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2014

www.businessannual.net

Featuring

Guide to Africa 2014

And

Offshore Guide

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Specia

Special Fisheries Report

Securities Exchanges

Integration

Client Centricity

Tax Transparency

International Financial Centres 1

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2014 The Business Annual 2014 firstly hones in on Africa and highlights some trends and developments set to hold sway in a continent brimming with opportunities for new investors and companies looking to forge and consolidate partnerships and successfully conduct and grow business there.

The Guide to Africa is for those wishing to grow their own balance sheets and at the same time help to realise meaningful and positive change on the ground. The watchwords are integration, innovation and integrity and this coming together of regions and sectors, aided by technology and backed by the rule of law, to achieve common goals and become globally competitive is particularly evident in the securities exchanges, fisheries and airlines sectors, all of which receive close attention in this edition.

Similarly, in our Offshore Guide Special the prevailing winds of the day see international financial centres innovating by looking East to new markets, diversifying their product and service offering and becoming much more client-centric. IFCs are at last managing to communicate the essential global role they play that goes far beyond tax mitigation to include expertise, anonymity, and flexibility.

Moreover, it has become apparent to many that they act as crucial conduits for the flow of international capital.

There is also increasing acknowledgement that the offshore finance sector is marked by fairness, transparency and solid regulation.

Testament to this is that the most credible jurisdictions are playing a proactive part in the peer review process.

Editor: Richard Smith Business Development: Dominic Hale, James Wilson Designer: Wallace Wainhouse Production Manager: Claire Turner Production Assistants: Charlotte Lewis, Kendall Barnes All enquiries: info@businessannual.net

W: www.businessannual.net

Disclaimer::The information contained in this publication has been obtained from sources the proprietors believe to be correct. However, the publishers cannot be held responsible for any errors or omissions. In no way does any of the content constitute legal advice and the publishers and staff accept no responsibility nor legal liability for any loss or damage caused by or arising from reliance on it. Persons are reminded that independent professional advice should be sought before any investment decisions are made.

Copyright: No part of this publication may be reproduced without the prior consent of the publisher. © Business Annual. Unless otherwise stated photographic content is licensed under the Creative Commons (cc) attribution license. To view a copy of this license visit http://creativecommons.org/ licenses/by/3.0/

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Contents

Special Fisheries Report

19 Introduction How fish stocks are being safeguarded for future generations whilst ensuring the delivery of much needed social and economic benefits here and now.

Guide to Africa 2014 Securities Exchanges 7

African Securities Exchanges on the Rise

By African Securities Exchanges Association President, Mr Sunil Benimadhu.

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The Nigerian Stock Exchange Nigerian Stock Exchange CEO, Oscar Onyema talks about recent and forthcoming developments at the NSE and the unique attributes it brings to the table.

20 The Seychelles Fishing Authority (SFA)

Exciting developments and investment opportunities in the Seychelles fisheries sector.

22 New UN-Backed Initiative to Drive Advances in High Seas Fisheries Management A multi-partner project focused on improving global sustainable tuna fisheries by reducing illegal catch and supporting biodiversity in the common oceans.

23 The Prospects for Sustainable Increased Consumption of Fish

By the Food and Agriculture Organisation of the United Nations (FAO).

10 Integration and Innovation

African Securities Exchanges are coming together with the aid of technology.

24 Mauritius

The flagship national initiative aims to catalyse the transition from Small Island to Ocean Economy.

26 5th International Conference of Pan African Fish and Fisheries Association (PAFFA)

New approaches to fish and fisheries management.

12 The Casablanca Stock Exchange

Interview with CEO, Karim Hajji.

14 South Africa and Corporate Citizenship

Corli Le Roux, Head of SRI Index and Sustainability at Johannesburg Stock Exchange, writes about the business case for taking social issues into account.

16 Safeguarding investments

Tom Minney explains how fast-rising inflows of investment capital to the African markets are spurring an increase in the banks offering custody services.

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28 The Ghana National Aquaculture Development Plan

A blueprint to guide the systemic and sustainable development of the aquaculture value chain in the country.

30 Liberia

Liberia’s national investment policy is focusing on fisheries, transportation and horticulture.

31 Botswana

An ideal investment destination.

32 Programme to Support Trade Institutions Launched in Liberia

The “Programme of Assistance to Trade Support Institutions in Liberia” (PATSIL) pushes the country’s agenda for sustainable growth and regional integration through trade.

34 Africa’s Performance in an International Context

From the World Economic Forum’s “Africa Competitiveness Report 2013”.

36 Flying High

African Airlines Association Secretary-General, Dr Elijah Chingosho looks at current trends across the African Airlines sector.

44 Samoa

Why recent attacks on Samoa’s credibility and integrity in respect of transparency are misplaced.

46 Liechtenstein Bankers Association Welcomes Government Statement

Association and its members welcome and support statement concerning cooperation in tax matters and automatic information exchange.

47 Transparency and Global Tax: Clearing the Way

By Gerri Chanel, Organisation for Economic Cooperation and Development (OECD).

38 Women in Mining

Anglo American case study.

Offshore Guide Special 40 Resilient and Legitimate

Offshore international finance centres have confounded widespread predictions of their demise.

41 BVI Looks East

The BVI IFC launches an office in Hong Kong.

42 Cayman Islands Signs Tax Information Exchange Agreement

Supplied by the UK HMRC. 43 Not Fair to Call Overseas Territories Tax Havens, says British PM

David Cameron officially recognises that the Overseas Territories and Crown Dependencies operate “fair and open tax systems”.

50 Success through Innovation: Achieving Sustainability and Client-Centricity in Swiss Private Banking

A study by KPMG AG Switzerland, in cooperation with the Institute of Management, the University of St. Gallen.

54 The Global Financial Centres Index 14

London, New York, Hong Kong and Singapore remain the top four centres.

56 IMF Global Financial Stability Report: Transition Challenges to Stability

Executive Summary.

60 The Most Remote Places on Earth

Ten supremely inaccessible yet magical global locations.

64 The Nobel Prize in Economics 2013: Of the Madness and the Wisdom of Crowds

By Gert Wehinger, OECD’s Directorate for Financial and Enterprise Affairs.

66 If...

By Rudyard Kipling.

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Guide to Africa 2014

Photo by Anton Balazh

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African Securities Exchanges on the Rise Photo by Johan W. Elzenga

By African Securities Exchanges Association President, Mr Sunil Benimadhu How is ASEA working to further systematic mutual cooperation, exchange of information, materials and persons between its members?

The African Securities Exchanges Association (ASEA) has raised its profile in recent years, grown in size and succeeded in attracting new Exchanges to join the Association. ASEA has also successfully implemented a number of key initiatives to raise the visibility of African Exchanges at the international level and has actively participated with other institutions to sponsor events linked to the promotion of African Stock markets.

ASEA is emerging as the cell of reference and choice for investors to obtain first-hand information on African stock markets. The ASEA website (www.african-exchanges.org) has been revamped to give up-to-date information to investors who want to understand the performance of African markets characterising the African Exchange Sphere.

ASEA is also a forum which emphasises mutual cooperation among the member exchanges and facilitates informationsharing and intelligence-gathering. It allows member exchanges to learn from each other’s experience and work towards regional and/or continental linkages.

What role are African Securities Exchanges playing in catalysing economic development across Africa?

African Securities Exchanges have an important role to play in resource mobilisation and constitute an important lever to the continent’s long-term financing needs. Many Exchanges are already contributing to the development of their respective national economies by facilitating the privatisation process, diversifying the financial services offerings, improving long term capital mobilisation, offering local investors alternative investment opportunities, attracting foreign capital inflows and serving as a signal of overall macroeconomic performance.

African Exchanges still need to grow in size, need to expand beyond their current equitycentric focus and address their liquidity issues. I know that a lot is currently being done by Stock Exchange authorities to overcome the above structural constraints and set the stage for the development of vibrant capital markets that can play a meaningful role to Africa’s economic transformation.

“I am particularly excited about the initiatives to use technology to cross-link stock markets regionally with a view to enabling cross-border trading and overcoming liquidity issues.”

Which innovations in capital markets infrastructure across your member community are you currently most excited about?

Many Exchanges in Africa have in recent years updated their market infrastructure and implemented world-class trading and settlement systems to improve the efficiency and transparency of stock market operations. Exchanges are now trying to leverage-off these modern market infrastructures to reach out to a wider range of investors and market participants. I am particularly excited about the initiatives to use technology to cross-link stock markets regionally with a view to enabling crossborder trading and overcoming liquidity issues.

• There is a fundamental need for African Exchanges to review their current trading/ settlement fee structures and make them very competitive to attract more order flows to their platforms.

• There is a definite need to market the strong performances of African Exchanges and the solid growth perspectives of African economies to attract more global order flows to our markets.

• There is also a need to move up the valuechain in terms of the products offered

by African Exchanges. The current focus is essentially on equity products. There is a need to diversify product offerings, attract the listing of more corporate bonds, introduce the listing and trading of Exchange-traded funds, introduce shortselling on some liquid stocks and work towards the introduction of single-stock futures on those same liquid stocks.

• African Exchanges should also work towards the establishment of synergistic links with other sub-sectors of the financial service sector, like banking and insurance, with a view to promoting an integrated approach to the development of the financial services sectors in Africa.

Mr Sunil Benimadhu, President, ASEA.

What do you believe will be the key trends and developments marking the African Securities Exchanges sector in 2014?

I think that in 2014, the focus of African Exchanges should be geared towards the following initiatives:

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The Nigerian Stock Exchange Nigerian Stock Exchange CEO, Oscar Onyema talks to the Business Annual about recent and forthcoming developments at the NSE and the unique attributes it brings to the table.

What role is the Nigerian Stock Exchange (NSE) playing in catalysing economic development across Africa?

As the second largest Exchange in Africa and the largest in West Africa, The NSE is already an investment destination for many Africans.

The reforms we have embarked upon over the last two years have strengthened our market, e.g., regulatory oversight is stronger, our market is more efficient, and investors can count on a higher level of protection. This provides an opportunity for Nigerian issuers to invest in businesses across Africa.

“X-Gen opens up an unprecedented level of innovative trading capabilities for the Nigerian capital market.”

Oscar Onyema, CEO, The Nigerian Stock Exchange.

Furthermore, our market provides an exit strategy for entrepreneurs who contribute to the long-term productivity of the economy.

In basic terms, we provide a platform that facilitates the matching of savings to the real economy’s need for capital, which fuels economic growth and supports efficient use of financial resources.

The NSE has partnered with the Convention on Business Integrity to develop a corporate governance rating system. What are you hoping this will achieve?

The central idea is to explore the underlying ethics and values guiding an organisation’s business conduct and how these values are translated into visible actions. Part of what The Exchange therefore hopes to achieve at the end of the corporate governance rating would centre on better managed and better governed listed companies, as their Board of Directors will be fully aware of their fiduciary responsibilities and operate by good corporate governance standards, ethics and processes.

Mass adoption of improved corporate governance standards by listed companies will lead to improved competitiveness and perceptions of such companies by stakeholders, as well as make the Nigerian Economy more attractive in the comity of nations. The importance of good corporate

governance practice is evidenced in strong leadership and robust risk management, which The NSE hopes that companies will achieve once the rating takes hold.

What positive impacts is the new trading platform ‘X-Gen’ set to have?

X-Gen opens up an unprecedented level of innovative trading capabilities for the Nigerian capital market, providing low latency trading, straight-through processing from broker order management systems to The Exchange and direct market access for the buy-side and mobile access through smartphones to the retail investors, leveraging on the 120million mobile phone penetration already in the country. The new trading platform will also improve the overall quality of market experience for all stakeholders i.e. listed companies, market participants and the investors.

When will you consider the NSE to have become the undisputed ‘Gateway to African markets’?

That depends on how one measures “undisputed”. Becoming the gateway to African markets is relative, especially as other exchanges around the continent have adopted various forms of this motto.

The objective behind it is simple: that the Nigerian capital market be the investment

destination of choice when foreign investors are considering investing in African securities. And we are not doing too badly.

Considering foreign portfolio investment took a hit in 2009, we have seen a steady, and more-balanced, return of foreign investors since then. Have we achieved the “undisputed gateway” threshold yet? We are inching closer, but only time will tell.

“The reforms we have embarked upon over the last two years have strengthened our market.”

Should Nigeria’s energy sector constitute a more significant component of the listed market?

Yes. The NSE has prioritised oil and gas, utilities, telecoms and agriculture sectors because these major sectors of the economy are under represented on The Exchange. Particularly in the first three sectors, getting companies to list requires a significant amount of advocacy. The telecoms companies are large, sophisticated organisations which are already well served

in terms of access to capital. Hence for them, they are vocal in asking for tangible incentives, such as in lower taxation, to make listing attractive to them.

The NSE is actively exploring possibilities in this area. In the oil and gas sector, last year’s revision of our listing requirements specifically addressed some concerns of potential upstream issuers by reducing the operating track record from five to three years, and even allowing for listing of startups under certain conditions. In response, we are seeing a healthy pipeline develop in this space.

For the power companies, The NSE has been actively working with the Bureau for Public Enterprises and has ensured that the listing option was part of the agreements signed with the successful bidders of the PHCN successor companies. We are also going through the same process with the companies currently being privatised under

the National Integrated Power Project.

Indeed, in our discussions with the PHCN successor companies, they have made it clear that, in due course, the capital market will be a natural port of call for their substantial funding needs.

“We are looking to list more companies and to introduce new products, specifically Exchange Traded Products and derivatives.”

What planned developments are set to further distinguish and recommend the NSE to the global investor community?

We are focused on meeting the needs of both the domestic and global investor

Global investor communities meet

The Best of African Enterprises

Ilorin

info@nse.com.ng

communities. As you already know, we recently launched our next generation trading platform – X-Gen. It has been in the works for almost two years and is a major milestone in achieving our next set of objectives. We are looking to list more companies and to introduce new products, specifically Exchange Traded Products and derivatives. We have been targeting key market segments that are currently not represented on the Exchange, advocating for policies that will enable further development of our capital market.

In addition to working closely with West African Exchanges to integrate our capital markets, we have a long list of initiatives we are committed to delivering in the near- and mid-term. On that list is investor education, which is critical to the sustained growth of our market, and the demutualisation of The NSE, which we hope to complete within the next two years.

Integration and Innovation The global investor community is increasingly being exposed to the cream of African enterprise, which is attracting foreign capital inflows to African capital markets. In addition, African investors are being presented with alternative investment opportunities, all of which is helping to catalyse the privatisation, diversification and long term capital mobilisation processes, which in turn is accelerating economic development across the continent.

The key prevailing themes of the moment across African Securities Exchanges include a growing appetite for capital markets integration, innovations in infrastructure and exchanges proactively working to advance corporate governance, whereby the leading exchanges are increasingly committed to accelerating the publication of investor information for all listed companies. This last development acts as a highly effective means of providing reassurance to investors, who are thereby more likely to take a longterm investment view on those compliant companies, subsequently fuelling economic growth. The Johannesburg Stock Exchange (JSE) in South Africa is leading the way in encouraging expanded sustainability disclosure by listed corporates.

Stock market operations are increasingly marked by transparency and efficiency as a revolution in market infrastructure is starting to take hold across African Exchanges. This allows for the targeting

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of a wider range of investors and for the linking of stock markets in regional blocks, as has been the case for a number of years with West Africa’s eight country member ‘BRVM’. Here, pooling resources has helped to address issues relating to liquidity and allows for cross border trading and greater foreign participation and an increase in market depth. The Eastern African Community is also looking to establish its own regional securities exchange, bringing together the Nairobi, Uganda, Dar es Salaam and Rwanda exchanges, as well as Kenya’s Central Depository and Settlement Corp. Such interoperability, enabled by trading technologies is set to be a key driver in the growth of African markets.

Stock market operations are increasingly marked by transparency and efficiency as a revolution in market infrastructure is starting to take hold across African Exchanges.

On the technology front, of particular note is the Nigerian Stock Exchange’s new trading platform, ‘X-GEN’. This high performance, multi-asset, multiproduct system positions the NSE as the fastest trading platform on the continent and affords global investors, through

Photo by Dustie

stockbrokers, real time access to market prices and the ability to place market orders in near real time using latest technology. It also supports the Financial Information eXchange (FIX) Protocol, widely adopted by global capital market participants. It is set to help the NSE to reposition itself as an emerging rather than frontier exchange, offering it the ability to launch new products such as derivatives, high frequency trading (HFT) and algorithms, as well as ultimately providing scope to achieve $1Trillion capitalisation and to increase the retail investor base, not to mention affording investors the opportunity to diversify their investment portfolios.

Several African stock markets including Ghana, Kenya and Nigeria have seen significant recent returns. It is noteworthy that these are all located in mid-Africa – whereas global investors used to put their money into Africa in the Arab rim in the North and South Africa. For example, when Rwanda recently offered $400 million in 10-year dollar-denominated bonds, demand was more than eight times the supply.

In a sign of the esteem in which the African region is increasingly held, large pension funds and university endowment funds are now looking to invest, such that the issue for the continent could end up being not too little capital, but too much, and how it absorbs it.

Photo by Jim Barber

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Photo CC by YoTuT

The Casablanca Stock Exchange

Interview with CEO, Karim Hajji What are the fundamental facts and figures for the Casablanca Stock Exchange?

The Casablanca Stock Exchange was established in 1929. It has since undergone a number of reforms, the most significant one being that of 1993 which resulted in it becoming the market that we recognise today.

