CFI.co Autumn 2016 by CFI.co

Capital Finance International

Autumn 2016

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AS WORLD ECONOMIES CONVERGE

Jin Liqun, President of the Asian Infrastructure Investment Bank:

THE BARBARIAN HANDLER ALSO IN THIS ISSUE // WORLD BANK: BRAZILIAN ECONOMY // NASDAQ: SRI AND ESG CONVERGENCE PWC: OFF-GRID POWER // ERNST & YOUNG: PROMOTING INVESTMENTS WORLD SME FORUM: MULTILATERALS & INCLUSIVENESS // IFC: REWRITING THE RULES

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Autumn 2016 Issue

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Autumn 2016 Issue

WELCOME TO MY WORLD

CHRONOMAT 44

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Editor’s Column In Search of Logic and Reason to riches if its people are kept idle. Having workers slave away at subsistence jobs also fails to produce discernible progress.

Not all roads lead to Rome. In the universe of development economics, a vast landscape of conflicting views and recommendations, most policy ideas simply do not produce the desired outcome. Moreover, logic and reason are often lost when wellmeaning ideologues get a chance to subject entire nations to their brainwaves, resulting in lost decades and generations. Forever trying to reinvent the wheel, or improve on its original design, most economists are happy to suggest new ways, or shortcuts, to achieve growth. Multilateral entities such as the World Bank and the International Monetary Fund frequently adjust their policies to reflect new global concerns – climate change, sustainability, etc. – which countries looking for help must accept without demur. Whilst the intentions are invariably good, poverty endures. The much-celebrated worldwide reduction of extreme poverty may be ascribed to the commodities boom of the 2000s as much as to sensible policymaking. In fact, the end of the resource super cycle caused an alarming number of economies to slide into recession.

Editor’s Column

In this issue, CFI.co examines both the work of multilateral organisations and the different development models that have been put to the test. One conclusion that may be drawn is that the road to prosperity offers no shortcuts. The countries that have managed to attain significant levels of development did so by embracing good governance, sensible policies, and hard work – a winning combination. There is, of course, a need to recognise particular challenges facing specific countries. However, the notion that underdevelopment is caused by adverse circumstance – as opposed to sustained mismanagement – serves only as an excuse for the acceptance of substandard performance by sovereign states. That may be the politically correct attitude; it also condemns nations to not be all they could be. Without wishing to oversimplify economic thought, prosperity is a direct result of productivity. All the rest serves to shape an environment conducive to growth – and increased productivity. No nation can aspire 8

There is a reason why manufacturing moved away from Europe and North America to low wage countries: workers can be put to better use in more profitable sectors. The oft-heard lament that the industrialised nations of the west no longer assemble things – from television sets to big ships – misses the point: these countries are much better off outsourcing their manufacturing so that they may concentrate on complex services, technology, and other advanced pursuits. Having come up in the world, China is now also moving production overseas. It too wants to escape the middle income trap by refocusing on economic endeavours that add more value. As an economic concept, productivity is a rather boring one; it fails to stir the imagination and doesn’t convey much about the present performance of the economy under consideration. However, the GDP (PPP) per hour worked numbers do tell a tale. Their global ranking runs parallel to that of the world’s most competitive economies as compiled by the World Economic Forum. With one hour of work, a Norwegian adds $75 to his country’s GDP. At the other end of the spectrum, a Bangladeshi working as hard as his Nordic peer only manages to add $2. The keys to higher productivity are education and capital accumulation. These allow GDP growth to outpace employment levels. Thus a peculiarity of highly productive economies is that they may sustain significant levels of unemployment. In the Top Ten of most productive countries (sourced from The Conference Board, a business research group), seven countries are full members of the European Union and one – Norway, the country with the highest output per hour worked – is an associate member. This overlooked statistical nugget shows that, for all the doom saying, Europe is far from a spent economic force. Whilst the EU may have more than its fair share of challenges, the bloc remains the world’s largest economy and its most competitive and productive one. As such, the EU also holds some lessons that others may wish to emulate. Sadly, though, Europe – as reported in this issue – fails to appreciate its own success. Petty short-term considerations – immigration foremost amongst them – threaten to derail the greatest nation-building project in this history of mankind. Think that is an overblown assessment of what dreary Brussels bureaucrats aim to accomplish? Please, think again.

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

Washington, D.C.: The United States Capitol building

Editorâ&#x20AC;&#x2122;s Column

> Letters to the Editor

“ “ “ “

Your celebration of corporate disruption, whilst interesting, rather misses the point: disruption is merely another way to describe the unrelenting quest for improved efficiencies, or how to maximise profits by minimising expenses. Most disruptive entrepreneurs adhere to a business model that depends for its success on the slashing of labour costs. In fact, workers are encouraged to compete with each other for hours and pay. Disruptors cheer while this race to the bottom unfolds, wholly unconcerned about the damage done to society. I, for one, would appreciate coverage of businesses that do not depend on cheap labour to turn a profit. MARK TOWERS (Chicago, US) As a prime example of the British sense of understatement and class, it was lovely to see Savile Row showcased in your magazine. To quote Charles Bukowski: “Style is the answer to everything.” In today’s fast-moving world, people often forget to take out time to cultivate the finer things in life. A visit to a Savile Row tailor is one of those finer things: an experience no gentleman can do without. BERNARD KEATON (Bristol, UK) I was puzzled by your choice of heroes. Mervyn King, formerly of the Bank of England and now known rather preposterously as Lord King, is many things: a hero he is not. The man passively watched as the last housing bubble inflated, only to be surprised when it burst. Lord King has made a career out of reacting to events, rather than anticipating them. He is unfailingly behind the curve and has established a well-earned reputation as a knowit-all who, in fact, seems to know very little. Interestingly enough, most of the predictions Lord King made as governor of the Bank of England were wildly off the mark. Please do try to be more discerning in your choice of heroes. MATHILDA DOWNING (London, UK) Disruptor Jeff Bezos of Amazon may be the bane of retailers pretty much everywhere; he must be credited with vastly improving the online shopping experience. Amazon was able to corner the retail sector not just by lowering prices, but by offering convenience and superior service. It is not quite Mr Bezos’ fault that others have been slow to catch on. Though I lament the apparently deplorable employment conditions at Amazon’s warehouses, I am sure that Mr Bezos will – perhaps even shortly – address those issues in order not to tarnish the name of an otherwise excellent business that has redefined the concept of disruption. ABIGAIL WESTON (Exeter, UK)

Autumn 2016 Issue

“ “ “ “

Many companies – mostly state-owned – have tried to break the Airbus/Boeing duopoly that rules the civil aircraft industry. China is working on its own version of the short to medium haul Airbus A320 workhorse (7,100+ produced) and Russia now follows suit with its MC-21. Brazil’s Embraer too wants in on the action. It would seem that developing and manufacturing a safe and economical airliner now has become a pursuit of nations out to prove a nationalist point. Therein lies a danger: building large aircraft may satisfy cravings for international recognition, it is usually best not to mix business and diplomacy. GERALDO DARCI (Curitiba, Brazil) How interesting to read about Kuwait – Dubai avant la lettre. I had almost forgotten about that country and now do remember a time in the 1980s when Kuwait was hailed globally as the place to be – the happening country. Sadly, Kuwait is no longer the standard bearer of success it once was. Perhaps its government could follow the example set by the other gulf states and open up its economy in order to reinvigorate that society. Then again, perhaps they don’t need to, having enough wealth to just not care. Now that’s a story! JACK HILDEGARD (Qatar)

Abenomics is not quite the failure it is often held to be. As The Economist pointed out in late July, the policy pursued by the Japanese prime minister has managed to stoke inflation (modestly) once energy prices are removed from the statistics. Fluctuations in energy prices are not usually considered when calculating inflation. Abenomics has also proved that private thrift and public austerity do not mix. Prime Minister Shinzo Abe has recognised this and embarked on a public spending spree, earmarking ¥28tn – fully 6% of GDP – for investments in, amongst others, social services. Japan shows that fiscal and monetary policies, when coordinated, can revive a moribund economy. PAULINE CLIFFORD (Singapore) Writer Henning Mankel of Wallander book fame spent some time in Mozambique and concluded that its people never surrendered to despair. How interesting: A Swede travels to some faraway place and utters a few condescending phrases about “wonderful people” that have a “positive outlook” on life, blah, blah, blah. I don’t think the people of Mozambique need Mr Mankel to remind them of their human qualities. Life is tough enough as it is without a Swedish writer proffering a few platitudes. HUBERT METCALF (Saskatoon (SK), Canada)

Editor Wim Romeijn

Assistant Editor Sarah Worthington

COVER STORIES

Executive Editor George Kingsley

Otaviano Canuto, World Bank: What’s Ailing the Brazilian Economy?

Contributing Editor Darren Parkin

(14 – 18)

Features Editor Penny Hitchin Production Editor Jackie Chapman

NASDAQ: The Convergence of SRI and ESG

Editorial Tony Lennox Kate Stanton Hal Williams Emelia Beeson John Marinus Ellen Langford Naomi Majid

(19)

Cover Story: Multilaterals - Shrinking the Planet

Columnists Otaviano Canuto Evan Harvey Ross Jackson Tor Svensson

(33 – 41)

Distribution Manager Len Collingwood

Summer 2016 Issue

Subscriptions Maggie Arts

PwC: Off-Grid Power and Universal Access to Electricity (122 – 124)

Commercial Director William Adam

Ernst & Young: Tax Reforms in Argentina are Promoting Investments

Director, Operations Marten Mark Publisher Mark Harrison

(162 – 163) Corporate Governance Forum: Organized by IFC and the UMFCCI in Yangon, Myanmar in February. Chris Razook is pictured second from the left.

loans, manage concentrated exposures, and ensure sound credit and collateral procedures are being used.

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

Similarly, while Myanmar’s new stock market is a landmark development that will tap new sources of capital to help fuel the expansion of the country’s private sector, there is a similar public trust element that needs to be safeguarded with sound governance and transparency. Based on IFC and the World Bank Group’s experience in working with capital market authorities in emerging markets globally, creating efficient yet prudent governance rules for listed companies is a continuous process. In Asia alone, there are ongoing or planned efforts to update listed company rules in China, Indonesia, the Philippines, and Vietnam, amongst others. Myanmar should glean much learning from these efforts. Governance will also play a crucial role in the corporatisation of Myanmar’s state-owned entities. State ownership remains high in the country, particularly in the infrastructure sector; without commercially oriented reforms including corporate governance, this can hinder overall market efficiency and drag economic growth.

reforms in Myanmar will bring opportunities to many SMEs, including expansion possibilities requiring capital to fuel their growth. Thus, efforts should be made to help SMEs adopt basic standards of governance, which will facilitate their access to finance and improve their chances of survival in the long run.

With such big challenges ahead, IFC and the World Bank Group, with support from the UK and Australian governments, are committed to working with various market actors in Myanmar to continue strengthening corporate governance practices and help it build a vibrant and sustainable private sector. i

Fortunately, Myanmar can learn a lot from its ASEAN neighbours who have made significant progress on harmonising corporate governance practices in preparation for the launch of the ASEAN Economic Community last year. One notable example is the ASEAN Corporate Governance Scorecard Initiative – first introduced with support from the Asian Development Bank and now also backed by IFC – which provides benchmarks for individual companies to rate and improve specific governance practices. In addition, Myanmar can leverage a strong network of governance practitioners, including representatives from ASEAN capital market authorities and institutes of directors, to its advantage as the country continues to reform.

ABOUT THE AUTHOR Chris Razook is IFC’s corporate governance lead for the East Asia Pacific Region. Mr Razook has more than fifteen years of experience in the area of corporate governance and supports IFC investments by working with companies to strengthen their governance frameworks. He has also supported 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.

SMEs At the other end of the spectrum, small and medium-sized enterprises (SMEs) are the backbone of the Myanmar economy and comprise more than 95% of all firms. Continued market

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

CFI.co | Capital Finance International

137

World SME Forum: Multilaterals, Inclusiveness and the World SME Forum (172 – 173)

IFC: The Value of Rewriting the Rules (188 – 189)

CFI.co | Capital Finance International

Autumn 2016 Issue

FULL CONTENTS 14 – 41

As World Economies Converge

Otaviano Canuto

Evan Harvey

Nouriel Roubini

Robert J Shiller

Tor Svensson

Ross Jackson

Naomi Majid

42 – 49

Autumn 2016 Special: Young Thinkers - Beautiful Minds

50 – 75

Europe

Openwork

Joanne Smith

Kommuninvest

Frost Consulting

Tenerife Free Zone

International Capital Management

GE Africa

ABC Banking Corporation

76 – 99

CFI.co Awards

Rewarding Global Excellence

100 – 127

Africa

Safari Investments

STANLIB Finbond TNM

Orbit Securities

Penny Hitchin

128 – 145

Middle East

Emaar Economic City

Musharaka Capital

Saradar Bank

Consolidated Contractors Company

Zena Exotic Fruits

PwC

Trench & Associates

146 – 153

Editor’s Heroes

Men and Women Who are Making a Real Difference

154 – 163

Latin America

Esval

164 – 173

North America

Peabody Energy

Santiago Free Zone

Ernst & Young

Ann Low

World SME Forum

174 – 189

Asia Pacific

Darren Parkin

TMB

Grant Thornton

IFC

Learn to Trade

190

Geopolitics: Remove the Cloak to Find the Dagger CFI.co | Capital Finance International

> Otaviano Canuto, World Bank:

What’s Ailing the Brazilian Economy? Brazil’s GDP is poised to decline by close to 7% in 2015-2016. Per capita GDP in 2016 is likely to shrink by more than 10% as compared to three years ago. We argue here that a double malaise has been ailing the Brazilian economy: given an anaemia of productivity increases, an appetite for public spending without prioritisation has led to a condition of fiscal obesity. We further approach why market reactions to the Brazilian government’s proposal of crisis response have been positive.

Brazil has been suffering from anaemic productivity growth. This is a major challenge because in the long run, sustained productivity increases are necessary to underpin inclusive economic growth. Without these, increases in real labour earnings tend to conflict with global competitiveness; collecting taxes in order to fund government expenditure on infrastructure and social policies becomes a heavy burden; returns to private investment becomes harder to achieve; and ultimately citizens will have less access to high quality goods and services at affordable prices. The focus on urgent fiscal reforms adopted by the new government – public spending cap, social security reform, etc. – must be accompanied by action on the productivity front. Brazil’s recent social and economic progress was achieved without major productivity growth. Both minimum and average wages rose a lot faster than labour productivity, and employment moved toward sectors with few opportunities for productivity growth (see chart 1).

CFI.co Columnist

According to estimates reported by the World Bank, Brazil’s total factor productivity (TFP) increased at an annual rate of 0.3% from 2002 to 2014 – and only 0.4% p.a. during the roaring years from 2002 to 2010. Two-thirds of Brazil’s GDP increase can be accounted for by higher quantity and quality of labour being incorporated in the economy. Only 10% can be attributed to TFP gains. Demographic trends – a growing working-age population – leading to labour force growth were responsible for 1.1 percentage points of annual GDP growth in 2002-2010, while increases in labour force participation, especially among women contributed about 0.6 percentage points. Better access to education accounted for about 0.7 percentage points of average growth in the same period. Since the investment-to-GDP ratio remained at 14

“It is now widely accepted that a systematic increase in Brazil’s labour productivity and TFP will be needed if the growth-with-socialinclusion that prevailed in the 2000s is to return.” or below 20%, it is not surprising that growth in the capital stock contributed only about 0.9 percentage points to growth on average. In labour productivity, Brazil lagged behind most of its peers over the period. It is now widely accepted that a systematic increase in Brazil’s labour productivity and TFP will be needed if the growth-with-social-inclusion that prevailed in the 2000s is to return. But how can Brazil come up with these productivity improvements? One obvious source of productivity gains is infrastructure. In addition to being a source of gross fixed capital formation, sustainable investments in infrastructure would alleviate bottlenecks that became increasingly tight as the economy expanded: “For at least the past two decades, investment in infrastructure in Brazil has been below the rate of natural depreciation. The rate of infrastructure investment needed simply to offset depreciation has been estimated to be of the order of 3 percent of GDP. In Brazil, total investment in infrastructure has been less than 2.5 percent of GDP annually at least since 2000.” As illustrated in the World Bank report, substantial negative effects in terms of wasted resources – labour time, misallocation of resources, product loss etc. – are derived from the insufficient CFI.co | Capital Finance International

investment in infrastructure and the bad state of energy supply and connectivity such as transport, logistics, and ICT (see chart 2). Reducing the waste of resources through more and better investments in those areas would result not only in direct productivity gains, but would also induce private investment in other sectors. Additionally, horizontal productivity gains could be achieved in the private sector by improving Brazil’s business environment. The Doing Business Report, prepared annually by the World Bank for 189 countries, has indicated year after year how a typical Brazilian company is obliged to spend human and material resources on activities that do not generate value because of the difficulties and costs associated with starting a business, registering a property, getting credit, paying taxes, and enforcing contracts. The negative consequences for productivity are three-fold: it subtracts productivity at both enterprise and macroeconomic levels; it stifles competition as it raises barriers to entry and to the contestability of markets, especially for smaller firms that are unable to dilute the costs of doing business through scales; and it stimulates informality. The Brazilian business environment is especially unfriendly to investments and technological learning obtained through foreign trade (see chart 3 on the right). Transaction costs and difficulties to access technologies, equipment, and supplies from abroad limit innovation, productivity increases, and competitiveness. Investments in logistics infrastructure would help, but an evaluation of the costs of the complex structure of tariff and non-tariff barriers – like local-content requirements – embedded in trade protectionism is also needed. Brazil has become an unusually closed economy as measured by trade penetration and the opportunity cost of failing to open its economy has risen dramatically in the recent past. Not by chance, foreign direct investment is mostly aimed at accessing Brazil’s large domestic market, rather than seeking efficiency in production.

Autumn 2016 Issue

Access to finance is another aspect of the Brazilian business environment limiting productivity growth. Finance for long-term projects and for small- and-medium enterprises (SMEs) is limited – except for a small group of preferred enterprises with access to government subsidised credit. In most of its dimensions, Brazil’s business environment not only takes a toll in terms of waste in the use of resources, but also fails not create incentives towards innovative, technologyadaptive, productivity-enhancing corporate behaviour. Lack of competition is part of the problem:

“Compared to other emerging markets, Brazil has a wider dispersion of productivity levels across firms and a larger number of low-productivity firms. Large gains could be made in aggregate TFP if physical and human capital were reallocated in a way that allowed more-productive firms to grow and the least-productive ones to shrink or exit. High firm dispersion in Brazil suggests market and policy failures that create an uneven playing field for firms, negatively affecting the entry and expansion of more-efficient firms and the exit of less-efficient ones.” The window of opportunity opened by the ongoing corruption scandals will be used to upgrade governance in the interface between public and private sectors, with many gains such as: improved rule of law and corporate governance, resulting in lower risk perceptions; improved competition and market discipline in key sectors, particularly those bidding for public projects; and cutting out wide-spread kickbacks that will reduce both public overspending and the notorious Brazil Cost (Custo Brasil) born by the private sector. Besides infrastructure investments and addressing the business environment, a third obvious source of systematic productivity gains would come from better and more accessible continuing education and skill acquisition by workers. Despite improvements in quantity and quality of education over the last decade, there remains the legacy of a long history of educational neglect with respect to large swaths of the population that accompanied the noninclusive nature of Brazil’s economic progress over the previous century.

Brazil: Rio de Janeiro

CFI.co | Capital Finance International

CFI.co Columnist

Even as Brazil achieved upper middle income status and captured higher positions on some global value chains – such as technologyintensive agriculture, sophisticated deep-sea oil drilling, and the aircraft industry – a substantial share of the population remained mired in poverty. With inadequate education, poor health conditions, and a lack of on-the-job training preventing many workers from increasing their productivity, Brazil’s potential economic growth has been compromised. Provided that the country manages to return to a comprehensive poverty reduction path which includes improved access to healthcare, financial services, and education Brazil’s overall productivity could improve in the coming years.

LACK OF PRIORITIES IN PUBLIC SPENDING The anaemic productivity increases in the last decades have taken place while a political desire to finally come to terms with the poverty and inequality has also been exercised. Such a political desire, after the return to democracy, translated into a large role for the public sector, along which primary government expenditures as a proportion of GDP rose from 22% in 1991 to 36% in 2014. The uptick of public spending took place with increased earmarking of tax revenues and the ability of interest groups to maintain existing privileges. It was matched by a rising tax burden based on levies on consumption and also dependent on rising levels of formalisation in the labour market. When the conditions that allowed for the growth-cum-poverty-reduction experience of 2003-2010 exhausted, the aftereffects of the fiscal pro-activeness on the economy became hard to trim.

Productivity and Wages, Index, 2003=100

Chart 1. Source: World Bank (2016a)

Too few productivity gains from structural change, 2000-2013

Chart 1. Source: World Bank (2016a)

Investment in Infrastructure, 2011, % GDP

Quality of Overall Infrastructure Rank, 2015

Had productivity risen more than it did, the demand on government services in absolute terms would have meant less of a share of GDP and of a tax burden on the private sector. On the other hand, the run-up to a fiscal overweight condition was pushed forward and postponed as the boom of the new millennium unfolded.

CFI.co Columnist

Indeed, even without substantial productivity gains, the Brazilian economy went through a period of macroeconomic stability and economic growth-cum-poverty-reduction in the first decade of new millennium. The preservation of the economic policy tripod – inflation targeting, floating exchange rates, and significant government primary surpluses – along the transition from President Fernando Henrique Cardoso to President Luiz Inácio Lula da Silva led to substantial stabilisation gains as gauged by rising business confidence and decreasing risk premiums, which culminated with the upgrade of public debt to an investment grade status by the three major international rating agencies. Such stabilisation gains in a context of very favourable external conditions – the upward phase of the super-cycle of commodities and the abundance of global liquidity – paved the way for a prolonged boom. The creation of formal jobs proceeded at a fast pace, with rising rates of formalisation in the labour market and unemployment rates falling from 11% in the beginning of the decade to 5% in 2010. The differential income growth at the bottom of the social pyramid was particularly remarkable, with a correspondingly impressive emergence of a new middle class. While GDP grew at an average rate of 4.5% per year, income of the bottom 20% rose at rates above 7% p.a. The favourable external scenario supported growth in several ways. Rising commodity prices provided a fiscal windfall, used to boost social objectives while leaving existing privileges untouched. Improved terms of trade translated 16

Chart 2. Source: World Bank (2016a)

Chart 2 Source: World Bank (2016a) Doing Business 2016 ranking, Trading across Borders (1=best)

Ease of Doing Business Rank, 2016

Investment in Infrastructure, 2011, % GDP

Chart 3. Source: World Bank (2016a)

Chart 3 Source: World Bank (2016a)

Chart 4: Central government primary balance. % of GDP. 12-month sum, adjusted for non-recurring events.

*Includes civil service pensions. The central government balance corresponds to the sum of the Treasury and social security

*Includes balances civil service pensions. The central government balance corresponds to the sum of the Treasury and social security balances.

Chart 4: Central government primary balance J.P.Morgan, “Brazil: the unbearable Source: J.P.Morgan, “Brazil: the unbearable weight ofSource: social security”, Global Data Watch, August 19,weight 2016. of social security”, Global Data Watch, August 19, 2016.

CFI.co | Capital Finance International

Autumn 2016 Issue

Central Government Primary expenditure

into increasing domestic purchasing power of goods and services, besides positive wealth effects for natural-resource owners. Foreign currency indebtedness of the private sector was facilitated. Official external reserves skyrocketed.

(%GDP) 24.0% 23.0% 22.0%

Occurred

23.2%

Projections Recent Trend Projections Expenditure Cap

21.0%

19.6% 19.8%

20.0% 19.0%

18.1%

18.3%

18.0% 17.0%

16.8% 16.2%

16.0%

16.7%

15.7%

15.0%

Chart 5: Spending cap – official forecasts. Note: assuming annual real GDP growth at 2.5% and inflation at 4.5% from 2018 onward.

Source: Brazil’s Ministry of Finance. Note: assuming annual real GDP growth at 2.5% and inflation at 4.5% from 2018 onward Chart 5 – Spending cap – official forecasts Source: Brazil’s Ministry of Finance

However, the upswing phase from 2004 onwards of the commodity super-cycle brought doubleedge effects, while reinforcing the consumptionled, labour income-led underlying growth model. Combined with exchange rate appreciation and rising minimum wage floors – as well as publicsector disbursements indexed to the latter – the commodity boom allowed a virtuous domestic cycle featuring positive feedback loops between consumption – especially services – and formal employment. On the other hand, profitability levels in the manufacturing industry were crushed and levels of production practically stagnated after 2008 before ultimately declining in 2014. The Brazilian economy ran toward a competitiveness cliff. With the fall of global prices of metals since 2012, followed by food prices in 2014, the cycle began to unfold in the opposite direction.

Chart 6: Spending cap - J.P.Morgan’s forecasts. Source: J.P.Morgan (October 7, 2016)

Chart 6 – Spending cap: J.P.Morgan’s forecasts Source: J.P.Morgan (October 7, 2016)

Chart 7: Pension public spending and elder’s participation. Spending as % of GDP, orange dots are Brazil’s numbers.

Chart 7 - Pension public spending and elder’s participation Source: J.P.Morgan, “Brazil: the unbearable weight of social Source: J.P.Morgan, “Brazil: the unbearable weight of social security”, Global Data Watch, August 19, 2016. security”, Global Data Watch, August 19, 2016.

Interest rate 5 years

(swap pre-DI, annual %)

20-Jan 16.81

26-Sep 11.78

Chart 8: Interest rates and risk premium. Source: Bloomberg

Chart 8 - Interest rates and risk premium Source: Bloomberg

CFI.co | Capital Finance International

In fact, macroeconomic policies implemented in 2015 may be primarily seen as the unwinding of that attempted shortcut. The upward realignment of regulated prices, together with the realignment of foreign versus domestic prices (exchange rate depreciation), both led to an expected inflation shock. The Central Bank then used interest rate hikes to contain expectations of future inflation and avoid the diffusion of the corrective inflation shock. Furthermore, ambitious targets of fiscal adjustments were announced at the beginning of the year, although the barriers to reach such targets – rigid, legally-mandated public expenditure rises with pensions and others – came to be recognised with successive announcements of unwinding of fiscal targets. 17

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It is in that context that the government attempted to find a shortcut to a new, investment-led growth cycle in 2012-2014. In response to the global financial shocks in 20082009, the Brazilian government had employed counter-cyclical fiscal and monetary policies that helped lift GDP by more than 7% in 2010. As growth returned to lower levels afterwards, the government implemented a second round of stimulus policies, including a sizable package of tax exemptions, local-content policies, credit expansion via transfers of proceeds of publicdebt issuance to public-sector banks and, in a failed attempt to slow down inflation without hiking interest rates, curbs on regulated prices. It is worth noticing that the expansion of public spending accelerated after 2008 and tax revenues have collapsed since the beginning of the economic downturn in mid-2014. Given the structural reasons for the private investment retrenchment, the main legacy of what we have called a failed effort to chase animal spirits was mainly fiscal deterioration (as depicted in chart 4).

Another factor behind the current bust has been the collapse of private investment following the previously mentioned investigations of market rigging and corruption initially associated with Petrobras, the state-controlled oil company, which subsequently spread to much of private-public sector. Large and GDP-relevant domestic private groups involved in those scandals have faced direct impacts – financial drought, operational disarray, and a sudden halt of demand. Furthermore, deteriorating confidence has spread throughout, accompanied by a wait-and-see attitude pervasive with outsiders. The ensuing political crisis not only reinforced the investment paralysis, but also hindered the congressional approval of fiscal adjustment measures. As remarked, the medium-term silver lining of the investigations is an improved perception of ruleof-law by investors, besides a fiercer private sector competition and lessened cost-effectiveness of public spending in those activities where there is an interface between public and private sectors. However, in the short term, these non-economic factors have been partly responsible for the GDP decline. Furthermore, as tax revenues fell at an even faster rate than GDP, the fiscal adjustment effort has been thwarted and an open fiscal crisis came to the fore.

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To summarise, the combination of anaemic productivity increases and a substantial growth in public expenditures oriented towards government transfers (pensions, social programmes) – and real wages rising faster than productivity – during the growth-cum-poverty-reduction cycle was sustainable only while external conditions were highly favourable. Now, a medium-term fiscal adjustment – to be supported by measures to raise the pace of productivity increases – has become essential to return to inclusive growth. A STRAITJACKET ON PUBLIC SPENDING Reversing the explosive fiscal trajectory of the last few years has become widely accepted as a government policy top priority. The Brazilian government has proposed to congress a constitutional amendment forbidding central government expenditures for up to twenty years to increase annually in nominal terms by more than the inflation rate of the previous year. Provided that the inflation stabilises at some level, such a cap will eventually mean a decrease of public expenditures as a ratio of GDP as soon as the latter exhibits positive figures – even if public spending keeps rising in real terms in the immediate future ahead while inflation remains on a descending path. If tax revenues accompany GDP, the fiscal rule will automatically lead to reversal of negative primary balances and of the current rising trend of fiscal imbalance and public debt. The rule may be understood as a trade-off of medium-term enhancement of the fiscal landscape in exchange for some flexibility in the short term, given the prevailing budget hard rigidities (see current simulations from the ministry of Finance in chart 5 and those from JPMorgan in chart 6). 18

Of course, the main requisite for success will be a review of public spending rigidities and legally-mandated increases. Not by chance, the government has declared that it will also send to congress a proposal of pension reform, a key ingredient of the recent fiscal obesity, as a way to make space for other essential public expenditures not to be dramatically curbed. Government forecasts point to a deficit of the social security system around 2.7% of GDP next year, larger than the overall government deficit. Although currently still a moderate deficit, pension expenditures are poised to accelerate given demographic trends and prevailing rules. Brazil’s ministry of Finance forecasts social security spending to reach almost 10% of GDP in ten years under existing conditions even with GDP growing by 2.5% p.a. from 2018 onward. Brazil, for instance, is one of the very few countries without a minimum retirement age. Chart 7 – extracted from a study by Fernandez, Moreira, and Souza, contained in JP Morgan’s Global Data Watch of August 9, 2016 – illustrates how relatively generous Brazil’s social security system is compared to most other countries:

“Brazil paid 6.4% of GDP in pensions in 2011, even though only 7% of the population was above 64 years of age (orange dot marked 2011 in chart 4). By 2016, total expenditure rose to 8.4% of GDP while the proportion of the population over 64 grew to 8.2% (dot marked 2016 in chart 4). Spending is far above the OECD trend, which suggests that Brazil spends as much as countries with higher proportions of people over 64, of about 13% in 2011 and 16% in 2016 (dots around the centre of chart 4). Pensions in Chile, a Latin American peer, amounted to 3.2% of GDP in 2011, with 9.9% of the population older than 64.” The two previous fiscal adjustments in the last twenty years – at the end of the 1990s and after President Lula’s first election – relied mainly on a combination of tax hikes, discretionary spending cuts, and growth in following years. This time the tax burden is already relatively high, recovery of growth will be gradual, and the share of discretionary spending is only about 25% of the total. Reform of mandatory expenditures as imposed by the straitjacket will have to happen. More generally, a review of public spending should help abiding to the new constitutional rule. To the extent that one may locate benefits and public subsidies that do not find justification in terms of poverty reduction or needs of the productive system, their elimination would make room for redirection of the corresponding resources. A review of public spending may also bring a great potential contribution to TFP and economic growth, with effects spanning across two factors behind the productivity anaemia – infrastructure and business environment – as we saw. For an economy with a high tax burden and proportion CFI.co | Capital Finance International

of public spending in GDP such as Brazil, improvements in the quality of the latter have significant direct and indirect impacts. More generally, international experience has shown how transparency, evaluation of results, accountability, and competition in public procurement reduce corruption and improve the quality of public spending. There is also evidence that the quality of public services responds positively to the presence of incentives that reward good performance. Improvements in the quality of public spending would provide gains not only as a significant part of GDP, but also as part of the production inputs used by the private sector. In addition to the fiscal regime change, the government has also obtained – or is seeking – congress’ approval for other reforms with potential positive effects on investments and productivity. As of the moment this text is written: Petrobras has been freed from the obligation to invest in all pre-salt fields; a reform of the regulatory agencies law has improved their governance and budget independence; prevalence of negotiation over labour legislation; and simplification of two taxes with heavy impact on Brazil’s cost of doing business. The government has also launched a first package of new 34 infrastructure concessions. The economic agenda proposed by the government and the track record already established with respect to its congress approval have been among the factors explaining the favourable recent evolution of long-term interest rates and risk premiums levels (chart 8). Confidence levels and other early signals point to a private investment-led recovery starting last quarter of this year. BOTTOM LINE Brazil’s remarkable achievements in terms of growth-with-poverty-reduction of the last decade can be repeated. As long as due attention is given to the double malaise – productivity anaemia and consequent fiscal obesity – that has been ailing its economy. Although fiscal adjustment comes to the fore as a most immediate focus of measures, success will ultimately depend on how well the productivity anaemia is dealt with, since only with productivity increase the poverty reduction-motivated demand for government services will be exercised without conflicting with fiscal soundness. i

ABOUT THE AUTHOR Otaviano Canuto is the executive director at the board of the World Bank for Brazil, Colombia, Dominican Republic, Ecuador, Haiti, Panama, Philippines, Suriname, and Trinidad & Tobago.

The views expressed here are his own and do not necessarily reflect those of his employer or any of the governments he represents. Follow Mr Canuto on Twitter: @ocanuto

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> Evan Harvey, Nasdaq:

The Convergence of SRI and ESG For many years, sustainability-minded investors were lumped into a single narrow category. They were thought to practice socially responsible investing (SRI), which meant that they used their money to drive positive social change. It was also thought that they sacrificed returns in order to do so – the tradeoff for doing good, in this context, was making less.

n reality, that was never completely true. Many SRI practitioners were just as interested in environmental and governance performance metrics as social ones, and they did not accept the fact that a market (or better) return was impossible. But the myth persisted, unfairly colouring the SRI movement as a fringe part of the investment community. It would never be mainstream, attract retail investors, or deliver significant returns. But, as the man once said, things change. A series of financial scandals, and near economic collapse, brought greater scrutiny to corporate governance controls. The environmental crisis became more commonly known and accepted. The connected and globalised workplace brought with it a series of social challenges. Investors looking for an analytic edge, true insight into the operational excellence of a company, now had to look well beyond the balance sheet. So they focused on non-financial performance metrics, the ESG (environmental, social, and governance) indicators. As to whether the sustainability investing movement is sufficiently mainstream, consider the numbers: more than $7tn in assets, accounting for more than one out of every six dollars under professional management in the United States.

“As to whether the sustainability investing movement is sufficiently mainstream, consider the numbers: more than $7tn in assets, accounting for more than one out of every six dollars under professional management in the United States.” companies, and consistent contributors within their communities, investment managers are also making their own strides by incorporating more refined screening criteria to identify these very companies for their portfolio strategies.” (The Changing Face of Socially Responsible Investing, April 2016). Mr Mahn went on to say that this new form of ESG provides investors with a more “positive, proactive, and comprehensive review of a company,” one that offers diligent investors a more substantive and actionable understanding of company operations. A new research paper from Nasdaq also makes this point clear. Do Well, Do Good, Do Both: Socially Responsible Investing & Environmental, Social and Corporate Governance in the Era of Shareholder Engagement, published by Directors Desk, argues that the evolution of investing in this space has led to a new era of shareholder activism and new practices in board engagement.

And investors certainly are looking. As noted asset manager Kevin Mahn opined in Forbes Magazine earlier this year: “While companies continue to make strides towards becoming better stewards of the environment, stronger governors of their

A careful reading of the Nasdaq paper reveals a number of emerging themes. First of all, it doesn’t really matter if the issue relates to say-on-pay, proxy access, or socially and environmentally responsible investing—shareholders now expect CFI.co | Capital Finance International

High-functioning boards should not view these tasks as added responsibilities or nuisances that must be dealt with. Instead, they should be leveraged as two-way channels of communication, providing information out but also taking information in. News business issues that the board must hold management accountable for are often raised in these dialogues. Finally, the real complexities of ESG engagement should compel boards to create and follow a good process. The more boards can rely on procedure and transparency—and communicate with their stakeholders more proactively—the less likely that the process will become adversarial or disruptive. i ABOUT THE AUTHOR Evan Harvey is the Director of Corporate Responsibility for Nasdaq. He also serves on the Board of Directors for the UNGC US Network and chairs the Sustainability Working Group at the World Federation of Exchanges.

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Whether these worlds (SRI, ESG, Impact Investing, Values-Based Investing) happened to converge, or simply evolved into a broader understanding of the responsibilities of a smart investor, doesn’t really matter. This is an era of integrated thinking in the investment space. Sources of alpha (and avenues of return) are harder to find, so investors look farther afield.

better, more frequent access to the board. This goes well beyond the annual meeting and other traditional avenues of communication between boards and investors.

> Nouriel Roubini:

The Return of Fiscal Policy

ince the global financial crisis of 2008, monetary policy has borne much of the burden of sustaining aggregate demand, boosting growth, and preventing deflation in developed economies. Fiscal policy, for its part, was constrained by large budget deficits and rising stocks of public debt with many countries even implementing austerity to ensure 20

debt sustainability. Eight years later, it is time to pass the baton. As the only game in town when it came to economic stimulus, central banks were driven to adopt increasingly unconventional monetary policies. They began by cutting interest rates to zero, and later introduced forward guidance, committing to CFI.co | Capital Finance International

keep policy rates at zero for a protracted period. In rapid succession, advanced-country central banks also launched quantitative easing (QE), purchasing massive volumes of long-term government securities to reduce their yields. They also initiated credit easing, or purchases of private assets to reduce the costs of private-sector

Autumn 2016 Issue

borrowing. Most recently, some monetary authorities – including the European Central Bank, the Bank of Japan, and several other European central banks – have taken interest rates negative. While these policies boosted asset prices and economic growth, while preventing deflation, they are reaching their limits. In fact, negative policy rates may hurt bank profitability and thus banks’ willingness to extend credit. As for QE, central banks may simply run out of government bonds to buy. Yet most economies are far from where they need to be. If below-trend growth continues, monetary policy may well lack the tools to address it, particularly if tail risks – economic, financial, political, or geopolitical – also undermine recovery. If banks are driven, for any reason, to reduce lending to the private sector, monetary policy may become less effective, ineffective, or even counterproductive. In such a context, fiscal policy would be the only effective macroeconomic-policy tool left, and thus would have to assume much more responsibility for countering recessionary pressures. But there is no need to wait until central banks have run out of ammunition. We should begin activating fiscal policy now, for several reasons. For starters, thanks to painful austerity, deficits and debts have fallen, meaning that most advanced economies now have some fiscal space to boost demand. Moreover, central banks’ near-zero policy rates and effective monetisation of debt by way of QE would enhance the impact of fiscal policy on aggregate demand. And long-term government bond yields are at an historic low, enabling governments to spend more and/or reduce taxes while financing the deficit cheaply. Finally, most advanced economies need to repair or replace crumbling infrastructure, a form of investment with higher returns than government bonds, especially today, when bond yields are extremely low. Public infrastructure not only increases aggregate demand; it also increases aggregate supply, as it supports private-sector productivity and efficiency.

“Fiscal policy, for its part, was constrained by large budget deficits and rising stocks of public debt with many countries even implementing austerity to ensure debt sustainability.”

The good news is that the advanced economies of the G7 seem poised to begin – or perhaps have already begun – to rely more on fiscal policy to bolster sagging economic growth, even as they maintain the rhetoric of austerity. In Canada, Prime Minister Justin Trudeau’s administration has announced a plan to

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boost public investment. And Japanese Prime Minister Shinzo Abe has decided to postpone a risky consumption-tax hike planned for next year, while also announcing supplementary budgets to increase spending and boost the household sector’s purchasing power. In the United Kingdom, the new government, led by Prime Minister Theresa May, has dropped the target of eliminating the deficit by the end of the decade. In the wake of the Brexit vote, May’s government has designed expansionary fiscal policies aimed at spurring growth and improving economic conditions for cities, regions, and groups left behind in the last decade. Even in the Eurozone, there is some movement. Germany will spend more on refugees, defense, security, and infrastructure, while reducing taxes moderately. And, with the European Commission showing more flexibility on targets and ceilings, the rest of the Eurozone may also be able to use fiscal policy more effectively. If fully implemented, the so-called Juncker Plan, named for European Commission President Jean-Claude Juncker, will boost public investment throughout the European Union. As for the United States, there will be some stimulus, regardless of whether Hillary Clinton or Donald Trump wins the presidential election. Both candidates favour more infrastructure spending, more military spending, loosening limits on civilian spending, and corporate-tax reform. Trump also has a tax-reduction plan that would not be revenue-neutral, and thus would expand the budget deficit (though the effect on demand would likely be small, given the concentration of benefits at the very top of the income distribution). The fiscal stimulus that will result from these uncoordinated G7 policies will likely be very modest – at best, 0.5% of GDP of additional stimulus per year for a few years. This means that more stimulus, particularly spending on public infrastructure, will probably be warranted. Nonetheless, the measures undertaken or contemplated so far already represent a step in the right direction. i ABOUT THE AUTHOR Nouriel Roubini is Chairman of Roubini Global Economics and Professor of Economics at the Stern School of Business, NYU.

> Robert J Shiller:

The Coming Anti-National Revolution

or the past several centuries, the world has experienced a sequence of intellectual revolutions against oppression of one sort or another. These revolutions operate in the minds of humans and are spread – eventually to most of the world – not by war (which tends to involve multiple causes), but by language and communications technology. Ultimately, the ideas they advance – unlike the causes of war – become noncontroversial. 22

I think the next such revolution, likely sometime in the twenty-first century, will challenge the economic implications of the nation-state. It will focus on the injustice that follows from the fact that, entirely by chance, some are born in poor countries and others in rich countries. As more people work for multinational firms and meet and get to know more people from other countries, our sense of justice is being affected. This is hardly unprecedented. In his book 1688: CFI.co | Capital Finance International

The First Modern Revolution, the historian Steven Pincus argues convincingly that the so-called Glorious Revolution is best thought of not in terms of the overthrow of a Catholic king by parliamentarians in England, but as the beginning of a worldwide revolution in justice. Don’t think battlefields. Think, instead, of the coffeehouses with free, shared newspapers that became popular around then – places for complex communications. Even as it happened, the Glorious Revolution clearly marked the

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beginning of a worldwide appreciation of the legitimacy of groups that do not share the ideological unity demanded by a strong king. Thomas Paine’s pamphlet Common Sense, a huge bestseller in the Thirteen Colonies when it was published in January 1776, marked another such revolution, which was not identical with the Revolutionary War against Britain that began later that year (and had multiple causes). The reach of Common Sense is immeasurable, because it wasn’t just sold but was also read aloud at churches and meetings. The idea that hereditary monarchs were somehow spiritually superior to the rest of us was decisively rejected. Most of the world today, including Britain, agrees. The same could be said of the gradual abolition of slavery, which was mostly achieved not by war, but by an emerging popular recognition of its cruelty and injustice. The 1848 uprisings around Europe were substantially a protest against voting laws that limited voting to only a minority of men: property holders or aristocrats. Women’s suffrage followed soon after. In the twentieth and twentyfirst centuries, we have seen civil rights extended to racial and sexual minorities. All of the past justice revolutions have stemmed from improved communications. Oppression thrives on distance, on not actually meeting or seeing the oppressed. The next revolution will not abolish the consequences of place of birth, but the privileges of nationhood will be tempered. While the rise in anti-immigrant sentiment around the world today seems to point in the opposite direction, the sense of injustice will be amplified as communications continue to grow. Ultimately, recognition of wrong will wreak big changes. For now, this recognition still faces strong competition from patriotic impulses, rooted in a social contract among nationals who have paid taxes over the years or performed military service to build or defend what they saw as exclusively theirs. Allowing unlimited immigration would seem to violate this contract.

“To achieve factor-price equalisation, people need a stable base for a real lifetime career connected to a country in which they do not physically reside.”

But the most important steps to address birthplace injustice probably will not target immigration. Instead, they will focus on fostering economic freedom. In 1948, Paul A Samuelson’s factor-price equalisation theorem lucidly showed that under conditions of unlimited free trade without transportation costs (and with other CFI.co | Capital Finance International

idealised assumptions), market forces would equalise the prices of all factors of production, including the wage rate for any standardised kind of labour, around the world. In a perfect world, people don’t have to move to another country to get a higher wage. Ultimately, they need only be able to participate in producing output that is sold internationally. As technology reduces the cost of transportation and communications to near the vanishing point, achieving this equalisation is increasingly feasible. But getting there requires removing old barriers and preventing the erection of new ones. Recent free-trade agreements under discussion, the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, have suffered setbacks as interest groups attempt to bend them to their own aims. But, ultimately, we need – and probably will get – even better such agreements. To achieve factor-price equalisation, people need a stable base for a real lifetime career connected to a country in which they do not physically reside. We also need to protect the losers to foreign trade in our existing nation-states. Trade Adjustment Assistance (TAA) traces its roots in the United States back to 1974. Canada experimented in 1995 with an Earnings Supplement Project. The European Globalisation Adjustment Fund, started in 2006, has a tiny annual budget of €150 million ($168.6 million). US President Barack Obama has proposed to expand the TAA program. But, so far, this has meant little more than experiments or proposals. Ultimately, the next revolution will likely stem from daily interactions on computer monitors with foreigners whom we can see are intelligent, decent people – people who happen, through no choice of their own, to be living in poverty. This should lead to better trade agreements, which presuppose the eventual development of orders of magnitude more social insurance to protect people within a country during the transition to a more just global economy. i

ABOUT THE AUTHOR Robert J Shiller, a 2013 Nobel laureate in Economics and professor of Economics at Yale University, is co-author, with George Akerlof, of Phishing for Phools: The Economics of Manipulation and Deception.

> Tor Svensson:

Selling the Family Jewels

he developed world is struggling with the “new normal” of slow growth and high inequality. Global aggregate demand is weak and declining. This forces inflation down – in Europe to

investment, will stimulate trade, which in turn could help strengthen productivity and growth.”

Unemployment remains persistently high in many countries. Global trade is also down which contributes to slower economic growth.

“Inflation has declined markedly in many economies over the past few years. The main drivers of recent disinflation are persistent economic slack and softening commodity prices. Sensitivity of expectations to inflation surprises has increased in countries where policy rates have approached their effective lower bounds. While the magnitude of this change in sensitivity is modest, it does suggest that the perceived ability of monetary policy to combat persistent disinflation may be

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zero.

According to IMF, “trade growth has slowed since 2012 relative both to its strong historical performance and to overall economic growth. The overall weakness in economic activity, in particular in investment, has been the primary restraint on trade growth. Addressing the general weakness in economic activity, especially in 24

Will fiscal policies now be used more extensively to help expansionary monetary policies create growth and jobs?

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diminishing in these economies.” Summarising, market participants are dissing the effectiveness of further monetary easing. The incremental aggregate demand created by the wealth effect from elevated asset prices may have run its course. Prices of fine wine, art, vintage cars, and antique jewellery prices have shot up. This has done almost nothing for job creation. The central banks in the developed world have been printing digital money like never before. The European Central Bank (ECB) has been pushing banks to lend more to businesses including through TLTRO program (Targeted Long-Term Refinancing Operations) by paying the banks - through negative interest rates on

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One such asset class, UK shares, is now approaching an all-time high. The housing market is creating a bubble as well. However, the Cameron and Osborne leadership duo was not looking to “mitigate the cost to those who shoulder the burden of adjustment” by building new social housing. After all, why create clusters of labour voters? Better not build. The UK’s low productivity probably has some origin in its educational system. Here is something Conservative and Labour politicians can possibly agree on. On both sides of parliament very few MPs are willing to tinker with the education system even though the current system is one based on social standing (and post code). To boost productivity and society’s overall wealth would require a new education policy that emphasises merit - with equal opportunities for all children, regardless of social background. Why can both major parties agree on preserving status quo when international research shows UK’s general school system wanting? Simple: Conservatives favour the way their (often wealthier) children can better compete later in life. Labour knows that as soon as their less financially fortunate voter groups get a good education – they become aspirational. And then will surely abandon Labour. Aspirational voters stop voting for Labour as quickly as well-educated (and better-informed) black South Africans continue to leave ANC. The party survives now only on Mandela’s legacy, while sustaining low education levels – and keeping aspirations down. The BoE also recognises the wealth effect of its QE which started in 2009. In August 2016, the BoE Monetary Policy Committee decided to increase its £375 billion asset purchase programme with a further £70 billion worth of bonds.

their borrowing at the ECB. Additionally, the ECB’s Quantitative Easing (QE) purchases government and corporate bonds to the tune of £68 billion a month.

Former UK Chancellor George Osborne stated that money printing by the Bank of England (BoE) made the rich richer: “We need to offset the very necessary loose monetary policy for, essentially, it makes the rich richer by inflating asset prices.”

The key driver of inflation is a shortage in the labour market. But with no new jobs being created in the Eurozone, inflation is currently running at only 0.2% per annum. One of the main functions of the EU is to serve as a trade barrier for other countries to enter. With free trade and movement inside Fortress Europe, the strongest will always prevail. The euro has eliminated the weaker competitors’ option of devaluing to level the playing field. Thus, there is trouble ahead for Europe if we are to believe Nobel Prize laureat Joseph Stiglitz, CFI.co | Capital Finance International

In Mr Stiglitz’ words: “Anyone who understood a little economics would realise that if you have free mobility of capital, you have a crisis. Money moves from weak countries to strong countries. You make it easier for money to move out of Greece, Spain, and Italy. It moves to Germany. So you create a system where the weak grow weaker and the strong get stronger.” This system gives all the power to Germany and creates divisions between the Eurozone members. Mr Brummer: “Stiglitz argues that Germany’s commitment to the monetary orthodoxy, which caused the Eurozone to back away from burden sharing measures such as the issue of Eurobonds, is based on the mythology about the Weimar Republic.” Mr Stiglitz: “They have rewritten their history. It wasn’t hyperinflation that that let to Hitler, it was unemployment. If they had listened to their own story, Germans would not have allowed what they forced on Greece which is 25% unemployment and 50% youth joblessness.” Mr Stiglitz paints a depressing economic scenario for the future: “There is going to be a sequence of crises and the likelihood is that the EU will be going to be mired in stagnation. In many countries people are only doing as well as they are because they are selling family jewellery, but eventually you run out of jewellery.” Is unemployment really such a non-issue that old and wrong dogmas cannot be re-examined? Why not more infrastructure investments? Why not finance them through the issue of “offbalance-sheet” Eurobonds? The pension fund savers need long term investment. Europe’s youth needs jobs. Southern Europe needs debt restructuring. Europe needs to recapitalise its banking system and start lending to SMEs. The divergence between Italy’s PM Renzi and Germany’s PM Merkel is such that they cannot stand on the same podium because the German’s lack of understanding of Europe’s political and economic health and interrelatedness – or the concept of solidarity. But as Mr Stiglitz points out: While Germany has low unemployment, it is not benefitting (that much) in terms of economic growth which over recent years has not been spectacular. Possible reasons may be that the client’s bank is shut. And the customer is running out of family jewellery to sell. i ABOUT THE AUTHOR Tor Svensson is the Chairman of Capital Finance International. 25

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Without the central banks expansionary monetary policies to boost aggregate demand it is likely that deflation could have crept in and created havoc. These policies have been effective at avoiding that spectre.

The world will never know the net effects, but there is a strong case for that increased inequality in itself will put a damper on growth. Across the Eurozone, more than one-in-five young people is unemployed. Disfranchising whole generations of workers is dangerous and not unlike selling the crown jewels to pay for the party.

author of The Euro and Its Threat to the Future of Europe. In the words of Alex Brummer in the Daily Mail: “His [Stiglitz] thesis is that the EU has built a flawed system designed for economic divergence rather than convergence, built for Germany’s benefit, which is impoverishing much of the rest of Europe.”

> Ross Jackson:

Language Matters I CFI.co Columnist

oth the EU and the USA are currently in the midst of a crisis of values, with half of the population pulling one way, and half the other way. A major part of the discourse is related to how each side frames the conflict. One of the key points I want to make is that the policies that a particular citizen supports are often related to whose framing is accepted. In most cases this is not a conscious choice, but rather one determined by which media is the source of information and/or which circle of friends one is associated with. One consequence of this situation is that many people are 26

supporting policies these days that are not in their self-interest because they do not realise how they are being manipulated by the conscious use of language by those who wish to influence them.

universities, research institutes, and the media. The current structure represents primarily the 1%’s interests. According to their framing, the major conflict of our day is: free trade and globalisation versus protectionism and populism.

On the one side, we have the dominant culture, the status quo, characterised by a belief in more growth, greater inequality and concentration of wealth, more trade, and more centralisation, preferably in a society without national boundaries. The status quo is basically the side more or less controlled by the 1% wealthiest citizens and their financially dependent supporters in politics, think tanks, corporations,

The words free trade and globalisation are designed to project a positive view of the 1%’s agenda, while protectionism and populism, are words designed to characterise negatively the ideas of those who would challenge the status quo. And make no mistake: The 1% is the status quo today, dominating the political and economic scene. Furthermore, those who accept the 1%’s framing of the issues – without even realising

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Autumn 2016 Issue

the media in the USA are, to put it bluntly, on the payroll of the 1%, just as the vast majority of researchers, corporate executives, economists, politicians, and even most large NGOs, based on the principle do not bite the hand that feeds you (or supports your research, your professorship, your website, your vision, etc.). We might call this group of professionally dependent persons the cronies or pawns of their multibillionaire financial backers. They would, of course, object to this terminology, and prefer to be called the elite or some other more flattering label. But whatever we call them, the effect is that the ordinary man in the street, who does not reflect on the use of language, passively accepts the 1%’s framing and indirectly supports the 1%’s interests. Let us now look at an alternative way of framing the same issues and note how the resulting impression is the direct opposite of the current general perception. Free trade could, for example, more correctly be called forced trade. After all, for whom is trade free? The answer is that it is the multinational corporations (controlled by the 1%) who are free to produce in Asian sweatshops, using child labour and ignoring the environmental and social costs of their production technologies, negotiate enormous tax breaks, sell at large mark ups in the rich countries, and place their profits in tax havens. Consumers on the other hand, are forced to accept the products of these multinationals in their local stores regardless of how or where they were produced. Local competitors are, of course, free to compete in their domestic market, but they have no chance against the foreign behemoths because they must live up to higher and more expensive standards of environmental protection and strict labour laws.

“The status quo is basically the the 1% wealthiest citizens and their financially dependent supporters in politics, think tanks, corporations, universities, research institutes, and the media.”

Language is important because the great majority of people accept the 1%’s framing of the issues without even thinking about it. They do so because this is the language presented to them by the overwhelming majority of media, which are, of course, controlled by and large by the same 1%. The majority of people working in

Actually, historically, it was the richest countries back in 1995 when WTO terms were negotiated, who insisted on protecting their inefficient industries with subsidies as a condition of joining. For example, in agriculture alone, WTO rules allowed the EU to use up to $60 billion a year in subsidies; Japan was allowed $30 billion.

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side more or less controlled by

it – are indirectly supporting the agenda of the 1% and acting in most cases against their own self-interest. Actually, the 0.1% would be a more accurate term. Or perhaps even the 0.000001 % roughly representing the 62 people who, according to Oxfam, now own more than all the assets controlled by half the world’s population.

Protectionism, in the worldview of the 1%, is the opposite of free trade and should be avoided at all costs because, they say, subsidies simply reward inefficient domestic producers. But this is a narrow and misleading way to define the term that just happens to be convenient for the 1%. A more telling term for the opposite of free trade would be local democracy, because what local democracy wants to protect is local culture, the local environment, local social cohesion, and local jobs. Inefficient local producers (i.e. that are more expensive than subsidised free trade imports) may not seem worthy of protection on economic grounds at first glance, but they may well have compensating virtues in the social, cultural, or environmental dimensions, not to mention local job creation.

The USA has agricultural subsidies of about $50 billion per year, including vast subsidies to cotton farmers that cannot compete otherwise with West Africa. The OECD group of rich countries together had $360 billion in agricultural subsidies in 1999, and the amount is undoubtedly much larger today. Developing countries, on the other hand, are not allowed to use subsidies. To paraphrase Albert Einstein, “Two things are infinite, the universe and hypocrisy; and I’m not sure about the universe.” Globalisation is another term that the 1% has used cleverly, particularly the point that it is inevitable (probably true in the sense of information and cultural exchange, the Internet, etc.), the suggestion being that their currently dominant economic system – neoliberalism – is also inevitable. The latter is definitely not true, as it assumes growth can go on forever on a finite planet. Even a child can see though that claim. In fact, some form of steady state economics or nonphysical growth economics is what is inevitable if our species is to survive. What the 1% does is hide its economic system – that is systematically destroying the environment and creating unacceptable inequalities – inside a term that is generally perceived as positive. Very clever. What modern person can conceivably be against globalisation because he/she associates the word with cultural exchange and the Internet, and not with a destructive economic ideology? A common definition of populist is “appealing to the interests or prejudices of ordinary people,” where it is implicitly understood in mainstream media to mean “as opposed to the interests of the power elite” (i.e. the 1%), which naturally assumes its own policies to be more responsible, more in the general interest and not subject to prejudice.

CFI.co Columnist

It is with this meaning of the word that mainstream politicians in almost every country love to classify critics of their policies with what has become a derogatory term – populist – without further debate. It is understood among the power bearers and their allied political commentators that no more need be said on that issue. Discussing with populists is beneath us and not responsible; a bit like offering deniers of the Holocaust a platform. My contention is that the real populists of our day are precisely the establishment politicians whose only solution to every crisis is more economic growth. Why do I call them populists? Because a false prejudice of ordinary people is that more economic growth will increase their well-being. Thirty years of neoliberal economics has already disproved that notion, but prejudices are difficult to dislodge. So what they get from their elected, populist leaders is a promise of more economic growth. To summarise, we should reflect more over the value-laden words that are often used to frame an issue in a particular manner because it suits the agenda of the sender, and in particular when coming from a group like the 1% and their supporters that need active resistance if we are ever to transition to a more sustainable, more equitable society. Fortunately, more and more people, both in the USA and Europe are beginning to wake up and recognise where their self-interest lies, and resistance is increasing. i 28

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Autumn 2016 Issue

Language Matters II By Wim Romeijn

In his eloquent tirade against free trade, Ross Jackson pleads for a model centred on a concept he describes as local democracy, i.e. a system that aims to protect local values, culture, jobs, and whatnot by unplugging from global value chains and banning efficient manufacturers from competing against local producers.

owever tempting the proposition, local democracy – a euphemism for plain old protectionism – has been tried in a number of countries such as India, Nigeria, Turkey, Brazil, and Argentina. In each instance, it has failed to deliver on its promises. Protecting local values and jobs meant, for example, that for about 35 years Brazilian consumers were forced to buy shoddy goods at outrageous prices. In the absence of competition, manufacturers could get away with price-gouging and other bizarre practices that would not be tolerated for a split second in an economy open to world trade and competition. Argentina, once home to a large industrial complex, managed to drive its economy repeatedly into the ground by shielding its business elite from competition via tariff walls and other protectionist measures. Instead of growing a strong domestic industry, the country cultivated a class of entrepreneurial parasites happy to peddle expensive rubbish to consumers left with no choice. Protectionism, and its evil twin cronyism, meant that Brazil was one of the last countries in the world to introduce mobile phone networks. It also missed out on the first phase of the IT revolution altogether as it sought to encourage local manufacturers to produce PCs. The resulting personal computers were sold at about five times the price level prevalent in open markets and usually gave out after a few months. Local democracy – a misleading play of words – does not normally imply strapping consumers into straightjackets. If given the choice between an iPhone or some locally-produced monstrosity, most consumers would not hesitate to opt for the former. That is not at all a bad thing. How would Mr Jackson’s local democracy work in,

“Local democracy – a misleading play of words – does not normally imply strapping consumers into straightjackets.” say, Mali or Burkina Faso? Are these developing nations expected to start manufacturing electronics, frozen foods, tailored suits, and automobiles? How can social cohesion be promoted by closed borders – effectively divvying up the universe in an us-and-them. Instead of pursuing this rather silly pipedream, why not revisit David Ricardo and his comparative advantages? Modern global value chains merely take Mr Ricardo’s economic laws to the next level by breaking complex manufacturing processes into smaller bits and assigning the production of each to the place best equipped to do so. It is a very sensible approach and one that assures consumers have access to the best products at the lowest possible price – not an unimportant consideration for consumers in countries that are not yet fully developed. Whilst it is true the industrialised western nations have used subsidies to protect their farmers, the trade in agricultural commodities has boomed since these were reduced in the 1990s. Also, in the case of the European Union, agricultural products from former colonies – which includes most of the southern hemisphere’s countries – have enjoyed preferential access under the 1975 Lomé Convention.

