CFI.co Autumn 2013

Capital Finance International

Autumn 2013

GBP 4.95 // EUR 5.95 // USD 6.95

AS WORLD ECONOMIES CONVERGE

Mark Carney, Governor of the Bank of England:

NEW AGE BANKER

ALSO IN THIS ISSUE // WORLD BANK: COMMUNITY INVOLVEMENT // BENTLEY: UK JOBS EIB: SME & INNOVATION // BLACKROCK: PRIVATELY-FINANCED INFRASTRUCTURE IMF: GOOD GOVERNANCE // MIGA: RISK MANAGEMENT

There’s thinking ahead and there’s thinking beyond.

The Mulsanne.

Mulsanne fuel consumption in mpg (l/100 km): Urban 11.2 (25.3); Extra Urban 24.0 (11.8); Combined 16.8 (16.9). CO2 Emissions 393 g/km.

For more information visit www.bentleymotors.com. #Mulsanne.

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

Editor’s Column It is with great pleasure – and a modest degree of pride – that the CFI.co team presents this latest issue of our magazine. It is my first one as editor. The job of putting this CFI.co together was most satisfying indeed.

We did introduce a few subtle changes to the publication.

Starting with this issue, CFI.co will be assembled around a loosely defined theme; a thread that runs through most articles and holds the magazine together. Community Engagement is the first topic we chose to tackle.

As societies develop and millions of people the world over gain access to Internet-driven forms of communication, populations start to self-organize and plot their own paths toward solutions. Government is no longer exclusively looked upon to provide the answers.

Businesses must now operate in new social environments. Corporate Responsibility, previously a mere sideshow, has become an essential part of any business plan worth its salt. It’s not just Amazon and Starbucks that now need to justify their smart use of the law to minimize their tax bills.

Editor’s Column

Companies like Harrybeat International – a service provider to the Nigerian oil and gas industry – make a point of contributing to the social environment they operate in.

Supporting education and making use of the vast domestic pool of talented and skilled engineers are attitudes essential to Harrybeat International’s continued success in business. The company is just one of a growing number of businesses that have come to realize that they do not operate in a vacuum.

Community Engagement was chosen as this issue’s theme for its supreme relevance in today’s business world: For a long time bankers kept to their ivory towers, ignoring their surroundings while raking in the cash. That will clearly no longer do and those who insist on preserving the old ways now do so at their own peril.

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The financial crisis started in 2008 is largely over. Europe is still a bit shaky and needs to face up to some serious issues, but most of the world is on track to significant – and hopefully sustained – growth. China and Brazil may not be booming; they are not shrinking either.

This return to much-improved economic times occurs at a particularly interesting junction of human history. The number of people living in isolation is shrinking fast. The global village is absorbing new members by the million: People previously largely unable to voice their opinions or obtain information about whatever subject might pique their interest.

Internet technology is transforming the world in unexpected ways. IT not merely enables cross continent communication, in Africa it also allows one village to talk to the next without any expenditure of effort.

As people chat, common ground, opportunities and solutions are found that may cause a positive impact on society.

Community Engagement is key to mapping the path of global progress. I strongly believe that over the coming decades nation states will see their reach significantly diminished, notwithstanding their increasingly Orwellian use of technology. Due to their often bloated size, state structures often lack the agility required from any entity that wishes to keep up with society and its use of technology.

We hope that you may thoroughly enjoy this issue of CFI.co. Please check our website which now boasts a wide selection of daily updated features on trends in business and politics. We’d much like to hear from you: Comments and queries are always welcome. Let us know what you think or tell us what you’d like us to investigate or report on more closely. CFI.co welcomes any thought you might wish to share.

Wim Romeijn Editor CFI.co

Bank of England

Editor’s Column 7

> Letters to the Editor

“ “ “

Attempts by the European Union to forge a political union riding the coattails of the financial crisis are doomed to fail. It is an exercise in futility that will end up doing more harm than good. Both the idea and the ideal are wonderful, albeit not very practical. What we had before the advent of the euro was near perfect: Cooperation and a free movement of goods, services and people.

Politicians have a disconcerting tendency to fix that what is not broken. They are usually slightly less well equipped to carry out real repairs on wrecked matters. Where does Europe go now: Force a union upon vastly dissimilar nations or do away with the euro altogether? That is a question I’d much like to see addressed.

GUY BELDING Luxemburg (Luxemburg)

Thank you for highlighting Mexico’s ascent as a vehicle manufacturing center. It is the curse of Mexico to be overshadowed by the US or – as of late – by Brazil. While these economies are indeed very large, the Mexican one is no midget either. Over the past couple of year, Mexico has worked diligently on implementing a number of economic and fiscal reforms that jointly make the country very attractive to investors.

Please keep a close watch on Mexico as you might be agreeably surprised at the speed of the country’s GDP growth over the next decade. This is a place of great opportunity boasting political stability, a pool of skilled labor and a sizeable middle class of avid consumers.

MARCOS OSTROVSKI Puebla (Mexico)

Your feature section on female business leaders was a most enjoyable read. I was particularly impressed by Ms Alison Cooper of Imperial Tobacco, UK and her attempts to diversify that company’s lines of business. It is encouraging that she remains adamantly opposed to the introduction of gender quotas and other forms of reversed discrimination which has absolutely no place in contemporary society.

People must propel their success in business – or indeed any other endeavor – by way of their own talents, knowledge and skills.

Her comment that women are not to be treated as a commodity is spot on. Someone’s gender should play no role whatsoever in hiring decisions. I wish Ms Cooper well and hope her viewpoint permeates throughout the business world to become the rule rather than the exception.

JULIA K. DUVEKOT Raleigh (USA)

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CFI.co | Capital Finance International

Autumn 2013 Issue

“ “ “

It never ceases to surprise me that respected economists and analysts keep considering Brazil as the next big thing. Sure, it is a big country; but also a rather sluggish one. Its recent spurt of growth has been a welcome change from decades of economic mismanagement. However, most policies that have hampered Brazil’s development remain in place. It still is not an easy place to conduct business. The country’s addiction to red tape is fatal. Its protectionist trade policies shield Brazilian businesses from competition.

Most domestic manufacturers simply cannot compete in overseas markets.

That the country hasn’t so far gone down the proverbial drain may be ascribed to its mineral wealth.

At heart Brazil’s economy is not a powerhouse at all but just a clearing house for the proceeds of extractive business activities. Perhaps its leaders should gather up the courage to expose Brazilian society to the full benefits of globalization.

DIRCEU DA ROCHA Cuiaba (Brazil)

Your continued attention to the need for good governance is both timely and appreciated. The world would indeed be a much better place if only those in power come to their senses. Far too many of the world’s countries are still governed by people seeking to implement crackpot ideas or disproven ideologies.

Economic theory and practice is a numbers game. It may at times appear complicated but the underlying numbers and facts are not. Politicians insisting on disproving basic mathematical theory cause untold harm.

The current tendency in Europe, South America, Africa and elsewhere to improve the quality of political leadership is perhaps the single most important contributor to global progress. Please, do keep it up.

FRANK MARCOUX Durban (South Africa)

Can you please refrain from bashing those poor, hard-working Germans? These people have foregone higher incomes for many years to keep their industry humming. Others could perhaps not muster the required patience and restraint. Now the piper wants his due. Why Germans should pay for the indulgencies of others is simply beyond me.

Also, I’d really like you to show a bit more understanding for Germany’s economic history. Few countries have suffered as much from the ravages of inflation as Germany has. Even though today’s leaders were not yet born when the Weimar Republic went into a tailspin, they have not forgotten the sufferings their parents’ generation went through. Honest bookkeeping is essential for sustained economic success. We do not cook the books. Please respect that.

GUNTHER ADLER Wiesbaden (Germany)

CFI.co | Capital Finance International

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Editor Wim Romeijn Assistant Editor Sarah Worthington Executive Editor George Kingsley Production Editor David Graham

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

Distribution Manager Len Collingwood

Subscriptions Maggie Arts

Commercial Director Jon Gerben

Publisher Mark Harrison

Chairman Tor Svensson Capital Finance International 43-45 Portman Square London W1H 6HN United Kingdom T: +44 203 137 3679 F: +44 203 137 5872 E: info@cfi.co W: www.cfi.co

> COVER STORIES Caring Bankers (30 – 41)

World Bank Group: Emerging Markets and the Unwinding of Quantitative Easing (14 – 17)

Bentley Motors: Bentley Keeps Assembly at Home (42 – 47)

European Investment Bank: “Vienna Initiative” Keeps Credit Flowing (50 – 53)

BlackRock: Bridging the Gap - The Rise of Infra Funds in Privately Financed Infrastructure (58 – 60)

IMF: The Yin and Yang of Capital Flow Management - Balancing Capital Inflows with Capital Outflows (174 – 179)

MIGA (World Bank): Energy in Africa The Many Sides of Sustainability Printed in the UK by The Magazine Printing Company using only paper from FSC/PEFC suppliers www.magprint.co.uk

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(80 – 83)

CFI.co | Capital Finance International

Autumn 2013 Issue

FULL CONTENTS 12 – 28

As World Economies Converge World Bank

Nouriel Roubini

Hildegunn K. Nordås

Chairman’s Column

Mohamed El-Erian

Ross Jakcson

30 – 41

Caring Bankers

Bentley

Millennium bcp

EIB

Ak Investment

European Federalist Party

ARM

Sampension

Norton Rose Fulbright

BlackRock

68 – 79

CFI.co 2013 Awards

Rewarding Global Excellence

80 – 143

Africa & Middle East

MIGA (World Bank)

BFA

PwC

IH Securities

Dateline Energy

ARM Investment Managers

Good Governance Group

CSL Stockbrokers

Harrybeat International

NEPAD

Agha Abani

IH Group

DESERTEC

Absalon Project

Gulf Bank

Saudi Hollandi Bank

Center for Citizen E&T

The World Bank

144 – 155

Editor’s Heroes

42 – 67

Europe

Ten Men and Women Who are Making a Real Difference

156 – 186

Emerging Economies Perspective

World Bank

USAID NSE Citygate

IMF

Michael Pettis

BVC

CFI.co | Capital Finance International

Grant Thornton

Chitra Ramkrishna

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Chairman’s Column government’s economic policies (incl. lower corporate taxes) and Sterling’s depreciation seem to have done the trick. Economic growth is now picking up (IMF predicts 1.5% real GDP growth in 2014) and approximately 2.5 million jobs have been created in the private sector. The net gain is considerably lower since the public sector has successfully unloaded about one million jobs.

Please check our article about Bentley’s success as an automobile manufacturer adamant at bringing back jobs to Britain.

The monetary policies of Europe are based on a single objective pursued at all cost: That of maintaining minimal levels of inflation. This quest finds its origins in German fears of a return – how unlikely that may seem – to its Weimar Republic past. It is therefore most refreshing when the Bank of England announces a monetary policy based on the premise of lowering the level of unemployment.

The cover of this issue illustrates the dawn of a new age for banking. The recently appointed Governor of the Bank of England (BoE), Mark Carney, in many ways represents this coming era. But are these indeed new times - or are we just reverting back to days gone by, when bankers actually saw it as their mission to provide sensible services for normal people and businesses?

Chairman’s Column

Many of today’s top financiers seem to operate as dysfunctional, albeit polite, self-service providers for the selected few, such as the bankers, hedge fund managers and those born to the proverbial silver spoon. In other words: The 1% (see articles

by Jackson in this and prior issues of CFI.co and for another take, our section on Good Bankers).

CFI.co welcomes the new Governor of the BoE who has his work cut out for him as his predecessor left an unholy mess in the form of a poorly regulated financial sector, inadequate banking reforms, counter-productive remuneration and incentive systems. This happened after BoE had failed to do its job as regulator properly. It also failed to foresee the full extent of the financial crisis which had a big British domestic side to it in the form of real estate and financing excesses. Finally, the BoE also fell dramatically short of putting timely and adequate safeguards in place.

QE – the printing of money to buy (“monetize”) public debt – benefits only the very few: Only less than the top 5% of the population in the US where still only a minority of the people own shares. However, at the same time, austerity policies in Europe ended up hurting most echelons of society – save perhaps for a few lucky individuals and businesses that may stand to benefit from buying up distressed assets.

In the Britain, QE combined with the coalition

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Running the printing presses at the mint has not (yet) unleashed inflationary pressures in the developed Western World. Competitive pressures on salaries, cost and productivity – have kept prices in check. We have the emerging economies (see CFI.co article by Moynihan, Autumn, 2012) to thank for this.

Thus, Germany’s national obsession with inflation has been largely misguided. It is also out of touch with the challenges of current times. The result of Berlin’s failure to reach closure on its past: A Europe that is losing entire countries and a whole generation of potential workers. The German-inspired monetary policies followed by the European Central Bank are leading to a progressive deterioration of the continent’s social and democratic fabric as well as to a diminishing of long-term competitiveness (see various previous issues articles by Stiglitz).

BlackRock and Sampension explain in this issue of CFI.co how Public-Private-Partnerships (PPP) with the active participation of private institutional investors - such as pension funds - can effectively contribute to filling the void left by jittery banks when it comes to the financing of important infrastructure projects, including those in emerging economies.

Excellence in client services and customer satisfaction are keys to success for all commercial banks anywhere in the world (CFI.co is consistently looking to unearth and document excellence in management and innovative business practices in this field).

For the European central banks, the customer satisfaction of their constituencies – i.e. the populations of their respective countries - have been ignored for too long as they have been hijacked by German paranoia and – we must say - to the sole benefit of German industry (see Pettis

CFI.co | Capital Finance International

article in the CFI.co summer issue). Combatting inflation and all its perceived dangers has come at the expense of job creation, economic growth and societal prosperity.

As mentioned earlier, it is a most welcome change to see the Bank of England question and re-think these policies, acknowledging the fact that they are not quite set in stone yet (although Berlin is working on that too). We might even see a return yet to the monetary countercyclical policies of the past - Hi there Keynes!

Everybody should accept a shared responsibility to get Europe’s wheels spinning again. Policies must be put in place to jump-start bank lending to SMEs. More capital must promptly be made available for investments in innovation, infrastructure and other major undertakings. Multilateral organisations such as various EU bodies, EBRD, EIF, EIB, and the World Bank Group can all be called upon to make more valuable contributions to a much needed economic renaissance.

One of the benefits of receiving “intelligent capital” from the World Bank and its various institutions, such as IFC, is the emphasis placed on corporate governance. We, at CFI.co find great satisfaction in seeking out and reporting on models of excellence in corporate governance. In fact, we see it as a prerequisite for sustainable success in business.

In this issue, The World Bank and the IMF report on governance at state level and how this, in conjunction with adequate reforms, strong institutions and currency depreciation, softened the blow from the financial crisis in several emerging economies, such as Chile.

A recent IMF study on emerging economies shows quite clearly that adequate economic, monetary, and fiscal policies as well as currency depreciation and good national governance all have a solid impact on stemming capital outflows at times of crisis when money gets scarce. Thus, emerging economies that adapt are able to better weather the storm than those countries that continue with business as usual. The same holds true for private business – innovate, keep a sharp focus on corporate governance and listen to your customers or perish.

Take India where voters are now beginning to demand good governance. Vigorous social movements against injustices – caste oppression and environmental degradation – are making a real dent and may yet crack the walls of power.

CFI.co’s World Bank columnist explains in detail how the provision of liquidity to banks has not created “monies” in the broad sense, but has led to the availability of easy and cheap credit to emerging market economies. As in the UK’s case, this printing

of monies has covered over big cracks in both governance and policy frameworks in emerging economies. Furthermore, devaluations really do help balance the current accounts.

As the world converges, emerging economies grow – an average of 5.7% GDP growth over next year as projected by the IMF - in relative size to the western or developed world. Ten years ago, the combined economies of Brazil, Russia, India, and China (the “BRIC” nations) equalled to roughly 29% of the US economy.

Despite the intellectual firepower of Keynesian economists, European (and other) governments are zealously tightening their belts. Following a

It is still not clear if debt really dampens GDP growth. Consider, by way of illuminating example, the astronomic US Federal debt level. However, the Eurozone’s track record suggests that prolonged austerity programmes hold back growth and thereby make the debt burden even heavier to bear.

Excessive thrift will make us all poorer. If we all stop consuming and start saving at the same time, there will be fewer jobs to go around as demand for goods and services evaporates. The notion that austerity is the best solution to the economic downturn suffered by the PIGS and Europe’s other weak economies may be appealing to Germans but seems somewhat less attractive – or smart – when seen from any other perch. Germans like austerity

because it demands sacrifices by those poor souls dwelling in the periphery. Keynesian stimulus would require German money and “off-balance sheet” euro bonds issuing.

The solution for Europe – and indeed for some other parts of the world - is to combine fiscal stimulus now with legally binding obligations to pay off the debts so created in a more prosperous future brought about by this extra spending. This was the central tenet of Keynes’ ground breaking work.

However, most politicians only got the first part on spending your way out of trouble. The latter part, the one where they have to pay back in times of plenty, is regrettably less well understood.

For now, more public debt is to be preferred to more unemployment and more misery.

Chairman’s Column

By 2007, these economies were equal to 53% of the US behemoth, while today they represent 91% of the US GDP. The comparison is even more marked when compared with flat-lining, no-growth Europe.

The IMF predicts that by the end of 2014, the size of the Eurozone economy will not have progressed anything beyond its 2011 level.

decidedly non-Keynesian path, Europe’s economies are shrinking while still running budget deficits.

Keynes’ core proposition was that when consumers and businesses set out to reduce their debt burdens - and private spending and investment stall as a result of that - governments should borrow to keep the ball rolling and pick up any slack.

Tor Svensson Chairman Capital Finance International

CAPITALFINANCE I N T E R N AT I O N A L

CFI.co | Capital Finance International

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> Otaviano Canuto, World Bank Group:

Emerging Markets and the Unwinding of Quantitative Easing

CFI.co Columnist

The mid-year season was marked by a strong pressure of capital outflows and exchange rate devaluations in several systemically relevant emerging market economies. Announcements in May that the Federal Reserve had started to focus on phasing out its asset-purchase program – otherwise known as quantitative easing or (QE) sparked a surge in bond yields that in turn triggered an asset selloff in those emerging markets. Although subsiding in September, particularly after the Fed announced that “tapering” would not begin yet, concerns remain about what will happen when the actual unwinding of QE eventually unfolds. We argue here that events since May could ideally provide a “fire drill” that might induce emerging markets to address various policy shortcomings that have been exacerbated by the flood of global liquidity in the last few years.

QUANTITATIVE EASING HAS BEEN COUNTERCYCLICAL IN ADVANCED ECONOMIES… After lowering policy interest rates to near zero, the central banks of the major economies started in 2009 an expansion of their balance sheets.

The steady purchase of government bonds and other assets by G4 central banks have pushed their combined asset holdings to around 15% of global GDP, up from roughly 8% in 2008 (Chart 1).

“The countercyclical effect

The initial rounds of central bank asset purchases were aimed at avoiding a deepening of on-going asset liquidation processes. These were caused by private agents trying to deleverage en masse after the Post-Lehman financial quasicollapse or, in the case of the euro area, when the crisis of confidence on the euro convertibility unfolded. Without such backstop, more intense asset deflation processes could have been accompanied by widespread bankruptcies and further GDP losses (Brahmbhatt et al, 2010).

In the case of the US Fed, subsequent rounds of asset purchases, besides propping up mortgages through the acquisition of mortgage-backed securities (MBS), were aimed at lowering longterm yields. This can be seen in the evolution of the ten-year US Treasury term premium – accounting for real and inflation risk premiums - toward negative levels also depicted in Chart 1.

Even during its more aggressive stage, the Fed’s QE is perhaps best seen as an accommodative,

counter-cyclical policy. Chart 2 shows how the money multiplier practically “fell off a cliff” on both US and European sides of the Atlantic after the crisis struck. This reflected private agents’ preference for holding very high levels of excess reserves of liquidity rather than creating broad money through credit expansion.

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could arguably have been stronger if accompanied by countercyclical fiscal policies in the US.”

Unconventional monetary policies - QE combined with “forward guidance”, i.e. signaling of central banks’ future policies - prevented the unraveling of the financial system and of private asset-liability structures, and countervailed an aggregate demand slump in affected countries.

Such policies have thus helped smooth the private sector deleveraging process and, in the case of the Euro, helped save the currency by reducing perceived risks of convertibility. The countercyclical effect could arguably have been stronger if accompanied by countercyclical fiscal policies in the US. On the euro area side, CFI.co | Capital Finance International

the ECB action would also arguably have been more effective if followed by less austerity and/ or structural reforms in crisis-ridden countries, faster euro-wide institutional development and a more proactive writing-off of impaired assets (given the costs of “procrastination” - Canuto, 2013a). Notwithstanding such concerns, and with the benefit of hindsight, one can still assert that such unconventional monetary policies helped avert a graver macroeconomic disaster.

On the other hand, one may point out several factors tending to decrease the effectiveness and increase the risks of QE policies going forward (Caruana, 2013). Prolonging the period with central bank support to risk-taking not only creates hazards by itself, it also raises the temptation to “evergreen” impaired liabilities with the hope of postponing – perhaps forever - the acknowledgment of losses. Furthermore, future normalization of central bank balance sheets becomes even more challenging. It is no surprise then that, last May, rising confidence on the durability of the US economic recovery yielded growing Fed references to a “tapering” – shrinkage at the margin of asset purchases – probably later in the year. … AND PROCYCLICAL FOR EMERGING MARKET ECONOMIES At the outset of the period of unconventional monetary policies in advanced economies, one could anticipate a massive capital reallocation

CFI.co Columnist

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Chart 1: G4 Central Banks asset holding (% of global GDP) and 10Y US Treasury Term Premia.

Source: DECPG, World Bank, “Weekly Global Economic Brief”, 26 September 2013

Chart 2: Money Multiplier1 (broad money over

and associated changes in leverage capacity moving from advanced to emerging market economies. Gloomy prospects for advanced economies and the euro area crisis, combined with diverse channels of transmission for QE, would probably pave the way for portfolio shifts to emerging markets, helped by their post-2008 resilience. Indeed, prices of emerging market assets (including financial assets and real estate) were already reflecting such a relative change of fundamentals between the two groups of economies. Some analysts pointed out a major potential of risks for emerging markets in case excessive euphoria prevailed and finance-led asset bubbles were allowed to rise (Canuto, 2011).

monetary base).

Weighted averages based on 2005

1

GDP and PPP exchange rates.

Source: Caruana, J., 2013. “Debt, global liquidity and the challenges of exit”, BIS speeches, July 8.

Canada, the euro area, Japan and the United Kingdom. 3Brazil, China, Hong Kong SAR,

2

India, Indonesia, Korea, Malaysia, Mexico, the Philippines, Poland, Russia, Saudi Arabia, Singapore, South Africa, Thailand and Turkey.

Chart 3: Emerging Markets: equities.

The black vertical lines indicate 3 May, 22 May, 19 June and 5 July 2013 respectively.

1. Aggregates, calculated by MSCI. 2. Calculated by MSCI.

Source: BIS Quarterly Review, 15 September2013.

Chart 4: Emerging Markets: yields and flows into bond funds.

Sources: (left-hand) Caruana, J., 2013. “Debt, global liquidity and the challenges of exit”, BIS speeches, July 8; amd (right-handed) BIS, 2013. “BIS Quarterly Review”,

CFI.co Columnist

September 15.

In retrospect, it is evident that the world experienced a significant increase in assets and exposure to emerging markets in 2009-12, despite efforts by these economies to introduce capital controls and other macro-prudential measures (Canuto and Cavallari, 2013).

Outstanding emerging corporate bonds grew fast throughout the period. “Dedicated” emerging market equity and bond funds were bloated and followed by the much larger “crossover segment” (retail, hedge funds, and institutional).

To different country-specific extents, this wave of global liquidity helped fuel credit booms, asset price inflation and macroeconomic over-heating in emerging market economies (Caruana, 2013).

In the case of equities, as illustrated in Chart 3, the tide started to turn last year when news on a growth slowdown in major emerging markets predominated (on China and Brazil, see Canuto, 2013b). But it was only last May that significant global portfolio rebalancing was put in motion, when upbeat news on US employment released on May 3th firmed the positive outlook for its economy, followed by an uptick on long-term yields. On May 22th a Fed talk about shrinking – and eventually reversing – its asset purchase program was made public – see Charts 3 and 4. While unconventional monetary policies have been countercyclical in advanced economies implementing them, they have had pro-cyclical consequences on emerging markets -- boosting credit and demand when most economies among the latter were already heated up, and threatening to accentuate a slowdown where it started to happen.

Chart 5: Emerging Markets: exchange-rate depreciation. 1. US dollars per unit of local cur-

Chart 6: (left) Credit to the private sector (% of GDP, unweighted averages). (right) Loan

rency. 3. As of Q2 2013 4. Against US$, 3May-4September 2013.

performance in Emerging Markets. Source: (left) Caruana, J., 2013. “Debt, global liquid-

Source: BIS Quarterly Review, September 2013

ity and the challenges of exit”, BIS speeches, July 8. (right) “BIS Quarterly Review”.

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CFI.co | Capital Finance International

Autumn 2013 Issue

“Most emerging markets are currently not as vulnerable as they were in previous episodes of global interest rate hikes.”

The global portfolio adjustment has seen a movement away from countries/markets deemed as vulnerable to QE unwinding and toward those whose prospects appear likely to improve as a consequence of possible future policy change.

Chart 5 shows how, prior to the September calmdown, exit flows and exchange-rate devaluations were not distributed evenly among emerging market economies, but rather concentrated on large countries exhibiting current-account deficits (Brazil, India, South Africa, Indonesia, and Turkey). However, even China felt ripple effects through a severe liquidity squeeze in its interbank market in June, partially reflecting an accentuated slowdown in US dollar inflows in late May [see BIS (2013) (https://www.bis.org/ publ/qtrpdf/r_qt1309a.pdf) on this and domestic factors behind the brief but acute episode of interbank volatility in China.]

THE RECENT EMERGING MARKET SELL-OFF MAY HAVE TURNED OUT TO BE A TIMELY WAKE-UP CALL FOR THE POST-QE WORLD The effects of an announced “tapering” -reduction at the margin -- of monthly asset purchases in the near future by the Fed was felt immediately, even though its start date was yet to be established. A frequent question now asked is whether U.S. long-term Treasury yields will skyrocket when the Fed actually begins to shrink its balance sheet toward more “normal” levels, and if they do, could the resulting upheaval make the recent emerging market turmoil look like a walk in the park.

This leads us to the second reason for not expecting interest rates to go through the roof.

There is no sign of an uptick on U.S. inflation

Most emerging markets are currently not as vulnerable as they were in previous episodes of global interest rate hikes. Current exchange rate devaluations reflect the adjustment flexibility embedded in their currency regimes, as opposed to pegged rates which in the past made emerging market currencies sitting-ducks for speculative attacks. Furthermore, reserve cushions are much larger, both corporate and public-sector debt positions in most EMs are not as fragile as they were on the brink of the 1990s crises, and the proportion of equity-like investment and domestic currency-denominated debt is higher.

The recent credit boom in some countries has left a vulnerable legacy, especially in Asia - Chart 6 - but likely a more manageable one, at least as compared to previous experiences. The debt legacy from China’s credit-based real estate boom in the last few years can ultimately be addressed with substantial official reserves and the available fiscal space.

Not by chance, the policy space available in emerging market economies most affected by the recent sell-off has already been put into action to avoid the emergence of vicious circles that spirals of capital outflows and exchange rate depreciations might have caused. Such policy reactions have been as important to the September calm as the signs of caution in the QE taper coming from the Fed.

procrastination in adjusting and restructuring portfolios is a potential downside of QE. To some extent, the aggravation of fiscal and balance-ofpayments fragilities in some liquidity-receiving emerging markets, facilitated as an unintended consequence of QE, has exactly been an example of such an accommodation. From this perspective, unwinding QE policies may ultimately be good news for emerging markets, especially if the withdrawal of global liquidity is followed by a sharper focus on promoting country-specific reform and restructuring. i

ABOUT THE AUTHOR Otaviano Canuto is Senior Advisor on BRICS Economies in the Development Economics Department, World Bank, a new position established by President Kim to bring a fresh research focus to this increasingly critical area. He previously served as the Bank’s Vice President and Head of the Poverty Reduction Network (PREM), a division of more than 700 economists and other professionals working on economic policy, poverty reduction, gender equality and analytic work for client countries.

He also served as an Executive Director of the Board of the World Bank from 2004-2007.

Outside of the Bank he has held leadership positions at the Inter-American Development Bank where he was Vice President for Countries, and for the Government of Brazil where he was Secretary for International Affairs at the Ministry of Finance. He also has an extensive academic background, serving as Professor of Economics at the University of São Paulo and University of Campinas (UNICAMP) in Brazil.

REFERENCES Provided that we are right regarding caution and gradualism in the exit from central banks’ massive asset purchase programs, as well as on the scope for emerging market policy reaction, the global portfolio adjustment launched in May can be seen as offering an orderly fire-drill for the real unwinding of QE. At the very least, those emerging market countries most likely to be affected have greater recognition of their vulnerability from splurging in the global liquidity pool and leaving their fiscal and/or currentaccount deficits unaddressed.

Brahmbhatt, M., Canuto, O. and Ghosh, S. 2010. Currency wars yesterday and today, Economic Premise n.43, December.

BIS. 2013. BIS Quarterly Review, September 15.

Canuto, O. 2011. Risky growth engines, Project Syndicate, January 21.

Canuto, O. 2013a. Bankrupt Sovereigns: Is There an Orderly Way Out?, Huffington Post, June 10.

Canuto, O. 2013b. China, Brazil - two tales of a growth slowdown, Capital Finance International, Summer.

Canuto, O. and Cavallari, M. 2013. Monetary policy and macroprudential regulation - whither emerging markets, World Bank Policy Research Papers, n.6310, January.

Caruana, J. 2013. Debt, global liquidity and the challenges of

Regardless of the role played by the liquidity wave flooding into emerging market economies, these countries have in general been too complacent over the need for structural reforms in order to explore new growth opportunities (Canuto, 2011). We noted above how

CFI.co | Capital Finance International

exit, 8th FLAR-CAF International Conference, Cartagena, Colmia, July 8.

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CFI.co Columnist

Two factors may mitigate the scenario of skyrocketing long-term interest rates. First, if we are right in our description above, the Fed’s balance sheet expansion has not been much greater than the world’s demand for liquidity in dollars. There is ground to believe that the Fed mostly accommodated the private (bank and nonbank) demand for “excess reserves”, nudging down the nominal term premium later in the process. Provided that the US economic recovery settles in and the private demand for long-term bonds – and other assets, like MBS - normalizes, the Fed will not have to dump unwanted assets on the market and, thus, be obliged to offer huge discounts and high interest rates. There is no reason for the Fed to risk derailing the economic recovery by not following such a path and the decision not to start tapering in September yet confirms its propensity to move cautiously and gradually.

rates or expectations and, therefore, no need for substantial interest rate hikes in the foreseeable future. Interest-rate policies could conceivably be separated from the unwinding of the balancesheet expansion, but the fact is that the U.S. economy is likely to remain on a low-inflation environment for some time.

> Nouriel Roubini:

Autumn’s Known Unknowns

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EW YORK – During the height of the Iraq war, then-US Secretary of Defense Donald Rumsfeld spoke of “known unknowns” – foreseeable risks whose realization is uncertain. Today, the global economy is facing many known unknowns, most of which stem from policy uncertainty.

In the United States, three sources of policy uncertainty will come to a head this autumn. For starters, it remains unclear whether the Federal Reserve will begin to “taper” its open-ended quantitative easing (QE) in September or later, how fast it will reduce its purchases of long-term 18

assets, and when and how fast it will start to raise interest rates from their current zero level.

There is also the question of who will succeed Ben Bernanke as Fed Chairman. Finally, yet another partisan struggle over America’s debt ceiling could increase the risk of a government shutdown if the Republican-controlled House of Representatives and President Barack Obama and his Democratic allies cannot agree on a budget.

The first two sources of uncertainty have already affected markets. The rise in US long-term interest rates – from a low of 1.6% in May to CFI.co | Capital Finance International

recent peaks above 2.9% – has been driven by market fears that the Fed will taper QE too soon and too fast, and by the uncertainty surrounding Bernanke’s successor.

So far, investors have been complacent about the risks posed by the looming budget fight.

They believe that – as in the past – the fiscal showdown will end with a midnight compromise that avoids both default and a government shutdown. But investors seem to underestimate how dysfunctional US national politics has become. With a majority of the Republican Party on a jihad against government spending, fiscal

Autumn 2013 Issue

explosions this autumn cannot be ruled out.

Uncertainties abound in other advanced economies as well. Germany’s general election appears likely to produce a repeat of the current government coalition of Chancellor Angela Merkel’s Christian Democratic Union and the Free Democrats, with opinion polls suggesting that a grand coalition between the CDU and the Social Democrats is less likely. In the former case, current German policies toward the eurozone crisis will not change, despite austerity fatigue in the eurozone’s periphery and bailout fatigue in its core.

Political risks in the eurozone’s periphery include the collapse of Italy’s government and a fresh election as a result of former Prime Minister Silvio Berlusconi’s criminal conviction. Greece’s ruling coalition could collapse as well, and political tensions may rise even higher in Spain and Portugal.

On monetary policy, the European Central Bank’s forward guidance – the commitment to keep interest rates at a low level for a long time – is too little too late and has not prevented a rise in short- and longterm borrowing costs, which could stifle the eurozone’s already-anemic economic recovery. Whether the ECB will ease policy more aggressively is also uncertain.

Outside of the eurozone, the strength of the United Kingdom’s recovery and the Bank of England’s soft forward guidance have led to similar “unwarranted” increases in interest rates, which the BoE, like the ECB, seems unable to prevent in the absence of more muscular action. In Japan, the policy uncertainty concerns whether the third arrow of Abenomics – structural reforms and trade liberalization to boost potential growth – will be implemented, and whether the expected rise in the consumption tax in 2014 will choke economic recovery.

New York: Central Park

“So far, investors have been complacent about the risks posed by the looming budget fight.”

In China, November’s Third Plenum of the Communist Party Central Committee will show whether China is serious about reforms aimed at shifting from investmentled to consumption-led growth. Meanwhile, China’s slowdown has contributed to the end of the commodity super-cycle, which, together with the sharp rise in long-term interest rates (owing to the scare of an early Fed exit from QE), has led to economic and financial stresses in many emerging-market economies.

These economies – the BRICS (Brazil, Russia, India, China, and South Africa) and others – were overhyped for too long.

Favorable external conditions – the effect of China’s strong growth on higher commodity CFI.co | Capital Finance International

prices and easy money from yield-hungry advanced-economy investors – led to a partly artificial boom. Now that the party is over, the hangover is setting in.

This is especially true in India, Brazil, Turkey, South Africa, and Indonesia, all of which suffer from multiple macroeconomic and policy weaknesses – large currentaccount deficits, wide fiscal deficits, slowing growth, and above-target inflation – as well as growing social protest and political uncertainty ahead of elections in the next 12-18 months. There are no easy choices: defending the currency by hiking interest rates would kill growth and harm banks and corporate firms; loosening monetary policy to boost growth might push their currencies into free-fall, causing a spike in inflation and jeopardizing their ability to attract capital to finance their external deficits.

There are two major geopolitical uncertainties as well. First, will the looming military strikes by the US and its allies against Syria be limited in scope and time, or will they trigger a wider military confrontation? The last thing that a fragile global economy needs now is another round of peak oil prices.

Second, a year ago the US convinced Israel to give its non-military approach to Iran’s nuclear-weapons ambitions time to bear fruit. But, after a year of economic sanctions and negotiations with no result, Israel’s patience on what it regards as an existential issue is wearing thin. Even short of an actual military conflict – which could double oil prices overnight – the resumption of saber-rattling by Israel and the war of words between the two sides could lead to a sharp rise in energy costs.

The looming known unknowns are plentiful.

Some outcomes may be more positive, or at least less damaging, than expected. But the realization this autumn of even some of the risks described here could derail the global economy’s still-wobbly recovery. And the meta-risk of policy mistakes and accidents remains very high. i

ABOUT THE AUTHOR Nouriel Roubini is Chairman of Roubini Global Economics and Professor of Economics at New York University’s Stern School of Business.

Copyright: Project Syndicate, 2013. www.project-syndicate.org

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> Mohamed El-Erian, PIMCO:

The Quest for Global Growth

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EWPORT BEACH – As the fifth anniversary of the disorderly collapse of the investment bank Lehman Brothers approaches, some analysts will revisit the causes of an historic global “sudden stop” that resulted in enormous economic and financial disruptions. Others will describe the consequences of an event that continues to produce considerable human suffering. And 20

some will share personal experiences of a terrifying time for the global economy and for them personally (as policymakers, financialmarket participants, and in their everyday lives).

As interesting as these contributions will be, I hope that we will also see another genre: analyses of the previously unthinkable outcomes that have become reality – with profound implications CFI.co | Capital Finance International

for current and future generations – and that our systems of governance have yet to address properly. With this in mind, let me offer four.

The first such outcome, and by far the most consequential, is the continuing difficulty that Western economies face in generating robust economic growth and sufficient job creation.

Notwithstanding the initial sharp drop in GDP

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in the last quarter of 2008 and the first quarter of 2009, too many Western economies have yet to rebound properly, let alone sustain growth rates that would make up fully for lost jobs and income.

More generally, only a few have decisively overcome the trifecta of maladies that the crisis exposed: inadequate and unbalanced aggregate demand, insufficient structural resilience and agility, and persistent debt overhangs.

The net result goes beyond the weak growth, worsening income inequality, high long-term unemployment, and alarming youth joblessness of the here and now.

Five years after the global financial crisis, too many countries are being held back by exhausted and out-dated growth engines.

As a result, prospects for a rapid, durable, and inclusive economic recovery remain a serious concern.

Given this harsh reality, it is not surprising that the second previously unthinkable outcome concerns inadequate policy responses – namely, the large and persistent imbalance between the hyperactivity of central banks and the frustrating passivity of other policymakers.

The big surprise here is not that central banks acted decisively and boldly when financial markets froze and economic activity plummeted. Given their relatively unrestricted access to the printing press and their high degree of operational autonomy, one would expect central banks to be active and effective first responders.

And they responded in an impressive and globally coordinated fashion.

What is surprising is that, five years after the crisis, and four years after disrupted financial markets resumed their normal functioning, Western economies still overwhelmingly rely on central banks to avoid even worse economic performance.

This has pushed central banks away from their core competencies as they have been forced to use partial and imperfect policy tools for quite a long time.

Washington, D.C.: Thomas Jefferson Memorial

“Western economies still overwhelmingly rely on central banks to avoid even worse economic performance.”

This outcome reflects domestic political polarization in the United States and the complexity of regional interactions in Europe, which have blocked comprehensive and balanced policy approaches. To appreciate the extent of the problem, consider the repeated failure of the US Congress to pass an annual budget (let alone deliver medium-term reforms) or incomplete eurozone-wide initiatives at a time of alarming unemployment and residual threats of financial disruptions.

the responsiveness of other policymaking entities, including those that possess better tools than central banks. This has compelled central bankers to remain in the policy forefront, building one bridge extension after another as they wait for other policymakers to get their act together.

The result has been to expose Western economies to ever-more experimental measures, with considerable uncertainty about the longer-term impact of operating sophisticated market-based systems on the basis of artificial constructs.

The third previously unthinkable outcome relates to how developing countries have fared. Having initially suffered from the financial crisis as much as Western countries did (indeed, more in terms of output and trade), these historically lessrobust economies staged a remarkable comeback – so much so that they became the engine of global growth. In the process, however, they slipped into an unbalanced policy mix that now threatens their continued growth and financial stability.

Renewed risks of financial instability point to the fourth and final surprise: the failure to recast major contributors to the crisis in a credible, sustainable, and socially responsible manner.

Consider large Western banks. Given their systemic importance, many were bailed out and, with continued official support, returned to profitability quite quickly.

Yet they were not subject to windfall profit taxation, nor have policymakers sufficiently altered structural incentives that encourage excessive risk-taking. In the case of Europe, only now are banks being pushed to deal decisively with their capital shortfalls, leverage problems, and residual weak assets.

Call me a worrywart, but I remain concerned by the extent to which our systems of economic governance have lagged in addressing these four outcomes. The longer this unusual environment persists, the greater the risk that the disruptive ramifications of the 2008 crisis will continue to reach far and wide, including to future generations. i

ABOUT THE AUTHOR Mohamed A. El-Erian is CEO and co-CIO of PIMCO, and the author of When Markets Collide.

Copyright: Project Syndicate, 2013. www.project-syndicate.org

Such political dysfunction has undermined CFI.co | Capital Finance International

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> Hildegunn Kyvik Nordås:

Why Do Countries Regulate Differently and How Does It Affect Trade?

The case of professional services in the European Union.

EXPLICIT BARRIERS TO CROSS-BORDER TRADE IN SERVICES ARE RARE… Since services have been considered non-tradable in the past, explicit policy barriers to cross-border trade in services are rare. Nevertheless, in the words of the EU Commission ‘.... a decade after the envisaged completion of the internal market, there is still a huge gap between the vision of an integrated European Union economy and the reality as experienced by European citizens and providers’ [Directive 2006/123/EC (3)]. This is a remarkable observation in the region where services market integration arguably runs the deepest. Already the Treaty of Rome of 1957 granted full market access for the signatories through cross-border trade as well as movement of capital and labour, while the Internal Market Act aimed at removing barriers to the implementation of the letter as well as the intention of the treaty of Rome. However, domestic regulation turned out to be a formidable obstacle to the integration of services markets. Hence, a services directive aiming at lowering regulatory barriers to trade was introduced in 2006. …BUT THE LEVEL AND DIFFERENCES IN REGULATION FRAGMENT SERVICES MARKETS Regulation can be divided into two broad categories: Regulation that aims at protecting consumers; and regulation that aims at restraining dominant firms from exploiting their market power. Licensing and related quality and qualification requirements in professional and financial services are examples of regulation in the first category. In professional services regulations are typically related to licensing and qualification requirements, which is the subject of this article.

Professions in the health sector are regulated in almost all countries. Beyond these, it is surprising how countries differ regarding how many and which services sectors they regulate.

EU directive 2005/36/EC on the recognition of professional qualifications takes this kind of regulatory diversity as a given and aims at making it as easy for a professional services provider to offer services in other EC member countries as it is in his or her home country, provided that the qualifications are obtained in an EU country. For 22

“Professions in the health sector are regulated in almost all countries.” the purpose of monitoring the implementation of the recognition directive a comprehensive database has been established. It contains information on which professions are regulated, the number of decisions on recognitions by country, profession and year, the level of education needed to qualify for the profession and the nature of the recognition regime [1]. The database shows that the number of regulated professions ranges from 47 in Estonia to 404 in the Czech Republic; and the un-weighted average is 157.

One factor explaining differences in the approach to regulation may be differences in legal origin.

The literature distinguishes between the British, French, German, Scandinavian and socialist legal origins [2]. Calculating the average number of regulated professions separately by legal origin shows that the average is lowest in the socialist group (127), followed by the Scandinavians (140) the French (146), the British (150) and the Germans (174). These statistically significant results are perhaps surprising since the socialist group and the Scandinavians are not known for their laissez faire as far as regulation is concerned. Note however, that Poland, the largest country in the socialist group, is the second most regulated country in the European Union and way above the average.

Be that as it may, there are also other factors that are strongly associated with the number of professions being regulated. Countries with a small population size tend to have fewer regulated professions. On average a 10% larger population is associated with 1% more regulated professions. Since regulation requires resources for regulatory bodies, the administrative cost of regulation increases with the number of regulated professions. Assuming that some of those costs CFI.co | Capital Finance International

are independent of the number of services providers within the regulated profession, administrative costs are higher as a share of total value added created by the profession the smaller the country. It is therefore not surprising that small countries tend to have fewer regulated professions.

Another factor that is strongly associated with the number of regulated professions is contract enforcement as measured by the Fraser Institute’s indicators of economic freedom.

Countries that do better on this indicator tend to have fewer regulated professions, suggesting that the disciplining effect of private contract enforcement to some extent substitutes for government regulation. Contract enforcement is closely related to legal origin, and it is difficult to distinguish clearly one effect from the other, however.

RECOGNITION OF QUALIFICATIONS AND MARKET INTEGRATION Lack of recognition of qualifications obtained abroad implies that individuals or firms that wish to provide services in a foreign country must retrain in the host country, or engage local staff with the required qualifications. Differences in regulation can therefore be a considerable barrier to international trade in its own right. The European Union’s Services Directive of 2006 aimed at eliminating or at least reducing such barriers. The first draft introduced the country of origin principle, which meant that a service supplier that complies with the home country regulation should be able to provide services in all EU countries without being subject to licensing or other forms of permits or authorization in the host country. The country of origin principle was, however, met with fierce opposition and was dropped from the final version of the Services Directive. The mutual recognition directive therefore became one of the most important pieces of legislation supporting the integration of markets for regulated professions.

Professional services tend to be provided through several modes of supply at the same time. Establishing a commercial presence is important, even for information-intensive

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Paris: The Eiffel Tower

professional services that can be easily digitized and communicated across electronic networks.

Thus, in spite of the IT-revolution commercial presence remains the most important mode of supply, while online trade is seldom the sole mode of supply.

After having established commercial presence professional services providers need flexibility to send staff from headquarters to affiliates and across affiliates, to visit customers, follow clients abroad and to provide services on-line across borders. Thus, modes of supply are typically complementary and regulatory barriers to one mode of supply impede trade through all modes of supply. Recognition of qualifications is therefore relevant not only for the movement of professionals but for all modes of supply of

professional services. It is therefore interesting to relate the information on bilateral recognition entailed in the EU database to bilateral trade flows in professional services.

DOES RECOGNITION OF FOREIGN QUALIFICATIONS STIMULATE TRADE – OR IS IT THE OTHER WAY AROUND? Our analysis suggests that there is a two-way relationship between trade and recognition of qualifications. Demand for a foreign recognition appears to be partly motivated by the desire to engage in cross-border exports, but recognition of qualifications also stimulates trade in services in its own right, generating a virtuous circle of trade expansion, a larger number of applications for recognition, and positive decisions generating more trade and so on. Furthermore, not only does CFI.co | Capital Finance International

recognition of qualifications obtained in country A by country B stimulate exports of professional services from A to B, it also stimulates imports of professional services by A from B. This probably reflects multi-modal trade where for instance establishment abroad generates intra-firm trade as well as deeper specialization.

The analysis uses a broad brush relating the total number of recognitions by country pair and year to total cross-border trade in “Other business services”, which contain a host of professional services. More detailed analysis is difficult due to the absence of more disaggregated trade data as well as differences in classification of professional occupations across countries.

Results should therefore be seen as indicative.

With this caveat in mind, it is found that a 10% 23

450

REFERENCES This article is based on and extends Hildegunn Kyvik Nordås: “Domestic regulation: What are the costs and benefits for international trade in services? Chapter 2 in Aik Hoe Lim and Bart de Meester (2013) WTO, domestic regulation and services trade: putting principles into practice, Cambridge University Press. It is written in the author’s personal capacity and views expressed in it do not reflect the views of the OECD or its Members.

400 350 300 250 200 150 100 50 AUT BEL BGR CYP CZE DNK EST FIN FRA DEU GRC HUN ISL IRL ITA LVA LTU LUX MLT NLD NOR POL PRT ROM SVK SVN ESP SWE CHE GBR

0

number of regulated professions

Unweighted average

Figure 1: Number of regulated professions in the European Economic Area.

Source: Calculated by author based on European Commission database.

increase in the number of positive recognition decisions is associated with about 7% more exports from the country of origin to the host country, whereas a 10% increase in exports elevates the number of recognitions by about 5%. The same estimation procedure shows that countries that share a common language have about 2.5 times as many positive recognition decisions as those who do not share a language; and countries that share a common border have about twice as many positive recognition decisions than those that do not. The estimates are based on the so-called gravity equation where the variables explaining exports or imports and recognition of qualifications were determined simultaneously.

We also estimated the relationship between the total number of positive decisions on recognition and trade in technical services such as architecture, engineering and other technical services; and legal services, accounting and other administrative services separately. The results are similar to those obtained from aggregated data, but recognition of qualifications appears to be a stronger driving force for exports in these sectors. Thus, a 10% increase in the number of recognitions raises exports by about 9% for technical services and 12% for legal accounting and other administrative services. In both cases a 10% increase in exports is associated with about 6% more recognitions.

Exports of technical services such as engineering and architecture is less sensitive to distance than most other services, but less standardized services such as legal services and consultancies are highly sensitive to distance also within the European Union. Finally, similar results were found for the relationship between recognition of qualifications and imports by the origin country from the host country.

TRADE POLICY IMPLICATIONS The experience of the European Union shows that the elimination of explicit barriers to services trade and investment is essential, but not sufficient to generate integrated 24

services markets. Thus, both the level and the heterogeneity of domestic regulation contribute to fragmented markets even in the event of free movement of capital, workers and services.

Harmonizing regulation, for instance through international standards should in principle eliminate or substantially reduce regulatory barriers to trade. But this requires consensus on what constitutes best practice. Examples from the services sectors are the Basel agreements on regulation of financial services and the international telecommunications regulations (ITRs) under the auspices of the ITU. But even in these cases best-practice is not established once and for all and events such as the financial crisis may lead to a rethink and temporary divergence from international standards.

In cases where regulatory principles are less well established and where there are different views on whether or not regulation is necessary, mutual recognition of qualifications and standards may be a better option. Mutual recognition reduces regulatory barriers to trade and investment, while allowing for regulatory discretion and diversity.

Mutual recognition is not without problems, however. It was for instance not politically possible to introduce the origin principle in the EU Services Directive. What is not politically possible within the EU may be difficult in other regional trade agreements, the GATS or a possible new international services agreement as well.

In professional services the main purpose of regulation is to ensure a minimum quality of services and to protect consumers. Do the countries with the smallest number of regulated services (e.g. The Baltics and Sweden) have lower quality of services or consumer protection? If not, could other countries deregulate without harmful consequences as well? Or do the countries with the fewest regulated professions obtain their objectives through other means that cannot easily be replicated in other countries? These are important questions for the architecture of international services trade agreements. i

CFI.co | Capital Finance International

[1] See http://ec.europa.eu/internal_market/ qualifications/regprof. The database contains information on regulated professions in the European Economic Area and Switzerland.

[2] Among the EEA countries the legal origins are as follows: British: Cyprus, Ireland and the UK; French: Belgium, France, Greece, Italy, Luxembourg, Malta, the Netherlands, Portugal and Spain; German: Austria, Germany, Switzerland; Scandinavian: Denmark, Finland, Iceland, Norway and Sweden; Socialist: Bulgaria, Estonia, Hungary, Latvia, Lithuania, Poland and Romania. The Czech Republic, the Slovak Republic and Slovenia are not categorized under any of these.

ABOUT THE AUTHOR Hildegunn Kyvik Nordås joined the OECD in 2005 where she leads a project on services trade restrictions, their measurement and impact. Before joining the OECD she worked at the research division in the WTO Secretariat, and she has held positions as senior researcher and research director at Christian Michelsen Institute, Norway. Her areas of research and analysis are international trade, economic growth and economic development. She has published a number of journal articles and book chapters in these fields. In addition she has led a number of projects providing technical assistance and policy advise in developing countries, including developing a macroeconomic model with the Planning Commission of Tanzania. She has taught international economics and development economics at the University of Bergen, Norway, public finance at the School of Government at the University of Western Cape, South Africa, and she has been a visiting scholar to Stanford University, USA. Ms Kyvik Nordås holds a Ph.D. in economics.

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> Ross Jackson, PhD:

Individualism or Community?

For the last thirty years or so, an increase in self-interest has permeated every aspect of human existence, both at the individual and national level. President John F. Kennedy’s urging to “ask not what your country can do for you; ask what you can do for country” seems totally alien to most of today’s young people.

P

resently, the focus is on “me first-ism”: About rights rather than responsibilities; about more “stuff” for me without much regard for overloading the ecosystem or for starving children in Africa; and most of all about increasing personal wealth. The latter goal is not so much to be accomplished by the sweat of one’s brow, but rather by speculation – whether it is on real estate values for individuals or credit swaps, currency trading and subprime mortgages for financial institutions.

It is no coincidence that the shift in values at the personal level has followed the “greed is good” mantra of neoliberal economics, which has been driving the planet to ruin for the last thirty years while an extremely small minority has seen its wealth increase by the day.

This is a parasitic economic system that rewards the trashing of the environment and asset speculation: A model that not just protects financial institutions from having to pay the true cost of their self-serving actions, but also rewards them with government bailouts when bottom lines head south as they inevitably do.

These rescue packages for the wealthy put yet more downward pressure on the already battered middle class working people.

CFI.co Columnist

This is the so-called “austerity option”, formerly reserved by the IMF (International Monetary Fund) for cash-squeezed emerging economies to prevent them from developing, but now also applied to the industrialized countries of southern Europe.

The question I seek an answer to here is whether what we are currently observing is a permanent trend or merely temporary deviation from the long-term tradition of valuing community ahead of the individual. I will argue for the latter.

For millennia humans have survived only because we learned to live in tribes and cooperate to achieve a greater good. In the early days of human evolution, there was no way an individual could survive for long on his or her own. Those tribes that best learned to cooperate 26

“It is no coincidence that the shift in values at the personal level has followed the “greed is good” mantra of neoliberal economics.” managed to pass on their genes. Others, perhaps less successful at working together, disappeared under the sands of time.

This social characteristic is programmed so deeply in our DNA that no amount of man-made changes can alter this fundamental fact: The ways in which we organize our societies, political systems, economies, and – indeed – lives seem inescapably linked to our instinct for cooperation.

This indisputable fact is key to understanding how the coming shift away from individualism, and toward a revival of communal living, will affect all aspects of our lifestyle. It will determine the way we design our communities, the way we educate our children, and our attitude toward wealth and income disparities. It will also shape our attitude toward health and social issues, and our thoughts on consumption, investment and saving.

All of these considerations will undergo a dramatic shift as a new outlook on humanity’s place in the grand order of things works its way through the entire fabric of our society. I expect that three separate forces will push society in one and the same direction — toward a more egalitarian way of life, i.e. a more equal distribution of wealth, income and influence. This society I refer to as “Gaian”. [1] The first driving force is an ideological one. It is more or less dictated by the emerging view CFI.co | Capital Finance International

that considers humanity an integral part of nature, and hence of Gaia or the Living Earth.

Imagine for a moment a world in which there is broad agreement that limits must be placed on resource usage. These restrictions are imposed by a both sense of respect for, and responsibility to, future generations and a need for attaining a truly sustainable form of development.

The response of our current society to such restrictions suddenly forced upon it would fall into two quite distinct categories: The neoliberal reaction would be for the strong to attempt to maintain their lifestyle and dominant position by exploiting the weak while others might try to forge union between local communities in order to better deal with the crisis by sharing the limited resources available.

In the “Gaian” worldview, only the latter would make any sense. Thus, the old paradigm practices of exploitation and accumulation of material possessions, and of measuring success by individual wealth would come to be seen as anti-social. Success will be measured more by an individual’s contributions to the well-being of local societies. This may be a proficiency in a particular trade or profession, hard work, initiative, artistic talent, kindness, inventiveness, community leadership, and such — all things that cannot be measured by money.

The second egalitarian driver will be economic.

