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THE GLOBAL INVESTOR

Bill McNabb Chief Executive Of Vanguard His Focus On Low Fee’s Not Growth FDI- Ukraine, Kenya, Italy, USA, Germany, CryptoCurrencies, Fintech, Artificial Intelligence, Europe’s Digital Future, Big Data’s Dark Side, Economic Citizenship, Saint Nevis and Kitts, Berlin Focus, Bangalore Start Up

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Table of Contents

Bitcoin And The Future Of Cryptocurrencies

Fdi Stateside The Global Leader

The New US Tax Reform And What It Mean’s For Business Stateside

Top Start Up Regions in Europe 2020

Innovating Intensively: The Global Logistics Industry

Zinnovate: An Honest Disruptor

Bangalore Leading The Chase For Worlds Best “Start Up” City

Berlin - Europe’s New Business Destination Of Choice

Germany - Europe’s FDI Powerhouse

Digital Future of Europe

Artificial Intelligence And The Dark Side of Big Data

How Artificial Intelligence is Changing The Way We Do Business

Minding the Artificial Intelligence Gap

All You Need to Know About The FinTech Industry

The Blue Frontier, Humanity’s Next Home

Economic Citizenship: A New Global Phenomenon

Business Friendly Nevis Update

Investors In Kenya Still Optimistic Despite Recent Setbacks

Re-Thinking The Asian Investment Strategy

Poor Outlook For Ukraine’s Rebound Strategy

The challenges That Lay Ahead For Italy’s Economy

theglobalinvestor.com 8 www.theglobalinvestor.com

THE GLOBAL INVESTOR

theglobalinvestor.com

Editors Note

Managing Editor Amr Shabana

elcome to another edition of The Global Investor where we have hugely interesting features that cover the latest issues affecting the globes leading decision makers and investors. We cover some interesting country reports form Kenya and Ukraine , through to Italy as well as looking at the overall situation in Asia and assessing the FDI flow of each region whilst also assessing the GDP and economic growth .We analyse what steps they need to take to get the economies back to full strength. We also take a very close look at the USA and what is happening there and why it still attracting so much FDI and why it will continue to do so. We then feature the Global Logistics Industry and the Innovative processes that are happening within the industry to further itself to become more efficient.With that we look at one of the globes leading innovators and our front cover focus who is Hakan Nilsson , CEO of Zinnovate who are an IT Management Consultancy firm specializing in the freight and logistics industry . We profile the very charismatic Hakan and take a look at exactly how he has brought his expertise and innovative ways to Zinnovate and how he has helped to make the logistics industry a much more efficient one. The other major focus is Berlin and why so many internationals companies are relocating there. It discusses its start up scene, the many venture capitalists there and why its becoming the place to do business in Europe. From there we look at the ever increasing global popularity of Investment Citizenship programmes where essentially High Networth Individuals buy a second passport are made citizens of that company . We specially focus on Saint Kitts and Nevis and why its becoming a very popular destination point of second passport holders. Other featured articles include the dark side of dark data which is a fascinating piece in itself , artificial intelligence and how it is affecting us . We then take a look at the start up regions in Europe as well as a fascinating piece on the digitilzation of Europe. Both great insights into where business in Europe is heading .We nearly did but how could we leave BItcoin out ? So we gave our insights into the world of cryptocurrencies and what is likely to happen especially from the investor side. We hope you enjoy the quarterly update of whats going on globally and we always look to hearing form you.

Paul MaÂ&#x201A;hews Associate Publisher

Deputy Editor Anthony Ricketts Associate Publisher Paul Matthews Features Editor Patricia Cullen Head of Production Vladimir Mladenovski Head of Design Vladimir Mladenovski Subscriptions Manager Peter Knowles Head of Business Development Rob Shaw Advertising Sales Vaneesa Beeley, Tara Duckworth , Andy Ellis, Mark Holburn, Derek Ryan, John Power Contributing writers Peter Nicol, Patricia Cullen, Richard Fitzpatrick, Bala Murali Krishna, Shilpa Meen, Argee Laraya, Gordana Ristic, Jonathan Hooker, Jose Ignacio Latorre Head of Digital Stephen Scott Photographer Ben Fisher Publisher Nick Staunton Contact theglobalinvestor Studio F 26 Lewin Road London SW166JR Phone +44 2032902473 Email -Info@theglobalinvestor.com

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Bitcoin and the Future of Cryptocurrencies Bitcoin It is becoming more frequent and more questions are being asked as Bitcoin and other new cryptocurrencies appear to be showing up on news sites and in people’s social media feeds. Many people and investors are hyping cryptocurrencies as they urge people to invest in them. And people are also getting greedy as they watched bitcoin zoom to $2,588, almost triple of its value since the start of the year. European Business Magazine delves deep into the world of Bitcoin and reports on the future from the world of cryptocurrencies

hile Ethereum, which is the second largest cryptocurrency after Bitcoin, has seen its value rise by fifty times to $300 coin, Ripple, has managed to reach a market cap of nearly $10 billion. Ethereum distinguishes itself apart from other virtual currencies with its ability to incorporate “smart contracts.” Smart contracts are computer-based contracts that pay parties only after certain conditions have been met and verified. This reduces the risk for both parties and creates a better sense of trust in using the cryptocurrency.

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While it is still a new market and quite volatile some analysts believe that the cryptocurrency market could reach $5tn by 2022. If bitcoin and other cryptocurrencies continue to rise exponentially in value, more people will be drawn to invest and make profits out of it. Tom Lee, a Wall Street strategist, believes that Bitcoin, which was launched in 2009, will reach $55,000 by 2022 because of scarcity and the instability in financial markets. The actual supply of bitcoin is capped at 21 million bitcoins, and so the price of bitcoin has no ceiling given this scarcity. According to CoinMarketCap.com, the market

share of Bitcoin has fallen from 87 to 40% but this is purely down to other cryptocurrencies such as Ethereum started to gain popularity. Cryptocurrencies and its technology is a huge area of interest and one of great high complication.The currencies use Blockchain technology for its encryption and registry techniques. This means that the ledgers of Cryptocurrencies are made on blocks of verified transactions. The price of bitcoin is dictated by the market and how bitcoins are reproduced is built into its programming.

This sophistication of how cryptocurrencies work make it alien language to most people, but as soon as more people become aware of how these virtual currencies work, it is likely they will not hesitate to try using it. This will be especially so as Blockchain becomes more prominent in fields such as financial technology because fintech companies are continuing to disrupt the world of finance and how business and society operates. Andrew Levin is a professor of economics at Dartmouth, and he believes digital currencies are the way to go. He says, â&#x20AC;&#x153;the greater need is for consumers and businesses to have access www.theglobalinvestor.com 11

to money that has a stable value and is practically costless to use. We think there’s a strong case for central banks to issue digital currencies that would be free to use.” Japan and China are the big countries that are fuelling the rise and acceptability of cryptocurrencies. Recently, Japan has accounted for almost 55% of total bitcoin trading volume as it recognised bitcoin earlier this April as

a legal currency. As wealthy people grow in number in China, cryptocurrency is now seen as an alternative asset class that is less volatile and improving in stability. There is also an increase in acceptance of cryptocurrencies in Japan. For example, megabanks in Japan back bitFlyer, which is Japan’s largest exchange for bitcoins. However, there is hesitation in China to recognise virtual currencies as

currencies that can meet modern economic development needs. Shen Songcheng, an adviser to the People’s Bank of China, commented that virtual currencies like bitcoin are assets, but they do not have the essential attributes that can allow it to meet modern needs of the economy. There also remains much scepticism and calls for regulation of bitcoin, and other virtual currencies have remained strong. For example, China recognises Bitcoin as a “virtual good.” The CEO of Chinese bitcoin exchange BTCC, Bobby Lee, believes that cryptocurrencies need to be regulated to protect consumers. Lee adds, “But the challenge is how to craft the rules around this new technology. I think it is taking the lawmakers and regulators some time to wrap their minds around it, and coming up with the appropriate rules and laws to govern companies, how we do business, to govern individuals and how people conduct business online.” Of course, with government regulation, a possible topic discussion shortly would involve taxes.

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FDI STATESIDE - THE GLOBAL LEADER The United States welcomes foreign direct investment (FDI) as a win-win proposition that benefits both international business investors and U.S locations. As they become part of a symbiotic innovation and production ecosystem, these investors â&#x20AC;&#x201C; and their companies â&#x20AC;&#x201C; both benefit from and contribute to economic growth and prosperity in communities across the nation. SelectUSA, the U.S. national investment promotion program, explains why.

The fundamentals that make the United States a great place to invest – markets, a climate of innovation, rule of law, and a motivated, skilled workforce – are stronger than ever.

arket Fundamental 1: Top Destination for Business Investment The World Bank consistently ranks the United States among the best markets in the world to start, operate, and expand a business – and in an increasingly competitive global marketplace, the United States continues to be the world’s leading destination for foreign direct investment. Indeed, at more than $3.7 trillion, total FDI stock in the United States equals 17 percent of gross domestic product (GDP) – a larger share by far than that of any other country.

Market Fundamental 2: Growing Investor Confidence In 2017, for the fifth year in a row, the United States has topped the A.T. Kearney Foreign Direct Investment Confidence Index. The Index is 14 www.theglobalinvestor.com

an annual survey of global business executives that ranks markets most likely to attract the most investment in the next three years. Moreover, nearly half of business investors were even more optimistic about the United States than they were last year. Market Fundamental 3: European Companies are Voting with their Dollars (and Pounds, Euros, and Francs) The latest available data (2015) from the U.S. Bureau of Economic Analysis (BEA) reveal that at $1.92 trillion, European foreign direct investment (FDI) accounts for more than half (61.2 percent) of total foreign investment into the United States. Indeed, eight of the top ten largest sources of FDI in the United States are European countries. This and much more FDI data is available on SelectUSA Stats, a free online data visualization tool.

There are many reasons why investors from Europe and around the world choose the United States as the place to launch, grow, and succeed in their business endeavors. Here are just a few: The United States is the single largest market in the world – with an annual GDP of more than $18 trillion, a diverse population of 325 million, and the highest household spending on the planet. Companies tapping into this substantial market find that locating manufacturing and distribution facilities closer to their customers enables greater quality control, improved responsiveness to customer demands, and reduced lead times. Perhaps this is why U.S. affiliates of foreign companies exported US$425 billion worth of goods in 2014 – more than one-quarter of all U.S. goods

The U.S. workforce is diverse, skilled, innovative, and mobile – and its workers are among the most productive in the world. In fact, U.S. workforce output per hour is 36 percent above the OECD member country average. The federal and state governments offer a wide array of resources – from training programs to tax incentives – to support employers in their quest to find, train, and retain the best talent. Businesses operating in the United States are powered by abundant resources, including independent, stable, low-cost energy sources, raw materials, and the most developed, liquid, flexible, and efficient financial markets in the world. All companies – from growing tech startups to established multinationals – can find the resources and capital needed to take their firms to the next level.

And the future looks even brighter As a stable democracy with a transparent and predictable legal system, the United States treats foreign and domestic firms equally under the law. At the local level, economic

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development organizations from every corner of the country promote and facilitate business growth and investment. And at the federal level, steps are being taken to create an environment in which companies can flourish – including reducing burdensome regulations, simplifying the tax structure, and investing in infrastructure initiatives.

“We came to [the United States] more than four decades ago and it’s been nothing but success… [We are] part of the fabric of this country, and I dare say we call it our second home.” Ludwig Willisch, President, CEO and Chairman of the Board, BMW (U.S.) Holding Corp. SelectUSA Investment Summit, June 19, 2017

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The United States is a leading destination for innovators, offering seven of the top 10 universities, 27 percent of global research and development (R&D) spending, and the most robust intellectual property protections in the world. The innovation culture in the United States – with deep roots in collaboration and knowledge-sharing, respect for diversity, adaptability, and flat organizational structures – catalyzes opportunities. By encouraging entrepreneurship, risk-taking, and even the risk of failure, this culture offers an added competitive edge to the business community.

Top Five European Sources of FDI in the United States

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exports. Moreover, the “Made in the U.S.A.” brand is internationally renowned for innovation, quality, and reliability, giving U.S.-made goods a competitive edge in global markets – and it is more timely than ever that President Trump declared July 17 – 21 “Made in America Week.”

What’s Next? For companies ready to take the next step, SelectUSA is here to help. Housed within the U.S. Department of Commerce’s International Trade Administration, SelectUSA promotes and facilitates business investment into the United States. SelectUSA offers a range of services to help investors find the information they need to make decisions; connect to the right people at the local level; navigate the federal regulatory system; and find solutions to regulatory issues related to the federal government. The annual SelectUSA Investment Summit convenes companies from all over the world, economic development organizations from every corner of the nation, and other parties working to facilitate business investment in the United States. The next SelectUSA Investment Summit is scheduled to take place on June 20-22, 2018 in the Washington, D.C. area. For more information, visit www.selectusa.gov. www.theglobalinvestor.com 15

The New US Tax Reform And What It Meanâ&#x20AC;&#x2122;s For Business Stateside

reducing gaps that are used by various firms to shield profits overseas. The Republican leader in the Senate, Mitch McConnell says that “it is an opportunity now to make America more competitive, to keep jobs from being shipped offshore and to provide substantial relief to the middle class“. However, some of the new rules, such as a perk for exporters, may violate international rules and conventions. Senate approved a tax reform in the beginning of last year’s December, and it is seen as a point which will change US tax laws system enormously, being the biggest and most significant taxes change since 1980. However, the story actually just began, and the bigger reform’s impact for the international changes will be noted only after at least a year. Although some controversies towards the reform have been seen, and Trump’s policy was one of them, it found the way to the top. As many people still wonder how this happened, the Council of Economic Advisers explained that factors like the proposed individual tax rate reduction and repatriation tax, could have boosted the economic growth expectations from the plan. Experts, on the other hand, say that reality could have been a bit different, and changes in the immigration rates, the Federal Reserve’s rate reaction and long-term demographic trends actually had serious impact on some people’s votes and caused them to take action towards validating the reform.

t is no secret that US tax reform causes global tension when it comes to international trade’s policy. As the year 2017 ended with Senate’s approval for major tax cuts, resulting a victory for D. Trump’s position, experts say that this move might be a beginning of an international tax war for the US. The new reform stands for cutting the corporate rate and overhauling the treatment of international firms. Republican leaders think that such tax cuts would actually encourage US companies to invest more and boost economic growth. In general, this tax reform is expected to be the key point making the US a more attractive place to do business, while also

WHAT IS THE TAX REFORM PACKAGE? 1. At the heart of the US plan is a reduction in the corporate rate from 35 percent to 21 percent. It also changes how businesses account for certain kinds of expenses. Under this proposal, the United States will stop asking American companies based abroad to stop paying tax. A change that brings the US into line with tax regimes in other countries 2. Top individual income tax rate from 39.6 percent to 38.5 percent and slashes the rates for most lower income tax brackets too. 3. Doubling in the exemption of the US version of inheritance tax and

increasing access to a child tax credit. 4. There’s also a tax cut for businesses structured as “pass through” entities, which means their income “passes through” to their owners and is taxed at personal income tax rates. The top tax rate on income earned from these companies is due to fall from 39.6 percent to 15 percent. 5. The United States is imposing a new minimum tax of about 10% on global intangible income — such as patents — and toughening rules related to payments to foreign subsidiaries.

