CFI.co Spring 2016 by CFI.co

Capital Finance International

Spring 2016

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AS WORLD ECONOMIES CONVERGE

Mario Draghi, President of the European Central Bank:

FUELLING THE EUROZONE

ALSO IN THIS ISSUE // WORLD BANK GROUP’S IFC: WHAT’S NEXT FOR THE PRIVATE SECTOR? // UNCTAD: AFRICA RISING IMF: WHAT HAPPENED TO WORLD TRADE? // EUROPEAN INVESTMENT BANK: PLAN FOR EUROPE US DEPARTMENT OF STATE: GOOD CORPORATE GOVERNANCE // NASDAQ: WHERE THE MARKET STANDS

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Spring 2016 Issue

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Spring 2016 Issue

WELCOME TO MY WORLD

CHRONOMAT 44

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Editor’s Column A Plea for Smart Governance Port Talbot Steelworks in any meaningful way. Some 40,000 blue collar jobs – including those in the supply chain – are threatened. While only a few years ago, failing bankers were saved by the taxpayers from succumbing to their own misbehaviour, steelworkers are not so lucky even though their industry’s imminent demise has nothing to do with professional incompetence, but with externalities beyond their – but not the government’s – control. Saving the banks was the correct thing to do, as is saving the steelworks from the predatory practices of the Chinese. The Obama Administration has blocked M&A deals worth an estimated $370bn as it cracks down on inversions – takeovers driven by tax concerns rather than business opportunities. Early April, Pfizer failed to get approval for its $190bn acquisition of the Ireland-based pharmaceutical company Allergan. The deal would have allowed the American company to move its head office to Dublin, saving untold billions in US taxes. In 2014, biopharmaceutical drugs developer AbbVie was likewise thwarted in its attempt to merge with Shire, a Jersey-registered and Dublinbased competitor. AbbVie had also sought to escape high US corporation taxes by taking up residency in Ireland via a deal worth some $55bn. Predictably, investment bankers accused the White House of ceding to “leftist rhetoric” and pursuing a “socialist agenda.” The Obama Administration also blocked a number of large mergers to protect competition and jobs. Attorney General Loretta Lynch said she would not allow management to enhance shareholder value at the expense of consumers.

Editor’s Column

Taking the lead – again – the United States is determined to show the wider world how to protect industrial assets, the tax base, and jobs. It does so after first showing, thirty odd years ago, how to unload the same. Hobbling behind the times, Europe is – again – slow to catch up. It eventually will, though by then the Americans will have moved on to their next big thing – leaving the state of affairs largely unchanged. The US government not only blocks its companies from pulling up stakes; it also moved decisively to protect industrial assets from dumping, slapping a 266% surcharge on Chinese steel. Contrast that to the feeble attempt by the European Union to preserve its steel industry – a hardly punitive levy of 9%. An initiative to raise the surcharge and give it some bite was blocked by, amongst others, the same UK government that now refuses to aid the 8

While the future of British steel – still a hallmark of quality – hangs in the balance, attention has shifted to the Panama Papers that set the world ablaze with indignation. The Icelanders, always quick to pull the trigger, sent their prime minister packing hours after the first details were revealed of his involvement with a tax-avoidance scheme run through a shell company. UK Prime Minister David Cameron also landed in hot water – or rather a storm brewed in a teacup. While the man may not be Britain’s most gifted prime minister ever – please mind the sense of understatement employed – he most certainly does not deserve the derision directed at him over fiscal arrangements put in place by his deceased father. The opposition should look for another stick. For all their voyeuristic fascination, the Panama Papers are a non-issue. The trusts and shell companies the leaked documents detail hold few secrets. They are part of a well-established ritual that allows for the transfer of wealth from one generation to the next – a pursuit reserved for the truly wealthy mostly taking place in sunny crownprotected tax havens. The same people now loudly clamouring for full disclosure, previously expressed grave concerns about the state’s intrusion into private lives. Well, you can’t have your cake and eat it too. This is an either/or proposition: either go the Swedish way and publish the tax returns of all citizens online – in a truly Orwellian deployment of the state’s invasive powers – or allow people the freedom to maintain an inviolable private sphere in which they may conduct their affairs without being snooped upon by nosy peers and tax inspectors. The holier-than-thou attitude now on display is rather sickening.

pressure is unreasonably high. Others need to hide ill-gotten gains obtained in countries suffering poor governance. Then there are a few criminals and assorted riffraff whose work ethic is inversely proportional to their wealth and wish to hide this embarrassing fact. Most, however, have perfectly legitimate reasons for stashing their earnings on a tropical island. Good governance does not equal more regulation. The world can do without additional regulatory burdens imposed to catch the crooked. Fact is that more rules only results in better lawyers charging higher fees. The crooked will not be straightened out with a few more rules. That hasn’t worked in the past and is unlikely to work in the future. Why not opt for smart governance, instead? Take a cue from early 1990s Bolivia where 186 different taxes were scrapped and replaced with just five. Over the following years, tax receipts almost tripled as compliance became much easier. A good start would be to do away with the distinction between earned and unearned income. Currently, the former is usually penalised while the latter enjoys privileged treatment. While at it, simplify tax code as well: the UK’s tax code is now the longest in the world, covering all of 17,000 pages (2014), up from barely 5,000 pages in 1997. No wonder people are driven to Panama. The UK is by no means an exception. Taxmen everywhere are busily writing code and making up new rules all the while failing to realise that the more code is written, the more loopholes appear. Smart governance is not just good; it is flexible, adaptive, creative, and doesn’t respond to incidents with the usual reflexes of more regulation and/ or additional taxes. It is a form of governance that acts sensibly, involves all stakeholders, and occasionally thinks outside the box. So, it is a pipe dream. Well, no, it need not be. In order to see smart governance in action, look at Estonia where the power of technology – and a sensible approach to the management of society – is propelling that nation forwards at an accelerated clip. Ultimately, it is the choices we make as a society that build the bed we retire to. A regulatory straightjacket is a rather uncomfortable contrivance that does little to improve its wearer’s well-being. Happy reading.

Rather than tackle rising inequality with illconsidered event-driven policy initiatives, governments could try and smarten up. In some cases, taxpayers move offshore because fiscal CFI.co | Capital Finance International

Wim Romeijn Editor, CFI.co

Editorâ&#x20AC;&#x2122;s Column

Washington, DC: US Capitol Building

> Letters to the Editor

“ ““ ““

Mr Jackson does a terrific job of pointing out the growing pains within worldsystems theory, though he does nothing to identify them as such, or offer other possibilities for the rural poor in peripheries and semi-peripheries other than to change WTO, IMF and World Bank policies which have arguably worked in the past. While I think his ideas are superb, I do not think what he aims to achieve with these ideas is realistic – or even that relevant! JUSTIN PARKS (Omaha, US) The basic feature of our economic theory is that we have no theory at all. Or, perhaps, we have too much of it: instead of codifying all forms of human endeavour and then rating the result, we could opt to appeal to logic and reason. That does seem an increasingly attractive proposition since the sensible approach to any given issue often seems the last option chosen. CARSON BLAKE (Hong Kong, PRC) It is most refreshing to see a monarch lose her temper with those who stand in the way of progress. Thank you for giving Queen Rania of Jordan the recognition she deserves and showing what a dedicated royal may accomplish. IDRIS ZAMAN (Beirut, Lebanon) I agree with Mr Roubini that the populists and nationalists currently riding high in the polls need to be beaten back by appealing to the people’s ingrained sense of justice. Happily, Europe’s economy is now on the mend and once growth returns much of the discontent may dissipate. MIKAEL RIBER (Osaka, Japan) It is sad that many of the beneficiaries of the now unwinding resources super cycle have failed to invest their windfall wisely and remain stuck in chronic underdevelopment. The BRICS countries in particular have missed, yet again, the boat with the single exception of China which is battling dragons of its own making. Their bravado now gone, the BRICS have become marginalised. This is no cause for celebration. The world cannot sustain a division between a few haves and many have-nots. RUBEN COELHO (Salvador, Brazil) You’ve got to hand it to Mr Elon Musk. He may at times be a bit abrasive, but also happens to be a visionary quite unafraid to commit his money to ideas others may consider crackpot. Watch that man for he is sure to keep making splashes both in space and here on earth. What’s not to love? RYLEY TEEL (Cork, Ireland)

The Netherlands: Amsterdam

Spring 2016 Issue

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The financial commitments required to limit global warming are staggering. According to the IFC, developing countries need to invest $100 billion ANNUALLY over the next forty years in order to adapt their economies to climate change. Whilst the IFC is undoubtedly doing its bit to help guide investment flows to where they are needed most, it seems overly optimistic to expect such vast volumes of money to voluntarily move south. There are two solutions: force a redirect (an undertaking with no chance of success) or improve governance standards so that investors feel comfortable sending their money to places currently deemed unsound. TADEU SOUZA (Maputo, Mozambique) The WFE meeting in Qatar is aiming to achieve a ‘constructive phase’ in sustainability regulation, however the WFE does not know what that might entail. There are obviously still many hurdles for regulators, although I look forward to the day that investors can research the sustainability of future business opportunities, especially in developing markets, in order to assess long-term gains. If Nasdaq goes ahead with this, I will be most impressed. DAFINA KARIMI (Dubai, UAE) Rather than report extensively on the growing rich-poor divide, could you not offer a few suggestions on what to do about it. I understand that inequality is getting out of hand but fail to see what can effectively be done about it. I’d rather not read about the follies of the nouveauriche. It is best to ignore them and address the underlying problem instead. SVEN JONCKHEER (Antwerpen, Belgium) Your hero Mr Corbyn may be a political oddity, he also espouses a few rather outlandish ideas such a building submarines without weapon systems and doing away with the Falkland Islands. Regrettably, Prime Minister Cameron, his alter ego, seems about as clueless as the Labour leader on what to do with Britain. Just as the nation faces some existentialist questions, it is saddled with a generation of pseudo-leaders who couldn’t fight their way out of a wet paper bag. WILSON SNIDERS (London, UK) I enjoyed the insights of Mr Pettis and his historical perspective on high finance. Mr Pettis offers a calming voice of reason that stands out from the cacophony produced by alarmist economists for whom the end is always nigh. That is quite tiresome and I commend you for offering Mr Pettis a platform for spreading a bit of reason. MANLEY FAIRBURN (Manchester, UK)

