CFI.co Autumn 2014 by CFI.co

Capital Finance International

Autumn 2014

GBP 4.95 // EUR 5.95 // USD 6.95

AS WORLD ECONOMIES CONVERGE

Mukhisa Kituyi, Secretary-General UNCTAD:

SUSTAINABLE CAPITAL MARKETS ALSO IN THIS ISSUE // UNCTAD: ENTERPRISE DEVELOPMENT INVESTING // USAID: DIASPORA ENTREPRENEUR FINANCE WORLD BANK GROUP: RESOURCE FINANCED INFRASTRUCTURE // IFC: INCLUSIVE BUSINESS IFC: CORPORATE GOVERNANCE IN VIETNAM // UNCDF: LOCAL NEEDS OF WOMEN

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Autumn 2014 Issue

AN ICON JUST GOT LARGER

THE NEW NAVITIMER 46 mm

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Lower. Sleeker. Faster. Meaner. The new Continental GT V8 S.

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Autumn 2014 Issue

Continental GT V8 S fuel consumption â&#x20AC;&#x201C; EU Drive Cycle* in mpg (l/100 km): Urban 18.4 (15.4); Extra Urban 36.7 (7.7); Combined 26.8 (10.6). CO2 Emissions 246 g/km. EPA Drive Cycle* in USmpg: City driving 15.0; Highway driving 24.0; Combined 18.0. For more information call +44 (0)845 689 1629 from UK, +1 (0)866 369 4450 from USA or +44 (0)117 244 1804 from elsewhere or visit www.bentleymotors.com. #Continental #GTV8S CFI.co | Capital Finance International 5 *Fuel consumption figures subject to Type Approval and EPA Approval. Model shown: Continental GT V8 S.

Editor’s Column The Pitfalls of Economic Self-Sufficiency on end, Brazilian consumers had little choice but to accept overpriced products and services of dubious quality delivered by companies that often couldn’t be bothered. Since globalisation arrived in Brazil, much has changed for the better. Productivity has improved across most sectors of the economy, quality control became more than just a fad from foreign shores, and competition increased. The market was allowed more leeway to weed out inefficiencies and kill-off failures.

For about thirty years, Brazil tried going at it alone: Between the mid-1960s and the mid-1990s, the country tried to boost its industrial prowess by keeping the borders hermetically closed to outside competitors. The country embarked on an importsubstitution programme of vast proportions that aimed to foster local business, save on scarce foreign exchange, and speed-up economic development. Initially, the programme met with some success. Manufacturing businesses sprang up all over, millions of jobs were created, and the economy went through a long boom. The “Brazilian Miracle” (O Milagro Brasileiro) was soon made into an example for others to follow. In Africa, many new nations took note and adopted similar policies aimed at attaining economic self-sufficiency. In Asia, India – long dreaming of autarky – clung to its spinning wheels and doggedly refused to let the outside world in.

Editor’s Column

For many years Brazil, and others pursuing selfsufficiency, were able to keep globalisation at bay while humming along nicely. However, the piper must eventually be paid. After debt crises hit in the 1980s and its emerging economy lost its lustre, even Brazil was forced to recognise, albeit reluctantly, the folly of its pursuit of economic selfsufficiency. What happened next was the unfolding of a tragedy foretold. Though boasting an economy of significant size and a domestic market to match, Brazil today has not a single company of international note. Although the country may be known for a great many happy things, its domestic brands are conspicuously absent from the global scene. There is a fairly simple explanation for this: Brazilian manufacturers are, almost to a fault, unable to compete in free markets. Most owe their existence to the import-substitution programme which shielded them from competition and, as such, ended up rewarding inefficiency. For years 6

It would be interesting to discover the extent of the damage wrought by the sorely misguided import-substitution programme that delivered such apparently stellar results in the 1970s but saddled Brazil with a lame industrial base unable to compete on either price or quality. In Latin America, Brazil doesn’t stand alone: Argentina too has repeatedly shut its borders tight in order to favour domestic industry. Lacking a domestic market of sufficient size, Argentina instantly lost its industrial base the moment it got exposed to globalisation. Some people seem to deplore this fact. While the loss of jobs and manufacturing capacity is indeed to be regretted, having a national industry that is run as a protectionist racket is even more disgraceful. It is no coincidence that the most prosperous country in Latin America is the one with the most open borders to trade. Chile has traditionally welcomed international competition and is cited by the World Bank as one of the most open economies globally. The country may not be home to lot of manufacturers, but its companies are fearsome competitors. Chilean winemakers captured sizeable market shares in both Europe and North America by consistently delivering top quality products at sharp prices. It was no different with farmed salmon from Chile which conquered the US market – and became synonymous with top-quality – thanks to the concerted efforts of highly competitive companies. There is no reason for Brazilian or Argentinean businesses to fail to make their mark internationally other than their ingrained culture of seeking protection from competition. Closed markets do not breed entrepreneurial success. Globalisation is perhaps not the be all and end all some mistake it for, but it does help foster the growth of businesses that can and will compete fiercely for market share. That - in and of itself - is a blessing to any nation trying to move up in the world.

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

Autumn 2014 Issue Zurich

Editorâ&#x20AC;&#x2122;s Column

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> Letters to the Editor

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In reply to Mr Roubini’s excellent essay (“The Great Backlash”), I’d suggest that the loss of civil activism bears some blame for our current predicament. Labour unions have largely been made into paper tigers while political parties are mostly seen as defenders of the status quo. Societal issues such as unemployment, insecurity, housing, and faltering public services are seldom addressed. Entire nations have come to accept high levels of unemployment as a given. As a concept, the welfare state is now perceived as outdated and impractical. The question nobody seems to ask is how could we afford the welfare state in the 1960s – when prosperity levels were rather modest – and we cannot seem to do so now? Where did the money go? ROBIN DETWEILER Windhoek (Namibia) I beg to differ with both Mr Shiller and the French economist Thomas Piketty regarding the need for a wealth tax in order to even out disparities in wealth. Rather than tax the seriously rich into submission, why not revert to a more just society that simply prevents people from amassing billions upon billions? Resourceful, brilliant, and shrewd entrepreneurs indeed merit vast incomes. However, many of today’s über-rich obtained their billions by exploiting tax loopholes or by providing services that were previously the state’s domain. Others made fortunes by cosying up to the powerful or preying on the weak. There is no excuse for allowing 0.01% of society to claim up to 20% of a nation’s wealth. These folks may be brilliant indeed, and we may owe them collectively for their contributions to our general well-being; however, they are being overpaid as well. Taxing is not the solution. Claiming back public space is. FRANCIS OPPERMAN Bonn (Germany)

Leave it to the EU to disappoint unfailingly. With the nomination/election of Jean-Claude Juncker as president of the European Commission, yet another uninspiring bureaucrat insider stands at the helm of the EU’s executive branch. Meanwhile and after a sad display of diplomatic wrangling, the Council of Europe has now also found a new president in Donald Tusk – the monolingual prime-minister of Poland. No doubt a great guy, but outside Poland nobody can understand him. The EU spends untold millions in promoting the concept of a united Europe. The union should now up its PR budget significantly. Few in Europe see Mr Juncker as the embodiment of something other than a tired old politician peddling in well-worn refrains. As for President Tusk: He speaks for all of us – in Polish only. NIALL THORNBURG Hull (UK)

Swiss Alps

Autumn 2014 Issue

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For well over seven centuries, The Netherlands, and its previous incarnations, has managed its own money. It did so rather successfully. The guilder was a particularly strong currency, not liable to devaluation and well-respected internationally with no shortage of investors snapping up guilder positions. It was replaced by the unfortunate euro which enjoys a far less stellar track record. Economists and bankers – a trust-inspiring lot as any – now assure us that there is no way back. The euro cannot be undone without opening the gates of financial hell. Interestingly enough, details on the apocalyptic post-euro world are hard to come by. Nobody has actually explained why a country that successfully managed its own currency for some 700 years is unable to do so again. FONS LEEFLANG Apeldoorn (The Netherlands) Perhaps you will allow me to express a benign and hopefully inoffensive comment regarding the growing interest in faith-based initiatives. Why is it that a growing number of people need to organise both society and economy around their faith? One sees this clearly happening in the United States where evangelical Christians actively seek to steer society toward their particular values. In the Islamic world, a similar trend is taking place. I find this worrisome. Wherever faith-based initiatives are promoted, tensions and frictions arise. Pluralism within a secular society is slowly being replaced by the imposition of a single set of values derived from a holy book. This does not bode well for our common future. GABRIEL DA ROCHA Rio de Janeiro (Brazil) It is heart-warming to see a war-ravaged country such as Angola rise out of the ashes and become a model of development. However, one can only hope that the country’s leaders are not blinded by the glittering gold and keep their focus firmly on providing a framework for sustained and broad-based development. It is absolutely essential that Angola encourages the growth of a solid middle class. Only this way can political stability and economic progress be assured for generations to come. KATHRYN VOGLE New York (USA) It is all well and good for Mrs Hedegaard to argue that Europe must move away from the burning of fossil fuels, actually doing so is an entirely different matter. Cheap energy is one of the few keys to accelerated economic growth. With unemployment at unacceptably high levels, Europe desperately needs a growth spurt. Tinkering with alternative energy may be politically correct and expedient; it does not boost economic growth. Europe needs cheap and plentiful energy – just as the rest of the world. The new-fangled technology of fracking is one way of obtaining relatively cheap fuel. Discarding it out of hand in favour of dicey renewables not-quite-readyfor-prime-time does not seem sensible at a time when Europe is struggling to regain some modicum of economic growth. EDWARD MUNSI Kuala Lumpur (Malaysia)

Editor Wim Romeijn

Assistant Editor Sarah Worthington

COVER STORIES

Executive Editor George Kingsley Production Editor David Graham

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

Mukhisa Kituyi, UNCTAD: Sustainable Stock Exchanges and the 21st Century Challenge for Global Finance (20 – 21)

IFC: Inclusive Business Case Study The Kenya Tea Development Agency (78 – 79)

Distribution Manager Len Collingwood

Subscriptions Maggie Arts

Commercial Director Jon Gerben

Director, Operations Marten Mark

Publisher Mark Harrison

Chairman Tor Svensson

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

USAID: Diaspora Entrepreneurs and Investors Find Success in Africa and Beyond (84 – 85)

World Bank Group: Can ResourceFinanced Infrastructure Fix the Natural Resource Curse? (148 – 151)

IFC: Vietnam Must Continue to Improve Corporate Governance to Meet Rising Expectations (168 – 169)

UNCDF: Enabling Transformation Investing in the Local Needs of Women (170 – 173)

UNCTAD: Investing in Sustainable Development Goals Printed in the UK by The Magazine Printing Company using only paper from FSC/PEFC suppliers www.magprint.co.uk

(176 – 177)

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Autumn 2014 Issue

FULL CONTENTS 14 – 27

As World Economies Converge

World Bank

Nouriel Roubini

Joseph E. Stiglitz

Chairman’s Column

J. Bradford DeLong

Mukhisa Kituyi

28 – 39

Beautiful Minds

40 – 59

Europe

Sucden Financial

Cliff Siegel

Joseph E. Stiglit

Byron Capital Partners

Yatırım Finansman Securities

60 – 73

CFI.co 2014 Awards

Rewarding Global Excellence

74 – 117

Africa

IFC

USAID MPCB KONEKSIE

SGSL

Wole Oshin

Lotus Capital

Custodian & Allied Insurance

First Registrars

PFS

World Bankg Group

PwC

Sonnie Ayere

118 – 131

Middle East

PADICO HOLDING

NATPET

GT UAE

132 – 143

Editor’s Heroes

Ten Men and Women Who are Making a Real Difference

144 – 157

Latin America

WBG

158 – 169

Asia

IFC

Capital Bank

Luxury Living

NCB

NDB

Union Bank of Colombo

170 – 178

Emerging Economies Perspective

UNCDF

Booth School of Business

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UNCTAD

Chairman’s Column Resurrecting Keynes – In a Sustainable Way Infrastructure investments needed to sustain the development of emerging economies call for substantial financing. The UN’s Sustainable Development Goals (SDG) estimate the funding gap at around $2.5 trillion. According to McKinsey, Nigeria – with a projected medium-term growth rate of 7.1% – would require $1.5 trillion in infrastructure investments over the coming years.

to receive about $1tn from the ECB to stimulate business with. However, the same trick was tried in Japan and its economy is now contracting at a 7% annualised rate.

Various modes of financing must be tapped to meet this funding challenge. Foreign direct investment (FDI) is crucial and public-private partnerships (PPP) could help as well. The latter could offer a way for European, American, and Japanese pension funds to get the high returns needed to meet their future obligations to greying populations. Sovereign wealth funds (SWF) are also longterm investors whose interest might be piqued.

Perhaps, though, banks are not the ideal conduits for the ECB’s largesse. Banks are still not lending to start-ups, small and medium-sized businesses, or anybody else not deemed too large to fail. Banks are also not done deleveraging, reducing balance sheets, and cutting cost.

SWFs, pension funds and other institutional asset managers chiefly invest through exchange traded securities such as stocks, bond, and investment funds. To be effective as fund-raising conduits, stock exchanges in emerging markets have upped their game: Technology, governance, and transparency are now seen as allimportant. The UN’s Sustainable Stock Exchange (SSE) Initiative strengthens these efforts. It focuses on social, environmental, and ethical reporting which is critically important to most investors.

Chairman’s Column

CFi.co is a long-time supporter of the sustainable capital market concept. Sound corporate governance is crucial to any undertaking involving investors.

In the US, the Fed’s electronic money printing and quantitative easing (QE) have caused an immense runup in asset prices (including real estate, equities, and bonds). In Europe, asset prices embarked on an upward trend in happy anticipation of the good times to come. There is also some hope that the euro will continue its slide. That, if nothing else, should get inflation going.

This “newish” European monetary policy has been tried and tested in both the US and Japan where it was proven quite unsuccessful in terms of jump-starting sustainable growth. It didn’t even create much inflation. In the US, lacklustre growth is partially caused by household debt which dampens consumption spending. Banks have been recapitalised; households have not. A more effective path to growth is offered, as usual, by Keynes. His counter-cyclical approach – expansionary fiscal policy, i.e. public spending and cutting taxes – have proven effective time-and-again. Furthermore, to create more jobs, taxes should shift from labour to consumption, assets, and profits. As payroll taxes decrease, so should the red tape faced by anyone running a business.

With global economic growth now hovering around 4%, most emerging and frontier economies are growing briskly, albeit unevenly. Meanwhile, the Eurozone remains stuck in “secular stagnation” (a term coined by Larry Summers). At an average of 1.1%, growth is sluggish at best and insufficient to bring unemployment levels down from their current height of 11.5%.

Investment in infrastructure makes perfect sense at this point in time: It creates jobs and readies the economy for a renewed growth spurt. The EU has a responsibility to develop new alternative sources of energy that can lessen the bloc’s dependency on Russian natural gas and oil from the Middle East. Just because war and global warming are not accounted for in corporate bookkeeping this does not lessen the public’s bill for these “externalities”.

This protracted slump – which the US and Japan also experience – is largely caused by lagging growth of productivity and population. Policies imposing strict fiscal austerity do not improve matters either. Inflation has now fallen to literally zero. The European Central Bank’s (ECB) inflation target of 2% is all but forgotten.

Europe should boost investment in emerging economies – including large-scale infrastructure projects – to secure new jobs, sources of profits, and returns for pension funds. That is a much better alternative to ineffective monetary policies that may only succeed in setting up yet another asset bubble.

Germans may not like to hear this, but moderate inflation has its virtues. It not only erodes debts but also urges societies to spend today rather than next year when goods and services will be slightly more expensive. Deflation does the opposite: Why spend today when tomorrow prices will have dropped?

Tor Svensson

The ECB will now follow the example set by the US and Japan and aggressively print more money. Banks are set 12

Chairman Capital Finance International

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Autumn 2014 Issue Geneva: Brunswick Monument

Chairmanâ&#x20AC;&#x2122;s Column 13

> Otaviano Canuto, World Bank Group:

Liquidity Glut, Infrastructure Finance Drought and Development Banks The world economy faces huge infrastructure financing needs that are not being matched on the supply side. Emerging market economies, in particular, have had to deal with international long-term private debt financing options that are less supportive of infrastructure finance. While in the aftermath of the global financial crisis, unconventional monetary policies in advanced countries have led to a global liquidity glut, some traditional sources of long-term finance have been strained and alternatives have not been able to adequately compensate. The threat of an eventual reversal of the global liquidity abundance makes it even more urgent that emerging market and developing countries find new sources to tap for long-term funding, if they are to fill their infrastructure gap and keep growing. Domestic institutional investors and strengthened local long-term debt markets will be playing essential roles in that regard. Official development banks can be of help to the extent that they focus on their potential “additionality.”

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THE WORLD ECONOMY FACES HUGE NEEDS OF INFRASTRUCTURE FINANCE… Last year, a report by McKinsey Global Institute estimated that, in order to realize its potential global growth to 2030, the world would have to invest in infrastructure (roads, bridges, ports, power plants, water facilities, etc.) to the tune of $57 to $67 trillion, depending on three different methodologies (chart 1). To give an idea of what a tall order such a challenge will be, the report notes that the lower bound of the range corresponds to nearly 60 percent above the amount spent in the last 18 years and is larger than the estimated value of today’s infrastructure. The share of infrastructure finance requirements in emerging market economies (EMEs) in those figures corresponds to 37%. As those estimates do not embed “development goals” beyond where emerging market and developing economies are today, as well as additional expenditures associated with adaptation to climate change and sustainability needs, they may be considered a lower bound. The World Bank estimates that these countries need to invest in infrastructure at a rate of an additional $1 trillion per year through 2020, just to keep pace with the demands of urbanisation, growth, climate change, and global integration. … BUT THE FINANCING GAP IS YAWNING Several factors have been leading to a shortfall of infrastructure finance supply, including in 14

“Some combination of bond issuance and bank lending is what usually works best in debt finance of green field investments in new projects and the creation of new productive assets.” advanced economies. Public sector funding has faced stringent conditions. With a few exceptions – like China – most advanced and emerging market economies have become more fiscally constrained over the last few years, as countercyclical fiscal policies have reached their limit, either for political and/or debt sustainability reasons. On the private sector financing side, there is an ongoing transition toward a new configuration of infrastructure finance that has left a void: While banks have been retrenching, their replacement by non-bank institutions, wherever feasible, has been inadequate. Some combination of bond issuance and bank lending is what usually works best in debt finance of green field investments in new projects and the creation of new productive assets. Banks are better equipped to address issues of information asymmetries, particularly at the early stages of CFI.co | Capital Finance International

project design in cases of complex financing needs – like infrastructure – whereas the arms-length relationship typical of long-term bond issues and institutional investors is more appropriate for extending and consolidating investment financing. Infrastructure assets are appropriate investments for pension funds, insurance companies, and other long-term financial institutions (mutual funds, sovereign wealth funds etc.) because they tend to match their long-term liabilities, provide inflation-protected yields, and have a lower correlation to other financial assets. A significant presence of mature long-term debt markets and institutional investors as ultimate asset holders enhances the risk-transfer and risk-transformation functions of financial intermediation as a whole and can make the system more stable. The problem is that the financial crisis has been followed by a bank retrenchment from the field, without non-bank institutions filling the finance gap. The weight of banking can be gauged by its share in global project finance (chart 2). In that context, infrastructure financing by banks has been curtailed as part of a deleveraging process which is still in course. This is particularly the case for European banks, which had traditionally played a significant international role in infrastructure financing

Autumn 2014 Issue

prior to the global financial crisis. Their balancesheet repair and capital-ratio adjustment, since the euro-zone crisis (chart 3) has been obtained mainly by retrenchment on the asset side of their balance sheets, by unwinding existing positions and shunning new commitments. Such propensity to retrench has been widespread among banks in crisis-afflicted countries, given the higher levels of balance-sheet risk aversion. Remaining uncertainties about the crisis recovery, coupled with prospective regulatory changes (e.g. Basel III) penalizing liquidity and maturity mismatches in deposit-taking institutions, have led banks in general to reduce leverage, shorten finance terms, and raise counterparty requirements across the board. On the other side of the finance spectrum, had the financing previously supplied by banks been replaced by pension funds, insurers and mutual funds, their portfolio allocation to infrastructure debt would currently correspond to 12.5%; in reality, the actual current allocation is less than 1% of global pension fund assets (Swiss Re and IIF, 2014). To be sure, as noted above, bank and non-bank infrastructure finance are not perfect substitutes, given their distinctive abilities and willingness to deal with different risks along an investment cycle – as illustrated in the revealed preference of non-banks toward “brown field” relative to “green field” investment projects. However, given prevailing trends in banking, it is no wonder that so much attention has been dedicated to what it will take to raise “infrastructure as an asset class” – see the 10-point agenda outlined by IIF (2014) – and raise the profile of non-bank institutions as a necessity in order to fill the infrastructure finance gap. EMES HAVE FACED A CROSS-BORDER INFRASTRUCTURE FINANCE DROUGHT AMIDST A LIQUIDITY GLUT… Has the relative abundance of capital flows to EMEs since 2008 meant that they have been spared from the challenges associated with the yawning infrastructure finance gap? Despite massive foreign capital inflows to EMEs in recent years (chart 4), it is doubtful that these will constitute a sufficient solution to the EMEs’ infrastructure finance gap. While foreign direct investments have maintained an exuberant pace and can play a significant role in funding infrastructure investments, long-term debt finance – fundamental to many projects – has not performed up to the needed levels.

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There is a relevant underlying change of composition in the debt component of those heavy capital inflows. International long-term debt flows to developing countries – bonds and syndicated bank lending with maturities at or beyond five years – fared well indeed from 2000 to 2012, reaching a fourfold increase in nominal terms at the end of the period, despite a blip in 2008-09. However, this rise comes with an important caveat: Lending from foreign banks

Roads

Rail

Ports

Airports

Power

Water

Telecom

67 62 57

0 Projection base on historical spending

Projection based on ratio of infrastructure stock to GDP

Projection based on external estimates

Chart 1: Estimates of needed infrastructure investments, 2013-30 ($ trillion, constant 2010 dollars). Source: McKinsey (2013).

competition for infrastructure investments in home (advanced) economies, in a context of perceived risks unfavourable to EMEs. On the other hand, if hypotheses of secular stagnation in some advanced economies are right, long interest rates will remain too low to comply with retirement pension needs for a long time. In this scenario, it is worth recalling that today: “Two particularly pernicious and inter-related challenges confront the global financial system. On the one hand, pools of trillions of dollars of savings, particularly in OECD economies, are trapped in sub-optimal investments earning poor returns. On the other, many developing countries face a serious shortage of capital, even for investments that can generate high financial and economic return. The world’s financial system fails to intermediate between the two at any scale.” (Kapoor, 2014)

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Chart 2: Global Project Finance Market – by source of funding, 2005-2013.

Chart 3: Euro-area banking system reported tier 1 ratios.

Source: IIF, 2014.

has declined in absolute terms since 2007, a trend hardly reversible in the foreseeable future. Bond issuance has been primarily used to refinance existing debt at lower costs, or simply to replace syndicated lending that was not being rolled over. 16

Bond purchases surged after the crisis, reflecting a combination of unconventional monetary policies in large advanced economies, as well as hype about growth prospects in developing countries. However, not only are bond flows experiencing the effects of the current unwinding of those two factors, but they have been imperfect substitutes to banks’ infrastructure financing via long-term lending. The mere abundance of international liquidity of latter years has not been conducive to an equivalent creation of new productive assets in developing countries. As for cross-border asset acquisition by institutional investors and other long-term financial institutions, assuming that the above-mentioned agenda of tasks for the full development of infrastructure as an asset class is accomplished, one should keep in mind the CFI.co | Capital Finance International

… AND EMES NEED TO TAP NEW SOURCES FOR LONG-TERM FUNDING EMEs have been gradually building their own pool of sizeable long-term assets managed by institutional investors, mainly pension funds and insurance companies, totalling around $5.5 trillion as of end 2012 (charts 5 and 6). Besides the increasing role these institutions are expected to play in funding infrastructure, an additional benefit is that a large base of domestic institutional investors could make infrastructure investments more attractive to foreign investors, because they will be perceived as a potential liquidity buffer in times of capital outflows. As discussed by Canuto et al (2014), the task ahead is to develop financial vehicles that can channel EMEs long-term institutional savings into financially viable infrastructure projects. The growing share of public-private partnerships

Autumn 2014 Issue

“Two particularly pernicious and inter-related challenges confront the global financial system. On the one hand, pools of trillions of dollars of savings, particularly in OECD economies, are trapped in suboptimal investments earning poor returns. On the other, many developing countries face a serious shortage of capital, even for investments that can generate high financial and economic return. The world’s financial system fails to intermediate between the two at any scale.” Kapoor, 2013

(PPP) for infrastructure projects is facilitating the development of innovative financial structures to fund these projects. Local fixed-income markets, complemented by more traditional unlisted products, could fill in a large share of the remaining funding gap through infrastructure project bonds, as long as policy makers develop the appropriate framework for issuers, investors, and intermediaries. Infrastructure project bonds are an innovation in advanced economies, but are showing growing relevance in wider markets, with several types of bonds and credit enhancement schemes being tested, depending on the variety of project (e.g. green field, brown field). The challenge for EMEs in developing these bonds is threefold. The first is building or strengthening the fixed-income market regulatory and institutional framework so that structuring, issuance, and placement of infrastructure project bonds becomes costefficient. Most large EMEs already have that framework in place and are in a position to support such bonds. The second challenge is to develop the appropriate credit risk enhancement instruments so that project bonds have credit ratings that are acceptable to institutional investors, generally at domestic investment grade or above (BBB-). Governments,

multilateral organisations, development banks, and commercial banks should play a key role in either supporting or providing these riskmitigating instruments. The third challenge is to implement solutions for liquidity support, such as more effective market-making arrangements, so as to attract a broad group of investors and mitigate the “drying effects” of buy-and-hold by institutional investors. The availability of markets and instruments that allow hedging from exchange-rate risks will also help. Public policies and the direct engagement of government and development agencies in making long-term vehicles financially viable are critical for their success. Furthermore, the development of an active infrastructure project bond market could have a number of positive externalities in reinforcing a long-term fixed-income market for a broader range of issuers. This could compensate for the higher volatility in foreign capital flows and support local fixed-income markets in EMEs that are less dependent on foreign investors. What Development Banks Can Bring to the Table In such a context, it is no surprise that the creation/expansion of national and multilateral development banks has been getting so much attention. For instance, most G20 countries now have some type of national development bank and

the aggregated sum of their assets amounted to more than $3.5tn, according to a recent survey made by UN DESA. By the same token, several existing multilateral development banks have made efforts to raise their financial capacity, while new institutions have been created (e.g. the NDB from the BRICS countries) or are about to be. In principle, even with a domestic base of banks and other financial intermediation vehicles willing and able to fill the gap left by shrinking international syndicated lending, there would be a unique additional role to be played by such development banks. The key word here is “additionality”, i.e. to provide some value added relative to what markets and institutions are already able and willing to do. First, there is a core financial “additionality” offered by development banks, when they play a key role as a catalyst, drawing private capital into long-term projects in countries and sectors where significant development results can be expected, but the market perceives high risks. Those institutions contribute their own funding (loans, equity) and/or guarantees, providing partners with an improved creditor status. Bringing partners into specific deals through syndications also generates additional financing. It is relevant to stress that “more becomes less” after a certain point. The size and composition

200

150

100

-50

-150 Foreign Direct Investment Inflows

Portfolio Investment Equity Inflows

Portfolio Investment Debt Inflows

Inward - Other

-200 Chart 4: Capital Inflows to EMEs. Source: IIF. Country sample: BRICS, Turkey, Mexico, Chile, Poland and Indonesia. Note: f = IIF forecast, e = IIF estimate. Inward – Other: Other Inward Investment (mainly bank loans, but also trade credit and official lending, plus some more obscure items like financial derivatives, financial leases, etc.)

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CFI.co Columnist

-100

US$ bn

EM Asia

EMEA

Latin America

2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200

Chart 6 - EME Insurance company assets reaching $3.4tn

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1Q13

Chart 5: EME Pension assets at US$ 2.1tn at the end of 2012. Source: Official sources and J.P. Morgan.

4000 Latin America

3500

EMEA EM

EM Asia

US$3.4 trillion

US$2.7 trillion 3000 2500 2000 1500

US$1.3 trillion

1000 500 0 2005

2011

2012

Chart 6: EME Insurance company assets reaching $3.4tn. Source: Official sources and J.P. Morgan.

CFI.co Columnist

of development bank portfolios must aim to maximize the “crowd in” of private engagement, rather than taking their place (“crowding out”). This is particularly the case when the supply of development bank finance embeds substantial public subsidies. Counterparty finance and complementarity with private investors at the project level can also mitigate “moral hazard” risks. Furthermore, those portfolios should be moving frontiers: When success is obtained, perceived risks tend to fall and finance starts to acquire “plain vanilla” attributes. Typically, a development bank helps with infrastructure project finance; then, the investment starts to operate with funding from loans; building and operational risks fall over time (green field becomes brown field); the originator development bank securitises and makes public offers to institutional and other long-term investors; and 18

the originator is able to initiate a new project cycle. Development banks can also provide “design additionality,” when they help improve the “bankability” – or “financeability” – of project designs. There is also a “policy additionality” when their expertise and policy advice contribute to improvement and stability of policy and regulatory environments. While both are obviously the case with multilateral development banks, very often national development banks are also local repositories of technical knowledge. Finally, as a corollary to these contributions, development banks may offer “selection additionality,” often improving the process of project selection by governments. Ultimately

the

cost-benefit

balance

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development banks’ operation depends not only on the “additionality” provided, but also on its funding, particularly as it embeds some level of subsidies. Given that long-term financing needs in general, and developing country infrastructure project financing needs in particular, tend towards unequivocal upward growth, the potential retrenchment and inappropriate composition of existing international debt flows, as well as the need to make the way for deeper non-banking financial intermediation, highlights the potential catalytic role of development banks. Nevertheless, as exemplified in the imperfect substitutability – and indeed the complementarity – among types of private finance, development banks should make sure they maximize the development bang for their little – and often costly – buck by ensuring “additionality” in what they do. i

This article delves substantially on Canuto, 2013a and Canuto et al (2014). References available online at CFI.co.

Autumn 2014 Issue U n i t e d n at i o n s C o n f e r e n C e o n t r a d e a n d d e v e l o p m ent

WORLD

INVESTMENT FORUM 2014 INVESTING IN SUSTAINABLE DEVELOPMENT

THE FORUM FOR GLOBAL INVESTMENT STAKEHOLDERS

0 5

High relevance: Forging investment solutions to meet global sustainable development challenges High level: Government leaders, global corporate executives, heads of international organizations and thought leaders High benefit: Networking and global media coverage High value: No fee for participants

See programme and register at http://unctad-worldinvestmentforum.org/. Organized by UNCTAD. For further information, contact the Division on Investment and Enterprise at wif@unctad.org. CFI.co | Capital Finance International

> Mukhisa Kituyi – United Nations Conference on Trade and Development:

Sustainable Stock Exchanges and the 21st Century Challenge for Global Finance Faced with common global economic, social, and environmental challenges, the international community is in the process of defining a set of Sustainable Development Goals (SDGs). As part of the United Nations post-2015 agenda, the SDGs will play a crucial role in catalysing efforts to address the most urgent priorities for the twenty-first century. Every institution, in every sector, will have a moral imperative to contribute to achieving the global goals. Stock exchanges and capital market regulators are gearing up to be part of the solution.

NCTAD and its partners are working with policy makers and stock exchange executives around the world to promote more sustainable business practices and responsible capital markets. Launched in 2009 by UN Secretary-General Ban Ki-moon, the Sustainable Stock Exchanges (SSE) initiative is a joint project of UNCTAD, the UN Global Compact, the UN-supported Principles for Responsible Investment, and the UNEP-Finance Initiative. Since 2012 at the UN’s Rio+20 earth summit in Brazil, the SSE has invited stock exchanges to join by making a commitment to promote improved environmental, social, and corporate governance (ESG) disclosure and performance among their listed companies. Market giants like NYSE, NASDAQ, London Stock Exchange and Deutsche Börse, along with about a quarter of the major exchanges in the world, have joined the SSE and committed to working with the UN.

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Momentum is building in this space. In a recent review of more than fifty stock exchanges worldwide, we find almost half of exchanges offer at least one index integrating social and/ or environmental issues; nearly one-third of exchanges provide either sustainability reporting guidance or training to the listed companies on their exchange; and a small pioneering group of leading exchanges require comprehensive reporting of environmental and social issues for at least some, if not all of their companies [1]. This illustrates an emerging set of best practices among exchanges regarding the promotion of sustainability reporting and sustainable business practices more generally. The wider policy landscape is also supportive: 19 members of the G20 have at least one regulation in place requiring disclosure of social and/or environmental metrics by companies. 20

“At present, the financial markets are not hard-wired to drive capital towards sustainable business and the achievement of the SDGs. This can and should change.” Securities regulators are also increasingly involved in the promotion of sustainability reporting. Of the 32 regulators represented on the board of the International Organization of Securities Commissions (IOSCO), for example, more than one-third have introduced a sustainability reporting initiative. While these numbers show that a “new mainstream” is already emerging among policy makers, regulators, and exchanges, further progress is becoming even more urgent in light of the expected introduction of the SDGs in 2015. At present, the financial markets are not hard-wired to drive capital towards sustainable business and the achievement of the SDGs. This can and should change. Obstacles to investment in sustainable development include: The failure of markets and investors to price negative social and environmental externalities; a lack of transparency on ESG performance; misaligned pay and performance incentives; and regulation CFI.co | Capital Finance International

and accounting standards that promote a short-term focus to the detriment of long-term sustainable development projects. These obstacles could be overcome by, among other things, better alignment of corporate incentive structures, reporting requirements, and credit rating assessments with public policy goals. There is also potential to reform financial regulations and accounting standards, discourage short-term trading, and better integrate sustainability considerations into investors’ fiduciary duties and corporate governance practices. Integrating the reporting of ESG issues with financial reporting would also help align corporate performance with sustainable development objectives. While some of these broader challenges lie outside their remit, capital market policy makers and stock exchanges have practical options at hand today to promote sustainable business. Guidance produced by UNCTAD, for example, SSE Partner Exchanges Stock Exchange of Thailand (SET) Deutsche Börse Jamaica Stock Exchange (JSE) Lima Stock Exchange (BVL) Mexican Stock Exchange (BMV) Stock Exchange of Thailand (SET) Colombian Securities Exchange (BVC) London Stock Exchange (LSE) Warsaw Stock Exchange (WSE) Nigerian Stock Exchange (NSE) Bombay Stock Exchange (BSE) NASDAQ OMX BM&FBOVESPA Johannesburg Stock Exchange (JSE) Borsa Istanbul Egyptian Exchange (EGX)

Thailand Germany Jamaica Peru Mexico Thailand Colombia UK Poland Nigeria USA India Brazil South Africa Turkey Egypt

Autumn 2014 Issue Geneva: United Nations

offers suggestions as to how exchanges and policy makers considering sustainability reporting initiatives might proceed [2]. While recognizing that there is no “one-size-fits-all” solution, the guidance considers which institutions might be best placed to introduce sustainability reporting initiatives, and the regulatory and competitive landscape in which exchanges find themselves. It also considers what might be included in the policy, what model of disclosure might be

pursued, and how exchanges and regulators might best implement a reporting policy.

to sustainable business practices, financing the sustainability outcomes that the world seeks.

Sustainability reporting plays an important role in providing the tools that will be needed to implement the sustainable development goals. High-quality corporate reporting on the environmental and social issues that businesses face can help identify targets and measure progress. Such reporting can play an important role in driving investment

Stock exchanges around the world continue to join the SSE initiative as Partner Exchanges to work on these practical measures – to share experiences, overcome common challenges, and engage with key capital market stakeholders. The SSE has seen its membership triple from its original five members to fifteen in just over two years. At the time of press, more than 16,000 companies, with approximately $36 trillion in market capitalization, are listed on SSE Partner Exchanges. We will continue to reach out to stock market stakeholders – policy makers, exchanges, investors, and companies – to help them further promote alignment between market signals and much needed public policy goals. That’s the 21st Century challenge for global finance. i References [1] SSE (2014) Sustainable Stock Exchanges 2014 Report on Progress forthcoming. [2] UNCTAD (2014) Best Practice Guidance for Policymakers and Stock Exchanges on Sustainability Reporting Initiatives.

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UNCTAD Secretary-General Kituyi welcomes London Stock Exchange to the Sustainable Stock Exchanges initiative.

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> Nouriel Roubini:

Abenomics, European Style

EW YORK – Two years ago, Shinzo Abe’s election as Japan’s prime minister led to the advent of “Abenomics,” a three-part plan to rescue the economy from a treadmill of stagnation and deflation. Abenomics’ three components – or “arrows” – comprise massive monetary stimulus in the form of quantitative and qualitative easing (QQE), including more credit for the private sector; a short-term fiscal

stimulus, followed by consolidation to reduce deficits and make public debt sustainable; and structural reforms to strengthen the supply side and potential growth. It now appears – based on European Central Bank President Mario Draghi’s recent Jackson Hole speech – that the ECB has a similar plan in store for the eurozone. The first element of “Draghinomics” is an acceleration of the

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structural reforms needed to boost the eurozone’s potential output growth. Progress on such vital reforms has been disappointing, with more effort made in some countries (Spain and Ireland, for example) and less in others (Italy and France, to cite just two). But Draghi now recognizes that the eurozone’s slow, uneven, and anemic recovery reflects not only structural problems, but also cyclical

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factors that depend more on aggregate demand than on aggregate supply constraints. Thus, measures to increase demand are also necessary. Here, then, is Draghinomics’ second arrow: to reduce the drag on growth from fiscal consolidation while maintaining lower deficits and greater debt sustainability. There is some flexibility in how fast the fiscal target can be achieved, especially now that a lot of front-loaded austerity has occurred and markets are less nervous about the sustainability of public debt. Moreover, while the eurozone periphery may need more consolidation, parts of the core – say, Germany – could pursue a temporary fiscal expansion (lower taxes and more public investment) to stimulate domestic demand and growth. And a eurozone-wide infrastructure-investment program could boost demand while reducing supply-side bottlenecks. The third element of Draghinomics – similar to the QQE of Abenomics – will be quantitative and credit easing in the form of purchases of public bonds and measures to boost privatesector credit growth. Credit easing will start soon with targeted long-term refinancing operations (which provide subsidized liquidity to eurozone banks in exchange for faster growth in lending to the private sector). When regulatory constraints are overcome, the ECB will also begin purchasing private assets (essentially securitized bundles of banks’ new loans). Now Draghi has signaled that, with the eurozone one or two shocks away from deflation, the inflation outlook may soon justify quantitative easing (QE) like that conducted by the US Federal Reserve, the Bank of Japan, and the Bank of England: outright large-scale purchases of eurozone members’ sovereign bonds. Indeed, it is likely that QE will begin by early 2015.

Japan: Tokyo

“Draghi correctly points out that QE would be ineffective unless governments implement faster supply side structural reforms and the right balance of short-term fiscal flexibility and medium-term austerity.”

Quantitative and credit easing could affect the outlook for eurozone inflation and growth through several transmission channels. Shorter- and longer-term bond yields in core and periphery countries – and spreads in the periphery – may decline further, lowering the cost of capital for the public and private sectors. The value of the euro may fall, boosting competitiveness and net exports. Eurozone stock markets could rise, leading to positive wealth effects. Indeed, as the likelihood of QE has increased over this year, asset prices

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have already predicted.

moved

upward,

These changes in asset prices – together with measures that increase private-sector credit growth – can boost aggregate demand and increase inflation expectations. One should also not discount the effect on “animal spirits” – consumer, business, and investor confidence – that a credible commitment by the ECB to deal with slow growth and low inflation may trigger. Some more hawkish ECB officials worry that QE will lead to moral hazard by weakening governments’ commitment to austerity and structural reforms. But in a situation of near-deflation and near-recession, the ECB should do whatever is necessary, regardless of these risks. Moreover, QE may actually reduce moral hazard. If QE and looser short-term fiscal policies boost demand, growth, and employment, governments may be more likely to implement politically painful structural reforms and longterm fiscal consolidation. Indeed, the social and political backlash against austerity and reform is stronger when there is no income or job growth. Draghi correctly points out that QE would be ineffective unless governments implement faster supply side structural reforms and the right balance of short-term fiscal flexibility and medium-term austerity. In Japan, though QQE and short-term fiscal stimulus boosted growth and inflation in the short run, slow progress on the third arrow of structural reforms, along with the effects of the current fiscal consolidation, are now taking a toll on growth. As in Japan, all three arrows of Draghinomics must be launched to ensure that the eurozone gradually returns to competitiveness, growth, job creation, and medium-term debt sustainability in the private and public sectors. By the end of this year, it is to be hoped, the ECB will start to do its part by implementing quantitative and credit easing. i

ABOUT THE AUTHOR Nouriel Roubini is Chairman of Roubini Global Economics and a professor at NYU’s Stern School of Business. Copyright: Project Syndicate, 2014. www.project-syndicate.org

> Joseph E. Stiglitz:

Democracy in the Twenty-First Century

EW YORK – The reception in the United States, and in other advanced economies, of Thomas Piketty’s recent book Capital in the Twenty-First Century attests to growing concern about rising inequality. His book lends further weight to the already overwhelming body of evidence concerning the soaring share of income and wealth at the very top. Piketty’s book, moreover, provides a different perspective on the 30 or so years that followed

the Great Depression and World War II, viewing this period as a historical anomaly, perhaps caused by the unusual social cohesion that cataclysmic events can stimulate. In that era of rapid economic growth, prosperity was widely shared, with all groups advancing, but with those at the bottom seeing larger percentage gains. Piketty also sheds new light on the “reforms” sold by Ronald Reagan and Margaret Thatcher in the 1980s as growth enhancers from which all would benefit. Their reforms were followed by

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slower growth and heightened global instability, and what growth did occur benefited mostly those at the top. But Piketty’s work raises fundamental issues concerning both economic theory and the future of capitalism. He documents large increases in the wealth/output ratio. In standard theory, such increases would be associated with a fall in the return to capital and an increase in wages. But today the return to capital does not seem to have diminished, though wages have. (In the

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US, for example, average wages have stagnated over the past four decades.) The most obvious explanation is that the increase in measured wealth does not correspond to an increase in productive capital – and the data seem consistent with this interpretation. Much of the increase in wealth stemmed from an increase in the value of real estate. Before the 2008 financial crisis, a realestate bubble was evident in many countries; even now, there may not have been a full “correction.” The rise in value also can represent competition among the rich for “positional” goods – a house on the beach or an apartment on New York City’s Fifth Avenue. Sometimes an increase in measured financial wealth corresponds to little more than a shift from “unmeasured” wealth to measured wealth – shifts that can actually reflect deterioration in overall economic performance. If monopoly power increases, or firms (like banks) develop better methods of exploiting ordinary consumers, it will show up as higher profits and, when capitalized, as an increase in financial wealth. But when this happens, of course, societal wellbeing and economic efficiency fall, even as officially measured wealth rises. We simply do not take into account the corresponding diminution of the value of human capital – the wealth of workers.

New York: 5th Avenue

“High levels of economic inequality in countries like the US and, increasingly, those that have followed its economic model, lead to political inequality.”

Moreover, if banks succeed in using their political influence to socialize losses and retain more and more of their ill-gotten gains, the measured wealth in the financial sector increases. We do not measure the corresponding diminution of taxpayers’ wealth. Likewise, if corporations convince the government to overpay for their products (as the major drug companies have succeeded in doing), or are given access to public resources at below-market prices (as mining companies have succeeded in doing), reported financial wealth increases, though the wealth of ordinary citizens does not. What we have been observing – wage stagnation and rising inequality, even as wealth increases – does not reflect

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the workings of a normal market economy, but of what I call “ersatz capitalism.” The problem may not be with how markets should or do work, but with our political system, which has failed to ensure that markets are competitive, and has designed rules that sustain distorted markets in which corporations and the rich can (and unfortunately do) exploit everyone else. Markets, of course, do not exist in a vacuum. There have to be rules of the game, and these are established through political processes. High levels of economic inequality in countries like the US and, increasingly, those that have followed its economic model, lead to political inequality. In such a system, opportunities for economic advancement become unequal as well, reinforcing low levels of social mobility. Thus, Piketty’s forecast of still higher levels of inequality does not reflect the inexorable laws of economics. Simple changes – including higher capital-gains and inheritance taxes, greater spending to broaden access to education, rigorous enforcement of anti-trust laws, corporate-governance reforms that circumscribe executive pay, and financial regulations that rein in banks’ ability to exploit the rest of society – would reduce inequality and increase equality of opportunity markedly. If we get the rules of the game right, we might even be able to restore the rapid and shared economic growth that characterized the middleclass societies of the mid-twentieth century. The main question confronting us today is not really about capital in the twenty-first century. It is about democracy in the twenty-first century. i

ABOUT THE AUTHOR Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University. His most recent book, co-authored with Bruce Greenwald, is Creating a Learning Society: A New Approach to Growth, Development, and Social Progress. Copyright: Project Syndicate, 2014. www.project-syndicate.org

> J. Bradford DeLong:

The Greater Depression

irst it was the 2007 financial crisis. Then it became the 2008 financial crisis. Next it was the downturn of 2008-2009. Finally, in mid-2009, it was dubbed the “Great Recession.” And, with the business cycle’s shift onto an upward trajectory in late 2009, the world breathed a collective a sigh of relief. We would not, it was believed, have to move on to the next label, which would inevitably contain the dreaded D-word.

But the sense of relief was premature. Contrary to the claims of politicians and their senior aides that the “summer of recovery” had arrived, the United States did not experience a V-shaped pattern of economic revival, as it did after the recessions of the late 1970s and early 1980s. And the US economy remained far below its previous growth trend. Indeed, from 2005 to 2007, America’s real (inflation-adjusted) GDP grew at just over 3%

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annually. During the 2009 trough, the figure was 11% lower – and it has since dropped by an additional 5%. The situation is even worse in Europe. Instead of a weak recovery, the eurozone experienced a second-wave contraction beginning in 2010. At the trough, the eurozone’s real GDP amounted to 8% less than the 1995-2007 trend; today, it is 15% lower.

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“By 2011, it was clear – at least to me – that the Great Recession was no longer an accurate moniker. It was time to begin calling this episode ‘the Lesser Depression.’” Cumulative output losses relative to the 1995-2007 trends now stand at 78% of annual GDP for the US, and at 60% for the eurozone. That is an extraordinarily large amount of foregone prosperity – and a far worse outcome than was expected. In 2007, nobody foresaw the decline in growth rates and potential output that statistical and policymaking agencies are now baking into their estimates. By 2011, it was clear – at least to me – that the Great Recession was no longer an accurate moniker. It was time to begin calling this episode “the Lesser Depression.” But the story does not end there. Today, the North Atlantic economy faces two additional downward shocks. The first, as Lorcan Roche Kelly of Agenda Research noted, was discussed by European Central Bank President Mario Draghi while extemporizing during a recent speech. Draghi began by acknowledging that, in Europe, inflation has declined from around 2.5% in mid-2012 to 0.4% today. He then argued that we can no longer assume that the drivers of this trend – such as a drop in food and energy prices, high unemployment, and the crisis in Ukraine – are temporary in nature.

California: Berkeley University Sather Tower

“In fact, inflation has been declining for so long that it is now threatening price stability – and inflation expectations continue to fall.”

In fact, inflation has been declining for so long that it is now threatening price stability – and inflation expectations continue to fall. The five-year swap rate – an indicator of medium-term inflation expectations – has fallen by 15 basis points since mid-2012, to less than 2%. Moreover, as Draghi noted, real short- and medium-term rates have increased; long-term rates have not, owing to a decline in long-term nominal rates that extends far beyond the eurozone. Draghi’s subsequent declaration that the ECB Governing Council will use “all the available unconventional instruments” to safeguard price

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stability and anchor inflation expectations over the medium-to-long term is telling. The pretense that the eurozone is on a path toward recovery has collapsed; the only realistic way to read the financial markets is to anticipate a triple-dip recession. Meanwhile, in the US, the Federal Reserve under Janet Yellen is no longer wondering whether it is appropriate to stop purchasing longterm assets and raise interest rates until there is a significant upturn in employment. Instead, despite the absence of a significant increase in employment or a substantial increase in inflation, the Fed already is cutting its asset purchases and considering when, not whether, to raise interest rates. A year and a half ago, those who expected a return by 2017 to the path of potential output – whatever that would be – estimated that the Great Recession would ultimately cost the North Atlantic economy about 80% of one year’s GDP, or $13 trillion, in lost production. If such a five-year recovery began now – a highly optimistic scenario – it would mean losses of about $20 trillion. If, as seems more likely, the economy performs over the next five years as it has for the last two, then takes another five years to recover, a massive $35 trillion worth of wealth would be lost. When do we admit that it is time to call what is happening by its true name? i

ABOUT THE AUTHOR J. Bradford DeLong a former deputy assistant secretary of the US Treasury, is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. Copyright: Project Syndicate, 2014. www.project-syndicate.org

> Autumn 2014 Special:

Beautiful Minds Passion for the Good of Humanity

ost minds are beautiful; some just happen to be a little more so than others. This autumn edition of CFI. co features ten noteworthy beautiful minds; people who made an impact felt around the world by thinking and tinkering, mostly in that order. The world stands in dire need of beautiful minds if only to counterpoise the ugliness of violence and poverty and the human despair they cause. Beautiful minds call attention to possibilities and solutions rather than to problems. These gifted people also discern opportunity where other may just see doubts or limitations. Take Sir Timothy Berners-Lee who basically invented the Internet as most of us know it in the form of the World Wide Web. This British computer scientist came up with a concept that allowed for the smooth exchange of information via easily accessible websites and then built the tools needed to implement the idea. He also refused payment for his invention even though his idea profoundly changed the world. Other beautiful minds work best in self-imposed exile or isolation. Mathematician Andrew Wiles laboured away for six years in near-total secret to prove Fermat’s Last Theorem. During all this time, only his wife knew what he was up to. After 358 years of trying by countless mathematical geniuses, Mr Wiles was the first to prove that Fermat’s theorem holds true under all circumstances – a feat of no small distinction. Beautiful minds help shape the world as they have done throughout the ages. Reaching back in history, a long list of exceptionally gifted people appears. Alan Turing comes to mind – he invented the world’s first computer in order to crack German

codes during World War II. Or Howard Hughes: Business tycoon, aviation pioneer, philanthropist, and recluse. Topping the list of history’s most beautiful minds is of course Leonardo da Vinci, the peerless Florentine painter, sculptor, visionary and inventor whose contributions to science range from mathematics to botany and cartography via engineering and architecture. Back to the present where beautiful minds often dwell in anonymity: Businessmen or women reaping not just profits but offering society the full benefit or their entrepreneurial spirit as well; community organisers trying to improve living conditions from the ground up; financiers who look beyond rates of return and statistics to enable progress; educators who forego lucrative careers in private enterprise to mesmerise kids with the marvels of knowledge; and medical professionals who donate their skills in order to help those in need. In fact, there are but a few ugly minds around. They shall remain unnamed for they are already well-known, grabbing power that is not theirs to hold, imposing their will on others for some higher ideal that otherwise could not gain traction, and promoting the bliss of ignorance by blocking the free flow of information. Thankfully though, these uncelebrated minds rarely make a lasting impact other than to warn humanity of the folly of war and absolutist power. None of the people whose beautiful minds are featured in this issue of CFO.co forced their ideas on others or, indeed, aimed to squeeze every last bit of profit out of their inventions or designs. Beautiful minds are driven by passion and as such reach way beyond the mundane. i

Massachusetts Institute of Technology in Cambridge, USA

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> ELIF SHAFAK Exposing the Moralising Slappers

Born in 1971 to a diplomat mother and philosopher father, Elif Shafak was destined for intellectual greatness. She did not fail to heed the call and today is Turkey’s most widely read and celebrated female author with thirteen books to her name. She is also one of the country’s most outspoken voices on feminism, cosmopolitanism, and politics.

“Had this happened in another country, the entire government would be shaken to the core. Not in Turkey where the state has all the power and citizens do not. We as a nation are used to being slapped by those in positions of higher authority. In family, in school, in the army, in the street, in the supermarket … the slap is everywhere.”

a concept, not just a city straddling the divide between The East and The West. In a recent essay for Time Magazine she concluded: “East and West do mix. In a city like Istanbul they mix intensely, incessantly, amazingly. One should be cautious when using categories to talk about Istanbul. If there is one thing this city doesn’t like, it is clichés.”

With over 1.6 million followers on the microblogging network Twitter, Mrs Shafak’s word carries considerable weight. Her essays appear regularly in some of the world’s most prestigious newspapers such as The Guardian and The New York Times. Writing in response to repression of the protests following last May’s mining disaster, Mrs Shafak focused on the odd behaviour of Prime-Minister Recep Erdoğan who allegedly warned the discontents that “if you boo me, you get a slap.” Mr Erdoğan then went on to slap one of the protesters who had found refuge from the tumult in a grocery store. An aide to the prime-minister, aiming to oblige, went a step further and was caught on camera kicking a man being held to the ground by two burly police officers. The next day, this aide was sent on sick leave for injuries to his kicking foot.