WHAT ARE THE BENEFITS OF THIS TAX REFORM FOR THE UNITED STATES? As the Senate approved the reform in a 51 - 49 vote majority, Trump actually expects it to bring many positive changes before the end of the year. Tax reform is seen as the one that will cut down the corporate rate to 20 percent from the current federal rate of 35 percent, and will boost US GDP by 3 to 5 percents a year over the long-term. By reducing the corporate rate, companies will have more money to spend on investments like equipment and wages, boosting the economy. It is also projected that some growth will come from companies bringing operations back from overseas. Reform is expected to encourage companies from abroad to invest and start up in the United States. It was estimated that an average United States worker would receive a wage increase of $4000 a year from the tax plan. If Trump’s plan becomes law, the average family in America would see their effective or overall tax rate reduced by about 2 percent. Also, Trump’s plan to allow manufacturing companies to immediately expense their capital investments could lead to a substantial increase in corporate spending.

HOW TRUMP PROPOSES HIS TAX PLAN LOOKS 1. Trump proposes to lower income taxes and reduce the number of tax brackets from seven to three www.theglobalinvestor.com 17

— 12, 25 and 33 percent. Taxpayers earning up to $37,500 and married filers earning up to $75,000 would pay 12 percent. Single filers making $37,500 to $112,000 and married filers earning $75,000 to $225,000 would pay 25 percent. 2. He also wants a larger standard deduction — $30,000 for married filers, up from the current $12,600, and $15,000 for single filers, more than double the current $6,300. But Trump would also eliminate the current $4,050 personal deduction that filers may take for themselves, their spouse and each dependent. 3. Reduction of the individual income tax rate from 39.6 percent to 38.5 percent and reduces the rate for lower income bracket too.

SIDE EFFECTS OF THIS TAX REFORM If Trump’s proposed cuts are enacted, the federal deficit would rise from the current estimated 3.2 percent of GDP to 3.5 percent in the initial years of the Trump administration. That would represent a $100 billion revenue reduction to the US Treasury. It’s important to note that federal tax revenues were 17.5 percent of GDP in 2016. Under the Trump’s proposal, they would change to around 17 percent, and that’s a bit higher than in 2004-2007, the period following George W. Bush’s reduction in marginal tax rates. After the Reagan tax cuts of 1981-1985, federal revenues were 17.8 percent of GDP.

WOULD THE TAX REFORM HELP AMERICANS? The tax reform would reduce taxes on average for most Americans. But by far the biggest beneficiaries of the tax cuts by over the next decade would be the top 1 percent and the top 0.1 percent of American households. And by 2027 taxes would rise for the lowest income groups. The bill also repeals the Obama administration requirement that all Americans obtain health insurance, which is likely to mean that around 13 million fewer Americans, most of them less well-off, have health coverage by 2027. 18 www.theglobalinvestor.com

The tax cut for “pass through” companies is also likely to benefit wealthy individuals most of all. One major user of these structures is Donald Trump himself.

WHAT DOES IT MEAN FOR BUSINESSES IN EUROPE AND US? US tax reform actually caused serious concerns and trade tensions in Europe, and critics assume that soon after the validation of the reform, the law will open a new battleground for competition with Europe’s highest-taxing governments. European finance ministers are worried that reform will break global rules and unfairly disadvantage European business, leading to double taxation. Legitimate doubts, whether it is fair for US to tax profits that have already been taxed in Europe, emerged. The “excise tax“ of as much as 20 percent on payments applied to the foreign companies, unless they are connected to the US economy, is what major European countries are especially worried about, as a serious impact on all non-US companies that are established abroad would be seen. This point basically suggests that multinational companies that are producing in the US will be spared the double taxation, unlike all the others. European finance ministers see this as something that can break WTO rules, as this condition additionally charges foreign goods and services. What is more, tax reform may cause illegal export subsidy under WTO rules: when

US companies earn income outside of the US via licensing fees, those fees would be taxed at a reduced corporate rate of 12.5 percent. Additionally, concerns about reform’s impact on American companies emerged as well, as the reform could actually affect American companies when it comes to importing goods from their own foreign factories. This means that such companies that are located outside of the US could still be taxed by US authorities. The new tax regime is already bringing confusion and disorders, as the Swiss bank Credit Suisse revealed that it would have to cut $2.3 billion from fourth-quarter profit because of it. Although Trump emphasizes that this reform means more jobs and investments in the US, the new rate — down from 21 to 35 percent — takes US from the top of the global tax spectrum to the lower end, and this fact completely changes the current situation. Countries like Australia, France, Germany and Japan will be under the strong pressure now, as they all have the effective corporate tax rates of at least 30 percent. German economists are worried that because of the new law’s attractive investment rules, the new tax reform will cause jobs and investments migration from Europe to US. Others think that this reform could actually backfire in the short term, massively increasing the US trade’s deficit. So many opinions, so many discussions — all that we can say is that as the tension remains, we might see the results of reform’s impact in the nearest future.

Top Start Up Regions in Europe 2020 Europe has been catching up rapidly with Silicon Valley in startup development and according to the 2020 Global Startup Ecosystem Report, Europe has been outperforming the United States in some indicators. The European angel market showed an increase of 8.3% since 2013, while European investors have been steadily investing in areas technology such as Fintech but also in scientific start up projects such as Biotech and Life Sciences. We check out the best regions and startups in Europe. Looking at some of the leading regions in cities in Europe, we consider why they are leading the way in the startup ecosystems of Europe, and assessing points like early-stage funding per startup, market reach, talent, attraction for foreign startups, as well as key factors such as funding, investors and the overall ecosystem that is in place that will allow for steady organic growth.

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Estonia

Barcelona Barcelona is one of the world’s leading tourist, economic, trade fair, and cultural centres. The region itself is economically the strongest region of Spain, so it’s no surprise that funding in the city of Barcelona is rife. In 2015, 56% of all euros invested in Spain went to Catalonia-based startups. The vast majority of this venture capital came from international investors, at 85%, but there is also a vibrant and continuously developing business angel community. Barcelona 20 www.theglobalinvestor.com

alone is currently home to an estimated 900-1,100 tech startups. Barcelona had the third fastest exit growth rate of all ecosystems, behind only Montreal and St. Louis. This statistic favours a smaller ecosystem, but it is a strong positive signal nonetheless. Barcelona has the 2nd highest percentage of their software development team having a software engineering degree at 87%. Silicon Valley is at 81%.

Barcelona founders have the 5th highest percentage of founders over 30, at 89%. Only 9.9% of customers for startups in Barcelona come from outside of the continent—one of the lowest rates in the world—which correlates with a lesser ability to reach global markets.

Estonia Estonia has a tech-savvy government, a global-first mindset, and the ability to incorporate a company online in less time than it takes

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to drink a cup of coﬀee. Its unique e-residency program allows international founders to set up online businesses under Estonia’s laws — welcoming digital nomads who want a slice of Europe’s wide market, without ever needing to set foot in the country. Estonia does not rank close to the top of the index in terms of startup experience and performance, but early-stage funding inflows, strong global connectedness and low-cost high-quality engineering

talent indicate the ecosystem is on the rise. Estonian startups also have the world’s highest success rate when it comes to obtaining a visa for foreign candidates at 84.5%, more than double the success rate than the global average which is 41%.

Frankfurt Frankfurt is an emerging startup ecosystem with promising assets and performance, especially with regards

to talent, startup experience, and corporate involvement. Fuelled by an educated workforce that is increasingly turning to the startup scene as a career choice, Frankfurt’s ecosystem could become much more than just a reputable FinTech hub. Now Frankfurt has 200-300 currently active tech startups and is home to more than 80 FinTech companies. The Frankfurt ecosystem benefits from business and tech talent drawn from top class universities. This means Frankfurt has the highest www.theglobalinvestor.com 21

Helsinki startups tend to immediately go global by targeting large innovation markets at a higher rate than nearly any other ecosystem. 66% of Helsinki startups begin by targeting the US or UK market — trailing only Estonia and Tel Aviv. Helsinki startups also report a high foreign customer rate at 43% (global average 23%).

Jerusalem

Jerusalem Jerusalem is a rising star on the global startup scene, with approximately 500-700 active tech startups at the core of its community.

percentage of their software development team holding a software engineering degree at 88% (Silicon Valley at 81%).

Helsinki Helsinki is a very cohesive ecosystem and a runner-up to this year’s

top 20 ranking. Helsinki ranks particularly well in the talent and market reach index. Because of its small community, Helsinki has the ability, as well as the momentum, to develop a position of influence and to produce the connective tissue that is needed to build and grow a robust startup community.

Jerusalem is a top contender that narrowly fell outside of this year’s top 20 ecosystem Index overall. The city’s weakest factor is performance, where interestingly its exit value is very strong but the total value of the pre-exit startups is weak — indicating strong performance with weaker fundamentals. However, with all the momentum gathering, we expect more record-breaking numbers and technological innovation from Jerusalem in the near future.

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Jerusalem startups have the 7th highest rate of immigrant founders in the world at 34%, interestingly, more than double the percentage of Tel Aviv (16%). Jerusalem startups also display a relatively low percentage of founders with a technical background at 74%, compared with Tel Aviv and Silicon Valley at 93% and 87%, respectively.

Lisbon Lisbon is a lower ranked startup ecosystem, mostly due to its infancy. It doesn’t have many exits or people who have experienced exits before, but its valuation rank does outpace its other performance indicators, its early-stage investment is growing at a fast pace, and the ecosystem is integrating well with the rest of Europe. Lisbon currently counts more than 15 incubators, 20 acceleration programs, and a knockout community of business angels and venture capital investors. In short, it is not very surprising that Lisbon is already home to an estimated 200-300 tech startups. Lisbon has the highest rate of women founders in Europe, pointing towards inclusive growth,

which could become a competitive advantage over time.

Malta Malta is one of the world’s smallest and most densely populated countries. Its tech ecosystem especially booms in the gaming and gambling sector. The local ecosystem currently boasts of around 50-100 tech startups. 62% of Malta’s startups immediately target the large innovation markets of the US and UK. Malta has the 4th highest percentage of immigrant Founders at 39%, trailing only Silicon Valley, Berlin and London. Considering all the concerted eﬀorts that are currently invested into the ecosystem, more success stories are expected to come out of Malta in the near future.

Moscow Moscow currently boasts approximately 1,500-3,400 startups. During the last couple of years, the Russian capital’s tech ecosystem has developed a strong support system for startups and investors alike. Over the last few years, as several

European and Asian ecosystems have achieved an important increase in performance, Moscow has been aﬀected by political issues that led to a leakage of talent, capital, and investors, leading to one of the worst rates of early-stage funding growth among the 56 ecosystems measured. Now, despite its top talent and quality, it has a high output of startups, and despite its large economy, its ecosystem has been unable to produce many globally successful startups. This is reflected by the fact that 92% of seed rounds came from local investors, indicating a lack of capital attracted from outside of Moscow, making it more diﬃcult for startups to access funding. Moscow engineers are some of the most experienced in the world, with 83% of engineers having at least two years of startup experience; this is just a tick behind the leader, Silicon Valley, at 87%. So, we can see that despite a global cool-down of startup funding in the first quarter of 2017, there is continued healthy development of startup ecosystems within Europe. www.theglobalinvestor.com 23

Innovating Intensively: The Global Logistics Industry

arious new technologies, new market entrants and players, new customer expectations and new business models — could you assume that we are talking about the global logistics industry here? Probably not, but this industry confronted massive change, and such terms like “disruptive innovations” can now be used alongside the “global logistics industry”. Facing changes is never an easy thing, especially when it comes to logistics. But the good thing is that meeting challenges usually means development — and some key areas to focus on if you want to make the best of it. Let’s look at the global logistics industry more closely and find out what reallyy happened there. Experts say that key disrupting factors for the logistics industry can be identified easily: changing customer expectations, technological breakthroughs, new entrants to the industry, and new ways to compete or collaborate. The most important thing is that all key areas are very different, and this means that they have 24 www.theglobalinvestor.com

different implications for individual companies in the sector, depending on which segments they operate in, their type of ownership and even the location. Did you know that the estimated revenues at stake equal $4.6 trillion? Companies in the sector simply couldn’t afford to wait and watch what will happen next or how one of the factors affected them — they needed to embrace the changes and react proactively. Let’s start with technology. The global logistics industry is all about technologies now. Why, you might wonder? This sector has turned to a new and different prospect: can you imagine that not so long ago — in 2016 — 43.3 percent of logistics companies selected people as the most important aspect of a logistics organisation? Technology took second place, with a bit more than 27 percent. However, last year was the time when the situation changed completely, shifting the most important indicator to technology — it got more than 42 percent, pushing the people factor — with 26.9 percent — to second place,

followed by process rate with 23.1 percent. If these numbers seem a little overwhelming to you, let’s talk about the overall changes in the logistics industry for a second. Simple truth: logistics companies are getting better at coping with threats and that has a strong influence on a growth factor. In 2016, the primary way logistics businesses were gaining new business was through outbidding competitors. 2017 showed us some interesting results: logistics companies faced growth mostly in the e-commerce section, and this fact is accompanied by a clear statement that the overall situation and understanding of the sector has shifted, and innovation became a key driver for new business. Technology simply changed the way logistics companies operate, and a whole new range of technologies was adapted: think data analytics, automation and platform solutions. This sector has never had access to more data than it has now. It helps to improve the overall performance

of companies, as well as provide better service to the customers. Adding machine learning and artificial intelligence techniques to data analytics also resulted in delivering an innovative approach to the whole sector, taking it to the higher level of dynamics. Logistics companies faced slow technology and innovation development for quite a long time, and when you look at it historically, challenges that were caused by these main factors were hard to overcome. Think efficiency, technological advancement and automation — all these aspects play major roles in the game where the main goal is increased numbers of technological advancements in the industry. After years of investment, the overall situation has changed, and one of the key changes seems to be the success of technology-driven logistics providers. Interestingly, asset-light logistics companies that utilise technology as the central offering of their business are gaining noticeable traction within the industry. And this is the point where the increased numbers that we mentioned earlier go alongside the general technological advancements, adding more perspective and a higher level of development to the global logistics industry. Another important thing that truly influenced the global logistics industry and all companies in it was the change of an old supply chain. At first, this seemed like a big challenge to the whole industry — looking for possibilities to cut costs resulted in a leaner supply chain, which — naturally — came with some big difficulties. However, this was also the point when the whole logistics industry was introduced to the technological advancements and automation of processes, allowing businesses in the industry to strongly differentiate themselves. Logistics providers took the biggest advantage of all, turning to non-traditional areas of their businesses to separate themselves from other companies. 2017 showed enormous potential in the digitisation sector, but the logistics industry has not seized it all yet: only around 28 percent of companies in this sector rated themselves

as “advanced” on digitisation. This remains the biggest challenge to logistics companies, and the next few years are about to be critical, so companies that don’t start soon risk being left behind. Interestingly, the global logistics software market is growing at a faster rate with each passing year, and the growth shows no signs of stopping. The increased role of software in logistics has drawn more investment from Silicon Valley venture capital firms, and as a result over 90 percent of global investments in logistics start-ups are made in the U.S and Asia, while only 5 percent are made in Europe. Technological changes have been the main topic in the global logistics industry for a long time. Commoditisation itself continues to be a hot topic, adding more focus on technologies and innovations, naming them as critical differentiators and enablers to grow businesses. Strategies have also changed due to these processes, and traditional business is shifting towards the idea of expanding services by leveraging thought leadership, best practices and technology to add more value to the relationships. Offering non-traditional logistics services is a popular strategy now — think forecasting, inventory management and light manufacturing, which

deliver high-impact bottom-line results for the logistics companies. And let’s not forget strategic relationships, as this aspect is redefining the usual service-oriented partnership, transforming it into a more solution-oriented and collaborative relationship. The global logistics sector recently went through some exciting changes. Automation re-shaped the entire workforce, and now helps companies to provide a much better service and save money at the same time. The best part is that the level of sophistication is about to increase further: automated loading and unloading systems are available now, but in the future these are likely to be able to bypass obstacles and adjust routes automatically; advances in data processing and optics now allow tasks to be automated; package delivery is about to get smarter as well; Google has already started working on self-driving lockers; augmented reality also provides new solutions here, as engineers are working towards giving drivers more information about their environment and the packages. Almost sounds like magic, doesn’t it? We certainly like the perspective of the global logistics industry, as well as the results that it has already achieved. It’s about to get even more exciting, so keep your eyes on this one.

