, foremost amongst them the flexibility of the financial sector and access to credit. Most private sector businesses are classified as small and medium-size enterprises (SMEs). These employ the vast majority of the workforce and their ability to sustain growth is highly dependent on access to finance to boost the working capital needed to seize opportunities.

S

tringent global capital and liquidity rules and regulations have focused on creating a more resilient banking sector, by enforcing increased capital requirements, strict liquidity ratios, and enhanced legal and compliance requirements.

This shift has created huge challenges for SMEs since it has curtailed lending capacity, led to higher lending costs, caused demands for excessive collateral/margins, and made access to short term lending more difficult. However, the dynamic business environment and the need to optimise working capital increased the call for alternative finance tools that satisfy the growing demands of businesses across the MENA region.

This situation has made the market ripe for the expansion of supply chain finance (SCF) as an alternative source of funding to bolster both working capital and liquidity. Tawreeq Holdings, with presence in the United Arab Emirates, Luxembourg, and Morocco, specialises in bespoke supply chain finance solutions for small and medium-size enterprises and their corporate clients. These solutions are structured to optimise the management of working capital and free liquidity tied up in the supply chain process.

The key to achieving working capital optimisation is the maintenance of a healthy supply chain both locally and internationally – one sustained by resilient relationships between suppliers and buyers and driven by technological efficiency.

MENA’s strategic geographical position as a link between the east and the west, along with its stable economic growth, make the region one of the most suitable markets for Tawreeq’s supply chain finance solutions, allowing SMEs to reach their full potential.

Supply Chain Finance solutions provide the capacity for business to optimise cash flow by permitting businesses to extend payment terms

Haitham Al Refaie

to their suppliers whilst simultaneously offering early settlement of payments to suppliers – especially SMEs. They can do so without impacting or disrupting their supply chains.

The solutions that Tawreeq offers, in the form of factoring and reverse factoring, create a healthy and more efficient ecosystem that serves the purpose of providing finance where and when it is critically needed.

The impeccable benefits, ease of access and CFI.co | Capital Finance International

technology which Tawreeq leverages via a state-ofthe-art platform ensures efficiency, consistency, and transparency to all stakeholders. This makes supply chain finance a highly viable alternative to conventional forms of financing, alleviating SMEs from working capital liquidity challenges whilst enhancing trade and economic growth. i ABOUT THE AUTHOR Haitham Al Refaie is group chief executive officer of Tawreeq Holdings.

121

> Kuwait International Bank:

A Banking Legacy

This year marks a major milestone for Kuwait International Bank (KIB): as it celebrates more than 40 years of banking excellence, the Bank is also commemorating ten years since its transformation into a full-fledged Islamic bank.

G

arnering a noteworthy reputation for itself from its very beginnings, the Bank quickly rose to prominence within the banking sector, as one of the only banks in the region to cater exclusively to the real estate sector. For more than three decades, the Bank maintained its position as a key player in Kuwait’s financial market and grew to dominate its niche sector.

KIB’s journey has taken it from its initial establishment as Kuwait Real Estate Bank, a specialised real estate bank in 1973, to a Shariacompliant financial institution starting in 2007.

The growing demand for Islamic banking services and the evolving state of the banking industry paved the way for KIB’s successful transformation into a Sharia-compliant financial institution, thereby marking the first transformation of its kind in the Middle East.

A decade later, this strategic move has paid off in spades, as the Bank continues to grow from strength to strength, and quickly positioned itself as one of the foremost Islamic banking institutions in Kuwait.

Today, the Bank offers a comprehensive suite of Sharia-compliant banking services and solutions, with an expansive network of 26 branches distributed strategically across Kuwait. Its customer-focused offerings provide innovative, flexible solutions tailored to suit customer needs, alongside a diverse selection of corporate banking products and specialised real estate banking operations.

BEYOND BANKING By virtue of its long-standing presence in the market, KIB has accumulated the experience and capacity needed to play a substantial

"Today, the bank offers a comprehensive suite of Sharia-compliant banking services and solutions, with an expansive network of 26 branches distributed strategically across Kuwait." role in economic and social development across the country. In the past, KIB had been an instrumental force in driving the nation’s economic development through one of its key business sectors, and was an active contributor to the development of Kuwait’s economic, infrastructural, and architectural landscapes.

Today, the Bank continues its role as a national development partner, supporting the economy by boosting local labour force participation and promoting businesses to encourage economic growth within the financial sector. KIB has also sought to provide financing solutions for small and medium sized businesses, across various sectors and industries. Additionally, the Bank has invested heavily in the national labour market as a core component within its strategy, and as a result has focused its efforts on attracting, employing and developing local talent.

Over the years, KIB has also remained committed to going beyond its financial responsibilities and playing a part as a true corporate citizen. Guided by its comprehensive and integrated social responsibility strategy, the Bank spearheads various social initiatives and

community programmes that seek to impact real economic, social, and cultural change. In addition to focusing on a wide range of basic needs programmes, the Bank has dedicated a large portion of its efforts towards spreading financial awareness and economic education across Kuwait. It also dedicates a large portion of its CSR efforts to offering moral and financial support to aspiring young Kuwaiti talent.

STAYING AHEAD OF THE TECHNOLOGY CURVE Recognising the rapid growth of technology in the industry, KIB is striving to position itself at the forefront of banking technology in the region by investing heavily in technology and shifting its focus towards expanding and enhancing digital and mobile channels. To keep up with this everchanging state of the market, KIB has been actively working to remain ahead of the curve by expanding its mobile and online presence across all channels – including SMS, mobile websites, and mobile banking apps – seeking to enhance and streamline its virtual customer experience across all channels to suit customers’ fast-paced lifestyles.

Recently, KIB introduced a cutting-edge, firstof-its-kind omni-channel contact centre. This strategic move seeks to revolutionise the KIB customer experience and improve service levels.

Operating around-the-clock, the centre includes an Interactive Voice Response (IVR) portal, and offers centralised monitoring, queuing, routing, and reporting solutions. This year also saw KIB launch its innovative and best-in-class Visual IVR service, which provides customers access to most of the Bank’s services via a visual interface, rather than just a voice self-service interface.

KIB’s comprehensive and long-term strategy aims at transforming the way the Bank engages

"Recently, KIB introduced a cutting-edge, first-of-its-kind omnichannel contact centre. This strategic move seeks to revolutionise the KIB customer experience and improve service levels."

122

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

with customers across every touch point and communication channel, thereby providing a comprehensive suite of user-friendly and easily accessible digital solutions. That being said, KIB has continued to embrace technology and innovation at the very core of its business strategy, whilst putting in place stringent measures to ensure digital security and safety at every step.

WHAT LIES AHEAD IN THE INDUSTRY The banking industry has changed profoundly over the last few years, resulting in game-changing shifts in technology, customer behaviour, and industry regulations. Technological shifts have created new customer segments and behavioural patterns, which have incentivised further investment in technology to revamp the customer experience.

However, with all these changes happening in the industry, customers remain at the heart of the banking industry. With that in mind, KIB continues to pursue new opportunities in line with its strategic objectives amidst the ever-changing banking sector. As regulatory frameworks continue to evolve and technological shifts gain momentum, KIB must also shift to accommodate changes and cater to an increasingly sophisticated and globalised customer base.

The dynamic and fast-paced nature of the banking industry has motivated KIB to adopt a strategic plan aimed at enhancing the Bank’s competitive edge and propelling it to the forefront of the Islamic banking sector. Since launching the strategic plan, KIB has achieved a number of key objectives, including rolling out a new governance model, carrying out key changes to its organisational structure, and recruiting a number of highly-qualified professionals and Kuwaiti talents across its organisation.

Additionally, the strategic plan focused on developing and streamlining the Bank’s offerings, making great strides in developing digital channels and enhancing the customer banking experience across all platforms, with a particular emphasis on simplifying processes and procedures and bringing an overall improvement in all distribution channels.

KIB’s impressive track record in robust financial performance and resilient strategic planning has only been further demonstrated by the key milestones it has achieved in 2017. Most recently, Fitch Ratings reaffirmed KIB’s LongTerm Issuer Default Rating (IDR) at A+. The bank has also been included in the MSCI Index.

Today, KIB remains committed to its comprehensive strategic plan by adapting in real time to meet the demands of a demanding and increasingly tech-savvy clientele, aiming at achieving its strategic vision of becoming the Islamic Bank of Choice and the leading employer for young, talented Kuwaitis. i CFI.co | Capital Finance International

123

> CFI.co Meets the Chairman of Kuwait International Bank:

Sheikh Mohammed Jarrah Al-Sabah

A

seasoned veteran of the Banking industry, Sheikh Mohammed Jarrah AlSabah has served as Chairman of Kuwait International Bank (KIB) since 2010.

Al-Jarrah joined the Bank’s Board of Directors in 2007, bringing extensive professional experience accumulated in the banking and financial sectors in Kuwait. His strong leadership and focused vision have proven to be a vital element driving the Bank’s continuous growth and success over the years, helping to position KIB at the forefront of the Islamic Banking sector not only in Kuwait, but across the region as well.

Al-Jarrah came on board at KIB during a pivotal moment in the Bank’s history, as it was making the transition from a conventional specialised real estate Bank, known then as Kuwait Real Estate Bank, to a full-service Bank operating in accordance with the principles of Islamic Sharia.

Under his leadership, the newly invigorated KIB succeeded in achieving exponential growth across all areas, and in just a few short years, managed to cement its position as a key player in the Islamic Banking sector of Kuwait. In fact, it was only six years later that the Bank garnered its first award for Best Islamic Bank from World Finance – and that was only the first in a string of prestigious accolades for KIB and Al-Jarrah.

A PROMINENT FIGURE IN THE ARAB BANKING INDUSTRY Over the years, Al-Jarrah has established himself as a key influential figure in the Arab Banking industry, earning a reputation for being a worldclass leader and savvy financial strategist. In addition to his role at KIB, Al-Jarrah also serves as Chairman of the Union of Arab Banks (UAB) and Board Member of the Kuwait Banking Association (KBA). Al-Jarrah is also a member of the Board of Trustees at the Arab Academy for Banking and Financial Sciences, and serves as Vice-Chairman of the Board of Directors of Warba Insurance Company.

Chairman: Sheikh Mohammed Jarrah Al-Sabah

In his role as Chairman of UAB, Al-Jarrah has focused his efforts on shedding light on the significant role that Arab Banks play in the international economic landscape, especially as global paradigms and balances of power continue to shift. Moreover, he has been an instrumental force in furthering UAB’s efforts to enhance the reputation of Arab Banks around the world, showcasing the industry’s strength and continued growth despite political and economic challenges facing the region.

East and the GCC in an effort to harness their combined resources and capabilities to drive sustainable social and economic development in the region. The UAB Chairman has frequently reiterated his belief that Arab Banks should unite and align their efforts to encourage more domestic investment within the Arab region. Intra-Arab trade, he believes, promotes greater collaboration to achieve development, stimulate more investment, and even attract foreign investment to the region. Al-Jarrah also supports public-private economic partnerships for accelerating national economic growth and ultimately achieving sustainable development in the country.

As a keen advocate of joint Arab-International Banking cooperation, Al-Jarrah has always sought to promote greater collaboration and unity amongst financial institutions across the Middle

A DECORATED AND DISTINGUISHED CAREER Sheikh Al-Jarrah has enjoyed a prolific professional career marked by numerous achievements and awards, during which he has

124

CFI.co | Capital Finance International

held several key leadership positions with major market players in Kuwait, including: Kuwait Real Estate Investment Consortium, Commercial Bank of Kuwait, Kuwait Re-Insurance Company, Salhiya Real Estate Company, and Arab Insurance Group (ARIG).

Al-Jarrah’s efforts have won him many awards and recognitions from key regional and international bodies throughout his long and distinguished career, serving as testaments to his achievements and exceptional leadership. In 2013, Al-Jarrah received the Golden Medal Award of Merit from the Tatweej Academy for Excellence and Quality in the Arab Region. He was further recognised as GCC Chairman of the Year by World Finance, the premier London-based global Banking and finance journal, in 2015, and was also named Islamic Banking Chairman of the Year this year for the second time. i

MEEZA

Managed IT Services & Solutions Provider

FULFILLING THE REQUIREMENTS FOR WORLD-CLASS MANAGED IT SERVICES AND SOLUTIONS Ranging from Data Centre Services to innovative Cloud Services, MEEZA offers flexible and scalable IT Services and Solutions that deliver real advantage to our clients.

Integration and Operations

Managed IT Services

IT Security Services

Cloud Services

End-to-End recognised systems integrator and rapidly establishing expertise in the area of Smart Cities and Internet of Things.

MEEZA’s comprehensive portfolio of Managed IT Services provides for clients IT Infrastructure and grant the reliability and availability they need in IT Systems.

Providing a rich portfolio of Cyber Security Services to provide cyber protection around the clock to protect client’s critical data.

Services and solutions available through a private, public or hybrid network gives MEEZA clients access to a robust selection of instantly scalable applications without the high TCO.

MEEZA Data Centres MEEZA’s State-of-the-art Data Centres offers the highest level of availability to the market. It is the only Tier III designed and constructed Data Centres in Qatar and the only LEED Platinum Certified in the Middle East and North Africa.

T +974 4405 1000 E info@meeza.net

F +974 4405 2000 www.meeza.net

> Capital Bank of Jordan:

Regional Top Full-Service Bank Since its inception in 1995, Capital Bank has grown to become one of the top financial institutions in Jordan, offering a comprehensive set of commercial and investment banking services tailored to the needs of individuals and corporate clients alike.

S

pecialised in trade finance, Capital Bank's mission is to deliver reliable and flexible solutions to accommodate its clients’ time constraints and business schedules. The bank offers its corporate clients a wide variety of services that include corporate finance, commercial finance, asset management, securities brokerage, and market research through Capital Investments, a wholly owned subsidiary of Capital Bank with a paid-up capital of JD 10 million ($14 million) that acts as its investment arm.

In addition to its corporate financial services, Capital Bank provides its individual customers with retail services including credit cards, personal loans, car loans, home loans, competitive interest rates, and flexible terms on different categories of personal bank accounts.

Capital Bank also offers unique services in the Iraqi market through its controlling stake in the National Bank of Iraq. In addition, the bank has a presence in the Dubai International Financial Centre (DIFC) through an office specialised in investment advisory and corporate finance under the name Capital Bank Corporate Advisory (DIFC).

MANAGEMENT Ala Qumsieh was appointed chief executive officer as of March 2017. He joins the group after spending seventeen years in leadership roles in international financial institutions across the region. In his present role, Mr Qumsieh leads the group’s overall business operations in Jordan, Iraq, and the UAE, offering corporate banking, investment banking, and retail banking services to customers in these three markets.

Mr Qumsieh brings with him extensive experience in banking with a prime emphasis on institutional banking, supplemented by deep sectoral knowledge. Before joining Capital Bank, he served as Citi’s chief country officer in Qatar and head of Institutional Banking for Saudi Arabia, Qatar, and Bahrain where he was responsible for successfully driving and implementing the bank’s growth strategy. Before that, he held several leading positions at international banks.

CEO: Mr Ala Qumsieh

Mr Qumsieh currently sits on the board of several prominent private and publicly listed companies, and is part of Jordan’s Strategic Forum.

Mr Qumsieh holds a MBA degree in Strategic Management from Aston University, UK, and a Bachelor’s Degree in Business Administration

126

CFI.co | Capital Finance International

from Yarmouk University in Jordan. He also obtained several specialised professional degrees. i

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

CO - LOCATED EVENTS

1st

Real Estate Show in the GCC

19,129 Attendees

IN COOPERATION WITH

177

Exhibitors

141

Participating Countries

BOOK YOUR SPACE NOW

STRATEGIC PARTNERS

SUPPORTING PARTNER

OFFICIAL KNOWLEDGE PARTNER

KEY COMMUNICATION PARTNERS

OFFICIAL OFFICIAL OFFICIAL OFFICIAL CHINESE MEDIA PAKISTAN MEDIA ONLINE TRADESHOW CIS COUNTRIES MEDIA CHANNEL

U.S.A. STRATEGIC PARTNER

OFFICIAL MAGAZINE PARTNER

OFFICIAL PROPERTRY PORTAL

> MEFIC Capital:

An Emerging Private Equity Player in KSA

M

iddle East Financial Services Company (MEFIC) is a complete financial services company with a paid capital of SR 400 million. The incorporation of MEFIC took place in August, 2007, after the Capital Market Authority of Saudi Arabia granted MEFIC permission to operate as a full service investment firm in the kingdom with the following licenses: dealing, custody, managing, arranging, and advising.

128

MEFIC Capital is active in fasset management, private equity & investment banking, wealth management, and real estate.

MEFIC’s shareholders consist of reputable regional institutions such as Ahli United Bank – Kuwait, Ahli United Bank – Bahrain, The Arab Investment Company (TAIC), as well as a number of prominent Saudi family Groups CFI.co | Capital Finance International

and business individuals considered leaders in the financial investments and advisory fields.

PRIVATE EQUITY MEFIC Capital is a Saudi private equity player focused on the Saudi and wider GCC market.

MEFIC's vision is to become the leading Private Equity player within the Saudi small and medium enterprises sector (SME).

Winter 2017 - 2018 Issue

With a new Private Equity team headed by Joseph Hakme who joined MEFIC in 2016, MEFIC achieved a solid 2017 performance in the Private Equity space with two transactions successfully closed despite the challenging market conditions.

MEFIC Capital provides long-term capital to growing companies through opportunity-specific funds that are seeded by proprietary capital along with institutional investors.

Based on the solid experience of its Private Equity Team, along with the connectivity of the management and shareholders base, MEFIC Capital is the partner of choice for emerging businesses seeking to reach the next stage of their development journey and achieve their full growth potential.

MEFIC Capital’s private equity arm deals with institutional investors, high-net-worth individuals, government backed funds, and fund of funds to raise funds and carry out its investment activities.

The company’s investment approach is based on the following principles: • Establishing a solid development strategy: MEFIC designs, in cooperation with the management, a tailored development strategy and business plan for the company to unlock its full growth potential.

• Added-value support to management: The MEFIC team dedicates a substantial amount of time and effort to support the management on certain pre-agreed workstreams (such as unveiling new initiatives, sourcing executive talent, real estate, etc.) to help them delivering the business plan successfully.