Mrs Shafak is also mildly critical of the increased polarisation of Turkish society. The female body is all too often the battleground of choice for moralising politicians and administrators. Even in cosmopolitan Istanbul, the city Elif Shafak freely draws her literary inspiration from, advertising billboards displaying moderate amounts of female skin are regularly painted over. Off the record, municipal censors admit to cropping the legs of models in order to meet the unwritten but strict standards of the city’s administration. “Today, men of all political persuasions feel free to lecture women on how to dress and how to live.”

In her 2012 novel The Forty Rules of Love, Elif Shafak explores the universal desire for intimacy – with other human beings as well as with the divine. The book is a modern-day fable that toggles between the lives of an American housewife and a 13th century poet and lays bare the struggle for supremacy between the rational mind and the passionate heart. The book sold over a million copies worldwide and was translated into forty languages.

The changing face of political and societal values does not discourage Mrs Shafak in the least: She remains firmly committed to Istanbul as CFI.co | Capital Finance International

Penning her books in both English and her native Turkish, Mrs Shafak divides her time between the world’s great cities. When not exploring the backstreets of Istanbul, she is likely to be found in Boston, London, or Amsterdam thriving on the multiculturalism that powers the world’s most dynamic societies.

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> ANDREW WILES A Mathematician with Brawn It takes a special kind of genius to make numbers talk and even sing. Mathematicians, while certainly not a-dime-a-dozen, are relatively common, but most stick to working with wellestablished formulae, crunching numbers as they go and applying the output to human endeavours of all sorts. British mathematician Andrew John Wiles (61), a research professor at the University of Oxford, dwells altogether in a dimension quite distinct from the one inhabited by most of his colleagues. Barely ten and while on his way home from school, he picked up a comment on Fermat’s Last Theorem. Intrigued, he stopped by the local library for some clues. The theorem holds that no three positive whole numbers (a, b, c) can fit the equation an + bn = cn whereby n is an integer greater than two. Pierre de Fermat (1601-1665) was a French lawyer and amateur mathematician who took Pythagoras’ equation (a2 + b2 = c2) as it applies to two-dimensional geometry and tried to cube it (a3 + b3 = c3). Fermat immediately noted that Pythagoras cubed has no solution. He then proceeded to find out why and is said to have obtained mathematical proof for his initial observation. Fermat’s proof, however, had vanished in the mists of time until a kid with both brawn and brains from Cambridge, England came along to shine a light on it. Remarkably enough, young Andrew Wiles instantly grasped Fermat’s mathematical conundrum and promptly decided to prove its veracity. It would take him another 32 years, but in the end Professor Wiles succeeded where countless mathematician before him had failed. However, it took six years of hard work, conducted in near-total secrecy, to come up with the final proof which Prof Wiles presented in June 1993 over the course of three lectures at the Isaac Newton Institute for Mathematical Sciences. While this first attempt at solving the theorem contained an impressive number of groundbreaking approaches to mathematical questions, it also contained an error. It would take another 16 months of mind-boggling calculations to rectify the error and solidify Prof Wiles’ peerless reputation as the man who, after 358 years of fruitless attempts by some of the world’s brightest minds, came up with the irrefutable proof that Fermat’s Last Theorem holds true under any and all circumstances.

thing. That particular odyssey is over. My mind is at rest.”

“I was so obsessed by this problem that for eight years I was thinking about it all the time – when I woke up in the morning to when I went to sleep at night. That’s a long time to think about one

Prof Wiles was awarded a great many prizes for his monumental achievement. However, he missed out on the prestigious Fields Medal – the mathematical equivalent of the Nobel Prize CFI.co | Capital Finance International

– by being just a single year over its age limit of 40. The medal aims to give recognition to outstanding younger mathematicians. However, Prof Wiles did receive a special silver Fields Plaque from the International Mathematical Union for his dodged determination in proving true the greatest theorem of all. 31

> NOAM CHOMSKY Unravelling Established Truths was clearly struck by the obvious contradictions between his own readings and mainstream press reports. The measurement of the distance between these realities, and the evaluation of why such a gap exists, remain a passion for Chomsky.” An unremitting defence of the right to both free speech and free press lies at the centre of Mr Chomsky’s political philosophy. Without it, all debate ceases and any exchange of opinion becomes a dialogue of the deaf. Highly critical of the press in his own country, the United States, Mr Chomsky habitually decries the reshaping of fact to fit the commercial or political mould du jour. In a by now infamous critique of the media, he compared the coverage awarded the genocidal Pol Pot regime in Cambodia, a US enemy state, to the press reports on the occupation by Indonesia, a US ally, of East Timor. Mr Chomsky found that atrocities committed by Indonesian forces received but scant coverage while those perpetrated by Pol Pot and his henchmen in Cambodia were splashed all over the news drawing wide condemnation. Though stating the obvious – and reaching conclusions not devoid of logic – Mr Chomsky received much criticism and was even called an apologist for the regime that instituted the Killing Fields. In reality, he merely concluded that international news coverage is largely inspired and driven by systemic biases and propaganda. Though a polemicist by nature, Mr Chomsky has gained wide acclaim as a linguist and became, for a time in the 1980s and 1990s, the most-cited living scholar in the field of Arts and Humanities. In 1956, he helped create the Chomsky Hierarchy which describes the basic structure of formal languages and, as such, still helps computer scientists build linguistic bridges between machine code – processed by chips and processors but incomprehensible to humans – and programming language that can be easily written and read by software developers.

It is hard, if not downright impossible, to gain the upper hand in a debate with a logician who is a walking, and talking, encyclopaedia to boot. Noam Chomsky, a self-styled anarcho-syndicalist and a linguist of great distinction, is not easily swayed and will vigorously defend whatever outlandish position he has adopted.

extremist of the militant left spouting crackpot ideas inapplicable to, and at odds with, contemporary life. However, most of Chomsky’s opponents fail to see the depth and breadth of his reasoning. They also often lack the openness of mind required to see the sound reasoning behind Mr Chomsky’s ideas.

To his many critics, Mr Chomsky is but an

According to his biographer Robert F Barsky, “he

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Mr Chomsky has authored over a hundred books – including some exceptionally heavy tomes – on both linguistics and politics. One of his latest works – On Western Terrorism: From Hiroshima to Drone Warfare, published in 2013 – proves that Noam Chomsky continues to be the dissident intellectual of old, questioning the West’s role in the world and inviting readers to question established truths and thus undermine prevailing notions of morality.

Autumn 2014 Issue

> JK ROWLING Inspiring Words Matched to an Inspiring Life When the first edition of a book published in 1997 already fetches upward of twenty-thousand pounds, it is sure to have represented a literary milestone. Such is indeed the case with JK Rowling’s peerless masterwork Harry Potter and Philosopher’s Stone which had an initial print run of only a thousand copies, half destined for libraries across the UK. It took Mrs Rowling almost five years, most of them marred by personal tragedies and setbacks, to finish her debut novel. She did so as a single mother, diagnosed with clinical depression, unemployed, and on meagre welfare benefits. Toting her baby daughter from one Edinburgh café to the next, she steadily worked towards the conclusion of an idea formed in 1990 during a train journey from Manchester to London. Mrs Rowling’s perseverance paid off. The first of what was soon to become a series of Harry Potter books sold close to 110 million copies worldwide. However, it was the eight-year-old daughter of Bloomsbury’s chief executive who sealed JK Rowling’s fate by bluntly stating that her book “was so much better than anything else.” Prior to that verdict, twelve publishers had rejected the manuscript for being too long. With her seven epic Harry Potter instalments selling a grand total of over 400 million books, Ms Rowling became the world’s most widely read author. The release of the last of the series, Harry Potter and the Deathly Hallows, turned into a global event. On the eve of July 21, 2007, young and older readers alike queued up in long lines in front of bookstores to grab a precious copy at one minute past midnight British Standard Time – the book’s official moment of release. That same day, the seventh Harry Potter title became the world’s fastest-selling book ever with well over 11 million copies sold. A storyteller of almost unequalled talent, JK Rowling thrives on challenges. Turning to adult literature, she left the Harry Potter world of fantasy behind to tackle societal issues such as class, politics, drugs, and prostitution in A Casual Vacancy. Her adult debut novel promptly sold a million copies and was made in a soon to be released BBC television drama series. Checking to see if her writing could attract a readership without the name recognition, JK Rowling assumed the pseudonym of Robert Galbraith for the release of The Cuckoo’s Calling, a detective novel. It took the literary critics and editors of The Sunday Times all of three months to unmask Robert Galbraith and confirm that the book had indeed been written by none other than JK Rowling. However, she

did prove her point: A Cuckoo’s Calling was exceptionally well received though the book sold only about 1,500 hardcover copies up to the moment the true identity of its author was revealed. Immediately afterwards, sales shot up by 4,000%. Working her way up to almost immeasurable wealth and fame, JK Rowling has not forgotten about the less happy times she had to experience. Through a charitable trust, financed to the tune of £5.1 million annually, she helps fight poverty and social inequality in Britain. She also wrote two booklets that raised well over fifteen million pound for Comic CFI.co | Capital Finance International

Relief – an anti-poverty fund. JK Rowling has also donated sizeable amounts in support of research and treatment of multiple sclerosis, the disease her own mother died from while the first Harry Potter book was taking shape. Her greatest inspiration and motivation, besides the venerable Jane Austen, comes from civil rights activist and campaigner Jessica Mitford (1917-1996). “She instantly became my heroine after I read Hons and Rebels at age 14. She ran away from home to fight in the Spanish Civil War, remained true to her convictions, and never really outgrew her adolescent traits. I even named my own daughter after her.” 33

> POPE FRANCIS Repairing the Roman Catholic Church

Is he merely a window dresser or could he actually be the great reformer most Roman Catholics have been patiently waiting for? Since his election in March 2013, Pope Francis – formerly known as Jorge Mario Bergoglio from Argentina – has been shaking things up at the Holy See. Immediately after his investiture, Pope Francis invited eight cardinal advisers – all nonconformists – to form a council that is to offer outside guidance on the restructuring of the Roman Curia – the Vatican’s rather dysfunctional, stuffy and self-serving bureaucracy. Leading ecclesiastical historian Alberto Melloni, professor at the University of Modena, described this as the biggest step in church history for the past ten centuries. In a sign that he prefers to bypass and even ignore Vatican bureaucracy, Pope Francis arranged his visit to the Italian island Lampedusa – awash with boat refugees from Africa – without consulting the Holy See’s State Secretariat – a sort of primeminister’s office – and even tried to book his own flight using Alitalia’s website. Pope Francis has also turned his attention to the scandal-ridden Vatican Bank. The members of the bank’s supervisory board, exclusively made up of cardinals, were told to forego their annual 34

EUR25,000 stipend. The pope then promptly proceeded to appoint a five-member commission of outside financial experts of “impeccable moral rectitude” to investigate allegations of money-laundering and other improprieties. The experts, who are to report directly to him, were handed hand-written notes granting them full and unrestricted access to all the bank’s documents and archives, doing away with the Vatican’s traditional secrecy. Pope Francis hopes to lead his battered church by example. He ditched most of the monarchical trappings of his office and refused to take up residence in the papal palace, opting instead for a modest hostel. This pope also doesn’t mind carrying his own bags, sharing simple meals at the refectory table, and in fact leaves no opportunity unused to assert his humility. The lack of pretence also transpires on a theological level. Popeww Francis insists on returning his church to the basics, emphasising the message of love, the mission of caring for the poor, and prioritising the concern for the persecuted. Church dogma is to take a second seat to these. A third seat is reserved for the Vatican’s longstanding obsession with abortion, gay marriage, CFI.co | Capital Finance International

and contraception. Pope Francis made it abundantly clear that, though no change of church doctrine is being contemplated, he does want to shift the emphasis of the church’s action. “We have to find a new balance otherwise even the moral edifice of the church is likely to fall like a house of cards, losing the freshness and fragrance of the gospel.” In Latin America and many other parts of the developing world, the reordering of church priorities imposed by Pope Francis is welcomed as a vindication, of sorts, of the previously muchmaligned Theology of Liberation that seeks to engage the church in the political and economic struggle of the poor. Earlier popes condemned this theology as Marxist and did not hesitate to silence proponents such as Brazilian theologian Leonardo Boff who – to his own amazement – has now been invited to submit his writings to the Vatican for reevaluation. Pope Francis, both the first Jesuit and the first Latin American to rule over the church, aims to be true to the saint whose name he adopted – St Francis of Assisi. In the 12th century, his namesake is reported to have received a message from a crucifix: “Francis, repair my church for it is in ruins.”

Autumn 2014 Issue

> DR RACHID YAZAMI A Battery-Powered Future

Dr Rachid Yazami almost single-handedly invented a global business now worth some $15bn annually. But, he’s not in it for the money. Rather, this Morocco-born scientist is motivated by the thrill of discovery. Dr Yazami has some seventy patents to his name, most relating to battery technology. It is largely thanks to his genius that mobile phones and other gadgets today charge much faster and hold power considerably longer than before. He recently came up with nano-Si and nano-Ge based anodes that allow lithium batteries to be fully recharged at ultra-high rates. According to Dr Yazami, the future holds great promise. Scientists are on the cusp of finding their holy grail: The almost instantly rechargeable, long-life battery. Dr Yazami is currently leading a team of researchers at the California Institute of Technology (Caltech) working on the development of lithium-carbon fluoride battery technology. Next-generation batteries will enable more powerful portable electronic devices to perform longer with little downtime for recharging.

Just one year after graduating from the Grenoble Institute of Technology in 1978, Dr Yazami discovered a polymer electrolyte for use in an electrochemical cell that led to the development lithium-graphite anode now found in almost all lithium batteries. After obtaining his Ph.D. degree in 1985, Dr Yazami joined the prestigious French Centre for National Research which awarded him a professorship in 1998. Author of more than 200 scientific papers, Dr Yazami is widely considered the world’s leading expert on battery technology. While the study of graphite intercalation compounds or phase transitions in metal oxides may not fascinate the general public, these esoteric endeavours made it possible to develop a vast range of gadgets now deemed essential to contemporary life. Without Dr Yazami’s discoveries, the iPhone would not be so smart; notebook and tablet computers would be but dumb and short-lived cousins to the AC-powered desktop; watches would still need to be wound up; pacemakers would need external battery packs; and NASA CFI.co | Capital Finance International

would have to shoot heavy and cumbersome battery cells into space. The humble lithium-ion battery, now ubiquitous, owes its very existence to the scientific work of Dr Yazami. Earlier this year, Dr Yazami and three of his fellow researchers were awarded the coveted Draper Prize by the US National Academy of Engineering (NAE) for their pioneering work on battery technology. The $500,000 prize, granted annually and considered one of the three “Nobel Prizes of Engineering” (with the NAE’s Russ and Gordon Prizes), seeks to honour and recognize those who contribute to the advancement of engineering. Battery technology constitutes one of today’s most dynamic fields of scientific investigation. The development of ever smaller cells that hold vast amounts of power and may be recharged quickly and efficiently is essential for the coming-of-age of nearly everything from electrical vehicles and miniature drones to portable computing and long-lasting implanted medical devices. 35

> SHINYA YAMANAKA Unlocking the Potential of Cells Professor Shinya Yamanaka of Kyoto University is in the business of time travel. He discovered that fully mature cells can be induced to revert to their earlier pluripotent state. Such a pluripotent cell has yet to develop into one of the three germ layers. Prior to Prof Yamanaka’s discovery it was thought that stem cell differentiation was a oneway continuum. What Prof Yamanaka (51) found is that a cell may be reprogrammed to an earlier state in its development and assigned to generate any of the cell lineages in the body. The practical implications of this are manifold. Using the Prof Yamanaka’s techniques, scientists at the Joslin Diabetes Centre in the US earlier this year created the first human cells that offer insulin resistance. This could eventually help cure people suffering from diabetes type 2. Prof Yamanaka’s work has other uses as well. Easily obtainable skin cells may be brought back to their pluripotent (stem cell) state and from there coaxed to become brain cells. Applying this procedure to the skin cells of, say, an autistic child allows scientists an opportunity, not previously available, to study the patient’s brain cells for clues to his/her condition and possible chemical fixes. In 2012, Prof Yamanaka was awarded the Nobel Prize in Physiology or Medicine together with the British developmental biologist Sir John Bertrand Gurdon for their ground breaking work on transforming mature cells into stem cells. As often happens with exceptionally gifted people, Prof Yamanaka answered his scientific calling in a roundabout way. After receiving his medical degree from Osaka Kyoiku University in 1987, Shinya Yamanaka found work as a resident orthopaedic surgeon. Though he stuck it out for two years, surgery was most certainly not “his thing” and colleagues soon christened him Dr Jamanaka – “Dr Obtsacle”. However, Prof Yamanaka truly came into his own at the Nara Institute of Science and Technology where he won a research position by bluntly stating to the hiring panel that he would clarify the characteristics of embryonic stem cells. This he of course proceeded to do, landing him a Nobel Prize, besides many other awards, in the process. Prof Yamanaka currently heads the Centre for iPS Cell Research and Application at Kyoto University – one of the world’s most renowned scientific research institutions. Since his discovery of induced stem cells in 2006, an entire new field in medical research has come 36

into being with scientists the world over working to find and map the true potential of cell manipulation. Scientists have now found shortcuts that allow for cell transformation skipping the stem cell CFI.co | Capital Finance International

state. They have also improved the delivery mechanism of pluripotency factors, increasing the overall efficiency of the process. Research is now focused on ensuring patient safety and reducing the risk of cell mutation and other genomic abnormalities.

Autumn 2014 Issue

> TEMPLE GRANDIN Autism Drives Academic Excellence The lady thinks like a cow. In the case Temple Grandin (66), that is a compliment. Dr Grandin has singlehandedly changed and much improved the way livestock is handled in the US and across the globe. Her redesigned feedlots, stockyards and meat processing plants reduce stress levels in cattle and ensure humane slaughtering practices. As an animal welfare advocate and a scientist, Dr Grandin developed a new range of livestock handling and holding practices that have now become the de-facto standard in both the US and Europe. In her now famous essay Animals Are Not Things, Dr Grandin argues that while legally animals may be considered property, they also hold certain rights. While the owner of, say, a screwdriver may grind and pulverize that object, a rancher may not inflict pain or suffering on his animals. It is this distinction that forms the premise of Dr Grandin’s work. Dr Grandin is not just a distinguished professor of animal science at Colorado State University, she is also a bestselling author, a private consultant to the livestock industry, and an activist for people suffering – like she is – from autism. In fact, autism is central to Dr Grandin’s life. It is because of this condition – and the attention to minute detail and sensory acuity it brings – that she was able to relate to the stresses that livestock undergo as they are moved from the range to feedlots to final destination. “I think using animals for food is an ethical thing to do, but we’ve got to do it right. We’ve got to give those animals a decent life, and we’ve got to give them a painless death. We owe the animal respect.” Dr Grandin stresses that families and care providers must provide serious time to work with autistic children so that they may reach their full potential. “You can’t just let them sit in the corner. You’ve got to really work with them.” That is what her parents did. While middle and high school were “unpleasant experiences”, Temple Grandin found her groove at the Hampshire Country School for gifted children from where she proceeded to obtain a doctoral degree in animal science from the Ohio State University. Curiously enough, Dr Grandin does not necessarily support medical research efforts that try to find a cure for autism. She would much rather see an improvement in the educational approaches to neurodiversity considering that diverse neurological conditions correspond to normal variations in the human genome. Proponents of neurodiversity such as Dr Grandin argue that neurological variations should be recognized and respected as a social category similar to gender,

ethnicity, sexual orientation, or disability.” Featuring on the Time 100 list of the world’s most influential people since 2010, Dr Grandin has received a great many awards and honorary CFI.co | Capital Finance International

degrees in recognition of both her work as a scientist and an activist for the rights of autistic people. She was also portrayed in semibiographical HBO movie that garnered no less than 15 Emmy nominations in 2010. 37

> SIR TIMOTHY BERNERS-LEE Catching the World in a Web He may not have invented the Internet, former US vice-president Al Gore did that (…), but British computer scientist Sir Timothy Berners-Lee made the World Wide Web (www) as we know it today possible by coming up with the HyperText Transfer Protocol (HTTP) which enables websites to transmit data over the net. HTTP constitutes a request-response protocol between servers and client computers. It was first used in November 1989 when “Tim” BernersLee and his colleagues at CERN – the European Organisation for Nuclear Research, then the largest Internet node in Europe –succeed in having a central computer serve up a webpage after receiving a GET request over the Internet from a user’s computer. The page requested was written in HyperText Markup Language (HTML), a set of instructions that tells a client computer how to assemble a webpage and show it on the user’s monitor. HTML, also invented by Sir Timothy BernersLee and his team at CERN, still forms the basis of all websites and thus of the World Wide Web – another idea first proposed by the British scientist who, to cap it all, also built the first-ever web browser. The world’s first website went live on August 6, 1991 at www.info.cern.ch. It explained the workings of the web, gave details about the people involved, and offered software free of charge for designing, hosting, and browsing websites. It is hard to overstate the value of Sir Timothy’s work. Without it, the Internet as we know it would simply not exist. However, the fact that it does and changed life profoundly, may also be attributed to the decision made early on by Sir Timothy Berners-Lee to refrain from seeking monetary gain from his many inventions. He made all his ideas freely available and did not apply for any patents. To manage the World Wide Web, Sir Timothy – now employed by the Massachusetts Institute of Technology – in 1994 founded W3C, the consortium that still is the international standards organisation for the web. W3C is made up of 385 representatives from business, academia, governments, non-profit organisations and individuals. Sir Timothy Berners-Lee remains the consortium’s director. Currently, Sir Timothy is engaged in promoting the concept of net neutrality which holds that both Internet Service Providers (ISPs) and governmental authorities should treat all information travelling the Internet equally. 38

“Threats to the Internet, such as companies or governments that interfere with or snoop on Internet traffic, compromise basic human network rights,” argues Sir Timothy. The British computer scientist also lends his active support to initiatives that aim to improve access to official data. In the UK, he has been asked to help structure and launch data.co.uk, a government-sponsored project that seeks to make all data acquired for official purposes available to the public. “This project signals a wider cultural change in government based on an assumption that information should be in the public domain unless there is a good reason for it not to be – not the other way around.” In October 2013, Sir Timothy Berners-Lee CFI.co | Capital Finance International

got the Big Four of the industry – Google, Facebook, Microsoft, and Intel – to join forces in the Alliance for Affordable Internet, an initiative that hopes to drive down network access costs in the developing world where still only 31% of the population is online. The alliance hopes to improve and broaden Internet access as well and has now adopted the target of the UN’s Broadband Commission which wants to see access charges limited to less than 5% of average monthly income in any given country. Sir Timothy Berners-Lee did not just invent the World Wide Web and nearly all it entails; he was and remains instrumental in promoting and disseminating the web as a powerful tool for human development and progress.

Autumn 2014 Issue

> STEPHEN HAWKING In the Footsteps of Sir Isaac Newton To grasp the size, shape and nature of the universe requires a vast mind such as only very few possess. However, in order to truly understand space, and how it came about, a mind the size of Stephen Hawking’s is needed. Where even renowned physicists struggle to keep up, Mr Hawking effortlessly connects the dots, plays with the resulting lines and draws conclusions that cause universal awe. For all its genius, Mr Hawking’s mind is not an open book: It operates at a level and pace that is quite peerless. To convey the physicist’s thoughts to the general public requires a process of simplification which constitutes a tour-de-force in itself. In the mid-1980s, editors of US publishing house Bantam Books laboured incessantly for almost three years to make Mr Hawking’s thoughts on the origins of the universe accessible to all. The resulting A Brief History of Time: From the Big Bang to Black Holes went on to sell well over ten million copies. The book was translated into 35 languages. Warned by his publisher that for every equation included, readership would plummet by about 50%, the British physicist reluctantly ejected all formulae from his script with the single exception of Albert Einstein’s mass-energy equivalence E = mc2. From the onset, Mr Hawking wanted to share his thoughts and ideas with as broad a readership as possible. Still, A Brief History of Time – a depository of mind-blowing concepts – requires the frequent re-reading of passages, and even entire chapters, if its meaning is to be fully understood. In the original introduction, since removed for copyright reasons, American astrophysicist Carl Sagan called Stephen Hawking a worthy successor to both Isaac Newton and Paul Dirac, the British theoretical physicist who was instrumental in the development of quantum mechanics. Though Stephen Hawking would likely have excelled in any field of his choosing, physics and chemistry were not his first choice: He’d much rather have studied mathematics at Oxford. As it happened, the life of a physics student did not offer young Stephen much of a challenge. In fact, he was bored for most of the time. He stumbled through and landed a first class BA degree – the ticket to a graduate degree from Trinity Hall Cambridge. Stephen Hawking soon established a reputation for academic brilliance. In 1964, he successfully challenged the work of Professor

Fred Hoyle, a noted astronomer famous for his rejection of the Big Bang Theory.

example of mind over matter, Mr Hawking proved them dead-wrong.

As he set off on his career in science by the mid1960s, Stephen Hawking faced increasingly tough battles with his own failing physique. Suffering from a motor neuron disease akin to amyotrophic lateral sclerosis (ALS), doctors in 1963 gave the then 21-year old Stephen Hawking just two years to live. In a shining

Today, 51 years later, bound to a wheelchair and hooked to a speech computer, Mr Hawking keeps the world spellbound with scientific theories on infinity, eternity, time travel, expanding, imploding and parallel universes, and black holes that gobble up time, space and anything else that dares come close.

CFI.co | Capital Finance International

> Europe:

How a Surprisingly United Europe Grapples with Russia As in a previous conflict, the Russians are patiently waiting for the first snow to fall. When the scenery of Central and Eastern Europe turns white â&#x20AC;&#x201C; so the thinking in the Kremlin goes â&#x20AC;&#x201C; Brussels will undoubtedly change its tune on sanctions. The conflict in East Ukraine may have ground to an uneasy stalemate, Europe has maintained its sanctions against Russia and they are now starting to bite.

Paris

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Autumn 2014 Issue

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ussian companies have been shut out of European financial markets. The few large companies that are for now exempted from the sanctions – such as Gazprom, the world’s largest extractor of natural gas – have experienced difficulties in raising cash. Banks are reluctant to advance financing since a next round of sanctions is expected to affect even the likes of Gazprom. The company needs about $25bn annually to keep production levels up, service its debts, and finance expansion plan. Without loans from Western banks, Gazprom has only its cash flow to rely on. While not insignificant, fully 60% of that cash flow – about $65bn – comes from sales to European clients. Though the Chinese have agreed to pay $25bn up front on a $400bn 30year gas deal President Putin is about to strike with Beijing, the money has not been disbursed yet. EU diplomats think that Gazprom needs Europe more than the continent needs Russian gas. The Kremlin, of course, begs to differ and now waits for the first cold-snap of the oncoming winter. Gazprom supplies approximately a third of the 42

“Russia, however, seems to hold most trump cards.” natural gas Europe requires. Half of that gas is piped via the Ukraine and thus liable to a double shut-off by either Moscow or Kiev. TRUMP CARDS Russia, however, seems to hold most trump cards. President Putin’s approval ratings remain high at around 80% as the nation is gripped by patriotic fervour. The rouble may have crashed, inflation may be on the rise, and banks may be teetering on the brink of insolvency; ordinary Russians have not seen their personal lives much affected by the sanctions. The story will be quite different in Europe when temperatures start dropping. A cut-off of Russian gas supplies will have immediate and quite possibly dramatic effects. Substantial price hikes are a given while power cuts are a possibility. CFI.co | Capital Finance International

European nations do have the wherewithal to rush in natural gas from alternate sources, but such an emergency will not be cheap to implement. Most European government leaders hope that reason and common sense will prevail. When it comes to natural gas, Russia and Europe cannot do without each other. This is why Gazprom has so far been left untouched by the sanctions. European policy makers implicitly recognise that natural gas is a fickle commodity and its supply at wellheads cannot be switched on or off at will. Natural gas forms as a high-pressure bubble underground that, once pierced, will keep on flowing until fully drained. Gas may be flared off, but most wells produce far more gas than can be safely flared. Though Gazprom has invested in vast underground storage facilities for natural gas – in essence, pumping it back into the ground – these can hold, at best, only a few days’ worth of production. KEEPING THE GAS FLOW The natural gas must be kept flowing at all times. If it doesn’t serious environmental issues and financial challenges arise. It is for these reasons

Autumn 2014 Issue Moscow

that EU diplomats are not impressed by the looming threat of an interruption of Russian gas supplies. Mr Putin’s notorious disregard for reason is, however, left out of the equation. Time and again, the Russian president has shown a blatant disregard for convention and reason. His effortless conquest of the Crimea would have beggared disbelief but still happened. His shameless meddling in the Eastern Ukraine should have surprised no one but still caught most European leaders off-guard and at a loss for an answer. Though a formidable weapon of soft power, sanctions do not impress a leader who seems all about doing first and taking the consequences later. Europe’s conundrum is a particularly unenviable one: How to make President Putin bow to pressure without him losing face. Nobody in Brussels seriously expects Mr Putin to give in and thus see his aura of invincibility dissipate and with it his power base. The sanctions are, then, more akin to a line in the sand which the Russians are not to cross. The Baltic States and Poland must not be touched. This, even President Putin

will surely agree to. The man is no fool and knows, with madding precision, how far he may safely proceed to reclaim the lands lost after the dissolution of the Soviet Empire. Moldova – or at least Transnistria – shouldn’t feel too comfortable yet. For the Ukraine, a wink and a prayer would seem called for. Gazprom claims that the country owes more than $5bn for gas supplies. In June, the company technically suspended gas shipments to the country. However, to serve its European clients, Gazprom continued pumping gas through pipelines crossing the Ukraine. Not only does the Ukraine help itself to some of the gas transiting its territory, Poland and Slovakia are also pumping Russian gas back to their beleaguered ally. TAPS OF THEIR OWN To complicate matters further, the authorities in Kiev now have a few taps of their own to shut off. Some 80% of the power and water supplies to the Crimean peninsula, now part of Russia, come from the Ukraine and it is not inconceivable that the government in Kiev will propose a simple swap: Gas for the Ukraine in CFI.co | Capital Finance International

return for electrical power and water for the Crimea. Meanwhile, Russia is being confronted by a surprisingly united Europe. The downing of Malaysian Airways Flight MH17 by Russiansupplied rebels has bridged the split between hawks and doves. Germany and Italy, countries that prior to the MH17 tragedy were all too happy trading with Putin in an attempt to create “mutual understanding,” are now firmly behind the sanctions. For once, the European Union – normally a dissonant concert of nations – stands united. As a result, a showdown over gas supplies will set all of Europe against Russia which will then have to face a string of additional sanctions. What Europe would most like to see is that Russia stops using its energy supplies for geopolitical purposes. And perhaps that wish will come true: Notwithstanding thinly-veiled threats from Russia’s Deputy Prime-Minister Dmitry Rogozin – “I hope you don’t freeze in winter” – the Moldovan government went ahead and signed a cooperation treaty with the European Union. Natural gas as a geopolitical crowbar is not all it is made out to be since it also failed to force the Ukraine back in line. i 43

> Sucden Financial:

Global Trading, Customised Solutions Sucden Financial is an award winning international derivatives broker providing access to a broad range of markets, including exchange and OTC traded products, as well as equities, foreign exchange and bullion.

he company was formed in 1973 as the London brokerage arm of Sucres & Denrées (Sucden Group) and has since evolved into one of the largest brokers for traders, fabricators, producers, consumers, investment houses, hedge funds, commodity firms, and high net worth individuals. Since 1994, Sucden Financial has been a Ring Dealing/Category 1 member of the London Metal Exchange (LME) and has access to major global exchanges, offering clients fast, direct access to global markets. Based in the heart of the City of London, Sucden Financial has an office in Moscow and a subsidiary in Hong Kong - Sucden Financial (HK) Limited. Sucden Financial Ltd is authorised and regulated by the Financial Conduct Authority. Sucden Financial (HK) Ltd is licensed by the Securities and Futures Commission (SFC). METALS Sucden Financial is active in base (LME) and

“With a heritage spanning 40 years in the commodities, financial and investment markets, Sucden Financial is recognised across the globe as a leading international derivatives broker.” Michael Overlander – CEO Sucden Financial

precious metals futures and options, as well as the iron ore and steel markets. As a Ring Dealing/Category 1 member of the London Metal Exchange and member of the London Bullion Association (LBMA), the company provides full dealing and brokerage services to industrial users of these markets, as well as market makers, speculators, and traders. Sucden Financial also offers an averaging and warrant dealing service and provides clearing

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and execution services for COMEX and NYMEX futures and options contracts, as well as other exchange traded and OTC precious metals products. FX Sucden Financial is firmly established in foreign exchange trading, the largest and most liquid of all financial markets in the world. Round-theclock trading is available via the telephone and multiple electronic trading solutions, including API connectivity and white label solutions. Using the latest aggregation technology, the company is able to offer deep liquidity and tight price feeds from their multiple bank providers. Sucden Financial provides front-end trading platforms, the ability to tap into the company’s FX liquidity and hedging strategies for both physical and non-delivery to a wide variety of clients ranging from financial institutions to corporates, FX brokers and commercial FX suppliers. SOFTS & AGRICULTURALS Sucden Financial has a long history and a wealth of expertise in soft and agricultural

Autumn 2014 Issue

“The diverse nature of Sucden Financial’s client base means that the company continually evolves to offer our clients customised trading solutions with the latest technology and exceptional levels of service.” Michael Overlander – CEO Sucden Financial

commodities. With highly experienced teams for sugar, coffee and cocoa, the company can provide service for all key futures and options contracts on European and US exchanges. ENERGY Sucden Financial actively trades all energy futures and options contracts on both the ICE Futures Europe and NYMEX exchanges, including the key crude markets of Brent and WTI. It provides direct electronic trading access, clearing and execution services, OTC cleared energy contracts, and offers expert hedging/risk management assistance to its clients. EQUITIES Sucden Financial provides access and expertise for exchange traded equities, equity derivatives and OTC equity derivative instruments, as well as fixed income on all major European and key worldwide exchanges. PRIVATE INVESTORS Sucden Financial has a dedicated private client team offering a tailored personal trading service for individual investors, investment vehicles, SASS, and SIPPS. The company aims to ensure that its clients are supported by the highest levels of service, providing access to global futures, options, equity, CFD, and forex markets via a suite of platforms, including mobile trading via iPhone or iPad and complimentary live news, prices, research, and charting tools. THE SUCRES & DENRÉES GROUP Sucres & Denrées was founded by Maurice Varsano in 1952. Over sixty years later, the group is one of the world’s largest physical sugar trading companies. Headquartered in Paris, it remains privately owned with Maurice’s son, Serge Varsano as executive chairman. Over the years the group has expanded its scope of activities beyond sugar, into other products and services including, cocoa, ethanol, and ocean freight. It also diversified into the field of financial services through Sucden Financial. i

www.sucdenfinancial.com CFI.co | Capital Finance International

> CFI.co Meets Sucden Financial:

A Team of Seasoned Experts MICHAEL, OVERLANDER (CHIEF EXECUTIVE OFFICER) Mr Overlander has been actively involved in commodities for over 40 years, having begun his career on the London Metal Exchange (LME) in 1971. He has worked for the Sucden Group since 1973. In 1984, Mr Overlander was appointed to the board of Sucden Financial. He has been responsible for helping the company expand its activities from being a single commodity house to a fully comprehensive brokerage firm with an extensive international client base. Mr Overlander was chairman of the London Sugar Market for four years and director of the former London Commodity Exchange (LCE) and London International Financial Futures and Options Exchange (LIFFE). He was also a long-serving director of the LME until the exchange was sold to Hong Kong Exchanges and Clearing Limited (HKEx) in 2012. He is a current member of the LME User Committee. JEREMY GOLDWYN (NON-EXECUTIVE DIRECTOR) Mr Goldwyn has over 25 years’ experience of the commodities and metals industry in both futures and physicals. He first joined Sucden Financial in 2004, having previously headed up Scotia Mocatta’s base metals unit and then establishing his own consulting business. During his time with Sucden Financial, he was initially based at the firm’s headquarters in the City of London, as global head of Industrial Commodities and took overall responsibility for the firm’s corporate metals and energy brokerage business. He has been instrumental in the company’s expansion in the Asia Pacific Region, with a specific focus on China. Mr Goldwyn joined Sucden Financial’s Board of Directors in 2012. PAUL GRAHAM (HEAD OF INDUSTRIAL COMMODITIES) Mr Graham is head of the Industrial Commodities Desk at Sucden Financial Ltd, having joined the company in 2005. He has worked in the commodities industry since 1982 and started his career with Scotia Mocatta spanning 19 years, the majority of which was spent on the LME floor, both trading and generating institutional and trade business. Mr Graham has marketed successfully at numerous conferences around the globe, building up an impressive base of contacts within the business. He has a wealth of experience in the LME industry (having worked also for Refco and SG); in particular in proprietary trading and facilitating client business. He has witnessed first-hand the introduction of screen-based trading platforms and the development and creation of new contracts, and has experienced the continual evolution within the commodities arena. LUCY WAINMAN (COMMODITY BROKER) Mrs Wainman started her commodity career at LME ring member AMT in 2002, servicing clients around the 46

Michael Overlander

Jeremy Goldwyn

Paul Graham

Steve Hardcastle

Lucy Waiman

globe with a special focus on the Chinese market. She joined Sucden Financial in 2006, strengthening the Industrial team to expand its derivative business in China. At Sucden her career has flourished, spending time on numerous marketing trips around Asia building up an impressive portfolio of clients from manufacturing, physical trading, financial, and investment background, trading commodity and financial derivatives on a wide range of global exchanges. She is the core centre of our successful London-based Chinese team. STEVE HARDCASTLE (HEAD OF CLIENT SERVICES) Mr Hardcastle was educated at Newcastle University in England and began his career at Noranda Mines in 1970. Previously at AMT (LME brokers), in 2006 he joined Sucden Financial’s Industrial Commodities team, as head of Client Services. Mr Hardcastle has traded base and precious metals for over forty years and he speaks regularly with the company’s clients ranging from producers to refiners to traders, sells services to new clients, and arranges the commercial side of account opening and general client liaison. He is a regular market commentator on base and precious metals. GEOFFREY ISON (HEAD OF LME) Mr Ison has over 25 years’ experience in the commodities business, starting on the LME as a market clerk with AMT in the summer of 1985. He CFI.co | Capital Finance International

Geoffrey Ison

passed his dealing exam when he was only 21 and has traded actively since in the ring specialising mostly in copper and aluminium. He worked at Metdist for 15 years, and for eight of those years was head of all LME operations. Mr Ison joined Sucden in 2009 as head of the LME department and currently represents Sucden Financial on both the Ring Dealers and Trading Committee on the LME. i

THE PREMIER REAL ESTATE EVENT IN KUWAIT

70+ EXHIBITORS

1 SUMMIT

REAL ESTATE

1,000 s OF INVESTMENT OPPORTUNITIES

Cityscape Kuwait 2014 is the premier real estate investment and development event in the State of Kuwait. Featuring a large scale exhibition, a content driven conference and other networking events, Cityscape Kuwait brings together key decision-makers from the public and private sectors, supporting development, bringing transparency and encouraging collaboration. Whether you are a large scale real estate developer, a local architect or a private investor, Cityscape Kuwait is your opportunity to access the Kuwaiti real estate and investment community like no other event or platform ever has.

7-9 December 2014, KUWAIT

Kuwait International Fairgrounds Organised by

> CFI.co Meets the Executive Chairman of ISM Capital:

Cliff Siegel

liff Siegel is executive chairman and co-founder of ISM Capital, a Londonbased investment bank that specialises in creating debt capital market-based funding solutions for mid-market companies around the world. Since its founding in 2008, ISM Capital has raised over $1.6 billion for mid-cap issuers across a wide range of sectors and jurisdictions via the international debt markets. The strength of the team Mr Siegel has helped build at ISM Capital has been recognised by readers of CFI.co and the Judging Panel, resulting in ISM Capital winning the award for Most Innovative Capital Markets Team UK, 2014. Mr Siegel has over 30 years of experience as an investment banker. He joined the Cresvale Group in London in 1981, trading equity-linked securities, and went on to found Cresvale’s US business in 1982. He joined Jefferies & Company in New York in 1990, and in 1993 returned to London to become the CEO of Jefferies International. At Jefferies—one of the world’s most admired companies according to Fortune Magazine—Mr Siegel oversaw the opening of offices in London, Delhi, Paris, Zurich, and Tokyo. He also assisted in the creation of the Jefferies International Asset Management Convertible Fund, of which he was both chairman and CIO. Under Mr. Siegel’s leadership, Jefferies International grew from a small trading business in London into a global investment banking enterprise with seven offices and over 400 employees. After retiring from Jefferies in 2007, Mr. Siegel co-founded ISM Capital to focus on mid-market companies that often fall below the purview of larger investment banks and have experienced increased difficulty in obtaining credit from traditional sources such as banks. Since inception, ISM Capital has completed more than a dozen debt transactions. The common denominator of these deals has been innovation. “ISM Capital’s hallmark is our ability to find creative solutions to the financing needs of midcap companies, generally those with market capitalizations of between 250 million and a billion dollars. These companies are often underserved by the traditional investment banks and as a result lack access to the broader capital markets.“ As an example, ISM structured the first step down coupon for an Indian issuer, Sintex Industries, creating a sufficiently attractive deal to raise $140 million, allowing the company to refinance $125mm in maturing convertibles while complying with the cap on “all-in” financing costs established by the Reserve Bank of India. ISM successfully raised $150mm for Canadian-listed natural gas retailer Just Energy in the European 48

Executive Chairman: Cliff Siegel

markets, although the company, with revenues in excess of $3 billion, had never previously raised money outside of Canada. For Australian energy company Linc Energy, ISM helped the company to raise $265mm in the US high yield market by ringfencing the company’s US oil and gas assets, providing funds both for the development of the US oil and gas business and the repayment of debt at the parent level. Other than bank lines, Linc had never previously raised money outside of the Australian equity market. Mr Siegel attributes the remarkable success of ISM Capital to the decades of experience among the bank’s senior professionals. “Collectively, we boast well over a century’s worth of experience,” CFI.co | Capital Finance International

says Mr Siegel, adding that the wealth of knowledge the investment bank has accumulated makes a huge difference when complex financial deals need to be hammered out or novel solutions are required for clients. “All of our senior team have worked at large investment banks, and find their ability to be creative at ISM hugely attractive. We invest the time to understand our clients’ businesses and financing needs, and strongly believe in covering all options and examining a broad range of different financing alternatives. We believe this dramatically distinguishes ISM Capital from its competitors. We also believe that this approach will only continue to gain traction with clients in the mid-cap space as companies find access to capital increasingly constrained.” i

Autumn 2014 Issue

CFI.co | Capital Finance International

> CFI.co Meets the Founder and CEO of Optimum Asset Management:

Alberto Matta

t is difficult to find top-tier service levels in a small firm. Indeed, Optimum Asset Management offers an excellent level of service with the added benefit of flexibility and customised solutions. Mr Alberto Matta, the firm’s founder and CEO, briefly depicts his distinctive approach to investments. Optimum has established a bespoke and unique approach, compared to the ones offered by larger funds. It is based on the firm belief that customised and integrated investment solutions are an exceptional way to create a solid and lasting partnership with investors. Thanks to his expertise with institutional clients and his unparalleled knowledge of their investment needs, Mr Matta has managed to create a firm that adheres to the highest standards and strives to create long-term value for its investors. Currently managing more than EUR 1 billion in assets, the firm’s prime expertise and successful track record is in real estate with a focus on the most attractive markets in both Europe and the United States. Optimum mainly raises equity from institutional investors such as pension funds, insurance companies and banks. As clearly depicted by Mr. Matta, these investors mostly have long term liabilities and, therefore, it is highly inefficient for them to go after liquid investments, which typically offer lower returns compared to those offered by illiquid assets of the same risk segment (real estate private equity funds). The company indeed focuses on the latters, offering a unique approach that merges into one the positive aspects of both banking and asset management: it offers the flexibility and the tailor-made solutions typical of the former, while it adds the value creation and the alignment of interests expected from the latter one. Optimum’s distinctive approach also encompasses its vertical integration of asset, property and facility management activities. Thanks to its deep knowledge, Optimum is able to identify even the most hidden off-market deals selecting undervalued properties and, through its effective and lean asset management structure, is able to minimise due diligence and acquisition times. Thanks to its close integration with local and highly skilled professionals for property and facility management, Optimum guarantees the perfect execution and constant monitoring of the investment strategy designed for every property in order to fully exploit the potential of the portfolio. 50

Founder and CEO: Alberto Matta

Mr Matta founded Optimum Asset Management in 2009. He is the firm’s Chief Executive Officer. Headquartered in Luxembourg, the company expanded quickly and today has representative offices in Berlin, London, Malta and Miami. Optimum’s funds invest in Germany (Berlin), United States (New York, Miami, Los Angeles and San Francisco), Hungary (Budapest), Italy and Bulgaria. Additionally, the firm is well placed to leverage its already established network of international relationships and to source new investment opportunities almost anywhere in the world. Optimum is planning to increase the investments in its current core markets, as well as to expand its geographic reach. Thanks to its impressive track record in the Berlin real estate market, the firm is currently in the fundraising phase for its third fund, focused on the German capital, and plans to launch a second fund dedicated to the United States within the next two years. The management team is also actively monitoring possible investment opportunities arising in emerging markets. CFI.co | Capital Finance International

Leveraging the management team’s twenty-years of experience in the investment business, the firm has also successfully completed portfolio restructuring operations through its affiliated fund platform in Malta and its management company - Futura Funds SICAV and Futura Investment Management, respectively.

After obtaining his university degree in finance at North-Eastern University in Boston, Mr Matta first worked in New York and then in London at Merrill Lynch and Bankers Trust, contributing to the development of the derivatives business in the European market. Afterward, he moved to BNP Paribas, focusing on complex securitisation and structured credit derivatives transactions, being then appointed as European co-head of the Origination Business for Financial Institutions. He worked also on the distribution side of the investment business at ABN AMRO Bank and at Barclays Capital. In 2006, he became managing partner at BMB Investment, a non-regulated investment company based in Spain. In 2009, he founded the Luxembourg based Optimum Asset Management. i

> Optimum Asset Management:

Berlin - An Unparalleled Real Estate Investment Opportunity Berlin’s unconventional profile is helping bring back investors as they are struggling more than ever to find investments with optimal or even adequate risk/return profiles in the current post-financial crisis era. ue to a low interest rate environment (caused to a great extent by central bank’s quantitative easing), a particularly depressed performance of emerging market equities, the recent crisis of gold and stagnant prices of other commodities, is today a true challenge when aiming to achieve appropriate diversification and risk taking, with consistent positive returns over the medium and long term.

In this context, real estate is quickly recovering its central role in investor portfolios due to its main benefits: real estate status, hedged against inflation, stable and positive yields, as well as low correlation to other asset classes. The most attractive investment opportunities in European real estate are found on Berlin’s commercial and residential property markets. A GREAT OPPORTUNITY TO EXPLOIT It was the end of 2005 when I happened to be in Berlin and discovered its unconventional real estate market offering exceptional returns and an attractive outlook and plenty of opportunities. In almost twenty years of investment origination, I had never found an investment opportunity offering similar yields, strong upside potential and limited downside risk. I decided to create Optimum Asset Management as I saw the great opportunity international investors could exploit with a company that could consistently deliver an excellent level of service, comparable to the one offered by wellestablished asset managers and banks, but with the added benefit of flexibility and customised solutions typical of a small and client-oriented firm. Since then, the Berlin real estate market has increased by 60 per cent and Optimum was able to successfully invest more than half a billion euros, spread over two funds. The firm is currently managing the fundraising phase of a third fund aimed at acquiring residential and commercial properties in the German market with a special focus on Berlin. The reasons behind the current exceptional situation on the Berlin real estate market are both historical and structural. 52

“Moreover, Berlin is benefiting more than other German cities from the economic recovery because of its low cost of living, excellent educational system, as well as the city’s strategic position in the country and its technological hub – it is the leading German city in terms of network infrastructure.” UNIFICATION BRINGS CHANGE From 1990 to 2005, Berlin faced the problematic issue of reunification – in the context of a stagnating economy with a 20 per cent unemployment rate and GDP growth close to zero. Public deficits, combined with an enormous stock of property inherited from the former German Democratic Republic in East Berlin, resulted in a constant flow of properties onto the market through both government and Public Housing Corporation auctions. By that time, oversupply was matched by a weak demand – a direct result of the poorly performing economy – which placed housing prices under enormous pressure, bringing them down to a level without comparison in the whole of Europe and other developed countries. Furthermore, before 1990, Berlin real estate was managed through a vast number of state subsidies that included the residential rental market, creating a legacy of low rental costs. This encouraged people to rent as opposed to buy and led to one of the lowest homeownership rates in the EU. However, Berlin is the capital of Germany – the largest economy in Europe and the fourth largest in the world by GDP. Important reforms introduced by the German government led to the development of fast-growing sectors such as tourism, life sciences, mobility and services with an emphasis on information and CFI.co | Capital Finance International

communication technologies. Indeed, since 2005, the situation has significantly improved. From 2005 to 2013, the city’s economy has grown continuously at rates well above the German average. Its GDP growth rate over the last year was 1.2 per cent versus 0.4 per cent nationally and just 0.1 per cent across the entire EU. Thanks to the strong role played by business services providers and the construction industry, job opportunities have increased and the unemployment rate fell to 11.0 per cent, which represents a year-on-year reduction of 0.6 percentage points. Moreover, Berlin is benefiting more than other German cities from the economic recovery because of its low cost of living, excellent educational system, as well as the city’s strategic position in the country and its technological hub – it is the leading German city in terms of network infrastructure. Structurally, the extremely low prices of Berlin properties – about EUR 1,472/m2 for whole buildings according to GSW-CBRE 2014 Berlin Housing Market Report – have created a one-of-a-kind situation in its real estate market. The prices of existing properties are, in fact, still below the cost of new construction and, therefore, little new residential building activity has taken place over the past ten years. This situation, coupled with the unabated high levels of population growth over the last few years – currently, around 3.4 million people live in the city and, in 2013 only, the population increased by roughly 50,000 – led to an excessive demand on the real estate market. The small but significant increase in new-build completions still falls well short of meeting demand. As a consequence, the vacancy rate has sharply decreased and now stands below 2 per cent for residential properties. With a significant difference between institutional (whole buildings) and retail (single units) property prices – EUR 1,472/m2 vs. EUR 2,770/m2 – and due to constantly rising rentalyields for institutional investors – stable at an average of 6.5 per cent with peaks reaching 8.0 per cent - the market offers exceptional opportunities.

Autumn 2014 Issue

BERLINERS PURCHASING POWER Even after growing for almost a decade, Berlin’s prices are still substantially cheaper than others’ comparable German cities, including Munich and Frankfurt and other major European metropolises, including London, Rome, Paris, Madrid and even Budapest and Athens. New key developments are changing the city’s property market and experts foresee the homeownership rate to increase. Currently at around 15.6 per cent versus a German 45.7 per cent, it is expected to be positively influenced also by the misbalance in the purchasing power of Berlin residents who, compared to other German residents, have a salary-to-property ratio significantly higher (see table) and can thus benefit from the positive incentive of low rate mortgages coupled with increasing property value. This is leading to the establishment and strengthening of a retail market characterised by positive price dynamics, providing an exceptional exit strategy to institutional investors like Optimum that can buy entire buildings and then split them to be sold on a single unit basis at the much higher retail prices mentioned earlier.