The Casablanca Stock Exchange is today a société anonyme with a board of directors and a general management team, operating under the supervision of the Ministry for the Economy and Finance with a specific remit. The Casablanca Stock Exchange is currently in the process of being demutualised.

Our task is to ensure the proper functioning of the Moroccan stock market, its development and its promotion.

The Moroccan stock market has developed considerably over the years. Securities have been traded via an electronic quotedriven trading system since 1997, the latest version of which was introduced in 2008.

The market, in terms of size, has also grown significantly. The number of

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companies listed on the Exchange has risen by 43% from 53 listed companies in 2004 to 77 at end-May 2013. Market capitalisation has more than doubled from USD 25 billion to USD 53 billion. It’s a similar story for capital-raising. USD 2.1 billion was raised in 2012 and a total of USD 16 billion over the period 2003-2012.

Foreign investors represent 29% of the market capitalisation and account for nearly 20% of the volume traded on the market.

The Casablanca Stock Exchange is a cash market on which equities, bonds, venture capital funds and special purpose vehicles are traded.

A series of regulatory reforms are underway which will result in a number of new products and markets being introduced. Legislation authorising securities lending has recently been approved.

To what extent are foreign investors active on the Casablanca Stock market and to

what degree is the latter accessible to them (breakdown of investors, sector breakdown etc.)?

Foreign investors represent 29% of the market capitalisation and account for nearly 20% of the volume traded on the market. In Morocco, there is no regulatory barrier to foreign investment. On the Casablanca Stock Exchange, foreign investors are able to invest in any listed company or sector without any restriction.

At 31 December 2012, the banks, telecommunications and real estate sectors accounted for a large share of overall market capitalisation with shares of 33.3%, 21.0% and 9.27% respectively.

What is the new flagship project on which you are currently working?

As you are aware, Morocco aims to become a regional financial hub with the creation of Casablanca Finance City. The spotlight from the international investment community will undoubtedly fall on the Casablanca Stock Exchange.

This is why we have been working for several years on different ways to develop our stock market. The Casablanca Stock Exchange is already one of the most modern and progressive in terms of

market technology. After migrating to an electronic quote-driven trading system in 1997, we adopted a more advanced version in 2008.We are currently in the process of introducing a multi-market trading platform.

“iceberg” orders and reducing the period of time for halting securities trading from 10 minutes to 5 minutes when price change limits are breached. We have also launched liquidity contracts in order to promote market makers activity in our market.

We are also preparing for the introduction of new financial instruments which will enable us to broaden our product range (REITs, ETFs etc.). Other projects on which we are currently working include a new clearing house and the launch of a derivatives market.

The second challenge concerns the market’s attractiveness. By that I mean providing more opportunities and making it easier to invest, particularly for foreign investors. Introducing a foreign currency compartment, offering greater diversity and revising the Exchange’s compartments system are some of the key measures required to make the Casablanca Stock Exchange more attractive.

In addition, we are considering possible regulatory changes relating to the introduction of new compartments for SMEs. This would imply a significant relaxation of listing criteria and reporting rules.

We have also considered revising the Stock Exchange’s current compartments system to respond to the demands of listed companies and those that are considering a listing.

What are the current and future challenges facing the Casablanca Stock Exchange?

Another challenge is to position the Casablanca Stock Exchange as one of the major exchanges in Africa. We must inevitably reach a critical size which will enable us to become a regional pool of liquidity for North and West Africa. That implies an increase in both the number of investors and listed companies.

To reach our goals, we have implemented a promotional strategy focusing on providing financial education to the

How do you assess the Casablanca Stock Exchange’s position against a backdrop of globalisation?

The Casablanca Stock Exchange is one of the largest exchanges in Africa. Given the country’s ambition of becoming a regional hub, the Casablanca Stock Exchange, which plays a major economic and financial role in financing the Moroccan economy, must confirm its status as a new frontier market. The current market reforms being undertaken will enable the Casablanca Stock Exchange to broaden its product range. This will not only make it more competitive but will enable it to respond to the financing needs of the entire region and ultimately gain in stature as a major financial market place. © World Federation of Exchanges (WFE)

Photo CC by Nathan Guy

There are many. First and foremost, liquidity; in January 2013, we launched a series of technical measures aimed at increasing market liquidity. There are five measures: extending price change limits and trading hours, reducing tick sizes, increasing the minimum disclosed size for

Morocco aims to become a regional financial hub with the creation of Casablanca Finance City.

general public, as well as a marketing plan to attract more companies to the Exchange. We have participated in a number of events and have conducted a communications campaign targeting potential issuers and investors. We are encouraging SMEs to list their shares by offering financial and, in particular, tax incentives. We have signed a number of partnership agreements with schools and universities across the Kingdom aimed at developing financial education through training and raising public awareness.

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South Africa and Corporate Citizenship

Photo by pryzmat

‘30 Years of Making the Business Case for Social Issues’

Corli Le Roux, Head of SRI Index and Sustainability at Johannesburg Stock Exchange, writes about the business case for taking social issues into account.

There is little doubt that social issues have become increasingly important for investors over the last thirty years. There is perhaps nowhere in the world that has a deeper understanding of this than South Africa.

Introduction South Africa has a complex political history fraught with injustice, deprivation and inequality. Analysis of how responsible investment has developed in the South African context highlights the particular importance that social criteria have had in the wider development of responsible investment. The anti-apartheid movement was one of the major catalysts in the global SRI movement, positioning South Africa as a key interest for values-based investors.

Indeed, 30 years ago this year EIRIS was established, at least in part, in response to concern about corporate activity in apartheid South Africa.

While apartheid was abolished in 1994, its effects are still widely felt today, although South African companies have made strides with both addressing transformation and catching up to international best practice.

Democracy ushered in a shift in how

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business was conducted with the role of good governance and corporate citizenship coming to the fore. Compelled reform took place through legislative requirements such as Black Economic Empowerment (BEE) and employment equity. However, the country’s corporate sector has also taken a global leadership position through voluntary developments, such as business sector charters for transformation and the principles-based King governance codes. Today no business in South Africa can operate divorced from the country’s apartheid legacy, and issues of sustainability and social responsibility are entrenched in our business landscape.

Launched in 2004, the JSE’s Socially Responsible Investment index has been established as a benchmark for companies and investors alike.

JSE Socially Responsible Investment (SRI) Index Against the backdrop of a changing South Africa and having hosted the World Summit on Sustainable Investment in 2002, the Johannesburg Stock Exchange (JSE) saw an opportunity to assist listed companies in

understanding the importance of a balanced approach to the management of their environmental, social and governance (ESG) impacts. Launched in 2004, the JSE’s Socially Responsible Investment index has been established as a benchmark for companies and investors alike. Since 2007 EIRIS has provided research and analysis for the JSE SRI Index, including reviewing criteria to ensure that the index maintains its leading role in both encouraging broad-based sustainability practice by companies and fostering corporate and investor consensus on what this means in the context of South Africa. EIRIS works with the Centre for Corporate Governance at the University of Stellenbosch Business School (USB) in Cape Town in providing research support for JSE. In the early days of the index, established companies in the resources sector already had well-defined processes around environmental issues. This was in stark comparison to sectors that didn’t see themselves as having a large environmental impact, and not paying much heed to these issues.

Ten years and nine index reviews later, this has changed with the index constituency consistently growing as companies across all sectors mature in their awareness and management of ESG issues, with the 2012 index seeing the highest number of constituents at 76 companies – over 70% of companies assessed in 2012.

Today the index criteria cover a range of international best practice in ESG issues, including environmental criteria such as climate change, but also social criteria and local imperatives such as skills development, BEE and HIV/AIDS. The investor community In South Africa, and elsewhere, the responsible investment movement has gained considerable traction with investment decisions being driven by considerations of risk and impact across more than just the financial. The social concerns that fuelled early interest in responsible investment in South Africa continue to have impact today.

There is no fund manager who can deny the existence of great inequality in South Africa and there is less need to educate about the importance of socially responsible investment than there may be in more developed countries.

In the recent past this has evolved into a distinct drive towards an integrated approach to truly mainstream sustainability, as evidenced by two key developments.

Firstly, the promulgation of Pension Fund regulation which requires in its preamble that pension funds consider the impact of ESG elements in their investments, and secondly, the July 2011 launch of the Code for Responsible Investing in South Africa

(CRISA) which serves as a framework for institutional investors to incorporate ESG in their policies and investment decisions, including engagement and proxy voting.

In South Africa, CRISA is supported by the JSE, the Government Employees Pension Fund (GEPF), Principal Officers’ Association (POA), Association for Savings and Investment South Africa (ASISA), the UN-backed Principles for Responsible Investment (PRI) and Institute of Directors (IoDSA).

In South Africa, and elsewhere, the responsible investment movement has gained considerable traction.

In addition, the Sustainable Returns for Pensions and Society project is underway, which aims to educate pension fund trustees on the value of ESG and the incorporation of ESG factors into investment decisions.

Conclusion Today, much like the rest of the world, South Africa is experiencing a proliferation of SRI, RI, sustainability and now integrated

reporting related initiatives. Out of our murky past, South Africa today takes a leading role in sustainability on the world stage, with the JSE as a key player in the evolving debate.

In EIRIS’ 30th Anniversary year, EIRIS can reflect on how it has come full circle from researching corporate involvement in apartheid-era South Africa for those who either wanted to avoid such investments or to engage with companies to get them to contribute to reform in the country, to today when EIRIS assists a leading SRI index to encourage best practice by companies to address the challenges of modern South Africa.

Looking at how responsible investment has evolved in South Africa demonstrates the significance of social criteria in the evolution of responsible investment. The potential impact of these achievements on long term risk management and responsible investment cannot be underestimated and are gaining momentum as more people join the conversation. The JSE remains committed to continue its work in this regard.

This blog is the latest in a series on thirty years of making the business case for responsible investment. The theme has been chosen as EIRIS celebrates thirty years of empowering responsible investment in 2013. www.eiris.org/blog

Photo CC by Evan Bench

Johannesburg, South Africa.

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Photo by Andresr

Safeguarding Investments – Custody Banks Spur Growth of African Capital Markets

By Tom Minney Fast-rising inflows of investment capital to the African markets are spurring an increase in the banks offering custody services. But global players are held back by differences in infrastructure and legal structure in the different markets and the need to reach economies of scale in a low-margin business.

Custodians are responsible for safe-keeping assets. For instance, if a global fund manager wants to invest in different African markets, it might appoint a bank to keep its local holdings of equities or bonds registered in the name of the bank’s local nominee company and to ensure that all is correctly registered and administered including purchases and sales, dividends, voting rights and other actions. They are essential to the progress of institutional investors into Africa.

According to an excellent article by experienced journalist Liz Salecka for FinancialNews.com, the custodians that dominate are “the two pan-African banks”.

She writes that demand for custody services is growing fast, driven by two factors: • international institutional investors flocking to take advantage of the region’s growth prospects.

• the rise of pension and unit trust investments as investors grow wealthier and domestic savings institutions increase.

Standard Chartered Bank says capital inflows to sub-Saharan Africa grew 4 times from

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$13.2 billion in 2003 to $48.3bn in 2012.

They are hunting equity, fixed-income and money-market investments in markets such as Kenya, Nigeria, Ghana, Mauritius, Tanzania and Zambia. The article quotes Hari Chaitanya, regional head, investor and intermediaries, Africa, transaction banking at Standard Chartered Bank: “Portfolio equity investment in the region is focused on the most active and liquid stock markets in South Africa, Nigeria, Kenya, Mauritius and Zimbabwe, which the Johannesburg Stock Exchange continues to dominate, accounting for 83% of total market capitalisation in the region in 2012.” He added that, although South Africa will continue to dominate in terms of size, the fastest growth is in other countries. Several African countries are among the fastest growing in the world, with GDP growth rates experienced and foreseen of over 7% a year.

Fast-rising inflows of investment capital to the African markets are spurring an increase in the banks offering custody services.

She also quotes Mark Kerns, head of investor services at Standard Bank as saying international investor demand will spur capital markets development: He added: “Domestic demand is also growing as a

result of insurance expansion, growth in retail savings and increased pension fund investment in unit trusts and other vehicles as pension systems develop. This, supported by the emergence of a middle class, is further driving stock market growth.”

Who are the African custodians?

Standard Bank, the bank with the biggest operation in African markets, offers custody services in 15 sub-Saharan markets.

Standard Chartered Bank, which launched a custodian services business in 7 African markets in 2010 after buying Barclays Bank’s custody business in Africa, has since expanded its network to 11 markets since then.

Global bank Barclays used to have an African custody operation, but in line with the rest of its confused Africa strategy decided to sell that off in 2010 to Standard Chartered, according to a 2010 press release. Earlier this year, Standard Chartered also entered into an agreement with South Africa’s Absa Bank (also part of Barclays) to acquire its custody and trustee business.

According to the article, Standard Chartered and Standard Bank are expanding and introducing new services in a major movement to service foreign and domestic investors.

Newer global custodians entering Africa start in South Africa – Societe Generale in 1991 and Citibank in 2011 – and are expanding into new growth markets.

Photo by pedrosek

Writer Salecka cites Andy Duffin, head of sales, emerging markets at Societe Generale Securities Services: “If you look back at custody business in Africa, the bulk of it was focused on the South African market, which generated the most significant revenue in the region. However, there is now growing demand for custody products and services in other markets such as Ghana, Nigeria and Kenya, and it is no longer the view that South Africa will generate the most significant revenues.” He believes existing providers branching out into new markets will drive market development more than new players entering.

Existing providers branching out into new markets will drive market development more than new players entering.

Societe Generale Securities Services started operating in Ghana in June 2013, according to a press release.

It offers custody services for Ghanaian equities and bonds, foreign exchange and cash-management services to local and foreign investors, frontiermarket funds and other players looking for increased exposure to Ghana. “Clients benefit from the local knowledge and expertise of a dedicated SGSS team located within SG-SSB, a subsidiary of Societe Generale group, which is directly linked to the panAfrican integrated services platform developed by SGSS in South Africa. This platform will be deployed in other African countries in due course. SGSS already operates in Tunisia and Morocco and was reported to be talking to authorities in Mauritius about access to the local central securities depository, where it also wants to offer custody services. Societe Generale is predominately a provider of securities services in this region, and has increased staff by nearly 50% since 2007.

Sub-custodians A key feature of institutional investment and African capital markets development over the last 20 years has been sub-custody service for international custodians who want to offer their clients services in different markets without actually setting up operations in each country. This provides a significant component of Standard Bank’s business.

State Street is a leading example of a bank which offers fund administration services from its South African offices in Johannesburg and Cape Town, but relies on a network of sub-custodians across the region to service the needs of its global and regional institutional clients.

Its partnership with Standard Bank was instrumental in bringing American-regulated institutional investors into many African markets in the 1990s.

According to Rod Ringrow, senior vice-president and head of official institutions for EMEA at State Street: “At the moment we are seeing significant inflows into sub-Saharan Africa from large institutional investors – and the flows from our clients will help determine where we want to be.”

Cont.d p.18

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Custody and capital markets development Salecka writes: “The ability of new competitors to enter sub-Saharan Africa continues to be hindered by the challenge of building sufficient scale to operate profitably in a region characterised by diverse, small markets with different regulations. The scope for new entrants to offer custody services in sub-Saharan Africa is also hindered by the complexities involved in meeting the regulatory requirements of individual markets.” She points out that infrastructure is improving, and says there are now 26 central securities depositories across the region, but they all evolve at different paces and a couple of markets including Zimbabwe and Namibia still use outdated paper settlement. Different national regulatory, tax and capital market practices complicate the provision of standardised services.

She cites Standard Chartered’s Chaitanya who says providing custody services in sub-Saharan Africa should be part of a global bank’s wider strategy for the region.

New entrants have to prove that they can provide a regional presence and commit to ongoing investment in technology and other infrastructure: “Apart from South Africa, many markets in Africa are still considered

too small by many global custodians to establish a physical presence in the region.

Hence, the domestic custody market is dominated by regional and local banks.

Custody is about scale because it is not a high-margin business.”

For the meantime global custodians are key strategic partners for the development of the institutional investors that drive capital markets development.

Dirk Kotze, Africa banking advisory leader at Deloitte (in Johannesburg) told her many banks should consider whether the market is big enough for them to operate profitably: “They must also consider who are the dominant players and what they would provide to differentiate themselves. Potential new entrants must also look into whether they have clients from other markets that need services in this new market. In addition to providing basic services, custodian banks must be able to help clients understand and

navigate their way through local regulatory market environments, which are evolving in line with broader economic growth.”

Standard Bank’s Kerns said: “Emerging and frontier markets are characterised by a number of challenges including the fact that many of them are still in the developmental phase. New entrants need to obtain a banking licence and be familiar with local regulatory and other infrastructure as well as the social and cultural dynamics of each country.”

Where African capital markets want to step up the involvement of international and domestic institutional investors they need to work to provide harmonised technical and regulatory environments for custodians, including information flows. Whether CSDs will eventually be able to take business from custodians remains to be seen, but for the meantime global custodians are key strategic partners for the development of the institutional investors that drive capital markets development.

CC: Tom Minney/www. africancapitalmarketsnews.com

Zimbabwe and Namibia

Photo by Denis Vrublevski

still use paper settlement.

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In Africa, particularly, the issue is how to safeguard fish stocks for future generations whilst ensuring the delivery of much needed social and economic benefits here and now.