Imagine global society after a peak oil shock followed by energy scarcity, or even after the introduction of an effective rationing system for fossil fuels to combat global warming. We are heading inexorably to one of these two scenarios at this moment. In either case, we are talking about a period of significant downsizing of the global economy accompanied by monumental shifts in production, transportation and trade patterns, unprecedented business failures, widespread unemployment and shrinking national budgets.

In such an environment, where great burdens will be placed on all sectors of society, there will be enormous pressure on those with high incomes

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to contribute more to the common pot. We saw a similar reaction, though on a much smaller scale, to the recent financial crisis with calls for caps on salaries and bonuses paid out to mostly inept financial sector executives. Too great a disparity in income is already being considered socially unacceptable.

The third force pushing toward a more egalitarian society will be evidence-based rationality. Based on solid evidence, it will become much clearer to the broad populace what is already clear to a small band of social researchers: Almost all social ills plaguing modern society are a direct result of too great a disparity in income.

Furthermore, it will be acknowledged that the cause of high Gini coefficients in socially dysfunctional countries is a direct result of their economic systems.

If we take a closer look at the countries that score highest on equality and lowest on the Index of Health and Social Problems in the Wilkinson and Pickett study, we find the Scandinavian countries and Japan. These are the current societies that come closest to the ideal. None of these can be considered socialist, and none has ever flirted with communism. All are highly regarded, democratic, competitive societies with quite liberal private sectors and a minimum of corruption.

However, what does differentiate them, particularly the Scandinavian countries, is a larger public sector than more unequal societies.

Their citizens are quite pragmatic about it: They are willing to pay higher taxes provided that everyone pays a fair share and that good value for (tax) money is obtained. This includes free CFI.co | Capital Finance International

education and medical care, and a good sense of security. According to the Wilkinson and Pickett study, Scandinavians and Japanese also get the additional bonus of enjoying better health at lower cost and fewer social problems overall.

One of the most noticeable differences between a current society and a fully developed “Gaian” one will be the flourishing of millions of thriving, healthy, local communities and neighbourhoods all over the world, having a high degree of selfdetermination and a great diversity in cultural profiles.

Lifestyles are going to change markedly. In its diversity, “Gaian” culture will come to resemble the rest of nature. The main drivers of this shift will also be ideological and economic forces.

Ideologically, holders of a Gaian worldview would prefer not to live in isolated apartments in sterile high rises surrounded by anonymous neighbours.

A villa in the suburbs is also far from an ideal dwelling. For them, it would be like a prison.

Whether they live in big cities, suburbs, towns or villages, Gaians will organize their living conditions around a local community of like27

CFI.co Columnist

It will be acknowledged that those societies with the lowest Gini coefficients (rich/poor ratios) also happen to be those with the happiest citizens, the greatest societal harmony and the least number of social and health issues. This was recently documented in a study by British researchers Richard Wilkinson and Kate Picket. [2]

The idea of a more egalitarian civilization may send cold chills down the spines of those who associate egalitarianism with socialism or even communism, with associated visions of top down central planning, lack of freedom and an inefficient or inexistent private sector. But these are false images promoted by right-wing propagandists who fear losing their privileges.

“‘Gaian’ society can be expected to be a healthier, happier, more harmonious civilization than the present one. Much of this may be ascribed to its more egalitarian structure.” minded souls, much like humans have always done in the past before the separatist worldview changed everything for a few centuries.

These communities will range from the most technologically advanced to bare subsistence groups. However, their values will be similar.

Rural villages and big city eco-neighbourhoods will vary in size, but a critical threshold will be the number of people that a single individual can relate to personally. This is a condition for attaining a community on a human scale.

Personal contact is one of the most important components of the glue holding a community together, i.e. recognition and acceptance within any given community. Because of the sheer magnitude of human diversity, everyone will be able to find a community that matches their needs and aspirations.

Central to the values of Gaians, these communities will be characterized by using natural as opposed to synthetic products: Organic food, renewable energy, clean water, and close contact with nature.

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In a fully-developed Gaian culture, most citizens will be aware of the importance of ecology and permaculture design from their primary education. They will be tolerant toward those of other races, religions and cultures. Their housing will be very energy efficient. Many will produce much of their own energy, primarily solar, while others will be linked to a regional CPH (Combined Heat and Power) facility.

The availability of local energy production will be a prime driver of decentralization of society, including a high degree of local democracy and local autonomy. Travel is likely to be much more limited than today, and mostly by highly efficient public transportation.

The thing that will most distinguish these ecocommunities from today’s typical neighbourhood is their scope: They are not just to be spaces for living. Many residents will have their work there as well, offering various services to their local circle and beyond.

The permanence of these local communities will be established by law, which will define the

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various rights and obligations. These include a budget from the public purse and a degree of control over local environment besides public responsibilities such as primary education and care for the elderly.

Usually, each eco-village will be part of a larger eco-town; and each eco-neighbourhood part of an eco-city. The larger units will have administrative responsibility for various functions that are better handled on a larger scale such as public transportation, sewage treatment, higher institutions of learning, etc.

Many needs that would be fulfilled today at a regional shopping centre (normally after travel by car) will be fulfilled within walking distance and often by other community members. Not least of these will be the local food market: The heart of the community. Much of its food will be produced in the community – particularly in rural communities, but also to some extent in urban ones.

elements: A turning away from money to life as our defining value, and a turning away from relationships based on power to partnerships founded on organizing principles discerned from the study of healthy living systems”. [3] i

References [1] Ross Jackson, Occupy World Street: A Global Roadmap for Radical Economic and Political Reform (White River Junction, VT: Chelsea Green Publishing, 2012).

[2] Richard Wilkinson and Kate Pickett, The Spirit Level: Why Greater Equality Makes Societies Stronger (New York: Bloomsbury Press, 2010).

[3] David Korten, The Great Turning: From Empire to Earth Community (San Francisco: Berrett-Koehler and Bloomfield, CT: Kumarian Press, 2006), p. 295.

Ideology alone will not, however, bring about the shift in lifestyle. The resistance of the ruling political / economic establishment is just too massive. The current industrialized country infrastructure creates enormous physical and ideological barriers to the evolution of healthy eco-communities. But once we enter the period of energy descent a change in lifestyle will become an existential necessity.

When this shift occurs, it will be as much for economic reasons, almost as an explosion: Jobs disappear, food and transportation costs increase, and welfare benefits shrink. When things start falling apart, old barriers will fall. A shift from the cities to the countryside into selfsufficient eco-communities will be one of the consequences. Those remaining in the cities will come together and form cooperative urban econeighbourhoods.

“Gaian” society can be expected to be a healthier, happier, more harmonious civilization than the present one. Much of this may be ascribed to its more egalitarian structure. David Korten has eloquently described the coming transition as a shift “from empire to earth community”.

This new community will contain two primary

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ABOUT THE AUTHOR Ross Jackson is chairman of the charitable association Gaia Trust, Denmark, major shareholder of organic foods wholesaler Urtekram, and author of Occupy World Street: A Global Roadmap for Radical Economic and Political Reform.

> Autumn 2013 Special: Caring Bankers

B

ankers take many forms: From the caring manager of a small co-op lost on the Canadian prairies to the top CEO of a global bank too-bigtoo-fail in the top floor corner office overlooking the London or New York skyline. These bankers all have one thing in common – they are entrusted with the safekeeping of other peoples’ money. That is pretty much the full extent of their commonality.

Some are pretty good at their jobs.

Good bankers are mostly the ones taking their fiduciary responsibilities serious: They shield deposits from risks, keep plenty of cash in reserve and bank on certainties. Most of these good bankers are rather without flair. They dress conservatively, lead modest exemplary lives and shun the extravagant and exotic. Rather like Captain Mainwaring of the 1970s British sitcom Dad’s Army.

Some good bankers are a bit more open to innovation and pioneer new ways of reaching people not yet touched by financial services.

They aim to open new, all-inclusive markets. When done properly, banking contributes to economic growth and societal prosperity. It is all too easy to condemn all bankers as either greedy or incompetent. In fact, most bankers are neither.

The bad rap bankers have been receiving of late is rather unfair and mostly undeserved. While the financial sector certainly has its fair share of bad apples, most banking professionals have a highly developed sense of ethics and pursue their careers in accordance with it.

However, in the latter part of 1980s a new category of bankers was unleashed when regulation was

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loosened; oversight limited and Generation X claimed its share of the collective wealth. This generation was brought up in postwar prosperity and peace.

Brothers heralded an era of shaking and trembling banks and massive government bailouts. The market underwent violent corrections. Untold billions, even trillions evaporated.

The 1960s had already introduced a whole set of new morals celebrating individuality over the collective. These novel values were seized, adapted and expanded upon by the Generation X which then went on to consider the accumulation of monetary wealth as a right largely disconnected from the expenditure of effort. The MeGeneration wanted easy money to spend on travel, gadgets and oversized homes and cars. However, they didn’t feel particularly inclined to work for this money.

The human dimension was significant.

Millions lost their jobs, their homes, and often their families as well.

The bankers, however, escaped with their generous bonuses intact.

Golden handshakes, parachutes and whatnot provided them with gilded futures, stress-free lives rather than a prolonged stay at a penal institution.

As deregulation and privatization took hold, plenty of cash could be made by trading in ever more exotic financial instruments. In the US, President Bill Clinton set in motion the unfettering of markets. European leaders were quick to jump on the bandwagon. Huge corporations were created overnight out of mergers and acquisitions. Although production levels often decreased, profits went through the roof. As a result, stock markets boomed and the value of real estate reached dizzying heights.

Money was being made hand-over-fist by nearly everyone.

The Generation X bankers, selfassured to the point of plain arrogance, showed the way and set the pace. For ten to fifteen years things couldn’t go wrong. Recessions were short-lived, brief pauses or annoying but harmless bumps in the road.

This feast of greed and moneyfor-nothing lasted until someone noticed that the emperor indeed had no clothes. The fall of Lehman

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The Savings & Loans Debacle of the 1980s resulted in over a thousand criminally incompetent bankers serving time behind bars. The 2008 crisis may yet result in some of those responsible being convicted to prison terms, but it hasn’t really happened so far.

This is a missed opportunity.

Societies need banks they can trust and hold accountable for when mistakes of whatever nature are made. Worse, many banks seem not to have learned any lessons from the 2008 near-meltdown. Bonuses are back, outrageous pay packages the norm, risky behavior fully accepted and bailouts a given in case things do go wrong.

These bankers foul an entire industry.

That is most regrettable. At CFI.co, we went looking for bankers who are bucking this trend: professionals who have a heart – if not a passion – for their job and look beyond the number to focus on people and societies. We found quite a few of them. It is now up to them to restore their industry’s shattered reputation and show the world that banks are first and foremost agents of good.

Autumn 2013 Issue

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> MARK CARNEY Governor of the Bank of England

Early February, Canadian banker Mark Carney spoke before the House of Commons Treasury Committee about his new job. The hearing was but a formality.

Mr Carney’s appointment as the new Governor of the Bank of England had already been announced by the Chancellor of the Exchequer a few months earlier. However, the talk did give the British people their first real glimpse of the man who was about to assume the most powerful non-elected position in the country.

The first thing they noted was his North American accent, certainly a novelty for a prospective Governor of the BoE. A sigh of relief might have been heard as the odd vowel gave him away as a Canadian. Whatever his accent, Mr Carney’s words charmed those present and assured them equally of his qualifications for the job.

After studying at Harvard, Mark Carney spent thirteen years at Goldman Sachs, posted at its London, New York, Tokyo, and Toronto offices.

He worked his way through the senior ranks including co-head of sovereign risk; executive director, emerging debt capital markets; and managing director, investment banking.

After this successful stint at Goldman, he went back to academia, doing a post graduate degree at Oxford and receiving his PhD in economics in 1995. Mr Carney later went on to become Governor at the Bank of Canada, a position he held during the 2007 financial crisis which the 32

Canadian economy weathered remarkably well.

Mr Carney supplemented his day job with chairman positions at a number of international organisations such as the Financial Stability Board (FSB) and the Bank for International Settlements’ Committee on the Global Financial System. Mr Carney is also a foundation board member of the World Economic Forum.

In Canada, Mark Carney gained popularity as a level-headed, straight-talking banker. One who very much understood the board room culture but was not afraid to take positions contrary to that of his peers. During his time as chairman, the FSB implemented measures pushing 30 or more of the world’s biggest banks to hold more capital in reserve. He also lead a campaign to monitor whether and how countries are implementing the new rules, and to “name and shame” governments that were not doing their bit to rein in the riskiest behaviour.

As governor of the Bank of Canada, Mr Carney was one of a select few financial leaders to voice support for the Occupy Movement. In 2011, as most of the world’s bankers reacted in horror at the notion that the Greek government should hold a referendum on whether or not a bailout should be accepted, Mr Carney caused eyebrows to raise when he emphasized the importance of seeking popular support for painful economic restructuring.

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On July 1st, Mark Carney started his new job at the Bank of England. He was duly offered a chauffeur driven vehicle, but chose to commute by subway instead. He may even have tried a dry-run of his commute in order not to be late on day one. Expectations were running high: The coverage of his arrival was akin to that of a rock star. Scepticism was in the air as well: His plans for the major issues facing the British economy were yet unknown and he had yet to justify his handsome pay package.

Mark Carney´s forward guidance approach certainly has its share of detractors. As the British economy shows signs of recovery, many call for an increase of interest rates ahead of schedule. However, Mr Carney is sticking to his guns. Uncharacteristically for a central banker, he wants to keep interest rates at their current low level until the unemployment level has dropped to 7% or lower.

This rather novel approach of putting emphasis on reducing unemployment shows Carney to be a banker with a considered, holistic, bottom-up attitude to economic recovery. He clearly values long-term stability and wishes any economic recovery to be both robust and lasting. This mind-set is not just admirable, it is also severely lacking among his peers.

Autumn 2013 Issue

> PETER BLOM Triodos Bank: The Assimilated Radical It’s the idealists you have to look out for. The more dishonourable aspects of the financial world might have been getting a bad rap as of late, but the harm this does pales in comparison to the damage wrought by those trying to make a better world.

The negligence and greed endemic to business as usual might be slowly bleeding the planet dry, but the destruction it causes is just that; slow. Slow and – historically at least – avoidable: Some of the brightest passages of the human story describe the demise of business as usual.

Every one of those passages is populated with characters committed to the idea of a better tomorrow. However, those characters bear an eerie resemblance to those appearing in the very darkest of chapters. An idealist with enough momentum will change the world, whether we like it or not.

The language might seem just a tad rich for describing a bunch of bankers with a heart.

For most people the financial sector is the very definition of a playground for those with less well developed senses of fair play, morality and compassion. Indeed, banks as such may not be good or evil; they just exist to make money and preferably lots of it.

From the ruins of the recent financial crisis, an entirely new sort of bank is now emerging and plotting the very downfall – or at least driving change – of the ways of the old world order. This might be a good thing - some would even say a necessity – though it also requires a certain degree of weariness on our part.

Peter Blom is an idealist. He is a banker too. The latter comes in second though. So far, Mr Blom has had two employers in his life and one of them was a vegetarian café with an anthroposophical drift. His current employer is the Triodos Bank of which he is now CEO. Triodos Bank, a forerunner in ethical banking founded in 1980, has enjoyed a slow but steady growth. It now boasts branches in five countries.

Mr Blom became a member the Club of Rome in 2010.

If Peter Blom is a freak in the financial world, one wouldn’t tell from his wardrobe. He looks the typical Dutch business man: Dull grey suit with the tie being optional and facial hair absent.

Then he starts talking and the first proper noun to cross his lips is Marx. He seems to actually have read Karl Marx. But of course, bankers study economics. It’s a fair guess that most of them at some point have read Marx.

After quickly – and predictably – knocking Karl of his pedestal, Mr Blom talks at length about his admiration for the thoughts of Rudolph Steiner. Now Steiner is pretty far out there, but not an advocate of petrol bombs and proletarian uprisings. He speaks about Steiner’s threefold social theory, and how it shapes his and his bank’s approach to business.

The mission of Triodos Bank is to be a tool through which people become more conscious of what their money is doing. Mr Blom even goes so far as to state that profit is not the aim but merely an indication of sound business. This is a curious sentiment for a bank CEO. Triodos Bank sets very high standards for themselves as well as for the companies it invests in. The bank only conducts business with companies deemed to be sustainable and whose activities fit the ideals of the bank. Think green energy, organic farming, microfinance, social welfare, and culture. Every single one of the businesses it works with is featured on the Triodos website. This dizzying level of transparency may be the best aspect of the bank.

Precisely because of the unprecedented level of transparency offered, clients may find out that the bank’s sense of ethics does not always align with their own. This may be the fundamental flaw in the whole concept of ethical banking: The ethics by which a bank such as Triodos operates represent usually just one particular set of values.

There are a lot of things Triodos Bank stands for which are most laudabIe, other are at worst harmless, but only because Triodos is such a small bank. But they do of course not wish to

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stay small – Triodos is ambitious like the best of them and wants nothing less than to change the entire banking system.

What happens when the financial centres of the world start operating on competing idealistic principals? The simple supply-and-demand model of economics almost by definition lags in sustainability. Business practices will continue so long as they are profitable and a shift is only made when the return on monies invested approaches zero.

What would happen if global resource allocation is determined by a set of well-meant but ultimately flawed ideals? Marrying political ideals to power breeds dogma. It is therefore hard to see a world run by dogma-driven banks faring any better than one run by dogma-inspired governments.

It would appear Mr Peter Blom is the more dangerous kind of radical: The assimilated radical. Sure, he might be an oddball, but he’s a straight-laced oddball. The concerns expressed are merely that: concerns for a beautiful project with the potential to accomplish a lot of good.

Triodos is a project born of an inspired, yet sensible mind.

The fact that Mr Blom does not shed his lofty ideals along with his coat and hat as he enters his office in the morning, is nothing if not praiseworthy.

Follow your heart, use your head, and proceed with caution.

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> LADY SUSAN RICE MD of Lloyds Banking Group, Scotland

Lady Susan Rice is the first woman to head a UK clearing bank. Currently, she is managing director of Lloyds Banking Group in Scotland. Born and raised in the United States, Lady Rice now lives in Aberdeen with her husband Professor Sir Duncan.

have seen the error of their ways. During the earlier part of her career, Lady Rice was as aggressive a banker as they come and this certainly contributed to her advancement in the industry. However, she has mellowed with age.

Or become wiser.

Lady Rice bristles at the mere notion of a glass ceiling that might somehow inhibit the advance of women in business. Once the idea of restrictions on female progress has taken roots, it is – as far as she is concerned – Game Over. Hard work and dogged perseverance should deliver the results desired regardless of gender. This has certainly been true in her case with senior appointments at the Bank of Scotland and as a dean at Yale and Colgate universities.

Lady Rice became a Prince of Wales Ambassador for Corporate Responsibility in 2006 and has said that, “CSR is fundamental to running a successful business. We must help solve society’s problems in order to keep our business strong.”

A poacher turned gamekeeper, Lady Rice is now referred to as the voice of reason in Scottish banking. Her credentials on corporate social responsibility (CSR) are impeccable. She is one of the few bank executives that may perhaps 34

She is a former president of the Community Finance Association and a driving force behind Social Investment Scotland which connects capital to communities. Projects financed by the latter organisation include Factory Skate Park, the Collande Youth Project and the Maritime Rescue Institution which now provides a lifeboat to help safeguard the north east coast of Scotland. These seem to be activities close to this senior banker’s heart.

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Under her stewardship, Lloyds Banking Group has become an active supporter of the shift to a green economy. In 2009 Lady Rice became a member of the high level 2020 Group working on climate change targets. It is also heartening to note that with her total support, Lloyds is now very keen to help SMEs respond to climate change. The bank has trained about 300 relationship managers to better understand the challenges in this sphere.

On the overly generous, and at times even quite outrageous, pay packages bankers claim, Lady Rice takes a slightly less clear stance and points out that not all at the top of the banking industry receive vast bonuses. She also mentions that rewards should relate distinctly and transparently to a given company’s overall strategy. This suggests a reasonable way forward, provided that bank strategies are indeed responsible.

Autumn 2013 Issue

> ANDREW ALLI CEO of the Africa Finance Corporation

Africa is still in desperate need of investment. The World Bank estimates that Africa requires $93 billion annually for the upkeep and expansion of its infrastructure. With governments the world over slashing foreign aid budgets, the pressure is growing to secure more funding locally. Providing those homegrown investments is the mission of Andrew Alli, CEO of the Africa Finance Corporation (AFC).

Nigerian-born Andrew Alli originally studied engineering in the UK but moved to accountancy and management while working at Coopers & Lybrand, the company that would later become PWC. After obtaining his MBA in 1995 at INSEAD business school in France, Mr Alli travelled the world as an investment officer for the International Finance Corporation (IFC), part of the World Bank Group.

However, in 2002 Mr Alli returned to Nigeria to take up the position of IFC country manager. Four years later, he was to move again; this time to South Africa. Same function, different country: His experience in Africa’s financial world gained considerable depth. This made Mr Alli the top

candidate for the top job at the Africa Finance Corporation where he took over in 2008.

The AFC is a finance organization set up by a number of West African nations on the basis of a multilateral treaty celebrated to forge closer cooperation between the signatory countries.

The corporation is entrusted with the mission to generate investments destined for major infrastructure projects throughout the continent.

Operating out of its head office in Lagos, the AFC is now majority owned by private sector shareholders (57.5%). The remainder of shares is held by the Nigerian central bank. Under Mr Alli’s leadership, AFC has been involved in projects all over the continent. From wind farms in Cape Verde, which now supply over 25% of that country’s energy demand, and a toll bridge in Ivory Coast to an undersea fibre-optic cable running from Portugal all the way to South Africa with hookups to a number of places along Africa’s west coast.

Part of AFC’s mission is to do the financial and regulatory engineering that is required for any project that aims to attract the attention of foreign

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investors. The challenge AFC faces is that many infrastructure projects lack bankability. While these undertakings are often very attractive as far as projected returns on capital are concerned, they lack the regulatory framework that ensures the minimization of political risk and compliance with contemporary accounting and regulatory standards.

AFC aims to provide these assurances through cooperation with national governments. The corporation also helps develop comprehensive business plans and provides authorities and other stakeholders with the knowledge and experience needed to successfully pitch projects to outside investors.

Africa is on to go and rising fast. The continent suffers no shortage of exciting – and potentially exceedingly profitable – opportunities. Risks may be slightly higher than elsewhere, but so are expected returns. Mr Alli and his AFC are in the business of sustaining the continent’s momentum. Should the push required to do that come from within Africa, so much the better. It’s called pulling oneself up by the bootstraps.

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> MUHAMMAD YUNUS Founder of Grameen Bank Muhammad Yunus is a soft-spoken gentleman with a South Asian accent. When he speaks, presidents strain to listen. Being one of only seven people to have won the Nobel Peace Prize, Presidential Medal of Freedom, and the Congressional Gold Medal, Mr Yunus does not need the praise of CFI. co to boost his profile. However, we are going to give praise anyway.

of embezzlement, but these were later found to be without merit. More serious and harder to ignore are the accounts of loan shark practises on the part of Grameen’s local agents resulting in lenders ending up in debt traps. Some cases of suicide have even been reported, though it is unclear to what extend this is down to Grameen Bank policy.

Muhammad Yunus is the founder of Grameen Bank, a Bangladesh-based bank and a pioneer in the world of microfinance. In the mid-seventies, while visiting the poor villages around his native Chittagong, a port city in Bangladesh where he was head of the economics department at the local university, Mr Yunus took an interest in the business practices of villagers. He observed that very small loans could have a disproportionate effect on their lives.

Perhaps even more damming to the core idea of microfinance are a number of studies reporting microfinance as largely ineffective in both poverty reduction and the empowerment of women.

The idea of the unskilled, illiterate poor of the world simply working their way out of poverty via a tiny loan that enables entrepreneurial endeavours doesn’t really stand up to reason. Exactly how many unskilled low-level entrepreneurs can an already dirt poor village sustain? Solidarity lending may even exacerbate the problem: Far from being a support network, most of these women - being of a similar skill level and all starting from the same place - are essentially competitors.

Traditional banks were unwilling to give out loans, however small, to the poor because of the high risk of default, leaving many at the mercy of loan sharks. Mr Yunus believed a viable business model could be made for offering loans to these poor and so he set out to test his theory. He gave 42 women small loans amounting to a grand total of 27 US dollars. All the women made a small profit on their loans.

As such they depend on each other’s payments for obtaining subsequent loans. This results in peer-pressure and harassment for struggling members trying to keep up with payments. The sad truth is that in all likelihood most of these women would trade their loan for a job in a sweatshop in a heartbeat.

In 1983, after finally securing a loan from a government bank, Mr Yunus established the Grameen Bank, which today offers financial services to very poorest in Bangladesh. Through the Grameen Foundation he has now set up similar projects across the world.

Grameen Bank works on a few basic principles.

Firstly, most of their borrowers are female; this is partly an exercise in women empowerment and partly because it is believed that women make for more dependable clients. Secondly, Grameen Bank adheres to a system of solidarity lending.

In every village the bank operates, local agents offer separate loans to individuals. Together, these are managed as a group in which members are collectively responsible for each other’s payments. The theory holds that this practice eliminates the need for collateral, gives lenders a support group, and cuts down on administrative and management costs.

Mr Yunus has been heralded as a pioneer in the world of microfinance, and his work has gained tremendous recognition from governments and private sector institutions alike. He sees microfinance as the most effective method yet in poverty reduction. The idea is that these loans, as small as they may initially be, will give

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It would appear that microfinance is not the panacea against poverty that Mr Yunus and many others consider it to be. But that doesn’t in anyway lessen his accomplishment. Financial services are a great benefit to society, and Mr Yunus has found a viable business model to supply such services to the bottom 2.6 billion of this world. these poor unskilled entrepreneurs a foot on the economic ladder. The expectation is that the seed so planted will snowball them out of poverty and drive their children into school.

Today, Mr Yunus travels the world spreading his vision through talks and feature-length documentaries. However, Mr Yunus does have his share of detractors, and has had them every step of his journey.

From fundamentalist Muslim preachers warning villagers against accepting loans which they perceive as un-Islamic, to Marxists rejecting his practices as an affirmation of neoliberalism. There have even been accusations

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To the odd entrepreneurial soul featuring in one of Mr Yunus’ many success stories, this is a tremendous benefit. By their success they may in turn benefit the larger community. Spread over a population of 2.6 billion, those benefits add up.

Microfinance may not singlehandedly elevate the world’s poor, nor should we expect it to, but neither is it the enemy of good. Through Grameen Bank and other programs such as Grameen Telecommunications, Mr Yunus has placed powerful tools and information in the hands of the poor of Bangladesh. Through his many global initiatives, Mr Yunus is now spreading his ideas to the rest of humanity: A man trying to make a difference and succeeding marvellously well at it.

Autumn 2013 Issue

> MAHA AL-GHUNAIM Chairperson and MD of Global Investment House Maha Al-Ghunaim is chairperson and managing director of Global Investment House (GIH) - one of the largest such operations in the Gulf Region. She co-founded GIH in 1998 and just ten years later saw her business become the very first Kuwaiti company to be listed on the London Stock Exchange.

Mrs Al-Ghunaim received her education at San Francisco State University and previously held an executive position at the Kuwait Investment Company. She appears high on all the power lists though as a hands-on female leader of a major financial organisation she is still something of a rarity in this part of the world.

Known and admired for her courage and determination in times of difficulty, she unveiled in summer this year a successful restructuring programme that resulted in GIH becoming debtfree. Previous to that, there had come some issues to the fore in the years following the global financial near-meltdown of 2008: GIH had become overstretched and had to book heavy losses. The other good news Mrs Al-Ghunaim was able to share concerned the exceptionally strong performance of the GIH Saudi Equity Fund which now is the second largest of its kind in the kingdom.

A board member of several Gulf Region institutions, including the Qatar Foundation, AlGhunaim set out to have her business “make a difference to society, our clients and ourselves”.

The daring vision statement of GIH places special emphasis on an ethical approach to business at all times and under all circumstances.

Corporate social responsibility (CSR) is also high on the agenda and taken very seriously by the chairperson and her colleagues. An example of a successful CSR initiative undertaken by GIH is the Ghalia Club that not just works for the empowerment of women, but also concerns itself with a wide range of women’s health issues including breast cancer awareness.

Mrs Al-Ghunaim is also a key figure at the Kuwait chapter of Young Arab Leaders and has shown great interest in furthering access to education and encouraging entrepreneurship.

Maha Al-Ghunaim stands as a shining testament to what perseverance and skill development can achieve. There are no glass ceilings for her though her ascent to the very top cannot have been easy: As a particularly attractive young woman, she had quite a few challenges to overcome in order to be considered a serious and highly-competent candidate for jobs she applied for.

She started from the bottom and worked her way up through the corporate ranks not by biding her time, but by merit alone. Not just that, she rose quite quickly as well proving that talent and hard work will be amply rewarded. If any luck comes into this equation it is perhaps that Mrs AlGhunaim was fortunate in having found mentors that strongly believed in her capabilities.

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The career advice she now dispenses to young people is quite simple and straightforward: Plan for short-term objectives by keeping in mind that flexibility in personal development is essential for success. “Do not plan a life for the person you used to be. Be flexible, change with the environment and grab opportunities. Then make a move as soon as you’ve discovered your passion.”

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> ANDRÉ ESTEVES BTG Pactual

From intern to owner in barely eight years: If anything, Brazilian banker André Esteves is a financial whirlwind. After grabbing the reigns of Banco Pactual in 1997, becoming one of the bank’s five partners, he engineered its sale to Swiss giant UBS in 2006 for $3.1 billion, making his personal first billion in the process.

Mr Esteves subsequently became the UBS point man in Latin America. After a year he ascended yet further becoming the global head of UBS’ fixed income division. He left the Swiss banking giant in 2008, reportedly after a failed take-over attempt. Me Esteves prevailed in the end though with his newly found BTG (Back to the Game) investment company. With barely $1.5bn in managed assets on the books, tiny BTG acquired Banco Pactual, with some $26bn on its books, back from the Swiss for just $2.5bn.

Mr Esteves is used to getting his way. From early on, young André is quite determined to escape the life of worry and financial difficulties his parents suffered as he was growing up in Rio de Janeiro. After attending the Federal University in his city of birth, André entered Banco Pactual as an intern in 1989. His meteoric rise through the ranks was set to begin.

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Mr Esteves belongs to a very special breed of bankers. At the time his career started, macroeconomic conditions in Brazil were atrocious, bordering on the surreal. Financial regulations shifted dramatically with the change of season.

A rampant inflation, bordering multiple hundreds of percent annually, called for creativity in the design of investment vehicles safeguarding the value of the amounts committed. Relative price levels were moving up and down with the tides and nobody knew what tomorrow would bring.

Mr Esteves financial prowess would be sufficient reason to celebrate him as a “good banker”.

But he is much more than just a Brazilian banking tycoon. Mr Esteves has his eyes on world domination. Whereas most of his Brazilian fellow businessmen are quite contend to play on the domestic market, Mr Esteves sees the entire global market as his sandbox. He is not hampered by the parochial attitude so often found in Brazilian business and thrives when competition is particularly fierce.

These dreadful market conditions – prevalent in Brazil between the early 1980s and the mid-1990s – required an exceptional degree of financial acumen from bankers. The ones to survive and prosper under such circumstances were widely hailed are veritable geniuses. Mr Esteves learned his trade from what were then undoubtedly the best bankers in the world.

Nobody could hold a candle to these flexible, sharp-minded guys who could adapt to any and all game-changing events without so much as blinking an eye.

As such, Mr Esteves is indeed an oddity in Brazil, a country still much plagued by the effects of its long-standing protectionist trade policies and the resulting “mediocrity-is-quite-profitable” mentality of his peers. By actively pursuing overseas expansion and showing courage in the face of competition, Mr Esteves is perhaps the poster boy for a new generation of Brazilian entrepreneurs – one brought up with the notion of a global village in which national markets are no longer insular places of boredom. Brazil has some way to go yet before truly joining that global village from where Mr Esteves is already beckoning.

Small wonder that even such a financial powerhouse as UBS should find itself outwitted by this young (44) Brazilian banker.

CFI.co | Capital Finance International

Autumn 2013 Issue

> SHAZIA BASHIR Escorts Group

Contrary to popular perception, it is never quite easy for children of successful entrepreneurs to make their own mark in the business they were born into. Few actually achieve this. Shazia Bashir is one of those select few. She belongs to a new generation of financiers that is now making its mark on investment banking in Pakistan.

Shazia Bashir aims to bring higher levels of both compassion and integrity to her business.

The Escorts Group of companies was founded by Mr Bashir Ahmed, a family member. Given her background, Ms Bashir’s academic success is perhaps unsurprising culminating as it did with an MBA from a US college. However, it may well be that the greatest gift of Shazia’s upbringing was the sense of integrity which was instilled from an early age.

Ms Bashir has been involved with the family business since 1996. She developed her leadership skills and business acumen to the point where she was able to take over

management of the investment banking division of Escorts Group in 2010. At this time, the company was still recovering from the effects of the 2008 global financial crisis.

Ms Bashir has skillfully re-balanced the bank while building a dynamic and empowered management team to plot a return to profitability through a strengthening of the fundamentals. All of this is what we should expect from effective leadership.

What sets Ms Bashir apart from many of her peers is the direction in which she has now steered her bank. Ms Bashir is identifying and developing a range of opportunities that would not generally be considered traditional territory for a relatively small investment bank.

Under her leadership, the Escorts Group is working to open up investment opportunities to many Pakistanis who are generally considered to be un-bankable by more traditional financial CFI.co | Capital Finance International

institutions. She is also finding ways to provide money transfer services at a fraction of current costs. There is no doubt that Ms Bashir is driven by the bottom line as much as the next banker is. However, she also has an eye for the society as a whole and seems genuinely willing and able to provide services that not only generate a healthy profit but also help fight societal ills.

It will be particularly interesting to see what Escorts Group will achieve over the coming years. Ms Bashir is disarmingly modest about the future prospects of her enterprising bank. That notwithstanding, it would appear that the nononsense approach to the bottom line and her well-developed sense of corporate responsibility make Escorts Investment Bank a company to watch. The bank will be reaching out to many Pakistanis in an attempt to assist them in their quest to join the swelling ranks of the country’s middle classes.

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> SIEGMUND WARBURG English Banker These days, far too often loan applications for the funding of promising business ideas are rejected out of hand by bank computers that spits out a resounding ‘no’. Algorithms lacking intelligence, senses and - indeed - sense, now rule the financial world. Bankers, traders, analysts and other assorted money handlers just do as they are told by the computer. Human emotion, gut feeling and first impressions no longer play any role of significance. The banker has become an automaton, albeit an exceedingly well-paid one.

Siegmund Warburg (1902–1982) would probably have despised his modern-day peers for their apparent lack of personality. And of courage: It is rather cowardly to blame a soulless computer for one’s own misses.

Mr Warburg was first and foremost a relationship banker. Numbers, statistics and ledgers did not really excite him as he cared for the people behind the digits; their passions, skills, integrity and overall personalities. He was also a man with the courage to accept first impressions as the basis for decisions. Would-be borrowers often need not explain in great detail their business plans. More often than not, Warburg would size up a client in the first few seconds of an initial meeting.

He would have been quite disgusted at the decline of relationship banking and the shift to the more heartless transactional banking which was such a significant factor in the lead-up to the recent global financial crisis.

Siegmund Warburg fled the Nazis in 1934 to found the firm S.G. Warburg alongside Henry Grunfield. As so often, Hitler’s loss was London’s gain. Warburg was a colourful man, full of flair and quite the opposite of the dreary, stuffy bankers then inhabiting the City. He was not liked or admired by his peers. Mr Warburg was very much the creative thinker and prided himself in finding a solution to most any problem, no matter how complex. However, his creativity did not extend to cheating and fooling the market (i.e. investors) as is so depressingly often the case with today’s bankers that try to experiment with out-of-the-box thought processes. It simply wouldn’t have occurred to Mr Warburg to chase profits through deceit.

A passionate advocate of European financial integration and managing director of his bank until the 1970s, Mr Warburg established singlehandedly the EuroBond market which was to massively enrich the firm. As author Niall Ferguson remarks, “Warburg led the western world back to the free market after the midcentury excesses of state control.”

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Warburg’s lending decisions were based largely on his impressions of the man or woman seeking his support rather than on cold, bare figures on a sheet of paper. Did he see passion and drive in the owner and employees of a given company?

If so, Mr Warburg would likely be suitably impressed and ask how he could help sustain and expand the business. “Tell me what you need” was his way of honouring any well-argued request for credit.

It was the people themselves who were important to Mr Warburg. His detractors sometimes point out that he often showed more concern for producing a profit for his clients than for his own bank. However that is a tribute to the man, rather than a weakness. Of course, Mr Warburg owed his success to enabling all-round profit-making.

As with most successful men, Mr Warburg CFI.co | Capital Finance International

could be quite brutal and had a ferocious board room presence. Famous for hostile take-overs in the mid-1950s, he threw out the directors of British Aluminium after wrestling control of the company from them. He has no time for losers, bloated egos or incompetence.

Sixty years ago Warburg wrote a memorandum setting out what he felt to be the most important qualities for a bank: Moral standing, a reputation for efficiency and high-quality brain work, connections, capital funds, personnel and organisation. He also advised bankers “not cry over spilled milk”; encouraged them to “cross bridges before you come to them”; and “never to indulge in wishful thinking”.

The world would be such a better place if only modern bankers could take a cue from Siegmund Warburg.

Autumn 2013 Issue

> JAMES “JAMIE” DIMON How Not to Be a Good Banker

The CEO, chairman and president of JPMorgan Chase has no shortage of supporters and fans. Just two years ago, James “Jamie” Dimon was named CEO of the Year. In its All-America Executive Team Survey, Institutional Investor has placed Mr Dimon near the very top for five years running.

This is one guy that knows how to impress.

and “neglected to disclose the truth to either regulators or the public.” These damning assessments of the bank’s behavior are cause for considerable worry.

With a pay package exceeding $23 million annually and excellent connections in the White House, Mr Dimon has been hailed as “the best banker we’ve got” by no one less than President Obama himself. Still, Mr Dimon has been caught lying quite a few times.

JPMorgan Chase was one of the few big US banks that did not actually need a taxpayerfunded bailout when the financial crisis hit in September 2008. Even so, the bank was urged to accept $25bn to help assure markets that all big banks were safe and being well looked after by the Federal Reserve. JPMorgan Chase was the first of the nine taxpayer supported banks to hand back the full amount.

In 2012, he obfuscated trading losses amounting to well over $6 billion at the London office of JPMorgan Chase. A report by an US Senate investigative commission concluded earlier this year that Mr Dimon misled both investors and regulators as to the extent of the losses caused

by Bruno Iksil, a trader known as The London Whale. Mr Dimon had earlier dismissed the losses as a “tempest in a teapot”.

Mr Dimon now seems to have concluded that risky behavior carries its own rewards. If things go wrong, a bailout will follow. If things go well, profits loom large. It’s the socialization of losses and privatization of profits. The fact that a single trader is allowed to expose its employer to over $6bn in losses on positions hard to unload at short notice, seems indicative of a culture in which deregulation has gone wild.

Some tempest: The US Senate commission found that JPMorgan Chase had knowingly violated “massive numbers of key risk limits”

This has absolutely nothing to do with banking any longer. JPMorgan Chase is not providing the public with any discernible service by CFI.co | Capital Finance International

having traders make outrageously risky bets in order to chase a quick and easy buck or two.

While it remains a formidable feat of financial engineering, bordering on alchemy, to create billions in profits out of thin air - or by shifting bucket loads of digits around the globe and seeing their number increase as they move – the monies thus created seldom if ever proof beneficial to the wider society. In fact they are detrimental to nations and their real economies (as opposed to bankers’ flights of fancy) inasmuch that its creation attracts the brightest young minds.

There is no doubt that Mr Dimon has an absolutely brilliant mind. He might even be a kind of genius. It is, however, most regrettable that he didn’t choose to apply his intellectual and creative powers to, say, engineering, medicine or some other form of activity that actually produces real wealth and prosperity. And if you do insist on becoming a banker, then at least try to make an honest buck by facilitating investments in worthwhile human activities that give a good and decent return to the bank, its depositors and shareholders and to society at large. Risking billions in iffy schemes is not part of that equation.

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> Bentley Motors:

Bentley Keeps Assembly at Home THE BENTLEY SUV Bentley Motors recently confirmed that it will proceed with the development of the Bentley SUV, the company’s fourth model line. The SUV will be made in Crewe and will go on sale in 2016. It will create over 1,000 jobs in the UK. Over the next three years Bentley will invest more than £800 million in its headquarters at Crewe and the development of new models.

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UK Prime Minister David Cameron was present together with Dr Martin Winterkorn, Chairman of the Board of Volkswagen Group, for the announcement at Bentley headquarters and said: “This £800 million investment and a thousand new jobs from Bentley is fantastic news for both Crewe and for the UK as a whole. It is another important milestone in strengthening our economy.”

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“One sector that we know is sprinting ahead in the global race is our booming automotive industry. One vehicle rolls off a production line somewhere in the UK every 20 seconds and we have just launched the Government’s Automotive Industrial Strategy to help continue this success for years to come. I am delighted that Bentley will be building their new vehicle here, not only creating a thousand jobs, but safeguarding many

Autumn 2013 Issue

more, as well as increasing training opportunities for highly skilled apprentices.”

Dr Winterkorn later added: “The Volkswagen Group believes in the UK as a competitive location for industrial production. Bentley fans all around the world are looking forward to the brand’s first SUV. Together we will make this new model another true Bentley – powerful, exclusive and successful.”

Business Secretary Vince Cable commented: “This is a welcome commitment to the UK from a major international car maker. Our automotive industrial strategy proves this government’s commitment to working with world-class companies like Bentley to create jobs and promote exports. This was the first firm I visited as a government minister and it serves as a real example of high-value manufacturing. They export more than four out of every five cars they build in the UK.” Bentley’s Chairman and Chief Executive, Dr Wolfgang Schreiber, added: “This is excellent news for Bentley and for the UK. The company is increasingly successful and this new fourth model line will leverage the success of the global SUV market. The support of everyone involved with the company has been fundamental to this decision, which will ensure sustainable growth path.”

In Pictures: Bentley SUV

The SUV will be a thoroughbred Bentley true to the brand hallmarks of luxury, performance, quality and craftsmanship. The styling will set it apart from any other SUV on the road and will be true to the Bentley design DNA. It will be the most luxurious and most powerful SUV on the market. The response from customers to a Bentley SUV has been extremely positive in the last 16 months.

THE BENTLEY FACTORY It was 75 years ago – in 1938 – that the first building block was placed at Pyms Lane, marking the beginning of Bentley’s now famous factory in Crewe.

In Pictures: David Cameron visiting the Bentley factory in Crewe

“This £800 million investment and a thousand new jobs from Bentley is fantastic news for both Crewe and for the UK as a whole.

It is another important milestone in strengthening our economy.”

David Cameron CFI.co | Capital Finance International

Originally built to manufacture the Merlin engines which powered both Spitfire and Hurricane fighters, the factory is now home to more than 3,600 Bentley employees who helped manufacture over 8,500 Bentley cars last year for discerning customers all over the world.

Many great achievements have been made, and are still being made, at this factory - from 43

its original construction to producing cars for over 60 years that sit at the pinnacle of luxury automotive manufacturing.

Continued investment, in both product development and facilities, and the dedication of many thousands of highly-skilled workers paved the way for Bentley’s business success.

In the months leading up to Monday June 20, 1938, Rolls Royce – then-owners of Bentley – was looking to expand production of its famed Merlin engine. The business considered different locations but ultimately picked Crewe for the quality and ready availability of engineers, and the existence of strong transport links.

Merrill’s Farm, Pyms Lane, was the chosen site and 60 acres of land were duly purchased for the sum of £99 per acre. Ground levelling started immediately and in October 1938 production started with 500 engines built. By the end of the following year over 2,000 employees were employed at the plant.

The arrival of the factory also had a considerable effect on the wider Crewe area with some 2,000 new houses built, many of which were to accommodate employees.

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In Pictures: The Bentley factory

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Autumn 2013 Issue

In Pictures: The Bentley factory

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In Pictures: The Queen at the Coronation Festival

In Pictures: The Queen at the Coronation Festival

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Autumn 2013 Issue

In Pictures: The Queen with her state Bentley car

Production moved quickly and by 1945, over 15,000 aero engines had been built when the decision was made to shift to mostly car production. Just a year later, the first Bentley rolled out of the gates: The Mk VI. Car production remained at a pace. Presently, the Crewe factory’s output continues to grow.

The Home of Bentley in Crewe is now considered as a Volkswagen Group Centre of Excellence for its Wood, Leather and Trim manufacturing departments.

“Visitors to the Coronation Festival in July were able to enjoy a rare opportunity to see one of the most recognisable and elegant cars in the world: Her Majesty the Queen’s State Limousine.”

Developments continue at the Pyms Lane factory, with Bentley keen to invest in new technologies as part of its position as the third largest investor in research and development of UK automotive industry.

BENTLEY AT THE CORONATION FESTIVAL Visitors to the Coronation Festival in July were able to enjoy a rare opportunity to see one of the most recognisable and elegant cars in the world: Her Majesty the Queen’s State Limousine.

The manufacturer recently installed 20,000 solar panels with a power generating capacity of 5MW in what is the UK’s largest roof-mounted solar panel installation. These panels will generate up to 40 per cent of Bentley’s energy requirements and reduce CO2 emissions by over 2,000 tonnes annually.

This unique Bentley, presented to the Queen in 2002 to mark the 50th anniversary of her accession to the throne, was the centrepiece of a collection of Bentleys on display in Buckingham Palace Gardens throughout the celebrations.

The panels will also generate enough energy to power over 1,200 households in Crewe, attesting to the valuable contribution the factory has made – and indeed continues to make – to the local and wider community.

Whilst the State Limousine is known to millions of people across the world, the Coronation Festival offered a superb opportunity for visitors to take their time to walk around the car and get closer than usually is possible. Her Majesty and The Royal Household kindly made the car available for the occasion.

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Bentley’s craftsmen, designers and engineers (in partnership with several leading British automotive specialists) started work on ‘Project Diamond’ in 2000 with the clear objective of creating a truly elegant car suitable for every type of royal occasion.

The State Limousine is designed to ensure as many well-wishers as possible have the opportunity to see the Queen. For this Bentley created a ‘panoramic glasshouse’ and provided the vehicle with a significant lift to make it far higher than any other car. Additionally, the rear seat position was determined using a model of the same height as the Queen while the doors are hinged at the rear and open through 90 degrees to enable Her Majesty to almost walk out of the car.

Another highlight from Bentley at the Coronation Festival was the presence of the company’s flagship model: The Mulsanne. Blending refinement and performance with luxury features and technology, the Mulsanne offers the greatest of grand touring experiences. The car takes nearly 400 hours to create over half of which are dedicated exclusively to crafting the luxurious interior. Nearly 120 exterior colours are available as standard as well as 24 colours of leather. The steering wheel alone requires ten feet of thread and 620 stitches to complete. i

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> CFI.co Meets the CEO of Millennium bcp:

Nuno Amado A Determined Leader for Challenging Times.

I

n February 2012, Nuno Amado was elected Chief Executive Officer of Portugal’s largest private bank, Millennium bcp (Banco Comercial Português).

Since then, Mr Amado has led the bank through a complex and challenging restructuring program designed to return Millennium to profitability and ensure it remains a market leader in Portugal.

Prior to joining Millennium bcp, Nuno Amado was CEO of Banco Santander Totta in Portugal.

The restructuring program designed by Mr Amado and his management included a rights issue to reinforce the bank’s capital ratios, as well a request for temporary capital strengthening via contingent convertible bonds issued to the Portuguese State. In all, Millennium bcp raised EUR 3.5 billion, lifting its core tier 1 capital above 12%, fully compliant with the new regulatory requirements set by the Bank of Portugal and the European Banking Authority.

This capital reinforcement was central to Mr Amado’s effort to strengthen Millennium bcp’s fundamentals, part of his team’s ambitious strategic vision built on three pillars: Strengthening capital and liquidity, creating the conditions to ensure growth and profitability both at home and abroad, and delivering sustainable growth.

The strategic plan also sets out a timetable for repayment of the EUR 3 billion received in temporary capital support through 2017.

To date, the efforts made by Millennium bcp – and the results obtained – show that the strategic path developed by Mr Amado and his management team is the correct one.

With capital and liquidity levels restored and now at historic highs, and with a restructuring program underway in Portugal to adjust the bank’s activity to the challenging economic environment, the prospects for a return to sustainable and profitable growth over the medium term are steadily improving.

In 2012, Mr Amado and his management team were able to cut costs significantly, a process that continued in the first half of 2013.

With demand for banking services declining in Portugal because of the overall negative 48

economic backdrop, Millennium’s adjustment has involved the resizing of its branch network as well as a headcount reduction. Both processes were implemented without affecting employee morale or disrupting the high quality customer service for which Millennium bcp is known.

International operations are key to Millennium bcp’s outlook. The bank provides universal financial services under the Millennium brand in a number of European and African markets that have great potential. In Poland, Bank Millennium is the sixth largest bank in terms of assets.

The bank is also listed on the Warsaw Stock Exchange. In Mozambique, Millennium bim is the market leader, with a nearly 30% share of the banking and insurance markets. In Angola, Banco Millennium Angola is a strong and growing presence on the local market, with nearly 100 branch offices ensuring nation-wide coverage, and contributing to a remarkable growth in both customer base and deposits.

These international operations have delivered consistent profitability and solid growth, and remain essential factors in the overall strategic approach that Millennium bcp is taking under Mr Amado.

“In 2012, Mr Amado and his management team were able to cut costs significantly, a process that continued in the first half of 2013. ” The bank’s management team also prepared the sale, in June 2012, of Millennium’s bank in Greece; another key strategic step. The sale reduces Millennium’s exposure to the risk of that market and eliminates a loss-making operation that weighed heavily on the bottom line in recent years. As a result of the sale, Millennium took a near-5% stake in Piraeus Bank, the acquirer of its Greek operation. These shares will be sold off gradually after an initial lock-up period.

In addition to the strategic plan now being implemented, Mr Amado and his team have renewed Millennium’s emphasis on customer service, promoting meetings all across the country that bring together customers, potential customers and senior bank directors. These meetings aim to ensure the bank’s continued CFI.co | Capital Finance International

In Pictures: Nuno Amado

awareness of local realities and challenges, enhancing its ability to swiftly and effectively provide solutions.

Mr Amado’s election as CEO heralded a significant shift in Millennium’s corporate governance model: A new structure was adopted with a single Board of Directors that includes independents, shareholder representatives and non-executives as well as the Executive Committee. Under this system, the oversight of management activity is carried out by the full board, of which Mr Amado is Vice-President. A number of committees were instituted to provide oversight for crucial areas including risk management, corporate governance, nominations and evaluations and remuneration.

In addition to being Millennium bcp’s CEO, Mr Amado is also a member of the Millennium bcp Foundation’s Council of Curators, while in Poland he is Vice-President of Bank Millennium’s Supervisory Board.

Outside Millennium, Mr Amado holds various non-executive positions in other Portuguese companies and organizations. He is currently a member of the Portuguese Banking Association’s board; a member of the Insititut International D’Études Bancaires; and sits on the BIAL Foundation’s Audit Committee as well as on EDP’s (Energias de Portugal) Supervisory Board.i

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> European Investment Bank:

“Vienna Initiative” Keeps Credit Flowing

By Wilhelm Molterer, Vice President

International financial institutions have joined forces to help calm economic turbulence and avert a collapse in the provision of credit to Central and South East European countries. Now in its second phase, the “Vienna Initiative” by the European Investment Bank, World Bank and European Bank for Reconstruction and Development has proven vital to safeguarding financial stability and supporting growth and jobs in Emerging Europe.

A

s the global financial crisis developed into a full-blown economic crisis across much of the European Union in 2008 and 2009, the EIB was asked by its shareholders - the EU Member States – to respond in a counter-cyclical manner and significantly increase its lending to the real economy.

This sharp increase – the EU Bank’s “extraordinary response to extraordinary times” – took place, in the first instance, within the framework of the European Economic Recovery Plan adopted by EU leaders in late 2008. This engagement reflected the need for enhanced solidarity and social justice at times of hardship, when those already vulnerable require increased assistance.

“The EIB has assisted economic development in the region for several decades.” collapse of the economies and banking systems, and long-term measures to reinforce the financial architecture and boost competitiveness, with the ultimate aim of putting Europe on a path of smart, sustainable and inclusive growth.

The recovery plan established a twin-track approach – short-term action to avert a full-blown

Part of the initial anti-crisis response of the EIB focused on countries in Central and South Eastern Europe, a mixture of the EU’s newest member states and emerging economies hard hit

Warsaw Metro: EIB supports upgrade with EUR 139 million.

Belgrade: Sava bridge approach roads.

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by the downturn as capital inflows slowed and export markets collapsed. The EIB has assisted economic development in the region for several decades, providing not only vast sums of money in loans but also indispensable technical and financial advice to support capacity building and ensure successful implementation of large-scale investments.

Given this experience, it was natural for the EIB to act as a key contributor to the “Vienna Initiative” seeking to safeguard the stability of the financial sector. The goal of the initiative, launched in January 2009 together with the EBRD, the European Commission, World Bank, IMF and other financial institutions, was to prevent a withdrawal of international banking groups with large exposures in the region and maintain a steady flow of credit to the economies affected, in part by securing funding from the EIB and its fellow public financiers.

Autumn 2013 Issue

In Pictures: EIB supports construction of high-performance power station in Poland

“The policy choices made during the current crisis will have an impact on the economy for years to come. And we can say that our institutions have coped well under extremely difficult operational circumstances.”

This plan was integrated with the IMF and EU macro-financial support programs. In return for the commitment of countries to fiscal consolidation and for financial support from the international financial institutions, large multinational banks active in the region pledged to keep local subsidiaries capitalized so that they could continue lending to businesses and households.

The initial pledge by the EIB, World Bank and EBRD – EUR24.5 billion for crisis-related support to the financial sector over 20092010 – was exceeded. By end-2010, the three institutions provided loans of more than EUR33 billion under the Joint IFI Action Plan stemming from the Vienna Initiative. Around that time, economic prospects of the countries in the region

started to improve, with positive implications for the banking sector.

The recovery was, however, short-lived. As the sovereign debt crisis intensified in the euro area in 2011, turmoil on the financial markets coupled with anticipation of Basel III led to the implementation of new prudential standards by a number of cross-border financial institutions with significant exposures in Central and South Eastern Europe. This gave rise to a fresh wave of concerns about the level of capitalization of subsidiary banks. At the same time, the paradigm of doing business in the region changed, with the lending by subsidiaries increasingly financed by domestic funds.

Faced with these new challenges, the “Vienna

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Initiative” evolved into “Vienna 2.0,” addressing not only a number of specific banking issues such as the alignment between home and host regulators, but also, in a more targeted way, seeking to help rekindle economic growth after five years of sluggish performance. The new Joint Action Plan for Growth in Central and South Eastern Europe launched in November 2012 reaffirmed the commitment of the EIB, World Bank and EBRD to the region. Lending for growth and jobs has been a key mission of the EIB since its inception in 1958 as a public bank of the EU, making it well-placed to take the lead in the action plan.