• Corporate governance: MEFIC actively participates in boards of directors and related committees and places the best corporate governance practices in its companies, including board committee formation, delegation of authorities, implementing KPIs, and reporting channels.

• Corporate finance: MEFIC supports the management in optimising the company’s capital structure, securing favourable financing arrangements or equity injections for expansion.

"MEFIC's vision is to become the leading Private Equity player within the Saudi SME sector."

With conventional Private Equity players in the region traditionally focusing on large transactions involving relatively mature companies, the Saudi SME sector is still largely untapped. MEFIC is therefore positioning itself as a leading player on this promising sector, characterized by the abundance of investment opportunities with attractive valuation levels and strong growth potential.

CFI.co | Capital Finance International

SELECTED PRIVATE EQUITY TRANSACTIONS Body Masters (40% stake acquired in 2012): Body Masters was established in 1992 and is currently one of the largest player in the fitness market in Saudi Arabia. Body Masters currently operates a total of 36 gyms across the kingdom with a member base of around 70,000. Body Masters’ ambition is to provide affordable access to fitness to every person looking to improve their well-being, in line with the Saudi Vision 2030.

Sultan Delight Burger (30% stake acquired in 2017): In 2017, MEFIC has successfully completed an investment in Ghatha’a Al Sultan for Fast Foods Company, a leading quick service restaurants (QSR) chain in the Western 129

Ibrahim A Al Hedaithy

Joseph Hakme

& Southern Province of the kingdom operating under the brand name Sultan Delight Burger.

Established in 2004 by the Al Musbahi family, Sultan Burger has a footprint of 26 restaurants in Jeddah, Mekkah, Rabigh, and Jazan and has been rapidly expanding in southern and western provinces. Sultan Burger is reputed for its tasty burgers with low pricing suitable to mid and lowincome clients.

key player in the private equity space with two transactions successfully completed in 2017.

Prior to that, Mr Hakme was the head of HSBC Saudi Arabia’s Investment Banking Advisory Team in Riyadh where he led several landmark M&A and IPO transactions over the 2010-2015 period. Mr Hakme started his career as an M&A banker at Lazard in Paris which he joined as an analyst and moved up to vice-president level, before moving to KSA in 2010. Mr Hakme holds an MBA from ESSEC Business School in Paris, and a Civil Engineering degree from ESIB-USJ University in Beirut. Selected transactions: • Initial public offerings of NCB (Q4 2014), SACO (Q1 2015), and SGS (Q2 2015) • Sale of Kudu to Abraaj and TPG • Sale of Gulf Union to Olayan Financing Company • Acquisition of a minority stake in Sultan Delight Burger • Closing of a mezzanine financing transaction with a leading restaurant chain in KSA to finance their expansion

Mezzanine Fund (financing of a leading restaurant chain): In 2017, MEFIC initiated a convertible mezzanine financing fund to finance the expansion of a local restaurant chain. The mezzanine funds will be used for expansion purposes and the opening of new branches across KSA. The mezzanine fund aims to generate steady return to investors by securing a fixed IRR. MEFIC CAPITAL MANAGEMENT Ibrahim A Al Hedaithy - Managing Director / CEO Mr Alhedaithy has extensive experience in the investment banking and asset management arena. He held various remarkable positions in both private and public sectors and is the managing director of MEFIC Capital since May 2009.

Mr Alhedaithy led the company to deliver unique products and services capable of satisfying the needs of its investors. Furthermore, under his leadership the company has structured and established many specialised real estate funds, besides quite a few market-leading mutual funds. Mr Alhedaithy holds a Bachelor Degree in Accounting from King Saud University in Riyadh.

He has participated in number of specialised regional and international training programmes and seminars. He also holds number of representations in various capacities with several local and regional economic and financial bodies.

Joseph Hakme – Executive Director and Head of Private Equity & Investment Banking Mr Hakme has over fifteen years of investment banking experience in Europe and GCC. Mr Hakme joined MEFIC Capital in 2016 to lead its private equity and investment banking activities and has succeeded in establishing MEFIC as a 130

Ali Bustami – Associate Private Equity & Investment Banking Mr Bustami has over six years of experience in the private equity and investment banking field.

Prior to joining MEFIC, Mr Bustami worked as an analyst with Jadwa Investment and was employed by PwC as a strategy consultant. He holds BSc and MSc degrees in Accounting and Finance from the London School of Economics.

Selected transactions: • Acquisition of a majority stake in Saudi Mechanical Industries • Acquisition of a majority stake in Global Environmental Management Services • Acquisition of a minority stake in Sultan Delight Burger Abdulrahman Alrabiah – Analyst Private Equity & Investment Banking Mr Alrabiah joined MEFIC Capital in 2017 as an analyst in the Private Equity & Investment Banking Division. Mr Alrabiah holds a BSc degree in Finance from Northern Kentucky University.

Selected transactions: • Acquisition of a minority stake in Sultan Delight Burger i CFI.co | Capital Finance International

> WikiLeaks:

Yesterday’s News

From a source of inconvenient truths to a front of authoritarian regimes, WikiLeaks has been reduced to a shadow of its former self. From his cramped hideout at the embassy of Ecuador in Knightsbridge, London, WikiLeaks founder Julian Assange for years on end tried to steer and set the global agenda, embarrassing enemies and helping friends through the release of private data, often illegally obtained and precisely timed and dosed for maximum impact.

A

spiring to transcend his status as bit player on the international stage, Julian Assange moved decisively against Hillary Clinton during the 2016 US presidential election. He drip fed the media with snippets from the private email correspondence of former White House chief of staff and Clinton campaign chairman John Podesta. The messages had been poached from Mr Podesta’s Gmail account. A security firm later tracked the breach to a Russian hacking collective linked, albeit loosely, to the country’s intelligence apparatus. The leaks were carefully timed to maximise the Clinton campaign’s discomfort.

Haunted by the boredom of his life as an embassy recluse, Julian Assange began to imagine himself as the hermit kingmaker. Thus, it emerged that he repeatedly welcomes Nigel Farage of Brexit fame to his sanctuary. The two have known each other since 2011. Mr Farage, now an informal adviser to the US president, is currently a “person of interest” in the FBI investigation into the links between members of Donald Trump’s entourage and Russian agents.

Julian Assange has issues picking friends and associates. At one point, his WikiLeaks Party of Australia – run by remote control from London – sought to align itself with the white nationalist/ supremacist Australia First Party, chaired by a self-avowed neo-Nazi. The misguided political flirt was soon stopped. Mr Assange blamed an “administrative error” for the affair.

Telling filmmaker Laura Poitras that “people with principled stances do not survive for long,” Julian Assange went on the court Israel Shamir – today’s embodiment of Theodor Lessing’s selfhating Jew and a long-time ally of President Putin. It was Israel Shamir who received copies of the leaked State Department cables from Julian Assange and immediately handed the documents to the Lukashenko government in Belarus which used the information to identify, arrest, imprison, and torture members of the opposition and others critical of the dictatorial regime.

132

"It is time for Mr Assange to find another abode and, perhaps, another line of work.

It was good while it lasted, but it lasted only for a little bit."

It started out as a good idea: WikiLeaks was set up to hold to account those wielding considerable power – governments, corporations, and private individuals – by exposing their secrets. A complex yet simple to use system was designed to allow whistle blowers to electronically deposit troves of documents without revealing their identity. At the time, WikiLeaks was not interested in its sources and often did not know their identity; what mattered was the information and its quality – i.e. the data’s capacity to disrupt.

WikiLeaks frontman spent in his largely selfimposed exile in the Ecuadorian diplomatic mission, pontificating every now and again from his French-style balcony to the gathered press.

Public interest for his rant has, however, waned considerably. At first, Ms Poitras, the filmmaker, thought she could ignore – or edit away – the many contradictions of Julian Assange, the man. When they became too glaringly obvious, the inconsistencies became the story.

Ms Poitras noted how Julian Assange would pester close collaborators to sign nondisclosure forms that penalised the leaking of the leaker’s own secrets with fines of up to £12 million. Scottish writer and literary critic Andrew O’Hagan, who was to ghost Assange’s autobiography, noted that the Australian only admitted free speech as it applied to his message: “His pursuit of governments and corporations was a ghostly reverse of his own fears for himself. That was the big secret with him: he wanted to cover up everything about himself except his fame.”

The site posted its first leaked document in December 2006: an order to have officials killed, signed by Sheik Hassan Dahor Aweys, a warlord linked to the short-lived Islamic Court Union government of Somalia. A long series of revelations followed, culminating in 2010 with publication of large data caches containing hundreds of thousands of documents on the wars in Afghanistan and Iraq. Since then not a year has gone by without WikiLeaks grabbing the headlines with yet another batch of potentially compromising papers.

Also, Julian Assange dislikes compromises, distrusts those who do not fully share his enthusiasm for secret-busting, and insists on getting his way – always. Though he promotes WikiLeaks as the vanguard of new journalism, Assange refuses to abide by any of the profession’s conventions. WikiLeaks close collaboration with the deans of legacy journalism – The New York Times and The Guardian – did not last after both papers insisted standards be observed such as excluding material that could not be checked and data that might put lives at risk. In the case of the Afghan War Papers, Assange was adamant that information be published that included specifics on informants of the US Army. The names were not removed and people got killed as a result.

Whilst WikiLeaks outwardly promoted openness, internally the organisation remained a secretive one-man show – that man being the increasingly nihilistic Julian Assange. Laura Poitras followed Julian Assange with a camera for close to six years. Most of that time, the

While Ms Poitras was working on Risk – the hagiography turned exposé of a vain and obtuse man rallying against the machine – WikiLeaks published some 300,000 emails sent to the Turkish ruling party AKP by citizens seeking small favours, help, or clarification of doubts.

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

The site also released a Turkish voter database including contact details of private person and a set of medical files on psychiatric patients in Saudi Arabia, prompting Wired magazine to declare that WikiLeaks had “officially lost the moral high ground.”

First screened at the 2016 Cannes Film Festival, Risk traces Julian Assange’s downfall from champion of openness to pompous hermit – a man suffering from a self-confessed God Complex, holed up in cramped quarters, estranged from friends and well-wishers, and increasingly plagued by paranoia. A low point in the film is reached when he dismisses the two Swedish women who accused him of improprieties as “radical feminist activists” pointing out that one of them started “the largest lesbian nightclub in Gothenburg.”

Infuriated by his own tactless remarks and failing to censor the film with the help of high-octane lawyers, Julian Assange appealed to Ms Poitras’ sympathy explaining that her portrayal threatens his freedom. The offending scenes were not cut.

In 2015, Laura Poitras received an Oscar for Citizenfour, her film on NSA whistle blower Edward Snowden who laid bare a global spy network of unimaginable reach. Risk is, however, a much different project, depicting a much less modest protagonist and one opinionated, albeit not in a politically correct way. Not only does Julian Assange come across as a closet misogynist, he also espouses a few distinctly anti-Semitic notions that cause discomfort.

Equating Assange with Snowden misses the point: the former recognises no right to privacy but his own whilst the latter risked his life over the concern that privacy is under attack.

WikiLeaks’ time has now passed, as has Julian Assange’s. The website and its founder desperately try to remain relevant by publishing whatever material comes along, no matter how irrelevant or dodgy. The established press, rejected

by Assange et al, now implemented its own mechanisms for sourcing classified material. All major newspapers in North America, Europe, and elsewhere maintain sound processes that ensure anonymity to whistle blowers.

It is time for Mr Assange to find another abode and, perhaps, another line of work.

It was good while it lasted, but it lasted only for a little bit. There is no need to crucify the guy; he is best forgotten. i CFI.co | Capital Finance International

133

>

THE EDITOR’S HEROES

The Beauty of It All

V

lad, Kim, Donald, Robert, Jacob, Mariano, and Theresa: a bunch not quite blessed with an abundance in heroic attributes. The current crop of politicians and world leaders is a particularly poor one with posers, ego-trippers, sabre-rattlers, miscreants, and assorted powerusurpers jostling for a prime position on the global stage. Admittedly, mutually assured discord is an improvement of sorts over its destructive predecessor. However, the antagonism of some, and abuse of power of others, merely hides a glaring lack of vision.

Vlad and Kim both crave the attention which Donald is only too happy to give as he tweets his twaddle around the globe. Robert has now been ushered into retirement and may recline into the lap of his ill-gotten luxury whilst next-door Jacob, still adding to his nest egg, is about to join him before long. Meanwhile, Mariano – the embodiment of Iberian rectitude – seethes with badly-repressed anger as his peninsular nation disintegrates. And then there is poor Theresa, out of her depth, singularly inept, mostly surrounded by political clowns, and indomitable in her denial of harsh reality. In charge of mission impossible, she somehow does manage to keep a stiff upper lip. Theresa would be the greatest hero of modern times if only she’d stand up for her own convictions and tell the nation that playtime is now over.

A consolation prize, Theresa’s right-hand man did make it onto the hero list. It is hard to supress admiration for Chancellor of the Exchequer Philip Hammond who must zigzag a course between the warring factions of his party whilst maintaining a semblance of fiscal probity.

Steering an economy living on borrowed time – and money – Philip Hammond’s job requires of level of stamina few could muster.

A last minute surprise inclusion, Hassan Al Thawadi is an unlikely hero. He is the public face of the Qatar 2022 World Cup. It is his job to put a positive spin on the seemingly unending series of scandals surrounding the event’s organisation. It helps that Mr Al Thawadi is eminently likeable and doesn’t mind answering tough questions. His recent tour of European

capitals went much better than anyone could have hoped for. The easy-going Mr Al Thawadi had no trouble convincing all and sundry that the world’s biggest tournament is in good hands.

For reasons largely unknown, and better left unquestioned, most sports writers and critics believe him.

Spanish banker Ana Botín – apparently one of the world’s most powerful women – merited hero status for her down-to-earth approach to business. Mrs Botín is almost old-fashioned in her believe that banks should treat their staff respectfully and not ditch thousands of employees at the first sign of trouble. Mrs Botín is not at all like her hard-nosed father of transformed a small provincial bank into a global powerhouse. For one, she pursues organic growth and aims to consolidate the empire rather than gobbling up the competition. She also knows better than most that it is the proverbial little guy that adds to the bottom line.

Two of the other three CFI.co heroes tell the story of that little guy and the third puts music to it.

Filmmaker Ken Burns reshaped and adapted Americana for television, carefully chronicling US history as the world’s now most powerful nation dealt with its growing pains and grappled with the role thrust upon it. Irish travel writer Dervla Murphy used the world as her canvas, visiting its furthest-flung places by bike, mule, and other modest means of transportation to report on peoples and cultures resisting the inevitable onset of modernity. For most of his life, Estonian composer Arvo Pärt resisted the conformity of cultural life in the Soviet Union, receiving praise and condemnation in equal measure before gaining near-universal recognition as the most gifted of living composers.

By their very nature, heroes do beautiful things and make the world a better place. Perhaps even more importantly, they provide the rest of us with inspiration. Philips Hammond, Hassan Al Thawadi, and Ana Botín show that – thankfully – bad situations need not result in disaster. Kern Burns, Dervla Murphy, and Arvo Pärt show the unimaginable richness of life. On that note, spare a thought for all of those who help make life worth living. i

Al Wakrah, Qatar: Al Wakrah Stadium (Zaha Hadid Architects)

134

CFI.co | Capital Finance International

135

> ANA BOTÍN Reshaping the Financial Universe The first woman to lead a major global financial services provider, Ana Botín remains one of only six women at the helm of a Fortune Global 100 company. Mrs Botín also tops the list of the world’s most powerful women outside the United States.

The executive chairman of the Santander Group is the fourth-generation Botín to head Spain’s largest publicly-listed bank, a global behemoth with a market capitalisation approaching $90bn and serving more than one hundred million customers globally.

She brings much more than just her family’s name to the bank. Early-on in her career, Mrs Botín was dispatched to the UK with the unenviable task to turn around one of Santander’s more troubled subsidiaries, known at the time as Britain’s worst bank. Proving her detractors wrong, and waylaying charges of nepotism, Mrs Botín reinvigorated Santander UK, achieving a corporate turnaround that is now studied and dissected in business schools the world over.

Moving to the very top of the bank, Mrs Botín reapplied her magic touch by shaking up the board of directors, ushering in fresh talent, resisting the urge to grow via acquisitions, and fully embracing cutting-edge technology. The strategy already paid off handsomely with the group’s overall profits jumping 24% to $4.2bn even before Santander Spain acquired – for a single euro – the troubled Banco Popular – a move hailed as the deal of the century. That bank is now also being subjected to Mrs Botín’s now famous revitalisation routine which, though drastic, seeks to minimise the intervention’s social impact. In the case of Banco Popular, Santander significantly reduced the number of layoffs initially announced and increased the size of the compensation package offered to employees whose jobs were axed.

Ana Botín’s approach to management differs noticeably from her father Emilio’s daredevil tactics inasmuch as she prefers to play the long game. In that light, Santander maintained its presence in the severely depressed Brazilian market, convinced that the country would eventually find its way out of the economic doldrums and contribute more than its fair share to the group’s profits. It proved the right bet with Santander Brasil last year representing over a quarter of the bank’s overall profit.

Aspiring a career in journalism rather than banking, Ana Botín has a keen eye for detail: she repositioned Santander to boost its support for small and medium-sized enterprises (SMEs), recognising earlier than most the sector’s growth potential. She also pushed Santander to the forefront of technological innovation – becoming an innovator rather than being a follower as has been the destiny of most large banks. The

approach helped protect Santander against disruptors and showed that, notwithstanding its size, the Spanish bank is able to act quickly and decisively to claim new ground.

Mrs Botín has muted her critics by consistently delivering on her promises and doing so without

the pomp for which her father was known. In fact, she remains surprisingly low-key and shuns the outward signs of power that are the rule, rather than the exception, in the world of high finance.

As such, Mrs Botín may actually help reshape this universe.

"Mrs Botín has muted her critics by consistently delivering on her promises and doing so without the pomp for which her father was known."

136

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

> ARVO PÄRT Reinventing Classic Music

His music is considered “spiritually powerful” as it explores and probes the relationship between sound and the sacred. Estonian composer Arvo Pärt’s minimalist, yet exquisitely refined, approach to classical music stems from his love of Gregorian chant and is crafted using a unique technique he created – tintinnabuli – and which includes mystical elements and combines arpeggios (chords broken into a sequence of notes) and diatonic scales with their characteristic accidentals.