Editor Wim Romeijn Assistant Editor Sarah Worthington Executive Editor George Kingsley Contributing Editor Darren Parkin Features Editor Penny Hitchin Production Editor Jackie Chapman

Editorial William Adam Emelia Beeson John Marinus Ellen Langford Naomi Majid Tony Lennox Kate Stanton Columnists Otaviano Canuto Evan Harvey Ross Jackson Tor Svensson Distribution Manager Len Collingwood Subscriptions Maggie Arts Commercial Director Jon Gerben Director, Operations Marten Mark Publisher Mark Harrison

Capital Finance International Meridien House 69 - 71 Clarendon Road Watford Hertfordshire WD17 1DS United Kingdom T: +44 203 137 3679 F: +44 203 137 5872 E: info@cfi.co W: www.cfi.co Printed in the UK by The Magazine Printing Company using only paper from FSC/PEFC suppliers www.magprint.co.uk

> COVER STORIES Otaviano Canuto, IMF: What Happened to World Trade? (14 – 16)

US Department of State: Good Corporate Governance (28 – 29)

NASDAQ: Where the Market Stands (30 – 31)

Cover Story: Mario Draghi Bending Markets to His Will (32 – 42)

IFC: What’s Next for the Private Sector? (60 – 62)

European Investment Bank: Investment Plan for Europe (68 – 70)

UNCTAD: Investment - In Need of Direction (228 – 229)

CFI.co | Capital Finance International

Spring 2016 Issue

FULL CONTENTS 14 – 43

As World Economies Converge

Otaviano Canuto

Nouriel Roubini

Mohamed A El-Erian

Tor Svensson

Ann Low

Evan Harvey

Joseph Stiglitz & Hamid Rashid Anders Åslund

Kate Stanton

44 – 55

Spring 2016 Special: Young Entrepreneurs

56 – 95

Europe

Sage Europe

IFC

Rothschild & Cie Gestion

Darren Parkin

European Investment Bank

Affirmative Investment Management

CaixaBank Asset Management

enso GmbH

Inapa

Arca SGR

Nova Banka

National Bank of Greece

TKP Investments

Tony Lennox

Black Sea Trade and Development Bank

John Marinus

96 – 123

CFI.co Awards

Rewarding Global Excellence

124 – 151

Africa

PTA Bank

PwC

Dun & Bradstreet Credit Bureau Tanzania

African Risk Capacity

Tandem & Stark

DEG

SALAAM African Bank

Natal Joint Municipal Pension/Provident Funds

Megastride Global

152 – 171

Middle East

KIPCO

Grant Thornton

Abu Dhabi Securities Exchange

Paris Gallery

QNB ALAHLI

Naomi Majid

Abu Dhabi Commercial Properties

172 – 183

Editor’s Heroes Ten Men and Women Who are Making a Real Difference

184 – 193

Latin America

BANSEFI

194 – 201

North America

Ernst & Young

Altercargo

202 – 229

Asia Pacific

AnandRathi

Max Myanmar

Bangladesh Building Systems

Afghanistan International Bank

Bank of Maldives

MEP

230

Wall Street’s Second Act CFI.co | Capital Finance International

> Otaviano Canuto, IMF:

What Happened to World Trade?

orld trade suffered another disappointing year in 2015, experiencing a contraction in merchandise trade volumes during the first half and only a low recovery during the second half (Figure 1). While last year’s trade performance can be associated to the ongoing growth transition in China and its reflections on other non-advanced economies, the fact is that last year’s performance came after a period since the 2000s in which world trade volumes have lagged behind GDP growth, a trend accentuated since the onset of the global financial crisis and in sharp contrast to global trade increases at a higher pace than world GDP prior to the new millennium.

CFI.co Columnist

Economists have indicated some circumstantial factors to explain this post-GFC pattern. For instance, world GDP and trade figures would be reflecting the fact that the highly open-trade countries of the Eurozone have had a subpar growth performance relative to the rest of the world. Furthermore, the weak recovery of fixed investments in advanced economies has suppressed an important source of trade volume, given the higher-than-average cross-border exchanges that characterise such goods.

“Since 2008, world trade has been rising slower than GDP at around 0.8:1, leading to a fall in the share of exports in global GDP.” More disputed hypotheses have also been argued. More stringent capital requirements and financial regulations might be curbing the availability of trade finance. Additionally, rising “murky” traderestrictive tax-cum-subsidy policy measures adopted in some key sectors by some countries may also have become more significant than usually perceived. While those post-crisis factors have certainly played a role, some structural trends also seem to be at play. As suggested by Figure 2, after steadily increasing between the mid-1980s and the mid2000s, the trade elasticity to GDP has lost steam – though it remained above one, thus implying that trade was still rising faster than GDP.

After jumping in previous decades, the world’s exports-to-GDP ratio seems to have started to approach some plateau (or a peak trade). Since 2008, world trade has been rising slower than GDP at around 0.8:1, leading to a fall in the share of exports in global GDP. However, even if post-GFC factors were partially reversed, the presence of a long-term trajectory of trade elasticity displaying a slowdown already prior to the recent pattern would suggest no automatic return to the heydays. RELEVANT PROCESSES Hoekman (2015) brings a thorough examination of both cyclical (post-GFC) and structural hypotheses about the global trade slowdown. Regardless of the weight attributed to these factors in explaining recent developments, three processes stand out as relevant for the purpose of analysing what lies ahead in terms of the link between global trade and development. Two of them were transitional – in the sense that they were one shot – the unfolding of which underpinned the extraordinary ascent of the global export-GDP ratio. The third one has evolved more gradually and will likely carry a significant transformative role ahead. The period from the mid-1980s to the mid2000s was peculiar in several aspects. For one, these decades featured a process of economic reforms that aimed to remove barriers to trade, a multilateral trading system that reduced uncertainty for traders, and technological advances that reduced trade and communications costs. Combined, these trends ushered in years of sustained trade expansion. Average tariffs moved to well below ten percent, and in many countries a significant share of trade became duty-free. Advances in transport (such as containerised shipping) and information and communications technologies greatly reduced the cost of shipping goods and of managing complex production networks. Together these developments led to two major changes in the structure of global trade: (a) the vertical and spatial cross-border fragmentation of manufacturing into highly integrated global production networks or global value chains (GVCs); and (b) to a lesser extent, the rise of services trade.

Figure 1: World Merchandise Trade Volume. Source: Netherlands Bureau of Economic Policy, World Trade Monitor, December 2015.

CFI.co | Capital Finance International

The full establishment of cross-border GVCs intrinsically raises trade measured as gross flows of exports and imports relative to GDP, a valueadded measure, because of double counting of the former – although the ratio of trade to GDP still increases even when trade is measured on a value-added basis. Given the then-prevailing

Winter 2015 - 2016 Issue

technological state of arts in production processes, the policy and enabling-technology breakthroughs above mentioned sparked a powerful cycle of fragmentation, especially in manufacturing, with a corresponding crossborder spread of GVCs.

Figure 2: Trade-income elasticity and Exports-GDP ratio – global economy. Source: Escaith and Miroudot, ch. 7 in Hoekman (2015).

RESHAPED ECONOMIC GEOGRAPHY The reshaping of the economic geography might have kept the pace with global trade impacts via further dislocation of fragments of GVCs, depending on the evolution of country locational attributes. Technological changes might also have altered optimal spatial configurations of the various manufacturing activities, as well as extended fragmentation to other sectors. This may well be the case ahead, as technologies and country policies keep evolving – some analysts point to a greater reliance on regional production networks, while others refer even to a potential reversal of GVCs because of 3D printing (additive manufacturing). However, the wave of cross-border manufacturing fragmentation of the mid-1980s through the mid-2000s was particularly intense and timeconcentrated. Figure 3 shows that the ratio of foreign value added to domestic value added in world gross exports increased by 2.5 percentage points from 2005 to 2012, after having risen by 8.4 percentage points from 1995 to 2005.

Figure 3: Ratio of Foreign Value Added to Domestic Value Added in World Gross Exports (%). Source: Constantinescu et al (2015).

The wave of fragmentation of manufacturing activity benefited from the incorporation of large swaths of lower-wage workers from Asia and Eastern Europe into the global market economy. Conversely, the former facilitated a process of growth-cum-structural-transformation with substantial total factor productivity increases in these countries via transfer of population from low-value, low-productivity activities to the production of modern tradable goods, for which foreign trade was instrumental – with China as a special case both in terms of speed and magnitude. The transitional nature of such a lift of world trade relative to world real GDP, even as the latter grew substantially, stemmed from the inevitable tendency of both starting to rise more in line once the intense transformation approached completion. Its extraordinary intensity also reflected a peculiar – and transitory – combination of ultra-high investments-to-GDP and tradesurplus-to-GDP ratios in China with large currentaccount deficits of the US.

CFI.co | Capital Finance International

CFI.co Columnist

Figure 4: China’s Share of Imports of Parts and Components in Exports of Merchandise. Source: (Constantinescu et al, ch. 2 in Hoekman (2015).

NEW CHINESE GROWTH PATTERN More recently, China has initiated a rebalancing toward a new growth pattern, one in which domestic consumption is to rise relative to investments and exports, while a drive toward consolidating local insertion in GVCs to move up the ladder of value added is also to take place. That rebalancing has been pointed out as one of the factors behind the recent global trade slowdown, given China’s weight in the world economy and a recent trend of import substitution as illustrated in Figure 4.

Figure 5: Global Manufacturing. Source: Institute of International Finance, “The rise of services –

Figure 5: Employment in Services. Source: Institute of International Finance, “The rise of services –

what it means for the global economy”, December 15, 2015.