The EIB Group – comprising also the European Investment Fund, a specialist provider of risk finance for SMEs - will contribute two thirds of

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In Pictures: EIB supports construction of high-performance power station in Poland

“Lending for growth and jobs has been a key mission of the EIB since its inception in 1958 as a public bank of the EU, making it wellplaced to take the lead in the action plan.” the EUR30 billion in long-term loans pledged by the three financiers for 2013-2014 to support SMEs; renewable energy and energy efficiency; large infrastructure project; research and innovation; and the knowledge economy.

Our presence also gives confidence to other investors – indeed, in the midst of the economic downturn, a number of important projects would not have reached financial close without participation of the EIB or fellow public banks.

Initial results show that we are fully on track meeting this target. A number of global loans for SMEs was signed recently with partner banks in Bosnia-Herzegovina, FYROM, Bulgaria, Latvia and other countries covered by the initiative; railways and motorways are being built and refurbished across the region with the help of EIB funds; almost EUR1 billion has been provided for R&D activities in Polish research institutes, universities and business enterprises.

The policy choices made during the current crisis will have an impact on the economy for years to come. And we can say that our institutions have coped well under extremely difficult operational circumstances. Calls for a multilateral response have not fallen on deaf ears, as illustrated by the various synergies and coordinated actions in the region. We have played a counter-cyclical role, complementing national support packages and granting access to attractively priced loans in countries with insufficient resources to stimulate their economies and offer social protection to their people. i

The value of the participation of our institutions lies not only in the provision of large volumes of competitively priced senior debt at long tenors.

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ABOUT THE AUTHOR Wilhelm Molterer is a Vice-President and Member of the Management Committee of the European Investment Bank. Among other responsibilities, he oversees lending to Germany and Austria, the Eastern Partnership countries and EU cohesion.

He also is the EIB’s Governor to the EBRD. Mr Molterer took up his duties at the EIB in 2011 after a long career in Austrian politics which included the posts of Vice-Chancellor and Federal Minister of Finance (2007-2008); Federal Minister of Agriculture, Forestry, Environment and Water Management (1994-2003); and two decades as Member of Parliament.

Autumn 2013 Issue

WHAT IS THE EIB? The EU’s bank: The EIB is the European Union’s bank – the only bank owned by and representing the interests of the European Union Member States.

As the largest multilateral borrower and lender by volume, the EIB provides finance and expertise for sound and sustainable investment projects which contribute to furthering EU policy objectives. More than 90% of its activity is focused on Europe, but it also implements the financial aspects of the EU’s external and development policies.

Lending, Blending and Advising • Lending: The vast majority of EIB financing is through loans, but we also offer guarantees, microfinance, equity investment, etc.

• Blending: EIB support helps unlock financing from other sources, particularly from the EU budget. This is blended together to form the full financing package.

• Advising: Lack of finance is often only one barrier to investment. The EIB can help with administrative and project management capacity which facilitates investment implementation.

Priorities The EIB supports projects that make a significant contribution to growth, employment,

economic and social cohesion and environmental sustainability in Europe and beyond. The Bank’s priorities are: • Supporting SMEs • Addressing economic and social imbalances between the regions (cohesion) • Protecting and improving the natural and urban environment (environmental sustainability) • Promoting innovation through investment in ICT and human and social capital (innovation) • Linking regional and national infrastructure of transport and energy (Trans-European Networks) •Supporting a competitive and secure energy supply (sustainable energy) The EIB raises the bulk of its lending resources on the international capital markets through bond issues. Our excellent rating allows us to borrow at advantageous rates. It is thus are able to offer good terms to our clients.

Multiplier Effect The EIB generally finances one-third of each project but it can be as much as 50%. This long term, supportive financing often encourages private and public sector actors to make investment which might not otherwise be made.

What Makes the EIB Different?

All the projects the EIB finances must not only be

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bankable but also comply with strict economic, technical, environmental and social standards.

The Bank’s 1,950 staff build on more than 50 years’ experience and expertise in project financing. Headquartered in Luxembourg, the EIB has a network of local and regional offices in Europe and beyond.

The EIB Group The EIB Group consists of the European Investment Bank and the European Investment Fund (EIF). The EIF focuses on innovative financing for SMEs. The EIB is the majority shareholder with the remaining equity held by the European Union (represented by the European Commission) and other European private and public bodies.

Combatting the Crisis In 2012, EIB shareholders (the EU Member States) decided to increase the bank’s capital

by EUR 10bn. This boosted the bank’s stability and allowed it to plan for EUR 60bn additional lending between 2013 and 2015. Previously, when the financial crisis erupted in 2008, the EU asked the EIB to offset falling investment.

This led to a more-than one-third increase in the total value of on-going, outstanding loans by 2011.

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> Ak Investment:

Leading Through Innovation

A

k Investment aims to provide highquality brokerage services to both international and local institutional clients while keeping its focus on leading the market with innovative products. Its parent company, Akbank, is one of Turkey’s largest banks with a market capitalization of USD 15bn.

Turkey is one of the most competitive emerging markets in Europe. As such, it is vital to be and to remain ahead of the crowd. Ak Investment understands this and was the first Turkish broker to introduce electronic trading, DMA (Direct Market Access) and algorithmic trading for Turkish equities.

In addition to cash equity trading, Ak Investment handles trading for futures and options on Borsa Istanbul. These state-of-the-art services significantly increased Ak Investment’s institutional client base. Ak Investment currently serves investors in Great Britain, Continental Europe, the United States, the Middle East and the Far East.

The sustained improvements in the Turkish economy enabled the State Treasury in Ankara to reduce its dominance in the bond market which in turn has allowed corporate bonds to flourish since 2010.

Having seen the growth potential of corporate bonds, Ak Investment built a team to establish a leading position. In 2013, Ak Investment became the leading broker of non-bank corporate bonds. However, this is just the beginning.

Comparisons within the CEEMEA region (Central and Eastern Europe plus the Middle East and Africa) show that the corporate bond business is in its infancy and has the potential to grow six fold from TL15bn to 100bn over the next five years.

Although low volumes being currently traded limit foreign participation, growing interest from Turkish companies to tap this market signals that over the coming years the market will become big enough to attract international players.

Ak Investment has already put a set of products and tools in place that enable potential international clients to closely monitor both the market and its trends. To date, Ak Investment brokered bonds in the retail, leasing, factoring, banking, health care and energy sectors. Ak Investment is one of the most active intermediaries in bond issues.

The brokerage has effectively led the market with

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“Ak Investment currently serves investors in Great Britain, Continental Europe, the United States, the Middle East and the Far East.” both first and largest issues such as the largest non-bank bond issue (Başkent Elektrik Dağıtım A.Ş., May 2013) and the first 3-year bond issue (Akbank T.A.Ş., January 2012).

Besides being a leading player in the corporate bond market, the company’s investment banking team is also very active in IPOs; Ak Investment has participated in 60 IPOs since 2010. In five of these, Ak Investment acted as the lead manager. On the mergers and acquisition front, Ak Investment has established a proven track record in a wide range of sectors including energy, real estate, logistics, retail and financial services.

Continued low interest rates, coupled to reduced risk perception and investment grade ratings

by Moodys and Fitch have convinced Turkish investors of the need to diversify their portfolios.

They are now looking at alternative investment vehicles.

In order to address this demand, Ak Investment launched TRADEALL, a multi-asset trading platform which gives access to international equity and commodity markets as well as CFDs, ETFs and FOREX. Ak Investment, with its experienced and dynamic team, now offers a 5/24 continuous service to its retail and institutional clients tailored to their diverse risk and product requirements, enabling them to trade on international markets.

The Ak Investment Research Department is the true backbone of all services being offered. Along with the rest of the company, this department has now evolved into a multi-asset research group. Its team´s enduring philosophy is to not merely look at, and investigate, the big caps, but also to pay due attention to the mid and small cap names that might otherwise go unnoticed and could, because of that, provide superior investment opportunities.

Through the years, the research department has developed and maintained solid relationships with Turkish corporations. As a result of this, it

CFI.co | Capital Finance International

is able to provide high-level corporate access to its clients.

Ak Investment’s long-only model portfolio, which the research department has been running since 2010, has outperformed the BIST-100 Index every year since its inception. Due to its succesful performance, the product has gained a good number of followers.

Ak Investment aims to keep well ahead of the crowd and will remain the leading broker in the Turkish capital market through continuous investment in human capital, technology and new products. i

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> European Federalist Party:

Power to the People? The Road to the 2014 European Parliament Elections

E U ROP EAN FE DE RALIST PARTY

By Pietro De Matteis

PARTI FE DE RALISTE Apart from the election of the first European Parliament in 1979, European elections E U ROP ÉEN

have hardly been considered a decisive moment in European politics. But this time it is different. The Eurozone crisis has dramatically shown us how our lives are deeply interconnected, and how policies decided (or not decided) in Brussels may dramatically affect the life of citizens Europe-wide: The endless debate about E U ROPÄISCHEN austerity-led policies or growth-oriented measures is just one example.

As argued FÖDE RALISTISCHE PARTE I and below, such interconnection between Europeans has increased at every level could make the 2014 European Elections the first one accompanied by a true European debate.

W

e have all lost the count of the number of meetings and summits that our heads of state and government attended over the past five years in their attempt to tackle the Eurozone crisis. In the same vein, the European media have increasingly highlighted the European relevance of national events, such as the elections in Greece and in Germany or the political uncertainties in Italy, just to name a few. Such awareness of European affairs has also facilitated the development of increasingly heated debates about member states’ domestic policies involving foreign officials: What previously would have been labelled as “unacceptable foreign interference” has become increasingly common. Indeed, those who have always argued that a “European political public sphere” does not exist will have to acknowledge that it does now, thanks to the crisis.

The exchanges did not increase only at the heads of state level or through the media. European civil society and trade unions have started to organise Europe-wide protests and to offer their proposals to overcome the crisis. This was further helped by the fact that Europe appeared to be less able as of late to deliver growth, jobs and social stability.

Of course, when we say Europe we must consider the European Union as well as the individual nation states. In fact, while the former is limited primarily by the amount of competences (and budget) attributed to it by the member states, the latter are intrinsically constrained by their 56

“What previously would have been labelled as ‘unacceptable foreign interference’ has become increasingly common.” own size and resources; mostly insufficient to make the difference in the twenty-first century.

This is the case in Greece, in France, in Germany, in Hungary, in Italy, in Romania and of course in Spain, Belgium and in the UK. These movements represent the unease of an increasing number of citizens who are unhappy with the status quo and who feel left behind in a rapidly changing world.

For them, the fundamental question is how to change things and to determine whether the benefits of being part of a larger political entity outweigh the costs in terms of bureaucracy and reduced accountability.

It could be argued that European nation states are among the most visible victims of the success of process of globalisation of production and consumption. If, on the one hand, they have accompanied the rise of new continental-scale economic powerhouses such as China, India and Brazil to the benefit of some European businesses, on the other hand European countries have seen dramatically reduced their political weight in the international arena, as in a “quasi-zero-sum game”. Furthermore, the new global business paradigms based on “tax optimisation” together with the competition from emerging markets is making the foundations of the European social model increasingly unsustainable.

From such an assessment – not always very accurate - some would argue that the “go it alone” is the best strategy, and would set as their objective the regaining some sort of “independence” from the larger political entity; be it the unitary state in the case of separatists movements, or the European Union as it is the case for nationalists and eurosceptics. Others, instead, would argue that only by working together in a Europe-wide democracy can we actually tackle this century’s challenges, and that if we do so through a well-functioning federation we can significantly improve efficiency and accountability.

The growing “collective incapacity” of EU countries to keep delivering on their promises of providing a constant improvement of our standards of living and the impossibility for the EU to step in to fill the gap, created a large political vacuum which is now being filled by an increasing number of extremist, separatists and anti-euro political movements in most European countries.

If we take a step back and look at today’s Europe, we will realise that what we are facing is an expectation-capability gap between what the average citizen’s expectations and the capabilities of the current political structures to tackle them. In addition, citizens’ expectations are either stable or increasing over time while the capabilities of those bodies tasked to fulfil those expectations in Europe (i.e. national and local

CFI.co | Capital Finance International

Autumn 2013 Issue

“This crisis had the role of raising the awareness among Europeans of both our shared strengths and weaknesses.” authorities in primis) are constantly reducing given the changing global context.

Through their membership to the European Union and the relative economies of scales so obtained, the capabilities of European countries to manage globalisation have significantly improved. This has de facto allowed these governments to delay and reduce their adjustments costs while enabling them to benefit directly from access to global markets.

Today, however, the above mentioned expectation-capability gap is widening and only a more effective readjustment of the competences and policies to be managed at the local, national and European level can provide the necessary efficiency gains that Europe needs to remain competitive at the global level. However, such gains can only be obtained by shifting very sensitive policy areas such as taxation, security or industrial policy (just to name a few) from the national to the European level.

Such shifts in competences and powers cannot happen without the necessary political legitimacy and that is why the peoples of the EU need to make their voices heard ahead of the next European elections. Whatever the path that Europeans decide to take, it is increasingly clear that their voice cannot be bypassed anymore.

Citizens will have to take ownership of decisions that are taken in Brussels through a strengthened and more participative democratic process.

him/herself (be it the Chinese or the American one) or if the passengers are still willing to sort this situation out by themselves and start rowing all together to reach their own destination.

The overall social, political and economic environment is conducive to transform of the upcoming European Parliament elections an important turning point. In addition, the elections provide some new opportunities for people to make their voice heard. One of the key innovations is that the major groups in the European Parliament are expected to present their own candidates for the job of President of the European Commission. This means that European citizens will be able to elect their own European president – even though not directly as in the United States.

Also, in addition to the top-down alliances of traditional national parties created for the European elections, this time there will also be truly European parties in the running, such as the

European Federalist Party (www.federalistparty. eu). This party was founded as a bottom-up political entity which has progressively opened sections all over Europe and which moreover aims to present candidates in several European countries. This will allow raising the debate about Europe during the electoral campaign and counterbalance the increasingly prominent role played by the nationalist and extremist political movements.

Unfortunately the current legislature did not legislate on “transnational lists”, which would have allowed candidates to feature on a Europewide electoral list instead of national lists as it is the case now. Nonetheless, all these innovations - together with the changing European and global context outlined above - could make of next year European elections a real “game changer” in European politics.

It is now up to us, the European people, to make our voice heard and shape our own future. i

ABOUT THE AUTHOR Pietro De Matteis is the co-President of the European Federalist Party, the only bottom-up and panEuropean political party with sections in 18 European countries. An economist by training, he obtained a PhD in international studies from the University of Cambridge and carried out research in China and in the USA. He has lived in several European countries and has worked for various European Institutions. The positions expressed in this article are personal.

A sort of new “contract sociale” (or “social pact”) – to use Rousseau’s terminology - should be drafted among the people of Europe and the different levels of government in order to provide certainty about which competences are to be managed at which level and about the nature of the mandate and the key principles that should guide the new European Parliament. This is crucial in order to strengthen the accountability and the transparency of European political processes.

In the past, many argued that it was just not possible to have such a participatory process due to the lack of a truly “European political public sphere” - which, nonetheless, existed in other areas such as sports and culture for instance.

Now, as noted at the beginning of this article, this excuse cannot be used any longer, as a true European political public sphere has sprung into being thanks to the Eurozone crisis. T The shared awareness of being “all in the same boat” is clearly the starting point of a debate which is yet to happen. The question to be asked now is whether each of the passengers should jump off and try to reach the nearest shore by

CONTACTS E-mail: pietro.dematteis@federalistparty.eu Website: www.federalistparty.eu Twitter: https://twitter.com/eufederalists Facebook: www.facebook.com/EuropeanFederalistParty CFI.co | Capital Finance International

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> BlackRock:

Bridging the Gap - The Rise of Infra Funds in Privately Financed Infrastructure

By BlackRock Infrastructure Debt Team

In the wake of the global recession, privately-financed infrastructure has become a hot topic for policy makers from Berlin to Paris, London, and Washington. The attractions are not hard to see – private infrastructure is a way of encouraging investment in the economy and providing efficient essential services to the local population without further encumbering already stretched national balance sheets. According to the OECD, governments will need to raise about US$40trn by 2030 to fund infrastructure projects. But there is also a problem. The traditional funders of infrastructure projects – the large commercial and wholesale banks – are pulling back. This retrenchment is providing institutional investors and asset managers such as BlackRock with an opportunity to step into the breach.

PERFECT STORM Historically, industry surveys of project finance put banks’ contribution at 75-80% of funds raised according to ratings agency Moody’s. But banks are now facing something of a perfect storm when it comes to long-term lending. New Basel III regulations will increase the capital charges that are applied against long-term infrastructure loans, which make them less profitable. On top of this, regulators and bank executives are looking hard at banks’ liquidity profiles after the events of 2007 and 2008 demonstrated the challenge of funding long-term, illiquid assets with short term liquidity. Finally, despite the political attractiveness of infrastructure finance, it often comes behind lending to SMEs and mortgages, the benefits of which are more tangible and more immediately felt by the general public.

Many banks have decided that what capital they have left can be more effectively used in other areas, such as lending to finance mergers and acquisitions. Numerous banks have reportedly been offloading their portfolios of infrastructure loans. In June, Bank of Ireland announced the sale of a €270m portfolio to a Danish pension fund and other banks are expected to follow suit in the near future. This retrenchment has meant that financing roads, railways, and schools has become significantly more challenging.

For insurance companies and pension funds, however, infrastructure debt looks much more attractive. It offers the potential for steady returns, diversification, and an attractive yield compared to asset classes with a similar risk

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“For insurance companies and pension funds, however, infrastructure debt looks much more attractive. It offers the potential for steady returns, diversification, and an attractive yield compared to asset classes with a similar risk profile.” profile. It is also backed by real assets that provide an essential service such as drinking water or education. In a market environment where bond yields are at historic lows, the opportunity to gain a yield premium is particularly sought after. Infrastructure debt can also provide a more efficient way of investing. Under insurance company capital rules, for example, infrastructure debt is treated in the same way as corporate bonds, but generates an illiquidity premium of as much as 1.25%, allowing insurers to improve their return on capital metrics. It also provides a good match for institutions that have long-term committed liabilities, such as life insurance companies. Perhaps not surprisingly, institutional investors are showing strong interest in the infrastructure debt market. From the docks at Liverpool to French Universities, Dutch prisons, and American power plants, institutional investors have been keen to provide financing.

CFI.co | Capital Finance International

COMPLEX BUSINESS But as well as being eye-catching, infrastructure finance is a complex business. Transactions are often private, requiring investors to be “in the flow” to originate opportunities by having an on-going dialogue with industry players, particularly banks. Despite the balance-sheet retrenchment of banks, the depth of experience and market knowledge within these institutions means that they will continue to play a pivotal role in structuring and arranging transactions.

Institutions will have to continue work together with banks in a complementary fashion to provide finance to projects. Banks will continue to use their structuring expertise, providing shorter-term funding, and ancillary services such as swaps while looking to institutions to provide longer-term capital. Banks are also the main channel for sourcing secondary loans as they look to shed assets and recycle capital. Having a close relationship with project finance and syndication teams at the major banking institutions is thus crucial to success in the infra debt space.

Sourcing investments is not the only challenge, however. Infrastructure loans also require large amounts of due diligence and upfront work. Third party technical, legal, commercial, tax and other advisors are usually engaged to fully understand the risks involved in building and maintaining a bridge or running an electricity distribution network. Due diligence reports and legal documentation usually run to hundreds of pages of complex analysis that need to be reviewed to ensure that the transaction is appropriately

Autumn 2013 Issue

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structured. As private, illiquid transactions, the debt is also usually unrated, and so investors need a way to score the credit profile and price the investment as part of the investment process. In the past, institutional investors have sometimes been tempted to enter projects after only minimal due diligence, relying on a highlevel overview of the asset from the arranging bank or on a rating from a rating agency if one is available. But this approach is rarely prudent.

Recently, for example, Spanish gas storage project Castor announced that it was suspending operations following a small earthquake a matter of weeks after issuing debt to investors. Several institutions had bought the bonds but were given very limited time to perform meaningful due diligence.

And as the case of Castor shows, although assets are usually buy-and-hold, they are certainly not ‘buy-and-forget’. Once investments are made, they require on-going monitoring throughout their (long) lives. Amendments and waivers to the documentation are common as the transaction evolves and investors must be on hand to ensure that these are dealt with effectively.

Meeting these challenges is where investment managers, that have dedicated teams with longstanding industry experience, contacts, and knowledge, come into play. It is usually more efficient for institutional investors to use an intermediary for origination, due diligence, and monitoring rather than developing this expertise in house. Investment managers are able to aggregate capital from several clients, creating economies of scale not available to an individual investor, for whom infrastructure debt may make up a fairly small part of a portfolio. They are also able deal with the complex cross-border tax and regulatory issues that can arise when lending to infrastructure projects in different countries.

A VARIETY OF FORMATS Portfolio construction is a key area that institutions will look to the expertise of specialist

managers. Infrastructure investment comes in a variety of formats and categories, each of which has different liquidity, risk, and return dynamics. Generally speaking, the infrastructure sector consists of assets or companies that provide essential services for the general public and is characterised by stable cash flows, long life spans and capital intensity. Yet there is a significant difference between investing in a UK airport, a Canadian pipeline, and a Spanish toll road. Institutions will usually be able to construct bespoke managed accounts (rather than a generic fund), and will have to carefully consider the structure and parameters of their portfolio.

Managers can help them make decisions on issues such as the types of regulatory and sovereign risk, revenue risk, and concentration risk they are willing to accept when investing in the asset class.

ON CHOOSING A MANAGER If institutional investors can best access the market via a dedicated manager, given the complexity and opacity of the infra debt market, it is important to recognize managers approach the market in different ways. An important decision is therefore to choose a manager to ensure that funds are being put to work in a way that maximizes relative value. For example, a manager may focus on a particular jurisdiction, such as the UK, or specific asset types, such as greenfield projects, which could limit the investment universe. Similarly, managers may be large investors in the equity or mezzanine debt of infrastructure projects, which can mean that they are not able to look at certain debt investments or because they are conflicted or because sponsors are reluctant to share potential investments with competitors.

One of the key decisions for investors is whether to invest solely in operating assets – so called “brownfield” projects – or whether to include “greenfield” projects that are under construction in an infra debt portfolio. Historically, institutional investors have been somewhat reluctant to take construction risk, preferring assets with a proven operational track record to more complex construction risk investments.

Certainly, there are additional complexities to financing the construction of a suspension bridge compared to a school that has already been built. However, greenfield assets potentially provide attractive relative value. These assets are higher yielding than operating projects, and the spreads put in place at the start of construction usually last for the twenty or thirty year life of the investment. By putting appropriately-structured construction support packages in place, such as guarantees or letters of credit, many of the main construction risks can be effectively mitigated.

Mixing greenfield and brownfield assets can also provide diversification benefits to a portfolio.

Understanding these risk and reward dynamics is an important service that asset managers can assist with.

Some managers may use a co-investment model, where they put their own capital to work. This gives them ‘skin-in-the game’ but may create conflicts of interest between internal and external stakeholders as the investor seeks to balance the interests of shareholders, policy holders, and clients. A fiduciary model, by contrast, seeks to limit conflicts of interest by acting only as a dedicated third-party asset manager and not investing for its own account. This model provides better access to banks and more closely aligns the goals of the manager and investors.

Bridging the infrastructure gap remains a key priority for governments, infrastructure providers, and investors. But ultimately the success of the process will depend on the institutional investors finding a way to access the market that works for all parties. It is this access that BlackRock, and other infrastructure managers, can provide.

Choosing the right manager, who is able to provide access to the market in the most appropriate way, will be an important consideration for institutional investors looking to capitalize on the opportunity that exists in infrastructure debt. i

This material is for distribution to Professional Clients (as defined by the FCA Rules) and should not be relied upon by any other persons.

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited.

Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

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Autumn 2013 Issue

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Realising Ambitions 61

> Sampension:

PPP as a Way Forward for a Modern Welfare System

By Henrik Olejasz Larsen

Public Private Partnerships (PPP) can be defined as a long-term contract between the public authority and a private partner. In Denmark it now seems clear that PPP is particularly suitable for infrastructure projects that will further the development of society. This holds especially true in three main areas: Transport, centralized supply and services.

T

ransport means mostly roads, bridges and tunnels which facilitate the efficient movement of goods and people.

Centralized supply facilities, such as power and heat generators plus their transmission lines, ensure proper heat, water, electricity and waste management. Services concern mostly schools, hospitals, day care centres, sports facilities and administrative buildings that support the delivery of the welfare services that characterize developed societies.

INTERNATIONAL RECOMMENDATIONS This assessment of infrastructure is supported by the OECD’s assessment that economic development will largely depend on the availability of adequate and timely infrastructure facilities.

There is thus a potential economic benefit – and a social benefit at the end of the tunnel - which may be harvested. Moreover, in Denmark - as in most of Europe – is faced with an urgent need to upgrade the existing infrastructure, which only partially matches today’s needs and falls short when future needs are considered.

Major technological developments and demographic and geographic shifts in population composition means a change of the basic infrastructure servicing society is called for.

In Denmark, people move from rural to urban

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“The capital city Copenhagen is currently experiencing a historically large population growth.” areas. The capital city Copenhagen is currently experiencing a historically large population growth. In the past few years, we have embarked on the development of large construction projects such as Metro and DR Byen. We have also adopted new projects, including the Fehmarn Belt link, super hospitals and the City Circle. But there is still an adjustment and maintenance backlog in public infrastructure which in Denmark alone will amount to several billion dollars.

HELP FOR THE PUBLIC? It is obviously useful to look at how investment in infrastructure can be organized in new ways.

Experience shows that cost overruns of more than half of the infrastructure project’s original budget are quite common when the government is the client.

A new way is offered via PPP companies that

CFI.co | Capital Finance International

celebrate a single contract with a public authority and then carries out all aspects of the proposed project: Design, construction, operation and financing. The model is flexible enough to be adapted to any specific circumstances. It may be a hybrid model in which a PPP established by a public corporation is the co-investor. Or with the government as a regulator, drawing up a regulatory framework that allows private incentive to develop, construct and operate a plant or other venture. And finally, the private builder who host the public authority as a tenant of the infrastructure it built and now owns.

Based on the - rather limited - experience with Danish PPP projects, it turns out that all were delivered at the agreed price and on time or even before the deadline. This suggests that PPPs can be a tool for bringing efficiency to large infrastructure projects such as the ones mentioned above.

Notwithstanding all these good arguments, we in Denmark have still not as advanced as much with PPP projects as other countries, or indeed as we would have wished. One of the reasons for this may be that the coordination between the public and private sectors often contributes to an increase in the complexity of already complex deals.

Autumn 2013 Issue

Sampension considers PPP simply as a way to finance public infrastructure projects. PPP should not be seen as a way to bypass budgetary rules (budget law, fiscal compact). It should, however, be a way of thinking, organizing and financing projects. It’s not just that the process becomes more complicated, but also that discipline and a clear allocation of responsibilities and incentives are required. This is probably the reason why the perception of PPPs is that the model has failed to deliver both one cost and time.

THE PENSION COMPANIES’ ROLE It is obvious that pension funds in Denmark can play an important role in domestic PPPs. Danish pension funds control significant assets and represent therefore an important source of financing for long-term projects.

However, the right conditions must of course be present. Sampension’s main purpose is to ensure the best possible returns for its clients. Therefore, we are not necessarily a PPP pension company.

But when you can combine favorable economic investments with sensible urban development and infrastructure projects - thus contributing to growth in Denmark as well as in other countries – in monies invested serve multiple purposes simultaneously.

The assumption is that there can be a cooperative model in which different - private and public players can assume the responsibilities of each is best suited to take on. It therefore becomes essential to maintain a good overall economic assessment so that construction and operation may be successfully combined. Only if these conditions are met, a public-partnership can ensure a good and efficient delivery of a given public service while offering a sensible long-term investment option to the pension company. It requires that both the private operator and the public authority are willing to enter into longterm partnerships that are guided by set rules - a willingness that has so far largely been absent in Denmark. i

ABOUT SAMPENSION Sampension manages industry-wide pension schemes for primarily white collar workers in municipalities and central government. The company is organised as a life insurance limited company, but essentially non-profit.

The company strategy is to deliver efficient management of labour market pension funds and investment portfolios ar low administration costs. Sampension’s results prove the thorough success of this.

Sampension manages assets of around 150 bn.

DKK or approx. 19 bn. EUR.

Author: Henrik Olejasz Larsen

CFI.co | Capital Finance International

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> Vicky Jones, Norton Rose Fulbright: Debt Capital Markets - A Funding Solution for SMEs and Projects?

T

here has been remarkable growth in corporate bond issuance in Europe since 2000, particularly in the aftermath of the financial crisis. Issues by European non-financial corporates rose almost 20% in the first half of 2013 to US$333bn [1]. This is the highest figure since the record highs of 2009. The drivers of this growth from the perspective of investors and issuers are well-known. The question is how to harness the current liquidity in the debt capital markets and extend the enthusiasm for investment grade corporate issuers to funding other sectors of the European economy.

This article looks at recent innovations in bond financing outside investment grade corporates.

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We take the Netherlands as an example of a country where support from tax and other authorities has enabled debt capital markets (DCM) initiatives and has helped to develop an attractive environment for the location of financing vehicles for the issue of debt securities.

The size of the market for Dutch corporate bonds has doubled since 2007, reaching a record high of EUR 105bn in the first quarter of 2013 [2].

The majority of issuers are large companies which are listed and/or rated.

THE FUNDING PROBLEM FOR SMES AND INFRASTRUCTURE PROJECTS The debt capital markets could be helpful in resolving two concerns facing Europe: How to bridge the funding gap for SMEs and how CFI.co | Capital Finance International

to diversify funding options for public-private partnership (PPP) infrastructure projects.

Pre-financial crisis, a prospective project or a successful SME could rely on bank loans to provide the cash needed. Not so today: Banks have been forced to deleverage and tighten their credit standards (particularly with respect to riskier investments) as a result of nationalisation, internal policies and Basel III. SMEs and project sponsors need new sources of finance.

The importance of SMEs is undisputed.

They account for more than 98% of Europe’s businesses and provide more than 67% of the jobs in the EU [3]. However, while there are large differences across Europe, the past few years have seen a general reduction in SMEs’ access

Autumn 2013 Issue

to the Europe 2020 Project Bond Initiative that there is sufficient private funding for projects in the Netherlands. This may be true, but there is not the depth of funding available to enable more than a couple of consortia to submit a valid bid for a project in the procurement phase. This reduces competition and potentially increases costs for the government.

MATCHING THE CASH RICH WITH THE CASH POOR Outside the banks, there is liquidity in the markets. Matching those with money with those in need of it and, ideally, providing fees to the traditional lenders in the market (the banks) is the challenge. Crowdfunding and peer-to-peer lending (increasingly popular in the Netherlands) can assist with small loans, but DCM may hold solutions for bigger financings.

Most readers will recognise the challenges faced by the markets in persuading participants to issue on or invest in the debt capital markets.

On the investor side, institutional investors are often limited in the amount of unlisted and unrated debt they can buy and, while the experience of retail investors differs across Europe, Dutch private investors have not been so active in the debt capital markets perhaps due to government regulation of Dutch pension funds not incentivising people to seek their own investments. On the other hand, many SMEs are unaware of DCM as a funding option or are put off by the impression that it will result in increased disclosure and reporting, entering into relationships with unknown investors, extensive marketing and relatively high advisers’ costs.

Different difficulties face project finance SPVs; for them an important barrier is that there have been too few project bonds to encourage institutional investors to invest the time and resources necessary to understand the products and their credit risks.

Amsterdam: Capital of Netherlands

“The importance of SMEs is undisputed.”

to finance. This is a crucial problem as many depend on debt to enable growth and to keep trading.

The Netherlands has suffered in particular. A report by the policy department of the European Parliament describes the Netherlands as “an outlier, because SME profitability is not as weak as in southern Europe, but there are similar financing obstacles” [4]. Only 46% of SMEs were granted the full amount of credit they requested during the period from October 2012 to March 2013 [5].

There is also no shortage of projects which need to be financed or refinanced across the EU. The Dutch government stated in its negative response CFI.co | Capital Finance International

THE ADVANTAGES OF DCM The benefits should be worth the effort. The debt capital markets allow institutional investors to diversify their portfolio, private investors to obtain higher returns, companies to access a broader range of investors and often to enjoy less restrictive terms and project sponsors to tap institutional investors with long-term investment requirements which match the long-term cash flows of the project.

It is still early days, but the following recent developments in EU, DCM, and the Dutch market in particular, indicate an enthusiasm to assist SMEs, projects and investors.

EU SUPPORT FOR THE DEBT CAPITAL MARKETS It helps that the EU is trying to encourage the use of bonds to finance SMEs and projects.

In July 2013, the European Central Bank announced it will continue to investigate the possible acceptance of mezzanine tranches of guaranteed securities backed by SME loans as Eurosystem collateral. EU support for project bonds is also demonstrated by the budget 65

made available through the Europe 2020 Project Bond Initiative, a joint programme by the European Commission and the European Investment Bank (EIB) designed to stimulate capital market financing of large infrastructure projects.

July also saw the announcement of the first successful use of project bond credit enhancement and issue of an EIB supported project bond. The bonds formed part of the financing for the Castor underground gas storage project in Spain. The A11 road project in Belgium has also been tipped to use this EIB product.

DCM SOLUTIONS FOR SMES Perhaps the most obvious DCM option for an SME is to conduct a private placement. This is an active sector in the US where investors overcome the lack of publicly available information about SMEs by investing in companies which operate in industries they know well or even operate in themselves.

The appetite for private placements of SME bonds in Europe has grown as the financial crisis has continued, but lack of publicity and information relating to bonds issued by smaller, private companies has limited demand. A possible solution to this is a platform for European private placements by SMEs reported in the Netherlands in July 2013 which should offer SMEs the chance to raise their profile with potential investors.

The initiative has broad support from the Dutch government and regulators as well as Dutch banks, some larger insurance companies and the big four accountancy firms. The stated aim is for the platform to extend to the UK, France and Germany and talks are already being held with insurers in those countries. It would help this type of arrangement if equal regulatory treatment of SME debt could be agreed across the EU. Although details are still being worked through, our expectation is that such a placement platform would still not reach as many investors as a traditional debt listing. In this respect, the Dutch stock exchange (NYSE Euronext) has had an exchange-regulated market since 2005, called Alternext, which is aimed at companies with market capitalisation of under EUR 1bn. There have been relatively few issues on Alternext by SMEs (the most recent being in May 2012) and, presumably with this in mind, NYSE Euronext launched EnterNext in July 2013. With its own teams and resources, EnterNext is more focused on encouraging initial equity and debt issuances by Dutch SMEs through lower cost, standardised issuance procedures.

loans into larger products. This diversifies risk and could improve marketability. An example of such bundling has been seen in Germany where the first covered bond programme was established by Commerzbank. The Commerzbank programme was established in December 2012 and is backed by loans to SMEs established or located in Germany and involved in a range of different industrial sectors. The regulatory treatment and cost saving of this instrument could lead to its replication in other European countries with attractive covered bond legislation. A product similar to a covered bond is reportedly currently being developed by banks in France with a view to easing SME funding.

DCM SOLUTIONS FOR PROJECTS The development of the PEBBLE platform by ING and the Commute product by NIBC are important indicators of DCM innovation in the Netherlands. PEBBLE (which is slightly easier to say than Pan European Bank to Bond Loan Equitisation) provides standard documentation to be used by banks to diversify funding options and match investors with long-term investment needs with an investment that generates reliable, long-term cash flows.

Through an issue of long-term (over 25 year) notes privately placed to institutional investors, a medium term subordinated loan and a short maturity revolving credit facility, it attempts to provide something for everyone. Sponsors obtain cheaper funding and tap a broader range of investors who could facilitate larger projects while institutional investors get access to a higher quality long-term investment backed by government cash flow in the form of availability payments with construction risk mitigated (through subordination of the loan and the pari passu nature of the revolving credit facility).

It is proposed that the senior notes make up approximately 85% of the funding so DCM investors will be playing a pivotal role.

PEBBLE has not caught on in the way which was envisaged when it was launched in 2012, but there remains hope that, once investors become comfortable with this initiative, it will be used extensively.

The high quality of Dutch infrastructure projects means that they are well-placed to benefit if a deeper market for project bonds develops. A bond option was mooted as part of the finance package for the A1/A6 road project and it is anticipated one will be included in the financing arrangements for many of the upcoming projects in the Netherlands not least because of government support for broadening the investor base. However, there are limits to the breadth of the investor base because committed finance is required for bids on public projects and this is tricky to prove with a retail bond.

Another possible alternative is to “bundle� SME Amsterdam at Night

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Autumn 2013 Issue

CONCLUSION The support of the EU and the Dutch government for new sources of funding is evident, but success requires both institutional and individual investors to educate themselves as to the risks and rewards of the new products on offer. There is talk in the market that the current popularity of corporate bonds has led to a bubble which is likely to burst. However, with few signs that banks will make a swift return to the lending market, companies in need of finance do not have many places to turn. One has to hope, in particular, that once institutional investors have tasted the benefits of a project bond, their appetite will not be quickly sated. i [1] Floating rate bond issuance jumps in Europe, Christopher Thompson and Ralph Atkins, Financial Times , 29 August 2013 [2] Omvang bedrijfsobligaties gegroeid tot boven EUR 100 miljard, Statistisch Nieuwsbericht, De Nederlandsche Bank, August 2013 [3] Report on improving access to finance for SMEs, Committee on Economic and Monetary Affairs, Philippe De Backer, 21 December 2012 [4] Economic and Scientific Policy: Banking system soundness is the key to more SME financing, Directorate General for Internal Policies Policy Department, July 2013 [5] Survey on the Access to Finance of Small and Medium-Sized Enterprises in the Euro Area, October 2012 to March 2013, European Central Bank, April 2013

ABOUT THE AUTHOR Vicky Jones is a banking lawyer based at the Amsterdam office of Norton Rose Fulbright.

Financial institutions Energy Infrastructure, mining and commodities Transport Technology and innovation Life sciences andCFI.co healthcare | Capital Finance International

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ANNOUNCING

AWARDS 2013 AUTUMN HIGHLIGHTS Once again CFI.co brings you reports of individuals and organisations that our readers and the judging panel consider worthy of special recognition. We hope you find our short profiles interesting and informative.

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

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panel. Our research team gathered additional information to help reach a final decision.

In many cases, senior members of nominee management teams provided the judges with a personal view of what sets their companies and institutions apart from the competition.

As world economies converge we are coming across many inspirational individuals and

CFI.co | Capital Finance International

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

Autumn 2013 Issue

> THE SHAPE OF A SMILE: HEINEKEN WINS CFI NIGERIA BEST BRAND AWARD, 2013

The word famous Heineken brand is represented in Nigeria by co-titan Nigerian Breweries PLC which was established in 1946 and now is the largest brewer in the country. Nigerian Breweries produces a range of high quality beverages and enjoys an enviable and long established domestic reputation for excellence.

Heineken describes itself as ‘the world’s most international brewer’ and is presently the fastest growing brand in Nigeria claiming a market share of close to 70%.

Despite suffering the effects of high inflation, last year Heineken continued to increase its market share - largely as a result of some outstanding sales and marketing efforts.

The CFI Judging Panel was impressed by the level of public recognition accorded to Heineken, noting that this coincided with its recent and successful re-bottling exercise.

Nigeria was one of the first markets where Heineken decided to introduce the company’s new worldwide uniform container. The bottle

has been nicely improved on. The Heineken PR Department explained that ‘the new green foil has been inspired by the shape of a smile’.

Although respondents almost uniformly praise Heineken’s consistent product quality, there is little doubt that skilful marketing has contributed to bringing the brand ever closer to coveted top-of-mind position. In Nigeria this has worked out impressively well.

> CLIFFORD CHANCE WINS DISPUTE RESOLUTION TEAM AWARD IN THE UK

The 2013 United Kingdom Dispute Resolute Accolade in our Legal Awards Programme goes to Clifford Chance. The CFI.co Judging Panel compliments the firm on its powerful litigation team and draws particular attention to

the team’s “extraordinary skills” in the field of arbitration. Clifford Chances may consider itself privileged to count on the unparalleled dexterity of its almost excessively skilled problem-solvers.

The dispute resolution team works on some of

the most complex deals and does so with great success. The panel applauds Clifford Chance as Best Dispute Resolution Team, UK, 2013.

> SAUDI HOLLANDI: THE BANK FOR SMES IN SAUDI ARABIA AND CFI AWARD WINNER, 2013

Saudi Hollandi Bank has a proud history of service in the Kingdom of Saudi Arabia which can be traced back to the opening of its first branch in Jeddah back in 1926. SHB may not be the largest bank in the country but, according to the CFI.co Judging Panel, is certainly the one offering the best opportunities to Small and

Medium Enterprises (SMEs).

The Bank’s SME business was established just two years ago and now has a team of fifty professionals – local financial talent positioned close to their customers and working out of eight fully-dedicated SME business centres.

CFI.co | Capital Finance International

The judges point out that SMEs are of special importance to the bank. This focus has proved to be very good for business. Saudi Hollandi is our Best SME Bank, Saudi Arabia, 2013.

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> CSL: BEST INSTITUTIONAL BROKERAGE, NIGERIA, 2013

Institutional interest in the Nigerian market has been growing rapidly as Nigeria moves from being a frontier to an emerging market.

Levels of transparency and governance continue to improve both at government and corporate levels.

However, to attract the level of international institutional investment the Nigerian market merits, more than just the right economic environment is required. To help bring international investment to Nigeria there

is a need for brokers that truly understand the needs of investors. The CFI.co Judging Panel is delighted to announce CSL Stockbrokers Ltd as the Best Institutional Brokerage, Nigeria 2013.

Through a highly effective combination of local and international experience, CSL has built a team and an array of services that are highly regarded by both domestic and international institutional investors.

CSL have an excellent track record with both liquid and illiquid assets. The judging panel was particularly impressed with the feedback provided by CSL’s seasoned team of traders providing a highly dynamic flow of information that has been producing very positive results. With registered offices in London and New York, CSL Stockbrokers is providing the level of access to Nigeria that its market warrants.

> RBC IS NAMED CFI’S BEST PRIVATE BANK IN CANADA

The Royal Bank of Canada, the largest wealth manager in the country and one of the world’s top ten players in this field, is the CFI.co Judging Panel’s choice as Best Private Bank, Canada, 2013. The bank prides itself on the very highest levels of service, teamwork,

responsibility, diversity and integrity. The judging panel considers these qualities to be indeed in evidence at RBC. The bank is a model of good governance with a fully independent board. Royal Bank of Canada is consistently awarded high marks for its sustainability efforts,

green credentials and corporate attitudes. The judging panel commented that, ‘Private banking clients are very well served by this outstanding, financially strong and highly responsive bank.’

> MAHINDRA GROUP RECEIVES THE CFI.CO CORPORATE LEADERSHIP AWARD, 2013

The Mahindra Group can trace its origins back to the trade in steel during the closing year of World War II. Shortly after the end of hostilities, the Mahindra name came to be associated with automobile manufacturing – a logical extension of the company’s earlier line of business. Over the years that followed Mahindra diversified its business on a massive scale.

Today, the Mahindra Group boasts an annual turnover of some $16.2bn and employs over 155,000 people around the world. The conglomerate pursues business across a wide range of sectors such as agriculture, defence, 70

leisure, financing and IT.

From its earliest days, Mahindra has paid close attention to keeping its ecological footprint to a minimum. The group’s directors have traditionally shown great awareness of their responsibilities as corporate citizens taking a pro-active role in host communities.

The CFI.co Judging Panel commented: “The Mahindra Group’s potential is significantly greater than the sum of its extremely enterprising parts.” The judges ascribe this to Mahindra’s particular management philosophy that allows the group’s individual parts a CFI.co | Capital Finance International

maximum of entrepreneurial independence while at the same time maintaining the synergies that ensure efficiency.

Given the Mahindra Group’s impressive and consistent progress over the past 68 years, its inspired approach to business and its exemplary conduct in the global business community, the CFI.co Judging panel felt justified and thrilled to hand the company its coveted Corporate Leadership award, Asia, 2013.

Autumn 2013 Issue

> CFI.CO’S WINNER IN KENYA: BRITISH AMERICAN INSURANCE COMPANY

One of Kenya’s largest insurances companies, British American has overseas offices in London, Mauritius and Malta and is a subsidiary of the British American Investment Company.

With a management style both charismatic and inspiring, the CFI.co Judging Panel considers the British American Insurance Company exceptionally well-placed to address the challenge of low insurance penetration in Kenya – a country where many people still think that such services are the exclusive domain of

the wealthy.

What impressed the judging panel most was an innovative micro-life insurance product British American introduced a while back. Within a single year the company managed to offer extend coverage to no less than 50,000 new customers. The panel applauds this successful initiative and considers it “most comforting and reassuring” that British American is not resting on its considerable laurels but continues to work hard at the

improvement and refinement of its product range.

The panel was also struck by the way British American applies new marketing techniques through social media. Additionally, the company is active on the institutional front and is seen as an authoritative voice often speaking on behalf of the entire Kenyan insurance sector. British American Insurance Company is named Best Insurance Company, Kenya, 2013.

> BLP IS THE UK’S TOP REAL ESTATE LAW TEAM: CFI AWARD FOR 2013

A leader in their field with an absolutely outstanding property team, Berwin Leighton Paisner LLP was a shoe-in for the CFI.co award of Best Real Estate Team, United Kingdom, 2013. The judges

commented: “The team has enjoyed some great successes. The negotiators are truly magnificent at their job and BLP are the best people to have on your side in case of doubt or trouble.” Apart

from consistently delivering strong work in the United Kingdom and continental Europe, the firm has recently also conducted significant business in the Middle East.

> ITAÚ WINS BRAZIL PRIVATE BANKING AWARD FOR THE SECOND YEAR RUNNING

The CFI.co Judging Panel is always delighted when a corporation claims awards in consecutive years. For the second year running, CFI.co names Itaú as Best Private Bank, Brazil, 2013. The judges were rather easily swayed

by Itaú’s solid work of recent years which was further expanded upon in 2013. The panel regards Itaú as a model for successful private banking in Latin America and expects the bank to go from strength to strength. As with last CFI.co | Capital Finance International

year’s announcement, the judges compliment Ita’u on both its sustainability record and its high level of corporate social responsibility.

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> BOLSA DE VALORES DE COLOMBIA: BEST STOCK EXCHANGE, LATIN AMERICA

The Bolsa de Valores de Colombia (BVC) – a private organisation – was established in 2001 with the merger of three regional exchanges in the South American country. The CFI.co Judging Panel is satisfied that BVC has now become a truly world-class exchange with a quality management system that allows for optimal client satisfaction.

The BVC has made it a priority to

provide a range of simple, standardized and efficient processes running on a technical platform that is safe, trustworthy and customerfriendly. The exchange’s authorities are on the constant lookout for new and innovative market developments that answer to their ambition to offer customers an ever increasing choice of continuously improving products.

The BVC doesn´t just aspire to be

the leading national exchange but a regional one as well. The judging panel considers BVC (a listed company) to be a shining example, and indeed a model, for Latin America and hence a worthy winner of its 2013 award. BVC is seen to be actively contributing to the sustainable economic growth of Colombia and the wider region.

> BANCO DE FOMENTO: BEST COMMUNITY ENGAGEMENT PROGRAMME, ANGOLA, 2013

The CFI.co Judging Panel has no hesitation in recognising the community engagement programme set up and managed by the Banco de Fomento Angola SA’s as best in the country.

The panel was delighted with the results of the bank’s Social Fund which generated an impressive $25 million for worthy causes. The bank underwrote its social initiative by donating 5% of its operating profit to the

fund over a period of five years.

The fund is sharply focussed on furthering education, healthcare and social solidarity. Partnering with USAID, the Social Fund has implemented a sizeable electrification project, worked to provide better access to clean water in disadvantaged neighbourhoods and assisted with ambulance services.

An MBA programme sponsored by the Social Fund brings together students from

lusophone countries such as Angola, Portugal and Brazil. This year – to cite just one of a great many ad hoc examples of community spirit – the fund provided a community of orphans with an agricultural vehicle to improve their lot.

This gift, and others handed out by the Social Fund, are affecting many lives and raise both the hopes and aspirations of peoples at risk of being left behind as Angola moves forward with its development.

> NAB IS NAMED BEST PRIVATE BANK AUSTRALIA, 2013

National Australia Bank is one of the largest financial institutions in the country and among the top twenty world banks by market capitalisation. The bank was founded in the late 72

nineteenth century. Its proud heritage and the considerable strengths developed over the years plus the high quality of present management offer a compelling opportunity to private CFI.co | Capital Finance International

banking clients. NAB is a named Best Private Bank, Australia in the 2013 Banking Awards programme by the CFI.co Judging Panel.

Autumn 2013 Issue

> THE YEAR OF THE DRAGON AWARD: BEST COMMUNITY ENGAGEMENT, TURKMENISTAN

Dragon Oil is one of the largest investors in Turkmenistan as a result of a 25-year renewable production sharing agreement negotiated for the Chelekan Contract Area in 2000. The company operates out of the United Arab Emirates (UAE) where its head office is located.

The CFI.co Judging Panel considers Dragon Oil is prime example of – and indeed a model for – corporate responsibility as it pertains to community engagement. One of the judges remarked that Dragon Oil is a “most generous

and committed supporter of its host community needs.”

The judges were impressed by the company’s construction of a desalination plant which not only serves its own operations but also provides a safe source of drinking water to local people. Dragon Oil also pays close attention to local healthcare and education needs and even provides sports and recreational facilities.

Whenever projects are executed to provide to services to its own employees, Dragon

Oil ensures that these benefits also reach local communities. In the city of Hazar, on the shores of the Caspian Sea, Dragon Oil had a polyclinic built and helped develop a school and a nursery.

It is for these activities, that go well beyond its contractual obligations, that the CFI.co Judging Panel considers Dragon Oil to be a most deserving recipient of the Best Community Engagement, Turkmenistan Award.

> MAKEITWORK NAMED BEST BROADBAND PROVISIONING SOLUTIONS PROVIDER, DENMARK

Flexibility and best value for money: That’s what landed MakeITWork (MIW) the CFI.co Best Broadband Provisioning Solutions Provider Award. The judging panel was particularly impressed by MIW’s dedication to serving up the most efficient solution to their clients’ needs by adapting the company’s proprietary systems to existing setups and applications. This way, MakeITWork continuously ensures optimal use of its clients’ IT resources.

MIW’s product suite includes payment and administration systems that deliver the best end-to-end software solutions to

the broadband and utilities industry in Denmark.

Their solution is quite unique and covers both back office customer service functions and the logistics required for the delivery of broadband content while constantly monitoring costs and reporting essential data back to management.

MIW systems facilitate and – indeed – enable broadband companies to excel in the service experience offered to their end-customers.

MIW’s highly customised service mediation solutions initiate the customer’s access and user features to the various broadband network elements. MIW’s provisioning

allows for the creation, maintenance and deactivation of user objects and user attributes, as they exist in one or more systems, directories or applications, in response to client’s needs through automated or interactive business processes. Their user provisioning software includes change propagation, self-service workflow, consolidated user administration, delegated user administration, and federated change control.

MIW is exceedingly well positioned for international expansion and has now set its sight on the wider Scandinavian market.

> MORI HAMADA & MATSUMOTO WINS JAPAN DISPUTE RESOLUTION AWARD

MHM is the CFI.co Best Dispute Resolution Team winner in our 2013 Legal Awards programme. According to the Judging Panel, “The firm’s strong litigation work and excellent dispute resolution skills are valued

core competencies of long standing.” This unrelenting dedication to the quality and depth of services offered has resulted in MSM receiving the 2013 CFI.co Dispute Resolution Award, Japan. The judging panel applauds a firm that CFI.co | Capital Finance International

combines an aggressive and often victorious court room presence with considerations of a more pragmatic nature such as the clients’ best economic interests and the most appropriate resolution of the issue at hand.

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> NORTON ROSE FULBRIGHT: BEST INSURANCE TEAM, LEGAL AWARDS, 2013

The CFI.co Judging Panel considers NRF’s Insurance Team as exemplary and an obvious choice as Best Insurance Team, UK in our 2013 Legal Awards programme. This firm has

an impressive global reach and a tremendous range of lawyer skills and resources relevant to all areas of insurance concern. According to the panel, “NRF provides great client services

and enjoys an outstanding reputation in the industry.”

> T-BANK SUPPORTS SMES IN BHUTAN AND WINS OUR 2013 AWARD

Set up merely three year ago, T-Bank has already met with success at the earliest of stages in the development of its business.

Notwithstanding the tough competition, this privately-owned bank shows no signs of letting go of its winning streak.

T-Bank’s core business is the financing of small traders, transport operations and housing projects. The CFI.co Judging Panel was particularly pleased to see a new bank doing so exceptionally well in such an essential area as the financing of small and medium-

sized businesses. Because of that success – the result of a fresh approach to business and an unrelenting dedication to service – the CFI.co judges feel confident in handing T-Bank the Best SME Bank Award, Bhutan, 2013.

> ELIXIR OF SOLID EQUITY RESEARCH: THIS YEAR’S CFI.CO AWARD WINNER IN PAKISTAN

Elixir Securities offers a broad range of financial services and the CFI.co Judging Panel has singled out the firm as offering Best Equity Research, Pakistan, 2013.

Being part of the powerful Dawoo Group brings Elixir Securities an extensive series of tangible benefits and underwrites the 74

strength of the exceptionally skilled player on the financial market.

Elixir Securities is the main broker in Pakistan for domestic execution. The firm services corporate and institutional clients both at home and abroad. The outstanding Elixir team is gearing up for a road show in the UK CFI.co | Capital Finance International

scheduled to start in October 2013 after which it will hop the pond to New York in early 2014.

Later that year the Elixir Securities team will tour the Middle East. The judges are unwavering in their recommendation of Elixir Securities’ consistently rock-solid research.

Autumn 2013 Issue

> SARAÏLIS: THE CANADIAN BOUTIQUE INTELLECTUAL PROPERTY LAW AWARD WINNER IN CANADA

The CFI.co Judging Panel compliments Saraïlis Avocats on the quality of its intellectual property work and good, solid litigation.This small Canadian law firm was founded by Christian Saraïlis, two years after graduating from the Université Laval Law School in 2004. The firm has offices in Québec. Building on his experience as a trademark agent, Mr Saraïlis’ firm specializes in business law and commercial litigation with a special emphasis on intellectual

property law.

The CFI award programmes seek out excellence regardless of size. Panel members were particularly impressed by the extent of voter endorsement of this firm. Saraïlis Avocats is the Canadian member of Avrio Advocati, an international legal network that aims to foster the exchange of professional know-how and facilitate global legal research.

Mr Saraïlis teaches commercial law

at Bart College in Québec. He also supports business communities as an active member of the Québec City Young Chamber of Commerce and is a published author.

The judges expect to hear more from Christian Saraïlis over the coming years and applaud his boutique operation for its accomplishments to date and what they regard as the firm’s promising future prospects.

> REFORMING AND MODERNISING NSE WINS THE CFI.CO BEST EXCHANGE AWARD, INDIA

The Mumbai based National Stock Exchange prevailed over some worthy competition to win the CFI.co Best Stock Exchange Award, India, 2013.

The NSE – and indeed Mumbai as a whole - accounts for a major chunk of India’s total trade in shares. The CFI.co Judging Panel

specifically pointed to the exchange’s full and firm commitment to transparency and its continuous quest for improvements in the efficient delivery of its many services.

