CFI.co Winter 2018-2019

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Capital Finance International

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Winter 2018 - 2019

AS WORLD ECONOMIES CONVERGE

Klaus Schwab, Founder & Executive Chairman of the World Economic Forum:

STAKEHOLDER CHAMPION 4.0 ALSO IN THIS ISSUE // WORLD BANK: SOCIAL PROTECTION IN AFRICA // PwC: POLICIES IN NIGERIA IBM: FOURTH INDUSTRIAL REVOLUTION // UN SDG LAB: ASPIRING START-UP PRESIDENT ARMEN SARKISSIAN: QUANTUM POLITICS // NASDAQ: CAPITAL SUSTAINABILITY

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Editor’s Column On Sovereignty deepen. There are few countries in the world working more closely together than the member states of the European Union. Hence, it should come as no surprise that EU member states have pooled a fair share of their sovereignty. Each nation does, however, keep its ultimate sovereignty: the freedom to leave the cooperative structure at any time. EU member states may have diluted their sovereignty to pursue a set of shared ideas and goals, but they very much remain fully sovereign states and masters of their own destiny.

In the UK, parliament is sovereign and the highest authority in the land. As such, parliament embodies the will of the British nation. In this, the UK is by no means unique: elsewhere in Europe parliaments also rule supreme. The caveat is that parliamentary sovereignty stands at odds with supranational bodies such as the European Union. For such a cooperative undertaking to work at all, limits must be placed on the sovereignty of national parliaments. In the case of the EU, its laws trump national legislation wherever there is a conflict. National parliaments cannot pass legislation that runs counter to EU law.

The parliaments of most EU member states accept this principle and recognise the need to place limits on their sovereignty. In return, EU member states receive a level playing field, more commonly known as the single market: an entity much larger than any single state and one that is governed by a single set of rules agreed upon, implemented, and maintained by all.

Editor’s Column

However, the British value their parliament’s sovereignty more than most. The product of the English Civil War and the Glorious Revolution, surrendering the hard-fought supreme authority of Westminster has caused considerable unease since the UK’s accession to the EU (then EC) in 1973. As noted at the time by Peter Shore, Labour’s shadow minister for Europe and a vociferous opponent of the UK joining the European Community, the accession treaty would “deprive the British parliament and people of the democratic rights which they have exercised for many centuries”.

The principles of Westphalian Sovereignty, first enunciated in 1648 at the end of the Thirty Years’ War, do not – and cannot - apply to the present interconnected world. The only country which, arguably, still enjoys a significant degree of Westphalian Sovereignty – the ability of a nation state to impose exclusive sovereignty over its territory without regard to external forces – is North Korea. Even so, Kim Jong-un has found that there are limits to his power as well.

As soon as nations establish relations and start to cooperate, there is an almost immediate need to check sovereignty in order to shape a mutually beneficial reality that eliminates possible points of friction. That need grows as relations 8

Brexit proves the point. The UK is free to take back the sovereignty it pooled for some 45 years. The British parliament may, indeed, take back control as it has been urged to do by voters. All problems and controversies surrounding Brexit arise not from a questioning of the UK’s sovereign prerogatives but from attempts to secure privileged divorce terms. The UK parliament cannot, of course, impose its sovereignty on others.

Thus, Brexit is, in essence, a retreat to the rather oldfashioned principles of Westphalian Sovereignty. It is also a futile exercise. The ‘Global Britain’ envisioned by the advocates of Brexit, a power propelled by its buccaneering spirit, will shortly bump into a harsh reality: in today’s world, the degree of sovereignty enjoyed by any nation is proportional to the size of its economy or the size of the bloc to which it belongs. Other factors – population, territory, military might – are slightly less important determinants.

Although the United Kingdom, for now, remains the world’s fifth-largest economy, the country will soon discover that – on its own and outside any major economic bloc – sovereignty is but a relative concept. The UK’s penchant for ‘deep and special’ relationships goes only so far and doesn’t mean much at the negotiating table.

Post-Westphalian Sovereignty is the ability to secure balanced deals or advantageous ones. It helps explain why the United States, China, and the European Union keep each other in check. Donald Trump, Jean-Claude Juncker, and Xi Jinping talk on an entirely different level than Theresa May or her successors could ever aspire to.

Although the wish to be in full control of one’s own national destiny is understandable, it also bespeaks of a certain naiveté about geopolitical realities. There are few countries in the world that have not yet discovered the advantages of pooling sovereignty and belonging to an economic bloc.

Almost all of Africa is working towards economic integration.

Asia and the Americas are likewise engaged in forming large trading blocs, following the example set by the European Union. Outside these supranational structures there is little life and almost no sovereignty left. The romantic notion of indomitable buccaneers forging trade deals and tapping into new markets is as outlandish and outdated as the idea that sovereignty is absolute and taking back full control possible.

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

Editor’s Column

UK Parliament

> Letters to the Editor

“ “ “ “

I was moved to read about UN Deputy Secretary-General Amina Mohammed (Autumn issue of CFI.co). She is perfectly right in saying that cynicism is a killer and she has no patience with those who tell us that nothing can be done - even when there are pressing needs. Yes, the dual miseries of cynicism and indifference hold us back from making our world a happier place. Clearly, Amina is someone who gets things done. She was able to get the funding in place for that much-needed hospital in the city of her birth in Nigeria.

Bravo again!

WINNIE ARMSTRONG (Cape Town, South Africa)

Sadly, Venezuela has become an embarrassment to South America. Its irresponsible government harms not only Venezuelans but also other people on the continent who get tainted by geographical association. South American countries have outgrown their tumultuous past and now embrace modernity, but Venezuela remains committed to an economic model that has produced misery and want wherever applied. It is a mystery why President Maduro insists on staying a course that has failed.

REYNALDO RAMOS (Curitiba, Brazil)

It was frightening to read (in a recent issue of CFI.co) that 20,000 firearms have gone missing in Mexico since 2006 and that most - if not all - of these weapons will have fallen into the wrong hands. I am sure the problem is serious in many other countries too and something needs to be done urgently.

Pyramidal Technologies appears to have come up with an effective registration and forensics platform to help law enforcement agencies cope with the situation. That is very good news for us all.

SUSAN SIMONS (Dubai, United Arab Emirates)

Please keep up your reporting on our country. To an outsider, Argentina may seem confusing, but there is actually a semblance of order within the chaos.

They key thing to watch for, as the country embarks on its long-overdue reform process, is what happens to the judiciary and how it deals with the corruption cases under investigation. The only thing holding Argentina back is corruption. Do away with that and you’ll have a fully developed country in no time.

VERONICA SANCHEZ (Salta, Argentina)

10

Switzerland: Davos

Winter 2018 - 2019 Issue

“ “ “

There is hope – if stock exchanges assume a major role is pushing for the greening of corporate practices. However promising and necessary green finance is, it still fails to address other equally important ills such as poor governance and inequality.

How long before people realise that they’ve been had? In the UK, the Labour Party now considers adopting a policy in its manifesto that limits pay differences in any company to a factor of 20. No CEO may take home more than 20 times the salary of his lowest-paid worker. It’s a great idea, but perhaps not a practical one. It would perhaps be better for corporations figure this out for themselves, prodded by the same market forces that push for the tightening of environmental standards.

ESTHER PHILLIPS (Leeds, UK)

Poor Ireland: surprised by Brexit, and soon home to an external border of the European Union not controlled in situ, lest sectarian violence rear its ugly head. The country stands to suffer if / when the UK finally decides to leave in union. It was heartening to see EU Commission president Jean-Claude Juncker sport a green tie in solidarity with the Irish when he met Theresa May – who again went to Brussels to ask for support of her latest Brexitmeans-Brexit-but-not-quite plan. To paraphrase Mario Draghi, the EU will do whatever it takes to lessen the effects of Brexit for the Irish. That is what the EU is for: to safeguard the best interests of its member states.

JEFFREY THOMPSON (Letterkenny, Ireland)

The movement Steve Bannon wants to set up in Europe to further his bizarre notions has no chance of success. For all the hype about the electoral advances of the far right, its share of the overall vote still hovers around 15% to 20% – which is within the historical average. Europe is fundamentally different from the United States. What works there does not work here and vice-versa. That may constitute an open door, but it is one that Steve Bannon prefers to ignore.

Then again, the man is essentially unemployed and must do something with all his free time.

KASPER PICHLER (Villach, Austria)

11

Editor Wim Romeijn

>

Assistant Editor Sarah Worthington

COVER STORIES

Executive Editor George Kingsley

Ian Fletcher

Production Editor Jackie Chapman

Fourth Industrial Revolution: New Retail (20 – 21)

Editorial Tony Lennox Kate Stanton Steve Dyson John Marinus Ellen Langford

Cover Story Stakeholder Champion 4.0 (28 – 32)

Columnists Otaviano Canuto Evan Harvey Tor Svensson Lord Waverley Ian Fletcher

Evan Harvey, Nasdaq Pushing Capital Towards Sustainability (74)

Distribution Manager William Adam

President Armen Sarkissian

Subscriptions Maggie Arts

Quantum Politics (80 – 83)

Commercial Director John Mann

Director, Operations Marten Mark

World Bank

Publisher Anthony Michael

(112 – 114)

Capital Finance International Meridien House 69 - 71 Clarendon Road Watford WD17 1DS United Kingdom

Burkina Faso Mobile Childcare Scheme Could Transform Public Works

ADDED VALUE

CONNECTOR AMPLIFIER QUESTION ASKER INNOVATOR

T: +44 203 137 3679 F: +44 203 137 5872 E: info@cfi.co W: www.cfi.co

PwC State Policies in Nigeria (117 – 119) TOOLBOX SHARING KNOWLEDGE CONVENING STAKEHOLDERS CHALLENGING MINDSETS

SDG Lab LAB

Aspiring and Resourceful UN Hub Start-Up

Editorial on p16-19, 34-35, 70-71, 179 © Project Syndicate 2018-19

INCUBATION TEST EXPERIMENT LEARN

(183 – 185)

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

ECOSYSTEM MULTI SECTORIAL MULTI STAKEHOLDER

12

GLOBAL - LOCAL CFI.co | Capital Finance International

GVA

Winter 2018 - 2019 Issue

FULL CONTENTS 14 – 35

As World Economies Converge

Otaviano Canuto

Joseph E Stiglitz

Nouriel Roubini

Ian Fletcher

Tor Svensson

Lord Waverley

Klaus Schwab

36 – 43

Winter 2018-2019 Special: Public Governance

44 – 89

Europe

FWU

Aquis Exchange

ARTICO

STOXX ALBIS NIBULON

Eurofragance

Daniel Gros

Nordea

Max Burger

Blackstone Resources AG

Armenia

Montenegro Macedonia

90 – 103

CFI.co Awards

Rewarding Global Excellence

104 – 131

Africa

CRRH-UEMOA

Madagascar

Rebekka Grun

Fidelis Finance

PwC

KenGen

ABC Banking Corporation

OCCAM

MPICO

Tanzania Malawi

132 – 147

Middle East

Metito

Infinity Solar

KIB

NewBridge Pharmaceuticals

Century Financial

American University of Beirut

Bahrain

Håvard Halland

Justin Lin

148 – 155

Editor’s Heroes

Men and Women Who are Making a Real Difference

156 – 169

Latin America

Central Bank of the Dominican Republic

ACTIVE RE

Banchile

Chile

170 – 179

North America

Anatha

Kenneth Rogoff

Peabody

NICE Actimize

180 – 201

Asia Pacific

SDG Lab

V Vaidyanathan

FBS

ArthaLand Nepal

Containers Printers

Indonesia

202

Final Thought

CFI.co | Capital Finance International

13

> Otaviano Canuto, Center for Macroeconomics and Development:

How to Heal the Brazilian Economy

I

f I were to encapsulate the current situation of the Brazilian economy in one sentence, I would say: “It is suffering from a combination of ‘productivity anemia’ and ‘public sector obesity’".

On the one hand, the country’s mediocre productivity performance in recent decades has limited its GDP growth potential. On the other, the gluttony for expanding public spending has become increasingly incompatible with the potential expansion of GDP – particularly since the former has not been achieving socioeconomic results that match such an appetite.

In my judgment, the crisis, followed by slow recovery in recent years, reflects the advanced stage of evolution of the disease, preceded by an incubation period during which its symptoms were disguised.

On August 23, the World Bank released a set of public policy notes laying down three reform paths to rediscover a trajectory of shared prosperity.

As well as proposals to improve productivity performance, the notes suggest reforms in the governance model of the Brazilian public sector.

Those reforms should be accompanied by a review of public spending as the main element of a necessary adjustment in public accounts.

Let’s start with the anaemic productivity increases in goods and services that the Brazilian economy can produce with its available material and human resources. More than half of percapita income growth over the past two decades has come from increases in the share of the economically active population, a source of expansion that will decline with the aging of the population.

CFI.co Columnist

From the mid-1990s, Brazilian production per employee has been increasing at a snail’s pace rate – just 0.7% a year – partly because the level of physical investments has remained low, but mainly because the overall efficiency in the use of human and material resources has remained stagnant (Chart 1 – left side).

"The World Bank suggests the adoption of a programme of trade liberalisation, as low productivity levels are one of the consequences of the exacerbated closure in Brazilian foreign trade. This imposes barriers to access to foreign inputs and technologies." of survival and resource retention in less efficient companies higher than in other countries. The price to be paid is in terms of lower average productivity. Such a retention of resources in inefficient uses is illustrated in the right side of Chart 1, which shows Brazil’s distribution of firms’ managerial quality compared with the US. Policies to support the private sector need to shift from compensation for high internal costs to strengthening the adoption and diffusion of technologies.

in 2017. Meanwhile, public investment declined – less than 0.7 percent of GDP last year – partly explaining the precariousness of infrastructure.

The unfavourable business environment for entrepreneurs also undermines productivity. The complexity and imbalance of the tax system is a priority item for reform. The lack of investments in infrastructure, and their declining quality in the recent past, takes another toll on productivity (Chart 2).

Not surprisingly, fiscal adjustment is another of the paths suggested by the World Bank, which noted that a path of gradual improvement in the primary balance (equivalent to that contained in the constitutional amendment establishing a spending ceiling - 0.6% of GDP per year) could allow a return to a sustainable debt trajectory in 10 years.

In the same way, financial intermediation in the country does not provide financing appropriate to investment. The World Bank also notes how the quality of education and the formation of human capital could benefit from the less-rigid allocation of public resources and sharing the successful experiences taking place in states and municipalities.

With tax revenues reflecting the decline in GDP in 2015-16 and the subsequent fragile macroeconomic recovery, a deterioration in the primary balance by more than four percentage points of GDP launched public debt on an explosive trajectory, rising from 54% to 74% of GDP between 2012 and 2017.

Given the levels achieved by public spending, as well as the automatic expansion mechanisms in place and the potential pace of GDP growth, the World Bank's macro-economic projections do not give any hope for recovery of primary balances by tax collection. Attempts to revitalise the economy via increases in public spending that is not backed by some credible fiscal adjustment plan will not be able to convince private players to believe that growth might be sustainable.

While productivity and GDP growth potential have maintained their weak increases, annual public spending has risen sharply in real terms over the past decades: 68% between 2006 and 2017. Under the assumption of a combination of a GDP As a proportion of GDP, public expenditure rose growth rate at 2.4% per year and real interest from than 30% Distribution in the 1980s to about 40% quality rates atcompared 4%, the to World Bank projects rising and of firms’ managerial the USA Totalless Factor Productivity growth during 1995-2014

Chart 1 – The productivity anemia

The World Bank suggests the adoption of a programme of trade liberalisation, as low productivity levels are one of the consequences of the exacerbated closure in Brazilian foreign trade. This imposes barriers to access to foreign inputs and technologies.

There are other factors that limit competition in domestic markets – lack of logistics infrastructure, differentiated state tax regimes, subsidies to specific firms – that make the rate 14

Chart 1 - The Productivity Anemia: Total Factor Productivity growth during 1995-2014 (left). Distribution of firms’ managerial quality

Source: World Bank, “Promoting sustainable productivity growth”, (Brazil) Public Policy Notes - Towards a fair

World Bank,23, “Promoting compared to the USA (right). Source: adjustment and inclusive growth, August 2018. sustainable productivity growth”, (Brazil) Public Policy Notes - Towards a fair adjustment and inclusive growth, August 23, 2018.

CFI.co | Capital Finance International

Winter 2018 - 2019 Issue

dampening public debt trajectories, respectively, with and without the spending cap (or an equivalent fiscal adjustment in the latter case).

(Chart 3 – left side).

its negative weight in the business environment, but also reduce the social inequality of the current system. Similar directions are also proposed for subnational public accounts.

Expenditures on social security, the public sector payroll and subsidies and tax exemptions are areas in which the World Bank highlights existing opportunities to reduce public expenditures while minimising impacts on the bottom layers of the income pyramid, and opening space for other types of public expenditure. The right side of Chart 3 shows how a pension reform will be necessary to turn the spending cap feasible.

The third path outlined by the World Bank is state reform. The mismatch between the limited growth potential that results from the "productivity anaemia" and growing public spending is aggravated by an inefficiency in the provision of several services, comprising a "public sector obesity".

If the option to reconstitute primary balances falls to some extentinvestments on the tax(% side, there are Infrastructure of GDP) possibilities for reform that would not only reduce

fragmentation of service delivery, poor planning, monitoring Quality and evaluation of projects and of infrastructure policies, human resource management (Ranking WEF – the lower the better)without

The World Bank pins the cause on an

excessive number of rules and budget rigidity, Chart 2 – Infrastructure investments

Chart 3 – Fiscal obesity

Projections of General Government Gross Debt,

without and with spending cap (GDP growth (% at of GDP) (left). Quality of infrastructure (Ranking WEF – the lower the Chart 2 - Infrastructure Investments: Infrastructure investments

Source: World Bank, “Overcoming the challenge of improving and expanding infrastructure services”, (Brazil) 2.4%% and real interest at Projection of rate pensions expenditures and rule (% ofservices”, GDP) (Brazil) Public Policy Source: Bank, the 4%) challenge of improving and spending expanding infrastructure better)Policy (right).

Public Notes -World Towards a“Overcoming fair adjustment and inclusive growth, August 23, 2018.

Notes - Towards a fair adjustment and inclusive growth, August 23, 2018.

Spending cap

positive performance incentives, judicialisation of policy decisions, and growing risk-aversion in the bureaucracy. Chart 4 illustrates these points by displaying the evolution of earmarked revenues (left side) and results achieved by public spending (right side).

This is true for health, education, violence, infrastructure, transportation and logistics and water resources management. In all these areas, greater consistency between planning and execution, emphasis on evaluation, and higher fine-tuning between public and private sectors would lead to better socio-economic results per unit of public expenditure.

An acknowledgement of the double malaise afflicting the Brazilian economy here approached can be noticed in some policy priorities already hinted by the government team to assume on January 1st: maintenance of the spending cap, for which a pension reform and some deindexation of revenues and expenditures will be necessary; a gradual foreign trade opening; a tax reform; privatization as a way to help adjust the public-sector balance sheet; reinforcement of market-friendly aspects of infrastructure regulation; moving ahead with the agenda of “microeconomic reforms” pursued by the outgoing government and others. The feebleness of the on-going macroeconomic recovery will open some space for a higher GDP growth in 2019. A transition to a new sustained growth path, however, will depend on the success of the new government in using the opportunity to make real those intended reforms. i

ABOUT THE AUTHOR Otaviano Canuto is a world-renowned economist and the principal for the Center for Macroeconomics and Development (Washington, D.C.). He is a former Vice President and a former Executive Director of the World Bank, as well as a former Executive Director of the IMF and privateGross sector; RPPS: public Chart 3 - Fiscal Obesity: Projections of General RGPS: Government Debt, without andsector with spending cap (GDP growth at 2.4%% and a former Vice President of the Inter-American Source: World(Brazil) Bank, “Fiscal real interest rateBank, at 4%)“Fiscal (left). Projection of pensions expenditures and spending rule to (%aofsustainable GDP) (right).fiscal Development Bank. Otaviano has been a regular Source: World stabilization and fiscal adjustment: returning path”, Public Policyand Notes Towards a returning fair adjustment and inclusive growth, 23, 2018.

Brazil’s state and spends more most peers but stabilization fiscal- adjustment: to a sustainable fiscal path”, (Brazil)August Public Policy Notes - Towards a fair adjustment columnist for than CFI.co for the last six years.

Evolution of earmarked revenues Follow him on Twitter: @ocanuto inclusive growth, August 23, 2018. achieves less

Chart 4 – Public sector obesity

CFI.co Columnist

Chart 4 - Public Sector Obesity: Evolution of earmarked revenues (left). Brazil’s state spends more than most peers but achieves less (right).

Source: WorldWorld Bank, “Reforming the “Reforming state”, (Brazil) Publicthe Policy state”, Notes - Towards a fair adjustment andPolicy inclusive growth, August 23, 2018.

Source: Bank, (Brazil) Public Notes - Towards a fair adjustment and inclusive growth, August 23, 2018.

CFI.co | Capital Finance International

15

> Joseph E Stiglitz:

Beyond GDP

J

ust under ten years ago, the International Commission on the Measurement of Economic Performance and Social Progress issued its report, Mismeasuring Our Lives: Why GDP Doesn’t Add Up. The title summed it up: GDP is not a good measure of wellbeing. What we measure affects what we do, and if we measure the wrong thing, we will do the wrong thing. If we focus only on material wellbeing – on, say, the production of goods, rather than on health, education, and the environment 16

– we become distorted in the same way that these measures are distorted; we become more materialistic.

We were more than pleased with the reception of our report, which spurred an international movement of academics, civil society, and governments to construct and employ metrics that reflected a broader conception of wellbeing. The OECD has constructed a Better Life Index, containing a range of metrics that better reflect what constitutes and CFI.co | Capital Finance International

leads to wellbeing. It also supported a successor to the Commission, the High Level Expert Group on the Measurement of Economic Performance and Social Progress. Last week, at the OECD’s sixth World Forum on Statistics, Knowledge, and Policy in Incheon, South Korea, the Group issued its report, Beyond GDP: Measuring What Counts for Economic and Social Performance.

The new report highlights several topics, like trust and insecurity, which had been only briefly

Winter 2018 - 2019 Issue

freedom to fire them, leading in turn to lower wages and more insecurity. Better metrics would, at the minimum, weigh these costs against the benefits, possibly compelling policymakers to accompany such changes with others that enhance security and equality.

Spurred on by Scotland, a small group of countries has now formed the Wellbeing Economy Alliance. The hope is that governments putting wellbeing at the center of their agenda will redirect their budgets accordingly. For example, a New Zealand government focused on wellbeing would direct more of its attention and resources to childhood poverty.

Better metrics would also become an important diagnostic tool, helping countries both identify problems before matters spiral out of control and select the right tools to address them.

Had the US, for example, focused more on health, rather than just on GDP, the decline in life expectancy among those without a college education, and especially among those in America’s deindustrialised regions, would have been apparent years ago.

Likewise, metrics of equality of opportunity have only recently exposed the hypocrisy of America’s claim to be a land of opportunity: Yes, anyone can get ahead, so long as they are born of rich, white parents. The data reveal that the US is riddled with so-called inequality traps: Those born at the bottom are likely to remain there. If we are to eliminate these inequality traps, we first have to know that they exist, and then ascertain what creates and sustains them.

A little more than a quarter-century ago, US President Bill Clinton ran on a platform of “putting people first.” It is remarkable how difficult it is to do that, even in a democracy. Corporate and other special interests always seek to ensure that their interests come first. The massive US tax cut enacted by the Trump administration at this time last year is an example, par excellence. Ordinary people – the dwindling but still vast middle class – must bear a tax increase, and millions will lose health insurance, in order to finance a tax cut for billionaires and corporations.

addressed by Mismeasuring Our Lives, and explores several others, like inequality and sustainability, more deeply. And it explains how inadequate metrics have led to deficient policies in many areas. Better indicators would have revealed the highly negative and possibly long-lasting effects of the deep post-2008 downturn on productivity and wellbeing, in which case policymakers might not have been so enamored of austerity, which lowered fiscal deficits, but reduced national wealth, properly measured, even more.

Political outcomes in the United States and many other countries in recent years have reflected the state of insecurity in which many ordinary citizens live, and to which GDP pays scant attention. A range of policies focused narrowly on GDP and fiscal prudence has fueled this insecurity. Consider the effects of pension “reforms” that force individuals to bear more risk, or of labor-market “reforms” that, in the name of boosting “flexibility,” weaken workers’ bargaining position by giving employers more CFI.co | Capital Finance International

If we want to put people first, we have to know what matters to them, what improves their wellbeing, and how we can supply more of whatever that is. The Beyond GDP measurement agenda will continue to play a critical role in helping us achieve these crucial goals. i ABOUT THE AUTHOR Joseph E Stiglitz is the winner of the 2001 Nobel Memorial Prize in Economic Sciences. His most recent book is Globalization and its Discontents Revisited: Anti-Globalization in the Era of Trump.

17

> Nouriel Roubini:

Why Central Bank Digital Currencies Will Destroy Cryptocurrencies

T

he world’s central bankers have begun to discuss the idea of central bank digital currencies (CBDCs), and now even the International Monetary Fund and its managing director, Christine Lagarde, are talking openly about the pros and cons of the idea.

in countries such as Sweden and China. At the same time, digital payment systems – PayPal, Venmo, and others in the West; Alipay and WeChat in China; M-Pesa in Kenya; Paytm in India – offer attractive alternatives to services once provided by traditional commercial banks.

This conversation is past due. Cash is being used less and less, and has nearly disappeared

Most of these FinTech innovations are still connected to traditional banks, and none of

18

CFI.co | Capital Finance International

them rely on cryptocurrencies or blockchain.

Likewise, if CBDCs are ever issued, they will have nothing to do with these over-hyped blockchain technologies.

Nonetheless, starry-eyed crypto-fanatics have seized on policymakers’ consideration of CBDCs as proof that even central banks need blockchain or crypto to enter the digital-currency game. This

Winter 2018 - 2019 Issue

is nonsense. If anything, CBDCs would likely replace all private digital payment systems, regardless of whether they are connected to traditional bank accounts or cryptocurrencies.

As matters currently stand, only commercial banks have access to central banks’ balance sheets; and central banks’ reserves are already held as digital currencies. That is why central banks are so efficient and cost-effective at mediating interbank payments and lending transactions. Because individuals, corporations, and non-bank financial institutions do not enjoy the same access, they must rely on licensed commercial banks to process their transactions.

Bank deposits, then, are a form of private money that is used for transactions among non-bank private agents. As a result, not even fully digital systems such as Alipay or Venmo can operate apart from the banking system.

By allowing any individual to make transactions through the central bank, CBDCs would upend this arrangement, alleviating the need for cash, traditional bank accounts, and even digital payment services. Better yet, CBDCs would not have to rely on public “permissionless,” “trustless” distributed ledgers like those underpinning cryptocurrencies. After all, central banks already have a centralised permissioned private non-distributed ledger that allows for payments and transactions to be facilitated safely and seamlessly. No central banker in his or her right mind would ever swap out that sound system for one based on blockchain.

If a CBDC were to be issued, it would immediately displace cryptocurrencies, which are not scalable, cheap, secure, or actually decentralised. Enthusiasts will argue that cryptocurrencies would remain attractive to those who wish to remain anonymous. But, like private bank deposits today, CBDC transactions could also be made anonymous, with access to account-holder information available, when necessary, only to law-enforcement authorities or regulators, as already happens with private banks. Besides, cryptocurrencies like Bitcoin are not actually anonymous, given that individuals and organisations using crypto-wallets still leave a digital footprint. And authorities that legitimately want to track criminals and terrorists will soon crack down on attempts to create crypto-currencies with complete privacy.

"If CBDCs are ever issued, they will have nothing to do with these over-hyped blockchain technologies."

Insofar as CBDCs would crowd out worthless cryptocurrencies, they should be welcomed.

Moreover, by transferring payments from private to central banks, a CBDC-based system would be a boon for financial inclusion. Millions of unbanked people would have access to a nearfree, efficient payment system through their cell phones.

The main problem with CBDCs is that they would disrupt the current fractional-reserve system through which commercial banks create money CFI.co | Capital Finance International

by lending out more than they hold in liquid deposits. Banks need deposits in order to make loans and investment decisions. If all private bank deposits were to be moved into CBDCs, then traditional banks would need to become “loanable funds intermediaries,” borrowing longterm funds to finance long-term loans such as mortgages.

In other words, the fractional-reserve banking system would be replaced by a narrow-banking system administered mostly by the central bank.

That would amount to a financial revolution – and one that would yield many benefits. Central banks would be in a much better position to control credit bubbles, stop bank runs, prevent maturity mismatches, and regulate risky credit/ lending decisions by private banks.

So far, no country has decided to go this route, perhaps because it would entail a radical disintermediation of the private banking sector.

One alternative would be for central banks to lend back to private banks the deposits that moved into CBDCs. But if the government was effectively banks’ only depositor and provider of funds, the risk of state interference in their lending decisions would be obvious.

Lagarde, for her part, has advocated a third solution: private-public partnerships between central banks and private banks. “Individuals could hold regular deposits with financial firms, but transactions would ultimately get settled in digital currency between firms,” she explained recently at the Singapore Fintech Festival.

“Similar to what happens today, but in a split second.” The advantage of this arrangement is that payments “would be immediate, safe, cheap, and potentially semi-anonymous.”

Moreover, “central banks would retain a sure footing in payments.”

This is a clever compromise, but some purists will argue that it would not solve the problems of the current fractional-reserve banking system.

There would still be a risk of bank runs, maturity mismatches, and credit bubbles fueled by private-bank-created money. And there would still be a need for deposit insurance and lenderof-last-resort support, which itself creates a moral hazard. Such issues would need to be managed through regulation and bank supervision, and that wouldn’t necessarily be enough to prevent future banking crises.

In due time, CBDC-based narrow banking and loanable-funds intermediaries could ensure a better and more stable financial system. If the alternatives are a crisis-prone fractional-reserve system and a crypto-dystopia, then we should remain open to the idea. i ABOUT THE AUTHOR Nouriel Roubini is Professor of Economics at the Stern School of Business, New York University, and CEO of Roubini Macro Associates.

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> Ian Fletcher - Fourth Industrial Revolution:

New Retail – Reimagining the Shopping Experience

We live at a critical inflection point in history, where the convergence between our physical, digital and biological worlds are accelerating at an unprecedented rate.

T

his is particularly evident in the case of the retail industry, which has been forced to rethink its engagement approach, resulting in the creation of new platform-based business models that monetise a company’s data assets, leverage the surrounding ecosystem and improve the customer experience. This is referred to as New Retail, and it is transformative in nature, enabling increased customer personalisation – if not individualisation – by allowing consumers to tailor their shopping experiences.

New Retail represents more than just the digital transformation of the High Street; it is a prerequisite for an immersive culture of engagement in a new data-led, on-demand economy.

THE BUSINESS CHALLENGE The traditional high street economy has been in decline, relative to retail e-commerce growth by players such as Amazon and Alibaba.

CFI.co Columnist

We’ve all witnessed the shift in shopping behaviour from the physical to online, forcing some shops to close and malls to rethink the way they attract customers. This economic change has come about through a combination of factors: • weakness in consumer spending due to income pressures • the rise of e-commerce and digital disruption from the online giants • a change in demographic behaviour • changes in buying culture from “things” (products) to experiences.

If the retail industry is to fight back, a new approach is required: one that integrates a complete customer experience. If we erase the lines between mouse-click and bricks and mortar, and reimagine the experience that consumers actually seem to want, we can create something that is immersive and engaging, driving brand advocacy.

SMILING ASSASSINS OR SAVIOURS? It is with some irony that the organisations that previously disrupted the physical world with their

‘If we erase the lines between mouse-click and mortar, and reimagine the experience that consumers actually want, the possibilities are endless.’ online offerings are now seeking to enter, and even dominate, the physical markets – with some radical new value propositions.

Estimates show that around two-thirds of leading e-commerce brands have opened physical spaces in the past three years. These businesses are turning the physical and digital models upside-down, looking at the problem through customers’ eyes, while capitalising on technological advances in areas such as data, artificial intelligence and virtual reality. It’s possible that those disruptors could actually become tomorrow’s high street saviours.

Amazon recently strengthened its hold in the $750bn grocery market by purchasing Whole Foods Market for $13.7bn. Amazon has not stopped there, and has been experimenting with new formats like Amazon Go – the checkout-free store concept, where shoppers use their Amazon Go app to be automatically charged for whatever products they carry out.

Online car dealership Carvana recently launched a first-of-a-kind, fully-automated, coin-operated car vending machine, creating a better consumer experience using technology, robotics automation and forward-thinking design. Traditionally, brick-and-mortar dealerships often leave a lot to be desired from a customer-engagement standpoint, focusing on the features and benefits, selling inflated finance and the hard close. Today’s consumer demands a far more interactive experience, with greater choice, brand variety and options for personalisation – all now available online. Carvana's Car Vending Machine dispenses cars originally purchased online to customers through a fully-automated process,

cutting out the dealership sales process and improving the overall experience.

Another organisation not only embracing New Retail, but rewriting the rules, is Alibaba, which recently launched its first Fashion Artificial Intelligence (AI) concept store in Hong Kong.

The initial experience relies on creating a feeling of familiarity – the physical elements – to enable a smooth transition and draw consumers into the new concept. The store looks like any other fashion store, with neat racks of clothes and shop assistants on hand. The second experience element is concerned with engagement, with consumers being treated to a more immersive experience by integrating the physical and the digital, merging the offline with the online.

In Alibaba’s case, the digital experience starts when shoppers are provided with the opportunity to check into the store via their mobile device or, if they prefer, facial recognition. All items in the store are tagged with radio-frequency identification (RFID). As the shopper selects items, they are virtually displayed in a Smart Mirror. This provides a new visual experience to help the consumer look at different sizes, colours and accessories, facilitating personalised mixand-match options to complete an ensemble.

Customers then add their chosen items to their virtual shopping cart and the items are delivered to the fitting room.

A special feature is virtual assistance on your style preferences. AI becomes your new best friend, and enables staff to become more like personal shoppers, working with the aid of technology.

When the visit is complete, the shopper can choose to take the items home or place them in an online shopping cart for delivery. The subtle integration of underlying technology provides the consumer with the ability to leverage voice and facial-recognition, augmented reality and deep learning. What makes this whole New Retail approach unique is the ability to personalise the experience.

REALISING THE BENEFITS From a business-efficiency perspective, virtual

‘Disruptors from the past could actually become the saviours of tomorrow’s High Street.’

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to converge. If retailers are to survive and thrive, they must embrace the change and come up with new methods of engagement. The industry must design integrated experiences that incorporate multiple channels, reduce complexity, focusing on individualisation. If experience is king, then curation is queen.

New Retail consumers are likely to demand a more variable set of offerings and will be more open to new ideas. Technology is – and will continue to be – an integral part of the experience, and should be harnessed to gain deeper insights into consumer choices. The future is Human plus Machine – with data, AI and perpetual innovation being the lifeblood of every organisation.

This game changing approach represents the opportunity to reinvent business models, open new channels, and reimagine practically everything. i ABOUT THE AUTHOR Ian Fletcher was educated in the UK, graduating from Birmingham University, and built a successful career in IBM Global Technology Services and Global Markets. With over 30 years’ experience in technology and business consulting services, Fletcher leads the IBM IBV C-Suite study for the Gulf and Levant Region.

Fletcher also runs IBM’s local thought-leadership programme, advising clients on business transformation and strategy. Fletcher has recently competed his research on the impact of the Fourth Industrial Revolution and, in turn, its impact on the C-Suite.

Texas, United States: Carvana opens Houston car vending machine

selections help the store maintain and track inventory through real-time analytics, which in turn is fed back to the thousands of business partners throughout the supply chain. The collaborative elements and sensory devices are helping businesses understand lifestyle behaviours, preferences, buying patterns and the propensity to buy.

for this transformation, connecting bodies with supply chain through wearables, augmentation, virtual reality and “smart mirrors” acting as an interface from our homes. A Japanese retailer, Zozo, recently created a concept using a polkadot suit to bring custom-fit clothes to the world.

The next logical step is for retailers to migrate towards a new biological, sensory experience.

The Internet of Everything will be the catalyst

CONCLUSION As we head into the Fourth Industrial Revolution, physical, digital and biological worlds are starting CFI.co | Capital Finance International

ABOUT IBM INSTITUTE FOR BUSINESS VALUE The IBM Institute for Business Value, part of IBM Services, develops fact-based strategic insights for senior business executives around critical public and private sector issues.

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

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CFI.co Columnist

The real business opportunity, however, is the ability to leverage the phenomenal investment in a platform. These platform business models build trust and “stickiness,” to keep customers coming back, encouraging brand engagement, widening the appeal and providing the gateway into new collaboration. Commercial benefits can be realised by monetising the platform asset, providing access in exchange for shared data.

This provides a ready-made vehicle to attract a completely new set of retailers and sellers who want to open the market to wider audiences.

Zozo sends out its Zozosuit to the consumer. The suit is covered in more than 300 stretchable markers that the Zozo app reads to determine detailed body measurements. Algorithms process all the data to determine a perfect fit. The possibilities for the sensory market are endless, and by using more advanced forms of personal data elements – such as biometrics and body scanning – retailers can take the interaction to another level altogether. This next evolutionary step will facilitate new business-model opportunities, moving the industry towards “realtime” or “just-in-time” manufacturing for a dataled, on-demand economy.

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

> Tor Svensson, Chairman CFI.co:

AI Convergence in 4IR Artificial intelligence (AI) and machine learning are gaining a strong foothold across numerous applications, lowering the barriers to the use and availability of data (figure 1). From now on, AI will not only be relevant to just a few large corporations but will form an integral part of most business strategies and is likely to influence our daily lives in more ways than we may recognise (figure 2).

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ew cloud-based and AI-enhanced enterprise-as-a-service software requires less expertise and lower upfront investment. Companies no longer need to develop their own applications and end users do not need to gain extra knowledge or learn a new interface as AI runs in the background (figure 3).

CFI.co Columnist

As an emerging technology, AI is taking hold as virtual assistants, chatbots, deep learning (see below) autonomous systems (e.g. selfdriving cars), and natural language processing.

AI innovation and sophistication is on an exponential growth curve. AI promises a new cognitive partnership between man and machine.

From assisted intelligence, the future holds new forms of augmented intelligence and autonomous intelligence. Automation based on robotics and machine learning facilitates functional (and sophisticated) jobs today.

Tomorrow, the opportunities will arise from artificial augmentation and the Internet-of-Things powered by 5G connectivity. This is not about single technologies but the convergence of many cognitive enterprise systems all inter-connecting with AI and exponential data at the centre.

DIFFERENCE TO MACHINE LEARNING One definition of AI is intelligence demonstrated by machines as opposed to natural intelligence by humans. Thus, AI is the science of engineering

intelligent machines. AI research identifies three types of systems: 1. Analytical (with cognitive learning and decision making) 2. Human-inspired (as above plus emotions) 3. Humanised artificial intelligence (as above plus self-consciousness and self-awareness) AI and machine learning are often used interchangeably. Yet, machine learning can be defined as systems learning and improving (as in ‘Analytical’ above). Thus, machine learning is a specific subset of AI that excludes emotions, self-consciousness and self-awareness – and also human (DNA hardwired) dimensions such as ethics and morals. AI is not confined to biologically observable approaches only. Whilst the world has been able to construct machine learning systems, it still has fallen short of ‘broader’ AI with human aspects as mentioned above.

DEEP NEURAL NETWORKS AI and machine learning comprise deep-learning neural networks. Here, ‘deep’ simply means more sophisticated neural networks that have multiple layers which interconnect. Neural networks include new performance offerings with current relevance such as: • Computer vision (e.g. face recognition and visuals for cars) • Natural language processing • Big data predictions and analytics

"AI innovation and sophistication is on an exponential growth curve. AI promises a new cognitive partnership between man and machine."

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CFI.co | Capital Finance International

virtual assistants

life sciences

workforce management

entertainment

consumer goods

arts

driverless cars

insurance

smart cities

environment decision support

neuroscience

energy

customer service

Winter 2018 - 2019 Issue

Internet of Things (IoT) FinTech

ITautomotive automation logistics

detecting defects

linguistics

manufacturing

predictive analytics

cybersecurity

Robotics

facial visual bioinformatics

healthcare

digital marketing

speech recognition

RegTech

ICT

agriculture

quality control

payments

sales optimization

risk management

Figure 1: Articial intelligence (AI) key uses. Source: CFI.co

CFI.co | Capital Finance International

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CFI.co Columnist

and machine learning into new products that, in performance. They also increase the capacity for The new neural networks can be based on Figure 1. Artificial Intelligence (AI) Key Uses Source: CFI.co continuous change whilst building a cognitive neuromorphic chips that mimic the brain’s turn, streamline decision-making processes. platform, encompassing self-learning systems, neurons with a lot more power than current chips.

AI in the fourth industrial revolution (4IR) is a natural language processing, robotic process continuum promising a convergence of new automation, enhanced data intelligence, AI CONFLUENCE IN 4IR technologies such as, for example, quantum augmented reality, and predictive patterns – all The dream of AI has gripped the imagination of philosophers throughout the ages. Machine computing. The fusion of digital and biological accessible through an open API (application technologies empowers the internet-of-things and program interface). These elements should be learning has evolved since the 1950s with the supported by a cognitive journey map, cognitive advent of computing power. First came the internet-of-everything (figure 4). enabled workflows, business process automation counting computer (spreadsheets) and after As Ian Fletcher from IBM explains in the CFI.co – empowering businesses to make faster and that the programmable era. We are now at the tail end of the third industrial revolution in the summer 2018 issue, the 4IR and augmentation more informed decisions. In short, AI and cognitive era where new available resources and come together to capitalise, cultivate, and 4IR technology confluence must be culturally technology (figure 3) allow the embedding of AI orchestrate data assets in order to improve imbedded in the corporate DNA.

Microsoft (1,000+ patents) China BAT (Baidu, Alibaba, Tencent)

The many businesses & consumers Future

The few giants only

Past

Google DeepMind IBM Watson

Figure 2. The future for AI industry is for the many businesses, not just the few giants

Salesforce Einstein

Source: CFI.co

Amazon Echo Microsoft (1,000+ patents) China BAT (Baidu, Alibaba, Tencent)

Future

Past

Figure 2: The future for AI industry is for the many businesses, not just the few giants. Source: CFI.co

Figure 2. The future for AI industry is for the many businesses, not just the few giants

New availability of resources in the form of:

Source: CFI.co

More AI experts

$13 trillion

(& fewer needed)

contribution to global economy by 2030

Big data Cloud computing processing power (infrastructure & chips)

Enterprise software

Powers new uses & applications

(built-in AI), e.g. SAP

MOORE’S LAW AND METCALFE’S LAW. This meteoric change is made possible in the fourth industrial revolution because of two key observational concepts: Moore’s law and Metcalfe’s law.

Moore's law is the observation that the number of transistors in a dense integrated circuit doubles about every two years, whilst Metcalfe's law states the effect of a telecommunications network is proportional to the square of the number of connected users of the system (n2).

The less costly devices made possible by Moore’s law, increase the number of nodes boosting the network's value in Metcalfe’s law. One key outcome is more powerful chips designed to mimic human behaviour.

New fourth industrial revolution neuromorphic chips have biological inspired neuro transmitters growing and learning - providing an exponential level of extra intelligence. Other ground-breaking and powerful technologies are starting to emerge – such as DNA computing, which permits the storage of hundreds of trillions of terabytes of data on 1 gram of human DNA, fusing our digital and biological worlds.

AI’s relevance is forming part of - and being at the heart of - the confluence of this brave new world of 4IR technologies, which must be well understood in order to harness its full potential.

Will AI develop consciousness - and if so, what are the moral and ethical implications? i ABOUT THE AUTHOR Tor Svensson is the Chairman of Capital Finance International.

4IR & AI: Fusion of Digital & Biological Technologies

AI development platform & tools Figure 3: New availability of resources powers AI growth. Source: CFI.co

New availability of resources in the form of:

"AI in the fourth industrial More AI experts (& fewer needed) revolution (4IR) is a continuum$13 trillion contribution to Big data global promising a convergence of new by economy 2030 Cloud computing processing power technologies such as, forPowers example, (infrastructure & chips) new uses & quantum computing. The fusion of applications Enterprise software (built-in AI), e.g. SAP digital and biological technologies AI development platform & tools empowers the internet-of-things internet-of-everything."

Figure 3.and New availability of resources powers AI growth

Digital

Source: CFI.co

Artificial Intelligence Blockchain technology DNA Computing

Neuro Chips

Biological

CFI.co Columnist

Figure 3. New availability of resources powers AI growth

Source: CFI.co Figure 4: Technology Convergence in the 4th Industrial Revolution Source: CFI.co

Figure 4. Technology Convergence in the 4th Industrial Revolution 24

CFI.co | Capital Finance International Source: CFI.co

> Financial Centres Promote Economic Development:

AIFC Goes for Growth by Backing SMEs Globally International Financial Centres (IFCs) are a necessary component of national and global economic growth. And increasingly, it is co-operation between IFCs, rather than competition, that drives the development agenda of the world’s established and emerging financial centres.

A

s the Astana International Financial Centre secures its place alongside the top level of global IFCs – and as a vital hub for finance in Central Asia – it has chosen support for SMEs as one of its major contributions to global IFC co-operation.

SME support is also a core programme for the World Association of International Financial Centres, with the SME initiative to be led by Astana IFC. Globalisation and the increasingly transnational nature of financial events have accelerated, and brought more attention to, the role of International Financial Centres.

IFCs provide clusters of excellence and expertise in financial and related professional services, which can benefit the development of a national economy and – as part of an integrated network – deliver a stronger, safer and more prosperous world.

Kazakhstan's President Nazerbayev greets Lord Woolfe, Chief Justice at AIFC Court

CFI.co Columnist

The major global IFCs of London, New York, Hong Kong and Singapore reinforce the structural moves towards global IFCs acting as a template for the development of others. A series of IFCs have developed into regional hubs. Astana, Tokyo, Shanghai and Toronto are being joined by the likes of Moscow, Istanbul and Dubai as they develop. Specialist hubs and local centres which have a strong, but more limited, international footprint are – for example – Geneva/Zurich, Sao Paulo, Johannesburg, and Mumbai.

Whilst not all IFCs aspire to be global, a welltargeted local or regional offer can bring success for emerging centres as they seek to develop niches or provide a set of products. Dublin and Luxembourg are successfully pursuing a focused strategy. Rather than seeing the growth of other IFCs as a threat to older, more established IFCs, they see the development as an opportunity for partnerships to stimulate growth. Newer IFCs have challenged larger ones to be more innovative, and to respond to competitive dynamics. TheCityUK – a membership organisation that supports the UK-based financial and related professional services industry and promotes London’s leading position as an international financial centre is seen as playing a major role in this regard.

This puts regional IFCs at the heart of a trend with mutual benefits of co-operation in a 26

changing pattern of world trade, and the focus will remain on those regional developments.

The concentration, or cluster effect, of financial and related professional services will facilitate innovation, diversification and flexibility.

Financial centres, therefore, are key to sustaining economic growth, and the importance of SME support must be recognised as crucial. The IFC concept can provide the infrastructure for investment and savings that drives entrepreneurial endeavours and economic growth. They embrace innovation in finance and actively contribute to its development. And innovation, especially in the area of financial technology, or fintech, is increasingly a cross-border activity, with its developers setting-up wherever their work can flourish.

world – while contributing 50% of gross value added?

The majority of SMEs are still primarily reliant on bank financing, but innovations in technology and market-based financing solutions offer viable and sought-after alternatives. This reinforces the focus on the contribution of IFCs to introduce a product range with innovation, backed by experience and the necessary delivery systems.

Step forward the World Alliance of International Financial Centres (WAIFC) , with its 11 financial centres. The formation launched a strategic alliance in July 2018 which intends serve the greatest needs by sharing best practice and cross-fertilization between IFCs in a developing dialogue. Importantly, it is project-driven.

Leading IFCs, Astana among them, have identified this phenomenon and, through international cooperation and the adoption of best international practice, look to build an environment that will encourage and support the innovators and disruptors of the next generation.

Focus will initially be on concrete projects in 1. Data on financial centres 2. Contribution of financial centres to Green investment and infrastructure 3. New fintech developments 4. The role of financial centres in the economy

So what are the needs and constraints acting as a barrier for SMEs to expand and export, given that they provide more than 60% of employment worldwide, and 80% of jobs in the developed

The founding members of this new international non-profit association are: • Abu Dhabi Global Market • Astana International Financial Centre Authority

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Winter 2018 - 2019 Issue

• Belgian Finance Club • Busan International Financial City Promotion Centre, BEPA • Casablanca Finance City Authority • Frankfurt Main Finance • Luxembourg for Finance • Moscow: Analytical Centre Forum • Oman: The Capital Market Authority • Paris EUROPLACE • Toronto Finance International London currently holds Observer Status at WAIFC. So, where does the Astana International Finance Centre (AIFC) see its position as an emerging IFC? AIFC is a new brand of financial centre that, together with its members, will develop a financial ecosystem to enable the creation of a capital market, and an SME financial platform.

The centre will play a pivotal role for SMEs by focusing attention on the role that the financial industry provides in assisting to build capacity and support for SMEs. The perception of the financial industry will change accordingly, as people begin to recognise the importance for financial institutions and centres in which they operate. How financial centres can be enhanced with more SME support projects, including to trade finance, will be at the core of AIFC’s contribution to the emerging association by ensuring access to essential data and delivery as part of the financial ecosystem.

The Astana IFC was conceived in December 2015 by decree from Kazakh President Nursultan Nazarbayev as part of a major package of structural reform, with the purpose of creating a leading centre of financial services at an international level. The Astana Financial Centre has achieved much with the assistance of UK-based firms and their expertise, and through TheCityUK’s network of international relationships. Key goals include a target of getting 500 companies resident at the centre by the end of 2020.

Many of the key points for the successful development of an IFC, recently highlighted by TheCityUK, are relevant as a basis for what AIFC is achieving: • an independent regulatory environment that is fair and transparent • a business climate that facilitates new products and ideas • a fiscal policy that is clear and competitive • the ability to access markets internationally for both trade and investment • openness to foreign investors • a highly regarded and impartial legal system based on common law.

• focus on soft infrastructure, including market infrastructure, the exchanges, data management, telecommunications, and security, and hard infrastructure relating to connectivity, transport and accommodation • a skilled and diversified labour force.

Astana has now positioned itself as the business and financial hub for Central Asia. The innovative concept has the objectives of attracting investments by creating an attractive environment, and developing the securities market – thus ensuring its integration with international capital markets.

As the major financial centre in Central Asia, the AIFC is also positioned to lead for the region on the critical initiatives developing under the China Belt and Road Initiative, the new Silk Roads.

The AIFC court has exclusive jurisdiction in relation to the consideration and resolution of disputes arising between AIFC participants, AIFC bodies and / or their foreign employees. Disputes submitted by mutual consent to the AIFC Court are also considered in the jurisdiction of the AIFC Court.

The International Arbitration Centre (IAC) provides an independent, cost-effective and CFI.co | Capital Finance International

In addition, the Astana International Exchange (AIX) contains four key factors by providing: • financial services, including issuing bonds and shares, hedging instruments including currency risk, and an offshore centre for the yuan (RMB).

• the main platform for the privatisation of national companies in the framework of the implementation of the Comprehensive Privatisation Plan for 2016-2020.

• trading in securities, commodity and derivative instruments denominated in tenge, rubles, US dollars and yuan; and • subsoil users, with a new platform for attracting investments.

I have been privileged to have seen the extraordinary regional transformation and growth since the early days of the creation of the newly independent states, and I have attempted to assist in a minor way.

I am delighted for the region, knowing that it will make a significant contribution to strengthening co-operation – including global co-operation – through common endeavours working to internationally agreed standards. This has been confirmed to me by friends around the region who see an ever-closer-knit, and highly professional, community.

The governor of the Astana Financial Centre, His Excellency Dr. Kairat Kelimbetov, reaffirmed this to me. He wishes it to be known that the AIFC will become a centre of excellence, providing high quality services to facilitate regional economic growth and diversification. He intends to increase transparency and business standards, fully aligned to international standards and operating under English common law, creating a single pool of liquidity for local and international investors.

It is my hope that those attending Davos will take note. i

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

CFI.co Columnist

English common law is viewed as being more flexible in responding to the development of financial services, and is the prime reason why more than half of the world’s commercial contracts are governed

by English law in judicial and non-judicial dispute resolution.

Astana recognises this, and has developed, with the support of TheCityUK HE Dr Kairat Kelimbetov, Governor of Astana International Financial Centre and its membership from the Uk-based financial The development of new financial technologies is and related professional services industry, the one of the priorities of the AIFC. The main task AIFC Court and International Arbitration Centre, is to create the most favourable conditions for the independent of the AIFC in its activities. It creation and development of fintech projects, with operates in accordance with the best international modern infrastructure, flexible regulation and the standards for resolving civil and commercial ability to attract strategic investors. disputes under the Common law court system.

operational alternative to litigation, and acts in accordance with the best international standards for resolving civil and commercial disputes in the AIFC. This offers the parties the most flexible choice of rules and procedures to resolve disputes.

Advisor to the Chairman CCC group of companies Founder SupplyFinder.com jd@lordwaverley.com 27

A Possibly Inconvenient Contribution to the Davos Agenda:

THE FOOLISH YET CURIOUSLY IMPORTANT PURSUIT OF CHECKING UNBRIDLED PROGRESS

By Wim Romeijn

The Fourth Industrial Revolution is here to stay. Unfolding at the confluence of the physical and biological worlds, the push into ultratech is set to deliver dramatic change to the way people live their lives, businesses pursue their profits, and governments rule societies.

T

he speed at which this revolution develops is greater than the average observer can gauge. Rapid advances in artificial intelligence, robotics, biotech, and many other fields create an ever-widening gap between everyday life and its familiar (dis)comforts on the one hand, and the brave new world imagined and shaped by scientists and forward thinkers on the other.

Cover Story

Match that to the shrinking world brought about by globalisation, now also in its fourth iteration, and an unstoppable juggernaut emerges. Only fools stand in the way of progress, but we need to define what constitutes true progress.

Humanity may, at best, aspire to channel the avalanche of progress that is about to engulf it in ways that promote the greater good. It is precisely this question that will be considered as a few thousand thinkers, leaders, billionaires, visionaries, and others in a position to mould the future congregate in Davos-Klosters, Switzerland, for the annual meeting of the World Economic Forum (WEF).

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"Tinkering will not be enough. We need to redesign both institutions and processes in order to capitalise on the abundance of new opportunities that await us."

Klaus Schwab

Fond of attaching catchy labels to the trends and development it seeks to weigh and discuss, the forum’s organisers this year went for Globalisation 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution.

The WEF detected four major shifts in the global make-up: economic relationships have moved from multilateralism to “plurilateralism”. Power is no longer unipolar, environmental challenges undermine socio-economic development, and technological change is speeding up.

Taken together, these four drivers comprise the essence of Globalisation 4.0. For WEF founder and executive chairman Klaus Schwab, the world is woefully underprepared to absorb the magnitude of the coming change. Schwab fears that the future of globalisation is being approached with an outdated mindset and inadequate institutions. “Tinkering,” he says, “will not be enough. We need to redesign both institutions and processes in order to capitalise on the abundance of new opportunities that await us.” This, Schwab argues, is all-the-more important if the world is to avoid, or deal with, disruptions that plague it.

COMMON VALUES For all its dedication to shaping the future, the WEF get-together is not an event where the premises of a pre-determined development matrix – the Fourth industrial Revolution – may be called into question. In its introductory text, the WEF notes that the world order is no longer underpinned by common values. Instead, it is becoming multiconceptual, with competing narratives seeking to create a new global architecture.

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Winter 2018 - 2019 Issue

True to its tradition, the WEF aims to act as an honest broker among these increasingly conflicting values and deploys its impressive convening power to help build a framework for global co-operation.

Bridging the divide between the movers, shakers, and shapers of the world from the concerns of the masses, downtrodden or otherwise – who may not be all that excited about the great promises of Globalisation 4.0 – is a tall order. The shocks of prior globalisation rounds have not, for the most part, been fully absorbed. In fact, the outdated mindset seems to hold sway. From Brazil to Italy, via the US and the UK, voters are determined to make their countries great again – not by embracing technological leaps, but by rescuing discarded values.

Global inequality is still with us, with a minibusload of billionaires enjoying riches equal to those collectively owned by the poorest 3.5 billion people on the planet. While most US and UK voters are not part of the latter demographic, they have seen stagnant or dwindling spending power. In the UK, wages are growing at their fastest pace in a decade, but inflation has largely neutralised any gains. In the US, the Pew Research Centre – using data from the Bureau of Labor Statistics – found that average hourly earnings have barely budged in 40 years, moving (in constant 2018 dollars) from $20.27 in 1964 to $22.65 in 2018.

CHINA’S BALANCING ACT The apparent failure of liberal democracies to deliver equitable prosperity contrasts rather sharply with the success of China in lifting millions out of poverty with a system that deploys the power of economic laissez faire but keeps society tethered to an illiberal model of governance that relies on advanced technology to maintain equilibrium.

When considering the Fourth Industrial Revolution without the encumbrance of deep specialist knowledge, Western societies and their body politic display a fair degree of mistrust. Big data, artificial intelligence, machine learning, robotics, and other technological marvels seem to conspire against individual liberty and personal privacy – and thus liberal democracy.

Schwab is right to worry about the inadequacy of today’s institutions and processes in dealing with these advances while ensuring transparency and accountability in tomorrow’s world.

if considered at all, is deemed an enemy of progress and part of the problem.

Globalisation 4.0 under the present circumstances will add fuel to the fire of protest votes. Contrary to what many in Davos believe, the nation state is not dead, and the benefits of globalisation are not universally accepted. A recognition of sorts is perhaps contained in the acknowledgement of a multipolar global scene in which multiple narratives compete. The classic liberal narrative is, however, fast becoming a footnote. The political centre is being vacated at an alarming rate, with just a few world leaders – Angela Merkel and Emmanuel Macron spring to mind – hanging on.

A neutral platform to find common ground, and a way forward, is valuable. As such, the annual meeting of the WEF is without equal. But by focusing on the technological dimensions of the Fourth Industrial Revolution and the wider Globalisation 4.0, the forum runs the risk of detaching itself from the realities faced by the people whose concerns will set the global agenda.

THE DEMISE OF LIBERALISM There is reason to posit that the direction of the Fourth Industrial Revolution – powered as it is by Big Tech – runs counter to the perceived best interests of voters in the developed world.

Quantum politics, as defined by Armenian President Armen Sarkissian, may also throw a spanner in the works. Voters in countries inspired by, and run on, the premises of Western liberalism do not take kindly to structures of power that are distant, abstract, and outside their immediate control. Though Big Tech helped fuel the emergence of different, and often individualised, narratives – which a sceptical observer could describe as tunnel vision – modern societies also display a degree of existentialist angst in the CFI.co | Capital Finance International

face of environmental disasters and technology that transcends the human dimension. A look at China’s experiments with “social credit scores” gives a glimpse of a future which many would find unappealing.

Two of the more interesting questions facing the WEF is how to sell the Fourth Industrial Revolution to a mistrustful audience, and how to harness ultra-tech without undermining liberal values.

Take away political and religious concerns, and most people simply aspire to have their basic needs met: freedom from want and illness, protection from bodily harm, a home, a clean supply of water, a future to live for, and the expectation that their children will inherit a better world.

Development policy is geared chiefly towards meeting those most basic of human needs.

Some do so in a roundabout way, others by banking on the promise of great transformations yet to materialise. What it boils down to is good governance, that elusive yet essential ingredient without which all pursuits – individual or institutional – may become exercises in futility.

WANTED: MORE PHILOSOPHERS It is politics that ultimately determine the outcome of development policies. The Fourth Industrial Revolution is quiet on this, and merely hails the advent of an age in which nothing is unthinkable, and technology may soon deliver humanity from its toils and travails. Schwab should consider inviting a few more philosophers to the WEF event to give a perspective that transcends technology and pokes some holes in the notion of a unified discourse. He could also include some of the angry voices from North America, Europe, and elsewhere.

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The WEF forum is on shaky ground when it argues that present structures must be reformed to deal with new, tech-driven realities. Voters express a wish to return “back to the future”.

The Brazilians, who elected Jair Bolsonaro to the presidency, are no different from the Americans who put Donald Trump in the White House, the British who voted to leave the European Union, or the Italians who demand an immediate end to austerity. The Fourth Industrial Revolution does not feature on their radar, and globalisation,

WEF Founder & Executive Chairman: Klaus Schwab

Dissecting the mind-boggling possibilities of artificial intelligence, a dystopian future is revealed, in which there is little room for error – or creativity derived from quirky and illogical decisions. The task of governance is not to micromanage societies and prevent mistakes or “wrong” decisions, but to ensure the overall health of the collective by setting a bare minimum of ground rules and ensuring transparency in their application. It must at the same time acknowledge the need for wriggle-room – aka personal freedom.

Big data and artificial intelligence are fallible. Their application is not necessarily a good thing, as China’s experiments with social credit scores show. US civil rights lawyer Harvey Silvergate estimates that the average American commits three felonies per day. Rutger University scholar Douglas Husak agrees, and found that over 70% of US citizens have committed one or more imprisonable offences.

Most get away with it.

Chinese citizens, no more law-abiding than the average American, now face the prospect of sanction for eachand-every transgression, no matter how inconsequential, committed during a normal day. The technology to detect unlawful or antisocial acts, and identify the perpetrators, exists – and is being ruthlessly implemented.

BEND OR BREAK Inflexible societal systems that fail to take human diversity into account will either break down or transform citizens into automatons. Big data has many benevolent applications, of course, and can make the world a better place for many. It is here to stay, and solutions to present challenges may well be found in the crunching of numbers and variables.

As leading thinkers converge on Davos, they could spare a thought or two for the non-conformists who elected Donald Trump and directed the UK towards the EU exit door. To dismiss these voters’ concerns as misguided or irrational is to miss the point. People living in liberal democracies are afraid of the future. The dismantling of the welfare state, large-scale immigration, the onset of the gig economy, neverending austerity, the demise of the nation state, pooled sovereignty, and extreme levels of inequality have broken the covenant – the social compact – that has governed western societies since the end of WWII. It fuels the rebirth of populism in its various guises – and provides fodder to the fools who want to stop progress.

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Any businessperson or CEO faced with a similar situation in a corporate setting would know what to do: consolidate and reset. The embattled European Union, of all institutions, understands this better than most and has frozen its eastward expansion and many of the initiatives that imply a transfer to Brussels of the member states’ sovereignty. These bridges are to be crossed at some later date.

MANAGING THE PUSHBACK The EU offers yet another example of sensible management of popular frustration and discontent when it places Big Tech in the crosshairs. Rather than an assault on US innovators and disruptors, the exercise tries to tame the excesses taking place at the unregulated cutting edge of the market.

The gig economy may provide jobs aplenty but has so far been largely unable to pay its “associates” a living wage. A business model that for its success and survival depends on a deregulated labour market, fails to provide an income at or slightly above the poverty line, and needs to circumvent 30

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taxes in order to turn a profit is, by its very essence, severely flawed. In fact, such a business model may ultimately cause more harm than good, depressing productivity and skewing unemployment numbers with fake jobs.

New frontier businesses that deploy the power of Big Data and other aspects of the Fourth Industrial Revolution cannot reasonably expect to be exempted from the rules that govern the market. Both in Europe and North America forces are now gathering strength to counter the free-for-all that disruptors and innovators need in order to prosper.

President Donald Trump is very much part of those forces with his efforts to repatriate blue collar jobs and polish the rust belt back to life. It does not much matter that such efforts run counter to the march of history or seek to turn back the clock – and are thus doomed. The US president taps into people’s legitimate concerns over the future and their suspicion that whatever is coming will not likely be of benefit to them. In Europe, formerly dismissed populists have gained a measure of respectability as their message moved mainstream. Italy, Hungary, and the UK have already succumbed to their siren song and other countries may follow soon.

So, the pendulum swings from the quasi laissez faire that took hold in the 1990s to the overregulation of, say, the 1970s, bypassing the political centre that is, arguably, the best incubator of innovation and progress. Ushering in the Fourth Industrial Revolution and Globalisation 4.0 requires the Davos men and women to come to terms with the political realities and constraints that result from the fears, misguided or not, of people who fail to grasp the impact ultra-tech will have on their lives and those of their children.

Notions that in the near-future robots will take over most jobs and artificial intelligence may reduce most of humanity to compliant automatons may be wholly unfounded; that does not make these fears and concerns any less real. What the Fourth Industrial Revolution probably needs most is a proper marketing campaign – and iron-clad guarantees that it will not undermine governance and the hold, however tenacious, people now have over their future via the ballot box.