While both the GVCs’ rise and growth-cumstructural-transformation – especially in China – were taking place, with corresponding impacts on the landscape of foreign trade, advanced – or mature market - economies maintained a steady evolution toward becoming service economies – a trend maintained after the GFC. Lower GDP shares of the value added in manufacturing have accompanied rising shares of employment in services (Figures 5 and 6). Both supply and demand factors explain such trends in advanced economies. On the supply side, beyond the higher pace of increases of productivity in manufacturing than in services (with correspondingly different rhythms of reduction in labour requisites), not only did the relative prices of manufactured goods fall, but a substantial part of local production was also offshored as a result of GVCs and the incorporation of cheaper labour from areas previously out of the market economy world.

CFI.co Columnist

On the demand side, one may point out both a higher income-elasticity of demand for services – reinforced by aging of the population – and to technology trends favouring software vis-àvis hardware – or intangible relative to tangible assets – as leading to an increasing weight of services in GDP and employment. Those evolutionary features of supply and demand would also be valid for emerging market and developing countries – even if, as suggested in the upper half of Figure 5, they were partially mitigated in China and other Asia/Pacific countries by sucking manufacturing activities from other emerging market and developing economies. In any case, given the state of current technological trajectories, rising shares of services throughout would imply an anti-trade bias, given a still higher trade-propensity of manufacturing. DECLINING TRADE ELASTICITY IIF (2015) goes as far as to argue that this has already brought consequences for the global business cycle, rendering it less influenced by swings in manufacturing output, with shock transmission from advanced economies increasingly taking place via trade of services among themselves and more weakly to manufacturing-dependent emerging market and developing economies. This would be one of the 16

factors behind the abrupt decline of the world trade elasticity and of the recent decoupling of growth between recovering advanced and decelerating emerging economies. World trade may well live through a new era of rise relative to GDP: ongoing technological trajectories may deepen the fragmentation and increase the tradability of services; new vintage trade agreements – including possible TPP and TTIP – are giving special attention to restrictions on trade of services. In fact, the content of services in current foreign trade transactions has already been higher than what gross trade figures display. Another question is what lies ahead in terms of growth opportunities for non-advanced economies through foreign trade given the evolution of the latter along the lines here described, one in which the factors that led to the peak trade seem to have exhausted, at least in the near future ahead. Trade has been a key driver of global growth, income convergence, and poverty reduction. Both developing countries and emerging market economies have benefited from opportunities to transfer technology from abroad and to undergo domestic structural transformation via trade integration in the last decades. One may thus understand why there has been some concern over whether the current pace and direction of world trade lead towards a lesser developmentboosting potential. The nature and height of domestic policy challenges have changed substantially in a threefold way: First, China is in a league of its own and its rebalancing-cum-upgrading will condition other emerging market and developing economies. If it lets low-skill labour-intensive manufacturing activities go, a new wave of further GVC dislocations may open opportunities for countries currently endowed with cheap and abundant labour. On the other hand, its densification of local parts of GVCs will represent a competitive challenge to medium-range manufactures produced in other middle-income countries. The net result will also depend on the leakages outward of its domestic demand as it rebalances toward a more consumption- and service-oriented economy. CFI.co | Capital Finance International

Second, the directions taken by technological trajectories and aggregate demand in advanced economies seem to point toward a broad alteration of the balance of locational advantages for production fragments, decreasing the weight of labour costs and augmenting the relevance of local availability of other complementary intangible assets. A double whammy on production and exports of non-advanced economies may take place: a partial reversal of off-shoring and a slower growth of outlets for their typical exports. Third, the bar, in terms of what it takes to countervail that double whammy – improvements of the local business environment and transaction costs, quality of economic governance and other conditions favourable to accumulation of intangible assets – has been raised. Nonetheless, provided that such bar is reached, the local provision of – embodied or disembodied - services complementary to those produced or used in advanced economies may flourish. This will be the case, e.g. of natural resource-rich countries that manage to develop related intangible assets in terms of applied-science capabilities. The run-up to peak trade was one of primarily exploring complementarities within GVCs to substitute for existing producers. The postpeak trade era may well be one of building complementarities. i ABOUT THE AUTHOR Otaviano Canuto is the executive director at the board of the International Monetary Fund (IMF) for Brazil, Cabo Verde, Dominican Republic, Ecuador, Guyana, Haiti, Nicaragua, Panama, Suriname, Timor Leste, and Trinidad and Tobago. The views expressed here are his own and do not necessarily reflect those of the IMF or any of the governments he represents. Dr Canuto has previously served as vice president, executive director and senior adviser on BRICS economies at the World Bank, as well as vice president at the Inter-American Development Bank. He has also served at the government of Brazil where he was state secretary for international affairs at the ministry of finance. He has an extensive academic background, serving as professor of economics at the University of São Paulo and University of Campinas (UNICAMP) in Brazil.

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> Nouriel Roubini:

2008 Revisited?

he question I am asked most often nowadays is this: Are we back to 2008 and another global financial crisis and recession?

My answer is a straightforward no, but that the recent episode of global financial market turmoil is likely to be more serious than any period of 18

volatility and risk-off behaviour since 2009. This is because there are now at least seven sources of global tail risk, as opposed to the single factors – the Eurozone crisis, the Federal Reserve “taper tantrum,” a possible Greek exit from the Eurozone, and a hard economic landing in China – that have fuelled volatility in recent years. CFI.co | Capital Finance International

First, worries about a hard landing in China and its likely impact on the stock market and the value of the renminbi have returned with a vengeance. While China is more likely to have a bumpy landing than a hard one, investors’ concerns have yet to be laid to rest, owing to the ongoing growth slowdown and continued capital flight.

Spring 2016 Issue

Second, emerging markets are in serious trouble. They face global headwinds such as China’s slowdown, the end of the commodity super cycle, the Fed’s exit from zero policy rates. Many are running macro imbalances, such as twin current account and fiscal deficits, and confront rising inflation and slowing growth. Most have not implemented structural reforms to boost sagging potential growth. And currency weakness increases the real value of trillions of dollars of debt built up in the last decade. Third, the Fed probably erred in exiting its zero-interest-rate policy in December. Weaker growth, lower inflation (owing to a further decline in oil prices), and tighter financial conditions (via a stronger dollar, a corrected stock market, and wider credit spreads) now threaten US growth and inflation expectations. Fourth, many simmering geopolitical risks are coming to a boil. Perhaps the most immediate source of uncertainty is the prospect of a long-term cold war – punctuated by proxy conflicts – between the Middle East’s regional powers, particularly Sunni Saudi Arabia and Shia Iran. Fifth, the decline in oil prices is triggering falls in US and global equities and spikes in credit spreads. This may now signal weak global demand – rather than rising supply – as growth in China, emerging markets, and the US slows. Weak oil prices also damage US energy producers, which comprise a large share of the US stock market, and impose credit losses and potential defaults on net energy exporting economies, their sovereigns, state-owned enterprises, and energy firms. As regulations restrict market makers from providing liquidity and absorbing market volatility, every fundamental shock becomes more severe in terms of risk-asset price corrections.

England: London

“Moreover, Britain’s exit from the EU is becoming more likely.”

Sixth, global banks are challenged by lower returns, owing to the new regulations put in place since 2008, the rise of financial technology that threatens to disrupt their already-challenged business models, the growing use of negative policy rates, rising credit losses on bad assets (energy, commodities, emerging markets, fragile European corporate borrowers), and the movement in Europe to “bail in” banks’ creditors, rather than bail them out with now-restricted state aid. Finally, the European Union and the Eurozone could be ground zero of global financial turmoil this year. European banks are challenged. The migration crisis could lead to the end of the Schengen Agreement, CFI.co | Capital Finance International

and (together with other domestic troubles) to the end of German Chancellor Angela Merkel’s government. Moreover, Britain’s exit from the EU is becoming more likely. With the Greek government and its creditors once again on a collision course, the risk of Greece’s exit may return. Populist parties of the right and the left are gaining strength throughout Europe. Thus, Europe increasingly risks disintegration. To top it all off, its neighbourhood is unsafe, with wars raging not only in the Middle East, but also – despite repeated attempts by the EU to broker peace – in Ukraine, while Russia is becoming more aggressive on Europe’s borders, from the Baltics to the Balkans. In the past, tail risks were more occasional, growth scares turned out to be just that, and the policy response was strong and effective, thereby keeping risk-off episodes brief and restoring asset prices to their previous highs (if not taking them even higher). Today, there are seven sources of potential global tail risk, and the global economy is moving from an anaemic expansion (positive growth that accelerates) to a slowdown (positive growth that decelerates), which will lead to further reduction in the price of risky assets (equities, commodities, credit) worldwide. At the same time, the policies that stopped and reversed the doom loop between the real economy and risk assets are running out of steam. The policy mix is suboptimal, owing to excessive reliance on monetary rather than fiscal policy. Indeed, monetary policies are becoming increasingly unconventional, reflected in the move by several central banks to negative real policy rates; and such unconventional policies risk doing more harm than good as they hurt the profitability of banks and other financial firms. Two dismal months for financial markets may give way in March to a relief rally for assets such as global equities, as some key central banks (the People’s Bank of China, the European Central Bank, and the Bank of Japan) ease more, while others (the Fed and the Bank of England) will remain on hold for longer. But repeated eruptions from some of the seven sources of global tail risk will make the rest of this year – unlike the previous seven – a bad one for risky assets and anaemic for global growth. i ABOUT THE AUTHOR Nouriel Roubini is Chairman of Roubini Global Economics and Professor of Economics at the Stern School of Business, NYU.

> Mohamed A El-Erian:

Is the Perfect Storm Over for Markets?

arlier this year, financial markets around the world were forced to navigate a perfect storm â&#x20AC;&#x201C; a violent disruption fuelled by an unusual amalgamation of smaller disturbances. Financial volatility rose, unsettling investors; stocks went on a rollercoaster ride, ending substantially lower; government bond yields plummeted, and lenders found themselves in the unusual 20

position of having to pay for the privilege of holding an even bigger amount of government debt (almost one-third of the total). The longer these disturbances persisted, the greater the threat to a global economy already challenged by structural weaknesses, income and wealth inequalities, pockets of excessive indebtedness, deficient aggregate demand, CFI.co | Capital Finance International

and insufficient policy coordination. And while relative calm has returned to financial markets, the three causes of volatility are yet to dissipate in any meaningful sense. First, mounting signs of economic weakness in China and a series of uncharacteristic policy stumbles there still raise concerns about the overall health of the global economy. Given that

Spring 2016 Issue

China is the second largest economy in the world, it didn’t take long for European officials to reduce their own growth projections, and for the International Monetary Fund to revise downward its expectations for global growth.

term challenge of allowing markets to re-price assets to fundamentals in a relatively orderly fashion – and, critically, without causing economic damage that would then blow back into even more unsettled finance – remains.