The farm subsidies were designed with two objectives in mind: enhance food security and prevent migratory pressures on cities. Both goals have been attained, albeit at the expense of some misallocation of funds – though nothing like the bottomless pit into which the riches of developing nations have disappeared. The idea that the growth cannot be perpetual on a finite planet, conveniently ignores improvements in productivity and efficiency. Human resourcefulness deals with the limits imposed by our finite planetary space capsule by recycling materials and cutting down on the use of non-renewables. The rather simplistic argument that economics needs to find a steadystate in order to deal with the finite nature of our planet, disregards human nature and assumes that man can vegetate – or remain in suspended animation – for any length of time. That is not how humans are wired: we are a competitive species striving to improve ourselves continually and, thus, improve our lot. The solution to many of today’s challenges does not lie in tinkering with the meaning of words lest we invent newspeak. Free trade means just that: the freedom to move goods and services around the world at will and without cumbersome procedures or taxation. Whilst there is much wrong with free trade – even in the globalised world, trade is seldom free – it is a recipe for disaster to revert to protectionism – or local democracy – as that would deprive consumers of choice, impose high prices, and diminish communication between societies. So, let’s call a spade, a spade. Free trade and globalisation may not offer a magic bullet to riches and development, their counterpart protectionism has been tried often enough and consistently failed to deliver the goods – some pun intended. i

“The solution to many of today’s challenges does not lie in tinkering with the meaning of words lest we invent newspeak. Free trade means just that: the freedom to move goods and services around the world at will and without cumbersome procedures or taxation.” CFI.co | Capital Finance International

> Book Review - The Ascent of Money:

A Financial History of the World by Niall Ferguson

From the South Sea Bubble to Derivatives By Naomi Majid

First published in 2008, when the world was reeling from the worst recession in living memory, Niall Ferguson’s racy 350-page The Ascent of Money1 came as a punchy, highly accessible insight. Charting the history of the uses and abuses of money, and exploring the forces behind macroeconomic trends – notably the seemingly bizarre concept of fiat money that drives modern-day economies – Ferguson’s work was a pause and reflect moment that was sorely needed at the time, no matter how comprehensive or definitive it was, or wasn’t.

ccompanying a Channel 4 TV show, it injected Ferguson’s personable blend of gravitas and humour into a world that was financially unravelling beyond most economists’ worst nightmares. Predictably, it generated mixed views. Although widely regarded as a good read, it got slammed for being too populist, reflecting its TV-episode structure and taking a fairly pick-and-mix approach to the key moments in the world’s financial history. What Ferguson does undeniably well is establish how money in all its multifarious manifestations is at the very crux of human life. His snapshots of key milestones of financial history get to the very root of the matter of how money is created, controlled, spent, and within what paradigm. And it is precisely this three-dimensional view that makes The Ascent of Money still relevant today. Running through Ferguson’s whistle-stop tour from early civilisation’s grain-based economy, to the materials and metals of various civilisations and empires, through to an era of credit and plastic, hedge funds and derivatives, is this worldview that money – and the power invested in it – is at the heart of human existence.

“What Ferguson does undeniably well is establish how money in all its multifarious manifestations is at the very crux of human life.” For money is not some tag-on peripheral activity that humans engage in to buy potatoes. With passion and insight, Ferguson shows how money is the backbone of all the colourful social backdrops; from the debt-based slavery model of Babylon, to the often grotesque antisemitism and opulence of 14th-century Florence, right through to credit-loving 20th century America. And not only does money feed social, political, and religious dynamics, it is the primary force, contends Ferguson, behind every major event in history.

And as Ferguson points out, just like the course of true love, the ascent of money has seldom been smooth – it has been punctuated by big and painful crises. Surprise at these debacles and tumbles is the least appropriate emotion: they are part of an inevitable cycle – dramatic upsets to economic models are something he sees as a foregone conclusion. So, taking the old adage, the past informs the present, Ferguson’s book is useful in that it explores the smorgasbord of influences that drive macro-economics. When globalisation is held up to the microscope, it is portrayed as a phenomenon that has been both emancipating and constraining. Because it is precisely the vulnerability of a globalised economy to financial shocks and unpredictable political factors that makes finance an art rather than a science. His book came too late to flag up the dangers of property bubbles and cheap credit, but given the cyclical nature of financial history there is plenty of wisdom (and wit) that can inform arguments about what needs to be adjusted going forwards. To a certain extent, the twisting and turning of innovative movements in today’s financial world – from controversial cryptocurrencies to the proliferation of payment models, and even the

“With passion and insight, Ferguson shows how money is the backbone of all the colourful social backdrops; from the debt-based slavery model of Babylon, to the often grotesque antisemitism and opulence of 14thcentury Florence, right through to credit-loving 20th century America.” 30

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Autumn 2016 Issue

“Is Ferguson a poseur? Of course. Anyone who puts themselves out there as an authority on such a vast, unpredictable and contentious topic is a poseur. Although emotional projection is clearly at work.”

tortured debate over Britain’s EU membership and the pitiful streams of economic migrants – can now be viewed through a wider lens. The key to managing expectations from this book is a quick look at Niall Ferguson. A Scottishborn Harvard University professor, Ferguson is a best-selling author who made a name for himself with his riveting and insightful history of the Rothschild dynasty. He refers to himself as an economic historian, not an economist, although the financial world is the fodder for most of his work. To put it plainly, if you like history more than you like finance, The Ascent of Money is a great read. But if you’re more of an economist, you’ll probably end up rolling your eyes at various points. If you kick back your heels and enjoy the ride, there’s plenty of fun to be had as Ferguson is a born storyteller – his richly detailed and evocative narratives include the story of the South Sea Bubble that brought England to its knees in 1720, and the audacious speculation schemes of Scottish adventurer John Law – the collapse of the latter being widely believed to have paved the way to the French revolution of 1789. From the rise and fall of the Roman Empire to the interwoven politics that kept families like the Medicis and the Habsburgs as sources of power in Europe, there is plenty to hurtle through, and many pithy tales of questionable heroics. Ferguson even borrows a little wildly from Darwin, asserting that financial history is essentially institutional mutation and natural selection. Certainly survival of the fittest is a fitting metaphor for the financial world, where ruthless competition is the order of the game. When The Ascent of Money was published, Paul Krugman, New York Times columnist and longtime verbal sparring partner of Ferguson, weighed into the debate around the book with predictable candour. This battle of intellectual heavyweights with ruffled feathers and fairly robust egos was fought in the public arena in column inches and televised debates. Thinly veiled references and snide asides built up to Krugman calling Ferguson a “poseur,” whose work was “style over substance.” Ferguson fought back with a column entitled Krugtron The Invincible. Is Ferguson a poseur? Of course. Anyone who puts themselves out there as an authority on such a vast, unpredictable and contentious topic is a poseur. Although emotional projection is clearly at work. Because you seldom come across more self-importance in one psyche than in Krugman. Finance, says Ferguson at the end of the book, is the mirror of mankind. Sometimes, it just ain’t pretty. But when decisions are being made about economic models, this remains one highly readable and relevant book to have in hand. i Footnotes 1 The Ascent of Money: A Financial History of the World by Niall Ferguson – Penguin Books (2009) – ISBN 978-0-1410-3548-2.

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Autumn 2016 Issue

> Multilaterals

Shrinking the Planet By Wim Romeijn

Not very long ago, the world was a big and often scary place. Communication bandwidth was severely restricted with contact between peoples slow and expensive. One half of the world often had no clue what the other half was up to. Misunderstanding, and disrespect bred from prejudices fuelled by ignorance, gave rise to an almost perpetual state of conflict. Not until the Vietnam War, did the nature of war, and the collateral damage associated with military operations, become common knowledge – to the horror of many. Today, both the morning paper and the evening news almost instantly bring home the latest atrocities – beheadings by religious fanatics, repression by tyrants, drowning refugees, or whatnot. Still, statistics show that the contemporary world is a relatively peaceful place. It is also much more prosperous than just a generation ago. Over the past twenty or so years, billions have been lifted out of poverty and made consumers. The rate at which scientists accumulate knowledge accelerates to beyond the point of comprehension. The world is much smaller now. It takes but a few seconds – and no money – to share thoughts, pictures, documents, and videos with whomever happens to be the sender’s antipodean. Distance has become virtually meaningless. Yet, this shrinking of the planetary orb is not just the product of the Internet’s advent. The process started much earlier, driven by a need to foster cooperation and understanding between nations after two world wars. The need to keep tempers from flaring during the Cold War also drew peoples together. Multilateral organisations, huge and mostly uninspiring monoliths – think United Nations, World Bank, International Monetary Funds and all the others populating a world of acronyms – were set up to tame man’s baser instincts, keep a lid on emotions, and ensure that all nations get along and enjoy more or less equal chances of success – or at least survival. Whilst there is much wrong with the functioning of multilateral organisations – the UN’s perceived lack of resolve and/or teeth, the IMF’s ineffective approach to financial crises, etc. – these entities ultimately play an essential role in the continued progress of humankind: multilaterals are the meeting places of the great concert of nations. It is here that the broad vectors of global management and development are defined and traced.

Cover Story 33

No man is an island, entire of itself.

Cover Story

he poetic musings of John Donne, entrusted to paper in the early 17th century, apply equally well to nation states – a concept defined at around the same time and codified as the Doctrine of Westphalian Sovereignty which holds that each nation state has an absolute say (sovereignty) over its territory and domestic affairs to the exclusion of all other powers. That thought, quite novel at the time, was central to the Peace of Westphalia of 1648 which ended the Thirty Year War and saw the major belligerent powers of the continent – France, Spain, Holy Roman Empire, Sweden, and the Dutch Republic – agree to respect one another’s territorial integrity. It soon proved a slippery slope: The romanticism that held sway in Europe from around 1750 to 1850 – a cultural counterweight to the Industrial Revolution and its commoditisation of labour – celebrated the natural expression of the individual and his place in a sovereign collective of like people. The romantic nationalism that followed was first embodied in philosopher Johann Gottlieb Fichte’s Address to the German Nation – a series of exhortations for the embrace of German national values (which were deemed to include antisemitism) delivered in 1808 while Berlin was under French occupation. Fichte traced the German nationalism he proposed, and its core values, all the way back to the chronicles of Gaius Tacitus (c. AD 56 – AD 117), a Roman senator and considered one of the empire’s greatest historians, whose De origine et situ Germanorum (The Origin and Situation of the Germanic People) vividly describes the land, customs, and laws of the tribes of Magna Germania – the loose entity stretching from the Rhine and the Danube to the uttermost shores of the Baltic Sea – a vast wilderness not subjected to Roman rule: “A land with a climate so horrific that no people other than its natives would want to settle there.” From Fichte’s romantic nationalism it was just a short philosophical hop to the Völkische Staat, a naturally grown community in unity provided with sovereign powers, and the ethnic nationalist foundation upon which fascism was duly erected. The horrors of war and ethnic annihilation perpetrated by nation states that had carried the doctrine of Westphalian sovereignty to its (logical) extreme necessitated a deep rethink of the entire concept. Long before the guns of World War II fell silent, statesmen, diplomats, and academics from the allied nations had discussed and recognised the need to ditch absolute sovereignty in favour of a more limited form of national authority; one dependent on adherence to a set of behavioural standards applied globally. 34

“With advances in technology reducing the world to a global village, nations started talking to each other, coalescing into clusters according to their interests, aspirations, and convictions.” Whilst treaty organisations such as the Concert of Europe (1815), the International Committee of the Red Cross, The Hague Conventions (of 1899 and 1907), and the League of Nations had tried to maintain harmony between nation states, most failed to have either bite or impact. Plans for a truly global organisation to ensure lasting peace were first laid by the US State Department in 1939. The initiative proved stillborn. ATLANTIC CHARTER Four months before the Japanese surprise attack on Pearl Harbour on December 7, 1941 – “the day that will live in infamy” which brought the Americans into the war – US President Franklin D Roosevelt and British Prime Minister Winston R Churchill met at Naval Station Argentia in Placentia Bay, Newfoundland, to issue a joint declaration detailing the aims of the Allied Powers. The Atlantic Charter sought to cement global security on the basis of British/ American notions of internationalism. The document – though a mere statement – signalled a momentous shift in the world order. The Atlantic Charter recognised, amongst others, the right of all people to selfdetermination and the need for a lowering of barriers to trade and economic cooperation. The statement also emphasised the urgency of freeing the world from “want and fear” and putting in place a global conflict resolution mechanism. Both the United States and Great Britain solemnly declared that they would seek no territorial gains at the expense of their foes. Later that same year, Roosevelt and Churchill expanded their statement into a Declaration by United Nations that included a reference to the Four Policemen – the United States, Great Britain, the Soviet Union, and China (with France pointedly left out) – the four major allied powers which were to guarantee lasting peace after the Axis Powers, and their fellow travellers, had been defeated. On New Year’s Day 1942 these four policemen signed the United Nations Declaration. The next day, 22 other countries joined as well to form what was to become the first truly multilateral organisation with both bite and purpose.

The hitherto unimagined carnage of World War II – i.e. the running amok of nation states – brought internationalism to the fore: humanity must be protected against itself in a brave new world freed from militarism (fear) and poverty (want). WAR BEGETS MULTILATERALISM Thus, the war not only produced the United Nations – essentially a much reinvigorated League of Nations – it also saw the creation of two other major multilateral entities: The International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD, now one of the five institutions that make up the World Bank), both the result of the July 1944 Bretton Woods Conference where the post-war international monetary and financial order was decided by the then 44 allied nations. Before long the number of multilaterals ballooned with the creation of regional development banks, trading blocs, communities of nations, groups (G77, G24, G20, G7+1, etc.), and even cartels. With advances in technology reducing the world to a global village, nations started talking to each other, coalescing into clusters according to their interests, aspirations, and convictions. In Europe, the urgent need to rebuild, and to contain toxic nationalism whilst addressing the traumas left by the war, inspired a golden generation of leaders to break down barriers. Paul-Henri Spaak, in the late 1940s alternately prime minister and foreign affairs minister of Belgium, moved swiftly to unify his country with its neighbours Luxemburg and The Netherlands to form the Benelux and with it the forerunner of what eventually would become the European Union. In France, Foreign Affairs Minister Robert Schuman and his political advisor Jean Monnet managed to calm post-war emotions and in 1950 delivered the ground-breaking Schuman Declaration which suggested Franco-German coal and steel production be placed under a supranational entity – open to participation by other European countries – charged with facilitating cross-border cooperation and the creation of common interests.

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Autumn 2016 Issue

Palace of Nations: United Nations Office at Geneva

The declaration read: “Europe will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity. The coming together of the nations of Europe requires the elimination of the age-old opposition of France and Germany.” On the other side of the Rhine, Chancellor Konrad Adenauer immediately recognised an opportunity for Germany to lighten its unbearable burden of sin and shame. He agreed promptly to the French plan and was soon followed by Italy’s Prime Minister Alcide De Gasperi and the three Benelux leaders. On April 18, 1951, less than a year after the Schuman Declaration was first released, representatives from the six nations signed the Treaty of Paris and founded the European Coal and Steel Community which morphed into the European Economic Community six years later with the signing of the Treaty of Rome (1957).

INITIAL ACCOMPLISHMENTS With its multiple specialised organisations and agencies, the UN led a global effort to eradicate smallpox. After a thirteen-yearlong campaign, the World Health Organisation (WHO) declared smallpox extinct in 1980. Spread by man himself, not by insects, birds, or mammals, smallpox had been the scourge of humanity for over 12,000 years. It was first documented by the Egyptians some 4,000 years ago. It is thought Egyptian traders brought smallpox to India around 1500 BCE from where it spread across the Asian steppes to Europe and, eventually, the Americas. In Mexico, smallpox killed millions of native inhabitants after the virus was unintentionally introduced at Veracruz with the

arrival of Pánfilo de Narváez in 1520. Sent out to deter Hernán Cortés, a conquistador gone rogue, from conquering the Aztec Empire, De Narváez failed miserably, was captured by the swashbuckling Cortés, and sent back to Spain. The smallpox virus he inadvertently left behind did, however, allowed Cortés to easily cause the fall of the Aztec capital Tenochtitlán. By the time he arrived to lay siege to the city – present-day Mexico City – many Aztecs had already been infected and killed by the smallpox virus. In 18th century Europe, smallpox killed an estimated 400,000 people each year. Five reigning monarchs succumbed to the disease. The smallpox pandemic that followed the Franco-Prussian War of 1870 claimed more than half a million lives. In the last century, smallpox cut short the lives of between 300 and 500 million people worldwide – two to three times as much as the number of people killed by all 20th century wars (approx. 160 million). Edged on by Professor Viktor Zhdanov, deputy minister of healthcare of the Soviet Union, the WHO in 1959 accepted a resolution that called for a global undertaking to eradicate smallpox. The UN’s cacophony had turned to unison. New techniques were developed – such as ring vaccination and a two-pronged needle that anyone could be taught to use in a matter of minutes – and the virus was slowly pushed to the margins of the world, making a last stand in the Horn of Africa. The last known case of smallpox was diagnosed in Somalia in October 1977. Hospital cook and public health worker Ali Maow Maalin survived the ordeal. Mr Maalin went on to help with the successful polio eradication campaign in Somalia but died in 2013 of malaria while again involved in a polio vaccination drive after the virus had reappeared. 35

Cover Story

SOVEREIGNTY FOR PEACE AND PROSPERITY Nowhere else has multilateralism advanced further than in Europe. The presentday European Union, as much maligned as imitated, absorbs a fair chunk of its members’ sovereignty in order to promote and pursue common interests, up to and including sensitive areas such as taxation, monetary and trade policy, border controls, and – increasingly – defence. For all its perceived shortcomings, the European Union has shown that multilateralism can and does underwrite both peace and development. As such, the EU is the best argument yet for internationalism. The union is perhaps the greatest, and boldest, experiment in national deconstruction and assimilation ever undertaken by mankind. Some hiccups were to be expected.

For the first half century after the end of WWII, the effectiveness of multilateralism as a development tool was hampered by Cold War tensions and the rapid but rather chaotic decolonisation process that swelled the ranks of the United Nations with boisterously nationalistic states, most of which – paradoxically – looking to sell their allegiance to the highest bidder. Whilst the two multilateral financial institutions coming out of the war – the IMF and the World Bank – remained firmly under control of the western powers, the United Nations presented a cacophony of voices – some shrill, others soothing – of countries large and small, young and old, clamouring for attention. Described by old school diplomats as the equivalent of a chicken run on a global scale, the much-enlarged United Nations did serve its purpose by keeping communications channels open, offering a neutral meeting ground to sablerattling countries, and a stage for all nations to speak to the world – no matter that it rarely paid attention.

Cover Story

THE ANTEROOM OF CLIMATE CHANGE Long before global warming became a thing, the deterioration of the earth’s ozone layer caused widespread concern. From the late 1970s, scientists measured a gradual decline in the amount of ozone in the stratosphere. A huge hole appeared over Antarctica as the concentration of ozone (O3 – a toxic oxidant) shrank to about 33% of pre-1975 levels. The drop was predominantly caused by catalysts such as chlorine radical (CI·) of which a single atom may react with up to 100,000 ozone molecules before it is dissolved. The release of man-made chlorofluorocarbons (CFCs) containing vast amounts of chlorine was pinpointed as the main culprit. CFCs were found in refrigerators and air conditioners and used as aerosol propellants, amongst others. Not to be confused with global warming, the ozone layer’s depletion allowed more medium wavelength ultraviolet light (UVB) to reach the earth’s surface, increasing the risk of skin cancer and affecting plants – including staple crops such as rice – which have a limited capacity for absorbing UVB. With the United States taking the lead, many countries voluntarily banned the use of CFCs and other reactive gases that depleted the ozone layer. A conference sponsored by the United Nations Environment Programme (UNEP) in 1987 resulted in the Montreal Protocol – drafted in near-record time – phasing out the use of harmful gases. Since revised eight times, the UN-brokered agreement stopped the deterioration of the ozone layer almost instantly. Scientists now predict that the chemical composition of the earth’s stratosphere will return to (relatively benign) 1980 levels by 2050. Signed and ratified by 196 countries and the European Union, the Montreal Protocol became the first universally recognised and applicable treaty in the history of the United Nations. The accomplishment built on the 1983 Convention on Long-Range Transboundary Air Pollution (CLRTAP) – a collection of eight environmental protocols – that successfully tackled acid rain, the environmental scare of the 1970s. MULTILATERALISM While the US pulled ahead earlyon and led the world in the banning of ozonedissolving gases, the world’s last great power now seems much less keen to help tackle climate change. For the US, multilateralism is but an option for when a more direct bilateral approach is either impractical or inefficient. In effect, multilateralism may be defined as the Lilliputian default behaviour of lesser powers whose national interests call for the containment or steering of much larger powers. This helps explain why Canada, Mexico, and the Scandinavian and Benelux countries have based their entire international outlook on multilateral cooperation. It also clarifies China’s increasing reluctance to play by the rules as its unilaterally asserts its hegemony over the South China Sea and feels no need to involve International Court of Justice in The Hague. The Chinese realise that before long 36

Prof Van Langenhoven: “It is a fascinating phenomenon. Both supra- and subnational governance entities are largely built by states and can therefore be regarded as dependent agencies of those states. However, once created, these entities start to have a life of their own and are not always totally controllable by their founding fathers. These new sub- and supra-entities are knocking on the door of the multilateral system because they have a tendency to behave as if they were states.” Heralding a new geopolitical reality, Prof Van Langenhoven cautions that the trend, while welcome, also undermines the Westphalian Sovereign Doctrine that defines both statehood and sovereignty.

Nobel laureate Milton Friedman: Policy advice ring-fenced for success in Chile.

their country will be on par with the US and thus have less need for multilateralism to safeguard its vital interests. However, as Luk van Langenhove of the United Nations University in Bruges, Belgium, observed in a 2011 paper, a shift in the global balance of power is giving rise to a hybrid international framework. A number of larger countries are emerging as regional powerhouses, leading to a multipolar world no longer dominated by one or two superpowers. Though the BRICS initiative may have largely failed, it did serve to help Brazil, India, and Russia (South Africa’s inclusion was always somewhat of an afterthought grounded in geographic expediency) find a voice on the global stage. Professor Van Langenhove, director of the Comparative Regional Integration Studies Institute, also notes that regional blocs such as the European Union are gaining recognition as sovereign players, joining the negotiating table and throwing around their not inconsiderable weight. That may help solve the governance paradox: “The policy authority for tackling global problems still belong to the states, while the sources of the problems and potential solutions are situated at transnational, regional, or global level. As such the building blocks of multilateralism, the states, seem to be less and less capable of dealing with the challenges of globalisation. But because the multilateral world order is so dependent on the input of states, multilateralism itself is not functioning well.” Undermining the “one state, one vote” principle on which the UN was built, multilateralism 2.0 includes multi-polarity as well as regional actors that have acquired statehood properties and sub-national entities with crossborder ambitions. “International relations are becoming much more than just inter-state relations. This has major consequences for how international relations develop and become institutionalised, as well as for how international relations ought to be studied.”

MONEYBAGS Then again, sovereignty already has become far from absolute. Nation states that fail to contain, or promote, civil strife quite frequently suffer intervention as do those that run their economies into the ground. Whilst the former are dealt with militarily, the latter may find themselves hostage to briefcase-toting experts dispatched in lieu of gunboats to impose administrative order. Though notionally sovereign, crisis-ridden Greece must dance to a tune composed in Brussels, Frankfurt, and Washington. The country, of course remains, free to do as it pleases, but the choice between drowning and grabbing a lifeline – albeit one with hooks attached – is a simple one, a no-brainer. However, with Greece the IMF tried – and largely failed – to mend its sovereigntybusting ways. In late July, the fund’s Independent Evaluation Office released a comprehensive report on its interventions in Greece, Ireland, and Portugal, concluding that the IMF not only failed to detect the crisis, but responded poorly once it hit the markets. The IMF allowed itself to be held hostage by groupthink – the generally accepted notion at the time being that the risk of a balance of payments crisis in the Eurozone was all but inexistent – and, consequently, lacked a fall-back plan on how to tackle a systemic crisis and its political dimension in the multinational currency union. When the crisis hit, the fund was powerless to prevent financially stronger countries such as Germany, Sweden, Finland, Austria, and The Netherlands from leveraging their financial and political clout to impose an austerity regime on Greece that was almost guaranteed to fail. Albeit reluctantly, the IMF did sign off on the German-inspired plan which was not so much designed and implemented to bailout Greece, but the banks with potentially lethal levels of exposure to the troubled country. Usually, the IMF follows a simple recipe: In return for debt relief, cash-strapped countries are expected to devalue internally by slashing wages and pensions. Greece was subjected to the latter part of the treatment without, however, being offered a sustainable solution to its national debt. In fact, the IMF got hijacked into helping finance a simple bank bailout exercise. To its credit, the fund has recognised the error of its ways and put into place new guidelines and processes aimed at avoiding

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“With one eye trained on the overly thrifty Germans, perhaps it is time for the IMF and other multilaterals engaged in promoting rapid and sustained development to revisit the hybrid Keynesianism that powered post-war Europe to great heights in essentially no-time flat.” a repeat performance. Moreover, earlier this year, an article appeared in the IMF’s flagship magazine Finance & Development that questions the sustainability of the neoliberal policies that the fund habitually suggested to – or imposed on – nations seeking its help.

PRODUCTIVITY SLUMP That is easier said than done. According to the Conference Board, a non-profit business research think tank headquartered in New York, global productivity has slumped. Rigid markets and stagnating innovation are taking their toll, as is the end to the remarkable rise in efficiencies experienced by emerging economies. Total factor productivity (TFP), which tracks the total output growth relative to the growth of capital and labour input, has stalled. Globally, the productivity of labour is now growing at a rate of barely 1.5% annually, down from almost 4% in 2010. Interestingly, China’s TFP seems to have dipped noticeably even though the Conference Board admits that reliable statistical data remain sketchy. The enormous efficiency gains obtained in the 2000s have been replaced by lacklustre growth rates that do little to increase levels of prosperity. With one eye trained on the overly thrifty Germans, perhaps it is time for the IMF and other multilaterals engaged in promoting rapid and sustained development to revisit the hybrid Keynesianism that powered post-war Europe to great heights in essentially no-time flat. Unwilling to let go of fiscal prudence even in times on national catastrophe, a number of war-torn countries hit upon the idea to split their budgets in two: one for general expenditures and the other for capital investments. The former was kept rigorously balanced while the latter could slide deep into the red without causing much worry. The principle was, again, simplicity itself: general spending – the running costs of government – should be financed out of fiscal revenues only since these outlays were not expected to produce any immediate tangible returns. The other part of the budget – the monies earmarked for capital investment in economic

infrastructure and even the setting up or rebuilding of industries – was expected to generate healthy returns. As long as the profitability of a given project exceeded the interest plus depreciation costs, it was deemed viable. Thus, Europe was rebuilt after it had thoroughly destroyed itself. Suffering presently from a three gluts as identified by investment manager PIMCO – the savings glut, the money glut, and the oil glut – the global environment has probably never been more favourable to, or welcoming of, a bold investment drive aimed at reinvigorating productivity growth and creating sustainable levels of prosperity. The three gluts have driven down interest rates to historical lows. As a result, nearly any investment is likely to turn a profit. Whilst perhaps rather simplistic at first glance, out of the four major central banks, only the US Federal Reserve is expected to tighten monetary policy. Each for its own reasons, the European Central Bank, Bank of Japan, and People’s Bank of China will keep easing the pressure. Whereas the US, Eurozone, and Japan have seen their excess liquidity balloon over the past five years, emerging markets – including Brazil, Russia, China, and India – have been much less buoyed. The only reason, it would seem, why no levelling takes place is political and fiscal uncertainty. Most investors wouldn’t be caught dead in, say, Brazil which just saw its sovereign bonds downgraded to junk status. What Now? So, it’s back to the beginning with good governance providing the key to development and prosperity. Politics may be a fickle and at times wild beast, it still needs to step up to the plate if development goals are to be met and poverty banned. Perhaps, then, the time has come to expand slightly the behavioural standards agreed upon for sovereign nation states in the aftermath of World War II: the multilateralism introduced back then has, by and large, served the global community well. News reports notwithstanding, wars and other forms of political violence exact a much diminished, albeit still too large, human toll; poverty levels have shrunk rather dramatically as food security increased; and most of the world is now safe for democracy. Through the cacophony of voices that the multilaterals produce, a murmur is now audible of experts, professionals, businesspeople, and – most important of all – common folk clamouring for better governance. It is no longer enough to behave properly towards strangers; governments now need to show more courtesy towards their own people. Not seizing this unique moment in history – one of relative peace and plenty of cash – almost constitutes, well, a crime against humanity. i 37

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MEA CULPA In Neoliberalism: Oversold? DeputyDirector Jonathan D Ostry of the Research Department and two of his colleagues admit that a more nuanced view may be called for. They ascribe the initial excitement neoliberalism inspired to the remarkable success obtained in Chile which, however, was wrongly attributed to the teachings of Milton Friedman, recipient of the 1976 Nobel Memorial Prize in Economic Sciences. As fellow Nobel laureate Joseph Stiglitz already pointed out repeatedly, neoliberalism in Chile only worked because the country ring fenced it with appropriate regulation thus taming the free market and shaving off its rough edges. Chile proved a singularity. Elsewhere neoliberalism – a term as broad as vague – caused havoc. Mr Ostry et al recognise that “some neoliberal policies fail to deliver growth and instead increased inequality which, in turn, jeopardises future economic expansion.” The “some” carries a heavy load: the authors argue that competition via free trade, privatisation, foreign direct investment, good governance, and its twin, sound public finances, must all pass muster. To the uninitiated this may read as a fine summary of all that neoliberalism stands for. The IMF now understands that unfettered cross border money flows and the slashing of public expenditure (to wipe out deficit spending) – erstwhile two of its most prized policy ingredients – may not help solve any payment crunch. The fund’s modest mea culpa was widely welcomed but scarcely celebrated: the IMF has hardly renounced neoliberalism. Not that it should, for fiscal probity remains essential to economic progress – as long as applied (liberally?) in a countercyclical way, just as Mr Keynes prescribed in his 1936 General Theory of Employment, Interest, and Money. More disconcertingly, the IMF and most other multilateral development entities consistently fail to appreciate the importance of productivity indices. While mountains are being figuratively moved to lift entire nations out of poverty, few of the experts care to look behind the macroeconomic numbers to what actually drives development – increases in productivity. There is a rather simple reason why Asia has become the workshop of the world: cobbling together hardware – from ships to smartphones and pretty much everything in between – is not particularly lucrative. The

outsourcing of manufacturing to countries with cheap labour has enabled the industrialised world – now somewhat of a misnomer – to leverage its accumulated knowledge and expertise in order to concentrate on more profitable pursuits, mostly in the hi-tech spheres. Whilst manufacturing can lift countries out of poverty, it is the underlying increase in productivity that does the heavy lifting. It now allows China for example to shift production to countries such as Vietnam and Kenya since gains in domestic productivity have pushed up wages. However, in order to escape the dreaded middle-income trap, China and other emerging countries must find ways to improve productivity yet further, using to that end the proceeds of their recent economic growth spurts.

Jin Liqun

Diplomat Philosopher Banker The new chief of the Asian Infrastructure Investment Bank (AIIB) is no stranger to big money. Jin Liqun (67) served as supervisory chairman of the China Investment Corporation (CIC), the country’s sovereign wealth fund set up in 2007 to manage China’s currency reserves and currently holding well over $800bn in assets. Mr Liqun also helped manage the China International Capital Corporation, a large investment bank, and the Asian Development Bank (ADB).

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rior to being selected to head the AIIB, Mr Liqun had been vice minister of Finance and secretary general of the Multilateral Interim Secretariat that coordinated the preparatory work for the setting up of the new bank. Perhaps more importantly, Mr Liqun has learned from the best: he translated into Chinese the 1990 book The House of Morgan by US historian Ron Chernow. The 800+ page tome – subtitled An American Banking Dynasty and the Rise of Modern Finance – tells the story of JP Morgan and traces the origins and maps the achievements of the financial empire he founded in the mid-1800s. JP Morgan financial wizardry and entrepreneurial zest underwrote many of the big corporates that powered the coming American Century. Between 1890 and 1913, his bank secured financing for 42 icons of Big Business such as AT&T, General Electric, International Harvester, and US Steel. JP Morgan also underwrote the expansion, at breakneck speed, of the American railroads. 38

If anything, the life and work of JP Morgan showed Mr Liqun what can be accomplished with money. He is expected to apply those valuable lessons to the AIIB which is to become the conduit that directs a significant part of China’s newfound wealth towards the foundation of the Asian Century – if not the Chinese one. Born in Changshu, now a city of about a million inhabitants, part of the Yangtze River Delta in 1949, Jin Liqun was prevented from completing his bachelor degree studies by the Cultural Revolution. The son of an engineer, the young Jin Liqun joined the Red Guards in 1968, largely to avoid being singled-out, and was sent to work the fields, growing rice. After three years as a farmhand, reading Shakespeare in his spare time, he managed to secure a teaching job. When universities reopened in 1978, Jin Liqun gained admission to the prestigious Beijing Foreign Studies University’s Masters Programme. Two years later, Jin Liqun was amongst the first in post-Cultural Revolution

China to obtain a Master’s Degree in English. Happiest when surrounded by books, Mr Liqun does not strike a pose as an archetypical banker. The lavish praise bestowed on him by the Chinese media does Jin Liqun, however, no favours: he does not need slavish acolytes to stand out as an exceptionally knowledgeable and upstanding professional. In fact, Mr Liqun seems more of a diplomat than a banker, whilst some have called him the philosopher of Chinese finance. Whatever the case, his appointment to head the Asian Infrastructure Investment Bank crowns a long and noteworthy career that started at the World Bank in the 1980s and saw him take on an instrumental role in linking emerging China to the wider world and its many multilateral institutions. On the AIIB’s mission, Mr Liqun said: “China received much support from multilateral financial institutions and aid during the past three decades. The world’s second largest economy is now sharing the responsibility and doing something for the rest of the world, hence

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Autumn 2016 Issue

the establishment of AIIB.” Mr Liqun’s scholarship on literature and economics – he is a Hubert Humphrey Fellow in the Economics Graduate Programme of Boston University – soon made him into the central government’s favoured “barbarian handler” – the one designated to deal with pesky foreigners. Though not enamoured of the term, Mr Liqun does admit that he is comfortable negotiating challenging international deals. He is widely credited with convincing initially suspicious US allies such as the United Kingdom and Germany to join the AIIB as founding members despite the protests from Washington. Mr Liqun shrugs off the Obama Administration’s concerns that China is trying to undermine the global monetary order: “We’re not trying to upend the international financial and economic order, even though it leaves much room for improvement.” Adapting a quote from Jane Austen, one of his favourite authors, in her novel Mansfield Park, Mr Liqun reminded that “scepticism must always be forgiven, you know, because there is no hope of a cure.” The original from the 1814 book mentions selfishness rather than scepticism. “China is the largest shareholder of the bank but it is only one shareholder and I can tell you the bank will not do anything that is driven by politics and will not interfere in

political affairs,” Mr Liqun says. “Now some people are sceptical, particularly since I am a Chinese Communist Party member, but let me ask you one question: If we really wanted to run this bank à la Chine, why would we go to all this trouble to convince western countries to join?” Mr Liqun used his (in China) almost unequalled personal network of contacts – built up over his six year’ stint at the World Bank and another six years as the first Chinese vicepresident at the Asian Development Bank – to invite a significant number of recently retired professionals of development finance to join him at the AIIB. The new bank’s upper echelons have been populated with former World Bank, IMF, and ADB staffers, mostly non-Chinese professionals who share his vision that the traditional have strayed too far from their original remit by focusing more on alleviating poverty than on putting structures in place that end want. “The Chinese experience illustrates that infrastructure investment paves the way for broad-based economic social development, and poverty alleviation comes as a natural consequence of that. We want to create something new that combines the strong features of private companies with those of multilateral development banks.” That something new is touted as being lean, clean, and green. Notwithstanding the strict environmental, social, and governance

(ESG) standards employed by the World Bank and other multilateral lenders, Mr Liqun thinks there is plenty of room for a more streamlined, yet sustainable and responsible, approach to financing big infrastructure projects. It is Mr Liqun’s express intention to keep his new bank lean and nimble. David Dollar, a senior fellow at the John L Thornton China Center of the Brookings Institution and a former World Bank country director for China and Mongolia is one of the old hands brought aboard by Mr Liqun. According to Mr Dollar the AIIB is structured in such a way as to ensure efficient processing of applications from member states. “The World Bank has become so slow and risk-averse that most governments have stopped coming to it for infrastructure financing. We want to offer an alternative.” Mr Dollar quotes an Indian official, exasperated at the pace of World Bank-sponsored projects, as saying: “Mr Dollar, the combination of our bureaucracy and your bureaucracy is deadly.” Once the chatter surrounding the AIIB is cancelled out, a straightforward mission takes shape: replicating across Asia the infrastructurebased development models that lifted hundreds of millions out of poverty in China. That’s a tall order, especially for a bank of rather modest means. However, as Mr Liqun repeats often: “The AIIB is meant to think in decades, if not centuries. The next year’s results are much less interesting.” i

Asian Infrastructure Investment Bank:

Fear Not

The US suspicion, loudly unstated yet ever present, is that China also aims to undermine the post-war monetary world order cemented at Bretton Woods in 1944 and of which the World Bank and the International Monetary Fund are the standard bearers. At both institutions the balance of power remains tilted towards the US and its European allies. Recent attempts to rebase voting rights, to better reflect the profoundly changed geopolitical reality, have awarded emerging countries a somewhat greater say at the IMF and the World Bank, though the adjustments are mostly considered a first tentative step rather than a full and final redressing of the perceived imbalance. REPLICATING SUCCESS An expression of a more assertive China or not, the AIIB seeks to replicate that country’s success across the wider region. To a significant extent China’s remarkable economic vitality may be ascribed to its infrastructure-based development model. Taking a cue from the book originally written by Franklin Roosevelt and his massive New Deal investment programme, the government in

Beijing early-on determined that the economic liberalisation set in motion by Deng Xiao Ping in the 1980s would prove unsustainable unless accompanied by a national effort of almost epic proportions to put in place the infrastructure necessary to adequately support business. An economic backbone was required, and erected, to ensure the long-term growth and efficiency increases called for to rid the nation of the twin legacies of poverty and lethargy – the rubble from Mao’s rigidly orthodox yet fickle approach (Mao Zedong Thought) to the management of his country’s affairs. As China became a trade superpower, its leaders couldn’t help notice that exports to markets in the immediate vicinity, and even those further afield, were held back by inadequate logistic facilities: barely functioning railways, crumbling road networks, and decrepit ports all held together by vast bureaucratic apparatuses that seemed to conspire against business. As China progressed building up its own infrastructure, the self-serving need to help potential trading partners do likewise became obvious. It was but a small – and smart – step to create a bank for that purpose. 39

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On the eve of this years’ G20 summit in Hangzhou, Canada formally applied for membership of the Asian Infrastructure Investment Bank (AIIB) and became the first North American country to do so. During a meeting with his Chinese counterpart Li Keqiang, Prime Minister Justin Trudeau said that the AIIB offers a welcome opportunity for Canada to participate in multilateral infrastructure efforts that support inclusive growth in Asia and elsewhere. The China-backed AIIB, set up in December 2015 with $100bn in share capital, almost immediately attracted 57 members. While the United States declined to join, many of its closest allies jumped at the chance to engage with Beijing. Both the UK and Germany signed up as (non-regional) founding members as did France, The Netherlands, and Finland, amongst others. The excitement generated by the establishment of a large new multilateral development bank handed China a major diplomatic coup. For the Chinese government the AIIB serves a dual purpose as a finance vehicle with which to underwrite the expansion of vital trade corridors and a tool that allows the country to wield its newly acquired clout.

exceed those made by domestic development banks such as the China Import-Export Bank and the China Development Bank. Given that the AIIB’s credit portfolio remains empty for now, the bank has no track record. Intentions are, however, good and the bank’s vision specifically includes concern for multilateral staples such as climate change, biodiversity, labour practices, indigenous people, and gender. Ultimately, though, the AIIB’s mission is to help build infrastructure on a large scale throughout the region. Undoubtedly, the bank will want to quickly establish a solid reputation for good governance. Likewise, there is no doubt that some of its projects will adversely affect people and places. Such is the price of progress, though risk mitigation and sustainability guidelines can minimise impact.

indeed turn out to be indefinite. However, China’s objective is easy to grasp: to offer a counterweight to the two US-centric trade deals currently being sought by Washington – the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TIPP). In its underwriting of Belt and Road projects, the AIIB is expected to act in concert with – and initially as a junior partner to – the $40bn Silk Road Fund set up by President Xi Jinping. The fund is geared towards investments in businesses along both Silk Road vectors – such as the 720MW Karot hydroelectric dam that will tame the Jhelum River in Northern Pakistan – while the bank will provide the wherewithal for the logistics projects that tie it all together.

CONCERNS The AIIB is the first large-scale and viable initiative to build a multilateral development financier by and for emerging economies. Almost immediately after the plans for the bank had been unveiled, concerns arose over the new entity’s commitment to maintain environmental and governance standards similar to those of the well-established multilaterals – especially since the bank’s founders emphasised their intention to deliver hassle-free financial aid without the attendant bureaucracy. To head off critics, the AIIB in February released its environmental and social framework which will help steer the bank’s policies on how investments impact communities and the environment. Adopting a clean, lean, and green approach to multilateral banking, the AIIB promises to push some boundaries to even beyond the already stringent conditions imposed on projects that apply for World Bank financing. A case in point is the refusal of the new bank to support logging operations in tropical or old-growth forests. The AIIB has also laid out a number of commitments on transparency, disclosure, stakeholder participation that significantly

SILK ROAD The AIIB is expected to assume a leading role in the building of China’s ambitious Belt and Road Initiative – aka the New Silk Road. The project, one of the largest ever conceived anywhere, aims to improve China’s integration with the wider Eurasian landmass, stretching from the North Sea in the west to the Sea of Okhotsk and the Bering Strait in the east. The project is set along two main vectors: the land-based Silk Road Economic Belt and the Maritime Silk Road. Each consists of a number of nodes such as the New Eurasian Land Bridge, a railway that connects China via Kazakhstan and Russia to Eastern Europe and beyond. Parts of this proposed conveyor belt are already in place and operational. The China-Pakistan Economic Corridor, boldly traversing a region beset by political upheaval, proposes to unlock West China and allow efficient rail and road access to the new deep water port being built in Gwadar, close to the border with Iran. The total cost of the Belt and Road Initiative is unknown with guesstimates running from four to eight trillion dollars. The timeframe has also not yet been determined and may

MISSING THE BOAT The reluctance of the United States and Japan notwithstanding, there is absolutely nothing wrong with China using its financial muscle to help others obtain the economic backbone necessary for sustained progress – and help itself in the process. This nation building new-style differs little from westernbacked initiatives and is, perhaps, in many ways preferable to recipients. China aims to export business, not culture nor ideology. In its enthusiasm, the country may be slightly less committed to observing western-defined standards of governance and environmental impact. However, as China moves ahead on the global stage, the country will want to adhere to global best practices – it’s good for business – and may even contribute towards refining the rules yet further. Cooperation rather than confrontation is the message from Beijing, with an added undertone for good measure: Make money and shape prosperity. That is why nearly all countries in Europe, led by the UK which was the first one to sign up, have joined the bank as founding members: there are no discernible downsides to unlocking the vast potential of Asia – precisely the remit of the AIIB.

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The Asian Infrastructure Investment Bank is, however, not quite an exclusively Chinese institution. Whilst the country currently maintains around 30% of the bank’s shares – effectively giving it a veto over any decision – Beijing has repeatedly offered assurances that it will not use this power. Moreover, as new member states join and pay into the bank, China’s stake is expected to dilute. The country will, of course, have a considerable say in the bank’s affairs and ultimately be considerably more powerful than a mere primus inter pares. That, however, is not necessarily objectionable nor much different from, say, the Asian Development Bank (ADB) where the European Union, the United States, and Japan set policy and China – the region’s largest economy – holds barely 5% of the voting power.

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Autumn 2016 Issue

> Interview with Alain de Serres:

OECD Contributions to the Global Growth Agenda

lain de Serres is the head of the Structural Policies Surveillance Division at the Economics Department of the Organisation for Economic Cooperation and Development (OECD). In this capacity he supervises the publication of the annual Going for Growth report which provides the main policy priorities and recommendations for boosting growth in all OECD countries. He has recently worked on the policy determinants of investment in knowledge-based capital. Prior to that Mr Serres has contributed to the development of a framework for the analysis of green growth policies as well as to an OECD report on the economics of climate change mitigation. Part of this work has been published in journals such as Economic Policy, European Economic Review, and the Journal of Economic Geography. Mr De Serres speaks to CFI.co about the work of the OECD and how the organisation helps countries assess and adjust economic policy.

WHAT HAS THE TRADE AGREEMENTS AND TRADE SERVICES CONTRIBUTED IN TERMS OF SOCIO-ECONOMIC IMPACT? Trade in goods and services defines our daily lives. The variety of food on our tables, the medicine that helps us stay healthy, the clothes that we wear, the cars and other means of transport that we depend on have all become within reach of ordinary people thanks to trade. Logging on to the Internet would not be possible without

IS TRADE COOPERATION STILL RELEVANT? International cooperation is more relevant than ever because the major policy challenges facing governments have international dimensions. The fourth industrial revolution has already led to an interconnected world with tremendous opportunities for growth and prosperity. But there are also global challenges such as market volatility, inequality, security and privacy related to international flows of data, market concentration, and lack of sufficient competition and entrepreneurship to mention some of the pressing issues vexing the global economy. Seizing the opportunities while containing the problems require international cooperation on trade and regulation that ideally should involve all countries in the world. DO YOU FORESEE A BACKLASH AGAINST GLOBALISATION? The backlash is already happening with rising opposition in Europe and the US to new trade agreements such as TPP, TTIP, and even CETA. It is also clear that creeping protectionism is on the rise. Legally binding trade agreements have helped avoid a reversal of the continual opening of markets over the past couple of decades, but many countries have used the policy space left in existing agreements to introduce discriminatory measures. With the current sentiment, particularly in Europe and the United States, further steps towards more open markets in the near future may prove elusive. The OECD stands ready to assist governments find ways to distribute and consolidate the gains from the agreements currently in force and to prepare the ground for future agreements and complementary polices that lift all boats. i 41

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HOW DOES THE OECD HELP STIMULATE ECONOMIC GROWTH AS A MULTILATERAL ORGANISATION? Helping policy makers in OECD countries to identify policy settings to promote strong, inclusive and sustainable growth is at the heart of the OECD mission. This objective is pursued with a view that growth is a means to an end, which is to improve the well-being of citizens. The power and credibility of policy recommendations to lift growth rest on the extent to which they can be supported with evidence. In order to persuade their constituencies about the merit of pro-growth reforms, policymakers need to know about the size and nature of the gains they can expect. But the capacity to measure the gains depends on the availability of adequate tools. And, one of the major contributions of the OECD to the global growth agenda is the continuous development and refinement of quantitative instruments to assess outcomes and policies over a broad range of areas in a way that is comparable across countries. Over the years, the work of the OECD has led to the development of tools that measure and compare outcomes and policy settings in most areas that are fundamental to growth such as product market competition, education, innovation, trade, financial development – all known to be important for productivity – and job creation. The result is a broad set of quantitative indicators that can be used to demonstrate how certain policy settings can be reformed to improve economic performance. More importantly, the amount of detailed information collected to build the indicators turns out to be very helpful for policymakers to have a look at the more specific aspects of a policy setting that could hinder performance in a specific area and see what other countries are doing to achieve better outcomes.

The OECD Going for Growth publication is one example of a programme through which the OECD combines quantitative analysis with judgment and knowledge of local experts to help governments reflect on how policy reforms might affect their citizens’ well-being, taking into account country-specific circumstances – including income levels, institutional capacity, and the stance of macro policies – to avoid a one-sizefits-all policy prescription. The report, published annually, identifies key reform priorities to boost real incomes and employment in advanced and major emergingmarket countries and proposes policy packages to overcome the key growth challenges. The Going for Growth framework has been instrumental in helping G20 countries develop growth strategies to raise their combined gross domestic product (GDP) by 2%, one of the main policy objectives set by the G20 in 2014 to achieve sustained and balanced growth. This type of exercise builds on the various structural surveillance processes that are part of the regular work of the OECD. These include general surveillance on a country-by-country basis that is reported in the Economic Surveys as well as cross-country surveillance focused on more specific fields that is reported in a variety of OECD publications such as the Employment Outlook, the Science, Technology and Industry Scoreboard, Education at a Glance, the PISA Programme, the Reviews of Regulatory Reforms, and many more.

the global value chains that produce computers, tablets, and smartphones; the software developers around the world; and the interconnected telecommunications networks that reach almost every village. Trade agreements provide the legal framework that ensures a stable and predictable environment for those that engage in international trade and investment, underpinning these global markets. Everything of value has costs, and this applies to trade as well. As consumers we all gain, and both workers and consumers in developing countries have largely benefited from freer trade, lifting hundreds of millions out of poverty. But employees and owners of firms that find their products no longer in demand because of cheaper or better imports lose. Particularly regions in rich countries that used to have thriving manufacturing enterprises offering well-paying jobs to prime age men have suffered as competition from imports and job-saving technology have taken its toll. The expansion of trade agreements into policy areas previously exclusively under the jurisdiction of national governments has also raised concerns that they may undermine local democracy.

> Autumn 2016 Special:

Young Thinkers Beautiful Minds

lanet earth is home to an estimated 7.3 billion people. It is also beset by a great number of problems: global warming, armed conflict, malnutrition, wealth disparities, amongst a host of other equally pressing challenges. However, there is plenty of good news as well: poverty levels are decreasing faster than at any time before in history. The world has become interconnected, bridging gaps between cultures and allowing for the seamless exchange of ideas and experiences. Though the evening news says differently, armed conflict is becoming the exception rather than the rule. Both the number of wars, and their intensity, have decreased. Democracy is on the march as well. Tin pot dictators and potentates, still quite common twenty or so years ago, are now considered oddities at best. Geriatric rulers desperately clinging to power such as Zimbabwe’s Robert Mugabe and Teodoro Nguema Mbasogo of Equatorial Guinea cut a pathetic figure. North Korea’s Kim Jong-un – that country’s supreme leader, no less – throws a tantrum every now and then in order to attract the world’s attention. While the spectre of famine still haunts some places, the world is now better equipped to respond promptly and decisively to crop failures. Many, if not most, improvements are the work of people who think outside the box and eschew convention. Long before genetic engineering became a science, American biologist Norman Borlaug (19142009), the father of the Green Revolution, tinkered around with seeds to develop highyield and disease-resistant wheat varieties. Mr Borlaug, recipient of the 1970 Nobel peace Prize, is credited with saving the lives of over a billion people. Just as Mr Borlaug suffered an epiphany

and ran with it, today’s young thinkers are busy finding solutions to pressing issues. Using technology in new ways, or approaching problems from unexpected angles, they produce solutions that are often surprisingly simple, cheap, and easy to implement. Not bound by convention and daring to dream – and act – they stand at the pinnacle of human resourcefulness. The combined intellect of the world population is not to be underestimated. In fact, not a problem is too large for it to resist succumbing to nerd power. Even baffling issues such as global warming will be addressed not by concerned politicians, eager to legislate problems away, but by some smart kid or nerdy scientist proverbially reinventing the wheel. More often than not, the collective powers that be form a hindrance to young thinkers wishing to move ahead. Whilst there must be some equilibrium – great ideas will, as a rule, prevail even when battling the forces of conservatism – the world’s leaders would be well-advised to place a bit more trust in human resourcefulness and ingenuity. To think that grand global initiatives will provide a lasting solution to global warming and other problems is rather ingenuous. International treaties and lofty global policy initiatives may have their place but they often only serve to convince the protagonists – rulers, politicians, industrialists, and members of whatever elite – that they have done their bit. For lasting solutions, call in the thinkers and tinkerers: people who are driven to excellence by curiosity – or the pursuit of profit, or both – rather than by the lust for power or a place in the global spotlight. Over the following pages, CFI.co features a number of young thinkers: people who inspire by their creative urges; people who dare propose original solutions, or untried approaches; people, in a word, who are blessed with beautiful minds. i

The Thinker by Auguste Rodin

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Autumn 2016 Issue

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> MOLLY ROBERTS Snooping on China’s Censors Computational text analysis has driven Molly Roberts’ academic research into the shady world of government propaganda and censorship. One of her projects analysed the state’s control of online communications in China. Contrary to popular opinion, she found that China’s public officials weren’t actually censoring government critics and were seemingly relaxed about political conversations themselves. The censor, Ms Roberts discovered, only became busy when people started to organise protests or discuss collective action. And she found the China state’s fake social media was created more as a distraction rather than to win any political debates. What’s fascinating is how Ms Roberts researched her findings: she learned how to code computers – in Chinese. She downloaded millions of social media posts before they were intercepted and then used digital text analysis to compare this raw data with what had passed through the official censor. At the same time, Ms Roberts posted thousands of politic rant blogs herself, so that she could find out what kind of content was blocked and what was allowed. This large-scale examination created an original and exact understanding of what types of dialogue sparked China’s censorship activity. Ms Roberts first became interested in China after travelling through Asia while an undergraduate at Stanford University. She graduated with a BA degree in International Relations and Economics in 2009, taking a Master’s in Statistics in the same year. Her China research then formed the basis of a PhD at Harvard University and several coauthored papers were later published in various academic journals, including How Censorship in China Allows Government Criticism but Silences Collective Expression and How the Chinese Government Fabricates Social Media Posts for Strategic Distraction. Ms Roberts is now an assistant professor at the University of California, San Diego, where she has created a theoretical model on the effects of China’s propaganda and censorship, explaining how it limits citizens’ access to information and their participation in politics. She wants to continue developing the use of revolutionary text analysis tools which have allowed academics to quickly study mass collections of political documents. Ms Roberts: 44

“Humans write billions of words every day. People share their political opinions in social media posts, governments record the minutes of meetings and the text of legislation, and newspapers recount political events in daily publications.” “We are so prolific that social scientists could never read every document that contained information about their topic of study. However, new methods allow us to represent this text quantitatively. This allows analysts to use statistics to summarise the content of the CFI.co | Capital Finance International

documents, condensing years of reading into minutes of computation.” Ms Roberts believes that advances in digital text can assist academics’ research by flagging a selection of documents that need to be read in more detail, focusing attention on important, representative, or influential texts. She said this can improve the study of politics that might be hidden behind mass communications, from measuring political influence on Twitter to uncovering what governments may be censoring online.

Autumn 2016 Issue

> STEPHEN MOILANEN Going Solar Imagine a world where every household’s electricity needs are powered by solar energy. It feels like an obvious way to save fossil fuel, combat global warming, and create a more equal society – all at the same time. But it’s a green future that’s currently challenged by the fact that the majority of households cannot access solar power. Even in America, that majority is said to be as high as 80%, numbering some 90 million households. Why? Well think about it. Tens of millions of families rent their homes, which means their landlords have no financial reason to provide solar power. Tens of millions more are on low incomes, which means that even if they own their homes they cannot afford the technology. And even if rent or low income are not factors, tens of millions more own homes that are located in the shade, which means that solar power cannot work directly via their rooftops. These are the challenges that have fuelled the work of Stephen Moilanen, who believes that the vast majority of US households are “effectively locked out of the clean energy market”. The gulf of access to solar power has prompted Mr Moilanen and his business partner, Steph Speirs, to launch the Solstice Initiative, a nonprofit organisation that’s driving the idea of community solar. This sees households joining together to share a solar power farm that can be built on open land, or on the rooftops of organisations in their local areas. “It’s like a community garden, but for clean energy,” said Mr Moilanen, who believes solar farm members won’t have to raise the initial investment, but that the average household could save thousands of dollars over twenty years. The way it works is that the Solstice Initiative identifies the community organisations – such as churches, schools, or workplaces – that might be interested in hosting solar technology and selling shares of the resulting power to local households. Solstice builds partnerships with local solar developers to arrange the financing and installation of the technology. Then Solstice arranges, markets, and sells the resulting energy to local households on behalf of the community organisations farming the solar power.

one serving up to two hundred households. Two more projects are starting this year, with plans to expand across the USA.

action is the most immediate and consequential means of bringing about the energy future we seek.”

Finally, Solstice works with traditional power companies to make sure that each solar subscriber sees a credit on their monthly household electricity bills. The Solstice scheme is already working in two communities in Massachusetts, with each

Mr Moilanen once worked in the White House’s Office of Energy and Climate Change, but became frustrated at how bureaucracy and politics were stopping the government from solving power problems: “I’ve come to believe that taking direct

Mr Moilanen predicts that solar power could become the “default energy source of every household” by 2026, regardless of people’s socioeconomic status. And he wants the Solstice Initiative to help realise that vision.

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> ALEX LEAVITT The Kind Side of the Internet Anonymous social media users are offensive and infuriating, society often bemoans, always spoiling the online experience for the majority. Not necessarily so, according to Alex Leavitt, whose research first caught the attention of the web world by suggesting alternative motivations behind temporary accounts employing nom de plumes. “People aren’t creating anonymous usernames just so they can be really mean,” he claimed after analysing social news site Reddit. Instead, Mr Leavitt showed how aliases were usually engaged for more friendly reasons, like sharing personal experiences, or to get “advice from the wisest people”. He continued researching Reddit for his recent PhD at the University of Southern California, interviewing scores of users and analysing two billion plus postings made after breaking news events, such as the Paris terror attacks on November 13, 2015. Mr Leavitt accepted that masses of news links, photographs, and eyewitness reports were at first confusing and chaotic, but his analysis revealed an encouraging trend of altruism. He explained a person’s main reasoning: “If I just posted this it might be helpful to someone else.” In a recent interview with his university, he said: “It’s been interesting to see how people who volunteer hours to aggregate news information talk about their motivations, make decisions about how to coordinate others to help, focus on particular sources over others, [and] depend on the larger network to help verify information and make corrections.” Mr Leavitt’s counter-intuitive findings on how humanity drives “weird phenomena on the Internet” has helped land him a job as a quantitative user experience researcher with Facebook. For some observers, this may seem quite a spooky work stream, given what’s often said about various web giants’ determination to exploit the growing public addiction to social media. But Mr Leavitt leaves such pessimism to others, instead preferring to find out what inspires users and how networked technologies can improve good intentions. Describing his new role, he said: “I’m increasingly interested in how we can design systems to facilitate better collaborations, relationships, and other human connections.” 46

Before his Facebook role, Mr Leavitt’s wider social media research used data from Tumblr, Twitter, Minecraft, YouTube, Foursquare, and many other networks. He has also analysed multiplayer online games, with the likes of Microsoft, Sony PlayStation, and Disney Interactive commissioning his work. His most recent paper has shown how players use non-verbal communication to improve team performance. Another article assessed players’ use of multiple characters in online games, and discussed how this had positive implications for users’ fake accounts on social media networks. CFI.co | Capital Finance International

When prevailing public opinion dictates that social media is, at best, an uncontrollable irritation and, at worst, an evil that must be controlled, an alternative view is to be welcomed. Mr Leavitt is focused on “how people interact, working on creative projects, political action, [and] competitive teamwork”, and how networks like Facebook can bring people together. His fascination with the quirky, weird, and unexpected things that come out of online interactions shows the inherent decency of the way in which most people use the web.

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> MAYA KRISHNAN Philosophy and Big Data Modern technology is increasingly about big data, complex coding, and building huge, interactive clouds that can make it all work. But the scientific and sometimes nerdy reputation of the IT experts needed for such missions can be unnerving. What on earth – some observers worry – is all this going to be used for? Enter from left stage Maya Krishnan, a Rhodes scholar who’s shown herself to be as clever at computers as anyone, but who’s also concerned about the philosophical issues raised. She’s investigating how today’s modern technology has changed conceptions of identity, knowledge, and truth, to help make sure it’s used for humane purposes. In a recent interview, Ms Krishnan said: “While society requires many data scientists who are able to develop technical solutions, it also requires humanists who able to interpret and explain the significance of the changes that new technology brings.” Ms Krishnan graduated with top honours from Stanford University with a major in Philosophy and a minor in Computer Science. Her thesis examined 18th century philosopher Kant’s representation of infinity, and she received a Deans’ Award for writing Modern Illuminations – ten essays on the metaphysics of modern thought about what it means to be human. But Ms Krishnan also works on practical projects. She designed POLIS, a Stanford website that organises datasets to provide data visualisation about ancient Greece and Rome. And she developed new computational techniques for finding ovarian cancer markers in genome sequencing data. This collision of philosophy and technology has encouraged Ms Krishnan to continue her quest to discover how huge datasets created by modern technology can be used to help society. She says: “I think about how traditional philosophical theories on human reason have relevance in the modern world. This means reading philosophers like Plato and Kant and seeing if I can use their ideas to make sense of contemporary developments in mathematics and computer science.” Ms Krishnan grew up in Rockville, Maryland. Her Indian-born father worked for the World Bank and her Jewish mother as a management consultant for non-profit organisations. She says her upbringing wasn’t overly religious, but that she was taught that religion can be “about a set of values that you use to form your life”, and for finding a way to improve other people’s lives.