In the mid-1990s, the National Stock Exchange played a major role in reforming the Indian securities market. The CFI.co judges

remarked on the ease with which investors in all corners of India may access the exchange’s services. The judges also pointed out that the NSE’s Nifty Fifty index has become an indispensable tool for investors considering the subcontinent. The NSE provides a fine model for today’s global securities industry.

> A TOUCH OF CLASS: CENTURY PROPERTIES GROUP WINS REAL ESTATE AWARD IN THE PHILIPPINES

With a passion for quality in both service and product plus an uncannily keen sense for offering the right deal at the right time, the Century Properties Group from the Philippines claims the Real Estate Awards. The CFI.co Judging Panel named the company ‘Best Premier Real Estate Developer, Philippines, 2013’.

The judges were particularly impressed by “the superb value proposition” Century Properties Group consistently offers. Examples cited were the New Yorkthemed Gramercy Residences – currently the tallest building in the Philippines – and the Knightsbridge Building where affluent families may enjoy a taste of London.

A successful and rather unique collaboration between Century Properties and iconic Italian fashion designer Versace has resulted in Milano Residences. This 52-storey

building, soon to be opened, features a Versaceinspired façade and is part of Century City, a mega-development marketed as “a new urban experience” set to redefine the skyline of Makati, one of greater Manila’s sixteen cities.

The Philippine economy is on a roll.

Over the second quarter of 2013 the growth rate shot up 7.6%. With half its population of 100 million aged less than 26 and remittances from overseas workers totalling over $20 billion annually the market has places to go. The Century Properties Group is exceptionally well placed to take full advantage of both improving purchasing power and the new wealth being created. The Company recorded a 15% year-onyear growth and is set to power ahead in the stylish manner that it has carefully nurtured over the years.

CFI.co | Capital Finance International

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> ZIMBABWE RESEARCH TEAM IH SECURITIES WINS CFI’S SOUTHERN AFRICA AWARD FOR 2013

The CFI Judging Panel is delighted that IH Securities, Zimbabwe, has been dedicated to the sort of key, client- focused and worldclass services that justify a pan Southern Africa award in the 2013 Exchanges and Broker Awards

Programme.

The firm’s equity research team includes outstandingly talented individuals.

As a result, the quality of work carried out is consistently very high. It is also noted that

IH Securities ensures a strong post-trade experience for its clients and boasts a highly efficient back office operation. The panel has named IH Securities as possessing the Best Investment Research Team, Southern Africa.

> LEGAL AWARDS WINNER, REAL ESTATE TEAM, USA, 2013: HOLLAND & KNIGHT

Holland & Knight LLP - with its team of 240 real estate lawyers - is exceedingly well placed to service the global needs of its clients and, according to the CFi.co Judging Panel, does

so with great distinction. The panel is delighted to announce that Holland & Knight LLP is the Real Estate Team winner, United States, in our Legal Awards programme for 2013. This

century-old law firm conducts a great variety of real estate related legal work and has an enviable reputation in this field.

> A GOOD YEAR FOR CITYGATE SECURITIES: INSTITUTIONAL BROKERAGE AWARD, MAURITIUS

This year looks set to be a very good one indeed for privately-owned Citygate Securities in Mauritius: The company’s achievements include a well-deserved award from the CFI.co Judging Panel as Best Institutional Broker, Mauritius.

Citygates’ client base is mainly offshore. The company takes pride in the 76

excellence and efficiency of it services offered mostly institutional investors and high net worth individuals.

Onshore, the firm reaps the benefits from its broad client diversity. The judging panel pointed out that Citygate’s management and personnel are seen to be in relentless CFI.co | Capital Finance International

pursuit innovation and quality. The judges also remarked that the company boasts a vast range of expertise and counts on highly experienced professionals to offer prime grade investment services across a wide range of sectors.

Autumn 2013 Issue

> PASADA WINS CFI INSPECTION & CERTIFICATION AWARD IN NIGERIA

The CFI.co Judging Panel recognises Pasada Global Resources Limited as providing superior inspection and certification services to the oil & gas industry of Nigeria. As a result the judges are delighted to confirm the company’s

2013 award.

Pasada Global Resources has been in business for the past seven years and operates out of Port Harcourt where the company’s head offices are located. The judging panel noted that

Pasada has gained an enviable reputation for the quality of services delivered. The company is moving from strength to strength and is headed for a bright future indeed.

> GERMAN EMPLOYMENT SPECIALISTS KÜTTNER RECHTSANWÄLTE WIN 2013 LEGAL AWARD

Since its establishment forty years ago, Küttner Rechtsanwälte has specialised in labour law. The CFI.co Judging Panel congratulates the firm on its longstanding commitment to employment matters. The judges were impressed with the professional depth, strength

and quality of the company’s legal team that assists both employers and employees.

The judges also commented that while Germany is a particularly challenging country in which to practice employment law, Küttner Rechtsanwälte is exceedingly

well equipped and positioned to navigate the sometimes treacherous German legal waters.

The CFI.co Judging Panel is therefore happy to confirm the award ‘Best Employment Law Team, Germany, 2013’.

> DAR AL TAMLEEK COMPANY: BEST HOME MORTGAGE PROVIDER, KSA

Dar Al Tamleek Company has a zero default record on its home loan portfolio for the past five years. The company was set up after the global financial crisis and according to the CFi.co Judging Panel has been smart enough to learn from the mistakes of others to create a fine business that now claims a 12% market share.

This accolade is not the first of its kind as Dar Al Tamleek has long been recognised as a major mortgage market player in the kingdom. The prevailing attitude that guides the company’s business is “We Are Here to Help”. This is also the message Dar Al Tamleek delivers to its clients. In practical terms, this message aims CFI.co | Capital Finance International

to emphasize that the company matches the financial products offered to the specific and circumstances of clients ensuring their ability to repay loans is not compromised. The Company is our 2013 winner.

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> GLOBAL AWARD FOR SUNTEC: BEST BANKING SYSTEMS, SERVICES & SOLUTIONS PROVIDER

A value proposition without equal: The SunTec success formula is both straightforward and simple. It is also what swayed the CFI. co Judging Panel. SunTec services the global banking industry and has become a world leader in providing bespoke and compelling solutions.

Client endorsements and CFI.co

voter responses suggest that SunTec’s capacity to provide the right products and services is exemplary. The company is constantly surging ahead of its competition. SunTec claims that it offers industry best practices that can help streamline client business processes. This is far from a boastful assertion since SunTec time-

and-again has offered solid proof of its prowess, both in product development and business management. The CFI.co judges are therefore pleased to confirm SunTec’s global award of Best Banking Systems, Services and Solutions Provider, 2013.

> HARRYBEAT WINS CFI.CO OIL & GAS AWARD IN ANNIVERSARY YEAR

In May 2013,CEO’s Harrybeat

Harrybeat has done particularly commitment to building up the strength of its ProfileInternational Agha Founder and Chairman/CEO of Harrybeat lnternational Services Limited, Oil and Gas force which now meets or exceeds Services Limited celebrated tenAbani yearsisofthe successful well in diversifying its field of operations.

The anlocal labour company with corporate head office in Portmoved Harcourt, Rivers state, Nigeria.

He is a member of National operations in Nigeria. Thisservice milestone offered the company has into engineering services international standards. For all these reasons, Association of Corrosion Engineers (NACE) lnternational and The Society for Protective Coatings(SSPC), an CFI.co Judging Panel a welcome to which enabled to obtain work from the Harrybeat is the CFI.co choice as Best Oil Accountant,opportunity who has distinguished himself in variousitpositions. commend the company on its successful efforts Nigerian government, the World Bank and the & Gas EPC (Engineering, Procurement and He trained and worked for KPMG Peat Marwick AniOgunde& Co. (Chartered Accountants) for five years and has in providing world-classtwenty maintenance services European Union.

Construction) Services & Solutions Provider, two years working experience in the Oil and Gas Sector. He also worked for International Corrosion for the major oil and Control gas players’ upstream the Field leaders The injudges were in various pleased that before Nigeria 2013.

Limited for 7years, one of the Oil industry capacities his resignation in September 1999 as Acting General Manager. assets.

Harrybeat has made a serious and lasting

>

He has attended several management and technical courses in Nigeria, USA and United Kingdom on

of Corrosion and Corrosion Control Methods, Economic Aspects of Corrosion Control and INVESTMENT BANKFundamentals WINNER IN OUR 2013 AWARDS: ITALY’S INTESA SANPAOLA contract administration at Etechingham Training Centre, East Sussex.

He has also attended several conferences, technical programs and Business Summits at Salt Lake City, Houston, Florida, Atalanta and Las Vegas in USA and Paris in France.

He was a co-founder and Operations Director of Petro-source Nigeria Ltd and also a co-founder, Operations Director and Deputy Managing Director of Worldwide Oilfield Services Limited.

BRIEF HISTORY HARRYBEAT INTERNATIONAL SERVICES LIMITEDis a Nigerian Oil and Gas services Company which has been involved in mainly maintenance services of the upstream assets for major operators in the sector since st official inception in 21 May, 2003.

Although Harrybeat core business is in the Oil and Gas Sector, it has substantially diversified into Engineering Services including but not limited to civil works with a wide range of clients in this area that includes; the Federal and State Governments, the World Bank and European Union.

Harrybeat is a wholly Nigerian owed company, totally committed to the Nigerian Oil and Gas Industry Content Development Act 2010, which intends to project Nigerian capacity in the Oil and Gas sector into the Global arena.

Our management team has a wealth of experience in Engineering, Construction, and Maintenance Services and has previously managed and supervised many onshore and offshore facilities for major oil companies and Government establishment in Nigeria for over 25 years.

CORPORATE MEMBERSHIP HARRYBEAT INTERNATIONAL SERVICES LIMITEDis a member of the following professional bodies: National

Intesa Sanpaolo, based in Turin, The(NACE), bank Society is sharply focused on providing a Building the business, Association of Corrosion Engineers for Protective Coatings (SSPC), Metal Contractors Intesa Sanpaola considers its (MBCEA), Oil and Gas Trainers Petroleum Technology was born out the mergerand ofErectors BancsaAssociation Intesa and comprehensive rangeAssociation of high (OGTAN), quality services main strength to be the defining of long-term Association of Nigeria (PETAN), Nigeria-United States of America Department of Commerce (NUSA), Port Sanpaola IMI. The resulting company wins this toIndustry, larger Mines companies and financial institutions. strategies with clients. The CFI.co Judging Harcourt Chamber of Commerce and Agriculture (PHCCIMA) VISION: year’s award for Best Investment Bank, Italy.

With 3,900 professionals on hand to service Panel is inclined to agree.

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To be an embodiment of capacity in the nation’s Oil and Gas industry to match any multi-national firm MISSION: To provide competent, leading edge services in the Oil and Gas sector of the nation’s economy with special interest in the upstream sub-sector.

CFI.co | Capital Finance International

GOALS AND OBJECTIVES:  To provide qualitative maintenance services to the upstream operations in the petroleum industry in

Autumn 2013 Issue

> A REVIVAL IN THE FORTUNES OF GULF BANK: CFI AWARD WINNER IN KUWAIT

An object lesson in effective restructuring: That is how the CFI.co Judging Panel described the encouraging turn-around in the fortunes of the Kuwait-based Gulf Bank which was until recently plagued by the after-effects of the 2008 financial crisis.

Gulf Bank has now succeeded in recapturing the public’s trust which plummeted following the financial meltdown of 2008 when the bank lost most of its capital. Wisely, the Gulf Bank’s new management pursued a back-to-

basics strategy focusing on core competencies and steering well clear of any less promising activity.

In order to differentiate itself from the crowd, the Gulf Bank has embraced innovation and the concept of “super service” as its core values. The judging panel congratulates Gulf Bank on its on-going and rather inspiring We Promise Campaign. This marketing effort aims to emphasize the bank’s prompt and efficient delivery of its many services to a standard way

beyond – if not light years ahead of – the one employed at most institutions.

Gulf Bank now boasts a vastly improved balance sheet, good governance and the full confidence of all stakeholders.

Given the dramatic improvement of this bank’s performance and its obvious thirst for more and better, CFI.co is pleased to name Gulf Bank as Best Commercial Bank, Kuwait, 2013.

> AK INVESTMENT LEADS THE FIELD IN INSTITUTIONAL BROKERAGE: OUR 2013 AWARD WINNER IN TURKEY

The CFI judging panel has experienced no hesitation or doubt in naming Ak Investment as ‘Best Institutional Broker, Turkey, 2013’.

The company – an almost whollyowned (99.8%) subsidiary of Turkey’s Akbank – offers a comprehensive range of services that mostly, but not exclusively, focus on institutional business.

Ak Investment is a fast-growing

firm: Its headcount has doubled over the past four years and innovation is key to this stellar performance. The company has been at the forefront of electronic trading and is currently the only broker in Turkey to have developed its own trading algorithms.

Ak Investment is Turkey’s largest intermediary for non-bank corporate bonds and boasts an exceptionally strong investment

banking team.

The Turkish market is characterized by its liquidity and the country most certainly doesn’t suffer from a lack of brokers. Ak Investment has now become a major and pacesetting player yet has also remained sufficiently nimble and agile to take full advantage of all opportunities that the market in Turkey presents.

> ANNOUNCEMENT: UK CORPORATE & COMMERCIAL TEAM LEGAL AWARD FOR 2013

Slaughter and May welcomes even the most complex and challenging transactional legal work and tackles its jobs with the help of a strong, talented and highly focused corporate and commercial team ready to satisfy their clients’

every single requirement. This formidable team accounts for over half of the firm’s total revenues. It also acts as principal legal advisers to a dazzling array of blue chip companies. The CFI.co Judging Panel commented on the great CFI.co | Capital Finance International

breadth and depth of corporate and commercial experience at Slaughter & May pointing out that, ‘This firm is regularly seen, and indeed admired, at work on some of the largest deals taking place in Europe’.

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> MIGA (World Bank):

Energy in Africa - The Many Sides of Sustainability

By Antonio Barbalho

Africa is booming—mostly. Much of the continent has experienced strong and sustained economic growth over the last two decades. Many countries have also been shielded from the recent Great Recession due to favorable commodity prices and relatively weak ties to the advanced economies that have come into difficulty.

D

evelopment indicators for health and education have improved significantly.

But Africa is a diverse region and its growth is multi-speed. The continent’s most fragile countries have experienced low and irregular growth, largely as a result of conflict. And serious development challenges 80

remain in a continent where governance and transparency are weak; infrastructure is underfunded; health and education indicators are still poor in comparison to other regions; and the energy deficit is high. While some have argued that energy is a strong contender for the most viable route to development, it is important CFI.co | Capital Finance International

to note that only one third of people living in subSaharan Africa have access to power.

As the political risk insurance arm of the World Bank that provides guarantees to the private sector, we underline that the sector has been a powerful instrument in bridging the region’s

Autumn 2013 Issue

energy gap and the its role is growing swiftly.

But, the reality is that there are few truly good projects in the short term and those that do exist are facing increasing complexity.

Why? Many of the reasons we are already familiar with—structural inadequacies, monopolistic ownerships, difficult market and grid access for new actors, limited innovation, and political risk. Now, we have added other considerations that have resulted precisely from the opening of the sector to sustained private-sector involvement. Some important dynamics here include increasing interest from the BRICS and other countries (primarily in Asia) as sources of investment; expectations of capital safety from investors; and increasingly sophisticated demands from host countries as their experience with the private sector increases.

These dynamics need not be show-stoppers—to the contrary—but they do need to be bridged.

In Africa, the interplay between energy supply and demand has been particularly difficult. It is estimated that at least $40 billion a year is required to meet future demand in the African power sector, compared with current yearly investment of less than one-quarter of this amount.

On the demand side, Africa’s population is growing quickly, compounding the energy shortage problems even further. On the supply side, measures need to be put in place to ensure the sector works well and is financially viable.

There is a lot of work to do in this regard.

One important word connects supply and demand: Sustainability. The word has several meanings in this context. To be sustainable in Africa, energy needs to be as green as possible, diverse, and affordable. A very important point to underline here is that if the energy sector in Africa is to be sustainable, it needs to be costeffective both for the population it serves and to ensure the survival of providers.

Kenya: Mount Kilimanjaro

“As the political risk insurance arm of the World Bank that provides guarantees to the private sector, we underline that the sector has been a powerful instrument in bridging the region’s energy gap and the its role is growing swiftly.”

CFI.co | Capital Finance International

Sustainable energy for the continent goes far beyond the sector’s environmental credentials.

The challenge is a formidable one. Indeed, with Africa already grappling with a significant energy deficit and the climate change agenda moving forward, what has been difficult will become worse.

How can governments, investors, and financiers manage these challenges? These players need to be creative and use credit enhancement where it can be applied to continue to attract new investment and new models.

Here, risk insurance products like those offered

by MIGA have a very important role to play.

Investment guarantees offered by MIGA (as well

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Kenya: Nairobi

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CFI.co | Capital Finance International

Autumn 2013 Issue

“It is also important to note that these credit enhancement tools offer benefits that extend beyond financial security to the investor or lender.” as other public and private-sector providers) have generally been viewed in the rubric of political risk insurance. Yet, they are increasingly becoming important as a credit enhancement tool that can ensure a more stable, longterm partnership for energy providers and off takers—as energy projects inevitably involve an insurable commitment from a sovereign or subsovereign.

It is also important to note that these credit enhancement tools offer benefits that extend beyond financial security to the investor or lender. Put simply, they compel projects to maintain certain standards that are in line with global best practices. For example, MIGAsupported financing must go through credit committees that examine the project’s bona fides. Our environmental and social safeguard policies are also a powerful tool for identifying risks, tightening development costs, and improving project sustainability. Projects are expected to comply with those policies and guidelines, as well as applicable local, national, and international laws. This adherence to standards is an important added value in energy projects in particular.

LOOKING TO THE HORIZON: WHAT’S NEXT? As project complexity increases — for investors, lenders, host governments, and the environment — so structures will have to evolve. Creativity in applying new applications to not-so-new products like political risk insurance is the only steady approach in this environment.

From MIGA’s perspective, this approach is not only bankable, but essential to improve the lives of hundreds of millions of people who live in the 25 African countries that are currently experiencing energy crises. Without electricity for homes, factories, and hospitals, the continent’s recent economic successes and development gains are a reality for only a portion of the population.

HOW DOES THIS WORK? THIKA POWER PLANT IN KENYA

When What’s Good for the Government is Good for the Energy Producer.

MIGA’s recent support to the Thika power plant in Kenya is a good example of how credit enhancement can work in practice.

The project is particularly important as it represents the first time an international commercial bank has provided longterm financing to a power scheme in the country.

While the Kenyan power sector has gone through relatively successful reform since the late 1990s, with a number of longterm power purchase agreements (PPAs) supported by international investors, private-sector investment and long-term commercial bank financing has remained difficult—partly due to the perceived country risk after the civil disturbances following the 2007 election. Heretofore, independent power projects (IPPs) were funded mainly through international or bilateral development finance institutions or export credit agencies.

The Thika project is one of three thermal IPPs awarded through an international competitive bidding process to address rapidly growing demand, limited electricity generation and connections, and over-dependence on drought-prone hydropower in Kenya. The project also addresses the Kenyan government’s attempts to achieve a more stable and diversified energy mix to increase the country’s energy independence and reduce reliance on expensive and inefficient emergency diesel plants.

The project consists of the development, design, construction, and operation of an 87MW thermal power plant in the town of Thika, located about 35 kilometers from Nairobi.

Thika’s commercial lender is Absa Capital from South Africa, which augments financing from the African Development Bank and the International Finance Corporation (IFC). This breakthrough was made possible largely due to an innovative structure that has three key elements to the payment security arrangement: letters of credit backstopped by World Bank partial risk guarantees to support short-term liquidity; a power purchase agreement with KPLC; and a letter of support from the Kenyan government with termination payment clauses guaranteed

by MIGA. The new structure used in this project was particularly interesting because it substantially reduced (and deferred) the contingent liabilities for the host government, while making the plant viable from the perspective of international commercial banks.

The Thika power project has also benefited from the synergies of three World Bank Group instruments: an IFC loan, a World Bank partial risk guarantee, and a MIGA guarantee. The World Bank Group institutions worked together closely to coordinate and share due diligence, maximize efficiency, and reduce the burden on the sponsor and other lenders.

ABOUT THE AUTHOR Antonio Barbalho is Sector Manager for Energy and Extractive Industries at the Multilateral Investment Guarantee Agency (MIGA), the political risk insurance arm of the World Bank Group.

There is another boom in Africa: the effective partnership of the private sector, host governments, and other actors (like MIGA and many others) that are working to achieve good and lasting investments in energy. i

CFI.co | Capital Finance International

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> Banco de Fomento Angola:

Commitment Breeds Success The origins of the Banco de Fomento Angola reach back to the early 1990s and the establishment of a local representative office of the Portuguese Banco de Fomento Exterior (BFE). In 1993, this office gained the status of BFE branch and was granted a full banking license. Another three years pass by when in 1996 BFE was acquired by the BPI Group, a Portuguese banking and financial services entity.

In July of 2002, the brand was turned over to the Banco de Fomento Angola and incorporated under Angola Law.

T

oday, BFA is a full-service bank that works towards the betterment of Angola and strives to reinforce its already leading position on the domestic market. BFA accomplishes this through its unrelenting commitment and dedication to the best interests of customers and employees alike. The bank has policies in place that facilitate both the personal and professional development of its employees. BFA management also keeps a close eye on generating good returns – and hence value – for the bank’s shareholders. This way, BFA aims to contribute significantly to fostering the sustainable growth and development of the Angolan economy.

The corporate identity of the BFA brand is very much a reflection of the company’s financial and business heritage. The main characteristics of this culture are organizational flexibility, teamwork, rewarding excellence, forward thinking and a thorough management of risk as well as the safe and secure generation of value for the various stakeholders.

BFA’s corporate philosophy is to gain the market’s trust through consistency and credibility in its relationship with both customers and the wider society. BFA is particularly keen on celebrating two of its key values: Experience and Harmony.

Experience is gained through continued attention paid to the permanent skill development of the bank’s employees and to maintaining and nurturing the significant professional assets BFA accumulated over its history of operating on the domestic market. Harmony is of essential importance as BFA cherished its ambition to contribute significantly to the well-being not just of its clients, but to that over the whole society.

The bank aims to do this through the rigorous application of high standards of both quality and ethics.

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“The corporate identity of the BFA brand is very much a reflection of the company’s financial and business heritage.”

PRODUCTS AND SERVICES The Banco de Fomento Angola serves a wide and diverse universe of customers: retail clients and small, medium and large businesses. We take a segmented approach and offer specialized products, carefully tailored to the needs of each customer. The goal is always to offer the highest attainable level of service quality and the deepening of our relationship with customers.

We have positioned the bank in perfect alignment with the latest challenges facing the oil and gas industry due to the coming into force of a new legislative framework concerning foreign exchange. BFA has succeeded in strengthening its segmented approach to the market with the creation of two new Business Units: Oil & Gas Operators and Oil & Gas Vendors.

channels. This has resulted in a revamping of its Internet banking portals – BFA Net and BFA NET Corporate – which are now available in both Portuguese and English. The portal now also features improved ergonomics with a number of added functions. Customer may now save the settings of regular payment beneficiaries. The login method has also been improved and now features a virtual keyboard for stronger safety and increased ease of use. Businesses will be better served with the introduction of additional validation criteria for the processing of transfers in block which comes in handy when the payroll is due. BFA has now also introduced a service which transmits SMS (Short Text Message) in response to balance inquiries.

BFA is decided to keep up its corporate strategy to offer a broad range of products and services that allow for innovative and efficient solutions to our customers’ needs, ambitions and challenges.

BFA aims to be the main partner of anyone needing financial services in Angola.

Both these business units boast a range of services and products specifically designed to meet the needs and wants of the oil and gas industry emphasizing operational efficiency and security in all financial transactions.

DISTRIBUTION NETWORK The banking sector of Angola has experienced very strong growth over the past few years. Many new players have come to the market which in turn has increased competition. To face this challenge, BFA is counting on its policy of broadening its “Network of Service Counters” in order for the Angolan population to enjoy better and easier access to top-quality financial services. This reaffirms BFA’s commitment to both Angola and its people.

In its unrelenting quest to improve the quality of its services – and thereby safeguard its leadership position – BFA constantly aims to expand its distribution network. Already BFA branches span the country. The bank is investing heavily in the development of new and alternative distribution

The BFA corporate strategy calls for continued organic growth which translates into commercial expansion all across the country through a network consisting of 174 branches covering each of Angola’s 18 provinces. The wide network ensures BFA’s position as market leader.

CFI.co | Capital Finance International

Autumn 2013 Issue

COMPETITIVE ADVANTAGES All the numbers on its balance sheet, reinforce BFA’s corporate strength, solvency and solidity. BFA is the only Angolan bank integrated with the World Trade Program set up by the International Finance Corporation, part of the World Bank Group.

While introducing new products and services, BFA doesn’t lose sight of the need to continued improvement of the security, functionality and quality of its online processes and systems in order to guarantee and enable increased automation, simplification and speed of its clients’ operations.

As a result of this dedication, the performance of the bank has received over the years a number of awards, stamps of approval and recognitions. These were accorded based on the evaluations of different independent entities both domestic and foreign. Some of the awards that BFA received merit special mention: • Sirius Prize – Best Bank in Angola awarded by Deloitte • Best Bank in Angola for the fourth time and the third consecutive year by the EMEA Finance Magazine • Bank of the Year awarded by The Banker magazine • Straight Through Processing Excellence Award of Deutsche Bank Finance for the 11th consecutive time • Best Programme for Community Engagement by CFI.co magazine • Best Financial Group in Angola by World Finance Magazine SOCIAL FUND The BFA Social Fund was created in 2005 for the purpose of providing support to initiatives in the fields of healthcare, education and social solidarity. The fund was financed out of BFA’s profits from which it received a 5% over the five year period between 2004 and 2009.

The BFA Social Fund now disposes of an accumulated $25 million to support a wide range of projects all across the country aimed at improving the general quality of life.

For BFA, this fund and the initiatives it supports reflects the bank’s commitment and eagerness to share its success with the wider society by actively contributing to its development in areas where needs are highest.

The BFA Social Fund has currently $18.8 million in cash on hand to further its goals. i

Photographer: Kostadin Luchansky

CFI.co | Capital Finance International

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> CFI.co Meets the CEO of Banco de Fomento Angola:

Emídio Pinheiro BFA CEO Dr Emídio Pinheiro (52) was born in Lisbon and obtained a degree in economics at Universidade Católica de Lisboa. He pursued his studies at the Universidade Nova de Lisboa where he received an MBA in collaboration with Wharton University.

CEO: Emídio Pinheiro

I 86

n 1990 Dr Pinheiro joined Banco BPI. Here he soon was given several top management positions and responsibilities; initially in pension funds and investment

funds management and life insurance. Later, he was appointed as General Manager of BPI’s operations in France. He held this position for four years. After this period he developed several CFI.co | Capital Finance International

commercial activities in retail banking. He is BFA’s CEO since April 2005. i

20 - 22 November 2013, Fairmont Le Montreux Palace, Montreux, Switzerland

Alejandro Martinez Fuster, CIO, EFE & ENE

An excellent summit, with inspiring and diverse presentations.

A not to be missed event!

Aton Gans, CEO, Zenith Capital Management

Founder, Haeghborgh Wealth Partners

DISTINGUISHED SPEAKERS INCLUDE Todd Benjamin, Former Editor, CNN International Tariq Ramadan, Chairman, Tharaa Holdings Hakan Hillerstrom, Owner, Hakan Hillerstrom Kurt Moosmann, Co-Founder, Dara Capital

CONTACT US FOR MORE INFORMATION ABOUT SPONSORSHIP OPPORTUNITIES If you are interested in attending, sponsoring or speaking at this event please call 312-540-3000 ext. 6683 or email l.zevitz@marcusevansch.com - Ref Code: ELS822

> PwC, South Africa:

Contributing to the Development of South Africa

By Michelle Govender

All businesses need to know about Broad-Based Black Economic Empowerment (B-BBEE).

F

ollowing the demise of the apartheid regime in South Africa in 1993, the new government introduced Black Economic Empowerment to promote positive discrimination in an attempt to counter the effects of inequality among the inferior racial groups in South Africa. The apartheid regime commenced in 1948 when blacks, coloureds and

88

Asians were segregated from the whites through land demarcations with the aim of making the whites the majority nation in South Africa.

This also resulted in blacks losing their citizenship in South Africa and all non-whites having access to services and facilities which were inferior to that of the whites. Of course this

CFI.co | Capital Finance International

led to protests and unrest in the country which was controlled for a while by the imprisonment of anti-apartheid leaders. The laying of sanctions against South Africa from the west along with internal unrest and violence caused the South African government to bow to the abolishment of apartheid in 1990. The first democratic elections in 1994, won by the African National Congress,

Autumn 2013 Issue

marked the end of the apartheid era and the birth of Black Economic Empowerment.

South Africa now needed to strive for equality within its rainbow nation. A strategy was to be developed to act upon the injustices in the past.

It began by the government effectively procuring goods and services from BEE suppliers. This was supposed to have a massive impact considering the government was the single largest buyer of commodities within the economy. However, this proved insufficient and so began the steps to improve the strategy to promote Black Economic Empowerment.

The Department of Trade and Industry was tasked to implement a strategy and various other initiatives like affirmative action, preferential points system and financial support from government entities were also introduced. This culminated in the final Broad-Based Black Economic Empowerment Codes of Good Practice (Codes) being promulgated in 2007.

This incorporated different criteria which companies should adopt either directly or indirectly at all operating levels to promote B-BBEE. The final codes (Generic) introduced seven elements which are included on the next page together with the scoring of each element:

South Africa: Cape Town

“South Africa now needed to strive for equality within its rainbow nation.

A strategy was to be developed to act upon the injustices in the past.”

CFI.co | Capital Finance International

• Ownership – This incorporates black ownership as a percentage of all shareholders. Additional points are gained should there be black women, black people with disabilities and broad-based ownership and employee ownership schemes, trusts with black beneficiaries meeting the subminimum percentage • Management control – Black members on the board of the company or representing top management in an entity. This is calculated using the adjusted recognition for gender formula.

• Employment equity – Black representation in the entity’s workforce using the adjusted recognition for gender formula. An entity can only obtain points under employment equity when the subminimum of forty percent of the targets has been achieved.

• Skills development – A measured entity’s spend specifically for the development of black employees through formal/informal training. A learning programme matrix is specified to assist in the allocation of points in this element.

• Preferential Procurement – Spend from suppliers according to their B-BBEE status where the recognition level is used to recalculate the supplier spend. There are certain exclusions which incorporate certain public- sector spend, taxation, employee costs.

• Enterprise development – This encompasses contributions made to beneficiary entities with the ultimate aim of assisting or accelerating the development, sustainability and financial and operational existence of the entity. This may entail grants, loans and guarantees to beneficiaries or investments in beneficiaries. A popular use is the preferential credit and procurement terms

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Scorecard element

Weighting

Code series reference

Ownership

20 points

100

Management control

10 points

200

Employment equity

15 points

300

Skills development

15 points

400

Preferential procurement

20 points

500

Enterprise development

15 points

600

Socio-economic development

5 points

700

Total

100 points

or discounts provided that are unique to black beneficiaries.

• Socio-Economic development – Non-recoverable contributions made with the objective of creating sustainable access to the economy.

Grants, securities, direct and overhead costs to beneficiaries as well as development capital advancement and time spent on training and mentoring black beneficiaries are included as socio-economic development contributions.

The effective score is then inserted into the table below to provide the entity with its status and recognition levels.

The above scoring creates a competitive advantage for a company with a higher B-BBEE status during the tender process, especially for Government contracts. In order to improve your score, you were required to procure from suppliers with a higher recognition level. This therefore had a snowball effect in terms of black economic empowerment as it forces companies

The points in the generic scorecard (entities exceeding R35 million) proved difficult to obtain for certain industries due to the nature of the entities operating therein. Industry sector codes which were based on the Codes of Good Practice incorporated differences in either the scoring or the criteria in certain elements were then brought into legislation. In certain cases, even the annual revenue thresholds were decreased.

South Africa had issued Draft amended Codes in 2012 which is awaiting approval. There are several differences with the New Codes with the most significant for multinationals being:

to try to maximize their status to retain and increase their customer base.

Companies now strive to employ black people, train and develop them, procure from black entities, assist emerging black entities and sustain the socio-economic environment.

Fronting becomes quite prevalent because of the specific criteria of all elements in the scorecard. This will however be curtailed by the new legislation to incorporate audited B-BBEE certificates.

Apart from the Generic Codes of Good Practice that is applicable for entities with an annual turnover/revenue above R35 million, the Codes also cater for smaller entities. Entities with an annual turnover of less than R35 million (Qualifying Small Entity - QSE) may choose any four of the seven elements to be scored against. The criteria in each element are also less stringent than that of the Generic Codes. All

B-BBEE status

Qualification in terms of the Generic Scorecard points

B-BBEE recognition level*

Level One Contributor

Greater than or equal to 100

135%

Level Two Contributor

Greater than or equal to 85 but less than 100

125%

Level Three Contributor

Greater than or equal to 75 but less than 85

110%

Level Four Contributor

Greater than or equal to 65 but less than 75

100%

Level Five Contributor

Greater than or equal to 55 but less than 65

80%

Level Six Contributor

Greater than or equal to 45 but less than 55

60%

Level Seven Contributor

Greater than or equal to 40 but less than 45

50%

Level Eight Contributor

Greater than or equal to 30 but less than 40

10%

Non-Compliant Contributor

Less than 30

0%

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entities with an annual turnover below R5milllion are exempt from obtaining a scorecard (Exempt Micro-enterprise – EME) and automatically obtain a level 4 contribution status. EME’s can be a level three should the black shareholding exceed 50%.

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• The seven elements may be reduced to five with management control and employment equity being merged as well as Preferential Procurement and Enterprise Development being merged; • There may be subminimum criteria introduced for certain elements with prospects of your total score being reduced thus dropping in recognition levels should these not be met; • Annual turnover thresholds for EME’s and QSE’s may be increased; • Mandatory elements will be applicable for QSE’s; and • Goods and services procured from foreign entities irrespective of whether the commodity can be obtained locally may not be excluded from the Preferential Procurement element resulting in a decreased score.

As a foreign investor with a subsidiary in South Africa, there are various implications in terms of B-BBEE. Multinationals argued that they did not partake in apartheid and should not be subject to the principles of B-BBEE. They still however, embraced the other elements but found compliance with the ownership element a difficulty. Some entities included black SA residents as minority shareholders or have introduced black employee share-based schemes. The Codes incorporated a special code series for multinationals – the Equity Equivalent Programme which is permissible only if the established global practice of the foreign holding company restricts the sale of shares to other foreign subsidiaries. Furthermore, the entity will not be allowed to assess itself under any criteria of Code series 100 – Ownership.

The Equity Equivalent Programme is subject to approval from the Minister of Trade and Industry before being implemented. A documented detailed description of the objectives and forecasted outcomes of the initiatives with expected timelines and anticipated milestones is required.

“PwC South Africa is proudly a Level Two B-BBEE contributor. PwC South Africa is committed to this cause and has been recognised and awarded for its transformation strategy.”

The initiatives, according to the Codes, can incorporate accelerated and shared growth, joint initiatives for priority skills, programmes that promote enterprise creation in respect of co-operatives and socio-economic advancement and development of blacks in South Africa.

This results in increased contributions in the Skills development, Enterprise development and Socio-economic development elements of the scorecard.

However, the initiatives which are specific to the equity equivalent programme may not be assessed under either the Enterprise development or Socio-economic development Code series. The score for the ownership programme is calculated on the South African entity’s contribution of either 4% of annual turnover (irrespective of profitability) over the period of continued measurement or 25% of the value of the South African operations determined by a standard valuation on a time-based graduation factor as elected by the entity.

The regulations of B-BBEE in South Africa will be more stringent as indicated with the release of the new Codes as the expected outcome of economic empowerment to date appears to be below expectations. Let’s hope that in the spirit of enhancing B-BBEE in South Africa, all individuals both resident and foreign, partake in the process of opting to abide by the Codes and that this concept spreads throughout Africa to alleviate the poverty and suffering of native Africans and historically disadvantaged groups.

PwC South Africa is proudly a Level Two B-BBEE contributor. PwC South Africa is committed to this cause and has been recognised and awarded for its transformation strategy. PwC South Africa won Africa’s Transformation award during the Oliver Empowerment awards.

The Oliver Empowerment Awards recognise outstanding leaders that have exemplified inspiration, vision, innovation, leadership and action for Empowerment and Transformation whose success today is legendary in the world of business. In addition, PwC South Africa has been recognised by ABASA (Association for the Advancement of Black Accountants of Southern Africa) for qualifying the most black accountants in the Gauteng region for 2013. i

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Author: Michelle Govender

ABOUT THE AUTHOR Michelle is a Partner in the Assurance line of service at PwC. She is a qualified South African Chartered Accountant and registered with the South African Independent Regulatory Board for Auditors (IRBA). She has gained exposure in the private and public sector through auditing, consulting and investigations over the past ten years. She currently specialises in Private Company Services (PCS) in Gauteng.

This division caters for the typical family businesses, not-for-profit entities and non-listed entities by servicing the client as a Trusted Business Advisor. We consider a Trusted Business Advisor to be “the person you turn to for objective support at every stage of running your business without compromising our independence.” Michelle has also completed her certification in B-BBEE. She is an approved IRBA registered B-BBEE auditor.

CFI.co | Capital Finance International

> IH Securities:

Navigating Zimbabwe’s Capital Markets Firstly we would like to thank the readers of Capital Finance International and the judges for the award bestowed upon us as the Best Research House in Southern Africa. We are truly humbled as a firm by the award and believe it is a sign of recognition for the hard work we have put in over the years. We note with great satisfaction the calibre of fellow award winners for 2013 and applaud the efforts of CFI in highlighting the efforts and achievements of companies in various parts of the world in their specific fields.

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y way of background, IH Securities is a subsidiary of the IH Group which is exclusively involved in the capital markets of Zimbabwe, mainly through stockbroking as IH Securities, a member of the Zimbabwe Stock Exchange, as well as corporate advisory through IH advisory.

The firm was founded by partners Dzika Danha and Salim Eceolaza in November 2010, marked by the granting of a license to IH Securities by the Zimbabwe Stock Exchange. This was closely followed by the setting up of IH Advisory, which was subsequently licensed as a financial advisor by the Securities and Exchange Commission in 2012. The firm is majority owned by its employees and currently employs 12 full time staff.

THE RAISON D’ÊTRE FOR IH Zimbabwe’s recent economic history has been well documented, with the ‘lost decade’ (1998 to 2008) central to this in which the country experienced a precipitous fall in GDP (>40%) and hyperinflation on an extraordinary scale (estimates of +1bn% by close of 2008). This was also associated with political tensions, and massive supply-side disruptions to much of the economy. In many ways 2009 represented somewhat of an inflection point driven by 2 main factors; a) the formation of a Unity Government comprising of the 2 main political parties MDC and ZANU-PF which brought about political stability b) the adoption of a multi-currency

“As one can imagine in a hyperinflationary environment, stock fundamentals are completely thrown out the window, as there no fundamentals to speak of.” regime; which legalised USD, ZAR, EUR, and GBP as legal tender of the country. These factors saw in the years to follow a resurgence of the Zimbabwean economy, in which growth exceeded 5% y/y from 2009 to 2011 albeit from a low base; associated with this was recovery in liquidity and performance of the Zimbabwe Stock Exchange mainly driven by foreign investors.

Our central tenets when we founded IH Group were as follows, creating a research product which could be benchmarked internationally by competitors that could accurately articulate the investment opportunities on the Zimbabwe Stock Exchange using valuation and modelling techniques which were largely au faire in other emerging markets including African frontier markets, which had seen a massive increase in research coverage largely by larger international banks and brokerages particularly in SA following the increased proliferation of Africa- focused funds.

As one can imagine in a hyperinflationary environment, stock fundamentals are completely thrown out the window, as there are no fundamentals to speak of. Generally prices

would only sky rocket as local investors used the local market as a means to store value with whatever Zimbabwe dollars they earned. This clearly created a gap in the market for ourselves in terms of research, and fortunately enough we had also developed relationships in our prior lives from a foreign investor standpoint; and foreign investors while largely absent from the Zimbabwe market pre 2008, are now a central participant in the local market. Given the previous depth of the Zimbabwe Stock Exchange (the ZSE in the late 1990’s was one of the largest in SubSahara Africa, behind Egypt and South Africa, and ahead of Nigera) it was also important from our point of view to assist our local clients in making sound investment decisions based on fundamentals. Ultimately the significant damage the hyperinflation exerts is largely in the mind of people who have had to endure it, namely short termism and the inability to undertake long term planning.

OUR RECENT SUCCESSES Since inception IH Securities has become one of the leading brokers on the ZSE, and ranks regularly in the top 3 amongst 14 brokers in the market. On the advisory side we have successfully

“There is no question that the key to our value proposition lies within our people. We have been extremely fortunate to have built a team of individuals with wide ranging experiences and qualifications, in keeping with impressive human capital often attributed to the country.”

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completed 2 transactions related to ZSE listed companies; the first capital raise by way of a rights offer for an agricultural based company underwritten by a South African corporate; the second a restructure of a listed company which involved a dividend in specie of a non-core business and subsequent sale of that business to local investors.

OUR KEY TENETS There is no question that the key to our value proposition lies within our people. We have been extremely fortunate to have built a team of individuals with wide ranging experiences and qualifications, in keeping with impressive human capital often attributed to the country (Zimbabwe scored highest in terms of literacy rates in Africa in 2013). We have in some ways also benefitted from the recent improvement in the economic environment which has encouraged some elements of the Diaspora to come home, hence we have on our team graduates of Stanford University, Stellenbosh University (SA) & University of Cape Town (SA) amongst others.

Generally speaking we also remain generally optimistic of Zimbabweâ&#x20AC;&#x2122;s economic prospects after a tumultuous period experienced in the last 15 or so years. The last few years have witnessed stable inflation <3.5%, decent albeit slowing GDP growth accompanied by improved financial intermediation. Recent elections (in July 2013) have seen the dissolution of the previous unity government, and ushered in a government seized by the need to encourage economic progress.

The countryâ&#x20AC;&#x2122;s comparative advantages remain mining, agriculture, and tourism and most importantly human capital; if these can be effectively harnessed the future remains bright.i

In addition to this the success of our business would not be possible without our clients. We strive to build and maintain these relationships, constantly communicating relevant developments and stories which may affect their investments.

We strive to visit our clients wherever they are in the world, whether they are in Washington DC, Cape Town, London, Johannesburg, and Nairobi amongst others. In addition there is no better sales pitch than hosting investors in Harare, which always seems to surprise on the upside from general perception.

Technology is also a crucial element for us and we strive to ensure that we keep up with clients and competitors alike where possible. Notable achievements include ensuring direct fibre optic access to our office premises, the acquisition of a dedicated broking system, as well as the acquiring of a Bloomberg terminal which enables both a trading platform as well a source of information globally which enables us to be privy to the latest trends mostly regionally.

LOOKING INTO THE FUTURE As a firm we remain committed to the Zimbabwean capital markets which are set to undergo certain changes in the next 12 months. Key amongst them will be the set-up of a Central Depository System, which will see the dematerialisation of physical scrip. It is anticipated that in this period the Zimbabwe Stock Exchange will automate, yes we still have an open out-cry system, while sometimes a joy to watch, this certainly belongs in a byegone era. IH Securities will certainly help play a role in such developments, and further down the line it is anticipated that the Zimbabwe Stock Exchange will be demutualised and become a private company. We certainly hope all these developments will facilitate greater investment into the country in a transparent and positive manner.

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> Nataly Marchbank:

BEPS and Transfer Pricing in South Africa Recently there has been a steep increase in interest in the taxability of Multinational Companies (MNCs). What effective tax rates are being paid? Are MNCs paying their fair share of taxes in their home countries? Moreover, the very contentious question being asked is: What is a fair amount of taxes to pay?

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ll these questions have been raised in recent months, but the answers have not been forthcoming – this is primarily due to the fact that it comes down to whom you ask. If you ask an MNC, it would most probably be that it pays whatever is prescribed by the government’s tax legislation. If you were to ask governments, they would reply that MNCs do not pay enough.

Herein lays the difficulty that most governments face. The taxation of companies generates income for a country. If collections are low because MNCs are able to structure their affairs in such a manner so as to be tax efficient, this could potentially result in lower taxes being paid.

It is no surprise that governments are looking at ways to increase tax revenue.

South Africa is no different than any other government in the world when looking at increasing its tax receipts. The country’s National Treasury Department has started to shift its focus to that of Base Erosion and Profit Shifting (BEPS) principles.

The South African tax landscape draws heavily on the Organisation for Economic Cooperation and Development (OECD). With this as the backdrop of many of South Africa’s proposed changes in tax policy, it is no surprise that South African Revenue Services (SARS) has made BEPS one of its focus areas.

BEPS is currently on the minds of every tax authority and is the buzz phrase making its rounds in every tax authority’s corridors and offices. In February 2013, the OECD published a report entitled, Addressing Base Erosion and Profit Shifting, in which it stated the view represented by the OECD member countries on the matter.

The OECD clarified in this report that base erosion constitutes a serious risk to tax revenues, tax sovereignty and tax fairness for OECD member countries and non-members alike. While there are many ways in which domestic tax bases can be eroded, a significant source of base erosion is profit shifting.

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“Is it prudent to think that this BEPS campaign will have an effect on the South African tax collection strategy?”

Following the February report, as well as discussions with stakeholders on 19 July 2013, the OECD then released its BEPS Action Plan that set out 15 actions to be taken and further proposing significant changes to the OECD Transfer Pricing Guidelines, the OECD Model Tax Convention, but also to domestic legislation.

These proposed changes will affect corporate tax, international tax (including CFC), and indirect tax legislation. It is evident that the OECD has been a major driving force behind the campaign against BEPS. In this report the views expressed were that it skews competition and leads to an inefficient allocation of resources because of the distorting of investment decisions and issues of what is fair.

For this reason if taxpayers view MNCs as legally avoiding income tax it will certainly undermine their voluntary compliance towards tax as a whole. But as governments struggle to deliver and contain national deficits in the post-2009 world – and South Africa is no different in this realm – the trend that has been seen worldwide is to affix blame to large corporations and their tax advisors. Therefore in South Africa, as anywhere else in the world now, BEPS is gaining momentum quickly.

Is it not fair to ask the question that a business cannot be faulted for using the rules of government? Perhaps the blame (if there is any to apportion) should shift to government. Is it not government’s responsibility to revise their rules or introduce new laws if they feel that there is an aggressive trend towards BEPS in their country?

It would be most interesting to debate whether CFI.co | Capital Finance International

the ideals of corporate governance and the “triple bottom line” approach extend to the parameters of tax planning as well.

Is it prudent to think that this BEPS campaign will have an effect on the South African tax collection strategy? It could be argued that all the newly introduced legislation over the past ten years is enough to contain the South African appetite for BEPS. Furthermore, if there are only 459 companies with taxable income exceeding R100m, then SARS is surely in a position to detect abuse?

The answer to the question, it would seem, is no. In recent months there has been much press about the low levels of tax being paid by large MNCs. Such press has undoubtedly stirred the interest of National Treasury in South Africa with the recent introduction of WHT taxes to be levied on services and interest payments in the near future. These are expected to take effect from 1 January 2015.

Not all companies are too concerned about BEPS in South Africa as this is probably more for large MNCs conducting business in the country and how they are measured on the true taxes that are applicable to their local income.

Whichever way you look at it, South Africa is going to need the cooperation of foreign tax authorities if it is going to get to the bottom of the story entitled BEPS .There is no doubt that there is not a single country that unilaterally can ever fully address BEPS on its own.

TRANSFER PRICING Controversy over Transfer Pricing (TP) has been on the rise in Africa. The amount of limited resources, along with inexperience by taxpayers and tax authorities, has made managing the risk and obtaining resolutions a major challenge.

This doesn’t mean that tax authorities in Africa, and especially in South Africa, are not sitting up and taking notice of the need to overhaul their TP principles. Looking to the OECD again, which released its initial report on BEPS, one of the key principles that underlie the taxation of

cross-border activities is a mismatch in entities and instrument characterisation (hybrids and arbitrage), and related party debt financing.

National Treasury in South Africa took similar preventative measures. When the 2012 draft Taxation Laws Amendment Bill was issued it contained certain provisions whereby debt would be reclassified as equity in certain instances (i.e. the instrument when reclassified will pay a dividend and not interest).

However, these new rules were excluded from the final 2012 Taxation Laws Amendment Bill when it was introduced in parliament for promulgation.

As was expected, these provisions were deferred for introduction in 2013/14. It was proposed in the 2013/14 budget that certain debt instruments, such as shareholder loans without a date of repayment or profit participation loans will be reclassified as equity.

It seems that the thin capitalisation provisions (dealing with excessive connected party debt) were addressed in the 2013/14 budget. Under the old SARS Practice Note 2 it stated a debt to equity safe harbour of 3:1. This safe harbour can no longer be used, as the new Draft Interpretation note will replace the old Practice Note 2.

South Africa has therefore overhauled and revised its Transfer Pricing rules with effect of 98

the years of assessment commencing 1 April 2012. This overhaul sees South Africa move away from the old safe harbour rules to that of the at an armâ&#x20AC;&#x2122;s length test.

With the draft interpretation being the source of information for Transfer Pricing currently, there is uncertainty in the universe of TP in South Africa, and this is expected to be the case for some time as the onus and risks shift more and more to the taxpayers to ensure that they have the adequate TP documents in place and that their feasibility studies are in place, in order to explain to SARS the basis for their benchmarking in their TP policies.

Taxpayers are urged to ensure that they comply with the newly introduced IT14 tax return disclosure requirements for TP and now must have a TP document almost immediately in case of a request by SARS. With increasing focus being placed on Transfer Pricing by the media, both domestically and internationally, there is pressure on South Africans to act according to their stated intention to combat the complex international schemes that have been singled out as contributors to the erosion of the tax base. It will be interesting to see how stringent South African tax audits will become and whether they will be based in BEPS or TP investigations. Only time will tell. i CFI.co | Capital Finance International

ABOUT THE AUTHOR Nataly Marchbank is a qualified professional accountant (CPA (SA)) and master tax practitioner (MTP (SA)), with a specialism in Tax. She has a Higher Diploma in Tax and a Masters degree in South African and International Tax. She is currently a Country Tax Manager of a well known IT MNC.

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> Shellâ&#x20AC;&#x2122;s Commendation on 20 Million LTI-Free Man-Hours:

Dateline Energy

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he management and staff of Dateline Energy Services Nigeria Limited was recently commended by the Production Directorate of the Shell Companies in

Nigeria on its projects health and safety Goal Zero standards as one of the contractors that most contributed to the recent overall safety record of 78-M Hours LTI set by Shell Nigeria.

CFI.co | Capital Finance International

This feat has continued to make the rounds in the global oil and gas industry: The last time there was anything close to this was in 2010 by Pearl GTL in Qatar.

Autumn 2013 Issue

The Chief Executive of Dateline Energy Services Mr Wilson Endy Opuwei, whilst speaking at the company’s 9th year anniversary management retreat in Lagos, reiterated that this achievement is an evidence of his origination’s dedication to - and sustained efforts in - worksite hazard management. The achievement is also attributable to strict compliance with agreed processes and procedures.

Mr Opuwei stated the need for better opportunities for indigenous Nigerian companies as they now have developed capabilities to effectively handle projects in a diverse range of aspects of the oil and gas industry operations value chain.

Mr Opuwei in his speech entitled Identifying Business Growth Opportunities Globally: A Nigerian Company’s Perspective, emphasized the need for leading indigenous oil and gas companies to focus on building capacity to enable them the support of operations in the deep offshore region. The Dateline Energy CEO identified a gap since eligible international companies are hesitant - or sometimes decline – to come into the deep offshore frontiers as a matter of corporate policy.

However, he believes that it is a good time for international companies to enter the Nigerian offshore space and consolidate through strategic partnerships, taking advantage of the local content provisions that regulates compliance with global best practices and creates a platform for capacity development.

Mr Opuwei advised Nigerian companies to research and develop world-class processes and structures to match those available anywhere in the world and to understand that their competitors are multinationals with standards and global practices. They should not expect to be awarded contracts solely on the basis of being Nigerian. World-class companies need world-class people to manage their assets and facilities.

“The achievement is also attributable to strict compliance with agreed processes and procedures.”

CFI.co | Capital Finance International

Whilst lauding the Nigerian government on its ongoing human capacity development efforts, he suggested that agencies such as the Petroleum Trust Development Fund (PTDF), responsible for local manpower development, and the Nigerian Content Monitoring and Development Board (NCMDB), responsible for overseeing the entire local content initiative, collaborate with educational institutions at tertiary levels towards adding vocational technical training to their curricula so as to inculcate industry awareness early enough in the minds of responsible young folk. i

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> Nasir Ahmad El-Rufai, Good Governance Group:

Stunted Potentials Hobble Africa’s Giant These days, Nigeria is often in the news for the wrong reasons. It is a country devastated by poverty, insecurity, corruption and terrorism; the governance challenges are immense, while most public policies deliver poor outcomes.

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he budgeting process is a fictographic art, featuring much drama and a growing disconnect from the imperatives of development. True to that tradition, the 2013 budget is by July still a matter of unsettled contention between the executive and legislative branches of government.

Unconstitutionally and therefore unlawfully, the nation’s savings account – the Excess Crude Account – is being rapidly drawn down. So much so, that it is likely to fall from about $11bn in February to zero by October 2013.

Yet this sorry impasse and the pervasive impunity do not define Nigeria. Its diverse peoples are an energetic, often optimistic lot trying to build their lives despite the trammels imposed by governmental incompetence and paralysis. Nigeria is Africa’s largest country and second largest economy. It could easily be the continent’s largest market if some congruence should emerge between government action and national aspirations.

Such congruence was in the works from 20042007. During that time a variety of reform measures began to improve government finances and shrink the participation of the state in business by privatizing many state-owned enterprises. Ports were made more efficient as well and new thermal power plants finally got built to improve patchy levels of electricity generation. A modern national identity system came into being while the banking system was strengthened. Nigeria was even poised to launch a national mortgage system to reverse its embarrassing housing deficit. Also, for the first time a coherent roadmap for a solid mineral sector emerged alongside efforts to reduce the cost of governance.

The success of the debt relief campaign reflected the international community’s confidence in the

“On a macroeconomic level, the government needs to both shrink and become more efficient.” soundness of the economic programme then being feverishly unleashed. Nigeria did not suddenly become an El Dorado; but it was clearly beginning to get a grip on its problems using solutions that were market-driven and propelled by a vision that the proper role of government is to merely provide the infrastructure and the rule of law (and order) that create the confidence needed for people to grow and unleash their talents.

The vision was to make this the last generation to just speak about Nigeria’s potentials. We were determined to realize those potentials, confident that we had the talents to create wealth from the vast endowments bestowed on our country.

Why then the stasis since late 2007? Political power must always be tied to national purpose.

The inheritors of power were strangers to that concept, and mostly did not feel obliged to uphold the reforms. Where they did, they lacked the political will to see it through. Even conceding to the ever changing dynamics of life, the broad thrust of the programmes Nigeria needs to implement is obvious: The 2004-2007 reforms are unfinished. They should constitute a new starting point for development - focused governance.

Perhaps that will be the single agenda item for the post-Jonathanian Nigeria. However, it is

clear that the current leadership doesn’t want to tread the road less travelled. We will nevertheless outline what needs doing. It is not rocket science but does require personal integrity, character and perseverance on the part of the nation’s leadership – qualities that appear to be in great deficit in the Jonathan administration.