The resulting ensemble represents a class of its own: smooth and soothing, yet never boring, and painting a detailed picture in harmony. Mr Pärt’s most famous composition Spiegel im Spiegel – evoking the infinite repetition resulting from a person sandwiched between two opposed mirrors – is the closest any composer ever got to designing a tonal prism. “If my music is the white light, the listener constitutes the prism that splits the colours and makes them appear.”

The 82-year-old Estonian, a deeply religious man, has been the world’s most often performed living composers since the beginning of the 2010s.

Mentored by Heino Heller (1887-1970), the

most famous member of the famous Tartu School of Composition and known for his tone poems, Arvo Pärt first made his name as a composer of film and theatre scores in the 1950s. Mr Pärt had a rather uneasy relationship with Estonia’s Soviet overlords who in 1962 strongly censured him for “susceptibility to foreign influences.”

Only belatedly recognising Arvo Pärt’s outsized genius, the composer was eventually lauded and celebrated by the All-Union Society of Composers – a Moscow-approved body.

Never comfortable with the aesthetics of the Soviet Union, Mr Pärt for years on end pestered the communist authorities for permission to leave the country. He was finally allowed to emigrate in 1980, settling first in Vienna and later moving to Berlin. After the end of the Soviet occupation in 1991, Arvo Pärt returned to his country, promptly becoming one of Estonia’s most celebrated export products. Invariably described as the world’s greatest living composer, Mr Pärt remains stoically unimpressed even when music critics name him in the same breath as they do Sergei Prokofiev and Dmitri Shostakovich.

Mr Pärt’s holy minimalism evolved over

the decades as the composer moved from the seemingly unordered expressionist dissonance of his 1960s work – a protest in tone against Soviet rigidity and shocking to most of today’s unsuspecting Pärt fans – to the finely crafted compositions, executed with mathematical precision, for which the Estonian is now fêted and celebrated.

A reclusive and withdrawn man, Mr Pärt shuns publicity. He is, however, aware of the need to preserve a rich legacy. To this end, he founded the Arvo Pärt Centre in 2010. The centre is located in Laulasmaa, just outside Tallinn on a forested peninsula surrounded by the Baltic Sea. Scheduled to open later this year to both researchers and the general public, the centre will store, classify, and digitise Mr Pärt’s voluminous body of work, including his correspondence, government records, and – of course – all the music scores he wrote over a career spanning almost seven decades. The archive will be housed in a purpose-built facility that blends in with the serene pine forest surrounding it. A fitting tribute to a composer who – in his own way – reinvented music.

"The 82-year-old Estonian, a deeply religious man, has been the world’s most often performed living composers since the beginning of the 2010s."

CFI.co | Capital Finance International

137

> HASSAN AL THAWADI Delivering an Upbeat Message

His is a job with multiple challenges, yet Hassan Al Thawadi obviously enjoys spinning a good yarn. A natural charmer, and not at all afraid to tackle controversy or calmly answer tough questions, he comes across as quite likable. Mr Al Thawadi is secretary general of the Qatar Supreme Committee for Delivery and Legacy. Right. That would be the outfit charged with the organisation of the 2022 World Cup. Mr Al Thawadi is the first to admit that a lot of people were “surprised and unhappy” with FIFA’s choice to award the World Cup to Qatar.

However, he vehemently denies that the country effectively bought the tournament by bribing an number of the federation’s African delegates who reportedly received a $1.5m cash payment each. Mr Al Thawadi frequently points to the emirate’s well-known zero-tolerance policy on corruption and the punishments meted out to those found to have bought or sold favours.

For Mr Al Thawadi to bid put forward by Qatar was top notch and deservedly won: “The whole process by which a World Cup host is chosen may well be flawed, but Qatar has

been both open and transparent throughout.

Our country has also been cleared from any wrongdoing by the 2014 report of the FIFA Ethics Committee.”

The Qatari official does admit that the conditions of the thousands of migrants workers building the tournament’s infrastructure have room for improvement. “However, the plight of migrant workers is not just a problem in Qatar; it affects the entire region. One could argue that Qatar’s successful Word Cup bid has pushed this issue to the top of the agenda with many initiatives currently underway to improve conditions and fight exploitation.”

In a much more positive vein, the world’s most-watched sporting event is expected to have a lasting – and transformative – effect on the Gulf Region by bringing in many tens of thousands of fans whose presence will undoubtedly cause otherwise strict local mores to be relaxed ever so slightly. “We are, in fact, delivering on the unimaginable,” says Mr Al Thawadi: “The event can also help ease regional tensions and facilitate the emergence of mutual

understanding that heals old wounds. Whilst it’s easy to be cynical and poke holes in our dreams.

However, we will remain upbeat, professional, and deliver on all our promises.”

Earlier this year, the International Labor Organization (ILO) dropped its complaint against Qatar whilst the International Trade Union Confederation welcomed “the breakthrough from the government of Qatar to end the kafala system of modern slavery.”

During a recent tour of Europe, Mr Al Thawadi received considerable praise for his candour and willingness to engage with sceptical media. In fact, he managed to mute most critics and create a modicum of excitement. Asking for a fair hearing, he promptly got one: “Significant progress has been made, though more needs to be done. Qatar has, in fact, been quite responsive and fully intends to address any and all remaining concerns.”

With his European tour ending on a high note of optimism, Mr Al Thawadi has indeed delivered on the previously unimaginable: creating excitement for the 2022 World Cup.

"The world’s most-watched sporting event is expected to have a lasting – and transformative – effect on the Gulf Region by bringing in many tens of thousands of fans whose presence will undoubtedly cause otherwise strict local mores to be relaxed ever so slightly."

138

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

> DERVLA MURPHY A Most Fascinating Literary Life She has travelled to just about every point of the compass and did so mostly on bicycle and mules. Dervla Murphy (87) always knew that she had to escape her native Ireland and discover the world beyond. In 1963, she struck out like “an elastic band stretched to the breaking point” from Lismore, Co Waterford, aged thirty with a strippeddown bike, a .25 automatic pistol, and a single change of underwear to end up, many harrowing adventures later, in Calcutta, India. Here she was found, quite accidentally, by Penelope Betjeman – wife of the Poet Laureate of the United Kingdom and self-described “hack” John Betjeman (19061984) – who wondered what an Irish lady was doing cycling around the former colonial capital.

A travel writer of some acclaim, Penelope Betjeman had just finished the now classic Two Middle-Aged Ladies in Andalusia and managed, after expending considerable effort, to convince the painfully shy Dervla to join the profession.

Mrs Betjeman’s publisher John Murray was only too happy to help Ms Murphy embark on a career in writing. She has since penned over twenty books, becoming one of the world’s mostcelebrated – and best-selling – travel writers.

Full Tilt: Ireland to India with a Bicycle, Ms Murphy’s literary debut, has remained in print since it was first published in 1965. The book chronicles a journey that began during Europe’s harshest winter in living memory and saw the intrepid biker fight off hungry wolves in the Balkans, scare off a pack of thieves in Persia, and employ “unprintable tactics” to escape a would-be rapist. In Afghanistan, Ms Murphy sustained three broken ribs after an unfortunate “accident” involving a rifle butt. This, however, did not stop her from falling in love with the country and becoming “afghanatical.”

Crossing Pakistan, where she enjoyed tea with the last Wali Ahad (crown prince), into the Punjab, Ms Murphy and her bicycle Rozinante – named after the rather awkward horse that was made to carry Don Quixote, Spain’s literary knight-errant – arrived safely in New Delhi where she promptly took up volunteer work in a camp for Tibetan refugees run by the sister of the 14th Dalai Lama.

A determined traveller, though accidental writer, Ms Murphy’s many wanderings and sojourns led her to nearly all of the world’s far-flung places, describing both wonder and want. She travelled Ethiopia by mule facing down Kalashnikov-wielding rebels and soldiers, crisscrossed Siberia in trains, planes, and

automobiles – and riverboats – and once again engaged a mule to trek the Peruvian Andes.

Ms Murphy also vividly described life in Laos, Rwanda, Madagascar, Nepal, and countless other fascinating places.

Whilst avoiding the limelight and keeping interviewers at bay, Ms Murphy has not been shy in offering her take on the poverty, violence, and corruption she met along the way. In The Umkiwi Road (1995), Ms Murphy has few kind words for the work of non-governmental organisations and other Western aid schemes which she saw as adding to already insupportable

levels of corruption. She also details how economic collapse and staggering governmental incompetence affects the lives of the people she meets.

Now no longer treading in the footsteps of her personal hero Freya Stark, the British/Italian explorer who singlehandedly placed the Middle East on the literary map and extensively travelled its desert hinterlands, Dervla Murphy retired to Lismore where she now lives with five dogs and three cats. A “no-budget” documentary film about her life – Who Is Dervla Murphy? – was released in 2016.

"Whilst avoiding the limelight and keeping interviewers at bay, Ms Murphy has not been shy in offering her take on the poverty, violence, and corruption she met along the way."

CFI.co | Capital Finance International

139

> KEN BURNS The Long Version of Americana

Ken Burns seems decided to dethrone Heimat as the longest film ever made. However, director Edgar Reitz’ 53h25m epic portraying twentieth century Germany through the eyes of a Rhineland village family still stands as the longest movie shot.

Just as Winston S Churchill was unable to limit his prose to a single volume, the prolific American filmmaker unvaryingly needs a series to tell his story.

Driving Homer to desperation, and even frantic prayer, over a misplaced remote whilst his television set shows a Ken Burns documentary… on the life of Ken Burns, the long-running cartoon series The Simpsons includes frequent guest appearances by the filmmaker who chronicles American history just as the Springfield family narrates the nation’s contemporary life.

Fittingly, Kern Burns learned the craft of documentary making at the BBC where he worked as a cinematographer in the late 1970s on a number of shorts. For his debut, which immediately set the tone for his later work, he adapted David McCullough’s book The Great Bridge. Released in 1981, Brooklyn Bridge is a testament to the boundless optimism of a boisterous young nation ready to take on the world. The documentary was nominated, but ultimately did not win, an Academy Award for Best Documentary. The filmmaker did claim a number of Emmy Awards.

Ken Burns developed a signature style which uses panning and zooming to give life to photographic stills not unlike the dolly zoom technique introduced by Alfred Hitchcock. The

effect allows documentary makers to animate still images for use in video without the end result resembling a slideshow. The Ken Burns Effect is now even included in Apple and Adobe video production software.

Since Brooklyn Bridge, Ken Burns shot almost thirty feature-length documentaries and television series which all belong to the Americana category and form an impressive body of work that follows the ascendancy of the nation and the many obstacles it had to overcome.

Particularly memorable are The West (1996), an eight episode series on how the west was won, and The Dust Bowl (2012), a four-hour-long epic that records the origins, impact, and legacy of the drought that struck the Great Plains during the Great Depression of the 1930s.

In 1990, Ken Burns’ The Civil War series sparked renewed interest in the fight for the soul of the nation – as crucial then as it is now – and helped the PBS broadcasting network raise its profile – and the volume of donations on which it depends. The series was shot on 16mm and has now been remastered in 4K high definition video to commemorate the 150th anniversary of the war’s ending.

PBS is currently airing Ken Burns’ The Vietnam War which took $30m and a full decade to make. The ten-part series runs for over seventeen hours and includes dozens of testimonials from Americans and Vietnamese who fought in that war or opposed it. Ken Burns deliberately avoided including controversial protagonists such as Jane Fonda (“Hanoi Jane”), Henry Kissinger, or senator and former presidential hopeful John McCain who spent more than five years at the “Hanoi Hilton” as a PoW after his A-4 Skyhawk was shot down over North Vietnam while on a bombing mission in 1967.

The series received much praise for revisiting a dark chapter in US history with patience and sobriety. The Washington Post called it a masterpiece, though some veterans’ organisations expressed their dismay at Ken Burns for focussing on the anti-war protests and leaving out the role played by the South Vietnamese military altogether.

The American answer to legendary British documentary filmmaker Adam Curtis (All Watched over by Machines of Loving Grace), with whom he shares storytelling techniques and an interest in the flipsides of history, Ken Burns has become an American icon. Thus, Homer’s mortal fear of a documentary on the life of the filmmaker is, in fact, well grounded. It seems an inevitability.

"Ken Burns developed a signature style which uses panning and zooming to give life to photographic stills not unlike the dolly zoom technique introduced by Alfred Hitchcock."

140

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

> PHILIP HAMMOND Lone Voice of Reason

He has been described as a walking and talking P45 – the form that details a worker’s dismissal – yet Chancellor of the Exchequer Philip Hammond seems to be going nowhere any time soon. Reports of his imminent fall from grace and exit from the cabinet have indeed been greatly exaggerated.

“Spreadsheet Phil” seems, at least for now, safe in his job as the minder of UK fiscal probity – a rather elusive concept. Most of the time, he also represents the lone voice of reason in a cabinet noted for its infighting and duplicity with ministers telling wildly differing tales and a prime minister apparently unable to impose the clarity of a government speaking with a single voice.

In a now infamous and atypical slip of the tongue, Mr Hammond last October called the European Union’s Brexit negotiators – Mr Barnier et al – “the enemy,” a remark for which he later apologised. However, barely a month later Mr Hammond again caused consternation when he wondered out loud on the BBC’s The Andrew Marr Show where all the unemployed people had gone: “There are no unemployed people,” he concluded rather tactlessly in a discussion on the social implications of the advent of robotics.

Mr Hammond, of course, meant to say that employment levels in the UK are presently

quite high. Rather fond of apocalyptic language, he frequently speaks in sinister terms, warning of “days of reckoning” to come and impending “disasters” to strike.

Admittedly, his job calls for firm language – and an even firmer attitude. After a full decade of successive spending cuts, the budget remains far from balanced. The stated goal of balancing the books by the mid-2020s has turned into a distant mirage. The tapering off of economic growth as the UK’s exit from the EU draws closer is expected to cut into projected revenues, complicating the chancellor’s already challenging job further.

Even so, Mr Hammond has managed to keep the exchequer’s purse strings fairly tight, fending off demands for supplemental funds from nearly all ministries. This has not added to his already diminished popularity in Prime Minister Theresa May’s cabinet.

In October, ministers denied additional funding teamed up with Brexit-minded MPs, who have long suspected Mr Hammond to not share their fervour, to try oust the beleaguered chancellor. However, the plot failed and forced Tory grandees and ardent Brexiters such as Michael Gove, Jeremy Hunt, and the inimitable

Andrea Leadsom – yes, she is still around – into a hasty, if temporary, retreat, allowing Mr Hammond to deliver his budget largely unscathed.

Pro-Brexit Tories were particularly incensed at Mr Hammond’s adamant refusal to make provisions for a disorderly exit from the EU under a no-deal scenario. The chancellor was promptly accused of sabotaging the endeavour. A dinner engagement with his predecessor George Osborne – a known advocate for the softest of exits from the union and somewhat of a bornagain Europhile – produced howls of indignation.

It left Mr Hammond cold.

In the cabinet, Mr Hammond provides a modicum of stability. He is one of the few members whose administrative skills, formidable by any measure, are grounded in the real world – the one outside the realm of politics. Unassuming and singularly unperturbed, Mr Hammond’s net worth is estimated to hover around £8m which he accumulated in the 1980s and 1990s setting up as a housing and nursing home developer. An unlikely Goth in his schooldays, he turned Conservative early-on, securing a seat in parliament in 1997. Since 2010, Mr Hammond has served as secretary of state for Transport, Defence, and Foreign and Commonwealth Affairs.

"Mr Hammond has managed to keep the exchequer’s purse strings fairly tight, fending off demands for supplemental funds from nearly all ministries."

CFI.co | Capital Finance International

141

> Latin America

Chile: Renewables Slash Energy Prices

For clean energy, head to South America. According to the World Bank, the continent is the least dependent of all on fossil fuels for the generation of electricity, thanks, in large part, to the prevalence of hydropower plants. Even so, investment in renewable energy across the region has increased eleven-fold since 2004. The intergovernmental International Renewable Energy Agency (IRENA), based in Abu Dhabi, now places Chile, Mexico, and Brazil amongst the ten most important renewable energy markets in the world.

Santiago, Chile: Financial District

142

CFI.co | Capital Finance International

143

T

apping into wind, sun, and volcanoes, Chile aims to become fully “renewable” as early as two decades from now, including a decarbonised power grid and a 100% electric public transportation network. All main political parties support the wholesale move away from fossil fuels and outdo each other with ambitious plans to transform the country into the “Saudi Arabia of renewables.”

Most experts agree that the goal is well within reach.

Already now, the Santiago metropolitan rail network is fully solar powered – the first in the world to reduce its carbon footprint to zero.

In the high mountains of the desert north, Chile last year switched on the continent’s first commercial-scale geothermal power plant that supplies clean energy to over 150,000 households. Using techniques and hardware originally designed to pump crude oil, the Cerro Pabellón facility taps an underground reservoir of piping hot sludge to generate 48MW of power. Located in the Atacama Desert near the Ollagüe mining town, some 4,500 metres up the mountain, the plant reduces the country’s CO2 emissions by up to 166,000 tonnes annually.

The Cerro Pabellón facility incorporates some of the world’s most advanced geothermal technologies and re-injects the geothermal fluid extracted back into the ground, where it is promptly reheated, to ensure the sustainability of its operations and availability of its prime resource. The facility, owned and operated

by Enel Américas, a subsidiary of the Italian electricity and natural gas giant Enel, cost around $320m to build and required no subsidies or other forms of state-sponsored financial support.

Elsewhere in the desert, Spain’s Acciona built South America’s largest solar plant. Covering an area of 280 hectares, the El Romero complex produces 200MW of clean energy which is plugged into the Northern Large Grid that distributes the Atacama’s power to the region’s mine operators and feeds into the Central Large Grid that supplies the country’s heartland around Santiago.

Chile went from generating negligible amounts of renewable energy to producing over 10,000MW in carbon-neutral power in 2016.

The country expects to meet fully 20% of its domestic demand from green sources by 2025 – or earlier. As an added benefit, the booming alternative energy sector has allowed Chile to reduce its dependency on unreliable foreign – read: Argentinean – suppliers. The country now produces some of the cheapest energy in the world whereas just a few years ago it frequently suffered brownouts and blackouts whilst boasting some of the highest electricity prices in the world.