“This profitable situation of the Berlin real estate market is already clear to both national and international investors.” This profitable situation of the Berlin real estate market is already clear to both national and international investors. According to the latest data released by Jones Lang LaSalle, in 2013 the city’s market registered the highest liquidity within Germany, showing a continuously upward trend with a fourfold increase in the number of transactions as compared to 2012. With a record transaction volume of around EUR 6.7 billion and a strong participation of both national and international investors, the residential market of the German capital is by far the most soughtafter in Germany. OPTIMUM’S DISTINGUISHED APPROACH TO THE REAL ESTATE MARKET In a growing, competitive and unique environment like the Berlin market, investment in real estate can follow two opposite approaches. There are large traded portfolios, usually made up of more than 3,000 units, built over many years and cyclically transferred among significant institutional investors. These portfolios can be bought at a significant discount in different ways - either through a direct acquisition or via a takeover of the owning entity – and their significant size can provide relevant diversification and large-scale benefits in dayto-day management. However, I believe this approach might be considered as the equivalent

COUNTRY

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OECD (34 countries)

EU (28 countries)

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Optimum Internal Research: Number of salaried years to buy 120m² in City Center

of index investments in equity markets: their return is often mostly linked to the overall relevant market sentiment. The opposite approach is to build a portfolio from scratch, as Optimum does, through the careful selection and cherry-picking of properties deemed to be undervalued and, therefore, with significant upside potential. I believe this approach represents the best way to exploit the potential of a still growing and non-homogeneous market like the one in Berlin, where specific and notable opportunities can be found. On the other hand, it requires a specific structure and expertise to reduce due diligence and execution time to the lowest possible; indeed the best properties often stay on the market for as little as one or two weeks. Furthermore, besides a deep knowledge of the market and acquisition expertise, during the optimisation phase an active approach is needed in order to fully realise the upside potential of the portfolio, through property management and careful investments in renovation of the properties. Either way, for the next years Berlin’s real estate market will continue to attract a growing number of investors, both retail and institutional, looking to benefit from the dynamic and unparalleled opportunities it presents. As of today, the market still has a lot of potential, but the catching up process with its German and European peers has begun. i ABOUT THE AUTHOR Mr Alberto Matta is the founder and CEO of Optimum Asset Management and Futura Investment Management. 53

> Byron Capital Partners:

Providing Liquid and Regulated Absolute Return Investments Byron Capital Partners, a London-based boutique alternative asset manager, has adapted to the post-financial crisis environment by answering investor demand for regulated, onshore absolute return solutions. With their liquid alternatives focus being on absolute return fixed income and relative value credit, Byron Capital Partners aims to provide investors with strong risk-adjusted returns in a low yield environment. Nearly four years on from launching the first UCITS Fund (Undertakings for Collective Investment in Transferable Securities), the company remains optimistic on the outlook for both the investment strategy and sector.

he financial crisis of 2008 marked an inflection point for the hedge fund industry. Faced with significant losses of principal, restricted access to capital through gates and side pockets and even exposure to fraud in some cases, investors have become significantly more risk averse. As a result there was a flight to size in the alternative investments industry with post-crisis investors allocating capital to large multi-strategy hedge funds with substantial amounts of assets under management and significant operational reach with institutional infrastructure. Boutique names in the alternative investments industry have been forced to revisit business models in order to remain competitive against a backdrop of increased regulatory pressures, zero interest rate policy across most of the developed world and a demand from investors for funds to be more investor friendly, specifically providing enhanced transparency, stronger risk management, better liquidity and more favourable or flexible terms. It is against this backdrop that Byron Capital Partners has refocused to excel in the niche of UCITS absolute return fixed income and relative value credit. NEGATIVE YIELDS Alternative investments are increasingly on the radar of both institutional and retail investors as traditional classes – such as equities and bonds – are generally regarded as expensive, certainly from a cyclical perspective and even from a historical view. Yields on 10-year German bonds dipped below 1% in August 2014. This

“The financial crisis of 2008 marked an inflection point for the hedge fund industry.” barely results in a positive real return even with an investment maturity of 10 years. That same month, the yield on the German 2-year actually went negative (having first turned negative in 2012). Negative yields on short term sovereign debt is not solely a German-phenomenon. In early September 2014, French 2-year government bond yields turned negative, as they have already done in Germany, The Netherlands, Austria, Finland and Belgium. Even more remarkably, in early September 2014, the yield on 2-year Irish sovereign debt turned negative for the first time, not even four years on from receiving a EUR67.5 billion bailout from the EU and IMF. With short term rates negative, investors are being forced to take additional duration and credit risks to pick up yield. When Ireland issued EUR5bn of 10-year debt in 2013, it attracted in excess of EUR12bn in orders. Greece, after announcing the world’s largest sovereign debt restructuring in history in 2012, returned to the markets in April 2014 issuing EUR3bn of a euro-denominated five-year bond. An order book

of EUR20bn drove yields down to a remarkable 4.95%, despite Greece’s poor credit rating (Caa1 from Moody’s and B-/B from S&P) and a debt-to-GDP ratio of 175%. Even emerging markets are benefiting from record low bond yields in the developed world: Ecuador, which defaulted as recently as 2008 and 2009, sold $2bn of 10-year US Dollar-denominated bonds at 7.95%. ABSOLUTE RETURN STRATEGIES This dearth of yield is forcing traditionally conservative investors to look at absolute return strategies and diversification for their longonly allocations in an overall portfolio context. However, given the well-documented problems experienced by hedge fund investors in 2008, in the post-crisis, more regulated environment of today, many investors are looking at solutions that provide enhanced investor protection. UCITS-compliant vehicles address some of the more prominent concerns of investors that have arisen since the financial crisis including, amongst others, liquidity, custody of assets, regulation, transparency and risk management. Liquidity is particularly valued by investors following the financial crisis. Most offshore hedge funds offer monthly or quarterly redemption frequencies but under UCITS legislation, funds are compelled to offer redemptions at least with a bi-monthly frequency with most offering daily or weekly liquidity. Both in and outside of Europe, the UCITS directive has evolved into one of the most widely recognised regulatory frameworks of

“With short term rates negative, investors are being forced to take additional duration and credit risks to pick up yield.” 54

CFI.co | Capital Finance International

Autumn 2014 Issue

investment funds, allowing investors to access absolute return strategies through UCITScompliant onshore structures while obtaining increased transparency and liquidity. Portfolio concentration limits that form part of UCITS restrict the ability of the investment manager to take large idiosyncratic exposures and reflect one of the principle concepts of UCITS, namely diversification. Adherence to these portfolio concentration limits, such as the well known 5/10/40 rule are monitored by the trustee and have to be respected by the investment manager. Exposure limitations are also in place: For example, no more than 20% of net assets can be invested in cash deposits with any one credit institution and the maximum exposure to a single OTC derivative counterparty is 5% (increasing to 10% for certain credit institutions). Leverage is also limited to 10% of net assets and can only be used for short-term liquidity purposes. BYRON FIXED INCOME ALPHA FUND (BFIAF) Byron Capital Partners launched the UCITScompliant Byron Fixed Income Alpha Fund in November 2010 to respond to traditional fixed income investors’ requirements to look for uncorrelated sources of return to global bond indices. Faced with an ultra low yield environment, some asset allocators favour a move into equities. However, equities as an asset class are not cheap and are more volatile than fixed income. For example the S&P 500 since 1972 has fallen on 27 occasions by at least 7%. For some investor groups such as private individuals – still affected mentally by losses incurred since the financial crisis – the risks posed by equities (in spite of recent very low levels of volatility) are too high. Demographics

fixed income portfolios, as investors priced in stronger US economic growth and the withdrawal of Fed stimulus.

“With the demand for regulated liquid alternative investments increasing, particularly in Europe, Byron Capital Partners is set to profit from these developments.” in the western world also favour fixed income as an asset class. This year the Byron Fixed Income Alpha Fund is up approx. +4.07% for the year through September 4, 2014. Despite negative predictions at the start of the year for fixed income, 2014 at the time of writing has been a good year for fixed income with the Barclays Global Aggregate Bond Index up +3.46% for the year to date through September 4, 2014. 2013 on the other hand was a poor year for fixed income with the same index registering a decline of 2.6% and investment grade bonds suffering their worst year since 1994, registering their first annual loss since 1999 (only the third time in 34 years the asset class finished the year in the red). Long duration bonds suffered even heavier losses in 2013, with the Barclays US Treasury Index 20+ Years maturities returning -13.88%. In contrast the Byron Fixed Income Alpha Fund returned +3.47% in 2013. The ability to achieve alpha on the short side particularly manifested itself last year with gains being made in short US Treasuries that sold off as of May 2013 following Bernanke’s taper talk: From May 2 to June 25, 2013, the yield on 10-year US Treasuries went from 1.63% to 2.59%, causing sharp losses in

STRONG PERFORMANCE Since the inception of the Byron Fixed Income Alpha Fund, credit risk has been tightly managed with the fund running an average credit rating of BBB. Duration has averaged approximately 2 and is currently standing at 1.8. Emerging market exposure is limited to 20% and while the fund has the ability to take sub-investment grade exposure, as per the prospectus, exposure is limited to 40%. These limitations serve the fund well as reflected by the recent sell off in high yield bonds with the Lipper High Yield Bond Index declining 1.29% over the month of July 2014. In contrast, the Byron Fixed Income Alpha Fund returned +0.22% over the same month. Volatility of the fund since inception has remained low at approximately 2.2% resulting in a Sharpe ratio of 1.3. Importantly, the Fund produced a positive return in 2013, while many of its peers stumbled as of May 2013 following the taper talk outlined above. This followed on from a very strong performance in 2012 with a return of 7.43% with a volatility of 1.8%. With short-term interest rates in the developed world likely to remain low for the foreseeable future, a premium will be put on the ability to generate positive real returns without exposing investors to excessive duration and credit risk, as well as illiquidity. Furthermore, with the demand for regulated liquid alternative investments increasing, particularly in Europe, Byron Capital Partners is set to profit from these developments. i

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Chart 1: Risk Adjusted Returns

CFI.co | Capital Finance International

> Yatırım Finansman Securities:

Investment in Growth, Expertise, and Confidence Yatırım Finansman Securities, the first capital market institution of Turkey, was established in 1976 with the participation of 13 major banks led by Türkiye İş Bankası, the republic’s first national bank, and the Türkiye Sınai Kalkınma Bankası (TSKB).

rior to the regulation of Turkey’s capital markets and the establishment of market regulators such as Borsa Istanbul (BIST), the company had performed its operations in line with existing legislation. Yatırım Finansman Securities’ operations have played a pioneering and exemplary role in the sector, significantly contributing to the formation of modern capital markets with the privilege of being the first mover.

Sharing its entire experience of the sector with its clients, Yatırım Finansman Securities has played a range of active roles such as being an intermediary for the first private sector bond issuance; rolling out stocks and public debt instruments as an investment instrument; and providing consultancy services to the BIST. These initiatives symbolise Yatırım Finansman Securities’ “pioneering mission.” Since its foundation, Yatırım Finansman Securities has accomplished many firsts. Some of the activities carried out by Yatırım Finansman Securities with a view to reinforcing the company’s mission as a pioneer of the sector includes the launch of an iPad application, developed in-house, as well becoming the first capital market institution to achieve the zero carbon emissions target. In addition to its strong shareholding and capital structure, Yatırım Finansman Securities’ position as a member of the Türkiye İş Bankası Group - Turkey’s largest private capital financed bank – is one of the most significant factors that strengthen the reliability, expertise, and position the company commands in the market. This is backed-up by the reputation of Türkiye İş

“With its constant focus on generating added value, for society and the environment as well as for its clients, Yatırım Finansman Securities has demonstrated awareness of, and responsibility for, the environment by investing heavily and successfully in the Carbon Zero Project.”

Yatırım Finansman Securities is pressing ahead to set itself apart by integrating the use of hightechnology products and innovative services into its efficient working model. The company has invested significantly in domestic and international sales teams and technological infrastructure. In addition to redesigning its website and social media channels, and keeping in line with its revamped corporate identity, Yatırım Finansman Securities also renewed YFTRADE, YFTRADEFX and YFTRADEINT - its reliable and fast trading platforms.

Bankası at both national and international levels. Yatırım Finansman Securities continues to reinforce its business model built on a deeply rooted corporate tradition and experience through vision and know-how. Yatırım Finansman Securities maintains its identity as a distinguished service provider by adhering to the highest of standards, by running service platforms integrated with cutting-edge technology, and by cultivating a wide-ranging client base.

Yatırım Finansman Securities continues to share analysis and comments with its followers on social media via Facebook and Twitter.

Building on the strength, experience and knowhow which it derives from its own capital, Yatırım Finansman Securities offers a wide range of capital market products to its clients on the basis of proactive, transparent, sustained and quality communication.

COMPETITIVE ADVANTAGES OFFERED Strong Brand Identity and Respectability One of Yatırım Finansman Securities’ priorities is to carry out capital market transactions with “Broadly Authorized Intermediary Institutions” with the entry into force of new regulation on July 1, 2015. The new regulation grants authorisation to brokerage firms in line with their size of equity so that they can carry out capital market transactions. Accordingly, Yatırım Finansman Securities’ strong equity structure will allow it to carry out all types of capital market transactions.

Holding all capital markets authorisation certificates, Yatırım Finansman Securities offers reliable and rapid services, all of which meet or exceed global standards, to a wide mass of Turkish and international individual and corporate customers.

With its constant focus on generating added value, for society and the environment as well as for its clients, Yatırım Finansman Securities has demonstrated awareness of, and responsibility for, the environment by investing heavily and successfully in the Carbon Zero Project.

“Building on the strength, experience and know-how which it derives from its own capital, Yatırım Finansman Securities offers a wide range of capital market products to its clients on the basis of proactive, transparent, sustained and quality communication.” 56

CFI.co | Capital Finance International

Autumn 2014 Issue

“Yatırım Finansman Securities moves forward with a team which fully deploys its know-how, accumulated as a result of its long-lasting operations in the financial sector.” Know-How, Experience, and Consultancy Yatırım Finansman Securities moves forward with a team which fully deploys its know-how, accumulated as a result of its long-lasting operations in the financial sector. Since its establishment, Yatırım Finansman Securities has maintained the principle of working in full harmony in order to realise its vision. The company also provides consultancy services to corporations in order to evaluate their assets in the capital markets. Changes in Technology Having invested heavily in technology, faster and easier order submission has now been ensured over fibre optic connections and unlimited exapi with new technological infrastructure also launched in 2014. With these steps forward, Yatırım Finansman Securities aims to enhance the quality of its service provision and offer user-friendly services to its clients. Yatırım Finansman Securities has carved out a pioneering role in the sector, implementing fibre optic connections and increasing the speed of order transmission through unlimited exapi. Strength Derived from Capital Structure Yatırım Finansman Securities is a strong intermediary firm given the size of its equity and its parent group – which remains a leading organisation in the finance sector. Yatırım Finansman Securities enjoys the unrivalled privilege of being able to offer capital market products to its clients while drawing strength from its equity, experience and know-how. A Customer-Oriented and Innovative Service Vision Yatırım Finansman Securities offers alternative products to its clients through a range of portfolio management instruments created in line with investors’ demands, needs and return preferences. Wealth management is also an alternative service offered on the domestic market. Comprehensive Reports for Investors Analysts share their ideas with investors through sector and company reports. They prepare periodic company reports, provide investment recommendations based on company valuation and conjuncture, and constantly follow up company performance to update their original recommendations. International Sales and Trading: An Innovative Approach for Global Investors Its widespread corporate investor base comprises the leading global long-term portfolio management companies, hedge funds, and prominent funds which are known for their algorithmic trading. i CFI.co | Capital Finance International

> CFI.co Meets the CEO of Yatırım Finansman Securities:

Şeniz Yarcan

Ms Şeniz Yarcan graduated from the Department of Business Administration at Boğaziçi University – one of the leading universities in Turkey. Ms Yarcan began to work in the Treasury Department of the Industrial Development Bank of Turkey (TSKB) in 1988. She was appointed as the director of the Treasury department in 1998 after holding various positions before being promoted to the post of executive vice-president in 2004.

s Yarcan was involved in the foundation processes of the Treasury Department as well as the foundation of the Financial Institutions, Investor Relations, Portfolio Management, and Research Departments. Over the following years, she assumed the positions of executive vice-president for Investment Banking and Foreign Relations, which the Departments of Securities, Financial Institutions, Research, Corporate Financing, and Portfolio Management reported to. Finally, she continued to work as senior executive vicepresident for the Treasury, Investment Banking and Foreign Relations Departments. Ms Yarcan was appointed to her current position as CEO of Yatırım Finansman Securities in January 2012 – the first female CEO of the company in its history. Since her appointment, the company has embarked on a restructuring process affecting its entire organisation and all services. Ms Yarcan explains the restructuring process: “The entire team and I attach great significance to the trust our clients place in us. Within an understanding of ‘Investment in Satisfaction,’ we try to reflect our confidence and expertise to everyone we serve. Our goal is to constantly increase the quality of the service we have been offering our clients. In line with the innovative working principle based on continued development, we have achieved massive strides in changing our system infrastructure with a view to offering our clients more efficient platforms in their transactions by reinforcing our technological infrastructure.” She continues: “We aim to increase the quality of service and offer our clients user-friendly services with the new software infrastructure. Offering all types of financial intermediary services in the capital markets, Yatırım Finansman Securities aims to contribute to the growth of its clients’ assets. That is the key objective. Yatırım Finansman Securities believes that investment consists not only of efforts to expand assets, but also embrace the future and the environment. We have become the first and only intermediary to attain the Carbon Neutral target in Turkey. We aim to set an example in this area through our leading role among intermediaries. This approach to sustainability is etched into our DNA.” i 58

CEO: Şeniz Yarcan

CFI.co | Capital Finance International

Autumn 2014 Issue

CFI.co | Capital Finance International

ANNOUNCING

AWARDS 2014 AUTUMN HIGHLIGHTS Once again CFI.co brings you reports of individuals and organisations that our readers and the judging panel consider worthy of special recognition. We hope you find our short profiles interesting and informative. All the winners announced below were nominated by CFI.co audiences and then shortlisted for further consideration by the

panel. Our research team gathered additional information to help reach a final decision. In many cases, senior members of nominee management teams provided the judges with a personal view of what sets their companies and institutions apart from the competition. As world economies converge we are coming across many inspirational individuals and

CFI.co | Capital Finance International

organisations from developing as well as developed markets - and everyone can learn something from them. If you have been particularly impressed by an individual or organisationâ&#x20AC;&#x2122;s performance please visit our award pages at www.cfi.co and nominate.

Autumn 2014 Issue

> CFI.CO ANNOUNCES 2014 WOMEN’S BANKING TEAM AWARD TO WESTPAC

Westpac’s ‘Women’s Markets Team’ is unique in the Australian banking industry, providing clients with strong networking opportunities as well as significant education and information resources. According to the CFI.co Judging

Panel, ’Westpac further supports women in the community in a variety of meaningful ways that show concern for their rights, economic empowerment, healthcare and self-sufficiency not only in Australia but throughout the world. We are delighted to confirm Westpac Bank as

Best Women’s Banking Team, Australasia, 2014. This is the longest established bank in Australia, arguably the first to recognise the importance of women’s contribution to the economy and an organisation that benefits significantly from the banking activities of its female clients.’

> SAUDI HOLLANDI: BEST SME BANK, KSA, FOR A SECOND YEAR

The CFI.co Judging Panel is always delighted when winners repeat their success in subsequent years. It is therefore with great pleasure that the panel confirms that this year’s award for ‘Best SME Bank, Saudi Arabia’ goes to Saudi Hollandi Bank - who won the same award in 2013.

According to the panel, ‘it is heartening to see Saudi Hollandi’s constant commitment to supporting SMEs in Saudi Arabia. The Kingdom’s Kafala (SME Loan Guarantee Programme) is exemplary and is translating into new business and employment opportunities which are critical to the development of the

country. By the end of 2013, Saudi Hollandi was placed fourth of the Saudi banks in terms of Kafala loans and looks set to jump at least one position by the end of this year. Their ambition is clear and we wish the Bank great success. They have dedicated SME teams in place and they really do mean business.

> EEX WINS THE CFI.CO 2014 AWARD FOR TRANSPARENCY, EUROPE

Germany’s energy exchange, European Energy Exchange, AG (EEX) has been named by CFI. co as winner of the award, ‘Best Energy Exchange Transparency, Europe, 2014’ and receives a special commendation from the Judging Panel. According to a statement released by the panel, ‘EEX has been a passionate trailblazer for transparency and this has culminated in the

September 2014 launch of a new transparency website which satisfies all the publication requirements of the Regulation on Market Integrity & Transparency (REMIT). This new site is an important development in EEX’s exemplary platform Transparency in Energy Market and we would like to congratulate the winner on its outstanding work in support of transparency over the years. CFI.co | Capital Finance International

‘The data made public in this way (production of electricity actual versus forecast) is not only for use in wholesale energy trading but - because of the detail given - is also of great interest to those concerned about developments in renewable energy and helps explain to end consumers the likely future of energy production. In today’s markets, this plays an important role’. 61

> THE CFI.CO JUDGING PANEL IS DELIGHTED TO RECOGNISE BANCO SANTANDER’S OUTSTANDING EFFORTS TO SUPPORT EDUCATION

The Santander University programme stands out as an example of how well thought out support can help foster better education and provide real world business experience for students. Since 1996, this banking group has allocated in excess of one billion euros to universities and research centres and last year the figure topped 140 million euros.

The Panel comments that, ‘Santander listens to feedback from the academic institutions it partners with and the vision of the Bank’s dynamic Chairman Emilio Botín has made a very real impact on education in Europe. We feel that this extremely shrewd banker has hit upon a highly desirable symbiotic relationship with universities. Who knows how many students

now have accounts with Santander rather than rival banks as a result of this programme? It seems likely the support that the bank is giving to universities will move from strength to strength and that Santander’s financial stakeholders will also do rather well out of the initiative – thus ensuring that the Santander University Programme is truly sustainable’.

> NATPET WINS CFI.CO AWARDS FOR SUSTAINABILITY AND HSE: SAUDI ARABIA, 2014

National Petroleum Industrial Company (NATPET), established in 1999, operates a 400,000 mt/y polypropylene plant at Yanbu Industrial City, Saudi Arabia. According to the CFI.co Judging Panel, ‘NATPET is a model of efficient administration and an organisation that shows great concern for the environment and their most important assets – the people who work for them. NATPET is the worthy recipient of two awards in our Oil and Gas Awards programme for 2014, namely ‘Best HSE Policy, KSA’ and ‘Best Sustainability, KSA’. We congratulate management and staff on this outstanding achievement.’

Top management’s commitment to sustainability is an example to industrialists everywhere. There is a fundamental understanding here that in order to be entrusted with such a responsibility the plant must be safe, the people working at the plant must be safe and the environment must be protected. NATPET makes a substantial investment in the training of personnel and a good, effective and loyal team is now in place. Saudi national workers are in the majority at NATPET (57%) and this is expected to increase by eight percentage points over the next four years or so. This year NATPET supported Waste Free

Environment Day which is a GCC-wide initiative. Less than 10% of the Gulf’s plastic products are recycled and NATPET is to be congratulated on the way it is trying to re-educate consumers. The Company has won the Marafiq award for the Saudi Water & Power Industry (Number 1 in Sustainability, 2012) and has been recognised as amongst the Top 10 Saudi Companies to work for. Furthermore, NATPET was ranked in second position in the prestigious ‘King Khalid Award for Social Competitive Index’ in the year 2013. This was the fourth consecutive year of recognition for NATPET in this award programme.

> BYRON CAPITAL PARTNERS WINS CFI.CO FUND MANAGER AWARD, EUROPE

The CFI.co Judging is pleased to confirm a win for the boutique firm Byron Capital Partners, in the category of ‘Best Fixed Income Fund Manager, Europe, 2014’. The award includes a special commendation from the panel for this outstanding achievement. Byron’s UCITS-Compliant Funds focus on absolute return fixed income and 62

relative value credit – strategies providing a liquid alternative to long-only fixed income investments. The Funds have been performing very well over the past 3 years. Byron outperformed in 2013 in a tough year for fixed income and is powering ahead nicely this year. Byron Management comments that their success is based on a focus on riskCFI.co | Capital Finance International

adjusted returns, a strong emphasis on risk management and their goal of generating absolute returns through different market cycles. The panel applauds this notion and also points out that ‘as needs be, Byron is extremely good at managing duration and credit risk while focusing on liquidity.’

Autumn 2014 Issue

> STANDING UP FOR WOMEN: CHASE, KENYA, IS NAMED BEST BANK FOR WOMEN ENTREPRENEURS, EAST AFRICA

Chase Bank, Kenya, correctly considers women to be the backbone of society and the gender most likely to pay back handsomely to the community when properly supported. According to the CFI.co Judging Panel, ‘This bank focuses on supporting female entrepreneurs and works very well in partnership with local businesswomen.

Chase has extended $50 million in loans to female clients and this business segment is clearly regarded as very important. The majority of employees here are female and Chase has established its Women in Banking Club and also a Women’s Enterprise Fund. We applaud the Chase approach to the empowerment of

women and would also like to congratulate the Bank on its support to the Stand Up for African Mothers programme. This latter initiative helps to fund the training of midwives in rural Kenya. We believe that Chase, Kenya, is the very worthy winner of our award for Best Bank for Women Entrepreneurs, East Africa, 2014.’

> CAIXA SEGUROS: WINNER OF THE CFI.CO AWARD FOR BEST LIFE INSURANCE PROVIDER, BRAZIL, 2014

Despite operating in a very competitive market place, Caixa Seguros has been delivering magnificently throughout the years. This year the company has won the CFI.co award for ‘Best Life Insurance Provider, Brazil’ which comes with

the hearty congratulations of the CFI.co Judging Panel. According to the panel, ‘Caixa Seguros is a leader in Brazil with a fifteen year history of good profitability and overall consistently strong

performance. Product quality and technical skills are very high at CS and the Company has very good awareness of risk. With Life one of their core offerings, we have no hesitation in naming this company as our worthy winner in Brazil.’

> ABN AMRO COMMERCIAL FINANCE WINS AWARD FOR BEST SME FINANCING SOLUTIONS, UNITED KINGDOM

According to the CFI.co Judging Panel, ‘ABN Amro Commercial Finance, part of the Dutch banking giant, offers an impressive range of products and services to allow SMEs in the UK to move to the next level despite the constraints of a

conservative bank lending environment. ABN’s advisory service to small business is second to none and their factoring and invoice discounting activities have been recognised as exemplary. This organisation CFI.co | Capital Finance International

understands and responds to the challenges of small business in a robust and imaginative way. This is a very worthy winner of our 2014 award.’

> RIYAD BANK WINS CFI.CO TRADE FINANCE AWARD

Riyad Bank has dedicated trade finance centres at each of the three main commercial cities namely Jeddah, Riyadh and Damman. Each centre offers large bank

benefits to clients and according to the Judging Panel, ‘can be relied upon to offer good advice, appropriate trade facilitation products and very helpful services to its roster of appreciative

clients. The Panel has no hesitation in naming Riyad Bank as ‘Best Trade Finance Team, Saudi Arabia, 2014.’

> PHASE3 TELECOM, NIGERIA, IS RECOGNISED BY CFI.CO FOR ITS WORK IN SUPPORT OF BROADBAND SERVICES

There can be no doubting the importance of the efficient, speedy delivery of trustworthy and affordable broadband services to support and push forward the development of Africa. Upon confirming the award ‘Outstanding Contribution to the Development of Broadband Services in West Africa, 2014, the CFI.co Judging Panel points out that our

winner, Phase3 Telecom’s efforts, ‘represent a highly significant contribution to the Connect Africa initiatives of the International Telecommunications Union. This well managed and praiseworthy Nigerian company is connecting its aerial fibre optic network to other countries of the region in a very efficient manner. Phase3 is helping create the appropriate infrastructure to improve and develop broadband services along

the necessary lines. We commend our winner’s work in bringing broadband services to remote areas of the country. Furthermore, we observe at Phase3 an incredible level of dedication to the task in hand, superb innovation from a talented and well-motivated team and an eagerness to deliver to all West Africans the tools they need for further and sustainable economic progress.’

> PADICO OUR 2014 AWARD WINNER FOR TWENTY YEARS OF SUPPORT TO PALESTINE

The CFI.co Judging Panel confirms Padico Holding as winner of the 2014 award for ‘Outstanding Contribution to the Development of Palestine’ and congratulates this organisation on its determined efforts and many successful achievements in support of the Palestinian economy over the past twenty years. Padico was established by members of the Palestinian 64

diaspora in Europe and the Gulf with the mandate to invest only in Palestine. Padico, a limited public shareholding company helped establish the Palestine Stock Exchange and created the first power station in Gazza. Our winner concentrates on large infrastructure work and has invested in telecommunications, real estate, power and desalination projects CFI.co | Capital Finance International

among other significant activities. The panel congratulates Padico noting that, ‘Not only has our winner done much excellent work in support of Palestine but has also shown outstanding stewardship of funds with good dividend payouts in recent years and an excellent rate of return on investment since its establishment. Indeed this is a major success story.’

Autumn 2014 Issue

> OLD MUTUAL: BEST COMMUNITY ENGAGEMENT PROGRAMME, SOUTH AFRICA, 2014

Responsibility is at the heart of Old Mutual’s success over the past 165 years and the CFI.co Judging Panel is impressed to see that core value has been translated into the community work of this financial group. The panel feels that the way Old Mutual has used this core value of the business

stands out as an example to others across the world. Many companies have extensive community engagement programmes but what sets Old Mutual apart is the way the company delivers directly through its business. By effectively leveraging the group’s key strengths the impact goes far further than the value of

money spent. Old Mutual has perfected this approach over the years and stands out as an example of what can be achieved for the benefit of communities by combining responsibility and keen intelligence.

> NCB, JAMAICA WINS CFI.CO BANKING AWARD FOR SUPPORTING SMEs

The National Commercial Bank, Jamaica has been named ‘Best SME Bank, Caribbean, 2014’ by the CFI.co Judging Panel. According to the panel, ‘NCB appreciates the challenge SMEs face in capacity building and is taking intelligent concrete steps to help them

move forward in a positive and constructive way through a highly effective team of business managers . As such, this bank is without doubt a worthy recipient of this important regional award and we congratulate NCB on their success. Support to SMEs is a key aspect of economic

development and the NCB are doing more than this: they are inspiring SMEs too, while actively helping to formalise this critical part of the economy.’

> LOTUS CAPITAL: MOST SHARI’AH COMPLIANT ASSET MANAGEMENT TEAM, AFRICA, 2014

Lotus Capital, Nigeria, is a pioneering Shari’ah compliant asset management company that has performed admirably well since its establishment ten years ago. The CFI.co Judging Panel congratulates the management and staff on this recent anniversary and is delighted to

confirm this award for the continent. According to the panel, ‘Lotus sets out to achieve ethical wealth creation and steadfastly avoids investment in prohibited businesses. The team is innovative and has had success in seeking out good, strong alternative CFI.co | Capital Finance International

investments. Lotus has clearly demonstrated the strength of their Shari’ah compliance and the panel suggests that whether an investor insists on Shari’ah compliant investment or not, Lotus Capital should be high on their list of asset managers to consider.’ 65

> WORKING FOR SMES: OUR AWARD WINNER IN SRI LANKA IS UNION BANK OF COLOMBO

The Union Bank of Colombo has grown its business magnificently since the civil war in Sri Lanka came to an end five years ago and the Bank now has a network of 61 branches servicing the country (versus seven branches just a few years ago). The Bank makes good use of modern technology to reach out to the more remote parts of the country mindful that the efforts of

all Sri Lankans are required to make up for time lost through war. Union Bank is also correct in believing that small and medium enterprises are critical to the growth prospects of the island and for the past several years has been focusing very diligently on SME banking needs. The CFI.co Judging Panel comments that the commitment shown to SMEs by Union is obvious and very

encouraging. The range of services and solutions is strong and Union can be relied upon for good advice and thoroughly professional support. The Panel is delighted to confirm Union Bank of Colombo as winner of the CFI.co award ‘Best SME Bank, Sri Lanka, 2014’.

> VICTORY FOR AFFORDABLE HOUSING IN NIGERIA AND BEYOND

VICTORY RESORT REALTORS LTD. Victory Resort Realtors Ltd, Nigeria is an outstanding estate developer and, according to the CFI.co Judging Panel, the worthy winner of the award, ‘Best Affordable Residential Development Project – Nigeria, 2014.’ The Panel commented on Victory’s great vision, determination and ultimate success in putting together a huge project that is going

to impact favourably on the lives of countless Nigerians. Victory is about to go to another level in the industry after spending years arranging international partnerships (US and China) and the necessary local bank mortgaging facilities. The 10 year project will involve not only massive housing development but also

the provision of schools, medical facilities and transport infrastructure. The result will be truly affordable housing made available through 20year payment facilities in Nigeria that is likely to spread across to many other countries of the continent. We wish Victory all success.

> YATIRIM FINANSMAN WINS SECURITIES BROKERAGE AWARD, TURKEY

Yatırım Finansman has been named by CFI.co as ‘Best Securities Brokerage, Turkey, 2014’. The Judging Panel comments that, ‘this outstanding pioneer broker still has huge potential to further develop its own business and that of the market as a whole. Yatırım 66

Finansman, through its expertise and broad experience is extremely influential and a leader in the development of the capital markets. The firm, established 38 years ago, was Turkey’s first broker and has moved confidently from strength to strength. Yatırım Finansman makes CFI.co | Capital Finance International

substantial investments in staff training and its focus is clearly on the very highest standards of customer service. In Yatırım Finansman we have a very worthy winner.’

Autumn 2014 Issue

> FxPro FINANCIAL SERVICES IS THE 2014 WINNER OF THE CFI.CO AWARD FOR ‘BEST FX EXECUTION, GLOBAL’

The Panel comments that ‘FxPro offers slick, speedy and secure professional access to markets. Their FX Agency model is exemplary and customer support is outstanding. The firm has a trustworthy and transparent approach, has worked hard to eliminate conflicts of interest,

is regulated in two jurisdictions and would be a confident choice for relative newcomers to the markets as well as the more seasoned traders. There is a highly impressive choice of trading platforms at FxPro, market information provided is strong and reliable and the firm makes very

good use of technology for the express benefit of users. We have no hesitation in confirming an award in this key category to FxPro and offer our congratulations on the interesting and important innovations FXPro is bringing to forex trading’.”

> AK INVESTMENT, TURKEY: SECOND YEAR WINNER OF THE INSTITUTIONAL BROKER AWARD

Ak Investment was last year’s winner of the award Best Institutional Broker, Turkey. When the Judging Panel considers the claims of a broker for a second consecutive year win they seek out momentum and strong signals of continuing success and development. There is considerable evidence of this at Ak

with extremely fine performance on all fronts. According to the panel, ‘Ak is one of the first among locals and a top earner. The year is going well and we recognise Ak as a very big hitter in Turkey and an extremely reliable broker. In conclusion, we are delighted to confirm AK as our winner in this category for a second year.

It is always a pleasure to see success building upon success and this is certainly the case at Ak. We wish Ak well and hope to see more success in the future. Congratulations on being a very worthy winner of the 2014 prize.’

> SAMTECH: BEST ICT SERVICES & SOLUTIONS PROVIDER, NIGERIA, 2014

Samtech ICT Services is a young, ambitious company which the CFI.co Judging Panel says is showing great promise given its achievements to date and clear and unwavering focus on providing the advanced ICT services

that Nigerian companies truly need. Products on offer and services available at Samtech are certainly praiseworthy and this winner is clearly an innovative player in the field. The Panel expresses the hope that this award, ‘Best ICT CFI.co | Capital Finance International

Services & Solutions Provider, Nigeria, 2014’ will not only reward Samtech for its outstanding efforts so far but also spur the Company to greater success in the years to come.

> PFS WINS CFI.CO AWARD FOR BANKING IT SOLUTIONS, WEST AFRICA, 2014

Precise Financial Systems, Nigeria is the stand-out winner of CFI.co’s 2014 award ‘Best Banking IT Solutions Team, West Africa.’ This 22 year old firm changed its name from PEE-AARR Consulting in 1998 to better reflect its core competency of developing financial software solutions. Precise Financial

Systems claims to provide ‘simple and practical solutions at all times’, is active throughout many countries in Africa and has big-name agency connections and partnerships with IT companies throughout the world. PFS is a global player and a very successful one at that. The CFI.co Judging Panel was

impressed by the way PFS understands and responds to problems posed by customers in Africa. Our winner’s team has very strong industry experience and provides clients with sensible solutions.

> SUSTAINABLE SUPPORT TO COMMUNITIES: IWC WINS THE CFI.CO AWARD FOR BEST CSR, SWITZERLAND, 2014

For close to 150 years, International Watch Company (IWC) has been the epitome of Swiss mechanical precision and stylish design. The Company’s comprehensive and continuous long-term attention to detail is recognised in the Corporate Social Responsibility (CSR) efforts of IWC and has been rewarded by the CFi.co Judging Panel’s decision in favour of this highly responsible company. The Panel notes that, IWC’s CSR credentials include good citizenship and concerns over sustainability in its every aspect from the community to the environment - both locally in Schaffhausen and globally. IWC demonstrates that the amalgamation of sound values and superb products always makes for a winner.’

Locally, IWC supports its employees by championing environmentally sound practices (such as the use of public transport) as well as in manufacturing (e.g. LED, heat recovery from ground water and the use of rainwater). IWC’s employees from 45 countries enjoy a gender equality policy - and there is strong encouragement for employees to return to work after maternity leave. Globally, IWC is focusing its commitment on supporting institutions that are either working with children and adolescents to promote sport and eradicate illiteracy, or are dedicated to climate and environmental protection. The long-term partnerships are the Laureus Sport for Good Foundation, the Antoine

de Saint-Exupéry-d’Agay Foundation, the Charles Darwin Foundation and the Cousteau Society. When sourcing raw materials, IWC complies strictly with national and international norms and standards and is a certified member of the Responsible Jewellery Council (RJC), an international non-profit organization that obliges its members to establish strict guidelines for ethical, social and environmental practices, and to guarantee the protection of human rights. They also ensure that the raw materials supplied, such as gold and diamonds, do not come from conflict regions. In short, IWC’s CSR is acknowledged for its very successful Swiss-style dedication to excellence in all its activities.

> CREDIFAMILIA WINS MORTGAGE FINANCE AWARD IN COLOMBIA

The CFI.co Judging Panel is delighted to declare Credifamilia SA winner of the award ‘Best Mortgage Finance Company Colombia 2014’. Credifamillia shows that through a focus on best practice their vision to provide much needed credit for the purchase and improvement of property to low and middle income households in Colombia can be achieved. Under the 68

leadership of Juan Sebastian Pardo, Credifamilia has followed a path of maximum regulation and governance from inception. Unlike many of their peers around the world, Credifamilia did not start out as a non-banking sector loan provider. Juan, at considerable effort, launched Credifamilia with a banking licence and applied the very highest standards of corporate governance to the CFI.co | Capital Finance International

company. This has enabled Credifamilia not only to attract savings but also to take advantage of the bond markets. Combining this competitive advantage with a deep understanding of the domestic market allows Credifamilia to have a real impact - providing affordable and competitive loans to low and middle income households and helping fuel growth in the wider economy.

Autumn 2014 Issue

> DYNECO ENGINEERING & CONSTRUCTION NIGERIA LTD: CFI.CO AWARD WINNER

CFI.co congratulates the strong management team at Dyneco on the firm’s welldeserved 2014 award as ‘Best EPC Partner, Nigeria.’

According to the Judging Panel, ‘Dyneco projects are substantial, very well thought out and nicely executed. We find a comfortably high level of industry expertise at Dyneco with competence

to handle important engineering, procurement and construction projects in Nigeria. We congratulate Dyneco on its achievements to date and hope to see strong continued success.’

> ALJ FINANSMAN WINS CONSUMER FINANCE AWARD IN TURKEY

The CFI.co Judging Panel congratulates ALJ Finansman AS following the announcement of their award for ‘Best Consumer Finance Services Provider – Turkey, 2014’.

The firm is something of a trailblazer in the provision of auto finance in Turkey and the panel points out that, ‘ALJ offerings are innovative and very well thought out. ALJ is

able to respond quickly and with authority to credit applications. This is a slick and extremely efficient operation and we have no hesitation in confirming the award. Well done, ALJ.’

> ENGINEERING, 2014: DRILLING TEAM AWARD GOES TO SPECTRUM

Spectrum Geotechnical Services Limited is the CFI.co 2014 winner of the award for ‘Best Drilling Services & Solutions Team, Nigeria.’ The Judging Panel commented that, ‘Spectrum has been active in Nigeria for the past

eleven years. There has been great improvement in the industry during this time and Spectrum can claim to have made their mark. Spectrum is working well with internationals for direct importation of materials and on contract work CFI.co | Capital Finance International

too. Safety really does come first at Spectrum and this company has a fine record. We sense a commendable concern for the environment too. Spectrum is a very worthy winner.’

> OUR AWARD WINNER TRAVANT: ADVISORY SOLUTIONS IN NIGERIA THAT BRING ABOUT SPEEDY AND POSITIVE CHANGE

The CFI.co Judging Panel is happy to recognise Travant Capital Partners as ‘Best Fund Advisory Team, Nigeria, 2014’. Travant advises across a broad range of industries and has a strong client base. The panel comments that,

‘Travant, working to international best practice, shows ingenuity and innovation and tries to make a real difference to client businesses with solutions that can be implemented effectively to bring speedy and positive change. Here is

a successful marriage of local knowledge and international expertise which results in a good understanding of the problems clients face. We congratulate Travant on this well-deserved award’.

> NDB INVESTMENT BANK: LEADERS IN SRI LANKA AND CFI.CO AWARD WINNER

NDBIB has for years been a leading force in investment banking in Sri Lanka and has received strong international recognition of its many important industry achievements and

intelligent and relevant product offerings and advisory services. The CFI.co Judging Panel has no hesitation in naming this bank as having the ‘Best Debt Capital Markets Team, Sri Lanka,

2014’ and warmly congratulates this winner on its consistently high quality performance.

> INNOVATION IN INSURANCE: CUSTODIAN WINS OUR AWARD IN NIGERIA

Custodian and Allied PLC, winner of the 2014 CFI.co award for ‘Most Innovative Insurance Company, Nigeria’, provides good evidence of this important characteristic with the recent launch of a mobile application that guides the customer through the complexities of the complete insurance 70

cycle. Innovation in risk management is evidence too and the insurer has a good response time record in respect of claims payment. There is an attitude at Custodian of seeking out innovation to drive the best possible methods of service delivery. The Judging Panel was also CFI.co | Capital Finance International

impressed with this company’s highly innovative approach and intelligent actions to encourage sustainability and described Custodian as a most thoughtful corporate citizen.

Autumn 2014 Issue

> OPTIMUM RESULTS: CFI.CO ANNOUNCES 2014 PROPERTY PORTFOLIO MANAGEMENT WINNER IN GERMANY

According to the CFI.co Judging Panel, ‘Optimum Asset Management provides shrewd property investment and associated advisory services that are impressive and truly comprehensive. This means finding the appropriate property and then offering intelligent

services across the entire maintenance and management spectrum. This vertical integration of the asset management and property/facility management is a unique trait of the Optimum platform. Our winner shows a very real concern for quality at all times and throughout its

operations. We are very pleased to note the outstanding achievements of Optimum and are delighted to confirm the award of ‘Best Property Portfolio Management Team, Germany, 2014’.

> ISM CAPITAL: WINNER OF CFI.CO AWARD FOR MOST INNOVATIVE CAPITAL MARKETS TEAM, UNITED KINGDOM, 2014

The very well experienced and highly skilled ISM Capital Markets Team has been together since the establishment of the firm in 2008. CFI.co’s Judging Panel acknowledges that, ‘the number and size of deals arranged by

ISM is most impressive and indicative of real success that is likely to endure. The firm took the view, which we share, that the mid cap space is under-served and set out to help players in emerging markets as well as European countries

access the markets. We see strong signs here of highly innovative thinking and actions that result in well-tailored solutions for clients. ISM has been working with good results across a broad range of industries’.

> FIRST REGISTRARS WINS THE CFI.CO AWARD FOR BEST SHARE REGISTRAR, NIGERIA

The CFI.co Judging Panel has named First Registrars Nigeria Limited, one of 25 registration companies in the country, as winner of the 2014 award for ‘Best Share Registrar, Nigeria.’ According to the panel, ‘First

Registrars certainly has the edge with its highly experienced team and very strong products and services. Customer care at First is exemplary. Formerly a wholly owned subsidiary of First Bank of Nigeria Plc, good corporate governance CFI.co | Capital Finance International

is a key focus of operations here and our winner offers an outstanding share/bond register administration service. First is indeed a very worthy winner of this award’.

> FOREX AT GCM MENKUL KIYMETLER A.Ş.: WINNER OF CFI.CO 2014 AWARDS FOR BEST BROKER AND BEST AFFILIATE

The CFI.co Judging Panel congratulates GCM on two awards in Turkey this year namely, ‘Best FX Broker’ and ‘Best FX Affiliate.’ According to the panel, ‘GCM is a most worthy winner in

both categories and should be congratulated on the quality of services provided. This broker has shown itself to be highly innovative, making the best use of modern technologies for consistently

strong delivery. GCM offers a good advisory and its training programme is exemplary. Clients can rely on the efforts of the broker’s highly capable and very well qualified team.’

> BANKING WITH A HEART IN MAURITIUS: MPCB IS OUR 2014 MOST PROMISING COMMERCIAL BANK WINNER

Mauritius Post & Cooperative Bank Ltd is the winner of our award for ‘Most Promising Commercial Bank, Mauritius, 2014’ and according to the CFI.co Judging Panel, ‘there was no hesitation in coming to this decision. The MPCB success story is truly inspirational and a credit to management and staff. We find that this bank is a clear leader and, indeed, a trailblazer across a wide range of

key banking industry activities.’ Over the past five years assets and pre-tax profits at this innovative bank have more than doubled. The Bank sets out and achieves the status of a one-stop-shop and has reached out via the post offices to bring banking to all people of Mauritius. MPCB goes the extra mile for its customers and is committed to the very

highest levels of service. This winner has the motto ‘Banking with a Heart’ and its generous CSR activities are making a big difference in healthcare, poverty reduction and education. There is a training academy for staff members at MPCB makes good use of technology to streamline its systems. Risk management at the Bank is exemplary.

> BEST COMMERCIAL BANK, CHINA, 2014: CFI.CO NAMES CHINA MERCHANTS

China Merchants Bank, headquartered in Shenzen and boasting 500 branches, is the CFI. co 2014 winner of the award ‘Best Commercial Bank, China.’ The CFI.co Judging Panel 72

congratulates China Merchants on pioneering cross-border financing activities and notes the Bank’s resolve to develop an international presence with the opening of its branch office in New York City. CFI.co | Capital Finance International

Trade financing at Merchants is outstanding and the Panel comments that, ‘China Merchant’s Bank is a wise choice for companies seeking out international business opportunities.’

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> CFI.CO ANNOUNCES METALS BROKERAGE TEAM AWARD, UK, 2014

Sucden Financial Limited is the London brokerage arm of the French group Sucres & Denrées and this year’s winner of the CFI.co award for ‘Best Metals Brokerage Team, UK’. The company was established in 1973 and is one of 10 ring dealing members of the London Metal Exchange (LME) and a member of the London Bullion Market Association. The firm provides comprehensive dealing, brokerage, clearing and execution services for institutional, corporate and private investors. According to management

at Sucden Financial, the diverse nature of the firm’s client base means that the company ‘continually evolves to offer clients customised trading solutions with the latest technology and exceptional levels of service’. The CFI.co Judging Panel comments that, ‘for good reason Sucden Financial scores very highly in terms of customer satisfaction and takes its duty of care very seriously. This firm refuses to cut corners and, as a result, is fully deserving of its high level of client confidence. Management and staff are very

experienced, highly skilled and pleasant people to deal with. There is a welcome sense here of following traditional ways of working but Sucden Financial is innovative and aggressive in the search for business too. The firm is rapidly expanding in Asia with a growing Chinese team both in London and their Hong Kong subsidiary. We are delighted to confirm this award in the United Kingdom and consider Sucden Financial to be a very worthy winner.’

> CFI.CO TRADE FINANCE AWARD GOES TO COMMERZBANK

Commerzbank is a leader in the field and, according to the CFI.co Judging Panel, a very worthy winner of the award ‘Best Trade Finance Team, Germany, 2014.’ The full range of trade finance

products is available to clients and Commerzbank advisory services are of the very first order in a country that is committed to the most aggressive and efficient export creation. Commerzbank has delivered solid solutions to

trade financing in even the most challenging of situations and has in place a very talented and devoted team of relationship managers ready to assist clients.

> FOR A SECOND YEAR: BAIC IS NAMED BEST INSURANCE COMPANY, KENYA

The CFI.co Judging Panel looks for continuous good progress in companies they are considering for a second consecutive year award. This has certainly been in evidence at British American Insurance Company (BAIC), Kenya and there was no hesitation from the panel in naming this company ‘Best Insurance Company, Kenya, 2014’. BAIC is the flagship company of British American Investments Company

(popularly known as Britam). BAIC now benefits from the Britam acquisition this year of Real Insurance Company Limited (which is now a sister company of our winner). This development brings further market share improvement to add to our winner’s impressive organic growth. Top line growth at BAIC is highly satisfactory (27%) and theirs is now the widest country network of offices. The CFI.co | Capital Finance International

company is investing wisely in technological improvement and gets top marks for innovation. BAIC is one of only two profitable health insurers in Kenya and bank assurance is also doing very well. According to the panel, ‘BAIC is moving from strength to strength and is a very worthy second year winner. We wish them all success.’

> Africa Awakening:

A Continent on the Rise The time for Africa is now. The continent is rising to unexpected heights as wars have ended and humanitarian crises subsided. Afro-pessimism – the deeplyrooted notion that Africa was essentially without hope – has suddenly been replaced with almost boundless optimism. Even The Economist took note: After dismissing the continent as “hopeless” ten years ago, the magazine just last year splashed Africa Rising across its cover, reporting extensively on the burgeoning economies of the continent previously deemed hopeless.