Globalisation 4.0, and its twin Industry 4.0, are simply not ready yet for primetime. Deploying the full might of ultratech and leaning heavily on robotics, Industry 4.0 is expected to increase worker output by 30% or more. The same economic futurologists who arrived at this number, celebrate the reduction in the cost of labour by a similar percentage, touting the increase in competitiveness as a great benefit.

Undoubtedly it is a boon to business more than it is to the few remaining workers for whom it looks more like a race to the bottom. The severed link between productivity and wages is, however, unsustainable and will inevitably lead to even greater wealth and income disparities.

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Prof Schwab hits the right note with his appeal to redesign institutions to deal with the many issues – some foreseen, others unexpected – arising out of the Fourth Industrial Revolution. The brave new world it heralds cannot be successfully erected on the smouldering embers of discontent. Given the need to match the popular pushback to the advent of a new era of opportunity, governance structures must indeed be thoroughly reformed to ensure not only the continued presence of a dominant human dimension but also the primacy of politics. For man shall not live by bread alone – and will certainly not be bought off with a few crumbs. i

> Book Review Shaping the Future of the Fourth Industrial Revolution

by Klaus Schwab and Nicholas Davis

An Incomplete Inflection Point: The Missing Bit of the Coming Revolution

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las, literature it is not. Shaping the Future of the Fourth Industrial Revolution is, at times, an awkward read held together by the vacuous phraseology much in vogue with upper-management types.

After all, what is “linear thinking” and why should it be avoided? Conversely, why must leaders learn how to navigate “exponentially disruptive change”, and will they know how to identify such a dreadful phenomenon?

However, and thankfully, this is a rather slim volume running just 288 pages. It is also a somewhat important one and packs quite a punch, albeit probably not in the way intended.

In a nutshell, the message is this: society had better be prepared to deal with smart machines, powered by artificial intelligence and other marvels of technology. This is not just about a benign internet-of-things that allows shoppers to entrust their requirements and desires to Alexa.

This is about Alexa and her kin taking over life itself – giving orders instead of taking them.

Scary stuff, and to the author’s credit he admits that the Fourth Industrial Revolution may create a “dehumanising dystopia”. The book, then, becomes a plea to use disruptive advances in technology wisely, or: know your enemy.

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The rallying cry, of sorts, is broadcasted by none other than Professor Klaus Schwab, the founder and executive chairperson of the World Economic Forum (WEF). Thus, he may be forgiven his tendency to deploy corporate Newspeak to convey an otherwise interesting message. Taking out, or translating into normal English, cringeworthy terms such as “developtory sandboxes”, “problematise”, and countless “inflection points”, the reader is left with the warning that dots need to be connected urgently for the coming revolution to serve the needs of humanity.

The Fourth Industrial Revolution, Schwab argues, is HAL 9000 on steroids. Well, the professor does not actually mention the manipulative computer from 2001 A Space Odyssey, reduced to pleading for its life as the plug is being pulled; but he probably should have to provide some perspective and liven up the pages. Then again, Schwab’s second book on the Fourth Industrial 32

"This is not just about a benign internet-of-things that allows shoppers to entrust their requirements and desires to Alexa."

Revolution needs to be taken seriously and must not elicit any smiles.

The author wishes to equip his readers with the knowledge needed to help determine the ultimate trajectory of the revolution. He also attempts to dispel numerous myths surrounding the progress of technology and the disruption it causes. Schwab sets out a case for leveraging the power of big data, machine learning, artificial intelligence, and all the other advances to tackle pressing global issues and build a more inclusive and sustainable future. Fair enough, but it is at this (inflection) point that he risks losing the plot.

Schwab is political correctness personified – a true gentleman first and foremost – and that limits his ability to call things as they are – hence the use of corporate Newspeak. He also struggles to connect with the man/woman on the street who may be proverbial but exists, has concerns, harbours anger, and may not be dismissed as an ignoramus for he/she will drive change – see Brexit.

Most voters do not care all that much about additive manufacturing, quantum computing, or geo-engineering – even if these and countless other technologies will change their lives. People do, however, care about the near-absurd inequality that characterises today’s world, the steady deterioration of their spending power, the invasive might of Big Tech, and the apparent disconnect between politics and society.

The advances that power, almost in unison, the Fourth Industrial Revolution are all about technology – but man shall not live on technology alone, to take a cue from Deuteronomy. Schwab is clearly ill at ease when social and political forces intrude and threaten to upset his carefully formulated equation. For example, there is no mention of China’s deployment of technology to create the perfect digital dictatorship.

Perhaps Schwab should talk with the Israeli historian and best-selling author Yuval Noah Harari – why not invite him to Davos? – and discuss the future of human agency. Mr Harari asks the interesting questions and would like to know if frail, irrational, and fault-prone humans will eventually be rendered superfluous or even reduced to an economic and political liability that stands in the way of progress and must be sidetracked. After all, why would a smart robot with instant access to all the world’s data tolerate an ignorant, obtuse, argumentative, and supremely illogical mammal?

While Schwab boldly asserts the primacy of the individual, he introduces – in the very next sentence – a disconcerting ambiguity by concluding that, “individuals are, ultimately, the people who will live in the future that technologies help create.”

This statement, not quite as innocent as it looks, neatly sums up why the World Economic Forum he created desperately needs less suits and more turtlenecks: it says virtually nothing but leaves the impression that humanity’s future is to be shaped by technology which will then determine how individuals should live. The WEF needs a serious additional infusion of philosophers – classicists who think about life and are not confined to an intellectual box delineated by convention, diplomacy, and/or political expediency.

To find out what the Fourth Industrial Revolution, with all that it entails, actually means for humans, we need to ask philosophers to place things in their perspective, reach out to antiquity and the lessons learned over millennia, and slowly stake out a path towards a desirable future with all the caveats in place – all-caps, underlined, and in bold.

Schwab is, of course, no philosopher; he is an economist and an engineer. As such, he proposes valuable and eminently sensible technical and rational solutions to any given problem – be that climate change, sustainability, governance, or technological progress. Creativity is, however, missing from this picture. Schwab’s book, while interesting and touching on a crucially important topic, should have been written by someone grounded in the humanities, for life is not about nuts and bold (or digits), it is about human emotions. i

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> Klaus Schwab:

Grappling With Globalisation 4.0

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fter World War II, the international community came together to build a shared future. Now, it must do so again.

Owing to the slow and uneven recovery in the decade since the global financial crisis, a substantial part of society has become disaffected and embittered, not only with politics and politicians, but also with globalisation and the entire economic system it underpins. In an era of widespread insecurity and frustration, 34

populism has become increasingly attractive as an alternative to the status quo.

But populist discourse elides – and often confounds – the substantive distinctions between two concepts: globalisation and globalism. Globalisation is a phenomenon driven by technology and the movement of ideas, people, and goods. Globalism is an ideology that prioritises the neoliberal global order over CFI.co | Capital Finance International

national interests. Nobody can deny that we are living in a globalised world. But whether all of our policies should be “globalist” is highly debatable.

After all, this moment of crisis has raised important questions about our global-governance architecture. With more and more voters demanding to “take back control” from “global forces,” the challenge is to restore sovereignty in

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a world that requires cooperation. Rather than closing off economies through protectionism and nationalist politics, we must forge a new social compact between citizens and their leaders, so that everyone feels secure enough at home to remain open to the world at large. Failing that, the ongoing disintegration of our social fabric could ultimately lead to the collapse of democracy.

Moreover, the challenges associated with the Fourth Industrial Revolution (4IR) are coinciding with the rapid emergence of ecological constraints, the advent of an increasingly multipolar international order, and rising inequality. These integrated developments are ushering in a new era of globalisation. Whether it will improve the human condition will depend on whether corporate, local, national, and international governance can adapt in time.

Meanwhile, a new framework for global public-private cooperation has been taking shape. Public-private cooperation is about harnessing the private sector and open markets to drive economic growth for the public good, with environmental sustainability and social inclusiveness always in mind. But to determine the public good, we first must identify the root causes of inequality.

For example, while open markets and increased competition certainly produce winners and losers in the international arena, they may be having an even more pronounced effect on inequality at the national level. Moreover, the growing divide between the precariat and the privileged is being reinforced by 4IR business models, which often derive rents from owning capital or intellectual property.

"Specifically, this task will require two things of the international community: wider engagement and heightened imagination."

Closing that divide requires us to recognise that we are living in a new type of innovationdriven economy, and that new global norms, standards, policies, and conventions are needed to safeguard the public trust. The new economy has already disrupted and recombined countless industries, and dislocated millions of workers.

It is dematerialising production, by increasing the knowledge intensity of value creation. It is heightening competition within domestic product, capital, and labor markets, as well as among countries adopting different trade and investment strategies. And it is fueling distrust, particularly of technology companies and their stewardship of our data.

The unprecedented pace of technological change means that our systems of health, transportation, communication, production, distribution, and energy – just to name a few – will be completely transformed. Managing that change will require not just new frameworks for national and multinational cooperation, but also a new model of education, complete with CFI.co | Capital Finance International

targeted programs for teaching workers new skills. With advances in robotics and artificial intelligence in the context of aging societies, we will have to move from a narrative of production and consumption toward one of sharing and caring.

Globalisation 4.0 has only just begun, but we are already vastly underprepared for it. Clinging to an outdated mindset and tinkering with our existing processes and institutions will not do.

Rather, we need to redesign them from the ground up, so that we can capitalise on the new opportunities that await us, while avoiding the kind of disruptions that we are witnessing today.

As we develop a new approach to the new economy, we must remember that we are not playing a zero-sum game. This is not a matter of free trade or protectionism, technology or jobs, immigration or protecting citizens, and growth or equality. Those are all false dichotomies, which we can avoid by developing policies that favor “and” over “or,” allowing all sets of interests to be pursued in parallel.

To be sure, pessimists will argue that political conditions are standing in the way of a productive global dialogue about Globalisation 4.0 and the new economy. But realists will use the current moment to explore the gaps in the present system, and to identify the requirements for a future approach. And optimists will hold out hope that future-oriented stakeholders will create a community of shared interest and, ultimately, shared purpose.

The changes that are underway today are not isolated to a particular country, industry, or issue.

They are universal, and thus require a global response. Failing to adopt a new cooperative approach would be a tragedy for humankind. To draft a blueprint for a shared global-governance architecture, we must avoid becoming mired in the current moment of crisis management.

Specifically, this task will require two things of the international community: wider engagement and heightened imagination. The engagement of all stakeholders in sustained dialogue will be crucial, as will the imagination to think systemically, and beyond one’s own short-term institutional and national considerations.

These will be the two organising principles of the World Economic Forum’s upcoming Annual Meeting in Davos-Klosters, which will convene under the theme of “Globalization 4.0: Shaping a New Architecture in the Age of the Fourth Industrial Revolution”. Ready or not, a new world is upon us. i ABOUT THE AUTHOR Klaus Schwab is Founder and Executive Chairman of the World Economic Forum.

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> Winter 2018-2019 Special

Public Governance

Strengthening the Bottom Line

T

he world is changing at a dizzying pace, leaving a great many people baffled and looking for reference points and assurances that have either moved or disappeared.

This may be the story of an intergenerational mismatch which has probably occurred throughout the ages. However, as the rate of change accelerates, that mismatch grows in size and forces companies and governments to rethink their strategies.

Take Facebook, which discovered, to its barely disguised dismay, that it is fast becoming the preferred online hangout of the over-50s who seem finally to have caught on to the social network.

However, for a growing number of younger people, Facebook is as boring as yesterday’s news. Where not too long ago, a Facebook account was an absolute must, now it has become close to an embarrassment. For a while, Snapchat seemed the place to be – and to be seen – for statusconscious 20-somethings. Not any longer: the truly hip have found a novel way to distinguish themselves from the masses – life unplugged.

Not having any active social media accounts – apart from, perhaps, a LinkedIn profile required for career development – no longer causes eyes to roll, or any form of rebuke. A refusal to partake in the narcissistic pursuit of online self-promotion, aggrandisement, and exposure represents a pretty powerful statement about one’s ability to lead a meaningful life without the need to seek the approval of friends and followers every 10 minutes or so.

This trend, too, will soon be replaced by another.

However, the move away from social media does offer a glimmer of hope for the future.

Few phenomena have contributed more to the undermining of societal cohesion and consensus than Twitter, Facebook, and other soapboxes that allow crackpots direct access to a global audiences – to the detriment of the considered opinion of experts.

Tuning out the cacophony of the chattering classes and the opined hoi polloi – neither one encumbered by actual knowledge – can indeed be liberating and may, in fact, lead to the reading

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of books written by people who actually have something meaningful to say, such as Madeleine Albright, the former US Secretary of State.

Her remarkable life spans eight decades and encapsulates much of 20th Century history. She is concerned about the present state of the world, and has a warning we’d all be well-advised to read, and possibly heed.

Many others have cautionary tales to tell.

British Labour Party peer Sir Keir Starmer and German industrialist leader Joachim Lang are both concerned that UK voters may have been seriously misled by nostalgic populists, clowns, and demagogues who offer yesterday’s solutions to tomorrow’s problems.

Meanwhile, the dapper Spanish Prime Minister Pedro Sánchez is engaged in an almost Quixotic pursuit to replenish the depleted social-democrat policy reservoir. He may not succeed, but he earns points for trying. So does French banking regulator Danièle Nouy, who tries to impose some semblance of order in the rather confusing financial universe of the eurozone. Dealing with resourceful bankers and national regulators, reluctant to let go of their few remaining prerogatives, cannot be all that easy.

EU Commissioner Margrethe Vestager is a similarly courageous lady who deploys the full weight of the union to keep Big Tech in check.

Alas, the billions of euro in fines she habitually metes out barely register at the companies called to order. That is how big Big Tech has become: the behemoths only move when their users – the source of the big data they exploit – do.

Thus, Vestager’s power is rather limited compared with that of people turning away from social media.

Some things never change: thankfully, the client remains king. It is a fact worth remembering. The bottom line is, as ever, commanded by the wellinformed and discerning consumer. The key may be found in the “well-informed” bit. Consumers and voters who take their cue from the collective hysteria and paranoia peddled by their peers on social media are often, and regrettably, severely misinformed.

That too adds to the bottom line – just not to the ones that deserve a boost. i

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> SIR KEIR STARMER SHADOW SECRETARY OF STATE FOR EXITING THE EUROPEAN UNION Ditching Dogma

He is the adult in the room, sometimes the only one, when the British Labour Party mulls its future and the policy recipes it offers to a nation deeply divided over its impending exit from the European Union.

While dogmatic party leader Jeremy Corbyn struggles with Brexit and a host of other hot topics – Labour’s alleged anti-Semitism comes to mind – Sir Keir Starmer has gained considerable stature by consistently appealing to common sense and reason.

A pragmatist rather than an ideologue, Starmer is considered by some the most likely saviour of a party that has taken a sharp left turn under its present leader, and now plots a course perilously close to the radical socialist experiments that haunted, and nearly destroyed, the country in the 1970s. Starmer sees better than most that the policy platform proposed by Corbyn may sit well with young voters, but would also seem to make Labour unfit to govern a country that abhors extremist views and is known – and, indeed, celebrated – for muddling along.

Starmer realises that, as the UK approaches a milestone in its national trajectory, an effective opposition party is needed to keep the Tories in check, help set the tone of the national debate, and possibly influence the outcome. Wracked by doubt and lost in the minutiae of socialist dogma, Corbyn has so far been unable to offer any meaningful guidance. Corbyn, a closet Brexit supporter, mostly agrees with the position taken by Prime Minister Theresa May: that the referendum outcome is sacrosanct and not to be questioned. His heart is not in the fight, and it shows.

As shadow secretary of state for Leaving the European Union, Starmer has frequently been effective in forcing May’s hand. In December 2016, he called for the publication of the government’s Brexit plans, questioning the country’s destiny outside the EU realm. He was promised papers which, on their eventual release, contained only platitudes and vague objectives.

Since then, Starmer has left no stone unturned to expose the emptiness of the government’s policy proposals. He also exploited the deep divisions within the ruling Conservative Party, liaising within pro-EU Tory MPs to shed light on government bumbling in Brussels.

Starmer has now joined the growing chorus of voices demanding a second referendum on the exact terms and conditions of the UK’s exit from the EU. Starmer suggested that all options should remain open in case parliament rejects the final deal negotiated in Brussels; he discards

suggestions that a second Brexit vote may cause civil disobedience.

Calling for improved democratic checks on what surely constitutes the most important change in the country’s make-up, position in the world and identity, Starmer accuses May of not showing due regard for democratic process. He disputes the notion that the 2016 referendum vote can be interpreted as sanctioning a hard Brexit.

Starmer has also pounded leading Brexit supporters such as Jacob Rees-Mogg, chairperson of the single-issue European Research Group (ERG) set up to provide a modicum of scientific backing to life outside the EU. Earlier this year, Rees-Mogg admitted that the benefits of leaving the European Union may only become apparent

in 50 or so years.

So far, Starmer has been unable to convince Corbyn of the need to take a more proactive stance on Brexit – even though a recent poll showed that in the Labour Party’s heartland some 100 seats formerly supporting the leave vote now favour the remain option. Young voters in the 18 to 24 age bracket, more likely to vote Labour, support the remain option by an overwhelming 79%.

Starmer senses an electoral opportunity that his party cannot do without. As it stands, Corbyn’s Labour represents a spent force, an entity reduced to a shadow of its former self and singularly unable to mend bridges. Starmer is one of the few big names in Labour that can, and should, rescue the party from itself.

"A pragmatist rather than an ideologue, Starmer is considered by some the most likely saviour of a party that has taken a sharp left turn under its present leader."

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> MARGRETHE VESTAGER EUROPEAN COMMISSIONER FOR COMPETITION Taking on Big Tech

EU Commissioner Margrethe Vestager is used to taking on the big boys. She just slapped a record $5bn fine on Alphabet, the parent company of Google, for abusing its corporate power as the supplier of the dominant Android mobile operating system.

Vestager has emerged as a foe of Silicon Valley and Big Tech companies that flex their corporate muscle to gain market share at the expensive of smaller businesses and consumers.

After punishing Alphabet, Vestager now has her sights on Apple. In 2016, she forced the world’s only trillion-dollar company to pay €13bn to the Irish exchequer after the European Commission ruled that a sweetheart tax deal which benefitted Apple amounts to illegal state aid. This time around, Vestager’s interest was sparked by the most mundane tech items – mobile phone chargers. She has now ordered

a review of a voluntary commitment made in 2009 by 14 manufacturers to standardise their chargers for models launched after 2011.

The EU Commissioner for Competition has launched an impact-assessment study into the industry’s apparent reluctance to harmonise chargers. Market watchers fear this may be bad news for Apple which uses its proprietary Lightning connector, as opposed to the generic USB-C and micro-USB connectors used by other phone makers.

Vestager is particularly concerned that Apple’s multifunction Lightning connector forces consumers to pay extra for an adapter cable for non-Apple headphones.

When not pursuing IT behemoths, Vestager can be found attacking the digital barriers that still plague the European Union’s single market and hinder cross-border purchases. As

companies continue to differentiate between EU member states when setting the prices of their products and services, Vestager has tried – but largely failed – to end the practice which, she says, clashes with the foundational principles of the single market.

However, she may yet prevail in a landmark case concerning Nike and other sportswear brands, which prohibit national distributors from selling to customers outside their own country.

In a similar case the European Commission managed to obtain a minor win against audio equipment manufacturer Pioneer, which likewise prohibited distributors from making sales outside their jurisdiction. The Japanese electronics company was fined €10m.

Taking things a few steps beyond, Vestager’s office is also fighting geo-blocking within the EU; a practice whereby access to websites is limited to a single member state, to the exclusion of others. Vestager, with the backing of commission president Jean-Claude Juncker and his secretarygeneral, Martin Selmayer, is determined to use all competition and anti-trust tools to demolish all digital barriers to trade, and outlaw online sale restrictions that prevent consumers from shopping EU-wide.

By the end of this year, new regulation will come into force. It is expected to upset business models that seeks to maximise profits by tailoring product offers and prices within the EU whereby customers in, say, Denmark are charged significantly more than those in Bulgaria.

Vestager will now try to stop geo-blocking of copyrighted content, such as audio and video streaming, online games, and e-books.

The legislation already approved calls for an automatic reassessment in two years’ time of the exclusion from the blanket ban on geo-blocking granted to providers of copyrighted material.

Margrethe Vestager, a former minister for Economic Affairs and deputy prime minister of Denmark, is one of the most influential commissioners in Brussels, and one of the most recognisable faces of the commission. Not easily perturbed or distracted, she recognises that playing nice usually fails to deliver results.

Hence her remarkable eagerness to issue billiondollar fines to companies that run afoul of EU competition rules.

She is convinced that the EU’s single market constitutes the bloc’s most valuable asset – and is determined to stop companies from abusing legislative loopholes.

"Taking things a few steps beyond, Vestager’s office is also fighting geo-blocking within the EU; a practice whereby access to websites is limited to a single member state, to the exclusion of others."

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> JOACHIM LANG DIRECTOR GENERAL

OF THE BDI (THE FEDERATION OF GERMAN INDUSTRIES)

Voice of German Industry Baffled by Brexit With their unequalled sense of understatement and stiff upper lips, the British are readying themselves to depart the European Union next March.

Unimpressed by Project Fear, the nation is determined to face the world – alone, if need be. Convinced that the Finest Hour 2.0 is upon them, Brexit supporters cannot wait to show those pesky continentals what steely resolve in the face of adversity can accomplish.

To an outside observer – such as Joachim Lang of the German Federation of Industry (BDI, or Bundesverband der Deutschen Industrie) – the impending departure of the UK from the EU is akin to madness. Project Fear, he fears, is but the latest and most dangerous manifestation of British understatement. BDI is an umbrella organisation for 35 trade associations that jointly represent over 100,000 businesses with more than eight million employees.

The BDI managing director put together a team of around 200 economists, trade experts and market analysts to investigate the likely consequences of Brexit. These people report that the impact papers released earlier this year by the British government seem to make light of the situation, and ignore the extent to which the UK economy will suffer.

As head of Germany’s largest trade association, Lang is not usually one to sound the alarm or become over-agitated by political developments. The BDI is considered a bastion of reasoned thought and carefully formulated argument. The federation, after all, represents the business community that has made Germany into a global industrial powerhouse – a purveyor of excellence and a voice of caution. However, the BDI is no longer willing to tone-down its criticism of Brexit.

Pointing to the findings of a study released by the law office Clifford Chance last March, Lang argues that the cost of Brexit to British industry may well exceed the expected £58bn per annum. Lang’s analysts came up with a tentative number that is an order of magnitude higher. The impact on German industry will be significant as well. Still, Lang has repeatedly urged the German government to prioritise the integrity of the EU single market over a postBrexit deal with the UK. The single market, he argues, is much more important to German industry than continued, unfettered access to the UK. That said, Lang would have preferred the British to stay in the EU, or at least to remain part of its customs union. Talking to the Rheinische Post newspaper, Lang warned about the risk of a hard Brexit which could see the UK crash out of the union without a script or a trade deal: “The

effects of a hard Brexit are considerably more serious than the British government is currently telling its citizens.”

Dismissing Project Fear as a figment of doomsayers’ imagination is fraught with danger.

Lang emphasises that foreign direct investment has already slowed and economic growth has all but evaporated. He expresses wonder at London’s refusal to act on these dramatic trends and cannot understand why the UK insists on presenting unrealistic plans for a post-Brexit relationship: “There are a number of well-defined and moderately attractive options on the table.

These would limit the economic damage to some degree, though German industrialists would of course much prefer for the UK to change its mind and stay.”

Lang admits that a reversal of Brexit is unlikely. The possibility, he says, is only entertained by die-hard romantics. Over 2,200 German businesses maintain a presence in the UK, employing close to half a million people.

The country exports some €85bn worth of goods to the UK each year. The BDI managing director is quick to dismiss any talk of his federation using its heft to push Chancellor Angela Merkel towards a compromise solution to secure an advantageous trade deal that ensures Germany’s carmakers, and others, continued and privileged access to UK consumers.

If the price of that market access is a weakening of the single market’s internal cohesion, Lang is not interested. Granting a third country – which the UK will shortly become – access to the single market without insisting on full compliance with the EU’s four freedoms – including the freedom of movement – would instantly open a Pandora’s Box of issues. With that precedent set, other EU member states might feel tempted to follow the UK’s example, leading to the unravelling of the union that took over 70 years to build.

That, Lang warns, constitutes as great a folly as leaving the EU. Perish the thought.

"There are a number of well-defined and moderately attractive options on the table."

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Winter 2018 - 2019 Issue

> DANIÈLE NOUY CHAIR OF THE SUPERVISORY BOARD AT THE EUROPEAN CENTRAL BANK Getting Tough with Bankers It is her job to keep Europe’s banks on the straight and narrow and remind their executives that honesty pays. During her four years as chairperson of the European Central Bank’s (ECB) supervisory board, Danièle Nouy made few friends in the financial world: as a strict principal she showed no tolerance whatsoever for the follies some bankers engage in when challenged by circumstance.

Earlier this year, Irish bankers found out that Nouy does not favour polite conversation when discussing their plight. She bluntly told them, on RTÉ national television, that they “do not deserve” any bonuses until Ireland’s banks have fully cleared up the mess left in the wake of the financial crisis. Reminding the bankers that they still have plenty of work to do on their bloated balance sheets, she wondered aloud if this was the right time to discuss bonuses. To make her position abundantly clear, she added: “Definitely not, in my view.”

Troubled banks – those perilously close to needing ECB life support – are required to apply to the ECB for permission to top-up their executives’ salaries or pay dividends to shareholders. Nouy takes a dim view on banks that “sort-of” address their issues in order to quickly revert to their old ways. She routinely rejects such requests.

Nouy is the architect of the ECB’s single supervisory mechanism (SSM), the first building block of the banking union to provide added resilience to the eurozone. In November 2014, the SSM took over the role of national entities in monitoring the financial stability of banks in all eurozone member states. Initially, the SSM suffered from a number of deficiencies which came to light during the first stress-test it jointly organised with the European Banking Authority. The remedies imposed on a few weak Italian banks ultimately proved too lenient, and insufficient to ensure their survival under adverse market conditions.

Nouy learned from her faux pas and has since shown no mercy to banks that fail to meet the tightened capital adequacy requirements.

She also helped establish the ECB’s reputation for toughness, particularly when it comes to dealing with financial institutions that keep non-performing loans (NPL) lingering on their balance sheets. Nouy repeatedly clashed with national regulators – often still a bit resentful for having lost a considerable chunk of their heft to the ECB – as she forced banks to disclose and address the full extent of bad loans. She also got her way in Italy, and forcefully convinced banks to significantly reduce their NPL portfolios.

Following that, Nouy launched a broad investigation into the more esoteric parts of banks’ balance sheets, such as the size and

quality of Level 2 and Level 3 assets, which may roughly be defined as illiquid instruments that are not usually traded and can therefore not be readily or objectively valued. The programme aims to stop banks from overstating the value – and understating the risk – of these assets.

Nouy is particularly well equipped to detect and expose flaws in Europe’s banking system; she’s been inspecting banks for over 40 years, first at the Banque de France and later at the French Prudential Supervision and Resolution Authority, which she headed between 2010 and 2013, before being invited to join Mario Draghi’s executive team at the ECB. As Nouy’s five-year term draws to a close, the race is on the find a worthy successor who can expand the role of the single supervisory mechanism she helped to build. The prime contender for the job – also possibly the only one to have submitted an application (the ECB has so far failed to publish a shortlist of candidates)

– is Sharon Donnery, deputy governor of the Central Bank of Ireland.

The first order of business awaiting Nouy’s replacement is to deal with the sudden influx of a considerable number of larger investment banks that are preparing to up-stakes in London and descend in the eurozone after the UK exits the European Union. Ultimately, however, the choice of a successor is likely to be genderinspired. The ECB’s governing council is known to favour female candidates to address its gender imbalance at the top. This helps explain why three male candidates informally suggested by Italy have declined to submit their applications.

After stepping down from her job on December 31, Danièle Nouy will retire from public life. Her boss, ECB president Mario Draghi, has another year to go before his nonrenewable eight-year term expires. Draghi will hand over the reins to the ECB in October 2019.

"Nouy is the architect of the ECB’s single supervisory mechanism (SSM)."

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> MADELEINE ALBRIGHT AMERICAN POLITICIAN AND DIPLOMAT Bad News Former US Secretary of State Madeleine Albright has made, and lived, history – and she is far from optimistic about humanity’s future.

Albright fears a rise of populism and its evil twin: fascism. She’s acquainted with dictatorships, having been driven twice from her native Czechoslovakia, once as a little girl in 1939, when the Nazis annexed the country, and again in 1948 after a Soviet-inspired communist coup.

The first woman to take the highest office available to a citizen not born in the United States, Albright has hobnobbed with inspiring leaders and ruthless strongmen. She has a kind word – and a one of warning – for nearly everybody she has met, describing the late Kim Jong-il of North Korea as “cordial and pretty normal”. High praise, indeed, for someone who – propaganda has it – makes the heavens turn.

Even former Serbian president Slobodan Milošević was found, by Albright, to belie his status as warmonger and fascist villain. Albright was impressed by the charisma displayed by Venezuela’s Hugo Chávez and thought Turkey’s then-prime minister, Recep Tayyip Erdoğan, now president, was a welcome breath of fresh air.

The lesson that Albright took away from her meetings with these assorted rulers was that most started out with a reasonable understanding of their nations’ needs and a drive to address the issues at hand. However, over time, power corrupted their intentions. Albright shows deference to Russian President Vladimir Putin, whom she considers smart, calculating, a geopolitical chess master, and “so cold as to be almost reptilian”.

Albright, a staunch Atlanticist, remains convinced that Putin aims to drive a wedge between the US and its European allies. Taking the long view, Russia – she suspects – seeks to weaken the European Union with a carrot-or-stick approach to woo the former communist countries of Eastern Europe back into Russian orbit. This may explain why Putin intervened, covertly yet forcefully, in the Ukraine which has drifted too far to the west for his liking.

In her new book Fascism: A Warning, Albright argues that diplomatic sloppiness, and a failure to pay attention to detail, can cause rapid geopolitical shifts and transform allies into foes – almost overnight. She recalls how, as the Hungarian communist regime was teetering in the late-1980s, Viktor Orbán was celebrated as the darling of the West and the great promise of his country. However, as prime minister, Orbán turned against his former benefactors, including businessman and philanthropist George Soros,

whose foundation paid for his studies at Oxford’s Pembroke College.

Albright worries about the fate of liberal democracy, which so far has failed to produce a reasoned alternative to the populist onslaught.

Politicians who dismiss liberal democracy, or question its validity, are winning elections by catering to the existential angst prevalent amongst people scared or suspicious of a world that changes way too fast, and has become unrecognisable to the one they grew up in.

Playing their audiences expertly and possessing ample charismatic powers, these politicians, Albright argues, promise a return to the past. A promise they cannot keep.

Albright sees parallels with the Europe of the 1930s, when leaders amplified the us-and-them divide to grab power. She says it is akin to an extorsion racket whereby people are promised protection from whatever they happen to fear in exchange for order. “Fearful or angry voters wish to be told in which direction to march,” she concludes. She sees Donald Trump as the first

anti-democratic president to be elected to the White House.

To emphasise the fragility of liberal democracy, Albright notes that while almost half of the world’s population lives in some form of democracy, barely 5% enjoy full democratic rights. The numbers come from The Economist Intelligence Unit’s 2017 Democracy Index, which shows that these percentages are on a downward slope. Albright also points out that while illiberal democracies usually respect the will of the majority, they do so to the detriment of minorities and individual rights.

The kernel of fascism, Albright summarises, is already present in technologies that enable governments to monitor citizens in real-time, sanction those deemed dangerous or deviant, and thus become omniscient. This may not have surprised George Orwell, whose warnings, wrapped in fiction, went largely unheeded.

Albright thinks it is high time for a reevaluation of history in order to safeguard the future – and liberty.

"To emphasise the fragility of liberal democracy, Albright notes that while almost half of the world’s population lives in some form of democracy, barely 5% enjoy full democratic rights."

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Winter 2018 - 2019 Issue

> PEDRO SÁNCHEZ PRIME MINISTER OF SPAIN Lonely at the Top

Pedro Sánchez ventures where no Spanish prime minister has dared go since the reestablishment of democracy in 1977.

He is determined to have the remains of Generalissimo Francisco Franco, the last dictator to rule Spain, exhumed and removed from the Valley of the Fallen, a memorial erected in the Neo-Herrerian style that takes its inspiration from Nazi architect Albert Speer.

Located just an hour’s drive north of Madrid, the monument has been a bone of contention since Franco’s family insisted his remains be laid to rest behind the altar of the huge basilica at the centre of the memorial. It is said that Franco himself would have preferred a final resting place in Madrid.

Conceived as a gesture of atonement, the huge ossuary adjacent to the Santa Cruz basilica houses the remains of and estimated 40,000 fallen soldiers and fighters from both sides of

the conflict. Prime Minister Sánchez contends that for his country to attain lasting peace, it is necessary to remove the remains of Franco from the monument. Some in Sánchez’s Socialist Party would like to go further and blow the entire construct to smithereens and replace it with a more fitting memorial to a war that shaped and traumatised the nation.

For now, Sánchez is happy to keep the leftish parties aboard his fragile and informal coalition by moving towards the expulsion of the generalissimo’s remains from the basilica. He has hinted that his government may also order the removal of the remains of José Antonio Primo de Rivera, the Falangist leader who was executed for treason by the Republicans in 1936. His remains rest alongside those of his former master in the basilica.

Cosmetics aside, Pedro Sánchez has a point, as emphasised by his deputy, Carmen Calvo,

who noted that modern Spain is not compatible with a tomb that honours the memory of Franco.

The decision to exhume Franco and have him interred elsewhere has mobilised supporters of the deceased dictator.

Under the Sánchez government, conservatives have plenty to complain about.

Pablo Casado – the leader of the People’s Party since former PM Mariano Rajoy was kicked out of office in June – has now embraced an antiimmigration stance. He protests the government’s apparent reluctance to stem the flow of African refugees flooding the peninsula via the Strait of Gibraltar.

So far this year, almost 28,000 refugees managed to reach the country. Migratory pressures increased dramatically after Italy sealed its borders and refused to accept the disembarkation of people rescued at sea. Only days after taking over the reins of government, Sánchez stepped into the void and invited the rescue ship Aquarius – with 629 refugees aboard – to dock in Valencia after she was refused clearance by Italy and Malta. Foreign Minister Josep Borrell pointed out that “a country of 40 million people can easily absorb a few thousand newcomers”.

Casado disagrees, and argues that by opening its borders, Spain may before long be “overrun”

by Africans on the trail of the European Dream.

But Casado’s tough message doesn’t resonate well in a country that is traditionally welcoming. Sánchez is much better in sensing the national mood, a faculty that propelled him into office. Just two years ago, Sánchez was heavily criticised by his own party for refusing to help endorse the return of Mariano Rajoy and his conservative party to power after two elections failed to produce a government. He resigned his seat in parliament and went on an extended road trip to reconnect with disenchanted voters.

The strategy paid off: barely seven months later, Sánchez easily secured a win in the leadership election of the party Sánchez’s administration is supported by a rickety ad hoc coalition that includes the new anti-austerity Podemos party and the nationalist parties of Catalonia and Basque Country. His own Socialist Party claims just 84 of 350 seats in parliament. To pass legislation, Sánchez needs to court his political backers – who declined to partake in the cabinet and may yet disown the new administration.

As Prime Minister Sánchez is finding out, life at the very top can be lonely indeed.

"For now, Sánchez is happy to keep the leftish parties aboard his fragile and informal coalition by moving towards the expulsion of the generalissimo’s remains from the basilica."

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> Europe

Target2 and Its Uses and Limits Upbeat Italy Government Rebels against Austerity

At home, Alternative for Germany co-leader Jörg Meuthen never misses an opportunity to stir fears about the stability of the euro.

Often, however, Meuthen will in the next breath celebrate the uninhibited approach to spending of the Italian government, which he considers a driver for change. “Matteo Salvini is teaching the establishment that Italy is a sovereign state,” he says.

According to the deputy prime minister and leader of the Lega (Nord) party, sovereignty is the only yardstick that carries any real weight. Salvini does not think his country, or its government, is bound too tightly by the rules that govern the common currency. He proposes to spend lavishly on the welfare state, earmarking tens of billions of euros to lower the retirement age, increase benefits, and introduce a basic wage. His government also wants to bestow its largesse on a host of social programmes and initiatives that suffered austerity-induced cuts.

Saddled with a debt of almost €2.3tn, 131% of its GDP, Italy has little room for manoeuvre – even though its budget deficit of 2.0% is well within the maximum (3% of GDP) set by eurozone rules. The spending plans unveiled by Rome are expected to increase the deficit to -2.4% – a far cry from the -0.8% target of the previous government. The push is also meant to kick-start the Italian economy which never fully recovered from the 2008 global financial crisis. GDP is still down 8% from its 2007 peak.

EU objections to the Italian government’s plans include the structural nature of the proposed spending, which may perpetuate the deficit and make future reforms more difficult. The country’s debt burden also conspires against a widening of the deficit. The absence of any plan to pay down the debt causes considerable concern in Brussels and elsewhere. Italy seems particularly vulnerable to rising interest rates and spreads. The country is also too big to fail.

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OFF TARGET Even though Italy’s debt-to-GDP ratio seems to have plateaued around the 130% mark, this number does not include the central bank’s Target2 liabilities to the European Central Bank (ECB). Usually indicative of a country’s financial stress level, Italy’s position with the ECB has significantly deteriorated over the past few months and now stands at minus €490bn – a record low for any eurozone member state.

Including the country’s Target2 balance would push the Italian debt-to-GDP ratio up to 156%.

However, Target2 is neither debt nor credit and merely represents a number on a ledger of crossborder payments within the eurozone, settled via the ECB. The central banks of Germany, the Netherlands, and Finland are the three big Target2 creditors on the asset/capital side of the €3 trillion balance sheet.

Up to the eurozone financial crisis of 2011-12, Target2 balances hovered around zero, showing only minute fluctuations. When private money stopped flowing to troubled countries (Club Med + Ireland), the ECB lowered its requirements for collateral in its open-market dealings and started issuing long-term refinancing operations (LTROs). This rebalancing exercise provided momentary relief but went slightly off-track in 2015 when the Target2 liabilities of weaker eurozone countries started to increase as a direct result of the ECB’s quantitative easing (QE) programme. Central banks using QE liquidity to buy domestic corporate bonds found that sellers were keeping the proceeds of these transactions in other eurozone countries deemed less exposed to risk. This created a Target2 liability for the buyer. The ECB estimated that up to 80% of all QE transactions may have ended up on its Traget2 ledger.

CURIOUS BEAST Target2 is a rather curious beast: a negative balance such as Italy’s does not constitute a debt; it carries no interest and need not be paid – ever. This holds true for as long as the eurozone continues to exist and function. However, in the case of a break-up, or a country deciding to leave the eurozone, Target2 balances must be settled. Though the monetary union lacks a legal exit mechanism, a political risk does exist, as exemplified by the current Italian government – a grand coalition centred on the anti-establishment Five Star Movement and the Eurosceptic Lega (Nord).

De Nederlandsche Bank (DNB), the Dutch central bank, has repeatedly pointed out the risks associated with inflated Target2 “deficits” and has calculated that its potential loss could amount to €130bn (around 20% of GDP).

As such, Target2 balances partially incorporate the current accounts of eurozone member countries, but normal coping mechanisms, such as currency depreciation, have been removed. This is a problem as deficit countries such as Italy, Spain, Portugal, and Greece have been left with limited 46

means to redress the situation. Only by increasing their competitiveness via internal devaluation (i.e. austerity), and thus adding to productivity, can these countries ever hope to crawl out of the hole.

It is against this limited toolset that the Italian government now rebels. That course of action may be politically convenient and expedient, but it may also prove rather expensive as the country’s funding costs escalate. In October, Moody’s adjusted Italy’s sovereign credit rating one notch down to Baa3, citing fiscal weaknesses and the absence of reform plans. Just to make sure all stakeholders took note, Moody’s also adjusted its outlook on the Italian economy from “stable” to “negative”. In a nod to Target2 liabilities, the rating agency noted that Italy is unlikely to ditch the euro.

Refusing to take up the slack left by the exodus of institutional investors, Italian households largely declined to sign up for retail bonds, with the latest issue raising just over €2.2bn, instead of the €7bn to €8bn usually taken in by these sales.

TONING DOWN THE RHETORIC Prime minister Matteo Salvini and his coalition partner Luigi Di Maio have now toned-down their discourse, perhaps taken aback by the howls of protest from Brussels and the European Commission’s determination to call Italy to order.

The EU has awesome powers, demonstrated during the Brexit negotiations when the commission – backed by the council – imposed its red lines and held on to them.

The DNB does, however, raise a serious point: an exceptionally large debtor, such as Italy, wields exceptional power. Too big to fail – or rescue – Italy has, in fact, the ability to blow a gaping hole in the euro-project and sink it. Not even Super Mario of whatever-it-takes fame will be able to limit damage. In its latest Financial Stability Review, published late November, the ECB admitted that the eurozone is still recovering from the last financial crisis 10 years ago. The bank notes that, so far, the spill-over from Italy’s rising borrowing costs has been limited to nonexistent. The ECB warns that the biggest risk is that of investors vacating risky positions, causing a “disorderly drop” in asset prices.

Analysts note that an economic slowdown may manifest the ECB’s concerns at a time when the bank’s arsenal of monetary instruments has been largely depleted. During the last meeting of its policy committee, the bank held its benchmark deposit rate at -0.4% and indicated that no major changes were expected before next Summer. The ECB also announced the reduction of its bondbuying programme to €15bn monthly, as of October, in preparation of a complete shutdown by the end of the year. By then, the ECB will have injected €2.6 trillion in the eurozone economy.

With inflation slowly creeping out of the doldrums and the predicted soft landing of the 19 euroeconomies, the bank sees little reason to change tack. However, the latest Financial Stability CFI.co | Capital Finance International

Review also notes that looming trade wars and the attendant resurgence of protectionism may yet cause shocks to an otherwise stable environment.

HOT POTATO And then there is Italy. The ECB prefers to skirt the issue, largely ignoring the systemic risks posed by the recalcitrant attitude displayed by Rome, preferring to hand this particular hot potato to the European Commission. Italy’s central bank is, however, doing its bit by insistently warning about rising bond yields which may add billions to the cost of servicing the country’s debt. Should yields remain where they are, Italy will have to cough-up an additional €9bn to fulfil its financial obligations by 2020.

The plan, hatched by Rome, for Italy to grow its way out of trouble is almost universally dismissed as wishful thinking. In its own Financial Stability Report, the Bank of Italy wrote that “uncertainty over the economic and fiscal policy stance” is undermining banks and insurers with a marked deterioration in both liquidity and capital adequacy ratios. The central bank also is much less upbeat than the government about Italy’s growth prospects. Businesses have already taken a hit with interest rates on corporate fixed-term debt increasing from 1.5% to 3.5% over the last two quarters.

Though Prime Minister Salvini has turned down the volume noticeably, he so far refuses to cancel his spending plans, suggesting only that he could tinker a bit with the margins, shaving a few tenths off percentage points of the inflated deficit, reducing it from -2.4% to -2.2%. That is unlikely to restore calm in Brussels, where the commission now mulls initiating the dreaded “excessive deficit procedure”. This exercise starts with strong demands to bring spending back in line with EU standards and escalates to the imposition of hefty fines – from 0.2% of the offender’s GDP to whatever the EU considers appropriate. Italy will probably argue that in the past, other offenders, including Germany and France, have been spared the procedure.

Though centred on the deficit impact of the extra spending, the actual dispute concerns the differing economic forecasts. Simply put, Rome is more upbeat than the commission. Until the end of November, Salvini argued that the commission had no reason to question Italy’s numbers which show that the anticipated rate of growth neutralises, at least partially, the impact of the proposed spending spree. Then, on the very last day of the month, national statistics agency ISTAT announced that for the first time since 2014, economic output shrank. Between July and September, GDP retracted by 0.1% compared to the second quarter. Year-on-year growth retreated to a paltry 0.7%, with unemployment slightly up at 10.6% – well above the eurozone average of 8.1%. ISTAT also expects 2018 growth to clock in at 1.1%, setting the stage for belowpar performance next year and giving Prime Minister Salvini some extra food for thought – or ammunition for his anti-austerity drive. i

Winter 2018 - 2019 Issue

> Forward You with Pragmatic Advice and Innovative Ideas:

Flexible, Independent and Strong Responsible and caring, pragmatic and agile, efficient and progressive, daring and creative: Dr Manfred Dirrheimer perfectly embodies the core values of FWU – Forward You – which he founded in 1983. Under the management of Dirrheimer, the company developed from a small Munich-based consultancy to a globally active financial service provider with 448 colleagues, including 100 IT specialists, today.

S

ince the beginning, Dirrheimer has strongly believed in the combination of unit-linked life insurance and technology. He used the knowledge and experience he gained as a consultant to build-up FWU: While competitors continued to pursue the classic endowment life insurance concept, he consequently focused on what used to be a niche: unit-linked life insurance.

Digitisation never was an abstract topic for Dirrheimer – digitisation was crucial for FWU from day one.

Starting with the acquisition of the Luxembourgbased insurance company AtlanticLux in 1999 (now FWU Life Lux), Dirrheimer laid the foundation stone for the strong growth of FWU in the life insurance industry. In 1994, the first unit-linked life insurance product with managed funds was sold in Luxembourg. But Dirrheimer was aware early on of the power of algorithms: “A funds manager or even a retail investor can bring in a vast experience in the field of capital investment and achieve success – but in the end, the investment decisions are based on personal reasons,” says Dirrheimer. Consequently, already in 2003 FWU switched its investment decisions from expert-based decisions to quant technology.

PIONEERING “From my perspective this is the ideal combination as an investment solution embedded in a life insurance provides performance and security. Successfully using a vast array of all kinds of assets around the globe like equities, fixed income securities and money market funds is a challenge, but necessary in these times when the interest rates are low and the capital markets extremely volatile. But who chooses the best assets? We rely on strong algorithms. It would take 80 people 80 days to calculate the results obtained by an algorithm in only 39 minutes!”

The success of FWU’s concepts proves that Dirrheimer is right.

The remarkable switch to quant technology was not the single unusual and courageous decision the entrepreneur made: As one of the first

CEO: Dr Manfred Dirrheimer

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European life insurances, FWU decided to offer unit-linked life insurance in the Middle East and Asia. In 2003 the first Family Takaful insurance product was created – a unit-linked life insurance that complies with the strict ethical sharia rules.

“Thus, all FWU investments meet the highest ethical requirements”, adds Dirrheimer. “FWU is a company in which efficiency plays a major role. We therefore do not differentiate between Europe and other regions when it comes to investments.”

PRODUCTS INSPIRED BY CLIENT NEEDS Dirrheimer has not fallen short on innovating unit-linked life insurance products since they have seen a stronger presence in the portfolio of bigger insurance companies too in recent years. Due to the heavy effects on the balance sheets in volatile capital markets, clients demand guarantee products, but many insurers avoid guarantee offerings. In 2017, Dirrheimer did the opposite: He invented a purely feesbased unit-linked guarantee product, making a cash-lock situation impossible for clients of FWU. With FWU’s latest investment solution Forward Quant clients can switch on and off a guarantee up to 100% or change the guarantee level at any point during the contract duration.

The innovative guarantee concept comes with an extra plus of transparency: The costs are dependent on the client’s individual guarantee level, and he receives a fixed fee that stays the same throughout the contract duration.

Today, FWU is a global enterprise with eight locations in Europe and active in the markets in UAE, Saudi Arabia, Kuwait, Pakistan, Malaysia and the Philippines as well. The company is still owned by Dirrheimer and his family. “This makes us flexible, independent and strong,” says the company’s founder and CEO. “We remain a privately-held business, so we benefit from long-term thinking and uncomplicated decisionmaking procedures.” i

FWU – Forward You:

A Financial Service Provider with a Difference When it comes to experienced financial service providers, you don't necessarily think immediately of an unconventional company and a disruptive business model.

H

owever, that’s exactly what FWU is all about. FWU is a financial service provider that is different. One that is innovative and creates new investment opportunities for client investments, while still showing a proven history of reliability and success. Now awarded best unit-linked portfolio Europe 2018.

Originally founded as a consultancy firm in Munich, Germany, FWU’s founder and CEO 48

Dr Manfred Dirrheimer decided to pursue a new path – a decision which would reform the life insurance industry. Starting out as a small team of experts, FWU became a globally active specialist provider of unit-linked life insurance products and financial services, servicing clients from Malaysia to Spain.

Today, after more than 35 years of success, FWU is a corporate family of 448 employees, including 100 IT specialists, at 14 locations across CFI.co | Capital Finance International

Europe, the Middle East and Asia. The enterprise is approaching a total contribution of €10 billion and €3 million assets under Management globally. Over 7,000 independent financial experts provide advice on FWU’s products every day. Yet, FWU is still driven by the same start-up spirit that motivated Dirrheimer to reshape the world of financial services.

THE POWER OF TECHNOLOGY But what makes FWU so special? Right from the start FWU realised that designing smart processes and managing them effectively are the keys to success in the market. That’s why, from day one, FWU has cultivated market-leading IT and actuarial know-how. FWU also recognised early on the potential of unit-linked life insurance concepts and, not least, financial centres such as Luxembourg and Dubai.

Furthermore, over 15 years ago, FWU was at the forefront of developing quantitative analysis and data mining techniques focused on unit-linked life insurance, while competitors still relied on

Winter 2018 - 2019 Issue

Munich: FWU Headquarters

"Right from the start FWU realised that designing smart processes and managing them effectively are the keys to success in the market. That’s why, from day one, FWU has cultivated marketleading IT and actuarial know-how."

“gut feeling” decision making. Today, FWU has the muscle to deliver increasingly complex and innovative products, such as highly individualised unit-linked life insurance products in Europe and Family Takaful products, which comply with strict ethical guidelines for the markets in the Middle East and Asia.

SPECIALIST IN THE FIELD Life insurance is one of the traditional provision concepts and unit-linked life insurance has also been around for some time. So why is FWU so proud of its in-depth expertise in the field of unit-linked life insurance? Because thanks to the company’s highly developed IT and investment know-how, FWU has shaped the entire business around client needs so that even retail investors benefit from Wall Street-style technology – starting at as low as 50 euros per month. FWU can offer more individual and more flexible investment solutions embedded in life insurance products, giving clients the best possible balance between performance and security through guarantees.

FWU’s unit-linked investment concepts are created in Luxembourg, a location that combines the innovative power of a leading investment-fund centre with one of the strictest regulatory environments worldwide – ensuring that client capital is protected while enabling FWU to provide avant-garde solutions.

A REVOLUTION IN UNIT-LINKED LIFE INSURANCE: FORWARD QUANT In times of hectic capital markets, price collapses and global political tensions, anyone who wants to invest money in the long-term needs to have a strong stomach for the wild ride of long-term investments – and a suitable investment concept. Forward Quant, the latest investment solution from FWU, focuses on clients and their individual risk appetites without neglecting performance. With more than 100,000 assets throughout all asset classes, Forward Quant gives an exceptionally broad array of investment opportunities, 1,000 times the average range offered on the market.

The portfolio offers all kinds of asset classes: equities, fixed income securities and money market funds in all currencies, and without geographical and political borders.

NUMBERS BEAT INSTINCT Forward Quant is one perfect example to display CFI.co | Capital Finance International

FWU’s strong expertise in actuarial know-how: The concept is based on a powerful algorithm; all investment decisions are based on deep data analyses of the investment universe. A scientific, mathematical model analyses the likelihood of future events occurring in global capital markets, based on extensive analysis of past events.

In addition, a technological volatility control ensures that the clients’ investments have a dynamic start in the beginning and a secured finish towards maturity, once capital has grown.

In the first years, the investment focuses on the opportunities of more volatile capital markets.

Towards maturity, Forward Quant automatically narrows down the exposure to volatility – safeguarding the earnings and reducing potential losses.

READY FOR NEW CHALLENGES From a small financial services consultancy in Munich, to an internationally active and innovative financial service provider, in less than four decades – and there is much more to come!

FWU has created an exceptional investment solution and other products will follow, all embedded in a unit-linked life insurance. FWU – CFI.co’s 2018 winner of the award Best UnitLinked product portfolio Europe. i 49

> Mobile

Phone Purchase that Turned Trading Downside Up

Aquis Exchange founder and CEO Alasdair Haynes had his Eureka moment while buying a mobile phone for his son, Alexander, then aged 13, in Tunbridge Wells, England.

Y

oung Alexander “wanted the latest iPhone with unlimited everything”, of course. Alexander (now 19, and working in the Aquis IT department as part of a government education scheme) had to settle for a £9.99 Samsung. It kept him happy for the moment. But Alasdair got something more valuable from the encounter, in the form of the sudden realisation that the subscription model was the future – regardless of the industry or sector.

“I realised then that Vodafone was managing message traffic just as stock exchanges do. The whole concept was based on subscriptions.”

Haynes snr looked at the markets and realised that subscription services were outstripping the competition in just about every field – except trading platforms. With everyone and their dog moving in the same direction, Haynes knew it was time to act and get ahead of the game. “One day,” he thought, “all trading will be like this.”

Those prophetic words would become something of an Aquis company motto. The seed of his idea germinated, sprouted, and a year later, Aquis Exchange was launched.

Before that, Haynes had been the CEO of Chi-X, Europe’s largest stock exchange, which he sold for $360 million to BATS who then made him and over half the staff redundant. Haynes created a team from those staff members who had been let-go (something he was allowed to do as part of his contract) and he set about doing what he does best: changing things up. His intuition was on-target, and his subscription model has indeed revolutionised the way trading platforms are run.

The benefit of a fixed price had proven its worth in the areas of phone calls, music and films.

Aquis’ time had come. But it wasn’t all plain sailing, and there were lessons to be learned.

“We made every mistake in the book,” Haynes admits. “We assumed that venture capital lends money to invest in new ventures, which I suddenly found wasn’t the case. So we ended up going to high net-worth individuals that I’d got to know in the industry. They supported us and backed us in the beginning.”

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With regulatory approval and a good team behind him, it was time for Haynes to get stuck in and prove his theory. Aquis Exchange launched in November 2013.

One of the early problems to raise its head was the publication a few months after launch of Michael Lewis’ financial expose entitled Flash Boys: A Wall Street Revolt. The book fed the public a new, negative image of electronic trading. It took time to overcome those adverse perceptions, says Haynes; he estimates it pushed things back by 18 months for the company. The team soldiered on.

There are two key things that differentiate Aquis from the competition: the subscription model, and its ban on certain types of trading. He brought in a rule that proprietary trading firms – firms that typically do not act on behalf of customers – could become part of Aquis, but only if they posted orders. This was the “postonly order type”. The trading firms had to supply liquidity to the market; they could never aggress on their own behalf or take business away. Stallholders in a market place, with no right to buy goods from anyone else, in Haynes’ analogy.

With that single move, “the making of Aquis”, it became a protected market for customer business. “Ask any asset manager: prices move because of information leakage,” says Haynes.

“Markets are informed, and prices move away.” When buying stock on Aquis, prices don’t go walkabout. Well, not far, anyway. With regulatory changes in the industry, there was an obligation to get “best execution” – and with a deep liquidity in a protected marketplace and subscription prices with a marginal cost of zero, Aquis had that one covered.

The company completed an IPO earlier in June 2018 – not so much to raise money, Haynes says, but to raise the company profile. The anticipated market share was put at 3% by the end of the year. At the time of the float, the figure was 2.25%; by October, it had risen to 3.67%. “That’s a massive rise,” observes Haynes.

CFI.co | Capital Finance International

Founder & CEO: Alasdair Haynes

Winter 2018 - 2019 Issue

His has not been not an unadulterated success story; between a career in investment banking at firms such as UBS and HSBC and running ITG, Chi-X and now Aquis, Haynes (who left school after A levels) had a bad patch.

He got cocky and set up a mini hedge fund, using his own money. “I was absolutely crap,” he says. “I found it really hard, I lost all my money. I had a house in France. I lost it. It was the lowest point you can be, thinking you can’t get out of the hole.”

Haynes scrabbled and scrambled. He got out of that hole, and risked getting into another one. Scrabblers and scramblers have their own guardian angels, and Haynes had his.

His legacy, as he would like to see it at the age of 58, is to have changed an industry. In fact,

he would like those words – “He changed an industry” – as his epitaph. He is also proud of his professional conduct, having won the respect and admiration of his loyal troops – of the seven key players who started Aquis with Haynes, only one has left the company, because of ill-health. Haynes ensures the workplace is never dull. “Enjoyment is crucial to work,” he says.

Haynes the Younger, if you were wondering, wasn’t rewarded with the latest iPhone for his part in this power play. “He lays claim to a founder’s idea,” says his father, “but he is literally now the most junior person in this company.”

No moving prices, no greedy or tricksy electronic trading, no regrets – and no nepotism at Aquis, it seems. i CFI.co | Capital Finance International

"I realised then that Vodafone was managing message traffic just as stock exchanges do. The whole concept was based on subscriptions."

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The Artico team: Michael Brenneis, Tero Toivanen, Gabriel Herrera, Ulrich Niederer, Andreas Konrad, Stephan Meier

>

TINA and the ARTICO Team: Delivering Overperformance WHAT MAKES ARTICO SPECIAL? Gabriel Herrera, Chief Executive Officer: Artico is different in two important aspects: First, we have “skin in the game”! This means we are significant co-investors in all our funds. When our funds outperform, we benefit, when they underperform our private wealth is directly affected. This ensures our interests are fully aligned with the interests of our investors. We therefore always act as true partners. Secondly, our investment approach is different: the companies we invest in have very positive fundamental attributes. These characteristics are the reason for our past outperformance over the last seven years. More important - these unique portfolio characteristics provide for a higher probability of future outperformance.

COMPANIES WITH UNIQUE CHARACTERISTICS? SURELY ALL MANAGERS SEEK THAT? Stephan Meier, Head Investor Relations: Sure. But Artico’s portfolios have significantly different characteristics than those of our competitors. The companies in our portfolio grow their business much faster than others, have a twice as high profitability, a healthier balance sheet and are significantly lower valued by the stock market. In a nutshell, at ARTICO you get a diversified portfolio with very high growth and profitability exposure at a massive valuation discount. Investing in good companies has paid off in the past and should also do so in the future.

HOW DO YOU IDENTIFY THOSE GOOD COMPANIES? Tero Toivanen, Chief Investment Officer: It is all based on thousands of hours of research. We have tested multiple criteria and methods to select the most promising companies. And we are constantly focusing our research to improve what we do. The best set of criteria is applied on the financial statements of over 30,000 companies, which are part of our database. This results in a fundamental score for each company.

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And then we simply buy the companies with the best score.

30,000 COMPANIES? THAT SOUNDS LIKE A LOT OF WORK...

Michel Brenneis, Head Portfolio Management: Yes, it is. And it would not be possible to do that research and scoring with even an army of analysts. Instead we are helped by TINA – our powerful proprietary system.

TINA does all the work we would have to do manually on these 30,000 companies. She has a dedicated room and needs permanent air conditioning. She works 24 hours/7 days on scanning the global equity markets for good investment opportunities based on the criteria we have researched and defined.

She’s the hardest working team member at Artico, so to speak!

HOW CAN YOU COPE WITH SUCH A COMPLEX BUSINESS WITH JUST 6 PARTNERS? Andreas Konrad, Chief Operating Officer: In fact it is much less complex than one would think: We have outsourced or automated most of the steps in our processes, so we can fully focus on our ongoing research activities, the regular trading processes and our control procedures. With only six partners, we have no administrative burden or internal bureaucracy and so 100% of our focus is on the performance of our funds.

THANK YOU VERY MUCH! ONE LAST QUESTION: WHAT DOES IT MEAN TO YOU TO HAVE BEEN SELECTED BEST QUANTITATIVE EQUITY ASSET MANAGER IN SWITZERLAND? Ulrich Niederer, Chairman: Our primary goal is to deliver outperformance to our investors.

Winning this award is nevertheless the type of recognition one aspires to. When we founded ARTICO over seven years ago, we wanted to create something special. Most importantly, our objective has never been to become the biggest. Being regarded by our investors and the outside community as an excellent asset manager and delivering on outperformance is what really motivates us. i CFI.co | Capital Finance International

> ARTICO Partners Are Major Co-Investors in all their Funds:

The Importance of Having Skin in the Game

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magine you visit a Casino. At the bar, there is this well-dressed guy – let’s call him Ricky. He offers you the following deal: “I will come with you to the table and provide my professional advice for as long as you wish. I am an expert on probabilities and my advice will very likely make you rich.”

As you are not an experienced and skilled gambler, it sounds tempting to get help from a professional, but you don’t want to pay high fees.

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Surprisingly, Ricky continues: “Not only that, but you will get my advice for free! I shall only charge you if you win: you will keep 80% of your gains and I will get 20% as an incentive to make you win as much as possible.”

After some reflection, you find the deal to be more than acceptable and agree to the terms Ricky proposed. What you don’t know at this stage, is that your new partner offers the same deal to many other players. After a long night, you go CFI.co | Capital Finance International

back to the bar for drinks. There, by coincidence you meet all other players who took advice from Ricky. Together, you discover that some of the players have won money thanks to Ricky’s advice, while others have lost. Adding it up, you realise that as a group a significant amount of money has been lost. In another corner of the bar you spot Ricky who seems to be enjoying himself big time: he has become rich! Fury and anger slowly comes creeping up, while you struggle to understand what has just happened.

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You are depressed and about to leave the bar when a guy next to you offers you a last drink.

“Hi, I am Nassim. I heard your conversation.

You should have read my latest book Skin in the Game1, if you had this would not have happened to you.”

You slowly realise that, luckily, you just met Nassim Taleb, the multi-faceted thinker and philosopher on decision-making, uncertainty, risk and randomness. He is also the author of many books including The Black Swan (2007). In that book he recommended a different approach to measuring risk, introducing the notion of unpredictable events ahead of the 2008 financial crisis. It only takes you a short moment with Nassim to fully understand what went wrong in the casino.

“It is very simple,” Nassim explains: “Ricky benefitted from two key factors: randomness of the game plus a total asymmetry in the deal he offered you. First, the odds of winning or losing at the Casino tables are very close to 50%, regardless of Ricky’s professional advice. Second, he managed to agree with the players a completely asymmetric deal: He would take a 20% share of your (random) wins, while not being exposed to any of your losses! Intuitively, you believed that the profit sharing was an incentive for him to make you win the most. But the structure of the deal incentivised Ricky to play as often as possible with as many players as he could find with the largest possible wagers. He knew that he could expect to win in 50% of the cases. And, each time he would take 20% of the winnings. Not surprisingly, he became rich without having any professional foresight on the casino outcomes. On the other hand, as a group, all players had to lose, as the outcomes were random, but each player was always rewarded with only 80% of the wins. He could only win, while the group could only lose.

"You should expect skin in the game from everyone that takes decisions on your behalf. Always."

Nassim’s explanation is so simple - and obviously true - that you fail to understand why you did not figure it out yourself.

Nassim goes on: “Ricky had absolutely no skin in this game! If he had to share in your losses, he would not have offered you this silly deal to start with. Skin in the game is the backbone of risk management. The symmetry that comes with skin in the game is a simple rule that is necessary for fairness and justice. Never trust anyone who doesn’t have skin in the game! Without it, fools and crooks will benefit, and their mistakes will never come back to haunt them.”

We are going to move away from the casino now, but, sadly, similar deals are offered and accepted around the world on a daily basis (in particular, when it comes to investment management or advisory). The difference is CFI.co | Capital Finance International

that financial markets host millions of players and an army of “Rickys”, most of whom are operating without any true skin in the game.

Looking at the performance of active global equity managers over the past five to seven years, it is mind-blowing to see that over 75% of managers have underperformed the global equity benchmark2. Well, it is not the managers who have suffered these losses, but the investors. Most of the managers did not have skin in the game. Some may have lost their job, their reputation, their clients, but only few had exposed a significant amount of their private wealth in respect of the investment decisions they took. So, is it still a surprise that the average manager did not add value to his investors over the long term?

ARTICO Partners strongly believes in the concept of skin in the game. They consider this a necessary condition of operating as a professional asset manager. They have developed an investment approach in which they believe. It is both simple and compelling: ARTICO invests in good companies, having invested thousands of hours of research to develop the necessary selection skills. The companies invested in have a higher growth rate, stronger profitability, a healthier balance sheet and a significantly lower valuation.

These unique characteristics are the reason for ARTICO’s achieved outperformance over the past seven years. More important, it gives their portfolios a higher probability to outperform in the future. They know this. But how can investors decide whether ARTICO really believes in what is said? It could just be a cute marketing story based on past (random) outperformance. Professional investors will of course perform a detailed due diligence which will convince them about the validity of the ARTICO approach.