While at high school, she volunteered for a charity that supported underprivileged children in Washington DC, and soon realised that its paperbased records were causing problems. She built a cloud computing-based database to keep all of the organisation’s information in one place, and then taught the children computer skills. “This really changed the way I thought about the social impact of technology,” she says, “and the CFI.co | Capital Finance International

different kinds of education people receive based on their economic background.” Ms Krishnan is studying for twin Masters degrees in Theology and Computer Science during her Rhodes-funded time at Oxford: “I wanted the chance to think more deeply about the implications of recent developments in computing.” Ms Krishnan also hopes to create improved computer programmes for complex datasets. 47

> CHRIS SKOVRON Progressive Conservatives Discovered Donald Trump and Hillary Clinton might do worse than consult Chris Skovron before deciding on the final pitch of their presidential election campaigns. According to Mr Skovron’s research, most US politicians wrongly assume public opinion to be far more right-wing than it really is. His studies suggest that voters are actually far more relaxed about supposedly controversial issues such as immigration, abortion, guncontrol, and same-sex marriage. Mr Skovron has researched the misperceptions of public opinion in American politics for his PhD at the University of Michigan using data from surveys of candidates, party leaders, and the public. He said: “I find that all three groups significantly misperceive public opinion on some of the most salient issues of contemporary American politics. I also find a systematic bias in people’s perceptions – most respondents believe that conservative issue positions are more popular than they actually are.” One example of Mr Skovron’s findings was that while more than 70% of US citizens support background checks for people wanting to own guns, both Republican and Democratic candidates estimated that support to only be between 40% and 60%. The political scientist has discovered the mismatch to be at its most extreme among conservative politicians, said to typically overestimate voters’ conservatism by an average of 20%. This level of misperception was noticeably more skewed than liberal and centrist politicians, who were found to misjudge voters’ conservative leanings by 10% and 15% respectively. In another example, Mr Skovron has found that most conservatives were sure their voters agreed with them on same-sex marriage and healthcare, but that they were found to be wrong in threefifths of cases. Referring to this conservative imbalance, a study co-written by Mr Skovron concluded: “This difference is so large that nearly half of conservative politicians appear to believe that they represent a district that is more conservative on these issues than is the most conservative district in the entire country.” The findings are said to have different implications for conservative and liberal politicians. For conservatives, it could tempt them to move further right, despite their constituents holding different views. Liberals, meanwhile, could have more freedom than they might think to act progressively on issues such as gun control and health care. 48

Mr Skovron’s study has described the tendencies as “asymmetric misperceptions” and has said they helped to explain why gay marriage bills had been so hard to pass, even though they were found to be popular in the public’s mind. Mr Skovron is due to start a new role from this autumn as a postdoctoral research associate in Quantitative Social Science at Dartmouth College, Hanover, New Hampshire. He will be CFI.co | Capital Finance International

studying the reasons behind the misperceptions his work has uncovered, and has said his ultimate aim is to help politician rethink what the public really wants. Assuming his research is accurate, Mr Skovron might advise the Trump camp to be less gungho on issues like the US-Mexico border wall, while guiding the Clinton camp to be less nervous about extending welfare reform, and similar policies.

Autumn 2016 Issue

> HABEN GIRMA Accessibility for All On a recent trip to China, the deaf-blind activist Haben Girma discovered a strange object in her hotel bedroom. It was rotund, felt rubbery and appeared to be a fruit, but with sharp spikes jutting out all over it – she couldn’t be sure. Rather than risk sampling it, she photographed the object and sent it to a friend, who was quickly able to inform her that it was, indeed, a harmless dragon fruit. Ms Girma used the story at a technology conference in San Francisco this spring to explain how she was only able to check the fruit because of a voice-prompted app that gave her access to her camera. Without considering such a scenario, she suggested, some people might have questioned the need for an accessible camera app for the blind: “Why would a blind person take pictures?” Ms Girma told the conference that rather than challenging people to overcome disability, designers should be focusing on accessible designs that remove barriers imposed by society. Ms Girma was born in California after her mother fled Eritrea in the early 1980s. At school, she benefited from various technologies such as a digital braille device which her elder brother, also deaf-blind, was denied in Eritrea. She went on to become the first deaf-blind student to graduate from Harvard Law School and then worked as a lawyer for Disability Rights Advocates in California. Ms Girma has now become a full-time advocate for better education, expectations, and technology for deaf-blind people across the globe. Her goal, she says, is a world where all technology has become accessible to all people by default – regardless of disability, and even when such solutions might not initially make sense. Ms Girma says that designing full accessibility in products from the start would not only benefit disabled users, but would also be a boon to developers and, in many cases, all users. This is not a new idea, she argues. The invention of an early typewriter was prompted by a man who wanted his blind wife to write him letters. The resulting idea of touch-typing has benefited the world. Ms Girma regularly tells another story about the late deaf-blind American educator Helen Keller who became famous as one of the 20th century’s leading humanitarians, despite her disability.

Ms Girma describes how Ms Keller had been denied admission to Harvard – not because she was deaf-blind but because she was a woman. And Ms Keller’s family had stopped her from marrying someone she loved – not because she was unable to marry, but because they felt a deaf-blind person shouldn’t be doing that. Ms Girma says subjective barriers had been created by society and those around Ms Keller. CFI.co | Capital Finance International

And this was what prompted her to back modern technology that removes those barriers, like voice apps assisting blind people, and video captions for deaf users. Developers, she says, should always be pushing for ways of making the latest technologies accessible, such as vibration devices for skin which Ms Girma described as “our largest organ.” 49

> Europe:

Europe - Fractured at a Crossroads By Wim Romeijn

As the margins of political life shift to the mainstream, the Old World finds itself at a crossroads. Almost everywhere in the European Union, established political parties hovering on either side of dead centre – from Spain’s social-democratic PSOE to Germany’s Christian-democrat CDU – face a conundrum: stay the course and founder at the hands of populists, or tack in order to accommodate dissatisfied voters, leaving the middle ground largely uninhabited.

Spain: Madrid

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Autumn 2016 Issue

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pain’s Socialist Workers’ Party (PSOE), much less combative than its name suggests, dominated the country’s political establishment for the better part of thirty years. The party’s socialist-light prime minister Felipe González, in office from 1982 to 1996, secured his country’s accession to the European Union in 1986 (then still called the European Economic Community) and made it safe for democracy. Within a few years, Spain and its buoyant economy became the place to be as the country shed decades of underdevelopment to metamorphose into the posterchild of a progressive Europe. That miracle has now been largely undone, though, of late, Spain does manage to post a respectable rate of GDP growth. However, at the current pace it will take political eons to make up for lost time. Spanish voters, who returned a hung parliament three times in a row, seem reluctant to grant either the PSOE or its conservative arch-rival the PP (Partido Popular) a working majority. Both traditionalist parties now mull baseline shifts to engage with newcomers and fringe players in order to form a government. It is the same story pretty much all over Europe. In France, the conservative right is rallying around former Prime Minister Alain Juppé who served from 1995 to 1997 under President Jacques Chirac and now makes noises barely distinguishable from the rants for which Marine Le Pen of the National Front is known. The continent’s old bugbear xenophobia has, however, donned a thin mantle of respectability. Both Marine Le Pen and her German match Frauke Petry of the Alternative für Deutschland (AfD) make the irrational dislike of foreigners suddenly seem salonfähig – a topic no longer taboo even in polite society. The gold standard was of course set by Nigel Farage, that likeable and quintessentially British chap who showed all and sundry that it was quite alright to consider Johnny Foreigner somewhat less desirable. The trouble is that Mr Farage, for all the damage he wrought, remains within the bounds of reason. Continental xenophobes usually lack Mr Farage’s well-documented sense of humour. Take Geert Wilders of the Freedom Party (PVV) in The Netherlands who looks set to double his party’s share of the vote, but has yet to crack a smile in public. To date, Mr Wilders remains the only member of the Freedom Party. He adamantly refuses

“The gold standard was of course set by Nigel Farage, that likeable and quintessentially British chap who showed all and sundry that it was quite alright to consider Johnny Foreigner somewhat less desirable.” to open his party to others. The PVV’s political programme fits on a single sheet of paper and proposes to close the borders, exit the European Union, expel foreigners after a single brush with the law, end development aid, and scrap all support for the arts and public broadcasting – considered by Mr Wilders as mere hobbies of well-heeled progressives. All power to the Philistines. Next door in Germany, Frauke Petry of the AfD caused an uproar earlier this year when she suggested border guards should be authorised to shoot immigrants attempting to cross into the country illegally. Mrs Petry (41), a scientist and mother of four, also wants minarets banned from the German skyline and headscarves from public places. Whilst Mrs Petry’s proposals seem moderate in comparison to some of the political venom peddled elsewhere on the continent, the AfD has few qualms when it comes to tapping into ever lingering xenophobia. Poland, Greece, Hungary, Belgium, and even some of the Nordic countries now need to contend with nationalist parties that seem to attract more voters with each election cycle. Politicians who bravely, or foolishly, resist the lurch to the right run the risk of becoming irrelevant. In the UK, Jeremy Corbyn’s insistence on upholding quaint, if not dated, values have condemned the Labour Party to languish at the margins, out of sight of most voters who – Brexit being a momentary lapse of reason – do appreciate a sensible political discourse. Politicians may have vacated centre ground in order to placate angry or fearful voters; most people will still choose reason over doctrine – if given a choice. Europe’s problem is, of course, that the continent’s marketing department is largely non-functional; i.e. somehow Europe cannot sell itself. In a classic case of you-don’t-valuewhat-you-have-until-you-lose-it, European voters display scant regard for the accomplishments of

the union – and take most benefits for granted. The European Commission now seems aware of its marketing deficit and wants to address the issue by giving away free Eurail passes to all EU citizens on their eighteenth birthday – a gesture that is expected to cost up to €2bn annually. The thinking in Brussels is that once young Europeans start visiting their neighbours – Eurail allows for up to thirty days of unlimited travel on the continent’s vast railway network – they will come to appreciate the rich diversity of people and scenery contained within the EU. The idea is actually quite nice and may reach people who’d otherwise either stay at home or travel only to briefly imbibe themselves with cheap liquor on some sun-soaked costa. Otherwise the Eurail initiative is quite superfluous. Many young Europeans are already going places. The Erasmus and Socrates student exchange programmes, set up in 1987 and 1994 respectively, already helped over three million students pursue higher learning outside their home country. Both programmes grant European students easy access to around 4,000 institutes of higher learning in 33 countries. The Erasmus Programme has now been expanded to include high school students. Few EU schemes have proved more successful at fostering closer ties between member states and furthering a PanEuropean identity. That shared identity is, of course still far off and elusive. However, Europe as an entity works on a time scale different than the one prevalent amongst politicians. The EU’s founders recognised the enormous challenges of bringing together such a fractured and diverse continent. Paul Henri Spaak, prime minister of Belgium between 1947 and 1949 and one of the founding fathers of the union, predicted that the establishment of a common European identity would require a “few centuries” at least. Almost sixty years into that project, little headway has (apparently) been made. The Erasmus generation may welcome an ever closer union of the peoples of Europe; the masses mostly disagree. As national politics become increasingly poisoned by polarisation, if not divergence, a Pan-European identity seems further away than ever before and now looks not unlike a pipedream. Time to reclaim the middle ground before it is too late and the loonies have taken charge. i

“As national politics become increasingly poisoned by polarisation, if not divergence, a Pan-European identity seems further away than ever before and now looks not unlike a pipedream. Time to reclaim the middle ground before it is too late and the loonies have taken charge.” 52

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> CFI.co Meets the CEO of Openwork:

Mark Duckworth

ark Duckworth joined Openwork as commercial development director in late 2010, gaining promotion to managing director of distribution and marketing in July 2011. He was appointed Openwork chief executive officer in March 2015. His career in financial services includes spells with Living Time, where he was distribution and partnerships director responsible for all sales distribution, strategy, and key deals in the UK. He has also worked for Prudential, where he was distribution director, responsible for distribution throughout Europe and the Middle East; AXA, where he was national sales manager; and Scottish Amicable, where he was regional sales manager. But his earlier world also encompassed periods as a both a professional footballer and latterly squash player; both careers cut short by injury. Openwork finds itself as one of the key players at what Mr Duckworth sees as a ‘golden time’ for the UK’s financial advice sector. A rapidly diminishing pool of qualified advisers, an abundance of potential clients and relatively little competition from elsewhere are combining to create the perfect environment for UK financial advisers to grow their businesses.

Since being appointed to the role, he and his team have been working to position the network so that its advisers – almost 3,000 in number – can best capitalise on the opportunities as he sees them – albeit continuing to understand looming threats, such as automated advice and the potential return of the banks, to giving customer advice. “If you are a financial adviser operating today, there are more potential clients than you can handle,” says Mr Duckworth. “There are more than half a million people in the UK with £500,000 or more in liquid assets and too few advisers to service them. This is a fantastic opportunity for professional financial advisers.” CEO: Mark Duckworth

Now making sustainable annual profit, Openwork has expanded its activities over the past four years. It has built its own asset management business, Omnis Investments, which manages more than £3.5bn of customer investments. It has acquired a specialist business of over 800 advisers, Owl Financial, who specialise in providing life assurance and critical illness advice to customers and it has invested heavily in technology to ensure advisers’ business can be more smoothly and efficiently processed. 164

Together these diverse businesses, alongside the core advice its advisers give customers on investments, protecting their families and support to finance house purchases, have made Openwork not only one of the largest advice businesses in the UK, but also delivered consistent annual profit. The goal for the business now is to expand that. Mr Duckworth has targeted delivery of double-digit annual profitability, which would see a doubling of its last posted figure of £4.8m in 2015. CFI.co | Capital Finance International

The challenges of running a diversified, scaled advice business are many and varied, particularly in a changing regulatory environment, but the route forward for the business is clear. “Strong customer relationships, backed by high-quality solutions that work for the customer are key,” says Mr Duckworth. “A business partner with scale and processes to provide the necessary support should act as a facilitator for quality advice and Openwork remains uniquely placed to provide it.” i 53

> Openwork:

Largest and Oldest Financial Advice Network in the UK The Openwork Group is one of the largest and longest-established financial advice networks in the UK. It started operating as Openwork in 2005, but has been active in the financial advice market for over forty years. The public may remember Openwork better in its previous incarnations as Hambro Life, Allied Dunbar, and more recently Zurich Advice Network.

ver 3,000 financial advisers and 300 staff are at the heart of the business offering a range of support to financial advice firms, financial advisers, and customers. Backed by a strong shareholder base and a rich history, Openwork has developed the knowledge and experience to deliver a top-quality home for customer-focused advisers and financial professionals. GREAT FINANCIAL ADVICE Openwork’s business is divided into three specialist business units – wealth, mortgage and protection. The wealth division encompasses all elements of platform, investment, and savings relationships. Since early 2013, Openwork advisers have had access to their own platform, powered by Investment Funds Direct Limited (IFDL) and the Zurich Investment Platform. The platforms now manage over £4bn of customers’ savings in little over three and half years and growth has been consistently strong across both platforms, despite the backdrop of heightened volatility and market uncertainty over the period. Advisers can access a range of investment solutions through both platforms, both the inhouse fund solutions and best-of-breed external funds. Advice will range from simple delivery of straightforward solutions to customer needs to more complex financial planning, harnessing a range of solutions requiring more complex tax and trust work. The mortgage division seeks to create maximum value through supporting clients requiring

“Backed by a strong shareholder base and a rich history, Openwork has developed the knowledge and experience to deliver a top-quality home for customer-focused advisers and financial professionals.” new mortgages or seeking to improve their current arrangements. Openwork’s advisers are responsible for over £9.1bn of mortgage lending in 2015 – a dramatic rise of 23% from the £7.4bn delivered in 2014 and the division expects to surpass £10bn of mortgage lending this year. This increase will come partly through organic growth but also through an expansion in adviser numbers. Most recently, Just Mortgages, the financial advisory business of the estate agent Spicerhaart, joined the network from L&G in April. Ensuring customers are adequately protected is at the core of all Openwork customer advice. Openwork tripled the number of protection policies it recommended to clients last year, with its advisers administering more than 134,000 policies in 2015, covering a total of 160,000

individuals. This represents a trebling of the coverage on the previous year. As the cornerstone of all good financial planning, Openwork is delighted with its ability to see and advise more customers about this vital proposition. SPECIALITY BUSINESSES Openwork also operates its own fund management business, Omnis Investments. Omnis’ fund range is available exclusively to Openwork advisers and clients and offers a full range of equity, fixed interest, multi-asset, multi-manager, and income funds. Omnis currently manages over £3.5bn of customer savings and selects market-leading external fund managers to undertake the dayto-day management of its assets. Its current range is managed by amongst others Schroders, Columbia Threadneedle, Jupiter, Woodford Investments, BNY Mellon, Baillie Gifford, and Newton. It continues to attract strong inflows, with more than £160m invested in the second quarter of 2016, placing it in the top ten largest net retail flows in the UK. Omnis is a core part of the Openwork offering, with a scalable infrastructure and plans to expand its range over the coming years. 2plan Wealth Management is one of the leading nationwide IFA firms in the UK, providing professional independent (whole of market) financial advice through its around two hundred advisers. Openwork Market Solutions offer financial services including advising on, and arranging, life

“A core part of Openwork’s philosophy is giving back to the communities in which it operates.” 54 166

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Autumn 2016 Issue

and critical illness assurance, pensions and investments, principally to clients of Openwork advisers who require more specialist advice. Owl Financial was acquired by the network in late 2014, when Openwork assumed responsibility for MetLife UK’s protection advisers, who now number more than eight hundred. The agreement provided an enhanced nationwide network from which to distribute a broad protection product range, which includes income protection, life insurance, critical illness and accident protection cover. FUTURE SHARE STRUCTURE Early in 2016, Openwork and Zurich signed an agreement that will see the global insurer divest its 25% shareholding in the network within the next four years. This will see the network majority owned by the advisers that use it; a unique arrangement in the United Kingdom. For the past three years, Openwork has delivered steady and sustainable operating profits and its expansion into other advice businesses and fund management leave it ideally placed to continue this delivery. Now responsible for a significant proportion of the total number of UK advisers, Openwork has the size and scale to deliver high-quality advice and solutions to its customers, leveraging its position to ensure price advantage for clients. GIVING BACK A core part of Openwork’s philosophy is giving back to the communities in which it operates. The business has been responsible for the day-to-day running and fundraising of The Openwork Foundation, part of Zurich Community Trust (UK) Limited. The foundation (formerly known as the Allied Dunbar Foundation and then the Zurich Advice Network Foundation) was launched in 1981. Since this time, it has raised nearly £20m for disadvantaged children, both in the UK and abroad. Since Openwork’s launch in 2005, staff and advisers have raised more than £5.2m by taking part in everything from overseas cycle challenges to charity curry nights. The funds raised are distributed in the form of charitable grants through three different programmes. The first of these is a national charity partner; the second through local grants, linking in to its main themes and thirdly, through discretionary grants, often promoted by staff themselves. Cares4Kids is the foundation’s current theme and is the focus of national and local grant programmes. It is designed to support disadvantaged children and young people in the UK and overseas, up to the age of 18, often through the provision of respite care and mentoring. i

London Office: Heron Tower

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> Joanne Smith, Group CEO of RecordSure:

Artificial Intelligence in Fin-Tech From product marketing, through RoboAdvice, compliance, and fraud detection, artificial intelligence is finding its place.

rtificial Intelligence (AI) has been getting a lot of attention in fin-tech circles this year and rightly so, as when properly implemented it can help retailers market and sell their products more efficiently, whilst helping weed out instances of fraud. Seen by many as a panacea for increasing profitability despite an onerous regulatory climate, AI is primarily finding its place in ensuring that new, disruptive fin-tech is implemented with caution and controls. WHAT IS AI? Whilst there are many definitions, today’s AI mainly comprises a single but broad computerscience discipline – machine learning. Machine learning essentially ingests data about what has happened in the past, along with some non-obvious outcomes or results; then uses advanced mathematics to build up a range of statistical and data network models, in order to predict outcomes based on a new set of input data. This differs from the traditional use of computers which have to be programmed according to rules created by humans. Machines learn through watching humans, or other systems, as they evaluate data and take decisions. The machine then tries to do replicate the process with new data. TARGETED MARKETING This is the area of AI that we are invisibly exposed to daily. From Google, through Facebook to the myriad of online advertising networks, AI systems are predicting our buying behaviour based on our browsing and purchasing history, our social media posts, tweets, and likes, and on what our peers also seem to like buying. However, such use of machine learning and purchase prediction is not limited to social media giants, with banks and insurance companies all increasingly targeting their product marketing based on financial history and social profiles. This form of predictive marketing often makes us feel a little uncomfortable, but is really little different from a financial product vendor choosing to advertise in a Sunday Paper that I, 56

“Partnerships with governments and local companies form a very important part of GE’s growth in Sub-Saharan Africa.” and people like me, read based on my sociodemographic profile. Such profile-based marketing could even be considered as endorsed by the UK financial regulator, the FCA, as their TCF (treating customers fairly) regime states as its Outcome 2 that “products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.” However, whilst some other industries also use such AI profiling to affect the product itself as offered, such as the purchase price, terms, or bundled extras, based on how a customer is assessed, this is a complete no-no in financial services as it would contravene the spirit of the overarching TCF Outcome 1, that requires that all customers are treated fairly. AI in fin-tech can be used to decide what products to create, and where to market them, as long as the criteria as to what gives consumers access to that product, and at which terms, must be clearly stated. However, AI profiling cannot be used to give an individual preferential terms than anyone else who wants to buy the product and who also meets the required and disclosed purchasing criteria. AI IN ROBOADVICE If there is one hot-topic this year in retail fintech, it is that of automating the advice process: so-called RoboAdvice. At first glance, AI could be considered as applicable to an automated advice process – the advice has traditionally been given by humans after all. However, if one considers the advice process in more detail, the application of AI is not in, say, advising a suitable set of products from which the customer can make an informed choice. This is because each principal has quite a CFI.co | Capital Finance International

stringent set of rules as to what products can be offered based on a customer’s needs, objectives, circumstances, affordability, and attitude towards risk as based on their own research and criteria those of the product vendor. If these rules are hard and fast, the traditional computer if-this-then-that logic can be applied. The RoboAdvice service would therefore follow these rules in the same way that a human adviser has to. If you think about the great financial advisers that you’ve met, their art is demonstrated in the fact-find meeting, where you talk to them about who you are and what you need, and they interact with you to extrapolate the information that you provide into the input that their principal requires against their product selection criteria; and, very importantly, they can draw out the pertinent information that you may think is less unimportant or that perhaps you may have misunderstood in your representation. The role of RoboAdvice will not be in the area of product selection, but instead in the area of understanding the input from customers – i.e. in ensuring that the needs, objectives, circumstances, affordability, and risk-appetite are fully understood from the wide variety of ways that the self-serve customer might present them, or on occasion, might misrepresent them. DETECTING MIS-SELLING If we work on the basis that most advisers act with integrity, then the conclusion must be that occasional day-to-day mis-selling must primarily be down to mistakes made in the information ingest process. Where there is one-to-one uniqueness in every financial transaction, this is an area where programmatic, rules-based logic, simply can’t be used to detect the myriad of circumstances that might be construed as mis-selling. This is a prime target for AI and is the very reason I created RecordSure – an AI product suite that uses machine learning to listen to the audio recording of a telephone call or of a face-to-face advice session, in order to pick out sections of conversation where key information may have been missed or misinterpreted. We use compliance subject matter experts to listen to a training set of audio recordings

Autumn 2016 Issue

made during our clientsâ&#x20AC;&#x2122; customer interactions, and to mark up the good and the not-so-good behaviour. Our AI systems then learn from this, in order to automatically spot and raise alerts to our clients against similar behaviours in future recordings. This is proving to be a far better approach than checking compliance from the paper records around the transaction, such as the fact-find and suitability letters, as these documents are merely an interpretation of the information exchanged during the conversation, whereas the audio is a wholly authoritative record as to what really occurred. Despite the efficiency gain in using AI to review recordings, rather than humans, we donâ&#x20AC;&#x2122;t consider this to be a replacement for human compliance checking activities. Instead, the role of AI here is to prioritise the reviews for humans. So, if your systems and controls allow for 3% of your customer transactions to be reviewed by your first-line compliance team for misselling, then the purpose of the AI is to review 100% of the recordings, and provide as output the 3% that are most likely at risk for said team to review. PREVENTING FRAUD Using AI to detect potentially fraudulent activities is something that is widely done in

capital market transactions, where the trader community has taken quite a hit in the public eye from a number of rate-rigging, insidertrading, and other high-profile scandals. Increasingly, machine learning will also be applied to detecting fraud in the retail product environment, whether that is in uncovering fraudsters who claim to have lost their credit card immediately prior to making an expensive purchase, or in finding those rogue consumers who make false insurance claims, or even in trying to make connections between people who may be involved in organised money-laundering rings. AI that targets these applications will need a wider scope of training and operation, as the behaviours involved in fraud canâ&#x20AC;&#x2122;t easily be predicted. Instead machine learning will need to ingest everything from the spoken word through the audit trails of transactions to environmental data sources such as the time of year, the geographic location of transactions, and news feeds that may provide some influence or opportunity for scamming. Along with a range of visualisation and mathematical techniques collectively known as data-mining, skilled compliance teams will use all such data and machine-learned findings as the primary weapon in the arsenal against fraud.

DEVELOPING FINANCIAL MARKETS Throughout Europe and in other highly developed markets, regulation has matured as vendors have evolved their range of products and made their occasional mistakes in the eyes of the consumer or state. In developing financial markets, the financial regulators may not always be quite so mature. If local vendors are to build consumer trust for their operations and products, they will need to act as if the state regulations were as strong as in, say, Europe. The advantage such developing-nation vendors have over more mature markets is that they do not have the legacy of systems and products of the past, and can therefore can focus their management time and resources on ensuring that products are correctly specified, marketed, sold, and audited from day one. AI will play a key role in this. Like many of my peers in the financial community, I hope that the machine learning technologies we develop for ourselves today will be accessible to the developing markets of tomorrow; in a form and at a price-point that will help vendors in such markets create the consumer confidence in financial institutions that is so necessary for any form of economic stability and consumer choice. i 57

TO LEARN ABOUT SIMPLE ONLINE PROCEDURES VISIT

ger.co LINKS TO THE WORLD'S BUSINESS REGISTRATION WEBSITES AND USER-FRIENDLINESS RATINGS OF EACH Businesses save time by knowing what to expect. Governments learn from websites of higher-rated peers. Schools teach students to expect simple, online processes.

G E R .CFI.co C O -| Capital M A KFinance E G OInternational VERNMENT PROCESSES EASY, EVERYWHERE!

Autumn 2016 Issue

> CFI.co Meets the President & CEO of Kommuninvest:

Tomas Werngren Tomas Werngren presides over a Swedish financial institution which scouts global markets and institutional investors in over fifty countries worldwide to gain economies of scale. As a result, Swedish local government investments – in schools, housing, energy supply, and more – can be funded in a robust and highly cost-efficient manner.

omas Werngren has overseen the rapid expansion of Kommuninvest, to become one of Sweden’s largest financial institutions with assets approaching $45 billion. Started as a collaborative venture among ten local governments in 1986, Kommuninvest has remained true to its founding principles: attractive loan terms for local government investments, conservative risk mandates, and a culture built on municipal values. “As we are active on fast-moving debt capital markets in the world’s financial hubs, maintaining a firm footing connected to the daily workings of the local government community is fundamental. We serve our owners, ultimately the tax payers, and not vice versa,” says Tomas Werngren. Mr Werngren was raised in the forest landscapes of Värmland County in western Sweden. This background has taught him the value of a longterm perspective and respect for the planet. Ever since his young days, he has taken a keen interest in both finance and the public sector. Ambition has also helped. At university, he studied public administration and dreamed of contributing to development in the public sector. “I strongly believe that welfare growth and environmental responsibility go hand in hand. In fact, they are both critical ingredients if we are to succeed in transitioning to a more sustainable society.” Having started out as a 28-year old treasurer at SBAB, the state-owned mortgage and savings provider, he was recruited by Kommuninvest in the early 1990s, at the height of the Swedish banking crisis. Many local governments turned to Kommuninvest for assistance, and the organisation grew rapidly to a hundred members. When Mr Werngren was appointed President and CEO in 2006, Kommuninvest’s ownership comprised 174 Swedish local governments, who collectively had borrowed SEK 56.7 billion from Kommuninvest. Ten years later, at halfyear end 2016, membership had grown to 282

President and CEO of Kommuninvest: Tomas Werngren

municipalities and county councils, and lending to them had more than quadrupled to SEK 268.9 billion. “Kommuninvest has become far more relevant for its owners, not least as a result of the 2008/2009 financial crisis,” says Mr Werngren. The past tenyear period has seen banks dramatically withdraw from lending to local governments. For many of the smaller municipalities, we are effectively the only funding source.” The fact that also smaller municipalities, via Kommuninvest, can now fund their green CFI.co | Capital Finance International

investment projects with green loans and green bonds gives Mr Werngren satisfaction. He intends to leverage on the Kommuninvest Green Bonds framework to mobilise municipal sector green investments and to promote knowledge buildup by further integration of climate and finance issues. “Sweden wants to be one of the world’s first fossilfree welfare countries. Local governments are key to achieving this target. Each year, Swedish municipalities and county councils invest more than the government, with a clear focus on sustainability and environmental benefits.” i 59

> Kommuninvest:

Showcase for Sustainable Local Government Investment Financing

weden has been recognised globally for its socioeconomic model, combining a free market economy with a welfare state. As increasing attention is put on the role of local governments in solving one of the planet’s most pressing issues – climate change – attention is again focused on Sweden. Here, a successful model for local government investment financing has been in place for thirty years. This model is now used to support local government climate action in areas encompassing renewable energy, green buildings, and water management. ABOUT KOMMUNINVEST Kommuninvest is the Swedish local government debt office and the largest lender to Swedish local and regional governments. The institution, which was established in 1986, is owned by 284 Swedish municipalities and county councils/ regions (out of 310 total). The institution accounts for nearly 50% of all local government sector lending in Sweden. Kommuninvest has a balance sheet of approx. $43 billion and a lending portfolio of around $32 billion. Its 2016 expected funding volume is $14-15bn, to be completed on international and domestic capital markets. All lending is in Sweden. All business operations, including funding, lending and treasury activities, are conducted by the credit market company Kommuninvest i Sverige AB, which enjoys a AAA/Aaa credit rating and is explicitly guaranteed by the 284 members of Kommuninvest Cooperative Society, the parent organisation.

“The Swedish government’s stated ambition is to make Sweden one of the world’s first fossil-free welfare nations.” ECONOMIES OF SCALE THROUGH AGGREGATION Kommuninvest was established to provide Swedish local governments with more costefficient funding than commercial banks, which was previously the only available source for external funding. The idea was for Kommuninvest to obtain economies of scale by aggregating local government funding needs through a joint funding vehicle, supported by an unlimited, joint and several guarantee from the owners (Swedish local governments with tax-raising capabilities). The rapid growth of Kommuninvest since its inception is testament that the model is beneficial to members. From 10 members and SEK 0.4 billion in lending in 1987, Kommuninvest has grown to 284 members and SEK 268.9 billion in lending at the end of June 2016. Kommuninvest typically enjoys acceptance rates of above 90% when it participates in tender offers for financing requested by borrowers. The organisation is cost-efficient. The total administration expenses, excluding statutory

300 250 200 150 100 50 0

Number of members

Lending

Chart 1: Growth in members and lending 1987-2016

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fees, typically are around 5 basis points in relation to the balance sheet total. LOCAL GOVERNMENTS CRUCIAL TO TACKLING CLIMATE CHANGE The beginning of the global environmental movement can be traced to the first United Nations conference on the human environment, held in Stockholm, Sweden, in 1972. In 2015, after many years of climate conferencing, the Paris agreement explicitly referred to the role of local and regional governments as key players in tackling climate change. The UN Development Programme estimates that local authorities are responsible for more than 70% of climate change reduction measures. For local leaders, better air quality, lower energy costs, improved transport systems, and green growth makes political and economic sense. This is apparent in Sweden, where local governments are taking the lead on climate action. More than 90 % of municipalities have green targets or have adopted national or regional goals. The Swedish government’s stated ambition is to make Sweden one of the world’s first fossil-free welfare nations. By 2045, at the latest, Sweden will have no net emissions of greenhouse gases, after which negative emissions will be attained. Through investments and procurement, regulatory supervision, and responsibility for city planning and local infrastructure, the local governments drive Swedish green efforts. As the local government sector accounts for over 50%

Autumn 2016 Issue

Videum Science Park, Växjö: Swedish municipalities are investing extensively in new eco-friendly real estate. Videum Science Park in Växjö, declared Europe’s greenest city, is part of the city’s effort to build sustainably using wood. Photographer: Anna Joanzón, Videum AB

Karlskoga bioenergy plant: More than 85 % of Swedish multi-family housing units are heated via district heating systems. The district heating facility in Karlskoga is run on virtually fossil-free energy sources.

of all public sector investment in Sweden, their actions have impact.

categories, reflecting the broad scope of Swedish local government climate action.

And now, through Kommuninvest, local governments have a tailored financing mechanism through which to fund their green investments.

By end-August 2016, Kommuninvest’s green loan portfolio was SEK 12.8 billion ($1.5bn), committing funds to 50 investment projects in some 25 Swedish municipalities. These include the Herresta School in Järfälla municipality, the first school in Sweden to be constructed using massive wood, Umeå municipality’s ultrafast-charging electric buses, and numerous investments in renewable energy, notably bioenergy, wind energy, and solar energy.

KOMMUNINVEST GREEN BONDS FRAMEWORK In June 2015, Kommuninvest began extending green loans to its clients. Green loans can be approved for Swedish local government investment projects that promote the transition to a more sustainable society. All projects must meet predetermined sustainability criteria and should address either mitigation of climate change, adaptation to climate change, or be a project related to environmental management in other areas than climate change. There are eight eligible project

INAUGURAL GREEN BOND LARGEST TO DATE FROM THE NORDICS In March 2016, Kommuninvest issued its inaugural green bond. With a size of $600m, it was the largest green bond to date from a Nordic issuer. Kommuninvest expects its green loan portfolio to grow to 15-20% of all CFI.co | Capital Finance International

lending and to issue green bonds regularly, in multiple currencies. This is an effect of the large investment needs among Swedish local governments, and the clear focus on climate and environmental benefits in their investment decisions. AAA-RATED GREEN BOND – BENEFITS TO INVESTORS Kommuninvest green bonds are an opportunity to invest in Swedish climate solutions through a Triple-A rated fixed income product, explicitly guaranteed by the members of the Kommuninvest Cooperative Society. Since the green bonds are linked to local government lending – rather than specific projects – investors are not required to take on direct project credit risk. The Triple-A credit quality of the green bonds is the same as for any other Kommuninvest bonds, with standard documentation and a 2nd party opinion from Cicero, the climate and environmental research institute. i 61

> Frost Consulting:

Elegant Solutions to Complex Problems

iFID (Markets in Financial Instruments Directive) II presents a complex mix of risks and opportunities as it redefines the relationship between asset owners (including retail savers and pensioners) and asset managers. Central to the regulation is a far greater transparency over investment research spending by asset managers. This is critical given the crucial role research plays in generating investment returns. Asset managers have to make seismic decisions related to research funding methodologies and then face complex implementation challenges to fairly allocate research costs at the client level. Frost Consulting, established in 2008, has been at the forefront of solutions designed to enhance the efficiency of research spending. In September 2014, Frost published a white paper sponsored by CFA (Chartered Financial Analyst) Society UK and the global CFA Institute entitled “Investment Research Valuation Approaches: A Framework and Guide for Investment Managers and Asset Owners.” The paper was written to assist asset managers in complying with the FCA PS 14/7 rules that first required them to value unpriced (primarily investment banking) research. The paper proposed a series of customisable frameworks to allow asset managers to value unpriced equity research. MiFID II will widen the scope of the UK regulations by applying the research funding and reporting requirements (at the client level) to encompass all asset classes. In response, Frost has developed and launched FrostRB, a multiasset class research valuation/budgeting software platform that allows asset managers to create multiple, diverse strategy/fund budgets that link research spending to specific investment mandates and then roll up into asset manager to research producer payment aggregations. By constructing manager-specific valuation frameworks for any type of research (priced, unpriced, multi-asset class, non-investment bank), FrostRB transcends the commonplace last-generation (equity only) broker-vote systems which have been questioned by the FCA and are unlikely to meet MiFID II requirements.

Principal: Neil Scarth

FrostRB provides a solution to the four critical research challenges of MiFID II: • Precise granular research spending by product at the fund/client level • Specific monetary valuation of each multiasset class research product/service purchased • Ability to create harmonised multi-asset class research budgets • Demonstrating research value to the portfolio

Regardless of the asset manager’s research funding decision (CSA/RPA, Swedish Model or via their own profit and loss statements, FrostRB allows asset managers to maximise ROI (return on investment) on research spending while simultaneously creating significant alignment between the manager’s investment process and the asset owner’s investment objectives. FrostRB harmonises research valuation/payments on a

CFI.co | Capital Finance International

product level, typically resulting in 15-20% top line savings (which are added directly back to investor returns). This creates a win-win situation for all market participants and allows asset managers to transform a regulatory challenge into a clientfocussed competitive advantage – an elegant solution to a complex problem. i

Esprit de Service FRANCE

> International Capital Management:

Clearly Measurable Performance is the Answer to Constantly Changing Markets

ntil the moment central banks move away from their monetary policy, shortterm influences and political decisions will continue to give rise to volatilities on the stock markets. International Capital Management AG (ICM) counters this fact with its financial products, well-proven for years, which present a balanced ratio between opportunities and risks. For this reason, the company constantly develops its financial 64

products and exactly in this way guarantees progress with certainty. In addition, as a basic principle, it always remains true to its credo and persistently builds the probably best bridges possible between the institutional investment world and private investors. OUTLOOK 2016 TO 2017 From a global point of view, capital market interest rates are still close to historic lows. CFI.co | Capital Finance International

Market participants will hardly find any simple investment opportunity even until the end of 2016. Due to few remaining alternatives regarding investment opportunities, stock markets are thus artificially driven to record highs. Hence, the experts reckon that interest rate lows will still continue for quite some time. It can therefore be expected that the central banks will still carry on with their expansive monetary policy in the short to medium term.

Autumn 2016 Issue

“By applying its financial theory skills, ICM has acquired high esteem as an independent asset manager and is unique in selecting products or investment categories which it considers for investments.” `The reason for this is continually moderate growth at low inflation. In the long term, however, the degree of expansion will have to be decreased. Paradoxically, the emergence of a new awareness might ensure that eventually even the financial markets will consolidate and recover in a sustainable manner in the long term. This means it may still take a long time until a sustainable trend becomes visible over a longer period. Until then, short-term influences, not always comprehensible political decisions and occurrences, mood swings, and emotional trends will most likely continue to have an impact on events on the stock markets. This means there will be plenty of room for volatilities on the stock markets in 2017 as well. PERFORMANCE GUARANTEES PROGRESS WITH CERTAINTY Against this background, International Capital Management AG (ICM AG) has developed an equity strategy with a hedge against losses in value of up to 50%. Such a strategy allows to benefit from the yield opportunities of the stock market by means of a balanced risk/return ratio even during turbulent times on the stock markets. Financial specialist ICM AG from the Principality of Liechtenstein has acted for years as an effective niche player and asserted itself most successfully against the major banks at their locations in London, Luxembourg, Frankfurt, or Zurich. It was precisely due to this success and steadily increasing demand that ICM AG decided to set up a third portfolio for structured products (APL – Large Cap Portfolio for structured products) in September 2015.

Dr. iur. Norbert Marxer, Chairman and Curt Steffen Walker, CEO ICM International Capital Management AG together with Anthony Michael, CFI.co

“Being an independent company, ICM is guided only by its iron-clad principles to protect the long-term welfare of its customers and not by any conflict of interests.”

INTERDISCIPLINARY PROCESS International Capital Management AG (ICM), established in the Principality of Liechtenstein since almost ten years and licensed and regulated by the Financial Market Authority (FMA), is an early – and successful – user of the risk mitigation strategies that were first developed and proposed by Professor Harry Markowitz, winner of the Nobel Prize for Economics in 1990, with a ground-breaking treatise on modern portfolio management. ICM developed the Markowitz approach even one step further by combining traditional and tailor-made diversification elements and thus additionally reinforcing the already outstanding risk protection concept in place. By reducing random influences to an absolute minimum and by constantly monitoring to ensure optimum performance, ICM is able to offer its investors tailor-made top products for a wide range of risk/tolerance profiles. By applying its financial theory skills, ICM has acquired high esteem as an independent asset manager and is unique in selecting products or investment categories which it considers for investments. Being an independent company, ICM is guided only by its ironclad principles to protect the long-term welfare of its customers and not by any conflict of interests.

The net perfomance after costs amounted to an outstanding 14.36% in the first twelve months.

AWARD-WINNING APPROACH Proof of the fact that the versatile portfolio management approach implemented by International Capital Management AG – identifying long-term trends and earnings from monetary fluctuations – is indeed a recipe for sustainable success, was finally furnished by the awards it received this year.

With the All Star EUR fund portfolio, customers of ICM AG participate in the very best investment funds issued by Liechtenstein banks exclusively. In this way, ICM AG emphasises its commitment to the financial centre of Liechtenstein. Between 31.12.2014 and the end of August 2016, the portfolio yielded a performance of +16.13%. Only sustainable products according to strict requirements and selection criteria are included in the portfolio. Thanks to such consistent approach, for instance, the oldest portfolio, Best Selection, has been able to generate a net yield of +61.39% (EUR) and +40.44% (CHF) since January 1, 2008.

For instance, the CFI.co Award is presented for the best interdisciplinary investment process in 2016. In addition, this year, The European presented the Asset Management Firm of the Year Principality of Liechtenstein 2016 Award to International Capital Management AG (ICM). ICM was thus given official confirmation that its products are equally examined, accepted and appreciated by experts and readers of The European. Such success highlights its serious work over many years, sustainable performance and many satisfied customers. This is the only way asset management can be right. i

CFI.co | Capital Finance International

> Tenerife Free Zone:

Striking Out Across the Ocean After a preparatory period of organising and setting-up, the Tenerife Free Zone (ZFT) started operations four years ago and is currently intensifying its overseas marketing efforts with a view to promoting Tenerife and its attractive fiscal and customs codes as a strategic logistics platform at the crossroads of three continents.

he industrial zone that complements the ZFT is part of the publicly-owned port of the island and boasts an up-todate modern logistics infrastructure, augmented by close links to large pools of labour, data, and trading goods. This has transformed the ZFT in an attractive proposition for business undertakings in the areas of, amongst others, ship and offshore rig repair. In order to increase commercial traffic and encourage industrial development, the Tenerife Free Zone has launched the Mid-Atlantic Free Zone Corridor Initiative which aims to improve cross-ocean connectivity between the Americas, Africa, and Europe. The corridor is anchored on the TFZ at its eastern end and the free zone in Panama as the western-most terminus. Both free zones may act as distribution and manufacturing platforms, backed-up by their flexibility and agility, and cost saving thus obtained. While Panama was initially tagged as the logistics hub for Central America, since the launch of the Mid-Atlantic Corridor other free zones in the Americas and Europe have joined to significantly widen the initiative’s footprint. The idea is to expand the corridor from a mere conveyor belt of commerce into a veritable international value chain spanning three continents, attracting manufacturers to any of the participating free zones. The leadership displayed by the Tenerife Free Zone draws inspiration from the island’s enviable geographic location as a meeting point between the Americas and Europe. From this it follows that Tenerife constitutes a vital link and a privileged platform for corporations pursuing business opportunities on both sides of the Atlantic. Moreover, Tenerife offers ironclad legal guarantees as Europe’s closest port to the Americas, located just off the west coast of Africa. However, the most interesting advantage the ZFT holds over free zones elsewhere in Europe is the island’s special status within the European Union. The Canary Islands Special Zone, set up in 2000, allows the archipelago to implement a differentiated economic and tax regime in order 66

to encourage industrial development. This fiscal regime allows for a sharply reduced corporate tax rate of just 4% for businesses that comply with investment and job creation requirements. As such, Tenerife offers the lowest corporate tax rate anywhere in the European Union. This low-tax environment is similar to, and in some aspects much better than, that of CFI.co | Capital Finance International

free zones in the Americas whose businesses can now operate under similar conditions in Tenerife. These circumstances have enabled the ZFT to showcase its performance and business climate at the twentieth annual congress of the Association of Free Zones in the Americas (AZFA). During the proceedings in San José, Costa Rica, it was unanimously agreed that the 2017 AZFA meeting will take place in Tenerife. i

Autumn 2016 Issue

CFI.co | Capital Finance International

Autumn 2016 Issue

> Models of Development

In Search of the

Golden Decade By Wim Romeijn

A golden decade is all it takes for a nation to progress from basket case to powerhouse and erect a solid foundation for lasting economic success. The 1980s were such a decade for South Korea which tripled its per capita annual income to almost $6,000 between 1979 and 1989. After that growth spurt, the country went on to roughly double its GDP every ten years. In Europe, The Netherlands followed a similar trajectory, tripling its economy in the 1960s and then doubling GDP every decade or so to reach a per capita income in excess of $52,000 by 2009. The Long Read: In Search of the Golden Decade 69

The Long Read: In Search of the Golden Decade

hilst a golden decade vastly enhances the prospects of enduring prosperity, it offers no guarantees. In the 1970s, Brazil almost quintupled the size of its economy. However, after the Milagro Brasileiro (Brazilian Miracle) fizzled out around 1980, the country registered only lacklustre average growth interspersed with boom and bust cycles producing either euphoria or depression, consistent only in their failure to deliver sustained development. Egypt is another case in point. In the 1980s, that country also increased its economic output fivefold, only to see the remarkable achievement undone in the decades that followed. The third, and largest, group of countries never experienced a golden decade at all. India moved up steadily – though never spectacularly – and remains a largely unfulfilled promise. Most African countries have also failed to sustain a decade or more of accelerated development, registering the odd growth spurt – more often than not propelled by a spike in commodity prices – only to fall back to decidedly underwhelming levels of economic performance once their terms of trade normalise. Whilst statistics usually fail to disclose the whole truth, offering snapshots instead, numbers do reveal overall trends that may be tied to specific macro-economic and political developments. Economists have long sought a universal development model that may be applied with minimal adjustments to any country struggling to attain a modicum of prosperity. Their quest somewhat resembles the futile efforts of Medieval alchemists. Yet, post-war experience does allow for commonalities to be distilled to produce a few useful pointers that, jointly, create an enabling framework which fosters growth and builds on – rather than squanders – achievements. COMPARATIVE ADVANTAGE In the late 1700s, English economist David Ricardo (1772-1823) introduced a novel concept – the comparative advantage. Mr Ricardo argued that the export of goods is not merely a means to accumulate bullion at the expense of trade partners (mercantilism), but may offer mutual benefits by allowing trading nations to engage in what they do best. Industrial specialisation – leveraging advantages awarded by geography, natural resources, climate, or any other distinguishing factor – allows trading partners to both source and produce goods more efficiently. Comparative advantage still drives international trade and determines the fate of nations. The United Arab Emirates’ (UAE) privileged position at the crossroads of east and west allowed the country to become a logistics and services hub, offering benefits not available elsewhere. Likewise, The Netherlands – home to one of the world’s largest oil companies and running a vast trading empire with the attendant gateway ports – was able to build a petrochemical industrial complex second to none, thus extracting maximum benefit from its comparative advantages. Lacking those specific advantages, 70

nearby Belgium and Germany developed other specialisations – such as steel and dyes – that also enabled them to generate wealth through trade. Scottish whiskey, Italian shoes, French perfume, Kenyan tea, Argentine beef, Japanese electronics, Indian spices, and American cotton are all the product of comparative advantages. Whilst the Dutch may try their hand at wine making, it is highly improbable that they can outmanoeuvre the French who, likewise, would probably not prove very successful at cultivating and marketing tulips. David Ricardo’s comparative advantage constitutes a strong argument for free trade. Latter-day attempts at kick-starting development via (neo)mercantilism – whereby advantages are sought via protectionism, i.e. the closing of borders in order to keep competitors at bay – have generally not fared well. In the decades following the Second World War, Argentina built up its national industry behind tariff walls. While the Argentine industrial estate looked formidable, it was nearly wiped out in the 1980s when exposed to the global market. Lacking competition, and comparative advantages, the manufactured goods Argentina produced – from kitchen utensils to computers to war planes and pretty much everything in between – were mostly overpriced, outdated, and of poor quality. Brazil, Turkey, India, and a host of other developing nations went down the same path with equally disappointing results. However, discarding David Ricardo does carry significant political appeal and can produce robust, albeit relatively short-lived, economic growth. Such it was that Brazil managed to experience its economic miracle almost in tandem with the German one. Delivering near full employment, Brazil’s rapid industrialisation was hailed the world over as an example of what a contemporary mercantilist approach could achieve. Alas, as soon as the country ventured onto the global

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David Ricardo: comparative advantages as drivers of trade and prosperity.

stage, timidly disassembling trade barriers in the early 1990s, its industrial prowess was shown to be considerably less robust than advertised. Virtually none of its businesses managed to penetrate foreign markets while a great many succumbed to outside competition. Meanwhile, German industry – primed for success via its exposure to global markets – went on the conquer the world; its multiple premier brands hallmarks of quality and universally coveted by consumers eager to pay a premium for anything Made in Germany. Developing countries exiting mercantilism due to the need to generate foreign exchange – mostly to pay off debts – often discover that local entrepreneurs, up to and including iconic business tycoons, lack the core competencies needed to successfully operate globally. Accustomed to a comfy and profitable existence that rewards, rather than punishes, inefficiencies, formerly shielded industries

Autumn 2016 Issue

Egypt: Trapped in Mr Rostow’s third stage of development.

are seldom able to survive – disappearing into receivership or gobbled up by large transnationals.

TRAPPED ON THE THIRD FLOOR Egypt is one the many African nations trapped in its third stage of development. Whilst the country attracted a fair bit of foreign direct investment – from a low of $40m in 2002 to a high of $5.57bn in 2008 – Egypt has been singularly unable to build up and sustain economic momentum.

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Though hardly unique, the country repeatedly traversed boom and bust cycles, peaking in 1989 with a respectable annual per capita GDP of $2,155 (nominal), before plummeting to barely $790 three years later. It took all of sixteen years to recover the lost ground. Even data based on purchasing power parity (PPP) shows Egypt’s economy suffering prolonged stagnation and failing the public’s expectations and aspirations. Lacking bread and games, people eventually become restless; a truism Mr Mubarak taunted to his own detriment. Propelling a nation into Mr Rostow’s fourth stage of development – aptly named Drive to Maturity – with foreign capital providing the propellant is a proposition both tempting and perilous. Whilst foreign direct investment usually takes the medium to long-term view, and is therefore not easily spooked by temporary setbacks or economic dips, commercial lenders and equity and securities traders tend to take their money and run for the exit at the first sign of trouble. Such it was that Mexico’s sovereign debt default of 1981 – an issue limited to a single country experiencing a cash flow crunch – almost immediately affected most of Latin America, resulting in the now infamous Lost Decade with Argentina (1982), Brazil, Chile, Venezuela (1983), and Peru (1984) being unable to service their debts. Branding an entire continent as default-prone, and not bothering to distinguish between its constituent parts, shortterm investors hastily departed, dumping shares and bonds wholesale, while banks promptly and predictably refused to roll over loans. Mr Rostow had repeatedly warned developing countries to ignore the siren song of banks and traders, suggesting they finance their growth with more dependable FDI instead. However, in order to attract investors, governments need to implement policies that foster growth and create a legal and regulatory framework to match. That may not fit well with local political realities. Commercial banks can also provide the funds required for investment in capital stock and usually do not demand changes to economic policy or regulation. It used to be that banks were equally happy to lend vast sums of money to democratic or dictatorial governments and to market driven or planned economies. Frequently spent unwisely and without regard for competitive advantages or market forces – and liable to disappear when most needed such as during a downturn – commercial lending often constituted a hindrance to development rather than a stimulus. Few nations, if any, managed to attain sustained economic growth via debt. Organic growth seems to work best: that is Chile’s lesson to the world. Put on a standard development path – privatisation, export-drive, austerity, welcoming FDI, etc. – Chile followed the rest of Latin America and became a defenceless victim of circumstance when Mexico defaulted on its sovereign debt in 1981 and investors abandoned the continent, submerging healthy economies in an unprecedented crisis. 71

The Long Read: In Search of the Golden Decade

ENTER MR ROSTOW In theory, economic development is a straightforward pursuit: savings lead to investment which increases the size of capital stock that now produces more output and, thus, a higher income resulting in more savings – repeating the cycle ad infinitum. The classic Harrod-Domar linear model of development states that the rate of economic development depends on the level of savings and the capital output ratio – the productivity of (return on) investments. Originally meant to explain and compartmentalise the business cycle, the Harrod-Domar model applies equally well to nations. Whilst on a sustained growth trajectory, economies move through five distinct stages as first analysed and explained by American economic historian Walt Whitman Rostow in 1960. According to Mr Rostow, the

trick is to escape the first stage – that of a society based on subsistence agriculture and barter – at the earliest opportunity. Once the transitional second stage has been reached, specialisations occur, savings accumulate, and investment in basic infrastructure takes place. This is the point at which outside investors start paying attention. Stage three sees the beginnings of an industrialisation process, boosted by direct foreign investment (FDI). FDI has the capacity to significantly accelerate economic development by supplementing the domestic pool of savings available for investment in capital stock. As such, FDI has a coveted and well-documented multiplier effect. However, Mr Rostow’s third stage of development is not the antechamber to a cornucopia of riches. As industrialisation progresses, societies are subjected to profound change and great strains. Migratory pressures swell, disrupt, and transform urban centres, creating a concentration of disadvantaged – but initially hopeful – newcomers. As prosperity levels rise, social inequality often increases as well, adding a layer of volatility to political life. Africa’s megacities – Cairo, Lagos, Nairobi amongst others – are not just hotbeds of entrepreneurial activity, but also drivers of political change (revolution being such an outdated concept). As the Arab Spring reached Cairo late January 2011, the masses gathered on Tahrir Square clamoured not only for democracy and accountability; they also demanded jobs and education – i.e. a resumption of national development.

The Long Read: In Search of the Golden Decade

After suffering an economic contraction that lopped 14.3% of its GDP, Chile declared its own default in 1983 having seen its debt balloon from $3.5bn in 1973 to well over $17bn a decade later. The country then did something remarkable: it sent Milton Friedman’s Chicago Boys packing – the economic advisors to the government on loan from the University of Chicago. The Americans were replaced with local economists who proposed a novel idea that entailed the creation of a domestic capital market via the creation of private pension funds – entities envisioned to be free from state interference. The incoming advisors, led by Hernán Büchi who was shortly after named Finance minister, argued that Chile needed to end its dependence on fickle foreign capital for the financing of its national development. Whilst pursuing a monetarist policy not unlike the one promoted by the Chicago Boys, Mr Büchi managed to ensure rapid and sustainable growth by keeping commercial banks at bay. The policy produced consistent current account surpluses and allowed the Chilean government not only to repay its debts, but become a creditor nation – the only one in Latin America. Though the 2008 financial crisis pushed the country’s net international investment position (NIIP) back into the red, it is widely expected that Chile will shortly regain admittance to the select club of creditor nations. While elsewhere in Latin America countries hobbled from one debt crisis to the next, Chile remained largely impervious to the mood swings of short-term investors thanks to its own, and gradually deepening, capital market. The country was long unique in actively discouraging opportunistic capital from entering its buoyant markets via a retention rule – a requirement for investors to deposit 30% of incoming funds with the central bank for a year, no interest paid. The approach allowed Chile to move into Rostow’s fourth and decisive stage of development and gain full economic maturity. The country did not lose sight of its competitive advantages either – developing both forestry and fish farming industries. In less than ten years, Chile became one of the world’s largest exporters of salmon capturing fully 55% of the US market while briefly overtaking Norway as the world’s largest producer of farmed salmon and driving New England’s fishing industry over the brink. For all its prowess, Chile’s accelerated development – relatively late in coming – pales in comparison with the growth trajectory that South Korea followed. Not only did South Korea have a lot of catching up to do – registering an annual per capita income (PPP) of barely $155 in 1960 versus around $550 for Chile – by 1983 the country had been firmly established as a middle income economy, inching ahead of Latin America’s star performer – and never looking back since. While direct comparisons ignore a number of variables and traits, clearly South Korea pursued a much more effective development model than the one embraced by 72

Hernan Büchi: Sending Mr Friedman’s Chicago Boys home.

Chile – so much so that last year the country boasted an annual per capita income ($27,513) more than double the one enjoyed by Chileans. WHAT GIVES WHERE? In the late 1940s, South Korea seemed poised for failure on an epic scale. The decolonisation process that followed the war cut the country off from the Japanese market. Its internal division, along the 38th parallel with an American dominated south and a Russian supported North, disrupted domestic trade and supply chains, causing economic havoc. The three-year-long Korean War that erupted in 1950 is estimated to have cost up to 1.5 million lives and destroyed about a quarter of the country’s capital stock. Initially, South Korea followed a well-trodden path to continued economic underperformance, following in the footsteps of Chile, Brazil, Argentina, Turkey, India, and countless others that tried – and failed – to disprove David Ricardo and develop domestic industry regardless of local conditions. Tariff CFI.co | Capital Finance International

barriers were duly erected, import prohibitions decreed, and local entrepreneurs fêted. Instead of laying a solid foundation for future growth, import substitution industrialisation (ISI) created a domestic aristocracy of mostly inept businessmen, competent only at currying favours with bureaucrats and politicians. Directly unproductive profit-seeking (DUP) ruled the day and maximised inefficiency while failing to deliver prosperity. In May 1961, General Park Chung Lee grabbed power and ordered an economic about-turn. South Korea was to export its way out of the quagmire while investing heavily in education and keeping an eye on the Gini coefficient measuring income inequality. In a sense, and contrary to popular belief, the South Korea of General Park Chung Lee – a former officer in the Japanese Imperial Army who served in Manchuria – maintained and expanded upon policies first introduced by the colonial overlords – an emphasis on modern education, public healthcare, and top-down rule by an enlightened elite of well-meaning and all-

Autumn 2016 Issue

powerful technocrats. As such, South Korea apparently differed little from other emerging nations guided by dictators hell-bent on dragging their backward countries into modernity. However, and contrary to most, South Korea pinned its future on three solid pillars: high national savings rates, universal education, and a clear and well-defined sense of national purpose. The combination produced results beyond any and all expectations. South Korea became a creditor nation with a net international investment position (NIIP) in excess of $200bn.