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hough statistics can be misleading, the numbers coming out of Africa are nothing short of impressive. Of the fifteen countries in the world boasting the fastest-growing economies over the last five years, nine are African. According to the International Monetary Fund (IMF), sub-Saharan Africa this year may expect average growth rates of around 5.4% – almost double the global average. The boom times have international consulting companies work overtime. Reports and studies on Africa’s exciting future and the many opportunities awaiting the industrious are published by the dozen. A new scramble for Africa is unfolding as businesses compete for a foothold on the continent. Nigeria is the top-prize: If you can make it there, Africa is yours for the taking – or so the comments go in boardrooms from London to New York to Beijing and everywhere in between. As mentioned, statistics have their own shortcomings. Fourteen percent annual economic growth in Mozambique may seem very exciting but coming from a nominal per capita GDP of barely $650 means a modest gain of about $90. Even at this accelerated pace it will take a while for people in Mozambique to become avid consumers. The trend, however, is going in the right direction and will eventually transform the country. BOOM TIME A recent study by Bain & Company Consultants expects consumer spending in Africa to double by 2020 and reach $2 trillion as more Africans move out of poverty and into the middle class. The size of Africa’s middle class already doubled between 1981 and 2010 and its growth is picking up fast. Per capita consumer spending in an increasing number of African countries is already higher than that of both India and China. As a market, Africa is already significantly larger than either Brazil or Russia. This holds true especially in the telecom sector. Africa now has well over 600 million mobile phone users – more than either the United States or Europe. Mobile Internet is becoming widely available and with it user gain access to services previously reserved for well-off urbanites only. The continent is already leading the global revolution in mobile banking. Thanks to the ubiquitous mobile phone, millions of Africans have gained easy access to financial services. Foreign direct investment (FDI) in Africa has quintupled between 2000 and 2010. South Africa has lost its dominance and now receives only 3% of all investments made in Africa. Over the same period, Africa’s exports tripled thanks to strong demand for its riches from China and India. Most countries pushed through reforms aimed at strengthening legal frameworks that promote good governance, improve political stability, and offer investors an added degree of security. The political risk previously associated with setting up shop on the continent has been sharply reduced. The cost of doing business in Africa has also fallen dramatically with corruption becoming the exception rather than the rule. Democracy – and with it improved standards of 76

governance – is on the march. Since Benin in 1991 set a precedent by having a peaceful transfer of power between two governments as dictated by the ballot box – something no other country on the continent had been able to accomplish in about thirty years – more than thirty governments have been democratically elected. Sceptics may remark that the good times are to be ascribed largely to the commodity boom fuelled by China and its insatiable demand for raw materials. In order to get the ores it desires to port, China has indeed invested heavily in Africa’s infrastructure. It has also boosted the continent’s manufacturing sector to supplement its own. Africa seems poised to conquer a role in both the services industry – as, for example, an alternate host to call centres – and in light manufacturing. As intra-Africa trade expands, industry will see its potential customer base increase. Long hampered by tariff barriers and excessive paperwork, cross-border commerce is set to expand as regulations are relaxed and former rivals become friendly neighbours. Though Chinese interest in all things African certainly does not hurt, the upswing of the continent is powered mostly by indigenous developments and drivers. SUSTAINING THE MOMENTUM Most experts tend to agree with the conclusions of a 2012 study by Roland Berger Strategy Consultants that identified a set of seven industries that will help sustain the growth momentum in Africa: Energy, telecommunications, transportation, manufacturing, consumer goods and retail, public services, and – perhaps most important of all – financial services. Over the last decade, African banks have experienced unprecedented rates of growth. Balance sheets have grown at average rates of 42% annually while net income increased by as much as 54% per year. This astonishing expansion is by no means nearing its end. About 400 million Africans have yet to gain access to financial services while only an estimated 7% of the continent’s inhabitants are covered by a pension plan. Social security systems are virtually non-existent but most countries are already now in the process of setting up social safety nets. According to a survey by the International Labour Organisation (ILO), pension coverage is highly differentiated across the continent. In North African countries such as Libya, Egypt, Tunisia, and Morocco around 80% of the labour force enjoys full pension coverage while in most sub-Saharan countries only between three and ten percent does. As hordes of young and better-educated professionals enter the job market, and swell the ranks of the middle class, Africa’s much-touted demographic dividend will kick in. Governments will have a unique opportunity to introduce innovative social legislation drawing on the experiences of Western nations while avoiding the pitfalls of their now over-stretched systems. However, politicians and officials must meet the challenge of allowing for the creation of an adequate number of meaningful jobs for the tens of millions CFI.co | Capital Finance International

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expected to enter the workforce in the near future. Thanks to the commodities boom, and improved standards of governance, the resources are available to make this happen. Should the job fail to materialise, frustration will set in which in turn may lead to violence and political instability. The pay-off of a successful job-creation drive is immense. As the ratio between working people and dependents rises, economies will thrive just as they did during the three decades of Asia’s demographic dividend. The time to cash in is now: Birth rates are already falling and will continue to do so as prosperity levels increase. By 2050, the 55+ demographic will have doubled in size opening up a whole range of opportunities for the financial and healthcare sectors but signalling the end of the demographic dividend. By this time, most countries in Africa should have reached reasonable levels of prosperity. THE NEED FOR INDUSTRY According to Rick Rowden, a US expert on industrial development, Africa cannot possibly expect to escape poverty without resorting to industrialisation: “Apart from a few tax havens and resource-rich places, there is no country that has attained a high standard of living on the basis of services or extractive industry alone. To really prosper, a country simply must put as many workers through factory doors as it can.” Almost everywhere on the continent, the small but resilient industrial sector is holding onto its ground. Even with the commodities boom in full swing, industrial output in sub-Saharan Africa has managed to keep up at between 10 to 14% of GDP. Big international names are slowly moving away from Asia to open manufacturing plants in Africa. The American General Electric conglomerate is investing $250 million in a new factory for electrical components in Nigeria. Clothing giants as Swedish H&M and Primark from Ireland are increasingly sourcing products from Ethiopia. A South African telecom has recently begun manufacturing cheap mobile phones for the African market with most components sourced locally. The World Bank predicts that as many as 80 million jobs may leave China as wages increase. Most of these jobs will migrate to the world’s last economic frontier – Africa. Already low, manufacturing costs are declining even further as improved infrastructure reduces transportation and other logistics expenses. Moreover, productivity across Africa is rising at around 3.5% annually, significantly more than in the US (2.3%). As manufacturing in China becomes more expensive, Africa becomes ever more attractive. World Bank economist Wolfgang Fengler is convinced that “Africa is now in a good position to industrialise with the right mix of ingredients. For this to happen, the continent will need to scale up its infrastructure investments and improve the business climate. Many [African] countries have already started to tackle these challenges in recent years.” Though few expect the next South Korea to come from Africa, most economists agree that the continent will follow a more diverse path with a huge number of smaller scale companies providing most of the manufacturing CFI.co | Capital Finance International

output. Agriculture and the services industry will likely remain important and extractive industries will be a mainstay of African economies for the foreseeable future. This need not be an issue. India has managed reasonably well on agriculture and services while slowly building up its industrial base. ISSUES REMAIN Though the future looks bright, Africa has yet a vast range of issues to tackle. To begin with, not all countries fare equally well. Oil income may be powering economic growth in Angola and Equatorial Guinea, both countries have a long way to go toward the full implementation of good governance principles. Here, business may be booming, but so is corruption. The Democratic Republic of Congo is barely governable and not quite as democratic yet as its name would seem to imply. The country remains in the grip of warring factions fighting to loot its riches. Zimbabwe is still the private domain of a stubbornly antiquated ruler who insists on blaming others for his country’s many ills. Even South Africa is tumbling from its pedestal with the ANC (African National Congress), entrenched in power and increasingly arrogant, openly considering land reform and the nationalisation of the mining industry. As the party mulls a swing to the left, the country is tainted by countless corruption scandals. LEARNING FROM PAST MISTAKES While most countries have learned from past mistakes, others insist on giving tried-and-failed policies yet another spin. Even in places that have now found the path to sustainable development, much work remains to be done. Starting a business in most countries is an adventure into the bureaucratic unknown to be undertaken only by the exceedingly well-financed and out of reach for the common man. The selects few who do manage to launch a fully and properly document business are often taxed out of existence. Tax reform is urgently called for as are the means to collect taxes honestly. Property registration, the most mundane of issues, is also lacking. Opening up access to title deeds and registration for small-scale farmers and the urban poor has been shown to unlock credit that, once flowing, enables people to get ahead more easily. But most of all, politicians and officials should be made to stop appropriating other people’s money. Corruption and the abuse of power are still rife and threaten to derail progress. These blights will not disappear anytime soon. But they can be managed and even tackled as long as there is a political will to do so. This is where the importance of good governance comes in. Countries that are able to take themselves seriously and conduct their official business accordingly will be amply rewarded with solid growth and a sharp overall reduction in poverty levels. It is no coincidence that the African countries most successful in combatting corruption, according to the annual tabulations by Transparency International, are the same ones that, according to the numbers of both the World Bank and the IMF, have the fastest growing economies of the continent. i 77

> IFC Inclusive Business Models Group:

Inclusive Business Case Study The Kenya Tea Development Agency

he International Finance Corporation (IFC) is the leading investor in businesses that offer goods, services, and job opportunities to low-income communities. We call these “inclusive business models”: Commercially viable and replicable businesses that include low-income consumers, retailers, suppliers, or distributors in core operations. Since 2005, the IFC has committed more than $10 billion in over 400 inclusive businesses in 85 countries, integrating more than 200 million people into core business operations. These include farmers, students, patients, and utility customers. The investments are helping to improve their lives, and promote prosperity and sustainable development outcomes in low-income communities around the globe. Inclusive business investments span the entire IFC investment portfolio, with one third focusing on financial markets (including microfinance, rural banking, and micro-insurance); one third on agribusiness, education, health, housing, and manufacturing; and one third on power, water, sanitation, and communication technologies. The Kenya Tea Development Agency (KTDA) is a particularly successful case of inclusive agricultural development, and IFC is proud to be a partner. In 2013, we provided a $12 million loan to KTDA to finance the construction of a new warehouse complex for handling and storage. We also advise KTDA on its environmental, social, health, and safety standards, as well as on expansion plans and its supply chain KTDA BACKGROUND The Kenya Tea Development Agency Ltd (KTDA) was established in 2000 and is owned by 54 tea companies which, in turn, have 550,000 small tea farmers as individual shareholders. The tea companies collectively own 66 tea processing factories. KTDA emerged from the privatisation of the Kenya Tea Development Authority, an agency created in the 1960s to support small farmers. KTDA’s services cut across the entire tea value chain and include inputs and agri-extension, transportation, warehousing, processing, marketing, and financing. INCLUSIVE BUSINESS MODEL Tea is a suitable cash crop for small farmers in Kenya. Among other factors, the country’s weather and soil conditions make it possible to grow tea year-round; manual plucking facilitates harvesting of the best tea leaves; and large investments in 78

“Since 2005, the IFC has committed more than $10 billion in over 400 inclusive businesses in 85 countries, integrating more than 200 million people into core business operations.” machinery and irrigation are not needed for smallscale tea farming. But in the 1950s, when small farmer-based tea production was first considered in Kenya, the necessary infrastructure and services were not in place. Farmers lacked technical knowledge and were scattered over a large area. As a result, various policies, plans, and reforms were initiated to support small farmers in growing cash crops. In 1960 – with support from the Commonwealth Development Corporation CDC, the UK’s development finance institution – the government set up the Special Crops Development Authority (SCDA), a semi-state agency that was renamed the Kenya Tea Development Authority in 1964 after the country gained independence. The government created the Tea Research Institute of East Africa (TRIEA) which developed nurseries and high-yielding tea varieties among other work, built roads to transport tea from farms to markets, and provided extension services through the Ministry of Agriculture. The Authority worked with commercial tea companies for processing and marketing. Starting in the 1960s, the Authority was supported by the CDC and the World Bank which provided advisory support and soft loans. Reforms in the 1990s led to the Authority’s privatisation and the emergence of KTDA. Today, KTDA is a vertically integrated private company that offers comprehensive services for small tea farmers such as inputs and agriextension, transportation, processing, marketing, and access to finance. These services are delivered by KTDA and its five subsidiaries which manage farm-to-factory logistics, processing, packaging, distribution, trading, insurance, and financing. LOGISTICS AND PAYMENTS Small-scale farmers have 10-year agreements with specific tea factories. Their farms are typically less than one-half acre, but some are up to 3.5 CFI.co | Capital Finance International

acres. Farmers deliver tea to 3,200 buying centres managed by elected farmer-based committees across tea growing regions in the Rift Valley and East Rift Valley. Tea is weighed, graded, and valued at these centres and any green leaf that doesn’t meet quality standards is rejected. Tea is then transported by factory-owned trucks to KTDA factories for processing, packaging, and distribution. A mobile technology system transmits realtime data on farmers’ deliveries from centres to factories, facilitating payments and records management. Around 75% of farmers receive payments electronically or via checks. Every month, farmers receive an upfront payment – on a per kg basis – for a portion of the estimated value of their tea deliveries. The balance is paid in two instalments after factories sell the tea and deduct the costs and loan repayments. For example, KTDA purchases fertilisers for farmers who pay for the cost over 12 months through deductions from payments from the tea factories. Farmers also get an annual bonus from the profits made by the tea factory of which they are a shareholder. KTDA has a clear dividend payout policy: 30% of profits must be made to its small farmer shareholders. Weekly reports on the prices that KTDA factories achieve at the Mombasa auction are shared with farmers. Access to price information as well as farmers’ shareholding in tea companies are strong incentives for performance and maintaining a market orientation. TRAINING PROGRAMMES KTDA introduced the Farmer Field Schools (FFSs) model following a pilot on good agriculture practices with Unilever’s Lipton Company in 2006. FFSs offer hands-on learning through bi-monthly two-hour sessions for farmers to gain knowledge on increasing productivity and quality through planting, fine-plucking, preparing for certification, etc. Topics such as empowerment, collective action, and issues like health are covered as well. Farmers are also trained in sustainable agriculture practices to meet requirements for Rainforest Alliance certification which is based on the Sustainable Agriculture Network (SAN) standard. Both farms and factories must be in compliance to achieve this group-level certification. Training topics include agronomic practices, climate change adaptation (e.g. crop diversification) and mitigation (e.g. planting indigenous trees), soil conservation, and water management. A trainingof-trainers model is used: High performing tea

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farmers are trained to serve as lead trainers and to conduct farmlevel inspections before audits. These training programs have been funded by KTDA in partnership with donors such as the Netherlands Ministry of Economic Affairs, Unilever, and the Sustainable Trade Initiative (IDH). KTDA is currently working toward developing a financially sustainable model for training provision. ACCESS TO FINANCE KTDA subsidiary Greenland Fedha offers farmers loans based on estimated monthly payments for tea deliveries as well as loans based on annual bonuses. Collateral includes green leaf production and household or business assets. Greenland Fedha lends up to 30% of the value of a farmer’s tea delivery. Since 2009, about 62,000 farmers have received loans to buy farm inputs, tools and equipment, improve tea farming, and support micro businesses. Loan tenors range from less than a year up to three years with a 12.25% p.a. interest rate. DRIVERS FOR KTDA’S INCLUSIVE BUSINESS MODEL • KTDA’s ownership structure – small farmers as shareholders – and the company’s mission • Strong demand for tea globally and increasing consumer focus on certified products • Policies conducive for the growth of an inclusive business in the tea sector While originally a semi-state agency established after independence to accelerate economic development and income growth for small farmers, KTDA is now a private company with small tea farmers as its shareholders. This unique ownership structure is at the core of the company’s inclusive business model. It is reflected in KTDA’s mission “to provide effective management services to the tea sector for efficient production, processing, and marketing of high quality tea and investing in related profitable ventures for the benefit of its shareholders and other stakeholders.” Second, the demand and prices for tea worldwide are forecasted to increase over the coming decade. Also, an increased focus on farmlevel traceability and sustainable agriculture by customers is creating demand for certified tea. KTDA is well positioned to meet the growth in demand given its experience of over half a century in the industry and its emphasis on sustainability in the supply chain. The climate in Kenya also makes it conducive to grow tea year-round and for KTDA to produce higher yields. Third, reforms facilitated the restructuring of KTDA from a semi-state agency to a private company with small farmer shareholders. Further, helping ensure a stable supplier base for KTDA, there are strong legal incentives for farmers not to side-sell to other factories. Regulation by the Tea Board also ensures that tea factories are not set-up where there is no base of small farmers. Such policies are important enablers for KTDA to succeed as a private company.

RESULTS KTDA’S INCLUSIVE BUSINESS MODEL • 550,000 small tea farmers as shareholders across 66 tea factories • KTDA farmers receive 75-80% of the final tea price, a higher pay-out than farmers in neighbouring countries pocket • More than 62,000 farmers have received loans since 2009 As of 2013, KTDA was the second largest exporter of tea in the world. Indeed, over 60% of the tea produced in Kenya is grown at KTDA farms. KTDA’s 66 tea factories produced 1.1 million tons of tea worth around $800 million in 2012. KTDA’s largest buyer is Unilever which buys up approximately 30% of KTDA’s annual production.

while the Fairtrade Foundation has certified 13 factories for Fairtrade. Sustainable practices have enabled farmers to increase yields by 36% on average and receive premiums from buyers of Rainforest Alliance certified teas. Over 62,000 farmers have received loans via KTDA subsidiary Greenland Fedha. In 2012, over 19,000 loans below KSH 70,000 ($796) were disbursed electronically via the M-Pesa mobile money service. i

The company has 550,000 small tea farmers who cultivate over 126,000 hectares of land on small farms that are generally less than half a hectare in size. On average, KTDA farmers supply 2,000 kg of green leaf or 450 kg of packaged tea. KTDA tea fetches prices 12% above the average price of tea sold at the world-renowned Mombasa auction. KTDA farmers earn 70% of their income from tea production. A KTDA tea farmer can expect to receive 75-80% of the final tea price; this is a much higher pay-out than that of small tea farmers in neighbouring countries. The average per kg payment for a KTDA farmer has increased from KSH 23.99 ($0.27) per kg of green leaf in 2001 to KSH 45.65 ($0.52) per kg of green leaf in 2013.

ABOUT THE INCLUSIVE BUSINESS MODELS GROUP IFC established its Inclusive Business Models Group in 2010. Today, the Inclusive Business Models Group is leading efforts to promote inclusive business across IFC by: • Catalyzing ideas and innovation to grow and expand inclusive businesses worldwide by sharing data and providing IFC clients with market insights, developing customized inclusive business tools and resources, and helping IFC clients replicate inclusive business models. • Convening IFC clients, investment professionals, leading thinkers on inclusive business, and international development stakeholders during the annual Inclusive Business Forum and other global meetings to promote collaboration. • Communicating which models work, generating and disseminating knowledge on best practices through a library of case studies, and highlighting innovation through initiatives such as the FT/IFC Transformational Business Awards.

In 2013, there were 820 Farmer Field Schools managed by KTDA extension staff to train tea farmers. Rainforest Alliance has certified 54 factories in sustainable agriculture practices

This article is based on the KTDA case study in Monitor Deloitte, 2014: “Beyond the Pioneer: Getting Inclusive Industries to Scale.” The article was written by the IFC Inclusive Business Models Group.

CFI.co | Capital Finance International

> PwC Nigeria:

Business Reorganisation in Nigeria Key Tax Considerations By Taiwo Oyedele, Kenneth Erikume & Chukwuemeka Chime

popular saying has it that change is the only constant in life. This is true, especially in business. Organisations have to continuously re-examine their legal and operating structures to ensure they are fit for purpose and are able to compete favourably in the modern business world. This

review often results in some internal and, sometimes, external restructuring activities. Considering the renewed focus on Africa as the next investment frontier, and given that Nigeria is the largest economy on the continent, investors with operations in Nigeria may find it inevitable to

CFI.co | Capital Finance International

restructure their businesses for various reasons. Whatever the motive, business executives must be aware of the possible tax implications before taking the leap. Business re-organisation usually takes the form of internal restructuring or mergers and acquisition

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(M&A). Internal restructuring could involve changes to the functions, assets and risks of different operating units within the organisation or entities within a group as, for example, centralisation of procurement, changes to holding company location, central treasury function, shared services centre and so on. M&A essentially deals with the buying, selling, dividing and combining of different entities that can help an enterprise reposition for sustainable growth. The distinction between a “merger” and an “acquisition” has become increasingly blurred especially from a financial reporting viewpoint. However, from a regulatory perspective, the difference has not completely disappeared. Generally, a merger is a legal consolidation of two companies into one entity either through a scheme of arrangement or a scheme of merger. Under a typical scheme of arrangement, the net assets and business of a company (say A Limited) is transferred to another company (B limited). In this regard, company B’s identity is retained while company A is liquidated. However, under a scheme of merger, companies A and B combine into one. By so doing, both companies lose their individual identities for a new company to emerge which may well be named AB Limited. On the other hand, an acquisition occurs when one company takes over another and establishes itself as the new owner. The target company still exists as a separate legal entity. THE NIGERIAN SITUATION Re-organisations in Nigeria are highly regulated. Entities that want to merge require some forms of notification and approval from the Federal Tax Authority – the Federal Inland Revenue Service (FIRS), and other regulators such as the Securities and Exchange Commission (SEC). The FIRS would usually request for a security or guarantee from any of the parties to the merger in respect of any established or potential tax liabilities. Also, a court approval is required for a merger of all listed and large private companies. In practice, the entire process takes between 6 to 12 months to complete. On the other hand, these requirements are less stringent in the case of an acquisition. Investors will typically consider the alternatives of either a share or an asset deal. In a share deal, the buyer acquires shares of the target company. Since the company is acquired intact as a going concern, this form of transaction carries with it all known and inherent liabilities and other risks of the target entity. These risks are thus transferred to the acquirer as all shareholders share proportionately in the residual risks or rewards of the companies they own.

“Considering the renewed focus on Africa as the next investment frontier, and given that Nigeria is the largest economy on the continent, investors with operations in Nigeria may find it inevitable to restructure their businesses for various reasons.” CFI.co | Capital Finance International

In contrast, the investor simply buys the business or net assets of the target company in an asset deal. This is usually done through a special purpose vehicle that can start the business on a clean slate. This may leave the target company as an empty shell depending on the relative scale of the deal.

DRIVING FACTORS Re-organisations are becoming increasingly common in the Nigerian business terrain due to a number of factors. These include minimum capital requirements stipulated by regulators in some sectors, local content regulations, deals and transactions around disposal of onshore oil and gas assets by international oil companies, divestment by government from power assets, divestment from passive assets by telecommunications companies, sale of rescued banks, the disposal of non-banking subsidiaries by financial groups and so on. In the past, many investors did not pay sufficient attention to the tax issues when undertaking a re-organisation exercise. The result is usually tax inefficiency, and loss of shareholder value due to unanticipated tax costs. The importance of a robust tax due diligence and planning in a re-organisation cannot be over-emphasised and sometimes, tax issues can be a deal breaker. KEY TAX CONSIDERATIONS AND COMMON PITFALLS The FIRS will be interested in whether a reorganisation would lead to tax base erosion and possible tax revenue leakage. This, in many cases, means that affected companies may have to pay more taxes where there is no specific waiver in the law. Generally, where assets are being transferred from one legal entity to another, certain tax liabilities may arise such as value added tax (VAT), capital gains tax (CGT), stamp duty, and claw-back of capital allowances.

tax deductibility of acquisition costs. Some structuring possibilities are available to mitigate transaction taxes and other commercial non-tax liabilities. A major pitfall to bear in mind is the creation of a holding company or intermediate parent companies. This could happen where a special purpose vehicle (SPV) is set up in Nigeria to acquire the shares of a Nigerian target company. Generally, Nigerian holding structures create significant tax leakages. This is because holding companies are exposed to “excess dividend tax” on any income that has not been subject to corporate income tax such as capital gains and tax exempt income like dividends. The effect of this rule is that intermediate or ultimate holding companies that earn dividend from other Nigerian operating companies or capital gains from the disposal of shares will be caught by the excess dividends tax when they further distributes such profits. Another peculiar issue in respect of intermediate holding companies is minimum tax. The minimum tax provision requires income tax to be calculated based on other parameters such as net assets, for businesses with low or no taxable profits. However, companies that have 25% direct foreign equity are exempt from minimum tax. The effect is that the operating company may be exposed to minimum tax because its shares are held 100% by a Nigerian intermediate holding company.

In the case of a share deal, there is no VAT, no CGT and claw-back of capital allowance is not applicable but may be subject to a nominal stamp duty payment.

Added to this is the commencement rule. Setting up a new SPV as a result of a re-organisation in whatever form could lead to double taxation (effectively up to 60%) of the profits of at least 12 months in the first 3 tax years due to the application of commencement rules.

In deciding which option to take, investors need to balance the almost tax free share acquisition approach with the potential legacy risks of the target. Another downside is that the investor in a share deal does not get tax deduction for his investment given that the tax base of the underlying assets remains the same.

New companies may apply for tax incentives such as “pioneer” status incentive which confers corporate income tax exemption on such companies for up to five years. This incentive also needs to be carefully planned otherwise it may result in an overall tax cost rather than tax benefit. i

Certain provisions exist in the tax law to eliminate or significantly reduce the tax costs in an internal re-organisation. This however requires specific approval of the FIRS which cannot be guaranteed. Another key consideration for internal structuring is transfer pricing (TP) especially between separate legal entities within a group. This is particularly the case given that the TP regulations in Nigeria are applicable to cross border and domestic related party transactions alike.

ABOUT PwC PwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 184,000 people who are committed to delivering quality in assurance, tax and advisory services.

In summary, the decision as to which approach to use from a buyer’s perspective is determined by how much historic liabilities are within the business, how to minimise the applicable transfer taxes to the seller, and how to maximise

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Autumn 2014 Issue

> CFI.co Meets the CEO of Dunn Loren Merrifield:

Sonnie Ayere True leadership is often characterised by the capacity to translate strategic vision into reality and thus attain the positive impact desired. That is also the hallmark of Sonnie Ayere whose new thinking on investment and capital financing in Africa has opened new paths to prosperity.

r Ayere is the founding chairman and group managing director of the Nigerian investment firm Dunn Loren Merrifield, a full service financial company established in 2009. As managing director and CEO of UBA Global Markets now UBA Capital, Mr Ayere under the guidance of his mentor, Tony Elumelu successfully launched and directed the investment banking arm of UBA Group Plc between 2005 and 2009, raising and trading more than $6.4bn for both sovereign clients & corporations. Prior to Mr Ayere’s full business commitment in Africa, he had worked at the International Finance Corporation (IFC, a subsidiary of the World Bank) on the development of the Nigerian bond market. That market is now worth over NGN6.5trillion ($41.7bn). At the IFC, Mr Ayere held the role of structured finance specialist for sub-Saharan Africa. He developed structured finance and securitisation transactions in addition to creating instruments that support value in debt capital markets. Now accumulating over twenty one years of professional experience in corporate and structured finance, corporate banking and asset management, Mr Ayere holds an MA (Hons.) in Financial Economics from the University of Dundee, Scotland from where he graduated in June 1993 with a 2:1. He is also an alumnus of the Cass Business School London where he obtained an MBA. That same year, Mr Ayere successfully concluded the Executive Corporate Finance Programme at the London Business School. After his studies, Mr Ayere gained valuable insights working at the BMO Nesbitt Burns, HSBC, Sumitomo Mitsui Bank and NatWest Bank all in London. Fascinated by the alchemy of securitisation which he got introduced to in 1997, Mr Ayere developed a keen interest in the means and ways of financing large corporate projects, private companies and government institutions. He felt instantly at ease devising innovative models of structured finance. Mr Ayere believes that a high level of creativity – or out-of-the-box thinking – is an absolute necessity when aiming to strike the perfect balance between different asset classes and creating securities out of their cash

CEO: Sonnie Ayere

flows – either basic or structured. This remains a guiding principle that unifies the team of over forty professionals Mr Ayere now leads at Dunn Loren Merrifield. As an institution operating in the financial markets, Dunn Loren Merrifield thrives on a culture of innovation. The firm keeps a sharp focus on the requirements of its clients and offers peerless services and world-class execution of orders. “Our purpose is to offer new and simple solutions to the sometimes complex financial needs of our clients. We aim to positively impact the financial market with unique investment products for the buy-side based on new thinking models,” says Mr Ayere. In February 2014, Mr Ayere was confirmed as the inaugural CEO of the Nigeria Mortgage Refinance Company (NMRC), having served earlier as task manager for the setting up of the company. The Nigeria Mortgage Refinance Company is set up as a private company charged with the public purpose of developing the primary and CFI.co | Capital Finance International

secondary mortgage markets in the country. The NMRC is to raise long-term funds in the domestic capital market and later from foreign markets. This way, the company is expected to contribute to the encouragement of affordable housing in a country of 170 million people. The initiative was championed by the presidency under the auspices of the Co-ordinating Minister of Finance and the Economy; Dr. Ngozi OkonjoIweala, the Central Bank of Nigeria (CBN) with support from the World Bank, the International Finance Corporation (IFC), the UK’s Department for International Development (DFID) and other private sector partners – commercial and mortgage banks. The NMRC is the first financial institution in Nigeria to be established under a public/private partnership agreement. It is also the first time that the World Bank had contracted to inject capital in a secondary mortgage institution in Nigeria. The World Bank is providing $250m as Tier 2 capital for the company. The IFC is also a Tier 1 equity investor. i 83

> USAID:

Diaspora Entrepreneurs and Investors Find Success in Africa and Beyond By Romi Bhatia and Steve Matzie

Want to build a global business? Start it in Africa. Promising entrepreneurs with roots on the continent are building high-impact businesses and making investments that are contributing to Africa’s growth. It’s a trend that is finally starting to catch on with government leaders, US policymakers, and development practitioners alike.

n August 4, 2014, President Obama convened over forty African heads of state in Washington for the US-Africa Leaders Summit under the banner of Investing in the Next Generation. They discussed ways of stimulating growth, unlocking opportunities, and creating an enabling environment for the next generation in Africa. A key stakeholder with a seat at the table was the African diaspora. It included people like Michael Griffin, CEO of Sardis Enterprises International and speaker at a White House-led forum on the role of diasporans investing in Africa. Mr Griffin, an African American, demonstrates that being a diasporan carries not just personal meaning but a calling to support socio-economic development on the continent as well. Sardis and its Ghanaian partners grow organic fruits for export. By producing and selling organic fruits, Sardis is reaching higher-value markets. In January, its Ashanti brand pineapples began selling in Whole Foods grocery stores in the southeast United States, but not without first overcoming hurdles to obtain an organic certification and raising capital to transport the pineapples to US markets. HELPING DIASPORA START-UPS THRIVE Mr Griffin is one of the winners from the African Diaspora Marketplace (ADM), a multi-sector partnership between USAID’s Africa Bureau, US

Sardis Enterprises International

“In LDCs, a doubling of the growth rate of private investment would be a desirable target.” Global Development Lab, Western Union, and Western Union Foundation. ADM provides seed funding, expertise, and networking opportunities for promising diaspora entrepreneurs. With support from the ADM, farming cooperatives in Ghana that supply Sardis could become certified to sell organic produce in the US and EU. Mr Griffin sees expanding opportunities for growing small businesses on the continent. “[Africa] gives the small guy a shot… the atmosphere is conducive for a smart entrepreneur to succeed.” The company is now working on expanding its partnership with Whole Foods across America’s east coast. Another ADM entrepreneur at the forum spoke about tackling the issue of affordable housing in Nigeria. Chinwe Ohajuruka, a Nigerian-American architect and founder of Comprehensive Design Services (CDS), launched her business to address the need for more than 17 million housing units in a nation that also faces major challenges with reliable power and access to clean water. CDS has designed and built a set of prototype housing units that provide both dependable energy and affordability for Nigerians of average incomes. “The ADM grant provided much needed start-up financing,” said Ms Ohajuruka. “The partnership has increased [our] visibility, as we have been invited to South Africa, Japan, and even the White House to speak about our innovative and CFI.co | Capital Finance International

sustainable design solutions to the housing, energy, water, and sanitation crises.” A resident of Columbus, Ohio, Ms Ohajuruka says CDS allows her to stay connected with the continent in a meaningful way. Her ambitious goal is to eventually build a hundred green and affordable residential buildings in each of the 774 local municipalities across Nigeria. Mr Griffin and Ms Ohajuruka are part of a cohort of 34 ADM winners seeking to make a positive impact in their countries of origin or heritage through their drive, business acumen, and capital – both on their own and with USAID’s support. Diaspora entrepreneurship and investment has the potential to significantly impact the “missing middle” of small and medium enterprises (SMEs) which are economic drivers for growth and job creation – especially in sub-Saharan Africa where an estimated 218 million people live in extreme poverty. It is well known that business formation in Africa is hampered by a lack of savings and other forms of capital for start-up business enterprises. Moreover, unemployment among Africa’s 200 million young people (ages 15-24) is a particularly significant issue. Africa’s youth comprises 36.9% of the working age population, but 59.5% of the total unemployed. DIASPORA INVESTMENT: A STEP BEYOND REMITTANCES For many years, the public discourse about how emigrants can help the countries they left behind has been fixated on remittances. This is not without good reason. Globally, the number of people living outside their country of origin has almost tripled over the past 45 years to over 232 million (or 3.2% of the world population). As a result, remittances from diaspora to developing countries reached $404 billion in 2013 alone. Remittances typically address consumption needs of families. However, it is clear from World Bank surveys and lessons learned from USAID’s

Autumn 2014 Issue

Chinwe Ohajuruka, a Nigerian-American Architect and Founder of Comprehensive Design Services (CDS),

“USAID has used its public-private partnership and credit guarantee tools to unlock the potential of diaspora investors.” funding for infrastructure, education, health, and other development sectors. This is increasingly important as US government Official Development Assistance (ODA) has stagnated over the past decade. However, serious challenges confront DDI growth. To date, diaspora investors rely mostly on family and trusted social networks to identify investment opportunities in their homeland. Opportunities to invest directly into development projects and businesses are still limited due to the lack of transparency in the local marketplace, nascent and illiquid capital markets, and uncertain regulatory environments. For most investors, this makes it very difficult to gauge riskiness of projects. Plus, there needs to be creditable platforms/intermediaries to make investments and ultimately repatriate the financial returns.

and the State Department’s engagement with diaspora communities that most also want to invest in the sustainable development of their home countries. Diasporas tend to invest both out of patriotism and for commercial returns. For example, the Indian diaspora contributed approximately $3 billion out of the $10 billion in Foreign Direct Investment (FDI) to India between 1991 and 2001. Diaspora Direct Investment (DDI) entails investments in both human and financial capital to developing countries suffering from the pervasive “brain drain” and from a lack of

UNLEASHING DIASPORA CAPITAL To address some of these market failures, USAID has used its public-private partnership and credit guarantee tools to unlock the potential of diaspora investors. Through a Global Development Alliance (GDA) with Homestrings, USAID is co-funding the development of its online investment platform to harness the power of crowd-funding for development, particularly from diaspora seeking to invest in opportunities in their countries of origin or heritage that create jobs and promote economic growth. Expanding upon its GDA, in September 2014 USAID established a $20 million Development Credit Authority (DCA) loan portfolio guarantee in partnership with Homestrings and the Small Enterprise Assistance Fund (SEAF), a not-for-profit organisation that manages 32 forprofit investment vehicles that target businesses operating in twenty developing countries. USAID CFI.co | Capital Finance International

guarantee agreements encourage private lenders to extend financing to under-served borrowers, opening up new channels of financing at a minimal cost to the US taxpayer. In this guaranteed transaction, Homestrings will raise $20 million in debt capital from institutional and individual investors, including diaspora. With sufficient capital, its investment vehicle will then issue a debt instrument to investors and make guaranteed loans to SEAF for on-lending to SMEs. SEAF will manage day-to-day operations of the funds and make investment decisions. Initial SME investments will be made in Macedonia and Serbia, with the potential for expansion to additional markets in other regions. The agency and its partner’s efforts are just the start, but the development landscape is ripe for diaspora entrepreneurship and investment to scale-up. To learn more about how the US government is partnering with diaspora communities, please visit the International Diaspora Engagement Alliance (IDEA) at www. diasporaalliance.org. i ABOUT THE AUTHORS Romi Bhatia is a senior advisor for Diaspora Partnerships in the Global Partnerships Division at the US Agency for International Development. He leads USAID’s engagement with diaspora communities in the US in order to achieve development objectives of the agency. Steve Matzie is an investment officer for the Development Credit Authority (DCA) at USAID. The DCA uses risk-sharing agreements to mobilise local private capital to fill financing gap that lead to better development outcomes. 85

> World Bank Group:

Liberian Women Entrepreneurs Striving for Business Success in Spite of Obstacles By Waafas Ofusi-Amaah, Maria Elena Ruiz Aril, and Esther Dassanou

Liberian women are dynamic entrepreneurs in the forefront of reviving their country’s economy after years of strife. Their valiant struggle to feed their families by starting small businesses deserves our admiration and support. Often the only breadwinners in their families, the success of women entrepreneurs is closely linked to the future of Liberia – one of the few African states lead by a woman. Success, however, is not assured, but there are some positive signs.

or a number of reasons Liberian women are much more likely than men to be self-employed (69% compared to 56% for men). Although almost a decade after the end of the conflict, 34% of Liberian women entrepreneurs manage a fairly significant share of registered small and medium enterprises (SMEs) the majority continue to work informally and in low-productivity sectors – mainly in small retail and trade. Indeed, 75% of women – compared to 61% of men – worked informally in Liberia in 2010. Among entrepreneurs, women are more likely than men to own completely informal enterprises (60% compared to 45% of men). Wholesale and retail trade, the second-most important sector for overall employment after agriculture, employs as much as 35% of the female workforce (compared to just 15% of employed men). In 2006, the majority of women in greater Monrovia worked as vendors and in petty trade (68% of the urban female labour force). Seven years later, although more women have registered their businesses, a majority remains in the informal sector and in low-productivity sectors. Despite substantial improvements in recent years, both men and women entrepreneurs encounter several obstacles to conducting business. The investment climate is gradually improving, and

Figure 1: Labour force participation by sex in main sectors of activity.

“Women-owned businesses continue to be particularly vulnerable to investment climate constraints, as they are overrepresented among small and informal businesses.” is now ranked 149th (out of 185) by the Doing Business Report – five positions higher than in the previous year – but this is far from enough. Women-owned businesses continue to be particularly vulnerable to investment climate constraints, as they are overrepresented among small and informal businesses. Most women mention corruption, taxes, and limited access to credit and skills as major obstacles to developing their business activities. An example of how investment climate constraints hit women hard is that of corruption – particularly in the form of gender-based violence. Sexual assault from government authorities in return for official permits or transactions is a pervasive problem in certain sectors, such as cross-border trade. Gender-based violence imposes an additional tax on women-owned businesses, increasing the cost of doing business. COMMON OBSTACLES Education – As a result of conflict, a high proportion of women lack the basic skills to conduct business successfully and often find themselves in low-productivity jobs. The prolonged years of conflict led to high rates of illiteracy, particularly among women. The current generation of women entrepreneurs lacks many of the basic skills needed to successfully operate a business. Moreover, the lack of technical skills CFI.co | Capital Finance International

due to the breakdown of the education system during the conflict has constrained women’s opportunities to develop their businesses in higherproductivity areas. Gender gaps in vocational and professional training are particularly wide, and gender segregation remains high, leading women into low-productivity jobs. Access to credit – Despite recent improvements, women continue to find it problematic to access credit in Liberia. Supply and demand factors compound women’s difficulty in accessing credit in the post-conflict economic environment. Lack of a credit culture and overall repayment rates make it difficult for financial institutions to lend to SMEs, let alone to women, who they consider as higher risk. In addition, limited vision and skills among entrepreneurs and issues with inadequate (or sometimes non-existent) financial skills and lack of collateral (partly as a result of land disputes) are some of the factors limiting women’s access to credit. The most recent data estimates that women entrepreneurs access 6%

H.E. President Ellen Johnson-Sirleaf addresses MSME conference participants. The First ever National Conference on Micro, Small and Medium Enterprises (MSMEs) was held in Monrovia from April 24th–26th, 2013 under the theme: From Vision to Implementation: Buying Liberian, Building Liberia. The Conference and Trade Fair was organized and hosted by the Ministry of Commerce and Industry with support from the International Finance Corporation (IFC), USAID Liberia, Building Markets, SIDA, Business Startup Center (BSC) Monrovia, Liberia Better Business Forum (LBBF), The Market Place and Lonestar Cell MTN.

Autumn 2014 Issue

Figure 2: Who are Liberian women entrepreneurs?

Souce: Based on a survey of 1,032 businesses titled “Survey on Barriers to Enterprise Formalization in Liberia”; IFC 2007.

is between the ages of 15 and 24 (Liberia Population Census, 2008). Like older women entrepreneurs, young women find that a lack of start-up capital and limited business and technical skills are important barriers to starting and developing a business.

Figure 3: Liberian Women Entrepreneurs - Sectoral Representation

of commercial bank credit out of 18% for all SMEs in Liberia. Women’s Networks – Liberian business women have limited opportunities to share information, contacts, and knowledge because of their low participation in business organisations. While there are dynamic women’s associations in Liberia, only a few focus specifically on entrepreneurship and business management. In addition, women business owners are not always well represented in general business networks, such as the local chambers of commerce or other business associations such as the Liberian Business Association (LIBA). Created in October 2012, the Liberian Women Entrepreneurs Network (LIWEN) is the first forum devoted exclusively to women entrepreneurs in the country. GIRLS AND YOUNG WOMEN ENTREPRENEURS While many of the problems that women entrepreneurs face in doing business apply to young women and girls as well, some of these problems are more specific to young women. Liberia has a young population, 18% of which

However, a 2008 World Bank study found that young women entrepreneurs also seem to attach higher importance to other factors, such as a lack of contacts. Young women found it difficult to access skill-enhancing opportunities, with family responsibilities such as taking care of siblings and handling household chores impeding their ability to combine income earning with formal education, training, or even apprenticeships. This is because many girls became the sole providers for their extended families as a result of the conflict. ENABLING FACTORS Factors identified by women themselves as supportive in their journey into entrepreneurship over the last 15 years include: Asset ownership for capital formation (in the form of inherited land and property, or personal savings); support from mentors; education and training; womento-women support through associations; and, last but not least, women’s strength, resilience, and perseverance. The latter cannot be underestimated in light of the hurdles and setbacks that women generally experience when doing business in conflict-affected environments. WHAT IS DIFFERENT FOR WOMEN DOING BUSINESS IN FRAGILE AND CONFLICT-AFFECTED SITUATIONS? Many of these obstacles exist not only in Liberia but are common to other least developed countries in Africa and elsewhere. However, Liberia is also a post conflict state, which adds another layer of problems (and some opportunities), especially for women entrepreneurs; these include: • Widened gender gaps in education and skills

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as a result of the breakdown of the education system during the conflict and the subsequent brain drain; • Weaker property rights as a result of land titling complexities in the process of reclaiming land rights following displacement; • Larger domestic burdens as a result of an increase in the number of female-headed households and the larger size of households; • Increased vulnerability to gender-based violence, particularly in the form of sexual assault – a common feature of conflict (a weak rule of law and lack of services in the immediate post- conflict settings make violence against women still highly prevalent in fragile and conflict-affected situations – FCS); • A less conducive investment climate, characterized by uncertainty and risk, which makes financing unavailable and conditions more punitive, with serious infrastructure constraints limiting access to markets and weak regulatory frameworks that do not facilitate investment; • Less access to business information and disrupted social networks and depleted physical infrastructure make it harder for business men and women in FCS to access essential business information and intelligence. Beyond these obstacles, another striking feature of women doing business in FCS pertains to their “business path” and the frequent need to start from scratch after losses suffered in the conflict. Despite all the hurdles, the post-conflict status can also be a source of new opportunities for women entrepreneurs. These include: (i) potential changes in gender roles as a result of women’s assuming new economic activities that, in the pre-conflict period, were reserved exclusively for men; and (ii) the reform drive of countries emerging from conflict or during the reconstruction phase. These situations create entry points for consolidating gender equality gains and women’s rights in specific laws and reforms and open up unique opportunities in favour of women in general and women entrepreneurs in particular. RECOMMENDATIONS The question therefore remains: what can policies and programs do to ensure that women’s economic roles in post-conflict economies translate into long-term gains and consolidate economic empowerment and entrepreneurship growth during the transition from reconstruction to development? Our recommendations target the five main sets of obstacles that women entrepreneurs often encounter. Comprehensive and conflict-sensitive skills enhancement programmes for women entrepreneurs. Programmes to support women entrepreneurs should adopt an integrated approach in order to address the complex and interlinked issues relating to business and technical skills: • Promote flexible business and skills training programs tailored to the varied skill levels of women entrepreneurs. 87

“Despite all the hurdles, the post-conflict status can also be a source of new opportunities for women entrepreneurs.”

In Pictures: Liberian entrepreneur Mabel and her sister pose in their hair dressing salon.

establishing credit bureaus and collateral registries that can increase access and reduce the cost of borrowing. These instruments present better options for SMEs, but especially for women entrepreneurs in the absence of land or a mortgage as collateral options. • Encourage financial institutions to target women entrepreneurs as a viable market and enhance their financial products offering through hands-on financial literacy and business management training for womenowned SMEs. • Promote within business networks exchanges of experiences showcasing successful business women, to encourage women to aim higher, take calculated business risks, and expand their businesses. • Accelerate land reform as a means of expanding women’s access to secure assets. In Pictures: Another Liberian woman entrepreneur in her kitchen.

• Scale up successful models of marketoriented skills training for women facilitating the transition from school to self-employment, such as the Liberia Young Women and Adolescent Girls Economic Empowerment (EPAG) Project. Improve access to assets and finance. Implement measures to increase women’s access to finance and facilitate women entrepreneurs’ transition from informal sources of credit (e.g., credit clubs and susus) to the formal commercial credit. Specifically: • Integrate financial literacy components in all training programmes for women entrepreneurs in order to obtain the technical skills necessary for managing credit and, gradually, build a credit culture among female entrepreneurs. • Promote public sector initiatives and incentives to encourage private sector lending to women entrepreneurs and equity funds in order to address the constraints women face when starting up new businesses. • Expand the financial infrastructure by 88

Build Business Networks and Associations. Invest in building the institutional capacity of women’s business and entrepreneurs’ associations and networks by: (i) promoting and supporting women’s participation in existing business and professional associations and chambers of commerce (using, for example, leading female members as spokespersons to promote the importance and benefits of peer-to-peer networking among women business leaders and entrepreneurs); (ii) promoting and supporting the creation of women-specific business groups and associations based on trade, geographical area, etc., as mechanisms to pool resources and facilitate access to assets, finance, services, and information; (iii) and supporting businesswomen networks nationwide. • Women’s business networks can play a crucial role in facilitating the growth of women entrepreneurs in Liberia in several areas. These include peer learning and knowledge sharing, partnership opportunities, mentoring and role modelling, as well as advocacy to support women entrepreneurs. CFI.co | Capital Finance International

Institute institutional and policy reform for women’s entrepreneurial growth and economic empowerment. Policy makers should seize the opportunity presented by the post-conflict period’s “reform drive” to address the obstacles that women face in the business arena through legislation and policy reform. This would entail: • Continue promoting gender-aware investment climate reforms in the areas of assets and access to credit and accelerate related reforms, such as property rights. • Establish incentives and targets in a number of areas, including: Access to finance, whereby commercial banks can design specific approaches and products to encourage the development and growth of women entrepreneurs in Liberia; and access to markets, whereby the Liberian government could encourage the sourcing of goods and services from womenowned enterprises. Efforts should also be made to ensure maximum exposure for women entrepreneurs either through business or trade missions. • Promote necessary reforms and ensure their implementation to continue strengthening governance and the rule of law targeting the problem of gender-based violence. • Address women entrepreneurs’ skills deficit through gender-informed education reforms, particularly in the area of vocational and professional training targeting women’s needs. • Establishing institutional mechanisms to support women entrepreneurs, including a National Program for Women Entrepreneurs and a National Leader/Champion for Women SMEs. Policy reform for women entrepreneurs’ interests would require work at different levels, including: (i) Data generation – identifying key data gaps in Liberia to assess women entrepreneurs’ economic empowerment and integrate the corresponding data needs in sector and national data collection instruments; (ii) Advocacy— supporting the development and implementation of the women’s business network advocacy plan(s); and (iii) Policy dialogue—promoting the participation of business women (through networks and associations, where they exist) in government reforms processes and establishing ad hoc forums, such as a National Women’s Business Forum, for policy dialogue. i

> Mauritius Post and Cooperative Bank:

Solid Results Through Responsibility Of late, global economic activities have again picked up and signs abound of a strengthening of global economic activities. This is expected to continue during 2014 and possibly well beyond. Amidst all this the Mauritius Post and Cooperative Bank (MPCB) has come up with good financial results for the year 2013. At the end of that year, the deposit base had shown a steady progression to in excess of Rs15 billion. Loans and advances figures also showed solid growth and crossed the Rs13 billion level.

he total assets figure of the bank reached Rs17 billion. This represents an increase of more than 18% compared to the previous year. Earnings per share stood at Rs32.57 on 31 December 2013, as compared to Rs32.04 a year earlier. Having celebrated its 10th anniversary in 2013, MPCB is now focused on consolidating its position in the market by proposing a variety of innovative banking products and services to its customers. MPCB has a wide range of modern services which make its clients’ dreams come true. It also offers a wide range of banking solutions encompassing commercial transactions, such as letters of credit for import and export businesses, the collection and the opening of accounts, trade finance, and other complex international operations. MPCB is also active in the purchase and sale of foreign currency notes, the handling of MoneyGram remittances, and trading in government securities. The bank has a dedicated private banking team which provides personalised services to key customers. As an eco-friendly bank which actively supports the green banking concept, MPCB has launched various products and services to encourage customers to think and act in environmentally friendly way. The mobile phone recharge service Fun d Fone allows customers to fund mobile phones via any of the bank’s ATMs and via the MPCB E-Banking and SMS Banking platforms. The bank equally provides personalised banking services through social networks such as Facebook and Skype. CORPORATE SOCIAL RESPONSIBILITY Over and above its banking activities, MPCB strongly believes in making a difference through 90

“MPCB’s sustained investment in responsible business practices takes many forms, be it from ethical governance to a solid commitment to diversity, or to keeping a sharp focus on the environment.” its CSR (Corporate Social Responsibility) projects. In 2013, the bank sponsored NGOs such as the Blood Donors Association, Befrienders, Open Mind and SOS Children’s Village Mauritius. The bank wants to position itself as an entity with heart whereby the objective behind each CSR action is to strive for the betterment of society and bring a positive change in the lives of those in situations of need. With the introduction of the CSR programme by the Government of Mauritius in the year 2009, three sectors were originally identified as priority. MPCB has initially been contributing to two of these sectors: The eradication of poverty and providing support to the health sector. In 2013, to mark the bank’s decennium, MPCB has extended its CSR action to cover the third sector – education – through the financing of 27 scholarships to needy students in the field of tertiary education at the University of Technology Mauritius. The bank’s CSR mission focuses, inter alia, on eradicating poverty through the financing of sustainable projects. The bank aims to help bring positive change in the society through better facilities and an improved standard of living. CORPORATE RESPONSIBILITY Every company or business usually starts out with its own agenda, which differs from business CFI.co | Capital Finance International

to business. In its most basic terms, corporate responsibility can come down to the ethics of business. Each company has its own set of core values; however the company’s values also touch everyone that the business deals with. Years ago, corporate responsibility was dictated by the government. There were set laws that had to be adhered to, vis-à-vis financial and social responsibility. Today, however, corporate responsibility has taken into account the world that we live in on a global scale. MPCB has understood that its responsibility begins with employees and extends to communities around the world. MPCB’s sustained investment in responsible business practices takes many forms, be it from ethical governance to a solid commitment to diversity, or to keeping a sharp focus on the environment. The bank continuously strives to shape an optimistic image in the lives of its customers, employees, shareholders, and in the communities and environments where we live, work and play. ORIGIN AND MISSION Established in 2003, MPCB Ltd has anchored its success in providing efficient financial services in both the national and international markets. Since its establishment, MPCB has pursued a healthy growth strategy by spanning various opportunities to offer a wide range of products and services via its Retail and Corporate Banking

Autumn 2014 Issue Port Louis, Mauritius

“MPCB strongly believes in putting its customers first and always endeavours to render the journey more pleasant for them by positioning itself as a one stop shop.” Units. To adhere to the budding market demands, MPCB has shaped its strategies by weaving the right measurements of attires to match the requirements of its target market. Its dedicated board of directors and management team strive to sustain a good position in the challenging business environment by steering its labour force in the right direction. Fully committed to its mission to uphold its corporate governance standards and sustain the ever-evolving relationship with its shareholders, MPCB’s board has always proved to be proactive. MPCB delivers its services across 16 branches and 21 ATMs which include four offsite cash dispensers. The expansion and relocation of branch offices, as well as the implementation of the ATM network, have been successful and will continue to improve in the years to come. Banking services are also offered at post offices across the island as well as in Agalega and Rodrigues. New products are constantly being introduced and existing products go through re-branding processes to better serve the retail and corporate segments. To satisfactorily meet the complex requirements of its wide range of clients is one of the bank’s main objectives. In this ever-changing, fast-paced world, clients require solutions that stretch beyond the envelope. Over the years, MPCB has transformed itself into The People’s Bank. MPCB aims to make an ample contribution to support economic growth in Mauritius through the diversified and customized products and services offered. MPCB strongly believes in putting its customers first and always endeavours to render the journey more pleasant for them by positioning itself as a one stop shop. i 91

> Africa Feature:

The Damage Wrought by Development Aid

ccording to calculations made by the World Bank, about 700 million people were lifted out of poverty between 1981 and 2000. Over the same period and using athe same parameters, China saw its population of poor people reduced by 627 million. China slashed its poverty levels without the benefit of foreign aid. The country received next to nothing from Western donors yet succeeded brilliantly where others apparently failed miserably. A consensus is slowly emerging that concerted efforts at reducing poverty are generally not helped by the disbursement, generous or otherwise, of development aid. For decades on end, many international development agencies and governments sincerely thought that by throwing vast amounts of money at it, the problems besetting the developing world would disappear. No such thing has happened. In fact, over a quarter of the countries in sub-Saharan Africa are today poorer than they were in the 1960s. Liberia is often cited as an example. Though the country has received massive amounts of aid over the last decade, it has little to show for it. The Organisation for Economic Cooperation and Development (OECD) has presented some of the math: In 2011, Liberia received about $765 million in official development aid. This amount equals 73% of the country’s gross national product. Yet, even after ten years of receiving huge sums of money from overseas to support its development, Liberia somehow remains unable to set up a half-decent education system. Last year, every single one of the more than 25,000 students who registered for enrolment at the University of Liberia failed the entrance exam. VICIOUS CYCLE If poverty could be eliminated by breaking its vicious cycle through the injection of money in substantial quantities, most of Africa would be well on its way by now. However, aid dispensed in the traditional mothering way ignores the origins of poverty and underdevelopment: The maintenance of economic institutions and policies that deny poor people the incentives and opportunities to improve their lives. Excessive red tape, corruption, nepotism, skewed fiscal policies, and incessant government meddling all conspire against poor people to keep them disenfranchised. The world’s poor have the same wants as people in rich countries – a fair chance at the pursuit of economic gain, access to clean 92

“A consensus is slowly emerging that concerted efforts at reducing poverty are generally not helped by the disbursement, generous or otherwise, of development aid.” running water, decent schools for their kids, and readily available healthcare. As China has amply demonstrated, the poor can and will improve their own lot immensely – if given half a chance. Once institutions stop preying on them, taking away their modest gains or discouraging entrepreneurial initiative, poor people will rally to the cause of self-improvement. This was the focus behind the Arab Spring. The protesters on Cairo’s Tahrir Square mostly vented their anger at the pervasive corruption of government officials, the state’s inability to provide even the most basic of services, and the resulting dearth of economic opportunity. The protesters recognised implicitly that more aid or investments in “white elephant” projects cannot overcome poverty in Egypt. This can only happen when political power is exercised in a more equitable manner and institutional barricades to development are removed. VOICES OF THE POOR This reality was admirably illustrated by the World Bank’s Voices of the Poor Project. It showed that poor people the world over are well-aware of the powers that keep them down. The message most often heard is that the poor feel powerless to take charge of their own destiny. A man from Jamaica summed it up succinctly: “Poverty is like living in jail, living under bondage, waiting to be free.” Poor people are in fact trapped by a Kafkaesque system. The cruelty is that foreign aid monies often sustain these systems and thus indirectly help perpetuate poverty. If many African countries are currently on the move and the continent now stands at the threshold of better times, it is not thanks to donor largesse. The ousting of ineffectual leaders, the call for democracy, and the increased popular demand for more accountability have conspired CFI.co | Capital Finance International

to create buoyant societies that will no longer meekly accept administrative incompetence or institutional blockages to development. Is it mere coincidence that Angola’s richest woman happens to be the daughter of President José Eduardo dos Santos? Or that the richest man in Syria is the cousin of President Bashar al-Assad? Rami Makhlouf makes his billions by controlling a series of government-created monopolies while Isabel dos Santos gets a slice of the action whenever the government seals a deal with a company seeking to do business in the country. Once the realisation takes hold that corruption is not merely a nuisance but actually undermines the prospects of entire nations, something may change. Portions of development aid may be siphoned off, but the remaining monies still pay for roads, schools, and many other essentials. However, aid does not remove the shackles that keep the poor down. It does not set people free from the institutions that sap their initiative. THE IMPORTANCE OF GOOD GOVERNANCE Donors are now slowly becoming aware of the damage their billions have done. Instead of financing projects, aid is increasingly being directed at programmes that aim to improve the quality of governance. Countries whose governments are willing and eager to adopt sensible policies and erect non-extractive institutional structures may continue to count on the support of donors. Mozambique, while still desperately poor, is such a country that has of late expended much effort at improving governance and doing away with institutions and regulations that stifle economic life. In Mozambique, the state now considers its role to be an enabler and facilitator of private initiative, rather than a controller of the economy. The result has been an immediate return of double-digit GDP growth. Corruption has not disappeared, but is waning. And while much remains to be done in order to set Mozambique’s poor free, a trend has been reversed and some faith in the future restored. In all sub-Saharan countries that are currently experiencing solid growth, the quality of governance has improved significantly. In those lagging behind, as with Zimbabwe, old habits are kept alive zealously. However, even President Mugabe will sooner or later have to explain – not to the world but to his fellow Zimbabweans – why he kept his nation shackled and mired in poverty. i

Autumn 2014 Issue

> CFI.co Meets the MD and CEO of Lotus Capital Limited:

Hajara Adeola Mrs Hajara Adeola is the managing director and CEO of Lotus Capital Limited, a Nigerian pioneer in Sharia-compliant asset management, private wealth management advisory services, and financial advisory services. Mrs Adeola came to Lotus Capital from UBS Warburg where she was a Director in charge of the London Islamic Finance Desk. Prior to joining UBS, she was a convertible bond research analyst at BNP Paribas, London.

rs Adeola began her career as a consultant at Andersen Consulting (now Accenture). From there, she joined ARM Investment Managers where she soon rose to vice-president and head of the Research and Financial Advisory Units. In all, she has over twenty years of international experience in research and analysis, investment management and corporate finance. Mrs Adeola holds an MSc in Finance from Durham University where she specialized in Islamic Finance. She also holds an MBA in International Management from Exeter University and a BSc in Pharmacology from King’s College, London. Mrs Adeola is the former president of the Fund Manager’s Association of Nigeria and a West African Fellow of the Aspen Leadership Initiative. She is also the chairperson of the Securities & Exchange Commission’s committee on the development of a ten year master plan for the non-interest capital market, and a director of the Aliko Dangote Foundation. She is widely considered to stand at the forefront of Islamic finance in Nigeria and is convinced that Nigeria has the potential to become one of the world’s premier Sharia-compliant capital markets: “It is a huge market: There are about 70 million Muslims in Nigeria. Research shows that approximately a third of the Muslim population typically would be interested in Islamic finance. If you look at the projections made for the size of the market, it is really quite tremendous – and that’s just the domestic market.” The central bank’s decision to regulate and encourage the development of the Islamic finance sector in Nigeria was met with protest by the country’s Christian leaders who argued that the move could possibly increase sectarian tension and even lead to more violence. Mrs Adeola, however, emphasises that Islamic finance cannot be perceived as a threat: “Islamic

MD and CEO: Hajara Adeola

finance is universal. There is nothing about it that offends anyone or offends any faith or faithbased principle. If anything, there are many CFI.co | Capital Finance International

Christians who like to invest with us because our way of conducting business is also in line with their own ethical values.” i 93

> KONEKSIE:

The Motorcycle-Taxi in Kenya By Henk Veldman

Some 1.8 million people sit on the back of a motorcycle every-day in Kenya in order to get to school, home, or work. It makes the motorcycle taxi one of the key means of transportation for Kenyans. In particular for the lower-income segment of the rural population, the motorcycle-taxi is often the only affordable and available alternative to walking.

he popularity of the motorcycle-taxi is a relatively new phenomenon in Kenya. A decade ago, the bicycle was a familiar means of transport in most of the country and it was widely available for people that wanted to go from A to B. In the last five to seven years, the motorcycle has taken over creating a complete new industry that offers direct employment to over 100,000 Kenyans and has an estimated annual turnover of $820 million (2013). According to the Kenyan National Bureau of Statistics (KNBS), the number of motorcycle registrations in Kenya grew from about 7,000 in 2007 to well over 125,000 in 2013. Why did it grow so fast? First of all, as a result of government interference: In 2007, the Kenyan government decreased the import duty on motorcycles (for complete knock-down kits) and as no VAT was charged, motorcycles became available for as little as $600. Secondly, the increased demand for motorcycles is the result of economic growth. With economic development, the mobility of passengers shifts from non-motorized to motorized forms of transportation. The impact of improved and more efficient forms of transportation within an economy is significant. Growth inducing, it enables goods to move across regions and within countries more easily. It also provides farmers in rural areas with access to the markets of urban centres and the means to export their products abroad. More efficient means of transport also enables people to go where jobs and services are. For example, a seven kilometre distance can be covered on foot in 2 hours, by bicycle in 30 minutes, and by motorcycle in just 8 minutes. GOOD MATCH The motorcycle-taxi and Kenya is a good match. Affordability plays a crucial role in the success. An average two kilometre ride costs around $0.80 making it an accessible option to a large part of the Kenyan population. In the rural Kenyan economy, the motorcycle is the only means of motorised transport that can overcome the challenges of heavy rainfall, mountains and poor infrastructure. For example, motorcycles are 94

“The fast rise of the motorcycle-taxi industry has created several negative side effects of which the impact on road safety is the worst.” used to transport bags of tea from the plantations high up in the mountains to the market or to collect milk from smallholder dairy farmers in the interior – places that are usually inaccessible to four-wheel drives or small trucks. In urban Kenya, and especially in Nairobi, the motorcycle is a great means to move around the heavily congested city. It also plays a role in the overall public transport industry where buses and minibuses cover the longer distances and the motorcycle is used for the last mile home. The fast rise of the motorcycle-taxi industry has created several negative side effects of which the impact on road safety is the worst. Worldwide, the World Health Organisation (WHO) estimates that 276,000 persons die annually from road traffic injuries (RTIs) related to motorcyclists. According the WHO, the number of motorcycle related injuries in Kenya has increased 29% annually between 2004 and 2009. RTIs cost the Kenyan economy around $160 million per year according the National Transport and Road Safety Authority. The Kenyan police estimate the number of annual traffic related deaths at 3,000. Motorcyclists are vulnerable road users and therefore more prone to serious road accidents, but in Kenya the road safety situation is more severe for a number of reasons. First of all, motorcyclists lack formal driving training and drivers’ licenses are often obtained illegally. A one-day ‘training’ course is often sufficient for CFI.co | Capital Finance International

a motorcycle-taxi driver to start his business. Secondly, the limited use of protective driving gear, most importantly helmets, is a contributing factor as well. A WHO field study conducted in Thika (a town near Nairobi) demonstrated that only 30% of the drivers and 4% of the passengers wore a helmet. POOR QUALITY BIKES The availability of quality motorcycles is another contributing factor to the unsafe road situation in Kenya. The motorcycles on the market are inexpensive, but not designed for the purpose of transporting goods and persons in the Kenyan environment. The main problems with the bikes are the low ground clearance, poor quality materials of the frame, and very limited capacity of the suspension. The poor quality of the motorcycles, in combination with a lack of a maintenance culture, results in an average lifespan of 1.5 years for motorcycles used in the “bodaboda” industry. The lack of a maintenance culture is strengthened due to a separation of ownership and use. About 90% of the motorcycle-taxi drivers do not own the bike they are driving. Instead they are renting the bike for between $3 and $5 per day. Still they are held responsible for the maintenance of the vehicle. The Kenyan government has now acknowledged the road safety issues in the motorcycle-taxi industry and has started to implement a variety of measures and regulations to improve road safety and limit the use of motorcycle-taxis. It also started to reverse the incentives that were in place as the government reinstalled VAT on motorcycles in 2014 and the import duty waiver on motorcycles is expected to end in July 2015. Overall, the motorcycle-taxi industry is a fast growing and rapidly developing industry. The Kenyan government recognizes that and started slowly to formalize the sector. There are however challenges to overcome, of which the most important one is to address the road safety issue. The industry also offers many chances, most importantly jobs and business opportunities. With an unemployment rate of 40%, of which 70% are between the ages of 15 and 35, the motorcycle-taxi business offers a lot of opportunities for the Kenyan youth.