Interestingly, the excitement in Chile over renewable is not so much centred on the

144

potential environmental gains as it is on the economic case for green energy. The government provides no direct incentives for the transition other than a level playing field and a set of transparent rules. All generators, irrespective of their size, compete on equal terms to supply the grid via energy auctions. With solar plants able to produce energy at about half the cost faced by operators using fossil fuels, they have managed to reduce the price of energy by close to 75% since the first auctions took place three years ago.

In August last year, the Chilean government gave out dozens of contracts to both local and foreign suppliers in an auction that farmed out 23% of the country’s projected energy requirements over the next decade. According to data compiled

by IRENA, Chile managed to secure the lowest prices of anywhere in the world at $45.20 for wind power (4,400GWh/year) and $29.10 for solar power (580GWh/year).

The mega-tender, closely followed around the world, surpassed all expectations and drew in bids from 84 companies. The auction is now seen as heralding a landmark shift in the global energy sector as renewables compete on equal terms with legacy generators – and winning hands-down on price and dependability. More auctions are planned for this year. World Bank numbers show that since 2012, Chile has attracted investments totalling over $9.2bn in its renewable energy sector.

Enel Head of Business Development James Lee Stancampiano is puzzled at the United States’ insistence on maintaining coal-fired power plants: “It’s completely irrational. It looks like somebody is asleep at the wheel. Renewable energy is a train gathering speed and one that cannot be stopped.” Mr Stancampiano emphasises that the energy transition now underway is not propelled by subsidies: “The 261 projects currently under CFI.co | Capital Finance International

development in Chile are without exception tax neutral and are expected to be highly profitable.

There is a strong business case for doing the right thing for the environment.”

Admittedly, Chile’s Atacama Desert hugging its northern coastline is ideally suited for solar power. The Atacama is the world’s driest place with some parts reporting no rainfall for a hundred years or more. The desert is also one of the most sun-drenched places on earth.

Thanks to its exceptionally clear skies – which draws in astronomers and other stargazers from far and wide – the Atacama’s sunshine is also exceptionally powerful requiring workers to don heavy protective suits and slather on thick layers of sunscreen.

The single dark spot on the horizon is paradoxically caused by Chile’s undeniable success in securing cheap energy: both operators and developers are facing depressed spot prices and increasingly congested transmission networks. The slump suffered by the mining sector, following in the wake of a severe drop in the price of copper which only now is recovering, reduced the energy demand which, in turn, delayed the construction of new power plants.

Two solar power projects totalling 100MW approved in 2015 have been put on hold over price and transmission concerns. The country’s Renewable Energy Association (Acera), the body representing the industry, has formally asked the government to further streamline regulation to allow for the rapid expansion of the national grid.

The bottlenecks are, however, small and easily removed. Moreover, though leading the way in South America, Chile is not the only country moving big-time into renewable energy. Brazil, Peru, Uruguay, and even traditional laggard Argentina are now latching on and catching up – making the continent’s market for renewable energy the most dynamic in the world. i

Winter 2017 - 2018 Issue

> CFI.co Meets the Executive President of CABEI:

Dr. Nick Rischbieth

D

r. Nick Rischbieth, Executive President of the Central American Bank for Economic Integration (CABEI), holds a Bachelor’s Degree in Economics from Rice University in Houston, Texas; a Master in Business Administration from Washington University in St. Louis, Missouri; and a PhD in Finance from the Institute of Money and Capital Markets of the University of Hamburg in Germany.

Prior to joining CABEI in 1995, Dr. Rischbieth held several key positions within the Financial Division of Dresdner Bank in Germany. His experience in Germany led him to be named as Treasurer of the Central American Bank for Economic Integration in 1995 to eventually become the Bank’s chief financial officer. In 2007, he was appointed vice-president of CABEI, a position which he held for two years until he was elected as CABEI’s executive president for a five-year period that began in 2008. In 2013 he was re-elected for another five-year period as CABEI’s executive president, becoming the first president in the Bank’s history to be elected for a second term.

During his first period as CABEI’s executive president, Dr. Rischbieth led the implementation of a modernisation plan that would lay the groundwork for a new capitalisation scheme aimed at increasing the bank’s relevance for the Central American region. As a dedicated promoter of human development initiatives to increase the impact of the bank’s operations in the region, in 2010, Dr. Rischbieth supervised the implementation of a development impact assessment tool (I-BCIE) that is used to measure the bank’s contributions to the MDGs and the SDGs. In his second term as CABEI’s executive president, Dr. Rischbieth has taken strategic decisions that have made the bank evolve into a new and dynamic institution ready to face the challenges of an ever-changing economic and financial outlook. The approval of amendments to CABEI’s Constitutive Agreement by the board of governors in 2015, can be described as one of the main and critical decisions taken by the bank throughout its history. These amendments seek to consolidate CABEI’s preferred creditor status; strengthen its capital base to become more attractive to new members; and diversify its geographical loan portfolio. Specific results of this strategic decision were immediately seen with an increase in capital by the Republic of Panama and the Dominican Republic, a change in status by Belize, and improvements in CABEI’s credit rating to stand as the third best in Latin America.

Executive President: Dr. Nick Rischbieth

Dr. Rischbieth’s commitment to have a new bank that complies with the highest international standards led CABEI to reform its environmental and social policy and governing instruments.

These and other reforms allowed CABEI to become an international observer of the United Nations Convention on Climate Change and CFI.co | Capital Finance International

obtain its accreditation to the Adaptation Fund and Green Climate Fund between 2015 and 2016.

Dr. Rischbieth was born in Tegucigalpa, Honduras, in 1954 and is a father of two children. i 145

> CABEI:

The Main Financial Partner of the Central American Region For more than half a century, the Central American Bank for Economic Integration (CABEI) has been the main international development finance institution in the region.

It has consolidated its service trajectory to the Central American nations by promoting the integration and development of their inhabitants. During its existence, it has provided financial resources amounting to $33bn, which has made it the main source of multilateral financing to the region – the Bank provided 47% of the financing needs of the region’s countries.

T

he Bank’s mission is to promote economic integration and the balanced economic and social development of the Central American region, including the founding and non-founding regional countries, by attending and aligning itself with the interests of all of its member countries.

From its strategic vision, CABEI promotes guidelines that respond to the initiatives defined in the objectives in which the institution works to promote economic, social, educational, infrastructure, and energy sectors, becoming the main source of financing for the countries of the region.

CABEI has been governed by the provisions contained in its Constitutive Agreement with the vision of being a strategic ally for its member countries in the provision of financial solutions to improve the wellbeing and quality of life of their citizens.

In order to make CABEI more attractive to its member countries and to potential members, in February 2015 the Board of Governors unanimously approved amendments to the Constitutive Agreement.

"The amendements to the Constitutive Agreement consolidated its preferential creditors status, strengthened the Bank´s capital, promoted greater loan portfolio diversification, and attracted new members."

The amendments are part of a development strategy that the Bank is implementing to establish itself as the main provider of financial resources for the Central American region and, thereby, contribute to regional integration.

The amendments to the Constitutive Agreement are aimed at: 1. Consolidating the Bank’s preferential creditor status, which refers to the treatment that the

CABEI supports the reduction of the effects of climate change allocating substantial funds to mitigation and adaptation projects.

146

CFI.co | Capital Finance International

countries grant to the Bank by honouring their debts before doing so with another creditor, as a result of their sense of belonging to the region; 2. Continuing to strengthen capital and have increased capital to lend in better conditions; 3. Promoting greater loan portfolio diversification and mitigating the risks involved; and 4. Attracting new members to the Bank.

The Central American region is extremely vulnerable to climate change. According to the 2017 Climate Index published by German Watch, out of the ten countries most affected by climate change events during the last twenty years, three countries are located in the region and are CABEI members, including Honduras (1), Nicaragua (4) and Guatemala (9). Therefore, the Bank is committed to channelling financial resources to the region that enable the countries to face the challenges of climate change by increasing resilience among their inhabitants.

CABEI´S CONTRIBUTION TO THE REGION CABEI investments to the region are focused on the areas of social, productive, and energy infrastructure, promoting rural development and protecting the environment, and boosting competitiveness in services and financial

Winter 2017 - 2018 Issue

CABEI supports infrastructure projects that promote the economic integration competitiveness and well-being of the inhabitants of the region.

"CABEI has been the main financial partner for the region by providing 47% of financial resources coming from Multilateral Banks". intermediation in the beneficiary countries with the primary objective of improving the quality of life of Central Americans.

The resources channelled by CABEI have been aimed at large infrastructure and energy projects in the region. However, recently the institution has also focused on supporting micro, small, and medium enterprises (MSMEs) with the aim of streamlining entrepreneurial activity.

From 1960 to 2017, CABEI has financed projects amounting to $33bn of which $5.80bn have been used to finance the generation of 5,920 MW of energy, mainly from renewable sources. During the 2010-2014 period, 67% of the Bank’s approvals included climate change mitigation and adaptation actions and more recently during the 2015-2016 period, the Bank approved $1.24bn for climate change adaptation and mitigation projects. As of 2016, the Bank has assets totalling $9.19bn and a portfolio of $6.47bn, mainly concentrated in the public sector with 81%. CABEI reaffirms its commitment to its member countries for achieving the goals established in the Paris Agreement.

During recent years as a result of amendments made to the Bank's Constitutive Agreement,

"CABEI reaffirms its commitment to its member countries for achieving the goals established in the Paris Agreement."

CABEI's commitment to supporting the region’s countries in their efforts to address climate change the Bank has achieved the following results: 1. An increase in capitalisation by the Dominican Republic and Panama. Both countries increased their capital stock share by $197.4m each, reaching a total subscription of $256m for each country.

2. The entry of Belize as a Non-Founding Regional Member with a participation of $25m within the Bank’s capital stock.

3. Increase in credit rating, achieving A+ from Fitch, A1 from Moody´s, and A from S&P. These ratings reflect its credit quality which is fostered by its sound and stable capitalisation, supported by consistent capital generation and moderate loan portfolio growth.

4. CABEI has the third best rating in Latin CFI.co | Capital Finance International

America, which allows it to attract resources from international financial markets under better terms and conditions. To date, the Bank is the main issuer in the region, capturing $8.94bn through the placement of bonds in 22 different currencies and 23 different markets. Currently, its main financing sources include Switzerland, Republic of China (Taiwan), and Mexico – as of June 2017, they represent 61.9% of financing through bonds.

5. CABEI has been accredited as an observer of the UN General Assembly and as a permanent observer of the United Nations Framework Convention on Climate Change within the framework of COP22.

6. The Bank achieved its accreditation as a regional entity with direct access to the Green Climate Fund (GFC), which allow it to channel financial resources to its member countries for projects of up to more than $250m, providing them with all of GFC's financial instruments and the highest category regarding environmental and social risk.

CABEI has consolidated its relevance and impact for the economic and social development of its member countries, becoming a space where its members can find a sense of belonging and identification as a result of the Bank’s alignment with their interests. i 147

> LatAm Logistic Properties:

World Class Warehouses in South and Central America

By Karina Solano, LatAm Logistic Properties

E

stablished in 2013, Latam Logistic Properties develops, acquires, and owns logistics real estate in South and Central America. Pent-up demand and accelerated regional economic growth, together with the scarcity of modern logistic facilities, has created logistic warehouse development opportunities for Class-A projects close to large population centres.

148

The brainchild of founder and CEO Mike Fangman, LatAm Logistic Properties grew out of his vision to provide multinationals with the same level of quality and service they experience in more developed markets. Mr Fangman started the company after a successful stint working for Prologis Inc, in Brazil and Mexico, and realising there was a need for modern logistic facilities in developing markets that were being overlooked CFI.co | Capital Finance International

by larger and more established providers: “The target customers for our warehouses are multinational blue chip companies that need the same type of facility they operate from in large US cities such as Los Angeles or Miami.�

Headquartered in Costa Rica, the company is currently developing projects in Colombia, Peru and Costa Rica with the goal of becoming the

Winter 2017 - 2018 Issue

"The target customers for our warehouses are multinational blue chip companies that need the same type of facility they operate from in large US cities such as Los Angeles or Miami." logistics real estate partner of choice in the currently underserved markets of the region.

Says Mr Fangman: “The main macro factor that makes Latin America attractive is its growing middle class. People are getting wealthier and have more disposable income, which means they need more goods and services. Most of these goods need to go through warehouses like the ones that we are building. The growth of e-commerce in particular presents an opportunity to partner with major retailers and third party logistics companies in their quest to capture as much of that growth as possible.”

"LatAm helps its customers achieve operational efficiencies by building highly functional modern logistic buildings with unmatched first-tomarket specifications based on stateof-the-art technology."

LatAm helps its customers achieve operational efficiencies by building highly functional modern logistic buildings with unmatched first-to-market specifications based on stateof-the-art technology. The company provides buildings with clear height and column spacing that is optimised for bulk storage. The sites offer excellent access and global standards in fire protection technology. The company is currently operating more than 90,000 square metres and positions its projects in strategic locations close to important population CFI.co | Capital Finance International

centres. Also, LatAm offers excellent access from international airports, sea ports, and major highways.

The company is also committed to deliver solutions with environmental and social consciousness. LatAm seeks to minimise its ecological footprint by meeting EDGE sustainable development standards and providing energy-efficient buildings, as well as engaging its employees and the community in efforts to reduce the overall environmental footprint, both in and outside the office.

LatAm Logistic Properties seeks to be the partner of choice for logistics providers, retailers, and consumer goods companies that are looking for world-class logistics real estate in South and Central America. It will do so by offering unique spaces built to the highest efficiency, while minimising its environmental footprint and helping to accelerate its customers’ growth.

“My vision for the company is to be the best logistics real estate provider in each one of the markets that we do business in.” i 149

> ENGIE Energía Perú:

Ready to Explore New Services and Solutions

L

ast year marked the twentieth anniversary of operations of ENGIE Energía Perú. Since the company started its operations in Peru in 1997, ENGIE has demonstrated its willingness to become a reference in the local electricity market. This intent has strengthened in recent years by ambitious investment plans, high operating standards, sound financial discipline, and a client-focussed business strategy.

“Our leadership has strengthened in the last four years. We invested $1.6bn to become the utility with the best mix of power generation plants. This long-term vision and commitment to the country allowed us to be awarded concessions such as the Ilo Cold Reserve and the South Energy Node.

Furthermore, we are building our first solar plant, Intipampa, in Moquegua”, says Rik de Buyserie, CEO and country manager of ENGIE in Peru. Mr De Buyserie will officially assume his position when the company notifies the stock market authority of his appointment. This is expected to happen over the coming weeks.

Timely and strategically located investments now translate into a total of seven generation plants across Peru. “This, added to a strong business strategy supported by a high-value

150

our competitors and the oversupply of energy,” explained Mr De Buyserie.

ENGIE logotype_solid_BLUE_CMYK 14/04/2015 24, rue Salomon de Rothschild - 92288 Suresnes - FRANCE Tél. : +33 (0)1 57 32 87 00 / Fax : +33 (0)1 57 32 87 87 Web : www.carrenoir.com

At present, clients of the firm include the major mining companies in Peru and important industrial and service companies, as well as RÉFÉRENCES COULEUR power distribution companies that distribute electric energy to Peruvian households.

C100%

ENGIE SERVICES With the experience gained over the years, and counting on the expertise from ENGIE, the company is currently expanding its services to meet new market requirements: “We have integrated power supply with new services and solutions, allowing the client to be more efficient with peak-shaving solutions, solar panels, cogeneration, and biogas. Our expertise has also been extended to the operation and maintenance of transmission lines.”

CEO ENGIE Energía Peru & Country Manager ENGIE Peru: Mr Rik de Buyserie

proposal for our clients, made it possible to increase our market share every year. In 2017, we are the company with the largest sales in the sector, notwithstanding major investments by

CFI.co | Capital Finance International

“Over these 20 years, we learned that offering a reliable and high quality service, with respect to the environment and the communities in which we operate, results in a very attractive value proposition for our clients, investors, and collaborators. We are determined to continue to deliver on these commitments,” Mr De Buyserie concluded. i

Winter 2017 - 2018 Issue

> Aluz:

A Different Player in the Renewable Energy Market in Latin America Aluz Clean Energy, a company controlled by Grupo Panamerican, has just taken the leap from small to medium-sized renewable energy generator in Peru and is now determined to expand its activities to other South American countries.

F

rom being an independent power producer (IPP) with a small $10m operation in southern Peru (a 6.2MW plant in Cuzco), Aluz Clean Energy has scaled up with a new $60m facility generating 20.4MW in Cajamarca, in the north of the country. Its new status amongst power generators is also reflected in the company’s monthly sales revenue which now exceeds $1m.

The energy produced by the new Aluz plant – CH Potrero – is sold to the National Interconnected Electric System of Peru on a long-term RER (renewable energy resources) contract and within the greenhouse gas emission reduction framework which commits Peru to generate at least 5% of its electrical power using clean energy.

Langui Hydroelectric Plant

The country has already secured investments for more than a 1,000MW of clean energy generating capacity via RER auctions. Aluz Clean Energy has managed to claim 5% of the available contract volume for its plants and projects. Carried out by both privately-owned and state-owned companies, the Peruvian programme to encourage the use of renewable energy and build medium-sized hydroelectric plants shows strong results.

During its first ten years, Aluz has implemented nine clean energy projects totalling 116MW – seven in Peru and a further two in Chile. Out of those nine projects, two have been transferred to third parties: the 20MW Pizarras plant and the 6MW San Lorenzo facility – both in Peru.

PLANTS IN OPERATION Langui Hydroelectric Plant – CH Langui is a 6.2MW hydroelectric plant on the Hercca River in Sicuani, Cusco, in southern Peru.

Potrero Hydroelectric Plant – CH Potrero is a 20.4MW hydroelectric plant on the Crisnejas River, in San Marcos, Cajamarca, in northern Peru.

NEW PLANS Until this year, Aluz has been dedicated to identifying, developing, constructing, acquiring, and operating clean energy plants in emerging markets in South and Central America. The

Potrero Hydroelectric Plant

company maintains operations in Peru, Chile, Colombia, Bolivia, and Nicaragua.

has identified more than seventy rehabilitation projects for existing small hydroelectric plants.

However, the future poses a number of different challenges which Aluz is committed to meet.