But one of the most important aspects, the key fact that really makes the difference, is for investors to know that their advisor has a lot of skin in the game. As significant coinvestors in all their funds, ARTICO benefits from outperformance and suffers in phases of underperformance. This – and only this – can ensure that its own interests are truly aligned with the interests of investors.

Do not grant unconditional trust in advice that – when things go wrong – has no meaningful negative impact or consequences on the persons taking investment decisions for you. You should expect skin in the game from everyone that takes decisions on your behalf. Always. i Skin in the Game: Hidden Asymmetries in Daily Life by Nassim Taleb. Random House & Penguin (2018) 2 Source: Citywire. Performance of global equity managers 7/2011-7/2018 1

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> Expressions of Generosity:

The Amazing Ceilings of the Palais des Nations in Geneva

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he refurbishment of the United Nations Palais des Nations in Geneva, originally built in the 1930s for the League of Nations, has unexpectedly erupted into a fierce competition between Spain, the United Arab Emirates, and Qatar.

Spain kicked off the battle of the ceilings in 2008 with a design of dangling icicles by abstract artist Miquel Barcelo that covers the 460m2 elliptical dome of the Alliance of Civilisations Chamber where human rights issues are usually discussed.

The stunning ceiling required about a hundred

Alliance of Civilisations Chamber

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tonnes of paint and shredded aluminium with pigments sourced from all over the world. It cost $22m to build and, at the time, caused a political stir in Madrid. The Spanish government bore 40% of the cost.

Taking a cue from Spain, the United Arab Emirates in 2016 bankrolled the $23m refurbishment of Room XVII – now La Salle des Emirats – featuring a ceiling depicting the clear skies of the UAE ‘from dawn to dusk’ in a set of geometrical shapes – endless, limitless, interminable, and futuristic.

The ceiling complements the subtly curved walls

La Salle des Emirats

CFI.co | Capital Finance International

of the conference room which are meant to evoke the wind caressing the sand dunes.

Late 2017, Qatar announced its intention to outdo all in the refurbishment of Room XIX, one of the largest of the Palais des Nation with a seating capacity for 914 delegates. Though plans are still under wraps, the wow-factor is sure to be considerable as Qatar has already earmarked some $20m for the project which forms part of the United Nations’ Strategic Heritage Plan that calls for the complete renovation of the Geneva headquarters by 2023. i

INTERNATIONAL BANKING

Winter 2018 - 2019 Issue

BANKING WITHOUT BORDERS we make every minute count

Through our off ices in Mauritius, Kenya, Madagascar and India, we provide a spectrum of solutions tailored to address your specif ic requirements and achieve your grow th aspirations.

Hotline: (230) 207 0111 | E: internationalbanking@sbmgroup.mu W: www.sbmgroup.mu CFI.co | Capital Finance International

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>

Stepping Up the ESG Possibilities to Gear the World for Positive Change

By Roberto Lazzarotto, Global Head of Sales

Swiss company STOXX has been facilitating responsible investing since 2001, but the availability of indices in this area is gathering pace, in tandem with a growing pool of institutional money embracing sustainability policies.

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esponsible investing stands at around a quarter of all professionally managed assets globally.1 As more asset owners and managers adopt responsible practices, the challenge for them is what this means for returns, and its effect on portfolio variables such as tracking error, liquidity and risk management. For index providers devising investment solutions, the objective is not just getting the right sustainability parameters, but also how best to utilise that data to make ESG concepts tradable.

DIFFERENT OPTIONS STOXX maintains more than 150 indices across the environmental, social and governance (ESG) / Sustainability and Low Carbon families, a vast and sophisticated offering catering to varied and specific needs. They include indices that select the best-in-class performers on ESG metrics, companies with the lowest reported (and estimated) carbon footprint, and those making progress on the path to a low-emissions world.

The company’s products aim to provide investors with a transparent and systematic way to target the most common ESG strategies: exclusions, norms-based screening, best-in-class selection, ESG integration and sustainability-themed.

A FLAGSHIP BENCHMARK Last November, STOXX launched the Europe 600 ESG-X Index, a version of Europe’s most popular benchmark that excludes companies based on norm- and product-based screenings. The result is a broad, market capitalisation-weighted portfolio that complies with typical exclusion screens based on responsible policies of leading asset owners.

The launch followed discussions with some of Europe’s largest investors, who sought a passive concept that would meet standard ESG practices and that moved from existing benchmarks to more sustainable ones.

"When we combine an open architecture with the best data providers and our established flagship indices, we can facilitate the incorporation of sustainable strategies into well-tested investment frameworks."

“We believe the STOXX ESG-X index is the right fit for that, benefitting from having a similar composition and risk-return profile to the highly liquid STOXX Europe 600 Index,” says Roberto Lazzarotto, global head of sales. The benchmark underlies a significant share of Europe’s index futures and options market. “The ESG-X index epitomises our ambition to increase liquidity and lower the cost of trading in the world of sustainable investing.”

ESG AS FACTOR CRITERIA While exclusionary screens form the most-widely used sustainable strategy, there is increasing acknowledgement that ESG principles lead to a better and fairer world and can also help financial returns.

Since the 1970s, some 2,250 academic studies have been published on the link between ESG information and corporate financial performance, according to a paper by DWS.2 Most have found a positive correlation between the two variables, with only 8% finding a negative one. Academics have explained this link as businesses, with high ESG scores being more competitive and forwardlooking, and less exposed to idiosyncratic risks.

One example of passive portfolios with ESGfactor integration strategies are the STOXX ESG Impact Indices, which take exposure to ESG key performance indicators, such as the percentage of women on board or company policies against

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"The arch of sustainable investments recognises that the corporate world is diverse, and that investors may want to accompany businesses driving change at different stages of the green transition."

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EURO STOXX 50 EURO STOXX 50 Low Carbon child labour, things that have been shown to lower single-stock volatility. Another is the STOXX ESG Leaders Indices, which track companies that perform well on material ESG issues. In both cases, the underlying data is provided by Sustainalytics, a leading provider of ESG and corporate governance research and ratings with whom STOXX has partnered since 2011.

Sustainable data can also be successfully combined with other criteria to enhance or finetune an investment approach. This is the case with the STOXX ESG Diversification Select Indices, which marry ESG principles with low correlation, low volatility and high dividends screens. This is a strategy that has been favoured by structuredproduct issuers. Similarly, the iSTOXX MUTB ESG Quality 200 Indices track the highest achievers on ESG scores and four fundamental indicators: profitability, leverage, cash-flow generation and business stability.

DIFFERENT STAGES OF ESG TRANSITION The arch of sustainable investments recognises that the corporate world is diverse, and that investors may want to accompany businesses driving change at different stages of the green transition.

In 2016, STOXX introduced a new generation of low-carbon indices that evaluates companies’ progress towards environmental stewardship. The STOXX® Global Climate Impact Indices include forward-looking metrics, such as carbon pricing and science-based targets, to track constituents focusing on solving the climate-change problems – but also those managing climate-change risks and impacts. The STOXX® Europe Climate Impact Ex Global Compact Controversial Weapons & Tobacco Index, for example, takes a climate strategy and adds ESG screens.

For investors seeking to grasp the upside of businesses taking initial steps in the environmental CFI.co | Capital Finance International

transition, the STOXX Climate Awareness Indices track companies that have looked at the implication of climate change, and recognises a high-level awareness of environmental issues.

These various steps are the result of a scoring system from STOXX partner CDP. Low carbon indices also use estimated carbon footprint data from ISS-Ethix Climate Solutions.

“When we combine an open architecture with the best data providers and our established flagship indices, we can facilitate the incorporation of sustainable strategies into well-tested investment frameworks,” says Lazzarotto. The EURO STOXX® 50 Low Carbon Index, for example, targets decarbonisation via the liquid and tradable universe of the EURO STOXX® 50 Index.

TRANSFORMING ASSET-MANAGEMENT ETHOS As asset owners and asset managers move to embrace responsible-investing policies, they pursue different approaches and guidelines.

“Our duty is to acknowledge the diversity of these demands and to provide the right means for each direction,” says Lazzarotto. “This requires simple and standard Index solutions which are linked to products providing cost-efficient access to companies acting to support the environment, society and corporate governance.”

ESG considerations will take on an even larger part of the world’s institutional money pools, because responsible investing has become a minimum requirement for professional investors. Few institutions can afford not to have a sustainable strategy in place, whether for altruistic, financial or risk-management reasons. “All of us stand to benefit from this change.” i 1 Global Sustainable Investment Alliance1 (GSIA), Global Sustainable Investment Review 2016.

2 DWS, ‘ESG & Corporate Financial Performance: Mapping the global landscape,’ December 2015.

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> Quality and Quantity Make Good Bedfellows for ALBIS ALBIS Leasing Group managing director Andreas Oppitz has more than 30 years of experience in the European leasing business.

Managing Director: Andreas Oppitz

H

e has been working in various management and executive positions in the group since 2006, and is responsible for sales, marketing and IT. He is also charged with ensuring the continued expansion of the group's leasing business.

Ever since Oppitz took overall responsibility for ALBIS Leasing Group sales, quality and quantity have gone up. The quality factor is in the sales department, which has been expanded and modernised. The quantity factor is in the 60

significant number of dealer connections that have been established.

The managing director’s chief sales strategy is to gain the support of local dealers and manufacturers, and to manage the constant expansion of online applications. Working closely with his team, Oppitz has positioned ALBIS Leasing as an innovative and flexible company on the German market.

ALBIS sets itself apart from the competition with CFI.co | Capital Finance International

its ability to ensure quick and uncomplicated handling of all details. The group’s sales team has the goal of meeting the constantly changing requirements of dealers and manufacturers, as well as their customers, with the latest products and technology.

The CFI.co award to the ALBIS Leasing online portal for Best Online SME Leasing Solutions Germany 2018 is a confirmation that the path taken by Andreas Oppitz and his sales and IT teams is the correct one. i

Discover the world of STOXX

Innovation meets transparency in indices As a global index provider, STOXX makes investment strategies accessible using fully rules-based and transparent solutions. Our trusted offering of more than 10,000 indices covers the entire investment spectrum from traditional blue-chip benchmarks to smart beta to cutting-edge thematics.

In a data-driven world, STOXX harnesses the power of new technologies to unlock long-term, structural investment opportunities.

Choose STOXX to access the ideas that are shaping the world of tomorrow.

Find out more on stoxx.com and contact us: Zug: +41 43 430 7160 New York: +1 646 876 2030

London: +44 207 862 7680 Tokyo: +81 3 4578 6688

Frankfurt: +49 69 211 0 Hong Kong: +852 2530 7862

INNOVATIVE. GLOBAL. INDICES. STOXX is part of Deutsche Börse Group STOXX® indices are protected through intellectual property rights. STOXX Ltd. does not endorse, issue, market or promote financial products based on STOXX® indices and has no liability with respect to such financial products.

>

Covering All the Angles in Leasing Product Offerings The ALBIS Leasing Group has been a leading light of the leasing market since 1986, with a range of innovative leasing and service concepts.

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hanks to its sector-specific financing know-how and customer-orientated leasing solutions, the Hamburgbased group is among the top leasing companies in Germany. In capital goods and sales leasing, the independent group offers medium-sized companies a variety of financing models and product groups.

The ALBIS Leasing Group maintains direct contact with its customers. With more than 35 sales staff nationwide, it is represented throughout Germany. Thanks to those factors, the ALBIS Leasing Group has been able to acquire comprehensive industry and property know-how.

ALBIS is quick to recognise the needs of each customer, something it has perfected over more than 30 years in the industry.

ALBIS Leasing takes into account sector- and season-specific features, and includes them in

its offers. Customers benefit from customisable leasing models, and can confidently invest in their future. Whether a single product or an allround, care-free package, the ALBIS Leasing Group prides itself on having the correct leasing offer for every individual. Customers are in the driving seat, and decide for themselves at the end of their contracts whether to extend the term of the lease product, have the object taken over, or replace it with something newer.

The leasing offers boast full flexibility in term length, amount of instalments, the type of the contract – always with the possibility of combinations. There are three basic options: full leasing, partial leasing and hire-purchase agreements. In addition, ALBIS has a rentalplus-service concept that is open to any dealer.

In the case of full amortisation, the contract has a fixed lease term which retains the same high,

ALBIS: Head office

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Winter 2018 - 2019 Issue

and clearly calculable, rates until the end of the term. Again, at the end of the contract, the lessee can return the leased property, acquire it or extend the contract.

The lease partial pay-as-you-go contract is also concluded for a fixed term, but the monthly instalments are lower. Only part of the sum to be financed is paid, and at the end of the contract there is an openly calculated residual value. The leasing object can then be acquired for the conditions agreed in advance.

With the hire-purchase contract, full amortisation takes place over the contract period. With the last instalment, ownership passes to the rental-buyer. In this contract variant, the rental-buyer accounts for the acquisition value.

The term of the contract depends on the product and the needs of the lessee for all leasing variants. It also considers product and usage dependent factors, such as wear or maintenance costs of the leased item. There are different maturities that can be tailored to the individual needs of the lessee.

ALBIS also leases at low investment volumes.

The so-called “small ticket” leasing starts with totals as low as €500, an interesting offer for smaller enterprises with limited acquisition budgets.

Particularly interesting in office communication and IT is "all-in" leasing. The all-round service package from ALBIS covers the financing of hardware, software and installation costs. This means security, predictability and reliability for medium-sized companies. Maintenance and service by a specialised IT dealer is covered in the leasing record.

The hospitality industry is increasingly embracing small-ticket leasing. High-quality, state-of-the-art equipment is indispensable in top-class catering. The pressure to innovate is then offset by high initial costs – which often cannot be covered by cash. Restaurateurs frequently finance their purchases through leasing. With a low investment budget, flexibility means a quick, risk-free response to market developments.

Trend and innovation are also key to the ALBIS Leasing Group’s success. The company has introduced the special service of a lease “lightning decision" – dealers who submit their contract online are guaranteed a credit decision within 20 minutes. This speedy service initiative is geared towards leasing contracts with a purchase price of €500 to €20,000.

Settlement takes place electronically, via the group’s online portal, which enables business transactions to be rapidly carried out, from initial application to signing the contract. i 63

― EXCELLENCE – ENGINEERED. SOLUTIONS – DELIVERED. FOR A NEW ERA OF THE FOOD AND BEVERAGE INDUSTRY ―

Understanding today’s customer needs goes beyond products and technology. It’s holistically solving every problem with an intelligent overview of their needs. With our promise, SIG is setting out into a new era of food and beverage packaging – ready to partner with customers and open up new opportunities for performing better and growing faster. Discover more at sig.biz

EXCELLENCE – ENGINEERED. SOLUTIONS – DELIVERED.

Winter 2018 - 2019 Issue

> To

Feed the World

According to the UN’s Food and Agriculture Organisation (FAO), by 2050 the world’s population is likely to exceed nine billion – resulting in a 50 percent increase in global demand for agricultural products.

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he role of the agrarian sector in overcoming the global food crisis will increase, and investment in agriculture and the logistics development will be an important condition for sustainable development. And that is why the Ukrainian company NIBULON makes a real contribution to sustainable development and global food security.

UKRAINIAN GRAIN WILL SAVE THE WORLD NIBULON is a leading Ukrainian investor, agricultural producer, and exporter. The company was established in 1991. It has maintained its leadership among Ukrainian exporters of agricultural products for 10 consecutive years.

Since 2008, NIBULON has been participating in the UN World Food Programme (WFP). This is the first Ukrainian company that participates in the WFP, as it is able to ensure the high quality of its products and to satisfy all contract requirements. During vessel-loading, the company complies with all conditions controlling the process. As part of the WFP, thanks to NIBULON, high-quality agricultural commodities were supplied to starving people in Pakistan,

Ethiopia, Bangladesh, Kenya, Mauritania, Yemen and others.

“Twenty thousand inhabitants of our planet die every day because of lack of food,” says company general director, Oleksiy Vadaturskyy, who is Hero of Ukraine and Laureate of the Ukrainian State Prize for Architecture. “And in order to feed the population by 2030, an additional 150 million ha of land is needed for the production of bread; it is also necessary to produce more than 200 million tons of meat products.

irrigation systems and crop cultivation technologies are employed. “If favourable investment climate is created and investments are attracted, the potential of Ukraine is to increase production volumes at least twice,” he says. “This is precisely the potential that the world needs today in the fight against hunger.”

“Being a head of the company that co-operates with more than 70 countries, I know first-hand that this is a real and very serious problem. In this regard, Ukraine is a country that can provide additional potential for agricultural commodities production in order to solve the problem of hunger.

LEADING INVESTOR In 27 years, NIBULON has invested more than $2.1bn. Since 2009, NIBULON has been implementing its investment project to revive the Dnipro and the Southern Buh Rivers as transport waterways of Ukraine. As part of this project, the company has already built a network of elevator complexes and transshipment terminals, and constructed a fleet at NIBULON shipbuilding and repair yard.

“In this way, the company changes the logistics map of Ukraine.”

“Today the whole world looks at Ukraine, which has all the opportunities for growing more agricultural commodities.”

When redirecting its cargoes to a more environmentally friendly mode of transport, NIBULON reduces its carbon footprint.

Vadaturskyy is convinced that this goal can be achieved if modern agricultural machinery,

The economic burden is also being reduced for agricultural producers, who will be able to free

NIBULON's cargo fleet

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significant funds by investing in the production of agricultural commodities, which will become more competitive.

As a result of NIBULON’s activities, and the unique logistics infrastructure which it created, Ukraine is now renowned as a supplier of highquality grain.

NIBULON transports 2.5 m tons of agricultural commodities by river each year. NIBULON continues constructing its fleet, which will number 100 vessels to transport four million tons of grain a year. The vessels are built at the company’s shipbuilding and repair yard, one of the few shipyards in Ukraine constructing complete vessels. NIBULON shipbuilding and repair yard has a heavy order book for the next few years.

The company is reconstructing and modernising the production facilities of the shipyard in parallel with the construction of vessels. After the reconstruction, the shipyard will be the most modern plant in Ukraine, and one of the best shipyards in Europe.

NIBULON continues developing its network of river transshipment terminals and complexes for receipt, storage and shipment of grain and oilseeds. In May 2018, the company put into operation a new elevator complex for grain and oilseed shipments (43,000 tons) as part of the transshipment terminal in Mykolaiv and the reconstructed 222-metre-long berth. This will increase the efficiency of the company’s fleet, and in July this year, NIBULON will construct two new transshipment terminals in Zaporizhzhia and Dnipropetrovsk regions.

PROTECTING GLOBAL FOOD SECURITY “Many countries know about NIBULON’s largescale investment programme to develop logistics infrastructure in Ukraine,” says Vadaturskyy.

“We always hear positive comments about its successful implementation. We regularly receive delegations at our facilities that are headed by ambassadors of the US, the Netherlands, Canada, Belgium, South Korea, and other countries and with the participation of leading experts, including foreign experts in the industry who study the problems of river transport development in Ukraine.”

Leading financial institutions, foreign governments and international organisations, including the UN, whose Food and Agriculture Organisation has the goal of eradicating hunger, appreciated NIBULON’s infrastructure projects and its experience in constructing grain elevators, river terminals, cargo fleet, reviving river navigation in Ukraine.

In 2017, in Cairo, Egypt, an important event aimed at saving global food security took place.

FAO and NIBULON signed a memorandum to focus on improving the efficiency of Egyptian companies involved in grain production, storage and transportation. In Egypt, FAO is engaged in solving urgent issues related to the development of the infrastructure for grain preservation.

According to this organisation, food losses in Egypt are up to 20 %.

As part of these agreements, and with the support of the Egyptian leadership, a series of meetings and mutual visits took place between NIBULON’s representatives and leading experts of the Ministry of Supply and Internal Trade, Ministry of Transport, Ministry of Land Reclamation and other government agencies.

NIBULON is one of the major suppliers of Ukrainian grain to Egypt. Over the past 10 years, NIBULON has exported more than 12m tons of Ukrainian wheat, corn, sorghum and soybean, having taken an active part in solving the country’s food security issues. NIBULON has opened a

large Egyptian market for Ukrainian grain, having helped Ukrainian commodity producers to meet the competition and to sell their products.

Today, an organisation council, established under the Egyptian Ministry of Supply and Trade of Egypt, and NIBULON’s working group are exchanging information on the opportunity of investments in Egypt. It will include the modernisation of Egypt’s elevators, the construction of new ones, and the construction of a fleet at the country’s shipyards for grain transportation along the Nile River and its tributaries.

Thus, NIBULON plans to revive navigation on the Nile River.

SUPPORT OF RELIABLE FINANCIAL PARTNERS NIBULON believes that partners’ trust is a source of future success. The company has an excellent 27-year credit history based on trust.

“Be honest. I appreciate honest people, when they are honest with themselves, the environment, and society,” says Vadaturskyy.

“This is a very important trait I was brought up with in my childhood, and I’ve carried it through all my life.”

NIBULON plans to continue developing its ambitious investment projects. The company believes that long-term co-operation with international financial institutions – such as World Bank, IBRD, EBRD, EIB, IFC, ING, Credit Agricole, etc. – will be an important stimulus to create new jobs, to develop navigation and shipbuilding, to reduce traffic load on the roads, to develop Ukraine’s economy, and to strengthen global food security.

NIBULON’s goal is to do more for Ukraine and for the world, for decent living conditions and protection of vital human interests. i

Oleksiy Vadaturskyy:

A Business Legend of Modern Ukraine NIBULON’s achievements in the global market and in complex investment projects are results of well-organised work, professionalism and long-term and consistent team efforts.

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lso vital are the support of reliable partners – and the strategic vision of manager, founder and majority owner of NIBULON, Hero of Ukraine Oleksiy Vadaturskyy.

His life story is a whirlwind of success, achievements and challenges overcome.

Here is his recipe for a successful business.

Firstly, you need to come up with an idea and determine how to implement it and then you do so in such a way – for example – as to receive the Ukrainian State Prize for Architecture of the 66

transshipment terminal in Mykolaiv. It is a story of responsible leadership and fortitude that can be a driving force behind positive changes in the country.

Oleksiy Vadaturskyy grew up in a village, in an ordinary family environment. He realised at a tender age that one has to work hard in order to achieve anything.

“My parents worked hard,” he says. “They have taught me to work since my childhood. This hard lesson helped me a lot.”

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Manager, Founder & Majority Owner: Oleksiy Vadaturskyy

Winter 2018 - 2019 Issue

Mykolaiv, Ukraine: NIBULON's transshipment terminal and fleet

After graduation from the Odesa Technological Institute of Food Industry, Vadaturskyy was appointed chief power engineer for the construction of a Mykolaiv regional breadproducing plant. A few years later, he became the first deputy-general director of the Mykolaiv bread products department.

Soon he realised that there was no sense in working for the state enterprise. He had the knowledge, will, desire and creative approach, but little opportunity to take the initiative. He found partners and established NIBULON, joint Ukrainian-Hungarian-English agricultural enterprise (the name stands for the initial letters of NIkolaev – BUdapest – LONdon).

The new enterprise was engaged in producing and selling hybrid corn and sunflower seeds of foreign origin.

But NIBULON faced new challenges, namely the dissolution of the Soviet Union – and consequently of the country’s agricultural production. It was a risky business for the western investors to get involved in Ukraine because of corruption, hyperinflation, collapse of kolkhozes (collective farms), land privatisation, economic stagnation, and unemployment. In post-Communist Hungary there was a difficult reformation and integration processes. It was proving impossible to attract foreign investors.

Oleksiy Vadaturskyy started NIBULON – at his own risk.

developing

Experience had taught him that a business should be developed honestly, and exclusively within the law. Guided by such principles, NIBULON has established a good businessstanding in Europe, and throughout the world. The company is an example of honesty, transparency and social responsibility. As a peer of the independent Ukraine, at different stages of the country’s development, the company

and the country have overcome all obstacles to domestic and global markets.

“I always say that our company has had no defeats, but we have had a lot of obstacles that we have proudly overcome,” Vadaturskyy says.

The company continued to develop itself, annually increasing export volumes, constructing new complexes and terminals.

At that time, Ukraine had a problem with the organisation of transport for agricultural commodities. Ukrzaliznytsia (the Ukraine national railway) failed to cope, and roads were in poor condition. “At the same time, the whole world used water transport because transportation by river is considered to be the cheapest in the world,” says Vadaturskyy, “but not in Ukraine.” He came up with an idea to change the country’s logistics system and to build a fleet. Due to the long decline in Ukraine’s shipbuilding, expansion of the fleet required the establishment of its own production facilities.

Here was a new stage of the development of NIBULON, the creation of its own shipbuilding enterprise.

“I work in the agrarian sector and it would seem I should be engaged exclusively in agriculture,” Vadaturskyy admits. “I thought so 15 years ago. I could not imagine that I would own the most modern private cargo fleet in Ukraine and the shipbuilding yard, which is being reconstructed. Upon the reconstruction, it will be the best shipyard in Europe. The problem with the transport of agricultural commodities changed my life.”

Ukraine’s vessels were re-registered under foreign flags, sold for a pittance – sometimes for scrap. The successful experience of Western countries, in particular cargo delivery along the Mississippi River in the USA, inspired CFI.co | Capital Finance International

Vadaturskyy to create the river infrastructure.

“Then there were ideas to acquire our own shipbuilding yard. As a result, we have built 71 vessels. In 2017/18MY, NIBULON’s shipping company transported 2.5m tons of cargo by inland waterways. In the near future, we plan to transport four million tons,” says Vadaturskyy.

The company’s successes in reviving Ukrainian rivers as transport waterways and redirecting grain and other cargoes from the roads have been recognised by Ukrainian and international experts. They agree that it is a unique case for an agrarian company – acting almost independently – to revive navigation and shipbuilding in a country.

In 2018, NIBULON celebrated another important victory. The National Maritime Rating Of Ukraine 2017 named Oleksiy Vadaturskyy the Person Of The Year 2017 for water transport.

The organizers said it was the first time that the national transport community had recognised the absolute leadership in water transport of a person whose main business interests lie with another industry.

“Life dictates its rules,” he says. “To be a leader in the grain market, it is necessary to execute international contracts and raise the reliability of the company. To this end, it is necessary to build a fleet and possess a shipbuilding yard.

I am deeply convinced that if you want to be successful, you must be successful in all your activities.”

Oleksiy Vadaturskyy admits that being the leader of a big team is a hard job. “You are responsible for the lives of other people who trust you. It is necessary to motivate them, to group them around your ideas. It is impossible to be irresponsible in the business to which you have devoted your whole life.

This is the simple secret of success. i 67

> Eurofragrance: Sweet Smell of Success for Fragrance Company Eurofragrance was created in 1990 by a 25-year-old entrepreneur named Santiago Sabatés. It was a small company, dedicated to the creation and production of fragrances, and mainly focused on export from its Barcelona base.

Santiago Sabates, Chairman and Laurent Mercier, CEO

Eurofragance claim

Singapore Creative Center Team

Dubai Creative Center location

U

nder the influence of its founder, Eurofragrance rapidly mastered the art of oriental perfumery – which still represents a key company asset and edge in today’s fierce competition in GCC countries.

In 2019, 28 years later, Eurofragance continues to combine the preserved essence of a family business with a growing global presence boasting booming sales on five continents.

The growth of the company, born with a multinational mindset, has been steady over time and accelerated over the past four years, with a 50% sales increase from 2013 through 2017.

And 2018 was a particularly important year for Eurofragance. In what will remain an incredibly challenging year for the fragrance industry, the company will close with an exchange-rate neutral growth of over 15%.

At management level, Laurent Mercier, who joined the leadership team at the end of 2013, 68

took over as CEO, replacing Santiago Sabatés, the founding partner. Since he joined, Mercier has internationally deployed a fluid yet coordinated infrastructure, preparing the company for profitable growth.

Eurofragance runs five Creative Centres where the company’s creators design surprising and unique fragrances. The strategic locations of these centres, as well as its four production sites, allow the company to expand into promising markets.

Eurofragance in both the Americas. Mercier and Santiago Sabatés are combining their efforts to deliver a balanced, yet ambitious, organic and inorganic growth strategy.

While emphasis through 2018 was on performance, one of the three corporate values with passion and entrepreneurship, Eurofragance is also committed to social, research and environmental projects. An important project, powered by Eurofragance and its Asian GM, Markus Steger, is “soap cycling”. It is aimed at collecting and recycling bar soaps from hotel chains to distribute them to communities in Cambodia and prevent diseases caused by a lack of hygiene.

While the company first focused on expanding into Asia from 2015 – and is currently executing its three-year deployment plan – the new executive director and his senior executive team, signed in late 2017 the acquisition of Fragrance Design, based in Atlanta, Georgia, soon to be rebranded Eurofragance North America. This operation complements the existing operations of the company in Mexico City, which has sales through Central American and Andean markets.

The team also recently created for the Pasqual Maragall Foundation, dedicated to research on Alzheimer disease, using the perfume "És Possible" to emphasise the link between smell and memory.

This acquisition and a recent upgrade of the creation and production facilities in Mexico confirm the ambition and future focus of

As Eurofragance says: “We Capture Sensations to bring emotions through our creations in every product.” i

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

B RE IT L IN G . C O M CFI.co | Capital Finance International

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> Daniel Gros:

The Euro Turns 20

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wenty years ago this month, the euro was born. For ordinary citizens, little changed until cash euros were introduced in 2002. But in January 1999, the “third stage” of Economic and Monetary Union officially started, with the exchange rates among the original 11 eurozone member states “irrevocably” fixed, and authority over their monetary policy transferred to the new European Central Bank. What has unfolded since then holds important lessons for the future.

In 1999, conventional wisdom held that Germany would incur the biggest losses from the euro’s introduction. Beyond the risk that the ECB would 70

not be as tough on inflation as the Bundesbank had been, the Deutsche Mark was overvalued, with Germany running a current-account deficit.

Fixing the exchange rate at that level, it was believed, would pose a severe challenge to the competitiveness of German industry.

Yet, 20 years on, inflation is even lower than it was when the Bundesbank was in charge, and Germany maintains persistently large currentaccount surpluses, which are viewed as evidence that German industry is too competitive. This brings us to the first lesson of the last 20 years: the performance of individual eurozone countries is not preordained.

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The experiences of other countries, such as Spain and Ireland, reinforce that lesson, demonstrating that the ability to adapt to changing circumstances and a willingness to make painful choices matter more than the economy’s starting position.

This applies to the future as well: Germany’s current predominance, for example, is in no way guaranteed to continue for the next 20 years.

Yet the establishment of the eurozone was backward-looking. The main concern during the 1970s and 1980s had been high and variable inflation, often driven by double-digit wage growth. Financial crises were almost always linked to bouts of inflation, but had previously

Winter 2018 - 2019 Issue

Fortunately, the ECB proved robust. Its leadership recognized the need to shift focus from fighting inflation – the objective the ECB was designed to achieve – to curbing deflation. Ultimately, the euro survived, because, when push came to shove, leaders of the eurozone’s member states expended political capital to implement needed reforms – even after blaming the euro for their countries’ problems.

This pattern of demonizing the euro before recognizing the need to protect it continues to unfold today – and it should serve as a second lesson of the last 20 years. Italy’s populist coalition government used to speak bravely about flouting the euro’s rules, with some advocating an exit from the eurozone altogether. But when financial-market risk premia increased, and Italian savers did not buy their own government’s bonds, the coalition quickly changed its tune.

In fact, the eurozone’s economic performance has not been as bad as the seemingly endless stream of bleak headlines implies. Per capita GDP growth has slowed over the last 20 years, but not more so than in the US or other developed economies.

Moreover, continental European labor markets have undergone an under-reported structural improvement, with the labor-force participation rate increasing every year, even during the crisis.

Today, a higher proportion of the adult population is economically active in the eurozone than in the US. Employment has reached record highs, and unemployment, though still high in some southern countries, is continuously declining.

These economic realities imply that, even if the euro is not particularly well loved, it is widely recognized as an integral element of European integration. According to the latest Eurobarometer poll, support for the euro is at an all-time high of 74%, while less than 20% of the eurozone’s population opposes it. Even Italy boasts a strong pro-euro majority (68% versus 18%). Herein lies a third key lesson from the euro’s first two decades: despite its many imperfections, the common currency has delivered jobs, and there is little support for abandoning it.

been limited in scope, because financial markets were smaller and not deeply interconnected.

With the creation of the eurozone, everything changed. Wage pressures abated throughout the developed world. But financial-market activity, especially across borders within the euro area, grew exponentially, after having been repressed for decades. For example, eurozone member countries’ cross-border assets, mostly in the form of bank and other credit, grew from about 100% of GDP in the late 1990s to 400% by 2008.

Then the global financial crisis erupted a decade ago, catching Europe off guard. The first

deflationary crisis since the 1930s was made especially virulent in Europe by the mountain of debt that had been accumulated in the previous ten years, when countries had their eyes on the rear-view mirror.

But probably the most important lesson lies elsewhere. The euro’s first 20 years played out very differently than many expected, highlighting the importance of recognizing that the future is likely to be different from the past. Given this, only a commitment to flexibility and a willingness to rise to new challenges will ensure the common currency’s continued success. i

Of course, the eurozone was not alone in being taken by surprise by the financial crisis, which had started in the United States with supposedly safe securities based on subprime mortgages.

But the US, with its unified financial (and political) system, was able to overcome the crisis relatively quickly, whereas in the eurozone, a slow-motion cascade of crises befell many member states.

ABOUT THE AUTHOR Daniel Gros is Director of the Brussels-based Center for European Policy Studies. He has worked for the International Monetary Fund, and served as an economic adviser to the European Commission, the European Parliament, and the French prime minister and finance minister.

He is the editor of Economie Internationale and International Finance.

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> Nordea’s

ESG Investment Focus Helps Drive Sustainable Growth in Europe Nils Bolmstrand, a Swede with a background in EU financial law and vast international experience in banking, insurance and asset management is chief executive of Nordea Asset Management (NAM), the largest Nordic retail fund provider with more than €200 billion in assets under management, a 17% market share and around 3.5 million unitholders.

H

is objective, since taking up this appointment in January 2017 has been to establish Nordea as a leading European asset manager with strong focus on ESG (environmental, social and governance) integration across portfolios.

Apart from joining several investor initiatives, putting in place a comprehensive responsible investment policy (that covers all NAM assets under management) and engaging actively with the companies in its investment universe, eight years ago Nordea developed Stars, an ESG-focused range of funds. These funds invest in companies across emerging and developed markets that score highly on corporate governance, environmental and social metrics such as climate change, labour standards and business ethics.

According to Bolmstrand, “ESG adds an additional layer to the analysis of portfolio companies and enhances returns. This is having a profound effect across the entire investment industry.”

However, Nordea’s sustainability work on the asset management front does not end here. The firm participated in a high-level conference on sustainable financing, initiated by the European Commission that took place in Brussels in March 2018 with follow up at the end of the year.

Speakers included the President of the European Commission, Jean-Claude Juncker; the President of the French Republic, H.E. Emmanuel Macron; and the United Nations Secretary General’s Special Envoy for Climate Action, Michael Bloomberg.

Bolmstrand was invited as a speaker for the conference’s first panel discussion, where he sat alongside European Parliament members Sirpa Pietikäinen and Philippe Lamberts. The NAM executive presented the business perspective during a debate on the speed at which the European Union can realistically deliver on the targets and provided Nordea’s views. Three main 72

CEO: Nils Bolmstrand

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Some members of the RI team

objectives of the European Commission’s Action Plan are to: • Reorient capital flows towards sustainable investment and achieve sustainable inclusive growth • Manage financial risks stemming from climate change, environmental degradation and social issues • Foster transparency and long-term thinking in financial and economic activity “We want to be a part of the solution,” explains Bolmstrand, “We are committed to work with this and believe it is important for us - because the risks are there and will affect the valuation of companies in which we invest. We want better disclosure to understand these risks and guidelines to allow proper implementation of solutions that have already been developed. This cannot become a tick box exercise but must be something that truly drives Europe forward towards sustainable growth.”

Moving into the new year, Nordea’s efforts will be directed towards enhancing the ESG integration process, product development and active ownership activities. NAM will continue to develop the proprietary ESG research and data platform to support scalability and agility in its sustainability work. “Delivering returns with responsibility is a vital part of our fiduciary duty and our mission as a leading European asset manager” Bolmstrand reports.

Just over ten years ago, Nordea became an early signatory of the UN Principles for Responsible Investment (PRI). The company deserves to be very proud of the steps taken since then to integrate ESG considerations into their investment activities and the development of products to support the sustainable future. Clearly, delivering

returns with responsibility is a vital part of NAM’s mission as a leading European asset manager.

The demand for investment solutions taking these factors into account has increased with, for example, the European Commission’s Action plan that focus on the financial sector role in the transition towards a sustainable future.

Active ownership is a pivotal component of the NAM responsible Investment approach and the company aims to keep a close dialogue with the companies they invest in and encourage even better company disclosure to fully understand the ESG risks and opportunities that the companies face.

Indeed, Nordea embarked on the responsible Investment journey long before it became so well-established. As a part of its long-term commitment to ESG, NAM continuously sought to develop and improve specific policies, procedures and investment products to strengthen their responsible Investment framework. Today, the integration of ESG standards and measures in investment cases is high on the agenda for stakeholders - including institutional investors, policy-makers, and, of course, corporates and sovereigns raising capital. As more capital is being allocated to achieving sustainable outcomes for tomorrow’s economy, NAM’s responsible Investment team has shifted its strategy. The new Responsible Investment vision is to increase the amount invested in ESG integrated products by providing for proprietary ESG investment strategies to meet advanced client needs. The Nordea responsible Investments team consists of nine individuals who are focused on ESG research as well as corporate engagement.

The team is also increasingly looking to answer ESG questions using quant methods in various CFI.co | Capital Finance International

datasets and an ESG data platform has been developed.

“Right now, the ability to generate investment insights from ubiquitous data in ESG is becoming an important differentiating factor. Therefore, we look to employ both ESG analysts and data scientists. In addition, each analyst must have a skillset in finance or economics.” Points out Marjo Koivisto, Co-Head of Responsible Investments.

NAM’s ESG research is fueling both product development and active ownership strategies.

For example, the ESG-integrated STARS range has seen the launch of one more equity fund and three more fixed income funds. The Stars concept is already well-understood: “ESG analysis helps us to fully understand the risk in the individual business model, whether it is a coffee maker or a car manufacturer. We are convinced that ESG analysis will help us to choose better investments over time,” says Johan Swahn, portfolio manager of Global Stars.

Active ownership activities also benefit from NAM ESG research. The treatment of sensitive personal data is a good ESG research example, because it says something about business ethics, company management and how the company looks at its social responsibility. This is a topic where NAM is having numerous discussions - not only in terms of Facebook but also Google and other internet companies.

NAM initiates and participates in many important ESG initiatives. As an example, the company has continued to address the issue of waste water management within pharmaceutical manufacturing by engaging with companies directly and via the Pharmaceutical Supply Chain Initiative. i 73

> NASDAQ’s Evan Harvey:

Pushing Capital Towards Sustainability

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van Harvey cares. About market performance, reputation, stakeholders, and the environment. The Global Head of Sustainability of the NASDAQ exchange is convinced that green will remain the colour of money.

“Sustainability,” he says, “is simply a smarter strategy for corporates.” Harvey emphasises that sustainability principles dovetail seamlessly with the premises on which NASDAQ was founded in 1971: data efficiency, effective insight, market access, and smarter strategies.

The NASDAQ ESG Reporting Guide – a holy book for those corporates that take their future seriously – spells out the vast range of internal and external benefits for companies that put their operations and processes on a sustainable footing. Investors and other stakeholders can use the guide to better assess the environmental, social, and governance performance of listed companies.

Harvey notes that young entrepreneurs seem to embrace sustainable management principles and feel no hesitation to leverage those in order to attract the best talent and build their business.

“These managers are also keenly aware that their businesses are under heightened public scrutiny.

Boards are changing too, and expanding their risk management oversight to include sustainability,” he says.

The NASDAQ sustainability lead is not one to wait for events to happen or frameworks to change. Harvey is used to driving developments, and has helped launch programmes that seek to improve the understanding of sustainability principles among listed companies. “We believe the exchange community has a practical and public role to play in the development of a more sustainable market ecosystem.”

Harvey knows what he is talking about: he remembers watching news reports of the Cuyahoga Rover catching fire during his formative years. The industrial waterway, running for about 140 km from its source in Northeast Ohio to Lake Erie, has caught fire at least 13 times since 1868 due to a concentration of flammable pollutants. Harvey also recalls many other landmark environmental disasters such as Three Mile Island, Love Canal, and Bhopal. He is determined to help clean up the world: “As our collective awareness of an existential climate 74

Evan Harvey

threat grew, so did my ambition to dedicate myself to these issues.

“I always believed in the capital markets system as a force for global change, for economic and social empowerment. So now I find myself very advantageously positioned to do some good.”

Harvey, an optimist as much as a realist, is convinced that opportunities abound, and that any challenges along the way can be addressed.

“Just imagine a global capital market where relevant sustainability performance factors are reported as promptly and accurately as financial factors,” he says. “Investors can use the data to better understand companies and create smarter, more long-term investment vehicles.”

Harvey has a few suggestions for index compilers as well: “You can mix and match the data in millions of ways to tease out investible themes: supply chain oversight, data centre efficiency, renewable energy innovation.”

Sustainability parameters may help with regulatory oversight and risk-forecasting, as well by leveraging more detailed and sophisticated behavioural models. “This would allow us to collectively and systematically push capital into more sustainable directions,” Harvey says. i

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> Richard Bergfors, CEO of Max Burger:

Creating the First Climate Positive Burger Chain

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ax Burgers has demonstrated that a fast food burger chain can provide great food, excellent franchise opportunities, and healthy profits while being climate positive. And that’s very good news.

Max Burger was founded by Richard Bergfors’s parents in Gällivare, a small Swedish town, 100km north of the Arctic circle. These were humble beginnings blessed with a simple philosophy of serving the most delicious hamburgers using only the best quality ingredients.

The company now has annual turnover in excess of 300 million euros generated from 136 outlets in five countries. Richard began working in the family business as a small boy, then took time away to gain a Master of Science degree in Business and Economics from Stockholm Business School and an Executive MBA from the Stockholm School of Economics. He combined his studies with work in the company assuming the positions of COO and business development manager.

In 2002, he and his brother Christoffer took on the top management positions while their father Curt Bergfors remained as a working chairman. Their vision was to be the world's best burger chain.

By some measures they have already achieved this goal - by becoming the first climate positive burger chain in time to mark the company’s 50th anniversary.

As part of the Climate Positive Burgers actions Max Burgers both reduces impact by selling more green and plants trees that captures carbon dioxide from the atmosphere. The trees absorb more carbon dioxide than the total emissions from everything on the menu, including the whole value chain.

Richards’s team analysed the carbon footprint of the entire menu at every stage of production and even factored in customer and employee transfers to and from the restaurant. Customers are also made aware of the carbon dioxide aspect of their menu choices, allowing them to adjust purchasing decisions to minimise impact. Having made every effort to measure and reduce, the result now is that at least 110 per cent of total emissions are mitigated by the planting of trees.

The MAX family business has taken the environmental awareness that was just developing 50 years ago in Sweden to new and admirable levels. The next big move for the company will be in Poland with plans well underway to develop

CEO: Richard Bergfors

up to 200 outlets across the country. As the climate positive business model of MAX Burger progresses, more consumers will be able to make CFI.co | Capital Finance International

decisions that protect future generations in the same way that Richard and Christoffer have protected and grown their family business. i 75

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> Blackstone Resources AG:

Better Batteries Power the Electric Motor Revival

T

he advantages of using electric motors to propel vehicles was recognised very early on by automotive innovators. In 1900 the dawn of the automotive era - nearly a third of all cars on US roads were electric but wind forward to 2017 and just a little more than one percent of all cars sold were plug-in.

In the first era of the automotive age, the internal combustion engine was the clear winner and helped support the growth of the oil industry.

But now it is obvious that the electric motor with all its advantages over the combustion engine is going to become the primary power source over the coming decades.

This change has been made possible because of improvements in battery technology. These improvements have already helped transform mobile computing and communications devices, but to do likewise in the automotive sector is going to require a many-orders-of-magnitude increase in global battery storage.

Potential demand for large scale battery energy storage does not stop with cars but is also set to transform our electrical power distribution both on the large and small scales. To meet this demand, existing companies and newcomers alike are racing to increase production capacity and improve and revolutionise battery technology.

As with any rapidly changing market, there will be companies that prosper and others that fall by the wayside. What is in no doubt is that even with major improvements in efficiency in terms of raw material used, when it comes producing better batteries, demand for the elements required is going to increase dramatically.

Ulrich Ernst is the President of the Board and the Chief Operating Excecutive of Blackstone Resources AG. The company’s mining routes were established in 1995 and, since 2014, the company has been operated as Blackstone Resources AG, Baar, Switzerland. (HP www. blackstoneresources.ch) In July 2018 Blackstone Resources became public at the Swiss Stock Exchange SIX Zürich symbol BLS, at STU, FR, BEB with the symbol 4BR. Ernst has created a company that is not dependent on the battery technology that wins out. The mix of metals used in batteries may well change in the years ahead, but with the growth in demand as the world electrifies it is certainly the case that provided the portfolio of battery metal is diversified, the final mix doesn’t matter.

Ernst believes that investing in the raw materials required to deliver electrification matters more

President and CEO: Ulrich Ernst, lic. Oec. Publ, MBA Univ. Zürich

than investing in manufacturers producing the cars. Blackstone resources are investing in the whole cycle of metals (cobalt, lithium, nickel, manganese and molybdenum) and graphite, the exploration and extraction, refining and electrode manufacture. To Ernst, it is all about the batteries: he shares the vision that one day in the none-to-distant future all cars will run on electricity and renewable energy will become sustainable and available in abundance.

However, the company Ernst leads also realises that part of the solution is to encourage and nurture technological advances in rechargeable batteries and ensure that batteries can be costeffectively recycled. Developing new battery technology has become part of Blackstone Resource’s portfolio along with efforts to create an international standard. Through its technology research, Blackstone Resources has developed an international battery code system that identifies battery metal-mix, the chemistry and technology used within various rechargeable batteries. This CFI.co | Capital Finance International

system is known as the Blackstone Resource Battery Codes (BBC) system. Although initially developed for internal use to improve efficiency, in 2018 the company took the decision to make the coding system open source.

Batteries are going to be at the very core of the changes that will take place over the next few decades and - as with the early automotive industry dependence on the oil industry’s ability to extract oil - the battery industry will depend on the extraction of the metals required to produce the batteries. It looks likely that global car production of electric cars a decade from now will be back to the levels in 1900, with a third of new cars being electric. And no one should be surprised if in just 20 years, the ratio of combustion engine vehicles to electric vehicle production has completely reversed with just one or two percent of the global total having combustion engines. Ernst is working hard to ensure that his company is set to take advantage of all such developments. i 77

> Ignored or Overlooked Pioneer and Emerging Markets

Hidden Gems: Introduction

Ten Countries Worth a Fortune

Investing in emerging and pioneer markets is not for the faint of heart: political risk looms large, governance may be slightly less than perfect, and the rule of law selectively interpreted. However, this equation has two sides with high potential rewards compensating for, if not completely balancing out, the downside. Another advantage awaiting smart investors involves the goodwill created by getting in on the ground floor, becoming a true partner to the host country, and securing a valuable head start that pays out handsomely when others belatedly join the bandwagon.

Moreover, the World Bank has developed a vast range of instruments and mechanisms that allow investors to offset serious risk. These unlock the vast pool of investor funds – untold trillions – currently idling on the sidelines or only marginally employed as yields in fully developed economies continue to disappoint.

The World Bank has been actively courting institutional investors that are reluctant to commit funds in places, projects, or businesses that are not yet fully ‘investment grade’. Pension funds often face statutory limitations and may not be able to acquire any asset that does not carry an investment grade rating. While eminently sensible, such restrictions are often outdated and fail to account for the iron-clad guarantees available through MIGA (Multilateral Investment Guarantee Agency – part of the World Bank Group) and similar entities.

Large investors no longer need to brave the odds when hunting for yield further afield. Having the pie and eating it is possible, if you know where to look. A growing number of countries, partnering with multilaterals, offer outstanding returns while minimising exposure to risk. Many boast a long history of stability and steady growth with no signs of an imminent change in their trajectory. Here, stability has been elevated to a source of national pride.

For this issue, CFI.co has carefully selected a few of those emerging and pioneer markets: countries that have reaffirmed their commitment to sensible policies and maintain open economies and borders. Inclusion on the shortlist of Hidden Gems required a strong political consensus regarding the vectors of national development. Countries that have not yet agreed upon a model to implement, and struggle to find a common societal denominator to underpin their future, have been excluded.

Throughout the pages of this issue, CFI.co features the ten countries that made the grade and offer investors a proposition of excellence. These ten ‘hidden gems’ share a commitment to political pragmatism and a willingness to accommodate investors by creating a business environment that is friendly and welcoming. They also offer a value proposition that is hard to beat: high yield with low risk. Theirs is not a mere slogan but a tangible on-the-ground reality, albeit one often ignored or simply overlooked.

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Armenia

Bahrain

Chile

Indonesia

Macedonia

(80 – 83)

(145)

(168 – 169)

(200 – 201)

(86 – 87)

Malawi

Montenegro

Nepal

Tanzania

(110 – 111)

(130 – 131)

(84 – 85)

(198 – 199)

(129)

Hidden Gems: Introduction

Madagascar

> President Armen Sarkissian:

Quantum Politics Defined, Explained, and Considered Armenia is ready for its time in the spotlight.

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Hidden Gems: Armenia

he landlocked country experienced a watershed moment earlier this year when journalist-turned-politician Nikol Pashinyan, 43, set out on a protest march opposing the long rule of Serzh Sargsyan, who served two consecutive five-year terms as president and clung to power by being elected prime minister (despite his promises to step down and retire from public life). The move, described as a power-grab by the opposition, reignited the protests, which rocked the country during Sargsyan’s reign.

Setting out from Gyumri, the country’s second city, Pashinyan walked almost alone. But by the time he reached Yerevan, on April 13, he had walked for 14 days. Social media had been set alight and thousands had joined the protest, marching peacefully on the capital, and believing change was about to take place. It was – but not before the besieged government had its last gasp. Leading the protesters – occupying squares, blocking traffic, and calling for civil disobedience throughout the city – Pashinyan marched on parliament to prevent Sargsyan’s appointment as prime minister. An appeal to Sargsyan to discuss the terms of his resignation and a peaceful transfer of power resulted in Pashinyan’s arrest. There was public outrage – and the next day Pashinyan was released. A few hours later, the embattled prime minister resigned. It would take another 10 days of protests and political wrangling to convince the ruling party that the change was definitive. On May 8, parliament caved-in and Pashinyan was declared prime minister, completing Armenia’s Velvet Revolution, during which no shot was fired, and no life lost.

One of the few calm voices heard during the weeks of political upheaval was that of President Armen Sarkissian, who ventured out into the crowds to hear grievances. “That was my job as president, to ensure the stability of the state and create a national dialogue,” he said.

THE POWER OF VELVET Meeting with CFI.co in Geneva, Sarkissian explained the issues that powered the Velvet Revolution. “One of the drivers of this revolution was that people were not happy, because of widespread corruption,” he said. “The courts 80

"In Armenia during the revolution you didn't need an organisation to mobilise protesters, and close off a street or avenue. The only thing you needed was a smartphone with Facebook." were not working properly, and that created an unhealthy environment. The younger generation was especially affected, because if you have that kind of environment, it may look a bit stable, but is not just.”

The president agrees with the protesters’ demands. “What we need in Armenia is law and order and as little corruption as possible,” he said. “We need stability. We also need a proper understanding of economic development and a plan to attain our goals, starting with tax law and including all other areas of relevance. We need proper governance, as simple as possible, with less bureaucracy and more predictability.

“Anybody in the country should know that it is not only stable today, but stable tomorrow and beyond; that there is no corruption and things are working well and managed well. People and businesses should be confident that in five- or 10-years’ time, the country is still predictable and that everybody will know where Armenia is heading and with what sort of a legal system, what sort of tax code (we will have). Only this will create an environment that encourages people to invest in their future. So, this is what the government has to accomplish. It is my role as president to lead with the word, the vision, and the strategic direction.”

Sarkissian readily admits that his nation has some way to go before it finds that stability: “Armenia is in transition. I would not say that we are in a very stable situation, but I will say that the general mood towards the future of the country is much more optimistic. “In fact, very optimistic – and so much so that we have to work hard to avoid disappointment. Expectations are running high among Armenians in the country and the millions of Armenians throughout the CFI.co | Capital Finance International

Winter 2018 - 2019 Issue

President Armen Sarkissian (left) talking to CFI.co editor Wim Romeijn

world, who are closely following events in their ancestral home. “However, one thing is clear: there is no way back. There is no way that we are going to repeat the mistakes we made before.”

QUANTUM POLITICS President Sarkissian is, without doubt, one of the most interesting of the world’s headsof state. A respected theoretical physicist and co-inventor of the Wordtris game, a twin to Tetris, Sarkissian could not possibly be further distanced, intellectually or politically, from his US counterpart. But he grasps better than most the various personal traits that make Donald Trump not just unique, but a harbinger of politics 2.0– or as the Armenian president prefers to call it, “quantum politics”.

Sarkissian is not one to join the global chorus that derides Trump’s style of politics. “Many world leaders, accidentally or otherwise, have grasped and applied the very essence of quantum politics,“ he said. Thanks to the advent of instant communication and the social media that leverage its power, politics has changed forever, and is no longer a linear pursuit. New leaders of the “quantum era” understand that.

“Some leaders intuitively grasp this concept and bypass the established media to serve-up they own version of reality generating millions of followers on Twitter, Facebook, Instagram, etc.”

When Serzh Sargsyan swapped the presidency for the prime ministerial office, an impromptu movement was formed almost instantly via social media. It operated successfully outside the realm of the country’s political establishment and was highly dispersed. Authorities could not pinpoint the epicenter of the shockwaves shaking the establishment and were unable to get a grip on events.

NO MANAGEMENT, NO PROBLEM The movement rallied the 10-million-strong Armenian diaspora, without really trying. “Just as in the quantum world, interconnected yet unpredictable events are sparked in seemingly random places. The entire world is becoming more and more quantum. Individual voices can have a great influence on politics. Everything is changing and is changing with the speed of light. In five years, this will be a technologically different world, even more integrated and interconnected. Some would say that processes of globalisation have slowed down. Maybe globalisation has slowed down but it has turned into microglobalisation and that process is unstoppable.” Sarkissian admits that quantum politics still lacks the necessary management framework or protocol. This need not be a problem. Sarkissian posits that quantum politics is about the power of the individual on the street. “It channels the activity or the energy that individuals can contribute towards change,” CFI.co | Capital Finance International

he said. “It is also more about smaller units that possess huge energy, and can cause a big effect.

“As a former physicist, I have the right to look at this as a quantum, not in a sense that I can directly apply the theory of quantum mechanics to human society, but as a method of thinking and logic, or a method of mathematics to predict what can happen in a human society. One thing is certain: political institutions, and established societal organisations, are becoming a bit less relevant as social networks, individual opinions, and strong ideas create an impact that continues to grow in size.

“For example, in Armenia during the revolution you didn't need an organisation to mobilise protesters, and close off a street or avenue.

The only thing you needed was a smartphone with Facebook. Just send out the word and that street would be closed in no time flat, by people you had never met before. There was no top-to bottom organisation directing events. There was no hierarchy processing and dispatching orders.

Individuals took the initiative, and groups formed spontaneously.

Interestingly, this did not result in chaos, but at the end of the day, the whole stochastic system was delivering whatever was needed.”

We live in interesting times, and for Sarkissian, that need not be a bad thing: “Technology has already thrown a spanner in the works and now promises to deliver the Fourth Industrial Revolution. “All of that is not mechanical, or preordained, but will have a huge impact on the way we think, act, and manage how we are governed. However, we cannot yet see the whole picture, because it is all new and global too.

The first phase of globalisation unfolded along classic lines with leaders and institutionalised structures such as investment banks pointing the way and telling us to work hard in order to join organisations such as the WTO. 81

Hidden Gems: Armenia

“Political parties, institutions, and processes underpinned by logic have been replaced by popular movements that coalesce and dissipate quickly – and by beliefs not necessarily grounded in reason. “Social media provide the emotional connectivity that can spark revolutions.”

According to Sarkissian, a reassessment of modern politics guided by the principles of quantum physics can make sense out of trends that baffle and undermine the establishment.

“Just as the classic post-Newtonian world was predictable, so was politics, until quite recently.

Contrast this to what we know about the quantum world – which is uncertain, yet interconnected, and changes depending on the vantage point of the observer.”

Sarkissian sees parallels in politics, where the understanding of events is fluid and largely determined by who is observing what, and where.

“Newsfeeds on Facebook, Google, and other platforms have become highly individualised, and thus serve up an array of different takes on any given event. Thus, the act of observing changes reality.

“Being part of a globalising world actually implies hard work. But look what is happening today: young people don’t want to work at an investment bank, but at an exciting startup –with the hope that they become the next internet billionaires by creating something as disruptive and revolutionary as Facebook or Google. Others want to be a part of the movement towards sustainability and work for a cleaner world.”

THE TROUBLE WITH PLANNING Sarkissian says governments need to adjust and stop planning things. “Could I imagine, living in the Soviet Union as a scientist and professor of theoretical physics, that one day this almighty superpower would collapse? It looked impossible.

“The strength of the Communist Party, the KGB and everything… well, it would take a hundred years or so. And then it was over, just like that.

Then could I imagine that my country would become independent? Could I imagine that I would be given the privilege of serving my country, first as a diplomat and prime minister, and then a president?

“No, I most certainly could not. Today, we are standing at the crossroad of the history of civilizations. It’s a crossroad where the old paradigms, old ways of looking at human society, or classical ways of handling global risks are not effective enough. This is a new era, the era of quantum risks, quantum security and quantum politics.”

Hidden Gems: Armenia

In interesting times, amazing thing can and will happen. Just so is with Armenia. The revolution changed all that ushering in a new age that brings hope as well as a renewed sense of purpose.

Armenia is an ancient country, and an early outpost of civilization with its capital of Yerevan, which is 2,800 years old. Much later, Armenia became the first country in the world to adopt Christianity as its official religion – in the year 301. Surviving invasions, occupations and genocide, the nation never lost its will.

Independent since 1991, Armenia has shaken off its overlords to gain control of its destiny.

Armenia finds itself yet again on a crossroad.

Though Sarkissian has a clear vision on how to carry his nation over the threshold of modernity, he acknowledges that in the new reality – shaped by unpredictable quantum politics – anything might happen.

But by refusing to fixate on any imagined future, he might accomplish his task by focusing on the relevant drivers. Though the result will probably look nothing like the vistas painted now, Sarkissian remains confident that the dynamics of Armenian society, now unleashed in full, will shape a tomorrow better than today. i 82

A Stable Revolution:

Armenia Takes Charge of Its Future

T

he Velvet Revolution which rocked Armenia softly yet decisively in the Spring of last year has not only changed the political direction of the country but also shifted its economic gears.

Though the previous government had already prepared and unveiled a comprehensive reform agenda and development programme as first steps towards securing the backing of the International Monetary Fund (IMF), the new administration of acting prime minister Nikol Pashinyan proposes a broader approach that includes a thorough redesign of political and economic structures with a view to ensuring transparency, accountability, and the rule of law.

Interestingly, the prime minister’s political movement, Yelk (Way Out), refuses to upset CFI.co | Capital Finance International

the constitutional order and works within the framework of parliamentary democracy to effect change. The idea is to use the system to combat its abuse.

During a conference last November in Yerevan on the Current Challenges And Strategic Direction Of Armenia’s Economic Development, the acting prime minister underlined the importance of constitutionalism. “Everyone was saying that this is a political issue and that we should talk about the economy,” he said. “We were saying that the most important thing for the economy is legitimacy, the equality of all before the law, and the formation of an environment of justice.”

Pashinyan aims for nothing less than a national consensus whereby Armenians assume role

Winter 2018 - 2019 Issue

Republic Square in Yerevan, Armenia: The Government of the Republic of Armenia

Pashinyan noted that political behavior has changed, with people previously uninterested in the running of the country suddenly discussing the nation’s future. The genie of civic engagement is out of the bottle. “The political revolution has already taken place and cannot be turned back,” he said. “We now need to change economic behavior in order to have an economic revolution.”

The first order of business has been to end government patronage of Armenia’s oligarchs.

Pashinyan is adamant that their influence and power have already been curtailed. “The

people are still here but their power has been taken away.” But Pashinyan is careful not to step on too many toes at once, keeping Moscow appraised of his intentions and ensuring that the revolution, and the new government that took power in its wake, are not interested in changing the precarious geopolitical balance in the Caucasus.

Armenia is also reluctant to move away from the Eurasian Union, which ties together the economies of Russia and four former Soviet republics (Belarus, Kazakhstan, Kyrgyzstan, and Armenia). Even though the country identifies culturally with Europe via its predominant religion, language, and diaspora, the acting prime minister has indicated that the government for the moment doesn’t wish to move much further than the Armenia-EU Comprehensive and Enhanced Partnership Agreement (CEPA), ratified by the parliament in Yerevan last April. The deal includes elements of a free trade agreement and removes all tariffs and quotas from a list of over 6,500 products.

CFI.co | Capital Finance International

Though negotiated and delivered by the previous government, the partnership is expected to help the current administration by demanding the implementation of a strong legal framework that ensures the stability and predictability that businesses and investors demand.

According to Pashinyan, the moment is now.

“Today, economic development is mainly associated with the development of human capital. Human and intellectual capital is our greatest value, and everything must begin from here. Our goal is to ensure our citizens’ freedom, happiness, and prosperity, and that is a political issue that we must address together.”

Investors may want to take note. Armenia is not so much in flux as laying the groundwork for a modern society geared for sustainable growth.

It insists that rules are clearly spelled out, and actually followed. A nation that draws these conclusions, and acts upon them without any outside prodding is one that seems determined to pull itself up by the proverbial bootstraps. i 83

Hidden Gems: Armenia

and responsibility for finding ways to address societal issues. He is adamant that government no longer controls all levers and provides all solutions. “This is what we used to have, and it is nonsense. Government cannot and should not micro-manage the economy or, indeed, our society. If it does and fails to deliver results, people will obviously blame government and want to see it gone.”

> President of Montenegro

Milo Đukanović: Visions of Europe by Its Best Pupil

Last September, the European Union launched its own Belt and Road Initiative, connecting Europe with Asia.

T

he announcement of Brussels’ tentative response to Beijing’s grand strategy was barely noticed as Brexit negotiations neared their climax and Italy decided to throw budgetary caution to the wind.

Yet the plan could benefit countries struggling to find merit in a juggernaut promising a shortcut to riches – but delivering a debt mountain instead.

The Chinese-built “motorway to nowhere” in Montenegro is a case in point. Traversing some of Europe’s roughest topographical features with a string of tunnels and sleek bridges, the first 41 kilometres of the road to connect the Adriatic port of Bar to landlocked Serbia, 165km distant, has added some €800m to Montenegro’s debt – which has ballooned to almost 80% of GDP.

Hidden Gems: Montenegro

In its 2018-19 Transition Report, the European Bank for Reconstruction and Development (EBRD) suggests the government in Podgorica reduce public debt and maintain its fiscal targets.

Montenegro’s plight is a direct result from the European Union’s continued reluctance to actively engage with the Western Balkan, as opposed to China’s eagerness to do so. The Chinese Export-Import Bank provided 85% of the funds needed to complete the first stretch of the Bar-to-Serbia motorway at an attractive 2% interest rate on a loan repayable over 20 years, with a six-year grace period. How could anyone say no? The project is being carried out by Chinese contractor CRBC, which also supplied about two-thirds of the 3,600 workers and nearly all the materials and machines needed for the job.

The Montenegrin motorway makes more political than economic sense. Feasibility studies in 2006 and 2012 concluded that the project lacked viability, requiring a return rate four times higher than the expected 2%. But a study paid for by the Export-Import Bank of China concluded otherwise, convincing the government and parliament to go ahead.

84

"Montenegro does not ask for the accession process to be spedup. We only ask for consistency."

That may have been a wrong decision, although inspired by the country’s ambition to upgrade infrastructure, open up to the wider world, and boost the economy. With the EU conspicuous by its absence, China recognised, and filled, a void.

BRUSSELS TAKES NOTE, AT LAST The European Union has swung into action with its own infrastructure development plan for the Balkans and the Caucasus region. The EU strategy calls for comprehensive connectivity, based on premises that projects need to be sustainable and viable. The Connecting Europe With Asia plan is clearly targeted at China’s “build now, worry later” approach.

