CFI.co Summer 2015

Capital Finance International

Summer 2015

GBP 9.95 // EUR 14.95 // USD 15.95

AS WORLD ECONOMIES CONVERGE

Adel Saleh Al-Ghamdi, CEO of Saudi Stock Exchange:

KINGDOM CALLING

ALSO IN THIS ISSUE // IFC: CORPORATE GOVERNANCE PRACTICES IN THE EU // PwC: AFRICA’S HOSPITALITY US DEPARTMENT OF STATE: GO GREEN BY 2017 // UNCTAD: INVESTMENT PERSPECTIVE NASDAQ: EMERGING MARKETS LEVERAGE ESG STRATEGY // UNCDF: CLIMATE CHANGE

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Summer 2015 Issue

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Editor’s Column

May We Have Some Privacy, Please?

Intelligence agencies are tasked with spying on just about anybody and anything that comes within their reach. They have been known to eavesdrop even on those charged with their oversight. Advances in technology and data storage, sifting, and analysis have empowered intelligence agencies to such a degree that very little goes on in the world without it causing a blip on their radar screen.

The processing of big data is being hailed as the next IT frontier that, once properly crossed and explored, will allow governments to know all about the societies they rule and the individuals within.

The chances of anyone remaining anonymous or getting away with even the most minute of offenses are diminishing fast.

Editor’s Column

A UK polling company (www.onepoll.com) calculated that the average Briton engages in unlawful behaviour at least six times a day. Even the most law-abiding of subjects commits about seven more serious crimes every week ranging from downloading pirated songs over the Internet and littering to speeding and texting while driving. Most transgressions are, of course, minor and cause but limited, if any, harm.

Breaking laws regularly does not seem to bother most people. The pollsters found that about 20% of those asked justify their wrongdoings by pointing out that “everybody does it.” Fully two thirds of the respondents said that since the offenses are small, nobody should really care. However, rules and laws are there to be obeyed and governments seems eager, possibly anxious, to cash in on those who beg to differ. Already now, unsuspecting offenders are regularly served with fines and other sanctions, spit out by a computer and conveniently delivered by mail.

As electronic surveillance techniques become ever more sophisticated – with forests of cameras following people’s every move and mobile phones pinpointing each place visited – more unlawful behaviour will get logged, processed, sanctioned, and monetised in ways that even George Orwell could not have foreseen. This scenario, whilst apparently at odds with the increased awareness of privacy 6

considerations, raises a number of serious concerns.

First and foremost amongst them the fact that all laws need a degree of flexibility in their application lest they become unmanageable. All too often, lawmakers acting on the best of intentions, write legislation that is wildly impractical. Also, with the number of laws on the books growing exponentially, the amount of freedom and self-determination available to the society governed by them is reduced ever further.

Few, if any, governments have realised that the technological means at their disposal must not necessarily be deployed at maximum potential. Most also fail to recognise that truly free societies need tolerate some outlaw behaviour in order to preserve overall civic freedom.

In Nordic countries, technology has helped tax agencies become so supremely efficient, and ruthless, in collecting the monies due that everyone – private individual or business – is effectively considered a potential tax dodger in need of constant compliance monitoring. Tills, for example, will only operate when connected via the Internet to the tax collector’s servers where every transaction is duly registered to be cross-checked at a later date with the other data to fish for inconsistencies. Bank secrecy is now wholly inexistent. At larger corporations, an in-house taxman will be on hand to not just dispense advice, but vet every corporate move.

Businesses habitually forego opportunity because the proposed novel course of corporate action may raise eyebrows at the tax office. In fact, no action will be undertaken unless previously cleared by the almighty tax authorities who have thus become arbitrators – armed with the final say – instead of keeping to their original brief of taking a cut of earnings.

As surveillance permeates throughout modern society it becomes stifling to life and creativity alike.

Europe in particular has a role to play in remedying this dreadful state of affairs. The European Union, no poster boy for transparency and certainly not the most flexible of entities, could conceivably take on a leading role. Some vision is needed.

CFI.co | Capital Finance International

Governments do not like to be spied upon by others. Likewise, individuals dislike snooping by the powers that be. When the German and French governments bitterly complain about US snooping, they may want to hold back on some of their own eavesdropping.

For a start, European governments could be more assertive in their collective reaction to the activities of the US National Security Agency and similar spy networks. It is one thing to express displeasure, quite another to actually do something about it.

Likewise, it is all good and well to celebrate the need for privacy protection – and adapt a few cosmetic legislative remedies to waylay concerns – but quite another to actually accept that citizens are simply not to be spied upon, period. After all, people are supposed to be innocent until proven guilty – and state entities should most certainly not go out of their way, pulling out all technological stops, trying to catch each and every transgression, however insignificant.

The refrain, repeated ad nauseam, that societies need to be subjected to deep and constant surveillance in order to catch a few terrorists is beginning to ring both repetitive and hollow. Whilst terrorism poses a serious threat indeed, its menace is too easy an explanation for states to embrace the wholesale monitoring of societies, irrespective of concerns over civic liberties being trampled upon.

Before Europe starts pointing and wagging fingers at the United States, apparently its preferred source of all things evil, the countries of the continent should could do worse than to show a modicum of respect for the privacy of their citizens and stop bothering them with fines and other annoying sanctions for the minor transgressions now detected thanks to the electronic paraphernalia deployed to weed out terrorists and other potential evildoers. May we have some privacy, (pretty) please?

Wim Romeijn Editor CFI.co

Editor’s Column

London: MI6

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> Letters to the Editor

“ “ “ “

In describing Salman Khan (Young Leaders, spring, 2015) as mischievous you are stretching the definition of the word to its limit. I am not too interested that you find the gentleman to be good looking and question your view that he may be ‘India’s most eligible bachelor’. In May this year, Mr Khan was sentenced to five years imprisonment for a 2002 hit-and-run accident in Mumbai which resulted in the death of one homeless man and injuries to four other people.

Despite claims that the popular Bollywood actor was a passenger in the vehicle and had been drinking a good deal of water that fateful evening, presiding Judge DW Deshpande found that he was indeed driving the car and was doing so under the influence of alcohol. Perhaps you should have noted that Mr Khan has a rather poor memory at times.

S SHAH (Mumbai)

Greetings from the United Arab Emirates Ministry of Economy. I would like to take this opportunity to thank you for supporting the 5th edition of the Annual Investment Meeting (AIM), which took place in Dubai from March 30 to April 1, 2015. Your valuable participation in AIM 2015 contributes to the success of the event, I thank you immensely for your active contribution and I hope to count on your involvement in the upcoming edition of the Annual Investment Meeting in Dubai in 2016. Kindly accept my sincerest regards and utmost respect.

A AL SALEH (Dubai)

I was delighted to read a report in your last issue of a secondary school group in Nigeria that has won a Schlumberger Excellence in Education and Development (SEED) science challenge prize. Apparently the young people created a water-powered automobile (by incorporating a device that produces oxyhydrogen gas). Congratulations to the students involved and thanks to Schlumberger, Nigeria for supporting this annual programme that does so much to encourage appreciation of the sciences.

E CHUKWU (Lagos)

I wholeheartedly agree the CFI.co award to Transavia as Best Low-Cost Carrier Europe 2015. Although competitors Ryan Air and others were not mentioned by name, the report of the win does suggest important ways in which the one differentiates itself from the others. As a regular traveller on shared routes, I fully concur with the findings of your judging panel. In fairness to the Irish airline, in particular, they do seem to be on the verge of some vague image improvement campaign – but wow, they do have a fair way to go.

B DE VRIES (Eindhoven)

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New York: Manhattan

Summer 2015 Issue

“ “ ““ “

Yes, I agree, Angela Merkel, The Sentinel, is an exceptional administrator and cunningly exhibits extraordinary stealth at the helm. She is arguably the most powerful woman in the world and is quite likely to win a fourth term as German chancellor in 2017. The problem, as your recent cover story suggests, is that she leads a ‘generation without leaders’. Where are the radical thinkers, visionaries, and determined politicians we need at this troubled stage in the European adventure? I agree with your assertion that Merkel’s soft power helps keep the (European) flock together but that by ignoring the bigger issues there is the risk that some of the sheep will eventually wander off. Can we expect much of Angela Merkel on the European and world stages if she does indeed lead Germany for another four years? I have my doubts.

G SCHMIDT (Mannheim)

I have no regrets that Jeremy Clarkson has been dropped by the BBC. He did more than get ‘frightfully upset’ with the Top Gear producer over the case of the missing steak. He physically attacked the unfortunate man after shouting his mouth off as usual. Your Seeking Centre Stage feature in the last issue gives more credit to Clarkson than former premier and Middle East peacemaker Tony Blair for career efforts. I would suggest that we are very fortunate to be rid of them both.

G CHURCHMAN (Canterbury)

I may have discovered the reason Greece has been unable to come to an amicable arrangement with her European creditors. The urge of PM Tsipras to smarten up (he has promised to wear the silk tie presented to him

by Matteo Renzi once the debt crisis is resolved) is not as strong as his loyalty to attractive partner Betty Baxiana. She is said to have threatened to leave Tsipras if he gives too much away.

J SUMNER (Hartford, CT)

If you think the global economy is at dire risk because of the situation in Greece, watch out as there may be a far, far bigger problem brewing to the East. Chinese stocks are plunging to an extent that may make the Greek problem look like a matter of nickels and dimes. And we will all feel the pain if everything goes dreadfully wrong.

Prospects for economic growth and corporate success in China are presently not looking good – to put it mildly.

P ARMSTRONG (Trenton, NJ)

Your columnist Ross Jackson is going too far in suggesting that Greece should not only quit the EU but also drop out of the WTO (so that the country can work its way out of trouble by way of both capital and import controls).

What we really need is a debt crisis solution that is realistic but does not cripple our country further. We want the euro, we want to be part of the EU, but we cannot continue with austerity policies that take food from the mouths of our children and medicines away from patients in hospital beds.

V CHRISTOU (Athens)

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Editor Wim Romeijn

>

Assistant Editor Sarah Worthington

COVER STORIES

Executive Editor George Kingsley Features Editor Penny Hitchin Production Editor David Graham

US Department of State: Go Green by 2019 (20 – 21)

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

Nasdaq: Emerging Markets Leverage ESG Strategy

Columnists Otaviano Canuto Ross Jackson Tor Svensson

Saudi Arabia: A Kingdom Opening Up to the World

(22 – 23)

(24 – 28)

Distribution Manager Len Collingwood

Subscriptions Maggie Arts

IFC: Corporate Governance Practices in the EU (52 – 56)

Commercial Director Jon Gerben

Director, Operations Marten Mark

PwC: Africa’s Hospitality (106 - 108)

Publisher Mark Harrison

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

UNCTAD: Investment Perspective (196 – 197)

UNCDF: Climate Change (198 – 199)

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

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CFI.co | Capital Finance International

Summer 2015 Issue

FULL CONTENTS 12 – 35

As World Economies Converge

Otaviano Canuto

Nouriel Roubini

Robert J Shiller

Tor Svensson

Ann Low

Evan Harvey

36 – 47

Summer 2015 Special: Science & Technology

48 – 79

Europe

IFC

Steward Redqueen

Hellenic Bank

Newstate Partners

Lusitania Vida

Alpen Invest

Godiva Chocolatier

Casinos Austria International

Rajneesh Narula

80 – 101

CFI.co Awards

Rewarding Global Excellence

102 – 145

Africa

PwC

Unitel T+

Assupol

Barclays Africa Group

Meikles

National Bank of Kenya

UNCTAD

Payment Express

Centum Investment Company

Unit Trust of Tanzania

IH Securities

StratLink Africa Ltd

Simba Group

Fine and Country Nigeria

Futureview Group

SustainValues

146 – 155

Middle East

Jordan Dubai Islamic Bank

Professional Traders

156 – 167

Editor’s Heroes

Ten Men and Women Who are Making a Real Difference

168 – 187

Americas

TD Bank

Seabury Group

PI Mabe

Mabesa

Credicorp Capital

188 – 201

Asia Pacific

Khan Bank

Bangkok Insurance

UNCTAD

UNCDF

202

Chronicle of a Death Foretold CFI.co | Capital Finance International

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> Otaviano Canuto, IMF:

How Commodity-Dependent Are Latin American Economies?

The end of the upswing phase of the commodity price super-cycle, after its peak in 2011, has lowered economic growth prospects in most of Latin America. While that broad statement can hardly be disputed, Chapter 3 of the latest IMF Western Hemisphere Regional Economic Outlook calls attention to underlying significant differences among countries in the region. Growth implications of the commodity price evolution have varied substantially as a result of commodity-specific price patterns and country-specific exposures and composition of commodity specialisation.

COMMODITY-SPECIFIC SUPER-CYCLES Figure 1 depicts the three broad groups of commodity prices as following an overall common cyclical path since 2002. After a strong upswing lasting until the 2008 financial crisis, and a subsequent recovery from the plunge, mid-2011 has been dubbed the “sunset of the super-cycle”. Prices definitely ceased to climb during the plateau period (shaded area) and the three groups have all moved to lower levels after mid-2004.

However, Figure 1 also shows that evolution is taking place with different intensities. As we highlighted two years ago (Canuto, 2013), the dynamics of fundamentals in terms of relative supply and demand trends in the markets for each group were then divergent enough to lead to differences like those identified during the plateau period. In the case of crude oil, sector-specific supply-side developments were responsible for the sudden fall during the second half of 2014. The differentiation is starker when one disaggregates the three groups.

CFI.co Columnist

A net exporter (importer) of a commodity

“It looks hard to state that the recent performance and macroeconomic prospects of Brazil can be predominantly explained by the commodity price super-cycle.” enjoys (suffers from) a manna-from-heaven gain (thunder-from-heaven loss) when its price increases. The extent to which that price retreats back after the end of the upswing phase determines how much of that gain (loss) is reduced - or even possibly reversed. Therefore, country-specific impacts of the commodity price super-cycle have depended on which commodities – and how much of each of them – a country exports and imports.

The IMF Regional Outlook brings estimates of country-specific “commodity terms of trade” (CTOT) indices across the region. Those are indices in which price changes of individual commodities are weighted according to their (net) export value, and are then normalised by GDP. A certain increase (decrease) in CTOT is thus a way to gauge the net gain (loss) of commodity price movements in GDP terms.

Figure 2 exhibits cumulative changes in CTOT indices from average levels in 2002 to mid-2011 (the sunset of the super-cycle), August of 2014 (when the sudden plunge of oil prices started), and February of 2015. At least four aspects come to the fore:

economic blessing for most of Latin America.

2. Baskets of commodity exports and imports determined how much of that gain was retained during the plateau period (red squares) and afterwards (blue diamonds). This follows from different compositions of commodity specialisation regarding metals, food, and oil and their diverging price patterns over time.

3. Commodity prices have not in general declined to levels below those in 2002 and, therefore, the manna-from-heaven gains accrued until now have not been completely reversed. However, those gains were accrued in past and current GDP levels, while the contribution of commodity price shocks to GDP growth rates has become negative after the price peak. Positive commodity price shocks have multiplier-accelerator effects beyond changes in CTOTs. Provided that they are seen as permanent or prolonged, they spark investments that benefit directly or indirectly from them. Both potential and actual GDP move up as compared to the absence of shocks. Broad

Figure 2: Commodity Terms of Trade, 2013-2015. (Cumulative change in CTOT indices from average levels in 2002; percentage

Figure 1: Commodity prices. (Index: July 2011 = 100) Note: The shaded area corresponds to the plateau period referred to in the text.

Source: IMF, World Economic Outlook database.

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1. As one can see on the horizontal axis, except for Uruguay, all Latin American countries therein derived GDP gains from the upswing phase.

The ascent stage of the cycle was a potential CFI.co | Capital Finance International

points of GDP) Note: CTOT = Commodity Terms Of Trade.

Source: IMF, World Economic Outlook database; UN Comtrade; and IMF staff calculations.

Summer 2015 Issue

asset price hikes and capital flows may also follow. Nevertheless, once positive shocks fade out and corresponding multiplier-accelerator effects have run their course, there will be a deceleration of output growth even if prices stay high.

4. Magnitudes in GDP relative of terms-of-trade gains, and their subsequent partial unwinding along the cycle, have varied substantially among countries. First-order impacts as measured in Figure 2 do not tell the whole story of implications of commodity price cycles for a country’s economy. Second-order effects – like above-mentioned investments, asset price cycles, capital flows, and others – depend on sector- and country-specific features in addition to CTOT changes. The nature of economic policies accompanying price shocks can also – positively or negatively – magnify the impacts of those CTOT movements. However, even taking these factors into account, the discrepancies in quantitative relevance of the commodity price super-cycle still look very significant between, say, Venezuela and Chile on the one hand, and Brazil, Mexico, and Paraguay on the other.

Take the case of Brazil. It is true that ups and downs in neighbours’ economies more cyclically affected by commodity prices also weighed on its performance as a consequence of their relevance as markets for Brazilian manufactured products.

However, it looks hard to state that the recent performance and macroeconomic prospects of Brazil can be predominantly explained by the commodity price super-cycle. i

ABOUT THE AUTHOR Otaviano Canuto is the executive director at the Board of the International Monetary Fund (IMF) for Brazil, Cabo Verde, Dominican Republic, Ecuador, Guyana, Haiti, Nicaragua, Panama, Suriname, Timor Leste and Trinidad and Tobago.

Views expressed here are his own and do not necessarily reflect those of the IMF or any of the governments he represents.

Note from the author: adapted from my presentation at the Workshop on Commodity Super Cycles, jointly organised by the Bank of Canada and Federal Reserve Bank of Dallas, Ottawa, at the Bank of Canada Headquarter on 27-28 April 2015.

The views expressed are those of the author and do not necessarily reflect the views of the IMF. CFI.co | Capital Finance International

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CFI.co Columnist

Mr. Canuto has previously served as vice president, executive director and senior adviser on BRICS economies at the World Bank, as well as vice president at the Inter-American Development Bank. He has also served at the Government of Brazil where he was state secretary for international affairs at the ministry of finance. He has also an extensive academic background, serving as professor of economics at the University of São Paulo and University of Campinas (UNICAMP) in Brazil.

> Nouriel Roubini:

Emerging Markets after the Fed Hikes Rates

T

he prospect that the US Federal Reserve will start exiting zero policy rates later this year has fuelled growing fear of renewed volatility in emerging economies’ currency, bond, and stock markets. The concern is understandable: when the Fed signalled in 2013 that the end of its quantitative-easing (QE) policy was forthcoming, the resulting “taper tantrum” sent shock waves 14

through many emerging countries’ financial markets and economies.

Indeed, rising interest rates in the United States and the ensuing likely rise in the value of the dollar could, it is feared, wreak havoc among emerging markets’ governments, financial institutions, corporations, and even households.

Because all have borrowed trillions of dollars in CFI.co | Capital Finance International

the last few years, they will now face an increase in the real local-currency value of these debts, while rising US rates will push emerging markets’ domestic interest rates higher, thus increasing debt-service costs further.

But, although the prospect of the Fed raising interest rates is likely to create significant turbulence in emerging countries’ financial

Summer 2015 Issue

markets, the risk of outright crises and distress is more limited. For starters, whereas the 2013 taper tantrum caught markets by surprise, the Fed’s intention to hike rates this year, clearly stated over many months, will not. Moreover, the Fed is likely to start raising rates later and more slowly than in previous cycles, responding gradually to signs that US economic growth is robust enough to sustain higher borrowing costs. This stronger growth will benefit emerging markets that export goods and services to the US. Another reason not to panic is that, compared to 2013, when policy rates were low in many fragile emerging economies, central banks already have tightened their monetary policy significantly. With policy rates at or close to double-digit levels in many of those economies, the authorities are not behind the curve the way they were in 2013. Loose fiscal and credit policies have been tightened as well, reducing large current-account and fiscal deficits. And, compared to 2013, when currencies, equities, commodity, and bond prices were too high, a correction has already occurred in most emerging markets, limiting the need for further major adjustment when the Fed moves.

USA: Federal Reserve

“In short, the Fed’s exit from zero policy rates will cause serious problems for those emerging market economies that have large internal and external borrowing needs, large stocks of dollar-denominated debt, and macroeconomic and policy fragilities.”

Above all, most emerging markets are financially more sound today than they were a decade or two ago, when financial fragilities led to currency, banking, and sovereign-debt crises.

Most now have flexible exchange rates, which leave them less vulnerable to a disruptive collapse of currency pegs, as well as ample reserves to shield them against a run on their currencies, government debt, and bank deposits.

Most also have a relatively smaller share of dollar debt relative to localcurrency debt than they did a decade ago, which will limit the increase in their debt burden when the currency depreciates. Their financial systems are typically sounder as well, with more capital and liquidity than when they experienced banking crises. And, with a few exceptions, most do not suffer from solvency problems; although private and public debts have been rising rapidly in recent years, they have done so from relatively low levels.

In fact, serious financial problems in several emerging economies – particularly oil and commodity producers exposed to the slowdown in China – are unrelated to what the Fed does. Brazil, which will experience

CFI.co | Capital Finance International

recession and high inflation this year, complained when the Fed launched QE and then when it stopped QE. Its problems are mostly self-inflicted – the result of loose monetary, fiscal, and credit policies – all of which must now be tightened – during President Dilma Roussef’s first administration.

Russia’s troubles, too, do not reflect the impact of Fed policies. Its economy is suffering as a result of the fall in oil prices and international sanctions imposed following its invasion of Ukraine – a war that will now force that country to restructure its foreign debt, which have been rendered unsustainable by the added military expenditure, a severe recession, and currency depreciation.

Likewise, Venezuela was running large fiscal deficits and tolerating high inflation even when oil prices were above $100 a barrel; at current prices, it may have to default on its public debt, unless China decides to bail out the country. Similarly, some of the economic and financial stresses faced by South Africa, Argentina, and Turkey are the result of poor policies and domestic political uncertainties, not Fed action.

In short, the Fed’s exit from zero policy rates will cause serious problems for those emerging market economies that have large internal and external borrowing needs, large stocks of dollar-denominated debt, and macroeconomic and policy fragilities.

China’s economic slowdown, together with the end of the commodity supercycle, will create additional headwinds for emerging economies, most of which have not implemented the structural reforms needed to boost their potential growth.

But, again, these problems are self-inflicted, and many emerging economies do have stronger macro and structural fundamentals, which will give them greater resilience when the Fed starts hiking rates. When it does, some will suffer more than others; but, with a few exceptions lacking systemic importance, widespread distress and crises need not occur.i

ABOUT THE AUTHOR Nouriel Roubini is Chairman of Roubini Global Economics and a professor at NYU’s Stern School of Business.

Copyright: Project Syndicate, 2015. www.project-syndicate.org 15

> Robert J Shiller:

The Mirage of the Financial Singularity

I

n their new book The Incredible Shrinking Alpha, Larry E Swedroe and Andrew L Berkin describe an investment environment populated by increasingly sophisticated analysts who rely on big data, powerful computers, and scholarly research. With all this competition, “the hurdles to achieving alpha [returns above a risk-adjusted benchmark – and thus a measure of success in picking individual investments] are getting higher and higher.”

That conclusion raises a key question: Will 16

alpha eventually go to zero for every imaginable investment strategy? More fundamentally, is the day approaching when, thanks to so many smart people and smarter computers, financial markets really do become perfect, and we can just sit back, relax, and assume that all assets are priced correctly?

This imagined state of affairs might be called the financial singularity, analogous to the hypothetical future technological singularity, when computers CFI.co | Capital Finance International

replace human intelligence. The financial singularity implies that all investment decisions would be better left to a computer programme, because the experts with their algorithms have figured out what drives market outcomes and reduced it to a seamless system.

Many believe that we are almost there. Even legendary investors like Warren Buffett, it is argued, are not really outperforming the market.

In a recent paper, Buffett’s Alpha, Andrea Frazzini

Summer 2015 Issue

and David Kabiller of AQR Capital Management and Lasse Pedersen of Copenhagen Business School, conclude that Buffett is not generating significantly positive alpha if one takes account of certain lesser-known risk factors that have weighed heavily in his portfolio. The implication is that Buffet’s genius could be replicated by a computer programme that incorporates these factors.

If that were true, investors would abandon, en masse, their efforts to ferret out mispricing in the market, because there wouldn’t be any.

Market participants would rationally assume that every stock price is the true expected present value of future cash flows, with the appropriate rate of discount, and that those cash flows reflect fundamentals that everyone understands the same way. Investors’ decisions would diverge only because of differences in their personal situation. For example, an automotive engineer might not buy automotive stocks – and might even short them – as a way to hedge the risk to his or her own particular type of human capital.

Indeed, according to a computer crunching big data, this would be an optimal decision.

There is a long-recognised problem with such perfect markets: no-one would want to expend any effort to figure out what oscillations in prices mean for the future. Thirty-five years ago, in their classic paper, On the Impossibility of Informationally Efficient Markets, Sanford Grossman and Joseph Stiglitz presented this problem as a paradox: Perfectly efficient markets require the effort of smart money to make them so; but if markets were perfect, smart money would give up trying.

The Grossman-Stiglitz conundrum seems less compelling in the financial singularity if we can imagine that computers direct all the investment decisions. Although alpha may be vanishingly small, it still represents enough profit to keep the computers running.

“But the real problem with this vision of financial singularity is not the Grossman-Stiglitz conundrum; it is that real-world markets are nowhere close to it.”

But the real problem with this vision of financial singularity is not the Grossman-Stiglitz conundrum; it is that real-world markets are nowhere close to it. Computer enthusiasts are excited by things like the blockchain used by Bitcoin (covered on an education website called Singularity University, in a section dramatically titled Exponential Finance). But the futurists’ financial world bears no resemblance to today’s financial world.

CFI.co | Capital Finance International

After all, the financial singularity implies that all prices would be based on such things as optimally projected future corporate profits and the correlation of profits with expected technological innovations and longterm demographic changes. But the smart money hardly ever talks in such ethereal terms.

In this context, it is difficult not to think of China’s recent stock-market plunge. News accounts depict hordes of emotional people trading on hunch and superstition. That looks a lot more like reality than all the talk of impending financial singularity.

Markets seem to be driven by stories, as I emphasise in my book Irrational Exuberance. There are stories of great new eras and of looming depressions.

There are fundamental stories about technology and declining resources.

And there are stories about politics and bizarre conspiracies.

No one knows if these stories are true, but they take on a life of their own.

Sometimes they go viral. When one has a heart-to-heart talk with many seemingly rational people, they turn out to have crazy theories. These people influence markets, because all other investors must reckon with them; and their craziness is not going away anytime soon.

Maybe Buffett’s past investing style can be captured in a trading algorithm today. But that does not necessarily detract from his genius. Indeed, the true source of his success may consist in his understanding of when to abandon one method and devise another.

The idea of financial singularity may seem inspiring; but it is no less illusory than the rational Utopia that inspired generations of central planners.

Human judgment, good and bad, will drive investment decisions and financial-market outcomes for the rest of our lives and beyond. i

ABOUT THE AUTHOR Robert J Shiller, a 2013 Nobel laureate in economics and Professor of Economics at Yale University, is coauthor, with George Akerlof, of Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism.

Copyright: Project Syndicate, 2015. www.project-syndicate.org

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> Tor Svensson:

German Tough Love Just Not Good Enough

A

cloud laden with debts is hovering above the earth and the global financial system may not be equipped to handle it. The world – and Europe in particular – must learn to deal with debt which in a non-inflationary scenario keeps its original value.

The US alone carries about $17.5 trillion of government debt. Unfunded federal liabilities amount to seven times that figure. State and institutional debts and off-balance sheet federal obligations push that number even higher.

Meanwhile in Europe, many countries are so deeply indebted that they have passed the point of no return, i.e. when the debt to GDP ratio has reached escape velocity and can no longer be reduced by conventional means. These countries are unable to run a primary surplus large enough to cover interest payments. Across the Eurozone, debt-induced austerity policies are causing unemployment on a massive scale while blocking the path to enduring prosperity.

The good news is of course that public debts do not have to be repaid. These debts may simply be extended ad infinitum. Thus, debt can be bought up by newly printed money. The American Federal reserve, the European Central Bank, and Japanese monetary authorities are the experts in this field.

This approach works wonderfully well as long as credibility is maintained. Back-stopping and providing oodles of liquidity to commercial banks are part of that.

CFI.co Columnist

The global financial system relies on trust and confidence. However, these may evaporate at a moment’s notice as the recent stock market gyrations in China show. Now cracks are also showing in the euro’s armour. Potentially damaging fissures of doubt have crept in: are all members really backing this currency; will goal posts be moved; could a euro from one country hold a value different from another?

For most Eurozone member states – excluding Germany and the Benelux countries – the euro has proved disastrous in terms of growth and employment. EU countries outside the Eurozone have performed significantly better. Greece is just the most recent and hardest-hit victim of euroinspired economic policy. The country’s inability to attain growth via devaluation has caused its economy to collapse.

Germany has benefitted most from Europe’s large internal market and its undervalued currency. By 18

“The beauty of sovereign debt issued in your own currency is that you need never default as money can be printed – or otherwise called into existence – at any given time. That option is not available to Greece.” sharing a currency with weaker countries, German industry gained a decisive competitive edge. The country’s unemployment rate of 4.7% is now the lowest of all Eurozone member states. The average unemployment level of the currency block stands at 11.1%.

For seven consecutive years the Eurozone’s economy has flat-lined resulting in anaemic job creation. Germany has also enjoyed access to lowcost capital. Widely considered the safest haven of the Eurozone, the country has seen capital inflows turn into a flood that even negative interest rates could not stem.

Someone needs to explain to the Germans that the competitive odds have very much been stacked in their favour. It follows that Germany is wellserved by the current model and has few, if any, incentives to change its stance.

As Greece stumbled from one crisis to the next, Germany showed a new nationalistic and selfrighteous side devoid of both diversity and solidarity. Rules were made up as developments warranted. The Greek were to be made to suffer the punishment for their fiscal shortcomings. A new no-debt-relief rule was invented on the spot.

It seems the privatisation plan – which is supposed to assist Greece – means to place the country’s state assets in Luxembourg under German control and then sell the confiscated goods at distressed prices and use the proceeds of the fire-sale to chip away at the debt.

The Greek must be wondering how the national debt of about €355bn – and counting – came about. The money seems to have gone everywhere but to Greece. True, the country did spent a great pile of cash on unnecessary infrastructure projects – including communications and surveillance systems from Siemens – and still boasts disused CFI.co | Capital Finance International

Olympics monuments that offer concrete testimony to its free-spending ways of yore.

Now caught up in an expensive cycle of repaying old debt with new, the entire Greek nation has fallen victim to the graft of a tiny free-spending elite. The country has now been subjected to a shutdown ordered by the European Central Bank as it withdrew support from Greek banks.

With starvation and riots threatening, the Greek government capitulated.

By the way, Greece does not need a haircut: there are other ways of restructuring debt repayments.

The payment period may be extended with interest waived and the principal paid back over a period of a hundred years at 1% annually. Such a deal would keep the Eurozone’s books looking good since the debt would still be serviced. Taxpayers would not be asked to foot the bill of a Greek default. With such an easy solution available but unused, the Greek crisis smacks of German vindictiveness.

The beauty of sovereign debt issued in your own currency is that you need never default as money can be printed – or otherwise called into existence – at any given time. That option is not available to Greece.

The tough love approach taken by Germany has come close to killing the patient. Privatisations and structural changes and reforms take time to implement. A new healthy lifestyle and accompanying diet are not very helpful if the patient suffers from acute suffocation and is bleeding profusely.

IMF prescriptions to ailing countries normally include economic stimulation via currency depreciation. With the latter part of the formula not available, the stimulus element was left out of the plan for Greece. The IMF is supposed to serve as an independent and trusted expert: just where did they expect growth – to offset all these taxes and spending cuts – to come from?

A failure and misjudgement of such proportions is normally cause for an apology – and a change of course. The most recent IMF recommendation, duly approved by the dying patient, entails yet more austerity including taxes on tourism (an idea supported by Spain) and on businesses.

Imagine for a moment that around the time when the prior UK coalition government took office the Bank of England suddenly stopped providing liquidity to the banking system; the pound could

Summer 2015 Issue

not devalue; VAT and other taxes were raised; and severe public spending cuts were imposed. Such a scenario would have destroyed the UK economy in no-time flat with a depression of epic proportions.

Fortunately, the UK government did pretty much the exact opposite and saw its efforts criticised by the IMF and other monetary purists.

The crisis in Greece has exposed the EU’s dysfunctional institutional set-up. A byzantine and deeply flawed decision-making process, cooked up by Germany and France, fails to get beyond producing patch-work solutions of the pretend-andextend kind.

As-is, the global financial system is not fit for purpose. Systemic governance is poor. Very little has changed and the root causes of the 2008 financial meltdown have not been addressed. Banks are still too big to fail. Investment and commercial banking remain entangled in a swan song-like duet. Bankers’ continue to merrily assume great risk in the firm knowledge that the taxpayer stands ready to bail them out should they tank. The derivatives market remains vibrant with a brisk trade in exotic and highly complex instruments. Global derivatives now amount to $710 trillion – or about ten times the global GDP. The global financial system lacks effective checks and balances and is hardwired to provoke yet another financial meltdown. The difference is that the next time around, rescue schemes such as quantitative easing (QE) and low interest rates have been used up. How low can you go?

What emerging markets can learn from Europe is not to enter into currency unions. For Africa that silly idea has died anyways when Gadhafi was dragged out of a sewer pipe and dispatched.

India’s new pro-business approach and muchimproved governance standards are paying off with 7% annual economic growth. Nigeria enjoys a similar growth rate which the country is expected to sustain for a decade or more. Nigeria’s new government aims to eradicate corruption and improve people’s lives through job creation and investments in infrastructure.

After the painful display of the Greek crisis, Europe stands in need of a new narrative. The tough love dispensed by the Germans is not it: creating unemployment while blaming debt is not good enough – that is politics, not economics.

One lesson that any country may easily apply: do not hand over the keys to your central bank to someone you owe money to. i ABOUT THE AUTHOR Tor Svensson is the Chairman of Capital Finance International.

Germany: Cologne

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CFI.co Columnist

There are dangers to the financial system and debt is only one of them. Monetary instability comes from the global capital flows that far outweigh the trade in goods, services, and commodities. Finance rules the world – not trade.

> Ann Low, US Department of State:

Go Green by 2019 - Make Business Registration Easy Everywhere by 2019

T

he “Go Green by 2019” campaign is designed to promote transparent and user-friendly business registration processes worldwide. It is a joint initiative of the Kauffman Foundation’s Global Entrepreneurship Network (GEN), the United Nations Conference on Trade and Development (UNCTAD) and the U.S. Department of State. The campaign uses non-traditional partnerships, global collaboration and information technology to address root causes of poverty, corruption and opaque government administrative processes. The “Go Green by 2019” campaign is built around the Global Enterprise Registration website, www.GER.co, which is the world’s first platform that provides, in one location, links to all official business registration websites in the world and ratings of each website’s user-friendliness.

The GER.co website shows that 69 countries in the world have not put their business registration processes online. Only 25 countries have developed single windows to allow easy online registration; of those, only two (Switzerland and Denmark), provide all mandatory registrations and certificates online. The remaining 127 countries with online business registration processes offer information portals describing those processes.

The best of these tell a person where to go to register a business, what to do, how much it will cost, and how long it will take, and they provide links to legal justifications for all required registrations. However, of the 127 information portals online in June 2015, only 23 had all that information, and only another 7 described all of the mandatory registrations a business needs to operate legally. There is enormous potential for improvement.

This lack of clear, complete and accurate information about business registration procedures is indicative of a bigger problem. Many government processes, from licenses to building permits to visas and immigration applications, are exceedingly complex and often opaque.

Frank Grozel, Coordinator of UNCTAD’s Business Facilitation Program (www.businessfacilitation. org) explains that, “within governments, many administrations act in silos and see the world not from their customer’s standpoint, but from their administration’s standpoint. Business registration typically involves registrations with four or more administrations (business registry, national and/or state/municipal tax identification number, social security, pensions). If those administrations don’t collaborate, the customer won’t know whether he’s actually done all the required registrations or just some of them, and he won’t know in which order to complete the procedures most efficiently.”

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“By focusing attention and resources on government services that touch peoples’ lives, governments can build trust between their populations and the administrations that serve them.”

Assistant Secretary of State, Economic and Business Affairs, Charles H. Rivkin

Such collaboration across administrations takes time, leadership and political will. It’s hard.

Simplification requires even more perseverance and political will. The first step towards simplifying a business registration process is documenting the existing procedures. According to Grozel, “seeing a process documented in its entirety often shocks government officials, who each understood their piece of the puzzle but had no idea the puzzle comprised 84 pieces. Typically, when governments see their processes in detail, they want to simplify; then begins the hard work of administrative collaboration and compromise.” Over the past 10 years UNCTAD’s business facilitation program has helped 27 countries put 1,786 administrative procedures online, and in the process reduced the number of steps required to register a business by 80 percent on average.

James Zhan, Director of the UNCTAD Investment Division, explains, “UNCTAD and the countries with which it works have accomplished administrative simplification by creating smarter workflows and eliminating unnecessary steps that were not required by law. My division produces Investment Policy Reviews that advise governments how to encourage foreign direct investment. We recognized complex administrative procedures as a barrier to investment and established the business facilitation program to find solutions. Each country’s situation is unique, but the basic types of information businesses need are the same, whether for domestic or foreign investors. The great thing about this program is that developing countries that embrace reform can, and do, excel. Some of the most userfriendly business registration websites in the world are in developing countries. Governments and businesses can support those reformers by taking notice, investing in their countries and suggesting additional procedures to simplify.”

According to a 2009 report by the Organization for Economic Cooperation and Development (OECD), 1.8 billion people work in the informal economy, out of a global working population of 3 billion1.

That is 60% of the global workforce, with the proportion projected to increase to around 66% by CFI.co | Capital Finance International

20202. Unregistered businesses can’t open bank accounts, so they can’t take out loans to grow, and they don’t have access to health or social insurance.

The same report estimates that the informal sector’s contribution to GDP is 19% in transition countries, 30% in Latin America, 31% in Asia, and 64% in Sub-Saharan Africa3. According to Zhan, “formalizing even just a small portion of this sector could increase government fiscal revenue and support the infrastructure development vital for domestic growth and attracting foreign investment.” A 2010 report by UNCTAD estimates that potential annual income to state budgets derived from taxation of the informal sector would be about 6% of regional GDP for Latin America and the Caribbean, 5% of regional GDP for Asia, and 11% of regional GDP for Africa, .e.g. amounts that are in most cases significantly larger than annual official development assistance or foreign direct investment flows to those regions4.

Ambassador Charles Rivkin, Assistant Secretary for Economic and Business Affairs at the U.S. Department of State, emphasizes that “business registration can play a catalytic role in financing sustainable development and stabilizing fragile states. By focusing attention and resources on government services that touch peoples’ lives, governments can build trust between their populations and the administrations that serve them. Such trust is the bedrock on which rests rule of law. Simple business registration procedures, coupled with incentives to register, make it easier for entrepreneurs to start businesses and can increase a country’s tax base. Add a simplified tax regime and compliance results.” According to Rivkin, “countries can enter a virtuous circle of increased business registrations generating more tax revenues, leading to better services, allowing more economic growth, leading to more business registrations.” It is for these reasons that the February 2015 White House Summit to Counter Violent Extremism identified GER.co as a community-led solution to address extremism by facilitating economic opportunity through entrepreneurship, and good governance (www. state.gov/r/pa/prs/ps/2015/02/237647.htm, point 9).

The GER.co website is new, but it is already having an impact. In April 2015, officials in charge of business climate reform in the West African Economic and Monetary Union (WAEMU) member States (Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo) announced their decision to pursue administrative simplification, in particular by providing entrepreneurs with online registration services. According to their press release (www.

Summer 2015 Issue

Grey: Countries/economies that have not put their business registration processes online are grey on the map.

Green: When a government’s website meets the ger.co criteria, the country/economy becomes green.

uemoa-climatdesaffaires.com/pages/ComPress_ suite.php), “one of the objectives is to undertake reforms beyond traditional indicators (Doing Business, World Economic Forum, Mo Ibrahim Foundation, etc.) and improve their ranking in the Global Enterprise Registration index (www.ger.co).

Online services will stimulate entrepreneurship, help formalize micro-enterprises, increase government revenues and reduce corruption.”

“Reducing the number of steps required to start a business saves entrepreneurs and investors time and reduces opportunities for corruption,” states Jonathan Ortmans, President of the Global Entrepreneurship Network (GEN) and founder of Global Entrepreneurship Week. A 2002 study found that business entry costs as a percentage of GDP per capita were an astonishing 94% and 67% for Africa and Central Europe, respectively, versus a mere 3% for high income countries5. Complex administrative processes pose an enormous barrier to small and mediumsized enterprises which, lacking the resources to comply with such processes, forego potential business expansion. According to Ortmans, “for individuals, GER.co’s assistance with business registration brings the dignity of a step towards participating in the formal economy, and for governments, the platform helps identify the best business registration practices, simplify their own business registration procedures, and foster an inclusive global economy.”

The “Go Green by 2019” campaign is a call to action for governments everywhere to make their business registration processes clear and simple by 2019. This will facilitate economic growth and good governance globally. If governments see that they can make business registration processes easy, they will be inspired to simplify other administrative procedures, which will improve investment climates exponentially.

The campaign targets governments with two messages: • To governments that have not put their business registration processes online: please do so. (See “How it works /Not listed” on GER.co for a list of 69 economies without online business registration

websites. These economies are grey on the GER. co world map) • To all governments: please clarify and simplify business registration processes. (Start the simplification process by completing the “Governments/Assess your website” form on GER. co).

USE GER.CO: YOUR VISIT TO GER.CO TELLS GOVERNMENTS THAT SIMPLE ADMINISTRATIVE PROCEDURES MATTER. MORE SITE TRAFFIC MAKES SIMPLE PROCESSES A PRIORITY.

The GER team rates each country’s official business registration website for its userfriendliness, using a scale of zero to ten green dots, with more green dots signifying better processes: hence, “going green”. According to Ortmans, “governments can help entrepreneurs everywhere by creating and maintaining business registration websites that rank high on the green dot scale, continuing their efforts to simplifying procedures, and putting more government administrative procedures online.” i

Please link GER.co to your website, encourage site usage, and advocate for simple administrative procedures globally.

Computer code for linking your website to the GER.co website is part of the “Go Green by 2019” promotional materials. The GER. co website is a great resource for chambers of commerce, any organization promoting international trade and investment, any global business, and entrepreneurs everywhere.

References 1 OECD. (2009, March). Is Informal Normal?

Messages, figures and data.

2 UNCTAD. (2010, February 15). Public investment in administrative efficiency for business facilitationsharing best practices, 5.

3 Ibid., 6.

4 Ibid., 7.

5 Bannock, G. et al. (August 2002), 15.

Governments: do a self-assessment of your website to see it from the user’s point of view. If your business registration processes are not online, learn about solutions on GER.co.

ABOUT THE AUTHOR Ann Low is Deputy Director of the Office of Investment Affairs at the U.S. Department of State, and the architect of the GER.co initiative and Go Green by 2019 campaign. She has over 25 years of experience working on multilateral and economic affairs. Ms Low has served as the US Representative to the Asia Pacific Economic Cooperation (APEC), the OECD Working Party on State Ownership and Privatization Practices, and several United Nations’ bodies (UNCTAD, UNDP, UNICEF, DHA, ECOSOC, UNGA). Ms Low graduated from Georgetown University’s School of Foreign Service and has a Masters of Management degree from Northwestern University’s Kellogg School of Management. She has served as a visiting diplomat and adjunct professor at Columbia University.

CFI.co | Capital Finance International

Businesses owners: tell us about your experiences registering a business by rating the website you used. Go to the GER homepage and click the “rate website” banner by the economy’s name.

Thank you for helping the world to go green by 2019!

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> Evan Harvey, Nasdaq:

Emerging Markets Leverage ESG Strategy Over the last decade, emerging market exchanges (EMEs) have outperformed the rest of the world in a few key ways related to sustainability performance and disclosure. The primary markets in two emerging economies – South Africa’s Johannesburg Stock Exchange (JSX) and BM&FBOVESPA in Brazil – feature the longest-standing and most rigorous sustainability disclosure requirements from their listed companies.

T

he impulse to make institutions more transparent and responsible emerged from South Africa’s difficult historical legacy and the good governance mandates of the King Code. JSX companies are not only required to disclose ESG practices, but they must do so in an integrated report, which merges financial and non-financial metrics into a unified narrative for investors and regulators. Brazilian companies that list on BM&FBOVESPA are “obliged to provide information on an annual basis that ranges from board practices to risk management policy, and the main risk factors that impact the organisation,” according to its rules.

THE BUSINESS CASE FOR DOING MORE (OR LESS) Why have EMEs been so progressive on this topic and nimble in their execution? For one thing, EMEs tend to have less legacy regulation to work through and fewer corporate relationships to manage. This is not always the case – the two major exchanges in India, Bombay and NSE, have managed to implement good sustainability disclosure requirements despite listing thousands of companies – but seems to be generally true. Perhaps the lack of other capital-raising options ensures a steady supply of local IPOs, no matter how restrictive their rules are. Larger exchanges in competitive (and developed) markets must always hedge against overregulation, lest private companies follow the path of least resistance when navigating their public offering.

“Smaller companies listed on EMEs (indeed, smaller companies listed anywhere) face a disproportionately difficult burden in complying with these rules.”

There are solid business drivers behind this.

It’s no secret that EMEs leverage ESG to entice investors, especially those from abroad, and promote more liquidity in their market. In the early stages of development, these are essential virtues. But not everyone benefits equally from a strong disclosure regimen, at least in the short term. Smaller companies listed on EMEs (indeed, smaller companies listed anywhere) face a disproportionately difficult burden in complying with these rules. They often lack the resources or expertise to integrate ESG strategy and report on performance.

Many believe that exchanges may be overstepping their bounds in asking for this kind of data. In the two examples cited, the exchanges have close operational ties to the government or a local market regulator which means that their goals are aligned. But many other exchanges are not as closely tied to such regulatory controls, and perhaps threaten encroachment on territory best left to impartial experts.

EMERGING MARKET EXCHANGES: FOUR EXAMPLES The Korea Exchange does not require comprehensive sustainability reporting in its listing rules, but there are other drivers behind better corporate disclosure in that market.

The South Korean government has issued environmental risk and evaluation guidelines for companies, based on the Global Reporting Initiative (GRI) standard but localised to focus on Korean business issues. More broadly, the Financial Services Commission issued a requirement in 2012 for the top 500 firms to disclose energy consumption, emissions, and sourcing data. Korean insurance companies, in particular, are required to report on their social and philanthropic activities. The Korean Exchange also has an index that includes about 70 listed companies with the highest overall ESG ratings.

There are two primary stock exchanges in mainland China – Shanghai and Shenzhen – and they both have taken progressive approaches to corporate ESG disclosure. Shanghai implemented a rule in 2008 that requires all listed companies to annually disclose environmental strategy and performance metrics. The Shanghai Stock Exchange also provides sustainability guidance, education, and outreach to its listed companies – as well as a small handful of related index products.

Shanghai does not specifically address the disclosure of much social or governance

“It’s no secret that EMEs leverage ESG to entice investors, especially those from abroad, and promote more liquidity in their market. In the early stages of development, these are essential virtues.”

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Summer 2015 Issue

data, but Shenzhen does. Its reporting guidance, which originated in 2006, asks listed companies to address “social development, building social harmony, accelerating sustainable economic and social development, and promoting commitment to social responsibilities.� Furthermore, the guidance addresses specific social issues, such as supporting employee interests, improving occupational health and safety, equal pay, anti-discrimination and anticorruption efforts.

Bursa Malaysia takes a comply-or-explain approach to corporate sustainability reporting. Companies are asked to disclose CSR activities and practices (covering the environment, marketplace, workplace, and community) or a detailed explanation as to why they are unable to do so. The exchange also created, in 2010, a rigorous education programme that educates public company management and directors on key sustainability issues and how they impact the bottom line. An online resource, called the Sustainability Knowledge Portal, provides reporting framework guidance, corporate case studies, and localised tax-incentive strategies.

A COMPLEX PORTRAIT Many investors, even those with a deep appreciation for the entire ESG spectrum, believe that governance controls may be the best long-term predictors of corporate value and performance. So if EMEs are able to create a culture of outperformance in that area, the money would likely flow their way. And as the above summary illustrates, many markets have come to appreciate the value and necessity of better environmental reporting and performance from corporations; they are both sickness and cure in the quest to combat climate change.

Where does this leave social controls, such as human rights, diversity and inclusion, fair labour practices, and so on? Lack of corporate social controls will not only affect EMEs, but (via global supply chains) the much larger markets in developed economies where the largest companies list. 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.

CFI.co | Capital Finance International

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Saudi Arabia:

A Kingdom Opening Up to the

World

By Wim Romeijn

With a new king, a reshuffled cabinet, and a carefully crafted plan in place, the Kingdom of Saudi Arabia is ready to open up to the wider world. In a decidedly low-key manner, the massive Tadawul Stock Exchange on June 15 granted qualified foreign investors (QFIs) access to its often hectic and always dynamic trading floor.

Cover Story

H

owever, only those with at least $5bn under their belt and five or more years of experience need apply for permission to directly trade equities on Tadawul – the most liquid and largest of the Middle East exchanges with a market capitalisation of well over $580bn, 169 listed companies, and trade volumes in excess of $2bn daily. Besides equities, Tadawul also trades corporate bonds, sukuk (financial certificates), and ETFs (exchange traded funds).

According to insiders, American investment bank Goldman Sachs is in the process of preparing a 24

formal application to the Capital Market Authority (CMA), the exchange’s regulator, for QFI status.

Goldman Sachs manages over a trillion dollars in investor funds. Last month, HSBC Holdings became the first foreign investment bank to obtain permission to directly execute trades on Tadawul.

The relaxed rules for foreign investors are meant to improve the market’s overall quality. Though by no means comparable to seesawing Chinese stock markets, Tadawul is not for the faint of heart. The exchange’s All Shares Index (TASI) reached an all-time high of 16,712 in 2005

before taking a nosedive to 4,802 in 2008. In the years following, the TASI hovered around the 6,500 mark to resume its upward trend in 2013, breaking the 9,000 barrier earlier this year.

CLASH OF INVESTOR CULTURES Volatility is a Tadawul hallmark. So is profitability. Investors with long time horizons have fared exceptionally well as have those who did their homework properly: Tadawul is a market where research pays off big time.

The Saudi market struggles with realities not entirely unlike the Shanghai and Shenzhen exchanges: a predominance of smaller investors

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Spring 2015 Issue

whose investment decisions are mostly driven by sentiment, rumours, and newspaper headlines rather than by research and reason. Tadawul has over five million active investors registered at its central depository of whom about 4.3 million are private individuals chasing quick profits.

The recent upheavals on the two major Chinese exchanges have also been blamed on retail investors entering and leaving the market by droves as optimism evaporates for no apparent reason and doomsayers carry the day. In the case of China, the numbers are simply stunning.

Deutsche Bank analysts discovered – much to their own surprise – that as indices jumped up, fully two thirds of new investors entering the market were high school dropouts. Another six percent of newbie investors could be classified as illiterate.

Before the Chinese markets succumbed to the forces of gravity, up to 170,000 new trading accounts were being opened every single day.

However, the indices’ steep fall has brought that euphoria to an abrupt end. Hordes of day traders are now looking for regular jobs. In about a month’s time, both Chinese exchanges lost $3.25tn in value – more than the market cap of the Euronext Paris exchange ($2.9tn).

Whereas for the past eight years Tadawul has managed to calm the waters and put into place a solid foundation on which to build sustainable future growth, the continued presence of large numbers of retail investors engaged in spot trading was deemed too great a risk. Opening the floor to direct trading by large foreign investors is seen as one way of reducing Tadawul’s volatility.

It also may herald a clash between investment cultures. Retail investors who usually buy and sell on the same day are responsible for about 90% of daily trading volume and jointly own more than a third of the shares.

ATTENTION SPAN As it stands, the Tadawul retail segment is significantly higher than that of most other major exchanges, a fact largely ascribed to the lagging development of the Saudi fund management industry. The typically short attention span of retail investors is diametrically opposed to the interests of institutional and other large investors who base their decisions on solid fundamentals and future earning potential, looking often years into the future.

Riyadh, Saudi Arabia: Al Faisaliah Tower

Foreign investors venturing onto Tadawul may find stock prices inflated as small traders drive up prices in anticipation of their arrival. By 25

Cover Story

According to Ali Al-Nasser who manages the MENA Horizon Fund for the Duet Group from Dubai, the Saudi market must move away from its short-term outlook: “Things without any economic value such as stock splits still cause quite a stir and we are lucky when retail investors look as much as a year ahead when acquiring shares. We, on the other hand, take a five-year or even longer view.”

using such different yardsticks, both groups of investors will need plenty of time to converge their interests. “It is a process that could take years and may even be preceded by a further divergence,” says Mr Al-Nasser.

Tadawul management and the Capital Market Authority did not wait for another crash to happen and moved decisively to underpin the Saudi stock market by inviting large outside investors to participate. Tadawul is one of the world’s largest major markets to open up.

The liberalisation – long in the making – replaces a rather unwieldly system of promissory notes and equity swaps that until now scared most foreign investors away from the Saudi market, effectively reserving its bounty to local investors. Funds from foreign investors accounted for only slightly over one percent of trades by value. Only 1.4% of shares issued by Tadawul-listed companies is owned by non-residents.

Former CEO Abdullah S Alsuweilmy of the Riyadh-based exchange explains that the Tadawul represents about half of the total GCC (Gulf Cooperation Council) equity market and over ninety percent of its traded value.

Cover Story

While investors and analysts across the globe welcomed the relaxing of the restrictions imposed on foreign investors, some also deplored the Capital Market Authority’s decision to leave some significant constraints in place. Those who believed that Tadawul was set to become the hottest emerging market – and a scene of get-rich-quick action – could barely contain their disappointment.

However, a complete free rein for foreign investors was never seriously contemplated by the CMA. Under the new regulations, qualified foreign investors (QFIs) may not hold more than 5% of the shares of any listed company while all foreign investors – including residents, nonresidents, and equity swaps – may jointly not own more than 49% of any listed company. Currently, foreign investors hold only about $8bn in Saudi stock.

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ENHANCED SOPHISTICATION CMA officials do expect increased foreign participation to further enhance the sophistication of the market and contribute towards its stability.

Tadawul’s welcoming of international investors will also allow Saudi companies to draw on outside expertise in corporate governance as new shareholders gain a seat and a voice at the table.

Most of the kingdom’s investment banks, stock market brokerages, and other financial intermediaries have already embarked on an expansion drive in order to broaden and deepen their coverage of the market in order to satisfy the needs of institutional investors. A redoubling of research efforts is also underway with markets analysts who can couple local knowledge to international best practices in high demand and commanding top wages.

While foreign investors are cautiously making overtures to Tadawul, a bull run has failed to materialise – much to the relief of the market’s regulatory authorities who insist that their relaxing of rules must result in an improvement of Tadawul’s stability and maturity. The CMA has been upfront in its expectations: the agency wishes to encourage a rebalancing of the Saudi stock market by increasing the weight of institutional investors and thus reduce volatility.

increased role awarded to foreign investors is but the first step of a much longer journey: “Over the medium to long term, this journey will benefit all stakeholders from investors and listed companies to authorised persons and qualified foreign investors. As the market landscape improves, not only can the Saudi Stock Exchange look to take its rightful position in the global market but also act as a means to develop, promote, and fuel the vibrant Saudi economy and its future prospects as a whole.”

Mr Al-Ghamdi pointed out that the kingdom is already home to a number of world class corporations. He sees Tadawul’s role as one that facilitates and encourages companies to strike out and fully exploit their potential: “The participation of highly experienced international investors can drive this process and help more Saudi businesses to become leaders.”

ECONOMY BOOMING The behemoth of the Gulf Cooperation Council (GCC) – the regional political and economic union that united all Arab countries lining the Arabian Gulf with the exception of Iraq – the Kingdom of Saudi Arabia (KSA) represents nearly half of the GCC’s $1.8 trillion economy. The country ranks 19th on the list of the world’s largest economies.

Already since 2008, when foreign investors were first allowed to modestly partake via the equity swap framework, Tadawul has benefited from greater price stability with small players becoming net sellers. The CMA’s strategy of cautiously and carefully steering Tadawul towards larger volume transactions driven by institutional investors has paid off with the two investor classes moving in opposite directions: private investors are slowly exiting the market as price swings become less frequent and pronounced, with long-term capital taking over the vacated positions.

Amongst exchanges in emerging markets, Tadawul vies with Mexico’s Bolsa for the seventh place by transaction volume. However, analysts are particularly fond of the Saudi exchange for its well-balanced diversity – spread over fifteen classes. Contrary to popular perception, Tadawul is not all tilted towards petrochemicals. The exchange offers solid and actively traded listings representing the full spectrum of economic activity in the kingdom with a strong presence of the retail, financial services, and telecom sectors – segments widely expected to do exceptionally well in the near future.

Qualified foreign investors and GCC investors, who already enjoyed privileged access to Tadawul, currently account for slightly under 7% of total market capitalisation. According to Adel Saleh AlGhamdi, CEO of the Saudi Stock Exchange, the

In a sign that the kingdom can cope with lower oil prices, economic growth accelerated to an inflation-adjusted 2.4% in the first quarter of this year, up from 1.6% in Q4 2014. Heavy spending by the state and a robust performance

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Summer 2015 Issue

by the private sector amply offset the 40-50% drop in oil prices.

Jason Tuvey, Middle East analyst at Capital Economics in London is impressed: “The data add to the evidence that the Saudi economy has weathered the storm created by lower oil prices relatively well so far. There are absolutely no signs that the economy is collapsing, as some had initially feared.”

Accounting for 40% of the kingdom’s economic output, the oil sector returned to growth and was up an annualised 1.8% in the first quarter.

Q4 2014 had oil still down 0.7%. The recovery comes at an opportune moment. Economists have been wondering for how long the state is willing to prop up the economy with its local version of quantitative easing.

STATE SPENDING PATTERNS Curiously, the extra spending was more inspired by the Arab Spring revolts that rocked other parts of the Middle East than by the slump in oil prices that followed. Saudi state outlays have increased by 60% since 2008. The additional cash was mostly spent on vast programmes aimed at meeting social demands for housing, education, and employment. The more traditional QE effect of the supersized budget was merely considered an added bonus.

However, the government in Riyadh is giving clear signs that it wants to reduce its spending spree now that the private sector has picked up steam and first-quarter growth may have to be revised upwards as additional data streams in.

The 2015 budget forecasts a $38.6bn deficit though pundits point out that Saudi Arabia traditionally overspends by up to 25%. Mr Soussa said the government will eventually be forced into broadening its currently narrow tax base that derives up to 90% of its revenue from oil. “The onus of growth is already shifting to the private sector. A next step may entail the rationalisation of social spending.” Mr Soussa notes that with depressed oil prices, a failure to make progress on reforms is no longer sustainable: “2015 needs to be the year in which the pace of economic reform picks up.”

The opening up of Tadawul dovetails nicely with the reform agenda long talked about in Riyadh but never before implemented. Some foot-dragging may, however, still be expected.

Not only do Saudi authorities tend to move at a glacial pace and with great caution, they also have the financial firepower to keep funding generous social programmes and large-scale construction projects.

The huge debt accumulated in the late 1990s – when oil dropped to a low of barely $20 per barrel – have now been almost completely cleared. At the time, the KSA’s debt-to-GDP ratio shot up to 103%. However, since then the ratio has dropped vertiginously to barely 1.6%. That said, the Saudi government in mid-July returned to the bond market for the first time in eight years, raising $4bn from domestic investors.

The Saudi Arabian Monetary Agency’s director Fahad al-Mubarak said that the government will dip into its reserves ($708bn in March, 2015) and start issuing bonds in order to cover larger than expected expenditure. Since October last year, reserves have dropped by over $50bn in order to leave spending patterns untouched as the royal family is determined to resist calls to slim down the cradle-to-grave care afforded to all Saudis in return for their unwavering loyalty.

CFI.co | Capital Finance International

The issuance of sovereign debt had one unexpected side effect in as much as it provided Tadawul with a clear benchmark for private sector lenders and state entities seeking to raise cash via the capital market. It also relieved the strain on banks as the primary source of funding.

Saudi banks have seen their liquidity drop as a result of the drop in oil prices.

CONCERNED PRINCE Thus, slight concerns remain. Saudi billionaire investor Prince Alwaleed bin Talal al-Saud also sees the era of low oil prices continuing for the foreseeable future and worries that the mid- to long-term impact of this trend is possibly being downplayed. The prince points to weak demand from China and the coming on-stream of shale oil may dampen prices well into the future.

However, the prince’s concerns – expressed last year in a well-publicised broadside against Minister of Petroleum and Natural Resources Ali Al-Naimi – may have missed the point. Since then, it has become clear that by sustaining high production levels, the KSA government means to drive shale oil producers out of business precisely by keeping oil prices depressed. In fact, the kingdom is flexing its formidable financial muscle to keep its market share – deemed more important to the KSA’s future well-being than allowing oil to command top dollar and thus encourage the potentially unwelcome exploration of new frontiers ranging from shale to deep water drilling.

Doomsayers have repeatedly been proved dead wrong when it comes to Saudi Arabia and the resilience of its economy. While exposed to the vagaries of the global oil market, the kingdom is slowly but decisively moving upstream, leveraging its financial power to carve out economic niches that may, in time, be expanded into full-fledged markets. Underestimating the resourcefulness of the country’s leaders is generally an unprofitable proposition.

CHANGE IN TRADE FLOWS The six member states of the Gulf Cooperation Council (GCC) – with Saudi Arabia quietly at 27

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Cheap oil – defined as any price level south of $80 per barrel, the KSA’s break-even point – did leave a gaping hole in the state’s finances.

The International Monetary Fund (IMF) projects the budget deficit to hit the 20% of GDP mark, or around $150bn. State spending is slated to be reduced by slightly under 18% this year to $241bn. Farouk Soussa, chief economist for the Middle East at Citi, expects cheap oil to last a little while longer and says it will inevitably lead to increased calls for structural economic reforms

in the kingdom: “It is not enough to temporarily slash spending on projects. Deeper reforms of the public finances and of the economy are needed.”

“Already a high-income country, a peerless welfare state, and a top-tier emerging market, the kingdom now aims for the next level with untold billions of dollars earmarked for education and the arts.” the helm – have been busy diversifying their international trade by tapping into new markets.

GCC trade volumes have increased six-fold over the past decade. While exports dropped by about 23% over the last year, analysts almost unanimously expect trade to bounce back in early 2016 as the full impact of the adjusted trade pattern kicks in. For the first time, the share of GCC exports to the fully developed markets of Europe and North America has decreased to under 50% with the balance mostly destined for Asia (40%).

Badr Jafar, chairman of Gulftainer, the private operator of the Sharjah container terminal, points out that the next big shift will occur when intra-regional trade will pick up: “The missing opportunity is trading with one another – that’s where we need to improve.” According to Mr Jafar regional trade will receive a significant boost once the numerous infrastructure projects now underway are completed: “This is likely to help GCC countries to exploit diversification programmes and finally produce a broader range of products and services that could help increase intra-regional trade.” Gulftainer is already preparing for vastly increased trade volumes, upgrading its facilities to handle an annual throughput of 18m teu (twenty-foot equivalent unit), up from 8m now.

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Saudi Arabia in particular is fully committed to economic diversification (see “Think Big”, p32) and is putting the required infrastructure in place that will facilitate the growth of the non-oil sector and allow the country to move into chemicals, foodstuffs, and high-end light manufacturing with its output flowing into the wider MENA (Middle East and North Africa) Region.

largest petrochemical plant farm, producing a vast range of chemical products destined for industries around the world.

Alongside these projects, the Kingdom of Saudi Arabia also aims to become a hotbed of technological innovation. The country has elected to do so via a comprehensive and finely-tuned approach that was decades in the making. Now, with all major decisions taken and development vectors traced, the kingdom has fully embarked on its quest. The eighty or so major projects now being executed, or in the last stage of planning, together constitute an intricate and elaborate mesh of undertakings designed to transform Saudi Arabia into a regional powerhouse and a global player.

ASPIRING TO THE NEXT LEVEL The proposed transformation is unique as it differs from other vast policy initiatives deployed elsewhere in the world. Most national makeovers are inspired by a desire to ban poverty, advance social justice, and/or bring development to places where there was none. China, Vietnam, and more recently Egypt have all embarked on top-down national processes with both gusto and ambition.

However, the Kingdom of Saudi Arabia is in a class of its own. Already a high-income country, a peerless welfare state, and a top-tier emerging market, the kingdom now aims for the next level with untold billions of dollars earmarked for education and the arts. Indeed, the economic development envisioned in the economic cities now arising out of the desert sands is but one pillar of its transformative project.

MOVING UPSTREAM Showing its commitment to moving upstream and reaping increased returns from its resources, the kingdom is investing up to $46bn in three of the world’s largest petrochemical projects: the Ras Tanura integrated refinery and petrochemical plant ($27bn); the Saudi Kayan Project at Jubail Industrial City ($9bn); and the Petro Rabigh refinery upgrade programme at the future western terminus of the Saudi Landbridge ($10bn).

The KSA is building world class universities, research centres, and other facilities up to and including an entire city dedicated to scientific pursuit. The kingdom has made no secret of the fact that it intends to use its financial strength to lure the best and brightest from the world of academia by offering not only competitive wages, generous grants, and other enticing material rewards, but also provide those willing to settle on the peninsula with an academic infrastructure unmatched elsewhere for its depth and scope.

Together, these three large-scale projects will create around 150,000 jobs for engineers and assorted technicians working round the clock in shifts. The Ras Tanura integrated refinery project is on track to become the world’s

While the big construction projects draw all the attention, underneath more exciting changes are in the making. A few more sceptical Middle East experts have expressed doubts on the feasibility of this drive towards educational excellence,

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noting that this usually requires absolute freedom of thought.

SUBTLE MISTAKE The mistake made is a subtle one. For decades now, Saudi authorities – basically the extended royal family and scions of the traditional clans holding historic claims to the lands of the Arabian Peninsula – have been slowly but steadfastly discussing options, working out possible scenarios, and carefully weighed the many pros and cons in order to arrive at a balanced development framework that respects tradition and culture while offering a roadmap to a much more sophisticated future that gently pushes the country away from its dependency on oil and prepares the nation for the inevitable arrival of an era in which hydrocarbons play only a minor role – either because reserves have been depleted or because technological progress has made oil redundant.

In that latter sense, the KSA tries to replicate – on a much larger scale and with a more balanced approach – the attempts of the big oil companies that in the 1970s frantically tried to find post-oil business models by releasing their cash reserves, bloated after a number of (quite profitable) oil shocks, into all sort of phantasmagorical business ventures meant to provide alternative energy and like earning models – in effect transforming the sector by elevating it to a “next level” – vague as that goal may be.

It took about ten years for the big oil companies to regain their senses, divest from ill-conceived ventures, and return a bit poorer but much wiser to the business of pumping, refining, and selling oil.

Much wiser than the panic-stricken oil executives of yesteryear, looking at longer event horizons, with plenty of cash on hand, and cautious in their approach to the implementation of a rather bold vision, the Saudi government is now starting to move decisively along the vectors traced, drawing on the experienced gained with previous smaller-scale projects that were successfully concluded.

The vision displayed by the powers that be in Riyadh is a multidimensional one, reaching much further than can be appreciated at first glance, and entails the entire transformation of a society carefully prepped to take up the challenge and willing to embrace – however carefully – modernity. i

With Your Trust..

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> Adel S Al-Ghamdi:

Saudi Stock Exchange Opts for Quality

Ex CFI cl .co us ive

By Wim Romeijn

A

del S Al-Ghamdi leads the Saudi Stock Exchange, the largest and most liquid in the Middle East and North Africa, since July 2013 when he left his job as general manager of the Corporate Finance and Issuance Division at the Capital Market Authority to become Tadawul’s CEO. Mr Al-Ghamdi is in charge of executing the process by which the Saudi Stock Exchange opens its trading floor to foreign investors. The liberalisation process now set in motion is not so much an exercise in raising additional capital, as it is one of improving the overall quality of the market by inviting in discerning and experienced investors who will help develop the Tadawul. It is hoped that long-term value investors will assume an active role in shaping the direction of listed companies.

Mr Al Ghamdi explained that active shareholder may help the exchange align with best global practices and encourage convergence to higher standards of corporate governance, investor relations, issuer disclosures, and broaden research efforts.

In an exclusive interview with CFI.co Mr Al Ghamdi addressed some of the more relevant events and consideration surrounding the opening of Tadawul to participation by foreign investors.

ON ACCESS TO SAUDI STOCK EXCHANGE OF FOREIGN INVESTORS. The launch of the QFI [qualified foreign investor] framework is a significant step in a gradual process that over the longer-run will serve to increase the level of professional participation in the Saudi stock market. We anticipate that the introduction of international institutional investors through this framework will help improve corporate governance amongst our listed companies, enhance research and market sophistication, and contribute to a reduction in volatility particularly as individual investors currently account for approximately 90% of dayto-day trading volumes.

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Indeed, the QFI rules have been specifically designed to ensure that only the largest and most experienced foreign investors are allowed to enter

The reporting requirements for listed companies are prescribed in the CMA’s Listing Rules, which were conceived following a rigorous benchmarking exercise against major developed and emerging markets back in 2010. These rules were approved in 2012, after public consultation, and comply with the highest international regulatory standards.

CEO: Adel S Al-Ghamdi

the stock market. Amongst other conditions, the rules require that foreign institutional investors have a recognised investment track record and assets under management of at least $5bn.

This means that institutions deemed to be qualified under this framework are more likely to have high standards of corporate governance, advanced investment practices, and longer term investment horizons; attributes which are expected to enhance the stability and institutionalisation of the Saudi market.

ON CORPORATE GOVERNANCE. The Saudi Stock Exchange, amongst other capital market stakeholders, is exploring a number of options focused on enhancing corporate governance standards and practices at listed companies. Such options include the introduction of mandatory Board Induction Programmes for newly listed companies, which could be prescribed as a listing condition in future versions of the Listing Rules. Structural changes to the stock market could also be enacted, possibly leading to the introduction of a higher tier market segment, with higher standards of corporate governance. Incentives could also be introduced by the exchange, and other stakeholders, to encourage companies to comply with the optional standards prescribed in the CMA’s [Capital Market Authority] Corporate Governance Regulations.

ON ESG - ENVIRONMENTAL, SOCIAL, AND GOVERNANCE. Socially responsible businesses are an increasingly important asset class – indeed the international growth in recent years of Islamic finance reflects the high level of interest in investments that adhere to particular ethical standards. We anticipate that the introduction of qualified foreign investors will help to enhance businesses’ focus on their adherence to international standards in these areas. The Saudi Stock Exchange, as a major artery at the heart of the economy, does have a major role in advancing ESG values in the kingdom and will continue to seek further opportunities to enhance these values as we move forward, whether through the SSEI or organically.

ON IPOS. Since the promulgation of the Capital Market Law in 2003, which triggered the modern day Saudi stock market renaissance, a hundred companies have come to the market, raising a total of $31.1bn. Whereas 41 of these listings were in the form of discretionary IPOs (private companies coming to market at their own discretion), the remaining 59 were mandatory government-induced IPOs. We have seen a number of IPOs in recent years – perhaps most notably the public offering of NCB, which was one of the largest IPOs in the world last year and one of nine companies listed on the Saudi Stock Exchange since the beginning of 2014.

As with any market, the IPO pipeline depends on the overall position of the economy and the attractiveness of the stock market as a source of financing. While many companies in the region have traditionally looked to banks, rather than the capital markets, for financing,

“The Saudi Stock Exchange, as a major artery at the heart of the economy, does have a major role in advancing ESG values in the kingdom and will continue to seek further opportunities to enhance these values as we move forward, whether through the SSEI or organically.”

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the increasing maturity of capital markets in the Gulf is expected to cause a shift in this trend. While every company will approach its funding needs differently, depending on their particular circumstances, we anticipate that the capital markets route will continue to become increasingly more attractive for businesses in the future.

ON MARKET VOLATILITY. International institutional investors participating through the QFI framework are expected to play an influential role in expanding coverage and enhancing the sophistication of analyst research, CFI.co | Capital Finance International

which should benefit market stakeholders as a whole.

We are also looking at means of promoting a more active corporate access culture amongst our listed constituents which should foster more progressive investor relations practices, periodic analyst interactions, and market guidance.

Other efforts are being invested in creating leading and lagging market intelligence indices to provide investors with simpler means of monitoring changes in the financial performance of the various market sectors, and changes in the investment behaviour of different investor classes.

Increasing market knowledge, whether by research or market information, is at the heart of our plans to enhance the professionalization of the stock market. i 31

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The Saudi Stock Exchange remains the largest and most liquid exchange in the Middle East and North Africa and the Saudi economy continues to expand – with the non-oil sector outpacing headline growth. As a result, we are confident that the exchange will continue to attract businesses looking to raise growth capital and gain access to the various qualitative and quantitative benefits of life as a listed company.

As market professionalization continues to improve we expect this trend to continue.

That being said, the Saudi Stock Exchange does take an active role in trying to bring companies to market and has conducted several awareness sessions across the major cities of Saudi Arabia over the last three years. These events successfully attracted hundreds of small and medium sized enterprises interested in understanding more about the IPO process and the benefits the capital market offers to their businesses and ultimately, their sustainability.

We plan to significantly increase our efforts, as we move forward, in a collaborative manner with other capital market stakeholders, to bring more companies onto our platform.

> Think Big:

Economic Diversification Drive Meets Future

By Wim Romeijn

T

he Kingdom of Saudi Arabia is the scene of undertakings on a massive scale – not quite appropriate for those accustomed to a more gradual approach to development. With a new king and a forward-looking government, the impetus to embark on an accelerated development drive has received a strong boost.

The flagship project, underway since 2005, is King Abdullah Economic City (KAEC), about a hundred kilometres north of Jeddah, the kingdom’s traditional commercial hub. Built around a new port with a capacity to pass through 19m teu (twenty-foot equivalent units), the city covers 173km2 of prime real estate along the Red Sea coast and is designed to welcome up to 600,000 inhabitants once its first development phase has been completed.

KAEC sits at the very heart of the kingdom’s economic future with a free zone of 63km2 able to host close to 3,000 businesses ranging from light manufacturing to services, research and development, and a “plastics valley” reserved for chemical concerns that use the raw and semi-processed inputs readily available in Saudi Arabia to produce high-end plastics for use in the automotive, food-packaging, biomedical, and construction industries.

