CFI.co Autumn 2018

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Capital Finance International

Autumn 2018

£9.95 // €14.95 // $15.95

AS WORLD ECONOMIES CONVERGE

Deputy Secretary-General of the United Nations, Amina J Mohammed:

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Editor’s Column Paying the Piper

Ten years ago this September, Lehman Brothers filed for bankruptcy and was allowed to collapse, making the bank’s 26,000 or so employees redundant. As they filed out of the Midtown Manhattan head office for a last time, carrying their personal possessions and a few mementos in file boxes, the world watched in disbelief: not all large banks were apparently too big to fail.

Much has been said, and even more written, about the decision to let Lehman Brothers succumb whereas earlier that fateful year Bear Stearns was rescued from liquidation, albeit reluctantly and rather chaotically – by the Federal Reserve Bank of New York before being merged – at a staggering 93% discount – with JPMorgan Chase. Ben Bernanke, chairman of the Fed, argued that a bankruptcy of Bear Stearns would have affected the ‘real economy’ – words that came to haunt him six months later when the demise of Lehman Brothers caused a financial firestorm that swept right across the globe.

Editor’s Column

As Ernest Hemingway already noted in The Sun Also Rises, bankruptcy occurs gradually and then suddenly. The experience suffered

by Greece, Venezuela, and a few unfortunate others bears this out.

It has taken most markets four years or longer to recover. Hemingway’s sun returned slowly and hesitantly. Growth has since remained below par in most mature markets. There, an annualised GDP growth rate of, say, 1.5% is now widely considered to mark boom times. Full employment – once upon a time a job entrusted to central bankers (believe it or not) – is no longer an objective deemed worth pursuing since it has already been met, although not in a conventional way.

The UK economy is currently enjoying full employment and even needs to attract foreign workers by the planeload to keep humming.

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But, this is only so because some 15% of the country’s workforce is now self-employed (2017), enjoying the dubious benefits of the gig economy – another of the Great Recession’s many legacies.

The gig economy, justifiably maligned by many, explains why employment levels seem robust whilst average incomes remain stagnant.

According to the OECD Employment Outlook 2018, released in July, unemployment levels are below pre-recession levels in most of its member states. That’s the good news. Wage growth, however, lags far behind. In fact, numbers compiled by the UK Office for National Statistics (ONS) show that since mid-2005 real (as opposed to nominal) average weekly earnings (AWE) have improved just 1.2%. In the US, the Pew Research Center found that the purchasing power of what it calls ‘usual weekly earnings’ (not seasonally adjusted) has barely moved since 1979 – less than +0.5%.

If anybody still wonders why populism is on the rise across the developed world in the wake of the Great Recession, please consider these numbers and the social dimension contained in them. No longer may the current generation enjoy a better life than the one before it. Not only have baby-boomers gorged on the world’s non-renewable resources; they have also put in place an economic system that disconnects gains in productivity from gains in purchasing power.

Please note that while gains are not usually passed on, losses are. This takes the form of voluntary income cuts, wholesale layoffs, and – at state level – severe austerity measures. The piper, it seems, must be paid by those least able to afford his melancholic tune.

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

Geneva: Palace of Nations (Palais des Nations)

Editor’s Column

> Letters to the Editor

“ “ “ “

President-elect Andrés Obrador of Mexico is likely to follow the path beaten by the former president of Uruguay José Mujica and adopt an open and transparent style of leadership, devoid of political grandstanding.

He will undoubtedly prove a capable and reformminded administrator. Mexico stands on the threshold of becoming a fully developed mature market and society. It just needs one little extra push.

ROBBY KROON (Guadalajara, Mexico)

The government of Argentina keeps telling the population that the current cash crisis is the last one the country will ever suffer. The reforms now underway will fix all that is wrong with Argentina. Or so they say. The IMF has come to Argentina’s rescue once again with a bailout package. Who is fooling whom here? I wish President Macri were right, but fear he is not: Argentina will keep doing the same thing repeatedly: spending too much on a welfare state it cannot afford. Each time, the government expects a different outcome. As Einstein may have said, "Insanity is doing the same thing over and over again and expecting different results."

FERNANDO ROMA (Buenos Aires, Argentina)

What’s up with your coverage of Brexit; arguably the biggest thing to hit European headlines in about six decades ? Are you sitting on the fence? In about six months, the indomitable UK Ship of State will set sail on an epic voyage, buccaneering its way to the world’s riches, and leaving behind a sclerotic bloc of hasbeens lorded over by a few unelected faceless bureaucrats, most of them French at that. What’s not to like? Apart from pretty much everything, the moment of truth is about to arrive. It will show once and for all who’s been right. Please get with the programme.

GEORGE PLISSET (Cambridge, UK)

With the passing away of Tom Wolfe we have lost one of the truly great chroniclers of late-20th century life. However, the author not only leaves us an exceptionally good oeuvre which will surely be enjoyed and dissected by future generations of critics, he also gave us New Journalism which gave publications such as Rolling Stone, Vanity Fair, Harper’s, and even The New Yorker a business model. The internet may have profoundly changed the way people read about news and societal trends, the long form that was Tom Wolfe’s hallmark will endure in print. Some readers just want more than just a 200-word summary of what is hot – and what is not.

SHIRLEY MACIVER (Portland (ME), USA)

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Geneva: Brunswick monument

Autumn 2018 Issue

“ “ “ “

Why would anyone want to be a billionaire? Isn’t being a mere millionaire good enough? How much can you possibly spend in one lifetime – or even several, with descendants enjoying the good life as well at least for a while.

So, why worry about protecting these vast personal fortunes that serve no apparent purpose? Take a cue from Bill Gates or Warren Buffett and give it away to people who need the money more than you do.

Give if away before it is taken away. For the end is surely nigh when just a handful of billionaires own about half the world.

VINCENT LEE (Hong Kong, China)

How interesting that the countries of Eastern Europe are joining hands to promote their own development via new links. This is not so much a move directed against Brussels, as it is one to bring the region up to speed and encourage economic growth through increased trade. Some fifteen years after joining the European Union, much has changed for the better in countries such as Romania and Bulgaria. However, they still languish far below EU averages on most metrics. That need not be.

MONTSERRAT VARELA I REIG, (Girona, Spain)

Thank you for indicating the dangers of crazy ideas going mainstream.

Alt-truths and fake news cannot be exposed often enough. Look at Brexit Britain to discover what happens when lies, half-truths, and urban myths become respectable and even the menu of the day for some members of the government. The USA is not far behind and now seems to think that you can create wealth by closing borders to competitors that have become too successful for comfort. A large part of the Anglophone world seems to be suffering an episode. Let’s all hope it soon passes.

FRANCA RUSSO (Naples, Italy)

London: Trafalgar Square

Investors getting piqued by North Korea? You have got to be joking.

Sure, it may one day become a land of opportunity – but that day is probably still eons away. And when it comes, if it ever does, you can be sure that the north will be carved up – investment-wise – between China and South Korea with just a few crumbs thrown to others to keep up appearances.

ALFRED STRONG (Guam, USA)

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Editor Wim Romeijn

>

Assistant Editor Sarah Worthington

COVER STORIES

Executive Editor George Kingsley Production Editor Jackie Chapman

Editorial Tony Lennox Kate Stanton Steve Dyson John Marinus Ellen Langford Naomi Majid

Columnists Otaviano Canuto Evan Harvey Tor Svensson Lord Waverley Ian Fletcher

Otaviano Canuto, World Bank Global Imbalances (14 – 15)

UNCTAD Prospects for FDI (20 – 22)

Evan Harvey, Nasdaq Next-Gen ESG (30 – 31)

Distribution Manager Len Collingwood

Subscriptions Maggie Arts

Cover Story Energy for Sustainable Goals (34 – 39)

Commercial Director William Adam

Director, Operations Marten Mark

PwC Creating Socio-Economic Value (140 – 142)

Publisher Anthony Michael Capital Finance International Meridien House 69 - 71 Clarendon Road Watford WD17 1DS United Kingdom T: +44 203 137 3679 F: +44 203 137 5872 E: info@cfi.co W: www.cfi.co Editorial on p16-19, 24-25, 90-91, 98-100, 189-191 © Project Syndicate 2018

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

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UNCDF Boost through Digital Finance (200 – 202)

Asian Development Bank Growth Agenda (204 – 205)

CFI.co | Capital Finance International

Autumn 2018 Issue

FULL CONTENTS 14 – 39

As World Economies Converge

Otaviano Canuto

Nouriel Roubini

Brunello Rosa

Joseph Stiglitz

James Zhan

Lawrence Summers

Tor Svensson

Evan Harvey

Lord Waverley

40 – 47

Autumn 2018 Special: UNDP Goodwill Ambassadors

48 – 101

Europe

Nordea Life Assurance Finland

Pekka Luukkanen

Alain Afflelou

IMF

Paul De Winter

Delen Private Bank

Firmenich

Wilhelm Celeda

Raiffeisen Centrobank AG

Gatehouse Bank

ČSOB

Alexandre Fonseca

Altice Portugal

Léon Lucide

CIOA

Didier Pascual

Thierry Legon

ASIT Biotech

LBBW

Patrick Seifert

United Waters International

Mariana Mazzucato

Deloitte

Kenneth Rogoff

102 – 119

CFI.co Awards

Rewarding Global Excellence

120 – 145

Africa

CSCS

Haruna Jalo-Waziri

Credit Bank

Betty Korir

Emmanuel Antwi-Darkwa

Volta River Authority

Fathïa Bennis

MAROCLEAR

Résidences Dar Saada

PwC

Peter Townshend

Sanlam Investments

Mervyn Shanmugam

146 – 157

Middle East

Ahli United Bank

ASTAD

Grant Thornton

158 – 165

Editor’s Heroes

Men and Women Who are Making a Real Difference

166 – 179

Latin America

Anselmo do Ó de Almeida

ALIAS Porvenir EY

180 – 193

North America

Riadh Zine

Akumin

NICE Actimize

Sandy Frucher

Angeles de Magalhães

Interbrok Group

Lee Garf

194 – 205

Asia Pacific

Maritime Bank

Asian Development Bank (ADB)

206

LienVietPostBank

UNCDF

Final Thought Jim O'Neill CFI.co | Capital Finance International

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> Otaviano Canuto, World Bank:

Global Imbalances and Currency Bullying

T

he IMF released in July its latest assessments of the current account balances for the 30 largest economies in its External Sector Report 2018. There was no major change in 2017 relative to previous years, and the reconfiguration of surpluses and deficits that has prevailed since 2013 was essentially extended. However, there are reasons to expect more abrupt alterations, as the US fiscal easing under high employment conditions unfolds. Given the context of ongoing US-led trade wars, as well as the recent bout of Chinese exchange rate depreciation, one may wonder about the prospects of currencies also becoming subject to war or rather to what Citi has called “currency bullying”.

GLOBAL CURRENT ACCOUNT BALANCES HAVE EVOLVED ALONG A STABLE CONFIGURATION SINCE 2013…

Chart 1 depicts the evolution of current account balances of major 30 economies in the period of 1997-2017. After the substantial climb prior to – and its unwinding in the aftermath of - the global financial crisis, the absolute sum of surpluses and deficits has remained close to 3.25% of global GDP. The overall stable landscape featured changes in composition. More recently, China’s current account surpluses have gradually diminished, while Japan, euro area debtor countries and oilexporting countries have moved in the opposite direction. Below the line, in the case of deficit countries, while the US stayed as the major case, emerging market economies have displayed divergent trajectories: Brazil, India, Indonesia, Mexico and South Africa have left the “fragile” position of the “taper tantrum” in 2013, while Argentina joined Turkey in that zone.

"Asymmetric macroeconomic policy stances among advanced economies since 2013 have also affected the evolution of balances." corresponding valuation of assets. Those stocks, in turn, are also among factors determining future current account balances. In 2017, valuation effects – including from US dollar weakening led to a stability of global stock positions. …WHILE REAL EFFECTIVE EXCHANGE RATE (REER) AND CURRENT ACCOUNT GAPS HAVE REMAINED SIGNIFICANT… National economies are not expected to exhibit zero current-account balances and stocks of net foreign assets. At any period, domestic absorption – consumption and investment – can be larger or smaller than the local GDP, triggering inflows or outflows of capital, due to “fundamental” factors: • Differences in intertemporal preferences and age structures of their populations mean different ratios of domestic consumption to GDP; • Differences in opportunities for investment also tend to lead to capital flows; • Differences in institutional development

levels, reserve currency statuses and other idiosyncratic features also generate capital flows and imbalances; • Cyclical factors – including fluctuations in commodity prices – may also cause transitory increases and declines in balances; and • Countries’ outstanding stocks of net foreign assets also have a counterpart in terms of service payments in their current accounts.

When global imbalances – and corresponding real effective exchange rates (REERs) - reflect such fundamentals, economies are in a better place than they would be in autarky (isolated with zero balances). There are situations, however, in which such imbalances may be gauged as in excess with respect to notional values suggested by fundamentals.

The IMF External Sector Report has for six years offered assessments comparing actual current account balances – and REERs – with those that would reflect medium-term fundamentals and desired policies. Chart 2 shows the evolution of current account gaps in 2012-2017, where stronger (weaker) means that a current account balance is larger (smaller) than that “consistent with fundamentals and desirable policies”.

Last year, Germany, the Netherlands, Singapore and Thailand (“substantially stronger”); Malaysia (“stronger”); and China, Korea and Sweden (“moderately stronger”), held current account

CFI.co Columnist

Asymmetric macroeconomic policy stances among advanced economies since 2013 have also affected the evolution of balances. While some economies have combined large surpluses and weak domestic demand (e.g., Germany, Japan, Netherlands), the United Kingdom and the United States exhibited stronger recoveries in their domestic demands.

In the case of the US, the expansionary effects of last year’s tax cuts have already started to appear in the GDP figures of the second quarter.

Although accompanied by a surge in exports to some extent reflecting anticipation of sales abroad for fear of trade wars becoming fiercer the US current account deficit is poised to rise.

Stock positions of countries in terms of net international investments evolve according to previous current account balances and the 14

Chart 1: Current Account Imbalances, 1997-2017 (% of world GDP). Source: IMF, “External Sector Report 2018”, July 2018.

Note: Surplus AEs - Korea, Hong Kong SAR, Singapore, Sweden, Switzerland, Taiwan POC; AE Commodity Exporters - Australia, Canada, New Zealand; Deficit EMs - Brazil, India, Indonesia, Mexico, South Africa, Turkey; Oil exporters - WEO definition plus Norway.

CFI.co | Capital Finance International

Autumn 2018 Issue

Chart 2: Evolution of IMF External Assessments for Large Economies. Source: IMF, “External Sector Report 2018”, July 2018.

Chart 3 (IMF REER gap, %): IMF Real Effective Exchange Rate Gap, 2017.

Source: Citi, “Currency Bullying and Currency Manipulators”, 25 July 2018, based on IMF, External Sector Report 2018, July 2018.

Chart 4: Criteria for the “currency manipulator” label. Source: Citi, “Currency Bullying and Currency Manipulators”, 25 July 2018.

Note: [left side - 12M Bilateral Trade Surplus with US (US$ billion) vs. Current Account (% of GDP, 2017)] Shaded quadrant show economies that satisfy two US Treasury thresholds (3% of GDP current account surplus, $20bn trade surplus with US); [right side - 12M

…AND THE US TREASURY IS SCHEDULED TO PRESENT THE NEXT FX REPORT IN OCTOBER Next October, the US Treasury will report again to Congress on “macroeconomic and foreign exchange policies of major trading partners of the United States” (the previous report was in April). A country may be named a “currency manipulator” according to three criteria, besides being considered a major US trading partner: certain levels of bilateral trade surplus with the US, overall current account surplus, and one-sided foreign exchange interventions geared at maintaining depreciation.

Japan (1988), Taiwan (China) (1988 and 1992), and China (1992-1994) have been previous cases of such denomination.

In case a country is considered as crossing the three lines and is labelled as “currency manipulator”, down the road there may be consequences as denial of access to the US government procurement, the USTR taking it into account in bilateral or regional agreements, and others. There are no countries currently named as “currency manipulators”, but China, Japan, Korea, Germany, India, and Switzerland comprise the current “monitoring list” because they are classified as fulfilling one or two of those criteria. There are hints that this watch list might be increased, although analysts are not expecting any labelling of “currency manipulator” in this forthcoming report – the application of previously used thresholds does not point to any country crossing all three fault lines (Chart 4).

The Chinese Renminbi depreciated sharply after first moves by the US in the “trade war”, partially reversing the course of appreciation that started mid-2007. Some observers alluded to a possibility that Chinese authorities might be adopting a “neglect” stance as a signal amid the ongoing trade battles with the Trump government. But risks of substantial capital outflows from China being triggered – as in 2015 – with corresponding shocks on China’s financial markets and elsewhere, including global risk assets, have also been highlighted.

Change in FX Reserves (% of GDP), 2015-2018] indicator of reserve accumulation as a proxy to avoiding FX appreciation.

On the other side, Argentina, Belgium, Saudi Arabia, Turkey and the United Kingdom (“weaker”); and Canada, France, Russia, South Africa, Spain and the U.S. (“moderately weaker”), showed negative current account gaps in the ranges of 2-4 and 1-2 percentage points of GDP, respectively. Within the eurozone, large positive gaps (Germany, Netherlands) have co-existed,

asymmetrically, with negative gaps (Belgium, France, Spain), and the eurozone as a whole moved to a positive gap because of shrinking negative gaps in France, Italy and Spain. Notice the absence last year of “substantially weaker” cases.

As one might expect, REER and current account assessments, according to the IMF report, are closely linked to each other. Stronger (weaker) REERs in Chart 2, corresponding to “undervaluation” (“overvaluation”), may also be seen in Chart 3.

CFI.co | Capital Finance International

The possibility of mutually damaging financial effects between US and China might impose some limits to the “currency bullying” as a proxy to the trade war. The US Treasury is unlikely to name China as a “currency manipulator”. Nonetheless, rhetoric and currency bullying are likely to remain loud as the US trade and current account deficits rise ahead and global imbalances aggravate. i ABOUT THE AUTHOR Otaviano Canuto is an Executive Director of the World Bank. The opinions expressed in this article are his own.

Follow him on Twitter: @ocanuto 15

CFI.co Columnist

gaps above 4, between 2 and 4, and between 1 and 2 percentage points of GDP, respectively.

The euro area was also “moderately stronger,” moving up from the alignment of previous years.

> Nouriel Roubini and Brunello Rosa:

The Makings of a 2020 Recession and Financial Crisis

A

s we mark the decennial of the collapse of Lehman Brothers, there are still ongoing debates about the causes and consequences of the financial crisis, and whether the lessons needed to prepare for the next one have been absorbed.

But looking ahead, the more relevant question is what actually will trigger the next global recession and crisis, and when.

The current global expansion will likely continue into next year, given that the US is running large 16

fiscal deficits, China is pursuing loose fiscal and credit policies, and Europe remains on a recovery path. But by 2020, the conditions will be ripe for a financial crisis, followed by a global recession.

There are 10 reasons for this. First, the fiscalstimulus policies that are currently pushing the annual US growth rate above its 2% potential are unsustainable. By 2020, the stimulus will run out, and a modest fiscal drag will pull growth from 3% to slightly below 2%.

CFI.co | Capital Finance International

Second, because the stimulus was poorly timed, the US economy is now overheating, and inflation is rising above target. The US Federal Reserve will thus continue to raise the federal funds rate from its current 2% to at least 3.5% by 2020, and that will likely push up short- and long-term interest rates as well as the US dollar.

Meanwhile, inflation is also increasing in other key economies, and rising oil prices are contributing additional inflationary pressures. That means the other major central banks will follow the Fed

Autumn 2018 Issue

is restricting inward/outward investment and technology transfers, which will disrupt supply chains. It is restricting the immigrants who are needed to maintain growth as the US population ages. It is discouraging investments in the green economy. And it has no infrastructure policy to address supply-side bottlenecks.

Fifth, growth in the rest of the world will likely slow down – more so as other countries will see fit to retaliate against US protectionism. China must slow its growth to deal with overcapacity and excessive leverage; otherwise a hard landing will be triggered. And already-fragile emerging markets will continue to feel the pinch from protectionism and tightening monetary conditions in the US. Sixth, Europe, too, will experience slower growth, owing to monetary-policy tightening and trade frictions. Moreover, populist policies in countries such as Italy may lead to an unsustainable debt dynamic within the eurozone. The still-unresolved “doom loop” between governments and banks holding public debt will amplify the existential problems of an incomplete monetary union with inadequate risk-sharing. Under these conditions, another global downturn could prompt Italy and other countries to exit the eurozone altogether.

Seventh, US and global equity markets are frothy.

Price-to-earnings ratios in the US are 50% above the historic average, private-equity valuations have become excessive, and government bonds are too expensive, given their low yields and negative term premia. And high-yield credit is also becoming increasingly expensive now that the US corporate-leverage rate has reached historic highs.

Moreover, the leverage in many emerging markets and some advanced economies is clearly excessive. Commercial and residential real estate is far too expensive in many parts of the world.

The emerging-market correction in equities, commodities, and fixed-income holdings will continue as global storm clouds gather. And as forward-looking investors start anticipating a growth slowdown in 2020, markets will reprice risky assets by 2019.

toward monetary-policy normalization, which will reduce global liquidity and put upward pressure on interest rates.

Third, the Trump administration’s trade disputes with China, Europe, Mexico, Canada, and others will almost certainly escalate, leading to slower growth and higher inflation.

Fourth, other US policies will continue to add stagflationary pressure, prompting the Fed to raise interest rates higher still. The administration

Eighth, once a correction occurs, the risk of illiquidity and fire sales/undershooting will become more severe. There are reduced marketmaking and warehousing activities by brokerdealers. Excessive high-frequency/algorithmic trading will raise the likelihood of “flash crashes.”

And fixed-income instruments have become more concentrated in open-ended exchangetraded and dedicated credit funds.

In the case of a risk-off, emerging markets and advanced-economy financial sectors with massive dollar-denominated liabilities will no longer have access to the Fed as a lender CFI.co | Capital Finance International

of last resort. With inflation rising and policy normalization underway, the backstop that central banks provided during the post-crisis years can no longer be counted on.

Ninth, Trump was already attacking the Fed when the growth rate was recently 4%. Just think about how he will behave in the 2020 election year, when growth likely will have fallen below 1% and job losses emerge. The temptation for Trump to “wag the dog” by manufacturing a foreign-policy crisis will be high, especially if the Democrats retake the House of Representatives this year.

Since Trump has already started a trade war with China and wouldn’t dare attack nucleararmed North Korea, his last best target would be Iran. By provoking a military confrontation with that country, he would trigger a stagflationary geopolitical shock not unlike the oil-price spikes of 1973, 1979, and 1990. Needless to say, that would make the oncoming global recession even more severe.

Finally, once the perfect storm outlined above occurs, the policy tools for addressing it will be sorely lacking. The space for fiscal stimulus is already limited by massive public debt. The possibility for more unconventional monetary policies will be limited by bloated balance sheets and the lack of headroom to cut policy rates.

And financial-sector bailouts will be intolerable in countries with resurgent populist movements and near-insolvent governments.

In the US specifically, lawmakers have constrained the ability of the Fed to provide liquidity to non-bank and foreign financial institutions with dollar-denominated liabilities.

And in Europe, the rise of populist parties is making it harder to pursue EU-level reforms and create the institutions necessary to combat the next financial crisis and downturn.

Unlike in 2008, when governments had the policy tools needed to prevent a free fall, the policymakers who must confront the next downturn will have their hands tied while overall debt levels are higher than during the previous crisis. When it comes, the next crisis and recession could be even more severe and prolonged than the last. i

ABOUT THE AUTHORS Nouriel Roubini is Professor of Economics at the Stern School of Business, New York University and co-founder of Rosa & Roubini Associates.

Brunello Rosa is co-founder and CEO of Rosa & Roubini Associates and a research associate at the Systemic Risk Center at the London School of Economics.

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> Joseph E Stiglitz:

The Myth of Secular Stagnation This is a two-part series. Read the second part on pages 190-191.

I

n the aftermath of the 2008 financial crisis, some economists argued that the United States, and perhaps the global economy, was suffering from “secular stagnation,” an idea first conceived in the aftermath of the Great Depression. Economies had always recovered from downturns. But the Great Depression had lasted an unprecedented length of time. Many believed that the economy recovered only because of government spending on World War II, and many feared that with the end of the war, the economy would return to its doldrums.

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Something, it was believed, had happened, such that even with low or zero interest rates, the economy would languish. For reasons now well understood, these dire predictions fortunately turned out to be wrong.

Those responsible for managing the 2008 recovery (the same individuals bearing culpability for the under-regulation of the economy in its precrisis days, to whom President Barack Obama inexplicably turned to fix what they had helped break) found the idea of secular stagnation attractive, because it explained their failures CFI.co | Capital Finance International

to achieve a quick, robust recovery. So, as the economy languished, the idea was revived: Don’t blame us, its promoters implied, we’re doing what we can.

The events of the past year have put the lie to this idea, which never seemed very plausible. The sudden increase in the US deficit, from around 3% to almost 6% of GDP, owing to a poorly designed regressive tax bill and a bipartisan expenditure increase, has boosted growth to around 4% and brought unemployment down to a 18-year low. These measures may be ill-

Autumn 2018 Issue

conceived, but they show that with enough fiscal support, full employment can be attained, even as interest rates rise well above zero.

The Obama administration made a crucial mistake in 2009 in not pursuing a larger, longer, better-structured, and more flexible fiscal stimulus. Had it done so, the economy’s rebound would have been stronger, and there would have been no talk of secular stagnation. As it was, only those in the top 1% saw their incomes grow during the first three years of the so-called recovery.

Some of us warned at the time that the downturn was likely to be deep and long, and that what was needed was stronger and different from what Obama proposed.

I suspect that the main obstacle was the belief that the economy had just experienced a little “bump,” from which it would quickly recover. Put the banks in the hospital, give them loving care (in other words, hold none of the bankers accountable or even scold them, but rather boost their morale by inviting them to consult on the way forward), and, most important, shower them with money, and soon all would be well.

But the economy’s travails were deeper than this diagnosis suggested. The fallout from the financial crisis was more severe, and massive redistribution of income and wealth toward the top had weakened aggregate demand. The economy was experiencing a transition from manufacturing to services, and market economies don’t manage such transitions well on their own.

What was needed was more than a massive bank bailout. The US needed a fundamental reform of its financial system. The 2010 Dodd-Frank legislation went some way, though not far enough, in preventing banks from doing harm to the rest of us; but it did little to ensure that the banks actually do what they are supposed to do, focusing more, for example, on lending to small and medium-size enterprises.

"The Obama administration made a crucial mistake in 2009 in not pursuing a larger, longer, better-structured, and more flexible fiscal stimulus."

More government spending was necessary, but so, too, were more active redistribution and pre-distribution programs – addressing the weakening of workers’ bargaining power, the agglomeration of market power by large corporations, and corporate and financial abuses. Likewise, active labor-market and industrial policies might have helped those areas suffering from the consequences of deindustrialization.

Instead, policymakers failed to do enough even to prevent poor households from losing CFI.co | Capital Finance International

their homes. The political consequences of these economic failures were predictable and predicted: it was clear that there was a risk that those who were so badly treated would turn to a demagogue. No one could have predicted that the US would get one as bad as Donald Trump: a racist misogynist bent on destroying the rule of law, both at home and abroad, and discrediting America’s truth-telling and assessing institutions, including the media.

A fiscal stimulus as large as that of December 2017 and January 2018 (and which the economy didn’t really need at the time) would have been all the more powerful a decade earlier when unemployment was so high. The weak recovery was thus not the result of “secular stagnation”; the problem was inadequate government policies.

Here, a central question arises: Will growth rates in coming years be as strong as they were in the past? That, of course, depends on the pace of technological change. Investments in research and development, especially in basic research, are an important determinant, though with long lags; cutbacks proposed by the Trump administration do not bode well.

But even then, there is a lot of uncertainty.

Growth rates per capita have varied greatly over the past 50 years, from between 2 and 3% a year in the decade(s) after World War II to 0.7% in the last decade.

But perhaps there’s been too much growth fetishism – especially when we think of the environmental costs, and even more so if that growth fails to bring much benefit to the vast majority of citizens.

There are many lessons to be learned as we reflect on the 2008 crisis, but the most important is that the challenge was – and remains – political, not economic: there is nothing that inherently prevents our economy from being run in a way that ensures full employment and shared prosperity. Secular stagnation was just an excuse for flawed economic policies. Unless and until the selfishness and myopia that define our politics – especially in the US under Trump and his Republican enablers – is overcome, an economy that serves the many, rather than the few, will remain an impossible dream. Even if GDP increases, the incomes of the majority of citizens will stagnate. i ABOUT THE AUTHOR Joseph E Stiglitz is the winner of the 2001 Nobel Memorial Prize in Economic Sciences. His most recent book is Globalization and its Discontents Revisited: Anti-Globalization in the Era of Trump.

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> UNCTAD's James Zhan:

Trends and Prospects for FDI & Development Financing While global FDI flows declined sharply last year, the situation for developing countries as a whole is in fact more positive, writes James Zhan. FDI has been the largest external source of development finance and is expected to increase, but the gap for SDG financing remains huge.

F

oreign direct investment (FDI) is an important barometer of the globalisation of the world economy but, importantly, also of development finance.

While different forms of external flows can contribute to development, it is FDI that arguably reaches furthest and deepest – a fact acknowledged by the Addis Ababa Action Agenda on Financing for Development, which singles out the important contribution that FDI can make to sustainable development.

In this context, the global decline of FDI flows in 2017 – by 23% to $1.43 trillion (from $1.87 trillion in 2016; figure 1) seems to bode ill for development prospects. The contraction is in stark contrast to other macroeconomic variables, such as GDP and trade, which saw substantial improvements in 2017. Investment flows have been muted for most years since the 2007 financial crisis.

On closer examination, some characteristics of the decline indicate a more nuanced narrative, in which some negative aspects are offset by positives. First, the primary reason for the decline in FDI was a one-third reduction in the value of cross-border mergers and acquisitions (M&As) – from $887bn in 2016 to $694bn last year. M&As add little in productive capacity or employment to the host economy. Dampened FDI from reduced M&A activity does not raise much concern from the perspective of economic development.

On the negative side, the value of announced greenfield investment also declined. While the reduction – 14% to $720 billion – is much less stark that the drop-off in M&As. Greenfield projects are a productive form of investment, and a barometer for future trends.

"The stability in flows to developing Asia – slightly up, to $476bn – handed the region back its position as the top FDI destination in the world." mostly held steady. Some regions even registered modest rises. This means developing economies have attracted a larger part of global FDI flows, increasing their share to 46% of the total, compared with a far more modest 36% in 2016.

The stability in flows to developing Asia – slightly up, to $476bn – handed the region back its position as the top FDI destination in the world, receiving a third of total flows. Another positive development was the increase in FDI to Latin America and the Caribbean. While the rise was modest (7%, to $151bn) it was the first rise in FDI registered in six years for the region, which has been plagued in recent years by challenging macroeconomic conditions and weak commodity prices. Africa alone suffered a decline in FDI flows – down 21% to $42 billion – largely dragged down by a sharp reduction in a few major recipient countries.

FDI flows to developed economies fell by one The position of developing countries generally third to $712 billion (figure 2). The fall can be belies the overall gloom suggested by the global explained in part by a climb-down from relatively slump in FDI flows last year. Half of the top-10 high inflows in the preceding year. Inflows to host economies continue to be developing ones – developed countries in 2015-2016 exceeded $1 these include China, Hong Kong (China), Brazil, trillion, mainly on the back of a surge in cross- Singapore, India – while Mexico, Indonesia and border M&A and corporate reconfigurations. The the Republic of Korea find themselves within US and UK, particularly, were affected, seeing the top 20 ranks. The US remains the top FDI declines in flows of 40% and 92% respectively. recipient (attracting some $275bn in flows), The sharp drop constituted the correction of an while China takes a sizeable second place, with FDI inflows, global and bytogroup 2005–2017 of dollars and per cent) Figure 1. peak anomalous in 2016 FDI flows both.of economies, record inflows of(Billions $136bn.

47

-27%

World total

Developing economies

Developed economies

Transition economies

3 000

50% 712

-37%

$1430 -23%

2 500

2 000

1 500

1 000

500

Perhaps one of the most important features of last year’s FDI decline is the regional pattern of flows, which indicates that the contraction was borne by developed economies and economies in transition, while flows to developing economies 20

0 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Figure 1: FDI FDI/MNE inflows, global(www.unctad.org/fdistatistics). and by group of economies, 2005-2017 (Billions of dollars and per cent).

Source: UNCTAD, database

Source: UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics).

CFI.co | Capital Finance International

2016

2017

671 0%

Autumn 2018 Issue

Figure 2.

FDI inflows, by region, 2016–2017 (Billions of dollars and per cent)

Per cent 1 430

World Developed economies

712

304

European Union Other developed Europe

Latin America and the Caribbean

-26 300

-39

494

79 74

7

671 670

0

42 53

-21

151 140

8

476 475

Asia Transition economies

-42

524

Developing economies Africa

-23

-37

1 133

30 41

North America Other developed economies

1 868

0

47 64

2017

portfolio equity are relatively more expensive types of external finance, which means they typically require a higher rate of return. But returns are contingent on profits; in other words, on business success or successful implementation of projects. Short- and long-term debt is cheaper, but interest payments have to be made regularly, and the repayment of interest and principal is independent of profitability.

-27

2016

Figure 2: FDI inflows, by regions, 2016-2017 (Billions of Source: UNCTAD, FDI/MNE database (www.unctad.org/fdistatistics).

dollars). Source: UNCTAD, FDI/MNE database (www.unctad.org/

fdistatistics).

FDI AS A COMPONENT OF FINANCING FOR DEVELOPMENT Apart from FDI, developing countries can draw on a range of external sources of finance, including portfolio equity, long- and short-term loans (private and public), official development assistance (ODA), remittances and other official flows (figure 3) – but there are some important distinctions between the different types of flows.

ODA and remittances do not generally create a liability for the recipient country, but ODA is mainly used for direct budgetary support, rather than investment. Yet it can be spent on investment in projects related to the Sustainable Development Goals that might otherwise not be attractive to private sector investors.

Remittances are predominantly spent on household consumption, with limited investment in productive assets, although there is increasing evidence that remittances are used to finance small businesses.

The advantage of FDI as a source of finance is its sheer size and its relative stability. Over the past decade, FDI has been the largest source of external finance for developing countries, and the most resilient to economic and financial shocks.

On average, between 2013 and 2017, FDI accounted for just under 40% of external finance for developing countries (figure 4). For the least developed countries, ODA remains the most significant source of external finance – at 36% of external finance over the same period – FDI for LDCs constituted 21% of total flows to LDCs over the period.

widespread retrenchment of European banks’ foreign lending in 2015 caused a drop in longterm loans to developing countries. Portfolio equity flows account for a low share of external finance to developing countries, especially where capital markets are less developed. They are also relatively unstable because of the speed at which positions can be unwound.

While ODA is more stable than FDI, its growth has stagnated over the past decade and now amounts to only about a quarter of total FDI flows to developing countries as a group. Preliminary data indicate that net ODA from members of the OECD Development Assistance Committee fell by 0.6% in 2017.

Remittances are becoming an increasingly important component of external finance for developing countries in general, and LDCs in particular. According to initial World Bank data, remittances rose by 8.5% last year, to $466bn – a figure that now outstrips development aid.

Top recipient countries were India, China and the Philippines, while Mexico, Nigeria and Egypt were also featured. From a development perspective, the evidence of remittances’ increasing contribution to the establishment of small business enterprises therefore adds an interesting, home-spun flavour, with financial support from abroad.

FDI AND OTHER CROSS-BORDER CAPITAL FLOWS The decline in worldwide FDI last year also contrasted with other cross-border capital flows.

Total global capital flows – including FDI, portfolio FDI represents not only a source of funding, (equity and debt) flows and other private sector but also a package of tangible and intangible capital flows (mostly bank lending) – continued assets that can help build productive capacity FDI also exhibits lower volatility than most other to recover in 2017. Capital flows reached 7.6% in developing From of a host or recipient sources. flowscountries, are susceptible to of global GDP inof2017, Figure 3. countries.

Sources external finance forDebt-related developing 2005–2017 (Billions dollars)up from a post-crisis low country’s macroeconomic perspective, FDI and sudden stops and reversals; for example the of 5.2% of GDP in 2015 (figure 5). An overall 800

FDI 600

Remittances Portfolio investment

400

Other (mainly bank loans) 200

Official development assistance and other official flows

0

-200

-400 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Figure 3: Sources of external finance for developing countries (Billions of dollars).

Source: UNCTAD, UNCTAD, based based on Indicators (for (for remittances), UNCTAD (for FDI), (for ODA other Source: onWorld WorldBank BankWorld WorldDevelopment Development Indicators remittances), UNCTAD (for and FDI),OECD and OECD (forand ODA andofficial other flows). official flows).

CFI.co | Capital Finance International

21

Sources of external finance, developing economies and LDCs, 2013–2017 (Per cent)

Figure 4.

countries are now tentatively recovering, as the financial position of developed countries’ banks improves, and South–South lending from developing countries’ banks continues to expand.

Improved liquidity conditions in global financial markets have led to increases in portfolio debt and equity flows to developing countries.

9

14 1

18 11

36

24 28 39 21

LDCs

Developing economies

FDI

Remittances

Portfolio investment

Official development assistance and other official flows

Other investment (mainly bank loans)

Figure 4: Sources of external finance, developing countries and Source: UNCTAD based on World Bank World Development Indicators (for portfolio, UNCTAD based on World LDCs, 2013–2017 (Perloans cent). long-term loans, short-term andSource: remittances), UNCTAD (for FDI), and OECD (for ODA World and otherDevelopment official flows). Indicators (for portfolio, long-term Bank

Global flows, loans, short-term loanscross-border and remittances), capital UNCTAD (for FDI), and

Figure 5

2014–2017 (Per flows). cent of GDP) OECD (for ODA and other official

1.8

1.9 1.0

1.1 1.1

0.5

0.7

1.8

2.0

1.6 4.0 2.9

2.5

-0.1

-0.9 2014

2.4

2015

2016

2017

Portfolio debt

Other investment (mainly bank loans)

Portfolio equity

FDI

Source: UNCTAD, based on IMF World Economic Outlook (WEO) Database.

Figure 5: Global cross-border capital flows, 2014-2017 (Percentage of GDP). Source: UNCTAD, based on IMF World

Economic Outlook (WEO) Database.

improvement in global financial and liquidity conditions was buttressed by better short-term economic growth prospects, and expectations of a smooth monetary transition in the US. Signs of recovery in international bank lending, rising risk appetite among portfolio investors, a pickup in global trade and lower financial volatility in major asset classes, all contributed to improved conditions for cross-border capital flows.

Consistent with the global level trend, crossborder capital flows to developing countries also gained momentum in 2017, after falling to a multi-decade low in 2015. Total inflows to developing countries, equivalent to 2.4% of GDP in 2015, rose to 4.8% of GDP in 2017. The increase was not driven by FDI, but primarily by debt-related flows: cross-border banking and portfolio debt. The collapse in cross-border bank lending, due to the deleveraging of European banks, had been a major contributor to the post-crisis slump in capital flows to developing countries. Cross-border bank flows to developing 22

PROSPECTS FOR FOREIGN DIRECT INVESTMENT Indications are that global FDI flows could grow by some 5%, to $1.5 trillion, in 2018, which also augur well for development prospects. According to an UNCTAD survey, investment promotion agencies globally are upbeat about investment prospects, while our econometric forecasting model of FDI inflows as well as preliminary data for 2018 also indicate a rise in both crossborder mergers and acquisitions and announced greenfield projects.

The anticipated rise reflects an upswing in the global economy, stronger aggregate demand, continued growth in world trade and an increase in corporate profits (that is, MNE total profits, which may not reflect the profitability of overseas operations).

However, expectations are tempered by elevated risks to longer-term forecasts by the International Monetary Fund for macro-economic variables.

Also, geopolitical risks, growing trade tensions and concerns about a shift toward protectionist policies can have a negative impact on FDI in 2018. Tax reforms in the United States might significantly affect investment decisions by MNEs, which could considerably reshape global investment patterns.

On a regional basis, forecasts for 2018 are as follows: • Investment to Africa is expected to increase by about 20% to $50 billion. The projection is underpinned by the expectations of a continued modest recovery in commodity prices, and macroeconomic fundamentals. In addition, progress in inter-regional co-operation, through the signing of the African Continental Free Trade Area (AfCFTA) could stimulate investment.

• FDI flows to developing Asia should mostly hold steady, with a slight decline to $450 billion anticipated. While flows to China are seen to continue ticking-up on the back of its economic growth and further liberalisation, flows to Hong Kong (China) and Singapore might decline, while those to India are expected to be level-peg with 2016.

• Prospects for Latin America and the Caribbean are muted in the face of persistent macroeconomic and policy uncertainty. Flows are forecast to fall by about 5%, to some $140 billion.

Prospects remain challenging for Latin American commodity exporters where the subdued outlook endures, indicating the need for greater economic diversification. Also weighing down the mood are uncertainty surrounding upcoming elections in some of the largest economies and possible negative spill-overs from international financial market disruptions.

CFI.co | Capital Finance International

• FDI flows to transition economies are forecast to rise by about 10% to $55 billion, supported by firming oil prices and growing macro-stability of the Russian economy – but geopolitical risks may yet undermine investment flows.

Of all financial flows, FDI has been the most stable component of the balance of payments over the past 15 years, and the most resilient to economic and financial crises. A recovery in foreign direct investment flows to most developing regions will offer welcome support for development efforts just over three years into the 15-year cycle of the international community’s very ambitious 2030 Development Agenda. i ABOUT THE AUTHOR James Zhan is senior director of the Investment and Enterprise Division at the United Nations Conference on Trade and Development (UNCTAD). He leads the team that produces the UNCTAD flagship World Investment Report.

For more analysis, UNCTAD’s World Investment Report 2018 can be consulted.

ABOUT UNCTAD UNCTAD supports developing countries to access the benefits of a globalized economy more fairly and effectively – as well as helps equip them to deal with the potential drawbacks of greater economic integration. To do this, UNCTAD provides analysis, facilitates consensus-building, and offers technical assistance. This helps them to use trade, investment, finance, and technology as vehicles for inclusive and sustainable development.

UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964. Our headquarters are located in Geneva, Switzerland, and we have offices in New York and Addis Ababa.

UNCTAD is part of the UN Secretariat. UNCTAD reports to the UN General Assembly and the Economic and Social Council but have its own membership, leadership, and budget.

Author: James Zhan

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YEAR ANNIVERSARY

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of government, 300+ Leaders business, international Speakers organizations & academia

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For further information, contact the Investment and Enterprise Division at wif@unctad.org

> Lawrence H Summers:

Setting the Record Straight on Secular Stagnation This is a two-part series. Read the second part on pages 189.

J

oseph Stiglitz recently dismissed the relevance of secular stagnation to the American economy, and in the process attacked (without naming me) my work in the administrations of Presidents Bill Clinton and Barack Obama. I am not a disinterested observer, but this is not the first time that I find Stiglitz’s policy commentary as weak as his academic theoretical work is strong.

economic performance during the Obama years.

This is simply not right. The theory of secular stagnation, as advanced by Alvin Hansen and echoed by me, holds that, left to its own devices, the private economy may not find its way back to full employment following a sharp contraction, which makes public policy essential. I think this is what Stiglitz believes, so I don’t understand his attacks.

Stiglitz echoes conservatives like John Taylor in suggesting that secular stagnation was a fatalistic doctrine invented to provide an excuse for poor

In all of my accounts of secular stagnation, I stressed that it was an argument not for any kind of fatalism, but rather for policies to

24

CFI.co | Capital Finance International

promote demand, especially through fiscal expansion. In 2012, Brad DeLong and I argued that fiscal expansion would likely pay for itself.

I also highlighted the role of rising inequality in increasing saving and the role of structural changes toward the demassification of the economy in reducing demand.

What about the policy record? Stiglitz condemns the Obama administration’s failure to implement a larger fiscal stimulus policy and suggests that this reflects a failure of economic understanding.

He was a signatory to a November 19, 2008

Autumn 2018 Issue

letter also signed by noted progressives James K. Galbraith, Dean Baker, and Larry Mishel calling for a stimulus of $300-$400 billion – less than half of what the Obama administration proposed. So matters were less clear in prospect than in retrospect.

swaps would mushroom after 2000. We did, however, advocate for GSE reform and for measures to rein in predatory lending, which, if enacted by Congress, would have done much to forestall the accumulation of risks before 2008.

We on the Obama economic team believed that a stimulus of at least $800 billion – and likely more – was desirable, given the gravity of the economic situation. We were told by those on the new president’s political team to generate as much validation as possible for a large stimulus because big numbers approaching $1 trillion would generate “sticker shock” in the political system.

So we worked to encourage a variety of economists, including Stiglitz, to offer larger estimates of what was appropriate, as reflected in the briefing memo I prepared for Obama.

I have not seen a convincing causal argument linking the repeal of the GlassSteagall Act and the financial crisis. The observation that most of the institutions involved – Bear Stearns, Lehman Brothers, Fannie Mae, the GSE Freddie Mac, AIG, WaMu, and Wachovia – were not covered

by Glass-Steagall calls into question its centrality. Yes, Citi and Bank of America were centrally involved, but the activities that generated major losses were fully permissible under Glass-Steagall. And, in important respects, the repeal of GlassSteagall actually enabled the resolution of the crisis, by permitting the merger of Bear and JPMorgan Chase and by allowing the US Federal Reserve to open its discount window for Morgan Stanley and Goldman when they otherwise could have been sources of systemic risk.

Despite the incoming president’s popularity and an all-out political effort, the Recovery Act passed by the thinnest of margins, with doubts about its ultimate passage lingering until the last moment. I cannot see the basis for the argument that a substantially larger fiscal stimulus was feasible. And the effort to seek a much larger one certainly would have meant more delay at a time when the economy was collapsing – and could have led to the defeat of fiscal expansion.

While I wish the political climate had been different, I think Obama made the right choices in approaching fiscal stimulus. It is of course also highly regrettable that after the initial Recovery Act, Congress refused to support a variety of Obama’s proposals for infrastructure and targeted tax credits.

Author: Lawrence Summers

"We cannot rely on interestrate policies to ensure full employment. We must think hard about fiscal policies and structural measures to support sustained and adequate aggregate demand."

Unrelated to the topic of secular stagnation, Stiglitz takes a swipe at me by saying that Obama turned to “the same individuals bearing culpability for the under-regulation of the economy in its pre-crisis days” and expected them “to fix what they had helped break.” I find this a bit rich. Under the auspices of the government-sponsored enterprise (GSE) Fannie Mae, Stiglitz published a paper in 2002 arguing that the chance that the mortgage lender’s capital would be depleted was less than one in 500,000, and in 2009 he called for nationalization of the US banking system.

So I would expect Stiglitz to be well aware that hindsight is clearer than foresight.

What about the Clinton administration record on financial regulation? With hindsight, it clearly would have been better if we had foreseen the need for legislation like the 2010 Dodd-Frank reforms and had a way to enact it with a Republicancontrolled Congress. And certainly we did not foresee the financial crisis that came eight years after we left office. Nor did we anticipate the ways in which credit default CFI.co | Capital Finance International

The other principal attack on the Clinton administration’s record targets the deregulation of derivatives in 2000. With the benefit of hindsight, I wish we had not supported this legislation. But, given the extreme deregulatory approach of President George W. Bush’s administration, it defies belief to suggest that it would have created major new rules regarding derivatives but for the 2000 act; so I am not sure how consequential our decisions were. It is also important to recall that we pursued the 2000 legislation not because we wanted to deregulate for its own sake, but rather to remove what the career lawyers at the US Treasury, the Fed, and the Securities and Exchange Commission saw as systemic risk arising from legal uncertainty surrounding derivatives contracts.

More important than litigating the past is thinking about the future. Even if we disagree about past political judgements and about the use of the term “secular stagnation,” I am glad that an eminent theorist like Stiglitz agrees with what I intended to emphasize in resurrecting that theory: We cannot rely on interest-rate policies to ensure full employment. We must think hard about fiscal policies and structural measures to support sustained and adequate aggregate demand. i ABOUT THE AUTHOR Lawrence H Summers was US Secretary of the Treasury (1999-2001), Director of the US National Economic Council (20092010), and President of Harvard University (2001-2006), where he is currently University Professor.

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> Tor Svensson, CFI.co:

Blockchain Technology Proves Its Point Blockchain is playing its part in the unfolding Fourth Industrial Revolution.But this key technology – that powers and sustains Bitcoin – has yet to gain a solid foothold outside the cryptocurrency domain. The technology’s revolutionary powers and impact have been praised to such a degree that it is difficult to separate the hype from the vision. And the facts.

B

lockchain is not magic stardust to be sprinkled on any challenge, but blockchain has demonstrated its effectiveness as an enabling technology beyond the scope of cryptocurrencies. The hype may yet approach reality, as blockchain is combined with other Fourth Industrial Revolution technologies – artificial intelligence, quantum- and edgecomputing, and the Internet-of-Things (see Ian Fletcher’s article in the Summer 2018 issue of CFI.co).

A DEFINITION Blockchain could be defined as a distributed ledger of transactions between two parties recorded in a way that ensures data integrity, and is resistant to modification – a process that is enforced by every node in a decentralised network (Fig. 1).

Seller

Transaction

Buyer

"Blockchain has demonstrated its effectiveness as an enabling technology beyond the scope of cryptocurrencies."

HOW BLOCKCHAIN WORKS Blockchain technology gathers, orders, and fits data into blocks, then strings these together in a process that is secured by cryptography. Each transaction is stored in a block of data with a hash – a string of characters generated in real time to serve as a unique stamp, and a way to transform data to a uniform, fixed size.

tampering. As the information is sequential and time-stamped, duplicate entries are not possible (Fig. 1).

After two parties agree to undertake a transaction, information specific to the deal is digitally signed and broadcast to every other user node in the network. Once these nodes have checked the information and deemed it legitimate, the transaction is confirmed, and each node updates its copy of the blockchain accordingly. The block is then data-packed with other chronologically ordered transactions and, once all have been connected and timestamped, a blockchain is formed (Fig.1).

DISTRIBUTED LEDGER TECHNOLOGY (DLT) VS. BLOCKCHAIN These hashes are cryptographically produced, Blockchain is a distributed ledger technology making the blockchain virtually impervious to (DLT) which can be implemented in various ways. As Chris Kacher notes: Verified Nodes “Every blockchain is a Each user has a copy DLT, but not every DLT is a of the blockchain and validate the transaction blockchain.

“A distributed ledger is a database that is shared and synchronised across networks.

It could be said that the beating heart of blockchain is its underlying distributed ledger technology, just as the beating heart of Bitcoin is blockchain.” (To read more of Dr Kacher, look online at CFI. co.)

Until New Transaction

Blockchain P2P Network (Distributed ledgers)

Block (of data): Transaction_6 Address: Size:

Time Stamp

BRIEF HISTORY The history of blockchain can be split into five distinct phases – the last of which is still to play out (Fig. 2).

Lock Time:

CFI.co Columnist

Received:

Genesis Block No Previous Hash

Previous Block New Block

Hash function (Compresses length of output data into new original hash)

Figure 1.Blockchain Blockchain Distributed Technology at WorkCFI.co.

Figure 1: andand Distributed LedgerLedger Technology at work. Source:

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Source: CFI.co

CFI.co | Capital Finance International

It all started with some theoretical work in the early 1990s (phase 1). Blockchain proper was invented by Satoshi Nakatomo in 2008 (phase 2). He followed-up his findings the next year by using blockchain as the cornerstone of Bitcoin. Interest in

The History of Blockchain Technology Top applications:

2022 Phase 5: Future Applications

• Transaction settlement, payments, trade finance, identity management,

RegTech, and asset/goods management (source: IDC)

Person(s) or companies involved

Remain to play its part in the 4th industrial revolution

2020

• Secure decentralised social networks • United with IoT for enhanced security and speed • Combined with AI and robotics for e.g. smart cities and transportation • Government applications for secure storage, citizen ID and smart contracts

Enterprise grade applications

2019

• Brilliant minds continue to collaborate • Multiple new uses and application across industries and services,

Systems experts, business visionaries, megacorps

such as supply chain management • Some top uses: Financial services (banking, insurance), supply chain

(manufacturing, retail), utilities, professional services (smart contracts) (source: CB Insights and other)

Phase 4: Blockchain Technology Implementation

Companies ask: How can we use this new spillover (from Bitcoin) technology?

2018

• Digital assets backed by real estate and tokenized ownership • Banks form trade finance blockchain consortia

Adoption stage with commercial proof of concept

2017

• IT sector invests in blockchain services and software, including for security • Banks spend $1.7bn on blockchain products (up 67%) (source: Greenwich Assoc.)

• Music distribution application • Quorum for financial services • Open source blockchain project, Hyperledger • Decentralised voting & stakeholder governance

Tezos

Blockchain theory generally accepted with some proof of concept

Phase 3: Blockchain Acceptance & Proof of Concept

Phase 2:

2016

• New research labs for financial services • Name blockchain emerges as Block and Chain (from Nakamoto) are merged • “No viable smart contract systems have yet emerged”

2015

Venture investment surge • Ethereum and smart contracts

2009

First application: Bitcoin • Cryptocurrency with blockchain as the public ledger

Satoshi Nakamoto

2008

Blockchain invented

Satoshi Nakamoto

1994

Smart contracts proposed

Szabo

1992

Concept of Hash (or Merkle) Tree added to block

Bayer, Haber & Stornetta

1991

Initial studies on cryptographically secured and time stamped chain of blocks

Haber & Stornetta

Nakamoto & Bitcoin

Phase 1: Blockchain Theory

Figure 2: The History of Blockchain Technology

Source: CFI.co ©

Trade Finance

Crypto Exchanges

Crypto Assets Post-trade

Near Field Communications Transportation

Professional Services

Insurance

Insurance

Diamonds

Financial Sector Artificial Intelligence

Quantum computing

Election voters’ identity

Transaction Settlement

Asset management

Cybersecurity Hedge fund Gun Tracking

Supply-chain

Goods management

Utilities

IoT Credit services

Legal

NFC

AI

Banking

Retail

Ride-sharing

Cross-border payments

Real Estate

Identity management

Messaging App

Smart Contracts Manufacturing

RegTech

Cross-border Settlements

InsurTech

Authentication

Emerging Markets

Custody

Power Plants

Asset tracking

Cryptocurrency

Stock-trading

FinTech Charity

Inclusive Finance

Regulatory Compliance

Cloud Computing

Government

Crowdfunding

Academic Credentials

Corporate Governance

Public Records

Advertising Data

Personal Information

Figure 3: Blockchain Technology - Hot Areas of Application Growth (2018 to 2025 Projections). Source: CFI.co.

blockchain only really exploded in 2015 (phase improve our business? The answer stretches finance, transaction settlement, payments, Figure 2. Blockchain Technology: Hot Areas of Application Growth (2018 to 2025 Projections) Source: CFI.co 3) when the technology had become generally across a broad spectrum. identity management, FinTech, RegTech – as

CFI.co Columnist

accepted, and mainstream.

Since then, blockchain has been all about deploying the technology and adapting it to the requirements of different industries (phase 4).

Large global corporates, including banks, have now entered this new space looking for valuecreation through enterprise-grade commercial applications (phase 5).

USES OF BLOCKCHAIN Even modestly sized companies have asked: How can we use this new digital technology to 28

Blockchain technology can be used in multiple paperless ways to improve efficiency and security, as well as simplify transactions and cutout intermediaries (Fig. 3).

CB Insights, a purveyor of market intelligence to companies, identifies some 42 sectors and industries that blockchain could help to transform.

Some of the key current and future uses for blockchain are financial services – trade CFI.co | Capital Finance International

well as supply chain (manufacturing/retail) management, utilities, professional services (smart contracts), and asset/goods management.

WAITING FOR THE KILLER APP There may not be a single killer application for blockchain yet – other than, perhaps, cryptocurrencies.

According to Vitalik Buterin, co-founder of Ethereum cryptocurrency, there is unlikely to ever be a “killer app” for blockchain technology.

“The reason for this may be found in the doctrine

Autumn 2018 Issue

of low-hanging fruit,” he says. “If there existed some particular application for which blockchain technology is massively superior to anything else, then people would be loudly talking about it already. And so far, there has been no single application that anyone has come up with that has seriously stood out to dominate everything else on the horizon.”

Most banks are currently facing the 3C conundrum (see my article on Reg-Tech in the previous issue of CFI.co): How simultaneously to reconcile compliance with multiple new regulations - with the need to cut costs and improve customer service.

New FinTech companies hold the upper hand, with large commercial banks with heritage systems neither suited nor designed for tomorrow’s world. Banks have now built consortia to explore and exploit blockchain and DLT in trade finance pilot projects (Fig. 2). Blockchain can be used to streamline international trade transactions and also shows great potential for efficient and secure global financial services enterprise applications.

Key advantages include operational efficiencies, cost-effectiveness, traceability, transparency, and accountability. These partnerships can also cut down on compliance costs, as they are fully scalable across the globe.

To this new technology – which favours the rapid progress of agile players such as, say, FinTech start-ups – this is important when considering the disadvantages of the millstone of legacy systems around major banks’ necks.

Here are a few of the many promising applications of blockchain technology as the Fourth Industrial Revolution takes shape: • Supply-chain management • Trade finance replacing often archaic and fallible banking procedures • Improving secure-edge computing, which is data-processing near the data creation (a mesh network of microdata from, for example, one or more sensors) CFI.co | Capital Finance International

MYTH OF IMMUTABILITY Just as the claim that encryption can resist new quantum computer power, the myth of immutability of the blockchain can be hard to accept. Surely, no technology can be 100% secure…

An efficient and direct blockchain, cutting out the middle man, could lead to lack of accountability and less transparency – with some actors missing out on value-added services and requiring human knowledge and assistance.

FEAR AND HOPE The optimism that blockchain will revolutionise business in general, and the financial services industry in particular, could merely be a reflection of an intense desire to change a global financial and monetary system deemed unfair by some.

The way in which banks operate and the increased inequality, fuelled by successive asset bubbles inflated by quantitative easing, are cause for concern. The hope for a more inclusive, equitable, and egalitarian society, as well as for a fairer, decentralised form of governance, has inspired many to consider blockchain an agent of change.

And while mankind continues to yearn for new technologies to cure its many ills, it has so far failed to find any that fit the bill. The internet and the mobile phone have been transformative, but the societal impact of the humble washing machine has been more measurable – at least according to Cambridge economist Ha-Joon Chang, who regularly cautions against too much optimism on determining the transformative potential of new technologies.

Blockchain, though useful in many ways, including those that cannot yet be foreseen, is no doubt a game-changer for some. To others, it will end up being a disappointment.

What to do if blockchain gets it wrong? Is it uncrackable, or hackable? There surely be no such thing. So, if the computer says no, where to turn to for a human override to stop your assets from becoming trapped in virtual reality… i ABOUT THE AUTHOR Tor Svensson is the Chairman of Capital Finance International.

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CFI.co Columnist

PLAYING TO ITS STRENGTHS The advantages of blockchain are plenty and easily identifiable: • Blockchain can be used to record or store anything of value, not just financial transactions • Blockchain is a secure validation mechanism and as such is accountable for the fail-free objective truth, without the possibility of human or digital error • Blockchain cannot be controlled by any single entity • Blockchain is incorruptible: no unit of information in the blockchain can be altered without overriding the entire network.

• Fourth Industrial Revolution Applications

• Smart contracts tracking multiple assets, automatic and self-executing when set conditions are met • Digital assets management backed by real estate and tokenised ownership • Secure decentralised social networks • Combined with the IoT for enhanced security and speed • Combined with AI (artificial intelligence) and robotics for smart cities and mobility • Government applications for secure storage, citizen IDs, and smart contracts

> Evan Harvey, Nasdaq

Next-Gen ESG: Going Beyond the Basics For many years, investors have been searching for more perfect sources of nonfinancial information: data that may not be on the balance sheet, but still offer material and relevant insight into business value.

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irst, they looked at corporate governance practices – how well the board functions, who provides management oversight, what the risk controls are. As the climate crisis heated up, they began to look for environmental signals, too. How efficiently does the company operate, what kinds of materials does it use, does the business contribute to climate change? Lately the emphasis has turned to social performance indicators, specifically those related to economic access and gender diversity.

These alternative data were categorised as sustainability because – it was argued – they provided a better understanding of the company’s ability to sustain its operation, and its competitive edge over the long term. Lately, the more specific term ESG has emerged. Though by definition ESG means environmental, social, and governance data, the acronym has come to include almost any measurement that cannot be found in a company’s financial filings.

CFI.co Columnist

We expect companies to disclose not only their carbon emissions, and the process whereby those emissions are tracked and trended, but also the emissions of their vendors and suppliers.

Relatively straightforward metrics like gender diversity have blossomed into categories and subcategories of inquiry. Definitional changes, more sophisticated measurements of inclusion and belonging, and ever more finite gradations in the gender pay-gap.

But despite a rapid increase in the number and complexity of these data signals, they still represent a very primitive understanding of the way business operates. An infinite array of discrete data points could be weighted and arranged in such a way as to give the savvy investor a significant edge. But what if we need more than data points to paint the true picture of a company? Is it time to fundamentally revisit some of our assumptions about ESG value? Two recent developments seem to argue just that.

"We expect companies to disclose not only their carbon emissions, and the process whereby those emissions are tracked and trended, but also the emissions of their vendors and suppliers."

FROM HUMAN RESOURCES TO HUMAN CAPITAL Many ESG metrics are managed by the Human Resources department. HR departments (especially in the US) monitor and measure employee demographics to ensure compliance with laws and strategic mandates, to reduce riskrelated costs, and to demonstrate a commitment to diversity.

If we look at ESG indicators recommended by the Global Reporting Initiative (GRI), there are many that touch on HR functions: Gender diversity, age diversity, salary comparisons, and so on (GRI 405: Diversity and Equal Opportunity, 2016). A company may provide all that information, and yet reveal little about the underlying cultural health of the organization. And it is exactly that sense of cultural health and productivity that a new discipline – human capital – seeks to illuminate.

As Harvard Economics Professor Claudia Goldin wrote in Human Capital in 2014, “Human capital is the stock of skills that the labour force possesses. The flow of these skills is forthcoming when the return to investment exceeds the cost (both direct and indirect). Returns to these skills are private in the sense that an individual’s productive capacity increases with more of them.

But there are often externalities that increase the productive capacity of others when human capital is increased.”

Far from being an amalgamation of specific organisational statistics, human capital represents something intangible: the collective

resource value of a company’s employees. If one could tally up the training, experience, skills, judgment, and wisdom embedded in all of a firm’s employees, we would better understand the current and potential value of that human asset.

The Human Capital Management Coalition (“a diverse group of influential institutional investors [seeking] to further elevate human capital management as a critical component in company performance”) was established last year and already has grown to include 25 asset owners, representing over $2.8tn in assets.

This group is ramping up its advocacy as well.

Last year the coalition initiated a petition with the US Securities and Exchange Commission (SEC) to embed Human Capital metrics in required financial disclosures – something the SEC has not done with much effect on ESG itself. More than 30 comment letters, most of them highly supportive, have been filed by other firms and institutions.

In March 2018, the biggest asset manager of them all joined in. “Research has consistently shown the importance of human capital to company performance,” according to a Blackrock statement. The paper further asserted that attention to human capital is part of its “fiduciary duty to protect and enhance the value of our clients’ assets”.

Other market participants are also interested. In April, the World Business Council for Sustainable Development (WBCSD)—a global CEO-led business membership organization—launched its own human capital initiative. “We believe the measurement and management of corporate performance should evolve to incorporate social and human capital, alongside financial and environmental measures,” says Mark Graham, Technical Director for the Social & Human Capital Coalition (SHCC). “We are here to make that happen.”

"We believe the measurement and management of corporate performance should evolve to incorporate social and human capital, alongside financial and environmental measures. We are here to make that happen."

Mark Graham, Technical Director for the Social & Human Capital Coalition (SHCC)

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CFI.co | Capital Finance International

Autumn 2018 Issue

CLIMATE REPORTING BECOMES CLIMATE RISK Environmental performance indicators have undergone a similarly maturing process.

Current ESG metrics rely on a basic valuation of environmental drivers: energy consumption, energy reduction, fuel sourcing, water sourcing.

When the World Federation of Exchanges (WFE) issued its ESG disclosure guidance in 2015, these were the kinds of data points included. In the years since, there has been a move towards science-based targets (SBTs), which exert more discipline and rigour in the decarbonisation process.

But even the SBTs are, at best, discrete and specific measurements of one aspect of environmental performance.

When the WFE began to revise its ESG guidance this year, it had to take into account the work of the task force on Climate-Related Financial Disclosures, or TCFD. Borne of the Financial Stability Board in 2015, and led by Mark Carney and Michael Bloomberg, the TCFD seeks to upend the way we think about climate reporting in business.

By focusing on capital allocation, risk forecasting and scenario planning, the TCFD offers investors a more holistic understanding of the company’s commitment to environmental responsibility.

Metrics and targets are still included in the TCFD recommendations (published in 2017), but even those data points are pushed into new aspects of performance measurement. TCFD focuses on the process whereby a company determines the right metrics and targets for itself; the internal price on carbon used, rather than an arbitrary disclosure of its consumption; and the amount of investment (OpEx) dedicated to low- or no-carbon alternatives.

Even in its call for scenario planning – difficult to do, and something companies rarely undertake in other areas – the TCFD argues for reporting on multiple potential outcomes. How will two-degree rise in temperature affect access to materials? What will a company’s energy mix look like in 2040? How much water will be needed, and where will it be sourced?

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CFI.co Columnist

Time will tell if the TCFD idea really catches on, becoming the new standard for climaterelated corporate reporting; only a handful of large companies are embedding TCFD recommendations into their filings right now. And new research may demonstrate a widening gap between climate awareness and climate action. More than 80% of companies acknowledge physical, financial, and political risks related to the low-carbon transition, but a much smaller percentage are actually taking meaningful steps to handle that transition (Ready or Not: Are companies prepared for the TCFD recommendations? CDSB and CDP report, March 2018). i

> Lord Waverley:

Brexit and Trade - The UK Must Now Be Flexible, Opportunistic & Respectfully Machiavellian The Trade Bill before Parliament is a necessary piece in the BREXIT jigsaw. A question to start with, however, is this: will the bill survive the environment in which it must serve, or will it require amendment once the conditions under which the United Kingdom leaves the European Union are known?

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t would appear that the architects of the BREXIT vision did not anticipate the complexity of the negotiations, from the unfolding contagion in important emerging markets to trade tariffs distorting globalisation – all of which could become centre-stage challenges. Those are insecure foundations on which to build a secure future.

CFI.co Columnist

Substantive points have been made about the ability to renegotiate trade agreements; nevertheless, the UK Government must shoulder the consequences of its policies and actions.

History will judge whether the architects of BREXIT made a fundamental error of judgment by looking to the future with blinkered vision, along with a negotiating flaw of not being sensitive to the unsurprising strength of opinion across the Channel that could possibly haunt us further. Time will tell, and shortly at that. At this late stage we must be flexible, opportunistic and respectfully Machiavellian. All that said, we are where we are – but just where are we? We must either wrap-up what was started or change tack, decisively searching for an assured future. As Cicero said, “Where there’s life, there’s hope”; in that we may take some comfort.

There are many aspects to the Trade Bill, but I focus my central remarks on a cornerstone of the economy: financial services. The bill represents a building block, as it should. It is inconceivable that the EU 27 would allow as important a sector as financial services to remain fully offshore.

Brexit may indeed mean Brexit, but Brexit also means consequences. Post-Brexit pressure will undoubtedly grow on the City of London, and other financial centres around the United Kingdom. The European Central Bank is already implementing its location to the continent in mandatory stages.

The combination of principle and the possibility of rich pickings will place further sustained pressure on the financial services sector. The list of annual rankings of international financial centres has been published. An eye must be kept on how London fares, now and in subsequent years, having mostly maintained its position at number one until now.

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"I absolutely recognise the importance of trade, which allows people to work their way out of poverty, and supports job creation, value-addition and clean industrialisation."

The financial services sector is on the move, and it is necessary to be diligent and keep abreast of unfolding events. The likes of Frankfurt, Paris, Toronto, Tokyo, Seoul, Astana and Moscow, along with others, are the founding members of the newly established World Alliance of International Financial Centres, to be headquartered in Frankfurt and incorporated under Belgian law.

Currently, London has observer status only.

The UK Minister responsible should become acquainted with this alliance.

Then there is China’s increasing influence in Europe, and the world at large. As in times past when the pound was superseded by the dollar, so a potential parallel yuan could become a base currency for the changing face of global geoeconomics, which centres such as Ankara, Tehran and others might find increasingly appealing.

China’s impact is growing. It is delivering westbound the infrastructure that supports economic growth and the evolution of the old Silk Road.

In the first five years since the Belt And Road initiative was announced,103 countries worldwide have signed 118 agreements with China.

The UK’s expertise is considered to be wellplaced, with useful experience in supporting and promoting that infrastructure development.

The UK has the experience and proven ability in supporting and promoting infrastructure development. Together we can advance eastbound, thus increasing trade and connectivity, improving quality of life and reducing the cost of living.

But corporate partnership in the spirit of local content is fundamental, and I would urge UK players to seek out co-operation agreements with CFI.co | Capital Finance International

local players of merit, wherever the trillions of dollars are likely to be invested. Many countries and regions along the Belt And Road have considered integrating the initiative with their own development programmes – including Mongolia’s Prairie Road, Kazakhstan’s Nurly Zhol, and the Eurasian Economic Union –with Pakistan having high expectations for the EU’s Juncker investment plan. The Belt And Road initiative has been incorporated into the documents of many international mechanisms including the UN, the G20 and the Asia-Pacific Economic Cooperation.

The US-China trade war is not close to being resolved and its impact is already being experienced in Asia, particularly in those countries that have good trade relations with China, such as South Korea and Singapore. UK trade with these countries has had an upward trend in recent years and is likely to be impacted as these countries get caught in the crossfire. China has warned that it will take countermeasures if the United States escalates the trade war. The United Kingdom needs to take a holistic approach.

Technological advancement makes access to any financial centre easy. This is a good time to look to the future, and fully understand and respect the importance of partnerships. As Amina Turgulova, head of global markets at the Astana International Financial Centre in Kazakhstan has reminded me, while London will always be an attractive destination with many opportunities, there must be a clear and innovative development plan based on partnership. It follows that it is imperative that we build strategic links with other capital markets. Linkages and partnerships are paramount. The London Stock Exchange Group is working on links with the Shanghai Stock Exchange, and the London Metal Exchange belongs to the Hong Kong Exchange.

There is a real necessity for a regulatory framework to adjust to changes; this will distinguish the leading financial centres from the rest. No less a body than TheCityUK is calling for the UK to make the most of the once-in-a-generation opportunity to recalibrate and repurpose its trade and investment policy to benefit the wider economy once it leaves the EU. I commend its thinking to Government and refer the Minister and her team

Autumn 2018 Issue

to its report of January 2017, entitled Future UK Trade And Investment Policy. TheCityUK’s latest report of August 30, 2018, entitled A UK-EU Association Agreement And Future UK Free Trade Agreements, in effect builds on last year’s report by going further into the detail of the issues that will concern financial and related professional services. I share many of its conclusions.

The potential presented by deals that focus on regulatory coherence and co-operation, as well as next-generation international trade and investment agreements, would not only strengthen London’s position as the leading global financial centre but bring new growth opportunities to key financial centres across the country. Trade policy is useful ammunition here; equally, it serves as a carrot.

I absolutely recognise the importance of trade, which allows people to work their way out of poverty, and supports job creation, valueaddition and clean industrialisation. A message to the world at large is that trade is as critical to us as it is to others. The UK Government should ensure, however, that equivalent levels of market access are accorded.