Autumn 2014 Issue

MEET HERMES Hermes is one of the 100,000 or so “bodaboda” drivers in Kenya and a day in his life gives a good picture of what the business looks like. Hermes is a 32-year old married Kenyan who lives in Nairobi and has two kids. Every morning at 5am he leaves home on his motorcycle to go to his stage – a meeting-point on a strategic location in Nairobi from where he operates together with fifteen other drivers. On the stage there is a small shelter for rainy and sunny days. It is strategically located next to a bus stop. On an average day, Hermes does around 18 rides, mostly short distances of less than two kilometres. A couple of years ago, he could easily transport multiple persons on his bike, but as regulations tightened, Hermes mostly carries a single person at a time to prevent issues with the police. Most of his business occurs during rush hours in the early morning and late afternoon. At the end of the day he has earned around $20. During the day Hermes had to purchase gasoil, fix two punctures and pay his stage fees. He ends up with about $8. However, before he heads for home, Hermes needs to send $4 to the owner of the motorcycle. At around 8pm Hermes rides home with$ 4 in his pocket. i ABOUT KONEKSIE KONEKSIE is a Dutch start-up that generates mobility concepts for African transport markets. Its first mobility concept targets the East African motorcycle-taxi industry. This mobility concept includes four elements: A motorcycle (developed by KONEKSIE and designed for the purpose of transporting people and goods), asset financing, a maintenance programme and driver training.

KONEKSIE was founded in November 2011 and identified East Africa – starting in Kenya – as its first market. Two years of comprehensive research – with the involvement of 150+ motorcycle-taxi drivers, mechanics and passengers in Kenya – has helped us to understand that: • “Bodaboda” drivers are micro-entrepreneurs operating in a dynamic industry, but currently lack the prospect of motorcycle ownership and career development; • In a country like Kenya, demand for affordable, reliable and safe mobility outstrips supply and that hundreds of thousands of people still commute on foot on a daily basis; • Road safety is a huge concern in Kenya and East Africa with hospitals reporting up to 50% of surgical interventions related to “bodaboda” incidents;

with many stakeholders in the Kenyan motorcycletaxi industry. A selection of research: • Motorcycle interactive design sessions – 150+ users divided over 28 sessions in Kenya • Field study – tracking 24 motorcycle-taxi drivers for six days in four cities • Interviews – 1200+ “bodaboda” drivers, owners and passengers from six cities KONEKSIE has offices in The Netherlands, China, and Kenya. The core of the activities takes place in Kenya where we will produce and assemble motorcycles and market our mobility concept. We are currently setting up our factory in Kenya and aim to launch our concept in the second quarter of 2015.

The mobility concept developed by KONEKSIE addresses these three issues. It entails four products in one inclusive package offered exclusively to “bodaboda” operators in Kenya. We strongly believe that combining these four products into a single one is critical for the success of the company in East Africa. In the last 2.5 years, we learned that a lack of safety and reliability is seriously undermining the potential of the industry. Reasons include: poor quality motorcycles, parting of ownership and operation, lack of driving skills, and poor understanding of preventative safety measures. By combing the elements of driver training, financing for ownership, insurance and a quality motorcycle, we address all issues and offer an inclusive reliable mobility concept. KONEKSIE is a research driven organisation that beliefs in design thinking and involving the user in product development. Over the last 2.5 years, we have conducted extensive research and interacted CFI.co | Capital Finance International

> Book Review:

Piketty’s Capital A Problem Analysed In-Depth but not Solved When a book on economics cites Honoré de Balzac and Jane Austen to provide evidence, one cannot fail to take note. It sure beats the rather uninspiring conclusion that R > G and this means trouble. The rate of return on capital being greater than the rate of growth of the overall economy has all but a few of us becoming poorer as time goes by.

hat is the conclusion French economist Thomas Piketty reaches after some 700 pages in his best-selling Capital in the Twenty-First Century. This hefty tome confirms what most people since the days of Robin Hood already suspected – the rich get richer while the poor get poorer. But we had to wait for Mr Piketty to burst onto the scene to find out why this is so. The cliché just cited is dubbed “the central contradiction of capitalism.” And while Karl Marx came pretty close to deciphering it, his rather verbose and rambling analysis missed the point: Working for a living is financially much less rewarding than marrying into money. It is perhaps why Victorians spent such a great deal of time liaising with distant but wealthy family members or moneyed acquaintances. Mr Piketty has marshalled an impressive array of historical statistical data to prove that, if left unchecked, capital grows faster than the economy. Over time, the ratio of wealth to income soars. This cycle is only interrupted by events of a catastrophic nature such as world wars, pandemics, and revolution. It explains why social disparities in post-war Europe and North America were much smaller than they are today. Some economists – undoubtedly a tiny bit envious of Mr Piketty’s near-rock star status – argue that his book is but an extended “duhh” moment: “Of course capital accumulates faster than the economy grows. That’s noncontroversial and reflects merely the reward for delayed gratification. People who save and invest rather than spend expect to be rewarded. Since the

future is uncertain, their reward should be significant,” says Scott Winship of the Manhattan Institute.

concern about the one-percenters claiming all the wealth leaving the rest of society to face an impoverished future.

Rather than pleading for an apocalyptic conflagration, Mr Piketty’s answer to the capitalism’s central contradiction is the introduction of a global tax on wealth. The global nature of such a burden on outsized fortunes means that the über-wealthy can no longer take their money and run for cover. Though many countries have dabbled in wealth taxes, most have desisted of the idea.

Mr Piketty argues that the concentration of wealth will inevitably lead to social and economic upheaval. He concludes that the world is returning toward “patrimonial capitalism” dominated by an oligarchy backed up by inherited wealth. To illustrate this point, Mr Piketty appeals to literary greats such as Honoré de Balzac, Jane Austen, and Henry James who vividly described life in the 1800s when societies were rigidly organised along class lines determined by wealth.

Mr Piketty’s global wealth tax proposal has as much chance of survival as the proverbial snowball in hell. It represents the weak spot of his book and of his reasoning. Apart from the fact that it is well-neigh impossible to have all countries in the world agree to such a scheme, taxes on wealth tend to accomplish little. Also, what is to be done with the monies thus raised? Are these funds to be allotted to poor countries so they get a free ride to prosperity? Are free lunches to be called into existence, and if so, does that not send the wrong signal by rewarding incompetence and/or inefficiency? Mr Piketty’s book is a lot stronger when it comes to analysing the consequences of unrestrained wealth accumulation. It may cause societies to become less equal, less socially mobile, and even less democratic. US President Barack Obama recently called inequality “the defining challenge of our time.” The book’s US release followed in the wake of the Occupy Wall Street movement that expressed the growing popular

Should the progressive concentration of wealth be left unchecked, Mr Piketty predicts that economic growth will suffer severely. Though not a Luddite, he dismisses the notion that advances in technology will provide the impetus for future growth spurs. To avoid a bleak world of a few haves and a great many have-nots, Mr Piketty pleads not just for the introduction of a global wealth tax of 2%, but also proposes to increase income tax ceilings to 80% or more. Only draconian measures such as these can, over time, reduce wealth inequalities. Though rather impractical given the current political climate, Mr Piketty’s radical solution to the problem he tabled is not without historical precedent. It is only since the late 1980s that top tax brackets have come down and it is precisely since then that inequality has soared. The causality is debatable, but the existence of the problem may not be denied. i

“Should the progressive concentration of wealth be left unchecked, Mr Piketty predicts that economic growth will suffer severely. Though not a Luddite, he dismisses the notion that advances in technology will provide the impetus for future growth spurs.” 96

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n Business advisory 6B George Street, Ikoyi, Lagos State Tel: +234 1 280 6804 Fax: +234 1 4621543 Website: www.travantcapital.com Email: info@travantcapital.com

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> Spectrum Geotechnical Services:

Drilling the Responsible Way

pectrum Geotechnical Services Ltd (SGSL) is an established company with exciting, forward thinking ideas. The underlying company ethos is based on service quality. The driving force is simply to provide the best service, skills and advice.

with fully qualified, very experienced, and knowledgeable managers, engineers, and technicians of quality, skill, and above all imagination. With this in-house skill base, the company can create a multi-disciplinary team of professionals specifically tailored to carry out the clientsâ&#x20AC;&#x2122; requirements.

SGSL was formed to provide top quality borehole drilling, sewage systems, reticulations, tank fabrication, quality water treatment plant, geotechnical, and a full range of contract site investigation services. SGSL is a company

The company is fully committed to respect the natural environment and has the capability to operate in very sensitive locations by using the best equipment suited to each project. SGSL minimises the environmental impact of site works

CFI.co | Capital Finance International

and provides the best practicable environmental advice for clients. SGSL offers its services to clients spread across Nigeria. The company is acutely aware of its responsibilities in protecting to the utmost the reputations of its valued clients, as well as preserving its own image. Spectrum Geological Services currently has the fastest rotary drilling rig in Nigeria â&#x20AC;&#x201C; the SEDIDRILL 2003 model. It is capable of going to the depth of 900 meters with an adequate

Autumn 2014 Issue

mud pump in the sedimentary and an Ingersol Rand Compressor of 40bar for basement drilling. SGSL delivers a wide and varied range of services such as: • Water well borehole drilling • Fabrication of tanks (overhead, ground, and storage) • Water treatment plants • Water pipe distribution networks • Environmental impact assessment of solid minerals related projects • Hydrogeology • Geotechnical and engineering geology • Industrial and metallic minerals investigations • Sewage treatment plants • Swimming pools and ponds • Water sprinkler systems for firefighting and irrigation The company is determined to maintain an incident and injury-free workplace, with no harm to people and no damage to the environment. SGSL places emphasis on the identification and evaluation of all HSE (Health, Safety, and Environment) hazards or aspects and the company’s management id dedicated to reducing risk and/or impact to acceptable levels or lower. SGSL is in strict compliance with all applicable HSE legislation regarding the prevention of accidents, injuries, and pollution. The company has a zero tolerance policy toward both conditions and behaviour that contribute to incidents and injuries. SGSL corporate governance policy mandates a work ethic that contributes to the reduction of waste and the conservation of resources. In its efforts to continually improve its HSE performance, all SGSL employees are constantly informed and updated on their performance in order that HSE values permeate throughout the organisation. The company is committed to providing a safe and healthy workplace and ensuring that all business activities are conducted in a manner that protects the environment. The aims of this policy are to be achieved at all company locations by adhering to a set of firm principles: The managing director and senior management shall visibly uphold the principles of this policy and integrate them throughout the company, while the board of directors of SGSL shall regularly review HSE performance. Management and supervisory personnel at each division and location shall be responsible for implementing and maintaining the HSE management system necessary to sustain this policy. Contractors and subcontractors shall also work in accordance with this policy and comply with applicable HSE legislation.

“SGSL offers its services to clients spread across Nigeria. The company is acutely aware of its responsibilities in protecting to the utmost the reputations of its valued clients, as well as preserving its own image.”

Regular HSE audits shall be conducted to determine conformance to the management system. Every employee, whose work may create a significant HSE impact, shall be trained and held accountable for complying with the policy and related procedures, practices, instructions, and rules. Working safely and in an environmentally appropriate manner are conditions of employment. Each employee has a duty to report workplace conditions or practices that pose a safety hazard or threaten the environment and to take reasonable actions to alleviate such risks. Everyone in the organisation is responsible for recognising that by risking incident or injury, they are putting in jeopardy what they value most and those they care for. i 99

> Africa Feature:

Sustainable Stock Exchanges Everybodyâ&#x20AC;&#x2122;s a Winner

onesty and fairness in reporting goes a long toward establishing bonds of trust between the stakeholders of any venture. In business, it is the bedrock of investor relations. No enterprise large or small can expect to survive for long without the trust of those who put up the money. In emerging economies, even the best-run corporations must often deal with reluctant investors whose perception of the business environment may be based on preconceived notions or prejudices at odds with changing realities. Very few investors are aware that, according to Transparency International, corruption levels in two thirds of the countries of Europe are worse than those in Botswana. A growing number of African countries are successfully combatting

100

corruption to wide international acclaim: Cape Verde, Rwanda, Mauritius, Lesotho, Namibia, and the Seychelles have all made great strides in reducing dishonest practices of officials and others wielding some form of power. Elsewhere on the continent, improving the quality of governance has become a topic receiving much attention.

FROM BLIP TO BLOT Stock exchanges are the place where larger businesses traditionally first turn to in order to raise the funds they require for breaking into new markets or making the most of new opportunities. However, in the past most African exchanges were but a blip on the radar screen of Western investors.

For businesses looking to cash in on the exponential economic growth now taking place across most of Africa, attracting outside investors is essential. Without them most companies will be unable to raise the capital needed to finance expansion. Governments too stand in need of extra cash to finance countless infrastructure projects without which growth will soon hit a roadblock.

Most institutional investors, such as wellendowed pension funds, used to give the continent a wide berth. That, however, is now slowly changing, thanks in no small part to initiatives such as Sustainable Stock Exchanges (SSE) â&#x20AC;&#x201C; a project co-organised by the United Nations Conference on Trade and Development (UNCTAD) with the active support of the World Federation of Exchanges (WFE)

CFI.co | Capital Finance International

Autumn 2014 Issue Indicator

Disclosure Rate

Drivers

Payroll

59%

Pay equity is an increasingly useful sustainability theme. Stricter rules on workforce and CEO pay disclosure allow for greater vigilance of excessive CEO compensation.

Greenhouse gases (GHG’s)

30%

The prospect of carbon regulation is leading to a growing monetisation of GHG externalities, with the concept of carbon shadow pricing an increasingly used accounting tool.

Energy

27%

Energy use is an important proxy for company-wide resource use efficiency and an important cost consideration for companies in many industries.

Water

25%

Water is an increasingly scarce global resource and a company’s water use practices can reflect the foresight of its management team.

Waste

22%

Waste generated per unit of revenue is an important measure of operational efficiency.

Employee turnover

14%

Low employee turnover is correlated with effective human capital management.

Lost-time injury rate

13%

Workplace health and safety is a consistent proxy for managerial quality.

The seven “first-generation” sustainability indicators (2011).

and the International Organisation of Securities Commissions (IOSCO). The initiative – hailed by Forbes Magazine as one of the world’s best sustainability ideas – seeks to find ways in which stock exchanges can engage with investors, regulators, and corporations to improve transparency and environmental, social, and governance (ESG) performance indicators and thus encourage responsible long-term approaches to investment. In its ground breaking Global Reporting Initiative, Canadian investment research firm CK Capital found that institutional investors are increasingly looking for alternatives that adhere to Clean Capitalism philosophies – a set of values that incorporate a series of sustainability parameters. In its most recent survey of the world’s exchanges, CK Capital researchers found that while European bourses are still ahead of their peers elsewhere, African exchanges are catching up remarkably fast.

“Stock exchanges are uniquely positioned at the intersection between investors, companies, and regulators. As such they can play a key role in promoting responsible investment and sustainable development.” James Zhan Director, Division on Investment and Enterprise, UNCTAD

NO SURPRISE, BIG SURPRISE The lead of European exchanges is no surprise as progressive disclosure policies have been stockin-trade for well over two decades. To further enhance corporate reporting on non-financial metrics, the European Commission is currently working on a set of new guidelines. However, the CK Capital report’s real story is the progress being made in emerging markets. Currently, only the Johannesburg Stock Exchange can rival its European peers on sustainability reporting requirements, but that is set to change. CK Capital predicts that already by next year, emerging market stock exchanges may overtake those in the developed world by the proportion of their blue chip listings that disclose the seven first-generation sustainability indicators. Policy makers at both regulatory entities and stock exchanges face a wide range of challenges when trying to implement effective sustainability reporting requirements. Sustainability data CFI.co | Capital Finance International

often fall outside the scope of “financial materiality” which allows companies to legally circumvent disclosure policies, however wellintentioned. Stock exchanges that are run as for-profit companies and may even be owned by listed companies, fear that imposing excessive sustainability reporting requirements could discourage future listings. SSE TO THE RESCUE It is at this point that the Sustainable Stock Exchanges Initiative is able to help. Its Global Dialogue, organised every two years, allows stakeholders – investors, regulators, companies, and exchange managers – an opportunity to exchange ideas and experiences and to report on progress made and challenges faced. This year, the SSE’s flagship event takes places in Geneva, Switzerland, and focuses on Capital Markets for Sustainable Development. The 2014 Dialogue aims to showcase how enhanced sustainability reporting can contribute decisively to the unlocking of the vast volumes of capital required for the funding of economic growth in emerging markets. The SSE initiative complements, and dovetails perfectly with, the United Nations’ Millennium Development Goals (MDGs) and the post-2015 development agenda that aim to end world poverty. One of the MDGs is to ensure environmental sustainability. While legislation may go a long way toward attaining this goal, private business can make a significant contribution as well. What the SSE Initiative wants to show is that enhanced sustainability reporting by corporations results in a win-win-win situation with few, if any, downsides: It allows companies in emerging markets to tap into new and substantial sources of capital; it sets good governance firmly on the agenda as a leading principle; and it contributes to the implementation of a set of best practices that will ensure sustainable and equitable growth for decades to come. i 101

> Africa Feature:

Somaliland - Prospering Against the Odds

hen voters in Scotland went to the polls to express their opinion on independence, people in Somaliland took particular note and wondered if they should do likewise – again. In 2001, fully 97% of Somaliland voters expressed the wish to sever all ties with Somalia – a then virtually non-existent state fought over by warlords – and become an independent nation. With the rest of the country mired in violence and poverty, Somaliland in 2001 organised a referendum that international observers hailed as “faultless.” Yet, the outcome failed to produce the desired result: Somaliland may function as a defacto independent country; it is not recognised as such by the international community. For over 23 years Somaliland has functioned as an independent nation – and a quite successful one too. Its democratically elected government has not only deftly managed to maintain peace; it has also delivered a fair measure of prosperity and a surprising level of political freedom. The bicameral Somaliland legislature is the scene of spirited debate between members representing four political parties. Though an Islamic nation, Somaliland is one of only a few Muslim countries that keep religion out of politics. The constitution simply prohibits political parties to represent any faith. Elections, a regular feature of Somaliland life, are scheduled to take place next year though a new voter registration system may not have been implemented by then. Somaliland has held a raft of elections since declaring its independence in 1991 and all have been judged fair by outside observers. However, the international community will take little note: Its attention is focused on preparing the war-torn rest of the country for the 2016 general election and checking the Islamist insurgency. IGNORED Somaliland has grown accustomed to being largely ignored. The government hopes that by simply following sensible policies and maintaining civic freedoms and order, the results will speak for themselves. While Mogadishu remains a very unsafe maze of bomb-cratered streets lined by ruins and derelict buildings, Hargeisa – the Somaliland capital home to 1.2 million – boasts freshly asphalted streets and avenues that are safe, modern office blocks, leafy suburbs, and plenty of commerce. A starker contrast would be hard to imagine. It’s not so much that Somaliland is a trouble-free horn of plenty as it is that compared to Somalia proper the breakaway country seems an oasis of tranquillity and prosperity. 102

“Though an Islamic nation, Somaliland is one of only a few Muslim countries that keep religion out of politics.” In Hargeisa, construction is booming with new hotels, malls, and office buildings going up at almost dizzying speed. Most projects are financed by the Somaliland diaspora. Though the Djibouti Banque pour le Commerce et l’Industrie Mer Rouge maintains a branch office in Hargeisa – the only international bank to do so – most remittances from oversees arrive in Somaliland via Dahabshiil money transfer service. Now that banks the world over have started to clamp down on less well documented money transfers, Dahabshiil is experiencing increased difficulties in getting funds into Somaliland. STUCK IN TRANSITION At the Ministry of Commerce, Director of Planning Mohamed Awale is worried that Somaliland could remain stranded in a “transitional” phase. “With increasingly uncooperative banks limiting the flow of money into our country, it will become harder still to finance development. That is cause for concern, especially since three quarters of the population is under 21. These young people lack jobs and look to the government to provide the conditions that allow for economic growth and thus for job creation. Without international recognition is becomes nearly impossible to meet those high expectations.” So far, the African Union (AU) has flatly refused to even consider extending recognition to Somaliland. Time and again, the AU has told the Somaliland government to settle its differences with Mogadishu first. While this advice may have been diplomatically sensible, for many years it was also quite impractical because in the Somali capital nobody was answering the phones. In fact, there were no phones or even a government to talk to. Now that Somalia actually does have a government of sorts, it seems at a loss. Early 2012, the first contacts were made with the then-transitional federal government of Sharif Sheikh Ahmed. This resulted in the first formal talks between the two parties taking place in June 2012 in Dubai. Here, it was agreed to keep talking in order to clarify the relationship between Somaliland and Somalia. The following year delegations from both governments met in the Turkish capital Ankara for further talks. The Somali legislature had elected a CFI.co | Capital Finance International

new president, Hassan Sheikh Mohamud, whose government proved willing to sign a friendly cooperation treaty with Somaliland. The deal was brokered by Turkish Prime-Minister Recep Erdogan. Since then, however, relations between Mogadishu and Hargeisa have soured and cooperation has ground to a halt. As the Hassan Sheikh Administration gained strength and confidence with the backing of both the United Nations and the African Union, it moved away from seeking a compromise solution with Somaliland. The Mogadishu government has bluntly stated that it will not continue any dialogue as long as Somaliland maintains its claim to independence. President Hassan Sheikh also vowed to regain full control over Somaliland’s airspace and maritime borders. YET ANOTHER REFERENDUM In Hargeisa the thinking goes that another referendum on independence, properly organised and monitored, may break the current stalemate. With self-determination and independence movements, such as those in Scotland and Catalonia, gaining more prominence and recognition in international politics, the timing may be right for another referendum in Somaliland. Also, as the government of Turkey was a close witness to the breakdown of the talks, it is hoped in Hargeisa that Ankara may be supportive of an alternate approach. The Somaliland government sees the insistence of the African and international communities on the reunification of Somalia as eminently unfair. During the civil war of the 1980s that ultimately led to the toppling of the Siad Barre regime in 1991, the Somalia Air Force – then one of the best equipped in Africa – bombed Hargeisa and other cities in Somaliland without remorse. Since the fall of Siad Barre and the murderous power vacuum that followed, Somaliland has tried to distance itself from the tragic events taking place elsewhere in the country. The region – formerly British Somaliland – from then on managed to steer clear of civil strife and succeeded in repairing its economy wrecked by years of neglect and war. Notwithstanding the lack of international recognition and the resulting isolation, Somaliland actually prospered under elected governments. To expect the country to willingly submit to the shaky authority of faraway Mogadishu would seem unreasonable. Both the African Union and the United Nations may want to remind the government of President Hassan Sheikh in Mogadishu that it has but few powers to wield and may want to tone down ever so slightly in order to maintain the peace and recognise the not insignificant accomplishments of its counterpart in Hargeisa. i

Autumn 2014 Issue

> CFI.co Meets the CEO of Custodian Group:

Wole Oshin Mr Wole Oshin is the founder and managing director of the Custodian Group – a leading Insurance group in Sub-Saharan Africa with business interests in life insurance, general insurance, pensions and trusteeships.

e is an industry leader with over thirty years worth of experience. Mr Oshin has at various times been a member of the Presidential Committee on Pension Reforms, Chairman of the Nigerian Insurers Association, Executive Council Member – African Insurance Organization (Cameroun), Council Member of the West African Insurance Companies Association (Ghana), and External Lecturer – West African Insurance Institute (Banjul, The Gambia). He is the first and only African member appointed to the board of the International Insurance Society (IIS) in New York. Mr Oshin was recently recognised as one of the top 25 CEO’s on the Nigeria Stock Exchange by the influential BusinessDay newspaper.

“Mr Oshin remains a firm believer in the building and transformation of the Nigerian economy through the development of insurance and risk management.” A graduate of Actuarial Science and a Chartered Insurer by profession, Mr Oshin holds a Doctor of Finance (Honoris Causa) degree from Igbinedion University and is a fellow of both the Chartered Insurance Institute of Nigeria and the Association of Investment Advisers and Portfolio Managers. He is the current President of the Lagos Business School Alumni Association (LBSAA) - the most influential business school in Nigeria. He is also an alumnus of the Harvard Business School. Prior to founding Custodian in 1994, Mr Oshin honed his skills at the National Insurance Corporation of Nigeria (NICON), Femi Johnson & Company Limited (insurance brokers), and Crusader Insurance Plc. He expects the insurance industry over the next five years to become a force to reckon with in the Nigerian economy: “I’m very optimistic that the market will get stronger. Over the next five

CEO: Wole Oshin

years, I see a market further consolidating and I see a market that will have a voice in Nigeria and be in its right place in the economy.”

away. We need local champions and I’m an advocate of local champions, at least 10 local champions.”

“My prayer is that we should have sufficient local champions. The banking industry foresaw it coming and they positioned themselves. Now, no foreign player can buy Zenith Bank, Guarantee Trust Bank, First Bank, etc. They are too big. This is the challenge the insurance industry now faces. It is good that outside investors come, but we must not be swept

As an agent of change, Mr Oshin has overseen major mergers and acquisitions of insurance companies, the most recent one taking place in 2013. This consolidation of the industry bodes well for the future. Mr Oshin remains a firm believer in the building and transformation of the Nigerian economy through the development of insurance and risk management. i

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> Lotus Capital:

Pioneering Islamic Finance in Nigeria

Lotus Capital is a pioneer Islamic financial institution in Nigeria that has become the leader of the sector in West Africa. Lotus Capital focuses on Sharia-compliant wealth and asset management and financial advisory services.

he company is regulated and authorized by the Nigerian Securities and Exchange Commission and, since its incorporation in 2004, has undertaken various initiatives in Islamic finance. In 2008, Lotus Capital launched the first Shariacompliant mutual fund – the “Halal Fund” – which immediately proved a resounding success. The offer was oversubscribed by more than 200%. Lotus Capital consistently partners with regulatory authorities, operators and stakeholders in Nigeria and elsewhere to promote various initiatives in the Islamic finance sector such as the furthering of financial inclusion and the diversification of asset classes to deepen the Nigerian capital market. In 2012, Lotus Capital in close collaboration with the Nigeria Stock Exchange (NSE) created an index that tracks Sharia-compliant stocks – the NSE Lotus Islamic Index (NSE LII). It is noteworthy that since its inception, this index has consistently outperformed the NSE All Share Index. In August 2014, Lotus Capital launched an exchange traded Fund (ETF) tracking the NSE LII. 104

Last year, Lotus Capital acted as the lead issuing house for Nigeria’s first sub-sovereign sukuk. The State of Osun took in about $75m via this sukuk which was equally oversubscribed with uptake from both conventional and ethical investors. Islamic bonds or sukuk are fast becoming a useful and popular tool in project finance and could be used to tackle the shortcomings of Nigeria’s infrastructure. Sukuk are essentially investment certificates that document the holder’s ownership interest in the underlying asset. These assets usually generate incomes out of which returns are paid to sukuk holders. While there are various ways of structuring a sukuk, the most common is the lease rental (ijara) sukuk such as the one issued by the State of Osun. The proceeds were used to construct schools in various parts of the state. The rent paid by the government for the use of these facilities is then returned to the sukuk holders on a quarterly basis. Sukuk enjoy a unique advantage in that they diversify both capital sources and investment for issuers and investors alike. As an asset backed security, sukuk are ideally suited to infrastructural CFI.co | Capital Finance International

development. Corporate sukuk, sub-sovereign (state), sovereign and supra-national sukuk offer alternative sources of funding that Lotus Capital can arrange. In addition to other initiatives, Lotus Capital is currently working with the Nigerian Securities and Exchange Commission to develop a ten year master plan for the non-interest capital market in the country. Once launched, the master plan is expected to help Nigeria attain an important role in the development of Islamic finance and serve as an important market for ethical investors. Lotus Capital engages closely with regulators on the development of the Islamic finance industry in Nigeria. As an active member of the Islamic Finance Capital Market Committee, Lotus Capital has worked with the Central Bank of Nigeria and other stakeholders on the Joint Consultative Committee on Alternative Finance. Today, Lotus boasts a broad spectrum of clientele ranging from corporates and high net-worth individuals to retail investors. i

Autumn 2014 Issue

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> Custodian & Allied Insurance:

At the Forefront of Sustainable Insurance

ustodian & Allied Insurance Limited (CAI) is a leading Nigerian Insurance company with headquarters in the South-Western part of the country. CAI is a registered member of the Nigerian Insurers Association (NIA) and is authorized to offer Insurance services by the National Insurance Commission (NAICOM). The company has branches across Nigeria and is able to deliver superior services by leveraging a robust technology backbone whilst maintaining a fine line between its underwriting ability and returns to its various stakeholders. CAI is a member of the Custodian Group (Custodian & Allied Plc) which also has

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holdings in Custodian Life Assurance Limited, CrusaderSterling Pensions Limited, Custodian Trustees Limited, and Crusader Properties Limited. The group has a robust investment portfolio with assets under management (AUM) in excess of $900million and profits of over $25million. The group has grown over the years organically as well as through mergers and acquisitions which are central to its long-term growth strategy. The most recent acquisition was the Crusader Group in 2013. This acquisition will strengthen various lines of business by increasing the companyâ&#x20AC;&#x2122;s liquidity. Even more importantly, it is meant to diversify product CFI.co | Capital Finance International

lines by adding pensions and life insurance. The strengths of the amalgamated company are a stronger balance sheet, an increased financial capacity, improved operational efficiencies, and an expanded product portfolio. GOVERNANCE The Board of Directors is made up of both seasoned professionals and captains of industry bringing decades of highly valued experience to the table. Board members meet quarterly to review business management. They also bring their experience to bear in various working groups such as the Establishment Committee, the Risk Management Committee, the Audit Committee and the Finance, Investment & General Purpose

Autumn 2014 Issue

Custodian is committed to sustainable development by exceeding the expectations of its stakeholders in a responsible and forwardthinking manner. To demonstrate our commitment to internalizing the principles for sustainable insurance and integrating environmental, social and governance factors in our operations, we have recently become a member of the United Nations Environment Programme Finance Initiative (UNEP FI) and a signatory of its Principles of Sustainable Insurance (PSI) initiative launched at the RIO+20 UN Summit on sustainable development in June, 2012. Custodian is the first Nigerian Insurance company to become a PSI signatory. The PSI is a global sustainability framework and initiative of the UNEPFI. The principles provide a global roadmap to develop and expand innovative risk management and insurance solutions that need to promote renewable energy, clean water, food security, sustainable cities and disaster-resilient communities. These principles thus constitute a foundation upon which the insurance industry and society as a whole can build a stronger relationship â&#x20AC;&#x201C; one that puts sustainability at the heart of risk management in pursuit of a more forward-looking and better managed world. In addition, Custodian along with other financial service institutions signed on to the 2014 Global Investors Statement on Climate Change to support the UN Climate Summit and encourage strong and clear domestic and international climate and energy policies ahead of the Climate Summit in September 2014. FUTURE Custodian is well positioned to take advantage of a booming economy, powered by a young emerging middle class, estimated to grow at the rate of 6% annually. Custodian hopes to be a catalyst for change and growth in the economy through products which would not only encourage business development and expansion but also instill the confidence of stability in the event of losses.

Committee. Besides its oversight function, the board also provides strategic direction for the company by establishing a policy-based system of governance. THE UNDERSERVED MARKET AND TECHNOLOGY With an insurance penetration rate of less than 2% in a population of over 160 million people, Custodian sees huge opportunities in the retail insurance market. The company leverages technology and cross-selling within the group to reach this diversified group. One of its most recent innovations, the first of its kind on the Nigerian market, is its mobile insurance application. The app brings us as close to our clients as their phones are. Policies can be

bought and claims processed and paid via a single platform. With over 60% of the Nigerian population less than 35 years old, we consider social media the future of insurance and are set to make the most of the opportunities this offers.

Over the years Custodian has been subjected to evaluations by Global Credit Rating (GCR) of South Africa. The company enjoys an AA rating. More recently it was awarded AM Best and rated B (fair) on the Financial Strength Rating (FSR) and BB for Issuer Credit Rating (ICR). i

SUSTAINABLE INSURANCE Custodian recognizes that its operations and activities impact the environment, the economy and the wider society. It has therefore organized its affairs in a manner that reflects this awareness. The company has adopted a range of sustainable business practices acknowledging that the world is facing increased environmental, social and governance challenges. CFI.co | Capital Finance International

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> Ghana:

Crisis as a Hallmark of Enduring Success A solid mechanism has been put in place with Norwegian assistance to ensure that the proceeds from Ghana’s newly found offshore oilfields are spent wisely and to the benefit of the entire nation. A sovereign wealth fund is to receive 30% of the takings while the remainder will underwrite economic development. Transparency and democratic oversight are ensured through the Public Interest and Accountability Committee which will also liaise with civil society and local communities.

owever, technical challenges hamper the performance of the offshore fields with current production levels barely half of the anticipated 225,000 barrels per day. As a result, revenues have been disappointing with shortfalls exceeding $400m annually. Yet again, Ghana has proven itself equal to the task. The country and its government take the nation’s development serious and unfailingly answer the knock of opportunity. Sensible policies are adopted – and robust legal frameworks erected – so that no resource is wasted. Whereas elsewhere in the region all too often politics get in the way of development, Ghana historically has seen, and used, politics as the driving force of the nation’s advancement. President John Dramani Mahama, in office since mid-2012, is committed to both his party’s Better Ghana Agenda and the ambitious Vision 2020 development plan. The latter plan, essentially a continuation of the development agenda outlined by the country’s first postindependence president Dr Kwame Nkrumah, aims to transform Ghana into an economic power house through accelerated industrialisation. President Mahama expects to need two terms in office for Vision 2020 to become reality. In contrast to previous administrations, the Mahama Government has invited the private sector to partner up in a joint sustained effort to boost growth and development. Agriculture and rural development have now been chosen to spearhead the drive. This way, President Mahama hopes to bridge the income disparity between rural areas and cities. The current administration is also committed to stemming the ongoing brain drain by embracing new technologies to tackle new challenges. President Mahama is the first Ghanaian leader to put the environment on the national agenda and has unveiled a number of initiatives to 108

President: John Dramani Mahama

engage young professionals and entrepreneurs in innovative projects. The government is determined to offer small and medium-sized businesses increased opportunities in an attempt to unlock their development and job-generation potential. Policies have also been adopted to engage the Ghanaian diaspora and to attract higher levels of foreign direct investment. While the frameworks and policies are firmly in place, unforeseen setbacks such as disappointing oil revenues are now threatening to derail part of the development agenda. The country has now appealed to the International Monetary Fund (IMF) for assistance. While inflation and budget deficits are all too real, the economic crisis Ghana is currently suffering also CFI.co | Capital Finance International

offers proof of its enduring success as a nation. Ghana’s issues pale in comparison to the goingson elsewhere on the continent where civil strife, religious fanaticism, and other contemporary plagues are rife. “It is a mark of Ghana’s success that an IMF deal looks like a crisis, compared with a crisis like an Islamist insurgency or a sci-fi style plague,” says Antony Goldman, director of Promedia Consulting in the UK. Analysts widely expect the crisis to be but a cautionary experience which the country should be able to overcome without too much trouble. IMF assistance does not supply a quick fix, but will help put a floor on the crisis. This will in turn enable the Mahama Administration to engineer an economic turnaround and resume its development agenda. i

Autumn 2014 Issue

> CFI.co Meets the Managing Director/CEO of First Registrars:

Bayo Olugbemi Bayo Olugbemi is the Managing Director and CEO of First Registrars Nigeria Ltd – a position he has held since January, 2000. Mr Olugbemi also currently serves as a director on the Board of the Central Securities Clearing System Plc (CSCS), of the Central Securities Depository (CSD) for the Nigerian Capital Market. He sits on the boards of several other notable Nigerian institutions as well, such as CIBN Press Ltd, Attwool Schools Ltd, Oluyole Global Resources Ltd, among others.

rior to his appointment as Managing Director and CEO of First Registrars, Mr Olugbemi held the same function at NAL Registrars Ltd (now Sterling Registrars Ltd). He started his career in investment banking at the Registrar’s Department of Union Bank of Nigeria (now Union Registrars Ltd). His professional passion for investment banking and share registration powered the advancement of Mr Olugbemi’s career. He was instrumental in setting up a number of registrars such as Rims Registrars, United Securities Registrars, Diamond Bank Registrars, and NAL Registrars Limited (now Sterling Registrars) after which he pioneered First Registrars Nigeria Limited. Mr Olugbemi obtained his first degree certificate, BSc (Honours), in accounting from the University of Lagos. He also holds a Master’s Degree in Business Administration (MBA) from Lagos State University with a specialisation in International Business Management and a Master of Science Degree (MSc) in Corporate Governance from Leeds Metropolitan University in the United Kingdom. Mr Olugbemi has redefined investment banking operations in Nigeria especially in the area of share registration. He transformed share registration industry from a costly venture into a profit-making proposition through the creation of value for the stakeholders. He increased the client base of First Registrars Nigeria Ltd from just about ten companies to over sixty, adding several blue chips and multinational corporations. During Mr Olugbemi’s tenure, the reserves of the company grew from N10 million to over N6 billion before the divestment of First Bank Group from First Registrars. He believes opportunities still abound in the industry – if played by the rules. Regulatory policies aimed at protecting the interests of investors are becoming more stringent in Nigeria. The industry is also a fiercely competitive one. Nonetheless, Mr Olugbemi believes only those organisations that are able

Managing Director/CEO: Bayo Olugbemi

to identify and deliver services beyond the expectations of the customers will survive these tough times. Hence, he is fully committed, and has made it the priority for all his team members, to continuously deliver on excellence in customer experience and transparency.

Institute of Nigeria (CPIN), and the Institute of Directors (IOD). Mr Olugbemi is an associate member of the Nigerian Institute of Management (Chartered) as well as a member of both the Chartered Institute of Stockbrokers and the Certified Institute of Investment Analysts.

Innovation is another vitally important tool that Mr Olugbemi has leveraged in his quest to transform Nigeria’s share registration industry. He was responsible for the introduction of several remarkable products and services which have now become de-facto industry standards. In his effort to reduce unclaimed dividends to a minimum, Mr Olugbemi introduced prepaid cards. As a result, shareholders do not necessarily need a bank account in order to receive their dividends.

He is currently the president and chairman of the Governing Council, the Institute of Capital Market Registrars (ICMR). He is the national treasurer of the Chartered Institute of Bankers of Nigeria (CIBN). Mr Olugbemi was a two-term chairman of the Chartered Institute of Bankers of Nigeria (CIBN), Lagos State Branch. He also serves as the president of the Jericho Businessmen Club in Ibadan.

Mr Olugbemi is an alumnus of the prestigious Lagos Business School (CEP 11), the Harvard Business School in Boston (AMP 179), the IMD in Lausanne Switzerland, the INSEAD in Singapore, the Wharton Business School, and the Stanford Business School. He is also a fellow of the Chartered Institute of Bankers of Nigeria (CIBN), the Institute of Capital Market Registrars (ICMR), the National Institute of Marketing of Nigeria (NIMN), the Chartered Institute of Taxation of Nigeria (CITN), the Certified Pension CFI.co | Capital Finance International

Mr Olugbemi has extensive experience in investment banking and portfolio management. He is a trainer in leadership, management, corporate governance and ethics, business formation, capital market development, and share registration as well as a motivational speaker of high repute. He is a pastor in the Redeemed Christian Church of God and serves as the assistant pastor-in-charge of Lagos Province XI (APICP) on corporate social responsibility. Mr Olugbemi is happily married and blessed with three children. i 109

> PwC RSA:

The Agenda African CEOs Confident and Optimistic By Suresh Kana

CEOs in Africa are optimistic about prospects for revenue growth over the medium term, according to PwC’s Africa Business Agenda, 2014 report. They feel more positive about their ability to generate revenue growth and about economic prospects now that countries are emerging from the global financial recession.

t is interesting to note, however, that CEOs are slightly more anxious about the growth prospects over the short-term. Although 84% remain confident overall, only 40% say they are “very confident.” CEOs acknowledge that a lot more needs to be done in terms of transforming the continent’s potential for exponential growth into tangible business opportunities. CEOs are looking on multiple fronts for growth opportunities – for many, the search for growth will not be an easy task. The Agenda compiles results from 260 CEOs

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“Robust growth is also set to accelerate in 2014, with the International Monetary Fund (IMF) projecting GDP growth to pick up to 4.4% from 3.9% in 2013.” in Africa and includes insights from business and public sector leaders from 18 countries. The Agenda provides in-depth analysis and

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insights into how opportunities and challenges differ across the continent. Worldwide, investors recognise Africa’s vast growth potential, in particularly its demographic edge. Africa is the world’s youngest continent and is expected to have the largest labour force by 2040. Most multinationals are already active in at least one of the three largest cities of sub-Saharan Africa – Kinshasa, Johannesburg and Lagos. Five years ago, many of Africa’s economies were under significant pressure in the wake of the global financial crisis. Today, Africa has undergone significant transformation.

Autumn 2014 Issue

Robust growth is also set to accelerate in 2014, with the International Monetary Fund (IMF) projecting GDP growth to pick up to 4.4% from 3.9% in 2013. The greatest potential for Africa lies in its people. There is increasing consensus among business leaders that growth can only take place if there is more collaboration between governments and the private sector. The pace of change in the world is also speeding up with a series of transitions – known as global megatrends – that will transform business and society. African CEOs rank technological advances (69%), urbanisation (67%) and demographic shifts (63%) as the top three defining trends that will transform their businesses over the next five years. They are aware of the implications of these changes for their businesses, as well as for the outlook of Africa. Many have recognised the need for change or are making changes to their businesses. Every day, breakthroughs in frontiers of research and development are opening up new opportunities for businesses. As technologies progress, they will generate more improvements in efficiency and productivity. In turn, these advances are expected to trigger a strong acceleration in economic growth towards the end of the coming decade. THE GROWTH AGENDA Confidence is on the rise among Africa’s CEOs.

In general, they are more confident about their own company’s growth than they are about their industry’s prospects. While less than half are “very confident” about their company’s growth prospects in the short term, less than a third (26%) are “very confident” about industry growth. CEOs in Africa say that their desire to create something is what drives their organisation’s strategic planning. They rank products/service innovation (31%), increased share in existing markets (27%), followed by new geographic markets (20%) as opportunities for growth but are equally concerned about shifts in consumer spending and behaviours. Going forward, African CEOs say that they will be more actively looking for partners, while keeping an eye on costs. Almost half of them plan to initiate a new strategic alliance or joint venture in the next 12 months, and nearly a third are anticipating an acquisition, mainly in their home country or elsewhere in Africa. China is emerging as a key for consideration for growth prospects, followed by the US and South Africa, respectively. This is an indication of overall better economic prospects, higher availability of finance, and the growing presence of potential local and international partners attracted by the continent’s potential. We are also seeing more use of technological innovation and products, with no less than 91% of African CEOs either recognising the need to change their investments or in the process of

doing so. Similarly, 85% of CEOs said the same about data analytics. MAIN RISKS TO DOING BUSINESS IN AFRICA Infrastructure is important in driving economic growth and employment on the continent. However, 45% of African CEOs believe that their governments have been ineffective in improving the country’s basic infrastructure, such as electricity, water supply, transport and housing. CEOs also identified the creation of a skilled workforce (64%), the reduction of poverty and inequality (62%), and creating more jobs for young people (74%) as areas in which governments should be taking more decisive action and creating a business-friendly environment. One of the big challenges is for government to find new ways to form strategic collaborations and partnerships with people from other sectors. Tomorrow’s public body will need to act differently – the governments of the future will need to embrace a lot of private-public partnerships. The report shows that for CEOs in Africa, government responses to over-regulation (80%), exchange rate volatility (79%) the fiscal deficit and debt burdens (78%) and adequate infrastructure are key areas of concern, and that governments have their work cut out for them. Other areas of concern are the increasing tax burden, slow or negative growth in developed economies (70%) and the lack of stability in

South Africa: Cape Town

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capital markets (65%). But the report does show that 45% of CEOs say that governments have effectively achieved the outcome of ensuring financial sector stability and access to affordable capital. CEOs in South Africa share many of the concerns with their peers on the continent, with the survey showing that they have common worries about high or volatile energy costs (South Africa: 82%, Africa 76%); the availability of key skills (South Africa: 87%; Africa 83%); and new market entrants (South Africa: 63%; Africa: 58%). Most companies in Africa have some degree of risk management in place. The report shows that 31% of respondents have implemented plans to manage risk more effectively and 37% are strengthening their corporate governance structure. To prevent fraud, many CEOs in Africa are focused on supply chain management. For 83% of CEOs in Africa, bribery and corruption is a significant and frustrating threat to business growth. As governments make strides worldwide to improve their fiscal systems, more than half of African CEOs (53%) say the international tax system hasn’t changed to reflect the way multinationals do business today and is in need of reform. A minority of CEOs said their government had been effective in creating a more internationally competitive and efficient tax system. Although the will for reform exists, it is surprising to note that CEOs have little confidence that the proposals put forward by the international community will go ahead. Just 24% of Africa’s CEOs feel that consensus could be reached among G20 members and the OECD to achieve substantial reform of the international tax system in the immediate future. Even so, it is clear that international reform is required and will bring benefits for international businesses and countries around the world. A better international tax system, provided it continues to support global trade, will help to rebuild public trusts and improve the global business environment. THE SKILLS CHALLENGE CEOs globally remain concerned as ever about the availability of key skills. The survey shows that nowhere is the shortage of skills more acute than in fast-growing markets, such as those in Africa. Most CEOs expect to maintain or increase their company’s headcount over the next 12 months. Furthermore, the competitive market for top talent influences compensation, with many companies under significant pressure to match or exceed pay conditions among peer companies to recruit or retain top talent. Many CEOs also shared views about what works in terms of leadership development programmes. Overall, there is broad recognition that if companies nurture and pay attention to 112

Author: Suresh Kana

human capital – and treat their people like an asset – they will earn a greater return on this investment. African CEOs also report that they are using a range of leadership development programmes intended to develop and grow more diversity within the talent pool. No company knows for certain as to where its next CEO will come from, particularly as regional and “One Africa” strategies cause workforces to become increasingly diverse. ADAPTING TO CHANGE Changes in regulation, consumer needs, disruptive technologies, and challenges to recruit and retain skilled talent – African companies are facing an accelerated pace of change. The transitional trends are affecting the African economies and companies significantly. Africa is a complex and diverse continent. Doing business on the continent can be a daunting CFI.co | Capital Finance International

experience for any organisation as they are faced with a myriad of uncertainties and challenges in different political, economic and legal environments. Notwithstanding the difficulties and challenges ahead, many African organisations have learnt to brace themselves and adapt quickly, overcoming many of these challenges, including mitigating the risks – and turning Africa into the next frontier of growth. i ABOUT THE AUTHOR Mr Suresh Kana is PwC Senior Partner for Africa. ABOUT PwC PwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 184,000 people who are committed to delivering quality in assurance, tax and advisory services.