A number of big-name brands have already claimed a stake in the industrial zone with Mars, Pfizer, and Danone leading the way.

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PORTS EXPANSION The King Abdullah Port (KAP), already in operation and currently equipped to handle 3m teu, is the first Saudi harbour facility to be managed by the private sector – yet another sign that the government in Riyadh is making headway with the implementation of the muchdiscussed economic reform agenda. KAP is controlled by the Ports Development Company – a joint venture between Saudi BinLadin Group, the kingdom’s largest contracting company, and Emaar The Economic City – the KSA subsidiary of Dubai’s largest real estate developer Emaar Properties.

KAP Managing Director Abdullah Hameedadin explains that the port will eventually comprise two large basins with its layout taking a cue from Laem Chabang in Thailand, only double the size.

“In Jeddah, the city’s skyline will be enhanced by the world’s tallest building – the Kingdom Tower – rising more than a kilometre skywards from a foundation reaching 60m into the desert floor.”

The new port will put Saudi Arabia on equal footing with Jebel Ali Port in Dubai, the region’s largest trans-shipment facility. Maersk Line and Mediterranean Shipping Company – since January united in the 2M Alliance – are already now diverting vessels to KAP. However, local traders have been less keen on moving their business away from Jeddah Islamic Port (JIP), completed in 1976 and still the kingdom’s biggest port, to the new facility up north. Mr Hameedadin expects this reluctance to wane as competitive pressure mounts. While JIP is currently not operating at full capacity, it is expected that the upswing in non-traditional exports will choke the port within a few years.

Due to its close proximity to Jeddah, the port is unable to expand and suffers from a clogged-up transport infrastructure.

Other ports along the Red Sea coast are now also picking up additional trade. Yanbu is experiencing a boom thanks to the vastly expanded petrochemical processing plants nearby while new ports are planned in Jizan, for the export of refined oil products, and Al-Lith, to catch the overflow from JIP. BRIDGE SPANNING THE PENINSULA Meanwhile the Saudi Landbridge Project is at long last taking shape after a consortium of seven Saudi companies and Australian rail freight and port operator Asciano was unable to agree on the financials of the $7bn undertaking. Suffering from delays, the project is now back on track as the Saudi government stepped in to take over.

The Saudi Landbridge will provide a high speed rail connection between the Arabian Gulf and the Red Sea by upgrading 450km of existing track and building a new line of 115km between

Dammam and Jubail on the kingdom’s northern shore.

The rail corridor will link the commercially vital western regions of Saudi Arabia with the oilrich east and is widely expected to transform the way cargo is moved in and around the Arabian Peninsula and will impact existing supply chains by cutting the time freight takes to travel between the two shores of the kingdom from 5-7 days to less than 18 hours. The Saudi Landbridge is now scheduled for completion in 2020 and constitutes an essential component of the megaprojects currently underway, tying them together and providing a fully integrated transport solution to the hundreds of companies expected to shortly descend on the kingdom to benefit from its new economic zeal.

That zeal is impressive indeed with more than eighty projects, each valued at $1bn or more, already underway or planned to be completed before 2030.

REACHING FOR THE SKY In Jeddah, the city’s skyline will be enhanced by the world’s tallest building – the Kingdom Tower – rising more than a kilometre skywards from a foundation reaching 60m into the desert floor. The $1.2bn building – upon delivery the world’s tallest man-made structure, eclipsing the Petronas Towers in Kuala Lumpur by fully 550m – forms the centrepiece of Kingdom City, the ambitious expansion of KSA’s dominant commercial hub. Equipped with 59 lifts travelling at up to ten meters per second, the Kingdom Tower requires up to 80,000 tonnes of steel and 500,000 cubic metres of concrete to build.

Meanwhile in Riyadh, contractors are racing to complete the congested city’s first metro system in a record time of barely four years. The underground will eventually boast six lines and form the backbone of an all-new rapid public transport network expected to cost northwards of $22bn.

King Abdullah Economic City is to receive a twin in Jazan Economic City, focused on agribusiness and heavy industry. Located in Jizan Province, in the kingdom’s southwest, the city is being planned for up to 300,000 inhabitants and will draw in raw materials and labour from across

“A number of big-name brands have already claimed a stake in the industrial zone with Mars, Pfizer, and Danone leading the way.”

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the infrastructure-deprived and underdeveloped region. The first development phase of the new hub is budgeted at $27bn.

Continuing with supersized projects, the Knowledge Economic City near Madinah is to become the kingdom’s main hub for academic pursuits, research and development, and culture. The new city will welcome up to 200,000 inhabitants and provide over 20,000 jobs to research specialists, lecturers, professors, and other educators. The project is budgeted at $7bn initially – a figure that will balloon once secondary development phases are implemented.

LIMITS OF TRANSFORMATION These huge building projects, on a scale that defies human imagination, are to push Saudi Arabia well into the realm of highly developed countries and to the forefront of innovation and scientific research. Worldwide, economists and sociologists are currently debating whether the top-down transformation of an already prosperous nation has any chance of lasting success given that some pushback may be expected from inward-looking forces grounded in tradition.

The risk is not minor. The ambitious modernisation drive, based on a diversified economy empowered by education and research, must reconcile its goals with the pact formed 270 years back in Diriyah where the Saud Tribe joined forces with the clan of Mohammed bin Abd Al-Wahhab, an influential preacher who held on to a strict interpretation of the Koran and declared anything that deviated from this the work of the devil. The founding father of Wahhabism forbade the faithful from idolising monuments, worshipping saints, and listening to music.

The pact sealed in Diriyah still constitutes the bedrock of today’s kingdom in which the Saud family represents the worldly establishment while the Wahhabi doctrine forms the clerical elite. It also helps explain why Saudi Arabia does not allow other religions to build shrines and churches in its territory. Saudi diplomats often explain that their country is not a nation in the conventional sense, but home to the two holy mosques – of which the king is the official keeper – and as such more akin to the Vatican.

Jeddah, Saudi Arabia: Kingdom Tower

The quandary of embracing the future while looking at the past is one which has so far not been addressed. As a new generation, raised in prosperity and well-educated, bites at the societal bit, the pressure for further reforms will increase. i CFI.co | Capital Finance International

With the Saudi construction industry living veritable boom times, the opening of Tadawul to foreign investors is not likely to add additional buoyancy to an already dynamic sector. Senior Equity Analist Mahmoud Ibrahim of Mubasher Financial Services points out that the construction sector has the most formidable project pipeline in the region with current undertakings requiring investments of around $140bn annually: “However, one must remember that the kingdom’s largest contractors are not listed on Tadawul.”

Saudi Arabia’s Big Three contractors – Saudi BinLadin Group, Saudi Oger, and Arrab Contracting Co. – enjoy a combined market share of 40% but are not publically traded companies.

“We therefore do not believe that the strong performance of the construction sector will be reflected on Tadawul now that it has been opened to foreigners.”

Local analysts do not think that large Saudi construction companies are keen to obtain a listing on the exchange any time soon. One pundit said: “The larger builders lack both the corporate culture and the structure to obtain a listing due to transparency and/or compliance issues that they may not want to address at present.”

A case in point is offered by the country’s largest contractor, the Saudi BinLadin Group (SBG), whose president Bakr Bin Laden sent a letter, since leaked, to senior members of the family announcing his intention to transfer most of his responsibilities to group director Saleh Mohammed Bin Laden.

SBG is very much a family-run business in which outsiders are awarded only a small role and say.

According to industry experts, the empowerment of a new generation of builders at SBG can have far-reaching consequences for the construction landscape in the kingdom. The Saudi BinLadin Group is the government’s preferred contractor for large-scale prestige projects.

Over at Al Bawani, General Manager Fakhr Al Shawwaf believes that bringing in overseas institutional investors via Tadawul may help create momentum: “The construction market will indirectly benefit from inflows into petrochemicals, banks, service companies, industries, and the like.”

Mr Al Shawwaf thinks that the reluctance of large contractors to seek a Tadawul listing may be explained by the nature of the business in the kingdom: “The risk factor in construction is particularly high and requires a management that is conscious of, and flexible to, fast-changing demands and other factors. It could be that construction companies are wary of getting listed on Tadawul in order not to lose the flexibility with decision making.”

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While the transformation now in the works will undoubtedly lead to a more diverse society, potentially causing friction with the clerics, King Salman has indicated that he by no means wishes to alter the Diriyah Pact. In one of his first acts upon assumption of power, King Salman appointed an archconservative as head of the religious police – guardians of Wahhabism – and reinstated two legal scholars who had been sacked by his predecessor, King Abdullah, for opposing reforms.

BIG SAUDI CONTRACTORS LARGELY ABSENT FROM TADAWUL

> Crown Prince Mohammed bin Naif:

Pragmatism as a Driver of Change

By Wim Romeijn

A New Generation Prepares to Lead the House of Saud.

I

n April, the rising star in the House of Saud, Mohammed bin Naif bin Abdulaziz Al Saud (55) was named first in line for the succession by King Salman bin Abdul Aziz al-Saud last April after barely three months as deputy crown prince.

Energetic, low-key, pragmatic, efficient, hardworking, Prince Mohammed bin Naif is the first of his generation slated to lead the House of Saud now that the succession has reached the grandsons of King Abdulaziz (Ibn Saud) who in the early 1900s brought his family back to power by reconquering Riyadh and ultimately united his vast dominions into the Kingdom of Saudi Arabia in 1932.

Prince Mohammed bin Naif remains at the helm of the Ministry of the Interior, which he has led since 2012 and from where he guides coordinates the kingdom’s counterterrorism efforts. He also commands the kingdom’s 200,000-strong security forces. The prince gained wide recognition as the architect of the campaign that dismantled the al-Qaeda network in the kingdom. Considered the most pro-US minister in the Saudi cabinet, the crown prince rarely gets directly involved in foreign policy issues deferring these matters to the king.

He does, on occasion, voice his support for US president Barack Obama as when he publically opposed the release of photos depicting the interrogation of suspected terrorists. In his role as minister of the interior, Prince Mohammed bin Naif is in constant contact with Western intelligence agencies who praise him lavishly for his effective management of security-related matters.

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In late 2010, he supplied intelligence to his American counterparts that thwarted the cargo bomb plot by which the local al-Qaeda affiliate had meant to explode two cargo planes in midair over US cities. In 2009, the same al-Qaeda cell plotted to assassinate the prince – one of four attempts on his life. He survived the 2009 suicide attack with only minor injuries.

IRON FIST The prince insists, however, that terrorism is first and foremost a criminal matter, rather than a political one, and as such requires forceful policing methods instead of an all-out military response. Prince Mohammed bin Naif is also the kingdom’s first deputy prime-minister.

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“King Salman has subtly indicated that he would like to see the country now prepare to transition into its fourth political phase.”

While adopting an iron fist approach to political and religious-inspired fanaticism, Prince Mohammed bin Naif is happy to engage in dialogue and actively explains his policy initiatives to the media. He is easily the most talkative member of the Saudi Royal Family and as such signals the coming of a new era in which the kingdom’s rulers place greater emphasis on openness and proximity to the wider society.

King Salman has subtly indicated that he would like to see the country now prepare to transition into its fourth political phase. During a meeting on June 3 at the Al-Salam Royal Palace in Jeddah with officials in charge of the fight against corruption, the king is reported to have dwelled on Saudi Arabia’s three political eras starting with Mohammed bin Saud in 1744 and moving via Turki ibn Abdullah in 1824 to the present and the reign of Salman.

The history lesson is widely considered the preamble to a future rearrangement of the ruling establishment. Crown Prince Mohammed bin Naif is to be awarded the leading role in this grand exercise in statecraft.

DAMAGE UNDONE Upon his accession, King Salman moved lightning fast to secure his succession and undo the damage done by the former head of the royal court Khaled al-Tuwaijri whose rather secretive ways had placed the royal family under great strain. Firmly in control of the king’s agenda and aiming to rule by dividing the ranks of possible contenders, Al-Tuwaijri had kept the around two hundred princes in government positions far apart, sowing confusion and mistrust as he prevented meetings and discouraged even informal contacts between them. He also was perceived to be hostile to Sunni political movements counterbalancing their influence by bestowing favours on Shiite organisations, allowing them enough leeway to operate under the radar in vast areas.

CFI.co | Capital Finance International

King Salman’s decision to launch Operation Decisive Storm against the Houthi militias operating in neighbouring Yemen was indirectly – but intimately – related to the need to push back Shiite influences on the Arabian Peninsula. As chair of the newly-created Council for Political and Security Affairs, Prince Mohammed bin Naif is one of the leading commanders of the military intervention.

The prince is the son of Naif bin Abdulaziz who preceded him at the Ministry of the Interior and died in 2012 as one of two crown princes outlived by the late King Abdullah. Declaring his nephew first in line for his succession, King Salman has settled the complicated transition from first to second generation leadership within the 25,000-strong royal family.

The decision bypassed a number of princes with possibly better claims to the throne such as the late King Abdullah’s son, Prince Mutaib. It is the first time that power will pass beyond the control of the 45 sons (36 of whom survived into adulthood to have children of their own) fathered by the late King Abdulaziz ibn Saud (18761953).

ROYAL SUCCESSION Questions about how power was to pass from one generation to the next had kept the entire nation enthralled for years on end. Saudi law states only that power is to pass to the “most upright” of the sons and grandsons of the kingdom’s founder.

The current horizontal succession model is difficult to manage as many hundreds of royals may lay claim to the throne. Hereditary succession whereby the first-born sons assumes power upon the passing away of the king may appear more straightforward but would limit governance to one wing of the family.

According to Saudi Arabia watcher Stephane Lacroix, the hereditary system carries the seed of division within: “It would exclude large parts of the extended royal family from ever ascending to the throne. That would cause tension and quite possibly instability in the short run but would in all likelihood increase the monarchy’s stability in the medium term.”

By contrast, the horizontal model of royal succession guarantees the rights and safeguards the interests of everyone concerned and thus unites the entire family while causing a moderate

Summer 2015 Issue

Crown Prince: Mohammed bin Naif

degree of confusion as family branches jockey for position in a real life – albeit less violent and explicit – version of Game of Thrones.

With the sudden elevation of his Prince Mohammed bin Naif – the matter is now settled and the family united – the aging king also wished to send a clear message to Washington that the kingdom will remain a dependable friend and willing ally in the global fight against terrorism. The crown prince is reputedly the hardest working member of the Saudi cabinet often pulling all-nighters at the Ministry of the Interior. Asked why he insists on staying at his post well into the wee hours, he is reported to have answered: “Because that is the time when the baddies put in an appearance.”

AMERICA’S FAVOURITE Called America’s favourite Saudi official by CFI.co | Capital Finance International

While the crown prince is unusually outspoken and pragmatic, it is not yet clear if he is willing to carry through the profound reforms now in the making (see accompanying article). Though a conservative at heart, Prince Mohammed bin Naif seems willing to take a cautious gamble – if there be such a thing – on the country’s future as it moves carefully into the fourth political phase as outlined by King Salman. Though most decidedly not a revolutionary reformer, the crown prince has more than enough political savvy to accept that some change is inevitable and that – given the kingdom’s declared ambition to become a world leader in innovation, technology, and even the arts – modernity is a value to be embraced rather than feared. i 35

Cover Story

Bruce Riedel, a senior fellow at the Brookings Institution, has another take: “The Saudi government has seen the rest of the Middle East unravel literally around them, and they’re determined not to let the Kingdom of Saudi Arabia be the next domino to fall. They’ll happily work with the US to prevent that, even as there’s going to be frictions on other issues.”

renowned international affairs professor F Gregory Gause III of Texas A&M University, Prince Mohammed bin Naif was received by President Obama in the Oval Office discuss bilateral issues.

He caused quite the sensation in Washington for his unfailingly pragmatic approach: “He is not particularly ideological and coincides with this administration’s assessment that the threat of terrorism needs to be met with effective measures. That makes him an exceptionally constructive partner,” says a US diplomat who is familiar with the prince’s Washington visit.

> Summer 2015 Special:

Science & Technology Moore’s Law Applied to Science

T

echnological development moves at a frenetic pace. As such it may be equated to Moore’s Law on steroids: the wealth of knowledge humankind amasses not only increases at breakneck speed, its dissemination also broadens exponentially thanks to an interconnected online world. As the Internet ensures near-universal access to virtually all information ever generated, knowledge has been unshackled from the ivory towers it was previously kept in. Today’s academics and tech wizards may add to the world’s collective knowledge; however, they may no longer keep it to themselves.

Eliot Higgins is perhaps the embodiment of this new era in which information, now widely available, may be put to novel uses. Bundling different streams of data – from social media, digital maps, earth imagery, and websites both obscure and not so much – Mr Higgins was able to piece together a clear picture of the civil war in Syria, uncovering arms smuggling on a vast scale and shedding light on a geopolitical great game that had remained hidden from sight. He also mapped vast flows of money to the rebels and determined its sources, in the process discovering how regional and global powers jockey for an advantageous position in post-war Syria. Mr Higgins’ findings were eventually picked up by the mainstream media.

Meanwhile, another digital detective, Liam O’Murdu, is busy deciphering the world’s most efficient, and quite possibly deadliest, computer virus. Stuxnet was designed and released to derail Iran’s uranium enrichment drive by sabotaging the software used to control the centrifuges employed in the process. Mr O’Murdu and others spent months reverse engineering Stuxnet in order to determine its structure, uses, and origin.

What they found was a compact library of code unique in its elegance and simplicity.

The cyber gumshoes were able to detect the faint fingerprints of Stuxnet’s creators

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and determined that the virus would have kept a small army of expert programmers busy for months on end to produce a block of unobtrusive code that could strike at the right time and place to cause mayhem precisely where intended. Mr O’Murdu and his colleagues concluded that only a deeppocketed state would have the capacity to produce a gem as deadly as Stuxnet. It is suspected that this first-generation cyber missile was developed by either the United States or Israel, or quite possibly both.

Concerned with biological viruses, British geneticist Luke Alphey figured out a way to effectively combat the spread of the aedes aegyptus mosquito – bearer of the dreaded dengue fever which causes thousands of deaths each year. Dr Alphey is able to insert genetically modified specimens of the mosquito into aedes aegypti populations, almost immediately causing their collapse and thus eliminating the source of the disease without the use of toxic chemicals. Dr Alphey’s revolutionary work constitutes a rare case of genetic engineering that meets with near-universal approval. Since aedes aegypti mosquitoes are endemic only to a small corner of North-eastern Africa, their elimination from other parts of the world does not upset or affect the environmental equilibrium.

Lighting designer and one-time electrician Charlie Paton underwent his epiphany during a bus journey in Morocco. It led him to develop – of all things – a seawater greenhouse that can cool the air inside and thus allow vegetables to be grown in hot and arid regions. Mr Paton’s company has already designed and installed seawater greenhouses in a number of countries, proving the concept and offering and cheap and simple way for people to grow their own food in the most inhospitable of places. Mr Paton does not think small: he sees his greenhouses as a viable way to cultivate large swaths of the Sahara Desert and eventually turn it back into the lush forest it was but 6,000 years ago.

CFI.co | Capital Finance International

Another Gyro Gearloose making headway addressing some of the most pressing issues facing the world is Finnish inventor Heikki Paakkinen who has perfected a contraption that can extract electrical power from waves. Working in perfect isolation and on a shoestring budget, Mr Paakkinen designed, built, and deployed his first wave-powered generator at age fifteen. He has since perfected the device and was able to secure an EU grant to construct a large-scale version of the device which is now being tested off the Cornwall coast and can consistently deliver up to 0.5MW of power. Plans are already in place to develop a mega-sized prototype with a view to arrive at a commercially viable model that can be deployed around the coast of the British Isles.

Also in this issue of CFI.co, guitarist cum astronomer Brian May, formerly of Queenfame, who is working to thwart the threat of asteroids colliding with the earth. SarahJayne Blakemore takes on the teenage brain in an attempt to provide insights into its oft baffling workings while Ellen Ochoa shows how to reach for the stars and grab a few, proving that no dream is impossible to attain.

Finally, two lady scientists who gave the world deep insights into the most minute aspects of chemistry. Rosalind Franklin (1920-1958) deciphered the double helix molecular structure of DNA but was cheated out of recognition by male colleagues who appropriated the work and relegated its author to the footnotes of history from where she is now slowly emerging for posthumous fame. Dorothy Hodgkin (1910-1994) did receive a Nobel Prize in Chemistry for her three dimensional mapping of molecular structures such as those of penicillin, insulin, and vitamin B12. In 1964, Mrs Hodgkin became only the third woman to be honoured for her contribution to chemistry by the Royal Swedish Academy of Sciences after Marie Curie (1911) and Irene Joliot-Curie (1935). i

Summer 2015 Issue

CFI.co | Capital Finance International

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> ELLEN OCHOA How Dreams Come True Going into space is the stuff of dreams, fiction, or fantasy. Plans for space tourism may materialise in the future, but currently astronauts are a very select group numbering around 550.

Growing up in California in the 1960s, schoolgirl Ellen Ochoa fantasised about space exploration at a time when only a handful of men had been selected for this awesome privilege – one emphatically out of bounds for women. That didn’t stop Ellen from pursuing her dream to become one of only 45 American women who have “slipped the surly bonds of Earth” to orbit our planet. She has now logged nearly one thousand hours in space travel.

A stellar academic career in science provided the gateway to space. Ellen Ochoa worked hard at school, studied Physics at San Diego State University, and went on to take a Masters and Doctorate in Electrical Engineering at Stanford University before moving to Sandia National Laboratories as a research engineer. She is the co-inventor on three optical patents.

It was not until 1978 that National Aeronautics and Space Administration’s (NASA) astronaut training programme began accepting women.

Dr Ochoa applied in 1985. Two years later she was short-listed as one of a hundred finalists for the training programme. In the meantime, she started working at NASA’s Ames Research Center overseeing research and development of computational systems for aerospace missions.

To her delight, at the beginning of 1990, Dr Ochoa was selected by her employer for the rigorous astronaut training programme. This tough course involves physical and mental challenges. Trainees must master space sciences, astronomy, geology, oceanography, meteorology, first aid, survival techniques, and are also expected to become intimately acquainted with every component of the shuttle and its function.

Dr Ochoa qualified as an astronaut in July 1991 and her first trip into space took place two years later: a nine-day Discovery mission carrying out atmospheric and solar studies to improve understanding of the effect of solar activity on the Earth’s climate and environment. In 1994, on her second mission, Dr Ochoa spent eleven days in space as Payload Commander on the Atlantis Atmospheric Laboratory for Applications and Science. This mission studied the energy of the sun during an eleven-year solar cycle to learn how changes in its irradiance affect the Earth’s climate and environment.

In May 1999, Dr Ochoa went into orbit again on 38

Photo: NASA

a ten-day Discovery mission carrying out the first docking to the International Space Station and delivering logistics and supplies in anticipation of the arrival of the first crew to live aboard the station. As mission specialist and flight engineer, Dr Ochoa coordinated the transfer of supplies and operated the robotic arm during an eight-hour spacewalk.

Her final trip into space came in April 2002 on an eleven-day shuttle mission to the International Space Station when she ventured out four times on spacewalks.

CFI.co | Capital Finance International

Back on earth, in 2007 she was appointed deputy director of NASA’s Johnson Space Center and was soon promoted to become the second female director in January 2013 – her current post. In a distinguished career, Dr Ochoa has collected a slew of prestigious awards, including NASA’s Distinguished Service Medal, Exceptional Service Medal, Outstanding Leadership Medal, and four Space Flight Medals. As a scientist, engineer, and astronaut, Dr Ochoa has become an inspiring role model whose scientific work enabled her to fulfil her childhood dreams. Not bad for a star-struck Hispanic kid from California.

Summer 2015 Issue

> HEIKI PAAKKINEN Can Penguins Rule the Waves?

The energy trilemma – how to generate affordable, secure, and low carbon electricity – constitutes a struggle for most countries. There is an imperative to find ways of either replacing hydrocarbons or using them in a more sustainable way.

In a perfect world, renewable energy from the sun, wind waves, and the tides would meet the lion’s share of energy demand. However, in our imperfect world, much work is needed to reduce the cost of electricity generated from the new technologies.

It is a quirk of renewable energy that while the design and development of wind and solar power devices is largely the work of corporate teams, many of the emerging new wave and tidal energy devices are the brain child of one single-minded – and some might say obsessive – inventor. However, an epiphany alone does not a solution offer. The technology must be built, tested, proved, and brought to market. This is time consuming and expensive.

Wave power devices come in many shapes and sizes. Sea creatures give their name to some of them: notably the Oyster, the Pelamis (a tropical sea snake that dwells in shallow waters), and the Penguin.

That last one is a wave energy contraption invented by Finnish architect Heikki Paakkinen.

He is chief innovation officer at Wello, a company that is developing and marketing the 0.5MW device, currently being tested at the European Marine Energy Centre in Orkney.

Mr Paakkinen’s fascination with wave power has been life-long affliction. At the age of fifteen, he designed a wave-powered boat made from bits of cars and bikes. He tested the prototype in a swimming pool and kept on developing the concept. The teenage inventor decided that rotation was the key: something that rotated naturally had no need to convert movement. Mr Paakkinen subsequently spent his time thinking of ways to extract rotary movement directly from waves, hence the idea of a shape which gyrates, creating the required rotation inside the machine.

Since wave power did not offer any real career prospects, the young designer continued to cultivate and perfect his ideas while gainfully employed as an architect. However, wave power kept its hold on him. Grappling with the problem of friction, Mr Paakkinen eventually came up with the enclosed shape that is now the hallmark of the Penguin.

The Penguin is an asymmetric rotating mass

designed so that its moving parts are enclosed within and protected from the elements.

It operates by capturing rotational energy generated by the movement of its oddly shaped hull which rolls, heaves, and pitches with each passing wave. Inside the hull, the motion powers a spinning flywheel, which drives an electric generator to produce electricity that is transmitted ashore via a subsea cable.

The first prototype Penguin was made out a single metre of hollow Styrofoam with a piece of wood turning on the top. The designer tested it in a small protected cove while rocking a boat to simulate wave action. Mr Paakkinen remembers this as the first time when he could shed all doubts regarding the feasibility of his invention and realised he was on to something of momentous importance. He also had a strong feeling that more work should be undertaken to fully develop the Penguin.

Working with his brother, and with the support of a friendly banker, bigger models soon followed.

The trio assembled a larger three-metre model on a 1:100 scale which they tested both at sea and in a wave tank with good results. Progress was rapid: in 2009 they built an early scale 1:8 CFI.co | Capital Finance International

prototype, and a year later had the first full-size model ready for deployment.

The first Penguin was put together at a shipyard in Riga, Latvia, and towed to Orkney where it has undergone extensive testing to prove the concept, its robustness in rough seas, and other important parameters that determine the device’s viability.

In May 2015, the EU Horizon 2020 Programme awarded EUR17 million to install a test array of several Penguins at the Wave Hub test centre off the coast of Cornwall. This meant that Mr Paakkinen’s boyhood dream of wave-powered electricity is moving a step closer to reality.

Marine energy – using wave and tidal power to generate electricity – is still in its infancy and lags perhaps a decade or so behind offshore wind power. With its long coastline and exposure to strong waves and big tides, the UK boasts some of the best wave and tidal sites in Europe. Marine energy has the potential to supply up to a fifth of Britain’s electricity demand, but the competing technologies are still in the pre-commercialisation stages. Many challenges lie ahead before wave and tidal power is ready to supply electricity to homes and businesses.

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> ROSALIND FRANKLIN Uncovering the Double Helix For scientists, winning a Nobel Prize represents the highest accolade for ground-breaking, original endeavours. Competition for the coveted award can be fierce and skulduggery is not unknown.

Rosalind Franklin (1920-1958) was a brilliant biochemistry researcher whose pioneering work in the 1950s led to the deciphering of the molecular structure of DNA. However, she did not receive a Nobel Prize. In the world of science, many believe that Dr Franklin merited the award: it was her work that allowed three male scientists to earn the Nobel Prize.

Dr Franklin was an energetic and adventurous woman; an intrepid traveller and avid hiker. She was a brilliant chemist as well. However, she could be combative, impatient, and short tempered.

A friend described her thus: “Her manner was brusque and at times confrontational – she aroused quite a lot of hostility among the people she talked to, and she seemed quite insensitive to this.”

Born in London, Rosalind Franklin read Physics and Chemistry at Newnham Women’s College, Cambridge University where she went on to study the porosity of coal for her PhD thesis. In 1946, she switched to studying X-ray crystallography in Paris for four years before returning to London to work at King’s College. Here, Dr Franklin and physicist Maurice Wilkins led separate research groups working on different projects, each attempting to elucidate the structure of DNA – one of the basic building blocks of living matter. The two scientists did not get on well and saw themselves as competitors rather than collaborators.

At the same time, physicist Francis Crick and biologist James Watson were working on their own DNA project at the Cavendish Laboratory in Cambridge. Unbeknown to Dr Franklin, Wilkins shared some of her unpublished data and photographs with the two Cambridge researchers.

One of her classic images – photo 51 showing a beautiful X-ray diffraction picture of a DNA molecule which displayed a clear helix pattern – is widely credited with helping Watson and Crick visualise the molecule and may have inspired the pair to carry on and create their ground-breaking DNA model.

Dr Franklin’s career was cut tragically short when she died of ovarian cancer in 1958, aged 37.

Photographing DNA could take up to a hundred hours of exposure to radiation. Although Dr Franklin was a pioneer and expert at X-Ray crystallography, she rarely took precautions and failed to protect herself from the radiation she relied on. Her work probably led to her untimely demise.

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In 1962, Francis Crick, James Watson, and Maurice Wilkins were jointly awarded the Nobel Prize for Medicine or Physiology for their discovery of the molecular structure of nucleic acids and its significance for information transfer. The three men shared the Nobel Prize for revealing the double-helix model of DNA that Rosalind Franklin had done so much to discover.

Rosalind Franklin was largely forgotten outside the scientific community until the 1968 publication of Dr Watson’s memoir The Double Helix. Watson described Franklin and her contribution in unflattering terms: she was “uninteresting, belligerent, sharp, and stubborn” and dressed with “all the imagination of English blue-stocking adolescents.” Dr Franklin’s friend Anne Sayre was much affronted and accused Dr Watson of harbouring “every known prejudice against intellectual women.”

In an attempt to set the record straight, Mrs Sayre published a biography of her friend, Rosalind Franklin and DNA. This volume presents a completely different perspective on the race CFI.co | Capital Finance International

to discover the structure of the complex and perplexing molecule. It tells the story of Rosalind Franklin’s pivotal role in the crucial research leading to the discovery of the double helix structure of DNA. The controversy over whether Rosalind Franklin was robbed of a Nobel Prize by Drs Crick, Watson, and Wilkins continues to this day. In June 2015, the flames of this debate were reignited by Nobel Prize winner Dr Tim Hunt’s widely publicised maladroit attempt at humour concerning the role of women in science. The Twittersphere was at its most creative and entertaining when the resulting hashtag #distractinglysexy trended for days. Dr Hunt’s faux pas also revived the debate about who deserves credit for the discovery of the double helix.

After dwelling a couple of decades in relative obscurity, Rosalind Franklin’s name and legacy are now almost universally recognised as central to the uncovering of the structure of DNA. Regrettably, Nobel Prizes are not awarded posthumously.

Summer 2015 Issue

> BRIAN MAY Prince of the Universe With his mane of ringlets and lean, tall physique and laid back manner, Brian May is every inch the (aging) rock star. However, there is much more to this guitarist than meets the eye. Brian May, CBE, PhD, FRAS (Fellow of Royal Astronomical Society), guitarist, songwriter, producer, performer, and founding member of legendary rock band Queen is also a doctor of Astrophysics, an authority on 3D stereoscopic photography, and a passionate campaigner for animal rights.

Last year, Mr May helped organise Asteroid Awareness Day to tell people about the dangers of asteroid collisions and galvanise research into the field. Mr May and his fellow astrophysicists consider possible asteroid impacts a very real threat to our little blue planet.

In the late Cretaceous Period, some 68 million years ago, a huge asteroid hit the earth. It left a crater with a radius of about 200 kilometres in Mexico’s Yucatan Peninsula. The impact also caused a global catastrophe which led to the extinction of the larger dinosaurs. Scientists believe that asteroids or comets are likely to collide with our planet every ten million years or so.

Asteroid Day took place on 30 June 2015, the anniversary of a 1908 asteroid strike which flattened around 2,000 square kilometres of conifer forest along the banks of the Podkamennaya Tunguska River in a remote corner of Siberia. That day, a huge space rock exploded in the air with a force equivalent to that of a large hydrogen bomb.

“The more we learn about asteroid impacts, the clearer it becomes that the human race has been living on borrowed time,” Mr May says. “We are currently aware of less than one percent of objects comparable to the one featured in the Tunguska Event. Nobody knows when the next big one will hit.”

A strike of similar magnitude could destroy all of London within the M25 perimeter. Smaller space rocks, such as the twenty metre wide meteorite that last year struck Chelyabinsk, a city just east of the Ural Mountains in Russia, are much more common.

Over a hundred astronauts, artists, technologists, and scientists – including Richard Dawkins, Peter Gabriel, Jim Lovell, Lord Martin Rees, and Brian Cox – have co-signed a declaration calling on governments, private companies, and philanthropists to urgently get behind a massive scientific drive to spot and track asteroids with a view to developing techniques for diverting them away from earth.

The first stage of this initiative is already underway: state-of-the-art telescopes scan the night sky for earth-bound asteroids. The PanStarrs (Panoramic Survey Telescope and Rapid Response System) in Hawaii continuously surveys the skies for moving and near-earth objects that threaten impact events. The new Large Synoptic Survey Telescope currently being built in Chile’s Atacama Desert will shortly join the hunt for asteroids as small as a hundred metres across.

Mr May’s interest in astrophysics is longstanding.

In the mid-1970s, as he was studying towards a PhD in Astronomy, Queen shot to the top of the charts. Understandably, Mr May abandoned college for the life of a star. However, in 2006 he returned to update and finish his thesis on the motions of interplanetary dust which earned him a PhD from Imperial College, London. Mr May subsequently accepted a post of visiting researcher at Imperial where he continues his work in astronomy.

Ideas for protecting the earth from asteroid impact may often seem whacky, but developing future technology requires serious out-of-thebox thinking. Suggestions include slamming a massive spacecraft into the menacing object to nudge its trajectory clear of earth. Another idea is to fly a spacecraft close to the asteroid to act as a gravity tractor, using its gravitational field to deflect the rock’s trajectory. Asteroid Awareness Day hopes to uncover more interesting ideas for dealing with wayward heavenly objects.

In 2006, the former rock start co-authored Bang! The Complete History of the Universe with Sir Patrick Moore and Dr Chris Lintott. The book has now been published in twenty languages and was followed in 2012 by The Cosmic Tourist.

CFI.co | Capital Finance International

Switching from a star on the charts to charting the stars (and their debris), Mr May has become a regular on the iconic BBC television programme The Sky at Night. The breadth of Mr May’s interests makes him a modern renaissance man – one of the last of his kind.

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> ELIOT HIGGINS Citizen Journalist Uncovering Inconvenient Truths The Internet has become an essential part of modern life. A revised Hierarchy of Needs for the 21st century puts the right to a reliable fast connection alongside the need for food and shelter. Finland has already moved to include Internet access on the list of facilities to which all inhabits must enjoy unrestricted access. In fact, as of this year Finnish law explicitly states that everybody in the country has the right to an Internet connection with a speed of at least 100 Mbit/s. Spain and Greece has followed suit but mandate a much slower connection only.

The Internet has awarded people unprecedented access to information and continues to transform the way in which the world communicates. Anyone with a smartphone and an Internet connection enjoys ready access to more information than the president of the United States had but 25 years ago.

Open-source citizen investigation is but one of the many developments powered by the Internet.

One of its heroes is unemployed payroll worker Eliot Higgins who developed techniques for mining online information to provide significant insights into modern conflict.

In the space of three years, Mr Higgins has become an expert on Syrian weaponry and pioneered geo-locating techniques which are now widely used by journalists and others to pinpoint the exact setting of videoed events. Mr Higgins’ techniques were used to identify the site where American hostage journalist James Foley was murdered in 2014.

Working with King’s College London’s War Studies Department, Mr Higgins now delivers lectures to British police and Arab journalists. The story of how a geeky former Internet gamer managed to mine a new digital field lays bare the potential of the yet untapped areas and dimensions of the net.

Eliot Higgins started blogging about the Syrian civil war when he was in his mid-30s and looking for a hobby while at home caring for his young daughter. Within a couple of years, his blog provided the gateway to a totally unexpected new career. Mr Higgins blogged under the pseudonym Brown Moses, after a Frank Zappa song, but now tweets under his own name.

A vast amount of information on the fighting in Syria has been posted on social media: videos, tweets, Facebook postings, and the like offer people inside war zones a way to communicate with the outside world. Those with the time, inclination, and aptitude to sift through the avalanche of postings may gather a great deal of data and information on the conflict.

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“Dey callin’ me brown moses, Fo’ dat I’d sho’ly what I am, Ancient an’ re-lij-er-mus Solemn an’ pres-tig-i-mus Wisdom reekin’ outa me” Mr Higgins possessed both the time and the inclination, and was determined to build up his knowledge. While he speaks no Arabic, he did possess an obsessive streak which saw him happily spending long hours analysing and crossreferencing videos with Google Earth maps. He then decided to focus on the weaponry being used by opposition forces. These may be readily identified from video clips. Tools of war also provide an interesting topic. Mr Higgins had no knowledge of weapons, but used the internet to learn about the mainly Soviet-era arms in order that his blog would be as accurate as possible.

In May 2012, two villages in the Homs Governorate – Taldou and al-Shoumarieh – were attacked and almost immediately videos were posted online showing horrific images of dozens of people who had been killed or injured. At home in Leicester, Mr Higgins was live blogging, cataloguing what was popping up on social media all through that night. In the following days, he started listing You Tube channels by region, and regularly updated this. The list of channels soared and proved to be a key resource for his continuing work.

Mr Higgins’ meticulous approach and crosschecking of data from open sources uncovered CFI.co | Capital Finance International

the smuggling of arms from Croatia to the Syrian opposition. The New York Times picked up the lead and investigated further. This led to the exposure of a smuggling ring run by the Saudis who – with the knowledge of the US government – purchased arms from the Croatians, flew them into Jordan, and smuggled the caches across the border to the Free Syrian Army. This was the first time a major arms route to the opposition had been documented and exposed. Mr Higgins’ collation of cluster bomb videos from Syria led Human Rights Watch to set up a project.

Through his blogging, Mr Higgins has developed a considerable expertise and a sizeable following: the Brown Moses blog became a must-read source for journalists and other observers of the Middle East.

In July 2014, Mr Higgins launched bellingcat. com, a website that aims to unite citizen investigative journalists and encourages them to use open-source information to report on “issues that are being ignored.” Appropriately enough, bellingcat.com used crowd-funding site Kickstarter to get its start-up capital of over £50,000.

On his latest venture, Mr Higgins says: “I am hoping that bellingcat.com will be the start of something that grows larger as the years go by – teaching the use of what will soon become an essential set of investigative tools and techniques for journalists, activists, researchers, and most importantly, those keen amateurs who are where I was just a few years ago.”

Summer 2015 Issue

> DOROTHY HODGKIN From Chemistry Set to Nobel Prize Dorothy Hodgkin (1910-1994), née Crowfoot, is one of only a handful of women to have won the Nobel Prize for Chemistry. She pioneered and developed X-ray crystallography, a new technique for determining the three-dimensional architecture of bio-molecules. Her work made it possible to map the structures of penicillin, insulin, and vitamin B12. She received her Nobel Prize in 1964, following in the footsteps of Marie Curie and Irene Joliot-Curie to become only the third woman to win this award.

Dorothy Hodgkin was a remarkable woman: very bright, left-wing, intellectually curious, and passionate about her research. She was modest and compassionate, yet clearly a force to be reckoned with. She married a fellow academic whose work meant that the couple was often separated. In an age when the place of a wife and mother was in the home, Dorothy Hodgkin managed to bring up three children while pursuing a stellar career as a pioneering research scientist. Professor Hodgkin mentored numerous research students as well, including many women. In the 1940s, Margaret Thatcher was one of her undergraduate students. The two may have shared an interest in chemistry but their political views were diametrically opposed.

Professor Hodgkin’s biographer Georgina Ferry characterises her subject as extraordinarily bright and diligent, but also exceptionally lucky. At a time when many women were denied careers by societal mores, enlightened and supportive parents, husband, in-laws, mentors, and employers enabled her to enjoy opportunities usually denied other women.

Professor Hodgkin’s social and political leanings were decidedly left of centre. She was an active advocate of peace and humanitarian causes. For twelve years, Mrs Hodgkin was president of the Pugwash Conferences on Science and World Affairs. Inspired by Albert Einstein and Bertrand Russell, Pugwash was set up in 1957 amidst concerns that the work of scientists would lead to conflict. Messrs Einstein and Russell procured scientists’ input in the hope of reducing the danger of armed conflict by seeking solutions to global security threats. In later years, Pugwash conferences were broadened to include potential dangers arising from scientific research in other areas.

In 1953, Prof Hodgkin’s political activities, and her husband’s sometime-membership of the Communist Party, led US authorities to issue a travel ban which was kept in place for nearly four decades. By the time the US government relented, Prof Hodgkin was over 80 and confined to a wheelchair by rheumatoid arthritis. Even

so, she embarked on a tour of US universities where her lectures on insulin and the history of crystallography drew large crowds and filled auditoriums across the country.

Dorothy Crowfoot was born in Cairo in 1910. Both her parents were archaeologists who encouraged their children’s intellectual curiosity with a peripatetic lifestyle. Young Dorothy developed an early passion for chemistry. At the age of 18 she went to Somerville College, Oxford, to pursue her passion at an academic level. A move to Cambridge soon followed. Here, she became interested in the potential of X-ray crystallography to determine the structure of proteins.

In 1933, Dorothy Crowfoot was awarded a research fellowship by Somerville College. Three years later, the college appointed her its first fellow and tutor in chemistry. In 1937, she received her PhD from Cambridge and married fellow-academic Thomas Lionel Hodgkin who was to become an CFI.co | Capital Finance International

expert on African history. The couple had three children. In 1960, the Royal Society appointed Mrs Hodgkin Wolfson Research Professor. This enabled her to drop all teaching commitments.

As a result, she could immerse herself in research work at her Oxford laboratory.

Prof Hodgkin received many awards and accolades. A year after she won the Nobel Prize, she became only the second woman to receive the Order of Merit (Florence Nightingale was the first). In 1991, Prof Hodgkin was one of five Women of Achievement selected for a set of British stamps issued in August 1996. She made a second appearance on UK postage stamps in 2010 when the Royal Society celebrated its 350th.

Prof Hodgkin passed away in 1994. Twenty years later, Internet search engine Google commemorated her 104th birthday with a Google Doodle.

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> DIGITAL DETECTIVES The Disassembly of a Cyber Missile The ever-present threat of infection by vicious viruses hangs like a Sword of Damocles over anyone using a computer. The dark art of remote infiltration is shrouded in secrecy. It employs obscure language understood by only the nerdiest of geeks. The motives of those deploying malware vary from the predictable (personal or organisational gain) to the incomprehensible. Cybercrime is a fast-moving field requiring constant vigilance by armies of technical experts – often recruited from the ranks of the evildoers. It takes a thief to catch a thief.

Some things just never change.

Unfortunately, information about cyberattacks is often only released reluctantly and then mostly after havoc has already been wrought: victims – be it governments or corporations – are seldom keen to reveal the extent to which their systems have been compromised. This made it all the more striking when five years ago news broke of the first publicly-disclosed cyber-weapon – the Stuxnet virus. This is an ambitious, powerful, yet subtle, piece of computer code that works not unlike a guided missile. It was used to wreck production equipment at Iran’s nuclear facilities. It reportedly also infected a nuclear power plant in Russia.

It is widely believed that the US and Israeli governments are behind the design and release of the virus. Cyber security experts estimate that Stuxnet was made by a group of between thirty and fifty highly competent programmers who would have needed at least six months to produce the complex, yet elegant and compact, code that allows the virus to sabotage only Windows computers running Siemens Process Control System 7 software – kit used at nuclear facilities.

The virus is equipped with elaborate safeguards and a self-destruct mechanism that would not normally be used and point to input from legal professionals concerned with liability issues.

Stuxnet is harmless to computers not running the targeted Siemens process control software.

The Stuxnet virus is cleverly designed to be inconspicuous. The first hint of its existence came to light in June 2010 when the virus infected the computer of a contractor working in Iran, causing it to become stuck in a reboot loop – unable to start. He handed his computer, now rendered useless, to a small cyber security firm for repairs.

Here, it was discovered that a previously unknown vulnerability in the Windows operating system had allowed the malware to infect the system.

The firm duly reported its findings to Microsoft and posted them on a public security forum. Microsoft named the virus Stuxnet and computer experts worldwide promptly started picking away at the complex task of decrypting and deconstructing it.

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Initially, Stuxnet looked like a routine case of industrial espionage, but as Liam O’Murchu, a young Irishman working at Symantec’s California office, wrote on his blog: “What made Stuxnet particularly earth shattering was that it was designed to take a never-before-seen leap from the digital world into the physical world. Sure, plenty of malware is designed to steal information and pilfer banking accounts, both of which have indirect impacts on our real-world lives. However, Stuxnet went well beyond that. Its purpose was to reprogram industrial control systems – computer programmes used to manage industrial environments such as power plants, oil refineries, and gas pipelines.”

The Stuxnet virus seems specifically designed to target Iran’s nuclear uranium enrichment processes. As such, it was intended to reduce the lifetime of Iran’s centrifuges without raising alarms by making the control systems behaviour erratic and incomprehensible. A version of Stuxnet was also developed to attack North Korea’s nuclear installations. This, however, failed as it could not be introduced into the systems – the isolation of the hermit nation protected it from the virus.

Penetration testing and reverse engineering malicious code to discover how it works, and how to defeat it, are challenges that require digital CFI.co | Capital Finance International

detectives to get into the mind-set of the attackers.

Just as hackers need excellent coding skills and a creative streak, besides a deep understanding of the systems they are trying to crack, so must the codebreaker. For the latter it is also handy to know what motivates their opponents and what a virus aims to accomplish.

As the secrets of Stuxnet were gradually uncovered, it became evident that the resources employed in its design could only have been mustered by a Western government. This realisation came as a shock to the digital detectives. Publicising the work of intelligence services carries certain elements of risk. The wider geopolitical implications of their findings made the codebreakers think very carefully about going public. In the end, most opted for full disclosure in the knowledge that the more information people have, the better they are able to protect themselves against similar attacks that could follow.

Stuxnet has already spawned even more sophisticated offspring. The short-lived Flame virus was developed from the Stuxnet platform to spy on computers in a number of Middle Eastern countries. Meanwhile, the Duqu virus – yet another incarnation of Stuxnet – is used to collect data that prepares a digital highway to carry future cyberattacks.

Summer 2015 Issue

> LUKE ALPHEY Tinkering with Insect Genes Mosquitoes are amongst the most pernicious and deadly creatures in the world. They are responsible for the spread of the dreaded dengue fever, a disease for which there is no known treatment or cure. Symptoms include joint and muscle pain and high fever. Around five percent of clinical cases progress to the potentially fatal dengue haemorrhagic fever. The troublesome virus is carried and transmitted primarily by female aedes aegypti mosquitoes which remain infected for life and pass on the disease with every bite.

Dengue is a growing global problem. The disease affects between fifty and a hundred million people annually. Reported cases have increased thirty-fold over the last fifty years. Conventional methods of mosquito population control, such as the spraying and fogging of pesticides, have failed to stop the spread. The World Health Organisation notes that the incidence of dengue fever is on the increase with Malaysia, Brazil, and China currently facing severe outbreaks.

British geneticist and scientist Luke Alphey has now patented an innovative technology to combat dengue fever. He has adapted a sterile insect technique to genetically engineer male aedes aegypti mosquitoes, rendering them infertile.

When these specimen deprived of their selfish gene are released into a local population and mate with wild female mosquitoes, the result is sterile offspring. Successive releases can lead to up to a 90% reduction of local dengue-carrying mosquito populations.

Aedes aegypti mosquitoes are an invasive species in most areas of the world, except for their native habitat in Africa from where they were inadvertently spread by people. Scientists argue that removing the mosquitoes from ecosystems in South America and Asia does no harm to the environment. Dr Alphey says the idea for his dengue-fighting technique came out of a chance conversation with a colleague who made him realise that the genetic and molecular tools of his fundamental research could be applied to this problem.

The first trial took place in the Cayman Islands in 2009 and involved lab-reared mosquitoes which had been bred in captivity in the UK. As well as the modified gene, the lab mosquitoes carried a fluorescent marker gene that enabled scientists to detect their offspring. It was a cause for celebration when the team saw the first eggs carrying the fluorescent gene: it confirmed that the lab mosquitoes did mate with wild females and proved the technology could work in the field.

Since then, trials have been run in Malaysia and

Brazil with appropriate in-country government collaborators. The first commercial client is likely to be the Brazilian agency in charge of regulating GMOs, CTNbio.

published extensively on the genetic engineering of insects and contributed to the development of an international regulatory framework for the new field.

Academic-turned-entrepreneur Dr Alphey went on to found Oxitec – a spin-off company from his Oxford University research. The biotech company uses advanced genetics to develop new solutions to controlling populations of harmful insects. It does so in a way that is sustainable, environmentally friendly, and cost-effective.

Working with the US Department of Agriculture, Oxitec in 2006 conducted the first open field releases of genetically modified insects for pest control purposes.

Dr Alphey’s continues his research into the use of modern genetics to further improve the sterile insect technique. Besides the infamous aedes aegypti, he also works on the medfly and mexfly – two major agricultural pest insects – and on pink bollworm, a lepidopteran (moth) pest affecting cotton plants.

Dr Alphey says he has always been interested in how the precise workings of the natural world and was inspired into studying biology by an outstanding teacher at school. He has lectured Biological Sciences at Manchester University and Genetics at Oxford University where he is now a visiting professor of Genetics. Dr Alphey has CFI.co | Capital Finance International

Dr Alphey’s pioneering work has resulted in a slew of accolades and awards. In June 2015, he was named one of Europe’s top inventors during the European Inventor awards ceremony, colloquially known as the Oscars of invention. The World Economic Forum named him Technology Pioneer in 2008.

While genetic engineering suffers from bad press, Dr Alphey’s ground-breaking work is met with nothing but praise.

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> CHARLIE PATON Growing Salad in the Desert Cash crops grown from desert sands. The seawater greenhouse can do just that. This ingenious concept allows vegetables and fruit to be grown in the world’s most arid regions. It provides lowcost fresh water as well. Seawater greenhouses have the potential to become a game-changer: greening deserts and providing abundant fresh food.

The award-winning idea was masterminded by a London lighting designer more than twenty years ago. The career path Charlie Paton choose has been circuitous, if not tortuous. Mr Paton studied at the Central School of Art and Design. He worked his way through college as an electrician.

Subsequently, Mr Paton found employment as a studio assistant. He was there for the coverage of the Apollo 11 moon landing in 1969. Mr Paton went on to become a lighting designer and a special effects guru.

Mr Paton’s interest in photosynthesis was piqued as he tinkered around with special effects lighting. His eureka-moment came while on a steamy bus in Morocco. During a downpour, Mr Paton keenly observed how condensation from his fellow passengers’ wet clothes ran down the windows. That gave him an idea.

The key is to use seawater to cool and humidify the surroundings and thus create an environment where plants need less water, yet grow better.

Using only salty water and sunlight, a seawater greenhouse creates ideal growing conditions for crops inside. It also produces fresh water for irrigation.

A seawater greenhouse can cool the air by as much as fifteen degrees Celsius and raise humidity 90% or more. This combination of a lower temperature and higher humidity reduces plant transpiration which in turn enables crops such as cucumber, tomatoes, and lettuce to thrive in deserts.

Seawater greenhouses are ideally located on flat arid land bordering the seashore. Seawater is used for evaporative cooling which raises humidity and lowers the temperature. Water is piped through honeycombed cardboard structures which enlarge the surface area to facilitate evaporation. The concentrated brine which remains as a by-product can be used outside the greenhouse to encourage restorative growth that keeps the desert at bay. The humid air expelled from the buildings creates a zone of higher humidity where vegetation will readily grow, greening the desert in the process.

In 1995, Seawater Greenhouses Ltd, a company founded by Mr Paton, built a pilot greenhouse 46

on Tenerife which produced excellent crops and showcased the potential of the concept.

The firm has since designed and built seawater greenhouses in Abu Dhabi, Oman, and Australia.

Each seawater greenhouse is custom-designed to best fit its intended location. Before building begins, exhaustive data on the local microclimate is gathered: prevailing winds, their force and direction, and the hours and intensity of sunshine are meticulously recorded to establish the greenhouse’s operational parameters.

Mr Paton and his family are committed to promoting sustainable development. Currently projects are underway to produce tomatoes in the Horn of Africa. Somaliland, Somalia, Djibouti, Eritrea, and Yemen have already signed on. Mr Paton points out that these countries are all receiving food aid and may reduce their dependency on foreign donors by growing crops domestically. “Greenhouses in Europe are CFI.co | Capital Finance International

usually capital intensive due to the high cost of both labour and land. In Africa, these costs are markedly lower. Also, the only energy input required is that of the power to drive the water pumps.”

Other organisations are now displaying an interest in seawater greenhouses as well. The Sahara Forest Project – a Norwegian programme in Qatar that now aims to increase its geographical footprint in the region – and Sundrop Farms in South Australia are built around elaborate seawater greenhouses.

Mr Paton believes that the simple technology he developed may help turn the Sahara Desert back into the forest it was some 6,000 years ago. His focus remains on low-cost schemes which improve sustainability: “I favour simple, economic solutions that deliver the goods. The challenge now is to bring greenhouse technology to places where little to no money is available.”

Summer 2015 Issue

> SARAH-JAYNE BLAKEMORE Deciphering the Teenage Brain The variously self-obsessed, self-conscious, risktaking, rebellious, moody, and unpredictable behaviour of teenagers has been a source of bemusement, incomprehension, and downright despair for grown-ups ever since the term teenager was invented decades ago – and probably since the dawn of the human era. In the last dozen years, research on the development of the teenage brain has begun to reveal startling physiological explanations for this bewildering state of affairs.

Until fairly recently it was widely believed that early childhood was the crucial period for brain development. The Jesuit claim “Give me the child for his first seven years, and I’ll give you the man” certainly supported this view. However, it is becoming clear that during adolescence rapid and dramatic changes are taking place in the brain. This explains some of the typical teenage capriciousness.

Professor Sarah-Jayne Blakemore has enthusiastically pioneered this exciting new field of neuroscience. Her interest was aroused during a postdoctoral psychology study into schizophrenia, a developmental disorder that tends to develop in young people as they reach their early 20s. Prof Blakemore mulled the idea that something in normal brain development goes awry in people who develop schizophrenia.

However, consulting existing literature she realised that very little was known about the development of the human brain during adolescence. This led her to change tack and focus on filling the gap. It proved a fruitful and fascinating area of research and Prof Blakemore has now become an expert on the teenage brain, providing valuable insights and information to policy makers, pedagogues, and parents alike.

Prof Blakemore’s research includes looking at typical teenage behaviour such as risk-taking and peer influence while trying to gain insight into the underlying biology. She does so by both talking with adolescents and studying images of their brains made with MRI scanners.

Using scanning techniques to monitor the changes occurring in the developing brain may potentially contribute towards a better understanding of psychiatric disorders. This still is a very new field and Prof Blakemore is in the vanguard.

Interesting outcomes of her observations include the discovery that teenagers’ brains release the sleep hormone melatonin several hours later in the day than the adult brain does. This should dispel the myth that teenagers are slothful: they merely inhabit a different time zone. It also

explains why adolescents typically like to stay up late and dislike getting up in the morning.

These new insights suggest that perhaps starting school a bit later in the day could possibly improve students’ ability to learn.

The brain includes regions that determine muscle control, sensory perception, memory, emotions, speech, decision making, and selfcontrol. Recent research shows that the teenage brain is subjected to a surprising amount of change. The intensity of the alterations actually peaks in early adolescence and then decreases as connections between the cells that are not used wither while the remaining connections – those carrying much neurological traffic – grow stronger.

The study of brain development is a multidisciplinary one. Cognitive neuroscientists, CFI.co | Capital Finance International

geneticists, physicists, and psychiatrists all play their role in developing a better understanding.

Brain imaging techniques have transformed the field by providing evidence of previously unknown dramatic development phases and physiological alterations that underlie the behavioural changes that commence at puberty and continue throughout adolescence.

Prof Blakemore describes herself as having been a typical teenager; a bit naughty and not very academic. She says it was not until A Levels that she became interested in acquiring knowledge.

Talking on The Life Scientific she said: “As a teenager I would have found it enormously helpful to know that my brain was undergoing a lot of development and that things would settle down: that all the typical teenage behaviours were part and parcel of growing up and that it would not last for ever.”

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> Europe:

A Ship of Many Quarrelling States

By Wim Romeijn

For Europe, these are interesting times. At both geographic extremities of the continent, countries are dangling by a thread: the United Kingdom mulls a withdrawal from the European Union while Greece risks falling overboard. Meanwhile, the southern shores of Europe are awash with refugees and the eastern borderlands have become a stage of military posturing.

Following on the heels of a drawn-out recession and the embarrassing diplomatic debacle in the Ukraine, it is all becoming a little bit too much for the powers that be in Brussels. European Commission President Jean-Claude Juncker – in charge of the day-to-day running of the EU – increasingly seeks solace, and perhaps inspiration, in the bottle to the extent that his cognac-breakfasts have now become a topic of discussion between government leaders, as has the man’s famously short fuse – now shorter still after he failed in his bid to gain a personal exemption from the rigorously enforced no smoking policy inside the Berlaymont Building that houses the headquarters of the union’s executive branch.

As heads of governments and ministers hurry from one crisis meeting to the next, tempers flare, recriminations fly, and nothing much gets done. Assertiveness is most decidedly not Europe’s forte. Muddling on – the union’s default approach to any and all issues arising within – becomes harder as the various emergencies near their climax and demand immediate answers.

More disconcertingly, even Angela Merkel seems to have thrown in the towel. The level-headed and pragmatic German chancellor has taken a back seat, perhaps concluding that the Greeks are impossible to deal with; the British are clueless about their island’s future; the Russians are mostly hot air; and the refugees are someone else’s problem.

Mrs Merkel is of course quite right in her likely assessment of the situation. Europe, however, stands in need of a few statesmen – and women – who will not only gauge the moment properly but offer workable solutions as well in order to keep the union intact and strengthened to face-off with added resolve any future crises arising.

Of the current crop of leaders, only Mrs Merkel seems to stand out. French President François Hollande and British Prime-Minister David Cameron are both mired in indecision about where to go from here. Italian Prime-Minister Matteo Renzi makes all the right noises but fails to have an impact. His Dutch colleague Mark Rutte just laughs all problems off the table while Spanish PM Mariano Rajoy is on his way out – a spent force, albeit one with a few accomplishments to his name.

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Summer 2015 Issue

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T

he Greek debt crisis, the most pressing of the four plagues currently assailing the union, has been entrusted to secondtier decision makers such as German Finance Minister Wolfgang Schäuble and Eurogroup President Jeroen Dijsselbloem.

Mr Schäuble comes across as a grumpy old man carrying a number of chips on his shoulder.

Firmly set in his holier-than-thou ways, and never doubting the righteousness of his own convictions, Mr Schäuble is singularly ill-equipped to deal with the recalcitrant Greek.

Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem is Mr Schäuble’s opposite in many ways: easily impressionable, an intellectual featherweight, and quick to blame others when things go awry. In mid-June, Mr Dijsselbloem was properly fileted and served cold by Dutch newspaper De Telegraaf in a well-researched exposé of the minister’s underhand dealings with the EU. The paper’s political analyst Paul Jansen painted a picture of an ambitious, albeit rather mediocre, man who will say and do most anything to work his way up the hierarchical ladder before his party gets booted out of office by disgruntled voters and he reverts back to being a non-entity. Mr Dijsselbloem’s Labour Party has now descended to a historical low in the polls and will likely become an irrelevant footnote of Dutch political life after the next elections.

Try as he may to uphold his “whatever-it-takes” policy, President Mario Draghi of the European Central Bank (ECB) is quite powerless as he succumbs to the primacy of politics, exercised by those without a clear vision for Europe’s – and the euro’s – immediate future. As the Greek negotiators know full-well, Messrs Schäuble and Dijsselbloem are playing with fire as they proclaim in touching unison that their house – the European edifice so carefully assembled over 58 years – is now fireproof in much the same way as the Titanic was deemed unsinkable.

Greece, an economic nincompoop and as such quite insignificant to the fortune of the larger European concert of nations, is now deemed expendable. However, what Schäuble, Dijsselbloem, Juncker et al are really saying is that the euro is merely a currency of convenience – to be unceremoniously ditched at will.

Good news for the Spanish and Portuguese who have endured untold suffering at the hands of their European taskmasters but can now stop the painful economic convergence process and revert to their old and comforting ways. The Italians and French may want to take note as well. Thanks to the revised edicts emanating from Brussels – diktats constituting a veritable volte-face – they are now free to implement policy frameworks of a fiscally more relaxed nature.

The bumbling of Europe’s leadership does not stop here. If he were but a tad more adroit, British 50

“If hope springs eternal, Europe’s well is now running perilously low.”

insult to injury, Mr Cameron seemed particularly pleased with his victory in Brussels and not at all worried about the plight of the Italians – and the hapless Greek who must somehow deal with more than 60,000 uninvited visitors from Africa and Syria.

Prime-Minister David Cameron would be the continent’s champion. He is undoubtedly the EU’s most vociferous critic and as such could become the union’s most revered leader if it were not for his regrettable insistence on re-enacting Don Quixote – a tiresomely long tome on one man’s relentless quest to fight imaginary demons in name of his immaculate lady who, in reality, is but a simple peasant woman – “a brawny girl, well built and tall and sturdy: O the wench, what muscles she’s got, and what a pair of lungs!”

The United Kingdom was by no means alone in refusing to extend solidarity to Italy and Greece.

The Dutch, Hungarians, Bulgarians and Czech also declined to reach out as did they French and Austrians. Even the dapper Latvians thought it fit to keep their country’s borders hermetically sealed. So much for the union bit of the EU. In the end, only Germany and Sweden were willing to take in additional refugees.

It is as if Sancho Panza, Don Quixote’s illiterate but witty squire, described the United Kingdom in its present incarnation. Instead of humouring the British knight-errant, and allowing Mr Cameron a few scraps off the union’s table, the Brussels establishment just ignores him. Though it would certainly help if the British prime-minister would enumerate some specific demands and talking points, the plain fact is that the European Union now needs Britain more than ever.

While the reverse also holds true – the small island nation cannot reasonable expect to rule or even navigate the waves under its own power – the endless quibbling over the Greek conundrum shows that Europe needs an infusion of diplomatic expertise and savvy that only the British can provide. Left to its own devices, the continent will soon regress to a state of permanent squabbling over who gets to decide what, when, and how.

Sadly, Prime-Minister Cameron is poorly equipped to give the continent the backbone it so sorely needs. Mr Cameron appears stuck in a loop of demanding the impossible and then backing down to suggest a few cosmetic changes to be implemented at some later date, before returning to his original standpoint that the EU must bend to his ill-defined will or break. On the continental side of the English Channel few, if any, are impressed. Mr Cameron lacks the conviction of Margaret Thatcher and her weaponry – the Iron Lady’s handbag did instil both fear and respect.

With nobody around to impose even a semblance of order and purpose on the cacophonic EU, Italian Prime-Minister Matteo Renzi could do little else than cuss, swear, and vent his anger in a number of other ways rather unbecoming as Europe stands idly by as Italy is overrun by asylum seekers – around 62,000 so far this year. A plan to share the burden of this human influx across EU member states was summarily rejected at a lateJune summit meet of EU government leaders that was described as “heated” by some participants.

British Prime-Minister David Cameron, predictably and true to form, opted out of the plan and refused to even contemplate helping the Italians deal with the deluge of tired, poor, and huddled masses yearning to breathe free reaching its shores. To add CFI.co | Capital Finance International

While in Brussels government leaders were busy agreeing to disagree, European naval vessels kept dropping refugees on the quayside of Italian and Greek ports in a surreal display of an immigration policy turned inside out. In order to avoid further loss of life, EU warships now patrol close to the Libyan coast, just outside that country’s territorial waters.

Human traffickers need only transport their cargo a few miles off shore – instead of all the way across the Mediterranean – where the refugees will be picked up by waiting naval vessels for the onward journey to Italy or Greece. Frontex – the European agency in charge of securing the union’s external borders – has obligingly put into place a smooth-running conveyor belt that safely moves large numbers of refugees from North Africa to Southern Europe.

In the case of Greece, it is no wonder that PrimeMinister Alexis Tsipras and his combative cabinet are questioning the EU’s usefulness: the union clearly couldn’t care less about the plight of the Greek people or the tens of thousands who come streaming across the border, courtesy of Frontex. With the EU and the IMF (International Monetary Fund) foolhardily insisting Greece adopt additional austerity measures that have been proved counterproductive – a fact the IMF admitted to in internal documents – the Greek government is left with no choice other than to table the demands made upon it in a referendum with a recommendation the nation reject the deal.

However, the looming exit of Greece from the Eurozone, the UK’s apparent reluctance to stay inside the union, the sabre-rattling along the eastern border, and the humanitarian crisis unfolding along the Mediterranean rim all point to a single deficiency: a severe lack of resolve on the part of the EU to tackle the issues at hand and move on. This missing assertiveness will inevitably cause the union to crack and, quite possibly, crumble as national parapets are manned and voters turn to more decisive, albeit less enlightened, politicians that peddle shortterm solutions rooted in old-fashioned patriotism – indeed the last refuge of the scoundrel.

If hope springs eternal, Europe’s well is now running perilously low. i

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51

> IFC:

Corporate Governance Practices in the European Union

By Ralitza Germanova, Chris Pierce, Beatrice Richez-Baum and Philip Armstrong

F

or the first time, European Commission Directive 2006/46/EC required all listed companies to produce a corporate governance statement in their annual report to shareholders. Europe 2020 and the EU Action Plan (2012) are examples of the European Commission’s published longterm plans for developing corporate governance practices, increasing competitiveness, and developing sustainability among European companies. These and other EU corporate governance reforms have succeeded in bringing about substantial convergence in corporate governance regimes among member states.

Yet the EU still faces significant challenges in ensuring that corporate governance initiatives, such as gender diversity and say-on-pay, are well accepted.

THE COMPANY Within Europe’s public, private, and not-forprofit sectors there exists a wide variety of legal forms of organisation. Each sector faces different governance challenges and specific codes have been developed to identify best-practice principles for each of the sectors. Adopting corporate governance best practices improves competitiveness and can lead to improved access to external financing, a lower cost of capital, improved operational performance, increased company valuation and improved share performance, improved company reputation, and reduced risk of corporate crises and scandals.

THE OWNERS Significant differences exist in investor ownership patterns and engagement practices among shareholders in Europe in the areas of share concentration, share ownership patterns, control-enhancing mechanisms (situations where shareholders increase their control over a company without increasing their proportional stake in shareholding), and the levels of shareholder activity. Two broad positive implications of concentrated ownership in Europe are that 1) controlling shareholders may be more willing to adopt a longer-term outlook than other investors are, since they can insulate the management from the effects of share price fluctuations and economic cycles; and 2) management can be directly monitored by the owner of the company.

This monitoring creates less scope for CEOs to pursue their own private agendas regarding excessive executive remuneration, and it helps avert risky takeovers. Research indicates that controlling shareholders may be more engaged in overseeing the operations of a company than institutional investors are.

However, there also are challenges associated with 52

“Among European companies there are significant differences in executive powers delegated to management. The role of stakeholders varies considerably across companies, sectors, and countries.” concentrated ownership in Europe: 1) controlling shareholders may reduce the willingness of institutional investors, foreign investors, and other minority shareholders to invest or engage with companies; 2) minority shareholders may feel vulnerable when investing alongside a controlling shareholder, even when investor protection exists; 3) the board may have little effective power compared to the controlling shareholders; and 4) there may be less emphasis on corporate transparency and disclosure, since the controlling shareholder may be provided with ready access to all company information.

THE BOARD There are a wide variety of board structures, composition, and practices among European companies. Nordic boards, for example, are typically unitary and two-tiered. In recent years, board diversity has become an important corporate governance issue, and many European countries have introduced gender quotas in particular. Directors’ duties in many countries have been clarified, and there is an increased scrutiny concerning related-party transactions.

Board evaluations are becoming increasingly common.

THE MANAGEMENT, STAKEHOLDERS, CORPORATE RESPONSIBILITY, AND ETHICS Among European companies there are significant differences in executive powers delegated to management. The role of stakeholders (employees, financiers, suppliers, local communities, and government) varies considerably across companies, sectors, and countries. In some European countries, the rights of stakeholders are enshrined in company law or other related legislation, such as codetermination and employment-protection legislation. By contrast, companies in other countries have a tradition of focusing more narrowly on the interests of shareholders. Corporate responsibility is becoming more important among European companies, and many companies are developing policies concerning the ethical behaviour of their employees.

CFI.co | Capital Finance International

THE EUROPEAN CONTEXT The word “Europe” may be used to describe several different entities. For example, it can refer to the 47 member countries of the Council of Europe. On other occasions it may be used to refer to the 18 Eurozone countries that share the euro currency.

More frequently, the word is used as a collective term to describe the 28 member states of the European Union. The population of the European Union is about 490 million people, and the land area is nearly 4.5 million square kilometres. Over time, this member-ship is likely to grow, with the addition of EU candidate countries and potential candidate countries. Germany has the largest population, with 80 million people, and Malta has the smallest, with about 400,000 people.

WHY IS EUROPE DISTINCTIVE? Although the EU comprises 28 member states that are all extremely proud of their distinctive national identities, the EU has created a region where business cooperation between member states is becoming increasingly common.

Europe has become one of the fastest changing corporate governance environments in the world. These governance changes have been caused by many international factors, including the European Commission’s focus on corporate governance.

As an independent supranational authority separate from the member states’ governments, the European Commission has been described as “the only body paid to think European.” Article 17 of the Treaty on European Union identifies the responsibilities of the Commission to include the following: • Developing strategies; • Drafting legislation and arbitrating in the legislative process; • Representing the EU in trade negotiations; • Making rules and regulations; • Drawing up the budget of the European Union; and • Scrutinising the implementation of the treaties and legislation.

Originally, the driving forces of the European Commission were 1) to cement the single market by creating common standards in governance as in other areas; and 2) to bolster market and public confidence in the wake of the dotcom and other scandals. The European authorities have always seen corporate governance as an important plank of their regulatory programme. Thus many commentators suggest that the European Commission does not see corporate governance as

Summer 2015 Issue

value creating, whereas investors and enlightened corporate managements do.

The roadmap for corporate governance in the European Union has been clearly defined in two action plans, published by the European Commission in 2003 and 2012, along with five other proposals and directives. They are listed here in chronological order: EU Action Plan (2003) - This plan (European Commission 2003a) was based on a report by the High Level Group of company law experts chaired

by Jaap Winter (Winter Report 2002). The plan established four main pillars for corporate governance reforms: • Modernizing the board of directors – The commission’s recommendations (all adopted in 2005) concerned the following: • Executive versus non-executive directors – Boards should comprise a balance of executive and non-executive directors so that no individual or group of individuals can dominate decision making. On a unitary board, the chair and CEO roles should be separate; and the CEO should not immediately become chair of either a unitary or a supervisory board.

• Independent directors – A sufficient number of independent directors should be elected to the board of companies to ensure that any material conflict of interest involving directors will be properly dealt with. A director should be considered to be independent only if he or she is free of any business, family, or other relationship – with the company, its controlling shareholder, or the management – that creates a conflict of interest such as to impair his or her judgment.

• Directors’ remuneration – European listed companies should disclose their remuneration policy and remuneration details of individual directors in their annual report.

• Collective responsibility – There should be collective responsibility of all board members for both financial and nonfinancial reporting.

• Enhancing corporate governance disclosure – The commission required all listed companies in the EU to include in their annual report a comprehensive corporate governance statement covering the key elements of their governance structures and practices. This statement should be based on a “comply or explain” principle (that is, it should refer to the national code of corporate governance and specify which parts of the code the company complies with and explain any deviations). The commission adopted this recommendation in 2006.

• Strengthening shareholders’ rights – The commission requires that shareholders should have similar rights throughout the EU. In particular, procedural rights involving asking questions, tabling resolutions, voting in absentia, and participating in general meetings were identified as important rights. The commission also identified problems relating to cross-border voting as needing to be addressed as a matter of urgency. The commission adopted these recommendations in 2007 in the Shareholder Rights Directive.

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• Coordinating corporate governance initiatives in member states – these recommendations focused on the development of national corporate governance codes and the monitoring and enforcement of compliance and disclosure.

Europe 2020 was launched in 2010 and is the European Union’s 10-year growth and jobs strategy. It sets five headline targets for the EU to achieve by the end of 2020. These cover the following areas: • Employment • Research and development • Climate/energy • Education • Poverty reduction and social inclusion • The objectives of the strategy are supported by seven flagship initiatives: • Innovation • The digital economy • Employment • Youth • Industrial policy • Poverty • Resource efficiency EU Action Plan (2012) was adopted in 2012 to increase long-term growth-orientated investment that will lead to more competitive and sustainable companies in the long term. The plan envisages new provisions for reporting on board diversity, risk management, and executive remuneration as well as for improving the quality of corporate governance reports, especially explanations made under the comply-or-explain framework. The following are some of the plan’s key measures to enhance transparency: • Board structure – The commission acknowledged the coexistence of different board models deeply rooted in national legal systems, stating that it would not pursue board-structure harmonisation.

• Shareholder identification and engagement – The commission recommended better mechanisms for companies to identify shareholders and to enhance shareholder engagement. The plan strengthens transparency rules for institutional investors, including disclosure of institutional investors’ voting, and better shareholder control over related-party transactions. The commission intends to investigate whether employee share ownership should be encouraged.

• Disclosure – The commission recommended that corporate governance reporting be improved, especially concerning explanations for not applying code provisions. This particularly includes the disclosure of board diversity policy, risk-management policies, remuneration policies and individual remuneration of directors, and shareholder voting on the remuneration policy and the remuneration report.