Agreements with implications such as these for consumers, businesses, development and human rights – to which should be added the scourge of corruption – should have maximum scrutiny. It is suggested that the replication of some FTAs and EPAs is the way forward. I can see the benefits, but does this approach merely store-up problems for the future, and should it be challenged? Scrutiny and approval of all agreements on the overseas front should become mandatory. However, while remaining broadly supportive of much of what the Trade Bill contains, Government should reflect on the benefits of scrutiny and participation by allowing a framework that covers consultation with stakeholders, including a process that embraces public support. We need a more formal system of accountability, definition of the devolved Administrations’ roles, full debate, approval by both Houses of Parliament – including a dedicated committee – and parliamentary scrutiny in the proposed process.

CFI.co Columnist

I recognise that this requires a seismic change, but our country’s future should centre on the change needed to prepare for tomorrow’s world. The role of Parliament in approval and ratification processes for international trade agreements – enshrining the Ponsonby rule, whereby international treaties have to be laid before Parliament 21 days before ratification – should be unequivocally embraced. The Government’s performance in ratification timelines is – if I may choose my word carefully – precarious. This needs attention. i ABOUT THE AUTHOR Lord Waverley (JD) (Member, House of Lords, London) is the founder & CEO of SupplyFinder. com. Contact: jd@supplyfinder.com CFI.co | Capital Finance International

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Amina J Mohammed:

ENERGY FOR

SUSTAINABLE GOALS Interview by Tor Svensson, Chairman CFI.co | Written by Wim Romeijn

If, by way of magic, cynicism and indifference could be banned, the world would undoubtedly be a much happier place.

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or United Nations Deputy SecretaryGeneral Amina J Mohammed (56) those two deplorable traits represent the principal obstacles to meeting the sustainable development goals (SDGs) which, incidentally, she helped boil down to just 17 from the 500 or so originally submitted.

“Cynicism is such a killer,” she says. “I have no patience at all with people who start out by saying that things can’t be done.”

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Mohammed is used to getting things done, such as securing the funding for a 250-bed hospital she helped design in Gombe, the city in northeastern Nigeria, where she was born, when she worked at an architectural design bureau.

Adding willpower to perseverance, she managed to get the facility built. It has since become her signatory style: where there is a will, there is bound to be a way – and she will find it. That philosophy drove Amina J Mohammed to the top.

AHEAD OF THE CURVE To prove the point, in June she launched a valuable policy compendium that synthesises almost 15 years’ of practical experience and research by UNCTAD – the United Nations Conference on Trade and Development.

The document – Achieving The Sustainable Development Goals (SDGs) In The Least Developed Countries (LDCs) – offers a detailed 34

"Energy only becomes a game changer when it powers economic productivity and competitiveness." roadmap of concrete steps and actions to achieve specific development goals.

Speaking from Geneva, Mohammed welcomed the publication’s focus on LDCs: “UNCTAD has always been ahead of the curve, producing cutting-edge policy options based on sound analytical research.” The compendium identifies a number of policy instruments in different areas that can accelerate progress, boost growth, and support the drive to eradicate poverty.

The document’s suggestions dovetail with the requirements of international partners, such as donor countries and private investors.

According to Mohammed, LDCs are pressed for time, with some of the world’s fastest-growing populations and a slowing rate of economic growth. For the poorest countries to attain the sustainable development goals, their economies

need to expand by an average of 7% annually.

Since 2015, growth rates have slumped to barely 5% per annum.

Mohammed emphasises that achieving the SDGs is but a mile-marker and most certainly not the end of the road. Countries that graduate from LDC status need to have solid productive capacity which enables them to keep the momentum going. Some SDG targets were specifically included to spark an ongoing process of structural transformation that builds on, and gradually expands, previous accomplishments.

THE ‘GOLDEN THREAD’ For Mohammed, the UN Sustainable Development Goals represent not 17 separate lines to cross but an intricate web of mutually supportive markers that together ensure balanced growth over a long period, to benefit all sectors of society. Clean and affordable energy is another pillar of the SDGs. Mohammed calls it the “golden thread” that holds everything together and propels countries in the right direction.

At the annual meeting of the UNCTAD governing body in June, Mohammed noted that 14% of the world’s population live without access to electricity. In Africa, it is estimated that, even today, nine out of 10 children attend primary schools that are off-grid. “Energy is key to

CFI.co | Capital Finance International

Autumn 2018 Issue

the global economy ensures the availability of a large pool of money from which it is possible to source, with the right mix of policies, considerable funds.

ENABLING ENVIRONMENT Mohammed envisions the creation of a global enabling environment to support long-term development policies and initiatives. One of the main obstacles the deputy secretary-general identified relates to the short-term outlook of most large and publicly-listed corporations which need to produce stellar results each quarter to keep shareholders happy. “Shorttermism is a persistent threat to the successful eradication of poverty,” she says. Most CEOs of large companies who can, and want to, make a difference have indicated that they are often reluctant to invest in projects which only become profitable over the longer term. “We understand this reluctance, but must act to remove these pain points in order to unlock investments on a meaningful scale.”

Deputy Secretary-General: Amina J Mohammed

most of the sustainable developments goals, particularly those that concern health, education, gender equality, and the environment,” she says, remarking that electrical power also improves access to clean water and refrigeration.

In its 2017 report on the 47 LDC-countries, UNCTAD states that economic advancement hinges on the generation of clean and renewable energy. The conference’s secretary-general Mukhisa Kituyi warned in Geneva that planners must address the future power needs of private enterprise as well: “Though most electrification initiatives have prioritised households, the requirements of industry should not be forgotten.

“Energy only becomes a game changer when it powers economic productivity and competitiveness.”

A $12TN OPPORTUNITY Mohammed called on the forum’s participants to strive for better engagement with the

ECOSOC president Marie Chatardová emphasised that inclusive development models which fight inequality are critical to achieving the SDGs. According to Chatardová, societies also need to build their resilience to economic downturns, natural disasters, and other internal or external shocks. Pointing to a research paper compiled and published by the Business and Sustainable Development Commission, Chatardová argued that the 17 SDGs represent economic opportunities worth a combined $12tn and may create 380 million new jobs by 2030. “Most companies are already aware that investing in sustainable development is a most profitable proposition.”

Mohammed fully agrees, but offers an addendum: “There is plenty of talk about good governance in the corporate world. We now need to find the courage to apply those same principles to governments.”

Recognising that excellence in governance is essential to securing outside investment, Mohammed has repeatedly expressed her concern that LDCs may yet lose out when the global economic climate worsens – as it is bound to do. She argues that countries need to seize the moment as the current, fairly solid state of CFI.co | Capital Finance International President Emmanuel Macron

Mohammed expects the move to improve both the coherence and effectiveness of global development initiatives such as the SDGs. “The United Nations will be at the forefront of this trend by brokering partnerships, leveraging resources, and building capacity.” Trouble, Mohammed realises full well, often rears its head as the result of environmental degradation or other major shocks, leading her to surmise that development issues have a great many vectors that all need to be considered and fine-tuned.

DISAPPEARANCE OF A LAKE The deputy secretary general cites the collapsing ecosystem of Lake Chad, which has shrunk by an estimated 90%, as an example of how easily things can go wrong – and how hard it is for a disadvantaged country to formulate a set of adequate policy responses. “The neardisappearance of Lake Chad has negatively impacted regional food security and increases the prevalence of water-borne diseases,” she said.

“It also causes poverty by taking away farmers’ livelihoods. The disaster has a gender dimension as well, since women suffer the greatest losses and school enrolment of girls declines. Taken together, all these factors contribute towards greater insecurity throughout the region which is already affected by religious extremism.”

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In the three years since the 2030 Agenda for Sustainable Development was adopted, the United Nations has found that a business-asusual approach does not suffice. “It just won’t work,” says Mohammed: “We need action. In fact, we need bold action to build an inclusive, resilient, and sustainable future that leaves noone behind.” At the 2018 Economic and Social Council (ECOSOC) Partnership Forum – an annual event that promotes inclusive societies and innovative business models – the UN deputy secretary-general pleaded for more involvement from the private sector, calling business an indispensable partner in the quest to reduce inequality.

private sector: “Welcoming policies and a wellfunctioning dialogue between all stakeholders can and will encourage companies to conduct business in a way that works for both the global good and their bottom line.” Mohammed suggested participants significantly up-scale their efforts to cement partnerships that can generate results felt in the furthest communities and villages.

Mohammed calls on both governments and the private sector to come up with innovative solutions to current financing challenges. She convincingly argues that there is enough capital available globally to end poverty, but its allocation falters, resulting in unmet funding needs. “We need the think outside the box about ways to catalyse the growing interest and potential of private capital for the implementation of SDGs.” Mohammed is supportive of SecretaryGeneral António Guterres’ efforts to reshape the UN’s development framework to award a much greater role to private investors, and broaden the agenda by pursuing social inclusiveness and by engagement with the financial community.

In the case of Chad, the UN works hard to help the country to increase its resilience to shocks and mitigate the consequences of the environmental tragedy. Mohammed points to Lake Chad as an example of the strife and societal stress induced by the poor management of water resources. Water wars may become a reality as stressed ecosystems give way and people are left helpless.

Whereas the United Nations receives ample praise for pinpointing and thoroughly analysing problems and their causes, its proposed solutions are often slightly less well received. The impression prevails that the UN is a body of eagerly talking heads that crisscrosses the world, travelling from event to event preaching to the converted, proffering grand solutions to complex issues that are grounded in idealism rather than realism.

Not so, according to Amina J Mohammed, though she readily agrees that, to outside observers, looks may be deceiving. She instantly points to the Millennium Development Goals (MDGs) which, she argues, may constitute the most successful anti-poverty drive in history. Formulated at the 2000 Millennium Summit, and fully agreed upon by 191 UN member States and 22 multilateral organisations, the eight goals were given an implementation period of 15 years. Though the end-result was not evenly spread amongst the target countries, MDGs did manage to slash the number of people living in absolute poverty – defined as having $1.25 or less per day to live on – by over half: from 1.9 billion to 836 million (MDG 1).

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Primary school enrolment numbers have risen sharply while gender parity improved noticeably (MDGs 2 and 3). Both child and maternal mortality rates have declined significantly too, though not as much as was hoped for (MDGs 4 and 5). The halting and reversion of the spread of HIV/Aids has failed, though the number of new infections did decline by 40% (MDG 6). Between 1990 and 2015, an estimated 2.6 billion people gained access to clean drinking water (MDG 7) while the volume of development aid from industrialised donor countries increased by two-thirds in real terms, reaching a record-high of almost $135bn in 2013 (MDG 8).

OWNING THE PROCESS The 17 sustainable development goals being implemented provide a framework for continued development. Mohammed understands, better than most, that such far-reaching objectives can only be reached when all stakeholders agree to co-ordinate their policies and actions. She never fails to emphasise that the countries which stand to benefit must “own” the process. The time when others dictate the terms of development is gone.

As with any co-operative effort, much talking is needed before gears get shifted and speed gathers.

Amina J Mohammed displays a truly remarkable talent for bringing people together. She is convincing in her call to action, and inspiring when it comes to making a difference. i 36

An Inspiring Trajectory

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mina J Mohammed has been called one of the world’s greatest leaders (Fortune magazine), Diplomat of the Year (Foreign Policy magazine), and Climate Warrior (Vogue).

The UN Social 500 praised her for her transparency. On social media she shares her experiences, workload, and accomplishments in daily tweets and posts. CFI.co would like to add its name to that roll by commending the UN deputy secretary-general on the unwavering determination that marks her personal life and professional trajectory.

Hers is an inspiring tale of a personal and professional quest that starts in North-eastern Nigeria and continues today in New York. He father, a civil servant and veterinarian, sent Amina to a boarding school in the UK where her mother, a registered nurse, already lived. Later, after leaving school, she worked in retail, sold insurance policies, helped in a nursing home, and managed a restaurant.

Her CV also includes a stint in Italy, studying hospitality management. Returning to Nigeria, Mohammed joined an architecture and constructing company. She learned the business on the fly, almost by osmosis, for 11 years, before setting up her own engineering company.

Convinced that ambition trumps talent, Amina J Mohammed has never allowed her career to be side-tracked. Nor did she waver in her commitment or rest on the laurels gathered along the way. The eldest of five daughters, she knows what it takes to run a household as well.

It is, perhaps, not that different from running an, at times, unruly and quibbling group of nations.

Before joining the United Nations, Mohammed had already served three Nigerian presidents in various capacities. In 2005, she was entrusted with the management of the state funds after Nigeria became eligible for inclusion in the debt-relief programme of the Paris Club of major creditor countries, which ultimately shaved some $30bn off the country’s debt stock. Mohammed was in charge of the rerouting of funds towards initiatives in support of the millennium development goals (MDGs).

For six years, she acted as senior special assistant to Nigeria’s president for all matters relating to the MDGs. Towards the end of 2015, she assumed office as Minister of Environment in the cabinet of President Muhammadu Buhari. At the time, she was already helping then-UN secretary-general Ban Ki-moon with the planning of a set of post-millennium development goals. She was instrumental in formulating and selecting the 17 Sustainable Development Goals (SDGs).

At the UN, Mohammed stresses the importance of shared responsibility as a tool to change attitudes, reach agreement, and forge unity. Her job hasn’t become any easier as the current US administration continues to question the UN’s usefulness, direction, and budget. At the insistence of the American ambassador to the UN, Nikki R Haley, the organisation saw its $5.7bn budget cut by almost $300m this year.

The US contributes about $1.2bn towards the annual UN budget. At the instigation of Washington, the $6.8bn budget for UN peacekeeping operations was cut by $500m for the 2018-2019 exercise. Earlier, UN Secretary-General António Guterres agreed that his organisation does stand in need of some moderate pruning to improve efficiency.

Mohammed remains is eager to engage with the sceptical US administration to ease its concerns and show the value of the UN’s work and accomplishments. In an interview with The Guardian she said: “We don’t always communicate very well the effect that we have on the ground, and the lives that we change.

That needs to be done better and, once we have the changes, we will see the United States doing probably even more.”

Outside the UN, Mohammed has one rather big ambition: fixing her own country. Her leitmotiv – “there’s always a job to be done” – will see Amina J Mohammed eventually return to Nigeria, where she may well rack up a long list of additional achievements.

Mohammed is far from done. In fact, she may only just have started. i

"We don’t always communicate very well the effect that we have on the ground, and the lives that we change. That needs to be done better and, once we have the changes, we will see the United States doing probably even more."

Autumn 2018 Issue

> UNCTAD's World Investment Forum:

Looking for a Way Out of the Lucas Paradox

Any and all talk about a determined, sustained, and final push to eradicate poverty from the face of the earth revolves around a single question, one often lost in the peripheric chatter: How best to allocate the world’s savings?

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he answer is deceptively straightforward and involves doing the right thing by the investors who own or manage those savings. What this entails is up for discussion at the 10th annual World Investment Forum (WIF) set to take place from October 22 to 26 at the Palais des Nations in Geneva, the United Nations’ European headquarters.

The event, organised by the United Nations Conference on Trade and Development (UNCTAD) brings together all stakeholders in the global development value chain, from steelyeyed fund managers to starry-eyed idealists, a vast and diverse universe held together by experienced policy advisors and assorted experts in various fields related to growing something out of (nearly) nothing, otherwise known as development economics.

ALTERNATIVES TO AID Perhaps even more importantly, the global development agenda as compiled and driven by the UN has come to recognise that dispensing aid – while certainly useful and welcome – is not the most effective way to end world poverty.

Aid, even at today’s near-record volumes, offers incidental relief and seldom, if ever, sets the recipient nation on the path of sustained growth.

The reformulated mantra of the global development agenda now reserves a leading role for the formerly eschewed private sector whose untold billions must be mobilised for, and channelled towards, those countries – now called markets in tune with the new philosophy –lagging in development or mired in poverty.

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The updated mindset, already reflected at last year’s WIF in Doha, includes the ditching of most appeals to conscience. With a few exceptions, investors are seldom moved by humanitarian reasons. In Doha, pragmatism prevailed over woolliness. UNCTAD, formerly a bastion of leftish progressive thought, has become a UN agency that leverages knowledge and experience to make a clear-cut business case for development.

UNCTAD’s message to the private sector is simplicity itself, and rather brilliant: The eradication of world poverty can be made into a profitable pursuit with the potential to add untold trillions to the bottom line of private enterprise as millions of formerly marginalised people join the market as consumers.

UNCTAD may, in fact, owe a debt of gratitude to China. Without much assistance from a sceptical outside world, the People’s Republic demonstrated how a desperately poor nation that suffered a string of unspeakable tragedies can reshape and reinvent itself in a single generation.

LESSONS FROM CHINA When, in the late-1970s, the reformist Deng Xiaoping emerged from the Cultural Revolution and outmanoeuvred his opponents to assume the de facto leadership of the country, China’s per capita income (PPP) hovered around the $200 dollar mark. Last year, China boasted a per capita income in excess of $15,500. The country is 37

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Since the first WIF took place in 2008, the world has changed: it has suffered a Long Recession, entered an equally long expansion phase, and managed to successfully implement an ambitious set of Millennium Development Goals. Just as the Asian financial crisis of the 1990s did, the Long Recession – sparked in the United States but mainly, though not exclusively, focused on Europe – saw the accumulation of a savings glut created by policies to hedge against future cash crunches. In times of crisis, creditor nations usually fare much better than those in the red.

"The eradication of world poverty can be made into a profitable pursuit with the potential to add untold trillions to the bottom line of private enterprise as millions of formerly marginalised people join the market as consumers."

now well on its way to progress from middle income to high income status.

The lesson from China is that, politics aside, sensible economic policies can make or break an economy. For all its open-door qualities, that lesson sparked a global shift in development thinking: countries must “own” their policies – as opposed to being told what to do – and encouraged to adopt a workable model geared to tangible results. This is not quite the contradiction it would seem.

The morally-pure approach to development previously furthered – good governance for its own sake and that of the well-being of the nation – does not always yield the expected results. Many rulers, even those democratically elected, often say lofty things to please their audience, but such expressions of good intent may hide a different and somewhat less enlightened agenda that takes its cue from purely personal and/or political considerations.

The question before the WIF, as it unfolds in Geneva, is how to convince the world’s least developed countries (LDCs) which policies to adopt, implement, and adhere to for private investors to take an interest – and release the funds required to accelerate growth and development. Talk about the socially equitable distribution of the fruits of future development is premature. The pie comes before its carving up.

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THE LUCAS PARADOX Estimates of the actual size of the muchreported global savings glut vary wildly and are probably all wrong: it is not a metric easily captured. Some argue there is no such thing, just a vast pile of money parked in low-yield and possibly illiquid instruments.

A considerable pool of funds has been looking for yield in all the wrong places. This constitutes the essence of the Lucas Paradox, first detected, analysed, and described in 1990 by Robert Lucas of the University of Chicago (winner of the 1995 Nobel Memorial Prize in Economic Sciences).

Lucas formulated his paradox after observing that the neoclassical model failed to explain the lack of significant capital flows to countries where the marginal product of capital is (much) higher than elsewhere. A wellfunctioning market should, he argued, direct excess savings to where the return is highest.

At the time, the return on invested capital in India could be up to 60 times higher than in the United States, no appreciable volumes of capital were moving into that country.

Since its first edition 10 years ago, the WIF has been trying to resolve this conundrum, central to the funding of the Sustainable Development Goals (SDGs). Emerging, pioneering, and LDC markets usually offer fantastic returns to 38

investors, yet Mr and Mrs Moneybags still fail to move, and show precious few signs of their willingness to change policies and procedures for the allocation of resources they command.

That reluctance in the face of opportunity may yet subside. A significant number of LDCs have started to recognise the importance of good governance, enticed, perhaps, by the riches to be tapped into and helped along by the prodding of restless populations that have discovered – and embraced – online platforms.

Particularly in Africa, young people are no longer willing to keep silent. They boldly take their governments to task over the lack of opportunities and underdevelopment.

Knowing full-well what the modern world has to offer, these masses will not be huddled for much longer in poverty. The amount of talent available thanks to improved education – one of the MDGs almost realised – is staggering and constitutes an asset that investors will not be able to ignore for much longer.

THE TIME IS NOW For now, however, they do: UNCTAD’s own statistics show a 21% year-on-year decline in foreign direct investment (FDI) in Africa – shrinking to $42bn in 2017. Morocco proved the exception thanks to sizeable investments in car-assembly plants. On the other end of the scale was Southern Africa, which last year registered a 66% slump in FDI to a paltry $3.8bn. Happily, UNCTAD Director James Zhan, who heads the organisation’s Investment and Enterprise Division, expects FDI to rebound this year. “The beginnings of a commodity price recovery, as well as advances in interregional cooperation through the signing of the African Continental Free Trade Area agreement, could encourage stronger FDI flows to Africa in 2018, provided the global policy environment remains supportive,” he said.

Volumes are still too low to make a marked difference in the rate of growth. Home to about 15% of the world’s population, Africa attracts only about 5% of global FDI flows.

According to UNDP chief economist Ayodele Odusola, the best moment to invest in Africa is now: “Africa is the most profitable region in the world,” he says. “Between 2006 and 2011, Africa had the highest rate of return on inflows of foreign direct investment – 11.4%.

This compared to 9.1% in Asia and 8.9% in Latin America and the Caribbean. The global figure is 7.1%.”

But while the higher rate of return on capital may mitigate risk, the gap with risk-free yield obtained elsewhere is slowly closing as interest rates in North America and Europe are bound to rise, and fund managers are under less pressure to look for yield in faraway places. i

Autumn 2018 Issue

WHOSE MONEY AND WHERE IS IT? Though the savings glut is hard to pin down or quantify, its existence – much like the mass of the elusive Higgs Boson particle – may be inferred from observable effects. Take the recent transfer of Brazilian soccer player Neymar from FC Barcelona to Paris Saint-Germain for a recordsetting sum of €222m.

Bankrolled by owner Qatar Sports Investments, the club can hardly expect a profit out of the Brazilian star player, even if its stadium fills to capacity for every game and Neymar shoots his team to the finals of the Champions League.

But profit is not so much the point here; it is about projecting a positive image of Qatar.

Qataris set to return to a record-setting current account surplus as its revenues from natural gas prices increase along with the recovery of world oil prices.

The story is not much different across the English Channel, where investors from countries that enjoy significant surpluses on their current accounts have been buying up nearly all assets they can get their hands on, regardless of price. Here, the enticement – until Brexit – was political stability, sound government, and the rule of law. The same class of investors have also bought some $6tn worth of US treasury bonds since the late 1990s. In Europe, the demand for safe investment havens drove the interest rate on German and Dutch government bonds into negative territory, allowing both countries to actually get paid for debt, while underscoring the peculiarities of the Lucas Paradox.

Contrary to popular belief, the global current account metric is not necessarily a zero-sum proposition. Over the long run, surpluses and deficits net out to exactly zero as per the force of logic – if one country “borrows” through its c/a deficit, then another one must be willing to “lend” from its surplus. Things look rather different on a shorter timescale: countries can – and do – keep part of their surplus in reserve.

The International Monetary Fund has found that since about 2002, the world has consistently run a current account surplus, which last year amount to an estimated $300bn.

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The worryingly large c/a deficits sustained in the Anglophone world are predominantly a sign of the relative health of its two major economies. Both the US and the UK offer attractive business environments that attracts more capital than is needed, resulting in asset price bubbles.

Eurozone member states – led by Germany – are also aware of the inherent weaknesses of their shared currency, which is still a work in progress. To avoid a repeat of the 2008/9 financial troubles, eurozone members are encouraged to build their reserves and pursue solid c/a surpluses.

There is, for now, no scenario that includes a drawdown of the global savings glut. For Europe, welcoming more immigrants – boosting the ranks of the young – might do the trick, but the option remains a political no-go area. Perhaps, the upcoming wave of retirees in Europe and, to a lesser extent, North America may help – a little. In retirement, people draw on their savings instead of adding to them.

The only sure-fire way of dipping into the savings glut is for surplus countries to spur consumer demand via the direct spending of their national incomes and reserves as opposed to quantitative easing and other artificial constructs. Increasing consumption in surplus countries has the added advantage of helping along emerging, pioneer, and other ambitious markets since all that added demand must somehow be met and will lead to a new commodity super-cycle.

Which brings us back to the beginning: countries stand the best chance of attaining the rapid growth needed to eradicate poverty when their livelihoods improve – either because they obtain better prices for their resources or because sensible policies attract investors. The latter part is well within the purview of the World Investment Forum, as long as its participants first manage to solve the Lucas Paradox.

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This money did not flow into someone’s capital account. The savings glut started to grow towards the end of the 1990s as the emerging market economies of Asia sought to increase their resilience to external shocks by paying-off debts and increasing domestic saving rates in a form of delayed gratification applied on a national scale. China initiated the trend by accumulating vast current account surpluses and stashing a significant part of the proceeds in the country’s foreign exchange reserve – which in July 2018 amounted to almost $3.2tn. Observing differences in scale, most of the former Asian Tigers, tripped but never down and out, followed suit.

Benefiting rather handsomely from the euro’s design flaws, Germany took over from China as the world’s current account surplus champion in 2011. The country’s severely undervalued exports inundated a world amazed by relatively cheap marvels of Teutonic engineering. In Europe, tilted demographics play an outsized role in the creation of the savings glut as people nearing the retirement age save a larger part of their earnings compared to young people just starting out in life. In a continent where young people are scarce, this makes a difference.

The key to that one is good governance. The search for shortcuts has, so far, yielded no other approach.

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> Autumn 2018 Special

UNDP Goodwill Ambassadors: Making the World a Better Place

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he United Nations Development Programme (UNDP) and other UN organisations have long enlisted the help of prominent and wellknown artists and athletes to raise awareness of their work and goals.

Goodwill ambassadors and advocates, people who have left an indelible mark on global society through excellence and dedication to success, volunteer their time and their names to help draw attention to the work of the United Nations. They share a commitment to making the world a better and safer place. These remarkable individuals, without exception household names, mobilise their followers and admirers to help fight global issues such as climate change, poverty, violence, and inequality.

They use their respective platforms to raise awareness across borders and cultures.

The UNDP, in particular, has asked its goodwill ambassadors to prioritise the 17 Sustainable Development Goals (SDGs), set by the UN General Assembly in 2015 and containing 169 targets. Each SDG represents

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a single objective that calls for immediate action, such as zero hunger, gender equality, climate action, quality education, and clean energy. The SDGs constitute a decisive push to rid the world of suffering and want.

The goals need to be met by 2030, when a thorough evaluation of their effectiveness will take place. UNDP goodwill ambassadors and advocates travel the world, drawing attention to new initiatives or persistent problems to raise public awareness and encourage stakeholders to put in additional effort.

Working towards a future without poverty or extreme inequality, UNDP goodwill ambassadors and advocates are powerful agents of change. Over the following pages, CFI.co features six remarkable people, from a much larger universe of advocates who tirelessly work to make change happen.

Goodwill ambassadors receive no personal rewards for their efforts other than the knowledge that they are helping to make the world a better place. i

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Autumn 2018 Issue

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> NIKOLAJ COSTER-WALDAU Indomitable Helping stave off the advance of the White Walkers who threatens the North, Jamie Lannister promises a very satisfying end to the Game of Thrones saga which is now approaching its grand finale.

Danish actor Nikolaj Coster-Waldau, who earlier this year received an Emmy for his role as knight of the King’s Guard, refuses to lift the veil that covers the seven kingdoms as they prepare for the ultimate clash of civilisations.

Off-screen, Coster-Waldau has teamed up with Google to map the impact of global warming on Greenland, using Street View to create awareness of global warming and its devastating effects on the environment. He has written frontline reports for National Geographic from the Arctic wilderness to show how even one- or two-tenths of a degree changes nature and devastates the livelihoods of all who depend on it.

Coster-Waldau also filed a series of reports from the Maldives which, at its highest point, rises just 2.4m above the surface of the Indian Ocean. In his writings, Coster-Waldau details the interaction between Greenland’s melting icecap and the rising sea level which may submerge a number of small island-nations, or expose them to tidal waves. Coster-Waldau notes and emphasises that without climate action, the 17 Sustainable Development Goals (SDGs) formulated to end world poverty are, essentially, meaningless: “Fighting climate change is a key piece of the entire puzzle without which it cannot be completed.”

As UNDP goodwill ambassador, the Danish actor and playwright has consistently tried to raise public awareness about global warming and urges governments and civil society to act decisively in the implementation of the 2015 Paris Accords.

Coster-Waldau sees in the existentialist threat a way to unify the global community, and argues that a collective and concerted approach may come to bridge differences that often cause strife.

The actor has also been closely involved with the joint EU-UN Spotlight Initiative which aims to eradicate violence against girls and women. A father to two girls, Coster-Waldau is a passionate believer in gender equality. Leveraging his fame to become an agent of change, the actor is sure that he can help make a difference. The Spotlight Initiative received $500m to launch a sustained drive, and deploy the full power of its twin backers, to end all forms of gender discrimination and violence. To accomplish this, the initiative helps countries to strengthen legislative frameworks and to adopt policies that promote gender equality, and thus facilitate the implementation of a number of SDGs. 42

Starring in the soon-to-be-released crime-thriller Domino – which marks the return to the silver screen of director Brian De Palma after an absence of almost six years – Coster-Waldau continues to craft the extraordinary career which started with Shakespeare’s Hamlet in Copenhagen and developed into a Hollywood fairy tale. Stateside, Coster-Waldau got his first break from director Ridley Scott, who invited him to a role in his epic Black Hawk Down movie. However, the Danish actor became a household name only after appearing in HBO’s Game of Thrones, one of the best-watched series/ franchises of all time.

In September, Coster-Waldau joined the Pathway To Paris concert at The Masonic in San Francisco, which crowned the Global Climate Action Summit that explored the role cities can play in the fight against global warming. The concert in San Francisco was the fourth of its kind: a CFI.co | Capital Finance International

renewed call to action by artists, thinkers, civic leaders, and other stakeholders. Coster-Waldau is a firm backer of the 1,000 Cities initiative that seeks ways to wean urbanites off fossil fuels.

As fans eagerly await the release of the last six Game Of Thrones episodes, the world is busy speculating on Jamie Lannister’s fate.

Will he be served up as lunch for a dragon or ride off into the sunset after the ice wall has fallen? Notwithstanding the self-destructing scripts handed to the actors, and the cloak of secrecy spun by the producers, a few spoilers have recently surfaced. From the million-dollarplus payments he received for each of the remaining instalments, it would appear that Jamie Lannister somehow manages to escape the dragons to the very end. He just may live to fight another day.

Just as he does this side of Westeros.

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> DIDIER DROGBA Just Do It division of US football. Drogba acquired a stake in the Arizona club and now seeks to push it all the way to the Western Conference of the Major Soccer League. That would see his investment in the club balloon.

As arguably the best-known son of the Ivory Coast, Didier Drogba always reserved some of his best moves for his country’s national team, scoring 65 goals in 104 matches and participating in three world cup tournaments, twice as captain of the squad.

Named UNDP goodwill ambassador in 2007, Drogba is committed to the eradication of malaria which still causes up to half a million preventable deaths each year. The player also signed on to a number of programmes that fight HIV/AIDS and increase public awareness of the disease. He donated the $5m fee he received for being the African face of Pepsi towards the building of a hospital in Abidjan, and joined up with Bono and Nike to raise funds for the treatment of HIV/AIDS patients, noting that the infection can be tamed, and lives saved, for as little as 40 cents per day.

He was known on the pitch for using his physique to find a way through and his wits to quickly exploit open spaces. Drogba is determined to deploy his creative qualities to help improve public healthcare across Africa, noting that, more often than not, people die for want of medication. “Lives are lost because insulin is unavailable or some cheap pill cannot be had,” he said. “It’s the basics that need to be put into place first. This can be done easily and cheaply, and saves countless lives.”

At a time when transfer sums seldom exceeded seven digits, Didier Drogba’s £24m move to Chelsea in 2004 both broke the record and caused a global buzz.

Drogba did not disappoint his London club and went on to help Chelsea to its first Premier League win in half a century – a feat he repeated the next year. During his eight years at the landmark club, owned since 2003 by Russian billionaire and philanthropist Roman Abramovich, Drogba made over 250 appearances on the pitch, delivering 104 goals.

The player was especially appreciated for his scoring average in decisive games, setting the counter in motion 10 times in 10 finals. With

dependable precision, and an almost stoic dedication to forcing a win, Didier Drogba represented the ultimate big game striker – not, perhaps, the best player of all time, but most certainly one who could be counted on to deliver.

Then came a three-year interlude in China and Turkey, where he played for Galatasaray, a club which has a knack for attracting waning star players. Drogba returned to Chelsea for a triumphant farewell season (2014-2015) where he again helped to secure the league title. Departing for Canada the next year, Drogba joined the Montreal Impact for two seasons before moving south of the border to the relatively obscure Phoenix Rising, a team playing in the United Soccer League – the second CFI.co | Capital Finance International

As UNDP goodwill ambassador, Drogba is particularly keen to help implement the Sustainable Development Goals (SDGs) that target the reduction of poverty and want. At home, the player has been praised for his relentless work to promote national unity and the healing of the deep wounds caused by two civil wars.

Named by Time magazine as one of the 10 most influential people – alongside world leaders such as Bill Clinton and Barack Obama – Didier Drogba has remained true to his roots and a good man to boot: straightforward both on and off the pitch, the Ivorian player does not need a panel of academics to tell him what is wrong with the world and how to fix it.

In a soccer match, too much interplay often wrongfoots an attack. In the same way, the solution to many of the world’s problems is most likely to be found along a straight line that points at the desired outcome. Just Do It. 43

> MICHELLE YEOH CHOO-KHENG A Miss and Bond Girl on a Quest for World Peace Saving the world from the scourge of war: Malaysian actress Michelle Yeoh Choo-Kheng, of Tomorrow Never Dies fame, aims high.

Earlier this year, the former Miss Malaysia put her obligatory desire for world peace to work as she attended the United Nations High-Level Meeting on Peace Building and Sustaining in New York, where she told participants of her experiences as a roving UNDP goodwill ambassador. She has met people displaced by war and civil strife, and warning those present in New York that, unless something changes, by 2030 more than half of the world’s poor will be living in countries plagued by conflict.

Choo-Kheng emphasised that the reactive approach to war – dousing the flames after societies are set alight – no longer suffices. “In the future, our efforts should be directed at preventing the outbreak of war,” she says. “This will save lives and billions of dollars in damage.” The actress was pleased to note that the UN has already begun to shift its attention from peacekeeping to warprevention, and welcomed its renewed interest in the role of women in conflict resolution and peacebuilding.

For her work on and off screen, Choo-Kheng has been showered with awards and honours. At home, the actress hasn’t been that fortunate. The former Bond girl was reminded in the media of the praise she bestowed on now-disgraced Prime Minister Najib Razak. She has since distanced herself from the toxic political scene and commended the authors of the book Billion Dollar Whale for their thorough investigation of Jho Low, the unassuming and mild-mannered man whose financial manipulations brought down Razak in what FBI agents called one of the biggest heists in history.

How is a girl to know? Indeed, Choo-Kheng has displayed a commendable dedication to her work as UNDP goodwill ambassador, promoting preventative diplomacy as a way to avoid conflict and get the world talking, not just about conflict but also the set of 17 Sustainable Development Goals (SDGs) that aim to eradicate poverty by 2030. The actress points out that dialogue is not just confined to the big screen and must, indeed, be used as a tool to mitigate conflict and eliminate misunderstanding across cultures. “We all talk, but seldom listen,” she says, suggesting that an exchange between different cultures is an excellent starting point for increased co-operation on a global scale.

Of late, Choo-Kheng has been on a public quest to find an outfit that is fully sustainable, as in fashion that causes no harm to the planet. Partnering with Italian designer Tiziano Guardini, she made a short documentary film – Made In Forests – 44

about her successful attempt to create durable and elegant garments from certifiably sustainable wood fibres. Choo-Kheng noted that people don’t usually think twice about the provenance of their clothes: “If it looks good and is not too expensive, we buy it without giving a second thought to the environmental impact.”

Olga Algayerova, Executive Secretary of the UN’s Economic Commission for Europe, warned in New York that fashion’s ecological footprint now borders an environmental emergency. According to Algayerova, the industry needs to shift gears and take inspiration from natural, renewable resources.

The current prevalence of cotton and polyester is no longer sustainable: the former needs large amounts of pesticides, insecticides, and water; the latter is made from fossil fuels and releases plastic microfibres that taint the global food chain.

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With Made In Forests, Choo-Kheng has embraced a new cause she is particularly well suited to.

Starring in the hit romcom Crazy Rich Asians, Choo-Kheng knows all too well what money can and cannot buy. Having been married for four years to billionaire Hong Kong business tycoon Dickson Poon also helped her to chart the flow and impact of excessive wealth.

However crazy rich Choo-Kheng may have become, she has never lost touch with her audience – or, indeed, her social conscience. Playing the overly discerning Eleanor in Crazy Rich Asians, ChooKheng reminds viewers – in between the excessive bling – that even the über-rich prioritise family life and love over material wealth. That sentiment is no different from the one found across all society’s strata – a message to remember as she battles for world peace.

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> IKER CASILLAS Scoring Goals for Change

The first football player to play in 20 Champions League seasons is Spanish goalkeeper Iker Casillas, who now tends the goal of FC Porto, one of the Big Three Portuguese clubs.

So far, his season has been sketchy, conceding seven goals in six matches. However, Casillas (37) is still considered by many to be Europe’s best goalie for his quick reflexes and athleticism.

He is a commanding presence on and off the field, and captained the Spanish national squad for over 10 years. In 2010, he raised the Word Cup with his team after knocking out The Netherlands 1-0 in the grand final. That game cemented Casillas’ reputation as a steel-nerved goalkeeper: twice he stopped Arjen Robben from scoring after the Dutch striker had left all defenders in his wake.

Four years later, during the group phase of the 2014 World Cup in Brazil, the Dutch served up their revenge cold in a 5-1 mismatch he would rather forget. But in 2012, Casillas drew level to Dutch international goalkeeper Edwin van der Sar, who until then held the record for clean sheets, managing to keep his team’s opponents from scoring in 72 matches. He has now surpassed the retired Van der Sar’s record, adding another two clean sheets. That same year, the Spanish goalie added yet another

trophy to his name: 95 wins for his country’s national squad.

In South Africa, Casillas was voted the tournament’s best goalkeeper, keeping a clean sheet for five matches and blocking a penalty shot in the quarter-final against Paraguay.

Iker Casillas knows how to man his goal and keep balls from crossing the line. As UNDP goodwill ambassador, a job he accepted in 2011, Casillas has now moved to the other side: “On the pitch, I’m paid to stop goals; with the UNDP, I choose to score goals.” The Spanish international emphasises that the eradication of world poverty requires a sustained team effort. Casillas has been promoting humanitarian programmes in South America and produced a number of inspirational videos aimed at young people from disadvantaged backgrounds.

Casillas is one of the oldest football players still active in top European leagues. The other two aging stars in the pantheon of truly great goalkeepers are Gianluigi Buffon, who just renewed his contract with Paris Saint Germain, and Arsenal’s Petr Cech. Buffon will be 42 when his current contract runs out, while Cech (36) has so far managed to keep his place in Arsenal’s goal, even though the club recently hired Bernd CFI.co | Capital Finance International

Leno, the German Mannschaft’s last line of defence, known for sporting a Soviet-style tank helmet on the pitch.

Now close to retirement from professional football, Casillas is travelling the world in support of victims of natural and man-made disasters, drawing attention to people’s plight and extending a hand in friendship. He uses social media platforms to help raise global awareness of the Sustainable Development Goals (SDGs) that are being implemented across the world in a bid to eliminate poverty and reduce social inequities by 2030.

Casillas is aware that only a dozen years are left to honour these commitments. He has launched appeals to governments, civic organisations, and other stakeholder entities to accelerate the pace at which the SDGs are put into practice. He advocates for increased volunteerism as a way to engage people, especially youth, with both the wider societies and its many needs.

During a visit to Uzbekistan, Casillas said that social innovation and traditional mutual-help initiatives can help to share intergenerational knowledge and contribute towards peace, understanding, and – crucially – forms of community-based development that immediately impact people’s lives.

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> ANTONIO BANDERAS Poverty Steals Potential Antonio Banderas saw his own country shake off its backwater status and emerge as a progressive nation, leaving poverty and want behind.

He knows this can be done in under a generation, requiring but determination and dedication. In 1960, when the actor was born, Spain was poor, isolated, demoralised, and traumatised by its civil war. When he came of age, in the early 1980s, the country was in the midst of La Movida Madrileña, a countercultural movement that swept the nation clean of the leaden heritage left by the Franco dictatorship. While civil society blossomed, the economy surged ahead, swiftly propelling Spain into the European Union and the ranks of the world’s most prosperous nations.

Banderas built his career on the country’s rising tide, and on its openness and inclusiveness.

Cast by director Pedro Almodóvar as a gay man in 1987’s Law of Desire (La Ley Del Deseo), he helped break down lingering barriers and prejudices. The film served as both run-up and inspiration to the blockbuster Women On The Verge Of A Nervous Breakdown – a comedy/drama noir about “someone you know” – which swept the Goya Awards and gave both the director and his lead actor a global audience.

For Banderas, Hollywood beckoned and though struggling with the English language and forced to learn his lines phonetically, the Spanish actor became an instant sensation with roles that paired him to Tinseltown’s greats, such as Tom Hanks, Brad Pitt, Sylvester Stallone, and Salma Hayek.

More than just the Latin Lover he was initially required to play, Banderas soon diversified into musicals, voice-overs (Shrek’s Puss In Boots), business, and worthy causes.

A UNDP goodwill ambassador since 2010, Antonio Banderas regularly calls on his worldwide fanbase to support victims of violence, hunger, or natural disasters. He does not for a moment doubt that the knowledge, means, and tools are already available to defeat poverty and stop violence.

“Poverty,” he says, “robs people of their potential and prevents them from being all they can be.

This is why we need to mobilise all our efforts to end it.”

fortunate when it comes to politics, regretting his 2013 faux pas when he called upon the governments of Europe to emulate the policies of Venezuela – a country that was run into the ground by good intentions.

Banderas has lent his instantly recognisable voice to a number of short movies and documentaries that seek to raise awareness of the 17 Sustainable Development Goals (SDGs) which are aimed at diminishing, if not ending, poverty, and a host of other debilitating societal ills, by 2030. The actor has also signed on to the global campaign against gender-based discrimination and violence.

In Spain, the actor is appreciated for his efforts to help small business gain a global market for their niche products, such as specialty wines and fragrances. He has partnered with a number of premier brands to promote their products, careful only to support sustainable businesses that minimise their ecological footprint and adhere to socially sound policies.

Praised for his philanthropy and efforts to combat social iniquities, Banderas has been slightly less

Set to star in a biopic on the life of Ferruccio Lamborghini slated for release next year, Banderas’

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career is destined for new heights. Lamborghini tells the unlikely but all-too-real story of a farmer who decides to build his own tractor and ends up a purveyor of supercars. The film is one of two biopics shortly hitting the screens celebrating the lives of Italy’s twin automotive geniuses. A biopic on the life of Enzo Ferrari is also being shot.

Banderas has now also teamed-up with Amazon to produce the new series entitled Life Itself. Set in both the US and Spain, the romantic drama explores and celebrates the human condition in all its breadth.

It is, as such, what Banderas wishes: that all people be given a chance to escape the clutches of poverty and explore their potential.

Autumn 2018 Issue

> THE ROCA BROTHERS Community-Based Solutions for Food Security was also the one that brought him near-instant fame: warm cod served with spinach and a cream of idiazabal cheese, pine nuts, and a slowly thickened sauce of Pedro Xímenez sherry.

Later, Joan Roca offered novel creations such as honey-laced foie gras and pork dewlap with green pepper samfaina, one of the basic sauces of the Catalan cuisine.

The Roca brothers receive considerable praise for their culinary research which has resulted in, among other things, improved techniques for cleaning oysters. They regularly publish their experiments and findings in peer-reviewed papers on topics as varied as the use of smoke in the preparation of food and the many ways in which customised distillates can be employed to enhance taste sensations. Recently, the Roca brothers have ventured into street food with a dedicated bar at Barcelona’s upscale and trendy Hotel Omm, where they also run the Roca Moo restaurant, a 2.0 version of one of the city’s most celebrated and traditional fine dineries.

Goodwill ambassadors of the United Nations Development Fund since early 2016, the Roca brothers have been at the forefront of the global campaign to raise public awareness of the Sustainable Development Goals (SDGs) that seek to eliminate hunger, unemployment, climate change, and inequality. The brothers focus their efforts on questions of food security and advocate for a food chain that is not only sustainable, but inclusive. The Spanish chefs were the first UNDP goodwill ambassadors to be appointed following the definition of the SDGs and will particularly contribute towards innovation in the growing, processing, preparation, and serving of nutritious food.

To become the best is not necessary to go global.

Spain’s three Roca brothers, celebrated as royalty in foodie circles, believe that food security begins at home.

The brothers have repeatedly questioned the viability of current agribusiness models which see foodstuffs trucked over thousands of kilometres before reaching supermarket shelves or dinner tables. The Rocas also advocate for the preservation of local and regional culinary traditions that enrich food diversity.

Jordi, Joan, and Josep Roca own and operate El Celler de Can Roca restaurant in Girona, just north of Barcelona. Established in 1986, the small and intimate restaurant seats no more than 45 patrons – who have secured reservations by booking almost a year in advance. Online booking is only available from midnight on the

first day of each month and usually closes within a few minutes; slots get fill up rapidly.

As is to be expected at a restaurant twice voted best in the world, a three-course meal doesn’t come cheap, though it is still considered value at an average of €190 per person, plus another hundred or so for the wines. That compares favourably to Sublimotion on Ibiza, another of Spain’s top restaurants, which charges diners close to €2,000 for a tasting menu.

Head chef Joan Roca i Fontané, the oldest brother, is famed for his sous-vide style of slow cooking which can take up to 72 hours. He travels the world to promote his cuisine and his philosophy, a passion for excellence, family life, and, of course, gastronomy. He aims to rescue original flavours via the meticulous control of cooking temperatures. His first signature dish CFI.co | Capital Finance International

Joan Roca explained that food security encompasses much more than just ensuring superior crop yields and includes other essential elements, such as the protection of local sources and types of food, and the preservation of timehonoured culinary traditions that have grown out of specific circumstances and are often bestsuited to ensure the most efficient use of limited resources.

The brothers are also involved with the establishment of training centres in a number of developing countries to help local communities combat waste, improve market conditions, and promote small businesses, particularly farmers who are often left out of the food equation altogether. “By entering into a dialogue with the farmers who work the land and grow the food, it is possible to improve livelihoods, boost the availability of high-quality food, and ensure the wellbeing of entire communities,” says Joan Roca.

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> Europe

Ireland: Economy Racing Ahead

Ireland is on track to record the highest rate of economic growth in the European Union. This year, the country expects to add 5.6% to its GDP against an average of 2.1% for the eurozone.

The good times are here to stay, with next year’s growth forecast to hover around 4%. While the buoyancy is largely provided by exceptionally strong consumer demand which has so far failed to push up the price index. At a barely detectable annualised rate of 0.2%, inflation in Ireland remains well below the elusive 2% target set by the European central Bank (ECB). Across the eurozone the price index’s median amounts to 1.4%, still short of the ECB policy goal.

Dublin, Ireland: Four courts building with river Liffey

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CFI.co | Capital Finance International

Autumn 2018 Issue

CFI.co | Capital Finance International

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nflation or not, Ireland is booming. The country’s Central Statistics Office (CSO) recorded a sudden 9.1% jump in Q1 GDP numbers as a result of moves by big tech companies. A similar spike had been registered last year, and in 2015, when the Irish economy barrelled ahead by an astonishing 26.3% after a number of multinationals operating out of the country restructured their operational and accounting procedures. Ireland’s relatively small economy is particularly prone to sudden moves caused by the ebb and flow of profits shifted around by a few outsized corporations.

At its European headquarters in Cork, Apple maintains a team of over 300 financial professionals who mind the company’s vast pile of cash. The iconic company arrived in Ireland almost four decades ago to assemble Apple IIs at its first overseas plant, hiring 60 workers. Today, Apple employs more than 6,000 professionals in the country, and provides for another 14,000 or so spin-off jobs throughout Ireland.

In what Paul Krugman dubbed “leprechaun economics”, the Irish case illustrates – perhaps – the decreasing relevance of GDP numbers which often fail to account for subtle shifts in supply chains, smart tax planning, aircraft assets, and assets such as intellectual property that are hard to pin down. CSO data show that since 2013, the Irish economy has expanded by 50%. The country’s GDP amounts to some €300bn, or 56% higher than in 2007 when the Celtic Tiger reached its peak.

RECOUNTING THE BLESSINGS However, Irish workers and their families have not seen their incomes rise in tandem.

Unemployment has only recently returned to precrash levels. In order to better gauge economic performance, the CSO is now focusing on gross national income (GNI) as opposed to gross domestic product.

GNI is considered a more dependable, and stable, indicator of overall economic trends as it takes into account money flowing into and out of the economy. Government statisticians estimate that true economic activity represents only 60% of Irish GDP, with the remainder attributable to income accounted for, but not actually available to, the country. Weeding out the noise of big corporates accommodating their financial heft, the size of the Irish economy shrinks to about €180bn – which helps explain why most people’s salaries have not reflected the reported boom times.

A dark cloud gathering is the imminent departure of the United Kingdom from the European Union. Quite apart from the conundrum surrounding the border between the Republic and Northern Ireland, the country stands to lose a fair chunk of its trade, with the UK to postBrexit non-tariff barriers – slashing its GDP by up to 9.4%, according to the Central Bank of Ireland. Because of its dependency on UK-based 50

“The sustainability of the Irish economy is again being undermined by a set of domestic policies that cause a real estate bubble, deprioritise higher education, and fail to meet Ireland’s climate obligations.”

Professor Peter Clinch

intermediaries, Ireland may see trade with its EU27 partners seriously affected as well.

Though less alarmist, the International Monetary Fund (IMF) fears that Ireland may take a 4% or larger hit to its economy in the case of a disorderly Brexit. In a Brexit report, IMF economists concluded that the UK and Ireland stand to lose in equal measure. The Netherlands, Belgium, and Denmark will also suffer disproportionally from a cliff-edge Brexit.

However, the IMF estimates that a soft Brexit, whereby the UK retains access to the EU’s single market and abides by standards set in Brussels, would cause next to no impact.

The IMF warned that non-tariff barriers emerging as a result of a divergence in standards would negatively affect all stakeholders by disrupting supply chains. The fund also believes Brexit will cause reduced cross-border trade, capital, and labour volumes.

In Ireland, the National Competitiveness Council (NCC) calls Brexit the biggest and most immediate threat to the country’s otherwise well-functioning economy, and its mediumterm prosperity. NCC chairperson Professor Peter Clinch has warned that Ireland is less robust than it may seem: “The sustainability of the Irish economy is again being undermined by a set of domestic policies that cause a real estate bubble, deprioritise higher education, and fail to meet Ireland’s climate obligations.” Prof Clinch also warned that the country is burdened by the highest per-capita debt in the EU. “This places us in a very vulnerable position should an external shock occur.”

CONFIDENCE SLIPS Starting Q2, business confidence indicators started to slip. A survey commissioned by KBC Bank and Chartered Accountants Ireland showed that 17% of the companies surveyed felt that the impact of Brexit is becoming less clear. One in three company directors felt fairly certain that CFI.co | Capital Finance International

the UK would crash out of the union without a transition period or a safety net, adding to their woes. Only 4% of Irish businesses expect to benefit from Brexit.

Commenting on the results of the survey, KBC Bank chief economist Austin Hughes notes that the number of companies reporting job gains over the past three months is still four times higher than those reporting job losses.

“However, confidence is being affected by a range of threats running from Brexit and trade tensions to domestic concerns such as a possibly overheating housing market,” he said.

Another risk factor, identified by the Central Bank of Ireland, derives from the economy’s success thus far: full employment. In its first macrofinancial review of 2018, the bank detects the first signs of an uptick in wages and identifies a number of sectors that suffer from acute skills shortages. The bank also expressed concern over risks to Ireland’s standing as one of the world’s most competitive economies, as investment in infrastructure lags and because of debt, the government has little room to manoeuvre.

The review also predicts that, post-Brexit, Irish companies could struggle to access the UK capital market to raise money. The bank furthermore cautions that without competitive offers from British non-banking financial serviceproviders, operating costs may increase.

Finance minister Paschal Donohoe is keenly aware of the challenges and has put the brake on spending increases to avoid pouring fuel on the fire. Donohoe also postponed a number of tax cuts and outlined a fiscal plan that aims to bolster Ireland’s defences against external shocks (Brexit), including a €500m emergency fund. He has declined to use the €900m spending room allowed under EU fiscal rules. Donohoe did insist on implementing a small, and largely cosmetic, cut to income taxes – but has promised to keep the budget balanced to within a whisker of a surplus.

With the full backing of the European Union, Prime Minister Leo Varadkar has promised to veto any Brexit deal that erects a hard border on the emerald isle. The Good Friday Agreement (GFA) which in 1999 crowned the Northern Irish peace process and put an end to The Troubles – the 30-year conflict that raged in the six counties – calls for an open border. The EU, which is not a signatory to the agreement, has flatly refused to entertain any Brexit scenario that includes a border between the republic and Northern Ireland.

This may yet derail all the Brexit plans assembled

by Prime Minister Theresa May. From his side of the Irish Sea, Varadkar shows no compassion and remains steadfast in his conviction that Brexit produces only downsides to an otherwise well-performing economy. He aims to extract his pound of flesh. i

Autumn 2018 Issue

> Life Assurance in the Nordics:

Rest Assured that Nordea has its Eye on Goals of Quality and Collaboration Nordea Life Assurance Finland has for years had in place – and followed – a clear and far-sighted strategy.

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t has made the correct choices and remains committed to implementing them. Its personnel, who are equally committed to their goals, play a key role in this.

Operations are guided by the core components of the Life 2010 Strategy: corporate social responsibility, combined with capital- and costefficiency. The aim is to be the most nimble and modern Finnish life insurer, and the company seeks growth by developing customer experiences.

It offers the most modern customer experience, and lets customer-benefit steer operations.

As well as financial stability and quality, the company has chosen as its third main strategic goal the development of the employee experience as part of its drive to improve efficiency.

Nordea Life Assurance Finland uses a processdriven operating model and a quality system tailored to suit. Lloyd’s Register Quality Assurance awarded the system a quality certificate based on the ISO 9001 quality standard back in 2015; the validity of this certificate has been annually reviewed and renewed – most recently in the summer of 2018. Nordea Life Assurance Finland Ltd is the only life assurance company in the Nordic and the European markets to be certified in this way.

From the perspective of continuous improvement of quality, it is crucial to use recorded processes to describe a company’s operations. No company’s operations are unit-specific, but rather the result of collaboration between several functions’ interfaces. Nordea’s process-driven operating model has enabled predictable and effective risk-management – it is clear to personnel how responsibilities are divided, and how various criteria are measured. Process-driven operations enable efficient communication to the entire staff. All processes, including targets and the way they are measured, are open to all workers.

Nordea takes quality seriously, and the satisfaction of its customers and stakeholders is a top priority.

The Finnish Quality Association conducted an EFQM Recognised for Excellence evaluation of the company for the first time in 2016. This evaluation supplements the ISO 9001 quality system standard in helping Nordea to further enhance its excellence. The company was judged worthy of almost five stars; the evaluation will be

"Nordea takes quality seriously, and the satisfaction of its customers and stakeholders is a top priority." repeated in this year, and Nordea is hoping for a full five-star quality rating.

There is a constant search for solutions that improve the quality of the customer experience; the permanent goal is to continuously improve quality, and to channel that improvement into great customer experiences.

Consumers generally expect ease-of-use and an outstanding customer experience – and the field insurance is no exception. “We are successful if we are able to offer our customers service experiences that they would be willing to recommend to others,” said Pekka Luukkanen.

Customers are increasingly willing to share their experiences on social media, for example, which increases competition among service-providers.

Nordea expects customer expectations to continue to focus on the service experience and its customisability. Customers are no longer satisfied with having just an insurance product – customer-specific needs arise after the product has been bought, and consumers and clients will emphasise the personal benefits they gain from their insurance solution. This change is already clearly visible in how customers engage with the company. They want a full-service package that is available at any time, in any place. There is little demand for traditional, and unnecessary, service concepts in insurance solutions. In this type of a competition, the winner will be the service provider that not only exceeds customer expectations, but clearly demonstrates the benefits and can manage the flow of information available on its clientele.

Digitalisation offers the chance to do business with Nordea regardless of location and time, but it also requires a simplification of the insurance solutions on offer. Services must be easy to use – every click or minute spent on accessing the service package is important to the customer.

Digitalisation creates the expectation of a CFI.co | Capital Finance International

personalised service experience, which means Nordea is no longer able to serve customers with exactly the same concept, as many companies have done with traditional service models.

“We aim to provide our customers with the most modern customer experiences with significant inputs in automation and robotics,” said Luukkanen. “Similarly, one of our goals is to produce accessible customer documentation and comprehensive communication.

“We continuously train our sales and marketing personnel in our products and services.

Recognising our customers’ needs is an integral part of our operations. We can serve our customers in the best possible way as well, and offer and provide them with the products and services they need. Our keynote in this are the availability, convenience and high quality of the customer service experience.

“We are successful in this mission if customers feel they benefit from doing business with us, which they may continue to do for the rest of their lives. We aim to be involved in our customers’ journey through both good and bad times. We execute our mission by providing insurance solutions that make our customers’ lives easier and let them sleep better at night, trusting that their service provider will keep its service promise.”

Sustainability is embedded in the core of Nordea investment practices and the company believes that integrating environmental, social and governance (ESG) issues into its investment strategy and processes enables it to invest in a sustainable way.

“Our vision is to improve the quality of life for our customers by getting the best possible returns in a responsible way,” says Luukkanen, “and thus we strive to offer responsible, valueadding solutions to our clients. We continuously aim to improve sustainability in our investment portfolios by increasing investments that are prepared to mitigate ESG risks and support transformation to a carbon-free economy.”

Nordea Life Assurance Finland is part of Nordea Life & Pensions Group (NLP), which signed the United Nations Principles of Responsible 51

Investments initiative (UNPRI) in 2014.

Together with other Nordea Life & Pensions entities, the company works closely with Nordea Asset Management and its award-winning ESG investment processes.

The cornerstones of its responsible investment strategy include norm-based exclusions, integration of ESG factors into the investment processes and impact investments. Nordea excludes the worst, prefers the best, makes a difference and remains understandable.

Responsible investment guidelines are provided for unlisted investments. For instance, during the past couple of years, Nordea has invested in domestic ventures and growth funds. “We believe that start-up and growth companies are frontrunners in providing sustainable solutions to tackle global challenges,” says Luukkanen.

“We see that through our investments we are can impact the society positively, support innovation and employment (and) enhance economic growth.”

ESG factors are also included in the company’s direct real estate investment process. “We want to be a good property owner and landlord to our tenants. We focus on environmental issues, e.g. energy efficiency, improving trash management and reducing water use.

“We take good care of our properties with systematic renovation and maintenance activities as well as prioritise safety of our premises for both our tenants and construction workers.”

Nordea’s committed employees play a key role in the company strategy. Well-being at work is important, and the company has invested in creating an inspiring and motivational working environment. “We encourage our personnel to bring up their ideas, and our “From ideas to values” process is designed to develop innovative ideas further,” says Luukkanen. “We wish to provide our employees with real opportunities to influence and assume responsibility for their actions. We encourage our employees to develop and support their participation in training. Taking equality, transparency and the personnel into account – in everything we do – is a matter of honour to us.”

One of the significant steps towards this strategic main goal was the Great Place To Work Finland recognition received in February. According to the survey, 95% of Nordea employees consider it an excellent place to work.

At the end of the day, great customer experiences are also dependent on having the best employees in the sector. That is why Nordea believes that the employee experience will become one of the competitive advantages necessary for further developing operations.

“Our vision is to be the most renewable company, which means that we must have employees who are willing to reinvent themselves.” i 52

Autumn 2018 Issue

> A Q&A session with Nordea Life Assurance Finland's CEO Pekka Luukkanen:

Chief Exec’s Bold Vision has Honed In-House Processes to Bring Growth What are the current trends in the life insurance market?

One of the key trends in the Northern European life insurance market has been the increasing shift back to risk-life assurance due to Solvency II regulations, a trend partly affected by customers’ higher awareness of the relatively weaker status of public-sector social services (the so-called sustainability gap in public finances). Another trend is the advent of a more comprehensive service model for customers, who show increasing interest in add-on services that can be linked to a policy, or make an insurance product easier to use. Smart life insurance policies are an example of this.

our company for the first time in the spring of 2016. According to the evaluation, the quality of our company was worthy of four stars almost five. The evaluation will be repeated this year, and we see no reason why we could not achieve a five-star quality rating. Our company’s goal is to continuously improve the quality of customer experiences.

Why are system standards important to help build quality and excellence?

External audits serve as an independent validation of the work we have done. They provide us with important observations and feedback.

What challenges does this sector face in the next few years?

Data-flow, changing requirements concerning our systems and cost pressures, coupled with more complex regulation, will pose unprecedented challenges for the entire sector. Only major companies that can sufficiently cut unit costs will be able to use economies of scale to develop their operations. The ability to make use of customer analysis will become a key competitive edge – “Life business is IT business”. In this race, large size and a simple and agile operating model are Nordea Life Assurance Finland's key competitive advantages.

What strengths differentiate your company from its competitors?

We have had in place, and followed, a clear and far-sighted strategy for years. We have successfully made the right choices and remained committed to implementing our choices. Our personnel, who are committed to their goals, play a key role in all of this. Developing personnel experiences is one our main strategic goals. One of the significant steps towards this was the Great Place To Work Finland recognition we received in February 2018.

The successful implementation in 2016 of the key target of Nordea CEO: Pekka Luukkanen. Photographer: Pentti Hokkanen.

Life Assurance Finland's previous strategy period – the migration to a single-core – the only life assurance company certified in this insurance system – gave us a unique competitive manner in the Nordic and European markets. edge in the market. A single insurance system will simplify the company’s operations, as every "Developing personnel change needs to be implemented once only, experiences is one our main unlike a situation with multiple systems. The strategic goals. One of the existence of a single modern system also makes digitalisation development easier as it would be significant steps towards extremely difficult and expensive to build new this was the Great Place to service concepts into the old systems.

Nordea Life Assurance Finland continues to use a process-driven operating model and a quality system tailored for this model. Lloyd’s Register Quality Assurance has awarded the system a quality certificate based on the ISO 9001 standard

Work Finland recognition we received in February 2018."

What does “quality” mean to you?

The Finnish Quality Association conducted an EFQM Recognised for Excellence evaluation of CFI.co | Capital Finance International

The prolonged period of low interest rates is making it harder to gain returns in the investment markets. Challenges are posed by stricter regulation, which despite commendable aims does not always improve the protection and service experience.

Operations are also affected by demographic factors, such as an ageing population and longer life-expectancies in highly industrialised societies. This, coupled with the sustainability gap in public finances, will increase demand for risk-life assurance policies and the indemnity costs for certain types of cover. Digitalisation will pose obstacles to companies operating legacy IT systems. The simplification of operations and the ability to implement changes are crucial competitive advantages. i 53

> Tried, Trusted & Trendy:

Alain Afflelou’s Future is Looking Good For the past 40 years, Alain Afflelou’s reassuring manner and trusted values, as well as his expertise and knack for innovation, have made his surname a part of daily life in France.

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ompany founder Alain Afflelou’s passion for his work and deep respect for his customers has made a difference which distinguishes him from his competitors.

He conveys an image based on family values and solidarity.

The company history is tightly linked to Afflelou’s life. In June, 1962, Alain Afflelou, the 14-yearold son of an artisan baker, left his native Algeria for France. After going to school in Marseille for one year, he moved to Bordeaux, where he completed high school and obtained his Bachelor degree in 1967.

At the end of a three-year programme at the Parisian School of optics, he obtained his Eyewear, Optician and Audio-Prosthetist diploma. He opened his first optical store in 1972 in Le Bouscat, a suburb of Bordeaux.

Flagship store on Les Champs Elysees

He quickly realised that wearing glasses was experienced by many as a constraint and decided to change the way people think about eyewear.

He determined to make them enjoy wearing spectacles. And succeeded.

Alain Afflelou is an optician dedicated to his customers, who has remained faithful to his core business values for 40 years. In a world changing faster than ever, where digitisation is prevailing, disposable products and obsolescence, his strategy has proven a reassuring one for his customers.

Afflelou knows what it takes to stay at the top of his field. What if innovation and success were synonymous for continuity and stability? Some of the secrets of his success are sticking to the basics: glasses that are affordable, effective and suited to a customer’s morphology.

The brand is aspirational, aiming to improve the lives and well-being of consumers. It is rooted in society and plays an important role in providing corrective eyewear for the public, and wellbeing for its employees.

The company was also built on permanent innovation. In 1978, it was the first in the eyesight business to introduce discount campaigns. In 1991, it launched the offer of a 54

Store interior

one-hour turnaround for new glasses. In 1994 came the now-famous unbreakable lenses that provide 100% security for the eyes. In 1997, Afflelou introduced the first four-pack of eyeglasses for presbyopic (age-related shortsighted) customers. A year later, in 1998, the company offered the first “buy one, get one free” offer – a revolution in the optical sector CFI.co | Capital Finance International

Other firsts include the 2009 Launch of NextYear offer: no fees or interest charges, and a year to pay. The brand also launched single-use lenses, and hearing aids that are sophisticated and affordable.

One immensely successful innovation is the Smart Tonic concept (solar clips or magnetic-

Autumn 2018 Issue

specific lenses that can be attached to a frame): 600,000 clips and 300,000 frames were sold in a few months.

Today, opticians play a key role in improving the lives of those who wear eyeglasses. The Afflelou company is proud of the quality of the products it provides for its franchises. Recent French legislative changes have made it possible for opticians to perform eyesight check-ups, which means they are acknowledged as qualified specialists. The relationship between these professionals and their clients is always based on trust. With a sometimes-unstable global economic environment, customers have become more pricesensitive. There is a need to provide qualitative and innovative solutions at an affordable price. It is the essence of the brand’s policy.

The new image of the Alain Afflelou Stores in France (and abroad) makes points-of-sale more attractive than ever: shiny cascades of sunglasses on the walls, the latest offers and information broadcast on screens. Particular attention was paid to the lighting, and backlighting, of the showroom furniture used to display the frame choices. The optical department offers diffused light and contrasting pale tones; white, grey and gold create a soft, clean and bright ambiance.

Five themes are each represented by a flagship product line displayed in a shiny black frame with the Afflelou logo in cut-out letters: fashion, trend, culture, innovation, essentials.

The great success of the collaboration between American actress Sharon Stone and the brand also contributes to reinforce the "fashion and glamour� image of the trendy, affordable products of high quality. Stone is an ideal ambassador for the brand with her own blend of beauty and elegance.

Last but not least: digital transformation, which impacts all business operations. New ways to work, to communicate, and to understand. From optimising internal operations to organising the in-store displays without neglecting logistics, Afflelou favours an omnichannel approach Alain Afflelou wishes to attract new customers and encourage the loyalty of the existing ones via a market segmentation, optimised by collecting and processing customers’ data. CRM Optimisation makes life easier for opticians and customers. Simpler and improved inventory management (RFID inventories), easier product ordering (POS material, eyeglass frames, and contact lenses delivered together), customer appointments made online with connected store agenda. There is also interaction with customers before they enter in the store via window-dressing (visual merchandising).

Sticking to the basics has always driven the brand and its founder. Alain Afflelou wants customers to be happy and satisfied, and aims to continually increase levels of service. i

Alain Afflelou with Sharon Stone

CFI.co | Capital Finance International

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> IMF on Europe's Economy:

Managing the Upswing In Uncertain Times Source: IMF 2018

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urope continues to enjoy strong growth. Activity has firmed up in many economies, and the forecast is for more of the same.

Real GDP increased by 2.8% in 2017, up from 1.8% in 2016. The expansion is largely driven by domestic demand. Credit growth has finally picked up, which is helping Europe’s banks rebuild profitability. While leading indicators have recently begun to ease, they remain at high levels. Accordingly, the forecast is for growth to stay strong, reaching 2.6% in 2018 and declining to 2.2% in 2019. Amid the good times, however, fiscal adjustment and structural reform efforts are flagging.

Inflation and wage growth remain subdued in most advanced economies, and are projected to gather pace only very gradually, given slack in labour markets. In central and eastern Europe, by contrast, where economies are cyclically much further ahead, wages are growing rapidly, and inflation is expected to pick up appreciably in 2018, potentially affecting competitiveness.

The subdued wage dynamics in many advanced economies reflect low inflation and inflation expectations, still-high unemployment and underemployment rates, as well as sluggish productivity growth.

In addition, there are signs that wage Phillips curves are very flat in advanced economies, and that spillovers from regional labour market conditions and slow wage growth in some economies are contributing to wage moderation, holding back demand in other economies. It could thus take some time before wage growth picks up noticeably and broadly in the advanced economies.

The favourable outlook is subject to several risks that are mainly to the downside over the medium term. The most immediate rists stem from rich valuations in financial markets at the global level, notably an exceptionally low term premium and a growing tendency toward inward-looking economic policies. European markets have weathered the recent financial turbulence well, with capital flows to emerging market economies staying strong.

Sustained large declines in stock prices are often harbingers of lower growth and inflation.

With many policy rates close to the zero, and lower bound and central banks still engaged in unorthodox policies, the scope for further, effective policy easing in response to new shocks is not large. It is, therefore, all the more important to rebuild room for fiscal policy manoeuvre.

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An important question is how long this recovery can run, even in the absence of external shocks.

On one hand, estimates for output gaps point to little slack in most economies. On the other, unemployment rates—especially when defined broadly—still appear high, particularly in key advanced economies. Whether the recovery has the legs to last depends on the investment response, which has generally been subdued and mainly for replacement purposes. It has also been much weaker than after the global crisis of 1991.

With economic prospects continuing to improve in the short term, but medium-term prospects less bright, policymakers should seize the moment to rebuild room for fiscal manoeuvre and push forward with reforms to boost growth potential.

In countries where inflation is still subdued, monetary policy should continue to be supportive to ensure a durable increase in inflation to targets.

In countries where inflation is hitting targets, it should gradually normalise. In many economies, policymakers should strive to bring fiscal deficits within range of balance over the next few years.

This way, automatic stabilisers and fiscal stimuli can be deployed again, should downside risks materialise. Also, stabilising and bringing down public debt would help economies better cope with the pressures from growing expenditure on pensions and health care. The combination CFI.co | Capital Finance International

of fiscal adjustment and easy monetary policy should also help the many economies that have rebuilt much-needed competitiveness since the crisis continue to lower their still-high net external liability positions. Fiscal adjustment should be driven by efforts to improve the efficiency of government. This is a major challenge, particularly in many of the emerging economies in Europe that also need to work further on improving institutions and governance. Countries with ample fiscal space can, and should, use it to promote higher potential growth.

Finally, the recovery provides an opportunity to move faster to deepen the Economic and Monetary Union. First, more actions are needed to complete the Banking Union. Instituting a European Stability Mechanism to backstop the Single Resolution Fund would mark an important first step toward greater risk-sharing. Second, there is a strong case for a central fiscal capacity, but access should be conditional on compliance with the fiscal rules, combined with mechanisms to prevent permanent transfers between countries. Third, with the UK leaving the single market, there is a more urgent need to advance the Capital Markets Union, which requires steps to promote harmonisation of insolvency regimes and better protection of cross-border investor rights. i Source: IMF (International Monetary Fund) 2018

Autumn 2018 Issue

> Facing Challenges with Brio:

Delen CEO Keeps Up the Pace Delen Private Bank specialises in asset management for private clients, with over 40.5 billion euros in assets under management.

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elen is one of the largest independent private banks in Belgium. Paul De Winter (who joined Delen Private Bank in 1990) has been CEO of Delen Private Bank since 2014.

Delen has consistently proved its worth during the difficult periods that life throws up. Stability, caution and the strong riskmanagement measures taken have proven a major point of refuge during the banking crisis.

“Our policy of prudence and our long-term view provided our customers with security in turbulent periods, with great results,” says De Winter.