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Zinnovat An Hone

n international, fast-growing IT and management consultancy company with its roots in empowering global logistics companies to realise the full potential of their IT portfolios. That is a simple — and quite standard — description of what is Zinnovate International . The truth is, you could say this about hundreds of companies around the world. But Zinnovate is as far from standard and simple as a company can be. This is a company that has very different business principles, and while being an absolute disrupter in its field, Zinnovate also offers a unique network of IT and exceptionally professional management consultants for all continents, deeply rooting in the global freight forwarding industry. What is it so different about this company, you might wonder? Honestly — a lot, and you can be more than certain that whenever Zinnovate’s name comes around, things are about to get interesting and be taken to a whole new level of professionalism and quality, along with a handful of honesty. “You can throw around fancy words like ‘cultural alignment’, but in the end, it’s about people: people working together, and people making business. That’s the driver,” says Hakan Nilsson, the CEO of Swedish IT consultancy Zinnovate. Focusing on the right people to do business with, Zinnovate built a global network from scratch. Now, the company’s influence and power are undeniable. Let’s talk numbers for a second: revenue numbers in Zinnovate’s first year were around 140 thousand euros ($171 thousand ) per employee. Four years later, it reached 1 million euros

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The Zinnovate team always one chess move ahead of the game

($1.23 million) per employee.” These numbers are more than impressive, especially for a small business. But the interesting thing here is that Zinnovate has no profit targets — the company has only customer targets, and ROI is replaced by ROC (return on competence). Zinnovate is a true leader in a global market, and we can even say that having the right philosophy from the very start is a common ground for any company that wants to be successful. That’s the case with Zinnovate: Hakan Nilsson started this company on the premise to admitting everything. “We dare to admit that we have some unique skills, and we will do our utmost to leverage those unique skills to deliver value — but we will also

admit that we have some weaknesses.” Hakan Nilsson is brutally honest when it comes to Zinnovate and the company’s working principles. He is brave and recognises that teaming up with others that are better in certain areas is how Zinnovate reached such massive success. Little by little, the company has expanded its customer network to Spain, Italy, France, Germany, Denmark, Sweden and the US, leveraging a partnership network from around 15 countries to build project teams and address global challenges. Deeply caring about delivering true value to customers, Zinnovate establishes a partnership only if a mutual chemistry can be felt. That’s the main condition. Another one is learning as they

go: “Rather than setting up from the beginning, we try to learn on the way, which allows us to make the whole more than the sum of the parts.” Perhaps one of the key factors to company’s success is a fresh approach when it comes to doing business, and the process of proving itself to the industry and delivering tangible results to its customers is what comes within these processes to Zinnovate. Hakan Nilsson claims that Zinnovate is all about reputation, and this aspect is extremely important to the company: “We are almost religious about reputation, and I would rather walk away from a great opportunity that I know we cannot deliver than fail and have that failure spill over into everything else.” Honestly, there aren’t www.theglobalinvestor.com 27

Haakaan aw awar a de ar ded d Be Bestt CEO EO in th he IT Man a ag agem agem men e t Lo L ggiist s iicccss In Indu ndu dust dust stry ryy at Lo ond don Sto ockk Exch Ex chan han angee Sttu udi dios o

that many companies and CEOs that would let themselves say such words, but Zinnovate is a company where innovations go along with sincerity and thoughtful strategy. These guys really do things differently there: helping the whole technology industry become faster, cheaper, and more technologically enabled, Zinnovate also helps its clients to learn and grow, at the same time becoming more independent of its consultancy services. Clients get an amazing opportunity to transform from local to global optimisations, and Zinnovate works with the belief that creating rules and targets that are in harmony rather than 28 www.theglobalinvestor.com

are in contradiction is what moves the overall understanding of interdependencies to a whole new level. Working with such a holistic understanding and principles opened more doors than Zinnovate and the whole team could’ve ever imagined. As they emphasise the importance of harmony, overcoming challenges and finding solutions can sometimes be hard. But Hakan Nilsson stays positive: “It gives me joy to see other people grow. The more you give, the more you get. When people are sharing, they are also receiving, and it spins off in a very positive way.” Talk about holistic, huh?

You may wonder what comes next for Zinnovate, as it seems like this company already has it all — or at least most of it. The answer is not what you might expect: Zinnovate wants to continue to have fun on its journey, as not losing that element of joy is one of the most important powers that keep pushing the company forward and through its limits. Other than that, Zinnovate wants to accelerate the growth of its partner network, but strictly without the expense of quality. At this point, the company has three very important pillars: synergetic value for the customer, personal chemistry and the

CEO CE O Ha Haka kaan Ni N ls l son n an a d CM MO Ju J liia Du und n eerr

ability to execute. At Zinnovate, it all starts with the customer, not the other way around, and the company believes that a partnership will be long-lasting if there are mutual understandings and personal chemistry. Why? Because business is always human to human, and never just business to business. Lastly, Zinnovate knows that getting the work done is what makes the difference and distinguishes the company from other consultancy firms. “Disrupting with honesty” is Zinnovate’s credo, and the best part is that this company is truly doing things differently rather than just talking

about it. Looking at both hard technical and analytical stuff, as well as the behavioural stuff to do with organisation, systems, and team dynamics classify Zinnovate as a disruptor company. This is a company that won’t give impressive hundred-slide PowerPoint presentations to its clients that want to be world class and unique — it would simply advise doing things differently. And there is no reason not to trust them, as Zinnovate always makes sure that its customers reach success. Working and managing the whole Zinnovate’s team from a holistic point of view got Hakan Nilsson the prestigious Best CEO in the IT Management

Logistics Industry award last year. Zinnovate was also acknowledged as the Best Management Consultancy in Global Logistics Industry at the Business Worldwide Global Corporate Excellence awards 2017. Zinnovate is the best example that there all kinds of business strategies out there in the business world, which most of the time looks like a tangled web with certain rules. Believing in what you do and doing it right, with all your heart, can result in getting more opportunities than you’ve ever imagined. And if that’s not the right way to do business, then we don’t know what is. Not after Zinnovate. www.theglobalinvestor.com 29

Bangalore Leading The Chase For Worlds Best “Start Up” City In early 2017, the global real estate consulting firm Jones Lang LaSalle called Bangalore the “most dynamic” urban economy in the world. The city earned the top ranking in JLL’s Cities Momentum Index, displacing the Silicon Valley region, because it adapts “most rapidly to technological and infrastructural transformation.” Bala Murali Krishna finds out exactly what is happening to the rapidly transforming city of Bangalore. That is, of course, an extreme view that might find limited takers. The truth is, Bangalore never appears among the world’s top ten startup hubs in the most popular global rankings, and is nowhere near to upending the fortunes of Silicon Valley, or for that matter, any other major startup hub in the world. The best it might do is overtake Silicon Valley in head count of IT engineers to become the world’s single largest IT cluster in 2020, employing two million IT professionals, according to a study by the consulting firm McKinsey. Regardless, here’s another extreme view. Many, including some scientists, fear Bangalore is so toxic it is more likely to choke itself to death 30 www.theglobalinvestor.com

than to become the world’s startup capital. One local scientist, in fact, believes Bangalore could be “unlivable” as early as 2020. If you ever visit Bangalore, or lived here even for a short time, you might wonder how the city even functions, let alone thrive. Such is the visible mess. It is woefully short on infrastructure and governance. Even the most basic facilities appear close to breaking down, and often do. By 2021, Bangalore’s population is projected to nearly triple from its size in 2001, rising from 5.1 million to 14.2 million. Its population density is heading toward 5,700 people per square kilometer, nearly double the number in 2001, because

geographical expansion of the city has not kept pace. As a consequence, the city’s residents live with less of everything – less space, less green space, less trees, less water, less roads – and even worse, less clean air and water. Bangalore fares poorly on several other criteria. It is among the most polluted cities in India. In 2016, Greenpeace found peak PM10 concentrations – a deadly mix of smoke, soot, dust, salt, acids and metals – in the city to be 119μg/m3, nearly double the national average of 60μg/m3. Two key contributors to this deadly cocktail are: on-road vehicles, numbering 5.6 million now including motorcycles, and diesel generators used

by virtually every commercial establishment as a backup for erratic power supply. Most of Bangalore’s green spaces and water bodies have been built over by property developers. According to a study by the Indian Institute of Science, nearly 98% of the city’s 105 lakes have been variously encroached upon; 90% of the lakes suffer from flows of untreated sewage; and 25 lakes have little or no water. In addition, several lakes well up with foam and fill adjacent roads. Some occasionally burst into flames. Only four of the city’s 105 lakes are considered unpolluted. Then there is the garbage. For nearly a decade now, Bangalore hasn’t

figured out how to deal with the growing problem. Karnataka’s lawmakers have traveled to Singapore and Australia for purported study tours, but have chosen to simply let city officials dump garbage in neighboring villages. When driven away by one angry village, the city officials send the dumpsters into another. It is also not uncommon to see garbage pile up on the sides of streets, or being sorted in open grounds, leaving a daylong stench in the entire neighborhood. In reality, Bangalore’s garbage is not much for a city of its size, and the task of disposing it should not be so difficult for a city of technologists. Take New York City, which in population is

roughly the size of Bangalore. The Big Apple generates about 12,000 tons of garbage a day. Bangalore’s is less than a third, at 3,600 tons a day, a number Bangalore’s civic corporation cited in a court hearing in 2013. And then there is the matter of its choked roads. It is so bad, it may have stopped a serial terror attack in 2005 simply because the assailants couldn’t drive from one targeted site to the next on time. Bangalore’s traffic is the butt of everyday jokes. An especially popular one widely circulated on WhatsApp goes like this: Why did frustrated Bangaloreans who decided to leave the city forever head home minutes later? They hit Silk Board, one of the city’s worst choke points. www.theglobalinvestor.com 31

Bangalore has over 5.6 million vehicles – automobiles and motorcycles – and that number grows by over a 1,000 every single day. But it has only 8.2 kilometers of roads per square kilometer. That is less than half the road density of the national capital, 21.6 km. per sq. km., which has 6.5 million vehicles. Bangalore’s total road network, spanning 10,200 km., also falls way behind that of New Delhi’s 32,000 km., according to the Global Mobility Monitor Network. Still, the Numbeo traffic index ranks Bangalore only the fifth worst in India – behind Kolkata, Mumbai, New Delhi and Gurugram. But perception is far worse and who is to argue with drivers stuck on Bangalore roads in rush hour when speeds rarely exceed 10 kilometers an hour? Bangalore doesn’t fare well on esthetics either. Rapid development has turned most parts of the city into an ugly urban sprawl. Its buildings offend sensibilities in a city known for such architectural landmarks as the Vidhana Soudha, seat of the Karnataka state legislature. Its flyovers are an eyesore, and are singularly held responsible for the stripping away of large centuries-old trees. The city’s billboards, many of them put up illegally, are another curse. Even the utilitarian Metro is a blight, having 32 www.theglobalinvestor.com

ruined forever the city’s iconic Mahatma Gandhi Road, and a lot of other leafy suburbs. It is for all these reasons that Bangalore’s most famous resident historian, Ramachandra Guha, who has taught at global universities including Stanford and Yale, blames the politicians. He believes the state of Karnataka has been “blessed by geography, history and culture but cursed by politics.” Since the mid-1980s, Karnataka has been ruled by shortsighted leaders who have preferred to preside over corrupt or inefficient administrations, often both, oblivious to the ecological and environmental ruin of Bangalore. It’s no wonder that many Bangaloreans see a losing battle on most fronts – air, water, roads, transport and housing, to name a few. Few believe in a better tomorrow, and some scientists have actually gone ahead and written the city’s obituary. In 2016, researchers at the Indian Institute of Science assessed five global cities, including Bangalore and Mumbai, on an urban sustainability index. They found that Bangalore fared worse than Singapore, London and Shanghai, but better than Mumbai, presumably because the coastal city faces additional threat from climate change. The researchers blamed Bangalore’s poor score

on environmental degradation and poor planning. In another joint study by IISc, University of Melbourne and China’s Chang’an University, researchers found that half of Bangalore’s CO2 (carbon dioxide) emissions come from the technology industry and the cars used by its workforce, directly linking the progressive deterioration of the city to so-called development and associated urban growth policies, or the lack of them. Prof. T. V. Ramachandra, of the IISc’s Centre for Ecological Sciences, has extensively studied the city’s water bodies. In a report, he observed thus: “Geo-visualisation of likely land uses in 2020 through multi-criteria decision-making techniques (Fuzzy-AHP: Analytical Hierarchal Process) reveals calamitous picture of 93% of Bangalore landscape filled with paved surfaces (urban cover) and drastic reduction in open spaces and green cover. This would make the region GHG-rich (greenhouse gases), water scarce, non-resilient and unlivable, depriving the city dwellers of clean air, water and environment.” That, he later told the Bangalore daily Deccan Herald, “is an unrealistic and tragic growth. Our children will not have clean air, clean water, and clean environment, all of which go against Article 21 of the (Indian) Constitution.”