Proposal for the revision of the Shareholder Rights Directive (April 2014) – The published revisions (European Commission 2014) will tackle certain corporate governance shortcomings, focusing on the behaviour of companies and their boards, shareholders (institutional investors and asset managers), and intermediaries and proxy advisors (firms providing services to shareholders, notably voting advice). According to the European Commission, shareholders too often have supported managers’ excessive short-term risk taking and have not monitored closely the companies they invested in.

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Summer 2015 Issue

An objective of the proposal is to make it easier for shareholders to use their existing rights over companies and to enhance those rights where necessary. This would help ensure that shareholders become more engaged, do a better job of holding the management of the company to account, and act in the long-term interests of the company. According to the commission, a longer-term perspective creates better operating conditions for listed companies and improves their competitiveness.

Key elements of the proposal include stronger transparency requirements for institutional investors and asset managers on their investment and engagement policies regarding the companies they invest in, plus a framework to make it easier to identify shareholders so they can more easily exercise their rights (such as voting rights), in particular in cross-border situations.

It would also require proxy advisors to be more transparent on the methodologies they use to prepare their voting recommendations and on how they manage conflicts of interests.

The proposal introduces a European say-onpay for the first time. The proposal will require companies to disclose clear, comparable, and comprehensive information on their remuneration policies and how they were put into practice. There will be no binding cap on remuneration at the EU level, but each company would have to put its remuneration policy to a binding shareholder vote. The policy would need to 1) include a maximum level for executive pay; 2) explain how it contributes to the longterm interests and sustainability of the company; and 3) explain how the pay and employment conditions of employees of the company were taken into account when setting the policy, including explaining the ratio of executive pay to the pay of average employees.

In October 2014, the European Confederation of Directors’ Associations (ecoDa) published a reaction to the proposal (ecoDa 2014), arguing that European institutions should not jeopardize corporate governance structures in companies.

The ecoDa paper states that it is essential to keep boards of directors as the central actors and not to disturb the delicate equilibrium between the roles and duties of a shareholders’ meeting versus a board of directors in a perhaps unsuccessful effort to cure the intrinsic problem of accountability of the board toward shareholders.

It suggests that it is important for boards to retain the leadership in defining the level and the structure of management remuneration, while the remuneration of directors has to be decided by the shareholders. The ecoDa paper argues that it is not realistic to turn inactive shareholders into micromanagers, and that it is doubtful whether the directive will lead to more engagement and long-term thinking from institutional investors.

Recommendation on corporate governance reporting (April 2014) aims at improving corporate governance reporting by listed companies.

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Proposal for a directive on single-member private limited liability companies (April 2014) aims to facilitate the creation of companies with a single shareholder across the EU. It should make it easier for businesses to establish subsidiaries in other member states, as most subsidiaries tend to have only one share- holder—a parent company.

Directive on Disclosure of Non-Financial and Diversity Information (April 2014), adopted by the European Parliament, concerns disclosure of nonfinancial and diversity information by certain large companies and groups. It requires companies to disclose information on policies, risks, and outcomes regarding environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity in their board of directors.

The rules will only apply to some large companies with more than 500 employees. In particular, large public- interest entities with more than 500 employees will be required to disclose certain nonfinancial information in their management report. This includes listed companies as well as some unlisted companies, such as banks, insurance companies, and others that are so designated by member states because of their activities, size, or number of employees. The scope includes approximately 6,000 large companies and groups across the EU. The directive leaves significant flexibility for companies to disclose relevant information in the way they consider most useful or in a separate report. Companies may use international, European, or national guidelines that they consider appropriate (for example, the UN Global Compact, ISO 26000, or the German Sustainability Code).

Many corporate governance commentators believe that the EU corporate governance initiatives have succeeded in bringing about substantial convergence, harmonisation, and unification in corporate governance regimes among its member states (Ivaschenko and Brooks, 2008).

However, some commentators doubt whether this is true. They argue that Swedes still have multiple voting rights, the Spaniards still worry about the inability of shareholders to respond to explanations, the Germans still have two-tier boards, and the United Kingdom allows votes on related-party transactions, which the rest of the EU does not.

The problem for the European Commission has been to design a single system against a background of widely differing legal traditions and ownership structures. Undoubtedly the European Union has come some way toward convergence because of the wide acceptance of comply or explain, but it can be argued that there is little agreement in many of the detailed corporate governance practices and norms, and in particular the gulf remains wide between markets with dispersed ownership and those markets with controlling shareholders.

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LEGISLATION, “SOFT LAW,” AND COMPLY-OR-EXPLAIN The corporate governance framework for listed companies in the European Union is a combination of legislation and “soft law” (corporate governance codes European countries and some international bodies support corporate governance in diverse ways. The following points describe the focus on corporate governance of different entities: • EU member states – Parliaments in all of the 28 member states have introduced or revised their national corporate governance codes in the last ten years. In 2009, a report by the European Commission identified divergences of practices in the context of national governance codes and in particular how they were monitored and enforced (European Commission 2009).

• EU candidate and potential candidate countries – Many of the EU candidate and potential candidate countries have been introducing corporate governance laws and regulations to satisfy EU member- ship conditions.

• International bodies – International bodies, such as IFC (International Finance Corporation), International Corporate Governance Network (ICGN), and the Organisation for Economic Cooperation and Development (OECD), have been developing international standards that affect European corporate governance practices.

At a national level, changes in corporate governance codes either have been initiated by the public sector or private sector or have been a mixed initiative. A 2014 survey found that 89% of directors at European listed companies believed that compliance with national corporate governance codes was important and a further 9% felt that it was somewhat important (Heidrick & Struggles, 2014). Different European countries have different levels of compliance, and the newer EU members tend to have the lowest levels of compliance. A survey in Bulgaria, for example found that 79% of Bulgarian listed companies complied or explained, 12% complied, and 9% did neither comply nor explain (Boeva and Pavlova, 2012).

WHAT ARE THE CHALLENGES? Four key corporate governance challenges for Europe have emerged: • Finding the right blend of regulation and soft law – The commission needs to decide on the mix of formal regulation and comply-or-explain provisions that will deliver the most effective outcomes for companies in their ability to generate wealth and employment over the long term.

• Boilerplating – Many European listed companies’ annual reports provide information that does not differ from other companies’

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annual reports and is identical from year to year.

• Weak explanations – Weak explanations occur when companies deviate from the national code of corporate governance, and the explanation for the deviation under the comply-or-explain regime is often lacking in detail. Several jurisdictions (for example, Belgium, The Netherlands, and the United Kingdom) have published guidelines on the appropriate character of an explanation. An explanation is sufficient if it allows general-public readers to understand which way the company is dealing with a particular issue and why it is doing so. Regarding these weak explanations, the European Commission has concluded that “the information provided is in general unsatisfactory and the oversight by monitoring bodies is insufficient” (European Commission 2012).

• Finding the right blend of national and regional regulation – Some national governments wish to retain law-making authority, and there is therefore some tension between the centralized law making generated by the European Parliament and the commission.

SUMMARY Some commentators have suggested that the EU has a fragmented approach – with several dispersed topical recommendations and directives – that is quite different from the more principle-led approach of the OECD. However, there is general agreement that EU directives have created a solid framework for improving corporate governance in its member states and have triggered many corporate governance improvements. European Commission Directive 2006/46/EC required all listed companies to produce a corporate governance statement in its annual report to shareholders for the first time.

This and other EU corporate governance reforms have succeeded in bringing about substantial convergence in corporate governance regimes among its member states.

Yet significant challenges still face the EU in ensuring that the hard and soft laws are well absorbed and become a norm rather than an imposed requirement. The commission’s Europe 2020 and EU Action Plan (2012) are examples of long-term plans for developing corporate governance practices, increasing competitiveness, and developing sustainability among European companies. i

ABOUT THE AUTHORS Ralitza Germanova (associate operations officer, IFC Corporate Governance Group); Chris Pierce (CEO, Global Governance Services Ltd, London); Beatrice Richez-Baum (secretary general, ecoDa); and Philip Armstrong (senior advisor, IFC Corporate Governance Group).

Summer 2015 Issue

> CFI.co Meets the Steward Redqueen Partners:

René Kim, Wouter Scheepens and Willem Vosmer

Partner: René Kim

S

ustainable corporate profits have become a function of ESG parameters.

More than yet another business acronym, ESG (environment, social, and governance) ensures the long-term well-being of private business in a fast-changing world. As corporations of all sizes engage with their surroundings and stakeholders, often more questions arise than are answered.

“Sustainability advisors are now as essential to any given business’ operations as are legal experts and accountants. We are the ones charting future opportunities and showing the way forward,” says Willem Vosmer of Steward Redqueen – a Dutch consultancy specialised in helping managers and entrepreneurs understand how ESG values can ensure future corporate profitability.

“While old-school managers may be hugely successful in running their business at peak performance, they do sometimes struggle to incorporate modern environmental, social, and governance standards into day-to-day operations.

It is often not so much a question of reluctance to embrace non-traditional business practices, as it is a lack of understanding in how ESG can positively impact the bottom line.”

Mr Vosmer is not into peddling fuzzy concepts or vague ideas. He is, however, concerned that private business is getting a bad rap: “There is quite a lot a criticism being levelled at capitalism as an economic model. While we fully understand the reasons behind this

Partner: Wouter Scheepens

Partner: Willem Vosmer

censure, we also think it is not entirely justified.

In a way, Steward Redqueen is in the business of saving capitalism from itself. What we want to show is that it makes perfect business sense to incorporate sustainability principles into day to day operations.”

of any ESG initiative we propose. Processes that fail to improve performance are unceremoniously discarded.”

Steward Redqueen provides its clients with a unique set of skills and has pioneered the transformation of business practices. The firm was one of the first to recognise that most CEOs and entrepreneurs are more than willing to respond to environmental and social concerns, but are often rather clueless when it comes to broadening and updating long-standing corporate processes and practices.

“Our professionals work with businesses in a joint effort to find transformative ways to future profitability. This is not merely an exercise in compliance with existing laws and regulations.

Rather, we point out that by taking the lead, and doing so voluntarily, private businesses not only reduce risk factors but actually broach new markets that offer enticing opportunities.”

According to René Kim, one of Steward Redqueen’s founding partners, much can be earned from how money makes its way through the corporate structure: “We always base our advice on hard data. Contrary to popular belief, the advocates of ESG are not softies who base their thinking on lofty ideas that may prove impractical in real life. Steward Redqueen wastes no time on idealism or dreaming: we thoroughly assess the impact on the bottom line CFI.co | Capital Finance International

Steward Redqueen has helped large multinationals, pension funds, development banks, charitable organisations, and others come to grips with ESG values. The firm has enjoyed particular success in assisting public organisations become more pragmatic in their approach. “Goals need to be met in a responsible way. By focusing on results and introducing tried-and-true processes from the corporate world, we have enabled a fair number of public entities to become much more efficient in the pursuit of their goals.”

Steward Redqueen has also managed to dispel the myth that ESG is an expensive proposition.

Wouter Scheepens, a sustainability and impact management expert and another of Steward Redqueen’s co-founders, explains: “We work in both developed and emerging markets.

The interesting bit is that whenever there are less funds available, creativity tends to take over. It never fails to amaze how much may be accomplished on a shoestring. Budgetary constraints encourage experimentation which, in turn often leads to surprising results. Ever looking for synergies and efficiencies, we are able to apply and leverage the insights and approaches first gained in emerging markets to deliver even better results to companies conducting their business in more developed markets – yet again underlining that ESG as a concept is a money maker and not a loss leader.” i 57

> CFI.co Meets the CEO of Hellenic Bank:

Bert Pijls

I

n late 2014, Bert Pijls arrived in Cyprus on a mission to entrench Hellenic Bank as a key player in the nation’s economy.

Mr Pijls came exceptionally well prepared for the job at hand: his international banking career took him to Germany, the United Kingdom, the Czech Republic, and the United States. The Dutch-born banker brings both experience and energy to his role as CEO of a bank he says is uniquely positioned to capitalise on the opportunities ahead.

Educated in the Netherlands and the United States, Mr Pijls, took over Hellenic Bank in the wake of the March 2013 financial meltdown that brought Cyprus’ banking sector and the country’s economy close to the brink of collapse.

Two years after the crisis, Mr Pijls notes that considerable progress has been made on both fronts. Cyprus has implemented rapid structural reforms, returned to the international capital markets, and in the first quarter of 2015 registered its first growth in three and half years.

Hellenic Bank has mirrored the country’s progress, significantly strengthening its position in the market as it builds on solid foundations.

“The bank is not under any regulatory restructuring programme, has ample liquidity, and has been recapitalised,” says Mr Pijls.

This track record has only served to reinforce his optimism for the future. Committed to working collectively with the board of directors, the management team, and all staff of the bank, Mr Pijls is focused on delivering further growth for the bank and, by extension, supporting the economic recovery of Cyprus. “I look to the future with renewed energy and optimism. We are uniquely positioned to support the recovery of the Cypriot economy as well as grow the bank.”

His strategy is two-pronged: “On the one hand, we must continue to proactively address nonperforming loans, and on the other, we must increase the amount of new loans we provide to viable Cypriot businesses and households.”

This requires a rigorous approach to lending policy as Hellenic Bank continues to offer restructuring solutions tailored to clients’ specific circumstances while making new lending available based on clients’ ability to service the debt.

The first bank CEO to be approved under the newly established European Single Supervisory Mechanism (SSM), Mr Pijls was born in Nijmegen, Netherlands, and studied Business 58

CEO: Bert Pijls

Administration at the Dutch Nijenrode University and International Management at the American Graduate School of International Management (Thunderbird) in Phoenix, Arizona.

Mr Pijls started his career at Citigroup working in Germany, Belgium, and the US for ten years before moving to the New York-based Internet financial services start-up Moneyunion Inc. From there he went to Egg Banking Plc, first in London and later in Paris. After a stint at American CFI.co | Capital Finance International

Express in London, he returned to Citigroup in the Czech Republic, then went back to Egg Banking Plc in London. Before his appointment as CEO of Hellenic Bank, Mr Pijls worked for British Gas / Centrica.

Officially appointed CEO in January 2015, Mr Pijls is also a member of Hellenic Bank’s board of directors and chairman of Pancyprian Insurance Limited and Hellenic Alico Life Insurance Company Limited. i

Summer 2015 Issue

> Hellenic Bank Group:

At the Forefront of Developments

T

he Hellenic Bank Group, strategically positioned in Cyprus since its establishment in 1976, has been steadily developing its local and international clientele becoming one of the largest commercial banks in Cyprus.

Operating through a network of sixty branches, four International Business Centres, and the first Shipping Business Centre in Cyprus.

Additionally, Hellenic Bank Group also maintains four representative offices in South Africa, Russia, and the Ukraine. The Group employs over 1,400 people and offers a comprehensive suite of banking and insurance products and services.

Focusing on upholding its core values, the Hellenic Bank Group looks into the future with renewed energy and optimism. With an enhanced shareholder base and a renewed board of directors and executive management, Hellenic Bank Group is leading the way in the fast recovering economy of Cyprus as a key agent of growth.

Leveraging its excellent reputation, exemplary service, and high levels of liquidity, Hellenic Bank Group aims to actively support the continuous growth and internationalisation of Cyprus and fulfil its strategic aim of increasing profitability and growing its customer base.

Well into the financial crisis, Hellenic Bank Group managed to successfully emerge from the various European-wide stress tests executed to gauge the resilience of EU banks. Hellenic Bank Group also voluntarily submitted to the standardised Banking Stress Test Exercise in order to assure the wider market that it has successfully maintained its capital adequacy ratio far in excess of the legal minimum required and is thus able to withstand even the darkest of possible scenarios.

Hellenic Bank even took a preliminary decision to increase the share capital of the Bank; a venture which was completed successfully, raising €204 million. Being fully recapitalised and stronger, Hellenic Bank joined the Single Supervisory Mechanism (SSM).

Hellenic Bank continues its dynamic course, as the only systemic bank of southern Europe which neither applied a depositors’ “haircut”, nor used any taxpayer money to cover its capital needs.

With Cyprus emerging from its financial crises with a strong and buoyant economy that now has moved well out of the danger zone, Hellenic

Hellenic Bank: Head Office

“Leveraging its excellent reputation, exemplary service, and high levels of liquidity, Hellenic Bank Group aims to actively support the continuous growth and internationalisation of Cyprus and fulfil its strategic aim of increasing profitability and growing its customer base.”

Bank Group is better poised than most to reap the rewards of its cautious approach. With excess liquidity, and eager to increase its market share, Hellenic Bank Group is currently considered one of the largest banks in Cyprus.

The standard bearer for sensible financial management, Hellenic Bank Group now finds CFI.co | Capital Finance International

itself on the cutting edge of developments in Cyprus where a pragmatic, albeit at times painful, approach to the financial crisis has produced a robust and forward-looking economy that is now ready to resume growth. As such, Hellenic Bank Group is at the forefront of developments and fully attuned to this new era that now holds great promise. i 59

> CFI.co Meets the Managing Partners of Newstate Partners:

Rafael Molina, Spencer Jones and Alex Levintaner

Managing Partner: Rafael Molina

Managing Partner: Spencer Jones

Managing Partner: Alex Levintaner

RAFAEL M MOLINA Managing partner Rafael M Molina has over fifteen years of experience assisting sovereign and sub-sovereign clients implement liability and risk management strategies aimed at optimising debt service profiles. In recent years Mr Molina has worked closely with the Ministries of Finance in Antigua and Barbuda and Liberia to address unsustainable debt burdens. He also advised the governments of Jordan and Peru on implementing ground-breaking buy-back operations with transformative effect on overall credit standings.

frequent speaker at international conferences, particularly during the IMF/World Bank annual meetings. He has also served as chairman for the annual debt management seminars organised by Central Banking Publications held at Cambridge University since 2011. Mr Molina received his undergraduate degree from Vassar College and his MBA from Columbia University. He is a native Spanish speaker and is fluent in English and Portuguese.

including infrastructure-related investments.

Most recently, Mr Molina has been advising a group of creditors on settlement of their claims on the government of Belize as well as help several Eastern European state-owned companies structure the viable financing of complex infrastructure projects.

Before joining Newstate, Mr Molina spent four years with Houlihan Lokey and five years with UBS Investment Bank advising governments and central banks on an array of risk management issues as well as yield curve optimising strategies.

Additional clients include the governments of Ecuador, the Dominican Republic, Iceland, Iraq, and St Kitts and Nevis, among others.

Mr Molina spent over eight years with the Federal Reserve Bank of New York where he performed several finance related functions. He left as a senior trader-analyst in the Foreign Exchange Department of the Markets Group, where he was responsible for implementing US monetary policy directives and managing the US monetary authorities’ yen reserve portfolio.

Mr Molina also reported on international monetary and interest rate developments to the Federal Open Market Committee (FOMC) and senior treasury officials. Mr Molina is a 60

SPENCER JONES Managing partner Spencer Jones is a founding and managing partner at Newstate Partners LLP, and has more than two decades of experience advising sovereign governments on a wide variety of financial matters including liability and risk management issues. Mr Jones has been closely involved in some of the most precedent setting sovereign financial transactions including the first sovereign bond restructuring of modern times, the largest debt write-off for a middle income country, the largest domestic currency sovereign external bond issue, and the first sovereign buy back of official sector claims undertaken on market terms.

Mr Jones has been working in the international financial markets for the last 28 years. He currently heads the team providing financial advice to the Russian government and has advised that country on its return to the international capital markets, including its $7 billion equivalent Eurobond issues in August 2012 and September 2013, on its relations with the major credit-rating agencies and international investors, on various liability management issues (including its negotiations with the Paris Club to buy back outstanding obligations worth $38 billion), development of its domestic capital markets, external debt restructuring and management of its sovereign wealth funds, CFI.co | Capital Finance International

Mr Jones has also advised the governments of Serbia, the Dominican Republic, Iraq, Ecuador, and Pakistan on a wide range of debt management issues as well as the governments of Jordan and Peru on transformative liability management transactions. He previously worked at Houlihan Lokey, UBS and SG Warburg.

Mr Jones has a Master’s Degree in Politics, Philosophy, and Economics from Oxford University. He is also a member of the Institute for International Finance’s Principles Consultative Group and Committee on Sovereign Risk Management.

ALEX LEVINTANER Managing Partner Alex Levintaner has spent the last 17 years advising various sovereign clients, in particular the Russian Federation on a wide range of debt related matters, including debt funding strategies in the domestic and international capital markets, debt restructuring negotiations, relations with credit rating agencies, asset/liability management issues, contingent liabilities, and the management of sovereign wealth funds.

Mr Levintaner was also involved with providing financial advice to the governments of Iraq, Liberia, Pakistan, Serbia and Montenegro, St Kitts and Nevis, and others on debt and risk management and debt restructuring. Before joining the sovereign team, Mr Levintaner worked in the Ukraine, Belorussia, and Moldova advising these countries on their mass privatisation programmes.

Mr Levintaner has an undergraduate degree from the University of Pennsylvania and holds an MBA from the London Business School. He is fully fluent in English and Russian. i

Summer 2015 Issue

> Newstate Partners:

Debt Counselling for Sovereigns Sovereign debt entails a degree of risk that is largely absent from other forms of lending: unlike corporations and other private-sector entities, countries ultimately decided their own destiny and as such cannot be liquidated in case they fail to pay.

Nonetheless, the consequences of defaulting on sovereign debt can be serious and usually impose no end of hardship on the already troubled lender.

“I

deally, one would never get to the point at which there is a complete breakdown in the relationship between debtors and creditors.

Whenever a default occurs, some problem has been left to simmer for too long.

It came to a boil and, in the end, nobody’s the wiser: creditors do not get paid and debtors become stuck in a downward spiral that transforms a problem into a conundrum.”

Rafael Molina is a debt management expert who advises governments and central banks on how best to administer their liabilities: “It is best to keep clear lines of communications open at all times. This works to the advantage of countries with stressed finances and creditors alike. Just keep talking and looking for solutions.” That is what Mr Molina and his co-founding partners, Spencer Jones and Alex Levintaner, do at Newstate Partners, a London-based financial advisory firm which helps governments and state entities with transformational actions aimed at addressing debt-related issues.

Newstate Partners has established a stellar reputation for identifying opportunities in scenarios that others deemed quite hopeless.

The firm also helps its clients trace long-term vectors that not only help solve acute financial challenges but result in better outcomes for all stakeholders. As Mr. Levintaner stressed, “ultimately, all parties involved have interests that are aligned: nobody is served by an antagonistic approach.”

Herein lies the key to the resolution of any debt-crisis. The job of Newstate Partners is to find that key by pointing out hard realities to all stakeholders and look for common ground.

Mr. Jones expanded: “Financial stress is hard on all and creditors need to understand that repayment possibilities may be limited. On the other hand, debtors need to be aware of their contractual obligations. It is just not good enough to say ‘sorry, we cannot pay and hence we won’t.’ Rather than focus on what cannot be done, we prefer to keep looking at possibilities.”

“Newstate Partners has worked with governments on all continents to provide debt relief counselling and defuse potentially dangerous situations.”

Though Newstate Partners can offer assistance in times of great stress, the firm advises its clients to actively engage creditors well before that point is reached. “The earlier a debtor nation or sovereign entity takes a proactive approach, the better the outcome. Crises do not usually happen overnight. Rather, they are the product of unforeseen circumstances such as crop failure due to weather-related incidents, natural disasters, changes in the terms of trade, or any other upheaval that nobody really expected.”

Mr Molina emphasises that the blame game is not one he is willing to play: “Cool heads must prevail at all times, as must reason. However, as soon as talks get underway between creditors and debtors, it is our task to get both parties onto common ground and from there get some forward movement going.”

Newstate Partners has worked with governments on all continents to provide debt relief counselling and defuse potentially dangerous situations. The firm also assists countries with identifying and structuring financing options for major undertakings such as infrastructure development. “We are in the planning and strategy business ” added Mr. Jones. “Newstate Partners plans ways out of stressful situations but also assists with the realisation of national objectives, identifying the best options available within the means at hand and then leveraging our firm’s expertise to put into place comprehensive packages that ensure the desired outcome.” i CFI.co | Capital Finance International

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> Steward Redqueen:

Making Business Work for Society Environmental degradation, resource scarcity, and rising inequalities are pressing global issues that are at the tip of the global agenda and leave virtually no-one untouched. The public sector is finding it increasingly hard to come up with suitable answers. The scale and complexity of today’s environmental and social challenges call for solutions based on joint efforts that can bring additional skill sets to bear: non-governmental organisations (NGOs), individuals, and especially the private sector can no longer sit idly on the side lines, passively waiting for the public sector to tackle the issues at hand.

W

hile in the classic model, companies serve the needs of clients and shareholders, their role in contemporary society is no longer limited to mere economics. Keen to find innovative solutions to the requirements of the market – and with their ability to efficiently and profitably scale-up business to respond to a surge in demand – private companies harbour great potential for meeting the needs of the wider society. They can also boost local economies.

Microfinance and mobile phone technology both constitute well-known examples that underscore, yet again, the private sector’s ability to not only meet particular – and often hidden – needs, but that in the process of doing so, business cause entire economies to flourish.

There are several reasons for companies to assume a proactive role in society based on transparency and dialogue. Firstly, today’s businesses engage with their surroundings in order to become better stewards of the environment. Corporations want to take responsibility for their own operations and manage their effects. However, for most firms this is only one half of the equation. Companies want to enter into a far more interactive relationship with all stakeholders in order to achieve their own strategic objectives while at the same time serving the public interest.

The question then becomes how a company and its partners – suppliers, authorities, financiers, and/or NGOs – can bundle the unique skills available, and join forces, to advance a local economy. Another issue that immediately arises concerns the way in which a company can build a solid and financially viable business around its contribution and achieve as many mutually beneficial outcomes as possible.

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“The question then becomes how a company and its partners – suppliers, authorities, financiers, and/or NGOs – can bundle the unique skills available, and join forces, to advance a local economy.”

These questions become especially relevant in emerging markets where societal needs are often greatest. It is here that the unique collaboration between the private enterprise and its stakeholders can have a significant and lasting impact. The three case studies that follow illustrate the contribution Steward Redqueen makes to transform ESG concerns into profitable business opportunities.

ALIGNING IMPACT GOALS WITH INVESTMENT DECISION-MAKING Development banks are a major source of financing for private business in emerging markets. Their main aims is to support sustainable private sector initiatives. It is generally assumed that by doing so development banks contribute to economic and social progress. Thus, these banks seek out investments that carry a high potential for positive impact in all spheres of a given economy; directly at client level – and perhaps even more importantly – indirectly on the broader economy. The indirect effects take place either through the client’s purchases trickling down throughout the supply chain or by way of the forward effects of the services provided by the client to local business (e.g. power or telecom).

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Though these indirect effects cause impacts that are often hard to foresee or quantify by development banks, they still constitute pivotal parameters for allocating investments. Decision makers must continuously evaluate different investment opportunities to determine which one adds the most value to a local economy.

Steward Redqueen has helped several development banks design and deploy an impact measurement methodology based on inputoutput modelling which translates capital into an economic output. This allows for the tracing of the associated spending by a client throughout the supply chain. The methodology enables banks to not only quantify the direct effects of an investment, but also to dissect its effect on a local market in terms of broader economic impact such as job creation and GDP growth.

By using these universally applicable indicators banks may compare the effects of investments across geographies, sectors, and client types. It also enables banks to aggregate results across their portfolio. This type of impact model is increasingly being applied by development banks to fully integrate investment strategies and private sector development goals with fact-based information.

This new way of looking at markets provides clear benefits to those seeking optimal private sector development impact. Or as one Steward Redqueen client put it: “With this model, we have become a frontrunner amongst impact investors and development banks […] and we distinguish ourselves by providing more insights into the important indirect effects of our investments. This supports our ambition of becoming a leading impact investor.”

Summer 2015 Issue

Wouter Scheepens (left) and Willem Vosmer (right).

LOCAL BUSINESS DEVELOPMENT THROUGH MINING Some assert that mining does not usually have a discernible positive impact on a nation’s economy. It is perceived to foster the creation of an “enclave economy” with few spillover effects: local businesses usually enjoy but limited exposure to the mining projects while most of the profits are promptly repatriated. There are additional concerns regarding the environmental and social impacts of mining, given the physical and human displacement larger-scale projects cause. In fact, few sectors of the economy are more contentious than mining.

Yet on the flip side, it is equally true that few sectors are more essential to a nation’s well-being than mining. In Ghana, for example, the sector in 2013 accounted for nearly 40% of export revenues. Looking further down the value chain, mines provide the raw materials which sustain the industries that consumers depend upon for most of the goods and services they purchase. When responsibly conceived and implemented, mining can kick-start private sector development in places where it is still quite small.

With mines operating in previously underdeveloped rural areas, the sector can play a key role in boosting incomes and employment opportunities by encouraging the development of local suppliers to provide needed goods and services, and creating or improving business associations and other entities that can help local entrepreneurs improve their skills.

Authorities are aware of these potential effects and therefore often require mining companies to source goods and services from local businesses.

This is obviously an effective way of making mining companies operate as locally as possible, but it also requires the collaboration of other partners in order

to build a local supply chain that is mature enough to meet the standards of the mining company in terms of quality, efficiency, and cost.

talks with clients who, for their part, complained about the inconsistent lending conditions between banks.

Firstly, local banks must help mobilise capital for small and medium-sized enterprises. With the miner’s purchase orders in hand, there is no reason why local entrepreneurs should not be able to obtain access to working capital. Secondly, NGOs should step in to provide skills development programmes so that entrepreneurs may build-up their knowhow.

And lastly, government must put sensible policies in place that ensure competitiveness. This type of close collaboration between the private sector and its many stakeholders allows companies to have the greatest possible effect on the advancement of local economies.

In order to secure (and ultimately increase) longterm access to funding, while keeping close to client reality, the four banks launched the Roundtable for Sustainable Finance with help from Steward Redqueen. The roundtable is a set of operating principles, and a platform for collaboration and knowledge-sharing, on sustainable finance between member banks. The roundtable delivered three clear benefits for its members: 1. It improved relationships with key capital providers due to consistent compliance with funding conditions; 2. It helped build capacity among the banks’ staff on how to broach sustainability with clients; 3. It provided the banks with a platform to reach out to clients and funders alike, discuss strategic business issues, and identify sustainable financing opportunities.

ESTABLISHING A ROUNDTABLE AS A PLATFORM FOR SUSTAINABLE FINANCE In land-locked Paraguay, four major banks turned to Steward Redqueen for help with a particularly difficult dilemma. On the one hand, clients are anxious to build on the positive momentum the country’s economy is experiencing: they want banks to simply lend money with no questions asked. On the other hand, the primary capital source for these banks – international development finance institutes (DFIs) – usually only extend funding on strict conditions that mandate the sound management of any and all sustainability issues associated with client activities.

These funding sources consider Paraguay’s agriculture-based economy a heavy contributor to the country’s environmental decay. Although all four banks implemented mechanisms to address environmental impacts, it proved difficult to implement this new way of looking at risk in day-today operations. Commercial staff wasn’t equipped to constructively bring the topic to the table during CFI.co | Capital Finance International

For private sector stakeholders there were clear benefits as well. Prior to the roundtable capacity-building initiative, when banks raised the issue of sustainability as a condition for the disbursement of loans, clients had been mostly hesitant. However, as soon as staff had received proper training to engage with clients strategically, perceptions turned. Explaining issues such as land degradation, and how it can be turned around and made into a business opportunity, staff noted that client objections made way for appreciation.

A manager of one of the four founding member banks summarised: “The roundtable is a great way for the banking sector to contribute to sustainable growth in Paraguay. The platform helped us obtain exposure to many of our stakeholders such as clients, financiers, and authorities.” i 63

> Lusitania Vida:

Lean, Nimble, and Consistently Profitable Founded in 1987 and with its head office in the Amoreiras office complex in Lisbon’s financial district, Lusitania Vida is a Portuguese insurance company focused exclusively on life insurance and pension funds. The firm is majorityowned by Portugal’s principal mutual association - the Montepio Geral, in business since 1840.

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ith its streamlined basic structure and with few – but highly qualified – staff members, Lusitania Vida has gradually consolidated its market share by occupying a niche that yearafter-year has proved to be stable: secure in its customer loyalty and, above all, profitable. With an eye on the reduced margins that characterise today’s insurance business, the company has benefitted from adapting its cost structure to profits. Thus, Lusitania Vida has obtained excellent results for 25 consecutive years. Ongoing training for its employees, and making the best possible use of material resources, have resulted in maintaining the noteworthy performance levels of its cost structure, with obvious benefits to the company’s customers.

The reduced size of Lusitania Vida has helped promote close relations with customers and the specialist distribution network which was extended in 2004 to include the banking channel of its majority shareholder. This not only led to a significant increase in sales but also to a broadening of the company’s customer base.

In recent years, annual production has been distributed evenly through both channels.

Currently, the banking and brokerage channels are Lusitania Vida’s main distribution vehicles.

These are selected for their competence, drive,

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“The decision made by shareholders to attribute 50% of the profit registered in each financial year to free reserves has also contributed significantly to the financial consolidation of Lusitania Vida.” and ethical approach and are exemplary in the distribution market. They handle different products designed according to the particular requirements of each channel.

A cautious and highly controlled action plan, and a detailed business programme, serve as a basis for meeting both annual, as well as medium and long-term, objectives. Simultaneously, biometric risk management is highly efficient. It is supported by a range of reinsurers well-known in the world market. It should be emphasised that reinsurers have benefitted from the excellent quality of the portfolio, earning significant returns

CFI.co | Capital Finance International

from the time the company first began selling.

The quality of investments, the profits, and liquidity of Lusitania Vida confirm the cautious and strict management strategy which, in turn, is reflected in solid annual results which are consistently sustained. Management is active in addressing the many market risks. It is supported by the tools of Asset Liability Management that analyse gaps and opportunities. This leads to an improved definition of the types of product and guarantees offered to customers and other stakeholders. Bearing in mind the state of the European financial market in recent years, the profits made by Lusitania Vida are noteworthy (see graph).

In the opinion of Maria Manuela Rodrigues, MD of Lusitania Vida, the company’s stability is expressed by the Solvency I ratios of recent financial years. These have been systematically over 300% and are thus notably higher than the life insurance market’s average: “This indicator is the best guarantee of the company’s capacity to respond to shareholders’ requests and to the insurance needs of its customers”.

The decision made by shareholders to attribute 50% of the profit registered in each financial year to free reserves has also contributed significantly to the financial consolidation of Lusitania Vida.

Summer 2015 Issue

As Solvency II becomes the norm, Lusitania Vida considers the implementation of processes that lead to meeting the additional requirements for its three pillars as the next challenge. In other management areas, several parallel and complementary projects will be analysed and developed. These include training courses for both internally and externally employed staff. This way, the company aims to comply with all risk management regulations and facilitate the redefining of commercial, technical, and financial strategies – always backed by quality processes and technology.

Set in a world undergoing radical change – and placed in a small open economy which is part of an economic zone in crisis with weak economic development since 2008 – Lusitania Vida has adopted a strategy based on product innovation, adjusting to the inevitable reduction in guarantees provided by social security schemes and to the crisis that has hit the banking sector.

At a time when market globalisation has brought consolidation on an industrial-scale to the insurance business – leading to the disappearance of many insurance companies through mergers or incorporation into multinationals – small-scale companies such as Lusitania Vida must operate at peak efficiency, provide good results to their customers, keep running costs as low as possible, and guarantee a personal quality service. Economies of scale can no longer be the mainstay of earnings.

Lusitania Vida has always enjoyed the support of its shareholders, particularly its majority shareholder Montepio Geral which – without interfering in management – has approved action and business plans that are underpinned by a strict adherence to the principles and values of the company’s code of ethics. These principles put customers, shareholders, and employees at the core of business. The code of ethics, duly mentioned in the statutes, has been the major reference in the company’s identity since it was founded in 1987.

The positive results Lusitania Vida has achieved are in themselves reason for pride and provide a strong stimulus for all those working for the company in whichever capacity to continue the strategy adopted so far. Working with transparency, care, and service quality will continue to lead to success, stability, and profitability for all those associated with Lusitania Vida.

CEO Maria Manuela Rodrigues said that Lusitania Vida is honoured to receive The Best Portuguese Life Insurance Company 2015 Award from CFI.co: “Apart from being a recognition of the work we do on a daily basis, this award offers us an incentive to confront the challenges ahead.” i CFI.co | Capital Finance International

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> CFI.co Meets the Alpen Invest Team:

Professionals at the Helm ROMAN AMBROŽ, CEO Roman Ambrož took over as CEO of the fund management firm Alpen Invest in 2008. At that time, the global financial-economic crisis caused a great decrease in the market value of assets held in investment funds. The downturn also had a negative impact on people’s trust in the financial system as a whole.

Despite this unfavourable scenario – which was especially evident in Slovenia – Mr Ambrož and his team of experienced professionals managed to both maintain investors’ trust and continue the planned investment policy which was based primarily on promoting regional markets. During the crisis, Alpen Invest upgraded management and marketing systems and transformed the previously closed-end investment funds into open ones. The funds were thus aligned with UCITS (Undertakings for Collective Investments in Transferable Securities) directives.

The entry of new owners into the company in 2014 added an important international dimension to Alpen Invest and improved the firm’s recognisability. Since that year, Mr Ambrož has also been member of Alpen Invest’s Management Board.

Mr Ambrož joined the company in 1994, immediately after it was founded. He was the first manager of the largest Alpen Invest fund, which is still active today as a sub-fund called Alpen.si. Over the following years, he was awarded several additional responsibilities such as the co-ordination of overall fund management.

In 2003, Mr Ambrož became executive director.

During the entire period he was charged with the management of the firm’s investment funds, Mr Ambrož was also active in the broader field of corporate management, either as president or as a supervisory board member of a large number of Slovene companies. He also cooperated with the Slovene Association of Investment Fund Management Companies (Združenje družb za upravljanje investicijskih skladov) as member of its administrative board.

Mr Ambrož holds a degree in Economics from the University of Ljubljana. He is also a winner of the Prešeren Prize awarded by that university.

Mr Ambrož has more than 25 years of experience in the field of finance and asset management. In 1994, he was employed by NFD Ltd. Mr Ambrož is one of the founders of NFD1 – now named Alpen Invest – and was that firm’s first Slovenian investment fund manager.

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SAVVAS A LIASIS Savvas A Liasis has more than fifteen years of institutional investment experience and was the founder and CEO of London-based Easybroker International Ltd. That firm was one of the largest independent institutional electronic equity brokerages in Europe with a client base in excess of 400 institutional clients in over thirty countries. Mr Liasis holds a BA and an MSc from City University Business School, London.

Mr Liasis co-founded Elements Capital Partners in 2010 and serves as chairman of the Alpen Invest Supervisory Board. He also is a member of the Board of Directors of DDM Holdings AG, a publically-listed company that has acquired NPLs (non-performing loans) with a face value of EUR1bn in the region.

UGUR YILDIRIM Ugur Yildirim has over 12 years of investment management experience and is a founding partner of Elements Capital Partners which manages private equity investments in distressed markets. Mr Yildirim has led asset management company start-ups in multiple countries in South Eastern Europe. He is a member of Advisory Board of Regional Business Councils. Mr Yildirim received his BSc in Mechanical Engineering at Istanbul Technical University and completed his MBA coursework at the University of Ljubljana.

CFI.co | Capital Finance International

DEJAN RAJBAR Dejan Rajbar has more than fifteen years of experience in the financial industry. Prior to assuming his current position at Alpen Invest, Mr Rajbar was an advisor to, and member of, the Management Board of the company’s Croatian subsidiary, Neta Capital Croatia. During his career, Mr Rajbar was involved in several brownfield and start-up projects related to the financial industry. However, his passion remains portfolio management. Mr Rajbar holds several awards as a fund manager. He obtained a Bachelor´s Degree in Economics from the University of Ljubljana and is a chartered financial analyst (CFA).

DAMJAN ŽUGELJ Damjan Žugelj boasts over a decade worth of experience in managerial roles. He was appointed director of the Securities Markets Agency in 2008 and held that position to 2015. Mr Žugelj also served as president of the Securities Markets Agency’s council. He participated in several IOSCO (International Organisation of Securities Commissions) committees. Until December 2014, Mr Žugelj was a member of the council of the Agency for Public Oversight of Auditing.

He earned his Master’s Degree at the University of Ljubljana in 2001. Six years later, Mr Žugelj received his doctorate at the Faculty of Law of the same university. He co-authored a number of professional monographs and wrote numerous articles on the venture capital industry. i

Summer 2015 Issue

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> Alpen Invest:

The Leading Funds Management Company in the SEE Region The story of the Alpen Invest funds management company starts 21 years ago with the privatisation of state-owned enterprises in Slovenia. In 1994, a reputable Slovenian bank and an insurance company jointly established the NFD asset management company. This firm soon became one of the most successful collectors of certificates in the process of privatisation.

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hroughout its history, Alpen Invest has been consistently committed to putting the clients’ interests first. Alpen Invest positioned itself as a credible company for the management of investment funds. As such, it is trusted by investors. Since the very beginning, the company has been both the leader and the creator of the Slovenian capital market.

The global economic crisis brought about a severe recession in the region and the company shared the fate of the local markets. However, Alpen Invest always aspired to outperform the market and in March, 2014, the firm came under international ownership. This brought an infusion of global expertise into the company, and the region, which combined successfully with the already available local knowhow. In June 2014, the company was renamed Alpen Invest and adopted a new investment philosophy – that of an active investor.

Alpen Invest was proclaimed best Slovenian Fund Management Company of 2014. Both of the firm’s funds – Alpen.Emerging and Alpen.

Developed – received top ratings, as did the Alpen Invest fund managers Dejan Rajbar and Izidor Jerman. Their exceptional performance placed them amongst the top five Slovenian fund managers of 2014.

The two nominated funds, Alpen.Emerging and Alpen.Developed, were placed first in their

“Servicing the whole spectrum of the valuechain will enable Alpen Invest to manage the individual investments throughout their entire lifecycle, thus multiplying the benefits for all of Alpen Invest investors.” respective categories. Alpen.Developed won its title in the category Global Developed Markets, whereas Alpen.Emerging claimed the top spot in the Emerging Markets category. Ratings were calculated for a period of five and three years. Both funds received top ratings for both investment horizons.

THE VISION TO BE MARKET LEADER IN SOUTHEASTERN EUROPE Alpen Invest’s vision is to become the leading asset management company for South-Eastern Europe offering added-value products for both individual and institutional clients from all over the world. By providing strategies that span the full spectrum of asset classes, and with an active investment approach, Alpen Invest aims to improve corporate governance, transparency,

and performance of regional investment vehicles.

Alpen.SI is one of the largest regional funds with assets now exceeding EUR89 million (as of September 1, 2014). The fund invests more than 75% of its assets in domestic companies.

Additionally, it provides market insights and a range of investment capabilities that only few other firms can match. For this, the fund counts on the expertise of its investment professionals located across the region.

ALPEN.SI Alpen.SI is a flexible balanced sub-fund for South-Eastern Europe and has an “alpha” potential in the South-Eastern European region within multi-asset class investments. The focus is firmly kept on this EU-convergent region and on the usage of added-value through investment expertise, and diversification between beta generating regional blue-chip and alpha potential high-yield securities. In addition, controlled risk management, with enhanced-indexing and risk tolerance conditional on the market sentiment, enables Alpen.SI to invest in promising companies regardless of their sector or regional classification.

The majority of the investments is concentrated on Slovenian companies undergoing the privatisation process. It is common belief that these businesses are presently undervalued and thus represent a clear potential for above-average growth in the short-to-medium term.

“The firm’s perspective lies in transforming its current leadership role as a manager of regulated mutual funds to one of a leading investment manager of alternative investment funds, providing unparalleled service and offering products covering the whole vertical value-chain from distressed, mezzanine, and private growth to public funds.”

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Summer 2015 Issue

ALPEN.DEVELOPED This fund’s general investment strategy seeks capital appreciation by using a value-oriented approach. The sub-fund invests primarily in the equity of large companies in developed markets (US, EU, Canada, and the developed parts of AsiaPacific). The sub-fund’s investment philosophy is Less Is More. Instead of holding hundreds of index-linked shares around the world, the fund focuses on undervalued sector and companies with above-average price appreciation potential.

These are selected through a comprehensive and rigorous evaluation process that enables the fund to outperform the benchmark S&P Global 100 Index on a risk adjusted basis.

ALPEN.EMERGING Emerging markets have become core allocation targets for many investors as a result of their rising share in the global economy. Dynamic opportunities are offered by companies that drive and benefit from rapid growth in emerging markets. Regional economies are marked by low

“Building on over twenty years of successful performance in the region, and with its primary focus on equities, Alpen Invest is now using wider asset classes, commonly referred to as alternative investments.” debt levels, stability, high growth, strong local demand, and growing exports to other markets.

The global markets now offer valuable investment opportunities as corporate profits will tend to grow faster as overall growth increases. Moreover, emerging economies provide a diversification of benefits. Performance differences are more pronounced than in developed markets. They also tend to perform successfully, independent CFI.co | Capital Finance International

from fully-developed western economies.

PERSPECTIVES Building on over twenty years of successful performance in the region, and with its primary focus on equities, Alpen Invest is now using wider asset classes, commonly referred to as alternative investments.

The firm’s perspective lies in transforming its current leadership role as a manager of regulated mutual funds to one of a leading investment manager of alternative investment funds, providing unparalleled service and offering products covering the whole vertical value-chain from distressed, mezzanine, and private growth to public funds.

Servicing the whole spectrum of the value-chain will enable Alpen Invest to manage the individual investments throughout their entire lifecycle, thus multiplying the benefits for all of Alpen Invest investors. i 69

> Godiva Chocolatier:

What’s in a Name?

By Penny Hitchin

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hile love-struck Juliet in Shakespeare’s Romeo and Juliet proclaimed that a name is just a name, nothing so straight forward applies in business. Especially in the fast moving consumer goods sector the company name, brand, image, and logo all play a critical role in driving sales and hence the allimportant bottom line.

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Marketing experts advise that in naming a company, product, or a feature, the brand name must be created for strategic impact. It must grab attention, generate interest, and tell customers something novel. A whole new industry has grown up around such naming services which include branding and name research geolinguistics (checking appropriate languages to ensure that the connotations of the name are CFI.co | Capital Finance International

appropriate). With nearly twenty million active trademarks and 230 million URLs in the world, the process of choosing a distinctive new brand or company name can imply a lot of work.

Once selected, the brand name must be nursed.

One PR disaster can tarnish it for a generation.

Something as trivial as an inappropriate Facebook post, a flippant tweet, or a rogue

Summer 2015 Issue

YouTube video can spread around the world at lightning speed, undoing years of diligent and painstaking work.

Godiva Chocolatier is a distinctive name – selected to be synonymous with quality and redolent of history. Premium chocolate manufacturer Godiva Chocolatier fixed on the name in 1925 because its Belgian founder Joseph Draps liked the medieval legend of Coventry’s Lady Godiva. The name also provided the distinctive logo: a long haired naked lady riding on horseback.

The story of Lady Godiva dates back nearly a thousand years. Her husband was Leofric the Earl of Mercer and Lord of Coventry. He was a powerful and ruthless ruler who imposed hefty taxes upon his subjects. Legend has it that the kind-hearted Lady Godiva persistently pleaded with her husband to relieve the heavy burden of taxes he had imposed on the residents of the town of Coventry but to no avail.

This marital spat has entered the annals of posterity because Leofric eventually said he would grant his wife’s request, but only if she would ride naked on horseback through the town. The legend has it that the good lady was horrified by the idea. However, by ordering the people to remain indoors with their windows and doors barred, and loosening her long hair to serve as a cloak, she was able to mount her horse and ride through the silent streets without compromising her modesty.

Leofric accepted his defeat with good grace, acceded to his wife’s wishes, and abolished the town’s oppressive taxes. Be it legend or history, records show that in medieval times no tolls were paid in Coventry except on horses. The town of Coventry is immensely proud of Lady Godiva and an annual pageant has been established to reenact her ride following the original route.

London: Godiva Regent Street

“What’s in a name? That which we call a rose By any other name would smell as sweet.”

CFI.co | Capital Finance International

Back to chocolate and to the present day: Godiva Chocolatier is now established as a world-wide luxury brand with over 600 retail boutiques and shops in the United States, Canada, Europe, and Asia. In its ninety-year history the company has spread its wings and flown far from its Belgian roots. The first Godiva shop outside Belgium opened in 1958 on Paris’s fashionable Rue St Honoré. Over the next decade the company targeted American markets, focusing on luxury malls. In 1967, the company was acquired

by US food processing giant Campbell Soup Company. The brand prospered and ten years later annual sales had reached $500 million.

Then came a parting of the ways: Campbell Soup decided that the “premium chocolate business does not fit with Campbell’s strategic focus on simple meals” and Godiva was sold to the Istanbul-based Yıldız Holding, owner of the largest consumer goods manufacturer in the Turkish food industry, for $850 million at the end of 2007.

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In the Coventry area Godiva is an extremely popular name for local enterprises. Businesses dealing with insurance, mortgages, fire-fighting equipment, bearings, carpets, and mountain bikes, amongst others, all use the name. Godiva Chocolatier, marketing a premium Belgian chocolate product, has no links with Godiva and her home town of Coventry. However, the Turkish owners have recently created uproar in the Midlands town by claiming intellectual property rights on both the name and the image.

The legal threat provoked fighting talk from the pub owner, Englishman Glen Simmons: “My pub has nothing to do with chocolates so I don’t see how anyone could be confused. I wanted to name the pub after a woman who was part of England’s heritage and I could think of no one better or more famous than Lady Godiva.”

In 2007, Godiva Chocolatier filed a patent on Lady Godiva’s identity at the Intellectual Property Office register in London. It trademarked the name along with several versions of the image of a comely woman on horseback. The cost of this claim would have been around £1,000 and took place with no obligation to consult interested parties the before going ahead.

The heist of Lady Godiva’s name and image has provoked outrage. Colin Walker, vice-chairman of the Coventry Society, is reported by The Daily Mail as saying: “This is an absolute travesty. No one should be allowed to hijack the identity of historical figures for their own commercial interests. I never thought it would come to this. If the Belgians try to enforce this in Coventry, there will be angry protests. We are very proud of Lady Godiva, and she is known and loved around the world.”

The trademarking came to light last year when company lawyers gave the owner of the Lady Godiva public house in Geneva ninety days to cease and desist from using the name. The Godiva-themed English Pub opened in 2007 in a student area of the city. The menu includes delicacies such as the Lady Godiva Burger and the Lord Leofric Burger, although naked ladies on horseback appear to be in scant supply.

Predictably, social media fanned the flames of the argument with a Facebook and Twitter account in the name of Boycott Godiva. Happily, sanity prevailed and the chocolate company set out to assure establishments in and around Coventry that it has no wish to challenge any that use the name Lady Godiva. “The legend of Lady Godiva has already taken its rightful place in history and we are as respectful as

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anyone of Coventry’s close association with it,” the firm said in a statement.

The company went on to explain that the action against the Geneva pub was undertaken because it appeared “confusingly similar” to its own stores and cafes. “This is a narrow dispute where we feel we are entirely within our rights,” the statement added.

So, in summary, a multinational conglomerate worth billions of dollars threatened the owner of one small pub over the use of a name from the history of a country where neither David nor Goliath is based. Much publicity resulted, especially in the Coventry area which believes that it has the best claim to the Lady Godiva name. Who are the winners and losers of this unequal contest? Godiva Chocolatier may claim the legal high ground but its actions have succeeded only in drawing bad publicity upon itself.

Choosing the right brand name is important, but throughout the life of the brand, its reputation must be maintained. For Godiva this requires the generosity of spirit of Lady Godiva rather than the iron fist of her husband Earl Leofric. The heavy-handed legal letter could be considered an own goal for the chocolatier. i

Summer 2015 Issue

> CFI.co Meets the MD of Lusitania Vida:

Maria Manuela Rodrigues

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graduate in Applied Mathematics from the Lisbon Faculty of Sciences, Maria Manuela Rodrigues began her professional career as an actuary in the life sector of the major Portuguese insurance company A Mundial in the 1970s.

Here, she was able to acquire considerable experience in product design, estimating and controlling mathematical provisions, profit sharing accounts, and in all technical and actuarial aspects of the life insurance business.

Later on, she was responsible for group insurance management for companies, preparing suggested benefit plans for workers according to the specific requirements.

A member of the Institute of Portuguese Actuaries, and one of its directors, Mrs Rodrigues took an active part in several meetings to discuss matters important to the insurance business in Portugal. As a specialist in life insurance and pension funds she also regularly participates in national and international congresses and seminars.

As an independent actuary she estimated pension plan responsibilities for large Portuguese enterprises and drew up the respective reports used to certify the accounts of these corporations to the Ministry of Finance. It is important to remember that, at the time, there were no pension funds in Portugal.

As director of the Department for Actuarial Procedures, Studies, and Planning – and her involvement with actuarial work and group insurance studies – Mrs Rodrigues closely engaged with the financial planning and control of all of the company’s life insurance business.

The Services Department of this large company allowed her to add to her technical and actuarial knowledge with training in accountancy and cost management. Doing so, she gained a thorough knowledge of the entire management structure of life insurance companies. She also received additional training in management geared to insurance companies, and in particular to lead management.

In 1987 Grupo Montepio Geral, the most important Portuguese group involved in mutual association and social economy, decided to found a life insurance company. At the time, Mrs Rodrigues was invited to manage this project.

She accepted the invite with great enthusiasm.

As defined by the shareholders, the new insurer,

MD: Maria Manuela Rodrigues

Lusitania Vida, had to add value to the mutual association group and distribute profits for the benefit of its associates – a major challenge that was consistently met over the twenty-five years.

As managing director of Lusitania Vida, Mrs Rodrigues planned the underlying structure of the company based on a staff of qualified young people who were skilled in computer processing and were granted total management autonomy.

Outsourcing was not used at all in order to reduce operating costs.

Setting up a company from scratch always constitutes a great challenge because of major demands in all areas: from recruitment and technical training for staff, preparing products for sale to defining the main underwriting policies, and investment and re-insurance, all the while aiming for technical precision, profitability, and proper risk management.

CFI.co | Capital Finance International

Since 1987, Mrs Rodrigues has led the company with the same diligence and dedication, working with – and encouraging – all employees to constantly improve to be able to respond to radical changes in the insurance sector and to be better prepared to meet the high demands of the company, the group, and the market.

Although not an enthusiast of the Solvency II regime that came into force throughout the EU on January 1, 2015, Mrs Rodrigues in recent years has been involved with the preparation of the new regime, already beginning its management in 2015 from the point of view of capital.

With a vast amount of work dedicated to the life insurance business, Mrs Rodrigues cannot but feel personally and professionally satisfied, and extremely proud, of the winning project that Lusitania Vida has clearly become. i 73

> Casinos Austria International:

Dedicated to Excellence

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asinos Austria International (CAI) is a leading international casino development and management company. CAI’s reputation for integrity, four decades of experience, and total respect for the particular social responsibility associated with the gaming industry, guarantee the confidence of its partners, customers, stakeholders and, above all, the licensing authorities – all around the globe. Casinos Austria International is dedicated to excellence and is committed to providing safe, fun, and responsible gaming in unique settings.

A GLOBAL PLAYER Founded in 1977 to consolidate the Casinos Austria Group’s international activities under one roof, Casinos Austria International has since gone from strength to strength and is now a leading player in the global gaming industry.

The company remains at the top of a constantly evolving and dynamic gaming industry by offering a comprehensive portfolio of casino management and development services. It specialises in all aspects of casino management and development, and enjoys international renown for its knowhow and expertise.

Service, quality, integrity, responsibility, and respect for tradition are the driving forces behind the company’s success and are reflected in all its business activities. Over the past four decades, Casinos Austria International has successfully realised more casino projects in more jurisdictions than any other operator worldwide, and its reputation for success is unrivalled in the gaming industry.

A GLOBAL CASINO NETWORK … ON LAND AND AT SEA With casinos in eleven countries and on the seven seas, Casinos Austria International has long since expanded far beyond its Austrian roots. It takes a multicultural approach to casino development and management, offering a unique combination of tradition and innovation. Under the motto Think Global, Act Local, each of its casinos is specially designed to meet the needs of the local market and reflect the tastes and traditions of the host community and culture: from elegant grand jeu casinos in capital cities to more casual gaming environments in popular tourist destinations. They each offer the very best in casino gaming, entertainment, and service, yet personalize this with their own charm and setting to offer that special combination of old world tradition, new world innovation, local customs and international flair that is unique to Casinos Austria International.

The company’s casinos boast an extensive mix of 74

“Casinos Austria International’s unrivalled reputation for success is in great part due to its experienced, dedicated, and professional staff.” styles that underlines its diversity and embodies its multicultural approach. Together with its local partners, it currently operates 32 casinos – 26 land-based casinos in eleven different countries and six cruising casinos on board five ultra-luxury liners in the Silversea Cruises fleet and on the Bahamas Express Day cruising vessel.

A GLOBAL TEAM Casinos Austria International’s unrivalled reputation for success is in great part due to its experienced, dedicated, and professional staff.

In keeping with its traditions of multiculturalism and diversity, the company’s operations around the globe employ over 3,000 people from all over the world. A careful balance of local and expatriate staff ensures that each casino not only meets the needs and tastes of the local market, but also delivers the high standards of service, hospitality, and customer excellence that are synonymous with all its casinos and gaming operations. It is these professionals and their unrivalled wealth of knowhow and expertise who give Casinos Austria International that allimportant competitive edge over other casino operators.

PROFESSIONALLY PLANNED, DESIGNED FOR SUCCESS AND EXPERTLY MANAGED The evaluation phase lays the groundwork for the success of a future casino and is essential in determining the feasibility of a project and the suitability of a proposed site. There is no one recipe for success: every single casino project poses its own unique challenge. Casinos Austria International’s feasibility studies take in all aspects of a potential casino operation: from location, site, and market analyses to gaming mix and appraisal of the local labour market.

The company works closely with the local community, local business, and the regional and national gaming authorities to ensure the future casino has a strategic advantage, gains acceptance within the community, and best meets local demands, traditions, culture, and legislative requirements. Over the past four CFI.co | Capital Finance International

decades, Casinos Austria International has evaluated more than 1,000 different casino projects all around the globe, making it one of the most experienced and sought-after casino management partners worldwide.

A new casino is an investment in the future, and getting it right in the planning stage is crucial to its success. Likewise, the design of a casino is a key element in attracting – and retaining – future guests. Casinos Austria International’s casino planners pay careful attention to every detail and leave nothing to chance.

The company’s wealth of experience and resources forms the basis for the planning of all its casinos, giving each and every one of them its own and unique flair. It carefully studies the tastes and traditions of the target market and expertly plans the layout to take account of guest traffic flows and to develop the best gaming and entertainment mix. It then focuses on planning the necessary operational “software”: a full range of pre-operating services lay down procedures for security and surveillance, table, and electronic gaming, responsible gaming, marketing and PR, as well as budgeting, finance, recruitment and training, etc.

Casinos Austria International’s core competence is casino management. Managing a casino is a long-term undertaking, and one the company has successfully taken on in more jurisdictions than any other casino operator worldwide. It knows and understands how casinos work, and its extensive portfolio of management services cover all aspects necessary to run a casino operation effectively: from gaming, financial and security services to quality management, training, and marketing.

Casinos Austria International adapts global knowhow to local markets, maintains close relationships with gaming authorities to ensure legislative compliance, and continually works to integrate the casino into the community. Its experienced experts initially assume key positions in the casino to give it the required management boost. Local staff are then trained and integrated into the management team, ensuring a seamless transition from expatriate staff to a local team.

RESPONSIBLE GAMING, SECURITY, AND THE PREVENTION OF MONEY LAUNDERING Casinos Austria International takes its responsibility to society with the utmost seriousness and is committed to providing maximum entertainment with minimum risk to guests, upholding the security of its casinos operations, and providing a safe gaming

Summer 2015 Issue

Australia: The Reef Hotel Casino, Cairns

Belgium: Grand Casino Brussels Viage

Canada: Great Blue Heron Charity Casino, Port Perry

United States: The Silver Wind

environment for all its guests. It actively promotes responsible gaming in all its operations, working closely with international experts and national authorities to implement appropriate measures and procedures. The company respects the limits of its business and serves throughout the casino industry worldwide as a benchmark for responsible gaming programs.

At Casinos Austria International, responsible gaming is not just a buzzword, it is a firmly rooted principle in corporate philosophy. All its operations adhere strictly to the prevailing security, safety, and surveillance standards of their individual jurisdictions, and its international network of security experts ensures that the procedures and equipment deployed meet the highest international standards.

Casinos Austria International is also fully aware of the effects of money laundering on society and respects its obligation to ensure secure financial transactions in all its casinos. It does its utmost

to avoid any involvement whatsoever with this phenomenon, adhering fully and strictly to all relevant legislation.

THE CASINOS AUSTRIA GROUP The origins of the Casinos Austria Group date back to 1934, when the first casinos were opened in Austria. The group has long since expanded far beyond its national borders to become one of the leading players in the global gaming industry. Through its stakes in Austrian Lotteries, tipp3, win2day.at and WINWIN, the Casinos Austria Group is also active in the lottery, online gaming, sports betting, and video lottery terminals sectors.

FOUR DECADES OF EXCELLENCE Tradition, innovation, integrity, responsibility to society, security, and service excellence are the cornerstones of the company’s strong international reputation and proven track record of success. Casinos Austria International’s commitment to excellence and the provision of CFI.co | Capital Finance International

highest quality gaming and customer service is evident in all its casinos around the globe, where professional staff are always on hand to ensure guests enjoy the ultimate gaming experience.

A successful casino knows its guests, and they take centre stage in everything it does. The perfect combination of the thrill of the game, top class dining, and innovative gaming and entertainment turns a night at the casino into a memorable event. With their unique blend of casino traditions and perfect service, each and every one of Casinos Austria International’s casinos is synonymous with excellence, fun, and great hospitality giving it that all important competitive edge.

Whether the preference is for the thrill of the live game or the buzz and excitement of the slots, with over 30 table games at some 400 tables and more than 4,500 slot machines to choose from, Casinos Austria International’s casinos really do offer something for everyone. i 75

> Playing to Win or Playing to Survive?

Urbanisation and the Knowledge Economy

By Rajneesh Narula

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t is no surprise that cities around the world have been expanding over the last few decades. The pace of this trend is breath-taking. According to the UN’s World Urbanisation Prospects, 2014 is a turning point. For the first time in human history, a majority of the world’s population lives in cities, with rural areas accounting for just 46% of the total. To place this in perspective, in 1950, 76

70% of the population lived in rural areas, and projections suggest that by 2050 less than a third of mankind will live in the countryside.

This fact that more and more people are moving to urban areas has rather serious and profound implications. Some are mundane, in the sense that they are not new. Many countries plan with a focus only on survival, to avoid disasters: How CFI.co | Capital Finance International

do you handle the pressures of providing basic infrastructure for all the new arrivals?

Countries in today’s global world need to consider more sophisticated implications: playing to win requires a focus on sustainable growth. Countries like India, Brazil, and Egypt have struggled with this reality for decades. The inability to take a more aggressive stance towards tomorrow

Summer 2015 Issue

is genuinely associated with the problems of underdevelopment: where is the money to do more?

Most nation states in the third world cannot – even where there is political and social will – provide basic infrastructure services to their rapidly growing population. They simply do not have the revenues to make the capital investment needed. Developing countries are already challenged by poor planning, limited resources, and inefficient bureaucracies. Such limitations aggravate the problem of insufficient basic infrastructure, from non-existent sewage systems to underfunded schools and intermittent electricity supply. Thinking of tomorrow’s needs today seems a luxury.

Indeed, it is not easy to deal with the mundane, much less the longer term complex issues of global competitiveness. However, to thrive in a world economy whose hallmarks are change and competition, it is insufficient to think defensively of maintaining the status quo. The reality of globalisation means that few states can afford to be complacent about the structural transformation needed to compete in tomorrow’s world.

Revenues in the modern state come from taxes, and taxes derive from commercial economic activity, which itself depends upon basic infrastructure. In many Sub-Saharan countries, the cost of generating a reliable electricity supply through private generators is the single largest running cost for businesses, often greater than their payroll costs. This is a core policy issue today in almost every capital city, from Cairo to Copenhagen: how do you promote entrepreneurs to start new firms and how do small firms become larger and employ more people? Indeed, how do firms of all sizes remain innovative, profitable, create employment while staying in the formal sector?

This imperative is even greater in the developing world, where unemployment figures are high, and most commercial activity stubbornly remains in the informal sector. As cities receive increasing internal emigration from the rural areas by a population with traditional skills associated with labour intensive activities such as agriculture, how do you keep these people employed?

“Countries in today’s global world need to consider more sophisticated implications: playing to win requires a focus on sustainable growth.”

CFI.co | Capital Finance International

Unfortunately, in today’s world, jobs that can absorb unskilled rural emigrants are increasingly far and few between. The labour-intensive manufacturing sector in most developing countries is simply growing too slowly (and in some countries, such industries are, in fact, shrinking) to absorb all these workers. Generally speaking, the jobs that are available tend to require rather more skills than these workers have, a lot of which are in the service sector.

At the very least, workers need basic numeracy and literacy, to work as shopkeepers, waiters, or even to peddle phone cards on the street. Low 77

skills and productivity equate to low wages, and because of the problems of setting up formal activities (again, due to inefficient bureaucracies or the absence of basic infrastructure) such lowwage jobs are also in the informal sector, and do not necessarily provide those that are successful the opportunity to expand. In other words, they do not generate taxes, put greater pressure on the existing infrastructure, and are unlikely to offer greater wages over time, or help support expanding families.

The simple answer would be education, but as with all matters of development, simple answers are rarely easy to execute. For the issue here is not simply about immediate needs of society, of providing people with subsistencelevel employment. Job creation should be sustainable, because populations are growing, and as more people migrate to cities, it becomes further exacerbated with time.

The problem of basic skills and education remains, but the reality of the 21st century is that for a country to compete in open markets, more is needed. It is no longer a matter of basic education, but specialised education and training. For developing countries, it has been hard enough to meet the goal of universal literacy. But globalisation and liberalisation means that domestic firms (and jobs) in activities which were protected by distance and tariffs are now exposed to foreign firms and imports.

New sectors and industries that offer greater potential for sustainable employment growth require far higher skills, at the very least, postprimary and possibly increasingly, tertiary-level skills. Appropriate institutions with the right quality of experts to teach are hard to come by in developing countries. Besides, specialised skills are also not always easily assimilated through learning-by-doing, so that people will have difficulty entering such jobs without the appropriate certification, and firms that want to establish themselves and survive in international competitors need management, equipment, and capital to thrive.

Many countries have nurtured the tourism and hospitality sectors, but few have created low cost training centres and skills development schemes that fit such sectors. More broadly speaking, ICT skills are required for a growing variety of hitherto low-skilled activities.

The state sector has struggled to meet the provision of these basic social goods (such as basic infrastructure and education) at a nominal cost to society, even in developed countries, where debates are rampant about the degree to which these can be privatised. Indeed, in many places – rich and poor – the quality of public education has deteriorated to the point that families that can afford to do so prefer to seek education through the private sector.

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These problems are not unique to developing countries, and to a fair degree these same issues are debated within the OECD countries.

Even in developed economies, there is a growing structural mismatch of the skills available, the skills needed in the market, and the challenges of structural unemployment.

How do you retrain car mechanics to become nurses, or construction workers to become school teachers? Although almost all the rich countries subsidise education at least until the secondary level, they have also not all been able to tackle the question of specialist training and skills with equal efficiency. They also grapple with their response to rapid changes in demand due to structural transformation and the arrival of new industries that change the supply and require retraining of appropriately qualified people.

This brings us to the question facing policy makers that has only recently begun to receive the attention it deserves. Every society makes available certain resources that are universally deemed to be made easily available to all citizens without discrimination, such as healthcare, education, security, roads, police, clean water, etc. Society has deemed these services as being necessary for moral, economic, or social reasons, aimed at reducing inequality and polarisation within countries. The definition of such social necessities varies from country to country, but even so there is some consensus across countries that society at large benefits from freely available education rather than a school system exclusive to those who can afford it.

In the knowledge economy that typifies the 21st century, it is no longer enough to think of generic secondary (or tertiary) training as the optimal level of education, much less a primary education. A number of governments today regard high-speed internet connectivity as an essential service and the ability to use computers as a basic skill in an interconnected world, in much the same way as access to public transportation, potable water, and electricity were regarded just a generation ago.

Modern economies must rethink how education is provided and delivered, and reconsider its breadth and the specialisations available, so that the workforce is suitable for an outwardlooking, knowledge-intensive economy, and the range of new opportunities and threats associated with it. i

ABOUT THE AUTHOR Rajneesh Narula is a British economist and academic. He is professor of International Business Regulation and director of the John H Dunning Centre for International Business at Henley Business School, University of Reading in Reading, UK. CFI.co | Capital Finance International

Summer 2015 Issue

> CFI.co Meets the CEO of Casinos Austria International:

Alexander Tucek

B

attling the odds – an economic crisis, the surge in online gambling, and indoor smoking bans – Alexander Tucek has deftly managed to come out ahead. The CEO of Casinos Austria International, a gaming corporation with a global footprint and one of the world’s most respected casino operators, reinvented the business after a management shakeup in December 2013.

Playing to emphasise the strengths of the brickand-mortar casino business, rather than fight a rearguard campaign to shore up perceived weaknesses, Mr Tucek set about making gaming into a multi-layered experience: “Taking stock of what we actually possess by the way of physical structures, one soon concludes that casinos are not just gaming venues but offer the perfect setting for a comprehensive short-break experience that includes fine dining, theatre, concerts, and a host of other activities.”

The process of overhauling the 26 land-based casinos operated by Casinos Austria International in eleven jurisdictions is currently in full swing and nearing completion. “It is our answer to the advent of online gaming which essentially remains a solitary activity and as such is deprived of the glamour on offer at our casinos. By accentuating the all-inclusive experience of an evening at the casino, we feel that our operations are only very marginally comparable to the online version of the game. In fact, I’d venture to say that any comparison between the two sorely misses the point.” This novel approach is already now bearing fruit: new players from distinct demographics are attracted to live the enhanced casino experience in which gambling is but one of a number of activities on offer.

With a degree in Business Administration, Alexander Tucek joined Casinos Austria in 1971.

Seven years later Mr Tucek was transferred to Casinos Austria International (CAI), formed in 1977 to consolidate the international activities of the company. CAI not only operates casinos, it helps others with expert development and management advice. Partly owned by the Austrian state, Casinos Austria International is considered one of the world’s best-known and most-respected gaming operators: “We have helped establish well over a hundred casinos worldwide.”

CAI is specialised in developing small to medium-sized venues and enjoys a competitive edge because of its impeccable track record: “This allows us to help establish casinos in markets that are deemed quite difficult such as those in Asia. Our solid reputation allows us

CEO: Alexander Tucek

to engage with all stakeholders and develop the industry in niche markets overlooked by others.”

Mr Tucek earned his spurs as manager of several land-based and shipboard casinos before being named managing director of Casinos Austria Maritime and regional director for the Americas in 2005. In the latter capacity, Mr Tucek was responsible for CAI’s flagship Great Blue Heron Charity Casino near Toronto, Canada. After a six year stay in North America, Mr Tucek was called back to Vienna to become the CAI executive vice president for operations.

“We not only try to be the best, in our business we simply are the best,” says Mr Tucek with almost American-like swagger. He is, however, fully justified in his confidence with Casinos Austria International moving from strength to strength.

CAI now also operates the casinos aboard five ultra-luxury cruise liners of the Silversea Cruises fleet and on the Bahamas Express day cruiser.

The company maintains a grand total of more than 400 gaming tables and 4,500 gambling machines. In a business where trust means profit, CAI is cashing in on its reputation: “We are the oldest operator in the international casino industry. As such, CAI brings a wealth CFI.co | Capital Finance International

of experience to the table. Our knowhow is unmatched and this brings with it a certain momentum. Authorities worldwide are keenly aware of our qualities and of the fact that we do not cut corners or seek to operate on, or anywhere near, regulatory margins. In order for our business to remain sustainable, we need to embrace both the opportunities for business as well as our responsibility to the public.”

Mr Tucek explains that CAI is not the least interested in extracting the last penny of its clients: “That is just not very smart. Our business model calls for a pleasurable experience, not one that causes harm to either the individual player or the wider society. CAI maintains rigorously enforced safeguards in place to protect players from themselves and ensure that a visit to one of our casinos is, at all times, an agreeable proposition that calls for repetition.”

While CAI’s enhanced casinos may offer better fun than ever before, their running remains a very serious business indeed. The solid approach pioneered by CAI under Mr Tucek’s overall direction – one devoid of flashiness but rooted in sound business management – has made the Austrian gaming company into a global giant to be reckoned with. i 79

ANNOUNCING

AWARDS 2015 SUMMER HIGHLIGHTS Once again CFI.co brings you reports of individuals and organisations that our readers and the judging panel consider worthy of special recognition. We hope you find our short profiles interesting and informative.

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

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

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

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

CFI.co | Capital Finance International

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

Summer 2015 Issue

> CREDICORP CAPITAL: BEST SECURITIES BROKERAGE MILA 2015

It takes both expertise and passion to become one of Latin America’s most trusted financial services companies. Operating in the highly competitive and exceptionally dynamic economies of the Andean countries – Chile, Peru, and Colombia – Credicorp Capital is a full-service investment bank with a customercentric equity trading division. The firm is noted for its ability to execute large-volume transactions in illiquid markets promptly and efficiently, using state-of-the-art technology and boasting a highly experienced team of professionals.

Credicorp Capital’s operational footprint extends across the Integrated Latin America Market (Mercado Integrado Latinoamericano – MILA), an initiative that since late 2010 unifies the stock markets of Chile, Colombia, and Peru. More recently, Mexico joined the programme as part of the

Pacific Alliance trade block which the four countries established in 2012.

With Mexico’s accession, MILA now boasts a market capitalisation of well over $1.25tn with 798 listed companies. It trumps the Brazilian BM&F Bovespa to become the largest exchange in Latin America, albeit by a slim margin. Thoroughly at home on this fast-paced and fast-growing market, Credicorp Capital is well poised to offer both investors and issuers world class services and top notch research.

The firm regularly tips high-growth stocks based on the exhaustive research conducted by its experienced professionals.

Mindful of its human capital, Credicorp Capital has over the years assembled a best-in-class team that is now the envy of the industry.

The firm is moderately bullish on the regional economic outlook and recently concluded that

the MILA stock market still has plenty room for growth.