Second, there are still legitimate doubts about the effectiveness of central banks, the one group of policymaking institutions that has been actively engaged in supporting sustainable economic growth. In the United States, doubts focus on the willingness of the Federal Reserve to remain unconventional; elsewhere, however, doubts about effectiveness concern central banks’ ability to formulate, communicate, and implement policy decisions. For example, rather than viewing monetary authorities’ activism as an encouraging sign of policy effectiveness, markets have been alarmed by the Bank of Japan’s decision to follow the European Central Bank in taking policy rates even deeper into negative territory.

Indeed, the more frequent the bouts of financial volatility in the months to come, the greater the risk that it will lead consumers to become more cautious about spending, and prompt companies to postpone even more of their investment in new plant and equipment. And, if this were to persist and spread, even the US – a relatively healthy economy – could be forced to revise downward its expectations for economic growth and corporate earnings.

Third, the system has lost some important safety belts, which have yet to be restored. There are fewer pockets of “patient capital” stepping in to buy when flightier investors are rushing to the exit. In the oil market, the oncepowerful OPEC cartel has stepped back from the role of swing producer on the downside – that is, cutting output in order to stop a disorderly price collapse. Each of these three factors alone would have attracted the attention of traders and investors around the world. Occurring simultaneously, they unsettled markets. Intra-day volatility rose in virtually every segment of global financial markets; adverse price contagion became more common as more vulnerable entities contaminated the stronger ones; and asset-market correlations were rendered less stable.

“In the wake of this volatility, markets have recently regained a more stable footing.”

All this came in the context of a US economy that continues to be a powerful engine of job creation. But markets were not voting on the most recent economic developments in the US. Instead, they were being forced to judge the sustainability of financial asset prices that, boosted by liquidity, had notably decoupled from underlying economic fundamentals. In the wake of this volatility, markets have recently regained a more stable footing. Yet, the fundamental longer-

CFI.co | Capital Finance International

Durably stabilising today’s markets is important, especially for a system that has already assumed too much financial risk. It requires a policy handoff instigated by more responsible behaviour on the part of politicians on both sides of the Atlantic – one that undertakes the much-needed transition from over-reliance on central banks to a more comprehensive policy approach that deals with the economy’s trifecta of structural, demand, and debt impediments (and does so in the context of greater global policy coordination). Should this handoff occur, its beneficial impact in terms of delivering inclusive growth and genuine global stability would be turbocharged by the productive deployment of cash sitting on companies’ balance sheets, and by exciting technological innovations that began as firm/sector specific but are now having economy-wide effects. If the handoff fails, the financial volatility experienced earlier this year will not only return; it could also turn out to have been a prologue for a notable risk of recession, greater inequality, and enduring financial instability. i

ABOUT THE AUTHOR Mohamed A El-Erian, chief economic adviser at Allianz, is chairman of US President Barack Obama’s Global Development Council and author of the forthcoming book The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.

> Joseph E Stiglitz and Hamid Rashid:

Closing Developing Countriesâ&#x20AC;&#x2122; Capital Drain

eveloping countries are bracing for a major slowdown this year. According to the UN report World Economic Situation and Prospects 2016, their growth averaged only 3.8% in 2015 â&#x20AC;&#x201C; the lowest rate since the global financial crisis in 2009 and matched in this century only by the recessionary year of 2001. And what is important to bear in mind is that the slowdown in China and the deep recessions in the Russian Federation 22

and Brazil only explain part of the broad falloff in growth. True, falling demand for natural resources in China (which accounts for nearly half of global demand for base metals) has had a lot to do with the sharp declines in these prices, which have hit many developing and emerging economies in Latin America and Africa hard. Indeed, the UN report lists 29 economies that are likely to CFI.co | Capital Finance International

be badly affected by Chinaâ&#x20AC;&#x2122;s slowdown. And the collapse of oil prices by more than 60% since July 2014 has undermined the growth prospects of oil exporters. The real worry, however, is not just falling commodity prices, but also massive capital outflows. During 2009-2014, developing countries collectively received a net capital inflow of $2.2 trillion, partly owing to quantitative

Spring 2016 Issue

easing in advanced economies, which pushed interest rates there to near zero. The search for higher yields drove investors and speculators to developing countries, where the inflows increased leverage, propped up equity prices, and in some cases supported a commodity price boom. Market capitalisation in the Mumbai, Johannesburg, São Paulo, and Shanghai stock exchanges, for example, nearly tripled in the years following the financial crisis. Equity markets in other developing countries also witnessed similar dramatic increases during this period. But the capital flows are now reversing, turning negative for the first time since 2006, with net outflows from developing countries in 2015 exceeding $600 billion – more than one-quarter of the inflows they received during the previous six years. The largest outflows have been through banking channels, with international banks reducing their gross credit exposures to developing countries by more than $800 billion in 2015. Capital outflows of this magnitude are likely to have myriad effects: drying up liquidity, increasing the costs of borrowing and debt service, weakening currencies, depleting reserves, and leading to decreases in equity and other asset prices. There will be large knock-on effects on the real economy, including severe damage to developing countries’ growth prospects. This is not the first time that developing countries have faced the challenges of managing pro-cyclical hot capital, but the magnitudes this time are overwhelming. During the Asian financial crisis, net outflows from the East Asian economies were only $12 billion in 1997. Of course, the East Asian economies today are better able to withstand such massive outflows, given their accumulation of international reserves since the financial crisis in 1997. Indeed, the global stock of reserves has more than tripled since the Asian financial crisis. China, for example, used nearly $500 billion of its reserves in 2015 to fight capital outflows and prevent the renminbi’s sharp depreciation; but it still has more than $3 trillion in reserves. The stockpile of reserves may partly explain why huge outflows have not triggered a full-blown financial crisis in developing countries. But not all countries are so fortunate to have a large arsenal.

“Falling demand for natural resources in China has had a lot to do with the sharp declines in these prices.”

Once again, advocates of free mobility for destabilising short-term capital flows are being proven wrong. Many emerging markets recognized the dangers and tried to reduce capital inflows. South Korea, for example, has been using a series of macro-prudential measures since 2010, aimed at moderating pro-cyclical cross-border banking-sector liabilities. The measures taken were only partially successful, as the data above show. The question is, what should they do now? Corporate sectors in developing countries, having increased their leverage with capital inflows during CFI.co | Capital Finance International

the post-2008 period, are particularly vulnerable. Capital outflows will adversely affect their equity prices, push up their debt-to-equity ratios, and increase the likelihood of defaults. The problem is especially severe in commodity-exporting developing economies, where firms borrowed extensively, expecting high commodity prices to persist. Many developing-country governments failed to learn the lesson of earlier crises, which should have prompted regulations and taxes restricting and discouraging foreign-currency exposures. Now governments need to take quick action to avoid becoming liable for these exposures. Expedited debtor-friendly bankruptcy procedures could ensure quick restructuring and provide a framework for renegotiating debts. Developing-country governments should also encourage the conversion of such debts to GDPlinked or other types of indexed bonds. Those with high levels of foreign debt but with reserves should also consider buying back their sovereign debt in the international capital market, taking advantage of falling bond prices. While reserves may provide some cushion for minimising the adverse effects of capital outflows, in most cases they will not be sufficient. Developing countries should resist the temptation of raising interest rates to stem capital outflows. Historically, interest-rate hikes have had little effect. In fact, because they hurt economic growth, further reducing countries’ ability to service external debts, higher interest rates can be counterproductive. Macro-prudential measures can discourage or delay capital outflows, but such measures, too, may be insufficient. In some cases, it may be necessary to introduce selective, targeted, and time-bound capital controls to stem outflows, especially outflows through banking channels. This would entail, for example, restricting capital transfers between parent banks in developed countries and their subsidiaries or branches in developing countries. Following the successful Malaysian example in 1997, developing countries could also temporarily suspend all capital withdrawals to stabilize capital flows and exchange rates. This is perhaps the only recourse for many developing countries to avoid a catastrophic financial crisis. It is important that they act soon. i

The views expressed here do not necessarily represent the views of the United Nations or its member states. ABOUT THE AUTHORS Joseph E Stiglitz, a Nobel laureate in Economics, is university professor at Columbia University and chief economist of the Roosevelt Institute. Hamid Rashid is chief of Global Economic Monitoring at the United Nations Department of Economic and Social Affairs.