In the countries where the company is present, Aluz proactively supports regulatory changes to allow people and companies to generate and sell their own energy through the universal adoption of dual metering – using water (small and micro hydroelectric plants), wind (turbines), and solar (PVCs). In addition, Aluz believes in a future where small hydroelectric plants in the Andean region will provide power directly to charging stations for electric cars. From that perspective, the company

Finally, Aluz anticipates a market in which energy, converted into crypto-currency, can be exported without the need of building new lines or international grid connections.

CFI.co | Capital Finance International

The countries of Latin America and the Caribbean have become pioneers of low carbon energy. According to Bloomberg New Energy Finance (BNEF), more than a quarter of the region's primary energy now comes from renewable sources – more than twice the global average. i 151

I

n 2008 Ducruet insurance broker leader in the Panamanian market and Setessa insurance broker leader of El El Salvador join efforts for the creation of Unity together with Darby a US investment fund. The idea was to create the first regional insurance broker in Central America.

After 2 years, another insurance leader of the Guatemalan market , Promotores de Seguros, joins the initiative. After that Unity decide to start operation in Costa Rica when they open a monopoly for more than 90 years.

In 2015 Unity start operation of Unity Nicaragua then in the year 2016, investment efforts are completed in Inverseguros Nicaragua, which reinforces the operations in that country. As well Unity investment in Interbroker market leader in Honduras. In this matter, operations are consolidated throughout the Central American region. In 2016 all the operations are using the Brand Unity.

Unity continues to improve its operations with the creation of a ERM principles with is own

152

concept PRO (Personalized Risk Overview) for the benefit of all clients and also the creation of the Best Practices.

Unity integrates different cultures with a common vision and mission: VISION To be regionally recognized as the leader insurance broker and risk managers MISSION we aim to be an exceptional insurance broker in Central America, ensuring the satisfaction of our clients, through our service, and standardized processes, achieving sustainable growth and profitability.

What distinguishes us?

We are Leaders for the most important insurance companies in every country where we operate in.

Access to the Global Insurance Markets.

We manage more than 400 multinational clients.

Experience in handling large claims.

CFI.co| |Capital Capital Finance International CFI.co Finance International

Winter 2017 - 2018 Issue

Corporate Clients More than 7,800 insured companies The corporate department is the unit specialized in consulting, administration and placement of insurance policies covering risks such as property, liability, cargo insurance, construction, vehicle and surety bonds, amongst others.

Our goal is to optimally develop the best insurance solutions for your company.

Employee Benefits More than 1,700 life and health groups Our broad knowledge of group life and health insurance allows us to assist you in the creation of plans that benefit your coworkers and their families.

Consulto Seguro: Specialized customer service center where clients and family members may direct their inquiries, present claims and request other services related to their policies through our call center.

Personal Lines More than 92,000 individual customers The Personal Line Insurance Department provides all insurance needs for the family. We will assist you in obtaining the best auto, life, health or any other insurance coverage; easily, timely and without complications, led by the hands of our experts in the different areas.

With a degree in Business Administration, has over 30 years in the insurance business. His emphasis is the creation and design of insurance and reinsurance programs for local and global customers.

He has participated in various committees in the insurance industry related to insurance law.

He chaired the committee that created the Captive Insurance and Reinsurance law of Panama.

President of Unity Ducruet and founding partner of the leading insurance brokerage and risk in Panama. President and CEO of Unity Holdings, the only regional insurance broker in Central America.

Louis “Tito� Ducruet

CFI.co CFI.co || Capital CapitalFinance FinanceInternational International

153

> Ernst & Young:

Argentina - Aspects of the Labour & Social Security Reform

By Sergio Caveggia, Vanina Manteiga, and Laura Escande

A labour and social security reform bill has been recently sent to the Argentine Congress. In general, proposed amendments represent material changes to current regulations and introduce new concepts. Although the government has the support of the main labour unions, the bill will surely be amended after the discussions and debates to be held at committee level and in the chambers.

T

he purpose of this article is to mention the most significant aspects of the imminent reform for the business sector.

The bill establishes an amnesty programme for taxpayers who disclose hidden labour relationships. Employers disclosing unregistered or poorly registered labour relationships shall benefit from the following legal effects: 1. Termination of criminal persecution and a release from penalties and fines.

2. Remission of principal and interest due from social security contributions, except for those due to the statutory health care organisation and the workers compensation insurance company.

3. Deregistration from the local list of employers with labour penalties, including labour and/or social security infringers.

In order to have access to these benefits, labour relationships should be registered within 360 calendar days from the effective date of the administrative order.

Employers registering labour relationships within the first 180 days from the effective date of the administrative order shall be remitted 100% of the principal, interest, fines, and punitive interest due, while those doing so after 180 calendar days shall be remitted 70% of those charges.

According to the bill, if the existence of any unregistered or unduly registered personnel is verified after applying for this amnesty, the benefits granted shall be forfeited and the employers shall be required to pay the remitted debt proportionately, plus interest and the penalties imposed by current regulations.

According to current labour regulations, employers failing to register their employees are subject to a numbers of fines. At present, depending on the type of infringement, those fines are equal to 25% of compensation accrued 154

"As from the first half of 2018, a salary threshold is set whereby private and public nongovernment employers shall be exempt from paying social security taxes." from the date of the infringement. Upon imposing these fines, labour judges adjust the accrued compensation to the value of the compensation at the time of litigation, which causes fines to be very significant. At present, these fines are collected by the employee.

With the reform, the federal government proposes setting those penalties at 50% of the adjustable minimum sustenance salary effective in each period that was not registered and/or was unduly registered. In addition, the fines would now collected by the social security agencies instead of the employee.

The bill also proposes abrogating the regulations imposing fines to employers in favour of the employee if the latter has to bring a legal action to collect the compensation claimed or if, after the employee demands the employer to amend his/ her labour relationship, the employer dismisses the employee.

As from the first half of 2018, a salary threshold is set whereby private and public nongovernment employers shall be exempt from paying social security taxes. The salary threshold shall be adjusted once a year until it reaches ARS 12,000 in 2022 ($680).

There are currently two payroll tax rates that the companies may use to calculate their social CFI.co | Capital Finance International

security contributions, depending on the activity and the total amount of annual sales: 21% and 17%.

Through this reform, the government proposes unifying the rate of employer contributions from 2018 through 2022, setting as from that period a general 19.5% rate for all employers.

The current social security payroll tax rate is the same for all employers, regardless of whether they are self-employed professionals with staff in charge, SMEs, or large corporations.

In order to reduce the tax burden of the owners of microenterprises, the reform allows independent workers relying on the cooperation of up to four independent workers to apply for a special unified system establishing for the latter the individual contribution of a monthly payment for social security system and statutory health care organisation purposes. This means that the owners of microenterprises shall no longer pay social security taxes by applying a rate defined for that purpose; instead, they will pay a monthly fee to meet those obligations.

DISMISSALS Under current regulations, the items entailing the largest impact in case of unjustified dismissals are: • Severance pay based on years of service: pay equal to one month’s worth of salary for every year of service or period exceeding three months.

• Severance pay in lieu of prior notice: pay equal to two months’ worth of salary when the worker’s years of service exceed five and one month’s worth of salary when they are shorter than 5 (five).

Through the reform, business associations and labour unions entering into collective bargaining agreements shall be able to create a sector-based employment termination fund in order to replace the length-of-service severance pay and the severance pay in lieu of prior notice.

Winter 2017 - 2018 Issue

In order to create that fund, employers are required to make a monthly contribution that will be obtained from a percentage to be calculated on the basis of the worker’s monthly pay.

As indicated at the beginning, the bill will surely be subject to several changes in future congressional debates. However, there is clear position by the executive to promote employment and registered labour, reducing labour costs and labour-related litigation, as well as promote productivity-based employment and increase competitiveness. i

in charge of the Transaction Tax Area in Argentina. He joined EY Argentina in 1994 and has developed strong expertise over 23 years in international taxation and mergers and acquisition matters. Mr Caveggia is highly experienced in acquisition structures for inbound and outbound investments, buy side, sell side, and restructuring services within the transaction tax area.

business transactions. She actively participates in social security audits for large number of companies in several industries. Mrs Manteiga has developed strong expertise in social security and labour advisory services in due diligence for local and international companies.

ABOUT THE AUTHORS Sergio Caveggia is a tax partner currently

Flavia Cimalando is a senior manager within the Transaction Tax practice of EY Argentina.

She joined EY in 2010. Mrs Manteiga has thirteen years’ experience in labour, human resources, and social security issues. As social security manager, she has performed several due diligence processes in connection with numerous

Laura Escande is a Manager within the Transaction Tax Area of EY Argentina. She joined EY in 2011. Mrs. Escande has more than 10 years´ experience in labor, human resources and social security issues. As Social Security Manager, she has performed several due diligence processes in connection with different business transactions. She actively participates in labor and social security audits for transactions in several industries.

Author: Sergio Caveggia

Author: Vanina Manteiga

Author: Laura Escande

CFI.co | Capital Finance International

155

> North America

United States: Is It Still the Economy?

A benefits package for plutocrats and big business, and a tribute to trickledown (aka voodoo) economics, the tax overhaul of the US Republican administration reaffirms, seals, and sanctifies the conventional wisdom that tax cuts are good for everyone – even those who least benefit. Deploying his formidable spin powers, Senate Finance Committee Chairperson Orrin Hatch (R-UT) violently lashed out at critics of his much-cherished plan: “I’ve been here working my whole stinking career for people who don’t have a chance and I really resent anybody saying that I am just doing this for the rich.”

156

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

CFI.co | Capital Finance International

157

B

e that as it may, the rich do stand to benefit most from the new US tax code which draws upon the country’s future earnings to give away money today whilst adding to the already large disparity in incomes and assets – and to the national debt. Taxpayers with sizeable property and equity portfolios may expect a significantly lower tax bill. Those just about managing – the endearing jams – will note little, if any, difference. About two-thirds of the $1.5tn tax cut is destined for people comfortably nestled in the top 20% income bracket. The remainder is largely earmarked for businesses.

The Washington-based Urban-Brookings Tax Policy Center calculated that one-percenters will see their tax bill drop by $51,140 on average this year, whilst the middle quintile may look forward to some $930 in savings. Meanwhile, the über-rich – those nestled in the top 0.1% of the income pyramid – can indulge in a $150,000 spending-spree. Over time, the tax bite increases a bit from its 2018 low, reducing the windfall for the top 1% to merely $20,000 in 2027. By then, middle income earners will face an average $20 increase over their current fiscal obligations. For Middle America, the Trump tax cut is not quite the gift that keeps on giving.

House minority leader Nancy Pelosi spoke of a “monumental brazen theft from the American middle class” and even the American Enterprise Institute, not noted for its progressive leanings, decried the Trump tax cut: “The plan will dramatically increase income inequality and do so at the worst possible time. It will also explode debt and deficits. As such, the plan is an astonishing reflection of a system gone awry,” says political scientist Norman Ornstein who was recognised

by Foreign Policy magazine in 2012 as one of its Global Top Thinkers for “diagnosing America’s political dysfunction.”

Meanwhile, Republican leaders rally to the cause and dismiss any and all criticism as profoundly misguided. The plan, they argue, will boost economic growth, create plenty of new jobs, and push median annual incomes up by as much as $4,000. House Speaker Paul Ryan thinks the tax plan suffers from a poor sales pitch and expects public opinion to come around once pay checks swell. From the get-go, the White House has explained the tax reform as a much-needed and long-overdue boost to business.

The corporate tax rate is slashed 35% to 21% and, perhaps just as importantly, US business will no longer be taxed at the standard rate on income earned overseas. In order to avoid a double tax bite – one in the host country and another one at home – most large US corporates keep their profits offshore, accumulating a $1.84tn cash pile. This money may now be repatriated subject to a tax of between 8.55% and 15%.

The premise is that corporations will dip into their cash stashed overseas to invest in the US, raising wages, creating jobs, and unleashing economic growth. Several companies promised to adhere to the script with AT&T pledging an additional $1bn

158

in investments and Wells Fargo raising its minimum wage to $15/hr. Boeing announced $300m for “workforce development and charitable giving.”

However, even the Congressional Budget Office agrees that the cut in the corporate tax rate is largely a cosmetic intervention since the actual rate paid by big businesses, after accounting for loopholes, is no more than 18.6%. Though the Republican tax bill patches some of the more esoteric gaps in the tax code, most loopholes remain in place.

Apart from all technicalities which will keep tax lawyers busy for a good while, the new tax code is crucial to the Trump Administration’s own midterm survival. As his popularity ratings slump, the US president and his close advisors go for the silver lining – the economy. Barrelling ahead at almost breakneck speed, US GDP growth has topped 3% for three consecutive quarters – a performance not seen since 2004.

Keeping to the “it’s-the-economy-stupid!” maxim, the White House hopes the tax bill will have delivered tangible results by November 6 when the polls open for the dreaded mid-term elections. All 435 seats in the House of Representatives are up for grabs in addition to 33 of the 100 seats in the US Senate. In what promises to be a punishing election year for the GOP (Grand Old Party), a booming economy offering near-full employment may mitigated Republican losses. Though the Trump Administration currently enjoys a solid majority in the House of Representatives (239 Republican versus 193 Democrat plus three vacant seats), the balance of power in the Senate is not nearly as advantageous with a difference of only two seats.

A recent CNN poll suggests US voters favour the Democrats by a margin of 56% against 38% for the Republicans, heralding a major upset for President Trump. The advantage is reflected in both party’s fund-raising efforts with Democrats raking in $6.9m in November against just $3.8m for the Republicans.

Representative Rick Larsen (D-WA) predicts a landslide: “You can’t run from the top of your ticket.

The driver won’t be the tax cut, but the president’s low approval rating.” For proof, Mr Larsen points to the Obama Administration’s $838bn economic stimulus package (ARRA – American Recovery and Reinvestment Act) of 2009 which went straight into pay checks but still failed to impress voters who in the 2010 midterms handed the House of Representatives to the Republicans in the largest swing vote since 1938. The democrats also lost six senate seats, barely holding on to their majority.

Whilst the Democrats prepare their dish best served cold, the Republicans try with all their might to keep the nation’s attention focussed on the economy: “As long as we keep on topic and the economy keeps humming, the Republicans just might avert disaster,” says GOP pollster Bill McInturff who adds a single, albeit largish, caveat – “provided President Trump doesn’t say or do something stupid.” That’s a pretty big if. i CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

> Peabody:

Coal Done Right

Demonstrating “Coal Done Right”: Peabody employees survey reclaimed land at its flagship North Antelope Rochelle Mine – the world’s largest coal mine - which has shipped over 2 billion tons of coal. Peabody has earned more than 100 honors for safety, corporate and environmental excellence over the past 5 years.

F

ew industries have the satisfaction of providing an essential product that is vital to so many. Coal provides reliable, affordable baseload generation, offering enormous benefits that other fuels struggle to achieve. Coal provides energy for billions globally, powering growth, and fuelling some of the world’s best economies at some of the lowest costs.

Coal can also help the world achieve the United Nations’ Sustainable Development Goals, which include ensuring access to affordable, reliable, sustainable, and modern energy for all, promoting inclusive and sustainable economic growth and employment, and building resilient infrastructure.

Peabody recognises its role as the world’s largest private-sector coal company brings numerous benefits to stakeholders and also carries forward great responsibility. The company’s more than 7,000 employees are committed to Peabody’s mission and core values: Safety, Customer Focus, Leadership, People, Excellence, Integrity, and Sustainability.

Peabody continues to be a leading voice in advocating for sustainable mining, energy access, and clean coal technologies – or as it’s

"Coal can also help the world achieve the United Nations’ Sustainable Development Goals." known at Peabody: Coal Done Right. The core components can be found in its innovative Investment Principles for Best-in-Class Coal Companies.

Safety is Peabody’s first value and a leading measure of operational excellence. The company’s vision is to operate safe and healthy workplaces that are incident free. In 2016, Peabody set a new company global safety record, with zero fatalities along with a 1.22 total reportable injury frequency rate, representing a 35% improvement over the past five years.

Sustainability, stewardship of the environment, and respect for the natural world are also core to the way Peabody operates. Over the past decade, Peabody has spent $177 million to restore more than 49,000 acres of land. In 2016, the company accelerated its restoration activities reclaiming 80% more land than was disturbed.

In addition, the company continued reductions CFI.co | Capital Finance International

in total greenhouse gas emissions and has improved greenhouse gas intensity at its mining operations 21% since 2012.

Any discussion to accelerate a transition to lowcarbon energy systems must focus on broad use of high-efficiency, low-emissions (HELE) coalfuelled generation technologies and policies, along with investments to commercialise next-generation carbon capture technologies over time. The company has invested $300 million over the past two decades in global partnerships and projects to deploy today’s clean coal technologies and advance next-generation solutions toward near-zero emissions from coal plants.

The company also sponsors the Peabody Global Clean Coal Leadership Awards, which were established to showcase coal-fuelled power plants for top environmental performance, highlight innovative leadership, and improve education about the benefits of clean coal technologies.

Peabody supports a common-ground approach to energy, environmental, and economic solutions and is proud to be a leader in an essential industry, which enables economic prosperity and a better quality of life. i 159

> Daniel Witt:

Business Investment Needed to Achieve Global Development

A

s the World Economic Forum (WEF) gathers in Davos to advance its mission of “improving the state of the world,” the “anti-globalisation backlash” continues. Many are challenging the well-established consensus that globalization will smooth economic shocks and lift societies out of poverty.

While the WEF’s mission may be grand and somewhat ambiguous, it is reasonably aligned with the United Nations’ Sustainable Development Goals (SDGs). This wide-ranging and ambitious agenda – from ending poverty, to eradicating hunger, delivering health and education, and reducing inequality around the world – was the result of a UN-led process in 2015 that involved its 190-member states and civil society organizations (CSOs) from around the world.

While there was remarkable unity and excitement around the development and adoption of the SDGs, there is far less unity and often contentious battling over their implementation, particularly in the developing world. Nevertheless, most agree that it will be a costly endeavour. The Economist estimates that it requires about US $2-$3 trillion per year for the next 15 years to achieve the SDGs. This will necessitate significant increases in private-sector investment.

Most multinational corporations (MNCs) continue to cite taxation, including unpredictable and aggressive revenue administrations, as the principal barrier to investing in less developed countries. Understandably, those countries want to be sure that their tax bases are not being eroded by predatory practices.