James Heckman, winner of the 2000 Nobel Memorial Prize in Economics: Education pays off big time.

countries of Latin America discovered. The giving-a-fish rather than teaching-to-fish parable applies. THE ABC OF DEVELOPMENT South Korea, Malaysia and, to a significantly lesser extent, Chile show that a commitment to raising educational standards pays off – big time. American economist and Nobel laureate James Heckman, winner of the 2000 Nobel Memorial Prize in Economics, calculated that every dollar invested in education yields anywhere from eight to seventeen dollars in added productivity. Gains, however, are not immediately noticeable and take time – sometimes generations – to materialise. Nonetheless, Mr Heckman argues that education kick-starts an upwards cycle since skills accumulate over time and learning usually encourages people to keep learning – a fact borne out by both research and empirical evidence. However, this was not the road chosen in the latter half of the twentieth century as decolonisation took hold and the modernising forces of globalisation spread. Whilst education was usually regarded as highly desirable, it also proved to be an unaffordable luxury for countries barely able to feed their population. The urgent need for a direct boost of productivity took precedence over longer-term goals such as improved education and healthcare. The few available financial resources were often committed to large-scale infrastructure projects. These mostly benefit the extractive sector – effectively a low hanging fruit. This way of capital formation, quite logical given the often dire circumstances and pressing needs prevalent in most developing countries, also sprang the dreaded middle income trap: accelerated growth, as expressed by a significant rise in per capita incomes, would often stagnate at a level still far removed from CFI.co | Capital Finance International

that of fully industrialised nations. In Latin America, Brazil, Mexico, and Peru remained stuck in the middle income trap for most of the 1980s. In Africa, Nigeria, South Africa, Morocco, and Tunisia are likewise struggling to break through the glass ceiling. A 2013 report by the World Bank shows that only a select few countries manage to attain the required escape velocity that allows them to break free from the middle income trap. In 1960, the bank’s middle income bracket included 101 countries. Since then, only thirteen burst through to the next level, including South Korea, Chile, Uruguay, Taiwan, Singapore, Hong Kong, Saudi Arabia, and Oman in addition to Ireland, Spain, Portugal, and Israel. Greece recently re-joined the middle income group after a short stint in the high-income class. IMPOSING CULTURAL CHANGE In the early 1970s, development theories were adapted in order to assign more prominent roles to education and healthcare. General literacy and primary education suddenly became all important with both economists and sociologists arguing that schooling, more than any other pursuit of public policy, contributes towards the formation of capital, enabling a process of cultural change that makes the people affected more receptive of modern societal values. By acquiring the skills needed in transitional societies (Mr Rostow’s third stage of development) – while shedding traditional attitudes that may have discouraged sustained development (essentially brainwashing the Noble Savage) – people would come to covet material well-being and thus be encouraged to adopt the production and consumption patterns of the West. Investment in human resources soon became the leitmotif of development aid dispensed by Western donor countries. Most 73

The Long Read: In Search of the Golden Decade

THE GOLDEN SIX A small corner of Northwest Europe, largely devoid of natural resources, holds the world’s purse strings. Taken together, Germany and the Benelux countries (Belgium, The Netherlands, and Luxemburg) have accumulated the world’s second largest NIIP. By including neighbouring Switzerland and Denmark, this small area knocks Japan of its perch as the largest holder of overseas assets. Once liabilities are subtracted, Europe’s Golden Six still boast assets worth well over $3,270 trillion. These creditor nations have managed to secure a spot in a perpetual upwards cycle that ensures national incomes will keep growing even if economic performance at home (e.g. Japan) is less than stellar. This helps explain why Japan seems unconcerned about its persistent lack of GDP growth and huge public debt (237% of GDP). A steadily strengthening NIIP leads to increased returns on investments which, in turn, add to the current account surplus and thus to the volume of funds available for new acquisitions of capital stock. Once on the positive side of the equation, countries seldom fall back. The UK and Sweden are the exceptions. Both countries crossed the line into the red; the former as a direct result of its war debts and the latter due to decades of complacency and living the life of Reilly. Conversely, debtor nations only rarely manage to move into the black. In South America, Chile is making heroic attempts after sustaining solid current account surpluses for decades on end and reducing its public debt significantly (now barely 14% of GDP). Debtor nations – the vast majority of the world’s countries – are, however, not condemned to remain so forever. Up to a point, incurring debts can be useful to underwrite a development drive – as long as the outcome is certain to enhance an economy’s ability to produce strong sustainable returns that exceed the rate of interest paid. There are two main problems with debt-driven development: few investments qualify and few governments possess the needed acuity to stick to a sensible agenda. Financing social programmes via public debt in order to alleviate poverty, and gain political capital in the process, is an almost irresistibly attractive proposition and one sure to ultimately end in national disgrace as most

The Long Read: In Search of the Golden Decade

programmes aimed to improve education and healthcare standards and included a “gender element” – a sort of standing joke amongst development workers of the time. Henceforward, bilateral aid was no longer to be given for industrial undertakings or infrastructure projects – the human dimension was deemed of overriding importance. The thinking on economic development had undergone a significant shift: instead of directing efforts at the creation of wealth (capital), the models were now redesigned to help form the capacity to create wealth: every student attending school was henceforward considered a valuable resource able to make a significant future contribution to national development. It did not work either. Apart from connotations of cultural imperialism, the education drive, if anything, added to social inequities by creating a local elite – an enlightened class of mostly presumptuous rulers who, more often than not, ignored the plight of those left behind. Improved education also results in a brain drain. Take India and South Africa. Both countries invest heavily in the training of medical professionals at well-funded medical schools only to see young doctors depart upon graduation to the United States, Canada, and Europe. In a study published in the British Medical Journal, statistician Steve Kantors, Professor Edward Mills of the Faculty of Health Sciences of the University of Ottawa, and other academics found that the loss of return on investment in medical training had cost the countries of Sub-Saharan Africa in excess of $2.1bn during the 2000s. The losses varied from $2.5m in Malawi to $1.4bn in South Africa. The report also calculated the benefit to the doctors’ host nations. The United Kingdom has profited the most from immigrant physicians who netted the country around $2.7bn. The United States comes in a distant second deriving an estimated $845m from doctors trained in Africa. In South Africa, it costs the state more than $90,000 in direct grants, bursaries, and academic infrastructure to train a doctor during the six years it takes to obtain a medical degree. Foreign employers – mostly British and Canadian health services providers – are brazen in their poaching practices; recruiters visit campuses, advertise in local medical journals, and entice senior students to sign up with cash bonuses and other sweeteners. In effect subsiding healthcare in the developed world, South African authorities became so upset that in 2010 they summoned the high commissioner (ambassador) of Canada to demand an immediate stop to the rustling of junior doctors. The missive fell, however, on deaf ears. Still accorded an important place in any development model, education has of late been demystified and is no longer considered a cure all end all. In fact, formal education is now seen, in the eyes of some, as an impediment to attaining broad development across demographic strata. 74

WHY TRY? For Argentine economist Raúl Prebisch (1901-1986) and his Brazilian colleague Celso Furtado (1920-2004) – both formulators of structural economics which resolutely discards any and all notions of the principle of comparative advantage as first described by David Ricardo – underdeveloped countries cannot possibly escape the middle income trap as long as they remain dependent on First World trade, capital, and knowledge. Messrs Prebisch and Furtado argued that the internal and external disequilibria inherent in the productive structure, and the dynamics of the balance of power, will consistently result in deteriorating terms of trade. Beholden to rich countries’ markets, dependent on foreign capital, and unable to negotiate prices, developing nations are condemned to subsist on the margins of global affairs. Raúl Prebisch and Celso Furtado both advocated the strengthening of political and societal institutions as a way of ensuring sustained economic development. They also recognised the need to encourage national savings – e.g. pension funds – to ensure the availability of capital and raise the rate of investment. Finally, Messrs Prebisch and Furtado proposed a mixed development model that contained elements of ISI (import substitution industrialisation) and EOI (export-oriented industrialisation), albeit with an emphasis on the former. Structural economics assigns a secondary role to the free market. In fact, it denies – not altogether unreasonably – that such a thing even exists: to some extent markets are always regulated. Cross border trade, structural economists argue, is not the panacea most of their mainstream peers hold it to be. Free trade, Messrs Prebisch and Furtado concluded, constitutes a direct assault on the poorer partner’s

ability to accumulate capital and underwrite national development. NICE TRY Whilst structural economics seems, at first glance, quite reasonable and even workable, real life didn’t bear this out. Named executive director of the Economic Commission for Latin America (CEPAL) in 1950, Mr Prebisch transformed into this small United Nations agency in a veritable hotbed of revolutionary economics. He actively promoted the ISI development model which was embraced by Argentina, Brazil, and a host of other countries. Henceforward, these economies would no longer import consumer goods. Instead, domestic industry was tasked with meeting demand, creating jobs and a new elite of uncompetitive industrialists in the process. In a rather ironic twist, Mr Prebisch, the anti-free trader par excellence, was appointed first secretary general of UNCTAD – the United Nations Conference on Trade and Development formed in 1964. Undermining his credibility ever so slightly, once installed in Geneva Mr Prebisch promptly renounced import substitution as a valid development model and proposed increased south-south trade instead. He also demanded developed countries unilaterally open their markets to the products of developing nations as a way of redressing the skewed balance of power. Whilst an original thinker and fine academic who remained hugely influential in Latin America throughout his life, Mr Prebisch’ steadfast denial of market dynamics has caused much harm and hardship. As such, the results of the policies he inspired are not at all dissimilar to those obtained by India which for decades on end tinkered with a hybrid economic development model that bound private enterprise – such as it was – to the rigid five-year plans, set in stone regardless of market conditions, of a planned

India’s love affair with the spinning wheel did not help speed up economic development.

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Autumn 2016 Issue

economy. The result became known as the “Hindu rate of growth” – denoting a prolonged period of barely noticeable economic growth or a state of near stagnation. India is still waiting for its Golden Decade which often appeared to dawn but never quite got underway. Whilst the country did manage to escape the lending trap and contained its external debt to less than 25% of GDP, its retrograde development model, adopted immediately after independence in 1947 (dominion status) under the tutelage of Jawaharlal Nehru, resonates to this day. Though the country has broken off its love affair with the spinning wheel, India remains a highly regulated society, saddled with an overall inefficient industry – save for some remarkable exceptions in the IT sector and in basic industries such as Tata Steel. However, the legacy of Alexander Gerschenkron (1904-1978) may yet come to the rescue. As it happens, India is a prime candidate to benefit from what the Russian-born economic historian and Harvard University professor named backward economic

advantages. Prof Gerschenkron had little time for Walt Whitman Rostow’s five stages of growth which he reportedly once called hogwash. According to Prof Gerschenkron, economically backward countries almost always enjoy competitive advantages: investment in new productive capacity means that plants will possess stateof-the-art machines and facilities, and benefit from the latest in management techniques and processes. Chile’s fish farming industry, built from scratch and conquering world markets in under a decade, seems to prove the point. Prof Gerschenkron describes a brave new world awash with opportunity. In countries trying to catch up, growth comes in spurts and development takes place in leaps and bounds, with the smarter ones opting for capital intensive production as opposed to socially more acceptable labour intensive endeavours. Prof Gerschenkron argued that the state of a developing nation must do all it can to attract capital: beg, borrow, or steal – it doesn’t really matter as long as the funds are available CFI.co | Capital Finance International

The Long Read: In Search of the Golden Decade

Raúl Prebisch: Relegating David Ricard’s comparative advantage to the dustbin.

to finance grand industrial undertakings that are sure to turn a quick profit. An exponent of the Austrian School of Economics, or at least of its more progressive wing, Prof Gerschenkron did not believe that a gradual approach to development as described by Rostow et al would be able to deliver the goods. As such, Prof Gerschenkron may have served as inspiration to China as it embraced economic pragmatism – possible perhaps only due to its rather sterile political environment – in order to deliver the goods not just to its own population, but to the entire world. The proverbial 800-pound gorilla rearranging the file cabinet of development models, China managed to prove that mixing and matching theories – and ruthlessly imposing the resulting policy framework – actually works. The country has taken a bit of Rostow, Prebisch, Ricardo, Gerschenkron, and Keynes – added a whiff of Marxist flavour in a nod to leaders past – to come up with a model that delivered almost instant success. Whether reformer Deng Xiaoping (1904-1997), leader of the Communist Party of China, actually said it or not: when the Chinese got his message that “to get rich is glorious”, they set to work. The government got mostly out of their way and provided the wherewithal – often via creative bookkeeping (Prof Gerschenkron would have approved) – to make things happen. And happen they did. China is now in its third consecutive Golden Decade and shows few signs of slowing to a crawl with glass ceilings being shattered and middle income traps ignored. The country burst through Rostow’s stages of development to claim a spot on the fifth rung – the age of mass consumption. If there is any lesson in China’s experience for other developing nations, it may be a simple one: talk less and do more. Whilst at it, do not try to reinvent the wheel – just keep it spinning – or lose time by implementing novel untested economic theories based on political assumptions. Also, do not for a moment believe that the system is rigged against new members joining the developed world. This, simple though it is, seems a rather tall order in most countries that do have a lively political scene – as opposed to China’s ensemble of parliamentary yes-men – and where debate is valued as an expression of popular will, and perhaps anxiety. Politics may throw a spanner in the wheel, but globally rates of growth and development, slow though they may still be, are picking up. According to the World Bank, poverty rates are declining at an encouraging clip. In fact, the World Bank last year reported that for the first time in history the global poverty rate dipped below 10%. Something is working, somewhere: though models may differ, as long as they observe economic practicalities all efforts at promoting development contain kernels from which some prosperity may spring. After all, economics is not an exact science – some would even argue it is not a science at all. i

ANNOUNCING

AWARDS 2016 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

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

Autumn 2016 Issue

> LONELY PLANET PUBLICATIONS: OUTSTANDING CONTRIBUTION TO RESPONSIBLE TRAVEL UK 2016

From its humble beginnings in 1972, Lonely Planet Publications has become the world’s leading travel authority and its largest travel guide book publisher. The brainchild of a single backpacking trip, Lonely Planet now has a guide for almost every destination on earth. The publisher also maintains offices around the world. With over 200 writers and 400 employees, the company is a publishing powerhouse. It also ensures all of its staff travel is carbon neutral through the ClimateCare Project.

As the globalisation of tourism leaves its mark on more previously unscathed paradises, the idea of responsible and sustainable tourism is becoming ever-more fashionable. However, long before the effects of globalisation were even a concern, Lonely Planet made a point to push the importance of connecting with local communities and curbing the negative impacts of mainstream travel. This key foresight has enabled the company to stay ahead of its competitors and create a multitude of specialist travel information. Lonely Planet now publishes

multiple guides – from books to blogs – on responsible and sustainable travel, and has produced the very first guidebooks on accessible travel in the world. By 2020, 1.5 billion people will be travelling each year. As that number continues to grow, so too does the responsibility to preserve those destinations. For the company’s long-term dedication to educating customers on responsible tourism, the CFI.co judging panel is pleased to offer Lonely Planet Publications the 2016 Outstanding Contribution to Responsible Travel UK Award.

> EMAAR THE ECONOMIC CITY – INDUSTRIAL VALLEY:

BEST INDUSTRIAL & LOGISTICS MEGA PROJECT DEVELOPER GLOBAL 2016

Building a city the size of Washington DC from scratch. That’s the mission Emaar committed to when it took charge of the planning and development of King Abdullah Economic City (KAEC) – an industrial, commercial, logistics, and lifestyle hub being erected on the Red Sea coast, some hundred kilometres north of Jeddah. The development covers an area of about 180km2 and had its master plan approved in 2005. In excess of 12 million square metres of building space has already been put into place, with another 16 million square metres to follow. Planning and development of an undertaking on a scale this vast requires both attention to detail and a bird’s eye view of the whole enterprise in order to secure the full integration of all constituent parts. This is planning taken to a level thus far unheard of. The expert professionals of Emaar, responsible amongst others for the jaw-dropping marvels that gave Dubai its glitter, are charged with the

building of an economic powerhouse that is to underwrite Saudi Arabia’s continued prosperity well into the future. The leading edge of the megaproject is provided by the Industrial Valley – a business hub located at the very heart of one of the world’s most dynamic economic regions. Industrial Valley already hosts over ninety tier one global companies such as Pfizer, Ikea, Total, and Aramex, amongst others. The valley has been meticulously planned as a place where synergies spring forth and deliver consistent corporate growth. The zone is fully equipped to handle pharmaceutical, logistics, plastics, automotive, consumer goods, and building materials companies that wish to plug into both global and local markets. During the design phase, Emaar emphasised integration and connectivity. That foresight is now paying off with a single regulator providing clear guidance, a land cargo bridge linking KAEC to the booming economies of the CFI.co | Capital Finance International

Gulf Region, and a multitude of services designed to optimise efficiency and thus maximise the profit potential. KAEC’s Industrial Valley is built on the premise that successful public-private partnerships require seamless services up to, and including, transparent rules guiding foreign direct investment. Planning and developing a tightly integrated global manufacturing hub is an endeavour that can only be entrusted to professionals that can table experience, vision, and expertise in ample quantity. Emaar The Economic City – Industrial Valley is home to such professionals. The CFI.co judging panel has studied the company’s trajectory and admired its entrepreneurial spirit – bold while sensible, and visionary while grounded. The judges feel confident in declaring Emaar The Economic City – Industrial Valley winner of the 2016 Best Industrial & Logistics Mega Project Developer Global Award. 77

> EASYJET: BEST CUSTOMER SATISFACTION BUDGET TRAVEL UK 2016

For a no-frills low-cost carrier, EasyJet offers travellers a surprising level of comfort. Contrary to some of its competitors, the airline maintains a courteous attitude towards its customers and refrains from assaulting travellers with a never-ending stream of public service announcements aimed at extracting a few more pennies from the weary. In fact, EasyJet now has a well-earned reputation for low-impact travel, offering passengers a few extra frills at reasonable prices. The company, established in 1995

and now serving over 700 routes in 32 countries, has accomplished what marketing experts previously considered impossible: a budget airline with a touch of class. Based at Luton Airport, EasyJet operates a modern fleet of over 200 aircraft – mostly Airbus A319 from 24 bases scattered across Europe. Its largest hub is London’s Gatwick Airport. EasyJet now is Europe’s second largest airline, carrying more than 70 million passengers over the twelve-month period up to January 2016. So far this year, passenger numbers are up some

6% over 2015 with a load factor of an impressive 91.6%. The company is unique in never having posted a loss in its 21-year-long history. Since 2010, profits have more than quadrupled to well over £540m at the close of last year. Members of the CFI.co judging panel have first-hand experience of EasyJet and must congratulate the airline on both its operational efficiency and competitive pricing. The judges wholeheartedly endorse EasyJet’s win of the 2016 Best Customer Satisfaction Budget Travel UK Award.

> BANCO DE FOMENTO DE ANGOLA: BEST BRANCH NETWORK ANGOLA 2016

With a view to optimising its proximity to individual and corporate clients – and further improve the delivery of services – Banco de Fomento de Angola (BFA) has invested heavily in its branch network and staff training. The institution now boasts an unrivalled network of 167 service points, interconnected via a fibre optic cable. The bank has also upgraded its technological backbone, putting in place an IT platform that improves operational efficiencies. As a result, both internal and external processes have been streamlined leading to cost savings 78

and offering account holders added convenience. Systems and processes aimed at fighting money laundering have also been bolstered. New and robust processes were instituted to help mitigate risk and reduce transaction times. Aiming to establish long-term relationships with all its customers, BFA has earned a solid reputation in the country’s financial services industry for operational excellence. In order to add to customer convenience, the bank recently launched a full-featured app for mobile devices. CFI.co | Capital Finance International

BFA’s corporate mission is to entrench the institution as Angola’s preferred financial services provider. To that end, the bank maintains a comprehensive mix of products and services which may be adapted to suit individual account holders’ requirements. BFA is no stranger to the CFI.co judging panel. It claimed two earlier awards for excellence. The judges have now focused on the bank’s solid network and are unanimous in their decision to grant Banco Fomento de Angola the 2016 Best Branch Network Angola Award.

Autumn 2016 Issue

> HSBC GERMANY: BEST DEBT ORIGINATION TEAM DACH 2016

Offering highly innovative financial solutions for large corporates, institutional clients, and investors, HSBC Germany facilitates access to a wide array of services that build upon the bank’s global reach, its heritage, and vast reservoirs of local expertise. HSBC Germany was an early adopter – if not pioneer – of a holistic style of banking that bundles the strengths of relationship managers and product specialists to design custom solutions for both domestic and international clients. Taking the long view, the bank attaches great importance to the forging of lasting relationships that allow its professionals to gain a thorough understanding of clients’ present and future needs. HSBC offers a range

of trade and supply chain services in addition to payments and cash management solutions, securities services, amongst others. The bank’s Capital Financing Division ties in seamlessly with a client’s capital structure to provide integrated solutions that span the financial universe from equity and debt capital markets to leveraged and acquisition finance, and asset-backed finance. HSBC Germany is one of the leading debt houses for all issuances in Germany, Austria and Switzerland. Due to the strong domestic roots and the group’s unrivalled global distribution capabilities, HSBC offers an extremely competitive mix of granular private placements in all formats, local currencies and sizable benchmark issuances in all currencies

combined with the whole spectrum of derivate and liability management solutions The CFI. co judging panel commends HSBC Germany for its comprehensive support of Germany’s export-oriented economy by serving issuers with the most global and broadest debt capital markets platforms in Germany. HSBC has made a significant progress in the last 12 months in terms of client relations’ depth and breadth with leading league table positions in EUR, USD, and GBP as well as PP products, especially German Schuldschein. The judges are pleased to extend the 2016 Best Debt Origination Team DACH (Germany, Austria, Switzerland) Award to HSBC Germany.

> ADOBE SYSTEMS: MOST INNOVATIVE MULTIMEDIA SOFTWARE SOLUTIONS UNITED STATES 2016

Home to two of the most celebrated and widely used software solutions for the graphic industry – Photoshop and Illustrator – Adobe Systems has gathered a loyal and large following amongst creative professionals who need cuttingedge products that allow for a seamless workflow from inspiration to the medium of choice. Powered by both organic growth and acquisitions, Adobe Systems has accumulated a vast and scalable software portfolio that offers comprehensive one-stop solutions. The company’s engineers have managed to forge divergent products into coherent and

streamlined bundles of integrated programmes that build on each other’s strengths to deliver both superior performance and user experience in addition to offering features not available elsewhere. A pioneer of cloud-based computing, Adobe was one of the first amongst major software makers to move its entire product line away from physical media. The company also introduced a subscription-based model – since copied by others – whereby clients rent licenses rather than buy them. This way, users enjoy continuous product upgrades and lower CFI.co | Capital Finance International

overhead costs. The company’s Creative Cloud, its flagship product, gives professionals access to a full suite of software tailored to their specific requirements. Whilst Photoshop and Illustrator remain at the core of Creative Cloud, Adobe now offers an exceptionally large universe of sophisticated add-on and stand-alone software that allow creative professionals to give wings to their imagination. The CFI.co judging panel wholeheartedly endorses Adobe Systems as winner of the 2016 Most Innovative Multimedia Software Solutions United States Award. 79

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Le 04 mars 2015

TANGER FREE ZONE

> TANGER FREE ZONE: BEST INDUSTRIAL FREE ZONE MEDITERRANEAN 2016

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TANGER MED

A major business hub fully integrated with global logistics flows, the Tanger Free Zone (TFZ) is the industrial platform of Tanger Med – the biggest port of both Africa and the Mediterranean Basin, strategically located on the Strait of Gibraltar at the intersection of some of the world’s most important trade routes. The Tanger Free Zone comprises a 3,000-hectare industrial park where already more than 500 companies operate facilities that generate an annual turnover in excess of €2.6bn. The TFZ is an extension to Tanger Med Port

which has now become the preferred gateway to Europe, Africa, and the Mediterranean. A public entity organised and run as a private corporation, Tanger Free Zone offers investors a value proposition that is hard to beat: a modern and fully up-to-date infrastructure, streamlined regulatory processes, competitive pricing, a comprehensive array of services, and a 5-year tax holiday for new investments. Due to its privileged location, welleducated workforce, stability, and businessBon pour accord : friendly tayeb policies, koncept Morocco has attracted s t u dio g r a phiq u e com m u nic at ion - w e b de sig n - in t e r ior de sig n - e di t ion t e l : 0 6 2 9 . 0 0 0 . 6 9 4 m a il : t k onc e p t @ g m a il . com w w w. tay e bk onc e p t. f r TAY E B K ONC E P T S A R L - 4 4 Av e n u e I m a m m o u sl i m TA NG E R

increasing volumes of foreign direct investment (FDI). The Tanger Free Zone fits in the overall picture of a country determined to fast track its development. The CFI.co judging panel notes that Morocco’s northern tip is home to a thriving economy centred around the Tanger-Med port. The TFZ sits at the very centre of this hub and indeed drives the entire region’s development. The judges declare the Tanger Free Zone winner of the 2016 Best PPP Industrial Free Zone ................... ................. Mediterranean Award.

> CONSOLIDATED CONTRACTING COMPANY: BEST INFRASTRUCTURE EPC SOLUTION PROVIDER MENA 2016

Strict adherence to global best practices and a stalwart dedication to excellence have propelled Consolidated Contracting Company (CCC) to the very apex of the construction industry. The company, in business since 1952 and now employing over 130,000 people, is known throughout the MENA Region for its reliability: projects undertaken are completed on budget and on time – all the time. CCC has built some of the region’s most complex prestigious projects such as the Khalifa Sports Hall in Qatar, the Wadi Dayqah dam in Oman, and the landmark Dubai Mall 80

and Dubai Opera House, amongst others. The company also provided the infrastructure backbone of oil and gas fields in Kazakhstan and Turkmenistan. CCC laid pipelines in Australia and Madagascar, and built roads throughout Africa and the Middle East. Wherever in the world CCC takes on a project, the company makes sure to involve local stakeholders. To this end, CCC maintains a growing number of corporate social responsibility (CSR) initiatives that aim to empower local communities. CCC also habitually hires resident CEOs to manage its projects, leveraging their CFI.co | Capital Finance International

expertise of local markets, conditions, and customs – thus maintaining a balance between its local and expat workers. Affected by the post-2008 blues like any other construction company, CCC proved exceptionally resilient and weathered the financial storm by consolidating its operations. The CFI.co judging panel is impressed by CCC’s bounce-back – the company is again growing at an accelerated clip. The judges are happy to offer Consolidated Contracting Company the 2016 Best Infrastructure EPC Solutions Provider MENA Award.

Autumn 2016 Issue

> TMB BANK PUBLIC COMPANY LIMITED: BEST SME BANK THAILAND 2016

Rather than a provider of financial services to businesspeople, Thailand’s TMB Bank aims to become a partner of small and mediumsized enterprises (SMEs), understanding their requirements, challenges, and opportunities. Via a holistic approach, TMB Bank strives to empower its business clients and help them attain sustained levels of growth. The TMB SME 3 Times Plus programme, launched last year, underpins TMB Bank’s ambition to become Thailand’s premier SME supporter. The facility provides financing

of up to three times the collateral value for the funding of business cycles. Additionally, the bank offers credit for working capital, the maintenance of stocks, and reserve funds. TMB Bank has instituted an easy to navigate end-to-end credit process to evaluate and monitor business performance. The bank has also invested considerable effort in the training of staff. Clients may deal directly with a single professional who will help them access the vast array of products and services offered. TMB Bank maintains a number of

facilities specifically designed to help SMEs through economic downturns or other setbacks. The bank shows a remarkable understanding about the world of small business and recognises that many budding entrepreneurs have been orphaned by large traditional banks. Founded in 1957 and listed on the Thai Stock Exchange since 1983, TMB Bank employs close to 9,000 people and maintains a countrywide network of almost 500 branches. The CFI.co judging panel is pleased to offer TMB Bank the 2016 Best SME Bank Thailand Award.

> GE AFRICA: BEST ESG ENERGY INFRASTRUCTURE PARTNER AFRICA 2016

Fully supportive of the Kenya government’s ambitious Vision 2030 goals, GE Africa has signed a number of memorandums of understanding to help develop projects in key sectors such as power generation and healthcare. The company will supply and maintain the 38 turbines for the Kinangop Wind Farm in a deal valued at $58m. GE Africa is also involved in the development of the Kipeto Wind Farm which upon completion is to inject 100MW into the national grid. Jointly with Kenya’s leading mobile phone provider Safaricom, GE Africa has

developed the Durathon battery, the first in the world to be designed for charge discharge cycling (CDC) telecoms. The technology allows telecom providers to keep their networks running during power outages. GE Africa closely aligns its corporate strategies to societal needs and aspirations in order to improve the sustainability of its business. The company aims to minimise its environmental footprint while contributing in a meaningful way to social development. A Sustainability Steering Committee monitors performance, evaluates stakeholder feedback,

CFI.co | Capital Finance International

and keeps tabs on emerging trends. Findings are shared with the executive management and form the basis for new initiatives, programmes, and other corporate policies. Prioritising ESG (environmental, social, and governance) considerations helps GE Africa mitigate risk by ensuring compliance throughout the organisation. The CFI.co judging panel recognises the pioneering work of the company on promoting responsible business practices. The judges name GE Africa winner of the 2016 Best ESG Energy Infrastructure Partner Africa 2016.

> CORPORACIÓN ZONA FRANCA INDUSTRIAL DE SANTIAGO: BEST LOCATION INDUSTRIAL FREE ZONE CARIBBEAN 2016

The largest and one of the oldest free zones in the Dominican Republic, the Victor Espaillat Mera Industrial Park – owned and operated by the Free Zone Corporation of Santiago (CZFS) – comprises a strategically located area of over a million square metres with a full infrastructure to support manufacturing plants, warehouses, and office buildings. The industrial park also includes a complete array of social services, educational institutions, and other facilities to support the approximately 20,000 people who work for the 174 companies present in the zone.

Opened forty years ago, the industrial park – organised in clusters for improved synergy and efficiency – has managed to keep its leading edge by continuous investment in the upgrading of its facilities. The Free Zone of Santiago has gained a well-merited reputation for the robustness of its services backbone – investors may benefit from the company’s vast reservoir of expertise in the management of industrial facilities. A driver of the development of free zones, CZFS put in place a framework that

allows investors peace of mind: a streamlined and easy-to-navigate regulatory environment ensures that plant operators suffer no distractions from their business pursuits. A nonprofit private-public entity created to encourage industrial development, CZFS has made an outsized contribution to the local economy. The CFI.co judges congratulate CZFS on its many accomplishments and the company’s sense of corporate social responsibility. CZFS is named winner of the 2016 Best Location Industrial Free Zone Caribbean Award.

> ELECTROLUX: MOST SUSTAINABLE MANUFACTURER SWEDEN 2016

Swedish whitegoods manufacturer Electrolux has long been recognised as an industry leader; not just within manufacturing but also for sustainability. A regularly featured member of the Dow Sustainability Index, Electrolux ardently defends its position through enacting its sustainability framework, split into three key areas: better solutions, better operations, and better society. Better Society is aimed at improving Electrolux as a global citizen. Initiatives include leveraging its international presence to influence policymaking, accelerating 82

technology transfers between markets, and ensuring products are produced with the same care throughout its global supply chain. The company is also engaging EU legislators in order to directly influence the recycling industry. Better solutions and better operations refer to the company’s environmental footprint. From the water/electricity efficiency of the appliances the company produces, to recycling, and the management of potentially harmful chemicals used during the production process. The company’s most efficient refrigerator now consumes as much electricity CFI.co | Capital Finance International

as a small LED lightbulb – an impossible feat just a few years ago. Electrolux has a number of goals and initiatives within each of these three key areas and the company continues to surpass its own sustainability benchmarks. As of 2016, thirteen of its manufacturing plants are powered solely by renewable energy, helping to surpass the company’s 3% energy reduction target which it now plans to readjust accordingly. The CFI.co judging panel offers Electrolux the 2016 Most Sustainable Manufacturer Sweden Award.

Autumn 2016 Issue

> CHINA BANKING CORPORATION: BEST BANK GOVERNANCE PHILIPPINES 2016

Nearing its first centennial as one of the Philippines’ most respected financial institutions, the China Banking Corporation (CBC) owes its longevity and solid performance to accountability, transparency, and good governance. Long before these became buzzwords, the bank had already firmly committed to the pursuit of “profit with honour.” This deceptively simple approach to banking has allowed CBC to help generations of Philippine families and entrepreneurs underpin their dreams with solid financials. The businessmen who started China

Banking Corporation in 1920 understood the importance of trust. Their word was as good as – if not better than – a bond. The bank considers the creation of wealth for clients as its primary mission and offers support to those who seek to climb up the social ladder via hard work, discipline, integrity, and business savvy. As such, CBC aims to establish lasting long-term relationships with clients – both private individuals and corporates large and small. The approach yields remarkable results and showcases the power of proper

banking. CBC helped small-time scrap metal dealer and rice seller John Gokongwei become a large industrialist and empowered street pedlar Henry Sy to build a business empire. Offering a broad array of products and services, carefully tailored to meet the diverse needs of its clients, CBC sticks to the corporate slogan that served it so well: Your Success Is Our Business. The CFI.co judging panel wishes to congratulate China Banking Corporation with its win of the 2016 Best Bank Governance Philippines Award.

> FROST CONSULTING: BEST FINANCIAL REGULATORY RISK MANAGEMENT ADVISORY UNITED KINGDOM 2016

Far from static, the world’s financial markets are in a near-constant state of flux. More often than not, the nature of change is revolutionary rather than evolutionary. Investors and their portfolios are subject to regulatory upheaval – and opportunity – as authorities aim to address the latest threats – real or otherwise – to the wider market. Frost Consulting, established in 2008, monitors global regulatory trends for upcoming changes and charts their implications, thus allowing clients to adapt by increasing the efficiency of their research spending. The London

firm is at the forefront of the move towards the unbundling of commissions which has profound effects on the economics of the institutional equity business. By splitting commissions into their two component parts – execution (transaction costs) and non-execution (research) – regulatory entities are reshaping the market and breaking the monopoly of big investment banks that were up until now the only ones able to offer asset managers both trade execution and market research. By allowing asset managers to buy CFI.co | Capital Finance International

research directly, using their clients’ money, the content universe has expanded significantly. This allows, amongst others, the generation of more alpha from a broader research spectrum with lower costs to asset managers and asset owners. Frost Consulting enables investors to benefit from these and other regulatory changes, facilitating access to wider research and exploring synergies between asset classes. The CFI.co judging panel recognises the importance of this all-inclusive approach. The judges are pleased to offer Frost Consulting the 2016 Best Financial Regulatory Risk Management Advisory UK Award. 83

> PEABODY ENERGY: BEST ESG-RESPONSIBLE MINING COMPANY GLOBAL 2016

It takes a fair bit of gumption to mine coal in this world enthralled by apocalyptical visions of climate change. Coal may no longer be king, it is still a vital energy resource that helps sustain economic growth and prosperity. Peabody Energy is widely recognised as a pioneer in land restoration and reducing the footprint and impact of its mining operations. Long before land restoration became mandatory, Peabody Energy was already cleaning up. The 1954 Operation Green Earth, the company’s first land reclamation initiative, set

the tone. Peabody Energy, founded in 1883 and with 26 open pit and underground mines in the US and Australia totalling over seven billion tonnes of reserves, essentially wrote the book on environmental stewardship for the coal industry. Even under today’s trying market conditions, Peabody Energy remains fully committed to the highest ESG (environmental, social, and governance) standards. By improving efficiencies, the company managed to significantly reduce its CO2 emissions even though the energy required to extract a tonne of coal has increased

markedly. Water use has also been reduced. Last year, Peabody Energy restored close to 2,000 hectares of mined land into wildlife habitats, forests, wetlands, and farmland. The company also funds research into high efficiency, low emissions power plants in the US, Australia, and – crucially – China. The CFI.co judging panel recognises Peabody Energy as a pioneer in the move towards sustainable business practices and grants the company its 2016 Best ESG-Responsible Mining Company Global Award.

> VISTEON: BEST CONNECTED COCKPIT UX DESIGN GLOBAL 2016

Visteon designs, engineers, and manufactures vehicle cockpit electronic products and connected car solutions for various clients, including BMW, Daimler, Ford, and General Motors. The cockpit electronics market is one of the fastest-growing areas of the automotive industry – expected to have between 40-45% market share within the next decade. As one of the leading global automotive suppliers – and the only one focused exclusively on cockpit electronics – Visteon is well-positioned to capitalise on this growth. Vehicle interfaces were once separate direct-entry controls. Thanks to 84

increased connectivity, vehicle controls have merged into a single interface. Now, electronic module consolidation brings new opportunities to improve the user experience (UX) for driverdriven vehicles, semi-autonomous vehicles, and, eventually, fully autonomous vehicles. Visteon is leading the way in streamlining this increased demand of networking technologies, processing power, driver information, infotainment, and connectivity. The firm’s SmartCore Connected Cockpit Multi-Domain Controller is an industry first – and changes the idea of traditional infotainment systems. It is an applicationbased cockpit domain controller which allows CFI.co | Capital Finance International

the user to change and grow the vehicle’s feature set over its lifetime. The SmartCore is a one chip multidomain controller featuring a single integrated human-machine interface (HMI). This solution allows multiple domains to run together on scalable hardware using different operating systems, therefore greatly reducing the complexity of the system itself. The CFI.co judging panel applauds Visteon’s embrace of the rapidly changing automotive industry and subsequent domination of its growing niche. The judges are happy to name Visteon winner of the 2016 Best Connected Cockpit UX Design Global Award.

Autumn 2016 Issue

> FINBOND MUTUAL BANK: BEST SAVINGS BANK SOUTH AFRICA 2016

By offering superior returns on savings products, even in a low yield environment, South Africa’s Finbond Mutual Bank (FMB) has managed to significantly expand its client base over the past number of years. Finbond commenced trading in 2003, was listed on the Johannesburg Stock Exchange in 2007 and received its mutual banking license from the South African Reserve Bank in 2012. Client-focused, FMB encourages savings even on short-term deposits and offers an above average interest rate on its fixed five

or six-year term accounts. FMB’s product lineup is carefully tuned to meet customer needs. The bank has gained a strong reputation for its excellence in customer service and is proud of the fact that face-to-face communication and excellent customer service are integral parts of their business model. Customers are also serviced in their home language in the various regions that Finbond operates in. FMB has aggressively expanded its geographical footprint and currently maintains a nationwide network of some 378 branches in South Africa with another

forty scheduled to open annually. With its formula of keeping things simple, and streamlining both internal and external processes, FMB is now poised for accelerated growth. Finbond Mutual Bank is determined to become South Africa’s premier savings bank. It aims to do so by introducing innovative investment, saving, and credit solutions that add value to clients’ lives and thus contribute towards their financial independence. The CFI.co judging panel is pleased to offer Finbond Mutual Bank the 2016 Best Savings Bank South Africa Award.

> PENGUIN RANDOM HOUSE: BEST BRANDS PUBLISHING UK 2016

It is the world’s largest book publisher – by far. Penguin Random House puts out nearly 15,000 new titles annually and the company’s back order catalogues include over seventy Nobel Prize winning authors. The merger of Penguin Group and Bertelsmann-owned Random House in 2013 was widely considered a strategic one designed to stop online retailer Amazon from accumulating too much power over the publishing industry. The resulting corporate behemoth, employing over 10,000 people worldwide, is an amalgamation of hundreds of separate

imprints ranging from boutique publishers releasing only a few titles a year to prestigious publishing houses such as GP Putnam’s Sons, a regular purveyor of titles to the New York Times bestsellers lists. Organised in publishing groups that bundle a sometimes surprisingly large number of vaguely related imprints, Penguin Random House is perhaps best known for its Penguin Books and the recently resuscitated Pelican Books, dedicated to the dissemination of knowledge. Founded in 1935 by Sir Allen Lane and based on the premise that a quality book CFI.co | Capital Finance International

should cost no more than a pack of cigarettes, Penguin Books revolutionised the publishing industry and set the standard for type and layout the work of the Swiss typographer Jan Tschichold whose Penguin Composition Rules, devised in 1947, still hold true. The CFI.co judging panel finds much to praise in the trajectory and achievements of Penguin Random House. Few publishers have done more to advance literature than this company. Consequently, the judges are pleased to offer Penguin Random House the 2016 Best Brands Publishing Award. 85

> OPENWORK: BEST FINANCIAL ADVISER SUPPORT SERVICES UNITED KINGDOM 2016

As one of the UK’s largest financial advisory networks with over forty years of experience, the Openwork Group comprises of more than 300 staff and 3,000 professional financial advisers. Its leading edge derives from quality work and an unfailing engagement with customers in the search for opportunity – whether that is buying a house, expanding a business, or growing a nest egg. Openwork partners with leading financial services providers to allow its clients access to premium services. The network also

offers its clients a wide range of tools that ferret out the best deals. Openwork pushes the envelope of the financial advisory business. The network maintains its own investment company with a wide array of fund available exclusively to clients. Through the Openwork Foundation the network raises funds for community-based projects aimed at improving the quality of life of disadvantaged children and young adults. This replicates Openwork’s own sense of community

which reaches out to young professionals wishing to give their career a boost by joining a thriving network of advisors and peer groups. The CFI.co judging panel notes that Openwork stretches the definition of a financial advisory network to include an exceptionally wide range of products and services that, jointly or separately, have the potential to vastly increase the quality of life of both clients and associates. Openwork is named winner of the 2016 Best Financial Adviser Support Service United Kingdom Award.

> KOMMUNINVEST: BEST GREEN BOND ISSUER EUROPE 2016

Financing the creation of sustainable wealth. Sweden’s Kommuninvest offers ample exposure to one of the world’s most secure investment opportunities: the country’s local government sector. Kommuninvest is charged with the procurement of financing for Swedish municipalities and county councils. It maintains the lowest possible risk weight (BIS 0%) and the highest credit ratings attainable. Over 90% of Sweden’s local governments are members of Kommuninvest and, as such, wholly responsible for the commitments undertaken by the company. Kommuninvest is one of the Riksbank’s 86

(the Swedish central bank) monetary policy counterparties and a full member of RIX, the Riksbank’s payment system. Securities issued by Kommuninvest enjoy the exact same level of creditworthiness as Sweden’s sovereign debt instruments. Kommuninvest has pioneered a green bonds governance model comprising local government climate & environment experts. Earlier this year, Kommuninvest launched its inaugural $600m RegS/144A green bond, to support the financing of initiatives that seek to mitigate climate change. Sweden aims to become one of the world’s first fossil fuel-free CFI.co | Capital Finance International

welfare state and many investment projects towards this goal are led by local governments. Kommuninvest, a member of the Green Bond Principles, also aims to lead the quest to develop a standardised framework for green bond issuance and reporting. As such, the company is a key driver towards sustainable growth models. The CFI.co judging panel commends Kommuninvest on its proactive role in reshaping the industry whilst adhering to the highest ethical standards. The judges are pleased to offer Kommuninvest the 2016 Best Green Bond Issuer Europe Award.

Autumn 2016 Issue

> fair-finance: MOST SOCIALLY-RESPONSIBLE PENSION FUND CENTRAL EUROPE 2016

Grown out of a fair-trade initiative set up by its founder, fair-finance is a next step in an ongoing quest to level the playing field and promote sustainability. fair-finance currently manages in excess of €360m. The fund receives inflows under Austria’s mandatory severance pay legislation under which companies must make provisions for workers’ compensation. fair-finance steers clear of high-yield bonds and emerging market debt. In order to reduce its dependency of the bond market, fair-finance launched a real estate investment fund to take a stake in multi-tenant buildings in the Austrian capital Vienna. fair-finance has commissioned the development of its own, innovative list of criteria for its sustainable real estate Spezialfonds (a specialised fund for

institutional investors only). The set of criteria allows to not only assess new constructions but mainly also existing properties according to sustainability standards. Unlike most ratings this valuation does not focus primarily on energy efficiency. Instead it takes into account criteria in four groups such as location, thermal comfort, ecological valuation of the building material, as well as ethics and transparency. Investments in micro-finance programmes are also underway, representing around 8 % of the fund’s portfolio. The strict sustainability criteria used by fair-finance have guided the fund towards Austrian, Belgian, Dutch, Portuguese an Irish sovereign bonds. The portfolio also contains Austrian corporate bonds that meet the fund’s

demanding ethical standards. The approach has not dampened returns. Since receiving its first inflows from new members in 2011, fairfinance has over a 5-year term outperformed both the overall market and its competitors. The CFI.co judging panel noted that fair-finance actively seeks to put its clients’ funds to good use. Driven by a desire to contribute towards a better society, the fund’s managers remain firmly grounded and keep their focus on the bottom line. Thanks to a proprietary investment strategy, developed in-house, fair-finance has managed to attain peak performance. The judges are pleased to offer fair-finance the 2016 Most SociallyResponsible Pension Fund Central Europe Award for a second consecutive year.

> QATAR FOUNDATION:

OUTSTANDING CONTRIBUTION TO SUSTAINABILITY OF THE KNOWLEDGE-BASED ECONOMY GCC 2016

Few countries blessed with abundant natural resources have the foresight, or political will, to invest in their long-term future by committing the proceeds of their windfall towards sustainable development. Norway comes to mind, as does Qatar. Boasting the highest per capita income in the world thanks to its vast reserves of oil and natural gas, the Planning Council of Qatar and the Qatar Foundations (QF) have asked the World Bank to lend its expertise in designing a policy framework to transform the country into a knowledge-based economy.

The Qatar Foundation for Education, Science and Community Development was set up in 1995 and tasked with unlocking the country’s human potential. A semi-private and not-for-profit entity, the Qatar Foundation was instrumental in attracting eight worldclass universities to the country, including London’s University College and Carnegie Mellon University. Interestingly, courses and research are not limited to exact sciences and include a vast array of humanities studies including highly acclaimed archaeology and art programmes. CFI.co | Capital Finance International

The QF has also succeeded in reinvigorating Qatar’s K-12 education system, now geared to deliver a growing stream of freshmen (and women) to the country’s universities. The large education drive is part of Qatar’s National Vision 2025 which forms the bedrock of the knowledgebased economy taking shape. The CFI.co judging panel congratulates QF on its many accomplishments and is very pleased to offer the Qatar Foundation their 2016 Outstanding Contribution to Sustainability of the KnowledgeBased Economy GCC Award. 87

> InvestSA: BEST INVESTMENT PROMOTION AGENCY AFRICA 2016

Upgraded this year to manage South Africa’s investment promotion and facilitation efforts, InvestSA has set about its job with considerable gusto. The new entity works with a superior product: South Africa remains the continent’s powerhouse and one very much open for business. South Africa not only boasts a business-friendly environment but also an ascendant market with a buoyant middle class clamouring for up-to-date products and services. InvestSA is an initiative of South Africa’s Department of Trade and Industry

which has historically played a crucial role in the promotion of investment and now an enhanced facilitation service as a driver of national development. The department has managed to insert South Africa in a global web of trade and investment deals. As a result of that push, South Africa is now part of a growing global value chain that also includes neighbouring countries. In fact, InvestSA aims to promote South Africa as the natural gateway to the buoyant markets of Southern Africa and the East African seaboard. South Africa is currently recognised as a regional manufacturing hub.

InvestSA works in tandem with provincial investment promotion agencies to source opportunities for investors that, in turn, dovetail with both local and national development aims and goals. As the international investment arm of the Department of Trade and Industry, InvestSA has already made great strides in promoting packaged investment projects and promoting direct foreign investment. The CFI.co judging panel considers the entity a worthy winner of the 2016 Best Investment Promotion Agency Africa Award.

> SARADAR BANK: BEST BANK GOVERNANCE LEBANON 2016

With dedicated retail, commercial, and private banking divisions, Lebanon’s Saradar Bank is set to help the country regain its prominence as a regional financial services hub. Saradar Bank is the product of the merger between the Near East Commercial Bank (NECB) and the Banque de l’Industrie et du Travail (BIT), both owned by the Saradar Group. Saradar Bank has hired a team of seasoned professionals to ensure both operational excellence and optimum service delivery. The new bank leverages the heritage of its parents and their vast reservoirs of knowhow. As such, Saradar Bank comes onto 88

the buoyant local market already boasting a well-established track record. Saradar Bank’s management feels confident that Lebanon’s financial services sector has plenty of room for a new entity committed to delivering a wide range of customisable products and services. Saradar Bank squarely aims to embark on a path of rapid and sustainable growth – both organic and powered by future acquisitions. The new entity has adopted a full suite of governance processes – closely aligned to global best practices – to ensure transparency, integrity and performance optimisation. Both the bank’s board of directors CFI.co | Capital Finance International

and management are committed to lead by example and to promote exemplary core values and strong ethics throughout the organisation. A balanced governance structure and sound practices have been carefully designed and implemented to safeguard the interests of all stakeholders. The CFI.co judging panel is excited to see a new bank arise in Lebanon – one that includes the experience and expertise of two well-respected institutions. As such, Saradar Bank is declared winner of the 2016 Best Bank Governance Award Lebanon Award.

Autumn 2016 Issue

> KEMPINSKI HOTELS: BEST PREMIUM LANDMARK HOTELS EMEA 2016

Europe’s oldest luxury hotel group, founded almost 120 years ago in Berlin, Kempinski Hotels manages 75 five-star hotels and residences across the world. The group has a number of historic landmarks in its portfolio such as the Hotel Adlon Kempinski in Berlin, the Emirates Palace in Abu Dhabi, and the Palais Hansen Kempinski in Vienna. Majority-owned by the Crown Property Bureau of Thailand, Kempinski has become one of the world’s leading luxury hotel operators via an unrelenting dedication to excellence. The company is one of the founding members of the Global Hotel Alliance which

bundles 32 hospitality brands representing well over 500 luxury hotels. Kempinski introduced its own corporate social responsibility (CSR) framework that enables it to strengthen health and improve public welfare locally. As one of the founding members of BE Health Association, Kempinski believes that business can make a positive impact in limiting the spread of infectious diseases and making health contagious for those who need it most. This ties in with the group’s initiatives to encourage guests to get a taste of local traditions and culture via its Discovery Programme.

Kempinski recently celebrated the opening of the five-star Kempinski Summerland Hotel & Resort in Beirut, Lebanon. The new facility builds on the heritage of the famed Summerland Hotel which is renowned for society events. The CFI.co judging panel commends Kempinski on its dedication to quality, both in services and management, in particular the company’s commitment to preserving the legacies of the properties under management. The judges declare Kempinski winner of the 2016 Best premium Landmark Hotels EMEA Award.

> ABC BANKING CORPORATION: BEST INTERNATIONAL BANK INDIAN OCEAN 2016

Now in the sixth year of its operations, ABC Banking Corporation of Mauritius, part of the ABC Group, is registering strong growth buoyed by its recognition as one of Africa’s top performing financial services providers. With the markets around the Indian Ocean Basin particularly solid, ABC Banking Corporation has managed to leverage its expertise to attain accelerated growth rates. The bank expects to profit from the revised tax treaty with India and is confident that the next few years will see a further

expansion of its business. Soon to be listed on the Mauritius Stock Exchange, ABC Banking Corporation has seen a marked increase in its capital, welcoming investors from Hong Kong. The bank, known for its exceptionally broad palette of products and services, and its excellent rapport with customers has already become a hallmark of quality in the highly competitive financial sector of Mauritius. In tandem with its parent company, ABC Banking Corporation has pioneered corporate social responsibility (CSR) policies, taking the lead CFI.co | Capital Finance International

with a number of initiatives aimed at serving the interests of all stakeholders. Adopting best international practices and on the lookout for business opportunities, ABC Banking Corporation has adopted a number of internal processes that ensure transparency and good governance. The CFI.co judging panel is pleased to note that ABC Banking Corporation is committed to maintaining the highest standards. The judges wish to offer the bank, a repeat winner, the 2016 Best International Bank Indian Ocean Award. 89

> MUSHARAKA CAPITAL COMPANY: BEST SHARIA-COMPLIANT IPO FUND MANAGER MIDDLE EAST 2016

The backbone of Islamic banking, equity finance is big business throughout the Middle East. Musharaka Capital Company, a premier asset manager in Saudi Arabia founded in 2013 as a closed joint-stock corporation, maintains a number of funds that allow project developers and investors to become partners in very attractive opportunities that are professionally structured taping on capital market, private equity, and real estate markets of both the kingdom and the Gulf Cooperation Council (GCC) states. The firm presents a broad offering of Sharia-compliant investment vehicles. In keeping with Islamic Law, Musharaka Capital

Company emphasises transparency and adheres to the strictest investment criteria. The firm is run by a seasoned team of professionals who maintain in close – and often personal – contact with the local business community in order to unearth exceptional opportunities. The Musharaka IPO Fund invests primarily in Initial Public Offerings and publicly-listed sharia compliant companies that recently debuted on the Tadawul – the Saudi stock exchange. The fund, an open collective investment subscription programme, the fund accepts subscriptions and redemptions twice a week. Since inception, the fund has maintained a leading position among similar funds and has

always outperformed the Saudi stock index TASI and the customised S&P fund index. Aiming to impact the property development industry with innovative solutions, Musharaka Capital Company also manages Musharaka Real Estate Income Fund taking a stake in the property market for local and foreign developers wanting to expand their reach. The CFI.co judging panel commends the firm on both the breadth and depth of its product offering and the peerless quality of same. The judges feel confident that Musharaka Capital Company is a most worthy winner of the 2016 Best Sharia-Compliant IPO Fund Manager Middle East Award.

> NORTHWEST HEALTHCARE PROPERTIES REIT: BEST HEALTHCARE INDUSTRY REIT CANADA 2016

In Canada, NorthWest Healthcare Properties REIT (real estate investment trust) is the largest non-government owner and manager of healthcare facilities. The REIT provides investors access to a high quality international healthcare real estate infrastructure comprised of interests in a diversified portfolio of 139 income-producing properties and 9.3 million square feet of gross leasable area located throughout major markets in Canada, Brazil, Germany, Australia and New Zealand. Having consolidated the medical office building sector in Canada, NorthWest also operates and manages healthcare facilities 90

in Australia, Brazil, Germany, and New Zealand. Globally, the REIT has established partnerships with leading local healthcare providers to put into place a world class healthcare infrastructure platform that ensures steady income growth and opportunities for future expansion. NorthWest tailors its facilities to local demand and needs. As a result, the trust has been able to secure long-term indexed leases that ensure predictable income streams. NorthWest was set up in 2004 and has since acquired a deep pool of specialised knowledge in the management of healthcare properties. CFI.co | Capital Finance International

The firm employs over 180 experienced professionals and maintains a network of nine offices in five countries. NorthWest is the only REIT listed on the Toronto Stock Exchange (TSX:NWH.UN) focused on global healthcare real estate. The CFI.co judging panel recognises that healthcare offers room for sustained growth. Demand for facilities is unlikely to taper off any time soon. NorthWest allows investors exposure to an otherwise difficult market to penetrate. The judges are pleased to present NorthWest Healthcare Properties REIT with their 2016 Best Healthcare Industry REIT Canada Award.

Autumn 2016 Issue

> TENERIFE FREE ZONE (ZFT): BEST FREE TRADE ZONE PARTNER ATLANTIC CORRIDOR 2016

Launched in 2012 to revive the Canary Islands’ historic condition as a free trade haven, the Tenerife Free Zone (ZFT – Zona Franca Tenerife) is home to a growing number of manufacturing and trading businesses. The area, part of the Santa Cruz de Tenerife port, offers full exemption from tariffs and direct and indirect taxation on imported goods. Streamlined procedures ensure that businesses encounter a bare minimum of red tape. Additionally, plant operators installed in the ZFT may also benefit from other fiscal instruments in the Canary Islands such as a

reduced corporate income tax rate of only 4%). Businesses need only generate five full time jobs in order to benefit from the exceptionally advantageous fiscal regime. The Tenerife Free Zone is a key component, and a driver, of the string of free zones that unites the Iberian Peninsula with the Caribbean and South America, enabling the establishment of smooth-running value chains spanning the Mid-Atlantic. The ZFT has been particularly successful in welcoming shipyards and associated businesses such as machine repair

facilities, parts suppliers, and others. Located at a crossroads of shipping lanes, the ZFT is poised for significant expansion. These characteristics have allowed the FT to create and lead the Mid Atlantic Free Zone Corridor Initiative which seeks to unify free zones from the Americas, Europe, and West Africa with Tenerife becoming the corridor’s pivotal point. For its trade corridor initiative, the CFI.co judging panel is pleased to extend the 2016 Best Free Trade Zone Partner Atlantic Corridor Award to the Tenerife Free Zone.

> TRICEPTS MANAGEMENT SOLUTIONS: BEST MANAGEMENT CONSULTANCY FIRM KENYA 2016

TRICEPTS MANAGEMENT

SOLUTIONS

...Home to Management Solutions

Companies aiming to reach a higher echelon in the corporate world, often are at a loss how to drive sustained growth with resilient structures and processes that effectively underpin expanded operations. Tricepts Management Solutions (TMS), based in Mombasa, Kenya, is in the business of empowering corporations as well as SME’s. The company has helped a number of corporates within and outside Kenya to propel operations and break through glass ceilings with tailored management support. Leveraging its accumulated experience, TMS has developed a number of programmes that allow clients access to the organisational expertise required to successfully

take that otherwise highly elusive “next step”. TMS provides ready assistance with staff training requirements and other human resources management challenges, logistics processes, product development, marketing, and other issues that faced by ambitious corporates. TMS also helps streamline internal and external lines of communication and offers assistance with strategic planning, the timely execution of projects, and performance monitoring. TMS has made a name as the go-to firm for entrepreneurs and corporations of any size aiming to take full advantage of the opportunities offered by the dynamic economies along the East African seaboard. The company maintains

CFI.co | Capital Finance International

a number of business development programmes specifically designed to meet the needs of small and medium-sized enterprises (SMEs). TMS offers exceptional Event Management Services that transform ideas into lifetime memories. Recruitment is another docket in the firm that seeks to help individuals secure employment and organizations acquire exceptional Human capital. The CFI.co judging panel commends TMS on its holistic approach and recognises the strength of its track record. The judges are pleased to offer Tricepts Management Solutions the 2016 Best Management Consultancy Firm Kenya Award.

> GRAYBAR: BEST SUPPLY CHAIN MANAGEMENT SOLUTIONS US 2016

Graybar is a specialist in supply chain management solutions. The company is a leading North American distributor of highquality components, equipment, and materials for a number of industries. Graybar’s sustained momentum and dedicated attention to achieving profitable growth has led the company to continuously surpass itself. Not only was the first quarter of 2016 record-breaking in terms of net sales, but so was the second quarter – creating a new record of $1.6 billion, rising 3.9% compared

to the same period last year. With net sales of $3.1 billion in the first half of 2016 – a rise of 4.5% since last year – the firm is also set to surpass its 2015 record revenue of $6.1 billion. Net income for the first six months of the year also increased 8.3% to $40.7 million. Through its distribution network and value-added services, including kitting and integrated solutions, Graybar is helping its customers to power and network their facilities with speed, intelligence, and efficiency. The company’s newest product offering

encompasses all of these ideas: Graybar’s SmartReel is a one-of-a-kind portable wire and cable pay-out system that allows one person to move reels up to 5,000 lbs. The company has become a vital link in America’s supply chain and continues to secure its position by adding sophisticated logistics and project management to all of its operations. The CFI.co judging panel is pleased to name Graybar winner of the 2016 Best Supply Chain Management Solutions US Award.

> ORBIT SECURITIES: BEST PUBLIC LEAD OFFER ADVISORS EAST AFRICA 2016

A founding member of the Dar es Salaam Stock Exchange (DSE), Orbit Securities is without peers when it comes to knowledge and experience in Tanzania’s capital market. Licensed by the Bank of Tanzania as a primary dealer in government securities, the firm leads the brokerage sector in fund raising, equity research, corporate finance, project finance, and other financial services. Orbit Securities was founded in 1996 and is the professional home of a highly qualified and skilled team of analysts, traders, and other 92

experts. The firm enjoys a solid reputation for efficient resource mobilisation and is considered the go-to brokerage for initial public offerings (IPOs) and bonds and rights issues. Eight of the seventeen corporates listed on the DSE main board were sponsored by Orbit Securities. This includes fours cross-listings. Tanzania’s capital market is one of the most dynamic financial plazas along the East African seaboard. The country’s economy is amongst the fastest growing in the world and was rebased in 2014 adding around $10bn to CFI.co | Capital Finance International

the GDP (plus 30%). Orbit Securities is exceptionally well placed to meet the growing demand for investors services. The firm boasts a fully up-to-date IT backbone and maintains a nationwide network of local agencies. The CFI.co judging panel recognises that Orbit Securities maintain its lead by continuously updating its processes and systems in order to offer service excellence. The judges declare Orbit Securities winner of the 2016 Best Public Lead Offer Advisors East Africa Award.

Autumn 2016 Issue

> ZENA EXOTIC FRUITS: BEST FMCG EXPORTER SENEGAL 2016 &

OUTSTANDING CONTRIBUTION TO FEMALE EMPOWERMENT WEST AFRICA 2016

Fruit and vegetable processor Zena Exotic Fruits of Senegal has gone global with its wide range of all-natural products. The company successfully entered markets in Europe, North America, and the Middle East. Exports of its natural jams, jellies, marmalades, syrups, drinks, and other products have grown by leaps and bounds. A significant part of Zena Exotic Fruits’ entrepreneurial success may be ascribed directly to the company’s dedication to both quality and – most noticeably – corporate social responsibility. Zena Exotic Fruits is not just a processing and packing plant; the company

also insists on providing a safe and nurturing work environment that allows for personal and professional development. All corporate processes, including the value chain, are operated in a socially-responsible manner. Zena Exotic Fruits, family-owned and managed by a woman, has managed to differentiate itself from the competition by adhering to global best practices. This has allowed the company to become the first one in Senegal to broach the highly competitive US market under the provisions African Growth and Opportunity Act (AGOA). At Zena Exotic Fruits fully 90% of

staff is female. The company also changed its work floor practices in order to welcome hearing impaired employees. To that end, managers and co-workers have received basic instruction in sign language. The CFI.co judging panel notes that Zena Exotic Fruits has taken socially responsible entrepreneurship to the next level. The judges are pleased to offer the company a double recognition: the 2016 Best FMCG Exporter Senegal Award and the 2016 Outstanding Contribution to Female Empowerment West Africa Award.