While there is no silver bullet, it is widely acknowledged that improving the institutional framework so as to better deliver on global commitments is a must, since only by investing in institutions to monitor and assess fish stocks, along with enforcement so that quotas and other catch and effort limits can be confidently set, can one ensure stocks are well managed, and financially viable. Moreover, a more integrated management of stakeholder agencies encompassing oceans, fisheries management environment and transport, at national, regional and international level will create a fertile breeding ground for the necessary compromises. These are the trade-offs that will ensure marine ecosystems can provide the resources and other services to ensure all sectors can contribute to sustainable development in the long-term.

The fisheries sector plays a crucial role for nations across Africa.

The fisheries sector plays a crucial role for nations across Africa, significantly contributing to food security, income generation, and economic welfare. Fish is also a highly traded commodity and one

of the leading export commodities for the continent, However, from the combination of heavy fishing pressure by artisanal fleets and by foreign industrial fishing vessels, some of them practicing Illegal Unreported and Unregulated (IUU) fishing, many fish stocks have become heavily over-exploited.

Despite the socio-economic importance of fisheries resources to developing countries, national fisheries institutions are all too often under resourced and face challenging management situations. Yet, there is a concerted ongoing effort to address these challenges to ensure that wealth generation and social and environmental benefits are sustained in an enduring fashion.

Seychelles Leads the Way At an Environmental Justice Foundation (EJF) event in Brussels on 5 November 2013, held to encourage EU Member States to take stronger action against illegal fishing, Seychelles Minister for Natural Resources, Peter Sinon called for collective action to combat the plague of Illegal, Unreported, and Unregulated (IUU) fishing.

Seychelles is a key Indian Ocean port for the offloading of fisheries catch and the country’s identity and fortunes are closely linked to those of the fisheries sector.

It follows then that IUU fishing has the capacity to significantly adversely affect the Seychelles economy.

Photo CC by Wonker

Africa: Special Fisheries Report

Promoting sustainable development in the sector, Minister Sinon asked for honesty “about where we are succeeding, where we are lacking, and most importantly, where there are opportunities for improvement.”

Seychelles was the first state in Africa to formally accede and ratify the FAO Port State Measure Agreement (PSMA).

He went on to inform attendees that Seychelles was the first state in Africa to formally accede and ratify the FAO Port State Measure Agreement (PSMA), thereby testifying to the country’s commitment to combating IUU fishing. He also talked of plans to work with ‘Stop Illegal Fishing’, a Working Group of the NEPAD Planning and Coordination Agency and ‘FISH-i Africa’, an initiative designed to lead to targeted enforcement actions against illegal fishing operators. This with a view to developing a methodology and process that will assist the Seychelles Fishing Authority to assess and ensure compliance by their fishing fleet to internationally accepted standards.

He also drew the spotlight on to additional solutions such as a Unique Vessel Identifier for fishing vessels, a Global Record of fishing vessels, as well as highlighting the importance of continued regional and stakeholder cooperation to achieve desired outcomes.

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The Seychelles Fishing Authority (SFA)

Official figures from the Central Bank of Seychelles indicate that in 2012, gross earnings from fisheries and fisheries related activities surpassed gross earnings from the tourism industry. The fisheries sector - industrial tuna fishing in particular - is vitally important to the economic well-being and development of Seychelles in terms of its capacity to generate foreign exchange earnings. In this regard, while the European Union remains the country’s primary market for fish and fish products, with canned tuna being the dominant commodity, Seychelles also exports to Reunion, Mauritius, U.S.A and the Middle East. In addition, Southeast Asia, including China, Japan and Singapore, constitutes an important market for Seychelles, particularly for dried sea cucumber and shark fins.

Photo CC by Kazue Asano

SFA Objectives A key national objective is to turn Seychelles from a mainly fisheries transshipment hub to the primary seafood processing centre in the Indian Ocean, with the processing of fish into exportable products having proved itself as a significant generator of employment and income. In support of this goal the commissioning of a new processing facility is planned for early 2014, a project which aims to add value to fish products for aspiring fish processors. Meanwhile, on a wider level, direct and indirect employment in fisheries and related sectors is around ten per cent of total formal employment in the country, with the Indian Ocean Tuna (IOT) canning factory alone able to point to a workforce of over 2,500.

The Seychelles Fishing Authority (SFA) is tasked with developing the fishing industry to its fullest potential and safeguarding the resource base over the long term in a sustainable fashion for future generations.

This parastatal organisation, headed up

by CEO, Finley Racombo and with a Board of Directors appointed by the President, is unique in encompassing management, planning, development, scientific and training functions. Moreover, the SFA is committed to an integrated management of oceans, as evidenced by its working in close concert with the Ministry of Natural Resources and Industry (MNRI).

Monitoring, Control and Surveillance The SFA is doing much to ensure the effective monitoring of fish stocks within Seychelles waters, as well as to protect fishermen against piracy. Budgets have been allocated for both sea and air patrols, while local observers are set to be deployed on industrial purse seiners, in addition to a feasibility study soon to be conducted on the use of CCTV on board industrial vessels. In support of this, SFA inspectors have had training in the fields of inspection at sea, radio telecommunication, and procedures for safety at sea, within the framework of the regional fisheries surveillance programme. Its Monitoring

Control and Surveillance (MCS) Section is responsible for ensuring compliance with the Fisheries Law and Regulations in the Seychelles Exclusive Economic Zone (EEZ). The main objectives of the MCS Section include ensuring compliance to the Fisheries Act and Regulations, fisheries agreements and protocols; providing support to local partners such as the Seychelles Coastguard (SCG) and the National Drug Enforcement Agency (NDEA); working with countries of the region to improve MCS implementation in a regional effort to eliminate Illegal Unreported Unregulated (IUU) fishing activities; and ensuring compliance to the Licensing Act and Regulations.

In recent years, understanding the movement of exploited marine species has begun to play an important part in the design of spatial management measures such as Marine Protected Areas (MPAs). The knowledge gathered from these studies can be used to implement partial closures to fishing in other nursery sites that could help protect vulnerable species – and this without having to create full time fishing closures that may affect the livelihood of artisanal fishermen who often use these areas for fishing activities.

From such observations it was recommended that the lobster fishery remain closed for a period of one to two years to allow the stock time to recover and for fisheries independent surveys to be carried out to monitor changes in the state of the stock. There are similar management measures currently in place to prevent over-exploitation relating to the export of dried shark fins and sea cucumber.

A key national objective is to turn Seychelles from a mainly fisheries transshipment hub to the primary seafood processing centre in the Indian Ocean.

Seychelles is involved in numerous collaborative regional projects. Perhaps one of the most successful recent initiatives has been the South West Indian Ocean Fisheries Project (SWIOFP). In studying exploitable offshore fish stocks, it determines existing fishing pressure on these stocks and investigates the role of environmental influences on their life histories, seasonal variability and health, as well as enhancing the technical expertise within the region through capacity building.

Meanwhile, the three year CANAL project, started in Feb 2013, aims to find out why tropical tunas collected from March to June in the Mozambique Channel and processed by the IOT, lead to lower quality tunas compared to those fished during the rest of the year.

The result will bring benefits for both the IOT factory and the Seychelles economically,

as well as giving information on nutritional quality in respect of local consumption.

The SFA can point to a number of investment initiatives in which it plays an integral part.

The Fisheries Development Fund (FDF), for example, was launched in July 2009 and has an allocation of Euro 2.7 million. It is funded by the European Union’s sectoral support to Seychelles, under the EU/Seychelles Protocol.

This fund aims to boost investment in fisheries value addition and processing, purchasing of new long-line vessels, as well as upgrading existing long-line vessels.

The fund is a collaboration between the Seychelles Fishing Authority (SFA) and the Development Bank of Seychelles (DBS), with loans available exclusively to Seychellois investors or joint partnerships where the majority shareholder is Seychellois. It has been set up at a crucial time where much importance is being placed on developing the fisheries sector to its full potential and to extract maximum economic benefits from its natural resources. Presently, the semiindustrial industry is producing approximately 300 tonnes of catches per year, but with the launching of this fund expected catches will increase to approximately 1,500 tonnes in the next two years.

The SFA can point to a number of investment initiatives in which it plays an integral part.

Aquaculture There is a need to meet national socioeconomic and food security objectives, particularly in view of the vulnerability of the fisheries and tourism sectors. With declining trends in capture fisheries worldwide and locally, aquaculture is seen as one of the potential activities that could keep up with the rapid increase in fish demand. Seychelles has the environment, the species and the basic infrastructure, services and some of the raw material to develop a sizeable aquaculture industry. As a consequence the government has decided to develop the “Seychelles Mariculture Master Plan” which will ensure; - the orderly and environmentally sustainable development of the sector; - the efficient use of the country’s resources;

Another development sees the construction of the Turn Quay to service the industrial fishing fleet, a project also funded under the EU sectoral programmes. When completed, the quay facility will allow existing, as well as the new generation of industrial purse seiners, to berth for services such as net working, fuel and fresh water bunkering and also for ships’ victuals etc. This will help to alleviate congestion during peak fishing periods and improve ships’ turnabout time, thus making Port Victoria more competitive regionally.

Perhaps the most significant recent development has been Oceana Fisheries’ promotion of industrial fisheries, by way of their plans to export fish from Seychelles using Seychellois flagged vessels and investment in the production of sashimi grade tuna and cold storage, as overseen and regulated by the SFA. This process perfectly evidences the government and private sectors proactively and strategically working together to

Photo CC by John Mauremootoo

Photo CC by Taro Taylor

Photo CC by Mikko Koponen

Investment

create the perfect investment environment. In addition, it involves close cooperation with the Maritime Training Centre, thereby enabling students to gain new technical skills.

- that the legislative and regulatory framework, support services and human capacity needs are developed harmoniously; and - that the development of the sector leads to positive social and economic benefits, while adverse effects are either negated or minimised.

The goal of the Aquaculture sector is to create a sustainable sector that is integrated into the country’s economic planning vision, coastal zone and off-shore management strategies and that is environmentally responsible and sustainable. Phase 2 of the Seychelles Mariculture Master Plan is expected to be completed in December 2013, when there will be a call for investment in the sector.

For further information visit www.sfa.sc

Victoria Port, Mahé, Seychelles.

Photo CC by Bill Brine

New UN-Backed Initiative to Drive Advances in High Seas Fisheries Management On 5 November 2013 the United Nations Food and Agriculture Organisation (FAO) hailed a multi-partner project focused on improving global sustainable tuna fisheries by reducing illegal catch and supporting biodiversity in the common oceans.

“High-seas fisheries support the food security and livelihoods of millions of people worldwide,” Árni M. Mathiesen, FAO Assistant Director-General for Fisheries and Aquaculture said in a statement announcing that Global Environment Facility (GEF)CEO Naoko Ishii has approved a project coordinated

by FAO to boost the sustainability of tuna fisheries worldwide.

According to FAO, around one third of the world’s seven major tuna species are currently overexploited. Given continued strong consumer demand and the overcapacity of fishing fleets, the status of tuna stocks is likely to deteriorate further if fisheries management is not improved.

“Through collective action at all levels and broad cooperation that optimises the use of scarce resources, this project – and the wider Common Oceans initiative – will help move the world away from ‘the race to fish’ and towards implementation of an ecosystem approach,” said Mr. Mathiesen, stressing that it is vital to ensure the future well-being and productivity of these crucial marine ecosystems.

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“Early successes will create incentives for donors and agencies to further invest in these types of catalytic projects.” he added.

Given continued strong consumer demand and the overcapacity of fishing fleets, the status of tuna stocks is likely to deteriorate further if fisheries management is not improved.

By creating synergy between FAO and its global partners, the global tuna project on fisheries management and biodiversity conservation, set to run from 2013 through 2018, is vital to advance more sustainable and efficient fisheries management and to share the best fishing practices; to reduce illegal, unreported and unregulated (IUU) fishing through reinforced monitoring and control; and to lessen ecological impacts from illegal fishing.

The GEF, an international organisation specialising in environment and sustainable development, has committed $30 million in support of the programme, leveraging an addition $150 million of co-financing.

“I am pleased that we are able to bring together both public and private partners in this project, which give us a fighting chance to work on a scale sufficient to reverse negative trends threatening the global tuna fishery and the ocean environment that sustains it” said Mr. Ishii, commenting on GEF’s funding.

Further to the tuna project, key partners including FAO, the UN Environment Program (UNEP), the World Bank, Conservation International (CI), the International Union for Conservation of Nature (IUCN), the World Wildlife Fund – US and the Global Oceans Forum are also involved in other relevant initiatives: Increasing sustainable use of deep-sea living resources and ecosystems; strengthening global capacity to manage the areas beyond national jurisdiction (ABNJ) and fuelling oceans partnerships to promote investment in long-term, sustainable fisheries management.

FAO estimates that tunas and tuna-like species account for the most valuable fishery resource caught in the areas beyond national jurisdiction (ABNJ). About 5.4 million tonnes are landed each year, with over 85 countries harvesting tuna in commercial quantities. Capture levels are highest in the Pacific Ocean, followed by the Atlantic and Indian Oceans.

Photo by EpicStockMedia

The Prospects for Sustainable Increased Consumption of Fish By the Food and Agriculture Organisation of the United Nations (FAO) Policies conducive to an increased share for sustainable fisheries A number of policy areas can be distinguished, and their potential evolution considered. These can broadly be described as: (i) direct, which specifically affect the way the capture fishing system operates; and (ii) indirect, which change the wider environment in which people, businesses and communities interact, and which can create positive or negative incentives for improving function and behaviour.

The role of knowledge and capacity building will be critical.

Direct policies would include those on resource management and their allocation to specific groups, licensing and regulatory features, capacity development in key agencies, those associated with fuel and energy pricing, capital costs and possible subsidisation, and those addressing market management and trade issues (including market access and the use of market sanctions against unsustainable fishing).

Where possible, these would be aligned to provide positive incentives for good practice, removal of perverse influences, and adequate deterrence for non-compliance. Although more immediately effective within national jurisdictions, a strong policy environment at the national level can have an important impact on wider application.

A range of indirect policy areas can be noted.

Apart from the generic fiscal environment and its effects on investment and earnings, and policies affecting infrastructure investment and maintenance, a number of social policy areas may be relevant. Those addressing broader development issues, including gender and rights, child labour, health, education and social welfare, may help to ease pressures in small scale fisheries, while various local empowerment policies can provide more positive environments in which community-based management initiatives may be developed.

The clarity and coherence of policies in related sectors will also affect the potential for sustainable fisheries. Climate change response policies with effective resilience building measures are also likely to have an important effect on the stress on capture fisheries systems. Across these policy areas, the role of knowledge and capacity building will be critical, and effective policies for

these, including resources for fisheries data and scientific management, will be important.

While policy areas and approaches to support sustainable fisheries can be readily identified, their effective implementation is a particular challenge.

While policy areas and approaches to support sustainable fisheries can be readily identified, their effective implementation is a particular challenge. There have been too many examples of policy formulation that has been unconnected with action and outcome, or in some cases has resulted in perverse consequences. Where existing practices have to be substantially changed, social and political interests challenged, and previously unconnected issues brought together, considerable thought and effort may be required, building support for action across a range of agents. Š FAO 2012. The State of World Fisheries and Aquaculture 2012.

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Photo by antos777

Mauritius

Mauritius’ flagship national initiative aims to catalyse the transition from Small Island to Ocean Economy, thereby putting the 1.9m sq km EEZ of maritime resources centre stage.

As part of this the Prime Minister has set up a ‘National Task Force on Ocean Matters’ which will help to oversee an integrated approach to all ocean matters, to encompass many affiliated onshore activities, as well as more obvious offshore areas. These include fisheries, aquaculture, marine biotechnology, seabed mineral exploration and exploitation, offshore oil and gas exploitation, bunkering and marine finance, some of which are established sectors, whilst others can be considered emerging, or even wholly new.

There has been ongoing expansion of and investment in - the harbour complex in Port Louis, as well as other pivotal developments including Sotravic Limitée’s planned investments in its environmentally friendly deep ocean water application (DOWA) project, with applications ranging from air conditioning to bottled water, cosmetics and pharmaceuticals, amongst others. Meanwhile, the IBL Group and the CEPHYR Centre are looking at converting fish by-products into fish oil, as well as the possibility of hydrocarbon deposits in the EEZ and the continental shelf (jointly managed with the Seychelles). These range of initiatives reflect two key pillars of the Government’s efforts - namely, to make

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The Mauritius Oceanography Institute (MOI) is looking into coral farming

Mauritius a petroleum hub and to extract cold water from the ocean deep. Moreover, the Mauritius Oceanography Institute (MOI) is looking into the bio-tech application of micro-algae, coral farming and the feasibility of pearl oyster farming to further maximise Mauritius’ drive toward becoming one of the world’s key ocean economies.

Mauritius’ flagship national initiative aims to catalyse the transition from Small Island to Ocean Economy.

In addition, the Mauritius Government has stated plans to turn the country into the Hong Kong of Africa and a conduit for investments into the continent, in the way that it already acts as the prime gateway for foreign investments into India. On top of this, Mauritius’ strong financial services platform and legal structure, as well as its business environment being marked by low cost and an absence of exchange controls and transparency, all lend confidence to investors. Here, the many MOUs, IPPAs and DTAAs in operation with key African states assist further in respect of risk mitigation and fiscal efficiency for investors,

not least the two recent MOUs signed with South Africa and Bangladesh.

In many ways Mauritius constitutes an ideal investment platform into Africa for international investment funds, private equities and investment holdings, enjoying as it does an enviable international location, allowing it to trade with all major markets over the course of a single business day.

Moreover, there is strong interest being shown by Chinese financial institutions to use the jurisdiction as the Renminbi Centre for Africa, not to mention a growing flow of investment from other Asian powerhouses such as Japan, South Korea, Malaysia and India.