> Anders Åslund:

The Submerging Market Threat

t is time to put the rise of the emerging economies in perspective. The rapid economic growth in much of the developing world since the beginning of the century was fuelled by a commodity boom and an overextension of credit. But, because the emerging-market boom was not accompanied by sufficient structural reforms, it was not sustainable. Today, most of the major emerging economies have experienced a severe reversal of fortune. 24

Russia and Brazil have plunged into severe crises, with double-digit inflation accompanying a 4% contraction in GDP last year. South Africa is barely growing. China’s phenomenal rate of expansion has slowed to below 7%. Unsurprisingly, Goldman Sachs has closed its money-losing BRIC fund for investment in Brazil, Russia, India, and China. Indeed, the future of the BRICS (including South Africa) – and that of other emerging markets – looks gloomy. Outside of Asia, most developing CFI.co | Capital Finance International

economies are principally commodity exporters, and thus are highly exposed to price shocks. Plunging oil prices have cut the value of the Russian rouble by more than half against the US dollar, and further declines appear likely – especially if the US Federal Reserve continues to hike interest rates. Commodity prices are likely to stay low for one or two decades, as they did in the 1980s and 1990s. When it comes to oil, for example, shale gas, tight oil, liquefied natural gas, and

Spring 2016 Issue

increasingly competitive solar and wind energy are boosting energy supply, even as a decade of high prices has spurred conservation and reduced demand. The commodity crunch is likely to prove painful to people in emerging markets, who often measure their income in US dollars. As exchange rates fall, they will quickly feel much poorer. Governments will suffer, too, as their foreign debt – boosted by fiscal and monetary expansion that yielded little growth – becomes much more burdensome, while the export stimulus from lower exchange rates will be small, owing to the absence of new capacity outside the commodity sectors. As countries come under pressure to make payments, multiple emerging-market debt crises are likely. In the short term, Brazil arouses the most worry, given its large public debt and its vast budget deficit. In the medium term, however, China appears even more frightening. As a rule of thumb, an emerging economy’s total private- and public-sector debt should not exceed 100% of GDP. China’s total debt is now more than 250% of GDP. The BRICS countries’ critical shortcoming is poor governance. On its corruption perception index of 175 countries, Transparency International ranks South Africa 61st, Brazil and India 76th, China 83rd, and Russia 119th. Poor governance limits a country’s ability to create lasting wealth and productive capacity – even if the shortcomings become evident and damaging only when booms turn to busts. As Warren Buffet has put it, “You only find out who is swimming naked when the tide goes out.” To combat corruption effectively, people need to oust corrupt leaders, which is why democracy is vital. The regime changes in Ukraine and Argentina, and the opposition’s victory in Venezuela’s recent parliamentary election, are harbingers of what is to come. Brazil may be next.

“Unsurprisingly, Goldman Sachs has closed its money-losing BRIC fund for investment in Brazil, Russia, India, and China.”

The emerging markets may rise again, if and when improved governance and structural reforms are implemented to boost potential growth. But that will take time. We should not be surprised to see two decades of slow global growth. The West cannot afford to be complacent. After having focused too much on demand management, Europe should be trying to reduce the fiscal and regulatory burden of the state, so that its economies can start CFI.co | Capital Finance International

growing again. It should also open up stunted markets for labour, services, capital, and digital products. The West needs to work together to set global standards while it still can. Democracy, the rule of law, and market-based economies are all worth fighting for. Russia’s aggression in Ukraine and the wars in North Africa and the Middle East have demonstrated why NATO should be strengthened, and that Europe must become serious about defending itself – rather than simply continuing to depend on the United States. In coordinating Western sanctions against Russia, the G7 has already achieved renewed significance. This should be followed by efforts to manage the coming stagnation. The Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership are both important initiatives in this regard. Western-led organisations and institutional arrangements will become especially important as international organisations struggle to remain relevant. The United Nations, in particular, will likely be crippled by Russian and Chinese vetoes in the Security Council. Only the International Monetary Fund can be expected to rise in prominence, as major emerging economies – most likely Venezuela, Argentina, and Brazil – end up as its wards. Economics aside, China and Russia are likely to pose the biggest challenge. These two large emerging countries are still led by authoritarian governments, headed by ruling elites who – given how much wealth they have amassed – may be the most corrupt in history. As they come under pressure, their transformations are unlikely to be peaceful. The Kremlin has already shown, with its wars in Ukraine and Syria, that it is ready to counter domestic malaise with external aggression. That is unlikely to change unless something is done to stop it. The fall of the emerging economies could have a far more lasting impact than their rise. i

ABOUT THE AUTHOR Anders Åslund is a senior fellow at the Atlantic Council in Washington.

> Tor Svensson:

Something’s Gotta Give – Somewhere CFI.co Columnist

rowth has slowed across both developed and emerging economies and looks set to diminish even further. The International Monetary Fund (IMF) forecasts global GDP to move ahead by 3.4% in 2016. The Organisation for Economic Cooperation and Development (OECD) is more bearish and expects global growth to average out at barely 3% - well below the historic average of 3.75%. “Global growth has practically flat-lined. Recent data has disappointed and indicators point to slower growth in major economies despite the boost provided by low oil prices and almost 26

interest-free money,” surmises OECD Chief Economist Catherine L Mann. “Given the significant downside risks posed by financial sector volatility and emerging market debt, a stronger collective policy approach is urgently needed, focusing on a greater use of fiscal and pro-growth structural policies, to strengthen growth and reduce financial risks.” Ms Mann may benefit from a closer look at the policy initiatives deployed and considered by the European Central Bank (ECB). Emerging economies that in the recent past have contributed to global growth have moved CFI.co | Capital Finance International

offline. Former BRICS stars Brazil and Russia resemble basket cases. Both countries fell prey to the end of the commodities super cycle and poor governance. Meanwhile, China is quickly becoming – pun intended – somewhat of a red dwarf burdened by bad debts that threaten to implode the country’s house of cards – double pun intended – financial system. Frontier markets in Southeast Asia are still thriving – for now. Elsewhere, countries such as Nigeria are trying to undo the ravages left by years – if not decades – of poor governance and the attendant lack of public investment in infrastructure. Nigeria’s new government seems

Winter 2015 - 2016 Issue

at an anaemic 2.1%. For all his slashing of expenditure, Chancellor of the Exchequer George Osborne still manages to keep the budget deficit up at 3.6% of GDP, outdoing the French and Spanish, and drawing perilously close to the Greek. Whilst benefits are being curtailed, immigrants blamed, and taxes on work-derived income increased – the latter notwithstanding spin to the contrary – the UK remains afflicted with the Anglophone Disease of double deficits (trade & current account). As such it is in the company of Australia, New Zealand, the United States, South Africa, and – indeed – Canada: countries whose economies, while vibrant, do not manage to pay their own way in the globalised world. Central bankers such as Mike Carney of the Bank of England and Mario Draghi of the European Central Bank (ECB) are aware that fiscal stimulus is required to reignite economic fires. Monetary policy alone – i.e. without structural change and public investment – cannot be expected to deliver a comprehensive solution or create the number of jobs needed to drive down unemployment. Advocates of austerity point to the persistence budget deficits. They justify their fetish by arguing that the UK is not able to meet its interest payments without resorting to the printing of money – skewing the debt-to-GDP ratio in the process. While business tax cuts have spurred employment, Mr Osborne now fears near full employment could force an interest rate hike, worsening his budget woes. Perhaps the government maintains a hidden agenda that seeks to alleviate wage pressures by importing cheap labour via immigration. Moreover, the UK already now pays about three times as much interest on its 10-year bond (1.54%) as the average Eurozone country does (0.48%) – and almost ten times more than The Netherlands and Germany (0.16%). One can hardly posit that, across the pond, the US is running a tight fiscal policy with an annual budget deficit growing by about $100 billion to more than $500 billion this year alone – adding to the now $19 trillion federal debt. Try shaking a stick at that much debt.

The UK remains stuck in its austerity-driven approach to economics. After an initial growth spurt, best ascribed to (foreign) investment dynamics, Great Britain’s economy is expected to attain 2% growth in 2016 – hardly surging ahead – with next year’s forecast coming in

Thus, one could argue that Western governments promote unemployment to keep wage inflation – and thus interest rates – down. The real driver of inflation is a tight labour market. Imagine for a moment the European and US economies in a state of near full employment. In such a scenario, wage inflation would push interest rates up. For the US that could easily add a trillion dollars to its debt servicing obligations. No spending cuts can possibly compensate for that. Higher taxes hardly offer a solution as that stifles economic growth and – conversely – lower tax receipts. It’s a lesson learned most recently by Greece. Let’s not forget that public expenditure, applied CFI.co | Capital Finance International

It is imperative for governments to keep interest rates down. That helps explain QE and fiscal tightening. So far, the good news for governments is that low inflation allows for more spending due to the windfall produced by low interest rates. Low and even negative rates mask the potential cost of servicing the mountains of public debt. The bad news is delivered to the unemployed. Those that still have jobs see their purchasing power erode. Something’s gotta give. Foreign competition – from emerging and frontier economies with low labour cost – has also contributed to keep wages flat or declining in real terms. Free trade is but another element of the ad hoc conspiracy against the weakest link – the tax-paying working stiff. Come to the rescue the European Union. The Juncker Plan envisions the European Investment Bank (EIB) underwriting strategic investments – including through FDI from outside the EU – by offering risk mitigation. The plan aims to give a welcome boost to the economy in the form of encouraging investments in large-scale infrastructure projects. Moreover, the EIB’s European Investment Fund (EIF) supports small- and medium-sized enterprises (SMEs) and picks up the slack left by the commercial banks’ reluctance to provide financing to SMEs and start-ups. The euro is often criticised for creating unemployment. However, the alternative – European countries outdoing each other in gaining a competitive edge via devaluation - is hardly attractive. The euro – now a global reserve currency – has managed to keep interest rates low. The budgets of several Mediterranean countries could not be sustained without those low rates. Traditionally, interest rates are eased to boost growth and employment. However, it is not clear how the causal relationship, and dynamic interdependence, between unemployment and low interest rates functions: is unemployment used as a policy lever to force lower public debt servicing costs, as a way of perpetuating deficit spending? With job creation far down on the agenda of most politicians, one wonders. Besides the Juncker Plan, precious little is being done to address unemployment in the Eurozone. That is not for a lack of available policy options. Meanwhile, austerity still tops the agenda. Is that just poor judgement or are policymakers keeping focused on the debts accumulated on their watch and the cost of servicing all those IOUs? i

ABOUT THE AUTHOR Tor Svensson is the Chairman of Capital Finance International. 27

CFI.co Columnist

determined to tackle corruption and tax evasion. However, its efforts are being undermined by the depressed oil price and civil strife. Restrictions on foreign exchange remittances discourage foreign investors and impact the cost of living. The government does receive points for addressing power shortages, increasing petroleum refining capacity, and supporting agriculture.

wisely, carries a positive multiplier effect that reverberates throughout the economy and often provides a benefit of up to three times the original outlay. The flipside is also true: austerity dampens growth.