> STIRIXIS: BEST BUSINESS DEVELOPMENT TEAM GREECE 2016

Stirixis makes business happen. The company helps entrepreneurs turn ideas into profitable reality. As such, Stirixis creates and manages business concepts in the retail, leisure, and hospitality sectors. Its strength is derived from a thoroughly sensible approach – rooted in fact and experience – to any proposition, laying the groundwork upon which a solid business plan may be erected. Stirixis clients are guided through a process that moves seamlessly from planning to design, execution, and evolution. Each phase consists of a number of steps that snap into

each other to provide a smooth path that whisks concepts from idea to market. The fluid formula is adaptable and scalable. It has allowed Stirixis to help implement over 500 business projects in twenty countries. The international company of Greek origin, founded two decades ago, also helps businesses find proper homes. For Stirixis, an office is not merely a collection of workspaces but a carefully designed environment that boosts productivity by applying sound ergonomic principles in a social setting that reinforces the team while celebrating the individual. CFI.co | Capital Finance International

Stirixis is convinced that any business can be made both prosperous and sustainable by identifying its true core value and providing a nurturing context that enables the constant optimisation. This ultimately ensures business longevity. The CFI.co judging panel is rapt by Stirixis refreshing approach to empowering entrepreneurs and businesses. The company maintains a leading edge by pushing boundaries. The judges congratulate Stirixis on its win of the 2016 Best Business Development Team Greece Award. 93

for clients IT Infrastructure and grant the reliability and availability they > WORLD ASSOCIATION OF INVESTMENT PROMOTION AGENCIES (WAIPA): need IT Systems. OUTSTANDING CONTRIBUTION TO TRADE & INVESTMENT IN EMERGING ECONOMIES GLOBALin 2016 expertise in the area of Smart Cities and Internet of Things.

MEEZA

MEEZA’s State-of-the-art Data Centres offers th with international organisations, multilateral academic researchers who discuss and map agencies, think tanks, and universities to build in order to define optimum investment Tier III designed andtrends constructed Data Centr a network that members may access to find promotion strategies. The conference is also policy solutions that fit with their particular attended by public policymakers and business Middle Ea circumstance or environment. WAIPA also leaders.

Established in 1995 by the United Nations Conference on Trade and Development (UNCTAD), the World Association of Investment Promotion Agencies (WAIPA) provides a platform for national and regional entities seeking to attract foreign direct investment (FDI). The association has over 170 members from 130 countries who share resources, knowhow, and experience. As a result, WAIPA has become a vast repository of knowledge on the promotion and use FDI for increased economic growth. From its foundation, WAIPA has dedicated considerable efforts to coordinate

closely monitors investor sentiments and trends that may contain opportunities for its members. The association also aims to foster cooperation between members with a view to developing a coherent narrative and countering protectionism. WAIPA’s annual World Investment Conference brings together investment experts, financial specialists, and

The CFI.co judging panel applauds WAIPA’s proactive approach to investment promotion, in particular as it relates to empowering its members. The judges are pleased to confer the 2016 Outstanding Contribution to Trade & Investment in Emerging Economies Global Award on the World Association of Investment Promotion Agencies.

> MEEZA: BEST IT SECURITY GCC 2016

Within the vast IT universe, few constellations move faster than the security sphere. The dynamics of this area are such that the entire rulebook is rewritten with alarming frequency. The nature and severity of threats is subject to radical change, causing corporates near-constant worry regarding the safety of their corner of cyberspace. Offering high-end security services to corporates, governments, and non-profits since 2008, MEEZA of Qatar is home to a group of experienced professionals specialised in identifying weaknesses in networks and taking 94

remedial action before disaster strikes. The firm not only designs and deploys customised security solutions, but also regularly publishes academic essays and white papers on present and future cyber-threats. At the forefront of the fight against hackers and other IT outcasts, MEEZA offers data centre services – ISO 27001 certified M-Vaults – that incorporate state-of-the-art security systems in order to ensure both data integrity and availability. As Qatar’s buoyant economy and optimum regulatory framework attracts a CFI.co | Capital Finance International

growing number of businesses, the demand for IT security services is expected to increase significantly. MEEZA is ready to meet this demand with a wide array of IT products ranging from fully-featured cloud services to advanced network solutions. MEEZA also offers business continuity and disaster recovery services. The CFI.co judging panel notes that MEEZA has established an exceptionally solid track record by deploying innovative solutions that keep the firm well ahead of the pack. The judges are happy to grant MEEZA the 2016 Best IT Security GCC Award.

Autumn 2016 Issue

> AFRIMAX GROUP: BEST SOCIAL IMPACT TELECOM GROUP SUB-SAHARAN AFRICA 2016

Busy connecting an entire continent with the latest in 4G network technology, Afrimax Group is at the forefront of the telecom revolution engulfing Sub-Saharan Africa. The company, headquartered in The Netherlands, has accumulated the largest portfolio of easily deployable TD-LTE frequencies and is in the process of launching commercial operations in a number of key markets. More than just a provider of network infrastructure, Afrimax Group is wholly dedicated to empowering young people. In Zambia, the company has signed up nine universities to facilitate recruitment drives. It has already hired fifty graduates who now make up almost 50% of its local workforce. A similar approach is now being rolled out in Uganda,

Ghana, and Cameroon. In Zambia Afrimax Group has further recruited over 250 University Students through its Brand Ambassador Programme that gives young people the opportunity to be mentored, coached and gain a hands on experience in the work place, whilst encouraging them to also become entrepreneurs in order for them to be self-reliant through a start-up capitalisation project in partnership with a local bank. Afrimax Group pays particular attention to students from disadvantaged backgrounds or isolated rural communities who may benefit from the company’s e-learning portal and access opportunities not previously available. Afrimax Group has a clear vision to enable young people to build and provide

services to their peers. Thus the company has incorporated a broad platform of corporate social responsibility (CSR) initiatives into its very business model. Afrimax Group possesses spectrum licenses in twelve African markets. The company saw an opportunity in meeting the pent-up demand for reliable data services, driven mostly by young people. The CFI.co judging panel is aware that reliable telecom services are essential, if not key, to economic development. The judges wish to support large-scale initiatives that help connect and empower young people in Africa and are therefore thrilled to offer Afrimax Group the 2016 Best Social Impact Telecom Group Sub-Saharan Africa Award.

> MYANMAR ORIENTAL BANK LIMITED: BEST SME BANK MYANMAR 2016

Embarking on a modernisation drive, Myanmar Oriental Bank (MOB) is in the process of upgrading its core banking software to further improve its service quality and streamline both back office processes and frontline procedures. The bank has hired a number of developers to help it customise the new systems in order for these to dovetail with client profiles and local regulations. The privately-owned Myanmar Oriental Bank was set up in 1993 and now maintains a network spanning the nation

comprised of 40 branches. The bank is exceptionally well poised to make the most of the opportunities offered by Myanmar re-joining global trade networks. The country was recently gained the status of permanent normal trade relations in the US – Washington’s designation of free trade and formerly known as most favoured nation (MFN). Fully compliant with all international banking standards, MOB has put in place a full array of anti-money laundering controls and know-your-client processes that allow it to CFI.co | Capital Finance International

flag unusual transactions in a timely manner. The bank offers a growing number of products and services aimed at supporting small and medium-sized enterprises (SMEs). From its corporate beginnings, Myanmar Oriental Bank has consistently helped underwrite SME growth. The CFI.co judging panel is pleased to note that MOB maintains a worldwide network of correspondent banks and is thus able to serve it clients wherever their business takes them. The judges are delighted to offer Myanmar Oriental Bank the 2016 Best SME Bank Myanmar Award. 95

> ESVAL: BEST ESG-RESPONSIBLE EXECUTIVE TEAM CHILE 2016

The first water utility in Chile open to private investors, since 1999 Esval has invested heavily and consistently in the upgrading of its distribution network in the Valparaíso region – the country’s most densely populated after the metropolitan region of Santiago. A large amount of investment has been destined for the modernisation of the expansion of the water grid and the construction of water treatment plants that have helped clean up the areas popular beaches and vastly improve water quality. The company has replicated its approach in another region in Chile. In 2003, Esval acquired Aguas del Valle, now a whollyowned subsidiary, in the Coquimbo Region to the north of Valparaíso, in 2015 dealing with an earthquake of historical proportions of 8.4

on the Richter scale, where the robustness of the infrastructure and the emergency work the company carried out enabled normal operations to be maintained in spite of the tremendous damage to the city. With over two million people in its home region, Esval has gained a solid reputation for service excellence and network maintenance. The company’s over 2,000 workers and collaborators ensure the delivery of potable water to the inhabitants of five provinces straddling a topographically challenging area that includes mountain ranges and arid flatlands. Esval has been a pioneer in promoting environmentally sound business practices, stakeholder participation, and transparent corporate governance. The company stands out for its good

management on facing the drought, where its heavy investments and works have enabled that the inhabitants have continuous access to the supply of potable water, in spite of the large fall in supply from the hydrological sources. In addition, the company’s operational capacity, enabled to help to deal with the largest fire which has effected Valparaíso where more than 965 hectares were burnt and the company delivered 150,000,000 litres of water during the emergency enabling the fire to be finally contained. The CFI.co judging panel commends Esval on its adherence to the highest engineering and customer service standards. The judges are pleased to declare Esval winner of the 2016 Best ESG-Responsible Executive Team Chile Award.

> NETAPP: MOST INNOVATIVE DATA STORAGE SOLUTIONS GLOBAL 2016

NetApp is a multinational storage and data management company offering software, systems, and services to manage and store data, including its proprietary Data ONTAP operating system. Since the company began in 1993, it has consistently delivered innovation which has propelled its customers onto new frontiers – from Formula One auto-racing to the conception of CERN’s Large Hadron Collider. NetApp has reached milestone after milestone within its role as a global pioneer, being the first to achieve many of the technological innovations it now offers. The 96

company collaborates with other technology leaders in order to create the specific solutions its customers need. Global enterprise leaders and service providers worldwide count on NetApp for software, systems, and services to manage and store endless streams of data. NetApp’s focus for 2016 is particularly exciting: the company is poised to begin revolutionising emerging markets with the same pioneering, insightful style it conquered western markets with. In Africa, NetApp has teamed up with Internet Solutions in order to be the first on the continent to offer performance-based CFI.co | Capital Finance International

storage tiers. NetApp’s SolidFire all-flash platform delivers guaranteed performance and capacity at scale, while eliminating data migrations and cutting the cost of operational overhead in half – optimising performance, risk, licensing, cost, and modular scalability. NetApp has also recently signed a contract with India’s proposed Smart City, Varanasi, whereby the firm will provide storage, surveillance, and security infrastructure for the project’s initiatives. The CFI.co judging panel offers NetApp the 2016 Most Innovative Data Storage Solution Global Award.

Autumn 2016 Issue

> MCKESSON CORPORATION: BEST HEALTHCARE TECHNOLOGY SOLUTIONS NORTH AMERICA 2016

McKesson Corporation distributes pharmaceuticals at retail level and provides health information technology, medical supplies, and care management tools to the healthcare industry. As the fourth largest pharmaceutical chain in the world, the company serves more than 50% of American hospitals, 20% of US physicians, and 96% of the top 25 health plans. It delivers one-third of all medication used in North America. However, what sets McKesson apart is the quality of its technology solutions and its extensive network infrastructure, providing

interactive connectivity solutions streamlining clinical, financial, and administrative communications. It has made a name for itself as an early adopter of new technology, introducing bar-code scanning for distribution, pharmacy robotics, and RFID tags ahead of others. The company’s technology solutions aid every angle of the healthcare industry and are designed to drive clinical and business intelligence into every healthcare decision, improving healthcare efficiency, reducing cost, optimising revenue streams, and enhancing patient safety. From diagnostic imaging to

healthcare analytics and financial optimisation, McKesson provides software solutions, services, and consulting to hospitals, physician offices, imaging centres, home healthcare agencies, and payers, alike. McKesson is not only America’s oldest and largest healthcare company, but it continues to play an integral role in the future of the industry. The company is firmly rooted in modernity, and as such, the CFI.co judging panel deservingly extends McKesson the 2016 Best Healthcare Technology Solutions North America Award.

> GREAT AMERICAN INSURANCE GROUP: BEST P&C INSURER NORTH AMERICA 2016

The Great American Insurance Group is focused on property and casualty insurance (P&C), primarily dealing in specialised commercial products for businesses and in the sale of traditional fixed and fixed-indexed annuities. Established in 1872, the company is one of the oldest P&C insurers in the United States and now comprises over thirty niche speciality insurance companies; each exclusively covering separate market segments that target specialised commercial products and services for businesses. Structured like a network of small

businesses, all of Great American Insurance Group’s subsidiary companies and divisions design products and build relationships within their own individual markets and communities. The firm has a range of experts within each speciality line who personally provide commercial customers a with unique insights of their industries. This enables the company to optimise regulatory understanding of each industry – reducing paperwork and responding faster to customer enquiries. This deep industry expertise also optimises the company’s ability to assess and manage the risks inherent within each CFI.co | Capital Finance International

respective industry, as well as their customers’ unique business circumstances. Great American Insurance provides hundreds of innovative products and programmes designed to manage the specific risks of every sector. Businesses today, especially small and midsized companies, are under a bigger threat than ever from outside risk; a lawsuit, or simply bad luck, could set a company back – or even sink it completely, without an in-depth and knowledgeable assessment. The CFI.co judging panel grants the Great American Insurance Group the 2016 Best P&C Insurer North America Award. 97

> TRENCH & ASSOCIATES: MOST INNOVATIVE M&A LEGAL ADVISORY BOUTIQUE MIDDLE EAST 2016 & OUTSTANDING CONTRIBUTION TO THE EMPOWERMENT OF WOMEN UAE 2016

With an enviable track record spanning 20 years, Trench & Associates advises on commercial, employment, corporate, and intellectual property law, amongst other, in Dubai and the wider UAE. Trench & Associates is recognised and admired for its often innovative – and successful – approach to legal issues. In particular, Trench & Associates is known for its merger and acquisitions (M&A) legal team which has accumulated significant expertise in the guidance of both domestic and cross-border share and asset acquisitions and disposals. The firm has worked for targeted

companies as well as those doing the buying in the private and public sectors. It has also represented minority shareholders, safeguarding their interests. Trench & Associates is careful to cultivate an empowering professional environment which allows staff members to grow with the firm and hone their legal skills through advanced training programmes and the taking on of added responsibilities. Trench & Associates has been lauded for its ongoing efforts at encouraging more women to opt for a career in the legal profession.

Careful to only engage lawyers with ample international experience and well versed in multiple languages, Trench & Associates has established a well-earned reputation for superior performance. The CFI.co judging panel praised the firm for its stalwart adherence to excellence in its litigation and arbitration procedures and its level of client care. The judges are pleased to offer Trench & Associates a double award: the 2016 Most Innovative M&A Legal Advisory Boutique Middle East Award and the 2016 Most Outstanding Contribution to the Empowerment of Women UAE Award.

> SAFARI INVESTMENTS: BEST RETAIL PROPERTY INVESTMENT MANAGEMENT TEAM SOUTH AFRICA 2016

Listed on the Johannesburg Stock Exchange, Safari Investments is focused on accumulating and holding quality investments in prime real estate via pooled resources. The firm maintains a healthy debt/equity ratio in order to maintain attractive to both investors and financial institutions. Whilst Safari Investments concentrates on acquiring income-generating properties, the firm also holds vacant land with development potential and is active in the retail property market in high-growth areas. Committed to generating sustainable income and capital growth, Safari Investments has established a solid track record and can look forward to significant income growth. 98

Selecting properties that offer optimum returns over the medium to long term, Safari Investments manages a large real estate portfolio that includes many of South Africa’s leading retailers as tenants. The company pays particular attention to the long-term sustainability of its portfolio. It does so by taking a holistic approach to investment propositions, including economic and demographic trends that may affect future capital value and rental income streams. Risk is mitigated by only investing in properties and developments that already include lease undertakings from reputable tenants. Safari Investment produces a biennial survey of the rental sector in order to keep CFI.co | Capital Finance International

abreast of developments. The company in September 2016 completed construction of its R640 million investment in a new landmark for Namibia, the Platz am Meer Lifestyle Centre. The 50,000m2 waterfront project on the coast of Swakopmund includes prime retail facilities, penthouses, and a small craft harbour. The CFI.co judging panel commends Safari Investments for its cautious yet proactive approach to real estate investments. The judges are pleased to offer the company their 2016 Best retail Property Investment Management Team South Africa Award.

Autumn 2016 Issue

> THYSSENKRUPP: MOST INNOVATIVE ENGINEERING SOLUTIONS EUROPE 2016

The 1999 merger of Germany’s two largest steelworks Krupp and Thyssen produced a global conglomerate that now includes some 670 companies, organised into two divisions – Materials and Technology. Still one of the world’s largest steel producers, ThyssenKrupp AG also manufactures lifts, capital goods, and components for the automotive and defence industries, amongst a host of other products and services. The company is also Germany’s largest defence contractor. Its HowaldtswerkeDeutsche and Blohm + Voss shipyards produce some of the world’s most advanced warships,

including the 200 series submarines which now include versions with air-independent propulsion (AIP) systems and non-magnetic hulls that are significantly quieter than even the most advanced nuclear-powered boats. ThyssenKrupp employs well over 150,000 people worldwide and is currently mulling the takeover of the troubled Port Talbot steelworks in the UK from its Indian owner Tata Steel. Perhaps slightly less eye-catching, ThyssenKrupp’s lifts and escalator division has become the world’s largest manufacturer of people movers. It recently won a contract to supply, install, and maintain around 500 lifts

and escalators for Qatar’s lavishly equipped Doha Metro network. Once the largest company in Europe, Krupp – purveyor of Krupp Stahl both famed and feared – has an industrial heritage second to none. Its merger with Thyssen, a pioneering vertically integrated company, produced an industrial behemoth that unites ground-breaking technologies, most developed in-house, with an almost unequalled manufacturing prowess. The CFI.co judging panel is happy to offer ThyssenKrupp its 2016 Most Innovative Engineering Solutions Europe Award.

> STANLIB: BEST AFRICA INVESTMENT MANAGEMENT TEAM 2016

Over half a million retail and institutional investors have entrusted South Africa’s STANLIB with more than $39bn in capital. With on the ground operations in ten African countries and access to over twenty countries through its relationship with Africa’s largest bank, STANLIB has become an investment powerhouse and a partner to investors of all sizes aiming to protect and grow their savings. STANLIB offers an exceptionally broad array of investment products in response to the diverse needs of its customers. That diversity is also reflected in the company’s multi-specialist investment professionals who draw on their expertise and knowledge of local

conditions to achieve optimum performance in any given market. STANLIB offers a broad range of investment capabilities, including active asset management, passive asset management, single manager and multi-manager offerings across all asset classes: cash, bonds, equities, property, and alternative asset classes. STANLIB was formed fourteen years ago when banking group Standard Bank and long term insurer Liberty Life merged their asset and wealth management divisions. Liberty is one of South Africa’s leading financial services providers while Standard Bank is the largest banking group in Africa. In addition to its own CFI.co | Capital Finance International

in-house expertise, STANLIB leverages off its relationship with these two large operations. STANLIB manages the assets of state-owned and parastatal entities, local governments, pension funds, and healthcare providers, amongst others. It also provides retail customers with a variety of customised solutions. STANLIB offers institutional investors a choice of unit trust and pooled investment vehicles or a mix of both. The CFI.co judging panel commends STANLIB on its consistently stellar performance and declares the company winner of the 2016 Best Africa Investment Management Team Award. 99

> Africa:

Chad - How to Move from Basket Case to Bread Basket By Tony Lennox

If you always walk the same path, you will go where youâ&#x20AC;&#x2122;ve already been. Wisdom from Central Africa. The people of Chad, living in one of the worldâ&#x20AC;&#x2122;s poorest countries, have been plodding the same dreary track for decades, if not centuries. There is no evidence to suggest that this benighted country, hemmed in on all sides by mostly unstable neighbours, is capable of finding a new road, or a solution to its woes.

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had is one of a string of countries which made up French Equatorial Africa. It gained independence in 1960 and, almost immediately, plunged into a savage 30-year civil war which left it withered and desolate – an apparently hopeless case, even by regional standards. The fifth largest country on the continent by area, Chad straddles the Sahara in the north and the steamy tropics in the south. The country has been called The Dead Heart of Africa – ostensibly for its climate, though the classification might accurately describe its economic and social wretchedness. Violence, poverty, and corruption are the three evils which have held Chad in a deadly vise for generations. In a country with hundreds of factions, sliced in half between rival credos – Islam and Christianity – and with warlords unfailingly eager to take up arms against each other, or the government, normal life is virtually impossible. The British Foreign Office is pretty clear in its advice to those thinking of travelling to Chad – don’t. A state of emergency currently exists in western parts of the country, thanks to the activities of Boko Haram which has taken exception to Chad’s involvement in the regional fight against the Islamist terror group. There have been several suicide bombings in the capital city N’Djamena in recent months. Nowhere is actually safe. To the north the troubles of Libya, with whom Chad has been regularly at war, adds to the instability. In the east, Chad had to cope with more than a quarter of a million refugees from the troubles in the Darfur Region of Sudan. HOT CAPITAL N’Djamena – officially the hottest city on earth – was founded in 1900 as a military base for French forces, and it has seen little but war and violence since. Indeed, it was evacuated many times during the civil wars of the 1970s and 1980s. Even today, nearly 80% of the population of 11.5 million live in the rural areas – mostly surviving on subsistence farming. Chad has two official languages – French and Arabic – but such is the ethnic mix, more than 120 different languages are spoken across the country. Mario Azevedo, in his 1998 book The Roots of Violence: A History of War in Chad says it is “one of the most neglected and troubled countries in Africa.” The ethnic, political, religious, and economic complexity of Chad constitute a major deterrent to the foundation of an effective state, he suggests. Division and enmity across the country created a Gordian knot which now is beyond untangling. An American diplomat once joked that one needed a PhD in International Affairs to understand Chad’s complexity. And, thanks to its lack of global strategic importance, the 102

“In a country with hundreds of factions, sliced in half between rival credos – Islam and Christianity – and with warlords unfailingly eager to take up arms against each other, or the government, normal life is virtually impossible.” country’s plight is easily ignored. Mr Azevedo quotes one unnamed American diplomat dismissing Chad as just “a fly-blown piece of real estate” for which no-one really cares. That isn’t quite true. Humanitarian agencies have been hard at work for decades trying to bring relief to a population beaten down by the effects of war, poverty, and disease which only serve to continue the cycle of distress. The climate is so uncertain that droughts frequently cause havoc. For instance, this year’s unusually strong El Niño, coupled to record high temperatures, had a catastrophic effect on crops. It is estimated that as many as two million people have been forced to grub for wild seeds, nuts, and ant eggs. Aid agencies such as the World Food Programme say the effects of malnutrition in the young produces “stunting” of both body and mind, and simply continues the cycle of hardship, condemning the next generation to further poverty. CADEAUX Chad relies heavily on foreign investment, especially for major infrastructure projects, but so ingrained is corruption that much of the cash fails to find its intended target. A visitor needs plenty of cash to deal with the constant demand for “cadeaux” – bribes demanded by police and officials wherever one travels. In 2006, Chad was placed at the top of the list of the world’s most corrupt nations by Forbes Magazine which described its misuse of philanthropic funds as “piggish”. Although the government of Chad has, since the current president Idriss Déby took power in 1990, made efforts to appear to be fighting corruption, the country’s reputation is still amongst the worst in the world. President Déby himself has been accused of cronyism, elevating members of his clan to influential positions. Oil profits, which the World Bank had insisted be ring-fenced to provide relief to the poor, were apparently syphoned off to fund the purchase of military hardware. In 2005, President Déby, who ousted the CFI.co | Capital Finance International

notorious Hissène Habré, controversially changed the constitution to remove the limit on presidential terms. His first two election victories were widely regarded as extremely suspect, though his fifth victory, this year, was given qualified approval from EU and African Union observers. Chad has yet to witness a democratic change of leader, however. Can Chad ever break the cycle of violence, poverty, and corruption and haul itself out of destitution? The signs aren’t good. More than 44% of inhabitants are aged 14 or younger, and despite high infant mortality and chronically low life expectancy, the population is estimated to double within fifty years. That will put added pressure on precious resources, including water supplies from Lake Chad – once one of the biggest lakes in the world, but now shrunk to a pitiful, shallow, polluted pond because of the demands of irrigation and the effects of climate change. It could disappear within two decades, say experts. OIL BONANZA The discovery of oil in 2003, which now contributes to 60% of Chad’s export revenues, could help, if the proceeds find their way to the citizens, rather than the back pockets of officials. The country is also rich in gold and uranium. Chinese and Indian companies have found ways to do business – the two countries are now Chad’s major international trading partners. But this region of Africa is so bedevilled by conflict that even if Chad could smooth out its enduring social, ethnic, and religious divisions, its borders would still soak up external troubles. Chad’s relationship with the USA remains good, even if there is some embarrassment over American support for former president Hissène Habré – who is now serving a life sentence in Senegal for crimes against humanity. The so-called Toyota War (a reference to the pickups which provided the Chadian army with a rapid and effective desert weapon) against Muammar Gaddaffi’s Libyan invaders in the 1980s, proved that Chad could operate in a unified fashion against an external foe. The country’s involvement with other African nations in the fight against Boko Haram is another indication that Chad can act as a cohesive body when circumstances demand. But there are overwhelming odds. Even without the enduring violence, Chad has to reform its primitive agricultural systems, tackle the 75% illiteracy rate, root out corruption at every level of society, and tackle the crippling effects of disease and pollution. Chad has a choice of new routes to salvation, though they will be hard to find – and the impulse to take the familiar, well-trodden path leading to the same bleak place seems irresistible. i

Autumn 2016 Issue

> CFI.co Meets the CEO of Safari Investments:

Francois Marais

n architect by profession, Francois Marais (77) is the CEO of Safari Investments, a real estate investment trust (REIT) listed on the Johannesburg Stock Exchange (JSE).

Mr Marais has been practicing as an architect since 1965 and for twenty years operated in Windhoek, Namibia, before relocating to Pretoria in South Africa where he has lived and worked for the past thirty years. Here, amongst other property entities, he and other founding members established the property investment company Safari Investments RSA together with its Namibian subsidiary Safari Investments Namibia. Today, Mr Marais specialises in the sourcing and compiling of prime property investments. He is focused on securing new investment opportunities for Safari. To date, Mr Marais has been involved in the implementation of commercial projects for Safari to the value of over R2 billion. He has extensive skill and experience in the initiation of such new developments and the ultimate establishment of these developed properties as sought-after investment assets. Mr Marais is known in the industry for his unique contribution to creating investment and employment opportunities by the establishment of strategic property nodes in Southern Africa and staying closely involved in the management and growth of these assets. He has an appreciation for emerging areas where it takes boldness to believe in the potential of a new project. It has brought success. In the 1990s, many investors steered away from suburban areas in Southern Africa due to political instability and the lingering uncertainties prevalent in such emerging areas. Mr Marais, however, saw a wonderful opportunity to engage with communities desperate for development. Today, these assets on commercial standards have become regional business nodes that outperform even the national average standard for trading densities in prime retail nodes. Mr Marais is passionate about innovation, uplifting communities, and the art of operating on the basis of strong personal relations with all stakeholders. No one who plays a key role in a project of Safari is not personally known by Mr Marais. This has been an essential part of the companyâ&#x20AC;&#x2122;s success and reason for the loyal following of investors Safari attracted. The company has a unique investors culture which reflects the ideals and vision of Safari. The majority have bought in since Safariâ&#x20AC;&#x2122;s inception which dates back as far as the 1990s long before

CEO: Francois Marais

the firm obtained listing. Most are still engaged as investors. Mr Marais also played a pivotal role in establishing the various multidisciplinary entities that today support Safari, including its procurement specialist, leasing, marketing, and asset management teams. He sees good management of property as twofold: management of the forming process of the organic investment; and the eventual management of the completed income generating asset. The shift from architect to property developer was only natural for Francois Marais. To design a building is but a part of a successful development and investment. With each project he was involved with as an architect, Mr Marais became more aware of the bigger picture in relation to the community, the environment, and CFI.co | Capital Finance International

its financial and business dimensions. Thus he gained valuable experience in property dynamics over the years. Mr Marais is an extreme optimist who cannot recall stumbling blocks in his career: only challenges with grand solutions and lessons to learn from it. With more than fifty years of accumulated experience in the property sector, Mr Marais remains passionate about Safari Investments. He has a dream that what was created within Safari will be proven sustainable; that the portfolio of properties will remain solid assets over future years; and that shareholder expectations will be realised. Surrounded by a board and a management team who share his optimism and passion, Mr Marais makes sure to pass on and share his wisdom. Steered by this visionary leader, Safari Investments is planning for the future with imagination and wisdom. i 103

> Safari Investments:

Tapping into Forgotten Markets

afari Investments RSA, listed in 2014 as a Real Estate Investment Trust (REIT) on the Johannesburg Stock Exchange (JSE), boasts a unique portfolio of investment properties and a legacy of success behind its executive team. A REVOLUTIONARY START Safari Investments was one of the first to see an amazing opening in the market for investing in urban (township) shopping centres in South Africa. CEO Francois Marais founded the firm in 2000 and acquired assets in the emerging areas of Mamelodi, Atteridgeville, and Sebokeng in South Africa. Mr Marais said he was surprised to find that established developers had not ventured into townships much before 2000. As recently as 2004, Soweto, for example, contained an estimated 43% of Johannesburg’s population but only approximately 3% of the city’s retail floor space. Safari was one of the first organisations, after 1994, to invest in retail nodes in the townships of southern Africa. Success has followed the firm. Considering the needs of the community was key to the success of these investments. This has remained the focus point in all Safari’s new developments: “Strong relations with our communities are still a core factor in how Safari operates. We are adamant that we want to understand and personally know the market and the communities surrounding our assets.” says Mr Marais. INVESTING IN COMMUNITIES This commitment has led to an awareness of the many opportunities available to contribute to any community while boldly developing regional retail nodes. During the development stage there is the chance to invest in skills development via the developer. At commencement of trade, an improvement in the community’s quality of life was noticeable through many job opportunities created in and around the facilities. Finally,

“Strong relations with our communities are still a core factor in how Safari operates.” during the operational phase people are delighted to experience access to first-class shopping close to their homes. Apart from relating strongly to its communities, quality of work is not negotiable for Safari. The standard of finishes and aesthetics are supreme and national retailers trade extremely well in these centres. The trading densities of Safari centres continue to exceed the national average every year. Centres initially rolled out at 20,000m2 but all expanded over time into 40,000m2 – 45,000m2 becoming regional dominant hubs. GROWTH OPPORTUNITIES IN BROADER CONTEXT South Africa has a growing consumer middle class which is helped by rapid urbanisation and shifting demographic trends that are driving property demand and growth opportunities in the real estate industry across the continent. The challenge, though, is that South Africa has a highly inefficient and inequitable spatial form. In most areas the urban complex is distributed over a large area, and residents have to travel long distances to access jobs, services, and facilities. Spatial restructuring of nodes under development is therefore of vital importance to Safari. It deals with the correction of overall unsatisfactory spatial patterns so that cities and their inhabitants can function at optimal levels and communities are served more efficiently. With this aspect in mind, Safari has developed an integrated planning approach. The firm wants to look at investment opportunities in a broader context as opposed to studying site potential in isolation.

“We are busy identifying the need around our developed sites for schools, day care centres, clinics, governmental service offices, and more. There is a tremendous opportunity to partner with local councils to maximise returns, both economic and social” says Mr Marais. In line with Safari’s vision to dominate the various catchment areas, the company considers it essential to establish its assets as preferred retail destinations – thereby minimising, if not eliminating, nearby competition. While an approach to grow the portfolio is followed, the Safari board ensures that projects fall within their agreed risk appetite. BEYOND BORDERS As a quality investment fund Safari is driven to source only the best investment opportunities for its shareholders. While Safari sees positive opportunities for such investments in South Africa, it is also looking beyond its borders to consider prime opportunities that may emerge. The company’s first international investment – a brand new lifestyle  waterfront development on the shoreline of Swakopmund in Namibia opened in September 2016. This beautiful coastal retail and lifestyle centre was developed together with a small craft boat harbour. A component of the development includes luxury penthouses and maisonettes, offered for sale, all overlooking the ocean in this charming Namibian town of rich history and German influence. ASSET DIVERSIFICATION The year has also seen the company’s first diversification in a formerly pure retail portfolio by the acquisition of a day-hospital investment in Soweto. It has proven that Safari is ready to diversify and strive towards establishing various service offerings to serve communities even better. Through market research the firm continues to carefully determine how to integrate the market’s needs into centre upgrades and the development of nearby land. It is important that the actual shopping and business needs of a community are factored into Safari’s upgrades and expansions.

Platz am Meer Waterfront Development

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Based on this integrated approach, Safari aims to strengthen its existing retail nodes in their various locations by “re-developing” them into more holistic hubs of not only retail products. They are in a position to also provide other essential services to the community. This also makes business sense. Key is the use of land in the vicinity of its retail centres. These pockets of land could be upgraded to host much needed facilities.

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Autumn 2016 Issue

Denlyn Shopping Centre – Mamelodi

Platz am Meer Lifestyle Centre - Swakopmund

“With this success in diversification we will continue to explore similar opportunities to grow our assets into holistic nodes. We will also continue to investigate possible investment opportunities across the border in Africa and Europe” says Mr Marais. GROWTH PIPELINE During the 2016 financial year, Safari comfortably reached its goal to exceed the R2 billion mark in asset value. With new projects such as the Platz am Meer Waterfront Development and a third retail centre now underway in Atteridgeville, Pretoria, the company is confident of maintaining a healthy growth pace and solid dividend distributions. Safari is listed as a Real Estate Investment Trust (REIT) which offers investors exposure to property through this specific JSE-listed instrument. REIT is also the international standard: more than 25 countries in the world use a similar REIT model for their property funds. South African property loan stock companies and property unit trusts listed on the JSE have been converting into REIT structures since April 2013 to be aligned to the global standard.

Atlyn Shopping Centre - Atteridgeville

Investment in a REIT is attractive to investors who want exposure to the property market, without the large initial capital outlay, but with frequent dividends. Legislation requires a REIT to distribute annually at least 75% of its taxable earnings to investors in the form of dividends. In the 2016 financial year, this amounted to R120 million declared as distributions to Safari shareholders. LEAN MANAGEMENT STRUCTURE Safari sees good management of property as twofold: management of the forming process of the organic investment; and the eventual management of the completed income generating asset. Management of the organic investment process is executed by Safari Retail, property development managers, which oversees the land procurement process and the development phase which covers market research, leasing, and marketing of the project. Safari Retail remains the leasing and marketing agent after completion and its involvement is with in-depth knowledge of the asset and its history as well as the good relations already in CFI.co | Capital Finance International

place with key stakeholders and tenants. Asset and property management after completion is executed by Cosmos Management, a professional team of financial and facility specialists including on-site managers for each property. Both Safari Retail and Cosmos have a competitive service agreement with Safari. There is particular synergy between these multidisciplinary teams and strong relations between the staff, who all operate from under one roof in a quiet tree lined street in Pretoria. The firm prefers “less but better” when considering staffing levels. This has resulted in a very lean structure of quality professionals that successfully steer Safari’s portfolio. Safari Investments is determined not to deviate from its focus on prime locations and to maintain its broad and deep competitive advantage. The firm’s legacy of delivering sustainable income and growth is carried through by its management team, passionate to continuously improve the return on investment for shareholders. The expansion of this vibrant company will be watched with interest by the market. i 105

> GE Africa:

Partners for Progress GE first started operating in Sub-Saharan Africa over a century ago. However, in 2011, the company decided to renew its focus to meet Africa’s current and future needs. GE’s footprint in Sub-Saharan Africa now consists of over 2,600 employees, revenues of about $3.3 billion dollars (2015), and operations in 25 countries. GE’s main operations in Sub-Saharan Africa are in Nigeria, South Africa, Angola, Ghana, Mozambique, and Kenya where its regional headquarters is located.

key partner in supporting the region’s socio-economic growth, GE Africa operates in the oil & gas, power, transportation, healthcare, renewables, energy connections, and aviation sectors. Partnerships with governments and local companies form a very important part of GE’s growth in Sub-Saharan Africa. The company has signed MoUs with the governments of several countries such as Nigeria, Kenya, Angola, and Ghana to develop infrastructure projects, including sustainable energy solutions, providing efficient and reliable transportation, as well as improving access to quality healthcare. These MoUs involve significant investments in creating jobs and human capital development. GE (NYSE: GE) is the world’s Digital Industrial Company, transforming industry with softwaredefined machines and solutions that are connected, responsive and predictive. GE is organised around a global exchange of knowledge, the GE Store, through which each business shares and accesses the same technology, markets, structure and intellect. Each invention further fuels innovation and application across our industrial sectors. With people, services, technology, and scale, GE delivers better outcomes for customers by speaking the language of industry. AVIATION An aircraft powered by GE technology takes off somewhere in the world every two seconds. Since building America’s first jet engine in 1942, GE has continued to drive jet engine innovation across commercial, military, business & general aviation, and marine segments. Key Highlights in Africa: • In Africa, an airplane powered by GE or CFM engines takes off every two minutes. CFM is a 106

“Partnerships with governments and local companies form a very important part of GE’s growth in Sub-Saharan Africa.” 50/50 joint company between GE and Snecma (Safran). • GE engines power Ethiopian Airlines’ Boeing 787 Dreamliner and B777s while CFM engines power B737s New Generation fleet. GE and Ethiopian airlines have an OnPointSM solution agreement for the maintenance of GE90 engines. GE Capital Aviation Services Limited (GECAS), the commercial aircraft leasing and financing arm of GE, is also a major lessor for Ethiopian Airlines. • GE has been supporting Kenya Airways on its fleet expansion program with 90% of its aircraft engines powered by advanced GE and CFM engines. In 2012, Kenya Airways selected the GEnx-1B engines to power its Boeing 787 Dreamliner fleet. GE Capital Aviation Services (GECAS) is the lead leasing partner for Kenya Airways. • GE powers TAAG Angola Airlines wide-body fleet of aircraft. Both their GE90-powered B777-200ER and B777-300ER aircraft are maintained under an OnPointSM solution. • 70% of Arik Air’s fleet, which is one of the main airlines in Nigeria, is powered by GE and CFM engines. HEALTHCARE GE Healthcare provides transformational medical technologies and services to meet the demand for increased access, enhanced quality and more affordable healthcare around the world. From medical imaging, software & IT, patient monitoring and diagnostics to drug discovery, biopharmaceutical manufacturing technologies and performance improvement CFI.co | Capital Finance International

solutions, GE Healthcare helps medical professionals deliver great healthcare to their patients. Key Highlights in Africa: GE was selected in February 2015 by the Kenyan Ministry of Health as a key technology partner for its wide-scale infrastructure modernisation programme aimed at transforming 98 hospitals across Kenya’s 47 counties. The radiology modernisation contract awarded to GE Healthcare is the largest of seven tranches of Kenya’s $420 million health development plan, aimed at delivering sustainable healthcare development, in line with Kenya’s Vision 2030 Plan. GE has partnered with USAID and Kenya Commercial Bank (KCB) in a $10 million healthcare financing program designed to give Kenyan healthcare providers access to local credit for the purchase of GE equipment. GE has partnered with Kenyan doctors to develop a Carestation 30 Anesthesia delivery system to meet the needs of African hospitals – modern compact design, relatively inexpensive with 6-hour battery to serve areas with low electricity supply. Audited all of Kenya’s 18 referral hospitals and partnership with them to formulate oncology strategies for breast, cervical and prostate cancer. Installed over 100 diagnostic (CT scan, MRI, Ultrasound, X-Ray) imaging units across Kenya. Installed base of over 800 diagnostic imaging products and over 6000 clinical devices such as anaesthesia equipment and monitors in South Africa. OIL & GAS GE Oil & Gas fuels the future. With unique capabilities across the entire value chain – from oil and gas drilling equipment and subsea

Autumn 2016 Issue

systems, to turbomachinery solutions and downstream processing – GE is neither upstream nor downstream; it is fullstream. GE works on the things that matter, becoming trusted partners for its customers to solve today’s toughest energy challenges. GE’s extensive global network of manufacturing facilities, operational bases and services centres includes thirteen operating bases in Sub-Saharan Africa that allow the company to operate where it matters to clients. Key Highlights in Africa: • Dedicated facility in Sonils Oil Service Centre, Angola, with capabilities for subsea tree assembly and testing, gas turbine overhaul, tubular fabrication repairs amongst other services. • Service facility in Onne, Nigeria, recently expanded to enable the commencement of subsea wellheads fabrication in the factory including capabilities for the complete refurbishment of subsea production trees. • MoU with Lurio University, signed aimed at developing human capacity and building an Oil & Gas lab in Pemba, north of Mozambique. • Partnership with Universidade Eduardo Mondlane to provide engineers with scholarships in Mozambique. POWER GE Power is a world leader in power generation with deep domain expertise to help customers deliver electricity from a wide spectrum of fuel sources. GE is transforming the electricity industry with the digital power plant, the world’s largest and most efficient gas turbine, full balance of plant, upgrade and service solutions, as well as dataleveraging software. GE’s innovative technologies and digital offerings help make power more affordable, reliable, accessible, and sustainable. With the addition of Alstom’s power & grid businesses, GE is now able to deliver one of the most comprehensive technology offerings in the energy sector. Strategically, Alstom and GE’s power and grid technology and geography combined will enable many new opportunities to create value for customers, with approximately 1,500 GW of installed base power generation, a 50% increase in GE’s current installed base. Key Highlights in Africa: • Collaboration with Endeavour, Sage, and Eranove on the Ghana

1000 project; Sub-Saharan Africa’s largest and most innovative gas-topower project. It will lower the cost of electricity while simultaneously increasing reliability. • Signed a 130MW fast track power deal in Angola as part of the MoU with the Ministry of Energy and Water to fill the short term power gap. The project will power more than 500,000 homes. TRANSPORTATION The transportation industry is moving at a furious pace, and GE continues to innovate to keep the pace. GE has been building diesel engines that are more fuel-efficient without sacrificing durability and performance. In Turkey, GE introduced a PowerHaul Locomotive, the most technologically advanced, fuel-efficient and low-emissions dieselelectric freight locomotive to date. In Africa, GE provides commuter and freight rail solutions to the continent’s vast and aging rail networks. Key Highlights in Africa: From 2009 to date, GESAT received orders for 436 locomotives from Transnet, South Africa’s state-owned freight and logistic company. As at year end 2015, GESAT had delivered 217 of the 436 orders. The rest of the order will be delivered by the end of 2018. In 2015, GESAT launched production of the advanced Evolution series of locomotives for Transnet that uses 5% less fuel, produces 40% less emissions, and is made from over 50% local African content provided by over 100 suppliers. Mozambique is now GE’s 2nd largest fleet in Africa with over 125 new locomotives hauling freight and coal across the country. In Kenya, GE is working with Rift Valley Railways (RVR) and Kenya Railways (KR) on a fleet renewal programme to overhaul and modernise their locomotives. In 2010, GE supplied 25 diesel locomotives to the Nigerian Rail Corporation (NRC) as part of the country’s fleet renewal programme. The company provided training in Brazil for ten NRC Engineers and in-country training for over 100 NRC maintenance and service engineers in Lagos. Agreement with the government of Angola for the refurbishment of the current rolling stock of locomotives and for the supply of an additional 100 new locomotives to the country. i 107

> ABC Banking Corporation:

Stellar Services Power Steady Growth

eadquartered at the prestigious Weal House, strategically located in the heart of the nation’s capital at Place d’Armes, Port Louis, ABC Banking Corporation today stands stable, pro-active, and optimistic, as one of the star performers of the ABC Group – a well-diversified Mauritian conglomerate featuring among the Top 100 business organisations of the Indian Ocean. The bank, known for its attractive broad palette of traditional and innovative products and services, and its excellent rapport with customers, has within its five and a half years of operations become a hallmark of quality and

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effectiveness in the highly competitive financial sector of Mauritius. Managed and operated by a highly motivated, committed, and effective team of experienced professionals and competent staff, the bank is organised on three main pillars: • Domestic banking, • International banking, and • Treasury. As a result of its rapid growth and development, its successful performance, and steady progress, ABC Banking has been receiving prestigious trophies during the past three years. In 2014, CFI.co | Capital Finance International

the bank obtained the Best Private Bank in Mauritius Award in the category of offshore services for the second consecutive year from Euromoney Magazine. It also won in 2014 and 2015 the prize of Best Bank for International Banking Services Mauritius awarded by Global Banking & Finance Review. A third distinction has come from Capital Finance International last year, and again in 2016, in recognition of the bank as one of Africa’s top performing financial services providers with the Best International Bank Indian Ocean Award. In January 2016, ABC Banking Corporation opened its shareholding to the public and was

Autumn 2016 Issue

listed on the Development and Enterprise Market (DEM) of the Stock Exchange of Mauritius (SEM), thus marking another milestone in the course of its exciting and eventful journey. Through this new vehicle for capital raising, the bank fully intends to exploit growth opportunities in both existing and new markets with the aim to achieve continuous sustainable development and create greater value for all its stakeholders. PROF DONALD AH-CHUEN Professor Donald Ah-Chuen is the chief executive of the ABC Group, a well-established Mauritian business conglomerate with activities that span from food processing, import and distribution, to motor vehicle dealership, freight forwarding, coach-building, banking, insurance, business process outsourcing (BPO), and financial services. After serving as the first chairman of the ABC Banking Corporation Ltd for 18 months, Prof Ah-Chuen was appointed as its managing director in January 2012, a position which he still holds. Prof Ah-Chuen is currently vice-chairman of the Stock Exchange of Mauritius Ltd and board member of P.O.L.I.C.Y. Ltd, specialising in investment in Mauritian top performing companies. In March 2009, he was conferred the distinction of GOSK (Grand Officer of the Order of the Star and Key of the Indian Ocean) in recognition of his valuable contributions in the sectors of banking and financial services and tertiary education. Prof Ah-Chuen has acquired vast experience and a broad set of skills by his many years of top executive management responsibilities and serving on boards of management at various important public and private institutions in Mauritius. He has been a member of the board of directors of the Bank of Mauritius and of the Development Bank of Mauritius. He was chairman of the Mauritius Broadcasting Corporation (MBC), and of the Association of Steel Galvanising Companies of Australia. He was also pro-vice-chancellor of the University of Mauritius, chairman of the Tertiary Education Commission of Mauritius and president of the Mauritius Chamber of Commerce & Industry. Prof Ah-Chuen holds an MBA from the University of Strathclyde in the UK. He is also a fellow of the Institute of Chartered Accountants (England & Wales) and of the Institute of Chartered Accountants (Australia). He is a member of the Chartered Institute of Personnel & Development of UK. Left to right: Mr. Yashod Umanee (General Manager), Hon. Bernard Yeung Sik Yuen (Chairman), Prof. Donald Ah-Chuen (Managing Director), Mr. Brian Ah-Chuen (Strategic Business Executive)

â&#x20AC;&#x153;As a result of its rapid growth and development, its successful performance, and steady progress, ABC Banking has been receiving prestigious trophies during the past three years.â&#x20AC;? CFI.co | Capital Finance International

Prof Ah-Chuen is married and has a son and three grand-children. He has a keen interest in international affairs, economics, finance and management, history and literature, and community work. He also enjoys watching soccer, tennis, rugby, and cricket matches. He likes listening to the music of Johann Strauss and is a great fan of Puccini, Verdi, Bizet, and of Weber musical shows. Prof Ah-Chuen is also a great supporter of renewable energy (vital to Mauritius as a small island developing state) and is desperate for urgent action by superpowers to reduce drastically their CO2 emissions causing climate change and the consequent natural catastrophes that may befall the planet. i 109

> STANLIB:

African Ambitions Pan-African asset management firm STANLIB has been part of Africa’s emergence as a continent of opportunity. Its investment experts work across Africa, seeking out the best opportunities to best meet customer needs.

TANLIB’s deep understanding of the complexity and nuances of operating in Africa has positioned it as the asset manager of choice for flows destined for Africa, under the guidance of Chief Executive Officer Seelan Gobalsamy. A Pan-African multi-specialist investment company, STANLIB manages funds of $39,5 billion for over 500,000 retail and institutional customers through its diverse investment capabilities, including active and passive portfolios, multi-manager, alternatives, and property. LEADING IN AFRICA The company has on-the-ground operations in ten African countries – Ghana, Kenya, Uganda, South Sudan, Tanzania, Botswana, Swaziland, Lesotho, Namibia, and South Africa. STANLIB is owned by Liberty Holdings Limited and a subsidiary of the Standard Bank Group, the largest banking group in Africa. “This opens doors to more than twenty of the most dynamic economies across the continent,” says Mr Gobalsamy. STANLIB was the first asset manager to set up shop in Uganda, and the first to list a real estate investment trust in East Africa when it listed the STANLIB Fahari I-REIT on the Nairobi Securities Exchange last year. “There are many opportunities in Africa. The continent is starting to grow meaningfully,” Mr Gobalsamy says, “but you have to take a long term view to achieve results.” Key to getting it right has been local knowledge. “People on the ground matter,” Mr Gobalsamy points out. “You can look at reports and research, but until you work in a country you don’t fully understand the market. I believe that being physically present in Africa is our competitive advantage to uncovering compelling investment opportunities in growth markets.” CEO: Seelan Gobalsamy

AFRICA IS 54 COUNTRIES Local knowledge tells you many things: for investors interested in the continent, one of the most important lessons to learn is that Africa comprises 54 individual countries with their own unique markets, opportunities, and challenges. 110

A recent report from McKinsey Global Institute confirms this. The Lions on the Move II report found “stark divergence” in African economies, with growth having slowed among oil exporters and North African countries, while the rest CFI.co | Capital Finance International

of Africa has posted accelerating growth at a healthy average of 4.4% from 2010 to 2015. Investing in Africa is not just a resource story: only 30% of revenues are earned by companies

Autumn 2016 Issue

“STANLIB manages funds of $39,5 billion for over 500,000 retail and institutional customers through its diverse investment capabilities, including active and passive portfolios, multi-manager, alternatives, and property.” broad-based infrastructure. Investments include wind and solar farms generating much needed electricity. SOUTH SUDAN

GHANA

UGANDA KENYA TANZANIA

The increasing urbanisation across the continent has created demand for quality real estate developments. The STANLIB Africa Direct Property Development Fund focused primarily on investing in retail type developments in carefully chosen economically growing nodes in subSaharan Africa with a focus primarily on Nigeria and Ghana in West Africa and Kenya and Uganda in East Africa. “We are not an asset manager that pursues returns ‘at-all–costs.’ Instead, we want our investments to make a difference to our investors and in the communities where we invest,” says Mr Gobalsamy. “When you consider the benefits these investments can bring to a community, you really start to see how much of an impact an asset manager can have.”

NAMIBIA

BOTSWANA SWAZILAND

SOUTH AFRICA

LESOTHO

STANLIB’S Pan-Africa on the ground operations.

operating in this sector. Pointing to “robust long-term economic fundamentals” in Africa, McKinsey estimates $5.6 trillion in business opportunities in Africa by 2025. In East Africa, for example, the manufacturing sector has been rapidly developing. Understanding each country and market on the continent allows for the identification of good investment opportunities. LISTED AND UNLISTED STANLIB’s investment solutions in Africa include listed equity, property, and fixed income investments, and private equity, often the preferred route for flows due to the lack of depth and liquidity in African stock markets. “Private equity is an ideal vehicle to access investment opportunities across Africa,” says Mr Gobalsamy. STANLIB partnered with the founders of Agri-Vie Investment Fund, a pan-African private equity fund focused on the food and agribusiness sector, to form EXEO Capital in March 2016. A hands-on private equity manager, EXEO Capital provides equity capital and strategic development

support, and has a say in governance with a seat on the board of the companies it invests in. The focus is on medium-sized companies, where opportunities are plentiful, if you know the market well. EXEO Capital manages the Agrie-Vie Funds I and II, whose investments include stakes in Ethiopian company africaJUICE, a grower and processor of tropical fruit juice mainly for export markets in Europe and the Middle East, and the Kariki Group, a Kenyan specialist flower grower and exporter whose blooms are sold internationally and to several FMCG companies in South Africa. MEANINGFUL INVESTMENTS, MEANINGFUL RETURNS One of the hallmarks of many of STANLIB’s investments in the continent is the benefit it brings to local communities. As Africa develops the need for infrastructure is growing. The African Development Bank estimates that 645 million people on the continent don’t have access to electricity. STANLIB will soon close a $100 million infrastructure fund with a focus on sustainable CFI.co | Capital Finance International

Investments may have a big impact, but they still need to offer investors good returns. “We have a huge responsibility to our customers who rely on us to deliver meaningful investment returns,” says Mr Gobalsamy. “This is the first thing we think about, and what drives us every day. Many of our retail customers are ultimately looking to achieve financial freedom. Once they have achieved this, we know we have made a significant difference in their lives. Our institutional clients need to achieve specific investment objectives and we work with them to ensure success,” Mr Gobalsamy points out. STANLIB’s multi-specialist approach to investing enables its investment experts to develop deep insights across markets, industries and asset classes. “A ratings downgrade in Brazil, a referendum in the UK, or an election in the US may have a sudden critical impact in different ways across the globe since our world is completely interconnected,” observes Mr Gobalsamy. “STANLIB is structured in a way that allows our fund managers to make the connections between many seemingly unconnected factors, and this helps them make better decisions on behalf of our customers.” As economies in Africa grow, opportunities increase. A vibrant continent is reflected in a vibrant asset manager whose feet on the ground give its customers the opportunity of long term investment success, and African growth. i 111

> Finbond:

A Mutual Bank to Empower Depositors

mutual bank - or mutual savings bank â&#x20AC;&#x201C; is a bank which that operates on a mutual bank model, with the specific goal of encouraging savings and providing benefits to depositors. When someone deposits funds in a mutual bank, he or she essentially buys an ownership stake in that 112

bank and is entitled to vote at shareholder and member meetings. A mutual savings bank is set up specifically to be operated for the benefit of the depositors. The purpose of the mutual bank is to stimulate savings by creating a safe place to deposit CFI.co | Capital Finance International

money and to offer benefits such as interest on deposits and dividends on mutual bank shares, and to invest conservatively for the purpose of generating profits. The institution most frequently identified as the first modern mutual savings bank was the

Autumn 2016 Issue

Savings and Friendly Society organised by the Reverend Henry Duncan (1774-1846), the local minister in Ruthwell, Scotland, in 1810.

listed on the Johannesburg Stock Exchange in 2007, and received its mutual banking license from the South African Reserve Bank in 2012.

Rev Duncan established the mutual bank in order to encourage his working class congregation to develop thrift. These first mutual savings banks were designed to uplift the poor and working classes and to teach low income individuals the virtues of thrift, and selfreliance, by encouraging them to save and thus allow them the security of enjoying access to money in case of unforeseen need.

Finbond’s management team has a long and successful track record within the banking, micro finance, and financial services sectors. This, combined with well-developed systems, unique branded product offerings, advanced information technology, and a well-trained staff compliment, provide Finbond with a sound platform for future growth.

Mutual banks have historically been characteristically conservative in their approach. This conservatism is what allowed mutual savings banks to remain stable throughout the turbulent period of the Great Depression, despite the failing of some commercial banks. Because mutual savings banks are run very conservatively, they tend to be insulated from some of the volatility of the market. Unlike other banks, they weather financial crises much better, and may continue to return a profit when other institutions are failing. Some of the first mutual savings banks still operate today, and numerous others have been established since. Finbond Mutual Bank is a leading South African financial services institution that specialises in the design and delivery of unique value- and solution-based savings, credit, and insurance solutions tailored around depositor and borrower requirements rather than institutionalised policies and practices. Finbond conducts its business through Finbond Mutual Bank’s two divisions focussed on: • Investment and savings products; and • Micro-credit products. Investment and savings products, which feature a superior, above average, rate of return are offered nationally to investors and pensioners looking for guaranteed higher fixed income in the current environment of depressed yields. Finbond’s strategy is to stimulate savings through offering superior investment and savings solutions by providing client shareholders with better interest rates, better products, and better service. All investment and savings products are marketed nationally in print and radio media, and are available nationally through Finbond Mutual Bank’s head office call centre in Pretoria.

“Finbond exists to improve and transform the lives and livelihoods of our clients by availing them modern inclusive banking products and services that benefit and empower them.”

Micro-credit products are offered nationally to the under-banked and underserved market of more than 40% of the adult population in South Africa actively seeking credit solutions but remaining largely unattended and underserviced due to the traditional banks’ concentration on the higher income brackets of the population. The Finbond Micro Credit Division operates nationally through 378 branches in South Africa and has 1,200 employees. Finbond commenced trading in 2003, was CFI.co | Capital Finance International

FINBOND VISION Finbond aims to be the leading mutual and savings bank in South Africa, improving the quality of life of their clients through their participation in saving together, growing together, and ownership of their community bank. FINBOND MISSION AND PURPOSE Finbond aims to consistently satisfy the needs of our target market by offering innovative superior, inclusive investment, savings and credit solutions, and better service that add value to their clients’ lives by empowering them and contributing towards their financial growth, independence, and freedom. Finbond exists to improve and transform the lives and livelihoods of their clients by availing them modern inclusive banking products and services that benefit and empower them. BELIEFS • Finbond believes in challenging the status quo where large corporate banks have lost touch with what their clients really need. • Finbond believes that a bank should be owned by and managed exclusively for the benefit and in the best interest of its depositors and that all depositors should have an ownership stake in their own bank, with the ability to vote at shareholders’ meetings. • Finbond believes that banking products and services should improve the quality of life of their clients and add real value to their lives and livelihood. • Finbond believes in savings and credit solutions tailored around depositor and borrower requirements rather than out-dated institutionalised policies and practices. • Finbond believes that savings should be encouraged through offering superior, highyield investment and saving solutions. CORE VALUES • Integrity: To maintain social and ethical norms in all activities. • Human Dignity: To at all time treat people with respect and consideration for their unique needs, feelings and opinions. • Excellence: To be excellent in everything at all levels at all times. • Accountability: To accept responsibility for the work delegated and execute it with excellence. i 113

> TNM:

Connecting Malawi Telekom Networks Malawi (TNM) prides itself as a truly Malawian ICT company committed to maintaining a sustainable and profitable business by continuing to invest in an infrastructure platform that in turn is expected to spur economic growth for building a great nation.

ased in Blantyre, Malawi’s finance and commercial hub, and established in 1995, TNM is a wholly Malawi-owned company, listed on the country’s stock exchange. TNM has enabled people and businesses to realise their full potential over the last twenty years and, in the process, contributed towards the growth and development of the Malawi economy. TNM has been a pioneer of many services in Malawi and became the first mobile operator in the country to launch 3.5G mobile broadband services offering cutting-edge services such as video calls, video and music streaming, and high speed wireless Internet access, amongst others. TNM recently pioneered the rollout of a 4G/LTE network coverage to offer Malawians the best Internet speeds ever experienced in the country. TNM’s network covers over 85% of Malawi’s population.

“Service revenue grew 34% during the first six months of 2016 thanks, in part, to an increase in the subscriber base of 22% in 2015.” interested in efficient high speed Internet is glad to be on the TNM network because LTE gives the kind of access many had been waiting for. TNM has moved into an era of expertise where all its subscribers now have the ability to do more with data than ever imagined. This is the kind of experience that high-end consumers including

government, private sector and NGOs were craving for and may now enjoy. Adding to this technological leap, TNM has also spared no effort at streamlining its interaction with customers, simplifying procedures, and eliminating bureaucracy in a successful attempt to better engage with network users and improve their overall experience. TNM believes in changing lives, creating possibilities, and connecting people. The recent investment in a new network platform provides the company with an unparalleled capacity to offer top-end data transmission speeds and costfriendly Internet connectivity. This has enabled users to access high-definition multimedia content.

Through the mobile money service Mpamba, TNM affords its subscribers convenient access to various financial services such as receiving or sending money and processing bill payment, amongst others, via their mobile money wallets. The current (2016) TNM subscriber base stands at around 3.2 million. Service revenue grew 34% during the first six months of 2016 thanks, in part, to an increase in the subscriber base of 22% in 2015. This growth was driven by network expansion and a number of improvement projects. 4G One such project is the recent switching to a new network backbone: the fourth generation Long-Term Evolution (LTE) platform, or simply the 4G network. This platform is the first of its kind in Malawi. Thus, TNM customers became the first ones to benefit from the efficiency and convenience that 4G offers. The new platform has been switched on to support products and services that require high-speed mobile connectivity. Anyone who is 114

A TNM brand ambassador (L) briefs a subscriber about a new investment product.

CFI.co | Capital Finance International

Autumn 2016 Issue

CSR Initiatives

The 4G-LTE platform encompasses all Internetrelated accessories such as net surfing, video conferencing, and social networking. With it comes the opportunity of using the Internet to any extent as it is fast and controls the congestion that would otherwise lower production and work in corporate markets. Today, there are more than 3 billion people online worldwide. Mobile access to the Internet will play a critical role in bringing the next billion people online and in connecting the world to unlimited opportunities. With this in mind, TNM invested in the 4G-LTE network in order to remain relevant to the needs of Malawians and move the country along with the rest of the developed world. The technology will be used to launch cuttingedge technological products, positioning TNM as a leading information and communications technology (ICT) company that offers services well beyond traditional GSM mobile telephony. These services include, but are not limited to, video conferencing and call centre operations. Its comprehensive palette of products and services has ensured that TNM continues to be relevant to its subscribers by offering tailor made products and services.