Developing countries rich in natural assets and talented people, but poor in government infrastructure, need help to deliver their full potential. Developing tax and customs codes and building effective revenue administrations are vital to many developing countries. It is widely recognised that international businesses, working beyond their own direct self-interest, have an important role to play. Drawing upon their global experiences, these businesses understand how taxes affect trade and investment decision making.

Bridging these concerns has been my work for the past 25 years with the International Tax and Investment Center (ITIC), a non-profit 160

"Developing countries must expand their domestic tax bases and grow their economies." educational organisation that promotes tax and investment reforms in non-OECD countries.

We offer a neutral table, similar to WEF’s, for revenue administrations and businesses to meet, often for the first time, to discuss their respective needs and how these can best be met. The aim is to break down the barriers, dispel fears and misconceptions where they exist, and foster cooperative engagement. The governments of developing countries have to create an environment where business (foreign and domestic) feels welcome. And business needs to operate with the utmost transparency in order to demonstrate its commitment to the country.

Developing countries must expand their domestic tax bases and grow their economies. This requires enhancing their revenue administration capabilities and ridding them of corruption.

Positive steps forward have been made by the Revenue Authorities in Kenya and Ghana, for example, which have introduced 100% cashless systems. They have also introduced automation, including payment apps on mobile phones. As one revenue commissioner commented at a recent ITIC forum, “It’s difficult for computers to ask for bribes.” For small and medium-sized enterprises, paying taxes should become an easy and convenient process, which will also help shift the informal sector into the legal, tax-paying sector. This will further enhance the social contract between the people and their governments as more citizens and businesses “have skin in the game.” Improving the capacity of tax and customs administrations is a win-win proposition for government budgets, business performance, and the attractiveness of investment climates.

Further economic policy and structural reforms are also needed. Developing countries must work hard to win the competition for capital investment. Open, transparent, competitive investment climates will attract foreign investment and help retain and grow domestic investment. The UNCTAD 2017 World Investment Report projects inward investment in Africa in 2017 to grow by 10 percent to almost CFI.co | Capital Finance International

$65bn. This includes important growth in the non-extractive sectors.

History has demonstrated that globalisation and open economies have delivered poverty relief for billions of people. This has been made possible by, among others, MNCs that have invested billions, transferred skills, increased employment, and improved the lives of hundreds of millions of people. Often MNCs account for the largest share of tax revenue that developing countries collect – in the form of wage withholding taxes, VATs, and excise taxes. Critics, however, continue to focus almost exclusively on corporate income taxes rather than the total amount of taxes that MNCs pay. These facts should be continuously communicated while nurturing the capacity of tax and customs officials to deal with tax challenges in developing countries.

These are important complexities that are unfortunately often overlooked in the “antiglobalisation backlash.” Thus, it is fitting that the WEF 2018 annual meeting theme is “creating a shared future in a fractured world.” The engagement and dialogue between and among diverse constituencies convened by the WEF can foster mutual understanding and trust that will unleash more investment, spur economic growth, and thereby enable a more prosperous and peaceful world. i ABOUT THE AUTHOR Daniel A Witt, president of the International Tax and Investment Center, has played a leading role in engagement between business and governments in less developed countries on tax and investment reforms for more than 25 years.

Author: Daniel Will

If the military depend on them, you can.

It’s not enough to make a timepiece that looks rugged. It actually has to be rugged.

Fit for purpose. However tough that purpose might be.

Our military watches are developed in cooperation with, among others, US Navy squadrons and leading ejection seat manufacturer Martin-Baker.

Like all Bremont timepieces, this new Airco Mach 1 is tested and certified by none other than COSC, the official Swiss Chronometer Testing Institute and is hand-built on British shores, at our headquarters in Henley-on-Thames.

British Engineering.

Tested Beyond Endurance.

> Insights from the Nordics:

Is Services Trade Driven by Policy, Geography, or Institutions?

By Hildegunn Kyvik Nordås and Magnus Lodefalk

T

he Nordic countries are often portrayed as a cluster of economic and social success stories with strong institutions, balanced budgets, and as “staunch” free traders as a survey by The Economist back in 2013 puts it. Social and economic success stories ring true to most observers and the Nordic EU Members are also known for resisting trade restricting measures, such as imposing anti-dumping measures on third countries. “Staunch” free traders may nevertheless be a stretch, particularly as far as trade in services are concerned. In this article I show that the Nordics indeed constitute a cluster within the European Economic Area (EEA), with more closely integrated services markets than with the rest of the European Union.

Furthermore, this clustering generates far more intra-Nordic services trade than predicted by standard trade models.

Figure 1 breaks down Nordic services exports and imports by destination and source respectively.

Intra-Nordic services trade is important for all the Nordic countries, particularly for Sweden where Norway alone accounted for almost 14% of total services exports. Bilateral trade between Denmark and Sweden is also substantial, accounting for about 10% of Denmark’s trade in services. Bearing in mind that the Nordic countries combined account for less than 2% of global GDP, the share of intra-Nordic trade is exceptionally high. Another interesting observation is that the Nordics tend to export services outside the non-Nordic EEA, while EU is a more important source of services imports.

Thus, with the exception of Sweden the Nordic countries export more to the world outside EEA than to non-Nordic EU countries.

THE NORDICS: STAUNCH FREE TRADERS? Are the Nordics staunch free traders in services?

Figure 2 suggests that with the exception of Denmark, they are not. It shows the score of the Nordic countries on the OECD Services Trade Restrictiveness Index (STRI) in selected sectors.

The index takes values between zero and one, where one is the most restrictive.

The pink diamonds depict the average score of the 44 countries. Denmark stands out as the least trade restrictive among the Nordics and exhibits a lower score than average in all sectors depicted in Figure 2. At the other end of the scale is Iceland, which scores well above average, with Norway also at or above average in most sectors.

Thus, contrary to the perceptions in popular 162

"It is well known that trade falls off with physical, institutional, and cultural distance. By the same token, trade policy can hinder, stimulate, or redirect trade flows." literature, the Nordics, with the exception of Denmark, have relatively high barriers to trade and competition in the services sectors.

Looking into the details of the underlying data, the Nordics tend to have a relatively high level of general economy-wide trade restrictive regulations and less sector-specific limitations.

For instance, with the exception of Denmark, all the Nordics require that the manager (CEO) and a proportion of board members of corporations be resident in the country, or after having joined EU or the EEA, residency in an EEA country suffices.

With the exception of Norway, the Nordics also have restrictions on establishing branches from non-EEA countries. The role of the state in commercial services activities differs widely between the Nordic countries, but as a group they score higher than average, and the state has a particularly prominent ownership role in the Norwegian economy.

On the liberal side, the Nordics have in common that they have relatively few regulated professions.

None of the Nordics regulate architecture and engineering, although Iceland protects the professional titles. Finland and Sweden are the only countries in the database that do not reserve domestic law (with a few exceptions) to locally licensed lawyers.

Having a similar regulatory regime helps integrate markets, since companies complying with the regulation at home could serve a number of countries without the need to adjust their products and practices. The Nordics do indeed have more similar regulation than the average in the sample of 44 countries, but they are not more similar than the wider EEA membership.

So what do the Nordic countries have in common that could explain what I henceforth call a Nordic bias in their services trade? And what general lessons can be drawn from this?

QUANTIFYING THE NORDIC BIAS If the Nordics are no more open to trade in services than the average, and although they CFI.co | Capital Finance International

are open to trade among themselves, not more so than within the European Union, how can the Nordic bias be understood? To explore this, I ran some simulations using the standard workhorse model explaining trade patterns in the global economy – the gravity model. It has a very good record of explaining trade patterns with quite intuitive results. Thus, if the world had been flat with no trade frictions, the model predicts that every country would trade with every other country and exports would be distributed across markets proportionally to their size. In a flat and frictionless world the Nordics would export less than 2% of their total output to each other while in reality intra-Nordic services trade is about 20% of the Nordic countries’ total services exports and imports.

It is well known that trade falls off with physical, institutional, and cultural distance. By the same token, trade policy can hinder, stimulate, or redirect trade flows. The strength of the gravity model is that it captures all this. So let us plug a variable that distinguishes the Nordics from the rest (a so-called dummy variable) into the gravity model and see what happens. To start with, I benchmark the simulations to the predicted trade flows between countries that do not share the cultural, institutional and geographical commonalities found to spur trade (language, colonial past, sharing a land border, and trade agreements).

The next step is to compare this benchmark to country pairs that are culturally, institutionally, and geographically close to each other; thus sharing a border, a language, and a colonial past.

Of course, sharing a language and a colonial past is typically associated with a range of cultural and institutional commonalities which makes them more attractive trading partners to each other. In the following I label the benchmark group Dispersed and the countries sharing geographical, cultural, and institutional features Clustered. As shown in Figure 3 (left-most columns) the Clustered group trade almost three times as much with each other as the Dispersed group.

The next step is to introduce trade policy into the simulations, starting with each group forming free trade agreements (FTAs). For both the Dispersed and the Cluster groups, an FTA covering services increases services trade by about 75%. Of course, since the trade volume is much larger to start with in the Clustered group, the absolute value of additional trade following

Winter 2017 - 2018 Issue

100% 80% 60% 40% 20% 0%

X

M

X

Denmark

M

X

Finland

M

X

Iceland

Nordics

Rest EU28

M

X

Norway

M

Sweden

Rest world

Figure 1: Services trade, the Nordics, 2015. Sources: OECD Trade in Services by Partner Country data base, except for Norway

for which the source is Statistics Norway. Note: X and M denote exports and imports respectively.

25 20 15 10 5 0

No trade agreement

FTA

Single market

Dispersed

Nordic type

Clustered

Figure 2: Openness to trade in services, selected sectors. OECD STRI scores, 2016, Nordics compared to the average. Source:

OECD STRI database. Note: The STRI covers 44 countries (all 35 OECD countries plus the BRICs, Indonesia, South Africa and three small countries expected to join the OECD in the near future).

DNK

FIN

ISL

NOR

SWE

average

Accounting 0.6 0.5

Insurance

Architecture

0.4 0.3 0.2 Banking

Engineering

0.1 0.0

Maritime

Legal

Air

Telecom

Figure 3: Predicted trade flows and Nordic bias. Benchmark: Dispersed group with no trade agreement = 1. Note: The chart uses the estimated coefficients of a gravity regression including 30 exporters and 63 importers of services during the period 2000-2013.

CFI.co | Capital Finance International

an FTA is much larger. Introducing a single market would increase services trade by an additional 45%, while a Nordic-style integration would boost trade by more than 300% on top of the single market effect. Given that the predictions take into account most geographical, cultural and institutional similarities, membership in FTAs and the European Economic Area as well as any country-specific characteristics, including unilateral trade, investment and competition policy, this is quite a stunning result.

HOW CAN THE NORDIC BIAS BE EXPLAINED AND WHAT CAN WE LEARN FROM IT? Explaining the Nordic bias is more difficult than quantifying it. First it is worth mentioning that the Nordics also differ in some fundamental ways: Denmark, Norway, and Sweden are constitutional kingdoms, while Finland and Iceland are republics; Finland is the only Nordic member of the Eurozone; Sweden and Denmark are members of the European Union but have kept their own currencies; Iceland and Norway are members of the EEA but not EU. Finally, Denmark, Iceland and Norway are NATO members while Finland and Sweden are not.

These differences have not prevented the Nordics from becoming a cluster of services traders.

One possible explanation for the Nordic bias that I find compelling is the long history of Nordic market integration. The four freedoms were established long before the European common market became a reality.

Importantly, the Nordics have shared a common labour market since 1954. They also share a common and unique legal origin which is a subset of civil law and has been in place for at least a century. These factors may be much more important for services market integration than trade in goods because services are intangible and production and transactions are by their nature relationspecific and often require direct communication between supplier and customers. Furthermore, complete contracts are typically not feasible and supplier-customer relations rely to a large extent on trust. A long history of deep market integration, including labour markets, together with strong institutions may have created the level of trust needed for a single market in services.

Services are the new frontier of international trade and trade policy making. Renewed interest in the topic stems from the impetus from recent and ongoing services trade negotiations, including the Trans-Pacific Partnership (TPP), a plurilateral trade in services agreement (TiSA) being negotiated between WTO members, but outside the WTO, the recently ratified trade agreement between EU and Canada (CETA) and not least Brexit. The Nordic experience suggests that policies aiming at creating a single market takes a long time, maybe decades, to take full effect. Furthermore, the Nordic experience suggests that openness to people moving freely to exchange ideas, collaborate and interact with customers and suppliers is crucial to services market integration. i FURTHER READING Hildegunn Kyvik Nordås (2017), “What drives trade in services? Lessons from the Nordics”, Örebro University School of Business Working Paper no 3/2017.

Magnus Lodefalk and Hildegunn Kyvik Nordås (2017), “Trading costs and trading firms in services: the case of Sweden”, Örebro University School of Business Working Paper no 4/2017.

163

> Asia Pacific

China: Changing the Rules of the Game

As US president Donald Trump tweets his every disjointed thought, the Chinese leadership goes quietly about its business of restructuring world trade – and the attendant geopolitical reality. China plays the long game whereas the US mostly sticks to its day trader mentality – plugging holes and seizing opportunities as they appear without too much thought or vision. The ideal of instant gratification – as American as the proverbial apple pie – is, however, yesterday’s news. It is being progressively replaced by a carefully designed and balanced structure that aims to support a brave new world – one markedly different from today’s.

Beijing: Central Business District

164

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

CFI.co | Capital Finance International

165

T

wo trends are now undermining business-as-usual under the aegis of Pax Americana: the rapid ascendancy of China as an economic and political powerhouse, and – to a lesser degree – the global effort to get a grip on climate change.

The twin decisions of the Trump Administration to cancel US participation in the Trans-Pacific Partnership and the Paris Climate Accord have given other powers a chance to fill the void.

Both Europe and China heard the calling and stepped in as the US trailed off.

Veering away from the pursuit of free trade deals, China has placed its money on the Belt and Road Initiative (BRI) which aims to forge links between some seventy countries in Asia and Europe. Beijing’s new-found multilateralism is centred on a vast number of infrastructure projects that are expected to drive down transportation costs and remove logistics bottlenecks.

BRI represents a push away from the rigid structure of the World Trade Organisation (WTO) where China suffers the severe discomfort of not being regarded a market economy, especially now that the US, EU, and Japan have joined forces to make the case that the country unfairly subsidises industry and forces foreign corporations to transfer technology. The list of well-documented complaints against Chinese trade practices reads like a veritable litany.

Since it has a weak hand in the WTO, China now prefers to cement deals with partners that are less critical of its trade practices such as 16+1 Group – the sixteen central and eastern European countries (including eleven EU member states) that stand to benefit most from the Belt and Road Initiative. Ever-recalcitrant Hungary – eager to annoy Brussels – has taken the lead on the European side with an eye on the €10bn fund China reportedly set up to finance large-scale infrastructure projects in the region such as a new airport for Warsaw and the Budapest-Belgrade high-speed rail link.

So far China’s CEE partners have heard a lot of promises but seen very little actual cash. To date, the only projects that got off the ground involve a bridge in Serbia and two roads in Macedonia. The 350-km-long BudapestBelgrade rail connection, which was supposed to be ready for last year’s 16+1 summit in the Hungarian capital, has gone nowhere – the first spike is yet to be driven into a sleeper. The €2.2bn line is only the first stage of a much larger project that would connect the Chineserun Piraeus port in Greece with the affluent European heartland.

Meanwhile, EU regulators have stepped in and thrown up a rather large roadblock: no public tenders were offered – a clear violation of EU law. The Hungarian government simply awarded the development of the line to China Railway International Corporation with financing provided by China Export-Import Bank. Hungary

166

"Beijing is particularly irked as it sees the BudapestBelgrade line as a test to prove that the country can undertake major infrastructure projects in Europe without running afoul of EU legislation." enjoys somewhat of a reputation for bypassing procedures it considers cumbersome. Earlier, the country drew Brussels’ ire by failing to observe the rules when it awarded the €12.5bn expansion of the Paks nuclear power station to a Russian state-owned company, in an attempt to curry favour with Moscow. The EU has now launched probes into both the power station and rail line adjudications.

Beijing is particularly irked as it sees the Budapest-Belgrade line as a test to prove that the country can undertake major infrastructure projects in Europe without running afoul of EU legislation. That said, the European Union, whilst wary, is by no means opposed to the Belt and Road Initiative though Commission Vice-President Jyrki Katainen insists rules and principles need to be observed: “Any scheme connecting Europe and Asia should include market rules and meet international standards.

Such a scheme must also complement existing networks and policies.” Mr Katainen didn’t mean to pour a bucket of ice water on China’s flagship project; he only wanted to lower expectations a bit and remind all and sundry of who’s in charge.

Moreover, the EU isn’t enamoured of Beijing’s steel dumping practices and in 2016 put its considerable weight behind a move to deny China market economy status under WTO law.

Brussels is also annoyed that EU companies continue to face a number of serious hurdles in China and remain excluded from key economic sectors.

CFI.co | Capital Finance International

Elsewhere, China is facing an increased pushback from the United States where it has now been branded a “strategic competitor” by President Trump. The Trump Administration’s first National Security Strategy (NSS) paper, published in December, accuses China of economic aggression designed to weaken the US. President Xi Jinping has found in difficult to adjust to the new reality in Washington. Whilst he went out on a limb to visit the US president at his Mar-a-Lago golf club in Palm Beach, Florida, in April last year, President Jinping – visibly uncomfortable amidst the gilded opulence of the setting – failed to establish the hoped-for personal rapport with his larger-than-life host.

Whereas the Chinese president came to talk politics, his US counterpart was all business.

Trump’s message was simplicity itself: do something on trade and on North Korea. And we’ll be fine. Since that message was clearly lost in translation, President Trump – notoriously impatient and easily irritated – has moved on.

Now China has become, according to National Security Advisor HR McMaster, a “revisionist power” that undermines the international order.

So far, China’s response to the accusations levelled by the US has been surprisingly restrained. However, the strong-worded NSS paper elevates a tussle between the world’s two major powers to a full-blown rivalry. It also contains the seeds of a trade war which, by its very nature, can only produce losers.

Whereas the US may be in a combative mood, China is not at all interested in a direct confrontation. The country’s diplomats and trade negotiators are well-versed in the teachings of the Book of Qi and its thirty-six stratagems for use in politics, war, and civil dealings. These tactics have long shaped the country’s foreign policy and offer ways to gain the upper hand on a stronger competitor by avoiding direct confrontation and change the rules instead. The Belt and Road Initiative is one such an attempt to change the rules of global trade.