Montenegro President Milo Đukanović would like to see the EU take a more proactive approach to the region. Though he understands that the EU is suffering the aftereffects of a financial crisis and must consolidate its position, he does not think that the union needs to stop, or even slow, the integration process. “The full unification of Europe will have a good effect on the long-term competitiveness of the continent,” he said. “The next natural step in the enlargement process is the Western Balkans. As the country that has advanced most in the accession procedure, Montenegro aims to be a strong promoter, and a showcase, of European values.” Đukanović explained to CFI.co that his country had already closed all but two of the 33 chapters of the acquis communautaire, or EU acquis. It expects to open chapter 27, which deals with environmental standards and legislation, within CFI.co | Capital Finance International

Montenegro: Bay of Kotor

Winter 2018 - 2019 Issue

President Milo Đukanović (right) talking to CFI.co editor Wim Romeijn

weeks, and chapter eight, on competition, in coming months. The Montenegrin president does not expect any problems.

EU acquis – the rulebook. There are no reasons to delay, or refuse, Montenegro’s accession. Đukanović is growing impatient with the EU’s foot-dragging. “The frustration is there because we don’t see the kind of incentive and encouragement coming from the European Union towards us, and the other countries in the region. We are trying to say to the European Union that it is in their interest, as much as it is in ours, to recognise that we are working as fast as possible to meet the goals and join the EU.

Few prospective member-states have been as eager to join the EU as Montenegro. Đukanović again: “Montenegro is actually trying to reform from the inside and go back to the European civilization circle … It is clear that the dynamics, or pace, of this process do not depend solely on us, but also on the European Union.”

“The EU is the engine of Europe, and every engine … takes the responsibility for the entire train, including the caboose. If that caboose is lost or diverted somewhere, it cannot be good for the engine and train…

RUNNING OUT OF EXCUSES That is a problem, as Brussels is running out of excuses to keep Montenegro at bay. The country has done everything asked of it, and is on the verge of adopting and implementing the entire

“Just look back to the 1990s to see a part of our history that was not European. That was the part of history surrendered to xenophobia, national exclusion, war, and ethnic cleansing. All of that happened towards the end of the 20th century in Europe’s diverted caboose.”

Đukanović fears that the EU is slowing the accession of Western Balkan states for all the wrong reason. “Again, we understand and accept that the EU was badly stung before and learned a number of lessons as a result.

So, Montenegro does not ask for the accession process to be sped-up. We only ask for consistency.

“Keep the door open and let us reform ourselves and join on the basis of our accomplishments.

But whatever you do, please do not give up on the vision of a united Europe. Its architecture may not always be perfect – as was demonstrated

by Greece – but that can always be fixed. Such design flaws are no reason to discard the entire project, or freeze it in time.” i

Most promising investment sectors: Energy // Tourism // Logistics // Financial Services CFI.co | Capital Finance International

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Hidden Gems: Montenegro

“This is how things stand from an administrative point of view,” he said. “Essentially, this means that Montenegro has a significant momentum going – not just in the accession process, but also in the comprehensive structural reforms that allow our society to reach EU standards, and become part of the European value system.”

Europe had to invest huge amounts of money in the rehabilitation of the region, he says, and EU states had send soldiers on peacekeeping missions. “Why not deal with the causes, instead, and make the Balkan countries part of Europe – not just geographically but also in values?”

> Vice-Prime Minister Kocho Angjushev:

Pulling Macedonia Out of a Limbo and Into the European Union What’s in a name? In the case of Macedonia, an entire country’s future.

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acedonia, a candidate for accession to the European Union since 2005 and equally anxious to join NATO, has been unable to start accession processes over a dispute with Greece – which claims that the name Macedonia applies to its two northernmost administrative regions, and fears a resurgence of Macedonia’s desire to reclaim lost territory.

The dispute reached its climax in 1994 in the aftermath of the chaotic dismantlement of Yugoslavia, when Greece closed its border with Macedonia. The 18-month embargo that followed ended only when the government in Skopje agreed to remove all irredentist clauses from its newly-minted constitution – and the Star of Vergina, the nation’s ancient symbol, from its flag.

Hidden Gems: Macedonia

In return, Athens agreed to recognise the Former Yugoslav Republic of Macedonia (FYROM), although it would refer to the republic as The Party of the Second Part with Skopje as its capital – the cumbersome formal description used in the agreement – in all government correspondence.

As it happens, names matter a great deal in this part of Europe where borders, until quite recently, were fluid and countries do not necessarily overlap with nations – or vice-versa.

It took another 15 years for Greece to accept the inclusion of Macedonia in any agreedupon name for the republic. Athens finally agreed upon a composite appellation with a geographical qualifier. Based on the “Prespa Agreement”, the country name shall be the Republic of North Macedonia after Parliaments in both countries ratify this change in the beginning of 2019.

"With the name issue nearing a resolution, the country has been invited by the EU to start accession talks in 2019, while the process of NATO integration is well under way and Macedonia will most certainly become its 30th member country."

IMF UPBEAT The International Monetary Fund (IMF) is 86

"It is simply not healthy for a small country to remain without any partnerships. Macedonia is a European country and, as such, needs to pursue compatibility with the rules and systems in place." upbeat about Macedonia’s prospects, and predicts economic growth will accelerate from the 2.8% forecast for 2019 to more than 3.5% annually. The IMF also had praise for the country’s banking system, which it called “well capitalised, liquid, and profitable”. But it recommended a strengthening of governance standards and the judicial system to reduce tax evasion. The IMF also suggested labour market reforms to combat unemployment.

Vice-Prime Minister Kocho Angjushev, whose portfolio includes economic affairs and coordination, explained the finer points of the deal with Greece. “The language and nationality will remain Macedonian,” he said. “Only the country’s official name is set to change slightly with the inclusion of a geographical descriptor.

It is a highly sensitive issue that can, and does, inflame passions on both sides of the border.

However, we have been frozen for 27 years in this process, all the while waiting at the door of the European Union.”

Angjushev is a successful businessman and a pragmatist. Meeting with CFI.co in Geneva, he emphasised the importance of EU accession. “As a small country with only two million inhabitants, located in the middle of the Balkans, we need to become part of a bigger entity in order to ensure our survival. Throughout the region, countries are joining the EU and NATO. Serbia is set to commence the accession process, and Albania has already been admitted to NATO. CFI.co | Capital Finance International

Skopje, Macedonia: Statue of Alexander the Great

Winter 2018 - 2019 Issue

Vice-Prime Minister Kocho Angjushev (right) talking to CFI.co editor Wim Romeijn

“It is simply not healthy for a small country to remain without any partnerships. Macedonia is a European country and, as such, needs to pursue compatibility with the rules and systems in place.

This also favours stability, not just from a security standpoint, but also the economic stability that allows for sustained development. For investors, few things are as important as the rule of law, political stability, and predictability. EU membership allows us to consolidate these and adopt the highest standards. This government and its predecessors already did a lot to ready the country for EU accession by putting in place regulations, procedures, and systems that match those of the union.”

Macedonia faces an EU reluctant to accelerate its expansion into the Balkans as it grapples with nationalism in some member states. It is fearful of fanning the flames with a renewed enlargement push.

Still, Angjushev is optimistic. “Of course, the negotiation process … usually seems to take between six and eight years. I think Macedonia will be at the lower end of that timeline, because we are properly prepared. For example, we can open and close the chapter (of the acquis communautaire) energy almost instantly, since we already fulfil all obligations in this area. While we still have work to do on the rule of law, and in CFI.co | Capital Finance International

Compared to EU accession, NATO membership seems a breeze. Conditional on solving the name issue, Macedonia has already been accepted as a provisional member. “This means that it is not necessary to have the new NATO summit to discuss our application,” says Angjushev.

“Accession to NATO may be finalised by its ministerial conferences, and these take place regularly. According to the rules, member states have one year to ratify our membership. By the beginning of 2020, we expect to have joined the alliance as a full member.”

THE ECONOMY Without significant natural resources, industry and agriculture have been primed for accelerated growth – with a series of reforms to increase productivity and competition. Angjushev says that the early results look encouraging, with industrial output growing (6% annually) and exports up by 40% over the past 12 months. An increasing volume of direct foreign investment (FDI) finds its way to the country’s free zones and elsewhere. Angjushev reveals that FDI volumes have tripled as a result of the reforms. “Investors can spot our comparative advantages, and know how to find us. Now it is up to us to connect with the European Union – and through it, with global markets.” i 87

Hidden Gems: Macedonia

LOCKING-IN PROGRESS The vice-prime minister hopes for a speedy resolution. Brussels agrees that time is of the essence. The Macedonia government of Prime Minister Zoran Zaev displayed political courage to break the impasse surrounding the name issue. To lock-in the progress, EU membership is considered vital. Talks are now set to begin in June.

the internal security sphere, we may keep these chapters for later as progress is made.

“I think that we will spend less time in chapters concerning the economy, finance, and politics since we have already implemented a lot of legislation derived from the European Union.

However, the strengthening of the rule of law and the fight against all forms of corruption need to be dealt with pronto. It is essential that we get this right. The political will is there, so the moment is now.”

> Book Review The Return of Marco Polo’s World: War, Strategy, and American Interests in the Twenty-First Century by Robert D Kaplan

Travelling the New Silk Route

To the minders of the literary establishment, Robert D Kaplan peddles “boneheaded nonsense” (David Rieff in The New Republic) or takes “intellectual shortcuts” (David Lipsky in the New York Times Book Review).

Y

et Kaplan remains one of the mostwidely read commentators of present times. His often-polarising work – dismissed as “cheap pessimism” by most in academia – has been required reading for US foreign policy mandarins of both parties. Kaplan (66) attained sage-like status for predicting and documenting the rise of religious fundamentalism in Central Asia and for warning about its capacity to redefine warfare, long before the clash of civilisations became a global concern somewhere in 1996.

Braving the dangers of war, Kaplan lived and worked amongst the Soldiers of God – Afghanistan’s mujahidin – as they battled, vanquished, and expelled Russian invaders in the 1980s. Returning a decade later, he finds a country in the iron grip of the Taliban and its legions of war orphans seeking shelter in military brotherhood, droning out childhood traumas with the endless recital of prayers and by observing piety in the face of deprivation.

In 1993, Kaplan sealed his reputation as the most prominent of lay voices on US foreign policy with the publication of Balkan Ghosts: A Journey Through History, which details the origins of the volatile nationalism that inflames passions in what is arguably Europe’s most unsettled of regions. Here, past grievances meet the vivid memories of medieval principalities standing firm against the Ottoman in a heady mix that bears little or no resemblance to present-day realities. Yet it still helps to shape those realities.

"What Kaplan undoubtedly knows, but few in Washington seem to realise, is that the Silk Route allows for travel in both directions." cooked the books, shielded terrorists, and put the economy on the fast-track to a meltdown.

Greece, Kaplan argues, is at heart a Balkan nation masquerading as a Western one.

What assures Robert D Kaplan’s enduring admiration in the higher spheres of successive US administrations is his increasingly obvious tendency to replace nuance with conviction. He considers the Balkan Peninsula, unstable as it is, the most likely battleground of the 21st century; the stage where the cultural and religious differences between East and West will be fought out along a battle line stretching from Athens to Moscow, peopled on one side by Eastern Orthodox Christians and on the other by the Turks as renewed leaders of the House of Islam.

In his book, Kaplan notes that the Greek patriot who proclaims that there is but one Macedonia which belongs to Greece – and not any former Yugoslav republic – merely tries to defend the heritage of Alexander the Great against “rough and uncouth Slavic invaders”. That patriot has been conditioned to do so by a heritage that encompasses a thousand years or more of history.

It is rather too easy and convenient to dismiss Kaplan as a war-mongering alarmist whose conclusions and predictions rest, in spite of their accuracy, on false assumptions, simplistic interpretations, and the misreading of history. A more streamlined worldview, devoid of clutter, may help to discern broad trends and establish an approximation of a truth otherwise lost to the minutiae of history, the obscure points that academics usually argue over ad infinitum.

It is the argument now deployed to justify the seemingly erratic behaviour of the current US president who has no time or patience for detail and refuses to understand any phenomenon that requires an explanation: if it looks, talks, and walks like a duck – well, you do the math.

BEWARE OF GREEKS Kaplan seems to dislike Greece and was somewhat vindicated by the present plight of the country. Long before Greece’s day of reckoning arrived, he had unmasked prime minister Andres Papandreou as a crook and demagogue who

And so it is with Kaplan and his rather one-sided approach to current events and a world in flux.

His latest book – essentially a collection of essays previously published in The Atlantic – examines and justifies the prescient pessimism that has become a Kaplan hallmark. The Return of

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Marco Polo’s World: War, Strategy, and American Interests in the 21st Century offers an entertaining read – for a prophesy. The tome’s leading article was commissioned, and released, by the Office of Net Assessment, a thinktank within the US Department of Defence set up by Richard Nixon in 1973. In the essay, Kaplan paints a world picture in broad strokes.

EUROPEAN CRAQUELURE Europe is depicted as a craquelure of bickering states clinging to their decadent culture while fending-off migrants. China’s Silk Road 2.0 initiative, once a fully operational conveyor belt, is expected to effectively reduce the old continent to an appendix of the Eurasian landmass or, more precisely, the Middle Kingdom. Its influence waned economically and politically, the US is no longer able to set the global agenda, safeguard democracy, or impose its values. US “gunboat diplomacy”, backed up by formerly menacing carrier groups, no longer commands respect.

The admirals and generals of the US fought and won the last war but struggle to identify, let alone meet, new challenges.

What is a superpower to do? Well, for starters: get real. Kaplan recommends that US foreign policy makers let go of lofty ideals and refocus on the nuts and bolts of diplomacy, gaining a new appreciation for geopolitics whilst navigating a pragmatic course and accepting the limitations, cultural or otherwise, of Western-style democracy.

Kaplan proposes ditching ethics from diplomacy altogether, arguing that a nation’s survival sometimes leaves little room for private morality.

Tomorrow’s leaders must do whatever it takes to ensure the country’s wellbeing and survival, paying no attention at all to “well-meaning intellectuals who, free of the burden of real-world responsibility, make choices in the abstract and treat morality as an inflexible absolute”.

After absorbing this punch on the nose, which intellectual dares raise his/her head above the parapet of Kaplan’s realpolitik? Unsurprisingly, the author is much enamoured with Henry Kissinger, who elevated realism on foreign policy to an art form. Kissinger’s is not a name to be used in vain. Though the contours of the man’s greatness are clearly visible, his true size will

Winter 2018 - 2019 Issue

The US and Europe should acquiesce to the inevitable tide of history which will see Asia (re)assert its dominance in world affairs. To Kaplan the tide of history, unstoppable, is best represented by China’s new Silk Road, which duplicates Marco Polo’s late 13th Century travel route, and aims to replicate globalisationthrough-commerce as practised during the brief Pax Mongolica, which unified large swaths of Eurasia under an enlightened administration that absorbed, protected, taxed, and connected diverse civilisations, delivering stability and progress.

ISOLATIONISM LIGHT The US course of action which is best suited to the coming world order is, according to Kaplan, to slowly retreat from the world stage whilst retaining its capacity for intervention on distant foreign shores. In essence, Kaplan advocates a form of isolationism-lite, a policy that recognises and accommodates the shift of geopolitical power towards Asia while ensuring that the US maintains an unchallenged position of pre-eminence.

What lacks in Kaplan’s view of the world is a more thorough understanding, and better appreciation, of Europe’s attempts at forging “an ever-closer union” with a historically fractured and conflicted continent. Dismissing the EU as a mere footnote to grand global affairs, and predicting its imminent demise, has become a fashionable pursuit in the Anglophone world. It denies reality.

Though the US may have shifted the bulk of its attention towards Asia, the rest of the world increasingly looks to the EU for leadership.

American observers, including Kaplan, have difficulty in properly assessing, or taking seriously, any entity that does not field a great number of divisions. These, however, are no longer times of great conflagrations whose outcomes are decided by thunderous gunfire.

Joseph Stalin may have been right in ignoring the Pope for not commanding any divisions.

That was then, and this is now.

only become clear in a generation or two. In the 1970s, Kissinger scandalised liberals throughout the world by carrying a big stick, dispatching B52s to rain bombs on his foes whenever peace talks did not quite suit his purpose. He did, however, manage a coup by extracting the US from the South-east Asian quagmire while cosying-up to the Chinese – arch-enemies of Moscow and pesky Hanoi.

It is to such diplomatic brilliance – powered by a ruthless dedication to pragmatism – that Kaplan wants the US to return. Though the writer seem to consider the current US president out of his intellectual depth, Kaplan does appear to admire his bluster as a crude form of realpolitik.

That said, Kaplan recognises that realists may fail to understand the behaviour of nations not governed by like-minded leaders. He mentions Iran, which has no rational reason to seek the destruction of Israel. Nor is it in Russia’s interest to threaten the Baltics or Europe.

In one of the more memorable passages of his book, Kaplan concludes that any student of William Shakespeare would have grasped the true character and intent of Vladimir Putin long before well-paid observers of global affairs. It is most unlikely that President Trump studied Shakespeare before meeting his Russian colleague/foe/backer (chose one) in Helsinki – no doubt a lost opportunity.

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Hard power is yesterday’s news; soft power as expressed in economic, trade, and financial heft carries the day. Watch how the US fares in the trade war its president has unleashed on Europe and China. If anything can indicate which way the world goes, and where power lies, this is it. Take note of the July visit of EU president Donald Tusk and European Commission president Jean-Claude Juncker to China. Though part of the annual EUChina summit, the trip gained importance and relevance after President Trump’s decision to up the ante and impose a range of charges on imported goods.

What Kaplan undoubtedly knows, but few in Washington seem to realise, is that the Silk Route allows for travel in both directions. i 89

ANNOUNCING

AWARDS 2018 WINTER HIGHLIGHTS Once again CFI.co brings you reports of individuals and organisations that our readers and the judging panel consider worthy of special recognition. We hope you find our short profiles interesting and informative.

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

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panel. Our research team gathered additional information to help reach a final decision.

In many cases, senior members of nominee management teams provided the judges with a personal view of what sets their companies and institutions apart from the competition.

As world economies converge we are coming across many inspirational individuals

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 2018 - 2019 Issue

> DELOITTE CHILE: BEST RISK MANAGEMENT CONSULTANCY SOUTH AMERICA 2018

The pace of globalisation and innovative disruption that companies now face is rapidly accelerating.

Nimble and well-informed responses to risk management are of critical importance - not only to take advantage of opportunities, but also to survive the changes taking place. To keep up with the everchanging risk landscape, business needs advice that is personalised by an adviser with a finger on the pulse of global change - and, for

this, size does matter. Deloitte, as an international group, is of a size and reputation to attract the best talents globally as well as locally. Deloitte Chile has taken full advantage of the group’s strengths while developing a diverse local culture that enables the firm to build trust and understanding with clients. This is helping Deloitte Chile provide a leadership role in South America in the delivery of risk solutions and advice that customers

need. Deloitte Chile strives to ensure that its relationships are mutually beneficial, and the firm is helping ensure the success of the wider economy and clients. The CFI.co judging panel feels that Deloitte Chile stands out as an example of how best to deliver the highest levels of risk management and is delighted to declare the firm winner of the 2018 award Best Risk Management Consultancy (South America).

> BOURSA KUWAIT: BEST SECURITIES EXCHANGE CORPORATE GOVERNANCE GCC 2018

Kuwait’s stock exchange, Boursa Kuwait, has been tirelessly working to revamp its operating practices — and its efforts have been producing results. Kuwait privatised its stock exchange in 2014, establishing Boursa Kuwait to assume responsibility of the exchange. Boursa began an overhaul of its operating practices, creating a transparent capital market platform that adheres to rigorous international governance standards. Implementation is halfway complete: governance and transparency have been shored up, market segmentation introduced, and settlement cycles and listing requirements

updated. Boursa’s next development stage promises new short-sell SLB (stock lending and borrowing) and REITs (real estate investment trusts). Boursa’s strategic vision has garnered international recognition and pushed the exchange one step closer towards its goal of global integration with financial markets and exchanges. The Financial Times Stock Exchange (FTSE) Russell Governance Board upgraded Boursa Kuwait from a frontier market to an emerging one last year, resulting in a major inflow of foreign investment — and Boursa expects to achieve the same status upgrade

from Morgan Stanley Capital International (MSCI) this year. The stock exchange now has a market capitalisation of over $95 billion and 176 listed companies across all industries.

Boursa is preparing for its initial public offering in early 2019 and anticipates new IPOs and an increase in capital inflow throughout the next year. The CFI.co judging panel salutes the continuous development process and robust corporate governance framework of the exchange, and presents Boursa Kuwait with the 2018 award for Best Securities Exchange Corporate Governance (GCC).

> EUROFRAGANCE: BEST INTERNATIONAL VALUE CREATION GROWTH SPAIN 2018

Eurofragance wafted into the world as a small industrial facility in 1990 when the 25-yearold founder, Santiago Sabatés, set up shop as a fragrance designer and producer. The company now has a market presence in more than 60 countries and five continents. Eurofragance has expanded from its original Barcelona base to include strategically placed, automated production facilities in Singapore, Mexico, and the US. The company has expanded, consistently hitting over 10% growth per year, and the innovation and drive of its R&D

department is just one factor spurring that expansion. Eurofragance has five Creative Centres, where the company works to create new scents to indulge the senses. The strategic location of the Creative Centres and production plants has afforded the company insights into promising new markets. Eurofragance has solidified its market presence in the Middle East with facilities in Dubai and Turkey. In Singapore, Eurofragance pioneered production practices that deliver Halal-compliant fragrances and promise to open the Asian market for further CFI.co | Capital Finance International

expansion. The company is investing in acquisitions and automation to ensure its continued growth trajectory. The CFI.co judging panel believes the company’s management style — which secured its €75m budget objective in 2018 — makes it particularly attractive to investors wishing to accompany Eurofragance in its inorganic growth path, especially with regard to its North and South American targets.

Congratulations to Eurofragance, winner of the 2018 award for Best International Value Creation Growth award (Spain).

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> AMERICAN UNIVERSITY OF BEIRUT (AUB): BEST SUSTAINABILITY INNOVATION RESEARCH UNIVERSITY MIDDLE EAST 2018

The American University of Beirut (AUB) believes education is the driving force behind the prosperity of any society. With a storied history of over 150 years, the university is on a mission to advance academic knowledge and foster a spirit of informed citizenry and sound leadership. AUB hosts dozens of centres and institutes where stakeholders collaborate to advance healthcare research and innovation, spur social and environmental progress, and drive advances in local and global communities. AUB students and faculty partner with more than 60 universities

and research centres worldwide to collaborate on research projects in renewable energy, sustainable development, disease treatments, peace studies and conflict resolution. In 2017, AUB’s Collaborative Research Stimulus (CRS) provided $400,000 for research – and in total, research funding is expected to reach $5m for 2018. The university’s latest initiative, BOLDLY AUB, is a $650m fundraising campaign with a commitment to serve the Middle East with enriched educational experiences, superior healthcare service, innovative entrepreneurship,

and impactful community engagement. AUB’s campus features historic buildings with modern facilities set in cool green gardens — an oasis in the arid cityscape of Beirut. Green futures can also be found among the 120 academic programmes offered by AUB; the most recent addition is an online degree in green technologies. The CFI. co judging panel commends AUB’s dedication to, and investment in, a greener future, and names the American University of Beirut as the 2018 winner of the award for Best Sustainability Innovation Research University (Middle East).

> CENTURY FINANCIAL BROKERS: BEST GLOBAL FINANCIAL MARKETS BROKER EMEA 2018

With analysts forecasting a landmark year for UAE financial markets, savvy investors are looking to Century Financial Brokers (CFB) to help them navigate a bustling market in 2018.

The Dubai brokerage firm has established itself as a regional leader in the industry, and as a global contender.

Century Financial Brokers employs the latest technology to deliver innovative trading tools across a powerful web and mobile platform. Designed by traders and tailored to fit clients' trading needs, CFB's next-generation trading platform delivers functionality and

ease-of-use. The platform provides clients with real-time control of trading accounts through multi-channel mobile apps. Latest upgrades to the award-winning platform include seamless HTML5 integration, advanced charting capabilities, and customised account controls.

As analysts anticipate more than $8bn to be generated by new regional IPOs across the market, Century Financial Brokers invites local and expatriate clients to get in on the action. The firm expects an increase in foreign investment and ownership of UAE companies, making the region more attractive

to global investors. With more than 29 years of trading expertise and 10,000 diversified instruments across 110 markets, the company leverages its global reach and collective business acumen to mitigate risks and maximise client profits.

CFB is dedicated to empowering investors to make informed decisions, and provides advisory and support services to all its clients. The CFI.co judging panel recognises Century Financial Brokers, for the second consecutive year, as the 2018 Best Global Financial Markets Broker EMEA award winner.

> AL HILAL LIFE: BEST REGIONAL CORPORATE INSURANCE SOLUTIONS MIDDLE EAST 2018

Today’s corporate climate can be precarious and unexpected challenges can threaten the progress and stability of even the most promising business.

Al Hilal Life offers clients in the Middle East a safety net of corporate insurance solutions.

Through the firm’s innovative Key man Plan, companies are protected against the unexpected loss of key individuals, whose technical expertise, knowledge, or business network are crucial to the company’s success. Al Hilal Life also provides a full range of Group Life & Group Health Insurance plans to enhance the overall Employee Benefits offered to the staff and family members to attract and retain top talent. Their Health Insurance Plans include a wide network of best health care 92

providers that can be customized to tailor the requirements of each corporate entity right from SME’s to Large Corporate Groups. Their unique Smart Value Series of Group Health Insurance Plans catering to companies with a majority of blue collar workers (construction, contracting, cleaning, etc.) really stand out in the market for providing much more than basic immediate health care at a really competitive price. These plans are also bundled along with the Accidental Death Benefit and Repatriation Cover as a much needed support for their families. Al Hilal Life also offers Credit Life Insurance plans for Banks and Financial Institutions, which pays off the outstanding personal loans, credit cards, and CFI.co | Capital Finance International

mortgage plans or overdrafts in the unfortunate event of a borrower’s death / disability. Al Hilal Life effectively works through their multi distribution network and promotes their range of Corporate and Retail Solutions through Bancassurance, Direct Sales, Brokers & Affinity Groups and has been growing at a fast pace.

Financially strong and stable, Al Hilal Life is is owned by Ahli United Bank, One of the leading banks in Bahrain and a reputed bank in the Middle East. The CFi.co judging panel believes the firm is well-placed to deliver on its promise of a bright future, and is happy to present Al Hilal Life with the 2018 award for the Best Regional Corporate Insurance Solutions (Middle East).

Winter 2018 - 2019 Issue

> KUWAIT INTERNATIONAL BANK: FASTEST GROWING ISLAMIC BANK AND BEST SHARIA-COMPLIANT BANK MENA 2018

Dual-award recipient for the third consecutive year, Kuwait International Bank (KIB) has been providing the country with financial services for over 40 years, establishing itself in 2007 as a full-fledged Islamic bank to meet the nation’s growing demand for Sharia-compliant financial services. The bank’s growth continues to impress, with 2017 deposit balances totalling nearly $4b and increases across the board this year, from total assets and financing receivables to operating income and customer acquisition. The bank’s vision is be the Islamic

bank of choice in Kuwait, and it’s employing a three-pillar strategy to achieve it. The first pillar focuses on digitisation of financial and retail services in order to meet the evolving needs of a tech-savvy society. The second pillar encompasses the bank’s corporate and SME advisory services, while the third targets ‘one-stop’ real estate shopping. KIB’s digital innovation and customer-centric approach has kept the bank ahead of the technology curve, enhancing and streamlining customers’ virtual banking experience across every

touch point and communication channel.

Dedicated Islamic scholars sit on KIB’s Sharia Supervisory Board, which leverages the bank’s tech innovation to customise its offerings and tailor products to conform to Islamic finance principles. The CFI.co judging panel commends the bank’s agile advancement, and congratulates Kuwait International Bank on winning the 2018 Best Sharia-Compliant Bank MENA award (fourth consecutive year) and the 2018 Fastest Growing Islamic Bank MENA award (third consecutive year).

> CONSOLIDATED CONTRACTORS COMPANY (CCC): BEST INFRASTRUCTURE EPC SOLUTIONS PROVIDER MENA 2018

A quick study of the infrastructural development of the Middle East and Africa (MENA) region will illustrate the pioneering role Consolidated Contractors Company (CCC) has played in the region’s transformation. From next-generation technology hubs and sports facilities to water treatment plants and transportation systems, CCC has left an indelible mark upon the Gulf.

The construction company is a global leader in the engineering and construction industry with more than 65 years of experience in project management, engineering, procurement, and construction services. CCC employs 182,000 people internationally and is currently engaged

in 56 ongoing projects globally. Innovation remains at the forefront of the company’s driving force, propelling CCC towards its next challenge: the sustainable digital transformation of the industry. As a proud advocate of global sustainability initiatives, the company adheres to the highest international sustainability regulations and leverages tech innovations to streamline its operations and reduce redundancies. The company is applying building information modelling (BIM) processes to improve the organisation of largescale construction projects, launching a fleet of off-grid solar-powered mobile cabins for

construction crews, and exploring the disruptive opportunities of 3D printing. In a pilot project, CCC will collaborate with technology providers and general contractors to construct a 3D-printed home — fully furnished and ready for occupancy. Another partnership will create a digital warehouse which will 3D-print parts on demand. The CFI.co judging panel was impressed by the company’s stable growth and visionary innovation, and is pleased to present Consolidated Contractors Company with the 2018 award for Best Infrastructure EPC Solutions Provider (MENA).

> CONTAINERS PRINTERS: MOST INNOVATIVE PACKAGING TEAM SOUTH EAST ASIA 2018

Using state-of-the-art technology, Singaporebased Containers Printers (CP) works closely with each client to provide personalised service and create bespoke packaging solutions. The company assumes responsibility for the entire integrated process, from artwork and design to after-sales support. Containers Printers manufactures the packaging and delivers it to client’s designated sites or storage facilities. After delivery, end-product assessments are conducted, and the company proactively troubleshoots any potential problems. With decades of experience in the

industry, Containers Printers offers a range of customisable packaging options including functional printing and smart packaging, metal, with aerosol components, and in flexible laminates. Laminates are a versatile, eco-friendly material with food, beverage, industrial, and health care applications.

The company employs the latest technology to ensure precise printing, vibrant colours and textured finishes. Containers Printers embraces the digital age and invests in the future with continuous innovation. It adopts the latest technologies to improve efficiency CFI.co | Capital Finance International

and lessen its carbon footprint. Sustainability and innovation are at the core of the company’s business vision, which aims to enrich stakeholders as well as society at large. The company has seen rapid growth since it was founded in 1981, and it now supplies products to more than 30 countries in Europe, South East Asia, Australasia, the Middle East and Africa. The CFI.co judging panel has followed the company’s progress since its win last year, once again naming Containers Printers as the reigning champion of the 2018 award for Most Innovative Packaging Team (South East Asia).

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> ACTIVE CAPITAL REINSURANCE, LTD: BEST CREDIT REINSURANCE SOLUTIONS FOR INSTITUTIONS LATIN AMERICA 2018

Active Capital Reinsurance Ltd. (AC Re) operates on a principle of “benefits for all”. During its 11-year trajectory, the company has firmly established itself as one of the leading providers of credit-related reinsurance solutions in Latin America. Headquartered in Barbados, the company has offices in Panama and Miami, FL (USA) that are dedicated to developing regional business interests. The company’s London office has facilitated AC Re’s global expansion and geographic diversification, establishing a

market presence in Europe, the Middle East and Africa (MENA), and Asia Pacific (APAC). AC Re now operates in more than 25 countries around the world, providing financial institutions with specialised reinsurance products covering credit fraud, card theft, credit life, and surety bonds, among other short-term non-catastrophe risks. In 2017, AC Re wrote net premiums comprising 72 percent surety, 20 percent affinity, and 7 percent property and casualty. In less than a decade, the company’s paid capital

has increased by 66 percent. The company received a rating of A- FSR (Financial Strength Rating) and A- Long-Term ICR (Long-Term Issuer Credit Rating), indicating the industry’s assessment of AC Re’s excellent, stable outlook.

In recognition of its strong performance in riskadjusted capitalisation, the CFI.co judging panel is pleased to present Active Capital Reinsurance with the 2018 award Best Credit Reinsurance Solutions for Institutions (Latin America).

> NCB CAPITAL: BEST GLOBAL ASSET MANAGEMENT TEAM GCC 2018

NCB Capital, founded in 2007 in Saudi Arabia, is now the largest asset manager in the kingdom and the biggest Sharia-compliant asset manager in the world. The firm offers individual and corporate clients a full range of asset management services, specifically wealth management, brokerage, and investment services. NCB Capital’s financial advisory services help corporate clients navigate challenging business milestones, from mergers and acquisitions to joint ventures and corporate restructuring. The company has an investment fund for every appetite — including REIT,

equity, money-market, fixed-income, and multiasset funds — and its talented team offers sage investment advice based on each client’s objectives, risk tolerance, and investment philosophy. NCB Capital knows how crucial market intelligence is to sound investment decisions, and provides clients with an online library of leading market research. The firm’s client-centric approach aims to provide the largest range of services in the most convenient method. In August this year, NCB Capital became one of only about 1,500 firms worldwide to achieve Global Investment Performance

Standards (GIPS) compliance, highlighting the firm’s dedication to improving investment performance and enhancing transparency for clients. The investment company has experienced rapid growth since its inception and now has over a million clients and $15bn worth of assets under management. The CFI.co judging panel applauds the firm’s expertise in fiduciary investment advisory services and its proficiency in helping clients achieve their investment goals. The judges congratulate NCB Capital on its 2018 Best Global Asset Management Team (GCC) award win.

> STOXX, LTD: MOST INNOVATIVE INDEX PROVIDER GLOBAL 2018

STOXX have been leading the way in innovative index concepts since 1998 and their indices serve as investment roadmaps, enabling clients to plot a sure course with independent and transparent market performance data. STOXX’s comprehensive offering of indices — more than 12,000 — covers more than 95 percent of the world's investable markets and provides an index solution for every investment need.

The company´s indices present specific market insights across a broad range of industries, geographies, and strategies. Innovation is the driving force behind the company’s success.

In 2000, they became the first index provider 94

to implement free-float market capitalisation across all its indices, and a year later it introduced its first sustainability indices, which have since grown into an innovative series of environmental, social, governance (ESG) indices. Active supplier of solutions to the ETFs industry, in the last five years their Europe 600 index embraced ETFs (exchangetraded funds) and in the last five years their Europe 600 Index has seen 9.8% compound annual growth while their Global 1800 Index has grown 13.8% a year.2018 has been a very active and successful year for the company as they have introduced several new indices. In CFI.co | Capital Finance International

January they launched the first-ever index that tracks AI innovators and selects its constituents based on an AI algorithm. They followed this up by launching first a range of LDI bond indices in April and then, in May, their EURO STOXX Multi Premia Index, that complements a suite of factor and multi factor strategies. Over the summer they expanded their thematics suite with indices covering blockchain, fintech and B.R.AI.N (biotechnology, robotics, AI and nanotechnology). Given the success of these launches, the Judges Panel have decided to name STOXX as the CFI.co Most Innovative Index Provider Global 2018

Winter 2018 - 2019 Issue

> CANARY WHARF GROUP: OUTSTANDING CONTRIBUTION TO SUSTAINABLE DEVELOPMENT UNITED KINGDOM 2018

The Canary Wharf Group has worked over the past three decades laying the foundation for the cities of tomorrow. The group has left an indelible mark on the cityscape of London, adding 37 highrise building to the iconic city skyline since its inception, and transforming the derelict docks of Canary Wharf into a thriving, 16.5m square feet of world-renowned office, retail, residential, and leisure spaces. With its far-sighted goals and bold ambitions, the group does more than pay lip service to the UN’s sustainable development goals (SDGs): it implements those principles and practices by promoting

a resilient circular economy, where waste is converted into a resource and carbon emissions are minimised. As an inspiring early adopter with some impressive benchmarks, the Canary Wharf Group has powered all its operations by renewable energy since 2012, and minimised landfill waste since 2009. The company has established sustainable procurement procedures throughout its supply chain, set sciencebased targets to address ESG challenges, and collaborated with leading ecologists to encourage biodiversity throughout the area’s green spaces, which comprise 20% of the estate. The group

is a fully integrated property development, investment, and management company, with the expertise and experience to take any project from concept to implementation. Of all the company’s forward-thinking approaches, the CFI.co judging panel particularly appreciates the group’s culture of ownership, which have afforded the brand absolute control over its ESG initiatives and clinched its status as an industry leader in sustainability. The judges congratulate Canary Wharf Group on its 2018 award win for Outstanding Contribution to Sustainable Development (United Kingdom).

> MEEZA: BEST IT SECURITY GCC 2018

The CFI.co judging panel applauds Meeza on this third consecutive win of the Best IT Security award. This Qatar company has kept the momentum of discipline and adaptability in an industry that is subject to frequent change, and where cyberthreats are a constant enemy.

Meeza has excelled in protecting its clients from reputational damage or security breaches as levels of threat are constantly monitored and analysed. Meeza represents top-class attitude

and performance. Its advanced services ceaselessly scrutinise IT assets to ensure the instant flagging of any incident, using selflearning algorithms that detect traffic that deviates from the norm. Meeza is quick to identify vulnerabilities and predict possible future threats. Expertise and dedication have brought the company healthy growth and respect in the field, and have resulted in some big-name client acquisitions in 2018.

Meeza is entering into promising strategic partnerships to further enrich its offering and its commitment with ongoing training programmes and workshops for staff. Meeza has received numerous awards and citations for its services, and is a Qatar Foundation joint-venture that is gaining increasing recognition for its role in supporting national development. Meeza is the recipient of the CFI.co 2018 award for Best IT Security (GCC).

> KENGEN (KENYA ELECTRICITY GENERATING COMPANY): BEST SUSTAINABLE POWER PRODUCER EAST AFRICA 2018

Kenya Electricity Generating Company (KenGen) is the environmentally friendly and socially responsible company empowering the country, economy, and population with reliable, safe, and affordable energy. KenGen provides 70 percent of Kenya’s electricity, harnessing the power of sustainable energy to generate electricity from geothermal, hydro, wind, and thermal sources. The company is the largest producer of geothermal energy in Africa, and among the top 10 producers in the world. Renewable energies already make up 80 percent of KenGen’s power production, with geothermal being the highest,

and the company’s plans for solar power should push power production to 90 percent renewable in the near future. KenGen understands that sustainability can only be successful if future generations continue to work towards it. In 2012, the company established the KenGen Foundation to implement its CSR programmes countrywide, particularly in the communities where it operates. The foundation supports educational, environmental, and water and sanitation initiatives at the local level, funding student scholarships and school infrastructure development and spearheading reforestation CFI.co | Capital Finance International

efforts. Through local partnerships, the KenGen Foundation has contributed to water projects that now provide clean accessible water to over 65,000 community members. KenGen has been working on a Good-to-Great transformation strategy, building upon its past success to plan for a prosperous future. The CFI.co judging panel gives KenGen top marks for its good corporate citizenship, and congratulates Kenya Electricity Generating Company on its 2018 award win for Best Sustainable Power Producer (East Africa).

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> ARTICO PARTNERS: BEST QUANTITATIVE EQUITY ASSET MANAGEMENT TEAM SWITZERLAND 2018

For the asset managers at ARTICO Partners, it’s not about being the biggest – it’s about being the best.

There are six partners on the company roster, an agile team of senior-level professionals with impressive performance histories. The partners are significant co-investors in all of their funds. This means they have "skin in the game" ensuring that their interests are fully aligned with those of their investors.

The investment approach is simple and compelling: invest in good companies. ARTICO has developed a selection process to identify

companies with outstanding characteristics.

The partners start with ARTICO’s proprietary database, containing over 25 years of data on more than 30,000 companies across the world. The firm then applies its methodology to assess the companies based on their growth rate, profitability, financial health, and stock market evaluation. Only companies with high scores across all four criteria are selected, creating diversified portfolios of sound, global companies, with a higher probability to outperform. It is exactly this combination of

strong fundamental characteristics that makes ARTICO's portfolios unique. ARTICO manages three funds with the same systematic approach covering Emerging Markets, Global Small Caps and Developed Markets. In addition, ARTICO also offers risk-mitigated funds, to preserve client's capital across a range of scenarios.

In recognition of its exemplary approach to investment, the CFI.co judging panel presents ARTICO Partners with the 2018 award for Best Quantitative Equity Asset Management Team (Switzerland).

> ROSABON FINANCIAL SERVICES: BEST SOCIAL IMPACT FINANCIAL SERVICES NIGERIA 2018

Lending drives the development of industries and economies, and the progressive and modern nonbanking institution of Nigeria, Rosabon Financial Services, is ready to help fund the mission. The financial products developed by Rosabon are fine-tuned to the demands of its clientele, and constantly updated to reflect evolving needs. The institution offers collateralised and non-collateralised loans, investment plans, and leasing services. Rosabon garnered the attention of the CFI.co judging panel in 2015 for its ethical business practices and peak corporate performance, and the institution has

since made strides to become an even more socially oriented organisation. Passionate about education, Rosabon sponsors pupils from lowincome families with school supplies each year.

Furthermore, the Rosabon Educational Support Initiative partners with primary, secondary, and tertiary schools to offer low-interest tuition loans that enable parents to tackle private education in comfortable monthly payments rather than a large lump sum. Rosabon partnerships open avenues of capital flow in the travel sector, real estate market, and medical industry.

Rosabon's Medical Equipment Leasing

Initiative addresses healthcare concerns and covers a gap in the market, financing the procurement of crucial medical equipment for hospitals and medical facilities. Regulated by the Central Bank of Nigeria and a member of the Equipment Leasing Association of Nigeria (ELAN), Rosabon offers a gamut of products that promote financial inclusion and encourage consumer and corporate investment, leading the CFI.co judging panel to name Rosabon Financial Services winner of the 2018 Best Social Impact Financial Services (Nigeria) award.

> MANSION (GIBRALTAR) LIMITED: MOST RESPONSIBLE ONLINE GAMBLING OPERATOR GLOBAL 2018

People around the world love sports and games, and Mansion offers both in one convenient, trusted online platform. The platform integrates products from top gaming providers on its three online casino sites — Casino.com, MansionCasino, and Slots Heaven — and one sports betting site called MansionBet. Mansion is licensed and headquartered in Gibraltar, the British territory at the southernmost tip of the Iberian Peninsula and a major financial centre and global 96

e-commerce hub of the past years. Under the leadership of CEO Karel Manasco since 2016, the company has experienced remarkable commercial success, with 100 percent revenue growth and up to 200 percent profit increase, but this is only part of Mansion’s success story.

The company encourages responsible gambling amongst its members, and provides controls to protect underage users, sets special limits on gaming activity, and can request a temporary CFI.co | Capital Finance International

cooling off period. The next step in Mansion’s long term vision will see new opportunities in other global licensed markets. The CFI.co judging panel was impressed with the CEO’s notion that success comes with responsibility, and cites the company’s dedication to exceeding current regulations as further proof that Mansion Limited be named the 2018 winner of the Most Responsible Online Gambling Operator (Global) award.

Winter 2018 - 2019 Issue

> MAX BURGER: BEST SUSTAINABLE RESTAURANT CHAIN EUROPE 2018

Consumers are becoming increasingly aware that the food they consume has a major impact on the climate and that beef products can result in high greenhouse gas emissions. Truly responsible companies are going beyond the environmental targets set in the Paris Climate Agreement. Max Burger is one such company. Sustainability is part of the company’s DNA and Max Burger is striving to make its 130 outlets part of the solution rather than part of the problem, giving consumers an

opportunity to continue using a service they enjoy whilst protecting the environment. The company has demonstrated how a burger-focussed fast food chain can become climate positive whilst maintaining excellent profitability. To achieve this positive impact the company has taken a holistic approach to sustainability and engaged leading experts to help ensure best practice and analysis.

Max Burger is not simply offsetting its emissions, the company is actively reducing its environmental

footprint and clearly giving consumers the information they need to change their behaviour when making menu choices. Max Burger is well on its way to attain its corporate target of making every second meal vegetarian by 2022. The CFI. co judging panel feels that Max Burger should be considered a role model for the fast food industry.

The judges are delighted to declare Max Burger winner of the Best Sustainable Restaurant Chain Europe 2018 Award.

> SWEDBANK: BEST GREEN BANK SWEDEN 2018

Swedbank balances economic ambition with environmental, social, and governance (ESG) responsibilities, assuming a strong role in the communities in which it operates and society at large. With around 7.4 million individual customers and 600,000 corporate clients, Swedbank is the largest bank in Sweden and one of the leading financial institutions in Estonia, Latvia, and Lithuania. This strong market presence affords the bank the clout to influence market trends, and Swedbank is betting on a

greener, more sustainable future. In support and promotion of long-term sustainable solutions, the bank issues green bonds to finance the development of sustainable innovations and services. Swedbank’s efforts are aligned with UN 2030 Sustainable Development Goals (SDG), specifically promoting affordable and clean energy, industry and infrastructure innovation, sustainable cities and communities, climate action, and life on land. The institution aims to lead by example, continuously assessing

sustainability factors in order to reduce social and ecological risks and contributing to a more sustainable business community. Likewise, the bank’s careful consideration of anticorruption and human rights issues supports its risk management strategy and creates value for stakeholders. According to Swedbank, sustainability risks equate financial risks, and for the CFI.co judging panel, this seals the deal: Swedbank wins the 2018 Best Green Bank (Sweden) award.

> FIDELIS FINANCE BF: BEST SOCIAL IMPACT SME FINANCE WEST AFRICA 2018

In many ways, creating finance solutions for small and medium-sized enterprises (SMEs) is a greater challenge than developing solutions for larger organisations. For economies to prosper and diversify, SMEs need stable finance partners that understand their businesses and can make decisions based not only on raw financial figures, but also by on the business opportunity and management’s ability to deliver. Fidelis Finance BF is one such solution-provider. With more than 20 years of experience, Fidelis has

been continuously developing the capacity to deliver on its mission statement: to push the limits of its capabilities and provide companies with financial services that best improve clients’ competitiveness and allow them to seize new opportunities. Several multilateral credit providers and development banks have recognised Fidelis’s capacity to profitably deliver services to SMEs. The CFI.co judging panel recognises the level of trust these institutions show in Fidelis. The company has CFI.co | Capital Finance International

built an excellent reputation for governance and efficient processes, which — when combined with a strong team that knows how to create and match solutions and opportunities — are helping SMEs reach their full potential. The CFI. co judging panel declares it the winner of the Best Social Impact SME Finance (West Africa) award – an honour the company has achieved twice. Fidelis Finance BF’s took the same CFI. co award in 2017.

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> PEABODY: BEST ESG-RESPONSIBLE MINING COMPANY GLOBAL 2018

Coal mining has had a bad rap over the years, but the industry has gone to great lengths to clean up its act — and global coal company Peabody is an industry leader in sustainable mining and advocating and collaborating to advance the development and deployment of clean coal technologies. Advanced technologies have reduced coal’s carbon footprint, with high-efficiency, low-emissions (HELE) power stations that can capture 90 to 99.92 percent of regulated emissions. Peabody continues to foster innovation in clean coal technologies, recognising and rewarding leadership through its annual global awards programme. Respect

is embedded at the core of the Peabody philosophy and reflected throughout every action of its business practices, particularly its environmental, social, and governance (ESG) responsibilities. Last year, Peabody restored 5,145 acres of mined lands — 1.4 acres for each disturbed — into wildlife habitat, rangeland, hardwood forests, prime farmland, pastoral land, and wetlands. Passionate and proactive about restoring coal-mined lands for future generations, Peabody has spent $185 million over the last decade to restore 48,000 acres of land and contributed around $560 million to restore lands operated by other coal

producers. Peabody reports on six environmental indicators in reference to the Global Reporting Initiative framework: last year the company recycled and reused approximately 59 percent of total water withdrawn and 72 percent of total waste. Peabody philanthropic funding and scholarship contributions totalled over $1.4m last year, and globally generated $10.6bn in direct and indirect economic benefits. The CFI.co judging panel has been following the company since its first award win in 2016 and is pleased to congratulate Peabody on its third consecutive win of the Best ESG-Responsible Mining Company (Global) award.

> CAISSE RÉGIONALE DE REFINANCEMENT HYPOTHÉCAIRE (CRRH-UEMOA): BEST INCLUSIVE MORTGAGE FINANCE IMPACT WEST AFRICA 2018

As cities around the world become more economically powerful and populous, the effects of the global housing crisis become more pronounced.

The financial speculation of the global housing market has resulted in a shortage of housing for the poorer and more disadvantaged members of society. This is particularly true in West African countries, where the housing crisis — a shortage of 3.5 million housing units —remains one of the region’s biggest developmental challenges. Caisse Régionale

de Refinancement Hypothécaire (CRRH), of the West Africa Economic and Monetary Union (UEMOA), is putting roofs over people’s heads. As the leading mortgage refinancer of the UEMOA region, CRRH has facilitated about 8,000 mortgages since its 2012 inception — no small feat in an area where fewer than seven percent of citizens can afford to buy a house. CRRH-UEMOA has powerful strategic partnerships to support the region’s housing development and financing. The World Bank

Group’s International Finance Corporation recently made a $9m investment in localcurrency bonds, issued by CRRH-UEMOA. The bonds mature in 12 years and are designed to increase housing finance – while strengthening local markets. The CFI.co judging panel salutes CRRH-UEMOA for its contributions to the global housing crisis, and congratulates Caisse Régionale de Refinancement Hypothécaire on winning the award for Best Inclusive Mortgage Finance Impact (West Africa) 2018.

> SARADAR BANK: MOST SOCIALLY RESPONSIBLE BANK LEBANON 2018

Lebanon’s Saradar Bank has a long-standing commitment to corporate social responsibility, and lists human capital as a strategic focus. It promotes gender equality in a traditionally maledominated sector, and provides educational and training opportunities for its skilled workforce.

Its training programmes range from outreach programmes and leadership workshops to teambuilding activities, and more than half of its staff is female – with its leadership team boasting a 57% female majority. The bank’s inclusive spirit dates back to 1962, when former CEO 98

Joe Saradar established the Saradar Foundation to promote cultural and leisure activities in the region. The foundation sponsors a mobile learning programme, sending educational caravans to remote regions of the country to deliver specialised seminars and customisable courses. The foundation’s visual arts programme aims to bolster Lebanon’s artistic heritage through sponsorships and curated collections of national treasures. It also has an athletics programme to reward and encourage promising athletes by endorsing and sponsoring them at CFI.co | Capital Finance International

international level. In 2016, the CFI.co judging panel commended Saradar Bank’s for its rapid but sustainable growth and presented it with the Best Bank Governance (Lebanon) award. After reviewing the recent bank’s progress, the panel noted that Saradar Bank achieved a 25% growth rate in 2017. It is set to be one of the fastestgrowing banks in Lebanon for 2018 — proof that social responsibility and growth can go hand-in-hand. Saradar Bank is the winner of the 2018 award for the Most Socially Responsible Bank (Lebanon).

Winter 2018 - 2019 Issue

> CAISSE DE REFINANCEMENT DE L'HABITAT (CRH): BEST SOCIAL IMPACT FINANCE FRANCE 2018

Caisse de Refinancement de l'Habitat (CRH) is unique among credit institutions. CRH was founded in 1985 in Paris, and operates within a special legal framework with the sole purpose of funding French home loans. Essentially acting as a fee-free pass-through, the company issues mortgage bonds to fund home loans granted by banks. The company has capitalised on its special legal standing to become one of the largest bond issuers in Europe, finishing 2017 with bonds worth €30.8 bn on its books. As CRH’s secured loans (written as promissory

notes to commercial banks) precisely match its mortgage-backed bonds, the company’s balance sheet duration is zero. CRH bonds are compliant with Capital Requirement Directive 2, reflecting the Basel II and Basel III rules on capital measurement and capital standards. As such, CRH is eligible for openmarket operations of the European Central Bank and European Covered Bond Council.

Borrowing banks retain CRH refinanced loans on their balance sheets, but if a bank defaults French law gives CRH full ownership

of the loans. The company’s unique set-up and special privileges have ensured a superb risk rating (Aaa by Moody's / AAA by Fitch) and a smooth trajectory with no losses or writedowns since its inception. The institution came to the attention of the CFI.co judging panel last year, and the judges have watched CRH’s successful progression with interest. For the second consecutive year, the judges name Caisse de Refinancement de l’Habitat as the winner of the Best Social Impact Finance (France) award.

> BDO AUSTRIA: BEST AUDIT AND TAX TEAM AUSTRIA 2018

Outsourcing tax and auditing responsibilities is a smart move for businesses seeking unbiased financial analysis, and can prove useful at tax time. BDO Austria has a 50-year history of delivering sage tax advice and versatile auditing services. BDO Austria partners with global clients as well as family businesses and SMEs to provide a range of specialised auditing and tax consulting services. The customer-centric company is led by Austrian partners and supported by a team of 420 local auditing and

tax professionals. It has nine offices throughout Austria, is well-placed to meet demands across the country — and its reach is global. The BDO network extends across 162 countries and includes 74,000 people, affording BDO Austria clients unparalleled support and resources for international operations. BDO Austria develops individualised solutions for clients, and assigns dedicated consultants to each of them. This has led to partnerships of deep trust and long history. Swift and transparent communication

is a company standard, and BDO Austria seeks feedback from its clients and its team to fuel continuous improvement. The CFI.co judging panel cites the company’s work environment and engagement programmes as contributing factors to its recruitment success. For its committed approach to client relationships and team collaboration, the judges present to BDO Austria the 2018 award for the Best Audit and Tax Team (Austria) award.

> BANCA AGRICOLA COMMERCIALE: BEST BANK GOVERNANCE SAN MARINO 2018

Nestled among the mountains of north-central Italy lies one of the oldest republics, and one of the smallest and wealthiest countries in the World — the Republic of San Marino. The country has a booming economy, bolstered by a competitive finance industry and a favourable business framework for foreign investment.

San Marino’s Banca Agricola Commerciale (BAC) has capitalised on that foundation to create, and maintain, a reputation of trust, responsibility, and competence. The bank was founded in 1920 and has been operating to

the highest standards of governance ever since.

With nearly a century of banking experience and expertise, BAC offers tailored solutions to meet its customers’ needs, whether they are local clients to international investors.

The bank provides a comprehensive range of financial products for private individuals and professionals, corporate clients, high-worth investors, and public authorities. It also has a widespread network: 10 branches and three specialised subsidiaries (BAC Fiduciaria, San Marino LIFE, and BAC Investment SG). The CFI.co | Capital Finance International

BAC process of continuous innovation, based on research-backed insights and client-solicited feedback, has garnered it a reputation for sound decision-making and diligent compliance.

BAC first registered on the CFI.co judging panel’s radar last year for its fine corporate governance. The judges are pleased to see the bank continue on a path of responsible growth, and present the Banca Agricola Commerciale – for the second consecutive year – with the Best Bank Governance (San Marino) award.

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> NORDEA ASSET MANAGEMENT AB: BEST ESG INVESTMENT PROCESS EUROPE 2018

With a history of sound corporate governance and active ownership, Nordea Asset Management AB understands that environmental, social and governance (ESG) integration presents a powerful strategy to mitigate risk and create long-term shareholder value. The CFI.co judging panel has followed Nordea’s trajectory for years and is pleased to see the Asset Management team has expanded to become one of the largest, most diverse, and most proactive teams in Europe. Nordea Asset Management promotes ESG-integrated fixed-income and equity funds that are aligned to the changing demands of its forward-thinking clients. It

employs ESG analysis procedures to determine companies’ worthiness for inclusion in its ESG enhanced funds. Responsibility and active ownership go hand-in-hand at Nordea. The Asset Management team proactively ensures responsible returns on long-term investments through screening, analysis, methodical monitoring, and corrective intervention where necessary. The company continues to prove its commitment to financing a sustainable future, most recently by collaborating with the United Nations and several other investors to pilot the recommendations of the Financial Stability Board’s Task Force on Climate-Related

Financial Disclosures (TCFD). The company’s long-term commitment to delivering high ESG standards is embedded in its DNA. The €216 billion of assets under management as of December 2018 clearly shows that investors trust the application of high ESG standards in helping deliver financial results while ensuring their funds help to deliver a more sustainable future. For the fifth consecutive year, the CFI. co judging panel has recognised the company’s contributions to sustainability. The judges present Nordea Asset Management AB with the 2018 award for Best ESG Investment Process (Europe).

> SIG: BEST INNOVATION IPO SWITZERLAND 2018

The packaging powerhouse of Switzerland — SIG — has evolved over its 165-year history from a small local company to a global player. The SIG story began in 1853 in the railway carriage construction industry and the company’s engineering expertise subsequently enabled it to become a valued equipment supplier to the Swiss Army and law enforcement agencies.

However, by the year 2000 both these businesses had been sold in order to focus on packaging technology, an area where SIG has a long history dating back more than 100 years.

SIG has a global team, with 5000+ employees

serving customers in more than 60 countries.

SIG is a leader in aseptic carton packaging, providing cartons for over 10,000 food and beverage products in a safe, sustainable and affordable way. The company also manufactures high-tech filling machines for its customers and currently has an installed base of more than 1,100 machines, which are maintained by a field force of 550+ engineers. SIG offers a wide range of carton formats, including two world firsts: a resealable spout and a screw cap (CombiTop and CombiTwist). Responsibility towards people and the environment are an

integral part of the business strategy and SIG’s innovative Signature Pack is the first aseptic pack 100% linked to plant-based renewable materials. The company has made significant progress towards achieving its 2020 goal of using 100% renewable energy at its production plants and already uses 100% renewable electricity. SIG’s geographic diversification and product innovation have contributed to its longterm sustainable growth. The recent IPO cut its debt from €2.5bn to €1.5bn. The CFI.co judging panel presents SIG with the award for Best Innovation IPO (Switzerland) 2018.

> ALBIS LEASING: BEST ONLINE SME LEASING SOLUTIONS GERMANY 2018

ALBIS Leasing has been providing German small and medium-sized enterprises (SMEs) with more financial freedom for more than 30 years. When capital flows present hurdles to acquiring essential equipment, leasing provides a practical alternative for SMEs – and this is where ALBIS comes in. The company is a holding company, incorporating four operational companies offering a range of lease financing services for vehicles, capital goods, and rental properties. ALBIS tailors leasing agreements to match customers’ needs, and its digital process quickly delivers appropriate 100

leasing solutions and calculates agreements.

The company aims to be the single-source provider for all business leasing needs, and the innovation and speed with which it delivers solutions is a driving force in its success.

ALBIS Leasing’s expansive portfolio gains a competitive edge on banks in Germany and the Netherlands which complement the company’s product lineup with banking services and refinancing solutions. The company’s financing activities are balanced by a comprehensive risk-management system and regulated by Germany’s Federal Financial Supervisory CFI.co | Capital Finance International

Authority. The organisational structure of ALBIS Leasing is diversified into individual service companies, and IT solutions and sales activities are centralised and integrated. The company now plans to expand into the food service industry and payment solutions sectors.

The CFI.co judging panel was impressed with the simplicity of the company’s online system, and the breadth of the services it offers. The judges present ALBIS Leasing with the 2018 award for 2018 Best Online SME Leasing Solutions (Germany).

Winter 2018 - 2019 Issue

> BLACKSTONE RESOURCES AG: MOST PROMISING LONG-TERM VALUE CREATION IPO SWITZERLAND 2018

Blackstone Resources was established in 1995 with the aim of developing its own holdings and assets. Continued success in that area led the company to expand its horizons, and focus on natural resources and commodities assets.

Blackstone Resources is a specialist in the exploration of metals for use in batteries, as well as gold and silver, and the company is well positioned to take advantage of the anticipated increase in consumption thanks to the electric vehicle revolution. Blackstone’s long-term strategy is to invest in the companies that seek,

develop and extract these metals – ethically, and from politically secure countries. Blackstone has a diversified global portfolio and invests in the gold, silver and cobalt refineries that transform the metals into marketable products.

The company supports indigenous communities through social projects, and is committed to using wind turbines and photovoltaic panels where possible to dovetail its production efforts with the global bid for sustainability. Blackstone’s dedication will open new markets: the company intends to develop a range of batteries for mobile

phones and laptops. Emerging technology from the Blackstone’s testing programmes will be adapted to supply the wider battery market.

A comprehensive research and development programme, exploring new battery technology and automated production processes, could reduce the production costs by up to 70%.

The CFI.co judging panel feels that Blackstone Resources deserves recognition for its innovation and vision, and presents the company with the 2018 award for Most Promising Long-Term Value Creation IPO (Switzerland).

> COMMERCIAL BANK OF CEYLON (CBC): BEST GREEN BANK SRI LANKA 2018

As one of Sri Lanka’s largest financial service providers, the Commercial Bank of Ceylon (CBC) has considerable weight to throw behind its sustainability initiatives. The bank takes a proactive approach and integrates social and environmental concerns throughout its daily business practices and its business plan.

CBC’s sustainability strategy addresses social and environmental issues affecting people and the planet. The bank sets an example for its stakeholders — from customers and employees to suppliers and business partners — with its

efforts for the responsible stewardship of the planet. CBC harnesses the latest technology to drive sustainability initiatives while reducing its own environmental footprint. Customers are being urged to adopt paperless mobile banking, and CBC branches are energy-efficient and compliant with the highest environmental standards. CBC encourages corporations and SMEs to invest in a greener future by financing Green Development Loans to implement ecofriendly solutions in energy saving, energy efficiency, and renewable energy projects. The

bank has pioneered an eco-conscious lending framework to ensure all decisions comply with environmental and social regulations. CBC’s efforts have not gone unnoticed: in 2017 the World Bank Group’s International Finance Corporation partnered with the bank, allocating $165m to finance loans for renewable energy and energy efficiency projects. The CFI.co judging panel applauds CBC’s far-reaching sustainability initiatives, and has unanimously agreed: the Commercial Bank of Ceylon wins the 2018 award for Best Green Bank (Sri Lanka).

> ARTHALAND: BEST ECO PROPERTY DEVELOPER PHILIPPINES 2018

If global environmental targets are to be met, sustainability needs to be entrenched in the heart and soul of the construction industry – a core value, not a box-ticking exercise. Philippinesbased ArthaLand has made sustainability part of its DNA, ensuring that its staff understand how to operate in a sustainable way, and why that’s necessary. ArthaLand staff are educated about the environmental problems today that are threatening a prosperous future tomorrow, and they spread environmental awareness throughout the communities in which they

operate. At ArthaLand, single-use plastics are discouraged for their shameful disregard of the planet, and the higher costs of sustainable building materials are seen as a necessary investment for all future-proof homes. The result is a world-class development organisation which applies the same high standards to all its developments, and is continually implementing appropriate innovations. ArthaLand's Arya Residences project was the first home development in the Philippines to undergo dual compliance: the US Green Building Council’s CFI.co | Capital Finance International

LEED green building certification and the Philippines Green Building Council’s BERDE classification. The CFI.co judging panel believes more developers should follow ArthaLand’s lead of putting the environment at the heart of the planning and decision-making processes.

The judges declare ArthaLand winner of the 2018 award for Best Eco Property Developer (Philippines), and commend the company’s efforts to spread the environmental message to the wider community through its team and its policies.

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> SBM HOLDINGS LTD: BEST CSR BANKING SECTOR MAURITIUS 2018

The SBM Holdings Ltd acts as an agent of change, developing and implementing high-impact and sustainable projects at the national level to help alleviate poverty and move the country towards its goal of becoming a higher-income economy.

SBM’s Corporate Social Responsibility (CSR) initiatives, which focus on the education and empowerment of the nation’s most vulnerable groups, have become a reference model for the nation, setting an example for other firms to follow. As one of the most profitable companies of the Republic, SBM

Holdings Ltd believes it has a duty to uplift the communities in which it operates and runs a variety of outreach initiatives through its social arm, the SBM Foundation. The Foundation’s efforts focus primarily on education as a tool for social empowerment. Since its launch, the SBM Scholarship Scheme has funded thousands of scholarships enabling deserving students to pursue university studies or vocational training, thus boosting their family household income as much as three-fold upon completion of their studies — making SBM

the single largest provider of scholarships in Mauritius. In the spirit of synergy and sharing, SBM supports educational projects from 19 different NGOs, in addition to several inclusive projects for disabled people, ranging from prosthesis procurement to self-reliance systems. For its holistic approach to the strategic empowerment of the nation, the CFI. co judging panel names SBM Holdings Ltd as the 2018 winner of the Best CSR Banking Sector Mauritius award.

> NIBULON: BEST RURAL ECONOMIC INVESTMENT PARTNER UKRAINE 2018

The story of NIBULON, the Ukraine’s largest agricultural producer, investor and exporter, is rooted in perseverance and resilience — and its co-founders’ ability to see challenges as opportunities for growth and shared benefits. The company name pays homage to the founders’ home cities – NIkolaev, BUdapest and LONdon – and underscores its position as a major player in international markets. NIBULON was founded in the year that the Ukraine became an independent state – 1991 – and it’s been a driving force in the country’s economic growth

ever since. NIBULON started with just five employees, and now has over 7,000. Since its inception, it has invested more than $1.6 bn in the Ukraine economy, helping the country to survive the economic crisis, ease unemployment and combat inflation. NIBULON began by developing agricultural land to efficiently produce grain, but the economic crisis and political uncertainty brought shortages of fuel and resources. With the perspective that challenges are nothing more than opportunities, NIBULON expanded into new markets to solve

its logistical headaches. The company now has a diversified portfolio ranging from logistics to livestock. NIBULON tends nearly 83,000 hectares of agricultural land and operates 43 branches in 12 regions in the Ukraine.