Credicorp Capital offers its client a full suite of brokerage services. The firm aims to build long-term relationships with its corporate and institutional clients, considering the consistent building of value requires an integrated approach based on mutual trust and an unwavering dedication to quality in all aspects of the brokerage business.

The CFI.co judging panel is particularly pleased with the passion displayed

by Credicorp Capital in its relentless pursuit of operational excellence. The company has a firm grip on risk analysis and containment, adheres to strict standards of corporate governance, and advances as a tightly knit team to reach new heights. The judges have no hesitation in naming Credicorp Capital the winner of the 2015 Best Securities Brokerage MILA Award.

> METLIFE: BEST INSURANCE COMPANY UNITED STATES 2015

A good life insurance company inspires confidence in order that families may face an uncertain future with a much-reduced level of concern. However, a truly great insurance provider takes this level of assurance a few steps further and can support an entire nation – especially in times of crisis.

Metropolitan Life Insurance Company (MetLife) has supported individuals and families – and indeed the entire nation – throughout its distinguished corporate history spanning already 150 years. MetLife can trace its roots back to 1863 when it offered insurance coverage to soldiers and officers fighting the US Civil War.

By 1930, one in five Americans had signed up with the insurance company to protect the future well-being of their nearest and dearest.

MetLife continues to be the largest life assurer in the United States. Today, the company provides a full range of innovative insurance, retirement, and savings products. MetLife is also active in

sixty other countries. In Japan, it is ranked the second largest foreign insurance provider.

In 1909, the Metropolitan Life Insurance Company Tower was erected in New York to house the MetLife corporate head office.

At the time, the emblematic building was the world’s tallest structure. It was to serve as the company’s corporate headquarters until just ten years ago. MetLife also helped finance New York’s world-famous skyline: in 1929, it provided the funds that made the Empire State Building possible and two years later assisted with the financing of the Rockefeller Center.

From its very beginnings, MetLife has attached great importance to its corporate social responsibilities. The MetLife Foundation, set up in 1976, remains an exceptionally generous, and financially well-endowed, donor. The foundation focuses on healthcare, education, community, and culture. Its donations support an impressive number of non-profit organisations. The CFI.co | Capital Finance International

foundation also invests heavily in community engagement.

Immediately after the 9/11 attacks, the company made one billion dollars available to prop up publicly traded stocks and help restore investor confidence. This was not a first: during the Second World War, MetLife placed more than half its assets in war bonds and became the largest private contributor to the allied cause.

This insurance company is widely recognised as one of the best managed corporations in the United States and was an equal opportunity employer long before the term was coined. MetLife reported Q1 2015 earnings of $1.6 billion – up 5% over last year’s result and representing a return on investment of 14.4%.

Noting that this is the second award MetLife claims, the CFI.co judging panel has no hesitation in confirming the win and naming MetLife the Best Insurance Company United States 2015.

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> TD BANK: BEST GREEN BANK NORTH AMERICA 2015

While elsewhere in the world forests are cleared by the football field, in Canada they become protected at a similar clip. Since 2012, TD Forests – an initiative of TD Bank (TorontoDominion Bank) – has been working with The Nature Conservancy and Nature Conservancy of Canada to protect a wooded area equivalent to 2.5 football fields each and every day from developers and urban sprawl.

The bank has set aside C$13m to help protect forest ecosystems and habitats, and increase urban tree cover. To date, TD Forests has managed to extend protection to well over 33,000 acres of woodlands.

The initiative runs parallel to the TD Friends of the Environment Foundation – set up in 1990 long before corporate conservancy efforts became trendy – which has offered support to more than 20,000 environmental projects across Canada. However, TD Forests doesn’t stop at protecting woodlands; the programme also aims to manage – and reduce – the bank’s paper usage by shifting to electronic documents, digitising internal processes, and enhancing e-banking services.

Though the paperless bank may still be some time in coming, TD Bank is committed to expediting its arrival by cutting paper consumption by at least 20% and ensuring that the paper it does use is sourced from forests that are sustainably managed. The drive was inspired by TD Bank’s own clients who – when asked how the bank could further improve its environmental performance – requested the paperwork be reduced to a bare minimum.

The CFI.co judging panel noted that, according to a recent poll, close to 90% of TD Bank’s 86,000-plus employees agree that the company is an environmental leader.

In fact, the bank was recently named one of Canada’s greenest employers. TD Bank also maintains the Green Nation Programme, a web-based tool that allows employees to start, or take part in, environmental initiatives in their own communities.

Already in 2008, the bank announced its intention to become carbon neutral, buying carbon offset credits to neutralise its remaining emissions and

ensuring that new branch offices are housed in fully LEED (Leadership in Energy and Environmental Design) certified buildings which typically reduce energy usage by 50% or more.

In North America, TD Bank was the first of its kind to firmly commit to becoming carbon neutral. Since 2010, all the bank’s operations – including those in the United States and other international jurisdictions – are completely carbon neutral.

The CFI.co judges conclude that TD Bank has not just painted its corporate DNA green, but has successfully managed to modify its genetic makeup to embrace the full array of sustainability principles. Thus all the bank’s operations and processes were rigorously analysed, and subsequently retuned, to minimise their impact on the environment.

Steadfastly resisting the lure of shortcuts and half-measures, TD Bank became the greenest of North America’s large financial services providers. The CFI.co judges now hand TD Bank the award to match: Best Green Bank North America 2015.

> BANK OF NEW YORK MELLON: BEST WEALTH MANAGER UNITES STATES 2015

Established in 1784 by Alexander Hamilton, one of the United States founding fathers and the first Secretary of the Treasury of the new-born republic, Bank of New York Mellon has endured throughout the centuries to become one of the largest deposit banks in the US. An institution as American as the proverbial apple pie, Bank of New York Mellon provides sophisticated and highly effective wealth management services to individuals, families, family offices, and institutions.

Client retention at Bank of New York Mellon is exceptionally strong thanks to a pronounced emphasis on relationship management and customer-centric processes.

The contemporary incarnation of the bank is the result of a 2007 merger between Bank of New 82

York and Mellon Finance. The corporate slogan reflects the bank’s unwavering dedication to excellence and its well-documented aversion to passing fads and gimmicks: “What Serves, Not What Sells.”

Director Jeffrey Mortimer of Investment Strategy of the Wealth Management Division presently advises clients to consider including international small cap equities in their asset portfolios. Mr Mortimer points to the encouraging developments in Europe and Japan as quantitative easing policies start to bite and economic activity picks up. Mr Mortimer reminds investors that smaller caps historically outperform their larger peers early on in a recovery.

Bank of New York Mellon has also CFI.co | Capital Finance International

pioneered a special appeal tailored to suit the specific needs of female investors. Women Investing with a Purpose – Why Women Investors Many Need a Different Approach to Reach Their Goals – starts from the premise that there is a mismatch between female investors’ needs and the products they are usually offered. The bank has found that women investors have distinct retirement priorities and risk tolerance profiles.

Steps are now being taken to address the issue and design financial products and services perfectly suited to female investors.

The CFI.co judges are delighted to concede, for the second year running, their Best Wealth Manager United States Award to Bank of New York Mellon.

Summer 2015 Issue

> BLACKROCK: BEST FUND MANAGEMENT SOLUTIONS ADVISORY TEAM EUROPE 2015

The world may have become a global village, but that only increased its complexity. Since convergence is by no means a given, investors both large and small face an array of choices both bewildering and expanding. Ranging from highly complex financial instruments to essentially risk-free, albeit slightly boring, government bond boasting a Triple A credit rating, the global marketplace offers more options – and risk – than anyone cares to tabulate.

While investment management companies are now a dime a dozen, only a select few firms possess the global reach and expertise to unfailingly spot opportunity on a global scale, properly assessing risk across multiple dimensions and flagging the inevitable hype. BlackRock is not just one of those firms it is the world’s largest asset management company with 135 investment teams in thirty countries working jointly to provide a range of products and services spanning different asset classes, geographic regions, and strategies.

BlackRock currently has over $4.7tn in assets under management. The company,

a component of the S&P500 Index, serves institutional, corporate, governmental, retail, and other investors with an equal dedication to quality. Contrary to most asset management companies, BlackRock has incorporated risk management tightly into the mesh of its operating platform.

The company’s proprietary Aladdin operating system, its premier portfolio management tool, allows for the continuous analysis and supervision of assets in real-time using a host of finely-tuned risk and performance parameters. Eons ahead of standard investment platforms, Aladdin captures and disseminates the collective intelligence of its users and the company’s professionals. The system is designed to update its knowledge through self-learning algorithms and as such ensures peak performance at all times. The Economist estimates that Aladdin monitors about 7% of the world’s $225tn pool of assets.

BlackRock is also called upon in times of trouble. In the wake of the 2008 financial meltdown, numerous official institutions in the

US and the EU turned to BlackRock for help with risk advisory, valuation, management and disposal of distressed assets.

Fully geared to out-perform and out-work any and all competitors, BlackRock’s more than 12,000 employees consistently strive to offer the best balance between risk and reward, carefully tailored to match the clients’ unique needs and tolerance for risk. BlackRock is fiercely independent, not only in delineating its investment strategies but also as a corporate entity. The company has no single majority shareholder and is owned by employees and institutional and individual investors.

The CFI.co judging panel is of course well aware of BlackRock’s prowess as a globally active asset management company.

It is, after all, a company nobody can fail to notice. However, at BlackRock size is but proof of success – and not its driver. Faced with such facts, the CFI.co judges are pleased indeed to confer the 2015 Best Fund Management Solutions Advisory Team Europe on BlackRock.

> KHAN BANK: BEST SME BANK MONGOLIA 2015

The bank with the largest geographical footprint in Mongolia, Khan Bank is determined to reach all levels of society through its formidable network of 535 branches and 372 cash machines.

Operating in a sparsely populated but highly dynamic country, the bank is already now able to offer its full suite of up-to-date products and services to over 80% of the nation’s households. Khan Bank is Mongolia’s premier retail bank serving both private customers and businesses.

With an estimated $1.3tn in yet untapped mineral reserves, and sandwiched in between two major industrials powers, Mongolia is one of the world’s most exciting – and promising – economic frontiers. Though young, its financial sector is exceptionally competitive.

The country’s new government, often described as a dream team and led by PrimeMinister Chimediin Saikhanbileg, is now set to mine Mongolia’s vast potential by introducing new legislation to further encourage foreign

investment. Mongolia is expected to once again become home to the world’s fastest growing economy.

Khan Bank, present in all far-flung corners of the country and boasting a solid e-banking platform, is singularly well placed to help empower the economic upswing and reap its rewards. The bank maintains a small and medium-sized enterprises (SMEs) development centre – the Khan Bank Incubator – which supports both established businesses and start-ups with training programmes, workshops, marketing, and counselling services.

The bank not only provides SMEs with credits, but aims to be an active partner of entrepreneurs. In this, Khan Bank takes the long-term view and strives to enable local business to seize opportunity and expand at a clip similar to, or indeed higher than, that of the overall economy.

Founded in 1991, Khan Bank has consistently invested in technology and innovation. That strategy paid off and the bank CFI.co | Capital Finance International

may now claim a 90% market share in rural Internet banking. Its mobile banking platform enjoys a 52% market share.

The CFI.co judging panel was pleased to see that Khan Bank has pioneered the implementation of corporate social responsibility (CSR) principles in the Mongolian financial services industry. Through the Khan Bank Foundation, a growing number of initiatives are supported that help underwrite the economic and social development of the country. The foundation leverages the reach of the bank’s branch network to carry out more than twenty nation-wide campaigns and programmes.

The judges commend Khan Bank’s foresight in establishing the institution at the very heart of Mongolian society, thus ensuring the bank a privileged position from where it has embarked on a path of sustainable growth. The judges have no doubt that Khan Bank is an exceptionally worthy winner of the 2015 Best SME Bank Mongolia Award.

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> CIBC FIRSTCARIBBEAN INTERNATIONAL BANK: BEST INTERNET BANKING SERVICES CARIBBEAN 2015

At the forefront of Internet banking in the Caribbean, CIBC FirstCaribbean International Bank has invested significant resources in the development of a state-ofthe-art Internet platform that offers a best-inclass customer experience while increasing both the speed and security of transactional processes. Headquartered in Barbados, CIBC FirstCaribbean maintains a branch network spanning seventeen Caribbean countries offering full retail banking services to both residents and non-residents alike.

CIBC FirstCaribbean International Bank is listed on the Barbados Stock Exchange with cross-listings on the stock exchanges of Jamaica, Trinidad & Tobago, and the Bahamas in addition to the East Caribbean Securities Exchange.

In 2006, CIBC (Canadian Imperial

Bank of Commerce) upped its stake in the PanCaribbean bank to 91.4% after Barclay’s Bank exercised its option to exit the joint venture.

Subsequently, the Canadian bank scooped up most of the remaining shares from smaller investors.

CIBC is no stranger to the Caribbean.

The bank opened its first branch in Jamaica 85 years ago and treats the region as an extension of its home market. CIBC is the fifth largest bank in Canada by deposits and also maintains a prominent presence in the United States, Asia, and the United Kingdom. Bloomberg Markets rates CIBC as the strongest bank in North America and the third most solid worldwide.

CIBC FirstCaribbean is an active participant in the development of the region and supports hundreds of community initiatives and programmes throughout the Caribbean Basin.

As the largest bank in the English-speaking part of the Caribbean, CIBC FirstCaribbean takes its corporate social responsibility seriously and has developed a number of projects that aim to insert the bank ever deeper into the local society.

The CFI.co judging panel applauds CIBC First Caribbean’s unswerving dedication to customer satisfaction. The judges recognises the bank’s successful efforts to offer its clients easy and convenient access to world class products and services, continuously adjusted and fine-tuned to best serve the local markets in which it operates. Pursuing inclusiveness and sensitive to local requirements and needs, CIBC FirstCaribbean International Bank is the undisputed winner of the 2015 CFI.co Best Internet Banking Services Caribbean Award.

> STRATLINK: BEST ECONOMIC RESEARCH TEAM KENYA 2015

While Africa is definitely the place to be; where, what, and how remain often unanswered questions. Africa is above all vast and diverse.

Opportunities may be plenty, but so are risks.

To compound the conundrum, data remain scarce and, when available, incomplete. Still, the continent looks enticing to investors keen to break into pioneer markets.

Whereas the developing world (excluding China) averages stable GDP growth of around 3%, Sub-Saharan Africa (excluding South Africa) is expected to see economic activity expand by 5% in 2015. This trend will not only hold, but pick up pace as well in the years ahead. The World Bank anticipates sustained high growth for the region with limited downside potential.

Top notch research and vast reservoirs of detailed local knowledge are indispensable ingredients of any Africa-oriented investment 84

portfolio. Both are provided by StratLink, a Kenya-based financial advisory company that sits between the region’s fast-growing middle market companies and investment bank, private equity firms, and family offices. As such, StratLink disseminates its knowledge and expertise to capital providers and businesses aiming for the next level in either size or operational excellence – or both.

StratLink conducts independent analysis on countries, sectors, markets, and individual companies. Thus the firm maps the macroeconomic environment, regulatory frameworks, political risk, and sectorial development. The findings are set against global trends, thereby offering investors an in-depth, up-to-date, and carefully balanced overview of opportunities and risks. StratLink’s unique approach ensures that investors and corporate decision makers at all times possess the reliable CFI.co | Capital Finance International

data needed to power and boost growth – be that of investment portfolios or business.

Besides its corporate headquarters in Nairobi, StratLink maintains offices in New York, Kuala Lumpur, and Kampala. StratLink professionals produce a monthly Africa Market Update besides regular Regional Roundups and a frequently updates online blog to keep investors abreast of the latest developments and trends.

Convinced that Africa is the next China, StratLink has positioned itself at the very epicentre of the momentous economic shift, already now in the making. By providing world class research and highly professional capital and corporate advisory services, StratLink operates at the cutting edge of one of the world’s most dynamic markets. The CFI.co judging panel can feel the excitement. The judges wish to congratulate StratLink on winning the 2015 Best Economic Research Team Kenya Award.

Summer 2015 Issue

> ALPEN INVEST: BEST FUND MANAGEMENT TEAM SOUTH EASTERN EUROPE 2015

Improved export performance, powered by bumper crops and the ongoing recovery in the Eurozone, has significantly boosted economic growth in South Eastern Europe. While there is still some way to go towards a full-blown boom, the markets in this corner of the continent are buoyant with all gauges pointing up.

Slovenia bounced back with particular vigour. Hard-hit by the global financial crisis of the late 2000s, and the subsequent austerity measures imposed on all Eurozone member states, the country embarked on an aggressive export drive whilst accelerating the privatisation programme already in place. Thus, Slovenia managed to stay afloat without the need of a bailout package. This year, the country’s GDP is set expand by up to 3.2%.

Elsewhere in the region, economies are veering up as well. Early June, Romania´s central bank outlook emphasised “robust and

sustainable growth” and government finances “well within the comfort zone.” Bulgaria is also poised for a growth spurt. With one of the most diminutive public debt levels in the European Union (15.5% of GDP), and the lowest private and corporate tax rates in the union, Bulgaria outperforms its local peers on the ease-of-doing business index and most other EU member states when it comes to economic freedom.

With South Eastern Europe decidedly on the move, investors are awakening to the region. Alpen Invest is often their first port of call. Tracing its history back to 1994, this Slovenian fund management company has deftly navigated the markets of South Eastern Europe, leveraging its deep knowledge of the region. The firm established a solid reputation as a pioneer in the local capital market. An active investor in local and regional equities, Alpen Invest manages three main funds.

The company’s Alpen.SI fund aims to benefit as regional economies converge and expand their presence in the wider European Union. While focused on Slovenia, the fund spans different asset classes across a number of South Eastern European economies. Alpen Invest professionals strongly believe that Slovenian companies presently being privatised are significantly undervalued and thus offer excellent short and medium term upward potential.

The CFI.co judges noted that the firm has put in place a number of comprehensive processes that ensure risk profiles are properly managed at all times. Alpen Invest closely adheres to transparent investment policies that are centred on client concerns and aspirations.

The CFI.co judging panel wishes to congratulate Alpen Invest on its winning formulae and on winning the 2015 Best Fund Management Team South Eastern Europe Award.

> EARTHPORT: BEST CROSS-BORDER MONEY TRANSFER SOLUTIONS GLOBAL 2015

You’d think that in this age of computers and lightning-fast Internet money can easily and instantly be transferred to anywhere. You’d be wrong – in fact, dead wrong. Money moves slowly, and agonisingly so, across numerous banking hubs as it finds a path – or not – to the intended recipient.

The framework to move money around the global village – at last count about $21tn annually – was conceived and implemented in the early 1970s: an era when telegrams were a means of conveying short messages, offices came equipped with noisy telex machines, and telephones were bulky devices with a rotary disk and tethered to a wall outlet by an always-tooshort cable.

The way in which money is moved around the world is long overdue for a serious overhaul. While almost everybody seems to agree, nobody has actually done something about this

sorry state of affairs. That is, nobody but Hank.

Mr Uberoi has set his mind – and the tidy sum he accumulated as a venture capitalist – to devising a more up-to-date way for shifting cash.

Calling it the single largest opportunity he ever came across, Mr Uberoi got down to business and acquired Earthport – a small London-based payment processing company that he transformed into a ground-breaking business for moving large volumes of money by leveraging the power of cloud computing to speed-up transfers.

Initially dismissed as a pie-in-the-sky outfit, Earthport now counts some of the world’s greatest companies and entities amongst its clients such as the World Bank, Western Union, Bank of America, and many other of the world’s most respected brands.

Earthport works with banks to streamline money transfers, rather than against

CFI.co | Capital Finance International

them. The firm is currently expanding its operations exponentially in order to achieve the economies of scale that drive down costs even further. Overtures have been made in India to sign that country’s banks on to its hub-and-spoke system. Other large markets are being broached as well.

The CFI.co judging panel is excited about the Earthport model. The company is not afraid to pioneer new concepts and lacks no ambition either. Earthport is a textbook example of a lean and mean business that squarely aims to disrupt established practice in order to bring in the new. The formula works and offers both payers and payees – and crucially the banks in between – an efficient, safe, and fast alternative to move cash around with a minimum of fuss, effort, and cost. The judges are happy indeed to confer the 2015 Best Cross-Border Money Transfer Solutions Global Award on Earthport.

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> ANGLO AMERICAN: BEST ESG STANDARDS (MINING INDUSTRY) AFRICA 2015

Big corporations embracing ESG (environmental, social, and governance) values often struggle with the implementation of the concept – trying to wriggle the proverbial square peg into a round hole. However, as the astronauts of Apollo 13 proved in 1970: it can be done – and successfully so.

Anglo American, the London-based giant of mining with annual revenue in excess of $27bn, is no stranger to the ESG conundrum.

Mindful of its obligation to generate healthy returns for shareholders, the company has forged partnerships with stakeholders to define and shape a shared future. The mission: To jointly create sustainable value that makes a real difference.

The slogan is not merely meant for marketing purposes; it guides the company’s day-to-day operations and finds expression

in core values such as respect, collaboration, safety, accountability, integrity, amongst others.

ESG as applied by Anglo American empowers and engages local communities in mutually beneficial partnerships. The company displays an acute awareness of the fact that its own wellbeing is closely linked to that of the environment – both social and natural – it operates in.

Anglo American considers its shareholders value best served over the longterm by acting in a transparent and respectful way. The company has adopted a number of broad initiatives in order to apply ESG values to its operations. In fact, Anglo American does not hide its intention of leveraging the power of ESG principles in order to become the world’s preeminent mining company.

Employing close to 100,000 people in South Africa alone, Anglo American’s

corporate policies bear a direct impact on the country. The company’s training programmes are employed not only to expand the skill set of its workforce, but also to facilitate the social transformation of the workplace. Moreover, Anglo American partners with all tiers of government to help address challenges faced by communities such as shortages of affordable housing.

The CFI.co judges commend Anglo American for its proactive approach to ESG. Rather than wait for standards to be externally imposed, the company has taken the concept to heart as an integral part of its sound business practices. The judges wish to recognise this effort by extending the 2015 Best ESG Standards (Mining Industry) Africa Award to Anglo American.

> ASSUPOL: BEST LIFE ASSURER SOUTH AFRICA 2015

Know your client, keep in touch, and refrain from bells and whistles. Insurance is a fairly straightforward business, or so it should ideally be: collect premiums and offer prompt succour should disaster strike. There is elegance in simplicity and South Africa’s Assupol understands this better than most.

The company offers insurance coverage to people who may not possess large reserves of ready cash with which to absorb setbacks. Assupol realises that it is precisely for this reason the company’s services are sought.

Keeping both lines of communication and payout times short, the company fully processes claims within 48-hours of receipt.

However and perhaps more importantly, Assupol also offers instant relief.

Clients may use any mobile phone – not just smart ones – to report a claim and can expect an advance payment to cover initial expenses within the hour.

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With its peerless agility, Assupol has become the trendsetter in South Africa’s highly competitive insurance market. Though significantly smaller than the behemoths that dominate the insurance industry, Assupol manages to spearhead customer-centric innovations that its competitors are only now waking up to. If imitation is the sincerest form of flattery, then Assupol has secured a degree of adulation that borders on the enviable.

Its success in procuring business from a previously underserved demographic is due to teamwork and a focus on the customers’ needs. With a 24/7 on-call phone facility, Assupol allows its customers easy access to a broad range of services aimed at offering close support and counselling in times of need.

In business since 1913, Assupol has grown from a provider of services to government employees – Serving Those Who Serve – to become a leading South African insurance CFI.co | Capital Finance International

company catering to the general public. Though Assupol remains focused on the provision of premier insurance services to people of more modest means, the company has recently made significant inroads into the middle- and highincome groups where its agility and excellence are appreciated as well.

In all fairness, the CFI.co judging panel cannot resist offering recognition to a company such as Assupol that shakes up an entire industry by inventing a better wheel.

Setting out to offer a vastly improved experience to its clients, Assupol streamlined processes and eliminated bottlenecks, coming up with insurance products that satisfy needs in a straightforward manner. Moreover, it did so without recourse to those infamous tiny letters that leaves clients bewildered, if not dazed and confused. The judges are pleased indeed to offer Assupol the 2015 Best Life Assurer South Africa Award.

Summer 2015 Issue

> ESN PARTNERSHIP: OUTSTANDING CONTRIBUTION TO EQUITY RESEARCH EUROPE 2015

The European Securities Network (ESN) Partnership comprises nine major markets each monitored and served by a leading financial services firm providing investors ready access to vast stores of local knowledge and expertise.

A unique proposition in both the scope and quality of the research and other services made available to its clients, ESN empowers investors with a palette of bespoke Pan-European equity analysis, sales and trading options through an aggregate multicultural team of professionals, drawn from across the network’s investment banks and equity brokerages.

Moreover, ESN Partnership offers unequalled access to listed companies in all major European markets. This approach allows clients to benefit from local expertise without being restricted to a single market. ESN Partnership maintains a proprietary database which includes detailed data – both historic and up-to-date – on over 650 companies that the network closely monitors.

While ESN Partnership was initially conceived as a cooperative venture between its constituent members for the research, sales,

and execution sides of the equity business, the network has since evolved and now includes a host of additional services. Today, ESN Partnership also operates on the equity and debt capital markets, in mergers and acquisitions, and is active on the (secondary) bond market.

As a result of the trust reigning amongst the members, ESN Partnership has enabled each of the associated financial services providers to vastly enhance their placing power and geographic reach – effectively leveraging the network’s synergies and footprint to further improve the quality and breadth of services offered.

On behalf of its clients ESN Partnership organises on average some 700 roadshows annually, bridging the gap between investors and analysts on the one hand, and the management teams of listed companies on the other. Additionally, the network regularly organises Pan-European conferences that bring together institutional investors and corporate executives for in-depth discussions.

The European Securities Network operates as a limited liability partnership and

adheres to strict governance principles. All members have an equal say in the venture and bear exclusive responsibility for their home market. The partnership does not allow for more than one member in any single market. ESN Partnership currently covers Finland, Germany, The Netherlands, Belgium, France, Italy, Spain, Portugal, and Greece.

Conceived and founded in the 1990s as an informal network of independent firms, ESN Partnership has over time morphed into a close strategic alliance between members fully committed to jointly develop and distribute equity research and process orders across the continent. Already in 2013, the CFI.co judging panel concluded that the ESN Partnership offers its clients a suite of services remarkable for its Pan-European scope. The judges are pleased to see the partnership further gaining strength and depth. The network fully merits recognition for its ground breaking work in equity research.

ESN Partnership hereby declared winner of the 2015 Outstanding Contribution to Equity Research Europe Award.

> CASINOS AUSTRIA INTERNATIONAL: BEST GAMING OPERATIONS EUROPE 2015

With gambling and gaming steadily moving online, the brick-and-mortar casino industry is meeting the challenge head-on by upgrading facilities emphasising the unique experience of class, fun, and social interaction that, for all its prowess, the virtual world has been unable to distil into bits and bytes.

Long gone are the days when the gambling known as business looked with austere disfavour upon the business known as gambling. While US journalist and satirist Ambrose Bierce may have been on to something in the early 1900s, today’s gambling industry is fiercely competitive, highly professional, and tightly regulated. Globally, the casino industry is expected to reach a turnover in excess of €160bn this year. Casinos are big business and run as such.

In Europe, Casinos Austria International (CAI) has established a welldeserved reputation for corporate excellence – combining tradition with innovation, integrity, and corporate social responsibility in order to stay at the top of its game. The company

operates 32 casinos in eleven countries and aboard six cruise liners. CAI’s corporate parent, Casinos Austria AG, operates the country’s twelve casinos and can trace its origins to 1934. Employing over 1,700 people in Austria, and more than 2,000 abroad, Casinos Austria is also one of the country’s largest tax contributors.

Not merely a casino operator, CAI has also earned a peerless global reputation as a purveyor of expertise to like businesses looking to start or perfect operations. As such, CAI has helped establish and improve over 300 casinos in all corners of the world. The company not only offers its vast reservoir of knowhow specific to the industry, but also disseminates a unique set of principles aimed at improving the sector’s sustainability.

CAI actively promotes operational procedures and processes that seek to maximise the entertainment value of casinos while minimising the risk to clients, thus offering an optimised experience for guests.

Ever conscious of its duty for care, Casinos CFI.co | Capital Finance International

Austria International has managed to set and maintain the benchmark for the global gaming industry by steadfastly respecting the limits of the business.

Taking the long-term view, and eschewing quick fixes and superficial solutions to complex issues, allowed Casinos Austria International to prosper even during the lean years of economic downturns. This thorough approach has also enabled the company to keep visitor numbers stable. By broadening – and redefining – the casino concept to include world-class shows and events, in addition to leveraging the exquisite settings of its premises to offer guests an exceptionally fine dining experience, Casinos Austria International has added significant value to its facilities.

The CFI.co judging panel wishes to congratulate Casinos Austria International on the success of its bold corporate strategy that, while steeped in tradition, is both innovative and daring. The judges are very pleased indeed to offer the company their 2015 Best Gaming Operations Europe Award.

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> HELLENIC BANK GROUP: BEST CORPORATE GOVERNANCE CYPRUS 2015

In challenging or lean times, strict adherence to corporate governance best practices enables corporations to weather storms and streamline operations in order to hit the ground running when economic recovery sets in. More than just a survival strategy the principles of sound corporate governance aim to improve corporate resilience and protect the bottom line in downturns and upswings alike.

In addition to solid corporate governance structures, banks stand to profit from applying liberal dosages of both prudence and common sense, avoiding market hypes and other risky distractions from their core business.

Such was the formula, elegant in its simplicity, which saw the Hellenic Bank Group through the financial crisis that engulfed Cyprus in 2012-13.

The bank not only emerged from the recession, it deftly managed its affairs without appealing to bailout funds or other forms of

state support. Hellenic Bank Group was the only Cypriot financial institution to do so, thus affirming its unique position.

Eschewing risk well before the crisis hit, and with a comprehensive governance framework ensuring full transparency already firmly in place, Hellenic Bank Group gained the trust – and admiration – of its customers.

The bank has distanced itself from the pack by pursuing its business in a conservative, yet dynamic, fashion. That stance has since attracted new shareholders.

With a proven track record, and its corporate philosophy tried and tested under the most trying of circumstances, Hellenic Bank Group is now primed for expansion. The bank’s solid reputation allows it to access funds at lower interest rates than the competition. This performance bonus gives the Hellenic Bank Group an excellent foundation on which to build

future growth – as ever pursued prudently. Within the next five years, the bank expects to claim the Nr 2 spot on the ranking of Cyprus’ largest financial institutions.

The key to the Hellenic Bank Group’s enduring success remains good corporate governance with the active involvement of all stakeholders and full compliance with global standards.

Given the impressive results obtained in the face of grave difficulties, the CFI.co judging panel considers the Hellenic Bank Group a most inspiring leader of the Cypriot financial sector. The bank’s dedication to top quality governance has not only paid off; it enabled the business to forego taxpayer support and prosper where and when others stumbled. Hellenic Bank Group is the undisputed winner of the CFI.co Best Corporate Governance Cyprus 2015 Award.

> PROFESSIONAL TRADERS GROUP: BEST CAPITAL MARKET TRADING SERVICES GCC 2015

Take $50,000 and trade it up to a cool million. It can be done, and the CEO of Professional Traders Group in Dubai is showing how. Using real money and a live account – no demos or other gimmicks here – Sushant Buttan trades his way to a million for all to see.

In the process, Professional Traders Group is demonstrating what a difference a state-of-theart platform – backed up by an exceptionally strong infrastructure – can make for traders.

In 2007, with the full support of the Dubai government and the Dubai Multi Commodities Centre (DMCC), Professional Traders Group opened the first purpose-built trading floor in the Middle East with the express intent of creating a thriving community of expert traders. It has succeeded in doing so. The firm aims higher still: it now wants to become the world’s largest trading facility by 2020 – the year Dubai will host the World Expo.

Professional Traders Group provides traders with comprehensive and fully-featured trading desks that seamlessly plug into the global marketplace. Traders may choose their preferred platform from a broad array of options 88

ranging from sophisticated industry staples such as TT Xtrader and Jtrader to more esoteric and specialised trading environments. A dedicated line connects the trading floor to a premier London clearing house, ensuring lightning-fast execution of orders over an uncongested stable live connection.

Due to the vast volumes of trade being conducted from its floor, Professional Traders Group offers associated traders the lowest rates and fees in the business. A number of programmes are maintained that reduce costs even further. The Eurex Trader Development Programme and the CME New Trader Incentive Programme enable professional traders to shave costs and up margins significantly.

The services offered by Professional Traders Group stretch far beyond the confines of the trading floor. The company helps traders willing to relocate to Dubai set up free-zone companies at the Dubai Multi Commodities Centre. Here, a trading license may be obtained that allows traders full ownership of their company. With income tax rates set at zero per cent and no limits on the repatriation of CFI.co | Capital Finance International

earnings, Dubai offers traders a welcome haven in a time zone ideally suited to conducting transactions on a truly global scale.

While the prospect of moving to Dubai may seem daunting to some, Professional Traders Group takes the sting out of the move by effectively managing all relocating aspects, thus ensuring the smoothest of transitions. The firms helps arrange everything from the kids’ schooling and leisure activities to the inevitable paperwork, housing, and even helping pets gain their footing in a new environment. No detail is deemed too insignificant to merit the full attention of the Professional Traders Group’s experienced support staff.

The CFI.co judging panel is deeply impressed by the range of services provided

by Professional Traders Group. It is abundantly clear that no detail has been overlooked. This enables professional traders to pursue their passion with a vengeance while de-stressing their family lives. Having cracked the secret of success, Professional Traders Group is named Best Capital Market Trading Services GCC 2015.

Summer 2015 Issue

> BAYER: BEST SUPPLY CHAIN MANAGEMENT TEAM EUROPE 2015

With global sales up by close to 15% (Q1 2015) and now standing at just over €12bn, Bayer AG is forging full-steam ahead. The German pharmaceutical giant now employs in excess of 12,000 people worldwide. The company, perhaps best known as the inventor of aspirin, has over the years diversified its operations to become a truly global chemical group – present on six continents – with a large stake in agricultural products and a materials science division, in addition to its long-standing pharmaceutical operations. Bayer is presently in the process of expanding its business in the Asia Pacific Region.

SyncForce, the world’s premier brand data management consultancy, ranks Bayer third on its regularly updated list of strongest brands in the United States. Bayer scores particularly high in terms of both

brand awareness and positive perception. The company is only trumped – albeit barely so – by Apple and Walt Disney.

In its ongoing quest to further improving its social, economic, and environmental impact, Bayer has joined the Pharmaceutical Supply Chain Initiative Group (PSCI). This group aims to involve all stakeholders to fine-tune business practices and thus ensure optimal performance in key areas such as ethics, labour relations, health and safety standards, and environment and management systems.

PSCI members adhere to a carefully defined code of conduct that includes the continuous evaluation of processes, internal and external audits, and immediate adjustments in case suppliers that do not (yet) pass muster.

The CFI.co judges have taken note of

Bayer’s excellent graduate training programme in Europe for supply chain management professionals. The in-depth courses and workshops extend across the company’s healthcare, crop science, business services and technology services divisions.

The programme takes two years to complete and involves hands-on study in Germany and elsewhere. The outcome has been most impressive, resulting in consistently outstanding supply chain management which benefits Bayer in a number of ways. The judging panel wishes to acknowledge this accomplishment and congratulate the company on it.

The CFI.co judges are therefore pleased to confirm that their 2015 award for Best Supply Chain Management Europe goes to Bayer.

> MEIKLES LIMITED: BEST CORPORATE GOVERNANCE ZIMBABWE 2015

A household name in Zimbabwe, and indeed one of the country’s flagship corporations, Meikles Limited employs over 6,000 people across a number of businesses. The company owns and runs the landmark 5-star Meikles Hotel in Harare’s business district as well as the emblematic and recently renovated Victoria Falls Hotel and the Cape Grace Hotel on Cape Town’s famous Victoria & Albert waterfront.

Meikles Limited is, however, not just a hallmark of quality in the hospitality industry.

The company also operates Zimbabwe’s premier retail outlets. Its network of TM Supermarkets now comprises 52 stores. The iconic Meikles department stores, present in Zimbabwe’s three main cities, are direct descendants of the trading

business set up in Fort Victoria by the three Meikle brothers John, Stewart, and Thomas who arrived from Scotland in the late 1800s.

More recently, Meikles Limited has diversified its operations into wholesale (Meikles Mega Market) and mining. With Tanganda Tea the company is also Zimbabwe’s largest grower, packer, and distributor of tea and tea products.

Meikles Limited remarkable trajectory to the very apex of private business in Zimbabwe is in large part due to the company’s long-standing adherence to strict standards of corporate governance. Meikles is one of only a handful of Zimbabwean businesses able to raise funds from international investors.

The company is currently considering CFI.co | Capital Finance International

to source up to $25m overseas to finance the expansion of its mining operations in Matabeleland. Last year, Meikles Centar Mining paid $10m for a 51% stake in DGL Investments, a subsidiary of Duration Gold Limited, with two producing assets. The company now mulls additional investments in the area as the first steps in a process that should see Meikles Centar Mining becoming a major player in the sector.

It offers living proof that an uncompromising stance on corporate governance ultimately pays off and, indeed, enables a company such as Meikles Limited to successfully operate in an environment not always overly friendly to private business.

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> STEWARD REDQUEEN: BEST EMERGING MARKETS ESG ADVISORY TEAM GLOBAL 2015

Incorporating environmental, social, and governance (ESG) parameters into day-to-day business operations constitutes a classic case of easier-said-than-done. Though a great many companies are eager to comply, and recognise the paramount importance of putting their processes and operations on a sustainable footing, many struggle with defining and implementing ESG principles.

Even some big name brands may need a helping hand – and a word of advice – to measure their impact on nature and society.

Steward Redqueen is able to offer both. From its head office in The Netherlands, and supported by its global SRQ Associates Network, the firm offers global companies bespoke consultancy services on a vast array of socio-economic issues and topics.

Steward Redqueen operates where the corporate sphere overlaps the surrounding environment. Its consultancy services aim to provide a seamless integration of both spaces.

Dilemmas arise as corporations try to square their profit-driven existence in a competitive world with a growing awareness of the civic responsibilities this entails. Thus, the business side of operations may conflict with wider stewardship obligations.

It is at this point that Steward Redqueen is able to help. It does so by measuring the socio-economic impact of its clients’ operations. This data allows companies to adjust corporate policies to better dovetail with local realities, often transforming challenges into opportunities for all stakeholders.

Steward Redqueen has helped a major Dutch brewery gauge its impact on the emerging markets of Sub-Saharan Africa which, in turn, allowed the company to better engage with local communities. For a global asset manager, Steward Redqueen developed a tool that enables investment professionals to incorporate ESG parameters into decisionmaking processes and subsequently monitor a

company’s ability to manage these issues. As a result, the client may now easily embed ESG factors in its risk rating and valuation models.

With a roster of clients akin to a who’s-who of the corporate world, including a number of Fortune 500 companies, Steward Redqueen has become the go-to consultancy for any company wishing to get a handle on its ESG performance and to improve the sustainability of its business.

The CFI.co judging panel considers the scope of the services provided by Steward Redqueen quite exceptional. This is not an outfit staffed by dreamers; rather Steward Redqueen keeps its eye on the bottom line, finding opportunity where others may see trouble. In fact, the firm has found more than one way of fitting square pegs into round holes.

That is an accomplishment the CFI.co judges wish to recognise. The judges are glad to extend Steward Redqueen the 2015 Best Emerging Markets ESG Advisory Team Global Award.

> HSBC: BEST GLOBAL RESEARCH TEAM BANKING 2015

This year, HSBC celebrates its 150th anniversary. The bank was established in 1865 with the express purpose of financing trade between Europe and Asia. This aim has remained unchanged throughout the years: HSBC still sees its role as one of connecting customers to opportunities, although now the bank’s raison d’être is applied on a global scale.

After last year’s slightly more difficult final quarter, HSBC Holdings is expecting a good run in 2015 with Q1 profits already up by 4% to $6.8bn. The bank excels at providing clients with solid advice and innovative ideas that combine local insights with global connectivity.

HSBC has gained a reputation for being quite opinionated and for calling 90

phenomena by their proper name, not mincing words or engaging in doublespeak. This works brilliantly to the advantage of HSBC clients who benefit from frank assessments and clear messages.

The bank employs a wide range of platforms and formats to help clients make sense of volatile financial markets that are often near-impossible to gauge. The HSBC research team rightly considers itself strong in spotting promising investment opportunities, reporting on new developments as they unfold, and analysing the profit potential of specific events.

HSBC aspires to be topical, relevant, and insightful – and succeeds brilliantly at this.

Reports produced by HSCB tend to CFI.co | Capital Finance International

set both the tone and the agenda. In recent times, the bank has published papers on the world as it might look in 2050, on south-south trade, and on the convertibility of the Chinese renminbi and its chances of becoming a reserve currency.

With such a highly diverse customer base, and in order to meet the expectations of all stakeholders, HSCB looks for diversity of backgrounds, business approaches, and opinions in its staff members. Employees are effectively empowered to add value to the services the bank offers its clients.

The judging panel is unanimous in its verdict that HSCB fully merits the 2015 Best Global Research Team Banking Award.

Summer 2015 Issue

> NATIONAL BANK OF KENYA: BEST COMMERCIAL BANK KENYA 2015

Offering a full suite of products and services tailored to businesses of all sizes, the National Bank of Kenya has moved decisively into commercial banking without ignoring its preeminent position in the retail market. Micro businesses – often sole traders and start-ups – are welcome at the bank and enjoy ready access to its bespoke Jenga Biashara account and loan products that require but minimal paperwork.

With streamlined and customercentric operational processes, the National Bank of Kenya is now leading the way in providing the country’s business community with optimised banking services. The institution, founded in 1968 as a wholly-owned state bank, has played a major role in the development of East Africa’s largest economy. The Kenyan government has gradually reduced its stake in the bank and now owns only 22.5% of outstanding shares, effectively privatising the business and allowing

for a more proactive approach to meet the requirements of a highly dynamic market.

A successful restructuring process – widely hailed in the industry as exemplary and a model for others to follow – paved the way for National Bank of Kenya to broaden its palette of services and improve delivery processes.

Now a virtual bank, in addition to a brick and mortar one with a large geographical footprint, National Bank of Kenya operates a mobile network that ensures all Kenyans enjoy easy access to premier banking services. The bank also maintains a network of over 15,000 agents that reaches all corners of the country.

Over the past few years, National Bank of Kenya has significantly increased its market share and registered year-on-year growth rates in excess of 45%. The bank successfully leveraged its solid corporate identity and long history, coupled to high-tech facilities and

innovative service delivery platforms, in order to power its accelerated growth. The institution’s stated ambition is to become the top bank in the region already by 2017.

The CFI.co judges commend National Bank of Kenya on its determination to reach new heights and are pleased to note that the bank pursues its ambitious corporate goals by emphasising the need for financial inclusiveness while maintaining excellence in service delivery and offering products finely attuned to demand.

Current growth rates indicate that National Bank of Kenya is well on its way to claim the regional top spot. The judges are happy to offer National Bank of Kenya recognition for its many accomplishments and wish to offer the bank the 2015 CFI.co Best Commercial Bank Kenya Award.

> LUSITANIA VIDA: BEST LIFE INSURANCE COMPANY PORTUGAL 2015

Size matters. While a wholly-owned subsidiary of Portugal’s oldest mutual association and bank Montepio, established in 1840, the Lusitania Vida life insurance company remains nimble enough to quickly respond to changing market conditions and / or client preferences.

The company recently upgraded its IT systems to run state-of-the-art software that enable Lusitania Vida to further broaden the array of services offered to clients.

Over the first quarter of 2015 no fewer than thirteen new products were launched.

The strengthened technological backbone also allows Lusitania Vida to cut costs while offering its clients an improved service experience. While compact in size, the company has managed to leverage the experience of its professionals to develop analytical procedures in-house by using its vast databases.

As one of Portugal’s premier life insurance companies, Lusitania Vida maintains a vast range of products aimed at both the retail and corporate market. The company sets up and manages pension funds for private enterprises, investing contributions in both liquid and illiquid assets in Portugal and abroad. Retail customers may choose from a number of life insurance / savings plans tailored to meet individual needs and requirements. With the backing of one of Portugal’s most solid and respected mutual banks, Lusitania Vida enjoys not only a reputation second to none, but also the trust of its clients.

The company closely adheres to exemplary standards of corporate governance.

Lusitania Vida was one of the first businesses in Portugal to implement a solid corporate code of ethics that provides for transparency throughout the organisation. The company also insists on CFI.co | Capital Finance International

the full disclosure of its policies regarding the remuneration of management. While allowing for performance-related compensation, Lusitania Vida has placed strict limits on the size of the bonuses paid to its top executives. This has further increased the public’s trust in the company.

The CFI.co judges feel confident that Lusitania Vida has succeeded in finding a winning formula: though part of a much larger financial services entity, the company has succeeded in maintaining its distinctive corporate brand which stands for both ease-of-access and excellence in customer service. Moreover, Lusitania Vida boasts a comprehensive palette of products that leads the sector. The judges have no doubt that Lusitania Vida merits the 2015 Best Life Insurance Company Portugal Award.

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> BANCO MILLENNIUM ANGOLA: BEST COMMERCIAL BANK ANGOLA 2015

There are few places in the world more exciting to be than Angola: the country’s economy is booming and its society upwardly mobile.

Moreover, Angolan businesses are going global, snapping up opportunities as they spread their wings and break into new markets.

A rapidly expanding economy needs agile banks to provide the required liquidity that keeps the gears of business running smoothly.

Focused on serving small and medium-sized enterprises (SMEs), Banco Millennium Angola has become one of the drivers of Angola’s homegrown economic boom. In a relatively short time span, the bank has managed to claim a four per cent market share.

Founded in 2006 just before the onset of the global downturn, Banco Millennium Angola perhaps symbolises the resilience of the country’s economy and its financial sector.

Serving the retail and corporate market through

dedicated channels, the bank is exceptionally well poised to maximise its exposure, not just to the country’s dynamic business climate but also to the previously unbanked demographic as it leaves poverty behind to join the ranks of the burgeoning middle class.

Banco Millennium Angola is, however, not a newcomer to the country and can trace its roots back to the 1994 and the opening of Banco Português do Atlântico. Today, the bank is part of the Grupo Millennium, a financial services company with a presence in Portugal, Mozambique, Poland, Greece, Romania, and Switzerland. At home, Banco Millennium Angola strives to contribute to the diversification of the economy by actively supporting local businesses and start-ups with a full suite of products and services designed to facilitate corporate growth and innovation.

Continuing its own expansion drive,

late last year Banco Millennium Angola opened five additional Prestige Centres to further improve its proximity to discerning retail clients and entrepreneurs looking for personalised services. The bank also operates eight centres dedicated to serving corporate customers and maintains a network of over a hundred branch offices throughout the country.

The CFI.co judging panel is pleased to see that Millennium Bank Angola is perfectly attuned to its home market – one of the most vibrant globally – and expanding at a clip even exceeding that of the national economy. The judges also noted that the bank deftly manages its accelerated growth, adhering to the highest standards of governance while offering its clients best-in-class services delivered with both speed and professionalism. The judging panel hereby extends the Best Commercial Bank Angola 2015 Award to Banco Millennium Angola.

> P.I. MABE GROUP: BEST SUSTAINABILITY MEXICO 2015

It is undoubtedly one of the largest companies many people have not yet heard of: P.I. Mabe. As one of the world’s preeminent producers of nappies and other personal hygiene products, this Mexican corporation has now decisively moved to the apex of its market with a series of products that address the concerns of environmentally-aware buyers while still offering best-in-class convenience.

P.I. Mabe has been an early adopter of the sustainability concept as it applies to both manufacturing processes and the lifecycle of the resulting end-products. The company’s full range of disposable nappies, wipes, and absorbent pads are now made from sustainable and biodegradable materials such as cellulose.

Thanks to the consistent efforts to decrease the environmental impact of nappies, companies such as P.I. Mabe have managed to turn the tables on reusable cloth diapers: taking all recent technological advances into consideration, a landmark study by Britain’s Environment Agency found that the ecological 92

footprint of disposable nappies is no longer larger than that of their cloth counterpart.

However, P.I. Mabe has taken its dedication to sustainability one step further and actively supports – and underwrites – a number of reforestation projects. The company also updated its manufacturing plants to reduce water usage and waste volumes. By placing conservancy efforts at the centre of its operations, already in 2002 P.I. Mabe received the coveted Clean Industry Certificate from Mexico’s Federal Office for Environmental Protection.

The company did not rest on its laurels and has encouraged and coaxed suppliers and contractors to embrace similarly strict environmental standards. P.I. Mabe also maintains a comprehensive programme aimed at promoting the proper use of its nappies.

Through a number of channels, parents receive information on how to best select and use P.I. Mabe products with a view to extracting maximum efficiency, thus reducing costs to both the consumer and the environment.

CFI.co | Capital Finance International

A market leader in North and South America, and on the Iberian Peninsula, P.I. Mabe’s Biobaby nappies and wipes set the gold standard for the industry: they are fully reabsorbed into nature in between three to six years after use. Indeed, P.I. Mabe has successfully applied and leveraged the concept of sustainability to power its corporate growth – combining environmental responsibility with profitability.

The CFI.co judges commend P.I. Mabe for taking the long-term view and embracing sustainable business practices long before these became fashionable. Through innovation and dialogue, the company has addressed consumers’ concerns regarding the environmental impact of disposable nappies.

That is nothing less than a tour-de-force which merits recognition. The judges feel fully confident in extending the 2015 Best Sustainability Mexico Award to P.I. Mabe Group.

Summer 2015 Issue

> TURYAP: BEST PROPERTY AUCTIONS EUROPE 2015

Brick and mortar investments rule in Turkey. The nation’s investors prefer real estate to any other form of investment. Historically, Turkish savers have considered the property market as the safest of havens. The country is currently living a veritable real estate boom with home sales up almost 20% on last year’s, to reach over 109,000 units in May while the volume of mortgages underwritten ballooned by close to 35%. The Turkish Composite House Price Index, which measures the rate of change in the value of single-family homes, jumped 16.5% over the past twelve months.

One of the biggest players on the dynamic Turkish real estate market is Turyap, a company founded in 1985 with a view to organising real estate auctions and opening the process to all investors. The business has leveraged powerful franchising techniques to establish a national presence and currently maintains a network of 369 agencies in 45 cities. Turyap employs in excess of 1,500 staff.

The company is active in all segments of the real estate market and has a Special Projects Office to provide bespoke marketing services for larger-scale one-off projects such as shopping malls, hotels, holiday resorts, and historical buildings. Turyap has assembled a team of highly experienced professionals to conduct in-depth market studies and design customised marketing campaigns that ensure optimal results.

Turyap also introduced a cross-sector barter model to the real estate market under the slogan Give Your Old House, and Get a New One. House bartering is not limited to residential property, but also extends to farms, commercial premises, building plots, and vacation homes.

Turyap maintains a staff of knowledgeable assessors who produce detailed appraisals of properties entering the barter system using up-to-date pricing information procured from public land and title registries and the Turkish Statistical Institute. Fair pricing is deemed key to

any successful barter transaction.

Turyap regularly publishes the Emlak Pazari real estate magazine which is sold at newsstands nationwide with a print run of 13,000 copies. The company’s foray into publishing was a first for Turkish realtors. Each issue of the magazine carries well over 2,000 listings of properties offered for sale.

The CFI.co judges noted that Turyap adheres to an all-in policy: the firm offers sellers and buyers a full suite of real estate services up to and including home insurance policies. By covering all aspects of the real estate business, Turyap ensures that excellence in the delivery of services is maintained throughout its value chain. By steadfastly adhering to this policy, the company has not only earned the trust of the market, but managed to set the gold standard.

The CFI.co judging panel wishes to recognise Turyap’s formidable achievements by offering the firm the 2015 Best Property Auctions Europe Award.

> NEWSTATE PARTNERS: BEST GOVERNMENT FINANCIAL ADVISORY TEAM FOR EMERGING MARKETS 2015

When governments or state entities hit a financial rough spot – which can happen by selfimposed policies or as a result of external shocks – sensible advice becomes a scarce commodity.

One of the few places governments can turn to for a pragmatic approach to woes of a pecuniary nature is Newstate Partners in London. Here, a team of seasoned professionals stands ready to douse the fires and offer practical solutions to debt management issues of every conceivable nature and severity.

Newstate Partners traces its origins to the sovereign advisory team of the SG Warburg investment bank (now part of UBS) which in the 1980s pioneered innovative approaches to debt management for troubled nations. In 2009, key members of this legendary team founded Newstate Partners to leverage their accumulated expertise for the benefit of countries and state entities weighed down by large debts and other complex financial challenges.

The firm’s professionals have helped over thirty countries regain financial equilibrium and have been involved with nine of the last

sixteen sovereign external bond restructuring initiatives undertaken worldwide. Newstate Partners’ approach to debt management significantly differs from that employed by large investment banks. As an independent advisory firm, Newstate Partners is not beholden to existing interests and can thus offer both an objective evaluation of the present, and possibly distressed, state of affairs and a sensible and practical way out.

Over their long careers, the partners gained insights and expertise that is virtually unmatched: they assisted Russia as the country haphazardly emerged from its Soviet past and have been assisting the Kremlin with financial affairs ever since. In 1999, the team broke new ground with the first-ever sovereign bond restructuring of the modern era for Pakistan, tracing procedural vectors that have guided like operations since.

Newstate Partners fields a full array of instruments that may facilitate the handling of otherwise unwieldy debts. The firm assists clients with the shaping of funding strategies, CFI.co | Capital Finance International

liability management, and credit ratings and investor relations among an array of other financial matters. Newstate Partners may also be called upon for large-scale infrastructure financing advice.

Newstate Partners also assists countries with crisis prevention policies and offers models for the defusing of looming banking crises and the implementation of economic adjustment programmes. The firm also helps establish frameworks for negotiations with multilateral credit agencies.

The CFI.co judges agree that Newstate Partners provides a much-needed service to governments that landed in dire straits. The firm is dedicated to achieve lasting solutions based on a solid understanding of the realities on the ground and of the unique circumstances of each client. The judging panel tips its collective hat to Newstate Partners and unhesitatingly extends the 2015 Best Government Financial Advisory Team for Emerging Markets Award to the firm.

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> AFROCENTRIC GROUP: BEST HEALTHCARE MANAGEMENT TEAM AFRICA 2015

Standing at the apex of the black economic empowerment initiative deployed by the South African government to redress the inequalities fostered during the apartheid era, the AfroCentric Investment Corporation has assumed a prominent role in promoting a more equitable development model for the country. The company manages a diversified investment portfolio geared towards businesses in high-growth sectors that contribute in a meaningful and sustainable way to South Africa’s economic and social advancement.

AfroCentric Health is one of the mainstays of the group’s corporate edifice – complemented by interests in the technology and resource sectors. Within AfroCentric Health, the Medscheme service provides comprehensive service packages for both health risk management and healthcare management.

While the former offers customised programmes that deliver enhanced healthcare value, the latter provides healthcare management solutions with the build-in flexibility that allows providers to

keep a competitive edge in this most dynamic of industries.

Leveraging the latest technology and a tightly integrated team of experienced professionals, Medscheme forges close partnerships with its clients – and maintains short lines of communications – to ensure the ready availability and delivery of support services and resources that enable healthcare providers to consistently operate at peak efficiency.

Medscheme’s dedication to excellence is rooted in a continuous drive for improvement powered by the permanent monitoring of systems, processes, and customer feedback. The company obtained ISO 9001:2008 certification for the core areas of its business operations.

The CFI.co judging panel also noted that Medscheme is exceptionally conscientious in managing the public funds entrusted to the medical aid administrators – its clients. As with all companies under the AfroCentric umbrella, the pursuit of good corporate governance is considered of paramount importance to the

enduring success of the business.

AfroCentric Health fully complies with all the provisions of the King III framework and diligently follows international best practices. The strict internal control systems and processes put in place are regularly benchmarked against the industry’s gold standard. The company has applied its expertise to other markets as well and maintains a strong presence in Namibia, Botswana, Swaziland, and Zimbabwe. Entry into other markets is currently being considered.

The CFI.co judges have no doubt that the integrated AfroCentric approach to healthcare management offers both the company’s clients and the wider society a wealth of benefits. As such Medscheme fulfils the corporate mission and vision of the AfroCentric Group in an exemplary fashion. The judges are pleased to offer AfroCentric the 2015 Best Healthcare Management Team Africa Award.

> PAYMENT EXPRESS LTD: BEST CARD PAYMENT SERVICES PROVIDER MAURITIUS 2015

A driving force behind the surge in third party processing (TPP), Payment Express Ltd of Mauritius leads the industry through innovation and efficiency. Payment Express is certified as a TPP by both VISA and MasterCard. Managed by experienced professionals drawn from world class financial institutions, the firm offers a full suite of payment services covering all aspects of processing to banks, retailers, and others.

Payment Express services are fully certified to comply with up-to-date EMV (Europay, MasterCard, and Visa) standards, ensuring fast and flawless processing of large transactional volumes.

From its start, Payment Express has always been equipped to handle EMV Smart Card technology as a growing number of banks, merchants and customers adopt EMV-enabled terminals and cards. The company has built, and diligently maintains, a large network infrastructure which complies with the latest PCI-DSS (Payment Cards Industry – Data Security Standards), to support its ambition to become the key universal payment provider in the African market. Mindful 94

of the fierce competition that characterises these buoyant markets, Payment Express has achieved economies of scale that allow the firm to offer sharp rates that consistently ensure added value to clients.

Likewise, the company has embraced a customer-centric approach to its business, aiming to exceed the industry’s benchmarks through an unrelenting quest for operational and procedural perfection. The firm powers its expansion with a high-tech platform that allows for rapid growth without sacrificing processing speed, thus ensuring that transactions are handled without any discernible delay.

Payment Express also offers its clients payment processing solutions tailored to their unique needs. Via continuous training and learning, the company makes sure that its staff is at all times skilled and well-versed in the latest technology. Payment processing is a fast-moving field where technology meets convenience and changes driven by out-of-the-box thinking lead to momentous procedural shifts. Premier payment processors such as Payment Express must be able CFI.co | Capital Finance International

to adapt fast in order to stay one or more steps ahead in this exceptionally dynamic environment.

At the forefront of payment processing in Africa, Payment Express has reached its position of leadership by continuously striving towards operational perfection.

Payment Express currently has live and active customers in Mauritius, Namibia, Burundi, Angola, and Democratic Republic of Congo (DRC).

Additionally, customers in some other African countries would be using the services of Payment Express shortly.

The CFI.co judges noted that the company does not rest on its considerable laurels and is now enlarging the firm’s geographical footprint to include new markets. The judging panel is confident that Payment Express will succeed in its corporate quest to become the region’s top payment processor. The company’s unwavering dedication to provide excellence in both products and services merits recognition.

Payment Express Ltd is hereby given the 2015 Best Card Payment Services Provider Mauritius Award.

Summer 2015 Issue

> CENTUM: BEST PRIVATE EQUITY TEAM EAST AFRICA 2015

With its corporate coffers bolstered by $61m raised on a five-year bond, Kenyan investment company Centum is ready to up the ante. The firm will use the funds to expand its stake in the financial services, energy, and real estate sectors of Kenya’s buoyant economy.

The bond issue was oversubscribed by 38%, signalling strong investor confidence in both the company and the economic prospects of the country.

Centum is focused on offering investors exceptional returns by targeting and building strong businesses throughout Africa.

The firm aims to beat the overall market and consistently generate stellar returns. Centum is not content with the merely above-average: the company strives for returns in excess of 35% annually. It is active in a number of key sectors undergoing accelerated growth and driving the continent’s development: agriculture, education, healthcare, energy, financial services, FMCGs (fast-moving consumer goods), real estate, and communication technology.

Listed on the Nairobi Securities Exchange, and cross listed on the Uganda Securities Exchange, Centum currently has well over $1.8bn in assets under management (AuM), including third party funds entrusted to the firm. By 2019, the investment company expects to reach $7.3bn in AuM. Centum is particularly keen to pursue a tightly focused, and meticulously implemented, set of investment policies that enables the firm to create value through expertise and research.

Cowboy and other frontier attitudes are eschewed. Centum follows a sensible investment strategy, centred on clear parameters and growth strategies that successfully leverage the economic ascendancy of the wider region and seek to maximise exposure to pent-up consumer demand as it is released.

Centum’s particular strength resides in finding opportunities otherwise inaccessible to local and foreign investors. The firm maintains three distinct lines of business: private equity, quoted private equity, and real estate and

infrastructure. While private equity sits at the core of Centum’s operations, the quoted private equity line is where some of the most exciting action takes place. This line looks for listed, but illiquid, entities that are mostly ignored by market researchers, but boast considerable upward potential and allow Centum to take a significant equity stake.

The CFI.co judges are excited by the way Centum conducts its business.

Africa in general and East Africa in particular, offers a great many exceptional investment opportunities. However, to outsiders, the number of possibilities may at times seem a bit overwhelming. Here, Centum comes to the rescue. By applying its knowledge of – and expertise in – local markets, the company manages to pick the rough gemstones and shape them into exquisite jewels. The CFI.co judges hereby wish to confirm Centum as the winner of the 2015 Best Private Equity Team East Africa Award.

> KENYA COMMERCIAL BANK: BEST GREEN BANK KENYA 2015

Through its KCB Foundation, Kenya Commercial Bank shows it is fully committed to caring for the environment. The foundation maintains a number of programmes and projects with a view to encouraging the greening of both the country and its economy. To date, the Environmental Pillar Projects set up by the foundation have seen more than 1.5 million trees planted in national forests and at schools and universities. Another of the Pillar Projects prepared 530 hectares of land adjacent to the Mau Forest in the Rift Valley for reforestation.

One of the country’s largest financial institutions, Kenya Commercial Bank is part of the KCB Group which maintains the largest domestic branch network and has a major presence in Burundi, Rwanda, South Sudan, Tanzania, and Uganda. Kenya Commercial Bank can trace its corporate roots to 1896 when the National Bank of India opened an office in Mombasa.

After a merger with Grindlays Bank in 1958, and upon Kenyan independence five years later, the government took a 60% share

in the company which was later expanded to full ownership. Today, Kenya Commercial Bank Group is a privately-owned company listed on the Nairobi Stock Exchange and cross-listed on the exchanges of Tanzania, Rwanda, and Uganda.

The Kenyan state maintains a 17% stake in the holding.

As part of its efforts to promote sustainable business principles, Kenya Commercial Bank actively pursues financial inclusiveness in order to reach the yet unbanked demographic. The bank also supports a number of initiatives aimed at fostering a greening of the business environment. To this end, the bank initiated a large-scale project with livestock cooperatives in arid and semi-arid regions.

Via the KCB Foundation, around $10m in zero-interest loans will be extended to cooperatives in order to improve market access for farmers and upgrade production facilities and processes. The programme also includes thorough training courses to acquaint farmers with the latest techniques that reduce the impact CFI.co | Capital Finance International

on the environment while ensuring higher returns.

Kenya Commercial Bank staff are actively encouraged to volunteer their time and skills towards community projects. Staff members are invited to come up with ideas to improve conditions in their communities. The foundation then provides the funding needed to swing into action. Most of the staff-initiated projects aim to offer relief to children in need and to equip hospitals and schools with up-to-date hardware.

The CFI.co judges find Kenya Commercial Bank’s dedication to the environment nothing short of exemplary. The bank offers proof that sound business practices coupled to a caring attitude produces tangible benefits to all stakeholders. Moreover, the bank’s environmental awareness has led to a number of groundbreaking initiatives that help improve the quality of life of all Kenyans. The judges are therefore glad to extend the 2015 Best Green Bank Kenya Award to Kenya Commercial Bank.

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> ERNST & YOUNG: BEST TAX TEAM ARGENTINA 2015

For all its well-documented troubles, Argentina’s economy remains the third largest in Latin America. It is, however, in desperate need of a boost. All contenders for the country’s presidency solemnly promise to deliver the goods necessary for an economic revival, should the voters elevate them into the Casa Rosada – and power – come October 25 when elections are set to take place.

The incumbent Cristina Fernández, the widow of former president Néstor Kirchner, has presided over two debt defaults, a number of economic meltdowns, and a long series of scandals and affaires. She is constitutionally barred from seeking a third term in office.

President Fernández has repeatedly clashed with hedge fund managers – known locally as “vultures” – who are widely considered, and indeed are, the bane of the country. Billionaire investor Paul Singer, without doubt the top vulture, is suing Argentina over

the non-payment of sovereign debt and trying to seize Argentinian assets with help of US courts.

Mr Singer bought non-performing Argentinian bonds for pennies on the dollar and is now holding out for full repayment – seeking to make a killing of epic proportions in the process.

However, Argentina also holds great promise as emphasised by Brevan Howard in Europe and Bienville Capital Management in the US. Both are touting Argentina as offering outstanding investment opportunities in the run-up to the coming change of the guard. In early June, bond prices already indicated a boost in investor confidence.

No doubt the challenging economic realities Argentina now battles will persist for some time to come. That also holds true for the vagaries of the country’s rather Byzantine legal and regulatory environment. Still, opportunity beckons. In order to seize the moment, investors stand in need of top notch advisory services.

The CFI.co judging panel has long been impressed by Ernst & Young’s Argentinian member firm Pistrelli, Henry Martin y Asociados. The judges were pleased to see this award nomination come through for 2015.

This year Pistrelli, Henry Martin y Asociados was appointed independent auditor to the world’s largest McDonalds restaurant franchisee, Arcos Dorados Holdings operating in twenty countries across Latin America and the Caribbean.

The partners in Ernst & Young Argentina boast vast international experience and bring like amounts of expertise to the table.

The firm has worked diligently to illuminate and navigate the recent changes to the Argentinian tax code. The judges were very impressed with this winner’s tax advisory work. The CFI. co judging panel is pleased to confirm Ernst & Young as the winner of the 2015 Best Tax Team Argentina Award.

> UTT ASSET MANAGEMENT AND INVESTOR SERVICES LTD: BEST FUND MANAGEMENT TEAM TANZANIA 2015

Catering to investors of both ample and more modest means, the UTT Asset Management and Investor Services Limited (UTT AMIS) maintains five carefully balanced investment funds that hold stakes in the country’s privatised enterprises. Unit Trust of Tanzania (UTT) was set up in 2003 to promote collective investment schemes and encourage a savings culture. The trust holds shares in most of the listed formerly state-owned companies that were privatised during the government’s comprehensive restructuring of the public administration in the 1990s.

Last year, UTT AMIS received permission to open its accounts to investors from across the East African Community (EAC) subsequent to publication of the new Capital Markets and Securities (Foreign Investors) Regulations of 2014. The company’s investment vehicles are now readily available to savers from Kenya, Rwanda, Uganda, and Burundi.

UTT-AMIS maintains portfolios with distinct 96

risk/reward profiles suitable to all classes of investors. The funds invest in high-quality Tanzanian equities, high-yield treasury bonds and bills, and corporate bonds, amongst others.

The flagship Umoja Fund currently contains assets worth in excess of $105m.

Four smaller funds hold an additional $15m in assets under management. To date, more than 121,000 investors have subscribed to UTT AMIS funds. The company also welcomes investments from Tanzanians living abroad.

Unit Trust of Tanzania is the successor to the Privatisation Trust which was set up to acquire shares in newly privatised businesses and ensure the widest possible distribution of ownership amongst the citizens of the country. As a warehouse of shares and market expertise, UTT has benefited from Tanzania’s balanced approach to economic development and from a 2013 restructuring that saw the growing organisation split into three CFI.co | Capital Finance International

business units, namely: UTT Asset Management and Investor Services, UTT Microfinance, and UTT Projects and Infrastructure Development.

The reorganisation enables UTTAMIS to fully leverage its in-depth knowledge of East Africa’s second largest market.

The CFI.co judging panel considers UTTAMIS an exemplary driver of inclusive economic growth. The company actively encourages Tanzanians, and other EAC investors, to partake in the country’s development irrespective of their financial standing. In fact, UTT-AMIS adheres to a set of policies that aim to broaden the ownership of shares by simplifying the investment process and removing hurdles without sacrificing the quality of the underlying assets. The judges are pleased to confer the 2015 CFI.co Best Fund Management Team Tanzania Award on UTTAMIS for the excellence of its research and the resulting products, and the depth of its societal reach.

Summer 2015 Issue

> UNITEL T+: BEST CUSTOMER SATISFACTION CAPE VERDE 2015

Young, dynamic, open, and socially aware: Unitel T+, the newest telecom operator in Cape Verde, offers a breath of fresh air. The company deploys the latest technology and does so with a wink and a smile. Unitel T+ succeeds in bringing people together via its broad range of telecom services. The firm aims for the top and is moving ahead at top speed as well, powered by a resolute dedication to world class excellence in the delivery of its services.

While top-notch service may be a given in most markets, Cape Verde was perceived as lagging slightly behind. That presented Unitel T+ with a golden opportunity to cash in on the nation’s thirst for prompt telecom services, delivered efficiently and courteously.

With a booming economy and recently upgraded by the United Nations to the category of Small Island Developing State, Cape Verde

is experiencing a growth spurt. Already near the very top of per capita income in Africa, the country is now cosying up to the European Union. Sponsored by former colonial power Portugal and the other islands of Macaronesia (Canary Islands, Madeira, and Azores), Cape Verde is now being considered for a special status within the EU, just short of full membership.

The island nation ranks significantly higher on development indices than do some of the other countries being considered for EU membership.

Against this dynamic backdrop, the demand for telecom services has skyrocketed.

Unitel T+ has filled the gap and done so with a keen sense of business and an exceptional acumen for local conditions. Adopting a customer-centric approach and offering upto-date voice and data services to both private individuals and business, the company has

already claimed a significant market share that is still expanding at a brisk pace. Tapping into a vast reservoir of pent-up demand for modern telecom services, Unitel T+ has, in fact, changed the sector’s landscape pioneering new products and emphasising convenience and ease of use to grateful customers.

The CFI.co judging panel finds the approach taken by Unitel T+ both refreshing and praiseworthy. The company operates an efficient network and markets its products in novel ways, using multiple channels and social media to spread the news of its business. By doggedly adhering to a customer and demanddriven model, Unitel T+ is reshaping the Cape Verdean telecom sector in its own image. Unitel T+ is a most worthy winner of the 2015 Best Customer Satisfaction Cape Verde Award.

> PricewaterhouseCoopers: BEST CORPORATE ADVISORY SERVICES NIGERIA 2015

The Nigerian economy seems to possess the resilience required to keep its annual growth rate running at between five and six per cent. The smooth and violence-free process that ushered in a change of government earlier this year boosted the confidence of the entire nation and may well herald an economic upswing.

The senior economic spokesman at PricewaterhouseCoopers (PwC) Nigeria, Dr Andrew Nevin, agrees that the economy will continue to grow, but emphasises the need for long-term planning to underpin future expansion. Mr Nevin notes that the real economy is largely insulated against a drop in oil prices.

He is also pleased to see the share of the energy sector in Nigeria’s GDP shrinking from 40% in 2000 to less than 13% now.

PwC has cautioned that whilst the

infrastructure in Nigeria is relatively advanced

by African standards, it nevertheless falls short of requirements and thus constitutes an impediment to more robust and sustained economic development. On the plus side, Nigeria boasts a large, young, and urbanised population; huge reserves of oil and natural gas; and a diversified economy. The country has also embarked on an accelerated drive to upgrade its transportation infrastructure.

The CFI.co judging panel finds that PwC’s stellar reputation for corporate advisory in Nigeria is easy to explain: the firm offers a wealth of services to companies presently doing business in Nigeria or those that mull taking the plunge into Africa’s most promising market.

The judges are pleased to see that PwC is fully engaged in programmes that aim CFI.co | Capital Finance International

to further improve leadership skills in Nigeria with a particular focus on youth and education.

Training is at the heart of the PwC model and its tax academy enjoys a solid reputation. The firm also organises an Executive Master of Finance & Control Programme for the energy industry. This year PwC’s interesting Chess4Change Initiative challenges secondary school students to improve their analytical and mathematical proficiency by taking to the game with a passion.

PwC Nigeria benefits, of course, from the skills base of a formidable network of firms present in 157 countries and employing 184,000 people. The CFI.co judges are very pleased with the dedication shown by PwC to this part of Africa and, without hesitation, confirm the firm’s win of the 2015 Best Corporate Advisory Services Nigeria Award.

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> CAVMONT BANK: BEST RETAIL BANKING SERVICES ZAMBIA 2015

Reaching out to the nation’s unbanked Cavmont Bank of Zambia earlier this year launched two new no-frills savings accounts. The Imiti Ikula Savings Account encourages children to shape their future by regularly putting a few coins and banknotes away, while the Imbasela Account offers the country’s small businesses and sole traders an easily accessible and cost-effective introduction to a wide array of banking services.

Though Zambia is one of the most highly urbanised countries in Sub-Saharan Africa, it is estimated that only about 40% of the population enjoys access to financial services. Zambia has room for growth in more ways than one. The country’s economic development is picking up steam with the government determined to encourage and facilitate growth in non-traditional sectors such

as alternative energy. Foreign investors are fêted with tax breaks and a range of other incentives and guarantees.

As the nation finds its way to sustained growth, Zambia’s financial sector is set for expansion. Cavmont Bank is ready for that leap. With a network of nineteen branches serving over 50,000 clients, Cavmont bank is determined to offer world class products and services to its growing customer base. The bank’s management places great emphasis on stakeholder engagement, transparency, and corporate governance, believing these core values enable Cavmont Bank to excel across the board: professionalism, service, innovation, and integrity.

Cavmont Bank was established in 2004 as the result of a merger between

Cavmont Merchant Bank and New Capital Bank. In 2006, a strategic investment partner was invited aboard to broaden the corporate horizon and raise capital to allow for the bank’s repositioning. The operation was successfully concluded and Cavmont Bank is now fully capitalised and meets or exceeds all capital requirements imposed by the local regulator.

The CFI.co judging panel considers Cavmont Bank an example of what corporate craftsmanship may achieve: the brand was carefully rebuilt and now represents that of a true people’s bank where all clients, both retail and business, may expect accessible, reliable, convenient, and affordable services, delivered with unfailing efficiency. The judges are happy to confer the CFI.co 2015 Best Retail Banking Services Award on Cavmont Bank.

> CHICAGO BOARD OPTIONS EXCHANGE (CBOE): BEST VOLATILITY TRADING PLATFORM GLOBAL 2015

The Chicago Board Options Exchange (CBOE) is the largest options exchange in the US and the creator of listed options.