> Ann Low, US Department of State:

Good Corporate Governance is Good Business OECD Guidelines on Corporate Governance of State-Owned Enterprises

ver the past decade, cross-border trade and investment by state-owned enterprises (SOEs) has surged. According to the OECD, whereas in 2005, there were only three SOEs in the Fortune Global 50 list of the largest companies in the world, in 2013, there were 11. This came about mostly from the growth of emerging market economies, where SOEs are often dominant economic actors and are now seeking to expand abroad.

“According to the OECD, whereas in 2005, there were only three SOEs in the Fortune Global 50 list of the largest companies in the world, in 2013, there were 11.”

SOEs may suffer from undue hands-on and politically motivated ownership interference, leading to unclear lines of responsibility, a lack of accountability, and efficiency losses in the corporate operations. On the other hand, a lack of oversight due to totally passive or distant ownership by the state can weaken the incentives of SOEs and their staff to perform in the best interest of the enterprise and the general public who constitute its ultimate shareholders. This can raise the Mlikelihood ay 2015 of self-serving behaviour by corporate insiders. As a result, SOEs may be more likely than private corporations to fall prey to corruption and mismanagement.

SOEs are frequently in the news - and too often, the news is bad. From allegations of graft against 18 For example, in 2001, China launched its Go Petrobras in Brazil, to concerns about lack of Global Strategy, which significantly increased transparent reporting by Indian state-owned foreign investment by its SOEs. However, banks, to reports of asset misallocation and increased international activities by SOEs irregular practices by a number of European have raised questions BY about government INVESTMENT SOUTH TNCs CONTINUES GROW: electricity companies, someTO intrinsic problems This can change. In 2015, the Organization influence, potential trade distortions, and unfair within the sector LARGEST seem evident. SOEs pose DEVELOPING ASIA BECAME THE WORLDS' INVESTOR for Economic Cooperation and Development competition. In their home countries, SOEs distinct corporate governance challenges REGION (OECD) Working Party on State Ownership and are often exempt from laws and regulations because their management may be protected Privatization Practices – which comprises the that govern private enterprises, and may have from two disciplining factors that are considered 34 members of the OECD, 13 non-members, advantageous access to land, government essential for policing management in private HIGHLIGHTS including G20 countries such as Argentina, procurement opportunities, or borrowing. sector corporations, i.e. the possibility of takeover Brazil, China and South Africa, and an the possibility of bankruptcy. In 2014,Such transnational (TNCs) from and developing economies alone invested almost halffrom a the World Bank – completed a observer advantages, corporations especially preferential access trillion US dollar abroad a 30%asincrease foreign two-year long negotiation to update the 2005 to financing, may be − perceived conferringfrom the previous year. Their share in global COMPLEX CHAIN OF AGENTS Guidelines on Corporate Governance a competitive advantage SOEs inoftheir direct investment (FDI) reachedtoa record 36%, up from 12% in 2007, the yeargovernance prior to theOECD financial More fundamentally, corporate of State-Owned Enterprises. The revision international operations. The newly updated crisis (figure 1). difficulties derive from the fact that the process, initiated in 2013, involved extensive OECD Guidelines on Corporate Governance of accountability for the performance of consultations with governments, business and State-Owned Enterprises provide a reference SOEs involves a and complex of agents 1. Developing FDI outflows theirchain share labour representatives, and civil societies from point Figure to address a number ofeconomies: challenges (management, board, ownership entities, total world 2000-2014 across the world. associated with SOEs incompeting in outflows, the ministries, the government), without clearly and (Billions of US dollars and per cent) marketplace. easily identifiable principals. On the one hand, The revised guidelines are recognised globally as $ billion % the principal guidance for corporate governance 600 40 of SOEs. The guidelines are compatible with the OECD Principles of Corporate Governance 35 on which they are based. They bring to the SOE 500 sector a high level of corporate governance for 30 commercially-oriented SOEs similar to that 400 required of publicly-traded companies.

No. 19

300 20 200

100

2000

2001

2002

2003

2004

2005

2006

2007

Developing economies

2008

2009

2010

2011

2012

2013

2014

Share in world FDI outflows

Figure 1: Developing economies - FDI outflows and their share in total world outflows, 2000-2014 (Billions of US dollars and per cent). Source: ©UNCTAD. Excluding Caribbean offshore financial centres. Source: UNCTAD, Global Investment Trends Monitor, No. 19, May 2015. Note:Note: Excluding Caribbean offshore financial centres.

The guidelines provide recommendations to encourage efficiency, transparency and accountability in the SOE sector. They call on SOEs to be leaders in responsible business conduct, and they empower citizens to ask their governments for clear statements explaining the purpose, costs and benefits of stateownership. The guidelines are addressed to government ownership entities, which exercise the shareholder function, but they also should be read by board members and managers of SOEs, as well as advocacy groups promoting good governance.

x Developing investor region with US$440 28 Asia has become, for the first time, the world's CFI.co largest | Capital Finance International billion invested, followed by North America (US$390 billion) and Europe (US$286 billion).

obal , the bal

p he hinese

, have d 114 res ed world,

anies

Figure 1 SOEs in the Fortune Global 50

Spring 2016 Issue

Global 500 SOE revenues (US$bn)

SOEs as % of Global 500 (based on number of companies)

8,000

25%

7,000 20%

15%

5,000

7% 10%

7% 6% 5% 3% 3%

4,000

3,000

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12%

14% 15%

2,000 1,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Rest of the world

6,000

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China Figure 2: SOEs in the Fortune Global 50.as Note: SOEs defined having 50% Source: or more government ownership. PwC analysis, Note: SOEs defined having 50%asor

Source: Pwc, “State-owned enterprises: Catalysts for public value creation?” April 2015.

Fortune

more government ownership

SOE REFORMS control. They apply to SOEs where the government a In the recent past a number of OECD countries exercises control, which can be the case even rityand Asian economies, including China, have when the State is a minority shareholder. The Figure SOEstheir contribution Global 500 over time by region sought to2 reform SOE sectors, orto areFortune in the guidelines are generally not intended to apply ed processes of doing so. Many cite the guidelines to entities or activities whose primary purpose 8 s. Revenue as a point of inspiration. Notably, the government is to carry out a public policy function, even if (US$trillion) of the Republic of Korea has recently mandated the entities concerned have the legal form of an that 6 the revised guidelines be implemented on a enterprise whole-of-government basis. A number of OECD 2. There is a new chapter about defining and nd members are further in the process of publicizing communicating the rationales for state-ownership e the5 guidelines widely to encourage adherence of enterprises. The guidelines recommend that globally, and several countries are translating states “carefully evaluate and disclose the hile them into local languages. objectives that justify state ownership and subject 4 these to a recurrent review.” Governments should ging Implementation of the 2015 guidelines can help “consider whether a more efficient allocation ensure that cross-border investments by SOEs of resources to benefit the public could be 3 014 do not distort markets, and that SOEs effectively achieved through an alternative ownership or and contribute to their own country’s economic taxation structure.” Governments should use the 2 growth. Where implemented, the guidelines will goal of maximising value for society through an help level the playing field between SOEs and efficient allocation of resources as the yard stick e and private enterprises by increasing transparency and for measuring an SOE’s effectiveness. Any public 1 accountability. They may reduce market volatility policy objectives that SOEs are required to achieve caused by inadequate corporate governance and should be clearly mandated and disclosed. insufficient disclosure. Finally, they will empower 3. The previous Chapter 1 of the 2005 ing 0 2005 giving 2006 them 2007 2009to 2010 2011 2012 2013 chapter 2014 on SOEs stakeholders, more2008 information guidelines became a broader OE hold their governments accountable and judge in the marketplace to address competition ASIA Comprises Australia, India, Indonesia, Japan, whether state-ownership of a particular enterprise in greater detail. Addressing the situation (except China) Malaysia, Russia, Saudi Arabia, South Korea, is an efficient allocation of resources and Thailand, whether and where SOEsArab Emirates. compete with other firms in the Taiwan, United he it achieves other desirable social goals. marketplace, it includes practical guidance on CHINA Comprises the People’s Republic of China. n the cost and conditions of SOE financing, rateCENTRAL & Comprises Brazil, Colombia, Mexico, and public procurement The new OECD guidelines bring four fundamental of-return requirements, and and Venezuela. SOUTH changes to theAMERICA original 2005 guidelines: procedures. 1. There is aAMERICA new introductory sectionthe onUnited 4. Finally, OECD Working Party on State NORTH Comprises Statesthe of America. Applicability and Definitions, Comprises which includes and Privatization EUROPE Finland,Ownership France, Germany, Italy, Practices brought a broad definition of SOEs. For the purpose of responsible business conduct into the guidelines Netherlands, Norway, Sweden, and the the guidelines, an SOE is anyUnited Kingdom. corporate entity and recommended SOEs adhere to international recognised by national laws as an enterprise standards and best practices, such as the OECD and in which the state exercises ownership. The Guidelines for Multinational Enterprises, and the guidelines distinguish between ownership and UN Guiding Principles on Business and Human re government ownership

SOEs in OECD and Partner Countries, OECD Publishing.

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hip stakes from central government. These SOEs were classified into: majority-owned listed minority-owned listed companies, and statutory and quasi corporations. Listed SOEs (both

Rights. New features include a recommendation to eliminate political donations by SOEs, clearer language on disclosure standards and board practices, strengthened text on public-private partnerships and the management and disclosure of related risks, and stronger text on corporate ethics and anti-corruption. The revised OECD Guidelines on Corporate Governance of SOEs, along with other OECD instruments, present key points on efficient allocation of resources, fair competition in the marketplace, and responsible business conduct that governments are encouraged to incorporate in their SOE reform efforts. Adherence to the OECD guidelines is important since they provide the underpinning for open markets and fair competition, where all well-run businesses can succeed. The United States, the OECD Working Party on State Ownership and Privatization Practices, the OECD, the Business and Industry Advisory Committee to the OECD (BIAC), and the Trade Union Advisory Committee to the OECD (TUAC) join together to encourage all governments, SOE board members, and managers of SOEs to read the guidelines and apply them. Good corporate governance is good business. i

To read the guidelines, visit: www.oecd.org/daf/ca/soemarket.htm References availabe online at www.cfi.co

ABOUT THE AUTHOR Ann Low is Deputy Director of the Office of Investment Affairs at the U.S. Department of State, and Vice Chair of the OECD Working Party on State-Ownership and Privatization Practices. She led the U.S. team negotiating the OECD Guidelines on Corporate Governance of StateOwned Enterprises.