“The challenge today – in a more positive market – is to keep pace with market growth. Our centralised management model guarantees that the influx of new clients can be accommodated smoothly; it also consistently delivers the best solution, tailor-made to suit the client’s profile.”

ADVANCED IT AND COMPUTER TECHNOLOGY Enhancing the efficiency of the processes will always provide a challenge, but for Delen Private Bank it has been, from the outset, a path to success. Performance through automation is the key. “The IT system we developed in-house is our pride and joy,” De Winter explains. “It’s a powerful system with strong content that can be easily accessed by clients, and it also enables real-time discussion of the portfolio during client contacts.”

This means transparency – at a customer’s fingertips. This advanced and fully integrated automation also enables Delen Private Bank to respond swiftly to changing regulations and fluctuating economic conditions. But by no means does it end there: the bank’s in-house IT team is hard at work to further expand the platform, with a view to broadening the services provided and maximising security.

“Delen Private Bank always puts the relationship with the client first, and so investing in the local offices is a strategic priority for us,” De Winter says. “We use renovation and innovative architecture to create stylish spaces to guarantee maximum proximity for all clients.

“Every regional office exudes that typical ‘Delen feeling’, a stylish sense of home. It is

President and CEO: Paul De Winter

our ambition to meet all our clients once a year in comfortable surroundings.

regional offices. Paul De Winter knows where the challenges lie: “In training new staff and passing on our own family values.

“Stepping inside Delen Private Bank should in no way be a threshold. We will listen to any question concerning asset management, and offer an appropriate solution for every profile.”

“This is why we are investing in young people who can appreciate the Delen culture and are thus able to grow in the relationship of trust with our clients.

For Delen Private Bank, the future mainly means continuity and steady growth based on a healthy and balanced ambition, mainly come from

“Every day our staff makes personal efforts on behalf of each client. They put our family values into practice.” i

CFI.co | Capital Finance International

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> Delen Private Bank:

Perfectly Combining a Personal Touch with the Latest in Digital Technology The Belgian bank specialises in private wealth management and has managed to combine what many other banks are finding impossible: keeping a personal touch while introducing the latest technology.

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elen is not afraid to go against the flow. While other banks are replacing staff with robots capable of answering basic queries, Delen continues to put priority on the personal touch. As other banks close branches, Delen has been opening new regional offices across Belgium in recent years. In addition to Antwerp (where it has its headquarters), Brussels, Ghent, Hasselt, Liège and Roeselare, the bank now has offices in Namur, Kempen area, Knokke and Leuven.

“We are committed to keeping and even growing our local roots, to ensure we keep the personal touch with our clients,” says CEO Paul De Winter. “Being able to meet a client close to their home or office is a prerequisite, preferably without unnecessary traffic woes.”

In Belgium the bank has 360 employees; it also has offices in Luxembourg, Switzerland, the United Kingdom and the Netherlands.

Thomas Detry

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“We are committed to

deliver a superior private banking product, with the attendant excellence in client services.

Paul De Winter

Delen Private Bank’s front office, including its Delen app for mobile devices, stands out from the generic platform most users have to contend with. Account holders enjoy real-time access to their portfolio’s performance data, as well as to the world’s markets. The Delen app was key to the bank winning the CFI.co 2017 Best Digital Private Bank (Belgium) Award. And by continuing to define best practice for the sector, in 2018 Delen Bank has received this honour for the second consecutive year.

Running parallel with this commitment to the personal touch is a drive to introduce the latest technology. While private banking has long been considered rather slow-moving in its embrace of the digital era, Delen Private Bank once again swims against the flow. It’s been recognised as a trailblazer in harnessing the power of IT to

Established by André Delen in 1936, Delen Private Bank initially operated as an exchange office. The bank has grown steadily since then, acquiring various private banks and asset managers. “Their teams are still part of the Delen Investments group today,” adds De Winter, “since continuity is key to the bank’s growth strategy.”

keeping and even growing our local roots, to ensure we keep the personal touch with our clients.”

Thomas Pieters

CFI.co | Capital Finance International

Autumn 2018 Issue

Delen Bank offices

In 1975 the founder passed the management of the company to his sons. Delen Private Bank is now part of the holding company Finaxis, which is mainly controlled by Ackermans and van Haaren, and Promofi. The Finaxis portfolio also comprises Bank J. van Breda and Co., which caters mainly to entrepreneurs and professionals.

In 2011 Delen acquired a 74% (today 81%) majority stake in UK brokerage JM Finn and Co. In July 2015, it reached an agreement to acquire Oyens and Van Eeghen, a transaction which marked the company’s debut on the Dutch market.

Delen Private Bank is a credit institution under the supervision of the NBB (National Bank of Belgium) and the FSMA (the Belgian Financial Services and Markets Authority). All but a few of the shares of Delen Private Bank are held by Delen Investments.

Delen Private Bank has no corporate finance, hardly any loans, a sound financial base and a highly stable and healthy balance sheet. At the end of 2017 this was summarised as an equity capital of €678.8 million thanks to a Tier 1 capital ratio of 29.3%; and a cost/income ratio of 53.7%.

Delen Private Bank prides itself on the simplicity of its overall approach, which covers discretionary asset management and Estate Planning, and enables client assets to grow in a balanced and sustainable manner.

Clients can leave the financial management of their portfolio (Discretionary Asset Management) to a team of financial experts who closely follow the markets. They act proactively, always from a long-term perspective. For the financial planning of clients’ property (Estate Planning) the bank’s lawyers and tax consultants provide detailed and personal advice. They are experts in all matters

Delen Bank offices CFI.co | Capital Finance International

concerning succession, donations and business transfer, and follow the current fiscal and legal affairs.

Art and interior design are among Delen’s passions. This is reflected in the selection and design of the bank’s various offices, as well as in its involvement with artistic events. The bank partners with BRAFA, the Brussels Art Fair (created in 1956). BRAFA has become one of the world’s most prestigious art fairs, famous for fine art, antiques, modern and contemporary art and design. In 2018, BRAFA and Delen Private Bank celebrated their 12th year of co-operation.

Delen Private Bank also has a great sporting passion, and is a proud partner of young Belgian golf talents Thomas Pieters and Thomas Detry.

“It’s a partnership that fits snugly with the bank’s long-term vision,” explains De Winter. “In golf, as in banking, integrity, fair play and ethics are paramount.” i 59

> Firmenich:

Record Revenues, World-Class Research & Sustainability Leadership Founded in Geneva, Switzerland, in 1895, Firmenich is the world’s number one privately owned Perfume and Taste Company with a 124-year legacy of leading its business responsibly. It has created many of the world’s bestknown perfumes and tastes that four billion consumers enjoy each day.

P

resent in over 100 markets, the Company counts 7,000 colleagues worldwide and posted a net revenue of CHF 3.7 billion in 2018, while completing 8 acquisitions over the past two years to expand its reach.

FOR FIRMENICH SUSTAINABLE BUSINESS IS SMART BUSINESS Renowned for its world-class research and creativity, as well as leadership in sustainability, the group has just entered a new era of responsible business driven by its purpose to “Create Positive Emotions to Enhance Wellbeing, Naturally”.

Bringing its purpose to life, Firmenich actively: • Spreads moments of happiness • Makes healthier taste great • Accelerates access to hygiene • Respects nature, and • Leads an ethical business

"With a legacy of world-class research, exemplified by its Nobel Prize for musk, Firmenich invests CHF 370m annually to put its science and creativity to work for a better society." an industry breakthrough to holistically measure a perfume’s sustainability footprint, cutting across environmental and social metrics.

Innovating for taste and nutrition, Firmenich recently appointed two new Master Flavorists, to its prestigious circle of leading creators. Bipin Khara is a pioneer in taste modulation and a champion of sugar reduction, while Dr. ChunYu Song is an expert in chicken tonalities and a leader in creating natural savory taste profiles.

CREATORS OF MOMENTS OF HAPPINESS With a legacy of world-class research, exemplified by its Nobel Prize for musk, Firmenich invests CHF 370m annually to put its science and creativity to work for a better society. Firmenich’s community of 450 scientists, with more than 3100 active patents, are dedicated to improving quality of life for all. The Group’s uncontested creative excellence is further propelled by its Masters, including 12 Master Perfumers and 6 Master Flavorists. Representing the greatest heights of artistry in their field, they relentlessly innovate to shape the future of the industry for good.

In Perfumery, the Group counts four recipients of the industry’s most prestigious distinction, the Fragrance Foundation Lifetime Achievement Award: Alberto Morillas (2012), Annie Buzantian (2015), Harry Frémont (2017) and Olivier Cresp (2018), while Tony Reichert was honoured this year with a Lifetime Achievement Award from the American Society of Perfumers. At the forefront of designing the most responsible fragrances, this year Firmenich launched EcoScent Compass™, 60

Making Healthier Taste Great: Green protein gastronomic dish

CFI.co | Capital Finance International

MAKING HEALTHIER TASTE GREAT In a world where two billion people are overweight, while two billion people are micro-nutrient deficient [Global Alliance Improved Nutrition], Firmenich is committed to making healthy and nutritious options taste delicious, so they are the easy choice for consumers. Firmenich is actively innovating for taste and nutrition with its centres of excellence, cutting across “natural and clean label”, “green proteins”, “organic-certified” ingredients and “taste”. Firmenich was one of the first in the industry to establish a taste modulation platform dedicated to sugar reduction, while ensuring an optimal taste experience. This year the group launched TastePRINT™, a new family of integrated solutions, which can achieve up to 100% removal of added sugar, naturally. Taking its commitment to the next level, Firmenich recently entered a strategic partnership with Layn Natural Ingredients, gaining exclusive access to the world’s broadest range of natural sweeteners, from stevia to monk fruit.

Autumn 2018 Issue

Accelerating Access to Hygiene: Gilbert Ghostine CEO Firmenich, Patrick Firmenich Chairman of the Board, Firmenich, Bill Gates, Co-Founder of Bill & Melinda Gates Foundation

ACCELERATING ACCESS TO HYGIENE With two-and-a-half billion people lacking access to sanitation facilities, and 800,000 children dying from hygiene-related diseases every year, the case is clear: proper sanitation and hygiene is one of the most effective levers of public health.

In partnership with the Bill and Melinda Gates Foundation, Firmenich developed breakthrough malodor control technologies, that combine the group‘s unique fragrance creation capabilities with its deep understanding of olfactive receptors. Determined to bring its solutions to the populations most in need, Firmenich actively partnered with a number of its customers to integrate its technologies into affordable toilet cleaning products. For the first time this year, these products will become available to low income consumers across South Africa and Bangladesh.

RESPECTING NATURE Firmenich is deeply committed to nature, its greatest source of inspiration and the origin of its most precious ingredients. That’s why the Group set itself the bold vision to become carbon neutral, supported by industry-leading environmental goals. Making strong progress, Firmenich recorded top CDP scores in 2018, with A-List rankings for Climate and Water management. The Group also reached 100% of renewable electricity use across its European operations, on its way to reaching the same objective globally by 2020.

Present at the source of its naturals, Firmenich offers the very best of nature sustainably with its traceable and responsible value chain. Investing

in the sustainable livelihoods and ecosystems of its farming communities, Firmenich positively impacts the lives of 250,000 farmers, across the 40 countries, where it sources 170 natural ingredients.

Proud signatories of the United Nations (UN) Global Compact, Firmenich was showcased by as a leading Swiss Company advancing the UN Sustainable Development Goals (SDG). See movie here: vimeo.com/280234373

Optimising its environmental footprint, Firmenich drives green chemistry principles across all its science, from developing ingredients to understanding human perception. For example, this year Firmenich further anchored its leadership in white biotechnology with the launch of its third bio-based ingredient, a highly sustainable version of its iconic Z11, a woody amber note.

UN SDG CHAMPION Firmenich deeply believes that business has a key leadership role to play to address the United Nations Sustainable Developments Goals (Un SDGs), the global plan for people and the planet.

Today, the group is actively putting its innovation and expertise to work across a number of SDGs where it can have the largest impact, from Goal 3: Good Health and Goal 13: Climate Change to Goal 6: Clean Water and Sanitation, and Goal 17: Partnerships.

LEADS AN ETHICAL BUSINESS Firmenich is committed to operating according to the highest standards of governance globally. For instance, to foster a culture where all its colleagues can thrive, it committed to becoming a 100% certified gender equality employer worldwide by the end of 2018, in a context where the industry average pay gap is 20%. This certification goes far beyond equal pay, providing clear benchmarks to measure the Group’s performance transparently, cutting across recruitment, promotion, training, flexible work arrangements and overall culture.

Recognised publically as a leading responsible business, Firmenich featured on the podium of Ecovadis’ top 1% of Gold-rated companies, with a score of 82/100 in 2018. The Group also received the 2017 DuPont Sustainability Award, making it the first company in its industry to count three DuPont Awards: Safety (2008), Operational Excellence (2015) and Sustainability (2017).

CFI.co | Capital Finance International

The UN SDGs offer a unique platform to partner with likeminded visionary organisations to scale up impact and go further together.

“At Firmenich we do not suffer from the “not invented here syndrome”,” said Gilbert Ghostine, CEO Firmenich. “That’s why we engage in strategic partnerships with like-minded organisations to go further together, whether it’s with starts-ups and academic institutions or with customers and governments.”

For example, when Firmenich realised that bad smell was the most critical barrier preventing people from using toilets in developing countries it decided to be part of the solution.

Given the scale of today’s sanitation challenge, no single actor can solve it alone. That’s why 61

Firmenich partners with a range of likeminded organisations, from the Bill & Melinda Gates Foundation to fast-track its research, to many of its customers to bring its solutions to market, as well as with Governments such as Pune to enable the right infrastructure. The Group is also a founding member of the Toilet Board Coalition, to support a new generation of sanipreneurs reinventing the business of toilets for the greater good.

GILBERT GHOSTINE Gilbert Ghostine is the Chief Executive Officer of Firmenich, the world’s largest privately-owned Perfume and Taste Company.

Gilbert is leading a new era of transformative growth at Firmenich with a relentless focus on delivering differentiating innovation and value, sustainably to his customers.

Under his leadership, the group delivered a record net revenue of CHF 3.7 billion in its fiscal year 2018, consolidating its number one ranking in fine fragrance, as well as flavour and fragrance ingredients worldwide, while leading eight acquisitons over the past 2 years.

Respecting Nature: Vanilla

Building on the Group’s legacy of world-class research, exemplified by its Nobel Prize for musk, as well as its community of 450 scientists and more than 3100 active patents, Gilbert strategically invests CHF 370m annually to innovate for a better society.

Marking a new chapter in Firmenich’s 124-year legacy of responsible business, Gilbert reaffirmed the group’s purpose as “creators of positive emotions to enhance wellbeing, naturally”, with a rallying cry for all its partners to make a bigger difference in the world together: “For Good, Naturally”.

Bringing this promise to life, he is firmly leading Firmenich’s science and creativity forward to create moments of happiness sustainably, shape the future of taste and nutrition, accelerate access to sanitation, while always respecting nature and leading an ethical business.

A big believer that “what gets measured gets done,” Gilbert set Firmenich the most ambitious sustainability goals in its industry, with a vision to become carbon neutral. Currently operating with 78% renewable electricity worldwide and 100% in Europe, he is well on his way to achieving this target.

Always putting people first, Gilbert believes in offering equal opportunities for his 7,000 colleagues to thrive around the world. Furthering his commitment, he pledged to become a 100% certified gender equality employer around the world by the end of 2018.

A public advocate for responsible business, Gilbert serves as co-chair of WBCSD’s Sustainable 62

Creators of Moments of Happiness

Lifestyles Cluster, actively partnering with many visionary organisations to make sustainability aspirational.

Gilbert has a deep understanding of the consumer goods and luxury industries, having spent over two decades with Diageo, prior to leading Firmenich. During his 21 years with the world’s leading premium spirits company, he led businesses and lived across four continents: Africa, Asia, the United States and Europe.

CFI.co | Capital Finance International

Gilbert holds a Master’s Degree in Business Administration from Saint Joseph University, Lebanon and completed Harvard Business School‘s Advanced Management Program.

A Lebanese national, he is married with two children and is fluent in three languages.

A deep believer in the power of education to advance social progress, he also coaches and mentors young graduates, and has a personal education fund to support students in need of financial aid. i

Autumn 2018 Issue

> Wilhelm Celeda:

Focusing on Transparency and Product Clarity According to CEO Wilhelm Celeda, “RCB is a competence centre for equities and derivatives.

It is leading in company research, equities sales and trading and a pioneer and market leader in the field of structured products. With our service-oriented client approach RCB strives for sustainable development in our core markets in Austria and the CEE region.

R

CB is Austria’s largest issuer of structured products but also has successfully expanded far beyond its home market, namely across Central and Eastern Europe. “Our structured products team has always been an innovation leader in the CEE. In the past years our dedication to the region and the products has been acknowledged with several international awards.”

Currently, RCB offers approximately 7,000 structured products which range from conservative guaranteed investment products to leverage products. For the entire product range, RCB focuses on transparency and product clarity.

“In the continuing low interest rate environment, structured products offer a very attractive investment possibility. Partially protected products such as bonus certificates can deliver considerable yield while you can still benefit from a safety buffer which, compared to direct equity investment, reduces risk.”, explains Celeda.

RCB consumers in the field of structured products are private, affluent banking clients in the CEE who are seeking attractive investment possibilities but wish, at the same time, to reduce their risk compared to a direct equity investment.

As a 100% subsidiary of Raiffeisen Bank International, AG RCB is embedded in one of the largest banking groups in the CEE which is active in fourteen countries. With their wide range of private and affluent banking clients, the local Raiffeisen subsidiaries act as major distribution partners for structured products in the region.

The bank’s dedication to the CEE can also be seen at RCB’s second main business area: services along the equity value chain. RCB links corporates and potential investors with numerous roadshows throughout many countries in the region. In addition, 20 research analysts cover over 120 stocks with a focus on Austria and the CEE. “Our employees have a strong relation to our core markets. We know the particularities of the individual markets, speak the local languages, and benefit from the presence of our banking group in all relevant financial markets in emerging Europe,” points out Celeda. i

CEO: Wilhelm Celeda

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> Raiffeisen Centrobank AG:

Structured Products Leadership As the leading issuer in the field of structured products in Central and Eastern Europe, Raiffeisen Centrobank AG provides a comprehensive range of intelligent and high-quality products with prime focus on private and affluent clients.

CEE: A CONTINUING SUCCESS STORY In 2006, the Vienna-based Raiffeisen Centrobank AG (RCB) started its CEE expansion in the distribution and listing of structured products in Central and Eastern Europe as well as the development of the market with a focus on local retail investors across the entire region.

RCB was the first issuer to list structured products on the Warsaw, Prague, Budapest as well as Bucharest stock exchanges, whereby it specialised in offering leveraged and investment products with a permanent secondary market.

Hence, for the very first time, local investors were provided with broad local market access to indices, stocks and commodities through structured products of RCB. This cooperation remains an important pillar of the development of CEE markets and the opening of international and local capital markets to domestic retail and institutional investors. RCB also remains the largest issuer and distributer of structured products in Austria.

TAILORMADE OFFER TO RETAIL INVESTORS IN CEE RCB’s team has long experience in the production of universal and innovative structured products.

The testimony to this is the firm’s comprehensive range of products and services that provides real value to the entire customer value chain in terms of product innovation, safety and yield.

These tailor-made products allow investors to tap easily into exceptional investment opportunities.

The majority of RCB’s structured products offer built-in safety buffers that shield investors from downside market moves in the form of partial capital protection.

RCB’s range of investment instruments is explained in great detail on the company website as well as in all RCB product brochures (which are provided to each client in local

"RCB was the first issuer to list structured products on the Warsaw, Prague, Budapest as well as Bucharest stock exchanges." language to ensure that retail clients have clear understanding of the products they buy).

This emphasis on transparency – especially the clear-cut description of pay-out profiles, in combination with attractive yield opportunities as well as the mitigated risks is the key success factor in the retail-banking area and therefore an important service feature of RCB. As RCB provides the market making for its entire product range, all products are available via permanent secondary market. The product prices are continuously updated and displayed on RCB’s website in real time and on platforms such as Bloomberg and Reuters. It is therefore possible to buy and sell them at any time during the trading week (9:00 – 20:00 for international underlyings).

In addition, RCB organises numerous training programmes and seminars for clients and bank advisers; in the last 12 months RCB organised 106 training sessions with more than 1,000 participants across 10 CEE countries.

KEY FINANCIALS AT A GLANCE Compared to the position at 31 August 2017, this year RCB generated a record result. Turnover increased by 14% (€1,8bn in total) by monthend June 2018. The open interest increased (outstanding volume) by 17% to €4,2bn.

During the past 12 months, RCB newly issued 4,235 certificates and in total 7,026 products were listed on 7 different exchanges.

Within the general product offering of regular public issuances, RCB issued 90 tailor-made retail products for distribution in Central and Eastern Europe in seven different product currencies.

In addition, 120 public investment products have been structured for distribution in the private and affluent banking segments of local banks and insurance companies.

TAILORMADE VS. MAINSTREAM RCB continues to act as a boutique producer of structured products rather than a supermarket. The firm strives to provide a fine selection of products and at the same time a comprehensive range of high-quality certificates to its CEE investors. The growing trend towards tailor-made products clearly demonstrates that this is the right strategy.

What RCB has been observing – particularly in its core markets - is that investors, private or institutional, are looking for risk-optimisation in their investments. Clients in the private and affluent banking segment started to look for instruments that provided both performance and protection at the same time. The way RCB responded to this trend was to focus on the issuance of tailor-made risk-optimised structured products such as bonus and express certificates.

RCB’S FLAGSHIP PRODUCT SERIES: Bonus&Safety Optimising the risk/reward ratio of an investment product and at the same time minimising insecurity for investors has certainly stood at the centre of product development in the past 12 months. Naturally, RCB’s proven and very successful Bonus & Safety certificate series

"The past months have affirmed that certificates as an investment instrument open up new opportunities even in challenging market phases. That's why it is always a special honour to be awarded for our activity in the field of structured products. To receive this important award once again, for a second consecutive year, is of great importance to us and a great incentive to continue our work in the area of certificates with verve and engagement."

Heike Arbter, after RCB is named Best Structured Products Bank CEE by CFI.co

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Autumn 2018 Issue

“Certificates provide an attractive investment alternative in the current interest environment. At RCB, we started to build up a market for structured products in the CEE region more than twelve years ago and ever since have worked intensely to bring the advantages of this still relatively new asset category closer to both customer service representatives as well as to end consumers. To see that our efforts yield fruit and that more and more people invest in our certificates is one way of measuring our success.”

Stefan Neubauer

(which comprises both, safety and yield) had to be continued and developed even further.

SIMPLE AND TRANSPARENT PAY-OUT PROFILE RCB’s Bonus & Safety (B&S) certificate series is suitable for a very broad spectrum of retail customers, both in terms of risk appetite and market expectations. The B&S product series enables conservative investors to benefit from a risk-reduced investment vehicle, providing at least a 51% risk buffer against market drops and an above-average yield potential.

RCB DIGITAL FOOTPRINT RCB has taken account of its role as leading certificates issuer with a brand-new online information tool.

In tandem with the re-launch of its website (rcb. at) in a modern responsive design, RCB now offers an innovative tool that provides for an easy-to-understand and intuitive search tool in the universe of RCB certificates.

The Certificate Finder introduces investors to the world of certificates and enables them to select the appropriate product that best suits their investment objectives (as one of the main tasks of digitalisation is to facilitate adequate choice for the user from a multitude of information).

Customers expect convenience and digital advantages in the banking business equal to those they are offered in other areas of life.

Customers frequently search online for attractive investment opportunities – and this can be tedious and does not always promote a better understanding. Complicated search filters may overstrain users and are thus not suited for certificate novices.

This is where RCB’s Certificate Finder steps in.

At rcb.at/en/zertifikatefinder an introduction to the world of certificates is given and the investor is asked to choose from a few key criteria.

Further to the investor’s selection, the available products with the most matches are sorted. Only three to four clicks are necessary to get to one’s certificate choice. Moreover, investors may trade the product directly via a link to the broker’s website.

“The Certificate Finder enables a wide audience to immerse themselves in the world of certificates - in a straightforward, practical and easy-to-manage way. It is a great opportunity to provide, by digital means, the interested investor uninterrupted accurate information and to get more people interested in investments”, stresses Stefan Neubauer, Head of Sales CEE. MANAGEMENT Wilhelm Celeda For more than 30 years, Wilhelm Celeda has been active in the equities and derivatives business and is one of Austria's leading and most experienced experts in this field. Celeda has spent almost 25 years of his career at Raiffeisen CFI.co | Capital Finance International

Centrobank AG, which he has been heading as CEO since 2015. Raiffeisen Centrobank AG is the competence centre for equities and derivatives and is leading in company research, equities trading and sales as well as in issuing certificates both in Austria and the CEE region.

Recognising his long-standing expertise, Celeda was also appointed Member of the Supervisory Board of Wiener Börse AG and of CEESEG AG in 2015.

Heike Arbter Since 1997, Heike Arbter has been head of the Structured products Department of Raiffeisen Centrobank.

She is also the President of EUSIPA (European Structured Investment Products Association) and • Member of the Exchange Council of Baden Wuerttembergische Wertpapierboerse, Stuttgart • Member of the Arbitral Court of Vienna Exchange • Member of the General Assembly of EUSIPA; Member of the Categorisation Committee • Head of Managing Board Zertifikateforum Austria • Member of the Board Zertifikateforum Austria Stefan Neubauer Stefan Neubauer, at RCB since 2006, is Head of Structured Products Sales in Central and Eastern Europe and, since 2017, Head of RCB Slovak branch in Bratislava. i 65

> Entering the Fourth Industrial Revolution:

Smith Meets Marx Standing on the cusp of the Fourth Industrial Revolution, which promises to fuse the physical, biological, and digital worlds, the capitalism that Karl Marx dissected and analysed seems to be running out of steam – at least in its present form.

T

hough corporate earnings are stratospheric, Adam Smith observed in the 18th century that the “rate of profit is always highest in the countries which are going fastest to ruin”. The bedrock that sustains Marx’s core thesis is as valid today as it was in Victorian Britain: capitalism is driven by a divisive class struggle in which the ruling class appropriates the surplus labour of the workingclass majority as profit.

Countless economists, philosophers, and political scientists, including liberal hawks, cannot find fault with the assertion that, left to its own devices, capitalism displays a self-destructive streak from which it needs to be protected. It is, of course, at this precise point that opinion diverges: how to frame capitalism as the natural state of affairs that has governed the economic behaviour of humans since the dawn of time, and to ensure that its power to generate wealth benefits society as a whole.

The inequities of the present economic model have led to a staggering level of inequality that sees just eight men owning assets equal to the combined possessions of the 3.6 billion people who represent the poorest fraction of humanity.

Last year, the world’s billionaires added $762bn to their collective worth, enough to eradicate extreme global poverty seven times over. Some 82% of all wealth created in 2017 ended up in the pockets of the top one-percenters. Marx would have something to say about that, as would Adam Smith.

While Marx failed to trace a path out of the capitalist quandary, he did manage to point out the system’s inner contradictions. He also shone an unflattering light on the capitalism’s inability – in its unaltered and undiluted form – to provide a decent standard of living for all. In the Communist Manifesto, Marx rallies against the bourgeoisie, which he accuses of demeaning work formerly considered honourable: “It has converted the physician, the lawyer, the priest, the poet, the man of science, into its paid wage labourers.”

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"The inequities of the present economic model have led to a staggering level of inequality that sees just eight men owning assets equal to the combined possessions of the 3.6 billion people who represent the poorest fraction of humanity."

As that Fourth Industrial Revolution takes shapes, these words gain a renewed currency. Take the plight of physicians who will undoubtedly be replaced by computers using artificial intelligence to produce spot-on diagnoses. The job-security of surgeons is also moving onto shaky ground as robotics take over to perform surgical procedures with a delicacy and precision no human hand, however skilled, can match. Thus, another honourable profession is “de-skilled”, adding yet another layer to the division of labour.

While in Berlin, where he studied law, Marx slowly fell under the spell of Georg Wilhelm Friedrich Hegel (1770-1831) who proposed a reform of the state along rational liberal lines – at the time a revolutionary notion was a dangerous thing. His espousal of Hegelian philosophy did not go unnoticed; it blocked his chosen career path as a professor. Liberals were not welcome in German academia.

Undeterred, Marx turned to writing. He rejected the idealism of Immanuel Kant and Johann Gottlieb Fichte, much in vogue during the first half of the 19th Century, which holds, broadly, that reality can be inferred through reasoning.

Marx would have none of this, and concluded that the material world ultimately guides all thinking. This also meant the expulsion of the divine from all thought processes. Going a few steps beyond Hegel’s rational liberal state, Marx concluded that with no God, there was no need for a state – a crucial detail that was clearly overlooked by the ideologues who founded the communist states of the last century.

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Marx never quite became the philosopher he aspired to be. Instead, he turned into a formidable critic of whatever phenomenon caught his attention, peerless in his ability to remove the clutter and get to the crux of the matter. Later in life, Marx cultivated a dislike for philosophy, concluding that the point is not interpret the world, but to change it by exposing its shortcomings via a critique.

Today’s many agents of change, from Black Lives Matter to the #metoo and LGBT/OK2BME movements, owe a debt of gratitude to Marx, who recognised that every society adopts the mores of its ruling class. Nothing can change unless these rules, values, and customs have been uprooted – rebuilding the very foundations upon which society rests. The concept, rescued from oblivion every other generation or so, that relations between people should shape the world and determine its direction, had been suggested by Marx over 150 years ago. Yet we haven’t actually moved closer to that ideal. The concept is at odds with the numbers that drive and underpin progress.

Most decisions by corporates, individuals, and governments are made to create or increase profits, or benefits. Marx understood this, as did his opponents. The difference resides in Marx’s anger that such decisions usually led to further oppression and exploitation. British historian Eric Hobsbawm (1917-2012) remained a committed Marxist throughout his life, despite the failure of states and societies organised on the Marxist premise: “I side with the poor and oppressed and cannot do otherwise.”

All boats rise on the incoming tide of prosperity but some enjoy better buoyancy, as evidenced by the lopsided division of spoils. What Marx got wrong was his assumption that, once properly organised and enlightened, the disadvantaged classes would rise up and overthrow the system, paving the way to nirvana. The masses did what was expected of them, only to discover that some people are more equal than others and demand deference – and more food, too.

Autumn 2018 Issue

Karl Marx monument in Chemnitz, Germany. The monument is locally known as Nischel. It was designed by Lev Kerbel.

“Somehow it seemed as though the farm had grown richer without making the animals themselves any richer – except, of course, for the pigs and the dogs.”

- From Animal Farm by George Orwell Though Marx pinpointed the contradictions inherent in capitalism, he failed to offer a workable alternative. Marx may have become one of the philosophers he so disliked: an analyst par excellence but not a revolutionary driving change.

While it may indeed be true that human beings will never truly be free until capitalism has been dismantled, so far no one has managed to build a free society on the system’s dying embers.

After the decline and fall of the Soviet Union, Karl Marx has become fashionable again – even in the United States, where, according to a 2017 poll, about half of those under 30 reject capitalism. Though socialism is a word almost as bad as liberal, a growing number of young Americans are fed-up with a system that they consider rigged.

Adjusted for inflation, the median household income in the US has stagnated since 1967 for the bottom 60% of the population, yet corporate profits have soared since the 1960s. Most businesses no longer funnel the lion’s share of their profit back into the business, preferring to save or return the money to shareholders as dividends – hurting productivity and depressing wages.

In one of his more prescient moments, Marx foresaw this. He predicted that the logic of capitalism would, over the course of time, result in inequality, unemployment and underemployment, wage stagnation, the dominance of powerful firms, and the creation of an entrenched elite whose power would act as a barrier to social progress. Eventually, the combined weight of these problems would spark a general crisis, and, eventually, revolution.

In 2016, the first generation of Americans expected to be less well-off than their parents hovered between two anti-establishment candidates – Bernie Sanders on the left and Donald Trump on the right – who both claimed to be able to end business-as-usual, albeit from opposed angles. Just as Trump triumphed against most pundits’ expectations, a progressive candidate may do so down the electoral line. A revolution can take many shapes and need not necessarily be a violent affair.

The prospect is less farfetched than conservatives – and Fox News – tend to believe.

It would by no means be the first time that US voters swing to the (far) left in an attempt to rebalance political and economic power.

The New Deal with which the administration of Franklin D Roosevelt slashed the power of big business in the 1930s would have carried Marx’s wholehearted approval. Moreover, Roosevelt’s policies represented a sustained effort to regulate unbridled capitalism and position the state as the starting motor of the CFI.co | Capital Finance International

economy and the final arbiter on the distribution of the wealth produced.

It is rather too easy to ascribe the utter failure of communism to the emergence of a new upper class that may not have possessed the means of production in a legal sense, but controlled it all the same. Likewise, the failure of pure capitalism cannot be blamed solely on the billionaires the system brings forth – tempting though that may be.

Whereas Karl Marx carefully mapped capitalist contradictions but failed to offer an alternative, his supposed ideological nemesis, Adam Smith (1723-1790) – on whose intellectual legacy he built his thesis – has suggestions worth examining. Smith is the hero of libertarians, fiscal conservatives, economic freebooters, and laissez faire ideologues. As with Marx, he is frequently misunderstood. The two books that have set the outer limits of economic science (if there even is such a thing) – Das Kapital: A Critique of Political Economy and An Inquiry into the Nature and Causes of the Wealth of Nations – have been oft quoted often but seldom read.

One myth surrounding Adam Smith is that the Scottish economist and philosopher advocated for free markets, unencumbered by state rules and regulations. That is not what Smith wrote, proposed, or supported. He was keenly aware of the asymmetries of information and power, and of the problems surrounding rent extraction.

Smith also expressed concern that, left to do as 67

they please, capitalists would appropriate value rather than create it. Smith moreover argued that properly framed and competitive markets would result in low profits and high wages – indicative of a healthy economy. A supporter of progressive taxation, Smith was no free marketeer.

Margaret Thatcher thought otherwise and reportedly carried a copy of the Wealth of Nations in her handbag. Entrusting the UK economy to Smith’s invisible hand and – more importantly – financing her national restructuring exercise with the unexpected proceeds of the North Sea oil bonanza, Thatcher went after short-term results, running down the welfare state and promising better lives for all as power was devolved to the individual. Middle-income liberals went merrily along with the neo-conservatives in a political conspiracy that now, three decades later, has run its course to end in a deregulated gig economy that fails to provide a living wage to its growing legion of “de-skilled” participants.

Adam Smith lived at a time when the First Industrial Revolution was picking up steam and people were questioning the authority of the church. Smith and his intellectual sparring partner David Hume considered the upsides to the profound and rapid changes taking place around them. Though a strong advocate of free markets, Smith also showed concern for the excesses that could result from an absence of regulatory oversight. In his essay The Theory of Moral Sentiments, Hume starts out by noting that self-interest also includes altruism: “However selfish man may be supposed, there are evidently some principles in his nature which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.”

Smith argued that due to the intrinsic value unlocked by the division of labour, it is the sole determinant of price – and the only true source of economic growth. He conceded that wages, profit and rent complicate matters in more advanced societies. By splitting complex jobs into smaller components – the sum of which is the end product – Smith argued that labour, through specialisation, would power a considerable increase in productivity, generating additional wealth in the process. This is, of course, what drove the industrial revolution. The surplus resulting from the division of labour could be used, Smith argued, to develop and install more labour-saving machinery, driving down prices in an almost virtuous circle.

Adam Smith also showed considerable interest in the diamond-water paradox, touched on by Plato. The paradox asks why water, essential to life, represents little to no value while diamonds, which lack practical applications, are considered very valuable. Distinguishing between use-value and exchange-value, Smith concluded that the real price of anything is determined by the toil and trouble of acquiring it. Decoupling price 68

from usefulness was one of Smith’s greatest accomplishments.

Prices are set according to marginal utility principles that discard labour and usefulness as determinants. Instead, the price of any product is derived from its importance to the owner.

Austrian economist Eugen Böhm von Bawerk (1851-1914), one of the founding fathers of the Austrian School of Economics and a fierce critic of Marx, illustrated the concept of marginalism by recounting the considerations of a farmer who possesses five sacks of grain. The first sack is required for sustenance, the second offers a supplement to ensure strength and good health, the third sack feeds the poultry, the fourth one provides for distilled spirits, and the fifth and final sack – having no practical use and thus the one with the least marginal value – is fed to wild birds for the amusement of the farmer. The first sack of grain – providing sustenance – is the most valuable of all.

Marx took another more complex approach: “socially necessary labour time”, which includes the entire labour input – i.e. the sum of the division of labour (skilled and specialised workers) – needed to turn out the desired product. It also considers the total quantity of labour needed to produce a commodity in a given state of society under the prevalent social conditions. To Marx, price is set by social, rather than individual, conditions. Hence, technological breakthroughs such as those taking place during industrial revolutions lower the price of commodities and increase productivity and competitiveness. This puts less advanced societies at a disadvantage which they are unable to overcome. Marx’s philosophical tack helps explain colonialism and, to a modest extent, inequality.

What Marx is saying, in his usual roundabout way, is that technological progress probably produces a class of laggards and losers. Hardly a revolutionary assertion, but the insight applies to a vast number of professions which will probably be wiped out coming few decades. In itself, this need not be a cause for concern: entire professions have disappeared without major long-term societal consequences. As the world changes, so do jobs.

Taking Smith’s division of labour to its logical conclusion would imply that skilled jobs would be disassembled ever more into actions which could be performed by unskilled labour or robots.

In this scenario, highly-paid, skilled labour is an intermediate phase in a process of productive deconstruction that leads to lower wages and unemployment, negating any benefits.

Smith, the humanist, would surely have objected to this outcome. Where his libertarian acolytes go wrong is hailing Adam Smith as a champion of free-market absolutism. He was a much more nuanced thinker than that. On a number of crucial points, Smith and Marx were in full agreement: both would have been horrified at CFI.co | Capital Finance International

the crony capitalism which consistently neglects the public interest and, in business, decouples merit from reward.

When politics no longer matter and market forces shape the world, masses tend to become restless. In 2007, then-chairman of the US Federal Reserve, Alan Greenspan, remarked that the outcome of the following year’s presidential election did not matter: “We are fortunate that, thanks to globalisation, policy decisions in the US have largely been replaced by market forces. National security aside, it hardly makes a difference who will be the next president.”

Greenspan’s observation was astute, and harboured the most inconvenient of truths: until the financial crash of 2008, economic considerations set the policies of government in most industrialised nations. The grand national visions of yore had been ruthlessly brushed aside as the body politic became the body pragmatic: Thatcher, Reagan, and others transformed the Me Decade into a frenzy of consumerism – collectivism out, individualism in.

Neither Smith nor Marx had foreseen such a development. Both thinkers considered a healthy and vibrant society the source of all economic and individual virtue. However, the empowering of the individual necessitated a retreat of the state which left a vacuum for business to claim as its own. Privatisation and deregulation were called for, and remain essential ingredients of any neoliberal economic setup. Private individuals soon discovered that they had traded their political say on the altar of millionaires, soon to become billionaires. In 2008, voters began to rebel. In Europe and North America, demagogues of various stripes soon promised a return to old values, blaming others – preferably foreigners – for societal ills. This culminated in the election of Donald Trump and Brexit. In continental Europe, populists came to within a whisker of power.

Adam Smith distrusted large corporations and monopolies. He also argued that a well-paid worker is a more productive one and argued in The Theory of Moral Sentiments that social intervention is required when the free market is unable to provide a living wage. Smith also surmised that education is of value to the individual as well as society. The Scottish thinker recognised that the consumption of education does not reduce its availability. Markets are often unable to provide such non-rival goods. Smith presents a list of public goods that should be collectively underwritten, including defence (military and police), justice, education, and services that support commerce in general (infrastructure).

Smith also had clear ideas on how to finance these services: taxes levied in proportion to the revenue enjoyed under the protection of the state. Smith’s core of the message, contained in the Wealth of Nations, remains valid. But Smith is misunderstood and his thoughts have

Autumn 2018 Issue

been misappropriated by neo-conservatives and neo-liberals to justify the dismantlement of state apparatus for ideological reasons.

Maynard Keynes (1883-1946) – which delivered the best of both worlds without descending into tyranny or anarchy.

What Would Karl Marx Say? “Told you so.”

His convoluted solutions offer little practical support to modern economists. His insights into the formation, application and uses of capital, however, remain priceless.

In the latter half of the 1970s, cracks began to appear. Economists wondered if flagging corporate profits might be boosted by deregulation, curbing inflation, and weakening the power of labour. The previous entente between business, government, and labour was deemed outdated. In Europe, countries started prioritising monetary policy, awarding independence to central banks and ditching the fiscally loose policies of the Keynesian model.

With the Fourth Industrial Revolution now well under way, what is an economist to make of a future in which the demand for skilled labour declines, and wealth concentrates into fewer pockets?

Economics is but one aspect of society, and should not enjoy primacy over politics. Bill Clinton could not have been more wrong when he exclaimed during the 1992 election campaign, “It’s the economy, stupid.” His remark was, however, a sign of the times.

Public interest has been largely ignored as the debate focuses on cutting budgets, bridging fiscal deficits and promoting industry. Donald Trump was awarded the US presidency by discontented voters who, in Great Britain, heaped all blame for their social problems on the European Union.

Putting the genie back in the bottle will prove quite the challenge. Smith and Marx are no help here. Voters may want to point to politicians who insisted that business-as-usual is the only way forward. Western societies must regain control of their destinies, not by erecting barriers to trade or leaving supranational bodies such as the EU, but by returning to the pragmatic approach that produced their prosperity in the first place: an acknowledgement that free markets do not exist for good reason. The law of the jungle isn’t compatible with civilisation.

Markets need guidance from society, via politics, as an expression of popular will. Excessive riches, accumulated under the protection of the state, need control. At the other end of the scale, extreme poverty needs to be eliminated.

There used to be a system that accomplished these twin objectives and produced riches for those nations that embraced it. Social democracy – a peculiar blend of Smith and Marx with a few other great thinkers thrown in for good measure – used to be the only game in Europe, and to a lesser extent in North America.

During the three decades that Keynesian state management of demand held sway and delivered the impossible combination of high growth, low inflation, and full employment – an era celebrated in France as the Trente Glorieuses (the glorious thirty years, 1945-1975) – social democracy was seen as a formidable bulwark against communism. Marxism was deemed disproven, and irrelevant, as Europe followed the model plotted by British economist John CFI.co | Capital Finance International

The changes did manage to increase corporate competitiveness and profitability. It also decoupled productivity levels from wages, particularly in the United States where between 1973 and 2013, productivity increased by almost 75%, while wages rose by less than 10% over the same period – and less than 1% for the those at bottom of the income scale.

The demise of social democracy was long in the making and finally sealed by then-Prime Minister Tony Blair in the UK and Chancellor Gerhard Schröder in Germany, both of whom promised renewal – an only vaguely defined “third way”, but pushed their parties to the right, making them indistinguishable from the conservative movements whose mantras they adopted.

Why, then, not vote for the real thing? After voters caught on, they deserted social democratic parties and, by doing so, vacated the political centre ground. In the UK, voters may now choose between a Conservative Party hijacked by its combative and nationalist fringe and a Labour Party likewise in the grip of extremists.

Some choice. On the continent, a similar, though perhaps slightly less radical, polarisation of politics has taken place.

Instead of focusing on contemporary applications for the teachings and insights offered by Adam Smith, Karl Marx, and other great thinkers, it may be worthwhile to look at recent history and see what may be salvaged from Keynes.

He, after all, accomplished what all learned minds thought quite impossible: economic growth, sustained over a long period of time with full employment, rising wages, and declining inequality – in an environment that contained inflation and acknowledged the primacy of politics over economics.

Social democracy has drawbacks as well: it is rather boring and slow-moving, not particularly good at producing fireworks. Social democracies are reluctant to celebrate the individual and would not produce any good reality TV either. In fact, not much to see but people going about their business, relatively free, prosperous, secure, and reasonably concerned for the wellbeing of others – and deriving a modest degree of pleasure from that, an essential ingredient of a happy life as noted by Adam Smith. i 69

> Instrumental in Rental:

Gatehouse is a Shariah-Compliant Bank on the Move

G

atehouse Bank is a Shariah-compliant UK bank whose operations span residential and commercial property financing and investment as well as retail savings and real estate investment advice.

The bank has come to play a major role in the UK’s Private Rental Sector (PRS), facilitating capital that forms the financial foundation for thousands of new homes across the country. It is also highly active in the retail savings market, with competitive rates of return offered across a range of Fixed Term Deposit and Notice accounts.

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A key part of Gatehouse Bank’s strategy is to offer products to underserved markets. By providing bespoke Buy-to-Let (BTL) home finance products – and taking the time to assess each proposal on its own merits – those who have traditionally found it difficult to find finance are often able to succeed in their bid. This includes members of the expat and international communities who want to buy homes in the UK as rental properties, but often struggle to find lenders because of rigid and arbitrary application criteria.

intermediaries, offer flexible terms and competitive pricing. Typically, Gatehouse Bank offers BTL financing of between £75,000 and £5 million, but variations can apply on a caseby-case basis. The bank is also able to finance single and portfolio acquisitions and refinancing.

These Buy-to-Let products, which are available directly from the bank and through

In the property market, the bank was a pioneer of Build to Rent, entering the UK rental sector

CFI.co | Capital Finance International

Following regulatory approval, the bank plans to extend its property finance offering further, with the introduction of a range of Home Purchase Plan (HPP) products to support owner-occupiers.

Autumn 2018 Issue

in 2014. Much of the capital for this area of the bank’s business comes from inward investment.

The first £100m fund, created in 2014, saw 918 homes created across the Greater Manchester and Merseyside areas. These homes – a mixture of one- and two-bedroom apartments and two-, three- and four-bedroom houses – are fully let.

The second £100m project, established in December 2015, has created a further 682 homes built in the Midlands and North West of England.

A further project, expected to be worth £300 million, is about to get under way — promising to bring the total number of BTL homes under the bank’s advisory mandate to 6,500 over the next two years.

These ground-breaking ventures have created one of the first large-scale PRS portfolios of highquality family homes in the UK, and Gatehouse is proud of its involvement in the supply of homes.

CEO: Charles Haresnape

"The first £100m fund, created in 2014, saw 918 homes created across the Greater Manchester and Merseyside areas."

But it’s not just in the residential space that Gatehouse applies its expertise. Asset managers, developers, REITs (Real Estate Investment Trusts) and investors can benefit from its expertise in commercial property financing. The Gatehouse team works across the spectrum, from basic secured financing to senior debt and mezzanine finance. Areas of expertise include providing commercial finance for acquisitions, development, refurbishment; refinancing existing assets or projects; leveraged recapitalisation and finance restructuring.

The bank’s expansion has been complemented by a number of new appointments in the executive team over the past two years.

Charles Haresnape was appointed CEO in May 2017. He is helping the bank sharpen its strategy to offer competitive personal finance products to the UK’s three million Muslim residents, who have been traditionally underserved in the Shariah-compliant market, and widen its appeal to customers of all kinds.

Prior to joining Gatehouse, Haresnape was group managing director at Aldermore Bank, where he CFI.co | Capital Finance International

was responsible for residential and commercial mortgages and property development. Before joining Aldermore, he was with Connells, one of the UK’s largest estate agency groups, where he was group mortgage services director.

Earlier in his career, he was responsible for intermediary mortgage lending and the branch mortgage sales force at NatWest, and worked at RBS. He has worked for a number of other household-name banks and building societies, including Nationwide and HBOS, where he was a senior executive, responsible for mortgage sales and portfolio acquisitions.

Since Haresnape’s appointment, Gatehouse has frequently been placed at the top of the bestbuy savings tables, and the bank’s executive committee has been strengthened with the addition of former Shawbrook Bank Strategy and Innovation director Tim Blease as chief operating officer (COO). Another to join the team is chief commercial officer (CCO) Paul Stockwell – who joined from TSB – while Usman Chaudry, the bank's chief risk officer, was formerly global head of policy and risk governance at Standard Chartered Bank.

Gatehouse Bank is a subsidiary of Gatehouse Financial Group Limited, which is a holding company for Gatehouse Bank and Gatehouse Capital (based in Kuwait). Gatehouse Bank is UK-domiciled, which means savers’ deposits are protected by the Financial Services Compensation Scheme up to £85,000 per person.

Gatehouse Bank believes in the importance of the communities in which it operates, and supports a range of not-for-profit endeavours.

Since 2008, the bank has supported Mosaic, a charity founded by HRH The Prince of Wales.

The charity provides a platform for employees who wish to volunteer as mentors. The bank also supports young jobseekers by providing internship and apprenticeship opportunities.

Gatehouse is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. i 71

> ČSOB:

Transformation Technology in the Czech Republic Foreword by Marek Ditz, member of the ČSOB Board of Directors responsible for transformation

Č

SOB is a bank and, at the same time, a technology company.

to be the partners of our clients in all areas of their lives. We want to naturally develop the trust they have placed in us by allowing us to assist with their money management.

It has been amazing to witness the transformation of banking and the impact of technology on this traditional sector in the past two decades. A silent revolution has occurred, both inside and outside the bank. Everything takes place with the consent of all stakeholders because ultimately, our employees and clients benefit equally from the transformation.

Receiving the CFI.co 2018 award Best Internet Bank Czech Republic is excellent news for us. It means that independent experts have confirmed what we already knew from our clients: that we speak intelligibly to them. The proportion of yearon-year online transactions (24%) is clear proof.

We would like to use this unique relationship to constantly tell our clients how important it is to pay attention to the main principles of cyber security and protect passwords and codes.

These days, a bank is not just a place where you open an account and get investment advice.

For example, thanks to modern technologies and synergies in the group and alliances, we have created a bancassurance model that works wonderfully at ČSOB and throughout the whole KBC Group. The fact that we increased our customer-base by 5,000 year-on-year shows that we are on the right track.

At the same time, we have moved these traditional services to a higher level thanks to artificial intelligence and our work with data. We have special teams that evaluate all information about ATM and branch usage and help us

Smart solutions for the household represent a natural deepening of this relationship. Thanks to the NaDoma platform, our clients can control various sensors remotely, over the phone, tablet or laptop. The smart household aspires to simplify lives by giving people the option to warm the floor in the bathroom or turn off the coffee machine before they return from work.

It can also prevent – or at least mitigate – the effect of damage from insured events. Naturally, this will greatly transform the insurance market and its offering.

Marek Ditz

channel services where they are needed. We certainly don’t trade data, they are safe with us and have a single purpose – to serve their owner – the client. We also constantly and tirelessly maintain our security standards well above what is required. Thanks to this, we are one of the main partners of Czech retail business when it comes to both online and brick-and-mortar shopping. Together, we develop brand new financial services, including price comparison sites.

Ten years ago, you probably wouldn't imagine that the bank could be involved in your household management. However, here at ČSOB, we strive

A Different View, a Different Approach INTERNET BANKING ČSOB InternetBanking delivers the most convenient access to the client’s account. This service was launched at the end of September 2017 and extensive changes in the layout and the functionalities were made later. Users appreciate the simpler navigation and innovative personal finance management services. Clients can see clearly not only the main bank products, but also insurance, mortgage loan, investments and building savings opportunities.

A pathbreaking feature of ČSOB InternetBanking is the Budget and Expenses service where clients can very easily manage their personal finances.

They see their spending patterns and can identify 72

possibilities to save. The application also offers a comparison with average expenses: the client can see how much their peers or residents of the same municipality spend.

Since its launch, the service has been very successful and more than 650,000 clients tried it out in the first month. By the end of the first half of 2018, ČSOB InternetBanking had over one million active users, and the number of transactions in the first six months exceeded 18.5 million.

MOBILE SMARTBANKING ČSOB Smartbanking stands for a fast and convenient access to the client account. It is CFI.co | Capital Finance International

And this is not all. Thanks to smart solutions in public transport vehicles, we help people save time and improve the comfort of everyday commuting. In Prague and other large cities, people know what it is like to use contactless payments on the bus and tram. Moreover, many of them use our proprietary NaNakupy mobile wallet instead of looking for the plastic payment card.

Technology has positively affected our workplace.

The transition to flexible bank, which we are undergoing, would not be possible without IT solutions that permit remote work. Their flawless function and security are a matter of course.

The Surf Studio at the Prague headquarters is a wonderful place for meeting, sharing ideas and introducing our innovations. Our employees and visitors can try all the innovations we offer as a bank. If you are nearby, please come and visit us! i

suitable for mobile phones, tablets and watches.

Users can also log in with a fingerprint. Its success is best illustrated by the fact that the number of client transactions made via ČSOB mobile banking grew by 39% to 2.7 million in the first half of 2018, and the number of active users rose by 28% to 263 thousand year-on-year. ČSOB OPENS ITS BANKING ČSOB plans to open its banking in December this year. Clients will be able to perform some account operations through other banks or licensed non-banking service providers. Open banking was introduced by the PSD2 directive.

In early July 2018, ČSOB launched these services in the internal test mode and launched the developers.csob.cz portal. Developers can use it to find technical documentation for new

Autumn 2018 Issue

simplifies the routine functioning of households while increasing safety. The application developed by ČSOB uses the Internet of Things and gives people the ability to remotely control up to 255 smart home devices. Thus a smart household becomes a reality.

“We see an increasing demand for household control. In two years, there will be 50 billion online devices worldwide. ČSOB has built partnerships and is in close co-operation with many technology providers, and introduces smart homes in our daily lives,” reports Marek Ditz.

The platform is very user-friendly. In addition to an app which helps users control and manage their households with just a few clicks from smartphone or tablet. All that is needed is a control centre to which all the user’s smart household appliances will be connected. The app helps control heating and manages a system of basic security sensors, including a smoke or motion detector. Another useful feature is that the smart lock that can remotely secure the house, and smart sockets solve the problem of those who forget to switch off the iron. ČSOB plans the gradual introduction of new solutions and smart systems, based on client feedback. ČSOB AS PARTNER OF SMART CITIES ČSOB is the lead in transportation projects, serves as a partner for payments in the public sector and cooperates with municipalities. The success of Smart City as a way of improving the quality of life and streamline the public administration is conditional upon payment cards as a common tool used by the majority of Czechs. There are more issued payment cards than people in the Czech Republic, and nine of ten are contactless. In the Czech Republic, payment cards are highly efficient, convenient and safe and can fulfil other functions as well.

For example, they can serve as an identifier for a purchased service – tickets for public transport, cinema or a festival.

An enormous advantage of payment cards is their high level of security, guaranteed by international standards. Not least, payment cards rely on an existing, fully functional infrastructure administered by banks and payment companies, which significantly reduces the expenses and risks for municipalities.

PUBLIC TRANSPORTATION PAYMENT PROJECTS Ostrava In mid-2016, all public transport vehicles in Ostrava were fully equipped with contactless scanners. This is the first project in which no paper ticket is printed and the fare is capped. services, instructions on how to register and set up a new application and a sandbox to test the correct application settings.

Towards the end of the year, ČSOB Group clients will be able to start using multibanking

in their InternetBanking. This service permits the connection of accounts held in other banks.

NADOMA – SMART HOUSEHOLD IN A FEW CLICKS ČSOB client relationships go far beyond the normal banking services. The NaDoma platform CFI.co | Capital Finance International

Plzeň Since the middle of 2015, all public transport vehicles have been equipped with contactless terminals for fare purchase. The system prints paper tickets and, as the first in the country, employs aggregated fares to optimise tariffs. In 73

"At ČSOB Group, one of our main priorities is to be innovative, enhance our services and increase client satisfaction. In this era of smart solutions, the bank must also be a tech company."

Marek Ditz

autumn 2017, the city launched the first mobile application for fare purchase by mobile phone, where payments are debited from a card stored in the Masterpass mobile wallet.

Prague The pilot projects of payment card acceptance for individual tickets were launched in tram lines 18 and 22 and in the bus line that serves the Prague airport. Public transport became even simpler this August: the inhabitants of and visitors to Prague and the Central Bohemian Region can use MOS, the new regional multichannel check-in system.

CLICK PARK – SMART PARKING IN DOZENS OF CITIES Since 2017, the unique Click Park application

by City Parking Group has been redefining parking in dozens of Czech cities and towns.

Parking with the application is simple and fast, which will benefit drivers and the municipalities alike. The application is ready to be launched in all municipalities in the Czech Republic and Slovakia, and, in the next phase, it will expand to other markets - in particular, Poland and Hungary.

The application is also available for download in AppStore and Google Play. It permits simple and safe payments via the ČSOB payment gate using a smartphone. The application offers not only information on prices and payments and extension of parking directly from the phone, but also navigation. More than fifty users register every day, and expansion abroad is planned.

SMART MOBILE PAYMENT TERMINAL WITH DONOR APPLICATION With its partners, ČSOB has developed smart mobile payment terminals with an application so that donors can contribute to public collections on a cashless basis. ČSOB works with Bellpro and Globit to develop a payment solution for nonprofit organisations, and Amnesty International was involved in the development. The first experience shows that the possibility to donate by a payment card greatly contributes to the successful fundraising.

PAYMENT CARD VIRTUALISATION The ČSOB NaNákupy application is a successful project of payment card virtualisation: cards are stored in a phone based on contactless technology, and the phone can be used for payments just like a normal payment card. Around 20,000 clients have downloaded the NaNákupy payment application, and half use it regularly.

In addition to Amnesty International, the following organisations have been testing: Nadační fond Kapka naděje, which helps seriously ill children; The Tap, a band of the students and graduates of the school run by Jedličkův ústav; Doctors Without Borders; and Světluška, a project of Nadační fond Českého rozhlasu that helps people with severely impaired vision.

The principle is the same as the contactless payment card. Users can display their balance and payment history without opening InternetBanking and smartbanking, which, of course, comes in very handy. Thanks to the Masterpass payment method, it is not necessary to copy payment card details for each payment.

With the mobile wallet, the user may also withdraw cash in contactless ATMs (whose number is on the increase). The application also makes it possible to create a shopping list and group loyalty cards.

KLÍČENKA – THE FIRST MULTIFUNCTIONAL CHIP FOR SCHOOL CHILDREN As a technological partner, ČSOB is involved in a project of the first multifunctional tool for school children. After a successful pilot project, all schools in Kolín will replace entrance chips by a multipurpose smart key tag (Klíčenka). Klíčenka helps the school, its pupils and their parents.

This combines several useful features. First, the school controls its entrance and the distribution of lunch because Klíčenka is a key for the electronic locks and a chip for the school canteen. Further

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optional functions can be added, e.g. a library card, public transport pass, payment card or electronic health records. However, the decision to make use of this facility must be made by the parents or legal representatives of the pupils.

FLEXIBILITY THROUGH TECHNOLOGY Technology is an integral part of everyday life at the bank with a transition to a flexible workplace model and support to remote working. These technologies make it possible for our employees to get in touch with colleagues on Skype and to gain access to the files and folders they need to work from home.

Surf Studio at the Prague headquarters is teeming with technologies and innovations. Employees and visitors can touch and try many examples of modern technology. The studio also organises various events: each week it holds inspiring presentations of new technologies and services or the streaming of interesting conferences and lectures. Visitors can see a smart household (e.g. motion sensors), energy consumption sensors, lighting, a smart coffee machine and a 3D printer - and are attracted by the virtual reality.

The Studio played a key role during this year's Flexi Week, where employees were introduced to flexible working methods and technologies in the bank to make their work easier. ČSOB was awarded a silver medal and received praise in the competition of the Grand Prix 2018 Institute of Internal Communication, category: A Different View, A Different Approach. i

Autumn 2018 Issue

> Alexandre Fonseca:

Pioneer Spirit and a Love of Challenge Provide the Motivation for Altice CEO As Altice Portugal CEO, Alexandre Fonseca wants to enhance the innovation and focus on the client culture that the company is known for. His priorities are for investment in a nationwide fibre-optic network, and continuous R&D that allows Altice Portugal to innovate and lead. Fonseca has more than 20 years’ experience in the telco sector.

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lexandre Fonseca is inspired by challenge, and has this to say about his company: “More than responding to the new needs, Altice anticipates them and has been doing so throughout its history. Entrepreneurial spirit, competence, innovation, investment, scale and a strong partnership ecosystem are key assets to be a global digital player and the benchmark partner in digital transformation.”

Prior to his position at the helm of Altice Portugal, Alexandre Fonseca was CEO at ONI Portugal and ONI Mozambique (B2B Telecom Operators).

Before that he was the CTO at Cabovisão (B2C and B2B Cable Operator). Between 1995 and 2007, Alexandre Fonseca worked on the IT and telecommunications industries in senior management and management consulting positions with companies such as Coopers & Lybrant, PriceWaterhouseCoopers and IBM. In 2012 he joined Altice, upon the entrance of the Group in Portugal, and just five years later he was appointed CEO at Altice Portugal, and executive manager for ALTICE LABS Portugal, the Portuguese based Research & Development unit for Altice Group. He is in charge of Innovation and Future Thinking on Technology, focusing on hardware development, OSS/BSS and TV and interactive platforms. Fonseca holds a degree in Computer Science Engineering from Lisbon University and a Masters Degree in Sales and Marketing Management by TeamView Institute.

CEO: Alexandre Fonseca

and technology papers. He’s an invited speaker/ professor in academic initiatives in his areas of expertise.

“Altice Portugal has been pioneer in the development of solutions, products and technology,” says Fonseca. “I have always been guided by challenges and efficiency goals so, with 20 years of experience, many in telecommunications, being Altice Portugal’s CEO is a huge challenge and a motivation.”

Since taking office, Alexandre Fonseca has been determined to maintain the group’s benchmark status in innovation and growth. Altice Portugal stands on a natural, self-built market-leader position – aiming for leadership in every service and segment.

Fonseca is also a member of several telco and IT sector associations, collaborating with entities in the areas of project management, strategy and communication and often co-operating with specialised Portuguese media, writing business

“We confirm our leadership in mobile services quarter after quarter, as well as in bundled services including convergent fixed+mobile services and just last July we’ve reached a major milestone of 1.5 million pay-TV subscribers (about 39% CFI.co | Capital Finance International

market share),” the CEO says. “Also contributing to our leadership is the steady investment track-record towards innovation, deploying new generation technologies and valuable services, to support a unique customer experience and a high level of customer satisfaction.”

Altice Portugal has been one of the most dynamic enablers of economic development within Portugal, investing in communication infrastructures throughout the country. Rather than focusing on commercially interesting regions, the company is reaching out remote and less developed parts of the country, providing access to top communication networks in a bid for a more competitive digital society. i 75

> Get Connected with Altice Portugal:

Portuguese Telco Invents, Invests, and Faces for 5G Altice Portugal is part of the Altice Group, a multinational group in the telco and media sectors, represented in more than 10 countries. Altice Group has maintained an upward trend as a leading international group in converging telecommunications, content and media services.

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n the world, the Altice Group has carried out a business management that allowed it to grow in several indicators – never neglecting growth in satisfied customers (there are 50 million of them) – in the various business areas where there is clear evidence in research and technological innovation.

Present in 10 territories, with 50,000 employees and an annual turnover of more than €25bn, Altice has maintained an entrepreneurial spirit since its founding – as well as nurturing a longterm growth strategy.

It has prioritised the creation of financial and technological synergies, and value for the stakeholders of all operations.

Altice has been operating in Portugal since 2012, having maintained gradual but solid growth. It is the market leader in communications and the only group in the sector that develops technology in its laboratories headquartered in Aveiro, Altice Labs, which is exported to 35 countries, reaching more than 250 million people.

In terms of fixed and mobile, multimedia, data and business solutions, the indicators show that Altice Portugal is growing and, year after year, the national and international awards, such as this one, are increasing. Since 2015, Altice employs more than 20,000 workers in Portugal.

Altice Portugal is more than a traditional Telco; it is now a technological operator, and an agent of digital transformation. As a result of the high level of investment, especially in new generation networks, Portugal has some of Europe’s best networks and the most advanced technologies.

Altice Portugal is distinguished by a customerfocused and service-oriented experience. It is the company that invests the most in Portugal, and continues to be the country’s benchmark Telco operator.

In the last quarter of 2017, Altice Portugal started a turnaround process to build a growth path to continue to be able to invest in different sectors, to reinvent itself, and to anticipate trends and needs.

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The focus of the Altice strategy is: Investment, Innovation, Technology and Quality of Service, based on Social Intervention and the concept of proximity.

CFI.co | Capital Finance International

• Investment. Altice has invested €1.2bn in Portugal in three years, contributing to the growth of the national economy. More than €400m was invested in infrastructure, state-of-the-art optical

Autumn 2018 Issue

fibre, which surely will remain Altice’s legacy to the next generations. It will continue to invest in infrastructures, partnerships, platforms and the transformation of information systems.

• Innovation. This strategic vector is part of the DNA of Altice Portugal, focusing on the competence of Portuguese engineering present not only in Aveiro, but also in Viseu, Madeira and, soon, in Algarve. Altice Labs brings Made in Portugal products around the world. The company is pursuing a decentralisation strategy, through the creation of Altice Labs (Future Labs, Golabs.IoT, ENTER program and ecosystem of partnerships).

• Service quality. The customer is the main focus of Altice’s strategy. Altice Portugal monitors the customer experience and its technology and innovation that it takes to the market is aimed to its customers. It has diversified its offer, enhancing know-how, and earlier this year launched the Sofia box, the new user-interface Sofia, My MEO, Meo By, Cloud Office and new generation Global Connect.

• Social Intervention. Altice Portugal’s strategy is more than just business. It repays the Portuguese people for their trust. It invests in the interior of the country, promoting sports, music, culture and digital skills for younger generations.

Altice Portugal has been one of the most dynamic enablers of economic development within the country, investing in communication infrastructures nationwide. MEO is reaching out the remote and less developed regions of Portugal, providing communication networks and helping to level up regional asymmetries.

Atice Portugal has fitted 4.2 million homes with new generation fibre optics; it hopes to bring that total to 5.3 million by 2020 to turn Portugal into the European country with the highest optical fibre penetration, covering almost all of the Portuguese population. Altice Portugal has a nationwide 4G network, covering 98.5% of the Portuguese population and a 73% 4G+ mobile population coverage.

Altice Portugal is well aware that for sustained economic development, infrastructure, innovation and technology are needed. It leads the roadmap of 5G implementation, having had a recent pre-commercial demonstration outside the laboratory environment. The company’s 5G adventure started two years ago, and it held the first 4.5G demonstration, or the commercial launch of the 4G + network at the 2017 Web Summit. This now reaches more than 70% of the population.

Altice Portugal aims to continue to be the engine of the economic and social development of the country. This strategy is under way in several structural projects, such as the opening of 14 contact centres employing more than 1.700 people, connecting Serra da Estrela’s central massif with fibre optics and the implementation of mobile network in the Peneda Gerês National Park. i CFI.co | Capital Finance International

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> Q&A with CIOA CEO Léon Lucide:

CEO Taken as a Hostage Sees Upside of Situation – and of Working Hard WHERE DID YOU GET YOUR BUSINESS IDEA? CIOA is the evidence of a life course. As my experiences grew, I became aware of what I could do in my life to serve the community.

I was born in Martinique, a French island in the Lesser Antilles of the West Indies in the Caribbean, where I lived for 33 years, in a family of 8. This, added to eight years of boarding school, taught me how to live with others. In my mother's grocery store and father's farm, we worked to maintain a modest lifestyle. I began to appreciate the value of hard work.

At the age of 19, while pursuing my law studies, I was already a father, and the owner of my house, built on weekends on family land. I understood building well enough to become a builder: in 1990, a construction group I created realised €40M in turnover… then went bankrupt, a victim of indelicate bankers associated with influence groups, and my mistakes of youth. It was a hard test, and I understood the fragility of the isolated entrepreneur.

Defeated but free, I settled in Canada with my partner, where we created an import-export business. For four years, we visited 42 countries and came to understand that the needs of some were the opportunities of others. We live in a compartmentalised world, with too few bridges.

We created a business-opportunities magazine and I became vice-president of the Traders Association of Canada. Back in France in 1995, I started a business club with our subscribers’ journal.

With the web, everything had evolved, and the opportunity was there to create a global, open, self-sufficient, diverse company, without territorial limits, with a common affectio societatis (the common will of several persons or entities to merge into one entity), with rules, organisation and resources.

CEO: Léon Lucide

I am an idealist but I am down-to-earth. And, with CIOA, my utopia of an open and united world can become reality. This is my counterproposal to free and undistorted competition, and a proposal to "little ones" of this world.

WHAT IS YOUR VISION OF THE WORLD TODAY? Today, things seem unequal, and too predatory; it is an insecure world. I was held hostage for eight hours at Radisson Blu Hotel in Bamako, Mali, when Islamist militants took 170 hostages and killed 20 of them in a mass shooting. If we start 78

to rethink things, there is an opportunity to build another world. “Collaborative” is the key word in this. In fact, tomorrow’s world – as depicted

by Jeremy Rifkin, an American economist and social-theorist – is the world the CIOA community lives in every day.

AND YOUR VISION FOR CIOA IN 10 YEARS? To move in the right direction, we must return to basics. The most obvious thing is to meet needs with a sustainable perspective. This is how our CFI.co | Capital Finance International

offer has been built, by providing institutional decision-makers with the means to help their populations to consume better, to live, train, work and recreate better.

On a corporate level, with the company on Euronext, a creator of sponsorships and on-going partnerships, CIOA will be a force for public good, belonging to its beneficiaries – with the benefit of keeping financial services, health, personal development in focus. i

Autumn 2018 Issue

> CIOA:

An Ecosystem That Can Bring the World to Every Doorstep

Manufacturers

Building material suppliers

Project supervisors Architects & Engineers

MaaS

“Manufacturing as a Service”

Real estate prospectors

how does CIOA put together its members' capacities to change the building process

Building workforce

Manufacturing process

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magine a global, collaborative system whose interactions help to meet the basic needs of populations to consume, live, work, recreate…

It took a quarter of a century to translate this vision into an operational system that provides decision-makers with development-as-a-service solutions for CIOA. It facilitates the business of economic operators in the fields of import-export, construction, distribution, tourism, craft, and agribusiness, among others.

The CIOA ecosystem brings together people from 140 countries in an international marketplace. It entails 500,000 users, 120,000 suppliers and 135,000 hotels and residences, as well as users of affiliated communities, unions, Chambers of Commerce, local authorities and government agencies. Members find out how to make their businesses grow.

First, CIOA had to give the member companies, big or small, the digital capacity to use the Market Network Builder, its digital business machine.

This private information system uses Enterprise

Resource Planning to support business flow, from pre-transaction to post-transaction. It is connected to the international network of marketplaces, in real time, allowing instantaneous purchases, sales, production and services, With globalisation, small is not always beautiful.

An SME has to sell everywhere. This need for the internationalisation of companies is a business opportunity for the 2,300 business facilitators federated by CIOA. Trained and supported by the headquarters office, these facilitators provide members with a commercial presence in 50 countries.

If artificial intelligence is seen by some as a threat, the result of CIOA's Collective Brain work in the building industry restores some faith in the human brain. The Collective Brain brings together 200 experts who contribute to shared R and D to develop members’ expertise.

Titan Factory is a mobile building machine which, for its development, brought together Finnish, Dutch, French and Turkish experts. It realises building structures from their building CFI.co | Capital Finance International

information digital model. This manufacturingas-a-service offer brings architects, builders and suppliers together to offer turn-key buildings, worldwide.

Since government institutions and states have shown interest in the CIOA system, a new perspective has opened-up to provide citizens with better consumption, housing, employment and entertainment options.

For the Union of Comoros, it is deployed as a public service in the plan for 2030 emergence, to realise road, lodging, industries, commerce and digital plans. For the DR Congo and Cameroon, it is the tourism division that is retained to modernise reception structures, create jobs, and promote the destination.

CIOA is still a small business ... but that may change soon. After 25 years of prototyping, selffunded, proof-of-collaborative enrichment, the CIOA system has a €10m turnover for 2017, and an EBIT of €2.9m with 15 employees.

CIOA seems to be on the runway! i 79

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Autumn 2018 Issue

> Streamline, Consolidate, Accelerate:

Winning Formula for Optical Experts “I have a particularity,” says Afflelou Group CEO Didier Pascual. “I am 55 years old and I have only worked for three employers.”