Autumn 2014 Issue

> CFI.co Meets the CEO of Samtech ICT Services:

Samuel Okorite Briggs Samuel Okorite Briggs is a seasoned ICT specialist, project coordinator, administrator, and philanthropist. He is the founder and CEO at Samtech ICT Services Ltd, a leader in providing ICT solutions that help people and businesses realise their full potential.

r Briggs is an enterprise systems engineer with vast experience in planning, designing, implementing, and administering Linux, Windows, Oracle, and SAP solutions. A highly dynamic IT professional with experience in information security and devising, integrating, and successfully developing systems solutions across multiple resources, services, and products, Mr Briggs leveraged both his IT skills and knowledge to ensure the entrepreneurial success of Samtech ICT Services.

“Mr Briggs is also widely regarded as a nation builder and national development strategist.” Mr Briggs is also widely regarded as a nation builder and national development strategist. He is the founder of an online network and resource tool for youth development in Nigeria known as Youthnetworkng and InfoHubng. Mr Briggs is also the organiser and main driver of the Port Harcourt International Business Leaders’ Summit. Mr Briggs is a graduate of computer science and information technology of Igbinedion University, Nigeria. He has attended various local and international training courses, including Oracle Database Management (California, USA) and SAP Enterprise Development (Open SAP University). He is both a Project Management (PMP) and HSE professional. i

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> First Registrars:

Delivering Peace of Mind through Innovation Undoubtedly today, First Registrars Nigeria Ltd remains the most responsive and innovative registrars company in the Nigeria Capital Market with quite a number of achievements to its name. The firm’s implacable commitment to deliver a peerless service experience to its clients is second to none. First Registrars is not a company to behave in a complacent manner or, indeed, to rest on its many laurels.

irst Registrars Nigeria Ltd is registered as a capital market operator dedicated to the keeping of records containing the names, addresses, holdings, and transfer of shares of bond- and shareholders of both quoted and unquoted companies. Prior to its incorporation as a separate entity, First Registrars operated as a unit of First Bank of Nigeria Plc, offering share register administration services for well over thirty years to corporate entities and state governments. However, upon the re-structuring of the bank, the Registrars Unit was incorporated as First Registrars Nigeria Ltd in May 1999. As such it is a wholly-owned subsidiary of First Bank of Nigeria. Subsequently, following a resolution passed at a court ordered meeting of the bank in December 2012, First Bank of Nigeria divested its entire holdings in First Registrars and a number of other subsidiaries in line with the directives of the Central Bank of Nigeria (CBN). It is noteworthy to mention that the divestment of First Bank of Nigeria from First Registrars has in no way detracted the firm from delivering the superior services it customers had come to expect. As an independent company, First Registrars is a reflection of the heritage garnered as a subsidiary of First Bank of Nigeria. First Registrars is an organisation that adheres to the core values of Fidelity, Innovation, Respect, Tenacity and Service Excellence. First Registrars recognises that meeting the expectations of all stakeholders (investors, employees, customers, vendors, the community and the environment) is the sole reason for its existence. These core values form part and parcel of the company’s business operations in a way that is socially and environmentally acceptable and contributes toward the attainment of corporate objectives. First Registrars greatest asset is its people. The company believes that in order to remain 114

“Today, First Registrars is a fully automated company with up-todate share register/data management software and state-of-the-art business IT facilities.” the leading registrars firm in Nigeria, it must consistently deliver customers a service of unmatched quality. In order to do so, First Registrars needs employees trained to deliver, both domestically and abroad, services that comply or exceed the industry’s best practices. First Registrars ensures equity in its dealings with employees and rewards extraordinary performance. TECHNOLOGY AND IT PROWESS Share registration processes are, at times, complex. First Registrars has invested a great deal of thought and capital in developing its IT infrastructure which now enables it to tackle any job. Today, First Registrars is a fully automated company with up-to-date share register/ data management software and state-of-theart business IT facilities. Over the years, the company has developed several software programmes and applications to meet the everchanging trends in share registration. First Registrars’ IT infrastructure meets international benchmarks and industry standards. ADVANCING THROUGH ADVERSITY New rules and guidelines imposed by regulatory agencies, demands by clients, increased competition, and, most importantly, fraudulent practices have posed a number of challenges to CFI.co | Capital Finance International

the company. Most of these hurdles have now been taken, while others represent a learning curve. Regulatory demands and requirements from players across the industry are also on the increase. Requirements stipulated by regulatory authorities are seen as an opportunity for First Registrars to show the transparency of its business and its determination to strictly adhere to the highest ethical standards of corporate governance. First Registrars has moved ahead of the pack and joined the regulators in promoting initiatives that safeguard the interests of investors. The company has also provided advice to the regulatory authorities on some challenging issues faced by the capital market. PRODUCTS AND SERVICES – ZERO UNCLAIMED DIVIDENDS In today’s business world, leading organisations are those who not only respond to the needs of their customers but also proactively and creatively anticipate and provide the best alternative solutions to those needs. Those are the companies that consistently deliver beyond their customers’ expectations. This is the business philosophy that drives First Registrars: To always challenge the status quo and to create the best possible customer experience through innovation and superior service. Delivering a peerless customer experience through product innovation has been the priority at First Registrars for many years. The company is committed to investing heavily in product research and innovation. This has made First Registrars the leading registrars company in Nigeria. By understanding the challenges and opportunities of share registration and blazing a trail with the introduction of shareholder and client-friendly products and services, First Registrars has lead the market. The company pioneered innovations – such as online access to share accounts, e-Share Notifier, M-Access, e-Lodgment, etc. – that have added significant

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“First Registrars has also tackled the issue of unclaimed dividends which has resonated for quite some time in the industry.” value to our client base and assures investors’ peace of mind. Recently, First Registrars introduced the use of electronic voting devices for the casting of votes at corporate meetings (AGMs). The initiative has replaced the cumbersome manual voting processes at corporate meetings with a more robust, faster, and more reliable way of voting. First Registrars has also tackled the issue of unclaimed dividends which has resonated for quite some time in the industry. Some of the key factors contributing to the growing number of unclaimed dividends include shareholders without bank accounts and others who only possess savings accounts that are unable to accept direct deposits of dividend warrants. However, with the introduction of the first ever Dividend Prepaid Cards by First Registrars the issue of unclaimed dividends has now largely disappeared. Investors, particularly those who trade in low volumes, now enjoy unlimited access to their dividends. These are credited directly to their prepaid cards. Shareholders and investors are no longer required to have a bank account to claim their dividends. First Registrars has also taken the lead in expanding its service offerings with the introduction of the Dividend Re-Investment Plan (DRIP) and the Know Your Customer (Address Verification) initiatives. OUR BRAND – THE FUTURE In the past, First Registrars has leveraged the brand equity of First Bank of Nigeria in enhancing and delivering on its brand promises. However, since becoming an independent company, First Registrars has initiated a unique brand-building strategy. All hands are now on deck to ensure the seamless repositioning of the First Registrars brand. The company’s brand philosophy has been, and will continue to be, that of delivering on its promises beyond the expectations of all stakeholders. First Registrars will always deliver peace of mind to its stakeholders through innovation and excellence in service. Irrespective of their investment aspirations, clients and stakeholders may rest assured that First Registrars is wholly committed to firmly stand guard to watch over, and protect, their wealth. i CFI.co | Capital Finance International

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> Precise Financial Systems:

World-Class Financial Software Developed in Nigeria Many organisations still cling to the misguided notion that software applications need to be sourced in the United States, Europe, or India. Locally offered solutions are often ignored. This entrenched habit is displayed by multinational and domestic companies alike. It is no different in Nigeria where most corporate IT decision makers still seem to believe that “no good software could come from Nigerian soil.”

his trend not only costs the nation a significant chunk of precious foreign exchange, it also leaves the domestic potential for software development largely untapped. However, the tide is slowly turning and businesses large and small are now discovering the world-class software solutions being offered by Nigerian developers. One of the companies at the forefront of local software development is Precise Financial Systems Ltd (PFS). The company was launched in 1992 as PEEAARR Consulting Ltd but changed its corporate identity six years later to better reflect its core business and competence as a leading provider of software solutions to the financial industry. PFS owes its remarkable success to the company’s founders who espoused the simple, yet effective, business philosophy that an efficient use of available resources applies to software solutions as much as it does to other aspects of corporate management. The PFS slogan “Simple Solutions…” pays homage to this guiding principle and conveys the company’s approach to any given challenge. Today, PFS’ innovative and state-of-the-art software solutions are running on thousands of computers of clients in Nigeria and 27 other countries in Africa. The company’s cuttingedge and environmentally-friendly technologies facilitate and empower integrated account reconciliation, cheque and e-payment processing, security and remittance, end-to-end outward and inward cheque clearing, cheque “MICRisation” and personalisation, banking and finance, bonds and financial derivatives trading and monitoring, bureau de change, cooperatives societies, stock

“Today, PFS’ innovative and state-of-the-art software solutions are running on thousands of computers of clients in Nigeria and 27 other countries in Africa.” brokering, and billing and revenue collection. Other software solutions available offer card issuance and monitoring, self-service cheque deposit, pension remittance monitoring, and project appraisal and monitoring. With these and other ingenious solutions, PFS has successfully claimed a spot at the vanguard of financial software development in Nigeria. PFS holds numerous registered and unregistered product trademarks such as CLIREC, iTELLER, PAYiT, CHECKLOGNAX, CHECKMATE, BONDS, BDC PROFESSIONAL, COOP MANAGER, CARD FACTORY, PENSOL, APPLAUSE, APPRAISE, and SYMPHONY. These trademarks represent ground-breaking and simple solutions that serve many financial and non-financial organisations including, among others, banks, federal and state government semi-state entities, insurance companies, oil and gas companies, telecommunication and IT companies, stock brokering firms, bureau de change firms, manufacturers, airlines, hotels, health management organisations, and logistics firms. Over the years, PFS has worked with many agencies and partners to deliver financial software services to its clients. These partners include Microsoft, Ernst Reiner GmbH & Co, Arit

of Africa, and International Marketing Partners. PFS is also a member of the Presidential Initiative for developing the software industry in Nigeria and a member of the Central Bank of Nigeria’s working group on automated clearing house and cheque truncation. Recently, the company was recognised at the 4th IT Edge West Africa Convergence Forum as the Innovative Leader in Financial Software Solutions. Here, PFS was also awarded the 4th place on the list of Top 50 West African IT companies. In 2013, PFS also claimed the coveted Beacon of ICT Award as Indigenous Software Company of the Year. Other awards received include Africa Innovation Award (2014), Financial Software Solution Provider of the Year, International Business Star Quality Awards (2014), Best Software Company in Africa (2013) for PFS’ software development excellence and sterling support services. With the rising cost of business, stricter regulation, and spiking software acquisition expenses, many companies – including multinationals – are now turning to locally developed and supported alternatives that often prove more user-friendly and cost-effective than solutions procured overseas. PFS is well-positioned to respond to this new demand. It is estimated that Nigerian companies annually spend about $4bn on financial software. Most of this expenditure is directed outside the country. PFS is determined to reverse this by offering world-class products made locally that benefit both end-users and the national economy while positioning the company at the very top of its area of expertise. i

“PFS has successfully claimed a spot at the vanguard of financial software development in Nigeria.” 116

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Autumn 2014 Issue

> CFI.co Meets the CEO of Precise Financial Systems:

Yele Okeremi

ele Okeremi, the founder and incumbent managing director of Precise Financial Systems Ltd, has accumulated an enviable level of expertise and experience in computer science as a programmer, system analyst, IT manager, and head of systems and logistics. His long and distinguished career spans the IT and financial sectors. Mr Okeremi is both well-known and respected as a pioneering leader in software development in Nigeria. He is a member of the Presidential Initiative for developing the software industry in the country. Mr Okeremi currently chairs the Local Organising Committee for the DEMO Africa Event in Nigeria. Besides serving as vice-president of the Institute of Software Practitioners of Nigeria (ISPON), he also sits on the board of the National Information Technology Development Agency (NITDA). Mr Okeremi is a Microsoft Certified Systems Engineer and holds a Bachelor of Science degree in Computer Science (with Economics) from the Obafemi Awolowo University and a Masters in Business Administration. He is an alumnus of the Wits Business School of Johannesburg in South Africa and of the prestigious Harvard Business School in Boston, Massachusetts, USA. Mr Okeremi has a passion for the continued development of the intellectual capital of Africans. He is convinced that Africa will become the next frontier in IT and predicts that Africans will play a leading role in the development of next-generation software solutions as the countries of the continent start to make better use of their vast stores of human capital. Mr Okeremi is a devoted Christian and a family man. He is married and blessed with three lovely daughters. i

CEO: Yele Okeremi

â&#x20AC;&#x153;Mr Okeremi is convinced that Africa will become the next frontier in IT and predicts that Africans will play a leading role in the development of next-generation software solutions as the countries of the continent start to make better use of their vast stores of human capital.â&#x20AC;? CFI.co | Capital Finance International

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> Middle East:

Transformations Required to Create Jobs Growth has been tepid across the Middle East and North Africa, Afghanistan, and Pakistan (MENAP) region. In 2013, declines in oil production held back growth in the oil-exporting countries. Weak private investment, amid political transitions and conflict, continued to take a toll on economic activity in the oil-importing countries. Growth is expected to strengthen this year in line with an improved global outlook. However, weak confidence and, in some cases, large public deficits will continue to weigh on the regionâ&#x20AC;&#x2122;s economic prospects. Deeper economic transformations are necessary to ensure robust and inclusive growth and creation of enough jobs for the rapidly-growing labor force.

Bahrain

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Kuwait

he region’s economies are strengthening. Last year’s tepid growth in MENAP oil exporters is expected to improve as oil production and exports respond to the global economic recovery, while high levels of public capital spending and accelerating private sector credit continue to support the non-oil economy. In MENAP oil importers, modest growth is anticipated to continue but its drivers may begin to change. Consumption, financed by remittances and large public sector wage spending, will continue to buoy growth. But planned investment could start stimulating economic activity as a result of increased public spending on infrastructure and improved confidence as political transitions progress. Nevertheless, a variety of domestic and regional factors will continue impeding investor confidence in the oil-importing economies, especially the Arab Countries in Transition (Egypt, Jordan, Libya, Morocco, Tunisia, Yemen). The drag from

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“Consumption, financed by remittances and large public sector wage spending, will continue to buoy growth.” unresolved structural problems and governance issues weighs on the business environment, and in some cases, hinders full realization of gains to exports, tourism, and FDI following improved trading partner growth. Persistently high unemployment is spurring social tensions, often manifested in labor strikes. Domestic security concerns and regional economic and social spillovers from the conflict in Syria add to these challenges. ENHANCING GROWTH POTENTIAL AND COMPETITIVENESS, AND CREATING JOBS For recovery to gain momentum and develop into sustainably higher growth, structural impediments to private economic activity have to be tackled. A weak business and legal environment, and CFI.co | Capital Finance International

limited access to bank credit, in some countries, hinder private sector growth, especially for small and medium-sized enterprises. In addition, highly subsidized energy prices, as in Egypt, distort production in favor of energy-intensive industries that do not promote job creation. Reforms addressing all of these impediments can accelerate productivity and boost private sector investment and export competitiveness. Most importantly, these reforms can create jobs. Starting from a low base, reforms can have early benefits, as demonstrated by recent successes in Morocco and Pakistan. Structural reforms need to target the most significant impediments, in particular bureaucratic inefficiency and corruption, tax systems that do not support competitiveness, difficulties and inequities in access to finance, low female labor force participation, and labor regulations that are unsupportive of job creation. i

Source: Regional Economic Update IMF 2014

Autumn 2014 Issue

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> CFI.co Meets the CEO of PADICO HOLDING:

Samir Hulileh Palestine Development and Investment Company Ltd (PADICO HOLDING) CEO Samir Hulileh started his career as a lecturer at the Birzeit University – Palestine in 1983 where he remained for three years. After, he was appointed head of research at the Arab Thought Forum, a think tank dedicated to identifying critical issues in the Palestinian economy. Subsequently, he was assigned as an economic consultant to the Palestinian Welfare Association where he spent three years making notable contributions to the advancement of the Palestinian economy. From 1992 until 1994, Mr Hulileh managed the Economic Development Group, an organisation funded by the European Union with the objective of providing Palestinian SMEs with credit.

hile pursuing his career in business, Mr Hulileh remained active in the political arena. He started in politics as a delegation member during the Palestinian - Israeli economic multilateral talks which took place in 1992. Later on, he became a member of the Palestinian team which engaged in direct economic negotiations that culminated in the signing of the Paris Protocol in May 1994. Mr Hulileh then moved on to serve as the assistant undersecretary for the Ministry of Economy and Trade from 1994 until 1997.

leading position in developing the Palestinian economy and improving the skills and capacities of its workforce. Mindful of the needs of both the community and the economy, Mr Hulileh is proactive and serves on the board of major businesses and political and academic organisations. He is currently the chairman of the Arab Hotels Company, the NAKHEEL Palestine for Agricultural Investment, and the Jericho Gate for Real Estate Investment. He also sits on the board of directors of the Palestine Telecommunications Company (PALTEL Group), the Palestine Exchange (PEX), and the Palestine Real Estate Investment Company (PRICO). Additionally, Mr Hulileh is a board member of the Palestine Trade Centre, the Palestine International Business Forum (PIBF), the Palestine Economic Policy Research Institute (MAS), the Palestinian Banking Corporation, the Palestinian – British Business Council, the Palestinian – Russian Business Council, and the International Chamber of Commerce ICC/Palestine. He is also a board member of the Coalition for Accountability and Integrity (AMAN), sits on the advisory board of AMIDEAST/West Bank and Gaza, and serves as a member on the board of trustees of the Friends Schools/Palestine.

Between 1997 and 2004, Mr Hulileh made a professional shift to refocus his career back on the private sector by accepting the position of marketing director at the Nassar Group – one of Palestine’s largest businesses and a world leader in the stone and marble industry. Meanwhile, he was elected chairman of Palestine Trade Centre (PALTRADE). In 2005, Mr Hulileh took on his last fulltime political commitment as cabinet secretary of the Palestinian government before stepping down after the 2006 elections. Prior to assuming his current position, Mr Hulileh was appointed as the managing director of the Portland Trust in Palestine. This is a private nonprofit British foundation committed to promoting peace and stability between Palestinians and Israelis through economic initiatives. Mr Hulileh is a great asset to PADICO HOLDING since 2008 with his vast expertise and deep knowledge of the economic, political, and

CEO: Samir Hulileh

academic domains – alongside his significant accomplishments in the private sector. He works tirelessly toward reinforcing the company’s

Mr Hulileh is the author of two books and has published more than eighteen academic essays on various economic and anthropological issues. Mr Hulileh graduated from the American University of Beirut in 1983 with a Master’s degree in economics. i

“Mr Hulileh is a great asset to PADICO HOLDING since 2008 with his vast expertise and deep knowledge of the economic, political, and academic domains.” 122

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> Palestine Development and Investment Company (PADICO HOLDING):

Twenty Years of Investing in Palestine PADICO HOLDING (Palestine Development and Investment Company) celebrated its twentieth anniversary, marking two decades of accumulated experience. In 1993, the company was launched as an initiative by distinguished Palestinian and Arab businessmen, for the purpose of building and developing the Palestine economy with the implementation of projects in sectors critical to economic development. Since then, PADICO HOLDING has grown, through its subsidiaries and affiliates, to become one of Palestine’s largest private sector companies, implementing projects in the telecommunications and services, tourism, real estate, infrastructure, agriculture, and industry sectors. In the process, the company provided thousands of jobs in the Gaza Strip and the West Bank including East Jerusalem.

he company has gained prominence by initiating green field investments in both telecommunications and the financial market. PADICO HOLDING had the resources to invest in sustainable large-scale projects that required long-term financing and international corporate know-how. As such, it has become a model for successful investments in Palestine. Despite the unstable political environment in the country, PADICO HOLDING proved profitable due to its long-term investment strategy – premised on diversification – that allowed it to adapt to the challenging circumstances in Palestine. Furthermore, the company creates investments that do not compete with local SMEs and businesses as its mission is to empower the Palestinian economy; it became a leading force behind the creation of thousands direct and indirect job opportunities in Palestine. LOYAL TO ORIGINAL MISSION “PADICO HOLDING has consistently remained loyal to the original mission of its founders to contribute in developing Palestine and its economy. The company continues to reaffirm this commitment to the founders, affiliates, subsidiaries, and shareholders,” says Samir Hulileh, CEO of PADICO Holding. In 1995, PADICO HOLDING founded the Palestinian Telecommunications Company (PALTEL), the first telecommunications company in Palestine. PALTEL provides telecom services to hundreds of thousands of Palestinians. By the end of 2013, the company served 404,000 124

“We operate in a challenging environment and it is essential to devote maximum effort to sustainable business development.” fixed-line subscribers and, through its subsidiary Jawwal, 2.63 million mobile subscribers. PALTEL’s Internet service provider Hadara has over 230,000 ADSL subscribers. Additionally, in 1995, the Palestine Exchange (PEX) was established as the first stock exchange in the country. PEX opened for trading in 1997 and remains the only privately-owned stock exchange in the Middle East. It is also the only one to be fully automated upon establishment. The company’s investments in the tourism sector brought the first five-star hotels to Palestine such as the Jacir Palace InterContinental Hotel in Bethlehem, the Movenpick Hotel in Ramallah, the Al-Mashtal Hotel in Gaza, and the St George Hotel in Jerusalem. These investments have offered the five-star experience to both tourist and locals, and provided quality employment opportunities to Palestinians. The investments are managed by PADICO Tourism, the investment arm of PADICO HOLDING in the tourism sector. The company has also contributed significantly to the development of the real estate sector. CFI.co | Capital Finance International

In 1994, PADICO HOLDING founded the Palestine Real Estate Investment Company (PRICO) – Palestine’s largest real estate development company at the time. PRICO has been responsible for some of Palestine’s most significant development projects, and continues building on that legacy today with the construction the Al-Ghadeer neighbourhood in Ramallah and the Blue Beach Chalets in Gaza. In 1999, PADICO HOLDING developed an industrial zone in the Gaza Strip through its PIEDCO subsidiary. This industrial zone, which spans 470,000m2, serves as the home base for dozens of factories producing goods for local and international markets bringing hundreds of jobs to Palestinians. Additionally, the Jericho AgroIndustrial Park (JAIP) in Jericho offers investment incentives for companies and investors in the agro-industrial sector and provides both industrial space and comprehensive storage solutions in addition to supporting logistical services, necessary for the work of companies in the city. PADICO HOLDING’s investments continue to drive Palestine’s economic development: Agricultural and industrial projects in Tulkarm, Nablus, and the Jordan Valley offer employment opportunities where they are most needed. The Palestine Poultry Company (AZIZA) manages the entire production cycle from eggs, to raising chickens, to packaging and distributing chicken products. The project provides environmentally sustainable solutions to household and commercial solid waste in Nablus and Jenin. PADICO HOLDING’s latest investment in

Autumn 2014 Issue

agriculture – Nakheel Palestine for Agricultural Investment – employs hundreds of workers to plant, harvest, and pack dates in the Jordan Valley. The jobs Nakheel has provided allowed local workers an alternative to being employed by farms in Israeli settlements. “In spite of the magnitude of PADICO HOLDING’s investments over the past twenty years, countless opportunities to develop the Palestinian economy still remain and the company will continue making strategic investments that contribute to the establishment of an economic foundation on which other companies can build,” says Mr Hulileh. Furthermore, the Jericho Gate for Real Estate Investment Company, owned by PADICO HOLDING, seeks to implement an unprecedented mega developmental tourism project in Palestine. It is to be the first of its kind in the country and includes the development of a variety of tourist and entertainment facilities on an area of three million square metres in the South of Jericho. Jericho Gate will consist of a number of tourism and entertainment facilities that include residential villas, resorts and hotels, a sports city, entertainment and water parks, a commercial compound among others. The project, once finalised, is expected to have a noticeable positive effect on the Palestinian economy as a whole and to cater to the needs of the Jericho population, as it is expected to increase the number of tourists visiting Palestine. The project is also intended to make Jericho an international destination of note. Mr Hulileh: “We seek to enhance our partnerships with local and international entities in order to learn from their experiences. We consider this to be an effective way to build our own competencies and inspire our youth.” GOVERNANCE & CORPORATE SOCIAL RESPONSIBILITY PADICO HOLDING is governed according to an uncompromising set of values and principles that demand that all business investment activity must be paralleled by community social

investment in Palestine. The company’s social responsibility policy was developed in response to community needs and now offers clear strategy of its social responsibility projects including social, developmental, economic, national, and humanitarian initiatives as well as support of education, youth, culture, and the arts. Social responsibility is considered an integral part of the company’s corporate citizenship and thus constitutes a commitment to the community and its values and practices. “While we continue to call for investments in Palestine and offer ourselves as irrefutable evidence of investment viability, we are also more proactively involved in our social responsibilities. Since its inception, PADICO HOLDING has evolved in response to resurgent social and developmental needs,” concludes Mr Hulileh. PADICO HOLDING sets an example among Palestinian companies in the field of corporate governance. The structure, functions, roles, authority of the Board of Directors, the disclosure of financial statements, publication of annual reports, updates on activities, and investment plans are all executed in accordance with the requirements of the Palestinian Capital Market Authority. PADICO HOLDING affirmed its commitment to principles of transparency and corporate governance by signing the Code of Corporate Governance in Palestine. i

Palestine Investment and Development Ltd (PADICO HOLDING) was established in 1993 as a limited public shareholding company traded on the Palestine Exchange (PEX) with paid-in-capital of $250 million. PADICO HOLDING has grown its investment portfolio to include almost every sector that is vital to building the Palestinian economy and nation through its subsidiaries and affiliates that cover sectors such as: Telecommunications and services, tourism, real estate, infrastructure, agriculture, and industry. CFI.co | Capital Finance International

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> National Petrochemical Industrial Company:

Impressive Growth in Short Time National Petrochemical Industrial Co. (NATPET) is a joint Saudi stock company established in 1999. NATPET produces 400,000MT/year of propylene/polypropylene at its Madinat Yanbu Alsenae’a facility on the west coast of Saudi Arabia.

ATPET’s PP products, with the brand name Teldene®, are sold in more than ninety countries covering all the major regions around the world. The sales are carried out through NATPET’s own Marketing and Sales division and off-takers with defined territories. Trial runs of NATPET products have been conducted by major industry-acclaimed machine builders at their respective sites – such as Brückner, Starlinger, Reifenhäuser (Reicofil), and AMUT – who posted those on their list of successfully performing grades and recommended those suitable for respective applications by the downstream converting industry. Polypropylene is the fastest growing polymer resin. The polypropylene market has been growing progressively since 2003, despite the intervening recession in 2008. Moreover, forecasts illustrate a solid growth in the polypropylene market from 2014 till 2018. National Petrochemical Industrial Company has mirrored the overall polypropylene market by growing at an impressive rate and obtained a gross profit of $91.69 million ($55.55 net) at the end of 2013. With this solid profitability, NATPET also obtained an outstanding liquidity status with a current ratio of 1.26, being in line with an ideal current ratio average. With almost doubling its return on assets and equity since 2012, and a very promising finish projected for 2014, NATPET is considered to be an aggressive market competitor aiming to achieve the highest profitability with the highest quality product on the market. CORPORATE STRATEGY Maintaining a sharp focus is the pillar of development at NATPET; this is precisely what drives the company toward success. Quality products, customer care, maintenance and promulgation of ethical conduct in the industry, development of sustainable processes, respect for not just the employees but tireless efforts for the well-being of the wider community as well – NATPET focuses on the growth of multiple areas to stand out from the crowd and has received due recognition through various accolades. These have been achieved over a very short time span as NATPET started its commercial 126

“The company recently established a new division to motivate investors to invest in the plastics business.” production in 2010 and has already now achieved the status of outstanding provider of sustainable quality products and after-sales support. This is due to an immense emphasis on keeping its goodwill afloat through constant improvements in the areas of its operations. NATPET beliefs are congruent with the government’s goals to further develop the downstream industry. The company adheres to a staunch commitment to corporate social responsibility and to improve the living standards of the citizens of Saudi Arabia through its business endeavours. NATPET’s high-quality products and partnerships offer more than a superior source of polypropylene: The company offers an ethos and a well-rounded approach that, when adopted, work advantageously for all stakeholders. AN ORGANIZATION WITH SOLID POLICIES For NATPET, to be recognized worldwide as an astute business, the formulation and implementation of best practices has been at the core of its functioning. NATPET has acquired certifications for ISO 9001:2008 – Quality, ISO 14001:2004 – Environment, ISO 22000:2005 – Product Safety, OHSAS 1800:2007 – Occupational Health and Safety, and ISO 17025:2005 – Laboratory Test Reliability and Calibration. Through such accreditations, the organization has kept itself abreast in the following areas: 1. Reduced cost of waste management through savings in consumption of energy and materials 2. Lower distribution costs 3. Improved corporate image among regulators, customers, and the public MARKET SENSE AND NATIONAL AWARENESS When NATPET claims continuous improvement, it does not mean the fancy industrial clichéd term to impress stakeholders. NATPET justifies its claim through actions such as learning incessantly, enhancing consensually, developing systematically, and implementing ethically and responsibly. CFI.co | Capital Finance International

The organisation has been recognized to follow international and national accreditations; as a consequence its plant currently enjoys a sustainable advantage of producing high-quality raw material (propylene) through an integrated Propane Dehydrogenation (PDH) facility. NATPET now appears as an effective performer in the industry keeping a keen eye on responsible competitiveness. Since inception, NATPET has also been attentive to the importance of resourcefulness and recognises the importance of resource management. Another interesting point is that the organisation manages wasteful production through a continuous understanding of consumer insights. It championed the claim for higher clarity and processing efficiency by the adoption of technologies like thermoforming and injection-moulding to produce one-of-a-kind of PP resins which help in creating new ways of food packaging that are aesthetically appealing to consumers, durable, and lightweight for everyday usage. Such innovations have the potential of lowering energy consumption which, in turn, lowers the carbon footprint and reduces the emission of greenhouse gases. That represents sustainable development, smart planning of resources, and investment in the future. The company has bolstered its operational processes to comply with international standards and to take the lead domestically. NATPET is the first company in Saudi Arabia to acquire the Spheripol process from LyondellBasell and has been instrumental in introducing this technology on the local scene. Spheripol is the basis for production at the majority of polypropylene plants coming up globally. It is an acclaimed state-of-the-art technology. NATPET places great emphasis on market research before choosing its technology and product grades. It is well-versed in all the guidelines as it works diligently to cater to the requirements of major markets such as the GCC, MENA, Asia, and Europe. The company’s basic strategy is to focus on the client’s value of the product. In this respect, NATPET doesn’t see itself as a commodity company, but as a valuable supplier that believes in pursuing financial gains through ethical conduct.

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This flexible and whole-of-life project approach to supplying polypropylene products has enabled NATPET to uniquely position itself for downstream moves. It works hard in developing downstream industries in order to achieve far-reaching objectives like the creation of employment opportunities for the citizens of Saudi Arabia and knowledge transfer. The company recently established a new division to motivate investors to invest in the plastics business. Two projects have already been implemented while others are in the stages of development and approval. NATPET entered into a joint venture with a British company called Low & Bonar to produce geotextile materials made from polypropylene. The Bonar/NATPET joint venture intends to produce geotextile products for the fast-growing civil engineering markets in the Middle East and the Indian subcontinent. NATPET-Schulman Engineering Plastic Compounds is another joint venture. This one will build an efficient, cost-effective, and stateof-the-art manufacturing facility to produce and globally market polypropylene compounds for the durable goods and automotive industries by the end of 2015. A VALUABLE SAUDI PLAYER The Yanbu plant continues to operate towards the name plate capacity and NATPET’s footprint within the polypropylene industry – both inside and outside of Saudi Arabia – continues to expand into newer markets and regions. As the company embarks on more downstream industries, harnessing government objectives along the way, its entrance in any market signals that of a highly reputed, efficient, quality-focused and socially

responsible vehicle. Whatever NATPET sets out to do, it does it very well, very safely and very competitively. NATPET is considered the best in the category of corporate social responsibility and was awarded the Kingdom’s prestigious award on Social Competitive Index in recognition of the great efforts made and that have contributed to significant improvements in the performance of the company. NATPET claimed second place in the King Khalid Award for Responsible Competitiveness Index for 2013 for the fourth consecutive year. The first one was received in 2010, the same year in which the company started its commercial operations. In 2012, NATPET also received the Marafiq Sustainability Award for its excellent performance and its contribution to sustainable practices in Saudi Arabia in the furtherance of the country’s environmental, social and economic development. Due to its progressive outlook, NATPET has been recognised as one of the Top-10 Best Saudi Company to Work for 2012 in the category of small and medium-sized enterprises as reported in the special supplement of the daily Al-Eqtisadiah on June 8, 2013. NATPET’s commitment was rewarded with a ninth place from among a hundred companies competing for the awards. Moreover, NATPET’s unrelenting dedication to the development of excellence in customer relations landed the company the coveted Supply Chain Partner of Choice Award – Process Sector, hosted by Frost & Sullivan in 2014. Since inception, NATPET has shown a strong devotion to becoming a force to be reckoned with. The company never fails to acknowledge the motivation of its employees and the loyalty CFI.co | Capital Finance International

of its customers as essential ingredients of its success. NATPET also takes a great pride in showcasing its efforts on a regular basis in international forums like Arab Plast – the most important plastics event in the region that attracted around 30,000 visitors from 113 countries. NATPET also participated in K-Show 2013 held in Germany. Its presence here generated awareness worldwide and ensures that NATPET stands out amongst its peers. It is essential for NATPET’s success to learn from leading organisations, keep track of competitors, and inform about its latest developments. As an active member of GPCA, NATPET has been accredited to organise unique environment initiatives and sponsorships as part of the company’s social responsibility toward environmental preservation, community service, and sustainable resource management. NATPET arranged for around hundred divers to clean up the sea and simultaneously conducted an awareness programme for school children to teach about the importance of environmental protection and promote the concept of re-use and recycling. The organisation possesses a single-minded focus on excellence in everything and wants to expand beyond its territory. It wishes to take its niche expertise worldwide and takes great pride in its capital management through total-quality management. NATPET is always eager to train its employees and devotes time, money, and effort in grooming them. It understands the significance of human capital. Despite its stellar reputation in the market and prospering financial results, NATPET is always on the lookout for new opportunities anywhere in the world. i 127

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> CFI.co Meets the COO National Petrochemical Industrial Company:

Jamal Jamil Malaikah Jamal Malaikah is the President and Chief Operating Officer of the National Petrochemical Industrial Company (NATPET). Mr Malaikah holds a Bachelor of Science in Industrial Management with a major in Business Economics from the King Fahad University of Petroleum and Minerals.

r Malaikah has held various senior management positions in the petrochemical industrial sector. He commands a vast experience across a wide professional field gained while working at major international companies such as Co Pak (Egypt) and the Saudi Carton Company, a subsidiary of Savola and Xenel Industries Ltd. Prior to the current role, Mr Malaikah was the vice-president of marketing and sales at NATPET. Since then, he has been instrumental in shaping the organisation into one that has reached many milestones and is now operating a petrochemical complex in Yanbu, Saudi Arabia, to produce 400,000 MT per year of propylene and polypropylene. Under his leadership, NATPET secured the runner-up position for Kingdom’s highly prestigious King Khalid Saudi Responsible Competitiveness Award. It has held this place for four consecutive years (2010-2013) in recognition of leadership, effective management, creative teamwork, and the ability to build social and environmental considerations into all the company’s operations. Mr Malaikah can be said to possess a “global” mind set, which has accredited NATPET with numerous accolades across various platforms. He has a global acumen blended with wellentrenched local values; his understanding of international markets has consistently kept NATPET a step ahead. Mr Malaikah is exceedingly careful in choosing and cultivating NATPET’s human capital and has transformed the company into a highly successful sustainable organisation provided with a well-balanced and competent team of motivated employees. Mr Malaikah leads by example and attaches great importance to the conduct of business by strict ethical standards. He considers this to be essential to the lasting success of any business venture and insists on following the highest ethical workplace practices. Mr Malaikah’s openness has transformed the organisation’s working environment into a place where employees enjoy contributing to the overall success of NATPET. His unrelenting commitment to excellence and his dedication to

COO: Jamal Jamil Malaikah

the further improvement of overall performance are recognised by ISO and other certifications that NATPET has received. • ISO 9001:2008 • ISO 14001:2004 • OHSAS 18001:2007 • ISO 22000:2005 • Responsible Care – RC logo • RC 14001:2013 • ISO 17025 : 2005 • RoSPA 2013 Gold Award by the Royal Society for the Prevention of Accidents • REACH compliance • King Khalid SRC Award (2010,2011, 2012 CFI.co | Capital Finance International

& 2013) • Supply Chain Partner of Choice Award – Process Sector hosted by Frost & Sullivan • EBA (UK) Best Enterprise Achievements – 2014 • Commitment with United Nation Global Compact on Human Rights • Recognized amongst the Top-10 Best Saudi Company to Work for 2012 Mr Malaikah is director of the board of the Al Ahli Takaful Company – a Saudi public company since 2013 - and sits on the Petrochemical Manufacturers Committee (PMC) since 2011. i 129

> Grant Thornton UAE:

Itâ&#x20AC;&#x2122;s Your Choice - Business vs Risky Business By Mohamad Nassar

hen looking at Enterprise Risk Management (ERM) within organisations, the need for further clarification soon becomes evident. The process of ERM is something that we may unknowingly follow in our daily lives, when planning to go on holiday or planning our next business venture. We evaluate the risks involved and the processes that need to be undertaken to ensure these risks are minimised. The same can be said for any business: The risks need to be evaluated in order to be effectively managed and to ensure they do not become detrimental to the business in the future. 130

One of the main reasons that organisations are hesitant and may not have adopted an ERM process yet is perhaps because theorists and consultants have, quite unintentionally, made the risk management concept and process look and sound complicated. In fact, organisations may be adopting the ERM process on a daily basis without being aware of this. In a society such as ours, heavily reliant on technology, people are accessing various sources of information on ERM â&#x20AC;&#x201C; often containing complex diagrams, charts, manuals, and metrics â&#x20AC;&#x201C; that cause some confusion and may very well discourage them from adopting sound risk management processes. CFI.co | Capital Finance International

Previously, ERM was not discussed as widely as it is today. Business leaders and managers perceived ERM as a complex and unnecessary process which was moreover seen as inefficient and an unwelcome overhead. Only financial services firms such as banks would embrace ERM to reduce risk levels. However, when we look at the current business environment and the rapid technological changes taking place, risk management procedures seem called for in nearly any type of business venture. The changing dynamics of the economy and the global market crash further reinforced the need

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for risk management. Recent experience highlighted the need for organisations to protect themselves against uncertainties in order to minimise the risk of personal, financial and reputational losses. However, some business leaders remain hesitant, questioning the ROI (Return On Investment) and the possible benefits to be obtained. ENHANCING AWARENESS There still remains a lot to be done, especially within the United Arab Emirates (UAE), in order to enhance the awareness and knowledge of ERM in the local business community. The nature, components, approach, outcomes, and benefits of establishing integrated ERM processes in any given organisation are not yet fully understood. ERM processes should be seen for what they in fact are: Straight and simple in both their nature and mechanisms. An ERM process is a tool that allows directors and managers to take a number of sensible strategic, financial and operational decisions. ERM is also an integral part of any advanced modern business management process and should, as such, be a welcome addition to the toolbox of managers. When looking at ROI from the perspective of a changing business landscape within the UAE and the wider Middle East market, ERM cannot go unnoticed. Take the leisure and hospitality sector that sees an abundance of travellers pass through hotels and other facilities of international renown. If risk is not minimised, the impact of even a small mishap on a company’s brand, reputation and/or market position could be considerable. Usually, the tiniest of unfortunate events leave the biggest dent. However, the same could be said for ERM: A relatively small risk could in reality pose the biggest threat. In many organisations it is often noted that operational plans (if they exist at all) are not always aligned with the strategic plan. As a direct result of this mismatch an organisation may be exposed to various types of risks – such as the lack of controls or disconnects between different management levels.

management. Failing to do so may prove very costly and could result in losing shareholders’ wealth. The credibility of business leaders is at stake as is the trust of investors. Accordingly, corporate leaders should start thinking seriously about ERM as one of the main tools for managing and directing their organisation efficiently. The following steps can be taken to minimise risk in a business environment: • Embed a risk management culture in the business environment through awareness and training. • Establish a methodology and approach based on a standard such as ISO 31000 to adopt an ERM framework in its most simple and applicable style. • Appoint a consultant to assist in establishing and implementing the required processes, to help embed the methodology, and to train people. Ultimately, it is the responsibility of business leaders to introduce and implement a comprehensive tool that enables them to predict the future and helps identify, mitigate, and monitor risks and threats before any harms is done to the business and its reputation. These methods should be embraced and considered carefully to protect the organisation and help achieve stability, profitability, and long-term growth. i

ABOUT THE AUTHOR Mohamed Nassar is the Business Risk Services Partner at Grant Thornton UAE. Mr Nassar has over twenty years of experience. His professional portfolio includes ten years within the professional services prior to joining Grant Thornton. Mr Nassar worked in Cairo, Jeddah, and Dubai. He has also worked for some of the most reputable government agencies in the Middle East and for one of the largest oil & gas suppliers in the world. Mr Nassar specialises in a wide range of industries, such as oil and gas, hospitality, facility management, and financial services. He is a US certified professional of CIA (Certified Internal Auditor) and CCSA (Certification in Control Self-Assessment), and holds a public accountant registration.

In the UAE, ERM awareness is now gradually on the increase. It is embedded in government institutions and local businesses that lead change within the region. These organisations are establishing, developing, and implementing processes and functions that aim to mitigate risk. Training is also provided and innovative software is procured to support and underwrite these pioneering efforts. Dubai Marina

“The changing dynamics of the economy and the global market crash further reinforced the need for risk management.”

PREYING ON WEAKNESS The construction and real estate sectors of the UAE are currently booming as Dubai gears up for Expo 2020. This calls for robust protection against risk. It is well known that periods of profound change also bring increased opportunity. However, exposure to risk rises as well and can be extremely high. Greater demand brings increased risk. Fraudsters of all stripes are waiting in the wings to leap on any weaknesses and deficiencies in processes and systems. In any organisation, it is the ultimately the responsibility of the board of directors, CEOs, CFOs and other key managers to build integrated and comprehensive internal control systems of risk CFI.co | Capital Finance International

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THE EDITOR’S HEROES

Heroes to Make Sense of a Turbulent World

ven in these turbulent times of war, civil strife, and terrorism, there is no shortage of heroes. The ten featured in this issue of CFI. co cover a wide range of human endeavours from writing to politics to economics via sports and show business. As usual, it is no mean task to select only ten heroes from among the many who set good examples and lead inspiring lives. Inevitably, worthwhile candidates may be overlooked, ignored or fall victim to the print magazine’s space constraints. This does not imply that the heroes we celebrate are more worthy than the ones we have not (yet) featured. Take, as an example, the story of a young lady who returned to her native Mali after selling a successful consulting business in the UK. Her coming home was not driven by either nostalgia or profit, but rather by a sincere desire to contribute both skills and knowledge to the country’s development. Now, a few years after her return this enterprising lady runs a firm helping the Mali government set development goals, access overseas funds, and adhere to international standards of governance. She is a hero in the true sense of the word: Someone who acts (rather than speaks) in order to help alleviate an issue to the betterment of society. Alas, the lady from Mali did not make it into this issue, but stay tuned: She is not off the radar. Politicians are lightly over-represented in our autumn hero list. German chancellor Angela Merkel, Mexican president Enrique Peña Nieto, and Dutch foreign affairs minister Frans Timmermans were chosen for their ability to lead the way and bring some sense to a world often perceived as rather irrational. Mrs Merkel insists on oldfashioned fiscal discipline, abhors creative bookkeeping, and uses her country’s unique position to keep adventurous rulers to the east in check. Meanwhile, President Enrique Peña Nieto of Mexico has just reinvented that

country’s erstwhile formidable Institutional Revolutionary Party (PRI) transforming it from the embodiment of past ills into an agent of modernity and change. President Peña Nieto also made waves by scrapping the state’s monopoly on oil and natural gas exploration. This was an act of political heroism like few others. Just a few years ago, any politician suggesting to do modify the monopoly – let alone to do away with it – would have seen his or her career end both prematurely and abruptly. Dutch foreign affairs minister Frans Timmermans – the least well-known of our heroes from politics – gained a place in the global spotlight after the air disaster with Malaysian Airlines Flight MH17 in which 194 of his country men and women perished. Throughout the prolonged and difficult crisis that followed, Mr Timmermans kept his head cool and offered a voice of reason to a bereaved nation and a shocked world. In a speech at the United Nations, Mr Timmermans showed both his deep emotions and his good sense thus giving the tragedy the human dimension it needed. Though not asked to pick a favourite – a temptation indeed fraught with risk – the choice would probably be PJ O’Rourke, the US writer, satirist, and journalist. Mr O’Rourke’s work may frequently be admired in the pages of Rolling Stone Magazine where he writes about societal ills and phenomena in a style, though all his own, based on the New Journalism movement of the 1980s. Mr O’Rourke’s wit and prose seldom fail to inspire young journalists. His hands-on way of reporting, though by no way unique or even novel, reminds readers what journalism can look like when the Internet and Google are taken out of it. Please do enjoy the ten hero portraits displayed over the following pages. Also, CFI.co welcomes any and all input from its readers. Do not hesitate to send us your suggestions or to point out those heroes we may have overlooked. i

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> ENRIQUE PEÑA NIETO A Makeover for Mexican Politics

Mexico’s president Enrique Peña Nieto wrote history this summer. With a stroke of the presidential pen, he demolished a 76-year-old monopoly cherished by his nation, opening up the oil, natural gas, and electrical power sectors to foreign participation. Though state-owned oil company Petróleos Mexicanos (Pemex) will retain some privileges, it will now have to contend with outside competition. The 1938 nationalisation of the oil industry

has long been considered a touchstone of Mexican Nationalism. When the country hopped onto the privatisation bandwagon in the 1980s, and started selling its crown jewels to the highest bidders, the energy sector was explicitly excluded. President Peña Nieto assured wary Mexicans that his watershed legislation – passed by ample margins in congress – will result in more and better paid jobs and will help the nation

“overcome decades of immobility.” Mexico’s youthful president is indeed a mover and shaker. He is on a mission to transform the staid, stuffy – and at times even a little crooked – Institutional Revolutionary Party (PRI) into a harbinger of modernity. Up to the turn of the century, the PRI had a stranglehold on Mexican politics. The party maintained its dominant position mostly through electoral alchemy, bribery and intimidation. Peruvian author and Nobel laureate Mario Vargas Llosa called Mexico under the PRI “the perfect dictatorship” for the party’s ability to keep both power and societal peace while still allowing for political dissent. However, this did not preclude the PRI to become the embodiment of all that was wrong with politics and governance in Mexico. After its surprising defeat in the 2000 presidential election, the PRI was relegated to the back benches. A few power struggles later, the party managed to reinvent itself with Enrique Peña Nieto at the helm. What initially was seen as an endeavour in futility of quixotic proportions has now become Mr Peña Nieto’s greatest feat. In the 2012 election, the “new” PRI surprisingly reclaimed power with 38% of the national vote. Since then, President Peña Nieto has kept to his reforming ways. The day after his inauguration, he announced The Pact for Mexico, a novel power sharing initiative that invites the country’s main opposition parties to have a say in determining the government’s agenda. President Peña Nieto also implemented radical change at the Interior Ministry, responsible for fighting the powerful drug cartels and now provided with a new 10,000 strong and heavily armed gendarmerie force to be deployed in the country’s most dangerous areas. Also known for his, at times, hilarious media bloopers, President Peña Nieto even manages to make the nation smile such as when asked to name his three favourite books, he couldn’t come up with any title other than the Bible. He is also known to have swapped state capitals and forget acronyms of large state entities. A popular website dedicated to collecting the president’s many gaffes features a clock counting the hours and days since his last mistake. It rarely surpasses 48 hours. Still, President Enrique Peña Nieto is nothing, if not human. He is also a crack politician who is working tirelessly to give Mexican politics the makeover it deserves.

“Mexico’s youthful president is indeed a mover and shaker. He is on a mission to transform the staid, stuffy – and at times even a little crooked – Institutional Revolutionary Party (PRI) into a harbinger of modernity.” 134

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> ANGELA MERKEL Managing Europe’s Manifest Destiny

The job of German chancellor is not one for the faint of heart. It all boils down to leading one of the world’s greatest powers, and safeguarding its many interests, without ever giving in to the temptation to actually flex the country’s muscle. Where other countries may holler and shout at will should their affairs be threatened, Germany may at most whisper its concern. As soon as a German chancellor even thinks about wielding power, however modestly, his or her face will promptly appear on protesters’ placards

besmeared with a toothbrush style moustache. Though fading slowly, the burden of history is not to be underestimated. In office since 2005, Chancellor Angela Merkel has a keen sense of the do’s and don’ts that define Germany’s position in Europe and the wider world. Rather than feeling boxed-in, Mrs Merkel artfully pushes these confines to the limit – and even slightly beyond – without ever losing sight of other nations’ sensibilities. She does so in order to assume the role that is

expected of her as the leader of Europe’s largest and possibly most robust economy. It is also a role not everyone is entirely comfortable with Germany assuming. Still, Mrs Merkel has played her part exceedingly well and deserves lavish praise for. A former inhabitant of the German Democratic Republic (DDR) and fluent in Russian, she also developed her own form of “ostpolitik” by establishing a personal rapport with Vladimir Putin in an attempt to take the edge of Russia’s expansionist foreign policy. In August, Mrs Merkel landed in Kiev for a crisis meeting with Ukraine’s president Petro Poroshenko after a Russian aid convoy lumbered into the country without bothering to comply with customs checks. Het impromptu visit sent a clear message to the Kremlin and resulted in the convoy hightailing back across the border. Nine years into her chancellorship and with approval ratings reaching 77% this past summer, Mrs Merkel is far from a spent force in German politics. Her handling of the economic crisis was nothing short of exemplary. Imposing wage restraints from the get-go, her government managed to keep German industry humming throughout the lean years. Though elsewhere in Europe German-imposed fiscal austerity is hampering growth, at home monetary discipline is hailed as a key ingredient to lasting success. However, Mrs Merkel faces growing opposition in Europe. This autumn, both France and Italy will challenge her economic leadership by arguing that the tight fiscal policies Mrs Merkel insists on are counterproductive, destroy social cohesion, and undermine long-term growth. French minister for industrial renewal Arnaud Montebourg called Mrs Merkel’s economic policy both “Kafkaesque” and a “financial absurdity.” He openly called for his government to steer its policy away from Mrs Merkel’s “dictates.” Mr Montebourg’s exceptionally strong-worded criticism of the French government’s austerity drive contributed to the fall of the cabinet on August 25. Mrs Merkel, however, is not one to be easily swayed and sticks to her guns even in the face of overwhelming opposition. As such she is to be admired. Mrs Merkel is not about the flavour of the day, or the path of least resistance. Instead, she takes the long view and argues, quite convincingly, that Europe must put itself on a sound footing if it is to prosper.