On a macroeconomic level, the government needs to both shrink and become more efficient.

The public service is in many ways unfit for purpose, with a mismatch between the skills required and the excess personnel it carries. A set of incentives must to be arranged to make the public service once again an attractive career choice for our most talented.

Certain sectors of the service also need to grow.

Nigeria needs more police, health workers, teachers and judges. But the share of national income consumed by the state has to decrease. A strict monetization policy has to be implemented: Securing a public service job, or getting elected to office, should not be a license for leading a lifestyle that would make some royals envious.

The expense on human capital has to grow and needs to be more efficiently allocated. The failure rates in the final secondary level exams show that we are not equipping our youth with the skills needed for the 21st century. Our tertiary education is also mired in mediocrity. The emergence of private universities merely glosses over, rather than addresses, the problem. Access to basic healthcare is also problematic, and we continue to record scandalous rates of maternal and infant mortality. The vote of no confidence in the healthcare system is seen not merely in the N4 billion Nigerians spent in 2010 on medical tourism, but also in the fact that the government makes provisions to send its top officials abroad to obtain proper medical care.

“Unconstitutionally and therefore unlawfully, the nation’s savings account – the Excess Crude Account – is being rapidly drawn down. So much so, that it is likely to fall from about $11bn in February to zero by October 2013.”

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Spending priorities and the allocation of resources have to be calibrated to reflect the urgent necessity to build infrastructure in Nigeria.

The personnel and overhead cost of governments should no longer dominate budgeting which must begin to prioritize capital expenditure in both national and subnational budgets. Having a healthy and well-educated population able to compete in todayâ&#x20AC;&#x2122;s global village is more important than the perks that seem to occupy and distract many public officers.

Thus, Nigeria has room for an economic explosion; a revolution in development with tectonic consequences for Africa. But all these depend on getting the politics right. Enterprising investors can still make money from the chaos that is the Nigerian economy today given the reservoirs of unmet needs across many sectors.

This, however, is not contributing in any meaningful way to the unleashing of the nationâ&#x20AC;&#x2122;s vast potential nor does it foment sustainable economic growth the country needs. i

The abandoned efforts at developing a national mortgage system should be revived to create a source of sustainable, long-term financing and a basis for a veritable housing revolution. This would help create better planned neighbourhoods in addition to the civic pride, social stability and sense of security that home ownership fosters.

ABOUT THE AUTHOR Nasir Ahmad El-Rufai is the Deputy National Secretary of the opposition All Progressives Congress (APC). He was at various times Presidential Adviser (1998-99), Director General of the Bureau of Public Enterprises (19992003), Minister of the Federal Capital Territory (2003-2007) and member National Energy Council (2007-2008).

Unleashing entrepreneurial energy also requires that strong regulatory competencies be developed across the board. As our banking system so notoriously demonstrated, effective supervision and enforcement of rules and regulations are critical to the overall performance of the nationâ&#x20AC;&#x2122;s economy.

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> ARM Investment Managers:

Institutional Change and the Shaping of the Nigerian / African Opportunity In many ways, Nigeria, the continent’s largest market and its second largest economy, epitomizes the burgeoning “African Opportunity” theme which underpins the on-going reassessment of the region’s economic potential.

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his comes on the heels of an impressive run of economic growth and development that helps lift the continent out of the socio-economic quagmire it has languished in over the past two decades.

This renaissance has been adduced to factors ranging from demography and the global commodities boom, to a more benign geopolitical environment with the end of cold-war intrigues, among others.

However, while these factors have doubtless played a significant role the gradual structural and institutional changes that are currently underway rarely receive much emphasis as sensational headlines and sound-bites continue to dominate viewpoints on the continent.

This oversight is at the heart of a lingering perception gap which, even now, scuttles efforts to efficiently locate the continent’s opportunities on the risk-reward frontier. Investors, it would seem, are invariably too timid on the prospects or too naïve about the risks.

Nevertheless, bridging this gap perhaps provides the widest window of opportunity. Consequently we at ARM believe that a fundamental understanding of this dynamic is prerequisite to harnessing the African Opportunity. Indeed, since its inception, ARM has staked its strategic bets and thrived on the careful reading and interpretation of these very features.

“Over the years, ARM has taken advantage of opportunities in various sectors of the Nigerian economy and has established a solid track record in identifying and developing new strategic businesses to further strengthen its asset management business model.”

Those familiar with Africa’s technological deficit may find this assertion surprising, but it is, in fact, this very feature that amplifies the “technological multiplier” on the continent.

Crucially, technology creates multidimensional access that has not only transformed the nature of demand — not just for goods and services, but more importantly for progress and accountability — while providing a robust platform for information and knowledge-building that continues to empower its population at an unprecedented pace. A demographic profile dominated by more adaptable youth is clearly favourable in this regard.

BREAKING DOWN BARRIERS TO DEVELOPMENT More importantly, pressures created by this demand are rapidly eroding the basis for the ideologically driven failed policies of the past and now force African policy makers toward more intelligent choices that better align incentives amongst developmental stakeholders.

TECHNOLOGY AND ACCOUNTABILITY While they are necessarily conjoined, it is nonetheless illustrative to consider the constituent parts of these structural shifts separately.

In Nigeria’s specific case, these factors come together powerfully in combination with its mammoth demography and ample resource endowment, alongside a cultural disposition that strongly favours education and other forms of self-improvement.

First is the impact of technology. Playing a central role in the confluence of traditional factor endowments, global demographic shifts and the evolving socio-political environment, technological change is massively skewing the inherent tension between opportunity and extant barriers in favour of the former.

For those familiar with the country’s complex heritage, the impact of these factors are perhaps better appreciated when seen in the context of the barriers created in the past by thorny sociopolitical legacies. Indeed the harmful impact of labour market and other structural rigidities— often perpetuated by unions and other political

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interests—has recently come into renewed focus in thriving emerging markets like India, Brazil and South Africa.

A TURN AROUND DRIVEN BY FLEXIBILITY Remarkably, across diverse areas, Nigeria’s opportunities are being progressively expanded by breakthroughs that evince an enviable and inherent flexibility in the country’s otherwise nearly intractable socio-political arrangements.

Events in the telecoms sector over the past decade are widely heralded as proof of this flexibility, but the recent privatization of the allimportant power sector is less often appreciated as are unfolding activities in areas such as agriculture, retail, transport and logistics and finance. These are no less momentous and merit more attention.

Even in the recidivistic energy sector, where political wrangling continues to hold reform hostage, recent deals have broken the government’s monopoly of the value chain, setting the stage for a turnaround. Significantly, neither the depth of the underlying demand for progress—and the scope this creates for lasting change—nor the significance of these dynamics on the old barriers to progress are widely recognized.

This is hardly surprising for it requires a broadbased understanding of the complex interaction between the articulation of the popular will and the evolution of political incentives and policy choices in Nigeria’s specific context.

Autumn 2013 Issue

This is why ARM frames its expertise as going well beyond mere technical knowledge and competent execution to, more importantly, its deep immersion in the socioeconomic fabric and astute contributions in shaping macro-level policy choices. It is also this intuition that informs the breadth of its ventures and investment offerings that cut across virtually all segments of the economy.

ARM: POISED TO REAP BENEFITS OF OPPORTUNITY ARM is a diversified, integrated, non-bank financial services provider with over nineteen years of asset management expertise. It started operations as a traditional asset management company specialising in the management of quoted equities and fixed income securities.

However, over the years, the Firm has taken advantage of opportunities in various sectors of the Nigerian economy and has proven its ability to identify and develop new strategic businesses and integrate these to strengthen its asset management business model. This ability has resulted in the evolution of the Firm into a diversified financial services institution with businesses divided into two distinct parts within which various products and bespoke asset management services are offered to our diverse clients, focusing on Traditional Asset Management and Specialised Funds.

Within the Traditional Asset Management space, ARM provides services ranging from mutual funds, pension plans, wealth management service and discretionary savings plans to trust services and stock broking execution as well as life assurance products and services.

ARM’s pension administration subsidiary, ARM Pension Managers (PFA) Ltd became the one of the largest PFAs in Nigeria upon the acquisition of First Alliance Pensions and Benefits Limited in 2009, and rapidly established itself as an industry leader with the unrivalled post-inception performance of its RSA Fund.

Within the scope of ARM’s Specialised Funds (nontraditional asset management), the firm offers its expertise through different investment platforms such as ARM Hospitality & Retail Fund, ARM Real Estate Fund (ARM Properties Plc.), ARM Private Equity Fund and ARM Infrastructure Fund. Its Infrastructure Fund, culminated the award of a 30-year concession for the rehabilitation, upgrade and maintenance of the Eti-Osa Lekki-Epe Expressway along the fastest growth axis in Lagos, Nigeria.

These funds enable ARM to explore investment opportunities in the nation’s growth sectors and to proffer solutions tailored to meet the unique investing needs of institutional and high net worth clients. ARM’s business lines have been strategically established to take full advantage of the many unfolding opportunities in Nigeria as well as those in other parts of the West African subregion.

With headquarters in Lagos, Nigeria and branch offices across the country, ARM currently manages total assets of over ₦453 billion (as at 31 August 2013 — equivalent to $2.8bn).

The company is regulated by the Nigerian Securities and Exchange Commission (SEC). i CFI.co | Capital Finance International

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Leaders from the Oil & Gas Industry set to participate in the Great Local Content Debate

On 29th October, an international delegation of NOCs, Governments and key representatives from the global Oil & Gas community will gather in London to debate the key issues and solutions in implementing Local Content Strategies. Held under the Chatham House Rule, the 2013 NOCs & Government Summit will feature the much anticipated Great Local Content Debate.

Led by Simbi Wabote, Contracting and Procurement Global Local Content Manager, Shell, the Great Debate will provide the international audience with the opportunity to partake in a lively interactive discussion and will allow feedback on discussions instantly via anonymous voting, to uncover the real consensus on the issues being discussed.

Questions to be debated include; what are the main drivers of creating in-country value? Does Local Content add or detract value? Has there been a shift in world-wide thinking? What is the reality of Local Content development globally?

Local Content plays a fundamental role in the Oil

& Gas industry as a means of providing training to narrow the skills gap. It also correctly matches localsâ&#x20AC;&#x2122; expertise with industry requirements to ensure that the sector is developed and in-country value is maximised.

Featuring newly confirmed speakers Natalie Stirling-Sanders, Upstream National Content Manager, ExxonMobil and Majid Al Toky, Chairman, OPAL Oman the Summit programme will seek to identify best practices in developing sustainable job creation and local economic growth alongside the development of a nascent oil and gas market in resource holding countries.

Taking place on 28-30 October 2013 at The Mandarin Oriental Hotel, London, the Summit provides a platform for an interactive format, offering the ideal environment for facilitating constructive, frank discussions between key stakeholders to develop crucial strategies required to drive the industry forward.

To book your place at the NOCs & Government Summit, please contact Peter Bamford on +44 20 7978 0349 or email nocs@thecwcgroup.com.

Creating In-Country Value Across The Globe

e Spearheaded By

Produced By

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28-30 October 2013 | Mandarin Oriental | London | UK

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Featuring the interactive

â&#x20AC;&#x2DC;Great Local Content Debateâ&#x20AC;&#x2122; led by Simbi Wabote

Distinguished Speakers Include

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H.E. Thamir Ghadhban Chairman of the Advisory Commission to the Prime Minister Iraqi Government

Alfredo Renault Superintendent ONIP, Brazil

Simbi Wabote Contracting & Procurement Global Local Content Manager Shell

Engr Ernest C Nwapa CEO & Executive Secretary Nigerian Content Development & Monitoring Board

Nuno de Oliveira CEO Petromoc, Mozambique

Senator Hon. Kevin Ramnarine Minister of Energy & Energy Affairs Republic of Trinidad and Tobago

To gain maximum benefit from your involvement contact Peter Bamford on +44 20 7978 0349 or email pbamford@thecwcgroup.com

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> CSL Stockbrokers Limited:

Local Research & Global Reach WHO WE ARE CSL Stockbrokers Limited is a research-oriented corporate and institutional broker that has been in business for well over thirty years making it the longest-established stockbroking firm in Nigeria.

CLS is a wholly-owned subsidiary the FCMB Group Plc. CSL has been responsible for the original listing of many of today’s largest stocks on the Nigerian exchange. Thanks to its association with FCMB Capital Markets, the firm now possesses

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unrivalled experience of new issues on the Nigerian Stock Exchange.

Both domestic and international investors have given CSL’s in-depth and comprehensive research products consistently high acclaim. The firm now enjoys a large degree of prominence among investors worldwide.

CSL services its unique retail and institutional client base through a network of domestic and overseas offices that provide our corporate clients

CFI.co | Capital Finance International

with a one-stop distribution solution.

Over the years, CSL has worked hard to establish a solid and exceedingly cordial relationship with the Nigerian Stock Exchange (NSE) and its regulatory body, the Securities and Exchange Commission.

CSL is currently the third largest stock brokerage firm in Nigeria when measured by value traded.

The firm’s consistent performance has earned it the respect and endearment of the NSE

Autumn 2013 Issue

management. CSL was recently named as one of the ten most important primary market makers that provide liquidity to the Nigerian market.

The firm continues to add to its market share through international distribution offices and systems that are fully compatible with those employed by most international institutional investors.

CSL LINES OF BUSINESS Wealth & Investment Management • Delivers integrated solutions to a discerning institutional and private client base • Structures bespoke financial products to meet client and investor needs • Consistently delivers superior performance above clients’ expectations for all the funds under management Institutional Sales & Trading • Our Research, Sales, Trading and Settlements Package makes us more than just your regular broker: CSL is your partner when investing in the Nigerian Stock Market • With world class sales and trading desks in Lagos, London and New York we are equipped to execute trades on behalf of our clients from all around the world Corporate Broking • Our objective and accredited research and global distribution has made CSL the partner of choice to many issuers on the Nigerian Stock Exchange • With over three decades of interaction with capital market regulators and the Nigerian Stock Exchange, we are adept at assisting issuers with all their interactions Research • CSL’s research team is one of the most respected by offshore and local institutional clients alike (Bloomberg ANR Ranking and This-Day) • CSL coverage of stocks on the NSE by market capitalization is comprehensive at 85%

“The firm now enjoys a large degree of prominence among investors worldwide.”

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Our Capabilities • CSL operates out of regulated offices in Lagos, London and New York. This ensures international best practices with regards to sales trading • In the United States, CSL has gained access to all the main Africa-focused specialist investors via its strategic alliance with Auerbach Grayson & Company - a leading emerging market brokerage • In Central Europe, Middle East and Africa, CSL has a wide distribution network which includes our direct clients (over 50 local investors and Global Frontier & Emerging Market Funds) and those of our global partners. These networks are invaluable during any capital raising exercise • From our London office we provide a sales and sales trading service to our international clients, facilitating the taking and processing of orders • Our activities are backed by internationally accredited research products that cover the entire Nigerian listed universe plus strategy and macroeconomic analysis i

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> CFI.co Meets the Team that Knows Nigeria Inside Out:

CSL Stockbrokers

GBOYEGA BALOGUN (MANAGING DIRECTOR) Mr Balogun holds a B.Sc. in Economics and Management from the University of London (Royal Holloway College) and M.Sc. in Property Investment from City University, London.

He is a registered member of the New York Stock Exchange (Series 7), the London Stock Exchange, through his accreditation with Futures and Securities Association Registration (SFA) and is an authorized dealer on the Nigerian Stock Exchange.

Gboyega’s professional career began as a trainee with Merrill Lynch International Bank Chester Street, London and subsequently moved to private wealth management at Merrill Lynch Financial Centre (London) within a team of financial consultants managing in excess of $600m in assets for ultra-high net worth clients in the African and Middle East regions. Gboyega returned to Nigeria in 2003, assuming the position of divisional head of stock broking, asset management and registrars business. In 2008, Mr Balogun was appointed managing director of CSL Stockbrokers Ltd. TEMI POPOOLA, CFA (SALES DIRECTOR - LAGOS) Mr Popoola holds a First Class degree in Chemical Engineering from the University of Lagos and obtained a Master’s Degree from the Massachusetts Institute of Technology (MIT).

Prior to joining CSL as the head of private client services, he spent some years in New York with Bank of America Securities where he was responsible for managing the bank’s financials and industrials equity derivative portfolio.

While at BofA, Mr Popoola gained extensive experience in assisting clients to develop strategies that help maximize returns while managing risk. Prior to his role at CSL, he has worked as an asset manager with Material Managers in London and he was very recently 112

the head of structured products at the United Bank for Africa, Lagos where he was responsible for investing the bank’s capital across numerous asset classes on exchanges in both New York and London.

He is also a dealing clerk of the Nigerian Stock Exchange.

GUY CZARTORYSKI (SALES DIRECTOR - LONDON) Guy Czartoryski has 18 years’ experience as an analyst and investment strategist in emerging markets. He has consistently held Top-5 Greenwich survey rankings for his multi-sector research on emerging markets in Central and Eastern Europe. He has brought deals to market in the banks, telecoms and media sectors. He previously has worked for Deutsche Bank, UBS, HSBC and most recently for an emerging market hedge fund. He is a graduate of Cambridge University.

ALAN CAMERON (HEAD ECONOMICS & STRATEGY LONDON) Alan has a MA in Economics and International Relations from John Hopkins University and a BA (Hons) in History from Queen’s University.

Before joining CSL in 2011, he was a sovereign risk analyst at Business Monitor International where he was responsible for producing indepth economic analyses on sub-Saharan African economies. The scope of his work ranged from making forecasts for key macroeconomic indicators to commenting on his economic analyses for both Reuters and Bloomberg. Prior to this, Mr Cameron worked as an economic analyst for the Economist Intelligence Unit, covering Western Europe.

OLABODE OLADEJO (HEAD, CORPORATE BROKERAGE LAGOS) Bode joined the FCMB group as the head of marketing and business development for the CFI.co | Capital Finance International

Asset Management Business at CSL. He started his career in 1996 as a Research & Investment Analyst with Premium Securities Limited (PSL) before moving to the banking industry. He has worked with Zenith International Bank, Finbank, Access Bank and National Bank (now Wema Bank).

His banking experience spans through corporate banking, investment banking, internal control/ audit and commercial banking. He is a qualified stockbroker/dealing clerk of the Nigerian Stock Exchange and an associate of the Institute of Chartered Accountants of Nigeria (ICAN). Mr Oladejo holds a Bachelor of Science Degree in Agricultural Economics (First Class honours) and a Master of Science Degree in Economics, both from University of Ibadan. He is currently head of Corporate Broking of CSL Stockbrokers Limited.

JOHN GANNON (HEAD TRADING - LONDON) John boasts no less than 28 years’ worth of experience in stockbroking operations and trading. After leaving school at the age of 16, he joined Orme, a stockbroker in the City of London where he spent the next seven years in the back office learning settlements and accounts set-up.

In 1990 Mr Gannon joined Enskilda Fund as an assistant to portfolio managers in equity and bonds. In this role he executed all trading and oversaw settlement.

John was transferred to the continent in 1992 to set up Enskilda’s Luxembourg operations.

In 1994 he joined Latin American investment brokers Latinvest, to set up the sales, trading and market-making business. John moved to ABN Amro in 2000 as Latin American and EMEA sales trader. In 2004 John joined Evolution China to set up their sales trading desk. He remained with Evolution till 2009 when he joined CSL (UK), a division of FCMB (UK) Ltd to set-up and run the London trading desk. i

> Harrybeat International:

Empowering Professionals to Grab Opportunities here are few, if any, reasons why Nigeria should need outside help with the development and exploitation of its vast oil reserves. Recognizing the giant strides made in education and professional training, the government in 2010 introduced the Nigerian Content Law to help raise indigenous participation in the oil and gas sector. This act grants exclusive consideration to local companies that possess both the knowledge and hardware to take on and properly execute major oil field jobs.

T

Though some western observers of the oil industry predicted a decline in the quality and efficient delivery of oil field services, the law has in fact allowed Harrybeat International to thrive

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and prosper and deliver consistent top-quality services on time, on spec and within budget. The company stands as a testament to the excellence and depth of local capacity and knowhow developed over time.

services for civil works and other construction assignments. Job have been executed for the federal government of Nigeria and a number of the countryâ&#x20AC;&#x2122;s state governments as well as for the European Union and the World Bank.

Harrybeat International Services Limited is a Nigerian oil and gas services company which has been heavily involved in (mostly) maintenance services of the upstream assets of major operators. The company was formed in May 2003. Since its inception, now ten years ago, Harrybeat International has successfully developed a diverse range of activities.

Harrybeat International takes great pride in being a wholly Nigerian owned company, fully committed to compliance with the 2010 Oil and Gas Industry Content Development Act. This legislation aims to foster the accumulation of domestic knowhow and experience and intends to project Nigerian capacity in the oil and gas sector onto the global arena.

Early on, the company diversified into engineering

The Harrybeat International management team

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Autumn 2013 Issue

by non-Nigerian services companies. Its mission is quite simple: To provide competent, leading-edge services in the oil and gas sector of the Nigerian economy with a special emphasis on upstream operations.

Harrybeat International is a trailblazer among its peers in defining a clear of goals and objectives it pursues: • To provide top-quality maintenance services to the upstream operations in the petroleum industry in Nigeria and beyond • To build indigenous professional capacity in oil and gas services industry that can compete effectively anywhere in the world • To be a reliable provider of equipment for all jobs in the oil and gas industry • To be major vector for the realization of the Nigerian Content Development Act of 2010 • To create employment for Nigerian professionals • To provide an avenue for the training and certification of Nigerian professionals and skill sets in the Nigerian petroleum industry • The company is open to diversification into related engineering services such as civil, mechanical & structural engineering services Co-founder and Managing Director Agha Abani strongly believes that Nigeria is on the right path enabling and empowering local companies and professionals to do the jobs previously entrusted to outside entities and expatriate professionals: “As a nation we now have developed the professional capacity to deliver outstanding services. This needs to be nurtured and further expanded upon.

At Harrybeat International we very much want to contribute to this ongoing process.”

has gained a formidable wealth of experience in engineering, construction, and maintenance services. In fact, the team boasts over 25 years’ of experience in the management and supervision both onshore and offshore facilities of major oil companies and government facilities.

Harrybeat International is an active participant in and member of a number of professional bodies and trade associations, reflecting the company’s core-belief that improvements in the business environment and the furtherance of local skills development can only be achieved through the active involvement of industry stakeholders: • National Association of Corrosion Engineers (NACE)

• Society for Protective Coatings (SSPC) • Metal Building Contractors and Erectors Association (MBCEA) • Oil and Gas Trainers Association (OGTAN) • Petroleum Technology Association of Nigeria (PETAN) • Nigeria-US Department of Commerce (NUSA) • Port Harcourt Chamber of Commerce Industry, Mines and Agriculture (PHCCIMA) Harrybeat International makes no secret of its corporate vision to be the embodiment of Nigeria’s ever-expanding competencies and capacities in all aspects related to the oil and gas industry. Harrybeat International will meet – and indeed often exceed – any capacity offered

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The company Mr Abani leads is into anti-corrosion services: The blasting and painting of offshores, swamp facilities and structures. “We are also into automated, non-entry tank cleaning and overhaul.

When we talk about tank overhaul, we mean cleaning, de-gassing, inspecting and repairing.

In other words, we offer the complete package.

Harrybeat International is also into pipe coating.

One feature of our work is that for every service we offer, we have a foreign associate for the use of their materials. This and no more: All of our services are delivered with fully 100% of local professional content. All the people employed by us are Nigerian.”

The Local Content Development Act has assisted Harrybeat International – as well as the company’s peers – in building capacity that now allow them to successfully bid on any jobs offered by the oil giants. According to Mr Abani the move has been really helpful to indigenous business: “You see that the Nigerian government has plenty good intentions. However, the problem most Nigerian companies now face is in funding. We still have issues with obtaining the required funding from banks. In the Western World, it is much easier to finance these kinds of projects. Here in Nigeria, it is very difficult to get funding from banks. This is an area that needs to be looked at.” i

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> Absalon Project:

Sustainable Funding for African Housing

By Alan Boyce, Sam Waweru and Wagn Erik Nørgaard

Sub-Sahara Africa has experienced strong economic growth and has developed a more stable political environment over the past twenty years. Fast population growth and a significant movement of people from the countryside to the larger cities has resulted in a shortage of urban infrastructure and housing. Local governments are under heavy pressure to ensure adequate infrastructure, housing and jobs.

A

bsalon Project, a joint venture between affiliates of VP SECURITIES and Soros Fund Management, is offering systems and know-how to introduce the Danish Mortgage Model on a global basis, and is currently undertaking implementation studies in several African countries.

A major issue in the housing sector is the lack of funding for potential homeowners. The financial industry currently offers very limited amounts of mortgages, usually to only to selected customers.

Access to mortgages is restricted for the fastgrowing middle class and the low-cost housing segment. If mortgages are offered, they are typically with an adjustable rate, of short duration and with relatively high costs for the borrowers.

The funding of the mortgages is done on balance sheet, with deposits. This funding model creates significant risk to both the borrowers and the financial system, and limits the volumes.

“The Absalon SaaS solution makes it possible for the local mortgage companies to focus on both the customers and their needs, while the Absalon staff will take care of all IT and systems related issues. The customers get in one agreement an integrated solution with all the experience emanating from more than two centuries of mortgage operations integrated in the system.”

Wagn Erik Norgaard, COO, Absalon Project

Second, mortgage originators are required to retain credit risk and to perform the servicing functions. The originators are not allowed to take any interest rate risk. This perfectly aligns incentives, making the outcome of the borrower the same as it is for the mortgage bank.

retire mortgages not only by paying them off, but also by buying an equivalent face amount of bonds at market price.

The Danish Mortgage Model, which has been around since the Great Fire of Copenhagen in 1795, eliminates many of these problems. It was the best performing system in Europe during the recent financial crisis, needing no sovereign bailouts or support from central banks.

Third, the mortgages are funded by the issuance of standardized bonds, creating a large and liquid market. The Danish mortgage bond market is the largest, always performing, non-taxpayer guaranteed mortgage bond market in the world.

Because the value of homes and the associated mortgage bonds tend to move in the same direction, homeowners should not end up with negative equity in their homes when interest rates rise. To state it more clearly, as home prices decline, the amount that a homeowner must spend to retire his mortgage decreases, because he can buy the bonds at lower prices.

First, it is a private system in which all mortgage originators can participate on equal terms, as long as they meet the rigorous regulatory requirements. There are no Government Sponsored Enterprises (GSEs) enjoying a quasimonopolistic position.

Finally, the asymmetric nature of most mortgage systems (like in the US) is replaced by what the Danes call the Principle of Balance. Every mortgage is instantly funded by a bond of the same amount and tenor, and the two remains interchangeable at all times. Homeowners can

The Danish mortgage market is EUR 375 billion in size, quite large for a population of only 5.3 million people. The traditional Danish mortgages are 30 year fixed rate mortgages, as well as a variety of 3, 5, 10 and 15 year fixed rate loans.

Local insurance companies and pension funds

“The Danish system enables homeowners to preserve the equity in their houses in periods with raising interest risk. There is a tendency that housing prices fall during such periods. At the same time they can buy back their bonds in the market – at a discount and at market price, and then refinance a lower amount at a higher interest rate. This protects homeowners against insolvency and makes the labor force mobile.”

Alan Boyce, CEO, Absalon Project

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Autumn 2013 Issue

South Africa: The Palace of the Lost City

are significant source of demand for the bonds, due to their longer term duration. Foreign investors are big buyers of Danish mortgage bonds as well.

Finance, the leading mortgage bank in Kenya, has worked with Absalon Project for a couple of years before a decision was taken to enter into an implementation study.

Pension funds have been introduce in many countries in Africa, all looking to invest in high quality, long duration securities. Furthermore, large scale residential communities are being developed which need permanent funding options for the future homeowners.

Sam Waweru, Housing Finance Chief Finance Officer, explains: “We have been investigating a number of different mortgage solutions and are seriously considering one along the Danish model, as it fits perfectly into what we try to achieve at Housing Finance. We are looking for sustainable and low-risk funding to offer cheaper and better mortgage products to our customers.

He continues: “The funding of mortgages at equal terms in the capital market takes out a lot of risk for us which we can use to lower the cost to our customers.”

Kenya is a good example of a country that has both the need for affordable housing finance and strong demand for high quality investments. It has a population of approximately 45 million people but less than 20.000 mortgages. Housing

Housing Finance sees also other benefits of the new model. As the model by definition funds mortgages by issuing standardized bonds in the market, they can save a lot of management time and reduce financial risks. They can then use their short term deposits to finance shorter term lending.

Absalon Project offers business and technical consultancy and Software as a Service (SaaS) solution, which means that all services will be delivered through the internet, and the local companies can focus on the business side and support of the participating banks, while Absalon Project will handle all IT related issues. i

FACTBOX VP SECURITIES A/S (VP) is the Central Securities Depository (CSD) in Denmark. It manages all registration of ownership, clearing and settlement of all securities in Denmark. VP is seen as the back office of all securities handling in Denmark. It was the first CSD to dematerialize securities in the world, with bonds in 1983 and shares and certificates in 1988.

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“We have been investigating a number of different mortgage solutions and are seriously considering one along the Danish model, as it fits perfectly into what we try to achieve at Housing Finance.”

Sam Waweru

Alan Boyce

ABOUT THE AUTHORS Alan Boyce has enjoyed a long career in the capital markets. Currently, he is chief executive officer of Absalon, a joint venture between affiliates of Soros Fund Management and VP Securities, where he works to implement the beneficial aspects of the Danish mortgage system in the United States and other countries around the world.

Wagn Erik Nørgaard

Sam Waweru

Bankers Trust for 14 years. Prior to that, he worked for the Federal Reserve Board in Washington, D.C.

Nørgaard holds a BA in Computer Science as well as a BA in Organization and Economy from the Copenhagen Business School. He has also participated in management training at IMD and Henley business schools.

Boyce holds an MBA degree from Stanford University and a Bachelor of Arts degree in Economics from Pomona College, where he graduated magna cum laude.

Sam Waweru is a business graduate from the University of Nairobi’s School of Business and a qualified certified public accountant, as well as a member of the Institute of Certified Public Accountants of Kenya (ICPAK).

Boyce was senior managing director at Countrywide Financial, responsible for management and leadership of the bank’s investment, hedging and funding strategies.

He oversaw secondary markets, securities and loan purchase activities, commercial mortgage origination, MSR hedging, reinsurance, as well compliance with the Community Reinvestment Act. He was at Countrywide from March 2007 to June 2008.

Wagn Erik Nørgaard is COO and a founding member of the Absalon Project. He has more than 35 years of experience in IT development and operations of large-scale financial systems.

Nørgaard joined VP Securities (for the second time) in June 2003 to represent Danish activities in Absalon. He was responsible for the successful development and implementation of Absalon’s first company - Hipotecario Total (Hito) in Mexico.

Prior to joining Countrywide, Boyce served as Director of Special Situations at Soros Fund Management LLC. During his tenure with Soros, he managed a portfolio of assets of the Quantum Funds and had principal operational responsibilities for the bulk of Soros’ investments in Latin America. Boyce was a full time employee at Soros from August 1999 to March 2007.

Prior to VP/Absalon Nørgaard was CEO of SMT Data a Danish software company that delivers solutions focused on performance and capacity management for IT infrastructure. Before that he was head of sales for the Nordic region at Hitachi Data Systems.

Sam started his career at Ernst & Young, one of the big global accounting and auditing firms, and has served in accounting and auditing disciplines at various companies spread over ten different African countries and in the UK. These companies include Lonrho Africa Plc, Aga Khan University Hospital, and Uchumi Supermarkets Limited.

Nørgaard’s first stint at VP Securities saw him as Vice President and head of IT. At VP he was responsible for the development and implementation of large IT infrastructure projects including the dematerialization of Danish shares and the introduction of an electronic trading system at the Copenhagen Stock Exchange.

Sam is widely travelled within the African continent, Europe, North America and Asia. He is a keen golfer and is a member of Muthaiga Golf Club, Limuru Country Club and Parklands Sports Club.

Before joining Soros Fund Management, Boyce served as managing director at Bankers Trust.

He was in charge of fixed income arbitrage, the bank’s mortgage portfolio and compliance with the Community Reinvestment Act. He was with

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Sam boasts a vast experience in the accounting and auditing fields and is currently the finance and administration director at Housing Finance.

As such, he heads the entire Finance and Administration Division of the company and its subsidiaries.

> CFI.co Meets the founder and CEO of Harrybeat lnternational Services Limited:

Agha Abani Mr Agha Abani is the founder and CEO of Harrybeat lnternational Services Limited, an oil and gas services company with its corporate head office in Port Harcourt in the Rivers State, Nigeria. Mr Abani is a member of National Association of Corrosion Engineers (NACE) lnternational and The Society for Protective Coatings (SSPC).

He is also an accountant and as such held a number of positions of distinction.

P

revious to the founding of Harrybeat International, Mr Abani trained and worked for the chartered accountants office of KPMG Peat Marwick Ani Ogunde& Co. During the course of his career, he accumulated 22 years’ worth of experience in the oil and gas industry. For seven years Mr Abani was employed by International Corrosion Control Limited – one of the field leaders in the oil sector. After holding various positions at this company, Mr Abana resigned 1999 from his job as acting general manager.

Over the past decades, Mr Abani has found great satisfaction in expanding on his professional capabilities and knowledge by attending a number of management and technical courses in Nigeria, the United States and Great Britain.

These courses concerned, among others, the Fundamentals of Corrosion and Corrosion Control Methods, Economic Aspects of Corrosion Control and Contract Administration at Etchingham Training Centre in East Sussex.

He also found the time to attend several conferences, technical programs and business summits at Salt Lake City, Houston, Florida, Atlanta and Las Vegas in USA and Paris, France.

Mr Abani went on to become the co-founder and operations director of Petro-source Nigeria

taken a veritable leap thanks to which Harrybeat International is now able to execute even the most advanced jobs on time, spec and within the allotted budget using 98% locally recruited oil workers and other professionals. Indeed most jobs are completely using Nigerian labour exclusively.

“If we do need to hire an expatriate worker, it is mostly to impact project-specific knowledge to our workers after which we are done and the expat may return home,” says Mr Abani who credits the Nigerian Content Law for the great strides made in employing local professionals and experts.

“We have plenty of good people right here in Nigeria who can successfully compete with any expatriate. You just need how to find and recruit these highly-qualified Nigerian engineers.”

CEO: Agha Abani

Ltd. He also was deputy managing director of Worldwide Oilfield Services Limited.

At Harrybeat International, Mr Abani is particularly proud of the local capacity his company has helped built. Thanks in part to the Nigerian Content Law skill development has

Harrybeat International is celebrating its tenth year of expanding operations this year and Mr Abani foresees a bright future: “Nigerian oil and gas services companies are now first claiming their home turf and have been thriving on the challenge. It is not at all unthinkable that in a few years from now – perhaps a decade – we’ll actually be able to export our accumulated knowledge and experience to other countries.”

For Harrybeat International, quite proverbially, the sky appears to be the limit. i

“We have plenty of good people right here in Nigeria who can successfully compete with any expatriate. You just need to know how to find and recruit these highly-qualified Nigerian engineers.”

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Autumn 2013 Issue

When opportunity calls, answer emphatically.

The Continental. The luxury of spontaneity.

Continental GT V8 fuel consumption in mpg (l/100 km): Urban 18.4 (15.4); Extra Urban 36.7 (7.7); Combined 26.7 (10.5). CO2 Emissions 246 g/km.

CFI.co | Capital Finance International For more information call visit www.bentleymotors.com. #GTV8 The name ‘Bentley’ and the ‘B’ in wings device are registered trademarks. © 2013 Bentley Motors Limited. Model shown: Continental GT V8

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> NEPAD:

Towards the AU Agenda 2063 Africa Building Momentum From a Decade of Achievement

By Gengezi Mgidlana and Muzi Maziya

At the dawn of the 21st century, African leaders were faced with a set of new realities: Globalization, the end of the Cold War, and lessons from the challenges and experiences of the Organization of African Unity (OAU). These are arguably most likely to have added to the momentum that led to the formation of the African Union (AU), with its promise of greater integration, peace and prosperity.

T

his year marks the 50 year celebration of the establishment of the OAU. In this article, we attempt to identify some of the features that make the continent a better place today and describe the challenges that lie ahead for the AU as it crafts its recently announced Agenda 2063, intended to benefit African people as a whole over the next half century.

THE NEW PAN-AFRICAN INSTITUTIONS The transformation of the OAU into the AU marked a sea change in the nature and character of continental institutions. The AU established a peace and security architecture that had the specific intention of intervening in conflicts with a view to resolving them. It is also meant to be an innovative instrument of promoting and sharing good practices on governance through the African Peer Review Mechanism (APRM).

The other goals identified early on focused on eradicating poverty, facilitating economic growth and development, and ensuring that Africa is well represented internationally in support of the continent’s objectives.

The adoption of the New Partnership for African Development (NEPAD) as the socio-economic blueprint for the continent was also a decision with far-reaching implications. The NEPAD programme is premised on Africans leading their development processes (politically and technically), promotion of regional integration, gender equality and developing the capacities of African peoples to participate in their own development processes, including those in the diaspora.

THE RISING CONTINENT It can be argued that over the last decade through the AU and its NEPAD program – African leaders have contributed towards the creation of an environment conducive to development on the continent.

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“The continent is making important strides on conflict resolution and governance issues.”

As pointed out in the Africa Progress Report 2012, drawn-up by the Kofi Annan Panel, the continent is making important strides on conflict resolution and governance issues. Multiparty elections are now firmly established; there have been moves towards greater transparency; and armies have, by and large, stayed out of politics. Many countries have also become more peaceful.

Such successes have also been replicated on the socio-economic front. From 2000 onward, levels of annual economic growth in Africa have been impressive, averaging some 5% until the onset of the global economic recession. The World Bank called this “the longest expansion in 50 years”.

The International Monetary Fund (IMF) notes that in the nearly five years since the 2008 crisis, Africa has grown faster than in the years before the crisis. Regional output grew 5.1% last year and should remain high, though perhaps slightly weaker as reflected in the rather subdued World Economic Outlook released in July 2013.

This recent experience of African countries is quite significant because it has not been limited to commodity rich countries. Economic growth in most countries now seems able to attain levels Country Angola Ethiopia Rwanda Mozambique Cape Verde Ghana Tanzania

higher than population growth (see table below).

There is also evidence of a few structural changes that are taking place more rapidly since the turn of the century. These bode well for the future and include the declining share of agricultural in GDP (some places recorded a drop from 40% to 15%) and the increased contribution of industry.

Africa’s progress over the last thirteen years is also illustrated by its endeavours to meet the Millenium Development Goals (MDGs). For example, a recent report with contributions from both the AU and United Nations Development Programme (UNDP) notes that Africa is on track to achieve the targets of universal primary education; gender parity at all levels of education; lower HIV/AIDS prevalence among 15-24 year olds; increased proportion of the population with access to antiretroviral drugs; and increased proportion of seats held by women in national parliament by 2015.

The 2012 report further notes that in some cases Africa’s achievements exceed those of regions such as Southeast Asia, Latin America and the Caribbean.

Many of these successes can be attributed to Africans themselves. Levels of debt have been reduced, government spending supportive of growth has increased. This has significantly enhanced the attractiveness of African economies to domestic and international investors.

As a result of lower debt levels, African countries GDP per capita growth rate 7.6% 6.5% 5.1% 4.9% 4.7% 4.6% 4.1%

Table 1: Leading African performers 2002-2012- GDP per capita. Source: based on Chandy et al, Brookings Institution, 2013.

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are now better able to adopt far-reaching policies for their sustained development, including investment in infrastructure and human capital.

This is taking place despite a dramatic fall in the volume of development aid received.

The role of the African private sector in this success story cannot be understated. The Ernst & Young Africa Attractiveness Survey (2012) found that intra-African investment in new projects increased by an average of 23% every single year between 2003 and 2011. Since 2007 this rate has accelerated to an average of 42% a year. The report further indicates that this trend is being led by Kenya, Nigeria and South Africa. Over the last four years, investments from Kenya and Nigeria are reported to have grown at higher rate than is recorded anywhere else in the world, at 77.8% and 73.2% respectively.

CHALLENGES AHEAD Africa’s recent success is reflected in its ability to achieve and maintain peace and security across the continent although pockets of conflict remain. By all accounts measures to address these realities are in place but problems remain.

Africa’s economies are also growing though it is acknowledged that the gains are often neither inclusive nor shared. Various analysts have noted that the aggregate performance of African economies hides significant diversity across and within countries. Growth often fails to reduce poverty levels. In other parts of the world, growth has impacted societies in a much more equitable way (see for example World Bank’s Africa’s Pulse, April 2013).

Inequality also remains high. Over the next twenty years, African poverty is expected to drop by a substantial 24 percent but its share of global poverty may rise to 82 percent. In its short-term forecast, the International Labour Organization (ILO) also expects the number of unemployed people in Sub-Saharan Africa to rise by 5.4% and by 4.3% in North Africa by 2015.

The outlook for youth unemployment doesn’t look any more promising.

meet MDGs in areas such as under-5 mortality, maternal health and undernourishment.

vital for dynamic industrialization and structural transformation.

AFRICA’S ROAD AHEAD As correctly observed by many, including analysis at the Organization for Economic Co-operation and Development (OECD), African governments and peoples have been the main players in this new era of progress.

Mkandawire (2001) makes the important point that we wish to underline. The real issue is no so much the “building” of the African state but rather “making it a more accountable and more efficient instrument for addressing the issues that African’s have reason to consider fundamental”.

Civil society, particularly business, must also become a more significant part of efforts towards domestic resource mobilization.

The continent now has in place the requisite institutions for addressing its problems and to sustain the current positive trends. It may also be able to widen the benefits of the opportunities that it faces, especially as an emerging growth pole of the global economy with more than a billion people depending on its fortunes.

These changing fortunes emerged when Africa took its destiny in its own hands. Such an approach should inform its relations with the emerging BRICS (Brazil, Russia, India and China) and older centers of global economic power, such as the United States and Europe.

Without a doubt the success of the last decade must lead to increased African self-confidence.

It also must ensure that the processes it has initiated to develop long-range strategies for development, re-affirm the importance of the following guiding principles: • People-centred development • Promotion of democratic values and standards • African ownership and leadership of processes for its own development.

This approach may imply less acceptance of the need for a ‘paradigm shift’ as this undermines the progress that Africa has made over the past decade on its own.

Africa’s socio-economic challenges are clear.

However, better growth prospects and the availability of resources will enable African countries to achieve even more success and

Similarly, the emphasis on ‘governance’ should not make Africa feel that institutional weaknesses cannot be overcome as was seen in countries that experienced long spells of growth and managed to lift millions out of poverty (e.g. East Asia early 1960’s, China and Vietnam circa 1980).

Africa will need to continue to emphasise the role of a capable and people-focused state. Its ability to develop partnerships with broader civil society, including the private sector, will continue to be crucial, as will be the conscious efforts to import, modify and rapidly invent the institutions

About NEPAD The New Partnership for Africa’s Development (NEPAD) is a flagship socio-economic programme of the African Union (AU). NEPAD’s four primary objectives are to eradicate poverty, promote sustainable growth and development, integrate Africa in the world economy and accelerate the empowerment of women.

continent-wide programmes and projects, mobilises resources and engages the global community, regional economic communities and member states in the implementation of these programmes and projects. The NEPAD Agency replaced the NEPAD Secretariat which had coordinated the implementation of NEPAD programmes and projects since 2001.

The NEPAD Agency is a technical body of the AU that advocates for NEPAD, facilitates and coordinates development of NEPAD

The strategic direction of the NEPAD Agency is premised on six themes: Agriculture and Food Security, Climate Change and Natural

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It is encouraging to see the growth of intra-African investment, as earlier mentioned, but there is scope for improvement in harnessing domestic financial resources and narrowing resource gaps through better functioning financial markets.

This will further reduce reliance on foreign aid and allow local ownership of development processes.

CONCLUSION Projections for the next half century suggest that Africa can realize a vision of a united, prosperous continent at peace with itself and boasting well diversified, competitive economies from which extreme poverty and inequality have been eliminated.

Africa is a continent that has many opportunities: Land and mineral wealth abound and an eager youthful and growing population. The prospects of urbanization and a changing global environment clearly favour emerging regions.

The AU and its NEPAD programmes represent a step taken. Now is time for careful planning to anticipate the new challenges and opportunities ahead and formulate an adequate response to them. It will be important that the development of the AU’s Agenda 2063 incorporates the values, principles and successes attained to date. i

Mgidlana works for the Presidency and the Nepad Planning and Co-ordinating Agency but the views expressed are his own. Maziya is a research fellow at the agency.(This is the second article in a series exploring the evolution and focus of Pan-African institutions, challenges and prospects facing the continent and implications for the AU’s Agenda 2063)

Resource Management, Regional Integration and Infrastructure, Human Development, Economic and Corporate Governance as well as Cross-Cutting Issues including Gender, ICT and Capacity Development.

Autumn 2013 Issue

> CFI.co Meets the Executive Director of IH Group:

Dzika Danha While born in Zimbabwe, Dzika was raised in Cameroon and Cote d’Ivoire, and spent the formative years of his education in Dorset, southwest England. Here he attended the Sherborne School for Boys.

A

fter his studies Mr Danha moved to back to Zimbabwe to join his family. It is here that his career began. Dzika Danha now boasts over 10 years of experience working in Zimbabwe’s capital markets. His focus has been on equity markets.

His career started in 2003 when he joined Barnfords Securities (formerly the HSBC franchise in Zimbabwe) as a trainee sellside equity analyst. This gave him the initial grounding in equity market analysis. Mr Danha subsequently worked at two local asset managing firms: Tetrad and GP2 Asset Management.

“At IH Group his role is primarily focused on equities research and sales for the brokerage as well as business development.”

After leaving GP2 Asset Management in 2005, he set up his own research boutique: 3IA Advisory. This company was not limited to market research but also became involved with advisory services to high net worth individuals and their investments on the Zimbabwe Stock Exchange.

In 2007, Mr Danha was hired by Renaissance Capital, a Moscow based bank specialising in emerging and frontier markets which was undertaking an expansion into Africa opening offices in Harare, Lagos, Nairobi, Lusaka and Accra.

“Within 3 years he had risen to Director in charge of the Equity Product Group for East and Southern Africa.”

Mr Danha was initially hired as an associate analyst with focus on Zimbabwean equities.

Within three years he had risen to director in charge of the Equity Product Group for East and Southern Africa with a special focus on the Zimbabwean, Kenyan, and Zambian equity markets.

This role involved the build out of research capabilities in these markets as well as the creation and maintenance of key client relationships. He was part of the Renaissance Capital team that was voted the best research team in Africa by African Investor - sponsored

Executive Director: Dzika Danha

by Thompson Reuters in association with NYSE Euronext in 2008.

In 2010, Mr Danha left Renaissance Capital to become a founding partner of the IH Group, which consists of a brokerage company (IH Securities, a Member of the Zimbabwe Stock Exchange) and a corporate advisory firm (licensed

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by the Securities and Exchange Commission of Zimbabwe). At IH Group his role is primarily focused on equities research and sales for the brokerage as well as business development.

Mr Danha holds a degree in Banking and Finance from London School of Economics, University of London. i

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> Michael Düren:

From Desertec to Desertec 2.0 The DESERTEC idea [1] was originally developed as a concept for large-scale power production in the deserts of North Africa, making use of solar energy and with the option to transport a significant fraction of the generated power to Europe. This idea has been further developed over the years and today the term “DESERTEC” means much more than the mere realization of large-scale electricity production in the Maghreb region. This article will describe three important new steps in the evolution of the DESERTEC concept: Globalization, fuel production and CO2 sequestration. But first let us have a look at the status of DESERTEC at its core.

THE IMPLEMENTATION OF DESERTEC IN THE MENA REGION We are all aware of the political changes and current instabilities in some of the North African countries and also of the financial problems in some of the European countries. All that was not very helpful for starting large-scale investments in DESERTEC projects.

Nevertheless, a lot of progress was made and there now are a number of players in North Africa, the Middle East and Europe that work on an implementation of the concept such as the DESERTEC Foundation (DF), the Industrial Initiative Dii, the MEDGRID organisation, the Friends of the Supergrid, the Union for the Mediterranean (UfM) with its Mediterranean Solar Plan, and others.

The desert countries themselves are actively preparing legislation for renewable energy feed-ins. They are also committed to showcase their potential with solar and wind power demonstration plants to foster an acceleration of their renewable power production. The Report “Desert Power: Getting Started: A Manual for Renewable Electricity in MENA” [2] summarizes the status and plans from the point of view of Dii. All in all, progress is being made, but Europe does not push the DESERTEC idea at a level that would be adequate in view of its expected benefits. The focus of the energy production in the desert countries will therefore be on local usage first. This makes sense, as the countries of the region experience high population growth rates with the associated increased demand for power. Also, industrial development is expected to accelerate. In light of these considerations, an over-dependence on investors from Europe might not be beneficial and other parties have 126

“The desert countries themselves are actively preparing legislation for renewable energy feed-ins.” expressed an interest to invest and thereby gain a degree of say.

In spite and because of the political uncertainties, there is an increasing need for an intercontinental and intercultural industrial project that can perhaps serve as a harbinger of a stronger cooperation between Europe and Africa.

Such a project could bring employment and economic prosperity to peoples on both shores of the Mediterranean, link the economies of the two continents and reduce the gradient of wealth with its well-known associated geopolitical problems.

Europe should not miss out on the chance for closer cooperation with the Arab world.

THE “GLOBALIZATION” OF THE DESERTEC CONCEPT The DESERTEC concept is applicable worldwide.

It has been shown that 90% of the world’s population lives within 3,000 kilometres of a desert, a distance easily bridgeable by modern low-loss transmission lines. Therefore, desert power has the potential to supply the electrical power needs of the whole earth. It is based on three pillars as described on the right: Conceptually, these three ingredients – together with other, mainly local sources of renewable CFI.co | Capital Finance International

THE GLOBAL DESERTEC CONCEPT 1. The deserts of the world are important sources for strong and reliable solar radiation. PV (Photovoltaics) technology can produce power during the day, while thermal CSP (Concentrated Solar Power) stations with heat storage can provide power both day and night.

2. Wind power complements solar power, especially at night, but also during the annual summer and winter cycles. Many deserts in the trade wind regions are excellent locations for wind turbines. Also, the world’s oceans and their coastal areas (both on- and offshore) offer great potential for the reliable and plentiful production of wind power.

3. A large-scale high-voltage directcurrent (HVDC) power grid is needed to transport power between centres of generation and consumption. This DC overlay grid feeds the existing regional AC grids. The size of the “smart” grid has to be on a scale of 1000 x 1000 km2 or larger to average out a significant fraction of the natural fluctuations in the production and consumption of power.

energy like hydropower and biomass – can address the world’s energy problems in the electricity sector. There is, however, a chickenand-egg problem: Large-scale desert power

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Illustration: Dii has elaborated options for renewables and grid infrastructure in MENA and around the Mediterranean until 2020.

“The DESERTEC Foundation has now started to set up local groups that promote the idea of the global DESERTEC concept.” stations will not be built unless there is a super grid to distribute the electricity generated while these super grids in turn will not see the light of day without the power plants to feed them.

for heat production and mobility. Fossil heat production can be efficiently replaced by electric power in combination with heat pumps that use of ambient heat or geothermal heat.

It is not a trivial pursuit to define a politicaleconomic roadmap for a fast transition from a conventional to a more sustainable energy supply. In order to stimulate the green economy, a reduction of direct and indirect subsidies of fossil and nuclear power is a must as is a price increase of CO2 certificates. The DESERTEC Foundation has now started to set up local groups that promote the idea of the global DESERTEC concept, e.g. in China, Japan, Africa, and South America. It has also developed a catalogue of criteria to ensure that large-scale projects in desert regions are implemented in an environmentally and socially responsible fashion.

Particular consideration is awarded to economic viability, security of supply and the social and environmental impacts of these projects.

In this sense, heat production as well as electricity production can be provided by DESERTEC. The remaining problem is to find a renewable solution for mobility applications: Engines of cars, trucks, busses, ships and planes. The bottleneck is not so much the technology of energy conversion (conventional engine, electrical engine, hybrid, fuel cell, etc.), but the question of how to store this energy inside the vehicle.

THE IDEA OF “DESERTEC FUEL” The electricity sector satisfies only about 17 per cent of world energy consumption. What about the rest? It consists mainly of fossil energy used

There are basically three options for mobile, nonfossil energy carriers: 1. Batteries 2. Hydrogen 3. Synthetic fuels from biomass In view of the scale of the problem (we are talking about a billion cars worldwide), it is unrealistic to believe that any of the three options will replace fossil fuels over the next decades. The main problems are: 1. Batteries are expensive. They require new CFI.co | Capital Finance International

cars and a new infrastructure. They are also relatively heavy and contain large amounts of specific chemicals (e.g. lithium) which need to be made available, produced and recycled on a large scale. Electric vehicles will have a great future, but we cannot expect that they will drive other options into obsolescence.

2. Hydrogen has a low energy density per volume, limited storage capacity and, depending on the technology, diffuses slowly out of containment.

Hydrogen also carries certain risks with it and requires new cars and new infrastructure.

Today, hydrogen is not competitive with LNG for example.

3. Synthetic fuels in general are not CO2-neutral when based on carbon input derived from fossil fuels or from CO2 sequestrating power plants. However, biofuels are CO2-neutral due to the fact that plants take CO2 directly from the atmosphere before it is recycled by combustion in the vehicle.

Biofuels can be distributed through the existing infrastructure and may be employed in the vehicles already on the road. The main drawback of biofuels is that their production competes with the production of food. This is the point at which DESERTEC intervenes.

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Water Desalination Plant

The idea of DESERTEC Fuel is to produce biomass, bio-fuel and especially biodiesel in those areas of the world where desertification is advancing and where normal food production is virtually impossible. In order to be sustainable, the concept of DESERTEC Fuel has to adhere to high ecological standards to ensure that it is not in competition with food-production in respect to use of land, water, energy and fertilizers.

DESERTEC Fuel goes even further: In the long

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term, it should help reclaim any given region for food production. The DESERTEC Fuel idea is not yet a fully matured concept and needs further research and development.

SEQUESTRATION OF CARBON IN A SAFE WAY The CCS (Carbon Capture and Storage) technology that is currently available generally employs underground reservoirs to store carbon as CO2 in supercritical form. There is a dispute

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raging about the possible dangers associated with this approach. As we are all accustomed to have CO2 in soft drinks, beer and in our lungs, many people do not realise that CO2 is a deadly gas: It has the tendency to accumulate in sinks and basements and at concentration of about 8% leads to unconsciousness and death within less than an hour. In Europe, the allowed concentration of CO2 in work places is 0.5%.

Autumn 2013 Issue

In addition to the risks, the newly developed CCS technology will soon become obsolete: It may only be employed at stationary power plants which will be replaced by facilities using renewable sources. CCS can also not be used for vehicles.

The fossil fuel lobby tries to promote carbon storage as a means to justify the further exploitation of fossil resources. Instead, DESERTEC recognizes

carbon storage as a method to reduce the levels CO2 already accumulated in our atmosphere.

The most economical way to reduce ambient CO2 is to grow plants.

Unfortunately, growing plants alone is not a solution. Microorganisms decompose the biomass back to CO2 after the death of the plant.