In terms of ongoing diversification, key developments include a marked growth in exports to South Africa, the courting of the Chinese tourist market and work on establishing the country as a respected regional hub for film making, medical services and tertiary education.

In addition, the liberalisation of bunkering services and other ship supply industries should attract more shipping lines to Mauritius. Moreover, existing success stories, such as the financial services, agribusiness, construction, dredging, logistics and manufacturing sectors are all positioned as showing sound growth potential.

Opposite: Port Louis, Mauritius.

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Photo CC by eutrophication&hypoxia

The Fifth PAFFA Conference was held in Bujumbura from 16 - 20 September 2013, during which researchers highlighted new approaches to fish and fisheries management.

By Lorraine Josiane Manishatse If nothing is done, the majority of the world’s population - and Africa’s in particular - will continue to suffer from a lack of animal proteins from fish because of the demographic pressure and threat by human beings to natural resources like lakes, rivers, seas.

For Joseph Butore, Burundi’s Minister of Higher Education and Scientific Research, researchers in the fish and aquatic ecosystems fields always show great concern for the situation and propose solutions for sound sustainable management of those resources on which a great deal of African people depend as one of their essential animal proteins.

The trend in shifting from capture fisheries to culture fisheries has been sluggish.

“In maintaining and developing aquatic resources, the Government of Burundi will contribute to promote traditional fishermen, preserve ecosystems, develop fish farming, and also improve the conservation of fishery products,” states Butore.

For Abebe Gatahim, an Egyptian and former Chairman of PAFFA, it is interesting to notice several kinds of development in the field of fish and fisheries in Africa these last decades, although there are still some imminent challenges.

“Our freshwater systems are heavily degraded and the fishing is becoming more and more excessive.

The construction of dams and irrigation projects, although considered as vital for the fledgling economy of Africa, is placing an increasing enormous pressure on the survival of the freshwater biodiversity including fish,” indicates Abebe.

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Photo by liveostockimages

5th International Conference of Pan African Fish and Fisheries Association (PAFFA)

However, the trend in shifting from capture fisheries to culture fisheries has been sluggish and not motivated, coordinated and managed very well.

For Professor Gaspard Ntakimazi, the new Chairman of PAFFA, it is important to talk about conducting research on fish and fisheries from Africa, because there are several sorts of fish which haven’t been identified yet, and researchers need to agree on the nomenclature.

Major problems in Lake Tanganyika According to Ntakimazi, the knowledge of existing fish in Lake Tanganyika is a big challenge. There are some parts which haven’t been explored yet, which is the case with the Congo side.

Prof. Ntakimazi highlights that among countries which have access to Lake Tanganyika, Burundi is the one which pollutes and exploits it most.

There are some parts (of Lake Tanganyika) which haven’t been explored yet.

“At the southern part of the lake i.e. Congo and Tanzania sides, it is less exploited in contrast to the Zambian side which is also exploited very much,” he explains.

It is worth mentioning that fish need a perfect environment to reproduce and multiply as well as a clean and safe milieu, like shores with vegetation for optimum reproduction and growth.

“On the side commonly called “Cercle Nautique” there used to be an important

quantity of fish, but now they have considerably decreased or even disappeared due to pollution and anarchic exploitation from humans,” regrets Ntakimazi.

He indicates that their objective is to conduct research around fish and fisheries, with the results used to inform and advise the Government on appropriate measures for the conservation and sustainable management of fish and fisheries.

“In fish-farming for example, we can advise the Ministry of Agriculture and Livestock, indicating some kinds of fish found in some areas and appropriate milieus and periods for fishing depending on the abundance of fish. Furthermore, we can also propose the number of fishermen and quality of fishing nets,” he highlights.

According to him, their research and scientific publications also inform fish and fishery managers as to the status of African rivers and lakes. © Iwacu English News.

Photo by Vladislav Gajic

“Concerning the Burundi side, we have made progress in recent years; I think that we will not find other new species because we have explored the lake enough,” he praises.

However, the other challenge is to know how to manage the existing stock where the demand is too great.

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Photo CC by Nora Morgan

The Ghana National Aquaculture Development Plan The Ghana National Aquaculture Development Plan (GNADP), to be implemented at a cost of US$85 million, was launched in Accra, July 2013.

The Plan the implementation of which covers a five-year period (2013–2018) is the first blueprint developed in the annals of aquaculture history in Ghana to guide the systematic and sustainable development of the aquaculture value chain in the country. GNADP aims to enhance and improve the practice, management and development of aquaculture as a viable business by all stakeholders and specifically seeks to contribute to improvements in the production, marketing, environmental sustainability and social acceptability of Ghana’s fish farm enterprises and related aqua value chain.

The implementation of the Plan will cover activities such as the zonation of high potential aquaculture areas, especially the Volta Lake; provision of basic infrastructure to high priority zones, for example, markets, electricity and roads; capacity development of aquaculture associations; and support for the development of improved fish and other aquatic organisms’ seed to fish farmers. The zonation and provision of infrastructure are aimed at reducing, to the barest

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minimum, the challenges that investors go through trying to identify suitable sites for aquaculture and also to create the enabling environment for viable investment in the sector. When successfully implemented, aquaculture production is expected to increase from the current 27,750 metric tons to 130,000 metric tons while generating an estimated 220,000 jobs across the value chain.

The Plan is the first blueprint developed in the annals of aquaculture history in Ghana to guide the systematic and sustainable development of the aquaculture value chain in the country.

The Food and Agriculture Organisation (FAO) provided financial as well as technical guidance, advice and supervision throughout the preparation processes of the Plan and also funded the printing of the first two hundred and fifty copies,

while the GIZ of the Federal Republic of Germany had, earlier in 2006, partnered the FAO in the development of the National Aquaculture Strategic Framework, which is the foundation for the development of the GNADP. In an address to launch the Plan, the Minister for Fisheries and Aquaculture Development, Mr Nayon Bilijo, stressed the need to develop the capacity of aquaculture associations to improve the knowledge, skills and management capabilities of indigenous aqua farmers to become competent aqua business operators so as to take full advantage of the very good natural endowments that existed for aquaculture development.

Mr Bilijo noted that opportunities existed for the active participation by the private sector, Non-Governmental Organisations (NGOs) and Community-based Organisations (CBOs) in various areas of the aqua value chain, namely breeding, hatchery operations, fish feed production, marketing, transportation, aqua logistics provision, extension delivery, training, processing and handling, among others. He, therefore, urged the universities and other tertiary institutions to make changes in their curricula, so as to provide practical training that would facilitate the

The Minister informed the FAO that the Ministry would submit a proposal for a Technical Co-operation Programme (TCP) to help kickstart the implementation of the Plan and appealed to the Development Partners to take a closer look at the Plan and identify the areas where they could offer financial and technical assistance for the successful implementation of the Plan.

Photo CC by Erik Cleves Kristensen

transition of such beneficiaries into employment in the sub-sector as farm managers and technicians, among others.

When successfully implemented, aquaculture production is expected to increase from the current 27,750 metric tons to 130,000 metric tons while generating an estimated 220,000 jobs across the value chain.

He expressed displeasure at the haphazard citing of cages on the Volta Lake, especially in Sedorm, Gyakiti, Kpeve, Kagyanya and Akuse areas, noting that such activities were precursors to conflicts over territories, as well as potential risks to the spread of fish diseases among fish farms. Mr Bilijo noted that most of these farms were operating without the relevant permits, such as water use permit from the Water Resources Commission, Environmental permit from the Environmental Protection Agency and an Aquaculture permit from the Fisheries Commission. He, therefore, called on such illegal fish farmers to regularise their activities with the Agencies and pledged the Ministry’s readiness to assist them in that regard.

In his remarks, Mr Poku Gyinaye, a representative of one of the institutions that contributed to the publication of the Plan by the eleven-member Aquaculture Advisory Group (AAG), said the launch of GNADP marked the rebirth of aquaculture development in Ghana. He said the potential for aquaculture development in Ghana was enormous, taking into consideration the numerous water bodies and suitable lands of the country and gave the assurance that the 100, 000 aquaculture production target of 2016 was achievable, though ambitious.

In a statement delivered on his behalf, the FAO Representative in Ghana, Mr Lamourdia Thiombiano, noted that the assistance provided by the FAO for the development of GNADP was in line with the FAO’s strategic objective of reducing hunger, employment creation and poverty alleviation.

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Liberia Liberia’s national investment policy is embodied by the activities of the National Investment Commission (NIC). Its goal is to catalyse the growth of a sustainable domestic private economy and a modern technologically enabled agricultural sector, as well as support the national goal of transitioning to a state whereby Liberia is a middle income nation by 2030 as part of the Liberia Rising 2030 initiative.

Liberia’s abundant fish stocks offer annual marine catch potential of up to 57,000 tons and freshwater potential of 40,000 tons.

Photo bay Netfalls - Remy Musser

The NIC, whilst keen to spearhead the drive to unlock natural resources and capitalise on Liberia’s excellent strategic location, is very much focused on ensuring this process creates jobs - particularly for its large young population - accelerates access to capital, technology, markets, training and business development and allows for the development of economic linkages by way of local procurement from foreign firms doing business in the country. In other words it is clear on only entering agreements with renowned and reputable investors who can help to deliver in these regards, and who can embrace the fact that all major investments will be tracked to ensure compliance with national investment, environmental, tax and labour legislation.

Transportation improvements in land, air and marine links and infrastructure will act to improve access to isolated areas.

It has prioritised three investment sectors: namely fisheries, transportation and horticulture, thereby allowing for a targeted, coordinated and strategic approach to those sectors offering the greatest opportunities, impact and readiness.

With regard to fisheries, Liberia’s abundant fish stocks offer annual marine catch potential of up to 57,000 tons and freshwater potential of 40,000 tons, which combined with its long coastline offering 20,000 sq km of fishing grounds, allows for excellent investment opportunities particularly for Asian and African investors with their growing demand for fresh and processed fish products. Moreover, unrivalled investment opportunities exist in respect of equipment and facilities such as enhanced landing quays to support industrial fishing, freezers, cold storage units and processing plants to exploit the export potential.

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In respect of horticulture, the prioritising of the processing of crops such as cassava, pineapples and mangoes lends itself to an increase in the value of exported primary commodities, given the high demand in the EU and the growing regional demand for fruit juices, concentrates and canned sliced pineapples. In terms of investment opportunities only 10% of the 4.6m hectares of arable land available for cultivation is currently being used, while other opportunities abound in the palm oil, coffee, cocoa, sugar cane arenas. The opening of this sector to developed world markets will act to expose it to stringent quality and traceability standards, whilst developing a skilled workforce able to transfer their knowledge to other sectors.

Meanwhile, transportation improvements in land, air and marine links and infrastructure will act to improve access to isolated areas, thereby improving the efficiency of the agricultural value chain, as well as linking coastal cities. At the

same time this will create thousands of new jobs in the sea and ground transport sectors, many of which will see workers trained for skilled engineering jobs. In addition, there are investment opportunities relating to fleets of buses, finance leasing opportunities for truck purchasing and outsourcing opportunities for truck modernisation.

In terms of landmark legislation, the Investment Act 2010, provides guarantees to investors against unfair expropriation, allows for repatriation of capital and profits, affords protection against intellectual property, whilst also providing access to dispute resolution mechanisms recognised by the international community.

In addition, the Investment Incentive Code and the activities of the Business Reform Committee both serve to heighten Liberia’s attractiveness to investors in the form of incentives for major investments e.g. tax exemptions and deductions on equipment, machinery etc.

Botswana Photo by EcoPrint

Botswana has a number of attributes for investors; not least its status as the world’s largest producer of quality gem diamonds by value, value which has been invested back into the country for the benefit of all Batswana. It can also boast an abundance of raw materials e.g. one of the world’s largest reserves of coal in the world, copper, nickel, gold, uranium and soda ash.

Even against the backdrop of a savage global economic crisis investor confidence in the country has remained high, with the likes of construction, hotels and restaurants, constituting some of the fastest growing sectors.

Botswana has a stable, convertible currency and is a market led economy, with the country consistently ranked near the top of the economic indices for Africa. It offers a strong financial services platform and legal structure, as well as an economy marked by low cost, transparency, and an absence of exchange controls, all of which lend confidence to investors.

Moreover, the many bilateral and regional trade agreements in operation with key African states assist further in respect of risk mitigation and fiscal efficiency for investors looking to use Botswana as a platform into the wider continent.

In many ways Botswana constitutes the ideal investment destination for international investors, given its high middle income status, the security it offers,

its political and social stability, solid record on human rights and corruption, as well as the numerous infrastructural developments currently underway or planned. In addition, there is a growing flow of investment from Asian powerhouses such as China, India and Japan with which high level meetings have recently been

The country can point to positive exchange rate movements between the Botswanan Pula currency and the Rand, relatively stable fuel prices on the international market and subdued inflationary pressures. held, with a view to companies from there expanding their African presence into Botswana. As a result of this, Asian banks are increasingly targeting operations in Africa aiming to benefit from an increase in trade between the two continents and strengthening Asian investment activity in Africa, such that Botswana’s central bank has recently granted licences to two Indian banks to operate in the country: namely Bank of India and State Bank of India.

Furthermore, the country can point to positive exchange rate movements between the Botswanan Pula currency and the Rand, relatively stable fuel prices on the international market and subdued inflationary pressures.

In addition, the financial services, copper, coal, sulphuric acid, diamond cutting and polishing, agriculture, waste management and recycling, water treatment, power generation and renewable energy sectors are all showing sound ongoing growth potential and represent areas of particular interest to Asian markets, keen for reliable new sources of much needed raw materials.

Of further note is that the suspension on beef exports to the EU has now been lifted, an action which is already reinvigorating that key industry.

Regional cooperation is evidenced by plans for improved transport connectivity - a pivotal issue for landlocked Botswana – through an agreement to utilise the port of Maputo in Mozambique for coal exports, as well as an 1100km rail project to link Botswana and that country. In international terms Botswana appears to be keen move away from such a continued high level of dependence on Europe, from where a significant proportion of foreign exchange currently originates, to developing relationships with Asia and its African partners, which come with unparalleled investment opportunities?

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Programme to Support Trade Institutions Launched in Liberia

The African Development Bank (AfDB) and the Government of Liberia, represented by the Ministry of Commerce and Industry (MoCI), on November 5, 2013 in Monrovia, launched the “Programme of Assistance to Trade Support Institutions in Liberia” (PATSIL), to push the country’s agenda for sustainable growth and regional integration through trade.

This comes barely a week after the eighth African Economic Conference concluded in Johannesburg with intense discussions focusing on facilitation of trade; the mobility of people, goods and services; political will and government leadership in harmonising macroeconomic policies; and the role of the private sector in the continent’s regional integration.

PASTIL underscores the thrust of the Bank’s Regional Integration and Trade Division (ONRI) to support Regional Member Countries (RMCs) and Regional Economic Communities (RECs) in tackling soft constraints to trade and regional integration.

Indeed, weak implementation capacity of RECs and RMCs has been identified as the Achilles’ heel impeding Africa’s regional integration agenda. Such challenges are even more acute in low income and fragile states such as Liberia, whose capacity was decimated by a 14-year conflict.

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The programme is funded through the Africa Trade Fund (AfTra) established in March 2012 and managed by ONRI. AfTra is a responsive technical assistance facility for RMCs and RECs to participate in and benefit from regional and international market opportunities. It was established with CAD 15 million seed funding from the Canadian government, and the Bank aims at growing it into the biggest trade fund in Africa.

The project will enhance the capacity of trade institutions in Liberia to create an environment for competitive trade, production and value addition.

Speaking during the launch, Liberia’s Minister of Commerce and Industry, Axel Addy, noted that the PATSIL would support his country’s efforts to formulate and implement policy measures and reforms, to give the “final push” towards sustainable growth driven by trade.

Enhancing Liberia’s trade capacity for sustainable growth The project will enhance the capacity of trade institutions in Liberia to create an environment for competitive trade, production and value addition. Welcoming the Bank’s timely support in this regard, the Minister noted that the program had come at an opportune time when the Government of Liberia takes a step change in its development efforts, moving from a focus on “post-war recovery and reconstruction” to “inclusive growth and wealth creation”.

The key outcomes of the project are: (a) an improved policy framework for the trade sector by supporting the development of key policies such as the trade policy and strategy, and a standards regime; (b) improved human resource capacity of the MoCI and Liberia Chamber of Commerce to enable them to analyse, formulate, negotiate and implement trade-related policies; (c) improved productivity of the MoCI and the National Ports Authority (NPA) through the provision of information technology equipment and software. At present only 50 per cent of Ministry staff have access to computers.

Improved IT systems will enable the MoCI to roll out automated systems for the processing of import and export permits to businesses, shortening the processing

Photo CC by JBDodane Monrovia, Liberia

Support to the Chamber of Commerce will focus on equipping over 120 small and medium enterprise (SMEs) Chamber members who are predominantly femaleor youth-owned, with basic business development skills such as bookkeeping, preparation of winning business plans and accessing finance. Technical support will also be provided to enhance the analytical capacities of the Chamber to effectively engage in policy dialogue.

Addressing soft constraints to regional integration This project will also support regional integration, which is one of the core operational priorities of the Bank’s Ten Year Strategy (2013-2022). By supporting the development of key policies, PATSIL will ensure that trade policy issues are streamlined in the national development agenda. This is essential to provide the

foundation for Liberia to effectively engage on the regional arena through the Mano River Union and ECOWAS integration initiatives, as well as on the multilateral level through the World Trade Organisation (WTO). It is only by articulating sound national policies and priorities that a country can effectively define and own its regional and multilateral priorities. PATSIL will also support regional integration by enhancing the capacity to implement trade-related policies.