“Mrs Merkel is not about the flavour of the day, or the path of least resistance. Instead, she takes the long view and argues, quite convincingly, that Europe must put itself on a sound footing if it is to prosper.” CFI.co | Capital Finance International

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> HERNANDO DE SOTO Unlocking the Riches of the Poor

“Former US president Bill Clinton called him ‘the world’s greatest living economist’, while former United Nations secretarygeneral Kofi Annan concluded that Hernando de Soto is ‘absolutely right’ in rethinking the path of economic development.” Most of the world’s poor may be slightly less destitute than it appears. However, officialdom often unwittingly conspires to keep the modest wealth of the poor – a shack, a building plot, a sewing machine, or marketable skills – locked up by red tape. Peruvian economist Hernando de Soto (73), president of the Institute for Liberty and Democracy (ILD) in Lima and a disciple of Milton Friedman of the Chicago School of Economics, convincingly argues that welcoming the poor into the formal economy by doing away with excessive legislation offers a fast track to increased prosperity for all. In Peru, the ILD helped rewrite legislation aimed at greatly simplifying the registration process of property and businesses thus enabling over 1.2 million families to obtain title deeds to their homes. Close to 400,000 small businesses, previously part of the underground economy, were legalised as well. By drastically reducing the red tape involved in obtaining business licenses, the Peruvian authorities succeeded in shortening the time it takes to register a company from over 40 days to barely 24 hours. Mr De Soto’s novel approach to combatting 136

poverty is even credited with administrating a fatal blow to the Shining Path guerrilla movement through the legalisation of the smallholdings of coca farmers. This deprived the Maoist revolutionaries of safe havens and recruits. The success of Mr Soto’s policy initiatives has since been noted by the World Bank and other multilateral institutions. It has been calculated that worldwide at least $10 trillion in assets belonging to poor people remain excluded from the formal economy and therefore do not enjoy the full protection of the law. Mr De Soto argues that extending legal protection to the owners of these excluded assets gives them powerful tools with which to build a more prosperous future. The Institute for Liberty and Democracy has now assisted 23 countries with proposals to open their economies to the excluded. “A modern market economy cannot function properly when a large group of entrepreneurs remains confined to the margins.” Mr De Soto strongly believes that economic inclusiveness also strengthens democracy: “When voters become stakeholders in a nation’s destiny, they will also start paying more attention to the quality of governance.” Mr De Soto has received lavish praise for his CFI.co | Capital Finance International

research on the mechanism of upward mobility. Former US president Bill Clinton called him “the world’s greatest living economist”, while former United Nations secretary-general Kofi Annan concluded that Hernando de Soto is “absolutely right” in rethinking the path of economic development. Critics have drawn attention to De Soto’s heavy reliance on neo-liberal policies that have at times been proven disastrous when applied to emerging markets. RG Rossini and JJ Thomas of the London School of Economics have questioned the validity of De Soto’s statistical data and suspect their Peruvian colleague has grossly overstated the amount of wealth locked away in the informal economy. Still, in Peru and elsewhere, Mr De Soto’s approach did result in millions of people gaining access to credit and banking, the courts, subsidies, and other business services. Countless others went from being just plain destitute to become home- or landowners. With his common-sense policy recipes, Mr De Soto has delivered rays of hope and official recognition to people formerly outside the scope of economic life.

Autumn 2014 Issue

> WOLE SOYINKA A Literary Thorn in the Side of Power As religious fanaticism increases, “the scroll of faith becomes indistinguishable from the roll call of death.” Nigerian poet and playwright Wole Soyinka (80) spoke out firmly against faithinspired violence in a video address delivered at the World Humanist Congress – a triennial event organised by the International Humanist and Ethical Union. Mr Soyinka warned that even moderate religious leaders may be “vicariously liable” for sectarian violence in case they fail to unequivocally condemn it. “The conflict between humanists and religionists has always been one between the torch of enlightenment and the chains of enslavement,” said Mr Soyinka. “Those chains are not merely visible, but cruelly palpable. All too often they lead directly to the gallows, beheadings, to death under a hail of stones.” Mr Soyinka has dedicated his life to hold usurpers to account. He still uses the might of his pen to fight those who claim to know, or have access to, the indisputable truth. All too often, Mr Soyinka’s literary antidotes to the absolutism of the powerful brought severe discomfort to both the playwright and his subjects. In 1967 he was arrested and thrown into prison by Nigeria’s military rulers for meeting with the leader of the breakaway Biafra Province in an attempt to avert civil war. Mr Soyinka remained behind bars for 22 months and during this time produced a number of plays and poems. In 1986, Mr Soyinka became the first African to be awarded the Nobel Prize for Literature. However, the worldwide recognition that followed did not shield him from further persecution in his homeland. Toward the end of 1994, Mr Soyinka had to flee Nigeria on a motorcycle via the porous border with Benin when General Sani Abacha, the dictator of the moment, took note of his critical writings. The Nigerian junta eventually levelled charges of treason against Mr Soyinka and had him condemned to death in absentia. However, by now the playwright had settled safely in the United States where he was welcomed at Cornell University. The power-hungry Nigerian generals were not the only ones to fall foul of Mr Soyinka’s unfailingly sharp pen. The Mugabe regime in Zimbabwe was also made to feel the full weight of Mr Soyinka’s reproach as did South Africa’s apartheid rulers. The playwright once famously remarked that “the colour of the foot wearing the oppressive boot is irrelevant.” After civilian rule was restored in 1999, Mr Soyinka returned to Nigeria where he was appointed professor emeritus Obafemi Awolowo University in Ife. He also holds a number of professorships at US and British universities. With a sizeable body of work now spanning over six decades – from plays to essays via novels,

“He still uses the might of his pen to fight those who claim to know, or have access to, the indisputable truth.” memoirs, poetry collections, and short stories – Wole Soyinka has carefully documented in prose the contemporary history of an entire CFI.co | Capital Finance International

continent as it struggles to reconnect with a lost identity and regain the composure shaken by traumatic experience. 137

> GRAÇA MACHEL The Only First Lady of Two Countries

“After her husband’s death, Mrs Machel focused on her humanitarian work for children and refugees. In 1995 she received the prestigious United Nations’ Nansen Medal in recognition for her outstanding service to the cause of displaced persons.” She is the only known woman to have been the first lady of two countries. Graça Machel (68) is, however, best known for her dedication to the plight of refugee children around the world. She gained wide respect as an authority on the subject with her 1996 report for UNICEF – the United Nation’s Children’s Rights and Emergency Relief Organisation – on the impact of armed conflict on minors. Mrs Machel is currently engaged in promoting pan-African unity. Speaking recently in Johannesburg, she concluded that for Africa to live, “the nation state must die.” In her lecture, Mrs Machel argued that a new generation of leaders is called for “to steer the people of the continent beyond the thinking and views of its component parts to a broader one of unity without losing Africa’s great diversity.” Mrs Machel emphasises that a variant of her lecture’s title – that the tribe must die for the nation to live – does not hold true. “In Africa, it’s only Tanzania that has a semblance of cohesion 138

despite its diversity. Africa is much more than French, Portuguese, or English speaking countries. There must be value added in the drive for an African identity.” Graça Machel was born in the Gaza Province of Portuguese East Africa – today’s Mozambique – and attended a series of Methodist mission schools that prepped her for further studies at the University of Lisbon, Portugal. Fully fluent in Portuguese, Spanish, Italian, French, English, German and her native Shangaan language, Graça Machel returned home in 1973 and promptly joined the Mozambique Liberation Front (Frelimo). She also took a job as a teacher. Barely two years later, Graça Machel had become the country’s first post-independence minister for education and culture. That same year, 1975, she married Samora Machel, the socialist revolutionary who headed Frelimo’s struggle for independence against the Portuguese and became the country’s first president. In 1986, President Machel died tragically in a CFI.co | Capital Finance International

plane crash while en route to South Africa. After her husband’s death, Mrs Machel focused on her humanitarian work for children and refugees. In 1995 she received the prestigious United Nations’ Nansen Medal in recognition for her outstanding service to the cause of displaced persons. Through her work, Mrs Machel met and got acquainted with South African president Nelson Mandela whom she married on his 80th birthday on July 18, 1998. That same year, Mrs Machel (who kept her first husband’s surname) was awarded the North-South Prize by the Council of Europe for her efforts at promoting human rights. Currently, Mrs Machel serves as chairperson of the advisory board of the Association of European Parliamentarians for Africa (AWEPA), an entity aimed at furthering parliamentary democracy in Africa. Mrs Machel is also president of the School of Oriental and African Studies at the University of London.

Autumn 2014 Issue

> PJ O’ROURKE One of the Last of the Gonzo Journalists A gonzo-style journalist par excellence, PJ O’Rourke will seldom fail to tackle serious societal issues with sarcastic humour and some well-placed digs at authority. Formerly managing-editor of National Lampoon, an avantgarde US satire magazine published from 1970 to 1998, Mr O’Rourke derives great pleasure from exposing the often petty considerations of high-minded public officials and others happily wielding power for the common good. Taking a cue from – and following closely in the footsteps of – HL Mencken (1880-1956), aka the Sage of Baltimore and the inventor of journalistic satire, Mr O’Rourke does not shun controversy and cultivates a natural tendency to rub against the grain. Writing for Rolling Stone magazine (home to “All the News that Fits”), he lashed out equally hard at Bill Clinton as he did at George Bush the Elder. A self-described libertarian and most definitely a contrarian, Mr O’Rourke possesses a quality not often seen in contemporary journalism: Scepticism coupled to irreverence. The mighty are not to be taken too seriously; their antics deserve exposure; and their lofty ideals merit close scrutiny for signs of hypocrisy. PJ O’Rourke on Bill Clinton: “Bill Clinton is not a hypocrite. If a man believes that it is just and moral to redistribute wealth, there is nothing hypocritical in his attempts to redistribute some of that wealth to himself.” On the Obama Administration: “The good news is that, according to the Obama Administration, the rich will pay for everything. The bad news is that, according to the Obama Administration, you’re rich.” And finally, for good measure, on Attila the Hun: “Fifth-century Hunnish depredations on the Roman Empire were the work of an overpowerful executive pursuing a policy of economic redistribution in an atmosphere of permissive social mores.” This is the stuff the Stephen Colberts and Jon Stewards of today grew up on. It is how they honed their skills. Alas, PJ O’Rourke’s pupils have yet to exceed their teacher in acerbic excellence. Mr O’Rourke belongs to the informal triad of Gonzo Greats with Tom Wolfe (The Kandy-Kolored Tangerine-Flake Streamline Baby) and Hunter S Thompson, deceased in 2005 (Fear and Loathing in Las Vegas). These three journalists were the last of a great generation from a now largely bygone era when reporting still required literary skill, wit and powers of observation stretching to well beyond the obvious. Over the course of his career, Mr O’Rourke also published sixteen books of which two topped The New York Times’ bestseller list for weeks on end. His most famous work is A Parliament of Whores which carries the inimitable subtitle “A Lone Humourist Attempts to Explain the Entire

“A self-described libertarian and most definitely a contrarian, Mr O’Rourke possesses a quality not often seen in contemporary journalism: Scepticism coupled to irreverence.” US Government.” More recently, ever watchful American conservatives have claimed Mr O’Rourke as one of their own for his unrelenting criticism of President Obama. They sorely miss the point of PJ’s writing. Mr O’Rourke and the few true journalists left will always criticise those CFI.co | Capital Finance International

in power as a matter of professional duty and courtesy. In that sense he is no different from, say, the Argentine rebel Che Guevara: “Is there a government here? If so, I’m against.” Rebellion in stylish writing is now becoming a lost art. It is being kept alive by Mr O’Rourke and a select few others. 139

> JOANNA LUMLEY Nepal’s National Treasure “Having one of Britain’s most recognised voices, Mrs Lumley also established a successful parallel career as a voice-over artist and narrator.”

Considered a “national treasure” in Nepal for her support of the Gurkha Justice Campaign, Joanna Lumley has few if any qualms when it comes to using her fame to promote good causes. As a highprofile activist, she backs Survival International in its quest to protect the right of indigenous tribal people and Compassion in World Farming, an animal welfare organisation that opposes factory farming and the export of live animals. Best known for her commanding presence on the silver screen – most recently opposite Leonardo DiCaprio in Martin Scorsese’s drama of high finance The Wolf of Wall Street – Mrs 140

Lumley has over time become somewhat of a Jill-of-all-trades. She is currently the driving force behind the 367-metre long Garden Bridge which is to span the River Thames near Temple Station, London. Mrs Lumley conceived the project in 1998. It calls for a wide pedestrian bridge lined with trees and is to feature a number of gardens. Though the cost has risen to over £170m – with £30m pledged by Mayor Boris Johnson and another £30m promised by HM Treasury – Mrs Lumley fully expects the unique bridge to be completed by 2018. It is already CFI.co | Capital Finance International

slated to become yet another London tourist attraction. Throughout her acting career, Mrs Lumley mostly portrayed upper class characters. Aided by her distinctive voice, she made Purdey – a deceitfully charming spy working for British intelligence in The New Avengers (1976-77) – into a household name. With Nadine Garner, she starred in the 1994 television drama A Class Act playing the part of a classy lady down on her luck. More recently, Mrs Lumley has turned her attention to documentaries, travelling up the Nile from the Mediterranean Sea to its source in Rwanda, visiting the sites of classical Greece, and searching for Noah’s Ark across three continents. Having one of Britain’s most recognised voices, Mrs Lumley also established a successful parallel career as a voice-over artist and narrator. Mrs Lumley was born in Srinagar in the princely state of Kashmir and Jammu, then part of British India. Her father served as a major with the 6th Gurkha Rifles. In 1947, after India gained independence, the family moved to Kent, England. At age sixteen, Joanna Lumley applied for a spot at the Royal Academy of Dramatic Art but was turned down. She became a model instead. Even lacking a drama school degree, Joanna Lumley managed to break into acting landing her first role in 1966 on the Bruce Forsyth Show. Three years later she already appeared as a Bond girl in On Her Majesty’s Secret Service. After a distinguished acting career spanning four decades, Mrs Lumley today dedicates a fair chunk of her time to charity and political action. She supports the fledgling Green Party of England and Wales in its attempts to gain a seat in parliament and is an advocate of the exiled government of Tibet. Mrs Lumley is a patron of multiple charities and is deemed to be one of the 100 most influential women in the United Kingdom by the BBC Radio 4 programme Woman’s Hour.

Autumn 2014 Issue

> FRANS TIMMERMANS A Knowledgeable Pragmatist He is rather unassuming and speaks softly without carrying a big stick. Dutch foreign affairs minister Frans Timmermans, however, has put his small country back on the world map after his predecessors beat a retreat to behind the dikes and levees of narrow nationalism. While The Netherlands has historically punched above its apparent weight on the global stage, over the past decade the country veered away from long-standing internationalist policies to concentrate on furthering short-term national interests. Cooperation and consensus were replaced with obstruction and stubbornness. The change did not pay off. Within the European Union, Dutch representatives gained a reputation for blocking even meaningful initiatives – often out of ill-defined spite – and seeking confrontation over the most minute of legislative or procedural details. The EU mostly ignored the quarrelsome Dutch. The Netherlands also lost its observer status at G20 meetings, a loss particularly painful since the country’s GDP (nominal) – the 17th largest globally – would seem to warrant inclusion. Mr Timmermans has now reverted to a more pragmatic set of policies that aims to undo the damage wrought. In the aftermath of the air disaster with Malaysian Airlines Flight MH17, in which 194 Dutch lost their lives, Mr Timmermans managed to formulate a dignified response which culminated in an emotional yet well-balanced speech at the United Nations General Assembly in New York. The speech was watched over a million times on YouTube and drew wide applause from all corners. By claiming the moral high ground, Mr Timmermans was able to keep heads cool and obtain tangible results such as the return of the remains and the belongings of those who perished. In the process, he gave Dutch foreign policy a face of balance and reason. This newfound equilibrium should pay off handsomely in Europe where The Netherlands may now resume its natural role as a bridge between the all-powerful Berlin-Paris axis and the recalcitrant British who never seem to tire of kicking against the EU edifice. In The Hague, London may now again find a natural ally that tempers emotions and gets results. For all his modesty, Mr Timmermans has a commanding presence: He is fully fluent nine languages, is a classicist at heart, and knows European history inside out. He is a voice of reason in turbulent times when shouting seems the norm.

A member of the Labour Party and a former career diplomat, Mr Timmermans is an expert on European integration. At the time the Treaty of Lisbon was being put together (2007), he successfully lobbied for a greater role of national parliaments in the European decision-making

process. A firm believer in the concept of a united Europe, Mr Timmermans recognises the need for a more transparent and democratic European Union. He just doesn’t think this goal can be attained by hacking away at the EU’s foundations and proposes a slightly more constructive approach.

“For all his modesty, Mr Timmermans has a commanding presence: He is fully fluent nine languages, is a classicist by heart, and knows European history inside out.” CFI.co | Capital Finance International

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> MO FARAH Running for Fun, Profit and Charity

“Now firmly established as Britain’s greatest runner of all time, and one of the world’s best to boot, Mo Farah has turned his attention to helping others.”

Mo Farah runs for his life. It is what he does and he is pretty good at it too. On the 10,000 and 5,000 metres, Mo Farah is the Olympic, world and European champion. He runs in a great number of other competitions as well and has recently taken to marathons and cross-country. If there is a track, Mr Farah will start running. Though born in Somalia and living in the United States, Mo Farah is now a British runner. He received a CBE (Commander of the Order of the British Empire) in 2013 and was twice voted European Athlete of the Year (in 2011 and 2012). His recent move to Oregon was 142

inspired by his coach Alberto Salazar who seeks to impose a more energy-saving running style on his pupil. Once safely in the US, Mr Farah admitted to running from the tabloids as well. Identified as a gifted athlete at age nine by his physical education teacher at London’s Feltham Community College, young Mo Farah initially dreamt of a football career with Arsenal. Plan B saw him becoming a car mechanic. However, Mo Farah’s life was to run a different course. After joining the Borough of Hounslow Athletics Club at the prodding of his teacher, Mo Farah soon started claiming titles on the track. CFI.co | Capital Finance International

In 2001, Mr Farah won his first major title on the 5,000 metres at the European Athletics Junior Championship. Over the next decade, Mo Farah trained with, and learned from, the world’s best. He moved in with a group of Kenyan runners that included the 10,000 metre world champion Micah Kogo. These athletes not only provided plenty of inspiration, they spurred Mo Farah on as well. Now firmly established as Britain’s greatest runner of all time, and one of the world’s best to boot, Mo Farah has turned his attention to helping others. With the well-funded Mo Farah Foundation, he aims to help alleviate poverty and improve health conditions both in Britain and the Horn of Africa. In Somalia and Kenya, the foundation is particularly focused on easing the plight of people displaced by internal strife and droughts. In the UK, the Mo Farah Foundation aims to help young people from deprived backgrounds find opportunity through sports or otherwise. Contrary to many of his peers, Mo Farah does not shun politics and joined a recent campaign to urge the UK government to clamp down on British multinational companies that actively avoid paying taxes in the struggling emerging markets they operate in and take profit from. He has also repeatedly spoken out against profiling by US immigration agents who detain him frequently for extensive questioning, a treatment apparently stemming only from having a first name deemed suspicious: Mohamed. Still, profiled or not, Mo Farah keeps running. Odds are that he is not even close to the ultimate finish line. Even at 31, his career on the track seems only to have just started.

Autumn 2014 Issue

> STEPHANIE KELTON No Limits to Government Spending?

Stephanie Kelton is one of a select few brave economists who steadfastly refuse to pay homage to the Balanced Budget Gods. She simply does not see budget deficits and mounting government debt as an issue.

Ms Kelton asserts that, as the only issuer of dollars, the US government can always meet its dollar-denominated obligations by issuing more currency. The real question is whether the nation can be productive enough for the

government to increase the money supply without causing inflation. “That is the topic we should be debating,” says Ms Kelton. As a regular guest on television talk shows, Ms Kelton tries to battle, as best she can, monetary orthodoxy and the ingrained notions that it espouses. She laments the social pain inflicted by those who set economic policy without regard for the human element. As a leading exponent of Modern Monetary Theory (MMT), Ms Kelton holds that the term “government borrowing” is a serious misnomer: “Currency is but an admission of debt by the issuing party, i.e. the government which cannot very well borrow back its own debt instruments. Governments go into debt by issuing liabilities. These then become financial wealth to the private sector.” MMT economists take the concept of fiat money – a currency that derives its value from government regulation or law – to its logical, albeit extreme, conclusion. Since the value of a fiat currency is not determined by outside factors such as gold there are few limits to its supply. Ms Kelton goes as far as to argue that governments should do away with involuntary unemployment altogether by offering job guarantees in order to achieve price stability via a large buffer of labour. Current policy keeps unemployment at relatively high levels in order to prevent wage-induced inflationary pressures as per the recipes of Ms Kelton’s nemesis Milton Friedman. For many schools of economic thought, MMT is just too far “out there.” Nobel laureate Paul Krugman, a New Keynesian economist, has stated that underestimating the inflationary implications of large budget deficits seems “unwise.” The Austrian School is also not impressed. Economist Robert Murphy recently stated: “The MMT worldview just doesn’t seem to live up to its promises.” Curiously enough, no economist has so far succeeded in undermining convincingly the solidly documented and reasoned arguments presented by Ms Kelton and her fellow MMT champions. While her proposals may at times sound rather fantastic and too good to be true, there is an iron logic to them that may, if anything, eventually contribute to the demise of fiat currency as such. For this emperor has indeed few if any clothes.

“Ms Kelton goes as far as to argue that governments should do away with involuntary unemployment altogether by offering job guarantees in order to achieve price stability via a large buffer of labour.” CFI.co | Capital Finance International

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> Latin America:

Reaching the First Millennium Development Goal Ahead of Time Latin America may be the region with the world’s greatest income disparities; it also has the largest number of countries that reached the first of eight Millennium Development Goals – to halve the number of undernourished people. The United Nations’ Food and Agriculture Organisation (FAO) noted in its 2014 report on the global state of food insecurity that under-nutrition in Latin America now affects 6.1% of the population as compared to 15.3% in 1992.

Rio de Janeiro

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he FAO report singles out the policies adopted by Brazil and Bolivia as examples of how to effectively combat poverty. “Brazil has been working steadily for years to eradicate food insecurity,” says Raúl Benítez, the FAO representative for Latin America.

“While some 21 million Brazilians remain mired in abject poverty, the number is steadily decreasing as the country moves up on the Human Development Index.”

Over the course of its 11 year existence, the Bolsa Familia stipend, introduced in 2003 under the aegis of the Zero Hunger Programme, has reduced the number of malnourished people by over 82%. According to the Switzerlandbased International Social Security Association, Bolsa Familia is now the world’s largest cash transfer scheme with a cost of slightly over 0.5% of Brazil’s GDP – about $10.7bn annually.

HDI Report as compiled by the United Nations Development Programme (UNDP), Brazil can now claim the 79th place of the 187 countries listed.

Close to 14 million families, equivalent to over fifty million people, receive monthly pay outs as long as children are regularly vaccinated against common diseases and are kept in school. While some 21 million Brazilians remain mired in abject poverty, the number is steadily decreasing as the country moves up on the Human Development Index (HDI). In the 2014

Though still lagging far behind Chile (41), Cuba (44), Argentina (49), and Uruguay (50), Andréa Bolzon – who coordinates the Atlas of Human Development in Brazil – says that the strides made by Brazil over the past twenty or so years may be ascribed to “the implementation of solid policies such as an increased minimum wage, affirmative action that reduced racial inequality,

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boosts to employment levels, and the Bolsa Familia itself.” Over the last three decades, Brazil increased its HDI value by almost 35%. Life expectancy was raised from 63 years in 1980 to 74 years now. While children attended on average barely three years of formal schooling in the early 1980s, today Brazilian kids receive more than seven years of classroom education. According to the UNDP representative in Brasília, Jorge Chediek, Brazil is the country whose human development index has most improved over the last thirty years. All the same, the gap between rich and poor remains remarkably large. Further investments in education and health services are called for. “Quality public services have a great impact on other important indicators and invariably add to a reduction of inequality,” says Ms Bolzon. “Being the most unequal part of the planet has posed additional challenges,” says FAO representative Raúl Benítez. “Governments of the region have concluded that economic growth

Autumn 2014 Issue Ecuador: Basilica Cathedral of Quito

alone is not going to resolve the problems. They have now implemented, in parallel, two kinds of policies: on the one hand they have made the economy grow, while on the other they support the most vulnerable segments of society.” Latin America and the Caribbean was the first region to fully commit to the zero hunger target by adopting the Hunger-Free Latin America and Caribbean Initiative 2025. Contrary to other lofty ideals and ambitious supranational programmes, this undertaking actually took hold with governments embracing similar strategies aimed at reaching specific targets. As a result, fourteen countries in the region met its first Millennium Development Goals a full year ahead of time. The last one to do so was Dominica. Four more countries are expected to have halved the number of undernourished people by next year: Bolivia, Colombia, Ecuador, and Honduras. However, pockets of destitution and food insecurity remain. Rural women and indigenous populations are often six times as likely to suffer extreme poverty as others. These historically marginalised groups are often hardest to reach.

Bolivia and Ecuador are cited in the FAO report on food security as models of an inclusive approach to fighting malnutrition. It can be the tiniest of details that ends up making the biggest difference. By giving smallscale farmers in the Bolivian Andes highlands access to better quality seed, productivity went through the roof. It took just one crop cycle to significantly reduce malnourishment and poverty levels. “Bolivia has established processes and institutions that include all of the affected groups, and principally indigenous people who have historically been the most marginalised,” Mr Benítez said. “Above and beyond the specific characteristics and situation of each nation, the Bolivian government’s political commitment to solving the problem contains valuable lessons for others to learn from. It adjusted economic and social policies so that the most vulnerable groups stood to benefit most from them.” Chronic malnutrition among young children was reduced from 42% in 1989 to under 19% CFI.co | Capital Finance International

in 2012. Over the past five years the overall number of Bolivians affected by hunger dropped 7.4%. “The problem of hunger can be solved if the political will to do so is available,” says Mr Benítez. As a region, Latin America is exceptionally well-positioned to becoming the first in the developing world to completely eradicate hunger: It is a continent that produces large food surpluses, most governments in the region are fully committed to the pursuit of pragmatic policies aimed at eradicating poverty, and there is a great deal of regional cooperation. “The challenge is how to accelerate and intensify the process and how to coordinate better in order for the current one to be the last generation of people in Latin America and the Caribbean to coexist with hunger.” Mr Benítez is cautiously optimistic: “Nobody is saying that it is easy or simple, or that a quick-fix can be found. However, when a firm decision has been made to tackle the issue, as is the case, then the results will come and this can already now be seen.” i 147

> World Bank Group:

Can Resource-Financed Infrastructure Fix the Natural Resource Curse? By Håvard Halland, John Beardsworth, Bryan Land, and James Schmidt

ow can resource-rich countries ensure that a sufficiently large share of oil, gas, and mining revenues are used for productive investment rather than excessive or wasteful consumption? “Resource-financed infrastructure” (RFI) contracting is a new contract form that has evolved from experiences in several developing countries. RFI connects government revenues from resource extraction directly to infrastructure investment, thereby countervailing barriers to international capital markets, and bypassing capacity constraints that governments face 148

when required to implement large infrastructure projects. A recent World Bank study, comprising an in-depth look at RFI by global project finance specialists Hunton & Williams LLP, and comments by some of the most internationally respected development economists and policy makers, debates the merits, challenges, and risks of the RFI approach. To maintain wealth and build strong foundations for economic growth, countries need to offset the depletion of their natural resources by investment in produced capital – primarily infrastructure CFI.co | Capital Finance International

and human capital (Hartwick’s rule). However, in countries with weak governance and institutions, the use of government oil, gas, and mining revenues is often heavily tilted towards consumption rather than investment. Following oil or mineral discoveries, as the expectation of increased wealth spreads, pressures to spend typically become hard for politicians to resist: Public sector salaries go through the roof, wasteful spending increases, corruption may flourish, hidden foreign bank accounts may be established, and the number of unproductive “white elephant” projects grows. This type of spending often occurs

Autumn 2014 Issue

despite a desperate need for investment in basic infrastructure including roads, schools, primary health clinics, and the like. In Africa, for instance, estimates indicate that an annual investment of $93 billion is required to address the continent’s basic infrastructure needs – more than double the current level of investment. The lack of productive investment of resource revenues is a critical component of the so-called resource curse: The observation that countries rich in natural resources frequently have slow long-term growth. THE RELEVANCE OF RFI How is RFI relevant in this context? In recent decades, developing countries have started using access to their natural resources as collateral to realize other investments, countervailing the barriers they face when accessing conventional bank lending and capital markets. One result has been the type of oil-backed lending practices pioneered by Standard Chartered Bank, BNP Paribas, Commerzbank, and others in Angola in the 1990s. More recently there have been several sovereign bond issuances explicitly or implicitly backed by future resource revenues. Third, there have been packaged transactions, here referred to as early RFI deals, whereby access to oil or minerals has been exchanged for current infrastructure construction. Like oil-backed lending, RFI deals were pioneered in Angola. China ExIm Bank started offering this type of contract in 2004, and RFI type deals became a main vehicle for financing Angola’s post-war reconstruction. Early versions of the RFI mode of contracting were later used in several other African countries – predominantly by Chinese banks, including China Development Bank, but recently also by Korea Exim Bank for the Musoshi mine project in the Democratic Republic of Congo (DRC). According to Korea ExIm Bank (2011), “the [Korean version of the RFI] model was strategically developed to increase Korea’s competitiveness against countries which have already advanced into the promising market of Africa. This agreement is the first application of the model.”

“To maintain wealth and build strong foundations for economic growth, countries need to offset the depletion of their natural resources by investment in produced capital – primarily infrastructure and human capital (Hartwick’s rule).” CFI.co | Capital Finance International

Western mining companies commonly offer infrastructure as part of the compensation package, although this is usually a small part of the contract value and tends to address local infrastructure needs in the vicinity of the mine. In some cases, the value of the resources committed has been used as the basis for valuing the infrastructure package offered. In other cases, the basis for the valuation of the resource and infrastructure exchange, and the role of additional forms of compensation, is less clear. Back-of-theenvelope estimates based on publicly available information indicate the value of signed earlyRFI type of contracts in Africa to be at least $30 billion, although it is unclear how many of these contracts have been fully implemented. The RFI approach seeks to formalize the relationship between (a) the government’s future revenue stream from the resource component, and (b) a non-recourse loan, from the resource 149

developer’s lender or another financial institution, to the government for the purchase of infrastructure. The loan is paid down with the committed future government revenues from the oil or mineral extraction. Loan disbursements for the infrastructure component are paid directly to the construction company to cover construction costs, and could also be used to pay operating expenses of the infrastructure (e.g., the operating costs of a health clinic, or maintenance of a road) for some period. Instead of receiving future taxes and royalties from the oil or mining company, the government receives, in exchange for a commitment of those revenues, completed infrastructure, such as power plants, railways, roads, information and communication technology (ICT) projects, schools and hospitals, or water works. The RFI contracting process can, as described in the World Bank study, be understood as a combination of the traditional resource exploration and production licensing process, which should be according to international best practice, and a combination of one or more traditional infrastructure acquisition processes – from direct government purchasing through to public-private partnership relationships. As such, the beginning of an RFI transaction would be the undertaking of exploration activities by resource developers, and a government study to identify the infrastructure investments that would most improve economic growth or social welfare in the short term. Just as in any other contracting processes for resource development and infrastructure acquisition, adequate due diligence by all parties is required, including 150

by the host government, for the identification of quality contractors, definition of technical specifications to assure contracting of appropriate infrastructure, and construction monitoring to assure quality delivery. The key to RFI, as discussed in the World Bank study, is creating the non-recourse link, by a special loan mechanism, between the committed future resource revenues and the current infrastructure financing. POSSIBLY THE BEST OPTION One reason that early RFI deals have been seen as attractive by governments may be that the RFI type of transaction is perceived as an opportunity to provide fast returns to citizens while decision makers are still in office. Since mines and oil fields take a long time to develop, the infrastructure could be in use long before the extractive project is generating revenue or turning a profit. In his contribution to the World Bank study, Paul Collier argues that, although by conventional principles RFI is undesirable because it reduces future fiscal flexibility, it might be the best option available to lock in infrastructure investment in contexts with weak public administration capacity and procurement systems. In that sense, RFI represents a commitment mechanism, enabling ministers to ensure that future decision makers devote a sensible proportion of resource revenues to the accumulation of assets. By the same token, Alan Gelb argues that RFI may reduce the risk of revenues from extractives either failing to be included in the national budget or, if included, being wasted or stolen. Similarly, as Justin Lin CFI.co | Capital Finance International

and Yan Wang point out in their contribution to the study, RFI may also reduce the risk of capital flight. RFI may furthermore limit the ability of a government to raid resource revenues accumulated in a sovereign wealth fund by a more responsible prior government. Conversely, oil-backed lending or resource-backed sovereign bond issuance do not offer this commitment mechanism. RISKS AND CHALLENGES Despite its potential benefits, RFI also brings significant risks and challenges. Early deals approximating an RFI structure have generally been concluded on a non-competitive basis, with little transparency or attention to structuring the transaction as a true financing model. This has brought up questions related to the valuation of the deals – how much infrastructure now for a certain amount of oil or minerals in the future? In a mature RFI model, as addressed in the World Bank study, this question is dealt with explicitly, since the committed resource revenues are used to pay off a loan, and additional taxes and royalties are then paid directly to the government once the loan has been repaid. There have also been concerns with regard to the quality of the completed infrastructure, as well as regarding capacity for operation and maintenance – issues that in a mature RFI deal should be addressed through careful contracting, due diligence exercises, independent third-party construction supervision, and potentially by creating a public-private partnership for the infrastructure construction and operation components. Lin, Wang and Louis Wells point out that not only

Autumn 2014 Issue

governments but also the private sector partners to RFI deals take on a significant amount of risk since, once the infrastructure has been completed, there may be an incentive for the government (or a future government) to renege on the contract. To reduce investor risk, an element of official or semi-official concessional finance has been a standard component of the early RFI deals. Collier argues that if bilateral donors were to team up with their national resource and construction companies to bring more RFI deals to the market, the value of the deals could be determined through competition. Gelb suggests that concessional financing arrangements could take the form of interest rate buy-down or partial risk guarantees against the host-country government reneging on the agreement. Clare Short is joined by others in asserting that contract transparency is fundamental to reducing the risks of RFI contracting, as with other types of oil and mineral contracts. The World Bank study suggests issues for governments, lenders, and other stakeholders to consider and address when contemplating an RFI structure for a transaction. A FIX FOR THE RESOURCE CURSE? So, can RFI contracting contribute to fixing the resource curse? Contributors to the World Bank study argue that “it depends.” As Wells points out, RFI deals should be evaluated like any other business arrangement, and carefully compared to alternative ways of obtaining returns from natural resources or financing infrastructure. Understood in that way, and with appropriate safeguards and procedures for implementation, RFI contracting may have the potential to be an important tool for countries struggling to escape that old curse. i

ABOUT THE AUTHORS Håvard Halland is a natural resource economist at the World Bank, where he leads research and policy agendas in the fields of resource-backed infrastructure finance, sovereign wealth fund policy, extractives revenue management, and public financial management for the extractives sector. Prior to joining the World Bank, he was a delegate and program manager for the International Committee of the Red Cross (ICRC) in the Democratic Republic of the Congo and Colombia. He holds a PhD in economics from the University of Cambridge. John J Beardsworth, Jr, is head of the business practice group of the international law firm Hunton & Williams LLP and a member of the firm’s Executive Committee. With more than 30 years of experience, he focuses his practice on resource development, energy and infrastructure transactions, and project finance. Mr Beardsworth has extensive experience in restructuring and privatizing infrastructure enterprises, and in the development, financing, and construction of resource- and infrastructurerelated assets. He is recognized for his longstanding practice in Africa. Mr Beardsworth earned a JD with honours from the George Washington University Law School in 1979 and a BA from the University of Pennsylvania, magna cum laude, in 1975.

the Commonwealth Secretariat’s program on natural resource management. Previously he was at extractive industry consulting houses IHS Energy and CRU International and also spent three years in Papua New Guinea in the Department of Minerals and Energy. Mr Land earned a bachelor’s degree in economics from the London School of Economics and master’s degrees in international affairs and natural resources law from Columbia University and Dundee University, respectively. James A Schmidt is counsel with the international law firm of Hunton & Williams LLP. With more than 25 years of experience, Mr Schmidt focuses on electric sector restructuring and market design, creating legislative and regulatory frameworks, developing independent regulatory agencies, and negotiating infrastructure projects for private developers, governments and their utilities, and publicprivate partnerships. He served as lead attorney for energy and regulatory reform matters in the legal department of the World Bank between 1996 and 1998. He was also a law clerk for the US Court of Appeals for the Fourth Circuit between 1986 and 1989. Mr Schmidt earned a JD from the University of Wisconsin Law School in 1986 and a BA from Lawrence University in 1983.

Bryan C Land is a lead mining specialist at the World Bank and has been developing the bank’s research into the opportunities and challenges faced by resource-rich African countries. Prior to joining the World Bank, Mr Land led CFI.co | Capital Finance International

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> Luxury Living:

Coco Chanel - Pioneer of Industrial Design

he little black dress. Jersey knit. Practical, elegant women’s suits. Jackie’s blood stained pink outfit. Marilyn Monroe, Catherine DeNeuve, and No. 5.

These bring to mind an iconography that points directly to Gabrielle “Coco” Chanel (18831971). With that name, the icons associated with her work have stalled before the opprobrium

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of personal profligacy, anti-Semitism, and Nazi complicity. Nevertheless, Coco Chanel’s legacy – salacious obsessions aside – ignores the reality of her conscious desire to use the world of fashion as a stage for industrial design.

aesthetics and utility within economies of scale and mass production. It bloomed fully in the obliteration of social illusions after World War I. Chanel, finding herself at the right place and time, was able systematically to marshal the values of industrial design to a singular concern: an elegant, liberating simplicity for women.

Industrial design, pared down, is the recognition of the need for people to benefit from both

The Metropolitan Museum of Art, while focusing on her contribution to fashion, gives

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the perfect summation of Coco Chanel the industrial designer when it observes: “Chanel succeeded in packaging and marketing her own personal attitudes and style, making her a key arbiter of women’s taste throughout the twentieth century.” Chanel’s ambivalence to the stereotypes of femininity, and her commitment to an elegance rooted in comfort and simplicity, first came to the fore with her use of jersey knit. It was inexpensive, lightweight and flowing. These qualities – despite the fact that it was most commonly used for men’s underwear – allowed her to explore the idea that fashion could be subjected to an economy of scale and, paradoxically, bring out the individuality of the wearer. LBD Her development of the “little black dress” in the 1920s has proven this philosophy. Made of different materials, its simultaneous simplicity and elegance as the working woman’s uniform has stood the test of time. Even as the “LBD” is worn by countless women, their individuality is accentuated, not hidden, like coveralls in a men’s workforce. It is as though she were, nearly a century ago, prescient of the multifaceted needs of working women in our time, clothing that could stand the rigours of daily professional life, whilst complementing the evening when necessary.

“Nevertheless, Coco Chanel’s legacy – salacious obsessions aside – ignores the reality of her conscious desire to use the world of fashion as a stage for industrial design.”

It is, however, the development of the most important fragrance of all time – No. 5 – that may serve as the apotheosis of industrial design as a force to bring a sense of the genuine individual through a mass produced product. Ernest Beaux, the perfumer responsible for the fragrance, gave a number of samples to Mlle Chanel; famously she approved the fifth. Whether or not the lines of the stopper, “cut like a diamond”, was inspired by the geometry of the Place Vendome in Paris is true or part of the revisionist mythologizing begun by Karl Lagerfeld is immaterial. Chanel, by most accounts, was inspired by the vials, which accentuated the liquid inside. She wanted the packaging to be as invisible as possible. This was in stark contrast to the garish design of perfume bottles of the time. Compare No. 5 to its closest analogue, 4711 – the famous eau de Cologne (the number in this case coming from its developer’s address): The bottle is still a vestige of preindustrial mores, peering out at the world from the 18th century in its presentation as a curiosity. 4711 appears to be aware of its antiquated traditionalism; it has adopted the simple lines of Chanel’s sans serif typeface for No. 5 in its advertising. THE POWER OF TYPE That typeface is, perhaps the final proof of her keen sense that all of her work were

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variations on a theme; one of utility, ease of use, and simple elegance. Most researchers have concluded that Chanel had the iconic typeface for No. 5 specifically developed for her by hand. It is notable, however, that two industrial designs of great importance used a similar typeface to give both utility and beauty to the eyes of the masses. In England, the design conscious Frank Pick of London Transport commissioned Edward Johnston to develop a typeface that would standardize the growing underground network of greater London and provide a sense of aesthetic unity at the same time. His pupil, Eric Gill did the same for the British Railway System. Chanel’s typeface is nearly identical, as if she were aware that simplicity and utility would inoculate her from an industry chained to the ephemeral. As for the ubiquity that design on an industrial scale can provide, thousands of US troops took home No. 5 to their wives or girlfriends. Today’s Chanel says that the soldiers flocked to one of the couturier’s several shops on the Rue Cambon; more deliberate researchers contend she gave it away to distract the liberators from her collusion with the enemy. No. 5 is the hub of her design sense, and the epitome of its industrial scale and attraction. So iconic is the bottle that it is in New York’s Museum of Modern Art. In among his last pop art silkscreens, Warhol gave it his own iconic treatment. ELEGANT UTILITY All told, Chanel’s approach was not one of fashion, but elegant utility, always in vogue, and always accessible to the public imagination; not through hype, but through beauty, sensibility, and simplicity. In many ways, she is the pioneer of the uses of industrial design as seen in individuals such as Steve Jobs, whose Apple line of technology shares many similarities in ideal and approach to that of Coco. And like the often irascible, impatient Jobs, Chanel was determined to give to the modern, industrial world what she knew they would both use, and appreciate. When industrial design reaches so many, it has achieved its aim. Like Apple, however, the acuity of this vision has often been under attack. The multiplication of fragrances, the use of Brad Pitt to sell No. 5, and Lagerfeld’s selfreferential toying with the Chanel typeface has exposed it – like Job’s temporary and permanent departure with his creation – to an uncertain future. Will the spirit of Coco Chanel’s singular concentration survive the distractions of change for change’s sake? This will depend upon whether or not her own creation can understand the difference of the fashion world’s priorities and that of its namesake. i

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> National Commercial Bank:

Empowering SMEs to Provide Growth National Commercial Bank Jamaica Limited (NCB) is proud to be named Best SME Bank Caribbean 2014 by internationally-acclaimed Capital Finance International. The win highlights the bank as a globally recognized top performer committed to the growth and development of Small and Medium Enterprises, and affirms our work with the sector as part of our responsibility to nation-building.

ational Commercial Bank Jamaica Limited (NCB) is the largest banking group in Jamaica, offering its customers a diversified and unique suite of products and services, an extensive branch network and a convenient e-banking platform. Operating under the strategic brand pillars of innovation, expertise and strength, the bank contributes significantly to national development supported by technological advancement and innovation. NCB offers a range of highly competitive products to meet the needs of clients including chequing and savings accounts, personal and business credit card facilities, personal and commercial loans, insurance and wealth management services. The bank’s offerings are supported by internet banking (www.jncb.com), telephone banking featuring a toll-free 24/7 customer care centre, and the newly introduced Bank on the Go for self-service convenience. NCB also operates an island-wide network of over 170 ATMs. As part of NCB’s commitment to deliver sustainable returns to all stakeholders, and as a fundamental aspect of its growth strategy, the bank continues to leverage the benefits derived from a diversified business model. NCB also continuously strives to diversify its assets and risks through mergers and acquisitions both locally and within the wider region. This allows the bank to deliver the ultimate customer experience combining security, convenience and flexibility. CRITICAL ELEMENT The small and medium enterprise (SME) sector represents a critical element of economic activity for Jamaica as it does for many economies across the world. An authentic plan for wealth creation, and thus for national and international

“As part of NCB’s commitment to deliver sustainable returns to all stakeholders, and as a fundamental aspect of its growth strategy, the bank continues to leverage the benefits derived from a diversified business model.” development, necessitates a strategy that fosters the growth of SMEs. Research shows that globally SMEs on average account for over 90% of industrial activity and fully half of national incomes. It is widely accepted that the small business sector has the potential to create employment, reduce income disparity and contribute significantly to economic growth and development. SMEs are also considered an incubator for the development of entrepreneurial skills across all economic groups. NCB was the first to launch an SME Unit in Jamaica in 2004. The move was calculated to ensure that entrepreneurs receive the support and training needed to boost their businesses and careers. As part of its long-term dedication to nation-building, the bank focuses its attention on small and medium-sized businesses by creating events that serve as a platform for the sector. This enables business owners to explore opportunities, learn cutting-edge market trends, establish contacts, enhance export/import networks, exchange views and ideas, and display products and services.

The technical agreement signed in 2013 between NCB and the Inter-American Development Bank represents one of these initiatives. This four year deal will deliver on the overall goals of (a) increased financing to small enterprise segments that drive economic growth and (b) strengthen NCB’s capacity to significantly increase lending and financial services to the sector. Qualified beneficiaries will enjoy access to a pool of funds at attractive interest rates. Selected businesses will be able to explore non-traditional funding by “pitching” for financing from bankers, angel investors and venture capitalists through a concept dubbed Capital Quest. The concept is similar to that of the United Kingdom’s Dragon’s Den. Further objectives targeted under the agreement are: The development of a credit scoring system, capacity building, technical assistance and the development of communication and knowledge management within the sector. The bank’s stake in this project runs in excess of 60% of its overall cost. The potential of SMEs to promote domesticled growth in new and existing industries, and their ability to strengthen the resilience of the economy in a competitive and challenging environment, is enormous. SMEs serve as an impetus for economic diversification through the development of new and unsaturated sectors of the economy. In addition, innovative and technology-based SMEs provide an interesting platform for expanding outside of domestic borders, entering intra-regional and international markets. ENORMOUS POTENTIAL As part of its commitment to empowering SMEs, NCB established the Nation Builder Awards – now in its seventh year – to recognize, celebrate and promote entrepreneurship. Additionally,

“The potential of SMEs to promote domestic-led growth in new and existing industries, and their ability to strengthen the resilience of the economy in a competitive and challenging environment, is enormous.” 154

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“National Commercial Bank Jamaica Limited wants to help these enterprising people, especially those who already run a business and may only need a little guidance and training.” women business owners are specially targeted with forums designed to enhance the growth and development of their ventures. These efforts are sustained by a dedicated team of NCB business bankers across the bank’s 35 branches. These experts support and maintain the bank’s business relationships. MAKING DREAMS COME TRUE Many know someone who is a small business owner. It could be the man who is bottling locally-made syrups or roots wines in exotic flavours, or the seamstress who has a vision of owning her own clothing line, or even the young IT graduate who is setting up his/her own virtual empire, providing technological solutions to common problems. They envision starting small, then growing to a medium sized business before launching into the stratosphere as a big business. National Commercial Bank Jamaica Limited wants to help these enterprising people, especially those who already run a business and may only need a little guidance and training. The bank is committed to help entrepreneurs access the training and support they need, because it is fully convinced such an approach will drive national growth. This has traditionally been NCB’s ultimate goal. The SME Unit is strategically designed to facilitate the realisation of the bank’s goals set for the small and medium-sized enterprise sector. NCB offers a wide variety of products and services designed to strengthen and develop small and medium enterprises. NCB professionals take the time to understand the unique operating environment SMEs face and partner with entrepreneurs to offer tailor-made solutions. The bank’s services include business value plans, financing, cash management, business credit cards, merchant services, and electronic banking solutions. NCB will continue to offer unparalleled support in the form of competitive products and excellence in service to its valued business customers as it works to help this vitally important sector. i CFI.co | Capital Finance International

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> CFI.co Meets the MD of National Commercial Bank Jamaica Limited:

Patrick Hylton Patrick Hylton was appointed Group Managing Director of National Commercial Bank Jamaica Limited (NCB), the country’s largest commercial bank, on December 1, 2004. He has led the organization to achieve record growth in profitability over the course of his tenure.

r Hylton joined the bank as Deputy Group Managing Director just two years prior and skilfully set about managing the bank’s investment and insurance subsidiaries. Since taking the helm, Mr Hylton has effectively led the company to attain both domestic and international recognition including Best Commercial Bank, Best Banking Group and Best Investment Management Company. Under his leadership, the bank has diversified its portfolio and expanded into regional markets to become one of the premier banking groups in the region. His ascent to national and international prominence began years earlier when he was appointed a leading role by the government in the restructuring of the Jamaican financial sector during the mid-1990s. The wealth of his experience in all facets of the financial services industry led to him being named managing director of FINSAC (Financial Sector Adjustment Company) for five years, where he had responsibility for the re-structuring and divestment of intervened financial institutions and the acquired assets. His successful completion of that undertaking culminated in the national award of the Order of Distinction (Commander Class) being bestowed on him by the prime minister and governor general of Jamaica in 2002. Mr Hylton’s strategic business acumen and an empathetic, but firm, leadership style are complemented by his academic achievements as an honours graduate in business administration and as an associate of the Chartered Institute of Bankers (ACIB) London. Mr Hylton is a past president of the Jamaica Bankers Association. In addition to being a Director of NCB, he also sits on the oversight committee charged with monitoring the implementation of Jamaica’s programme with the International Monetary Fund (IMF). He also sits on several boards including the Caribbean Information and Credit Rating Services (CariCRIS). In August 2014, Mr Hylton was appointed

MD: Patrick Hylton

chairman of a committee set up by Minister of Education Ronald Thwaites to study medium and long-term funding alternatives for tertiary education in Jamaica. The committee draws its expertise from leaders of the financial sector and universities. Minister Thwaites emphasised the CFI.co | Capital Finance International

committee is needed to find ways to alleviate the pressures on the currently overburdened Student’s Loan Bureau. He is an avid reader and sports enthusiast with track and field holding a special place. i 157

> Asia:

India – Finding the Way Up – All the Way to Mars With the Mumbai Sensex index up 26% so far this year and an economy set to expand by 5.7%, India is the one emerging economy breaking the trend: The country’s performance under the new government of Prime-Minister Narendra Modi, who took office in May, is almost stellar. So is Mr Modi’s way of leading India – the staid and restrained of old have been replaced by flair and punchy one-liners.

Vietnam: Harmandir Sahib

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ate September, Prime-Minister Modi descended on New York and Washington for a visit that may perhaps best be described as a roadshow for India, Inc. Some 18,000 Indians living in the US filled New York’s Madison Square Garden to capacity for a dazzling show with dancers, laser beams, and holograms. However, it was Mr Modi’s name on the marquee and as he took the stage, the crowd went wild. The Indian Prime-Minister delivered a rousing speech, promising that the 21st Century would belong to Asia in general, and India in particular. “Join me in changing our country’s destiny.” Mr Modi knows when to strike out, and when to tone down. Repeatedly asked to unfold his big vision for the country, he merely replies: “I’m just a small man who started out selling tea.” Yet, in New York, Mr Modi was all but small and did present a vision, albeit one devoid of specifics: “To put the light of hope in every eye and the joy of belief in every heart. Lift people out of poverty. Put clean water and sanitation within the reach of all. Make healthcare available to all and a roof over every head.” Interestingly, the Modi government proposes to streamline India’s notoriously cumbersome bureaucracy and allow private business additional leeway without doing away altogether with the state as such. This deregulation without privatisation is aimed at preserving India’s traditional economic values while boosting business dynamics. It could work. During his time in the United States, Mr Modi met with the CEOs of nearly all large US corporations. The message these captains of industry received was a simple one: Expand your footprint in India and reap the rewards. On the diplomatic side, Mr Modi’s visit is meant to allow the Obama Administration to mend fences. USIndia relations soured considerably over incidents that could easily have been avoided. The arrest, strip search, and detainment of the Indian deputy consul-general in the US last year on suspicion of visa fraud was not only a clear violation of diplomatic immunity, it also provoked a vitriolic reaction in India which felt slighted and disrespected – and not without reason. If it is Mr Modi’s aim to restore Indian pride, he has much to thank his predecessor for: Just a week before his arrival in the US, India became the only

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“Pundits were quickly pointing out that the mission’s budget was lower than the 2013 space adventure movie Gravity.” country ever to successfully mount a space mission to Mars on its first try. India’s space agency went to the red planet on the proverbial shoestring: The Mangalyaan mission spent just $74 million to put a satellite into orbit around the planet. Pundits were quickly pointing out that the mission’s budget was lower than the 2013 space adventure movie Gravity. Mangalyaan will detect and analyse traces of methane in Mars’ atmosphere. The presence of methane could indicate the existence of life. The Indian Mars probe complements European and US missions to the planet. The biggest surprise came just moments after the craft was fully deployed – the first pictures sent back to earth had scientists the world over marvel at their unequalled quality. Professor Andrew Coates, the British scientist who is the lead investigator of Europe’s 2018 Mars mission, could barely contain his excitement and called the Mangalyaan mission “brilliantly conceived and executed.” India’s space programme may seem inappropriate to those who argue that a country unable to provide even the most basic of necessities to its population has no business exploring the universe. However, these critics miss the point. The Indian government seems very much aware of the deficiencies in the country’s social fabric and physical infrastructure, but also knows it needs scientists to tackle many of those issues with homegrown – as opposed to imported – solutions. However, interest in science is waning with most middle class families now steering their kids toward careers in law, business, or engineering. The perfectly-timed Mangalyaan mission provided a welcome boost to India’s standing while showcasing that the Indian state – for all its troubles – still contains pockets of remarkable efficiency. It is now up to Prime-Minister Modi to expand these pockets and have them permeate throughout the vast apparatus that administers his country. i

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> NDB Investment Bank:

Top Investment Bank in Sri Lanka

he role of investment banking has become much more significant with the economic revitalization of Sri Lanka. Investment banking has evolved to embrace financial products from mobilising funds in the debt and equity markets, corporate advisory services and facilitating M&A, financial restructuring, valuations to market research. There is a potential for investment banking with the anticipated growth in the global and domestic economy and NDB Investment Bank (NDBIB) is well poised to take advantage of new opportunities available with the range of diverse and innovative products under its wings. Over the years, NDBIB, the local investment banking arm of NDB Bank, has been recognized as the market leader for both debt and equity structuring and placements in Sri Lanka. NDBIB offers a range of debt and equity products and corporate advisory services that is unmatched by any other investment bank in the country. CFI. co adjudged NDBIB as the Best Debt Capital Markets Team Sri Lanka in 2014. The magazine did so in recognition of NDBIBâ&#x20AC;&#x2122;s continuous leadership in debt capital markets. Euromoney Magazine, International Finance Magazine and Global Banking and Finance Review awarded NDBIB Best Investment Bank in Sri Lanka 2014 status for its superior performance. NDBIB raised LKR42bn of funds in 2013 concluding its most successful year to date. Over the past years, NDBIB established a stronghold in listed corporate debentures. It is now the market leader with a market share of over 40% both in terms of number of issues and total funds raised in a fragmented sector with over ten players. NDBIB remained the market leader in the non-banking and financial sector fund raising, maintaining its 80% market share. The largest ever-corporate debenture in Sri Lanka was structured by NDBIB for the ultimate parent, the National Development Bank PLC, recording the highest funds raised in a listed corporate debenture issue in Sri Lanka. In continuing its quest for innovation, NDBIB introduced multiple green-shoe options in the event of an oversubscription for debentures and structured the first ever securitisation of future receivables of broker advances. NDBIB together with its sister company in Bangladesh, NDB Capital Limited, arranged a syndicated loan facility comprising financial institutions both in Sri Lanka and Bangladesh for Lakdhanavi Limited to set up a Heavy Fuel Thermal Power plant in Rajshahi, Bangladesh.