There are two ways to prevent that: The first one is to grow forests and to use the wood for houses

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and consumer durables. This way the carbon is stored for the lifetime of these objects. The second way is to pyrolyse the biomass and to store the resulting charcoal in the soil. Already 3,000 years ago, South American Indians applied this method. They produced the so-called Terra Preta that contains a very high fraction of charcoal. At that time, of course, the intention was not the reduction of the greenhouse effect by storing carbon, but the ability of charcoal to strongly

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Left to Right: The Jatropha curcas can grow in wastelands and on almost any terrain, even on gravelly, sandy and saline soils. // The Barbados nuts contain 27-40% oil that can be processed to produce a high-quality biodiesel fuel, usable in a standard diesel engine. // Jatropha plantations are an option to revegetate arid regions

improve the fertility of poor soils, as it buffers water and nutrients and reduces erosion. In a similar way, DESERTEC proposes to grow plants, pyrolyse the bio-waste and store the charcoal in the soil.

A POSSIBLE SCENARIO FOR OIL PRODUCTION AND CARBON SEQUESTRATION This chapter sketches a possible approach to large-scale biofuel production along the lines set out in the previous two sections, based on an idea worked out by Gerhard Herres [3].

Desertification on our planet is progressing and this process has to be reverted. Several organizations think about re-vegetating and/or cultivating deserts like the Sahara Forest Project, Desert Food, and many others. DESERTEC wants to add to these efforts the aspect of growing energy plants, as it adds a further class of investors and additional funding due to the

carbon mitigation and carbon sequestration option. The scenario is as follows: • Seawater is transported with pipelines to CSP plants, which produce power and desalinate seawater for agriculture.

• A preferred plant for oil production in desert areas could be the jatropha curcas (Barbados nut); a plant that can grow in wastelands and on almost any terrain even on gravelly, sandy and saline soils [4]. The plants will be irrigated by desalinated water.

• The seeds of the plants contain 27-40% oil that can be processed to produce a high-quality biodiesel fuel, usable in a standard diesel engine.

• The biomass (leaves, wood) of the plant can be pyrolysed and brought back into the soil. This way a terra preta like soil can be built up which optimizes the growth of the plants. The re-cycling of the biomass of the plants minimizes the need for fertilizers.

Acknowledgements I would like to thank my colleagues from Giessen University, from the DESERTEC foundation and the Dii for support and especially Gerhard Herres for his advanced ideas on bio-fuel production.

References [1] DESERTEC Foundation, 2013, www.desertec.org/global-mission

• After some years, the soil is ready to be used for food production. This way the energy plants do not compete with the growing of food crops but actually enable regions suffering from desertification to become granaries.

The scenario described here sounds promising, both conceptually and from the financial point of view [3]. However, it is clear that there is still a long way to validate the ecological impact of a large-scale production of bio-fuel and terra preta.

This article should be taken as a stimulus for further research.

CONCLUSION To summarize, DESERTEC 2.0 is designed to solve the energy problem in the electricity and in the mobility sector. Growing bio-fuels in areas with progressing desertification may help to regreen the deserts and to reduce the level of CO2 in the atmosphere. i

[2] Florian Zickfeld, Aglaia Wieland; Dii GmbH, Desert Power: Getting Started, June 2013, http://www.dii-eumena.com/dp2050/getting-started.html [3] G. Herres, Natürliches Geo-Engineering zur Rettung des Weltklimas, Telepolis, Aug. 2010, http://www.heise.de/tp/artikel/33/33032/1.html [4] Wilson Parawira, Biodiesel production from Jatropha curcas: A review, Scientific Research and Essays Vol. 5(14), pp. 1796-1808, 18 July, 2010, http://www.academicjournals.org/SRE

About the Author Michael Düren studied Physics at the RWTH in Aachen, Germany and obtained his PhD in 1987 in the field of particle physics. After being a postdoc at the Max-Planck-Institute for Nuclear Physics in Heidelberg,he habiltated at the University Erlangen-Nürnberg, was interim professor at the University Bayreuth and, since 2001, he is full professor for experimental physics at the JLU Giessen. Since 1988, he is member of the Energy Working Group at the German Physics Society. In 2006, he was co-founder of the interdisciplinary SEPA working group (Solar Energy Partnership Africa-Europe) at the Univ. Giessen and in 2008 co-founder of the DESERTEC foundation. Since July 2011, he is coordinator of the DESERTEC Academic Network.

The DESERTEC Foundation is a global civil society initiative aiming to shape a sustainable future. It was established on 20 January 2009 as a non-profit foundation that grew out of a network of scientists, politicians and economists from around the Mediterranean, who together developed the DESERTEC Concept. Founding members of DESERTEC Foundation are the German Association of the Club of Rome, members of the international network as well as committed private individuals.

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Saraïlis Avocats

> CFI.co Meets Michel Accad:

A Q&A Session with the CEO of Gulf Bank GULF BANK HAS MADE HEADLINES AND RECEIVED SEVERAL AWARDS RECENTLY IN PART BECAUSE OF ITS PERFORMANCE IN RETAIL BANKING AND GOVERNANCE. COULD YOU OUTLINE FOR US THE HIGHLIGHTS OF GULF BANK’S PERFORMANCE THIS YEAR? Gulf Bank is having a good year so far despite adverse market developments, which require us to continue to take high levels of precautionary provisions. Our operating performance is very strong across all our core business lines, and not just consumer banking. We are particularly proud of our achievements in risk management and in corporate governance and compliance, where a number of best practices and new systems have been introduced.

WHAT DO YOU THINK GULF BANK’S KEY STRENGTHS ARE AND WHAT DIFFERENTIATES YOUR BANK? I think our customer service standards really set us apart from the competition. We always enjoyed a customer-centric reputation, which had served us well in times of crisis. In 2011 we launched our Promise Campaign – promising the best and fastest service, “guaranteed”. We essentially make five key promises – where we guarantee very fast queuing times at our counters and same-day turnaround time for Gulf Bank cards and loan disbursements. I don’t know of any other bank in the region that makes such customer promises. It took us nearly a year to redesign our processes to achieve these targets. In 2013, we will be offering similar commitments to our corporate clients. I also believe we have been able to establish one of the best risk management processes and structures.

This now has become an integral part of Gulf Bank’s culture.

THE GLOBAL ECONOMIC CLIMATE REMAINS UNPREDICTABLE; WHERE DO YOU SEE CHALLENGES AND OPPORTUNITIES FOR YOUR BANK? As we have exited the exotic derivatives, prop trading, direct investments and hedge fund business, there aren’t many “opportunities” we can associate with volatile markets, only challenges – and we prefer it that way. However, the fact is that we were extremely proactive in building up a “fortress balance sheet” since 2009. For instance, we have taken around KD 300M in provisions since 2009, and yet, we are still making money in the end, which is a tribute to the strength and sustainability of our core operating businesses.

HOW HAS GULF BANK’S CUSTOMER BASE EVOLVED OVER THE PAST FEW YEARS AND HOW DOES THAT IMPACT ON NEW AND ONGOING BUSINESS, INCLUDING NEW PRODUCTS AND SERVICES; AND WHICH AREAS HAVE MORE ROOM FOR EXPANSION AND DIVERSIFICATION? 132

In Pictures: Michel Accad

In fact, the evolution for Gulf Bank has been more in the other direction, i.e. exiting all noncore activities as mentioned above as well as non-core segments (such as international lending to foreign entities). Rather than diversifying our products and services, we have decided to focus on what we think we do well, which is the domestic consumer and commercial banking business. Our differentiator will be service excellence and speed.

ARE THERE AREAS OF BUSINESS THAT ARE SPECIFIC TO THE ENVIRONMENT IN WHICH GULF BANK OPERATES AND ARE THERE EXTERNAL AND INTERNATIONAL/GCC AREAS THAT HAVE ROOM FOR IMPROVEMENT? The banking environment in Kuwait tends to be a little constrained on the retail side. For example, spreads and fees are very tightly regulated and generally lower than in most other international and GCC markets. Now we understand why that CFI.co | Capital Finance International

is, and the justification makes good sense, as the regulators do not want the banks to encourage consumers to borrow beyond their absorption capacity and become over-extended.

WHAT ARE GULF BANK’S MAIN TARGETS FOR 2014 THAT YOU CAN SHARE WITH US? Our target, very simply, is to become the preeminent bank and to provide the best and fastest service to our clients. That will bring more business our way, as well as, ultimately, more profits.

GULF BANK HAS SHOWN POSITIVE PROFITS AND THIS HAS CONTINUED TO INCREASE. TO WHAT DO YOU ATTRIBUTE THIS STEADY PERFORMANCE? Our success is essentially attributed to our strategy to focus on our core competencies and differentiate ourselves through service excellence. i

GULF BANK WINS BANK OF THE YEAR ...AGAIN!

Gulf Bank wins Bank of the Year, for the third consecutive year From ARABIAN BUSINESS

> The World Bank:

How the Governments in the Arab World Can Protect the Poor

By Inger Andersen

Leaders in the Arab World cannot postpone the renegotiation of their countries social contract if they want to restore stability and address the demand for social justice. More than a quarter of children in the bottom income quintile in Egypt, Morocco and Syria are chronically malnourished. 15-17 percent of Egyptians, Yemenis and Iraqis have consumption levels that are no more than USD 0.5/ day. Governments are spending much money on policies intended to protect the poor and share the country’s wealth. However, the fundamental problem with the system in place is that it relies on subsidies to lower the cost of fuel and food - and it is the rich that capture the bulk of these benefits – not the poor.

T

he political turbulence in the Middle East and North Africa region has occupied the headlines during the past three years.

The revolutions that were ignited in Tunisia in 2010 have since spread across the region and moved in a variety of different directions, and with this, new challenges have emerged. However, irrespective of who is in government, certain critical issues remain on top of leaders’ agenda: The economy and the general welfare of their citizens.

However, the fundamental problem with these subsidies that consume such a high share of public finances is that they are highly inefficient and benefit the rich far more than the poor.

A recent World Bank report, Inclusion and Resilience: The Way Forward for Social Safety Nets in the Middle East and North Africa [1], demonstrates that the richest twenty percent

of the total social safety net expenditures in the Arab world. This is in sharp contrast with countries of other regions where targeted transfers to the poor are the main type of social safety nets expenditure. Calculations presented in the recent World Bank report show that Iraq, Yemen, and Egypt spend USD100 or more on untargeted subsidies for each dollar received by their poor citizens in targeted social safety net programs. Indeed, in the average country of the Arab world, two thirds of those in the poorest 20 percent do not benefit from any form of assistance other than the general untargeted subsidies. With the exception of Yemen and the Palestinian Territories, targeted safety nets in the region lag behind those in other regions in terms of coverage, leakages, and impact on poverty.

“The richest twenty percent of the population in Egypt reap the majority of fuel subsidies.”

During the revolutions the most prominent call from citizens across the Arab world was the quest for social justice, protecting the poor (e.g. more than a quarter of children in the bottom income quintile in Egypt, Morocco, and Syria are chronically malnourished) and achieving a more even distribution of the nation’s wealth. That a few sit on most resources is well known, but what perhaps is less known is that the governments’ costly policies intended to “protect the poor and distribute the country’s wealth” have in fact exacerbated the initial inequality rather than reduced it.

Governments in the Arab world have relied on subsidies to lower the cost of fuel and foods as the principal means of preserving the living standards of the poor. The region has the highest levels of subsidies in the world, representing on average a full 5.8 percent of Gross Domestic Product (as opposed to 1.3 percent of GDP in the average benchmark developing country), and the bulk of this subsidy spending goes toward reducing the price of fuel (see Figure 1).

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of the population in Egypt reap 60 percent of fuel subsidies while in Yemen the richest twenty percent reap 40 percent of the fuel subsidies.

Although food subsidies provide many with affordable access to food and are more evenly spread across the welfare distribution, they are not pro-poor either. They simply do not reach many of the poor.

The subsidies are expensive and have failed to deliver the economic or social value equal to the money spent on them. Another negative side effect is the distortion they have had on consumption and perverse impact on economic activities, discouraging improvements in energy efficiency and resource use. Moreover, the fiscal resources spent on subsidies have taken away from other social safety net (SSN) programs, such as targeted transfers to the poor and improved social service delivery.

Currently, subsidies consume close to 90 percent

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There are many social safety net programs around the world, which have proven to be significantly more effective than subsidies in promoting the livelihoods of the poor and vulnerable (one of the reasons why many countries in other regions, such as Indonesia, Mexico, and Turkey, have moved away from general untargeted subsidies towards more efficient targeted SSN instruments). Mexico and Brazil have instituted cash transfer programs targeted at the poor and vulnerable and these programs reach 30 percent of the population and cost 0.5 percent of GDP. These programs have reduced poverty and significantly improved schooling and primary health care usage.

However, in the Arab world, the lack of reliable safety nets forces households to engage in other

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â&#x20AC;&#x153;The lack of reliable social safety nets forces households to engage in coping mechanisms that deplete their human capital accumulation.â&#x20AC;?

The Saladin Citadel of Cairo, Egypt

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Why then has comprehensive subsidy reform not taken place in the Arab world? Even in the face of strong evidence that there are more effective ways of fighting poverty, citizens of the region tend to resist subsidy reform. Especially the wealthier segments of society - who benefit the most from subsidies - have stood against reform process and these are also the same groups that have dominated the media debate on subsidies.

At the other end of the spectrum, the poor also seem to believe that subsidies are their best bet, partially because their governments’ have not offered them any other options to date, and they therefore doubt that any savings from subsidy reform would be used for programs that would help them.

Although some governments in the Arab world have made half-hearted attempts at introducing subsidy reform, they have generally not presented their constituents with a convincing substitute (such as the expansion of targeted social safety nets, as was done in Indonesia or Mexico).

Without showing the citizens that the subsidy savings will be channeled into more efficient poverty-reducing programs, it is difficult to gain trust and support for reforms that remove existing benefits.

An opinion poll (“MENA SPEAKS”), conducted in Egypt, Lebanon, Jordan and Tunisia as part of the recent World Bank report on social safety nets in the region, confirmed that the populations lack of trust in the benefits of subsidy reform but also confirmed that it is possible to increase support for reforms by offering credible alternatives to subsidies. The poll revealed significant initial lack of willingness to consider any subsidy reform in three of the four countries (Lebanon was the single exception), even though citizens in all countries were more willing to reform fuel subsidies compared to food subsidies. More interesting was the finding that many of those who initially opposed removing subsidies from any product became willing to support a diesel

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12

% of GDP

9 6 3 0

Untargeted food and fuel subsidies Targeted SSNs

Figure 1: MENA countries spend, on average, almost 6 percent of GDP on untargeted subsidies.

Source: Silva, Levin, and Morgandi (2013).

70

60

Total subsidy benefits, %

Social safety nets have a substantial role to play in addressing key human development challenges facing the region. By increasing human capital and building assets for the poor, social safety nets can contribute to promoting inclusion.

By protecting the poor against destitution and mitigating the effects of poverty, social safety nets can contribute to promoting better livelihoods.

By helping households navigate the effects of shocks, social safety nets can contribute to promoting resilience.

15

50

40

30

20

10

0 Poorest quintile

Q2

Q3

Iraq 2007: food ration cards Egypt, Arab Rep., 2009: fuel subsidies Jordan, 2010: food subsidies

Q4

Richest quintile

Yemen, Rep., 2005: fuel subsidies Jordan 2010: fuel subsidies

Figure 2: Fuel subsidies in MENA disproportionately benefit the richest twenty percent.

Source: Silva, Levin, and Morgandi (2013).

Of respondents who initially opposed any subsidy reform, % that would:

coping mechanisms that deplete their human capital accumulation, increasing the risk of both unemployment and precarious employment opportunities. Think of the family that is forced to take their daughter out of school (it is usually always the daughter – not the son – who is taken out of school first), or having to sell their cow – which may represent the family’s main asset.

80%

60%

40%

20%

0% Tunisia

Egypt

Lebanon

Jordan

Support diesel subsidy reform if savings are distributed to the poor and spent on health and education programs for all Support diesel subsidy reform if savings are distributed to the poor

Figure 3: Credible alternatives to untargeted subsidies can raise citizens’ support for reform.

Source: World Bank / Gallup MENA SPEAKS 2 survey.

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Autumn 2013 Issue

“A poll revealed that citizens who oppose the removal of subsidies would change their mind IF they knew that the savings would be distributed to the poor.” subsidy reform (two-thirds of Tunisians, 59% of Egyptians and 20% of Lebanese and Jordanians) given the scenario that the savings gained when eliminating the subsidy were to be distributed to the poor or as a combination of transfers to the poor and increased spending on education and health care (as was done in Indonesia) (see Figure 3).

This poll showed the importance of trust in the delivery of compensation; by raising credibility, increased transparency in social safety nets delivery can increase the willingness of citizens to forgo their own welfare for the benefit of the poor.

Governments in the region are well aware that there are more effective and less costly ways of protecting the poor and vulnerable than the existing general untargeted subsidies. They are also aware that there are a number of compelling international examples that can serve as guides.

For example, Indonesia, Mexico and Turkey ensured targeted social safety nets were an integral part of their subsidy reforms: • In Indonesia, fuel price subsidy reform in 2005 resulted in savings of about 2 percent of GDP, which allowed the government to spend 0.7 percent of GDP on a compensatory unconditional cash transfer for 19 million poor households. The compensatory program was set up in less than 6 months and was a stepping stone for the conditional cash transfer (CCT) system established thereafter.

Moreover, the remaining resources were spent on education and health insurance, thus further increasing the trust in the reform process.

• In 1995/96, Mexico instituted gradual elimination of general food price subsidies that had

benefited urban dwellers at the expense of the rural population. This reform led to savings, part of which was redirected toward the introduction of the country’s well-known and successful targeted CCT program, Oportunidades.

• In Turkey, reforms to reduce untargeted agricultural support subsidies not only eliminated their distortionary effects on local prices but also resulted in large fiscal savings that allowed the government to finance a direct income support program for farmers in 2002/03.

The Arab world is ready for social safety net renewal and for moving away from untargeted subsidies towards more effective and efficient programs that target the poor and the vulnerable.

This has to be seen as part of a renewed social contract in the societies of the Arab world.

Looking ahead, the report urges governments (i) to draw from l international best practices in order to get some ideas and experience from other countries that have managed the challenging reform process; and (ii) increase and improve coverage of social safety nets programs that target the poor and the vulnerable prior to instituting reduction in general untargeted subsidies. Rollout of programs supporting and protecting the poor will help grow the trust of citizens and can show that alternative programs can work and compensate for the loss of subsidies. For this to succeed, communication campaigns are essential to inform citizens of why reforms are needed and what they entail.

ABOUT THE AUTHOR Inger Andersen, a Danish national, is Vice President of the Middle East and North Africa at the World Bank, where she is responsible for the Bank’s strategy and operations throughout the region. Prior to her appointment, she served as Vice President of Sustainable Development, where she led the Bank’s work with developing countries to provide sectorial leadership in the agriculture, water, environment, climate change, and infrastructure sectors.

Ms. Andersen joined the World Bank in 1999 and has served the bank in a range of capacities in the sustainable development sectors, including as Sector Manager and Director in Africa and as Director in the Middle East and North Africa.

Prior to joining the bank, Ms Andersen worked at the United Nations for 12 years, including in UNDP’s Regional Bureau of Arab States and in the United Nations Drought and Desertification Office.

Ms Andersen’s country experience is extensive, including five years in Sudan, where she also became a student of Arabic. Ms Andersen received her Master’s Degree in Development Economics and African Politics from the University of London, School of Oriental and African Studies.

Experience from countries such as Indonesia, Mexico and Turkey show that the shift can successfully be made but it will require political agreement and proactive outreach to citizens. i

OVERVIEW OF WORLD BANK - MIDDLE EAST & NORTH AFRICA The World Bank’s Middle East and North Africa region follows a framework of engagement based on four main pillars: Strengthening Governance through transparency and accountability measures to help create responsive states that are held accountable for their actions; Increasing Social and Economic Inclusion of disadvantaged groups through economic measures and enhanced voice and participation (e.g. women and minority groups); Creating Jobs, including for youth and women, by providing an enabling environment for opportunity, competition, innovation and entrepreneurship; and Accelerating Sustainable Growth through short and long-term policy actions promoting climate-friendly growth to manage stresses on natural resources.

References [1] This report was authored by Joana Silva, Victoria Levin and Matteo Morgandi under the supervision by and with support from Yasser El-Gammal.

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> Saudi Hollandi Bank:

Poised for Sustained Growth SHB OVERVIEW Saudi Hollandi Bank, the first operating bank in the Kingdom of Saudi Arabia, was founded in 1926.

Originally it was known as The Netherlands Trading Society, and operated out of a single office in Jeddah. Its main business at the time was providing financial services to Haj pilgrims from Indonesia. As it was the only bank in the kingdom at the time, it acted as the central bank, keeping the kingdom’s gold reserves and receiving oil revenues on behalf of the Saudi Arabian government. In 1928 the Saudi Riyal, a new silver coin commissioned by Late King Abdulaziz, became the kingdom’s first independent currency. The Netherlands Trading Society office in Jeddah had the honour of assisting the government with the launch of the local currency.

In 1954 the Netherlands Trading Society expanded its operations in the Kingdom by opening two additional branches, in Al Khobar and Dammam in the Eastern Province.

In 1969, ABN Bank was one of the first foreign banks to implement the Saudization initiatives set forth by the Saudi Arabian Monetary Agency (SAMA) and became the model for other foreign banks in the kingdom. In 1977 the Saudi Hollandi Bank was established as a joint-venture company with a paid-up capital of SAR 35 million.

The branch network was expanded to include Riyadh, Jubail, Makkah, Hofuf, Madinah, Qatif and other regions.

Over the ensuing years, the bank continued to expand and develop, introducing a number of technical innovations in banking and expanding both its range of products and services and its customer base. In 2006, the bank celebrated 80 years of providing loyal service to the citizens of Saudi Arabia. In 2009, the bank opened its new operations centre Al Waha, which houses the bank’s centralised operations, functions as well as the SHB Academy. Also in 2009, SHB was the first bank in the kingdom to deploy the automated Teller Cash Recycling machines (TCR), which was introduced to enhance the Open Branch concept that allows a direct and friendlier contact between the bank’s employees and its customers.

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“Small & Medium Enterprises in the kingdom represents the most powerful engine for growth and job creation. The sector also offers an attractive business proposition for financial institutions with the right type of skill set and focus.”

At the end of December 2012, the bank’s paidup capital amounted to SAR 3,969 million.

Saudi Hollandi Bank employs 1,499 staff with a Saudization ratio of over 88 % and operates 45 branches, 16 Ladies Sections and 257 ATMs providing banking services throughout the kingdom.

SHB BUSINESS SEGMENTS SHB is organized into three main business segments: Corporate Banking, Personal Banking and Treasury. In addition, the bank provides brokerage, asset management and investment banking services through Saudi Hollandi Capital, an effectively wholly owned subsidiary. The bank also owns a 20% stake in the Wataniya Insurance Company, wholly owns the bancassurance distribution arm, Saudi Hollandi Insurance Agency Company, and wholly owns a subsidiary in support of its real estate related business, the Saudi Hollandi Real Estate Company.

Corporate Banking The Corporate Banking Group provides corporate, commercial and institutional clients with a wide range of products and services including Term Loans, Trade Finance, Guarantees and Corporate

CFI.co | Capital Finance International

Finance and Advisory. It also offers an extensive range of Sharia compliant corporate products under Islamic structures.

Personal Banking The Personal Banking Group operates through a national network of branches and ATMs complemented by a range of phone banking and e-banking services. Products and services include Current and Time Deposit Accounts, Personal Loans, Home Finance, Credit Cards, Internet Banking and Telephone Banking.

Tailored Preferred Banking and “Taqdeer” services are available to qualifying clients who place sufficient funds with the Bank. Share Trading services and Fund Management products are available through Saudi Hollandi Bank’s subsidiary, Saudi Hollandi Capital. The bank also offers a wide range of Ladies Banking services through a network of Ladies Branches.

Treasury Saudi Hollandi Bank’s Treasury unit provides hedging and investment solutions to the bank’s clients. Building on its leading position in foreign exchange cash products, the Treasury Department has continued to grow its (structured)

Autumn 2013 Issue

Al Faisaliyah Complex: Riyadh, Saudi Arabia

derivatives businesses in foreign exchange and special commission rates. Treasury is among the most active interbank market makers in Saudi Riyal-denominated foreign exchange and special commission rate products.

THE GROUP The subsidiaries and associates of Saudi Hollandi Bank are provided below: Saudi Hollandi Capital (SHC) A wholly owned subsidiary of SHB commenced business activities in early 2008 with the approval of SAMA and the CMA. Since then, SHC has been involved in a number of significant transactions. SHC engages as principle and agent in retail equity brokerage, asset management, corporate finance and investment advisory activity, debt arrangement and securities custody services.

Saudi Hollandi Real Estate Company (SHREC) SHREC is involved in the registration of real estate title deeds in support of the bank’s Home Financing products.

Saudi Hollandi Insurance Agency Company SHIAC, a wholly owned subsidiary of SHB, is licensed in insurance activities. The company commenced its operations during 2012.

INTRODUCTION OF BUSINESS BANKING IN 2012 Small & Medium Enterprises “SME” in the kingdom represents the most powerful engine for growth and job creation. The sector also offers an attractive business proposition for financial institutions with the right type of skill set and focus.

In 2010, Saudi Hollandi Bank embarked on a journey with International Finance Corporation to draw a roadmap for devising its offering strategy for this particular segment. SHB Business Banking is the result of this exercise.

SHB Business Banking aims to provide best in class full suite of financial solutions tailored to meet financial requirements of this SME segment. SHB’s primary focus is ensuring ease of doing business for its SME clientele and being a leader in product innovations. With this vision, SHB has already put in place a dedicated SME Relationship Team and has targeted to open multiple dedicated business banking centres across the kingdom, the first six of which are already fully operational.

Key Cornerstones of SHB Business Banking offering include: • Banking in a Shariah compliant manner • With a full suite of banking solutions • Through our specialised Relationship Managers • In our dedicated business banking centres • Through our multiple banking channels

More details about Saudi Hollandi Bank products and services are available on www.shb.com.sa i

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> CFI.co Meets the Managing Director of Saudi Hollandi Bank:

Dr Bernd van Linder

D

r Bernd van Linder has been Managing Director of Saudi Hollandi Bank (SHB) since May 2009. From 2006 to 2009, Dr van Linder served as the bank’s treasurer. He is a director of Saudi Hollandi Bank and of Saudi Hollandi Capital, the bank’s wholly-owned investment banking subsidiary. Dr van Linder is also director of Wataniya, a listed general insurance company affiliated with Saudi Hollandi Bank.

Prior to joining Saudi Hollandi Bank, Dr van Linder worked at the Dutch ABN AMRO Bank in a variety of functions in the bank’s Global Markets Division. He holds a PhD from the University of Utrecht, an MSc from the University of Nijmegen, and an MBA in Finance from Bradford University School of Management. Dr van Linder is married with three children and lives with his family in Riyadh.

Dr van Linder is most encouraged by his bank’s strong position to satisfy demand for financial services to the rapidly expanding segment of small and medium-sized enterprises (SMEs) in the kingdom. He notes that non-oil related economic growth, at 5-7% annually, has been particularly strong. “The forecast is excellent with a further 7% yearly growth expected for the remainder of the decade. Opportunities abound,” says Dr van Linder.

The SHB chief also expects demand for retail banking services to increase as the budding Saudi middle class expands: “Employment is up significantly as corporates expand their production capabilities and hire more people.

This in turn leads to a strong demand for modern financial services which SHB is able to meet.”

However, competition among the twelve banks operating in Saudi Arabia is fierce and being heir to the kingdom’s oldest bank offers no guarantee of continued success for SHB. The bank’s director is convinced that only those institutions will prevail that are able to best serve the needs of their customers through multiple channels such as conveniently located branches, internet banking, mobile applications and excellence in service. “We are constantly on the lookout for improvements to both our products and the way in which they are delivered. Consumers are becoming ever sophisticated and the bank cannot lag behind.”

Contrary to his peers elsewhere in the world, Dr van Linder doesn’t lose sleep over the

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Managing Director: Dr Bernd van Linder

implementation of the Basel III Accords that set the future standard for capital and liquidity requirements and leverage ratios. “Our regulator, the Saudi Monetary Agency, is already now imposing much of the Basel III standards on the kingdom’s banks. Without exception, all Saudi banks have excellent capital ratios and impressively low leverage ratios. Their liquidity position is very strong. For all practical intents and purposes, Saudi banks are already operating under the provisions that Basel III seeks to implement.”

On the challenges posed by Sharia-compliant banking, Dr van Linder is adamant: The delivery of first rate financial services is not in the least hampered by Islamic Law. “Our customer demand Sharia-compliant services and we make sure that they are available. SHB has invested heavily in

CFI.co | Capital Finance International

the development of product and structuring capabilities to the point where we today have a full range of Sharia-compliant products. In fact, any conventional product offered by us now has a Sharia counterpart. This holds true in both the retail and corporate segments. Since we are very much in the business of meeting our customers’ demand this development will continue.”

Dr van Linder was recently included in the list of 50 most efficient CEOs in the Gulf States. Under his leadership the Saudi Hollandi Bank saw its profits multiply. SHB has outperformed its local peers each year since Dr van Linder took over management of Riyadh-based SHB. The bank’s over 1,700 employees each contribute more than $74,000 to the bottom-line, another recordsetting performance in the kingdom. i

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> Center for Citizen Empowerment and Transformation:

A How-To for NGOs

By Sam Daley-Harris

In 2012 I launched the Center for Citizen Empowerment and Transformation to help large non-governmental organizations find and train that small portion of their members who want to go far beyond mouse-click advocacy and create champions in Congress and the media for their cause. Five years earlier, I had gone back to the anti-poverty lobby group RESULTS half time and was traveling around the country starting and empowering grassroots groups in a quest to better understand what made citizen empowerment and transformation work.

T

hat quest helped me identify 13 commitments needed for success which are discussed in this essay. As I was developing the concepts, my wife wondered if circulating the list was tantamount to giving away the store. I saw her point but also knew that so little is understood about true citizen empowerment and transformation that even if I nailed the list to every tree in the nation and circulated it online as widely as possible, people still wouldn’t get it.

There are so many misconceptions on this topic that even if we think we understand a concept, our instincts lead us astray.

For example, one principle that almost every organization gets wrong is the fact that campaigns must be focused if volunteers are to go deep enough on an issue to have real breakthroughs with their members of Congress and the media.

But the conventional wisdom mistakenly assumes that if you focus on one issue over the course of a year the volunteers will get bored. This is only true if the curriculum is shallow and the issue lacks vision. What conventional wisdom doesn’t understand is that gaining mastery on a topic over time—deeply understanding the legislation, players, arguments, and politics—is thrilling for most volunteers and gives them a confidence that is exciting rather than boring. Rejecting the conventional wisdom, Citizens Climate Lobby (CCL) has focused on a carbon tax and dividend for two years and yet, in the first eight months of 2013, CCL volunteers in the U.S. and Canada have had 745 letters to the editor and 141 opeds published and have had 602 meetings with members of Congress and Parliament or their staff. Is that what boredom looks like? I don’t think so.

While my aim with the Center for Citizen Empowerment and Transformation (CCET) is to spread these 13 commitments that are so critical to deep empowerment, what I mostly 142

“Why don’t our major nongovernmental organizations (NGOs) provide real empowerment and transformation for even a small portion of their members?” encounter are organizations fascinated by the latest technological innovations: Facebook, Twitter, e-mails, on-line petitions, and text messages. Most are uneasy with a focus on personal empowerment and transformation, uncomfortable with the deeper social innovations.

While advances like Twitter and on-line petitions are useful tools, I find it misleading to call these tools “social media” when these so-called social media tools often help people avoid the deepest social interactions on which true change so often depends. For example, feeling nervous beyond measure before calling an editorial writer to initiate a conversation on an issue you care about, but picking up the phone and calling anyway, is the first step toward one of those deep personal interactions that are so often avoided.

Why don’t our major non-governmental organizations (NGOs) provide real empowerment and transformation for even a small portion of their members? I believe it comes down to not knowing what to do, not knowing what works, the fear of failure, and that same fear of being told “no” that keeps volunteers from picking up the phone as described above. It also comes from NGOs taking comfort in the clout they already have, even if that clout is insufficient to reach their ultimate goals.

I began identifying the commitments necessary for success, essentially distilling the heart and experience explained more fully in the 20th anniversary edition of Reclaiming Our Democracy. As you study a sample of the CFI.co | Capital Finance International

commitments, beware of the tendency to dismiss them as too difficult or to see your organization as already fulfilling them. While you may be achieving them, it is more likely there are deeper levels yet to be reached.

A POWERFUL STRUCTURE OF SUPPORT This is the first commitment—the foundation. A powerful structure of support is where this model differs from that of most other organizations. If greatness is expected from volunteers, then a great structure of coaching and empowerment will be required from the organization and its staff, something beyond e-blasts and the occasional webinar. Among the failures of grassroots empowerment is the myth that all volunteers need is a training session on meeting a member of Congress, a packet of materials, and a sense that their cause is just. This analysis ignores the heavy layer of cynicism and despair found in each of us and indeed throughout society. Each of the items mentioned in this list comes to life in a powerful structure of support which includes inspiring 1) monthly conference calls for groups, 2) weekly coaching calls for group leaders, 3) monthly action sheets, and 4) packets for editorial writers. Without that, all of the commitments listed below become interesting ideas that are seldom implemented.

It must be emphasized that a structure of support can either fall in the “going through the motions” category or, instead, consistently strive to be groundbreaking. For example, one component of the monthly conference call is the guest speaker. Even if the guest speaker is dazzling each month, if they are given 25 minutes but leave no time for questions, the volunteers will become the proverbial “bumps on a log” and not as profoundly engaged as they would with a 10 minute talk followed by 15 minutes of discussion. Another section of the monthly conference call is when a few volunteers share their successes.

Autumn 2013 Issue

But if all the volunteer says is, “We had a great meeting with our member of Congress and can’t wait to do it again,” and they leave out the fact that it took 11 phone calls to get the appointment, they had to meet with the district director first, and their knees were knocking as they walked into the meeting, it won’t be as useful for the others on the call. Another section of the monthly conference call, something most organizations omit entirely, is practicing to be more articulate through a role play or some other form of training. If a volunteer tries the role play and does a terrible job, but the staff can say no more than, “Thank you for volunteering,” then we have missed an opportunity for real growth and are left with a moribund structure of support.

themselves. This call for practice includes an organizational commitment to improvement, coaching, and being coached.

SELECTING THE RIGHT STAFF Building a unit that truly delivers citizen empowerment and transformation requires the commitment of a successful startup.

Therefore, another critical ingredient is selecting the right staff. One must select a staff that is entrepreneurial, unstoppable, and inspiring or committed to learning to be more inspiring. No matter how good the outside coaching, if the staff is not entrepreneurial and unstoppable and is not committed to being inspiring, the effort will not succeed. There must be a perceived pain that this program will relieve and a true sense of calling that goes far beyond the effort put into a typical 9-5 job. There must be an attitude of “we will get this done, no matter what.” The staff must own the vision completely as any great entrepreneur would do and be persistent in the face of opposition.

These breakthroughs can happen with a member of Congress, with an editorial writer, with other leaders in the community, and with oneself.

Empowering others in this way and providing opportunities for them to express their greatness is one of the gifts of deep advocacy.

PRACTICE AND COACHING One of the great challenges to the future of our planet is our short attention span. But when one has a 20-30 minute meeting with a member of Congress, editorial writer or other community leader, what had been a superficial understanding can now go much deeper. But this is only possible if the volunteer has practiced and prepared and has something profound to offer. Practice builds confidence and develops one’s leadership. We shy away from arranging a meeting with a member of Congress, writing a letter to the editor or calling into a talk show because we think we don’t know what to say.

Only real practice can change that. The organization must be committed to ensuring the volunteers have ongoing opportunities for real practice in order to become spokespersons

EMPOWERING BREAKTHROUGHS For a citizen to go from not knowing the name of their member of Congress to having a deep, trusted relationship with him/her requires a series of breakthroughs—it requires moving out of their comfort zone. That is essentially the definition of a breakthrough, seeing something that seems difficult or impossible, having some discomfort in taking it on, and then, with coaching and support, going through that comfort zone to experience the joy and accomplishment on the other side.

BUILDING DEEP RELATIONSHIPS When an op-ed is selected for publication it has less to do with the quality of the op-ed and more with the relationship one has developed with the op-ed editor. Of course timing and quality are important, but it is more valuable to have ten people who have great, trusted relationships with op-ed editors pitch a good op-ed than to send a great op-ed to ten editors with whom there is no relationship. So the commitment is not so much to having an editorial writer or member of Congress say yes to every request, but to building a deep, trusting relationship. Hearing “no” from a member of Congress early on should be seen as just one step along the path to building a great relationship over time.

BEING VULNERABLE Showing an emotional video or reading convincingly an excerpt from an evocative article to a member of Congress is more important than just sharing information. The goal is to tap into their humanity and create a deeply memorable moment. If your issue is poverty, for example, the goal is to have the meeting be as close to an actual field visit as possible. But people shy away from being vulnerable, especially with those in positions of power.

Bringing an emotionally moving video or reading to a member of Congress can make a volunteer CFI.co | Capital Finance International

feel especially vulnerable. Instead we are more likely to hide behind a presentation of facts and figures. However, a willingness to be vulnerable is essential to having breakthroughs, engaging others, building powerful relationships, and, ultimately, success.

WHAT ARE PEOPLE CAPABLE OF? This list of commitments is a tall order, but what is at stake is the quality of life on this planet and perhaps life itself. There are two competing visions of people and their ability to change the world for the better. One sees individuals as weak, inadequate, inconsequential, and just not up to the job. The other sees people as being strong, committed, brave, visionary, audacious, and heroic.

If our species is to have any hope of living up to our responsibility, of succeeding and thriving, we must see people as strong, brave, visionary, audacious, and heroic. And if we embrace that vision we must return to Robert Schwartz’s assertion that now, more than ever, we need social innovations that empower individuals to have breakthroughs in expressing their personal and political power for the good of humanity. But we know that these breakthroughs do not occur spontaneously or without being nurtured. If we are to help people achieve them, we must create the profound structures of inspiration, challenge and support that enable individuals to do the work of protecting the planet and all of creation.i

Taken from Reclaiming Our Democracy: Healing the Break Between People and Government © Copyright 2013 by Sam Daley-Harris. Published

by Camino Books, Inc., Philadelphia, PA. Used by permission of the publisher. All rights reserved.

Sam Daley-Harris is the author of Reclaiming Our Democracy. A 20th anniversary edition was released in September 2013 www. reclaimingourdemocracy.com. He founded RESULTS in 1980 (www.results.org), founded the Microcredit Summit Campaign in 1995 (www.microcreditsummit.org), began coaching Citizens Climate Lobby in 2007 (www.citizensclimatelobby.org), and founded the Center for Citizen Empowerment and Transformation in 2012 (www. citizenempowermentandtransformation.org).

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>

THE EDITOR’S HEROES

W

hile busy heading off crises – financial or otherwise – governments worldwide tend to forget who it is that they are working for. Policies are set to shield societies from perceived ills, further an agenda for national progress, address the wants of a particular stakeholder or protect individuals from inclinations possibly detrimental to their own well-being.

on in the next village over or in the capital city.

As the spread of news widens, the speed of its delivery accelerates. The Arab Spring pales in comparison to the imposition of good government practices demanded by the increasingly restless multitudes of Sub-Saharan Africa. Perhaps for the first time since decolonization, African rulers must listen to masses no longer huddled and behave in order to hold on to power.

Wars are being waged on poverty, bigotry, drugs, and whatnot. Laws are being enacted to manage the most minute details of human existence. The European Union, for all the tremendous benefits it has brought to its now 28 members, still insists on regulating the way olive oil is served in restaurants: Dipping bowls and oil jugs are to be banned; if it’s up to Brussels, hermetically sealed individual servings are the way forward. It’s for our own good. Meanwhile, the government of Russia seems rather busy driving gay people into closets while the White House remains obsessed with terrorists – both real and imagined ones. In much of the Middle East religious leaders hold sway driving themselves and others into a frenzy at the first sign of secularism. Perish the godless thought.

Businesses the world over have already caught on to the changing mood. Corporate responsibility is high on the agenda. In order to remain profitable, companies have to actively contribute – and be seen to do so – to the well-being of society. Just taking care of shareholders is no longer enough. Adam Smith’s benevolent hidden hand is no longer blindly trusted to ensure the creation and distribution of wealth. The environment needs attention as do the people and their communities hosting businesses.

While politicians and unelected administrators the world over are busy satisfying their cravings for more regulation, tighter laws and comprehensive control, societies seem to go their own way. New technologies enable people to raise their voices, voice their opinions and communicate in ways unimaginable just a few years ago.

Technological progress – unrelenting and unstoppable – increasingly empowers and shapes a new form of anarchy whereby savvy users take charge of their own fate, tired as they are of waiting for officialdom to act. In fact, powers-that-be can often merely react to whatever societal novelty technology has produced.

The unfettered exchange of information and almost universal access to knowledge made possible by the coming of age of the Internet – and its momentous shift from static wired networks to dynamic mobile ones - have given rise to a vast array of powerful grassroots initiatives that can change the way societies operate and even topple potentates.

As Africa gets connected at a rate of some 60 million new (mobile) phone connections annually, people start chattering not so much about fashion or star gossip, but about deals and opportunities, finding out what is going

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Most governments, however, seem rather at a loss on how to deal with the social change wrought by the nascent Age of Information.

States are eager to adopt new technologies and often have the wherewithal to buy the very best of it. Instead of using these new means to foster growth, development and increased freedoms, the technology is mostly employed to keep societies in check.

The full extent of the wholesale spying operations conducted by the US, Great Britain and countless other countries is yet to be unveiled.

The implications of this all-inclusive, and mostly unlawful, eavesdropping are also a big unknown.

However, it is clear that the snooping has now spiraled out of control. It is no longer used to prevent terrorists from plying their trade, but to map societies in order to better control them.

Privacy concerns are met with official scorn or at best addressed in ways that aim to hush rather than to solve. People of Nordic countries have already resigned themselves to being constantly monitored and allow their private affairs to be subjected to public scrutiny without so much as a squeak. For them the NSA’s spying is perhaps a less traumatic event since Nordic governments make no qualms about their prerogative to scrutinize every aspect of their citizens’ lives.

Rest assured though for they do so for the public’s own good of course. There is nothing whatsoever to fear. Still, this is perhaps not quite the brave new world we would want to build.

The widening gap between the civil society and its government creates plenty of room for

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enterprising people to take matters into their own hands. As issues pop up, there always seems to be somebody – or indeed a group of like-minded people – to take matters into their own hands. Self-help and caring communities appear the perfect answer to governments’ increasing inability to address problems.

In this issue of CFI.co, we feature ten people who are decidedly not famous or well-known.

These are folks who see an issue and promptly decide to tackle it, not waiting for slow-moving state bureaucracies to come to the rescue.

These heroes are not motivated by either fame, money or any other reward other than perhaps the satisfaction of being part of the solution, rather than the problem. Our heroes do however have a heightened sense of justice and fairness.

It is such people that will ultimately be the driving force of the many reforms the global community is in need of. The days of rousing political ideologies have gone. The void is being filled by common, creative, enterprising and visionary folks. Say, the 99% of us who are not actually obsessed with creating money out of nothing, but rather would just lead satisfying lives dedicated to personal improvement through work and/or study and trying to climb up the societal ladder without stepping on too many fingers or toes.

Community engagement, the loosely defined theme around which this issue of CFI.co is organized, becomes increasingly important of an engine to power growth and create lasting prosperity. There is no need to cultivate utopian visions of idyllic places where people live in perfect harmony with each other and with their natural surroundings. That’s just not in the books. What may be attainable is a global village where the exercise of political power does not entail spying on every aspect of human existence or forcing populations into a straightjacket of control.

Politicians and bureaucrats work for and serve the people: All the people, not just the most fortunate 1% of them. Information technology, while used to monitor for any sign of deviancy from whatever is deemed politically correct, is also empowering the 99% less well looked after.

That knowledge holds great promise for the immediate future.

Engage and communicate. Participate and access information freely. Be heard and listen.

Tweet, like, blog, dig and pin: Choices abound.i

Autumn 2013 Issue

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> SUNITA NARAIN India: Organizing Communities for Sustainable Development

“We don’t lose fights; we can’t afford it.”

“We don’t lose fights; we can’t afford it.”

Nobody has ever accused Indian activist Sunita Narain of modesty. It’s a luxury she cannot indulge in while championing local democracy and the environment.

Ms Narain heads the New Delhi-based Centre for Science and Environment (CSE) which doggedly fights against unsustainable development trends riding roughshod over the interests of those in the process of being left behind. “India is no place for western-style environmentalism born out of a desire to improve the world for future generations,” says Ms Narain, “we just don’t have time for tree-huggers.”

Rather, Ms Narain organizes communities to demand and implement what CSE calls “environmentalism of the poor”: Measures that enable people to survive without causing harm to either nature or the surroundings they depend on for their living. “Fishermen cannot work when riverine life is choked by chemicals from some 146

big plant upstream or lakes are contaminated with raw sewage.”

For over thirty years Ms Narain has been calling on big business to clean up its act and show a modicum of respect for the environment.

Her organization has been sued by the largest of companies and managed to survive.

When CSE found worrying levels of pesticides in water sold by US and local bottlers, the organization was promptly hauled to court for defamation. “Coca-Cola and PepsiCo actually joined hands to sue us which must surely be unique. But they lost the case anyway,” says Ms Narain who is now embroiled in a lengthy court battle with Indian manufacturing giant Tata Motors.

“At the end of the day, we’re looking for development that meets the needs of all. This requires a coherent set of environmental policies.

Allowing diesel vehicles to spew out noxious fumes, while technologies exist to limit these CFI.co | Capital Finance International

emissions, undermines civil society. In order to survive, grow and prosper people at least need to be able to breathe air that doesn’t make them sick.”

For Ms Narain the solution lies in a more inclusive political model that allows people to vote directly on local policy initiatives that affect both their lives and livelihoods: “Ask anyone in a big city where the drinking water is sourced or where the sewage goes and almost nobody has a clue. That must change if we are to take charge of our own future.”

Ms Sunita Narain also heads the Society for Environmental Communications and publishes the fortnightly magazine Down To Earth. In 2005, Ms Narain received the Padma Shri India’s fourth highest civilian award. Four years later, the University of Calcutta awarded Sunita Narain an honorary Doctor of Science degree in recognition of her work.

Autumn 2013 Issue

> BALA AMARASEKARAN Sierra Leone

“If they looked for someone with the right capacity to run a chimp sanctuary, I probably would be at the back of the line.”

Bala Amarasekaran hasn’t gotten a paycheck in 16 years, but this middle-aged husband and father – who regularly clocks 60-hour workweeks – isn’t complaining. Mr Amarasekaran is the founder and director of Tacugama Chimpanzee Sanctuary, a “halfway house,” as he puts it, for chimps that have been abandoned or abused and can’t make it on their own in the wild.

Far too many chimps fall into that category in Sierra Leone, the small country in West Africa. Habitat destruction, the pet trade, and bush meat hunting have left scores of chimps orphaned or stranded. Mr Amarasekaran is doing what he can to rehabilitate them and help them move back into the wild.

“This all happened by accident, basically,” Mr Amarasekaran admits. It all started in 1988, when he happened to come across a chimp tied to a tree at the side of the road in rural Sierra Leone. The chimp, a young male, was dehydrated and sick, and he clearly wasn’t going to last long much longer tied to that tree.

So Mr Amarasekaran brought him home and started nursing the animal back to health. Word spread, and soon other orphaned chimps started

showing up at his door. Within a few years, Mr Amarasekaran and his wife Sharmila were taking care of seven of the rambunctious little animals at their home in Freetown.

But the chimps were getting big and needed more space. With the help of animal activist Jane Goodall, who paid him a visit in 1992, he located a chimp sanctuary in Zambia that was willing to take the animals in. They made the necessary phone calls, and even obtain permits for the chimps to travel. But he wasn’t sure he was ready to say good-bye.

“It occurred to me that sending the chimps that I had rescued to a project in faraway Zambia was really passing the problem on to someone else rather than trying to do something about it here,” he says. “So that’s the time when I turned around and thought, ‘Maybe we should do something in Sierra Leone.’ ” The Tacugama Chimpanzee Sanctuary, which sits on 100 acres just a few miles outside of Freetown, opened in 1995. It endured some rough times early on, caused by Sierra Leone’s 11-year civil war, which ended in 2002. Rebels attacked the sanctuary three times, looting CFI.co | Capital Finance International

medical supplies, food, and equipment.

Mr Amarasekaran and a small clutch of Sierra Leonean staff kept working as the conflict raged around them. If they left, he says, the chimps would have been lost. Today, Sierra Leone is at peace, and the sanctuary is now home to nearly 100 chimps, looked after by about two-dozen Sierra Leonean staff members and a handful of volunteers from overseas.

Whatever happens, one thing is sure: Mr Amarasekaran is going to keep showing up at work every day, weekends included. A Sri Lankan native, he recently applied for Sierra Leonean citizenship; he expects his new passport to arrive sometime this year. “If they looked for someone with the right capacity to run a chimp sanctuary, I probably would be at the back of the line,” says Mr Amarasekaran, who admits that his background in finance is not especially relevant to rehabilitating chimps. “But if you look for someone who’s prepared to stay for the long haul and try to do something, then probably I would be right at the front.”

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> CLAUDIO MIRANDA Brazil

“Something that worries me in the favela is that people do not dream much.”

Claudio Miranda never let poverty stop him from dreaming big. He was raised by immigrant parents in the favela (squatter settlement) Jardim Ângela in São Paulo, Brazil, which – along with two neighboring communities – was chillingly referred to as the Triangle of Death by locals for its high homicide rates. In 1990 the United Nations named Jardim Ângela the world’s most dangerous neighborhood.

It was a community wearied not only by violence but by its own self-image, Mr Miranda says. “Something that worries me in the favela is that people do not dream much,” he says.

“People dream of a car, a house. Of course you need these. But these things do not bring happiness.” Mr Miranda dreamed that his neighbors, especially young ones who fell into drug abuse, would have a place to reimagine themselves creatively through music, video production, art, performances, and education.

Today, his home swarms with kids playing musical chairs, teens filming and editing music videos, and older neighbors sitting in on English classes. He calls his project Favela da Paz – Favela of Peace. “In a place that used to be so dark and inhumane, and so devoid of light, what they brought was a respite, a bit of hope,” says Ruth Andrade, a former environmental development manager at Lush Cosmetics who is now self-employed. She has both donated to Favela da Paz personally and arranged for institutions to give it funds.

Mr Miranda traveled a long, difficult road to become a benefactor to his community. He started working at age nine, chasing tennis balls at the country club where his father was a lifeguard. He never finished high school, instead taking on a series of jobs to support his family.

He substituted as a tennis partner for club 148

members who practiced alone. He worked as a courier between offices in São Paulo. He set pins in a bowling alley.

“I was really little, but I was already asking, ‘Why don’t we have a pool, a tennis court?’ So I would take the leftover balls and bring them home to host a tennis championship,” Miranda says. Even as he worked menial jobs, Mr Miranda experienced a creative urge when he saw anything – even old tin cans and buckets – that could be used to make music.

With friends he formed a band called Poesia Samba Soul. It creates upbeat, groovy tunes that tell nuanced stories about life in the favela, including one about a teen with a large Afro who has trouble finding work after employers interview him, and another about a boy who enters drug trafficking thinking it is the “easy” route, but later learns it is the hardest, in Mr Miranda’s words.

“Music educated us,” he says.

Miranda began giving music lessons to kids in his family home. “I had 40 drumming students and only one drum,” says Miranda of his early classes. One of his students was Raphael Barbosa da Silva. He came to Miranda already burdened by traumatic experiences: From his home in Jardim Ângela, Mr Barbosa had witnessed a massacre at a bar, in which nearly a dozen people were killed.

Mr Barbosa happened into a course on video editing. There was one computer and one camera for 25 students. Nonetheless he learned how to use the computer, and eventually Mr Miranda asked him if he would film and edit a clip for Poesia Samba Soul. “It was my first job. For me it was special. I saw that I could make videos,” he recalls. “Favela da Paz is a group of people who want to make a difference, who want to do CFI.co | Capital Finance International

something to help not just our community but also São Paulo and Brazil using art and video, using culture. That is the most precious thing we have to offer. We are trying to make dreams come true.”

Mr Miranda’s dream took root when he and his partners fashioned a top-quality sound studio on a floor of the family home his father donated to them. Dozens of bands now record in the studio each month. The studio costs about $10 an hour to use; the price would be as much as four times higher elsewhere. The funds, in turn, support free Favela da Paz courses. “My idea was always a project that generates income to sustain itself. The music generates that,” Miranda says.

“We need to be self-sustaining.”

In 2010, Miranda officially established Favela da Paz, an umbrella term for the studio and the music, video editing, and graffiti artwork courses that he and his partners teach. They also hold events in the community, such as music festivals and holiday parties.

Community leaders like Mr Miranda are helping residents learn how to assert their rights.

Jardim Ângela has become significantly safer since it received its troubling UN designation 23 years ago. Community policing efforts have reduced crime, though violent flare-ups between drug traffickers and police are still commonplace.

The courses and events at Favela da Paz offer a better alternative for youths in a community where drugs and crime are still rampant. Mr Miranda’s ultimate goal is to get young people to think imaginatively about their futures. “We want people to pass through here,” Miranda says, “and then go their own ways.” He cites the case of Mr Barbosa, who now is applying to college to pursue his dream of making documentary films.

Autumn 2013 Issue

> HARASSED WOMEN OF EGYPT Egypt

“So dressing up as a woman was a real eye opener, an exercise in empathy.”

Would men stop sexually harassing women, or at least understand what it feels like to be verbally and physically abused, if they were to experience it themselves? One TV program in Egypt has looked at the issue of sexual harassment by doing just that. Awel el Khayt – roughly translated as The Thread – is a seven-episode series aimed at covering longstanding socio-political and economic problems.

A team of 17 staffers works on the program – a co-production between Belail Media Production and Consulting and Egyptian TV network ONTV. In a recently aired 30-minute episode titled Sexual Harassment in Egypt, young actor Waleed Hammad took to the streets of downtown Cairo dressed as a woman in order to experience harassment firsthand.

In the report, Mr Hammad – who went out both veiled and unveiled to see whether that would make a difference – said he was followed by fancy cars with men in suits who would try to lure him into the vehicle. On another occasion, he was followed by a man who seemed to be talking on the phone. The actor realized after a while that the man was in fact cautiously addressing him, proposing a paid appointment with another man in a hotel room. “I realized that simply walking on the street, for a woman, is such a huge effort, a psychological effort and a bodily effort. It’s like women are besieged,” Mr Hammad said.

“As a man Hammad takes to the streets to go about his daily business without much thought for what he is wearing, who is looking at him, and

without the fear of being physically or verbally harassed,” Ramy Aly, the editorial consultant for the program said. “So dressing up as a woman was a real eye opener, an exercise in empathy.”

Finding an actor willing to put on women’s clothing and walk the streets of Cairo wasn’t easy, Mr Aly said. Producers went to a number of casting agencies, but most actors refused. It took them two months to find Waleed Hammad.