Looking Ahead So is it all doom and gloom? Maybe not yet. A World Bank report on decaying cities, released in the summer of 2016, probably has the best message for Bangalore. Private sector participation is critical in the revival of cities, the bank said, after a review of regeneration programs in eight global cities – Ahmedabad, Buenos Aires, Johannesburg, Santiago, Singapore, Seoul, Shanghai and Washington, D.C. If one goes by the global Mercer’s quality of living rankings, Bangalore fares worse than all the other cities except Ahmedabad, which was not considered by Mercer. In its 2017 rankings, Mercer ranked Bangalore at 146th out of 200 global cities, and 177th in infrastructure. Within the country, it notably lagged Hyderabad, the highest-ranked Indian city. Bangalore falls short on governance as well. In 2017, the city slipped four places to 16th in a survey of 21 Indian cities on 83 parameters. Its absolute score of 3.3, on a scale of one to 10, has remained stagnant over the past several years, but its relative ranking has steadily slipped because other Indian cities have shown greater improvements. On the same scale,

London and New York, for example, scored 9.3 and 9.8, respectively. The study was conducted by Bangalore-based Janaagraha Centre for Citizenship and Democracy. Without intervention, and a proactive private sector and civil society participation, it is hard to see the IT industry – whose annual revenues are projected to rise by a third to $80 billion in 2020, from the current $60 billion – sustaining its growth or the startup hub fighting off competition from rivals like the NCR, Mumbai or even Hyderabad, which ranks higher in infrastructure. In the past, Bangalore has experimented with public-private partnerships. In 1999, the Bangalore Agenda Task Force, consisting of prominent leaders notably from the IT industry, oversaw key areas of governance, with limited success but certain promise. It was disbanded in 2004 by a new political dispensation. It was a tragedy because the city needed such a body more than ever before due to the explosive growth it has witnessed since. In the summer of 2016, Karnataka’s Congress Party government formed a similar panel, called Bangalore Vision Group, to oversee the city’s growth. Its members include top executives such as Wipro’s Azim Premji, Biocon’s

Kiran Mazumdar-Shaw and startup stars such as Flipkart’s Sachin Bansal. But critics call it DOA – dead on arrival – because the panel has done virtually nothing in its first nine months, and kept a curious silence when the rest of the city erupted in protests over a proposed elevated highway made of steel that would have uprooted hundreds of trees and shaved off parts of a golf course, one of the oldest outside Britain, ostensibly to provide a faster road link to the airport. Bangaloreans eventually scored a victory over the steel flyover proposal. In March 2017, the Congress Party government scrapped the plan, bowing to vigorous and persistent protests led by, among others, a member of parliament. Top executives and entrepreneurs might do well to borrow that never-say-die spirit, and raise the level of engagement with government one way or the other. After all, large IT corporations, as much as startups, cannot simply hang up because they have more skin in the game than, say, politicians. (Excerpted from “Bangalore Startups: A Quick Guide,” by Bala Murali Krishna. The ebook is available on Kindle and Apple’s iBooks. Read more excerpts here: https://bangalorestartups.co/)

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Berlin - Europe’s New Business Destination Of Choice

oundCloud, Amazon, Research Gate, Apple, Facebook, Google, Samsung — can you tell us what these tech giants have in common? Or maybe the better question is “where?” at this point, as we are talking about Berlin. The German capital, a wounded city that once faced coarse circumstances, has always struggled to compete with other countries cities, such as Frankfurt or Hamburg. But today this is the city that shines brighter than many other metropolises and is considered as one of the best places in the world to start or expand business. Nick Staunton reveals all. A true global capital that draws investors, companies and an exceptionally skilled workforce from across the globe — this is the new face of Berlin. Let’s talk numbers for a second: last year Berlin boasted as many as 3 thousand active tech startups and takes the top of the list when it comes to European workforce diversity. It’s

vibrant and open; attributes which are synonyms with e-commerce, gaming and SaaS. Berlin is rich with museums, monuments and other memorialising milestones that actually changed the world when the wall separating the East from the West was torn down. Once that happened, Berlin was quickly rebuilt with a plan to attract as many people to the city as possible. Nowadays, the infrastructure is wonderful, and the general surroundings for companies and businesses that want to find a place to settle down specifically in Europe are great. Being a true historical gem, Berlin, according to the Guardian, is also a place where living costs less than in other countries cities — think Munich, Hamburg and Frankfurt. It’s also cheaper than London if you want some more evidence. This is the point where it all gets particularly interesting: a study published last February by global real estate advisors shows that the total cost of renting an office www.theglobalinvestor.com 35

and living space are significantly lower in Berlin than in nearly every other leading city of the world — the calculated expenses reached $28,400 per employee. For comparison, New York reached $111,900, Hong Kong $105,400 and London $88,800. We are certain that even the biggest sceptics can see the difference, leaving no doubt that Berlin’s booming is not caused by trends. Besides, Germany’s economic situation has always been good — and although Europe has had some problems during recent years, this country showed nothing but a steady growth and relative legislative stability. This is the biggest winning argument if you ask us: doing business in a city where stability is guaranteed no matter what is a big yes to any company, small or big. High productivity at low labour costs, high flexibility and excellence, multi-national workforce and foreign language competence, high availability of technical specialists and executive staff, unique environment for science and research, efficient entrepreneur networks — these word combinations are just the start of what the biggest and most successful companies around the globe have in mind when they move their businesses to Berlin. This city has a great reputation among corporations and is ranked as the number one among the German Federal states, in a ranking based on the establishment panel. Berlin is diverse and vibrant. These factors are amongst the most important for young people. For the past five years, Berlin witnessed amazing growth with about 40 to 50 thousand people moving in every year. This shows that this city is a truly great place to live and to work, as well as create careers and feel productive. These aspects are also important to companies. As Berlin is becoming a leading European ecosystem, in the last five years it faced high numbers in growth not only when it comes to people, but also when it comes to start-up scenes: due to this, many successful companies, such as EyeEm and GoEuro were established. 2017 was the year when more money was invested into various start-ups in Berlin than anywhere else in Europe. 36 www.theglobalinvestor.com

Besides talented, productive people that work cost-effectively, the security factor that we’ve mentioned is also extremely important, as a lot of people decide to invest in Berlin simply because of this extreme — yes, you’ve read it right — stability. The UK’s decision to leave the European Union pushed many companies to turn to Berlin as well, and unless Britain decides to lower taxes significantly, experts say that many more businesses will follow. In addition to this, many banks have considered shifting staff and their European headquarters away from London to provide clients with a seamless service after Brexit.

And what about technologies and start-up scenes in Berlin? Let us put it this way: if you are thinking about setting up your first start-up and want to find an answer to the question “where”, it’s actually…well, right here: Berlin. Just a decade ago, this city was barely a speck on Europe’s technology map, and now thousands of start-ups can call it home. A welcoming atmosphere for start-ups in Berlin starts with the government’s position — and the city’s senate respects its tech-world very much. As more and more companies set up in this city, the government is recognising the potential of an online world and its abilities to create jobs and

revenues. Did you know that a new start-up is founded every 20 minutes in Berlin? Yes, that is true, and, according to the McKinsey & Company report, the start-up industry is set to produce approximately 40 thousand new jobs by the year 2020. Samsung, the world’s biggest producer of memory chips and Asia’s third-largest company by market capitalisation, also thinks that Berlin is amazing — as well as a really great place for doing business. That’s why the company decided to set up European headquarters in Berlin — and not in London. The managing director of the company, Felix Petersen, said that he chose Berlin over London for

the European office because London had run out of affordable neighbourhoods and is not a fun place to live unless you are rich. “In Berlin, you can do stuff without much money. You can bike around or sit in the park” he explained. Mr. Petersen expanded further about this decision, saying that it had become increasingly hard for people to build companies in London, but Berlin is home to uncommercialised zones. No doubt that Berlin is a hotspot for founders and entrepreneurs. The right environment, vibrant atmosphere, young professionals and affordable prices — yet high quality of life — make this city more than

welcoming for various companies and businesses. In fact, due to its young and vibrant start-up culture, it’s now often compared with San Francisco’s Silicon Valley. Yearly, about 44 thousand new companies are founded in Berlin, and this city is a particularly suitable place for start-ups. And by great, we mean “a leading global location for business start-ups with the world’s best growth potential”. Samsung, Google, Soundcloud, Gameduell, Zalando, HelloFresh, Home24, Amazon, Facebook — and the list goes on — now calls Berlin home. It’s a wonderful place to live, to be inspired and to implement business ideas. Heads down to that. www.theglobalinvestor.com 37

Germany - Europe’s FDI Powerhouse

ccording to the 2017 A.T. Kearney FDI Confidence Index, Germany rose to 2nd place, next to America. Their ranking last year was 4th. The reason they went to 2nd place is due to their business-friendly regulatory environment, political stability and improving economic conditions. Germany’s GDP grew by 1.9% in 2016 (which is its fastest pace in 5 years) and is projected to remain robust at 1.5% this year and next year. Analysts also believe that Germany is likely to be one of the main beneficiary countries of Brexit. A lot of multinational firms might seek to relocate their headquarters to German cities. Among European nations, Germany tops as an FDI destination. In the third quarter of 2016, the German real estate industry got more investment flows compared to the United Kingdom. China is one of the biggest investors in Germany. In 2016, China invested $12.6 billion. This makes Germany the largest recipient of Chinese FDI among European countries. China invests in Germany because there are small and medium-sized enterprises 38 www.theglobalinvestor.com

blessed with the best technologies globally. Also, according to the Institute of World Economics and Politics, a body under the Chinese Academy of Social Sciences, which rated the investment risk of 57 destinations, it ranked Germany as the safest place for Chinese investment. According to Economy Ministry Brigitte Zypries, Germany is on its way to solid economic growth despite global uncertainties. She highlights the booming construction sector, the low-interest rate environment, and government investments in infrastructure as things that will attract further FDI into the country. As a result of the expansionary policies of ECB, private consumption in Germany is also growing, which is one of the key growth drivers for Germany along with state investment. Also, Zypries believes that the global economic recovery will boost German exports and this will lead to export-oriented German firms to boost their investments further. According to Oliver Blum, managing director of the local branch of international realtors John Taylor, “The biggest

beneficiary from the Eurozone and its low-interest rates is Germany. It is a big export country and is happy when the euro is not too high. Germany is also extremely stable, and we see many people who want to invest here just for that - it is not only the yield attraction, it is the security of the country.” One of the key reasons why FDI is flowing into Germany is that it is a powerhouse in manufacturing and technology drives it. According to Michael Pfeiffer, chief executive of Germany Trade & Invest, the country’s foreign trade and investment promotion agency, “Germany is famous for well-engineered, innovative products. We offer products at competitive costs- which doesn’t mean we are the cheapest. It is a combination of efficiency and innovation. That is what makes Germany interesting for foreign investors.” Under Germany’s Foreign Trade and Payments Act, Germany follows the principle of freedom of foreign trade and payment transaction. This means that no broad authority in Germany reviews foreign direct investment except if it is related to Defense. The Act also allows importers in Germany to do away with an import permit or an import control declaration thus allowing free flow of foreign trade which is highly attractive to FDI investors. Germany also boasts of a highly skilled workforce, and this attracts high-tech manufacturing firms to go into Germany and tap Germany’s workforce. 81% of the German population is trained to university entrance level. This is 14% higher than the OECD’s average of 67%. Its manufactured cars, like BMW, Audi, and Mercedes-Benz, are all synonymous with quality and high performance. Together, they account for 80% of the world’s luxury car market. In a survey conducted by Dalia Research and Statista, the results show that “Made in Germany” is viewed as the most appealing seal of quality in the world. Ford is investing 600 million euros in its Saarlois auto plant in Germany to boost its production of its Ford Focus compact car. Ford employs more than 25,000 workers in Germany. Other areas that Germany excels in, which are attractive to investors, are the energy and robotics industries.

One company eager to invest in Germany is the 3D printing division of General Electric. It is seeking to invest 100 million euros on a 3D campus in the Bavarian town of Lichtenfels, Handelsblatt. GE also recently acquired a German 3D printing metal specialist, Concept Laser. According to eMarketer, online retail giant, Amazon, is expected to expand rapidly in Germany in the online grocery delivery niche through Amazon Fresh. These investments will help further boost the German economy going forward. Germany will also benefit from further investments related to the ongoing Fourth Industrial Revolution which gives rise to innovations in advanced manufacturing and the creation of â&#x20AC;&#x153;smart factories,â&#x20AC;? wherein man and machine work alongside together. A highly skilled workforce boosts productivity and innovation which further drives further FDI into the country. German scientists and inventors were responsible for the aspirin, the electron microscope, and the MP3 music format. Germanyâ&#x20AC;&#x2122;s capital, Berlin, is attractive for tech and startup companies looking for a headquarters. The reason behind this is because of its vibrant

atmosphere. According to a Savills study, it ranked Berlin as the first among the most liveable city for tech hubs. This covers things like nightlife, quality of local parks and commuting times. For example, Berlin has created a lot of successful startups such as EyeEm and GoEuro. There is also lots of investment money flowing to Berlin as a result of the thriving ecosystem. Businesses are attracted to the reasonable living costs and excellent infrastructure

in Berlin compared to other European cities like London or Paris. One major issue that Germany must address so that it can continue to be a strong FDI destination is their declining population. The German government cannot continue providing their social welfare benefits if less than half of its population is working and paying taxes. Demographics remain to be an important factor that investors look at before they invest in a country.

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Digital Future of Europe

hat lies ahead for the digital future of Europe? While Europe continues to become more digital, Andrus Ansip, VP for the Digital Single Market, believes that the pace is too slow. Ansip said, “All Member States should invest more to fully benefit from the Digital Single Market. We do not want a two-speed digital Europe. We should work together to make the EU a digital world leader.” Currently, Denmark, Finland, and Sweden lead Europe regarding being the most digital in Europe. Currently, Europe’s digital future is looking bleak because of

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over-regulation and lack of innovation. Too much regulation stifles businesses and turns off start-ups. Instead, these companies will venture off to the USA where the business landscape is more supportive of their initiatives. Europe seems to be on a quest to create a level playing field for European tech companies because of the large American tech companies like Google, Facebook, and Amazon. There is merit to boosting competition by leveling the business environment, but over-regulation of competitors can backfire. Data is the currency of the new economy, and Europe’s digital future will depend on how it approaches data.

Will there be protectionism or will data be allowed to flow freely? While consumer privacy and security is important, freedom of data movement can improve growth, boost jobs and international competitiveness. Regulation must balance these forces to create a productive setting for Europe and its global partners. Data localization requirements must not impede the creation of a single digital market in Europe. This is critical as Big Data, and the Internet of Things (IoT) continues to rapidly grow in importance. It is estimated that IoT can generate annual economic benefits of $11 trillion globally by 2025.

Even digital content remains blocked. Monique Goyens, director-general of BEUC, a consumer rights organization, said, “It is regrettable that consumers can still be blocked from buying digital products such as e-books and music from sellers based in other countries. TV series, films and sports events will also stay off-limits.” Andrus Ansip, Vice President in charge of the Digital Single Market of the European Commission, said, “Digital business is global businesswe urgently need to address data localization rules. Data is not only the basis of our digital future and prosperity; it is a valuable resource in

itself. Keeping that resource unnecessarily stuck in national data centers or a particular geographic area means it cannot be used to its full potential.” Because of this issue on Data Localisation, Ansip referred to the EU as “fragmented Europe” and believes that the message Europe is trying to send to start-ups is “Stay at home or go to the US.” Paul Meller, the spokesman for the tech trade association DigitalEurope, adds, “If it becomes a legal minefield, that is not a clever way to get a young startup to become the next big business.” Ansip commenting on data localization, said, “The core of the problem remains the same: national requirements on processing, storage and transfer of data. If we can get rid of needless national and local barriers to data flows, as well as address the underlying uncertainties, then everyone stands to gain- companies, governments, and consumers.” Overregulation can also hurt European tech businesses. Nick Stringer, Director of Regulatory Affairs at the Internet Advertising Bureau UK, the UK trade association for digital advertising explains: “There is the concept of ‘one-stop-shop’ in data protection, which means that tech companies only have to comply with the data protection authority of the country they are based in Europe, as Facebook does with the Irish data regulator. A restrictive approach in this area- and there are discussions about it in Brussels- will hurt European tech businesses more than it will hurt global ones because it is easier for the latter to comply since they operate at scale.” James Waterworth, Vice-President for Europe for the Computer and Communications Industry Association, believes that an integrated European digital market will allow homegrown startups to scale up. Waterworth says, “Mega successes stories in the U.S. and China are ‘unicorns’ ranging between $50 billion and $100 billion, whereas in Europe, there are much smaller at around $6 billion to $7 billion. So Europe’s failure is not that it does not create tech startups, but that it does not allow them to scale up. The right policy response is to build scale, hence the value of the single digital market.”