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t's part of Didier Pascual’s character; he is in for the long-haul. “I started in public accountancy – auditing – and that forged in me aspects of rigour, a respect for rules, and a code of ethics.”

He joined his second employer, GiFi (a French chain that sells low-cost products for the home) in 1991, and remained there until 2003. Didier describes it as “a beautiful adventure” and a great grounding.

“Then someone told me one day about a job opportunity in Paris for the Afflelou Group,” he recalls. “Even though I did not want to move to Paris, the brand Alain Afflelou was very attractive to me. Then I met Alain (Afflelou) himself – and I said yes. Fifteen years later I don’t regret it.”

Didier Pascual has been group CEO for six months now, “and I am thrilled about that”. He says he is proud to work for a company that has a total of 1,474 stores, 500 of them abroad, the rest in France. He, and the company, benefit from this international influence.

“We intend to streamline, consolidate and accelerate our international development, as we are receiving requests from all countries on all continents. We must sometimes say no – victims of our success!

“When we develop new countries, we look carefully at the opportunities and we take as an example the success of Spain. We recently set up Colombia, we will be soon in Kuwait and we have had a great success in Vietnam, among other countries.”

Didier Pascual considers himself fortunate to be surrounded by a great team. “We have a very competent executive committee, with members who each lead a business unit,” he says. “There is a great fusion between the different directors. We also have a very efficient product team, allowing us to always stay at height of fashion while keeping prices very attractive for our customers.”

Communication is a key factor in the Afflelou Group. Advertising is the core of the activity, masterfully managed by founder Alain Afflelou.

“Our company DNA is also largely marked by permanent innovation in the optical and the audio prosthetic sectors,” says Didier Pascual.

CEO: Didier Pascual Photo: Romuald Meigneux

Beyond the fashion scope, eyeglasses are necessary to correct vision that tends to decline from the age of 50 – and these customers are also people who may experience hearing loss. “We see a tremendous opportunity for development in the audio-prosthetic market. This is a sector that we strive to highlight with dedicated points-ofCFI.co | Capital Finance International

sale or special corners in optical stores. We only hire and work with qualified hearing specialists.”

Whatever the country in which Afflelous is developing, the goal is to gain a market share, while continuing to improve a high level of service. i 81

> Allergy

Vaccines Take the Strain When Hay Fever Makes Life an Itch

The sun is shining, the grass is green – and you can’t stop sneezing. It’s hay fever season, which means a lot of money will be spent on antihistamines and tissues.

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ut wouldn’t it be lovely if there was a vaccine against grass pollen allergies?

“Allergy Therapeutics use whole allergens in their trials but combine them with adjuvants (substances that enhance the body's immune response to an antigen). I believe adjuvants can be useful: if you are protecting a patient against infectious disease or cancer, for example.

ASIT Biotech believes it has the answer: a short-course treatment to protect people from the vicious grass globules.

The Belgian company, which successfully raised €27.4m earlier this year, is hoping to have its hay fever treatment on the market by 2021. The product is undergoing a second round of Phase III clinical trials. Competition is fierce; with the global allergy market expected to grow to €33.35bn by 2025, ASIT Biotech is vying for its market share with several others, including the UK-based Allergy Therapeutics.

“However, for allergy treatments I don’t believe the safety/efficacy balance is in favor of using potent adjuvants. ASIT products are adjuvantfree because we believe that it will reduce long term toxicity and the potential unwanted sideeffects.”

CEO: Thierry Legon

CFI.co spoke to ASIT Biotech CEO Thierry Legon.

SUNSHINE AND SNEEZES What are the current options for treating hay fever, and what is ASIT Biotech doing differently?

“To treat respiratory allergy today, your main option is to use symptomatic drugs, such as antihistamines and corticosteroids. This is often enough for patients who only suffer from mild or infrequent allergic reactions, but for those who suffer more severely there is an alternative path: immunotherapy.

“The problem with current allergy immunotherapy is that the courses are far too long. You have to see a doctor a minimum of 40-60 times over a period of three years. With such prospects, a lot of people refuse to even start treatment and the majority who do begin a course will not see it through to completion.”

and T-cells, triggering the immune system in its optimal complexity.”

Natural allergen fragments bind to antibodies in a way that is less likely to result in an inflammatory response. “Our product lies somewhere between synthetic peptides and whole allergen extracts,” says Legon. “Both methods have been used by various companies in the past: Circassia used small synthetic peptides in its products that activated only T-cells. They scrapped their whole allergy pipeline in 2017 due to several failed Phase II trials.

“At ASIT Biotech, we are developing a much shorter immunotherapy course, to improve patient acceptance and compliance with allergy treatments. With our short course, you will only need to attend an allergist’s office four times over a period of three weeks. It is a bit like a flu vaccine: every year, before the pollen season, you get your shots and you are protected until the end of the following summer.”

APART FROM THE CROWD How does the ASIT technology work?

“Our treatments work by extracting and purifying natural allergens from one grass species responsible for most hay fever cases. We break the allergens down into fragments, to reduce their potency to trigger an allergic response. We use fragments of varying lengths to activate B-cells 82

CFI.co | Capital Finance International

Can the ASIT technology be used to develop treatments for any other forms of allergies?

“Yes, it can: the technological platform we have developed can be applied to many different types of substances, including food allergens (like peanuts, cow’s milk and egg white) and other respiratory allergens (such as house dust-mites and ragweed). Immunotherapy is designed for patients with moderate to severe allergies, who are not satisfied with symptomatic drugs.

“We believe that if we can provide short-course treatments, patients will be much more eager to use immunotherapy to eliminate their allergies altogether and live a better life.” i

Autumn 2018 Issue

> ‘Magic Bullet’ Hits Allergens with Preventive Treatment

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The operating costs totaled €5.7m on June 30, 2018, versus €7.1m as at June 30, 2017.

Research and Development expenses of €4.5m accounted for 78% of the total operating cost and were devoted to the development of ASIT biotech’s R&D programs over the half-year. The operating loss at June 30, 2018, amounted to €5.4m (€6.8m the previous year).

ay fever is a debilitating condition which can affect sufferers’ lives in many ways.

Those worst-affected are sometimes forced to stay at home in a closed room, losing productive work days: one in five, according to a recent study. And some of those sufferers gave a false excuse for missing work: they didn’t feel hay fever was a “suitable” reason, although itchy eyes, headaches and blocked sinuses and even hearing difficulties are part of the parcel.

ASIT biotech’s cash position increased to €13.5m at June 30, 2018, compared with €2.1m at December 31, 2017. This resulted from capital increases related to the private placement approved by the shareholders’ meeting in December 2017 – completed over the first half of 2018 – for a total gross amount of €15.4m.

Students – especially at exam time – have difficulty maintaining concentration. There are more serious dangers too: a hay fever attack while driving could have potentially fatal consequences.

In July, the company raised €12m in committed capital in the form of a convertible-bond private placement to be paid in 20 equal amounts over the next 20 months.

Currently, most of the market is made up of symptomatic drugs for allergic rhinitis. A third of patients with moderate to severe allergies find their symptoms are not adequately controlled by pharmacotherapy. Many hay fever sufferers are also asthmatic, and more likely to be receptive to preventive treatments.

At the helm of this company are director and CEO Thierry Legon, director and CFO Everard van Straten, and Chief Commercial Officer Philippe Ghem.

Enter ASIT Biotech, a Belgian clinical-stage biopharmaceutical company which is pioneering methods using allergy immunotherapy products comprised of short peptide sequences from natural products, allowing short-course treatments.

ASIT’s short-course immunotherapy addresses unmet needs. The treatment re-programmes the immune system in a preventive approach, purifying and denaturing extracts of natural allergens and hydrolysing others to treat allergy.

Only four doctors visits are needed – prior to the hay fever season – to allow ASIT’s treatment to provide protection for the entire pollen season, and a vastly improved quality of life.

With conventional treatments, 40 - 60 doctor’s office visits may be necessary over 3 years. The results of these 40 to 60 visits may be disappointing, with low compliance rates, reduced efficacy and increased patient suffering. Treatments have drawbacks limiting their acceptance (<50%) and compliance (1020%), hence their low efficiency.

ASIT believes its short-course therapies are the best-in-class, effective in as little as three weeks.

Preparation is under way for the European confirmatory Phase III study of the gp-ASIT+™ product candidate for grass pollen-induced allergic rhinitis. The screening of patients is expected to start early in 2019; the first-patient, first-visit is planned for the first quarter of 2019 and the results expected at the end of 2019. Discussions with the US Food and Drug

Administration (FDA) are ongoing to define the clinical development of gp-ASIT+™ in the US. Other robust treatments for dust-mite and peanut allergies are in the pipeline with two Phase I/II studies due in 2019. ASIT treatments, without the need for an adjuvant, allow the fast induction of blocking antibodies while limiting the allergic reaction, resulting in an improved safety profile, a short course of treatment, the potential for one-year efficacy with a single round of treatment, leading to an improved patient acceptance, compliance, satisfaction and efficacy.

ASIT specialises in allergy immunotherapy with scientific and clinical support: 26 active and motivated collaborators, plus a network of high calibre collaborative centres. It has raised €86 million since its inception with €23.4M from its IPO in 2016.

ASIT biotech recorded no revenue during the first half of 2018, as the company’s product portfolio is still in clinical development. The other operating income of €385,000 mainly consists of a research tax credit and the balance of the Walloon Region subsidy for the development of the house dust mite treatment.

CFI.co | Capital Finance International

“The first half of 2018 was notably marked by the reinforcement of our financial structure to support our ambitious development plan in allergy immunotherapy,” said Legon. “In the first semester of this year, we completed a private placement of over €16 million, and an additional amount of €4 million could be raised before December 2019 in the case of execution of warrants issued within the frame of this fundraising approved by the shareholders’ meeting of 7 December 2017.

“In July 2018, the company issued convertible bonds within the framework of a private placement that had a great success among investors, who committed to subscribe for up to €12 million over the next 20 months.”

ASIT is looking for partners to build a new franchise for its novel approach to allergy immunotherapy. ASIT describes itself as a flexible partner with respect for the territory, scope and structure of a transaction. With gpASIT+TM, the company says this is a nearterm revenue-generating opportunity. The ASIT platform is protected by several routes of intellectual property: ASIT has filed patent applications in the US, EU, Australia, Japan, India, China and Brazil.

As a conclusion, even if the allergy treatment market is currently estimated at $12bn, there are still millions of unsatisfied allergic patients who could potentially benefit from innovative treatments, like the ones currently developed by ASIT. i 83

> LBBW:

Operating Soundly, Making Big Moves and Breaking New Ground Landesbank Baden-Württemberg (LBBW), a mid-sized universal bank, promises its customers – whether corporate, institutional, or retail, to be by their side wherever they go.

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ith deep roots in Baden-Württemberg, LBBW is also present at economic and financial hubs worldwide. The company places its expertise at customers' disposal — and is just as involved and innovative as they are because LBBW thinks and acts like an entrepreneur.

a longstanding and successful partnership in banking. Many of the customer relationships that LBBW has cultivated have stood the test of time over generations. LBBW promises to provide appropriate financial backing to help meet the needs of business professionals and individual customers alike.

As an institution under public law, LBBW is owned by the Federal State of Baden-Württemberg, the Savings Bank Association of Baden-Württemberg and the City of Stuttgart. With total assets of €238b, LBBW is ranked among the largest banks in Germany.

LBBW recognises that companies require capital and first-rate advice in their financing

LBBW is also one of the leading Debt Capital Markets (DCM) houses in the country. Like no other bank over the past three years, it has further improved its market position and is consistently holding top positions in the league tables for euro-covered bonds (coming in at second place in 2018 and garnering first places in 2016 and 2017). LBBW is also a leading institution with respect to inaugural DCM transactions – and has been so over a significant period, with transactions from all major European jurisdictions and from Canada to Asia.

Also, LBBW has been one of the most frequent issuers in the respective market, with 12 benchmark trades in euros, dollars, and pounds sterling issued over the past three years. After having brought its first-ever senior unsecured green bond to the market in late 2017, LBBW also issued its first Pfandbrief under a green bond framework this past June. LBBW is one of the top partners for structuring and managing green bond issues in Germany.

The LBBW Group has over 10,000 employees working out of 160 locations throughout the country. Its head offices are in Stuttgart, Karlsruhe, Mannheim and Mainz. LBBW also looks after its customers at 17 locations worldwide, from New York to London and Singapore.

This bank can be depended on, in good times and bad. LBBW works conscientiously to establish trust — which is indispensable for 84

ventures. For the past 200 years, it has been in the company’s DNA to operate on a sound basis while, at the same time, making bold moves. Its mission statement, "Breaking new ground”, is valued by small, large and mid-sized companies; global corporations; and the many other customers that put their trust in LBBW. The company works hard to earn this trust and understands that it must do so each-and-every day. i

Q&A Session with Patrick Seifert WHAT EXCITED YOU ABOUT THE BUSINESSES YOU WORKED FOR DURING YOUR EARLIER CAREER AND WHAT EXCITES YOU ABOUT THE BUSINESS YOU NOW LEAD? Across the different roles I have been in charge of, there have been two recurring patterns: I guess I have always aimed for a tangible link between my job in finance and the real world.

In helping clients achieve their corporate objectives with the help of financial services. In other words, putting finance to the service of the client. Pretty basic in that I remain convinced that finance needs to have a meaningful role in economy and society. An obvious example is the strong momentum of sustainable finance and the role green and social bonds increasingly play in the transition of the industrial economy.

Which brings me to the second motivation in my career: Replicating successes and making quality advice available to a broader scale of clients. Understanding the essence of business there remains an important driver of growth without compromising on quality.

WHAT IS SPECIAL ABOUT THE MANAGEMENT STYLE AT YOUR ORGANISATION, THE TEAM YOU LEAD, AND THE WORKFORCE? Management styles change over time and probably have to because the world changes as well. If there is the one driver keeping me motivated, it is the entrepreneurial freedom to develop my franchise. It was what made the difference between my successes and failures.

CFI.co | Capital Finance International

Managing Director: Patrick Seifert

This trust is something I try and delegate as much as possible in the hands of my guys. They are the ones operating close to the market, in need to take educated decisions. I want them to be strong and meaningful in front of their clients

Autumn 2018 Issue

LBBW: Headquarters

— I think we are talking about my management style having a lot in common with empowerment.

At the same time, I like to get my hands dirty and remain actively engaged with clients. I’m always in close cooperation with my team and for the benefit of the client when we need to really drill deep and refine the best of ideas. In return, it helps me to remain client-centric when discussing strategic topics in the bank. Keeping the feedback loop short is what matters.

HOW WOULD YOU CHARACTERISE SHORT TO MIDTERM PROSPECTS FOR THE INDUSTRY IN WHICH YOU OPERATE? From a profitability point of view, recent years have not been great for European banks.

More than ever, this suggests consolidation at the horizon. There surely have not been major exits lately and lots of players are still competing for too little of a market. But when compared to the major US banks for example, the fragmentation of European banking simply makes no sense. I, therefore, remain convinced that stronger institutions will take the upper hand. Cleaning their balance sheet, keeping strict risk management, improving on the capital side, and aligning their business model will be major homework to developing economies of scale. Potentially less accommodating markets could be accelerating the elimination process — after all, the market clean-up typically happens in the downturn. We at LBBW are committed to servicing our clients throughout market cycles and, therefore, look forward to upcoming opportunities. The consolidation will be driven by the client, making choices on how much focus and commitment his partner banks deliver going forward.

"I am eagerly waiting to see some normalisation on the interest rate front. The ECB has been supporting the market, and it has not been a surprise to my team and me that their implication will be much longer than initially expected."

WHAT ARE THE PERSONAL AND BUSINESS STRENGTHS THAT QUALIFY YOU AS A CORPORATE LEADER? I am a professional with a generalist management education underpinning my broad work experience. In a world of specialists which the capital markets business often is, this gives me the chance to provide a different angle to colleagues and — more importantly — to clients. Alongside a probably more old-school and reliable approach, I enjoy maintaining longstanding cooperation with many clients. We build relationship that serve clients rather then having a transactional approach. Surely, the next trade matters in this competitive market, but in the end, it’s just another building block in a successful relationship with our clients.

WHAT TO YOUR MIND MAKES FOR GOOD CORPORATE LEADERSHIP IN YOUR PARTICULAR INDUSTRY? For all its sophistication, I observe that capital markets business is kind of slow to include the benefits of digitalisation. At best, this reflects the unique nature of services provided. Yet we probably all sense that there are also activities which could be made more economical for clients and banks likewise. This is obviously where the fragmentation of the European CFI.co | Capital Finance International

market does not help — a point addressed earlier on. Good corporate leadership, therefore, shows the ability to invest in the future needs of clients without losing focus on today's needs of your clients. You might think this is a very general answer, but I firmly believe that the high level of uncertainty in business, the emergence of new technology, and pressure on profitability is making it very difficult to strike that fine balance.

WHAT ARE YOUR SHORT-TERM HOPES FOR THE FUTURE OF YOUR BUSINESS AND THE INDUSTRY AS A WHOLE? I am eagerly waiting to see some normalisation on the interest rate front. The ECB has been supporting the market, and it has not been a surprise to my team and me that their implication will be much longer than initially expected. A lot of these monetary actions were needed but the downside in my view means we need at least some normalisation now. More market dynamic, credit differentiation and real-money investors.

Market swings. Opportunities. All reconciled through a market-clearing price, providing a strong incentive for market participants to constantly improve their business models for a successful future. i 85

> United Waters International:

The Best Water Technology in the World

T

he Chinese Ministry of Water has selected BioEcoTech™ as the best water purification technology in the world in respect of overall performance, price/cost and positive and immediate impact on health and human lives. United Waters International’s (UWI) world-leading proprietary process produces biological healthy drinking water, worldwide patented at lower costs than anyone else.

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UWI and the Chinese Ministry of Water have signed a base agreement to deploy 5,000 water purification terminals in China (in each case, supported by the Chinese Ministry as well as regional governments). A Chinese municipality (“Water Work”) will sign a longterm water purification contract with fixed water take-off quotas and fixed fee payments, inflation protected for the full duration of the contract.

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Water Certificates offer the opportunity to invest in a selected (static) pool of contracts, earning quarterly paid cash-flows for 30 years, signed with Chinese municipalities (implicitly guaranteed by the Chinese state).

United Waters International AG in Zug, Switzerland, constitutes a veritable reservoir of knowledge of cost effective water purification.

The company, set up in 2005, holds the exclusive

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worldwide rights to BioEcoTech™ - a biological groundwater purification method developed and refined during three decades of research in Sweden by civil engineer Rudolf Martinell and his team of biochemical scientists. BioEcoTech™, to which UWI now holds all the patents, was the result of a sustained research effort supported by the KTH Royal Institute of Technology and The Royal Swedish Academy of Science. The first facility using the technology was built forty years ago in Sweden and remains in operation. Since then, over fifty water plants have been built, documented, and certified in the Scandinavian countries, Switzerland, Slovakia and Austria.

The largest installation, in the Slovakian capital Bratislava, distributes clean water to 300,000 people every day. Continuous development and refinement has enabled BioEcoTech™ to remove all major contaminants commonly found in groundwater.

Over the past few years, United Waters International AG has launched BioEcoTech™ 5. Gen. The fifth generation of the technology is fully industrialised, scalable, and operates independent of geological conditions – substantially increasing its application and marketability. It was awarded by the Chinese Ministry of water as best technology in the world out of 28 tested.

The unique purification process naturally enhances microbial oxidation underground and is environmentally clean: it uses no chemicals and produces no sludge or other dangerous byproducts like other technologies. BioEcoTech™ also eliminates the need for back-flush water and is exceptionally energy efficient, resulting in low operational and maintenance costs.

The technology is also reliable with a proven lifespan over 30+ years and typically five to fifteen times lower cost than comparable conventional technologies that employ chemicals. In addition, the power consumption is circa 80% less than with conventional systems used today.

"United Waters International AG in Zug, Switzerland, constitutes a veritable reservoir of knowledge of cost effective water purification."

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NATURAL WATER PURIFICATION BioEcoTech™ is a natural biological process that uses semi-aerobic microbes, a natural component of the soil. The only element that is inserted into the system is oxygen (ambient air). BioEcoTech does not use any chemicals or dangerous materials in its purification process.

What BioEcoTech does is accelerate a naturally occurring process. What takes at least a century in nature, the technology captures and replicates in a matter of days. This enables the purification of all the most common contaminates in groundwater such as iron, manganese, nitrate, arsenic and other heavy metals, pesticides, etc.

United Waters International’s team possesses a unique technical expertise and includes some 87

of the leading water specialists in the world with a collective experience of 150 years. The team includes professionals in geology, hydrology, biology, and chemistry, and has built and operated dozens of water plants.

The sensational additional new BioGreen product line has been developed by United Waters, where the complete purification process is embedded inside standard containers enabling immediate supply of healthy drinking water after its installation. These systems are widely scalable from 300 - 2500 m³/day/unit.

UWI is backed by strong shareholders and boasts a well-recognised management team supported by an advisory board consisting of leading businessmen, scientists, and members of academia. Together with industry experts and financial investors committed to offering a long-term environmentally sound, and efficient product to the world, UWI has managed to rapidly build a strong position in the world market.

NYKÖPING FACILITY (EXAMPLE) The water plant outside the city of Nyköping, about one hundred kilometres south of Stockholm, has a production rate of 17,000 m³ per day (5,5 million m³ annually). The plant was built in two stages: the original plant was set up in 1981 and then expanded in 1993.

Surface water is extracted at a depth of between six and seven metres from Lake Yngaren. The intake is situated a few hundred metres from the shoreline. The water is transferred to the plant through fifteen kilometres of piping and surfaceinfiltrated into three basins, with an area totalling one hectare, of stratified glaciofluvial deposits. The process of surface infiltration 88

ensures that the groundwater recharge is sufficient for the actual groundwater withdrawal.

After purification, the infiltrated surface water effectively attains the same characteristics as groundwater except for its elevated concentrations of iron and manganese. The infiltrated surface water reaches a zone of the plant where the oxygen content is optimised for microbial iron and manganese oxidation – a process that is controlled and maintained by BioEcoTech. The microbial iron oxidation begins at the outer border of the zone. When sufficient organic carbon is available in form of dead iron oxidisers, the microbial process begins.

BioEcoTech plants are dimensioned to last for a minimum of one hundred years. Facilities ensure the consistent removal of heavy metals from the groundwater before it reaches the production well. This avoids clogging. The potable water is withdrawn from a depth of about thirty metres and is ready for distribution to consumers.

DIFFERENT FROM MOST United Waters International is a business that is unique by technology and by business model: whilst a commercial enterprise, the company takes the long view, navigating a fine line between the pursuit of profit and the triggering of a social impact: “Whilst we want to do and to be good, we also wish to be professional in our approach. That said, we have a technology that is revolutionary in its simplicity and, as such, is able to have an outsized impact on people’s lives.

Therefore, we supply Swiss made products with 30 years warranty.”

UWI CEO Thorbjörn Laag was an environmentalist before it became fashionable CFI.co | Capital Finance International

to be so and a savvy businessman. “The potable water sector is set for exponential growth. The trouble with this is that few of its larger players are interested in serving mid-sized markets of, say, between 25,000 and half a million consumers. As a forward-thinking technology, BioEcoTech and BioGreen are precisely cut out to help municipalities in the world over ensure a dependable supply of exceptionally clear drinking water. Moreover, our technology is delivering better, healthier drinking water at a lower price than is available with conventional treatment facilities.”

UWI already maintains a presence in India and China, and is ready to expand in Europe and North America as well. According to Laag, the world’s emerging markets have now recognised the need to invest considerable resources in updating and expanding water utilities: “As regulatory and governance environments improve, United Waters International is able to commit its knowhow and resources to help meet the looming water crisis. Therefore, United Water donates 10-20% of net profit to leading local universities and scientists to improve and ensure better development in water technologies.”

Laag insists that large corporates and chemicalbased solutions do not help solve the problem – or meet demand: “Quite often it is a political thing, for want of a better expression.

Administrators, and indeed the world as such, need to wake up to reality in order to find proper and lasting solutions to vastly improve access to potable healthy water. UWI has those solutions without appealing to rocket science or using vast infusions of chemicals to cheaply treat water and bring it back to its most healthy form. i

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> Mariana Mazzucato:

Who Really Creates Value in an Economy?

A

fter the 2008 global financial crisis, a consensus emerged that the public sector had a responsibility to intervene to bail out systemically important banks and stimulate economic growth.

But that consensus proved short-lived, and soon the public sector’s economic interventions came to be viewed as the main cause of the crisis, and thus needed to be reversed. This turned out to be a grave mistake.

In Europe, in particular, governments were lambasted for their high debts, even though 90

private debt, not public borrowing, caused the collapse. Many were instructed to introduce austerity, rather than to stimulate growth with counter-cyclical policies. Meanwhile, the state was expected to pursue financialsector reforms, which, together with a revival of investment and industry, were supposed to restore competitiveness.

But too little financial reform actually took place, and in many countries, industry still has not gotten back on its feet. While profits have bounced back in many sectors, investment CFI.co | Capital Finance International

remains weak, owing to a combination of cash hoarding and increasing financialisation, with share buybacks – to boost stock prices and hence stock options – also at record highs.

The reason is simple: the much-maligned state was permitted to pursue only timid policy responses. This failure reflects the extent to which policy continues to be informed by ideology – specifically, neoliberalism, which advocates a minimal role for the state in the economy, and its academic cousin, “public choice” theory, which emphasises governments’

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shortcomings – rather than historical experience.

Growth requires a well-functioning financial sector, in which long-term investments are rewarded over short-term plays. Yet, in Europe, a financial-transaction tax was introduced only in 2016, and so-called patient finance remains inadequate almost everywhere. As a result, the money that is injected into the economy through, say, monetary easing ends up back in the banks.

The predominance of short-term thinking reflects fundamental misunderstandings about the state’s proper economic role.

Contrary to the post-crisis consensus, active strategic public-sector investment is critical to growth. That is why all the great technological revolutions – whether in medicine, computers, or energy – were made possible by the state acting as an investor of first resort.

Yet we continue to romanticise private actors in innovative industries, ignoring their dependence on the products of public investment. Elon Musk, for example, has not only received over $5 billion in subsidies from the US government; his companies, SpaceX and Tesla, have been built on the work of NASA and the Department of Energy, respectively.

The only way to revive our economies fully requires the public sector to reprise its pivotal role as a strategic, long-term, and mission-oriented investor. To that end, it is vital to debunk flawed narratives about how value and wealth are created.

The popular assumption is that the state facilitates wealth creation (and redistributes what is created), but does not actually create wealth. Business leaders, by contrast, are considered to be productive economic actors – a notion used by some to justify rising inequality. Because businesses’ (often risky) activities create wealth – and thus jobs – their leaders deserve higher incomes. Such assumptions also result in the wrong use of patents, which in recent decades have been blocking rather than incentivising innovation, as patent-friendly courts have increasingly allowed them to be used too widely, privatising research tools rather than just the downstream outcomes.

"The popular assumption is that the state facilitates wealth creation (and redistributes what is created), but does not actually create wealth."

If these assumptions were true, tax incentives would spur an increase in business investment. Instead, such incentives – such as the US corporate-tax cuts enacted in December 2017 – reduce government revenues, on balance, and help to fuel record-high profits for companies, while producing little private investment.

This should not be shocking. In 2011, the businessman Warren Buffett pointed CFI.co | Capital Finance International

out that capital gains taxes do not stop investors from making investments, nor do they undermine job creation. “A net of nearly 40 million jobs were added between 1980 and 2000,” he noted. “You know what’s happened since then: lower tax rates and far lower job creation.”

These experiences clash with the beliefs forged by the so-called Marginal Revolution in economic thought, when the classical labor theory of value was replaced by the modern, subjective value theory of market prices. In short, we assume that, as long as an organisation or activity fetches a price, it is generating value.

This reinforces the inequality-normalising notion that those who earn a lot must be creating a lot of value. It is why Goldman Sachs CEO Lloyd Blankfein had the audacity to declare in 2009, just a year after the crisis to which his own bank contributed, that his employees were among “the most productive in the world.” And it is also why pharmaceutical companies get away with using “valuebased pricing” to justify astronomical drugprice hikes, even when the US government spends more than $32 billion annually on the high-risk links of the innovation chain that results in those drugs.

When value is determined not by specific metrics, but rather by the market mechanism of supply and demand, value becomes simply “in the eye of the beholder” and rents (unearned income) become confused with profits (earned income); inequality rises; and investment in the real economy falls. And when flawed ideological stances about how value is created in an economy shape policymaking, the result is measures that inadvertently reward short-termism and undermine innovation.

A decade after the crisis, the need to address enduring economic weaknesses remains. That means, first and foremost, admitting that value is determined collectively, by business, workers, strategic public institutions, and civil-society organisations. The way these various actors interact determines not just the rate of economic growth, but also whether growth is innovation-led, inclusive, and sustainable. It is only by recognising that policy must be as much about actively shaping and co-creating markets as it is about fixing them when things go wrong that we may bring this crisis to an end. i ABOUT THE AUTHOR Mariana Mazzucato, a professor at UCL, is the founder and director of the Institute for Innovation and Public Purpose and the author of The Value of Everything: Making and Taking in the Global Economy.

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> Ten

Years On: Lessons from a Near-Meltdown

Ten years on from the collapse of Lehman Brothers, it is still not entirely clear why the US Federal Reserve refused to provide the liquidity needed to keep the fourth-largest investment bank of the country in business.

T

he official story, as remembered by former Fed Chairman Ben Bernanke in his memoires The Courage to Act, holds that Lehman Brothers was unable to provide the necessary collateral for a bailout, signalling that the bank’s liabilities exceeded its assets.

In September 2008, Lehman Brothers faced a severe liquidity crisis as a result of the brewing subprime mortgage crisis. The bank was also caught employing accounting gimmicks to bolster its finances, involving the temporary removal of repurchase agreements (repos) from the balance sheet, reducing the volume of outstanding liabilities. At the time, Lehman Brothers denied the allegation and argued that the bank had sold its repos in order to strengthen its position. The Federal Reserve was not convinced and declined to act as a lender of last resort, allowing the bank to go under – a decision that sparked a financial meltdown and the Great Recession.

Economics professor Laurence M. Ball, of Johns Hopkins University, disputes this reading and argues that the Fed did not follow its natural instincts, which would have seen it rescue the troubled bank. Instead, it took the line of the then-secretary of the Treasury, Henry Paulson, whose overriding concern was the moral hazard of helping sustain financial institutions engaged in overly risky behaviour.

Earlier in 2008, the Federal Reserve Bank of New York had already intervened to prevent investment bank Bear Stearns from going under in a complex deal that involved a roundabout capital injection of $30bn and a merger with JP Morgan Chase, via a stock swap that valued the bank at less than 7% of its already heavily discounted stock price two days before the March 16 agreement.

After this fairly traumatic exercise, the Fed’s appetite for wholesale interventions had gone.

Secretary Paulson also questioned the wisdom of rescuing cowboy investment banks caught short. He, too, was worried about the political fallout and did not relish the prospect of entering the history books as “Secretary of Bailouts”.

According to Ball, Lehman Brothers just picked the wrong time to get into trouble. The Fed and the Treasury decided that an example needed to be made, and expected the market to take the Lehman Brothers collapse in-stride.

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"The big question looming over today’s financial markets is, of course, whether anything was learned from the fateful events of 2007 and 2008."

Studying the bank’s finances in the months and weeks leading up to its bankruptcy, Ball could find no indication that Lehman Brothers lacked the assets to put up as collateral. Poring over internal Fed documents, the professor did not find one expressing concern over the bank’s capital (in)adequacy. On the Fed side, there does not appear to be any evidence that its officials were even slightly worried about Lehman Brothers’ capacity to put up assets as collateral in case of trouble.

Bernanke’s explanation for the investment bank’s fall was given weeks later, when it became clear that the market had not taken the event in-stride, and was teetering on the brink of a system-wide breakdown. The brinkmanship of Messrs Paulson and Bernanke had set the global financial system on a course towards a meltdown that would ultimately cost trillions to avoid – a multiple of the billions needed to save Lehman Brothers.

It was, Ball opines, a policy blunder of the first order.

The big question looming over today’s financial markets is, of course, whether anything was learned from the fateful events of 2007 and 2008. Analysts agree that there remain four areas of concern which, taken jointly, may indicate that the global economy is as fragile as it was 10 years ago.

The total global debt pool stands at an estimated $237 trillion, a full 25% above the level registered a decade back. Total sovereign debt has ballooned to some $63 trillion. The quality of debt has deteriorated, with only 11 sovereign issuers clinging on to their Triple A rating. Only three major US corporates have succeeded in maintaining their top rating: Microsoft, Johnson & Johnson and ExxonMobil. These companies now boast a better credit rating than the US government.

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Another reason for concern is the bloated balance sheets of the world’s leading central banks, which together absorbed $15 trillion worth of assets as a result of their quantitative easing programmes.

The central banks’ skewed balance sheets limit their room for manoeuvre should another systemwide shock occur.

A third worry is the progressive weakening of the global order due to changes in US policy, and that country’s apparent abandonment of its leadership role in forums such as the G7 and the G20. Multilateral co-operation is not a priority for the current US administration, nor is the preservation of existing treaties.

Lastly, the hollowing out of the political centre raises concerns that leaders of a more extreme persuasion may capture a larger share of the popular vote than the 15-20% they currently court, resulting in a further deterioration of multilateral co-operation and a breaking down of existing co-operative frameworks.

Though no two crises are alike, severe market upheavals do share a few common traits, such as the inflation of asset prices. The assumption that the latest trade of any given security reflects its market value is fraught with risk, especially in times – such as these – that are marked by ebullient markets and a dearth of scepticism.

One of the more dangerous pseudo-wisdoms to have come out of the last crisis is that lessons of history serve only to hold the market back: If you just stared into the abyss, quickly forget the image and move on.

Former UK prime minister Gordon Brown, who in 2007/8 managed a huge rescue operation to save his country’s banks from their own incompetence, fears that those who were then deemed too big to fail have since grown even bigger. In his memoires, My Life, Our Times, Brown laments that bankers have not been thrown in jail for their dishonest conduct and instead received hefty salary packages and state support.

“They are still being rewarded for their failure,” concludes Brown, who describes the events of 2008 as the “turning point at which the world failed to turn”. In the wake of the crisis, he received considerable praise for his efforts to harmonise financial regulation across the G20 member states. i

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> Deloitte on Private Banking in Europe:

To Cook or To Be Cooked â&#x20AC;&#x201D; That is the Question

By Pascal Martino and Erika Bourguet

Stirring up the perfect investment offering and pricing in a post-MiFID II world.

BANKS ARE SPICING UP THE MENU WITH A NEW VALUE PROPOSITION To provide an overview of these redefined offerings, Deloitte has analysed almost 15 private banks in Luxembourg, including pure player private banks and universal banks with a private banking department. The results of this analysis show that the services on offer continue to range from execution-only to advisory and discretionary portfolio management, but the range of ancillary services has become more diversified.

Luxembourg private banks can set themselves apart from the competition on three main aspects: service, offer, and fee structure In this changing environment, banks are reacting in a relatively homogenous way. As MiFID II enters into force, we observe that the majority of banks have decided on a new value proposition

WHAT DO RESTAURANTS AND PRIVATE BANKS HAVE IN COMMON?

More than you might thinkâ&#x20AC;Ś Changing ingredients and shifting customer behaviors are compelling banks to review existing recipes and make strategic choices regarding the future of their business models.

The private banking market has undergone significant changes in recent years as external pressures such as an evolving economic

for their investment services, reviewing the range of services that they provide to customers and adapting their fee structures accordingly.

Consolidating the pricing grids submitted by the 15 individual banks on a voluntary basis

environment and regulatory challenges take their toll. The provisions of MiFID II have fundamentally challenged their existing business models and forced banks to react.

While many banks seem to have been unsure of how to respond until recently, the entry into force of the new regulation has prompted the majority of banks to review their menu, introducing a new service offering and pricing.

allows us to provide a market overview of private banks in Luxembourg, especially in terms of investment offering. We looked at services, offers, and the proposed fee structure, as well as fee levels for the proposed investment offering.

1. Three different types of service are typically offered to clients based on their requirements.

2. For each of these services, banks may choose to provide their clients with a standard offer only, or with both a standard and a premium offer. A premium offer usually includes additional features, such as a more active and individualised advisory approach.

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MiFID II has forced banks to reposition their commercial offering Benchmark performed in Luxembourg on 13 Private Banks 1

Execution only

Service

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Discretionary portfolio management

Advisory

+ 2

Standard

Offer

Premium

+ 3

Fee structure

Main Trends

Broker

Ticket

All-in

Performance

• Breadth of offering varies: from very simple and limited offering to a very extensive and flexible offering • Execution Only offered as a real (packaged) offering1 and new fee structures such as the “Ticket” fee model and the Premium Execution Only model appear as a response to MiFID II • Strong presence of Premium model offerings under the Advisory mandate in response to MiFID II (main attributes: dedicated adviser, personalized recommendation, more active management, regular reporting, reactive vs. proactive) • The notion of “All-in” varies greatly between actors: Some actors include all fees (e.g., custody, administrative and transaction fees) while others apply it to transaction fees only (i.e., all transactions included) • Appearance of the new fee structure “Performance” model under DPM mandate, where the fee to be paid is positively correlated with the performance of the portfolio

© 2018 Deloitte General Services

3. There are13 four different fee structures within each service and offer category: ticket fees, broker fees, all-in fees, and performance fees.

1) For 6 actors out of

Amount of fees paid per year in EUR. All Actors 'Broker Standard'. Does not include fees charged by third parties on financial, expressed exluding VAT and excluding trailer fees or rebates.

Some fee structures are applicable to all types of service and offer, whereas others are particularly well-suited to specific service offerings. Ticket fees, for example, exist solely for execution-only services, while broker fees can be charged for all three services.

In summary, the new bank menu has the following key features: • Execution-only is becoming a staple. In a break with the past, execution-only services are increasingly emerging as a packaged offering for a number of banks. In particular, banks whose clients typically have lower total net worth are using packaged execution-only offers to attract

clients and eventually upsell toward advisory or discretionary services; • Novelty is shaking up the menu. Clients are being proposed newer and more innovative pricing models than in the past, as banks respond to the changes. Discretionary portfolio management clients, for example, can now choose more traditional fee structures, such as broker and all-in fee structures, or more innovative performance-related all-in fees; • A premium menu is on offer if clients are willing to pay. Banks are increasingly differentiating between standard and premium offers; while some banks continue to propose only one type of offer for each service, a large CFI.co | Capital Finance International

number are responding to the changing structure of the Luxembourg private banking market by creating a more segmented offer tailored to the needs of individual clients.

NOT ALL PRICES ARE TAILORED TO THE MENU AND CLIENTS The majority of private banks have a clear strategy regarding the services and clientele they want to target. However, by applying the pricing grids of the actors analysed to 10 different simulated investor profiles , it is clear that not all actors have actually aligned their pricing with the strategy that they have defined.

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The 10 profiles encompass a wide array of services and investor behaviors, ranging from a smaller client with €600,000 in executiononly and not very active to a large client, investing €20 million in a discretionary portfolio management mandate. These sample clients are based on classic portfolios and the related transactional behaviors. More information on each of the profiles can be found in the sidebar.

The extent to which strategic positioning and pricing are aligned varies significantly among banks The results show that the market is fragmented regarding the degree to which banks’ pricing is aligned with their strategy. Some actors seem to have carried-out significant analysis and definition work resulting in pricing grids that are aligned with their strategy, attracting target clients and dissuading non-target clients.

By contrast, other banks’ pricing is actually attracting clients that do not belong to their target segment, often resulting in a high cost to serve and low margins, or they are pitching prices too high, and dissuading target clients.

Let’s take a look at the example of executiononly broker pricing for a client with €600,000 performing three transactions for €120,000.

The levels of fees charged to the client differ significantly among banks, with the cheapest actor pricing its services at about €2,500 per year, and the most expensive pricing them around €6,000 per year.

If we consider the extremes, it is interesting to note that both actors are private banks mainly targeting advisory and DPM clients with AuM of at least €2 million. One actor clearly aligns its pricing to its strategy, while the other is attracting clients it does not desire: • The most expensive actor (Actor 13) aligns its pricing to its strategy by charging high security, administration, and service fees, which is prohibitive to less desirable clients • The least expensive actor (Actor 1), in contrast, attracts clients that do not belong to its core target market by pricing its executiononly services for a client with €600,000 of AuM lower than the private banking departments of universal banks • Private banking departments of universal banks are intentionally pitching their prices at relatively low levels as they actively target these clients as part of efforts to move affluent clients from retail banking to private banking, and encourage upselling CONCLUSION As banks are reviewing their menus, offering new dishes based on new recipes, they need to ensure that they adapt their prices accordingly.

We have observed that two-thirds of banks have reviewed their pricing grids in the wake of MiFID II. Pricing should not be underestimated, but should instead be seen as a key contributor to the implementation of the bank’s strategy, which 96

"As banks are reviewing their menus, offering new dishes based on new recipes, they need to ensure that they adapt their prices accordingly." can lead to a significant increase in profitability by driving the RoA of each individual customer.

As in the case of a restaurant, banks need to take a strategic approach to defining their pricing strategy, looking at the revenue side— identifying the clients that they want to target, their willingness to pay, and their perception of different pricing models—as well as the cost side. From the revenue side, a very simple calculation shows this: should Actor 1 increase its pricing by €1,000 to €3,520 (by increasing its security administration and service fees, for example), it would position itself in the midrange of execution-only services for a client with €600,000. As a result, the RoA for this individual client would increase from 0.49 percent to 0.59 percent.

well as M&A related topics. Erika has led large strategic projects including BPO projects and MIFID II implementation projects.

ABOUT DELOITTE LUXEMBOURG Deloitte is a leading global provider of audit and assurance, consulting, financial advisory, risk advisory, tax and related services. In Luxembourg, Deloitte consists of more than 2,300 employees represented by around 100 partners and is amongst the leading professional service providers on the market. For over 65 years, Deloitte has delivered high added-value services to national and international clients.

THeir multidisciplinary teams consist of specialists from different sectors and guarantee harmonized quality services to our clients in their field.

From the cost side, incorrect pricing will attract non-target customers, which may have a negative impact on the bank’s bottom line by acting on both drivers for a number of reasons, including a diluted brand image, a potential inability to serve these clients adequately, or a high cost to serve.

In contrast, having a tailored pricing model will ensure that margins are safeguarded, and increase the profitability of individual clients. i ABOUT THE AUTHORS Pascal Martino is a Partner within Deloitte Luxembourg’s Advisory & Consulting practice and the firm’s Banking Industry Leader. He is also leading Deloitte Digital in Luxembourg.

Pascal is specialized in private and retail banking and in the asset servicing industry. His areas of expertise cover the project management of large and complex strategic projects, the analysis and definition of business and corresponding operating and technical models, the analysis, definition and implementation of Business Process Outsourcing (BPO) and the review of business processes. Pascal is a certified Lean Six Sigma Black Belt.

Erika Bourguet is a Director in Deloitte Luxembourg’s Strategy, Regulatory & Corporate Finance department, where she currently focuses on the banking industry, helping clients to face strategic and regulatory challenges. Erika has in-depth expertise in leading projects in the banking industry, and specializes in strategic, regulatory and outsourcing projects. She has built up significant experience in the definition of corporate and business unit strategies as CFI.co | Capital Finance International

Author: Pascal Martino

Author: Erika Bourguet

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> Book Review Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze

Crash Time

By Kenneth Rogoff

T

en years after the collapse of Lehman Brothers, Crashed, by the noted Columbia University historian Adam Tooze, offers a sweeping history of the global financial crisis up to the era of Donald Trump. Above all, it is a scathing critique of the global fiscal-policy response to the crash.

To guess the punchline, all one really needs to know is that the word “austerity” appears 102 times without ever being clearly defined. Does austerity mean actually reducing government spending and debt, or simply slowing the rate at which spending and/or borrowing rise? Tooze uses the same term to describe a confusingly wide range of policies and episodes.

"The IMF bailout program that Greece received was much softer than the one that was extended to East Asian countries in the 1990s."

Such freewheeling use of a freighted term muddles the discussion at key junctures. More broadly, it is emblematic of an economic analysis that seems to be rooted in a selective reading of left-leaning commentaries rather than primary economic or historical sources, much less a balanced survey of the scholarly literature.

Nevertheless, the suggestion that poor Greece had to hand over hard cash to rich Germany is just false. Looking beyond Tooze’s weaponization of the word “austerity,” a straightforward accounting based on easily available public data shows that in the years after the crisis, Greece received more new loans and aid from its creditors than it was asked to repay.

For example, we are told that during the eurozone crisis, Greece was subjected to “the most draconian austerity program ever proposed to a modern democracy.” This would seem to suggest that the “Troika” – the International Monetary Fund, the European Central Bank, and the European Commission – was demanding that Greece immediately pare the overall size of its debts. In fact, the opposite was true. In the years following the crisis, when Greece lost access to fresh money from private markets, the Troika gave the country enough to meet all its payment obligations, plus a significant amount of additional fresh money, thereby reducing the magnitude of austerity it inevitably faced when its borrowing binge ended.

Moreover, Greece’s experience was overwhelmingly the result of private markets turning off the borrowing spigot. When that happened, the Troika-furnished funds were no longer sufficient to prop up Greece’s unsustainable spending. According to the IMF, the Greek government in 2009 was running a “primary deficit” of 10% of GDP, meaning that its new borrowing was equal to all of its owed principal and interest, plus an extra 10% of GDP. So, after foreign capital flows came to a standstill in 2010 – partly owing to the revelation of accounting fraud on the part of the Greek government – Greece was going to have to make a massive fiscal adjustment of 10% of GDP, even if 100% of its debts had been written off!

THE TRUTH ABOUT “AUSTERITY” I wholeheartedly support Tooze’s assertion that during the crisis, Europe should have figured out a way to write down Greece’s debts, not to mention those of Portugal, Ireland, and Spain, which would have demanded equal treatment.

Germany should have accepted this course of action, even if it meant increasing its own debt to recapitalize German banks that had lent to southern Europe. I argued this point widely at the time, both in public and with policymakers.

Highly indebted countries cannot easily grow their way out of their burden without some form of heterodox policy intervention, be it default, inflation, or financial repression. Of course, in the case of the eurozone, the ECB had already taken inflation off the table.

If anything, Greece’s painful consolidation could have been far worse. The IMF bailout program that it received was much softer than the one that was extended to East Asian countries in the 1990s.

Those countries had to flip their current accounts from steep deficits to surpluses on the spot. No wonder Asian financial leaders have complained about Greece receiving favorable treatment at the hands of the IMF and its predominantly European board of directors. Ultimately, the main reason for austerity in Greece was the country’s own pre-crisis profligacy, not the Troika’s post-crisis cruelty, whatever mistakes it might have made.

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Tooze praises the Nobel laureate economists Joseph E. Stiglitz and Paul Krugman for the advice they offered to Greece’s newly elected CFI.co | Capital Finance International

socialist prime minister, Alexis Tsipras, and his colorful (and smart) finance minister, Yanis Varoufakis, after they took office in 2015. The Tsipras government came in breathing fire, promising both to stare down the Germans and the Troika, and to put an end to austerity, abandoning the euro if necessary. Looking back, one wonders if Tsipras was fully informed about his fragile bargaining position, and about who was giving money to whom. Greece had not yet begun to make debt repayments, and Tsipras was risking even tighter austerity in the near term by biting the hand that feeds. As for abandoning the euro, this might ultimately have proved to be the logical endgame, but the transition would take years and require cooperation, not confrontation, with Europe.

In the event, Tsipras and his economic advisers’ strategy turned out to be a disaster. Germany immediately called their bluff, and as Tsipras escalated his rhetoric, Greek citizens took €100 billion ($108 billion) out of the country, vastly worsening its plight. True, the Troika ultimately kicked in the €100 billion needed to prop up Greece’s banks; but that money might have been forthcoming anyway, and could have been put to much better use.

TOO SOON TO SAY Tooze makes much of the fact that the debt crises in Ireland and Spain were caused by bankingsector bailouts rather than fiscal profligacy (Portugal is in between). He is right. And yet, it is not as if the mortgage crises in these countries were the fault of the private sector alone. Official guarantees are another form of government expenditure, even if they are not accounted for in official government debt. As Carmen Reinhart and I document in our 2009 book, This Time Is Different: Eight Centuries of Financial Folly, massive “hidden debts” have a way of emerging from the woodwork in a crisis.

Over the course of history, it has not been uncommon for banking crises to morph into government-debt crises, as Reinhart and I showed in a 2011 paper. Several subsequent papers have underscored the fact that countries with high government debt suffer significantly deeper recessions after financial crises, partly owing to reduced fiscal space. And, given that systemic financial crises can lead to a decade of low to no growth, one can infer that highly indebted countries will have somewhat lower average growth rates over the long term, as virtually everyone who has published studies on the topic has found.

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Tooze’s 2014 book, The Deluge: The Great War, America and the Remaking of the Global Order, has rightly been praised for its deep insights into how inadequate American leadership after World War I set the stage for the global political and economic crises of the interwar era. But his new book shows how historians can lose some of their comparative advantage over other scholars when it comes to researching contemporary events.

In America, this is what we call “Monday morning quarterbacking” (football games are generally played on Sundays). With the benefit of hindsight, it is easy to think that one would have acted differently in the moment. Yet at the height of the euro crisis, the way out was far from obvious, and no one could have known what economic and political risks lay around the next corner. In fact, if real (inflation-adjusted) interest rates around the world had risen instead of fallen, things might have gotten a lot worse.

In The Deluge, Tooze was able to pore over memoirs and archival records that governments often take many decades to discover or make public. Indeed, a graduate student of mine has been researching late-1930s Bank of England policies, only to find that some archives can remain closed for up to 100 years if they are deemed sensitive. Though one can sometimes acquire redacted files through Freedom of Information requests, the restrictions are limiting.

Similar constraints apply to a study of contemporary events. Thus, in Crashed, Tooze is forced to rely much more on newspaper clippings and editorials (as opposed to primary sources) than a historian might otherwise prefer to do. To be fair, his judgments are often on the money. For example, he is right to conclude that ECB President Mario Draghi could never have made his famous July 2012 promise to do “whatever it takes” – allowing the ECB to use its balance sheet to issue de facto eurobonds – without Germany’s consent.

THE €LEPHANT IN THE ROOM Curiously, Crashed places very little emphasis on the problem at the heart of the euro crisis: that the eurozone is a half-built house. Even though another Nobel laureate economist, Robert Mundell, famously championed the idea, it was a catastrophic mistake to put monetary union ahead of fiscal and political union. Europe is dealing with the consequences of that decision to this day. And, for the record, it was France, not Germany, that made the mother of all mistakes by insisting that Greece be included in the euro, despite a history of serial default and inflation.

What Mundell had wrong is that central bankers do not live in a world of their own. They may have a measure of independence when it comes to setting interest rates and targeting inflation; but at the end of the day, they are basically wielding a very liquid form of government debt.

Monetary policy is simply one side of fiscal policy. Monetary union without fiscal union is an accident waiting to happen.

Of course, the eurozone’s founders sincerely believed that fiscal union would eventually follow monetary union. But the eurozone crisis – not to mention the ongoing migration debate and the United Kingdom’s withdrawal from the EU – shows that that day is a long way off. European policymakers simply did not have the tools to solve the crisis readily at their disposal, and it would be naive to think otherwise.

Interestingly, the one country that did bounce back relatively quickly was Germany, despite its needlessly procyclical budget policies. From a strictly German perspective, it is hard to see how Merkel and her finance minister, Wolfgang Schäuble, could have managed things any better.

As Tooze himself acknowledges, writing down Greece’s debt would have been fraught with danger, not just politically but also legally. It is not even clear that the German Constitutional Court would have approved such actions.

In his interesting book Europe’s Orphan: The Future of the Euro and the Politics of Debt, the Financial Times economics columnist Martin Sandbu suggests that Europe’s half-built house remains habitable. Yet, to my mind, it is not obvious that the eurozone can survive another deep systemic crisis, barring reforms in which weaker members establish capital controls, which would amount to a de facto multi-currency system.

Likewise, most economists in the US agree that the eurozone is not going to survive in the long run without a system of EU-wide shared fiscal responsibility and, yes, transfers on a much larger scale than what currently exists.

That, in turn, will require tremendous political leadership. Anyone raising the issue of transfers with the Germans will run up against the fact that Germany’s elites sold the eurozone to their voters by promising that it would never become a “transfer union.”

Surely a historian ought to recognize just how difficult it would have been to advocate transfers and write-downs during the eurozone crisis. At the time, it had been only two decades since West German citizens began making massive transfers to East Germany, and those costs were still showing up as a special category in their tax bills.

THE BENEFITS OF HINDSIGHT Like many of those who have castigated certain EU member-state governments for inaction, Tooze seems to take the eurozone’s survival during the last crisis for granted, which is odd given how many of the economists he cites seem to believe that some form of dissolution is inevitable. Accordingly, he does not give German Chancellor Angela Merkel nearly enough credit for preventing a total breakup of the bloc, which would have had disastrous and far-reaching consequences.

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Writing down the Greek debt would have involved a recapitalization of German (and French) banks, and that cost would have been multiplied many times over if other southern European debtors were extended equal treatment. German government debt easily could have risen by 2040% of GDP – economically viable but hardly an easy sell. Although I personally recommended this strategy, I am reluctant to demonize the Germans for not adopting it.

ROSE-TINTED BLINDERS A related weakness in Tooze’s economic analysis is his failure to consider the difficulties of policymaking based on real-time forecasts. As any academic macroeconomist will tell you, the global economy never ceases to be uncertain and unpredictable.

To take just one example, neither central banks nor the overwhelming majority of the world’s investors had any clue how much real long-term interest rates would drop between 2007 and 2013. And yet that is the single most important variable in thinking about the sustainability of debt. Between mid-2010 and 2013, if real interest rates had risen by even half the amount that they ultimately fell, there would have been a fiscal bloodbath in some countries. Even today, there is still considerable uncertainty about longterm trends for real interest rates.

During the crisis, most policymakers were working with extremely overoptimistic forecasts, furnished not just by their advisers but by pretty much every expert out there. Ten years hence, it is now widely agreed that recessions associated with financial crises tend to be extremely deep, with very slow recoveries.

In 2009, when Reinhart and I published This Time Is Different, we offered quantitative benchmarks for post-financial-crisis recoveries, based on a massive historical data set (constructed over the course of seven years of research) that we made 99

publicly available. For a long time thereafter, we were widely ridiculed for suggesting that the 2008 crisis was not so different from other systemic financial crises during the post-war era – and even dating back to the 1800s. We surmised that if the economy evolved as it had after past financial crises, recovery might easily take eight years, rather than nine months to a year, as in a normal cyclical recession.

From 2009-2010 and thereafter, the world’s major central banks, the IMF, the World Bank, and most private forecasters maintained that a normal rapid recovery was around the corner. Yet over the next eight years, the IMF was compelled to downgrade one annual growth forecast after another, and most central banks, including the Fed, were generally in the same boat.

IN THE POLICYMAKERS’ SHOES If you are a politician who is being told that self-correcting mechanisms will soon assert themselves, then you are going to be very suspicious of anyone advocating radical measures, for fear that the side effects of the medicine might be worse than the disease.

For his part, Tooze scarcely acknowledges that policymaking involves difficult calculations under great uncertainty, whether it be risks of a euro blowup or the second leg down in the global collapse of housing prices. But if he wants a culprit for the inadequate response to the crisis, he should blame the bad forecasts.

I saw this firsthand back in December 2009, when I wrote the first of several commentaries on why “Inflation Is Now the Lesser Evil.”

My argument was that central banks should temporarily raise their inflation targets to a range of 4-6%, instead of the normal 2%.

This would have brought about some modest deleveraging; but, more important, it would have raised employment demand in an environment of downward wage rigidity. Reinhart and I both argued in favor of massive infrastructure spending. But skeptical policymakers regarded my forecasts as far too pessimistic and considered my medicine overkill.

"If you are a politician who is being told that self-correcting mechanisms will soon assert themselves, then you are going to be very suspicious of anyone advocating radical measures, for fear that the side effects of the medicine might be worse than the disease." collapse. Policymakers failed to take radical steps when they had the chance because they were being told to stay the course by economic forecasters who simply could not accept that financial crises can significantly amplify the depth and length of recessions.

CORRECTING THE RECORD Crashed is an ambitious but ultimately flawed work. Much more could be said about it, space permitting. Still, I cannot help but push back against some of Tooze’s exceedingly sloppy citations of my own work. For example, he cites a Reuters story about an interview that I gave to the German paper Welt Am Sonntag in 2010. All of my statements were originally made in English, then translated into German, and then translated back into English by Reuters. Anyone who has ever dealt with the German press knows that they take great license with quotes in general, and with translations from English, in particular. No one sent me the article to be reviewed, and even if they had, I do not read German.

Meanwhile, proposals to write down the debts of low-income subprime mortgage holders enjoyed a slightly warmer reception, including by former President Bill Clinton in his 2011 book Back to Work, where he cited my call for such debt relief.

But, again, policymakers were reluctant to pursue radical methods that would cost political capital and possibly create moral hazard, especially given that they thought economic conditions were already improving.

At any rate, Tooze quotes me as saying that, “Germany’s debt is unsustainable, and someday it would be like Greece.” As an expert on Germany, Tooze should know that taking this quote at face value is like citing a tabloid as though it were congressional testimony. The quote is idiotic, and I never said – or would have said – anything of the kind. After all, I wrote occasional commentaries and gave a number of interviews on the European debt crisis, and I knew – from my days at the IMF – always to say exactly the same thing. Had I wanted to make this ridiculous prediction about Germany, I would have made it many times and in many places. But I didn’t. (In fact, I had never even seen the quote Tooze attributes to me before his book was published.) I knew only that I was being criticized in some quarters for advocating debt write-downs and higher inflation.

The situation in Europe was much the same.

From 2010 onward, I and others suggested that the eurozone needed to write down sharply the debts of Portugal, Ireland, Greece, and probably Spain. Yet, at the same time, the IMF and the European Commission were offering rosy forecasts for Greece, which, as we all know, went on to suffer a massive and sustained output

I suppose I should be flattered to be included alongside such high-profile figures as then-Fox News personality Glenn Beck. But I am not, and I cannot look past the fact that a skilled historian would find such an absurd quote to be a credible representation of my analysis. Tooze also chooses to cite a casual television appearance by another noted economic historian, Niall Ferguson. It

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is puzzling that Tooze did not, instead, cite Ferguson’s 2008 book The Ascent of Money, which anticipated some of the trouble to come a decade before Tooze ventured into contemporary economic history.

Finally, Tooze grotesquely misstates the results of my work with Reinhart on growth and debt (written after our book) and claims it was riddled with errors. This is polemic nonsense, as any serious scholar who has looked at the matter would realize.

Tooze seems to have read deliberate misstatements of our results rather than the original texts and related writings. For example, we have found that countries with debt over 90% of GDP (taken as a group) grow much more slowly than countries with debt under 90% of GDP (taken as a group). This does not imply a sharp growth slowdown at the 91% mark, any more than an increase in one’s cholesterol reading from 199 to 200 suddenly implies a heart attack, or that 200 is just as bad as 300.

Nor do we claim one-way causality. But Tooze would have had to read the work to know these things. Curiously, Reinhart and I viewed our work on debt and growth as supporting the case that peripheral Europe could not be expected to outgrow its massive debts without huge writedowns. Tooze seems to agree. The ten years of data now available since our paper was published hardly seem to contradict this forecast.

By and large, historians are better than economists at telling a story, and the writing in Crashed is no exception. Tooze offers a passionate account of the past decade that many readers – much like viewers who watch only a single onesided news channel – will find reaffirming. But for such a thick book, the research and economic analysis are often remarkably thin. It took economic historians seven decades to unpack the Great Depression. It is safe to assume that historians will have much more to say about the 2008 financial crisis in the years and decades to come. i ABOUT THE AUTHOR Kenneth Rogoff, a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University.

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ANNOUNCING

AWARDS 2018 AUTUMN HIGHLIGHTS Once again CFI.co brings you reports of individuals and organisations that our readers and the judging panel consider worthy of special recognition. We hope you find our short profiles interesting and informative.

All the winners announced below were nominated by CFI.co audiences and then shortlisted for further consideration by the

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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

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

Autumn 2018 Issue

> DEUTSCHE BANK: BEST BANK TREASURY MANAGEMENT TEAM EUROPE 2018

Deutsche Bank was our winner in this same award category last year, largely because of its outstanding treasury operations skills that had been tested severely following the financial crisis (which hit the bank extremely hard). DB has now returned to a strong capital position which it has been its recognised strength for the past 100

years, is now giving emphasis to its investment bank and retail business in Germany and is also looking to beef up its presence in North America.

The treasury department faces many significant challenges for building capital and ensuring liquidity across a bewildering array of currencies and needs to comply with legislation in multiple

jurisdictions. According to the judging panel, DB has been doing sterling work in all these areas. The panel commends Deutsche Bank on its enviable technical expertise in treasury management and is pleased to confirm the 2018 award Best Bank Treasury Management Team Europe.

> ASIT BIOTECH: BEST BIOPHARMACEUTICAL CORPORATE GOVERNANCE BELGIUM 2018

In the fast-moving Biopharma world, corporate governance can sometimes be low on the priority list and is sometime viewed as little more than a tick box exercise. As a result, many companies have failed to raise the capital they need to succeed. The CFI.co judging panel were seeking an example of a Biopharma that had used the implementation of high governance standards as an enabler for success. ASIT Biotech have

given their corporate governance the same level of attention they give to their science. ASIT have been constantly evolving and refining their governance and have ensured the correct business/academic and executive/non-executive balance that in combination with strong product potential has helped deliver several rounds of funding. This year saw the board call in independent evaluation that will help them

further strengthen their governance as they look to bring their breakthrough immunotherapy products to market in the near future. The CFI. co judging panel reflected on ASITâ&#x20AC;&#x2122;s constant efforts to ensure the correct level of governance to deliver their innovative technology to market and are pleased to announce ASIT Biotech as winner of the award Best Biopharmaceutical Corporate Governance Belgium 2018.

> UNITED WATERS INTERNATIONAL AG: MOST INNOVATIVE WATER PURIFICATION TECHNOLOGY GLOBAL 2018

Parched and polluted, our blue planet is undergoing a water crisis. Although 75 percent of the Earth is covered in water, less than one percent is potable. Poor stewardship, industrial growth and pollution have stretched this irreplaceable resource to breaking point. To paraphrase Benjamin Franklin, only when the wells run dry will we truly know the worth of water. United Waters International AG, a Swiss based leader in research, development, and production of biological drinking water systems, knows water's worth. lt has been providing workable and

sustainable solutions to this global problem since 2005. lts flagship products, BioEcoTech and BioGreen, offers innovative water purification solutions for municipal, industrial and commercial users. The unique and revolutionary biological water purifications systems use no harmful chemicals in the purification process and unlike many conventional technologies, the BioEcoTech and BioGreen produces no harmful residues and is using up to 80% less energy.

United Waters International AG has progressed to its fifth generation of the BioEcoTech and CFI.co | Capital Finance International

second generation of the BioGreen, offering sustainable, standardised, scalable solutions that are geologically adaptable and highly marketable. The company has more than 50 low-maintenance and high-efficiency plants operating in Europe, China, and lndia. The CFl. co judges commend United Waters International AG for its continued commitment to a vital process, thus earning - for the second time - the award for Most Innovative Water Purification Technology (Global). The first time the company won the same CFl.co award was in 2017.

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> AMITY UNIVERSITY DUBAI: BEST UNIVERSITY FOR GRADUATE RECRUITMENT GCC 2018

Amity University has a record of attracting the best and the brightest of post-graduate students – future world leaders, and the makers of change.

Amity lays the foundation for professional success by ensuring that graduate students have access to premium research bodies and networking channels. The university is home to the Middle East Centric Case Centre, which curates and disseminates the largest global repository of management cases, articles, and books related to business in the region. Amity students can expect top placement upon

graduation, thanks to the outreach efforts of its Corporate Resource Centre (CRC). The centre hosts an annual placement week where leading corporations scout for fresh talent. The CRC also exposes students to industry role-models through guest lectures, and fosters professional competence through workshops, mock sessions, and internships. The university’s Amity Alumni Masters Forum allows students to gain insights from influential academics who share the secrets of success – and recount the hardships and failures they endured along the way. The

university’s ethos is simple: to keep students at the centre of its universe, constantly assessing decisions and developments to ensure the best outcomes. These painstaking efforts are paired with motivated staff who follow best educational practices, and a dedicated management team focused on ethical business values. Not surprising, then, that Amity graduates embark on a smooth trajectory from the classroom to the boardroom. The CFI.co judging panel is pleased to present Amity Dubai with the award for Best University for Graduate Recruitment GCC 2018.

> FIRMENICH: BEST SUSTAINABLE FAMILY COMPANY SWITZERLAND 2018

Success tastes sweet, but sustainable success is what Firmenich craves and relishes. Firmenich, originally a fragrance company, expanded into the flavour business in 1938 when it created raspberry, strawberry and citrus substitutes.

More synthetic flavours were created for processed and preserved food. The Swiss familyowned business has been sharing scents and flavours with the world for more than 120 years.

It has maintained a firm grasp on its core values, striving to be a force for positive change in the world. Firmenich sets impeccable sustainability standards for itself, and of its own accord

it signed a Chamber of Commerce-backed sustainable charter in 1991. It goes above and beyond in terms of transparency and social and environmental responsibility. Firmenich publishes annual sustainability reports and has them externally vetted for accuracy. It is committed to responsible sourcing, seeking out biodegradable ingredients and supporting local farming communities. The company believes in the power of collaboration, partnering with philanthropic giants like the Bill & Melinda Gates Foundation in emerging markets. CEO Gilbert Ghostine is an advocate for, and champion of,

responsible business practices. He has shown a flair for pushing boundaries and challenging the status quo. He is also committed to ending the gender pay-gap. Firmenich’s New York and Geneva operations are 100 percent genderequality compliant, with other branches to follow suit by the end of 2018. Firmenich is in the upper echelon of industry sustainability, earning an EcoVadis rating of 82/100; the average score is half that. For its dedication to protecting the planet and its people, Firmenich has earned CFI. co’s 2018 award for Best Sustainable Family Company – Switzerland.

> THAIOIL: BEST ENERGY CORPORATE GOVERNANCE THAILAND 2018

Good corporate governance enables transparent and sustainable profits that benefits all stakeholders. To achieve Thaioil’s corporate vision of being “a leading fully integrated refining and petrochemical company in Asia Pacific” the company has endeavored to ensure that it adheres to the highest possible standards of governance. The results of the past five years 104

clearly show the strategy has been paying off, with a steady growth benefitting all stakeholders.

The CFI.co judging panel found that while Thaioil was adhering to international best practice for its governance principles, it was the overriding commitment to fairness that really set Thaioil apart. Corporate governance is not a tickbox exercise for the company; rather, it is a way CFI.co | Capital Finance International

of delivering the company’s value set of always trying to be fair – and ensuring that the systems are in place to deliver “fairness” throughout the organisation. Thaioil responds quickly and effectively when a policy or practice needs adjustment. The CFI.co judges were unanimous in declaring Thaioil as having the Best Energy Corporate Governance Thailand 2018.

Autumn 2018 Issue

> FWU GROUP: BEST UNIT-LINKED PRODUCT PORTFOLIO EUROPE 2018

The FWU group, since its inception more than 30 years ago, has been refining its insurance proposition and playing a pioneering role in the development of unit-linked life insurance solutions. Through constant innovation and the effective application of technology, FWU’s distribution partners and clients receive integrated end-to-end solutions which allow them to simplify their operations, while providing safe and cost-effective products that can be tailored to suit individual needs. The

company sees technology as a tool to remain agile and efficient in today’s digital market, implementing decentralised IT development to leverage global talent and expertise. It distributes its tech teams across European and Middle Eastern locations. FWU delivers traditional and Sharia-compliant life insurance products, and has been steadily expanding its geographic horizons. In a fast-moving market, FWU is always on the lookout for disruptive technologies and

competitors – but it has always ensured it gets the basics right: putting clients at the top of the agenda. With traditional and Sharia-compliant products on offer, the FWU growth trajectory looks set to continue across its target markets. The CFI. co judging panel was impressed by founder and CEO Dr Manfred Dirrheimer’s passion, and by the team he has created. The judges are delighted to declare FWU Group as the Best Unit-Linked Product Portfolio Europe 2018.

> PORVENIR S.A.: BEST PENSION GOVERNANCE COLOMBIA 2018

Porvenir, S.A. — Colombia’s leading pension fund — has a clear business vision: to focus on the customer and to excel in efficiency. Transparency and responsible governance are top priorities for the firm, pledging to act above and beyond legal requirements for corporate governance — and earning Porvenir top ratings from industry riskrating agencies each year. Its customer-centric business model is driven by ethical behaviour principles, effective risk management, and efficient business practices. Porvenir manages a multi-fund system, offering funds with different

risk profiles and giving clients more investment flexibility and opportunity. The firm is hopeful that new tax reform laws will encourage Colombians not contributing to a retirement plan — some 40 million people of the 48 million population — to start officially saving for the future. Porvenir strives to raise awareness about financial literacy, launching a groundbreaking outreach effort called Familia Porvenir, a tech-based initiative to explain pension fund basics and benefits. The initiative includes a web series, presented in simple yet entertaining

language that resonates well with younger audiences. Answering customer demand for digital innovation, Porvenir has digitised its operations, creating a digital interface to streamline pension management. The firm aims to complete 95 percent of all transactions online by the year 2020. For its innovative use of technology to meet modern customer demands and ensure ethical and efficient corporate governance, the CFI.co judging panel recognise Porvenir as the 2018 winner of the Best Pension Governance - Colombia award.

> INTESA SANPAOLO BANK ALBANIA: BEST BANK GOVERNANCE ALBANIA 2018

Recognising the bank’s dedication to creating opportunity and fostering sustainable economic growth in its country and communities, leading by example and following strictly its Code of Ethics and its CSR strategy focused in the Sustainable Development Goals, the CFI.co judging panel presents Intesa Sanpaolo Bank Albania with the 2018 award for Best Bank Governance Albania.

Some of the factors taken into consideration were: Value creation and innovation, Customer service, Corporate governance, Executive leadership, Use of technology, Regulatory compliance, Risk management team, Social responsibility, Financial stability and performance. With a network of nearly 6,000 branches throughout

the world, the Intesa Sanpaolo Group is well positioned to serve its customers, and to support its subsidiary, Intesa Sanpaolo Bank Albania.

The Albanian bank has a proven track record of playing by the rules, and playing well with others.

Respect is a recurring theme in its code of ethics, governing how it interacts with all stakeholders, the environment, and the communities in which it operates. Corporate Social Responsibility (CSR) reports for Albanian financial institutions show that Intesa Sanpaolo Bank Albania is committed to upholding CSR standards and leads by example.

The bank strictly adheres to environmental legislation throughout its operations and prioritises choices that take sustainability into CFI.co | Capital Finance International

account. It grants “green loans” for renewable energy projects and has become a key lender for SMEs guided by principles of sustainability.

The bank has further strengthened its internal regulatory framework and issued new guidelines for managing risk. It tackles gender inequality through proactive hiring processes, finance and support for businesswomen, and awareness campaigns against domestic abuse. Socially, it supports educational goals through student workexperience programmes and financial literacy campaigns, while it advances employee education through continuous professional development.

The bank has been using high governance standards to help drive long term sustainability.

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> QIIB (QATAR INTERNATIONAL ISLAMIC BANK): BEST DIGITAL BANKING TECHNOLOGY MIDDLE EAST 2018

QIIB (Qatar International Islamic Bank) — a trusted financial institution with corporate, retail, treasury, and investment expertise — puts customer needs at the forefront of its business model, seamlessly whilst integrating industry standard technology across its platforms. QIIB remains true to its traditional values while providing customers with the necessary tools

to thrive in a modern society. Promising to “elevate customer service beyond all expectations,” QIIB employs leading FinTech solutions to support consumer and corporate clients on an individual, integrated platform, thus increasing returns, reducing risk, and improving business efficiency. QIIB’s convenient mobile banking puts the power of

the bank in the palm of your hand, while its hassle-free Internet banking features enable companies to facilitate financial transactions and support business needs. The CFI.co judging panel commends QIIB for its modern adaptation of traditional Shariah-compliant banking, earning them the 2018 award for Best Digital Banking Technology Middle East.