Whilst the country’s GDP keeps growing at a 6%+ annual clip, China will inevitably overtake the US as the world’s pre-eminent economic power before long. Since the country also failed to succumb under the weight of its internal contradictions, China’s authoritarian system already now is being considered a model of accelerated development. Contrary to what pundits predicted since its rise began only four decades ago, a lack of democracy and rule of law has so far not stopped China from nurturing world class companies and developing cuttingedge technology. That alone is enough to question the cherished premises on which the current global order was erected.

The Book of Qi advocates replacing the structure on which an adversary has built its strength with “rotten timbers” as a way to secure victory without war. That job is now in progress. i

Winter 2017 - 2018 Issue

> Bank Ganesha:

Remarkable Evolution through Growth and Innovation

B

ank Ganesha is a leading private bank in Indonesia within the BUKU2 (core capital IDR 1-5 trillion) category.

Established in 1990, Bank Ganesha started a major transformation in mid2015 and set out a new business aspiration – to become the nation’s Everyday Bank in 2020 and the Most Admired Fintech Bank in 2025. As part of its strategy, the bank focusses on six distinct key pillars which leverage the development of organisational and technological capabilities and the bank’s spirit of innovation. These are the fundamental pivots to make its vision to be the Best Bank-in-Class a reality.

Over the past two years, and despite a challenging macroeconomic environment, Bank Ganesha has undergone a remarkable revolution, experienced rapid growth, and delivered a record financial performance by formulating new strategies and focusing its efforts on areas with the greatest impact and long-term value creation.

HIGHLIGHTS OF 2015-2017 Building Scale through Strategic Alliances: Partnering with Mitra Adi Perkasa (MAP), one of the biggest retailer in Indonesia, Bank Ganesha introduced an innovative savings product named Ganesha MAPClub Savings, that aims to add convenience to the shopping experience. The partnership is a mutually beneficial undertaking that gives Ganesha MAPClub Savings account holders access to loyalty points and product promotions, amongst other benefits. In addition, Bank Ganesha also introduced Bancassurance to its customers in cooperation with its affiliated company, launched co-branding credit card with a major local bank, and implemented an Employee Banking Strategy with partner companies.

FINANCIAL MANAGEMENT AND INORGANIC GROWTH Bank Ganesha conducted and completed its initial public offering (IPO) in 2016 to strengthen the long-term funding structure with a view to business expansion. Oversubscribed thirteen times, the IPO registered robust demand from investors which was all the more remarkable due to current market conditions and the fierce competition for funds. Shareholder equity rose 407% year-on-year, enabling Bank Ganesha to ascend to BUKU2 classification and offer more products and services including mobile and internet banking, credit cards, and trade finance.

BRAND BUILDING AND IMPROVED CUSTOMER SERVICE Bank Ganesha launched initiatives on multiple

CEO: Surjawaty Tatang

fronts to improve its branding and increase operational efficiencies, such as: • Revitalised branding on all products and services, providing a modern and fresh look on both tangibles and intangibles.

• Optimised networks by choosing for selective the expansion, relocating, and/or refurbishing existing branches.

• Introduced a service culture and established much higher standards of service quality.

• Launched a new 24-hour customer care centre, previously open only from 9am to 5pm.

• Revamped and relaunched the bank’s website, with a view to showcase the latest promotions and developments, visually appeal key target demographics such as the millennial generation, and serve as a customer acquisition tool in conjunction with digital marketing.

ADOPTION OF BEST PRACTICES FOR CORPORATE GOVERNANCE AND RISK MANAGEMENT Commitment to improving the implementation of corporate governance standards based on transparency, accountability, responsibility, independency, and fairness principles.

• Implementation of governance guidelines for public companies.

• Optimisation of the governance structure including committees under the board of commissioners and board of directors to enhance CFI.co | Capital Finance International

the implementation of duties and responsibilities.

• Enhanced transparencies for all stakeholders.

• Robust and effective risk management framework applied to everyday operations.

STRONG GAINS IN KEY METRICS Against a challenging global and domestic macroeconomic backdrop, Bank Ganesha not only survived 2015-2017, it thrived with gains made across all areas, including profitability, lending, deposit taking, capitalisation, branding, organisational capacity, and service quality.

• Net profit grew 157% CAGR driven by strong revenue generation, disciplined cost management, and asset quality improvement.

• Total operating revenue up 39% CAGR on the back of solid growth in net interest income and fee-based income.

• Assets up 51% CAGR on the back of strong loan book growth of 43% CAGR due to the much stronger capital base following the IPO. • Funding base up 39% CAGR. • Strong recovery of impaired loans: gross and net NPL ratios improved to 0.97% and 0.54% at the end of September 2017 from 2.90 % and 2.20%, respectively, recorded two years prior.

• Capital adequacy Ratio stood at 33.8% as of September 2017, which is well above regulatory requirements and remains supportive of business growth. i 167

> Red & White Consulting Partners LLP:

Boutique Approach

By Eric Sandosham, Co-founder & Partner

No financial targets; just exceed clients’ expectations. Get called back for incremental consulting engagements and generate word of mouth referrals. Those are the few secrets that explain the success of Singapore’s Red & White Consulting Partners. The boutique consulting practice was founded on these sensible principles four years ago.

Since then, the firm has refused to expand significantly, adhering to the belief that small is beautiful. This forces founding partners Sally Taher and Eric Sandosham to only take on meaningful projects into which they then pour their passion and energy, ensuring that the firm delivers upon the transformational nature of its decision science work.

L

ast year represented a watershed year for Red & White Consulting Partners in many respects. The firm took on consulting work for three of the largest banks in South-East Asia, spanning multiple work streams in business analytics and human capital analytics. One of the projects represented the firm’s very first foray into employee fraud analytics.

While the industry is bedazzled by the notion that AI (artificial intelligence) and advance machine learning would be superior in detecting meaningful patterns of undesirable employee behaviour, Red & White Consulting Partners chose a different path. Machines are great for complicated problems, but there is no evidence (yet) that current algorithms are capable of solving complex problems (i.e. sense-making) – and employee fraud is a complex problem.

Instead, the firm created a methodology that deconstructed the upstream activities and work flows with colleagues, and used statistical peer-group comparisons to flush out abnormal deviations. The approach proved to be more accurate in detecting fraudulent behaviour and reinforced the belief that difficult problems can be solved quite simply when the right lens is applied.

Last year, Red & White Consulting Partners also welcomed its first client from the airline industry.

The firm was brought in to build human capital analytics (HCA) capabilities. This engagement underscores the rise of HCA as one of the fastest growing analytics practices today. Across industries, organisations are seeing increasing disruptions to their workforce due to both demographic and behavioural shifts, and the effects of digitalisation.

Because the solutions in this space are more about considered problem-framing that leverages practical operating experiences, pioneering boutique firms can punch above the established global consulting firms. And so Red & White Consulting Partners has. The firm continues to 168

Red & White Consulting Partners LLP: Eric Sandosham, Sally Taher, Kriz Abergas, Evellyn Verity, Anastasia Maria

"The firm continues to integrate research and practice, experience and science in order to find innovative HCA solutions that challenge long-held biases in decision-making processes." integrate research and practice, experience and science in order to find innovative HCA solutions that challenge long-held biases in decision-making processes.

CFI.co | Capital Finance International

The partners would like to thank their associate Eka Aulia, their amazing millennial consulting team, and the wonderful clients who continue to place their trust in the firm. i

Winter 2017 - 2018 Issue

> Containers Printers:

Premier Packaging Solutions Provider At Containers Printers quality and sustainability sit at the very core of an approach to business that has delivered consistent growth and transformed the Singapore company into a trusted partner of industry. The package solutions provider was founded in 1981 to meet the pent-up local and international demand for superior metal and flexible packaging and the associated branding. Right from the start, the company adhered to a holistic business approach enabling clients to concentrate on the contents.

C

ontainers Printers CEO Amy Chung, on a recent visit to Europe, emphasised that the company has recently broadened its offerings to incorporate, amongst others, design and artwork.

To that end, Containers Printers hired a number of experienced graphic artists to produce eyecatching designs that dovetail seamlessly with client requirements for branding and demographics.

“At Containers Printers we aim to offer total packaging solutions as a business-to-business service provider. Over the past three decades, the company has decisively moved up the value chain to meet industry requirements and branch out into new segments of the market,” says Mrs Chung who reiterates that the company she leads dedicates significant resources to the fine-tuning and further development of its processes and products. “As a progressive company, Containers Printers continuously updates and upgrades its facilities in order to maintain its leading edge with machinery that uses state-of-the-art technology. This is a dynamic market, subject to constant change, which requires us to keep evolving”.

Mrs Chung emphasises the importance of continuity and dependability as well: “As a partner to industry, we need to keep our end of the bargain without fail in order not to perturb

global marketplace. It has successfully applied for, and obtained, certification by global entities for international standards which enables the company to cement partnerships with leading brands in the nutrition, pharmaceutical and lifestyle sectors, amongst others.

CEO: Amy Chung

or derail carefully designed supply chain.

Thankfully, Containers Printers enjoys a stellar reputation which is, perhaps, the company’s greatest asset.”

With a domestic market of limited size, Containers Printers needs to strike out overseas for growth. To that end, the company maintains a number of strategic partnerships whilst ensuring its products are competitive in the

Containers Printers was also an early-adopter of solid corporate governance principles, valuing transparency, corporate social responsibility, and health and safety as risk critical mitigation strategies – and as ways to underpin sustainable growth. The company takes pride in its strong after-sales support trouble-shooting any issues that may arise and proactively striving for perfection. “Containers Printers is mindful of quickly responding to global trends such as the concern for the environment. We design our products for minimal environmental impact. The same holds true for our production processes that not only needs to ensure cleanliness but also must comply with all relevant standards. We have been able to exceed those, adding to the satisfaction of our clients,” says Mrs Chung.

Containers Printers offers clients a comprehensive range of packaging products such as flexible laminates, metal packaging, and aerosol components. The company exports its products to over thirty countries in Europe, Asia, Australia, and the Middle East. i

"Containers Printers was also an early-adopter of solid corporate governance principles, valuing transparency, corporate social responsibility, and health and safety as risk critical mitigation strategies – and as ways to underpin sustainable growth."

CFI.co | Capital Finance International

169

> CFI.co Meets the CEO of BOD Tech:

Mike Than Tun Win

I

t is often said that the world is a book and that those who do not travel only read one page. If that is true, then those who start traveling from an early age have quite an advantage over those who do so later and especially over those who rarely travel at all.

Given that he spent the first eight years of his life in his native Myanmar only to move to Singapore, it comes as no surprise at all that Mike Than Tun Win is today a successful CEO and founder of several progressive, forward-thinking, and exceptionally successful companies. Because that’s what happens when one gains life experience: it overcomes challenges by thinking outside the box.

Having spent a number of years in school, studying hard at Victoria School, then Temasek Junior College and, ultimately, Nanyang Technological University in Singapore, Mike Than Tun Win returned to his home country in 2010 with a unique dream: to transform Myanmar entrepreneurship in a way never before seen.

His mission? To do so by making giant leaps forward, one of which was founding no less than eight companies across Myanmar, Thailand, and Singapore. These successful companies cover the automotive, distribution and petrochemical sectors.

However, this was only the beginning. In 2014, and thanks to his business prowess and foresight, Mr Win founded BOD Tech with a single goal: unleashing the power local entrepreneurship in Myanmar through the use of technology and then growing and nurturing it until it becomes the single most advanced and creative industry in the nation. Too bold? Overly confident?

Supremely arrogant, perhaps? Not at all, and here’s why: in order to achieve great things, one needs to not only be extremely hardworking and have an unconventional approach to things, but also needs to be in the right place at the right time. Would Steve Jobs be who he was if it hadn’t been for Bill Gates? No way to tell for sure, but likely not.

Mike Than Tun Win not only has an impressive education that enables him to leverage every existing business strategy to his favour but more importantly, the hardships that he has endured have inspired him to realise that only by disrupting existing rules can one truly revolutionise any endeavour. Mr Win’s impressive track record speaks for itself. All of the companies he has founded still stand strong today, something that is evident even in his latest business venture. Being a local venture capitalist involves not just taking risks, but rather taking educated guesses about the future of start-ups and of the entire economy.

170

CEO: Mike Than Tun Win

If you were to define venture capitalism in such a way, then that definition would be incomplete in any encyclopaedia without Mr Win’s picture above it.

BOD Technology typically invests in internet companies – something Mr Win sees as the fastest and most secure way to the future. Among its portfolio are companies such as laundry.com, travel booking site flymya.com, online-to-offline CFI.co | Capital Finance International

platform Yangon Door2Door, and e-commerce platform shopmyar.com. However, all the hard work in the world will not result in progress, let alone a revolution, unless it is fuelled by a clear and precise vision. Because of his vision to completely transform the way companies conduct their business in the future, Mr Win will continue to tirelessly overcome challenges in making sure the future is here much earlier than expected. i

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)

> BOD Tech:

Future E-Commerce Giant of Southeast Asia

T

he founding of BOD Tech dovetails with Myanmar’s telecom revolution. Mike Than Tun Win, company founder and CEO, was born in Myanmar but only lived in the country until he was eight years old. He moved to Singapore with his parents where he attended school and went to university. He returned to Myanmar in 2010 and entered the automotive, lubricant distribution, and general trade business.

heavy machinery. He soon partnered with oil majors Shell and GS Caltex. In 2015, Mr Win divested his trading business following the start of the telecom revolution. As telecom and internet businesses were grabbing the attention it seemed to offer a perfect opportunity for someone with ample foresight and experience to venture into this industry. Eventually, Mr Win decided to become a local venture capitalist; an idea which turned into BOD Technology.

After his return, Mr Win handled the import of trucks, oil tankers, commercial vehicles, and

The company, which owns the Yangon-based car rental, hotel reservation, and air ticket platform

172

CFI.co | Capital Finance International

FlyMya.com, has recently acquired a Londonbased engineering team named SWITCH.CM that designs reservations platforms for airlines and hotels. The acquisition amounted to $600k. The move aims to help flymya.com deliver real-time availability and prices to consumers by creating a direct API architecture for its hotel partners.

FlyMya.com has already established itself as the single largest travel portal in Myanmar.

Providing customers with a simple, easy-to-use, one-stop travel solution centre, the portal offers the most affordable deals and a comprehensive

Winter 2017 - 2018 Issue

their own websites. The portal is already being used by over one hundred local tour operators.

BOD Tech, owner of the FlyMya.com portal, also invested in Innoveller – a bus ticketing platform in addition to other portals and sites such as laundry.com.mm, yangond2d.com, shopmyar.com, inmya.com, and wolves.cloud.

The company is currently looking to buy into additional platforms as it believes e-commerce is destined for accelerated growth.

Founded in 2004, BOD Tech has expressed interest in acquiring three more start-ups during 2017. The firm prefers the online news and travel segments, and is constantly looking to optimise the earning potential of its investments. Another way BOD Tech tries to improve its portfolio is by encouraging its companies to expand into neighbouring markets. The end goal for 2018 is to allow users to have an interconnected service network by linking all of the start-ups in the BOD Tech portfolio.

So far, BOD Tech has invested in a total of seven companies. The ticket size for venture capital investments is typically between $100,000 and $1 million.

BOD Tech aims to expand its current businesses whilst exploring investment opportunities in the travel start-up niche. In this vein, the B2C platform shopmyar.com recently launched the Shopmyar International Online Shopping site which is connected with Taobao – an online marketplace from China. The logistics are handled by an office set up for that specific purpose in Shwe Li. Another important consideration is to facilitate the international expansion of start-ups.

According to Mr Win, Laos and Cambodia are first on the list. If successful, the strategy will expand to a number of other countries throughout Southeast Asia. Such a plan is ideally aligned with BOD Tech CEO’s aspirations for Burmese companies to invest outside of Myanmar instead of consistently attempting to do so inwards.

suite of services including event tickets, holiday packages, bus tickets, hotel reservations, flight bookings, airport and inner-city transfer services, amongst others.

Launched in 2015, FlyMya.com takes exceptional pride in delivering world class services to its customers, in addition to helping promote tourism in Myanmar and the wider region. Having served travellers from across the globe, the company website brings in more than two million visitors annually. Booking within minutes, finding the best deals online,

comparing prices, and checking schedules are just a few mouse clicks away. FlyMya.com also maintains a 24/7 call centre that offers clients additional information solves any issues swiftly and reliably.

FlyMya.com CEO Win reported that in Myanmar only one out of five-hundred people uses credit cards which necessitates the supply side to produce innovative and easy-to-use payment solution. Local tour operators can list their travel packages online via the FlyMya.com portal. This way, these operators need not build and maintain CFI.co | Capital Finance International

Without a doubt, the macroeconomic environment of Myanmar is highly conducive for internet businesses. However, the e-commerce space is witnessing a steady growth instead of an explosion. The reason for this has to do with the fact that the local population is slow to adapt to the internet lifestyle even though the use of smartphones has spiked. There are upsides as well: the entire e-commerce market is experiencing organic growth, as opposed to developments in more mature markets in which growth is driven by large-scale discounting.

Therefore, the future of BOD Tech as an e-commerce giant in Southeast Asia is not only certain but is already taking shape. i 173

> Learn to Trade:

Training Top Traders

W

ith a network of experienced, dedicated, and creative trainers and coaches, Learn to Trade has become one of the leading forex trading coaching companies in the world.

The company continues to gain widespread recognition from traders and industry leaders.

This year, Learn to Trade was awarded CFI.co’s Most Transformative Forex Education Program for the second consecutive year.

Founded in 2003 by legendary trader Greg Secker, Learn to Trade has been on a mission to train people from all walks of life for the same type of forex trading success as Mr Secker himself experienced in his mid-twenties. The company aims to give anyone the chance to create opportunities for themselves so they too can achieve financial success and start living life on their own terms.

Under this mission, Learn to Trade has trained more than more than 250,000 people from around the world since 2003 and has grown into a global provider of forex training services with 174

operations in Australia, the Philippines, South Africa, and the UK. In addition to winning CFI.co’s Most Transformative Forex Education Program Award, Learn to Trade is also widely regarded as the top trader education company in the Asia-Pacific Region.

Learn to Trade has long held the view that its success is based solely on the success of its students. To ensure students’ success, Learn to Trade has adopted a unique model of coaching.