A study conducted by the European Parliamentary Research Service estimates that the lack of integration in cloud computing, online payments, postal and parcel delivery costs Europe between 36 and 75 billion euros annually. By focusing on these gaps, Europe can boost their aggregate GDP by 0.4% annually. Jean-Claude Juncker, president of the European Commission, believes that the agreement Digital Single Market is critical to rolling out 5G across the EU by 2020. Juncker notes that successful deployment of 5G across Europe can create 2.4 million jobs and bring in around 146 billion euros of economic benefits. Another area that can deter a bright digital future for Europe is the skills gap regarding necessary digital skills. At least 32% of the EU working population needs to invest time in learning basic digital skills. Estimates from the European Parliament suggest that a single digital market could boost the EU economy by 340 billion euros annually. One key reason is that only 15% of online shopping in Europe is cross-border because of the differences in digital infrastructure, business environment, and regulation. For example, E-commerce retailers across Europe pay different VAT rates depending on where they export; In Luxembourg, it is 17% while in Hungary it is 27%. Portugal does not have access to content providers such as Netflix while VAT exemptions vary across the continent. A single digital market would allow homegrown startups to expand at home and create new industries. Estimates show that cloud computing could be a 174 billion euro market by 2020. If the European Commission can tackle these issues head-on, it will boost e-commerce and allow easier cross border transaction. Consumer trust will also be boosted. Innovation can propel Europe into its next trajectory of growth. With Macron at the helm of the France and his pro-business and start-up stance, there is a decent chance that Europe can usher in a new era of digital growth through scaling of operations by European companies. It is tragic when only 15% of EU consumers purchase online www.theglobalinvestor.com 41

from other EU countries, and only 7% of Europe’s SMEs sell cross-border. Also, only 4% of the online services used in Europe are EU-based. Most are US-based. However, Germany, as one of the leaders in Europe always preaches innovation, but then ends up over-regulating digital services. Dr. Colin Blackman, Director of the Digital Forum at the Centre for European Policy Studies (a Brussels-based think tank) said, “Member states proclaim to be in favor of removing barriers, but when push comes to shove they tend to think about short-term impacts and the interests of their own companies. Theoretically, the single digital market is feasible, but it needs the member states to buy into it and recognize that it is in their long-term long interest to move towards this direction.” There is a tremendous upside for Europe if it embraces the digital economy fully. A Mckinsey report estimates that France has only captured 12% of the economic upside of going digital

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while Germany only 10%. This is compared to America’s 18%. Europe on the aggregate has captured only 12%. The European Commission should allow and encourage telecom providers to harmonize their regulation and security ecosystem to enable development of new businesses within a fair and competitive landscape. Regarding supplying digital technologies to the world, America leads the way with nearly 50% of worldwide sales and two-thirds of post-tax profits compared to European firms making up only 17% of global revenue and 14% of worldwide profits. The thing with embracing digital technologies is that it can boost jobs and productivity. Tools such as broadband, cloud computing, VOIP, social networking platforms, video conferencing and file sharing can allow people to work remotely and across borders. This is in line with the rise of the gig economy where people can market their skills in the digital marketplace and allow flexible ways of working and earning income for the

unemployed and underemployed in the region. McKinsey consultants estimate that work-related digital markets and platforms can boost GDP by as much as 350 billion euros. The plan by the European commission to build a new European Open Science Cloud to connect researchers across Europe and allow for storage and free data sharing across borders is a welcoming sign as it will require investment in a new European Data Infrastructure that can store and analyze massive amounts of data in the cloud. EU’s Capital Markets Union project also has to step up to provide seed funding and scale-up capital to startups. This project is vital in producing tomorrow’s European digital leaders. This is because non-bank financing is relatively undeveloped in Europe. Finally, the Privacy Shield agreement, which governs how US companies will handle data of EU citizens needs to approved so that there remains to be a free flow of data across the US and Europe.

Artificial Intelligence And The Dark Side of Big Data

he world is undergoing another technological upheaval that has significant implications for society. One of these key factors leading this change is big data and artificial intelligence. With social media and internet usage at an all-time high and continuing to grow, there is a massive data explosion. Researchers say that the amount of data we produce doubles annually. Nick Staunton reports. Big Data refers to enormous data sets that may be analyzed computationally to reveal patterns, trends, associations, especially relating to human behavior and interactions. Every time, we post something online shows information. Every time we search something on Google or Facebook represents a data search. Things are getting more connected to the internet and our devices, e.g. Smartwatches, Google Lens, Virtual reality.

Everything is getting smart. Machine learning, as a field, is growing rapidly. Data by itself is neutral. It is what we do with data that matters. If we harness data well, it can help mankind and society. If greed sets in, data can be leveraged for selfish ambitions. All of these data points controlled by corporations can be leveraged for significant exploitation and profits. Our data is no longer private as we cannot live without our devices and the Internet. If artificial intelligence continues to learn and become better, what will happen to humans? Aside from the fact that automation and machines are taking over and even eliminating jobs and even Mark Zuckerberg has given his support for basic income, what does the future hold of mankind under this technological upheaval? In China, there is this initiative towards a â&#x20AC;&#x153;Citizen Score,â&#x20AC;? which will

determine the parameters of their loans, jobs and even travel visa to other countries. Will developed nations follow suit and use data to monitor and profile their citizens? Will algorithms rule our lives eventually and make decisions for us?

Trump Presidency Data is now being leveraged in political arenas to influence public opinion, and because data is now driven by software, it can collect massive amounts of data quickly, and computers can analyze and profile these data to specifications needed by politicians. One of the biggest financiers for Donald Trumpâ&#x20AC;&#x2122;s Presidency was Robert Mercer, an American hedge-fund billionaire. He was recently unmasked to be one of the owners of the data mining and analytics firm, Cambridge www.theglobalinvestor.com 43

Analytica (CA) which uses data mining and advanced technology to create accurate psychometric voter profiles so that political ads and messages can target their emotional triggers and swing votes to the intended politician. These methods are referred to “psychographic.” Another person close to Trump, Steve Bannon who is Trump’s Chief Strategist and a member of the White House Security Council, is a board member of CA. The links to the Republican party is very strong in the CA organization. According to CA’s website, it gathered up to 5,000 data points from more than 220 million Americans, and it used more than 100 data variables to model audience groups that will allow them to predict their behavior. CA asserts that by using the massive data CA collects, CA can aggregate the data and create Big Five personality profile of every single adult in America. The Big Five Personality measures Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism. This allows Trump’s campaign team to personalize the marketing on the messages that Trump was putting out during the campaign. Through this personality profiling, CA can group people together that have the same needs and aspires for the same things 44 www.theglobalinvestor.com

even though they might be physically different to each other. According to Alexander Nix, CEO of CA, in an interview with Bloomberg, “Your behavior is driven by your personality and the more you can understand about people’s personality as psychological drivers, the more you can start to tap in why and how they make their choices. We call this behavioral microtargeting, and this is our secret sauce if you like. This is what we are bringing to America.” CA’s analysis was so precise that it created recommendations for Trump’s campaign team as to where to have their rallies, where TV ads should be placed as well as identify locations where potential donors live and where volunteers should maximize their door to door campaign visits. Donald Trump’s team reportedly paid more than $6m to get the winning edge by targeting the swing voters in the hotly contested race against Hillary Clinton. According to Martin Moore, director of Kings College’s Centre for the Study of Media, Communication, and Power, “The Trump campaign were using 40-50,000 different variants of an ad every day that was continuously measuring responses and then adapting and evolving based on that

response. It is all done completely opaquely, and they can spend as much money as they like on particular locations because you can focus on a five-mile radius.” CA was formed in 2013 as a spinoff of its British parent company SCL Group. CA first assisted in Ted Cruz’s presidential campaign but switched to Trump after Cruz backed out of his campaign. SCL Group is notorious for its involvement in politics wherein the military and politicians harness its services to study and manipulate public opinion and political will. SCL Group has analyzed Pakistani jihadists while working with the British government while it provided intelligence It influences behavior by pinpointing key audiences and coming up with strategies to connect with them. Nigel Oakes is the founder of SCL and in 1999 won a deal with to boost the reputation of then Indonesian president Abdurrahman Wahid.

Big Data and Brexit CA is also allegedly involved in influencing the Britons to vote to exit the European Union. Using data gathered from people’s Facebook, and their social media profiles, CA tapped machine learning and artificial

intelligence to create highly personalized and targeted advertisements that will influence them to lean towards exiting the EU. Communications director for Leave. UK, Andy Wigmore, admitted that it used Facebook profiling technology to target voters on Facebook with anti-EU messaging. Wigmore, in an interview with The Observer, said, “Using artificial intelligence, as we did, tells you all sorts of things about the individual and how to convince them with what sort of advert. Moreover, you knew there would also be other people in their network who like what they liked so you could spread. Moreover, then you follow them. The computer never stops learning, and it never stops monitoring.” Wigmore also revealed that CA worked with the Leave.UK group on a pro bono basis because the Farage led group is a good friend of Robert Mercer, who is a big investor in CA. It was a successful campaign. Leave. eu founder Arron Banks, in an interview with The Observer, said, “Al won it for leave.” The Information Commissioner’s Office (ICO), UK’s privacy watchdog, is investigating CA as to whether voter’s data were exploited in the Brexit political campaign and how voter’s

data were captured. Findings from this inquiry are expected to be released later in the year. Martin Moore of King’s College London, a leading expert on the impact of technology on elections described this revelation that CA helped influence the Brexit vote as “extremely disturbing and quite sinister.” He said, “undisclosed support-in-kind is extremely troubling. It undermines the whole basis of our electoral system that we should have a level playing field.” In the U.S., companies can use third-party data without asking for consent. However, European Union laws only allow collection of personal data of individuals if the individual has unambiguously given his or her consent after being informed. With CA’s success with Trump’s campaign and Brexit, it has now been courted by many politicians and organizations seeking to influence decisions. Kenya’s political party, Jubilee, has tapped the services of CA for its August presidential election.

Final Thoughts Big Data and artificial intelligence can be harnessed for good, e.g. sustainable cities and personalized healthcare.

However, the danger with big data is that anybody with enough data about you, i.e. social media companies, they can learn very intimate details about you even though you do not disclose or talk about it. What’s even worse is that they can leverage messages and campaigns targeting you to fit their purposes which in a way are a form of psychological manipulation. On a bigger scale, these data mining and analytics firms can manipulate game-changing events like elections and other propaganda campaigns. These data can also be used to make decisions on credit access and even employment. We must be aware of these possibilities and ensure that they engage in critical thinking before making decisions as well as be wary of too much social media consumption and ad exposure as over extended time, it can wire our brains differently. Finally, we must be careful with personal data, how it collected and how it might potentially be used for harmful activities. The government has to step in to address these risks which can lead to loss of freedom and self-determination. If the government does not step in, it will be a difficult combination to defeat: Corporations and Al.

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How Artificial Intelligence is Changing The Way We Do Business

s more funds are flowing into artificial intelligence, we are going to see the continued evolution of artificial intelligence. For one it is going to get smarter and smarter and become more useful. Amazon is investing on Alexa, IBM is investing $1 billion in its Watson, while Facebook, Google, and Microsoft are all using their research labs to AI and robotics. Salesforce.com is adding artificial intelligence into their business processes. They call it Einstein. Salesforce.com CEO Mark Benioff, said, “The value of Einstein will be in helping people do the things that people are good at and turning more things over to machines.” When machines start to do some “deep learning” which means it can process sophisticated information on its own, it will be able to perform complex functions like facial recognition and maybe even speech. As Big Data continues to permeate our lives, it will also continue to speed up the improvement of artificial intelligence. In the stock market, many brokerages and investment houses are using artificial intelligence programs like Kensho to crunch numbers and sift massive amounts of data daily. Kensho automatically analyses portfolio performance and predict market changes. Arria uses natural language generation software that simplifies and humanizes the analysis of data-heavy reports. Arria’s Chief Technology Officer Robert Dale, said, “By emulating human behavior in software, you get technology that can carry out tasks that are more than just straightforward number crunching, with the machine exhibiting real intelligence. But you get all the benefits of this being 46 www.theglobalinvestor.com

done by software: it is incredibly fast, it is incredibly consistent, and it does not need to sleep or take vacations, so it is available 24/7.” Artificial intelligence can also businesses dealing with massive amounts of data save time by scanning historical reports and compiling results efficiently.

Work and Job threat Regarding work, artificial intelligence will now be the ones deciding whom to recruit. Instead of a human being combing through thousands of resumes, a program can process massive amounts of information and comb through it to come up with a list of shortlisted candidates. A lot of time and effort will be saved and artificial intelligence might even lessen the human risk of choosing the wrong candidates for interview. Juergen Mueller, SAP’s chief innovation officer, said, “Recruiters spend 60% of their time reading CVs. Why should a person read 300 resumes if a machine can propose the top 10?” Artificial intelligence can also play a positive role in helping the employees remain engaged with their work. Programs can analyze the emails of workers and figure out if they are unhappy with their jobs so that management can intervene and help workers get out of the unproductive and negative state. Programs can also analyze how employees spend their time online. It can raise red flags if the employee visits sites unrelated to work. The program can warn management of these unproductive employees, and they can do the necessary action to get them back on track to productivity. On the other hand, the program can also be

used to track who is the most productive and efficient with their work and management can give the necessary rewards to achieving certain levels of productivity and efficiency. Celeste O’Keefe, CEO of Dancel Multimedia, uses a program called Veriato to track the productivity of his team. He said, “It has allowed us to be more streamlined and focused on the task at hand. We can see what they are doing and guide them in the right direction.” Decisions as to whom to promote can also be done by artificial intelligence. It will remove human biases and may make promotion decisions more effective.

The only problem with the potential benefits of artificial intelligence is the world of work is it needs massive data, and so there could be lots of privacy issues and intrusion into the private lives which people might not like. One of the key threats that artificial intelligence brings is a loss of jobs, mainly through automation. Artificial intelligence powers robots and technology that can do work more efficiently than humans. Many jobs could be lost, even professional work such as doctors, accountants and lawyers could are under threat to be replaced by robots and artificial intelligence.

According to a 2013 study by Carl Benedikt Frey and Michael Osborne, around 47% of workers in America had a high risk of potential automation. Those working in transport and logistics, office support, sales and services all faced a significant risk of computerization. For Britain, the risk was 35% while in Japan; the risk is high at 49%. As such, there has been an increased call for a basic income. In fact, Bill Gates even wants to robots to be tax if they replace a human being as labor. Former U.S. President Barack Obama said, â&#x20AC;&#x153;If properly harnessed, it can generate enormous prosperity and opportunity. However, it also has some downsides that we are gonna

have to figure out regarding not eliminating jobs. It could increase inequality. It could suppress wages. While the risk of computer-related automation is real, history has shown that artificial intelligence is beneficial. Since it boosts corporate operations, it will likely spur new demand, and thus corporate expansion will be needed, and this will require more human labor so, in a way, artificial intelligence creates new jobs overall. The job effect is positive after the lost jobs are subtracted. The challenge for workers is to therefore learn new skills more quickly and better than in the past to be able to remain relevant in the job market. www.theglobalinvestor.com 47

Society Elon Musk is channeling funds into a new venture to achieve his vision that one day the human body can interact with artificial intelligence seamlessly. For those with amputated limbs, artificial intelligence offers hope for them as robotic limbs can be implanted and work along with the human body. The stage is set for a cyborg society. Sex robots are on the horizon. As robots become more intelligent, intimate relationships between humans and robots are not far-fetched.