CEO: Darshan Perera

NDBIB was actively engaged in the equity market via private placements and extended advisory services despite the moderation in activity on the CSE (Colombo Stock Exchange) in 2013. Adding to its list of achievements, NDBIB acted as the financial advisor to the largest share repurchase in Sri Lanka on behalf of its parent, NDB Capital Holdings PLC. NDBIB was also the financial advisor to Hemas Manufacturing (Pvt) Limitedâ&#x20AC;&#x2122;s acquisition of a 72% stake in JL Morison Sons & Jones (Ceylon) PLC where NDBIB advised and acted as the manager to the mandatory offer and the voluntary offer arising from the acquisition. Further, NDBIB carried out several corporate restructuring transactions and numerous valuation exercises for both listed and unlisted companies from a diverse range of industries including hotels, trading, manufacturing and hydropower while catering to a wide array of needs and aspirations of its valued clientele. NDBIB thrives on the professional expertise of its team comprising highly qualified individuals CFI.co | Capital Finance International

with multi-disciplinary backgrounds. The corporate culture of NDBIB is ingrained with the highest ethical standards that have honesty and integrity as its hallmarks. NDBIB adheres to strict corporate governance, transparency and ethical guidelines and adheres to the CFA Code of Conduct, the Formal Compliance Procedure of financial institutions and the Industry Best Practices. NDBIB has set its sights on further strengthening its global reach by seeking strategic alliances with foreign distribution channels in order to meet the growing thirst for capital in Sri Lanka. Leveraging on the solid foundation set in 2013 and collaborations with the NDB Group network, NDBIB looks forward to a successful year ahead. NDBIB is the flagship company within NDB Capital Holdings PLC, the only full service investment bank listed on the CSE, offering a range of services in the areas of stock broking, wealth management, private equity and investment banking in both Sri Lanka and Bangladesh. i 161

> Union Bank of Colombo PLC:

Propelling SME Financing Across Sri Lanka Established in 1995, Union Bank of Colombo PLC (UBC) is one of Sri Lanka’s fastest growing commercial banks focusing on small and medium-sized enterprises (SMEs). With a network of 62 branches covering all districts and provinces, UBC offers a comprehensive portfolio of financial products and services to SMEs and to the corporate and retail sectors. Listed on the Colombo Stock Exchange since 2011, the Bank’s IPO (initial public offering) was oversubscribed 417 times in the public category, highlighting the institution’s financial stability and long-term sustainability.

BC’s shareholder profile comprises top local and foreign investors. In 2011, UBC achieved its strategic diversification which was designed to complement the core business with the acquisition of National Asset Management Ltd (NAMAL), Sri Lanka’s premier asset management company, and The Finance and Guarantee Company Ltd (rebranded as UB Finance Company Ltd). Brand Finance conferred UBC as one of Sri Lanka’s top-100 most valuable brands in 2012. Attracting one of the largest foreign direct investments to Sri Lanka and marking a milestone in the financial services industry in 2014, Union Bank entered in to a $117 million landmark agreement with US-based TPG, a leading global private investment firm with $60 billion in assets under management. The investment will support Union Bank’s growth and also tap into TPG’s operational expertise and global resources. SME FOCUS Union Bank’s comprehensive range of financial solutions ensures that SMEs are given flexible financial options which are customised to suit individual requirements. Personalised customer service and proactive intervention for SME customers is supported by an extensive portfolio of services which includes working capital, trade

In Pictures: Union Bank Headquarters

finance, import and export credit, leasing, and factoring. Union Bank serves diverse type of businesses providing opportunities to achieve business

expansion and growth. The Bank’s financial assistance includes offering support to new, existing, and start-up ventures in agro industries, animal husbandry, horticulture, food processing, fisheries, construction, tourism, transport, wood

“Union Bank is one of Sri Lanka’s fastest growing commercial banks focusing on small and medium-sized enterprises (SMEs) with a rapidly expanding branch network across the country. The Bank offers a comprehensive portfolio of financial products and services to SMEs, corporate, and retail sectors.” 162

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based products, retail, and other small business service categories. EXPANDING NETWORK Union Bank’s concept of growing the brickand-mortar branch infrastructure has been implemented on a planned geographical roll out, with an unwavering focus on catering to the needs of SMEs. The branch placements are predominantly located outside the metropolitan hubs of Sri Lanka in areas with significant potential for SME growth. Union Bank will continue to augment its presence within the country, allowing customers more accessibility and flexibility and driving growth to optimise results. From a mere fourteen branches in 2008, the Bank’s network by 2014 reached 62 branches. With innovation always being one of the Banks’s strong points, a number of pioneering initiatives were introduced including alternate channels of kiosk banking. As such, the dedicated SME

centres are fully staffed and equipped to provide consistent, efficient, and sharply focused product and services to SME customers. Union Bank was also the first private bank to join the LankaPay, common payment gateway which provides its customers access to their accounts from more than 2,000 ATMs. A PIONEER IN BANKING TECHNOLOGY Union Bank has proved beyond doubt that technological prowess is essential to paving the way forward in the banking industry. Knowledge, expertise, experience, and industry acumen have been brought together on a singular platform to ensure that customer expectations are met and exceeded. The UBC brand has become synonymous with technology-driven innovation and its many firsts to the market include online Internet banking, TV banking, and a trilingual mobile app for both Android and Apple devices. The bank implemented a state-of-the-art core banking framework to add further value to its management processes and

service delivery. In addition, a sophisticated risk management system was also implemented to strengthen the assessment of credit, market, and operational risk. MENTORING THE GROWTH OF SMES Union Bank continues to add value to its processes and strengthen the relationship with its target group through value additions such as “viyaparika saviya” – the free SME advisory service which is an integral element of the bank’s SME focus and part of its social responsibility initiative. The Union Bank SME Club, which was introduced in partnership with the Sri Lanka Chamber of Small and Medium Industries, is another medium through which to support industrialists via a networking platform that aims to foster and grow business. Recognising the business excellence of SME’s, Union Bank has come forward as the principal sponsor of the annual Industrial Excellence Awards in partnership with the Chamber of Small and Medium Industries. i 163

> Capital Bank:

A Transparent and Socially Responsible Green eBank

apital Bank, the first commercial bank of Mongolia, has been in business for 24 years. During this time it has gained a reputation for consistency and reliability. Capital Bank now aims to become the country’s trend-setting environmentallyfriendly “Green eBank” that fully supports small and medium sized enterprises (SMEs) offering optimal efficiency, enabling growth, and providing reliable services that respect both strict business ethics and corporate responsibility. Since its establishment in 1990 as the first commercial bank of Mongolia, Capital Bank has been, and indeed continues to be, the leader of financial and banking innovation in the country. Capital Bank has been delivering complex banking and financial services of all types: Loans, deposits, letters of credit, internet banking, and trade accommodated with modern standards such as domestic and international card services, and money transfers via Yuan, Sigue, MoneyGram, and SWIFT. Through cooperative arrangements with internationally recognized banks in the USA, Japan, Germany, Russia, Singapore, South Korea, China, and Australia, Capital Bank provides international settlement services, foreign trade financing, and trade lines of credit regardless of location and timing. Capital Bank now aims to become a top-tier national institution that delivers banking and financial services close to the community it serves. The bank currently operates through 81 branches and units. It has over 60 ATMs throughout the country and installed over 200

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POS (point of sale) terminals. The bank employs over 500 people and serves over half a million customers. Capital Bank employs advanced and innovative technology solutions for the delivery of its services and products. Most of the bank’s offerings are also available online. Capital Bank is actively leveraging the Internet to empower its expansion. SUPPORT FOR SMES The mission of Capital Bank is to actively support SMEs who are considered key to the country’s development. In support of this mission, the bank has organised a number of activities and events. Capital Bank has provided loans to of over 2,000 SMEs to facilitate and enable the growth of these businesses. The bank also cooperates with governmental and non-governmental organisations to support projects initiated by international aid donors such as Project Loan for SME Support and Environmental Protection of the Japan International Cooperation Agency (JICA). Other projects supported are the 100,000 Household Programme, Sustainable Livelihood 2, and Organic Mongolia. Capital Bank has also helped manage loans for enhancing employment, macro-business support, SME development, and market and pasture management projects. CORPORATE GOVERNANCE Corporate governance is a set of provisions that aim to maintain adequate levels of coordination between shareholders, the board of directors, and the executive management of the company among other stakeholders. Corporate governance thus ensures the financial credentials of the company’s business. Capital Bank attaches CFI.co | Capital Finance International

great importance to the implementation of an appropriate corporate governance framework. In 2013, the bank signed a cooperation agreement with the International Finance Corporation (IFC – a member of the World Bank Group) for further improving corporate governance. Since then, and with the initial rating of the bank’s existing corporate governance structure completed, the company received specific recommendations on how to improve its corporate governance. Acting on these recommendations, Capital Bank examined and improved its regulations and guidelines to align them with international best practices. Capital Bank also developed and adopted a set of comprehensive regulations for the implementation of appropriate corporate governance procedures. Correspondingly, the bank assigned an expert who is charged with the application of the regulations in order that corporate governance principles may ensure the bank’s sustainable development, its continued focus on the core institutional mission, vision, and business plan, and support both foreign and domestic investment that contributes to the growth of the national economy while also forming the environment and conditions that inspire the confidence of customers and deposit holders alike and thus ensure continued development and wealth creation. Ensuring transparency is one of the most important principles of corporate governance. Capital Bank believes that transparency increases confidence among all stakeholders. The bank publishes audited annual and quarterly financial reports. Other relevant information is

Autumn 2014 Issue

Mongolia: Ulan Bator

disseminated on a daily basis. Additionally, the bank’s website contains a wealth of information regarding its mission, vision, values, business policies, regulations on ethical standards, shareholders, and details on the professional skills and work experience of the chairman, the members of the board of directors, and the executive management. Information regarding transactions involving stakeholders – such as loans, issued guarantees, and letters of credit to related parties – that may affect the bank’s financial stability is also published online as are details about management and organisational structures, branches, units, management committees, and annual reports.

responsibility as expressed in a desire to contribute to Mongolia’s continued development and national progress.

In order to adhere to the principles of corporate responsibility, amendments and improvements were made to internal regulations and guidelines that ensure full compliance with laws and regulations. Employees in key jobs take monthly online examinations on laws, regulations, and procedures. Since 2013, Capital Bank staff has followed corporate governance principles to the letter. As a result, the number of customers, and the volume of deposits, has increased significantly. Other important indicators have also improved significantly.

Furthermore, Capital Bank is the driving force behind an operation to protect the natural environment and promote sustainable land use. The Organic Mongolia Micro-Credit Green Programme has made almost 395 million MNT (tögrög) – about $220,000 – available to 79 borrowers. The programme supports green initiatives. Capital Bank also organises the Organic and Green Products Exhibition that strives to encourage environmentally-minded entrepreneurs; the Organic Mongolia gardening movement; and the Green Days of Autumn exhibit in conjunction with the Ministry of Food, Agriculture, and Light Industry. The bank has also adopted the Green Office Principles at all its branches and units.

Capital Bank now aims to become a “Green eBank” that supports environmentally sound and sustainable economic growth and the efficient use of natural resources. As such, the bank wishes to help underwrite Mongolia’s wider development policy. SOCIAL RESPONSIBILITY One of the core values Capital Bank embraces is the acceptance of its corporate social

It is the policy of Capital Bank to maintain social welfare, sustainability, and transparency while carrying full responsibility for the environmental impact of its activities and decisions. As a pioneer in corporate social responsibility, Capital Bank has organised a number of successful events such as the annual Blood Donation Campaign, the World Savings Day for children, and the Green Office Campaign. The bank has also supported and donated to various other social events and programmes.

Education is another area that enjoys the full support of Capital Bank. The national programme 333 Teachers and Teenage Students aims to provide financial education over a period of two years and is supported by both the nation’s president and the bank. CFI.co | Capital Finance International

In close collaboration with the Mongolian Chamber of Commerce and Industry and the Ministry of Education, Culture, and Science, Capital Bank has provided support for the reality television show Search for Innovation. With help of the Bolor Alran Erdene Fund the Little Library Project was implemented. Thanks to support from Capital Bank, Mongolian dance champion Khatantuul and his troupe were able to attend international dance competitions as well. Capital Bank frequently organises and sponsors a number of events and workshops related to social affairs. AWARDS RECEIVED • National Best Bank award at the Grand Expo national business fair (2009) • One of Top 10 Bank for Corporate Social Responsibility from the Mongolian government and the National Chamber of Commerce and Trade (2011) • One of Top-150 entities; one of Top-5 banks; and, for the second time, one of Top-10 for Corporate Social Responsibility (2012) • One of Top-5 banks at the Grand Expo national business fair organised by the Mongolian Institute for Marketing and Management (2012) • Best Entrepreneur of the Banking Sector from Entrepreneur which awards those entities that most contribute to their country’s social and economic development – an event organised for the 17th time by the National Chamber of Commerce and Trade (2013) • Outstanding Sustainable Project Financer from the European Organisation for Sustainable Development in Germany (2014) • Best SME Mongolia from Capital Finance International (2014) i 165

> CFI.co Meets the CEO of Capital Bank:

Q & A Session with Agvaanjamba Ariunbold HOW DID YOU ARRIVE AT CAPITAL BANK? “Capital Bank was established as the first commercial bank in Mongolia under the name Industrial Shareholding Bank. In 2003, I acquired shares in this bank. At the time, the bank held many non-performing loans and was quite distressed. However, I put the right management team in place and brought Capital Bank to its current level of excellence. Today, Capital Bank is one of the leading banks in Mongolia offerings reliable and sustainable services to over half million customers.” WHAT IS THE GREATEST CHALLENGE OF YOUR JOB? “I believe the greatest challenge for any CEO is whether to be a leader or a boss. I also need to manage the operations of this bank in such a way that we earn the trust of both customers and partners. Just over two decades have passed since the establishment of commercial banking in Mongolia – this is a very young sector indeed. While globally the banking and financial sector is growing rapidly in both size and importance, it is quite a challenge to implement and deliver newly introduced international standards of products and services in this still young sector of the Mongolian economy – and do so in a timely manner.” WHERE DO YOU SEE CAPITAL BANK IN, SAY, FIVE YEARS FROM NOW? “Capital Bank’s mission is to support national industry, SMEs and environmentally sustainable activities. When the bank was established in the 1990s its name - Industrial Shareholding Bank – already implied a bundling of forces of small and medium-sized enterprises. In Mongolia, an estimated 55,000 companies are actively pursuing business out of almost 72,000 registered companies. Of these, about 45,000 are SMEs. Over the coming years I see Capital Bank helping boost the development of the Mongolian economy to become the bank which will be the first destination for both national industry and SMEs.” WHAT ARE THE PARTICULAR STRENGTHS OF YOUR BANK? “In 1990, commercial banking was introduced in Mongolia. Since then, 38 banks were licensed. Of these, 25 ceased operations during the economic downturn, lost their license, or merged with other entities. Capital Bank survived the lean years by broadening its activities. The bank also maintained correct and reliable strategies that avoided giving in to the temptation of easy profits and opted instead for sustainable growth. As part of the bank’s unwavering commitment to SMEs, we have implemented 27 projects 166

CEO: Agvaanjamba Ariunbold

and programmes on behalf of the Mongolian government and international organisations that aim to deliver low-cost banking products and services to small and medium-sized businesses. Programmes from entities such as the World Bank, the International Fund for Agricultural Development of the United Nations, the Adventist Development and Relief Agency (ADRA), MercyCorps, and the Japan International Cooperation Agency (JICA) have been implemented through Capital Bank. We have become a reliable and trusted partner for domestic and international projects alike.” WHO OR WHAT HAS INFLUENCED YOU THE MOST TO BECOME CEO? “I studied law and economics and obtained a PhD degree in these fields. It is sometimes said that banking is the king of all businesses. I thoroughly understand the meaning implied in this saying: Banking stands at the very core of business. It is not so much the best business to be in, as the most enabling one. I realise that for an emerging economy like Mongolia’s, financial support and education are essential and should be prioritised. You could, in fact, say that my job as a banker is to support the country’s development.” CFI.co | Capital Finance International

HOW DO YOU MOTIVATE THE EMPLOYEES OF YOUR BANK? “Today, our bank employs over 500 dedicated professionals. I am not one to play boss and watch from high above as business proceeds. Instead, I prefer to work in close cooperation with our employees on even simple and small affairs. This allows me to understand any difficulties they may be facing. It also contributes to the identifying and solving of any issues that may arise. Most members of the Capital Bank management team have been with us since graduating from university and have been promoted step-bystep. About 70% of Mongolia’s population is under the age of 35. I motivate our employees by showing that there are plenty of chances for promotion, provided they work from their heart and with dedication. Between 70 and 80% of our management team reached their present position via promotions. I also consider a peaceful and stable family live essential if our employees are to do their jobs satisfactorily with both effectiveness and efficiency. Our management team supports policies that allow stable and committed employees to acquire apartments at convenient locations. This creates a healthy and comfortable environment that also encourages continuous selfimprovement through study and other means.” i

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> CFI.co Meets Union Bank of Colombo PLC:

Strong Leadership Established in 1995, Union Bank of Colombo PLC (UBC) is one of Sri Lanka’s fastest growing commercial banks focusing on Small and Medium Enterprises (SME). With a branch network of 61 branches covering all districts and provinces in Sri Lanka, UBC offers a comprehensive portfolio of financial products and services to SME, corporate and retail sectors. Listed in the Colombo Stock Exchange, the Bank’s IPO in 2011 was oversubscribed 417 times in the public category, highlighting its financial stability and long term sustainability. UBC’s shareholder profile boasts of top local and foreign investors. 2011 saw UBC achieve strategic diversification, designed to complement the core business with the acquisition of National Asset Management Limited (NAMAL), Sri Lanka’s premier asset management company and The Finance and Guarantee Company Ltd subsequently rebranded as UB Finance Company Limited. Brand Finance conferred UBC as one of Sri Lanka’s most valuable 100 brands in 2012. Marking a milestone in the financial industry in Sri Lanka in September 2014, UBC entered in to an investment agreement for $ 117 Mn with TPG, a leading global investment firm placing the Bank within the top 5 private Banks in Sri Lanka in equity.

MR. ALEXIS LOVELL, MBE - CHAIRMAN/NONEXECUTIVE DIRECTOR Mr. Lovell was appointed to the Board in 2007 as a Non-Executive Director and was appointed as the Deputy Chairman in December 2010. He was appointed as the Chairman in May 2012. He counts over thirty years of experience in Finance and Investment Banking. He is a Chartered Management Accountant, UK and holds a post graduate degree in Business Administration. He was awarded the MBE (Most Distinguished Order of the British Empire) by Her Majesty the Queen of England for services to Investment Banking. ANIL AMARASURIYA – DIRECTOR / CHIEF EXECUTIVE OFFICER Anil Amarasuriya is a veteran Banker with a career that spans over 35 years in the financial services industry. He is the Director / CEO of Union Bank and former Managing Director / CEO of Sampath Bank. He is a Fellow of the Institute of Chartered Accountants, Sri Lanka and the Chartered Institute of Management Accountants, UK and a Honorary Fellow of the Institute of

Bankers, Sri Lanka. He also serves on the Board of National Asset Management Ltd (NAMAL) a subsidiary of Union Bank. NILANTH DE SILVA – CHIEF OPERATING OFFICER Nilanth de Silva with a distinguished banking career of 40 years is the Chief Operating officer of Union Bank. He is an Associate of the Chartered Institute of Bankers (ACIB) UK with expertise in operations, credit and other core areas of banking operations. He was Deputy General Manager - Corporate Credit at Hatton National Bank PLC prior to joining Union Bank in 2003. RAVI DIVULWEWA – VICE PRESIDENT CREDIT Ravi Divulwewa is an experienced banking professional with an extensive career of 35 years in the industry with significant expertise in SME and corporate lending. Mr. Divulwewa has over 10 years experience in corporate management and currently holds the position of Vice President – Credit at Union Bank. He is also a Member of the Association of Professional Bankers. CFI.co | Capital Finance International

MALINDA SAMARATUNGA – CHIEF FINANCIAL OFFICER Malinda Samaratunga is an Associate Member of the Chartered Institute of Management Accountants, UK and a Fellow Member of the Certified Management Accountants, Sri Lanka. He holds a Master of Business Administration degree (MBA) and a Bachelor of Science (BSc) degree from the University of Colombo. Mr. Samaratunga counts over 14 years of extensive experience in Finance and Management in the Banking & Financial Services sector. He also functions as a Non-Executive Director of the UB Finance Company Limited. RAJEEV MUNASINGHE – VICE PRESIDENT INFORMATION TECHNOLOGY Rajeev Munasinghe is an IT Professional with over 15 years experience. He currently serves as Vice President – Information Technology at Union Bank and is extensively experienced in implementation of Banking and ERP solutions. He holds a Masters in Information Technology from the Keele University (UK) and a professional qualification in IT from NIBM. 167

> IFC:

Vietnam Must Continue to Improve Corporate Governance to Meet Rising Expectations By Chris Razook

In late July, the Ho Chi Minh City Stock Exchange and Vietnam Investment Review – with support from the IFC (the World Bank Group member focused exclusively on the private sector) and other partners – hosted the 7th annual report award event to recognise the listed companies that exhibited strong levels of transparency and disclosure over the past year. Such an event may have limited appeal in many markets, but the one in Vietnam was held with great fanfare, attracting more than 200 companies and broad coverage from local newspapers and television stations.

he event’s success is testament to the improving state of transparency – and more generally of corporate governance – in the Vietnamese market. This comes mainly as a result of fundamental reforms carried out over the past several years. For example, there have been changes in laws and regulations to promote investor protection and shareholder rights as well as various initiatives to raise the overall level of awareness and practices in the market. Having supported the push for such reforms in Vietnam, the IFC and the World Bank Group have witnessed first-hand the government’s commitment to making real changes in many areas.

“High levels of crossshareholding and concentrated ownership in the banking sector and the overall market means related-party transactions, particularly lending, remain a key challenge.”

There is, however, still plenty of work left to do as Vietnam prepares for the much-anticipated integration with the ASEAN Economic Community scheduled for 2015. With this integration, goods, services, and investments are expected to flow more freely across borders, while trade and investment-related laws and regulations will need to be harmonised.

owned enterprises (over 350 of more than 600 listed companies have some state ownership, per World Bank, 2012). To its credit, the government has long been trying to address this issue and is continuing its big push to “corporatize” more state-owned enterprises in the near future. Such entities will need to adopt higher levels of transparency and more commercial governance practices in order to attract long-term investors and business partners.

In some respects, Vietnam needs to catch up with its neighbours such as Singapore, Thailand, and Malaysia, which have all made significant reforms in corporate governance over the past decade, particularly following the Asian financial crisis. For example, state ownership remains at a high level in Vietnam with more than a third of the country’s gross domestic product stemming from state-

High levels of cross-shareholding and concentrated ownership in the banking sector and the overall market means related-party transactions, particularly lending, remain a key challenge. In the boardrooms, studies by the IFC and the World Bank Group have shown that many Vietnamese companies need to strengthen director duties and board composition, independence,

and effectiveness. A large percentage of listed companies still need to substantially improve their transparency and disclosure levels. It has been demonstrated that investors have greater confidence in companies with good corporate governance and markets that are backed by a sound legal and regulatory regime. Pushing ahead on both fronts is crucial to improving Vietnam’s attractiveness for international investors and partners, who will not only bring capital but also transfer knowledge that can boost the competitiveness and sustainability of companies in the long run. Given that Vietnam represents roughly 14% of ASEAN’s population but only 7% of its GDP – about half that of Thailand’s on a per-capita basis – one could argue that continued reforms in Vietnam are important for the success of ASEAN in general. Looking forward, the public and private sectors need to work together to build on the progress made thus far. To start with, a reputable, independent institute of directors should be established in Vietnam to promote corporate governance. The government needs to make continued regulatory improvements. The update to the Law on Enterprises is an important change that is currently underway and will help incorporate international best practices as appropriate.

“There should also be more training and awareness-raising around good board practices, protection of shareholder rights, and ways to avoid conflicts of interest - particularly for listed companies and the banking sector.” 168

CFI.co | Capital Finance International

Autumn 2014 Issue Vietnam: Ho Chi Minh Mausoleum in Hanoi city

There should also be more training and awareness-raising around good board practices, protection of shareholder rights, and ways to avoid conflicts of interest - particularly for listed companies and the banking sector. Given the government’s push to further equitize more stateowned entities, it will be important to proactively work with them on their role as shareholders and help ensure these entities have sound governance frameworks in place. As the Ho Chi Minh City Stock Exchange event illustrates, good progress has been made in Vietnam. However, as the country continues to open up and become more regionally integrated, the expectations from investors and other stakeholders will continue to rise. The IFC and the World Bank Group, with support from the Swiss government, are committed to help the country meet these expectations. i ABOUT THE AUHOR Chris Razook is the IFC Corporate Governance Lead for the East Asia and Pacific (EAP) region. Mr Razook has over 15 years of experience in the area of corporate governance and supports IFC’s investments by working with companies to strengthen their governance frameworks. He has also provided assistance to central banks, capital market authorities, and other regulatory

bodies in drafting corporate governance laws, codes, and listing rules to help develop stronger investment climates. Mr Razook has an undergraduate degree in engineering, an MBA in international finance, and an LLM in corporate law. ABOUT IFC IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector in developing countries. Established in 1956, IFC is owned by 184 member countries, a group that collectively determines their policies. IFC’s work in more than a 100 developing countries allows companies and financial institutions in emerging markets to create jobs, generate tax revenues, improve corporate governance and environmental performance, and contribute to their local communities. IFC’s vision is that people should have the opportunity to escape poverty and improve their lives.

CFI.co | Capital Finance International

Author: Chris Razook

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> UNCDF:

Enabling Transformation Investing in the Local Needs of Women

n 1990, in the first Human Development Report of the United Nations Development Programme (UNDP), Pakistani economist Mahbub Ul Haq wrote, “The real wealth of a nation is its people. And the purpose of development is to create an enabling environment for people to enjoy long, healthy, and creative lives. This simple but powerful truth is too often forgotten in the pursuit of material and financial wealth.” 170

Mr Ul Haq’s words eloquently speak to a paradigm shift that has taken place in the field of development. This new orientation called the Human Development and Capabilities Approach, saw development as a process of expanding the real freedoms and rights that people enjoy.

puts people and their opportunities to actualize their capabilities as its central focus. Unlike other previous paradigms, the Human Development and Capabilities Approach is concerned with bridging inequalities and addressing uneven distributions among different groups.

Based on the premise that expanding economic growth alone is an inadequate measure for development or quality of life, the new model

Amongst these vulnerable groups, women are especially affected. For many years the predominant development policy was to boost

CFI.co | Capital Finance International

Autumn 2014 Issue

To increase their economic opportunities, women need access to more and better jobs, a business climate that supports them in starting and doing business, a financial sector that gives them access to financial services tailored to their needs, and greater livelihood security in times of food and fuel crises. This is especially true for women living in rural areas and vulnerable environments. economic growth in order to aid the poor. However, limited recognition of the synergies between the freedom and capabilities of people, gender equality, economic growth and poverty reduction led to the development of policies that failed to take into consideration the differentiated and specific needs and responsibilities of women and men. More recent research demonstrates that policies focused on economic growth alone insufficiently reduce poverty or address gender inequalities. Strong evidence shows that enhancing women’s economic participation improves national economies, increases household productivity and living standards, enhances the well-being of children with positive long term impacts, and can increase women’s overall empowerment As a consequence, it is now recognized that the impact of growth on reducing poverty and enhancing gender equality in developing countries is correlated with the pro-poor inclusive and equitable public policies in place. Crucially, such policies create an enabling environment that determines how resources are channelled and distributed in the local economy. FUNDAMENTAL SHIFT This increased recognition has led to a fundamental shift in the development encompassing policies and interventions that target the needs of the poor. As a result, approaches to development grounded in human rights, which specifically emphasise, inter alia, non-discrimination, equality, participation, and inclusion have gained in prominence, most notably within the UN System.

“Taking into consideration the fact that the majority of the world’s poor are women, it is imperative that development strategies and interventions are targeted towards the needs and priorities of this group.” CFI.co | Capital Finance International

Taking into consideration the fact that the majority of the world’s poor are women, it is imperative that development strategies and interventions are targeted towards the needs and priorities of this group. Without such efforts, countries are unlikely to sustain any progress towards achieving the Millennium Development Goals (MDGs) set for 2015, or meet the ambitious Sustainable Development Goals (SDGS) in 2030, in the agenda post-2015. Unfortunately, despite the important recognitions of the synergies between gender equality and poverty reduction, implementation of such policies has been uneven. The reasons for this range from cultural norms, lack of political representation, inadequate education, and severely unequal access to basic infrastructure and financial institutions. 171

From 1990 to 2010, more than 2 billion people gained access to safe drinking water, but 780 million people are still without clean drinking water. Where water supplies are not readily accessible, water must be carried from its source. According to 2006–2009 data from 25 sub-Saharan African countries, women there spend at least 16 million hours each day to collect water. Men spend 6 million hours, and children 4 million hours. In response, a forthcoming local development programme at UNCDF will aim to focus on the latter dimensions in the Least Developed Countries (LDCs). It is designed to identify and eliminate barriers to women’s economic participation at the local level and enable their way to economic emancipation. By making use of innovative financing tools and well-established investment instruments, the United Nations Capital Development Fund (UNCDF) offers a unique combination of investment capital, capacity building and technical advisory services to promote Local Development Finance (LDF) and inclusive finance in the LDCs, with the overarching objective of accelerating poverty reduction through sustainable, inclusive and equitable local development. The LD approach of UNCDF is about designing 172

and testing mechanisms that mobilise, allocate, and invest resources for local development in an accountable and equitable manner. ECONOMIC GROWTH ALONE NOT SUFFICIENT The method recognises that economic growth is not sufficient to transform the economies and societies of poor countries and make them more resilient to shocks. It is put to work to integrate relevant development strategies to ensure that infrastructure and service delivery reach the entire population and provide employment to people who need it most, poor women and men. In particular, UNCDF’s women’s economic empowerment programme, in partnership with UNDP and other UN Entities and through UNCDF’s financing tools will aim to create an enabling environment by responding to local barriers and bottlenecks that hinder women’s access to local economic opportunities and income-generating activities. This programme begins its work based on its Local Economic Assessment tool (LEA), a methodology that allows a better understanding of the contextual situation on the ground, the state of the economy, the needs of the labour markets – formal and informal alike – the development partners already working on these issues, as well as a thorough cultural, and social behavioural understanding of the local population. The methodology for this analysis takes place in consultation with the communities involved and CFI.co | Capital Finance International

takes into consideration the differentiated needs and responsibilities of women and men. Once these barriers have been identified and deemed possible to address, financially and physically, UNCDF puts its financing tools at work to tackle these bottlenecks to women’s economic empowerment. For example, inadequate roads, poor transportation routes to markets, a lack of entitlements to agricultural land, restricted access to financial services, and an inability to use productive inputs such as fertilizers, seeds, and crops can all result in major obstacles to women’s economic activity, entrepreneurship, and empowerment. In cases such as the above, the gender-focused programme identifies the most pressing interventions necessary to lessen the burden on women and tackle the legal, social and economic barriers preventing women from equally accessing basic local services and increase women’s local economic opportunities, including empowering female entrepreneurs in the development of their Small and Medium Enterprises (SMEs). HYDRO POWER Currently, in the Iringa Region of Tanzania, UNCDF is supporting female entrepreneurs introduce a small hydro power to generate electricity in the rural areas of Tanzania, thus, potentially granting approximately one million dollar in domestic financing from a local bank

Autumn 2014 Issue

to the project. The project is expected to close by the end of 2014, thereby generating 317 kW of hydro power for rural electrification which will be instrumental in expanding further opportunities for small scale enterprise development and jobs creation. In addition to entrepreneurial support, UNCDF’s women’s economic empowerment programme tackles other difficulties that women frequently face. Women are often confronted with challenging decisions in their daily lives. When they spend the majority of their time in unpaid care work activities, such as cleaning, cooking, collecting wood, fetching water, and caring for the children and the elderly, it limits their opportunities to participate in the labour force or to engage in other economic activities. It also constrains schooling and participating in decision making processes. Yet unpaid care work remains a largely unseen dimension of human well-being, in that it is not counted in gross domestic product (GDP). As a result, unpaid care is not recognized in economic planning, budgeting, and investment decision making. However, recognizing unpaid care work

will not produce tangible benefits if it does not also result in interventions to reduce the burdens on women that are created by the way in which their work is distributed within their communities and households. In this context, by examining time use surveys and socio-economic assessments of localities, UNCDF’s programme on gender economic empowerment, will aim to narrow the unique bottlenecks facing women by identifying capital investments that can reduce women’s unpaid care work activities. If women spend four hours a day fetching water, investing in infrastructure projects that provide access to water will save women considerable time, which can then be used to engage in economic activities. The way in which unpaid care work is distributed between women and men can be argued to be one of the most pressing constraints inhibiting the achievement of women’s socio-economic empowerment in the LDCs. Much can also be said about policies pursued in the context of ideological models that fail to respond to the needs and priorities of women. This programme works to enable women to participate in the labour market, if they choose to do so. As development practitioners, we have to be mindful of the complex system of development, the cause and effects, and lack of linearity of our actions on the ground.

Distribution of Drinking Water Collection by Percentage in Africa.

(Source: WHO/UNICEF 2008)

Within a unique local context, this project - using its local finance development instruments attempts to create an enabling environment for women to enjoy long, healthy and creative lives, as Mr UI Haq suggested in 1990, and as it continues to dominate the development discourse today. i CFI.co | Capital Finance International

ABOUT UNCDF UNCDF is the UN’s capital investment agency for the world’s 48 least developed countries. It creates new opportunities for poor people and their small businesses by increasing access to microfinance and investment capital. UNCDF focuses on Africa and the poorest countries of Asia, with a special commitment to countries emerging from conflict or crisis. It provides seed capital – grants and loans – and technical support to help microfinance institutions reach more poor households and small businesses, and local governments finance the capital investments – water systems, feeder roads, schools, irrigation schemes – that will improve poor peoples’ lives. UNCDF programmes help to empower women, and are designed to catalyze larger capital flows from the private sector, national governments and development partners, for maximum impact toward the Millennium Development Goals. For more information, please visit www.uncdf.org and subscribe for news, follow @UNCDF on Twitter and UN Capital Development Fund on Facebook. 173

> University of Chicago Booth School of Business:

Questioning the Economic Effects of a Booming Real Estate Market By Atif Mian and Amir Sufi

Strong house price growth fuels economic activity during expansions, and the ensuing slowdown in housing often precipitates severe crashes. Almost every severe economic downturn in advanced economies over the past 85 years was preceded by a real estate boom: Among them the Great Depression in the United States, the Lost Decades in Japan, and the current economic malaise that plagues Spain. Research, as summarised in our recently published book House of Debt, shows that this relation is causal: Movement in house prices affects real economic activity such as spending and employment.

olicy-makers throughout the world now recognize this fact, and many are paying close attention to housing markets. In Britain, house prices have risen sharply over the past 16 months, sparking worries of an unsustainable housing boom. The Bank of England, recognising the relation between such housing booms and subsequent economic catastrophe, has implemented restrictions on mortgage lending in an attempt to cool the market. Central banks in Israel and South Korea, among others, have also used limits on mortgage lending to cool housing markets in the past. While the fact that housing affects economic activity is clear, the underlying economics are not. An understanding of these economics is crucial as policy-makers increasingly target excessive mortgage lending during real estate booms. BEYOND CONSTRUCTION Why should house prices drive economic activity? One reason is obvious: A rise in real estate values encourages the construction of new buildings and homes, which in turn contributes directly to economic growth. But in most advanced economies, residential investment is not a major component of economic growth. We need to look beyond construction to understand why housing affects the broader economy. The other reason is more important, but also harder to explain: Movement in house prices have a strong effect on household spending. In 2005 and 2006, our research shows that house price growth in the United States increased household consumption by 1.3 per cent of GDP. The dramatic decline in spending when house prices crashed was instrumental in both the initiation and severity of the Great Recession [1]. 174

“While the fact that housing affects economic activity is clear, the underlying economics are not.” Most call the influence house prices exert on spending the “wealth effect,” and a common estimate is that households spend about 4 to 7 cents out of every dollar of house price appreciation. Symmetrically, households cut spending by a similar amount when home values fall. But this effect is theoretically puzzling. Why should people feel wealthier when their home values rise? A rise in the price of a home is also a rise in the cost of living. Consider, for example, a young couple that owns a small apartment but wants to buy a bigger home in the same neighbourhood. A rise in real estate prices is a bad thing for this couple – they now need to increase their spending on housing in the future. A higher price of housing makes them feel poorer rather than not richer. This is what makes housing different than stocks or bonds; housing is an asset we directly consume, and so a higher price also means a higher cost of consumption. BORROWED CASH So how do we explain the empirically robust relation between home value changes and spending? Rising home values affect spending not because people feel richer, but because a higher home value facilitates borrowing by lower and middle income homeowners, who use the CFI.co | Capital Finance International

borrowed cash to spend. In our research on US house price growth from 2002 to 2006, we find that the effect of higher home values on spending was completely driven by lower and middle income homeowners [2]. Among the rich, an increase in home values had no effect on spending. Further, higher spending for lower income Americans was driven by borrowing. They borrowed heavily against their rising home value, as much as $0.25 for every dollar of price appreciation. All of the borrowed money was used for spending, and all of the effect of increased home values on spending was driven by borrowing. The housing wealth effect is really a housing borrowing effect, and it is driven completely by lower and middle income households. The average 4 to 7 cent spending effect cited above is misleading because it masks huge variation across the population. These findings fit into a broader literature that consistently finds that lower income, lower net worth individuals have a much higher propensity to alter their spending dependent on income shocks. Research has confirmed this result in the context of fiscal stimulus rebate checks, auto loans, and credit card limits. Lower income households see their spending change dramatically when they experience a rise or fall in income or credit availability. Higher income households are far less responsive. So what are the lessons for policy-makers in Britain today? An overarching theme from our research is that we must move beyond aggregate measures of house price growth, household debt, and spending. It is the distribution that matters, and we therefore must have more microeconomic data to understand the effects of the current boom on economic activity. If low income households

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in Britain are using higher home values to borrow and spend, then that suggests a warning flag. In contrast, if the gains to home values are primarily accruing to the very rich, then rising house prices may be having a minimal effect on household spending. Here is a concrete example of how a singular focus on aggregate data can be misleading: Current measures of the aggregate household debt to income ratio in Britain suggest that there is no sharp rise in household leverage. But this fact alone provides only limited information. If the rise in income is driven by those at the top of the income distribution who carry very little debt, then it could still be the case that lower and middle income British households are seeing an unsustainable rise in leverage. Policy-makers need to know whether people in the middle and lower income part of the distribution are borrowing too much relative to their income. HISTORICAL PRECEDENT We have historical precedent for such an error based on aggregate data. Many in the United States justified the rise in household leverage from 2000 to 2007 by pointing to higher aggregate productivity. But as we have shown in our research, the rise in productivity was not affecting the incomes of the low credit score individuals that were borrowing aggressively. Their income was actually falling. Microeconomic data would have shown this dangerous pattern, while the aggregate data did not. The disparate effect of shocks to income on spending across the income distribution is also an important consideration when setting monetary policy. As the excellent report by the Resolution Foundation [3] points out, many lower and middle income British households are stretching to meet their mortgage payments; payments that will rise sharply if overall interest rates increase. In surveys, almost half of British households say they will have to cut spending, work longer hours, or renegotiate their mortgage if interest rates increase by just 2%. An increase in interest rates could have a significant effect on spending for lower and middle income homeowners with large mortgages. Advances in computing power and data availability mean we can now measure the effects of house prices and other economic factors at a more disaggregated level than in the past. Our research suggests that house price growth has a very different effect on spending for low versus high income homeowners –we must measure who is affected to know how aggregate movements in real estate affect the broader economy. i

References [1] ‘Household Balance Sheets, Consumption, and the Economic Slump’ by Atif Mian, Kamalesh Rao, and Amir Sufi, The Quarterly Journal of Economics, Vol. 128, Issue 4, Pages 1687-1726. [2] ‘House Price Gains and US Household Spending from 2002 to 2006’ by Atif Mian, Amir Sufi, May, 2014. [3] ‘Hangover Cure: Dealing with the household debt overhang as interest rates rise’ of July 24, 2014. Originally for “Financial World” and ifs University College. CFI.co | Capital Finance International

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> UNCTAD:

Investing in Sustainable Development Goals By James Zhan

The SDGs, which are being formulated by the United Nations together with the widest possible range of stakeholders, are intended to galvanise action worldwide through concrete targets to 2030 for poverty reduction, food security, human health and education, climate change mitigation, and a range of other objectives across the economic, social, and environmental pillars.

he SDGs will have very significant resource implications across the developed and developing world. Global investment needs are in the order of $5 to $7 trillion per year. Estimates for investment needs in developing countries alone range from $3.3 to $4.5 trillion per year, mainly for basic infrastructure (roads, rail and ports; power stations; water and sanitation), food security (agriculture and rural development), climate change mitigation and adaptation, health, and education. The SDGs will require a step-change in the levels of both public and private investment in all countries. At current levels of investment in SDG-relevant sectors, developing countries alone face an annual gap of $2.4 trillion. Especially in the so-called least developed countries (LDCs), public finances, though central and fundamental to investment in SDGs, cannot meet all SDGimplied resource demands. Today, the participation of the private sector in investment in SDG-related sectors is relatively low. Only a fraction of the worldwide invested assets of banks, pension funds, insurers, sovereign wealth funds, foundations and endowments, as well as multinational firms, is in SDG sectors. Their participation is even lower in developing countries, particularly in the poorest ones.

“In LDCs, a doubling of the growth rate of private investment would be a desirable target.” In LDCs, a doubling of the growth rate of private investment would be a desirable target. In these countries, where investment needs are most acute and where financing capacity is lowest, about twice the current growth rate of private investment is needed to give it a meaningful complementary financing role next to public investment and development aid. Increasing the involvement of private investors in SDG-related sectors, many of which are sensitive or of a public-service nature, leads to policy dilemmas. Policymakers must find the right balance between creating a climate conducive to investment and removing barriers to investment on the one hand, and protecting public interests through regulation on the other. They must find mechanisms to provide sufficiently attractive returns to private investors while guaranteeing accessibility and affordability of services for all.

And the push for more private investment must be complementary to the parallel push for more public investment. Increasing private investment in SDGs will require leadership at the global level, as well as from national policymakers, to provide guiding principles to deal with these policy dilemmas; to set targets, recognizing the need to make a special effort for LDCs; to galvanize dialogue and action; and to guarantee inclusiveness, providing support to countries that otherwise might continue to be largely ignored by private investors. There is a range of options available to policymakers to make a Big Push for private investment in sustainable development. Examples include: • A new generation of investment promotion and facilitation. Establishing SDG investment development agencies to develop and market pipelines of bankable projects in SDG sectors and to actively facilitate such projects. ‘Brokers’ of SDG investment projects could also be set up at the regional level to share costs and achieve economies of scale. • SDG-oriented investment incentives. Restructuring of investment incentive schemes specifically to facilitate sustainable development projects. This calls for a transformation from purely “location-based” incentives, aiming to

“Only a fraction of the worldwide invested assets of banks, pension funds, insurers, sovereign wealth funds, foundations and endowments, as well as multinational firms, is in SDG sectors.” 176

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Autumn 2014 Issue Strategic Framework for Private Investment in the SDGs

LEADERSHIP Setting guiding principles, galvanizing action, ensuring policy coherence

MOBILIZATION

IMPACT

Raising finance and re-orienting financial markets towards investment in SDGs

Maximizing sustainable development benefits, minimizing risks

CHANNELING Promoting and facilitating investment into SDG sectors

Strategic Framework for Private Investment in the SDGs.

increase the competitiveness of a location and provided at the time of establishment, towards “SDG-based” incentives, aiming to promote investment in SDG sectors and conditional upon their sustainable development contribution. • Regional SDG Investment Compacts. Launching regional initiatives towards the promotion of SDG investment, especially for cross-border infrastructure development and regional clusters of firms operating in SDG sectors (e.g. green zones). This could include joint investment promotion mechanisms, joint

programmes to build absorptive capacity, and joint public-private partnership models. • New forms of partnership for SDG investments. Establish partnerships between outward investment agencies in home countries and IPAs (Investment Promotion Agencies) in host countries for the purpose of marketing SDG investment opportunities in home countries, provision of investment incentives and facilitation services for SDG projects, and joint monitoring and impact assessment. • Enabling innovative financing mechanisms.

ABOUT THE AUTHOR Mr. James Zhan is Director of the Investment and Enterprise Division at the United Nations Conference on Trade and Development (UNCTAD). He is also Editor-in Chief of the UN annual World Investment Report and the journal Transnational Corporations.

“Increasing private investment in SDGs will require leadership at the global level, as well as from national policymakers, to provide guiding principles to deal with these policy dilemmas.” Innovative financial instruments to raise funds for investment in SDGs deserve support to achieve scale. Options include innovative tradable financial instruments and dedicated SDG funds, seed funding mechanisms, and new ‘go-to-market’ channels for SDG projects. Re-orientation of financial markets also requires integrated reporting. This is a fundamental tool for investors to make informed decisions on responsible allocation of capital, and it is at the heart of the Sustainable Stock Exchanges initiative. These and other ideas will be discussed at UNCTAD’s World Investment Forum, from 1316 October in Geneva, which has as its theme Investing in Sustainable Development, and which will bring together heads of state, ministers, CEOs of major investors, pension and sovereign wealth funds, the investment promotion community, and many other investment stakeholders. i

ABOUT UNCTAD Established in 1964, UNCTAD promotes the development-friendly integration of developing countries into the world economy. UNCTAD has progressively evolved into an authoritative knowledge-based institution whose work aims to help shape current policy debates and thinking on development, with a particular focus on ensuring that domestic policies and international action are mutually supportive in bringing about sustainable development.

Mr. Zhan has 28 years of national and international experience in the areas of trade, investment, technology, business facilitation and enterprise development, including policy research, consensus-building among 190 member countries and technical assistance to over 150 governments. Mr. Zhan is Global Agenda Council member of the World Economic Forum, and member of the Advisory Board for the International Investment Centre at Columbia University in the USA. He holds a PhD in international economics, was research fellow at Oxford University, and was a member of the Academic and Policy Advisory Board for the Centre of International Business and Management at Cambridge University in the UK. He has published extensively on trade and investment related economic and legal issues. CFI.co | Capital Finance International

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Europe’s Original Sin and the Dangers of Doing Good

arlos Rangel, the Venezuelan diplomat and essayist, once pointedly remarked that western nations often send their failed politicians – the dreamers, utopians, and other ineffectual romantics – to far-off places where they can do no harm other than to their host countries. Mr Rangel (1929-1988) deplored the lack of pragmatism and structure in development aid and considered the untold billions of dollars spent on haphazard attempts at eradicating poverty in Africa, Latin America, and elsewhere largely a waste of resources. He argued that as long as policies are set and implemented out of pity, a heavy conscience, or an irrepressible urge to “do good,” they are doomed for failure.

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Mr Rangel, a close friend of French philosopher Jean-François Revel, was ahead of his time. In his widely-praised book From Noble Savage to Good Revolutionary (1976), he posited rather convincingly that many of the damaging social experiments carried out in the post-colonial developing world had mostly originated in the fertile minds of those European politicians whose impractical ideas had failed to gain traction on the home front. These, then, were let go to peddle their designs at international organisations and in struggling countries of little consequence. Former Dutch Minister for Development Cooperation Jan Pronk comes to mind. Never more than an inconvenient footnote on the domestic scene, he was soon dispatched overseas to become an icon of the guilt-ridden left and the personification of the embarrassment of riches. Though Mr Pronk did not accomplish much, he did make the right noises at the right times and was duly rewarded with a long career – far from Dutch shores. Today, ideology and its attendant lusting after the perfect society have all but disappeared from political discourse. Even pressing issues such as climate change are now generally considered economic opportunities that can and must produce revenue streams for agile businesses that can see and decipher the writing on the wall. Whenever someone suggests we should do “the right thing” for no other reason than to “do good” regardless of profit, people take note and may even be overcome by nostalgia. Such 178

“Africa is at long last finding its groove not because of, but in spite of development aid.” was the case when in September the German magazine Der Spiegel – not normally a redoubt of wishful thinking – published an essay by Jürgen Dahlkamp on the murderous harshness of Europe’s asylum policy. The fearless Mr Dahlkamp actually suggests Europeans refrain from consuming wine and strawberry cakes, and stop buying Volkswagen Golfs as well, in order to send the monies thus saved to poor people in Africa. He argues that nobody actually needs these things in order to survive. “It is our wine, cakes, and Golfs against their lives,” writes Mr Dahlkamp referring to the hundreds of desperately poor people who drown in the Mediterranean while trying to reach the safety of Europe. Mr Dahlkamp goes on to call Europe’s penchant for luxury living its “original sin” and declares innocence lost as the first drop of wine passes the lips of a yet unsuspecting young European. This marks the point at which, in Mr Dahlkamp’s view, prosperity replaces survival as life’s leitmotif. The fact that the writer of this angst-ridden drivel is dead-serious causes some worry. So too does the fact that an otherwise stoically serious publication like Der Spiegel decided to print it. Though few would dispute the graveness of the human tragedy taking place in the Mediterranean, suggesting Europe is to blame for the deaths of hundreds or even thousands of asylum seekers at the hands of ruthless human traffickers, borders on the insane. The suggestion, reminiscent of Mr Pronk’s most noteworthy speeches, that Europeans should moderate their consumption of non-essential goods and services in order to help those in dire need, is a classic recipe for disaster of CFI.co | Capital Finance International

unmitigated proportions. Once Europeans move back to the caves from whence they emerged a few millennia ago, the balance will be restored and all will be well. There are a great many reasons that explain the tidal wave of humanity that sweeps the Mediterranean. However, Europe’s “original sin” is not one of them. If European countries must share the blame, it could as well be for paying lip service to cruel, criminal, ineffectual, and/ or corrupt leaders who ruled their countries as personal fiefdoms and ruined them in the process. Coincidence or not, but as development aid budgets were slashed, many African nations started to bloom. China is not big on aid, but does deliver trading and investment opportunities to Africans as no other country ever has. Most European nations now bestow their largess exclusively on countries that adhere to principles of good governance. Mishaps do still occur such as the EUR500m of Dutch development aid dumped on South Sudan where it promptly disappeared without much of a trace. Africa is at long last finding its groove not because of, but in spite of development aid. Instead of consuming less and thus adding to their already formidable economic woes, Europeans may want to consider embarking on a spending spree: The additional demand for goods and services couldn’t fail to bolster trade with Africa. For all their “progressive” talk, the Pronks and Dahlkamps of this world have never quite given up on Europe’s colonial legacy. They cannot help but see Africans as needy people unable to fend for themselves, thus requiring a guiding hand. This is not only offensive to an entire continent; it is pure nonsense. As this issue of CFI.co has shown, Africa now stands at the threshold of a renaissance. Though far from perfect yet and still suffering a great many ills, the continent is definitely on the move and heading in the right direction. The pace is picking up as well and as it does migratory pressures will subside. i

Autumn 2014 Issue

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A beauty and a beast.

The new Continental GT V8 S. Pa qui doluptatus, tem derspidebis voluptatem il imusam dis evelessus eostem adiorestem endae eostem adiorestem endad ipso facto allectus antrobus interdit tem derspidebis voluptatem musam dis evelessus eostem. Continental GT V8 S Convertible fuel consumption – EU Drive Cycle* in mpg (l/100 km): Urban 17.9 (15.8); Extra Urban 35.3 (8.0); Combined 25.9 (10.9). CO2 Emissions 254 g/km. EPA Drive Cycle* in USmpg: City driving 14.0; Highway driving 24.0; Combined 17.0. For more information call +44 (0)845 689 1629 from UK, +1 (0)866 369 4450 from USA or +44 (0)117 244 1804 from elsewhere or visit www.bentleymotors.com. #Continental #GTV8SConvertible *Fuel consumption figures subject to Type Approval and EPA Approval. The name ‘Bentley’ and the ‘B’ in wings device are registered trademarks. © 2013 Bentley Motors Limited. Model shown: Continental GT V8 S Convertible