> Evan Harvey, Nasdaq:

Where the Market Stands The stock exchange industry has been increasingly active in advocating for smart and strategic disclosure of environmental, social, and corporate governance (ESG) performance data. Investors use these non-financial metrics to evaluate the health, resilience, and sustainability of public companies. And these are no longer the niche investors—those exclusively dedicated to socially responsible investing (SRI) or impact investing. This is common practice at the largest and most diverse investment firms in the world.

p until recently, many investors would examine companies for ESG red flags: dependency on fossil fuels, conflict minerals in the supply chain, doing business in corrupt markets, and so on. Some investors screened out alcohol, tobacco, and firearms companies as a matter of course. But the trend has turned towards an inclusionary – or positive screening – model. In theory, this method can mitigate risk and generate alpha. According to a 2015 report from UBS and the Sustainable Accounting Standards Board (SASB), intangible assets have become the real drivers of company valuation. Fluid dynamics, such as brand value, reputation, health and safety controls, are the necessary components of an investment algorithm. Asset managers believe that sustainability metrics in particular can increase operational efficiency, create more value, and boost brand equity.

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The audience for this data goes beyond investors. Regulators, index providers, credit rating agencies, and even consumers are asking more questions, digging deeper into the operational efficiency of corporations. Stock exchanges are, in some very fundamental ways, the only institutions that intersect with all of these stakeholder groups – and they, too, have jumped into the fray. THE STATE OF THE INDUSTRY The World Federation of Exchanges (WFE),

“According to a 2015 report from UBS and the Sustainable Accounting Standards Board (SASB), intangible assets have become the real drivers of company valuation.” as part of its ongoing commitment to explore sustainable business practices and provide guidance to exchange members, conducts an annual survey on this topic. The most recent data (2015) was provided by 56 stock exchanges, which represents 93% of WFE members and an overwhelming majority of all the exchanges currently operating around the world. Geographically, the survey respondents represented EMEA (43%), Asia Pacific (37%), and the Americas (20%). See the table below for a complete list. Since stock exchanges are diverse in structure and purpose, it is useful to consider the following: 38% of the exchanges listed above are themselves publically listed companies (on their own exchange); 16% are demutualised entities; and 14% are private limited companies, almost exclusively owned by their members.

When asked if they had ever received specific inquiries from investors on sustainability issues, 22 exchanges answered affirmatively. In response to this result, the WFE urged member exchanges, “to respond to this heightened investor awareness of sustainability issues by ensuring the stability, fairness, and transparency of their markets and at the same time nurture investor confidence by the provision of information.” This dynamic was central to the survey, in addition to the immediacy and acknowledgement of the perils of climate change. SUSTAINABILITY DISCLOSURE Many exchanges (82%) had already been engaged in some kind of sustainability-related initiative or event at the time of the survey. While most of this activity was concentrated at the larger end of the exchange spectrum, 59% of medium-sized exchanges and 51% of small exchanges concurred. Survey authors concluded that, “exchanges feel they have an important role to play in promoting and improving transparency on global capital markets.” But when you look more closely at specific exchange practices – such as the prevalence of a listing rule or guideline related to ESG disclosure – the results are mixed. Most exchanges enforce corporate governance requirements for their listed companies, but very few go further than that. Only six exchanges had their own ESGrelated listing rules on the books at the time of the survey. This number has since grown to

“It is clear from our analysis of the survey results that many exchanges are eager to learn more about – and play a role in the promotion of – sustainability and transparency on ESG issues.” 30

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Winter 2015 - 2016 Issue

Table 1 EMEA (24) Abu Dhabi Securities Exchange Amman Stock Exchange Athens Exchange BME Spanish Exchange Borsa Istanbul Bourse de Luxembourg Cyprus Stock Exchange Deutsche Börse Dubai Financial Market Irish Stock Exchange Johannesburg Stock Exchange Kazakhstan Stock Exchange Malta Stock Exchange Moscow Exchange Muscat Securities Exchange Oslo Børs Qatar Stock Exchange Saudi Stock Exchange (Tadawul)

APAC (21) Australian Securities Exchange BSE Limited Bursa Malaysia China Financial Futures Exchange Colombo Stock Exchange GreTai Securities Market HoChiMinh Stock Exchange Hong Kong Exchanges and Clearing Indonesia Stock Exchange Japan Exchange Group Korea Exchange National Stock Exchange of India NZX Limited Shanghai Securities Exchange Shanghai Futures Exchange Shenzhen Stock Exchange Singapore Exchange Stock Exchange of Thailand Taiwan Futures Exchange (Taifex) Taiwan Stock Exchange Zhengzhou Commodity Exchange

Americas (11) Bermuda Stock Exchange BM&FBOVESPA Bolsa de Comercio de Buenos Aires Bolsa de Comercio de Santiago Bolsa de Valores de Colombia Bolsa Mexicana de Valores CBOE Holdings, Inc. CME Group Intercontinental Exchange, Inc. Nasdaq

Table 1: Survey Participants Organization CME Group Johannesburg Stock Exchange BM&FBOVESPA Shenzhen Stock Exchange BME Spanish Exchanges Intercontinental Exchange Indonesia Stock Exchange Korea Exchange The Egyptian Exchange Nasdaq Taiwan Stock Exchange Bolsa Mexicana de Valores Deutsche Börse AG Japan Exchange Group BSE Limited Shanghai Stock Exchange Bourse de Luxembourg Qatar Stock Exchange Borsa Istanbul TMX Group SIX Swiss Exchange Wiener Börse

Index Name Dow Jones Sustainability indices JSE SRI Index Corporate Sustainability Index (ISE) Taida environmental index FTSE4Good IBEX NYSE Bloomberg Clean Energy Indices, Others SRI - KEHATI Index SRI Index S&P/EGX ESG Green Family Taiwan RAFI® EMP 99 Index, Taiwan HC 100 Index IPC Sustentable STOXX Global ESG Leaders Indices S&P/TOPIX 150 Carbon Efficient Index S&P BSE Carbonex and S&P BSE Greenex SSE Environmental Protection Industry Index Lux RI Fund Index QE Al Rayan Islamic Index BIST Sustainability Index S&P/TSX 60 ESG Index SXI Sustainability 25 Index VÖNIX and CEERIUS

Launch Date 1999 2004 2005 2007 2008 2008 2009 2009 2010 2010 2010 & 2014 2011 2011 2011 2012 2012 2013 2013 2014 2014 2014 N/A

Companies 1,000 82 40 40 Various 25 Stocks 70 30 50 99/100 28 339 150 40 20 18 15 60 25 N/A

Table 2: ESG Indexes

ten exchanges. Another 26 have some related sustainability guidance, mostly driven by market regulators or local lawmakers, but most of those are voluntary disclosures. And it still leaves 24 exchanges with no rules and no explicit guidance for listed companies related to sustainability. Even the most progressive exchanges are not likely to be stewards of this corporate disclosure data. Most exchanges (84%) counsel public disclosure of the required data, either in part or in full. The survey also highlights the value of a “comply or explain” rationale; BM&FBOVESPA (Brazil) and the Johannesburg Stock Exchange both leverage this approach. It requires companies to either disclose specific metrics – GhG emissions, for example – or publish a reasonable rationale for not doing so.

exchanges are eager to learn more about – and play a role in the promotion of – sustainability and transparency on ESG issues.” Indeed, the WFE itself took a more active role in the promotion of ESG transparency by issuing formal guidance on the subject in late 2015. i

ABOUT THE AUTHOR Evan Harvey is the Director of Corporate Responsibility for Nasdaq. He also serves on the Board of Directors for the UNGC US Network and chairs the Sustainability Working Group at the World Federation of Exchanges.

CFI.co Columnist

INDEXES Exchanges are more than just listing venues. Many of them are also financial product innovators, especially when it comes to the indexing business. Exchanges have created or licensed thousands of indexes, but very few that depend on ESG or sustainability inclusion criteria. There were 21 such indexes in operation at the time of the WFE survey. That number has grown over the last year as well. “It is clear from our analysis of the survey results,” the authors concluded, “that many CFI.co | Capital Finance International

Mario Draghi:

Bending Markets to

His Will By Wim Romeijn

He’s called Super Mario for a reason. Facing down Greek radicals, engineering an economic recovery, keeping banks from toppling, fixing the bond crisis, and getting sceptical Germans to agree that printing money will not bring about the end of civilisation: European Central Bank (ECB) president Mario Draghi is a human marvel of multitasking. He’s also the most powerful actor in the Eurozone, almost singlehandedly cowing the markets to such a degree that not even the most daring of bond and currency traders can muster the courage to defy Mr Draghi.

Cover Story

is now famous “whatever it takes” comment, made in July 2012 at the height of the euro crisis, was enough to calm the markets. Nothing short of a cease and desist order directed at sanguine traders, Mr Draghi made it crystal clear that any and all attempts at causing his euro to implode, or slide beyond the ECB’s limits, were doomed from the outset. The comment drove bond yields to a historical low, helping countries such as Spain, Portugal, and France weather the turbulence. The statement also marked a reversal in the fortunes of the euro. A year later, in April 2013, Mr Draghi noted that the markets consistently misjudge the amount of political capital invested in the common currency: “People vastly underestimate what the euro means for Europeans.” 32

Nobody in Europe, or indeed the world, commands deeper pockets than the ECB president who is currently engaged in buying up government bonds to the tune of around €80bn per month in order to encourage economic growth and avoid the dark spectre of deflation. He has up to €1.75 trillion to play with – more if need be – kitchen sink not yet included. In his four years at the helm of the ECB, Mr Draghi has established a formidable reputation as a man who doesn’t respond well to being challenged – and one who doggedly pursues his objectives. Right now those goals include coaxing Eurozone member states into handing over yet more sovereignty to create and empower the Europe-wide institutions needed to safeguard the euro’s future – a message not always appreciated by the intended audience.