Automated Transportation Google self-driving cars are already a reality, and the future is bright for automated transportation. Public transport like buses and trains will soon become unmanned, leading to pure artificial intelligence running an entire city’s public transport system. The Dutch government has already done their test drive of driverless trucks operating across Europe. Uber has recently acquired Otto for $680 million. Otto is a startup that deals with auto-drive trucks. Consulting giant, Mckinsey, has predicted that in less than ten years, a third of all trucks globally will be self-driving.

Dangerous and unhealthy jobs One of the positive outcomes of artificial intelligence is that they can be used to do the extremely dangerous jobs. For example, bomb defusing can be done by drones. Drones can 48 www.theglobalinvestor.com

also be used by the police and army to attack hostage takers and terrorists who might have implanted booby traps for the police and soldiers. In some developed nations, robots are now the ones doing welding which is a toxic job regarding exposure to toxic substances as well as intense heat and insane noise. This makes welding a very hazardous job, but for robots, it can work under such intense environment. Caretaking for the elderly and sick is a difficult job and robots can be programmed to help the elderly and sick get better and meet their daily needs. If robots eventually learn to talk and have emotions, the human element needed for caretaking might eventually be met by artificial intelligence.

Impact on Sales Programs and Departments Artificial intelligence harnessed by sales department can also be beneficial. It can be used in customer

relationship management functions. According to Uzi Shmilovici, a thought leader in Prescriptive Sales technology and the CEO of Base CRM, sales programs infused with artificial intelligence can provide excellent feedback to sales professionals to improve their craft and campaigns. Shmilovici, said, “Artificial intelligence programs can scan through millions of events to find patterns and correlations that we just would not notice on a day to day basis. So it might notice a correlation between sending a specific pitch deck to prospective clients before calling them results in better conversions. Alternatively, it might notice that sending a weekly follow up email can yield results up to 8 weeks after initial contact. These are small practices that a sales professional might miss, but that can increase performance over time.” Artificial intelligence infused in sales programs and used by sales professionals can become a competitive edge for the company. Shmilovici asserts, “The impact of artificial intelligence on sales today is significant enough to qualify as a top-tier competitive advantage. Every CRM company is actively working to release their Prescriptive Sales platform for that reason. This is the wave of the future. By combining Prescriptive Sales technology with a talented sales force, companies will be able to achieve growth at a much quicker pace. This technology could potentially become the future of sales and marketing.

Minding the Artificial Intelligence Gap Jose Ignacio Latorre our resident Barcelona writer who is Professor of Theoretical Physics Department (Física Quàntica y Astrofísica) at Universitat de Barcelona assesses the latest from Artificial Intelligence and what is its limit.

ntelligence is a grey concept. Most of the decisions made by humans are not that intelligent, rather they are reasonable responses to a series of inputs. Such a trivial observation is at the root of developing machine learning strategies to sub stitute human intelligence by Artificial Intelligence (AI). Let’s consider the example of playing video games. The input received by our brain is just a screenshot. We, then, take some action with our joystick. Depending on our de cision, a global score either goes up or down. By repeatedly playing the same game, we end up developing skills to obtain a high score. Yet, it is nowadays possible to substitute a human brain by some artificial neural network and train it to out- perform humans at playing video games. A well-known

example of how artificial intelligence can learn to play video games was provided by Google’s Deep Mind artificial intelligence program, an algorithm prepared to beat any human in 29 Atari games. The lesson to be learnt is that intelligence refers to too large a subject. There are decisions that can be easily taken by neural networks after they are properly trained. It is common technology to create neural networks that recognize im- ages, concatenate sounds to mimic human voice or to predict the taste of customers when facing a new product.

So, what is the limit for AI? The limits are yet unclear. New powerful strategies for machine learning are being explored extensively

under the umbrella of Deep Machine Learning. We use new techniques such as Boltzmann Machines or Q-Learning, which provide clever ways of training big neural networks. The larger a neural network is, the more difficult it becomes to train it, hence the need for these new training techniques. The larger our neural networks are, the more sophisticated tasks can be taken over by AI. Some reflection is definitely needed on two opposite directions. First, can any business sector remain unaware of AI progress? Definitely, no. The sooner or later, most of human decisions will be made by powerful and sound algorithms. Second, is there a danger in allowing critical decisions to be taken by algorithms? Definitely, yes. The use of AI must grow slow- ly, in www.theglobalinvestor.com 49

pace with the making of new laws that delimit responsibilities and the need for corrections for AI runaway directions. Letâ&#x20AC;&#x2122;s focus on an example. Recently the AI project heralded by IBM made the news that the Watson machine won at Jeopardy against the best players in the show. That is impressive since Jeopardy has a reputation for funny and tricky questions. The fact that a neural network can respond to such intri- cate questions should not go unno- ticed. Watson also made the news because it diagnosed a rare dis- ease and it also made the relevant advice for some business trade. We may then wonder whether in the near future 50 www.theglobalinvestor.com

doctors will need advice from Watson, or whether corporations will rely heavily on AI advice for their trades. The gap between human intelligence and AI is narrowing very fast. It takes little imagination to go further and foresee the moment that AI will seriously outper- form humans. It should not come as a surprise. Machines do carry heavy weights, dig tunnels, make us flight. Humans have been able to create artificial entities that out- perform humans in every physical aspect. It is also a fact that humans have built powerful computers, that crank zillions of numbers at amazing speeds. It is now the time for humans to simulate and enhance their own intelligence.

A final observation makes this game even more enticing. Hugh neural networks need an enormous amount of time to be properly trained. It is now possible to train neural network made of thousands of layers of neurons. Can we train a neural network with a million layers? It seems unlikely that we can achieve such a task with our current computers. The solution is likely to show up in the world of quantum computation. New quantum devices that exploit the basic properties of quantum superposition and interference are candidates to be the key to train hugh neural networks. The future of humans is in the hands of AI. The future of AI is quantum.

All You Need to Know About The FinTech Industry

However, as the chart below indicates, the evolution of this change in financial services is still at an early stage, even in the United States, one of the world’s most advanced digital economies. Globally, fintech represents less than 1% of the global financial services industry, versus ~10% for eCommerce and ~40% for digital media.

Investment in fintech is growing, with VC investment in the sector reaching $13.6 billion in 2016 though still a very small amount given the $11 trillion global financial service industry. To put this into context, Facebook alone raised $16 billion in its 2016 IPO to compete in the $2 trillion global media industry. While early signs are promising, we are still early in the lifecycle of the fintech industry.

he financial services industry is increasingly acquiring the “tech” suffix as Silicon Valley takes aim at one of the world’s most profitable and highly regulated sectors. This change not only brings with it new technology, but a need to attract and develop talent that have the skillset needed to operate in this changing environment. Organizations are also grappling with how to simultaneously foster innovation and entrepreneurial risk-taking while also ensuring stability and financial prudence. European Business Magazine looks into the ever expanding world of Fintech where RAJEEV JEYAKUMAR tells us exactly where we are at.

What Is Fintech? How should we define “fintech” and what can be considered actual versus forecast? Fintech is the popular label for an emerging market sector that uses technology to make financial systems more efficient. It is a similar phenomenon to disruptions in industries like media, communications, and retail, where the application of technology has created a unique set of companies and services that are taking a share from legacy players. It is also ushering in a new set of capabilities from large data analytics to trading algorithm development that is reshaping the talent market.

We spent more than $9.5 billion in technology firmwide, of which approximately $3 billion is dedicated toward new initiatives. Of that amount, approximately $600 million is spent on emerging fintech solutions— which include building and improving digital and mobile services and partnering with fintech companies.” – Jamie Dimon (CEO of JP Morgan), 2016 Letter to Shareholders

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Fintech Verticals There are five traditional areas of financial services that are seeing a lot of innovation: Payments and money transfer: Verifying identity and creating accounts in which to store money (e.g., bank accounts), tools for depositing and 52 www.theglobalinvestor.com

withdrawing money (e.g., checks and debit cards) and systems for securely exchanging money between different parties (e.g., ACH). Borrowing and lending: The consumer institutions that collect money from savers and then provide credit to borrowers (e.g., credit cards, mortgages, or car loans)

Wealth management: Advisers, brokers, and investment managers who provide advice on and execute transactions related to financial investments (e.g., investing in the stock market) and retirement and estate planning (e.g., pensions and annuities). Insurance: Both property and casualty insurance (e.g., car insurance,

homeowner insurance, or health insurance) as well as life insurance policies. Currency: Nation-state-backed stores of value, unit of account and medium of exchange (e.g. US dollar, Sterling, Euro) Traditionally, these services have been offered as a bundle by large financial institutions. But fintech startups are leading the “unbundling” charge, selectively targeting and specializing in services in order to achieve differentiation and scale quickly.

Winds of Change — Fintech Is Coming Fintech bulls believe this sector is facing a unique confluence of technological and behavioral change. On the technology front, we are seeing the digitization of money as financial transactions are increasingly happening over the internet. This in turn giving rise to vast amounts of data along with the tools necessary to mine it for valuable heuristics and algorithms. The proliferation of mobile is deepening and broadening access to consumers in a way that is unprecedented. A digitally interconnected user base is allowing innovations like the blockchain to fundamentally challenge the architecture of trust and verification systems. Consumer behavior is also evolving, driven by the growing millennial workforce and the recent financial crisis. Traditional financial brands are losing trust and struggling to meet the needs of consumers for authenticity and meaning in the brands they use. Consumers are also taking greater responsibility for their financial decisions, willing to do their own research and go directly to online services instead of relying on “trusted advisers.” Finally, consumers’ financial needs are changing, as the desire for asset ownership (e.g., cars and vacation homes) is being replaced by a desire for unique experiences and instant access (e.g., AirBnB or Uber).

Payments “I think what we came to the realization of is that the war is really against cash and against waste” – Dan Schulman, CEO of PayPal This is where we have seen some of the earliest and largest success stories in fintech with competitors like PayPal, Stripe, Square, Hyperwallet and TransferWise. They have built superior user interfaces on desktop and mobile to acquire customers and quickly build large peer-to-peer payment platforms. Their cloud-based and digitally-delivered services gives them what McKinsey estimates is “a 400 bps cost advantage over banks, because they have no physical distribution costs.” As they collect increasing amounts of purchase and payment information, they will also be well positioned to develop consumer behavior analytics

teams to predict purchase needs and pre-emptively meet them. One of the main challenges they face is that of security and fraud prevention, and they will have to invest in capabilities to stay ahead of digital bank robbers targeting them from basements (and government facilities) around the world.

Lending Much of the initial success here was in peer-to-peer lending where players like Funding Circle, Lending Club, and SoFi would use an online platform to directly connect retail borrowers with lenders, providing better rates to both parties by cutting out the bank middlemen. Some also claim to use unique data (e.g., social network information) to develop superior credit scoring algorithms and, while this may become a unique competitive advantage in the future, the predictive power of current datasets is still unclear.

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While some are underwriting their own policies, the majority of the risk is still being offloaded to traditional reinsurers. However, as datasets increase especially to cover the lifetime of a policy, we could see startups with big data and AI talent making inroads into the underwriting business. Companies like Zhong An (valued at $8 billion) are already collaborating with players like Alibaba to tackle new digital economy insurance needs (e.g., phone/drone insurance), while at the bleeding edge, Synerscope is looking at how IoT data on cars and other devices can be incorporated by insurers.

Recently, institutional investors have begun piling into these platforms and buying up whole loans (see image below) and the concern is that they are cherry picking the best loans. In addition to being left to invest in the riskier loans, retail investors do not have the traditional government protection (e.g., FDIC insurance) since P2P loans are considered securities. As concerns grow about loan delinquency rates, these companies will have to develop strong credit assessment and monitoring capabilities to maintain the trust of their retail lender base and not become simple loan origination and servicing portals for traditional loan underwriters.

Wealth Management This is the area that sits most squarely at the intersection of the two trends I described above. Millennials are now over a third of the workforce but, faced with decreasing job security and economic uncertainty, are looking for smart solutions for generating passive future income. At the same time, they are losing trust in traditional investment advisers whose track records have been less than impressive over the past decade. Companies like Learnvest are approaching this from the financial education angle, looking to build trust with customers through more 54 www.theglobalinvestor.com

transparent engagement and educational resources. Robinhood and AngelList are examples of services providing greater access to investments and reducing the transaction costs of making them. Finally we have robo-advisors such as Wealthfront and Betterment who use algorithms to automatically manage customer portfolios at a fraction of the cost of traditional portfolio management services. Success of these offering has forced traditional players like Charles Schwab, Fidelity, and TD Ameritrade to follow suit. Going forward, financial literacy and algorithmic investing represent significant opportunities where technology and talent with an understanding of online education and machine learning are proving they can play a big role. Concerns will be around how “fake advice” is regulated and the dangers of flash crashes caused by systematic errors in the algorithms.

Insurance Here we see parallels to what has played out in the lending industry: A number of players like Zenefits, Lemonade, and Oscar have acquired large customer bases (including new insurance buyers) by building superior online user experiences and customer acquisition tactics. This has helped them effectively carve off the origination and servicing part of the value chain.

Incumbents are also seeing the opportunity as signalled by the recent partnership between IBM and Swiss Re to develop “underwriting solutions that rely on the cognitive computing technologies of IBM’s Watson.” The main risks (especially in the US) will be around regulatory change and how that will impact initial beachheads that have been established.

Digital Currencies In 1976 Friedrich Hayek (Nobel Prize winning economist) published the Denationalization of Money, in which he advocated the establishment of competitively issued private moneys. With the advent of cryptocurrencies like Bitcoin and the underlying blockchain technology, there is again a push to make Hayek’s vision a reality. This area has the largest and most uncertain potential for change as it challenges the traditional monopoly of governments and the ecosystems that have grown around those monopolies. We are seeing these alternatives gain attention, with Japan recently allowing Bitcoin as a legal method of payment and new regulations being developed by Europol, Interpol and the Basel Institute to protect Bitcoin exchanges and users. Here is where talent with experience working with multiple stakeholders from governments and regulators to consumer

groups are proving valuable in helping to shape the rules of the game. Given the potential for the privatization of the currency industry, it’s also not surprising to see strategic corporate investors eager to ensure an early seat at the table: You may think this is already a whirlwind of innovation—and, dare I say it, disruption—but there are a few more changes wafting over the horizon:

Nation-states Are Looking to Make the Jump to Cashless The Indian government has stated that one of the main goals of its flagship Digital India program is “promoting cashless transactions and converting India into [a] less-cash society.” Many other emerging and developed markets are also actively steering their societies to using digital payments. In emerging markets, the benefits are clear, as it allows governments to promote financial inclusion without having to make heavy investments in physical banking infrastructure (e.g., branches). It also allows governments to crack down more easily on tax evasion and fraud while reducing administration costs. Even in advanced economies like the UK, one of the implications of Brexit has been a greater focus on the opportunities fintech provides for London.

“Fintech will transform the way we live and do business. Whether it is cashless transactions between friends sending remittances to family in other countries or apps that automatically invest savings at the best rates fintech provides consumers with better services, more choice, and lower costs.” – Philip Hammond, UK Chancellor of the Exchequer

Behavioral Fintech The recent advances made in behavioral finance are already being applied in the fintech space where the ability to quickly conduct A/B testing and precisely control user experience make it an excellent testing ground. Startups like Payoff look to understand your financial personality as a way to provide you with the tools needed to curb any non financially prudent traits. Qapital gamifies spending with users setting themselves “fines” for any guilty pleasure spending. While still in the experimentation phase, the psychologist’s mindset may have a large role to play in shaping better systems and products for consumers.