> ANATHA TECHNOLOGIES: BEST BLOCKCHAIN DIGITAL ASSET SERVICES TEAM GLOBAL 2018

Blockchain technology is creating a new financial ecosystem that start-ups and established companies are looking towards to raise capital through ICOs (Initial Coin Offerings). Most people — and notably regulators — are trying to play catch-up in an exponentially growing market where true expertise is relatively thin on the ground. Edward DeLeon Hickman has built a team of experts that advises and guides companies regarding the funding potential of ICOs for their businesses. Considering the

dizzying development of blockchain coding and cryptocurrencies, the five years Hickman has spent working full-time with blockchainbacked digital assets feels more like aeons of experience, especially when backed by his 20-year career in the financial sector. A recognised expert in cryptocurrencies and ICOs, he has a proven sixth sense for it, boasting participation in eight of the 10 most successful ICOs of 2017 and also in 8 out of the 10 top performing ICOs of all time. Anatha’s executive

team — unified in their passion for blockchain and decentralisation — is excited to usher-in the world’s first information-age economic system, with new ways of doing business where everyone prospers. Is economic equality a utopian dream? Not with Hickman at the helm, promising a new financial system free of structural violence. The CFI.co judges have no reservations — Anatha Technologies takes the win for Best Blockchain Digital Asset Services Team Global 2018.

> RESIDENCES DAR SAADA: BEST REAL ESTATE DEVELOPER MOROCCO 2018

With over forty years operational experience, Residences Dar Saada (RDS) is a major player in Morocco’s social housing market and has developed a broad geographical spread of highly innovative and very successful projects. The company holds true to its belief that everyone has the right to quality housing and is working wisely to deliver on this. The CFI judging panel, which also honoured 106

RDS last year, points to the ‘community-withina-city’ concept that encourages social cohesion according to local needs and traditions. The judging panel was also impressed by the RDS ‘Strategic Vision 2018-20’ plan and recognises its management as being of the highest calibre (when RDS went public in 2014 its IPO was 3.5 times oversubscribed and raised $100 CFI.co | Capital Finance International

million). Investors were quick to recognise the strength, dynamism and potential of RDS and have responded positively to the company’s bond offerings. It is clear to the panel that given Morocco’s solid economic performance, RDS is well placed to move forward with confidence.

The award Best Real Estate Developer Morocco goes once again to Residences Dar Saada.

Autumn 2018 Issue

> INFINITY SOLAR: BEST RENEWABLE ENERGY PROJECT DEVELOPER MENA 2018

INFINITY SOLAR

In Egypt, solar energy is big business.

The country is set to become the world’s largest producer of solar energy as the 2GW Benban Solar Park nears completion. Within two years, this new mega facility will meet about a fifth of Egypt’s electricity demand. Just as importantly, smaller-scale and complementary solar energy projects are popping up nearly everywhere to satisfy the needs of a fast-growing population and a buoyant economy.

Infinity Solar, set up in 2014 to help realise the transition towards clean energy, was the first to connect its 1 MW solar plant to the Egyptian grid under Round 1 of the Egyptian Feed-in Tariff Program (FIT) in February 2017.

A year later, in February 2018, Infinity Solar connected the first project in Benban Solar Park with its flagship project “Infinity 50”,

also under Round 1 of Egypt’s (FIT) Program.

Currently, Infinity Solar is the market leader in the utility-scale solar market in Egypt with over 90% market share of current connected capacities.

Furthermore, Infinity Solar is constructing four more plants with combined capacity of 133MW AC and total investments of approximately $200M. These plants should all be connected by Q1, 2019. Infinity Solar works with German industrial partners to build solar plants in Egypt using the latest technology to maximize efficiency and reduce costs. The company was one of the first to recognize the exceptional opportunity offered by the Benban Solar Park which attains the required economies of scale to aggressively drive down the price per megawatt produced.

Egypt’s attractive Feed-in Tariff (FIT) has transformed the scope of the Benban Solar Park, which now rivals the nearby Aswan Dam in size.

Infinity Solar has secured the support of multilateral banks such as EBRD (European Bank for Reconstruction and Development) & IFC (International Finance Corporation) for a slew of new solar power projects. The company also develops wind, hybrid and off-grid solutions for both corporate and individual customers.

The CFI.co judging panel agrees that Egypt’s Infinity Solar has tapped into a vast growth market, and indeed now drives that market. The judges are pleased to offer Infinity Solar the 2018 Best Renewable Energy Project Developer MENA Award.

> LBBW (LANDESBANK BADEN-WÜRTTEMBERG): BEST GREEN BOND ISSUER GERMANY 2018

Landesbank Baden-Württemberg (LBBW) in June debuted its first-ever green pfandbrief – a uniquely German bond that is backed up by mortgages and invests the proceeds in other financial instruments. The €500m fiveyear issue is lead managed by LBBW and a number of tier-1 European banks such as ABN Amro, UBS, and Swedbank. The bond complies with the issuer’s green framework and with the Green Bond Principles as formulated by the International Capital Market Association (ICMA).

In a testament to LBBW’s placement power and product expertise, as well as the trust the bank inspires amongst both domestic and European investors, the pfandbrief was oversubscribed well over three times in just two hours.

Late last year, LBBW successfully placed its first green bond issue – at €750m the largest of its kind issued by a European bank. That four-year issue caught the market’s attention for carrying the tightest spread of any senior German benchmark. LBBW thus demonstrated that it can launch bonds based on a new asset eligibility methodology which is significantly stricter than mere sustainability criteria.

Though LBBW was the third German bank to enter the green bond market, it has since managed to establish a lead over the competition. The bank proactively encourages investors to green their portfolios. Green bonds also allow LBBW to tap into a new investor CFI.co | Capital Finance International

base and, crucially, keep in close touch with market trends and sentiments.

Through its green bonds, LBBW has also been able to broaden its horizon.

Whilst the bank has always enjoyed the trust of its domestic market, LBBW is now able to leverage its solid reputation outside Germany as well.

The CFI.co judging panel notes that the green bond market is growing at a brisk pace and offers opportunities aplenty as large and small investors alike consider the environmental impact of their funds. The judges are pleased to offer Landesbank BadenWürttemberg the 2018 Best Green Bond Issuer Germany Award.

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> GROUPE CIOA: BEST COLLABORATION VALUE CREATION MODEL – GLOBAL 2018

Stronger and more powerful than the sum of its parts, the CIOA Group’s expansive network of subsidiaries and providers encompasses a global market of shared resources, networking opportunities, and strategic expertise. CIOA (International Business Opportunities Centre) affiliates operate in more than 140 countries, representing 500,000 businesses and 120,000 suppliers across multiple industries. CIOA is a facilitator of international business, and provides companies,

organisations and government agencies with multidisciplinary solutions and collaborative services to reach a global audience. The company is focused on creating valuable business connections, linking suppliers to customers and expediting strategic technology and financial partnerships. It offers administrative support for business by managing and monitoring data, from daily transactions to customer relations.

With more than 40 offices worldwide, 200

multidisciplinary advisors and 2,300 codevelopers in its network, CIOA understands the importance of collaboration. Since its inception in 1994, it has grown to become an international advocate for, and facilitator of, global, open, and self-sufficient business models. With a firm foothold on the global map, CIOA recognises that “together we are stronger” – making it the clear winner of the Best Collaboration Value Creation Model – Global 2018 award.

> DELEN PRIVATE BANK: BEST DIGITAL PRIVATE BANK BELGIUM 2018

Delen Private Bank continues to lead the way in providing cutting edge digital banking services.

When it comes to implementing the latest technologies for use by consumers, larger organisations are sometimes thought to have an advantage over their smaller rivals. However, Delen Private Bank has manged to combine

the safe, personal, customer-focused approach to private banking (that one would expect from a long-established family-owned bank) with a comprehensive digital offering that often outstrips those of far larger providers. When the CFI.co judging panel reviewed Delen in 2017, it was impressed by its digital services and the

bank has not spent the past 12 months waiting for competitors to catch up. Delen Private Bank continues to help define best practice for the sector and the CFI.co judging is pleased to declare Delen winner of the award Best Digital Private Bank Belgium for the second consecutive year.

> CAPITAL FIRST: OUTSTANDING CORPORATE TRANSFORMATION INDIA 2018

The transformation of Capital First (2010 to 2018) has been remarkable. In 2010, the company focused on equity broking, foreign exchange, asset management and had a handful of real estate developer customers representing $140m in loans.

In 2010, the company defined a new mission and started to finance MSMEs, self-employed and consumers. Loans as low as $300 to $100,000 became the new focus. Green-field technologies were developed to provide financing to target markets. Despite slowing economic growth, high inflation, and rising interest rates, the company 108

successfully underwent a leveraged MBO led by V Vaidyanathan. This involved an open public offer, fresh capital of $15m, reconstitution of the board and the name-change to Capital First.

Subsequently, the company has diversified its borrowing to 300 lenders, and reduced costs from a high of 14% to as low as 9%. Asset quality improved sharply with net non-performing reducing from 3.4% to 1.0%. The company has now financed seven million customers and over 40% of these were first-time borrowers. Retail loan book increased from $14m to $4b. Company CFI.co | Capital Finance International

losses of $5m annually (2008 and 2009) turned into profitability of $48m in financial year ending March 2018. Credit rating improved from A+ to AAA and capitalisation increased multi-fold to $1.2b. In a 2018 breakthrough, Capital First obtained a banking licence by merging with an existing bank. Shareholders approved the deal with over 99.9% of votes in favour. The CFI.co judges agree that the Capital First management buyout story has resulted in an equally inspiring corporate transformation in India and the 2018 award is applauded.

Autumn 2018 Issue

> LienVietPostBank: BEST RETAIL BANK VIETNAM 2018

As the economy in Vietnam continues its rapid development, the banking sector is expanding quickly to meet demand and help ensure that the new opportunities created reach the entire population. To be the best retail bank is about far more than serving easy to reach individuals and businesses in the major population centres.

LienVietPostBank certainly does provide those clients with excellent services for both their personal and corporate business (and is able to boast of some of Vietnam’s largest corporates as clients) but it has also been expanding its use of postal transaction offices to help bring prosperity throughout the entire country. The bank is

continuously revising its offering to customers and has incorporated the latest technology, while remembering that technology has to make the customer’s life easier – not just the bank’s. The CFI.co judging panel are delighted to declare LienVietPostBank winner of the CFI.co award Best Retail Bank - Vietnam 2018.

> AKUMIN INC: BEST HEALTHCARE TECHNOLOGY IPO NORTH AMERICA 2017

Whenever a fragmented market consolidates, there are interesting opportunities. The freestanding diagnostic imaging market in the United States has faced a tough decade and the management team at Akumin Inc. (led by Riadh Zine) know exactly how to take advantage of such situations. As a consequence, Akumin has become the fastest growing freestanding diagnostic imaging chain in the US. A series of well targeted acquisitions and the creation

of a highly effective, scalable and innovative centralised operating platform have allowed Akumin to leverage full advantage from its acquisitions. The market opportunity, combined with strong corporate governance, outstanding business acumen and highly efficient execution led to a successful IPO on the Toronto Stock Exchange. The CFI.co judging panel felt that Akumin’s timing was perfect with the management team having proven their

capabilities. The IPO will help Akumin go from strength to strength – providing patients with cost effective, high quality diagnostics, and investors with a stake in a company that could well go on to become the leading freestanding diagnostic imaging company in the country.

The CFI.co judging panel are delighted to declare Akumin Inc winner of the award Best Healthcare Technology IPO – North America 2017.

> TREAMO: BEST MULTI-REGULATORY REPORTING SOLUTIONS EUROPE 2018

While regulators strive to reduce complexity, companies have to battle to keep their bearings in the resulting blizzard of regulatory financial requirements and reporting obligations.

Companies need considerable resources to ensure the correct implementation of this constant stream of change. A multitude of service-providers deliver solutions for companies, and CFI.co received nominations

for the select few which excel in the milieu.

While the other shortlisted nominees seemed to be getting the basics right, the judging panel saw instantly that one company really stood out: Treamo, with its EMIRate cloud-based solution. The organisation caught the judges’ attention with its concentrated focus on always putting the client first. EMIRate takes away the headaches that reporting obligations can CFI.co | Capital Finance International

create, and responds promptly to all enquiries.

The result – as the EMIRate solution intended – is that clients can get on with the job of making a profit and ensuring a stable cashflow, while Treamo takes care of the rest. The CFI. co judges had no hesitation in announcing Treamo’s EMIRate as winner of the Best MultiRegulatory Reporting Solutions (Europe) 2018 award.

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> ASTAD: BEST INFRASTRUCTURE PROJECT MANAGEMENT TEAM GCC 2018

For the third consecutive year, ASTAD has been recognised by the CFI.co judging panel for its outstanding infrastructure project management.

Headed by CEO Ali Al-Khalifa, the ASTAD team has worked on numerous major projects including the country’s National Museum, National Library and the Qatar Foundation Stadium (venue for the 2022 FIFA World Cup). ASTAD is now the lead on several rail projects in the country). The company

is now embarking on a five-year plan which will focus heavily on airport infrastructure work and expansion into Africa. The management style at ASTAD encourages effective collaboration and the sharing of ideas to help bring the client’s vision to life. This is a well-run business that works to international best practice and engages all stakeholders. With expertise in all areas of project management, a solid ethical approach to

doing business, a superior management team, and an ambitious yet achievable business plan, ASTAD is poised to take full advantage of many more infrastructure development opportunities in Qatar and further afield. The judging panel has been following ASTAD’s progress during the past few years and is delighted to confirm the award Best Infrastructure Project Management Team GCC 2018.

> GATEHOUSE BANK: BEST SHARIAH-COMPLIANT HOME FINANCE BANK UK 2018

Gatehouse Bank, now celebrating its 10th anniversary, is one of only a handful of wholly Shariacompliant banks in the UK, and a recognised leader in home finance products. The bank describes itself as “ethical by intention”, and is structured to maintain its purity of focus and to avoid any crossover into conventional finance. The bank guarantees that it will not invest in sectors that the Muslim community may find objectionable or questionable. Gatehouse has proven itself to be prudent, as well as consistent in achieving expected profit rates. It is regularly placed

close to, or at the top of, industry tables, and often outstrips the performance of conventional finance providers. Since 2014, Gatehouse has been active in the private rental sector, creating a portfolio of properties in the north of England. A British government spokesperson has described Gatehouse as a model of how foreign investment can alleviate the UK housing crisis. Funding for initiatives of this kind comes from Sharia countries, particularly Kuwait (the country’s sovereign wealth fund is Gatehouse’s major shareholder). There has been a major

business refocus since the arrival of CEO Charles Haresnape in May last year, with a dynamic new management team now in place. Systems have been re-engineered with an emphasis on enhancing the bank’s technological strengths.

The CFI judging panel recognises Gatehouse as an outstanding and dedicated player in the Islamic finance sphere, and one that delivers substantial returns to its stakeholders. Without question, the award for Best Shariah-Compliant Home Finance Bank (UK) 2018 is confirmed in the name of Gatehouse Bank.

> ALTICE PORTUGAL: MOST INNOVATIVE ICT LEADERSHIP EUROPE 2018

Pioneers, innovators, leaders — these words sum up the entrepreneurial essence of Altice Portugal, the country’s preeminent global telecommunications and multimedia operator. Altice has pioneered interactive TV service and multimedia mobile portals, while recognising the legacy of its predecessors. It continues to forge new territory in the ICT sector and pave the way for others to follow. Altice is dedicated to identifying and promoting tech talent and sponsors a competition 110

– with generous cash prizes – for innovative entrepreneurs, graduate students and start-ups.

Its subsidiary, Altice Labs, fosters scientific and technology learning through strategic partnerships and collaborative projects, ranging from Cloud technologies and Artificial Intelligence to Big Data and the Evolutionary Optical Framework.

The company focuses on providing consumer and corporate solutions to help improve the lives of its customers. With its nationwide fibreoptic network CFI.co | Capital Finance International

nearing completion and a 4G mobile network with 98.5% percent national coverage, Altice is already moving on to the next challenge: phasingin its new 5G ecosystem, featuring a new radio concept. Altice mixes disciplined practices with an agile and adaptable culture; it doesn’t try to predict the future, it prefers to create it. It’s this audacious, go-ahead nature which makes Altice the worthy winner of the 2018 award for Most Innovative ICT Leadership Europe 2018.

Autumn 2018 Issue

> DP WORLD: BEST LONG-TERM COMMUNITY ENGAGEMENT STRATEGY GLOBAL 2018

DP World has a well-deserved reputation for operational excellence, and a significant part of its success story is a long-standing and wholehearted commitment to sustainability principles: paying close attention to the interests of all stakeholders including those of host communities. The company works hard to minimise its impact on the environment

through efficiencies in the management of natural resources and emissions. A resolute people-first policy encourages personal development and creates a safe environment in which staff members are happy to work. DP aims to grow alongside the communities in which it conducts its business and the judging panel applauds the company’s investment in

a global education programme where staff take volunteering leave to instruct young people in trade and logistics. This is a second consecutive win for DP and the judges have no hesitation in naming this company for the 2018 award Best Long-Term Community Engagement Strategy Global.

> BANCHILE INVERSIONES: BEST STOCK BROKERAGE CHILE 2018

For more than three decades, Banchile Inversiones has been a leading and trusted provider of financial services in Chile. Banchile Inversiones is a subsidiary of the Banco de Chile, one of the most dominant financial conglomerates in the country. The company’s focus is two-fold: its brokerage activities are handled through its subsidiary Banchile Corredores de Bolsa, while asset management is handled through its subsidiary Banchile Administradora General de Fondos. With more than 300,000 clients and

$11bn worth of international and local shares, Banchile Inversiones commands the largest share of the market, boasting a 20 percent market share. In terms of traded volume, its brokerage firm is among the biggest in the country, claiming a 13 percent share of the market. Clients of Banchile’s brokerage firm range from institutions and organisations to high-net-worth individuals and retail customers.

The brokerage firm provides sales, trading, and advisory services in equities, fixed income,

currencies, and derivatives. Banchile has a topranked research department and is nationally renowned as an industry leader in finance research. Largest is not always best, but the CFI.co judging panel felt that in the case of the Chilean market, it is. Banchile has been a major player in helping the capital markets deliver sustainable economic growth to Chile, and the panel is delighted to declare Banchile Inversiones as the 2018 winner of the Best Stock Brokerage Chile award.

> KRUNGTHAI BANK: BEST SOCIAL IMPACT BANK THAILAND 2018

Sustainable growth requires businesses to look after the planet and its people, as well as their profit margins. Krungthai Bank in Thailand holds this principle at the core of its business vision, reinvesting a percentage of its profits into Thai society via “intellectual-capital-building activities” throughout the country. Krungthai Bank, of which the government owns a 56% share, is a hybrid bank, enjoying the privilege of a government mandate while maintaining a competitive edge. This partnership is a driver for social change, pushing to make Thailand a

cashless society by providing digital alternatives to serve the Thai people and economy in support of the government’s “Thailand 4.0” initiatives. Thailand has a population of 66 million people, and Krungthai Bank serves about half of them. With governmental support, the bank piloted a programme to issue subsidised welfare and Medicare cards to give lower-income Thais access to free public transport or medical care. Krungthai Bank has issued 11.6 million welfare cards to underprivileged Thais, and eight million welfare CFI.co | Capital Finance International

cards to the elderly. The Medicare cards issued

by Krungthai Bank have provided five million Thais — including civil servants, retirees, and staff — with government-provided healthcare benefits. The bank is working closely with the Ministry of Health to digitise the logistics of the health system and ensure ease of access.

The CFI.co judging panel commends Krungthai Bank’s efforts to improve the quality of life for all Thais, thus earning the 2018 award for Best Social Impact Bank (Thailand).

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> RAIFFEISEN CENTROBANK AG: BEST STRUCTURED PRODUCTS BANK CEE 2018

Standing still has never been an option for Raiffeisen Centrobank AG. The bank has constantly striven to innovate and open new markets and 2018 has been no different. The CFI.co judging panel were impressed when they reviewed the banks structured products in 2017 and the structured products team led

by Heike Arbter have not been resting on their laurels. The team have further strengthened their product portfolio and been working to ensure clients have even better understanding of the products on offer. The team has also increased the geographic reach adding nine new countries in the past 12 months giving

retail clients across Central and Eastern Europe an easy to understand and robust option to low deposit interest rates. The judges are pleased to announce Raiffeisen Centrobank as the 2018 winner for Best Structured Products Bank Central and Eastern Europe Award building on their successful win in 2017.

> fair-finance: MOST SOCIALLY RESPONSIBLE PENSION FUND CENTRAL EUROPE 2018

fair-finance, with assets of over €500m, has long and fruitful experience in responsible investment. By focusing on the green economy, the fund consistently manages to outperform the competition. All investments are judged according to the standards of ÖGUT (an independent platform for the environment and technology). Significantly, in the first half of this year, fair-finance had in the course of its membership to the network Shareholders for

Change intervened at 15 company AGMs to draw attention to ESG concerns. fair-finance has been recognised as Austria’s Best Provident Fund, and this is its fourth consecutive year as a CFI.co award-winner. Clients now have the opportunity to invest in two fair-finance funds (one is for sustainable, convertible bonds; the other is for sustainable hybrid bonds). The CFI. co judging panel regards this an important development. This year fair-finance has been

improving its real estate rating system, which goes beyond energy criteria to include broader social concerns. The fund’s work in housing has also received governmental recognition. The judging panel – noting fair-finance’s outstanding progress over the years, and its commitment to sustainability principles – extends, without hesitation, the award for the Most Socially Responsible Pension Fund (Central Europe) 2018.

> CSCS: OUTSTANDING CONTRIBUTION TO THE CAPITAL MARKETS NIGERIA 2018

Central Securities Clearing System Plc (CSCS Plc) has been functioning as the Central Securities Depository for the Nigerian capital market since 1997. It was originally incorporated as a private company. In 2012, it converted to a public company and is being traded on the NASD OTC Exchange. The firm also provides a computerised clearing and settlement system for the market. It issues International Securities Identification Numbers (ISIN) as well as renders custodian services.

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According to the CFI.co judging panel, CSCS continues to respond efficiently and faithfully to the needs of the securities and commodities market and has a proud record of providing sterling services to the capital markets in Nigeria. CSCS looked to the best international models when planning its business but insists on incorporating in its plan features that respond to the specific needs of the Nigerian market such as the Electronic Document Management Services amongst others.

CFI.co | Capital Finance International

The company takes its corporate governance responsibilities very seriously and constantly seeks out ways to improve. CSCS, a most innovative company, is very keen to harness technological developments in support of the services it offers. This is a very wellfinanced and managed firm that is moving from strength-to-strength.

The panel is delighted to confirm the award of “Outstanding Contribution to Capital Markets Nigeria 2018" to CSCS.

Autumn 2018 Issue

> SANLAM INVESTMENTS: BEST FUND INVESTMENT MANAGER AFRICA 2018

When it comes to investment management for institutions, it’s largely about the long term.

Protecting capital while managing growth requires the patience that comes with experience. This does not mean resting on laurels, rather it means knowing how and when to adapt and innovate. Sanlam Investments have proven over nearly a century that they know how to

adapt and innovate to protect and grow wealth.

Sanlam have developed a dynamic team of professionals who work to their strengths – balancing experience and talent while constantly maintaining their enthusiastic approach.

Present in 13 African countries, Sanlam have become a trusted partner to many international investors, notably working with the FMO (Dutch

Development Bank) to raise $535milion for the Climate Investor One fund (to help deliver clean energy to approximately 7 million Africans). The CFI.co judging panel are pleased to announce Sanlam Investments as the winner of the award Best Fund Investment Manager Africa in the Institutional Investment Management Awards for 2018.

> GRUPO INTERBROK: BEST INDEPENDENT INSURANCE BROKER BRAZIL 2018

To be truly independent requires financial independence. This is something Grupo Interbrok has understood for over 100 years.

In private ownership, Interbrok has ensured it subjects its accounts to the same level of scrutiny expected of public companies with its financials audited by PwC. Independence on its own is not enough. Interbrok has

consistently incorporated best practice and technology into the business and has a very efficient and well-integrated back office. But none of this excellence would work without an efficient and ethical staff culture that is constantly maintained through effective staff training that gives clients the time they deserve and delivers best solutions. This combination

of independence and best practice has allowed Interbrok to put clients’ needs first. The consistency Interbrok has shown over the past 100 years has made putting the client first part of their DNA. The CFI.co judging plan had no hesitation in declaring Interbrok Best Independent Insurance Broker Brazil 2018.

> MAROCLEAR: BEST FINANCIAL SERVICES CORPORATE GOVERNANCE TEAM NORTH AFRICA 2018 > FATHÏA BENNIS: OUTSTANDING CONTRIBUTION TO FEMALE EMPOWERMENT MOROCCO 2018

According to the CFI.co judging panel, MAROCLEAR, the central depository of securities of Morocco, takes its corporate governance responsibilities very seriously and is an extraordinarily well run organisation headed by the exceptionally talented Fathïa Bennis. MAROCLEAR ensures that its business practices align with international best practice to ensure the smooth functioning of the market, providing partners and affiliates with a secure and reliable framework for security

retention and transaction completion. Without doubt MAROCLEAR has, since its inception, contributed significantly to the development of the Moroccan financial sector. Bennis, at the head, is passionate about reducing the gap between men and women – particularly at the decision-making level. She has been quoted as saying that she values women that are able to occupy strategic positions and has always been sensitive to the cause of female empowerment.

CFI.co | Capital Finance International

Bennis takes the view that the secret of the promotion of women is solidarity. CFI.co agrees, and the panel insists on a personal award to Fathïa Bennis to applaud her commitment to gender equality. This individual recognition will go alongside the corporate award Best Financial Services Corporate Governance Team North Africa 2018 in the name of MAROCLEAR.

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> GE CAPITAL AVIATION SERVICES (GECAS): BEST AVIATION LEASING SOLUTIONS NORTH AMERICA 2018

GECAS works efficiently, effectively and economically to satisfy the requirements of 270 airlines throughout the world and has a fleet of two thousand aircraft. This is the third time that this company has been granted this award and the panel does so because it regards GECAS as the finest commercial airline and helicopter leasing organisation in the world.

The momentum has continued well during the current year. The fleet size and scope of finance and consultancy services on offer allows the company to optimise client cash flow by providing the most appropriate aircraft management solutions. According to the judging panel, the GECAS purchase leaseback arrangements are exemplary and their bespoke

leasing arrangements can significantly reduce their clients’ working capital needs. The leasing team at GECAS is very talented, the solutions on offer are comprehensive and the aircraft are superb. CFI.co is delighted to confirm the award Best Aviation Leasing Solutions North America 2018.

> ČESKOSLOVENSKÁ OBCHODNÍ BANKA (ČSOB): BEST INTERNET BANK CZECH REPUBLIC 2018

The ubiquitous nature of the internet and mobile devices has created an opportunity for banks to transform their business model, moving away from the bricks-and-mortar staple of yesteryear to digital platforms and fintech services. Československá Obchodní Banka (ČSOB), a renowned heavyweight of the Czechia banking scene, delivers a triple-treat digital banking platform, allowing customers to access, monitor and manage their finances. Through this banking platform, customers can keep

track of their accounts as well as investments, pension savings, mortgages, loans and credit card accounts. Local or international payments can be scheduled online at a lower cost than a physical visit to the nearest branch would incur. ČSOB’s Smart Banking brings the convenience of online transactions to mobile devices. Smart Banking allows customers to manage day-to-day transactions, from credit cards to insurance. They can also create QR codes, and even get directions to the nearest

ATM. ČSOB’s Smart Key application presents a convenient means of payment, and users can log-on to online banking with a singleuser PIN or fingerprint instead of an SMS numerical code. ČSOB strives to meet and exceed customers’ expectations by providing the security and access that they need. The CFI.co judging panel was unanimous in its decision to declare Československá Obchodní Banka as the Best Internet Bank Czech Republic 2018.

> NICE ACTIMIZE: BEST COMPLIANCE REGTECH GLOBAL 2018

Post the 2008 financial crisis, regulators around the globe have been working to ensure that adequate financial regulations are in place to prevent a reoccurrence. However, well thought out regulations will not be enough to prevent a future crisis unless financial institutions implement effective compliance procedures. Taking advantage of important advances in information technology, established companies and startups alike have been creating innovative RegTech 114

solutions. The transformative potential of RegTech is now starting to show. NICE Actimize is building on NICE’s 30 years of experience in analysing data, thus enabling this dynamic company to work as preferred partner to financial institutions. Its platform approach helps NICE Actimize optimise total cost of ownership for clients while providing cutting edge solutions.

The CFI.co judging panel was particularly impressed by NICE’s machine learning models CFI.co | Capital Finance International

that allow a clear window into decisions made and noted the aptitude of the company when it comes to quality voice recognition services. The panel is sure that NICE Actimize will remain at the forefront of delivering on RegTech’s potential to transform the compliance landscape and thereby enable economies to benefit from improved transparency and trust. The judges are delighted to declare NICE Actimize winner of the 2018 award Best Compliance RegTech Global.

Autumn 2018 Issue

> THE STOCK EXCHANGE OF THAILAND (SET):

BEST SUSTAINABLE SECURITIES EXCHANGE SOUTHEAST ASIA EMERGING MARKETS 2018

Sustainability is no longer seen as a marginal issue; it is a key component of a solid business strategy to create a competitive advantage and meet social, environmental, and governance (ESG) benchmarks. The Stock Exchange of Thailand (SET) encapsulates this principle in its mission statement and company vision, vowing to make the capital market “work” for everyone, not just a privileged few, and rolling out a line of product development that meets market needs as well as sustainability goals. The organization has made great strides in its efforts to be the regional leader in the sustainable securities

exchange market, garnering top rank over its competitors in ASEAN and third in Asia. SET has been a member of the UN Sustainable Stock Exchanges Initiative since 2014, and has proven its commitment to meeting sustainability goals, mandating ESG disclosure reports from all its listed entities. Based on the reports, it publishes an annual Thailand Sustainability Investment (THSI) list of Thai companies with prime performance on ESG markers. Dedicated to supporting SMEs’ sustainability efforts, SET founded a Social Responsibility Centre and Corporate Governance Centre, which produces

guidelines, newsletters, and other publications to educate companies about sustainability reporting. Cultivating a culture of shared knowledge, the company provides listed entities with training sessions and workshops to create awareness and improve ESG competency. SET also recognises and honours listed companies with top ESG scores at annual awards events.

For its encouragement of responsible longterm investment, the CFI.co judging panel proclaim the Stock Exchange of Thailand (SET) as the Best Sustainable Securities Exchange Southeast Asia Emerging Markets 2018.

> MARITIME BANK: OUTSTANDING CONTRIBUTION TO SMEs AND INNOVATION VIETNAM 2018

Small and Medium Enterprises (SMEs) are the unsung heroes of most economies, accounting for about half of all employment and national income. Maritime Bank recognises the importance of the role SMEs play in a country’s economic success – and it aims to make them feel welcome in Vietnam.

Maritime Bank is dedicated to facilitating success, offering funding solutions to meet SMEs’ capital demands. Through innovative collaborations, Maritime Bank has streamlined

business transactions and procedures, saving businesses time, money, and resources. The bank collaborated with Misa Joint Stock Company to connect e-banking accounts, allowing businesses to manage transactions – free of charge – from within the accounting software, optimising resource efficiency.

Working with the Customs department, Maritime Bank is on-call 24/7, combining e-customs with internet banking so SMEs can easily and conveniently pay taxes and

> AQUIS EXCHANGE: BEST SECURITIES TRADING PLATFORM

Securities trading has needed a disruptor. In Europe, just such a disruptor emerged in late 2013: share-trading platform Aquis Exchange.

The company is rapidly gaining market share by delivering liquidity, competition and fresh ideas to the European equity market. Aquis provides an alternative model for institutions, and the CFI.co judging panel was impressed by its “pay for what you consume” fee structure. The judges also applaud the European subscription

make customs clearance. The bank has also developed cost-effective products that allow companies to manage seasonal cash flow.

Maritime Bank continues to register sustained growth, proving that its innovative solutions are a recipe for symbiotic success. The CFI. co judges applaud the bank’s dedication to supporting SMEs, and confer on Maritime Bank – for the second year in a row – the award for Outstanding Contribution to SMEs and Innovation Vietnam 2018.

EUROPE 2018

service – positioned as “Spotify for trading” – that Aquis has created. Equally welcome is its ban on aggressive and predatory highspeed traders. The result is lower signalling risk and market impact when compared with other alternative European platforms. This must have seemed a high-risk strategy for a new company hoping to gain market share, but Aquis CEO Alasdair Haynes’ bold strategy has proven itself by helping to create liquidity.

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Its anticipation of customer reactions to regulatory changes, and its understanding of the need for transparency, paid-off in a highly successful IPO in June. The CFI.co judging panel thinks other markets would benefit from similar disruptive initiatives, and applauds the responsible and dynamic example set by Aquis Exchange. The judges are is pleased to confer the award for Best Securities Trading Platform Europe 2018.

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> GROUPE AFFLELOU: BEST OPTICAL RETAIL CHAIN EUROPE 2018

Pardon the puns, but these eyesight experts with insightful innovation and a clear focus on marketing set the standard for fashion-forward eyewear. For Groupe Afflelou, the quality of its products is a point of pride, providing customers with a standard three-year warranty instead of the two years required under European law. Afflelou thrives on innovation, introducing the first

“buy one, get one free” offer 20 years ago. The company has worked tirelessly and consistently to make prescription eyewear accessible as well as stylish. They also introduced innovation in optics such as a subscription service: customers pay a monthly fee and can update their lenses as their vision changes. With retail locations in 18 countries – including several in Europe,

Asia, Africa, and Latin America – and a strong global digital retail network, the company has increased its market share despite a dip in the overall market. For its expansive global reach and its long-standing commitment to meeting, and exceeding, customer needs, the CFI.co judging panel names Groupe Afflelou as the Best Optical Retail Chain Europe 2018.

> CAPITAL FIRST: MOST INSPIRATIONAL MANAGEMENT BUYOUT INDIA 2018

V Vaidyanathan, Founder and Chairman of Capital First, is a quintessential entrepreneur who embarked on an ambitious plan some eight years ago. Quitting his senior-level Board position at India’s largest private-sector bank, he acquired a 10 percent stake in a small beaten-down finance company by leveraging his home and other assets. He immediately defined the mission as “financing small entrepreneurs and consumers in India.” Between 2010 and 2011, Vaidyanathan used contemporary technologies to build a “proof of concept” retail loan book

worth $120m, and demonstrated the unique model to PEs. Based upon this, he secured private equity backing from Warburg Pincus of $159m in 2012 to fund the MBO, and Capital First was founded in the process. He grew loan assets to $3b in 2017, and the market capitalisation grew from $120m at the time of the MBO in 2012 to $1.2bn in five years.

Vaidyanathan then sold a 1.5 percent stake in the company to square his leverage. In 2018, Capital First merged with a listed bank, IDFC Bank, in an all-stock deal, and Vaidyanathan

became the CEO of the combined bank, thus acquiring a commercial bank licence for Capital First. The bank’s shareholders showed their approval, with 99.98 percent of votes in favour, an unheard of mandate in banking circles. MBOs are rare but successful leveraged ones make for management textbooks. The CFI.co judging panel applauds Vaidyanathan’s successful soft touchdown of the MBO and creation of a commercial banking platform, leading to his 2018 award win for Most Inspirational Management Buyout India.

> NEWBRIDGE PHARMACEUTICALS: MOST INNOVATIVE PHARMACEUTICS COMMERCIALISATION PARTNER MENA 2018

The MENA region may be the new belle of the pharmaceutical ball — and NewBridge Pharmaceuticals holds its dance card.

Pharmaceutical markets in the Middle East and Africa (MENA) are some of the fastest growing in the world: emerging markets are introducing mass health insurance, improving infrastructure, and attracting the attention of private investors. Institutionally backed and with a strong local presence and network of international partnerships, NewBridge Pharmaceuticals is perfectly poised to “bridge 116

the access gap” between global healthcare innovation and successful market reach throughout the MENA region. NewBridge Pharmaceuticals is the regional partner of choice for healthcare companies looking to market and license their products in the region.

The company employs a diverse team with years of professional international experience, ranging from commercial sales and marketing to healthcare and regulatory compliance. There are urgent medical needs in the region, and NewBridge focuses on the areas of oncology, CFI.co | Capital Finance International

immunology, neuroscience, metabolic, and rare diseases. The company’s product portfolio promises to improve the health and quality of life of its patients while also bringing value to its partners and shareholders. The CFI. co judging panel applauds the company’s mission to address unmet medical needs in the MENA region through strategic jointventures and partnerships, naming NewBridge Pharmaceuticals the 2018 winner of the Most Innovative Pharmaceutics Commercialisation Partner MENA award.

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> ZURICH INSURANCE: BEST SUSTAINABLE INSURER SWITZERLAND 2018

The insurance industry has been quick to recognise the importance of corporate social responsibility (CSR) as a driver of growth and sustainability.

Zurich Insurance Group was very much a pioneer in CSR and has often been applauded for its well-considered approach. The Swiss insurer, a repeat winner in this category, decided early

on that CSR deserved a place at the heart of its business model. According to the CFI.co judging panel, Zurich - conscious of its role in society always seems determined to assess the impact of the business opportunities it considers, and consistently seeks out the right and honourable way to drive development. As with all efficient

insurers, Zurich protects policy holders from risk, encourages the accumulation of wealth and funds long-term investment capital for the benefit of society. The panel regards Zurich as an exemplar of social value creation in its industry and is delighted to confirm the award Best Sustainable Insurer Switzerland 2018.

> PPS PORTFOLIO PERFORMANCE: BEST INVESTMENT SERVICES FOR PENSION FUNDS BRAZIL 2018

Planning for the golden years of retirement has long been a priority, and a preoccupation, for many. In the Brazilian market, one company has become synonymous with trusted pension investment advice — PPS Portfolio Performance. Founded in 1996 by Everaldo Guedes de Azevedo França, PPS modernised the Brazilian market with innovative software to analyse investment portfolios, using objective metrics to measure risk and return. Although staff turnover at the

company is low, there has been an influx of new talent which has resulted in an increase in mathematical modelling and a succession of sophisticated international investments. PPS prides itself on its history of conflict-free policies, eschewing partnerships with banks or portfolio managers that clash with investors’ interests. It applauds recent Brazilian legislation — bringing the country into line with long-established PPS policies — that limit conflicts of interest and

crack-down on corruption. In an often-turbulent political situation, PPS pension funds remain strong and steady — another sign that public confidence in the company’s stewardship is sound and justified. For the second consecutive year, the CFI.co judging panel recognises PPS Portfolio Performance as a trusted and competent authority for optimising portfolio performance.

The panel confers the award for the 2018 Best Investment Services for Pension Funds (Brazil).

> BATELCO GROUP: MOST DIGITALLY INCLUSIVE TELECOM MENA 2018

Today’s telecom industry has moved far beyond the hooking up of copper wires and providing voice services. The advent of digital communication has not just transformed the sector but redefined its very premise. Modern and progressive telecom providers such as Bahrain’s Batelco Group anticipated the change – and embraced it as a new business model that tightly integrates all services and modalities of transmitting data. The company is continuously pushing the high-tech envelope to bring its customers the latest offerings such as cloudbased smart home services.

Batelco Group, the oldest telecom operator in Bahrain, boasts an exceptional history

of innovation. In 1992, the company claimed a global first when it managed to fully digitise the country’s domestic and international telephone network. Since then, Batelco Group has kept, and expanded, its leading edge not just in Bahrain, but overseas as well. Today, the company maintains a presence throughout the Middle East and much further afield. Batelco Group offers its comprehensive suite of services in territories such as the Falkland Islands, St Helena, Diego Garcias and the Channel Islands. Also, Dhiraagu is the leading and the largest provider of telecommunications and digital services in the Maldives and has enriched the lives of Maldivians with several home-grown digital products.

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Batelco Group is recognised for its dedication to serve the needs of smaller businesses and start-ups which may benefit from packages and bundles tailored to their specific needs. The company also pursues strategic partnerships that allow it to exploit synergies and further improve user experience.

The CFI.co judging panel notes that Batelco Group was an early adopter of both cloud-based services and the Internet-of-Things, yet again fulfilling its role as a telecom pioneer.

The judges agree to declare Batelco group winner of the 2018 Most Digitally Inclusive Telecom MENA Award.

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> THE STOCK EXCHANGE OF THAILAND (SET): BEST STOCK EXCHANGE IN ADVANCED EMERGING MARKETS 2018

The Stock Exchange of Thailand (SET) is perfectly positioned to become a new global contender in world capital markets. SET enjoys a strategic location at the crossroads of key Asia countries of 3.5 billion people, accounting for 32 percent of global GDP — and the country and exchange have major plans. SET offers a comprehensive range of investment products and services, plus it’s a key fund-raising engine for Thailand and the country’s massive Eastern Economic Corridor (EEC) project. Straddling three Thai

provinces, totaling 13,285 sq. km., and at an estimated final cost of $51 billion, the ECC aims to transform the region into an internationally connected hub of high-tech innovation and creativity. It intends to become a “bridge” linking economies, trade, and investment. This falls perfectly in line with the country’s futureforward initiative, Thailand 4.0, designed to usher in a digital revolution and revitalise the economy. The Thai government is keen to spur investment — loosening restrictions on permits

and offering tax breaks to facilitate SME job creation and improve infrastructure — and SET has a line of products and services to capitalise on the new incentives. With a focus of innovation and sustainable growth, SET uses cutting-edge technologies to create a competitive advantage at the international level, connecting quality listings with the funding they need. The CFI.co judging panel is happy to announce SET’s win for the 2018 Best Stock Exchange in Advanced Emerging Markets award.

> BANK OF MAURITIUS: BEST CENTRAL BANK GOVERNANCE INDIAN OCEAN 2018

Long known for the natural wonder of its beaches and reefs, the Indian Ocean Island of Mauritius is striving to set international standards for good financial governance and best banking practices. Throughout its fifty years of experience, the Bank of Mauritius has worked hand-inhand with public and private stakeholders to strengthen and modernise the country’s banking industry.

The Bank of Mauritius has taken a hard stance on governance policies, adopting best international prudential standards and exacting monitoring procedures paired with innovative solutions to ensure its regulatees are adequately capitalised with sufficient liquidity buffers. The

fact that ninety percent of the capital base of commercial banks is in the form of Common Equity Tier 1 capital is testimony to the success of the Bank’s endeavour to adhere to international best practices. The Bank of Mauritius is currently implementing a stringent risk-based supervisory framework for more efficient, effective and forward-looking outcomes.

With regard to the implementation of monetary policy, the Bank of Mauritius has reviewed its framework to optimise the transmission of monetary policy. Intent on promoting the Mauritian secondary bond market, the Bank has launched an awareness campaign to enhance savings intermediation and optimise

monetary policy conduct.

The Bank of Mauritius is also committed to transforming the Mauritian society into a financial literate one. The financial literacy programme launched this year has helped raise public awareness on central banking, monetary policy, currency, the importance of a savings culture and smart and safe investments.

For its exacting regulatory framework, new Fintech solutions, and customer outreach efforts — and building on their successful win in 2017 — the CFI.co judging panel is pleased to confirm the Bank of Mauritius winner of the 2018 award for Best Central Bank Governance Indian Ocean.

> adidas: MOST ECO-CONSCIOUS PRODUCT LINE UNITED STATES 2018

If sustainability were a race, adidas would be the endurance runner dominating it. The athletic apparel giant recognises that sports need a space to exist — whether it be a mountain to climb or an ocean to surf — and is dedicated to safeguarding those spaces for generations to come. The company’s Sustainability Roadmap addresses sustainability throughout the sport lifecycle. The holistic approach of its strategies targets all the spaces where sportswear is made (design or manufacturing facilities), sold (retail locations), and played (stadia, courts, pitches). At adidas production 118

facilities, little goes to waste. The company has pioneered low-waste textile production processes, creating product lines made with recycled materials at maximum pattern efficiency. The result? A winning combination of streamlined simplicity: less waste, fewer parts, and more sustainable materials.

Adidas is a founding member of the Better Cotton Initiative, which warns against the negative impacts of mainstream cotton farming and sources its cotton with more sustainable practices. Many adidas products are created using a “DryDye” process, which CFI.co | Capital Finance International

eliminates water in the dying process, or a “NoDye” process, which skips the dyes to showcase materials in their natural colours.

In partnership with Parley for the Oceans, in 2015 adidas launched a line of trainers made with upcycled plastic collected from beaches and coastlines — and sold more than a million pairs last year. The company has also ditched plastic bags throughout its retail chain. The CFI.co judging panel applauds its sustainability leadership, and names adidas the 2018 winner of the award for Most Ecoconscious Product Line USA.

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> Africa

Development Aid 2.0

It’s an idea that appears with some regularity, only to whither after practical considerations and implications are taken into account: a Marshall Plan with Africa.

Such plans ignore the fact that Africa is a continent, rather than a single nation: vast as well as diverse, comprised of 54 countries, home to multiple ethnicities and cultures. During last year’s G20 summit in Hamburg, an Ivory Coast journalist got an answer he probably did not expect from President Emmanuel Macron of France. Asked how much his country intended to contribute towards a fund to save Africa, President Macron bluntly replied: “Nothing.” Sensing the consternation in the room, Macron explained that he did not believe in such solutions, “not for a second”.

Last year, the global budget for development aid topped the $100bn mark. While a number of millennium and sustainable development goals have been met, some even before schedule, extreme poverty persists. World Health Organisation (WHO) reports show around 1.2 billion people still live in extreme poverty, with no access to decent shelter, clean water, or nutritious food. Paul Collier, author of The Bottom Billion, notes that over the past 50 years an estimated $2.3tn has been spent on aid, with not much to show for it. Collier know why: two-thirds of every aid dollar is earmarked for debt repayment, emergency food deliveries, and consultancy fees. Collier agrees with US policy analyst Jeffrey Sachs, who contends that the entire set-up is flawed: large international bureaucracies dispensing aid to large state bureaucracies in donor countries. It is a recipe that virtually ensures a significant waste of resources.

The limited impact of aid on economic development is also evidenced by the strong growth registered in countries such as China, India and Botswana, which receive virtually no support, yet have lifted tens of millions out of poverty. In Hamburg, President Macron sort-of stepped in it by pointing out that a Marshall Plan for Africa is a misnomer, since the original initiative was aimed at the reconstruction of war-torn economies: “What we need is a project to build up Africa’s civilisation.”

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ith that faux pas Macron echoed the much-maligned “mission civilisatrice” that provided France with a rationale for its colonisation of vast swaths of the African continent in the 1800s – hardly an appropriate geopolitical driver in today’s multipolar world.

MERKEL STEPS UP TO THE PLATE German Chancellor Angela Merkel now wants her country to take the lead in Africa – filling the void left by the United States, whose outspoken president seems far from charmed by its peoples and cultures. Germany could provide some counterweight to China, whose initial overtures have blossomed into an omnipresence in the emerging and pioneer markets of Africa.

Untainted by recent (neo-)colonial misadventures, Merkel plans to push for a large increase in private investment. This “Marshall Plan with Africa” was welcomed by most as a novelty worth exploring.

President Alpha Condé of Guinea, who holds the chair of the African Union, called the initiative a turning point for emphasising good governance.

Calling Africa “our immediate neighbourhood”, Chancellor Merkel unveiled a plan that calls for a close partnership with a select number of promising and willing countries, building on the G20’s own Compact with Africa (CwA) programme, which is squarely aimed at capacitybuilding and the implementation of a reform agenda that seeks to decrease risk to private investment, tapping into the trillions in search of yield.

Germany’s Marshall Plan with Africa dovetails with the much broader CwA, which also includes multilaterals with proven expertise in Africa, such as the World Bank and its agencies, the International Monetary Fund, and the African Development Bank.

CwA’s inclusion of all relevant institutions on the donor and recipient sides constitutes a novel approach, as do the cooperation and coordination between participants. So far, seven countries have signed up for full participation in the initiative – Ivory Coast, Rwanda, Senegal, Tunisia, Morocco, Ghana, and Ethiopia. Each will receive a tailored, country-specific compact – essentially a roadmap to accelerated development. Also new is the fact that participating countries may decide how to reduce risk and improve their investment climate – at their own pace.

The German federal ministry for Economic Cooperation and Development (BMZ – Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung) has moved quickly to reshape its project-based approach and pursue a more holistic set of policies, such as reform partnerships. Over the past year, the department has organised an online dialogue with leaders from civil society, policymakers, businesspeople, academics, and others to gauge needs and aspirations, and collect ideas.

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"Though the Marshall Plan With Africa was inspired by the need to reduce migratory pressure, it also seeks to help Africa cash-in its coming demographic dividend."

To be considered for inclusion, countries must meet a number of human rights criteria and be willing to pursue economic stability and invest in education.

PARTNERSHIPS Reform partnerships have already been implemented with Ivory Coast, Tunisia, and Ghana with some €300m earmarked. In return for reforms, these three countries receive support to expand the use of renewable energy, improve energy efficiency, and – perhaps most important of all – develop their financial and banking sectors. The overall objective remains the same: creating an environment that welcomes outside investment in recognition that only the private sector can provide the jobs and income Africa needs.

Though the Marshall Plan With Africa was inspired by the need to reduce migratory pressure, it also seeks to help Africa cash-in its coming demographic dividend. According to a policy research working paper prepared for the World Bank by, amongst others, Amer Ahmed and Marcia Cruz, by 2030 the demographic dividend may accelerate GDP growth by up to a fifth. That is in countries that manage to provide educational opportunities. The researchers conclude that a doubling of the skilled labour share to 50% of the total workforce would pull another 50 million people out of poverty.

As markets grow in people and in wealth, outside investments have the potential to transform economies faster than in mature and stable markets. The AII aims to chart the opportunities and identify the countries with the most dynamic economies. The 20177index placed Morocco, Egypt, Algeria, Botswana, and Ivory Coast in the Top Five for their sizeable domestic markets and a willingness, if not eagerness, to implement meaningful reform agendas.

Today’s smart money is looking at Africa, and moving there as economies open up and political life finds an equilibrium. Germany’s Marshall Plan With Africa recognises this and seeks to speed-up the process. While the amazing rise of China, its many accomplishments, and the shift of power to the East continue to dominate the news and discussion, Africa is where things are bound to start moving next. The continent’s population is set to double over the next three decades, to 2.4 billion, and will double again before the century is out. By 2050, Nigeria’s population alone will have surpassed that of the United States.

There is little room for error. A continent of two billion enterprising people without opportunity for advancement is not a thought anyone in Europe should wish to entertain. Asfa-Wossen Asserate, an Ethiopian writer and nephew of Haile Selassie who spent most of his adult life in Germany, warns in African Exodus that future migratory pressures will dwarf those experienced now. For Asserate, development aid is near useless and should be ditched in favour of more balanced trade relations. “How,” he asks, “does anyone expect African farmers to successfully compete with European producers who receive some $40bn in subsidies each year?”

The Brookings Institution, the original US thinktank, agrees with the new German approach to development – but recommends an expanded role for education. The skillsets of young Africans need to match the requirements of industry.

Already, companies in Nigeria, Kenya, South Africa, and elsewhere struggle to find the skilled workers they need – even though overall levels of unemployment remain high. Investment in human capital should be prioritised, especially since the productivity gains needed to increase prosperity can only be attained via automation.

The era of repetitive and back-breaking work is drawing to a close.

Asserate’s solution dovetails nicely with Germany’s Marshall Plan With Africa and the wider Compact with Africa promoted by the G20.

However, trade liberalisation is a long and drawnout process that is not likely to produce the desired results within a reasonable timeframe.

Contrary to popular perception, the EU’s muchcriticised Common Agricultural Policy (CAP) is not merely a protectionist racket or an expensive roundabout way of catering to the farming lobby.

It has a number of other dimensions as well such the preservation of a rural lifestyle – as opposed to replacing the family farm with the industrial working of the land as is the case in the US – and, even more importantly, ensuring Europe’s food security.

It is a matter of urgency. The countries of Africa need jobs and skilled people to fill them. This poses a problem and an opportunity. Private equity funds are slowly discovering the upside of Africa. The Africa Investment Index (AII), developed and compiled annually by Quantum Global Group, tries to gauge the investment climate in all countries of the continent, taking into consideration environmental and social impact while emphasising demographic trends.

It is at this juncture that good governance – the bedrock on which sustainable development policies may be erected – enters the discussion.

Once initiatives such as Germany’s Marshall Plan With Africa succeed in furthering good governance, real and meaningful partnerships may emerge. Until then, African countries must be willing and ready to implement reform agendas with a little outside guidance, essentially driving the process under their own power. i

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INTERNATIONAL BANKING

Autumn 2018 Issue

BANKING WITHOUT BORDERS we make every minute count

Through our off ices in Mauritius, Kenya, Madagascar and India, we provide a spectrum of solutions tailored to address your specif ic requirements and achieve your grow th aspirations.

Hotline: (230) 207 0111 | E: internationalbanking@sbmgroup.mu W: www.sbmgroup.mu CFI.co | Capital Finance International

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> CSCS:

Responding Positively to Market Needs in Nigeria Nigeria’s Central Securities Clearing System Plc (CSCS Plc) has as its vision statement: “To be the globally respected and leading Central Securities Depository in Africa." Many companies have noble vision statements, but CSCS abides by its words, and is achieving its goal.

T

he company was incorporated in 1992 as a Financial Market Infrastructure (FMI) for the Nigerian Capital Market. It was commissioned in April, 1997, and started operations in the same month.

In May, 2012, CSCS became a Public Liability Company (Plc) by a special resolution.

CSCS is licensed by the Securities and Exchange Commission (SEC) as a central depository, clearing, and settlement agency for transactions in the Nigerian Capital Market. It operates a computerised system for transactions in securities in the market.

CSCS facilitates the delivery and settlement of securities transactions consummated on approved Nigerian Exchanges. It enables securities to be processed in electronic bookentry form, speeding up the transaction period.

It also provides ancillary services such as the Electronic Document Management Services, collateral management amongst others.

The company has made visible strides in the Nigerian Capital Market and continues to respond to the needs of the securities and commodities market to enhance transparency and swift settlement of transactions.

This story began with a vision statement; it’s worth taking a look at the CSCS mission statement as well: "We create value by providing securities depository, clearing, settlement and other services driven by innovative technology and highly skilled workforce."

The attention to etiquette extends to being honourable and honest in all CSCS’ dealings, and the company maintains its integrity and high ethical standards in all circumstances. “We encourage ingenuity, inventiveness and creativity of our employees,” says Jalo-Waziri. “This produces original and imaginative ideas for our growth and development.

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"The attention to etiquette extends to being honourable and honest in all CSCS’ dealings, and the company maintains its integrity and high ethical standards in all circumstances."

“We respect and reward merit, creating a work environment that drives increasing knowledge and skills of our employees for consistent delivery of quality output time after time.”

In 2017, the total value of securities (Equities, Bonds and ETFs) settled increased by 118.78%, 581.78 billion Nigerian Naira (£1.23bn) in 2016 to N1,272.83 billion Naira (£2.7bn) in 2017. The volume of securities settled increased from 96.63 billion units in 2016 to 102.10 billion units in 2017, representing an increase of 5.66%.

The total volume of securities held in CSCS’ depository increased by 1%, from 964.0 billion units in 2016 to 973.6 billion units in 2017. Also, the value of securities increased by 31.75%, from N9,906.6 billion (£21bn) in 2016 to N13,052 billion (£27.6bn) in 2017. i CFI.co | Capital Finance International

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> With Jalo-Waziri at the Helm:

Africa’s Leading Securities Depository Embarks on Three-Year Plan Haruna Jalo-Waziri, Managing Director and Chief Executive Officer of the Central Securities Clearing System Plc (CSCS Plc) has nearly three decades of progressive experience in the capital market.

H

e is a well experienced financial markets expert, specialising in deal origination, investment management, securities trading and regulation.

Jalo-Waziri oversees the strategic direction of CSCS Plc. When he took up his post in November 2017, he set the tone by developing a three-year strategic plan (2018 – 2020) focusing on five strategic pillars: enhanced technology, process optimisation, customer satisfaction, partnership through strategic alliances, and revenue growth.

These pillars will keep CSCS in focus: retaining its global respect and becoming a leading Central Securities Depository (CSD) in Africa – as well as keeping its obligations to stakeholders, while ensuring it remains competitive and profitable for its shareholders.

Jalo-Waziri started his market career at The Nigerian Stock Exchange (The NSE) and subsequently moved to the Securities and Exchange Commission, the apex regulatory organization of the Capital Markets in Nigeria.

He worked with Afrinvest West Africa (formerly SECTRUST) and Kakawa Discount House Limited, where he started the Asset Management Department, which he later transformed into a full-fledged company: Kakawa Asset Management Limited (now FBN Merchant Bank). He later joined the services of First Alliance Pension & Benefits Limited (Now ARM Pensions Ltd) in partnership with Mcube South Africa.

In 2007, he was appointed MD/CEO of UBA Stockbrokers Limited, a subsidiary of United Bank for Africa (UBA Plc) which he successfully turned into one of the top five securities trading companies in Nigeria. He thereafter became the MD/CEO of UBA Asset Management Ltd.

Partnership, GICS Adoption and the first duallisting on the NSE and LSE Main Board.

Haruna Jalo-Waziri was appointed the Executive Director for Capital Markets at The NSE in 2012, with a primary responsibility for the overall capital market developments. He implemented key initiatives, including a capital markets partnership agreement with the London Stock Exchange Group. He also developed the Sovereign Green Bond, introduced the Federal Government Retail Savings Bond, launched the NSE Premium Board, the MSCI Index

He has served on several boards, including FSDH Merchant Bank, Nigerian German Chemical Plc, Oakwood Protea Hotel, Central Securities Clearing System Plc and Coral Properties Ltd. He is currently on the board of Special Olympics Nigeria. He is also the current Vice-President of the AIFA Reading Society, an NGO that focuses on promoting a reading culture and the attainment of sustainable educational development across Africa.

MD & CEO: Haruna Jalo-Waziri

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Haruna Jalo-Waziri has a degree in Economics from the University of Maiduguri, Nigeria and holds an MBA from Abubakar Tafawa Balewa University Bauchi, Nigeria. He has, throughout the course of his career, attended local and international courses and seminars on capital markets operations, management and leadership. He is an alumnus of the Lagos Business School and the Venture Capital Institute of America.

He is also a life member of the Institute of Directors. i 125

Giving You More

> Credit Bank:

The SME Go-To Bank in Kenya

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redit Bank Plc is a successful Small and Medium Enterprises (SME) bank committed to its vision of being the most respected financial institution in its target market.

The bank’s mission is to transform the financial industry landscape through innovative and relevant financial solutions.

Excellence, teamwork and innovation are key values for enabling the bank to provide a pre126

eminent service to its clientele – and Credit Bank is on-course, as evidenced by its current performance and recognition: • The Best Recovery Award • Best Commercial Bank Governance Team • The Best Correspondent Bank with excellent Straight-Though Processing Rates (STPR) • Best Card Product Launch for the Credit Bank Platinum Visa Debit Card • Best bank in SME banking (Runner-up) • Bank with the lowest charges for SMEs (Runner-up) CFI.co | Capital Finance International

The bank, which is privately owned, has 32 years’ commercial banking experience, is licensed under the Banking Act and is regulated by the Central Bank of Kenya. Credit Bank operates 17 branches across the country and has a staff of about 200.

Credit Bank Plc recognises the vital role that strategy, leadership, governance and an enabling culture for an engaged staff force play in unlocking the future. These pillars promote innovation, teamwork and service excellence

Autumn 2018 Issue

"Credit Bank Plc has invested heavily in up-todate technology on the core banking, mobile and internet systems, all of which help to ensure services are accessible to customers." and examine the organisation’s resilience. This is crucial, considering the dynamic environment in which Kenyan commercial banks and microfinance institutions operate.

The bank aims to deliver cost-effective, innovative, financial service solutions. It works with its customers and clients to help them realise their goals as well as creating tangible value. Credit Bank has a long heritage, giving it tremendous potential to exploit economic and financial opportunities while effectively achieving its strategic goals.

The SME sector in Kenya is a robust one that has expanded in the past five years, driven by the entrepreneurial spirit of the country’s youth.

These young people are tapping into business to counter high unemployment. Statistics show that only 10% of graduates are absorbed into the formal sector; the rest have to be innovative – and often become entrepreneurs. The Central Bank of Kenya report shows that SMEs constitute 98 % of business in Kenya, providing 30% of jobs and contributing 3% of the country’s GDP each year.

While Kenya’s SMEs have an annual turnover of $5,000 to $50,000 and employ 10-49 people, many end up closing prematurely; about 46% of SMEs close within a year, and another 15% shut down a year after that. The biggest challenge is funding.

Credit Bank has taken up the challenge to develop solutions for the SME market that tackle day-to-day business needs. One of the ways to do this is through the Entrepreneurs Hub. The Hub seeks to draw business leaders from a wide array of industries for growth and mentorship engagements.

Its main intention is to fill the information gap: of all the information sources that exist in today’s digital world, which trusted source do I work with as an entrepreneur?

"Credit Bank has a long heritage, giving it tremendous potential to exploit economic and financial opportunities while effectively achieving its strategic goals."

Credit Bank brings together experts and business leaders to enhance and enable learning. The Entrepreneurs Hub allows discussion of critical impacts on a business to ensure sustainability as well as to create a platform for networking.

Registered businesses under the Entrepreneurs Hub get access to intensive and impactful business management modules and one-on-one coaching sessions with consultants. Through CFI.co | Capital Finance International

the Hub’s online forum, it is possible to share business profiles with other entrepreneurs and access exclusive rates on business financing, insurance packages and competitive foreign exchange rates. The business also gets access to relevant articles from investment and financial experts in monthly hub newsletters.

Credit Bank has perfected the art of trade financing, and was recognised as a key contender in this sector during the 2018 Banking Awards.

The bank received special recognition in the Best Bank in Trade Finance category, on the back of a bulging client portfolio built in just two years.

Trade finance involves a range of short-term credit instruments and facilities which are organised in a way that matches the exchange cycle of the import or export programme of an international business. An SME that encounters a quick rise in sales and needs to source products to cater for rising demand requires more cash to pay for the merchandise before the deal is made and the products released.

The facilities for SMEs offered by Credit Bank make the bank one of the preferred institutions to support businesses and help them grow into medium-sised and larger competitive corporates.

Credit Bank Plc has invested heavily in up-todate technology on the core banking, mobile and internet systems, all of which help to ensure services are accessible to customers.

The bank is led by CEO Betty Korir, as part of the leadership of the Board of Directors. The Board is responsible for the overall management of the bank and is committed to ensuring that its business and operations are conducted with integrity. Compliance with the law, internationally accepted principles and best practice in corporate governance are equally important.

The impact of sound corporate governance and clear strategy on SMEs has transformed Credit Bank, and it has been able to record growth over the past three years. This is noteworthy – especially at a time when an interest ratecapping law meant that most of the country’s banks recorded losses or a slowdown in growth.

By enabling small businesses to grow, direct and indirect benefits – including the creation of other subsequent businesses – come as part of the package. To be able to continue to serve in the longer term, Credit Bank will continue to base its practices on its values. i 127

> Kenyan Credit Bank CEO Betty Korir:

On the Big Stage as one of the Few Women Corporate CEOs Leadership in the corporate world is largely male-dominated. Of the 42 commercial banks in Kenya, only about 10% are run by women – and Betty Korir is one of those women.

K

enyan Credit Bank Plc’s CEO Mrs Betty Korir has managed to transform the norm to lead an SME's bank into major league competition. She was announced Chief Executive Officer by the Board of Directors on October 1, 2017. This came after her previous appointments at Credit Bank – as Deputy CEO and Head of Legal and Credit – and a career in the banking sector that has spanned more than 20 years.

As CEO, Mrs Korir has been committed to elevating the bank’s status – and profits – through specific product-offerings focusing on SME's. “The SME market in Kenya is highly underserved,” she says. “These businesses are having a hard time sourcing finances, finding an institution they can work with, and walk with, as they grow, and that’s what I want to offer. This bank is a friend to the SME's as encapsulated in our slogan of ‘My Friend, My Bank’.”

Since Mrs Korir took up leadership at the bank, accolades have flowed in. Credit Bank has won Best Card Product Launch (Platinum Card) – VISA Awards in November 2017, Best Correspondent Bank with Excellent Straight Through Processing (STP) Rates – Standard Chartered Bank Awards, Best Bank in SME Banking, runners-up for going the extra mile by crafting solutions that suit customers needs, Bank with the Lowest Charges for SME's, Runners-up for Great service with best value for money, and The Best Recovery Award.

Employing customer-oriented strategies has helped turn the business around.

A highlight award in 2018 was when Credit Bank was voted the eighth-best Bank in the Kenyan Banking industry. A recent survey by Info Track also confirmed that CREDIT Bank has the happiest staff. “Employee happiness often leads to desirable positive outcomes at work,” says Mrs Korir. “Productivity rises, and a sense of satisfaction from this work leads to better customer relationships. A positive work environment fosters innovation where you can benefit from the best products that the market has to offer.” This sort of observation weighs on her leadership skills.

The Kenyan banking industry is constantly changing. It is unpredictable, volatile, and seems

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CEO: Betty Korir

more complex every day. By its very nature, it is fraught with risk. Betty Korir has managed to navigate this financial jungle to stamp her position at the top of the chain. The bank has seen sustained growth of an average of 40% every quarter.

“I think we have managed this through proper product offering that best suits our customers,” she says. “We have structured finance solutions, and are further pushing the trade finance frontier.

Our customers are now getting exactly what they are looking for, what they would expect to receive from a financial institution.

“This means that SMEs have a chance of growing their businesses, progressing their ideas CFI.co | Capital Finance International

and spending as little time as possible thinking about how they are going to pay back their credit advancement.

Betty Korir holds many qualifications: Bachelor of Education, Bachelor of Laws (Hons) LLB, and a Master’s Degree in Marketing /Finance from the University of Nairobi. She is a member of the Global Association of Finance and Management (GAFM), a Chartered Credit Analyst (CCA) and an associate of the Kenya Institute of Bankers. She was a finalist in Banking Professional Qualification (AKIB) and holds various Risk Management Certifications.

She has also had international exposure to project finance and sustainable lending via the Triodos Bank in the UK. i

Autumn 2018 Issue

> Emmanuel Antwi-Darkwa, VRA's Chief Executive:

Vast Experience of VRA Chief Leads Energy Team to Success VRA Chief Executive Emmanuel Antwi-Darkwa has more than 30 yearsâ&#x20AC;&#x2122; experience in the energy industry, spanning gas transactions, power generation, transmission, and distribution.

H

e has provided technical support for multilateral institutions including the World Bank, International Finance Corporation (IFC) and the European Investment Bank (EIB).

Antwi-Darkwa has extensive knowledge of functional structures and regulatory influences in the Ghana energy industry. As well as his role as CE of the Volta River Authority, he serves on the boards of the West African Power Pool (WAPP) and the West African Gas Pipeline Company (WAGPCo), among others.

"He serves on the boards of the West African Power Pool (WAPP) and the West African Gas Pipeline Company (WAGPCo), among others."

Antwi-Darkwa was an advisor to the government of Ghana in the role of Director of Power at the Ghana Ministry of Energy from 2002 to 2009. He was responsible for the formulation of policies, monitoring and evaluation of projects in the power sector, as well as project-management for the Ghana National Electrification Programme.

He has led several negotiation teams, including those on the 330MW Takoradi Thermal Power Plant (T2) Combine Cycle project and the 400MW Bui Hydro Power Project.

Antwi-Darkwa holds an MBA in International Oil and Gas Management from the University of Dundee (UK), an MPA from Harvard University (USA) and a BSc (Hons) in Civil Engineering from the Kwame Nkrumah University of Science and Technology (Ghana).

He is a member of several professional bodies, including the Ghana Institution of Engineers (GHIE), the International Hydropower Association (IHA), the Society of Petroleum Engineers (SPE), the Association of International Petroleum Negotiators (AIPN) and the Editorial Advisory Board of the Hydro Review Worldwide. i

Chief Executive: Emmanuel Antwi-Darkwa

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> VRA:

Volta River’s African Odyssey Brings Power to the People

T

he mighty Volta River, the main river system in Ghana, flows into the West African country from the BoboDioulasso highlands of Burkina Faso, then southwards along the AkwapimTogoland highlands to finally empty into the Atlantic Ocean at the Gulf of Guinea at Ada. Along its path, the Volta’s immense power has been harnessed to generate hydroelectricity. A dam at Akosombo, named Lake Volta, is one of the world’s largest man-made reservoirs.

Ghana’s Volta River Authority (VRA) was established in 1961 with the mandate to

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generate, transmit and distribute electricity. The VRA is committed to showing leadership in the climate change agenda and is taking advantage of the country’s renewable energy resource to expand its generation portfolio. The VRA aspires to be a key player in global climate change and environmental protection efforts, while ensuring security in electricity supply.

Since its inception, the VRA has demonstrated its social responsibility through various interventions designed to enhance the socio-economic and physical environment of the lakeside and downstream communities. It has a Community Development Program (CDP) that supports CFI.co | Capital Finance International

resident and impacted communities in the lower Volta Basin, and other operational areas (Aboadze, Kpone and Tema), with the aim of contributing to the wellbeing of the local residents through educational support schemes, skills development, provision of health care, environmental protection activities and sustainable rural enterprises.

The VRA, through the Northern Electricity Distribution Company (NEDCo), is the sole distributor of electricity in the Brong-Ahafo, Northern, Upper East, Upper West, and parts of Ashanti and Volta Regions of Ghana. Originally, NEDCo, a subsidiary of the VRA, was developed as an integral part of the larger Northern

Autumn 2018 Issue

the wind resources have been determined to be adequate for commercially operating wind farms.

The VRA supplies power to neighbouring countries through interconnections governed by West Africa Power Pool (WAPP) protocol. The authority is also a founding/principal member of the Association of Power Utilities of Africa (APUA), contributing significantly to policies on power development and accessibility on the African continent.

After an amendment to the VRA Act as part of the Ghana Power Sector Reforms in 2005, the VRA’s mandate has been largely restricted to generation.

The key function of the amendment was to attract independent power producers (IPPs) into the Ghana electricity market. Strategically, the VRA has diversified its power generation development to take advantage of available and sustainable sources of energy, mainly natural gas, and liquefied petroleum products.

By late 2017, the VRA was operating a total installed electricity generation capacity of 2,644.5 MW (Megawatts). This includes the Akosombo and Kpong hydro-electric plants with installed capacities of 1,020 MW and 160 MW respectively, complemented by a 330 MW Combined Cycle Thermal Plant at Aboadze, in the Western Region. A further 340 MW combined cycle Thermal Plant is operated via a joint venture with TAQA, from Abu Dhabi in the United Arab Emirates. The VRA has also developed a number of thermal plants in Tema. These include a 110 MW Tema Thermal 1 Power Plant, commissioned in 2008, a 49.5 MW Tema Thermal 2 Power Plant, commissioned in 2010, and a 220 MW Thermal Plant located at Kpone, near Tema.

Akosombo dam

"Since its inception, the VRA has demonstrated its social responsibility through various interventions designed to enhance the socio-economic and physical environment of the lakeside and downstream communities."

Electrification and System Reinforcement Project (NESRP) to extend the national electricity grid to northern Ghana, in 1987. By close of the year 2017, NEDCo had a customer population of 823,053 and a load demand of about 240.3MW. The authority is currently building a 12MW grid connected Solar PV Plant, with the possibility of increasing it to 17MW, in the Upper West region of Ghana, and has an additional 100MW planned for completion by 2020. This includes the possibility of using the large water surfaces of its dams for hydro-solar hybrid systems. The VRA is also working on developing 150MW of wind power in the southern parts of the country, where CFI.co | Capital Finance International

An additional 38 MW is currently at commissioning stage to expand the 49.5 MW Tema Thermal 2 Power Plant, and the VRA also owns and operates a 2.5 MW solar plant in Navrongo, commissioned in 2012. The VRA plays a role for the government of Ghana (GoG) in a Build-Own-Operate-and-Transfer (BOOT) arrangement between the government and the AMERI Group for the operation of the 250MW thermal power plant at Aboadze.