The CFI.co judging panel was impressed with the company’s foreign activities, which in 2015 delivered $8.2m in global economic contracts. The judges congratulate NIBULON as the winner of the 2018 award for Best Rural Economic Investment Partner (Ukraine).

> MPICO: BEST FULL PROPERTY SERVICES MALAWI 2018

For nearly half a century, MPICO has been a key player in driving Malawi’s private property development and contributing to the national economy. Formerly known as the Malawi Property Investment Company, MPICO engages in the development, rental, and management of commercial, residential, and industrial properties as well as consultancy services. The MPICO portfolio shows the company’s keen interest in shopping malls, office complexes, and hospitality spaces. MPICO has a customer base of around 300 tenants, including 102

government bodies, non-governmental organisations (NGOs), and corporate clients.

The company was established in 1972 to facilitate private funding to develop the country’s property infrastructure, and it issued an IPO in 2007 to further its original objective.

The IPO helped to broaden MPICO’s ownership base and gave the company access to capital markets — a distinct advantage for raising finance in the future. MPICO recognises the correlation between productive and profitable small- to medium-sized enterprises (SMEs) and CFI.co | Capital Finance International

a thriving economy. Its properties are home to many of Malawi’s SMEs, which MPICO also supports by outsourcing its services to them.

The company has a history of strong corporate citizenship, funding hospitals and collaborating with disaster-relief organisations. The CFI.co judging panel congratulates MPICO — whose 28-property portfolio is now valued at more than $47m — and presents the company with the 2018 award for the Best Full Property Services (Malawi).

Winter 2018 - 2019 Issue

> ASTON MARTIN LAGONDA: BEST ESG MANUFACTURING STRATEGY UNITED KINGDOM 2018

Aston Martin Lagonda is a symbol of British heritage that epitomises motoring prestige and elegance – and the company’s environmental, social, and governance policies have ensured a sustainable future for the luxury brand.

The iconic sports car company was immortalised by the daring exploits of the UK’s favourite fictional spy – but Aston Martin Lagonda’s Second Century Strategy goes beyond Bond. The strategy promotes responsible and sustainable economic growth – without compromising the opulent level of detail for which it’s famed.

As a signatory of the UN Global Compact, Aston Martin Lagonda’s Corporate Responsibility Strategy seeks to addresses

environmental and supply chain sustainability, community and stakeholder engagement, and the health and wellbeing of its employees.

The company has a long history in motor racing and continues in the tradition of transferring key racing technologies such as aerodynamics, lightweight materials and advanced powertrain solutions from the racetrack to the road.

Under its Second Century Strategy, Aston Martin Lagonda will launch seven new cars over a seven year period, including the company’s first SUV, first mid-engine sports car and its first electric vehicles (EV). The company outlined its EV plans earlier this year at the Genève Motor Show , where it announced the

company’s second brand Lagonda was to be relaunched as a Luxury EV brand. The company also intends hybrid or fully electric technology to be available for all its models by the middle of the next decade. In addition to electrifying its new products the company has announced plans to retrofit its classic cars with electric powerplants.

The CFI.co judging panel admires the company’s ability to combine sustainable growth with its vision of a zero-emissions future.

The judges also commend Aston Martin’s commitment to recycling, and its dedication to gender equality, outreach programmes, and flexible working arrangements. Aston Martin Lagonda takes the 2018 award for Best ESG Manufacturing Strategy (United Kingdom).

> INVEST IN MADRID: BEST REGIONAL FDI PROMOTION TEAM EUROPE 2018

Invest In Madrid, the regional office facilitating foreign investment in and around Spain´s capital city, is a public-private partnership between the Ministry of Economy, Employment and Finance of the region of Madrid and the city’s Chamber of Commerce. It has the remit to provide services to investors interested in installing or expanding businesses, supporting them at every step of the project. Madrid boasts the lowest tax burden of Spain’s 17 autonomous communities, thanks to the liberal economic policies of its regional

government, which is committed to backing private enterprise, reducing bureaucracy, streamlining the administrative processes, and removing obstacles to setting up businesses.

This dedication to promoting the capital as a business-friendly hub, boosting foreign direct investment, has paid off. The capital is now number seven in the global ranking of cities attracting most foreign investment. The 7,000plus foreign companies within its borders make up 39% of all those operating on Spanish soil,

and Madrid has the EU’s third-highest number of multinational headquarters. While the region comprises just 13.75% of Spain´s population, it boasts 16% of the country’s total number of businesses, with more than 500,000 registered companies calling it home. This outstanding level of service in ensuring an attractive and efficient environment for business to flourish led the CFI.co judging panel to present the 2018 award for Best Regional FDI Promotion Team (Europe) to Invest In Madrid.

> TOUCHÉ: MOST INNOVATIVE PAYMENT AUTHORISATION TECHNOLOGY EMEA 2018

Cash is no longer king, according to Touché, the revolutionary fintech company bringing payments to your fingertips. The Singapore-based company was founded in 2014 and has expanded globally, with offices in Barcelona, Tokyo, and Dubai.

Touché’s flagship product features biometricbased identification to facilitate hassle-free payment solutions and automate entitlement privileges. Touché matches a hardware device with a software package to enable customers to authorise payments with a two-fingerprint

biometric scan. Customers register by creating a Touché wallet, which consolidates the users’ payment methods — from credit cards to cryptocurrency — as well as loyalty rewards programmes. The device sports a secure biometric sensor that’s FBI-certified, and allows Touché to go beyond mere payment solutions. By combining industry and customer diagnostics, it gathers information for both sides. Customers can instantly claim points or discounts at the point of sale – without the need for vouchers CFI.co | Capital Finance International

or membership cards. Merchants can use the data analytics of consumer behaviour to compile comprehensive CRM databases, offer personalised recommendations, and create tailored rewards programmes. The CFI.co judging panel believes that biometrics will play a key part in the future of fintech, and applauds Touché for its pioneering spirit. The judges present the company with the 2018 award for the Most Innovative Payment Authorisation Technology (Europe, Middle East, and Africa).

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> Africa

Ambitious Morocco Determined to Bridge Two Worlds

In November, the first high-speed railway line of Africa went into service, linking Tangier and Casablanca via the country’s capital, Rabat.

Over the entire 350-kilomtre stretch, Al Boraq (named after a mythical winged creature) slashes journey times by more than half. The inaugural run was attended by King Mohammed VI and French President Emmanuel Macron, who boarded Al Boraq in Tangier for the 75-minute, high-speed ride to Rabat. Al Boraq can hit 320 km/h (200 mph). The first 200-kilometre (120-mile) section of the line between Tangier and Rabat cost $2.1 billion and took almost a decade to build. Between the capital and Casablanca, the train travels over the existing rail network at 160 km/h (100 mph).

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he Moroccan train travels at almost twice the speed of South Africa’s Gautrain, an 80-kilometre commuter line built (and partially completed) for the 2010 Football World Cup. The Moroccan line’s rolling stock is identical to France’s famous Avelia Euroduplex TGV, and was manufactured by rail expert Alstom.

The country’s national railway operator, Office National des Chemins de Fer (ONCF) acquired 12 trains, each capable of transporting 533 passengers. The trainsets comprise a string of eight cars, including a dining car and two first-class carriages. ONCF has also opted to incorporate the full two-level European Rail Traffic Management System to ensure safety standards.

According to ONCF director-general Mohamed Rabie Khlie, the company expects passenger volumes to double over the next three years – to around six million annually – to justify the investment. Khlie said that the new line would avoid network saturation, ease mobility issues, and help attract business to the country. He also noted that the Al Boraq investment amounted to a fraction of what it would cost in Europe.

More than just another train, Al Boraq is a statement: Morocco is open for business and moving fast. The country has invested in infrastructure, with modern motorways, expanded ports, and fully-featured free zones that have welcomed major automobile and aeronautics manufacturers. The government has introduced legislative reforms to encourage competition in the previously closed roadhaulage, aviation, merchant navy, and port services sectors. The investments have updated and expanded the physical assets that underpin the economy, and introduce new ways of doing business.

Morocco is now home to more than 110 companies serving the aerospace industry, collectively employing more than 11,500 people.

The Casablanca Free Zone, near Nouaceur, has been transformed in an aeronautics hub. Its dynamic environment and major players attract scores of corporates looking to tap into a readymade universe of engineering excellence.

French industrial giant Safran, present in Morocco since 2001, supplies Boeing, Airbus, and Dassault Aviation with about 140,000 wiring harnesses annually from its facility in Nouaceur. It recently announced that it will start manufacturing aircraft parts made of composite materials in a first for the country, and the continent. Safran’s steady expansion has led to the emergence of a local supply chain that allows to company to match production to demand, reducing response times. Canadian Bombardier also landed in Nouaceur, where it now produces the flight controls for its CRJ Series of aircraft. Morocco’s aerospace sector is booming, with annual growth rates exceeding 15%.

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"The growing number of free zones and the updated logistics infrastructure form part of a much broader development policy that seeks to leverage Morocco’s geographic location to build an economic bridge between Africa and Europe."

Inspired by this success, the Moroccan government in 2017 decided to replicate the formula and set up a high-tech hub near Tangier.

Mohammed VI Tech City will cover 2,000 hectares at an initial investment of $1bn. The project was unveiled last year and is primarily aimed at Chinese businesses that wish to gain a foothold close to Europe. In its first 10 years, the tech hub is expected to create 100,000 jobs – with 90% of the work going to the depressed northern region. With financial backing of the BMCE Bank, a Moroccan financial servicesprovider with a global footprint, the developers have received expressions of interest from Chinese companies.

The growing number of free zones and the updated logistics infrastructure form part of a much broader development policy that seeks to leverage Morocco’s geographic location to build an economic bridge between Africa and Europe. Several masterplans have been adopted that jointly aim to improve the local business climate, connect two continents, and transform the country into a regional leader, and a manufacturing and trading powerhouse. Morocco was readmitted to the African Union in 2017, after an absence of more than 30 years. With its African relationship sorted, the country is ready to take on the role geography has bestowed on it – that of a bridge between two continents.

Plans for an actual bridge spanning the 14 km that separate Morocco from Spain, or a combination of a bridge and a tunnel, have been in the works since as far back as 1979.

A binational Spanish-Moroccan entity has even been set up to study the technical feasibility of connecting two continents not just separated by a strait but also by a major, and active, geological fault. For now, this remains a $5bn pipedreambut, with Morocco’s raised level of ambition, it could just happen.

In barely 10 years, the country has stormed through the ranks of the World Bank’s Ease of Doing Business Index, from a lowly 130th to a respectable 60th place in 2018. In Africa, only the island of Mauritius (20th) and Rwanda (29th) gpt higher scores. Morocco is, however, determined to improve its standing further, and become Africa’s best place for business.

CFI.co | Capital Finance International

On the Global Competitiveness Index, compiled annually by the World Economic Forum (WEF), Morocco has moved into the number four African spot, after Rwanda (58), Botswana (63), and South Africa (61). Though it has a long tradition of economic stability, growth rates remained relatively low during the early 1990s and early2000s. Morocco managed to avoid the debt trap (the current debt-to-GDP ratio hovers around 67%, expected to peak at 70% in 2020) while maintaining strong foreign exchange reserves, estimated at $23bn.

Moving away from an economy supported mainly by agriculture – in a country with erratic rainfall – the government from 2001 opened the shielded domestic economy with a series of privatisations and legislative initiatives that ended state monopolies. A slew of public services was opened to the private sector, including the buoyant housing sector – which has benefitted from a series of fiscal stimuli that encourage developers to address the shortage of affordable houses.

A free-trade deal with the United States has been in force since 2006, while Morocco has gained advanced status in its relationship with the European Union, enabling high levels of political and economic co-operation. The country also forms part of the Union of the Mediterranean, an intergovernmental body representing the 43 nations that border the sea. In 2000, Morocco signed an association agreement with the EU that has now been expanded to include a fisheries partnership and an open-skies agreement; the latter civil aviation deal is the first of its kind the union signed with a non-member state.

Talks are now under way to expand the existing free-trade agreement to include services as well as agricultural produce. This follows years of disappointment, and a little resentment, after Morocco in 1987 formally applied to join the European Community – only to be rejected on the grounds that the country was not European.

Détente has taken hold, and in Europe’s Neighbourhood Policy (ENP) the country is widely considered the most reliable and stable of the EU’s partners. It is that stellar reputation which the government in Rabat now wishes to build on and monetise. i

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> Many Roles, Singular Dedication:

An MD with an Ongoing Mission

Managing Director: Christian Agossa

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RRH-UEMOA managing director Christian Agossa is a man with many strings to his bow.

Before taking his role as the MD of the Caisse Régionale de Refinancement Hypothécaire (Regional Fund for Mortgage Financing) of the West African Economic and Monetary Union (WAEMU), M. AGOSSA travelled and educated himself.

He is a graduate of Sciences Po in Paris (IEPECOFI) and Université Paris IX Dauphine, where he achieved a Masters of Applied Economics. He also holds a Postgraduate Research Degree in Applied Economics at IEP Paris.

Before coming back to serve his native continent, M. AGOSSA worked for world-class companies such as Louis Dreyfus SA Paris, Safic Alcan & Cie. He also gave finance and international economy classes at Universtié Paris IX Dauphine, and was involved in research projects at the European Institute of Business Administration (INSEAD).

CRRH-UEMOA is an institution M. AGOSSA has led from concept and creation through to its current, highly respected position, spearheading many of the company’s achievements. In addition to his main role, M. AGOSSA is also the current managing director of BOAD TITRISATION, a West-African Development Bank's subsidiary, which is active in promoting securitisation in WAEMU countries.

CFI.co | Capital Finance International

As a financial expert, the MD has advised successive presidents of the West African Development Bank as financial advisor / special advisor to the institution's president. He is also the president of the Advisory Board of Yeleen Financial Fund, a project he had initiated for the West African Development Bank and brought to fruition in 2017.

M. AGOSSA is a professional, organised and dedicated man who heads his teams with principles-centred leadership and a strong commitment to achieving professional goals – as well as helping his team members grow in all aspects of their lives. i

He can be contacted at cagossan@gmail.com.

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>

A Mortgage Refinancing Model that Does What It Says on the Tin

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n its six years of operation, the West African Economic and Monetary Union Regional Mortgage Refinancing Fund (CRRHUEMOA) has had a real impact on the spread of housing loans in the region.

Under the leadership of its general manager Christian AGOSSA, it has achieved a 108

sterling performance, and is completing its institutionalisation.

Created in 2010, CRRH-UEMOA is the fruit of co-operation initiated in 2005 by the Central Bank of West African States (BCEAO), the West African Development Bank (BOAD) and the Regional Council of Public Savings and Financial CFI.co | Capital Finance International

Markets (CREPMF) for the establishment of a mortgage market in the West African Economic and Monetary Union countries. Its mission is to offer UEMOA credit institutions that are shareholders long-term resources for the refinancing of mortgages granted to their clients, by mobilising these resources on the Union financial market or with development partners.

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CRRH-UEMOA is a financial institution set up as a public limited company with a board of directors. It obtained its approval as a bank financial institution on November 11, 2011, under the number T 0165 N. Its share capital is comprised of four institutional shareholders, the West African Development Bank (BOAD) – the first long term financing institution of the UEMOA; the International Finance Corporation (IFC), a subsidiary of the World Bank group responsible for the promotion and financing of the private sector; the ECOWAS Investment and Development Bank (EBID), an institution for long-term financing of ECOWAS; and Shelter Africa, a continental institution dedicated to the promotion and financing of housing in Africa.

Other shareholders include 55 commercial banks spread across the eight WAEMU countries.

Since July 2012, CRRH-UEMOA has mobilised a total of 132 billion FCFA (â‚Ź200,751,270) on the regional financial market, for seven bond loans issued on maturities of 10 and 12 years, for the benefit of 34 shareholder banks covering the eight countries of the union.

On the strength of the success of these seven previous bond loans, it issued its eighth bond loan, from October 30 to December 14, 2018, for an indicative amount of 30,000,000,000 CFA francs, in two tranches called "CRRH-UEMOA 5,95% 2018 -2030", in the amount of 25,000m FCFA at the interest rate of 5.95% over a maturity of 12 years and "CRRH-UEMOA 6.05% 2018-2033" in the amount of 5,000 M FCFA, bearing an interest rate of 6.05% per year, net of taxes in all UEMOA countries, with a maturity of 15 years.

This is the first time that a borrower has tried to mobilise resources at 15 years maturity in UEMOA countries.

This loan will bring the total resources mobilised for housing by CRRH-UEMOA to 162 billion FCFA , for the refinancing of 35 shareholder banks of the UEMOA zone.

"Under the leadership of its general manager Christian

CRRH-UEMOA has been rated since 2015

by Bloomfield Investment Corporation. In 2018, it obtained AA + long-term, with a stable outlook, against AA, a positive outlook, in 2017.

AGOSSA, it has achieved a sterling performance,

These ratings make CRRH-UEMOA one of the safest propositions of the UEMOA.

and is completing its institutionalisation."

CRRH-UEMOA motto: "Let's finance together the access to property for all." i

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> Economic Development Board of Madagascar

Andry Tiana Ravalomanda: Moving Away from Boom-Bust Cycles Towards Sustainable Growth Madagascar has barely merited a glance from the global investment community, apart from a few mining conglomerates which are eyeing the country’s vast, yet largely undisturbed, deposits of chromite, nickel, copper, bauxite, cobalt, and other minerals.

T

he island nation remains relatively unknown outside its immediate vicinity, but, as the source of around 80% of the world’s vanilla, almost everybody will have enjoyed a taste of the country.

Vanilla prices have gone through the roof over the past five years, jumping from barely $10 per kilo in 2013 to more than $500 – more valuable than silver.

Hidden Gems: Madagascar

Bad harvests, spiralling production costs, and wild speculation have contributed to boom times in Sava, the region hugging the northeastern shore of the country where vanilla, a flowering orchid, is traditionally grown. Here, groves have been placed under armed guard to thwart thieves. Prices that farmers fetch for their crop amount to a pittance. In most cases, the trading houses in faraway Antananarivo, Madagascar’s capital city and economic hub,

pay growers only around 10% of the amount importers in Europe and North America are willing to spend.

In The Financial Times, the local representative of the International Monetary Fund (IMF), Patrick Imam, compared Madagascar’s vanilla boom to the dreaded Dutch Disease – a curse brought on by complacency resulting from an unexpected resources bonanza. Hundreds of farmers have abandoned other crops that feed the local population, hoping to strike it rich with vanilla, all but ensuring the market will crash soon. It takes about four years for a vanilla tree to attain a commercially viable yield.

The boom may be traced to a change in consumer behaviour in the developed world.

Yearning for honest food and demanding to know its provenance, consumers in Europe and

Andry Tiana Ravalomanda (center, facing) and team talking to CFI.co

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North America have forced manufacturers such as Nestlé and Hershey’s to replace the synthetic flavouring in their products with the real thing. Though vanillin, the chemical aromatic compound previously used, is indistinguishable from natural vanilla, the demand – coinciding with crop failures due to extreme weather events – has caused prices to spike.

MIXED BLESSING The vanilla boom has so far proved a mixed blessing to Madagascar, which tries to tap into sustainable and more dependable forms of long-term national development. In 1989, the country embarked on a course to entice investors to its shores via export processing zones (EPZs), where light industry – mostly textile – can benefit from low labour costs, tax breaks, and quota- and tariff-free access to the EU under the terms of the Lomé Convention.

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That economic opening delivered good results, but successive governments have been hesitant to introduce the necessary reforms to clear the way for sustained growth. The country remained subject to swings in its fortunes. While GDP contracted by over 12% in 2002 due to a political crisis, the next year it barrelled ahead with 10% growth.

WHERE IS IT? Ravalomanda emphasises that his country is determined to become a modern nation. “We have identified a number of prime sectors that are ready to receive investments and promise good returns, such as tourism, IT, renewable energy, mining, and infrastructure,” he says.

With a domestic market of around 24 million, nearly all of whom own a micro-business of sorts, the country boasts an entrepreneurial spirit.

Madagascar represents the ultimate pioneer market where early arrivals may catch a ride on the long – and profitable – way up.

Both the IMF and World Bank agree that Madagascar’s economy will grow at annualised rates in excess of 5% for the foreseeable future – possibly higher, if the government can tap into the resources provided by the international community. Madagascar is the new darling of the global development community – the country most experts seem excited about as a prime candidate for accelerated growth and sustained development.

Ravalomanda is mobilising Madagascar’s diplomatic network to spread the word, rally interest, and organise roadshows. “We are looking for businesses that can have a real impact on our national development. We are also looking for companies that want to partner with Malagasy business to establish a long-term presence in the country.”

ACCESS TO LARGE MARKETS The island nation offers investors access to buoyant markets along the East African shoreline, via its membership of the Southern Africa Development Community (SADC) and a recently celebrated free trade agreement with the East African Community (EAC). Madagascar has formalised an Economic Partnership Agreement with the EU, and was included in the US African Growth and Opportunities Act, giving it access to the world’s largest markets.

Tantely Rahoeliarivahy (Chairwoman of the Economic Development Board of Madagascar) discussing with CFI.co

EDBM is also charged with promoting the country’s attractive business climate, based on a legal framework that was thoroughly revamped in 2008 and allows for full-ownership of businesses and projects by foreign investors, as well as the unencumbered transfer of profits. All sectors of the economy have been opened to outside investors with the sole exception of telecoms, where foreign participation is limited to 66%.

The CEO readily admits that one of the main challenges is the country’s geographical isolation.

“Yes, we exist and, yes, we’re open for business.

This is not a cartoon movie but an actual place, with people conducting business – some of it actually very good.”

The economic development board is working to improve the business climate by slashing red tape and co-ordinating policies between ministries and government departments. There is a certain urgency to this mission as Madagascar fails to impress on the World Bank’s Ease of Doing Business Index, where it ranks 162nd of 190 countries. Its position on the Global Competitiveness Index, compiled and published annually by the World Economic Forum, is equally dismal. But looks can deceive, and in the case of Madagascar they certainly do. “We have set up a number of work groups to identify and address the issues facing business in our country,” says Ravalomanda. “This way, I’m certain that, before long, Madagascar will vastly improve its ranking.”

Via public-private partnerships, the Malagasy government has also begun upgrading infrastructure, laying more than 12,000km of fibre-optic cable and building large-scale hydropower plants. Some companies have already spotted the opportunities.

Some large mining projects are being implemented, with a total investment of more than $5bn.

While perhaps not suited to timid investors, fund managers and corporates looking for exceptional yield have begun to pay attention to Madagascar, identifying a land of opportunity where they may still get in on the ground floor. Very few places in the world offer similar opportunities for sustained growth. i

Most promising investment sectors: Mining // Infrastructure // Tourism // Technology // Agribusiness CFI.co | Capital Finance International

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Hidden Gems: Madagascar

However, those times are long-gone, and most political parties agree that Madagascar must now pursue policies that ensure long-term equitable growth, powered by foreign direct investment.

To that end, the Economic Development Board of Madagascar (EDBM) was set up, tasked with streamlining the investment approval process and offering corporates a single point of contact with all levels of government. “The main topics that businesses struggle with include access to finance and building capacity. A third one concerns taxation which we have addressed with changes to the tax code,” says EDBM CEO Andry Tiana Ravalomanda.

According to the EDBM, the country boasts important competitive advantages, such as low land and utilities costs. Madagascar also boasts the second-highest average internet speeds in all of Africa. Ravalomanda says the government is determined to improve the business climate.

Recently, a comprehensive package of more than 20 structural reforms was enacted, with a view to eliminating bottlenecks from business and tax law, the courts, credit facilities, and other areas deemed essential for the creation of a welcoming and stable business environment.

> World Bank on Social Protection in Africa:

Burkina Faso Mobile Childcare Scheme Could Transform Public Works Children put to sleep on the ground, exposed to sun, wind and rain near dangerous construction sites – while their mothers work.

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omen without childcare facilities are falling ever deeper into poverty.

Their children are missing school and sometimes watching over even younger siblings. The mothers are on the brink of exhaustion, caring for their children and working day and night.

Public works programmes serve as an important safety net by providing temporary jobs to vulnerable households during adverse times.

Yet, despite growing recognition that inadequate child care is an important issue, few social protection programmes offer viable solutions. In Burkina Faso, however, an innovative approach to public works and childcare is functioning, and gaining attention in neighbouring countries.

Rebekka Grun, project leader of the Youth Employment and Skills Development Project, explained this innovative World Bank project to help readers better understand the potentially transformative impact such projects can have when they incorporate gender- and childsensitive features.

“In 2013, the World Bank launched the Youth Employment and Skills Development Project,” she said, “which supports over 46,000 young people through temporary work opportunities.

Through a labour-intensive public works component, participants—most of whom happen to be women—are trained and recruited for six months at a time in jobs such as building roads, environmental projects and cleaning.

“You see, Burkina Faso is one of the poorest countries in the world, and it is often hit by climate and other shocks. Public works provide an important lifeline for many.”

Mobile childcare provision was not initially included in the design of the project. But during a field mission, the team noticed that many of the public works participants brought their young children to their work sites because they lacked stable child supervision arrangements.

The children were next to active construction sites without any protection at all. Some would organise ad hoc care by having one mother watch all the children under a nearby tree – but with no stimulation or distraction for the children.

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"Some mothers will take on jobs that pay by results, and work throughout the night when their kids are asleep – only to return at dawn to take on household chores."

“In this context, where women of working age can have, on average, 5-7 children, it quickly became clear that we had to do things a bit differently,” said Grun.

Public works serve a good purpose. But they are not always the right environment for children, even when their mothers are nearby. “We heard about a past case in a separate project (not IDA funded), where a child fell into a metal bucket and did not survive. When children are injured or permanently disabled on-site, the very public works projects that are supposed to help families avoid poverty can instead increase the risk of poverty and suffering. We have not had any such experiences on our projects and want to make sure it is avoided elsewhere too.”

Female employment is often discussed, but less is said about the need to ease the burden on the mother and her children, Grun says. “Women in our client countries face difficult trade-offs between providing care for their children and providing economically for them. The coping strategies are seldom good. Older sisters are often called on to watch younger siblings – and miss out on their own childhood and schooling.”

Some mothers will take on jobs that pay by results, and work throughout the night when their kids are asleep – only to return at dawn to take on household chores. “So we decided to develop a solution that would encourage women’s participation in project activities, while allowing mothers to nurse their babies and provide meaningful care and stimulation for the children.

“Since public works involve short-term projects, the solution was to provide mobile childcare (creche mobile or garderie ambulante in French).

CFI.co | Capital Finance International

A project team conducted focus groups and interviews with public works participants, analysed the results and hired a regional early-childhood development expert. Although formalised child care was sometimes available, it was often unaffordable for the women concerned. It was also often located too far from the public works sites. Remote child care was not an option, especially for those with babies that needed to be breastfed.

The team then developed a model of formalised mobile childcare that would follow women as they move from worksite to worksite. The idea was that it would be built using existing tools and services to a maximum, and by working with local partners – for cost-effectiveness and for sustainability. The proposal was shared with ministries and local partners – and it met with universal approval.

Burkina Faso’s Ministry of National Education (in charge of 3-6 educational content) was particularly motivated as it had long been seeking to widen its pre-school network.

Specialists from the Ministry of Women, National Solidarity and Family (in charge of 0-2 educational content), worked closely with the team. “Together we ensured that toys used complied with the Burkinabe standard toy list for preschools, and provided a stimulating programme based on the national preschool curriculum, which was amended for the needs of also younger children,” says Grun. Parenting educational content – that had been previously developed and used for the World Bank’s Burkina Faso Social Safety Net project – was also incorporated into the programme.

The pilot also created a new public works stream. New jobs were created and women were trained as childcare assistants. Given that participants potentially use the childcare service for up to six months at a time (given the standard work-term), the project team reached out to the Ministry of Health and worked with local health centres. “We put in place a mechanism to monitor the health of children and ensure that they were vaccinated.” Local health specialists visit the mobile centres to check vaccination records and set-up appointments.

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• Provides protection from the elements.

• Guarantees breast-feeding breaks and improves nutritional outcomes, minimising risks associated with mixing formula with unsafe water.

Women’s Agency: • Improves women’s bargaining power within the household.

• Parental training emphasises the rights and needs of women within the households, especially when pregnant and nursing.

• Ensuring female participation in public works could improve prospects for future projectplanning.

Before mobile childcare: unattended child

Parents are also educated about where they can get free nutritional supplements for their families, and on child nutrition and general child care. The parental training materials used for the Social Safety Net project were successfully reused for this project. The mothers are offered information on topics that make the interventions more sustainable. Breastfeeding is encouraged, and opportunities to breastfeed are provided at the public works sites.

In the six months that public works projects usually last, the creches mobiles will set up under a tree, or in an empty building offered by the local authority. Unicef donated a series of large tents designed specifically for children that protect against sun, dust, inclement weather and potential accidents. Local communal vehicles (usually one of the innovative “tricycles” – hybrids of motorbike and pick-up truck) transport the materials. All the materials are weather resistant, and in one location the local community has provided a climbing structure.

“This model can easily be replicated at a very low cost. In fact, we plan to produce a ‘how-to-setup-mobile-childcare’ video,” Grun says. “Since public works is a temporary phenomenon, the mobile childcare follows women as they move from work site to work site. It has shown us that it is very feasible to, at an extremely low cost, set up a sustainable system that works with existing services and benefits society at large – also after the bank’s project leaves. You get ‘big bang for the bucks’ as they say.”

This project helped create a new stream of jobs, with carers receiving the same wages as other workers. These jobs are often offered to pregnant beneficiaries or those unable to participate in manual labour. The project team, noting that many caregivers hold very basic levels of education, developed a system of training and support. The caregivers are trained by the Ministry of Education’s specialists with expertise in early childhood development. Women that show particular talent and dedication are offered an extra six months of employment in order to teach yet another cohort of children.

Care work is often unpaid but by Creches Mobiles shifting care work from the unpaid domain into the paid domain, it comes with the added benefit of raising the prestige and profile of this kind of work.

There are many ways that the project brings benefit. And what would be the cost and implications be of not providing care, Grun asks.

Ex ante we would expect a variety of positive effects, which can be broadly grouped into (i) women’s work and productivity, (ii) children’s human capital and (iii) women’s agency.

Women’s Work and Productivity: • Frees up women’s time so that they can work productively. Evidence suggests that where childcare is available, women’s labour force participation is higher • Makes husbands comfortable to let their wives work. They know their children will be well caredfor and receive developmental content.

• Contributes to reversing any biases when men and women are selected for Public Works participation. In theory, participation should be completely random, based on a lottery. In practice, local authorities have enforced quotas for men in varying degrees, sometimes claiming the nature of work was less suitable for women.

• Creates a new line of work and skills developing opportunities for women.

• Improves status of childcare work, often unpaid and rarely acknowledged as “work”.

Children’s Human Capital: • The early childhood content and play-based stimulation enhances the development of children and prepares them for school. Evidence suggests that the first five years are the most important for cognitive development and ultimately impact lifetime opportunities, such as income.

• The vaccination of children will not only protect the children but can reduce contagious disease transmission to other family and community members.

• Improves the educational outcomes of older siblings by freeing-up time that would otherwise have been used to care for siblings.

CFI.co | Capital Finance International

There has been no impact evaluation of the Creches yet, but the team has conducted interviews and focus groups and will repeat this data gathering. “The first wave of qualitative data gives us insights into the views and values of the mothers and fathers working on the sites,” says Grun. “We also plan to run a randomised controlled trial of the creches and evaluate their impact.”

So what are the lessons learned from this project? “First, and most importantly, it is feasible to set up mobile childcare from existing services with some additional ingredients and effort,” Grun says. “It is economical, and parents have shown a willingness to contribute, despite their constraints. The mothers contribute a modest amount monthly, which is held in a collective mobile pay account and used to buy the ingredients for daily food preparation for the kids.”

Some funding for this pilot is being provided through the World Bank financed project budget.

It should be mentioned that the World Bank's Early Learning Partnership (ELP) and its Umbrella Facility for Gender Equality (UFGE) financially contributed to the project, while, logistical and organisational support is contributed by local partners. Additional costs have been low, because much of the provision rests on existing public service providers from education, health and social protection. Service integration can be achieved with limited financial resources.

Early lessons indicate that it can be replicated in different contexts, such as agriculture projects, refugee camps, outdoor work sites in general.

Although the country context may vary, certain things remain the same and certain existing materials can be reused across countries, with slight modifications. There is no need to reinvent the wheel.

The concept has already been shared, with two pilot sites having started in Cameroon in October this year. Following a 10-day study tour in Burkina, the Project team in Cameroon has attempted a three-month pilot version of the Creches Mobiles in a fragile area. They will also benefit from the help of regional ECD specialist Professor Oumar Barry, who helped configure 113

True Kindergarten Cop: The supervisor of the Creche of Manga. He has taken on the developmental content and sensitises Creche users and community about essential family practices such as handwashing.

and organize Burkina Faso’s Creches Mobiles.

Madagascar is also interested and starting a pilot.

“I’d like to emphasize again that it is all about working with local partners,” Grun says. “In our case, local authorities support the activities through logistical facilitation. To maximise impact, we worked through government counterparts, and closely with other development partners. This is a project that can be replicated.”

After witnessing the work of the creches, it is valid to ask: Why didn’t this happen before? “I believe the project made a crucial difference by giving women, youth and children a voice,” says Grun. “Women, young girls and children are the primary beneficiaries of the creches, but they do not have prime agency. They have the least political power.

“And this may be the one danger when it comes to sustainability: the power differences. These stakeholders’ plea may simply be forgotten when other people sit at the table and make the decisions. Even though the most powerful may care, it may not be the first thing on their radar.”

Donor partners must stay involved to strengthen the key stakeholders, to make workers’ and 114

children’s voices central to the daily running of public services. This includes sensitising and strengthening especially the community, “which needs to be 100% onboard, as they will ultimately be the hosts and drivers of the public works”.

But regulation may stifle this type of creche, Grun warns. “I know that the Djibouti Social Protection And Jobs team has thought about this in the past, but they ran into stringent regulatory requirements. This is an issue in countries of all income levels, including high income.

Some have explicitly legislated for a second or third tier of childcare that differs from a fivestar professionally staffed creche with a heavy infrastructure footprint.”

Human Development. Before that, Grun was an advisor to the World Bank group president, and led her sector's re-engagement in the Middle East/North Africa after the Arab Spring. Prior to joining the bank, she worked on the UK Prime Minister’s Strategy Unit and consulting. She has guest-lectured at Stanford and Georgetown, and received awards for her research and policy design work – some of which she has presented on international television. Her researchgate.net presence has several times ranked the most-read in her department. Rebekka Grun holds a PhD in Economics from University College London and a lic.oec. from St. Gallen.

“Regulation can be tricky, but the law usually has some explicit or implicit wriggle-room.” i ABOUT REBEKKA GRUN Rebekka Grun von Jolk is an economist with 20 years of experience working on the design, appraisal, implementation and evaluation of policies. Grun has worked with the World Bank since 2005, currently as team leader for Social Protection in the Africa region, and sometimes acts for the Chief Economist for CFI.co | Capital Finance International

Rebekka Grun

Winter 2018 - 2019 Issue

> Q & A with the Fidelis Finance CEO, Abdoulaye K Sory:

Knowhow, Quality of Service and Good Partners Recipe for a Successful Finance Operation CFI.co: How far along have you come?

Sory: Fidelis Finance was established in 1997 and started operating in 1998 as a non-banking financial institution. Today, the company is recognised as one of the leading independent leasing companies in the West African Monetary Union (WAMU). Fidelis Finance is committed to financing economic growth by providing through leasing, factoring and other innovative financial services, the facilities necessary for the successful development of Small and Medium Enterprises (SMEs).

The evolution of the company was also marked by the widening of the range of financial products offered to its customers as well as by the reinforcement of the capacities of the company through a successive increase of the share capital from XOF500 million to XOF1tn million then to XOF4,6tn, and recently to XOF6tn (€9.15m) with the entry into the shareholding group of worldclass shareholders. In the past seven years, Fidelis financed 2,832 entrepreneurs’ projects for over XOF 120,000 (€183) million in five countries: Burkina Faso, Côte d’Ivoire, Mali, Benin and Togo.

CFI.co: What are Fidelis Finance’s key success factors?

Sory: They are mainly three: knowhow, quality of service, strong partners, and a high level of reporting standards. Fidelis F inance is striving to provide outstanding and quality services, and relies on a team of about 35 skilled professionals with experience in leasing, factoring and banking.

The company has gone from humble beginnings to establish itself as one the uncontested leaders in the SME-financing sphere in West Africa.

CEO: Abdoulaye K Sory

Fidelis finance supports a wide range of economic sectors such as agriculture, manufacturing, services, IT, transport, hospitality, energy and healthcare. Thanks to its positive, profitable relationship spirit, Fidelis Finance has been able to attract world-class investors and financial partners which include BOAD (West African Development Bank), BIDC (ECOWAS Investment and Development Bank), FSA ( African Solidarity Fund), ADB (African Development Bank), FMO, BIO and EIB as well as national bodies such as AfriCapital Partners, the FBDES and SUNU Insurance Group.

As an independent entity, fidelis finance is not tied to any bank or institution. Its neutrality vis-

a-vis the banking bodies allows it to draw from all possible funding-offer sources and improve its opportunity to finance SME needs.

to a cleaner environment and sustainable development. Last, but not least, Fidelis Finance maintains a close relationship with its investors.

CFI.co: Which regulatory body does Fidelis Finance belong to, and what are your environmental requirements ?

CFI.co: What about your company core values ?

Sory: Acting under banking law, and controlled by the West African Central Bank, the Commission Bancaire, Fidelis Finance is bound by by a strict code of conduct and high ethical standards and confidentiality. The company is continuously working to improve the environmental and social performance of its clients, contributing CFI.co | Capital Finance International

Sory: Fidelis Finance's mission is to constantly push the limits of its capabilities to provide companies with the best-adapted financial services to enhance competitiveness. The company's overall objective is to become a reference financial institution in West Africa, which contributes to the creation of value and jobs through a range of financial services adapted to the financing of company' competitiveness. i 115

> Fidelis Finance:

Celebrating 20 Years at the Service of SMEs in West Africa In its 20 years of existence, Fidelis Finance has had access to high-achieving entrepreneurs and – with their trust – played an important role in their companies.

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usiness and SME managers, liberal professionals and artisans have indeed trusted Fidelis to finance their growth projects. Year-in, year-out, the company has built a relationship on a loyalty pact. This mark of trust is an asset that forces the company to continually adapt to the needs of its customers. Fidelis Finance has gradually adapted to the needs of its customers by financing SME projects to the tune of some XOF120,000 million (€183 million).

As part of its strategy to conquer new market segments abroad, the company made a name change from Burkina Bail to become Fidelis Finance in 2015. Despite the challenges encountered – resource mobilisation and market competition – Fidelis contributed to the strengthening of the Burkinabè financial market and the improvement of the access rate of SMEs to bank financing. This was made possible by the vision of CEO Abdoulaye K Sory, the commitment of his team, and the trust of its partners.

The 2017 financial year marked the first implementation of the 2017-2021 business plan, called Elan 2021, which sets the mediumterm development guidelines for the group. It defines the objectives of activities, what needs to be carried out by the general management, and the means for it to be mobilised. It plans firstly to increase its assistance to SMEs by 25% each year, through the improvement of operational efficiency, and secondly to aim for an average rate of return of 12% over the period – and a balance sheet of XOF128bn by 2021.

The company also increased its share capital by 31% to XOF6 tn. These objectives, compared to the forecasts of the 2017-2021 business plan, show the level of execution, and augur good prospects.

"Year-in, year-out, the company has built a relationship on a loyalty pact."

The fiscal year 2018, which marks the 20th anniversary of Fidelis Finance, is also a special year for the company, in view of the major projects currently under way and new projects to be launched. These include the migration to a new information system, a switch to a new business software, the implementation of reforms induced

by Basel II and III, the new prudential ratios and the start of construction work at the company's head office.

In addition to the company's commitment to meeting the challenge to ensure its continued growth, it will seize the opportunity of its 20 years of existence at the service of private entrepreneurship to celebrate the loyalty pact with its customers, its shareholders, partners and collaborators. i

In 2017, the institution consolidated its achievements and improved its key performance indicators. The growth rate of the portfolio was 45%, thanks to a 30% increase in new loans.

The volume of loans to SMEs increased by 25% to almost XOF16tn. Loans to SMEs represent 57% of all its loans in 2017. Net profit after tax was XOF756m, up 86%, following the first profit result recorded by the Côte d'Ivoire branch.

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CFI.co | Capital Finance International

Winter 2018 - 2019 Issue

> PwC Nigeria:

History and Evolution of Federal and State Policies in Nigeria

Nigeria’s federalism can be traced to its pre-independence constitution, particularly the 1946 Richards and 1954 Lyttleton constitutions.

A

t that time, Nigeria was made up of three regions (Eastern, Northern and Western regions) and the central government (Centre). The Mid-Western region was later created in 1963.

According to Colonel Oliver Stanley, then Secretary of State for the Colonies, on the 1946 Constitution: “Anyone who knows Nigeria will agree that the whole history and geography of Nigeria are such as to make decentralisation essential. They never were, before the British administration, an entity. They consisted of three great separate communities, with different languages, different governmental systems, different traditions and different religions. The proposal of this new Constitution is that while the Legislative Council at the centre should keep, as this House does, a general control over all matters in Nigeria, and should be responsible in the last instance for the passage of all legislation, there should be in each of these three groups, the Northern Provinces, the Western Provinces and the Eastern Provinces, a separate House of Assembly; that in that House of Assembly should take place a preliminary discussion of all Bills affecting that region; and further, that each House of Assembly should have a large measure of financial responsibility, and should have its own regional Budget for regional matters, which it would be entitled to criticise, amend and to pass.”

This formed the basis of Nigeria’s subsequent constitutions, where in the 1950s and early 1960s, the regions had control over their resources and could fund projects and infrastructures. A case in point is the old Western region, then able to fund free education, construct roads, industrial estates, the first TV station in Africa, the tallest building in Nigeria and other infrastructure while surrendering 50% from mining proceeds to the centre.

As time went on, states were carved from the regions and power become more concentrated at the centre. Currently, Nigeria is made up of 36 states and a Federal Capital Territory (FCT).

NIGERIA’S CURRENT CONSTITUTION Under the current federal structure, the 1999

"Some states are of the opinion that the horizontal sharing formula is not equitable because states generating less VAT are entitled to a large portion (50%) of the overall VAT based on Equality."

Constitution shares legislative power between the Centre (federal government) and the states.

An Exclusive List in the constitution sets out 68 items (such as customs, excise, taxation of incomes, profits and capital gains etc.) over which the federal government has exclusive competence to legislate. There is also a Concurrent List containing 30 items which sets out items (such as electricity, education etc.) over which both the federal and states have shared competence to legislate.

Where the federal government makes laws in respect of an item on the Concurrent List, the states are precluded from making any laws inconsistent with the laws made by the federal government in respect of that item. This is the doctrine of Covering the Field, which aims to avoid conflict and confusion that may arise from multiple laws on the same item. It emphasises the superiority of the Centre in a federal structure.

TOO MUCH POWER AT THE CENTRE Many would agree that Nigeria’s federalism is far from perfect. The major criticism is that the Centre holds too much power at the expense of the states, leaving them largely dependent on the federal government for their economic development and growth. For example, the Exclusive List contains items such as: • Labour, including trade unions, industrial relations; conditions, safety and welfare of labour; industrial disputes; prescribing a national minimum wage for the Federation or any part thereof; and industrial arbitration (item 34); • Mines and minerals, including oil fields, oil CFI.co | Capital Finance International

mining, geological surveys and natural gas (item 39); • Patents, trade marks, trade or business names, industrial designs and merchandise marks (item 43); • Stamp duties (item 58); • Taxation of incomes, profits and capital gains (item 59) Only the federal government can exclusively legislate over these items. But these items are so germane to the economic development of the states that denying them the opportunity to legislate over them is a direct denial of their ability to self-determine their economic progress.

Of the 30 items on the Concurrent List, the federal government wields legislative power over 80%. However, Item 18 gives states power to make laws with respect to industrial, commercial or agricultural development of the State. This is a quite broad. Sectors of the economy such as taxation, intellectual property, mineral resources etc within states are intrinsically tied to the industrial and commercial development of states. It appears the Exclusive List, by its express provisions, denies the states from taking full advantage over item 18 thus hampering the states from taking full responsibility for their economic development.

About two-thirds of states rely on monthly allocations from the federal government. In 2017, all but four states were reliant on monthly allocations from the federal government to pay salaries, pensioners and meet their daily expenses.

Examples of the skewed distribution of legislative and economic power are discussed in more detail below.

TAX Taxation of Individuals Item 59 of the Exclusive List gives the federal government exclusive power to legislate on the taxation of incomes, profits and capital gains. The import of this is that only the federal government can impose tax on “income” of companies and individuals. This is consistent with Items 7 - 10 of the Concurrent List, which restrict states’ powers to merely collecting tax.

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Zones (states)

Minerals

1

North Central

Barite, Clay, Coal, Gemstone, Gypsum, Iron-Ore, Lead/Zinc, Limestone, Marble, Salt, Dolomite, Feldspar, Kaolin, Talc, Tantalite, Cassiterite, Columbite, Feldspar, Gold, Mica, Amethyst (Topaz Garnet), Barytes, Barite, Chalcopyrite, Columbite, Coking Coal, Galena, Limestone, Sapphire, Talc, Tourmaline Quartz, Zircon, Bauxite, Bentonite, Bismuth, Emerald, Fluoride, Granite, Molybdenite, Pyrochlore, Tin & Wolfram

2

North East

Bentonite, Gypsum, Kaolin, Magnesite, Gold, Cassiterite (tine ore), Columbite, Wolfram, Coal, Limestone, Lignite, Iron-ore, Clay, Diatomite, Hydro-carbon, Gemstone, Soda Ash & Tintomite.

3

North West

Butyles, Amethyst, Aqua Marine, Asbestos, Clay, Fluorspar, Gemstone, Gold, Graphite, Kaolin, Hyalite, Mica, Rock Crystal, Ruby, Sapphire, Stibnite, Serpentinite, Tantalite, Topaz, Tourmaline, Cassiterite, Copper, Glass-sand, Lead/Zinc, Marble, Salt, Coal, Cotton, Flakes, Granite, Gypsum, Kaolin, Laterite, Limestone, Phosphate, Potash, Silica Sand.

4

South East

Gold, Lead/Zinc, Limestone, Oil/Gas, Salt, Clay, Glass-Sand, Gypsum, Iron-ore, Lignite, Phosphate, Coal, Lead/Zinc, Lignite, Marcasite.

5

South South

Clay, Lead/Zinc, Lignite, Limestone, Oil/Gas, Salt, Uranium, Manganese, Glass-sand, Gypsum, Iron-ore, Kaolin, Marble, Coal, Limestone.

6

South West

Feldspar, Granite, Kaolin, Syenite, Titanium ore, Bitumen, Clay, Glass-sand, Gemstone, Limestone, Phosphate, Coal, Dimension Stones, Gypsum, Kaolin, Oil/Gas, Columbite, Talc, Tantalite, Tourmaline, Aqua Marine, Cassiterite, Dolomite, Gold, Marble, Sillimanite.

Figure 1: Minerals within states (zones)

In view of this, the Personal Income Tax Act (PITA), the federal law imposing tax on individuals, prescribes the tax rates to be a graduated band of 7% - 24%. It also prescribes the reliefs granted as well as type of income to be taxed. All states are bound to apply these rates and grant the reliefs because they do not have powers to legislate over taxation of income. It is ironic that states cannot determine the tax rate on individuals resident in the state, and must rely on rates imposed by the federal government.

Value Added Tax (VAT) Nigeria has a federal VAT system where the federal government imposes the tax and shares the proceeds amongst the three levels of government (federal, state and local government) in the ratio of 15%, 50% and 35% respectively (vertical sharing formula). There is also a horizontal sharing formula for VAT where the tax is shared amongst States in the ratio of 50%, 30% and 20% based on Equality, Population and Derivation respectively.

What if a state, for policy reasons, believes it is in its best interest to reduce the tax rates, adjust the bands or determine what reliefs are to be granted? A state may decide to exempt certain benefits in kind (e.g. accommodation) from taxation – possibly to encourage employers give more tax-free benefits to employees. The current arrangement does not permit this. The reality is that states need more autonomy over their tax affairs and fiscal/economic policies. This is because they bear primary responsibility for their economic development.

Some states are of the opinion that the horizontal sharing formula is not equitable because states generating less VAT are entitled to a large portion (50%) of the overall VAT based on Equality.

The opposing view is the concern that states may become arbitrary by increasing tax rates indiscriminately. This may not be the case as increasing taxes is no mean feat – a recently introduced Land Use Charge Law by Lagos State which was resisted by residents of the state, resulting in a part-reversal by the state government. States that increase taxes would need to justify those increases.

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While one of the objectives of the federal government is to redistribute wealth, this must be done equitably and fairly. According, to a statement credited to the former Minister of Finance, 87% of Nigeria’s VAT comes from four states and the Federal Capital Territory (FCT), while the balance comes from the 32 other states. The implication of this is that the four states including the FCT bear the burden of funding the other 32. According to a recent report, 30 states get an average of N700-900 million monthly, regardless of their contribution and huge differentials in population.

Allowing four states fund the entire nation is neither equitable nor fair. Allowing other states to benefit from the revenue generating states CFI.co | Capital Finance International

has the tendency to create a parasitic and rentseeking system. It encourages low VAT generating states to remain lazy, knowing that they would get a chunk of the entire VAT revenue based on equality – regardless of how little they generate.

In 2017, the VAT collection across states was: State VAT collection rate 1 - Lagos 55% 2 - FCT 20% 3 - Rivers 6% 4 - Kano 5% 5 - Kaduna 1% Other states barely have a VAT collection system.

This questions the rationale behind the current formula.

What is the incentive for a state to increase its VAT revenue when it knows it would get close to a billion Naira (ca. £2m) for contributing peanuts? Should VAT be a centrally administered tax or should states be allowed to introduce and administer their own form of consumption tax (intra-state) with the federal government limited only to administering a VAT on goods and services sold across states borders (inter-state trade)?

VAT vs Consumption/Sales tax Some states (Lagos, Kano and Rivers) introduced a Consumption/Sales Tax law similar to the federally administered VAT. Lagos State instituted a number of suits at both the Federal High Court and Supreme Court asking the court to uphold its Sales Tax law despite a VAT Act. All the suits were resolved against Lagos State. The courts held that Lagos State (and by extension, other states) does not have the right to impose any tax similar to the VAT because the VAT Act had covered the field. In recent times, Lagos States’ Consumption Tax Law is also under challenge in a pending suit. More recently, the Federal High Court nullified Kano State’s Consumption Tax Law for being inconsistent with the constitution and resulting in double taxation.

MINERAL RESOURCES Ownership of Mineral Resources All states in Nigeria have diverse mineral resources. But Item 39 of the Exclusive List vests exclusive power with the federal government to legislate on all mineral resources in Nigeria regardless of where they may be. Consistent with this, the Nigerian Minerals and Mining Act vests the entire ownership of mineral resources, wherever they are situated, in the federal government – leaving the states without any control over their mineral resources. Other legislation, such the Petroleum Act and the Land Use Act, vest title as well as all revenue from mineral resources in the federal government.

To compensate the states, section 162 (2) of the Constitution requires that states are given not less than 13% of the revenue derived from natural resources. The states think this is inadequate and want more. Pre-independence, 100% of the revenue from oil accrued in the region where the oil was derived. In 1963, the regions were entitled to 50% of the revenue from

Winter 2018 - 2019 Issue

"Before the discovery of crude oil in the 1950s, Nigeria’s economy was financed by export proceeds from cash crops such as cocoa, rubber, groundnuts and palm kernels. Since discovery of crude, successive governments have completely neglected these resources." oil while 30% was shared amongst the regions (including the region the oil was derived) and the remaining 20% was allocated to the federal government.

Besides petroleum products, no resources are mined in commercial quantities. Before the discovery of crude oil in the 1950s, Nigeria’s economy was financed by export proceeds from cash crops such as cocoa, rubber, groundnuts and palm kernels. Since discovery of crude, successive governments have completely neglected these resources. Vesting ownership of the mineral resources in the federal government, which has failed to exploit them, has resulted in waste as the states that should have primary responsibility for managing them are denied the opportunity. This, among other factors, has contributed to the under-development of states in Nigeria.

In instances where the government has exploited the resources such as crude oil, there have been questions of negligence by international oil companies granted rights to exploit. Such exploratory activities have often resulted in oil pollution, causing environmental degradation and crippling of commercial activities such as fishing and water transportation. This has often resulted in violent and non-violent protests with oil producing communities clamouring for resource control or restructuring. The argument is that the federal government is detached from these communities, and control of resources, pollution and environmental degradation would be better handled by the states.

ENFORCING FISCAL FEDERALISM THROUGH THE COURTS Some states have challenged the status quo in instances where they believe that legislative and economic power should be devolved. Examples include the Consumption/Sales Tax Law versus VAT, rights over state waterways (the court of Appeal held that states have powers to legislate only over intra-inland waterways), powers to create administrative units within states (the court held that states had the right to do this though inchoate until the constitution is amended).

THE CURRENT STATE OF STATES Many states have demanded bailouts from the federal government due to their inability to meet the salary and pension obligations of workers and retirees. The allocation to states from the Federation Account, to which all monies due to the federation are paid and shared among states, is dwindling because the states are heavily

indebted and must repay their loans. The states do not have robust machineries for revenue collection. Lagos, Ogun and Rivers record the highest internally generated revenue. The states with the lowest internally generated revenue are predominantly in the Northern part of Nigeria.

The reality is that most states are heavily indebted and look to the federal government for support. It has granted Budget Support Loans, loans under the Presidential Fertiliser Initiative and the Universal Basic Education Commission fund to states at different times.

BETTER FISCAL FEDERALISM The current constitution is an example of how legislation can stifle development and growth of states. When states suffer, the nation suffers.

States’ economic development is directly linked to their ability to legislate and regulate over their industrial, commercial and agricultural sectors.

States should be given more autonomy over their fiscal affairs and should not have to depend on the federal government for handouts. They should be given the liberty to legislate over intrastate industrial and commercial matters.

The first step to give states more power is to amend the constitution by revising the Exclusive and Concurrent Lists allowing states more freedom to determine their fiscal affairs. The federal government’s remit should be limited to national and inter-state matters. Its role should be limited to creating the enabling environment for the states to thrive, preventing double taxation by different states and generally regulating interstate trade and commerce. Once amended, other laws may have to be amended to conform with the constitution.

Amending the constitution would enable states legislate on taxation of individuals and consumption taxes. It would also vest states with ownership of mineral resources. This would help them manage, exploit and apply the proceeds directly for their benefits. The federal government may earn a royalty from these, but the bulk of the proceeds must be for the benefit of the states.

CONCLUSION: WHO WOULD WATCH THE WATCHMEN? A concern is that state governments, when given more powers, may be susceptible to abuse of power. To address this, federal legislation would regulate economic and financial crimes – even if committed by state governments. Besides deterrence by criminal prosecution, states would be inclined to out-perform one another in terms of development. This would result in accountability and transparency.

CFI.co | Capital Finance International

In October, a Federal High Court affirmed the Economic and Financial Crimes Commission’s (EFCC) power to investigate state accounts. The EFCC is a federal government agency set up to investigate economic and financial crimes.

Under its enabling Act, the EFCC has broad powers to investigate affairs of any person, authority, corporation or company. Citizens have powers to vote-out irresponsible governments if their interests are not being represented as evidenced in recent elections in Nigeria. i ABOUT THE AUTHOR Folajimi Olamide Akinla is a Manager and Tax Lawyer in PwC Nigeria’s Tax & Regulatory Services unit. He writes regularly on topical legal and tax matters. His core interests are resolving complex legal and tax problems, advising on tax policy and private wealth matters.

He is a member of the Ministerial Committee on the Voluntary Asset and Income Declaration Scheme (VAIDS), Nigeria’s first full scale tax amnesty.

Before joining PwC, he worked in a law firm renowned for its dispute resolution practice.

He is an alumnus of Queen Mary, University of London (LLM, Tax Law) and the University of Lagos (LLB).

ABOUT PwC PwC Nigeria is one of the leading professional services firms in Nigeria with offices in Lagos, Abuja and Port Harcourt, over 1,000 staff and 31 resident partners.

"We are committed to serving as a force for integrity, good sense and wise solutions to the problems facing businesses and the capital markets. We are guided by one promise – to do what is right, be it with our people, clients, community, or environment."

Author: Folajimi Olamide Akinla

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> KenGen:

Six Decades of Development, Innovation and Diversification Kenya Electricity Generating Company PLC (KenGen) was incorporated on February 1, 1954, as Kenya Power Company (KPC), with the remit to build a transmission line between Nairobi and Tororo, in Uganda.

O

ver the past six decades, the firm has secured a choice position in the chronicles of the country’s electric power generation journey.

At the onset, the firm which was tasked to develop geothermal and other generating facilities in Kenya sold electricity in bulk and at a cost to Kenya Power under a management contract.

In 1996, following reforms in the energy sector, the management of KPC was separated from Kenya Power and renamed KenGen in January 1997. Nine years later, the Government sold 30% of its stake in the firm through an Initial Public Offering (IPO). In 2006, KenGen was listed on the Nairobi Securities Exchange (NSE).

Currently the company operates in a liberalised power generation environment and sells electricity in bulk to Kenya Power, which then distributes it to consumers.

KenGen owns 31 power generating plants with total installed capacity of 1,631 MW from diverse generation modes comprising hydro, thermal, geothermal and wind technologies. The firm produces about 75% of electricity capacity in the country using various sources including hydro, geothermal, thermal and wind power.

VISION KenGen’s vision is to be the market leader in provision of reliable, safe, quality and competitively priced electric energy in Eastern Africa region.

MISSION The organization's mission is to efficiently generate competitively priced electric energy using state of art technology, skilled and motivated human resource to ensure financial success.

“We shall achieve market leadership by undertaking the least expensive and environmentally friendly capacity expansion,” says CEO Rebecca Miano. “Consistent with our 120

corporate culture, core values will be adhered-to, in all our operations.”

Managing Director & CEO: Rebecca Miano, OGW

KenGen’s STRATEGIC FUTURE Energy production in Kenya is on a growth trajectory. The country has a mix of energy from sustainable and non-polluting sources such as hydro, solar, geothermal, thermal and wind power. KenGen has installed capacity as follows; hydro (818MW), geothermal (534MW), thermal (253.5MW) and wind (25.5M).

The company has a strategic plan, focusing on the production of geothermal power. Kenya is the first geothermal producer in Africa – and among the 10 largest electricity producers in the World.

KenGen is also prospecting for new hydro, wind and solar energy sites.

WELLHEAD TECHNOLOGY KenGen has put Kenya in the global map for the generation of clean energy. The company has pioneered new geothermal wellhead technology by tapping steam from wells that are undergoing tests or awaiting connection to permanent plants.

This technology is instrumental in enabling the company to use well- drilling equipment which would otherwise be idle. This technology has proved sustainable, urging KenGen on to its next phase of generation – in line with one of Kenya’s development blueprints, Vision 2030. KenGen has also successfully pioneered a geothermal health spa, one of a kind in Africa.

Operations Director: Solomon Kariuki

EMPLOYEES AND INNOVATION. The company has a workforce of more than 2,500 employees with experience in various disciplines.

KenGen’s success has been driven by the innovation journey under the Good-To-Great (G2G) Strategy promoting employee-driven innovations.

CORPORATE SOCIAL RESPONSIBILITY (CSR) KenGen aims to improve the social, environmental and economic wellbeing of society at large. The company sets aside one percent of after-tax profits for Corporate Social Responsibility (CSR) projects in education, environment, water and sanitation CFI.co | Capital Finance International

Finance & ICT Director: John Mudany

Winter 2018 - 2019 Issue

through KenGen and the KenGen Foundation, set up in 2012.

As an organisation accountable to stakeholders and the public, KenGen has been able to transform lives of community members in its areas of operation by providing scholarships, water, building schools and hospitals as well as environmental conservation.

ACHIEVEMENTS KenGen has constructed the largest geothermal power plant in the world and was the first to inject wind power to the East African grid. It drilled the largest geothermal well in Africa, and commissioned the first and biggest natural geothermal spa in Africa.

Corporate & Regulatory Services Director: Simon Ngure

It has implemented a community Resettlement Action Plan (RAP) for 1,181 project-affected persons in Olkaria, and diversified revenue streams through geothermal consultancy work and commercial geothermal drilling contracts.

It has institutionalised innovation through the company’s annual G2G innovation seminars.

SENIOR MANAGEMENT TEAM Rebecca Miano Chief Executive Officer, Rebecca Miano is responsible for the operational running of Kenya Electricity Generating Company PLC (KenGen), the leading producer of energy in Kenya and East Africa.

Miano safeguards the firm by ensuring its mission is achieved – and the efficiency of the business optimised. She is accountable for the company’s actions, security of resources and execution of the company’s corporate strategy for long-term competitiveness. Miano also represents the management’s position on the organisation’s board and chairs and supervises the Executive Committee (ExCo), comprising nine divisional directors.

Strategy & Innovation Director: David Muthike

She has held her position since October 2017.

Prior to her appointment at the helm, she was the company secretary and legal affairs director for nine years. Miano is a lawyer with an extensive career in law and corporate affairs, and has been key in spearheading KenGen’s corporate governance agenda, providing guidance and support to the board. She has acted as the secretary to the board, and all of its committees.

Miano is a registered Certified Public Secretary of Kenya, and a member of the Institute of Certified Public Secretaries of Kenya (ICPSK). She is also a member of the Law Society of Kenya (LSK). In 2010, she was awarded the Company Secretary Of The Year under the auspices of ICPSK Champions of Governance.

Geothermal Development Director: Abel Rotich

Miano holds a Bachelor of Law (LLB) Degree (Hons), a Diploma in Law and Post-Graduate Studies in Comparative Law. In 2018, she completed the Advanced Management Programme with Strathmore University.

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Solomon Kariuki Solomon Kariuki is KenGen’s operations director, in charge of maintenance of power plants and the availability of energy at optimised costs, as well as the rehabilitation and upgrade of plants.

All these functions are geared to improving efficiency and extending the operational life of the plant, as well as the continuous improvement and automation of systems to align with best practise.

Departments under Kariuki’s leadership include Eastern Hydros, Thermal, Upper Tana, Technical Services and Western Hydros.

Prior to his appointment as operations director in August 2016, Kariuki was KenGen’s technical services manager. Kariuki started off his career at Kenya Power over 20 years ago, as a trainee engineer. He has served in various positions before rising to his current role.

He has more than 28 years’ experience in the energy sector.

John Mudany Finance and ICT director John Mudany is in charge of capital raising, management of finances and banking relations, financial reporting, budgetprocess management and control, balance sheet restructuring and cost-saving mechanisms.

He is also responsible for the development of the IT infrastructure. Departments under his leadership include Corporate Finance, Finance, and Information and Communication Technology (ICT).

Mudany joined KenGen in 2008, and previously worked for Coca Cola as finance and performance manager. He is also a member of the Kenya Institute of Management (KIM) and Institute of Certified Public Accountants of Kenya (ICPAK).

Simon Ngure Corporate and Regulatory Services director, Eng. Ngure has more than 34 years experience in the energy sector.

He is responsible for drafting, negotiating and managing power purchase agreements (PPAs), environmental and social licensing and management processes. He oversees regulatory affairs, quality and safety, environment and CDM, and corporate and community affairs.

He is a Certified Energy Manager and a registered engineer. He is a member of the Institute of Engineers of Kenya and the Association of Energy Engineers of Atlanta, US. He is also the vice-president of the Association of Energy Professionals of Eastern Africa.

David Muthike Strategy and Innovation director David Muthike is a distinguished business strategist with experience in power sector strategy formulation and implementation. He is in charge of development and management of the company’s 121

strategy, identifying and steering execution of strategic initiatives and growth opportunities.

He drives innovation that develops new ways of meeting the company’s goals, leading and managing result-based performance and accountability. He also drives knowledgeharvesting and transfer across the business. He is responsible for Strategy, Business Performance and Innovation, and Knowledge Transfer.

He maintains “thought leadership” in power generation and related services.

Muthike holds a Bachelor of Science Degree in Electrical and Electronic Engineering, a Masters in Business Administration in Strategy, a PostGraduate Diploma in Project Appraisal and Management, and a Certificate in Advanced Management and Leadership Programme. He is also a graduate engineer with the Institute of Engineers of Kenya (IEK) and member of the Kenya Institute of Management (KIM).