GETTING CLOSER TO THE SUBSCRIBER TNM’s efforts in network coverage expansion and upgrade were supported by improved customer services that aims to bring products and services closer to subscribers. TNM accordingly increased its shop network to 24 outlets nationwide. The new branches provide more space and therefore increase customer care touch points. They are fully branded with the TNM thematic campaign – It Feels Great – to give the customer improved ambience. TNM is striving to improve the customer experience through the provision of a customer-friendly and centric environment and by lowering the access threshold to services. One of the recent additions to its branch network is the state-of-the-art Hi-Tech Shop at Gateway Mall in Lilongwe. The Hi-Tech Shop offers an experiential platform to showcase the latest communications devices and services available through the TNM network. GOING GREEN Cognizant of climate change, TNM has introduced solar powered base transmission stations (BTSs) in areas without hydro power. Previously, all BTSs without connection to the national grid were running on generators around the clock. With solar power, communities are now spared generator CFI.co | Capital Finance International

noise and fumes. Carbon emissions have been reduced significantly. GIVING BACK TO THE COMMUNITY As a local company, TNM believes in giving back to the community in which it operates. The company’s investments focus on five key areas: education, environmental management, health, disaster response, and care for the underprivileged. Under education the emphasis is on improving the learning environment and literacy and numerical skills. In health, the investment targets mainly maternal and child health improvements. Apart from the traditional projects which the company supports, a special CSR initiative was implemented to celebrate with Malawians as the country commemorated fifty years of independence. Fifty TNM customers won a total of K100 million and each of the winners was required to choose a social responsibility project of choice worth K2 million. The promotion created huge excitement as individuals were given the opportunity to make a difference in their communities through TNM. MANAGEMENT Douglas Stevenson is the current chief executive officer of TNM and leads a strong nine-member executive team. 115

CEO: Douglas Stevenson

An accomplished executive manager offers eighteen yearsâ&#x20AC;&#x2122; continued and combined experience with documented success in the areas of planning, executing, and negotiating at various organisational levels, Mr Stevenson is well versed in strategic leadership management. He has the ability to sell new strategies and methodologies to all levels in the business; to identify new solutions, directions, and disseminate actionable knowledge at group level. 116

A motivational and inspiring leader who sets high standards of performance for himself and others, Mr Stevenson is proficient in a variety of challenging functions with demonstrable ability to streamline business outcomes: design, execution, and control of strategies, vision, systems and policies, stakeholder relations, organisational transformation at board level, operational and business management, finance management, business analysis and optimisation, leadership team management, guidance, mentoring, and skills development. CFI.co | Capital Finance International

Dedicated to shareholder value model by incorporating people, processes, and strategies to consistently achieve top honours for generating revenue that exceeds margins, yearon-year. As part of former career highlights, Mr Stevenson played an instrumental role as part of the team responsible for the project finance deal for Vodacom Tanzania. This effort was acknowledged with the deal of the year award in the telecoms sector through Standard Bank of London in 2002. i

STANLIB is an authorised financial services provider.

Autumn 2016 Issue

The world’s African investment specialists. STANLIB is proud to have been named winner of the Best African Investment Management Team. As Africa’s largest asset manager, STANLIB has been recognised for its specialist investment expertise by Capital Finance International for 2016. Our group is on the ground in 21 African countries, giving STANLIB’s multi-specialist investment teams access to the most dynamic opportunities across the continent.

To contact us, email invest@stanlib.com or call our global distribution team on +27 11 448 5000.

CFI.co | Capital Finance International

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> Orbit Securities:

Leading Brokerage in Tanzania

rbit is a leading stock broker-dealer and a member of the Dar es Salaam Stock Exchange (DSE). The firm is consistently commanding the majority market share in equities, trading for more than ten consecutive years. The most recent statistics (January to June 2016) show Orbit’s market share at 76% in the equities market and 40% on fixed income securities (treasury securities and corporate bonds). The company started in the securities business in 1998 along with the opening of the Dar es Salaam Stock Exchange in April of that year. To maintain its privileged market position, Orbit renders a

118

host of financial services to its clients through a highly professional and dedicated team. Services include: • Stock brokerage/dealership: Orbit executes transactions (relating to the buying and selling of shares) on the DSE on behalf of both local and foreign clients – such as its US clients in Washington and New York – and on their own account to provide liquidity to the market. • Primary dealership in government securities: Orbit submits bids to the Central Bank of Tanzania on behalf of investors and facilitates purchase of government securities. The firm also handles secondary market transactions involving government securities. CFI.co | Capital Finance International

• Investment advisor: Orbit provides advice to clients on overall investment planning as well as in specific areas such as security selection, portfolio diversification, risk management, and on the timing of transactions. • Sponsoring broker: Orbit facilitates the listing and/or cross-listing of securities on the DSE which includes preparation and filing of listing applications with DSE and the Capital Markets & Securities Authority (CMSA), and managing the relation between issuers – regulators to ensure receipt of public offers and listing approvals. • Corporate finance consultants: The Orbit team is well equipped to guide clients seeking to raise funds from the market, be it through a public

Autumn 2016 Issue

offer or private placement. This also involves preparation of the necessary documentation such as prospectus, information memorandum, and meeting the requirements of regulators and potential investors. • Resource mobilisation: Its wide international network enables Orbit to mobilise funds from domestic and international markets on behalf of clients. • Custodial services: Orbit provides custodial services to foreign clients seeking to invest in the Tanzania equity market, facilitating fund transfers, dividend payment remittance, and re-investment. • Fund management services: Orbit is licensed as a fund manager by the Capital Markets & Securities Authority as well as by the Social Security Regulatory Authority. • Consultancy & Advisory Division: Orbit provides varied services to clients ranging from preparing funding proposals, arranging funds, designing financial products, preparation of investment policy, business plans, and operational manuals, amongst others. INTERNATIONAL CLIENT BASE Besides having a strong foothold in its domestic market – serving a growing number of retail, corporate, and institutional clients – Orbit has an international client base that covers the US (Washington and New York) and the United Kingdom (London). At continental level Orbit is well connected to leading financial services providers in Kenya, Uganda, Rwanda, South Africa, and Ghana. VISION, MISSION, AND SERVICE Orbit’s vision is to become a market leader in Tanzania and the most respected stockbrokerage firm in East Africa. The company’s mission is to keep abreast of the region’s economic environment and dedicate significant resources to the building of technical capacity, meet customer needs, remain in the profitability zone, and compete professionally with other players in the market. Orbit strives to give its clients value for their investment by conducting in-depth research on various sectors of the economy and by keeping pace with technological innovation and upgrading. Client satisfaction – and consistently exceeding expectations – is the company’s overriding priority.

“Orbit has an international client base that covers the US (Washington and New York) and the United Kingdom (London). At continental level Orbit is well connected to leading financial services providers in Kenya, Uganda, Rwanda, South Africa, and Ghana.” CFI.co | Capital Finance International

SUCCESS Key pillars that support Orbit’s ongoing success are built around the following corporate values: • Excellence and commitment in customer care • Human resource development and talent management • Embracing technological innovation • Adherence to corporate governance principals and team work • Beating competition by staying focused on the market dynamics and “keeping our eye on the ball” From an organisational perspective, at Orbit every member – from the boardroom to front office via the back office – all is Customer Care Service. i 119

Your Bank in Angola. More than 180 Branches More than 1,4 million Clients Province of

Cabinda (7 Branches)

Luanda (116 Branches)

Soyo

Cacuaco

Uíge (2 Branches)

City of Luanda

Dundo

Negage

N’zage

Caxito Province of Luanda Viana

Catete

Belas

Lucapa N’dalatando

Porto Amboim

Dondo

Saurimo (2 Branches)

Malanje

Waku-Kungo Luena

Bailundo Kuito Lobito Huambo (11 Branches) (4 Branches) Ganda Caála Cubal Caconda

Lubango (8 Branches) Namibe

Calulo

Gabela

Sumbe

Catumbela Benguela (6 Branches)

Cacuso

Menongue

Matala Chibia

Tômbua Ondjiva

Santa Clara (2 Branches)

BFA is growing with Angola. With 16 Corporate Centres, 9 Investment Centres and 165 Agencies across the country, it now serves more than 1,4 million Clients. With a competitive and wide range of financial services available and a commercial network that reaches almost every part of the country, BFA is growing to meet all its Clients’ needs wherever they are and wherever they need to be. For further information on how to start or strengthen your business relations with Angola, visit any BFA Agency, Corporate Centre, Investment Centre or go to www.bfa.ao

Autumn 2016 Issue

> CFI.co Meets the CEO of Zena Exotic Fruits:

Randa Filfili

ena Exotic Fruits is more than just another packaging plant. “Whilst we of course pursue profit and market share, we also care for all our stakeholders,” says Randa Filfili who took over management of the family business in 2004. Mrs Filfili transformed the company into one of Senegal’s leading producers and exporters of processed fruits and vegetables. She expanded the product range, brokered deals with farmers, and increased plant capacity. Upon taking charge, Mrs Filfili decided to change the corporate mission at Zena Exotic Fruit in order to include environmental, social, and governance (ESG) parameters long before those became fashionable. “I considered that a more social approach to our operations would prove beneficial to all stakeholders and put the business on a more sustainable footing, thus ensuring long-term profitability and underpinning future growth.” The company has forged a solid relationship with growers, providing small-scale producers with schooling, healthcare, tools, and high quality seed and saplings in order to move rural communities away from subsistence farming. “The results of this approach are very promising. Farmers tell us that for the first time ever, they are able to make their crops pay and provide a decent standard of living. This way, we can lift entire communities out of poverty.” Mrs Filfili aims for a significant social impact that stretches beyond the usual requirements of fair trade: “Though we are still quite small, Zena Exotic Fruits has both a special corporate history and future. We want to help transform Senegalese society by offering people an opportunity to partake in our future. To that end, the company aims to build schools and health clinics in marginalised poor areas of the country. We also help women start their own businesses by facilitating access to knowledge and providing services that lessen the burdens of motherhood and domestic chores.” Broaching new markets in Europe and North America, Zena Exotic Fruits fully complies with global quality control and assurance standards. Its labour practices are widely recognised as exemplary: around 90% of the company’s employees are women. Zena Exotic Fruits has adapted its work floor procedures and practices in order to welcome eleven hearing-impaired workers. By actively seeking new markets, the Dakar-based facility is able to create new jobs and engage with more farmers. “With the introduction of new products such as

CEO: Randa Filfili

Madd Preserves and Cashew Apple Butter, we are purchasing fruits that once spoiled in Senegal due to lack of rural infrastructure. Sales of these products, which can now be enjoyed all year, increase farmers’ revenues and rural incomes. Moreover, the majority of our exotic foods are all-natural, which is good for health and the environment. We also purchase wild harvested fruits which helps villagers’ efforts at the conservation of forests and CFI.co | Capital Finance International

natural wildlife habitats.” According to Mrs Filfili, Zena Exotic Fruits is now well on its way to become a trendsetting multinational: “We aim high. There remains a lot to be done in Senegal and as a good corporate citizen, Zena Exotic Fruits wants to help push national development while safeguarding the interests of all stakeholders. i 121

> PwC:

Off-Grid Power and Universal Access to Electricity By Michal Kotzé

Energy transformation means the time is right for policymakers to revisit their approach to energy access. Technological advances are significantly changing the options available beyond the grid. For the millions of people who currently do not have access to electricity, the old assumption that they will have to wait for grid extensions is being turned on its head by new technological possibilities.

ost national energy policies have been built on the assumption that large-scale generation and centralised grid systems are the principal means for developing access to electricity. The result has been a tendency towards an all-or-nothing approach. People within the reach of the grid get electricity, subject to the reliability of the system. Those out of reach are relatively neglected, with the exception of piecemeal development of local mini-grids. Consequently, 1.2 billion people in the world remain without electricity, 95% of them in Sub-Saharan Africa and developing countries in Asia. On current trends, two-thirds of the world’s

“Policymakers need to embrace the new renewable off-grid technologies and innovative business models.” population will remain without electricity by 2030, which is the target year to achieve the newly agreed post-2015 UN Sustainable Development Goal of universal access to energy. A new approach is needed that better recognises the part that off-

grid technology can play, according to a recent report published by PwC - Electricity Beyond the Grid: Accelerating Access to Sustainable Power for All. PwC spoke to sixteen movers and shakers involved in off-grid electrification projects in Africa and Asia to gain their point of view on the factors influencing the developing of this solution to energy access. Interview participants included developers, technology providers, policy experts, and government officials. Current electrification strategies tend to focus on national grid extension plans. Policymakers need to embrace the new renewable off-grid technologies and innovative business models. The combination of centralised top-down grid extension with decentralised demand-driven

Access to electricity (% of population) 0-10 11-20 21-30 31-40 41-50

51-60 61-70 71-80 81-90 90-100

More than half of the people without electricity access globally live in Sub-Saharan Africa. Source: World Bank, Access Database 2014.

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CFI.co | Capital Finance International

Autumn 2016 Issue

More than 4,4 Mio solar lighting systems were sold between 2009 2012

In Senegal

mini-grids are

in operation

M-KOPA was able to sell more than

300,000 in

In Mali

200

the last 4 years

mini-grids

were in operation by 2012, thereof 60 by private operators Mini-grid and standalone solutions have achieved different market success and penetration so far.

bottom-up strategies, in the form of mini-grids and especially standalone solutions, will speed up Electricity beyond the grid the increase in electrification levels. PwC MAJOR TRANSFORMATION The report foresees a major transformation of the electricity sector in the period ahead. All-ornothing approaches that focus primarily on the national grid are increasingly out of step to what is now possible in power technology. A number of technological advances are set to play an important role in this sector. Off-grid electrification is not new. It takes two main forms â&#x20AC;&#x201C; standalone home energy systems and mini-grids. Although the latter have been used for electrifying rural villages for more than two decades, it is standalone systems that are more common. Diesel or gasoline fuelled mini-grid and standalone off-grid generation systems are well established in many countries. Many small islands, for example in Indonesia, the Philippines, and China, rely on diesel generation for electricity. In Africa, Mali has had probably more success than any other African country in the development of isolated mini-grids, with more than 200 mostly small diesel mini-grids in operation. Increasingly, these diesel installations are being supplemented with renewable technologies to create hybrid minigrids. The important role the off-grid solutions can play is recognised by the power utilities industry in Africa. In our 2015 survey of leading executives and companies in the sector throughout the continent, 70% of survey respondents believe there is a medium to high probability that advances and cost reductions in green renewable and off-grid technology will deliver an exponential increase in rural electrification levels by 2025.

The prospect of future mini-grids and standalone generation being an important feature of the African power mix, alongside centralised generation, is an energy market vision that is viewed as highly likely by 83% of survey participants. But a number of barriers remain. There are clear constraints to higher levels of rollout of mini-grids and off-grid systems. These include a shortage of proven business models, adequate and appropriate forms of financing, established supply chains, and implementation capacity.

utility-generated power. Grid expansion is not scheduled to reach these homes for at least three May 2016 to five years. 2

GROWTH SPURT Falling solar technology costs have also spurred the growth of standalone home systems and are changing the economics of mini-grid systems. New business models are emerging to support this development. A number of solar developers are offering small basic home solar systems, sufficient for LED lighting and device charging, on tariff terms that allow subscribers to keep the equipment once the contract term has expired.

According to the report, the standalone home systems market is expected to continue to expand significantly, driven by four key factors â&#x20AC;&#x201C; technology, policy, mobile infrastructure, and funding.

The International Renewable Energy Agency reports that there are more than six million pico and solar home systems (SHS) in operation worldwide, of which three million are installed in Bangladesh. The size of systems varies, from basic pico lighting systems to solar home system installations that can power devices such as phone charging systems, televisions, fans, and fridges. Currently, off-grid solar home systems are being installed in over 1,700 rural households in the Eastern Cape Region of South Africa. Payment for the solar electrification project comes from a government-funded electricity grant previously earmarked to assist home owners in paying for CFI.co | Capital Finance International

The spread of customer-financing businesses models such as pay-as-you-go for solar home systems in Africa has caught the imagination. Companies such as M-Kopa and Mobisol have been in the forefront, using payment systems such as M-PESA and Airtel MTN. This combination of solar and mobile technology is bringing affordable solar technologies to off-grid villages.

NEW ERA In addition, battery storage technology is fast evolving to the point where it is going to play a significant role in utility-scale solar power storage and is beginning to feature in smaller-scale offgrid solutions. Together with access to mobile technology and mobile payment systems for microloans, a new era has arrived for beyond the grid electrification. PwC expects a broad transformation in the electricity sector in the coming years, both for gridconnected and beyond the grid customers. This will have a major impact on the future sustainability of incumbent generation, transmission, and distribution utilities and these companies will need to adapt their business models accordingly. The PwC report sets out five recommendations for accelerating the increase of electrification: 1. Develop an integrated energy access plan and map â&#x20AC;&#x201C; so that everyone can plan with more 123

Compared to standalone solutions, the development of mini-grids is more complex. Specific challenges: Upfront investment, Safety, Policy framework / Regulations / Compliance requirements, Grid connection timelines, Maintenance & Operations.

certainty for either off-grid or grid extension solutions. 2. Create an enabling environment for off-grid development – including clearer criteria for minigrid development, support for skills and training, and more supportive regulation to allow private players to unlock the off-grid market potential. 3. Recognise the value of and promote the growth of mobile infrastructure, microloans, and payment solutions in supporting energy access – mobile infrastructure is proving crucial in the take-up of standalone home systems, giving providers a lowcost channel for customer relations and an ability to automatically manage non-payment. 4. Establish an off-grid innovation and development fund – a highly visible development and innovation fund can play an important part in spurring off-grid growth in each country. 5. Have a high-level energy access champion that can drive results – to cut through bottlenecks and monitor results. Based on the technological advances in offgrid systems and battery storage, a decrease in their prices and an increase in energy-efficient appliances, it is expected that there will also be a real future threat for the current established integrated power utilities, especially the ones without a reliable supply of electricity. Accordingly, they will need to adapt their business models or due to an increase in embedded generation and subsequent customers going off-grid, they will face a major challenge ahead in their future sustainability. i ABOUT THE AUTHOR Michal Kotzé, PwC Africa Energy Utilities & Mining leader, has significant experience working with mining companies operating in Africa. His work as lead engagement partner on numerous listedclient assignments and his more than eighteen years’ experience in working on multinational company audits of both JSE and dual-listed companies make him the ideal expert to share some valuable lessons learned. Some of Mr Kotzé’s current clients include Exxaro Resources Limited, Kumba Resources Limited, Acacia Mining and Ivanhoe Mines. 124

Author: Michal Kotzé

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> South Africa:

Shattered Hopes and Dreams By

outh Africa has long been the wealthiest state in Sub-Saharan Africa. Its mineral wealth, modern infrastructure, and strategic location on the Cape sea route give it many advantages. South Africa is also the nation that puts the S in BRICS. It should be one of the emerging potential global 126

economic powerhouses. However, it has recently been overtaken by Nigeria as the regionâ&#x20AC;&#x2122;s largest economy and is now in the throes of an increasing number of political and economic struggles. All is not well in the Rainbow Nation. The economy is currently growing at rate of less than CFI.co | Capital Finance International

1.5% annually. In December 2015, the country took a major blow when both Moodyâ&#x20AC;&#x2122;s and Standard & Poor downgraded its rating outlook from stable to negative while Fitch marked it down to BBB-, just one precarious notch above junk status. However, South Africa ranks high on the Ibrahim

Autumn 2016 Issue

president. He denied them all and the charges were dropped. In December 2015, President Zuma’s increasingly erratic decision-making saw him fire and hire three finance ministers in the space of a single week. As a result, billions of dollars were wiped off the country’s bond and equity markets. Life is increasingly hard for many South Africans. Rising food prices and a depreciating currency drive inflation. Moreover, the southern African region has been hit by a severe drought since early 2015. Farmers are battling the worst drought on record with crops failing and livestock perishing. Five of the country’s nine provinces have been declared drought disaster zones. Citizens across the country struggle to cope with intermittent supplies of electricity, water, and other basic services. Youth unemployment increased to a staggering 54%. South Africa has managed one non-violent change in government. In order to realise its potential, the country needs another one. President Zuma must retire in 2019 and currently his anointed heir looks set to be ex-wife Nkosazana Dlamini-Zuma whom he divorced nearly twenty years ago. He has been married six times and currently maintains four wives. If 2015 has been turbulent, 2016 turns out to be no less dramatic. In the municipal elections that took place between May to August, the ANC claimed 53.9% of the overall vote – its lowest level of support since 1994. The ruling party lost control of three major metropolitan areas including Johannesburg. Voters used the ballot to express their dissatisfaction with the government. The Economic Freedom Fighters received 8.2% of the vote, while the Democratic Alliance upped it share to almost 27%. The municipal wins have given the opposition access to a broad platform which they are expected to leverage in the run-up to the 2019 general election. The Future of Business in South Africa Project at Pretoria University reports that three broad shifts are required to realise the unfulfilled dreams: a comprehensive public policy and business strategy response; collaboration between the private and public sectors; and support of civil society. It adds that an approach characterised by collaboration, inclusive wealth creation, and efficiency requires a national discourse marked by optimism and partnership.

“Life is increasingly hard for many South Africans. Rising food prices and a depreciating currency drive inflation.”

African Index of Good Governance. The country’s lofty position is far from a given or safe. The current president, in power since 2009, is dogged by accusations of cronyism and corruption. Jacob Zuma, a controversial ex-guerilla leader, already faced 783 charges of corruption, fraud, moneylaundering, and tax evasion before he became CFI.co | Capital Finance International

Marius Oosthuizen, programme manager of the project, says, “We need to find a way for business and government to enter into a new collaborative partnership that would allow South Africa to be competitive. We need to find a middle way that is not solely about politics or profit, but takes cognisance of social needs and goals.” i 127

> Middle East:

Jordan - Powered by Refugees and Enlightenment By Tony Lennox

The eccentric zig-zag border of the Kingdom of Jordan is said to be the result of Winston Churchill’s careless pen, following a heavy lunch in Cairo in 1921. “Winston’s hiccup” occurred, they say, as the then Secretary of State for the Colonies sketched the map of the new Middle East, carving up the old Ottoman Empire into modern states.

Amman: King Abdullah II of Jordan

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hile the tale is apocryphal, there seems little logic in the great Jordanian wedge which pushes east into the scorched desert, bordering Syria, Iraq, and Saudi Arabia. But frontiers in the Middle East have taken on a greater significance – politically, economically, and socially – since Churchill sketched his map. Exactly one hundred years ago the Arab population of the Ottoman Empire rose up in revolt, opening a turbulent century of change which saw the rise of new desert kingdoms, the creation of the state of Israel, and the discovery of huge oil reserves upon which the world would come to rely. The land which is now the Hashemite Kingdom of Jordan was once peopled by wandering tribesmen. Today, fewer than 6% of a population of 9.5 million call themselves nomads. Jordan, despite its geographical position at the hub of a maelstrom of strife, has emerged as one of the most stable states in the whole region. Ruled since its creation, under a British mandate, by the Hashemites – who claim direct descent from the prophet Mohammed – Jordan has been independent since 1946. One of its first acts was to annexe the West Bank territory, leading inevitably to war with Israel. Although an official state of war existed between Jordan and its neighbour from 1948 to 1994, the relationship between the two countries has been remarkably pragmatic. After the Six Day War in 1967, when Jordan allied itself to Nasser’s Egypt, and subsequently lost control of the West Bank, the two countries continued a clandestine association. In 1994, Jordan and Israel signed an historic peace agreement. Jordan and Egypt remain the only two Arab states to have agreed such treaties with Israel. These days, Jordan benefits greatly from its trade with, and through, Israel – an example of the way the country treads a careful path through the troubles of the region. Its current ruler, King Abdullah II, is widely seen as one of the world’s most influential Muslims. He has close, personal links to Britain. His mother, Princess Muna al-Hussein, born plain Avril Gardiner in Suffolk, met Abdullah’s father, King Hussein, while working as a secretarial assistant on location during the making of the film Lawrence of Arabia in 1961 – the story of the Arab Revolt which led to the creation of modern Jordan. The young Prince Abdullah went to school in England and even served in the Royal Hussars after training at Sandhurst. SOCIAL TRANSITION He succeeded to the throne on the death of his father, King Hussein, in 1999, and has redoubled efforts to bring economic and social transition to his country, increasing foreign investment and encouraging trade. Many Jordanians have

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“After the Arab Spring revolts of 2011, King Abdullah II, like other Middle Eastern leaders, faced a challenge from the Muslim Brotherhood. However, he moved quickly to respond to demands for greater democracy, instituting limited elections.” embraced western culture and habits – bars and nightclubs which serve alcohol thrive in Amman. The country, in contrast to many of its Islamic neighbours, enjoys a cosmopolitan atmosphere. Jordan still is an Islamic society, but, in the eyes of the West, an enlightened one. For instance, King Hussein once said: “I am totally against the idea that a Muslim woman should not have the same opportunities as a Muslim man to learn, to open up, to work, help shape the future. To close Islam down to a sexist approach is totally intolerable and ridiculous. It’s not Islam.” After the Arab Spring revolts of 2011, King Abdullah II, like other Middle Eastern leaders, faced a challenge from the Muslim Brotherhood. However, he moved quickly to respond to demands for greater democracy, instituting limited elections. He has also eased restrictions on the press. The displays of violence in Syria, Iraq, and Egypt were a vivid warning. Five years of warfare in Syria had a major impact on Jordan which soaked up more than 600,000 Syrian refugees, putting severe pressure on resources – particularly already scarce water supplies in the east of the country. Even though the troubles in the region have seen some young Jordanians head to Syria to fight, the attraction of violent jihad is less of a fear in Jordan than in many of the adjoining countries. Christopher Dickey, a former Washington Post foreign correspondent and an expert on the region, describes Jordan as “just about the only Arab safe haven in a Middle Eastern storm”. Jordan’s GDP has expanded at a moderate pace over the last ten years despite the effects of the conflicts in Syria and Iraq and the large number of Syrian refugees arriving in the country. As evidence that the West sees Jordan as a bulwark against extremism, the country has received increased support from the international community, helping to steady its economy. In July this year, the World Bank approved a $1.4 billion six-year loan to the country. The IMF has indicated that it will approve a $700 million three-year credit line. The EU has also eased trade rules with Jordan, which will boost its exports. CFI.co | Capital Finance International

BOOST FROM REFUGEES Despite the effects of the influx of refugees, Jordan has a first-rate track record of accommodating migrants. Thousands of Palestinians, for instance, fled to Jordan after the Arab-Israeli wars of 1948 and 1967. Since then, their descendants have tended to prosper in Jordan and helped develop its entrepreneurial middle class. Thousands more Palestinians, expelled from Kuwait after the Gulf War were expected to be a huge burden on the country. In fact, according to Christopher Dickey, they helped transform the Jordanian capital Amman from “a dusty provincial backwater into something resembling a real metropolis”. World Bank figures showed Jordan’s GDP soared after each wave of refugees had been assimilated. The 1994 peace treaty with Israel also served to lift the barriers to new trade opportunities and encourage greater tourism – especially to places like Petra, and other archaeological gems. The Syrian crisis has badly disrupted Jordan’s tourist trade, but it remains a potential benefit to the future economy. Unlike many of its oil-rich neighbours, Jordan has little or no crude oil reserves. It imports 97% of its energy needs – a great frustration, as the country actually sits on huge oil-shale reserves, thought to be the fifth largest in the world. However, it is expensive and difficult to extract. Until recently, energy companies considered oil shale mining to be so intricate that it was simply uneconomic. Earlier this year Jordan began building a $2 billion oil shale-fuelled power station to help support its commendably diversified energy industry – which includes large scale wind farms and solar power sites. It is hoped that, as the technology advances, more oil shale will become extractable. Predictably, the finance for the project has come mainly from China. Jordan has an estimated 70 billion tonnes of oil shale. The country is also rich in uranium and is developing several nuclear energy power stations, though the industry’s extravagant use of precious water is seen as a major problem in a country with so little of the stuff. According to newspaper reports earlier this year, British special forces were operating in tandem with Jordanian troops in several theatres of war against ISIS, proving again that Jordan is playing a major role in the battle against Islamist extremism, not only in neighbouring Syria, but also in Libya and Somalia. TE Lawrence, who knew these desert lands so well, once wrote: “All the revision in the world will not save a bad first draft.” It may be argued that Churchill’s wonky first draft, whether caused by a boozy hiccup or not, created a country whose example could yet bring hope to an unhappy region. i

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> Emaar Economic City:

King Abdullah Economic City There has never been a better time to build a business in Saudi Arabia. But business success requires more than a market opportunity. It requires world class infrastructure and a partner that understands the needs of companies entering a new market. development, it is bringing new facilities online. Plans for the coming year include a bonded and re-export zone that will offer land and facilities for the storage of imported goods net of duty, streamlined import/export processes, and support services for logistics and supply chain companies and light manufacturers supplying the KSA, Africa, and Middle East markets.

in mind. At the heart of KAEC is the Industrial Valley, one of the region’s fastest growing manufacturing and logistics hubs. The Industrial Valley’s competitive position focuses on capturing latent demand within the Kingdom of Saudi Arabia in non-oil industries including pharmaceutical, automotive, building materials, FMCG, packaging and, of course, logistics.

A Logistics Park for warehousing and light manufacturing units is in the final stages of development, supporting quick and cost-effective set up for SMEs and logistics companies. Also under development is a Tier 4 Technology Park to provide infrastructure tailored to the needs of IT companies and a Gas Zone to supply natural gas feedstock.

For example, Saudi Arabia currently imports some 80% of its pharmaceuticals. The Saudi pharmaceutical market is worth an estimated $4.5 billion today and is expected to reach $6 billion by 2020. That is just one of the largely untapped market opportunities in the kingdom.

CEO, Industrial Valley, King Abdullah Economic City: Rayan Qutub

Covering an area of 55 km2 and situated adjacent to King Abdullah Port, one of the largest deep water ports on the Red Sea, the Industrial Valley has already attracted more than 120 local and international companies including global leaders like Pfizer, Sanofi, Mars, Ikea, Rosenbauer, Total, and Volvo.

As the Industrial Valley moves forward in its

growing range of family-friendly amenities from karting and golf to cycling paths, beachfront dining, and a premium health and fitness complex.

The unique KAEC lifestyle is a significant feature of the city’s overall value offer to international businesses. In addition to its picturesque location on the Red Sea coast, the city is home to topclass educational and healthcare facilities and a

HIJAZ GATE

SAABER VILLAGE

The growth of the Industrial Valley is supported by a wide range of government incentives, including loan financing, 100% foreign ownership for companies, government support for hiring and training local talent, and a single regulator, the Economic Cities Authority (ECA), to streamline the process of establishing operations in KAEC. Because it is integrated with the city, the Industrial Valley is able to offer investors a unique total package from land and utilities to residential properties and family support services for workers, employees, and executives.

In April 2016, the government of Saudi Arabia announced Vision 2030, a bold roadmap to take the country away from its reliance on oil. The Industrial Valley at King Abdullah Economic City is a clear demonstration that this is not only possible in Saudi Arabia, but also competitively viable. i

GAS ZONE

PHASE 4

BONDED AND RE-EXPORT ZONE

PHASE 2

TECHNOLOGY PARK

BOULEVARD

trategically positioned on the Red Sea coast of Saudi Arabia, King Abdullah Economic City (KAEC) is the largest city in the world (181km²) to be built entirely with private capital. A city built by business with the needs of business

QADIMA VILLAGE

PHASE 3

PHASE 1

CARGO RAIL STATION

PHASE 3

King Abdullah Port

COASTAL COMMUNITIES

Industrial Valley

Bay La Sun

Al Talah Gardens

Cargo Rail Station

Al Murooj

Al Shurooq

Haramain Railway Station

Al Waha

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SAME VALUES

NEW

DRIVE NADER JABER 132 WINNER OF THE 5K & 10K LEBANESE CHAMPIONSHIPS

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Autumn 2016 Issue

Saudi Arabia:

Tapping into Reserves By Penny Hitchin

The harsh reality facing the Kingdom of Saudi Arabia is that its economic model must change. The discovery of oil in 1932 transformed the country from a nation of dispersed tribes surviving on subsistence agriculture to one of the world’s twenty richest states. As the dominant oil producer and owner of the largest oil reserves, the peninsular kingdom amassed huge wealth from oil revenues. These financed a lavish lifestyle for the extended royal family and provided a welfare state for the population. Saudi Arabia has become a key regional power, punching significantly above its weight on the international stage.

he oil price boom from 2003 to 2013 led to rising prosperity. Saudi Arabia became the world’s 19th largest economy. GDP doubled, household incomes rose by 75%, and nearly two million jobs were created. The government invested heavily in education, health, and infrastructure all the while building up vast reserves. However, in the last 18 months as the price of oil slumped, revenues dropped sharply, forcing the kingdom to tap its financial reserves. The KSA is now running a rather largish budget deficit. To bridge the gap, the Saudi government is drawing on the national savings and borrowing money from banks. In 2015, it siphoned $100 billion from its reserves. There is some $630 billion left. In December 2015, the Saudi government announced its first-ever austerity budget: public spending is to be slashed as are subsidies on petrol, electricity, and drinking water. The cuts are expected to cost the average household an extra $140 a month. In February 2016, Standard & Poor’s downgraded Saudi Arabia’s credit ratings by two notches from A+ to A-. Oil revenues insulated Saudi Arabia from the

“At present Saudi’s economy is dominated by oil. Its challenge is to diversify and create new opportunities.” 2008 recession. However, changes in global energy markets mean that Saudi Arabia can no longer rely on oil revenue and public spending for growth. A recent report from McKinsey Global Institute warns that without a transformation of private sector growth through more foreign investment, greater local competition, and more efficient fiscal management, the country could face a 20% increase in unemployment and a drop in household income of nearly one quarter over the next decade. Currently, the region is an unstable cauldron of religious and political dissent. Saudi Arabia’s military intervention in Yemen drains its finances and makes the country unpopular with its CFI.co | Capital Finance International

western allies. Ruled by the House of Saud, its subjects lack civil and political freedom. Saudi Arabia did manage to avoid the political unrest that spread across the region five years ago in the Arab spring. However, if austerity bites too hard, the government may find it harder to control emotions. At present Saudi’s economy is dominated by oil. Its challenge is to diversify and create new opportunities. McKinsey picks out eight sectors—mining and metals, petrochemicals, manufacturing, retail and wholesale trade, tourism and hospitality, healthcare, finance, and construction— with the potential to generate growth. However, Saudi Arabia will need to adapt its current government-led economic model to a more market-based approach. Greater workforce participation by both Saudi men and women is essential to achieve higher household income. Faster productivity growth requires better business regulation and more openness to competition, trade, and investment. Improved spending efficiency and new revenue sources, including taxes and higher domestic energy prices, are probably necessary to ensure fiscal sustainability and thus institutional longevity. i 133

> Musharaka Capital:

Expertise in Saudi and GCC Equities

usharaka Capital is a leading Saudi investment firm founded in Al Khobar in 2013 as a joint-stock company with a diversified product offering and boasting a remarkable track record. Musharaka Capital has a strong and consistent ability to identify, and successfully bring to market and capitalise on, a wide range of solid investment opportunities in some of Saudi Arabia’s most dynamic sectors. This approach is empowered by the company’s investment insights and a strong commitment to increase the value of its assets and, thus, offer solid financial returns to both investors and shareholders. 148 134

Musharaka Capital is able to deal as principal, investment fund manager, advisor, and custodian of securities. The firm maintains a particular focus on the real estate sector. As such, it aims to be the asset manager of choice in this field through consistently meeting set objectives, minding the risk tolerance of both individual and corporate investors. Licensed by the Capital Market Authority (CMA), Musharaka Capital ensures that its diversified product offerings are Sharia-compliant, while also adhering to strict investment criteria and high standards of transparency. CFI.co | Capital Finance International

Musharaka is run by an experienced management team with a strong business network throughout Saudi Arabia and GCC (Gulf Cooperation Council). The firm has a vision to achieve excellence in asset management by offering attractive and innovative investment opportunities to its clients and obtain leadership in the management of real estate funds both locally and regionally. The company’s mission is to conduct its role as an investment manager with the highest standards of quality and transparency with an experienced team of professionals who are able to accomplish the company’s and clients’ investments objectives.

Autumn 2016 Issue

CEO: Mr Ibrahim Al-Assaf

ASSET & FUND MANAGEMENT Musharaka Capital is constantly on the lookout for unique investment opportunities. It simplifies the investment process for both individual and corporate investors, allowing them to participate in lucrative opportunities in an easy and transparent way. The firm follows thorough analyses and processes, selecting investments based on strict criteria that aim to maximise returns while minimising risk. MUSHARAKA IPO FUND This fund is Musharaka’s flagship fund – an open collective investment subscription programme established as a contractual arrangement between the fund’s management and the investors. The purpose of the fund is to invest in shares of companies listed on the Saudi stock exchange (TADAWUL) which are consistent with the fund’s Sharia criteria during the IPO phase in the primary market and / or stocks of newly listed companies whose listing in the primary market of Saudi Arabia does not exceed three years. Since its inception in November 2014, the fund has always been among the top quartile compared to its peer group with same investment objective. Musharaka Capital has been outperforming the general market as measured by the broad index TASI.

MUSHARAKA REAL ESTATE INCOME FUND In a step towards establishing a real estate tradable fund, which is the Saudi equivalent to the American Real Estate Investment Trust (REIT) model, the company recently launched a typical real estate income fund as a closed Real Estate Investment Fund, which will later be converted into a tradable fund once the new real estate tradable funds concept is operating. Musharaka Real Estate Income Fund will invest in a diversified portfolio of income-producing real estate projects in Saudi Arabia in order to achieve periodic returns to investors and to grow the capital invested in the long run by getting a capital gain on the sale of any properties. In addition, the fund will from time to time keep the amounts not invested in real estate as a cash reserve or will reinvest the amounts in short term investments. SAUDI REAL ESTATE DEVELOPMENT FUND As a leading money manager with an edge in real estate, Musharaka always receives inquiries from investors and business partners to participate in lucrative real estate development projects using the mutual fund structure. Recently, Musharaka has identified a real estate development opportunity. It is a rare piece of land with an CFI.co | Capital Finance International

area of 580,015m2 on a commercial road in Khobar and is planning to establish a Real Estate Development Fund using the target land as an underlying asset class. The newly created fund anticipates to finish the development of the land and sell the entire plot within a year and a half from the date of the fund’s establishment. SAUDI PRIVATE EQUITY FUND Thanks to Musharaka’s shareholders long track record within private equity locally, regionally and globally, the company always detects attractive investment opportunities. Today, Musharaka has a robust pipeline of transactions and a steady diversified deal flow from different sectors including education, food and beverages, renewable energy, industrial, petrochemicals, retail, amongst others. Its planned fund aims to acquire controlling or investment interests in Saudi private companies which are stable positive cash flow generators. Usually Musharaka will get a board representation to a) protect its investors’ interest and b) support its target companies to grow as its plans to create value in these businesses through capitalising on operational capabilities, shareholders’ local connections, and the optimisation of capital structure. Its active investment banking arm will 149 135

Musharaka Musharaka Capital: Capital: Board Board of of Directors Directors

always help investee companies to have access to an affordable source of funding. SAUDI FOOD & BEVERAGE SECTOR This sector is amongst the firm’s immediate focus areas with few offered transactions in hand. It believes that food has always been an important aspect of the Saudi culture and economy and is the focal point of social gatherings, celebrations, and a host of hospitality traditions. The total consumer expenditure on food in Saudi Arabia was projected to grow at an annual average rate of 6.9% to $57.7 billion by 2015 from $48.8 billion in 2010. This increase is due to a rise in the consumption of high-value foods such as meat, sweets, convenience foods, and other processed foods. Since 1970, food consumption in Saudi Arabia has increasingly shifted towards western dietary habits due to the arrival of the expatriate community and the emergence of the shopping mall consumer culture. Shopping malls have developed into a huge source of income for food and drink retailers, giving rise to the popularity of fast food and prepared food product outlets. In addition to F&B, the Saudi Education Sector comes next as Musharaka Capital pays special attention to investment in the private education sector as the government aims to see the private sector assuming a bigger role in developing the K-12 schooling market. The firm is seeing a rising appetite among investors for education related investments in the GCC. ARRANGING & INVESTMENT BANKING Musharaka Capital provides an array of comprehensive financial and investment services and solutions to enhance its clients’ business growth and to help them achieve their current and future investment goals. The company offers services related to private equities, capital raising, mergers and acquisitions, initial public offerings, projects and corporate financing, and capital market related consultations. Musharaka Capital works on identifying and assessing opportunities 136 150

for undervalued assets by offering mergers, acquisitions, and capital raising strategies in order to aid in achieving growth and support existing operations. ADVISORY SERVICES In a rapidly changing world, the timely availability of information can make the difference between an opportunity seized at the right moment, and one forever lost. Musharaka’s experienced advisory team always keeps abreast of the latest industry developments, constantly reviewing and expanding its sources of valuable market information. By understanding the investment needs and risk appetites of clients, its team is able to provide valuable advice that allows them to make decisions with greater confidence.

diversified experience in financial markets and investment planning. He also gained experience in the oil & gas industry and real estate estate sector. sector. Mr Al Assaf has filled many leading positions in both investment companies and industrial corporations. He is a board member of several Saudi joint stock companies. He managed several successful investments at the local and regional level. In 2013, Mr Al Assaf founded Musharaka with an objective to establish a diverse and well-recognised regional financial group offering a remarkable platform for asset and wealth management, real estate, and investment banking. Moreover, Mr Al Assaf holds Master’s degree in Business & Administration (MBA) and a Bachelor’s degree in Accounting from King Fahd University of Petroleum & Minerals.

CUSTODY The custody department at Musharaka Capital maintains custody of its clients’ assets, data and contracts, and administers the necessary related corporate actions. In keeping with a set of high quality policies and procedures, it ensures that the required processes of the concerned investment vehicles are carried out in a smooth and transparent manner that empowers the confidence of its investors.

Ayedh Al-Qahtani is chairman of Musharaka Capital and a prominent businessman in the real estate, investment, and economic sectors with more than twenty years of experience and numerous successful projects and awards to his name. Dr Al-Qahtani received his PhD with honours in Real Estate. His PhD thesis was about the philosophy of real estate development (Makkah Gate Project and its role in improving the environment of the City of Makkah).

MUSHARAKA CAPITAL MANAGEMENT Musharaka Capital is run by a professional and experienced management team with a strong business network throughout the GCC and Saudi Arabia. At Musharaka Capital, the investment management team undertakes a leading role in the company’s operations in order to achieve the goals set with high efficiency and professionalism. By following the best management practices for investment funds, Musharaka strives to achieve the highest returns for clients with strict management of investment risks. Musharaka Capital contributes to raising the level of local investment services and provides innovative investment products taking into account the diversity of investment objectives of its individual customers.

Within established a numbera Within years, years,Dr Al DrQahtani Al Qahtani established of companies. Currently, he is the chairman of number of companies. Currently, he is the Sumou and Sumou Estate. Dr chairmanHolding of Sumou HoldingRealand Sumou Al-Qahtani is Dr alsoAl-Qahtani board member of many Real Estate. is also board other companies charity organisations. member of manyandother companies and He received number of He awards such as Best charity organisations. received number Real Estate Professionals Middle and of awards such as in Best RealEastEstate Marketing Excellence from Arab League. Professionals in the Middle East and Marketing Excellence from Arab League. BOARD MEMBERS •BOARD Dr Ayedh Farhan Al-Qahtani – chairman MEMBERS • Mr Ibrahim Fahad Al-Assaf – member & CEO • Mr Fahad Sulaiman Al-Rajhi – member • Mr Ibrahim Muhammad Al-Shaikh – member • Mr Fahad Muhammad Al-Amoudi – member • Dr Sami Taysir Salman – independent member • Mr Muhammad Sulaiman Al-Harbi – independent member • Mr Khalid Saleh Al-Akeel – independent member ❉ i

Ibrahim Al Assaf is a co-founder and the CEO of Musharaka Capital. Mr Al Assaf has 25 years of CFI.co CFI.co || Capital Capital Finance Finance International International

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> Trench & Associates:

Full Service Boutique Law Firm Established since 1996, Trench & Associates is a boutique law firm that delivers bespoke quality services using a progressive, strategic and solution-driven methodology while at the same time relying uncompromisingly on ethics, integrity and professionalism.

rench & Associates is a full service law firm that specialises in both private clients and the corporate, property, and construction business sectors. The firm provides high quality services, meeting clients’ needs quickly and efficiently and at a reasonable fee. The firm’s principal Cynthia Trench obtained her licence in February 1996 from the Ruler’s Office of the Government of Dubai and became the first female expatriate licensed legal consultant. In 2004, she was awarded the accolade of ‘Best Service Provider’ by HH Sheikh Mohammed bin Rashid Al Maktoum on behalf of his establishment for young entrepreneurs. Since 2008, Ms Trench has spoken at many seminars on diverse subjects such as estate planning in the UAE and the effect of Sharia Law on the assets of expatriates in general. She has held diverse seminars at the Abu Dhabi Chamber of Commerce, Emirates Airlines, HSBC Premier Clients, large corporations based in the UAE, wealth managers and financial institutions. Ms Trench has also worked with the Dubai Economic Council and the Chambers of Commerce in Dubai and Abu Dhabi to improve the areas of inheritance law and practice and procedure. Further to her approaching the DIFC back in 2014, the DIFC undertook the initiative and created the new Wills and Probate Registry. Not only did she give the idea to the DIFC in respect of creation of this new law, but she was also part of the working group in terms of drawing up the new law and regulations. Trench & Associates offers a comprehensive portfolio, which includes a full range of commercial legal services to clients across each of the firm’s sectors. Whatever the business challenge, Trench & Associates has the breadth and depth of expertise to deliver on the client’s instruction. The firm advises on domestic and cross-border / multi-jurisdictional mergers and share and asset acquisitions and disposals. Lawyers at Trench & Associates have acted for and represented 138

Cynthia Trench

acquirers, as well as target companies and minority shareholders, both in the private and public sectors. In recent years, the firm has assisted two separate groups of companies that wish to list in Hong Kong and advised them in terms of the restructuring of their UAE subsidiaries. Trench & Associates also assists clients in the establishment of all types of business entities, CFI.co | Capital Finance International

whether onshore or offshore and maintains special relationships with correspondents in major offshore cities to ensure structuring remains cost-effective. Lawyers at Trench & Associates are conversant with the highest levels of corporate governance and ensure that corporate administrative documents, such as resolutions and communications to shareholders are produced at internationally recognised standards. i

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> Saradar Bank:

One Legacy, One Vision, One Team Headquartered in Beirut, Saradar Bank is establishing its position in the competitive Lebanese financial services sector with the stated aim of becoming one of the leading financial institutions in the country. The bank is the product of the first merger in the Lebanese banking sector. This strategic alliance, combined with a historic brand and a strong corporate identity, provides a solid foundation for Saradar Bank as it seeks to generate value for all stakeholders: clients, shareholders, and employees.

he bank’s main source of strength is undeniably its human capital and the exceptional employee culture. Staff at all levels of the institution inject their passion into developing cutting edge products and services while delivering outstanding customer experience. The board of directors paves the way for a culture of integrity, unwavering ethics, and strict compliance with laws and regulations. The board sets the tone at the top and works in close collaboration with management to promote integrity and reach its objectives, while balancing long-term growth with more immediate goals. Saradar Bank provides a full spectrum of innovative and customised financial products and services through three key business lines: retail, corporate and commercial, and private banking. Saradar Bank offers individual clients, small and medium enterprises, and large corporations a broad array of banking, asset management, investing, and other financial products and services through a rapidly increasing network across Lebanon. The bank also extends marketleading support to businesses of all sizes in a wide range of industries via innovative and adapted products and services to meet their unique needs. In addition, Saradar Bank is a national leader in private banking and wealth management and provides high-net-worth clients with integrated, made-to-measure, and comprehensive financial solutions to grow, maintain, and transition wealth. With its robust expansion strategy, Saradar Bank aims to provide unmatched accessibility 156 140

“Saradar Bank is a national leader in private banking and wealth management and provides high-net-worth clients with integrated, made-tomeasure, and comprehensive financial solutions to grow, maintain, and transition wealth.” and serve clients and businesses by aggressively expanding its network of branches and ATMs as well as its digital presence. By heavily investing into building one of the top performing and most highly integrated IT platforms, the bank will rank among the leading online banks in the region. Owing to its open attitude towards change, its high degree of flexibility, speed in decision-making and execution, in addition to its sustainable business policy and sound governance and risk management practices, Saradar Bank boasts a rapidly increasing balance sheet with a solid liquidity ratio, and is significantly expanding its customer base in record time. SARADAR BANK FACTSHEET • Consolidated Assets: $2.034 billion in assets / $1.540 billion in deposits. • Employees: approximately 380, and over a 1000 for the group. • Headquarters: Beirut, Lebanon. • Footprint: National. • Products: Checking, savings, money market savings, debit and credit cards, certificates of deposit, mortgages, lines of credit and business banking. • Banking Channels: Online, ATM, dedicated trilingual live banking (English, French and Arabic) and relationship managers located in every branch. CFI.co CFI.co || Capital Capital Finance Finance International International

ORIGINS Throughout the years, Saradar Bank’s emphasis on outstanding customer-oriented service and unwavering leadership has led to sustained growth and profitability. 1948 marks the beginning of an outstanding journey. Marius Saradar, a man of vision and talent, establishes a financial enterprise, Marius Saradar - Maison de Banque, which in 1956 becomes Banque Saradar sal, a Lebanese joint stock company. Joe Saradar takes over from his father in 1962 and is appointed group president and CEO at the age of 24. Joe Saradar’s determination leads to the expansion of the bank’s operations beyond the Lebanese territory. Banque Saradar France is founded in 1987 in Paris, and is 70% owned by Saradar Group. The bank’s success is not only a reflection of its CEO’s vision, but also of his personality. His motivation, perseverance and goodwill towards the members of the group allow the bank to offer industry-leading levels of service to its customers. In 1992, Mario Saradar follows in his father’s footsteps and is appointed group president and CEO. The third generation Saradar would take the bank to new levels with a combination of vision, ambition, integrity, intellectual rigor, inspired timing, and plain hard work. Mario Saradar’s vision is to empower the group and the bank to broaden and diversify its activities. In 2004, the signing of a merger agreement between Banque Saradar and Bank Audi sal creates the largest Lebanese banking group, serving clients domestically with a vigorous regional expansion strategy. Until 2010, Mario Saradar holds the role of

Autumn 2016 Issue

Group President and CEO: Mario Saradar

chairman and general manager Audi Saradar Private Banking in Lebanon and isofsimultaneously Private Banking in Lebanon and is simultaneously appointed chairman of Bank Audi Suisse. He is appointed chairman of Bank in Audi He is also appointed board member theSuisse. new alliance, also appointed board member inone the of new with Saradar Holding becoming thealliance, largest with Saradar Holding becoming one of the largest shareholders in the Audi-Saradar Group. shareholders in the Audi-Saradar Group. Throughout the years, he is repeatedly elected to Throughout he isBanks repeatedly electedand to the board of the the years, Lebanese Association thecurrently board ofathe Lebanese Banks Association and is member of the Rassemblement des is currentlyeta des member the Rassemblement Dirigeants Chefsofd’Entreprise Libanais, des the Dirigeants et des Chefs of d’Entreprise Libanais, International Chamber Commerce, and of the International Chamber of Commerce, and of the Young Presidents’ Organisation. Young Presidents’ Organisation. EXPANSION EXPANSION With his decades of experience in developing and With his prosperous decades of experience and leading companies,in developing Mario Saradar leading to prosperous companies, Mario decides leave Bank Audi in 2010 andSaradar follow decides leavevision. Bank In Audi in 2010 and Group follow his long toterm 2013, Saradar

his long aterm vision. In in 2013, Saradar Group acquires majority stake the share capital of acquires majority stake in sal the(NECB), share capital of Near EastaCommercial Bank followed Near East Commercial BankBanque sal (NECB), followed by a merger in 2014 with de l’Industrie by du a merger Banque de l’Industrie et et Travailinsal2014 (BITwith Bank). du Travail sal (BIT Bank). The dawn breaks on a new era of innovative The dawn services breaks onina new era of throughout innovative financial Lebanon, financial Lebanon, throughout the Middleservices East andinNorth Africa region, and the Middle andshareholders North Africa and beyond. TheEast bank’s areregion, composed beyond. Theofbank’s shareholders areluminaries, composed of a coterie local and international of a coterieglobal of local and international luminaries, including leaders such as Carlos Ghosn, including global Group, leaders and such prominent as Carlos Ghosn, the Wiederkehr figures the the Wiederkehr and prominent figures on Lebanese Group, scene, including the Saradars, on the Lebanese scene, includingand theShammas. Saradars, Bustanis, Mecattafs, El-Khazens, Bustanis, Mecattafs, El-Khazens, and Shammas. In addition, the bank attracted an exceptionally In addition, theofbank attracted anitsexceptionally qualified team managers to run operations. qualified of managers its operations. This, in team conjunction with toa run highly-diversified CFI.co | Capital Finance International

This, experienced in conjunctionboard with aofhighly-diversified and and directors, provides experienced of directors,leadership. provides Saradar Saradar Bankboard with exceptional Expert Bank withguidance, exceptionalmanagerial leadership.excellence, Expert strategic strategic and guidance, managerial and individual individual employee excellence, empowerment combine employee empowerment combine to bank’s foster to foster excellence in all aspects of the excellence inWith all aspects of the bank’s operations. operations. its remarkable shareholders, With its remarkable shareholders, outstanding board, motivated and outstanding empowered board, motivated empowered management management andand staff, strengthened market and staff,andstrengthened marketSaradar position, position, visionary strategy, Bankand is visionary strategy, Bankaisleading poised position not only poised not only toSaradar carve itself to the carve itself abut leading position the market in market to redefine theinmarket itself.but to redefine the market itself. Today, Mario Saradar continues to build on his Today, Mario60-year Saradar continues to build on his forefather’s legacy by seeking innovation forefather’s 60-year in legacy seekingofinnovation and improvement everyby aspect Saradar and improvement in every Bank, Bank, aspiring to ever aspect greaterof Saradar achievements aspiring ever greater achievements withand an with an to unrelenting focus on innovation unrelenting focus on innovation and creativity. i creativity.i 141 157

> Consolidated Contractors Company:

Excellence in Mega Projects A family company with a unique set of cultural values and traditions, Consolidated Contractors Company (CCC) has thrived over the last sixty years, that’s six decades of providing innovative and practical solutions to a broad portfolio of markets and industries across the globe.

CC first opened its doors for business in Lebanon in 1952 and, predominately a construction company, provides project management, engineering, procurement, and construction services for oil, gas and petrochemical works, pipelines, building and civil engineering works, marine works, and maintenance of petrochemical installations and underwater structures. Today, CCC employs over 130,000 people throughout the world, with its extensive manpower and construction equipment resources allowing it to tackle even the most challenging and complex of projects. Indeed, it is renowned for the construction of mega projects in the most remote locations across the globe, whilst being fully focused on working to the very highest standards of HSE, quality workmanship, and social responsibility. With a presence in forty countries, CCC has local knowledge and has built long-lasting relationships in each of the regions it operates

“With a presence in forty countries, CCC has local knowledge and has built long-lasting relationships in each of the regions it operates in.” in. In fact, CCC is the partner of choice to many discerning clients across the globe; a partnership that provides high performance delivery through family values; aligned goals; commitment to cooperation; strong financial capability; proven ability to execute mega size projects whatever the location; extensive geographical diversification; a large qualified workforce; innovative and complete solutions for the engineering & construction industry; and a wide range of developing capabilities (oil & gas, power and mining).

Dubai, UAE: Opera House

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CONSISTENTLY PLACED IN THE TOP 20 CCC is fully committed to client satisfaction in all respects, including HSE, quality, and social responsibility. Ranked consistently within the first twenty international contractors by Engineering News Record Magazine, the company’s extensive resources and manpower means that it can take on any project, anywhere, with its unmatched flexibility allowing it to do so smoothly and quickly. Consequently, entrusting CCC with the full EPC scope of a project ensures a team approach to the entire job, whilst avoiding potential conflicts of interest between engineering, procurement, and construction teams, as is often the case when a project is divided into two contracts (EP and C). CCC’s culture is grounded in integrity and it abides by the highest standards of ethical business culture. The company’s policy is to strive for the satisfaction of its valued customers and to achieve business excellence.