Incumbents Putting More Than Their Toes In Goldman Sachs, the poster child for elite financial services, is developing internal fintech startup capabilities,

recently launching an online lending platform called Marcus (named after its 19th century founder Marcus Goldman). Others, like MasterCard, are developing partnerships with players like Coin to expand payments into the realm of wearables. Large retail banks like CitiGroup and Spanish bank BBVA are setting up completely separate groups that are looking to reinvent these banks “from the outside.” The challenge will be building the consensus to allow cannibalization of proven, stable legacy services, systems, and skillsets with smaller and more uncertain new innovations that have greater momentum. Torres Villa, the CEO of BBVA, articulates the challenge as “the inertia around how you’ve always done it, including the money associated with it. If things are going well, why change? Why do it in a different way if we’re making money?” “Every act of creation is first an act of destruction.” – Pablo Picasso The fintech future is certainly exciting and looking increasingly inevitable. How it plays out will depend on harnessing the talent who balance the cognitive dissonance of simultaneously having an intimate appreciation for the legacy system while being able to see new possibilities with untainted eyes.

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The Blue Frontier, Humanityâ&#x20AC;&#x2122;s Next Home By Randolph Hencken

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hy are we not looking at moving out onto the sea? Why do we have programs to build habitation on Mars, and we have programs to look at colonizing the moon, but we do not have a program looking at how we colonize our own planet? The technology is at hand!” Oceanographer, Robert Ballard, discoverer of The RMS Titanic, at TED 2008 “It’s easier to float than fly. Sea stations are cheaper than space stations. If we want to feed 10 billion people by 2050 with a sustainable civilization, humanity needs to re-engage the source of all life, the ocean. Then the sky will be the limit. Ocean first, space second.” Joe Quirk, author, seasteader

2017 is the year it began Imagine ten thousand homesteads on the sea— “seasteads” —where ocean pioneers will be free to experiment with new societies. Residents would live in modular units which can detach at any time and sail to join another floating city; compelling ocean governments to compete for mobile citizens like companies compete for customers. A market of competing governments would allow the best ideas for governance to emerge peacefully while spurring technologies that will benefit the environment and humanity. The nonprofit Seasteading Institute was founded in 2008 by Google engineer Patri Friedman and venture capitalist Peter Thiel in order to promote the vision of start-up governments at sea. This year, seasteaders’ celebrate a major breakthrough. We will launch a pilot project in Tahiti in collaboration with the government and people of French Polynesia.

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On January 13, 2017, we signed a historic Memorandum of Understanding with President Édouard Fritch of French Polynesia to collaborate on developing sustainable floating islands with unique governing frameworks – The Floating Island Project. This is an unprecedented moment in human history and the beginning of a new seasteading industry. “I am honored that you have chosen us as your destination,” President Fritch wrote to us, translated from French. “Tahiti and its islands do indeed offer many strengths to accommodate such a project, which could truly become a vector of economic development in our country.” On May 15-18, we celebrated the First International Seasteading Gathering in Tahiti, which attracted experts from all over the world and included an extraordinary roster of speakers.

Prosperity The evidence that startup societies succeed is compelling. More than 58 www.theglobalinvestor.com

4000 Special economic zones (SEZs) around the globe have successfully encouraged economic growth in otherwise stagnant economies. We are working with the government of French Polynesia to create the unprecedented “Special Economic Seazone,” designed to transform French Polynesia’s remoteness into an advantage. The Seazone will take the best practices of those 4000 experiments and apply unique rules and regulatory opportunities specifically designed to attract investors. After French Polynesia codifies the Special Economic Seazone into law, a new company we have just spun off from the nonprofit The Seasteading Institute will prototype floating platforms stationed near an anchor community on land. The pilot project is projected to cost between $30 million and $50 million.

Beauty French Polynesia is an excellent location for a seazone. It has beautiful waters and islands. Its Institutions are modern and stable. The people are

friendly and trustworthy – there’s little crime and no threat of war. Polynesians have already demonstrated that a system of connected island communities can successfully develop distinct cultures while working harmoniously together for the good of the region. But today, rising sea levels threaten the way of life in many Polynesian societies. As

Polynesians search for ways to adapt, floating islands will offer an option for resiliency. “We need to create new clean-tech and blue economy jobs for our youth, and this project has the potential to be a real game-changer locally,” said local Tahitian businessman and former minister of tourism Marc Collins. “This project could help us retain our

bright minds, who would otherwise emigrate for work.”

Sustainability We seasteaders are committed to creating sustainable communities. We hope not only to simply protect the environment, but to actively redress existing negative environmental impacts. Our Floating Islands

will be developed using the latest in cleantech solutions to model low-carbon living and symbiotic relationships to the seas. The Islands will be modular so neighborhoods and villages can grow organically and be rearranged as desired. Our pilot Islands will be appealing to pioneers from around the world. As we perfect the technologies and bring down the costs of development, we are launching a brand-new industry. This new industry will create homes for climate refugees in low lying regions around the world, and provide housing near crowded and expensive coastal metropolises. Our modules will be designed to withstand the elements for more than a century, making the floating islands a viable real estate investments spanning a wide variety of use cases, and addressing pressing issues that are only expected to get worse worldwide. Seasteading is an exciting solution. Randolph Hencken is the Executive Director of The Seasteading Institute. www.theglobalinvestor.com 59

Economic Citizenship: A New Global Phenomenon

he first economic citizenship — also known as citizenship by investment — was introduced to the world in 1984 by the small Caribbean Island of St. Kitts and Nevis. Soon after, Dominica joined in 1993, and by 2014 more countries had signed up for investment citizenship programs. More recently St. Lucia and Vanuatu joined the economic citizenship market along with Malta and Cyprus in Europe. Now these programs are a growing phenomenon. People around the globe are more and more interested in economic citizenship, which allows high-net-worth people from developing or emerging economy countries to legitimately acquire passports that facilitate international travel in Europe and Schengen Area. The Global Investor looks into the global trend. What is economic citizenship? Officially, it’s a completion of a legal process in order to acquire a citizenship or permanent residency in a second country on account of the individual’s financial investment into that country’s economy. Now, as we’ve answered the “what?“, another important question is “why it is a good thing?“ For starters, economic citizenship is actually as very beneficial thing, as it can be an opportunity to obtain a second passport, which also lets to experience easier international travel. For example, if an individual obtains the citizenship of the US, he or she immediately becomes eligible to travel visa-free to all of the countries with which the US maintains a travel treaty — think Germany, South Korea, Ireland, Italy, the United Kingdom, Spain, France, and Australia. Another great thing when it comes to economic citizenship is the given opportunity to access all of the

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country’s investment markets. No secret that many nations offer significant tax breaks to its citizens who were previously foreign investors, including property tax, income tax, gift tax and inheritance tax. And all this… well, just makes life easier. Oh, and economic citizenship lets you bring your wife or husband — as well as minor children — to the country. Besides the mentioned benefits, economic citizenship also provides safety, privacy and protection from war or political problems, dual citizen status, better education for children, tax planning on worldwide income and ease of doing business, alongside with opportunity to invest in international real estate markets. Each country’s economic citizenship program is slightly different, but the common conditions and requirements are basically the same. Before applying, it is important to know each country’s conditions, benefits and

disadvantages when it comes to the economic citizenship. Firstly, there is always a minimum investment amount that the foreign national must contribute. Such contributions usually vary from as low as 100 thousand dollars to 1 million dollars. Each nation usually requires the foreign national to have already invested the amount, or have promised to invest it before the citizenship application will be approved. These investments must come from a lawful source, and there must be a legal proof of that. This might seem like a strange requirement for some people, but actually countries do not want to encourage wealthy individuals who may have made their money from terrorist activities, such as theft or money-laundering, to become citizens of their nations. So in order to prove lawful sources of funds, people that are applying need to provide the country with copies of such things like

tax refunds, employment wages, mortgages and everything related to it. Once these two regulations are in order, the third one arises. It is important for the foreign investor to have previous business or entrepreneurial experience. Why is this an important factor, you may ask? Well, many countries make past documented business or entrepreneurial success a prerequisite to their economic citizenship programs. Naturally, if such past investments or businesses have been profitable over the years, it sure counts as a bonus for a person that is applying to the citizenship program. Last year’s list by CBI Index ranked 12 countries that are the best choices when it comes to economic citizenship. To make it more interesting, countries were distinguished by regions. 7 key factors for consideration included freedom of movement, standard of living, minimum investment outlay, mandatory travel or residence, timeline to acquiring citizenship, ease of processing and due diligence. According to these factors, the best country in the index for investors interested in dual citizenship is Dominica. Launched its program in the 1993, it requires 100 thousand dollars contribution to the Government Fund or a 200 thousand dollars investment in designated real estate. There is no mandatory travel, application process is fast and transparent,

the official language is English and the currency is pegged to the US dollar. A few points below are St. Kitts and Nevis, Grenada, Antigua and Barbuda, and Saint Lucia. When it comes to best countries for economic citizenship in Europe, the winner is Cyprus: this country’s program distinguishes itself by attractive travel and residence requirements. There’s no minimum residency requirement, and citizens can travel to 157 locations without needing a visa. However, there’s a minimum 1,71 million dollars investment, and it’s also one of the most expensive countries in the index. A few points below are Malta, Bulgaria and Austria. Right now you might naturally have a question “where are such countries like US, Canada or United Kingdom?“, and this question is fair. It is important to note that such countries like United States, Canada, New Zealand, United Kingdom, Hungary and Portugal also have programs — but not citizenship by investment programs. What they have are tagged as residency programs, and in some cases (think US), it’s only a green card program. It’s significantly harder to become a citizen in one of these countries, as they have increased the investments and other regulations when it comes to applying. Besides, a strict requirement for foreign nationals to first become permanent

residents are in order. What is more, such seekers must live in the country as permanent residents for a specific period of time, after which the national can then apply for citizenship. Let’s get to the very beginning for a second: the primary aim of the first economic citizenship in St. Kitts was to get more money flowing in from entrepreneurs who saw value in tropical beaches and low taxes. It only attracted a few hundred applicants in the beginning. However, this industry is facing an enormous growth right now, and 2014 actually marked the first year that the US ran out of immigrant-investor visas before the end of the fiscal year, alongside with a case of Turkey, where a 400 percent increase in enquiries were seen in the middle of 2017. Naturally, global politics have impact on these things, and such things like Brexit and the 2016 US Presidential election drove new interest. Economic citizenship programs are actually important economic drivers, as money that are generated this way is seen as responsible for lifting the nation out of debt and fueling a construction boom. Most applicants see such programs as an investment and an insurance policy. When you think about it, everyone prefers to have an option for the future, and a choice of a second residency is a really smart one. That’s why economic citizenship is a true phenomenon of today. www.theglobalinvestor.com 61

Business Friendly Nevis Update

he island of Nevis continues to make noteworthy improvements to the quality of the financial products and services offered by the jurisdiction. Steps such as the passing of the Nevis Limited Liability Company Ordinance (NLLCO) 2017 and the Nevis Business Corporation Ordinance (NBCO) of 2017 verify this commitment. These measures have been viewed as positive steps in the evolution of the Nevis international financial centre in serving to create

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a transparent, competitive and high quality jurisdiction for financial product/service providers and thus satisfying and often exceeding expectations from China. With China ranking so highly as a source of new incorporations Nevis has been diligent in creating an appealing business environment to suit. Currently, considerable amounts of the Nevis real estate market have been dominated by Chinese investors. Nevis is now also seeking to welcome more Chinese incorporations to the island.

Why so popular? Nevis has more than 32 years experience as an International Financial Services Centre and is recognized worldwide for its professionalism, efficiency, commitment to international regulatory standards, and prolific wealth management and asset protection tools. The incorporation of IBCs, Trusts, LLCs, Foundations and the licensing of captive insurance forms an integral part of Nevisâ&#x20AC;&#x2122; business activity. The

international financial services sector possesses an impressive collection of proficient registered agents qualified in trust and asset management, law, finance, accounting, taxation and banking.

Why is Nevis appealing to Chinese entities? Nevis sits at the forefront of innovation and practicability, providing the efficient incorporation of international financial vehicles that can be used for wealth management and asset protection purposes. Chinese clients find the quick turn-around time quite beneficial. Costs are very competitive but importantly Nevis focuses on offering added value, quality of service, and ease of doing business. Nevis’ other advantages are it’s strength of the jurisdiction’s regulatory framework, the stability of the country, tax regime, exemptions, privacy, double taxation treaties and the regulatory oversight of your corporate provider. Nevis adheres to international regulatory standards whilst preserving a

client friendly legislation to govern the use of the International financial products and services. Nevertheless, Nevis is well known for being an accommodating and flexible jurisdiction thus ensuring that clients’ needs are kept at the forefront of business activities. And such efforts are seen in the recent passing of the Nevis Limited Liability Company Ordinance (NLLCO) 2017 and the Nevis Business Corporation Ordinance (NBCO) of 2017.

New Developments Some features of the Nevis Limited Liability Company Ordinance, 2017; • Inspection of register of companies - provides that any person may inspect or make copies of the public instruments that have been filed by the limited liability company (LLC). This right to inspect is subject to payment of a prescribed fee for facilitation of the service by the office of the Registrar.

• Registration of charges - this is in keeping with modern trends to have said procedures detailed in legislation relating to charges created by a LLC and how the charges are to be dealt with and recorded both by the LLC and the Registrar of Companies. This part would centralize registration of charges at the office of the Registrar of Companies, regulate such registration and place Nevis on par with other jurisdictions which have a Register of Mortgages and Charges which is open for public inspection and ahead of those who don’t. • Non English Language filing - there is now allowance for instruments to be filed in a language other than the English language and in a language which does not use the Latin alphabet, if an authenticated translation is also filed. • Resignation and change of registered agent - outlines the procedures by which a registered agent may resign. It goes on to outline what is to happen when there is

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a change in registered agent of a LLC. This section also allows the Registrar as well as anyone conducting a search to be aware of any change in the registered agent of a particular company providing greater transparency. • Application and Issue of tax resident certificate - provision for a limited liability company that wishes to elect to become tax resident in Nevis. This is provided as an option only and is not mandatory. The application for a tax resident certificate has to be made to the Minister of Finance by submitting a completed application form and paying the prescribed fee of USD 1,500.00 or ECD 4,050.00. Some features of the Nevis Business Corporation Ordinance, 2017; • NBCO 2017 introduces new provisions with respect to the registration of charges. All charges must explicitly indicate an intention to create a charge, the 64 www.theglobalinvestor.com

amount secured by the charge, and how the interest and fees on such amount is derived. The registration of a charge is optional but it is advised to register as it helps in placing the importance of a charge, and only registered charges can be used as evidence in any legal action before the Nevis High Court. • Nevis International Business Corporations have the option of becoming tax resident, wherein a tax resident certificate will be issued by the Minister of Finance. • The new NBCO still maintains the protection of directors, officers, employees and shareholders of a corporation from being held liable for any corporate debts or obligations. • Corporations are now permitted to be named using characters of the Latin alphabet or any other alphabet. This business friendly provision eases the incorporation process and helps to widen the scope of clientele of the jurisdiction.

• Corporate records and reports regulations of the new NBCO bring the reporting requirements of Nevis in line with international reporting standards.