In addition to teaching its students the basics of fundamental and technical analysis of the forex market, Learn to Trade offers insights into the world of trading, practical tips, money management, and market behaviour in the form of real-life examples from its experienced trading coaches. Learn to Trade also offers different levels of seminars, courses, and one-on-one mentor programmes to meet the needs of students from all backgrounds with their own individual goals.

CFI.co | Capital Finance International

As its presence around the world expands, Learn to Trade is committed to investing in the future and constantly improve its services to guide as many people as possible towards success in their trading career. “We are proud to win this award for the second year running.

This award is the result of lots of hard work and innovation from our team who work so hard to deliver the best possible results for our students,” said James Mathews, managing director of Learn to Trade Australia.

Mr Mathews, who launched Learn to Trade in Australia in 2010, has seen how thousands of Aussies who started out as beginners with Learn to Trade have grown to become successful traders. And for him, there is nothing better than to see Learn to Trade changing people’s lives. “It feels good to be recognised for our incredible training and trading education platforms that are having a real impact and creating fantastic opportunities for those wanting to build a better life for themselves,” he said. i

BEST BANK IN VIETNAM

Honored as the Best Bank in Vietnam with 5 prestigious International Awards Best Bank 2017 by Global Finance Best Retail Bank 2017 by International Finance Best Co-Brand Program Vietnam 2017 by Mastercard Outstanding contribution to SMEs & Innovation Vietnam 2017

by Capital Finance International Vietnam Domestic Foreign Exchange Bank of the Year 2017

by Asian Banking and Finance For more information, please contact: 1800 599999 (toll free)/ (84.24) 39445566

Nearest branches

> ICBC:

Becoming a Key Player in the Middle East ICBC is the first Chinese bank to have a presence in Middle East. In April 2008, the bank’s first branch, ICBC (Middle East), officially commenced business. In November 2013, the ICBC Dubai (DIFC) branch was established to replace ICBC (Middle East).

T

oday, ICBC maintains five full service branches throughout the Gulf Region.

Based on its consolidated market position, growing client base, diversified product structure, ambitious innovative ability, and great brand value, ICBC has been offering an extensive range of services to both local and overseas customers – improving a diversified and internationalised operating structure, focusing on the commercial banking business, and keeping a leading position in term of total assets, profits, and business operation lines amongst foreign banks with a presence in this buoyant region.

At present, ICBC’s business lines include: deposits, advising on financial products or credit, arranging investment deals and custody, private banking, and asset management amongst others.

During recent years, the countries of the Middle East have paid significant attention to infrastructure development and economic diversification. Based on these clear trends, ICBC

176

"In recent years, our organisation has leveraged the synergy available within the ICBC Group to enhance the cooperation between domestic and overseas institutions." has enhanced its exposure – communicating and coordinating corporate policies – to governments, sovereign institutions, and key clients. The bank also significantly improved its services to the energy, oil and gas, shipment, infrastructure, and financial services sectors. This way, the bank has earned its clients’ recognition and appreciation.

CFI.co | Capital Finance International

ICBC’s client structure has been further improved and its client relation basis strengthened. As a leading Chinese bank – and the one having the most branches, widest client basis, and strongest profitability in Middle East region – ICBC’s operational capability has been widely recognised by major local media, corporates, and government entities.

During its process of rapid growth – and based on the advanced overall global reach of ICBC Group and its diversified business lines, the bank has not only concentrated on developments in Middle East region, but also actively extended the scope of the services offered to clients in the region. The bank has been an active participant in China’s Belt and Road Initiatives and numerous regional mid- and long-term economic development plans, such as UAE’s 2021 Vision and Saudi Arabia’s 2030 Vision.

ICBC has constantly enhanced its presence in Belt and Road-related countries, especially those bordering the Gulf. The bank’s participation

Winter 2017 - 2018 Issue

in social development programmes has also been improved. As a rule, ICBC is always supportive of local governments, businesses across all major economic sectors, investments in new energy sources, multilateral economic initiatives, and social and environmental protection projects.

ICBC is determined to become a green bank and establish a peerless reputation for integrity and transparency whilst developing harmoniously within local economic settings.

In order to properly channel the rapid growth of business, ICBC prioritises risk management, compliance, and anti-money laundering processes. The bank has built, and continuously updates, a practical and solid internal control system which sits at the very foundation on which a healthy and sustainable global bank has been erected.

The bank has dedicated significant resources to perfect its management framework, improve risk management policies, build resilient compliance processes, and deploy solid anti-money laundering structures.

Zhou Xiaodong, chairman of the ICBC Middle East Region Committee and general manager of ICBC Dubai (DIFC) and Abu Dhabi branches, explains: “Owing to the rapid economic development of Middle East region, ICBC has achieved rapid growth across its different business lines, its portfolio of financial services, and the overall scale of the business. We managed to do so thanks to our strong participation in regional economic developments and the broad scope of financial services available to our clients.”

“In recent years, our organisation has leveraged the synergy available within the ICBC Group to enhance the cooperation between domestic and overseas institutions.

We actively participate in the implementation of the Belt and Road Initiatives as they touch Middle Eastern countries, whilst making efforts to match the ‘Chinese elements’ of these initiatives with the mid- and longterm development visions of the countries we operate in. Throughout this process, our business horizon has been extended. We booked solid achievements in localisation and diversification, and received encouraging feedback from our clients. ICBC has indeed become the trade bridge between China and Middle Eastern and African countries.”

“In the future, we will continue to adhere to our ‘client first’ principle, concentrate on the Middle East market, and enhance our strength in exploring new markets in the wider region. We also will make every effort to gain additional client acceptance and recognition, and further improve our brand’s prominence by promoting innovation and diversification of the palette of products and services offered to our clients.” i CFI.co | Capital Finance International

177

178

CFI.co | Capital Finance International

Winter 2017 - 2018 Issue

CFI.co | Capital Finance International

179

> UNCDF:

Bringing New Parties to the Table Engaging the Private Sector to Drive Investment into Least Developed Countries

By Esther Pan Sloane

I

t is widely understood that the world is falling far short of the funding flows "The challenge is clear: required to achieve the Sustainable Development Goals, particularly in the how can we direct more of world’s 47 poorest countries, known as the estimated $78 trillion Least Developed Countries. The financing gap is estimated at $2.5 trillion. A key part of this held in portfolio and other gap is foreign direct investment (FDI). FDI is important for developing countries where it is investments worldwide to a surge in foreign the largest and mostFollowing consistent external sourceinvestment in 2015, global FDI flows fell 2 per cent, to 1 the countries to was amid weak economic growth.

A fallpoorest in inflows to developing economies of financing, ahead$1.75 trillion, of portfolio investments, partlydevelopment offset by modest growth in developed countries and a sizeable increase in transition remittances, and official assistance support their sustainable economies.

As a result, developed economies accounted for a growing share of global FDI (ODA). But, for LDCs foreign direct investment inflows in 2016, absorbing 59 per cent of the totaldevelopment?" (figure I.1). is essential. They also remain highly dependent on ODA and are vulnerable to external factors, A modest recovery in global FDI flows is forecast for 2017, although flows are expected including exchange torate fluctuations accounted for 65% of FDI inward stock remain well belowand their weak peak of 2007.

A combined upturn of economic growthinin2016, major commodity prices. regions and improved corporate profits withwill theboost Pacific subgroup receiving smallest business confidence, and the consequently share inofmanufacturing inflows.

MNEs’ appetite to invest. A cyclical uptick and trade is expected to result Overall, the trendsin for FDI to the poorest faster growth in developed countries, while a likely strengthening of commodity prices countries are not positive.

In 2016, FDI flows to Some studies on the effect of capital inflows on should underpin a recovery in developing economies in 2017. As a result, global FDI flows the least developed countries fell by 13% to $38 domestic investment in developing countries are expected to increase by about 5 per cent in 2017 to almost $1.8 trillion. billion. Flows to small island developing states from 1978-1995 show that increases in capital However, elevated geopolitical and policy for investors could have an were only $3.5 billion (a decline of 6%), whilerisksinflows wereuncertainty associated with a corresponding impact on the scale contours the FDI recovery in 2017. investment. The United landlocked developing countries sawand FDI stay of increase in domestic stable at $24 billion. For developing economies Nations Capital Development Fund (UNCDF) overall, FDI declined 14% to $646 billion. found that its involvement in co-financing deals This amount was not divided equally: of the 79 in LDCs with grants or loans, as well as support FDI inflows, global and by group of economies, 2005–2016, projections, 2017–2018 developing provided throughand technical assistance, is a key Figure I.1. economies in the African, Caribbean, (Billions of of dollars and the per cent) and Pacific group states, top ten recipients factor in convincing domestic banks to invest in

INTRODUCTION

68

+81%

World total

Developing economies

Developed economies

Transition economies

59% 1 032 +5%

$1746 -2%

646

-14%

3 000

2 500

PROJECTIONS

2 000

deals in their country’s poorest and most remote regions.

Other studies have found that FDI allows technology transfer, training, and capacity building of local employees, and increased corporate tax revenues in host countries.

According to UNCTAD, global FDI flows are expected to increase by about 5% in 2017 to almost $1.8 trillion, and reach $1.85 trillion in 2018 – still below the 2007 peak. Karl Savant, resident senior fellow at the Columbia Center on Sustainable Investment of Columbia University, estimates that FDI flows need to reach a level of four or five trillion USD annually in order to meet the investment needs of the future.

The challenge is clear: how can we direct more of the estimated $78 trillion held in portfolio and other investments worldwide to the poorest countries to support their sustainable development? Peter O’Driscoll, a partner at Orrick, Herrington, and Sutcliffe and head of the Emerging Markets Group, wrote in ImpactAlpha on June 2017 that a new model for driving impact-driven growth capital equity investment in the world’s poorest countries could be a large private fund, of between $600 million and $1 billion, run by a manager focused on growth capital equity across the 23 poorest countries in the world. Growth capital equity to support small and medium enterprises, early stage companies and start-ups must complement the existing investments by development finance institutions in areas such as microfinance. Mr O’Driscoll points out that there are currently only five local private equity funds across the 23 poorest countries – two in Afghanistan and one each in Central African Republic, Democratic Republic of the Congo, and Ethiopia.

Creating viable private investment vehicles to direct more foreign direct investment to LDCs would have a significant and lasting impact on the sustainable development of those countries.

1 500

1 000

Many impact investors raise three issues as particular barriers to investing in LDCs: unfriendly regulatory environments, complex regulations, and a perception of political and financial risk.

500

0 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Figure 1: FDI inflows, global and by group of economies, 2005-2016, and projections, 2017-2018. (Billions of dollars and per cent).

Source: ©UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics).

Source: ©UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics).

180 2

World Investment Report 2017 Investment and the Digital Economy

CFI.co | Capital Finance International

Agenda 2030 and the Addis Ababa Action Agenda both stress the importance of creating the right “enabling environment” for investment

Figure I.9.

FDI inflows by region, 2014–2016 (Billions of dollars) Winter 2017 - 2018 Issue

566

533

524 460

2014 443 390

2015

2016

425

272 231 170 165

142 60

Europe

Developing Asia

North America

Latin America and the Caribbean

75 28

Other developed economies

57

38

68

Transition economies

71 61 59

Africa

Figure 2: FDI inows by region, 2014–2016 (Billions of dollars). Source: ©UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics).

Source: ©UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics). and the growth of the private sector. This includes rule of law, enforcement of contracts, and a commitment to fighting corruption. Mr Sauvant argues for2017 a concerted international to help World Investment Report Investment and the Digitaleffort Economy developing countries, particularly LDCs, improve their FDI regulatory frameworks and investment promotion capacities through an International Aid for Investment Initiative or a Sustainable Investment Facilitation Understanding.

These efforts could help developing countries define “sustainable foreign direct investment for sustainable development” – that is, viable commercial investments that make a contribution to the economic, social, and environmental development of the host country. Other impact investors have also called for reform of the international investment law and policy regime, particularly in LDCs, to standardise central bank approaches to investment regulations and create a supportive environment for investors.

UNCDF’s own experience with regulations around digital finance – convening governments and private sector stakeholders to identify blockages to the expansion of digital financial inclusion, then helping the government to pass regulations easing those barriers – can have a significant impact on the willingness of private sector actors to move into certain industries in LDCs. There is also growing support across the UN system for LDCs to access the legal and other expertise they need. The International Development Law Organization and the UN Office of the High Representative for Least Developed Countries, Landlocked Developing Countries, and Small Island Developing States have created a programme to support investment to LDCs. The Investment Support Programme for the LDCs was launched in September 2016 and provides on-demand legal and professional assistance to both LDC governments and underresourced private sector firms in LDCs to help

support them in investment-related negotiations and dispute settlement. The programme’s objective is to establish an international scheme for legal aid and expert assistance.

Measures like this will help build the capacity of both governments and private sector companies to develop the expertise they need to manage sophisticated investment regimes in the future.

UNCDF also has a long history of “de-risking” both public and private sector investments by using ODA funding to catalyse other resources, public and private, mainly from domestic banks.

As Anders Berlin wrote in this magazine’s Autumn 2017 issue, UNCDF is currently creating an investment fund for LDCs to blend public and private sources of funding and invest them through loans and guarantees into promising investments in LDCs. This fund will direct more private debt and portfolio equity – what Mr O’Driscoll identified as what is most needed – to LDCs, whilst also targeting smaller transaction sizes and higher risk tolerances than most active investors are currently considering.

The hope is to continue UNCDF’s tradition of demonstrating a viable market, proving the success of the concept, and then crowdingin additional financing. If this and the other ambitious models discussed above work, they will help to achieve the shared goal of supporting the LDCs to grow, prosper, and achieve their sustainable development goals. i

also served on the Executive Boards of UNDP, UNICEF, UNOPS, and UNFPA, pushing the agencies to become more efficient, effective, and accountable for results.

Esther previously served as a U.S. diplomat in China and the United Kingdom, as well as at the State Department Operations Center in Washington.

Prior to joining the U.S. Foreign Service, Esther worked as a journalist in print, radio, and magazines. Esther graduated from Stanford University with a BA with honors in English and International Relations and earned an MA in Theater and Performance from the University of Cape Town, which she attended on a Fulbright Fellowship.

ABOUT THE AUTHOR Esther Pan Sloane, a U.S. national, joined UNCDF as the Head of the Partnerships, Policy and Communications in October 2016.

Prior to joining UNCDF, Esther was a U.S. diplomat for 10 years. As Adviser at the Permanent Mission of the United States to the United Nations in New York, she was on the U.S. team that negotiated the 2030 Agenda and the Sustainable Development Goals. She CFI.co | Capital Finance International

Author: Esther Pan Sloane

181

Zimbabwe Spring

The president of Zimbabwe makes $200,000 annually. Given the country’s economic plight, it is perhaps best not to speak of earnings. The president enjoys a generous wage even if the cost of living in Harare is on the high side. Yet, the average earnings of Zimbabwean workers amount to about $250 monthly – some $3,000 per year. The country’s civil service maintains a salary ceiling of slightly over $6,000 annually. However, most government workers seldom get paid and when they do, often receive near-worthless IOUs. In fact, an unwritten rule encourages civil servants to leverage whatever power they wield over the general public to collect an income.

B

earing the responsibility for the highest office in the land, the president must, of course, be properly remunerated.

Robert Gabriel Mugabe, who governed Zimbabwe during 37 long years, proved much better at managing his personal finances than those of the country. In 2011, the US embassy in Harare estimated that Mr Mugabe had accumulated well over one billion dollars in assets – the rough equivalent of 5,000 times his annual income – and possibly more.

Final Thought

In 2014, first lady “Gucci” Grace deftly managed to keep a straight face when she publicly congratulated her husband on being the “poorest president the world over.” Mrs Mugabe may have mixed up US and Zimbabwe dollars, the latter now defunct. At the time of its demise, in July 2008, one billion Zimbabwe dollars (ZWR) equated to less than one-tenth of one penny.

Luckily for Mrs Mugabe, the president’s fortune is US dollar-denominated.

Admittedly, Mr Mugabe’s wealth pales in comparison to the fabulous asset portfolios built up by some of his peers. Upon his death in 1998, Nigeria’s former military ruler Sani Abacha was found to have tucked away around $3bn in tax havens across the world. His son later decided to return $1.2bn of the loot to the state’s coffers.

Another Nigerian military dictator, Ibrahim Babangida who governed the country between 182

"The Mugabes may now retire gracefully to their palatial home in the capital’s affluent Borrowdale District or to any of the fourteen other luxurious properties the couple own throughout the country."

1985 and 1993, reportedly appropriated $12bn of state funds during his time in office.

In the DRC, at the time known as Zaire, Mobutu Sese Seko amassed a $5bn fortune during his 32-year rule (1965-1997). Peanuts when considering that in Egypt the Mubarak family creamed up to $9bn off military procurement contracts and other state-funded deals. However, the richest head of state in the world hails not from the Middle East as perhaps might be expected, but from Brunei. Sultan Hassanal Bolkiah – in whom all executive power is vested and who was declared “infallible” in a 2006 constitutional amendment – possesses some $20bn, though it is hard to distinguish between his personal assets and those belonging to the state – a modern take, perhaps, on the famous dictum of France’s Sun King Louis XIV delivered in an address to the Parliament of Paris: “l’état, c’est moi” (“I am the state”).

CFI.co | Capital Finance International

Back to Africa and the Mugabes, now out of power but not yet out of luck. Clinging to power for eight days after the military moved against him in a widely-supported coup, President Mugabe apparently succeeded in negotiating a deal that affords him, his wife, and their extended family immunity from prosecution and “assured” protection in return for tendering his resignation.

The Mugabes may now retire gracefully to their palatial home in the capital’s affluent Borrowdale District or to any of the fourteen other luxurious properties the couple own throughout the country, including a number of large farms appropriated from white owners without any form of process or compensation.

By allowing Robert Mugabe to remain in the country to enjoy his ill-gotten wealth, the new government is off to an unfortunate start, sending a message – loud and clear – that it is quite alright to raid state funds and private property – no sanctions will follow. Lawlessness has now been institutionalised. All the optimism notwithstanding, the likelihood of Zimbabwe regaining any of its former glory as the granary of Africa is slim indeed. The lingering suspicion is that, as time goes by, it will transpire that one clan of thieves has been replaced by another one. The faces may change, but all else may well remain the same. i

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.