Abel Rotich Geothermal development director Abel Rotich is a seasoned power-sector engineer with a wealth of experience in energy generation and geothermal resource development. He is in charge of geothermal resource assessment, drilling, steam establishment for power generation and operation of electricity power plants constructed within the geothermal area. He oversees the following departments; Geothermal Operations and Geothermal Resource Development.

He joined Kenya Power more than 30 years ago and has over the years risen through the ranks.

He previously was a manager in Thermal and Wind Power plants.

Rotich holds a Bachelor of Science Degree (Hons) in Mechanical Engineering, several project management courses and is a graduate of the Advanced Management Programme from Strathmore University.

Moses Wekesa Business development director Moses Wekesa is a registered project manager with more than 17 years’ experience across diverse economic sectors in Europe, Asia, the Pacific and Africa.

Since 2014, he has been responsible for driving KenGen’s core business of capacity expansion through planning and execution of projects and development of alternative revenue sources through new business. He also has experience in management of projects in the wide infrastructure sector. He is in charge of Project Execution, Capital Planning and New Business departments.

Wekesa has a Bachelor of Science Degree in Mechanical Engineering (Hons) from Jomo Kenyatta University of Agriculture and Technology (JKUAT), a Master of Science Degree in Mechanical Engineering (Applied Mechanics) from University of Nairobi, and a Post-Graduate certificate in Project Planning, Appraisal and 122

Financing from University of Bradford (UK).

He has also undertaken various leadership programmes and is a graduate of Advance Management Programme from Strathmore Business School.

Philip Yego Supply chain director Philip Yego is a supply chain management expert with vast experience in the industry. He joined KenGen in October 2014, and is charged with the responsibility of overseeing the efficient operations of the supply chain function of the company, which includes management of tenders and contract, inventory and logistic and supplier relationship. He is also responsible for tenders, contracts, compliance, fuel and general purchases, spares and commodities, planning and inventory.

Business Development Director: Moses Wekesa

At KenGen, he oversees the Tenders and Contracts and Inventory and Logistics Departments.

He has a Bachelor of Arts in Economics, a Masters in Business Administration in Finance, a diploma in Purchasing and Supplies from the Chartered Institute of Purchasing and Supply (UK) and a Diploma in Purchasing and Supplies Management from Kenya Institute of Management (KIM). He is also a member of KIM, Kenya Institute of Supplies Management (KISM) and Chartered Institute of Purchasing and Supplies (MCIPS).

Abraham Serem Human resources and administration director Abraham Serem is a seasoned human resource practitioner with extensive experience in Kenya and East Africa. He joined KenGen in March 2016 and is responsible for human capital planning, recruitment, development, performance management, reward and wellness.

Supply Chain Director: Philip Yego

He is also in charge of employee relations and management of the organisation’s transport and logistics. Departments he oversees are Human Resources, Performance and Change Administration.

He holds a Bachelor of Arts Degree from the University of Nairobi, a Higher National Diploma in Human Resource Management and a Diploma in Intermediate Executive Coaching from the Academy of Executive Coaching. He is a member of the Institute of Human Resource Management.

Human Resource & Administration Director: Abraham Serem

Paul Ndungi Company secretary and legal affairs director Paul Ndungi’s career spans more than 17 years. He has worked in various companies including I&M Bank Limited and Ecobank Limited. Before joining KenGen he served at Barclays Bank of Kenya Limited as the Company Secretary and Senior Legal Counsel.

He holds a Bachelor of Law (LLB) from the University of Nairobi, a diploma from the Kenya School of Law, and is an advocate of the High Court of Kenya. He is also a Commissioner of Oaths, a Notary Public and a registered Certified Public Secretary. i CFI.co | Capital Finance International

Company Secretary & Legal Affairs Director: Paul Ndungi

Winter 2018 - 2019 Issue

>

Island Bank Punching Above its Weight in Global Finance

Weal House: ABC Banking Corporation

B

anks are sometimes criticized for being distant, uncaring and completely corporate organisations with little regard for individuals – and not many have the stated aim of delighting their customers.

“Delight” is a bright, happy word, and it seems well chosen when linked with a financial institution based in Mauritius, the jewel-like island that neighbours Reunion and lies off the coast of Madagascar in the Indian Ocean.

The ABC Banking Corporation has its headquarters in Weal House in the vibrant Mauritian capital of Port Louis. From this base in the imposing Place d’Armes Boulevard, the financial hub of Mauritius, ABC Banking Corporation Ltd has maintained a steady upward trajectory since its inception. It is proud of its position as a well-established bank which is highly respected for its integrity – and notable for that playful and rare desire to bring joy to its clients and customers.

Its corporate presence and elevated status – as well as that stated aim to delight – necessitate a top level of products and services. ABC Banking

Corporation provides just that, successfully delivered by motivated and experienced professionals with the backing and guidance of a wise and cohesive Board of Directors. The bank was listed on the Development and Enterprise Market (DEM) of the Stock Exchange of Mauritius (SEM) in January 2016, and – in a reflection of its industry status – a little over two years later its managing director, Professor Donald Ah-Chuen, was elected President of the SEM. The corporation ranks among those DEM-listed companies whose share prices have achieved significant increases since listing.

ABC PRIVATE BANKING LOUNGE A series of initiatives from the bank for its domestic and international markets has been completed over recent years. To meet requirements for its developmental needs, the bank bought Plantation House next to its HQ. The bank has refurbished the famous Merven Building – renamed Sir Jean Moilin Court in honour of the ABC Group founder – to accommodate its Private Banking Lounge. The lounge offers a suitably swish banking experience to clients and customers.

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FROM ASIA TO AFRICA Mauritius is a small island, but the bank is far from isolated in terms of global finance. Its Hong Kong Representative Office was opened in February 2017, and shortly thereafter the UnionPay International (UPI) Diamond and Classic Cards were launched in Shanghai. Early activities in Hong Kong have focused on fieldwork and collaboration with local institutions to promote Mauritius as an International Financial Centre (IFC), with the objective of unlocking Chinese investment in African Development Projects.

By virtue of its geographical position, and its politically and economically stable nature, the island is perceived as an ideal platform for investment in Africa. It is fully integrated in the Common Market of Eastern and Southern Africa (COMESA) as well as in the Southern African Development Community (SADC).

Mauritius is included in China’s Maritime Silk Road initiative, a development strategy to boost infrastructure connectivity through South-east Asia, Oceania, the Indian Ocean and East Africa. i 123

> OCCAM, the UN-affiliated Observatory on Digital Communication:

ICT Village Programme Impact in Stark Contrast to Wealth and Aid It is calculated that the eight richest people in the world between them control the same amount of wealth as 2.5 billion of the poorest.

H

ow can the massive flow of technological innovations bring development and raise the overall level of welfare, inverting the process of wealth concentration that makes the rich richer and the poor poorer than ever?

"Can new technologies defeat poverty and spur development? How

didactic and special m-devices, and another setting up “ICT hogans” in the Navajo Nation.

OCCAM, with many local NGOs, has activated other actions to support rural communities, orphanages and dispensaries in Ghana, Cameroon, Sierra Leone, Liberia, RDC, Mozambique, Burundi, Kenya and Zambia, providing connectivity and ad hoc services in the ambit of the Infopoverty programme. At IWC3, the first announcement was made of the Millennium Challenge Corporation by Chris Israel, the deputy minister of US Department of Commerce, and, at IWC7, the first peer-to-peer money-transferring experiments by Safaricom in Kenya. At IWC8, the network for rural internet access in Somalia was promoted by Youssouf Ismail Bari-Bari, Somalian ambassador to the UN in Geneva, late and lamented victim of a terrorist attack in Mogadishu in 2015.

What can we learn from the previous industrial and electrical revolution, seeing that it has progressively improved social and economic conditions in countries where it originated in the 19th Century, from 90% poverty to present-day widespread wellbeing? Can new technologies defeat poverty and spur development? How does ICT (Information and Communications Technology) impact the life of the disadvantaged?

making use of suggestions from distant academic experts, who, working from photos and data, provided assistance and evaluated critical issues.

OCCAM, the Observatory on Digital Communication, was created by UNESCO in 1997 to work on these issues. In 1999, UNESCO, responding to calls by the people of Honduras struck by Hurricane Mitchel, asked OCCAM to promote solar villages by installing the solar panels in two isolated villages, San Francisco (in Lempira) and San Ramon, with the assistance of the Honduran Ministry of Technology, the Oklahoma University and the InterAmerican World Bank. These facilities permitted the experimental use of computers at a community level.

To share these results with a wider audience, at the suggestion of many UN organizations, OCCAM launched the first Infopoverty World Conference (IWC) in 2001, since scheduled annually at the UN headquarters in New York, organised in partnership with the European Parliament and other prestigious Institutions.

The conference, declared a UN Flagship Initiative by the UN General Assembly in 2012, has enjoyed growing participation from public and private institutions and prominent members of academia, ICT companies and organisations within the UN system.

The program also made possible the construction of a school, a community centre and a dispensary. These efforts resulted in a connection from ONSATNET, a pioneer company for internet via satellite, which built a three-metre antenna, with considerable speed.

From discussions and proposals at IWC2, the Infopoverty Programme was created in 2002 with the aim of implementing ICT villages to help disadvantaged communities. The WSIS 2003 (World Summit of Information Society) in Geneva approved the ICT Villages Model, and realised, with the support of the Tunisian Government, the village of Borji Ettouil on the occasion of the second phase of the summit, held in Tunis in 2005.

The municipal seat opened to internet community access. The entire population could learn how to access useful information and facilitate governance with e-documentation.

Specialised assistance – in the harvesting of rice, cattle farming, pest-control and water and food security – was furnished to local farmers, as well as 85 doctors specialising in clinical imaging at the National University, able to assist with new mobile x-devices.

Further ICT villages have been created in Meis El Jabal, South Lebanon, for a group of young refugees, in Villa El Salvador in Peru, for a community of women in difficulty, and in Mahobong, Lesotho, safeguarding a potato crop by training local experts and monitoring the harvest from afar. Other projects include one in Dagara, Ethiopia, supplying the community with

At its launch in 2007, a UN delegation led

by Jeffrey Sachs proclaimed the ICT Village of Sambaina as a UN Millennium Village.

It became the model for future projects and was planned to be cloned over all Malagasy territory, with 2,700 ICT Villages – but a coup d'état impeded this evolution.

OCCAM continues to support Sambaina, and

The newly-named ICT Villages saw increased e-learning activity in schools with surprising results; two top students became class tutors in Oklahoma. Thanks to medical consultations held between midwives and the regional hospital in the dispensary, it was possible to save the lives of at-risk pregnant women and new-born babies.

An internet point opened in the community centre showcased to the local farmers new solutions of cultivation, harvesting and storage, 124

does ICT impact the life of the disadvantaged?"

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Sambaina, in Madagascar, stands out. This ICT village was established in 1996, promoted by the President of Madagascar, Marc Ravolanama.

The village’s dispensary, connected to national and regional hospitals using free public airband-width, furnished the maternity unit with e-ultrasound tools, decreasing the mortality rate.

A local school, supplied with 40 computers, helped 320 pupils to find jobs by exploiting local rural and craft resources.

Winter 2018 - 2019 Issue

is relaunching the Millennium Village, with the support of STmicroelectronic foundation, Telma Foundation, and the courage of inhabitants and local institutions.

WHAT CAN BE DRAWN FROM THESE EXPERIENCES? 1. With the worldwide diffusion of mobile devices, everyone can acquire knowledge and skills oriented towards life improvement.

2. Indigent peoples do not need charitable hand-outs as much as empowerment of their capacities to exploit their own human and material resources at local levels.

3. Only adequate digital services, provided by competent institutions, permit disadvantaged communities to take control of their skills, receive healthcare, guarantee good education, use natural resources, give efficient instruments of e-governance, and supply people with identification, property rights, access to microcredit and e-commerce.

In this regard, OCCAM designed a special ICT-Village Infrastructure Module (ICT-VIM), consisting in ad hoc tech kits, oriented to upgrade the basic facilities for a Village of 1000 people (at a cost of $50K) and the IWC16 Conference, launched the Infopoverty Platform for E-Services, focalised on the achievement of the first three SDGs: No Poverty, Zero Hunger, Good Health & Well Being, restructuring Services Providers (academia, laboratories, hospitals) in a network that sustains local Services Users, able to furnish the needs of local Communities with solutions, sharing knowledge and competences efficiently to all.

The IWC18 launched the World Food and Health e-Centre, (WF&HSeC) created as legacy of Milan EXPO 2015, aimed at transferring knowledge and competences, enlarging the sharing economy to those hitherto excluded, promoting best practice and new tools, refining ICT innovations for performative solutions, and raising the standard of living to include medical care, professional assistance, and access to education-oriented job creation in an incremental process – governed by blockchain technologies.

Its network of service providers, composed of primary stakeholders (200 specialists, 40 universities and research centres, hospitals and organisations) brings together many of the agroalimentary scientific organisations, the Smithers Foundation and the International Institute of Telemedicine to co-operate. This includes the sharing of appropriate digital services for telemedicine, food security, e-learning, and applications for new sensors and robotic devices.

This could be the new trend for sustainable social enterprises: people-centred, empowered by 5G connection, using wearable high-performing devices supported by AI and IoT, interacting with high-level service-provider clusters – to serve all 7.6 billion people.

The benefit of this trend is in an increase in the quality and quantity of food, and creating

MISSION TO FIGHT POVERTY The Observatory on Digital Communication (OCCAM) was founded with the mission to fight poverty using the new technologies, and to promote sustainable development actions in the Least Developed Countries (LDCs).

of Expertise within the Global Alliance for Information and Communications Technologies and Development (UN – GAID) initiative launched by the UN Secretary General Ban KiMoon in Kuala Lumpur.

The acronym stands for Observatory for Cultural and Audio-visual Communication in the Mediterranean (OCCAM). It works to support the United Nations strategies for achieving the Sustainable Development Goals (SDGs), and former Millennium Development Goals (MDGs, 2000-2015).

OCCAM is organised into five operational segments: 1. Observatory on the phenomena of the digital revolution 2. Research and experimentation on socialoriented ICT innovations 3. The Infopoverty conference, which organises the annual IWC in NYC 4. The Infopoverty programme for monitoring and management of the projects 5. Communication and secretariat.

OCCAM was established by UNESCO in Milan in June 1996, with agreements signed by the director general, Federico Mayor Zaragoza, and Milan mayor Marco Formentini.

Since 2003, OCCAM has been associated with the United Nations Department of Public Information, and in 2005 it received Special Consultative Status at the UN’s Social and Economic Council (ECOSOC).

Since 2006, OCCAM has been a leader of e-service development of Community

The observatory has two representations at the UN, one in New York and one in Geneva, and an international head of Institutional Relations.

The ICT Village project includes providing computers, internet and renewable energy sources (solar PV) to disadvantaged communities to enable them to promote their own sustainable development.

"This could be the new trend for sustainable social enterprises: people-centred, empowered by 5G connection, using wearable high-performing devices supported by AI and IoT, interacting with high-level service-provider clusters – to serve all 7.6 billion people." basic welfare for all. It could represent the most effective lever for development and valuecreation, with a market outlook for 2020-2025 of 1.8% GDP. All these issues will be discussed at the 19th Infopoverty World Conference, How Smart Cities can fight poverty by eliminating slums and promoting ICT Villages for rural development at UN HQ in New York on April 12, 2019, to be screened worldwide by UNTV. i ABOUT THE AUTHOR Pierpaolo Saporito is the founder and president of OCCAM (the UN-affiliated Observatory on Digital Communication) and the Infopoverty World Conference and Program - aimed at fighting poverty through ICT. As an architect specialised in public infrastructures (railway stations, hospitals, universities, urban renewal) and an environmental development planner, CFI.co | Capital Finance International

he has served as an advisor to the Presidency of the Council of Ministers and to the Ministry of Transport of Italy. Pierpaolo is an expert in ICT integration systems, and currently serves as a High Level Advisor at UNGAID, and vicepresident of IFTC-UNESCO.

Founder & President: Pierpaolo Saporito

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> MPICO:

Leading the Way in Malawi for Sustainable Property Solutions Headquartered in Lilongwe and with branches in Blantyre and Mzuzu, MPICO is a one-stop landed property solution provider.

The company owns office, retail, residential and shopping centre accommodation.

T

he company was incorporated in 1972 by Capital City Development Corporation (CCDC), a parastatal established to attract international and national commercial investment for the development of the new capital city, Lilongwe.

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While CCDC concentrated on infrastructure development, low-cost shelter, government offices and housing, MPICO focused on building private sector offices, housing, shops, factories, hotels, and warehousing with the support of private sector capital. When CCDC’s

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major objectives were achieved in 1884, the corporation was dissolved. By 1983 MPICO had become autonomous with independent management and operating systems and a focus on industrial and commercial property development.

Winter 2018 - 2019 Issue

MPICO’s investment and development programme was expanded onto a national basis targeting Malawi’s three major urban centres. In 1987, MPICO launched a consultancy service undertaking valuation, property management and related services.

In the late ‘80s and ‘90s, many of MPICO’s industrial and residential interests were sold or transferred.

The current portfolio of 28 properties is worth over MK35bn (£38 million).

"The level of property management expertise at MPICO is appreciated by MPICO’s clients. All processes from tenant solicitation through leasing, relationship management ant exits are conducted with a view to maximising stakeholder value."

Damien Kafoteka, the present managing director of MPICO, took up his appointment following on from senior financial roles at the company. He has presided over a veritable renaissance of the business. The first six months of trading in 2018 saw profits rise 40 percent versus the same period in the previous year.

Now well on the way to becoming the leading provider of property solutions in the country, MPICO is achieving this by maximising shareholder and customer value while honouring its commitment to be a first-choice employer.

Management values are those of integrity, respectfulness, accountability and an insistence on pushing beyond the boundaries.

Every MPICO property development and property management project starts with a thorough feasibility study. If selected for action, the project moves to an appropriate implementation stage before transitioning to operations. The company prides itself on its ability to provide clients with the most comprehensive and easily actionable analysis of a project and a determination of its likely success. Skilled engineers, architects and project management staff are ready to oversee

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construction projects of any size.

MPICO delivers these solutions effectively and efficiently and, moreover, the team has proven syndication expertise.

The level of property management expertise at MPICO is appreciated

by MPICO’s clients. All processes from tenant solicitation through leasing, relationship management ant exits are conducted with a view to maximising stakeholder value.

MPICO property valuation services identify asset values for all needs. Their solutions comply with international accounting standards and are used, inter alia, for insurance, mortgage, estate duty, capital gains tax and rating assessment.

Passionate and careful about property lifespan and with comprehensive experience in facilities management, MPICO team members strive to preserve stakeholder value by maintaining properties to the highest standards. MPICO performs scheduled and strategic reactive maintenance to optimise longevity.

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MPICO is a responsible and reactive corporate citizen that ensures renter safety and comfort, responds generously to community needs – be they property-related or otherwise - and takes sustainability issues very seriously indeed.

MANAGEMENT Damien Kafoteka is managing director of MPICO and its subsidiaries. MPICO was incorporated in Malawi in August 1972, became a public limited company in 2007 and is a property holding company involved in the ownership, leasing, management and development of commercial, residential and industrial property.

MPICO properties are rented out to the Malawi government and the private sector. Prior to this appointment, Kafoteka assumed the roles of finance director, chief finance officer and company secretary at MPICO. The company has 28 investment properties in Malawi, primarily in Lilongwe, Mzuzu, and Blantyre. Some MPICO properties are owned by the Central Bank Pension fund.

One of the top executives in Malawi, Kafoteka has also served on the boards of major companies such as the National Bank of Malawi, Telekom Networks Malawi and Press CorporaÂŹtion Limited. He was finance director of Old Mutual 128

to constantly adapt to the ever-changing economic landscape and always with the aim of embracing renewable energy technology. He has encouraged MPICO to play a full role in support of host communities insisting that, given the risk of power failures, there is adequate back-up of utility services. The company helps in disaster relief and funds hospitals. Kafoteka appreciates that SMEs are the key to any country’s longterm future and helps provide trading space in shopping areas as well as outsourcing many services to SMEs. He understands that smaller communities have commercial centre needs too and is responding to these aspirations.

Managing Director: Damien Kafoteka

Malawi for seven years before moving to MPICO in 2016. Kafoteka occupied the position of chief financial officer for many companies including Petroleum Importers Limited, Malawi Pharmacies Limited and Peoples Trading Centre/ Mc Connell.

Kafoteka has led MPICO with tremendous vision and undisputed integrity, helping his company CFI.co | Capital Finance International

MPICO has seen a major turnaround in all aspects of its business. As at 31 December 2017, profitability had increased by 156% and net assets had grown by 58%. The company had a successful rights issue and the balance sheet has been restructured. Shareholders are reaping good returns via share price increases and dividends.

This MD believes in a participatory style of leadership to ensure that all his managers know what is happening in the company. He is known for constantly reminding these managers to raise their standards. i

Winter 2018 - 2019 Issue

> Executive Director of Tanzania Investment Centre Geoffrey Mwamba:

Providing an Exceptionally Stable and Strong Investment Platform for Africa

A

t a recent business get-together in Dar es Salaam, Australian High Commissioner Alison Chartres noted that Tanzania features prominently on the Antipodean miding industry radar.

“Nowhere else in the world can you see lions that dwell in trees or walk along the shoreline,” says Mwambe. “Our Selous Game Reserve is larger than Belgium. And then I haven’t even mentioned historic Zanzibar, which must surely rank amongst the most exotic and appealing destinations in the world.”

Australia has 16 corporations filing for registration and preparing to launch operations in East Africa’s most buoyant market.

Mwambe is confident that, alongside mining, tourism is set to become one of Tanzania’s economic mainstays. “The government is well aware of the need to manage the country’s exceptional resources carefully, with a view to promoting sustainable development.

Other sectors have also awoken to the growing opportunities. “Tanzania inspires confidence,” Chartres said. “Investors appreciate the political drive to open up and develop the economy.”

She describes the Tanzanian business climate as tough but fair, and emphasises the current reform agenda that promises to attract investors.

A report commissioned by the Institute of Chartered Accountants of England and Wales (ICAEW), and compiled by Oxford Economics, agrees. It concludes that East Africa is fast becoming the continent’s driver, with average GDP growth exceeding 6% in 2018, against barely 1.2% for Southern Africa. West and Central Africa (2.5%) and the Maghreb Francophone countries (4.6%) also trail.

According to Oxford Economics, political stability is one of the pillars of East Africa’s enduring success. Ethiopia (+7.8%), Rwanda (+7.1%), and Tanzania (+6.7%) are the region’s star performers, and are expected to stay the course and amplify their lead.

The International Monetary Fund (IMF) is slightly less sanguine and suggested the government tighten banking rules to bolster the financial system’s resilience. But overall, the IMF remains moderately upbeat on Tanzania – provided its government sticks to the reform agenda, which includes streamlining investment procedures and cutting red tape.

EXCEPTIONAL STABILITY Geoffrey Mwambe, executive director of the Tanzania Investment Centre, also mentions political stability. “Since independence [in

1961], Tanzania has had five presidents, of whom four are still with us. They collaborate closely in a constructive dialogue that furthers the interests of the nation. That type of societal bonding is unique in Africa.”

Mwambe met with CFI.co at the World Investment Forum (WIF) in Geneva. He emphasised that Tanzania is a regional anchor, and a founding member of the East African Community (EAC).

The EAC is implementing a customs union and mulling plans for a common currency to be managed by a central bank to integrate the economies of its six member states.

“What makes Tanzania rather special is that the country has also helped shape the Southern African Development Community [SADC] as a founding member,” Mwambe says. This means that businesses established in Tanzania enjoy ready access to the markets along the East African seaboard, as well as to the 15 other member states of the SADC. “Tanzania wants to exploit its privileged geographical position to provide a bridge between the two blocs.”

HAVING IT ALL In a way, Tanzania has it all: vast mineral riches, an amenable climate, a well-educated and ambitious workforce, and a natural environment that rivals those of the world’s prime tourism magnets. It is home to Kilimanjaro, the highest free-standing mountain in the world, and the Serengeti National Park. Tanzania also boasts some 1,400 kilometres of beaches.

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Mwambe’s job, as head of the Tanzania Investment Centre, is to co-ordinate between 11 ministries and state entities, and provide potential investors with a one-stop facility. “By bringing together all stakeholders under a single roof, the centre has been able to efficiently serve investors. They now can come to us for all permits, which ensures that the entire application process flows smoothly.”

PRIMED FOR GROWTH The centre also helps identify future growth sectors. Mwambe explains that pharmaceuticals is the next area Tanzania wants to engage with.

“At the moment, we import 84% of our medical equipment and around 90% of the medicines needed. As Tanzania’s domestic market grows and prospers, this becomes a promising sector that is sure to offer investors tangible benefits and excellent returns.”

The SADC has given Tanzania a leading role in the procurement of medicines and medical equipment for the entire region. “That means that pharmaceutical companies and manufacturers of healthcare equipment can use Tanzania as a springboard to serve the vast region with an already agreed-upon procurement framework.”

Mwambe said the government had now put a set of incentives in place to entice investors, with low-cost electricity and labour, strong regional ties and political stability making the country an almost ideal manufacturing platform. i 129

Hidden Gems: Tanzania

The African Development Bank (ADB) cautions that private sector growth may be hampered by a dearth of credit facilities – but anticipates public investment in infrastructure projects will pick up any slack. The bank also points to the improved trade balance as a driver of growth, praising the government for keeping the spending deficit within its self-imposed limit of 3% (of GDP).

Executive Director: Geoffrey Mwamba

“A good example of that is found in agriculture, where the government encourages foodprocessing at local level so rural communities may benefit through value-creation.” Almost 75% of the country’s population is linked directly or indirectly to agriculture so this initiative has an outsized impact on development.

> Minister of Foreign Affairs and International Cooperation Emmanuel Fabiano:

Malawi - Paths to Development Last December, Malawi – the “Warm Heart of Africa” – was approved for a second compact with the US Millennium Challenge Corporation (MCC).

T

he MCC is a foreign aid entity set up in 2004 by the US Congress to co-ordinate bilateral development efforts and engage more closely with recipients, who set priorities and propose projects.

Malawi entered into its first MCC compact in 2011, and received a grant of $350m to upgrade and expand power generation facilities and associated transmission networks. The compact was successfully concluded last September, with Malawi meeting or exceeding all its goals, including the strict governance and environmental standards the MCC imposes on compact partners.

The country has now been invited to submit plans for the follow-up compact. President Peter Mutharika has indicated that his government favours focusing on other aspects of the country’s infrastructure, such as transport. He pointed to a recent World Bank report, which found that a deficient economic infrastructure may reduce productivity by up to 40%.

network of main and feeder roads, with a view to unlocking isolated parts of the country and encouraging businesses to spread from the main urban centres. Parallel reforms in the telecom sector have brought a surge in investments to underpin projects such as the national fibreoptic loop, boosting internet access. The highspeed ring network will soon be hooked up to submarine cables that land at Dar es Salaam in neighbouring Tanzania.

IMF HAPPY The International Monetary Fund (IMF) worries slightly about the moderate rate of GDP growth, attributable to a weak performance of the agricultural sector. But the fund noted

Hidden Gems: Malawi

The Malawi government has already invested significant resources in upgrades to the

"Malawi has a range of mineral resources that, for a long time, have been underexploited and not benefited the country. That needs to change."

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that Malawi had over-performed on a number targets set under its three-year, extended credit facility. The IMF was particularly pleased by the strengthening of the country’s forex reserves, and the reduction of the Reserve Bank of Malawi’s holdings of government securities.

The IMF congratulated the country on meeting most of the quantitative performance criteria, and in November approved the next tranche of the credit facility.

The Malawi Minister of Foreign Affairs and International Co-operation, Emmanuel Fabiano, readily admits that economic growth has been disappointing. “After consistently topping 7% annually during the first decade of the millennium, the economy has slumped somewhat owing to a brief change of government [2012-2014] and the mismanagement of our national resources resulting from that,” he said.

“Since the present administration took over in 2014, the economy has been put back on track and, notwithstanding a string of extreme weather events such as droughts and flood, the growth rate is picking up.”

Fabiano emphasises that the Mutharika Administration has imposed and maintained

Winter 2018 - 2019 Issue

Minister of Foreign Affairs and International Cooperation Emmanuel Fabiano (right) talking to CFI.co editor Wim Romeijn

fiscal discipline and prioritised economic stability. “We have been particularly careful to channel scarce funds to areas that most need them,” he said, “projects that cause the greatest social and economic impact. Though Malawi is a rather small country, it is now well-managed and possesses a solid foundation on which to base its future development.”

“A single crop failure can have an outsized impact on the economy. The country needs to pursue crop diversity and invest in local processing that adds value, and lessens our dependency on expensive imported food products.”

Fabiano points out that his country used to be one of the world’s top suppliers of high-quality cotton – until international prices plummeted

The minister considers mining another area ripe for investment. “Malawi has a range of mineral resources that, for a long time, have been underexploited and not benefited the country,” he said. “That needs to change as well. The current administration is working to map the available resources and set out a framework for their exploitation.”

THE WARM HEART OF AFRICA But it is tourism that promises the best returns over the short term. “Thirty or 40 years ago, Malawi welcomed about the same number of tourists as Mauritius did. We have seriously lost out in that race, and failed to create the conditions that would have allowed tourism to prosper.

“The previous almost-dictatorial environment did not, of course, help either. But that is now thankfully in the past. We are very much aware that Malawi boasts an exceptionally rich palette of tourist attractions and draws. It is now up to us to place the country on the map.”

Fabiano makes a strong case in promoting Malawi. “CNN named Malawi as one of the top 16 countries to visit in the world. We have the third-highest mountain in Africa, and one of CFI.co | Capital Finance International

the continent’s largest freshwater lakes. In fact, Lake Malawi boasts the largest number of fish species of any lake, anywhere in the world. The country is unspoilt, exceptionally peaceful and safe, and very welcoming.”

Malawi is also very much open for business. As a member of the Southern African Development Community (SADC), Malawi enjoys tariff- and hassle-free access to 15 buoyant economies.

Investors are beginning to wake up to the possibilities, Fabiano says. “Malawi is committed to free trade and has joined a number of promising initiatives to promote cross-border exchanges, such as the Common Market for Eastern and Southern Africa [COMESA] and the African Continental Free Trade Area, which is a first step towards continent-wide economic integration.

“With this, Malawi is exceptionally well-poised to reap significant benefits of these multilateral free trade agreements. Additionally, the country offers investors the stability they require to see their projects mature and prosper.”

Emmanuel Fabiano also emphasises that his country’s workforce is exceptionally welleducated. “The government has partnered with industry to facilitate a number of skillsdevelopment initiatives that aim to provide industry with the human input required for lasting success.” i 131

Hidden Gems: Malawi

Fabiano met with CFI.co in Geneva, Switzerland, at the World Investment Forum (WIF). He said that his country aimed to regain its earlier 7% p.a. growth rate. “This is the pace needed to actually secure progress and make headway.”

Fabiano agrees that economic diversification is a must if that is to be achieved. “Diversification is very high on the agenda, because for too long the country has relied on agriculture alone.

While this has improved domestic food security, the more recent focus on a limited number of cash crops for export such as tobacco, sugar, tea, and coffee also increases risk.

and wrecked the sector. But plans are afoot to revive cotton as one of the country’s main nonfood cash crops.

> Middle East

Global Developments and Outlook: Implications for the Middle East and Central Asia Regions Source: IMF

Global growth for 2018-19 is projected to remain steady at its 2017 level of 3.7 percent (see table, next page). However, this projection is 0.2 percentage point lower than the April 2018 World Economic Outlook, with the growth outlook marked down for a number of major economies. In the United States, while the outlook for 2018 is unchanged at 2.9 percent, the forecast for 2019 has been revised down due to recently announced trade measures. Growth projections have also been marked down for the euro area and the United Kingdom, following surprises that suppressed activity in early 2018. The outlook for emerging and developing economies is also weaker, reflecting downward revisions for some large emerging market economies due to country-specific factors, tighter financial conditions, geopolitical tensions, and higher oil import bills. For instance, China is projected to experience somewhat weaker growth in 2019 in the aftermath of recently announced trade measures.

ents and Outlook: Implications owth for 2018–19 is projected to remain steady at its 2017 level of 3.7 percent (see table). astprojection and Central Asia this is 0.2 percentage point Regions lower than the April 2018 World Economic Outlook,

rowth outlook marked down ber of major economies. thearea could Real GDP Growth, 2017–23 he weaker outlook forIn the euro to remain steadychallenges at its 2017 level of 3.7 percent (see table).

2017 2018 2019 2020–23 for some countries in tes, while thepose outlook for 2018 North the Middle East, Afghanistan, ge point lowerAfrica, thanandthe April 2018 World Economic Outlook, World 3.7 3.7 3.7 3.6 Pakistan (MENAP) and ged at 2.9 percent, the forecast Euro Area 2.4 2.0 1.9 1.5 the Caucasus and Central Asia (CCA) regions, particularly for oil importers with strong United States 2.2 2.9 2.5 1.6 as been Real revised due2017–23 to GDPdown Growth, trade ties. The regions may also face headwinds e China 6.9 6.6 6.2 5.9 the projected moderation in activity in nnouncedfromtrade measures.

Growth 2017 Russia 2018 2019 2020–23 1.5 1.7 1.8 1.5 China.

8 3.7MENAP3.7 3.7 3.6 s have alsoWorld been marked down 2.2 2.4 2.7 3.0 Oil prices Euro rose Areaabove $75 a barrel in June 2.4 MENAP 2.0oil exporters 1.9 1.5 1.2 1.4 2.0 2.3 o area and United Kingdom, 2018the — the highest level since November United States 2.2 2.9 2.5 1.6 of which: non-oil GDP growth 2.4 2.3 2.4 3.1 — reflecting the collapse in Venezuela’s surprises2014 that suppressed activity China 6.6oil importers 6.2 5.9 production and unexpected outages in Canada 6.9 MENAP 4.1 4.5 4.0 4.3 wth and Libya.

Prices dropped back to about $70 1.5 Russia 1.7 1.8 1.5 CCA 4.1 4.0 4.0 4.2 18. The aoutlook for emerging barrel following the June 2018 decision by n 2.4and gas2.7 exporters 3.0 3.9 3.8 3.9 4.2 theMENAP Organization of the Petroleum Exporting 2.2 CCA oil oping economies is also weaker, MENAP oil exporters 1.2 1.4 2.0 2.3 Countries (OPEC) and other major oil-exporting of which: non-oil GDP growth 2.9 3.8 3.8 4.1 m, countries (togetherfor OPEC+) increase 2.4 of which: non-oil GDPtogrowth 2.3and gas2.4 3.1 downward revisions some CCA oil importers 6.0 5.0 4.8 4.6 production, but prices have increased recently ity MENAP oil importers 4.1Sources:4.5 4.0 4.3 National authorities; and IMF staff calculations. due to geopolitical tensions.

While the impact of Sources: National authorities; and IMF staff calculations. ging market economies due to 4.0 4.0 4.2 USCCA sanctions on Iranian exports could further lift 4.1 prices in the near term, financial oil prices are expected to Reserve has raised the federal funds target rate exchange rate flexibility and interest rate hikes, pecific factors, tighter CCA oil and gas exporters 3.9 3.8 3.9 4.2 decline over the medium term due to increased by 75 basis points and has signalled additional and intervention in the foreign exchange market. r, oftensions, which: non-oil GDPhigher growth 3.8100 4.1end of Evolution ofbasis Oil3.8points Prices , geopolitical and production by US shale producers and OPEC+ 2.9 tightening of by the 1 5.0 members figure).

2019.

With higher US interest rates, a stronger Market sentiment remains vulnerable to CCA(see oil and gasNevertheless, importers medium- 6.0 4.8 (APSP, US dollars a barrel)4.6 bills. Forterm instance, is futures pricesChina have firmed significantly US dollar, and some episodes of financial market uncertainties stemming from global trade tensions Sources: National authorities; and IMF staff calculations. o relative to the baseline in the May 2018 Regional volatility, pressure points have emerged in some and geopolitical developments, including related 80 to experience weaker Economicsomewhat Outlook: Middle East and Central Asia emerging market and developing economies. to Iran and Turkey. A systemic escalation of Following a sharp rebound early in 2018, trade tensions would further dampen the global 2019 in Update. the aftermath of recently capital flows to these economies have weakened recovery and depress medium-term growth (see Evolution of Oil Prices gher Although still supportive of growth, global considerably since mid-April, although they the “Scenario Box—Global Trade Tensions” in d trade measures.

70 (APSP,1conditions US dollars financial havea barrel) started to tighten. stabilized somewhat in July. Policy reactions the October 2018 World Economic Outlook).

T

Table: Real GDP Growth, 2017–23.

Between March and September, the US Federal

err outlook80for the euro area could ntly for some countries in the enges 70 st, Afghanistan, North Africa, and MENAP) and the Caucasus and uld ia (CCA)60regions, particularly e porters with strong trade ties. The and ay also face headwinds from the 50 nd moderation in activity in China.

60

50

40

Sanctions against Iran will undercut its near-term trade and growth prospects, increasing the risk of spillovers, while developments in Turkey could impact the region through trade and financial linkages, as well as through market confidence effects. A worsening of these developments, or faster-than-anticipated monetary policy tightening in advanced economies, increases the risk of a sudden reversal in global risk appetite. The MENAP and CCA regions would be vulnerable in this environment, especially those countries that rely heavily on international capital to meet external financing needs.

APSP spot price

Dec. 22

Dec. 21

Dec. 20

Dec. 19

Dec. 18

Dec. 17

Dec. 22

Dec. 16

Dec. 21

Dec. 15

Dec. 20

Dec. 2014

In this context, policy uncertainty has increased WEO current APSP projection and near-term risks to global growth have 30 Apr.downside.

18 APSPTightening projectionglobal shifted WEO to the Oct. 17and APSP projection financialWEO conditions softening growth in large economies limit prospects for upside surprises, while risks highlighted in the April 20 APSP spot price 2018 World Economic Outlook have become more pronounced or have partially materialized.

WEO current APSP projection Medium-term risks remain skewed to the WEO Apr. 18 APSP projection downside, reflecting the continued build-up of WEO Oct. 17 APSP projection financial vulnerabilities and the possibility of shifts to unsustainable policies in the face of weaker growth prospects. The materialization of these risks would have significant implications Sources: Haver Analytics; and IMF staff calculations. for countries in the MENAP and CCA regions Note: APSP = average price of spot prices;through WEO =their IMF,impact World Economic on external Outlook. demand, 1 The average of UK Brent, Dubai Fateh, and West Texas Intermediate crude prices, oil remittances, capital flows, commodity and financing conditions. i prices.

Dec. 19

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The 40 $75 a barrel in June rose above he e highest level since November na. flecting the 30 collapse in Venezuela’s n and unexpected outages in e d Libya.20Prices dropped back r 70 a barrel following the June ela’s sion by the Organization of the

so far have been varied, including a mix of

Evolution of Oil Prices (APSP,1 US dollars a barrel). Sources: Haver Analytics; and IMF staff calculations.

Note: APSP = average price of spot prices; WEO = IMF, World Economic Outlook.

Source: International Monetary Fund (IMF),

The average of Haver UK Brent, Analytics; Dubai Fateh, andand West Texas crude oil prices.

November 2018 Sources: IMFIntermediate staff calculations. ctober 2018 World Economic Outlook, Global Financial Stability Report, and Fiscal Monitor for a more comprehensive discussion of the Note: APSP = average price of spot prices; WEO = IMF, World Economic Outlook. e.

134 | Capital Finance International 1 The average of UK Brent, Dubai Fateh, and WestCFI.co Texas Intermediate crude oil prices.

1

Winter 2018 - 2019 Issue

> Q & A with the Managing Director of Metito:

Rami Ghandour

Managing Director: Rami Ghandour

CFI.co: What excited you about the businesses you worked for during your earlier career and what excites you about the business you now lead?

and consulting and management contracts.

This is an exciting business with huge potential, especially in water-stressed areas with limited access to capital.

governments turning to the private sector to help finance utility projects as part of widereaching economic reform and development programmes.

Ghandour: My dad, Farouk Ghandour, was a scholar and a pioneering engineer. After graduating from university in the US in 1955, he returned to Beirut and founded Metito in 1958.

His success inspired me to take calculated risks as I explored and navigated life. The core principles he instilled in me guided my career.

CFI.co: What is special about the management style at your organisation, the team you lead and the workforce?

Metito is resilient and very well-positioned to prosper from these changes, and our global presence enables us to access and operate successfully in all markets with high demand, which others seem to find difficult to infiltrate.

It was his advice that I gain experience in different areas of business before deciding if the water industry was the one I wanted to work in. Before joining Metito, I worked as a process engineer and project manager at Bechtel in London, and as a management consultant with the Boston Consulting Group in New York. This experience provided me with the realities of running a business, and prepared me for my move to Metito.

As soon as I joined Metito, I set up a new business arm in 2007 – Metito Utilities – which develops, invests, owns and operates water assets and specialises in constructing Greenfield and Brownfield projects under finance schemes

Ghandour: Even though we are now a multinational company, our management style remains unique. We combine international processes and standards, but apply them with a personal touch. This signature combination has never failed to deliver. We have over 2500 employees. They are considered our true capital, and are the drive behind our success.

CFI.co: How would you characterise short- to mid-term prospects for the industry?

Ghandour: The water industry has growing potential prospects. The Middle East and North African (MENA) water sector is undergoing major transformations as governments seek to meet the rising demand for water from growing populations and industrial diversification initiatives. In tandem with this growing demand, there is a push for privatisation, with CFI.co | Capital Finance International

CFI.co: What are your short-term hopes for the future of your business and the industry as a whole?

Ghandour: The push for efficiency and clean energy is another changing dynamic affecting the water sector across the globe. There is a need to facilitate the decoupling of power and water assets, and bring the integration of clean energy into the water sector. This is set to become an increasingly prominent part of future schemes across the MENA region, a major market for Metito.

We are very active in this area because we believe that only companies with a technological edge, and a keenness to embrace market needs and dynamics, can continue leading. i 135

>

Vision of Transition that Began with a Revolution

N

ecessity is the mother of invention, they say, and Infinity Solar started life in 2014 – prompted by the recurrent and numerous electric cuts because of energy shortages following the Egyptian revolution in 2011.

The company founders recognised the need for back-up solutions and began providing on-grid

136

and off-grid PV solar solutions for residential and smaller commercial entities. Their vision was to provide Egypt with clean renewable energy for a brighter and more sustainable future.

Its primary goal is to generate renewable energy and reduce carbon emissions in support of the UN’s target to limit global temperature rises to below 2°C above pre-industrial levels. The CFI.co | Capital Finance International

Egyptian environment provided Infinity Solar with viable, non-polluting, and unexploited renewable resources: solar and wind.

In 2014, Infinity Solar qualified for the Feed-in Tariff program (FIT) run by the Egyptian Ministry of Electricity and Renewable Energy. In 2017, Infinity Solar completed construction of its pilot 1MW solar plant in Cairo – the first solar plant to

Winter 2018 - 2019 Issue

be built in Egypt and connected to the national grid under Round 1 of the FIT program.

Just one year later, in February 2018, Infinity Solar inaugurated its flagship project “Infinity 50”, also under Round 1 of Egypt’s FIT program, which is the first plant of the biggest solar park in the world to date, located in Benban, Aswan.

Infinity Solar is the market leader in the utilityscale solar market in Egypt, with more than half the market share of current connected solar capacities. Its current solar utility-scale pipeline projects include four more plants with a combined capacity of 133MW AC and total investments of about $200m. These plants are due to be commercially operational by Q1 2019.

Infinity Solar works with international industrial partners to build its solar plants, using the latest technology to maximise efficiency and reduce costs. The company was one of the first to recognise the exceptional opportunity offered by the Benban Solar Park, which meets the required economies of scale to aggressively drive-down the price per megawatt produced.

"The Egyptian environment provided Infinity Solar with viable, non-polluting, and unexploited renewable resources: solar and wind."

Egypt’s attractive FIT program has transformed the scope of the Benban Solar Park, which rivals the nearby Aswan Dam in power generation.

Infinity Solar has secured the support of multilateral banks, such as Bayerische Landesbank (BLB) and Arab African Bank, with an ECA cover from Heuler Hermes, as well as EBRD (European Bank for Reconstruction and Development), IFC (International Finance Corporation) and The National Bank of Egypt for a slew of new solar power projects.

Infinity Solar is currently developing an EV charging-network to enable and promote the electrification of transportation in Egypt and further drive-down the country’s CO2 emissions.

Infinity Solar has put Egypt on the global map actively reducing carbon emissions and addressing climate change. With a healthy development pipeline of more than 2GW – split between solar and wind energy across georgraphies including MENA and Sub-Saharan Africa within five years – Infinity Solar is set to establish itself as front-running global developer of renewable energy. i

Project

Location

Status

1 MW Solar

6-October City, Cairo, Egypt

Currently operational (Round 1 of the FIT program)

50 MW Solar

Benban, Aswan, Egypt

Currently operational (Round 1 of the FIT program)

3 MW Solar

Benban, Aswan, Egypt

Energization December 2018 (Round 2 of the FIT program)

30 MW Solar

Benban, Aswan, Egypt

Energization December 2018 (Round 2 of the FIT program)

50 MW Solar

Benban, Aswan, Egypt

Energization December 2018 (Round 2 of the FIT program)

50 MW Solar

Benban, Aswan, Egypt

Energization December 2018 (Round 2 of the FIT program)

INFINITY SOLAR AT A GLANCE • Established in the year 2014, Infinity Solar is at the forefront of the booming Egyptian renewable sector. Infinity Solar is a renewable energy project developer with focus on solar and wind power development.

• Infinity Solar develops, finances, owns and operates renewable power assets to provide long-term clean electricity in Egypt and worldwide.

• Developed in-house expertise to provide integrated solutions for the entire project life cycle of a solar power plant, including EPC,

CFI.co | Capital Finance International

O&M and asset management services for utilityscale projects, as well as commercial projects.

• Currently operating 65.5 MWp of solar energy under Round 1, including the landmark ‘Infinity 50’, the first solar project to be operational under Egypt’s Feed-in Tariff program in Benban Aswan, as well as 170 MWp under Round 2 of the program to be operational by Q1, 2019.

• Planning to add a capacity of 2 GW split between wind and solar to the region within the coming 5 years.

137

> Small and Nimble with a Big Vision:

Pharma Company Becomes the Vanguard of Change Every company needs a competitive edge, and NewBridge Pharmaceuticals, established in 2010, has forged a path to find its own.

N

ewBridge has made a name for itself throughout the Middle East and North Africa (MENA) by creating its speciality niche in licencing innovation from biopharmaceutical companies that desire regional access to MENA countries through partnering with a strong local expertise across the region.

NewBridge spearheaded a different path against a prevailing backdrop in the region. It pioneered a unique business model and how to go about it. Not a family business and not a public corporation but built a company that is institutionally financed by western and regional equities. It also sets its mission on in-licencing innovations only, hence partnering with western companies to commercialise their innovative products across the whole region in MENA. With that in mind NewBridge created a platform to work on a regional basis, above the countries and positioned itself as a truly one-stop shop for partners who seek the access to the region but with less complexity.

NewBridge offers an outstanding commercial partnership opportunity to these organisations, because of its expertise in the industry acquired by its people in big pharma, and their local expertise in building brands in MENA. CEO Joe Henein – President and CEO of the company has over 30 years’ industry experience in MENA, US and Europe, including executive roles at Wyeth Pharmaceuticals. As a highly articulate industry advocate, he has earned respect as a top-level business leader in the industry and a subject matter expert for the Middle East and Africa pharmaceutical business.

Henein recalls the start-up days “it was difficult, recruiting people, garnering attention form the regulators, and create a company from scratch. It was an idea and a power point presentation that I took and built a company around it, with real IP assets and business, supported by over 130 talented NewBridgers working in it now.”

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The case Henein puts to companies he targets to partner with is a compelling one. “We created a company around talents form big pharma, we know how to build brands, we have done it before in our big pharma days, and we offer expertise in multiple geographies on the ground in MENA backed by a strong corporate functions and disciplines in its headquarter in Dubai. We are not in manufacturing and we are not in generics, we only focus on innovative products and treatment advancements, so we have a razor-sharp focus in creating value to the assets we licence, to our partners, and shareholders, and provide new options to the patients of the region.”

He added “We have a one stop solution for a wide geography with complex regulations and access hurdles, and we built all the expertise around the disciplines that our partners may need to be successful in commercialising their brands.”

“NewBridge operates at the highest corporate standards and offer an operation that feels like the extension of its partners affiliate and often gets involved to their internal strategic discussions.”

MENA is around 400 million people with many unmet medical needs and access issues to medicines in some countries or segments of the markets, but NewBridge focus only on few but critical therapeutic areas like; immunology, rare diseases, oncology, central nervous system and metabolic diseases.

The company has been growing steadily since it started commercialisation at end of 2012, slowed down only during the tough years of down turn of GCC economies 2016/2017. During this period, oil prices plummeted, and fiscal budgets got constrained which affected healthcare, hospitals and consumer spending as well. New products suffered the most as access became very limited to add to formularies. Luckily 2018 ended up with a good note and NewBridge resumed back their robust growth of 35% over 2017 and now look to continue this growth trajectory in 2019 and beyond.

CFI.co | Capital Finance International

Winter 2018 - 2019 Issue

"We have a one stop solution for a wide geography with complex regulations and access hurdles, and we built all the expertise around the disciplines that our partners may need to be successful in commercialising their brands."

Joe Henein CEO

Henein points out that getting to Newbridge’s current position was challenging: “it was a marathon and not a sprint, NewBridge - as any start up passed through the usual growing pains, and in this difficult Journey you go through the pressure of cash burning cycles, to the lengthy process of building business around new products, and finally getting the regulators to recognise who we are and what we do.”

map and highlighted our ability to tap into much needed innovation and disruptive technologies.

Doctors saw in us a breath of fresh air and they helped advise and guide the company on the innovation they think is needed in the region.”

The company went through number of financing rounds successfully attracting strong regional and international support, which was critical to add more fire power to the operation, licence more innovative brands and build teams around them to ensure the successful take-off the ground.

“First you must remember that we partner on the innovative products that are critical to these companies, not like their tail- end, second brand or non-strategic products, they give us their most sacred bread and butter brands. Being cognisant of this important fact there are 3 critical pivot you need to pay attention to; Attract talents and empower the operation engine that will build these brands. Invest in marketing and medical education to create strong understanding and advocacy to these new treatment algorithms, and finally compliance & integrity in all you do.

Ensuring that you protect your reputation and that of your partner is of paramount importance.”

On the other side, regulators took a while to appreciate the NewBridge model but eventually warmed up after they recognised that the company helps the region to bring serious innovations and therapeutics that address unmet medical needs in very difficult disease areas; like epilepsy, parkinsonism, psychosis, rheumatoid arthritis, breast and other cancers, and number of rare diseases prevalent to the region.

Henein recalls in the early days “one of the MENA country regulators once mentioned it may be difficult to appreciate this new model in the region now as we maybe bound to some older regulations about definitions of Marketing Authorisation, but I want to tell you that I am very proud of what you do, because you are really creating an innovative model, and bringing critical therapies for seriously ill patients that they may truly need.”

The healthcare professionals were also quick to adapt to the idea and the model of NewBridge, Joe added “NewBridge attracted their attention when we were able to bring to the region a genomic testing for breast cancer they wanted it but didn’t know how to secure it or perform the testing, samples of which is sent to one lab in the world in San Francisco to determine the recurrence score of the breast cancer and whether women take chemotherapy or not. A revolutionary testing that have put us on the CFI.co | Capital Finance International

When Henein was asked about the critical ingredients of success in this model, he stressed on number of points:

Joe was heading up Wyeth in the region before joining NewBridge, also served as the ViceChairman of the PhRMA Association for MEA, and the Chairman of its Ethics Review Board.

In this latter role, he was the head of the committee that wrote the first Regional Code of Pharmaceutical Promotional Practices. It is still largely in use till now after few additions. Henein is a known entity in this field in the region, he often speaks on regional compliance in International and Regional Compliance Forums.

Newbridge built a strong name and foundation in MENA; next chapter is looking to continue the path of bridging innovation from west to east and may expand its business further in other regions. Headquartered in Dubai, United Arab Emirates, NewBridge benefited from the progressive business environment encouraged by the country rulers, who are strong advocates for technological advancement and innovation, and actively supporting SMEs. Things are positively changing, and NewBridge is at the pharmaceutical vanguard of this change. i 139

>A

Passionate Veteran Talks About the Pharma Industry and its Purpose

J

oe Henein’s career has spanned over 30 eventful years at senior levels in the Middle East, US and Europe, culminating in his present role as President & CEO for NewBridge Pharmaceuticals - a speciality company covering the AFMET region – Africa, Middle East and Turkey. Joe started his career “form the kitchen” as they say, joining the industry as a medical representative - freshly graduated from the pharmacy school, then made his way up the corporate ladder, passing through and mastering many of the disciplines critical to the industry he worked for all his life and feel very passionate about.

Through this Journey, and while in the USA, Joe assumed the role of Global VP for number of therapeutic areas, most notable the Infectious Diseases, and was a senior executive in Wyeth Pharmaceuticals, serving also in number of company’s executive committees as R&D Council, Development & Strategy Board and The European Executive Council.

Joe then moved to Dubai in 2004 to assume the role of Regional Managing Director of Wyeth (acquired by Pfizer in 2009) in MENA where he took the company soaring to significant growth of multi-fold levels and achieve critical mass for the region. During this time, Joe also served as the vice-chair for the PhRMA organization (Pharmaceutical Research and Manufacturers Association) for the Middle East & Africa Chapter, as well as the Chairman of the Ethics Review Board from 2004-2009.

Henein is grateful to have learned from several iconic figures of the pharmaceutical industry throughout his life and has had experience of many business models that provided him with high exposure and learning curves to the industry practice. He has garnered a reputation for combining sharp business acumen with people-skills – a combination that has earned him the trust of colleagues and company clients alike. Looking back, Joe is humbled by the opportunities that shaped his leadership experience and the track record which created many platforms he led to develop people and build businesses, but certainly what he is most proud of is the ability to bring products to the market that make a real difference to patients’ sufferings and lives.

The Pharma industry has been subjected to many criticism, and maybe fierce at times. When pressed, Henein takes undeserved criticism on the chin, but makes a passionate and robust defence of the industry. “Yes, we had our fair

140

CEO: Joe Henein

share of mistakes as an industry which led to this distrust, but we all learned the hard way from it,” he admits. “having the patient needs at the centre focus and compliance with industry codes as an integral part of the operation is key to the success, and accomplishment of the mission we are all here working for” He further reminds us that our kids, and future generations health problems will only be addressed by the pharmaceutical industry – yes there could be many collaborations with academia, governments, and others but the industry only has the capabilities to turn these dreams and innovation into realities and ultimately bring new advancement to the patients.

The highly successful NewBridge model is built on its global business network and unique value proposition that provides a platform to bridge the access gap of global innovation and the successful reach within the MENA region. A speciality company offers a one stop solution to biotherapeutics seeking access and commercialization in the multi countries across the wide geography of MENA, with its growing economies but complex regulations and access hurdles.

CFI.co | Capital Finance International

“From day one, we came with bigger vision and mission and made some crucial strategic commitments. First, to focus on only innovative products and provide advanced treatment options through these innovations to address the unmet medical needs of patients in the MENA region. Second, to drive it through inlicencing products that are either FDA- or EMAapproved. Third, create the right corporate and governance culture to attract and build a team with considerable speciality and institutional talents. “We go in search for these innovations that may not come to our region easily and partner with these companies to create value for their brands and offer new treatment modalities for the MENA patients. NewBridge operates to the highest corporate standards and is a trusted and credible commercial partner.

We act as an efficient regional extension to the business of our partners, focusing on few critical verticals: immunology, rare diseases, oncology, the central nervous system and metabolic diseases.

“That’s what we are doing – and that’s what we shall continue to do, and I for sure feel very strong and proud about.” i

Winter 2018 - 2019 Issue

> Responsible

Transformations Key to KIB’s Ongoing Success

KIB was established in May 1973 as a real estate bank, originally known as Kuwait Real Estate Bank.

I

t played a prominent role on the national stage, establishing itself as a pillar of Kuwait’s banking industry. By helping to finance a vital sector in Kuwait, the bank contributed to the development of the country’s economic and architectural landscapes. It also offered a comprehensive array of specialised services tailored to meet the needs of the real estate sector.

The major turning point came in July 2007, when KIB embarked on a strategic transformation – from a conventional real estate bank to a fullservice, Shari’ah-compliant bank, known as Kuwait International Bank. The transformation was the first of its kind in the Middle East.

BANK FOR LIFE In April 2018, KIB began the next chapter of its story with another strategic transformation: a comprehensive, long-term programme aimed at transforming the way KIB engages with its customers across every touch point. This new strategy focuses on offering a “next-level” customer experience that delivers more than just banking in the traditional sense. Rather, it establishes KIB as a partner in every aspect of customers’ lives; a true “Bank for Life”.

BANKING SERVICES AND SOLUTIONS KIB seeks to remain ahead of the curve by applying the very latest banking developments and technologies. It remains committed to catering to the needs of individuals and institutions through a wide network of branches spread across Kuwait, as well as a full suite of Islamic Banking services and solutions, in line with international best-practice.

SOCIAL RESPONSIBILITY KIB has been a firm believer in the importance of fulfilling its commitment to social responsibility, supporting various civil society organisations via an encompassing and diverse CSR program.

Through this programme, KIB participates in, supports and sponsors numerous causes and initiatives – garnering many prestigious awards for its leading role in this field. The initiative covers many different areas, including culture, education, religion, social, environment, sports and healthcare.

Kuwait City: Head office

PRESTIGIOUS AWARDS In recognition of its achievements in 2018, KIB has garnered many prestigious local, regional and CFI.co | Capital Finance International

international awards that stand as a testament to the its robust performance and reputation within the industry. i 141

BOO N I A BRIT G N LPI E H S W I O R H E AT H G DIN N A P EX

P EX

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

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

Winter 2018 - 2019 Issue

> Riding the Roller-Coaster – and

Hitting a High of Enrichment In a roller-coaster year of market highs and lows, one company has shown unflinching commitment to serving its customers and partners with a sharp focus on activities and services.

C

entury Financial, a pioneer in the forex and CFD sectors, has almost three decades of experience in global financial markets. Its humble beginning in forex dealing came back in 1989; since then, it has grown into a provider of comprehensive online broking services, with an ever-wider array of offerings.

Century maintains a strong commitment to a superior customer experience, and empowering its customers through education, training and support – in line with the values and beliefs of its dynamic founder, Sulaiman Baqer Mohebi.

The company operates on the world’s leading platform and provides a wide-range of financial instruments, covering six asset classes across 100 global markets, with products ranging from currencies, commodities, indices, metals, energies, and inter-bank money markets to meet the diverse trading and investment needs of local and expatriate investors.

Dubai-based Century has been instrumental in empowering traders across the entire UAE region.

It has proven adept at providing essential tools to help its clients achieve their trading goals.

The bouquet of services offered by Century Financial are best-in-class for the financial sector. It offers CFD trading on forex pairs, indices, commodities, shares, treasuries and ETFs. It facilitates trading in commodity futures, Bitcoin futures and Dubai Gold and Commodities Exchange (DGCX). The company also provides enough firepower to refuel its clients’ investment strategies by issuing a biannual trade and financial journal. Dubbed Off The Wall, it is a means to enrich its customers and partners with a better understanding of the global trade and financial markets.

According to Century Financial CEO Bal Krishen, the company offers "customer-centric and professional approach, with focus on offering bespoke solutions”. That has become a hallmark of Century Financial activities.

For Century Financial, the interest of customers and partners is paramount. Every award it receives is only a gentle pat on the back, an encouragement to best serve its clients, and motivation to strive for further improvement.

CEO: Bal Krishen

Krishen is wont to quote the Chinese proverb, "Don't curse the darkness – light a candle". The CFI.co | Capital Finance International

activities of Century Financial fit to perfection the essence of the saying. i 143

> American University of Beirut’s President Khuri Leads Vision 2030:

Further Strengthening this Unique Institution of Higher Education

President: Fadlo Khuri

F

adlo R Khuri is the 16th and current president of the American University of Beirut (AUB) and editor-in-chief of the medical journal Cancer. He is also affiliated with Emory University School of Medicine as a professor in the Department of Hematology and Medical Oncology. Khuri has been a trustee of AUB since 2014 and was appointed president of AUB in September 2015 and was officially inaugurated on January 25, 2016.

Khuri was born in Boston, Massachusetts and raised in Beirut, Lebanon. He attended AUB in 1981-82, received his bachelor's degree from Yale University in 1985, and his MD from Columbia University College of Physicians and Surgeons in 1989. After completing his training at the Boston City Hospital and Tufts-New England Medical Center, Khuri joined the faculty at the University of Texas M.D. Anderson Cancer Center in Houston, Texas in 1995 until 2002 when he joined the Emory University School of Medicine in Atlanta, Georgia. His research focus is the development of molecular, prognostic,

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therapeutic, and chemopreventive approaches to improve the care of patients with lung and aerodigestive cancers. Khuri has published over 300 peer-reviewed articles, and his work has been cited over 16,000 times.

He has received many awards in recognition of his scholarly achievements including the 2013 Richard and Hinda Rosenthal Memorial Award by the American Association for Cancer Research.

He was elected a fellow of the American Association for the Advancement of Science in 2014, and a full member of the Lebanese Academy of Sciences in 2015.

Under Khuri’s leadership, AUB has launched VITAL, its vision for 2030, to respond to the challenges of rapidly evolving national, regional, and international demands and changes over the next 10 years and more. The acronym stands for: Valuing communities and sharing AUB’s values; Integrating a humanities, technology, and purpose-based education; Transforming the university experience; Advancing a world-class research agenda; and Lifting the quality of health CFI.co | Capital Finance International

and medicine across the MENA region. The aim is to continue producing future leaders and create an inclusive campus that is also economically, environmentally, and ethically sustainable There have already been significant developments at AUB as it works toward achieving this vision: a threefold increase in its financial aid budget during the last five years; the re-introduction of academic tenure; and the establishment of the Global Health Institute that is leading AUB’s effort to better serve the population and clinical health needs of the region and the Global South.

President Khuri is leading BOLDLY AUB: The Campaign to Lead, Innovate, and Serve to secure some of the resources that the university needs to achieve its VITAL 2030 vision. The goals of this five-year, $650 million fundraising campaign, the largest in AUB’s history, are to enrich the educational and research experience of students and faculty; serve the healthcare needs of the region; prioritize innovation and entrepreneurship; engage with communities in the region to achieve real impact; and secure the university’s long-term sustainability. i

Winter 2018 - 2019 Issue

> Bahrain Minister of Industry, Commerce, and Tourism Zayed Bin Rashid Al Zayani:

Maintaining and Expanding a Leading Edge The smallest economy of the Gulf Region registered solid growth, adding a robust 2.4% to its GDP over the past 12 months, courtesy of a steady rise in crude oil prices and a buoyant non-oil private sector. Bahrain has little oil of its own, but the kingdom benefits from its neighbours’ resources.

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he Bahrain Economic Development Board (EDB) noted that the economy is firing on all cylinders with every major sector contributing its share to the upswing. EDB Chief Economist Jarmo Kotilaime emphasised that Bahrain’s growth dynamics are firmly linked to non-oil drivers that now represent close to 80% of GDP. The International Monetary Fund (IMF) forecasts that the country is looking at 3.2% growth in 2018, down slightly from 3.8% the previous year. The fiscal deficit, though sharply down, is still deemed a tad too high, while the debt-toGDP ratio has ballooned to 82%. But the IMF praised the Bahrain government for the structural economic and fiscal reforms it is pushing through with the help Kuwait, Saudi Arabia, and the UAE, which have jointly provided Bahrain with $10bn in support.

To eliminate the budget deficit, the kingdom’s government unveiled plans to sell parts of its stakes in three large logistics companies. The plan is to float around 20% of these companies’ shares on the Bahrain Bourse. The divestment is part of a wider plan to cut deficit spending by reducing overall outlays. The programme also aims to improve efficiency, promote a voluntary retirement scheme for civil servants, and introduce VAT at an initial rate of 5%.

“We need to keep revitalising our economy – and society,” he said. “We also want to bring in new businesses, new talent, and new ideas. It is our expectation that by transforming Bahrain into a centre of excellence, innovation, and – why not?

– entrepreneurial disruption, our local business community will get excited, and involved as well, and change its mindset slightly in order to become part of this transformation.”

Some competitive advantages derive are geographical – such as Bahrain’s position at the very heart of the GCC. It is no more than a 45-minute flight from any GCC member state.

Riyadh or Kuwait City are within a four-hour drive. As far as accessibility goes, Bahrain is hard to beat.