Ramy Aly said the series is meant to fill a void in current affairs programming on Egyptian television, which has long been dominated by talk shows and TV debates but lacks factual programming formats. “We decided to go for a mixed format where we would produce documentaries investigating issues like sexual harassment, food security, health care, and education, which we would use as a way of laying the ground for informed debate,” he said. “We wanted try and tackle some of the longstanding problems that Egypt faces in a different way.”

Sexual harassment is an endemic, longstanding, highly controversial, and sensitive subject in Egypt. A string of high-profile incidents of mass sex attacks in recent months has drawn global attention to the phenomenon.

“However,” Mr Aly said, “society has by and large turned a blind eye to the everyday forms of sexual harassment that millions of Egyptian women experience every day on the street, public transport, and at work.”

Moreover, some men remain unsympathetic toward women who have been harassed, blaming them for dressing provocatively and calling the CFI.co | Capital Finance International

abuse upon them. According to Ramy Aly, the reasons for sexual harassment are complex and include a number of stereotypes. It is fuelled by unemployment, poverty, lower chances of marriage, the Internet, pornography, and women going beyond their traditional roles as housewives and mothers.

However, none of the above provides an exhaustive, comprehensive explanation of the phenomenon, he said. “We realized that we could not find a root cause, and so instead, the film engages in a kind of myth-busting exercise.

We found that many perpetrators are married, they are both wealthy and poor men, and that women who are veiled in various degrees from niqab (full veil) to hijab (headscarf) are harassed in equal measure.”

One woman who took her harasser to court and got him convicted recounted being pressured to drop the charges during the first court hearing, and subsequently being threatened by his family, who said they would throw acid at her face.

“Nobody supported me, and to this day, not many people in my family know that I took him to court,” the woman said.

Mr Hammad, after switching gender roles for the TV program, felt some empathy. “I would say to all the women out there, God be with you.

I know that it is such a devastating experience, and even as a man dressed as a woman, I don’t think I can claim to really understand what it feel like to be a woman under these circumstances.”

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> DAVID BELLE Haiti

“What touched me most about Jacmel at the time was that is looked as if the earthquake had happened the day before.”

Jollywood is a rather merry-sounding name for the home of Haiti’s only film school: the Ciné Institute. Following the lead of “Bollywood” the center of the Indian film industry in Mumbai (formerly Bombay) - the school crossed the first letter of its town (Jacmel) and the center of the world film industry (Hollywood) with the hope of making Jollywood a name recognized around the world.

Three years after a strong earthquake devastated Haiti, the school has made great strides. However, many challenges persist.

The country has few local industries, no natural resources to speak of, and much of its infrastructure remains in disrepair. Yet, through a combination of perseverance and generosity, Ciné Institute stands ready to move forward.

Earlier this year the school organized a fundraiser in New York. The event, Haiti Optimiste, featured a collection of new films from Ciné Institute’s students. Actor Ben Stiller, director Jonathan Demme, and Ciné Institute founder David Belle took part in a panel discussion on recent movies.

The fundraiser was as much about building 150

awareness as it was to obtain financial support, says Mr Belle, CEO of Artists for Peace and Justice and founder of Ciné Institute. The funds raised will be applied toward free tuition at Ciné Institute.

Marie-Monique Steckel, president of French Institute Alliance Française (FIAF) described the Haiti Optimiste event as representative of a relatively new but dynamic partnership between FIAF and Ciné Institute. Six months after the 2010 earthquake she traveled to Jacmel and met David Belle.

“What touched me most about Jacmel at the time was that it looked as if the earthquake had happened the day before. I came away with the impression that aid had already been suspended,” Ms Steckel says. “The only institution making strides in rebuilding was Ciné Institute. Students were coming on foot and by bike. What really impressed me was the contrast of total destruction and the idea that this small institution was really determined to make a future.”

The visit convinced Ms Steckel to help Belle rebuild Ciné Institute. The two-year CFI.co | Capital Finance International

school introduces young people to educational and technological opportunities and, most importantly, jobs. Haiti has a 40.6% unemployment rate. Institute programmes include training in fiction, documentary making, and television advertising.

The 2010 earthquake destroyed all three of the school’s original buildings. Almost immediately the staff and students started working out of tents. By May 2010, the school had recovered enough to begin anew.

Today, Ciné Institute occupies an empty hotel situated on a 5.5-acre campus overlooking the Caribbean Sea. About 70 students attend the school. “They hope Jollywood can become the next Nollywood, which is named for Nigeria’s film industry, the third-largest in the world,” Mr Belle says.

“The obvious perception of Haiti is extremely negative. The news portrays it as full of violence, destruction, corruption, and disease. I’ve been living there for twenty years and I’m not a glutton for punishment. I remain there because I see so much potential and creativity in Haiti.

Autumn 2013 Issue

> JEAN PAUL SAMPUTU Rwanda

Forgive your father’s murderer? Unlikely, right?

Probably impossible? Unless, like Rwandan peace activist and renowned musician Jean Paul Samputu, you want to save your own life from self-destruction, misery, and pain.

Prior to the outbreak of the genocide in 1994, Mr Samputu, a Tutsi and at the time a rising star on the East African music scene, spent six months in jail, along with thousands of other Tutsis who had been arrested at their homes.

The jails were packed, and the United Nations and international community demanded that the government release the prisoners. The Tutsis were released, but a plan was hatched to eliminate them. After Mr Samputu was released from jail, his father urged him to flee the country.

Refusing to leave himself, the elder Samputu stayed behind in his village, while Jean Paul escaped to neighboring Burundi and Uganda. In the nightmare of genocidal rage that followed, Mr Samputu lost his father, mother, three brothers, and a sister.

He never found out how his family died, other than his father. When Mr Samputu returned to his village, he discovered that his father had been murdered by a neighbor, Vincent, who since childhood had been the family’s good friend.

Struggling with grief, anger, and desperation, Mr Samputu left his village and went to Kigali, the Rwandan capital, to continue performing.

His private demons, however, overwhelmed any joy or success he had previously experienced.

His increasingly public slide into drinking and

“Forgiveness is for you, not the offender.

Forgiveness is the only thing that can stop the cycle of violence, the culture of revenge.” drugs caused him to lose respect in the Rwandan music world.

In 2002, he returned to Uganda, where his rage and resentment boiled over, causing his career, his health, and his private life to spiral downward. Friends sought to help him, even bringing in witch doctors. “But I was just waiting to die,” Mr Samputu says. Someone finally brought a Christian pastor, who prayed for him. He says that “a power I cannot describe” completely filled him up and gave him peace for the first time since the genocide. He became a Christian.

But he knew that something remained: unforgivingness, anger, bitterness, he says. In 2003, Mr Samputu found himself on Prayer Mountain, a real place in Uganda. There, he says, God showed him that he needed to forgive.

“That’s when I said yes to God – I can forgive.”

That day, Samputu says, he was finally free: “I got a great peace in my heart.” He also felt that he would win the Kora (the African Grammy) and that he would take his message of forgiveness all over the world. He returned to Rwanda where the government had embarked on a campaign of reconciliation between Hutus and Tutsis. But in Samputu’s village and in villages throughout Rwanda traditional “gacaca” meetings were also taking place.

Practiced throughout Africa, this process brings victims and perpetrators together in a public assembly. In Rwanda, those imprisoned for their crimes had to attend the gacaca meetings once a week to be accused. The convicts then CFI.co | Capital Finance International

returned to prison.

First, Mr Samputu visited a jail and discovered that Vincent had been incarcerated for his crimes. Then he visited Vincent’s wife to tell her that he had forgiven her husband.

But Mr Samputu wanted to know, why did Vincent murder his father? How could Vincent murder a neighbor, the father of his childhood friend? The perpetrator said that the “law of the genocide” dictated that the one closest to the victim had to do the killing. Despite the irrationality of this explanation, the two men worked together over the next few years to bring their message of forgiveness to all of Rwanda.

That same year, Mr Samputu’s career did take off. He won the Kora Award for Most Promising African Male Artist. In 2009, he and others organized a Conference on Reconciliation in Rwanda, which provided the first public event where both Mr Samputu and Vincent told their story.

Today, Mr Samputu is an international ambassador for peace, speaking at the UN and at universities throughout Japan, Canada, the US, and Germany. His nonprofit group, The Mizero Foundation, focuses on teaching gender equality and the empowerment of women.

“Forgiveness is for you, not the offender.

Forgiveness is the only thing that can stop the cycle of violence, the culture of revenge,” Mr Samputu says. “If we don’t want another genocide, our children must learn this message.”

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> ESTELA DE CARLOTTO Argentina

“I’m an elderly person who has had four children, and I now have 13 grandchildren and one great-grandchild.

So I thought I’d be spending time with them. But life gave me another direction.”

Estela de Carlotto isn’t like most grandmothers.

Instead of easing herself into retirement and enjoying the slower pace of life it affords, she remains a dogged workaholic. Every weekday she rises early without fail in order to make the hundred kilometre round trip from her hometown of La Plata to an office in the Argentine capital, Buenos Aires.

“I had other ideas about what I’d be doing with my life, such as being with my children,” she says, smiling. “I’m an elderly person who has had four children, and I now have 13 grandchildren and one great-grandchild. So I thought I’d be spending time with them. But life gave me another direction.”

Since 1989 that direction has involved being a “professional” grandmother: As president of Abuelas de Plaza de Mayo (Grandmothers of Plaza de Mayo), she is the most visible face of one of South America’s largest human rights organizations. Nominated for the Nobel Peace Prize five times, the Abuelas group has members whose lives read like the pages of a horror novel.

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Born out of the atrocities committed during the country’s last military dictatorship (1976-83), the group comprises mothers whose daughters and daughters-in-law were abducted and killed by the military regime for their leftist views.

The Abuelas are still searching for some 500 “stolen babies” – their grandchildren – who have grown up unaware of who they are. So far, 107 children, now adults, have been “returned” to their biological families thanks to DNA testing.

Of all the South American nations that lived through a dictatorship, Argentina is the only country that had a systematic plan involving the abduction of babies.

Ms Carlotto’s own daughter Laura was kidnapped in 1977 and killed in 1978 after she’d given birth to a son in captivity named Guido, after his grandfather. The body of Carlotto’s daughter was returned to her by the armed forces, one of the few bodies returned to parents.

Despite more than 30 years of searching, Ms Carlotto has never found her grandson.

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So what stops her from admitting defeat and making herself comfortable in her favorite armchair? “Strength is love, you see,” Ms Carlotto answers. “They killed my daughter. I won’t forget her, and I want truth and justice.

I’m looking for a grandchild, too, which is also motivated by love, so there’s no way I can stop doing what I’m doing.”

Ms Carlotto, who used to be headmistress at a school, says she feels comfortable in her role and all that it entails, from having to deal with the emotional fallout of a nieto (grandchild) who has come to the Abuelas with doubts about his or her identity to meeting heads of states or being invited to functions by human rights groups around the world.

She also recognizes that what she does isn’t for everyone. Other grandmothers have either found their grandchildren or want to take a back seat role. Or they simply don’t have the energy that Ms Carlotto continues to show.

Autumn 2013 Issue

> KYOKO OKUTANI Japan

Kyoko Okutani is not one for traditional job hunting. It rather depresses her. She was not the only one to feel discouraged by the male-dominated and oriented business culture still prevalent in Japan.

Ms Okutani decided to do something about this. She now sits at the head of Women’s World Banking (WWB) Japan – a growing network of businesswomen that has so far helped over a thousand enterprising women start their own companies.

“More women now seek fulfillment in their lives, especially after the 2011 earthquake disaster,” she says. Many of the women who became entrepreneurs before the disaster started their businesses after experiencing the frustration of inequality in the workplace.

Inequality persists: Married women still have a hard time reentering Japan’s rigidly-structured workforce, no matter if they boast the necessary education and experience, and show willingness or eagerness to work. According to the 2012 Global Gender Gap report from the World Economic Forum Japan ranks 101st among the world’s 135 countries in gender equality.

Since the 2011 disaster, Ms Okutani has

“When a woman sees others with similar experiences starting a business that makes her think she can do it too.” visited a tsunami-struck region every month to help people recover from the devastation and businesses create jobs. “People are eager to work,” she says, “but there are not many job opportunities around.”

Despite its name, WWB Japan provides few loans these days. In many cases, those who want to start a business obtain funds from family members or a financial institution. Instead, WWB offers training such as “citizens’ business schools.”

Ms Okutani decided to refrain from accepting her monthly salary from WWB, partly because she wanted to “stand on her own feet.”

She now earns money by lecturing across Japan.

She is also a prolific writer.

Unlike most Japanese companies, WWB Japan was willing to hand Ms Okutani immediately important assignments upon her arrival in the early 2000s. Now she returns the courtesy to her young employees. Such early responsibilities enable them to unleash their creativity which in turn enhances the workplace.

Ms Okutani says experiences abroad expanded her views. She recalls being encouraged by seeing energetic working women during her first

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overseas trip to Germany. In recent years, Ms Okutani has spent her vacations enjoying a “farm stay” in European countries such as Spain, Italy, and Germany, where visitors are involved in some of the chores.

“I’ve found it very interesting to learn a rural lifestyle in a different country,” she says. “While working together, I’ve learned their philosophy of life. I’ve been inspired by such stays, and we now have launched some agricultural projects in Japan and other Asian countries.”

“When a woman sees others with similar experiences starting a business that makes her think she can do it too,” Ms Okutani says. “Not so long ago, many women wanted nothing to do with starting a business. Even today, especially in rural areas, women are expected to play a certain role,” she adds.

Ms Okutani believes that the emerging female-owned businesses, many of which are still small, will help Japan’s economy in the long run. Instead of relying on large corporations or public-works projects to create jobs, a growing number of community-based enterprises will make the country’s economy more resilient, she says.

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> ROHINI NILEKANI India

“My mission is to put a book in every child’s hand.”

“My mission is to put a book in every child’s hand,” says Rohini Nilekani. That’s an ambitious goal anywhere, but especially in India, where there are more than 300 million children, most of whom can’t afford books, or even read.

Ms Nilekani is founder-chairperson of Pratham Books, a nonprofit publishing house that uses innovative ways to tap India’s vast market.

“The children we reach are first-generation readers,” she says. “Their parents probably don’t know how to read. They may never have bought a book in their lives.”

Set up in 2004, Pratham Books is an offshoot of Pratham, one of India’s largest nonprofit groups, which supports education across India. “Pratham was already teaching millions of children, but there was no quality content out there at a reasonable price level,” Ms Nilekani says. So, Pratham Books was set up to bring as many top-quality books as possible, as cheaply as possible, and in as many languages as possible, to the unreached child.

Eight years later, Pratham has published more than 10 million books with 225 titles in 11 languages. Most of the books are priced at less than 25 rupees (about $0.45).

Ms Nilekani’s own journey is something of a

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fairy tale. She has gone from being a middle-class, activist journalist to a wealthy philanthropist.

In 1981, when just 20 years old, Ms Nilekani invested 10,000 rupees (about $180) – at the time all the money she had – into a company cofounded by her husband, Nandan Nilekani, along with six close friends. That company grew into Infosys Ltd., India’s second-largest technology company, with a net profit of $1.72 billion in the last financial year.

Ms Nilekani, who owns 1.41 percent of the company’s stock, is now one of India’s richest women. She calls herself an “accidental philanthropist.” Her reputation for getting involved, rather than merely writing a check, led to her being invited to set up Pratham Books.

Pratham is tackling a huge problem. In most of rural India, children read only textbooks.

Reading for pleasure remains a luxury available only to the rich. Even by Grade 5, many children still can’t read. Pratham Books also has to cope with a hugely diverse country with more than 22 languages and innumerable dialects. As Ms Nilekani points out, in India the language changes every 100 kilometers.

“We are constantly trying out new things,” Ms Nilekani says. “Some work, some fail, but

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because we don’t have to worry about the financial bottom line, we can take risks.” Pratham Books’s biggest challenge is distribution. Recognizing that it can’t possibly cover the whole of India alone, Pratham teams up with both government and private organizations. In 2008, it partnered with the government of the state of Bihar, one of the largest and poorest states in India. The state gave more than 70,000 government schools budgets to buy books.

Pratham Books also teams with large consumer brands, whose distribution networks reach into every corner of India. Unilever, the Anglo-Dutch consumer goods giant, sends salesladies door to door selling soap. Pratham Books persuaded Unilever to send Pratham Books along, too.

“When it comes to learning, why put it behind walls?” Ms Nilekani says: “Not everything has to be a commodity.” This free sharing of content under the creative commons license scheme employed has already created a bevy of new products, such as audio versions for blind readers, versions for iPads, and books in regional languages. Pratham is also active on social media, which is helping it gather an army of volunteers.

Autumn 2013 Issue

> SCOTT BUDNICK USA

“People tell us that this is a meal they look forward to all week long.”

Every Saturday, Scott Budnick and his wife, Maureen, peel 75 pounds of potatoes. The next morning, Mr Budnick packs up the potatoes, 500 eggs, 250 sausages, and a host of other items contributed by his friends and neighbors. He drives it all to the Mathewson Street United Methodist Church in Providence, RI, just in time to welcome the first wave of volunteers – some homeless, some not – to the kitchen.

The Sunday Morning Friendship Breakfast is free and open to anyone who’s hungry. A sluggish economy keeps the crowds coming: The number of homeless Rhode Islanders climbed 10 percent in 2012. Since the friendship breakfast began 14 months ago, weekly turnout has grown from a few dozen people to more than 200.

The breakfast offers heaping plates of scrambled eggs, fresh fruit, pancakes, waffles, French toast, sausage, and home fries – plus pastries, oatmeal, juice, and coffee. It costs about a dollar a plate to produce. “People tell us that this is a meal they look forward to all week long,” Mr Budnick says. The breakfast is not just a free meal: Half the volunteers are homeless themselves.

“Early on we realized that people want to

be useful. Thirty or forty people from the street help out every week.” Mr Budnick pairs up the volunteers, purposely mixing them up: “A lot of times, the person from the street knows our process better than the outside volunteer,” he says. “It puts them in the leadership role.”

For the first six months of their initiative, Scott Budnick and his wife pulled all-nighters to prepare the breakfast themselves. “I didn’t reach out to anyone for a long time because I didn’t want people to feel obligated,” he says. But since Mr Budnick started speaking up, local schools, restaurants, and families have donated hundreds of dollars’ worth of food, money, and staples like dish soap and paper towels.

Growing up in Rhode Island, Mr Budnick was involved in community service from junior high school onward, taking a cue from his parents, who regularly volunteered on behalf of the group South County Against Racism. After high school, Scott Budnick served with City Year, a civic service group for young people, in Providence.

Mr Budnick is a blur in the kitchen, helping with every part of the meal and coordinating the volunteers, the youngest of whom is 13. He stops to make time for anyone who asks for it, putting CFI.co | Capital Finance International

a hand on the person’s shoulder to show he’s listening. Usually the exchange ends in a hearty laugh. “In the kitchen, I’m the butt of a million jokes,” he says, smiling.

Russell Silva, the breakfast’s head cook, first came as a guest last year. “This is my way of giving back,” Mr Silva says. He makes home fries, scrambled eggs, “whatever needs to be sliced and diced. I stay on the stove because of my leg,” an injury that cost him his $18.75-anhour job several years ago. Known on the street as “the walking-stick man,” at the breakfast he’s known for something else. “I get a lot of compliments on my home fries,” he says with a grin.

“We want people who come here for a meal to relax, as if they’re paying customers,” Mr Budnick says.

“This here is much more than a meal site,” says volunteer Brook Ashley. “It’s a place for this community to see nonjudgmental people who respect and value their contributions. Scott’s done a phenomenal job, making it run in a way that’s very empowering to the attendees: It’s their breakfast that they’re putting on.”

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> Michael Pettis on China:

Rebalancing and Long-Term Growth

A

s analysts and official entities like the World Bank continue to downgrade their forecasts for medium-term growth in China, I am frequently being asked for the reasons I believe that a 3-4% average annual growth rate is likely to be the upper limit for China during its adjustment period [CFI.co note: IMF had Chinaâ&#x20AC;&#x2122;s real GDP growth at 7.8% for 2012 and projects growth of 8.0% in 2013 and 8.2% for 2014]. In this essay

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I want to explain how I arrived at this number.

The analysis is fairly straightforward and those looking for a complex econometric model are likely to be disappointed. I have always believed that, unlike physics or cooking, anything in economics that cannot be easily explained to an educated layman with 9th-grade algebra and a little bit of calculus is likely to be useless.

Before beginning I should make two points. First,

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for many years I assumed that the â&#x20AC;&#x153;adjustment periodâ&#x20AC;? would start shortly after the beginning of administration of President Xi Jinping and Premier Li Keqiang: From 2013 or 2014 to the presumed end of their term in 2023.

In fact I may have been overly pessimistic. It now seems to me that China actually began adjusting economically, albeit in a limited way, in 2012 when we first started to see growth slow

Autumn 2013 Issue

as Beijing became increasingly worried about the astonishing increase in debt levels. This rise may probably be ascribed to the big wage increases of 2010-11, which were counterbalanced by a sharp drop in real interest rates. Following this, real interest rates rose sharply in 2012. Whether the adjustment began in 2012 or 2013 – or is to start only next year - doesn’t change the underlying causes.

As for the second point, I don’t really think of my numbers as growth predictions. What I prefer to do is to try and develop an understanding of the overall system under clearly specified assumptions. Subsequently I work my way through the logic of the system to see what the various outcomes can be.

As I see it, 3-4% is what it takes for my arithmetic to work within plausible scenarios. It is, in other words, the upper limit of the average growth rate that allows me to work out arithmetically the growth in debt, consumption, investment and GDP needed for the amount of economic adjustment that will rebalance the economy by a minimally acceptable amount, without making some fairly implausible assumptions.

AGGRESSIVE PATHS TO GROWTH This means that depending on how aggressive Beijing is during the reform process, China’s actual growth might be higher. Hiss might occur if the government engineers a much more aggressive program of transferring resources from the state to the household sector, thereby forcing up the household income and the household consumption shares of GDP. However, growth will be lower if there are more adverse shocks to trade or the financial sector.

Growth rates will also decrease in case of fiercerthan-expected political opposition to the reforms.

In other words, I really think of 3-4% average annual growth as the plausible upper limit of GDP growth, assuming no massive privatization program takes place.

As most everyone recognizes, rebalancing in China requires that consumption grow significantly as a share of GDP over the next decade or so. China currently reports household consumption as representing about 35% of GDP. This is an almost surreal low number. By how much would consumption have to rise to accomplish a meaningful rebalancing?

China: Beijing

“A number of analysts have argued that official Chinese data seriously understates both income and consumption in the country.”

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A number of analysts have argued that official Chinese data seriously understates both income and consumption in the country. China’s real household consumption could be much higher.

This may well be true, but I think there are at least three counterarguments. While it is true that some consumption is not included in the official data; it is also quite true that the data contain quite a few items that should not count as consumption, or at least not for the purpose of understanding the rebalancing process.

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For example, three of the fastest growing consumption categories are gold and jewellery, household furnishings, and household appliances. I would argue that all of these should really count as investments. The latter two will drop dramatically as investment – especially in real estate – dries up. Gold and jewellery hoarding will decrease once the financial repression tax is eliminated.

Second, if both consumption and income are understated it does not necessarily follow that its share of GDP is more than 35%. This would only be the case if the ratio of hidden consumption to hidden income is greater than 35%.

“Many analysts are muddled about the differences between absolute consumption levels and the consumption ratio, and so they believe that if they can show that consumption is higher than claimed by the National Bureau of Statistics, the imbalance is less of a problem. It isn’t.”

If most of the hidden consumption and income belong to the rich or very rich, as is commonly assumed, it may well be that the true ratio is lower than 35%. Many analysts are muddled about the differences between absolute consumption levels and the consumption ratio, and so they believe that if they can show that consumption is higher than claimed by the National Bureau of Statistics, the imbalance is less of a problem. It isn’t. What matters is the consumption share of all that is produced, and if both GDP and total consumption are higher than the official numbers, China’s imbalance is not necessarily better. It may even be worse. And it is this imbalance that matters to China’s growth prospects.

Finally, we are not talking about small imbalances: The reported consumption share of GDP is astonishingly low and so an error in the data would have to be enormous for it to matter to the rebalancing debate. Even if it turns out that 20% of Chinese consumption, and none of its income, were hidden and unrecorded in the statistical data, China would still easily have the lowest consumption rate of any major economy in the world.

IDEAL LEVELS Globally, consumption represents a fairly stable 65% of GDP. Over the past decade this average has encompassed a group of high-consuming countries, such as the United States and most EU member states whose average consumption exceeded 70% of GDP, as well as a group of low-consuming countries, found mainly in Asia, whose average consumption – excluding China – ranged from 50% to 58% of GDP. This distribution of over- and under-consumption should change in the next few years. It is unlikely that the high-consuming countries will be able to maintain their excess levels for the rest of this decade. Their consumption rates are already coming down substantially. Europe is in crisis while the United States is taking steps to raise its savings rate in an attempt to reduce its current account deficit. Japan, although already a relatively low-consuming country, is also likely to try to increase its savings rate in order to fund its

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massive debt via patient domestic savers rather than by impatient foreigners.

This means that the rest of the low-consuming countries are also unlikely to be able to keep their consumption levels as low as they have in the past. A world with low-consuming countries requires high-consuming countries in order to even things out.

If global consumption drops in the high consuming countries – with no corresponding rise in the low-consuming countries – it is unlikely that investment levels will rise quickly enough to replace it. After all, why invest if no one is going to buy the output? By necessity and logic, the global economy must respond with enough of a contraction in GDP to maintain consumption at roughly 65%.

The great consumption and savings imbalances of the past that produced the current crisis have to adjust. If there are no longer large economies consuming 70% of more of their national income, the world is unlikely to be able to accommodate large economies consuming just 50–58% of their national incomes.

Let us assume, nonetheless, that the world can cope with a minimal amount of Chinese rebalancing. Within a decade, consumption would rise to no more than 50% of GDP leaving China to still produce far more than its consumes forcing the rest of the world to absorb this excess production without resorting to trade intervention.

For the sake of completion let us make a second assumption that global pressures force an even more dramatic change in Chinese household consumption levels so that it rises to 55% of GDP over the next ten years. Currently China has the highest investment share of GDP in the world. Investment represents 46% of GDP or more, depending on how it is calculated.

A 2012 IMF paper that I have cited previously shows investment as high as 49% of GDP. What is the appropriate investment level for a country like China? A number of studies have examined other high-investment developing countries during their growth stages, and for most of these countries investment peaked out briefly at 35-40% of GDP (in Malaysia, Thailand and Singapore investment did at one point exceed 40%, but in each case only for a very brief period). In emerging markets investment is typically around 30% of GDP. How should China compare to these countries?

Some analysts argue that China – a very poor country – suffers from a capital stock that is too low. This calls for a much higher optimal investment level. However, this reasoning is based on a fallacy. The optimal amount of investment for any given country depends not on how far it is removed from the capital frontier but rather on its level of social capital. This implies that very poor countries should optimally have CFI.co | Capital Finance International

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lower levels of capital stock per capita than richer countries.

China’s capital stock per capita is higher than that of Mexico, and much higher than those of Russia and Brazil, three other large developing countries that are substantially richer than China and whose workers are more productive.

When analysts say that China’s capital stock is relatively low, they are completely befuddled. It is low compared to the richest and most productive countries in the world, as it should be, but it is high compared to other developing countries, and even compared to developing countries with much higher levels of productivity.

Because investment shares in other developing countries peak out at 35-40%, some analysts argue that this is the appropriate level of investment for China. There are of course a number of problems with this argument but two stand out especially. First, the countries for which investment peaked out at 35-40% of GDP nearly all had subsequent periods of very difficult adjustment, with burgeoning growth in debt and either sharp economic contraction or many years of very slow growth, during which periods the investment share of GDP dropped substantially.

It is not at all clear, in other words, that for these countries 35-40% was the optimal investment share of GDP. This was probably already too much investment because in many cases it was subsequently followed by many years of low or even negative growth as the economy was forced to grind its way through the debt associated with the excess investment. The optimal level, in other words, was probably closer to 30%.

Second, even if 35-40% was somehow the optimal level for China all along, investment in China has substantially exceeded this level for many years. It seems obvious that an appropriate adjustment should mean not that investment drops from 46% of GDP to something well below 35% for many years before returning to the “optimal” level.

MAKING THE IMPLICIT EXPLICIT So I assume that investment must drop as a share of GDP, either because Beijing forces

Assumed GDP growth rate -2% 0% 2% 4% 6% 8% 10%

“When analysts say that China’s capital stock is relatively low, they are completely befuddled.” changes in the growth model, or because the government remains passive and allows debt to build-up to the point where constraints are breached, after which investment collapses automatically and the investment share of GDP will drop substantially.

How long will this take? I am going to assume Beijing has about ten years to bring investment levels down to the new “optimal” level. However, I do think this represents an heroic and frankly implausible act since debt levels are simply too high in China for it to continue this level of investment growth for so many more years.

To repeat the exercise, let me make two separate assumptions – that investment will drop to 40% of GDP in ten years and that investment will drop to 35% of GDP in ten years. In either case I will assume that investment is currently 46% of GDP, although it is probably closer to 49%.

It turns out that it is fairly simple arithmetic to work out the implications of each of these assumptions relative to GDP growth. Rather than start with growth assumptions in consumption and investment and use these to determine what the corresponding GDP growth rate is likely to be, I thought it would be more useful if I reverse the process and simply assume a bunch of GDP growth rates ranging from -2% to +10%.

These are the different average GDP growth rates possible under different scenarios for the next ten years.

We will assume two sets of adjustments for investment and consumption. The “easier” adjustment scenarios have household consumption growing from 35% of GDP to 50% of GDP, while investment declines from 46% of GDP to 40% of GDP. The “tougher” adjustment scenarios have household consumption growing from 35% of GDP to 55% of GDP, while investment declines from 46% of GDP to 35% of GDP.

Consumption growth as the consumption share rises from 35% to 50% 1.60% 3.60% 5.70% 7.80% 9.90% 11.90% 14.00%

Consumption growth as the consumption share rises from 35% to 55% 2.50% 4.60% 6.70% 8.80% 10.90% 13.00% 15.90%

Table: GDP, consumption, and investment growth in a rebalancing China

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The table below lists the consumption and investment growth rates needed for rebalancing to take place at each of the highlighted GDP growth rates.

To read the table, let us start by assuming, as an example, that we believe the average GDP growth rate over the ten-year period will be 6%. For China to do a minimal amount of rebalancing that gets consumption to 50% of GDP and investment to 40% of GDP, we can quickly figure out what the corresponding growth rates of consumption and investment must be. Consumption must grow by 9.9% a year and investment must grow by 4.5% a year to get us there.

Notice the reason why I do it this way rather than the “normal” way most other economists would. Instead of estimating what I expect the growth rates in consumption and investment will be, and then calculating the implicit GDP growth rate from those numbers, I start with an assumed GDP growth rate and then calculate what the implicit growth rates in consumption and investment must be in order for rebalancing to take place. I am not making predictions, in other words. I am simply working out logically what any GDP growth rate must imply in terms of consumption and investment growth rates in order for China to rebalance.

TRADE IS A RESIDUAL Notice of course that for the changes to work we are implicitly assuming that the GDP share of the sum of other consumption (government and business) and the current account surplus changes automatically to allow the equation to work. So if consumption rises from 35% of GDP to 50% of GDP, for example, while investment falls from 46% of GDP to 40% of GDP, the other sources of demand (mainly other consumption and the current account) must have reduced their share of GDP from 19% to 10%. This probably means a sharp contraction in the country’s current account surplus and perhaps even a current account deficit.

I want to again state that these numbers are not predictions. They are simply the arithmetically necessary growth rates that are consistent with our assumptions. To return to the interpretation of the table, let us assume again that China

Growth in investment as the investment share drops from 46% to 40% -3.40% -1.40% 0.60% 2.60% 4.50% 6.50% 8.50%

Growth in investment as the investment share drops from 46% to 35% -4.60% -2.70% -0.80% 1.20% 3.10% 5.10% 7.00%

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does the minimal amount of rebalancing so that in ten years household consumption is 50% of GDP and investment is 40% of GDP, what are the investment and consumption growth rates consistent with, say, 6% GDP growth, and are they plausible?

It turns out that average GDP growth rates of 6% require, as an arithmetical necessity, that household consumption grow by 9.9% a year over the next ten years and that investment grow by 4.5%, after many years of high double digit growth and more recently growth in the low double digits. Is this plausible?

I would argue that positive investment growth rates for another ten years are highly likely to result in reaching debt capacity constraints well before the end of the decade, so I am sceptical about the investment implications of this scenario.

By the way some analysts have mischievously pointed to the very poor construction quality in China to argue that investment growth rates have to stay high just in order to account for higherthan-estimated depreciation costs, and that this suggests that China can grow faster than what we might otherwise assume.

This of course is nonsense. The fact that buildings and infrastructure are poorly constructed means that China is worse off and investment projects will ultimately be required to generate sufficient returns to pay off even more debt than originally 162

estimated. It is debt capacity constraints that ultimately determine investment levels. Anything that creates debt without creating additional productivity to service that debt cannot possibly be a solution. Higher-than-expected depreciation increases debt relative to debt-servicing capacity.

I would also argue that if annual investment growth drops to 4.5%, and GDP growth to 6%, it will be very difficult for consumption to grow at anywhere close to 9.9% annually over a decade.

Consumption growth is â&#x20AC;&#x201C; after all â&#x20AC;&#x201C; positively correlated with investment growth, especially in the internal provinces upon which a lot of useless investment has been lavished.

In order to get Chinese households to increase their consumption by nearly 10% every year, I would argue that household income would have to grow at that rate. This means that wages, interest rates, and the value of the renminbi should in the aggregate increase rapidly to get consumption to rise at the required pace. Since low wage growth, low interest rates, and an undervalued currency are the precisely factors that goose GDP growth, reversing them is not consistent with high GDP growth.

This suggests to me that while 6% GDP growth for the next ten years might not be impossible, it is extremely unlikely because it requires what are to me implausible assumptions about the ability to maintain and increase already-high levels of investment without increasing the debt burden unsustainably. This is why even 6% annual GDP growth rates, which are still lower than CFI.co | Capital Finance International

most current growth projections for China, are implausibly high.

What if you believe that reducing investment is a much more urgent priority than raising consumption? In that case you might argue that China can grow at 6% while the household consumption share of GDP rises to 50% and the investment share of GDP declines to 35%.

In that case you are implicitly assuming that household consumption will grow on average by 9.9% a year for ten years while investment grows by 3.1% a year. Is this possible? Of course it is.

Is it plausible? Again, only if you believe that investment growth can drop sharply while the growth in household consumption rises to nearly 10% a year for ten years.

So what is plausible? My working assumption, which I acknowledge is probably still optimistic, is that somehow or other Beijing can keep household consumption growing at around 7-8% a year, even with a sharp decline in the investment growth rate and with the pressing need to clean up the banking system. Remember that traditionally, in China and elsewhere, cleaning up the banking system always means finding ways of getting the household sector to pay for the losses.

I know many consider this to be a little optimistic.

However, if the Chinese government is worried about the social implications of adjustment, this is probably the target it will need to meet. The

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China: Shanghai

authorities in Beijing can do so even with much slower GDP growth if the leadership implements mechanisms that transfer wealth from the state sector to the household sector.

The table above shows that if China is to do a minimal amount of rebalancing, which requires that the world accommodate large Chinese trade surpluses for another ten year, and that debt can continue to grow, a 7-8% growth in household consumption is consistent with roughly 3-4% growth in GDP. It is also consistent with more or less no growth in investment, which would after ten years bring the investment level down to 35% of GDP. These numbers are, I think, plausible if still a

little optimistic. This is something, in other words, that I think Beijing can reasonably pull off. China would rebalance substantially, the problem of debt would have been managed relatively well, and the income of average Chinese households will have nearly doubled.

The key assumption, of course, is that in the face of a sharp drop in investment, Beijing is nonetheless able to maintain current high levels of consumption growth.

It is worth pointing out that many analysts have told me that they do not think it is possible for household income growth to exceed GDP growth for many years. But why not? After all, state income growth exceeded household income growth for many years, and if Beijing reverses the

mechanism that accomplished this – albeit with political difficulty – it can reverse the relative growth rates. More importantly, Japan did just this after 1990, when GDP grew by around 0.5% annually but household income and household consumption grew by between 1% and 2%.

The US did this too in the early 1930s when, if I remember correctly, household income and household consumption dropped by a lot less than GDP (around 35%) and investment (around 90%).

But notice these two examples. One occurred under conditions of no growth and the other under conditions of negative growth. Severely unbalanced systems always rebalance in the end, but the process of rebalancing is rarely easy. i

ABOUT THE AUTHOR Michael Pettis is a Senior Associate at the Carnegie Endowment for International Peace and a finance professor at Peking University’s Guanghua School of Management, where he specializes in Chinese financial markets. He has taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is also Chief Strategist at Guosen Securities (HK), a Shenzhen-based investment bank.

Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.

Pettis has been a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.

He can be contacted at michael@pettis.com CFI.co | Capital Finance International

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> Grant Thornton Hong Kong:

Managing Innovative Technologies: CloMoSo

By Amy Chiang

WHAT IS CLOMOSO? CloMoSo is the convergence of the trendiest and hottest technologies that are being adopted by ITsavvy businesses to enhance communication and collaboration, and to leverage IT services instead of IT assets to increase flexibility and decrease costs.

Clo: cloud computing Mo: mobile applications So: social media The CloMoSo phenomenon is happening at a much faster rate than big technology shifts of the past such as client/server architecture and the internet. Company executives are faced with the challenge of understanding the new concepts of CloMoSo, and to decide whether to adopt these new technologies. Once the decision is made to adopt the technology, there is the difficulty of maximizing the benefits and opportunities and dealing with the associated risks.

CLOUD COMPUTING Cloud computing is the conducting of business functions on shared, off-premise computing systems. Exhibit 1 summarises the differences between on-premise and off-premise computing.

There are a number of potential advantages to the off-premise delivery of computing. These include: • Lower upfront capital expenditures • Less management time spent acquiring, maintaining and operating computer hardware and software • Anywhere, anytime access to new capabilities • The flexibility to scale from one user to hundreds of thousands around the world.

Although it is a common assertion that cloud computing saves money when compared with on-premise computing, the reality is much more complex; the savings occur only if careful management drives lower total spending.

Management will need to institute policies that actively capture the lower cost of certain types of computing activity and effectively constrain the risks of runaway expenditures in the highly scalable cloud environment.

Requirements such as dedicated servers or storage due to security concerns will drive up costs and decrease the capacity for savings.

Limitations on locations and staffing – as well as interference with the provider’s normal operations – will add costs that are ultimately reflected in the contract terms. Other important 164

“Mobile technology can help corporations to transform how tasks are done or open new avenues to interact with clients, employees and business partners.” risks with cloud computing include: • Vendor lock-in • Difficulty in service level measurement • Data security & privacy issues.

A survey conducted by ISACA in 2011 on the use of cloud technology in Hong Kong and wider China shows that 20% of enterprises plan to use it for non-mission-critical IT services this year, double the number from last year. Meanwhile, the number of enterprises that plan to use cloud computing for mission-critical services rose from 7%to 11%.

MOBILE APPLICATIONS Over 5 billion people globally have a mobile phone, and over 1 billion have a smart phone.

In mainland China and Hong Kong alone, there are over a billion mobile phone users. Mobile technology can help corporations to transform how tasks are done or open new avenues to interact with clients, employees and business partners.

Businesses are already confronted with a demand for accommodating a BYOD (bring your own device) model, where employees bringing personally-owned mobile devices to their place of work, and use these devices to access privileged company resources such as email, file servers, and databases. A survey conducted by Grant Thornton LLP in 2012 of US chief audit executives (CAE) on emerging risks found that mobile technology was their second biggest concern (cyber-security being the number one concern).

SOCIAL MEDIA Tweeting, blogging, and friending are common terms used in the world of social media, and they are becoming a part of business vocabulary as well. Many companies are just now starting to take a serious look at the benefits of social media in business, and they are looking even more closely at the risks involved, such as fraud, theft, defamation, cyber-bullying and invasion of privacy among others. A survey conducted

IT topic

Current: On-premise computing

Future: Off-premise (cloud) computing

What to manage

Applications, devices, networks

Services

Form of contract

License

Subscription

Accounting treatment

Capital expenditures & operating expenses

Operating expenses

Increments of functionality

Modules

“Apps” (extensions to the core service)

Development & maintenance tasks

Operate, maintain, upgrade, troubleshoot, fix, restore

Use

Infrastructure tasks

Build, install, provision, power, cool (data center facility)

Use

Units of measure

Capacity

Entitlements

Cost structure

Pay for capacity installed/owned (fixed costs)

Pay for capacity used (variable costs)

Exhibit 1: Differences between on-premises and off-premises computing. Source: Grant Thornton.

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Autumn 2013 Issue

by Financial Executives Research Foundation, Inc. (FERF), working in partnership with Grant Thornton LLP in 2011 found that almost half of the senior financial executives who responded to the survey felt that social media will be an important component of corporate marketing efforts going forward.

For many companies, social media is the proverbial double-edged sword. It offers both opportunities and risks. For now, the governance regarding social media remains very fragmented. As social media cuts across many areas of a company, including HR, marketing, communications and legal, any policy surrounding it should be the result of a multidisciplinary approach.

In conclusion, a company contemplating the use of CloMoSo to enable business growth can expect numerous benefits and opportunities, including: • Speed of direct communication with clients • Better visibility, online exposure and increased traffic to the company website • Opportunity to build relationships and intimacy with customers • Ability to monitor and understand customer perceptions of the company’s brand • Ability to measure the frequency of the discussion about the brand • Early warning of potential product or service issues However, if done incorrectly, it can also lead to system failures, data privacy breaches and data security issues. This is where external consultants can be of assistance - to assess the company strategy, and to mitigate risks. Whether the company is just adopting one of the technologies, or adopting a convergence of cloud, mobile and social media, there are huge opportunities, and great risks involved. i ABOUT GRANT THORNTON HONG KONG LIMITED Grant Thornton Hong Kong Limited is a member firm of Grant Thornton International Ltd (Grant Thornton International). The firm is fullyintegrated with Grant Thornton China and part of a network of 17 offices providing seamless access to 120 partners and over 2,700 professionals across mainland China and Hong Kong. For more information, visit www.grantthornton.cn Grant Thornton is one of the world’s leading organizations of independent assurance, tax and advisory firms. These firms help dynamic organizations unlock their potential for growth by providing meaningful, actionable advice.

Proactive teams, led by approachable partners in these firms, use insights, experience and instinct to understand complex issues for privately owned, publicly listed and public sector clients and help them to find solutions. Over 35,000 Grant Thornton people, across 100 countries, are focused on making a difference to clients, colleagues and the communities in which we live and work. For more information visit www.gti.org

Amy Chiang: Senior Manager, Advisory, Grant Thornton Hong Kong Limited

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> CFI.co Meets Citygate:

Introducing the Brokerage Team Citygate adheres to a strong belief in long-term client relationships and our team reflects that: It is made up of high-caliber and experienced professionals who work in close coordination to deliver excellent services. Our commitment to the customers’ best interests makes us go the proverbial extra mile to deliver exceptional results.

P

erfect synchronization between each of the team’s members results in a truly efficient workflow and fosters an exceptionally high team spirit. Despite the pressures present in our daily jobs, we all enjoy working at the company. The team shares a common objective and this is key to our enduring success.

One of the founders of Citygate Securities is James Bishop - a qualified chartered accountant with broad investment experience.

After identifying the need for an independent stockbroker to serve offshore clients, James and his partners started Citygate in 2010. In this regard, the firm is a niche player providing independent services to this particular segment of the market. Before Citygate, Mr Bishop held various senior positions at a number of larger financial institutions including NatWest, RBS, ICAP and Standard Bank. Despite his tight work schedule, he always finds time to dedicate to his family and to his hobbies: sailing and snow skiing.

Overviewing the daily running of the business is Laval Law How Hung, the director of Citygate Securities. He is a member of the Association of Accounting Technicians, UK and also an associate member of the Society of Trusts and Estate Planners, UK. He spent 30 years working in the accounting and taxation fields, gathering experience across a large spectrum of industries ranging from commercial, manufacturing to financial services. Mr Laval also spent seven years in a medium-sized audit firm in the Britain.

His last 13 years have been spent in the sector of global business companies and investments funds. Here he held functions in accounting, tax, treasury, human resources, and business development. Mr Laval also holds various directorships at global business companies.

The Trading team at the firm is divided into two groups: One deals with listed securities and the other with non-listed ones.

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“Perfect synchronization between each of the team’s members results in a truly efficient workflow and fosters an exceptionally high team spirit.”

Kristelle Babet is chief trader on the listed securities team and also one of the directors of Citygate Securities Limited. Kristelle is responsible for the effective execution of clients’ transactions and for monitoring the trading team as well as the daily operations of the middle and back offices. She must also ensure that the trading team adheres to regulatory and compliance requirements and meets the aims of the fund management team. She is furthermore responsible for the management of relationships among the different stakeholders: clients, counterparties, fund managers, brokers and regulatory bodies. Kristelle is a professional with nine years of experience in finance and seven years of trading experience at Superfund Asset Management where she was involved in the execution of proprietary trading models across equities, commodities, fixed income and FX (spot and futures markets). The latter also ensured proper training of the trading team to updated systems and processes. In Mauritius, she led the trading team involved in the development of efficient and cost-effective strategies for automated trading algorithms.

She also managed the set- up of an offshore relocation of the middle office department for Superfund Assets Management in Seychelles and Grenada, Treasury and Cash Management.

Kristelle holds a BSc(Hons) in Economics and is a member of the ACI Association in Paris and holds a Dealing Certificate. She is also pursuing the CFA designation.

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Seated on the listed side, is Govinden Vyapooree, a senior trader who is responsible for the execution of client orders across different asset classes. Moreover, he manages clients’ currency exposures and has experience in middle office and back office. Mr Vyapooree has been working for Superfund Asset Management for more than seven years and has gained good knowledge of, and experience in, derivatives products like CFD, options, forwards, swaps, futures, etc. Govinden has also acquired experience on fundamental and technical analysis, proprietary trading, risk management, credit risk management and portfolio management. Mr Vyapooree holds an MBA from the Edinburgh Business School and is an associate of the Chartered Institute of Marketing. He also holds the ACI dealing qualification.

On the FX side is the seemingly timid and quiet Sharon Monneron, who is fully fluent in several programming languages and is particularly savvy with numbers. As a senior trader, she executes FX trades and handles appropriate FX hedges for fund companies as a currency overlay manager.

She maintains and disseminates FX exposure and manages day-to-day operational FX and treasury system activities of the company. Sharon has been an FX trader at Tokiwa in Tokyo, Japan and has also served as client portfolio manager at Credit Agricole CIB in Paris, France. She holds a Master’s Degree in Finance and a BCom from Lyon2 University France. She also completed a BSc in Computer Science and is currently a CFA level 2 candidate.

Assisting the listed team is the trader Rahul Desai. He is responsible for the execution of client orders across different asset classes.

Rahul worked at Bramer Capital Brokers as an equity research analyst where his main duty was to perform research as well as carrying out fundamental and technical analysis on listed stocks. His other duties also included trading on the stock exchange of Mauritius, advising clients on their investments and actively managing

Autumn 2013 Issue

In Pictures: The team at Citygate.

“The team shares a common objective and this is key to our enduring success.” the portfolios of high net worth clients. Rahul holds a degree in Mechanical Engineering from the University College London and is currently pursuing his CFA designation.

Heading the non-listed team is Preety Bugwan Bheenick, a senior trader responsible for executing client orders in instruments like mutual funds, structured notes and bonds. She also looks after the smooth and efficient running

of daily operations. Preety has a professional experience spanning ten years in the financial sector, ranging from audit and business advisory to global businesses. She is a member of the Association of Chartered Certified Accountants (ACCA) and the Mauritius Institute of Professional Accountants (MIPA). Preety also holds a Bachelor of Science in Applied Accounting from Oxford Brookes University, UK and has passed Level I of the CFA program.

Also active on the non-listed team is Rishi Ladkoo, administrator of Prime Brokerage Services at CityGate Securities Limited where he administers clients’ accounts and investments into Mutual Funds. Rishi has intensive experience in the global business sector. He worked as a fund administrator at a number of leading management companies in Mauritius such as Deutsche Bank (Mauritius) Limited where he managed a portfolio of global business entities consisting of collective investment schemes, private equity companies, pension trusts and other global business companies having aggregate AUM of over USD3 billion. Mr Ladkoo holds a Bachelor in Business Administration from the Management College of Southern Africa.

Last but not least is Vikesh Bulee who is in charge of the accounting department of the firm since 2012. His main responsibilities are to keep control and records of transactions processed by the Trading and Mutual Fund Department. He also oversees all other accounting duties of the company. He is currently pursuing towards ACCA qualification and has eight years of experience in the financial sector. Mr Bulee has worked for a couple of years as senior accountant with an offshore management company where he acquired a wealth of experience in dealing with various types of businesses such as local companies, offshore companies, funds and stockbrokerages. This avid reader, and indeed aficionado, of business magazines also boasts considerable expertise in control systems setup and shows excellent mastery of spreadsheet functions. i

In Pictures: Citygate Headquarters.

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> Citygate:

Offering Easy Access to the World’s Markets

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itygate is the first offshore stockbroking firm licensed in 2010 by the Financial Services Commission of Mauritius.

The company is also a member of the Mauritian Stock Exchange. Citygate boasts one of the most experienced teams in the industry with skillsets ranging from trading, prime brokerage, custody services, settlement, accounting to legal & compliance.

The members of the brokerage team enjoy an average of seven to ten years of individual experience and expertise in various asset classes such as: • Cash Equity Execution • Listed Futures Executions across worldwide exchanges • Contracts for Difference (CFDs) • Foreign Exchange trading across spot crosses and derivatives • Bonds and structured notes • Mutual funds and hedge funds dealing Citygate offers an online trading platform provided with the latest trading tools that ensure its clients can follow their own strategy and have ready access to well over thirty exchanges. This fully-featured platform features: • Listed stocks from over 33 major exchanges which cover approximately 18,400 equities • 2,270 exchange traded funds and commodities (ETFs and ETCs) • Currency pairs across 160+ spot crosses, vanilla and binary options • CFDs offering over 8,700 stocks, 22 Index trackers, 20 commodities, and Forex CFDs • Futures trading on 230 contracts across global future markets ranging from New York to Australia The company is well-known in the industry for its near-obsessive dedication to quality en excellence in service. Citygate is first and foremost a tight and smooth-running collective of highly qualified professionals who relish their jobs and are constantly on the lookout for both personal and professional improvement. Most members of the team pursue additional studies aimed at mastering the knowledge needed to gain and keep the edge.

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“Citygate boasts one of the most experienced teams in the industry.”

In today’s ever faster moving world of international finance, counting on the services of top professionals enables Citygate to expand its already broad range of activities and move ahead with confidence in the future. The company’s clients are guaranteed not just the best service, but also the undivided attention of professionals dedicated to getting the best return possible on investments.

Founded in 2010, Citygate Securities Limited is one of the very first licensees to have been attributed a broker dealer license from the Financial Services Commission in the Mauritius offshore financial industry The ramifications of various changes in the legal and economic framework of other offshore jurisdictions, has helped the Mauritian Offshore industry flourish.

The main objective of the founders of Citygate Securities Limited was to extend elite financial services to the offshore market that exceed the usual expectations of an administration and accounting business. Citygate prides itself in providing state-of-the-art services to a wide range of clients including high net worth individuals, investment companies, trusts, mutual funds and other investment vehicles.

Dealing and brokerage services are at the ultimate end of the investment cycle within the existing framework of the industry, which was previously limited to basic administration services. It was for this reason that Citygate Securities was built and developed over the last three years.

On the basis of that philosophy, the company’s board decided to extend its existing dealing services to offshore clients by offering access to now also include listed Mauritian stocks. In September 2012, Citygate Securities Limited has been approved as a Participant of the CFI.co | Capital Finance International

Central Depository Settlement Co. Ltd (“CDS”) and Member of the Stock Exchange of Mauritius (“SEM”).

Citygate Securities Limited provides the ability to trade in an array of financial instruments, across various asset classes and through the most popular, worldwide exchanges as a result of its strategic partnerships with international broker dealers and global custodians.

We also provide a white labeled solution to third party clients. Citygate offers an investment platform to well-established firms that are seeking a partnership in order to offer their own client base a fully functioning brokerage service.

Citygate’s island home of Mauritius is a rapidly expanding offshore financial centre. The country currently hosts well over 20,000 companies that use the island to channel investments into mostly India and Africa. With its corporate flat tax set at a rate of just 15% and a full suite of treaties aimed at avoiding double taxation of profits, Mauritius is set to become the investors’ gateway for Africa and the Indian subcontinent.

According to financial analysts, Mauritius is presently at the exact same spot as Singapore was two decades ago as it sought to position itself as the financial portal to the emerging markets of Asia.

The Mauritius government is very much the enabler of the country’s transformation into a premier offshore financial centre. Not only has the government signed a double-tax avoidance treaty with India, to which Mauritius has now channeled over $75 billion in direct investments, it has signed similarly advantageous deals with no less than 19 African countries.

These treaties are supplemented by solid investor protection agreements that call for fair compensation and arbitration in case of nationalization. The Mauritius government is currently engaged in negotiating three additional double-tax avoidance treaties with countries in Sub-Saharan Africa as well as six new investor protection agreements. i

envisioning financial prosperity in the region

Burgan Bank, established in Kuwait in 1977, is a regional financial powerhouse that provides innovative banking solutions to customers at their every stage of life or business cycle. With its solid financial delivery in a wide range of diversified portfolios enabled by its expertise and vast regional footprint, Burgan Bank is your best partner in the Middle East and North Africa region.

Members of Burgan Bank Group:

For more information please call Burgan Bank on (+965) 22988400, or visit www.burgan.com

> USAID:

Science and Engineering Diaspora Networks – Communities Mobilizing to Solve Global Development Challenges

By Romi Bhatia

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n a research lab at the University of Buffalo (UB), New York, scientist Sarbajit Banerjee and his colleagues have honed in on a confounding problem - how to efficiently cool homes in hot climates. These researchers are testing the potential of coatings roofs and windows with vanadium oxide, a synthetic compound that reflects heat once the temperature reaches a critical point. Banerjee and his team believe they have found a so-called “moonshot” solution – a radical solution using breakthrough technology to address a global problem – which in this case can be applied for sustainable low-cost housing in developing countries. Banerjee stresses the enormous environmental implications: “This technology is of particular interest in developing countries, where the use of air conditioning is rising. Not only is this straining nascent power grids, but it’s also dumping hundreds of millions of tons of carbon dioxide into the atmosphere. And this isn’t just a problem for houses, but also for cars, where by some accounts vehicle air-conditioning units in the United States alone use 7 billion gallons of gasoline each year.”

Banerjee is both a diasporan and a scientist – he emigrated from India and is currently an Associate Professor of Chemistry at UB and co-director of UB’s New York State Center of Excellence in Materials Informatics. Individuals like Banerjee make up a community of diasporans in the science and engineering fields. While affinity to their country of origin often creates a lasting emotional bond, their pedagogy instills a degree of objectivity and scientific rigor to solving problem sets.

At USAID and the State Department, we recognize that harnessing both this affinity and the expertise of science and engineering diaspora networks can help tackle some of the greatest problems developing countries face while bridging cultural and economic gaps between the United States and the rest of the world.