CBOE offers options on more than 3,200 corporations, fifteen shares indices – including S&P, Dow Jones, NASDAQ, Russell, MSCI, and FTSE indices – and in excess of 500 ETFs (exchange traded funds).

CBOE, established by the Chicago Board of Trade in 1973, obtained a listing on the NASDAQ stock exchange in 2010. Today, CBOE Holdings is the parent company of three exchanges: CBOE; C2, the company’s all-electronic options market; and the CBOE Futures Exchange (CFE).

Since 1993, CBOE publishes in real time its now widely-observed CBOE Volatility Index (VIX Index), colloquially known as the “Fear Gauge,” which through a proprietary formula, uses the prices of options on the S&P 500 Index (SPX) to measure expected future volatility. As such, CBOE’s VIX Index constitutes a valuable instrument that allows traders to hedge against the volatility of the market.

The creation of the VIX Index, now considered the world’s barometer of equity market volatility, led to the launch of VIX Futures at CFE in 2004 and VIX Options at 98

CBOE in 2006. The VIX Index and VIX Options and Futures are the centrepiece of CBOE Holdings’ expanding volatility franchise, which includes more than three dozen products and is a pipeline for continued innovation. Indeed, the acceptance of the VIX Index as a proxy for global volatility and the phenomenal growth in the trading volumes of VIX Options and Futures has fueled the emergence of volatility as a new asset class.

Most recently, CBOE has expanded the trading hours for VIX products – VIX Futures are available nearly 24 hours a day, five days a week, while VIX Options can be traded for thirteen hours each day during the week – allowing investors around the world easier access and more opportunity to trade these key volatility products.

Equipped with a premier and exceptionally comprehensive trading platform, CBOE awards traders both large and small a wealth of tools and data streams that allow for decisive action. Though about 95% of all trades take place electronically, the deep liquidity of CBOE’s trading floor enables investors to efficiently facilitate and execute large and complex orders through open outcry.

Investors of all levels turn to CBOE CFI.co | Capital Finance International

for the industry’s most comprehensive array of trading tools and options and volatility educational resources. From the worldrenowned Options Institute, which offers classroom and online courses, to dynamic digital, mobile and social platforms, to CBOE’s highly-acclaimed Risk Management Conferences (RMC), the premiere financial industry conferences for institutional users of equity derivatives and volatility products, CBOE is a thought leader and the world’s “go-to” place for all things related to those products.

The CFI.co judging panel finds that the Chicago Board Options Exchange continues to set the bar for options and volatility trading through product innovation, trading technology and investor education. CBOE is a trading venue that has taken prescience to the next level by developing and adopting gamechanging methodologies such as the CBOE Volatility Index and making them into publically available tools with which those seeking to underwrite future trends and events can snap into action. As such the CBOE is without equal in the world. The judges have therefore no doubt in granting the Best Volatility Trading Platform Global 2015 Award to the Chicago Board Options Exchange.

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> JORDAN DUBAI ISLAMIC BANK: BEST CORPORATE GOVERNANCE JORDAN 2015

It is a comfortingly old-fashioned concept that never went out of style: fairness.

At Jordan Dubai Islamic Bank (JDIB) fairness lays at the root of all operations and processes.

Fairness also guides the bank’s interactions with clients, shareholders, authorities, and all other stakeholders.

Together with the twin pillars of transparency and accountability, fairness underpins JDIB’s approach to corporate governance. The bank, which can trace its origins back to 1972, was one of the first to adopt a comprehensive set of rules and guidelines that ensure strict adherence to the highest standards of governance and full compliance with Islamic Law.

Furthering its corporate core values – knowledge, innovation, value, quality, and excellence in the delivery of services – Jordan Dubai Islamic Bank regularly keeps all its

stakeholders abreast of developments and awards them ample opportunity to help trace the vectors of the bank’s future development.

Management styles have been updated in order to better engage employees and thus encourage increased efficiency and productivity.

By harnessing collective creativity and intellectual powers, JDIB actively embraces Change Management – a concept that encompasses the thoughtful planning and sensitive implementation of corporate processes in conjunction with the continuous consultation of stakeholders. Being an integral part of transformational initiatives – and, indeed, its main drivers – JDIB employees closely identify with the bank’s accomplishments, going the extra mile – and beyond – to ensure JDIB maintains its position at the leading edge of Islamic banking.

The CFI.co judging panel considers

the approach to corporate governance pioneered

by Jordan Dubai Islamic Bank to be both extensive and thorough. The judges are delighted to note that the bank puts in considerable efforts to engage its employees and by so doing, creates a professional environment that allows for innovation and excellence to flourish.

Rather than mere workers, JDIB employees are very much made to feel part of the solution and share the management’s dedication to the accomplishment of set corporate goals via the application of open strategies centred on fairness, accountability, and transparency: the triple values no bank aspiring to excellence can do without.

The CFI.co judges commend Jordan Dubai Islamic Bank on its ground-breaking approach to corporate governance and are therefore pleased to confer the 2015 Best Corporate Governance Jordan Award on JDIB.

> BAKER & MCKENZIE: BEST ISLAMIC FINANCE TEAM BAHRAIN 2015

In business since 1949, Baker & McKenzie is right at home in a shrinking world: since its very inception, the company thinks, acts, and works on a global scale. With a fee-generated revenue in excess of $2.5bn in 2014, Baker & McKenzie maintains a presence in 47 countries.

The firm employs over 11,000 people in its 77 offices from which it serves – with notable distinction – more than 500 corporate clients who represent some of the world’s largest companies.

Baker & McKenzie is an industry partner to the World Economic Forum (WEF).

Earlier this year, the company’s chairperson,

Eduardo Leite, co-chaired the 10th regional WEF conference in Latin America.

In Bahrain, Baker & McKenzie ranks at the very top in several industry sectors and is widely recognised as an expert on Islamic finance. The CFI.co judging panel wholeheartedly agrees that the firm’s Islamic finance team stands out from the competition and has continued to power ahead convincingly since receiving an earlier award from CFI.co.

For the past thirty years, Baker & McKenzie has been a key player in the Middle East. The firm has been present in Bahrain since 1998. The company’s deep knowledge CFI.co | Capital Finance International

and understanding of the region remains unequalled. This breadth of experience coupled to the readily deployable – and massive – resources and its global footprint, make the Baker & McKenzie team the one to watch for clues and cues. Over the years, the firm has been involved in many hallmark Islamic finance projects. The training and expertise of its lawyers has proved absolutely superb.

The CFI.co judging panel is delighted to confirm, yet again, the leadership position of the Baker & McKenzie team and declares the firm winner of the 2015 Best Islamic Finance Team Bahrain Award.

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> BANGKOK INSURANCE: BEST INSURANCE SOLUTIONS ADVISORY TEAM THAILAND 2015

Thailand is booming.

Low unemployment, an increasingly affluent middle class, and an economy predicted to register upwards of four per cent growth this year provide plenty of buoyancy to the Thai insurance industry.

In 2015, both the life and non-life insurance branches are widely expected to see the volume of premiums written expand in excess of five per cent to reach $21.5bn.

Demand for health and motor vehicle insurance offerings is particularly strong while increased investor confidence will boost interest in life savings products. The Thai insurance industry has shaken off the effects of the 2014 upheavals, and the attendant currency fluctuations, and is now well poised to maximise its exposure to the opportunities offered by the market’s renewed vitality.

Bangkok Insurance, one of Thailand’s leading insurers, is set to expand the retail side of its business. The company has standardised and streamlined internal processes which resulted in

enhanced productivity and efficiency. Bangkok Insurance has also invested in analytical systems and risk mapping software that enables the company to adopt and follow international best practices and maintains its unrelenting dedication to excellence in the delivery of services.

Currently one of the big three Thai insurance providers, Bangkok Insurance remains focused on offering a carefully balanced and competitive suite of products that allows the company’s management to obtain high margins that ensure a consistently healthy bottom line. Bangkok Insurance is a publically traded company listed on the Stock Exchange of Thailand since 1978.

Bangkok Insurance has been in business since 1947 and in 2004 received the coveted Royal Garuda Emblem. Bestowed

by King Bhumibol, the royal seal is awarded exclusively to companies adhering to the strictest standards of governance. The notoriously

exacting vetting procedure often takes decades to complete. Companies such as Bangkok Insurance that have been entrusted with the emblem are deemed exceptionally trustworthy in their dealings with the general public.

The CFI.co judging panel was pleased to note that Bangkok Insurance has consistently maintained a customer-centric approach to its business. Operating in the most developed and liberalised insurance market of Southeast Asia has kept Bangkok Insurance at the peak of its game: the company not only secured ISO certification for its different lines of business but also constantly reviews products and practices in order to offer a best in class service experience.

The judges commend Bangkok Insurance for introducing a single point of contact for its business channels, further improving customer satisfaction. The judges are fully confident that Bangkok Insurance merits the CFI.co 2015 Best Insurance Solution Provider Thailand Award.

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structuring large-scale mergers and acquisitions.

For one of its clients, DLA Piper worked across multiple practice areas and no less than 29 jurisdictions to accomplish the desired outcome – on spec and on time. The assignment was efficiently handled by a single office with the work billed out as agreed in just a single fee note, adding to the transparency of the undertaking. While the efficiencies are glaringly obvious, ultimate success is ensured and delivered by an exceptionally highly skilled group of lawyers working throughout the world and joined in a peer network. DLA Piper’s global legal reach is an argument hard to refute.

Governments and many Fortune 500 and FTSE-listed companies are regularly turning to DLA Piper for expert advice. The firm’s legal CFI.co | Capital Finance International

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> DLA PIPER: BEST CROSS-BORDER TRANSACTION TEAM GLOBAL 2015

Rationalising corporate operations and processes across markets and borders is both challenging and rewarding. The benefits to all stakeholders can be very high indeed. However, success is unlikely to be attained without proper tax and regulatory planning. These are the essential ingredients of any corporate crossborder streamlining. Without them, disaster is courted.

Major international law firms are usually the first port of call for companies seeking advice on corporate matters that span different jurisdictions. The CFI.co judging panel finds that DLA Piper boasts a strong and welldeserved reputation for delivering expertise in this highly complex area of law. The judges pointed out that the firm is a global leader in

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team stands out for its diversity, inclusion, and professional quality. DLA Piper also aims to empower bright young minds through its unique Break into Law Initiative. This global programme is focused on removing barriers to employment in the legal profession in order that underrepresented young professionals anywhere in the world may break through glass ceilings and develop their true and full potential.

DLA Piper lawyers are actively encouraged to undertake pro bono work including, significantly, activities outside their own domestic market. The firm also supports UNICEF in working for justice for children.

The CFI.co judging panel is delighted to confer on DLA Piper the 2015 Best CrossBorder Transaction Team Global Award.

> Africa:

Tech Giants in the Making

By Wim Romeijn

Emboldened by the success of its home-grown M-PESA mobile payment framework, Kenya is now set to become Africa’s tech giant with even Google taking notice. The US Internet behemoth has just launched its own cashless payment system. The pre-paid Beba card allows holders to hop on and off Nairobi’s minibuses – the infamous matatu.

Kenya: Nairobi

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hose same unruly buses inspired a local entrepreneur to replicate the hair-raising experience Nairobi commuters are subjected to in a videogame. Players use their mobile phones to steer a matatu at breakneck speeds through the capital’s chaotic traffic, scoring points as they avoid pedestrians.

In a matter of weeks the game had been downloaded a quarter of a million times by users in 169 countries.

Nairobi has embarked on a quest of its own: Africa’s Savannah Valley is to become the world’s premier hub for the development of mobile Internet technology. Already home to the fastestgrowing mobile phone market globally, Kenya aims to cash in on Africa’s telecom revolution.

According to the World Bank, the continent now boasts over 650 million mobile phone users, making it a bigger market by subscriber numbers than either the United States or the European Union. In Kenya, mobile phones account for close to 99% of Internet traffic with a growing middle class increasingly turning to the web to access everyday services and small businesses setting up mobile-friendly websites to offer products and services. Mobile e-commerce is expected to grow at annual rates in excess of 10% across Africa.

US management consulting firm McKinsey & Company calculated that while presently the Internet contributes only about 1% to Africa’s GDP, this number is set to grow six-fold over the coming decade. However, the IT sector balloons unevenly across the continent. Kenya and Senegal are ahead of the pack and derive around 3% of their national income from Internet related business – on par with Germany and France. At 0.8% of GDP, Nigeria’s IT economy is still in its infancy and struggling to catch up.

For Marcin Hejka, managing director of Intel Capital, opportunities abound: “Africa is the new IT frontier with a technology ecosystem set for immediate take-off.” The chipmaker’s venture capital division is betting that Africa’s first multibillion dollar IT multinational will take shape in Kenya. Intel Capital Investment Director Tobi Oke is excited about Savannah Valley and other technology hubs currently under development across Africa: “These offer the right environment for savvy entrepreneurs to attain the critical mass their start-ups require for success.”

“According to the PwC “With about three million inhabitants of whom 74% use mobile phones, and some 5,000 millionaires, Nairobi is well-suited for its new role as Africa’s technology hub.”double-digit gains.”

With about three million inhabitants of whom 74% use mobile phones, and some 5,000 millionaires, Nairobi is well-suited for its new role as Africa’s technology hub. Big money is involved as well. Around $15bn is being splashed on Konza Techno City – aka Savannah Valley – 40km to the southeast of Nairobi where it is expected that up to 100,000 IT engineers will be working on next generation mobile technology by 2020.

For the moment Kenya’s IT companies flock to Ngong Road, the epic centre of the country’s technology industry. Here, 152 companies, employing over 15,000 developers and other techies, have formed iHub which functions as a large incubator for Kenya’s IT sector, pushing the country to the forefront in Africa and beyond.

Ngong Road and its iHub is the first tangible result of a masterplan devised and implemented in 2006 by then Permanent Secretary Bitange Ndemo of the Ministry of Information and Communication for the rapid development of the IT sector.

The masterplan is part of the broader Vision 2030 project that aims to propel Kenya to middle-income status. Current Cabinet Secretary for ICT Fred Matiangi thinks the timing is right for yet another leap forward: “The beauty about this government is that we have free political will

and leadership from the top that supports the work we are doing. Both government and private sector are moving forward to ensure we create jobs and provide opportunities for the growth of innovation.”

Big name companies such as IBM, Facebook, and SAP have taken note and now actively partake in Africa’s booming Internet economy, committing their vast resources, and unveiling a growing number of ambitious projects. In Kenya, IBM is building a copy of its famed Watson supercomputer – Project Lucy – for about $100m while SAP has earmarked $500m to introduce some of its latest technology to the continent.

Venture capitalists have discovered Africa as well, alleviating the dearth of seed capital which is considered one of the main stumbling blocks to accelerated tech development. In 2014, McKinsey & Company identified no less than 3,400 tech start-ups in Sub-Saharan Africa with around $400m being made available by venture capitalists. However, only about 2% of start-ups succeed in attracting angel investors.

Pundits expect venture capital flows to increase significantly in the coming years, reaching $1bn by 2018.

Most VC action currently takes place in Nigeria with e-commerce portals Jumia and Konga raking in well over $300m to fund their rapid expansion with a view to expand their operations across the continent. Eghosa Omoigui of EchoVC Partners has no doubt that before long some of the continent’s IT start-ups may be ripe for IPOs on local exchanges with solid and sustainable revenues: “I wouldn’t be surprised at all to see an African tech company obtain a listing on NASDAQ before this decade is out.”

Mr Omoigui expects the Kenyan model for success to be replicated elsewhere: “Kenya has shown that a sensible policy framework need not be overly complicated to ensure its success. Governments across the continent are paying much attention, and committing the required resources, to put into place the infrastructure necessary for new IT hubs to flourish.” The venture capital provider points to countries such as Ghana, Rwanda, and Nigeria as the next Internet frontiers where the scenery changes fast and becomes more dynamic as it does. i

“Venture capitalists have discovered Africa as well, alleviating the dearth of seed capital which is considered one of the main stumbling blocks to accelerated tech development. In 2014, McKinsey & Company identified no less than 3,400 tech start-ups in Sub-Saharan Africa with around $400m being made available by venture capitalists.”

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> PwC:

Africa’s Hospitality Sector Poised for Growth

By Nikki Forster, Hospitality Industry Leader, PwC Southern Africa

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frica’s hospitality industry is set to meet the rising demand from international tourists, local business travellers, and the continent’s own growing middle class. The sector has seen substantial growth with many international brands descending around commercial and retail centres, growing their footprint across the continent.

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PwC continues to stay on top of trends and developments that may impact hospitality companies, now and in the future. Recently, PwC published its Hospitality Outlook: 2015-2019 – the 5th edition in this series.

PwC’s report features information about hotel accommodation in South Africa, Nigeria, Mauritius, and Kenya. The accommodation CFI.co | Capital Finance International

sector in South Africa consists of hotels, guest houses and guest farms, game lodges, caravan sites, camping sites, and other overnight accommodation. For Nigeria, Mauritius, and Kenya only information on hotels was included in the publication.

South Africa, Nigeria, Mauritius, and Kenya have very different markets, which is reflected in their

Summer 2015 Issue

spending patterns. South Africa attracts a mix of business and holiday travellers and offers a wide range of hotel classes and accommodation.

By contrast, Nigeria is largely an international business market with little tourism. Conversely, Mauritius is principally a resort market with most travellers on holiday and where five-star hotels constitute a significant component of available rooms. Kenya has a mixed market, predominantly attracting tourists through its beaches and safari offerings as well as business travellers.

One of the most recent and significant developments in 2014 and 2015 in the South African tourism industry was the revision of South Africa’s visa regulations. Under the revised regulations tourists to South Africa will have to apply in person for visas to visit South Africa so that biometric data can be reliably collected. In addition, parents and guardians travelling with minors must have an unabridged birth certificate that shows the names of both parents and permission from any non-travelling parent.

The purpose of the latter policy is to stop child trafficking. However, tourism industry commentators in South Africa fear that international tourists – in particular travellers from China and India – will not consider South Africa as a destination, as they may have to travel long distances to obtain the necessary documentation before being allowed to travel to the country.

Any impact would not only affect hotels, lodges, and other accommodation but also the supporting services in the industry such as tourist transport, guides, restaurants, and curio vendors. Industry operators have already indicated that they have experienced a reduction in bookings. PwC is hopeful that the South African Department of Home Affairs and the tourism industry will be able to work together to find a solution suitable for all.

According to the PwC report, the accommodation market in South Africa enjoyed its third consecutive year of strong growth with a 9.1% advance following two years of double-digit gains. Growth in room rates will be the main driver of revenue, with new hotels in Cape Town leading the expansion. Cape Town is a dominant tourist attraction, with a total of R3.5 billion of investment planned for hotels over the next four years, which will result in adding 2,100 rooms to the overall market. Total room revenue in South Africa is expected to expand at an 8% compound annual rate overall and for the hotel sector, by 8.1% compounded annually.

“According to the PwC report, the accommodation market in South Africa enjoyed its third consecutive year of strong growth with a 9.1% advance following two years of double-digit gains.”

CFI.co | Capital Finance International

HOTEL ACCOMMODATION In 2014 overall spending on hotel rooms in South Africa rose 9.1% to R18.9 billion, with rising room rates being the principal driver. Hotel room rates rose 7% just above inflation with five-star hotels achieving the fastest growth at 12.8%. Room revenue will expand at a 12.1% compound annual rate to R3.1 billion in 2019 from R1.8 billion in 2014.

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Five-star hotels will increase their share of the market to 16% by 2019. Available rooms and stay unit nights were both flat for four-star hotels in 2014. Room revenue at four-star hotels is forecast to increase from R4.7 billion in 2014 to R7.2 billion in 2019, a 9.0% compound annual gain. Three-star hotels accounted for 36% of all available hotel rooms in South Africa and 33% of total hotel room revenue. Room revenue at threestar hotels is forecast to expand at a projected 8.8% compound annual rate to R6.5 billion in 2019 from R4.3 billion in 2014.

With the market now improving, there is renewed activity in the hotel industry as major hotel chains upgrade current facilities, renovate their properties, or make plans to expand and open new hotels. The report estimates that by 2019 there will be about 63,600 hotel rooms available up from 60,800 in 2014. Stay unit nights are projected to increase by 2.3% in 2015 and by an additional 3.0% in 2016 with more moderate gains expected in subsequent years.

Elsewhere on the continent, the Nigerian hotel market was hit by health concerns as a result of the Ebola outbreak in West Africa in July 2014.

In October 2014, the World Health Organisation declared Nigeria Ebola-free. Despite the challenges faced, the hotel market continues to grow. It appears that the government has done a good job in protecting Abuja and Lagos, where most of the major hotels are located, from the terrorist attacks. A number of initiatives have also been put forward to promote tourism and positively impact the Nigerian hotel market.

OUTLOOK: SOUTH AFRICA 2015 – 2019 Overall room availability in South Africa is expected to increase at modest rates in each category with guest houses projected to be the fastest-growing category averaging 1.0% compounded annually. Overall room availability is projected to increase at a 0.7% compound annual rate to 120,300 in 2019 from 115,900 in 2014.

The overall occupancy rate rose to 54.4% in 2014 with each category increasing. Guest houses/guest farms had the highest occupancy rate at 62.9%. The overall occupancy rate is forecast to climb to 58.3% in 2019.

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Stay unit nights rose 3.6% in 2014 with most of the growth generated by a 10% increase in caravan/camping sites and other accommodation.

Stay unit nights for guest houses and guest farms rose 4.8%, but hotels were flat.

It is also expected that average room rates for hotels will rise at a 6.0% compound annual rate, while guest houses will increase at a 7.1% compound annual rate, in both instances growing more slowly than in 2014.

OUTLOOK: NIGERIA, MAURITIUS, KENYA 2015 – 2019 The Nigerian hotel market was hit by health concerns in 2014 in the wake of the Ebola virus and concerns around terrorism. The three- and four-star hotel market was in particular hurt as revenue fell 7.7%. Nevertheless, the Nigerian hotel market continues to grow despite the numerous challenges faced. It is mainly corporate driven, as Nigeria remains a favourite destination for business in Africa.

The number of hotel rooms is expected to more than double during the next five years with that growth occurring predominantly in Lagos. Nigeria is forecast to be the fastest-growing market over the next five years with a projected 10.5% compounded annual gain in room revenue. Almost all of that gain is expected during the latter three years of the forecast period.

The number of tourist arrivals in Mauritius increased 4.6% in 2014, exceeding the one million mark for the first time. Although a stronger global economy is expected in the coming years, Mauritius is facing growing competition as a tourist attraction from Sri Lanka, The Maldives, and The Seychelles. The average occupancy rate is expected to remain relatively steady, edging up from 63.1% in 2014 to 63.7% in 2019. Mauritius posted a modest 1.8% advance in 2014, helped by an increase in tourism, but declining room rates held down revenue growth.

Kenya’s hotel market declined during each of the past three years, falling 7.1% in 2014 and by a cumulative 16% since 2011. Terrorism has been a major concern, leading a number of western countries to issue travel warnings that discouraged people from visiting Kenya. Despite recent problems, a number of new hotels are scheduled CFI.co | Capital Finance International

to enter the market. The number of available rooms is expected to increase from 17,800 in 2014 to 20,000 in 2019.

In spite of the challenges posed by the recent visa regulations, PwC is very bullish on the South African hospitality market’s ability to compete, grow, adapt, and succeed – especially as the global economy continues to improve following the recent economic uncertainty.

In its most recent global Travel and Tourism Competitiveness Index report, the World Economic Forum (WEF) found that South Africa’s performance in the tourism sector had improved significantly since 2013, when the previous study was conducted. The report, released on May 6, 2015, ranked South Africa as the leading country in Sub-Saharan Africa in terms of competitiveness and growth drivers, and 48th out of the 141 markets assessed overall.

Growth in travel and tourism is also expected to boost growth in the accommodation industry across the African continent during the next five years. i

ABOUT THE AUTHOR Nikki Forster is the currently the leader of the Hospitality and Gaming industry specialisations within South Africa. Nikki Forster’s role incorporates: • Servicing a number hospitality and gaming clients in Assurance • Directing internal thought leadership and knowledge gathering on industry topics • Coordinating activities within the hospitality and gaming industries, to include feasibilities, due diligence, tax advice and more • Identifying industry targets and targeting opportunities firm-wide Nikki has performed many international Quality review assessments.

Nikki, joined Price Waterhouse (PW) in Birmingham, UK in 1988 where she trained and qualified, initially in the small businesses group.

She was then promoted to manager in 1993 before moving to South Africa and PW Johannesburg in 1994, where she was admitted to partnership in July 1999.

Summer 2015 Issue

> CFI.co Meets Paula Carioca, the CEO of Unitel T+:

Innovation to Exceed Customers’ Expectations

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aula Carioca stands at the helm of a telecom company with a twist: Unitel T+ serves the Cape Verde islands not only with up-to-date voice and data telecom services, but is also a driver of innovation and corporate social responsibility. At Unitel T+, CSR is not merely the latest of corporate buzz words, but carries deep meaning. The company aims to deliver a tangible contribution to Cape Verdean development and has set up a number of programmes to help the nation attain its development goals.

“We did, and are still carrying out, heavy investments in our network capacity, providing the best telecommunications products and services to anticipate our customers’s needs in order to keep growing and expand our market share.”

We continuously invest in innovation, generate appealing content, and offer services that exceed our customers’ expectations.

Unitel T+ has initiated and actively supports public housing, healthcare, educational, and environmental projects throughout the island nation. Unitel T+ has organised its corporate structure in such a way that both management and staff feel part of the larger development drive.

CFI.co asked Ms Carioca to detail the Unitel T+ unique philosophy, its corporate ambitions, and its role in developing the Cape Verdean telecom sector while providing customers with a peerless user experience.

WHAT MAKES CAPE VERDE INTO AN INTERESTING PROPOSITION FOR A TELECOM COMPANY? Cabo Verde telecommunication sector policy and regulation formally started after the independence in 1975. The country’s geographic location helped develop its telecommunication infrastructure in several ways. The implementation of international Radio Regulations since the early stage of telecommunication development in Cape Verde has made the country’s maritime coastal stations well-known for the quality of their service.

Telecommunications is one of the most important and fastest-growing sectors of the Cabo Verde economy. Indeed, the numbers and statistics proves that we are facing a market with massive transformations in which a lot remains to be done.

We have to stay a step ahead of our customers’ demands and requirements. Nowadays, Cape Verdeans are better informed and want to use the latest services available. I must say that we face this challenge with joy and happiness by delivering what our customers ask for.

WHERE DOES UNITEL T+ SEE THE BEST OPPORTUNITIES FOR EXPANDING ITS SERVICES IN CAPE VERDE? This is an island nation and its people need to be connected. We are focused on creating new services and products, and on providing access to information and communication technologies in remote and low-income areas. To accomplish this goal, we have to meet some challenges with regards to cost structures in order to fulfil this need. We do this by creating specialised solutions via huge investments mainly in network infrastructure.

We believe that our people make the difference by the way they treat and assist our customers.

A large part of our corporate efforts are directed at staff training. There is no other way to attain success. Unitel T+ is fully aware that the company needs to fully engage with its customers.

Also, we cannot forget that much of our success is owed to the way we communicate and act, inspiring, fulfilling promises, and delivering transparency in all we do. Our young can-do spirit, customer-centric approach, collaborative effort, and unwavering commitment to deliver value are essential to maintaining Unitel T+ at the cutting edge.

We also created a communication and marketing trend that helps us inspire, engage, and build solid relationships with our targets. This kind of affinity definitely set us apart from the competition.

CEO: Paula Carioca

CAN YOU PLEASE ELABORATE ON THE CURRENT STATE OF THE TELECOM SECTOR IN CAPE VERDE – ITS POSSIBLE WEAKNESSES AND STRENGTHS? The rate of penetration of mobile telephony in Cape Verde reached 118.13 percent in 2014, according to the Cape Verdean communications regulator. Meanwhile, internet services penetration stood at 53.49 percent after 3G services were introduced.

Cape Verde has a young population, and we know that this demographic is more susceptible to embracing new technologies which can improve the penetration rates. We still have some challenges ahead. For example, improvements need to be made to the network infrastructure to upgrade its quality and efficiency. We think that we have to create strategies that allow us to turn the challenges into opportunities, knowing that we are a small country, with a small economy.

WHAT DIFFERENTIATES UNITEL T+ FROM ITS COMPETITORS? CFI.co | Capital Finance International

Last but not least, I have to tell you that our corporate social responsibility is an integral part of our business right beside others investment flows into network infrastructure, products, services, and people. The company has assumed an active role in the Cape Verdean society and did so with great responsibility in terms of sustainability and social policies that support voluntary programmes.

We partner with local organisations that truly understand the needs of society. These alliances allow Until T+ to help care for the less fortunate.

The orange cross in the company’s corporate logo represents our commitment to social responsibility.

HOW DOES THE CAPE VERDEAN TELECOM SECTOR COMPARE TO THOSE OF OTHER COUNTRIES IN AFRICA? The Cape Verdean telecommunication market is definitely one of the smallest in Africa, and we know that a lot remains to be done. Technology allows us to dream about a bright new world. That is what it is all about as was duly noted by the Cape Verdean telecom regulatory agency ANAC in its last report. We wholeheartedly subscribe to that vision. i 109

> Assupol:

A Good Story of More than 100 Years Assupol was founded over a century ago in 1913 when a group of South African policemen began collecting contributions to assist the bereaved families of colleagues that had passed away. This initiative led to the establishment of the South African Police Provident Fund which later became known as Assupol.

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ssupol registered as a life insurer in 1960. Fast-forward some three decades: in the 1990s the company spread its wings into the open market to become a full-fledged life insurer.

Though Assupol’s core market remains the government sector, the company also made significant inroads into the private sector, including the middle-income demographic.

Through the years, Assupol’s business underwent a number of changes, adapting to the market and its opportunities. In 2010 a milestone was reached with the demutualization which transformed Assupol into a public company – Assupol Life Ltd. This process also led to the formation of Assupol Holdings Ltd and Assupol Investment Holdings (Pty) Ltd – and this group structure (see Graph 1 below).

Assupol’s demutualization resulted in the largest wealth distribution yet by an unlisted company in South Africa. Approximately 400 million shares in Assupol Holdings Ltd were allocated to qualifying policyholders – 90% of them from previously disadvantaged communities – and

“Though Assupol’s core market remains the government sector, the company also made significant inroads into the private sector, including the middleincome demographic.” staff. In 2013, nearly R900 million was paid out to those who elected not to keep their shares.

Hugh Masekela, South Africa’s world-renowned music legend, is Assupol’s brand ambassador.

The company has partnered with Mr Masekela in staging his successful annual heritage musical festival. Like Assupol, Mr Masekela is passionate about the people of South Africa and their proud heritage. The 2013 and 2014 Hugh Masekela Heritage Festivals were a huge success.

In 2014, the Deloitte Best Company to Work for Survey ranked Assupol 6th in a field of 21 medium-sized companies. The survey is conducted annually and aims to identify and celebrate the best companies to work for across the Southern African region, as rated by their employees.

Assupol undoubtedly is on the move, with great aspiration.

ASSUPOL HOLDINGS SHAREHOLDERS • Investec - 30% • International Finance Corporation - 20% • Women Development Business - 11% • Assupol Community Trust - 7% • Management and staff - 21% • Free float - 11% BUSINESS PARTNERS AND PROFESSIONAL SERVICE PROVIDERS • External auditors - Price Waterhouse Coopers • Internal auditors - KPMG • Statutory actuary - Deloitte (Carl van der Riet) • Reinsurers - Hannover-re and Munich-re • Asset managers - Pan African Asset Management ASSUPOL MISSION, VISION, AND VALUES • Mission: to serve those who serve • Vision: to be the insurer of the people • Values: to treat our customers fairly ASSUPOL’S CORE BUSINESS • Providing life insurance products on an individual and group basis • Products • Funeral cover – up to R50,000 for individuals, and R30,000 for groups • Life cover – no blood tests up to R300,000, and blood tests over R300,000 • Retirement annuity – from R180 per month • Savings – from R100 per month • Group funeral and accident cover • Tax Free Savings product ASSUPOL – SETTING TRENDS • Assupol was the first life insurer to commit

Graph 1

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Summer 2015 Issue

to paying benefit claims within 48 hours. In the 2014 financial year, the company succeeded in paying 95% of claims within 24 hours, and 98% within 48 hours.

• Assupol was the first to introduce a “cash-back” product. The company’s products pays back all premiums after ten claim-free years.

• Assupol introduced InstantGroceries (a registered trademark) – a first-in-the-market product that provides money for groceries and other necessaries via cell phones within minutes after a valid death claim has been recorded with us.

• Assupol’s adoption of Persal (the government’s salary payment system) as a payment method for policies has resulted in better client retention and the absolute assurance of efficient delivery of funds.

• Assupol began to pay benefits via the Post Office.

ASSUPOL FOCUS AREAS – 2015 AND BEYOND • Market diversification • Distribution diversification • Product diversification • Other strategic alliances • Efficiencies drive

Assupol branch office.

BE FAST AND KEEP IT SIMPLE A strong believer in pursuing organic growth, rather than seeking expansion via acquisitions, Assupol Group CEO Rudi Schmidt leads the group that is widely praised for being conservatively managed, well capitalised, and with a strong focus on its core business – serving the lower and middle income market segments with sensible, no-frills products delivered clearly, locally, efficiently, and quickly.

Celebrations at the new office which is currently under construction. Planned moving in date is November 2016.

Siphiwe Ndwalaza (Group HR Director), Gert Wessels (Sales Executive), Rudi Schmidt (Group CEO), Bridget Mokwena-Halala (Assupol Life CEO), Niel de Klerk (Group CFO).

CFI.co | Capital Finance International

If simplicity is the key to enduring success, the Assupol Group CEO and his management team have nailed the formula to perfection. “In the demographic that Assupol serves there is absolutely no room for mistakes: we must get it right each and every time,” says Mr Schmidt who goes on to emphasise that whatever product his company launches on the market must dovetail perfectly with demand and resonate with clients down to the individual level. “Our customers expect products that address specific needs and do so in a clear and well-defined manner. Most Assupol clients are quite suspicious of insurance products that promise the moon but may then fail to deliver in a straightforward and timely manner.”

Assupol Life CEO Bridget Mokwena-Halala explains: “We thoroughly understand our market and our customers by continuously interacting with both and fine-tuning our suite of products to offer the best fit. Assupol operates in a market segment that has traditionally been overlooked by others. Our products are really easy to understand and come devoid of layers of complexity. They are delivered via a network of inviting offices: rather than glamourous and expensive-looking, Assupol branches are highly visible and invite customers and potential clients in with a no-nonsense setting and decor. We are not here to fête customers, but serve them in an efficient, down-to-earth way that gets the job done with a minimum of fuss.”

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Assupol Board of Directors (executive and non-executive).

Assupol CEO Rudi Schmidt emphasises that the company remains true to its roots: “We are first and foremost an insurer to the people. While the company has long since expanded its core market to beyond that of civil servants, Assupol attaches great importance to its heritage as an insurance company with a range of products tailored to serve the interests of people of more modest means.”

While nowhere in Africa insurance penetration is deeper than in South Africa, the lower end of the market has traditionally been underserved.

“Financial literacy is still quite limited in the lower income brackets. Also, cultural preferences are quite distinct and must be taken into consideration, and catered to, in order to properly serve our clients,” says Mr Schmidt.

Assupol’s flagship product is a funeral cover that allows policy holders the peace of mind that stems from the knowledge that all burial costs and related expenses are promptly paid for when a loved-one passes away, thus avoiding any additional stress in times of bereavement.

“Assupol has its roots in a burial society for policemen. However, burial societies can no longer survive in the modern era due to the incidence of HIV. Insurance companies such as Assupol have stepped in to fill the void and provide the support needed. However, Assupol stands out from the crowd because of its cultural awareness. We fully realise that most policy holders will not have the cash reserves to meet even modest initial expenses. It is with this in mind that we developed a system which allows us to make a first payment within mere hours of a death having been reported. Fully 95% of claims are settled within 24 hours.”

Mrs Mokwena-Halala explains that her company has put great effort in developing payment systems that bypass traditional banks: “Quite 112

a few of our policyholders may not have bank accounts. South African banks impose strict requirements on accountholders that not everyone can meet. In response, Assupol has developed a number of systems that allow monies to be paid out via platforms such as Easi Pay, SAPO and other non-traditional means. We make sure that all our clients can have access to claims monies in record time, irrespective of their banking status.”

Mrs Mokwena-Halala points out that Assupol is careful to monitor the feedback it receives from clients and leverages that input to enhance its offerings and build trust: “Our company is mostly in the business of listening – to individual clients and the broader market alike.

This not only enables Assupol to stay a few steps ahead of the competition but allows us to avoid making mistakes.”

Mrs Mokwena-Halala notes that in the wake of the financial crisis, most insurance companies opted to downsize their branch network and pick up the resulting slack via call centres.

“Because we actually understand our clients’ concerns and needs, Assupol kept its branch network intact. In our market segment, people often dislike conducting business over the phone in a rather impersonal way. They prefer to interact with other people who can promptly answer questions in person, allay fears, and address concerns. Visibility is a definite plus CFI.co | Capital Finance International

and we make sure that our offices are highly visible and easily accessible. Our approach was the right one and you can already now see other insurers reopening branches in an attempt to undo the damage.” Assupol also maintains a network of mobile offices that bring the insurer to the far corners of the country. “These offices may be quite expensive to operate, but we are reaping the benefits of this investment. The closer physical proximity we maintain to our customers, the better we are able to do our job,” says Mrs Mokwena-Halala.

Assupol Group CEO Rudi Schmidt emphasises that the company remains true to its roots: “We are first and foremost an insurer to the people.

While the company has long since expanded its core market to beyond that of civil servants, Assupol attaches great importance to its heritage as an insurance company with a range of products tailored to serve the interests of people of more modest means. That is also our brief as we face the future. Assupol may move upmarket but will only do so while adhering to its mission which is to take complexity out of insurance products by offering coverage for specific events in a fully transparent manner and in a way that allows us to move fast in case a claim comes in. No frills, no nonsense, and no small print. It sounds simple, and in reality is. However, in South Arica only Assupol has managed to develop this formula into one delivering benefits to all stakeholders.” i

Summer 2015 Issue

Events Calendar

Korea

12 - 14 June 2015

Dubai

8 - 10 September 2015

Egypt

16 - 19 September 2015

Songdo Convensia, Incheon, Korea

Dubai World Trade Centre Dubai, UAE

Cairo International Convention Centre, Cairo, Egypt

KUWAIT

Kuwait

4 -7 November 2015

Riyadh

23 - 25 November 2015

Kuwait International Fairgrounds Kuwait City, Kuwait

Riyadh International Convention & Exhibition Centre, Riyadh, KSA

Malaysia

23 – 25 February 2016

Kuala Lumpur Convention Centre Kuala Lumpur, Malaysia

Istanbul

24 - 26 March 2016

Istanbul Congress Center, Turkey

Jeddah

3 - 5 April 2016

Jeddah Center for Forums and Events Jeddah, KSA

Abu Dhabi

19 - 21 April 2016

Abu Dhabi National Exhibition Centre Abu Dhabi, UAE

Qatar

9 - 11 May 2016

New York

1 -2 June 2016

Dohar, Qatar

Other Cityscape Portfolio Event:

Javits Center, New York, USA

CFI.co | Capital Finance International

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> Barclays Africa Group:

Striving to Be the ‘Go-To’ Bank in Africa Barclays Africa Group Limited (Barclays Africa), listed on the Johannesburg Stock Exchange, is one of Africa’s largest financial services groups. It is uniquely positioned as a fully global, fully regional, and fully local bank. Barclays Africa is 62.3% owned by Barclays Bank PLC (Barclays). Absa Bank Limited (Absa Bank) is a wholly-owned subsidiary of Barclays Africa.

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he group was formed through combining Absa Group Limited and Barclays’ African operations on 31 July 2013.

Reflecting the enlarged group’s PanAfrican focus, the name changed from Absa Group Limited to Barclays Africa Group Limited on 2 August 2013.

Its registered head office is in Johannesburg, South Africa and the group has majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania (Barclays Bank Tanzania and National Bank of Commerce), Uganda, and Zambia. It also has representative offices in Namibia and Nigeria as well as insurance operations in Botswana, Mozambique, Kenya, South Africa, and Zambia.

Barclays Bank Kenya and Barclays Bank Botswana continue to be listed on their respective stock exchanges. Barclays Bank PLC has operations in Egypt and Zimbabwe which are an integral part of its African business. Barclays Africa continues to oversee the management of these entities.

Barclays Africa is a diversified financial services provider, offering an integrated set of products and services across personal and business banking, credit cards, corporate and investment banking, wealth and investment management, and insurance. It has grown into a leading financial services group in its chosen

“Today it has seen continuous progress in business banking, as it strives to achieve its ambition of being the go-to business bank in Africa. This has been possible because it puts the customer at the centre of all it does.” countries in Africa and selected customer and client segments. It combines its global product knowledge with regional expertise and its extensive, well established local presence.

BUILDING THE BANKING DESTINATION OF CHOICE FOR BUSINESS IN AFRICA The group’s goal is to build not only a sustainable, trustworthy business, but a business which customers and clients consider as the first choice for answers and solutions – their ‘Go-To’ bank.

Two years ago, the group increased strategic emphasis on its business banking offering. Today it has seen continuous progress in business

banking, as it strives to achieve its ambition of being the ‘Go-To’ business bank in Africa. This has been possible because it puts the customer at the centre of all it does.

It is no secret that Africa continues to develop at a rapid pace and is considered the new growth frontier the world over; this is why the group continues to uniquely position itself to be able to leverage these exciting opportunities across the continent for the benefit of its customers. Key to its success and managing its dynamic business banking franchises across all 12 countries, is the support of its dedicated staff that has a passion for relationship building and service excellence.

Absa is fortunate to be able to tap into the greater Barclays family not only for insights, but for support and learning as well. This makes it a fully global, fully regional, and fully local bank; putting it in the enviable position to best serve existing and prospective customers and clients by combining global product knowledge, regional expertise, and an extensive, well-established local footprint.

In their adjudication when awarding Absa Best SME Bank, CFI.co emphasised that Absa aims to empower entrepreneurs with more than just credit. The judges also highlighted Absa’s nationwide network of seven enterprise development centres as another key component in enabling SMEs.

“It is no secret that Africa continues to develop at a rapid pace and is considered the new growth frontier the world over; this is why the group continues to uniquely position itself to be able to leverage these exciting opportunities across the continent for the benefit of its customers.”

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“In South Africa, the bank has in the past few years established entrepreneurship development centres throughout the country with the aim to encourage the development of small businesses across a wide spectrum of sectors, such as real estate development, agribusiness, and franchising.”

Apart from providing financing for small business, the bank has also started a range of other initiatives in support of entrepreneurship that existing or would-be business owners can tap into. In South Africa, the bank has in the past few years established entrepreneurship development centres throughout the country with the aim to encourage the development of small businesses across a wide spectrum of sectors, such as real estate development, agribusiness, and franchising.

Such initiatives stem from the bank’s understanding that the small business sector requires the group to play a meaningful role by supporting entrepreneurs beyond just their financial needs. One of the largest obstacles facing small businesses is not financial, but access to markets. The ability to penetrate existing markets, or create new ones, is the difficulty SMEs face when having to compete with established businesses. Unique to these centres is that SMEs have access to Absa’s procurement portal, which is a virtual marketplace that links SME suppliers with blue-chip companies and government bodies, to encourage corporates to buy more services and products from small and medium-sized enterprises.

Ultimately, the group’s ambition is to help each one of its clients by putting world class banking solutions within the reach of every business in its targeted markets. The belief is that this approach will ultimately allow the group to achieve its vision of empowering SMEs to prosper, as it builds and aspires to be the ‘Go-To’ Pan-African business bank. i CFI.co | Capital Finance International

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> Meikles:

A Zimbabwean Conglomerate on the Move ABOUT MEIKLES Meikles Limited is a conglomerate listed on the Harare and London stock exchanges with more than 120 years of history in Zimbabwe. The company’s divisions include: TM Supermarkets (Private) Limited is one of largest retail outlets in Zimbabwe, in a 51% / 49% partnership with Pick ‘n’ Pay Retailers (Proprietary) Limited of South Africa. The division is currently undergoing countrywide renovations and an upgrading programme, as well as the opening of new stores in Harare and other high-growth markets.

Meikles Retail consists of Thomas Meikle Stores, the leading department store in Zimbabwe, and Meikles Mega Market, “MMM”, which is a new entrant into the fast moving consumer wholesale goods market. The group is investing extensively in the MMM model – with six stores currently open and another ten as part of a nationwide roll-out – in an effort to reach a set of consumers complementary to those that constitute the traditional TM Supermarkets customers.

The Hospitality Division of the group consists of three of the Leading Hotels in the World: the Meikles Hotel in Harare (which celebrates its centennial this year), the iconic Victoria Falls Hotel in Victoria Falls and, through a partnership, the Cape Grace Hotel in Cape Town, South Africa. Having recently renovated the north wing of the Meikles Hotel in Harare, as well as the first of two phases of the Victoria Falls Hotel, the most prestigious hotels in Zimbabwe are now looking better than ever.

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“Upon publication of its financial results per March 31, 2015, Meikles revealed substantial growth in revenue across most of the group’s business lines.”

Further renovation and expansion of the Victoria Falls Hotel is planned in anticipation of the opening of the new regional airport and a strong return of tourism to the region.

Tanganda Tea Company Limited, the largest grower, producer, and exporter of bulk and packaged teas in Zimbabwe, has also recently expanded into the production of the high value crops of coffee, avocados, and macadamia nuts.

As these crops reach maturity, the company is investing extensively in the necessary infrastructure to bring them to market as part of a ten-year company strategy. Tanganda is the longest continuously running agricultural business in Zimbabwe and employs in excess of 5,000 people.

Meikles Guard Services (Private) Limited is a new division that provides private security to many top corporate and foreign diplomatic

CFI.co | Capital Finance International

clients throughout Zimbabwe. The business is currently expanding into more sophisticated product offerings and has become the premier solution for uncompromised quality in fully integrated security solutions.

The newest addition to the Meikles portfolio is a venture into Financial Services. The project, still in its infancy, aims to leverage the groups’ retail footprint while increasing formal financial inclusion in Zimbabwe and challenging the traditional financial services model in Africa.

Meikles Limited’s remarkable trajectory to the very apex of private business in Zimbabwe is in large part due to the company’s long-standing adherence to strict standards of corporate governance. Meikles is one of only a handful of Zimbabwean businesses able to raise funds from international investors.

Meikles Limited, Zimbabwe’s flagship diversified industrial conglomerate, has been invited to expand its operations into the Democratic Republic of Congo (DRC). The government in Kinshasa is keen to engage Meikles, and draw upon its experience, in new ventures aimed at delivering consistent economic growth and expanding the opportunities for private enterprise in the Central African country.

According to Meikles Executive Chairman John Moxon, the DRC government has expressed interest in working with the Zimbabwean company on projects in the agricultural, retail and hospitality sectors, “we are currently evaluating the invite and hope to identify areas in which cooperation may be mutually

Summer 2015 Issue

beneficial.� Mr Moxon also said the Meikles is looking at the possibility of restructuring some of its subsidiary companies in response to local and regional opportunities.

Upon publication of its financial results per March 31, 2015, Meikles revealed substantial growth in revenue across most of the group’s business lines. Notwithstanding the introduction of a 15% VAT rate on overnight stays by nonZimbabweans, the Meikles Hospitality Division recorded a 5% jump in revenue over the last fiscal year at its Meikles Hotel in Harare and the renowned Victoria Falls Hotel in Victoria Falls.

Meikles retail is also faring well with revenues up to $17.3 million from $14.5m last year.

Both Meikles Stores and MMM saw a strong rise in sales volumes while the supermarket chain TM Pick n Pay registered a 7.9% expansion in sales despite a deflationary environment that dampened consumer spending nationwide.

Tanganda Tea Company, the largest producer of tea in the country, suffered from atypical weather patterns that affected yields and consequently harvested volumes resulting in a slight decline in revenues from $22.6 million in the 2013-2014 fiscal year to $21.1m in CFI.co | Capital Finance International

the year that just ended. However, the shortfall is expected to be incidental in nature and is exclusively ascribed to adverse growing conditions caused by unusual weather.

COMMITTED TO ZIMBABWE Earlier this year, Meikles showed its continued commitment to expansion in Zimbabwe by opening its sixth branch of a MMM unit in Gweru, the fourth city in Zimbabwe and an extremely active consumer hub in Central Zimbabwe.

Gweru is now served by the second-largest MMM in the country. The company hired all but one staff member locally. Company Secretary 117

Executive Director: John Moxon

“Under Mr Moxon’s leadership, Meikles has vastly expanded the scope of its operations. He oversaw the accelerated growth of the TM Supermarket chain and the upping of Meikles’ stake in Greatermans Stores, a local department store. Last year, Mr Moxon leveraged the company’s excellent credit rating and took Meikles Limited into the financial sector.”

Thabani Mpofu said: “We are bringing MMM to the people of Gweru, and as is our nationwide strategy we aim to employ the local community where ever possible.”

MMM aims to serve to the lower income segment of the market with a broad range of convenientlypriced products delivered in a practical yet inviting shopping environment. “We want this to reach the low income market and those in the retail business. We are now targeting to move into Kwekwe, Bindura and Chitungwiza, among other cities, to bring the goods to the people,” said Phillip Ellse, Managing Director of Meikles Stores. He added that “our aim is to drive the prices of goods down as our way of giving back to the community so that they can stretch their dollar further.”

Present at the store opening, War Veterans’ Affairs Minister, Christopher Mutsvangwa, congratulated Meikles on its efforts to “bring to life the new 118

economic blueprint, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation [ZimAsset].” Minister Mutsvangwa also noted that “Meikles is one of the most remarkable names our country has and is making ZimAsset come true. I believe that at this rate, they will be going global soon.”

As one of the few Zimbabwean companies able to readily raise cash on the world’s major capital markets, Meikles – and John Moxon – are truly in a league of their own.

Meikles Secretary Thabani Mpofu announced that the company now employs well over 200 people in the MMM division and said employment opportunities were bound to expand as the geographical footprint of the store network broadens.

Mr Moxon obtained an MBA from the University of Cape Town and is a fellow of the Institute of Chartered Accountants of England & Wales. He joined Meikles in 1970 and after only ten years, Mr Moxon was elevated to the chairmanship of Tanganda Tea Company. Shortly thereafter he became the Chairman of Meikles Consolidated Holdings and today stands as the Executive Chairman of the Meikles Group.

JOHN MOXON, EXECUTIVE CHAIRMAN Meikles Group Executive Chairman, John Moxon has, over time, become Zimbabwe’s premier captain of industry. As such, he has suffered more than his fair share of criticism from those begrudging the company’s success or aiming to relieve it from of its excess cash.

Under Mr Moxon’s leadership, Meikles has vastly expanded the scope of its operations. He oversaw the rapid growth of TM Supermarkets nationwide into one of the largest retail chains in the country, the expansive footprint of which the group is now leveraging to enter the Financial Sector. i

CFI.co | Capital Finance International

> National Bank of Kenya:

Ready and Geared Up for the Future National Bank of Kenya is a fully fledged commercial bank listed on the Nairobi Securities Exchange. The bank was established in 1968 to provide Kenyans with improved access to finance. It has since grown to be one of the largest commercial banks in Kenya with a growing network of 76 branch outlets across the country, 123 ATMs, agency banking, and electronic platforms of mobile and internet banking.

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riginally founded as a state bank, the Kenyan government over the years gradually reduced its stake in the entity to the 22.5% it currently holds. The privatisation process unleashed the bank’s potential as it returned to profitability in 2010, paying out a steady flow of dividends to its shareholders ever since.

National Bank now enjoys a stellar reputation in the market and is widely considered one of the country’s flagship banking institutions.

National Bank participates in corporate banking, business banking, retail banking, and Islamic banking with an extensive portfolio of products and financial solutions and services tailored to meet the needs and requirements of a broad spectrum of the customer segments it serves.

After suffering a dip in profits that hit its lowest mark in 2012, the bank is now firmly back on track, thanks to a successful magical 5-year turnaround strategy spearheaded by its visionary CEO and Managing Director, Mr Munir Ahmed who took over the top position at the bank in August 2012.

“National Bank now enjoys a stellar reputation in the market and is widely considered one of the country’s flagship banking institutions.” numbers of staff development programmes and a corporate rebranding exercise.

Institutional changes implemented at the bank have been born fruits. Since commencing the transformation plan, National Bank has seen its assets grow at an accelerated clip to Ksh

Mr Ahmed’s transformational agenda was focused on a bid to unlock National Bank’s hidden potential and propel the bank to top tier status by the 2017. The transformation agenda comprises a number of projects that broadly included structural changes to the corporate organisation, the development of innovative products and customer value propositions, putting into place an effective sales model, and the expansion of the bank’s distribution network and channels.

The comprehensive agenda also included the centralisation and automation of service delivery, applying enhancements to the bank’s risk management capabilities, the diversification of the bank’s portfolios and business lines, the introduction of a rigorous performance management framework, a 120

Sameer Branch: One of National Bank’s conventional Branches.

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123bn in 2014, more than double the Ksh 55bn reported three years earlier. Customer deposits grew by 34% to Ksh104.7bn in 2014, up from Ksh77.9 billion in 2013.

National Bank reported a Ksh 2.43bn pre-tax profit in 2014, marking a 34% increase from the Ksh 1.81bn posted over the same period in 2013. The growth in profit margins is largely owed to improved revenues from balance sheet growth, cost management measures, and better management of credit risks. Interest income grew by 31% to Ksh 10.7bn (from Ksh 8.17bn) due to a marked increase in loans and advances.

“The bank’s transformational journey is fully on course. We have achieved all the goals set out in the original plans and in some cases exceeded the objectives significantly.

The strategy employed has proven to be an

Summer 2015 Issue

Embracing Technology: National Bank Smart Banking Area.

Yaya Centre Branch: One of National Bank’s Premium Branches.

exceptionally successful one and provides a solid foundation for future growth. Besides modernising our information technology platform and back office, increasing access to bank services through innovative mobile, web, and agency delivery platforms, we have also rationalised our human assets and increased their skills capacity through extensive training programmes. This has provided the bank with a premium team that boasts the right attitude for attaining sustained growth,” said Mr Ahmed.

National Bank’s operating profits grew at 45% CAGR (compound annual growth rate) from Ksh 1.15bn in 2012 to Ksh 2.43b in 2014.

In Q1 2015, trading profit grew 20% year-onyear. In addition to a successful rebranding exercise, National Bank has grown its brick and mortar presence countrywide with over 26 new branches. The bank also invested in more than forty off-site ATMs while introducing agency, Internet, and mobile banking services which

has won National Bank accolades both locally and internationally.

Earlier this year, National Bank opened a new Nairobi branch dedicated to serving the financial requirements of customers conducting business with China. The office is fully set up as a clearing house for Chinese renminbi (RMB) and is geared to facilitate the growing number of transactions and trade deals taking place with China by allowing settlement in RMB thus lowering costs for both importers and exporters.

It is expected that the dedicated facility now opened by National Bank will help boost trade between the two countries.

As the largest economy on the East African seaboard, Kenya has already for some time been central to China’s policy of tightening trade relations with the region. Bilateral trade is booming. According to data supplied by the Chinese embassy in Nairobi, trade flows swelled CFI.co | Capital Finance International

to over $5bn last year, up 53% over 2013.

National Bank CEO Munir Ahmed said that the new branch will provide efficient services to anyone having business dealings with China: “We are approaching the issue from a holistic perspective and offer a unique service that will provide an opportunity for traders from Kenya and China to conduct business by making the Chinese currency available without intermediation.”

Mr Ahmed noted that bilateral trade between Kenya and China has expanded enormously and stand in need of a flawless payment system that does not involve another intermediary currency: “Africa should make sure that the RMB is internationally accepted for conversion in order to balance trade.”

According to economists, the National Bank clearing house is likely to boost trade between 121

“Mr Ahmed’s transformational agenda was focused on a bid to unlock National Bank’s hidden potential and propel the bank to top tier status by the 2017.”

the two countries by easing commercial transactions. Kenyan exporters normally have payments processed through a lengthy process that involves physically sending Chinese payment cheques back to the country for clearance and payment. These cheques may now be processed locally.

National Bank has also hired director specifically for its Chinese Unit and an expert to take charge of Chinese business development in order to tap the growing trade that has seen Chinese nationals troop to Kenya to run businesses and work on projects funded

by China.

While on a visit to Kenya, executives of the Industrial and Commercial Bank of China (ICBC) said the East African nation may expect a sharp increase in investments coming from China. According to ICBC Chairman Jiang Jianqing said that he was impressed by the progress going on in Kenya and pledged to bring more investors. National Bank of Kenya stands ready to serve them and others interested in tapping into one of Africa’s bestperforming economies.

MUNIR SHEIKH AHMED: LEADING TRANSFORMATIONAL EXCHANGE WITH EXPERIENCE Munir Sheikh Ahmed joined the National Bank board in August 2012. He holds a Master of Business Administration (MBA) and a Bachelor of Commerce (Hons) degrees from the University of Nairobi. Prior to joining National Bank, Mr Ahmed had gained sixteen years of experience working in senior positions in commercial banking across multiple countries such as Kenya, the UK, and South Africa.

Mr Ahmed started his working career as an auditor with Price Waterhouse in 1990. He later moved to Esso Oil Company in Nairobi where he was appointed financial and planning manager in 1993.

In 1996, Mr Ahmed moved into banking, joining Standard Chartered Bank (K) in Nairobi as a manager of Business Finance, Strategy, and Project Appraisals. While at Standard Chartered Bank, Mr Ahmed served in different positions and regions as manager Group Business Performance, Group Finance Division (London UK ), financial controller, regional head of Africa Finance Shared Services, chief financial officer of Consumer Bank Africa Region, and regional head of the Business Intelligence Unit. Mr Ahmed served in these roles both in London and Johannesburg for five years.

He has also worked as chief financial officer (South Africa), Director of Transaction Banking, Africa regional head based in Kenya, and head of Compliance and Assurance for East Africa.

Mr Ahmed won CEO of the Year Award at the Think Business Banking Awards in 2014. i

Managing Director and CEO: Munir Sheikh Ahmed

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Summer 2015 Issue

> UNCTAD Investment and Enterprise Division:

Tax and Investment Policymaking: The Need for Greater Coherence

By Bruno Casella

T

he fiscal contribution of MNEs (multinational enterprises) has been at the centre of attention for some time. Numerous instances of wellknown firms paying little or no taxes in some jurisdictions despite obviously significant business interests have led to public protests, consumer action, and intense regulatory scrutiny. Action groups and non-governmental organisations (NGOs) have brought to light cases of abusive fiscal practices of MNEs in some of the poorest developing countries.

Broad support in the international community for action against tax avoidance by MNEs has led to a G20 initiative to counter BEPS (base erosion and profit shifting), led by the Organisation for Economic Cooperation and Development (OECD), which is the main (and mainstream) policy action in the international tax arena at the moment.

The formulation of the post-2015 development agenda and the financing needs associated with the SDGs (sustainable development goals) have added to the spotlight on the fiscal contribution of MNEs as an important source of revenue for governments and a crucial element of resource mobilization for sustainable development.

However, the SDG formulation process has also highlighted the need for increased private sector investment. The World Investment Report

“FDI channelled through hubs tends to lead to lower tax revenues from the operations of MNEs in both home and host countries. “ 2014 showed how public investment will be insufficient to cover an estimated $2.5 trillion annual investment gap in developing countries in productive capacity, infrastructure, agriculture, services, renewables, and other sectors. New private investment not only contributes directly towards progress on the SDGs, but also adds to economic growth and the future tax base.

The key question is thus: how can policymakers take action against tax avoidance to ensure that MNEs pay “the right amount of tax, at the right time, and in the right place” without resorting to measures that might have a negative impact on investment?

Much of the attention of the public and of policymakers focuses on the way MNEs structure their investments through so-called conduit structures in jurisdictions that offer certain fiscal advantages for cross-border investors, such as large treaty networks for the avoidance of double taxation, tax rules that allow profits to be transferred into or out of the country at no cost, or commercial rules that enable corporate structures

Promoting sustainable development by… …tackling tax …while avoidance… facilitating productive investment

Policy principles

Ban tolerance or 1 facilitation of tax avoidance as a means to attract investment

Guidelines

Mechanisms

3

4

National tax and investment policymakers

Adopt investment policy measures to prevent tax avoidance

Leverage investment promotion tools to tackle tax avoidance

7

Clarify shared responsibility for global tax avoidance impact

8

Mitigate the impact on investment of anti avoidance measures

2

International tax and investment policy instruments

Manage interdependencies with IIAs of tax policy actions

Align DTTs and IIAs as part of countries’ investment facilitation toolkit

Multilateral coordination Take an inclusive approach with full participation of developing countries and development stakeholders

5

9

Address investment and tax avoidance specifics of developing countries

for the management of international operations.

They can be called “investment hubs” in a hub and spoke system of international corporate investment.

UNCTAD’s World Investment Report 2015 (WIR15), on the one hand, shows that offshore investment hubs can have significant negative side-effects. FDI (foreign direct investment) channelled through hubs tends to lead to lower tax revenues from the operations of MNEs in both home and host countries.

On the other hand, UNCTAD’s analysis also shows that offshore investment hubs currently play a systemic role in international investment flows: they are part of the global FDI financing infrastructure. Such a large part of cross-border investment flows through hubs that any measures at the international level that might affect the investment facilitation role of these hubs or that might affect key investment facilitation levers (such as tax treaties) should include an investment policy perspective.

Ongoing anti-avoidance discussions in the international community pay relatively limited attention to investment policy. WIR15 proposes a set of guiding principles for coherent international tax and investment policies that can help realise the synergies between investment policy and initiatives to counter tax avoidance. Synergistic international tax and investment policymaking should aim to: • Remove aggressive tax planning opportunities as investment promotion levers • Address the potential impact on investment of anti-avoidance measures • Take a partnership approach to tackling tax avoidance in recognition of shared responsibilities between host, home and conduit countries • Manage the interaction between international investment and tax agreements • Enhance the capabilities of developing countries to address tax avoidance issues • Strengthen the role of both investment and fiscal revenues in sustainable development i

6

10

Create enablers/tools to tackle tax avoidance and assess investment impacts

Figure: Guidelines for coherent international tax and investment policies.

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123

> Payment Express:

High-End Payment Processing for Pioneer Markets

C

atching a ride on the coattails of the continent’s sped-up development, Mauritius-based Payment Express has moved into continental Africa with a vengeance, breaking new ground and tapping into new markets as it helps local banks set up card payment services and their attendant back office systems.

One of the leading third-party payment processors in Sub-Saharan Africa, the company has gained a solid reputation for delivering top-notch fail-proof systems in

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countries that until recently had no card “More often than not, we are called in soon after payment processing facilities to speak of. a local bank has obtained approval from VISA or “Payment Express has become an expert in developing third-party processing systems from scratch,” says company CEO Sailesh Sewpaul.

This is far from an empty boast: Payment Express has designed and implemented robust payment processing infrastructures that now allow shoppers in pioneer markets such as Burundi and Namibia access to the latest technology – some of it developed in-house – when purchasing goods and services with plastic.

CFI.co | Capital Finance International

MasterCard to start issuing their cards. It is at that point that bank executives face all sorts of choices and challenges to which they may not have the answers.” Often, the greatest hurdles are the nuts and bolts of payment processing.

The local infrastructure may be inadequate or even inexistent: “But even when the lines of communication are fully operational, local banks may not have the knowhow required to put into place an efficient and profitable payment network.”

Summer 2015 Issue

The Core Senior Management Team (left to right): Umesh Keetharuth, VP – Business Development; Vidyanand Raghooban, VP – Consulting; Sailesh Sewpaul, Founder & CEO; Rohit Mungur, VP Finance & Technology.

“One of the leading third-party payment processors in SubSaharan Africa, the company has gained a solid reputation for delivering top-notch fail-proof systems in countries that until recently had no card payment processing facilities to speak of.”

Mr Sewpaul is at heart an educator: “Payment Express is not just in the business of setting up payment processing systems. We provide and transfer first and foremost the in-depth knowledge needed to work effectively and safely with cards. Our company prepares a detailed roadmap that shows bank executives how to get from zero cards to a full suite of services tailored to meet the particular needs of their home market.”

The company recently introduced TCsecured cards in Namibia to the delight of local issuers. “Banks love innovation, especially when it helps their customers overcome safety concerns. Now cardholders may switch their card off after each transaction, rendering it useless to anyone other than the intended user. This removes a major obstacle to the growth of card payment services and will allow the industry to accelerate its growth.”

Payment Express also cooperates closely with financial market regulators who may not be familiar with payment processing systems and experience difficulty of keeping track of money flows: “Our company is mindful of money laundering and other concerns regulatory agencies may have. We provide all the necessary insights that allow authorities to fully understand modern card payment processes so that they may feel comfortable with the systems put in place.”

With a dash of corporate daring, and armed with a fully-scalable technology package that can be adapted to local market conditions and requirements, Payment Express is now active in Burundi, the Democratic Republic of Congo (DRC) and Angola. In Burundi, Payment Express designed and built a high-end processing network from scratch, whereas in DRC, it is helping some banks to launch their card programs. One of the key achievements in Angola has been the issue of Visa multi-currency prepaid cards with dual interface for contactless.

Payment Express was an early adopter of Transaction Control (TC) which provides users with an added layer of security by allowing them to switch their cards on and off via mobile phones for specific transactions such as online shopping, instore purchases, or cash withdrawals.

CFI.co | Capital Finance International

Payments Express now possesses a wealth of experience in developing virgin and maturing markets which allow the company to take on any challenge regardless of size and complexity. i 125

> Centum Investment Company:

Building Out from a Solid Base

Centum Investment Company Limited is East Africa’s largest listed investment company with shares listed on both the Nairobi and Uganda Securities Exchanges with over 36,000 shareholders.

C

entum’s Assets under Management (as of March, 2015) stand at over $1.7 billon. These assets are distributed across various sectors, including real estate, power, financial services and FMCG (fast-moving consumer goods). The firm plans to expand into four other sectors by 2019 including agribusiness, healthcare, ICT, and education.

Centum’s property management process is hinged on developing real estate solutions that address compelling market needs, through the company’s real estate and infrastructure subsidiary Athena Properties Limited. In Nairobi, Centum’s Two Rivers Project is located in the diplomatic blue zone in Gigiri. The firm’s vision is to build a premium world class masterplanned urban zone, set within a controlled and secure development, that will be a top regional destination and offer a prestigious address in East Africa and beyond. In Uganda, the Pearl Marina project is located on Entebbe’s Garuga Peninsula. Centum’s vision here is to deliver a mix of a world class commercial, resort, and residential waterfront developments.

Centum has a clear vision to become East Africa’s leading Independent Power Producer (IPP). The firm has positioned itself as a leading developer and sponsor of power assets across East Africa, having locked in a development pipeline of approximately 1,200MW which includes a greenfield coal-fired power plant undertaken by the Centum subsidiary, Amu Power Limited and a greenfield geothermal development through Akiira Geothermal Limited.

loans to its customer. Aon Kenya is a leading provider of insurance broking, risk management, and human capital consulting solutions. Both Platinum Credit and Aon Kenya are included in Centum’s financial portfolio.

“Centum has a clear vision to become East Africa’s leading Independent power producer.”

Centum has received various local and international awards such as FIRE (East Africa’s financial reporting excellence awards). In 2013, Centum claimed no less than six prestigious awards including East Africa’s Company of the Year, the Think Business Award (for Centum’s bond issue), the Champion of Governance (COG) Award, and the ACQ Global Award. i

international airlines that fly into and out of Jomo Kenyatta International Airport in Nairobi and Moi International Airport in Mombasa.

In the financial services sector, Centum’s portfolio includes Nabo Capital Limited, a wholly-owned subsidiary whose business revolves around the management of traditional asset classes such as equities, money markets, and fixed-income portfolios, as well as alternative asset classes such as real estate, securitisations, and private instruments. The financial services portfolio also includes Genesis Kenya Investment Management Limited, which provides specialist investment management services to institutional clients within and outside Kenya; and K-Rep Bank Limited, a medium-sized bank serving microfinance customers, retail clients, and offers financing to small and medium-size business enterprises. Platinum Credit Limited is a microfinance company that provides emergency

Centum Centum Return NAV Outperformance

Year

MSCI Frontier Market

2010

50%

59%

2011

5%

35%

30%

2012

(9%)

9%

18%

9%

2013

10%

17%

7%

2014

26%

40%

14%

2015

(4%)

35%

39%

Average

11%

31%

20%

Cum. Return

92%

415%

323%

Track Record: Centum NAV return has out-performed the MSCI Frontier Index Return over the last 6 years, by an average of 20%.

Centum’s cumulative return over the period was 415% vs MSCI’s 92%, a 323% outperformance.

600%

500 450

500%

400

126

USD MILLION

350

Centum’s focus on the FMCG sector is led by the firm’s portfolio of beverage companies such as King Beverage Limited – a player of note in the alcoholic beverage industry that imports and distributes Carlsberg beer in the Kenyan market with a view to become a full-fledged brewer. The portfolio also comprises Kenya Wine Agencies Limited – a wine producer, distiller, importer, and distributor of alcoholic beverages - and Almasi Bottlers Limited and Nairobi Bottlers Limited – both bottlers and distributors of Coca-Cola products. Finally, NAS Servair is an airport catering facility supplying over thirty

400%

300 250

300%

200 200%

150 100

100%

50 0

0% 2009 Centum Mkt Cap

2010

2011 Centum NAV

2012

2013

2014

Centum Cummulative Return

2015 MCSI Cummulative Return

Market Capitalisation & Book Value (USD): Every 1 US$ invested in Centum from 1st April ‘09 is worth 6.53 US$ in 31st March 2015, every 1 US$ invested in the MSCI Frontier Market index over same time period would be worth 1.92 US$.

CFI.co | Capital Finance International

Summer 2015 Issue

> CFI.co Meets the CEO of Centum Investment Company:

James Mworia

J

ames Mworia has been the chief executive officer and managing director of Centum Investment Company Limited since October 2008. He joined the firm (then called ICDC Investment Company) in 2001 as an intern assigned to carry out duties in the filing room and steadily rose up the ranks to senior positions such as investment manager before being named CEO. At the time of his appointment, Mr Mworia was only 30 which made him the youngest chief executive of a listed company in East Africa.

During his tenure, Centum has expanded its assets under management from $67 million to more than $1.7 billion and increased the company’s market capitalisation by 640% to $500 million delivering an annualised return of more than 33% to shareholders. This made Centum shares one of the best performing stocks on the Nairobi Securities Exchange.

Centum has received recognition from various local and international awards including the FIRE Awards (East Africa’s financial reporting excellence). In 2013, Centum won six coveted awards including East Africa’s Company of the Year, Think Business Award (Centum bond issue), Champion of Governance (COG), and the ACQ Global Award.

Mr Mworia is an Archbishop Tutu Fellow 2012, an Advocate of the High Court of Kenya, a CFA (Chartered Financial Analyst) charter holder, a Chartered Global Management Accountant (CGMA), a CPA (K) (Certified Public Accountant – Kenya), and is a fellow of the Kenyan Institute of Management.

Mr Mworia has been a recipient of various leadership awards including: • Africa Business Leader 2014 nominated by the Corporate Council for Africa alongside three other business leaders • Champion of Governance CEO of the Year in 2014 nominated by the Institute of Certified Public Secretaries of Kenya • Africa CEO of the Year (2014) by Wharton Club of Africa, and • Africa Young Business Leader of the Year 2011 by the All Africa Business Leader Awards (AABLA) Mr Mworia has led the transformation of Centum to an institution pioneering various transformative projects of scale. Some of the more notable projects include the Two Rivers Development, a mixeduse commercial development in Nairobi which is now the largest private sector led real estate development in East Africa. Upon completion, the

CEO: James Mworia

Two Rivers Development will boast 850,000m2 of retail, residential, commercial, and hospitality space. The first phase of the project comprises a mixed-use retail and commercial mall with rental units covering an area of around 95,000m2. The Centre is slated for opening by end of 2015 and will welcome many of the leading international and African retail brands.

Centum is also leading the development of transformative power projects in Kenya that will make a sizable contribution to the East African power pool. Two projects of note in this portfolio are a 1,050MW coal-fired power plant ready to come on stream in 2018. This facility will become the primary base load power generating plant in Kenya and is expected to significantly reduce the CFI.co | Capital Finance International

cost of electrical power. The second plant under construction is a 70MW geothermal power project scheduled to be fully operational in December 2016.

Mr Mworia is also the chairman of K-Rep Bank and serves on the boards of many leading companies across East Africa. He was appointed to serve on the Kenyan Capital Markets Corporate Governance Committee, the committee charged with the development of the Kenyan Corporate Governance Code.

Mr Mworia is passionate about leadership and the development of entrepreneurial skills. He is a mentor to many emerging business leaders and entrepreneurs. i 127

> CFI.co Meets the Founder & Chief Executive of Payment Express:

Sailesh Sewpaul

I

n May 2008, Sailesh Sewpaul founded Payment Express Ltd (PEX), one of the first third-party processors in Sub-Saharan Africa. Since then, Mr Sewpaul has successfully led the company through a challenging and complex infrastructure building program designed to ensure that customers’ requirements are met in a very timely manner.

This has ensured that PEX has remained a market leader. PEX is certified by VISA and MasterCard, and also has a working relationship with UPI (UnionPay International).

It is only the farsightedness of Mr Sewpaul that ensured that from its start, PEX has always been equipped to handle EMV Smart Card technology as a growing number of banks, merchants, and customers adopt EMV-enabled terminals and cards. The company has built, and diligently maintains, a large network infrastructure which complies with the latest PCI-DSS (Payment Cards Industry – Data Security Standards) to support its ambition to become the key universal payment provider in the African market.

Mindful of the fierce competition that characterises these buoyant markets, PEX, under the determined leadership of Mr Sewpaul, has achieved economies of scale that allow the firm to offer sharp rates that consistently ensure added value to clients.

Likewise, the company has embraced a customercentric approach to its business, aiming to exceed the industry’s benchmarks through an unrelenting quest for operational and procedural perfection. The firm powers its expansion with a high-tech platform that allows for rapid growth without sacrificing processing speed, thus ensuring that transactions are handled without any discernible delay.