Minister: Zayed Bin Rashid Al Zayani

Al Zayani thinks that the kingdom is well equipped to latch onto the Fourth Industrial Revolution, and help to drive it. Bahrain has an edge over the competition in that it boasts modern judicial and educational systems and offers a high standard of living. Next year, the kingdom celebrates a full century of formal education. The main assets of the kingdom are, however, often overlooked.

It has a highly-educated and computer-savvy population and enjoys “a very high sense of business ethics, which actually may constitute our best selling point”, says Al Zayani.

Thanks to to its low-intensity regulatory environment, businesses often find it cheaper and easier to serve the wider Gulf Region from Bahrain. “Essentially, we offer the best of both worlds with an ample pool of local talent and the ability to bring your own expertise as required.”

COMPETITIVE ADVANTAGES The minister dismisses any talk of “untoward competition” between member states of the Gulf Co-operation Council (GCC) and says the “cake is big enough” for all to share. “There is a healthy degree of competition in the region, and we appreciate that, for it keeps us on our toes.

Competition for investment and business also stops us from becoming complacent. However, GCC member states quite often complement each other as well, which encourages cooperation and joint ventures. In due time, this

Home to one of the freest economies in the Middle East, and regularly amongst the fastest growing countries in the world, Bahrain is considered a textbook example of how to diversify from dependency on a single commodity. With dwindling oil reserves (the present production level hovers around 40,000 bpd), the kingdom realised in the 1980s the urgent need to replace the support pillars of the local economy.

Embracing liberalisation, Bahrain managed to expand into heavy industry, tourism, and banking.

The country now boasts one of the world’s largest aluminium smelters and has become a worldclass banking hub in Sharia finance.

The business capital of the Gulf is now set to become its silicon island. “The government’s National Sustainability Plan includes ambitious targets, such as a drop in energy usage of 6% by 2025 – even accounting for economic growth.

That, and our other goals, call for the deployment of new technologies which we’d like to see developed right here.” Al Zayani admits that much attention has been given to the kingdom’s e-mobility programme but explains thatit represents just one vector of a much broader approach: “We’re moving into solar energy ‘big time’, aiming to generate in excess of 100MW before long.”

Bahrain did not escape the malaise of the Gulf Region following the drop in oil prices that began in 2008, and only bottomed-out seven years later. The country was quick to respond by deepening its reform agenda and its reputation as a place always open for business.

Next stop: driving the Fourth Industrial Revolution as it engulfs the region, opening a wealth of opportunities as the post-oil future dawns. i

Most promising investment sectors: e-Mobility // High-Tech Innovation // Logistics // Financial Services CFI.co | Capital Finance International

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Hidden Gems: Bahrain

BUILDING A DYNAMIC ECONOMY Bahrain minister of Industry, Commerce, and Tourism Zayed Bin Rashid Al Zayani told CFI.co at the World Investment Forum in Geneva that the kingdom is building a vibrant economy on solid foundations, to be driven by technology and innovation. Bahrain wants to become a greater hub of global talent; a place where bright minds meet to find inspiration, tinker with ideas, and launch products and services.

will perhaps lead towards a customs union or a single currency.”

> Håvard Halland and Justin Yifu Lin:

Disrupting Multilateral Climate Finance

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

However, to minimize risk, institutional investors generally prefer to allocate their capital to operational infrastructure that is already generating stable revenue - rather than to new projects. For the same reason, their investments are focused in advanced economies, which in recent decades have received more than 70% of private-sector investment in infrastructure.

Climate change requires institutional investors to move beyond these limitations, for which they need help to mitigate the associated risks. This is why we believe the world needs a new global climate finance facility (GCFF), exclusively targeted at mobilizing institutional investor capital, and designed to address the shortcomings of current multilateral initiatives.

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

Second,

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

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

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

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

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

Winter 2018 - 2019 Issue

government has only two representatives on the sixmember board. The fund’s investment committee, which makes all investment decisions, is made up entirely of investment professionals, who like the NIIF’s staff are recruited mainly from the private sector. These curbs on public-sector control are designed to free the NIIF from possible political influence, thereby reassuring investors that the fund operates on fully commercial terms within its policy-defined mandate.

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

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

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

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

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

CFI.co | Capital Finance International

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>

THE EDITOR’S HEROES

New Times, New Leaders

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new sort of leader has emerged: one who knows how to manage an audience from a distance, exploiting social media and other avenues to shape public opinion, gain influence, and – in the fullness of time – secure power.

inventing modern monetary theory (MMT), which is best explained as a new take on the economic approach originally proposed by John Maynard Keynes. Mitchell argues that austerity policies, and the fixation on reducing government debt and deficit spending, are usually misplaced.

Donald Trump is such a new-style leader.

Knowingly or otherwise, the US president displays savvy when it comes to social media.

Trump speaks directly to his nation, bypassing the orthodox media. But in removing reporters and editors from the equation, an important filter is lost. One that sifts fact from fiction and presents a complete picture, adding context where needed and reminding readers, listeners, and viewers that events do not occur in a vacuum.

That’s a message Mexico’s flamboyant new president would love to hear. Andrés Manuel López Obrador wants to rebuild the Mexican state – and voters last year gave him a clear mandate to do so. Obrador wants to tackle crime, corruption, and underdevelopment – and promises to resign midterm if people think he hasn’t delivered.

Twitter, Facebook, Instagram and other userdriven platforms present few, if any, filters. They do not care about verifiable fact, logic, truth, or reason – click rates are the only metric by which a story is judged. One of the inventors of the internet, US scientist Vincent Cerf, deplores the proliferation of nonsense on the worldwide web he helped create. Envisioned as a means to disseminate information, it has become a vehicle for assorted crackpots to push their theory of choice, for big business to monetise userinput, and for communities to coalesce around subversive ideas.

But Cerf believes that censoring the internet, or otherwise choking freedom of expression, would be a cure worse than the disease. Another of CFI. co’s other heroes, Bill Mitchell, is credited with

Norwegian chess grandmaster Magnus Carlsen remains firmly ensconced at the top of the game, having nothing left to win. The best chess player ever, if Elo scores are anything to go by, Carlsen admits that his reign is finite. He thinks that his game has already peaked, though so far no-one has been able to take his crown.

The Winter hero list is completed by political newcomer Alexandria Ocasio-Cortez, who was elected to the US House of Representatives

by New Yorkers and now promises to put some conservative noses out of joint.

Our last hero, Bitcoin inventor Satoshi Nakamoto, may not even exist. While hordes of Bitcoin nerds and enthusiasts try to identify Nakamoto, nobody has yet managed to do so. Though he may not exist, Nakamoto has a commanding presence as the genius who perfected cryptology – and made it into a currency. i

> MAGNUS CARLSEN CHESS WORLD CHAMPION In Pursuit of Perfection and Committed to the Art of Chess This is fine by the Norwegian, who finds enough room within the boundaries of convention to develop his game.

If Carlsen must be likened to any grandmaster, the best fit would probably be Boris Spassky, the Soviet half of the most famous chess clash of all times: the 1972 match in Reykjavík against American Bobby Fischer. The match paralleled the Cold War US-Soviet standoff, pitting the superpowers against each other on the chess board. Though Fischer won that momentous competition, he subsequently descended into a disturbed psychological state, becoming a Holocaust-denier, recluse, and a fugitive from the law.

Carlsen shows no inclination towards eccentricity and keeps his eye on chess without becoming obsessed by it. The Norwegian refuses to become an automaton, and keeps a human perspective on the game. He refuses to play against computers, admitting that the experience of losing against an inanimate object is not something to relish.

No need then for him to challenge the AlphaZero AI chess programme developed by Google offshoot DeepMind. AlphaZero uses machine learning to master any game; in just four hours, and starting with random moves, AlphaZero has “learned” to play chess to lethal perfection. Within 24 hours, it was able to beat another “robot” player, Stockfish 8, in a 100-game tournament. AlphaZero didn’t lose a single match.

The best chess player ever? It’s probably Magnus Carlsen, according to … Magnus Carlsen.

The Norwegian grandmaster, now 28, is one of those rare individuals able to mix arrogance with charm and still make friends. His unassuming demeanour hides his genius, and as he has matured, that genius has lost all trace of wickedness. Other than that which comes only into play on the chess board, of course.

Carlsen is a universal player who adheres to no signature style; he easily adapts to, and ruthlessly exploits, any situation. Carlsen is celebrated for detecting even the most minute advantage – and transforming it into a crushing victory.

The Norwegian maintains his composure under the most trying of circumstances. He does not 150

engage in soul-searching, and seems to suffer none of the psychological lapses that plague some grandmasters. This sangfroid often gives Carlsen the upper hand and allows him to unsettle his opponents, enticing them to make tiny mistakes and then exploiting them. The Norwegian’s endgame is anaconda-like, never giving an inch and working towards the “crack” (and ultimately victory).

Though Carlsen holds the highest recorded chess rating – 2882 on the Elo scale – he has not reinvented the game. That accolade goes to players such as the Soviet-Latvian grandmaster Mikhail Tal, “The Magician from Riga” (19361992). In the 1960s, Tal stunned game watchers with his attacks, creativity, and fearless improvisation. According to chess great Garry Kasparov, who coached Carlsen for two years, the era of chess innovation is largely over.

CFI.co | Capital Finance International

Though still very much a machine, AlphaZero AI takes a more empirical and human approach to chess, learning by trial and error, and analysing the outcome of experimentation as opposed to merely crunching numbers. Stockfish 8 evaluates around 70 million moves per second, but AlphaZero AI need only work out 80,000 positions to make up its digital mind – creating added knowledge in the process.

The DeepMind experiment unveiled a vast range of successful moves and tactics not previously employed, providing grandmasters with new vectors to explore and exploit. Carlsen is known to analyse and study the AI approach, and take some cues to which he can add his own intuitive twists.

That is, perhaps, the reason for Carlsen’s enduring success and popularity – the ability to remain human and accept the frailties that implies. Still a whisker ahead of the competition, Carlsen admits that he may already have passed his prime. Then again, there is nothing left for him to win.

The acceptance of fallibility is what makes Carlsen unique among grandmasters.

Winter 2018 - 2019 Issue

> SATOSHI NAKAMOTO INVENTOR OF BITCOIN To Be or Not to Be Nakamoto is said to own BTC1m, which he mined in 2009 from the Genesis Bloc. This represents a paper value of over $3bn, though cashing-in such a sum could wreak havoc in a jittery and sensitive market. However, the Bitcoin ledger shows that none of Nakamoto’s bitcoins have been traded. Satoshi Nakamoto has been listed as missing since at least 2010, two years after he launched the software that drives Bitcoin. The name sounds Japanese, but the Bitcoin white paper that was distributed among cryptographers in 2008 is written in flawless English. Nakamoto could be British. Or Finnish. Even Elon Musk has been suggested as the genius behind Bitcoin.

Conspiracy theorists believe Nakamoto to be a consortium of four large corporates, and find a clue in the names Samsung and Toshiba for the first name, and Nakamichi and Motorola for the surname. Other identities suggested include Dorian Nakamoto (an unemployed physicist), Hal Finney (a cryptographer and early Bitcoin miner), Craig Wright (an Australian businessman and self-styled inventor of Bitcoin), and Nick Szabo (the creator of Bit Gold, a precursor of cryptocurrencies). Then there is that worker at a media company who analysed the original Bitcoin white paper for unique phrases and chanced upon “computationally impractical to reverse” – a technological term employed, and reportedly patented by, a group of three senior programmers – who also registered the domain bitcoin.org, three days after the release of the original white paper.

Satoshi Nakamoto is the name used by the unknown person or people who developed bitcoin, authored the bitcoin white paper, and created and deployed bitcoin's original reference implementation.

The dormant P2P Foundation account of Satoshi Nakamoto – the man, or group of people, who invented Bitcoin – sprang back to life early December, with a single mysterious, and so-far undefined, word: “nour”.

Nakamoto, or the person using his account, also responded to a Brazilian user of Japanese descent who had sent a friend-request more than a year ago. That’s about it.

Nakamoto watchers believe the P2P Foundation account may have been hacked, and the mystery remains intact. Editors at news aggregator Reddit (known as “Redditors”) are

convinced they have identified the elusive inventor in a YouTube user with the nickname davincij15, who uploaded videos on preciousmetal trading in 2009. davincij15 went on to make a series of accurate predictions on cryptocurrencies in general, and Bitcoin in particular. In 2013, the YouTuber advised his followers to withdraw their virtual cash from Mt Gox, at the time the world’s largest Bitcoin exchange. Mt Gox suffered a virtual heist (or malfunction) in February 2014 – during which 850,000 Bitcoins (BTC), valued at $450m, disappeared. Only BTC 200,000 have since resurfaced, and Mt Gox is currently in liquidation.

CFI.co | Capital Finance International

Whatever Nakamoto’s identity, there is no doubt that he is/was a visionary and a gifted programmer. However, he was not well versed in economics or the world of finance. Though an interesting proposition from an ideological standpoint, Bitcoin’s entire setup spells economic doom and gloom should BTC ever become a common currency. Bitcoin is squarely aimed at exposing the evils of fiat money, and seeks to reintroduce a gold standard of sorts by limiting BTC to a hardwired ceiling of 21 million. Bitcoin is by definition a deflationary currency.

Despite hints of a Ponzi scheme, Bitcoin’s built-in scarcity should, in theory, ensure steady appreciation. As such, why spend a Bitcoin now, if it is likely to be worth more in future?

Deflation is one of the most haunting and disconcerting spectres in all of economics. The European Central Bank has created and floated a few trillion extra euros to keep deflation at bay.

There is a reason for that – one that Nakamoto and his followers have failed to understand.

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> ANDRÉS MANUEL LÓPEZ OBRADOR PRESIDENT OF MEXICO The Remaking of Mexico independence of its foreign policy which – under previous administrations – had morphed into an appendix of the US State Department.

Traditionally a champion of the non-aligned movement, Obrador’s Mexico wants to rescue its reputation as a neutral power broker.

Obrador has made it a point of honour not to immediately offend the Trump Administration and award the US president the chance of a cordial relationship. Though there is no shortage of contentious issues between the two countries, Obrador seems to have hit it off splendidly with his US counterpart. Whatever barbs were traded travelled along parallels vectors, causing neither hurt nor offense.

It is likely that Trump and his administration do not yet know what to make of Obrador. The self-proclaimed “scourge of neoliberalism” is the same man who courts foreign investors and knows how to lay on the charm. But Obrador is also a politician who used every trick in the book to cow the establishment and exploit every sign of weakness to finish off opponents.

A populist and a pragmatist rolled into one, President Obrador now commands an awesome powerbase that includes absolute majorities in both houses of congress, and in the local assemblies of 18 of the country’s 32 states. Not since single-party rule has a Mexican president wielded such enormous powers. Few dispute that Obrador has the strongest mandate to change the make-up of his country.

Mexico’s new president, Andrés Manuel López Obrador, seems to have given up on his promise to bring corrupt officials to justice, saying his administration doesn’t have enough prison space for all of them.

Andrés Manuel López Obrador – AMLO for short – wants to concentrate on the future, and promises to “re-found” the republic and remove corruption from its public service – albeit without locking up the perpetrators.

To set the tone for his administration, the president-elect arrived at the inauguration, on December 7, in his own Volkswagen Jetta, declining an official limousine. The next day, he put the presidential plane up for sale, vowing to never set foot aboard the Boeing 787-8 acquired for almost $220m in 2012. True to his word, Obrador travelled economy class on a commercial flight to Veracruz for his first official engagement outside the nation’s capital, taking a four-hour delay in his stride. He also ordered 152

the disposal of 60 smaller aircraft and 70 helicopters belonging to the federal government.

Obrador refuses to step inside Los Pinos, the 19th-Century complex that, since 1934, has served as the official presidential residence.

Within hours of taking over the presidency, AMLO ordered the palace to be opened to the public, and invited all Mexicans to have a look at the lifestyle their former leaders had enjoyed.

Tens of thousands have since visited the palace, gaping at the gold-clad and cavernous halls, the rather banal paintings of heroic acts, and the opulent private quarters.

Obrador broke with convention by inviting Venezuelan strongman Nicolás Maduro to the luncheon that followed the inauguration ceremony. Other leftists present included presidents Miguel Díaz-Canel of Cuba and Evo Morales of Bolivia. It is not so much that Obrador has sympathies for near-totalitarian or absolutist leaders, but that Mexico needs to reaffirm the CFI.co | Capital Finance International

Mexico’s experience shows that a president lacking power is often forced to secure backroom deals – invariably involving cash handouts. The position Obrador has carved out for his administration, especially at state level, does away with the need to buy local support and co-operation.

To preserve the support of his voters, Obrador plans to call impromptu referenda on some of the issues facing his government. The first asked Mexico City residents for their opinion on the $13bn airport being built, in the middle of corruption scandals and allegations. Voters indicated that they wanted to see the halffinished project cancelled. Obrador says he will do just that.

Obrador has promised to subject his own administration to a referendum at midterm, promising to resign should he have failed to have kept the trust of the people. Though his style is novel, and borders on the revolutionary, the foreign investors on whom Mexico depends for its prosperity are not heading for the exit.

Yet.

Winter 2018 - 2019 Issue

> VINCENT CERF INVENTOR Father of the Internet Looking for Ways to Preserve His Work universally readable on almost any device today, may, 100 or so years from now, be completely unusable.

That has already happened with files saved by WordStar, the text editor of choice in the 1980s which used a closed-data format that is now all but inaccessible. Physical media, such as the first eight-inch floppy disks carrying 80 kilobytes of data launched by IBM in 1971, can only be read by legacy equipment at specialised facilities. The storage solutions offered by iOmega in the 1980s and 1990s – Bernoulli Box drives and Zip, Jaz, and Clik! cartridges – have gone the same way.

Cerf has warned that future historians may be faced with a black hole – a dark age from which almost no records survive. The documents, pictures, and sounds that mark our era can be lost as digital media are abandoned and only fragments are transposed onto new carriers – a process that must be constantly repeated.

Now chief internet evangelist at Google – possibly the world’s coolest job title – Vincent Cerf has called for the creation of a “digital vellum” – a medium impervious to the onslaught of time and able to preserve abandonware and safeguard the accessibility of any file. “We are nonchalantly throwing all of our data into what could become an information black hole without realising it. We digitise things because we think we will preserve them, but what we don’t understand is that, unless we take other steps, those digital versions may not be any better, and may even be worse, than the artefacts that we digitised.”

Cerf proposes going back to basics, pointing out that the human eye and other senses are unlikely to change noticeably. Eyes can still read the stories written on clay tablets and papyrus rolls. Cerf notes that email records of the correspondence between the protagonists of important events will some day have vanished without a trace.

Photo Copyright © by Matthew Worden

Vince Cerf had absolutely no idea that his creation would be hijacked by big business, encourage tunnel vision, and spread misinformation. He just wanted to build a medium that allowed for the sharing of useful information.

Cerf and his colleague Bob Kahn, at the US Defense Advanced Research Projects Agency, came up with the Internet Protocol (IP) and the Transmission Control Protocol (TCP) in the early 1970s, technologies that underpin – and made possible – the internet. Later, in the late 1980s, Cerf helped develop the first commercial email system. In the mid-1990s, he was instrumental in setting up the Internet Corporation for Assigned

Names and Numbers (ICANN), the non-profit that maintains the internet address book and provides essential co-ordination between regional and national internet registries.

Of late, Cerf has been looking at ways to deal with the risk of digital obsolescence, the potential loss of data saved on physical media or in digital formats, that can no longer be accessed. As hardware and software are subject to constant change, backward compatibility is often lost. The issue has been around since the early 1970s, but so far no solution has been found. Archivists do not usually think in years or decades, but in centuries and millennia. A PDF file that is CFI.co | Capital Finance International

“Today, historians can reconstruct events by finding letters and other key documents that are kept at libraries,” he says. “Important documents will probably survive, but context is often sourced from the writings left by less important actors, commentators, or witnesses. These will undoubtedly have been lost.”

At Google, Cerf may be in the right place to help shape the digital vellum needed to preserve the present. The company has been rather secretive about its efforts, but it is reaching out to partners such as digital art collective Rhizome to develop open-source digital preservation tools.

Vincent Cerf may well father another internet breakthrough.

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> BILL MITCHELL ECONOMIST Saving Capitalism from Itself

Proponents of Modern Monetary Theory (MMT) often manage to elicit a nod from more orthodox peers that acknowledges their existence – but does not necessarily imply recognition.

Frequently derided as apologists for free spending, MMT fans insist that austerity is an elitist ploy to keep the masses in their place and to stop them from upsetting the economic apple cart; a cart that, incidentally, carries away the riches.

MMT is akin to the heterodox economic thought that enjoyed its 15 minutes of fame somewhere in the mid-1970s, and has since retreated to fringes mostly found in Latin America. There are, however, a few voices still calling from the wilderness. Bill Mitchell, professor of Economics at the University of Newcastle in Australia, is one of those voices.

Mitchell insists that the emperor has no clothes and flatly refuses to buy into neoliberalist thought. He has been outspoken in his condemnation of austerity policies that prioritise debt repayment and fiscal frugality. He also rallies against progressives for selling out to the right-wing – starting with Tony Blair’s New Labour and including François Mitterrand and other less prominent social democrats who dumped their convictions to embrace the free market.

Mitchell argues that the neoliberal policies now prevalent across most of the Western World 154

have effectively depoliticised the economy, undermining the primacy of politics and depriving voters of a say in the management of their countries. According to Mitchell, this sense of disenfranchisement has sparked a renewed interest in the political extremes of left and right which cater to, and feed on, popular frustration.

The notion that neoliberals want to limit the reach and role of the state is only skin deep, says Mitchell, pointing to bank bailouts as a prime example of the agenda which seeks to privatise profits but insists on socialising losses. This threatens governments with dire consequences for allowing “too big to fail” entities to tumble. Those same forces are also engaged in dismantling antitrust legislation and mechanisms, arguing that bigger is better, and cheaper, and necessary to acquire the critical corporate mass to compete on a global scale.

Mitchell offers MMT as an antidote. MMT departs from the premise that money is essentially created out of nothing. The magic money tree exists, and it is cultivated by banks.

Mitchell will hear few economists disputing his assertion that fiat money is an abstract concept of digits entered into a computer.

Few people understand the concept of a medium of exchange created and regulated by governments – as opposed to a currency with intrinsic value, such as gold.

CFI.co | Capital Finance International

What MMT argues is that any government overly worried about deficit spending or debt load does itself a disfavour by barking up the wrong money tree. As long as a country is in full sovereign control of its own money – which Greece was not – it should have no trouble navigating economic boom and bust cycles, insulating wider society against the fallout.

The University of Chicago, grand central of monetarist thought, argues that money supply must be controlled to keep inflation low. MMT calls for central banks to return to their original duty – to keep unemployment low – instead of fighting inflation.

Though most politicians support the monetarist approach to finance, as espoused by Milton Friedman et al, few dare to practise true orthodoxy. Most actual economic policy is hybrid – and, says Mitchell – ineffective. MMT is, of late, enjoying something of a renaissance as voters grow tired of austerity and begin to question its premises. Mitchell’s core message is getting through: big business has become too big for its own good, and austerity is a bid to balance books for all the wrong reasons.

Voodoo economics to some and an open invitation to emulate Venezuela to others, MMT may be easily dismissed as a set of crackpot ideas.

However, that would do Mitchell an injustice.

The foundation on which MMT rests is solid, and any idea that challenges orthodoxy without departing from reality surely merits a closer look.

Winter 2018 - 2019 Issue

> ALEXANDRIA OCASIO-CORTEZ AMERICAN POLITICIAN Young Congresswoman Refuses to Play Nice It takes the gumption of a hero to identify as a socialist in the United States, and something of a miracle to get elected to public office under a red banner. But that is what 29-year old Alexandria Ocasio-Cortez has done.

She pulled off a massive upset in the 2018 midterm elections, beating incumbent Joe Crawley in the primaries and ejecting the chair of the Democratic Caucus from the House of Representatives. As she forced an end to Crawley’s political career – and received 78% of the vote in New York’s 14th congressional district – Ocasio-Cortez also became the youngest woman to take a seat in the US House of Representatives, where she arrived to popular discontent – and great expectation.

Ocasio-Cortez is not one to keep quiet or defer to colleagues with more Washington-time beneath their belts. Even before being sworn in she gave a taste of what was to come, tearing mercilessly into the Harvard orientation session traditionally organised for freshman lawmakers – an event which she branded “biased” and called a “pro-corporate lobbyist project”.

Ocasio-Cortez is not enamoured with corporate America, or the way politics are conducted in the nation. She was one of the first to question the hundreds of millions of dollars in tax breaks awarded to Amazon, which enabled the online retailer to build one of its three corporate headquarters in New York City. Arguing that the money could be much better spend on the city’s crumbling subway network, or its disadvantaged boroughs, Ocasio-Cortez led protests against Amazon’s plans.

She has also taken her conservative critics to task and seems wholly unafraid to push back – hard – to the point of trolling them and exposing their faux pas – such as the embarrassing moment lived by representative Steve King (R-Iowa), who during a meeting of the House Judiciary Committee grilled Google CEO Sundar Pichai over the obscenities he found on his daughter’s iPhone, prompting the executive to sigh and point out that the iPhone is made by a different company. Ocasio-Cortez also enjoys sniping at habitual peddlers of fake news, such as Kellyanne Conway, Donald Trump’s former campaign manager and current adviser.

Belittling the new congresswoman has now become a dangerous proposition since OcasioCortez has at least as much venomous clout as her conservative opponents. Sarah Palin was commended on her exceptional vision (she claimed to be able to see Russia from Alaska), and ridiculed for mixing up of North and South

Korea – and picking the wrong one as an ally. Also noted by Ocasio-Cortez was another of Palin’s geographical gaffes (she called Afghanistan “our neighbouring country”). Palin has since retreated to the wilderness, wisely leaving Ocasio-Cortez alone.

The young congresswoman ticks all the boxes that make Republicans see red: she is progun control and pro-choice, supports universal healthcare, free tertiary education, and an end to mass incarceration policies. OcasioCortez also describes global warming as the CFI.co | Capital Finance International

single biggest national security threat facing the country. She is an advocate of immigration reform, and would like to see a path to citizenship for undocumented immigrants.

Ocasio-Cortez has so far leveraged her political stardom to withstand the pressure put on her

by Democratic peers to fall in line, play nice, and follow convention. She is, as some pundits have remarked, a replica of the 2010 class of Republican congressional members, who used their Tea Party credentials to challenge the Republican leadership.

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> Latin America

Waste Not, Want Not President Bolsonaro Promises Reform: Can He Deliver?

An estimated 16% of all government spending in Latin America is wasted.

The money ends up lining the pockets of insiders or civil servants.

According to a recent study by the Interamerican Development Bank (IDB), public wage bills amount to 8.4% of regional GDP, significantly above global averages. Only Middle Eastern and North African governments dedicate a greater share of their countries’ national income to the public sector wage bill.

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n Latin America, civil services usually represent poor value for money.

Entitlements shackle development as well. In Brazil, about half of the federal budget must be set aside for the funding of a pension scheme which allows government employees to retire at 55 – with 70% of their final salary for the rest of the lives.

The World Bank calculated that nearly the entire federal budget will be gobbled up by pensions in about 12 years. According to a report compiled by the OECD (Organisation for Economic Cooperation and Development), Brazilian men retire on average at 56, and women at 53. There is no minimum retirement age. Even though the country’s population is relatively young, spending on pensions has ballooned from 4.6% of GDP in 2014 to 8.2% in 2016, the last year for which data are available.

Nearly all political parties agree that something needs to be done, but meaningful pension reform has so far proved impossible to enact.

Outgoing president Miguel Temer had made an overhaul of the country’s pension law the centrepiece of his administration. After manhandling his opponents in congress, the president managed to snatch defeat from the jaws of victory after a recording surfaced that seemed to show Temer discussing the disbursal of bribes. Though Temer prevailed in the political dogfight that followed, he lost most of his authority and nearly all of his credibility.

Pension reform was again relegated to the backburner – a thorny issue for some future administration. With an election looming, no candidate felt the urge to explain to voters that, in the future, they should work longer and receive less money after retirement.

INTO JUNK TERRITORY The lack of progress on wider social security reform, which includes pensions, prompted Standard & Poor’s to knock down Brazil’s sovereign credit rating an additional notch to BB(stable outlook), sending it still deeper into junk territory. Brazil lost its coveted investment-grade rating in 2015 as the economy nosedived, and the administration of then-president Dilma Rousseff failed to tame government overspending.

To most ordinary Brazilians, the now shelved reforms represented yet another assault on their personal finances by a discredited political establishment that has made graft into an artform.

Most pundits agree that Temer’s failed social security reform agenda, and the controversy it stirred, contributed to the political backlash that saw former army officer Jair Bolsonaro triumph in last October’s presidential election.

Bolsonaro, who took over the reins of government on January 1, also recognises the need to move on pension reform. His team of orthodox economists wants to act quickly to reduce the 158

"His team of orthodox economists wants to act quickly to reduce the budget deficit, which current hovers around -7% of GDP." budget deficit, which current hovers around -7% of GDP. Economy Minister Paulo Guedes, one of the founders of the BTG Pactual bank and a former student of the late monetarist icon Milton Friedman, plans to push a limited reform package through congress and revisit the subject next year, after Bolsonaro has cemented his powerbase. The Bolsonaro administration depends on ad hoc coalitions in congress.

As economic tsar, Guedes has been put in charge of a “super ministry” that includes finance, budget, planning, trade, and industry portfolios.

By investing Guedes with far-reaching powers to steer the economy, President Bolsonaro has departed from the nationalist and interventionist approach he favoured during his 27 years in congress.

SELLING THE CROWN JEWELS It remains doubtful that Guedes will be allowed to implement his grand privatisation plans and selloff of the country’s corporate crown jewels such as oil giant Petrobras, banking behemoth Banco do Brasil, and power company Electrobras. Many of Bolsonaro’s supporters have yet to make the switch and are fearful that critical parts of the country’s economic infrastructure could end up being taken over by Chinese interests.

The military considers these state-owned corporations vital to national security, and have vowed to oppose their privatisation. The president himself wavers between supporting his economic miracle worker and catering to his nationalist constituency. He has told Guedes that, for now, selling Electrobras is out of the question and echoed Donald Trump’s China-bashing, accusing the Chinese of “buying up Brazil”.

Minister Guedes also wants to slash taxes and streamline the country’s notoriously complex, if not byzantine, tax code to spark private investment and create jobs. On the trade front, the super-minister proposes to shift priorities away from the Mercosur regional bloc – which he considers restrictive and cumbersome – towards bilateral free-trade agreements with major players such as the US and the EU. Minister Guedes warned that the president’s desire to move Brazil’s embassy in Israel from Tel Aviv to Jerusalem would jeopardise relations with the Arab world. Foreign policy, never high on the political agenda of Brazil, could turn out to be the new administration’s Achilles’ heel. Although CFI.co | Capital Finance International

the similarities in the public discourses of Donald Trump and Jair Bolsonaro are remarkable, the agendas and interests of the US and Brazil do not necessarily align. That said, President Bolsonaro does take a few cues on economic affairs from his US counterpart, such as a large tax stimulus package to kickstart growth.

WRIGGLE ROOM However, Brazil enjoys little, if any, fiscal leeway with a nominal budget deficit of some 7%, even though, excluding debt servicing charges, the budget actually showed a tiny primary surplus.

However, public debt ballooned to almost 74% of GDP, perilously close to the limit of what most economists regard as sustainable.

Should the Bolsonaro administration succeed in its early attempts to reform some aspects of the country’s social security system, a bit more fiscal room would become available. The conundrum facing the new president is to keep government debt within reasonable margins while ensuring the minimum 3% annual economic growth that is required. Privatisations, a highly contentious topic, may only provide temporary relief. Draining the swamp – one of Trump’s favourite pursuits – is unlikely to do Bolsonaro much good. Earlier attempts to cut red tape and streamline the bloated state have met with stiff opposition from those that benefit most – nearly all of the country’s 594 members of congress.

Investors, however, seem upbeat and managed to drive the Bovespa Index to new heights.

Most domestic business leaders are optimistic as well, trusting economy tsar Guedes to keep the president on-track. The trouble is that, apart from soothing words, there have been few specifics coming out of Brasília. While Guedes promises to eliminate the federal deficit, he has failed to provide a detailed plan. Earlier signs that the subsidies to industry would be scrapped and international competition encouraged have now dimmed.

Brazil remains one of the world’s most closed economies, with import duties ranging from 10% to 35% on most goods and a host a nontariff barriers in place to discourage imports.

The country still ranks near the bottom of the Trade Freedom Index compiled by the Heritage Foundation. Though protectionism has given rise to a relatively large industrial base, Brazilian companies have been found ill-equipped to prosper outside their domestic market.

An addiction to protectionist policy shortcuts has also hampered Brazil’s attempt to join the OECD, with the US refusing to consider the application on the grounds that it is not a wealthy country.

The Brazilian government had expressed its hope that by joining the Paris-based group, the country might be able to attract more investors and obtain lower interest rates. President Bolsonaro has now indicated he will seek to intensify the bid to join the organisation, quietly expecting the US president to back the push. i

Winter 2018 - 2019 Issue

> Central Bank Governor Valdez:

A Path to Development in the Dominican Republic

Governor: Héctor Valdez Albizu

H

éctor Valdez Albizu, Governor of the Central Bank of the Dominican Republic and President of the Monetary Board of this country, in the periods 1994-2000 and 2004 to the present.

Economist from the Autonomous University of Santo Domingo. He studied at the Institute of Social Studies of the Catholic University of Chile and the Institute of Specialized Studies of the International Monetary Fund. He has carried out various research works, related to exchange rate management, monetary policy, financial markets and banking. His lectures and speeches have been gathered in the work “A path to development, volumes I, II and III”, 1996, 2000 and 2018.

He has received several recognitions, among them, Medal of Merit of the Public Servant,

Dominican Republic, 1996; Gaucho Rioplatense, Dirigencia magazine, Buenos Aires, Argentina, 1996; Economist of the Year 1997, Dominican College of Economists of the Dominican Republic (CODECO); Banker of the Year 1998, Listín Diario newspaper; 500 Personalities of the Financial World, Who’s Who Encyclopedia, United States of America, 1999; Governor of the Year 2006 for the Americas region by The Banker magazine; decorated by the Dominican government with the Order of Merit of Duarte, Sánchez and Mella, in the degree of Officer, 2012; “Global Finance Central Banker Report Card Degree A” of the magazine Global Finance, and “Governor of the Year for the Caribbean region” granted by the magazine Global Markets, both in 2017.

CFI.co | Capital Finance International

He has been president of the Central American Monetary Council (CMCA), 2011, and Member of the Governing Board of the Center for Latin American Monetary Studies (CEMLA).

As Governor, he was involved in the successful stabilisation programme implemented after the 2003 Dominican Banking crisis, and in the adoption of the Inflation Targeting regime during 2012, wich has contributed to obtain low levels of inflation. The monetary policy of the BCRD have delivered stable economic growth to the Dominican Republic, averaging around six percent over the past four years, with an impressive of 7% growth in 2018.

He is married to the economist Fior Martínez de Valdez, with whom he has a son, Héctor Manuel. i 159

> Active Input from CEO and it’s Benefits for All Juan Antonio Nino is the CEO and founding director of Active Capital Reinsurance (ACTIVE RE).

A

CTIVE RE has progressed from a niche regional reinsurer to a full-blown global reinsurance company – with a presence in 35 countries on four continents – in its 12 years of operation under Nino’s guidance.

Nino is a firm believer in the company’s motto – “Benefits for all”. He was also the driving force and creator of the company’s main operational philosophy: “Put clients first, measure risks twice, and pay claims after due diligence – always!”

ACTIVE RE’s active and creative CEO has more than 40 years of experience in the finance and insurance world. Since he started in the finance industry, way back in 1980, Nino has held senior positions in national and regional banks, working at times on behalf of more than a million clients. His was the most successful bank in credit card issuance in the Central American region. Nino and was a pioneer of the industry in Latin America, founding one of the first local reinsurers in 2000; he went on to found ACTIVE RE in 2007.

"Put clients first, measure risks twice, and pay claims after due diligence – always!"

Nino possesses a strong business and leadership record and has a deep understanding of the business landscape in the Central American region thanks to his tenure as president of the Panamanian Banking Association (ABP) and the Latin-American Federation of Banks (FELABAN).

He was president of APEDE (Asociacion Panamena de Ejecutivos de empresa) and was the first vice-president of the National Council of Private Enterprise of Panama (CONEP).

Nino’s career in finance began in 1979, after completing a Masters degree in Finance and Economics at the University of North Wales. He completed several post-graduate programmes in prestigious institutions, including Wharton School of Business, in Philadelphia, and Harvard Business School, in Boston, Massachusetts. i 160

CEO and Founding Director: Juan Antonio Nino

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>

From Small and Hungry – to Strong and Flourishing

A

ctive Capital Reinsurance Ltd (ACTIVE RE) is a Barbados-domiciled reinsurer established in 2007.

The company first specialised in bancassurance and affinity type products. Since then, ACTIVE RE has been providing all types 162

of (re)insurance coverage for large financial institutions, such as banks and credit companies.

blown expansion strategy, and had operations throughout Latin America and Eastern Europe.

In 2015, ACTIVE RE started a diversification strategy into other markets and lines of business, widening client solutions and augmenting its global reach. By 2016, ACTIVE RE had a full-

ACTIVE RE began its geographical expansion to MENA (Middle East and North Africa) in 2017 in different lines of business, resulting in fruitful visits during 2018. It was the start of a new

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Winter 2018 - 2019 Issue

2008-2018 140,000 120,000 100,000 80,000 60,000 40,000 20,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 GWP

Net Income

Share capital

rewarded ACTIVE RE with all-time high grades in 2018: an FSR of A- (stable outlook) and ICR of a- (stable outlook).

Also in 2018, ACTIVE RE launched a new corporate image, and distributed its new capacities throughout the more than 40 countries in which it operates.

Products offered by ACTIVE RE include (but are not limited to) affinity, bancassurance, P&C, surety and bonds, general liabilities, engineering, energy and power generation, aviation and marine cargo. Complementing the financial needs of large corporate clients, ACTIVE RE offers tailor-made alternative risk-transfer solutions (ART), including actuarial analysis and risk management advisory services.

Over a decade, the company has reported significant growth in business written, with strong risk-adjusted capitalisation levels, stable leverage, low acquisition costs and sound ERM practices.

The numbers speak for themselves. The company started in 2008, with a share capital of $100,000; in 2018, it closed with a share capital of $30,000,000. On the same line, the gross written premiums have increased 20-fold across the past decade, from just $5,740,000 to closing 2018 with more than $100,000,000.

era of important alliances with producers and strategic partners in the region.

Starting 2018, ACTIVE RE reached new horizons, developing a sizeable portfolio, not only in bancassurance but also in traditional lines of business all over APAC.

Since 2014, AM Best has been certifying ACTIVE RE’s Financial Strength Rating (FSR) and Issuer Credit Rating (ICR), granting international investment grade in consecutive years.

Continued capital growth and improvement of key performance indicators, driven by product innovation and geographical diversification, have CFI.co | Capital Finance International

Looking back to all that transpired in 2018, ACTIVE’S RE goals continue to evolve. In the coming year, it intends to increase underwriting capacity and continue to grow expertise in traditional lines. ACTIVE RE also aims to strengthen and grow in its operational markets, further expanding its horizons by increasing capacities and enhancing current operations. i 163

> Brokerage in Chile:

An Investment in Effort and Time Brings Rewards

B

anchile Inversiones has worked for 35 years to gain the status of the most important investment company in Chile.

It was off to a good start, as a subsidiary of the most respected and most experienced bank in the country, Banco de Chile. Banchile Inversiones is the investment company preferred 164

by Chileans. It has had a solid and unblemished reputation, and has won the trust of more than 300,000 clients, maintaining sustained leadership in the market.

Its mission is to work long-term with clients by providing them with a personalised service – with all the trajectory, professionalism and confidence CFI.co | Capital Finance International

for which the Banco de Chile is famous. Banchile Inversiones has a high degree of specialisation in its products, using state-of-the-art technology and granting expert attention to the field of investments for each investor profile.

In an increasingly demanding and sophisticated world, being able to count on broad and

Winter 2018 - 2019 Issue

differentiating investment solutions is a duty that Banchile Inversiones has taken as its own.

Banchile Inversiones consists of Banchile Corredores de Bolsa SA and Banchile Administradora General de Fondos SA (General Fund Manager SA), specialist companies and leaders in their respective fields. This structure generates synergies that allow the company to expand its offering of investment products, consolidating the integral service that characterises it in the Chilean market.

Banchile Administradora General de Fondos SA offers a complete range of investment products, focused on Chilean and international markets. Among these are mutual funds, balanced and structured funds, real estate funds, investment funds and administration mandates.

Investment portfolios are strategically structured according to the company’s assessment of its markets. General Fund Manager SA is recognised as the most powerful specialist team in the country.

Over the last few years, Banchile Inversiones has been one of the leading brokerages in terms of revenues and volumes traded, covering nearly 13% of the national brokerage market. With a team of specialists for the stock market, as well as currencies, derivatives and fixed income.

Teams advise clients in decision-making, and support them in the management of their portfolios, delivering fast and efficient responses to all requests. It has at its disposal the most up-to-date and comprehensive information regarding the different markets.

Banchile Corredores de Bolsa provides in parallel the custody service that allows it to leverage its assets to carry out investment operations and safeguard its financial instruments.

Santiago, Chile: Plaza de Armas

"The challenge is to keep growing. If we do not grow, we can’t give the opportunities we want to give to our people."

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Products on offer include: • Purchase and sale of national and international stocks • Short selling • Purchase and sale of US dollars and euros • Fixed income in domestic and foreign currency PRIDE IN ITS WORK HAS PAID OFF Banchile Inversiones’ performance led to its highest profit between January and September of 2018, totalling $16,207m.

That’s an increase over the previous year of 40.8%.

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25.00%

20.00%

15.00%

10.00%

5.00%

0.00% Banchile

Santander

BCI

Banco Estado

Security

Larraín Vial

Bice

Others

Market Share: Assets Under Management (AUM) in international and domestic markets (total). Banchile AGF

The general manager of Banchile Inversiones, Hernán Arellano, is proud of the path the company has taken to achieve its goals.

"Everything we have achieved has been through our motto of ‘Passion for our customers, passion for excellence, and passion for our community.

“The challenge is to keep growing. If we do not grow, we can’t give the opportunities we want to give to our people. We have to consolidate what we have achieved – and go for more. We are all involved in the drive to achieve better things.”

Digital Platforms Banchileinversiones.cl and App Mi Inversión are part of the technological assets that Banchile Inversiones has for its clients.

These are platforms at the forefront of the market, where customers can operate autonomously and review the status of their investments online.

Banchile Inversiones uses social networks to assess the potential of new customers and is involved in youth training and technological advancement to ensure constant refreshment of its brand image.

Arellano said all members of the company should feel equally proud of Banchile’s achievements in a hyper-competitive industry. “Banchile Inversiones is in a fast and dynamic business,” he said, “so whatever we want, we will achieve it through collaboration."

Arellano stressed that the new agreements and advances the company has made, in Peru and Colombia, as well as Chile, presented business opportunities.

“We are going to engage with those markets, and that will allow us to grow," he said. i

CEO: Hernán Arellano

Banchile Inversiones - reasons for success:

Teams of recognised specialists

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Broad range of products and services

Largest distribution network in Chile

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Leaders in technological innovation

> Chile Minister of Economy, Development, and Tourism José Ramón Valente:

Escaping the Middle-Income Trap and Securing a Second ‘Glorious 30 Years’ Early in November, the International Monetary Fund (IMF) paid homage to Chile’s economic resilience and progress.

I

t lavished praise on the country for its willingness to embrace the structural reforms with which the administration of Chilean President Sebastián Piñera aims to push the nation into the ranks of the world’s most advanced economies. Piñera has repeatedly vowed to transform Chile into Latin America’s first fully developed market.

To achieve that status, Chile needs to boost productivity. In its latest statement on the country, the IMF suggests that some innovation, and a rewriting of Chile’s rigid labour laws, could go a long way.

Meeting with CFI.co at the recent World Investment Forum in Geneva, Chile’s Economy, Development and Tourism Minister, José Ramón Valente, explained that history offers a valuable lesson to countries such as his to avoid the dreaded “middle-income trap”.

Hidden Gems: Chile

“Empirical evidence tells me that in order to break out of this trap, societies first need to reach a political consensus around a suitable development model,” he said. “In other words, a national sense of purpose seems to be a requirement to avoid getting stuck in the swelling ranks of middleincome countries.”

STEADY AS SHE GOES… For the last 20 years or so, Chile has maintained a uniform and predictable set of economic policies supported by the twin pillars of open borders and light-touch regulation. On the Economic Freedom Index, compiled annually by the Heritage Foundation, the country claims a spot within striking distance of the US and the Netherlands – and eons removed from its Latin American peers, with Brazil and Argentina scraping by as “mostly unfree” economies near the bottom of the global league. On the World Economic Forum’s Global Competitiveness Index, Chile again leads the continent, ranking alongside Spain, and significantly ahead of Italy and Portugal.

If these lists prove anything, it is that Chile already has all the outward signs of an advanced economy. But Valente cautions that an economic environment that fosters growth and spurs development consists of a fragile and easily 168

"We sincerely think that a closely integrated world equates to a better world." disturbed balance of interests and policies. He points to Venezuela to make his point: “When the political consensus breaks down, as happened in Venezuela, any gains made may be quickly lost.

“Look, quite a few countries in the region have enjoyed their 30 years of national glory. Argentina enjoyed its ‘glorious 30’ towards the end of the 19th Century. Brazil looked unstoppable as the up-and-coming industrial powerhouse of the world in the 1960s and 1970s. Half a century ago, Venezuela was an almost fully developed country.”

Chile, Valente says, enjoyed its glorious 30 between 1985 and 2012, and wavered a bit in the years that followed, discussing myriad ways – some sensible, others less so – to “rebase” its development model.

CAN-DO SPIRIT While welcoming debate, Valente is worried that changes to a winning team may not guarantee better results. “Late last year, Chilean voters reaffirmed their commitment to the development model that has yielded stellar results since 1985.

That’s why I disagree with The Economist and remain convinced that our country can, and will, escape the middle-income trap.”

In an article published in September, The Economist hailed the return of billionaire businessman Sebastián Piñera as president, but the magazine’s editors worried that he may not find his groove. Facing a sceptical congress, the president is encountering resistance to his ambitious reform programme which aims to turn back the clock on the rigid and confusing corporate tax code introduced by his predecessor to raise education funds, but which has instead angered small businessowners and scared-off investors.

“Our job is to defeat pessimism with action,” said Valente, emphasising that to push GDP growth to CFI.co | Capital Finance International

4% or higher, productivity and investment levels need to increase: “Hence, we must preserve the political consensus, and reconnect with our success formula, to push the economy and latch on to the Fourth Industrial Revolution that is taking shape.” Valente is adamant that some of the more bearish analysts miss the point. “A few outside observers are still stuck on the refrain that Chile’s economy represents a rather simplistic edifice, erected on the abundance of natural resources.

“Just a quick look at the country’s export mix and corporate matrix is enough to expose the fallacy of this argument. Chile has been the birthplace of large multinational companies. The country gave rise to the largest airline company in Latin America [LATAM Airlines], the largest retailer of the region [Falabella], and the second-largest grocery store network on the continent [Cencosud]. Moreover, Chilean wineries and fruit packers serve global markets, as do its fisheries.”

To Valente, these corporates offer tangible proof that Chile’s economy has successfully diversified from commodities, with mining representing just 10% of its GDP, which “implies a highly complex economy and one that is able to thrive in a competitive environment”. Valente notes that Chilean exporters have managed to challenge incumbents in a number of major markets.

“Farmed salmon and wine are prime examples of this,” he says. “We started from close to zero and are now home to some of the most competitive companies in these sectors. There is absolutely no reason why these remarkable feats cannot be repeated going forwards.”

FREE TRADE CHAMPION A significant degree of Chile’s corporate savvy may be attributed to the country’s eagerness to seal international trade deals. No other country sustains more free-trade agreements than Chile.

“Trade, however, is just one part of the equation,” says Valente. “It is just as important to have deals that allow companies to conduct business entirely outside their home market. Right now, Colombia and Peru receive significant investments from Chilean corporates which have turned away a little from Brazil and Argentina to look for perhaps more exciting opportunities elsewhere. One must

Winter 2018 - 2019 Issue

Minister José Ramón Valente (right) talking to CFI.co editor Wim Romeijn

not forget that Chile’s domestic market comprises only about 17 million consumers.”

Successful business soon outgrow the domestic market and must look abroad for expansion, he believes, and it is of paramount importance to have as many trade and investment deals as possible.

Valente explains that, at last count, Chile had 64 free-trade agreements in place, covering around 90% of global GDP: “We sincerely think that a closely integrated world equates to a better world.

Chile is now determined to expand existing trade agreements to include frameworks that ensure regulatory equivalency. We want to move way beyond tariffs and take down other barriers to cross-border trade as well.”

“Controversy over Paul Romer Now Closed”

L

ate last January, World Bank chief economist Professor Paul Romer quit his job after questioning the downgrading of Chile’s ranking on the Ease Of Doing Business Index, which followed a revision of the criteria used to compile the annually updated list. Romer noted the country’s downward slide from 34th place in 2014 to 55th spot four years later, and attributed the fall to a former director of the World Bank Group. The director allegedly tinkered with the methodology to penalise the country for having elected left-wing president Michelle Bachelet for a second non-consecutive term in office in 2014.

In the firestorm that followed his formal apology to Chile for the “politically motivated” downgrading of its position on the index, Romer was encouraged to resign. A recipient of the 2018 Nobel Memorial Prize in Economic Sciences, Romer has since returned to the New York University Stern School of Business to teach and continue his research on the theory of endogenous growth, which he helped formulate.

This theory examines the impact of domestic factors on economic development such as

education, innovation, and policy elasticity (the ability to adapt to change circumstances).

Chile’s Minister of Economy, Development, and Tourism, José Ramón Valente, considers the Romerepisode closed. “This was mostly an internal World Bank matter,” he said. “As I understand it, Paul Romer criticised the changes in the methodology used to compile the Ease Of Doing Business Index and how these changes affected our country.

However, even his own staff disagreed with his objections, and Paul Romer ended up quitting his job over the resulting controversy.

“Now, we fully understand that it is quite normal to revise and update the methodology used to calculate any given index. However, as this episode shows, it is quite important that any and all changes be debated openly and adopted in a transparent way. By the way, the World Economic Forum has also just updated it Global Competitiveness Index.

“The entire controversy has caused significant harm, not so much to Chile’s own reputation and standing, but to the World Bank’s own credibility.” i

Most promising investment sectors: Agribusiness // Infrastructure // Biotechnology // Renewable Energy // Tourism CFI.co | Capital Finance International

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Hidden Gems: Chile

Chile is currently revising its free-trade agreement with the EU in an attempt, welcomed by Brussels, to reduce or eliminate non-tariff obstructions.

“Precisely because neither one of us is in any particular hurry, we have an opportunity to calmly analyse the present and come up with ways to harmonise regulation and promote frictionless trade,” he said. “Chile’s main advantage is that the country already now has its borders open to outside goods, services, and capital. After adhering to the same policies for well over 30 years, our credentials are well established. That stability has not gone unnoticed, and helps explain why Chile remains one of the most important recipients of foreign investment in Latin America.” i

Chilean Minister:

> North America

Irrational Exuberance 2.0 Why President Trump May Have a Point

The (almost) universally revered former chairperson of the US Federal Reserve, Alan Greenspan, was a master of “Fedspeak�, often packed in long-winded sentences to hide his true intentions and to overload the scales on which his words were measured.

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G

reenspan departed from the script only to signal in clearer language his displeasure or concern. More often than not, he was condemning markets for their “irrational exuberance” – a term he borrowed from Robert J Shiller, professor of economics at Yale University and co-recipient of the 2013 Nobel Memorial Prize in Economic Sciences (with Lars Peter Hansen and Eugene Fama).

Irrational exuberance would go some way towards describing the current situation in the US, although for reasons different to those which prompted Greenspan to use the phrase. Though the overall economy seems to be doing fine – to the point of exuberance – a growing number of bond-market watchers have expressed concern over the recently inverted yield curve between two- and five-year Treasury notes.

Under this rather rare condition, it is cheaper to borrow long-term than short-term, given debt paper or comparable quality. The last time an inverted yield curve was observed, in 2000, the phenomenon heralded a downturn of equity markets. This time around, the inverted yield curve – which usually predicts a lowering of interest rates – happens when the Federal Reserve is considering yet another rate hike.

Donald Trump has suggested that the Fed should hold off on its plans. He may be right.

While buoyant, the US economy may be slightly less robust than previously thought.

The latest (December) monthly Reuters survey of economists, analysts, and fund managers shows that 40% consider a recession to be likely in the next two years – the highest percentage of pessimistic respondents since last May (and before that since January 2008, eight months before Lehman Brothers collapsed).

"Donald Trump has suggested that the Fed should hold off on its plans.

He may be right."

New York that interest rates were “just below” the level Fed officials consider neutral – neither adding to, or subtracting from, economic growth.

Just one month earlier, Powel had indicated that the Fed was still a long way off neutral.

Trump’s opponents display an unbecoming eagerness for the US economy to taper as the effects of his $1.5tn tax cut wear off, but signs of a downturn are few. The unemployment rate stands near a 50-year low, while the labour participation rate is steadily climbing. People who had given up on looking for jobs after the last recession – and not included in the statistic – are being lured back into mainstream life.

Average wages are picking up too – albeit slowly.

More importantly, there is no sign of inflation.

This fact would seem to do away with the need for a hike in interest rates, and helps explain Trump’s anger. Powell has a point too, however: the Federal Reserve needs to create some wriggle room to regain its firepower should another recession strike. Right now, the Fed – like the European Central Bank – has no monetary instruments to speak of, unless someone suggests moving into near-blasphemous negative-rate territory.

MERELY FOOLISH Trump called the proposed rate hike “foolish”.

Trump had previously branded Fed chairperson Jerome Powell “crazy”, “out of control”, and – showing some cosmopolitan flair – “loco”. The president also called Powell “too aggressive”, and blamed him for a stock market sell-off, and for causing General Motors to lay off almost 15,000 workers.

DISMAL FISCAL PICTURE All seems well in America, as long as the observer ignores the fiscal picture – which isn’t very encouraging. The US economy is expanding at a healthy 3.5% annually, but the US treasury recorded a whopping $205bn spending deficit in November. After accounting for the estimated $44bn in early charges, the deficit has worsened when compared to November last year. The 2019 fiscal year is likely to see the deficit top the $1tn mark. For the current fiscal year, the Congressional Budget Office (CBO) projects a deficit of $973bn, or 4.6% of GDP. According to the CBO, that last number is set to rise to 5.5% by 2022.

The political independence of the US Federal Reserve is sacrosanct, even under the current administration. Powell admitted during a lateNovember meeting of the Economic Club of

To paraphrase Ernest Hemingway, recessions happen slowly, then suddenly. The party – to which the Trump Administration may have provided a last hurrah – could be drawing to an

end. Billionaire investor, hedge fund manager and philanthropist Paul Tudor Jones, known for looking at the big picture, thinks so. He worries that a global debt crisis is in the works, pointing to the global debt-to-GDP ratio, which now stands at an all-time high.

Jones is particularly concerned about US corporate debt, which reached $6.3tn last November – another all-time high – and may become a problem if interest rates keep rising while the global economy slows down, catching the US companies in a counter-cyclical pinch.

Doomsayers keep pointing to 1929, and to the estimated $17tn created during the decadelong bull market. The stock market correction initiated in October drove the major indices into the red, shedding on average 1.5% yearon-year. Household debt is ballooning, and has recently smashed the $13tn mark – with no signs of slowing down. “Doomers” mention the “Everything Bubble”, and paint an almost apocalyptic picture of the future, a scenario in which all indices are set to crash in a storm both perfect and devastating.

WHAT THE US IS NOT While some signs may cause some concern, most pundits tend to forget that the US is not just any old economy. The US does not court a default, and need not worry too much about deficit spending. Its recent exuberance is not all that irrational, and nor are the actions of the Trump Administration all bad. Signing uncovered cheques, as the president did with his tax cut, may be morally wrong. The practice carries no penalty in a country that controls its own monetary destiny and determines a large degree of the World’s financial wellbeing. Not even China, for all its economic power, comes close to enjoying such a view from the top.

As the Australian professor and modern monetary theorist Bill Mitchell explains elsewhere in this issue, concerns over government debt and deficit spending are much overrated in countries that control their own currency. This would seem to be especially true for the United States.

In that sense, President Trump may have a valid point: why hold back if you can’t go broke? There is a degree of brinkmanship in this approach and pessimists are perhaps justified in drawing attention to this. The party may end suddenly, and it probably won’t happen on Trump’s watch.

At least, not his first one. i

"While some signs may cause some concern, most pundits tend to forget that the US is not just any old economy. The US does not court a default, and need not worry too much about deficit spending. Its recent exuberance is not all that irrational, and nor are the actions of the Trump Administration all bad."

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> Anatha CEO Edward DeLeon Hickman:

Decentralisation and the Structures of Flourishing In 2008, Edward Hickman was working in finance when the global economy began to collapse. Watching the capricious nature of national fiat currency operate in structures that benefit the very few to the detriment of the rest of the world, Hickman was deeply disheartened. He believed he was done with the madness of economics.

That same year, Satoshi Nakamato released a paper announcing Bitcoin and it was an auspicious moment.

CEO: Edward DeLeon Hickman

I

t would be another two years before Hickman would discover Bitcoin and begin to see the possibilities that cryptocurrency offered. In 2013, he became the chief business development officer for Pacific Blockchain where he honed his skills at analytics and assessing the future state of the market.

At Pacific Blockchain, Hickman oversaw and launched Hawaii's first Bitcoin ATM. At the same time, he began freelancing as a journalist, writing articles for CoinTelegraph and Bitcoinist about the possibilities of digital assets.

This afforded Hickman access and insight into this burgeoning market. All of this work combined to be an immersive education and, come 2015, Hickman founded Anatha.

Over the next two years, Anatha would come to manage over $100 million in digital assets while being an early buyer and participant in the ICOs of some of the biggest names in crypto including Ethereum, NEO, IOTA, Holo, Cardano, Golem, and Storj. Unlike some digital asset managers, Hickman never just sticks to the so-called blue chips, buying and selling according to fiat value.

Rather, he and his team investigate and vet new currencies, performing deep analytics before committing to a project.

But he also began to realise that managing digital assets wasn't enough. The industry was growing, yes, but there were conspicuous issues, most notably, applications were prohibitively complex while lacking key features he needed CFI.co | Capital Finance International

as a professional. And so he reached into his network and began assembling a team that would become Project Anatha — an elegant and robust token management system built for the professional and novice alike and built to be the onramp to the digital world.

A passionate believer in the power of decentralisation, Hickman has lived almost exclusively on digital currencies such as Bitcoin and Bitcoin Cash since 2013. He is a self-proclaimed futurist who firmly believes decentralisation has the power and ability to create what he calls structures of flourishing (rather than structures of violence). He is presently in the final stages of writing his book, Information Age of Abundance due out in 2019. i 173

> Anatha in the Digital Assets Age:

Creating Applications that are Truly for Communities With a passion born of the 2008 financial crisis – the same calamity that brought about the digital asset revolution — Anatha CEO Edward DeLeon Hickman does not mince words about the failure of our current economic tools.

T

o put it succinctly, if over 40% of American families can’t raise 400 dollars in emergency cash, then we need to concede that the system is, at the very least, wildly inefficient. If you had a hammer that broke your hand 40% of the time you used it, you’d concede that it was a bad tool. And yet, within our economic system, we generally just shrug our shoulders and offer an empty platitude along the lines of “this is how it’s always been.”

Anatha's goals are based on a view the inevitability of a future in which humanity leverages advances in technology to create economies that finally serve human needs, human interest, and human flourishing.

A major problem today, according to Anatha, is that the world is using outdated tools for a new age — centralised national fiat is simply inadequate to handle the global networked information economy. As Hickman writes in his upcoming book, Information Age of Abundance: “It helps if you frame the entire digital asset industry not simply as the introduction of a new asset class but rather as the advent of the world's first, truly information age economic systems. While we may look at our smartphones and the fact that the average westerner spends 24+ hours a week actively using the internet and think that we already live in the information age, the truth is we have information age communication tools and media delivery systems. The rest of our lives are often still very much mired in and subject to extremely old systems and old thinking.”

While there is much discussion about exactly what digital assets such as Bitcoin, Ethereum, and Dash are and how they should be treated, Anatha focuses on what digital assets can and should be. Using a “human first” approach, Anatha was built to reflect the egalitarian virtues we feel are necessary to create the kind of sweeping, often audacious, outcomes Anatha and its many projects are seeking to create.

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While many seem to be focused on how to exploit the rise of digital assets to create greater fiat wealth, Anatha is hoping to play a role in creating new kinds of systems that materially benefit end users regardless of their current economic standing. It may seem unusual for a company to seek ways to create income for its user base, but that is a key part of Anatha’s strategy — and something decentralisation facilitates. For Anatha, servicing humanity — in particular, those who need it most — isn’t simply the moral high ground: it's an emerging profit center that will unlock value otherwise trapped or excluded from the current economic environment. When more people are active in an economic system, and are flourishing, everyone wins.

Decentralised economies and their governance models can supplant the zero-sum game of contemporary economies — systems in which exclusion and poverty are required. When inefficient and costly centralised models are replaced by decentralised assets and applications, we create massive efficiencies and collective wealth enhancement — what Hickman calls a structure of flourishing.

Anatha began managing digital assets — which is something they still do. But as the company looked around, two things were noted. One, that despite the popular press and rise of Bitcoin billionaires, digital assets are not just another currency or security; they're a vehicle to fundamentally change a breadth of interactions in the information economy — to make social and financial transactions between people at once more efficient and less exploitive. Thanks to digital tokens, we can build applications in which participants are no longer products whose information is sold to the highest bidder; now, thanks to smart contracts, users can readily be partners who control their own information, choosing what to do with it while earning from its use.

And, two, Anatha noticed that so many of the decentralised applications being built were CFI.co | Capital Finance International

Winter 2018 - 2019 Issue

unnecessarily complex, even prohibitive, written for code and coders rather than ordinary human beings. This is a major obstacle to wider adoption.

So, the company set out to create applications that are truly for communities — easy to use, engaging, and built to drive collective prosperity.

As Hickman says, “I simply decided that rather than wait around for other teams to build the tools and applications I need to run my life, I should make them myself."

Accordingly, Anatha has created three entities to address practical and structural issues.

Anatha Systems is a software company dedicated to creating and licensing applications and systems that help facilitate the world's decentralised future. Theirs is a comprehensive top-down approach, strategically building what they call bridge applications — software that will lead companies and the world towards the many benefits of decentralisation. This marks the first time Anatha has opened their doors to outside investment by launching an ISTO (Initial Stock Token Offering: anathasystems.com).

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Anatha LLC is a digital asset consultancy that professionally manages digital assets and offers full consulting services — from strategy and communications to software development to token structuring.

And then there's Project Anatha (www. projectanatha.co) whose alpha release is imminent. Project Anatha is a beautiful, robust token management system that's powerful enough for professional digital asset managers and easy and engaging for novices. In addition to its many unique features such as multiple users in one instance and a Human Readable Address system, it offers a global rebate system to help create “positive feedback loops” with every user in the system, creating a kind of Universal Basic Income (UBI). It’s an audacious plan rooted in a very grounded approach: start with digital asset management and build outward into added functionality, WeChat in reverse. We see Project Anatha as the on-ramp to the decentralised universe. i

For answers to any questions regarding Anatha or its projects, go to anatha.co.

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> Coal

Scrubs-Up Well for its Place in Future Energy Generation

Wyoming, USA: Rawhide Mine

E

nergy is vital. It is critical to meet basic needs, improve living standards, reduce poverty, enable urbanization and strengthen economies.

Access to low-cost energy is correlated with human development indicators, including increased life-expectancy, education and economic development. And the need for energy is increasing as the world requires more steel for construction, and more electricity for operations.

As the leading global pure-play coal company, Peabody’s 7,600 employees serve power and steel customers in more than 25 countries on six continents. The company offers significant scale, high quality assets, and diversity in geography and products. Peabody is guided by its mission and values, which include safety, customer focus, leadership, people, excellence, integrity and sustainability.

The company believes in demonstrating excellence not only in what it does, but in how it does it. While ESG disclosure and transparency have recently become part of the larger discussion within the financial community, Peabody has been committed to these tenets for decades.

The company’s approach is grounded in driving sustainable mining practices, supporting partnerships and policies to recognise coal’s role in electricity generation and steelmaking, and 176

encouraging greater deployment of clean coal technologies – what the company simply refers to as “Coal Done Right”.