In conclusion Nevis has rapidly become one of the most convenient and preferred international financial centres in the world and the enactment of Nevis Limited Liability Company Ordinance and the Nevis Business Corporation Ordinance Act. The recent amendments to these legislations display how Nevis continues to take steps to improve the quality of the financial products and services offered by the jurisdiction. The accommodating and open business environment has made Nevis IBCs and LLCs exceptional products. Nevis’ straightforward international financial centre regulations and ease of formation procedures are well suited to Chinese investors and Nevis looks forward to continuing this strong relationship.

Investors In Kenya Still Optimistic Despite Recent Setbacks

any investors last year suffered from two significant “bumps”within the Kenyan economy. Firstly the political crisis after the supreme court nullified the result of the August presidential election — the first such ruling in Africa — and the slowdown in growth of loans to the private sector after interest rates were capped in September 2016. People were not paying their bills. We’ve never known it so bad Nikhil Hira, Deloitte & Touche “2017 was an exceptional year,” says Lamin Manjang, regional chief executive of Standard Chartered. The bank was one of the nine, out of 54, companies listed on the Nairobi Stock Exchange that issued a profit warning for the year. It expects revenue to be at least 25 per cent lower than in 2016. The other companies that issued warnings came from sectors as diverse as insurance, cement, sugar and retail, demonstrating the broad-based nature of the challenges facing investors. “People were not paying their bills,” says Nikhil Hira, a tax partner at accountancy firm Deloitte & Touche. “We’ve never known it so bad. And it’s not just a Deloitte issue, it’s widespread.” But like many executives, Mr Manjang is bullish about the next few

years. Executives say Kenya’s diversity and openness make it one of the most attractive destinations on the continent, even if generating consistently strong returns can be a challenge. Share this graphic Bechtel, the US construction group, Hilton Hotels, Volkswagen, the German carmaker, East African Breweries, which is majority owned by Diageo, and Abraaj Group, the emerging markets-focused fund group, are among the companies that have made significant investments in Kenya in the past year. Last week, Square Pharmaceuticals, a Bangladeshi company, announced it was building its first overseas manufacturing plant in Kenya. “Clients who had adopted a wait-andsee attitude . . . are coming through,” Mr Manjang says. “Investment plans are starting to be executed.” He predicts that economic growth, which is expected to fall to about 4.5 per cent in 2017 from 5.8 per cent in 2016, will rebound to “well over 5 per cent in 2018”. Data appear to corroborate this. T The purchasing managers’ index, a monthly survey by Stanbic Bank regarded as an indicator of private sector sentiment, fell to a record low of 34.4 in October but rebounded to 53.0 in December.

Readings above 50 represent an expansion in activity. Recommended Kenya dances near the brink of dissolution Africa is not immune from secessionist sentiment Liberia’s man of the match faces challenging line-up In the World Bank’s latest Ease of Doing Business index, Kenya rose 12 places to 80, making it the third-ranked nation in sub-Saharan Africa. It had risen 21 places the previous year. According to analysis by accounting company EY, Kenya is the second most attractive African investment destination after Morocco. This is in spite of foreign direct investment falling 55.5 per cent in US dollar terms in 2016. EY attributes this slump to a “bumper” 2015 and a trend that “FDI into Kenya has tended to ebb and flow year-on-year, similar to the experience of Nigeria”. Anne Kirima-Muchoki, chair of the Kenya Investment Authority, says the economy “is ready for take-off”. Credit flows to some critical sectors of the economy have been significantly curtailed. “The president has identified his four pillars and he’s moving fast towards them,” she says, referring to universal healthcare, affordable housing, food security and manufacturing. Kenya is also benefiting from economic and political uncertainty in other prominent African economies, analysts say. “We’re the ripest apple in the basket right now,” says Mr Hira, pointing to South Africa, Nigeria and, in the immediate region, Tanzania, Uganda and Ethiopia. Mr Manjang says Kenya would be even more attractive if parliament lifted the interest rate cap, which he described as “unfortunate” and having “unintended consequences”. “Credit flows to some critical sectors of the economy have been significantly curtailed,” he says. Some investors have also expressed concern about the government’s fiscal deficit, which is about 8 per cent of economic output. However, Ms Kirima-Muchoki fears the good times will last only until the next election cycle. “We need to remove politics from the economics,” she says. “I wish we could come up with a way that we don’t have this shift in growth and investment every five years.” www.theglobalinvestor.com 65

Re-Thinking The Asian Investment Strategy

e know now that Innovation and technology are key to lifting billions of people out of poverty and to solving the existential challenges facing our world. For the past decade, large investments and innovation in renewables and electric vehicles by the state and private companies are paving the way for a much less polluted world and the last age of oil. Technology creation and innovation such as artificial intelligence, big data and robotics are key for sustained growth — and the world needs more innovation. For the past 15 years, we have seen an impressive rise in technologies created in emerging Asian economies. Measured by the number of

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patents granted in the US, the “Asian Miracles” are already contributing more than the major European economies to global technological progress. China’s patents granted in the US went from about 100 in 2000 to over 8,000 in 2015, more than the UK or France (about 6,500 in 2015). Such an advance in technology creation is of benefit to all economies, encouraging innovation and competition, as well as promoting growth and standards of living. In other words, emerging Asia no longer fits the standard growth storyline of FDI inflows and low costs of production. It is also becoming the region of dynamism, entrepreneurship and ingenuity. In financing innovation, angel investors, venture capitalists and

private equity firms sift through new technologies and young companies, invest in them and attempt to create value for both investors and society at large. Silicon Valley is celebrated as the epicentre of innovation and risk-taking but perhaps even more so is Boston, where difficult and risky R&D in biopharma takes place. In 2015, less than 20 per cent of total US venture capital went to biopharma, compared with about 45 per cent in internet companies, mostly in California. About 60 per cent of biopharma start-ups are led by PhDs bringing cutting-edge science to the market compared with about 6 per cent for internet start-ups. The total US venture capital funding of about $50bn-$60bn is dwarfed by the flows in financial markets while risky ventures in key fields suffer from a lack of early-stage financing. When the state intervenes, the usual suspect of failed support (for instance, for the US solar producer Solyndra) springs out but the

support received by Tesla from the same programme is less publicised. Recommended China volatility darkens 2018 investment outlook China GDP growth points to economic rebound Winning from Chinese stocks will not be as simple in 2018 To promote innovation, we need both the state and the market. Mariana Mazzucato has argued in her bestseller The Entrepreneurial State that most of the cutting-edge technologies that the iPhone has were funded by public programmes. Of course, Apple’s role should not be underestimated. We need more companies putting technologies together to create path-breaking products and services. I believe we will see more of these groups coming from Asia. In fact, China’s recent initiative “Made in China 2025” in promoting the creation of key technologies should encourage Chinese companies and entrepreneurs to innovate.

Technology creation by domestic companies is key to escaping the middle-income trap as argued in the IMF working paper The Leap of the Tiger by Reda Cherif and Fuad Hasanov. The continued focus of the Asian economies on innovation and technology creation is not only beneficial to society but also to global markets and investors. As more innovative companies come out from Asia, more competition and innovation will provide opportunities for investors. We see many large hedge funds active globally but, unfortunately, we do not see as many funds playing the role of a big angel investor or a venture capitalist investing in path-breaking innovation from all over the world. The huge bets on dubious financial instruments that led to the global financial crisis should make us question our approach to investing. Early investment in innovative companies

stemming from hard science may not be such a risky proposition after all. If the market does not provide enough support to young innovative companies, the state should provide support as it does in most advanced economies. Perhaps the creation of public venture capital funds would encourage the market to create more private funds. Joseph Stiglitz and Bruce Greenwald in their book Creating a Learning Society argue that the gap in knowledge differentiates developing from advanced economies. Technology and innovation, including in developing economies, can create miracles. The state and the market are the two wings of the same bird and it takes both to fly. Min Zhu is the chair of the National Institute of Financial Research at Tsinghua University, Beijing, and a former deputy managing director of the International Monetary Fund

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Poor Outlook For Ukraine’s Rebound Strategy

kraine’s economy grew only 2 per cent last year:Domestic financing is hard to come by, and foreign investment is scarce. The growth rate represents a feeble bounceback after the 17 per cent cumulative economic collapse in 2014-2015. It is slower than EU and global growth — and far less than needed to put the country firmly back on the road to recovery. Anders Aslund, an economist at the Atlantic Council, warns that Ukraine risks slipping behind Moldova to become Europe’s poorest country in per capita

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terms. The Global Investor looks into the increasing negative outlook on Ukraine’s economy. Disappointing 2017 growth — after a 4.8 per cent year-on-year increase in the final quarter of 2016 — resulted partly from a trade blockade imposed in March last year on separatist-controlled eastern regions, which contributed to a 0.1 per cent decline in industrial output. But low investment is the main underlying reason. The still-smouldering eastern conflict is one cause — but so, too, are issues with the banking system and

concerns over the government’s pace of reforms and efforts to strengthen the rule of law. Ivan Miklos, a former Slovak finance minister advising Kiev’s government, says direct investment is running at only 15 per cent of Ukrainian gross domestic product. For the country to reach its potential growth of 6 per cent to 7 per cent a year, it should be about 25 per cent. “There are three main sources of investment: public finance, loans, and the most important . . . is foreign direct investment,” Mr Miklos said.

Progress on this is linked to the rule of law, privatisation.Ukraine’s central bank has conducted a vigorous banking reform, reducing the number from 180 in 2014 to 86 now. But the restructured banks, some of which still have very high rates of non-performing loans, are hesitant to give new loans, and even then only at double-digit interest rates. With Ukraine’s currency, the hryvnia, recently weakening again following its deep plunge in 2014, banks are extra cautious towards clients who import machinery and raw materials.

A surprise central bank decision last month to hoist its core lending rate from 14.5 per cent to 16 per cent to curb unexpectedly high inflation has further darkened the mood among businesses tat was visited recently in the industrial Dnipropetrovsk region. “All of industry is in debt. Banks are hesitant to lend more, let alone at affordable rates,” says Mr Lempert. “The war has not been the main problem since the end of 2015. Corruption is not felt as it was before,” he adds. “Problem number one” is affordable financing. Ukraine’s relatively few foreign investors, which do have access to cheaper financing, are doing better than domestically-owned enterprises. Recommended Too much is at stake to give up on Ukraine Ukraine reform drive still on track, finance minister insists Putin’s friend emerges from shadows in Ukraine A two-hour drive south west of Mr Lempert’s factory, ArcelorMittal, the global steelmaker that paid nearly $5bn for Ukraine’s largest steel plant, Kryvorizhstal, in 2005, is building production lines and boosting energy efficiency through renewable technologies. Paramjit Kahlon, chief executive of ArcelorMittal’s Ukrainian operations, says the business has invested $9bn in Ukraine. But he says oligarch-owned competitors and regional officials — sometimes in league with one another — still harass the

company “using all sorts of tools”, including non-governmental groups or trade unions, or even organising protest marches. Construction permits are blocked, or ArcelorMittal finds itself unfairly accused of pollution, he complains. “They create trouble for us, and then a messenger [comes] through the back doors saying you have to agree to this or that,” says Mr Kahlon. “Even after making such a big investment, we are not getting respect.” He adds that the courts system needs to be reformed so disputes can be fairly settled, and high-level corruption has to be curbed. There are bright spots. Further south in Nikopol, Canada’s Refraction Asset Management has built a €10.5m solar power plant in what city officials say is the first real foreign investment there since Tsarist times. Michael Yurkovich, Refraction’s president, says larger projects are planned. Yet such investments are tiny compared with what is needed to drive growth; Ukraine’s total stock of foreign direct investment is $71bn, less than one-third of the $236bn that has poured into neighbouring Poland. “It’s hard to lure in foreign investment if they see things are so hard for local business,” says Mr Lempert. Competitors have offered to buy his business at a fire sale price, but he has refused. “Why should I sell what I’ve toiled to build over 30 years?” www.theglobalinvestor.com 69

The challenges That Lay Ahead For Italy’s Economy

taly’s economy is in much better shape than before the last general election in 2013. The country’s gross domestic product then was 10 per cent smaller than in 2008, nearly 1m jobs had been lost and banks were accumulating bad debts. Now GDP has been expanding for three years, unemployment is declining and banks are healthier. Yet the country is still a laggard among its peers and economic discontent has not disappeared. We consider the main economic challenges the next prime minister will face.

Slow economic growth and low productivity Italy was on “on the right track”, Paolo Gentiloni, the country’s prime minister, said in January at the World Economic Forum in Davos. Output is now 4 per cent larger than it was in 2013 and economists keep revising up their growth forecasts for this year. Share this graphic Yet Italy’s growth remains among the slowest in Europe. It is also among the few economies within the OECD where output is not yet back to pre-crisis levels. The gap with 2007 levels is the second-largest after Greece. Share this graphic A related problem is that Italy shows the weakest productivity performance among G7 countries. Share this graphic Sluggish productivity growth means Italian businesses need increasingly more people to produce the same value of output as in other big economies.

High public debt High public debt is one of “Italy’s most pressing problems”, says Nicola Nobile at 70 www.theglobalinvestor.com

Oxford Economics. Its debt is the third largest among 34 OECD countries after Japan and Greece, and a hot topic in the country’s relationship with the EU. Public debt went up 33 percentage points to 132 per cent of GDP since 2007, largely as a result of falling government revenues and shrinking real GDP. Share this graphic The trend is finally reversing “thanks to prudent fiscal policy, lower interest rates and rising GDP growth”, says Mauro Pisu, head of the OECD’s Italy desk. But the high level of public debt makes any rapid increase in interest rates “a major risk for public debt dynamics” and leaves little room for tax cuts or increases in spending, as proposed in most parties’ manifestos.

3 Poor job opportunities for young

people The economy has managed to create more than 1m jobs since September 2013, but unemployment rates remain well above pre-crisis levels. Share this graphic One in three people in the labour force aged under 25 is unemployed and Italy has the largest proportion of youth not in employment or training among OECD countries. What is more, Italy shows the second-lowest employment rates of recent graduates among EU countries after Greece. Economic frustration among the youth is the main reason for Italy’s brain drain. Share this graphic

4 High levels of banks’ debt The

banking sector “is more stable than two to three years ago”, says Mr Pisu. Economic improvements, pressure from regulators and investor-friendly reforms have led to a reduction in

banks’ bad debts. The last year “has been a watershed in terms of the health of Italian banks”, says Marco Troiano at Scope Ratings. The recapitalisation of the main troubled banks has “resulted in a much-improved sector-wide asset quality picture”, he adds. Share this graphic But Italian banks still make up the EU’s largest slice of non-performing loans, which curtail banks’ ability to lend. “The challenge for 2018 lies in the continued reduction of the stock of bad loans, and with execution of some more capital increases, especially for the weaker players,” says Mr Troiano.

5 Low

levels of foreign direct investment In the past few years Italy “has made considerable progress”

towards a more business-friendly environment, says Lorenzo Codogno at LC Macro Advisors. In 2006, Italy ranked 156th in the World Bank ease of doing business global survey — 110 positions below where it is now. The country is now closer to the best performing in most of the ranking’s measures, including ease of starting a business. Share this graphic Italy “has significantly increased its attractiveness as an investment destination among the mature economies”, says Donato Iacovone at EY. Yet, it still lags behind most of its peers. The value of greenfield FDI projects in Italy in the past 10 years is half that of France. Share this graphic Policies “will need to be maintained for a long time”, says Mr Pisu. “Foreign investors prefer stability.” www.theglobalinvestor.com 71

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