The major value proposition of PEX to its existing and prospective customers is efficient time-tomarket innovative solutions and features. PEX evolves continuously to keep pace with new technologies and other breakthroughs in the payments world. At the forefront of payment processing in Africa, PEX has reached its position of leadership by continuously striving towards operational perfection. The company currently has live and active customers in Mauritius, Namibia, Burundi, Angola, and Democratic Republic of Congo (DRC). Additionally, customers in some other African countries will be using the services of Payment Express shortly.

In December 2014, PEX was proclaimed the winner of the Africa Leadership Award 2014 in 128

Founder & Group CEO: Sailesh Sewpaul

“The best executive is the one who has sense enough to pick good men to do what he wants done, and selfrestraint enough to keep from meddling with them while they do it.”

Theodore Roosevelt

the ICT category. This has only been possible through the expert guidance of Mr Sewpaul who also enabled PEX to gain the resilience that allowed the business to steer through turbulent times, applying best-of-business modules to manage and keep the mission afloat.

Prior to founding PEX, Mr Sewpaul worked for twenty years at the State Bank of Mauritius Ltd (SBM) in a variety of functions, including head of Cards and head of Channel Management. During CFI.co | Capital Finance International

his time at SBM, Mr Sewpaul served as business adviser to the VISA CEMEA Region as well. He has been at the root of various innovations and firsts at SBM. Mr Sewpaul holds a General Masters in Business Administration (MBA) from Edinburgh Business School, Heriott-Watt University, United Kingdom.

He is a member of MIoD (Mauritius Institute of Directors). He is also the winner of BCS (British Computer Society) IT Personality Award 2014. i

> Unit Trust of Tanzania:

Fostering an Investment Culture The Unit Trust of Tanzania (UTT) was incorporated in 2003 as the successor to the Privatisation Trust with the purpose of allowing Tanzanians to become involved in the ownership of the equity of privatised and other companies in the country. At the time, the privatisation drive had reached its height and questions were being raised about the effectiveness of Tanzanians’ participation in the process.

W

ith the background of colonialism and thereafter socialism, most of the Tanzanians were not familiar with the concept of shares or ownership of companies. In the period of socialism, the government owned the shares of public enterprises on behalf of the Tanzanian public. When market reforms were initiated, it was not possible for a lot of Tanzanians to participate in privatisation. The model that the government had selected was to have a strategic investor who would take large stakes in companies, commercialise them, and thereafter have the balance of the shares sold to the public.

Hence the Dar es Salaam Stock Exchange (DSE) was set up in 1998. Its main function was to facilitate Tanzanians’ access to share ownership.

By 2003, the number of shareholders in the country was only around 60,000. These included institutional investors, pension funds which took substantial stakes, high-net-worth individuals, and others who – due to public education and enlightenment programmes that had been carried out – invested in the companies listed on the exchange.

In 2003, questions were raised about what could

Umoja Fund: Net Asset Value per Unit - TZS

130

“With the background of colonialism and thereafter socialism, most of the Tanzanians were not familiar with the concept of shares or ownership of companies.” further be done to make the participation of Tanzanians more effective. The idea of collective investment schemes was mooted. The intention was to mobilise funds from a large mass of people, including low-income earners who invest in the range of TZS10,000 - 30,000 ($5 - $15), and build their capital over time in a unit trust.

Thus the Unit Trust of Tanzania (UTT) was established to sponsor and manage collective investment schemes that encourage people with low incomes to invest in companies.

Over time, UTT grew in size and diversified into other activities. Based on advice of stakeholders

Wekeza Maisha Fund: Net Asset Value per Unit - TZS

and the Treasury Registrar and with approval of the Minister of Finance, the Unit Trust of Tanzania (UTT) was restructured into three organisations. The objective of the restructuring was to enable each of the key businesses to focus on its specific activities and services so as to contribute to an increase of government revenue and to promote development of the country.

The three organisations that resulted from the restructuring exercise, registered under the companies Act, 2002, include UTT Asset Management and Investor Services (UTT AMIS), UTT Microfinance (UTT MFI), and UTT Projects and Infrastructure Development (UTT PID).

UTT PID and UTT MFI became operational on July 1, 2013, while UTT AMIS was re-assigned with the management of collective investment schemes and other activities of the predecessor organization (UTT) from October 1, 2013.

Under UTT AMIS, the fund size under management has grown from under TZS 124 billion (June 30, 2013) to over 240 billion (June 30, 2015) while the number of investors has expanded to over 121,000.

Watoto Fund: Net Asset Value per Unit - TZS

CFI.co | Capital Finance International

Jikimu Fund: Net Asset Value per Unit - TZS

Summer 2015 Issue

“The funds are open-end schemes; investors can therefore come in and exit as per their financial needs.

There are no entry loads while exit loads are kept to the minimum.”

The funds are open to investors from East Africa with no entry load and only a small exit load. UTT AMIS manages the schemes in compliance with regulatory requirements and industry best practices. Net Asset Value for each fund is published daily through the website and in newspapers to inform stakeholders on the overall development of the fund and guide investors wishing to enter or exit the schemes.

The offer documents for the funds are published through the website. The company has also set up a call centre with tollfree numbers to respond to inquiries from investors and the general public. UTT AMIS is supervised by a board of directors that has formed two committees to assist and work on technical matters. The Investment Committee works on and advises the board on matters related to investments while the Audit and Risk Committee assists the board on matters related to audit and risk management. The company operates based on the regulatory framework of the Capital Markets and Securities Act of 1994 (amended), supervised by the Capital Markets and Securities Authority (CMSA).

UTT AMIS currently manages five collective investment schemes that are meant to meet various needs of investors. Save for the Liquid Fund that invests in money market instruments, the investment schemes are balanced funds investing in both equity and debt securities. The funds are open-end schemes; investors can therefore come in and exit as per their financial needs. There are no entry loads while exit loads are kept to the minimum. UTT AMIS charges management fees to the funds. There are no taxes for income distribution and repurchases from the schemes. Since the funds are not listed, their manager, UTT AMIS, maintains sufficient liquidity for carrying out income distribution and repurchase transactions for investors who wish to liquidate their investments in units.

UMOJA FUND Umoja Fund is the biggest one with over TZS212 billion invested from over 110,000 investors as per June 30, 2015. Umoja Fund invests up to 50% of its monies in equity and the remaining half in debt instruments. The fund‘s annualised returns since its launch CFI.co | Capital Finance International

in 2005 amount to 36.53%. Over the last three years the fund’s annualized returns were 41.19%. Last year the Umoja Fund returned 35.64%.

WEKEZA MAISHA FUND Wekeza Maisha (Unit Linked Insurance Plan (ULIP)) Fund was launched in 2007 to provide a unit-linked insurance plan to investors. The fund provides a combination of life insurance and unit trust benefits that investors obtain upon joining the scheme.

Wekeza Maisha invests up to 40% of its funds in equity and the remainder in debt securities.

The fund amounts to TZS3.4 billion as of June 30, 2015, with over 2,300 investors.

The annualised returns since launch for this fund are 32.42% while for the last three years returns have been 28.13%. Last year the Wekeza Maisha Fund registered a return of 35.43%.

WATOTO FUND In 2008, Watoto Fund (Children’s Career Plan) was launched. This fund is intended to assist in promoting saving for children’s education and related matters. The size of the fund as of June 30, 2015, was over TZS2.6 billion with 7,552 investors participating. Performancewise, the fund has been recording 28.82% in annualised returns since its launch. For the past three years the fund provided 32.50% in returns whereas the annualized return for last year was 40.49%.

JIKIMU FUND In 2008, the Jikimu Fund was introduced to provide a regular income to investors who can choose to have quarterly or annual income distribution depending on their financial needs. The fund has become popular amongst retirees and has grown fast to reach over TZS20 billion as of June 30, 2015.

Annualised returns for Jikimu Fund since launch is 15.15%, last three years 21.61%, and last year 29%.

LIQUID FUND The Liquid Fund was introduced in April 2013. The fund invests in money market instruments. It is therefore suitable for investors wishing to invest for short periods of time while keeping risks low. The fund has been giving 10.5% in annualised returns to investors. i 131

> CFI.co Meets the Unit Trust of Tanzania:

First Rate Management Team DR HAMISI S KIBOLA – MANAGING DIRECTOR Dr Hamisi S Kibola is a lawyer by profession. He has an LLB (Hons), LLM, and PhD from the University of Dar es Salaam and a postgraduate degree in European Integration from the University of Amsterdam.

Dr Kibola began his career as a lecturer first at the Faculty of Law, University of Dar es Salaam, and later at the Centre for Foreign Relations, also in Dar es Salaam. Dr Kibola’s career in the financial sector began at the Central Bank where he worked as principal legal officer. He was later seconded to the then Preferential Trade Area for Eastern and Southern Africa (now COMESA) where he coordinated a project on the trade and investment laws of the region.

On his return to the Central Bank, Dr Kibola was posted to the then newly-established Capital Markets Unit where he did the ground work for the establishment of the Capital Markets and Securities Authority. Dr Kibola was also a member of the Advisory Committee for the Establishment of the Dar es Salaam Stock Exchange (DSE). He became the exchange’s first chief executive after it was established in 1998.

After serving for a period of five years at the Exchange, Dr Kibola was appointed the first CEO of the Unit Trust of Tanzania (UTT) and, during his ten years at the helm, has spearheaded a number of UTT initiatives. Dr Kibola has coordinated a restructuring programme for UTT – a complex process which required liaising with many stakeholders. He ultimately succeeded in restructuring UTT into three companies: UTT AMIS, UTT Microfinance, and UTT Projects Management.

Dr Kibola has become the first managing director of UTT AMIS. MR SIMON MIGANGALA – CHIEF OPERATING OFFICER Simon Migangala has over twelve years’ experience in the financial services industry having worked as bank manager, treasury director, and consultant responsible for matters related to investments, money market, foreign exchange, and capital market products. He holds an MBA from IMD, a business school based in Lausanne, Switzerland.

Mr Migangala also holds B.Com (Accounting) degree with honours from the University of Dar es Salaam, a CPA (T) by the National Board of Accountants and Auditors, and an ACI Dealing Certificate. He is the chief operating officer at UTT AMIS. Prior to securing his present position, Mr Migangala spent three years as consultant with clients in the banking and financial services industry. He also spent seven years with CRDB Bank as director of treasury.

MS PAMELA NCHIMBI – DIRECTOR OF INVESTMENT MANAGEMENT Pamela Nchimbi is an investment professional and 132

From Left: Joan Msofe (director of Finance and Administration), Simon Migangala (chief operating officer), Daudi Mbaga (director of Marketing and Public Relations), Rashid Mchatta (director of Information and Communication Technology), Dr Hamisi Kibola (managing director), Issa Wahichinenda (director of Operations), Pamela Nchimbi (director of Investment Management), and Sebastian Bujiku (head of Procurement Management Unit).

joined the Unit Trust of Tanzania in March 2008.

She has been instrumental in positioning UTT as an effective investment institution in the financial market. Ms Nchimbi is a dedicated professional and has developed a keen sense of investment expertise. She plays a key role in initiating dealings in equities and debt securities, monitoring financial markets with a view to identifying opportunities, managing risks and optimising investment returns for the company’s portfolios.

MR RASHID K MCHATTA – DIRECTOR OF INFORMATION AND COMMUNICATION Rashid Mchatta is an expert in business systems functional specifications, design, and application software development. He has over ten years’ experience in providing banking and unit trust investor service solutions. Mr Mchatta holds BSc (1998) and MSc (2000) degrees in Information and Management Systems from the Faculty of Management Science and Informatics of the University of Zilina, in Slovakia.

MS JOAN MSOFE – DIRECTOR OF FINANCE AND ADMINISTRATION Ms Joan Msofe is a Certified Public Accountant (ACPA (T)). She attained her Advanced Diploma in Accountancy from the Institute of Finance Management in 1998 and graduated with her Master’s in Business Administration from Eastern and Southern African Management Institute (ESAMI) in 2012. Ms Msofe joined UTT in January 2013 as principal finance officer and was promoted to director of finance later that year.

MR ISSA M WAHICHINENDA – DIRECTOR OF OPERATIONS Issa Wahichinenda is an expert in operations for financial services businesses. He received his Bachelor of Arts (Statistics) degree from the University of Dar es Salaam in 1998 as well as a Master of Science degree in Finance from University of Strathclyde in 2006. Prior to joining UTT in 2007, he spent seven years in the banking CFI.co | Capital Finance International

industry. Since joining UTT, Mr Wahichinenda has spearheaded the investor services unit that includes a front office, back office, and call centre.

MR DAUDI H MBAGA – DIRECTOR OF MARKETING AND PUBLIC RELATIONS Daudi Mbaga is responsible for the planning, development, and implementation of all of the organisation’s marketing strategies, communications, and public relations activities.

He oversees the development and implementation of support material and services for marketing, communications, and public relations. Mr Mbaga holds a Bachelor of Commerce and Management degree and a Master’s of Business Administration from the University of Dar es Salaam and Mzumbe University.

MR BUJIKU SEBASTIAN – HEAD OF PROCUREMENT MANAGEMENT UNIT Bujiku Sebastian is a multidiscipline professional: a certified public accountant (T) and a certified procurement and supplies professional. He received his first degree in commerce (B.Com (Hons)) in 1995 from the University of Dar es Salaam, before pursuing a diploma in Human Resources and a postgraduate degree in procurement and logistics from the National Institute of Transport. Mr Sebastian joined UTT in 2006, as principal finance officer cum procurement specialist before he was named head of the Procurement Management Unit.

MR ERICK BAKILANA – PRINCIPAL LEGAL AND COMPLIANCE OFFICER Erik Bakilana holds a Bachelor of Laws Degree (LL.B.) from the University of London, School of Oriental and African Studies (SOAS), a Master of Laws Degree (LL.M.) in Banking and Finance Law from the University of London, University College London (UCL), and a Master of Laws Degree (LL.M.) in International Finance Law from Harvard Law School. He joined UTT in July 2013 to set up and head the Legal Unit. i

Summer 2015 Issue

> A Synchrotron for Africa:

Scientists Unite Behind Proposed Project

The European Synchrotron Radiation Facility (ESRF) in Grenoble France.

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f the world’s almost fifty synchrotron light sources, not a single one is to be found in Africa. That, however, may soon change. Later this year, a 15-member steering committee, comprised of European, US, and African scientists and government officials, will meet at the Synchrotron Radiation Facility in Grenoble (France) to discuss plans for the design and construction of a cyclic particle accelerator in Africa.

The initiative aims to boost scientific investigation on biomedical, environmental, and other problems of particular concern to the continent. Taking a cue from the Brazilian synchrotron – which is widely credited with enabling a significant increase in local scientific research – the facility envisioned for Africa is to provide the impetus for a surge in academic inquiry and cooperation.

Like the Brazilian synchrotron, the African

accelerator is also meant to stem the exodus of scientists from the continent. According to a 2013 study conducted on behalf of the United Nations’ Department of Economic and Social Affairs, approximately 450,000 Africans with tertiary education degrees migrated to OECD (Organisation for Economic Cooperation and Development) member states over the 2007-2012 quinquennium. The study also found that in SubSaharan countries the emigration rate of highlyskilled people is up to twenty times higher than the overall rate.

Professor Herman Winick, a physicist at the Stanford Linear Accelerator Center and the driving force behind the nearly-completed Middle Eastern synchrotron in Jordan, says that an African particle accelerator may be designed and built in under a decade: “It is necessary to bring countries together and commit to the project. Depending on construction costs, the proposed facility should CFI.co | Capital Finance International

require about $200m to complete.”

Prof Winick was instrumental in forging scientific cooperation in the Middle East which led to the construction of the SESAME (Synchrotron-Light for Experimental Science and Applications in the Middle East) – a 2.5 GeV (Giga electron Volt) storage ring in Allan, about 30km northwest of Amman. The SESAME initiative was launched in 1999 with construction beginning in 2003.

The project is backed by UNESCO (United Nations Educational, Scientific, and Cultural Organisation) and supported by the governments of Bahrain, Cyprus, Egypt, Iran, Israel, Jordan, Pakistan, Palestinian Territories, and Turkey which all contributed funds towards the realisation of the contraption. As such, SESAME cuts across political boundaries and enmities. The facility – already hailed as a landmark of international cooperation – is expected to emit its first light later this year. i 133

> CFI.co Meets the Co-Founder and Executive Director of IH Securities:

Salim Eceolaza

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ith the Zimbabwe dollar now relegated to history, the country’s resilient, albeit battered, economy is once again lubricated by a stable currency. Emerging from hyperinflation and other monetary ills, Zimbabwe now offers opportunities that whet the appetites of investors worldwide. “While challenges remain, the situation is now much better than it was in the past,” says Salim Eceolaza, co-founder and executive director of Inter-Horizon Group, a capital markets brokerage (IH Securities) and advisory (IH Advisory) firm based in Harare, Zimbabwe.

Investors, both domestic and foreign, seeking to get in on the ground floor of Zimbabwe’s development more often than not will end up at the Harare offices of IH Group. “While opportunities are indeed plentiful, so are the pitfalls. What we offer is financial expertise delivered to international standards and peerless local knowledge. IH Group is also at home on global markets: we know how the world works, and know how Zimbabwe works. Our firm bridges the divide between expectations. Our people understand both sides of the equation.

That allows for unique insights and for safely navigating the local market.”

At IH Group, Mr Eceolaza bears responsibility for the advisory side of the business as well as for operational oversight and strategic direction at group level. A chartered accountant with a bachelor’s degree in Commerce and Financial Accounting from the University of Cape Town, Mr Eceolaza started his professional career at the Harare office of PricewaterhouseCoopers (PwC) from where he was soon sent to the firm’s New York City office. There he provided assurance and advisory services to hedge fund and private equity managers while working at the Alternative Investments Department.

From New York, Mr Eceolaza moved to London to lend his expertise to KPMG – one of the world’s Big Four auditors and professional services companies. In London, he worked for three years as a manager at the KPMG Investment Management and Funds Advisory team providing guidance to a number of hedge funds and other clients.

Returning to Zimbabwe, Mr Eceolaza co-founded IH Group in 2010 to leverage his experience in developing local capital markets. The firm has since established a well-earned reputation for its in-depth and objective analysis of Zimbabwean equities and market conditions. Contrary to most, 134

Co-Founder and Executive Director: Salim Eceolaza

IH Securities makes all its research findings publically available: “I often get asked why we publish all our reports for free. The short answer to that question is that we feel a moral obligation to do so.”

Mr Eceolaza elaborates: “As it happens, there is a dearth of information on Zimbabwean corporations and their performance. This hampers growth and thus slows down economic and social development. In this day and age, quality data is key to any economic undertaking.

At IH Securities we consider that making our research available to all interested parties is a winning formula for all stakeholders.”

With the introduction of the multi-currency regime and the stability it provides, optimism prevails. “We have seen a marked increase in interest from investors assessing opportunities in Zimbabwe. Opportunities are especially plentiful in mining, agriculture, and tourism. In fact, anything that involves the use of human CFI.co | Capital Finance International

capital gives Zimbabwe an edge. We have a well-educated, young, and dynamic population boasting the highest literacy rate in all of Africa.”

Mr Eceolaza emphasises that Zimbabwe boasts mineral reserves that, once tapped and monetised, may propel the country to significant prosperity. “The country sits atop the world’s largest reserves of platinum. Agriculture is also primed for accelerated development. Basically, anything grows here and does so abundantly.”

As business conditions continue to improve, IH Group stands ready to help investors with a full suite of services that allows them to reap maximum rewards while ensuring the country obtains excellent returns as well. “Already at this early stage, we see much interest in Zimbabwe amongst foreign investors. Armed with our research data and local knowledge, this interest is easily solidified into concrete transactions.

That is our business and, if I may be allowed to say so: we are pretty good at it.” i

Summer 2015 Issue

> Nigeria:

An Economic Upswing Foretold

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il prices have rebounded from their recent lows and may yet provide temporary relief to Nigeria, allowing the incoming administration of Presidentelect Muhammadu Buhari to forego some of the proposed budget cuts or, alternatively, increase capital expenditure. Though market watchers widely expect oil prices to remain weak for the foreseeable future, Nigeria’s economy for now boasts enough resilience to keep its annual growth rate at five to six percent – a clip most other countries would find positively dizzying.

Still, lower than expected oil revenues will, in all likelihood, necessitate an increase in government lending. However, with public debt hovering around 12% of GDP, the country should have some financial wiggle room. Nigeria’s poor B+ credit rating, recently downgraded by Standard & Poor’s and now four notches beneath investment grade, will make that a fairly expensive proposition.

Already now, the government needs to earmark 9% of its revenue for interest payments.

President-elect Buhari has his work cut out and expectations run high. Mr Buhari promised to tackle the endemic corruption holding back the country’s advancement and said his administration will address the chronic shortfall in infrastructure development as well, starting with upgrading the strained power grid.

“Nobody doubts the resolve of the incoming president,” says Tola Odukoya, managing-director of Dunn Loren Merrifield Asset Management and Research. Mr Odukoya notes that expectations are high: “There is a palpable sense of optimism bordering on euphoria now that the elections are over and an orderly transfer of power is in the making. However, those in the know realise that the new administration must tackle a number of difficult issues and cannot run away from tough austerity measures.”

Mr Odukoya mentions the fuel subsidies: “These must end. We will be much better off without them as they encourage corruption. However, most Nigerians will want to keep the subsidies in place.” Mr Odukoya also emphasises that President-elect Buhari must find ways to work with the National Assembly and the powerful state governors who may fight any future austerity drive. “State governors enjoy vast constitutional powers and will likely oppose any attempt at reducing the flow of federal funds to which they are entitled. Mr Buhari is now no longer a dictator and will need to impose his administration’s policies without the use of strong-arm tactics.”

Whereas Africa’s largest economy does not

Muhammadu Buhari

lack in either ambition or potential, structural deficiencies are blocking an economic breakout.

International investors, until recently quite bullish on Nigeria, are pulling up stakes and, as they move their billions elsewhere, dragging the stock exchange down. Though a post-election rally recouped some of the losses, the All Share Index is still close to 21% down from its July 2014 high.

Meanwhile, inflation inched up to 8.4% and may move into double-digit territory before long. At investment bank Merrill Lynch, analysts predict inflation may reach 15% by year’s end. Governor Godwin Emefiele of the Central Bank of Nigeria had to make a U-turn on interest rates driving the prime lending rate up to 16.7% in an attempt to halt the naira’s vertiginous drop – over the past six months, the currency lost 18% of its value against the US dollar.

According to Dare Fajimolu, chief economist and head of research at Marina Securities, the key is the new administration’s ability to pool its resources and cash-in on the upbeat mood now prevalent throughout the country: “the tense pre-election atmosphere has now relaxed. It was extremely important that the outcome of the vote was not contested which allowed the stage to be set for a smooth transition of power. With the political risk gone, the wait is on for new policies to be announced.”

Mr Fajimolu stresses that the Buhari Administration will need to act fast and start delivering on its campaign promises soon: “The tone will be set in the first two months and by July we should already have a clear picture of where the new government will be heading and how it aims to get there.”

Meanwhile, investor interest is picking up.

“The markets have rallied and wiped out earlier losses. Confidence is returning as well with investors turning to equities. The market is still undervalued and presents a number of good buying opportunities, not least because of the weakened naira.”

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Mr Fajimolu has already noted increased interest amongst both FDI (foreign direct investment) and portfolio investors: “I fully expect this trend to continue as the new administration unfolds its policies in the months ahead. I’ll be looking in particular to the Buhari government’s fiscal policy in order to see if the emphasis will lie on tax raises, expenditure cuts, or a combination of the two. I’m encouraged by the fact that President-elect Buhari has chosen widely respected technocrats and academic experts to help trace the vectors of future policy initiatives.

This bodes well for Nigeria.”

However, Nigeria’s prospects for sustained growth remain excellent. The country’s budding non-oil sector is consistently outperforming the overall GDP with annual increases averaging well over seven percent. According to the African Development Bank (ADB), agriculture and trade and services are underpinning the economic diversification drive. In its annual African Economic Outlook Report, the bank is particularly optimistic about the positive effects that the reform of the energy sector is to have on the country.

With a current account surplus of five percent (2015) and continued GDP growth of around seven percent for this year, Nigeria’s outstanding issues are, at the very least, manageable. The election of Mr Buhari, a smooth and violencefree process that received lavish international praise, has ended months of inactivity and stalling. In fact, days after the election the stock market registered its single biggest gain in a few years, jumping 8.3% in a sign that the economy just itches for an immediate take-off.

Since the late-March election, bond yields have come down and discount rates eased up while the naira remained stable. Wle Abe of the Financial Market Dealers Association said that the successful execution of the electoral process offers ample proof that Nigeria is a safe destination for investments: “Those who have been waiting on the side lines will perhaps wait a bit to see the new policies taking shape before jumping back in.”

Mr Abe said that most investors became jittery in the lead-up to the election: “Political uncertainty before the vote, as well as the sharp fall in the global price of oil triggering a devaluation of the naira in November, played their part. Now that a new business-minded government is about to assume power, things will undoubtedly soon improve, allowing Nigeria’s economy to reassert its commitment to accelerated growth.” i 135

> StratLink Africa Ltd:

Number Crunching Powers Growth

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tratLink is an Africa-focused financial advisory company with capital raising, corporate advisory, and market research services as its core business lines.

StratLink strongly believes in the growth potential of Sub-Saharan African economies and partners with clients to execute their vision

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by providing quality services and access to capital. The company recognises opportunities in the region and connects the fastest growing middle market companies with leading global investment banks, private equity firms, and family offices. StratLink values the importance of making informed decisions and leverages its CFI.co | Capital Finance International

regional knowledge to the advantage of clients.

SUB-SAHARAN AFRICA: IN-DEPTH MACRO AND MICROECONOMIC RESEARCH Within its purview, StratLink offers coverage of nine economies – Kenya, Tanzania, Uganda, Rwanda, Ethiopia, Nigeria, Ghana, Angola,

Summer 2015 Issue

and Gabon. The company undertakes incisive research and analysis of each of the countries’ macro- and microeconomic environments, debt and equity markets. The firm also conducts sector specific research and analysis shedding insight on market landscapes, existing gaps, and opportunities as well as potential challenges.

THE STRATLINK GUARANTEE: COMPETENT TEAM, RELIABLE DATA StratLink’s research is centred on a competent and versatile team traversing the fields of economics and finance with qualifications from globally recognised institutions. The team is backed by subscriptions to reliable databases such as Business Monitor International, Bloomberg, Thomson One Research, World Economics, and The World Today.

As such, StratLink’s guarantee is to consistently offer reliable and up-todate data in an increasingly dynamic region. Further, the company reaches out to relevant bodies in concerned markets including central banks, ministries, and state entities.

AUTHORITATIVE VOICE ON REGIONAL ECONOMICS StratLink has become an authoritative voice for commentary and opinion on issues pertaining to Sub-Saharan African economies and the regional investment climate. Reputable media including CNBC Africa, Nation Media Group, CCTV, and Bloomberg have reached out to the company for opinion and analysis.

StratLink´s head office is located in Nairobi, Kenya. The company maintains satellite offices in New York, Kampala, and Kuala Lumpur.

DATA RELIABILITY: AN ELUSIVE FULCRUM POINT IN AFRICA’S ECONOMIC EMERGENCE The Africa Rising narrative has evolved into an oft-cited phenomenon that too often obfuscates the reality of the hurdles prevailing on the continent.

Thus, the tale risks being eclipsed by hysteria and brouhaha. At the core of remaining challenges is the inaccessibility (or complete lack) of reliable data that allows would-be investors a clear and holistic picture of the continent’s business landscape.

“The company recognises opportunities in the region and connects the fastest growing middle market companies with leading global investment banks, private equity firms, and family offices.”

Consider, for instance, the rebasing of Nigeria’s economy in April 2014: overnight, it emerged that the country’s GDP was a staggering 88.9% larger than presumed. At $ 510.0bn, Nigeria’s GDP per capita – previously estimated at $1,550 annually – was revised upwards to $2,930. Whereas

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the conventional understanding of the rebasing was shaped largely by media buzz over Nigeria’s new found economic clout, the undeniable truth is that the news evoked both celebration and confusion in equal measure. In the most unequivocal sense, the rebasing unearthed the reality of grave data gaps on the African continent – a fact whose unsettling echoes reverberate relentlessly as Kenya’s rebasing (September 2014) leapfrogged the country into lower middle income status overnight necessitating a recalibration of investors’ assessment regarding the potential spending power of the economy and a revision of perceived risk factors.

OVERCOMING DATA POVERTY: THE NEXT ARC IN AFRICA’S GROWTH CURVE StratLink Africa’s core belief is that alleviating “data poverty” is central to enabling Africa to reach its economic potential in the next decade. The company’s recognition as Best Economic Research Team, Kenya 2015 constitutes a timely recognition of the growing body of Africa-focused businesses that are deploying considerable resources towards addressing the data/information gap which renders the continent’s business landscape treacherous and scares investors.

Today, Master Card is investing as much as $11m in establishing a research hub in Nairobi (Kenya), while IBM is expected to invest about $61m in a technology research centre between 2015 and 2025 in Johannesburg (South Africa). The synergies created by such, seemingly unrelated, efforts will have a long-term ripple effect throughout Africa on a scale and breadth impossible to fully appreciate.

THE CHALLENGE OF THE FUTURE: DATA AD INFINITUM A look into the not too distant future, however, leaves StratLink convinced that the challenge facing Africanfocused investors and businesses operating on the continent could shift from data availability to data management faster than expected.

Between 2013 and 2050, Africa’s Internet penetration is expected to swell from 16% to 50% with the number of smartphones growing five-fold to 360 million (Reuters, 2015). When one thinks about what this could mean in the context of the nascent science of Big Data Analytics, and the possibilities it is spawning, the future looks bright and challenging indeed. i 137

> Simba Group:

Enabling Agricultural Transformation in Nigeria Simba Group – a conglomerate operating in Nigeria since 1987 – is a leading business entity with a presence spread across the country’s key verticals including agriculture, communications, software, transportation, power, and alternative energy. The stated vision of the group is to enrich Nigerians’ lives with innovative solutions offered in partnership with world-class manufacturers. Since inception, the group has been dedicated to introducing cutting-edge technology in sectors essential to the economic development of Nigeria.

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igeria is primarily an agrarian economy with more than 60% of the population earning a living off the land. Unfortunately, the agricultural sector has featured less prominently on the government’s agenda since the late 1960s when the exploitation of the nation’s vast oil reserves took flight. The size of the agricultural sector, which earlier contributed two-thirds of the country’s GDP, was halved by the late 1980’s (Figure 1).

This trend was shaped not so much by the development of the industrial sector, but by neglect. Nigeria – which was once a major exporter of cash crops such as cocoa, cotton, ground nut, and palm oil – is now dependent on food imports in order to feed its growing population.

This paradox demands urgent intervention from policy makers, and private entities, to step in and to 70facilitate the revival of the sector.

“The agricultural sector stands in need of increased intervention from companies such as Simba in order to make the paradigm shift called for.”

Responding to the demand for quality products and services, Simba Agric – a Simba Group company – was incorporated to focus on promoting the use of modern agricultural technologies amongst farmers, and to improve productivity at the grass roots level. The focus of the company is to provide equipment and other inputs to farmers through the group’s nationwide network of branches and distributors.

60 50 40

IRRIGATION FOR ENHANCED AGRICULTURAL PRODUCTIVITY While agricultural productivity is a function of many factors, irrigation is essential to boosting yield. Simba has set its corporate focus on irrigation. The company’s management recognises that in order to attain self-sufficiency in food production, Nigeria has no other option but to adopt irrigated agriculture on a massive scale. Currently, less than five percent of the acreage dedicated to farming in Nigeria is being irrigated. Concurrently, irrigation schemes should be designed and implemented in a sustainable and environmentally-friendly manner that avoids the overexploitation of available resources.

To help achieve this objective, the company has started promoting drip irrigation techniques amongst commercial farms. Drip irrigation is considered the most efficient of all known irrigation systems: water is directly delivered to the roots of plants in just the right amounts. It can double or even triple water productivity and is gaining in popularity worldwide. In Nigeria, the erratic electrical power supply often is a major constraint for irrigation, but with drip irrigation farmers are able to cover more acreage in limited time.

30 20 10 0 1960

1965

1970

1975

1980 Agric

1985

1990

1995

2000

2005

Petroleum

Figure 1: Contribution to GDP. Source: Central Bank of Nigeria Statistical Bulletin, 2010.

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2010

In Northern Nigeria, desertification constitutes a serious threat to agriculture. The government has introduced The Great Green Wall Project in order to prevent the encroachment of the Sahara Desert to the farmed and populated areas of the affected states. Simba Group has been engaged by the federal government to promote and disseminate the use of drip irrigation technology and thus help create an ecosystem which will boost crop yields in the areas bordering the desert.

Summer 2015 Issue

Simba Group also provides other irrigation solutions to farmers such as sprinkler irrigation and pumping systems. The company moreover supports community irrigation programmes that involve the shared use of scarce water resources.

POULTRY TURNKEY SOLUTIONS Poultry is one of Nigeria’s major agricultural subsectors that still depends on supplies from overseas. Even though restrictions on importation of poultry products were introduced, a wide gap between demand and supply continues to exist. This gap is partially bridged by smugglers, resulting in an inefficient market and a continued dependence on (clandestine) imports.

The poultry sector furthermore faces major challenges such as a lack of credit facilities and high production costs due to inconsistent power supplies and the poor quality of feed and other inputs. One of the major deterrents for new investors entering this sector is the lack of technical knowhow and guidance.

Though poultry can be a very lucrative proposition in Nigeria, several investors have haphazardly entered the sector with mistaken assumptions regarding the regulatory framework and the protection it offers. More often than not, investors have adopted unsuitable technologies and equipment. Poultry projects have also failed due to faulty planning and execution.

With its in-house expertise and technical partnerships with leading global poultry firms, Simba Group is able to offer potential investors in the poultry sector a full suite of services from project planning to the delivery of turnkey integrated poultry farms.

AGRIC PLANTATIONS & PROCESSING The Simba Group is involved in project management and the execution of large scale commercial farms and processing units. Currently, the group is engaged in the development of an integrated oil palm plantation and processing mill in West Africa. The company is also conducting technical feasibility studies of cashew plantation and processing, sesame cultivation, and various other cash crops which are of commercial relevance to the region.

PROTECTED CULTIVATION With an increased awareness amongst customers of organic farming and other sustainable cultivation methods, there is a growing demand for protected cultivation in greenhouses and shade houses using organic techniques.

Simba Agric is at the forefront of providing comprehensive and customised solutions for progressive farmers engaged in the greenhouse cultivation of vegetables, flowers, and other high-value crops.

TRAINING AND AGRICULTURAL EXTENSION Going forward, one of the key drivers of the CFI.co | Capital Finance International

development of agriculture in West Africa is the region’s demographic dividend, i.e. the ability to attract young people to pursue a career in agriculture. This is possible only if agriculture manages to become a lucrative, and thus enticing, option for young professionals.

The Simba Group has a team of experienced agronomists engaged in field activities. The company has partnered with major institutions in setting up demonstration farms for training purposes. Continuous training and skills improvement programmes offer a possibility to substantially increase both yields and profitability. This has the power to transform subsistence agriculture into commercial agribusinesses which will offer young Nigerians a wealth of opportunities.

The resurgence of the agricultural sector is urgently required. It is perhaps the only solution available to stabilise and maintain the delicate socio-economic balance of the region.

Sustainable technologies properly adapted to local conditions, technical advisory, guidance of aspiring entrepreneurs, and training and extension services to rural youth together constitute Simba Agric’s mission to contribute to the development of the agricultural sector.

The task at hand is a formidable one. However, the synergy which the group derives out of its diverse business lines makes it realistically achievable. The company has been in operation for 28 years; it has an exceptionally large customer base serviced through eight nationwide branches strategically located in different regions and staffed by more than 500 employees. The group also has a Renewable Energy Division which offers diverse products to the farming community including solar irrigation solutions, solar water pumps, and solar powered bore wells.

The group believes in transformation powered by strategic partnerships and the transfer of technology. The company has been working with premier businesses such as Jain Irrigation Systems Ltd and Venkateshwara Hatcheries Ltd which have developed inspiring initiatives that significantly contributed to the agricultural sectors of emerging economies.

Simba Group is one of the most trusted businesses in Nigeria. The company is admired for its peerless customer service and the high quality of its products and services. The agricultural sector stands in need of increased intervention from companies such as Simba in order to make the paradigm shift called for.

With a policy framework that places prime importance on food security and the realisation of policy reforms aimed at creating a more transparent and congenial business environment, the Nigerian agriculture sector is poised to embark on a sustained growth trajectory and thus regain its former glory. i 139

> Deep Oil:

Unlocking the Poles

By Penny Hitchin

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he arrival of peak oil — the point in time when global oil production peaks and begins to forever decline — has loomed for decades. Some say it has been and gone while others believe that new discoveries and advances in technology keep pushing it back.

Over the last 12 months there has been a

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dramatic drop in the price of crude oil alongside a global oversupply of black gold. The International Energy Agency is predicting slowdown in global oil demand for 2016. However, the inexorable global thirst for hydrocarbons will necessitate the unlocking of new sources.

What will these be? Shale gas is one of a trio of so called unconventional gases – the other two CFI.co | Capital Finance International

are coal bed methane and tight gas – which recent developments in technology have made it possible to exploit. Notably in the US, hydraulic fracturing is being used to release gas from tight shale formations which cannot be accessed by conventional drilling techniques. The shale gas boom has transformed the global gas market, turning the US from an importer into a net exporter of gas.

Summer 2015 Issue

Decades of oil and gas production have reduced global reserves of much of the oil and natural gas that can be produced using traditional methods.

Operators have to move into deeper waters and more remote areas to explore and exploit new fields. The ongoing advances in deep-water drilling and subsea production techniques enables exploitation in areas that were hitherto out of the reach.

For example, a fifth of the UK’s remaining oil and gas reserves lie deep below the stormy seas between the Shetland and the Faeroe Islands.

This deep-water area, known as the Atlantic Frontier or the Atlantic Margin, is on the edge of the UK continental shelf and presents substantial technical challenges. The geology is complex, the water depths are as much as 1,000 metres, there are strong currents and high winds, and the area is a long way from existing infrastructure. Deep-water drilling is more time-consuming, demanding, and hazardous than conventional offshore drilling.

However, advances in seismic techniques, drilling, and remote operation of subsea production have contributed to development of big new gas fields and infrastructure in the deep waters north-west of Shetland.

Even further north, substantial hydrocarbon reserves lie under the pristine frozen Arctic Circle – an inhospitable and challenging region shared between Russia, Alaska, Canada, Norway and Greenland (Denmark). Approximately 61 large oil and natural gas fields have already been discovered within the Arctic Circle. Most are in Russia, with others in Canada and Alaska. The inhospitable terrain of the snow and ice covered polar region contains as much as one fifth of the world’s recoverable petroleum and gas reserves but it is only recently that changes in technology have made exploiting these resources feasible. So the question is, if it is technically possible, is it economic? There is no simple answer.

Oil and gas is a safety critical high hazard industry. Big bucks are at stake and the risks are high. Arctic resource development is particularly high-cost and high-risk. Major challenges include operating in harsh climate in long periods of neartotal darkness; lack of existing infrastructure; long project lead times; and environmental issues and disputes over boundaries and jurisdictions. While development may be feasible, the investment required is huge. Environmental issues loom large in these sparsely populated areas, pitching environmentalists against oil companies in an oftrepeated clash of values.

“Over the last 12 months there has been a dramatic drop in the price of crude oil alongside a global oversupply of black gold.”

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In September 2013, in a much publicised escapade, Greenpeace activists attempted to scale the Piriazlomnaya drilling platform as part of a protest against Russia’s Arctic oil exploration programme. Russian authorities seized the Greenpeace ship Arctic Sunrise in international waters within the Russian Economic Zone, arrested the crew at gunpoint, towed the ship to Murmansk, and detained the crew of thirty activists. A criminal investigation followed, and 141

the activists were charged with piracy and hooliganism. Eventually, after the Netherlands filed a case at the international tribunal of the sea, (the Arctic Sunrise flew under the Dutch flag), first the crew and then the ship were released.

The Barents Sea is shared between Russia and Norway but the border is disputed. It supports one of the world’s major fisheries and a number of subsea gas fields have been identified. Despite strong opposition from the green movement, Norway has been pushing ahead with development for thirty years. Statoil’s Snøhvit Field liquefies and exports natural gas and is planning more development. Some of the world’s largest gas fields have been identified on the Russian side of the Barents Sea and their development is underway.

Across the pole, in the seas around Alaska, millions of barrels of oil and vast quantities of natural gas are already being produced in onshore regions of the Arctic. Offshore is a bigger challenge as ice conditions effectively lock down the region in winter. Despite logistical issues, expensive equipment repairs, regulatory hurdles, and environmental challenges, Shell has spent $7 billion in the last decade in pursuit of hydrocarbons it believes to be under the Chukchi Sea. In 2012, the operator drilled offshore wells but the venture was dogged by problems. The company underestimated the Arctic hazards and overestimated the weather window for safe travel.

In December 2012, its giant drilling rig Kulluk 142

drifted aground off Sitkalidak Island in the Gulf of Alaska. Kulluk was being towed south to her winter home in Seattle when a storm parted the towing line to the icebreaking tug, trapping 18 men aboard the drifting rig. In desperate weather conditions, the US Coastguard rescued the crew and eventually ordered the tug crew to cut the rig loose, which led to her grounding.

prohibitively expensive to extract and transport, but in 2048, the protocol banning Antarctic prospecting comes up for renewal and by then the situation could be very different. Technology, recoverable reserves, economics, and climate could all have changed. In the meantime in the name of scientific research, geological surveys of the continent continue.

The plan to tow Kulluk south for the winter was at least in part motivated by an effort to avoid State of Alaska property taxes on oil and gas extraction equipment. The rig was eventually recovered and, as repairs were not feasible, it was scrapped in 2014. Fortunately, the thousands of gallons of diesel fuel, lubricating oil, and hydraulic fluids aboard were safely retrieved. However, incidents such as this have helped bolster environmentalists’ case that conditions in the Arctic make it too dangerous to drill.

So battle lines are drawn: a seemingly insatiable demand for new sources of oil and gas opposed by a belief that developments in the frozen polar regions is potentially too damaging to the environment to countenance. Advances in technology mean oil and gas reserves can be extracted from environments which were previously too remote to access, but the costs are high. Lead-in times are long and investment decisions must be taken years ahead of likely production. The economics of oil are volatile: demand, supply, price, and a host of other factors including technology, politics, and legislation mean that risk-averse decisions will win out.

At the opposite end of the globe lie yet more promising oil and gas fields. Antarctica is not a country: it has no government and no indigenous population. However seven nations – Britain, France, Norway, Australia, New Zealand, Chile, and Argentina – have carved up the map of Antarctica laying territorial claims to the driest, coldest, and windiest place in the world. In 1961, the Antarctic Treaty came into force making the continent a scientific preserve.

Military activity and prospecting for minerals are banned. Scientific study is allowed, and governments are keen to know what’s under the ice. Much geological research is underway.

Could it be oil? If so, then it is currently CFI.co | Capital Finance International

In the oil industry companies see the raceto-be-second as the way to be a winner. The industry wants innovation and development, but it is a hazardous one operating in hostile environments. Risks are high and many prefer to let a competitor pioneer the way in order to diminish the risk to their own company. The stakes are huge, the rewards are great but so are the costs of accidents. Technology can solve many problems but the challenges of harvesting hydrocarbons from the polar regions may, at present, be a rig too far. i

Summer 2015 Issue

> Fine and Country International Nigeria:

Research and Marketing Excellence as Drivers of Real Estate Development

F

ine and Country Nigeria is a research driven real estate company that thoroughly understands its market and is keen to anticipate trends. The firm continuously analyses the sector and refines its findings to create project differentiation and to identify and define a given development’s unique selling point in order to maximise value creation and market acceptance.

As a multi-award winning international real estate network, Fine and Country enjoys a stellar reputation both locally and internationally for its unique blend of intelligent and creative marketing and branding services. The firm provides solid market research and property investment advisory services coupled to a professional approach to corporate sales and leasing arrangements for premium commercial and luxurious residential properties.

Since joining the global network in 2008, Fine and Country International Nigeria’s excellence has been recognised by the following awards: • Gold Category for Quality, Excellence, and Customer Satisfaction -The International Arch of Europe Award in Frankfurt, Germany - 2014 • 2014 Best Real Estate Practice in Nigeria at The Luxury Living (Nigerian Urban Development Awards) - Extraordinary Brand Contribution Award, Africa - 2010 • Best Real Estate Agency, Nigeria - 2012 (MEA) • Best Presentation of Real Estate - 2012 (MEA) • Best Real Estate Support Service, Nigeria – 2012 The most recent recognition offered to Fine and Country International Nigeria was the CFI.co Best Real Estate Advisory Team, Nigeria – 2015.

Backed up by a global network of over 300 offices with its hub in the UK, Fine and Country International Nigeria currently maintains offices in Lagos and Abuja and operates out of client project sites in other locations as the need arises.

The firm’s services include: • Focused real estate research and advisory • Real estate marketing and branding • Specialised real estate advertising / media PR • Luxury residential sales & corporate leasing • Prime commercial sales & leasing Fine and Country International Nigeria is led by Executive Vice-Chairman and CEO Udo Maryanne Okonjo, an experienced corporate and commercial lawyer who successfully negotiated and acquired the Fine & Country West Africa license in 2007 and subsequently launched the Nigerian office

Executive Vice-Chairman and CEO: Udo Maryanne Okonjo

in 2008 having spotted the opportunity that a premier international property network provides in developing real estate jurisdictions.

Under Mrs Okonjo’s leadership, the West African office has leaped to the top in the provision of world class real estate services to leading property developers and institutional clients. She is very passionate about real estate as a means of wealth creation, distribution, and national transformation.

Fine and Country International Nigeria is widely regarded as the undisputed leader in new upmarket project marketing and sales, and has enjoyed the privilege of working with some of the most visionary developers in this market. Some of the projects the firm has worked with include Asokoro Gardens - Sunrise Hills Development in CFI.co | Capital Finance International

Asokoro, Osborne Towers and Luxury Gardens in Ikoyi, Eden Heights and the Civic Centre Commercial Towers in Victoria Island, Maiyegun Seaside Resort in Lagos Keys, Maitama Heights in Abuja, amongst others. Fine and Country International Nigeria has also worked with numerous financial institutions and on some of the major developments in Ghana.

Fine and Country International Nigeria provides high-level expertise and a customised experience for our key target clients which range from financiers, developers, high-net-worth individuals, and corporate investors. The company thus contributes with a deeply-ingrained culture of excellence, expertise, and confidence to the further development of the Nigerian real estate industry. i 143

> CFI.co Meets the CEO of Futureview Group:

Elizabeth Ebi

T

he clue is in the name. Futureview Group, a leading Nigerian investment bank, aims high and makes no excuses: the company wants to become a force to be reckoned with not only in Nigeria, but worldwide.

Founded in 1993, and fully operational three years later, Futureview Group already commands its home market. The firm was one of only two investment banks invited by the federal government of Nigeria to help place the country’s first large-scale bond issue in 2003. Futureview Group has helped raise in excess of $24bn for private businesses and government.

At the helm of the company since its inception, co-founder Elizabeth Ebi has just concluded a comprehensive rebranding operation that now enables Futureview Group to embark on an ambitious expansion drive, seizing the opportunities brought by Nigeria’s expected economic upswing. “We are committed to excellence in providing optimal service and results to our customers and growing our base beyond Nigeria and into the world. After twenty years, Futureview remains one of the best because of our willingness to evolve and adapt to the changes surrounding us.”

Mrs Ebi emphasises that Futureview’s enduring success is underwritten by the company’s unwavering dedication to both operational excellence and customer care: “Having the right vision, the in-house expertise, and a series of innovative products and services allows Futureview a level of competitiveness unmatched in Nigeria. Our deep knowledge of the local market and the company’s global exposure give Futureview an edge when dealing with investors looking for profitable ventures and customers aiming to leverage the country’s potential.”

While Nigeria did not escape the ravages of the 2008 global economic downturn, the country’s economy has shown remarkable resilience and bounced back to register solid growth. The recent elections, hailed as a watershed and indicative of Nigeria’s maturity, have cleared the path towards sustainable economic development: “The new administration is reform-minded and has a strong mandate for imposing change, fighting corruption, and moving the economy away from its dependence on oil. The cabinet is now mostly comprised of widely respected technocrats. In my view, this will make a big difference.”

Mrs Ebi remains convinced that, with the right government and sound policies, Nigeria can easily become one of the most buoyant 144

CEO: Elizabeth Ebi

and profitable markets in the world: “This is a huge country with a vast potential, still largely untapped. We have what it takes to grow at an accelerated pace. Nigeria is not only the biggest economy in Africa, it is also a nation of budding entrepreneurs that moreover boasts an exceptionally competitive environment.”

Futureview is well-poised to offer its clients optimal exposure to Nigeria’s dynamic markets.

The company’s global view has made it into the preferred channel for business and investors either considering entering the country or striking out to reach overseas markets.

The company will be introducing an online stock trading and portfolio management portal supported to allow its brokerage clients the opportunity of investing for themselves. The portal offers a fully-featured and seamless integration with the Nigerian equities market.

Futureview Trade departs from the traditional route by streamlining processes while still offering investors the full benefit of Futureview’s investment research information and client data analytics.

CFI.co | Capital Finance International

Futureview regularly produces original research highlighting sectors and opportunities. Its recent Resource Control Initiative aims to provide an in-depth analysis and overview of the natural resources available in each of the country’s 36 states. Futureview’s report on Plateau State, released late last year, stressed the rebirth of the extractive and processing industries as the federal government mulls liberalising and streamlining regulation and creating a muchimproved investment climate.

“As a customer-centric business, Futureview plays an active role in the development of Nigeria. We offer our clients not only direct access to the domestic market, but may also help them leverage their presence in Nigeria as a springboard to reach other parts of Africa. As financial advisors, Futureview possesses a wealth of information and research data that fills the gaps and brings opportunity into sharp focus.”

Mrs Ebi is a first-class graduate from New York University and obtained a Master of Business Administration (MBA) from George Washington University. i

Summer 2015 Issue

> Luisa Nenci, CEO of SustainValues:

How to avoid Basel IV The comprehensive reform of banking regulation which followed the 2007-08 financial crisis has kick started strong, sustainable, and more balanced global growth.

Nevertheless, the reforms primarily addressed the stability of the financial system by placing emphasis on the recapitalisation of banks to bolster their resilience in the face of risk.

A

s for the required capital, regulators demanded also higher liquidity measures. Therefore, in recent years, every financial institution has improved the management of liquidity risk by establishing liquidity buffers in times of adverse market conditions. However, a bank short of liquidity is normally able to sell or repossess assets to a more liquid bank. This is a systemic approach, called “shiftability” which allows the banking system to run more efficiently with fewer reservations and opens the possibility to invest in long-term assets.

Furthermore, even if the financial sector is normally seen as an intermediary, it creates liquidity by itself. A central bank issues its own currency which, like all fiat money, is just a central bank’s promise: I Owe You. Commercial banks create these IOUs when granting credit to clients. This IOU is of lower quality than that of a fiat money banknote which, in turn, is of a lesser quality than gold. There is a hierarchy amongst IOUs that depends on the kind of institution issuing the promissory note.

The evolution of the “shiftability” theory has created the possibility to swap IOUs throughout the financial system as if in a dealer market. A dealer will charge the buyer a price which is a spread over the seller price. Hence, the ability to sell/buy quickly – thus creating liquidity – is reflected in the price risk. In this case, negotiators will disregard the liquidity risk which arises in the capital market when, for example, a borrowing short and lending long position is taken.

This position will finance long-term investments with a short term revolving credit, playing with the different market remunerations to benefit the higher rates of the bond market. There is also a settlement risk arising from this IOU swapping which will be taken by central banks in the money market. Settlement risk is managed through the overnight and discount rate to encourage (elasticity) or discourage (discipline) credit.

In need of liquidity, credits coming with a

“The lesson learned is to have a greater focus on the financial markets’ systemic risk, including the relationship between markets and institutions.” collateral acquired an undeserved position on the hierarchy of IOUs and were arbitrated accordingly. Since the moment an issuing institution fails because it could not pay its IOUs a chain of risk consequences is unleashed with a domino effect that leads to market failures.

Even with a substantial intervention by central banks, the liquidity problem caused by these arbitrations could not be solved. The lesson learned is to have a greater focus on the financial markets’ systemic risk, including the relationship between markets and institutions.

Systemic risk should be included in the more stringent requirements that are needed for the creation of better quality capital to generate improved value-based IOUs. Furthermore, if requirements include both monetary and nonmonetary values, the greatest risk to be faced when creating capital of better quality, should be the eco-systemic risk.

for financial institutions should be to understand how allocation of debt – or the use and issuance of bonds and equity and the development of financial products – can lead to impacts on its entire value chain.

Therefore, these become significant for financial institutions to select and invest in companies that have a significant capacity to generate capital from more diversified business models in terms of regions, businesses, and products. Companies which represent capital of good quality do so because they significantly outperform their competitors over the long-term, both in terms of stock market and accounting performance.

Companies are also able to face the eco-system risk because they properly calibrate future risk such as the impact of climate change on their operations. Companies can also have a positive impact on their supply chain by adhering to corporate social responsibility principles. i

ABOUT THE AUTHOR Luisa Nenci is CEO of SustainValues, an environmental economist, and green finance strategist. www.sustainvalues.net

Eco-systemic risk includes both the direct impacts – such as the use of land for buildings, energy, water consumption, transport, and waste – and the indirect impact on the overall supply chain. These secondary impacts are the ones hitting the core business of a financial institution because concerns regarding the provision of debt, equity, or other forms of capital to companies and households. Businesses and families have a considerable direct and indirect impact on the surrounding environment through their daily operations and the supply chains they drive.

The financial sector is currently poorly prepared to face eco-systemic risk. The first commitment CFI.co | Capital Finance International

Author: Luisa Nenci

145

> Middle East:

Qatar - Speak Softly and Carry a Large Bag of Cash

By Wim Romeijn

Looking to buy up a fair chunk of the world around it, Qatar has set its sights on Asia and the US as it diversifies the asset base of its mushrooming sovereign wealth fund.

The Qatar Investment Authority (QIA), set up in 2005, now holds in excess of $256bn – just shy of a cool million for each of the country’s 278,000 citizens.

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Summer 2015 Issue

CFI.co | Capital Finance International

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Q

atar’s riches, mostly derived from oil and natural gas exports, buys the tiny nation a virtual reality that adds significantly to its own security. Taking a cue from Kuwait at the far end of the Arabian Gulf, the Qatar government actively directs investments into prime real estate in order to augment the country’s geographical footprint.

This form of contingency planning is largely modelled on the surprising resilience displayed

by Kuwait after the emirate was invaded by neighbouring Iraq in 1990. The exiled government of Sheikh Jaber Al-Ahmad AlSabah, set up in Dhahran, Saudi Arabia, almost effortlessly managed to have its voice heard globally – and safeguard national interests – by leveraging the purchasing power of the country’s formidable financial reserves. Back then, the Kuwaiti government in exile was able to remind much larger powers, up to and including the US, of the dangers of ignoring its plight.

A minute peninsular country in one of the world’s more volatile regions, Qatar cannot credibly ensure its own security and must perforce rely on international partnerships for its survival. The country not only works closely with its fellow members within the framework of the Gulf Cooperation Council (GCC), but has also reached out across the Gulf to Iran which it steadfastly refuses to criticise – much to the annoyance of Saudi Arabia and other GCC members.

Within the GCC, Qatar is oftentimes considered the odd one out. The country’s diplomats barely try to disguise their attempts at keeping Saudi Arabia’s dominance of the GCC in check. They also prefer to co-opt possible threats instead of fighting them. Qatar’s cosying up to the Muslim Brotherhood and other Islamist movements earned it a stern rebuke from Saudi Arabia, the United Arab Emirates, and Bahrain who – in an unprecedented move – last March withdrew their ambassadors from Doha. However, Qatar’s non-confrontational approach has so far paid off: the country’s royal family has been spared the criticism of Islamist firebrands and enjoys high popularity even amongst those who support, openly or otherwise, the Muslim Brotherhood.

Keeping potential enemies close at the expense of its friends has allowed Qatar to concentrate on acquiring a global network of vital interests that may come in handy should the country ever

“The country is, however, a magnet to businesses seeking to maximise operational efficiencies by suffering the bare minimum of state interference.” feel the need to cash in its national chips. The Qatar Investment Authority manages massive holdings in industry and real estate around the world. QIA operates in a decidedly low-profile manner, preferring sizeable minority stakes to outright ownership in large-scale projects and businesses.

Qatari investors are mostly happy to merely obtain a seat at the corporate table and do not necessarily aim to call the shots. In this vein, QIA now owns 12.7% of Barclays and has a 17% stake in the Volkswagen Group. The authority recently announced that it will double its holdings in Royal Dutch Shell to 7%.

QIA and its offshoots now own or participate in most any business endeavour imaginable from the Paris Saint-Germain football club and London’s Canary Wharf to marinas in Spain and petrochemicals plants in Malaysia. While steadily expanding its global interests, the Qatari government is also busy rebranding the nation as a haven of tolerance and quiet efficiency. The Doha-based Al-Jazeera television network – a media empire now eclipsing CNN in size and scope – has proved a valuable asset in furthering Qatar’s national interests.

Nominally independent and indeed critical of Middle East governments, Al-Jazeera has awarded the country’s rulers a highly effective tool with which to showcase their country as an oasis of peace and stability. It of course helped that the network downplayed the civil unrest, and the ensuing crackdown, that plagued neighbouring Bahrain in 2011. Still, Al-Jazeera has become a trusted source of news throughout the Arab world thanks to the Qatari authorities’ light touch and their willingness to plot an independent course.

The Qatari way – cautious, low-key, headstrong,

and focused on the long term – has unexpectedly gained international recognition with the World Economic Forum (WEF) proclaiming the country’s government the world’s most efficient amongst 144 states evaluated. Based on data extracted from the WEF’s annual Global Competitiveness Report, researchers concluded that the Qatari government is peerless when it comes to transparency, policymaking, regulation, entrepreneurial freedom, and sensible spending by the state.

The WEF findings are solely grounded in economic performance and as such ignore societal wellness indicators such as freedom of expression and other human rights. While by no means a ruthless dictatorship, Qatar does fall short of a full-fledged democracy as defined

by Western standards. The country is, however, a magnet to businesses seeking to maximise operational efficiencies by suffering the bare minimum of state interference.

The formula – and plenty of natural gas – made Qatar the richest country in the world with a GDP of $102,000 per capita. WEF lead economist Margareta Drzeniek-Hanouz said that Qatar deserves the top ranking for its government’s dedication to maintaining a stable environment that fosters strong economic growth: “It is a state’s job to provide optimum conditions for national development and our study finds that none are better at this than the government of Qatar. The country scores particularly well on the ease of establishing and conducting business, the observance of property rights, and the absence of corruption.

Small in size and population, Qatar – a sleepy outpost until just a few decades ago – has displayed a sense of national purpose often found lacking elsewhere. The country deftly navigates the turbulent waters of the region and has managed to stay friends with all its neighbours, including Iran and assorted Islamist movements that could cause it trouble. Qatar also put in place a number of national safeguards, buying its way into the fully developed markets of Europe and North America, thus ensuring its voice will be heard in a way that is largely sympathetic and inoffensive. It is the only way for small countries to have their say and ensure they are heard, instead of trampled upon. That constitutes a measure of efficiency in and of itself – albeit not one the WEF researchers may have considered. i

“Nominally independent and indeed critical of Middle East governments, Al-Jazeera has awarded the country’s rulers a highly effective tool with which to showcase their country as an oasis of peace and stability.”

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Summer 2015 Issue

> CFI.co Meets the CEO of Jordan Dubai Islamic Bank:

Sami Al Afghani

S

ami Al Afghani joined Jordan Dubai Islamic Bank (JDIB) in December, 2009. He brought along a professional experience spanning more than 25 years in the banking sector both locally and regionally. Previously, Mr Al Afghani held many important positions at prestigious banks. Most recently, he served as the senior vice president - Corporate Banking Group (Dubai and Northern Emirates) at Abu Dhabi Islamic Bank – UAE prior to joining JDIB. He also held several positions in the same sector regionally and internationally, including the position of regional manager for the Western Region at the Arab National Bank in Jeddah and manager of the Credit Group in Riyadh. Mr Al Afghani holds a Master’s Degree in Business Administration from Northrop University, California, and a Bachelor’s Degree in Civil Engineering from the University of Southern California.

staff by acting as a role model in everything. He is known among JDIB staff as an active listener who adopts an open door policy and takes every subject matter as one of supreme importance.

Mr Al Afghani will go into detail and actively encourages the exchange of ideas in order to find and adopt those brilliant ideas that could reflect positively on the progress of the business and allow others space and empowerment to share responsibility and make decisions through the delegation of authority.

CEO: Sami Al Afghani

Mr Al Afghani sets a tone of excellence in corporate governance through personal example.

He also upholds a strict code of business ethics throughout the bank and builds high standards of governance, controls, and accountability into the execution of business growth and expansion plans. Moreover, Mr Al Afghani is able to maintain the right balance in the relationship between board and management with a view to enhancing overall effectiveness. He acts as a true advocate of best-in-class board practice.

Mr Al Afghani believes that good talent management is a critical factor in the success of organisations and continuously aims to inspire the management team to bring the best out of the staff. He readily recognises where further learning, education, and development can be used to develop skills and competencies of team members and their subordinates. He is determined to focus on providing the empowerment necessary to guarantee JDIB employees – at all levels - can succeed.

He is well-aware of how the management of change can get JDIB into a leading role in the local market by the ongoing efforts in helping the staff adapt quickly to changes in the marketplace and communicate these throughout the organisation, thus getting the entire staff behind the changes inspired by his unique visionary leadership style.

Through his forward thinking, Mr Al Afghani always stands behind the concept of adapting to external changes. As a leader, he sees current market twists and envisions future trends, deftly applying them to JDIB and instantly encouraging the management to develop and reform them in

the best possible way that ultimately results in keeping JDIB ahead of the competition.

By adopting resilience, perseverance, and motivation practices as keys to lead the management team in today’s climate, Mr Al Afghani always manages to motivate the team.

Understanding that setting an example of commitment to positivity even in times of extreme hardship, Mr Al Afghani encourages the teams to think and act positively.

Mr Al Afghani has adopted a clear vision to build a long-term sustainability into the business. He thinks strategically and leads change at the bank to achieve that vision. Based on this vision, he has developed a high-impact corporate strategy by integrating market, competition, trends, and other factors to create significant impact on the whole bank. Mr Al Afghani further built group momentum for change to ensure the bank remains at the forefront. He introduced highimpact actions such as redesigning the bank’s structures, processes, and systems to drive and reinforce the desired changes.

COMMUNICATION Mr Al Afghani enjoys strong, positive, and clear conversations resulting in the assignment of tasks as a result of daily, weekly, monthly, or annual meetings with his team and staff. He believes that targets included in the strategy and business plans cannot be achieved without having the message clearly reaching the people concerned in order to keep them focused.

Mr Al Afghani inspires his direct associates and CFI.co | Capital Finance International

This may be clearly seen in current policies where staff can express ideas, concerns, and complaints which are subsequently dealt with transparently, fairly, and confidentially. Mr Al Afghani is also actively engaged with staff through a number of events, meetings, and other occasions as he realises the importance of such gatherings to listen, share conversation, and exchange ideas with staff.

TEAMWORK As a team leader, Mr Al Afghani persuades his staff to be fully committed in achieving their mission and goals as he ensures that each member devotes a reasonable amount of time and energy to advance towards the overall objectives. He must be able to trust that all team members are doing likewise. Mr Al Afghani believes that effective teams must have open lines of communication and that communication must be honest and flow between all team members equally.

The uniqueness of Mr Al Afghani’s teamwork style lies in the fact that he fully realises and understands that each team member has a distinct style of communicating and that he/she can move his/her team in a productive direction which everyone understands and supports. He advocates that team members must never hesitate to communicate with other members about issues and concerns, as well as new ideas or personal observations.

Mr Al Afghani elaborates on the fact that his team possesses a wide range of professional competencies and is fully equipped to meet a wide range of challenges. When building teams, he takes time to ensure that each team member has skills and strengths that complement the skills, strengths, and weaknesses of the other members. Bringing together people with common skill-sets can lead to a great deal of discussion followed by little action. Ensuring that each team member possesses a unique specialty, allows team members to trust each other for certain aspects of performance, while fully understanding the nature of their own contribution. i 149

> Gregory Le Henand:

Credit Insurance Grows Business through Easier Financing Global Trade Development Week – the world’s largest trade facilitation forum will this year host the Coface Country Risk Conference to be held in Dubai this October. The GTDW programme covers all aspects of trade and investment around the world. In advance of the event, Gregory Le Henand, GCC Countries Manager for Coface, discusses credit insurance.

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ustomer credit is inevitable: to remain competitive, companies need to offer their customers credit payment terms. However, this decision can lead to unforeseen contingencies such as payment delays, payment defaults, or even insolvency. In the Gulf Region today, around 80% of companies are dealing with unpaid invoices. This situation is responsible for 25% of company closures in the region. These figures demonstrate that, when invoices remain unpaid, the supplier’s financial performance is affected and the business is put in jeopardy.

Credit insurance protects businesses from non-payment of commercial debt. This allows companies to reliably manage the commercial risks of trade, while optimising chances of growth.

For the B2B market, customer credit forms the basis of the majority of business transactions, so much so that credit provided by suppliers represents double the amount lent by banks to their customers.

With an estimated average of 40% of a company’s assets tied down in the form of trade debts, accounts receivable are absolutely critical to the running of a business and hugely impact cash flow and profitability if payment terms are not met.

Through credit insurance, companies take advantage of a comprehensive solution covering the three core elements of their trade cycle: information, protection, and collection. To begin with, companies are able to make informed decisions while choosing their customers through a protective and preventive system based on assessments of the financial health and credit worthiness of companies and an understanding of their payment practices.

The key is having the best information about companies, sectors, and economic trends to make informed credit decisions and therefore avoid or minimise losses. Early planning 150

“Through credit insurance, companies take advantage of a comprehensive solution covering the three core elements of their trade cycle: information, protection, and collection.” is crucial. Through the information cycle, companies can anticipate payment arrears and base future custom on their customer’s risk profiles to take the right decision.

of their customers. This analysis is then benchmarked with the customers’ industry trends so that, eventually, an informed coverage decision is reached.

Thus companies keep their sales protected against potential losses arising from payment defaults by their customers around the globe.

They do so by transferring the risk to the insurer.

This allows companies time to focus on the growth and development of their business and its profitability by reducing exposure to the commercial risks of trade on account receivables.

Scalability is also key to the value and practicality of credit insurance. SMEs and multinationals alike use it as a tool to help manage customer credit risk, whatever its form – export, domestic, or international. Businesses with global operations can benefit from the economies of scale of having global cover with the local knowledge of small, mid, and large scale customers.

Finally, in case invoices remain unpaid, the insurer collects payments on behalf of the insured or indemnifies for the loss, giving businesses the benefit of a steady and stable cash flow de-spite payment issues.

While credit insurance provides the assurance of commercial debt loss indemnification, the ultimate goal is to help businesses avoid foreseeable losses through taking an informed and preventative approach to conducting trade safely.

Indeed, out of the EUR 8 billion of credit insurance premiums paid worldwide annually, 50% is paid back to the insured in form of claim indemnification thus minimising the impact of the losses sustained over time. More than risk transfer, credit insurance is in fact a business development solution: insured suppliers can offer flexible and longer payment terms to their customers, placing them at an advantage over their competitors. Besides, contracting credit insurance also lowers by up to 20% of the borrowing costs of trade finance facilities obtained from commercial banks.

Ultimately, in an increasingly competitive environment and a hub of export and re-export as the Gulf, credit insurance is a business development tool: on the back of a credit insurance solution, companies can now increase their sales volume by extending customer credit lines, explore new markets by securing upfront coverage on potential customers credit, and gain competiveness by becoming more reactive to purchase orders. With the comfort of credit insurance, a supplier can offer credit terms to his customers from the first transaction. i

Relying on a credit insurer offers security to all suppliers: the insurer provides dedicated risk experts who analyse financial performance

ABOUT GTDW For further information on the events at GTDW, please visit www.kwglobaltrade.com.

CFI.co | Capital Finance International

Summer 2015 Issue

> CFI.co Meets the CEO of Professional Traders:

Sushant Buttan

S

ushant Buttan is a successful entrepreneur and businessman with over a quarter century’s worth of experience in international business. With a background in computer engineering, he started a company based out of India in the early 1990’s with a small staff of four people.

This company - called Maximize Learning – was focused on building next generation technologybased educational courseware and content. As such, Maximize Learning became a pioneer of Internet-delivered e-Learning. Over the next fifteen years, Mr Buttan built his business into a multimillion dollar multinational organisation with a global staff base of over 500 employees.

Innovative work in the world of technologybased learning led to Mr Buttan being invited to share his knowledge as a regular lecturer at the George Mason University in Virginia. He also taught classes at the Villanova University in Philadelphia, contributing to the institution’s renowned executive MBA programme. Mr Buttan has also been instrumental in producing technology-based content for the Manage Mentor Programme of the Harvard Business School.

Additionally, Mr Buttan has contributed to authoritative books such as Organization and Management: An International Approach (90 0 157 7040). He has written a number of essays on technology-based learning for Chief Learning Officer and other publications.

Owing to the success of Maximize Learning and its broad and well-established base of international customers, the company was acquired by the US-based Aptara Corporation in 2005. As a result of the acquisition agreement, Mr Buttan moved to the US headquarters of Aptara Corp to take up a position as senior vice president of Business Solutions. He lived in the United States from 2005 to 2008 and during this time managed to significantly expand the client base of Aptara Corp.

Struggling with the underperformance of wealth management companies, and identifying the need for a sophisticated, reliable, investment organisation employing cutting-edge technology, Mr Buttan in 2008 founded Athena Smart Capital. The company is headquartered in Dubai, UAE, and focuses on using quantitative finance models to trade on the major international markets. The model employed is particularly suited for trading forex, futures, bonds, CFDs (contract for difference – a tradeable instrument linked to an underlying asset), and commodities.

CEO: Sushant Buttan

In 2014, Mr Buttan acquired the UAE-based Financial Trading Company - Dubai Professional Trading Group. Now re-branded as Professional Traders - DMCC, this company has become one of the fastest-growing businesses, providing highly specialised technical infrastructure and funding for financial traders from all over the world. Mr Buttan, now CEO of Professional Traders, is dedicated to transform his company into the CFI.co | Capital Finance International

world’s largest financial trading centre by 2020.

Over the years, Mr Buttan has cultivated Fortune 500 clients from across the world, including prestigious corporations such as Microsoft, American Express, Morgan Stanley, Deloitte Consulting, and Ernst and Young in the United States; Motorola and Reuters in the UK; and SAP and Ericsson elsewhere in Europe. i 151

> Jordan Dubai Islamic Bank:

Corporate Governance Instrumental in Earning Clients’ Trust

“How to direct, administer, and control the business processes says a lot about any corporation’s identity. Developing proper processes and policies is essential to a wellfunctioning banking system. It also reflects a bank’s mission and is fundamental to earning and maintaining the confidence and trust of all stakeholders, including clients.

From that belief, Jordan Dubai Islamic Bank (JDIB) has carved out a unique position for itself. The bank remains a top-tier player in terms of corporate governance codes.”

F

or the second consecutive year, Jordan Dubai Islamic bank has been named Best Corporate Governance (2015).

The bank was honoured to once again receive this prestigious award granted

by Capital Finance International (CFI) in London.

The recognition results from the bank’s efforts in applying operational and effective corporate governance policies in harmony with the best international standards which together lay at the core of Jordan Dubai Islamic Bank’s corporate identity.

The bank ensures responsible and valuedriven management practices are adhered to throughout its system of corporate governance, which is built on key elements of discipline, transparency, independence, and fairness. As it strengthens its presence, JDIB continues to review compliance, risk management skills, systems and processes, and – where appropriate – aims to enhance these further. This commitment applies to JDIB’s relationship with shareholders, customers, employees, suppliers, regulators, and the communities in which it operates.

The main characteristics of JDIB’s corporate governance policy are: • Discipline – Employees and senior management members are committed to adhere to procedures, processes, and hierarchies established by the bank. These are recognised and deemed to be correct and proper.

• Transparency – This is mentioned in almost every policy. All actions implemented, and the procedures that led to them, will be available for inspection by authorised entities and provider parties.

• Independence – Mechanisms and regulations have been put in place to minimize or avoid potential conflicts of interest, such as undue dominance by chairman, chief executive, or a

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“JDIB is fully aware of its social responsibility, and will promptly respond to social issues, while placing a high priority on ethical standards.” large shareholder. These mechanisms range from the composition of the board to committee appointments and involve external parties such as the auditors. Decisions made, and internal processes established, are designed in a way that does not allow for undue influences to be exercised.

• Accountability – At JDIB, the individuals and committees who make decisions and take actions are held accountable for their decisions and actions as per authorities’ matrix manual.

• Responsibility – JDIB believes that responsible management would, whenever necessary, take appropriate actions to set and keep the bank on the right path. While the board is accountable to the bank, it must act responsively to, and with responsibility towards, all stakeholders.

• Fairness – JDIB systems that exist within the bank are balanced and take into account all those that have an interest in the bank and its future. The rights of various groups have to be acknowledged and respected.

JDIB is fully aware of its social responsibility, and will promptly respond to social issues, while placing a high priority on ethical standards and believing that a good corporate citizen is increasingly seen as one that is nondiscriminatory, non-exploitative, and responsible with regard to environmental and human rights issues.

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No wonder, then, that JDIB earned the CFI.co award for Best Corporate Governance based on being a best-in-class Islamic financial institution that not only stands out in terms of financial performance, profitability, market share, and assets but also continues to innovate and strive for greater operational efficiency through enhanced risk management and technology.

JDIB is a leader in its home market and is expanding globally in order to drive growth and sustain future profitability.

To be qualified for achieving International and local awards, JDIB has set all operations on solid foundations and standards. Such foundations and standards are manifested in JDIB’s Vision and Mission represented in: VISION To be the leading Islamic bank that serve all of society.

MISSION To provide distinctive and innovative services emanating from the divine principles of Islam in order to build lasting and solid partnerships and to maximise benefits to all stakeholders.