Autumn 2016 Issue

Saudi Arabia: Al Jubail 10 General Construction Works (HYCO)

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CCC PORTFOLIO CCC’s diverse portfolio captures all aspects of the Engineering, Procurement and Construction (EPC) value chain, starting with feasibility studies, into design, procurement, construction, commissioning, operations, and maintenance as well as project development (BOT, BOO, PPP) for: • Oil, gas & petrochemical projects • Oil, gas & water pipelines • Offshore construction works • Buildings • Airports & runways • Roads & highways, bridges & viaducts • Mass transportation • Power & desalination plants • Dams, harbours, and airports Through market and geographical diversification, CCC can now offer, in addition to our core business, a wide range of services and assistance in multiple market segments: • Oil & gas exploration • Mining • Real estate development • Power generation & water • Renewable energy

A LOCAL COMPANY – WHEREVER THE JOB With highly skilled and qualified teams of experienced professionals, CCC offers an allembracing breadth of capabilities in the field of construction. Its global knowhow and network of construction resources, its wide-ranging experience with local country laws and regulations, on top of its ability to adapt quickly to the latest requirements of new locations, all smooth the progress of its project management in efficiently and swiftly mobilizing construction equipment and construction crews. CCC has excelled and is well known for its ability to manage construction workforces that include several ethnic, religious, and political backgrounds. The company’s policy of always employing and training local labour wherever possible adds considerable value to each project and to the local economy. A COMPANY THAT CARES Corporate social responsibility (CSR) is an integral part of the CCC corporate vision, with the company’s CSR initiative undertaking the role of corporate citizenship to ensure that business values and behaviour are aligned, thereby finding a balance between improving and developing CCC’s business, improving the quality of life of the workforce, their CFI.co | Capital Finance International

families, local communities, and society at large. This forward-looking CSR initiative includes programmes related to the environment, human resources, workforce and labour relations, community involvement, and ethics and anticorruption. REFUSING TO COMPROMISE Working collaboratively with clients, CCC delivers least-cost solutions without compromising on safety, quality, or customer care. The company’s flexibility enables it to meet the challenges of the evolving construction market and it prides itself on offering a premium service at competitive rates enabled by its wide range of services. The traditional values of integrity, quality, and excellence are well established throughout CCC and every employee of the company understands how important these values are in satisfying the needs and expectations of its clients. Careful planning, monitoring, and the managing of each phase of a project allows the company to consistently assure that the highest standards of quality, scheduling, and cost-effectiveness are achieved. Client satisfaction is CCC’s primary objective. i 143 159

> CFI.co Meets the President (Engineering & Construction Division) of CCC:

Samer Said Khoury

President (Engineering & Construction Division): Samer Said Khoury

amer Said Khoury was born in Beirut, Lebanon, on August 23, 1960, to a Palestinian family that came to Lebanon during the 1948 Israeli-Arab war. Mr Khoury spent his childhood between Kuwait and Lebanon. He received his high school diploma in 1977 from the American High School in Kuwait. Mr Khoury studied at California State University from 1978 to 1981 when he received his BSc in Civil Engineering and went on to obtain an MBA in 1984 from the University of Southern California. Following this, Mr Khoury returned to the Arabian Gulf and worked his way up the ranks of his father’s engineering and construction

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company – Consolidated Contractors Company (CCC) – which is one of the largest Arab international construction companies operating throughout the Middle East, Africa, CIS, Europe, and America. From 1987 through 1990, Mr Khoury was responsible for the total operations of CCC in Kuwait, with an average turnover of $50m/ year and more than 1,000 permanent staff. In 1990, he moved to the head office of CCC in Athens, Greece. Here he worked in various departments gaining a wide range of experience in the engineering & construction field. In 1997, Mr Khoury took over the position of executive vice president operations of the group being responsible for the marketing and execution of the group’s worldwide activities. As of January CFI.co | Capital Finance International

2011 he became president for the Engineering & Construction Division. Today, CCC is a large conglomerate with a broad range of activities ranging from its traditional engineering & construction role to the more extensive (innovative) role of an oil & gas and power developer. More than 130,000 people are employed worldwide and, according to the ENR listing, CCC now ranks 21st amongst the largest international contractors. CCC’s revenue in 2015 was in excess of $4.6bn. Mr Khoury is highly involved in business, social, and educational activities in the Middle East and Europe. He has been married to Rania Khoury since 1989. The couple has two sons: Saji, born in 1991, and Rayan born in 1993. i

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THE EDITOR’S HEROES

A Valkyrie to the Rescue

celand is a rather unique place. Forget about its topography and the many forces of nature that continually reshape that island, and look instead at its government. Merely eight years ago, Iceland faced bankruptcy. Its banks went bust and dragged the nation from its perch as one of the world’s most prosperous countries. Iceland’s systemic banking collapse was, perhaps, one of the severest experienced by any nation in history. In a matter of weeks, the Icelandic stock exchange lost almost 90% of its market capitalisation. The country’s GDP shrunk by over 10% while unemployment levels tripled. Fast forward to the present and Iceland is doing quite alright. The country’s economy is back on track. For 2016, GDP growth is expected to exceed 4%. Tourists are flocking back to the country in order to marvel at the scenery that served as the canvas for the wildly popular television series Game of Thrones. Tourism recently displaced fishing and aluminium as Iceland’s largest cash cow. Defying the odds on its economic recovery, as well as on the Euro 2016 football pitch, Iceland has emerged, phoenix-like, from its depth to become a hot commodity once again. The country is awash with daring startups and venture capitalists aiming to cash in on an exceptionally well-educated and creative workforce accustomed to innovation and creative thinking. Now that the creative bookkeepers of the failed banks have been safely locked up – confined to a comfy prison at the far end of the island – the government is quietly rebuilding the nation. The groundwork for Iceland’s resurgence after its crash was

The Sun Compass Of Iceland

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put in place by Johanna Sigurdardottir who served as the country’s prime minister from February 2009 to May 2013 when she retired from politics and public life. Mrs Sigurdardottir is not merely a hero for pulling Iceland back from the brink; she is a valkyrie in the truest of Norse traditions – a chooser of the slain. She slew the bankers whose greed ruined the country, though Mrs Sigurdardottir did not find them a place in Valhalla, dispatching them to the fringe of society instead. Iceland owes Mrs Sigurdardottir a debt of gratitude. This was a leader not impressed or intimidated by either greater powers or irate bankers. She reminded all and sundry of the primacy of politics and the sovereignty of the will of the people as expressed via a democratic vote. Not bending for convenience sake, agreeing to backhand deals, or seeking to override the popular will, Mrs Sigurdardottir kept her nation united in its determination to overcome the crisis. The simple approach – a no-brainer really – pulled Iceland out of its quagmire and propelled it forward as if nothing had happened. There are many lessons in Iceland’s recovery. First, overcoming the effects of an economic crash does not take a generation; second, good governance trumps grandiose schemes; third, establishing a national sense of purpose becomes essential; and fourth, insisting that all parties respect the primacy of politics as expressed via the ballot box, is an absolute must. Though Iceland is a tiny nation, there is no reason why its experience – and the near-identical one lived by Ireland – cannot be replicated elsewhere. If Mrs Sigurdardottir has shown one thing, it is that a crisis should not be wasted. i

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> JOHANNA SIGURDARDOTTIR A Lady to the Rescue “My time will come,” said Johanna Sigurdardottir, fist raised in a passionate response to defeat in her first party leadership contest in 1994. And indeed it did. As the banking crisis of 2008 plunged Iceland into the worst political and social turmoil in its history, taking the tiny country to the brink not only of bankruptcy but open revolution, it was Johanna Sigurdardottir to whom the country turned. The angry crowds that gathered outside the Althing (parliament) in Reykjavik at the height of the crisis – which saw the country’s three main banks taken into public ownership – shocked the ruling elite with their wrath. The former flight attendant, who came into politics via her union activity, was known as a hard-worker and fervent campaigner for women’s rights – but she was also one of the few popular politicians untainted by the banking collapse. Thus she became Iceland’s first female prime minister, and the world’s first openly gay leader, at possibly the toughest moment. Johanna Sigurdardottir was elected to the Althing in 1978 and was Iceland’s longestserving politician when she retired, aged 69, in 2013 following her Social Democratic Party’s defeat in that year’s election. Her lesbian relationship with journalist and author Jonina Leosdottir caused barely a ripple in a country famous for its moral tolerance; homosexuality was legalised in Iceland in 1940, decades before most of the western world. Nevertheless, their relationship, which began in 1985 when both were mothers with husbands, was kept secret for fourteen years. In her recently published book Johanna and I, Jonina Leosdottir explains that, despite the open-mindedness of Icelanders, they were both concerned that Johanna’s political career would be damaged if their relationship became widely known. It wasn’t until 2002 that the couple celebrated an official union, though they were among the first gay people to wed when Iceland introduced same-sex marriage in 2010. After her election in 2009, Iceland struggled to repair its shattered economy. Unemployment rose sharply, inflation soared, and severe austerity measures were introduced, but Johanna Sigurdardottir was determined that her period in office would result, not only in economic stability, but an improvement in gender equality in both political and commercial spheres. She earned headlines around the world

when she banned strip clubs in Iceland. At a speech to the Women in Politics summit in 2013, she said: “Many people wondered – would Iceland have been so badly hit if women had been in charge of the country’s financial institutions and its major companies? I would not hesitate to answer with a ‘no’. Women tread more carefully; they show more responsibility and prudence and are less inclined to risktaking. “When I became prime minister Iceland was facing bankruptcy and my government had the task of cleaning up the mess and restoring our society. Bonfires were lit and social revolt seemed inevitable. Our community burned with conflict and rage. Iceland is now well on the way

to recovery.” Though political opposites, there were echoes of Margaret Thatcher in her summary of her time in power: “A woman always arrives to clean the table, sweep the floor, and open the windows to let out the cigar smoke. Women must be allowed opportunities to view the world alongside men, not only to be called in to do the cleaning when men have messed up.” In Norse mythology, the Valkyries were winged mail-clad maidens who brought succour to dying warriors. The blonde former air stewardess will be remembered for her tireless fight against gender inequality but her legacy may be that she brought comfort and relief to Icelanders in their hour of need.

“The former flight attendant, who came into politics via her union activity, was known as a hard-worker and fervent campaigner for women’s rights – but she was also one of the few popular politicians untainted by the banking collapse.” 148

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Autumn 2016 Issue

> ERNESTO BERTARELLI Fame and Notoriety Queen Victoria was amongst the spectators on the Isle of Wight when in 1851 a yacht named America outclassed the seven schooners of the British Royal Yacht Squadron in the One Hundred Sovereign Cup – an 85km (49nm) round-the-island regatta – to win a little trophy: a kitschy-looking carafe. She asked who was second, to which a crusty old admiral replied: “There is no second, ma’am.” Ernesto Bertarelli is keenly aware that in regattas there are no prizes for second best. As a two-time winner of that same yacht race – now renamed America’s Cup – he knows a captain has to possess exceptional sailing skill, passion, a determination to win, and deep pockets. Mr Bertarelli has all of these things, especially the deep pockets. There are those who argue that he was born into wealth and fame. The scion of a prosperous family of Italian pharmaceutical magnates, he never wanted for anything. However, there is more to the man than just his playboy lifestyle. Mr Bertarelli is a fabulously wealthy tycoon, worth a reported $15bn, and famed for his business acumen and philanthropy. He inherited control of the pharmaceutical firm Serono with his sister Donatella on the death of their father in 1998. By then, the company had relocated to Switzerland. Mr Bertarelli, now a Swiss citizen, spent the next ten years shifting the company’s focus from pharmaceuticals to biotechnology – increasing revenues from £800 million to £3.8 billion. A graduate of Harvard Business School, Mr Bertarelli sold the company to the German firm Merck in 2007 and turned his attention to his other passions. Those include the Bertarelli Foundation which he chairs with his sister. The foundation is dedicated to marine conservation and life sciences research. It recently agreed to part-fund a British government project to set up a marine conservation area in the Indian Ocean. The Chagos Marine Protected Area, created in 2010, covers most of the British Indian Ocean Territory – a collection of around a thousand tiny islands with a total land area of barely 60km2 – and contains the world’s largest coral atoll and some of its healthiest reef systems. The protection now afforded this marine reserve includes a no-take policy that bans all fishing. The Bertarelli Foundation provides funds to indemnify local fishers and contributes towards the cost of maintaining a fisheries patrol boat on station. Mr Bertarelli’s love of racing yachts, an obsession shared by many wealthy men, has

brought the Italian/Swiss entrepreneur both fame and notoriety. In 2003, he returned the America’s Cup to Europe for the first time since the 1851 regatta, successfully dethroning the Royal New Zealand Squadron during a series of races in Auckland’s Hauraki Gulf and claiming yachting’s most coveted prize for the Société Nautique de Genève. Four years later, Mr Bertarelli managed to stave off a challenge from Team New Zealand and keep the cup, albeit thanks to the unsurpassed skills of a Kiwi crew. By 2010, the regatta had moved from the water into the courtroom as teams sued and countersued over venues, dates, terms, and yacht specifications. After much ungentlemanly

legal wrangling, the Golden Gate Yacht Club was confirmed the challenger and proceeded to claim the title with the monumentally ugly trimaran named after the club’s corporate benefactors. The America’s Cup had lost much of its lustre. After failing to secure a win for his Team Alinghi in 2010, Mr Bertarelli exited the world of sailing to join the club of mega yacht owners, commissioning the 97-meter long Vava II from Appledore Shipbuilders in Devon. Powered not by wind but by four engines delivering almost 12,000 shaft horsepower at the touch of a button, the Vava II was built to impress through sheer size. As such, the Vava II rather reflects her owner.

“Mr Bertarelli’s love of racing yachts, an obsession shared by many wealthy men, has brought the Italian/Swiss entrepreneur both fame and notoriety.” CFI.co | Capital Finance International

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> JAHA DUKUREH Determined to Wipe Out FGM

It wasn’t until Jaha Dukureh was fifteen she discovered she had been a victim of female genital mutilation. And of course, she still is – a victim, or survivor, of the practice. The brutal procedure, often carried out without anaesthetic, involves removing some or all of the outer sexual organs, leaving girls and women in great pain, often needing surgery. Sex, childbirth, menstruation, and even urination can be affected. Survivors are at greater risk of infections as a result. Jaha’s half-sister died after complications that arose from her own “cutting”. Born in Kenya and now a bank teller living in Atlanta, Jaha’s journey – political, geographical, and personal – has taken her a long way. She is 26, married and mother to three children, and has been nominated one of the world’s most influential leaders by Time magazine, alongside Aung San Suu Kyi, Bernie Sanders, and Christine Lagarde. President Obama awarded her a lifetime achievement award in February this year. Mrs Dukureh was subject to female genital mutilation (FGM), a cultural – not religious – practice, only a week after her birth. Most girls who experience cutting are between four and

twelve. It is most common in African countries such as Somalia, Ivory Coast, and Burkina Faso. The World Health Organisation estimates that more than 125 million women alive today have undergone some form of FGM. A few years ago, Mrs Dukureh founded Safe Hands for Girls, a non-profit organisation that empowers, educates, and campaigns on the dangers and effects of FGM. Completely eliminating FGM has become her life’s mission and Mrs Dukureh believes it can be done – within a decade. Given what she has achieved so far, that may just be possible. A 2014 change.org petition she organised led to the Obama administration directing the Centers for Disease Control & Prevention to investigate its occurrence in the US. FGM was outlawed in Gambia last year following a campaign Mrs Dukureh led. It seems she has always been a determined individual. In New York, aged fifteen and following the breakdown of her first marriage, she visited eleven schools, begging to be allowed to continue her education. “At the last one, I just sat in the principal’s office and cried until they

finally gave in.” But even living in the US, where FGM is outlawed, Jaha is aware that her daughter and others like her are not necessarily safe. As in Britain, where FGM is also illegal, girls are often still taken abroad for the practice. Since 2003 it has been an offence for UK nationals or permanent residents to take a child abroad to undergo FGM. Mrs Dukureh’s work was instrumental in the creation of the 2010 Girls’ Protection Act in the US which also criminalises taking girls abroad for FGM. Her work has drawn criticism and threats as well as plaudits, and her father and husband have been targeted too. But, she says, both support and respect her work. “Whatever [other people] do, I am not afraid,” she says. “They are not going to make me stop. The safety of our daughters is more important than that.” For those that doubt the possibility of wiping out the practice, she points to other torturous procedures once considered culturally necessary, now banished to history. Foot binding in China, for instance. “This is a human rights abuse,” she says. “And it has to stop.”

“This is a human rights abuse,” she says. “And it has to stop.” 150

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> MARGARET ASPINALL Relentless Search and Fight for Justice As the verdicts were read out Margaret Aspinall should have felt relief. After 27 years, unlawful killing was found to be the cause of death of the Hillsborough 96. South Yorkshire police were held to blame for the terrible events of 15th April, 1989. But Mrs Aspinall – a member, and then chair, of the group campaigning for justice – had mixed emotions. The fight was over. But it had taken her away from properly grieving for and concentrating on the fate of her own son, a victim of the worst sporting disaster in British history. James was eighteen when he set off for the Liverpool versus Nottingham Forest game at Hillsborough Stadium in Sheffield, Yorkshire. Central pens were already overcrowded when police let 2,000 more people in. Fans were literally crushed to death. The youngest, Jon-Paul Gilhooley – a cousin of footballer Steven Gerrard – was ten. Ambulances were not allowed in to help the injured and dying – 58 of whom could probably have been saved. Fans were accused by police and the media – most vehemently by the Sun newspaper – of being drunk, violent, and of pickpocketing and urinating on the dying. Mrs Aspinall joined the Hillsborough Families Support Group (HFSG) formed in June that year, and never missed a meeting. Time and again the group came up against obstacles that would have seemed insurmountable to less determined individuals. An ordinary woman, Mrs Aspinall had to learn how to deal with lawyers, high-ranking police officers, and the media – all the while dealing with her own grief and anger. Countless setbacks followed, including an inquest in which deaths were declared accidental and disciplinary action being dropped against David Duckenfield, the police chief in charge that day. From 1998, Mrs Aspinall and HFSG vicechair Phil Hammond worked unpaid for up to fifteen hours a day for about two years to review all the material they wanted presented to the judge in a private prosecution brought by the group against Duckenfield and his colleague Superintendent Bernard Murray. But the jury acquitted Mr Murray and was unable to reach a verdict on Mr Duckenfield. It began to look as though justice would never be served. As the 20th anniversary memorial service approached, Mrs Aspinall became chair of HFSG and invited Andy Burnham, Secretary of State for Culture, Media, and Sport, to speak. Moved,

he raised the issue with PM Gordon Brown, and the Hillsborough Independent Panel was established. In 2012, its report was published. Police had taken victims’ blood alcohol levels in an attempt to smear them as drunken hooligans and searched for criminal records on each one. Ambulance workers had altered their statements. A cover-up on a huge scale had taken place. Then, following the longest jury case in British history, on April 26, 2016, the families finally got the verdicts of unlawful killing they had waited 27 years for. The long campaign has had a profound effect, and not just on those directly involved. Mrs Aspinall has become a woman unfazed by speaking to the powerful and influential. She has been ignored, dismissed, and celebrated.

She was awarded the CBE in the 2015 New Year’s Honours List. But the corruption surrounding Hillsborough raises serious questions. The deaths of 96 civilians in peacetime would surely be investigated thoroughly and to the highest standards of the law? That’s not what happened. Addressing parliament in May, calling for a more level playing field for those fighting the police in legal cases, Mrs Aspinall said: “Everybody deserves fairness in this country. It’s up to the government, opposition, everyone to work as a unit to get to the truth. [Hillsborough] was a massive cover-up – if they can do that on the scale of 96, what have they done to individuals?” It took the work of hundreds such as Mrs Aspinall, and nearly three decades, to get to the truth and obtain justice.

“But the corruption surrounding Hillsborough raises serious questions. The deaths of 96 civilians in peacetime would surely be investigated thoroughly and to the highest standards of the law?” CFI.co | Capital Finance International

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> SIR DAVID ATTENBOROUGH The Story of Life National living treasure is a title easily bestowed but hard won. Few can dispute that at 90, broadcaster David Attenborough has earned this plaudit. He has collected many others including a knighthood and more honorary degrees – all of 32 – than anyone else. The globe-trotting naturalist has illuminated the small screen with his insights into wildlife from every continent for decades. His passion and enthusiasm for the natural world appears undiminished as he continues to educate, charm, and enchant his viewers. The BBC is marking Sir David’s birthday with the release of The Story of Life, a natural history app which will include over a thousand clips taken from his oeuvre. “I’ve had the great privilege of being allowed to travel and discover the infinite variety of life on our planet and to share these stories with audiences all over the world,” he says. “To keep sharing those stories in a digital age means taking them online and I hope The Story of Life will reach and inspire a whole new generation.” Britain’s new £200m state-of-the-art polar survey vessel due to be launched in 2019 is to be named RSS Sir David Attenborough. The UK’s natural environment research council launched a public call for names for the vessel. Sir David clocked up 11,000 votes which lagged way behind the tongue in cheek Boaty McBoatface which captured the public imagination and topped the poll by some margin. The polar vessel is going to be named after Sir David, but as a consolation the ship’s remotely operated submarine will be named Boaty. Before joining the BBC to train as a television producer, the young David Attenborough did national service in the navy and took a degree in Natural Sciences at Cambridge. He began his working life in educational publishing. He is primarily known for his wild life programmes, but in fact he served as Controller of BBC2 in 1962 and controller of BBC programming from 1968 to 1972. He quit to concentrate on natural history as a freelance producer and presenter. “You can only get really unpopular decisions through if the electorate is convinced of the value of the environment. That’s what natural history programmes should be for.” Series include Life on Earth (1979), The Living Planet (1984), The Trials of Life (1990), The Life of Birds (1998), State of the Planet (2000), Are We Changing Planet Earth? (2006) and Frozen Planet (2011). His work has taken him round the world to many remote and inhospitable places. Throughout, he has retained a sense of awe and wonder at the natural world: “I can mention many moments that

were unforgettable and revelatory. But the singlemost revelatory three minutes was the first time I put on scuba gear and dived on a coral reef. It’s just the unbelievable fact that you can move in three dimensions.” Two new knees have enabled Sir David to keep

on filming across the globe as he enters his ninth decade: “If you are feeling reasonably chipper it seems almost blasphemous not to take advantage of it. To feel great and then to say ‘Well, I’m just going to sit in the corner and do nothing’ doesn’t seem to be sensible.”

“If you are feeling reasonably chipper it seems almost blasphemous not to take advantage of it. To feel great and then to say ‘Well, I’m just going to sit in the corner and do nothing’ doesn’t seem to be sensible.”” 152

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> SONYANGA OLE NGAIS Maasai Cricket Warrior The ruling elders of the Maasai community of Kenya fear the loss of their traditions will herald the end of their lifestyle. Many young Maasai are proud of their heritage but with one foot in the 21st century can find themselves torn between modern and traditional lifestyles. Sonyanga Ole Ngais is an articulate and thoughtful member of the community who has found an unlikely way to bridge the gap. He captains The Warriors, a Maasai cricket team which has travelled across the Commonwealth. Cricket was introduced to the community less than ten years ago. Batting and bowling are based on the same principles as hunting and the tall Maasai have taken readily the sport. Maasai cricket teams eschew traditional cricket whites, preferring to play in traditional dress instead. They make a fine spectacle in their colourful long red skirts, bare chests adorned with jangling rows of beads as they race across the sandy ground beneath the backdrop of Mount Kenya. Three years ago, The Warriors travelled to Lords, the home of cricket, to compete in The Last Man Standing tournament. Their journey is recorded in Warriors – a fascinating film directed by Barney Douglas and produced by leading England paceman James Anderson. The Maasai say that the eye that has travelled can see further. On his return home, the elders accord new respect to Mr Ngais and are reluctantly persuaded to consider his ideas. The Maasai is a macho culture where women have few rights. Girls’ face female genital mutilation followed by early marriage and childbirth. Mr Ngais has seen the effect of the the cut on four of his five sisters and believes the practice must be stopped. “Trying to separate people and their practices is very hard,” he says: “We want to tell people we can play cricket in traditional clothes and since we are trying to educate about FGM, it’s not like we are trying to get away from our culture.” Team members assure the elders they will marry girls who have not been cut, assuaging some of their fears. The Warriors use sport to raise awareness about environmental as well as social issues. They played in Kenya’s Last Male Stands tournament to help publicise the plight of the Northern White Rhino which faces extinction. Alongside his study for a degree in Electronic Communications Mr Ngais is active in his community. He recently started a women’s team and explains that having a female team equal to the Warriors sends a powerful message: “Girls get to stand up for their rights, and educate their peers on the importance of avoiding FGM, whilst engaging in the same sport that Warriors use to

spread the messages.” Mr Ngais is a fine ambassador for his community. He is committed to developing

a well informed and healthy Maasai society which combines the best of the traditional and contemporary. Howzat?

“They played in Kenya’s Last Male Stands tournament to help publicise the plight of the Northern White Rhino which faces extinction.” CFI.co | Capital Finance International

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> Latin America:

Colombia - Cashing in the Peace Dividend By Wim Romeijn

The canvas that inspired the magic realism which landed Gabriel García Márquez the 1982 Nobel Prize in Literature, Colombia and its often bewildering history has, of late, become a lot less colourful. That is probably a good thing too. The nation, home to countless guerrilla movements and private militias, has at long last been pacified. After 52 years of conflict and four years of negotiations, the government on June 23 declared the end to the world’s longest-running guerrilla war. A “definitive ceasefire” agreement was signed in Havana, Cuba, in the presence of five Latin American presidents and UN Secretary-General Ban Ki-moon. Fighting had already stopped last year when the Marxist Revolutionary Armed Forces of Colombia (FARC) announced a unilateral ceasefire and the government army ordered a halt to all offensive operations.

Colombia: Cartagena

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nder the terms of the deal, the around 6,800 troops and close to 8,500 militia members of the guerrilla army will surrender their weapons. The disarmament process will take place under international supervision. Guerrilla fighters and their commanders will not face prison provided they confess any crimes against humanity they may have committed to a special court. This tribunal may place restrictions on the freedom of former guerrillas but the sanctions are limited to a maximum of eight years and do not include incarceration. For its part, the Colombian government has made a pledge to launch large-scale social development programmes in former FARC strongholds. At one point in the late 1980s, FARC controlled an estimated 45% of Colombia’s territory. Demobilised fighters will be hired to run these initiatives which include provisions to improve governance, provide security, and promote social justice. The revolutionaries will have their civil right fully restored and may now continue their struggle by democratic means. Whilst FARC – the largest of Colombia’s guerrilla armies – had been offered amnesty and recognition as a legitimate political party a number of times over the past twenty years, its leaders were extremely suspicious of the government’s intentions. A smaller and much more flamboyant sister organisation – the 19th April Movement or M-19 for short – laid down its weapons and renounced violence in the late 1980s to become a political party. Though the M-19 enjoyed moderate success at the polls as the main constituent of the Patriotic Union – a coalition of leftist parties. However, most of its leaders and elected officials were assassinated in the years that followed by rightwing hit squads. As a result, the M-19 party ceased to exist. Most of its surviving members joined the Independent Democratic Pole coalition. With the fate of M-19 in the back of their minds, FARC commanders refused to disarm considering demobilisation tantamount to suicide. All the same, in its later years the guerrilla army had lost much of its revolutionary zeal, adding to the general impression that it had gravitated towards organised crime. With Cuba and other benefactors no longer able to help finance the struggle, FARC turned to kidnappings, hijackings, bank heists, and protection rackets to bankroll its operations. For many members, fighting had become a way of life rather than a way to change the world. The government of President Juan Manuel Santos put the peace deal to a vote on October 2 and saw it rejected by the tiniest of margins – 50.2% against 49.8%. Many Colombians remain distrustful of FARC and its conversion to democracy. Though the comprehensive peace agreement was rejected, both President Santos and FARC commander Timoleón Jiménez immediately assured the nation that fighting will not resume. A new deal is to be hammered out. 156

“Though Mr Uribe seems to have lost the plot, his concerns are not entirely unfounded. So far, nobody knows what is to become of the FARC’s sizeable war chest.” For his efforts at ending the long-running civil war in his country, President Santos was awarded the Nobel Peace Prize. The government must now ensure the guerrilla fighters’ re-entry into civil society stays on track and moves smoothly. They need educational opportunities and jobs. There exists a real danger that some fighters may yet defect and join the much smaller National Liberation Army (ELN) which so far has shown no interest in a peace deal. ELN leaders have already extended an open invitation to FARC members to join their ranks. The Santos Administration is aware of the danger and has unveiled a number of tax increases to help finance the demobilisation process and the development programmes spelled out in the peace deal. President Santos’ predecessor Álvaro Uribe – who repeatedly tried and failed to pacify the country and ultimately unleashed the army in a failed attempt to root out the insurgents – now heads a parliamentary bloc of deputies and senators opposed to the agreement. Mr Uribe accused President Santos of handing the country to “Marxist weirdos” and taking Colombia down the path earlier trodden by Venezuela as it sank to unfathomable depth of poverty and despair. The former president even promised to lead a campaign of civil resistance against the deal. Though Mr Uribe seems to have lost the plot, his concerns are not entirely unfounded. So far, nobody knows what is to become of the FARC’s sizeable war chest. The organisation is suspected to command significant funds, possibly amounting to a billion dollars or more. For close to three decades, FARC deployed its military might to provide protection and other services to Colombia’s drug cartels. Over half a century of mostly low-intensity, yet remarkably bloody, guerrilla war has cost an estimated 230,000 lives – about 80% nonbelligerent civilians – and displaced up to six million people. The conflict was essentially a continuation of La Violencia – a decadelong civil war that rocked Colombia between 1948 and 1958. The war erupted after the assassination of Jorge Eliécer Gaitán on April 9, 1948. Presidential candidate for the Liberal Party, Mr Gaitán was slated to win the election by a landslide on a reform ticket and a promise to end the rural violence that set liberal- and CFI.co | Capital Finance International

conservative-minded farmers against each other. The murder of Mr Gaitán immediately led to the Bogotazo, a massive 10-hour long riot that left much of downtown Bogotá destroyed and is estimated to have cost close to 3,000 lives. The riots heralded a decade of political violence that pitted the country’s two main parties – Liberal and Conservative – against each other. Both, in turn, also fought armed cells of the Colombian Communist Party. A 1953 amnesty ended most, though not all, of the hostilities. Liberal commander Manual Marulanda – a sharp shooter known as Tirofijo – switched allegiance and joined the communist insurgents. He founded the Southern Bloc in 1964 to agglomerate scattered guerrilla units. The bloc eventually outgrew its area and morphed into FARC which soon became Latin America’s largest and most feared guerrilla army. Tirofijo died of a heart attack in March 2008. His successor, anthropologist Guillermo Sáenz Vargas alias Alfonso Cano, was killed in combat in 2011. Timoleón Jiménez alias Timochenko, leader of FARC’s coca-growers protection services and a veteran of thirty years jungle warfare, was appointed commander soon after and managed to convince his comrades in arms to agree to the negotiated peace deal. With peace assured, the government of President Santos is now eager to cash in on its long-awaited dividend. Whilst the International Monetary Fund (IMF) has sharply lowered its GDP growth forecast for Colombia to 2.5% – down from 4.4% – President Santos is convinced his country can remain one of the continent’s top performers. Analysts expect the country will see a modest boost in growth rates once the peace process takes off. After experiencing twelve years of rapid GDP expansion – which saw incomes rise 7% annually on average – Colombia’s economy slowed down markedly last year as oil prices dropped to record lows while budget deficits swelled. Notwithstanding its violent past, Colombia claims to be the continent’s oldest democracy with just one four-year period of military rule in the twentieth century. The country hopes to attract new overseas investors once it can couple political stability to lasting peace. With almost fifty million people, Colombia is the third most populous country in Latin America after Brazil and Mexico. Adding the Colombia’s mix of extremes, the country was the only one on the continent to steer clear of populism and other forms of creative governance. Its elites have traditionally favoured a more socially responsible form of development. As a result, Colombia has never succumbed to hyperinflation and repeated debt defaults. In fact, the country’s economy grew at an average clip of 5% during the second half of the last century. With a relatively robust economy and a well-balanced political establishment, the country only needed to add peace to the picture in order to reach its full potential. That ingredient is now readily available. i

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> CFI.co Meets the Managers of Esval:

Focus on Customers and People

IN 2013 A STRUCTURAL AND CULTURAL CHANGE COMMENCED IN THE CHILEAN WATER COMPANY ESVAL. Esval’s vision is to go beyond the customer’s expectancies, generating value in a sustainable manner, with more than 2 million inhabitants in the regions of Valparaíso and Coquimbo.

community and regulators. These points are managed from a corporate and overall view point, so that they are carried out in the diverse areas by way of territorial management, taking into account the geographical differences and the individual characteristics of the communities where operations are carried out.

This premise commenced in 2013 with the arrival of José Luis Murillo to Esval as the General Manager a new stage was started in the company. This graduate in Economic and Business Sciences from the Complutense University of Madrid, had a wide experience in water companies, was the assistant economic manager of Grupo de Aguas de Barcelona in Spain and in 2002 arrived for the first time to Chile as Corporate Manager of Finance and Management Control at Aguas Andinas, Santiago.

This structure enables to optimize the dayto-day management (in territorial terms) and strengthen the long term (functional) overall view, in pursuit of continuous optimization and the incorporation of the best practices.

Murillo started a process destined to strengthen the operational excellence and service, forming a team of executives, in addition to managing an important change in the company, directing the focus towards the customers and the people. By way of 7 Corporate Management Departments and 2 Regional ones, Esval’s management and that of its subsidiary Aguas del Valle, is based on seeking: robustness, efficiency, growth and close relations with the workers, authorities,

This strategy considers as one of its pillars to count on a highly committed team, managing the talent to develop a company which maintains the continuity of the service and in addition seeks excellence and sustainability. The team which accompanies Murillo (in the centre of the photograph) is made up of (from left to right): Manuel Camiruaga, Finance and Management Control Manager: Industrial Engineer from the Pontificia Universidad Católica de Chile, MBA from the Cranfield School of Management. Cristian Vergara, Customer Manager: Business Engineer from the Universidad Técnica Federico Santa María. MBA from the Pontificia CFI.co | Capital Finance International

Universidad Católica de Valparaíso (PUCV). Javier Vargas, Planning Manager: Electrical Civil Engineer, MBA from the Universidad Adolfo Ibáñez. Domingo Tapia, Legal Manager: Lawyer from the PUCV, specialized in Economic Law in the Universidad de Chile. Andrés Nazer, Regional Manager IV Region: Civil Engineer from the Universidad de Chile and MBA from the Universidad Adolfo Ibáñez. Jaime Henríquez, People and Corporate Affairs Manager: Business Engineer, specialised in Change Management (Babson College). Post graduate degree in Human Resources Management, Master’s in Organizational Development at the Universidad Diego Portales and an MBA at the IEDE Business School, Universidad Europea de Madrid Luis Riveros, Operations Manager: Industrial Engineer and Master’s in Environmental Management. Eduardo Ruiz de Temiño, Engineering Manager: Engineer in Roads, Canals and Ports from the Universidad Politécnica de Madrid and Executive MBA from the CESTE Business School. i 157

> Esval:

Beyond the Commitment to Water In a country regularly hit by severe droughts and other natural disasters, Chilean water utility Esval must put to the test the capacity of its team to overcome adversity. Maintaining close links to the community is deemed essential.

ome 27 years have passed since the Chilean water company Esval was founded. Eleven years ago the company incorporated private capital. During all this time, this company has transformed the sanitation industry in the region of Valparaíso, one of the most important areas in Chile, with a population of close to two million inhabitants. Esval, which has as a majority shareholder the Ontario Teachers’ Pension Plan Board, operates in the 33 districts of the region, providing first class sanitation services in its operating area with standards equal to, or greater than, those of developed countries: 99.3% of the region has access to drinking water and 92% is served

“In spite of all the contingencies, natural disasters, and a complex geography which includes valleys, rivers, gullies, hills, and long coastline, Esval has moved forward with strength and team spirit and with the commitment to improve people’s quality of life.” by sewers, whilst the decontamination of the wastewater collected reaches 100%.

ESVAL team

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Esval, which also operates in the region of Coquimbo (by way of its subsidiary Aguas del Valle) with 600,000 inhabitants, had to face various emergencies and extreme situations, which have put to the test its response capacity and that of its teams. DROUGHT: THE EFFORT TO MAINTAIN CONTINUITY OF SERVICE The central area of Chile has been effected by an extensive drought, creating a delicate scenario of water shortage. Until the middle of 2015, the rainfall deficit in the region of Valparaíso reached 50% and the volume of its most important source – the Aconcagua River – fell below 70% of its historical average. Its backup, the Los Aromos

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Aguas del Valle Team

reservoir, reached one of its lowest recorded levels with 13% of stored capacity. In the region of Coquimbo, in 2015 the drought completed ten straight years which caused water shortage decrees to be declared for 14 of the 15 districts of Aguas del Valle’s area of concession. Here, the total volume of the reservoirs reached barely 15.8%.

not to charge any outstanding balances nor any of the debt of our users who had been effected by the fire,” remembers Mr Murillo. EARTHQUAKE AND TSUNAMI IN COQUIMBO On September 16, 2015, the region of Coquimbo was hit by a strong earthquake registering 8.4 on the Richter Scale. This earthquake caused the death of 15 people, affected 27,000 inhabitants, and destroyed over 2,400 dwellings.

In spite of this, none of the users saw their service affected. Between 2011 and 2015, Esval outlaid, in expense and investment, more than CLP 57,000 million. “This amount includes the construction of wells, drains, boreholes, and new pipelines which enabled us to maintain the continuity and quality of supply. None of our users have been effect by interruptions in supply because of the deficit in the sources,” explains José Luis Murillo, the company’s general manager.

Moreover, the water company decided to waive the debts of its users who had been affected. “In spite of the actions taken to help handle this emergency, nothing compares to the pain suffered by so many families. We wanted to go further, because this tragedy hit our neighbours in Valparaíso hard. Because of this, we decided

Just last year, this programme generated more than 185,000 contacts, 432 workshops on the responsible use of water, participated in more than 1,436 activities. Also close to 58,000 school children watched the play The wonders of Water. Another of the important initiatives is the competitive fund With You in Each Drop. The company supported projects of 68 community organisations in the regions of Valparaíso and Coquimbo, benefiting more than 200,000 people. Finally, Esval carried out an innovative programme of Training in Sanitation Installations. This initiative, carried out together with the National Women’s Service, enabled to certify the first seventeen women plumbers in the region, providing opportunities for development and training in a non-traditional trade.

FIRE IN VALPARAÍSO Esval management capabilities were put to the test in April 2014 when Valparaíso suffered one the worst fires in its history. Over 91 hours (nearly 4 days) ten simultaneous seats of fire were recorded, 15 people died, 12,500 were effected, and 2,500 houses were destroyed. Given the magnitude of the catastrophe, and in spite of being in the middle of a drought, Esval provided 150 million litres of water to fight the fire, equivalent to the average monthly consumption of 10,000 families. In addition, the company deployed 18 crews, 12 tanker trucks, and 31 fixed-point tanks.

links with the community for the last decade. By way of its corporate logo, the Gotita (Drop), is present in various community and recreational activities in both regions.

Right from the start, teams from Aguas del Valle worked to re-establish the service. More than one hundred fixed-point tanks were deployed. The quick response enabled the supply to be normalised within 48 hours of the emergency. COMMUNITY ENGAGEMENT In spite of all the contingencies, natural disasters, and a complex geography which includes valleys, rivers, gullies, hills, and long coastline, Esval has moved forward with strength and team spirit and with the commitment to improve people’s quality of life. This is reflected daily in its programme Healthy Water, Healthy Life, which has strengthened CFI.co | Capital Finance International

In the future, Esval will continue providing resources in its areas of operation. For the period 2014-2020, the water company plans an investment of some CLP300,000 million, this is double the amount available in the previous fiveyear period and aims to strengthen the service in a scenario of climate change. In this respect, Mr Murillo concludes that, “we will continue to be committed and working from day to day so as to handle the drought and to continue to provide a quality service. But beyond that, we wish to strengthen our links with the community and expand our Corporate Social Responsibility platform. We believe that there, in the people, is where the biggest capital of all resides. It is where we can make our humble contribution to a better future”. i 159

> Santiago Free Zone:

An Example of Management Excellence The Santiago Free Zone Corporation (CZFS – Corporación Zona Franca Santiago) has become an important economic asset in the Dominican Republic as an entity that drives national development and showcases the benefits of integration. The CZFS owes its success to the vision and dedication of the people who have managed the corporation for 42 years. They were true free zone pioneers who provided a key element for economic growth.

As a niche, free zones constitute a mechanism for attracting local and foreign investment and for promoting exports. As such, free zones contribute a great deal to the macroeconomic stability of the country and the creation of an export-oriented business environment. Around 70% of the Dominican Republic’s exports proceed from companies established in the free zone, businesses that generate formal employment. As the second capital of the country, Santiago has obtained the most benefits from this entrepreneurial activity. The favourable impact of the free zone sector in the Cibao Region, and especially in Santiago, can be considered one of its great contributions to the commercial activity taking place. Undoubtedly, free zones such as the CZFS are at the very centre of the economic vigour that characterises their immediate surroundings and boost prosperity. The zones constitute a vital labour alternative for the entire population, generating income through formal employment that, in turn, strengthens family life by offering sustainable living standards. Santiago, capital of the region where the CZFS is located, is strategically located with convenient access to airports and seaports. The region is also recognised as a hub of social, civic, productive, and cultural activities that, together with the agreeable climate and its hard-working and warm people, add unique values to the province. With a large pool of labour and operating in a stable political environment, the corporation has maintained sustainable growth levels over the last years, registering increased demand for industrial sites and developing their diversification in a productive area that currently holds 81 companies already installed. Textile production, shoe and candle making, chocolate processing, jewellery businesses, biodiesel, and cigars are but some of the business lines that have sprung

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“Undoubtedly, free zones such as the CZFS are at the very centre of the economic vigour that characterises their immediate surroundings and boost prosperity.” up in the free zone and are housed in buildings that comply with strict environmental standards. COMMUNITY In the PIVEM (Parque Industrial Víctor Espaillat Mera), the biggest and one of the first established in the country, corporate and social responsibilities are focused on the following areas: • Education headed towards employment • Environmental management • Healthcare • Innovation & entrepreneurship • Market value generation Growth registered at PIVEM has been defined in the master plan for 2020. The corporation’s management is mainly focused on four basic areas that have been defined as priority. First of these is the support for the physical and human infrastructure of the park. Second, the free zone’s diversification and competitive expansion. The integration of a corporate social responsibility framework that promises to be more focused, efficient, and able to generate value at corporate, environmental, and community levels is considered of paramount importance. The Education towards Employment Programme aims to strengthen the human talent pool of the community which will also benefit companies. All this can be summed up as an example of sustainable corporate leadership through social and economic investments that help benefit the city and the region. CFI.co | Capital Finance International

The Santiago Free Zone Corporation has become the preferred place for people who aspire to work and grow professionally and economically. This is mostly due to the ongoing growth of the commercial and industrial park which has become a reference point for business integration with a great sense of social and environmental responsibility and where large companies can prosper in a setting that ensures the profitability and safety of investments. In conclusion, the CZFS is currently building a new free zone concept facing the next 25 years. Some benefits to operate in the PIVEM: • Customer and efficiency-oriented culture • Streamlined solutions (permission management, company creation) • Based on the 8-90 law that provides special incentives such as tax-free operations • Access to the best talent through the Recruitment Unit • The only park in the country with a Training and Professional Innovation Center (CAPEX) • Favourable business climate for chain supply • Emergency brigade and 24/7 security system • New facilities with modern equipment and design • Safety, cameras, and controlled electronic access • Fire station, healthcare centre, and dental clinic • Sewage water treatment, net banking, day care, and heliport • On-site Free Zone Corporation offices • La Aurora Cooperative LOCATION Located in the Caribbean, just two hours away from Miami by aeroplane and a day’s sailing away by ship to the ports of Florida and the Panama Canal, Santiago offers a privileged geographic position for any production aimed at international markets. The Dominican Republic boasts a democratic system of government that guarantees political and social peace as well as a stable environment

Autumn 2016 Issue

for the production of goods and services. The availability of an efficient and well-qualified labour force with high productivity standards is yet another advantage. The Dominic Republic maintains free trade agreements with a number of countries in Central American and other nations that allow for preferential access to important markets. Some of the companies operating in the PIVEM: • Arturo Fuente Cigar • Swisher Dominicana • General Cigar • Swedish Match Dominicana • Souriau • Soles del Mar • Neef Motivation/Sewn Products • General Shoes DR Corp • TRP Dominicana • Arnold Andre Dominicana • Chocolates Khao • Hilos A & E Dominicana • Now Logistics • Notions Dominicana • Rolida Investments • Zanwill International In the free zone products are manufactured for the following brands: • Volkswagen • Arturo Fuente • Audi • Brax • Nautica • Liz Claiborne • Boeing • Red Wing Shoes • Carillo • General Cigar • Timberland • Hanes • Fruit of the Loom • Levi’s • Docker • Lucky Brand • Perry Ellis • Halifax • Buffalo • Betsey Johnson VALUES The CZFS’ 42 years of experience in managing the free zone and industrial estate allows the corporation to sustain future growth. Land for expansion is available as are industrial facilities that fully comply with all global standards. Moreover, the CZFS is central to the integrated development of Santiago and the Northern Region through its support of major projects such as the Cibao International Airport, Metropolitan Hospital of Santiago, Pontificia Universidad Católica Madre y Maestra, University of ISA, Plan Sierra, amongst others. The CZFS holds the first educational center in a free zone facility, which is the Innovation and Professional Training Center (CAPEX) from where it keeps the trends on excellence in training and projects that are addressed to foster employment in the areas that surround the park. i CFI.co | Capital Finance International

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> Ernst & Young:

Tax Reforms in Argentina are Promoting Investments By Sergio Caveggia and Marina Kulik

In previous contributions we informed about the new political and economic cycle that Argentina is currently going through. The new federal government, which took office in December 2015, and the national congress are enacting pieces of legislation aimed at promoting and fostering domestic and foreign investment into the country. One of these pieces of legislation is Law 27,260 published in the official bulletin on July 22, 2016. Briefly, the law provides for the following main tax provisions: • Elimination of the 10% withholding tax on 162

dividend distributions. The law reduces the total effective income tax rate (corporate tax and dividend tax) from 41.5% to 35%; • Abrogation of the 1% Minimum Presumed Income Tax applicable to the assets of local entities (complementary to the income tax) beginning in fiscal year 2019; • Elimination of Personal Assets Tax for individuals under certain conditions. For companies, the law reduces the tax rate applicable to the participation in Argentine entities owned by Argentine individuals and by foreign individuals or entities from 0.50% to 0.25%. This tax is applied on the CFI.co | Capital Finance International

amount resulting from the difference been the company´s assets and liabilities as of December of each year; • A new Tax Amnesty Regimen for the voluntary declaration of undeclared foreign and national currency and assets held by Argentine residents; • A new Tax Debt Settlement Plan; • Particular benefits for compliant taxpayers. This contribution aims at explaining the main characteristics of the new Tax Amnesty and Tax Debt Settlement Plans and how these regimes are favoring M&A transactions.

Autumn 2016 Issue

specific rate depends on the type of assets being declared, the amounts involved, and the date on which the declaration is made. In addition, the law allows taxpayers to make a declaration without any taxation when funds are invested in specific instruments (e.g., government bonds, mutual funds) with particular characteristics. Under this regime, individuals and companies would be relieved of their past tax omissions and any related interest (with certain caps) and fines would be forgiven. In addition, they would no longer be subject to any related civil, administrative and criminal prosecution. Liabilities under administrative or judicial dispute for criminal tax, foreign exchange and customs cases can also be included by filing the corresponding documents for the disclosure regime. Although there are different timetables to file for the tax amnesty, ultimate deadline is 31 March 2017. With respect to the Tax Debt Settlement Plan, the law provides taxpayers with the opportunity to settle past obligations as of 31 May 2016, including federal taxes, social security taxes (certain exceptions apply), and import and export duties. Withholding tax and additional withholding regimens are also included. Tax liabilities subject to administrative or judicial claims may also benefit from this regime. The deadline to apply for the settlement plan is also 31 March 2017. The plan provides the following benefits: • Release of fines and penalties not yet imposed as of the date of entering into this regime; • Total or partial exemption from compensatory and punitive interest; • Reduction of up to 15% of the consolidated tax debt, depending on the payment conditions chosen (e.g., cash, instalments plan); • Possible payment plan of up to 90 monthly instalments, with a monthly interest rate ranging from 1% to 1.5%. By joining this system, all tax and customs criminal actions pending proceedings are suspended and the criminal statute of limitations is interrupted. The full payment of the debt according to the conditions provided under this system will put an end to the criminal action insofar as a court decision was not rendered as of the payment date. TAX AMNESTY PROGRAMME AND TAX DEBT SETTLEMENT PLAN The Tax Amnesty Programme applies to national and foreign currency and assets (including shares and receivables) held by individuals before the date of enactment of the law (22 July 2016). For entities, the voluntary declaration applies to national and foreign currency and assets held on the date of the last financial statements closed before 1 January 2016. The law imposes a special tax – ranging from 0% to 15%– on the declared currency or assets. The

among others – tax issues and tax planning are two of the key drivers of value for deals. In this sense, we note that sometimes investors (specially foreign ones) give up conducting certain M&A transactions in Argentina due to financial, economic and reputational risks, among others, associated with the target company’s tax contingencies and exposures. Some Argentine companies, in attempts to maintain profitability, implement aggressive tax practices which may be challenged by tax authorities for not being completely in line with tax regulations. This leads to the accumulation of significant tax contingencies (including principal, compensatory interest and, most importantly, penalties and potential criminal breaches) which are sometimes difficult for the seller to guarantee in a deal process. Upon the implementation of Law No. 27,260, deals made before March 2017 have an advantageous tool which may contribute to closing transactions which could not be closed in the past due to the reasons mentioned above. As previously explained the Tax Amnesty and Tax Debt Settlement Plans would allow target companies to disclose unreported assets and settle outstanding tax debts at minimal cost and with major benefits before closing the deal. If the amnesty and/or settlement plans are filed by sellers and/or target as a condition precedent to closing, the amount of escrow accounts and guaranties would be reduced significantly as well as the inherent risk perception when foreign investors make investment decisions. Finally, the forgiveness or suspension of criminal actions associated with target’s and seller’s past behaviour is a key element that foreign investor’s factor in their decision process. Although criminal actions should be imposed to the individuals or board members that committed the offenses, reputational risk is an element that investors factor when hiring prior board members. Tax amnesty provisions can also be used to limit reputation risk going forward.

HOW THE AMNESTY AND SETTLEMENT PLANS FAVOURS M&A TRANSACTIONS Within the context of M&A transactions, the Tax Amnesty and Settlement Programmes provide clear opportunities to conduct transactions in which tax component is a decisive driver.

NEXT MEASURES The introduction of the mentioned measures reflects the government’s expressed objectives of attracting investments to the country and it is expected that new tax regulations and measures will be introduced to continue to improve the Argentine business environment. In particular, the law mandates the creation of a commission in the Congress to analyse and evaluate proposals to reform the Argentine tax system.

Although M&A transactions need to be viewed in a holistic way and deserve to be tackled from many angles and perspectives – regulatory matters, tax issues, macroeconomic conditions, legal aspects, and finance and accounting,

The abovementioned commission would review the tax system in a holistic way. The main objective is to enhance the competitive landscape for companies and investors through a progressive and efficient tax system. i

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> North America:

The Greening of Greenland By Tony Lennox

When Tété-Michel Kpomassie was a little boy in Africa he came across a library book about a cold and magical land in the far north. He was captivated by the vivid images of ice and snow, and vowed to find his way there. Eventually, after many years, he boarded a ship in Denmark and sailed off into the grey Atlantic, bound for Greenland. What he expected to discover was a cold sparkling blue wonderland – the most total contrast to his native Togo. What he actually found was a foggy dampness, squalor, casual drunkenness, promiscuity, and food which disgusted him. Mr Kpomassie wrote about his experiences in An African in Greenland, describing events which took place in the mid-1960s. It isn’t unusual for travellers, lured by exotic images in travel books, to experience disillusion when reality hits.

Greenland: Nuuk

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reenland is not a polar paradise. It’s a long way from everywhere – and the isolation of its tiny population – just 56,000 – brings its own problems. In June, the sun rises at 3am and doesn’t set until midnight. Paradoxically, this is the time of year which sees a spike in suicides. The long daylight hours disrupt sleep patterns, leading to depression, particularly among the young. Greenland has the highest suicide rate in the world. More than 10% of people subsist below the poverty line. Unemployment, alcoholism, incest, and the easy availability of guns in a society addicted to hunting, are all blamed for the high suicide rate. This unhappy statistic has increased since the 1950s as more Greenlanders moved from traditional village communities into larger townships – often housed in dreary apartment blocks. Thanks to the Internet boom, Greenlanders these days are painfully aware that they live in an especially lonely place. SOLITUDE The solitude of Greenland is amplified by the near impossibility of conventional travel across the island. Nuuk, the smallest capital city in the world, is not connected by road to any other settlement. If one leaves town in a wheeled vehicle one finds dead ends in every direction. Domestic travel is by air or sea or dog sled. When the maverick Viking Erik the Red established a Norse settlement on Greenland in the tenth century, he resisted the impulse to name the place Cold-as-Hell-land, opting instead for something which might entice more Normans to cross the dangerous seas and join his colony. Greenland, they soon discovered, was anything but green. The colony clung on for a few centuries until the Little Ice Age saw temperatures fall to the point where rudimentary farming was no longer possible. In the early 18th century, the Scandinavians returned to claim the land for the Danish crown. Today, for the first time since Erik reigned, it is once again possible to grow turnips on the tundra, thanks to the rapid disintegration of the island’s massive ice sheet. Denmark fell to the Nazis in 1940, and Greenland found itself alone. The citizens defied their masters in occupied Denmark, and for the first time in their history, turned to the USA for help. For the duration, Greenland became an American protectorate. The USA still maintains a base in the north of the country at Thule – a busy and strategic polar station. The USA made an offer to the liberated Danes to buy the island, which looks at Russia across the pole, when the war ended. The Danes refused to release their grip, and in the 1950s and 1960s began a campaign of urbanisation – a move which has been blamed for many of Greenland’s current social woes. The Danes behaved in an overbearing colonial manner, championing the

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“The discovery of rare earth minerals, vital to the manufacture of smartphones, hybrid vehicles, missile systems, medical devices, and other electronic products, is attracting great international interest. China currently controls 95% of rare earth mineral production, but the disintegration of the Greenland ice sheet is making it easier to mine these precious materials.” Danish descendants over native Greenlanders and attempting to force assimilation on the majority Inuit population. NOT QUITE INDEPENDENT Native resentment grew into an independence movement which, in 1979, led to the granting of home rule. In 2009, virtually all the trappings of statehood, bar defence and foreign policy, were handed over to the locals. Greenland is now, ostensibly, an independent nation, albeit under the Danish crown. There remain calls for full independence, but these are muted by the copious aid Denmark continues to pour into Greenlandic coffers. Half of all public spending is provided by Danish grants. Though the plan is to reduce these grants as Greenland becomes more self-sufficient, the Danes still provide most of the funds for healthcare and education, and maintain a number of military bases on the island. But its grip on Greenland is slackening. Kalaallisut [Greenlandic] has been adopted as the national language, and English, rather than Danish, is rapidly becoming the second language of Greenlanders. Only 12% can claim descent from Scandinavian colonists. Belief that Greenland may hold vast oil and gas reserves has attracted multinational businesses to Nuuk. Exploration for oil, gas, gold, gemstones, and minerals promises vast wealth, but there is a fear that the nascent Greenlandic government doesn’t have the knowledge or experience to cope with an influx of foreign firms. This inexperience was demonstrated when Aleqa Hammond became the first female prime minister of Greenland in April 2013. She resigned 18 months later after accusations of misuse of public funds. She was succeeded by CFI.co | Capital Finance International

Kim Kielsen, a 49-year-old former policeman who is trying to tread a careful path between rival international interests in his country. Greenland, as part of Denmark, joined the EEC in 1973. However, after obtaining home rule, the country negotiated its exit in 1985 in order to regain control over fishing – vital to the country’s economy. It retains “favoured nation” status with the EU, however. Cold water prawns are a major export to Europe. At the moment, 90% of Greenland’s exports relate to fishing. GET READY FOR RARE EARTH But this is set to change. The discovery of rare earth minerals, vital to the manufacture of smartphones, hybrid vehicles, missile systems, medical devices, and other electronic products, is attracting great international interest. China currently controls 95% of rare earth mineral production, but the disintegration of the Greenland ice sheet is making it easier to mine these precious materials. As the ice retreats, Greenland finds itself moving rapidly in a new direction. Climate change, which threatens disaster across most of the planet, has brought good fortune to the island, though there are occasional drawbacks – this year’s Arctic winter games, for instance, had to generate artificial snow. But the melt is unlocking many frozen assets. Tourism has increased as temperatures have risen. More than 65,000 tourists visit Greenland every year. Most come to the coastal ports via cruise ships. Others fly in, drawn by incredible scenery, the northern lights, and the tundra’s flora and fauna. The temperature in the capital Nuuk, reached a record high of 24°C in June this year. An often quoted statistic warns that if the ice sheet – which covers 75% of this, the largest island on the planet – ever completely melts, global sea levels will rise by some seven metres – wiping out many low-lying lands across the globe. Even at the current rate of shrinkage, such a catastrophe is a long way off, say experts. Greenland’s climate began to noticeably shift in the 1920s. Milder winters drove seal populations – a staple of the Inuit diet – further north, but a corresponding rise in the numbers of cod being caught in Greenland’s waters compensated. Such is the precarious and unpredictable character of arctic sea currents, that cod numbers can fluctuate wildly from season to season – another example of fickle nature’s grip on this land. Tété-Michel Kpomassie was astonished when he first set eyes on the aurora borealis. He was equally surprised at the indifference shown by native Greenlanders to this wonder of nature. Modern Greenlanders will need to shake off their traditional insularity and nonchalance if they want to grab the opportunities which now present themselves. Greenland is about to change and quite possibly radically so. i

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> Peabody Energy:

Coal Done Right US-based Peabody Energy is the world’s largest private-sector coal company and a Fortune 500 business. The company, though, doesn’t view leadership only on those terms. It takes great care to demonstrate that it also is a leader in sustainable mining, energy access, and clean coal solutions.

eabody Energy is more than 130 years old, yet it is led by a new and diverse management team that has merged the strengths of industry and company veterans with the fresh perspectives of its newest members. The Peabody team also consists of nearly 7,000 employees who serve customers in more than 25 countries around the world. The company’s leadership can be seen clearly through its Corporate and Social Responsibility Report and its Mission and Values which comprise, amongst others, a commitment to safe workplaces, restoring coal mined lands for high value, engaging constructively with stakeholders to address major energy challenges, and supporting greater deployment of advanced coal and near-zero emissions technologies. In the words of President and Chief Executive Officer Glenn Kellow, “Our mission and values are foundational tenets in how we operate and everything we do must ensure that our performance aligns with our core values: safety, customer focus, leadership, people, excellence, integrity, and sustainability.” Peabody goes even further in outlining what it calls Coal Done Right. The core components can be found in its innovative Investment Principles for Best-in-Class Coal Companies. Safety is Peabody’s first value and a leading measure of operational excellence – yet one that the company realises calls for a humble approach and requires constant care and vigilance. The company has an extensive safety and health management system, a track record of steady improvement, and a vision of zero safety incidents of any kind. Sustainability is another core value. Peabody

Demonstrating what Peabody views as “Coal Done Right,” restored land at its flagship North Antelope Rochelle Mine – the world’s largest coal mine – is a model of sustainability. Peabody has earned more than 130 honors for safety, corporate and environmental excellence over the past 5 years.

emphasises responsible coal mining and use, and views land restoration as an essential part of the mining process. Peabody launched its first land reclamation program in the US in 1954, well before modern restoration laws. The company has received dozens of awards in recent years in the US, Australia, and Asia.

Since the 1990s, Peabody Energy has widely advocated clean coal technologies to reduce carbon and other emissions. The company has invested hundreds of millions of dollars in clean coal projects and partnerships and taken positions on issues such as those in its Statement on Energy and Climate Change.

Through advanced coal technologies, coal powers more energy, more cleanly, every day. Emissions progress for coal begins with deployment of high efficiency, low emissions (HELE) power stations using technology that is available now. Longerterm investments in next generation carbon capture, use, and storage (CCUS) technologies are necessary to transition to the ultimate goal of nearzero emissions from coal-fuelled power.

Through its words and actions, Peabody Energy is indeed an example of Coal Done Right. Even while navigating through challenging industry fundamentals and the US Chapter 11 process, Peabody makes it clear that the company and its people are doing good work providing quality products and services in an essential industry, while using its leadership to make the company and industry better every day. i

“Our mission and values are foundational tenets in how we operate and everything we do must ensure that our performance aligns with our core values: safety, customer focus, leadership, people, excellence, integrity, and sustainability.” CFI.co | Capital Finance International

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> Ann Low, National Defense University:

Excellence in Government through User-Centric Design

round the world a revolution is occurring, not one of violent upheaval, but one of excellence. Estonia and New Zealand are the oft-cited exemplars of user-friendly eGovernment, but they are not alone. On every continent, government employees are waking up to the imperative of user-centric, online, good governance. Individual reformers are improving lives by improving users’ experiences interacting with their governments. From investing in Vietnam, to opening a business in Oman, to applying for a permit in Washington, DC, pockets of government are changing for the better. These reformers are united by their quest for efficiency and their commitment to making every interaction with their part of government a positive experience from the user’s perspective. Their stories can inspire better governance everywhere, and they combine to provide seeds for global peace and prosperity. Documenting procedures is the first step to simplifying them. Before the implementation of Project 30 on simplifying administrative procedures in Vietnam, seven different provinces implemented the same national laws in seven different ways. However, this wasn’t apparent until each province detailed its processes online. The seven provincial portals combined show 121 procedures, encompassing 1,438 steps and 2,085 forms and requirements. The processes are clearly described on vietnam.eregulations. org, so the provinces can harmonize and simplify them. That clarity reduces corruption and facilitates investment by showing investors what to do, when and where to do it, how much it will cost, how long it will take, and the legal justifications for the required steps. Dr Ngo Hai Phan, Vice-chairman cum Secretary General of the Advisory Council for Administrative Procedures Reform (ACAPR), explained, “the application of information technology in administrative reform strongly contributes to the reform process by enhancing transparency in procedures for citizens and businesses.”1 POLITICAL WILL With political will, a country can transform itself rapidly, creating and implementing worldclass eGovernment in just a few years. Oman launched its eTrasformation program in 2013, and in 2016 launched InvestEasy, one of the five most user-friendly business registration websites in the world.2 168

2013 World Trade Organization (WTO) Trade Facilitation Agreement negotiated in Bali. The Director-General of the WTO estimated that the Trade Facilitation Agreement would boost global trade by $1 trillion per year by streamlining, standardizing and simplifying border processes around the world — with the majority of the benefits going to developing and least-developed countries.4

“The application of information technology in administrative reform strongly contributes to the reform process by enhancing transparency in procedures for citizens and businesses.” Dr Ngo Hai Phan, Vice-chairman, ACAPR,Vietnam

It’s all the same story: make each interaction with government clear and simple from the user’s standpoint. In 2010 Guatemala created its online information portal (asisehace.gt) to document procedures on how to set up a business, but then realized the portal could be much more. Ministries collaborated to add processes for trade, tax payments, permits, police checks and other services3. As of August 2016, 315 procedures were documented online, encompassing 2,509 steps and 871 forms and requirements.

COMMUNICATE A great website also needs a great communication campaign to attract users. Argentina has faced challenges in creating more efficient and responsive government services. Mayor Martin Insaurralde and his team in Lomas de Zamora (population @600,000), responded by putting processes online, simplifying them and supporting users with an online call center open 24 hours a day, seven days a week. “Providing 24/7 service sounds like it would increase costs, but putting processes online and simplifying decreased costs, so we could provide better services while generating increased municipal revenues through better compliance and economic growth. This is a giant leap for the municipal administration, after decades of bureaucracy,” said Mayor Insaurralde.

In 2015, 309,000 users visited the site, while in the first eight months of 2016 alone, over Some 396,000 users visited the lomasdezamora. 230,000 users visited the site. Seven countries eregulation.org website in 2015, and the site is in Africa (Benin, Kenya, Mali, Nigeria, Rwanda, on track to receive over half a million unique Tanzania and Uganda) will be among the first visitors in 2016. “It is essential that citizens in the world to create online trade portals and businesses know what the rules are and how describing how to import and export goods, procedures in they can comply with them. We have invested to simplify administrative accordance with the recommendations of the in a massive communication campaign and

10 principles

REGROUP SIMILAR STEPS

MINIMUM INTERACTIONS

10 ONLINE CERTIFICATES & PAYMENT

ONLINE REQUESTS

ONLINE SERVICES

8 FORMS AND DOCUMENTS

BASIC PRINCIPLES

AVOID REDUNDANCY

FREE FORMS

CLARIFY INSTRUCTIONS

PUBLISH PROCEDURES

ONLY LEGALLY REQUIRED CONTROLS

10 principles to simplify administrative procedures. Source: businessfacilitation.org

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ONLY RELEVANT REQUIREMENTS

PRESUME GOOD FAITH

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Stakeholders across El Salvador are collaborating to implement user-centric design on MiEmpresa.gob.sv

“We can improve infrastructure and services, generating a virtuous circle of economic growth, based on easier compliance with legal obligations.” Minister of Economy Tharsis Salomon Lopez, El Salvador

assigned a team of 25 municipal employees to publishing and simplifying procedures, and attending inquiries.”

just creation, but also operation and closure, to get the results we want: greater compliance, tax payments, and dynamic economic growth.”