This project will also support regional integration, which is one of the core operational priorities of the Bank’s Ten Year Strategy (20132022).

The programme also complements the Bank’s investments in hard infrastructure. As aptly put by the Bank’s Resident Representative in Liberia, Margaret Kilo: “It is the kind of soft component that really complements the infrastructure for Liberia. We will appreciate this project for a very long time to come.”

The Bank as a financier and catalyst PATSIL will be implemented over a threeyear period, and ONRI has secured US$1 million under AfTra to support the project for the first 18 months. This funding is meant to be catalytic in line with AfTra’s ideal as a seed fund. The aim is to demonstrate quick wins to unlock additional funding for the remaining period. The Bank’s current portfolio in Liberia amounts to US $267 million.

Donald Kaberuka, President, African Development Bank.

Photo CC by OECD Development Centre

time from 48 hours to 20 minutes with resultant costs savings for businesses.

At the port, data collection systems are currently manual which leads to errors and inefficient operations. PATSIL will revolutionise operations of the NPA through the development of electronic archives, electronic data-collection tools and interfacing with operators, leading to efficiency gains for the authority and traders.

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Photo by ollyy

Africa has registered rapid improvement in ICT use, particularly in terms of mobile telephone subscriptions.

Africa’s Performance in an International Context From the World Economic Forum’s “Africa Competitiveness Report 2013”.

On average, African economies trail the rest of the world in competitiveness: 14 out of the 20 least competitive economies are from Africa. Outside Africa, only eight Latin American countries (Bolivia, Dominican Republic, El Salvador, Guyana, Haiti, Nicaragua, Paraguay, Suriname), four Asian economies (Bangladesh, Nepal, Pakistan, Timor-Leste), and one country each from the Middle East and Central Asian regions (Yemen, Kyrgyz Republic) perform similarly.

However, within Africa, Botswana, Gabon, Morocco, Namibia, Seychelles, Mauritius, Rwanda, and South Africa are somewhat more competitive.

Africa’s competitiveness as a whole trails Southeast Asia and Latin America and the Caribbean; the biggest gaps are seen in the quality of institutions, infrastructure, macroeconomic stability, education, and ICTs. Comparing Africa’s performance with other, more advanced regions helps to identify the region’s overall strengths and weaknesses. Southeast Asia provides an insightful benchmark for a large number of African economies: although both regions registered approximately the same levels of GDP per capita in the 1960s, developing Asia has since risen considerably more rapidly than sub-Saharan Africa. African economies

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consistently underperform the Southeast Asian average across all competitiveness pillars. Although Africa’s financial, goods, and labour markets are well developed (on a par, or nearly on a par, with Latin America) these economies feature wide deficits in the areas of basic requirements.

The region needs to remain vigilant with regard to its macroeconomic stability.

A particular point of concern is the continent’s weak institutions: although Africa on average does as well as Latin America in this pillar, both regions have institutions that receive scores below the middle value of 4 (on a scale of 1–7).

This suggests that more must be done to increase the capacity of the public sector to set the framework for the economy to run efficiently, which could generate critical spill-overs into other dimensions of competitiveness.

The region also needs to remain vigilant with regard to its macroeconomic stability as defined by the Global Competitiveness Index (GCI), although this is improving.

The region’s savings rate (on average, 17 percent of GDP) and government budget balance (on average, –4 percent of GDP) is worse than that of other regions. However, following debt cancellation for a number of countries, overall its government debt is now in line with that of other regions.

In fact, improvements in macroeconomic performance, coupled with its limited integration into the global economy, have helped to mitigate the effects of the global economic crisis. More generally, it should be noted that sub-Saharan Africa has made considerable progress in ensuring sounder macroeconomic policies over the past 15 years and has reached levels of macroeconomic performance similar to that of other developing countries.

However, the region is trailing significantly in technological readiness, which measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries, with a specific emphasis on its capacity to fully leverage ICTs. This is important in view of the changing role of ICTs. Indeed, they have become critical tools in today’s economy, accounting for a significant share of value-added and employment in advanced economies and supporting efficiency gain and enabling transformative innovation.

Although Africa has registered rapid improvement in ICT use, particularly in

terms of mobile telephone subscriptions, it started from a low base. Going forward, African economies need not only to make the types of investment necessary to build out the ICT infrastructure, but also to create an enabling environment to fully leverage ICT uptake to boost economic and social impacts.

The M-PESA mobile payment system in Kenya and improved e-government services are examples of important steps in the right direction.

Finally, the region is neglecting its talent pool, underperforming significantly in educating and providing a healthy environment for its citizens. This is a pressing concern in view of the region’s youth unemployment challenge and the large number of people who will enter the labour market in the coming years. In the short term, absorbing the enormous number of new labour-market entrants will require the development of job-intensive sectors.

In the longer term, moving up the value chain into more-advanced manufacturing and services sectors will require significant and immediate investment in education in order to provide a workforce that can move beyond simple production processes. In this context, education will play an even more prominent role in ensuring knowledge spillovers from the natural resource sector to the domestic economy. This will happen only through skills and training, particularly in the context of facilitating the adoption of new technology and strengthening a science agenda and innovation, which is becoming ever more important to ensure that the continent can compete with other emerging regions.

Africa has not remained stagnant, however, but has been improving its competitiveness, although change has been gradual and modest. Reducing the competitiveness divide between African economies and other, more advanced regions will be critical for placing the region on a firmly sustainable growth and development path.

Reducing the competitiveness divide between African economies and other, more advanced regions will be critical for placing the region on a firmly sustainable growth and development path.

Overall, the trend confirms Africa’s steady and continuous but gradual improvement in those areas that make up the efficiency pillars of the GCI. Until 2009–10, gains in African competitiveness from 2005 levels stemmed from improvements in institutional quality, infrastructure development—which showed a promising upward trend between 2006 and 2010 from very low levels - and improved macroeconomic conditions. However, improving the quality of institutions and strengthening infrastructure have, since 2010, come to a near standstill or even deteriorated across a number of African

economies. Likewise, initial improvements in macroeconomic stability in the pre-crisis years entered a period of decline in 2008–10 on the back of concerns about deteriorating public finances, increased food prices, and double-digit inflation in many countries. A notable improvement was also registered in the region’s health and primary education assessments, reflecting improved health outcomes and gradually higher primary enrolment rates. This improvement was especially strong in 2009–10, but it levelled off in 2010–11 and this year has seen a slight decline.

On a less positive note, despite gradual improvements in the run-up to the global financial crisis, the quality and quantity of infrastructure has largely stagnated at low levels since. This stagnation is partially the consequence of a decline in investment following the crisis. This infrastructure deficit is particularly striking given gradual improvements across the various efficiency enhancers (e.g., market efficiency, technological readiness) in recent years.

It is even more urgent in view of Africa’s rapid population growth and increased urbanisation: with 41 percent of the African population living in cities, and a foreseen 1 percent increase every two years, the need to ramp up infrastructure to cope with these demographic pressures is critical. Removing the infrastructure bottleneck would, among other measures, help to boost intra-regional trade and diversify external trade, thereby making Africa more resilient to external shocks.

Photo by Birute Vijeikiene

A notable improvement was also registered in the region’s primary education assessments.

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Flying High

African Airlines Association SecretaryGeneral, Dr Elijah Chingosho looks at current trends across the African Airlines sector.

How is rapid socio-economic change across Africa impacting the sector? i.e. what part are such prevailing forces as the growth of the middle class, increasing levels of urbanisation, education and political stability playing?

Africa’s economies are consistently growing faster than those of almost any other region of the world. At least a dozen have expanded by more than 6% a year for six or more years. A well-educated middle class with the propensity to travel is emerging. According to Standard Bank, 60 million African households have annual incomes greater than US$3,000. By 2015, that number is expected to reach 100 million, almost the same as in India now.

A significant non-commodity driver of Africa’s economic growth is political stability.

A generation ago, conflicts and coup d’états were common but these are now rare. The majority of African States now hold regular democratic elections whereas only about two decades ago, the number was insignificant.

Such a relatively stable political environment is conducive to the growth and development of African aviation.

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Trade barriers have been reduced and regional trade is increasing. Intra-African trade has gone from 6% to 13% of the total volume in the last decade and this is accompanied by growth in intra-Africa air transport.

Trade barriers have been reduced and regional trade is increasing.

Flight connections are improving. Blocks of African economies have taken steps towards integration. The East African Community (EAC), the Southern African Development Community (SADC) and the Economic Community of West African States (ECOWAS) have made the movement of goods and people across borders in their respective regions much easier. However, barriers still remain such as lack of full liberalisation of African skies and visa requirements which are constraining the development of African aviation.

Is it possible to formulate a fast, sustainable, profitable growth strategy in an industry that is so capital intensive and subject to heavy demands in the form of oil costs and taxes?

Airlines are service businesses that are both capital and labour intensive. Being capital-

intensive, the industry requires large sums of money to operate effectively. They need a wide range of expensive equipment and facilities, including aircraft, flight simulators and maintenance hangars.

Being a service business, where personal attention is important to customers, airlines are also labour intensive. Airlines employ a wide range of personnel including pilots, cabin attendants, technicians, ground handlers, reservation agents, managers, etc. Labour accounts for about 20-30% of an airline’s total costs. Labour costs per employee are among the highest of any industry and unless these are contained, the profitability of an airline is adversely affected.

Various challenges make it hard to make significant profits in the industry. Oil prices remain high. Because of the persistent perception by most African governments that air transport is for the wealthy of society, taxes on passengers and fuel are much higher than the world average which constraints the development of the sector.

The prolonged recession from 2008 to about 2012, adversely affected demand for airline services resulting in the poor results experienced by most airlines during this period.

The limited exploitation of cost savings arising from the latest technologies, such as information communication technology

Photo by Vladimir Melnikov

tools or the fuel efficient aircraft types, in most African airlines, have resulted in poor economic performance of the carriers. The bottom line result of all of this is thin profit margins at best. Airlines, through the years, have earned a net profit margin of between 1-2%, compared to other industries where profit margins are much higher.

How important is it for the forging of regional partnerships and reform of the regulatory framework to go hand-in-hand with the widespread infrastructure investment going on right now across the Airline industry in Africa?

Most African airlines are very small with fleet sizes of about 3-12 aircraft, which is too small to benefit from economies of scale. Consolidation is therefore critical.

This can be achieved through partnerships like that of Kenya Airways and Precision Air or Ethiopian Airlines and ASKY Airlines. To facilitate more such mutually beneficial arrangements, it is critical that the regulatory climate in Africa be fully liberalised. The Yamoussoukro Decision needs to be fully implemented to allow airlines to fly wherever the market exists and facilitate the movement of capital investment among carriers.

A number of significant capital investments have been undertaken: mainly construction of world class airports. Recent examples

include airports in Brazzaville, Gaborone, Cairo, Casablanca, Johannesburg, Cape Town and Durban, among others. To obtain adequate return on investment on these expensive projects, it is necessary to encourage traffic movements through these airports. Full liberalisation of the continent’s skies will facilitate this.

Reduction of the high taxes and charges on fuel and passengers will also help. Removal of monopoly service providers in areas such as ground handling, catering and fuel supply will bring in much needed competition which would enhance efficiency and thus reduce prices, which would facilitate the growth of air transport services in Africa.

environmental protection and sustainable development of air transport in Africa.

This overarching framework document which has the backing of the AU Heads of States and governments enlists and consolidates the political commitment of African States to work together through an agreed roadmap with the purpose of positioning Africa’s air transport in the global economy. What is now required is to ensure that this policy is fully implemented to facilitate the rapid growth of African aviation.

Dr Elijah Chingosho, Secretary-General, AFRAA.

A number of significant capital investments have been undertaken.

One recent significant regulatory milestone has been the promulgation of the African Civil Aviation Policy (AFCAP). The AFCAP is a common policy which provides a framework and the platform for the formulation, collaboration and integration of national and multinational initiatives/ programmes in various aspects of civil aviation including safety, security, efficiency,

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Photo by Denis Cristo

Women in Mining Anglo American Case Study Cultural and legal barriers have traditionally acted as a barrier to women’s participation in the mining industry in Africa - particularly at operational level – but these are gradually being overcome with the help of legislation such as the Employment Equity Act and Mining Charter in South Africa.

Anglo American, thanks to it having had Cynthia Carroll at the helm, was synonymous with women’s empowerment in the industry, but is having to work harder now that a man – Mark Cutifani – is Chief Executive. Yet, the company appears to be committed to building upon the good work the former CEO spearheaded in this area. The recent appointment to the Anglo American board of Dr Mphu Ramatlapeng, a leading advocate for women in business in Africa over many years, testifies to this, while Khanyisile Kweyama’s status as Executive Director in South Africa and first female VP of the South African Chamber of Mines adds weight to the company’s gender empowerment credentials.

In South Africa, where the majority of the Group’s employees are based, the company won ‘Top National Engendered Company’ in 2011 and its efforts to

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enhance infrastructure for women are not insignificant. In everything from childcare and ablution facilities, personal protection equipment, clothes and machinery being suited to women’s requirements, as well as the promotion of flexible working hours

Anglo America’s intimate involvement with the Women in Mining South Africa (WIMSA) initiative shows the importance of an integrated approach with government and non-government players to realise meaningful change. and initiatives such as mentoring and the Code of Good Practice for pregnancy in the workplace, Anglo American aims to breed a culture of respect towards women in this traditionally male-dominated sector.

Moreover, its efforts to ensure women have representation across the organisation, be

it at board level, in geological roles or as truck drivers, evidence its determination to ensure there are role models for women thinking about entering the industry.

Anglo America’s intimate involvement with the Women in Mining South Africa (WIMSA) initiative shows the importance of an integrated approach with government and non-government players to realise meaningful change re female abuse, harassment and gender inequality. Furthermore, Anglo American is a member of WINvest, which promotes women’s empowerment in the workplace.

Meanwhile, the company supports ongoing research in respect of women’s physical work capacity compared to their male counterparts, which encompasses issues such as reproductive toxicity, heat tolerance and physical ability etc.

In addition, the Group can further point to its credentials by way of the ‘Techno-girl’ programme in South Africa which provides girls aged 15 to 18 with the technical and practical experience for a career in engineering, as well as ongoing research which has, for example, shown women truck drivers using less fuel and causing less wear and tyre on tyres than men.

Offshore Guide Photo by Nomad_Soul

l a i c e Sp

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Resilient and Legitimate Offshore international finance centres have confounded widespread predictions of their demise on the back of a global regulatory clampdown imposed from without. This resilience is in large part down to a growing market for the products and services they offer from Asia and other emerging markets which has more than made up for any loss of business from Europe and North America.

Yet there should be nothing surprising in this development. The best IFCs have numerous legitimate uses and afford easy access to regulators and key financial markets, as well as being marked by low cost and ease of administration. These jurisdictions play an essential global role that includes expertise, anonymity, and flexibility, as well as clear potential financial incentives, whilst in acting as essential conduits for the flow of international capital their ‘force for good’ global economic credentials are much in evidence.

Offshore international finance centres have confounded widespread predictions of their demise.

Successive studies have shown that despite onshore regimes’ assertions to the contrary, most offshore financial centres are far from lax on the regulatory front. In fact, contrary to popular belief, offshore jurisdictions have been found to be more diligent in complying with ‘Know Your Customer’ guidelines than their onshore counterparts.

The jurisdictions profiled within the following pages continue to go from strength to strength, by way of strategically positioning themselves and their fundamental assets beyond tax competitiveness and the allure of light regulation, thereby staying relevant and vital. They should be commended for the efforts they have expended and for the spirit in which they have entered into a process over which they have had very little say and which many would argue has not been uniformly applied.

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Photo CC by superde1luxe

BVI Looks East

The BVI IFC has recently launched an office in Hong Kong to better serve the Asia Pacific and Chinese market. The office is to be headed up by current BVI IFC Executive Director, Elise Donovan who brings to the role a wealth of experience in international affairs, international political economies, diplomacy and public relations. This significant development is set to bring many benefits to investors from a region which constitutes 40% of the BVI’s business. Moreover, a physical presence in the region will allow information to be obtained in real time and for the strengthening of relationships with financial services industry partners operating there.

In addition, British PM, David Cameron’s recent declaration that jurisdictions such as BVI should no longer be considered as tax havens, since they operate fair and transparent tax systems, have been welcomed by the BVI Premier, Dr. the Hon. D. Orlando Smith. Premier Smith explained that “There’s a lot of demand for trust structures across Asia, where the number of high net worth individuals is growing faster than other regions in the world, including Europe and North America.” He went on to explain that there is growing interest in

passing on wealth to the next generation on the part of the Chinese and South East Asian markets.

David Cameron’s recent declaration that jurisdictions such as BVI should no longer be considered as tax havens since they operate fair and transparent tax systems have been welcomed by the BVI Premier.

Consistently ranked as the global leader for everything from asset protection and estate planning to individual tax planning, special purpose vehicles and investment holding for corporations, the BVI is the world’s most popular offshore corporate domicile, with some 450,000 active companies registered.

By way of recommending it further we can look specifically at the BVI’s pre-eminent status in respect of Corporations for international joint ventures, its strengths in the arena of collective investment funds

to maximise returns on pensions, its credentials with regard to compliance, as well as its status as a key intermediary for investment capital to developing countries such as China. In addition, we should note its role in facilitating trade, economic growth and onshore jobs, in addition to its provision of alternative sources of liquidity.