VALUES Innovation, knowledge, quality, value, and world class service.

JDIB’s latest Best Corporate Governance award follows a number of other awards the bank has recently picked up including ISO 9001:2008 certification, Best Islamic Bank (2013), and PCI-DSS certificate for the Payment Card Industry Data Security Standard by Trustwave.

JDIB, since inception, has been achieving one success story after another and has been capable of providing solid proof on its leadership in the Islamic banking in particular and in the banking industry in general. i

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> Professional Traders:

Leading Change in the Hedge Fund Industry

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y 2018, the core hedge fund industry assets under management (AuM) are forecasted to balloon to $4.81 trillion – an increase of 81% from the $2.63 trillion registered at the end of 2013.

For every seven funds launched in 2002, one fund was settled. Since then, the number of hedge funds being liquidated has grown dramatically. In 2013, for every fund launched, another one was liquidated. This means that the number of funds being formed is almost equal to the number of funds being closed down.

According to recent research conducted by 154

KPMG, one of the main reasons for the continued slowdown in the hedge fund industry expected to occur over the next five years is the loss of assets due to underperformance. Amongst the hedge funds surveyed, 84% of participants agreed that customised fee structures will become more prevalent as opposed to the standard 2/20 rule.

In 2014, Credit Suisse conducted a global survey of hedge fund investor appetite and activity which found that the largest driver of fund redemptions was manager underperformance.

According to Preqin Investor Interviews research, 68% of investors felt management fees to be the key area where they would like to see CFI.co | Capital Finance International

improvement. It is a sad fact that according to the Credit Suisse Hedge Fund Index, the average annual rate of return since the inception of the hedge fund industry has hovered around 7.5%.

The notion of standard hedge fund fees is quickly becoming obsolete. More and more institutional investors expect to negotiate fees based on the value delivered. Flexibility, adaptation, readiness to embrace change, and a willingness to accept new ideas are widely considered essential ingredients if the hedge fund industry is to find a way forwards. While the outlook for smaller independent managers is still unclear given the high costs and demands of the business, the

Summer 2015 Issue

growth of sponsored hedge fund platforms and funds of hedge funds that specialise in emerging managers indicates that these are set to become drivers of future growth in the hedge fund industry.

This is where Professional Traders Group (PTG) sees the opportunity for building out a new generation of the fund-of-hedge-funds model. Based on the traditional franchisee model, the company believes that it can identify and train emerging fund managers from all over the world and offer help by funding them as independent hedge funds – eventually forming one of the world’s largest franchised fund of hedge funds.

Professional Traders Group’s goal is to relocate successful traders from various countries and bring them under one roof at the company’s headquarters in Dubai, UAE. PTG’s geographic focus in identifying these emerging managers are key financial centres such as like New York, Toronto, São Paulo, London, Madrid, Frankfurt, Zürich, Johannesburg, Mumbai, Moscow, Shanghai, Shenzhen, Singapore, Hong Kong, Taiwan, Tokyo, and Sydney.

Professional Traders Group is also training fresh new traders, right out of college. The company’s Young Financial Wizards Programme, aims to train 5,000 or more new traders over the next five years. PTG firmly believes that there is a lot of talent out there that can be tapped.

In addition to training fresh talent, the PTG strategy also entails the relocation to Dubai of expert experienced traders who are specialists in their respective fields.

PTG is currently pulling in the world’s best and most celebrated gold, bond, metals, energy, equity index, forex, and agricultural-commodity traders with a view to building out smaller hedge funds that are not run by analysts but by real traders.

All the PTG hedge funds will be run with a significant profit-sharing model which will consequently encourage traders to perform at an exceptionally high level. The key element is, that PTG is actively looking for traders to invest their own capital, alongside company funds, in order to ensure skin in the game and eventually better, if not stellar, performance.

Most importantly, the technological platform under which these funds will operate provides the highest degree of transparency to investors. The relevance of this is hard to overestimate since the current hedge fund industry is plagued by a near total lack of transparency.

“Professional Traders Group believes that the next five years will see a period of radical change in the hedge fund industry. The leading funds will have to create innovative investment strategies to meet investor demand for higher returns and greater value.”

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Based on this overall vision, PTG aims to build out one of the largest financial trading facilities in the world in Dubai by 2020 – a mega-platform with over 2,000 traders relocated to the UAE from over twenty countries.

Professional Traders Group believes that the next five years will see a period of radical change in the hedge fund industry. The leading funds will have to create innovative investment strategies to meet investor demand for higher returns and greater value.

Professional Traders Group fully expects to be this trend’s frontrunner and standard bearer, breaking new ground as more expert traders come aboard. i 155

>

THE EDITOR’S HEROES

From Swords to Words via Whistles and Secrets Revealed

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ight out of the ten heroes fielded for the summer issue of CFI.co are women. They made noteworthy contributions in different fields of human endeavour. The two lone men in the line-up – UK politician Nick Clegg and British/Polish Prince Janek Zylinski – owe their inclusion to the recent general election that strengthened the Tories’ hold on power and saw the Scottish National Party triumph in an almost clean sweep north of The Border.

Messrs Clegg and Zylinski both tried to stem the electoral tide. The standard bearer of rectitude and reason, Liberal Democrat frontman Nick Clegg failed to inspire a nation slowly drifting towards polarisation with UKIP Europhobes pushing out Labour and Tory hardliners disguised as pragmatists scooping up the hordes of voters cowed into believing that lest modernity is fully embraced the country will sink into oblivion. Zero hour contracts, streamlining the already hollowed-out welfare state, a new European Deal, an all-powerful City, and a slimmed-down BBC are deemed to be essential ingredients of a reinvigorated Britain, ready to take on the world.

Navigating a narrow path between brazen Tories and Labour stalwarts, Mr Clegg proposed an approach based less on ideology and more on common sense.

That turned out to be a losing formula. The Liberal Democrats were soundly defeated at the polls, relegated to the margins of political life, and barely managed to survive as a party. Mr Clegg may have presided over the LibDem’s demise, he did stick to his guns and went down fighting. He refused to surrender to political expediency. In today’s world – one in which spin doctors usually set the agenda according to the latest opinion polls – a politician using his conscience as a guide is nothing short of heroic.

During the UK election campaign, a Britishborn Polish prince charged out of left field to take on UKIP leader Nigel Farage whose insistence on blaming foreigner for many of the country’s ills had become rather tiresome for Janek Zylinski. The prince was an instant hit when he challenged Mr Farage to a duel in Hyde Park by sword or word. The UKIP leader wisely kept mum.

Scion of a family of Polish nobility, Prince Zylinski can trace his roots back

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to 1224. A man of impeccable standing, a classicist, and not given to momentary lapses of reason, the prince took offense at Mr Farage’s oft-repeated disparaging remarks regarding Polish and other Eastern European immigrants who flocked to the UK in search of opportunity. Drawing attention to UKIP’s more xenophobic inclinations, Prince Zylinski managed to conquer the moral high ground and shed light on the silly side of Mr Farage’s discourse.

The eight women heroes in this issues line-up are, of course, admirable to a fault.

Member of European Parliament Sophie in ‘t Veld has devoted her political career to further transparency and democracy in Europe, forcing the European Union to reveal its inner secrets and exposing the darker side of the block’s dealings with the United States.

Ayaan Hirsi Ali, originally from Somalia and now a prominent essayist at the American Enterprise Institute, is a passionate advocate of women’s rights, particularly in the Islamic World. In just a few years, Mrs Hirsi Ali worked her way up from a dreary facility for asylum seekers in The Netherlands to the halls of power in Washington DC. In this issue, CFI.co also presents a whistle blower who exposed the shenanigans of a major US bank, a smart lady who leverages the power of the Internet to make women more visible in the media, a Saudi artist who questions custom with her work, and a lady politician who is also not for turning and uncovered cases where taxpayers’ money was wasted on an epic scale – the world could certainly use more of Margaret Hodge. However, she is now sadly retiring from public life.

Mrs Robinson from Ireland dedicated her life to the furthering of human rights all over the world while young Mhairi Black from Scotland went to London to take up her seat as the youngest member of parliament in living memory. Irreverent, passionate, a little naïve, and very much outspoken, Ms Black may very well help the up and coming generation of voters regain a modicum of interest in politics. That would constitute a supremely heroic act. CFI.co has included Ms Black’s name in the hero list as a sign a confidence in her ability to shake things up a wee bit at Westminster. i

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> AYAAN HIRSI ALI Waiting for the Age of Reason Her life has been an extraordinary journey across varied political, cultural, and geographical landscapes. She is beautiful, intelligent, courageous, and quite outspoken.

Author, campaigner, politician, film-maker, apostate, politician, and lecturer – Ayaan Hirsi Ali’s many incarnations have taken her from a religious upbringing in Somalia, via sojourns in East Africa and Saudi Arabia, to seek refuge first in The Netherlands and then in the US where she currently resides with her new husband and their young son. Despite living under a fatwa, Mrs Hirsi Ali remains an outspoken polemicist and campaigner.

Articulate, reasoned, yet forthright, Mrs Hirsi Ali is never far from controversy. Her books chart an amazing journey. In 2006, The Caged Virgin: A Muslim Woman’s Cry for Reason was published in The Netherlands where she was living at the time. This debut was followed in 2008 by the autobiographical Infidel. Three years later, driven out of Europe by a fatwa and securely settled in the USA, she wrote Nomad: From Islam to America, a Personal Journey through the Clash of Civilisations.

Her latest book Heretic, published earlier this year, argues that a Muslim Reformation sorely needed to end the horrors of terrorism, sectarian warfare, and the repression of women and minorities.

Ayaan Hirsi Ali was born in Somalia in 1969, the daughter of Somali opposition leader Hirsi Magan Isse and his wife Asha Magan. As the child of devout Muslims, she underwent female genital mutilation at the age of five.

Her family fled the fighting in Somalia and Ayaan received her education at a Muslim girls’ school in Nairobi. In 1992, she arrived in The Netherlands where she applied for – and was granted – asylum on the grounds that she was fleeing from a forced marriage.

Ms Hirsi Ali promptly threw herself into Dutch society. She worked at various jobs, learned the language, studied social work, and in 2000 took a postgraduate degree in Political Science at Leiden University.

Her work experience included translating at asylum centres and hostels for abused women, and working as a researcher with the Wiardi Beckman Foundation – the Labour Party’s thinktank.

While in 1989 Ms Hirsi Ali had supported the fatwa against British author Salman Rushdie, the 9/11 attack reinforced her growing disenchantment with Islam and by 2002 she had become an atheist. Ms Hirsi Ali subsequently developed a detailed critique of Islam.

In 2003, Ms Hirsi Ali was elected to the Dutch House of Representatives as a member for the right-of-centre liberal People’s Party for Freedom and Democracy (VVD). Ms Hirsi Ali collaborated with film director Theo van Gogh on Submission, a short and highly controversial film about the oppression of women under Islam. The next year, Mr Van Gogh was stabbed to death on an Amsterdam street by a Jihadist who pinned a threat against the life of Ms Hirsi Ali on his victim’s chest. This traumatic event drove her into hiding for two months. To this day, she is forced to retain the services of a 24-hour armed security detail.

Already in 2002, Ms Hirsi Ali admitted on a television talk show that she had used a false name on her asylum application. At the time, nobody paid much attention to this revelation.

Four years later, she again admitted on-camera to giving the immigration authorities misleading information regarding her identity and places of residence before arriving in The Netherlands.

This time, a political storm blew up and Ms Hirsi Ali lost her seat in parliament and her Dutch citizenship – which was later restored.

She subsequently moved to the US to take up a position at the American Enterprise Institute, a Washington-based conservative think-tank. In 2007, she founded the AHA Foundation which works to end honour-driven violence against women.

In 2011, Ms Hirsi Ali married the outspoken

and glamorous British historian Niall Ferguson.

The high-octane couple now have a young son.

Unsurprisingly, her latest book Heretic has proved controversial. In it, she argues that Islam is not a religion of peace but rather one that foments terrorism, breeds sectarian conflict, and sanctions the repression of women and minorities. The book seeks to identify what must change in Islam to separate politics from religion and bring about a peaceful and tolerant faith – and how the West might hasten this process of modernisation and secularisation. Heretic urges an Islamic version of the Reformation followed by enlightenment and the Age of Reason which happened in Europe centuries ago.

Naturally, her latest book has provoked heated debate and polarised opinion. Ms Hirsi Ali believes that the West’s dalliance with multiculturalism threatens its secular society and strong measures are needed to counter the growing threat of the bigotry, barbarism, and butchery manifested by modern-day extremist cults.

“When you live the way I do,” she told CNN after the Charlie Hebdo massacre in Paris, “you have to ask yourself over and over: who are these people that try to kill me? What do they want? What drives them? This is not a group of deranged thugs. It’s an ideology embedded in a world religion. For me to be safe, I have to outlive a generation whose minds are contaminated with it.”

“When you live the way I do,” she told CNN after the Charlie Hebdo massacre in Paris, “you have to ask yourself over and over: who are these people that try to kill me? What do they want? What drives them?

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> ALAYNE FLEISCHMANN Blowing the Whistle on Subprime Banks Whistle blowers revealing corporate wrongdoing can pay a high personal price for acting with integrity. History is littered with examples of organisations determined to deny misconduct, discredit the whistle blower, and maintain business as usual. Whistle blowers may face unemployment, ostracism, black listing, legal action, and worse.

Alayne Fleischmann is a former employee of JP Morgan Chase who provided the evidence which led to a $9 billion settlement by the bank to the United States government. The Canadianborn lawyer is now unemployed while her former managers are pursuing their careers unmolested.

Ms Fleischmann started working for Chase as a transaction manager with a diligence function in 2006. Her role was to ensure the bank did not buy bad loans. Ms Fleishmann and colleagues believed that incoming new loan packages included a large number of likely defaulters and were reluctant to clear these loans. Despite expressing their misgivings repeatedly to high level staff, huge dubious loans nonetheless were approved.

Subsequent events have shown that arguably massive criminal securities fraud took place.

Within a matter of months a “no email policy” was put in place, banning written communications.

Pressure to approve loans, however dubious, increased. This was an extraordinary development, effectively forbidding staff from communicating and keeping records of their work. These iffy transactions were taking place during the boom years. It was the heyday of hedge fund managers’ gung-ho financial engineering, when bankers believed their own rhetoric, subprime mortgages abounded, and reckless investment was handsomely rewarded.

The regulators’ light touch did not impinge on this behaviour. In 2008, the edifice came crashing down as bank after bank collapsed, relying on government bail outs as they were “too big to fail.”

Repercussions reverberated throughout the global economy.

In February 2008, Ms Fleishmann was one of a number Morgan Chase staff laid off. As was customary, she was subject to a confidentiality clause. She put the dirty dealings of the financial markets behind her and returned to her native Canada to take up practice as an attorney.

While working at a law firm in Calgary, she was contacted by the US Securities and Exchange Commission in the spring of 2012 as part of an investigation into Chase and its dealings. Later that year, Ms Fleischmann was interviewed by civil litigators from the US attorney’s office. With lawyerly precision, Ms Fleischmann provided her interrogators with detailed information about Chase’s sabotage of the diligence process, instructions not to send e-mails, bullying by superiors, and the way the bank ignored written warnings regarding risky loans.

Alayne Fleischmann photographed in English Bay, Vancouver, Canada. Photo © Andrew Querner

Talks with government officials continued over a couple of years and Ms Fleishmann expected prosecution of the bank would follow. Instead, the fraud charges against Chase were cancelled and the case was settled out of court.

At first sight it may have seemed like a victory for the government. However, this is far from the case: the bank’s objective was to keep the case out of court and thus maintain secrecy. Negotiations behind the scene led to the cancellation of the charges in exchange for a $9 billion settlement.

Ms Fleischmann’s evidence became a key bargaining chip for the Department of Justice.

Chase agreed to pay a large fine, but there was no trial, no exposure of people and processes at fault.

This is a familiar pattern: banks have not been held accountable for their behaviour and individuals within the banks remain at their jobs and continue to receive stellar pay packages.

And what of the whistle blower? Ms Fleishmann adhered to the confidentiality clause, talking only to US government officials and the regulator.

However, in 2014 she was effectively outed by the government who let it be known that it had a key witness, a female employee who could testimony about Chase’s mortgage operations.

Ms Fleischmann was appalled. She had been given no warning that her evidence was a major part of the government’s case against her former employer, and she had no idea that she was about to become headline news. At the time Ms Fleischmann was looking for work, and the news effectively scuppered her chances of finding a job as it was clear from her CV that either she was working at Chase during the height of its misdemeanours, or alternatively, she was the whistle blower. Neither option improved her job prospects.

In November 2014, Ms Fleishmann went public, doing an in-depth interview with Rolling Stone and appearing on US TV programmes. “How is it possible,” she asked repeatedly, “that you can have this much fraud and not a single person has done anything criminal?”

“How is it possible that you can have this much fraud and not a single person has done anything criminal?”

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> CAROLINE CRIADO-PEREZ Ordeal and Success by Social Media

The rise of social media has transformed the way in which the world communicates. However, this can be a double-edged sword as freelance journalist, broadcaster, and campaigner Caroline Criado-Perez discovered.

Ms Criado-Perez has been prolific user of social media and highly successful in deploying it for societal change. Her campaigns include The Women’s Room, which works to ensure more women experts to feature in the media; and Keep a Woman on English Banknotes, a grassroots campaign to pressure the Bank of England to comply with the Equality Act in its selection of famous faces to grace banknotes.

The 2013 banknote campaign followed the announcement by the Bank of England that 19th century prison reform campaigner Elizabeth Fry was being dropped from £5 notes to be replaced

by Winston Churchill. This would mean that women are no longer featured on any British banknote apart from the queen who is ubiquitous

on the other side. Ms Criado-Perez points out that “she is there simply for the achievement of having been born without any brothers.”

The choice of faces for the new notes implied that women haven’t been historically significant enough to warrant such a tribute. Incensed by this refusal to celebrate female achievement, or recognise the importance of providing visible role models, Ms Criado-Perez launched an online petition and raised funds for a potential legal challenge. The campaign caught on and eventually the bank decided to use Jane Austen’s face on the new £10 note.

Sadly, the success of the campaign drew the wrath of misogynistic twitter users. They subjected Ms Criado-Perez to a deluge of vile and hateful tweets much in the same way other high profile female tweeters expressing strong opinions have experienced. From behind the mask of anonymity that social media offers, vitriolic and foul abuse poured in, threatening

sexual violence, torture, and even death.

Restraining orders, prosecutions, and short jail sentences were eventually meted out to the very worst offenders. Ms Criado-Perez’s twitter profile now pointedly says, “Please send all hate mail to your mum.”

The Women’s Room – Ms Criado-Perez’s campaign to establish a database of women experts available to talk to the media – came about in 2012 when she heard BBC Radio 4’s Today Programme use all-male panels on successive days to discuss women’s bodies and health issues.

A report on teenage girls and contraception featured an all-male panel including the headmaster of Wellington College public school.

The next day, a piece about women’s experiences of tests for breast cancer again failed to include any women. Stuck by the absurdity of this, Ms Criado-Perez considered the problem: surely there were plenty of women with the relevant knowledge, skills, and experience to comment.

She found that while women are included in media coverage, three-quarters of the media’s pundits are men. Producers argue that there just aren’t that many female experts around.

Ms Criado-Perez was determined to tackle this mismatch and launched a social media campaign to compile a database of women experts who would be available for media input, appearances, and assorted punditry.

The Women’s Room database currently holds around 3,000 names and is helping to counter under-representation of women in the media. Programme makers, journalists, and others can readily identify women experts on particular topics, with the result that women experts registered with the database now feature across the media every day of the week.

Ms Criado-Perez is one of a new breed of campaigning activists and thoroughly understands how to deploy social media to engage with supporters and publicise campaigns. She was included in the Independent on Sunday’s Happy List 2013 of one hundred outstanding people whose volunteering, caring, fundraising, mentoring, charity founding, or general selflessness makes Britain a more contented, supportive, better-adjusted, and happier country.

In 2013, Ms Criado-Perez won the Liberty Human Rights Campaigner of the Year Award.

Her first book Do It Like a Woman, published earlier this year, contains a riveting a collection of stories celebrating women at their strongest, from campaigning against female genital mutilation and sex trafficking to being the first woman to cross the Arctic Circle alone.

“Ms Criado-Perez is one of a new breed of campaigning activists and thoroughly understands how to deploy social media to engage with supporters and publicise campaigns.”

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Summer 2015 Issue

> EIMAN ELGIBREEN The Soft Power of Art A dynamic contemporary art movement is emerging in the Kingdom of Saudi Arabia, the traditional heart of Islam. The art scene is one where women can play a full part, making uninhibited and substantial contributions to the development of national culture in the broadest sense.

Eiman Elgibreen is one of the new breed of Saudi artists. She leads a busy life, engaging across a wide cultural spectrum. A practicing artist, she also lectures in Art History and Criticism at the Princess Norah University in Riyadh and freelances as an art critic and reviewer for the AlRiyadh and Al-Jazirah newspapers.

Ms Elgibreen was born in Al Hada in 1981 and raised in Riyadh. Her impressive academic credentials bridge the cultures of the Middle East and the western world. Ms Elgibreen’s list of academic interests include postcolonial feminism, Middle Eastern contemporary art, women artists, and Saudi women artists. She holds first class honours degrees in art education at both bachelor and masters level from Saudi universities and earned a diploma in Professional Photography in New York.

In 2014, Ms Elgibreen was awarded a doctorate in Art History at the University of Sussex for her thesis on the work and career of noted Saudi female artist Safeya Binzagr. She observes that: “Safeya Binzagr was able to make a huge difference not only in the Saudi art scene, but also on a social, cultural, and historical level.

She is now the only Saudi artist who has her own museum, and she did all that without trying even once to breach the norms of her society. I strongly believe that conservative women are as influential as radicals or liberals, but to appreciate that we need to change the ways we assess their work.”

Ms Elgibreen’s own work has been included in art exhibitions across the Gulf countries. Her oeuvre incorporates photography, painting, and sculpture and challenges the stereotypical view of women who adhere to conservative Saudi dress codes. Her Out of Context collection presents veiled women in scenarios that challenge the viewer. Her clever diptych, Banksy and I, has a veiled Ms Elgibreen self-mirroring the silhouette of the celebrated faceless UK graffiti artist Banksy.

In 2012, she curated A Statement of Identity, an exhibition of Saudi female artists at Brunel University in London. A year later, Ms Elgibreen exhibited work at the 55th Venice Biennale as part of the seminal Rhizome Exhibition curated by Edge of Arabia. Her contributions include a sculpture entitled Does the Face Make a Difference and a series of six photomontage paintings entitled Do Not Judge Me, Just Look at my Work!

Of the Rhizome Exhibition she says: “Of course I feel proud to have been selected. The message

Does a Face make a Difference: Photograph prints mounted over limestone bricks, and assembled over a clear acrylic base with a mirror.

© Eiman Elgibreen, Edge of Arabia

of my current collection might seem shocking to some, as I portray veiled women in different and surprising contexts. These women have made their own choices and refuse to compromise, regardless of the context. I believe that I have an obligation to tell the other side of the story of what it means to be a Saudi woman.”

Edge of Arabia was founded 12 years ago by collaboration between British artist Stephen Stapleton and Saudi artists Ahmed Mater and Abdulnasser Gharem to provide a platform for dialogue and exchange between the Middle East and western world. Rhizoma, the Greek word for the underground root of a plant, is a metaphor for a new generation of Saudi artists whose projects are

emerging from a subterranean grassroots network and challenging the mainstream.

Ms Elgibreen says: “Saudi Arabia is an extremely large country, so we still need more artists to represent the diversity of its cultural groups. However, the young generation is certainly shaping current events in the country and decision makers find themselves more obliged to hear what they have to say. The Rhizoma Exhibition presents very conflicting ideas, especially in the work of female artists, which is what I am most excited about. I think it will give the audience an opportunity to understand that women in my country are opinionated and capable of discussing their own issues.”

“Eiman Elgibreen is one of the new breed of Saudi artists.”

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> MARGARET HODGE The Scourge of Tax Dodgers

The pinnacle of Margaret Hodge’s four decades in public life has arguably been the five years spent as the very high profile scourge of government profligacy and corporate tax avoiders. The House of Commons Public Accounts Committee (PAC) holds the government to account for its use of public money, ensuring transparency and accountability in its financial operations. As the chair of the PAC Mrs Hodge has earned a reputation for her incisive and insightful interrogation of senior public and private sector figures whose financial dealings affect UK tax payers.

Historically, the task of the committee has been to analyse Whitehall spending and highlight malpractice. This approach has uncovered devious practices, including the outsourced tagging scandal that saw G4S and Serco charging the government for tracking offenders who were dead. However, it is in the arcane recesses of tax legislation that Mrs Hodge has hit the headlines

as she filleted and then flayed bosses of big corporations that have avoided paying tax. For a population hard-hit by austerity this uninhibited, often outspoken criticism of affluent fat cats has provided a measure of vicarious enjoyment.

Like all parliamentary committees, the PAC can call high level executives in the public and private sector to give evidence and justify their behaviour in public. In recent years, the committee has become increasingly outspoken.

PAC hearings can be very dry, but sharp intellect and meticulous preparation enable the fourteen committee members to cut through obfuscation, ensuring that on occasions the televised meetings make for riveting viewing.

Mrs Hodges told her constituents: “The issue of tax avoidance has struck a real chord with people. It makes the rest of us furious that while we pay our taxes without question, a few at the top are using every trick in the book to get out

of making their fair contribution. I am pleased that the committee has helped persuade the government to get tougher on tax avoiders but there is still a long way to go and it is a fight I intend to keep up.”

Mrs Hodges one-liners often make headlines.

Earlier this year, an official from the tax department of HMRC (Her Majesty’s Revenue and Customs) got short shrift: “Honestly, I want to put a bomb under you guys,” she expostulated. She did not mince words calling “either naive or totally incompetent” the BBC Trust chair who was also a non-executive at HSBC in charge of audit at the time it allegedly facilitated tax evasion in Switzerland.

Mrs Hodge, a member of parliament for the Barking constituency since 1994, served as a minister in Labour governments. In 2010, she was elected chair of the PAC, a role traditionally taken by a member of the opposition. She is now standing down saying: “I’ve done the job for five years and it has been really hard work but fantastically rewarding. I’ve really loved it. However, I have given it a lot of thought and decided before the general election that I want to try some new challenges.”

She will be a hard act to follow.

Margaret Hodge (née Oppenheimer) was born in Cairo in 1944. Her parents were affluent AustroGerman Jews who spent the Second World War stateless and stranded in Egypt. After the 1948 Arab-Israeli War, the family settled in London where her father started a steel-trading company.

After attending boarding school, Mrs Hodge went on to take a degree in Government Studies at the London School of Economics. She subsequently worked in market research, later finding employment as a senior consultant to PricewaterhouseCoopers.

She cut her teeth in London local politics and was elected as a local councillor in the “loony left” Borough of Islington in 1973. Nine years later, Mrs Hodge became council leader, retaining this position for ten years. She became MP for Barking in east London in a by-election in 1994. She has stated that of the most important achievement of her political life was doubling her majority to defeat British Nationalist Party leader Nick Griffin in the constituency in 2010. During her political career, Mrs Hodge has been embroiled in various controversies, at times incurring the odium of the right-of-centre media.

Notwithstanding the fact that she is in her eighth decade, Margaret Hodge’s energy and passion are likely to see her continue investigating the tax system. She has called the privatisation of public services “the most important policy issue of our time.” As she enters the latter stages of her long and distinguished political life, it will be fascinating to see how she influences the forthcoming debate.

“Margaret Hodge’s energy and passion are likely to see her continue investigating the tax system.”

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Summer 2015 Issue

> MARY ROBINSON A Lifetime Dedicated to Human Rights

Lawyer, legislator, social reformer, politician, and UN High Commissioner, Mary Robinson has been a powerful force for change in her native Ireland and across the globe.

As she celebrates her 70th birthday, Mrs Robinson can look back on an extraordinary career and reflect on her influence in the transformation of Ireland and her contribution to the advancement of human rights across the globe.

Mrs Robinson came to prominence in 1990 when she rose above factional in-fighting to become the first woman president of Ireland. She proved to be a popular incumbent whose legal knowledge, intellect, and political experience brought a new gravitas to the role.

Her education and early career saw Mary Bourke do a law degree at Trinity College, Dublin, and King’s Inns. After studying at Harvard Law School, she was called to the Dublin Inner Bar and appointed Reid Professor of Law at the college.

In 1970, she married a fellow lawyer Nicholas

Robinson – a protestant and subsequently the cause of some rifts within the bride’s catholic family.

In the 1960s and 70s, Ireland remained staunchly catholic which was reflected in its rigid and prescriptive constitution. Mrs Robinson became one of the University of Dublin’s three senators and campaigned on a wide range of human rights issues. She advocated changes to the constitution to bring it in line with more relaxed modern social attitudes including removing the ban on divorce, eliminating the prohibition on contraceptives, and decriminalising homosexuality and suicide. She campaigned for the right of women to sit on juries and for the abolition of the requirement that women must resign from the civil service upon marriage.

Elected in 1997, Mrs Robinson proved to be a tremendously active, effective, and popular president. She reached out to Irish groups across the globe and put a very visible symbolic light in the window of the presidential residence as a

sign of remembering Irish emigrants around the world.

That same year, she was appointed the second United Nations High Commissioner for Human Rights, heading up the international agency established to promote and protect the human rights that are guaranteed under international law. During her tenure at the UN, she criticised the use of capital punishment in the USA and her native Ireland’s immigration policy.

She extended her UN term by a year to preside over the controversial World Conference against Racism 2001. The United States and Israeli delegations withdrew from the conference in response to a draft document equating Zionism with racism. In the event, the conference was eclipsed by the terrible events of 7/11 which took place a couple of days later, irrevocably changing international relations.

Mrs Robinson lost the support of the United States as High Commissioner and resigned her UN post the following year and formed Realising Rights: The Ethical Globalisation Initiative. Its objectives were to foster equitable trade and decent work, to promote the right to health and more humane migration policies, and to strengthen women’s leadership and encourage corporate responsibility.

In 2010, Mrs Robinson retired to Ireland and set up The Mary Robinson Foundation - Climate Justice. This is a centre for thought leadership, education, and advocacy on the struggle to secure global justice for people vulnerable to the impacts of climate change: the poor, the disempowered, and the marginalised.

Mrs Robinson is the chair of the Institute for Human Rights and Business and Chancellor of the University of Dublin. She lectures in International Human Rights at a number of universities and sits on the board of a number of organisations. She has received a slew of awards for her work in the field of human rights.

In 2009, she was awarded the United States’ highest civilian honour – The Presidential Medal of Freedom. President Barack Obama said of her: “As an advocate for the hungry and the hunted, the forgotten and the ignored, Mary Robinson has not only shone a light on human suffering, but illuminated a better future for our world.”

After recently celebrating her 70th birthday, she shows no sign of slowing down and now actively campaigns for rich countries to help developing nations move away from fossil fuel and make the transition to renewable energy.

President Barack Obama said of her: “As an advocate for the hungry and the hunted, the forgotten and the ignored, Mary Robinson has not only shone a light on human suffering, but illuminated a better future for our world.”

CFI.co | Capital Finance International

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> MHAIRI BLACK The Baby of the House

“Elected when only 20 years and 237 days old, the official Baby of the House is the UK’s youngest MP since the 1832 Reform Act.” In May 2015, newly elected Glasgow MP Mhairi Black travelled to London for only the second time in her life when she and 55 fellow Scottish Nationalists headed south to take their seats in the House of Commons. The feisty, plainspeaking young Scot looks set to bring a breath of fresh air to the fusty green leather benches traditionally dominated by middle aged members of the old boys’ club.

In a diary for The Big Issue, she describes starting her new job: “I’ve been to London once before with my family, just over a year ago. We went on a tour of Westminster as tourists. This time was a wee bit different. When we visited last year, I didn’t think, ‘I’d like to come here as a politician’. I’d never considered being a politician. This is the first time I’ve actually described myself as one, that’s mental!”

Elected when only 20 years and 237 days old, the official Baby of the House is the UK’s youngest MP since the 1832 Reform Act. On May 7, Ms Black overturned Shadow Foreign Secretary Douglas Alexander’s majority of 16,000 in the constituency of Paisley and Renfrewshire South. Her election campaign was conducted while she was in the final year of her Politics and Public Policy degree at Glasgow University. In fact, she only completed her dissertation – on how the SNP’s party structure has accommodated the influx of new members since the referendum – once the election finished.

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Life will never quite be same for Ms Black who is now a politician with an exceptionally high profile. Political success brings media scrutiny and as a keen twitter user since the age of 14, Ms Black’s adolescent tweets have been subjected to a degree of examination that no adult would welcome. Her (now deleted) timeline illustrates the preoccupations of a normal teenager: school work, TV, music, social life. In March 2010, she observes “maths is shite”. Other tweets extol the virtue of a good night out, alcohol, live music and Partick Thistle Football Club.

After the election the crowd-sourced gossip account @eyespymp laid into the new MP claiming “SNP’s @mhairi1921 opting for champagne in the invite-only BA Glasgow Airport lounge.” Ms Black dealt with this adeptly, tweeting “I think you need to check your sources – it was highland spring and a bowl of soup for me. Sorry to disappoint!”

The independence referendum last September led to an upsurge of political engagement in Scotland with the SNP attracting unprecedented levels of support before and after the vote. Arguably the most stunning result of the May 2015 election was the emphatic election of 56 SNP MPs in Scotland, wiping out almost all opposition.

The campaign platform was left-of-centre, antiausterity, and pro-devolution. With the SNP now the third largest party in Westminster it will CFI.co | Capital Finance International

be interesting to see how this will play out in forthcoming debates and legislation.

Political activist Mhairi Black became a parliamentary candidate only in November 2014. Her political influences include Keir Hardie, Tony Benn, and Margo MacDonald – a Glasgow SNP MP in 1973-74. Ms Black says she is not religious but reads her Bible and sees being an MP as an opportunity to help people.

Her last job was working in a chip shop.

After the election count was in, her message to voters was inclusive: “Whether you voted for the SNP or not, and whatever your views are on Scotland’s future, I will seek to represent you and everyone in this constituency to the very best of my ability. This election is about making the voice of this constituency and the whole of Scotland heard more effectively at Westminster than ever before.”

Many young people feel disillusioned by politics which they see as having no relevance to their lives. They fail to relate to largely middle-aged and middle-class politicians. The whirlwind arrival in Westminster of Ms Black – with her idealism, energy, and enthusiasm – could go some way to enfranchising and politicising a generation of young citizens who are the future of British democracy. Exciting times lie ahead as the new MP looks set to make her mark in Westminster as well as in Paisley and Renfrewshire South. She is definitely the one to watch.

Summer 2015 Issue

> NICK CLEGG A Heart That Will Yet Be Sorely Missed As David Cameron was celebrating his party’s astonishing victory at the polls on May 8, his former coalition partner Nick Clegg delivered a mournful resignation speech. Immediately after the election, Mr Clegg stepped down as leader of the Liberal Democrats. He called the outcome “crushing and unkind”.

This was an apt assessment: of the fifty-seven seats won in 2010, only eight remained. The Lib Dems vote plummeted from 6.8m in 2010 to barely 2.4m in 2015. One of the constituencies the party managed to keep was the former deputy prime minister’s own Sheffield Hallam. As such – and possibly as a form of penance – Nick Clegg kept his seat in parliament.

The Tory victory now offers David Cameron a clear mandate to continue his austerity drive.

No longer in need of a messy coalition, the Tories dutifully patted Mr Clegg on the head for being such a good sport. The few articles in the media defending the Lib Dems were in a similar vein: sacrificing himself for the good of the economy and putting the country before party. Mr Clegg is widely considered a nice chap.

These are attributes a politician could do without as some former supporters scream traitor and sell-out. Mr Clegg’s record is in no need of such faux-magnanimity emanating from the right: whether or not his disgruntled supporters realise it, Mr Clegg’s accomplishments are worthy of sincere praise.

By going into government with the Tories – the first coalition since World War II – Nick Clegg brought his party into power for the first time in its history. He proved that Liberal Democrats are indeed a party capable of governing, implementing policies, and assuming the responsibility that comes with it – and not a wishy-washy party of well-meaning fence sitters. They may have appreciated the anti-establishment bent Mr Clegg presented during the election campaign, being the firmly established third party of UK politics.

However, the Lib Dems are not merely a protest party. If compromise is the price of actually affecting policy, then it is worthwhile to pay.

This brings the elephant – or 800lbs gorilla – in the room into view: tuition fees. The Lib Dems pledged to cap these but had to backtrack – the price of admittance to government. The party ended up signing off on a hike that saw tuition fees skyrocket by up to 200%. The Lib Dems were allowed a single fig leaf in the form of a raised income level beyond which repayment is triggered.

This constituted an unmitigated disaster and Mr Clegg and his party were correctly held accountable for breaking an important campaign promise. Following the coalition’s formation, support for the Lib Dems dropped slightly, only to

nosedive after the tuition fee debacle. The party would not see disenchanted voters return to its fold.

But is this really fair? After the 2010 election, the Lib Dems had nowhere near the majority needed to fully implement all espoused policies. Such is the fate of smaller parties.

Would a minority Tory government have fared any better? Or for that matter, what could have been expected of a Labour government? After all, it was Labour that introduced tuition fees to begin with.

An inconvenient truth.

It is easy to cherish ideals if they are never put to the test. Labelling compromise as betrayal reveals a preference for keeping ideals safely seated on their lofty perch: pretty but pretty useless as well. However, many Britons have a hard time understanding the compromise needed for government by coalition to work.

Nick Clegg took a minority party and still managed to affect policy according to his party’s principles of social liberalism and economic centrism. In coalition, the Lib Dems secured a raise of the income tax threshold to £10,000, fulfilled their promise to end child migrant detention, and raised inheritance tax on estates over one million pounds.

More importantly, the Libs Dems managed

to block a number of Tory legislative initiatives such as the Communications Data Bill commonly known as the Snoopers’ Charter. This bill would have greatly increased the government’s power to collect and store electronic data generated by its citizens. The Lib Dems also restrained their coalition partner when perhaps overly excited Tories attempted to repeal the Human Rights Act. Such a move would have effectively terminated the UK’s adherence to the European Convention on Human Rights and with it the right to appeal at European level.

Now unencumbered in government, the Tories have placed both initiatives back on the legislative agenda. They are now also free to slash and hack away at the budget without any restraints on their austerity impulses. As a result, welfare programmes are expected to be reduced by at least £12bn as the poor are again being punished for their supposed failings.

During the campaign, Mr Clegg put forth his vision of the liberal democrats: the head of a Labour coalition or the heart in one with the Tories. His track record, for all the let-downs, bears that out. History can wait: the voters will undoubtedly come to judge Mr Clegg more kindly.

Over the next few years that heart will surely become sorely missed.

“History can wait: the voters will undoubtedly come to judge Mr Clegg more kindly.”

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> PRINCE JANEK ZYLINSKI Pen or Sword? Your Choice, Mr Farage

“I’ve had enough of the discrimination against Polish people in this country,” he says. “The most idiotic example I’ve heard of has been Nigel Farage blaming migrants for traffic jams on the M40.”

“Are you up for it, Mr Farage,” demands an aging aristocrat of Polish descent brandishing his sword and demanding a duel to settle a grievance.

Offended by Farage’s vitriol towards eastern European migrants Prince Janek Zylinski called out his opponent via a YouTube video offering a modern twist on a traditional way of settling disagreements.

Self-styled people’s politician Nigel Farage has an eye for publicity and a knack for soundbites. It has attracted new followers in droves to his United Kingdom Independence Party. Mainstream political parties of every hue now fear the impact of the xenophobic “kippers” on election day. However, Mr Farage was outmanoeuvred by the eccentric and engaging London-born Prince Janek Zylinski.

“I’ve had enough of the discrimination against Polish people in this country,” he says.

“The most idiotic example I’ve heard of has been Nigel Farage blaming migrants for traffic jams on the M40.”

His objective: “I’d like us to meet in Hyde Park one morning with our swords and resolve this matter in a way familiar to an 18th century Polish aristocrat and an English gentleman.”

Sadly, the duel will not take place. Mr Farage is keeping an uncharacteristically low profile, resisting the prince’s offer for a duel of sword or word. The prince suggested they meet in a television studio instead of Hyde Park.

Prince Janek Zylinski was born in London in 1952 and has lived in Ealing all his life. He is an 166

energetic and engaging character, fiercely proud of his Polish royal ancestry which he can trace back to 1224.

Highlights of the family’s 20th century history includes a heroic cavalry charge led by the prince’s father when Poland was invaded by Nazi Germany in 1939. Twenty-nine-year old Captain Andrezej Zylinski led a squadron of 88 Uhlan horsemen in a charge against the German 44th Infantry Regiment. The valiant cavalry sustained heavy losses in liberating the Polish town of Kaluszyn and saving many Jewish lives.

The event took place on September 12, a date which the prince has named The Day of The Gold Horseman in honour of his father. Prince Zylinski commissioned a 40 ton gilt-bronze statue of a horse and rider in heroic pose based on an early 19th century painting of Napoleon crossing the Alps on horseback. The massive Gold Horseman monument was erected in the centre of Kaluszyn.

Last year on the 75th anniversary of the charge, the prince organised a large scale reenactment of the event which was filmed and shown on a big screen back at home on Ealing Common. Prince Zylinski: “We are going to celebrate the day of The Gold Horseman every year, even in Ealing, so that it educates young people.”

The Second World War caused the Zylinksis to flee Poland and set up home in London. The ancestral home was burned down by the post-war CFI.co | Capital Finance International

communist regime but the young prince pledged to recreate his grandmother’s house in his new surroundings.

It took many years, but Prince Zylinski has been true to his word and now lives with his wife in a palace set in its own private gardens in the unlikely setting of Park View Road, Ealing. Prince Zylinski himself designed the 18th centurystyle White House based on the family palace in Poland. It took seven years to build the new palace. It was completed in 2009. The opulent Louis XV interior of the hidden gem include marble, gold cornices, and chandeliers. The 21st century palace is in demand as a setting for photo-shoots and films. The British TV drama Secret Diary of a Call Girl was filmed there.

For centuries people from afar have arrived and settled in the British Isles. Vikings, Angles, Saxons, Romans, and Normans were early invaders and colonisers. Refugees and migrants from across Europe and further afield have all played a part in making modern Britain. Prince Zylinski’s forbears are from Poland but he is very much a modern British subject. As John Stuart Mill said: “Eccentricity has always abounded when and where strength of character had abounded; and the amount of eccentricity in a society has generally been proportional to the amount of genius, mental vigour, and courage which it contained.” Britain has a long history of colourful eccentrics and Janek Zylinski is a noteworthy member of this club.

Summer 2015 Issue

> SOPHIE in ‘t VELD Calling the European Council to Order Dutch MEP Sophie in ‘t Veld believes that the freedom of every person to hold their own thoughts and opinions is a cornerstone of any democratic society. Her vision for Europe is based on the values of the Age of Enlightenment: she speaks up for democracy, transparency, and equality in the European Union. In these troubled times, a principled politician is to be admired and valued, especially one who works to hold the European Union and its institutions to account.

Ms In ‘t Veld is a keen advocate of open government. Last year, she emerged victorious after a five year battle to gain access to the full text of the agreement that allows US authorities to access data on intra-EU bank transfers. The case centred on Ms in ‘t Veld being denied access to an opinion of the Legal Service of the Council of Ministers regarding the juridical basis of the SWIFT agreement.

Ms In ‘t Veld brought action against the refusal before the General Court, and won. In response, the council appealed against the ruling, arguing that the judges had erred in demanding the council substantiate its argument that the disclosure of the requested information would cause specific and actual harm. The final arbiter, the European Court of Justice, eventually ruled against the Council of Ministers.

Ms In ‘t Veld said: “The court clearly states that transparency is a prerequisite for a truly democratic Europe. The EU must evolve from a Europe of diplomats, discretion, and confidentiality to a Europe of citizens, administrative transparency, and trust.”

Her lawyer Onno Brouwer added: “In this case the council again explored the boundaries in an attempt to restrict the fundamental right of European citizens to administrative transparency.

It is a great victory for Sophie in ‘t Veld and for the European citizens that the courts have now called the Council of Ministers to order. In particular, the Court of Justice’s view that European institutions must demonstrate that the disclosure of a document effectively harms the public interest is of great practical importance to journalists, interest groups, and all those who wish to obtain access to EU documents.”

Ms In ‘t Veld is a historian by training, speaks six languages, and describes her route into politics as “accidental” after failing to get a job in the private sector. She is passionate and committed, throwing herself into the causes she cares about.

In 2011, the UK National Secular Society awarded her with its Secularist of the Year Prize.

She is currently in her third term as a member of the European Parliament.

When Pope Benedict XVI in his 2012 Christmas message called gay and transgendered

people a “bigger threat to mankind than even the destruction of the rainforests,” Ms In ‘t Veld immediately called for the European Commission (EC) to condemn these remarks, saying: “I expect the EC to actively contribute to a climate of tolerance in which all EU citizens can live free of fear and discrimination.”

Institutional corruption is another of Ms In ‘t Veld’s bugbears. During a plenary debate on FIFA in June, she told her fellow MEPs: “Earlier on, UKIP tried to create the atmosphere of a football stadium here, including hooligans. Today’s debate is actually fairly modest. We are merely admonishing FIFA here, saying: Now, now boys – because it is mostly boys – keep your hands out of the cookie jar.”

In an online essay, Ms In ‘t Veld last year set out the case for EU institutions to move towards transparency. She remembered a scene from the popular 1980s TV series Yes Prime Minister in which Sir Humphrey Appleby, permanent secretary to the PM, admonished his boss, the

rather hapless Jim Hacker: “Open government, Prime Minister, freedom of information? We should always tell the press freely and frankly anything that they could easily find out some other way.”

Ms In ‘t Veld thinks this quote illustrates perfectly the attitude of the EU institutions to transparency. As a diligent and committed MEP she is in a position to know: “Today, citizens are more assertive and vocal, taking ownership of the process, and giving shape and direction to the EU. The old culture of secrecy is increasingly giving rise to distrust. Transparency and accountability are preconditions for a true democracy.”

“Europe is going through the most turbulent period in its existence and the world is changing rapidly. We need strong EU institutions, able to act and meet the immense challenges of today. To that end, the EU must have the trust of the citizens. Transparency is the key to trust.

Sorry Sir Humphrey, you are a man of the past.

Transparency is the future.”

“We need strong EU institutions, able to act and meet the immense challenges of today.”

CFI.co | Capital Finance International

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> Americas:

The Global Reach of US Justice Cleans Up Sports

By Wim Romeijn

Whilst the assault on personal freedom and civic liberties perpetrated under the guise of the ill-defined and open-ended war on terrorism has become one of the more successful of US export products, so has that country’s dogged insistence on combatting corruption and fraud on a global scale. Rooted in the Foreign Corrupt Practices Act of 1977 (FCPA) – adopted in the Post-Watergate years as the US Congress was frantically trying to rein in the breadth of executive power – the fight against misuse and abuse of authority has toppled heads of state, exposed shady dealings, and caused misbehaving businesses untold billions in sanctions.

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Summer 2015 Issue

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he latest to be subjected to the full force of the FCPA – since strengthened by the International Anti-Bribery Act of 1998 and backed up by the infamous RICO (Racketeer Influenced and Corrupt Organizations) Act – is FIFA, the International Federation of Association Football, which in May of this year saw nine of its top officials and five marketing executives indicted by the US Department of Justice after a three year long investigation by the FBI. The FIFA representatives and directors were arrested in Zürich, Switzerland, as they prepared to attend the federation’s 65th annual congress and re-elect President Sepp Blatter to a fourth consecutive term at the helm of the federation.

Unfazed by the scandal erupting around him, Mr Blatter secured a new term in office and went on to portray himself as the unsuspecting victim of evil lieutenants who soiled his beloved federation.

Mr Blatter also assured all and sundry that his administration would outdo the US Department of Justice in cleaning up FIFA’s act. The arrested officials and marketing directors are suspected of having pocketed up to $100m in bribes.

This is the second time that a major sports federation is taken on by US authorities. The United States Anti-Doping Agency, a non-profit organisation responsible for the implementation of the 2004 World Anti-Doping Code, moved decisively against cyclists Floyd Landis and Lance Armstrong – both Tour de France winners – for the use of performance-enhancing drugs, stripping them of their titles.

European agencies and prosecutors have been much less visible in the fight against sports malpractices and fraud. The fixing of football matches by rogue betting agents from Asia and elsewhere fizzled out without any discernible results even though Europol, the EU’s crossborder police body, had identified no less than 380 suspicious games. Investigators found that criminal syndicates are bribing players in order to book large betting wins which may then be legitimately transferred across international borders. Match fixing offers a cheap and easy way to whitewash large amounts of ill-gotten cash and move it into premier jurisdictions – no questions asked.

The volumes of cash involved is staggering.

Chris Eaton of the International Centre for Sport Security in London estimates that betting on football games moves in excess of $500bn annually – an amount not far off from Switzerland’s GDP. FIFA officials estimate that game rigging is an industry with turnover of about $15bn per year – excluding the activities of money launderers. According to Mr Eaton, the Camorra and Mafia crime syndicates have managed to rake in well over $2.6bn from match fixing.

While FIFA President Sepp Blatter has repeatedly

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“Though FIFA steadfastly refuses to provide details on sponsorship deals with major international brands, annual filings by big name companies such as Coca-Cola and Adidas show that eight year deals (covering two World Cup tournaments) are worth in excess of $250m each.” said that his federation will do its utmost to defend the beautiful game, and donated $27m to Interpol to help accomplish this, nothing much has transpired since. Rather than moving ahead with the investigation, European Football Association Union UEFA downplays the problem.

While UEFA Secretary General Gianni Infantino admits that match fixing does pose a problem, he considers it only a minor one: “We closely monitor more than 31,000 European football matches every year and on average can only detect about 200 games that show some signs of irregularities which does not necessarily mean that the outcome of these meets was rigged.”

A like attitude has prevailed at FIFA from since before Sepp Blatter assumed its presidency in 1998. Long synonymous with fraudulent business practices, awash in bribery scandals, and plagued by infighting, the world’s football regulatory body has long been perceived as a hotbed of dubious practices. However and curiously enough, before the Americans snapped into action, no-one in an official capacity had seriously entertained the idea of mapping the irregularities, substantiating suspicions, and prosecuting perpetrators. Investigations into the murkier side of the federation were mostly conducted by enterprising journalists.

Whilst the bidding process to determine the hosts of World Cup tournaments was utterly lacking in transparency – with strong indications that some countries may have bought the votes of others – no official inquiry was ever launched into the allegations. Off the record, FIFA officials would dismiss the accusations as the sour grapes of those unsuccessful in their bids.

The world’s most popular sports, association football has more than 265 million people – plus about five million referees – playing the game in all corners of the world. Fully four percent of the world’s inhabitants play football either for pleasure or for money. In fact, football equals big money. Its economics are sound and staggering. FIFA alone annually rakes in $1.4bn CFI.co | Capital Finance International

from sponsorships and broadcasting rights. This number almost doubles in a World Cup year.

Though FIFA steadfastly refuses to provide details on sponsorship deals with major international brands, annual filings by big name companies such as Coca-Cola and Adidas show that eight year deals (covering two World Cup tournaments) are worth in excess of $250m each. Typically, FIFA has four or five top-tier sponsors for its flagship events, besides a greater number of second-tier sponsors that cash out anywhere from $5m to $16m to have their brands associated with the game.

Strangely enough, it is not always clear what FIFA – registered in Switzerland as a non-profit organisation – spends its money on besides doling out $16m to the producers of United Passions, a 2014 Anglo-French movie depicting the birth of football’s governing body with enfant terrible Gérard Depardieu in one of the leading roles.

The movie received less than complimentary reviews and bombed at the box office, grossing a paltry $918 on its opening weekend in North America where it was promptly declared one of the worst movies ever made. A hallelujah to Sepp Blatter and his mates, the makers simply ignored the controversies, back-stabbing, and shady deals the federation is known for. Critics also pointed out that the movie’s $18m budget was considerably higher than that of most of FIFA’s 209 national associations – sixteen more members than the United Nations.

World Cup participants receive $350m in prize money every four years. The organisation of the tournament costs FIFA about $2.2bn. These are the straightforward expenses. However, around 20% of the federation’s budget is earmarked for solidarity programmes. Between 2010 and 2014, FIFA spent in excess of $1.5bn on football development aid: monies mostly destined to support poorer football associations with the building of pitches and other facilities and to help promote the game globally.

Through the solidarity programmes, FIFA directors dispense vast amounts of cash and thus gain favour – and votes – which enables them to promote their own agendas. Grateful national football associations in Central America and the Caribbean, Asia, and Africa give FIFA leadership the votes and the power to do as they please. Rebellious football associations that refuse to play ball soon find themselves on the side lines deprived of FIFA’s generosity.

With the US Department of Justice now in full swing to chart FIFA’s alleged vote-buying and rigging – and hold those responsible for the federation’s misuse of power accountable – the deficiencies of Europe’s sports regulatory bodies is laid bare. Embarrassingly, the Americans have – once again – stolen a march on Europe, showing that the continent is still quite unable to keep its house in order. i

Summer 2015 Issue

> CFI.co Meets the President and CEO of TD Bank:

Mike Pedersen

A

s green as its corporate logo – or greener still: TD Bank Group, one of the six largest banks in North America and the first to fully offset its corporate carbon footprint, has placed the environment at the core of its business model.

The Canadian-based bank has been carbonneutral since 2010. A year later the bank opened its first net-zero branch, located in Fort Lauderdale, Florida. This facility produces as much energy as it uses and thus pushes the envelope of the LEED (Leadership in Energy and Environmental Design) rating system maintained by the U.S. Green Building Council.

At the time, the bank’s Fort Lauderdale branch was one of only nine net-zero buildings in the entire country.

“Early on, TD recognised growing environmental awareness as a mega-trend and not just a factor for risk assessment, much less a passing fad.

Green is set to guide future corporate policy and reshape the business world. Rather than wait for this trend to overtake us, TD decided to become a driver of events,” says Mike Pedersen, the president and CEO of TD Bank, the U.S. banking arm of TD Bank Group.

Mr Pedersen joined TD in 2007 just before the global financial crisis erupted. “Adhering to sustainable business principles has helped our bank weather the storm. The crisis also made us realise the value of a proactive approach to sustainability as a business model. Embracing environmentally sound corporate practices may entail challenges; it also offers a number of great opportunities.”

As TD adjusted its way of conducting business, and expanded the reach of its green policies, new and unexpected business opportunities arose: “We discovered a whole range of new products and services that resonated well in the market and promptly brought in clients who previously would not have considered banking with us. Thanks to our pioneering work on addressing environmental concerns, TD now enjoys a distinct competitive advantage which, in turn, helps sustain a solid bottom line.”

A former chairman of the Canadian Bankers Association and a graduate of the University of British Columbia and the University of Toronto, Mr Pedersen earned his financial spurs in London, where he held senior positions at major international banks. He returned to Canada in 2007, joining TD as Group Head, Corporate Operations, and in 2013 moved to the U.S. to take up the helm of TD’s U.S. bank, which now

President and CEO: Mike Pedersen

has more branches in the U.S. than in Canada.

An avid outdoorsman, Mr Pedersen extensively walked and trekked the backwoods of British Columbia, where he spent his formative years.

Born in Denmark, he arrived in B.C. aged 12 after his mother married a Canadian and moved the family. Largely as a result of spending his teen years amidst the natural splendour of Western Canada, Mr Pedersen has long been actively involved with conservancy efforts.

TD’s commitment to the environment constitutes an ongoing process that is continually evaluated and adjusted to optimise efficiencies and synergies. By the end of this year, the bank aims to have reduced its paper use by 20% versus 2010. TD has been paper neutral since 2012 thanks to paper reduction initiatives and protecting critical forest habitats.

TD’s

aggressive

greening

processes

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are

driven by clients and employees alike: “We have sound business reasons for putting environmental concerns at the very centre of corporate operations and have now entered a virtuous circle that reinforces processes set in motion earlier. Customers demand this and businesswise it makes sense as well. As we progress, new opportunities arise to develop products that help businesses and retail clients reduce their impact on the environment.”

Mr Pedersen emphasises that the application of sustainable business practices need not – and indeed does not – detract from profitability: “At TD, we found that caring for the environment makes plenty of sense for all stakeholders and that includes investors. By spotting the trend earlier than most, TD has now gained an edge on its competitors – one that offers rewards significantly beyond what we could reasonably have expected when we started out on the journey.” i 171

> TD:

Making the Environment Part of the Bank’s DNA When Mike Pedersen joined TD Bank Group in 2007 as Group Head, Corporate Operations, he was tasked with putting an environmental strategy in place for the bank. Early on, he saw the need for full-time executive leadership to drive the strategy, and in 2008 Pedersen hired environmental scientist Karen ClarkeWhistler as Chief Environment Officer – a first for TD Bank Group, and indeed for any major North American bank. TD had long been committed to the environment – the TD Friends of the Environment Foundation is celebrating its 25th anniversary this year – but the bank’s leaders believed it needed to do more. The environment was a key issue that would shape the future and there was a need for greater understanding of the links between the environment and the economy. And it was important to customers and employees, which meant it was important to the bank.

T

D’s strategy is simple: embed the environment across all business lines and in TD’s core business strategy, making it a factor in business decisions and how the bank operates. Today, the impact of this strategy can be seen across the bank, from the design of its facilities and approach to technology to its products and services and even the work of its economic think tank. Says Ms Clarke-Whistler: “We want to model an approach to business where the environment and business go hand in hand – where the environment is in fact a driver of success.”

The year Ms Clarke-Whistler joined TD, she and Mr Pedersen made a recommendation to the bank: that TD become carbon neutral — something it achieved in 2010, becoming the first North American-based carbon neutral bank.

The impact has been enormous. For one thing it inspired a major green building initiative that has seen the bank open North America’s first two net zero energy branches and install solar energy generation at 116 facilities and counting.

Becoming carbon neutral has also resulted in TD gaining a tremendous amount of expertise related to renewable energy and the low carbon economy. This expertise is helpful to customers and clients alike and has led to business opportunity. Last year, for example, TD issued a green bond – a first for a Canadian commercial bank. Proceeds from the $500-million, threeyear bond will be used to contribute to the low 172

“TD’s strategy is simple: embed the environment across all business lines and in TD’s core business strategy, making it a factor in business decisions and how the bank operates.” carbon economy through renewable and low carbon energy and related infrastructure; energy efficiency and management, with a focus on green buildings; and green infrastructure and sustainable land use management. The bond sold out almost immediately, while attracting new investors to the bank. “This was a clear sign to us that there is a real appetite for these kinds of offerings,” says Ms Clarke-Whistler, adding that the expertise the bank had gained from its own carbon journey enabled it to put the bond together. Since 2006, TD has invested more than $7 billion in the low-carbon economy (see Our Low-Carbon Journey chart below).

“It’s a clear illustration that the environment can be a driver of business success. The more people understand the economic benefits and opportunities inherent in the greening of our economy, the more they’ll support and embrace the transition to a low-carbon economy.” iii CFI.co | Capital Finance International

2012 saw the bank launch TD Forests, which works to help protect critical forest habitat, grow urban forests and green space and encourage the responsible use of forest products. The program was inspired by two findings. In a survey the bank conducted within its North American footprint, more than 90% of respondents indicated that they thought forests were important and more than 90% said they were in need of protection.

And when the bank asked customers what they felt the bank should do to help the environment, the overwhelming response was: “use less paper”. TD set a goal to reduce its paper use by 20% by the end 2015 (versus 2010), and through TD Forests the bank works with The Nature Conservancy of Canada and the Nature Conservancy in the U.S. to protect critical forest habitat equivalent to its paper use. “We are paper neutral as well as carbon neutral,” says Ms Clarke-Whistler.

By the end of 2014, TD had helped protect nearly 33,000 acres of critical North American forest habitat. To grow urban forests and green space, particularly in low- to moderate- income communities, two key TD Forests programs come into play: TD Tree Days and TD Green Streets.

Through TD Tree Days, employees, their families and friends and members of the public plant trees – mostly in Canada and the U.S., but also in the U.K. and Luxembourg. To date more than 185,000 trees have been planted, and this year that number will grow by more than 50,000.

TD Green Streets provides matching grants of up to $15,000 to support urban greening and

Summer 2015 Issue

TD’s investment in the low-carbon economy (2006-2014).

innovative municipal forestry practices in North America and the U.K. TD’s commitment to the environment also means providing thought leadership. Two years ago TD Economics hired an economist to focus on the environment, working closely with the bank’s Chief Environment Officer. The result has been a number of papers that are helping to build understanding of the links between the environment and the economy.

Over the past year, natural capital has been a major area of focus for the bank, particularly the economic value of the environmental benefits provided by the natural environment. In Valuing the World Around Us: An Introduction to Natural Capital, TD Economics showed very clearly that our natural resources and ecosystems provide enormous, measurable benefits each year and that including natural capital valuation in decisions can give us a better understanding of the true costs, benefits and return on investment of planned activities. “Take Toronto’s urban forests,” says Ms Clarke-Whistler. “We have 10.2 million trees, which provide over $80 million worth of environmental benefits and cost savings to residents each year.” How? Through factors such as filtering pollutants from

the air; reducing the strain on infrastructure by absorbing groundwater; cooling the air, leading to energy savings; and absorbing carbon dioxide.

“Considering the natural capital value of trees is vital when it comes to urban development,” adds Ms Clarke-Whistler, “not just from a quality of life perspective but for very real economic reasons.”

To help build understanding of natural capital, TD has provided natural capital valuations of some of its own initiatives. For example, its net zero energy branch in Florida provides more than $100,000 of savings through reduced operating costs and natural capital impacts. And the value of the reduction in greenhouse gas emissions associated with the carbon offsets and renewable energy credits TD purchased in fiscal 2014 has a lifetime impact of about $118.5 million.

TD’s perspective is that the more people understand the economic benefits and opportunities inherent in the greening of our economy, the more they’ll support and embrace the transition to a green economy. “We need sound, transparent conversation about what a green economy can mean, and those of us who are proponents of a green economy need to put our money where our mouth is,” says Ms ClarkeWhistler. i CFI.co | Capital Finance International

ABOUT TD BANK GROUP Headquartered in Toronto, Canada, with more than 85,000 employees in offices around the world, the Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group (TD). TD offers a full range of financial products and services to approximately 24 million customers worldwide through three key business lines: • Canadian Retail including TD Canada Trust, Business Banking, TD Auto Finance (Canada), TD Wealth (Canada),TD Direct Investing and TD Insurance • U.S. Retail including TD Bank, America’s Most Convenient Bank, TD Auto Finance (U.S.), TD Wealth (U.S.) and TD’s investment in TD Ameritrade • Wholesale Banking including TD Securities TD had CDN$1 trillion in assets on April 30, 2015. TD also ranks among the world’s leading online financial services firms, with approximately 10 million active online and mobile customers. The Toronto-Dominion Bank trades on the Toronto and New York stock exchanges under the symbol “TD”.

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> Book Review:

Niall Ferguson’s Civilization: Six Ways the West Beat the Rest

I

n much the same way Marxists internationalists held on to the belief that the workers’ revolution would sweep the world before it, today’s neoconservatives are convinced theirs is the only way forward. In this, neocons are but the most recent incarnation of the French Jacobins who considered liberty, equality, and fraternity the universal values that would create a new man devoid of superstition and given to pure reason. Today’s neocons may not emphasise equality and fraternity as much as the Jacobins did; they nonetheless are firm believers in freedom as defined by the American Founding Fathers – or so they say.

Curiously enough, neoconservative philosophy differs significantly from its real life applications.

The classical liberalism of the 1689 English Bill of Rights and the 1788 US Constitution – both documents calling for small government and eschewing imperial practices – has become the preserve of exotic libertarians, a near-extinct species dwelling on the fringes of the political landscape. Neoconservatives, solidly embedded in mainstream politics, prefer to think big: big government, big military, big nation-building exercises, and big brother-like surveillance.

British historian Niall Ferguson (51) is a reluctant neocon who prefers the epithet “doctrinaire liberal” to any other bestowed upon him by critics. A liberal right-winger, Mr Ferguson remains an unapologetic and committed believer in the gospel of free markets, individual rights, and assorted enlightenment values. He wholeheartedly approves of any and all military expeditions aimed at spreading the word to regions still marred by ignorance and darkness.

Thus it is that Mr Ferguson considered the US attempts at nation-building in Afghanistan and Iraq worthwhile ventures undertaken by a power intent on promoting freedom and reason.

Invariably, the good guys hail from the West.

Armed with this conclusion, Mr Ferguson embarked on an investigation to trace its roots back to the dawn of history in his book Civilization: Six Ways the West Beat the Rest (ISBN 978-18461-4273-4). Written for the benefit of those only partially versed in contemporary history, the modest tome aims to distil a formula for success – the power to gain prosperity – from the accomplishments of Western powers.

According to Mr Ferguson it all boils down to six “killer apps” that Western nations managed to “download” in the 1600s and used to impose their will on the wider world. The most important app concerned a fragmented political atmosphere that encouraged competition and rewarded

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“According to Mr Ferguson it all boils down to six ‘killer apps’ that Western nations managed to “download” in the 1600s and used to impose their will on the wider world.” excellence both between and within nation states.

Another app provided for open inquiry into nature and the unencumbered pursuit of science while a third one combined higher labour productivity with increased returns on investments ensuring the rapid accumulation of capital with which to finance ever more ambitious business ventures.

Deployed in unison, Mr Ferguson’s killer apps gave rise to the vast overseas empires of Great Britain, France, and The Netherlands. Interestingly, Mr Ferguson seems to imply that European powers only rose to greatness in the early 1600s. Before that, the continent barely registered with the work of Greek philosophers and mathematicians, and the Roman Republic failing to have much of an impact. It is as if in Mr Ferguson’s reading of universal history Euclid, Archimedes, Seneca, and Virgil – and countless other brilliant thinkers – never constituted more than footnotes.

None of the killer apps identified and dissected are concerned with the arts. The poems of Ovid and Lucretius are passed over, as are Dante who placed vernacular literature on par its biblical and classical forebears and the many Cistercians, Franciscans, and Dominicans who advocated for religious heterodoxy and laboured for the laicisation of the mystical. Montaigne, Mozart, Spinoza, and Nietzsche are only briefly mentioned while others like Plato, Kant, and Luther are completely absent.

Yet, if the west can be defined at all as a distinctive and highly successful collectivist entity, it is precisely because European nations produced an almost unending stream of great thinkers and tinkerers who – perhaps unwittingly – contributed to the forming of a powerful civilization united by shared pursuits.

One wonders how others got ahead without the help of Mr Ferguson’s killer apps. China has steadfastly refused to download the plurality app yet still managed to attain a high degree of competitiveness. According to the historian the country made up for missing app by investing its resources in education, research, and development. No longer contend with being the world’s sweatshop, China upped its R&D CFI.co | Capital Finance International

spending by a factor of six over the past decade, doubling the number of scientists now producing almost as many scientific papers as the United States.

The Chinese way seems to undermine Mr Ferguson’s claim that Western powers will remain dominant because of their adherence to liberal values such as individual freedom and free enterprise within a pluralistic framework. The six killer apps are not as universal in nature as initially thought.

If China and the Asian tiger economies manage to prosper without embracing the full suite of Western values, how about the rest of the world?

Mr Ferguson is rather dismissive of the Arab world noting that it remains recalcitrant and falls back to values not conducive to further development.

This divergence – the looming clash of civilizations – seems to worry Mr Ferguson who fears that the West may fail to show the repressed masses the many benefits of its supposedly superior liberal culture.

What Mr Ferguson, however, fails to mention is that the universalising side of the Western heritage is grounded in the Age of Enlightenment which, as such, was the result of a specific historical setting that cannot be replicated elsewhere. The killer apps may have worked for European Powers but do not hold a universally applicable solution to the world’s ills. Each region will need to find its own bespoke apps. Thus, the magic bullet remains as elusive as before. i

Summer 2015 Issue

> CFI.co Meets the Founder, Chairman and Chief Executive Officer of Seabury Group:

John Luth

J

ohn Luth thrives on turbulence. As the airline industry weathers a succession of storms – seeking refuge in consolidation, streamlined operations, and peak efficiency – the former CFO of Continental Airlines offers winning formulae to troubled carriers.

Keeping airlines aloft and profitable is the core business of Seabury, an aviation banking and consultancy firm Mr Luth founded in 1995. At the time, Continental was just 21 months out of Chapter 11, but was running short on cash and had too many aircraft. Gordon Bethune, then CEO, asked Mr. Luth to stay on to manage an out-ofcourt process, but instead Luth struck a deal to allow him to cash out his severance package, reinvest in Continental stock options, and then through his new advisory company, lead a highly successful $550 million liquidity financing for Continental in 1995.

The results were that Continental was saved from liquidation, its stock soared by more than 12x and Mr. Luth made a small fortune which he used to capitalize what today is the Seabury Group. Initially conceived as a boutique consultancy providing both restructuring advice and investment banking services – a synergy pioneered by Seabury – to struggling carriers.

A communicator par excellence, John Luth strongly believes in transparency and sharing: “In negotiations, I usually begin by clearly stating our goal, in order that we may all help devise a roadmap that gets us to where we need to be.”

With a reputation as an exceptionally strong, if not ruthless, negotiator, Mr Luth is widely recognised as one of the world’s premier airline restructuring experts.

Seabury holds a unique position in the aviation sector for operating on the crucial junction between corporate restructuring and aircraft financing: a previously inexistent niche John Luth carved out for his company. From an esoteric purveyor of operational expertise and aircraft financing options, Seabury quickly moved into the mainstream thanks to word of mouth and a string of successful turnarounds. Good news travels fast as well, and Seabury has seen its business grow by a 35% annual average.

“Airlines benefit from our unbiased approach.

We are the outsiders looking in and, as such, unencumbered by historical baggage. Seabury’s professionals address all issues objectively, comprehensively and fast. Our integrated method to troubleshooting is based on the accumulated knowledge and experience of the Seabury team.”

CEO: John Luth

Mr Luth stresses that Seabury only hires the best from the industry – people with proven track records and well-established reputations.

“We put great stock in client relations. Having outsiders to revamp a struggling business may not always be appreciated in all quarters. However, we do try to make our interventions a fun process for clients by working closely together, bringing in seasoned professionals who become part of the team instead of know-it-alls fresh out of business school.”

Branching out, Seabury has developed a powerful software application that monitors airline performance in real time using a vast array of indicators and parameters. “It’s something we and our clients are really excited about. Carriers using our software can now evaluate how they are doing at any given time. Already three out of the four major US airlines are using this package to CFI.co | Capital Finance International

maintain their operations at peak efficiency.”

Eyeing expansion, Seabury is now setting its sights on the European aviation space and on applying its knowhow to other sectors such as the aerospace and defence industries. “We are also considering a move into merchant banking using our human capital and further exploring synergies.”

John Luth recently helped restructure Monarch Airlines in anticipation of its sale to a private investment group. He also facilitated the airline’s acquisition of thirty Boeing 737 MAX 8 narrowbody aircraft in a deal worth around $3bn.

Mr Luth holds a Bachelor of Arts degree (magna cum laude) in Economics from the College of the Holy Cross and a Master in Business Administration from the University of Pennsylvania’s Wharton Graduate School. i 175

> Seabury Group:

Unlocking Value through Financial Solutions

SEABURY

Seabury Group is a global firm founded in 1995 with two principal groups: Seabury Advisory Group LLC (SAG) and Seabury Capital LLC (SeaCap).

SAG is a global advisory practice covering aviation, aerospace and defence, financial services, government services, logistics, maritime, transportation, and related industries. SAG has partnered with more than 300 clients located in over 50 countries on more than 1,100 engagements to solve complex challenges requiring consulting, investment banking, restructuring, and/or information technology solutions.

S

eaCap owns and operates a number of specialty finance companies providing innovative cross-border financing for equipment and trade receivables as well as insurance-backed auto service and financial obligations. SeaCap recently launched a merchant banking business to take minority equity positions in, and to provide debt financing to, middle market companies.

SeaCap also owns software companies providing enterprise solutions to airlines, aerospace companies, and institutional market-makers in foreign exchange and other financial markets.

Seabury’s professionals are based on five continents and in more than fifteen countries, representing a unique combination of top-tier bankers, consultants, software solutions experts, and former industry executives.

DELIVERING VALUE TO CLIENTS Seabury seeks to leverage its expertise to provide the most comprehensive portfolio of services to clients in the industries it serves, and to expand into adjacent markets, which can benefit from the company’s long-standing track record of delivering value and results.

Operating from an expanded global platform, Seabury is underpinned by its aviation expertise and related products and services. Seabury has made numerous investments and acquisitions that serve to drive development of a broad array of capabilities falling within four categories: consulting, investment banking (restructuring), asset management & principal investments, and software & data products.

Seabury brings value to every client opportunity 176

“Seabury believes expert support makes a true difference, and that’s why Seabury teams blend former industry executives, top-tier consultants, and seasoned investment bankers.” through an integrated platform that helps companies identify options that management can execute to create wealth for shareholders, management, and clients. To meet the specific needs of clients and deliver executable solutions to the issues that confront them, Seabury draws upon the unique experience of its expert team providing a combination of management consulting, corporate advisory, and investment banking services supplemented with robust proprietary data analytics and trading software tools.

STRATEGIC FOCUS Seabury’s long-term strategy is based on leveraging the depth and breadth of knowledge, relationships and experience across two primarily related industries: aviation and aerospace and defence, while continuing to diversify existing advisory services with strategic initiatives that include expanding aerospace and defence consulting capabilities and implementing a merchant banking platform to supplement advisory offerings and provide for a higher return on investment.

CFI.co | Capital Finance International

EXTENSIVE ADVISORY SERVICES Seabury focuses on delivering in-depth consulting expertise in principal advisory areas – anchored solidly in aviation and cargo/global trade: • Strategy • Human capital • Fleet advisory • Network planning • Regulation advisory • MRO planning • Cargo advisory • Revenue management • Technical support • Defence advisory • Industry assessment • Defense acquisition and capture strategy • R&D assessment • DoD procurement and budget insight • Requirements and cost capability trades Serving a Wide Range of Industries: • Aviation • Aerospace and defence • Transportation, cargo/global trade and logistics • Related industries: explosives/mining, financial services, gaming, hospitality, infrastructure, insurance, manufacturing, maritime/offshore oil & gas exploration, metals processing, mining, private equity, debt and hedge funds, real estate, and travel Investment Banking & Asset Management: • M&A advisory: sell-side and buy-side • Corporate advisory services • Airline restructuring • Liquidity/working capital management • Asset-based and debt financing

Summer 2015 Issue

President and COO: Chris Kubasik

Chairman and CEO: John E. Luth

Seabury executives meeting

“What we want to be able to do is bring in the extra firepower that’s needed so that we can orchestrate the changes that are needed. What we are not is a substitute for management: we help management to get across the lake – we show up and we can provide the boat, if you like, but it has to be a partnership.”