An elegant website isn’t enough, governments must consider the full life cycle of a process from the user’s perspective. El Salvador built a single window, MiEmpresa.gob.sv, to allow simple online business registration, but informality remained a major problem, with over 60 percent of businesses noncompliant with relevant regulations.

WASHINGTON Develop a system that includes funds to maintain and improve online procedures. Washington, DC has had a business registrar for over 200 years and, in that time, accumulated a great complexity of legislation and regulations. According to Josef Gasimov, Deputy Corporate Registrar for the District of Columbia, “we had to step back and spend a few years documenting our processes, then working with our municipal government and the U.S. Congress, which approves the District’s budget, to simplify. There was no way to achieve our goals without detailed, hard work and extensive collaboration across District agencies, and with the federal government. We also reached out to business registrars in other states to learn from their experiences. Then we wanted to be sure we kept up with changing technologies, since a good online system today will appear outdated in two or three years. We built into our fee structure funds to maintain and upgrade our services over time. As a result, and with our staff’s assistance and involvement, my agency created the DC Business Center (business.dc.gov), which generates a user-specific checklist of licenses and other requirements to start over 133 types of businesses in the District. It also provides clear

While it was much easier to register a business, compliance with the law after registration, including tax payment, remained complex and cumbersome. El Salvador is piloting a project in Santa Ana, a municipality of 250,000, to simplify tax payments, put them online and educate users about the benefits and obligations of registering a business. According to the Minister of Economy Tharsis Salomon Lopez, “once we implement the new process successfully in Santa Ana, we can replicate it nationally, so we grow our tax base. With those revenues we can improve infrastructure and services, generating a virtuous circle of economic growth, based on easier compliance with legal obligations. We have to consider the entire life cycle of a business, not

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step-by-step processes and downloadable forms. In the near future, we aim to make the services provided by all District agencies that issue licenses, permits, or certifications, or perform inspections, transactional online through single windows. Customers will be able to scan and submit documents, receive approvals, and pay for services online. Using the online single windows will save customers’ time, while their digital submissions will simplify our record keeping and improve data accuracy. Our process of continuous improvement has generated over 14,000 new business entities registered in DC during fiscal year 2016 (e.g. October 1, 2015 - September 30, 2016). The average time to register a business has fallen to less than one hour, if the customer decides to expedite her registration, and we continue to improve.” IMPROVE FROM WITHIN All of these reformers improved their systems from within. They didn’t spend their scarce resources on hiring consultants to write papers about what they should change. Rather, they hired experts to help them improve specific processes, and they sought input from, and listened to, their users. They focused on usercentric design and continually expanded improvements to their systems, one transaction at a time. This is the way forward. It is a path that is open to all governments, at all levels. 169

Regardless which law or regulation is being implemented, the goal is the same: make each interaction with government simple and positive. The United Nations Conference on Trade and Development (UNCTAD) has codified this approach in its Business Facilitation technical assistance program (businessfacilitation.org) and its 10 principles for administrative simplification (eSimplification). The Global Enterprise Registration portal (GER.co) rates the user-friendliness of business registration websites worldwide. GER.co lets governments learn to make more user-friendly websites by emulating their higher-rated peers. Reformers’ stories, eSimplification, and GER.co are launching pads to accelerate simple, online governance everywhere and free up the world’s time for more production, peaceful interaction, and joy. By reducing governments’ inefficiencies, we increase productivity and hence economic growth and time for leisure. If you have an idea to improve a government process, tell your government. Together we can create more global prosperity through improved productivity — one process at a time. i

ABOUT THE AUTHOR Ann Low is a Foreign Service Officer with over 20 years of experience representing the United States in multilateral fora. She is studying at the National Defense University’s (NDU) Eisenhower School. NDU is the United States’ premier joint professional military education institution. The Eisenhower School educates U.S. military, civilian staff, and international fellows, to lead strategic institutions and activities associated with the integrated development of national security and national defense strategies.

Disclaimer: The views expressed in this article are those of the author and are not an official policy or position of the National Defense University, the Department of Defense, or the U.S. Government.

Footnotes 1 Opening speech by the Director General Ngo Hai Phan, Seminar on the Announcement of Vietnam’s Investment Portal, (Hà Nội, June 29, 2015) 2 www.business.gov.om/wps/portal/ecr and ger.co 3 www.youtube.com/watch?v=xAio1C5EnR8 minute 2.12 4 www.wto.org/english/thewto_e/dg_e/dg_e.htm, WTO Director-General: Roberto Azevêdo welcome message 170

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> World SME Forum:

Multilaterals, Inclusiveness and the World SME Forum By Stefano Negri, Associate Director

he end of 2016 is not delivering business as usual: Increasing volatility in financial markets, sluggish trade growth, and political uncertainty have created an atmosphere of anxiety throughout the global economy. This autumnâ&#x20AC;&#x2122;s series of multilateral summits has run its course with the fall conferences of the G20, the United Nations General Assembly, and the Bretton Woods institutions setting the global agenda for the new diplomatic year. The leaders of all those multilateral institutions have recognised the urgent need to unlock 172

growth, investment, and jobs â&#x20AC;&#x201C; not just in the world-leading G20 economies, but globally. One big difference from previous years is that they also vowed to make inclusiveness a top policy priority. This forthright focus on inclusiveness is a welcome and much-needed step forward. The private sector has been raising this important issue and has long sought political support for it through the Business 20 (B20). The B20, created in 2010, is the premier platform for dialogue between the business community CFI.co | Capital Finance International

and the G20 policymakers and is influential in advancing policy ideas that are crucial for overall economic development. Inclusiveness has taken a central role in the B20 dialogues starting in Turkey (2015) and has continued throughout the 2016 China leadership of the group. The business community, and more and more policymakers, now see the improvement of opportunities for small and medium-sized enterprises (SMEs) as a concrete and achievable path to achieve inclusiveness.

Autumn 2016 Issue

“The major concern is that SMEs suffer disproportionately from limited access to markets, finance, talent, skills, and innovative capacity.” The B20, since its 2015 conference in Ankara, has convened a high-level taskforce focused on SMEs, and in 2016 underscored the relevance of the issue. The chair of the B20 SME Development Taskforce was none other than Jack Ma, the CEO of Alibaba.com — one of the world’s foremost business icons, who within a decade managed to turn his SME into the world’s largest IPO. Participants in the Chinese and Turkish G20/ B20 process shared the assessment that SMEs’ potential is not being fully realised. SMEs account for about two-thirds of all private-sector jobs globally and create around 80% of the world’s net job growth. The engine for equitable growth and poverty alleviation, SMEs are the backbone of the middle class and social stability, making their success essential for healthy and inclusive economic growth. At this anxious juncture, when globalisation and open trade are under threat, SMEs can provide a solution to both problems: • Unleashing SMEs’ trade and export potential offers the clearest upside for increasing trade volumes. The share of SMEs in trade is far from commensurate with their contribution to growth: SMEs account for less than half of the value of exports in most developed economies, while they make up 98% of exporting firms. There is plenty of room for growth. • Facilitating the access of small businesses to international trade would make trade itself, and globalisation, more inclusive – as it should always have been, but has not. The major concern is that SMEs suffer disproportionately from limited access to markets, finance, talent, skills, and innovative capacity. In addition, rigid regulations also often put them at a disadvantage. And, until recently, SMEs had lacked an organisation that would champion their cause.

“The end of 2016 is not delivering business as usual: Increasing volatility in financial markets, sluggish trade growth, and political uncertainty have created an atmosphere of anxiety throughout the global economy.”

With these issues in mind – and through the deliberations of the B20 leadership and the support of the G20 finance ministers – the Union of Turkish Chambers of Commerce (TOBB) and the International Chamber of Commerce (ICC) in 2015 officially founded the World SME Forum (WSF), whose mission is to help strengthen the overall growth and impact of SMEs globally. The WSF aims to provide SMEs with representation and to advance the recognition of their role in the global economy, by partnering with international financial institutions (IFIs) and development agencies and with associations and chambers working in the worldwide SME space. The WSF aims to represent SME interests with regional CFI.co | Capital Finance International

and global bodies and to advocate for better rules and regulations among standard-setting bodies. As “the new kid on the block” of multilateral institutions, the WSF has already scored major achievements: 1. The WSF has been the network partner for the 2016 China B20 SME Development Taskforce, and will fulfill the same role during 2017 Germany B20 – effectively becoming a bridge across B20 presidencies, helping ensure continuity in the SME agenda and avoiding the loss of momentum on the implementation of each cycle’s recommendations. 2. The World Bank Group (WBG), the UN International Trade Center (ITC), and the OECD have already joined the WSF as institutional partners. Discussions are under way with potential new member organisations and corporate supporters. 3. Several SME associations from three continents are in the process of affiliating with the WSF, increasing its representation and its capacity to deliver results on the ground. 4. The WSF is already engaged in dialogues with the WTO and UNCTAD to support SMEs in capturing the opportunities offered by eTrade and the digital revolution. 5. The WSF is starting hands-on advisory work in pilot countries to enable SMEs to more effectively link to national and global value chains, as well as to boost cross-border ecommerce, aiming to extend that support globally. 6. Since there is no doubt that the future will be digital, the WSF is putting a great deal of effort into creating an SME-focused online platform, which aims to become a digital aggregator and one-stop shop for SMEs – to increase their access to markets, networks, skills, knowledge, innovative capacity, and information. In collaboration with its affiliates, its founding members, and its institutional partners – the World Bank Group, OECD, and ITC—and with the support of the members of the B20 SME Development Taskforce, the WSF is amplifying the voice of SMEs, helping them fulfill the top priorities of the world’s multilateral institutions: job creation, social and economic inclusion, and innovation to shape the knowledge-driven global economy. i

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> Asia Pacific:

Vietnam - Not Just Rice By Tony Lennox

“They want enough rice…they don’t want our white skins around telling them what they want.” So says Thomas Fowler, a jaded British foreign correspondent, in Graham Greene’s The Quiet American. Graham Greene’s story described the chaotic circumstances in Vietnam as French colonialism gave way to communism. Fowler was talking to Alden Pyle, an idealistic and naïve young American working undercover for the CIA, attempting to find a “third way” for the country.

Vietnam: Hanoi Cityscape West Lake

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he novel, published in 1955, accurately foretold the tragic outcome of American efforts to stem the tide of communism in Indochina. Fowler says of Pyle, the quiet American of the title: “I never knew a man who had better motives for all the trouble he caused” – a metaphor for the USA as a whole. The Vietnam War, which escalated savagely through the 1960s, ended when Saigon finally fell to North Vietnamese troops in 1975. The US, which lost an estimated 58,000 servicemen in the conflict, remains scarred by the defeat. Paradoxically, though physical reminders of the war still exist – in the form of bomb craters and land mines which continue to maim civilians to this day – the war is generally a distant memory. More than 70% of Vietnam’s population of 90 million, are under the age of 40. They grew up in a Marxist society of collectivised farms and factories, beset by social and economic woes, exacerbated by a US embargo which aimed to carry on the war through economic strangulation. Despite their history, most Vietnamese today see the US as a friend and ally against their pugnacious neighbour China. While China remains Vietnam’s largest trading partner, the US is coming up on the rails, increasing its trade tenfold since the mid-1990s. The tensions with China remain a major concern in the region. Vietnamese forces, which evicted the notorious and Chinese-backed Khmer Rouge regime from Cambodia in 1979, had to deal with a subsequent 29-day military incursion by China over Vietnam’s northern borders, where nerves are still taut. China’s current brinkmanship in the South China Sea, which has seen the Chinese establish runways and harbours on isolated rock outcroppings, has led to a regular naval face-off between the two nations. In the four decades since the end of the war, Vietnam - one of only four remaining one-party communist states – has performed an economic miracle. Though unemployment remains a scourge, new industries are developing fast – particularly in technology. The Vietnamese have always prided themselves on their nimble dexterity, and are adapting quickly to the hi-tech world. They aim to develop their very own Silicon Valley to rival California’s within the next decade. Today the country is listed among a group of emerging nations most likely to join the developed world. When President Bill Clinton, an opponent of the war who controversially managed to avoid the draft, touched down in Hanoi in 2000, he put the seal on a new phase in Vietnam’s history. It was also the year, coincidentally, that Vietnam opened its own stock market. Only 14 years earlier Vietnam’s old guard communist rulers buckled under the weight of pressure from within to reform the economy and introduce a limited free market.

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“Both the World Bank and the International Monetary Fund (IMF), for the first time, offered help to a country which, thanks to the US-led embargo, had been something of an international pariah for decades.” MARKET REFORM The reformers, led by Nguyen Van Linh, began the transition to a socialist-orientated market economy. They actually opened the stable door to rampant capitalism, and the party has been riding that wild bronco ever since, welcoming the economic benefits, but unable to control the beast. During the 1990s, foreign investment began to flood into Vietnam and private enterprise flourished. Both the World Bank and the International Monetary Fund (IMF), for the first time, offered help to a country which, thanks to the US-led embargo, had been something of an international pariah for decades. After the end of the Vietnam War, the country had to import most of its staple food item, rice – a remarkable fact, given Vietnam’s vast paddy fields. However, by the turn of the century, it had become the world’s largest exporter of rice. Since 2002, Vietnam has been achieving growth at an average rate of 6% a year. But despite Vietnam’s stunning economic recovery from utter destitution in 1975, the point has been reached where the two systems are struggling to accommodate one another, and the Vietnamese people find themselves caught in a vise between a repressive, ideologically-driven communist regime and unfettered capitalism at its corrupt worst. SCRUTINY In recent years, the government’s human rights record has come under intense international scrutiny. Constantly criticised for its use of torture by Amnesty International, the country has also drawn criticism from Human Rights Watch for its treatment of political dissenters. It says the country’s record is “dire in all areas”. There are familiar signs of state paranoia – dissidents are denounced on state media as social deviants while many of those arrested are sent for re-education. The state also accuses the protesters of taking their orders from foreign CFI.co | Capital Finance International

reactionaries – all reminiscent of the worst years of Stalinism. But Stalin didn’t have to deal with the Internet; only with an inner circle including a projectionist. In 2013, the government introduced Decree 72 which severely restricted the use of the Internet for Vietnamese citizens. The decree is a wide-ranging blunt implement aimed at censoring the use of the internet, banning the discussion of current affairs, and any criticism of the state. Human Rights Watch says: “Basic rights, including freedom of speech, opinion, press, association, and religion are restricted. Activists and bloggers face harassment, intimidation, physical assault and imprisonment.” There are divisions in the ruling party, however. Some in government, involved in disagreement with other factions, see advantage in fostering dissent amongst the greater populace. But as dissent grows, so does the severity of suppression. There is a suggestion that some websites, giving specific evidence of corruption and wrongdoing among Vietnam’s political elite, are the work of other high-ranking politicians and government officials. And there is plenty of evidence of graft in the upper echelons of Vietnam’s government too. The Corruption Perception Index, a list drawn up by Transparency International based on business people’s observations of public sector corruption, shows that Vietnam, despite official claims that sleaze, fraud and dishonesty are being tackled, has remained in the same unenviable position for four consecutive years – ranked 112 out of 168 countries with a low score of just 31 out of 100. The organisation considers that Vietnam has not addressed shortcomings in its anti-corruption work. MOTIVATIONS The British academic Martin Gainsborough, who spent years in Vietnam doing fieldwork for his research on development in south-east Asia, wrote, in his 1999 book Vietnam: Rethinking the State: “Rather than being inspired by reformist ideals, officials have been motivated by much more venal desires. What we often refer to as reform is as much about attempts by rival political-business interests to gain control over financial and other resources.” Those Vietnamese campaigners leading the struggle for more political freedom are frustrated, however, by the apparent lack of concern among their countrymen. There is a shrug of acceptance, after so many years of strict state control, that nothing really changes – and a majority of citizens still see themselves as good communists. More than 80% of people claim to be atheists. As Graham Greene observed in the 1950s, the Vietnamese might be described as an indifferent people – they just want “enough rice” – and this is a trait which plays into the hands of a controlling regime which continues to cling on to power in a post-communist world. i

Autumn 2016 Issue

Strength in Numbers:

India Asserts Its Military Power By Darren Parkin

or decades, the top three military powers of the world have been the USA, Russia, and China. The United Kingdom is used to sitting fourth in line, with a comfortable gap between those chasing the leading pack. This is the order of things, and this is how it’s always been. Until now. Suddenly, with almost four million troops swelling its ranks, more than 20,000 pieces of artillery, some 2,000 aircraft, and a defence budget of $40 billion, India has muscled the UK out of its spot.

It’s quite the ascent up the defence charts, but this is no one-hit wonder; this is the rapid rise of a country which is taking its own security very seriously. As indeed it should. India is fighting threats on several fronts, not least of all its own homeland which was the scene of eight serious terrorist attacks last year – a number which has fallen markedly, in tandem with the rise of the nation’s military might. Most attacks on Indian soil come from lone wolves or small gangs crossing the porous border with Pakistan to kill and wound indiscriminately. For India, the disputed lands of Jammu and Kashmir are the focus of attention, and it appears the upscaling of military power is paying off there as well. “In 2013, there were 277 infiltration incidents,” says Home Affairs Minister Rajnath Singh as he explains how many insurgents had been captured while trying to cross the border from Pakistan. “There were 222 in 2014, and this number dropped to 86 in 2015.” Impressive figures. And all, insists the Indian government, a direct result of increased spending on the military. The reduction of incursions, however, could also be down to the type of personnel India has chosen to deploy in its north-western region. In military circles, this part of India is affectionately

“The dramatic surge in India’s military power is not restricted to land forces. Over the last ten years, an enormous amount of spend has been pumped into naval hardware.”

(including 4 ballistic missile delivery platforms), and 19 major surface combatants. Two large (65,000+ tonnes) fleet carriers are currently being built, though aircraft for the vessels have yet to be procured. However, keeping things in their proper context, it’s worth noting that the USA has 19 aircraft carriers and 75 submarines in its colossal fleet. China and Russia have a single aircraft carrier each, and both have anywhere between 60 and 70 submarines.

labelled Playground of the Rifles in reference to the elite troops of the Rashtriya Rifles stationed there.

The USA recently felt the ire of India’s top brass after Washington signed an arms deal with Pakistan. The US agreed to sell $952m worth of attack helicopters, ordnance, and miscellaneous systems to India’s perennial foe.

The best soldiers of every operational regiment in the Indian army are invited to apply for the Rashtriya Rifles. Only a handful make the grade before embarking on months of gruesome training in mountain warfare. The Rifles were raised in 1990 with an original force of 5,000 troops. The unit now boast some 65 battalions.

Other than border protection and tackling its insurgency problem, India doesn’t often get to flex its military muscle. However, lately it has put a few British noses out of joint with its offer to export its forces to Brunei.

Over the last quarter century, the Rashtriya Rifles have assembled an impressive counter insurgency track record. They have “processed” no less than 17,000 combatants. Some 8,000 have been taken prisoner. The others were killed. The dramatic surge in India’s military power is not restricted to land forces. Over the last ten years, an enormous amount of spend has been pumped into naval hardware. This has raised eyebrows across the globe – particularly in the UK where a proud tradition of ruling the waves has now been overshadowed by the navy of its former colony. Among its fleet of 202 vessels, India now boasts two aircraft carriers, 14 submarines, and 24 blue water destroyers and frigates. By contrast, the UK’s fleet of 66 vessels has one helicopter carrier of modest displacement, 11 submarines CFI.co | Capital Finance International

The oil-rich sultanate has been a British protectorate for almost a century, paying tens of millions of pounds for a battalion of British Army Gurkhas to watch its border since 1984. Caught in the middle of growing tensions between India and China, the sultan has been in negotiations with Indian vice president Mohammad Hamid Ansari with a view to signing a defence agreement that would see India receiving more than double that which is paid to the British for ensuring the sultanate’s security. India is also looking into becoming an arms exporter following an upturn in the local manufacturing of military hardware. The move would be quite a turnaround for a country that, up until last year, was the world’s largest importer of arms. India – a nation usually associated with peace, tolerance, and spiritualism – has discovered, albeit belatedly, that war can be a quite profitable business. i 177

> AnandRathi:

Relationship Managers Key to Success In the financial services industry, many companies tend to focus on the outward or external aspects of their business, often advertising heavily to impress their clientele with visuals and other kinds of communications on their bright exteriors. While this might indeed be the standard for growing one’s business, few realise the importance of looking inward as well. Some call it self-care, but can there be any denying that it is necessary to look after oneself so that one is fit to help others?

or Rakesh Rawal, CEO of AnandRathi Private Wealth Management, building clientele is important, but his relationship managers come first. There is a logical reason for adopting such a stance: it is due to the importance of relationships, which play a critical role in any business, and are especially relevant to the practice of wealth management. SMART AND CASUAL – MANAGING RELATIONSHIPS RIGHT When one looks back, what are some of the strongest relationships one has had? Family, of course, springs to mind at once, and then there are the friendships which have been formed years ago, that have stood the test of time and lasted over the years. As CEO, Rakesh Rawal believes in recruiting friends who will soon come to be family. The equation is brilliant in its simplicity: I care about my friends, and since my friends are those who work in my firm, I care about my employees. My employees are wealth managers, who, in turn, will care about the relationships they share with their clients. In addition to this bold but highly effective approach, another factor that AnandRathi focuses on is employee turnover. Considered among the greatest barriers to maintaining longterm relationships with clients, the firm has sought to address this in a unique and interesting manner. One of the biggest challenges faced by relationship managers is changing their organisation, while for clients, it is having to change their relationship manager. For most relationship managers, it is immensely difficult – when not altogether impossible – to persuade their clients to migrate with them to a different wealth management firm. HNI and UHNI clientele expect a certain degree of stability when it comes to the management of their wealth, and 178

“In addition to this bold but highly effective approach, another factor that AnandRathi focuses on is employee turnover.” going over to another firm after remaining with one for years, can understandingly be alarming. It is impressive that under Mr Rawal’s leadership, employee attrition has been brought down to 1%. When asked how this has been achieved, Mr Rawal responds, “I stand by what Sir Richard Branson, founder of the Virgin Group, said about his employees: ‘Train people well enough so they can leave, treat them well enough so they don’t want to.’ So, we hire people who love what they do, and provide them with the right kind of environment to succeed and grow.” The reason relationship managers at AnandRathi choose to stay with the firm over time is perhaps best summed up in four words that define the value that lies in working with the company – unlimited learning, unlimited earning. There are plenty of opportunities for personal and professional growth at AnandRathi, with relationship managers receiving hundreds of hours of training each year. Due to this, the firm rightly refers to its wealth managers as ‘financial strategists’. What’s also good is that they aren’t restricted by any rule placing boundaries on where they may develop and build client relationships. Flexible engagement with clients across the country is the cornerstone of how CFI.co | Capital Finance International

AnandRathi’s relationship managers conduct their business. Inside the office, too, the financial strategists enjoy an unparalleled freedom: rather than enforcing a rigid dress code that is usually par for the course at most similar firms, employees are encouraged to dress in smart casuals. This is done, keeping in line with the company’s focus on treating clients and prospects as friends. The logic is infallible, as one would hardly wear a blazer and tie when meeting with one’s friends or relatives! Furthermore, just as a concerned family member does not always tell you what you might want to hear, but what you really need to, AnandRathi’s financial strategists too do the same. In keeping with this, they always deliver honest advice, with sincerity. The firm’s clients are urged to bring their family members to meetings, so that it’s not just the client, but the client’s family as well, who will benefit from the discussion. After all, wealth is for the well-being of one’s family, and therefore, they need to be in the know about the way it is being managed. Investing in long-term relationships with customers, in combination with its solid emphasis on data-driven, strategic advisory is what makes the AnandRathi story one of sustained growth. For AnandRathi, growth is an outcome of their clients’ faith in them over the long-term. This is a sustainable approach, as against the unfortunately common one of making quick money by promising clients get-rich-quick options which serve to help neither client nor firm in the long term. Steady growth must, however, be sustained over time. This requires constant innovation, which is something that AnandRathi seems to have very clearly understood and internalised. MANAGING WEALTH IN DIGITAL INDIA The Indian Prime Minister Narendra Modi recently announced his government’s plan to

Autumn 2016 Issue

“The benefits of being able to receive real-time actionable advice from such service providers cannot be stressed enough, and as a wealth management firm, Anand Rathi has ensured that their wealth management clients can go digital in the easiest way possible.” propel the nation forward into the digital age, through a campaign called Digital India. Through a nation-wide campaign, the government seeks to encourage corporate firms to go digital by reducing reliance on paper and physical media. This would mean that over time, service providers such as hospitals, transport firms, banks, and even wealth management would go digital. The benefits of being able to receive real-time actionable advice from such service providers cannot be stressed enough, and as a wealth management firm, AnandRathi has ensured that their wealth management clients can go digital in the easiest way possible. While the idea is simple enough, execution is complex. The outcome, however, once again is simplicity itself. Through a mobile application designed for both iOS and Android users, clients will now be able to access not just their portfolio but a host of services including financial planning and execution, with a single touch. THE VALUE OF THE PROPOSITION In addition to this kind of intuitive innovation, possessing a high degree of flexibility while avoiding rigidity in operations would directly translate to client benefits and satisfaction. At AnandRathi Private Wealth Management, all financial strategists are given a free hand to plan their own business and design solutions that are most appropriate for clients. Such higher levels of customisation correspondingly require a greater degree of decision-making. Financial strategists at AnandRathi are aided in this by the requisite support teams and experts. That they are permitted to choose their own talent and build these teams at their discretion, is further testament to the refreshing freedom that every relationship manager at the firm can enjoy. A satisfied workforce will more likely mean happy clientele, and it is this seemingly innate understanding of social dynamics that lies at the core of the company’s approach towards its employees. It is clear, then, that an emphasis on relationships over just business, with an entrepreneurial work culture geared toward providing fearless, data-backed, and strategic advisory, is what defines AnandRathi’s unique value proposition. i 179

> TMB:

Helping Thailand’s SMEs Prosper Although the political situation has stabilised in 2016, economic and private consumption growth are still weak and recovering at a slow pace. This slow recovery greatly affects most small and medium-sized enterprises (SMEs). TMB understands this and adapts it policies in order to respond to customers’ difficulties during the challenging environment.

MB places strong emphasis on enhancing SMEs’ business competency and competitiveness by offering efficient product and service delivery as well as providing the right solutions that are derived from customers’ needs. Launched in mid-2015, TMB SME 3 Times Plus credit programme was developed to support SMEs’ critical needs of funding throughout the business life cycle. The credit programme holistically offers credit limits up to three times the collateral value while providing an additional 50% for working capital in addition to an emergency credit facility based on a thirty-day safety stock with repayment periods of up to three years. In 2016, leveraging the new business security law, TMB became the country’s first bank to offer a credit solution that allows SMEs to use floating charge assets as collateral.

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“TMB always moves towards the sustainable growth of a quality credit portfolio and the best possible SME customer experience.” TMB focuses on continuous development of the end-to-end credit process, starting from prudent underwriting based on current market conditions, efficient approval processes, effective limit set up and draw down, to credit quality monitoring and follow-up. In addition, TMB adopted technologies to improve operational efficiencies such as optical character recognition (OCR)

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systems for statement verification and GPS for appraisal. Most importantly, TMB aspires to develop wellrounded people to manage profitability, risk, and advisory through the TMB SME Academy that provides a wide range of modules from credit to selling with integrated knowledge management. TMB always moves towards the sustainable growth of a quality credit portfolio and the best possible SME customer experience. During tough economic conditions, TMB arranges special assistance programmes and allocates dedicated teams to help SMEs with liquidity problems from early stages. With the aspiration to become the best transactional bank for SMEs, TMB One Bank combines checking and saving accounts with transaction expense saving features such as

Autumn 2016 Issue

cheque deposits without fees, buy-1-get-1free cheque books, no transaction fees for transferring within TMB, amongst others. As a result, TMB successfully expanded its active customer base through acquisition of new customers and encouraged existing customers to transact more with the bank.

with SMEs through a dual-relationship model. Relationship managers keep in close touch with customers via face-to-face visits while the Relationship Management Center takes care of customer via phone calls. Currently, TMB serves SMEs through nationwide business network of 116 branch offices.

Together with expert speakers and industry leaders, LEAN Supply Chain by TMB continues its third year journey to share practical solutions with classes and workshops with a view to enhancing SMEs’ competencies. The joint effort results in tangible benefits such as expense reduction and revenue improvement totaling 440 million baht through 42 projects initiated by participants of the programme. In addition, TMB has established the Trade Expert Programme to build international trade and foreign exchange capabilities of SMEs.

As a result of continuous solution development and service improvement, TMB has achieved significant loan growth. Its credit portfolio expanded 12% from the previous year despite the economic downturn. Meanwhile, fee revenues increased 48% and trade volume grew 20%. The SME loan contribution to the overall TMB loan portfolio reached 37% at the end of 2015, in line with bank-wide strategic direction to shift the loan portfolio mix towards higher risk-adjusted return segments such as SMEs. TMB plans to reach 40% SMEs contribution to overall loan portfolio within the next five years.

TMB continues to strengthen its relationship

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VISION • To become the best transactional bank for SMEs, offering suitable solutions driven by customer demand • Become the Top 2 preferred banking partner of SMEs HOW WE PLAN TO DELIVER • By offering efficient products and services that Make the Difference through customer centricity • Aspire to become the main bank for SMEs • Improve the understanding of transactional and financial needs across different business segments • Facilitate simple and fast end-to-end processes and enhance multiservice channels, especially online, in order to deliver a superior customer experience • Develop capable people to provide long-term advisory service to SMEs and building a salesrisk balance culture i 181

ENDURING PARTNERSHIPS ANCHORED ON TRUST, INTEGRITY AND TRANSPARENCY At China Banking Corporation in the Philippines, we are constantly evolving and improving. We celebrate our 96th anniversary with a renewed commitment to excellent customer service driven by our mission to help our clients succeed, and informed by a deep understanding of their needs, dreams and goals -- as individuals, families, entrepreneurs, businesses, and institutions.

Even as we grow, innovate and expand, we continue to be guided by the timeless values of our founding fathers -- that banking is a relationship anchored on trust, integrity, fairness and transparency. These core values underpin the strength of our partnerships that span across four generations, and propel our continued efforts to excel in corporate governance and embed global best practices in our corporate culture. This is who we are, what we are about, defining what we do. Making a difference for our stakeholders is its own reward; accolades a welcome treat.

At the 2015 Bell Awards, the Philippine Stock Exchange (PSE) recognized China Banking Corporation as a top 5 publicly listed company for excellence in corporate governance â&#x20AC;&#x201D; the only listed company to be so recognized for four consecutive years, and the only bank awardee in each of the four years.

www.facebook.com/chinabankph www.twitter.com/chinabankph

Autumn 2016 Issue

> Learn to Trade:

Training Responsible Traders

he clue is in the name: Learn to Trade does what it says and helps its clients master the intricacies of the global foreign exchange market. Forex trading is not to be undertaken without proper training. In fact, most ill-prepared traders fall into the 90-90-90 category – an industry standard: 90% of traders lose 90% of their money in 90 days. “With this in mind, many brokers effectively bet against their own clients. Some go so far that they won’t even execute trades and pocket the losses,” says Learn to Trade founder and CEO Greg Secker – a master trader, entrepreneur, and philanthropist who had made a fortune by his midtwenties. Comfortably wealthy, but far from numb, Mr Secker turned his back on high finance to start his own trading floor – from his kitchen table. This approach, seemingly haphazard yet solidly structured for success, summarises Mr Secker’s walk of life: An IT specialist with a degree in Animal Physiology, he soon found work in the financial services industry just as the Internet – and online trading – came of age. Gaining valuable insights, and discovering the markets’ dynamics from behind the scene, Mr Secker before long moved to the business end of operations – the trading floor. The rest, as they say, is history: by age 25, Greg Secker had made vice-president at Mellon Financial Corporation – a major Fortune 500 investment bank. “Back then, the currency markets moved around $3 trillion per day. Now, it has doubled. Money became an asset class with around a hundred million people trading currencies and dreaming of quitting their day job. The problem is, of course, that forex trading is most decidedly not a get-rich-quick endeavour. To succeed, a trader needs maturity, discipline, and a keen sense of responsibility. It helps to keep expectations within the realm of reason and to gain knowledge of the markets.” A do-gooder at heart, and a renowned philanthropist, Mr Secker founded Learn to Trade as a way of providing budding traders with the knowhow – and backbone – to survive and prosper, and – perhaps – make their dreams come true. Learn to Trade is an integrated learning company and provides not only access to expertise, but to trading instruments as well. Learn to Trade maintains an in-house brokerage, albeit one with a twist: “We are not betting agents and do not base our business model on tricking our clients. Instead, Learn to Trade pursues a sustainable business model that offers an online platform which allows newbie traders to learn from those that have an already well-established track record.” 154

Founder & CEO: Greg Secker

Successful traders, those with a good book of records and consistent monthly returns of two to three percent, are invited to become group leaders that others may latch on to. This way, good traders gain access to a larger pool of money – adding to their revenue stream – whilst others benefit from their expertise. “This has an added advantage for CFI.co || Capital Capital Finance Finance International International CFI.co

us that we now have almost 100% active accounts, as opposed to the industry standard of 10%. In London, it is held that an active trader nets the broker around $20 per day. By having nearly all our accounts active, Learn to Trade profits as do our clients. It is a win-win-win business model that Learn to Trade has pioneered.” i 183

> IIFL Wealth Management:

Q&A with Founder, MD & CEO Mr Karan Bhagat

IFL Wealth & Asset Management, a subsidiary of IIFL Holdings, formerly known as India Infoline - was formed when a group of senior professionals with significant private banking experience joined hands with India Infoline Group and started operations in April 2008. During the time that followed, trust and reliability were scarce as the financial turmoil had left most investors jittery and confused. The initial years required the team to put in extra effort to assuage the fears of the investors and prove that even in tough times they could count on the company for information and support.

IIFL Wealth Management is based on three pillars: • Employee ownership – employees own around 24% of the company and the sponsoring parent IIFL Holdings and private equity investor GE Capital own the remaining stake; • Alignment of interests – employees are able to take a long-term view on the firm and its clients, as their emoluments are linked more to stock options and ownership as opposed to just annual incentive pay-outs; • Innovation – innovations such as fixed fee structures, the pricing of structured products at par, and an independent fixed-income trading desk have helped the team sit on the same side of the table as the client and gain market share. Over the years, IIFL Wealth Management has built a practice based on the principles of modesty, simplicity, and client centricity. MANAGEMENT Karan Bhagat is the founder of IIFL Wealth Management and its managing-director and chief executive officer. He has more than fifteen years of experience in private wealth management. Prior to founding IIFL Wealth, Mr Bhagat headed the Mumbai office of Kotak Wealth Management. Mr Bhagat’s vast experience and established product structuring skills have been instrumental in making him one of the pioneers in implementing the family office proposition in India. Under his leadership, IIFL Wealth Management evolved from a start-up to one of India’s leading private wealth management and family offices companies. Mr Bhagat holds a PGDBM (post-graduate diploma in business management) from the Indian Institute of Management (IIM) in Bangalore. He also holds a bachelor’s degree in Commerce from St Xavier’s College in Kolkata. 184 144

“Mr Bhagat’s vast experience and established product structuring skills have been instrumental in making him one of the pioneers in implementing the family office proposition in India.” Walk us through the initial years: how has IIFL Wealth and Asset Management risen to become the leading wealth management company in India? It was in the midst of the global crisis of 2008 that we started operations. Today, IIFL Wealth and Asset Management has close to ten thousand influential HNI [high-net-worth] and Ultra HNI families in India and abroad. IIFL Wealth and Asset Management is the main entity under which we have subsidiaries like Wealth Management, Asset Management, Wealth Finance which is our NBFC [non-banking financial company], Trust Services, and Corporate Functions. We have an entrepreneurial culture in our organisation. Along with my co-founders Yatin Shah and Amit Shah, we brought with us a small team and joined hands with IIFL Group to start operations in April 2008; a year that was infamous with the Lehmann Brothers crash and the Madoff crisis. Investors had lost faith in the financial markets. We identified this trust-deficit as the biggest challenge facing the market. During our initial years, we patiently spent time with every investor reassuring them the enduring value of rock-solid advisory support. We were joined by extremely talented and experienced names in the wealth management industry like Pravin Bhalerao, Anirudha Taparia, Vinay Ahuja, and Himanshu Bhagat who came aboard as managing partners. In a short span of time, we have emerged as the leading private wealth management company in the country. Did those meetings with investors actually pay off when sentiment was so low? Eventually, hard work paid off as it compelled potential clients to look beyond the obvious; to CFI.co | Capital Finance International

comprehend and appreciate the big difference between short-term profit seeking banks and a dedicated financial services institution providing responsible advice, an effective system of tracking and monitoring investments, and around the clock back-end support. As a result, we now have more than Rs 80,000 crore of assets under management, advice, and distribution. What kind of innovations have you pioneered in wealth management? The wealth management landscape in India is diverse. No two clients are alike and nobody understands that better than we do. Our clients range from iconic business leaders to fashion moguls and from first-generation entrepreneurs with humble beginnings to the senior-most professionals in industry. In order to make sure we keep raising the bar for not only our clients, but the financial world at large, we use our technology and research to find the most innovative solutions for each client. We pioneered the concept of co-investing where we put in a fixed percentage of investments from our own treasury in most of the company’s advisory products. We believe in capturing data in totality, including held-away assets. Our latest innovation is the All-In-Fee which commits to a single transparent fee being charged to the client. This transparency ensures optimum cost and takes care that the portfolio performance is not compromised by multiple layers of fees. When we started in 2008, we developed and launched a comprehensive distribution platform where products across categories are customised to specified needs. Later, we launched our Family Office Services – an innovation that offers comprehensive wealth management strategy by mapping every individual member’s estate and wealth. In recent times, we launched our Direct Code Offering with flexible engagement levels that can be adapted across scenarios. Technology has been a disruptor in most industries. How is it in the wealth management space? Given the growing population of youth wealth creators, and a decreasing average HNI age, we saw technology as a key enabler and have been at the forefront of launching new technology solutions. We are investing heavily in new age technologies in order to bring a client’s portfolio to him on tap. We have our app [that runs both on Android and iOS platforms] which enables a

Autumn 2016 Issue Autumn 2016 Issue

“IIFLWealth Wealthprinciples principlescan can “IIFL besummed summedininan anacronym acronym be TRUST: TRUST:Transparency, Transparency, Responsiveness, Responsiveness, Unwavering Unwaveringcommitment, commitment, Specialist Specialistservice, service,and and Thought Thoughtleadership.” leadership.” client and reach clienttotosee seehis hisportfolio, portfolio,raise raisea aquery, query, and reach out outtotohis histeam teaminstantly. instantly. What Whatsteps stepsare areyou youtaking takingtotoretain retaintalent? talent? Employees Employees are are continually continually trained trained onon new new products products and and processes processes through through a a variety variety ofof formal formaland andinformal informalmodes modeslike likeindustryindustryapproved approved certifications, certifications, eLearning eLearning courses, courses, and and weekly weeklyhuddles. huddles.IIFL IIFLWealth Wealthis ispossibly possibly the theyoungest youngestteam teamininthe thewealth wealthmanagement management space spacewith withthe thehighest highestwork workexperience. experience.We Weare are a apeople’s people’scompany companyand and25% 25%ofofour ourcompany companyis is owned [employee stock ownedbybyour ouremployees. employees.ESOPs ESOPs [employee stock ownership toto employees, with aa ownershipplans] plans]are areallotted allotted employees, with buy buyback backscheme, scheme,totocreate createa avibrant vibranteco-system eco-system with withstrong strongalignment alignmentofofemployee employeeinterest interestwith with that thatofofthe theclient. client.This Thishas hasdriven driveneach eachemployee employee toto function functionwith withananentrepreneurial entrepreneurialmindset. mindset. We Weare areproud proudtotobebeconsidered consideredananEmployer Employerofof Choice Choiceand andhave havethe thelowest lowestattrition attritionrate rateininthe the industry. industry. We ensure a judicious blend of authority and We ensure a judicious blend of authority and autonomy in nurturing a world class team autonomy in nurturing a world class team of achievers with relevant work experience, of achievers with relevant work experience, making the most of the collective talent and making the most of the collective talent and temperament. The investment of private equity temperament. The investment of private equity heavyweight General Atlantic in IIFL Wealth heavyweight General Atlantic in IIFL Wealth bears testimony to the quality of the team we bears testimony to the quality of the team we have built over the years. have built over the years. What are your future plans? What are your future plans? We have several aspirations for IIFL Private We have several aspirations for IIFL Private Wealth as a global brand and these include Wealth as a global brand and these include collaborating with global leaders for their Indiacollaborating with global leaders for their Indiacentric investments, being the first choice for centric investments, being the first choice for India-focused institutional investors and the India-focused institutional investors and the preferred service provider for the Indian diaspora. preferred service provider for the Indian diaspora. How do you measure success? How do you measure We measure success success? in terms of the ability to We measure success in terms the ability meet clients’ financial goals andof giving themto meet advice clients’ tofinancial giving and them sound navigategoals life’sand expected sound advice to navigate life’s expected and unexpected events. The key principles that unexpected events. of TheIIFL keyWealth principles that guide all endeavours can be guide allin endeavours IIFL Wealth can be summed an acronym ofTRUST: Transparency, summed in an acronym TRUST:commitment, Transparency, Responsiveness, Unwavering Responsiveness, Unwavering commitment, Specialist service, and Thought leadership. Our Specialist philosophy service, andisThought leadership. Our investment unflinchingly centred investment philosophy is unflinchingly centred on robust research and well-defined processes. on ability robust isresearch and by well-defined processes. Our backed-up agility which is the Our ability is backed-up by agility which is the primary reason why we are the leading Indiaprimary reason are theileading Indiacentric wealth andwhy assetwemanager. centric wealth and asset manager. i CFI.co | Capital Finance International CFI.co | Capital Finance International

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> Grant Thornton:

Mobility - A Double Edged Sword? By Eugene Ha and Chris Lou

It would be hard to imagine a chef working without a culinary knife. Different kinds of knives serve different purposes. If used appropriately, these knives can do wonders for their users. However, if used carelessly or even abused, they can hurt users or in some extreme cases may be turned into weapons to hurt others.

o a certain extent, the same can be said about the use of today’s increasingly sophisticated technology. There is no doubt that today’s technology has advanced and evolved to a point where it has become an essential ingredient of success to most businesses. It has enabled businesses to effectively reach more and more targeted customers around the world while improving efficiency of internal operations and automating interactions with their business partners both upstream and downstream. However, if left unmanaged, technology may subject companies large and small to all kinds of risks and malicious cyber-attacks, hence becoming a liability rather than an asset. In this article, we will be focusing on one specific technology and that is enterprise mobility or simply mobility which has drawn an ample amount of attention in today’s technology driven business environment. DEFINITION OF MOBILITY When we talk about mobility in this article, we are referring to the trend towards a change in work habits, with more and more employees working remotely from the office enabled by the use of mobile devices to perform business tasks. Such devices include smart phones, tablets, and any other hand-held devices that employees carry around with them while not being in the office. These devices are usually configured to connect to the company’s internal networks thus enabling their owners or users to access computing resources of the company including critical ERP systems while on the go. UPSIDES OF MOBILITY Since it can certainly help improve productivity and responsiveness to customer demands, organisations have come up with various ways to take advantage of mobility. For example, a deliverer that is not tech savvy can easily use his or her smart phone, either personally owned or company provided, to access the logistic module of the company’s ERP system from outside of the office to simply enter the date 186

“If left unmanaged, technology may subject companies large and small to all kinds of risks and malicious cyber-attacks, hence becoming a liability rather than an asset.” and time of a delivery right after the delivery to automatically trigger revenue recognition for the goods delivered. Another use of such technology enables sales management to approve sales orders outside of the office as these workers are always out of the office in pursuit of new business opportunities with prospective customers. In addition, lower level sales personnel especially appreciate mobility as it can enable them to access their company’s warehouse or inventory management system to see if there are enough goods available in stock to meet the sales demands of their customers while also being able to check the most updated price book at real time. Furthermore, it can also enable them to answer various inquiries from potential customers right on the spot based on information instantly accessible to them via mobility and therefore enhance the chance of obtaining new business. POTENTIAL PITFALLS OF MOBILITY Now that some upsides of mobility have been discussed, let’s take a look at some of the potential pitfalls that companies need to be aware of with mobility. Physical security of these mobile devices is a legitimate concern. Mobility has enabled the expansion of the working environment outside of the traditional physical office making it possible for employees to work almost anywhere at any given time. Physical control over computing equipment such as servers or laptops can easily be implemented CFI.co | Capital Finance International

in a traditional office environment. However, it would be hard for companies to safeguard these mobile devices while they are in the hands of employees being outside of the office constantly on the go. If lost, devices may end up in the hands of individuals with malicious intents and the consequences can be disastrous as these devices may have important, sensitive, and confidential information stored on them. Worse yet, cybercriminals can gain unauthorised and sometimes privileged access through these lost devices to critical systems residing inside the company’s network potentially leading to data loss or leakage for the company. Once inside the company’s network, these criminals will be like kids in a candy shop being able to get their hands on all the information and systems available within the network and pull off different malicious acts at their will to put the company in trouble. Secondly, employees with hand-held mobile devices used 100% or partially for business purposes can easily fall into the trap of unintentionally installing malicious applications onto their devices potentially turning these devices into tools used by cybercriminals to gain access to the company’s internal IT environment for exploitation purposes. Uncontrolled action of such kind can put companies at great cyber security risk. Lastly, another way employees using these mobile devices can unintentionally put their companies at risk is by connecting these devices to the Internet or even to their companies’ internal networks by using Wi-Fi provided by most coffee shops or restaurants as a complimentary service these days. As most of us are aware, Wi-Fi services at these locations are not designed to provide the most secure channels of communication. Rather, they are simply provided for the convenience of the shops’ customers for their personal casual use instead of business. Therefore, using Wi-Fi at those locations for work purposes without any

Autumn 2016 Issue

“If implemented appropriately, it can definitely help companies become more productive, efficient, agile, and competitive. However, just as any other new technology, it does come with risks that need to be managed.” secure measures in place can potentially open the door for attacks on the company’s networks. SAFEGUARDS AGAINST ASSOCIATED RISKS Now that we have considered some of the downsides of mobility, are we suggesting that mobility not be implemented at all? Absolutely not. Just as we do not stop using knives altogether simply because they can be misused, we are not suggesting that mobility be avoided at all. As a matter of fact, what we need to do is recognise the risks associated with mobility and put in place safeguards or measures to manage those risks. That way, we can reap and enjoy the benefits of mobility while minimising the associated risks. Without getting too technical, there are indeed some safeguards that companies can implement against risks associated with mobility. We will be briefly mentioning two kinds of controls. They are administrative controls and technical controls. Companies can mandate that the same IT security policies applicable to regular computing resources within the office be extended to cover mobile devices used by employees for business purposes. For example, companies may require employees to apply the same password policy to their mobile devices as they would their on-premise machines which may include requirements related to minimum password length, password complexity, and frequency of change. Also, companies may require employees to refrain from installing certain applications or getting on certain websites. If necessary, companies may also make it a policy that any company-owned mobile devices assigned to employees and used for business purposes are subject to regular inspection by the IT department in order to make sure that the devices are well protected. Lastly, any requests to access company’s networks from any mobile devices need to be appropriately approved by all related parties. Companies can implement an enterprise wide mobile device management system (MDM). In light of the increasing usage of mobile devices for work purposes, quite a few MDMs have come into existence. They can help companies manage mobile devices and provide centralised security to those devices. For smaller companies that cannot afford a MDM, there are still technical measures that can be used to help prevent data leakage from these devices. One such measure is called remote wipe. What it does is CFI.co | Capital Finance International

enable the device owner to remotely wipe out all the data stored on the lost device, return the device to original factory settings, or remove all programming on the device, hence rendering the device totally useless to anyone with possession of the lost device. ASSESSING PROS AND CONS BEFORE IMPLEMENTATION Mobility is a technology that is here to stay. If implemented appropriately, it can definitely help companies become more productive, efficient, agile, and competitive. However, just as any other new technology, it does come with risks that need to be managed. One major risk has to do with data loss either due to theft or a lack of security measures applied. As such, companies need to put in place both administrative and technical measures to safeguard them against any risks associated with mobility. Lastly and most importantly, companies do well to assess the pros and cons mobility before implementation and based on that assessment, determine whether or not they are ready to embrace and adopt mobility. i

Author: Eugene Ha

Author: Chris Lou

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> IFC:

The Value of Rewriting the Rules By Ethiopis Tafara

Two years ago, Tesla CEO Elon Musk decided to provide anyone access to his company’s patents. That generated a lot of debate. What was Musk’s true motivation? The move ran completely counter to traditional competitive behaviour. Why would anyone give away hard-earned designs and technology to rivals?

hatever you may think of Elon Musk – who aspires to build a colony on Mars by 2040 – you must appreciate his courage. He’s taking unconventional positions that might upend entire industries for the benefit of society at large. Mr Musk rewrote the rules of the traditional assumptions of what leads to business success. He believes his company’s success depends on the success of the entire market for electric cars. He also believes the commercial interests of Tesla are inseparable from those of society at large. If Tesla’s open patents succeed in bringing other players into the sector, it might transform what is now a niche market into a mass market for electric cars. That same transformation would also significantly advance the fight against climate change. Now, I ask you: Is Elon Musk trying to fight climate change? Or is he just trying to make a buck? I would suggest to you that he’s doing both – and this is inevitably what successful companies of the future will need to do. We live in an age of enormous transformation – a time when focusing simply on near-term profitability is a prescription for near-term extinction. In the future, successful companies will take the lead in addressing the most urgent development challenges of our time – everything from poverty to climate change. Businesses increasingly recognise this reality. Just as an example, a number of companies – this year’s nominees and past winners of the FT/IFC Transformational Business Awards – prove that addressing societal needs is entirely compatible with long-term profitability. That might seem a bit unconventional right now. But for them, and a growing number of companies like them, it’s just common sense. Three years ago, Kenya’s M-KOPA was one of the winners. It has brought solar power to more than 300,000 low-income households in Kenya, Uganda, and Tanzania; and is now adding such connections at a rate of 500 homes a day. M-KOPA installs solar panel kits and collects payments via mobile phones, delivering power at prices cheaper 188

“Now, I ask you: Is Elon Musk trying to fight climate change? Or is he just trying to make a buck?” than kerosene lighting. Think of the impact – on people’s lives, on health and on the environment – that comes with phasing out the dangerous, pollution-inducing use of kerosene. Now consider M-KOPA’s financial prospects: its revenue is projected to reach $60 million in 2016, a 400% increase in just two years. In Peru recently, thirty financial institutions also took an unconventional path: they established Modelo Perú, a partnership to provide access to digital financial services in a country where cash transactions dominate. These banks saw that it was in their collective interest to create one national platform for mobile payments – so they worked with the government and four telecommunications companies to create it. Today, they have a much larger pool of consumers than they would have had they built their own separate platforms. And the number of Peruvians with access to affordable financial services has expanded significantly. I can also point to my own organisation, the International Finance Corporation, for another example of the value of rewriting the rules. In 2006, IFC introduced Performance Standards to help our client companies mitigate environmental and social risks and advance private sector’s leadership in sustainable development. Initially, other financial institutions were sceptical about our approach – they saw the application of environmental and social standards as a sure way to lose business and lower profits. Within a few years, however, the tide had turned. Major banks and development finance institutions came CFI.co | Capital Finance International

together to establish the Equator Principles based on IFC’s standards. Today, our Performance Standards are applied widely for all project finance practitioners. They have helped elevate the playing field in the banking industry. Now we are advancing such work with regulators as well. Through the Sustainable Banking Network – an association of central banks, regulators, and financial trade associations – we are helping countries develop national policies to boost green finance. Across the world, there is a growing appetite – not just within governments but within the private sector as well – for expertise of this kind. In short, there is a new formula for success in an age of transformation. Businesses can – and must – start by focusing on a pressing societal need. The options are anything but narrow: just last year, the global community agreed to address as many as seventeen development challenges via the United Nations Sustainable Development Goals. The trick is addressing these needs in ways that are profitable and sustainable in the long run – a daunting task. Finally, once such business solutions are identified, it’s imperative to deploy them on a wide scale – by getting others to join in and create mass markets in these new areas. I think the world is at a crucial stage today. We have the momentum and the means to create a mass market for sustainable finance where investment decisions are driven as much by environmental, social, and governance criteria as by creditworthiness. Consider the assets under management of the companies that have signed the Principles for Responsible Investment: $60 trillion, which gives you a sense of the potential here. We know there are enough businesses that want to do the right thing for their shareholders by doing the right thing by society at large. The question is how we can translate intentions into action. Many of the IFC client companies are leading by example and we at IFC are proud to support the terrific work they are doing. We intend to do much more over the coming year. We believe our

Summer Autumn 2016 2016 Issue Issue

“At IFC, we find ourselves confronted with a rare opportunity and we are ready to rewrite the rules yet again to ensure the opportunity is not be wasted.” Performance Standards can be a blueprint for advancing sustainable finance across all types of markets. We are exploring ways to expand these standards to include governance criteria and adapt them for use in scenarios well beyond project finance. At IFC, we find ourselves confronted with a rare opportunity and we are ready to rewrite the rules yet again to ensure the opportunity is not be wasted. Today, as we contemplate new ideas for tackling a variety of complex development challenges, I’d Corporate Forum: Organized IFC and the UMFCCI like for Governance the private sector, thebygovernments, andin Yangon, Myanmar in February. Chris Razook is pictured second from the left. the development community to consider how we loans, manage exposures, and reforms in Myanmar will bring opportunities to With such big challenges ahead, IFC and the can work togetherconcentrated to convert these solutions into many SMEs, including expansion possibilities World Bank Group, with support from the UK ensure sound credit andcan collateral procedures mass markets; how we break the rules of requiring capital to fuel their growth. Thus, are being used. and Australian governments, are committed convention to scale up rapidly. i efforts should be made to help SMEs adopt basic to working with various market actors in Similarly, Myanmar’s new stock market is a standards of governance, which will facilitate Myanmar to continue strengthening corporate ABOUT THEwhile AUTHOR landmark development that will tapfor new sources their access to finance and improve their chances governance practices and help it build a Ethiopis Tafara is a vice-president Corporate of survival in the long run. of capital help fuel theand expansion of the vibrant and sustainable private sector. i Risk and toSustainability the General country’s there similar public Counsel. private In this sector, capacity, he is is aresponsible for Fortunately, Myanmar can learn a lot from its ABOUT THE AUTHOR trust needsrecovery to be safeguarded IFC’selement legal andthat financial operations.with He sound governance and transparency. Based ASEAN neighbours who have made significant Chris Razook is IFC’s corporate governance also oversees the organisation’s comprehensive progress on harmonising corporate governance lead for the East Asia Pacific Region. on IFC andtotherisk World Bank Group’s approach management andexperience provides practices in preparation for the launch of the Mr Razook has more than fifteen years in working for with capital market authorities in leadership IFC’s environmental, social, and emerging markets globally, creating efficient yet ASEAN Economic Community last year. One of experience in the area of corporate governance standards. prudent governance rules for listed companies notable example is the ASEAN Corporate governance and supports IFC investments Governance Scorecard Initiative – first introduced by working with companies to strengthen is continuous process. In Asiainalone, there MraTafara is a recognized leader developing with support from the Asian Development Bank their governance frameworks. He has also are or regulatory planned efforts to update and ongoing promoting and governance listed company rules global in China, Indonesia, the and now also backed by IFC – which provides supported central banks, capital market standards to support securities markets. benchmarks for individual companies to rate authorities, and other regulatory bodies in Philippines, and developing Vietnam, countries amongst on others. He has advised the and improve specific governance practices. Myanmar shouldtoglean drafting corporate governance laws, codes, reforms needed grow much capital learning markets from and In addition, Myanmar can leverage a strong these efforts. and listing rules to help develop stronger has led in the formulation of standards for network of governance practitioners, including investment climates. Mr Razook has an regulators, oversight bodies, and securities Governance will also around play a the crucial role in the representatives from ASEAN capital market undergraduate degree in Engineering, an markets’ participants world. corporatisation of Myanmar’s state-owned authorities and institutes of directors, to its MBA in International Finance, and an LLM entities. State remainsfrom highthe in US the advantage as the country continues to reform. in Corporate Law. He joined IFCownership in April 2013 country, particularly in the infrastructure Securities and Exchange Commission sector; where Author: Ethiopis Tafara without commercially orientedofreforms including he served as the director the Office of corporate governance, International Affairs. this can hinder overall market efficiency and drag economic growth. Mr Tafara holds a JD from Georgetown University SMEs Law Center and an AB from Princeton University. At other end ofMrthe spectrum, and He the is a US national. Tafara was bornsmall and grew medium-sized the up in Ethiopia enterprises and speaks (SMEs) Amharic, are French, backbone of the Myanmar economytoand comprise Italian, and Spanish, in addition English. He more than and 95%has of two all sons. firms. Continued market is married CFI.co CFI.co || Capital Capital Finance Finance International International

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Geopolitics: Remove the Cloak to Find the Dagger By Wim Romeijn

Formerly the refuge of patriotic crackpots – Samuel Johnson’s scoundrels – geopolitics has gone mainstream with terms such as manifest destiny and lebensraum creeping back into civil discourse. Recent events seem to reaffirm the basic tenets of this rather colourful offshoot of the political sciences: world order is largely determined by geography and the clash between sea and land power. Its principles set in stone, geopolitics refuses to acknowledge progress – or indeed the march of time – and argues that ever since the Peloponnesian War surf and turf have vied for supremacy.

een from this angle, the rising tension in the South China Sea over the Spratly Islands has China, a budding land power, face off the United States, a wellestablished sea power. Russia’s push into Georgia (2008) and Ukraine (2014), as well as the country’s military presence in Syria and its bellicose posturing towards the Baltic states, are but tangible expressions of geopolitics in action. In this way of interpreting global dynamics, there is no place for soft power based on economic might. The European Union may constitute the world’s largest economy; its wielding a carrot – as opposed to a stick – fails to influence events.

Final Thought

In geopolitics, money and the ability to earn it are irrelevant: power stems from resources, people, and knowledge – and from the barrel of a gun. Nazi Germany managed to build an outsized war machine on the ruins of the Weimar Republic and did so in barely six years. The Soviet Union built an even larger military colossus in 500 or so days even though the country’s GDP had plummeted 34% in the first two years of the 1940s. Today, Russia boasts about 144 million inhabitants and an economy about the size of Italy’s. In contrast, the EU is home to around 510 million people that produce a GDP (nominal) fully fifteen times larger than Russia’s. Geopolitical considerations aside, President Putin is, at best, a minor inconvenience – a pitiful mouse rather than a fearsome bear. Yet, the reality on the ground belies this apparent 190

“Geopolitics shows global forces at play without the obfuscating rhetoric or abstract ideological schemes.” mismatch with Russia instilling fear by moving divisions around its periphery and beyond in support of Mr Putin’s whims. By virtue of both its size and position, Russia is bound to remain centre stage as the tectonic plates of global diplomacy shift around it. The spiritual father of geopolitics, Sir Harold Mackinder (1861-1947), arrived at that conclusion already in 1904. In a lecture at the Royal Geographical Society – The Geographical Pivot of History – he argued that Russia, not Germany, would prove to be Britain’s main strategic opponent. The following two world wars put that thesis to rest. However, Sir Harold Mackinder was vindicated – and geopolitics rescued from obscurity – with the onset of the Cold War. Contemporary Russia displays a fascination with geopolitics, and in particular with Mackinder’s most famous assertion that, “Who rules East Europe, commands the Heartland; Who rules CFI.co | Capital Finance International

the Heartland, commands the World Island; Who rules the World Island, commands the World.” Elevated to the status of a prophet, Sir Harold Mackinder has afforded the Kremlin a sense of national purpose – and Russia a manifest destiny. Meanwhile China, another land-based power, is reaching out in the same direction building a new Silk Road, buying up half of Greece, and leveraging its significant wherewithal to finance big infrastructure projects all over the Balkan. The country’s expansive designs on the South China Sea and its semi-submerged atolls constitute a diversionary move: useful as a muscle flexing exercise but hardly supportive of any grander strategy. As a disruptive power, China does not further its interests by directly taking on the US – the reigning king of the hill. Geopolitics shows global forces at play without the obfuscating rhetoric or abstract ideological schemes. Rather, it openly showcases the fundamental mechanisms that drive international politics, with nation states and blocs attempting to outmanoeuvre one another. Deprived of a diplomatic cloak, the machinations of greater and lesser powers become clear for all to see – and it is mostly dagger. Such it is that the first anomaly that springs into view concerns the growing irrelevance of Europe. While the Old World may still have a trick or two up its sleeve, without hard power to project – or a manifest destiny to pursue – it is unlikely that Europe will be able to set the world’s agenda, let alone steer it. i

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