When it comes to adhering to both the spirit and the letter of the international law, the BVI has gone significantly over and above the call of duty on the compliance front to ensure the maintenance of its international credibility and reputation for professionalism.

In addition, factors such as BVI’s political and economic stability, its British Overseas Territory status, its legal system based on English law, the absence of exchange controls, the well respected regulatory framework and court system, extensive skilled labour pool of qualified professionals, forward thinking and business-enabling legislation and strong pedigree of the public and private sectors working closely and efficiently together towards a common goal all serve to make it a highly attractive proposition for the new wave of HNWIs coming out of locations such as China. In light of this, it seems likely then that the new Hong Kong office will more than pay for itself.

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Photo by Huebi

Cayman Islands Signs Tax Information Exchange Agreement

Supplied by the United Kingdom HM Treasury and HM Revenue and Customs (HMRC).

Signing welcomed by Chancellor as UK looks to complete signings with other Overseas Territories.

The UK signed an automatic tax information sharing agreement with the Cayman Islands on 5 November 2013.

The Cayman Islands have also agreed to be part of the G5 multi-lateral information sharing pilot.

Following the commitment of all the Overseas Territories earlier this year to sign such agreements, the Cayman Islands was the first Overseas Territory to formalise their agreement with the UK. An important step towards the new global standard to be agreed early next year, financial information on UK taxpayers with accounts in the Cayman Islands will now be automatically provided to HM Revenue & Customs.

This will help HMRC to ensure that the correct amount of tax is being paid by those

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with money in Cayman Islands accounts and increase HMRC’s ability to clamp down on tax evasion.

The announcement follows the agreements signed between the UK and the Crown Dependencies of the Isle of Man, Jersey and Guernsey in October.

The Cayman Islands have also agreed to be part of the G5 multi-lateral information sharing pilot. Initially agreed between the UK, France, Germany, Italy and Spain, the Cayman Islands will join these countries in automatically exchanging information about bank accounts held by taxpayers from their jurisdictions.

In total, 31 jurisdictions have now joined the initiative.

Chancellor of the Exchequer, George Osborne, said: “The UK has led the way in creating a new global standard for tax transparency and automatic tax information sharing. This was at the heart of our G8 agenda this year and today’s agreement builds on the progress we have already made.”

“We welcome this signing with the Cayman Islands, the first Overseas Territory to sign this type of agreement with the UK. This demonstrates our shared commitment to tackling tax evasion.”

“Alongside the significant investment that the government has made in HMRC’s anti-avoidance and evasion work, these agreements will help them to clamp down further on those individuals who seek to hide their assets offshore.”

The UK put tax and transparency at the heart of the G8 agenda during its chairmanship in 2013.

“Our message is very clear: it is only fair that people pay the tax they owe. If you are trying to evade tax, we are coming after you.”

The UK put tax and transparency at the heart of the G8 agenda during its chairmanship in 2013. At the summit in July, leaders from the world’s largest eight economies agreed on coordinated action to combat tax evasion and avoidance. This work is being taken forward by the OECD. © Crown Copyright

Photo by Jason Patrick Ross

Not Fair to Call Overseas Territories Tax Havens, says British PM

Britain’s Prime Minister David Cameron has officially recognised that the Overseas Territories and Crown Dependencies operate “fair and open tax systems”.

Speaking in the House of Commons, he said, “I do not think it is fair any longer to refer to any of the Overseas Territories or Crown Dependencies as tax havens. They have taken action to make sure that they have fair and open tax systems.”

Cameron’s comments were welcomed by the Overseas Territories in the Caribbean.

Cayman Finance, the private sector group that represents the Cayman Islands’ financial services industry, said the remarks by the prime minister finally recognised the transparency of the Cayman Islands financial services industry built over the past four decades.

A good, recent example of how the Cayman Islands compares to other jurisdictions is illustrated in the OECD secretary-general’s report to the G20 leaders, issued in early September, Cayman Finance said.

The report shows ratings for 98 jurisdictions, based on nine criteria, giving a green, amber, or red rating for each, where ‘green’ denotes the highest rating. Cayman is rated green across all nine categories.

Brazil and the US have two ambers, Russia has seven, and Canada, Germany, Spain, and the UK each have one.

“Clearly we appreciate the comments by the prime minister. Given the facts, like the OECD/FATF reviews, we believe it is about time Cayman starts to receive some credit. We applaud Prime Minster Cameron for making this statement, which reflects the reality of the situation regarding international financial centres. We hope other heads of state emulate his actions, and the international media starts to focus on facts rather than fiction,” said Gonzalo Jalles, CEO of Cayman Finance.

Cameron’s comments were welcomed by the Overseas Territories in the Caribbean.

Premier and Minister of Finance of the British Virgin Islands, Dr Orlando Smith, said, “I thank Prime Minister David Cameron for setting the record straight and acknowledging that the BVI should no longer be labelled as a ‘tax haven’.

“For many years the BVI has implemented the highest international standards on transparency, accountability and information exchange on tax matters, as set out by international bodies such as the OECD. “We strongly agree with Mr Cameron’s assessment that the focus should now shift to those countries that really are tax havens.

We have long argued that to create a level playing field, all financial centres should be covered by global agreements on regulatory standards. The BVI considers it particularly important that in order to achieve fairness and overall success on these issues policies should be raised to the highest level of established international standards to ensure across-the-board compliance.

“I reiterate my government’s support for the UK’s agenda on tax, trade and transparency and fully support all efforts aimed at establishing global standards. The BVI will continue to be a constructive partner in evolving and setting the highest standards of regulation. We are proud of our part in the global economy and we believe that good regulation is good for business. We are pleased this has now been recognised by the UK government.” © Caribbean News Now

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Photo by Lukas Hlavac

Samoa

Samoa’s relationship with China remains strong.

Recent attacks on Samoa’s credibility and integrity in respect of transparency are misplaced, to say the least. Rather than lambasting Samoa, commentators should be paying testament to the jurisdiction’s pioneering status in respect of its commitment to transparency standards, proactive involvement in the Peer Review Process and strong anti-money laundering legislation. Samoa’s offshore industry has embraced the prevailing winds of the day, yet now more than ever it finds itself under intense scrutiny. However, investors can rest assured that with the guiding hand of the country’s regulator, the ‘Samoa International Finance Authority’ (SIFA), at the helm, there is little danger of the good ship Samoa going off course.

It has been suggested that China’s recent signing up to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters could spell the beginning of the end for Samoa’s offshore finance industry, since it affords China access to tax details of countries who hold information sharing agreements with Samoa. Yet Samoa, which is one of the few to offer registration in Chinese, is in fact currently in discussions with China regarding a Tax Information Exchange Agreement (TIEA) which will stand to reinforce the strong relationship between the two jurisdictions and which will add to the 15 existing TIEAs in force with the likes of Australia, New Zealand and Japan.

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Samoa underwent its Phase 1 Review under the OECD’s Peer Review Mechanism and the positive outcome of this testifies to the country’s legal regulatory framework being fit for purpose and allows it to now move to a Phase 2 review, scheduled for 2014.

Moreover, it is an integral member of a number of international bodies including the Asia Pacific Group on Money Laundering and the OECD Peer Review Group. Such bodies expressly support and promote global best practice with regard to banking supervision, effective exchange of information for tax purposes and anti-money laundering and anti-terrorism financing initiatives – hardly the sort of organisations to harbour a rogue jurisdiction within their midst and surely the most ridiculous hiding places for any domicile set on maximising its secrecy credentials?

With the guiding hand of...SIFA at the helm, there is little danger of the good ship Samoa going off course.

As with any well-operated credible jurisdiction, Samoa offers so much more than scope for tax mitigation. It lends itself particularly well to cross-border structuring, wealth planning and asset protection

solutions, with its unique Special Purpose International Companies introducing the benefits of the civil law concept of the Foundation into common law arenas.

In addition, Samoa can point to thriving banking and trust management sectors, as well as a full range of corporate vehicles: companies; insurance products; segregated funds; and a public, private or professional mutual fund offering – all of which activity goes on under the watchful eye of the Samoa International Finance Authority.

Samoa, by way of SIFA, is also set on diversification to ensure it can safely ride out any storm. Forthcoming legislation is set to allow it to move into attracting wealthy trusts and foundations to register in Samoa, as well as companies. As part of this the country recently hosted a delegation from Hong Kong, keen to impress upon them the financial security and political stability Samoa offers; essential ingredients for long term investors.

Moreover, Samoa is set to offer 24/7, as well as full online registration services to further enhance its attractiveness as a domicile and in support of Samoa’s long-term goal of making the jurisdiction the Switzerland of the Pacific.

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Photo CC by Sarahrose

The Liechtenstein Bankers Association and its members welcome and support the statement published by the Liechtenstein government concerning the cooperation in tax matters and automatic information exchange.

In an official statement, 14 November 2013, the Liechtenstein government again confirmed its commitment to the OECD standards for the cooperation in tax matters and announced that it will sign the Convention on Mutual Administrative Assistance in Tax Matters of the OECD and the European Council on 21 November 2013.

At the same time, the government expressed the offer to actively participate in the development of an international information exchange standard on the level of the OECD and the Global Forum. The government has indicated its willingness to conclude bilateral agreements for the automatic exchange of tax information on the basis of the future OECD standard and under consideration of the respective legitimate interests.

Bankers Association was closely involved “The Liechtenstein Bankers Association was closely involved in the elaboration of the government statement and fully supports it,” explains Simon Tribelhorn, Director of the Liechtenstein Bankers Association. The government statement is the product and result of the jointly developed integrated financial centre strategy. It represents a consistent continuation of the tax conformity strategy that has been adopted by the centre and practiced by the banks for a long time. At the end of August this year,

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the Liechtenstein banks thus undertook to comply with uniform minimum standards with respect to the diligence requirements for the tax conformity of their clients, thereby ensuring that only tax-compliant assets will be managed in the future.

The Liechtenstein Bankers Association has been examining the automatic information exchange and its consequences for some time.

Automatic information exchange to become the standard of the future The Liechtenstein Bankers Association has been examining the automatic information exchange and its consequences for some time. In May of this year, it already spoke out for an open and constructive dialogue.

“We live in an age that is increasingly marked by transparency, and we are convinced that there is no way around tax conformity.

Automatic information exchange will soon become an international standard that no modern financial centre can evade. The country of Liechtenstein and the local banks have decided to actively cooperate in the design of this process and new OECD standards,” underlines Adolf E. Real, Chairman of the Liechtenstein Bankers Association.

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Liechtenstein Bankers Association Welcomes Government Statement Highly Significant: practicability and level playing field

In this process, the Bankers Association will promote an approach that is practicable and effectively feasible, that is based on clear ground rules, that takes the justified interests of all stakeholders into consideration and that excludes discrimination. Effective cooperation in tax matters also involves more than the mere exchange of information. Moreover, the Bankers Association continues to promote a comprehensive approach that comprises models to ensure tax conformity both for the past and for the future and to avoid double taxation.

Legal certainty and perspective for the future The position announced credibly underlines Liechtenstein’s claim of pursuing a futureoriented strategy that meets both the demands of the partner countries and the needs of our clients. Furthermore, the Bankers Association is convinced that this will further strengthen Liechtenstein’s international position as an equal, reliable and trustworthy partner and competitive economic location. At the same time, Liechtenstein gives the clients of the financial centre legal certainty and a perspective in an environment marked by change and puts the relationships on a stable footing in the long term. “The Liechtenstein banking centre has long started to focus on a future beyond the tax debate and is characterised by high-quality services for a demanding international clientele,” concludes Real.

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Transparency and Global Tax: Clearing the Way

By Gerri Chanel, Organisation for Economic Cooperation and Development (OECD) For a more effective global tax framework, more transparency between jurisdictions will be vital. An automatic exchange platform, which will strengthen other steps aimed at closing off international avenues to tax evaders, is now in the pipeline.

For most of the past 100 years tax transparency has been a muddy notion, with just a few information exchange agreements in a few bilateral treaties allowing governments to keep tabs on finances which, for the most part, eluded them. The amount of information exchanged under these agreements was low and the agreements themselves often included significant restrictions on the information that was required to be exchanged. In a number of cases they did not require exchange of bank information, as bank secrecy was seen as “set in stone” in the public consciousness of some countries. Other mechanisms, such as bearer shares, which allowed the real owners of companies to be hidden, were not adequately addressed in these arrangements.

The era of globalisation, multinational corporations and international finance quickly exposed the limitations of this bunkered regime, whereby global banks could duck behind national borders and claim secrecy, ostensibly to benefit clients, though with potentially deleterious effects on tax revenue. Tax authorities simply could not get enough information to ensure that all taxpayers paid the proper amount of tax in jurisdictions across the globe. More transparency was needed. Without it, ordinary taxpayers and entire tax bases, not to mention sovereignty, would lose out.

taken at the summit that year was to set up the Global Forum on Transparency and Exchange of Information for Tax Purposes to strengthen the capacity for co-operation in international tax matters. As Monica Bhatia, who heads the forum, put it, effective tax co-operation ensured that countries were no longer allowed to use secrecy from tax authorities as a lure.

Tax authorities continue to explore more ways to co-operate.

The forum developed a standard of transparency and exchange of information for tax purposes which was quickly accepted by the G20, OECD countries, offshore financial centres, developing countries and beyond. In 2010, the European Bank for Reconstruction and Development incorporated the standard into its investment policies, and the World Bank did the same in 2011. The standard requires three elements: reliable information must be available, the tax authority must have

The current financial and economic crisis was the wake-up call, and 2009 became a watershed for fighting tax havens and clamping down on tax avoidance when the G20 announced that the “era of bank secrecy is over”. One of the key decisions

The OECD, already the home of the halfcentury- old Model Tax Convention and leader in the international clampdown against illicit tax havens since the 1990s, was the obvious location for the forum.

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Photo CC by Alan Uster

access to the information, and there must be a legal basis for its exchange, on request, with relevant treaty partners, which includes provisions for safeguards, strict confidentiality rules for the information exchanged, and timelines.

By April 2013, the number of jurisdictions that had committed to implement the standard and joined the Global Forum on Transparency and Exchange of Information for Tax Purposes had grown to 119, and around 1,100 new bilateral arrangements had been signed, based on the international standard. In addition, the forum had completed 113 peer reviews - that is, countries reviewing each other’s practices in published form - and issued over 600 recommendations for improvement, more than 300 of which had been, or were in the process of being, acted upon.

The results show that even stones change, and now it is no longer possible for countries to claim that they cannot exchange bank information for tax purposes because of their strict bank secrecy rules. In addition, many other changes in domestic legislation have been introduced to comply with the standard, such as measures to ensure that the owners of bearer shares can be identified.

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Compliance with the international standard is now a constant theme for international financial centres, and the peer reviews and monitoring continue. The peer reviews also show that the volume of information being exchanged for tax purposes is now growing rapidly, and the time taken to provide information is falling just as quickly, helping countries to enforce their laws much more effectively.

As tax evasion is a global issue, a model for automatic exchange of information needs to be developed and used worldwide to avoid merely relocating the problem elsewhere.

The next step for the forum will be to rate how well jurisdictions are complying with the standard, and to identify jurisdictions that are not in step with the international consensus. At the end of 2013, jurisdictions will start to receive ratings for the ten

individual elements of the international standard, and an overall rating: “compliant”, “largely compliant”, “partially compliant” or “non-compliant”.

Tax authorities, meanwhile, continue to explore more ways to cooperate. In 2011, after the G20 indicated its support for automatic exchange of information for tax purposes, it tapped the OECD to provide analysis of the issues involved. In response, the OECD presented a report on automatic exchange to the G20 leaders at their June 2012 summit in Los Cabos, Mexico, describing what automatic exchange is, how it works, where it stands and what challenges remain.

In April 2013, the G20 finance ministers endorsed automatic exchange of information for tax purposes as the new expected standard, and the G8 followed suit in June by committing to work with the OECD to “develop rapidly a multilateral model that will make it easier for governments to find and punish tax evaders”. The G8 has also recommended that multinationals should provide tax authorities with data on income and taxes by country, and that tax authorities should have access to information on the ownership of companies.

An OECD report, “A Step Change in Tax Transparency”, which was presented at the June 2013 G8 Summit in Lough Erne, Northern Ireland, provides four concrete steps needed to put in place a global, secure and cost-effective model of automatic exchange of information: enacting broad framework legislation, selecting a legal basis for the exchange, determining the information to be exchanged and related procedures, and developing common or compatible IT standards.

reporting and automatic exchange of certain account information held by financial institutions, including due diligence rules, reporting formats and secure transmission methods.

Two main considerations stand out. First, as tax evasion is a global issue, a model for automatic exchange of information needs to be developed and used worldwide to avoid merely relocating the problem elsewhere.

Second, the process needs to be standardised to minimise costs for businesses and governments and to improve effectiveness.

Actions to counter profit shifting go hand-in-hand with measures to improve transfer pricing methods.