The VRA is embarking on a transformational agenda to create a “NEW VRA,” which is a resilient, sustainable, growing holding company with multiple business interests to further its corporate objectives. As part of the NEW VRA, the authority seeks to raise the capacity of its human capital to the highest possible levels, leverage on IT systems to improve its operations, further develop its use of renewable resources, advance its commercial orientation, and add value to its non-power assets.

This agenda is in-line with the VRA’s long-term vision of being a Model of Excellence for power utilities in Africa. i 131

Autumn 2018 Issue

> Woman Power:

CEO Has Fine Leadership Qualities

M

AROCLEAR has been the central depository of securities in Morocco since 1997, with three main aims: • the dematerialisation and custody of securities that are admitted to its

operations; • the administration of current accounts of securities opened in the name of its affiliates; • the settlement of any transaction carried out on transferable securities admitted to its operations, in accordance with the Payment versus Delivery principle.

MAROCLEAR tackles all related activities to facilitate the achievements of its missions, including the numbering of securities. This involves carrying out any procedure to facilitate the exercise of the rights attached to the securities by affiliates and the collection of the products generated.

"Fathïa BENNIS became general manager of MAROCLEAR in 2005, and has been Chair and CEO of MAROCLEAR since 2007. She has been decorated with the Chevalier de l'Ordre National du Mérite of France."

CEO Fathïa BENNIS graduated from Lyautey High School in Casablanca, then attended Mohamed V University in Rabat where she achieved a degree in Political Sciences and a Doctorate in International Economic Relations.

BENNIS has been a board member of an office equipment company, held the position of senior manager in the Moroccan central bank, Bank Al-Maghrib (1984). She was in charge of the IMF topics within the committee of credit and financial markets (currently titled the National Board of Money and Savings, in charge of bank refinancing, Treasury bonds, auctions and money market Instruments).

Chairperson & CEO of MAROCLEAR and President of the Women’s Tribuine Association: Fathïa BENNIS

From 1998 to 2005, she has held the position of general manager of the Casablanca Stock Exchange and of the National Moroccan Office of Tourism. She became general manager of MAROCLEAR in 2005, and has been Chair and CEO of MAROCLEAR since 2007.

She also serves as a board member of the national committee of CGEM, is a founding partner of the AFEM, treasurer of the Moroccan Association of International Relations Studies; deputy to the

general-secretary of the Moroccan Royal Golf Federation. BENNIS is also the treasurer of the Emergency Assistance Association in Rabat; president and founding partner of the Women’s Tribune Association; a board member of the CDS think-thank; vice-president of the Collective of Democracy and Modernity; president of the ALM Ecology Trophy; a member of the African and Middle East Depositories Association (AMEDA); a member of the Union of Arab Stock Exchanges CFI.co | Capital Finance International

and president of the "Club des Femmes Du Tourisme".

Fathia BENNIS has been decorated with the Chevalier de l'Ordre National du Mérite of France.

ABOUT MAROCLEAR MAROCLEAR guarantees the necessary security and fluidity, for a better functioning of post-trade processes. i 133

> The Keys to the MAROCLEAR Twenty Years Success Story:

Good Governance, Focus and Innovation

M

MAROCLEAR has just celebrated its 20th year of sustained growth and it is clear the company’s steadfast commitment to good governance policies has contributed significantly to this success.

Good governance and social responsibility have always been priority components in the company’s development. In 2013, MAROCLEAR obtained the CSR label from the Moroccan General Confederation of Enterprises (CGEM) after adhering to the most stringent international standards in the financial sector. Since then, the company has been committed to promoting the recommendations of the Moroccan Code of Good Governance Practices for Public Institutions and Companies.

MAROCLEAR has enrolled itself in a continuous process of compliance with national and international guidelines.

The company has laid down four pillars which it aims to implement on a daily basis. These

"MAROCLEAR remains convinced that the development of the Casablanca financial market needs the combined efforts of all stakeholders, which will thereby foster the emergence of a real panAfrican financial services industry for added-value." include reliable communication of results and prospects; a strengthening of internal control mechanisms and risk-management policies; an objective system, based on measurable performance criteria, for the appointment, evaluation and remuneration of managers; and functional equity of shareholders.

OUR VALUES

As the Central Depository of Securities in Morocco, MAROCLEAR has three main missions: The conversion of securities into an electronic format (dematerialisation) and thier custody; the administration of current accounts of securities; and the settlement of transactions on transferable securities in accordance with the Payment vs Delivery principle.

The company also facilitates the numbering of securities by carrying out relevant procedures to facilitate the exercise of the rights attached to the securities by its affiliates, and the collection of the products they generate.

For the last 20 years, the Central Depository has invested in operations which are carried out as transparently and safely as possible, from conservation to the settlement of securities.

This mission started with the company’s creation in 1997, and was supported by the end of the transitional phase of the dematerialisation system and its admission into the Negotiable Debt Securities in 1999.

Transparency is a foundational element of governance that is applied to all internal and external activities.

MAROCLEAR regularly communicates its commitments and results, which is an essential value for its partners.

Precision is essential for the Central Depository’s business. It is based on formalized processes and practices conforming to the most demanding international standards.

Transparency

Precision Security

Responsibility: Thanks to its central and strategic role, MAROCLEAR acts in all circumstances with a keen sense of responsibility.

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Security: driven by a requirement of sustainability, MAROCLEAR offers to its affiliates a reliable information system for a secured management of all of their securities and transactions.

Responsibility Trust Trust is the ultimate advantage that MAROCLEAR shares with all its affiliates. A fundamental guarantee of development for the financial center. It is embodied in our slogan «Trust is the most valuable asset of an ambitious market».

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Autumn 2018 Issue

MAROCLEAR: The Executive Team

"The objective is clear: MAROCLEAR must be the guarantor of a financial market and a reliable, secure, and transparent place to reassure local, regional, and international investors – and offer them all the guarantees they are looking for."

MAROCLEAR conducts its work in full compliance with best international practice.

In addition to protecting its core business, MAROCLEAR has always been able to anticipate strategic opportunities in the market.

The proactive business offer is supported by innovative, technological prescriptive solutions for Casablanca Financial Centre. MAROCLEAR offers quality services with resilience standards comparable to the most developed marketplaces. Behind the scenes, this company has been driven by the unwavering passion of its teams.

MAROCLEAR remains convinced that the development of the Casablanca financial market needs the combined efforts of all stakeholders, which will thereby foster the emergence of a real pan-African financial services industry for added-value. The company employs highly qualified staff and the latest generation of technology to meet the challenges related to the complexity and speed of growth in assets managed at the Casablanca Financial Centre.

Banks

25%

MAROCLEAR has supported the CEMAC region in the implementation of the CSD within the BVMAC (Regional Stock Exchange). In 2014, MAROCLEAR has been appointed to assist the BCEAO for the implementation of the front to back solution for Government Debt Instruments.

FUTURE OUTLOOK “In continuation of the MAROCLEAR mission, the year 2018 will be marked by the launch of the new CAP 2018-2022: cross-cutting projects in progress, in particular with the development of the business offering and the IT system whose aim is to expand the company’s offering with high quality of services for Casablanca Financial Centre,” reports CEO Fathïa BENNIS.

MAROCLEAR is the guarantor of a financial market and a reliable, secure, and transparent place to reassure local, regional, and international investors – and offer them all the guarantees they are looking for. Significantly, MAROCLEAR has purchased a land parcel to be used for the construction of the new headquarters within the “Financial City" of Casablanca. To keep in line with the other market players and define a roadmap, MAROCLEAR is co-operating with the Moroccan Capital Markets Authority (AMMC) on future projects. i

Insurance companies 15%

Bank Al Maghrib

20%

100 Million Dirhams 10%

Moroccan state

CFI.co | Capital Finance International

5%

Moroccan Deposit and Management Fund

Casablanca Stock Exchange

25%

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> The Trillion Dollar Company:

Been There, Done That

T

hey just don’t come as big today. Apple recently reached the $1 trillion market capitalisation mark – with Amazon, Alphabet (Google), and Microsoft hot on its heels – and now a sense of perspective is called for.

Only once before has a company moved north of the trillion-dollar mark. In November 2007, in the two weeks that followed its debut on the Shanghai Stock Exchange, PetroChina briefly became the world’s most valuable company – worth twice as much as Royal Dutch Shell and BP combined.

That peak was short-lived. Though retail investors eagerly snapped up PetroChina shares, hoping to catch a stairway to heaven, larger funds exited the market within days of the IPO. After Warren Buffett expressed his concerns about excessive prices (concerns soon echoed by Chinese authorities) the run for the door became a stampede. This signalled the beginning of a long slide that saw PetroChina’s market cap reduced to a shadow of its former self.

The company’ valuation plummeted by about $800bn over the next decade. According to market watchers and analysts, the bottom has not yet been reached with the shares of PetroChina listed in Shanghai liable to suffer a further loss of 16% before one of the largest wipe-outs of value in history is completed. PetroChina stock is still trading at about 30 times its earnings, indicating a mostly unwarranted 50% premium over its global peers.

PetroChina is also being hit by production troubles in Venezuela (see separate article on p175) which has forced the company to reconfigure three long-delayed refinery projects in Guangdong, Shanghai, and Weihai set up specifically to process the heavy crude extracted from the basin along both banks of the Orinoco River, home to the world’s largest oil reserves.

The Chinese facilities, nominally a joint-venture with state-owned Petróleos de Venezuela – now bankrupt in all but name – were scaled-up to process up to 800,000 barrels of Orinoco crude per day. Venezuela is unlikely to deliver as its oil production declines, expected to hit a new low of barely 1.3 million barrels/day by early October.

The International Energy Agency forecasts production will probably dip below one million barrels per day before the end of the year. This puts in jeopardy the repayment of around $50bn in loans granted by the Chinese government in return for a dependable supply of crude.

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Writing in Wired, former Reuters finance blogger Felix Salmon argues that Amazon may in the long run to become the world’s largest corporation.

According to Salmon, Amazon’ dominance of the retail sector is largely based on myth and a misunderstanding of the company’s business model.

Founded as an online bookstore in 1994, Amazon did manage to profoundly change the way books are sold. But its indisputable dominance of the publishing business is not replicated in other retail sectors. Outside the book business, Amazon’s market share is modest to negligible.

But that is not how the industry sees it.

When Amazon acquired online pharmacy PillPack for $1bn in June, investors dumped shares in brick-and-mortar pharmacy chains such as CVS and Walgreens, fearing a takeover of the entire industry by Jeff Bezos and company, even though the latest member of the Amazon corporate family boasts an annual revenue of only $100m – less than 0.1% of the $100bn-plus turnover reported by Walgreens. The rush for the exit wiped an estimated $11bn in value off the market cap of both pharmacy chains.

Amazon derives growth not from its size but from its omnipresence – and its well-documented willingness to innovate, experiment, and take risks. Even the shuttering of high street retail stores may not be blamed on the online retailer; in-store sales continue to rise. The company is appreciated by investors for ploughing its profits back into the business to underwrite new ideas – or write-off failed ones such as the $545m acquisition of Diapers.com, which Amazon closed after being unable to turn the company into a profitable venture.

Amazon’s presence in nearly all market segments, its deep pockets and its courting of risk make the company a good candidate to become the world’s first two-trillion-dollar giant – yes, two trillion. The company’s recent, and almost stealthy, move into the advertising business shows that Amazon aims to diversify its revenue stream without becoming too large in any one sector to warrant antitrust concerns. Apple, in contrast, has so far made no serious attempts to break out of its core business.

That said, Apple is generating quite a bit of excitement after it unveiled plans in February to broaden the iPhone line-up with no less than three new models – including a supersized handset that bridges the divide between phones and tablets and an entry-level model with some of the more desirable features of its flagship iPhone X. CFI.co | Capital Finance International

Autumn 2018 Issue

"Though Apple and Amazon are big fish, they swim in a pond larger than that of their corporate forebears. This may be helpful to remember when critics draw attention to the dominance of big tech, in the US or elsewhere."

Though attempts by Samsung and others to create a market for “phablets” have failed, Apple seems willing to give it another try. The company’s much-hyped iPhone X has not been the sales’ driver analysts had hoped for. Consumers may have been discouraged from moving upmarket by the $1,000+ price tag on a handset that is barely distinguishable from the cheaper iPhone 8.

Apple-watcher – yes, it is a job – Gene Muster is bullish on the Cupertino giant and predicts that a larger screen will set off another super cycle: “Whenever the screen size goes up, users drop their older and smaller iPhones in droves.

This holds particularly true for Asia where many consumers own just a single device and clamour for bigger screens.”

The as-yet unnamed big iPhone will feature a 6.5” (16.25cm) screen versus 5.5” for the iPhone 8 Plus. By emulating the iPhone X and eliminating the home button, Apple promises to keep the actual size of its new phone close to that of its current “plus” model. One concern shared by most Apple-watchers is that an oversized iPhone could eat into the company’s lacklustre iPad sales.

The company’s earlier venture into the lower end of the market did not end well. Analysts think, hope, and/or pray that Apple has learned its lesson with the short-lived iPhone 5c, which was priced only $100 lower than the fully-featured aluminium-bodied 5s. This time around, Apple will again use a polycarbonate body, but promises to cram it with nearly all the desirable features of the higher-end models, including Face ID and an edge-to-edge screen (albeit not one using the more expensive OLED technology). Apple has long resisted calls to broaden its product palette and offer the middle segment of the market at least a taste of its phone candy. If not yet answered, these calls may now at least have been acknowledged.

Apple has passed the magical one trillion dollar market cap, it is perhaps wise to remember that in the grand order of things – including those of times past – the marker is meaningless or insignificant.

Even if Amazon should shoot ahead and more than double its market cap over the next few years, as Muster thinks likely, it will still be far removed from the high set by the Dutch East Indies Company (VOC) in the 17th Century, which at its peak was worth an estimated $7.3 trillion in today’s money. The VOC’s mindCFI.co | Capital Finance International

boggling market capitalisation equals that of all five US big-tech companies, plus Tencent, Alibaba, Samsung, and a dozen or so other global corporate heavyweights such as ExxonMobil, Chevron, and Bank of America. The VOC was worth as much as the combined GDPs of Japan and Germany.

Even the early 18th Century South Sea Company, set up to trade with South America (most of the South Pacific was yet to be discovered by Captain James Cook) was at the height of its bubble worth some $4 trillion – before it collapsed and languished for almost 150 years.

The difference between then and now is the overall size of the global economy, and the vast number of large corporates. Even disregarding the corporate blasts from the past, Apple, Amazon and the other aspiring one-trillion-dollar tech giants – mainly Microsoft and Google parent Alphabet – have some way to go before they can dominate the stock market as the old AT&T (before its dismemberment in 1984), General Motors, and IBM did in their heyday. At its May 1932 peak, AT&T represented 13% of the combined capitalisation of the US stock market.

Back then, 704 companies were listed on US exchanges. Such a concentration of corporate power is unlikely to happen again.

Though Apple and Amazon are big fish, they swim in a pond larger than that of their corporate forebears. This may be helpful to remember when critics draw attention to the dominance of big tech, in the US or elsewhere.

Apple may be worth more than the entire GDP of Turkey – a country of 80 million people – but the company fields nowhere near the corporate firepower of the big boys of yore. Consider this: in the 1930s Standard & Poor’s excluded AT&T from a forerunner of its S&P 500 index because of fears that such the company would come to dominate the index and determine its movement.

Such dominance by a single corporate player is unthinkable today. Hence, no one company is too big to fail.

Most of yesteryear’s behemoths are now gone or have been overtaken by new industries. The field has also become much more crowded, diluting corporate power and making it easier for newcomers and disruptors to ply their trade and woo investors. A century from now, historians may well wonder what all the fuss was about. Big tech is, after all, not really that big. i 137

> Wide Range of Interests, a Close Focus on Quality Palmeraie Développement (Development) Group of Casablanca is a leading operator in the sectors of luxury and high-standing (Palmeraie Immobilier) and social and medium-standing real estate (Espaces Saada).

I

t also focuses on the hospitality and leisure sectors, spreading its vision of quality development on the African continent.

As a pioneer and a creator of “life concepts”, the group develops innovative projects to create a better lifestyle, such as duplex apartments in the social and mid-range real estate sectors.

Palmeraie Développement is also developing in Sub Saharan Africa through the launch of a hotel in Abidjan. Palmeraie Développement employs nearly 2,000 people across four business lines and generates revenues of MAD4bn (€366m).

Chairman of the Board of Directors, Résidences Dar Saada S.A: Hicham Berrada Sounni

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and offers professionals a global turnkey offer.

It employs nearly 1,700 people and has a turnover of more than MAD1.5bn (€137m).

Palmeraie Développement and Palmeraie Industries and Services are part of B Group, a Family Office responsible for defining the group's strategic orientations, setting up and leading family governance bodies.

B Group is chaired by Abdelali Berrada Sounni and has as vice-presidents Hicham Berrada Sounni and Saad Berrada Sounni.

Palmeraie Industries and Services (PIS) includes industrial, retail and services activities.

Palmindus and its flagship brand, Dolidol, along with new activities under development (Palmedu in education, Palmagri in agro-industry and Palmmines in the mining sector).

Hicham Berrada Sounni held the positions of vice-president, and then chairman, of the Palmeraie Développement Group. Hicham Berrada Sounni has enabled the group to become one of the largest players in Morocco thanks to the development of innovative projects based on the design of living and leisure spaces.

PIS is also a major player in the carpentry sector (doors, cupboards, kitchens, furniture)

He has a particular commitment to improving the living environment of Moroccan families. i

CFI.co | Capital Finance International

Autumn 2018 Issue

> African ‘City-in-City’ Initiative Paying Real Estate Dividends Created in 2001, Résidences Dar Saada is today a major player in the real estate sector in Morocco.

W

ith a land reserve of 1075 ha at the Moroccan national and African levels, Residences Dar Saada has to date presented a diversified offer for a global programme of more than 96,000 units.

company leverages the Palmeraie Development Group's experience in luxury for high quality social housing. An innovative urban concept integrates living spaces and counteracts the image of dormitory cities usually backed by economic real estate programs.

Each project of Résidences Dar Saada aims to be “a city in the city”. In this sense, projects bearing the label constitute a global living environment, with green spaces, schools, local shops, and amenities, combining appropriate prices and quality of life

The durability of these common areas is guaranteed by the trustees carefully chosen

by Dar Saada before the delivery of all project units. Quality of service is a continuous process throughout the housing acquisition phases. A one-stop shop is set up at Casablanca's head office to centralise all purchasing procedures.

In 2018, Residences Dar Saada started a new phase of development. This was marked by the design of a “new generation” model, the development of medium-standard housing with improved finishing standards, as well as the creation of real estate projects in Sub-Saharan Africa.

Résidences Dar Saada has pioneered implementation of a quality approach in many major fields. In terms of product quality, the

In addition, the company provides after-sales service to its customers, particularly through establishing a call centre to inform customers, accompany them and respond to their needs.

There is a rigorous selection of the serviceproviders network involved in studies, development, architecture and construction processes, allowing Résidences Dar Saada to ensure the quality of all work. i

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General Manager, Résidences Dar Saada Group: Fayçal Idrissi Qaitouni

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> PwC South Africa:

Mining Industry Continues to Create Socio-Economic Value

The 2018 financial year proved to be a challenging one for South African mining companies.

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lobally, the financial performance of the industry improved from the previous year. That position was largely mirrored by South African bulk commodity producers, with iron ore, coal, manganese and chrome performing well.

The aggregated South African mining industry – which is more focused on precious metals – did not enjoy the same benefits.

These are some of the key highlights from PwC’s 10th edition of SA Mine, a series of publications highlighting trends in the South African mining industry.

The report is based on financial results of mining companies, with a primary listing on the Johannesburg Stock Exchange (JSE), as well as those with a secondary listing whose main operations are in Africa. Included are companies with a market capitalisation of more than R200m (€24m) at the end of June 2018; companies with suspended listings were excluded.

The 2018 financial year brought mixed results, as bulk commodity prices continued to rise but precious metals struggled. Cost-saving initiatives could not offset the impact of input-cost inflation.

The increased costs and production challenges meant a weakening of operating results. With gold and platinum impairments, the industry recorded a loss for the year.

For the first time since 2012, capital expenditure grew as the completion of long-term platinum and gold projects continued while older and inefficient shafts were closed. Sustaining capital expenditure for deep-level mines also grew on the back of higher inflation of associated costs. This probably included an element of backlog, thanks to the sustained capital expenditure incurred to keep mines running. In June 2017, a new South African mining charter was unilaterally issued by the-then minister of mineral resources.

That charter was the final straw added to the load of relationships between government and industry. The appointment of a new minister of mineral resources in February 2018, Gwede Mantashe, brought hope of open dialogue and more certainty to the industry. A new Mining Charter was gazetted in September 2018.

Although the gazetted version is likely to receive 140

"The mining industry adds significant value to the country and its people. Stakeholders in the industry include employees and their families, unions, government, shareholders, suppliers and customers." some criticism, there was a concerted effort by industry and the Government to find common ground. Environmental regulatory changes are also receiving attention.

In the rest of Africa, regulatory environments are becoming more challenging. Certain governments in Africa are tempted to use taxation to get mining companies to the negotiating table. The DRC and Tanzania are examples of countries which added a significant tax burden to the industry.

MARKET CAPITALISATION In 2018, total market capitalisation of the 30 companies analysed in the report recovered to R482bn (€28.4bn). Although it is a healthy increase on the previous year, it is still below the June 2016 level of R560bn (€33bn).

Gold and platinum group metals (PGMs) continue to dominate, but experienced declines. Iron ore saw an increase of R40bn (€2.36bn) from 2017 to 2018; increasing the commodity’s percentage share of capitalisation from 13% to 20%.

PRODUCTION Manganese, iron ore and chrome are the only commodities that have shown real production growth over the past 15 years. Coal production showed a marginal increase for the first time in three years, after remaining largely flat over the past 15. The decrease in building materials from the prior year reflects the pressure on local economic growth and resultant demand for building materials. Gold continues its longterm decline. The lower rand-gold price is likely to accelerate the decline, unless technological solutions can improve the productivity of extreme CFI.co | Capital Finance International

deep-level mining. In addition, the ongoing lowprice environment for platinum is likely to result in further curtailment of supply.

FINANCIAL PERFORMANCE Total revenue generated by the companies analysed for the financial year-end 30 June 2018, increased by 8% (R28 billion / €1.65) from the prior year, driven mainly by Increased coal and manganese revenues. Coal grew its share of total SA mining revenue, and leads at 29% for the year. This increase was driven by good price increases, with production marginally up. Platinum and gold reflected a lower percentage on the back of relatively weak prices and pressure on production.

The rand strengthened to June 2018, resulting in an average decrease in prices received for gold, platinum and iron ore. The decrease in rand prices, as well as production challenges for gold and platinum, are putting deep-level South African gold and platinum producers under significant pressure – as reflected in the market capitalisation for most of these entities.

Despite cost saving initiatives, above-inflation cost increases continued to put the industry under pressure with a decline in EBITDA. Capital expenditure recovered from the lowest levels in 10 years to reflect a 22% increase.

The current year impairments doubled from the previous year, mainly as a result of gold and platinum. After last year’s net profit, this year’s companies are back in a loss-making position due to higher impairments and lower EBITDA. The EBITDA margin of 22% is lower than the previous year’s 25%, and the comparable global margin of 24%.

Net interest expense increased by R2bn (€12m) from the prior year, mainly because of borrowings for business combinations. The mining companies had a lower aggregated tax expense on the previous year, but reflected increased tax payments – 29% higher.

Solvency ratios decreased slightly over the previous year as a result of the net loss realised thanks to impairment provisions recognised. The aggregated liquidity position is also healthier

Autumn 2018 Issue

In addition, the 20% black female representation required by law has changed from last year’s 25% requirement. The Mineral and Petroleum Resources Development Amendment Bill, which has been subject to legislative processes since 2013, has been withdrawn.

With the charter now gazetted, it remains to be seen whether business and government can more effectively work towards a more stable South African mining environment.

IMPROVING VALUE The mining industry adds significant value to the country and its people. Stakeholders in the industry include employees and their families, unions, government, shareholders, suppliers and customers. The monetary benefit received by each of these stakeholders is often summarised by companies in their value-added statements.

The total value created by entities that disclose value-added statements increased by 2%. The increase is mainly due to improving commodity prices and acquisitions adding value to the analysed companies. Labour costs continue to be a major benefit to the industry, with value absorption of 47% showing an increase on the 44% of the previous year. Government’s share through income tax, mining royalties and employee taxes stood at 24%.

The challenge currently faced is determining how to increase the size of the pie to create more value for all stakeholders. Creating an environment, with adequate infrastructure, less policy and regulatory uncertainty, and a skilled, yet flexible workforce should go a long way towards attracting investment.

THE DRC Some 16 years after the enactment of the initial version of the mining code, an economic crisis has hit the Democratic Republic of the Congo (DRC). During this time, cobalt has become the most expensive material in the portable lithiumion battery (used in smartphones and electric vehicles, now representing about half of the market for the metal). The DRC has 69% of the global cobalt production share.

PwC SA Mine 2018

than the global position. Unfortunately, this hides the challenges still experienced at individual company level.

RISK ENVIRONMENT Mining carries many risks. South Africa is less prone to natural disasters, although some mines have had to close because of flood damage or droughts. Cyber security is becoming more prominent.

THE MINING CHARTER In South Africa, the revised Mining Charter was released in June 2018 and gazetted on 27 September 2018. A key change from previous charter versions is that existing mining-rights holders – who complied with the previously

required 26% black ownership – will retain their licences without a need to increase black ownership. New licence holders are required to have 30% black ownership.

An added requirement is that of carried interest (CI). The concept of CI means shares are issued to qualifying employees and host communities at no cost to them, and free of any encumbrance.

The cost for the carried interest is to be recovered by a right-holder from development of the asset.

Many African countries have provisions in their mining regulations that give government a 5%15% free stake in mining companies. This has not always had the desired effect, as host states are of the view that mining companies do not make prompt dividend payments.

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A new mining code has been drafted for stronger rules, more transparency, opportunities for local development and an equitable fiscal regime.

However, the final version signed into law in March 2018 is unsupported by many mining companies as it adds significantly to the tax and cost base.

TANZANIA Tanzania recently introduced regulatory changes for the mining sector, which appear to have dampened investor sentiment. These changes have not come about in isolation as a number of jurisdictions in Africa have introduced more severe regulatory regimes – but it does appear that Tanzania may have gone further than most.

Some of these regulatory changes include the new income tax regime introduced in 2016, increased 141

PwC SA Mine 2018

royalty rates, a new clearance fee charged on the export of minerals, restrictions on VAT-input credit in relation to the export of unprocessed ore, and new local content requirements. i ABOUT THE AUTHOR Andries Rossouw is a partner in PwC’s energy and mining industry assurance group. He has been with the firm for more than 18 years, of which more than 13 were spent in the mining and construction industry.

After returning from a three-year secondment in Papua New Guinea in 2003 – where he was responsible for Lihir Gold Limited (ASX and Nasdaq listed) and Ok Tedi Mining Limited (a large copper and gold producer) – he took client service responsibility for companies including Impala Platinum Holdings Limited (JSE) and Randgold Resources Limited (Nasdaq and LSX).

Rossouw is currently the engagement partner on First Uranium Corporation (TSX and JSE), Royal Bafokeng Platinum (JSE), Group Five (JSE Construction) and various other non-listed mining and mining-related entities. His client portfolio provides him with first-hand experience in mining and construction and the African countries in which these companies operate.

Andries was project leader on the firm’s SA 142

Construction publication, and previously coauthored its SA Mine publications.

ABOUT PWC MINING RSA The PwC Mining Centre of Excellence is a major player in the mining sector. It helps organisations explore opportunities, navigate risks, achieve business goals and change business networks across Africa. Its professionals have financial and operational experience, knowledge of business processes, and industry insight which enables them to listen and understand clients’ goals, and the competitive, economic and regulatory environments in which they operate.

and more than 9,000 people in 34 countries.

This means that it is able to provide clients with seamless and consistent service – wherever they are located.

The company’s in-depth knowledge and understanding of African operating environments enables PwC to put itself in its clients' shoes to offer tailored tax, assurance and advisory solutions. Realising the appeal of the continent as an investment destination, its dedicated country desks provide assistance to organisations looking to expand their presence in Africa.

ABOUT PWC AFRICA PwC’s purpose is to build trust in society and solve problems. It is a network of firms in 158 countries, with over 250,000 professionals committed to delivering quality in assurance, advisory and tax services.

PwC has a presence in 34 Africa countries, with 66 offices. With a single Africa leadership team, and more than 400 partners and 9000 professionals across Africa, it serves some of the continent’s largest businesses.

In Africa, PwC is the largest provider of professional services, with close to 400 partners CFI.co | Capital Finance International

Author: Andries Rossouw

Autumn 2018 Issue

> Africa:

Who Dares to Wake the Sleeping Giant… Wins The African continent is a sleeping giant for institutional investors seeking an alternative asset class – and Sanlam Investments is standing to issue a wake-up call.

“

Africa offers powerful, risk-adjusted returns over the long term, along with excellent diversification benefits,” says Peter Townshend, portfolio manager for Sanlam Africa Investments.

“Diversification across geographies and asset classes can largely mitigate any risk.”

More than half of Africa’s income-earners are aged between 16 and 34, with five million students graduating from universities every year.

The African continent is poised for growth, and in some sectors it is already taking a global lead. It has a population of 1.2 billion, whose household consumption grew by 5.5% per year on average over the previous decade. This has slowed to 3.9%, but it is projected to grow to a total of $2.1 trillion in 2025. In 2017 the economic growth of the African economies averaged 4.4%.

HOUSEHOLD CONSUMPTION “The next decade should see a 45% growth in consumption, to $2 trillion,” says Townshend. It is forecast that half of this growth will come from Eastern Africa, Nigeria, and Egypt. Despite the high growth forecast for Africa, investors need to take care.

According to the Commission on Growth and Development, urbanisation is one of the most important enabling parallel processes in rapid economic growth – and Africa has capacity in its cities. “Africa is urbanising faster than any other region,” Townshend says. “Its cities are expected to gain 24 million people every year until 2045.

“This would be great news for investors as urban per-capita consumption has proven to be double the national average, providing an enormous growth of accessible markets.”

HYPE – AND TRUE QUALITY “African markets have a significant retail component with a short-term focus,” says Townshend. “We take a long-term view and can exploit panics, as happened with the Kenyan banks, as well as forex crunches, of which Egypt and Nigeria are prime examples.

Peter Townshend

“Our long-term approach means we are happy to take exposure where others are fearful, by – for example – being overweight in Zimbabwe and Egypt, while we avoid comfortable but crowded trades, such as Morocco and Kenya.

“We also avoid the initial public offerings of untested business models, and therefore did not take up the IPOs of Crystal Telecom, Edita, and IDH. Instead we bought IBTC, QNB, and EIPICO.” CFI.co | Capital Finance International

ILLIQUID MARKETS African listed equity markets differ from those in more developed countries with regard to accessibility and liquidity. Investors accessing 143

listed markets are inhibited by the limited volume of daily trades, which opens them to the risk of poor fund performance, should investors require significant liquidity.

This was the case from late 2014 through 2016, when as little as $75 million in stock was traded per day across the continent, a limitation which would have been exacerbated for larger funds.

The risks of investing in a fund with anything less than quarterly liquidity are significant, says Townshend, with long-term investors suffering for the actions of those with a shorter-term mindset.

Where fund managers are not forced to invest with liquidity as a priority, more scope exists to find the investment opportunities.

To get access to smaller cap stocks without compromising performance one of the Sanlam Africa Investments funds has a 90-day liquidity, providing an advantage over many daily traded competitor funds.

INDEX HAS SOME FLAWS Low-quality banks dominate African markets in terms of market capitalisation and trade volumes.

“We, instead, have a bias towards consumer stocks and generally take only the highest quality bank exposure,” says Townshend. “Also, many African funds are benchmark-cognisant, whereas we have a concentrated portfolio of high-

conviction ideas, investing with no reference to indices.”

PARTNERING WITH A VETERAN Focusing on stocks that offer value and investing for the long term has substantially benefitted the Sanlam African Frontier Markets Fund, comanaged by Townshend. The A-class of the fund achieved 6.0% per annum for the three years ending in July 2018, against the 0.8% from the MSCI Africa ex-SA index. The fund launched in 2010 and its worst calendar year was 2011 (-30.80%); its best calendar year was 2017 (45.74%).

“Sanlam Africa Investments has over a decade of investment experience in Africa and the outperformance to prove our skill,” says Townshend. i Peter Townshend Head of African Equities, Sanlam Investments Investing in Africa since 2007. Previously comanager at Coronation from their Africa funds launch in 2008. The two-man team grew the Africa business to ±$850m with top ranked returns globally: 18% p.a. in dollar from inception to Peter’s departure. He joined Sanlam in November 2014. Sanlam’s Africa funds rank amongst the top performing funds globally since Peter’s arrival.

Alternatives:

A No-Brainer When it’s in Company DNA Q and A with CEO of Alternatives at Sanlam Investments, Mervyn Shanmugam.

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ervyn Shanmugam was appointed CEO of Alternatives at Sanlam Investments in July 2018. In his first interview since taking the helm, Shanmugam shares some of the areas in which his business delivers alternative sources of outperformance to investors.

Q: In your business “Alternatives” refer to more than just the hedge fund arena. What other offerings are considered alternative?

Alternatives typically offer investors access to real assets. Real estate, private equity and private debt make up the key pillars of our offering, together with our empowerment and impact pillars. Real assets are usually unlisted and have provided sophisticated investors with attractive risk-adjusted returns over long periods of time.

These opportunities are difficult to source and have been typically reserved for investors with deep networks and expertise.

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Q: You were appointed CEO of the Alternatives business at Sanlam Investments in July 2018. What is your personal vision for this business?

We have a strong belief that purposeful investing will lead to sustainable returns, and our focus on client solutions and governance will provide a foundation for this. We aim to make an impact and deliver attractive risk-adjusted returns.

So the vision is to continuously improve the economies in which we operate.

Q: Could you give us an example of where Sanlam’s 100-year tenure in financial markets has given the Alternatives business an edge?

It’s in our DNA! We have been investing in unlisted real assets for 100 years. At the core of this has been the empowerment of communities.

We’ve started, incubated and partnered many businesses over our history, such as BHP Billiton, Gencore, Metropolitan and recently Shriram and Saham. We have been investing in real estate, CFI.co | Capital Finance International

Autumn 2018 Issue

Mervyn Shanmugam

private equity and private debt for our own balance sheet and to underwrite the promises we make to our policyholders. Third-party investors now have access to these opportunities. Our edge is in our entrepreneurial spirit, with a strong focus on governance and risk management.

Q: You are present in several African countries, seeking opportunities for investors. How does your team manage to cover so many stock markets?

We have people on the ground in Nairobi, South Africa and Morocco, as well as Vietnam and Singapore, who are deal-makers and investment executives. They seek out, execute and manage investments close to the source of the investment and counterparty. We have innovative products, such as Climate Investor One, which generate strong interest in the market. We are often approached as an alternative option to traditional financing parties. We are hands-on, and an active partner in the projects we develop and finance.

The business also benefits from the extensive relationship and profile of its senior executives, Sanlam and FMO, which are recognised and well regarded.

Q: Sanlam worked with the Dutch Development Bank to raise money for Climate Investor One. Tell us more about this clean energy fund.

Climate Investor One (CIO) is the first of a series of climate finance initiatives designed to combat the detrimental effects of climate change. It is a global climate fund, and provides expertise, CFI.co | Capital Finance International

technology and financing to renewable energy projects in developing and emerging markets. It does this by mobilising private sector financing at scale, supported by catalytic public sector donor funding.

It seeks to simplify the way capital is deployed, and reduces complexity by delivering an innovative “whole-of-life” solution that provides a single financing source for each of the development, construction and operational phases of a project’s lifecycle. CIO operates across Africa, Asia and Latin America, and focuses on solar, wind and run-of-river hydro renewable energy projects. It has 11 projects in development in Djibouti, Tanzania, Nigeria, Morocco, Vietnam, the Philippines and Uganda. i MERVYN SHANMUGAM Prior to his appointment as CEO of Alternatives at Sanlam Investments, Shanmugam was an executive at Sanlam Capital Markets. He has been in the Sanlam Group for the past 14 years, holding positions in Empowerment Finance, Structured Debt and Equity Finance in Sanlam capital markets investing for the balance sheet of the Sanlam Group. His previous roles include Risk Management and Private Equity.

He holds a BSc (Hons) in Mathematical Statistics from the University of KwaZulu-Natal. He also holds an MBA from Buckinghamshire Chilterns University College.

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> Middle East

MENAP Oil-Exporting Countries: Time to Accelerate Reforms Source: IMF

Economic growth for oil exporters in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) bottomed-out in 2017, and that trend is expected to accelerate in 2018â&#x20AC;&#x201C;19.

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Autumn 2018 Issue

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Middle East and Central Asia Department

REO Update, May 2018

MENAP Oil-Exporting Countries: Time to Accelerate Middle East and Central Asia Department REO Update, May 2018 Reforms "Although public debt remains

T

his largely reflects the continued do more to mobilise non-oil revenues, with the recovery in non-oil activity as many implementation of the VAT in the remaining GCC countries are slowing the pace of fiscal countries a key priority. manageable for most MENAP consolidation in support of domestic demand. Risks to the outlook include a On the expenditure side, improving the efficiency oil exporters, the rapid build- of public spending is a priority. Public investment possible tightening of global financial conditions, growing trade tensions, and geopolitical strains. indicators suggest that MENAP up of debt in many of them is efficiency The outlook for oil prices remains subdued and oil exporters perform better than emerging uncertain. If these risks materialise, they could markets, but there is a substantial gap relative a cause for concern." trigger significant fiscal and financing pressures to advanced economies. More efficient spending Economic growth in oil exporters inthe theprojected Middlecompletion East, North Africa, Afghanistan, and Pakistan (MENAP) in the region, affecting prospects for continued dates of investment could be achieved by containing public wage fiscal consolidation economic projects.

The pick-up is to be fasterlargely bills that crowd-outthe other components of public bottomed out inand 2017 and isrecovery. expected to accelerate inanticipated 2018–19.

This reflects continued Weak growth prospects over the medium-term in Saudi Arabia, with a slower pace of fiscal expenditure. Measures taken so far may be recovery in non-oil activity as many countries are slowing the pace of fiscal consolidation in support of underscore the importance of accelerating consolidation, Algeria, which has increased public difficult to sustain over time without additional planned structural reforms. capital spending, and Iraq (reconstruction). structural reforms. domestic demand. Risks to the outlook are skewed to the downside. These include the possibility of a

EconomicMENAP growth in oil exporters in the Middle East, North Africa, Afghanistan, and Accelerate Pakistan (MENAP) Oil-Exporting Countries: Time to bottomed out in 2017 and is expected to accelerate in 2018–19. This largely reflects the continued recovery in non-oil activity as many countries areReforms slowing the pace of fiscal consolidation in support of domestic demand. Risks to the outlook are skewed to the downside. These include the possibility of a sharp tightening of global financial conditions, growing trade tensions, and geopolitical strains—while the outlook for oil prices remains subdued and highly uncertain. If these risks materialize, they could trigger potentially significant fiscal and financing pressures for many countries in the region, affecting prospectssharp for continued consolidation and economic recovery.

Weak growth prospects over the tighteningfiscal of global financial Downward conditions, growing and proposed geopolitical strains—while SHARP SLOWDOWN revisions to oil GDP trade growth intensions, 2018 in Other reforms include the elimination In 2017, at 1.7%, growth in MENAP oil subdued GCCand countries andplanned Iraq relativestructural to October energy materialize, subsidies, and changes pension and medium term underscore the importance ofmost accelerating reforms. the outlook for oil prices remains highly uncertain.

If theseofrisks they tocould exporters was much weaker than the 5.4%

A

are expected to be driven by lower oil production,

social security systems— including revisions

trigger potentially fiscal consistent and financing theandregion, outcome in 2016 (Fig. significant 1). This significant with the pressures extension of for the many OPEC+ countries to retirementinage benefits. affecting To mitigate the slowing of economic activity reflects a deeper agreement.

For 2019, the deferred expiry of the impact on the most vulnerable populations, prospects for continued fiscal consolidation and economic recovery. Weak growth prospects over the and than-expected slowdown in the Gulf Cooperation agreement means that oil GDP growth could pick to make such reforms equitable, they need to medium term underscore theforecast importance ofthan accelerating planned structural anticipated outcomes inreforms. non-GCC countries Sharp Slowdown into2017 Council (GCC) countries relative the up faster anticipated in October, especially be accompanied by enhanced, targeted, social

in the October 2017. That slowdown was offset in GCC countries. protection mechanisms and improvements in the (Figure 1.2). Specifically, stronger-than-anticipated outcomes in nondelivery of, and access to, public services.

In 2017, by at 1.7 percent, growth in MENAP oil GCC countries (Fig. 2). In the GCC, overall GDP ADJUSTING THE PACE anticipated in non-GCC by 0.2% last year, with Saudi Arabia There has been some adjustment in theGCC, paceoutcomes of overall FINANCING RISKS exportersfell much weaker than the 5.4 percent Awas Sharp Slowdown inseeing 2017 In the GDP fell bycountries 0.2 percent its first economic contraction since 2009. This fiscal consolidation among MENAP oil exporters Although public debt remains manageable for (Figure 1.2).

Specifically, outcomereflected in 2016 (Figure 1.1). oil This significant the effect of the OPEC+ production (Fig. 3). In 2017, fiscal adjustment in Saudi MENAP oil exporters, the its rapidfirst build-up last year, with most Saudi Arabia seeing In 2017, at 1.7 percent, growth in MENAP oil cuts, which more than offset the continued Arabia was less than initially indicated in the of debt in many of them is a cause for concern. slowing of economic activity reflects a deepereconomic contraction since exporters wasgrowth much weaker than 5.4 –percent recovery in non-oil in most countries.

In the budget higher expenditures were supported by Debt has increased an average of GDP In the GCC, overall GDPby2009. fell

by This 0.210% percent than-expected in the Gulf Cooperation the Unitedslowdown Arab Emirates and Qatar, where weak higher-than-expected non-oil mostly revenues. Inreflected Qatar, each year since 2013, with countries financing the effect ofthrough the OPEC+ oilof outcome in 2016 (Figure 1.1). This significant lastforyear, Arabia seeing its first and investor confidence dampened the availability of fiscal buffers allowed more with large Saudi fiscal deficits a combination Council consumer (GCC) countries relative to the forecast slowing of economic reflects a deeperdomestic demand, non-oil GDP activity growth in 2017 gradual fiscal consolidation than expected. drawdowns buffers and increased production cuts, whichofmore offset the economic contraction sincethan 2009.

Thisdomestic was softer2017 than that of the previous year. In Outlook. and foreign borrowing. Several factors are likely in the October Regional Economic than-expected slowdown in the GulfMENAP Cooperation continued recovery in tonon-oil mostly reflected the effect ofgrowth the OPEC+ Bahrain, stronger non-oil growth – supported by oil exporters are expected to continue to continue drive debt upward in in MENAPoil oil That slowdown offset by stronger-thanCouncilwas (GCC) countries relative thefiscal forecast GCC-funded projects and robust financial and totheir consolidation efforts, although at a exporters.

These include the slower pace ofthe fiscal mostproduction countries.cuts, In the United which moreArab than Emirates offset

hospitality sectors – more than offset weaker oil slower pace. These efforts have targeted revenue, consolidation, weak growth prospects, and the in the October 2017 Regional Economic Outlook. continued non-oil growth output. with measures including the introduction of recovery possibility ofinhigher financing costs, in given the Figure 1.1 Figure 1.2 a value-added tax (VAT) in Saudimost Arabia countries. and expected monetary policy tightening in advanced That slowdown was offset by stronger-thanIn the United Arab2017 Emirates Real GDPUpward Growth Real with GDPother Growth since October revisions to non-oil GDP growth for the United Arab Emirates, GCC Revisions economies. Given anticipated financing needs – (Percent, simple average2019 acrossrelative years) to October are forecast countries expected to follow.

(Percentage points) 2018 Iraq is Figureand 1.1 Figure 1.2expected cumulative overall fiscal deficits are projected in several countries. The deceleration in Bahrain to introduce sales and excise taxes on some to be $294bn in 2018–22, while cumulative Real GDP Growth Real■GDP Growth Revisions since October 2017 12 Oil could contribution ■ Non-oil is now expected to be more gradual due to goods and services in 2018. But countries government debt contribution amortisations amount to (Percent, simple average across years) (Percentage points) real GDP grow th revision ♦ Overall

10 8 6 4

12 10

GCC Non-GCC¹ MENAP oil exporters GCC

1.2

Non-GCC¹ MENAP oil exporters

1.0 0.8

8 6 4

2 2

0 0

–2 2000–10

GCC

1.0

1.2

1.2

0.8

0.4

0.6

0.4 0.6

0.2

0.4

0.2 0.4

0.0

0.2

0.0 0.2

–0.2

0.0

–0.2 0.0

–0.4 –0.2

–0.4–0.2

–0.6

–0.6

–0.4

–0.4 –0.6 –0.8 2017

Non-GCC excl. conflict countries¹

0.8 1.0 0.6 0.8

1.0

0.6

–0.8

–215 16 17 18 19–23 2000–10 15 16 17 18 19–23 Source: IMF staff calculations.

Figure 1: Real GDP Growth (Percent, simple average across years).

Source: IMF staff Source: IMF staff Council. calculations.

Note: GCC = Gulf Cooperation Note: GCC = Gulf Cooperation Council. calculations.

Note: GCC = Gulf Cooperation Council. ¹Excludes Libya and Yemen. ¹ Excludes Libya and Yemen.

–0.6

18

2017

18

19

–0.8 19

–0.8 2017 2017

18

¹ Excludes Libya and Yemen.

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3

3

18

19

19 Source: IMFCooperation staff calculations.

Note: GCC = Gulf Council.

Source: IMF staff calculations. Note: GCC = Gulf Cooperation Council. ¹Excludes Libya and Yemen.

Note: GCCand = Gulf Cooperation Council. ¹ Excludes Libya Yemen.

Source: calculations.

Figure 2: RealIMF GDPstaff Growth Revisions since October 2017 (Percentage points).

¹ Excludes Libya and Yemen.

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Non-GCC excl.

■ Oil contribution ■ Non-oil contribution GCC conflict countries¹ ♦ Overall real GDP 1.2 grow th revision

Figure 1.3

(Percent of non-oil GDP, change from previous year, simple average across countries) Capital expenditure Employee compensation Other current expenditure Subsidies Non-oil revenues¹

1.GCC

5

2.Non‐GCC²

4 3 2 1 0 –1 –2 –3

More efficien containing th out other crit expenditure ( taken so far ( may be diffic additional str Figure 1.4

–4 –5

investment ef MENAP oil e emerging ma substantial ga

Autumn 2018 Issue

Change in Expenditure and Non-Oil Revenues

Expenditure C 17

18

Oct 2017

17

18

Current

17

18

Oct 2017

17

18

Current

(Percent of Non-oil 70

Figure 3: Change in Expenditure and Non-Oil Revenues (Percent of non-oil GDP, change from previous year, simple average across

IMF staff ¹Gulf Cooperation Council (GCC) non-oil revenue series excludes Kuwait because of countries). Source: Source: IMF calculations. staff calculations. discontinuities in ¹itsGulf series related to United Nations compensation payments. ²Includes Algeria, Iran, and Iraq.

Cooperation Council (GCC) non-oil revenue series excludes Kuwait

60

because of discontinuities in its series related to United Nations compensation payments. $71bn for the same horizon – countries are to be a significant concern in many countries. ² Includes Algeria, Iran, and Iraq.

50 increasingly vulnerable to a sudden tightening of While a large accumulation of government arrears global financial conditions. has led to higher NPLs in Algeria, these are expected to decrease.

40 Taking account of the gross financing needs for Overall, MENAP oil exporters are expected to 2018, a 200 basis-point increase in interest Bahrain has also introduced a wage-protection consolidation rates would continue add betweentheir 0.1% fiscal and 0.6% of system andefforts, significant measures to increase 30 GDP a year for interest payments to MENAP oil flexibility for expatriates. In Qatar, a visaalthough at a slower pace. job However, large exporters, increasing existing fiscal challenges. free entry programme to stimulate tourism was 20 expected toalong with a new law that An additionalincreases $312 billionin of expenditures non-government- are recently announced, issued international debt (of which almost 40% seeks to expand the protection of expatriate generate significantly larger fiscal deficits in corresponds to state-owned enterprises) is coming labour. But these reforms should also be 10 due over theAlgeria, next five years.

The fiscal impact underpinned by effortsto to increase transparency where consolidation is expected could be larger if countries also experience a and accountability, and by stronger institutions in 2019, and in Iran. sudden stop resume in international market-access. and governance. As recognised by policymakers 0 in Morocco, a commitment to the completion of2010 11 SUBDUED CREDIT GROWTH these reforms will be instrumental in achieving Fiscal consolidation efforts have targeted both Despite the slowdown in economic activity in higher and more inclusive growth.

Source: IMF staff calc and expenditures.

Recent revenue 2016–17, revenue financial sectors have remained broadly resilient. However, credit growth remains RISKS REMAIN measures include the introduction (January 2018) Other require subdued in most countries, partly reflecting weak Overall, the balance of risks remains skewed to consumer- and government-related enterprise the downside.

There is uncertainty surrounding of a value-added tax (VAT) in Saudi Arabia and toward full e spending, as well as reduced confidence. This the outlook for oil prices. Each $10 reduction thepolicy United Arab Emirates, with other GCC changes to pe has led to some measures to ease access in the price of oil leads to an instant drop of to financing.countries expected to introduce 3% of GDP in the fiscal balances of MENAP a VAT this year. including rev oil exporters (excluding Libya and Yemen). A Similarly, Iraq is expected to introduce sales and benefits. How In the United Arab Emirates, the introduction of faster-than-expected tightening of financial a credit registry has helped banks manage could trigger financial market excise taxes onbetter some goodsconditions and services inabrupt 2018. most vulnera risks. In Saudi Arabia, capital market restrictions and asset price-corrections. This could affect But countries couldanddothemore togrowth mobilize equitable, the on foreign investors have been eased, credit and maynon-oil slow economic activity in loan-to-value ratio for first-time home-buyers the region. Lower economic activity would also revenues, with the implementation of the VAT in enhanced targ has been increased. While these reforms are result if escalating import tariffs, or a shift toward not a direct consequence of weak GCC credit growth, inward-looking policies, disrupt global tradeand and improvem the remaining countries a key priority. they may support a faster recovery. To improve investment – resulting in lower oil prices. to public serv confidence and promote credit, countries should Onthethe side, efficiency also strengthen legalexpenditure rights of borrowers and improving At the regionalthe level, conflicts and geopolitical lenders, and increase the availability of credit- risks persist, and commitment to the of public spending is also aimplementation priority. Public related information. of key fiscal measures and structural reforms could weaken, considering the Deposit growth remains slow, but has been increase in oil prices. Continued commitment broadly stable across the GCC. Although bank to fiscal consolidation, though at a slower 5 pace, profitability has edged down due to compressed could boost growth and investor confidence. i margins in several countries, NPLs do not appear Source: IMF, 2018 (International Monetary Fund) CFI.co | Capital Finance International

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> Ahli United Bank:

Exemplary Banking Governance is Driving Business Success The Ahli United Bank (AUB) award from CFI.co of ‘Best Banking Governance Kuwait 2018’, is strong and clear evidence that international institutions are well aware of the bank’s leading position in this vital field.

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he award process reviewed corporate governance practices by focusing on a number of elements including processes and policies followed in corporate governance applications; internal and external auditing; protection of shareholders’ rights; the overall supervision and independence of the board; risk management; and transparency levels. By granting this award, it is acknowledged that AUB, established in 1941 and the oldest financial services provider of the country, is sustaining a rich legacy that keeps it at the forefront of the banking sector.

The bank fully understands the need for regular communications with its stakeholders and is aware of the importance of reinforcing its relationship with regulatory authorities (since both are key to adapting to various industry requirements). AUB’s commitment to achieving corporate governance excellence is shown in its operating results and the bank’s overall strong and credible performance. The bank continues to drive a leading position across the wider industry in terms of returns on shares and assets.

Commenting on the award, Mai Mohammed Al Saghir, AUB’s Board Secretary and Head of Corporate Governance said, “The recent accolade reflects the bank’s excellence in corporate governance applications in 2018, and AUB reaffirms its total commitment to strong corporate governance standards. We are pleased to have received this important award, and, with

"AUB’s commitment to achieving corporate governance excellence is shown in its operating results and the bank’s overall strong and credible performance." it, the recognition that AUB operates within a robust governance framework, which is a priority for the bank - and a guiding principle for our operations. We shall make all necessary efforts to maintain this important recognition in the years to come.”

Al Saghir also pointed out, “AUB is committed to adhering faithfully to the policies put in place by the regulatory authorities in Kuwait with the underlying objective of achieving excellence in every product and service the bank delivers to its audiences. The bank also works with its employees to explain what these policies are, thus ensuring that the highest levels of transparency and governance are applied. We believe that effective governance across banks is an important and determining factor in driving business success, along with this being the core foundation of long term sustainable economic prosperity.” i

"AUB is committed to adhering faithfully to the policies put in place by the regulatory authorities in Kuwait with the underlying objective of achieving excellence in every product and service the bank delivers to its audiences."

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> ASTAD:

Simplifying a Complex World of Construction & Infrastructure ASTAD was established to meet the growing needs of the construction industry in Qatar and the Middle East region.

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hile it was officially formed in 2008, the journey began when a team of talented engineers was asked to provide services for the development of Education City in Qatar, an educational hub that has become home to worldrenowned universities and colleges.

ASTAD has since grown into one of the leading project management consultancies in Qatar and it is now a prominent project and asset management firm, serving clients in several countries, including Oman, Kuwait, Sudan, Burkina Faso and Somalia.

Using their teamâ&#x20AC;&#x2122;s wealth of knowledge and technical expertise, ASTAD manages the development and delivery of complex building and infrastructure projects across many sectors.

Providing consultancy in project management, ASTAD covers the design and construction of all types of building and infrastructure projects, from universities and World Cup stadiums to transportation systems and entire cities.

Qatar Faculty of Islamic Studies

The projects include The National Museum of Qatar, Qatar Foundation Stadium, Al Shaqab Equestrian Center, Education City, Lusail Sports Arena, Qatar Rail, Lusail Light Rail, Doha Metro Green Line, Qatar National Library, Sidra Medicine and Qatar Science & Technology Park.

The company gives an overview of the entire process, managing all aspects of project development, so clients can be assured that their vision will be delivered. ASTAD partners with clients to develop efficient, high performance and climate-responsive projects that are internationally recognised through green building certifications, identifying effective solutions that sustain the life of projects, adding economic, social and environmental value.

Northwestern University Qatar

Throughout the entire project lifecycle, sustainability is at the heart of ASTADâ&#x20AC;&#x2122;s operations. It integrates green solutions throughout the planning, design, construction and operation of projects.

Maintaining a safe working environment is also central at ASTAD, allowing it to uphold the health and safety of everyone it works with, every day. As a testament to this, ASTAD was named the first firm in the Middle East to be certified for ISO 45001:2018, Occupational Health & Safety Standard, by Bureau Veritas (BV) earlier this year. i

Qatar National Library

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> GCC Market View:

The Role of the UAE

By Darren Yule

As economies look to diversify their global trade relations, the Gulf region, more commonly referred to as the Gulf Cooperation Council (GCC), advances as a favourable market to consider. The GCC is represented by a union of countries which include Bahrain, Kuwait, Oman, Qatar, Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE).

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trategically positioned, the region offers access to six key trade corridors, and actively supports Chinaâ&#x20AC;&#x2122;s silk-road initiative. This will inevitably benefit businesses looking to capitalise on the global opportunities which the GCC offers, particularly given the positioning of the UAE, which may be described as the hub of the Middle East.

Furthermore, the region has led the Arab World for several years in relation to attracting foreign direct investment (FDI), which has reportedly increased by 25% in 2016 to reach $30.8bn with this increasing by 8% between 2016-17 as a result of M&A activity. A rapidly expanding and tech-savvy environment, combined with economic diversification and global best practice regulations provide a robust platform which continues to attract FDI from around the world.

The intensity and commitment towards diversification are further evident through the volume of reforms which the region has implemented in a bid to build a sustainable and resilient economy. In the past 15 years, over 103 reforms have been implemented, which represent over a third of reforms across the wider Middle East and North Africa region. Such initiatives further fortify the regionâ&#x20AC;&#x2122;s global position, which is projected to increase as displayed in the outlook below.

One of the most significant regulatory reforms include the recent announcement by The Ministry of Economy in the UAE, to liberalise the investment landscape. The new investment law paves the way for 100 per cent foreign ownership in specific sectors approved by the government, (up from the current 49 per cent). Furthermore, 10-year residency visas will be made available for specialists in the field of technology and academia. The investment law is part of a raft of reforms aimed at lowering the dependence of the economy on oil revenue and boosting the contribution of the non-oil sector from the current 70 per cent to 80 per cent by 2021.

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"The UAE is now home to the most advanced free zones catering to financial services, namely Abu Dhabi Global Market (ADGM) and the DIFC." Such reforms will inevitably contribute to the ongoing rise of the financial services sector, with the asset management market in the GCC forecasted to rise to $110.9 bn in 2020 from $45.8bn in 2016, according to a recent report released by the Dubai International Financial Centre (DIFC). The report also predicted total assets managed by fund managers in Saudi Arabia alone to soar to more than $50 bn in 2020 from $22.39 bn in 2016.

Regional financial services firms are investing in almost every major sector such as automotive, real estate, energy and chemicals to name but a few. Whilst the UAE and KSA have relaxed their investment rules, the same cannot be said for the wider region, where the statutory requirement for a local investor remains. We project that such rules will be relaxed soon, in order to remain competitive and attractive.

The UAE is now home to the most advanced free zones catering to financial services, namely Abu Dhabi Global Market (ADGM) and the DIFC, where financial institutions wishing to do offshore business are not subject to such restrictions.

Abu Dhabi recently announced dual licensing agreement for entities registered in the ADGM enabling these entities to service businesses throughout Abu Dhabi without having a physical presence on the mainland. This move further strengthens ADGMâ&#x20AC;&#x2122;s position in the region and the role it plays in providing strategic access to the key trade corridors of India, Asia and Africa.

The Middle East is home to almost every major international bank, insurer and asset manager, many of whom have been in the region for decades. Notably, Beirut was the very first CFI.co | Capital Finance International

regional financial services hub, until the GCC oil producing countries started to emerge from obscurity in the 1950s. Bahrain followed in the late 1970s and early 1980s until the UAE became the established hub for financial services from the late 1990s onwards. Dubai consistently ranks as a top financial hub, with DIFC home to an independent regulator, an independent judicial system with an English common-law framework, and a global financial exchange.

The region, particularly the GCC, has been quick to recognise the benefits and importance of having strong local and international financial services providers to facilitate trade and investment and, as such, these firms have faced relatively few barriers. Obviously, challenges do exist in the shape of availability of sufficient human capital with the right financial services experience, and the region, like anywhere else, will never be immune from shocks to the global financial system such as the credit crunch in 2007/8 and onwards. However, overall, the GCC and the UAE, in particular, is a popular investment destination, as demonstrated by the strong appetite for regional sovereign bonds in the international capital markets. A recent $10bn bond sale in Abu Dhabi was oversubscribed three times where more than 75 per cent of the orders originated from developed markets.

Furthermore, financial institutions and foreign investors stand to gain further as several regional governments seek to implement public-privatepartnerships (PPP), in a bid to address the new infrastructure and energy demands. Of note is the UAE, which in the run up to Expo 2020 has formally enacted a PPP legislation.

Overall, the opportunities within the financial services industry and the wider region are boundless. The prime geographical location, increased international trade flow and digital disruption fuelled by rapid urbanisation position the region as an attractive trade location.

Demand for a digital-first approach and enabling technologies within financial services and wider

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UAE: Dubai

industries are contributing to the development of a region ripe with investment opportunities.

Government initiatives to support incubators and to regulate crowdfunding platforms have created new interest in private equity, a rise in venture capital, and have allowed for the emergence of fintech hubs across the region leading to a vibrant entrepreneurial scene.

Similarly, the region is home to many significant and high-net-worth retail, corporate and sovereign investors. Investors are relatively mature and sophisticated; hence the opportunity to innovate and diversify products and solutions abound.

Given the rapid development of the wider region, particularly the sophistication and evolution of the financial services industry, the region is fast becoming the location of choice for trade.

Consumers and investors are increasingly demanding higher levels of quality and complexity of financial investment opportunities, whilst the regulators are seeking to replicate global best practice which stimulates a fair, open and transparent environment. i References available in the online version.

ABOUT THE AUTHOR With over 15 years of experience across the UAE, Kuwait and UK markets, Darren Yule has worked with a diverse portfolio of clients in various industries. He has experience with financial service institutions in the Kuwait and UAE markets, and was involved with the audits of leading conventional banks, and an Islamic bank, during his time in Kuwait. Yule has been involved in providing assurance-related services to a UAE bank. In addition to banking clients, he has been involved with listed investment and insurance companies, providing audit and other assurance services, and leads audits of insurance brokerage and currency exchange businesses.

Yule currently leads the audits of all the firmâ&#x20AC;&#x2122;s financial services regulated clients registered at the Dubai International Financial Centre. He has experience of serving small owner-managed businesses as well as complex global groups.

During his career, he has been involved in several financial due-diligence assignments in relation to MBOs, and the raising of debt facilities. Yule has led a variety of special assignments, with a wealth of sector experience in the oil and gas, financial services, and manufacturing sectors.

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Author: Darren Yule

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Forward Quant â&#x20AC;&#x201C; a bespoke wealth-management service with flexible options for capital guarantees, combined with the advantages of a unit-linked life insurance. www.forwardyou.com 156

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Autumn 2018 Issue

> E-Government in the UAE:

Software as a Growth Engine Tech-savvy governments are few and far between as civil services - usually large molochs that move at a glacial pace - struggle to adapt to the digital environment and display a reluctance to think outside the proverbial box.

Addicted to paper forms, rubber stamps, seals, and protocols, civil servants almost universally place great stock in convention as defined by set rules.

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hough early adopters of e-government such as Singapore, South Korea, Estonia, and The Netherlands have broken new ground to much acclaim, these countries are now facing “competition” from the newest kid on the the digital highway: United Arab Emirates (UAE) is quickly climbing the to the top of the United Nation’s annual ranking of e-government. UAE rulers are determined to outshine and outperform all others - and, indeed, set an example - as the country adapts disruptive technologies to serve its needs as one of the region’s - and perhaps even the world’s - most dynamic societies.

The UAE launched its first e-government service as far back as 2001 when it introduced an electronic payment card to facilitate the collection of fees. Since then, digital services have expanded at an accelerated clip to include all the administration departments and associated entities, dependencies, and offices.

The country is now charting new territory with m-government, making its digital infrastructure compatible with - and accessible to - mobile devices regardless of the pallor used. Considering that its citizens are constantly on the move and may no longer use or even possess big-box desktop computers, the UAE has adopted a mobile-first policy for its future online initiatives.

Existing facilities are progressively being reengineered to become fully mobile compatible.

Deputy-Minister of Economy Abdullah bin Ahmed Al Saleh, in charge of foreign trade amongst others, has been a long-time advocate of e-government. Al Saleh helped set up the ministry’s new electronic platform for small and medium-sized enterprises (SMEs) which serves as a gateway for business to reach out an tap into new markets, source supplies, submit bids on tenders, and find potential partners, amongst others.

The platform is reserved for businesses that signed up with the UAE’s National Programme for SMEs, a comprehensive framework that aims to facilitate the participation of smaller companies in numerous state-backed projects

"The emirates’ Vision 2021 calls for the creation of a competitive, cohesive, and resilient economy that is sustained by innovation and knowledge." and undertakings. Emirati entrepreneurs may also partake in capacity-building programmes and access investment opportunities. Explaining that the UAE has become an important global hub of innovation, Al Saleh emphasised that in order to keep its leading edge, the emirates must maintain and further perfect the country’s legislative and administrative environments.

The deputy-minister also stressed the need to keep SMEs and others fully informed about the many government initiatives and programmes that seek to encourage entrepreneurship and provide growth opportunities to existing businesses. Innovation, however, remains the focus of the UAE government which unveiled a National Innovation Strategy centred on a close collaboration between private business, research centres, and federal and local authorities. In fact, innovation has been situated at the very core of UAE government policy as the emirates transition to a knowledge-based economy.

E-government, in turn, is considered a key part of that move with the state setting the tone, showcasing the possibilities and - perhaps crucially - encouraging cooperation between leading actors such as chambers of commerce and industry, departments of Economic Developments, and all industry verticals.

The Dubai Department of Finance (DoF) has now taken the lead in digitising the collection and allocation of the emirate’s public resources with a unique system that makes extensive use of artificial intelligence, machine learning, and other advanced technologies. The comprehensive CFI.co | Capital Finance International

DoF platform currently being deployed represents one of the boldest attempts ever to take the guesswork out of fiscal planning via performance-based budgeting. The Smart Fiscal Planning (SFP) Programme aims to streamline and speed up procedures, save hundreds of millions of dirhams, enhance transparency, and ensure the sustainability of government undertakings by including long-term budgetary considerations to allow for depreciation of assets and a host of other factors - both predictable and unpredictable.

A vast digitised platform built on Oracle’s Hyperion public sector budgeting application, SFP also establishes a solid link between fiscal and strategic planning and thus provides a pathway to the modern decentralised state envisioned by the emirate’s government. The move to performance-based budgeting, now in its fourth and final phase and essentially a vast fiscal re-engineering project, is expected to be completed by 2020 and fits within the broader push to transform Dubai into the world’s first smart city.

For the wider UAE, e-government also is a key part of a shift towards a more diversified economy that is to form the basis of “the world’s best society”. The emirates’ Vision 2021 calls for the creation of a competitive, cohesive, and resilient economy that is sustained by innovation and knowledge.

Though ambitious and bold, the goals spelled out in Vision 2021 are already now nearing completion. Under-Secretary Al Saleh pointed out that a modern economic infrastructure, which includes e-government, is also key to maintaining and expanding the UAE’s role as a global hub for trade and investment. Al Saleh said that the emirates’ role as the world’s premier gateway for trade, located on what has now effectively become a crossroads between continents, has only be made possible by the creation of an agile regulatory environment that removes obstacles without sacrificing oversight or compliance. Thus e-government not only lightens the bureaucratic touch for Emirati citizens but also enables the country to secure its future. i 157

>

THE EDITOR’S HEROES

Please Be Careful What You Wish For

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he world is becoming a tough and fractured place with globalisation beating a retreat even before the full array of its benefits have come into view.

Some of the world’s heavyweights are now determined to rearrange the playing field, tilting it in their favour in order to gain a competitive edge. Geopolitical forces are deployed ever more ruthlessly to upset a global balance that has been nurtured over decades. Cross-border trade patterns are disturbed and distorted to right perceived wrongs and punish those who have enjoyed success that some consider unfair.

While nobody disputes the notion that any system may be improved, the current trend towards unilateralism signals a return to the law of the jungle, whereby the big boys impose their will on those caught out alone.

Smaller and less developed countries are often best served through multilateralism. Belonging to a bigger club affords a measure of protection against bullying. That is one of the main reasons why the European Union has been so successful: most of its member states, even the larger ones, are too small to protect their vital interests, let alone further them. Only the exceptionally brave – or foolish – insist on taking on the world without any backing.

The EU’s example is being copied the world over with the African Union setting up an ambitious continent-wide free trade area. Asia is advanced in forging regional blocs, while a number of countries in Latin America have set up an integrated market that is slowly expanding.

Interestingly, the Pacific Alliance – by far the region’s most ambitious free trade initiative – is being shaped and implemented almost imperceptibly, and without fanfare.

The world is being carved up into regional blocs.

Logic would seem to imply that reducing the number of parties at the negotiating table should also reduce the complexity of deals, and facilitate intra-regional co-operation. That was the case – until recently. Just as multilateralism was on the cusp of a historic triumph, its engine stalled.

Though the United States no longer enjoys the hegemony it once had, the country remains a key player without whose support nothing really moves.

The current administration’s mistrust of globalism has already led it to renegotiate the comprehensive free trade deal with Canada and Mexico (NAFTA).

Both US partners have discovered that when Washington starts throwing its weight around, nothing much can be done besides acquiescing to its demands. As it happens, perhaps luckily, as far as Canada was concerned, the exercise remained limited to the opening-up of the country’s dairy sector – a footnote in the grand order of things, and something that should have been anyway. The US probably would have had its way if it had asked nicely.

Of far greater consequence is the trade war between the US and China that sees the trade behemoths exchange tariffs on an ever-expanding range of products. Before long there will be no product categories left for additional tariffs.

By showing a certain disdain for established dispute resolution mechanisms, the US actively undermines the global order that regulates trade.

By making America great again, the country’s trading partners must be made to suffer.

The mistake is the thinking, now prevalent in some circles in Washington, that international cross-border trade is a zero-sum game. It is not.

As David Ricardo showed, and proved in the eighteenth century, trade contributes to growth and prosperity. Conversely, autarkies have never been as successful. Nor has mercantilism served anybody’s best interests.

Making America Great does not require making all others less so. If Germany and China are particularly successful in exporting their products, why not try to emulate their approach – or at least learn something from it? There is no great conspiracy against the United States. To the contrary, for over six decades the US has been both a benefactor to, and a beneficiary of, globalism. Nearly all countries have fared well, as world GDP shot up and poverty rates were reduced to a record lows.

The message to the US can only be this: Please be careful what you wish for. i

> AGUSTÍN CARSTENS GENERAL MANAGER, BIS (BANK OF INTERNATIONAL SETTLEMENTS) Central Banker of Central Banks In an unexpected volte-face, BIS (Bank of International Settlements) general manager Agustín Carstens agreed that cryptocurrencies do not, after all, pose a risk to the global financial system.

Carstens is finally paying attention to a phenomenon he previously discarded as a “combination of a bubble, Ponzi scheme, and environmental disaster”. When the BIS general manager takes note, mainstream cannot be that far away.

In a new report on the rise and impact of virtual money, Carstens notes that the value of cryptocurrencies is determined, to a large extent, by national legislation. Emerging frameworks that seek to regulate Bitcoin and other alternative currencies are anchored for the most part on the point where virtual money interacts with the real thing: banks. Sooner or later, cryptocurrencies must be exchanged for actual money and when this happens, regulators can step in.

Carstens agrees that the situation is likely to change when cryptocurrencies grow out of their niche and move mainstream, lessening the need to interact with actual money. However, that moment is still far away. However, the BIS general manager does caution against ignoring the cryptocurrency scene and advises regulators to keep close tabs on developments: “It is important to remain vigilant, monitor developments, and respond to potential threats.”

According to BIS research, cryptocurrencies are sensitive to regulatory decisions that ban or restrict initial coin offerings (ICOs) or regulate the legal status of assets denominated in alternative currencies.

This works both ways: cryptocurrencies receive a boost wherever regulators display a willingness to accommodate them. In this regard, the cryptocurrency community is anxiously awaiting a ruling from the US Securities and Exchange Commission (SEC) whether to allow Bitcoin exchange traded funds (ETFs) to be launched. The decision may come as early as next year.

Carstens notes that the crypto market remains fragmented, and offers plenty of room for arbitrage as significant price differences occur across jurisdictions, reflecting their attitudes – and degree of hostility – towards alternatives to fiat money.

General manager of the BIS since September 2017, Carstens arrived at the institution from the Central Bank of Mexico which he headed for seven years. His appointment to the “central bank of central banks” was, at the time, widely considered a consolation prize for having lost out to Christine Lagarde in the race for the directorship of the International Monetary Fund (IMF). Carstens served for slightly over three years as the IMF’s deputy managing director.