At Peabody, sustainable mining begins with safety. The company’s global safety performance continues to surpass industry averages, and Peabody remains ever-vigilant on its journey of continuous improvement.

Peabody also believes in respect and responsibility for the land and communities where it operates. Stewardship of the environment – from successful land reclamation to energy efficiency, recycling and water use management – is designed to ensure that coal mining and land end-use benefit society.

In 2017, the company exceeded its goals for reclamation in the US and Australia, restoring 1.4 acres for each acre disturbed. Peabody also reinforced its commitment to its communities through $10.6 bn in direct and indirect economic benefits, philanthropic and in-kind support, and employee volunteer hours.

For Peabody, focus on responsible coal mining should be coupled with responsible coal use.

With a global community that is more wired, more connected, more networked and better powered than ever, Peabody believes that clean coal technologies offer a path toward meeting these energy demands, as well as the world’s environmental goals.

CFI.co | Capital Finance International

Emissions progress for coal begins with deployment of high-efficiency, low-emissions (HELE) power stations using the most advanced technology available. Longer-term investments in next generation carbon-capture, use and storage (CCUS) technologies are needed to transition to the ultimate goal of near-zero emissions from coal-fueled power.

Over the past two decades, Peabody has invested more than $300mn in global partnerships and projects in Australia, China and the US to advance HELE and CCUS technologies.

Peabody serves in leadership positions and is a member of organisations that span the spectrum of technology research, development and deployment.

The company is the sponsor of the Peabody Global Clean Coal Leadership Awards. The awards programme, now in its fifth year, is designed to recognise coal-fuelled power plants and projects for top environmental performance, highlight innovative leadership, and improve education about the benefits of clean coal technologies.

Peabody believes that coal will continue to play a role in the global energy mix for decades to come. The question should not be whether we use coal, but how we use it.

“Sustainable, essential, and advanced – that’s today’s coal. That’s Peabody.” i

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> NICE Actimize:

Keeping Up with the Pace of Change in Financial Crime Compliance

A

dvancements in artificial intelligence and machine learning technologies are not only enabling financial institutions to manage their compliance operations more efficiently, these innovations are also ensuring that financial institutions are moving quickly in a fast-changing market.

Explains Lee Garf, General Manager of NICE Actimize, a provider in financial crime solutions which is leading the charge in advanced compliance and trade surveillance technology, “Since the pace of change and regulatory complexity does not appear to be slowing down, NICE Actimize is providing technology that addresses these rapid changes.”

In addition to creating cutting edge analytics, the solutions provider nurtures its relationships with major global regulators and keeps abreast of pending regulations and changes to existing rules.

Adds Garf, “One of the big trends in the regulation scene concerns intent, so using techniques like anomaly detection, machine learning and artificial intelligence is becoming more-and-more important. Applying these newer technologies is critical to operational efficiency and success with meeting regulatory requirements for identifying intent.”

The industry is seeing the use of more sophisticated analytics tools, and early adopters are already applying machine learning and artificial intelligence along with behavioural analytics and anomaly detection. Financial institutions are showing early adoption now to confront market manipulation, insider dealing, and other types of bad behaviour. Over the next one to three years, the industry will continue to adopt more advanced approaches to addressing conduct risk and compliance.

Garf points out that often the more serious compliance issues are often due to individual’s unethical moves, not just regulatory omission.

According to Garf, “We are generally seeing more bad behaviour at the individual level or within groups of individuals which makes features like our holistic surveillance, behaviorial analytics and entity insights breakthroughs so important.

We believe that we need to address a culture

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General Manager: Lee Garf

of compliance at all levels of an organisation in addition to applying technology innovation.”

Whether it's staying abreast of regulations, trying to get a look of what lies ahead, the pace of change requires solutions providers and their FI partners to make software updates quickly because new rules and new interpretations come up frequently. One of the challenges with FI’s traditional on-premise systems is that it typically takes longer for them to be updated.

“One of the advancements we're now seeing is the migration to the cloud. Finally, we're seeing some real adoption of cloud, but sometimes that transition can be difficult for some institutions especially if they have on-prem legacy systems.

While we now have broad acceptance of cloud solutions, it hasn’t yet been fully implemented. I think we’ll be there within the next three years.”

Another concern that began with Dodd-Frank and which appeared again in MiFID II, is trade reconstruction. Firms now must meet a 72hour deadline on trade reconstruction and many are struggling with pulling in all the required communications and trades. According to NICE Actimize, one of its differentiators is a patented correlation algorithm which automatically brings this timeline together. Observes Garf, “We have a very large financial institution customer which used to require ten hours to do a trade reconstruction that can now be done in eight minutes, a 98% reduction.” i CFI.co | Capital Finance International

Winter 2018 - 2019 Issue

Kenneth Rogoff:

Central Bankers’ Fiscal Constraints

I

f you ask most central bankers around the world what their plan is for dealing with the next normalsize recession, you would be surprised how many (at least in advanced economies) say “fiscal policy.” Given the high odds of a recession over the next two years – around 40% in the United States, for example – monetary policymakers who think fiscal policy alone will save the day are setting themselves up for a rude awakening.

Yes, it is true that with policy interest rates near zero in most advanced economies (and just above 2% even in the fast-growing US), there is little room for monetary policy to maneuver in a recession without considerable creativity. The best idea is to create an environment in which negative interest-rate policies can be used more fully and effectively. This will eventually happen, but in the meantime, today’s overdependence on countercyclical fiscal policy is dangerously naïve.

There are vast institutional differences between technocratic central banks and the politically volatile legislatures that control spending and tax policy. Let’s bear in mind that a typical advanced-economy recession lasts only a year or so, whereas fiscal policy, even in the best of circumstances, invariably takes at least a few months just to be enacted.

In some small economies – for example, Denmark (with 5.8 million people) – there is a broad social consensus to raise fiscal spending as a share of GDP. Some of this spending could easily be brought forward in a recession. In many other countries, however, notably the US and Germany, there is no such agreement. Even if progressives and conservatives both wanted to expand the government, their priorities would be vastly different.

In the US, Democrats might favor new social programs to reduce inequality, while Republicans might prefer increased spending on defense or border protection.

Anyone who watched the US Senate confirmation hearings last September for Supreme Court Justice Brett Kavanaugh cannot seriously believe this group is capable of fine-tuned technocratic fiscal policy.

This does not mean that fiscal stimulus should be off the table in the next recession. But it does mean that it cannot be the first line of defense, as altogether too many central bankers are hoping. Most advanced countries have a considerable backlog of high-return education and infrastructure projects, albeit most would take a long time to plan and implement. If left-leaning economists believe that fiscal policy is the main way out of a recession in 2019 or 2020, they should be lobbying for the government to prepare a pile of recession-ready projects. Former US President Barack Obama wanted to create an infrastructure bank in part for this purpose; tellingly, the idea never got off the ground.

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Likewise, many observers advocate bolstering “automatic stabilizers” such as unemployment benefits.

Europe, with much higher levels of social insurance and taxation, has correspondingly stronger automatic stabilizers than does the United States or Japan.

When incomes fall, tax revenues decline and insurance payments rise, providing a built-in countercyclical fiscal stimulus. But proponents of higher automatic stabilizers pay too little attention to the negative incentive effects that come with higher government spending and the taxes needed to pay for it.

To be clear, like many academic economists, I favor significantly raising taxes and transfers in the US as a response to growing inequality. But if there were a broad political consensus in favor of moving in this direction, it would have happened already.

A more exotic concept is to create an independent fiscal council that issues economic forecasts and recommendations on the overall size of budgets and budget deficits. The idea is to create an institution for fiscal policy parallel to the central bank for monetary policy. Several countries, including Sweden and the United Kingdom, have adopted much watered-down versions of this idea. The problem is that elected legislatures don’t want to cede power, especially over taxes and spending.

One can appreciate why central bankers don’t want to get gamed into some of the nuttier monetary policies that have been proposed, for example “helicopter money” (or more targeted “drone money”) whereby the central bank prints currency and hands it out to people. Such a policy is, of course, fiscal policy in disguise, and the day any central bank starts doing it heavily is the day it loses any semblance of independence. Others have argued for raising inflation targets, but this raises a raft of problems, not least that it undermines decades of efforts by central banks to establish the credibility of roughly 2% inflation.

If fiscal policy is not the main answer to the next recession, what is? Central bankers who are serious about preparing for future recessions should be looking hard at proposals for how to pay interest on money, both positive and negative, which is by far the most elegant solution. It is high time to sharpen the instruments in central banks’ toolkit. Over-reliance on countercyclical fiscal policy will not work any better in this century than in it did in the last. i ABOUT THE AUTHOR Lawrence H Summers was US Secretary of the Treasury (1999-2001), Director of the US National Economic Council (2009-2010), and President of Harvard University (2001-2006), where he is currently University Professor.

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> Asia Pacific

The Semiconductor Challenge: China Plays Catch-up with the West

The current plight of tech giant Huawei is indicative of the troubles Chinese corporates may experience as they seek to augment their footprint and become global players.

Huawei Technologies’ corporate growth has mirrored the country’s economic ascendancy. The Shenzhen-based company quintupled its revenue in 10 years to around $90bn (2017). Since mid-2018, Huawei has churned out more smartphones than Apple. The company is the world’s largest manufacturer of handsets, expected to overtake Samsung in the next 12 months.

Huawei’s growth trajectory is all the more remarkable as no US mobile carriers offer the company’s smartphones to end-users. Because of security concerns, the US government has banned Huawei equipment from being used anywhere in the nation’s communications system. Japan, Australia, and New Zealand have placed similar restrictions on the use of the company’s hardware.

Nonetheless, in 2016, Huawei overtook Sweden’s Ericsson as the world’s largest purveyor of mobile network infrastructure equipment, capturing a juicy 28% share of the global market.

Huawei Technologies has now outgrown its copycat phase – when it rather shamelessly appropriated the designs of rivals and undercut their prices. Last year, the company spent close to $14bn on research and development – an IT research and development outlay only topped by Amazon ($17.5bn) and Google-parent Alphabet ($14.5bn).

In early December, as Huawei faced increased scrutiny after the arrest in Canada of CFO Meng Wanzhou – the daughter of the company’s secretive founder Ren Zhengfei – the company pledged to invest up to $2bn in a major overhaul of its cybersecurity software and practices.

The greater part of Huawei’s product development cash has been earmarked for next-generation G5 network technology – the frontier at which Chinese hardware manufacturers hope to wrest control of the market from the still dominant Europeans. Ericsson and Nokia can jointly claim a global market share of about 51% – versus 41% for Huawei and ZTE.

This scenario represents more than a competitive clash between corporate giants staking out claims in one of the most lucrative market segments. The recent trade spat that pitted the US against China, and spooked markets around the world, may turn out to be only a dress rehearsal for a larger confrontation.

Overdrive

The arrest of Wanzhou (46), ordered by a New York district court over allegations that she may have helped her company circumvent US sanctions on Iran, is the opening shot that could turn a simmering tech cold war in a much hotter one.

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he Chinese Foreign ministry instantly went into overdrive, losing nearly all sense of proportion – and some of its decorum – while publicly dressing-down Canadian ambassador John McCallum and calling Wanzhou’s arrest at Vancouver International Airport “lawless, reasonless, ruthless, and extremely vicious”. The ambassador was told to instruct his government to order the immediate release of Wanzhou, unless it was willing to suffer the consequences. Consequences which – Beijing assured – would be dire. The subtleties of the separation of powers was lost on the Chinese government, which remains largely ignorant of the concept.

That is precisely the bottleneck that China’s burgeoning tech sector must navigate to gain global acceptance, if not dominance. The country’s lack of mechanisms to ensure proper checks and balances – aka the rule of law – hampers its economic interactions with the developed world.

China can only progress via subterfuge or bullying – and by doling out cash to all comers.

Huawei’s smaller sibling, ZTE, was caught supplying technology acquired in the US to North Korea and Iran via shell companies acting as intermediaries. ZTE was sanctioned by the US Commerce Department, which banned it from buying any US-made products – read: semiconductors – for seven years.

Seeing its global telecoms business hobbled, and with its survival at stake, ZTE did what any corporate in a similar situation would do. It lawyered-up and prepared wads of cash to buy influence on the hill, via lobbyists. The strategy worked wonders, especially after Chinese President Xi Jinping put in a personal appeal to his US counterpart. This mollified the commerce department, which allowed ZTE to pay a one-off $1.4bn penalty in lieu of an export ban.

The episode did, however, bring into focus the true balance of power: without ready access to advanced US chips, China’s high-tech sector is powerless and unable to survive.

Beijing is aware of this vulnerability and has earmarked a significant part of the $150bn “Made-In-China” 2025 investment drive – unveiled in 2014 – for the development of a domestic semiconductor industry. The goal was to close the technology gap, and break the US stranglehold.

Among the world’s 15 largest semiconductor manufacturers, there is not a single Chinese company, and the US government wants to keep it that way. Washington has either vetoed or discouraged Chinese companies from buying stakes in American semiconductor companies.

It imposed strict export controls on a Chinese company, Fujian Jinhua, which Washington has accused of stealing technology.

Europe, too, is alert to the threat of Chinese corporates taking the technological edge. The EU

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is expected to launch a comprehensive framework to vet Chinese investments, especially those that include the forced transfer of technology – which is to say, most investments.

According to a study compiled by PwC at the request of the European Commission and released (leaked) in April, over 94% of cyberattacks suffered by manufacturing companies in the EU have intellectual property and trade secrets as their targets. PwC researchers estimate that cyberespionage costs European businesses up to €60bn in damages and forfeited economic growth.

This report was followed by a Bloomberg Businessweek investigation – The Big Hack – into cybertheft. That investigation revealed the presence of tiny chips, the size of a grain of rice, implanted by Chinese subcontractors assembling circuit boards destined for servers assembled by a US company, and sold to cloud services providers (such as Amazon and Apple).

Though Apple engineers detected the chips in time, and cancelled the company’s order for 30,000 Supermicro servers, the investigation concluded that infected hardware did find its way to about 30 companies, including financial service-providers and government contractors. The Chinese implants gave operatives backdoor access to most of the data hitting compromised servers.

China lacks a domestic semiconductor industry of note, but its companies do manufacture most hardware destined for the western world. About 90% of all PCs – and 75% of mobile phones – are made in China. A hardware hack was the obvious route to explore.

Though all the companies involved denied the Bloomberg story, the wire service stood by its reporters and even expanded The Big Hack coverage to include the news that a major US telecom had all Supermicro servers removed from its network after discovering security flaws.

Since the story broke, in early October, Supermicro saw almost half of its market capitalisation evaporate. The company’s share price has only recently recouped some of the losses. Though drawing close to conspiracy-theory territory, the vehement denials, delivered in near-perfect unison concert, can perhaps be explained by corporate, and governmental, reluctance to admit to a major security flaw involving the Chinese, preferring instead to address the issue promptly and exert greater caution in the future.

WILD STORIES The stakes are high enough to invite wild stories.

Tact remains that semiconductors are becoming more important to global trade patterns than oldschool commodities. The global semiconductor industry – the one in which China has for the moment no noticeable presence – is worth an estimated $420bn – and growing at an annual rate of more than 20%. Keeping up or accelerating that pace could see semiconductors overtake steel to become one of the world’s most important industries.

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It becomes understandable why China is determined to secure a seat at this particular table. Efforts to delay the country’s progress seem, however, destined for failure. In response to a US export ban on advanced Intel chips, China developed its own quasi-superchip and built the TaihuLight, a 93 petaflop device which between June 2016 and June 2018 claimed the top spot among the world’s fastest supercomputers. (It has since been relegated to third place.)

The TaihuLight employs 40,960 locally-designed and manufactured Sunway RISC processors, each containing 256 cores. China’s National Supercomputing Centre in Tianjin is now building an “exascale” computer, capable of executing a quintillion (1018) or more calculations per second. It is expected to enter into service soon.

While its efforts and achievements in supercomputing are impressive, on a more downto-earth level Chinese chipmakers struggle to keep up with manufacturing technology, which has now moved to the seven-nanometre node.

The Kirin 980, the first commercially available 7nm chip launched last September, is being used

by Huawei in its top-of-the-line smartphones. The company sources these chips from a foundry in Taiwan – one of only five chip suppliers in the world, driving the leading edge of semiconductor manufacturing. Another of China’s challenges is that currently only one company in the world – Dutch ASML – has mastered the extreme ultraviolet lithography technology that is employed in 7nm chip-making machines.

NEW FRONTIERS It is at this frontier that trade spats and wars will unfold. While China has little chance of overtaking the West in high-end commercial chip-design and manufacture, the country’s policymakers and strategists do have an ace up their sleeve: the 7nm node technology is running up against physical barriers. The benefits of cramming more transistors into ever-smaller packages are diminishing. The gargantuan effort needed to move from 10nm to 7nm technology does not provide a commensurate boost in speed.

Quantum computing, or the use of superspecialised silicon, are the future. These new frontiers, far removed from legacy chipmaking processes, offer China a chance to get in on the ground floor – and provide a shortcut for it to catch up with the West.

Steel and automobiles grab the headlines as trading powers jostle for market share, but the semiconductors industry is where the real fight for supremacy will take place. No big country or bloc can afford to lose this race. The present travails of Huawei, and China’s overthe-top reaction to the arrest of Huawei’s CFO, is merely the latest manifestation of a brewing conflagration.

The future belongs to whomever powers it. The stakes couldn’t be higher. i

Winter 2018 - 2019 Issue

> SDG Lab, UN Headquarters in Geneva:

Aspiring and Resourceful UN Hub Start-Up Shaping innovative ways to help implement, and deliver on, the United Nations 2030 Agenda, the Geneva-based SDG Lab seeks to bring together multiple actors to bundle and deploy its expertise, and exploit opportunities that offer shared benefits and add real value.

S

ADDED VALUE

CONNECTOR AMPLIFIER QUESTION ASKER INNOVATOR

TOOLBOX

SHARING KNOWLEDGE CONVENING STAKEHOLDERS CHALLENGING MINDSETS

LAB

INCUBATION TEST EXPERIMENT LEARN

ECOSYSTEM MULTI SECTORIAL MULTI STAKEHOLDER

GLOBAL - LOCAL

GVA CFI.co | Capital Finance International

DG Lab, in existence since June 2017, is small and nimble; it engages with multiple stakeholders for a foot- or toehold in what is, arguably, one of the world’s most cosmopolitan cities.

“SDG Lab offers a space for interdisciplinary collaboration across an exceptionally wide array of sectors,” says SDG Lab director Nadia Isler, who started her career at Doctors Without Borders (Médecins Sans Frontières) and later joined the Swiss Foreign Ministry as an expert in development affairs. “By poking at established wisdom and asking pertinent questions, we try to find common ground and creative solutions that can help achieve real progress towards meeting the 17 sustainable development goals (SDGs),” SDG Lab was set up to help governments and other stakeholders deal with the practicalities of the goals. This involves ensuring that the voices – and concerns – of stakeholders are clearly heard by the people and organisations that matter.

SDG Lab also helps to establish links between possible partners, and to produce novel solutions by tapping into the collective knowledge and expertise available in Geneva.

SDG Lab fulfils four essential tasks: • Facilitating connections and brokering partnerships between UN entities, member states, and a host of civil society and private sector organisations, in order to promote dialogue and interactions, and strengthen the co-operation between stakeholders in the pursuit of the SDGs. • Providing a space for all stakeholders to look for new approaches and processes to common challenges. Promising solutions, found through experimentation and a moderate degree of risktaking, may then be tested at country level. Once their effectiveness has been determined, these solutions may be scaled-up and deployed.

• Bringing together and disseminating experiences gathered from around the world as stakeholders work towards the implementation of the SDGs. The Lab functions as a forum where successes and failures may be shared, and lessons learned.

• Detecting and understanding the incentives 183

A D D E D VA L U E The dynamic Lab model strengthens the individual efforts of governments and organizations by amplifying their unique voices, creating space for new partnerships to form, and providing a platform to innovate and experiment. It supports the collective knowledge and expertise within Geneva, making it increasingly relevant and actionable for national and local level SDG implementation.

CONNECTOR The SDG Lab creates new opportunities for Member States, UN entities, other international organizations, civil society organizations, academic institutions, the private sector and other actors in and outside Geneva to meet and exchange information, experiences, and ideas for collaboration. This fosters constructive, consistent interactions and strengthens multi-sectoral and multi-stakeholder collaboration. The Lab brokers partnerships in support of SDG implementation.

QUESTION ASKER A shift in mindset and approaches will be required to achieve the SDGs. Thinking, acting and investing in an intersectoral way doesn’t “just happen.” The Lab strives to understand the incentives that drive an integrated approach and aims to ask questions that uncover new ways of thinking and new paths to action.

AMPLIFIER

I N N O VAT O R

There is already a wealth of work underway in and outside Geneva for implementation of the 2030 Agenda, including at the national and local level in countries. Learning from these experiences is crucial to accelerating implementation. The Lab creates unique forums for telling stories of success and failure in various contexts so that it can inform future policy and practice.

The Lab provides a space for actors from various sectors to come together and tackle common challenges. The Lab encourages experimentation with new approaches, formats and processes.

It encourages risk-taking and learning from failure.

And finally, through its partners, the Lab plans to test solutions at the country level and aid in scaling and replicating success.

• A convener • A connector

• Not a coordinator

• An amplifier

• Not a clearing house

• A translator • A question asker

THE SDG LAB IS...

• Not a public relations platform

• An experimenter • An innovator

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• Not an event organizer

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"We want to bring aboard expertise from all relevant sectors, including academia, where a lot of applied research is being conducted that could be applicable across the world." that help drive an integrated approach to SDGimplementation and cause actors to become more receptive to the changes required to meet the 2030 Agenda. SDG Lab aims to ask questions, sometimes inconvenient ones, that prod actors and stakeholders to rethink their approach and seek solutions outside the proverbial box.

“To summarise,” says Isler, “SDG Lab offers the convening power of the UN, and the credibility and neutrality of the organisation, to join partners that otherwise would possibly not have crossed

Isler details the attempts of the Niger government to leapfrog development by deploying technology. “This can take the form of widely used e-health apps that improve outcomes or tech-driven initiatives in education or agriculture. The Niger government recognises that a lot of expertise is readily available in Geneva, but may not be that clear on who does what, and how. This is where SDG Lab comes into play, identifying needs and establishing links. In the case of Niger, it just took us two days to forge three or four partnerships.

Blended finance is one of the many modalities SDG Lab is looking into, using development funds and philanthropic contributions to catalyse and mobilise private capital in a tripartite approach to provide financing for the 2030 Agenda in emerging and frontier markets.

Still a young organisation – a “toddler” according to Isler – SDG Lab is barely 18 months old and very much a start-up. From the get-go, Isler was determined to avoid ready-made solutions. She is not in the mood to preach to others, either: “That’s not what SDG Lab is about.

“Instead, we want to bring aboard expertise from all relevant sectors, including academia, where a lot of applied research is being conducted that could be applicable across the world.” Isler points to Geneva University, which has partnered with Tsinghua University in China to set up a master study on SDGs. SDG Lab is not without ambition. The UN start-up, a disruptor of sorts in a world of established practices, wants to become a hub for the exchange of information. “Take a city such as Rome or Nairobi – or for that matter Mogadishu. They all have their unique expertise and experience. What we wish to do is to create meta-links between all these poles of knowledge, pool, sort, and process the resulting data sets, and offer a close-to-perfect mix of solutions – via partnerships – to any given problem, anywhere in the world.

“The important thing to remember that SDG Lab is most certainly not a ‘Kumbaya’ exercise: we do not expect, or indeed want, bankers and investors to engage with us for motives other than their bottom line.

“We fully expect them to ask, ‘What’s in it for us?’ That said, and asked, there are myriad ways to partner and mitigate risk while delivering tangible profits all round.” i

The SDG Lab is a multi-stakeholder initiative that contributes to the implementation of the Sustainable Development Goals (SDGs) by supporting Geneva based actors and beyond in further leveraging expertise and knowledge into policy, practice and action. www.sdglab.ch

Director: Nadia Isler

paths. SDG Lab is located in Geneva because it is precisely this city that boasts a unique ecosystem which includes nearly all stakeholders: 176 UN member states, 35 UN agencies, some 350 nongovernmental organisations, academia, and of course a flourishing business sector.

However, we wish to go a lot further and offer countries such as Niger an institutionalised and easily scalable model that includes not only expertise but also access to finance or, inversely, the ability to showcase investment opportunities.”

“Though Geneva is our backbone, our vision is to create a model that can be replicated elsewhere in the world.” Isler explains that SDG Lab is particularly interested in mapping and analysing the dynamics of successful partnerships: “What are the drivers and incentives that make a difference for development, and how may partnership be made sustainable so that they are not crippled when there is a change on leadership?”

Pointing to the Geneva skyline, Isler notes that the city is home to a great many banks and investment funds that, looking for yield, may want to engage: “Lots of investors run scared because of the perceived risks. So, it’s up to us to bring these people in contact with opportunities further afield, and look for innovative ways to address their legitimate concerns.”

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> V Vaidyanathan:

Capital First 2.0 - Now on a Banking Platform It is a ‘start-up bank’ with over 7.2 million customers. In the world’s second most-populous country, numbers quickly reach into the millions. Already at birth, India’s newest retail bank, IDFC First Bank, has the makings of a behemoth. At its helm stands a CEO known for his entrepreneurial approach. After all, he put the money where his mouth is - he leveraged his house and other assets to buyout an NBFC and later converted it to a bank by merger with an existing bank.

T

he new bank was formed mid-December when shareholders of both entities, IDFC Bank and Capital First, overwhelmingly approved the merger with over 99.9% votes in favour, an unheard of approval rate in investment banking circles. The banking regulator too approved the one-off transaction of a merger of an NBFC with a Bank. The resulting entity serves its customers through a nationwide network of more than 200 branches and 450-plus rural correspondents.

"We developed a unique model that employs algorithms not unlike those used by Amazon which, say, predicts which books people are most likely to be interested in."

The merger represented a crowning achievement for V Vaidyanathan, managing director and CEO of IDFC First Bank, who enjoys a well-earned reputation for making waves in India’s financial services industry and has been recognised, and celebrated, as a disruptor of sorts. Vaidyanathan broke with convention when, in 2012, he left ICICI Group and became one of the first in India to successfully execute a management buyout of a major financial services provider. When other NBFCs said they were better off staying an NBFC, he was the first to insist publicly that he needed to convert it to a bank - as soon as possible. He subsequently repositioned his company to ready it for both a merger and a full banking license.

algorithms not unlike those used by Amazon which, say, predicts which books people are most likely to be interested in. We adapted this by predicting the behaviour and needs of people with a certain profile who bought, say, a personal computer. We developed some sophisticated logic. This was complete greenfield work and not an area previously explored by banks. To give you an idea, some 40% of our customers are not included in the Indian Credit Bureau; they are first time borrowers and new to banking and, as such, represent a difficult demographic because nobody has lent to them before.”

The trajectory by which Vaidyanathan realised his dream to create a universal bank using novel and high-tech algorithms to source, power, and propel the growth proved surprisingly straightforward, although it did demand perseverance. “We developed unique technologies that allow us to assess credit on the fly. Literally, when a customer is sitting across the table we can assess that customer’s intention, ability, fraud, tendency, identity – we check out all these things. We can develop on these in due course.”

TAKING A CUE FROM AMAZON “We developed a unique model that employs

After developing this idea, a $14m loan book had ballooned to about $120m in a single year: “We took that idea to many private equity players. We went to Bain, Blackstone and many others such as TPG, Barings, Barings Asia – all the global names. We showed them the idea: if you can underwrite this model of financing the small entrepreneurs, we can build this into a fivebillion-dollar loan book in six years. This can be a tremendously successful business. However, most private equity players found it very difficult to finance our idea because, at that time, the Indian ecosystem was weak and the growth rates were slowing down. Inflation was high and so were interest rates. It took us two full years until, in 2012, when we got the backing of Warburg

Pincus. They gave us $159 million.” This resulted in buyout of other majority and minority shareholders through an open offer to public.

As part of the process, fresh capital of Rs. 1.00 billion was infused into the company, the board of directors was reconstituted, the business of the company was changed from wholesale to retail lending, and a new brand, Capital First was born.

Capital First was thus founded in 2012 by Vaidyanathan by way of a Management Buyout after acquiring a stake in an existing NBFC. This large MBO, which was a first in financial services in India, was concluded by securing an equity backing of $159m from global PE Warburg Pincus.

The founding idea of Capital First is to serve and finance India’s 50 million Indian enterprises and large emerging middle class, with a differentiated model, based on new technologies.

Unlike traditional models of financing, Capital First has successfully created new models of financing customers in the hitherto unbanked and under-served segments, and has financed over 7 million customers with a total AUM of $4.47 billion. Retail Assets forming 91% of the overall lending. The market cap of the company multiplied over ten times from $120m in March 2012 to $ 1,274m in January 2018 in just 6 years.

Capital First, a purveyor of credit to small businesses and India’s emerging middle class, attracted the attention of institutional investors who were particularly impressed by the quality of the company’s loan book.

SNAPPING UP A BANK “Before long, we started thinking, how do we convert to a bank? The idea was to apply to

"We adapted this by predicting the behaviour and needs of people with a certain profile who bought, say, a personal computer."

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Winter 2018 - 2019 Issue

"A banking licence is very precious and has to be handled with a lot of responsibility.

Our intent will be to offer more value to customers and earn the trust of people."

Managing Director & CEO: V Vaidyanathan

Reserve Bank of India for a de-novo licence, and informal exploratory discussions had begun." As it happened, there was an existing bank available for a merger. The Bank was actively looking for retailisation of its loan book as their strategy, and merger with Capital First made immense sense to them. Since Capital First’s market cap had multiplied ten times in under six years, they had the currency to move ahead with the merger.

Under the merger deal agreed between the two organisations, Vaidyanathan was to become the new Managing Director and CEO of the combined bank. And so it happened.

"A banking licence is very precious and has to be handled with a lot of responsibility. Our intent will

be to offer more value to customers and earn the trust of people. I believe a bank has a wider array of product and serves across loans, liabilities, investments and protection. It is a platform that can serve multiple needs of a customer. Most of all, a bank offers diversification of liabilities through deposits."

Having built the NBFC, through merger with the Bank, the combined bank can now offer a wide range of services to customers. And Capital First shareholders get a smooth touchdown. “We would like to be a high quality bank for the new aspiring India�, he says. For a country with enormous banking potential, a lot can be done indeed. i CFI.co | Capital Finance International

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What kind of world do we want to live in?

At the American University of Beirut, the Maroun Semaan School of Engineering and Architecture is leading the way to a better tomorrow in the Arab world and beyond.

Through excellence in education and research, MSFEA answers the hardest questions and empowers individuals to make their own meaningful life paths.

Towards a more viable, livable, and equitable world.

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# B o l d l y A U B | a u b . e d u . l b / B O L D LY A U B C A M P A I G N 188

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Winter 2018 - 2019 Issue

> Reduce, Reuse, and Recycle:

One Company’s Drive to Revive the Product-Packaging Industry

P

roduct packaging, if it’s done well, should attract attention and “speak” to the consumer.

This is something that Containers Printers CEO Amy Chung understands only too well as a basic principle of marketing. Her Singapore-based company looks to technology to provide more product control for clients, and value-added gains for shareholders.

Chung has been leading the product-packaging company since 2014, and she has a clear vision for its direction. “I want to drive the company from what can be considered a conventional industry to something more technological,” she said. “We are therefore upgrading our capabilities beyond conventional packaging solutions to be able to do functional printing and smart packaging.”

The modern manufacturing machines lining the company shop floors produce eye-catching results. Packaging comes in two materials (metal and flexible laminates), both of which can be customised with unique textured effects.

Containers Printers is in the process of further digitising its operations. Chung intends to extend the company’s digital capabilities into the clients’ space by offering cloud-powered product traceability and authentication services.

The company is a leader in Singapore’s digital transformation initiative, and has been nationally recognised for its approach to innovation and technological advances. The company’s global reach — and potential to upscale — attracted the attention of Singapore’s Economic Development Board, which tapped Containers Printers to

"The company’s latest sustainability initiatives will be operable by early 2019, when its two manufacturing plants will be topped with solar panels." participate in a programme matching top global brands with local companies to forge profitable and productive partnerships.

“This year we have been selected by our Economic Development Board for a special programme,” said Chung, “where they tie us to global multinationals to gear us up in our capabilities, and to meet the strict requirements of these global multinationals. We were able to perform to their satisfaction, so with this programme we are now being selected and shown to the Minister for the trading industry in Singapore.”

Chung is proud of Containers Printers’ selection for the programme, in which it took its first foray into the medical industry. The process was demanding, with tight deadlines and stiff benchmarks to meet, but it was a success.

Chung and her company were praised for their performance. “We took the challenge and rolled the dice,” Chung said. “We were told that we were one of the most successful partnership that came out of this.”

The company’s success garnered more local attention, and Containers Printers was selected to participate in a skill-sets development CFI.co | Capital Finance International

programme, overseen by the Singapore Ministry of Manpower. Containers Printers will be showcased in a session with the country’s Prime Minister, Lee Hsien Loong, who will meet with the team.

“I jumped immediately into the programme, which the government has been actively promoting in Singapore,” said Chung, whose company has been classified in the space of small to medium enterprises (SMEs).

The programme aims to drive the industrial adoption of digital transformation strategies.

Containers Printers was invited to participate in the programme for its proactive and innovative implementation of the latest tech advancements.

Highlights for Chung included the programme’s lean-manufacturing training courses, which detail tech-enhanced manufacturing processes to improve efficiency and reduce redundancies.

According to Chung, the company’s operations are aligned to the “Three Rs” principle (Reduce, Reuse, and Recycle), and sustainability is built into its corporate culture. Containers Printers sources and selects benign materials and employs solvent-free manufacturing processes where possible. The company’s latest sustainability initiatives will be operable by mid 2019, when its two manufacturing plants will be topped with solar panels. “I think that’s really working towards a corporate philosophy where everyone starts thinking about sustainability,” said Chung.

“We cannot enforce and impose, but we can build up a corporate culture and values, so that slowly everyone practices the three Rs as though it’s just something that they do — it’s natural.” i 189

> Creeping

Threat of Cyberattack Must Be Prioritised and Tackled

The scale and complexity of cyberthreats being faced internationally underlines the case to bring added awareness on this crucial issue, argues Lord Waverley.

C

yberactivity, in this world of obfuscation, is a worldwide phenomenon and affects us all. The entire social infrastructure of how we communicate and live our lives has altered permanently, and so the need for mechanisms to monitor, detect, protect against and repel incursions constitutes challenges faced by all cyber experts globally.

Cyber is the driving force of our existence today and has transformed the world in which we live; from the way that we shop and the medical care that we receive to the use of capabilities in battlespace operations in military warfare, cybercrime, state-sponsored hacktivism of foreign critical national infrastructure and ransomware attacks on digital currency. Cyber confrontations have transformed 21st Century societies.

CFI.co Columnist

The responsibility of government is to provide the first line of security and last line of defence, from the use of capabilities in battlespace operations during military warfare to cybercrime, state-actor interference in other sovereign states’ critical national infrastructure and governance silos to the much-vaunted cyber interventions in national electoral processes.

have the resources to face up to this issue.

The solution lies in partnership – essential partnership between public and private sectors, and between states and agencies.

A keyword throughout should be “awareness”; government should work to ensure businesses are aware of the manifold initiatives and their contribution to them, and convince them of the need to view cybersecurity skills within businesses as a priority. Lack of skilled workers makes this harder. It is essential to agree crossborder rules of the game and the legal framework to enshrine them. Cybercrime networks are international and have merged with organised crime covering terrorism, human trafficking, drug trafficking and child abuse.

Within the military space, cyber doctrine does not include a sufficiently common approach, including the underpinning doctrine that informs and directs supporting and enabling activities. It is perceived that an interoperable capability gap exists, and in adversarial activity we are outmatched, outnumbered, and – more importantly – doctrinally outmanoeuvred.

Cybersecurity is a huge problem, and the global response is not moving at the necessary speed.

“Plan for the worst” should be the mantra. A major challenge is that it is hard to investigate given an occasional lack of intelligence-sharing between agencies, the inconsistency of the approach of Interpol and the lack of direct communication between banks. All this compounds the problem.

Threat intelligence, for example, should not be beholden to the vagaries of political impasse.

There are too many gaps and inconsistencies between the way that different agencies collect, process and use evidence.

Another challenge is that companies often resist investing fully in their IT infrastructure and cybersecurity, believing it cheaper to clean up a mess than to prevent it in the first place.

Reputational and financial damage is too often caused by not taking these threats seriously. The poor handling of breaches may also reveal deeper corporate failings. Mandatory reporting of cyber breaches has begun in some countries, but more must be done to raise awareness of the global nature of the threats. Threats will grow in volume and severity as criminal gangs gain access to more sophisticated tools and become reckless in using them.

Scrutiny of the required outputs, matched against clearly defined intent, is essential to gain understanding of the required operating framework and ensure the supporting capacity is sufficient. An isolationist, compliance-based approach to regulation, for example, will lose the race against cyberthreats. The task is so immense that government alone does not

Emphasis should also be placed on internet and related higher education. The opening of cyber schools, as centres for advanced cybersecurity education, should offer a variety of handson programmes tailored for a wide range of people with different levels of cybersecurity qualifications and skills, from school and university students to cybersecurity experts.

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Winter 2018 - 2019 Issue

Those who will lead in fundamental and applied research into quantum physics, quantum cryptography and quantum blockchain development will develop an edge. The importance of the development of secure communications infrastructure in development of quantum is the route forward and presents opportunities for government and the private sector to benefit from secure conferencing and secure data-transfer.

Although quantum computers are still in their infancy, it is estimated that once fully developed they will be able to crack current public key encryption infrastructure within 15 years. So, the race is on to develop hybrid solutions to protect current and future data from the power of those quantum computers. Failure will rest with the international community if it does not come together with a collective approach to pass regulation and standards in the form of an international treaty or agreement.

On the international front, while Russia’s capabilities and techniques are welldocumented, it is China that is fast assuming the mantle of world leader in cyber development. President Xi has outlined plans to turn China into a cyber superpower.

Through domestic regulations, technological innovation and foreign policy, China aims to build an impregnable cyber defence system and, increasingly, a separate governmentcontrolled internet. State-led efforts in that country are central to this, with a focus on artificial intelligence, quantum computing and robotics, among other technologies.

The Cyberspace Administration of China has responsibility for controlling online content, bolstering cybersecurity and developing its digital economy. Its investment in research and development now stands at 17% of global R&D spend.

China has created an interlocking framework of laws, regulations and standards to increase cybersecurity and safeguard data in governmental and private systems, with surveillance a key feature, aided by facialand voice-recognition software and artificial intelligence. It has required companies – this has become a trend – to store data within China, where the Government will have few obstacles to accessing it.

Fundamental and innovative approaches are required, and it would be helpful to define such CFI.co | Capital Finance International

I venture 16 specific initiatives: 1. Support a call for a global move to outcomesbased regulation and legislation, as opposed to the mandating of standards; 2. Form a regulatory framework that forces dialogue between friends and foes alike; 3. Implement initiatives to limit inappropriate meddling that sows discord, either domestically or from abroad; 4. Enable enhanced co-operation within the public sector and continuous dialogue with the private sector; 5. Recognise that the private sector will play a central role in future international cyber governance; 6. Encourage financial services to take a peerto-peer approach to tackling cybercrime, starting with greater dialogue between major banks; 7. Place maximum endeavour in technical coordination and information sharing; 8. Establish a mechanism whereby financial services institutions are enabled to share information and intelligence, and work together more quickly and effectively; 9. Encourage further development of the cyber-insurance industry to bridge the gap between the identification of liability and the lack of data consistency; 10. Define a universal definition of “cybercrime”, “cyberattack” and “cyber threat”; 11. Promote governments coming together through the United Nations to take an approach that treats cybersecurity in a sphere of its own; 12. Strengthen incident response functions of the appropriate agencies and, in doing so, provide clearer guidance on what a reportable incident is; 13. Promote advances in the practical application of quantum physics to achieve secure communications channels; 14. Establish cyber schools for advanced cybersecurity education; 15. Encourage international cybersecurity information-sharing partnerships and further support sector-specific informationsharing centres; 16. Finally, but possibly most importantly, promote global discourse.

I end where I began. The strategic direction of where we go and where we want to be is essential. The scale and complexity continue however, and it is essential to be diligent in our addressing this fundamental issue of our time.i ABOUT THE AUTHOR Lord Waverley is an independent member of the United Kingdom’s House of Lords and founder of supplyfinder.com. www.lordwaverley.com 191

CFI.co Columnist

So what should be done, and by whom, to rein in cyberthreats? It is high time to have a serious discussion about the international legal framework in which cyberwars take place. Yet the last UN discussions by a group of experts took place in 2017, with no consensus reached.

The UN, however, is the best forum to deal with this.

fundamentals as what constitutes a cyberattack, who should decide on the response, and what role should the private sector play in assisting governments.

> The Human Colossus in the Market:

Flexible, Independent and Strong

T

he past decade witnessed the glorious rise of social networking. Being a paradigm-changing phenomenon, it has crawled into all sorts of businesses and metamorphosed them dramatically. At a certain point, social networking moved into Forex trading and now probably has the potential to revolutionise the very notion of currency trading and bring radical change to the entire industry.

The power of social networking is explained by a popular concept of the Human Colossus, which implies a collective organism comprised of billions of cells, each represented by a single person. Human Colossus can do things no human would have dreamed of doing. Merged with Forex trading, networking solves its biggest problem: the knowledge barrier.

Forex trading is believed to be a hard skill to master: one needs to get sustainable financial knowledge in order to really make money in the market. This involves learning strategies, following the economic and political news, exploring currencies, etc. Sounds like too much of a mental burden for an average person? The situation changes dramatically when this burden is spread among a bunch of people, which brings us to the statement: "Social trading makes Forex easy for average people, not only for a selected few."

This is the Human Colossus at work, and this is how it expands the idea of Forex trading: ACCESSIBILITY Social trading opens the marketplace for

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"Social trading makes Forex easy for average people, not only for a selected few." beginners. Like for real. Social trading apps like FBS CopyTrade feature a wide network of pro traders, and all you need to do is follow the best-performing ones, copy their orders, and make money whenever they do. Basically, the knowledge of a bunch of people is wrapped in a simple app that is operated with a single button.

It makes the market easy to access – even with zero financial knowledge.

TRANSPARENCY Social trading apps are somewhat similar to Uber, Airbnb, and other peer-to-peer businesses.

People trust them because they feature real ratings that tell them whether a particular member is a good performer or a bad performer.

Numbers don’t lie: when your score goes down, you lose your clients. This ensures the network’s self-maintenance. Traders do their best to keep their scores up, and investors pay commission for having their order history and their profits.

POTENTIAL Copy trading is a brilliant testing ground for active traders. People from many industries pay for coCFI.co | Capital Finance International

working and coaching sessions to learn from the best, and with social trading apps, traders can access a huge database of Forex masterminds, which brings along a great improvement in their personal trading performance.

COMPETITIVENESS Traders can set any commission amounts depending on their ratings. It gives a decent level of competitiveness and does not allow traders to set their commissions too high. Thus, copy trading is a healthy practice where lots of people can make smart investments or trade their skills for money.

The Human Colossus of trading frees up huge portions of human time and energy to make trading extra beneficial and easy for everyone – no fine print, no special knowledge for Investors, just pure flow of cooperation.

It’s plain to see that this is what the 21st century is shaping up to be.

ABOUT FBS FBS is an IFSC- and CySEC regulated international broker with over 10,000,000 traders and 370,000 partners in 197 countries.

The company offers a number of special services to help people around the world overcome the boundaries of local economies and engage into a profitable business on their own terms.

FBS focuses on integrating the latest trends and being the industry forerunner in providing people with smart and simple trading decisions. i

Winter 2018 - 2019 Issue

> ArthaLand President’s Sustainability Challenge to the Philippines Real Estate Industry:

“If Not Now, When Else?”

J

aime C González is vice-chairman and president of ArthaLand, a highly entrepreneurial, world class boutique developer of very special real estate projects in the Philippines residential and office segments.

‘Artha’ is a Sanskrit word cannoting purpose, knowledge, significance and wealth. Not just wealth in material terms but, more importantly, in the enduring intangibles such as comfort, health and happiness. These concepts characterise the ArthaLand commitment to sustainability.

Throughout his career, González has relished working with highly professional colleagues to resolve significant challenges in a wide variety of business situations. “This is precisely what excites me today in my current business,” he notes. “My current involvement in the real estate sector coupled with a commitment to sustainable best-in-class developments present exciting challenges. My hope is that the industry generally and individual real estate companies also commit to sustainable and responsible developments, understanding that the protection of the environment is one of the major challenges of the current generation. As we say in the company: “If not now, when else?”

The ArthaLand management team has had many years of experience in other real estate businesses in the country and this has allowed them to be selective and adopt industry best practices. “What is special about us,” González goes on to say “is that despite the very high growth trajectory planned for the business over the next 5 years, we are determined to continue as a highly entrepreneurial, creative and professional organization.

According to González the short- and midterm prospects for the real estate sector in the Philippines are promising: “This mirrors the expected continuous growth of the economy and of the per-capita income of a very young population. These factors translate to a demand for better designed and built residential and office developments. In addition, the market is slowly but surely becoming conscious of the need for sustainable solutions. Having said this, we are fully aware that our industry moves in cycles. For this reason, we are quite conservative in our financial management to ensure that we can withstand the challenges of any downward trend in the market.

For González, there is no substitute for hard work and attention to detail: “In addition, I believe

President: Jaime C González

that everyone has something to contribute and I listen to what each member of my team has to say. Of course, in the end, it is essential to make the decision and move forward. Other essential qualifications for people that work with us is that of integrity and a clear mind as to what is acceptable and ethical behavior. My CFI.co | Capital Finance International

short-term hope for this business is that we continue successfully on the track that we are currently on, that we continue the successes that we are seeing in our various projects, and that the market continues to recognize the benefits of sustainable developments and our leadership and commitment to this principle.” i 193

> Strong Brand Equity Resulting from a

Clear Differentiation in Strategy: Sustainability Philippines-based property company ArthaLand sets itself apart from the competition – in all the right ways.

T

he company offers value to customers in the form of sustainability features and always maintains attractive price points. Arya Residences in Bonifacio Global City, ArthaLand’s high-end condominium development, used building features and design elements such as doubleglazed facades and environmentally efficient air conditioning and water collection systems to achieve significant savings that benefit the unit residents.

Arya is the Philippines’ first and only residential condominium to achieve a dual green building certification. It achieved a Gold Certification under the US Green Building Council’s LEED programme, as well as being the benchmark vertical residential development for the Philippine Green Building Council’s Building for Ecologically Responsive Design Excellence.

ENTREPRENEURIAL MANAGEMENT TEAM ArthaLand draws its strength from a management team of industry veterans from various high-end real estate developers. The team has more than 200 years of cumulative management experience in the Philippines and abroad. Its management team consists of specialists in sales and marketing, project development, design and engineering, and property management. It adapts best practices to execute its plans, starting out with an indepth understanding of its customer base.

The company also engages best in class partners: construction companies, architecture and design firms, and quantity surveyors whose reputation precedes them. ArthaLand projects are precisely and expertly executed and recognized as being at the forefront of modernity and technology.

The company’s forward looking developments are always ready to adopt new technologies.

The ArthaLand Century Pacific Tower (ACPT) also in Bonifacio Global City, was designed by the world-renowed SOM, the same group that has designed some of the world’s most iconic buildings, including the Burj Khalifa in Dubai – the tallest man-made structure ever built. The ACPT‘s fibre-optic backbone is poised to take full advantage of high-speed internet.

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Arya Residences

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"This unwavering commitment to sustainability, which together with exceptional and innovative design coupled with high quality construction standards, has been its main thrust in all its developments." together with exceptional and innovative design coupled with high quality construction standards, has been its main thrust in all its developments.

All ArthaLand developments are well thought out and deliberate. Its approach is inherently tied to the unique characteristics of its land bank as well as the specific needs of its target market. The land bank is well positioned in prime locations around the Philippines, allowing it to realize values from buoyant prices in the central business districts of Bonifacio Global City (Arya Residences and ACPT), Makati, and Cebu (Cebu Exchange), while allowing it to develop in emerging communities in the outskirts of Manila.

The Philippine economy is supportive of the real estate market. GDP growth remains robust, driven by overseas remittances as well as the growing BPO sector.

MAINTAINING HIGH QUALITY ArthaLand is determined to maintain the high quality for which its flagship projects are known.

It continues to position itself as the leading developer of sustainable projects – and aims to achieve green building certification for all its future projects.

ArthaLand real estate developments are carefully planned so users can make the most of the space they occupy as well as the rest of the development. The company anticipates buyer’s needs and turns them to reality. It provides the highest possible standard of amenities and creates multi-use spaces that may be adapted for future use.

ArthaLand Century Pacific Tower (ACPT)

Sustainability is at the heart of ArthaLand’s corporate philosophy, and its staff and site employees understand how to operate in a sustainable way and why that’s necessary. The result is a world-class development organization

which applies the same high standards to all its projects.

DEVELOPMENT STRATEGY This unwavering commitment to sustainability, CFI.co | Capital Finance International

ArthaLand also focuses on water conservation in its efficiency strategy and ensures residents and tenants can reduce water wastage and save on utility costs. Its sustainable designs foster good health and comfort – natural daylight, shading from direct sunlight, fresh air intake, green developments and landscaping. i 195

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> Nepal Minister of Industry, Commerce, and Supplies:

Matrika Prasad Yadav on the Agenda for Prosperity and Catching Global Attention Nepal should aim for annual GDP growth of at least 7% – and sustain that pace for 12 years – if it wishes to join the growing group of middle-income countries.

T

he World Bank’s most recent Nepal Development Update, released late October, concludes that Nepal needs to shift from a growth model, based on remittances and domestic consumption, to one that is driven by investment and productivity. That move is already under way, and has helped boost the country’s growth rate by two percentage points to 6.3% in the fiscal year 2017-18 (ended in July).

Nepal Finance minister Yubataj Khatiwada said the government is putting the finishing touches on a new batch of reforms that aim to further improve the business climate, with ample room for foreign direct investment and local entrepreneurs to tap into the country’s productive potential.

Hidden Gems: Nepal

The country seeks to ensure energy selfsufficiency by exploiting its vast reserves of hydropower, one of its development vectors.

Cheap and abundant clean energy will not only help Nepal power local industry but also may enable the country to meet its climate goals. To that end, a large-scale e-mobility programme is being set up to promote the use of electric vehicles.

At the World Investment Forum in Geneva, CFI. co met Matrika Prasad Yadav, the Nepal Minister of Industry, Commerce and Supplies, who describes the opportunities awaiting investors as eye-opening. “Nepal has created an exceptionally favourable and enabling environment for foreign investment,” he said. “With a new democratic constitution in place, the country now possesses a solid legal framework that will help define its development trajectory. It is, in fact, one of the most progressive constitutions in the world and provides for a number of essential rights and protections, from intellectual property to equality before the law – and pretty much everything in between and beyond.”

A CORNUCOPIA OF RESOURCES Yadav draws attention to his country’s natural resources which still await exploitation. The Nepali government is well aware that change and 198

Minister: Matrika Prasad Yadav

progress will not happen overnight. Yadav points out that his country has already celebrated six bilateral investment agreements and is ready to negotiate others. “A lack of investment is holding back our national development,” he said. “We have plenty of readily exploitable natural resources, starting with fresh water, and the attendant hydroelectric potential, all the way to forestry, agriculture, and tourism.”

gas have been found, but so far the government has struggled to attract the attention of large investors. An investment board reporting directly to the office of Prime Minister Khadga Prasad Oli has been set up, and Oli himself heads the board. The Investment Board Nepal has the administrative wherewithal to move at a brisk pace and help interested parties get their projects off the ground, says Yadav.

Nepal also boasts significant reserves of ores such as iron and copper. Oil, silica and natural

Nepal recognises the need to spur economic development by leveraging and deploying the

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power of outside capital, and has revamped its legal framework to create a more investorfriendly environment. It is, in effect, putting out an “Open for Business” sign to reflect the country’s newfound confidence and ambition.

The Investment Board deals primarily with bigger investors and functions as a convenient onestop shop. Local expertise is available to help identify opportunities, set up projects, process formalities, and provide all necessary permits by liaising with the ministries and departments involved. Smaller investors are also welcome to join Nepal as the country embarks on its development trajectory.

REMOVING THE HURDLES According to Yadav, the number of economic sectors where foreign investors are required to set up a joint venture with a local partner has now been greatly reduced. “With the sole exception

Each of the country’s seven provinces will host such a project to eliminate land issues and allow investors “an option that is almost as simple as plug-and-play”.

Yadav aims to please. “Though we have a wide array of fiscal incentives in place, we also found that tax breaks only go so far in addressing investor concerns,” he said. “This is why the land issue has been tackled and why we are determined to provide a world-class infrastructure to businesses.

We are also changing the regulation that pertains to special economic zones, reducing the share of production that is destined for export. Thus, businesses installed in these zones may soon dedicate a much larger part of their output to the domestic market.”

Sandwiched in between two geopolitical and economic behemoths – China to the north and India to the south – Nepal no longer wishes to fulfil a role as anyone’s buffer. The country is repositioning itself as a bridge between the dynamic markets. In addition to its long-standing open-border policy with India, the Kathmandu

government has signed a deal with China – a sort of precursor to a possible future free trade agreement – which has removed all tariffs from a list of over 8,000 products.

Yadav explains that India remains the largest investor in Nepal – but notes that China is quickly catching up. “By the number of projects, China has already surpassed India. What we aim for is tariff-free access for manufacturers in our country to both India and China. That way, businesses that produce in Nepal will enjoy all the benefits of twin markets with well over 2.5 billion consumers.”

Nepal, underreported and often overlooked, has progressed on the World Bank’s Ease of Doing Business Index. It has moved up 13 places to claim number 110 (of 190 countries tabulated).

“We are far from satisfied and will continue to dedicate considerable efforts to move the country up that ranking,” says Yadav. “As the political and economic reforms now enacted take hold, and the regulatory framework is fine-tuned, Nepal will surely further improve its attractiveness to investors.

“We are committed to accomplish this. It is important to realise that the Nepal government has, in fact, only one agenda – which is to deliver prosperity to the people of our country.” i

Most promising investment sectors: Light Manufacturing // Hydropower // Mining // Tourism CFI.co | Capital Finance International

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Hidden Gems: Nepal

Yadav explains that the government has already prepared nine priority projects that dovetail with its national development policy platform, and exploit the country’s comparative advantages such as the presence of large limestone deposits or its vast hydropower potential. Looking to energy-hungry neighbour India, the exploitation of this particular resource has a high priority: “Constructing two or three hydro facilities will not only enable Nepal to meet future domestic demand, but may transform the country into a net exporter of electricity.”

of the financial sector, foreign investors are free to run their projects and provide up to 100% of share capital. Laws regulating land ownership have been reformed and simplified as well but, perhaps more importantly, we are developing a number of large infrastructure projects complete with industrial estates.”

> Minister of National Development and Planning Bambang Brodjonegoro:

A Fiscal Hawk and Pioneering Conservationist Global demand may be tapering slightly, but the economy of Indonesia is picking up speed, expanding 5.3% year-on-year in Q3 2018, beating most forecasts and setting the stage for a possibly buoyant 2019.

T

hat is if the country can manage to boost exports and keep its spending deficit within the self-imposed 3% of GDP limit.

The trade war ceasefire agreed by US and China during the last G20 summit in Buenos Aires is welcome news to Indonesia, which stands to lose more than most in an all-out global tariff dispute. Returning from the Argentine capital, Indonesian finance minister Mulyani Indrawati sounded a cautious note and warned that global uncertainties have not been removed.

Indrawati revealed that his finance ministry and the Bank of Indonesia (BI) are working on a package of policy initiatives and reforms to bolster the country’s economic resilience. BI governor Perry Warjiyo cautioned that the US Federal Reserve is likely to raise its benchmark interest rate for the fourth time this year by another quarter point, taking it to 2.5%.

Hidden Gems: Indonesia

Though this will increase debt servicing costs, Indonesia’s debt-to-GDP ratio compares favourably with that of its main regional trading partners. Public debt ballooned from slightly over $140bn in 2014 – the year President Joko Widodo took office – to an estimated $180bn last year. But the country’s debt burden relative to its national income only crept up 1.5 percentage points to a still easily manageable 30.3%.

Interestingly, the share of foreign-sourced loans plummeted to 30%, meaning that more than twothirds of the credit uptake is rupiah-denominated.

This has afforded the government a significant degree of leeway in managing the exchange rate while mitigating risk and reducing the country’s vulnerability to global economic upheavals.

BUILDING AN ECONOMIC BACKBONE The lion’s share of the funds raised is earmarked for infrastructure development. Spending on new air and seaports, public transportation arteries, logistics networks, and power plants has quadrupled to $10bn annually. While the opposition, getting its ducks in a row for the April 17 general election, is sounding the alarm over the debts contracted by the present administration, most market-watchers and analysts see no reason for concern.

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Minister Bambang Brodjonegoro (right) discussing Indonesia's sustained economic growth and improved resilience with CFI.co Chairman Tor Svensson at UN Headquarters in Geneva.

Minister for Planning and National Development, Bambang Brodjonegoro, explained that the widening current account deficit, now hovering around the -2.6% (of GDP) mark, has the administration’s attention. “It is essential and of great importance that we address the structural issues that underlie the deficit,” he said. “Even as the US Federal Reserve pushes up its base rate, we need to keep sharply focused on reducing our current account deficit.”

Brodjonegoro emphasised the need to keep the deficit under 3%, and identified higher global energy prices as the main culprit. Indonesia, a CFI.co | Capital Finance International

net importer of oil since 2000, is still a significant global supplier of natural gas. It is moving towards the adoption of a mixed fuel regime, adding 20% biodiesel (B20) to the fuel oil sold at the pump. A plan to further restrict the importation of consumer goods is also being considered as a tool to close the trade deficit (and the wider current account deficit). The World Bank warned in September that such an approach could stifle economic growth.

In the latest edition of its Indonesia Economic Quarterly Report, the bank cautioned against overly drastic measures, arguing that the recently introduced import tax surcharge on over 1,000 consumer products is unlikely to dent the deficit.

A fiscal hawk, and a former finance minister credited with laying the foundation for the current growth spurt, Bambang Brodjonegoro has shown dedication to sustainable development.

At the head of the National Development Planning ministry, he masterminded the LowCarbon Development Initiative (LCDI) which provides an environmental touchstone for all future economic planning.

The initiative incorporates a wide range of environmental criteria and targets. LCDI is primarily focused on the energy sector and land

use – the areas that account for an estimated 80% of the country’s greenhouse gas emissions.

The initiative also provides for improved land use, establishing a moratorium on the expansion of palm oil plantations and mandating the restoration of depleted peatlands.

Brodjonegoro says sustainable development need not hamper growth. “This administration has managed to create more than nine million new jobs over the past four years. It did so while also adjusting the country’s development matrix to include environmental goals.” Brodjonegoro is sure that before President Widodo’s first fiveyear term in office expires – a few months from now – he will have achieved the 10 million jobs promised. Unemployment now stands at a low of 5.4%.

The son of a professor and former rector of the University of Indonesia, Brodjonegoro followed in his father’s footsteps and became dean of the university’s Economics Faculty in 2002. He has received praise for his research into economic decentralisation.

SOARING THROUGH THE RANKS Brodjonegoro is determined to push his country further up the ranks of the World Bank’s Ease Of Doing Business Index, where the country CFI.co | Capital Finance International

now moved into the 73rd spot – up 47 places since 2014 – representing nothing short of a complete turnaround in the way corporates of all sizes operate. On the Economic Freedom Index of the Heritage Foundation, Indonesia also improved its standing, moving into 69th place, just after Montenegro. On the regional sub-ranking, the country comes in at number 15 – in line with its competitors Thailand and the Philippines.

Both Standard & Poor’s (BBB-/stable) and Moody’s (Baa2/stable) have maintained Indonesia’s investment-grade credit rating, allowing the country to show on the radar of institutional investors.

Leveraging its solid reputation and harvesting the hard work put in, Brodjonegoro is now exploring government-to-business (G2B) schemes to source funds for some major infrastructure undertakings. In France last October, the planning minister presented a number of projects to investors, including railways in North Sumatra and South Sulawesi, in addition to several seaports and highways.

“We still lag far behind Thailand and now need to catch up quickly,” he said, “but without sacrificing our national accounts.” i 201

Hidden Gems: Indonesia

ADDING VALUE Brodjonegoro respectfully disagrees. “The government is trying to solve the current account problem in a structural way, and is thus not very interested in stopgap measures that only provide short-term relief.” Meeting with CFI.co at the World Investment Forum in Geneva, Switzerland, Brodjonegoro said that a boost in exports would provide the solace needed. “Indonesia must seek to add value to the products it exports to world markets. A good example is our fisheries sector which mostly provides input to food processors outside the country. It is vitally important to onshore these businesses and process inputs on or near the site where they are generated.”

> The Wrecking Power of Fake News:

Manipulating the Will of the People

If there was ever a case against direct democracy, Brexit is it.

W

inston Churchill once remarked that the “best argument against democracy is a five-minute conversation with the average voter”.

The quote in no way detracts from Churchill’s dedication to the “worst system of government, except for all the others”.

An unelected, faceless bureaucratic bully, hellbent on establishing a Union of European Soviet Republics and populating these vassal entities with foreign people while plotting to swindle the enslaved natives out of their last grain of selfrespect – and whatever loose change they carry.

It’s either that or the other extreme: A pitiful, vengeful, and small-minded pencil-pusher, a stickler for rules, haunted by insecurities, and presiding over an ugly, rickety edifice that may collapse at any time, dragging all and sundry back into the dark pits of history.

Final Thought

Opponents – and there are plenty – of the most ambitious nation-building project the world has ever witnessed come in two broad categories, both motivated by all the wrong reasons: those who consider it a cunning ploy, and those who espouse a distrust of any co-operative pursuit that transcends the borders of their cosy nation state.

The keen observer may, after some perseverance, identify a smaller third category that displays a clear understanding and knowledge of the issues, and raises mostly pertinent questions only to find the common undertaking “quite interesting” – the gentleman’s way of describing anything not worth pursuing.

Stumbling towards its exit from the EU, Britain has put its national fate and destiny into the 202

"Proponents of the status quo realised too late that Brexit is not about reason, logic, or the economy: it is an emotional state fuelled by nostalgia and a desire to upset a creaking apple cart." hands of voters who, for over 40 years, have been spoon-fed a succession of half-truths and outright lies about a whipping boy for whatever ills the nation is suffering. Some politicians, including the former secretary of state for Foreign and Commonwealth Affairs, Boris Johnson, have made a career of peddling misinformation about the EU. Johnson’s fanciful writings from Brussels, laced with pseudo-intellectual gibberish, touched on topics as diverse as manure (“Brussels recruits sniffer-dogs to ensure Euro-manure smells the same”), food (“snails are fish, says EU”), architecture (“Euro headquarters to be blown up”), and taste (“Europe to abolish prawn cocktail flavour crisps”). Never one to let facts interfere with a good story, Johnson’s reporting for The Daily Telegraph between 1989 and 1994 did break new ground. It introduced the euromyth genre, and – amazingly for someone sacked from The Times for making up stories – set the tone of the domestic debate.

Recognising the awesome power of fake news before anyone had even considered it a “thing”, Johnson readily admitted to enjoying the explosive effect of his words on the Tories and the “weird sense of power” they afforded him.

His words, though mostly made up and not CFI.co | Capital Finance International

grounded in any discernible reality, set him up for life and launched his career in politics. The euro-myths he invented were expanded upon by imitators that followed in his wake, and sparked the emergence of the UK Independence Party (UKIP) in the early 1990s.

A political environment that allows habitual liars to rise to the top and set the agenda, even after their fraud has been documented and exposed, is a toxic one indeed. Such a system cannot be trusted with minding, let alone steering, the ship of state. Whipped into a very un-British frenzy

by Johnson and those who helped construct a parallel reality, voters are venting their frustrations at Brussels for nearly all societal shortcomings.

Proponents of the status quo realised too late that Brexit is not about reason, logic, or the economy: it is an emotional state fuelled by nostalgia and a desire to upset a creaking apple cart. This stick-it-to-the-man attitude quite often prevails when voters are invited to make a binary choice. Referenda usually provide answers that do not relate to the question, and are crude political tools that have no place in parliamentary democracy.

Entrusting complex issues to a barely informed – or misinformed – public is to invite disaster, and to court outcomes that are all-but impossible to implement. In modern democracies, voters get to set the general direction of government – left, right, centre – and may partake in referenda on minor domestic issues.

So Brexit offers a cautionary tale about fake news and “alt truth”. When even secretaries of state parrot lies and fail to stand up for fact, we’re in deep trouble. No antidote to the affliction has been found; the disease must run its course. i

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