Tax transparency is also relevant for the OECD’s widely publicised Base Erosion and Profit Shifting (BEPS) Plan, which was issued in July 2013. The 15-point action plan aims to reduce the ability of multinationals

This may be another significant step in the ongoing process of sharing information, and hopefully it is one which even the end of the crisis will not quell. “Over the past few years we have been seeing a dramatic rise in tax transparency,” says Monica Bhatia. “This is irreversible and the future will bring in even more effective information sharing. The message to tax evaders is clear: the avenues for hiding money are shrinking very rapidly.” © OECD Observer No 295 Q2 2013. www. oecdobserver.org

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The model is still under development but is advancing quickly, steered by the OECD’s Working Party 10. The aim is to complete the development of a common model for

In July 2013 the G20 finance ministers and central bank governors called upon the forum to establish a mechanism to monitor and review the implementation of the global standard on automatic exchange of information.

to artificially move profits away from jurisdictions where business activity actually takes place and declare them in low-tax jurisdictions as a way of reducing taxes, or paying none at all. Actions to counter profit shifting go hand-in-hand with measures to improve transfer pricing methods and make for clearer disclosure of aggressive tax positions. None of these can work without enhancing transparency and information exchange for tax purposes.

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Success through Innovation: Achieving Sustainability and Client-Centricity in Swiss Private Banking A study by KPMG AG Switzerland, in cooperation with the Institute of Management, the University of St. Gallen.

We expect that the Swiss private banking industry will experience transformation along two broad lines by 2022: * Industry consolidation will accelerate due to ongoing profitability issues and increasing benefits of scale that arise from expanding investments in international expansion and technology. * Technology-enabled collaboration opportunities at the industry-level will create novel positioning options.

Smaller banks have historically enjoyed the benefits of superior client-focus, while larger banks benefited from scale effects. Changes in regulation, the increasing pressure to go international and new ways of interacting with clients cause the largest to become even larger and, in order to survive, pure players to further sharpen their focus. In this process, larger banks risk losing their ability to maintain a sharp focus in some client segments. In order to better target individual client groups, large incumbents may acquire a boutique bank or Independent Asset Manager (IAM) with a superior focus and achieve scale effects in back-office processes. Meanwhile, smaller banks must compensate for a lack of scale by developing a clear positioning strategy. Partnerships with larger retail banks, technology platform providers, and different international constituencies may alleviate this pressure.

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Banks need to rethink their strategies to achieve both scale and focus. The study’s respondents on average expect the minimum efficient size of a bank to double over the coming years. At the same time, client needs are becoming more complex, requiring banks to better tailor their offerings for distinct client segments that best match the bank’s existing capability profile. Going forward, two core private bank types may be best positioned to seize strategic opportunities:

Markets As foreign regulatory and political pressures continue to complicate how private banks conduct their international and offshore businesses, the support of the Swiss Government is key if Switzerland is to remain a major player in the offshore market. Further, many believe that Automated Exchange of Information (AEI) will be introduced within three years.

Priority agenda for action

1. Small, focused pure players that can capitalise on their superior brands and client-centric advisory skills while keeping their costs capped through networking, partnering and enhanced use of technology.

Going forward, two core private bank types may be best positioned to seize strategic opportunities.

2. Large, global and diversified players can actively use alliances and acquisitions to develop a global brand portfolio.

Success in the imminent transformation period is not a given. The dual mission of handling cost pressures while renewing core business activities requires a strategic vision and determined decision-making based on an industry scenario characterised by value chain disintegration and consolidation.

• Ensure the bank’s geographic strategy is viable, given regulatory and cost constraints.

• Apply “Enterprise Risk Management” principles to the risks of entering a new market and measures to ensure a sustainable and profitable business.

• Plan to implement an AEI programme in major countries.

Clients Client segment focuses are set to change by 2022, with competition intensifying for clients with assets of between CHF1 million and CHF5 million and clients becoming more demanding. Greater effort is required to track client behaviours in order to achieve true client-centricity, which is critical to a sustainable private banking relationship.

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Photo CC by Lightsurgery

Priority agenda for action • Develop clear steps to reinforce the bank’s client-centricity strategy, strengthening the differentiators in client service, with particular regard to new client segments.

• Collect more comprehensive and detailed data on clients for the purpose of a dynamic segmentation. Identify clients’ touch points.

• Make use of behavioural analytics for bundling service/product offers.

Products and services As target client segments change, improvements to data collection and analysis are needed to further tailor products and services and become advisory leaders. Banks must prepare for the fusion of products and services with technology-enhanced solutions and new communication channels.

Priority agenda for action • Adjust product and service focus in line with the bank’s strategy to become an advisory, technology, production or hybrid leader.

The support of the Swiss Government is key if Switzerland is to remain a major player in the offshore market.

• Advisory leaders should better capture clients’ needs in order to choose from open architecture the most suitable products and develop tailored services.

Universal banks should further leverage retail or investment banking products to provide a holistic offering.

• Keep abreast of attitudes to online solutions and communications.

Most banks view growth via IAMs as a strategic agenda point for the next decade.

IAMs can give banks access to scale, while private banks can deliver benefits to IAMs through infrastructure, operations and service range. Rigorous due diligence is required by both sides to ensure best fit and mitigation of risks.

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Photo CC by SuSu Tsai

Collaboration between Independent Asset Managers (IAMs) and Private Banks

Priority agenda for action for private banks...

closely reflect clients’ needs and profiles and be better aligned with specific product and service mixes.

• Benchmark attractiveness as custodian bank and/or provider of additional services against that of other banks, ensuring articulation of benefits changes in line with the IAM market.

Priority agenda for action

• Apply extensive due diligence to mitigate onboarding risks and identify upside potential. Ensure governance processes for existing relationships are robust.

• Introduce compliance risk and behavioural data analysis into pricing models.

Innovation Respondents expect to experience fundamental changes over the next ten years. Many Swiss private banks need to re-invent their service offerings, operations and market footprints. More broadly, the industry must change through consolidation and reconfiguration as well as an update of the industry’s global brand messaging to ensure “Swissness“ remains a key selling point over the coming decade.

Priority agenda for action • Acknowledge that the “old normal” is gone and embrace the imminent transformation period as an opportunity.

• Ensure value proposition meets future demands, is truly client-centric, benefits from scale effects, and offers best-in-class products and services.

• Take initiative at industry-level, reviving Swiss private banking’s brand by strengthening the values its global clients demand, including stability and service quality.

Pricing

IAMs can give banks access to scale, while private banks can deliver benefits to IAMs through infrastructure, operations and service range.

• Develop clear pricing communications to ensure clients understand and accept new pricing models.

Operations The minimum efficient scale of private banking operation is expected to increase.

Operations managers are on a dual mission to cut costs and implement new business models. To proceed further they must reap industry-level synergies, automate operating processes, and eventually tackle job profiles and compensation levels.

• Support client-centricity and productivity enhancements by revising job descriptions, wage levels and structures accordingly.

Governance and control Substantial efforts are still necessary to ensure internal controls are aligned with regulatory requirements. Some banks think regulation should take into account size and business model. Implementation challenges are significant and staff may need support through the period of change.

Priority agenda for action • Develop “Road to Compliance” concept to cover upcoming regulatory requirements, mitigate compliance risks and ensure systematic, cost-efficient introduction of compliance measures, exploiting synergies by leveraging existing processes.

• Support people in making the change.

Motivate by leading by example. Announce major changes in strategy, communicating openly regarding impacts. for IAMs...

• Consider choice of bank based on a combination of client profiles and preferences, bank brand, services, costs, IT platform and international connectivity, inter alia.

Priority agenda for action • Eradicate unnecessary operations.

Outsource processes that are non-core to the bank’s value proposition. Automate remaining processes where applicable.

• Monitor existing bank relationships and analyse potential new ones to ensure ongoing strategic and operational fit. © KPMG Switzerland

• Seek industry-level collaboration to create

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Retrocession is over and flat fees will begin to dominate. Pricing models must more

• Identify pricing models that best suit clients’ profiles and needs by strengthening data collection and analysis.

scale and reduce excess capacities and industry-level redundancies (e.g. through shared services).

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The Global Financial Centres Index (GFCI) provides profiles, ratings and rankings for 80 financial centres, drawing on two separate sources of data – instrumental factors (third party measures and indices) and responses to an online questionnaire. The GFCI was first published by Z/Yen Group in March 2007 and has subsequently been updated every six months. Successive growth in the number of respondents and data has enabled us to highlight the changing priorities and concerns of financial professionals over time, particularly since financial crises began to unfold in 2007 and 2008. This is the fourteenth edition of GFCI (GFCI 14).

The main headlines of GFCI 14 are: • London, New York, Hong Kong and Singapore remain the top four centres with a gap of 43 points between London in first and Singapore in fourth. There is then a gap of 31 points to Tokyo in fifth place. The top four centres have seen their ratings decline slightly. London’s ratings have fallen by more than any other centre in the top 25.

• Frankfurt, Zurich and Geneva remain in the GFCI top ten and Luxembourg has climbed five places to 13th. Most of the remaining financial centres in Europe are still suffering from uncertainty in the Eurozone.

Paris is down by 14 points, Munich by 18, Amsterdam by 26, Milan by 34, Madrid by 28 and Brussels by 44 points. Lisbon and Athens also fall and Athens remains at the bottom of the index.

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• There is a mixed picture from Asia at the moment. Tokyo, Sydney, Shanghai and Shenzhen all climb in the ratings but other centres including Hong Kong, Singapore, Seoul and Beijing all lose points.

• There is another mixed picture in North America with Boston and San Francisco each climbing by one place but New York, Chicago and Washington DC falling slightly. With the exception of Toronto, the Canadian centres all saw slight reversals to the rapid rises they have shown recently.

London, New York, Hong Kong and Singapore remain the top four centres.

• Latin America continues to grow in importance with Rio de Janeiro, Sao Paulo and Buenos Aires all climbing in the ranks.

Rio de Janeiro in particular performed well and climbed 17 places.

• In the Middle East, Qatar, Bahrain and Istanbul see significant increases in their rankings whilst other centres fall slightly.

Confidence amongst financial services professionals, indicated by average assessments given to the top centres, was relatively stable during 2011 and the first

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The Global Financial Centres Index 14

half of 2012. The second half of 2012 saw higher but more volatile assessments. This volatility persisted for the first half of 2013.

In GFCI14, 32 financial centres made improvements in their rankings, 40 centres declined in the rankings, seven centres experienced no change, and one new centre – Tel Aviv – entered the GFCI. Sofia and Nairobi have been added to the GFCI questionnaire recently. They join other cities that have yet to acquire sufficient assessments to be included in the index (Almaty, Busan, Guangzhou, Liechtenstein, New Delhi, Riga, Santiago and Tianjin).

Other notable features of GFCI 14 include: • The largest risers in the ranks include Rio de Janeiro, Malta, Monaco, and Istanbul; • Chicago and Toronto fall into 14th and 11th places respectively; • Beijing continues its decline in the ranks and has been declining steadily since GFCI 10; • Tel Aviv enters the GFCI for the first time in 32nd place.

From GFCI14 Summary and Headlines, September 2013, by Mark Yeandle and Nick Danev.

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Photo by Oleksiy Mark

Photo by Lightspring

IMF Global Financial Stability Report: Transition Challenges to Stability Executive Summary The global financial system is undergoing a series of transitions along the path toward greater financial stability. The United States may soon move to less accommodative monetary policies and higher long-term interest rates as its recovery gains ground.

After a prolonged period of strong portfolio inflows, emerging markets are facing a transition to more volatile external conditions and higher risk premiums.

Some need to address financial and macroeconomic vulnerabilities and bolster resilience, as they shift to a regime in which financial sector growth is more balanced and sustainable. Japan is moving toward the new “Abenomics� policy regime marked by more vigorous monetary easing, coupled with fiscal and structural reforms. The euro area is moving toward a more robust and safer financial sector, including a stronger monetary union with a common framework for risk mitigation, while strengthening financial systems and reducing excessive

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debt levels. Finally, the global banking system is phasing in stronger regulatory standards.

The global financial system is undergoing a series of transitions along the path toward greater financial stability.

The primary challenge resulting from these changes relates to managing the side effects and eventual withdrawal of accommodative monetary policy in the United States. Such a transition, including the benefits of a strong U.S. economy, should help limit financial stability risks associated with an extended period of low interest rates. Yet managing a smooth transition could prove challenging, as investors adjust portfolios for a new regime with higher interest rates

and greater volatility. Structural reductions in market liquidity and leveraged positions in short-term funding markets and the shadow banking system (for instance, in the mortgage real estate investment trust sector) could amplify these rate increases and spill over to global markets.

Financial stability challenges are also prevalent in many emerging market economies. Bond markets are now more sensitive to changes in accommodative monetary policies in advanced economies because foreign investors have crowded into local markets and may withdraw.

Emerging market fundamentals have weakened in recent years, after a protracted interval of credit expansion and rising corporate leverage. Managing the risks of the transition to a more balanced and sustainable financial sector, while maintaining robust growth and financial stability, will be a key undertaking confronting policymakers.

As central banks elsewhere consider strategies for eventual exit from unconventional monetary policies, Japan is scaling up monetary stimulus under the Abenomics framework, aiming to pull the economy out of its deflationary rut.

Successful implementation of a complete policy package that features fiscal and structural reforms would reinforce domestic financial stability, while likely boosting capital outflows. But substantial risks to financial stability could accompany the programme if planned fiscal and structural reforms are not fully implemented. Failure to enact these reforms could lead to a return of deflation and increased bank holdings of government debt, further increasing the already high sovereign-bank nexus. In a more disorderly scenario, with higher inflation and elevated risk premiums, the risks to both domestic and global financial stability could be greater still, including rapid rises in bond yields and volatility, and sharp increases in outflows.

In the euro area, reforms implemented at the national level and important steps taken toward improving the architecture of the monetary union have helped reduce funding pressures on banks and sovereigns. However, in the stressed economies of Italy, Portugal, and Spain, heavy corporate sector debt

loads and financial fragmentation remain challenging. Even if financial fragmentation is reversed over the medium term, it is estimated that a persistent debt overhang would remain, amounting to almost onefifth of the combined corporate debt of Italy, Portugal, and Spain. Assuming no further improvement in economic and financial

In the euro area, reforms implemented at the national level and important steps taken toward improving the architecture of the monetary union have helped reduce funding pressures on banks and sovereigns. conditions which would correspond to a more adverse outcome than the cyclical improvement built into the October 2013 World Economic Outlook baseline scenario, some banks in these economies might need to further increase provisioning to address

the potential deterioration in asset quality of corporate loan books. This could absorb a large portion of future bank profits.

Recent efforts to assess asset quality and boost provisions and capital have helped to increase the loss-absorption capacity of banks, but further efforts to cleanse bank balance sheets and to move to full banking union are vital. These steps should be complemented by a comprehensive assessment and strategy to address the debt overhang in non-financial companies.

A number of policy actions can help promote an orderly move toward greater financial stability: • Stronger growth in the United States is setting the stage for monetary normalisation. Achieving a smooth transition requires policies that manage the effects of increased volatility and portfolio adjustments, while addressing structural liquidity weaknesses and systemic vulnerabilities. A clear and welltimed communication strategy by central bank officials is critical. Compared with previous tightening cycles, the authorities have a bigger toolkit at their disposal.

Yet in the event of adverse shocks, contingency backstops may be needed to address the risk of fire sales in some

Stronger growth in the United States is setting the stage for monetary normalisation.

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market segments and to manage orderly unwinding or liquidation. Increased oversight would help reduce related risks of excessive leverage in the shadow banking system and, in particular, in the larger mortgage real estate investment trusts.

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• For emerging market economies, the principal transmission channel of external pressures is more likely to be via liquidity strains in bond and foreign exchange markets, rather than through bank funding channels. In addition, the response of foreign investors to changing expectations for U.S. monetary policy will continue to affect local markets. In the event of significant capital outflows, some countries may need to focus on ensuring orderly market functioning, using their policy buffers wisely. Keeping emerging market economies resilient requires increased focus on domestic vulnerabilities as relative growth prospects moderate, U.S. nominal rates rise, and capital flows recede. Policymakers should carefully monitor and contain the rapid

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growth of corporate leverage. Local bank regulators need to guard against foreign currency funding mismatches affecting bank balance sheets, including through foreign currency borrowing by companies.

In addition, establishing sufficient buffers and addressing macroeconomic imbalances will likely prove to be worthwhile steps for cushioning against increased volatility and risk premiums.

shadow banking activity be tightened, that incentives for regulatory arbitrage be removed through continued financial liberalisation (for example, of deposit rates), and that the widespread belief in implicit guarantees and bailouts of risky corporate loans and saving products be counteracted. Unless credit losses are taken by lenders and savers, the state faces large and unpredictable fiscal costs.

A number of policy actions can help promote an orderly move toward greater financial stability.

• Japan’s bold policies need to be completed, with the authorities following through on fiscal and structural policy commitments, to avoid downside risks. These policies are needed to contain a potential sharp rise in government bond risk premiums if sovereign debt dynamics do not improve.

To help mitigate stability risks, market structures also need to be made more resilient (such as through the modification of circuit breakers in derivatives markets) and the risk profile of regional banks addressed.

• Containing the risks to China’s financial system is as important as it is challenging.

Broad credit growth needs to be reined in to contain financial stability risks and promote the rebalancing of China’s economy away from credit-fuelled capital and property investment. It is important that prudential oversight of

• In the euro area, further progress in reducing debt overhangs and bolstering

China’s economy needs to be rebalanced away from credit-fuelled capital and property investment.

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Investors’ faith in euro area bank balance sheets needs to be fully restored.

bank balance sheets needs to go hand in hand with a strengthened euro area financial architecture and the completion of the banking union agenda. Investors’ faith in euro area bank balance sheets needs to be fully restored and credit flows to viable enterprises strengthened: a first step, as planned, is to conduct a thorough, realistic, and transparent balance sheet assessment. Credible capital backstops to meet any identified shortfalls need to be put in place and communicated in advance of the publication of results from the exercise. The corporate debt overhang should be addressed using a more comprehensive approach, including corporate debt cleanups, improvements to corporate bankruptcy frameworks, and active facilitation of non-bank sources of credit. Further monetary support by the European Central Bank and credit support to viable firms by the European Investment Bank are crucial to providing time for the repair of private balance sheets.