Established in 1930 and headquartered in Basel, the Bank of International Settlements is owned by 60 central banks – jointly representing almost 95% of global GDP – and charged with facilitating international co-operation between central banks. A fringe institution until the early 1970s, and at various times slated for dissolution, BIS reinvented itself after the collapse of the Bretton Woods monetary order which resulted in the reappearance of floating exchange rates and the need for an institution to help maintain financial stability.

During the most recent annual Jackson Hole get-together of central bankers, Carstens did issue a warning against trade wars, saying their potential to disrupt a finely tuned global system is consistently underestimated. He spoke about the brewing of a perfect storm, set off by a rise in protectionist measures and fuelled by their negative consequences. Causing

fireworks at a usually tranquil, if not boring, event, Carstens did not mince his words when he remarked that the trade barriers erected by the US administration – and answered in kind by both the EU and China – are likely to push up consumer prices. This, in turn, would force the US Federal Reserve to step-up its interest rate hikes, which “would widen the interest premium to the rest of the world”, and could push the dollar higher.

The BIS general manager concluded that current policy presents a double whammy to US exporters, which would face not only new trade barriers but also a deteriorated exchange rate.

Emerging markets, Carstens argues, are at risk from increased market volatility, as a higher dollar and restrictive monetary policies drain the pool of funds available for their development, and cause higher financial outflows as yield may be more easily be obtained in mature markets.

“It is important to remain vigilant, monitor developments, and respond to potential threats.”

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> ROBERT AZEVÊDO DIRECTOR-GENERAL, WTO (WORLD TRADE ORGANISATION) Levelling the Playing Field

In times such as these, with rapidly escalating trade tensions and countries engaging in tit-for-tat spats that can – and do – spin out of control, the job of Roberto Azevêdo, director-general of the World Trade Organisation, becomes nearly impossible.

Well-known by all but little-understood by most, the WTO is an easy – and politically gratifying – target for critics, who mostly blame it for their own lack of trading prowess.

Speaking at an event in Berlin, Azevêdo noted that all warning lights were flashing: “A continued escalation of tensions would pose an increased threat to stability, to jobs, and to the kind of growth that we are seeing today.”

A full-blown trade war could shrink global trade by up to 17% and shave almost 2% off global GDP, he believes. Azevêdo is adamant that such a conflict would have no winners: “Every region would be affected, including large

blocs such as the European Union, which could potentially miss out on 1.7% of its GDP.”

The Brazilian, a veteran of his country’s highly esteemed diplomatic service, is determined to prevent this. He is currently finishing a broad set of reform proposals, supported by a some key members, which seek to address unfair trade practices and improve dispute resolution mechanisms. The G20 summit taking place this November in Buenos Aires promises to turn into high noon for the WTO director-general, who will call on all world leaders present to keep a cool head and stick to the rules.

Azevêdo is the first to acknowledge that the global trade regime offers plenty room for improvement. However, he cautions that it remains of vital importance that WTO member states adhere to the rules in place and not venture outside the established framework:

“Members have to agree which rules they wish to change and which reforms they wish to focus on.”

The WTO has offered to mediate between the United States and China and has encouraged both countries to keep an open dialogue.

Azevêdo said that he fears that the tariff walls erected thus far are only the opening shots of a trade war that may spill over into non-tariff areas.

“To be honest, I don’t think it’s over,” he said.

“They have lots of ammunition.”

All the same, the WTO chief remains cautiously optimistic since Chinese premier Li Keqiang in September stressed his country’s commitment to open borders in a keynote speech delivered, tellingly, in the Tianjin port city. Keqiang said the world was approaching a crossroads and had to choose between globalisation and protectionism. The premier also said that China did not believe in unilateralism, and could open its domestic market to foreign investment and trade faster than anticipated.

Azevêdo is particularly well equipped to lead the WTO. An alumnus of the celebrated Rio Branco Institute for International Studies, he headed for four years the Dispute Settlement Unit of Brazil’s Foreign Affairs Ministry, a capacity that allowed him to help smooth numerous WTO issues and establish case law.

He now aims to harness the institutional strength of the WTO to find solutions to disputes arising from an ever more interconnected world. Azevêdo is also a tireless advocate for trade liberalisation, pointing out the benefits of commerce and its role in empowering emerging and pioneer markets. He is particularly interested in e-commerce and its future role in driving growth.

To tackle the rise of protectionism, Azevêdo has hammered almost incessantly on the need for plurilateral talks to unblock the negotiations that have largely stalled in the multilateral arena.

He believes that no WTO member is served by attempts to bypass the organisation’s dispute settlement mechanisms and vehemently denies the charges of “judicial overreach” lodged by the US, which earlier this year blocked the appointment of trade experts to the WTO appellate body, which has the final say on dispute rulings.

To rescue the WTO from paralysis due to the non-co-operation of some of its principal members, the EU and Canada are laying the groundwork for an extensive update to the organisation’s 23-year-old rulebook. Azevêdo has welcomed the initiative for recognising that global trade needs an impartial adjudicator and a governing body that sets out clear rules – and levels the playing field.

"Azevêdo is particularly well equipped to lead the WTO." CFI.co | Capital Finance International

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> MUKHISA KITUYI SECRETARY-GENERAL, UNCTAD Growing Intra-African Trade Flows What Africa sells to Africa has significantly more value than what the continent sells to the wider world – mostly commodities whose prices are determined on distant shores and cannot be controlled by the producers.

Mukhisa Kituyi, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD) strongly believes that the key to Africa’s future is to be found in intraregional trade. Putting theory into practice, Kituyi has been closely involved in setting up the African Continental Free Trade Agreement (AfCFTA) which is to encompass all member states of the African Union (AU). It will also remove all tariffs on about 90% of goods and services, potentially becoming the world’s largest free-trade area.

AfCFTA will automatically come into force when at least 22 of the 55 participating states ratify the deal hammered out and signed by the heads of state during a special meeting earlier this year in Kigali, Rwanda. Thus far seven countries – Kenya, Swaziland, Niger, Guinea, Rwanda, Chad, and Ghana – have already ratified the agreement. AU Commissioner of Trade and Industry Albert Muchanga is confident that by the middle of next year at least 15 more countries will have completed the ratification procedure, allowing AfCFTA to be launched. Meanwhile, the Tripartite Free Trade Area is nearing completion.

This Cape-to-Cairo initiative aims to establish a single market comprised of three currently separate free-trade areas: the Common Market for East and Southern Africa (COMESA), the Southern African Development Community (SADC), and the East African Community (EAC).

For Kituyi the implementation of these overlapping free-trade areas cannot come soon enough. “For Africa, a clear determination to expand trade among ourselves is an important step,” he says. “Uncertainties in international trade increase the premium on regional intraAfrican trade.” The UNCTAD secretary-general also notes that stronger trade flows will inevitably lead to improved competitiveness which could later be unleashed. Kituyi warns, however, against the imposition of non-tariffs barriers by governments eager to protect their home turf.

“When there is a deficit of political goodwill, excuses are made to slow-down trade. That absence of goodwill leads to the use of too many non-tariff measures,” said Kituyi.

The UNCTAD secretary-general is particularly concerned for small traders, who are often at the mercy of petty officials trying to extract some “fine” or “tariff” invented on-the-spot. They are also frequently arrested for violating some obscure, non-existent, or randomly enforced rule.

According to a study by the East African Subregional Support Initiative for the Advancement of Women (EASSI), traders face a bewildering array of obstacles, including lack of capital, information, fierce competition, and high taxes.

But EASSI researchers found that the apparent disconnect between border officials and the laws and regulations they are meant to enforce poses the greatest obstacle to cross-border trade.

Kituyi is aware of the problem and expects the free-trade initiatives currently being deployed to smooth the path for large and small traders.

There is much to gain for all concerned. A study by the United Nations Economic Commission for Africa predicts that, once AfCFTA comes into being, continental cross-border trade will increase by at least 50% over a four-year period.

Africa is moving towards free trade, and the rest of the world seems to be drifting in the

opposite direction. This is a development that causes Kituyi concern. He detected a “crisis in multilateralism” that has taken intergovernmental entities such as the World Trade Organisation (WTO) by surprise. Kituyi worries about the impact of the imminent departure of the UK from the European Union on world trade flows.

The tit-for-tat trade wars between the US and its principal partners in Asia and Europe have also changed the immediate economic outlook. Kituyi fears the tide may be turning with a revival of protectionism and a reversal of capital flows from developing nations. It is one of the many reasons why the UNCTAD secretary-general is passionate about fostering and growing intra-regional trade: it allows Africans to take the continent’s destiny in their hands and pursue sustainable, homegrown solutions for growth, independent of tectonic shifts occurring elsewhere.

"Kituyi is aware of the problem and expects the free-trade initiatives currently being deployed to smooth the path for large and small traders."

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Autumn 2018 Issue

> PAUL P ANDREWS SECRETARY-GENERAL, IOSCO (INT. ORG. OF SECURITIES COMMISSIONS) Keeping Up with Fast-Changing Equity Markets

The second annual World Investor Week (WIW) kicked off early October with a global initiative to improve the education and protection of investors.

Regulators, exchanges, investor associations, and other stakeholders in more than 80 countries joined forces to launch a series of educational campaigns aimed primarily at small investors.

The event also offered an opportunity to advocate for the introduction of measures that shield capital market participants against unfair practices.

World Investor Week is organised by the International Organisation of Securities Commissions (IOSCO), the Madrid-based entity founded in 1985 to represent the world’s securities regulators. IOSCO, among others, is charged with reducing systemic risk by developing and setting regulation. The organisation also helps stock exchanges deal with technology and maintains a framework for the monitoring of cross-border and intra-market investments.

According to IOSCO Secretary-General Paul P Andrews, one of the organisation’s main jobs is to help investors manage their capital in a world that is increasingly interconnected – and changing. Rapid advances in technology not only offer new opportunities, but also add complexity to a market already difficult to navigate for most smaller investors. “We need to prepare retail investors for dealing with innovation,” he says.

This year’s WIW highlighted the joys and risks of online trading with a particular focus on cryptocurrencies and initial coin offerings (ICOs). In France, a national campaign broadcasted on radio sought to spread the concept of wise investing, with warnings about the dangers of following hypes or hunches, and recommendations on where and how to source dependable investment data. The spread of fake news and alt-truth is also a concern to financial editors and writers who battle fads that can potentially cause immeasurable harm to retail investors unable to separate fact from fiction.

In an event running parallel to WIW, World Financial Planning Day saw 26 organisations, representing some 175,000 certified financial planners, promote financial literacy and raise awareness about the long-term benefits of home ownership, retirement planning, and responsible investment practices.

Although IOSCO does not itself have a mandate to help members develop their equity markets, the organisation does offer advice and assistance to jurisdictions that seek to deepen and broaden them. The formula, says Andrews, is a relatively simple one: create a more complete market. “For example, institutional investors usually look for opportunities to hedge,” he says.

“In order to attract this type of investor, it is necessary to have options, futures, and currency markets in place. These add-ons also help provide liquidity to the equity market. IOSCO is currently looking into ways of helping with the development of more complete markets in places that could benefit from them.”

Andrews points out that as a global setter of standards, his organisation is moving closer to similar entities such as the Basel Committee, the Financial Stability Board, and the Committee on Payments and Market Infrastructures in order to explore commonalities and address shared areas of concern such as, for example, cyber security.

“There is no competitive advantage for different regulators – be they capital markets, banking,

or infrastructure. We are all facing the same problems.”

IOSCO also seeks to engage the wider industry and accepts stock exchanges and stock market associations as non-voting affiliate members: “We can learn from each other. The industry brings a wealth of experience and knowledge which allows our organisation to explore new approaches and ideas.”

Andrews highlights the alignment between IOSCO and the World Federation of Exchanges (WFE) which helps the organisation keep tabs on financial innovation. This close co-operation allows IOSCO to meet new regulatory challenges and keep its capacity-building programmes upto-date.

"We need to prepare retail investors for dealing with innovation."

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> JEAN-CLAUDE JUNCKER PRESIDENT OF THE EUROPEAN COMMISSION Holding the EU’s Ground The butt of many jokes – not all of them in good taste – and a man who some love to hate, Jean-Claude Juncker has grown a thick skin and is not easily perturbed as he goes about defending the “magnificent” edifice Europe built over two generations.

In fact, the president of the European Commission has pretty much seen it all during a career spanning 30 years in politics. In Brussels, Juncker was initially dismissed as a lightweight, and hence inoffensive, bureaucrat from tiny Luxembourg. He reached the top by proving his critics wrong.

What makes Jean-Claude Juncker endearing is his irrepressible and rather droll sense of humour, which pops up unexpectedly and often defuses tension. However, no-one can “play nice” all the time, and Juncker is no exception.

Early October, the commission president lashed out at those who suggested that the EU should consider sacrificing Ireland – a member state – in order to accommodate the United Kingdom over the thorny and intractable issue of Northern Ireland and its border. In no uncertain terms, and dispensing diplomatic niceties, Juncker bluntly told all who cared to listen that the EU will put Ireland first, and was not about to contemplate any solution to the border conundrum that meets with objections from Dublin.

The favourite bogeyman of the British, alongside the stoic Michel Barnier – who is in charge of the actual exit negotiations with the UK – Juncker is not always appreciated for spelling out some inconvenient truths about life. He once summarised the paradox facing all politicians: “We all know what to do, we just don’t know how to get re-elected after we’ve done it.” His ability to boil down highly complex events into just a few words is equally remarkable, such as when commenting on the rise of the far right: “The populists themselves are dangerous, but they become far more so when traditional parties adopt their proposals.”

At ease among the world’s great leaders, and not at all impressed by displays of imperial power in Washington, Beijing , Moscow, or, indeed, London, Juncker is aware that a united Europe not only sits at the top table but sets the agenda. Equally experienced at both power politics on a global scale and the behind-thescenes manoeuvring that is a prerequisite for any diplomat representing a geopolitical footnote – such as Luxembourg – Juncker has deftly managed to keep the EU unified in the face of some of the bloc’s greatest challenges.

His performance has been all the more impressive given the fact that as commission

president, he is merely charged with carrying out the policy set by the European Council, which comprises the EU’s heads of government.

Within the overall framework handed down by the council, the European Commission, the union’s executive branch, enjoys considerable leeway to turn abstract ideas into solid decisions.

While his job is dead serious, Juncker is often a little bit less so. He has appeared on front pages across the world, kissing the (bald) prime minister of Belgium on the head, and hailed the arrival of Hungarian Prime Minister Viktor Orbán at a meeting by announcing: “Here comes the dictator.” He can be scathing in his criticism of those slightly less dedicated to the cause of a united Europe, calling the European Parliament “ridiculous” after only a few members showed up for a debate on Malta’s performance as the rotating chair of the EU. He doggedly held his

ground, even as the EP’s president demanded respect for the institution.

Juncker is not in the business of ceding ground. It is what made him into “Mr Europe”.

Some may not like his blunt style of leadership, but most respect – perhaps grudgingly – his stance on keeping the union together, and on calling recalcitrant member states into line.

That said, Juncker does consider the imminent departure of the UK a defeat for the EU – and a personal failure.

Brexit is happening on his watch, and shows, if anything, that keeping an unruly group of nations together is a job even the most experienced and cunning find difficult to deliver. This also helps explain why, in the face of British demands for post-Brexits opt-ins, Juncker holds his ground.

The last thing he wants is to reward those that quit.

“The populists themselves are dangerous, but they become far more so when traditional parties adopt their proposals.”

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Autumn 2018 Issue

> ANTÓNIO GUTERRES SECRETARY-GENERAL OF THE UNITED NATIONS Healing a Fractured World

The world is in pieces. No longer the preserve of two competing global powers – or even a single triumphant one – today’s world is nobody’s backyard.

Multiple powers have emerged that no longer expect, or strive for, hegemony far outside their own regions. The multipolar world order, still a novelty that requires some getting used to, is inherently unstable in the absence of multilateral ties that bind and channel the interaction of states of blocs.

United Nations Secretary-General António Guterres accepts the inevitability that leadership by a single state, or perhaps two, will be questioned: “Both the United States and the rest of the world need to be able to adapt to this new reality.”

Guterres refuses to criticise the foreign policy initiatives of the current US administration, deemed disruptive by some. In fact, he has managed to build, and maintain, a close working relationship with the US government, an effort that has not gone unnoticed in Washington. US criticism of the United Nations and its many agencies has become more muted of late. By not

engaging openly with critics of the world body, Guterres has also managed to keep the UN above the fray of international politics while others, such as the High Commissioner for Human Rights, Zeid Ra’ad al-Hussein, whose term expired in August, have no such qualms.

It is not Guterres’ style to seek confrontation.

Nor can he afford to chastise those inimical to his organisation. By placing emphasis on the themes and topics that Washington considers of vital importance, and mostly ignoring those the US administration deems detrimental to its interests, Guterres tries to keep the Americans on board. So far, the former Portuguese Prime Minister has been remarkable successful in his pursuit. He is reportedly a favourite of Ivanka Trump – daughter of, and senior adviser to, the US president – whose initiative to help women entrepreneurs source funding for their businesses Guterres has quietly helped shape, in tandem with World Bank president Jim Yong Kim. Both men are now welcome guests at the White House.

In his opening speech at the UN General Assembly, late September, Guterres warned that

the rules-based global order is nearing breaking point as international co-operation becomes more difficult and the balance between regional powers shifts – sometimes abruptly. The UN secretarygeneral fears a gradual return to a global order dominated by a few large players who jockey with each other for regional mastery while shunning multilateral co-operative efforts.

To function properly and equitably, a multipolar world needs co-operation more than rivalry. Guterres fears the erosion of universal values and the compromising of democratic principles, including human rights, which already now often take a backseat to sovereignty.

“Today, with shifts in the balance of power, the risk of confrontation may increase,” noted Guterres, warning that the worrying trend coincides with the existential threat of climate change. Unusually for a UN secretary-general, Guterres offered a mea culpa for his organisation’s inability to end the wars in Syria and Yemen, or provide the exiled Rohingya people with the protection they needed. He also lamented the UN’s unsuccessful attempts at promoting a twostate solution for the enduring Israeli-Palestinian conflict.

However, the UN secretary-general prefers to focus his attention on the many topics the UN can successfully influence and address – such as climate change. He reminded the 130 world leaders present during the opening ceremony in New York that time is running out, and people are clamouring for action.

As a former UN High Commissioner for Refugees, Guterres knows only too well how war and strife can disrupt societies. He does not hesitate to add climate change to the list of causes for belligerency. In a recent interview, he talked at length about the re-emergence of irrationality: “The enlightenment is the primacy of reason, it is tolerance, and now we see the emergence of xenophobic instincts, of ethnic and religious fundamentalisms. Obviously all these put into question the cohesion of societies – and the cohesion of societies is a fundamental tool for democracy.”

He disagrees with Francis Fukuyama’s premise that history has ended; it was frozen by the Cold War and has resumed its unstoppable march. Nationalism resurfaced while globalisation had to beat a hasty retreat. These are matters of grave concern to António Guterres, who is a committed multilateralist and internationalist.

“Liberal democracy,” he concludes, “is not the inevitable outcome of history. In order for liberal democracy to survive, it needs to be nurtured.”

“Liberal democracy is not the inevitable outcome of history. In order for liberal democracy to survive, it needs to be nurtured.”

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> Latin America

Argentina: Breaking the Mould

Drought-induced crop failures caused the Argentine economy to shrink by close to 4% in the second quarter of this year, compared to both the previous three-month period and Q2 2017.

According to national statistics agency Indec, 2018 should see the countryâ&#x20AC;&#x2122;s GDP contract by 2.4%. Growth was held back by disappointing yields of the soybean and corn crops after the central part of Argentina, the fertile pampa, was hit by a prolonged dry spell earlier in the year.

The weather conspired with already jittery markets to create an almost perfect fiscal storm for the administration of president Mauricio Macri. Markets castigated the government for not moving fast enough to curb its spending and introduce the meaningful and broad reforms needed to put the country on a more sustainable footing. A sudden sell-of caused the peso to drop through the bottom, requiring Buenos Aires to put in an urgent call for help to the previously much-maligned International Monetary Fund (IMF). The fund took markets by surprise as it cobbled together a $50bn rescue package in record time and signalled its full support for the embattled Macri Administration.

Argentina: Buenos Aires

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A

fter a short interbellum, investors grew restless again in August which put the peso under renewed strain. Having lost around 40% of its value since May, the peso is now the world’s worst-performing currency. Early September, the Argentine central bank raised its benchmark interest rate to almost 60% in order to restore confidence in the ailing currency and stem capital outflows.

CENTURY BOND In Argentina, events unfold with lightning speed. Just last year, the government effusively celebrated the successful placement of its landmark Century Bond, which is set to mature in 2017 and was snapped-up by investors. After the protracted unwinding of its 2001 $93bn debt default, Argentina had only returned to global debt markets in April 2016 issuing a series of bonds totalling some $16bn.

The significantly oversubscribed $2.75bn Century Bond, issued with a 7.125% coupon and at a minimal discount (representing a yield of 7.9%), was supposed to signal the country’s financial maturity and showcase the confidence it inspired amongst investors. At the current yield, bondholders may expect to recoup their initial cash outlay in about 12 years, and enjoy profits over the following 88.

However, since its independence in 1816, Argentina has defaulted eight times on its sovereign debt. Investors are well aware of the country’s chequered payment history but take heart from the settlement reached with the socalled holdout investors who refused to take a haircut after the 2001 debt default and kept their demands – and litigation – for full payment up during 15 years. Though a minority of just 7% and owning only about $4bn worth of bonds, the hold-outs eventually won a $6.5bn settlement in early 2016. Fortunes were made as most of the holdouts had acquired Argentine government debt for pennies on the dollar in the wake of the 2001 default. The 93% of bondholders who agreed to reduced repayments on average received 30 cents on each dollar of debt swapped. Hence, it pays to be a hold-out as New York courts will see to it that headstrong bondholders get paid in full.

Once the peso resumed its downward slide by midAugust, President Macri responded with a series of austerity measures aimed at cutting the budget deficit much quicker and deeper than originally envisioned. He also asked the IMF to speed up the disbursement of bailout funds in order to assuage the markets and prove its many naysayers wrong.

BREAKING THE MOULD Macri now fully intents to balance next year’s budget and even come up with a modest surplus.

In order to get there, the administration introduced a slew of new taxes directed at the country’s sole sizeable dollar-earning sector – agriculture.

Exporters of primary products must now pay four pesos per export dollar earned on agricultural produce and three pesos on other commodities.

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"Whilst the fund’s firepower was tripled in the aftermath of the 2008 banking and debt crises, and now amounts to around $1tn, most of that arsenal is set to expire within the near future."

The reintroduction of a tax on farm exports constitutes a personal defeat for Macri, who had scrapped similar taxes when he assumed office in 2015, calling them retrograde and terrible.

Macri said the economic emergency left him no other choice and promised to scrap the export tax as soon as things had normalised. Argentina is the world’s largest exporter of soymeal and the thirdlargest producer of soybeans. Next year, the export tax is expected to raise an additional $13.4bn in revenue as the farming sector rebounds.

Though markets analysts and watchers remain sceptical, the Argentine government seems determined to end the boom-and-bust cycles that have plagued the country’s economy for close to seven decades. Macri has told the nation that he seeks to end the bouts of financial turmoil that have been a recurring feature of life for most Argentines. He aims to do so by balancing the budget once and for all and setting up a solid framework that would keep government spending in check. In a televised address to the nation, last August, the president said: “This is not just another crisis. It has to be the last crisis.”

The ultimate goal of the current administration is to attain a primary fiscal surplus equal to at least 1% of GDP by 2020. This, however, requires the administration to slash social spending.

Argentina’s comprehensive and generous social security system is one even the most prosperous of countries would struggle to afford. Quite often Argentina financed its bloated social spending by simply printing the pesos needed. This is the main reason why the country has been struggling to get its inflation – currently running at an annualised rate of well over 30% – under control.

By drastically lowering the subsidies on electrical power and natural gas, the government cut its expenditure but fuelled inflation. In yet another attempt at slashing the deficit, the administration reduced the number of ministries from 18 to just 10, with five departments being downgraded to state entities and others merged to reduce staffing levels and increase operational efficiencies.

Most market-watchers agree that the danger of yet another Argentine debt default has lessened considerably since the IMF pledged its support.

By eliminating the fiscal deficit, Argentina’s financing requirements for 2019 are reduced by about $6bn. In a worst-case scenario, in which the IMF refuses the country’s request to frontload the bailout package and only about 30% of maturing CFI.co | Capital Finance International

debt is rolled over, Argentina faces a funding gap of around $14bn next year. It should not be too hard to bridge that gap.

Though officials refuse to confirm the talks, markets are pretty sure the Macri administration has engaged with both China and the United States to secure currency swap lines. The US in particular seems willing, if not eager, to help Argentina in these trying times, with Trump repeatedly assuring, by tweet or otherwise, that his country fully supports the IMF bailout package. The consensus is that Argentina will manage until the elections of October next year, when the electorate may well turn against the current administration and revert to a more populist approach. Macri says he needs two successive terms in office to complete his radical overhaul of the Argentine economy.

THE FUND’S OWN TRAVAILS In Washington, the IMF’s management has been exposed to muted criticism on its Argentine programme which, after all, went off the rails in about 60 days and is now being restructured after the assumptions about the country’s financing needs proved overly optimistic. Critics argue that the first $15bn disbursement made by the IMF constitutes a waste of resources in light of the haphazard nature of the programme.

However, the IMF argues that it remains a formidable bastion against the looming emerging markets crunch – in fact the only one able to deal with multiple crises such as the ones now unfolding in Argentina and Turkey. Later this year, managing-director Christine Lagarde is to embark on a discrete campaign to lobby the IMF’s major creditor nations for additional resources.

Whilst the fund’s firepower was tripled in the aftermath of the 2008 banking and debt crises, and now amounts to around $1tn, most of that arsenal is set to expire within the near future.

The trillion dollars currently on hand is more than enough to meet the $600bn in debt obligations the six most troubled emerging market countries need to roll over in 2019 – should that need arise.

However, only about a quarter of this firepower takes the form of readily available cash. Fully half of the trillion dollars available to the IMF comes from bilateral credit arrangements which will start to expire as of next year. The remainder of the IMF’s funds are sourced from multilateral borrowing facilities which are set to expire in 2022.

Given the uncertainties in Brazil and other major emerging markets, the IMF needs to keep its arsenal intact. Given that the current US Administration is unlikely to support an appeal for extra funding and may use its veto to cut the IMF down to size, Lagarde faces an uphill battle, though not an impossible one to win. Trump, after all, did not object to the IMF’s rescue of Argentina – and earlier this year also okayed the World Bank’s request for an additional $13bn in resources.

The US Administration’s rhetoric thankfully does not always match its actual bite. i

Autumn 2018 Issue

> Anselmo do Ó de Almeida & Angeles de Magalhães:

A Team Working in Perfect Harmony It was 10 years ago when the company initiated its succession plan. It was not an easy task for its founder, Alvaro de Magalhães, who has always been the driving force behind the company’s success.

T

wo executives stepped-up to lead this process: Anselmo do Ó de Almeida and Angeles de Magalhães. They are responsible for the coordination of the group’s operation and decision-making processes. Their distinct profiles complement each other in the organisation’s leadership.

Anselmo do Ó de Almeida is currently the group’s chairman. He began his professional life at the Brazilian Reinsurance Institute (IRB Brasil Re), where he traced a brilliant career path, culminating in the position of director. During this period with the IRB, the Brazilian reinsurance market was a monopoly of the state government: a tightly regulated market. All the major commercial and industrial risks were mandatorily reinsured by the IRB, which also served as the only interface with the foreign reinsurance markets. This was a unique experience for Anselmo, one that few other insurance professionals can boast. In the early 2000s he joined the Interbrok Group and its clients have benefited from his expertise in developing the best insurance solutions for their needs.

Angeles de Magalhães is the CEO of the Interbrok Group, having joined the company in 1990s while she was still studying for her Bachelor’s degree in Economics at the University of São Paulo FEAUSP. Her father, Alvaro de Magalhães, invited her to work as an intern in Interbrok and she fell in love with the business. Angeles excelled in the company by assuming the co-ordination of the Employee Benefits division, which currently accounts for 50% of the Group’s Insurance Premiums.

She has extensive experience in the market and a specialist knowledge in Health Insurance programmes, with studies at Stanford and Harvard Universities in cost- and risk-management: a vital

Management: Anselmo do Ó de Almeida & Angeles de Magalhães

area, given the importance of the private health sector, especially when one includes its doubledigit inflation.

The company prides itself of having the best team of insurance professionals in Brazil. They are highly qualified and come from diverse academic backgrounds with experience in the domestic and international insurance markets.

The breadth of their knowledge and experience is what differentiates the Interbrok Group from the pretenders, and allows the team to fully comprehend the differening needs of clients.

Every executive in Interbrok Group seeks to create and continue customer satisfaction, with a truly ethical position and genuine concern for the community. It shows great respect for business partners and setting the company apart from competitors by means of the quality of the products and services provided. Above all, it aims for exemplary service.

There is pride to being part of the Interbrok Group, and it is with a spark in the eye that this team looks to the future and strives to remain the best insurance broker in Latin America. i

"The company prides itself of having the best team of insurance professionals in Brazil. They are highly qualified and come from diverse academic backgrounds with experience in the domestic and international insurance markets."

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> Interbrok Group:

Pioneering New Trails to Management Solutions Interbrok Group’s 101 years of history, combined with the pioneering nature of its management in creating solutions, is the cornerstone of its success in building an image of tradition and solidity, together with an efficient and modern company.

I

ts bold profile, based on the high level of service, ethics in business and financial independence has allowed the company to rank among the largest independent brokerage firms in the market. It is also among the top 50 professional brokerage firms in the world.

"Interbrok Group believes that a closer and focused relationship with the client produces satisfied and well-advised customers, with well identified risks and better results."

Independence in operations and decision-making process, together with strict management rules, allow Interbrok Group to meet its customers’ needs. Due to its financial soundness, Interbrok Group is a totally independent company within the insurance market. To confirm and endorse this condition, the company, although privately owned, is permanently audited by PricewaterhouseCoopers for over 20 years.

Another important fact is the broad scope of services in difference lines of insurance and relying on a large and diversified portfolio of clients, which reduces both the company's exposure to risk.

Interbrok Group is constituted by the companies Interbrok, Wood, Adams & Porter, WIM Central de Seguros and Universal RE. CONSTANT EVOLUTION Interbrok Group was born from the vision of a young entrepreneur who decided to start his own insurance brokerage firm that would differentiate itself from all others in the Brazilian Market. This young man was Alvaro de Magalhães and in the year of 1976 he formed Interbrok Corretores Internacionais de Seguros.

From that point, the company grew and established itself as the most qualified insurance broker in Brazil. Based on an incredible sense of ethics and respect for its business partners (clients and insurers), Interbrok was always ahead of its competitors.

Interbrok also pioneered in acquisitions, and these were daring acquisitions. In 1997, the acquisition of Wood Macrae was concluded, which was the most traditional insurance brokerage in Brazil, founded in 1917, and initiating a process that continues to this day. In the year of 1998 the company went 170

international, establishing partnerships with the most important networks of independent brokers in the world, which continue until this day. This expansion was definitively consolidated with the acquisition of Adams & Porter, a globally renowned firm for its international expertise and presence.

More recently, in view of the deregulation and liberalisation of the reinsurance market, Universal RE was founded with the purpose of providing solutions to the most complex needs of their clients.

Seeking innovation and evolution has been the driving force until the present day. The company expanded into specialty areas, modernising

itself, investing in state-of-the-art technology and diversifying its production, but always reflecting the culture and values that are the DNA of the company.

BEST SERVICE EXPERIENCE Interbrok Group’s vision regarding what is expected from an insurance service provider is unlike any other market player. The focus on quality, dedication and individual treatment are factors that guide all their efforts. Quantity is not a predominant portfolio factor, quality is more important. The Group's professionals with more than 30 years of experience provide services to a select range of clients, allowing them to understand the details of each insurance program and interact with the customers to ensure the best results are achieved.

The company operates on a “Tailor Made” basis to assure that each client’s specific requirements are met. This means that their clients can count on a complete solution in the management of their insurance program. To be a client of the Interbrok Group signifies to have the best possible coverage at the best market price and benefit from exclusive and unique service.

Interbrok Group believes that a closer and focused relationship with the client produces satisfied and well-advised customers, with well identified risks and better results. An insurance program should necessarily be structured with the customer’s input, supported by the

INTERNATIONAL BROKER NETWORK Interbrok Group is associated with the two largest international broker networks, and through this association we provide the best services to the Brazilian subsidiaries of companies from all over the world.

Assurex Global • Founded in 1954; • More than 110 partner brokerages within the network; • In excess of 500 offices globally; • Presence in over 80 countries.

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USI • 80 brokers belonging to the network; • In excess of 450 offices globally; • Global presence in over 145 countries; • 4th largest global broker and largest independent network.

Autumn 2018 Issue

Interbrok Group: Headquarters

unique expertise of their team of insurance professionals. This is essential to achieve the best levels of protection.

during work to direct and implement risk mitigation measures and adjust possible deviations that may have been identified.

RISK-MANAGEMENT Risk-management is key in the company's decision-making processes, particularly in an increasingly competitive environment. Interbrok Group has a risk-management structure which is dedicated to help customers identify risks and the impact in the companyâ&#x20AC;&#x2122;s operations and results.

REINSURANCE Interbrok Group has a close relationship with the international reinsurance market through UNIVERSAL RE, which operates supporting the operations of the Groupâ&#x20AC;&#x2122;s clients, and also supporting several Brazilian insurance brokers who need help in placing their risks.

Interbrok Group acts decisively in structuring management and risks, allowing the client to maintain focus on the business and, concurrently, use the information collected

UNIVERSAL RE allows direct access to the international reinsurance market to seek and develop new products and solutions for its customers. The relationship with reinsurers and reinsurance brokers takes place through teams CFI.co | Capital Finance International

extensively trained in Brazil and abroad, fluent in several languages, greatly facilitating the negotiations of complex reinsurance programs.

UNIVERSAL RE also works supporting the insurers in providing capacity and the placement of differentiated risks and in the development of facilities and reinsurance contracts.

THE FUTURE Interbrok Group is tireless in its pursuit of innovation. They are constantly seeking new ways to deliver better and more efficient services, and this is what differentiates them within the industry and makes them a truly modern company. Interbrok Group was ahead of its time in 1917, still remains as such in 2018, and will still remain so in 3018. i 171

> For the Sake of SDG 16:

ALIAS Gives Law Enforcement Agencies the Tools to Reduce Gun Violence Sustainable Development Goal (SDG) 16: “Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels.”

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n many countries, firearms represent a significant obstacle to delivering the provisions of SDG 16 – but proper registration, combined with “ballistic fingerprinting” of legal firearms, can have a significant impact on achieving them.

SDG 16.1 calls for the reduction of all forms of violence and related death rates; SDG 16.3 appeals for the promotion of “the rule of law at the national and international levels and (to) ensure equal access to justice for all”. SDG 16.4 aims to “significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organised crime”.

Law enforcement agencies must have, as a priority, the correct legislative tools to reduce gun violence – not only for the sake of victims and

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"In Mexico alone, more than 20,000 firearms have been recorded as missing from state and local police since 2006. Many of those weapons are believed to be in the hands of criminal gangs." their families, but to help create civil societies and to encourage sustainable economic growth.

The impact of crime and violence on economic prosperity is the subject of numerous academic papers, and there is no doubt that when violent crime levels increase, there is a corresponding fall in economic activity.

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A recent paper from Viridiana Rios, at the Wilson Center in Washington DC, analysed the correlation between crime and violence and the way economic resources are allocated. The paper concludes that “increases in criminal presence and violent crime reduced economic diversification, increased sector concentration, and diminished economic complexity”.

The Advanced Ballistics Analysis System (ALIAS), developed by Pyramidal Technologies Ltd, helps to deliver SDG 16 by giving law enforcement agencies the proper tools to create an effective firearms registration system – along with a sophisticated forensic capacity to link shell casings and bullets recovered from crime scenes to registered firearms.

This enables forensic teams to more swiftly identify the weapon used, leading to higher conviction rates and improved levels of trust in the criminal justice system. Once service weapons have been

Autumn 2018 Issue

Chief Technology Officer: Ardavan Tajbakhsh

registered on ALIAS – in countries with high incidences of extra-judicial killings by police and military units – this is an effective deterrent, and a means to prosecute offenders with hard evidence.

Once implemented, ALIAS provides real-time information to law enforcement, and the system can be integrated with national identity, residency, immigration and passport systems. By providing law enforcement officers with information about firearms registered in a country, appropriate precautions can be taken. Border controls can accurately check the providence of firearms and help to reduce the flow of illicit arms. The history of weapons seized by law enforcement agents can be determined, and individuals involved in the sale of recovered and state weapons can be brought to justice.

In Mexico alone, more than 20,000 firearms have been recorded as missing from state and local police since 2006. Many of those weapons are believed to be in the hands of criminal gangs.

The Dominican Republic introduced a ballistic and biometric laboratory (LABBS) in 2013 as

part of a nationwide system designed to help combat gun crime. The system incorporates Pyramidal Technologies’ ALIAS systems to capture identity information from registered owners of firearms and to scan expended cartridge cases and fired bullets from individual firearms. Since its introduction, the murder rate has fallen significantly. In the decade prior to its introduction, the Dominican Republic was experiencing an average of 25 murders per 100,000 inhabitants. In the subsequent four years, that average dropped to 18 per 100,000 (according to figures from the Ingarpé Institute’s homicide monitor).

While this improvement cannot yet be directly attributed to LABBS, the positive statistic certainly bucks the regional trend. And, as data builds up, significant improvements and higher conviction rates can be expected.

There is building evidence that when law enforcement is given the appropriate tools to properly and forensically register firearms, violence is reduced, the rule of law is promoted and the sale of illicitly obtained state firearms is deterred.

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Firearm registration laws allow for the creation of a centralised or national database containing comprehensive records of firearm ownership, including a thorough description of each firearm and the identity of the owner. This applies to citizens and residents who legally possess firearms, as well as militia, private security operators, law enforcement officials, and military personnel. The collated information is then registered by government agencies in charge of public security.

Such firearms management programmes create accountability for firearm owners, and ensure law enforcement officials have immediate access to the database. Crime Scene Investigators (CSI) recovering firearms from crime scenes can, using “test fires” from each firearm, use their ALIAS Forensic Ballistics system to search their country’s database to determine whether a weapon used was a registered firearm. This can lead to swift identification and prosecution.

By having a comprehensive view of the firearms within their jurisdiction, law enforcement officials will be empowered with previously 173

unavailable information, allowing them to make more informed decisions. For example, the re-registration of a firearm after a specific time period (one to three years) would confirm whether the original owner is still in possession of that firearm, whether it has been sold, inherited or transferred to another individual (who would, in any case, have to register it) or whether it was lost or stolen.

This can lead to more reliable information being available at a crime scene while it is “still hot” – within the first crucial hours after the commission of that crime.

Either during the original registration process, or through a subsequent renewal, the individual being granted the license can be checked against national databases to ensure that they currently qualify as a “good citizen” with eligibility to hold a license.

More and more countries are considering, or passing, laws to support initiatives requiring formal records of firearm ownership at state or federal agency level. As more political organisations and countries seriously look at the impact firearms have on their communities, Pyramidal Technologies’ executives are committed to making a positive contribution to the effort by helping to replicate the successes the initiative had in the Dominican Republic. i

LOGICAL IN TERMS OF PUBLIC SAFETY – AND INCOME

National forensic firearms registration systems require an initial capital outlay, but as holders are required to pay for registration, there is an opportunity for those looking for good rates-of-return to invest in such projects.

In a hypothetical country where civilians have in their possession, say, 300,000 legal firearms (in many Latin American countries the figure is higher), licensing fees of around $100 (dropping to half of that for re-registration) would generate more than $30,000,000 in the first three years of phased deployment. Significant revenue would follow as new firearms are registered.

As an example, the Dominican Republic legislated for the annual renewal of firearm licenses. Capital and operating expenses can be recovered in as little as one to three years, offering an aggressive ROI and free capital once the revenue-neutral point has been passed.

Firearms registration projects in developing countries may be suitable for international loan guarantees and, significantly, the possibility of a sustainability bond issue to fund such projects is being considered.

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Autumn 2018 Issue

> Venezuela:

The Wholesale Destruction of a Once Wealthy Nation When earlier this year looters ransacked a grocery store in Ciudad Guyana, a city of 870,000 in eastern Venezuela, they emptied the shelves but left the cash registers alone.

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oney is literally not worth the paper it’s printed on. The largest banknote currently in circulation represents 100,000 bolívares and features a security thread as well as a holographic image to deter counterfeiting.

Not that anyone would be tempted: even at the official exchange rate, 100,000 Bs buys just five US cents.

Venezuela has now effectively entered the realm of hyperinflation, which means money has become useless. When money no longer stores any discernible value, looters don’t stoop to pick up stray banknotes. By year’s end, the inflation rate is expected to reach one million percent.

That is calculated only by approximation; since the government stopped publishing the official price index, the actual rate is anybody’s guess.

According to the opposition-controlled national assembly, which conducts its own research, consumer prices rose by 46,305% in the 12 months to June.

To try and keep the number of zeros, if not the inflation, in check, President Nicolás Maduro in late July announced the introduction of a new currency – the sovereign bolívar – which comes with five noughts less than the bolívar fuerte it replaces. That “strong bolívar” was introduced in 2007 to lop three zeros from the much-eroded original bolívar – once the strongest of South American currencies.

Now a curiosity traded for multiple times its actual value on eBay, bolívar fuerte banknotes will make way for another monetary tragedy-inwaiting. Maduro announced with considerable fanfare that the country’s new currency will be pegged to the state-controlled “petro”, a cryptocurrency which, in turn, is supposedly backed by Venezuela’s oil reserves – the world’s largest. Though Maduro has claimed that his government raised in excess of $5bn with the petro’s initial coin offering, no secondary market for the currency has been detected, leading some observers to suspect the petro is but a figment of the president’s imagination.

As the government retains the ability to fudge the books with petros, the promised currency peg is essentially meaningless. Even more worryingly,

"Maduro announced with considerable fanfare that the country’s new currency will be pegged to the state-controlled 'petro', a cryptocurrency which, in turn, is supposedly backed by Venezuela’s oil reserves – the world’s largest."

Maduro also vowed to entrust the vast reserves of extra-heavy crude awaiting exploitation in the Orinoco Basin to the central bank which will now add the value of this resource to Venezuela’s international reserves – or use them as collateral for future loans. By transforming untapped oil reserves into a tradeable commodity, the cashstrapped Maduro administration may try to convince China and/or Russia to advance it a few extra billion on top of the more than $60bn raised over the past years under oil-for-loans deals the South American country uses to pay interest and principal with oil shipments to its creditors.

Already saddled with about $150bn in external debt, Venezuela has so far been unable to renegotiate terms with its creditors. The country has, essentially, nothing left to offer. US sanctions, imposed after Maduro in July 2017 installed a rubber-stamp constitutional assembly, bar US banks from any dealings that involve the restructuring of Venezuelan loans or bonds.

Also, most of the country’s external obligations fall under the jurisdiction of the courts in New York which do not look kindly on defaults.

Bolstered by their experience with Argentine debt instruments, vulture funds have already begun snapping up distressed Venezuelan bonds – primarily issued by PdVSA (Petróleos de Venezuela, SA) and serviced irregularly – with an eye to blocking any future restructuring exercise whilst holding out, and suing, for full repayment.

Meanwhile, the government’s tax intake is forecasted to drop by 70%, in real terms, this year. Though oil prices have recovered, domestic production has not. Venezuela is able to extract slightly less than 1.5m barrels of crude per day, a far cry from the 3.5m barrels/day it pumped in the late 1990s. Oil production is choked by the insufficient maintenance of wellheads and a lack of funds to acquire spare parts and pay for technical procedures. Pipelines, pumping CFI.co | Capital Finance International

stations, and loading facilities at ports are also crumbling while most of the country’s crude carriers dare not venture outside home waters for fear of being seized by creditors.

Experts do not expect Venezuela to pump more than a million barrels/day by the end of the year. Adding to the government’s predicament, the lion’s share of the dwindling oil production is earmarked for creditor nations – China and Russia – leaving only a relatively small volume that can be monetised. Market watchers estimate that Venezuela can only sell about 400,000 barrels/day for cash.

The country has also lost out on the recent recovery of oil prices as most of the crude it ships was sold under long-term contracts at a fraction of today’s spot prices. The situation is so grave that Petróleos de Venezuela SA now lacks the funds to buy the light sweet crude (WTI – West Texas Intermediate) it requires for blending with extra-heavy Orinoco crude to supply its customers with a product they can refine.

The sole refinery in the world designed and equipped to process unblended Venezuelan crude – the 335,000 barrels/day Isla Refinery which PdVSA leases from the government of Curaçao in the Dutch Caribbean – suffers from poor maintenance and obsolete equipment.

Unpaid creditors of the Venezuelan stateowned oil company have also seized multiple PdVSA assets on Curaçao and elsewhere in the Caribbean, including shipments of crude oil.

That said, Venezuela still sits on the world’s largest reserves of crude oil – a pool of wealth estimated to represent a value of $15 trillion – or more. Yet its foreign hard currency reserves now hover around the $10bn mark, a 20-year low. The cash crunch has slashed imports by as much as 85% over the past five years to the point that essential foodstuffs and medicines have all but disappeared. An estimated one million Venezuelans have fled to Colombia and Brazil.

Maduro gives no signs of losing sleep over the crisis, repeating that his government represents the “great hope of a people who have waited for centuries”. Although things can hardly get any worse in a country where cash is without value and 175

bartering has become the new normal, regimechange seems distant if the generals decide to put an end to the chaos. For now the Maduro Administration remains firmly in control of all institutions that matter – including the judiciary, media, and military – with the sole exception of the nearly powerless national assembly which is in the hands of an otherwise tired, divided, and squabbling opposition.

Only one independent newspaper is left, though its owner was forced to flee to Spain. El Nacional still manages to print and distribute about 20,000 copies daily – a tenth of its former print run. The paper is being sued and fined almost continuously for printing articles that fail to please the powers-that-be. It cavernous newsroom, once buzzing with about 300 journalists, now houses a skeleton staff of about 20 reporters and editors.

Formerly employing well over 2,000 people, El Nacional is now being run by about 200 diehards. The state-owned company that enjoys a monopoly on the sale of newsprint in Venezuela flatly refuses to sell paper to El Nacional, which now receives support – and its paper and ink – from a consortium of Latin American dailies.

Maduro has become, for all practical intents and purposes, a dictator. He blames the country’s 176

many ills to the “economic warfare” waged against it by the US and the 17 Latin American signatories of the Lima Declaration, published in August 2017, which calls for free elections, the release of political prisoners, and the restoration of the rule of law in Venezuela.

In the 1960s and 1970s, Venezuela was, by far, South America’s wealthiest nation.

Although plagued by inequality, it suffered no brutal dictatorships or military uprisings. Its governments regularly lectured Brazil, Argentina, Chile and other countries ruled by generals on the value of democracy and respect for human rights. All that changed rather abruptly towards the end of the 1990s when endemic corruption, economic mismanagement, and declining oil revenues conspired against the established political order and ultimately crippled it, allowing a charismatic paratrooper-turned-socialist to capture power.

Hugo Chávez ruled in a grand style, dispensing favours – and plenty of cash – to whoever cheered him on, inside and outside Venezuela.

Lifting millions out of poverty by granting generous subsidies and organising massive social support programmes, Chávez did not need to rig ballot boxes and won six consecutive CFI.co | Capital Finance International

elections – unfailingly with a landslide. Before he passed away in 2013, Chávez picked his most sycophantic ally, former bus driver Nicolás Maduro, as his successor.

Lacking both the charisma and political savvy of his mentor, Nicolás Maduro soon fell prey to a cabal of darker forces that managed to distract him with details and initiatives that could not possibly attain the envisioned results. Those dark forces also robbed the exchequer of an estimated $300bn via exchange rate and scams.

A plunge in global oil prices sealed President Maduro’s – and the country’s – fate. Social unrest followed with more than 100 protesters dying in successive waves of repression that re-established a semblance of order without extinguishing the anger simmering just below the surface.

The only sign of hope is that hyperinflation never lasts long. Once money loses its value, other bits of economic life start coming apart as well in a process that brings the country to a complete halt at which time a number of shock therapies – orthodox (wage earners and pensioners pay, see Greece) or heterodox (creditors pay, see Argentina) – may be applied to breathe life into the patient. i

Autumn 2018 Issue

> Design-Thinking,

Innovation and Productivity at Funds Leader Porvenir

Porvenir, the leading pensions and severance funds market in Colombia, has had the trust of Colombians since its inception in 1991 – and now boasts more than 11 million clients.

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hat’s a long haul and a lot of clients, but the investment of time and dedication has paid off for Porvenir.

It has been able to consolidate its position, and now has $133bn under administration.

"Porvenir sees innovation and productivity as the basis of process management, based on efficiency."

“We have the immense responsibility to support our affiliates and serve them efficiently,” says company president Miguel Largacha. “This is why Porvenir has consolidated an offer of value based on service, innovation, and added value for its customers. To achieve this, we have been refining our management model and continuously strengthening the technological infrastructure.”

business solutions and the new technological capacities.

The organisation invests about $10m each year to strengthen its technological infrastructure. As part of its services Porvenir offers Servifácil as an all-round strategy that combines various options to carry out procedures and consultations and enhance security, speed, and ease-of-use.

Porvenir has a goal: that its clients get closer to its high-quality products and services in the most efficient way possible. Nowadays its clients execute 91 percent of their procedures through efficient digital channels, and it expects to reach 93 percent in the next few years.

“Our main focus is to strengthen operative excellence to develop new organisational and technological capacities, as well as the automatisation of our full operation,” says Largacha.

Over the last two decades, Porvenir has won numerous awards, but it’s especially proud of landing the Ibero-American Quality Award in 2016. The King of Spain, Don Felipe VI, presented the award, which is the highest recognition in management given to an organisation at the Ibero-American level. The award ceremony was held at the Ibero-American Summit of Heads of State and Government in Cartagena, which this year brought together presidents of state and entrepreneurs from the 22 countries of Latin America.

In the process of digital transformation, Porvenir created “I+P 2.0” (Innovation and Productivity 2.0) combining three key elements for business sustainability.

To break that equation down: Porvenir sees innovation and productivity as the basis of process management, based on efficiency.

“Design-thinking” makes interactions with clients more efficient and generates more valuable experiences for them. The 2.0 tag relates to escalating results through technological platforms.

The strategy has identified 45 major opportunities in digitalisation, and Porvenir is currently making progress in more than 15 projects to join both

This transformation plan has modernised employment processes. Chatbots interface between employer and employees, validation processes are automatised, and a core platform has been launched for severances.

In 2017, Porvenir received national recognition as the first Pension and Severance Fund to enter the list of Active Anticorruption Companies, thanks to its unwavering commitment to good practices that promote transparency and mitigate potential risks.

Porvenir's commitment to its customers is backed by an excellent team in continuous growth and development, which seeks to offer a

portfolio of dynamic products and an agile and timely service. The company understood that to have happy customers, it must first cultivate the integral development of its team. That team began with 91 employees and today exceeds 2,600. Porvenir promotes lifelong learning and invests in the personal and professional growth of each of its employees.

And that team is ready for the future challenges, such as the growth of its investment portfolios.

Porvenir continues to execute a strategy of diversification that seeks to find the ideal risk/ return combination to provide customers with the pension benefits they deserve. This requires Porvenir to include alternative investments in its asset allocation as well as to take full advantage of securities markets around the world.

However, investing in Colombia has also been a priority for the company: for every $100 of the Moderate Obligatory Pensions portfolio, $71 is invested in financial instruments that are intended to finance local companies or the National Government.

In terms of Corporate Social Responsibility (CSR), the company launched "Corriendo por un propósito”, an initiative to invite Colombians to run for a common cause, organised through an app called Nation of Athletics. This initiative supported more than 200 kids from different schools in Colombia, providing them with equipment and trainings. Corriendo por un propósito is part of the CSR programme started in 2000 to support Colombian athletics.

The company has set great goals in 2018 to ratify its leadership and solidify its standing as the leading Pension and Severance Funds Administrator in terms of number of affiliates and assets under management. By the end of the year, it expects to register an increase of more than 600,000 affiliates who will be depositing around $10 billion pesos for their retirement savings throughout their labour cycle. i

"Our main focus is to strengthen operative excellence to develop new organisational and technological capacities, as well as the automatisation of our full operation."

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> EY:

Argentine Tax Reform and Recent Macroeconomic Developments

By Sergio Caveggia

In December 2017, the Argentine Congress passed law No. 27,430, which enacted a federal tax reform.

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he main purpose of the reform was to encourage investment and employment through the implementation of a gradual reduction of taxes over five years. This article describes the main characteristics of the Argentine system, and how recent macroeconomic developments may affect the tax reform’s objectives.

INCOME TAX The national income tax is levied on resident legal entities (incorporated companies and branches of foreign entities), individuals and, via withholdings, on non-residents. While Argentine residents are subject to tax on their global source income, non-residents are only subject to tax on their Argentine source income through income tax withholdings.

According to Law No. 27,430, Argentine corporate taxpayers (corporations, limited liability companies, etc), as well as branches of foreign companies, are taxed at a 30% rate on their net taxable income for fiscal years from January 1, 2018, to December 31st, 2019. For fiscal years starting on January 1, 2020, and onwards, the applicable rate will be 25%.

The recent tax reform also restated the adjustment for inflation provisions if certain inflation thresholds are not met. Investments in capital goods, real estate and shares may be adjusted for inflation. A tax revaluation system has been enacted where taxpayers are allowed to step-up the tax basis of property, plant and equipment – among other assets – by paying an up-front tax of 5% to 15%, depending on the respective assets.

This regime may allow taxpayers to adjust assets tax basis eroded through years of inflation up to 2017.

DIVIDEND TAXATION According to the new law’s amendments, dividend payments and profit distributions made by an Argentine entity are subject to a 7% withholding tax for profits accrued during the relevant period, and to a 13% for profits accrued in fiscal years starting on January 1, 2020, and onwards.

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"A tax revaluation system has been enacted where taxpayers are allowed to step-up the tax basis of property, plant and equipment – among other assets – by paying an up-front tax of 5% to 15%, depending on the respective assets."

A 0% dividend withholding tax rate is applicable for the distribution of profits accrued during fiscal years that started prior to January 1, 2018, but in these cases a 35% withholding tax (known as “equalization tax”) is triggered if the distribution exceeds the accumulated taxable income (income which had been subject to the 35% corporate income tax rate).

NET OPERATING LOSSES (NOLS) NOLs can be carried forward for five years, but no carry-back is permitted. NOLs from foreign source or derived from the sale of shares, bonds or securities can only offset income of the same kind. Consolidated returns for an economic group are not accepted.

INTEREST DEDUCTION - LOANS WITH FOREIGN RELATED PARTIES Interest derived from intercompany loans with foreign companies are deductible as long as they are paid before income tax return's due date, and subject to interest limitation deduction.

Law 27,430, establishes that the limit to deduct intercompany interests of 30% of earnings before interest, taxes, depreciation and amortisation (EBITDA), or a certain amount to be determined by the Executive Power (not yet determined), whichever is higher. The limit will be increased each year by the amount unused (if CFI.co | Capital Finance International

applicable) in the previous three years. If certain interest was not deductible in a given year due to the application of the limitation, it can be carried forward for five fiscal years. The term “interest” will include foreign exchange differences.

The law provides exceptions from the deduction limit for certain situations (interest derived on loans obtained by Argentine banks and financial trusts, or when the beneficiary of the interest has been subject to tax on such income, in accordance with Argentine tax law). The limitation will not apply to situations where it is proven that the ratio of interest to EBITDA of the Arge ntine borrower is equal to, or lower than, the same ratio for its economic group.

CAPITAL GAINS Capital gains obtained by Argentine individuals on the sale of unlisted shares and other securities are subject to tax. Direct and indirect transfers of shares, or other interest in Argentine companies by foreign beneficiaries, are subject to tax under certain rules. However, the tax reform included certain grandfathering provisions to those structures which had been in place when the tax reform was enacted.

If the acquiring entity is an Argentine company, it should act as an income tax-withholding agent at payment. If the acquiring entity is a foreign company, no income tax should be withheld.

OTHER TAX CUTS Federal Minimum Presumed income tax will be abrogated for fiscal years starting from January 1, 2019. The Federal Personal Assets Tax rate has been reduced to 0.25% for the fiscal year 2018 onwards.

Federal Tax on Debits and Credits in bank accounts has granted the possibility to taxpayers to credit 33% of the tax paid against income tax and/or minimum presumed income tax.

The Federal Executive is expected to gradually increase the rate of the tax on bank account transactions that is deemed a credit until 100% is reached in 2022.

Employer payroll tax contributions will be unified to a single rate of 19.5% as of 2022.

Autumn 2018 Issue

PROVINCIAL TAXES The federal government, the provinces and City of Buenos Aires agreed on a fiscal consensus (already passed through law No. 27,329) through which the provinces and the City of Buenos Aires committed to a progressive reduction of turnover tax and stamp tax rates until reaching exemptions in 2022.

MACROECONOMIC CONDITIONS This contribution is currently being written, Argentina is facing a devaluation of the local currency, and an increase of inflation rates.

Fiscal deficit cannot be financed through public debt instruments by an executive branch in foreign markets and,the federal government has just sent the 2019 budget to the Congress including a zero deficit equation. The current scenario changed at the moment the tax reform was passed. Although the governmentâ&#x20AC;&#x2122;s intention is to maintain the tax cuts and rates reductions, it is probable that adjustment for inflation (for tax purposes) will be suspended.

There is a particular bill-draft circulating which increases inflation thresholds, after which inflation adjustment would be triggered. i ABOUT THE AUTHOR Sergio Caveggia is a tax partner in charge of the Transaction Tax Area in Argentina. He joined EY Argentina in 1994 and has developed his expertise over 24 years in international taxation, mergers and acquisition matters. He is experienced in acquisition structures for inbound and outbound investments and restructuring services within the Transaction Tax area.

Caveggia has given lectures in universities, and is a frequent speaker in tax seminars. He has also written several articles dealing with Argentine tax issues. Caveggia is a CPA who graduated from the University of Belgrano in Argentina.

He obtained his Tax Specialistâ&#x20AC;&#x2122;s Degree at the University of Belgrano, and has a postgraduate certificate in Business and Management from Universidad Catolica Argentina (UCA). He is also a member of the Professional Council of Economic Sciences of Buenos Aires, and the Argentine Fiscal Association.

Author: Sergio Caveggia

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> North America

US Market: Cumbersome Reporting Requirements Challenged by Trump and Musk

Not all tweets emanating from the White House are cause for self-righteous indignation; some actually contain ideas worthy of consideration and examination.

An example is the one broadcast mid-August, in which Trump suggested the Securities and Exchange Commission (SEC) study a relaxation of its strict quarterly reporting standard which requires publicly-listed companies to provide four earnings updates annually. Trump proposed, in his usual staccato way, the adoption of a biannual reporting schedule that could reduce the pressure on corporate executives to pursue short-term gains, often to the detriment of their long-term goals.

Proponents of the idea suggest that the change would lighten the administrative burden, reduce costs, and possibly provide some much-needed buoyancy to the flagging IPO market. Opponents object to shareholders receiving less information than they currently do. Trumpâ&#x20AC;&#x2122;s interest in corporate reporting was sparked by new PepsiCo CEO Indra Nooyi, who pleaded with the president for executive initiatives that help support a move towards longer corporate horizons. Nooyi also asked the president to consider pushing for a harmonisation of US and EU financial reporting standards as a way to lessen the burden on businesses and to level the competitive playing field.

Tilburg, Netherlands: Tesla Motors Assembly Plant

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Autumn 2018 Issue

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S

ince 2013, the European Union has no longer required companies to file quarterly earnings reports. The European Commission’s Transparency Directive now demands that listed companies provide bi-annual reports, considering that more frequent disclosures do not strengthen investor protection. Emmanuel de George, assistant professor Accounting at the London Business School, begs to differ. In a study conducted jointly with Indiana University, De George found that as a result of their less frequent reporting, European companies tend to suffer significantly when their US-based peers turn in disappointing results.

Investors lacking updated information, De George found, infer that bellwether European corporates must not be outperforming their US competitors in those quarters (first and third) that they do not file reports. In fact, non-reporting made European companies about twice as sensitive to US earnings news as they otherwise would have been.

De George suggests an alternative approach: “Keep or reinstate the quarter-reporting requirement but prohibit companies from anticipating their earning for the next quarter.”

Another idea is to tie executive bonuses, including stock options, to the company’s performance over the preceding three to five years, encouraging CEOs to emphasise long-term results rather than obsessing about coming up with an embellished report in three months’ time.

As usual, Trump’s tweet opened a can of worms, or a debate that is about as old as the market.

Interestingly, both sides of the debate agree on the premise that publicly-listed companies should be encouraged to take the long view. The US Chamber of Commerce considers the significant compliance burden incurred by companies that open-up their share capital as the main reason for the marked decline in IPOs that took place over the last 20 or so years. In 1996, close to 960 US companies went public. Last year, that number had dwindled to 237.

SEC chairman Jay Clayton, a Trump appointee, said that he shares the president’s feelings on the importance of long-term investing, and revealed that the commission’s Corporate Finance Division is studying and evaluating corporate filing requirements.

As Trump sent his rather interesting tweet into cyberspace, on the opposite side of the country, maverick serial entrepreneur Elon Musk discovered, to his detriment, the havoc that just nine tweeted words can cause. Vowing to take his Tesla car company private on August 7, once its share price hit $420 – and indicating he had the financial wherewithal in place to do so – Musk indicated that he didn’t consider the stock market worth the hassle. That same market made Tesla the most valuable US car company – with a market capitalisation hovering, at the time, around $60bn, or almost twice the value attached to the Ford Motor Company.

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"Maverick serial entrepreneur Elon Musk discovered, to his detriment, the havoc that just nine tweeted words can cause."

Although Tesla struggles to keep up with deliveries, suffers near-endless troubles with the quality and sourcing of its batteries, and is forced to deal with countless software bugs that plague its electric vehicles, the company is now worth about $10bn more than General Motors, the largest US car manufacturer.

Already possessing a bad boy attitude for humiliating and refusing to engage with inquisitive Wall Street analysts during conference calls, a clearly irritated Musk assured all and sundry that he had found solace with Saudi Arabia’s sovereign wealth fund (PIF – Public Investment Fund) which would help him fund the $72bn needed to take the company off the market. The Financial Times disclosed that PIF had already acquired a 5% stake in Tesla via the secondary market with the help of JPMorgan Chase.

Short-sellers were caught completely off-guard

by Musk’s tweet and lost out heavily as Tesla’s stock price jumped 7% on the announcement before trade was halted pending clarification.

Musk eagerly complied, detailing that wild swings in the Tesla stock price constituted a major distraction for the company’s management and its employees. In an address to Tesla workers, Musk specifically mentioned the requirement for issuing quarterly earnings reports, which he considered cumbersome. He also failed to appreciate “investors that bet against the company”.

Taking Tesla off the market, Musk added, would enable the company to remain focused on its long-term mission to accelerate and facilitate the shift to electric vehicles. Short-sellers, an unruly bunch in the best of times, were not about to take their losses without a major fight and promptly accused Musk of acting – unlawfully – against their interests by tweeting a random thought as opposed to a negotiated and ready-to-launch initiative. Within 24 hours of wrong-footing Wall Street, Musk had to admit that no final decision had been made on taking the company private.

In late August, Musk hoisted the white flag over his car company and confirmed that Tesla isn’t going private after all. In a statement, Musk conceded that he had underestimated the complexity of taking Tesla off-market: “It is now clear that taking the company private would be more time-consuming and distractive than initially anticipated.” As in: oops, my bad.

After questioning Tesla CEO’s mental equilibrium and wondering if the serial entrepreneur might be inching towards a stress-induced breakdown, market watchers are closely scrutinising the CFI.co | Capital Finance International

company for signs of impending trouble or erratic performance. Whereas before, investors were willing to overlook missed targets and mounting losses, now nobody seems willing to take serious bets on Tesla’s immediate future. Musk will certainly be held to his earlier promise to show a positive cashflow and a modest profit for the current quarter. Analysts are almost unanimous in noting that Musk’s credibility took a serious hit.

The interest of short-sellers in Tesla stock has not abated. Most do not expect the company to meet its ambitious production targets. They also resent having lost $1.3bn thanks to Musk takingTesla-private tweet and expect the Securities and Exchange Commission to conduct a full investigation into the matter. In August, the SEC subpoenaed the company in an attempt to find out what its board of directors knew about the plans of their CEO. According to the New York Times, Tesla board members knew about Musk’s desire to take the company private – but were not aware of any funding arrangements. The CEO reportedly expressed his frustration with the company’s critics to a close aide moments after sending the tweet. The newspaper also reported that Tesla directors had lawyered-up in order to protect themselves against any further fallout from Musk’s tweeted outburst. So far, three lawsuits have been filed against the carmaker for securities fraud.

The Tesla Model 3, a much more conveniently priced vehicle than the pioneering Model S which first hit the showrooms in 2012, was supposed to become the company’s cash cow – and saviour.

The company needs to produce at least 5,000 cars per week to move out of the red. Musk in June joyfully revealed that the production target had been met. However, most industry watchers agree that volumes have since shrunk as factory throughput diminished. To churn out the required number of cars, a huge tent was erected to the side of Tesla’s manufacturing facility in Fremont, California. The tent houses a third production line that was hastily put-together.

In other unwelcome news, investment bank UBS hired a team of engineers to deconstruct a Tesla Model 3 and report on the car’s build quality. The team uncovered a disconcertingly large number of flaws such as misaligned steel body parts as well as missing and loose fasteners and components joined or kept in place by plastic cable ties.

With a full-blown SEC investigation looming, a shaky cash position, and continued manufacturing and quality control issues, some investors and analysts are urging the Tesla board of directors to reconsider Musk’s aptness for the job of ushering the company towards full maturity and sustained growth. Though the directors repeatedly declared their full support for the CEO, they will want to avoid – at nearly any cost – a prolonged discussion about corporate governance at Tesla. It is, perhaps, the one thing Tesla cannot afford if the company is to survive its start-up issues and grow into a serious challenger of the Big Four car manufacturers. i

Autumn 2018 Issue

>

Riadh Zine’s Entrepreneurial Journey in Diagnostic Imaging

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n under four years, Riadh Zine took Akumin from a turnaround story of a debtburden small player of 14 freestanding outpatient diagnostic imaging centres in the state of Florida with $25 million in revenues to the industry’s third largest U.S. player with 90 centres in six states generating $175 million in revenues, while bringing together a new leadership team and attracting the support of a broad base of retail and institutional shareholders.

In late 2013, Zine founded Akumin Inc. to make an investment in the U.S. freestanding outpatient diagnostic imaging industry. The industry had already experienced the types of challenges he had seen in multiple other industries which ultimately resulted in consolidation within such industries. Those challenges typically include significant pricing cuts, regulatory burden, under-capitalised and inefficient small operators in a highly fragmented industry.

“What made the consolidation opportunity in this challenging industry more attractive to me was that hospitals provided the only alternative for this essential diagnostic imaging service at much higher fees than the non-hospital facilities. The significant reimbursement cuts for more than a decade left this $25 billion industry with more than 6,500 imaging centres ripe for consolidation”, Zine explains.

In late 2014, Akumin consummated an acquisition of 14 debt-burden centres in the state of Florida and Zine became its president & chief executive officer. Over the next four years, Akumin significantly grew its operations through both organic and acquisition growth. In December 2017, Zine also took Akumin public on the Toronto Stock Exchange to increase the profile of the company and to create an acquisition currency for future growth. The shares trade in both US$ and C$ currencies under the following symbols: TSX: AKU.U (US$) / AKU (C$). Also, in August 2018, Akumin entered a new credit facility with five major banks to further support its growth strategy.

Zine goes on to say,“I am confident Akumin has a promising future to become the leading provider in the industry in the United States. Akumin’s success will be driven by a clearly defined strategy of building density as a pure-play diagnostic imaging provider in its key markets.

However, I believe that the key ingredient to the ultimate success of any consolidation strategy is the operational integration of all the acquisitions into one efficient operation with one information

CEO: Riadh Zine

technology infrastructure, one set of systems, one set of operating procedures, one marketing approach, and ultimately one culture. From my experience, most companies that grow through a series of acquisitions crash because of failures in operational integration.”

Before starting his entrepreneurial journey in 2013, Zine was a Managing Director in Global Investment Banking at RBC Capital Markets, where he was responsible for providing strategic and financial advice to many of Canada’s largest corporations, entrepreneurs and private equity firms. He has over 13 years of experience executing public or private equity and debt financings, as well as mergers & acquisitions for a wide range of companies.

Prior to joining RBC Capital Markets, Zine began his career at Royal Bank of Canada in Toronto where he worked from 1997 to 1999 on several strategic projects, including the proposed merger between Royal Bank of Canada and Bank of Montreal. He earned a M.Sc. in financial CFI.co | Capital Finance International

engineering from University of Montreal (Ecole des Hautes Études Commerciales) in 1996 and received a scholarship from the Canadian Government to continue his graduate studies in 1994.

Zine is also the co-founder of Roadmap Capital Inc., a technology venture capital firm with approximately $150 million in current assets under management. Formed in 2013, Roadmap Capital offers high net worth individuals and family offices the opportunity to co-invest, alongside Roadmap funds, in innovative leadingedge private companies. Roadmap Capital invests in hardware and semiconductor companies with disruptive technologies. Recently, Roadmap Capital has attracted significant strategic investments from NASDAQ listed industry leaders to its portfolio of companies.

Finally, Zine notes “I greatly value the professional and business relationships that I have formed over the years, and I am looking forward to the opportunities that lie ahead”. i 183

> Akumin:

Consolidating the U.S. Outpatient Diagnostic Imaging From day one, Riadh Zine, founder, president & CEO, had a vision for Akumin as new emerging consolidator in the U.S. freestanding outpatient diagnostic imaging industry and has accordingly developed the business strategy and the operating philosophy to achieve this vision. Today, Akumin, as a public company, is the third largest player in the industry, and it has the operating platform and the capital resources to continue its growth strategy. “More importantly, we have the leadership team and the people in our organisation with a proven track record of achieving organic growth and successfully integrating multiple acquisitions.

Akumin has only just begun executing the consolidation strategy towards becoming the leading provider in this industry,” adds Zine.

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kumin Inc. is the third largest provider by number of centres in the U.S. freestanding outpatient diagnostic imaging services. Akumin has emerged as the fastest growing company in the industry. Akumin has grown from a debt-burden small unprofitable operator of 14 centres in late 2014 to a leading provider with 90 centres across six states, with a strong balance sheet and healthy margins. The consolidation strategy is expected to be the key driver for Akumin’s shareholder value creation with a focus on building density in large metropolitan areas in the company’s core geographic markets.

The industry is at a mature stage and, over the last decade, has faced multiple pricing pressures and many regulatory changes making it very

challenging for small operators to provide this essential healthcare service while maintaining financial stability. The industry’s market size is estimated at approximately $25 billion with more than 6,500 freestanding outpatient diagnostic centres.

introduced more cuts to lower healthcare costs, increase price transparency and make insurance affordable to millions of uninsured Americans.

This time, the insurance payors’ response was higher premiums, deductibles and co-pays for members enrolled in its high deductible plans.

The industry went through a wave of significant reimbursement cuts from 2007 to 2014 from both government and insurance payors for advanced procedures like MRI and CT scans that have since stabilised. The first cuts were introduced by government payors as a response to the surge in demand and the rapid rise in MRI and CT procedure volumes. The insurance payors followed suit and introduced the pre-authorisation programme in 2006 to lower utilisation of such advanced imaging services. In 2010, Obamacare

High deductible health plans have become increasingly relevant. In 2017, 28% of U.S. workers were enrolled in such plans versus only 5% in 2006. This situation has led to a significant pricing transparency drive. With high deductible plans shifting a higher proportion of the cost over to the patients who are more increasingly sensitive to higher out-of-pocket costs.