In May 2013, Banerjee was invited to give a lecture titled “Windows and roofs that adapt to the outside environment: Toward greener housing in the developing world” at the Global Diaspora Forum. His eight-minute lecture was one of several TED-style talks featured in a Solve for <x> event at the forum in partnership with Google to amplify science-based “moonshot” thinking. “Moonshots” are described by Google

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“The U.S. government is striving to offer more opportunities to build strong collaborative partnerships in science and technology around the world.” as radical solutions that use breakthrough ideas and cutting-edge technology to address global problems that affect millions or billions of people.

Banerjee’s lecture was part of the third-annual forum which is co-hosted by the U.S. Department of State’s Office of Global Partnerships and the United States Agency for International Development (USAID), to celebrate the role of diaspora communities in development and diplomacy. In 2012, an initiative called Networks of Diaspora for Engineers and Scientists, or NODES was launched as a partnership between the Department of State, the American Association for the Advancement of Science, and the National Academy of Sciences. NODES connects diaspora scientists across boundaries and in the past year has convened scientists and diaspora groups from over 30 countries.

NODES and similar efforts by other U.S. government agencies recognize that science diplomacy is not just a smart tool that brings experts together for collaboration under a “non-political” umbrella but an imperative in order to address some of the most pressing global challenges of our time that will depend on innovative thinking and technological breakthroughs for scalable solutions. An oftenneglected byproduct of these collaborations is that science and engineering diasporans also play the role of “cultural translators” to communicate inventions in the U.S. that may have even greater utility in other countries.

There is great potential for U.S. diaspora scientists and engineers to play a pivotal role in knowledge transfer, entrepreneurship, and commercialization of ideas in their countries of origin or heritage. Take for example the research work of Imran Khan, an Assistant Professor in the Department of Pathology and Laboratory Medicine at the Center for Comparative Medicine at the UC Davis Medical Center. Khan, together with his colleague Paul Luciw in the same department led the development of a

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low-cost, quick screening technique to identify whether children have reached a deadly stage of tuberculosis.

At least 600 million people in Pakistan, India and Bangladesh are infected with the tuberculosis bacterium Mycobacterium tuberculosis and about 400,000 die from the disease in South Asia every year. This new screening which can benefit millions of people worldwide resulted from research collaborations with their Pakistani colleagues at the Arid Agriculture University and Punjab University under a joint Pakistan-U.S. Science and Technology Program funded by USAID and the State Department.

The U.S. government is striving to offer more opportunities to build strong collaborative partnerships in science and technology around the world. In 2011, USAID launched the Partnerships for Enhanced Engagement in Research (PEER) Science program, a partnership between the USAID and the NSF that provides funding support to researchers from 87 eligible countries working collaboratively with NSF-funded scientists based in the U.S. These collaborations can lead to dramatic breakthroughs in development-related topics such as natural resource management in the Philippines, water issues in the Middle East and North Africa, biodiversity in the Lower Mekong Region and Brazil, and climate change adaptation in the Maldives.

Scientist: Sarbajit Banerjee

Source: Douglas Levere, UB Reporter, University of Buffalo

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While some may chide the “brain drain” of highlyskilled individuals who leave their countries of origin for better opportunities, the fact is that there are many science and engineering diaspora networks that maintain ties and help build scientific capacity in their home countries.

Take for example the efforts of the Caribbean diaspora to establish a Caribbean Diaspora for Science, Technology and Innovation, a collection of Caribbean professionals who have an interest in building scientific capacity to benefit the development of the Caribbean Region. Or of the Irish scientific diaspora community to create the Wild Geese Network of Irish Scientists to connect Irish scientific, technological and engineering diaspora, disseminate information about funding opportunities and forge networks to create bilateral partnerships.

The global challenges in access to energy, sustainability, agriculture, health, education and infrastructure that underlie poverty require not just resources but talent. The community of science and engineering diasporas in the United States is a valuable asset and a key stakeholder group in our diplomacy and development policies.

Their expertise, combined with an inherent cultural awareness and sensitivity that cannot be acquired, can help the U.S. government dream bigger and find the next “moonshot” solutions as we reshape the way we think about science for development. i

Sources •http://diasporaalliance.org/robert-hormatssremarks-at-the-2013-global-diaspora-forum/ •http://www.buffalo.edu/news/ releases/2013/05/053.html •http://pakistanlink.org/Community/2013/ Sep13/06/05.HTM To learn more about NODES and other USG initiatives that engage diaspora communities, please visit the International diaspora Engagement Alliance (IdEA): www.diasporaalliance.org.

Questions and inquiries about how to partner with USAID can be directed to: robhatia@usaid.gov ABOUT THE AUTHOR Romi Bhatia is a Senior Advisor for Diaspora Partnerships in the Global Partnerships Division at the US Agency for International Development.

He is part of the core team that is helping to drive the Agency’s engagement with diaspora communities in the U.S. in order to achieve development objectives of the Agency.

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> CFI.co Meets the MD and CEO of National Stock Exchange of India:

Chitra Ramkrishna

In Pictures: Chitra Ramkrishna

“Ms Chitra is evangelical about her second mission: To make the exchange a vehicle for the financial well being of people in India. This she has done by introducing a combination of products that retail investors find easy and simple to use; and by spreading investor awareness through education.”

M

s Chitra Ramkrishna is the Managing Director and Chief Executive Officer of the National Stock Exchange, the world’s second largest `exchange in cash market trades and one of the top three exchanges in index and stock derivatives.

Over the years, Ms Ramkrishna has earned her spurs as an institution builder, policy maker and as an evangelist. She was part of a handpicked leadership team created in 1994 to set up the National Stock Exchange. In less than two decades, she has overcome strong headwinds from various quarters to create a world-class and completely transparent market institution.

Ms Ramkrishna sits on several SEBI (Securities and Exchange Board of India) committees on different policy issues, including the Secondary Market Advisory Committee and the Committee on Disclosures and Accounting Standards.

She was also closely involved in drafting the legislative framework of SEBI, in the late 1980s.

She has also been actively engaged in many important committees of industry bodies like the 172

CII (Confederation of Indian Industry) National Council on financial sector development, the FICCI (Federation of Indian Chambers of Commerce and Industry) National Executive Committee and its Capital markets Committee, where she shares her thoughts on key issues of the sector and the economy.

Under her watch, NSE has launched products to suit all classes of investors, including futures and options, currency, exchange traded funds, global indices like S&P 500. Recently, NSE introduced a dedicated debt platform to encourage retail investors and institutions to trade in corporate bonds.

Ms Chitra was selected as one of the top 10 women business leaders in India by Forbes in 2011, and for three successive years, she has been featured in a list of top 30 women achievers by the Business Today group.

Ms Chitra has also invested considerable time and energy in making CNX Nifty 50 a global brand: Today Nifty ETF’s are being traded in 15 prominent international exchanges. Nifty derivatives are also being traded on the Singapore Stock Exchange and Chicago Mercantile Exchange and will be trading soon on a derivative platform of the London Stock Exchange and the Osaka Securities Exchange.

Key exchange initiatives that bear Ms Chitra’s imprint include setting up a Pan-India VSAT network; building the infrastructure and legislative framework for India’s first depository; facilitating screen-based trading; providing trading access to retail investors located across cities and remote corners of the country; ensuring continuous cost leadership and creating a technological backbone that is scalable and unassailable.

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Ms Chitra is a chartered accountant from the UK-based chartered Institute of Management Accountants. She is the third woman CEO to head an Exchange in the Asia-Pacific region after Sri Lanka’s Colombo Stock Exchange and China’s Shenzen Stock Exchange. i

Autumn 2013 Issue

> National Stock Exchange of India:

Leader in Indian Capital Market The National Stock Exchange of India Limited (NSE) has played a transformational role in reforming the Indian securities market in terms of microstructure, market practices and trading volumes and has been defining the future of the Indian financial market since its inception. NSE brought trading to the doorstep of the investor.

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he market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed several innovations in products & services such as demutualization of stock exchange governance, screen based trading, compression of settlement cycles, dematerialization and electronic transfer of securities, securities lending and borrowing, professionalization of trading members, finetuned risk management systems, emergence of clearing corporations to assume counterparty risks, market of debt and derivative instruments and intensive use of information technology.

NSE was established in November 1994 and started trading in derivatives with the launch of index futures on 12th June 2000. Exchange Traded Funds (ETF) were introduced in 2002.

India VIX was launched by NSE to measure the market’s expectation of volatility. NSE was the first exchange to set up derivative trading in currency pairs USD INR, EURO INR, YEN INR and GBP INR along with interest rate futures in India. NSE also started trading in derivatives of global indices in India, hence proving a complete boutique of asset classes for every category of investor.

With market capitalization of more than 950 billion USD and 1,672 companies listed as of September 2013, NSE has consistently been the leader in Indian capital market: • 4 out of every 5 trades happen through NSE; • Market share: over 85% in equity and equity derivatives and 60% in currency derivatives; • Pioneered the concept of ETFs in India; • Launched internet trading facility in India.

NSE is the world’s largest Exchange in terms of number of equity trades. It is also the largest exchange for contracts traded in equity index options and exchange traded currency derivatives. NSE is the second largest traded exchange for single stock futures (Source: WFE Statistics Report, Aug 2013).

NSE’s trading systems provides an unparalleled

In Pictures: National Stock Exchange of India

level of trade and post-trade information with latency in single digit millisecond level for all orders entered into its trading system. Investors

“NSE is the world’s largest Exchange in terms of number of equity trades.” can also use the internet trading facilities and the mobile trading facilities provided by the exchange. NSE has introduced services like DMA, FIX capabilities, co-location and mobile trading facilities for various categories of investors.

With its leading-edge software, combined with high-performance connectivity, NSE provides innovative tools, access to liquidity and to markets through its network of: • More than 200,000+ NSE terminals across India’s 600 districts; • Through more than 34,000+ trading member branches; CFI.co | Capital Finance International

• NSE is also the first exchange in the world to leverage satellite-based trading across more than 200 cities.

NSE works with a missionary zeal towards educating investors about the opportunities in the market, the precautions they should take and their rights and obligations. In order to economically empower investors and help them take sound financial decisions, NSE conducts nearly 1,500 seminars every year in both metros as well as the smallest of towns.

NSE has made its global presence felt with cross-listing arrangements, including license agreements with CME Group, Singapore Exchange (SGX), London Stock Exchange (LSE) and the Exchange of Japan to facilitate mutual licensing of indices and exploring the feasibility of enabling access to each other’s markets.

NSE is committed to operate a market ecosystem which is transparent and efficient; and at the same time offers high levels of safety, integrity and corporate governance, providing ever growing trading & investment opportunities for investors. i 173

> IMF on Emerging Economies:

The Yin and Yang of Capital Flow Management Balancing Capital Inflows with Capital Outflows When foreign capital surges into countries, there are two possible means of adjustment: financial adjustment through increases in resident capital outflows or reserves accumulation, or real adjustment through a larger current account deficit.

Historically, surges in capital inflows to emerging market economies tended to lead to domestic booms and current account deficits and, when the flows reversed, as they almost inevitably did, painful adjustments and sometimes financial crisis.

The global financial crisis, however, marked a change from the past. While some countries experienced the classical boom-and-bust cycle in response to volatile international capital flows, many did not. Rather, as international capital flows dried up, domestic residents stepped in to replace them by drawing down their own foreign assets. This pattern of buffering foreign capital flows with offsetting resident flows was a key contributor to these economies being more resilient to fluctuations in foreign capital inflows. This chapter examines the underlying explanations for this behavior and assesses whether it is possible for policymakers to encourage such behavior in countries where it may not currently occur.

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apital flows to emerging market economies are a source of particular and enduring concern to many policymakers.

These concerns stem from bitter experience, best exemplified by the 1997–98 Asian crisis, when surges in capital inflows fuelled excessive credit growth, expanded current account deficits, appreciated exchange rates, and a loss of competitiveness. When the inflows reversed, there was a painful adjustment characterized by severe financial disruptions.

The experience of the past decade has only intensified these concerns as inflows have increased in magnitude and volatility (Figure 2).

A surge in inflows—greater even than the surge preceding the Asian crisis—halted abruptly with the global financial crisis. But the rebound was rapid, in part because of low interest rates in advanced economies. Yet now that economic prospects in the United States are picking up, flows seem poised to reverse—again.

Such volatile capital inflows create many challenges for emerging market policymakers.

For example, when low interest rates in

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“What are the policies and characteristics of countries where financial adjustment helps minimize real adjustment?” advanced economies stimulate capital flows to emerging markets, tightening of monetary policy or sterilized intervention can lead to even larger capital inflows, thus boosting rather than dampening credit growth and widening the gap between domestic demand and output.

Furthermore, calibrating policy to deal with temporary rather than structural fluctuations, such as those that occur when markets oscillate between “risk on” and “risk off ” episodes, adds another layer of difficulty to the policymaker’s task.

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What, then, can policymakers do? One approach that has enjoyed increased support in recent years is intervention to reduce the volatility of capital inflows and the associated effects on the exchange rate. Recent research has provided a rationale for the use of capital controls (“capital flow management measures”) and foreign exchange intervention, and the IMF has supported this approach in particular circumstances as part of a comprehensive economic management approach. And a number of countries, including Brazil, India, and Indonesia, have actively used these tools.

Such intervention is not, however, universal. For example, Chilean Central Bank Governor Rodrigo Vergara observed in January 2013 that “We’ve seen inflows but mostly aimed at [long-term] investments and this has been offset somewhat by outflows as Chilean companies and private pension fund managers invest abroad.” Chile’s policy response—careful monitoring but limited direct intervention—reflects the relatively benign domestic effects of these flows. More broadly, only some countries that experience strong

Autumn 2013 Issue

capital inflows experience unsustainable booms, current account blowouts, and subsequent painful adjustments.

These differences in behaviour and experience point to an important distinction among countries. From the balance of payments identity we know that a surge in capital inflows can be absorbed either via current account deterioration (“real” adjustment) or via offsetting capital outflows (“financial” adjustment). In some economies there is a tendency for strong capital inflows to fuel booms that, particularly when the flows reverse, require traumatic real adjustment. It is these experiences that have stimulated the extensive body of research on how best to moderate the flows of capital. In other economies, however, capital inflows lead to financial adjustment that tends to buffer those inflows and lower the required real adjustment.

We show that this difference has been associated with greater economic resilience to capital inflows. Thus, instead of asking what emerging market economies can do to stem the flow of capital, an area of research that has been covered extensively previously, we focus on the related and complementary question: Given volatile capital inflows, how can countries encourage stabilizing financial adjustment that minimizes the required real adjustment? In particular this chapter explores the following questions: Are these economies really more resilient? What are the policies and characteristics of countries where financial adjustment helps minimize real adjustment? How might this financial adjustment work? And how did these economies become resilient? To answer these questions, this analysis first categorizes emerging market economies into two broad groups based on whether they experience more or less real adjustment in response to capital inflows. Examination of GDP, consumption, and unemployment in these two groups of countries after the global financial crisis reveals that, on average, countries that experienced less real adjustment were indeed more resilient. The chapter then looks in more detail at the policies and characteristics of these two groups. This investigation reveals some surprisingly clear distinctions. The more resilient emerging market economies have: (1) more countercyclical fiscal policy and better monetary policies; (2) better institutions; (3) more flexible exchange rate regimes; and (4) more stable net capital flows because of greater financial adjustment that reflects private rather than official buffering of capital inflows.

Also of interest are the dimensions along which the groups do not differ: (1) Both groups had approximately the same share of resources and manufacturing.

(2) Both had similar levels of real GDP per capita.

And most notably (3) both faced a similar level and volatility of gross capital inflows.

The chapter then briefly considers various

“The main findings are that resilient emerging market economies have more flexible exchange rates, lower inflation, more countercyclical fiscal policy, better economic institutions, and more stable current accounts.” theories that may explain the findings. It appears that, when domestic and international financial markets are relatively free of distortions, the natural consumption smoothing behaviour of domestic investors tends to offset and buffer volatile foreign capital flows with financial adjustment rather than real adjustment.

While it is helpful to identify the defining characteristics of these more resilient economies, it is equally important to understand how these countries acquired these characteristics and which characteristics appear to promote resilience rather than being merely a consequence of resilience.

SUMMARY The main findings are that resilient emerging market economies have more flexible exchange CFI.co | Capital Finance International

rates, lower inflation, more countercyclical fiscal policy, better economic institutions, and more stable current accounts (net capital flows). Furthermore, the majority of the financial adjustment in resilient economies is through private rather than official flows. It should be understood, however, that identifying these characteristics does not address the question of causality: how countries became resilient and whether these characteristics explain their resilience or are simply consequences or indicators of resilience. The case studies that follow, however, by focusing on the sequence of events and development of these characteristics, allow clearer inferences about causality and provide some answers to the questions about why these countries are more resilient today.

A comprehensive analysis of this evidence is presented in the final section.

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market policies. Foreign capital flows were Figure 4.6. Chile tightly regulated, and the exchange rate Since the late 1990s, Chile has followed a policy mix of inflation targeting, a floating ut prudential regulation of the domestic exchange rate, and free capital flows. It has also improved its general institutional quality and em was lax, particularly of related lendimplemented more countercyclical fiscal policy. The net effect has been that fluctuations in gross capital inflows are buffered by gross capital outflows, and the country has been much vailing ethos was one of market discipline less affected by fluctuations in gross inflows than in the past. xplicit regulation. As a consequence, a anks collapsed. CASE Furthermore, when finan1. GDP and Unemployment STUDY 30 (percent) Chile ons gained access to foreign capital markets 25 y expanded theirOver foreign intermediation a period of decades punctuated 20 by crises in the early 1980s and late matically and, ultimately, imprudently.

15 1990s, Chile has gradually moved toward 10 t crisis hit in 1982, a large depreciation in a policy mix that combines an inflation5 targeting framework, a freely floating y fixed exchange rate led to extensive corexchange rate, a structural balance fiscal 0 lts and an ensuing rule, financial and open crisis capital(Figure markets with –5 Real GDP growth (year over year) strong prudential and financial market . Weak prudential controls allowed finan–10 Unemployment regulation. This policy mix has delivered Unemployment (Santiago) notable resilience sometimes –15 ign exchange risks to build up,toand when large fluctuations in gross capital inflows.

–20 n debt crisis occurred, theymixes compounded Earlier policy that were missing one 1981 86 91 96 2001 06 12:Q4 or more elements of the current policy n. combination ended in crisis. These crises ding much of the excluded from were,1980s however, the catalyst for changes 1.2 2. Government Spending and Institutional Quality 1.4 that resulted in the current policy mix. capital markets, the government policy 0.8 990s involved more economic flexibility In the mid-1970s Chile started 1.2 its financial and capital 1970s and early deregulating 1980s, but it was still 0.4 markets as part of a general shift toward free-market policies.

Foreign capital erventionist. The government pursued 1.0 0.0 flows were allowed, but tightly regulated, d growth modeland thatthetargeted a stable exchange rate was fixed. But –0.4 prudential regulation of the domestic ted exchange rate managed in a moving 0.8 financial system was lax, particularly Correlation of government spending and GDP ntain a sustainable external balance.

It –0.8 of related lending.

The prevailing ethos Institutional quality (right scale) was one of market disciplinethe rather than that this approach would minimize explicit regulation. As a consequence, a –1.2 0.6 nerability to thenumber kindofofbanks financial turmoil 1981 86 91 96 2001 06 11 collapsed.

Furthermore, when financial institutions gained access he 1982 crisis. The government, however, to foreign capital markets in 1980, they 3. Gross Capital Flows 20 the ability to run independent monetary expanded their foreign intermediation (percent of GDP) activities dramatically and, ultimately, uce the still-high level of inflation. As 15 imprudently. When a debt crisis hit 1982, a large tal controls werein necessary, anddepreciation Chile in the previously fixed exchange rate led to 10 munerated reserve requirement extensive corporate known defaults and an financial crisis (Figure 5 that allowed forensuing a wedge between global1, panel 1). Weak prudential controls allowed 15 In addition, reflecting c interest rates. financial and foreign exchange risks to 0 build up, and when the sovereign earned in the early 1980s financial crisis, debt Gross inflows Gross outflows crisis occurred, they compounded the –5 gulation was much improved, particularly downturn. ated lending. After spending much of the 1980s –10 1980 85 90 95 2000 05 10 12 excluded fromIn international oach led to many tensions. line with capital Figure 1: Chile. Since the late 1990s, Chile has followed a policy mix of inflation targeting, a floating exchange rate, markets, the government policy mix in the and free capital flows. It has also improved its general institutional quality and implemented more countercyclical fiscal other emerging1990s market economies, capital involved more economic flexibility Sources: Haver IMF, Balance Payments Statistics; IMF,byInternational Financial policy. The net effectAnalytics; has been that fluctuations in of gross capital inflows are buffered gross capital outflows, and the than in theduring 1970s the and 1990s. early 1980s, hile increased markedly Statistics; PRSmuch Group, International Risk Guide; andpast.

IMF staff calculations. country has been less Inc., affected by fluctuationsCountry in gross inflows than in the but it was still relatively interventionist.

Sources: Haver Analytics; IMF, Balance of Payments Statistics; IMF, International Financial Statistics; PRS Group, Inc., e rate was consistently pushing against the The government pursued an export-led International Country Risk Guide; and IMF staff calculations. growth model that targeted a stable and f the band, requiring extensive sterilized depreciated exchange rate managed in a monetary policy to reduce the still-high financial crisis, prudential regulation was At the same time, theband central banka was moving to maintain sustainable level of inflation. As a result, capital much improved, particularly regarding external balance. It was thought that controls were necessary, and Chile used related lending. intain high domestic interest rates as it this approach would minimize the an unremunerated reserve requirement iver price stability, which exacerbated country’s vulnerability to thethe kind of known as the encaje that allowed for a This approach led to many tensions. In financial turmoil that led to the 1982 crisis. The government, however, also wanted the ability to run independent

cal evidence on the effectiveness of these capital d. Cowan and others (2007), for instance, argue that ge the volume of inflows—only their composition.

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wedge between global and domestic interest rates. In addition, reflecting the lessons learned in the early 1980s

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line with the trend in other emerging market economies, capital inflows to Chile increased markedly during the [...]

Autumn 2013 Issue

Chile: Santiago

CASE STUDY [continued] 1990s. The exchange rate was consistently pushing against the strong side of the band, requiring extensive sterilized intervention. At the same time, the central bank was trying to maintain high domestic interest rates as it aimed to deliver price stability, which exacerbated the costs involved in defending the exchange rate. The tensions inherent in Chile’s chosen policy framework eventually came to a head with the Russian bond crisis.

Russia’s default led to a sharp deterioration in sentiment toward emerging markets in general. Interest rates on Chilean sovereign and commercial debt rose, and the terms of trade deteriorated as the price of copper fell. Now, instead of defending the exchange rate against appreciation, the policy framework required the defence of the exchange rate against depreciation. As a result, monetary policy was tightened, which exacerbated the domestic downturn. Although there was no “sudden stop” in gross capital inflows, there was still a sharp reduction in net inflows that contributed to the strength of the downturn because of a “sudden start” in gross capital outflows. This was partially a result of poor timing: limits on foreign investment by the private pension funds had been gradually relaxed through the 1990s. But, because Chile had been growing strongly and domestic returns were high, these relaxations had not

translated into strong outflows. When the crisis started, however, the authorities’ attempt to prevent depreciation of the exchange rate provided domestic investors with the strong incentive to move money abroad in order to benefit from a possible depreciation.

The outcome, while better than in 1982, was still not ideal. Unemployment rose from about 6 percent to almost 12 percent, and the economy experienced its first year of negative growth since 1983 (see Figure 1, panel 1). The improvement in prudential controls did, however, prevent a financial crisis and any related worsening of the situation.

Reflecting on the 1998 crisis, the authorities recognized that the framework in place required a procyclical monetary policy response and that this framework also encouraged exacerbating private portfolio flows because investors could anticipate exchange rate movements and make one-way bets. The central bank decided on an inflation-targeting framework under which most capital controls were removed and the exchange rate was allowed to float freely.

It was hoped that the increased exchange rate volatility associated with free floating would serve as a natural disincentive to the kinds of short-term capital transactions that were a traditional source of concern.

Fiscal policy was also improved with the introduction of a structural balanced budget rule in 2001, which made fiscal

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policy more countercyclical than in the past. (The effect can be seen in Figure 1, panel 2.)

The regulatory framework for banks was reformed to encourage financial development. In particular, pension funds were natural counterparties to nonfinancial corporate in the foreign exchange market, and the relaxation of regulations allowed the development of the markets each needed to hedge their foreign exchange risk, with banks acting as intermediaries. Furthermore, with controls on capital outflows relaxed and pension funds free to hold a significant fraction of their assets overseas, gross capital flows in Chile began to behave much more like those in advanced economies, where gross outflows and gross inflows offset each other and generally stabilize net inflows and activity (Figure 1, panel 3).

The net result of these policies was that the Chilean economy now seems much more resilient to global shocks and capital flow volatility. Large fluctuations in gross capital flows during the global financial crisis and earlier Latin American crises had less effect on net capital flows. Furthermore, Chile has been able to respond to downturns with countercyclical and stabilizing fiscal and monetary policies, assisted by the automatic stabilizer that a floating exchange rate provides.

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Capital inflows to emerging market economies have shown substantial variability over the past decade. Median flows peaked at about 15 percent of GDP just prior to the global financial crisis before dropping to zero. They have since rebounded but continue to demonstrate significant volatility. As seen in the interquartile range, this pattern is common to most emerging market economies.

OVERALL ANALYSIS We began by showing that emerging market economies differ with respect to how changes in gross inflows are absorbed through financial versus real adjustment and that this difference was reflected in their level of resilience during the global financial crisis. The empirical section documented the country characteristics associated with higher financial adjustment, and the case study told how Chile reformed the economy and moved toward a regime with more financial adjustment that buffered capital inflows.

The empirical and case study evidence underlines that the majority of financial adjustment in more resilient economies was undertaken by private agents. And an important element underlying the buffering behavior of private agents was a relatively flexible exchange rate regime. When country authorities try to resist fundamental changes in the exchange rate, they create incentives for both foreigners and residents to take the opposite position. As the case of Chile demonstrates, when depreciation can be anticipated, as it usually can with managed exchange rate regimes during periods of pressure, there is a tendency toward destabilizing capital outflows from both domestic residents and nonresidents. Conversely, during the global financial crisis, when the exchange rate of Chile was allowed to adjust and depreciate, gross capital outflows served to stabilize the net flows because domestic residents either slowed their normal outflows or repatriated foreign funds.

Although reserves management can contribute to financial adjustment, the case studies and evidence from the global financial crisis show that private agents can themselves manage their foreign assets in a stabilizing way. This analysis has already reviewed several reasons private agents may have strong incentives to reduce outflows when inflows dry up. The case studies provide some concrete examples. In Chile, for example, the primary actors are the private pension funds, which invest the pension savings of Chileans and hold approximately 40 percent of their assets abroad. During the global financial crisis, multiple incentives combined to encourage a significant rebalancing: pension funds repatriated foreign assets and, thereby, offset the reduction in foreign investors’ inflows.

In particular, the freely floating exchange rate combined with limited capital controls and well-developed financial markets to quickly and efficiently encourage and facilitate financial adjustment that buffered volatile gross inflows.

Finally, it is worth noting that, even though the private sector may undertake the majority of the financial adjustment in response to shocks in the cases studied, this does not rule out a role for the official sector. In Chile, the central banks intervened in the foreign exchange market from time to time to smooth fluctuations or to address a temporary overshooting of the equilibrium exchange rate.

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All Emerging Market Economies

30 25

Median

20

Interquartile range

15 10 5 0 –5

1990

94

98

2002

06

10

12

–10

Figure 2: Gross Capital Inflows (Percent of GDP). Capital inflows to emerging market economies have shown substantial variability over the past decade. Median flows peaked at about 15 percent of GDP just prior to the global financial crisis before dropping to zero.

Sources: IMF, Balance Payments Statistics; and IMF As staff They have since rebounded but of continue to demonstrate significant volatility. seencalculations. in the interquartile range, this pattern is common to most emerging market economies. Sources: IMF, Balance of Payments Statistics; and IMF staff calculations.

CONCLUSIONS Emerging markets have faced unprecedented volatility in capital inflows during the past 4 decade. In 2011 policymakers worried that excessive inflows might cause overheating, but more recently concerns have shifted to the disruption that might result from sudden stops as interest rates in the United States normalize. A key question for many policymakers is how best to respond to the challenges such volatile capital inflows present. As discussed in other research from the IMF, capital flow management measures and foreign exchange intervention can be useful in moderating the volatility of capital flows and exchange rates in less resilient emerging market economies in some circumstances. But policymakers are not limited to these tools.

The particular reforms and characteristics that companies and private pension managers invest appear to fund have supported stabilizing financial adjustment are highlighted in the empirical abroad.” Chile’s policy response—careful monitoring analysis and case studies. A first important characteristic is the strength their institutional but limited direct intervention—reflects theof relatively frameworks. In particular, resilient emerging benign domestic effects ofmarket these flows.haveMore broadly, economies more credible fiscal and monetary policies that are used countercyclically. only some countries that Inexperience capital this regard, itstrong is important to note that countercyclical fiscal measures should not be inflows experience unsustainable booms, current used only in downturns, when some emerging market economies may actually be limited in account blowouts, and subsequent painful adjustments. their ability to finance a fiscal stimulus. It is equally important to tighten fiscal policy during These differences in behavior and experience point episodes of strong growth, when capital inflows to an important distinction countries.

From tend among to contribute to overheating.

In fact, investing such fiscal savings abroad, as Chile the balance of payments identity we know that a surge does through its sovereign wealth fund, can help Policymakers implement important can reforms buffer gross inflow surges.via curincancapital inflows be absorbed either that can help increase the resilience of their economies rent to swings in gross inflows by Second, resilient emerging market account deterioration (“real” adjustment) or economies via encouraging stabilizing financial adjustment. are characterized by improved prudential offsetting capital (“financial” adjustment).

In Such adjustment means that swings outflows in gross regulation and supervision that limit excessive inflows need not necessarily translate into risk taking without preventing the development some economies tendency for strong capital disruptive fluctuations in the current there account.is a of the domestic financial sector. Third, stabilizing Rather, when gross capital inflows increase, financial adjustment obviously requires a relatively inflows to fuel booms that, particularly when the flows residents will tend to offset these flows by open capital account that allows residents to accumulating foreign assets that traumatic are later both a stock of It gross reverse, require realaccumulate adjustment. is foreign theseassets repatriated when foreign inflows decline. And and efficiently move money in and out of the that have stimulated the extensive of this chapterexperiences documents how countries with such country as necessary to buffer body gross inflows. greater financial adjustment better withstood Furthermore, as the case of Chile demonstrates, research on inflows how during besttheto moderate flowsrateof regimes capital. the sharp contraction in gross more flexible the exchange have global financial crisis, experiencing a smaller fall encouraged such buffering behavior in recent In other economies, however, capital inflows lead to in both GDP and consumption. years. A heavily managed exchange rate, on the hand,to may undermine residents’ incentives financial adjustment that other tends buffer those inflows and lower the required real adjustment. We show CFI.co | Capital Finance International

stem been relat capi ing real follo resil coun real work T rizes base adju of G grou that adju look thes prisi mark polic tion mor adju ering sion grou and GD simi Th that dom relat smo offse finan W acte

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Autumn 2013 Issue

â&#x20AC;&#x153;In sum, the countries that have demonstrated greater resilience to the yin of capital inflows are those that have encouraged the balancing yang of capital outflows.â&#x20AC;? to reduce outflows during sudden stops, because an anticipated depreciation creates very strong incentives to send assets offshore, thereby exacerbating capital flow volatility. A caveat is that these findings reflect the responses to global shocks that have been very much in evidence over recent years. Domestic shocks may encourage different capital flow behaviour.

The case studies also provide important insights about the appropriate sequencing of reforms.

Reforms to strengthen the domestic financial system typically preceded other policy measures, while steps toward greater openness to capital flows and exchange rate flexibility came toward the end. Rather, the case studies suggest that countries that improved prudential policies and adopted credible monetary and fiscal policy

regimes (such as inflation targeting in the cases of Chile) were then able to relax remaining restrictions on capital flows or the exchange rate and thereby benefit from the stabilizing role played by fluctuations in the exchange rate and capital outflows. The role of reserves in contributing to this adjustment is less clear.

capital flows nor benign economic conditions were a precondition for reform. Instead, policy reforms tended to be implemented in response to a crisis or recession. That is, these policies can be, and have been, implemented by less resilient economies at times of weakness as a way to build their resilience.

At any rate, Chile (and advanced economies more generally) demonstrate that a large stock of official reserves is not a prerequisite for net capital flow stability. A possible concern with these findings is that the ability to improve institutions and run countercyclical macroeconomic policies may be a benefit of resilience, rather than a direct cause of it. The case studies, however, suggest that this is not the case. A common element in all was that neither increased resilience to

In sum, the countries that have demonstrated greater resilience to the yin of capital inflows are those that have encouraged the balancing yang of capital outflows. i

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Source IMF World Economic and Financial Surveys, IMF World Economic Outlook (WEO), Transitions and Tensions, October 2013

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> Bolsa de Valores de Colombia:

A Securities Market that Creates Opportunities for Everyone The Colombian Securities Exchange has become a driving force for the corporate and economic development of the country that has recently registered outstanding social, economic and political progress. These advancements have allowed Colombia to position itself as the fourth largest economy in Latin America, with an average GDP growth of 4% over the last few years, and with a population of around 48 million, the third largest after Brazil and Mexico.

D

ue to these results, the Colombian capital market has established itself over the last five years as one of the most important sources of corporate finance in the country, channeling more than $40 billion in resources from private investors, and launching initiatives that have altered the paradigm of how to do business in Latin America. Moreover, it has also been one of the few markets showing sustained growth, not only in volume, but also in the value of its stock market. At the same time, it continues to be one of the most important fixed income markets in the world.

Initiatives such as the creation of the Integrated Latin American Market (MILA), the creation of the standardized derivatives market, and the adoption of internationally renowned technologies and financial instruments, have led the Colombian securities market to be recognized as a model for innovation and leadership. It is following in the footsteps of more advanced markets such as those found in Brazil, Mexico and Chile.

Because of these achievements, the IberoAmerican Federation of Stock Exchanges (FIAB) has recently named the CEO of BVC, Juan Pablo Córdoba, as president of the regional entity for the period 2013 to 2015. It is expected that from his new perch, Mr Córdoba will lead the normative standardization of the region´s capital markets, allowing for a vibrant flow of financial resources and thus further fostering intraregional business.

TECHNOLOGICAL ARCHITECTURE The BVC has one of the most modern transactional platforms in Latin America: Nasdaq-OMX’s XStream system, which enjoys a well-known reputation in more than 50 countries and will allow the Colombian securities market to be connected to the world’s most developed markets in the near future, thanks to the adoption

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“The BVC has one of the most modern transactional platforms in Latin America: NasdaqOMX’s XStream system.” of international communication protocols (FIX).

To achieve this objective, the BVC has also modernized many of its products, raising them to international standards and thus creating new opportunities for both local and foreign investors.

Tools such as the first ETFs, as well as brokering instruments through global custodians, mature rapidly in the Colombian securities industry.

GROWTH The growth targets for the Colombian securities markets are focused on the creation of a robust infrastructure that offers investors and issuers real alternatives for participation. The BVC seeks to increase the number of high liquidity issuers in the market, an aim that has already begun to mature over the last few years, thanks to large placements on behalf of recognized local and foreign companies.

That is the case of companies such as Cemex Latam Holdings, which sold its shares through the BVC in 2012, as did other local companies that have started to expand in the region in search of new growth opportunities. Issues such as those of Grupo de Inversiones Suramericana and those of the banks Bancolombia, Davivienda and Banco de Bogotá, among others, have allowed them to finance acquisitions in Central and South American countries, positioning them as “Multilatinas”.

Coincidentally, and aligned to this wave of placements, the country has seen a surge in

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foreign direct investment, not only in its dynamic oil industry, but also in sectors of the economy such as finance, which has seen the arrival of institutions such as Itaú and BTG Pactual of Brazil, Corpbanca and LarrainVial of Chile, and Credicorp’s Banco de Crédito of Peru. Through acquisitions or the opening of subsidiaries, these institutions have encouraged the presence of international brokers within the market, bringing best management practices and attracting new clients from other latitudes.

MARKET ARCHITECTURE The Colombian regulatory framework is one of the most advanced in the region and has allowed the BVC to broaden its supply of commodities and structured products for brokers and end customers. Within this regulatory environment, the BVC propelled the creation of the standardized derivatives market, which in turn meant the implementation of new tools such as a central counterparty clearing house that eliminates the risk of defaults on transactions in the market. Furthermore, thanks to the creation of this infrastructure, the BVC created the first trading platform for standardized energy derivatives - Derivex - which has tremendous growth potential in the near future.

Indeed, this same regulatory framework has allowed the BVC to consolidate the participation of new players across the value chain. Structural changes to the regulatory and fiscal frameworks that were driven by the BVC during the last decade made portfolio investment more favorable for foreign investors, attracting this type of investment and allowing it to grow at a more rapid pace when compared to other periods: The share of foreign investors in the equities market has grown from 4% to 15% over the last three years.

Nonetheless, the purpose of the BVC is to keep attracting long-term structural investment that supports corporate growth. According to

Autumn 2013 Issue

its directors, the aim of the BVC is to achieve a share similar to that of other more developed markets in the region, where foreign investors are responsible for around 30% of the traded volume in equities. In order to support this goal the Exchange has implemented a plan, named Colombia InsideOut, to promote its market in the worldâ&#x20AC;&#x2122;s main investment centers, supported by the main issuers and governmental and monetary authorities. Colombia Insideout, has enabled meetings with more than 500 investors in London and New York over the last two years.

Also at the forefront of internationalization is the Integrated Latin American Market (MILA), which seeks to become a new model for regional investment and an alternative to Brazil.

MILA counts on the participation of the stock exchanges, the central securities depositories and the regulators of Chile, Colombia and Peru.

These countries have brought their objectives in line with the aim of creating an area of common interest that allows them to become more relevant in terms of global investment.

As a result of this integration, MILA is today the number one market in Latin America in terms of number of issuers, the second in terms of market capitalization, and the third in terms of

traded volume. This initiative has had such an impact that within only two years of operating the entry of Mexico as a new member is already being considered. Mexico is currently taking the legislative steps necessary for its incorporation in the near future.

QUALITY Improving the overall quality of the local market is one of the main ambitions of the BVC, since it understands this would clearly set it apart from other similar markets which also seek to attract international investors. For this reason it is constantly working to adopt best practices and trading standards, but above all it is continuously encouraging market participants to do the same.

In line with this approach, the BVC adopted the so-called â&#x20AC;&#x153;IR Recognitionâ&#x20AC;?, an awarenessbuilding program whose aim is to prompt issuers to adopt better internal policies regarding investor services, which are far stricter than those required by law.

quarterly publication of consolidated financial reports, quarterly meetings to disclose results, the creation of investor relations offices, and even the modernization of their Internet portals, where they already include information in English so that foreign investors are able to understand their content.

THE FUTURE The BVC currently works on various areas related to the internationalization process, the strengthening of infrastructure, and the overall quality improvement of its markets. All these areas, according to the company, provide the basis from which it hopes to consolidate its corporate purpose in the face of the challenges imposed by the globalization of the securities markets and the growing demand for resources on the part of a burgeoning economy such as that of Colombia. i

This crusade has been more successful than expected, and today 29 securities issuers are recognized as companies committed to providing good information to their shareholders. These issuers have implemented practices such as the CFI.co | Capital Finance International

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> CFI.co Meets the CEO of the Colombian Securities Exchange:

Juan Pablo Córdoba Garcés

M

r Córdoba Garcés assumed his current position as CEO of the Colombian Securities Exchange in March 2005.

Since then his main challenge within the organization has been the transformation of the exchange into a modern business. For this the exchange needed to obtain a high-quality product portfolio that meets – and exceeds - the needs of both the broader market and investors in general.

Mr Córdoba’s achievements include having led the BVC to be listed on the equities market (2007); the modernization and internationalization of the Colombian capital markets through the creation of the Integrated Latin American Market (MILA) (2009); propelling the equity and fixed income markets towards improved liquidity; and the creation of the standardized derivatives market (2008).

Juan Pablo Córdoba is also President of the IberoAmerican Federation of Stock Exchanges (FIAB) for the period 2013 to 2015. Previous to his current position, Mr Córdoba was director of the Colombian Fondo de Garantías de Instituciones Financieras (Financial Institutions’ Guarantee Fund, FOGAFIN), a position he held between August 2002 and February 2005.

Mr Córdoba began his career as an economist at the Fiscal Management Division of the Inter-American Development Bank (IDB) in Washington. Upon his return to Colombia, he was named general-director of public credit at the Consejo Superior de Política Fiscal (Colombian Fiscal Policy Board, CONFIS) of the Colombian Ministry of Finance and Public Credit, a position he held for three years.

In 1999, Mr Córdoba again departed for Washington, now to work as an economist at the Western Hemisphere Department of the International Monetary Fund (IMF) where he stayed till 2005.

Mr Córdoba earned a Master’s Degree and a PhD in Economics from the US Ivy League University of Pennsylvania in 1996. Previous to that, he obtained his Bachelor’s Degree in Economics in 1988 from the well-respected Universidad de los Andes in Colombia.

Mr Córdoba is confident that the Colombian Securities Exchange (BVC) stands at the threshold of a promising future. His buoyant outlook is based in part on the surprisingly successful initial public offering (IPO) of shares in Ecopetrol. “This IPO did away with no less 182

CEO: Juan Pablo Córdoba Garcés

than two paradigms that had until then hindered development,” says the BVC chief who goes on to explain that the first paradigm broken concerned the supposedly small size of the local capital market.

“This proved entirely unfounded since the Ecopetrol listing brought in $2.6 billion exclusively from Colombian investors. The second paradigm that was shattered concerned the limited access Colombians enjoy to the country’s capital markets. This proved to be nonsense as well since Ecopetrol shares were bought by investors from all levels of society hailing from well over a thousand different municipalities scattered all across our country.”

Mr Córdoba is also quite sure that the BVC will continue to reap the benefits of continued low interest levels. “Low interest rates traditionally favour risk in investments. Fixed-income instruments and mutual funds offer paltry returns on capital. It is therefore quite logical that investors both large and small start looking for alternative ways to make their money work for them. At the BVC, we are now ready to serve this CFI.co | Capital Finance International

demand in an efficient, streamlined and secure way.”

Although transaction costs on the BVC remain comparatively high, settlement and clearance fees remain very low resulting in a good overall cost picture. “As the market continues to grow, these costs will come down further. Automated processes and increased trading volumes are also expected to dampen costs making Colombia’s BVC a particularly attractive option for not just domestic investors but overseas ones as well.”

Mr Córdoba expects Colombia’s recent successes in both the political and economic arenas to add to the country’s already strong GDP growth.

Business is already good and now gets ready to boom. “Equity is what will generate value over the next decade or so. No matter what you happen to think about today’s share prices, in ten to fifteen years you’ll be pretty sorry you didn’t get a piece of the action. The outlook for Colombia’s publically traded companies is generally good to excellent. They are ready for take-off and so is Colombia’s Securities Exchange.” i

Autumn 2013 Issue

> World Bank Group:

The City Competitiveness Imperative

By Stefano Negri and Christopher Colford

Urban Leaders Must Focus on Competitiveness, Pro-Actively Embracing Cities’ ‘Economic Vocation’

A

n explosion of interest in urban policy and city management has put urbanization at the center of the global development agenda, especially since the milestone United Nations “World Urbanization Prospects” report of 2009 showed that at least 50 percent of the world’s population now lives in cities. New courses on urban development have been created; new city-focused business units have been founded within major private-sector companies; hundreds of conferences have been held and reports produced.

The key trends of this globalizing age are making the role of mayors and city managers more relevant, and more complex, than ever before.

Cities and metropolitan areas play a crucial role not only in providing basic municipal services, but also in addressing such issues as climate change, sustainability, economic growth and job creation.

CITIES AT THE INTERSECTION OF CHALLENGES Even before passing the symbolic 50-percent urbanization threshold, cities have been at the intersection of all the major social and economic challenges we face. Even in cases where legal barriers have slowed migration flows into the cities – like the Hukou system in China or border controls in Western countries – the count of urbanites has been ticking up steadily, especially in fast-developing economies. With half of humanity already packed into metropolitan regions, cities will be home to two-thirds of the world’s population by 2050.

“Honing cities’ competitive edge requires activist economic policies that concentrate the strongest capabilities of the public sector, the private sector, philanthropies, academia and civil society.”

Local-level leaders now aspire to increasing policymaking authority. “In an interdependent world, ... issues of transportation, immigration, climate and banking become global – and cities have been better at dealing with one another and talking about these issues than nation-states have,” according to political scientist Benjamin Barber of the City University of New York, the author of “If Mayors Ruled The World.” In an era when a city’s industries might be targeting customers halfway around the world, say Bruce Katz and Jennifer Bradley, the authors of “The Metropolitan Revolution” and scholars at the Brookings Institution, “Many U.S. mayors ... are being compelled to design and execute their own trade and foreign policy.”

ACTIVIST POLICIES Honing cities’ competitive edge is thus becoming urban leaders’ key priority. That requires activist economic policies that concentrate the strongest capabilities of the public sector, the private sector, philanthropies, academia and civil society.

“Agglomeration economies” theories claim that urban areas naturally foster higher productivity, higher rates of formation of new enterprises, higher wage rates, higher rates of innovation and greater creativity – but those benefits are only potential: They simply don’t occur automatically.

If city size and density were the only drivers of economic growth, many metropolitan areas

Among all the debates about the challenges of relentless urbanization, the right question is not how to halt urbanization, but how to get urbanization right – making sure that the benefits are greater than the costs.

Mayors, city managers and policymakers worldwide realize that their task is no longer limited to the already-difficult mission of providing efficient services to their growing ranks of citizens. It now also includes making sure their cities become competitive and productive in the global market – thus providing sources of jobs and opportunities to their citizens and, in turn, generating tax revenues to fund the urban machine.

Figure 1: Three distinct layers of policies are needed. Source: World Development Report 2013 team.

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“Competitive cities are the nexus of financial, intellectual and human capital united by an infrastructure that, if well planned, promotes dense development and inspires the ‘spillover effects’ that drive knowledge-exchange.” in developing countries would be the most productive cities in the world.

Clearly, they are not, as higher levels of urbanization are not necessarily correlated with higher levels of growth. Africa has been urbanizing in recent decades without a reduction in poverty rates of the same magnitude. Indonesia recorded just 2 percent GDP growth per 1 percent urbanization, compared to 6 percent to 10 percent in some other countries. And cities within the same country vary significantly on their competitiveness.

There is thus scope for urban policies to make a difference, addressing such factors as market access, productivity and innovation capacity. Getting urban policy right is the most complex problem, and probably the most urgent dilemma, of the century – demanding new insights into managing scarcity and maximizing opportunity. In a global economy that rewards competitiveness and dooms the inefficient, providing jobs, incomes and opportunities for the hungry and crowded urban billions will pose an overwhelming challenge, especially in fastgrowing economies.

DELUGE FROM COUNTRYSIDE Urbanization in today’s developed countries occurred gradually, over a century or more, allowing for trial and error in developing rules and capabilities. By contrast, today’s developing countries face sudden deluges from the countryside: Some can expect to go from a 25-percent urban population to 60 percent,

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or even 80 percent, in just 30 years. The city populations of emerging economies are expected to double between 2000 and 2030, from 2 billion to 4 billion people. Megacities, such as Mexico City and São Paulo, are already home to 30 million people or more, and cities in Asia and Africa are catching up fast.

Urban areas also endure especially stark income inequality, with high-income urbanites rubbing shoulders with the poor. Growing urban disparities and unemployment pose not just humanitarian pressures but threats to security and stability: This year’s arc of urban unrest – from Cairo to Istanbul to Madrid to São Paulo – dramatize how millions of urban-dwellers now have rising expectations about achieving middleclass livelihoods, and how they are capable of turning violent if their urban dreams are dashed.

Cities are the heart of humanity’s challenge – yet cities may also be the key to its solution.

City competitiveness focuses on improving a city’s relative economic strength and jobcreation potential – by creating the necessary conditions for its firms and entrepreneurs to become competitive in regional and global markets, while at the same time benefiting the local population. Local governments can play a pivotal role in facilitating existing and new competitive firms: by improving the business environment, or by improving efficiency, or by doing both. That’s where interventions targeted on city competitiveness can play an important role in accelerating job creation and increasing incomes.

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Successful local governments create sources of comparative advantage beyond just their natural endowments and the expected economic benefits of agglomeration. City leaders can do so by improving regulation, access to finance, skills, technology and infrastructure. They can promote the R&D environment needed to succeed in steelmaking, shipbuilding or semiconductor manufacturing; provide the education and training facilities to strengthen human capital; cut red tape and create an investment climate that welcomes infusions of investment capital and intellectual property. They can encourage the flow of funds to small businesses and entrepreneurs; improve the physical components of transportation (like highways, airports and seaports); and improve security to minimize losses due to criminal activity and corruption.

NEXUS OF CAPITAL Competitive cities are the nexus of financial, intellectual and human capital – united by an infrastructure that, if well planned, promotes dense development and inspires the “spillover effects” that drive knowledge-exchange.

Building urban success includes experimenting with ideas that are borrowed from other settings and customized – even as it also unleashes the energies of each community’s particular civic character. Each thriving city can thus inspire its own unique urban alchemy.

To ensure that a city will be well-positioned in ever-more-competitive international markets, it’s vital for each metropolitan area to embrace continuous renewal through constant investment

Autumn 2013 Issue

Map: Growth rates of urban agglomerations, 1970-2011. Source: United Nations, Department of Economic and Social Affairs, Population Division: World Urbanization Prospects, the 2011 Revision.

“Unleashing the full potential of urban ingenuity requires a relentless focus on maximizing city-level performance and productivity. Maximizing cities’ competitive potential, by applying customized approaches that meet specific local needs, is vital to the entire global development agenda.” in the technologies of the future. By harnessing local creativity and talent, while also establishing global connectivity, each city must identify its identity and embrace its economic vocation.

In addition, it must evolve its strategy to avoid being caught off-balance, as places like Detroit have been, because of a failure to anticipate and adapt to market trends.

The cities that will succeed will be those that become nodes of talent within global networks and value chains – with a concept of “basic infrastructure” expanding to include not just resilient roads and sturdy bridges, but also efficient IT systems, strong universities, easy connections to global trading partners and datadriven management methods.

Competitive cities, striving not just to survive amid globalization but to make use of trends to their own advantage, are now redefining the old concept of “urban renewal.” Focusing on productivity and sustainability, ambitious urban leaders are focusing on competitiveness in the most innovative economic sectors to which each city can reasonably aspire.

SETTING THE GLOBAL PACE Asian cities have set the global pace for the last several decades – with “Asian Tigers”

like Singapore, Hong Kong, Seoul, Shanghai and Taipei maximizing their competitiveness with world-leading clusters of finance, high technology and trade logistics. Yet some of the most interesting experiments in urban competitiveness-building are now apparent in the United States.

Driven by the recent economic crisis and the chronic unemployment it has caused, American mayors have been compelled to try new entrepreneurial paths toward job creation – far beyond the well-known clusters of Silicon Valley, Boston’s Route 128 and North Carolina’s Research Triangle. It is too soon to tell if these experiments will be successful, but they are worth careful long-term scrutiny to see what the rest of the world can learn from them.

New York is building a science-focused “city within a city” on Roosevelt Island in the East River, where Cornell University will fulfill Mayor Michael Bloomberg’s vision of creating a new research campus devoted to science.

By diversifying the city’s fortunes beyond Wall Street, New York will reduce the region’s vulnerability to the booms and crashes of the financial sector, opening it instead to the upsides of new technologies.

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San Francisco is among the tech-conscious cities committed to ensuring universal, high-speed connectivity – thus giving all citizens access to efficient data connections and helping accelerate entrepreneurship in the Bay Area.

Chicago has targeted vocational training in close collaboration with key private-sector companies, aiming to elevate the job skills of its workforce so it will be ready for the industries of the future.

Pittsburgh and Cleveland, having shed thousands of heavy-industry jobs, are reinventing themselves as medical hubs, with their hospitals becoming the focal points of imaginative medical-devicemanufacturing and robotics clusters.

Oklahoma City has sought to attract younger workers and startup businesses by improving civic amenities – and it has attracted so many newcomers that the entrepreneurship-minded Kauffman Foundation and Fortune Small Business magazine in 2009 voted it the best large U.S. city to start a business.

CIVIC TRANSFORMATIONS The kind of urban experimentation now energizing many American cities may help inspire other civic transformations in the developing world.

While metropolitan areas around the world 185

Figures 2-7: Urban and rural population by major regions, 1950-2050 (million). Source: United Nations, Department of Economic and Social Affairs, Population Division: World Urbanization Prospects,

the 2011 Revision. New York, 2012

“The right question is not how to halt urbanization, but how to get urbanization right - making sure that the benefits are greater than the costs.” already generate almost 70 percent of global GDP growth, solutions will be needed not only in the already-successful capitals of middleand high-income countries – where many city leaders, armed with funding and decision-making authority, are delivering effective management – but also in the fast-growing secondary cities of low-income countries.

Cities like Johannesburg, Kuala Lumpur and São Paulo are tapping their people’s creative energies in the financial centers within their urban cores, although prosperity has yet to radiate into the many neighborhoods beyond those glittering downtowns. The longer-term challenge will be inspiring competitiveness in cities like Buenaventura, Benin City and Bursa, leveraging their own unique comparative advantages. And the coming test of urban ingenuity may be most critical in overcrowded and job-deprived Lagos, Cairo and Kinshasa.

The urbanization trend has also created a paradigm shift at the World Bank Group, where eradicating poverty and promoting shared prosperity are the twin core missions.

Poverty is no longer limited to rural areas and underdeveloped regions, as cities attract millions of poor people in search of jobs and opportunities.

It is crucial for the World Bank Group to support city governments in their endeavor.

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In response to demand from local governments, we have started helping metropolitan regions enhance their competitiveness, supporting their discovery process of their economic vocation, and connecting them to export markets and the global economy. By taking a fully cross-sectoral approach, we are mobilizing expertise across private sector development, infrastructure and urban planning, business strategy, human-capital development, and the investment environment.

Our Competitive Cities initiative aims to focus the resources of the World Bank Group – and to enlist private-sector and civil-society partners – to work with city governments and help integrate the resources they need for urban success.

FOCUS ON PERFORMANCE AND PRODUCTIVITY Unleashing the full potential of urban ingenuity requires a relentless focus on maximizing citylevel performance and productivity. Maximizing cities’ competitive potential, by applying customized approaches that meet specific local needs, is vital to the entire global development agenda.

If cities fail, then all development dreams will be lost. But if civic leaders summon the strongest capabilities that the public sector, the private sector and civil society organizations can offer, they will be able to deliver transformative solutions that meet the urbanization challenge.i CFI.co | Capital Finance International

Stefano Negri

Christopher Colford

ABOUT THE AUTHORS Stefano Negri is a Manager of the Competitive Industries Practice at the World Bank, and is the author of “Preparing for China’s Urban Billion.”

Christopher Colford is a Communications Officer in the World Bank’s Financial and Private Sector Development Network, and was previously a consultant at Hill & Knowlton Public Affairs Worldwide and a senior editor at McKinsey & Company.

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