John E Luth, chairman and chief executive officer, Seabury Group LLC

• Structured finance • Project finance • Due diligence • Business planning/financial modelling • Merchant banking • Insurance • Civil aircraft registry • Trade finance exchange • Comprehensive white-label aircraft management solutions SEABURY TECHNOLOGY & AVIATION Aviation is highly political, with foreign ownership laws making true consolidation on a global scale harder to achieve. Seabury sees trends in the industry that are prevalent in other sectors as well: a need for further segmentation and differentiation; and a growing reliance on technology and data solutions to augment demand for increased customer experience levels.

Technological advances in particular are unlocking additional value across the industry, ranging from providing a differentiated customer offering to help airlines truly understand who the customer is and how to maximize revenue generation from them.

For more than a decade, Seabury’s specialist technology arm has developed and brought to market performance analysis systems which have become industry standard. Seabury has also acquired through strategic acquisition of specialised companies a set of software tools that can model the outcomes of any number of

routes, aircraft, labour, and operational changes to highlight inefficiencies or revenue producers.

Led by airline technology and software development specialists, with experience both inside airlines and in major technology companies, Seabury’s customised technological solutions are developed for the industry by the industry.

Seabury’s contract performance analysis system was built to handle and calculate settlement of all of an airline’s contracts – from short-term consultancy arrangements to annual travel agency agreements to aircraft performance guarantees that last ten or more years. CPAS serves as a central contract store and settlement tracking system and can connect to any operational and accounting system.

SAPGFam is our fleet allocation and optimisation software. The tool assists airlines with finding the optimum fleet plan with the most profitable mix and types of aircraft. SAPGFam is used in an operational environment to assign the existing fleet to planned schedules and maximise contribution by using the full range of operational constraints, including maintenance, crew, range, and gates.

SAPGAlliance is designed to evaluate airline partnerships. The tool forecasts revenue synergies for various types of strategic partnerships, including codeshare scenarios, changes in alliance membership, bilateral or multi-lateral joint ventures, and M&A scenarios.

Seabury APG (SAPG) is the commercial planning arm of Seabury Group. SAPG’s suite of network planning tools are used in consulting projects and by clients throughout the aerospace and aviation industry.

WHY CLIENTS CHOOSE SEABURY To create value, Seabury is committed to integrity by respecting its clients and using its knowledge to leave behind competency not dependence.

Seabury’s approach is unique because the company strives to understand clients’ needs first and then act – together.

SAPGNet forecasts route and network level revenue and profit results using a Quality Service Index (QSI) based approach. SAPGNet is used to evaluate network structures, including identifying the most profitable growth scenarios and developing networks in terms of enhanced local and flow traffic. It is also useful for analysing capacity changes, determining optimal flight timings, finding new market opportunities, forecasting the impact of competitive schedule changes, and evaluating strategic partnerships.

Seabury believes expert support makes a true difference, and that’s why Seabury teams blend former industry executives, top-tier consultants, and seasoned investment bankers. By designing projects with change in mind, Seabury equips its clients with the ability to navigate faster toward improved results which are more sustainable.

Seabury is always committed to working with clients to help them confront even the biggest challenges and always making a difference in their future. i

CFI.co | Capital Finance International

177

> CFI.co Meets the Management of Credicorp Capital:

Expertise that Makes a Difference

T

he Capital Markets Division of Credicorp Capital continuously and consistently monitors the markets and keeps in close touch with both local and international institutional investors to appraise them of the latest trends, events, and developments that can impact their positions. This close observance of the markets enhances the division’s ability to structure, place, and trade all classes of securities.

The company’s widely praised and acclaimed Research Division offers clients investment opportunities that consistently outperform the overall market while limiting their exposure to risk. The Research Division operates on a MILAwide basis and covers listed companies across the trading block (100% in Colombia, 95% in Chile, and 70% in Peru).

The Equities Department of the Capital Markets Division employs 23 professionals – nine in Chile, seven in Colombia, four in Peru, two in Miami, and one in London. These experts are led by Capital Markets Head Hugo Horta, as well as by Managing Director and Head of Equities Hernán Arellano.

Christian Laub is the CEO of Credicorp Capital. Mr Laub is also president of the board of directors of the Lima (Peru) Stock Exchange. Before assuming his present position, Mr Laub was in charge of the Corporate Banking Division at the Banco de Crédito del Perú (BCP) – part of the Credicorp Group, the largest financial holding company in Peru. Prior to that, he served as manager of BCP’s Corporate Finance and Capital Markets Division and as manager of the subsidiary company set up to manage both funds and investments.

Mr Laub also worked at Atlantic Security Bank in Miami, yet another component of the Credicorp Group. Mr Laub holds a BA from the Universidad del Pacífico in Lima and an MBA from Harvard University.

Head of Capital Markets Hugo Horta joined Credicorp Capital Chile (previously known as IM Trust) in 2006 as vice-director of the Capital Markets Fixed-Income Division. He held this position until 2011 when he was appointed general manager of IM Trust in Peru, before the company merged with BCP Capital (Peru) and Correval (Colombia) to form Credicorp Capital.

Previously, Mr Horta was manager of corporate banking at Citibank and sales manager at BBVA in Chile. He has led major structured finance operations and bond issues on the Chilean and Peruvian markets for a grand total in excess of $15bn. Mr Horta holds a degree in Business Administration from the Universidad Católica 178

CEO: Christian Laub

de Chile and an MBA from the Booth Graduate School of Business.

Managing Director of the Equities Department Hernán Arellano joined Credicorp Capital Chile in 2007 and became a full partner in the firm in 2010. Prior to joining the company, Mr Arellano worked as a financial analyst for Bice Chile Consult – NM Rothchild. He also gained experience as a financial and planning director at a number of companies in the manufacturing and transportation sectors.

Before his current position as Head of Equities at Credicorp Capital, Mr. Arellano was manager of the Corporate Finance Division in Chile between 2007 and 2010. He has participated in IPOs, capital increases, share blocks, and CFI.co | Capital Finance International

share buy-back undertakings, assisting some of the largest companies in the MILA Region. Mr. Arellano studied Business Administration at the Universidad Católica de Chile and holds an MBA from Babson College.

Managing Director of Sell-Side Research Heinrich Lessau came to Credicorp Capital in 2013 from the brokerage division of Bice Investments where he made his mark as general manager. Prior to that, Mr Lessau worked at BanChile Investments as manager of the Strategic Planning and Marketing Division. Over the course of his distinguished career, Mr Lessau also held key positions at Legg Mason Chile and Santander Investments. He holds a degree in Business Administration from the Universidad Católica de Chile and an MBA from Wharton. i

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> Credicorp Capital:

Seizing the Moment in Latin America The Mercado Integrado Latinoamericano (Integrated Latin American Market – MILA) is a cross-border joined equity market initiative that does not entail a full corporate merger of the participating exchanges. As such, it is the first of its kind in the world. The undertaking leverages the power of state-of-the-art technology with far-reaching regulatory harmonisation and synchronisation to deliver a streamlined and coordinated market across the four MILA member nations – Chile, Colombia, Peru, and Mexico. Custodial arrangements between the participating bourses were harmonised as well.

M

ILA aims to become the premier investment platform of the region, offering investors, intermediaries, and issuers a range of attractive opportunities to access the four most buoyant, dynamic, and well-developed Latin American markets and thus contribute to their sustained growth.

Now four years into its existence, the Integrated Latin American Market has managed to address its main challenge: to prove that a new financial framework can be erected to serve global investors by streamlining the regulatory regimes of the four constituent jurisdictions.

While MILA integrates four different capital markets – and offers a single point of access to all – the initiative pointedly does not imply a loss of independence or regulatory autonomy for any of the participating exchanges. MILA simply aims to encourage the growth of its associated capital markets as tightly integrated, yet fully autonomous and complementary, entities. All transactions taking places on MILA exchanges are settled in local currency via local intermediaries. This greatly facilitates international transactions.

MILA was launched on May 30, 2011, after two years of preparatory work, by the Santiago Bourse and the stock exchanges of Bogotá (Colombia) and Lima (Peru) in close cooperation was the central stock depositories of the three countries. In June 2014, during a meeting of the Pacific Alliance – a trade block that unites the economies of Mexico, Colombia, Peru, and Chile – the Mexican Stock Exchange, and that country’s central stock depository, formally joined the MILA initiative. MILA fully 180

“Uniquely, Credicorp Capital comprises three leading investment banks with unparalleled networking abilities, knowledge, and reach in their respective markets, closely cooperating to offer clients a peerless trading platform plus the widest array of premier products, services, and solutions.” incorporated its newest member on December 2 of last year when the first transaction took place.

With a combined market capitalisation of $940bn (as of April 2015) and 740 listed companies (up from 564 in 2011), MILA is now the largest equity trading platform in Latin America. The integrated market is served by 38 stock brokers with correspondents across the region and boasts twelve mutual funds that invest in shares across the MILA markets. Issuers may now satisfy their capital requirements by tapping into investor funds offered on four markets. A number of indexes have been created to gauge MILA-wide market sentiment and development such as the S&P MILA Andean 40 and the S&P MILA Pacific Alliance Select, amongst others.

CREDICORP CAPITAL IS LAUNCHED MILA’s consolidation into a fully operational integrated equities trading platform, and the level of development attained by its constituent markets – all now rated investment grade – has generated considerable interest from globally active investors who may now access what has become Latin America’s most robust and CFI.co | Capital Finance International

attractive regional block. The geographical footprint of MILA offers robust economic growth, deeply ingrained stability, a solid macroeconomic outlook rooted in a fast-expanding middle income consumer segment, strong infrastructure development, and a demographic advantage set to last for another few decades. Business is booming across the region and most corporations are expected to double in size every five years.

With these enticing prospects in mind, three local investment banks decided to join forces and seize the moment in order to build a MILAwide financial services group. BCP Capital (a subsidiary of the Credicorp Group in Peru), Correval (with thirty years of experience in Colombia), and IM Trust (boasting thirty years’ worth of experience in Chile) integrated their operations to offer clients advisory services relating to capital markets, corporate finance, and asset management across the region.

Uniquely, Credicorp Capital comprises three leading investment banks with unparalleled networking abilities, knowledge, and reach in their respective markets, closely cooperating to offer clients a peerless trading platform plus the widest array of premier products, services, and solutions. By tightly integrating the operation of three major players, Credicorp has managed to position itself as the best and most comprehensive one-stop financial services provider of the region.

Credicorp attracts and serves two types of clients: 1. Globally active investors who consider MILA a promising proposition and need a financial advisory team with knowledgeable local teams across the region;

Summer 2015 Issue

2. Local businesses that wish to expand their geographic footprint across the region and require the help of a financial advisory team with local expertise and a presence in all MILA markets.

Capital Markets

Sell-side Research

Asset Management

Corporate Finances

Brokering of equities, currencies, and financial derivatives

Economic research and analysis of issuers in MILA markets

Management of funds and investment portfolios

Financial consultancy on mergers & acquisitions

Placement of bonds and shares on primary markets

Three specific areas of research: economic studies, fixed-income analysis, and equity analysis

Global strategic asset allocation

Issueing of bonds and shares on local, regional, and global markets

Investment advice

Structuring of investment products

Structured financing Creditcorp Capital Products and Services: Main Business Lines

Regional Requirements

Regional Integration

▪ ▪ ▪

▪

Increased trade between member countries.

Increased number of companies with multinational presence.

MILA boosting regional markets, attracting more investors and issuers.

▪

Income

▪

Cross-border financial requirements of companies based in Colombia, Chile, Peru, Brazil, and Mexico.

Aumented necessity for specialised regional knowhow and new financial instruments.

▪

Scale

▪

Access to a larger pool of funds ▪ Attract clients in new markets ▪ Serve clients outside their home countries Diversification of income sources.

Obtain economies of scale by sharing best practices, processes and operational and technological platforms.

A World Class Client-Centered Team with In-Depth Knowledge of Local Markets Credicorp’s most valuable asset is its staff. The Company boasts a multitalented team with ample experience and a deep knowledge of local markets. These are the people who propelled Credicorp Capital to the very top of the market in Chile, Colombia, and Peru. The firm offers a broad and comprehensive range of products and services that dovetail perfectly with the needs and requirements of clients in all major segments of the market.

Recognised execution capacity in MILA and the Major Global Markets Credicorp Capital is known for its exceptional capacity to execute orders promptly and faultlessly thanks to its experienced traders and portfolio managers who are comfortable in illiquid markets and able to execute large orders. Credicorps’ execution capacity is highly efficient via brokerages associated with the Group in Chile, Colombia, the United States, the United Kingdom, Panama, and Peru.

Access, Coverage, and Regional Distribution Capacity Credicorp Capital offers a complete suite of financial products, services, and solutions to clients, issuers, and investors backed-up by the most extensive coverage of MILA businesses and with distribution channels in the entire region.

What Makes Credicorp Capital a Regional Champion: Competitive Advantages

Chile

2012

2013

2014

jun-14

jul -14

Aug-14

s ep-14

oct-14

nov-14

Dec-14

Ja n-15

feb-15

ma r-15

a br-15

ma y-15

2015 YTD

BTG PACTUAL

16%

14%

13%

16%

16%

14%

9%

14%

5%

23%

14%

16%

17%

22%

16%

17%

CREDICORP CAPITAL

7%

6%

9%

15%

12%

9%

9%

15%

4%

13%

24%

12%

12%

11%

14%

14%

LARRAIN VIAL

21%

22%

13%

12%

16%

8%

9%

15%

6%

13%

10%

13%

11%

10%

16%

12%

6%

54%

BANCHILE

6%

8%

15%

10%

8%

5%

4%

SANTANDER

9%

8%

10%

8%

12%

10%

28%

8%

3%

6%

8%

9%

7%

7%

10%

8%

SECURITY

7%

4%

4%

4%

4%

4%

4%

7%

2%

4%

3%

3%

4%

4%

10%

4%

6%

9%

5%

6%

6%

7%

7%

OTHERS

34%

37%

36%

34%

32%

51%

37%

35%

26%

35%

31%

42%

44%

38%

27%

38%

Colombia

2012

2013

2014

jun-14

jul -14

Aug-14

s ep-14

oct-14

nov-14

Dec-14

Ja n-15

feb-15

ma r-15

a br-15

ma y-15

2015 YTD

BTG PACTUAL

17%

22%

23%

22%

23%

26%

21%

24%

22%

23%

23%

19%

20%

37%

20%

25%

CREDICORP CAPITAL

14%

21%

20%

17%

17%

16%

23%

18%

22%

22%

22%

21%

19%

19%

26%

21%

VALORES BANCOLOMBIA.

9%

14%

13%

14%

21%

14%

11%

13%

8%

10%

11%

13%

14%

11%

10%

12%

LARRAIN VIAL

0%

3%

7%

7%

6%

7%

10%

9%

9%

8%

8%

10%

11%

6%

9%

SERFINCO

5%

6%

7%

9%

7%

6%

5%

5%

7%

7%

7%

7%

5%

4%

7%

6%

ALIANZA VALORES

3%

3%

4%

5%

2%

3%

3%

5%

8%

7%

6%

7%

8%

3%

5%

5%

9%

CASA DE BOLSA

6%

5%

4%

5%

3%

4%

5%

5%

5%

5%

4%

5%

5%

4%

5%

5%

CORREDORES DAVIVIENDA

6%

7%

6%

6%

6%

8%

6%

6%

6%

5%

4%

4%

5%

3%

3%

4%

ULTRABURSATILES

2%

4%

3%

3%

3%

4%

3%

3%

3%

3%

2%

3%

3%

3%

4%

3%

CITIVALORES

4%

4%

3%

2%

5%

3%

3%

3%

2%

2%

5%

3%

3%

2%

2%

3%

Peru

2012

2013

2014

jun-14

jul -14

Aug-14

s ep-14

oct-14

nov-14

Dec-14

Ja n-15

feb-15

ma r-15

a br-15

ma y-15

2015 YTD

CREDICORP CAPITAL

77%

20%

25%

53%

22%

17%

16%

43%

27%

25%

20%

31%

22%

23%

26%

BTG PACTUAL

8%

10%

10%

13%

21%

30%

3%

10%

10%

5%

16%

17%

20%

16%

21%

18%

S.A.B. SEMINARIO

4%

5%

8%

15%

10%

8%

2%

16%

12%

9%

11%

14%

5%

15%

12%

11%

SCOTIA BOLSA

19%

17%

9%

7%

10%

13%

5%

20%

18%

16%

11%

8%

7%

INTELIGO

9%

11%

9%

14%

7%

8%

5%

13%

9%

5%

11%

10%

8%

12%

7%

9%

LARRAIN VIAL

6%

17%

6%

8%

7%

8%

2%

9%

14%

3%

9%

8%

13%

4%

9%

9%

CONTINENTAL BOLSA

33%

21%

3%

2%

1%

2%

1%

2%

1%

0%

5%

7%

3%

3%

12%

5%

6%

5%

6%

9%

KALLPA SECURITIES

4%

3%

3%

5%

3%

4%

1%

3%

3%

1%

3%

4%

2%

14%

2%

5%

OTROS

10%

10%

8%

13%

17%

10%

3%

9%

8%

5%

7%

9%

9%

7%

8%

8%

Solid Experience with Equity Trading in the Region: Proven leadership in the secondary market in the region

CFI.co | Capital Finance International

The integration of the investment bank’s operations into a single stream aims to leverage the local presence, experience, and leadership of the three entities. It is backedup by the Credicorp Group, Peru’s main financial holding company, listed on the New York Stock Exchange since 1995 and with a cross-sector presence in areas such as pension fund management, insurance underwriting, and off-shore banking. The group’s activities are complemented by Credicorp Capital Securities Inc., a brokerage house in Miami, and Credicorp Capital UK, the group’s representative office in London.

Together, these subsidiaries constitute a full-service regional investment bank that offer clients ready access to all major global markets through its international presence.

Across the MILA Region, Credicorp Capital maintains a staff of over one thousand highly trained and experienced professionals. The company has in excess of over $8.5bn in assets under management and raised over $2bn in capital for its clients. It also placed more than $10.5bn in debt issues, between 2010 and 2014. Over this period, Credicorp Capital traded $74bn in stock and over $576bn in fixed-income transactions.

Credicorp Capital’s brokerage business offers investors a state-of-the-art, world class trading platform. The company aims to establish long-term relationships with both corporate and institutional clients in the knowledge that value is created by maintaining a sharp focus on forging mutual trust and an unwavering dedication to the delivery of services of the highest quality across the board. Credicorp Capital maintains a research team, staffed with top analysts, that has set the industry’s benchmark and is widely considered without equal in the region. The team is quite bullish on the growth potential of the MILA markets and has the data to back up its optimism on the economic projections for the four countries that together make up the trading block.

In Peru, Credicorp Capital has now captured a 40% market share of equity trading. The company’s market share hovers around 20% in Colombia and 15% of third-party trading volume in Chile.

Thus a regional champion was born. It requires ample dosages of both expertise and passion to become one of Latin America’s most prestigious financial services companies. It is with pride that Credicorp Capital serves its clients in a region that it knows better than anyone else. i 181

> CFI.co Meets the Founder and President of P.I. Mabe:

Juan Gilberto Marín Quintero

A

t the World Economic Forum Mexican businessman Juan Gilberto Marín Quintero drew attention to his country’s fast-paced development. Mr Marín noted that in Latin America, only Mexico and Chile had managed to implement the far-reaching reforms necessary to underpin accelerated economic expansion. While Mexico felt the effects of lower oil prices, the country still managed to register a solid 3% GDP growth.

In Davos, Mr Marín emphasised that exportoriented manufacturing is doing particularly well in providing a solid basis for sustained economic growth.

Mr Marín is the founder and President of P.I. Mabe, a fully Mexican-owned manufacturer of disposable hygienic products and at the forefront of the quest to develop 100% recyclable diapers – a goal P.I. Mabe hopes to accomplish by 2020.

Mr Marín was born in Matamoros, Tamaulipas, Mexico on May 15, 1951. He obtained a bachelor degree in Business Administration from the Iberoamericana University, campus Santa Fe of Mexico City, as well as an MBA from the Instituto Panamericano de Alta Dirección (IPADE). Mr Marín also has post-graduate degrees in Commerce from the British Columbia University in Vancouver as well as in Mergers and Acquisitions from the University of Stanford.

In 1977, Mr Marín founded P.I. Mabe in Puebla, Mexico. Up to this day he still leads the company as its president and chairman of the board. The company operates two modern production plants in Mexico and has sales to over 40 countries worldwide. P.I. Mabe Mexico, Valor Brands Europe, Valor Brands USA, and Maquinsa are all part of the P.I. Mabe Group.

Other important companies Mr Marín has founded, and currently leads, are Seamless Global Solutions, a seamless clothing manufacturer, and Iler, a wind power generation company, amongst many others.

Mr Marín is a member of the advisory board of numerous companies such as Banamex (Citibank), Telmex, Bancomext, and the University of Las Américas, Puebla. He is also a member of the World Economic Forum as well as of the G50 and is a former president of the International Entrepreneurial Council of Latin America (CEAL) and a former chairman of the Mexican National Council of Foreign Trade.

Throughout his career, Mr Marín has been granted several awards such as the Business Merit Award 182

Founder and President: Juan Gilberto Marín Quintero

granted by the Consejo Mexicano de Comercio Exterior Sur, the Agustín Reyes Ponce Award granted by the association of former students CFI.co | Capital Finance International

of the Universidad Iberoamericana and the Prix Franco Montouro business for merit, awarded by the Chamber of Commerce of São Paulo, Brazil. i

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> Mabesa:

Environmentally-Friendly Disposable Diapers Mabesa is a Mexican company that has been in the absorbent hygiene industry for over 35 years. Currently, Mabesa is the second largest diaper manufacturer in Mexico which, in turn, is the world’s fourth largest market for absorbent hygiene products.

T

he company has registered strong growth – significantly above and beyond the overall market – with its own brands as well as with the private labels that Mabesa manufactures for leading retailers. As such, the company outperformed world-class players like Kimberly-Clark and Procter & Gamble.

For more than seven years running, Mabesa has been gaining ground on the market leader. The company owes its success to innovation and a superior delivery model which also allow it to increase profit margins. Additionally, Mabesa is the second largest manufacturer of incontinence products in Mexico and an important player in feminine protection products as well as in baby wipes.

Since its first years in business, Mabesa has reached out to international markets with a solid export strategy. The company now ships its products to over forty countries worldwide.

Through innovative products Mabesa has been able to compete successfully in the United States and Canada as a contract manufacturer for premier companies and a private label supplier of major retail chains.

Mabesa is also a leading commercial manufacturer and supplier of baby diapers, training pants, swim and youth pants, adult incontinence, and wet wipes in Europe, Africa, and the Middle East. Under the Moltex brand name, the company has been able to increase its market share on the Iberian Peninsula in the last years. Mabesa has now launched

“For more than seven years running, Mabesa has been gaining ground on the market leader. The company owes its success to innovation and a superior delivery model which also allow it to increase profit margins.” its BioBaby brand in many other European countries as well.

Mabesa’s product development process is strongly consumer focused, resulting in a number of revolutionary high-quality and costefficient products. A clear example of this strategic focus is the leading role Mabesa has played in the development of environmentallyfriendly diapers. The company is widely considered a pioneer in this niche market and confirmed this with the introduction of its BioBaby brand in 2007.

approach. Mabesa currently owns 192 granted patents in twelve countries while another 89 patent applications have been filed and are beings processed. This proactive policy protects the company’s innovation strategy.

Recent investments in diaper production facilities will propel market share growth in Mexico, North America, and Europe over the years to come as it is expected that the ecofriendly trend becomes stronger worldwide.

BIOBABY EXPLAINER Quite a lot has been said about diapers, but the fact remains that a regular infant consumes over 3,700 diapers during his/her lifetime. To produce this amount of diapers, more than 400 gallons (1,500 litres) of crude oil and 800 pounds (360 kg) of plastic will be required.

The total sum of disposable diapers the world’s baby population regularly consumes reaches a staggering 93 billion annually. Imagine the amount of non-renewable resources needed to produce this quantity of diapers. Imagine as well the volume of used diapers that

The creation of sustainable competitive advantages for its products has only been possible thanks to an efficient patenting

“Mabesa’s product development process is strongly consumer focused, resulting in a number of revolutionary high-quality and cost-efficient products.”

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Summer 2015 Issue

“The total sum of disposable diapers the world’s baby population regularly consumes reaches a staggering 93 billion annually.” landfills worldwide must handle. These discarded diapers will not break down and will remain practically unchanged for hundreds of years. Clearly a different way of thinking and acting is called for.

These numbers convinced Mabesa to rethink diaper production. A new vision was developed that resulted in the launching of BioBaby: a premium diaper that succeeds in replacing raw materials from non-renewable sources with sustainable materials that are friendly to the environment. Mabesa’s goal is to have a 100% sustainable diaper ready for marketing by 2020.

Until the sustainability goal is accomplished, BioBaby will use readily available materials that are the least harmful to the environment.

What makes Biobaby be different?

• Being an eco-friendly alternative, BioBaby has never lost its focus on performance.

• In several objective tests, eight out of ten moms of the premium tier have stated a preference for BioBaby diapers over their regular brand.

• BioBaby is the only diaper that has replaced materials from non-renewable sources with sustainable materials such as internal and external layers and superabsorbents.

• Whenever sustainable material alternatives are not available, BioBaby employs natural and other earth-friendly materials.

Already many years on the market, BioBaby has found its way onto many of the world’s markets. As the demand for eco-friendly products and healthy living continues to expand, Mabesa is confident that its BioBaby diapers will continue to offer a viable alternative to the growing number of environmentallyaware and discerning consumers worldwide. i CFI.co | Capital Finance International

185

> Eduardo Galeano:

Remembering a Forgotten Continent

By John Marinus

I

n the last days of his presidency, José Mujica visited the Casmu Hospital in Montevideo to pay his respects to Uruguay’s foremost historian and poet. On April 13, Eduardo Hughes Galeano succumbed to lung cancer. A giant of progressive journalism, poet-laureate of the anti-globalisation movement, and – as is to be expected of any self-respecting South American intellectual – a former exile twice over Mr Galeano was not only beloved in his native 186

Uruguay but throughout the world.

At home, Mr Galeano passing was marked with a wake held at the Hall of The Lost Steps of the Legislative Palace where his poetry, novels, and essays – occasionally banned from publication – were read. Mr Galeano thus secured his place amongst South America’s literary greats.

Eduardo Galeano started his career in journalism at the age of fourteen – having completed only CFI.co | Capital Finance International

two years of secondary education – by drawing cartoons for the socialist weekly El Sol. There he would also illustrate the columns submitted by trade unionist, and later founder of the left-wing guerrilla movement Tupamaros, Raúl Sendic.

In the early 1960s, Mr Galeano moved to the editorial desk of the weekly newspaper Marcha.

Four years later, he published an account of his travels in Mao’s China. In 1967, Mr Galeano followed up with País Ocupado, detailing life

Summer 2015 Issue

in dictatorial Guatemala after the 1954 CIA-backed coup that deposed the elected President Jacobo Árbenz.

In 1973, Mr Galeano was imprisoned and subsequently had to flee his native Uruguay. Moving across the River Plate, the writer found refuge in Buenos Aires where he promptly founded the magazine Crisis. His Argentinean sojourn was, however, short-lived and in 1976 Mr Galeano had to pull up stakes yet again to escape the clutches of General Jorge Rafael Videla and his military junta which had grabbed power and immediately set about “disappearing” people deemed inconvenient. Mr Galeano departed for Spain where Generalissimo Francisco Franco had just passed away and democracy was taking hold.

After the fall of the Uruguayan dictatorship in 1985, Mr Galeano returned home and together with other former Marcha staff members reestablished and rebranded the paper – now called Brecha. In 2005, while under the spell of the populist Venezuelan President Hugo Chávez who considered himself Simon Bolívar reincarnate, Mr Galeano joined the advisory committee of the Pan–Latin American news network TeleSur which soon was turned into a mouthpiece of increasingly absolutist regime.

Mr Galeano’s most influential work was published in 1971 under the title The Open Veins of Latin America. In this book he gives a passionate yet matterof-fact overview of the continent’s history since the arrival of the first Europeans.

“He went searching for hidden truths and he travelled throughout the parts of America with the greatest suffering, including that part which neither books nor academia ever reach.”

President José Mujica

Mr Galeano gives an account of the native experience in the early days of colonisation. The encomienda and later the hacienda system – both feudal in character – under the Spanish crown would ultimately come to define the region’s place in the world economy.

The book offers an explanation for the disparity between the development of North America and South America.

It attempts to show how imperialist powers worked to keep the region in its subservient place even after the collapse of the Spanish Empire with further exploitation coming first from the British and later the Americans.

Thus the book constitutes a devastating analysis backed up by an encyclopaedic knowledge of history. Through this work, Mr Galeano not only contextualises the state of his continent but also gives context and highlights the dehumanising facets of globalisation in general. Memory is a recurring theme for Mr Galeano who described himself

CFI.co | Capital Finance International

as “obsessed with remembering; with remembering the past of the Americas and above all that of Latin America – an intimate land condemned to amnesia.”

And therein lays the vital message Eduardo Galeano delivered: discourse on the predicament of a people, or of an entire continent, quickly turns ugly without the benefit of a long memory. It is the forgetful observer who sees a region supposedly having enjoyed two hundred years of independence, but still gripped by systemic poverty, corruption, and political turmoil and concludes it must be the work of a handful of monsters, or worse yet, some innate disposition in the people themselves.

Those unwilling to step back and see the patterns will come to the simplistic notion that culpability must either be individual or genetic. Ultimately history cannot be understood by scrutinising the acts and motives of a handful of agents, but by the entirety of human activity.

History does not admonish the capitalist, the aristocrat, the populace, nor does it mandate the tyrant, it merely remembers how we got here.

Like the migrating ants who are just following the chemical trail of the fellow in front, while the colony as whole ends up tracking in circles, we – while acting rationally, self-interestedly, and within the confines of our individual experience – contribute to a system determined to repeat itself. Within the ever narrowing present we are left wondering: how on earth did things get so messed up? We need to look at bigger – much bigger – pictures, on a scale where notions of individual culpability and even agency itself become unwieldy. This is the historical perspective.

In 2009, Venezuelan president Hugo Chávez, rather preposterously, thrust a copy of The Open Veins of Latin American into the hands of US president Barrack Obama at the opening session of the 5th Summit of the Americas held in Port of Spain. This resulted in a resurgence of interest in the book, propelling the tome to the top of Amazon’s best sellers list.

Of Eduardo Galeano, President José Mujica said: “He went searching for hidden truths and he travelled throughout the parts of America with the greatest suffering, including that part which neither books nor academia ever reach.” Mr Galeano’s last book Children of the Days was published in 2011. An anthology is scheduled to be released posthumously later this year. Mr Galeano is survived by his wife Helena Villagra and their three children. i 187

> Asia Pacific:

China - Beijing Leaves Washington in the Dust with New Multilateral Bank

By Wim Romeijn

Washington missed the boat on the China-backed Asian Infrastructure Investment Bank (AIIB). Both the United States and Japan declined to join the new multilateral lending institution set up by China and launched late-June. The initiative comes largely in response to the reluctance displayed by the International Monetary Fund (IMF), the World Bank, and the Asian Development Bank (ADB) – a triad of institutions the Chinese consider the preserve of Western powers – to make allowances for the country’s vastly increased economic and financial weight.

Delegates from 57 of the new bank’s founding member states gathered in Beijing on June 29 to sign the articles of agreement during a grand ceremony at the Great Hall of the People. Initially, the AIIB will operate with an authorised capital of $50bn, an amount later to be doubled. Asian countries will subscribe to about 75% of the bank’s capital with the remainder divided between sixteen European countries, Brazil, South Africa, Egypt, South Korea, Australia, and New Zealand.

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189

G

ermany will become the AIIB’s largest non-Asian member with 4.1% of the shares. No country will enjoy veto power over the bank’s decisions. China has long objected to the limited veto power the World Bank awards to the United States. Together, China, and India have a 40% stake in the AIIB. Russia is the bank’s third largest shareholder.

According to Malcolm Cook of the Institute for Southeast Asian Studies in Singapore, the successful founding of the AIIB hands China a diplomatic coup of sorts: “In 2009, the Asian Development Bank calculated that Asia needs over $8.2tn in infrastructure investment to keep its economic momentum going. While multilateral financiers have been very forthcoming, the region still felt a need to set up its own supranational lending institution. China was the obvious choice for taking the lead, not least because that country will surely become the bank’s largest customer.”

In a clear sign of how fast the Chinese can get the ball rolling, the AIIB was only two years in the making. The idea for a new multilateral bank was conceived in 2013 by the China Center for International Economic Exchanges (CCIEE), a think-tank founded in 2009 by former government leaders and retired diplomats to “facilitate broad domestic and international policy discussions.”

The CCIEE receives its funding from both public and private sources and is generally considered to closely toe the party line.

The CCIEE published a number of policy papers emphasising the importance to China of establishing an international bank that balances the country’s political and economic priorities. The pundits at the think-tank do not attempt to hide the fact that they see the bank as yet another tool for China to use as the country asserts its mostly benevolent influence over the region. President Xi Jinping promptly ran with the think-tank’s suggestion and took less than a year to convince 21 Asian countries to sign a memorandum of understanding, thus kicking off the procedures for setting up the bank.

Initially, both South Korea and Australia expressed little interest in joining AIIB. The Australian Financial Times reported that US Secretary of State John Kerry had personally intervened with Prime-Minister Tony Abbott to keep his country from signing up with the Chinese. A spokesperson for the US State Department later clarified that while the US welcomes the idea of an Asian infrastructure bank, it harbours concerns that internationally accepted standards of good governance and transparency may not be fully met. In the end, the Australians showed less apprehension than the Americans and decided to fully engage.

So did South Korea. Torn between its long-time benefactor and protector from across the Pacific and the awoken giant two doors down the Yellow Sea, the country chose the latter option.

190

“In a clear sign of how fast the Chinese can get the ball rolling, the AIIB was only two years in the making.”

Chinese Finance Minister Lou Jiwei repeatedly assured all who would listen that the AIIB will not compromise on standards. The minister also said that the AIIB is meant to complement, rather than replace, institutions such as the Asian Development Bank and the World Bank. According to Mr Jiwei, it is expected that the AIIB will closely cooperate with existing multilateral lenders on a number of large projects. Both World Bank President Jim Yong Kim and his colleague at the ADB Takehiko Nakao told reporters that they were looking forward to working with the new bank.

Chen Fengying of the China Institutes for Contemporary International Relations in Beijing – an entity affiliated with the Ministry of State Security – says it is unfair to demand the AIIB follow the exact same rigorous standards as those employed by the World Bank and other wellestablished multilaterals: “AIIB is for profits. It will invest in ports, power, and railroads. It will sell bonds as well.” Mrs Fengying argues that whereas the World Bank and the Asian Development Bank offer official development assistance, the AIIB’s only brief is to promote interconnectivity and economic integration across the continent.

American opposition against the establishment of the AIIB was particularly ill-advised. The suspicion that the new bank would come to undermine the US-inspired and led global financial system is too silly to dignify with a response. The Chinese have gone out of their way to allay US fears.

The first AIIB president is Jin Liqun who until recently was a vice-president at the ADB in Manilla. Over the past few months, Mr Liqun repeatedly travelled to the US to procure the services of former World Bank executives. He also hired a lawyer for his bank who until recently was the World Bank’s foremost expert on governance issues.

Mr Liqun has given many indications that he aims to run the AIIB according to the highest standards and best practices. This also fits in well with President Xi Jinping’s flagship policy initiative – the fight against corruption and the misuse of power.

The Americans could do worse than encourage established multilaterals to lend their expertise to the AIIB which seems receptive to suggestions of this nature.

The Financial Times noted in an editorial that the added competition could prove revealing inasmuch as the AIIB may be able to show the impact on project costs of the cumbersome environmental, social, and governance standards demanded by the World Bank and other like institutions. As the Chinese are not known for squandering their cash, the AIIB will probably stay well clear of risky

ventures, opting instead for projects that pose limited risk while offering high returns.

By co-opting no less than sixteen European countries and foregoing veto powers, China has made sure that the AIIB will not be considered merely Beijing’s plaything but has a chance to become a respectable multilateral institution contributing significantly to the region’s development. The launch of the AIIB, and the funds committed, does not detract from megascale infrastructure projects already underway such as the ambitious One Belt, One Road Initiative that aims to improve trade corridors across Eurasia and, to a lesser extent, in East Africa and Oceania.

While the AIIB will most certainly play a leading role in providing financing for the initiative, the Chinese government has said that it will separately maintain its $40bn Silk Road Fund to finance private businesses involved in the execution of the projects that together are to constitute the new land and maritime trade routes. Pointedly, China has invited a number of European countries to actively participate and help establish the corridors. Hungary was the first to sign on with a proposal to build a rail connection to neighbouring Serbia. The plan promptly received both China’s blessing and financial backing.

Analysts at Barclay’s Bank earlier this year have compared the reach of China’s One Belt, One Road Initiative to that of the European Recovery Programme (aka Marshall Plan after then-US Secretary of State George Marshall) which pumped $13bn – about $120bn in today’s values – into the war-ravaged continent. That commitment was in the same order of magnitude as China’s development plans are today: $40bn in the Silk Road Fund and a similar amount in shares of the AIIB. The Chinese, however, dislike the Marshall Plan moniker. Earlier this year, a government spokesperson pointed out that the One Belt, One Road Initiative goes a lot further than the Marshall Plan ever did and seeks to find common ground between countries of different ethnicities, religions, and cultures, “focusing on wide consultation, joint contribution, and shared benefits.”

That said, China does try to make itself as “cool” in the process as the US was perceived to be in post-war Europe. In order to sustain the 5-7% annual growth rates to which it has become accustomed, China needs to plug itself into the world’s consumer markets not as a manufacturer of Western-designed goods and gadgets, but as a direct purveyor of FMCGs (fast-moving consumer goods). In other words: China wants its domestic companies to become global brands. For that to happen, the country requires vastly improved physical access to Western consumers.

Contrary to Europe which remains hopelessly stuck in internecine bickering, China does have a vision for the future and is willing to commit its formidable resources to seeing it realised. i

Summer 2015 Issue

> CFI.co Meets the CEO of Khan Bank:

Norihiko Kato

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n ambitious man sitting on a bench of gold, Mongolia is now ready to cash in on its vast mineral wealth with a solid legal framework that aims to entice foreign investors. After two challenging years, the country’s government has signalled its willingness to move forwards at an accelerated clip. “We can now see the dawning of a second era of strong growth,” says Norihiko Kato, CEO of Khan Bank – one of Mongolia’s largest private banks.

Mr Kato admits that his country is still navigating the early stages of its development: “Mongolia is a young democracy where it takes time to reach balanced decisions. That said, the current government has managed to put a solid set of policy initiatives in place which caused an immediate positive impact with bond yields tumbling by 230 basis points.”

Khan Bank is exceptionally well-poised to catch a ride on the crest of the economic wave now building up. The bank operates a fully developed platform that services small and mediumsized businesses (SMEs) with a footprint covering the entire country. With support from the International Finance Corporation (IFC) – the private enterprise financing arm of the World Bank Group – and other multilateral organisations, Khan Bank offers a full suite of services to SMEs. The bank also liaises with a number of micro-finance institutions.

“Smaller sized businesses, often family owned and operated, are essential to the economic development of our country. Khan Bank does not merely provide financing to these companies but also helps with encouraging entrepreneurship and maintains a number of educational programmes aimed at arming businesspeople with the knowledge and expertise they require in order to gain competitiveness in a more dynamic economic setting.”

Khan Bank was privatised in 2003 and is currently owned by Japanese and Mongolian shareholders. The bank is proud of its strong commitment to the highest standards of both corporate governance and transparency. “We maintain an exceptionally strong financial base and are the only Mongolian bank to have kept its credit rating throughout the lean years now past.

That accomplishment can be ascribed to Khan Bank’s stable business portfolio, its diversified customer base, and continued investments in technology and innovation.”

Mr Kato was named Khan Bank CEO in 2011. He has thirty years of experience in the banking business and previously held executive administrative positions for Tokyo Mitsubishi Bank in the United States, the Netherlands, the Middle East, and Japan. In 2009 and 2010, Mr Kato directed the Khan Bank Large Entity and Organisations Team.

CFI.co | Capital Finance International

The Khan Bank CEO’s optimistic outlook for Mongolia is based, in part, on the government’s recent decision to put an end to a tax row with British/Australian mining company Rio Tinto. The deal has now cleared the way for the expansion of the Oyu Tolgoi copper mine in the south of the country. To access the rich veins of ore, the mine now needs to move underground which requires an investment of at least $5.4bn. The project – hailed as the largest mining venture in the world – represents the largest financial undertaking in the country’s history.

“The agreement with Rio Tinto is the corner stone of a new policy that aims to bring foreign investors back to Mongolia so that the country may at long last unlock its vast mineral reserves,” says Mr Kato. It is conservatively estimated that Mongolia’s largely untapped mineral wealth ascends to a trillion dollars or more. Once its second phase becomes operational, the Oyu Tolgoi mine is expected to produce up to 450,000 tonnes of copper annually and contribute up to 35% of Mongolia’s GDP. “With an unequalled presence in every district of the country, vast experience, and state-of-the-art technology, Khan Bank is sure to profit from the economic upswing now in the making. In fact, the bank will help boost national development by empowering private business and offering retail customers easy access to a comprehensive array of financial services second to none.” i 191

> Bangkok Insurance:

In Pursuit of Happiness

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angkok Insurance Public Company Limited adheres to a customercentric management philosophy in its continuing effort towards the development and improvement of products and services. With thoroughly systemic management processes, and in a rapidly and constantly evolving business environment, the company is still determined to build and maintain a sustainable world-class organisation, underpinned by efficient leadership and solid enterprise-wide risk management. The company remains focused on maximising benefits to all stakeholders: customers, partners, employees, competitors, debtors, shareholders, as well as the wider society and the surrounding environment.

Under the leadership of Chairman and CEO Chai Sophonpanich, backed up by his team of executives and a staff of over 1,400, the company is now firmly established with branches and offices covering all areas of the country. Bangkok Insurance is now in its 69th year of business with a registered capital of 1,064.7 billion baht, of which 23,280 million baht belong to the shareholders.

LEADING WITH VISION With its aim to be the leader across all service areas, Bangkok Insurance has set out a clear vision and working philosophy to serve as guidelines for both management and employees.

Together, the vision and philosophy allow corporate objectives to be successfully reached.

Both have been passed on, and instilled in, all employees from one generation to the next and now form part of the company’s culture and corporate make-up.

VISION The company’s vision is resumed thus: “Bangkok Insurance aims to be the most preferred non-life insurer in Thailand.”

“Bangkok Insurance is determined to continuously develop and upgrade its information, operation, and technology platforms to meet and exceed international standards.”

UNDERWRITING POLICY Bangkok Insurance historically avoids competition on the basis of price only. Likewise, the company shuns a strategy of excessive remuneration in order to motivate business partners and agents.

To this end, the company maintains a highly professional staff in order to deliver an unfailingly positive impression and to inspire the confidence and trust that are essential to forging solid relations with its stakeholders and customers.

Instead, Bangkok Insurance prioritises standards that ensure excellence in service delivery. It also is cautious in selecting the risks it underwrites, shunning business classes deemed risky, in order to achieve good loss ratio rates and underwriting returns.

PERFORMANCE Bangkok Insurance is determined to continuously develop and upgrade its information, operation, and technology platforms to meet and exceed international standards. The company is focused on maintaining professional management structures in place while encouraging staff to share ideas, create clear work plans, and work as a tightly-knit team.

The company’s principal operating strategy is to increase the insurance policy renewal rate; to raise new premiums by steadily expanding its personal business lines; and to expand its regional market by opening new branches with a view to providing comprehensive services across Thailand and seek out opportunities that enable corporate growth.

The company attaches great importance to providing a congenial working environment which rewards and boosts employee initiatives, openness, sincerity, and mutual assistance.

This vision emphasises sustainable development built upon a stable and robust financial base, a diversified range of products, and customercentric operations and processes. The company has consistently carried out its business based on professional risk management and the continued development of the potential of personnel and technology. It has maintained a high standard of corporate governance and social responsibility.

EMPLOYEES The company is determined to attract, hire, and keep the best and brightest professionals and maintain a knowledgeable and highlycapable staff. Personnel policies aim to provide for continuous professional development and training while offering ample opportunity for career advancement. Additionally, Bangkok Insurance has put systematic performance evaluation and reviews in place and provides staff with a remuneration that is not only fair but motivating as well. Similarly, the company also offers its staff recreational activities and facilities that ensure a proper work-life balance.

WORKING PHILOSOPHY Bangkok Insurance is strongly committed to provide prompt, accurate, honest, and fair services in response to its shareholders, business partners, customers, and other stakeholders.

SOCIETY Bangkok Insurance instils and fosters awareness in all levels of its management and employees of the significance of each staff member’s responsibilities to both the larger society and

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the environment. The company has modelled its business processes to enable sustainable growth. Accordingly, Bangkok Insurance maintains a policy that offers continuous support to activities benefiting society such as initiatives focused on education, public health, disaster relief, community development, environmental protection, and the preservation of religious, artistic, and cultural values.

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Bangkok Insurance ensures optimum performance through efficient risk management and has established guidelines to systematically reduce risk on both the insurance and investment side of the business. All employees are asked to acknowledge and abide by these guidelines. Risk factors are always closely scrutinised in order that they remain at a level deemed acceptable.

Bangkok Insurance also performs allocations to reinsurance companies with strong financial standing as an added measure of spreading risk.

DEVELOPMENT OF DATA AND ICT SYSTEMS Bangkok Insurance has made large investments in improving and updating its information and communication technology systems. Maintaining a solid and up-to-date ICT infrastructure is considered an essential part of the company’s business operations, allowing for the delivery of consistently accurate and prompt all-inclusive service to customers.

The company constantly introduces new technology to enhance efficiency and elevate service quality in insurance underwriting and claims processing. State-of-the-art technology

Summer 2015 Issue

vision and aim to prepare staff for international business competition. Additionally, Bangkok Insurance encourages its staff to sign-up for overseas courses and seminars. The company also provides scholarships for staff members who wish to pursue studies at leading local and international universities.

TRAINING GUIDELINES Bangkok Insurance maintains a set of guidelines for skills development and training that provides employees with an equal opportunity for advancement. Learning programmes include classroom and on-the-job training, online selflearning, mentoring by experts, and overseas study excursions.

WELFARE The company cares for its staff’s personal wellbeing and family life. Bangkok Insurance aims to create a good work-life balance by providing welfare based on the concept of the Happy 8 Workplace, an organisation that strives to improve overall happiness through programmes such as Happy Body (health), Happy Heart (kindness), Happy Relax (relaxation), Happy Brain (knowledge), Happy Soul (ethics), Happy Money (finance), Happy Family (family life), and Happy Society (social environment).

HEALTH AND SAFETY Bangkok Insurance has established a Safety, Health, and Environmental Committee to implement and manage initiatives that improve workplace safety, measure office air quality, and office decoration that enhances work performance, cleanliness and comfort.

also allows Bangkok Insurance to tailor its service delivery to the needs of customers with different lifestyles, thus fomenting trust in the company.

In addition, Bangkok Insurance ensures effective data management system are kept in place and encourages the efficient provision of accurate information to all stakeholders. Particular attention is paid to the further improvement of the infrastructure linking the head office to the branch network in order to increase the speed of operations, data management, services, and communication.

PERSONNEL DEVELOPMENT Bangkok Insurance aims to develop the skillset of employees at all levels in both managerial

competency and technical proficiency with a view to improving effectiveness which enables the company to fulfil its corporate objectives.

The policy offers opportunities for career advancement in addition to facilitating the company’s progress and profitability. Intensive, systematic, and continuous training programmes are geared towards the acquisition of both vocational and insurance knowledge.

Educational initiatives also aim to improve work performance and include courses on the insurance market, sales, consultancy work, job presentation, negotiation and bargaining skills, and languages. These programmes are deployed in order to develop professionalism and CFI.co | Capital Finance International

CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY The company maintains a number of CSR activities with the full cooperation of management, employees, the Bangkok Insurance Foundation, and a network of business alliances. Bangkok Insurance realises that it bears responsibilities to the wider society and the environment. These constitute a major duty to be carried out in parallel with day-today business transactions. Bangkok Insurance continuously encourages its employees to participate in CSR activities and fosters the establishment of a Your Caring Partner mind set which entails helping others without expecting anything in return.

CSR compliance is pursued at all levels of the company. In 2014, the company deployed initiatives that support education, public health, disaster relief, community and environmental development, eco-friendly service, and energy conservation. Bangkok Insurance also supports a number of projects that aim to improve the overall quality of life, such as: Bangkok Insurance Scholarship Project Since 1994, the company grants annual scholarships to 25 to 30 outstanding but underprivileged students for their university 193

installing water filtering systems for students in 25 schools in Sa Kaeo, Ang Thong, Uttaradit, Nakhon Ratchasima, and Ratchaburi.

These and other initiatives count on the cooperation of Bangkok Insurance staff who share the company’s objectives as captured in the Your Caring Partner slogan. This includes strict adherence to transparent and verifiable practices that are fully compliant with the law, regulations, and business standards. The company believes that its business transactions must at all times be carried out bearing in mind the corporate responsibility to all stakeholders, as well as the society at large. This inclusive approach provides for an environment conducive to stable and sustainable growth of the business.

CHAI SOPHONPANICH: EARNING THE CLIENTS’ TRUST Chai Sophonpanich started his career at Bangkok Insurance as an investment manager in 1968 after he graduated from the University of Colorado in the United States. He rose to the position of president by 1976 and became chairman of the company two years later. He has been at the helm of the company ever since and currently holds the twin position of chairman and chief executive officer.

Under Mr Chai’s leadership, Bangkok Insurance has grown from strength to strength. The company was listed on the stock exchange of Thailand in 1978 and today boasts a market capitalisation of Baht 40 billion ($1.3bn) – double that of five years ago.

Mr Chai led the company to achieve many firsts. In 1997, Bangkok Insurance was the first general insurance company in Asia to obtain ISO 9002 certification for motor vehicle insurance.

He also drove the company to its present position at the very apex of the Thai insurance industry, garnering more awards than any other firm. Since the turn of the century, the Insurance Commission awarded Bangkok Insurance repeatedly – and more than any other insurer – the top ranking in the Most Outstanding NonLife Insurance Company category.

CEO: Chai Sophonpanich

education. These grants include tuition fees, as well as expenses for food and accommodation.

Wishing Well Foundation Since 2011, the company supports the Wishing Well Foundation which offers assistance and support to seventeen hospitals where children with cancer receive treatment. Bangkok Insurance volunteers have organised field trips for these kids to help fulfil their dreams of experiencing new places to learn, enjoy, and gain precious memories.

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Mukdahan Project Since 1995, the company helps villagers to supplement their income by introducing them to a career in handicrafts. The project trains villagers in weaving baskets, reeds mats, and natural colour bathing cloth. Experts offer classes on improving of production.

Clean Drinking Water for Kids Project Bangkok Insurance, in collaboration with Bangkok Insurance Foundation, has set up the Clean Drinking Water for Kids Project by CFI.co | Capital Finance International

Bangkok Insurance has grown under the stewardship of Mr Chai by emphasising the importance of trust building with its clients. The company prioritises financial stability which, in turn, earns it the confidence of clients.

By consistently promoting good corporate governance, Bangkok Insurance ensures fairness to all its stakeholders. Bangkok Insurance achieved its greatest recognition in 2004 when His Majesty King Bhumibol Adulyadej awarded the company the Royal Garuda – the royal warrant of the company’s trustworthiness.

Mr Chai has also been active serving the wider industry. Over the past three decades, he was president of the Thai General Insurance Association for ten years. He also helped found the ASEAN Insurance Council which he has served as both chairman and vice-chair. i

Summer 2015 Issue

> Troy Wiseman:

Bamboo - A Sustainable Source of Fibre

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ver the last ten years, REDD (Reducing Emissions from Deforestation and Forest Degradation) and REDD+ developments have proved that the price attributed to, and the willingness to pay for, forest based ecosystem services – whether through compliance or voluntary schemes – is unlikely to ever compete with the market price for wood and fibre sourced from the deforestation and degradation of the world’s remaining natural forests.

Although project level benefits may be significant, so long as demand continues and a thriving market provides attractive returns on the harvesting of natural forests, leakage is inevitable, and truly quantifiable REDD+ in many nations will be hard to achieve. The math is simple: plantation forests still supply only a fraction of our fuel and fibre needs, and without an alternative, at the global scale the degradation will continue, although the actual location may shift. Therefore addressing the drivers of deforestation, a premise on which REDD was built, through the provision of sustainable and long term alternatives is critical.

US-based EcoPlanet Bamboo is industrialising bamboo produced under stringent protocols and procedures and developed around a framework of positive social and environmental impact. It is a private sector mechanism that has the potential to contribute towards addressing a major driver of deforestation, regenerate fragmented forest ecosystems, and restore ecosystem functions.

Through such a mechanism, and through the provision of certified bamboo fibre to the industries that currently drive deforestation, commercially produced bamboo can be one piece of the puzzle in moving the REDD+ agenda forward, all while sequestering and storing significant volumes of atmospheric CO2.

The ultimate goal is to address the simple supply and demand for wood and fibre within a tangible

“Bamboo provides a fibre that reduces pressure on natural forests.”

timeframe and under a framework that this “alternative” fibre is produced only in a way that meets market demand, without the associated environmental cost. As such, it constitutes, a private sector solution that is economically viable and satisfies the world’s need for fibre.

Fibres are used in everything from consumer items such as toilet paper, tissue, and kitchen paper to clothing and textiles and from engineered timber for construction, housing, and furniture to charcoal and other fuel products.

Bamboo has traditionally been an enigma for policy makers, foresters, and environmentalists.

Ecologically speaking, the 1,200 plus species of bamboo are part of the grass family but the biomass the plant produces is a wood-like fibre with properties that mirror those of many traditional wood species from hardwoods to softwoods.

Once mature, bamboo grows extraordinarily fast with new stems or culms emerging annually and removed biomass being replaced annually.

Statements and online media that sell bamboo as maturing within three years, not requiring pesticide or fertiliser, or other claims of bamboo as a miracle plant are completely unfounded.

Like any other crop being produced commercially, bamboo requires a stringent management regime and many inputs.

In the context of REDD+, bamboo’s greatest advantage in addition to being an alternative fibre for timber-dependent industries, is its ability to be grown on degraded and marginal land. As a CFI.co | Capital Finance International

crop, it does not undermine food security and produces vast volumes of fibre without the need for replanting. Bamboo provides a fibre that reduces pressure on natural forests, whether that represents fibre to replace the kraft pulp currently used in toilet paper and sourced from old growth boreal forests in Canada and Russia or fibre that replaces dissolving pulp for textiles and clothing which is currently sourced from the clearing of primary tropical forests in Indonesia and elsewhere. It can also be used as a valuable tool for the successful restoration of ecosystems, particularly if native species are grown. Within a six to eight year period – depending on the level of soil degradation and the ability to understand and execute a set of unique protocols – bamboo creates a continuous and permanent canopy cover. Its strong root system breaks up compacted soil and provides water filtration benefits, restoring water tables and managing water cycles and increases organic soil carbon and nutrient levels. As EcoPlanet’s VCS-validated and verified projects in Nicaragua have shown, bamboo can sequester and store up to 800 tons of CO2 per hectare.

However, stringent controls are required to ensure that bamboo remains a tree-free, deforestationfree solution. To achieve this, EcoPlant believes in certification and independent auditing as a means to determine a global benchmark for bamboo’s commercial production as well as robust REDD+ safeguards with clearly defined policies, laws, and regulations. Quantifiable carbon (whether as a REDD+ initiative or as a straightforward Afforestation/Reforestation project), social and biodiversity impacts are criteria for the company’s projects, as is Forest Stewardship Council (FSC) certification for the sustainable management of the bamboo resource itself. If done correctly, and this framework adhered to as projects increase in both scale and scope, bamboo could prove to be an economically viable mechanism to achieve the core components of REDD+. i 195

> UNCTAD Investment and Enterprise Division:

An Investment Perspective on International Taxation

By Bruno Casella

Tax avoidance practices by multinational enterprises (MNEs) often depend on corporate structures that are built by routing investments through offshore investment hubs or conduits that help shift profits from higher to lower tax jurisdictions. In essence, corporate structures built through FDI (foreign direct investment) can be considered “the engine” and profit shifting “the fuel” of MNE tax avoidance schemes.

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n order to analyse the scope, dimensions, and effects of tax-efficient corporate structures (fuel-efficient engines) we can look at FDI flowing through conduit jurisdictions (transit FDI). Transit FDI does not equate with non-productive FDI. Foreign direct investment designed as part of tax planning strategies of MNEs can have a real economic impact on the countries involved. For example, an investment from a North American firm in Asia to start a new production plant may be channelled through Europe for tax reasons (potentially penalising tax revenues in both home and host countries) but still carries the productive-assetcreating effects of a greenfield investment.

“Looking at transit FDI to analyse MNE base erosion and profit shifting (BEPS) practices yields new insights on the size of the phenomenon and on geographical patterns. It also provides new avenues to estimating tax revenue losses for governments around the world.”

Offshore investment hubs, can be differentiated in two groups: • Tax Havens – Small jurisdictions whose economy is entirely, or almost entirely, dedicated to the provision of offshore financial services.

• Jurisdictions offering SPEs (special purpose entities) or other entities facilitating transit investment. Larger jurisdictions with substantial real economic activity that act as major global investment hubs for MNEs due to favourable tax and investment conditions.

Our Offshore Investment Matrix (see figure 1) provides a comprehensive mapping of corporate international investments through offshore investment hubs. For each unit of MNE international investment stock, bilateral data provide a pairing of direct investor and recipient jurisdictions, which are grouped under SPEs, Tax Havens, or non-OFCs (offshore financial centres). When the investor/recipient is a jurisdiction offering SPEs only part of the outward/inward investment is allocated to transit investment activity (the SPE component) while the remaining part is allocated to the non-OFC group. Thus the matrix really focuses on the transit FDI phenomenon.

The matrix shows the pervasive role of offshore investment hubs in the international investment structures of MNEs. In 2012, out of an estimated $21 trillion of international corporate investment stock in non-OFC recipients (blue area in figure 2), more than 30% or some $6.5 trillion was channelled through offshore hubs (dark blue area). The contribution of SPEs to investments from conduit locations is far more relevant than the contribution of Tax Havens.

The largest offshore investment players are SPE jurisdictions.

A mirror analysis of the inward investment into offshore hubs (dark grey area) reveals that 28% of the total amount of cross-border corporate investment stock is invested into intermediary entities based in hubs. In some cases these entities may undertake some economic activity

Figure 1: The Offshore Investment Matrix. Source: UNCTAD.

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Summer 2015 Issue

Figure 2: The Offshore Investment Matrix – transit FDI perspective. Source: UNCTAD.

international efforts to tackle tax avoidance practices have managed to reduce the share of offshore investments in developed countries, but exposure of developing economies is still on the rise.

Looking at transit FDI to analyse MNE base erosion and profit shifting (BEPS) practices yields new insights on the size of the phenomenon and on geographical patterns. It also provides new avenues to estimating tax revenue losses for governments around the world. Ongoing work in the international community on BEPS will benefit from this new analytical approach. i ABOUT THE AUTHOR Bruno Casella is an economist at the Trends and Data Section in UNCTAD’s Investment and Enterprise Division, based in Geneva. He is one of the lead authors of the annual World Investment Report.

Figure 3: Trend in the share of investment from offshore hubs. Source: UNCTAD.

on behalf of related companies in higher tax jurisdictions, such as management services, asset administration, or financial services (base companies). However, often they are equivalent to letterbox companies, legal constructions conceived for tax optimisation purposes (conduit companies) and potentially to benefit from other advantages associated with intermediate legal entities.

The prominent pass-through role of these entities in financing MNE operations causes a degree of double-counting in global corporate investment figures, represented by the dark grey area (investments into offshore hubs) which broadly mirrors the dark blue area (investments from hubs). Note that in UNCTAD FDI statistics this

double-counting effect is largely removed by subtracting the SPE component from reported FDI data.

The share of stock between hubs (light grey area) is also relevant, at 5% of global investment stock. This confirms that offshore investment hubs tend to be highly inter-connected within complex multi-layered tax avoidance schemes.

The Double-Irish-Dutch-Sandwich employed by many IT multinationals is a relevant example.

Prior to joining UNCTAD in 2013, he was junior manager at McKinsey & Company where he served a wide range of corporate clients worldwide. He holds a PhD in Statistics and a degree in Economics at Bocconi University. He has co-authored research papers on probability, statistics, economics and finance, some published in refereed international journals.

Between the start and end of the 2000s, the average share of investment flows to/from nonOFC countries routed through offshore hubs (Offshore investment share) increased from 19% to 27% (Figure 3). More recently, increasing CFI.co | Capital Finance International

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> The Local Climate Adaptive Living Facility (LoCAL) of UNCDF:

Climate Change Impacts on Natural and Human Systems “For women, the road was crucial. It was hard to deliver babies because of access: we had to go to the hospital by boat – it was risky. And also for the children, floods made it impossible for them to study like the others. Now we do not lose sleep over this anymore and we have much better access to services when we need them”. Mrs Seng Sareth, the first deputy in a commune council of Cambodia explains in those words how capital finance for local climate change adaptation can change people’s lives.

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ccording to the last Intergovernmental Panel on Climate Change Report (IPCC, 2014), in recent decades changes in climate have caused impacts on natural and human systems on all continents (see Figure 1).

Africa as whole is one of the most vulnerable regions due to its high exposure and low adaptive capacity. Climate change will amplify existing stress on water availability and exacerbate vulnerability of agricultural systems particularly in semi-arid areas. Climate change is also expected to act as a multiplier of existing health vulnerabilities.

“Adaptation is placeand context-specific and local governments are increasingly recognized as critical to progress in adaptation.”

In Asia, coastal and marine systems are under increasing pressure from both climatic and nonclimatic drivers while multiple stresses caused by rapid urbanisation, industrialisation and economic development will be compounded by climate change. Extreme climate events are also expected to have an increasing impact on human health, security, livelihoods, and poverty (IPCC, 2014).

Local governments are in a unique position to identify the climate change adaptation responses that best meet local needs, and typically have the mandate to undertake the small- to mediumsized adaptation investments required for building climate resilience. Yet they frequently lack the resources to do so – and even more to do so in a way that is aligned with established decision-making processes and public planning and budgeting cycles.

Adaptation can contribute to the well-being of populations, the security of assets and the maintenance of ecosystem goods, functions and services. Adaptation is place- and contextspecific and local governments are increasingly recognised as critical to progress in adaptation.

The Local Climate Adaptive Living Facility (LoCAL) of the UN Capital Development Fund was designed and initiated in 2012 to address this challenge by delivering adaptation finance through local government systems in an effective and transparent manner.

DELIVERING ADAPTATION FINANCE AT LOCAL LEVEL The Local Climate Adaptive Living Facility (LoCAL) provides a mechanism to integrate climate change adaption into local governments’ planning and budgeting systems, increase awareness and response to climate change at local level, and increase the amount of finance available to local governments for climate change adaption.

LoCAL combines performance-based climate resilience grants, which ensure programming and verification of climate change expenditures at the local level, with technical and capacity building support. LoCAl grants provide a financial top-up to cover the additional costs of making investments climate resilient, and are channelled through existing government fiscal transfer systems (rather than parallel or ad hoc structures).

LoCAL grants are disbursed as part of a local government’s regular budget envelope and can thus finance the adaptation element of larger projects, allowing for holistic responses to climate change. LoCAL uses the demonstration effect to trigger further flows for local adaptation, including national fiscal transfers and global climate finance for local authorities, through their central governments.

LoCAL offers a proven mechanism for the

“We encourage all LDCs (...) to take advantage of the Local Climate Adaptive Living Facility to enhance their local governments’ capability to discharge their responsibility in the implementation of the National Adaptation Plans”, Ministers and representatives of Asia and Pacific LDCs, Kathmandu, Nepal, December 2014 198

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Summer 2015 Issue

Figure 1. Source: IPCC, Working Group II, Assessment Report 5, Figure 18-3, 2014.

“LoCAL offers a proven mechanism for the international community to channel climate change finance to the most remote and vulnerable regions and populations of the world, ensuring traceability and performance monitoring and reporting.” international community to channel climate change finance to the most remote and vulnerable regions and populations of the world, ensuring traceability and performance monitoring and reporting.

LoCAL grants include a set of minimum conditions – essentially guaranteeing good governance, performance criteria – more qualitative in nature and fostering the effective inclusion of adaptation in local government business, and a menu of eligible investments – ensuring investments made go beyond business as usual.

LoCAL grants typically involve a number of key steps: • Climate information and vulnerability and adaptation assessments are reviewed or undertaken to inform the process. Needs and capacities are assessed.

• Local governments develop in a participatory

manner local adaptation programmes, integrate adaptation in their own local development planning and budgeting processes and cost and select adaptation measures to be financed through the PBCRG (Performance-Based Climate Resilience Grants).

• Grants are disbursed to support the implementation of LoCAL investments in the context of local authorities’ annual planning and budgeting cycles, and selected measures are implemented.

• Performance is appraised in terms of the degree to which additional resources have been used to build resilience and promote adaptation to climate change, and audits are undertaken as part of the regular national process; and the cycle starts again, as an iterative process.

• Capacity building activities are undertaken at various stages according to identified needs; they target the policy, institutional and individual levels.

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A PHASED APPROACH LoCAL operates through three phases: • Piloting – The first phase involves initial scoping, followed by testing in two to four local governments. Countries under phase I include Bangladesh, Benin, Ghana, Lao PDR, Mali, Mozambique, Nepal, and Niger.

• Learning – The second phase takes place in 5% to 10% of local governments of a country.

It involves collecting lessons and demonstrating the effectiveness of the mechanism at larger scale. Bangladesh and Lao PDR are already preparing for this expansion.

• Scaling-up – The third phase is a full national rollout of LoCAL based on the results and lessons of the previous phases. LoCAL is gradually extended to all local governments, with domestic or international climate finance, and becomes the national system for channelling adaptation finance to the local level. Bhutan and Cambodia are entering phase III. 199

“The objective is to pilot a mechanism that can be scaled up to the national level, therefore targeting over 300 million people across countries.”

SCALING UP ACROSS LEAST DEVELOPING COUNTRIES Since it started its work in 2012, LoCAL has been introduced or tested in ten countries in Asia and Africa. To date, LoCAL has provided grants to 29 local governments, reaching out to a population of over four million, across seven LDCs in Asia (Bangladesh, Bhutan, Cambodia, Lao PDR, and Nepal) and Africa (Benin and Mali).

In 2015, an additional dozen local governments from four countries – in Africa (Ghana, Mozambique, and Niger) and the Pacific (Tuvalu) – are expected to join and make use of the mechanism, thereby enabling another million poor people to benefit from this new type of access to climate finance and the adaptation investments that follow.

ABOUT UNCDF The United Nations Capital Development Fund (UNCDF) is the UN’s capital investment agency for the world’s 48 Least Developed Countries (LDCs). UNCDF uses its capital mandate to help LDCs pursue inclusive growth. UNCDF uses smart Official Development Assistance (ODA) to unlock and leverage public and private domestic resources; it promotes financial inclusion, including through digital finance, as a key enabler of poverty reduction and inclusive growth; and it demonstrates how localizing finance outside the capital cities can accelerate growth in local economies, promote sustainable and climate resilient infrastructure development, and empower local communities. Using capital grants, loans, and credit enhancements, UNCDF tests financial models in inclusive finance and local development finance; ‘de-risks’ the local investment space; and proves concept, paving the way for larger and more risk-averse investors to come in and scale up. For more information, please visit www.uncdf.org.

More LDCs have expressed interest and are preparing to join LoCAL as it offers them a proven and scalable mechanism to channel climate finance effectively and transparently to the people most in needs. i

ABOUT LOCAL The Local Climate Adaptive Living Facility (LoCAL) is UNCDF mechanism to integrate climate change adaption into local governments’ planning and budgeting systems, increase awareness, and

The objective is to pilot a mechanism that can be scaled up to the national level, therefore targeting over 300 million people across countries.

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response to climate change at local level, and increase the amount of finance available to local governments for climate change adaption, through performance-based grants for climate resilience.

The programme is funded by the EU Global Climate Change Alliance, the Swedish International Development Cooperation Agency, the government of Liechtenstein, the government of Belgium, UNDP Global Environment Facility and UNCDF.

Summer 2015 Issue

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Chronicle of a Death Foretold

A

s a monetary bludgeon wielded menacingly to impose a federalisation process on the reluctant nations of Europe, the euro has failed miserable.

As a common currency it has not fared much better either.

The euro was conceived as one of the pillars of a federalisation process which also entailed the creation of the United States of Europe, complete with all the trappings of a superpower.

However, the USE was torpedoed by nearly all during the negotiations that eventually led to the 1992 Treaty of Maastricht which transformed the European Economic Community into the European Union.

While back then most politicians, fearful of their voters’ wrath, considered federalisation a bridge too far, the euro was generally deemed a safe first step in that general direction. In Maastricht, the common currency received the green light, with fiscal and political integration relegated to the backburner from where both would naturally progress to centre stage in the fullness of time.

Of course no such thing happened. The eurocrats’ dream of a United States of Europe lasted about twelve years during which time the euro entered into circulation and appreciated noticeably against the world’s major currencies. However, as soon as the federalisation process was relaunched via the 2004 Treaty of Rome, which sought to establish a European Constitution, voters rebelled – much as the leaders who earlier cobbled together the Treaty of Maastricht had feared.

Final Thought

Thus, a full-blown federalisation process never got underway and the euro remained as the single – and increasingly wobbly – pillar of the EU edifice. Instead of drawing economies together, the euro has accomplished the exact opposite: never before in its history spanning almost six decades have the nations of the European Union drifted so far apart Countries with more permissive fiscal climes prospered initially from the cheap and cheerful credit offered by the Northerners with their excess cash. The euro party was short-lived, brutally interrupted as it was by the shenanigans of US banks and regulators failing to live up to even modest standards of good governance, causing a global financial meltdown that, in turn, exposed the Eurozone’s weaknesses for all to see.

Lacking a framework for political integration, and thus a single commanding voice, the Eurozone 202

“The eurocrats’ dream of a United States of Europe lasted about twelve years.” responded haphazardly and timidly: a banking union was hastily drawn up and fiscal guidelines suddenly became rigid rules. Weaker member states were promptly cajoled into donning financial straightjackets purportedly designed to transform their wayward economies, by hook or crook, into copycats of Germany.

Meanwhile, the private banks that had merrily unloaded their cash on gullible Mediterranean nations were let off the hook as taxpayer guarantees were put in place, effectively socialising any future losses on credit unwisely extended to countries with iffy track records.

Now that the fat lady is about to burst into song, muddling on is no longer an option.

Notwithstanding all assurances Mario “Whatever It Takes” Draghi dispensed from his ivory tower in Frankfurt, the euro is crumbling. It is not just about letting Greece go its own way. In fact, Greece is but a footnote and constitutes, at best, a warning for what is to follow.

With the country now teetering on the brink of expulsion from the Eurozone, some historians have drawn parallels with Greece’s forced exit from an earlier currency union – the Latin Monetary Union (LMU) which lasted from 1865 to 1927. Initially formed between Belgium, France, Italy, and Switzerland, the LMU adopted the bimetallic (with a silver to gold ratio of 15.5:1) French franc as its reference. LMU member states struck their own coins to the same standard facilitating intraregional trade.

Open to any country willing to abide by its monetary specifications, the Latin Monetary Union soon expanded its footprint; Greece was the first to accede and joined in 1867 followed

by Finland, Serbia, Bulgaria, Venezuela, Peru, and Colombia. The dual monarchy AustriaHungary minted some of its coins to LMU standard as well.

LMU rules failed to regulate the printing of paper currency. Italy and France quickly used this glaring loophole to finance bloated state budgets, effectively forcing other members to foot the bill for their fiscal extravagance. Greece took this approach one step further and not only CFI.co | Capital Finance International

flooded the market with paper currency, but also eliminated all traces of gold from its coins.

In 1908, the country was expelled from the LMU for its misbehaviour. The monetary union itself collapsed as Europe sleepwalked into the Great War, though was only formally pronounced dead in 1927. In his History of the Latin Monetary Union, University of Chicago economist Henry Parker Willis wrote an epitaph that rings as true today as it did over a century ago:

“It is hard to see why the admission of Greece to the Latin Monetary Union should have been desired or allowed by that body. In no sense was she a desirable member of the league.

Economically unsound, convulsed by political struggles, and financially rotten, her condition was pitiable. Struggling with a burden of debt, Greece was also endeavouring to maintain in circulation a large amount of inconvertible paper.

She was not territorially a desirable adjunct to the Latin Monetary Union, and her commercial and financial importance was small. Nevertheless her nominal admission was secured, and we may credit the obscure political influences with being able to effect what economic and financial considerations could not. Certainly it would be hard to understand on what other grounds her membership was attained.”

Particularly enlightening is Mr Parker Willis’ mention of obscure political influences. Those are still very much prevalent in contemporary Europe and, indeed, form the foundation on which the euro was erected.

The challenge now faced by the EU is how to unravel the dysfunctional euro without destroying the economic community in the process, i.e. how to drain the bath without losing the baby.

The chances of the euro surviving are slim indeed should Greece be excluded – voluntarily or otherwise – from the Eurozone. Markets will instantly turn on Spain, Portugal, and perhaps even Italy and France, to determine what is left of the common currency’s strength.

While turning back the clock – or rolling back the years – is usually an exercise in futility, the European Union may not have much choice: if it is to ensure its own survival the EU must come to accept the increasingly inevitable: scrap the euro in an as orderly fashion as possible and revert the block to an economic community rather than the envisioned full-fledged union which nobody really desires, and which has proven to be a pipe dream – a nice thought, no doubt, but one utterly impractical and quite unattainable. i

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