Price Index for Top 5 MRI CPT Codes. Source: Florida Medicare Physician Fee Schedule (independent facility global fee, 2000 - 2018).

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In May 2017, a leading health data company indicated that the average cost of an MRI of an arm or leg in the U.S. delivered at a hospital outpatient department was $1,567, or three times higher than one provided at a freestanding outpatient imaging centre at $504. In late August 2017, Anthem, one of the nation’s largest health insurers, announced that it would no longer pay for MRI and CT scans performed on an outpatient basis in hospitals. As a result, freestanding centres currently provide a compelling cost advantage for payors.

Going forward, several macro trends are also favourable to the industry and are expected to increase demand for diagnostic imaging services including: (i) the aging population is anticipated to drive demand for imaging procedures, which tend to increase as a person ages, (ii) new technological developments are expected to extend the clinical uses of diagnostic imaging and increase the number of scans performed; and

Autumn 2018 Issue

in healthcare services that are generally moving towards more clinical decision integration and a “value for outcome” model instead of “fee-forservice” model.

Also, Akumin has deployed some of the most advanced medical imaging technologies in the industry to support clinical research and to provide the best possible care in the communities in which it operates. For example, to bring the best women’s imaging capabilities in the markets it serves, Akumin made a commitment to replace its mammography imaging equipment, a portfolio of 25 units, to state-of-the-art 3D digital mammography equipment. Akumin is on track to complete this initiative by the end of 2018.

Akumin business approach

"Akumin’s vision is to be the most respected and recognised brand of freestanding outpatient diagnostic imaging services in each community we serve, with a mission of providing our customers with insightful, reliable and efficient service." (iii) growing consumer awareness of diagnostic imaging as a less invasive and preventive screening method continues to drive growth in imaging procedures.

“Akumin’s vision is to be the most respected and recognised brand of freestanding outpatient diagnostic imaging services in each community we serve, with a mission of providing our customers with insightful, reliable and efficient service” Akumin is executing a consolidation strategy in this industry to provide an alternative to hospitals for all government and insurance payors in the markets where the company will build a dense network of centres. A dense network of centres will allow Akumin to accommodate a large volume of procedures while delivering an efficient service to all its customers: referring physicians, patients and the payors.

What makes Akumin unique is its ability, through a centralised and scalable operating back-office platform, to: (i) integrate its acquisitions, (ii) extract significant cost efficiencies from its acquisitions, and (iii) enable organic growth of the revenue base of its acquisitions. This expertise and know-how have generated and are

expected to continue to generate significant value creation for all Akumin shareholders.

CEO Zine notes, “At Akumin, we believe social responsibility is also critical to our long-term growth and the sustainability of our business as well as the environments we operate in. To us, being socially responsible means embedding our values and ethics into everything we do from how we run our business, to how we treat our employees, to how we impact the communities where we do business. Examples of how Akumin strives to achieve such goals include, providing time off to employees for volunteering, allowing employees to donate vacation time to each other, sponsoring and participating in community events. We also leverage innovation and technologies to further our social responsibility in promoting clean environments”.

In summary, Zine states “Akumin is committed to its goal of becoming the industry leading provider in terms of not only scale and profitability but also in terms of innovation and the use of technologies and analytics to change the delivery of healthcare services”. i

Akumin has also assembled one of the best management teams in this industry with complementary skill sets that combine expertise in public markets, finance, legal, revenue cycle, and operations. For example, the operations are led by Rohit Navani, chief operating officer, a former partner with an international accounting firm that has more than 15 years of experience providing operational integration services in the context of merger and acquisition transactions for global companies.

At the core of Akumin’s integrated, centralised and scalable operating platform are innovation and the use of new technologies. Akumin has centralised its workflow into a digital process with online access to multiple users, and has designed its operating infrastructure in a hosted environment, cloud-based, and with a SaaS approach. Earlier this year, Akumin implemented an enterprise-wide business intelligence tool that is fully integrated with its operating platform to provide real-time key performance indicators and analytics. This will help measure progress against Akumin’s objectives and goals, but it will also position Akumin as an industry leader CFI.co | Capital Finance International

ABOUT AKUMIN Akumin Inc., a publicly traded company on the Toronto Stock Exchange: AKU.U (US$)/ AKU (C$), is the third largest provider of freestanding outpatient diagnostic imaging services in the United States with a network of approximately 90 owned and/or operated imaging centers located in Florida, Texas, Pennsylvania, Delaware, Illinois and Kansas.

By combining our clinical expertise with the latest advances in technology and information systems, our centers provide physicians with imaging capabilities to facilitate the diagnosis and treatment of diseases and disorders and may reduce unnecessary invasive procedures, minimizing the cost and amount of care for patients. Our imaging procedures include MRI, CT, positron emission tomography (PET), ultrasound, diagnostic radiology (X-ray), mammography, and other interventional procedures.

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> CFI.co Talks to Lee Garf at NICE Actimize:

Financial Services Compliancy Demands and RegTech Surveillance Solutions

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egTech is helping to level the regulatory playing field, ensuring that compliance becomes easier, faster and more reliable. Advances in technological capabilities are transforming the way in which financial services organizations can guarantee they are complying with evermore complex regulatory frameworks. These innovations, such as AI and machine learning technologies not only enable experienced, 186

tier one financial institutions to check their compliance requirements more efficiently, it also ensures that compliance hurdles are easily achievable by mid to smaller sized institutions as well. As the RegTech industry matures, it is set to improve levels of trust in the financial services area. New technology disruptors will enter the market ready to assist entities with challenged compliance records - and possibly a weak regulatory framework - quickly building CFI.co | Capital Finance International

confidence and thereby creating more dynamic services that can help drive growth for the firms they support.

CFI.co has been in conversation with Lee Garf, General Manager of the Compliance line of business at NICE Actimize. NICE is very much at the forefront of the rapidly developing RegTech industry with its end-to-end compliance and surveillance solutions.

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LEE, CAN YOU SUMMARISE YOUR VIEW OF REGTECH AND EXPLAIN WHAT IT MEANS TO THE FINANCIAL SERVICES WORLD? Garf: We see a trend of increasing regulation around the globe, starting perhaps eight or ten years ago with the Dodd-Frank Wall Street Reform and Consumer Protection Act which was enacted after the crash in the US and which has since spread around the world in many ways. It's migrated east to Europe’s Market Abuse Regulation (MAR) and Markets in Financial Instruments Directive II (MiFID II).

While the paint is still wet on the latter, since it just came out January, it is now working its way even further east with a number of regulators in Asia which are considering their own versions.

So, we're seeing an increase, and with each of these waves comes further scrutiny and extra responsibilities placed on financial institutions.

This backdrop is important because it provides one reason why RegTech is becoming more and more critical.

It is important to note that firms are having a difficult time in this regulatory environment – some are struggling to keep track and be compliant with all the regulations. I can’t overemphasise the complexity and intensity of those regulations. Firms are also being pushed to do more, and accept further regulation, which often means much more work with the same or lower staff levels and budgets.

"It is important to note that firms are having a difficult time in this regulatory environment – some are struggling to keep track and be compliant with all the regulations."

PRESUMABLY THE PACE OF CHANGE AND THE COMPLEXITY IS NOT GOING TO LET UP ANYTIME SOON. HOW IS NICE KEEPING UP WITH ALL THIS, HOW ARE YOU STAYING AHEAD OF THE GAME? Garf: We meet with regulators consistently, wherever they are in the world. This means we have relationships with all the major regulators and keep abreast of pending regulations and changes to existing rules. Furthermore, we are participating in some of the review committees so that we remain closely involved and have early insight into some of the new regulations that are potentially coming through. We're using a lot more advanced technology to stay on top of this change, as from our perspective the older technologies really aren't up to coping with present demands and they don’t provide a productive development environment. It takes far too much time to develop solutions on older software, so making use of modern technologies, such as machine learning and robotic process automation, is important. We must be able to develop software at a pace that can support the regulations. We're also trying to lead and influence in some cases where the regulations are going, so it’s no longer just about instructions and prescriptive rules. One of the big trends in the reporting obligations scene concerns intent and so using techniques like anomaly detection, machine learning and artificial intelligence is becoming more-and-more important. Applying these newer technologies is critical to operational CFI.co | Capital Finance International

efficiency and success with meeting regulatory requirements for speed and reporting.

WOULD YOU SAY THAT WE ARE GOING TO SEE MORE OF THESE TECHNIQUES BEING USED OVER THE NEXT FEW YEARS? WHAT ARE YOU EXPECTING TO SEE COMING OUT OF REGTECH? Garf: The answer is yes, we are already seeing a crossing the chasm over to using more sophisticated analytics tools. Early adopters are already using machine learning and artificial intelligence for behavioural analytics and anomaly detection and of course the realm of RegTech is about understanding and preventing - or identifying and preventing - bad behaviour.

We are seeing early adoption now to confront market manipulation, insider dealing, and different kinds of bad behaviour. It is definitely not mainstream yet, and some compliance teams haven't completely crossed the chasm, but over the next one to three years - based on talking to a number of clients – we expect to see that the more advanced approaches to addressing conduct risk and compliance is definitely going to become mainstream. That's certainly a trend we see developing.

HOW COMPLIANT ARE MOST ORGANIZATIONS AND THEIR TEAMS? YOU SPOKE OF TRYING TO AVOID BAD BEHAVIOUR -- ARE WE TALKING ABOUT INDIVIDUALS, COMPANIES OR BOTH? Garf: The more serious issues usually come down to individuals, but you have past examples like Enron where there's a lot more collusion.

However, what we are generally seeing these days is more bad behaviour at the individual level or within groups of individuals. On the other hand, some of the regulations are so complex that a firm could be out of compliance and not fully realise their situation. Maybe your point, which is a really good point, is that we have to address a culture of compliance at all levels of an organisation.

HOW DOES NICE ACTIMIZE FURTHER THE UNDERSTANDING OF THESE COMPLEX MATTERS? Garf: We certainly play a role here, and part of this is by being involved with the regulators themselves. Our firm has subject matter experts who are former attorneys and chief compliance officers. These experts help educate our clients as a service when they're thinking about the kind of programs they are going to put in place - and what kind of software they're going to use to help enable those programs. So, we think that professional guidance provides an important value to our customers during these times of great change.

HOW IMPORTANT IS VOICE RECOGNITION TO THE FUTURE OF REGTECH? Garf: Extremely important. It's one of the hot topics right now for several reasons. A lot of this is driven by the European regulations and the increased importance of intent. There's language about this in three of the most important 187

regulations, MAR, MiFID II, and BMR, and it’s very similar language. It’s not only about having committed financial crime, it's also identified as a problem if you intended to commit a financial crime. Let's say you were going to try to manipulate the market and then make money on some stock trades, you drove the prices down and then you're going to buy low and sell high. If you intended to do it but never actually executed, you can still be fined under these new rules.

HOW ABOUT THE OTHER WAY AROUND, IF THERE WAS NO INTENTION? Garf: The other way around too, actually. Even if you didn't intend, you could still be in trouble if you broke a rule or manipulated the market.

IGNORANCE OF THE LAW IS NO EXCUSE, BASICALLY? Garf: Yes, there's no excuse for attempting to manipulate the market. But the difference now is that intent itself is a problem. If you “intended” but didn't even execute, there are still problems.

Sometimes the only way to determine intent or otherwise is via voice communications. MiFID requires that many more people in the trading process be recorded and monitored and so there's currently a big driver around voice. And then there are the related, very interesting and compelling technologies: we're at a point now with technology where we can effectively surveil voice conversations, that is all voice conversations. This entails transcription and speech-to-text of the voice conversation. So first, recording it reliably is key. Number two, transcription of the speechto-text and then third, the use of the newest advanced technology (because technology from a few years ago was coming up with too high a number of false positives). The current technology uses natural language processing and machine learning for much better accuracy than what was used previously, and can more reliably determine intent and identify inappropriate and suspicious behaviour.

ARE YOU EXPECTING MORE REGULATIONS IN RESPONSE TO REGTECH? WHAT ARE THE ADVANCES YOU'RE ANTICIPATING? Garf: I do think it's a cycle. We're picking up on discussions that there may wind up being a MAR II and a MiFID III updated regulation.

And so, whether those are the regulation names or not, we're hearing clearly of a next round where the requirements will become even more stringent. As a consumer, I appreciate it, but as a financial institution this will be more work. Now that regulators are aware that there are newer technologies around, they are going to further regulate and require the necessary technologies to be in place. They wouldn't necessarily define

"Even if you didn't intend, you could still be in trouble if you broke a rule or manipulated the market." a specific technology, but they would say you are required to monitor voice 100%, you are required to look for anomalous behaviour and so on. We are definitely hearing in our conversations with regulators, that now that the technology is here, the regulators will elevate what they believe to be reasonable levels of compliance, and begin to impose stricter requirements.

WHETHER IT'S STAYING ABREAST OF REGULATIONS, INFORMING PEOPLE, TRYING TO GET A LOOK OF WHAT LIES AHEAD, WHAT ARE THE CHALLENGES THAT YOU AND OTHER COMPANIES INVOLVED IN REGTECH ARE NOW FACING? Garf: I think one of the challenges that our clients and ourselves are facing, is that the pace of change requires us to make software updates quickly because new rules and new interpretations come up frequently. One of the challenges with traditional on-prem systems is that it typically takes longer for them to be updated. One of the things we're now seeing and this is still a bit of a challenge across the board - is the migration to the cloud. Finally, we're seeing some real adoption of cloud, but sometimes that transition can be difficult for some institutions and individuals - especially if they have on-prem legacy systems. Remaining are some of the internal hurdles - where sometimes system owners don’t want to give up on the old approaches. And then then there are the security concerns which, I believe, are largely mitigated at this point. I think we now have fairly wide acceptance of cloud solutions. While we haven't quite hit mainstream adoption across the board of cloud, I think we’ll be there within the next three years.

SO THE LONG-AWAITED ADOPTION OF CLOUD WILL COME TO FINANCIAL SERVICES, WILL IT? Garf: Absolutely. We are seeing a wave. What I'm hearing now, what I didn't hear three years ago, or even two years ago, is that everyone's open to it. But not everyone has moved yet. So we're at an acceptance stage, but not fully at a migration stage.

BACK TO NICE ACTIMIZE, WHAT ARE YOUR STRONGEST COMPETITIVE ADVANTAGES IN THE FINANCIAL SERVICES INDUSTRY? Garf: We have numerous competitive differentiators. One of these is captured by

the term ‘holistic’. It's the idea that we're a comprehensive surveillance solution. We surveil not only the transactions and executions but also all the communications – it's really a matter of surveying the entire lifecycle of a transaction. We call this “people talk,” but it's really important and it differentiates us. Our history at NICE is that we started in voice recording, so we're really good with voice, managing voice and transcribing voice, and analysing and correlating the voice to the trades themselves. One of the big topics, that began with Dodd-Frank and which appeared again in MiFID II, is trade reconstruction. The concept is that you may implement in your internal compliance program, or a regulator may come in and say, "You have 72 hours to reconstruct a trade. I want to see all the communications, both oral and written, that means email, text, chat, voice, all the communications leading up to a trade, during a trade and after a trade.”

Firms have to produce this timeline view of the reconstruction in the tight timeframe, and many are really struggling.

THAT SOUNDS LIKE A BIG ASK – AND YOU ARE SAYING THAT THIS FAST TURNAROUND ON TRADE RECONSTRUCTION IS NOW POSSIBLE? Garf: Yes, it is a big ask and historically would be hard. But one of our differentiators is a patented correlation algorithm which automatically brings this timeline together. Wehave a very large financial institution customer as a case study that demonstrates its effectiveness.

On average, it used to take this customer ten hours to do a trade reconstruction that can now be done in eight minutes, a 98% reduction.

So that automation, that efficiency, is one differentiator. Then there are other related differentiators, one is the ability to manage both the communications and the transaction analytics all in one system and then do the correlation. Another differentiator for us is our industry-leading case management solution.

Producing an analytic or an alert is important, but then you also need very powerful (and easy to use) workflow tools for a compliance analyst to investigate and resolve; that is to determine if there’s a problem or not (and then move through the process and issue a report if necessary).

We also have one of the industry’s most comprehensive out of the box set of analytics.

We have been executing trade reconstruction for a while now, so that success should be expected. And by analytics, I mean detection models to efficiently seek out different types of behavior and transactions. Most importantly, our customers are staying on top of the demands of the regulators and the need to move quickly in a fast-changing market. i

"One of the things we're now seeing - and this is still a bit of a challenge across the board - is the migration to the cloud. Finally, we're seeing some real adoption of cloud, but sometimes that transition can be difficult for some institutions and individuals - especially if they have on-prem legacy systems."

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Autumn 2018 Issue

Lawrence H Summers:

Final Thoughts on Secular Stagnation This is a two-part series. Read the first part on pages 24-25.

Joseph Stiglitz, Roger Farmer, and I are now and have long been in agreement on what are probably the most important points. The “New Keynesian” paradigm that sees business cycles as arising from temporary rigidities in wages and prices is insufficient to account for events like the Great Depression and the Great Recession.

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oo little was done in the aftermath of the financial crisis a decade ago to stimulate aggregate demand. A more equal income distribution operates to increase aggregate demand.

Substantially stronger financial regulation than was in place before 2008 needs to be adopted to minimise the risks of future crises.

I continue to have disagreements with Stiglitz on the record of policy advice, and with both Stiglitz and Farmer on some points of theory regarding secular stagnation.

Starting with the policy record, Stiglitz is right to assert that economists should not be expected to agree on issues of political feasibility. They should, however, be able to agree on what texts say. The New York Times commentary that Stiglitz proudly cites calls for a stimulus of “at least $600 billion to $1 trillion over two years.” The Obama administration called for and received stimulus totaling some $800 billion, a figure well within Stiglitz’s range, despite being politically constrained by the necessity of Congressional approval. So I’m not sure what he is claiming.

Stiglitz asserts that the study Fannie Mae hired him to write in 2002 said only that its lending practices at that time were safe. That is not how I read it. It speaks to ten-year default probabilities of less than one in 500,000; notes that even if the analysis is off by an order of magnitude, any risks to government are very modest; and appeals to the regulatory system in place at the time to minimise that their model missed risks.

He makes arguments against the Congressional Budget Office, the Department of the Treasury, and the Federal Reserve, all of which had suggested – based on the same information available to Stiglitz when he wrote his paper – that implicit guarantees to Fannie Mae were potentially costly.

I am not sure what point Joe is making with respect to derivatives. I was clear in my article to which he is responding that I wish we had not supported the 2000 legislation. But I also noted that there is no reason to think that, in the absence of the legislation, the Commodity Futures Trading Commission under the Bush CFI.co | Capital Finance International

administration would have asserted sweeping new authority over derivatives and pointed to the legal certainty problem that career lawyers thought was important to address.

What about secular stagnation theory? Stiglitz and I agree that Alvin Hansen’s prediction was not borne out after World War II because of a combination of expansionary policy and structural changes in the economy. This was my point five years ago in renewing the idea of secular stagnation – to suggest that the economy as it was in 2013 required some combination of fiscal expansion and structural change to sustain full employment. My discussions of secular stagnation have all emphasised a variety of structural factors, including inequality, high profit shares, changes in relative prices, and global saving patterns. Where does Stiglitz disagree?

Farmer, in his thoughtful commentary, argues that models of the type he has pioneered in recent years are the right way to think about chronically excessive unemployment and that, with the right microfoundations, one can conclude that fiscal policies are ineffective. I think his modeling approach may well prove very fruitful, and I wish I understood it better. But, for now, I find the empirical evidence, international comparisons, time-series studies, and studies of local variation within the United States compelling in suggesting that fiscal policy works.

I do think, however, that Farmer’s views on the use of monetary policy to stabilise asset prices deserve serious consideration.

Finally, I hope Stiglitz will respond positively to my repeated suggestions that we debate these matters in person at Columbia or Harvard or some other suitable venue. We can all agree that the stakes in a better understanding of the lessons of macroeconomic history, and in avoiding future events like those of the last decade, are very high. i ABOUT THE AUTHOR Lawrence H Summers was US Secretary of the Treasury (1999-2001), Director of the US National Economic Council (2009-2010), and President of Harvard University (2001-2006), where he is currently University Professor.

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> Joseph E Stiglitz:

Beyond Secular Stagnation This is a two-part series. Read the first part on pages 18-19.

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s Larry Summers rightly points out, the term “secular stagnation” became popular as World War II was drawing to a close. Alvin Hansen (and many others) worried that, without the stimulation provided by the war, the economy would return to recession or depression. There was, it seemed, a fundamental malady.

But it didn’t happen. How did Hansen and others get it so wrong? Like some modern-day secular stagnation advocates, there were deep flaws

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in the underlying micro- and macroeconomic analysis – most importantly, in the analysis of the causes of the Great Depression itself.

As Bruce Greenwald and I (with our co-authors) have argued, high growth in agricultural productivity (combined with high global production) drove down crop prices – in some cases by 75% – in the first three years of the Depression alone. Incomes in the country’s major economic sector plummeted by around half. The crisis in agriculture led to a decrease in demand CFI.co | Capital Finance International

for urban goods and thus to an economy-wide downturn.

WWII, however, provided more than just a fiscal stimulus; it brought about a structural transformation, as the war effort moved large numbers of people from rural areas to urban centers and retrained them with the skills needed for a manufacturing economy, a process which continued with the GI bill. Moreover, the way the war was funded left households with strong balance sheets and pent-up demand once peace returned.

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An analogous structural transformation, this time not from agriculture to manufacturing, but from manufacturing-led growth to services-led growth, compounded by the need to adjust to globalization, marked the economy in the years before the 2008 crisis. But this time, mismanagement of the financial sector had loaded huge debts onto households. This time, unlike the end of the WWII, there was cause for worry.

As Summers well knows, I published a widely cited commentary in The New York Times on November 29, 2008, entitled “A $1 Trillion Answer.” In it, I called for a much stronger stimulus package than the one President Barack Obama eventually proposed. And that was in November.

By January and February 2009, it was clear that the downturn was greater and a larger stimulus was needed. In that Times commentary, and later more extensively in my book Freefall, I pointed out that the size of the stimulus that was needed would depend both on its design and economic conditions. If the banks couldn’t be induced to restore lending, or if states cut back their own spending, more would be required.

Indeed, I publicly advocated linking stimulus spending to such contingencies – creating an automatic stabilizer. As it turned out, the banks weren’t forced to expand lending to small and medium-size businesses; they cut it drastically. States, too, slashed spending. Obviously, an even larger stimulus in dollar terms would be needed if it was poorly designed, with large parts frittered away in less cost-effective tax cuts, which is what happened.

"It should be clear, though, that there is nothing natural or inevitable about secular stagnation in the level of aggregate demand at zero interest rates."

It should be clear, though, that there is nothing natural or inevitable about secular stagnation in the level of aggregate demand at zero interest rates. In 2008, demand was also depressed by the huge increases in inequality that had occurred over the preceding quarter-century. Mismanaged globalization and financialization, as well as tax cuts for the rich – including the cut in capital-gains tax (overwhelmingly benefiting those at the very top) during the Clinton and Bush administrations – were major causes of accelerating concentration of income and wealth.

Inadequate financial regulation left Americans vulnerable to predatory banking behavior and saddled with enormous debts.

There were thus other ways of increasing aggregate demand besides fiscal stimulus: doing more to induce lending, to help homeowners, to restructure mortgage debt, and to redress existing inequalities.

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Policies are always conceived and enacted under uncertainty. But some things are more predictable than others. As Summers again knows full well, when Peter Orszag, the head of the Office of Management and Budget at the beginning of Obama’s first administration, and I analyzed the risks of mortgage lender Fannie Mae in 2002, we said that its lending practices at that time were safe. We did not say that no matter what it did, there was no risk.

And what Fannie Mae did later in the decade mattered very much. It changed its lending practices to resemble more closely those of the private sector, with predictable consequences. (Even then, notwithstanding the right-wing canard blaming Fannie Mae and the other government-sponsored lender, Freddie Mac, it was private-sector lending, especially by the big banks, that underlay the financial crisis.)

But what was predictable and predicted was the manner in which under-regulated derivatives could inflame the crisis. The Financial Crisis Inquiry Commission put the blame squarely on the derivatives market as one of the three central factors driving the events of late 2008 and 2009. Earlier in President Bill Clinton’s administration, we had discussed the dangers of these fast-multiplying and risky financial products. They should have been reined in, but the Commodity Futures Modernization Act of 2000 prevented the regulation of derivatives.

There is no reason economists should agree about what is politically possible.

What they can and should agree about is what would have happened if…

Here are the essentials: We would have had a stronger recovery if we had had a bigger and better-designed stimulus.

We would have had stronger aggregate demand if we had done more to address inequality, and if we had not pursued policies that increased it. And we would have had a more stable financial sector if we had regulated it better.

These are the lessons that we should keep in mind as we prepare for the next economic downturn. i ABOUT THE AUTHOR Joseph E Stiglitz is the winner of the 2001 Nobel Memorial Prize in Economic Sciences. His most recent book is Globalization and its Discontents Revisited: Anti-Globalization in the Era of Trump.

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> NASDAQ Shifts Gears:

Exchange Operator Moves Into Big Tech NASDAQ’s vice-chairman Meyer “Sandy” Frucher, in charge of global exchange relationships and advisor to senior management on a range of industry and regulatory issues, talks to CFI.co on sustainable stock exchanges, green bonds, and the deployment of new technologies.

CAN YOU PLEASE PROVIDE AN UPDATE ON THE SUSTAINABILITY STOCK EXCHANGE INITIATIVE (SSEI)?

From my perspective, it has moved increasingly well, in the sense that nine or 10 years ago, when the initiative was launched at the climate change conference in Brazil, I was one of the organisers.

At the time, only four or five exchanges had signed up. I cannot give you the exact number, but there are certainly more than 50 exchanges from around the world engaged with SSEI. From the point of view of the World Federation of Exchanges [WFE], the committee that deals with issues of sustainability has become one of the most robust, and largest, ones in terms of participation by exchanges.

Exchanges have undertaken a lot of green initiatives, so green bonds have become a very serious issue that a lot of exchanges are looking at. Some exchanges have developed successful model for trading green bonds, and those have a market. I believe that there isn’t an exchange either in the developing world or in mature markets that isn't looking at it. I think this represents enormous progress because it’s on everybody's mind now.

If I had to point to one thing that has moved, but isn’t there yet, it would be the issue of whether or not – and to what extent – sustainability issues are voluntary, versus mandatory. That has been a great topic of debate at the WFE. I think most people agree that sustainability should be voluntary. The WFE should continue to push international organisations that are comprised mostly of regulators, such as IOSCO, and try to focus them on moving towards some form of universal mandatory requirements.

In a lot of developing countries where energy and mining are primary businesses, it’s very difficult to mandate sustainability issues because these has such a direct impact on their economies and, in some cases, their larger listed companies.

HOW HAS NASDAQ EVOLVED? First of all, NASDAQ has been a driver in international forums and a major participant with a number of green products, probably more than most. It’s still quite hard to find people who are interested in trading these products, although there is a growing body of socially-responsible companies that are actively engaged.

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"NASDAQ runs markets in different places, and standards vary. That said, we’re trying to be a leader and I think we succeed at that."

On the trading side, NASDAQ clearly is a world leader. On the governance side, we work very hard to make sure that our own governance meets the highest standards. We try to impose, within the limitations of law, good governance criteria on our listed companies. We keep our companies informed of best practice. In terms of our own offices and buildings, we have achieved zero carbon emissions in many places around the world.

NASDAQ runs markets in different places, and standards vary. That said, we’re trying to be a leader and I think we succeed at that. It is something that is very important to us both in terms of admissions, but also in terms of diversity on boards and how we manage our own company.

CAN YOU CONFIRM THAT ONE OF THE OUTCOMES OF NASDAQ’S ACQUISITION OF OMX WAS THAT YOU TOOK SCANDINAVIAN IT AND IMPLEMENTED THAT ACROSS YOUR GLOBAL OPERATION? It goes even further than that. The fact of the matter is that their technology was a major driver of NASDAQ’s acquisition of OMX. It changed the company to such a degree that today, while the core remains in Stockholm, we no longer identify ourselves as a stock exchange. We are a technology company that runs stock exchanges, and so the answer to your question is: yes, we adapted a lot of the innovation and orientation of our brothers and sisters at OMX and that is very important to our current corporate identity.

WHAT ARE THE KEY DRIVERS OF CHANGE IN GLOBAL CAPITAL MARKETS? The key driver is technology, and the changes of technology. Blockchain is beginning to have an impact. Artificial intelligence is being deployed in compliance surveillance. The cloud has also been revolutionary because it changes the implementation of technology. We will be moving into a direction where the hardware would be in the cloud, and the systems will be driven through the cloud. So cloud, artificial intelligence, CFI.co | Capital Finance International

blockchain are major drivers of the financial services industry.

WHAT IS THE IMPACT OF NEW TECHNOLOGY ON THE TRANSACTION AND SETTLEMENT SIDE OF EXCHANGES? Well, it involves all the same elements and it’s only the functionality that changes to a certain extent. At the exchange, the functionality is more on the trading side and on the compliance and surveillance sides. At the back office the same elements exist but the functionality is different.

One is for trading and the other is for clearing and surveillance.

DO BLOCKCHAIN AND DISTRIBUTED LEDGER TECHNOLOGY HAVE AN IMPORTANT ROLE TO PLAY IN CAPITAL MARKETS? Perhaps. They are starting to be employed.

People believe that it will become the clearing modality of the future. That may or may not be the case. Blockchain still has a way to go to prove itself, but conceptually it could facilitate the clearing process and reduce clearing times from three or two days to being almost instantaneous.

It has enormous potential and would relieve the world of massive reserve requirements. Currently, you have large amounts of reserves that need to be held as a guarantee or security towards the clearing process. Those resources basically sit on a shelf, or in a bank, and they are not circulating through the system. If you had direct clearing between the banks of buyer and seller, it reduces risk because of the timing. Thus, blockchain could change the nature of that functionality, but it’s not there yet. However, it’s a very good, interesting, and aspirational goal. There has to be proof of concept and buy-in by the regulators.

CAN YOU GIVE SOME THOUGHT ON EMERGING REGULATORY TECHNOLOGY? It sounds a little self-serving, but I think it is a proven fact: NASDAQ's foreign system is the best, we believe it is the best that’s out there.

It is the most commonly used system, it was the system that we acquired from an Australian company. We acquired it some years ago when we found that they had a terrific following among the regulators. We have since grown that business and I think it is the principal technology that is used in that space. I think reg-tech is critical and necessary technology, and we like the fact that it can be harmonised because regulators use it, the exchanges are using it, and broker dealers

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are beginning to use it, So everybody is on the same page. You cannot envision a world without that kind of technology whether it’s ours or that of our competitors.

WHAT ARE THE DRIVERS OF THE CONSOLIDATION IN THE STOCK EXCHANGES AROUND THE WORLD? There will always be some level of consolidation. I do think that cross-border deals are complicated.

You have multiple regulators and a lot of deals run into antitrust issues. That’s been somewhat of an inhibitor. I think it's fair and accurate to say that consolidation will take the shape of coordination or joint ventures. You look at China and Hong Kong, you have two cross-border programmes where they have cross-border trade – Shenzhen and Shanghai, and Hong Kong. So they have a connect. Other countries have tried it as well. There is a connect, or a particular index, that is traded in South Korea and the Deutsche Börse. Some of these have been very successful, others less so because there are a lot of challenges, such as time differences. This could well accelerate because of the cloud.

Many people believe that if you look at a continent like Africa, you see a number of

countries with developing markets that do not have companies that are ready for traditional listing. You don't have the liquidity either. The ability to aggregate both the liquidity and listings will be greatly facilitated by the cloud because you remove a number of barriers that currently exist.

Now, a question of a flag frequently arises.

I’ll explain: the long discussion relating to the London Stock Exchange’s merger with the Deutsche Börse centred on where the primary headquarters would be – London or Frankfurt.

The issue of the flag is important, but the question is – particularly in emerging markets – how to provide sufficient liquidity. So how do you balance that? One way is to aggregate markets but keep their respective flags. Things like the cloud and advances in clearing, and good surveillance systems, could facilitate partnerships as opposed to mergers. Technology could become a facilitator for change.

Take for example the Kazakhstan Stock Exchange, the new one in Astana. Here you have the Shanghai Stock Exchange buying 25% of it and helping provide liquidity. We

have a stake in it as well and we’re providing technology.

HAVE CUTS IN CORPORATE TAXES BEEN A MAJOR BOOST FOR CAPITAL MARKETS? I would say that to a certain extent, all markets are driven by expectations, hopes or fears. There is always a segment of the market that finds the possibility of corporate tax cuts exciting. That will then be a facilitator for people to become exuberant, and trade. On the other hand, one thing we know about markets is that they go up – and come down.

We live on a planet with different time zones.

What happens in one time zone could affect what happens around the world. Sometimes you wake up in the morning and the first thing you do is look at the performance of the Asian and European markets. This has an impact.

When we have corporate tax cuts here, there is a certain segment of the market that considers this very good news, which will probably help drive profits. They get exuberant and buy. Then, a bit later, somebody wakes up in Asia and looks at the US market only to conclude that we went over the top. i

Meyer ‘Sandy’ Frucher, a Man Reinventing Capital Markets

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BIO NOTES In this capacity as vice-chairperson of the Nasdaq Group, Sandy Frucher is responsible for developing global exchange relationships, and serves as an advisor to the Nasdaq senior management team. Frucher also has a distinguished career in city, state, and federal government. He has served as the chief labour negotiator for New York State, CEO of the Battery Park City Authority and of the School Construction Authority.

statesman for the global capital markets industry and well-liked by his colleagues, Nasdaq vice-chairperson Meyer “Sandy” Frucher is widely considered the foremost advocate of co-operation between the financial markets of the world.

Frucher is in charge of global exchange relationships for Nasdaq, and strongly believes that ESG (environmental, social, and governance) standards help to put stock exchanges and listed companies on a sustainable footing, ensuring future profitability while mitigating risk.

He is the founding chairperson and trustee emeritus of the Massachusetts Museum of Contemporary Art. He also sits on the boards of the Saratoga Performing Arts Centre, the Options Clearing Corporation, the World Federation of Exchanges, and Sirius Group.

Frucher arrived at Nasdaq via the Philadelphia Stock Exchange (PHLX) where he built an advanced trading system and pioneered innovative technologies that went on to set new industry standards. He was instrumental in the move towards the demutualisation of the PHLX, which turned the exchange into a for-profit company. By sealing a number of alliances, Frucher helped enhance the PHLX’s market profile, transforming what had been considered a footnote to the capital market into a major player, if not powerhouse.

A pragmatist on a mission, Frucher squarely aims to make the markets more efficient, speeding up transaction and clearing processes. Leveraging the power of technology, he does not fear or avoid innovation. He has been recognised and praised for his ability to identify, deploy, and scale seemingly disparate tech nuggets, assembling improved market structures in the process.

Frucher also helped reinvent Nasdaq as a global technology giant, moving away from the singlevector business model to one that masters all the aspects and components that together form a capital market.

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ABOUT NASDAQ Nasdaq (Nasdaq: NDAQ) is a leading global provider of trading, clearing, exchange technology, listing, information, and public company services. Through its diverse portfolio of solutions, Nasdaq enables customers to plan, optimise, and execute their business vision with confidence, using proven technologies that provide transparency and insight for navigating today's global capital markets. As the first electronic stock market, Nasdaq technology powers more than 90 marketplaces in 50 countries, and one in 10 of the world’s securities transactions. Nasdaq is home to some 3,900 listings with a market value of around $13 trillion. i 193

> Asia Pacific

The Disappearance of Ye Jianming: Here Today, Gone Tomorrow

Ye Jianming is missing. He has not been seen, or heard of, since midFebruary.

According to the usually well-informed financial news website Caixin, Ye Jianming was arrested on suspicion of fraud and numerous trading irregularities.

CEFC, Jianming’s company, is suspected of benefiting from links to the top brass of the People’s Liberation Army and the intelligence community. The Shanghaibased conglomerate is being investigated in China, the United States, and elsewhere.

CEFC came out of nowhere to conquer a fair chunk of the corporate world, growing its annual revenue all of 700 times in just seven years. The supercharged expansion drive was fuelled largely by generous credit supplied by, amongst others, the China Development Bank, in part on the basis of CEFC’s explosive growth in a self-replicating cycle of corporate expansion. However, it now appears that the company padded its revenue by trading assets between interconnected business within its almost indecipherable network of enterprises. A preliminary investigation has found that in 2012 up to 27% of the revenue reported by CEFC corresponded to related-party transactions.

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he house of cards that Jianming built came crashing down after the arrest in New York, late last year, of Patrick Ho Chi-ping, a former Home Affairs secretary of Hong Kong who was employed by a cultural foundation set up and run

by CEFC. Ho Chi-ping was charged with routing $2.9m of bribes through US banks for President Idriss Deby of Chad and Foreign Affairs Minister Sam Kutesa of Uganda. The funds were to secure advantageous oil rights for CEFC China Energy, one of Jianming’s many corporate guises.

After a judge refused a request to dismiss the charges against him, Ho Chi-ping is expected to stand trial in November on eight counts of bribery and money laundering. Meanwhile, the government of Chad denies any involvement in the scheme, calling it the “umpteenth false allegation and shameful fabrication promoted by agents who seek to tarnish the country’s reputation”.

Jianming is reportedly co-operating with Chinese authorities disentangling his vast corporate web in order to reshape CEFC into a more conventional operation, discarding the (many) bad bits and restructuring those parts that are deemed viable.

Tiny morsels of information that escape the cloak of silence covering the businessman and his conglomerate indicate that a change of ownership is at hand. In March, CEFC Europe withdrew its request to the central bank of Czechia for regulatory approval of raising its 9.9% stake in a local financial services company to 50%.

The company cited a forthcoming change in its shareholding structure as the reason for pulling the request.

Later that same month, state-owned asset manager Huarong revealed to it had acquired a 36% stake in CEFC Hainan International, the subsidiary through which the conglomerate had planned to channel its acquisition of a 14% share in Russian oil producer Rosneft. The $8bn deal collapsed in May and, though no official reason or explanation was provided, brokers involved with the sale hinted that CEFC’s high debt-load caused the deal to fall through. Since then, the Qatar Investment Authority (QIA) has stepped in and announced it would buy 19% of Rosneft for around $9bn, allowing the Russian state to meet its privatisation target.

Just as quickly as CEFC, a relatively obscure trading company set up in 2002, cornered the Asian energy and financial services markets, it is now being dismantled. That process largely takes place out of public view. Meanwhile, Jianming also remains hidden. The Chinese serial entrepreneur has always been known as a rather shy, if not secretive, man who avoids publicity. It remains something of a mystery how Jianming got his first break in business. The accepted, though unverified, story is that he earned his first few millions as a trader in wood products. Investing the proceeds of these lucrative dealings in a series of provincial guesthouses in his native Fujian Province provided the next stepping stone, one

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"Other corporations reportedly under investigation for reaching too far, too soon include the Dalian Wanda Group which splurged in Hollywood, California, spending untold billions buying up media companies." which allowed Jianming to take over a modest, yet lucrative, real estate portfolio for pennies on the dollar from a troubled Hong Kong asset manager.

Described by Fortune magazine in 2016 as China’s “mysterious tycoon”, the publication’s editor placed Ye Jianming second on his 40 Under 40 list of the world’s most influential younger people – well ahead of French President Emmanuel Macron, who ranked fourth. The businessman, charmed, no doubt, by the honour, reportedly agreed to be interviewed by the magazine.

However, the resulting nuggets of information are as rare as they are untrustworthy. Spinning tales to hide his personal trajectory, Jianming has no trouble departing from fact to further his personal and business interests and remain in the background at the same time.

However, Jianming ran afoul of President Xi Jinping’s policy of curbing corruption which includes the reining in corporate malpractices such as an excessive dependency on borrowed money to drive growth. Jianming’s sudden fall from grace also seems to have resulted from his frequent name-dropping. To business partners and host governments alike, the former tycoon gave the impression that his swagger was approved of, and supported by, the powers that be in Beijing.

Appearing out of virtually nowhere, CEFC took a ride on the coattails of China’s flagship Belt And Road Initiative, moving into countries and markets earmarked for its deployment. Thus, CEFC established a large presence in the Czech Republic where it invested such large sums that Jianming was soon appointed to serve the country’s president, Milos Zeman, as a special adviser. The Chinese businessman was also present during Zeman’s 2015 visit to China, accompanying his Czech guest to a meeting with Jinping.

That was then and this is now: shopaholic executives who snap up just about all assets that cross their path and build eclectic portfolios – financing their splurges with easy money from Chinese banks – are apparently no longer appreciated. Earlier this year, the Chinese government took over control of Anbang Insurance and arrested its chairman, Wu Xiaohui, on charges of economic crimes and fraudulent fundraising.

The company spent billions of dollars buying marquee properties around the world, including the Waldorf Astoria hotel in New York, which it acquired for almost $2bn in 2014. Two years later, Anbang Insurance offered to buy Starwood Hotels CFI.co | Capital Finance International

and Resorts – a major player in the hospitality industry with eleven proprietary brands and more than 1,200 properties worldwide – for $13bn. The deal fell through without any explanation. Anbang Insurance and its CEO had hit a brick wall.

Xiaohui’s subsequent arrest sent a strong signal that in Jinping’s China, nobody is above the law – or, indeed, above suspicion. The now disgraced executive was exceptionally well connected and married to a granddaughter of none other than Deng Xiaoping, the leader who in the late 1970s opened-up China for business. When Xiaohui made attempts to cosy up to Jared Kushner, sonin-law of US president Donald Trump, he must have crossed an invisible red line. Jinping clearly disapproves of corporate foreign policy initiatives.

After all, Jianming also ran into trouble after he became akin to the uncrowned king of the Czech Republic.

Other corporations reportedly under investigation for reaching too far, too soon include the Dalian Wanda Group which splurged in Hollywood, California, spending untold billions buying up media companies.

The conglomerate has since scaled back the scope of both its operations and ambitions, putting a halt to overseas acquisitions and inviting in internet giants Tencent and Alibaba to shore up its haphazardly collected film and property divisions. The group’s iconic One Beverly Hills condo and hotel development has been put up for sale in July. Other Chinese real estate groups such as Greenland Holding Group and HNA Group have also begun offloading property in answer to President Jinping’s ukase on the need to repay corporate debts and pursue organic growth.

According to the Wallstreet Journal, the Chinese have now become net sellers on the US property market, shedding some $1.3bn off their collective portfolio during the first six months of 2018.

In Hong Kong, a group of creditors have banded together and petitioned the High Court to liquidate Shanghai Huaxin Group, the offshore division of CEFC China Energy Group – Jianming’s oil company – in an attempt to recover some the $14.5bn that is owed to them. The troubled business conglomerate owns oil and natural gas assets in China, Europe, and Africa, among others. However, the Hong Kong creditors face an uphill battle as most of the Shanghai Huaxin Group’s asset portfolio is tied up to loans.

Before splashing on to the global stage with its Rosneft deal, few industry insiders has even taken note of Jianming and his sprawling business empire. Here today and gone tomorrow: the freewheeling tycoons of China are getting their wings clipped for using the logic of the party to seal deals that carry the semblance of official state blessing but are, in fact, private deals than run in parallel to state-sponsored initiatives. So far, so good. However, emulating the state is a belt and road too far. If anything, Jianming and his peers flew too close to the sun and got burned before they lost their wings. i

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>

Pioneer Spirit and Bravado Continue to Bring Rewards

CEO: Huynh Buu Quang

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ietnam Maritime Commercial Joint Stock Bank (Maritime Bank) was established on July 12, 1991, in Haiphong City in Vietnam.

With 27 years of history behind it, the bank has accomplished steady growth, and has become a prominent brand in Vietnam. Thanks to the ambition of the bank’s leaders and their shared vision for the future of the Vietnamese financial market, Maritime Bank has become the first private joint-stock commercial bank to be licensed in Vietnam. The pioneering spirit has been retained in all the bank’s business strategies, allowing it to grow into one of the leading in the field.

Starting as a young private bank with 24 shareholders, charter capital of VND 40 billion, and a handful of branches in large cities, Maritime Bank has grown both in scale and financial capacity into a financial organisation with charter capital of VND11.75 trillion, a network of over 800 branches, transaction offices and ATMs nationwide serving over 1.6 million trusting individual customers, 39,000 corporate customers, and more than 2,000 large-scale corporate and financial institutional customers.

Soon after its establishment, Maritime Bank stunned the Vietnamese banking sector by pioneering the use of modern technology: it was the first commercial bank to roll-out international payment services. It also helped build the Core Banking system that almost all Vietnamese banks now use.

Maritime Bank was the first to use LAN and WAN to speed-up money transfers – from a few weeks to a few minutes. Over the past quarter-century of development, the bank has been continuously investing in its technology platform to meet the evolving requirements of a modern bank, and to better serve customers. Technology is now a key factor in the implementation of Maritime Bank’s Strategies, illustrated through the completion of a number of backbone projects in 2017, such as a loan-origination system, demand-based consultation and the Jupiter offering system aimed at optimising at-the-counter activities.

The bank employs anti money-laundering measures and foreign account tax compliance, and through 2018’s completion plan some other important initiatives such as Digital Corporate Core Banking (supply chain platform), Commercial trade finance systems, and Enterprise Debt recovery system.

EFFORTS TO ENHANCE THE QUALITY OF PRODUCTS AND SERVICES Maritime Bank aims to provide the best experience to customers and partners using its products and services. It has regularly launched new products and programmes to add value for customers. For individual customers, Maritime Bank aims to be a family bank that provides benefits for customers’ families and friends through product packages optimally designed and based on the concept of omni-channel and omni-benefit experience, as well as other industry innovations.

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For corporate customers, Maritime is a bank of partnership and connection that provides financial services to optimise business efficiency and co-operation for strong and sustainable growth. The bank has focused on investing in fundamental areas, such as human resources, database, organisation structure, policies and governance.

As one of the 10 banks chosen by the State Bank of Vietnam (SBV) to pilot Basel II compliance, Maritime Bank has set up a steering committee of high-level board and management members, and established the Basel II Centre and a specialised risk tool to carry out the project. The bank maintains a strong capital adequacy ratio (CAR) at 19.48%, above the 9% required by SBV. Thanks to this strong foundation, the bank has been able to implement new business plans as scheduled.

Maritime Bank has received numerous awards from domestic and international organisations, including Vietnam Domestic FX Bank of the Year in 2017 from Asian Banking & Finance (ABF) for three consecutive years, Outstanding Contribution to SMEs and Innovation in Vietnam 2017 by Capital Finance International, Best Retail Bank in Vietnam 2017 by International Finance Review, Best Co-branded Program in Vietnam 2017 by MasterCard, and Vietnam Outstanding Bank for SMEs by IDG i 197

> LienVietPostBank:

Maintaining a Competitive Edge in the Rampant Age of Digital Banking LienVietPostBank – one of the two largest commercial banks in Vietnam in terms of network – has a competitive advantage over compatriot banks.

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t has 327 branches and transaction offices, 975 postal transaction offices (PTO – offering banking services in the post office), and exclusive rights to exploit over 10,000 post offices nationwide.

Orienting itself to become “a bank for everyone”, LienVietPostBank aims to have at least one branch or transaction office in each of Vietnam’s 713 districts by 2020, together with a nationwide network of service points to facilitate the access of customers, especially those living in rural areas, to formal banking products and services.

As one of the pioneers in the fast-growing digital banking trend, LienVietPostBank constantly develops and applies innovative technologies to meet the increasingly high customer demand. With state-of-the-art technologies and convenient access points, the bank is able to approach a wide range of clients, including those in urban, rural and remote areas. Thanks to various online products with user-friendly interfaces, secured information, competitive fees and 24/7 convenient service availability, the bank has recorded over 3.7 million individual customers and 30,000 corporate clients. This is great motivation for the 10-year-old organisation to make further breakthroughs in customer satisfaction.

LienVietPostBank has spent a good deal of effort diversifying products, improving service quality and developing more customer-centric processes. In 2018, LienVietPostBank has experienced a structural shift with a focus on

"As a business philosophy, the bank will continuously revise its products and services to offer what customers want – rather than what is available." retail activities. Specifically, the proportions of retail aspects (retail loans/total loans and retail savings/total saving) are now all above 60%, marking the first time retail activities have surpassed wholesale business.

The breakthrough of LienVietPostBank in diversifying products and enhancing service quality underscores customers' increasing confidence. As a business philosophy, the bank will continuously revise its products and services to offer what customers want – rather than what is available.

After only 10 years of operation, LienVietPostBank has gradually affirmed its position in the domestic financial market as one of the Top 10 private banks in Vietnam.

The combination of the broad physical network coverage and digital banking services will be a solid foundation for the bank to further develop innovative, and micro-finance, products in the future. This will only strengthen its position as “the best retail bank in Vietnam”. i

"The combination of the broad physical network coverage and digital banking services will be a solid foundation for the bank to further develop innovative, and micro-finance, products in the future."

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> UNCDF:

Giving Farmers a Boost through Digital Finance

By Tillman Bruett, with contributions from Mike McCaffrey, Lara Gilman and Moïra Favrichon. Photos by Karima Wardak (UNCDF).

Uganda is one of the most successful markets for digital finance in Africa. Yet, when the UN Capital Development Fund (UNCDF) launched its first digital finance activities there in 2015 in agricultural value chains, digital account usage was fairly low amongst rural Ugandans – around 21% percent.

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o increase access to, and use of, digital financial services in rural areas, UNCDF first explored digitising bulk payments to coffee growers in Eastern Uganda via its programme MM4P. Since that time, UNCDF MM4P added projects to digitise four additional agricultural value chains: dairy, maize, seed oil, and tea.

LIMITED APPETITE FOR DIGITAL FINANCE IN RURAL AREAS The Ugandan population is about 75% rural, and the agricultural sector employs over 75% of the population and accounts for 50% of the country’s exports. Yet agriculture contributes only 26% of Ugandan GDP, which demonstrates that poverty in Uganda is mainly rural and agricultural.

Agriculture will be a pivotal sector for the overall economic development of the country and for meeting many of the UN Sustainable Development Goals – to end poverty and hunger, reduce inequalities, and secure decent work and economic growth.

These statistics clearly show that to be serious about meaningful financial inclusion in Uganda, UNCDF MM4P needed to directly address smallholder farmers. The context was gloomy for rural digital finance. In 2015, of the nearly 70% of Ugandans who received agricultural payments only 16% received them digitally, mostly via mobile phone. Many digital payment projects handled by banks and mobile network operators ceased after the pilots or the subsidies ended because they were unprofitable.

The pilots often shifted the burden of transporting cash to rural areas from the payer to the payment service-provider and agents, without much longterm benefit in terms of customer uptake. Banks and mobile network operators had little appetite for digitising high-volume payments in rural areas. A study by the Helix Institute of Digital Finance showed the low agent transaction level, beyond payment transactions, in rural areas.

Another concern at UNCDF MM4P was that the smallholders would find digital payments unhelpful or, worse, an additional burden because they may have had to travel, wait, and pay fees to receive the sum that was once handed to them in cash.

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"Booster Teams are created to systematically balance growth of supply and demand, since building up infrastructure too quickly would result in provider losses, while doing so too slowly would end in poor customer experience and decreased demand."

Informed by failures in Uganda in the past, UNCDF MM4P developed a learning agenda for its work that included how high-volume payments could drive uptake and usage of digital finance, as well as to help build the digital finance ecosystem. The programme sought greater clarity on the requirements necessary for high-volume payments to drive active account usage, and the roles and activities of different actors in the digitisation effort.

Research by UNCDF MM4P revealed that the supply-side prerequisites for a digitisation project to work were fairly clear: (i) connectivity, (ii) distribution (for cash-in and cash-out), (iii) payment platform to serve as interface between payer and payee, and (iv) appropriate registration policies.

For smallholders’ usage of digital accounts to grow, UNCDF MM4P hypothesised that there were also three key demand-side criteria: (i) relevance to smallholders’ lives, by adding an improvement or providing a benefit; (ii) affordability, by being nearly as, or more cost effective than, cash; and (iii) adequate time, to allow smallholders to experience the benefit.

A New Type of Sales Team Is Needed to Go Rural To build the case for high-volume payments in rural areas, UNCDF MM4P chose to start in Uganda with the coffee value chain because it is the largest in terms of smallholders. As of 2015, coffee was the top foreign exchange earner in Uganda, contributing up to 20% of export earnings and employing nearly three million CFI.co | Capital Finance International

Ugandans. With stakeholder input, UNCDF MM4P developed a holistic approach that involved working directly with Kyagalanyi Coffee, a leading coffee exporter, to digitise payments to its farmers around Mount Elgon.

A number of prerequisites needed to be addressed before any digital payment could be made. Eastern Uganda had some of the worst connectivity of any area in which UNCDF MM4P worked and a relatively low rate of phone ownership. To make the project feasible, UNCDF MM4P worked with the multinational mobile telecommunications company MTN to install a new station and to improve connectivity by offering the company a guarantee if it was unable to obtain a return on its investment after six months.

The new station garnered much higher activity rates than expected, and the guarantee was never needed. The level of phone-ownership improved through the offer of affordable handsets and facilitation of SIM card registration. The technology firm Yo Uganda was contracted as the payment aggregator, and UNCDF MM4P worked with and supported it by hiring the pay-as-you-go solar company Fenix International to distribute handsets and the small service company PotBel to conduct activations and provide liquidity management for agents. This grouping created the first the UNCDF MM4P Booster Teams, which helped kick-start payment digitisation.

Booster Teams are created to systematically balance growth of supply and demand, since building up infrastructure too quickly would result in provider losses, while doing so too slowly would end in poor customer experience and decreased demand. Booster Teams are deployed in rural areas where they register customers, sell handsets, recruit and train agents, and educate players in the value chain on the usage and benefits of digital payments and accounts.

The UNCDF MM4P team maintains regular contact at the executive and senior-management level of each stakeholder organisation in order to facilitate project alignment and resolve problems.

It was decided that the Booster Teams should focus not only on the smallholders scheduled to receive payments, but also on the entire

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community. Smallholders represent families; for every 100 farmers, there are thousands of adults in the community, many of whom are supporting those farmers. Enlarging the focus allowed UNCDF MM4P to expand the scope of the project and to analyse the difference between those receiving payments and training and those just receiving training.

PROMISING RESULTS Global Findex reported that 32% of Ugandans who were receiving agricultural payments in 2017 did so digitally, mostly through mobile money. This result is more than double the figure for 2014.

Thanks to a special agreement with MTN Uganda, UNCDF MM4P was able to track mobile money activity rates and average revenue per user (ARPU) for smallholders who have received (or are receiving) payments, as well as other community members who were registered and/or sensitised by a Booster Team. This data can be compared with that of other community members who did not receive payments or training, and were not registered by a Booster Team. As a result, UNCDF MM4P can consider not only the relative activity of payment recipients but also of their community as a whole.

Coffee has two seasons in Uganda, with the main harvesting season starting in July and peaking in November. Farmers may sell for a month or two after the season ends, but activity rates decline in December and hit their lowest point in April.

Data from June 2017 to April 2018 revealed that the overall number of active customers in the coffee districts increased from 880,000 to over 1,000,000, compared to the overall growth trend in rural areas of 14%. UNCDF MM4P helped register over 15,000 customers, with about 300 signing up for digital payments. Of these, smallholders who received payments not only maintained higher activity levels during the coffee season (100% active versus 80% active in the population as a whole) but also were 5% to 10% more active than their neighbours. Another observation was that, despite the seasonality of coffee, the level of active users remained relatively consistent year-round, fluctuating no more than 15%.

Booster team in action (above two photos).

Customers who were registered by a Booster Team, but did not receive payments, were less likely to be active than the coffee districtsâ&#x20AC;&#x2122; population as a whole, often by 20 percentage points. This finding may be due to the fact that they were new customers, since the gap narrowed over the course of the year to less than 10 percentage points, which suggests truth to the hypothesis that time is a key factor in stimulating demand.

A more impressive finding was that ARPU from payees to MTN (mobile money only) was 175% higher than in the coffee districtsâ&#x20AC;&#x2122; population as a whole. ARPU for non-payee customers registered

Coffee farmer received payment.

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by a Booster Team was 56% higher than in the districts’ population, which may suggest that the training and information received from a Booster Team encourages more frequent use.

The work of UNCDF MM4P in the other three value chains drew on the early lessons learned from coffee and is helping to draw a clearer picture of stimulated supply and demand in rural areas.

The dairy value-chain is an interesting comparison. Dairy is a year-round activity that involves payments made as frequently as every two weeks. UNCDF MM4P helped register over 15,000 new customers. Smallholders were given the option of receiving 5% of the value of their sales in mobile money by participating cooperatives. Initially, just over 100 opted into the project, but that figure grew to nearly 800 over 12 months. Those who opted-in and became regular payees were more active customers than those in the coffee districts’ population as a whole. The mobile money ARPU from payees was 299% higher than their neighbours over the course of a year. The role of time in the demand for digital finance is also evident in this group: both the mobile money ARPU and the average transaction value of payees increased, notably about nine months into the project, and has continued to rise.

Customers who were registered by a Booster Team, but who were not payees, were initially more likely to be active than the coffee districts’ population as a whole, a spike that proved to be fleeting. When Booster Team activities ceased after six months (in November, due to a change in the Booster Team partner), these customer activity levels plummeted from nearly 100% to 60%. This result raises the question of how long Booster Teams need to remain engaged for customer-demand to stabilise.

Despite the drop, customers registered by a Booster Team still produced a higher mobile money ARPU for MTN – 90% higher than the average in the coffee districts.

So far, the analysis of smallholders in the maize, seed oil, and tea value chains is producing similar results. Together, they have over 7,000 payees during the high season and 30,000 other customers registered by a Booster Team. Payees are more active and more lucrative customers than the average, while customers newly onboarded by a Booster Team are less active, but more profitable, than the average. Seasonality issues from harvest and sales need to be analysed further and results tracked longer to see if and when time reveals that the long-term gains to payment service-providers are greater than in the first year.

In the coming six months, UNCDF MM4P will release a series of case studies highlighting the methods used, the results achieved, and lessons learned across these value chains. Going rural 202

Author: Tillman Bruett

and improving payments and financial services in agricultural value-chains is proving to be profitable for operators when they approach the sector with a specific sales team, an anchor set of customers and, above all, patience. i ABOUT THE AUTHOR Tillman Bruett has over 20 years of experience in commercial banking, microfinance, and financial inclusion. He is currently the Programme Manager of MM4P at UNCDF, an initiative to make mobile and branchless financial services available to low income and rural households in the LDCs. He joined the UNCDF in 2008 to start to the Pacific Financial Inclusion Programme.

Till was a banker in the early 1990s, working as a credit analyst and client manager with Chemical Bank’s international division in New York. In 1996 he joined FINCA International where helped start, monitor and assess FINCA’s microfinance institutions and managed a global credit and guarantee facility. He co-founded Alternative Credit Technologies in 2000, a consulting company specializing on building inclusive financial systems. He also facilitated SEEP’s financial services working group for four years, taught regularly at Georgetown University and was an adjunct professor at Johns Hopkins SAIS. ABOUT UNCDF UNCDF is the UN’s capital investment agency for the world’s 48 least developed countries. It creates new opportunities for poor people and their small businesses by increasing access to CFI.co | Capital Finance International

microfinance and investment capital. UNCDF focuses on Africa and the poorest countries of Asia, with a special commitment to countries emerging from conflict or crisis. It provides seed capital – grants and loans – and technical support to help microfinance institutions reach more poor households and small businesses, and local governments finance the capital investments – water systems, feeder roads, schools, irrigation schemes – that will improve poor peoples’ lives.

UNCDF programmes help to empower women, and are designed to catalyze larger capital flows from the private sector, national governments and development partners, for maximum impact toward the Millennium Development Goals. For more information, please visit www.uncdf.org and subscribe for news, follow @UNCDF on Twitter and UN Capital Development Fund on Facebook.

> Asian Development Bank (ADB):

Tackling Asia Pacific’s Unfinished Development Agenda Head-On

By Tomoyuki Kimura

When the Asian Development Bank (ADB) was established in 1966, Asia and the Pacific was poor, and one of the most important challenges was how to feed its large and growing population.

T

he progress since then has been spectacular. Asia and the Pacific has been globally the fastest-growing region in recent decades, with a share of global gross domestic product rising from 25% in 2000 to 33% in 2016. The region is expected to account for more than half of global production by 2050. Individually, countries are doing well.

The People’s Republic of China and India are now among the world’s largest economies. The countries of the Association of Southeast Asian Nations (ASEAN), with a collective population of close to 640 million, have become important market-oriented emerging economies.

Robust growth has resulted in a dramatic reduction in income poverty and improvements in living standards. Extreme poverty, as measured by the $1.90 a day threshold at 2011 purchasing-power parity, significantly declined in developing Asia from 53% in 1990 to about 9% of the total population in 2013.

While these positive trends are expected to continue, the situation is not entirely rosy.

The region was still home to 326 million people living in extreme poverty in 2013. An additional 915 million people lived above $1.90 a day, but below $3.20 a day, putting them at risk of being pushed back into extreme poverty during economic downturns or other external shocks.

The number of food-insecure people also remains significant – 64% of the undernourished people in the world (almost 520 million) lived in Asia in 2016.

Income inequality has risen in several countries, and social disparities remain. Close to 80% of the region’s population lived in countries with widening inequality between the 1990s and 2000s. Not surprisingly, the rate of poverty is higher in rural than urban areas, and significant

"ADB will continue to prioritise support for the region’s poorest and most vulnerable countries." differences exist in school participation and learning achievement and in access to electricity, water sources, and sanitation. Systemic gaps persist in productivity, wages, and income levels, particularly in households headed by women.

Growing inequality could undermine social cohesion, endanger social and political stability, and hamper the region’s economic prospects.

There are myriad other issues to address. Climate change and disasters threaten the long-term sustainability of development in the region. The Pacific region is particularly vulnerable, as the projected rise in sea levels threatens the longterm viability of many of its islands. Of the 10 countries worldwide with the highest estimated disaster risk, seven are in developing Asia.

Meanwhile, the region faces other environmental issues, including air and water pollution, marine litter at sea and in coastal areas, inadequate waste management, deforestation, land degradation, and biodiversity loss. These impose more vulnerabilities on the poor, who tend to depend on the local ecosystem for livelihoods and food security.

More than 400 million Asians lack electricity, about 300 million have no access to safe drinking water, and 1.5 billion lack basic sanitation. In many countries, power outages restrain economic growth and underdeveloped transportation networks restrict the flow of people, goods, and services. Besides poor-quality infrastructure and services requiring urgent attention, rehabilitation

and better management and maintenance of infrastructure is also essential.

Based on ADB’s most recent estimates, Asia and the Pacific will need to invest $26.2 trillion during 2016–2030, or $1.7 trillion a year for infrastructure, to maintain its growth momentum, eradicate poverty, and address climate change.

To respond to these challenges, ADB launched Strategy 2030 – its new long-term corporate strategy – in July 2018. Under Strategy 2030, ADB will seek to promote prosperity, inclusiveness, and resilience in the Asia and Pacific region while sustaining efforts to eradicate extreme poverty.

ADB will continue to prioritise support for the region’s poorest and most vulnerable countries.

It will apply differentiated approaches to meet the diverse needs of various groups of countries: fragile and conflict-affected situations, small island developing states, low- and lower middleincome countries, and upper middle-income countries. Across these country groups, ADB will also prioritise support for lagging areas and pockets of poverty and fragility.

Infrastructure investments – particularly those that are green, sustainable, inclusive, and resilient – will remain a priority. At the same time, ADB will expand operations in social sectors, such as education, health, and social protection.

ADB’s support will focus on seven operational priorities: addressing remaining poverty and reducing inequalities; accelerating progress in gender equality; tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability. Other efforts go towards making cities more livable; promoting rural development and food security; strengthening governance and institutional

"More than 400 million Asians lack electricity, about 300 million have no access to safe drinking water, and 1.5 billion lack basic sanitation. In many countries, power outages restrain economic growth and underdeveloped transportation networks restrict the flow of people, goods, and services."

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capacity; and fostering regional cooperation and integration.

The seven operational priorities in Strategy 2030 are aligned with Sustainable Development Goals and other global commitments. Given the size of Asia and the Pacific, achieving such commitments will depend critically on the region’s success.

Among these priorities, ADB has set quantitative targets for gender and climate change. At least 75% of ADB’s committed operations (sovereign and non-sovereign) will promote gender equality by 2030. ADB will also ensure that 75% of its committed operations will support climate change mitigation and adaptation by 2030.

Climate finance from ADB’s own resources will reach $80bn, cumulatively, from 2019 to 2030.

To support the seven operational priorities, ADB will expand and broaden its private sector operations to reach one third of ADB operations in number by 2024 (from 20.9% in in 2017).

The private sector mobilises resources for development, creates jobs and helps drive innovation and efficiency in developing Asia.

The private sector is also critical in addressing the large market gaps that exist across Asia and the Pacific – from short-term trade financing to medium-term financing of small and medium enterprises. Private resources will also be needed to fill the huge long-term financing needs for infrastructure in the region.

In this expansion, ADB will put a strong focus on the development impact of its private sector operations. It will also seek to ensure profitability and commercial sustainability— noting that commercial success is correlated with development outcomes.

Under Strategy 2030, ADB will enhance support for innovative approaches, including the use of advanced technologies. As a project developer, ADB will expand its transaction advisory services to help its clients structure public-private partnerships and develop robust project pipelines.

Building strong partnerships with diverse institutions, such as traditional and new development partners, civil society organisations, charitable and philanthropic organisations and the private sector, will be a major focus of Strategy 2030 to mobilise more resources for development. ADB will strengthen its efforts to get financing from private co-financiers and investors and to increase the leverage of its own financing. ADB targets a substantial increase in long-term co-financing by 2030, with every dollar in financing for its private sector operations matched by $2.5 of long-term co-financing. To maximise opportunities to mobilise long-term private funds, ADB will expand partnerships with institutional investors, such as insurance and pension companies within and outside Asia.

Shizuoka, Japan: Satta pass

ADB will strengthen its role as a knowledge provider. It will work closely with partner countries CFI.co | Capital Finance International

to identify their needs and produce the most relevant knowledge on products and services.

ADB will proactively engage in research, provide quality policy advice, strengthen institutional capacity in client countries and expand knowledge partnerships.

In implementing Strategy 2030, ADB will ensure a robust resource base to support its future operations through various means to maintain a favourable capital position. ADB will strengthen its human resources and deepen its country presence, through stronger field offices. It will improve its products and instruments. ADB will pursue dramatic modernization of its business processes (including timely and value-for-money procurement and greater use of country systems) and accelerate its digital transformation. It will also strengthen collaboration with civil society organisations in designing, implementing, and monitoring projects.

Strategy 2030 reflects feedback from a wide range of stakeholders, including policymakers in developing and developed countries, academics, and civil society organisations, as well as ADB Board members and staff.

Meeting all its goals and targets presents substantial challenges. But given the long horizon of the strategy and the rapidly evolving development needs of its developing member countries, ADB will aim to be flexible and responsive—systematically planning, implementing, and monitoring performance to ensure results are achieved. i ABOUT THE AUTHOR Tomoyuki Kimura is Director General of ADB’s Strategy, Policy and Review Department.

ABOUT ASIAN DEVELOPMENT BANK (ADB) The Asian Development Bank (ADB) is a financial institution that is proudly Asian in character. It fosters economic growth and co-operation in Asia, which encompasses some of the poorest regions in the world. ADB assists its 67 members (48 from the Asia Pacific region) , and partners, by providing loans, technical assistance, grants, and equity investments to promote social and economic development.

Author: Tomoyuki Kimura

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> Jim O'Neill:

The Global Economy Ten Years After

Much will be said about the tenth anniversary of the 2008 financial crisis, so I will focus on the global economy, which has not been nearly as weak as many seem to think.

A

ccording to the International Monetary Fund, the rate of real (inflationadjusted) world GDP growth averaged 3.7% in 2000-2010, and would have been close to 4% if not for the so-called Great Recession. By comparison, the average annual growth rate so far this decade has been 3.5%, which is slightly lower than the average rate in the 2000s, but above the 3.3% rate in the 1980s and 1990s.

By my reckoning, China has contributed an even larger share of global growth in this decade than it did in the last, with its GDP having almost tripled from $4.6 trillion at the end of 2008 to around $13 trillion today. That additional $8 trillion accounts for more than half of the increase in global GDP over the past decade.

Final Thought

I have long attributed the financial crisis to imbalances within and between the United States and China, the world’s two largest economies. While the US’s current-account deficit was close to 5% of GDP in 2008 (and closer to 7% in some quarters of 2007), China was maintaining a whopping current-account surplus of 9% or higher.

Following the crisis, I predicted that the US and China would have to swap places to some extent over the course of the next decade. China needed to save less and spend more; and the US needed to save more and spend less. Judging by their current accounts today, both countries appear to have made significant progress. In 2018, China’s surplus will have fallen to around .5-1% of GDP, which is remarkable considering that its GDP has more than doubled since 2008. Equally remarkable, the US will register a deficit of 2-2.5% of GDP, which is within the 2-3% range that many economists consider sustainable.

Other global indicators, however, are not as encouraging. Back in 2008, the eurozone ran a current-account deficit of 1.5% of GDP, with Germany recording a surplus of around 5.5%.

But Germany’s large surplus owed much to large deficits in other eurozone countries, and that imbalance gave rise to the euro crisis after 206

"The strange equity-market rally that has been proceeding almost uninterrupted since 2009 has been fueled in large part by major corporations’ stock buybacks."

2009. Worryingly, Germany’s surplus has since ballooned to around 8% of GDP. As a result, the eurozone now has a surplus close to 3.5%, despite, and probably because of, years of weak domestic demand in the Mediterranean member states. This is surely a sign of further instability ahead. In fact, the slow-brewing crisis in Italy may be a harbinger of what awaits the bloc.

A central feature of the economy prior to the financial crisis was the US housing bubble, which itself resulted from the financial sector’s invention of increasingly intricate (and dubious) methods of recycling global savings. A decade on, it bears mentioning that many “global cities” like London, New York, Sydney, and Hong Kong now have home prices that only a very small minority of their permanent residents can afford, owing to the growing demand from wealthy investors abroad.

But as of this year, there are growing signs that housing prices in these and other cities may be undergoing a reversal. This may simply reflect actions taken by municipal governments to provide more affordable housing to their residents; but it also could indicate that marginally affluent new buyers are becoming scarcer.

To be sure, a gradual decline in house prices in these cities would be a welcome development in terms of economic and social equality. But one would search in vain for a time when declining home prices did not produce damaging side effects.

Having now assumed the chairmanship at Chatham House, I am eager to encourage more research into how factors such as housing costs CFI.co | Capital Finance International

relate to larger issues of income and wealth inequality. To my mind, the world needs much better metrics for tracing these interconnections.

For example, it is clear that wealth inequality has increased much more than income inequality over the past decade, with the rapid rise in urban housing prices playing a central role. In many developed countries, including the United Kingdom, economic inequality is a serious problem. Yet in terms of income, the latest data show that inequality has actually fallen back to the (still-too-high) levels of the 1980s.

If common perceptions about inequality tend to inflate what is actually happening, that is because many companies’ top executives are earning increasingly massive sums relative to the workers under them. Such compensation packages can be rationalized in the context of share-price performance, but that hardly makes them justifiable.

This is another issue that I hope we will be studying at Chatham House. The strange equitymarket rally that has been proceeding almost uninterrupted since 2009 has been fueled in large part by major corporations’ stock buybacks.

In some important cases, companies have even issued debt to finance the repurchase of their shares.

Does the growing prevalence of buybacks explain why fixed investment and productivity have remained so weak across the West? And might those macroeconomic factors explain some of the political upheavals in Western democracies such as the UK and the US in recent years?

On both counts, I suspect that the answer is yes.

Unless we can recover a world in which business profits actually serve a purpose, the likelihood of more economic, political, and social shocks will remain intolerably high. i ABOUT THE AUTHOR Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK Treasury Minister, is Chair of Chatham House.

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