• Global bank capitalisation remains diverse, because institutions are at different stages of balance sheet repair and operate in different economic and regulatory environments. The key tasks are to improve the credibility, transparency, and strength of balance

Containing the risks to China’s financial system is as important as it is challenging. sheets, while avoiding undue pressures on banks from uncoordinated national regulatory initiatives and uncertainty.

Further efforts are needed to assess the way in which market developments and regulatory initiatives affecting dealerbank business models may influence the cost and provision of market liquidity.

At a minimum, increased surveillance of

and vigilance over the effects of trading liquidity pressures will be needed as financial markets move to a regime with higher interest rates and volatility.

If these policy challenges are properly managed, and if reforms are implemented as promised, the transition toward greater financial stability should prove smooth and provide a more robust platform for financial sector activity and economic growth. But a failure to implement the reforms necessary to address the many policy challenges highlighted above could trigger profound spill-overs across regions and potentially derail the smooth transition to greater stability.

Coordinated by the Monetary and Capital Markets (MCM) Department of the IMF under the general direction of José Viñals, Financial Counsellor and Director, October 2013.

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Photo CC by Arian Zwegers

The Most Remote Places on Earth Easter Island

Thanks to modern technology and air travel, the world is forever becoming a smaller place. Where journeys from one continent to another once took months, they now take hours, and sometimes it seems like there is nowhere left for a would-be adventurer to really get away from it all. Still, if you have the time, money, and know-how, there are still some places off the map - or just barely on it - that remain shrouded in mystery, simply by virtue of being really difficult to reach. Whether mining camps at the top of the world, or tiny islands thousands of miles from civilization, the following are the top ten most remote places left on Planet Earth.

10. Easter Island Located some 2,000 miles west of the Chilean Coast, Easter Island, or Rapa Nui, is a tiny island that has become famous for its remarkable isolation in the vastness

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of the Pacific Ocean. It is relatively small, measuring roughly seventy square miles in size, and is today home to around 4,000 people. The island has become well known for the massive rock sculptures called Moai

For sheer inaccessibility, few locations in South America compare to La Rinconada. that dot its beaches. They were carved sometime around the year 1500 by the island’s earliest inhabitants, and it has been said that the massive wood sleds needed to transport them from one place to another are a big part of what led to the almost total deforestation of Easter Island. Scientists have argued that the island was once lush and tree-covered, but today it is relatively

barren, a feature that only adds to the sense of sheer isolation that is said to overtake most first-time visitors. When the first settlers migrated to the island, the journey took several weeks, but today there is a small airport (reportedly the most remote in all the world) that carries passengers to the island by way of Santiago, Chile.

9. La Rinconada, Peru For sheer inaccessibility, few locations in South America compare to La Rinconada, a small mining town in the Peruvian Andes.

Located nearly 17,000 feet above sea level, La Rinconada is considered the “highest” city in the world, and it is this stunning geography that makes it so desolate. The city is located on a permanently frozen glacier, and can only be reached by truck via treacherous and winding mountain roads.

Just reaching the city takes days, and even

then altitude sickness, combined with the shantytown’s deplorable condition, means that few people can handle living there for long. Still, the town is said to have as many as 30,000 inhabitants, almost all of whom are involved in the business of mining gold, which is extracted from beneath the ice inside nearby caverns. In addition to its remoteness, La Rinconada has gained a dubious reputation as a destination for poor and desperate workers, many of whom work the mines for free in exchange for the right to keep a small percentage of the gold ore they find.

8. McMurdo Station, Antarctica

due to flooding during the rainy season.

But even with 4-wheel drive trucks, many of the more heavily overgrown parts of Cape York Peninsula are completely inaccessible, whilst some regions have still only been surveyed by helicopter.

6. Ittoqqortoormiit, Greenland At 836,000 square miles in size, Greenland is the world’s largest island, but its tiny population of 57,000 people means that it’s also the most desolate. And of all the

towns in Greenland, perhaps none is as remote (or as difficult to pronounce) as Ittoqqortoormiit, a small fishing and hunting village located on the island’s eastern shore, to the north of Iceland. The town is part of a municipal district roughly the size of England, but it has a population of only slightly more than 500 people, meaning that each person technically has more than 150 square miles to call their own. Residents make their living off of hunting polar bears and whales, which are prevalent in the area, and by fishing Antarctica

Located literally at the bottom of the world, Antarctica is easily one of the most remote places on the face of the Earth. There are no native inhabitants to the continent, but there are several research centres constantly in operation there, and of these McMurdo Station is the largest. Located on Ross Island near the northern tip of the continent, the

almost perpetually frozen station is a centre of international research, and is home to as many as 1,200 scientists and workers during the warmer summer months. It’s one of the most desolate locations on the planet, but although McMurdo is as far from a major city as any location in the world, even it is no longer the backwater as it used to be. Trips by boat to Antarctica once took months, sometimes even years, but McMurdo’s three airstrips have helped make the region a much less remote destination than before. Thanks to this, the scientists at the station now enjoy many of the modern amenities found in major cities, including gyms, television, and even a nine-hole Frisbee golf course.

Photo by kkaplin

The scientists at (McMurdo) station now enjoy many of the modern amenities found in major cities.

7. Cape York Peninsula, Australia Australia is known both for its extremely low population density and untouched natural beauty, both of which are best exemplified by Cape York Peninsula, a huge expanse of untouched wilderness located on the country’s northern tip. The region has a population of only 18,000 people, most of whom are part of the country’s aboriginal tribes, and it is considered to be one of the largest undeveloped places left in the world. This helps contribute to its stunning natural beauty, but it also makes Cape York about as difficult to reach as any destination in Australia. The peninsula has become a popular destination for adventurous tourists, who drive jeeps and trucks down the unpaved Peninsula Development Road whenever it isn’t closed

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Photo CC by Neilsphotography

Cape York peninsula, Australia

for Halibut during the warmer months.

Ittoqqortoormiit lies on the coast, but the seas surrounding it are almost perpetually frozen, leaving only a three-month window when the town is easily accessible by boat.

There is an airport some 25 miles away, but flights are rare. For the most part, the town, one of the northernmost settlements in the world, is completely isolated in the vastness of the tundra.

5. Kerguelen Islands Also known as the “Desolation Islands” for their sheer distance from any kind of civilization, the Kerguelen Islands are a small archipelago located in the southern Indian Ocean. There is no airstrip on the islands, and to get to them travellers must take a six-day boat ride from Reunion, a small island located off the coast of Madagascar. The islands have no native population, but like Antarctica, which lies several hundred miles south, the

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Kerguelens have a year-round population of scientists and engineers from France, which claims them as a territory. The islands do have something of a storied past, and since they were first discovered in 1772 they have been visited by a number of different biologists and explorers, including Captain James Cook, who made a brief

Pitcairn Island is the last remaining British territory in the Pacific. stop on the archipelago in 1776. Today the island is primarily a scientific centre, but it also holds a satellite, a French missile defence system, and even serves as a sort of refuge for a particular type of French cattle that has become endangered on the mainland.

4. Pitcairn Island Pitcairn Island is a tiny speck of land located nearly dead in the centre of the southern Pacific Ocean. Its closest neighbours are the Gambier Islands and Tahiti to the West, but even these are several hundred miles away. The island, which is the last remaining British territory in the Pacific, has a standing population of some fifty people, many of whom are descended from crewmembers of the famed HMS Bounty. In 1789, the Bounty was the setting for a now-legendary mutiny, when crewmembers enchanted by the idyllic life of the native Pacific islanders overthrew their commander, burned their ship in a nearby bay, and settled on Pitcairn. Today, the descendants of those sailors mostly make their living off of farming, fishing, and selling their extremely rare postage stamps to collectors, but even with modern transportation they still remain one of the most isolated communities in the world.

There is no airstrip on the island, and getting

there from the mainland requires hopping a ride on a shipping boat out of New Zealand, a journey that can take as long as ten days.

3. Alert, Nunavut, Canada Located in Canada on the tip of the Nunavut territory, Alert is a small village that lies on the Arctic Ocean only 500 miles below the North Pole. It is widely considered to be the northernmost permanently inhabited place in the world (with a whopping five yearround residents), and also one of the most inhospitable. Temperatures in Alert, which also serves as a Canadian radio receiving facility and a weather laboratory, can get as low as 40 degrees below zero, and because of its location at the top of the Earth, the camp alternates between 24-hour sunlight during the summer and 24-hour darkness during the winter. The nearest town to Alert

Despite its tiny size and astonishing isolation, Tristan da Cunha has enjoyed a rich history.

before becoming unpassable, and was soon reclaimed by the dense forest.

1. Tristan da Cunha The single most remote inhabited place in the world, Tristan da Cunha is an archipelago of small islands located in the southern Atlantic Ocean. The nearest land to the island is South Africa, which is roughly 1,700 miles away, while the South American coast lies at a distance of about 2,000 miles. Despite its tiny size and astonishing isolation, Tristan da Cunha has enjoyed a rich history. The island was first discovered in 1506 by a Portuguese explorer, and was later annexed by the British, who feared the French might use it as a point of departure to rescue Napoleon, who had been exiled to nearby St. Helena. A small group of British,

Italian, and American settlers began living on the island in the 1800s, and it is still under the U.K.’s jurisdiction today. The islands now have a total population of 271 people, most of whom are descended from those original settlers and make their living as farmers and craft makers. Although the island now has some television stations and access to the internet via satellite, it is still the most physically isolated location on planet earth. The island’s rocky geography makes building an airstrip impossible, so the only way to travel to it is by boat. It was once regularly connected to South Africa by a British transport ship, but this vessel has since stopped calling on the island, and outside of the occasional cargo vessel, now the only visitors to Tristan da Cunha are deep sea fishing boats.

Tristan da Cunha

is a small fishing village some 1,300 miles away, and you would have to travel nearly twice that distance to reach major cities like Quebec. Because of its military function, Alert does have an airport, but because of weather it is often unusable. In 1991, a C-130 aircraft crashed there when its pilot misjudged his altitude and brought his plane down 19 miles short of the runway. 4 people died in the crash, and another perished while waiting for a rescue party, which took nearly 30 hours to make the short journey to the site because of a blizzard.

2. Motuo County, China Considered the last county in China without a road leading to it, Motuo is a small community in the Tibetan Autonomous Region that remains one of the few places in Asia still untouched by the modern world.

Just getting to Motuo is a Herculean task, as travellers must follow a gruelling overland route through frozen parts of the Himalayas before crossing into the county by way of a 200-meter-long suspension bridge. The county is renowned for its beauty—Buddhist scripture regards it as Tibet’s holiest land— and it is said to be a virtual Eden of plant life, housing one-tenth of all flora in China.

Despite its stunning geography and natural resources, Motuo still remains something of an island unto itself. Millions of dollars have been spent over the years in trying to build a serviceable road to it, but all attempts have eventually been abandoned because of mudslides, avalanches, and a generally volatile landscape. As the story goes, in the early 90s a makeshift highway was built that led from the outside world into the heart of Mutuo County. It lasted for only a few days

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Photo by Jacek Fulawka

The Nobel Prize in Economics 2013: Of the Madness and the Wisdom of Crowds

By Gert Wehinger of the OECD’s Directorate for Financial and Enterprise Affairs.

Investors’ behaviour on stock markets has been likened to the irrationality described in Charles Mackay’s 1841 classic Extraordinary Popular Delusions and the Madness of Crowds. But there is also a more positive view of what crowds can achieve.

In his 2005 book The Wisdom of Crowds, James Surowiecki argued that “diversity and independence are important because the best collective decisions are the product of disagreement and contest, not consensus or compromise.” Diversity and disagreement certainly characterise this year’s Nobel prize for economics, even if Eugene F. Fama, Lars Peter Hansen and Robert J. Shiller shared the award “for their empirical analysis of asset prices”.

Fama’s work is based on the idea that asset returns should be impossible to predict if asset prices reflect all relevant information.

He tested empirically (and found new methods like event studies to do so) the efficient markets hypothesis (EMH), for which he and his followers found ample evidence. That is, in the very short run, like a day or a week, if all available information is incorporated in share prices, you cannot beat

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the market. While he accepts that there are factors like information or transaction costs that weaken the pure EMH, any anomalies – like the difference between value and growth stocks he analysed in a 1998 paper – are explained within the same rational investor framework, and risk factors would account for the differences. However, such anomalies (or “market imperfections”) may open up short-run arbitrage opportunities (that Fama himself exploits in his fund-management firm). Hedge funds and algorithmic traders in particular thrive on these imperfections.

This research can generate new insights about human behaviour more broadly.

Thus, Fama’s EMH is perhaps a great insight for theorists and algo-traders, but it is, in principle, tautological and often becomes useless in practice (yes, algo traders can also go bust) where market anomalies can go beyond rationality. While these anomalies still tend to leave markets unpredictable, the reasons underlying such unpredictability may be quite different from the agnostic

view of market rationality that deprives the researcher almost by definition from gaining better insights into the “true” functioning of markets and a better understanding of longer-term price movements, including bubbles.

Shiller thought outside the EMH box by exploring departures from Fama’s efficient market rationality using insights from behavioural finance (many of the ideas were developed by the 2002 Laureates Daniel Kahneman and Amos Tversky). Such departures, if they can be identified in asset prices, may open up arbitrage opportunities by rational investors to take advantage of misperceptions of irrational investors.

While rational arbitrage trading would push prices back toward the levels predicted by non-behavioral theories, this is still not the world as described by Fama, where rational information is processed immediately. In Shiller’s framework, bubbles can not only exist, but there is also a possibility that they can be identified.

Hansen has tested many of these theories in his generalised method of moments (GMM) framework. If you cannot forecast stock prices, maybe you can find patterns in their volatility or other statistical moments that

can be exploited. Hansen found, for example, that asset prices fluctuate too much for a rational expectations-based model to hold.

This work has been carried forward in several ways, for example improving measures of risk and attitudes towards risk that may change depending on the economic situation.

This is just one example of how this research can generate new insights about human behaviour more broadly.

Shiller showed the importance of social psychology for finance and economics using evidence from investor surveys. In the 2005 edition of his book Irrational exuberance, Shiller extended his analysis to real estate, arguing that the real estate market was irrationally overvalued, and he predicted large problems for financial institutions with the eventual burst of the real estate market “bubble”. But he was also aware of the problems a bursting stock market bubble would have on retirement income from pension plans that rely on equity investments, and he wondered about the “curious lack of public concern about this risk.” More generally, he also pointed out that the “tendency for speculative bubbles to grow and then contract can make for very

uneven distribution of wealth” that may even make us “question the very viability of our capitalist and free market institutions”.

He saw an important role for policy to address these issues.

The Prize Committee in its decision seemed to want to reconcile a short-run and a long-run theory of asset prices.

The first line of policy defence against asset price bubbles is monetary policy, but bubbles are hard to identify and policy makers are reluctant to ‘prick’ a bubble. Robert Lucas, the 1995 Nobel Prize winner, noted that the main lesson from the efficient market hypothesis “for policymaking purposes is the futility of trying to deal with crises and recessions by finding central bankers and regulators who can identify and puncture bubbles. If these people exist, we will not be able to afford them.” (The Economist, Aug 6th 2009)

The Prize Committee in its decision seemed to want to reconcile a short-run and a longrun theory of asset prices, with Fama’s finding that stock prices are unpredictable in the short run and Shiller showing that there is some predictability in the long run (Fama would not dispute that idea in principle as his own research found that stock returns become more predictable the longer the period considered).

But knowing that Fama (as recently as January 2010) defiantly denied the existence of asset price bubbles because they cannot be identified and predicted, and Shiller (along with others) recognises bubbles and calls the EMH argument that stock prices reflect fundamentals “one of the most remarkable errors in the history of economic thought”, it will be interesting to see how the three laureates interact on stage at the award ceremony.

Perhaps Hansen will have to play the role of a mediator with a humble remark like the one he made shortly after hearing about his award: “We are making a little bit of progress, but there’s a lot more to be done.”

Courtesy of OECD Insights.

Photo CC by joncallas

Nobel Peace Centre, Oslo, Norway.

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If

By Rudyard Kipling (1865-1936) If you can keep your head when all about you Are losing theirs and blaming it on you, If you can trust yourself when all men doubt you, But make allowance for their doubting too; If you can wait and not be tired by waiting, Or being lied about, don’t deal in lies, Or being hated, don’t give way to hating, And yet don’t look too good, nor talk too wise: If you can dream - and not make dreams your master, If you can think - and not make thoughts your aim; If you can meet with Triumph and Disaster And treat those two impostors just the same; If you can bear to hear the truth you’ve spoken Twisted by knaves to make a trap for fools, Or watch the things you gave your life to, broken, And stoop and build ‘em up with worn-out tools: If you can make one heap of all your winnings And risk it all on one turn of pitch-and-toss, And lose, and start again at your beginnings And never breathe a word about your loss; If you can force your heart and nerve and sinew To serve your turn long after they are gone, And so hold on when there is nothing in you Except the Will which says to them: “Hold on!”

If you can talk with crowds and keep your virtue, Or walk with kings - nor lose the common touch, If neither foes nor loving friends can hurt you, If all men count with you, but none too much; If you can fill the unforgiving minute With sixty seconds’ worth of distance run, Yours is the Earth and everything that’s in it, And - which is more - you’ll be a Man, my son!

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