In a speech to the European Parliament, Mr Draghi reminded the assembled MEPs that the monetary union remains incomplete: “A failure to harmonise economies and create stronger institutions puts at risk the long-term success of the Eurozone when faced with an important shock.” NO EXCUSES Perhaps not as loath as required to proffer comment on developments in the political sphere, Mr Draghi can muster but little patience with the ongoing Brexit saga. He intervened forcefully when British Prime Minister David Cameron last December suggested the EU be rebranded as a multicurrency union, reflecting the euro opt-outs secured by his country and Denmark. The ECB president was quick to torpedo that suggestion, referring to existing

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Spring 2015 Issue

treaty obligations which put all EU member states that did not obtain opt-outs under an obligation to adopt the euro sooner or later. Poland and Sweden in particular have dragged their feet on this point. Earlier, the Swedes were chided for suggesting the adoption of the euro could, at some point, be put to a referendum. The ECB had to remind the government in Stockholm that treaty obligations, once signed, are not subject to ratification by popular vote. Polish Prime Minister Beata Szydlo also displays a distinct lack of enthusiasm for embracing the common currency, recently describing the euro “as a bad idea that would make a second Greece out of Poland.” However, that probably says more about Poland than it does about the euro. What worries the ECB most is that a union split into two regulatory spheres would harm the euro project should the non-euro part of the EU suffer less strict monetary and fiscal regimes. Already now, the ECB is none too happy with the unfair advantage enjoyed by the UK’s relatively lax attitude towards deficit spending. Always the euro’s most stalwart defender, Mr Draghi is concerned that the UK’s distinctive edge may lead others to argue that joining the euro is a losing proposition that they cannot be forced to sign on to – treaty or no treaty – since doing so violates the equality principle. The ECB takes its guardianship of the common currency very serious indeed and has not yet fully recovered – or forgotten – the four-year court battle with the City of London over its location policy – a battle the bank lost. The ECB had initially demanded that clearing houses depending on the bank’s liquidity move their operations from London to the Eurozone. With the UK now seeking added protection for the City from discrimination against British financial services providers, the ECB is not about to hoist the white flag. This time supported by most Eurozone member states, the bank is readying for a second fight should UK voters in June decide to take their country outside the EU. It is widely expected that the bank will deploy its significant weight and firepower to ensure that no official Eurozone business is conducted in the City of London. Even remaining inside the union, the British cannot expect to have a say in the bank’s governance: “Britain cannot govern the ECB because they do not participate in it and that is something we cannot change,” said one EU diplomat.

The bank now mulls additional measures to stoke inflation and economic growth. One of the more controversial policies under consideration has the ECB intervene directly in the currency market, selling euros wholesale in an attempt to weaken the surprisingly resilient common currency. The strength of the euro has caught a number of pundits off-guard. Notwithstanding the vast amounts of QE cash being released onto the Eurozone, the euro gained significant ground against both the US dollar and the UK pound in February and March. A weaker euro is key to reviving the Eurozone economy. As a large exporter of manufactured goods, Europe stands to benefit significantly from depressed euro rates. Devaluation would immediately result in increased sales and would drive up inflation as well. Though central banks have a poor track record of manipulating exchange rates, the ECB need not leverage its own reserves, but may simply “print” the funds required – killing the proverbial two birds with one stone, albeit a big one. EVEN BIGGER GUNS Since the start of 2016, Mr Draghi has repeatedly hinted that he is now ready to roll out even bigger guns to bend the market to his will, and Europe out of stagnation. Directly buying equities is one of the guns the ECB has left in its armoury. Such a move would drive up equity prices, providing a windfall to investors who – so the script goes – would soon start spending all that extra cash. The approach seemed to have worked well in both the UK and the US. Another option under consideration is to further recapitalise banks. The thinking is that, if banks are not willing to lend enough, it may be because

their balance sheets do not make for happy reading. The ECB could, quite conceivably, help out directly by adding to the bank’s capital. Then there is the esoteric option – the one pioneered by the Bank of Japan: helicopter money. While nobody envisages the ECB dropping euros into people’s bank accounts, there is nothing to stop the bank from underwriting a large-scale investment fund to, say, upgrade the Eurozone’s economic infrastructure – highways, bridges, ports, telecom backbones, and the like. This would almost instantly provide tens of thousands of jobs and, as an added bonus, circumvent rather conveniently the fiscal restrictions placed on member states. Disconcertingly, Mr Draghi had to admit that his QE programme, while helpful, may have had less of an impact than expected. The funk suffered by Eurozone economies since the sovereign debt crisis erupted in 2009, has only been shaken off partially, and that, mostly, thanks to a significant tailwind. Lower oil prices bolstered consumer spending and helped energy-intensive industries while a slightly weaker euro encouraged exporters. The latter of the two tailwinds has already died down – adding pressure to the need to roll out additional stimulus measures. While none of the options can be easily implemented, it would be a serious mistake to underestimate Mr Draghi’s resolve to revive the Eurozone’s economy and kill off deflation. His pledge to do “whatever it takes” was not made lightly and has already been shown to have considerable bite. Mr Draghi’s ECB will surprise markets again and again – and again. There is no stopping the man or his mission. i 33

Cover Story

DEFLATION One of Mr Draghi’s most important battles is the one he has been waging against deflation. The ECB has repeatedly failed to meet its target of an average 2% inflation for the 19-member Eurozone. As price levels again progressed into negative territory last March, the ECB was quick to augment its quantitative easing (QE) programme by €20bn monthly.

Mario Draghi

> Europe:

Looking for a Purpose and Someone to Show the Way By Wim Romeijn

While the Anglo-Saxon world is being unhinged by demagogues and gunslingers with a fixation on – if not fetish for – the next quarter’s polling result, continental Europe, awash in problems not entirely of its own making, tries to keep cool, while preparing for a hot summer – and tackle the many jobs at hand: absorbing a million or so destitute refugees, dealing with economic crises along its fringes, checking unruly xenophobes, and tending to the special needs and cravings of one of its more high-maintenance constituent parts.

f it is not financiers running glorified Ponzi schemes that cause global markets to plunge and the weaker ones to fold; it is the inordinate amount of ordinance being dropped on an already troubled nation that causes a mass migration of a size not seen since the Barbarian Invasions of the Roman Empire in the Late Antiquity to Early Middle Age. Whilst assigning blame may not be the most constructive of approaches given the severity of the current situation, it is at least noteworthy that both the Great Recession that started in 2009 and Syrian Exodus currently underway are the end product of the cowboy mentality that now prevails amongst the powers-that-be in Washington and, to a slightly lesser but still disconcerting degree, in London. Continental Europe has been left to deal with the fallout.

Cover Story

As Donald Trump in the US pulls ahead in the race for 1600 Pennsylvania Avenue and Boris Johnson trains his sight on 10 Downing Street in the UK, even more interesting times are sure to follow. Still, there is no need to hit the panic button just yet. Suddenly, the likes of François Hollande and Angela Merkel seem reassuringly dull by comparison – the former majestically aloof, the latter stoically unperturbed. MARGINAL MALCONTENTS Contrary to popular belief and Anglo-Saxon hype, the continentals – and the much-maligned Brussels eurocrats they guide – are doing a rather stellar job to keep the Old World ticking. Luckily, the timing was right. Demagogues aiming to cash in on simmering discontent, such as Geert Wilders in The Netherlands and Marine Le Pen in France, enjoy some support, but not nearly enough to break into government. In Spain, the charming but equally misguided populist message of Podemos leader Pablo Iglesias Turrión did resonate with 21% of the electorate; impressive for a party 34

“A modest economic survival has helped diffuse tensions and provide some solace.” founded only two years ago, but hardly sufficient to carry out the national shakeup promised. A modest economic revival has helped diffuse tensions and provide some solace. Thanks in part to the generous quantitative easing programme that sees the European Central Bank (ECB) flooding the market with up to €80bn in cheap cash every month, economic activity has picked up. Inflation has not. Across the Eurozone, consumer prices are expected to move up by only 0.4% in 2016, well short of the two percent increase targeted by the central bank. However, that is not necessarily a failure since GDP expansion in the euro area crept up 1.6%, with industrial production – a measure of future growth – jumping 2.8%. Notwithstanding the massive infusion of QE monies, the euro has remained fairly stable, even gaining a little ground against both British pound and US dollar – yet again disproving those predicting the imminent demise of the common currency. In fact, the ECB finds itself in a rather enviable position: it may dispense up to €1.74 trillion – more than the GDP of Italy or Spain – without being held to task for its profligate ways. As if established economic theory were suspended, money may now be pumped into the Eurozone economies without the attendant fears of creating monetary mayhem. Interestingly, the Eurozone’s surprising resilience also shines through in its external accounts.

Jointly, the area’s nineteen member states produce the world’s largest current account surplus, estimated at $347bn (2.8% of GDP) for 2016. All major Eurozone countries, save France, contribute to the surplus, with Germany alone accounting for $282bn of the total. In fact, the German current account surplus equals that of China. Most EU member states outside the euro area also boast a significant excess on their external accounts with the notable exception of the UK which battles a ballooning current account deficit that now equals 5.2% of GDP – the highest since record keeping began in 1948. JUST BECAUSE With a stable body politic, a resilient economy, and its accounts in perfect order, critics of the European project – of whom there are not a few – increasingly have to resort to “just because” arguments when squaring their views with reality. Former Australian Prime Minister John Howard is such a critic – and a vociferous one too. Architect of the Wasted Decade and one of only two PMs to ever lose his own seat in parliament, Mr Howard recently gave his tuppence worth and reminded fellow Australians that the European Union constitutes a “fundamentally flawed concept” without providing any reasoning for his assertion. Mr Howard also failed to explain why in the early 2000s his administration pushed hard to negotiate and implement a partnership framework with Brussels to ensure his country’s privileged access to EU markets. In the UK, it has of late become fashionable to blame the European Union for just about any issue on the national agenda. Nigel Farage made a career out of it and even managed to force Prime Minister David Cameron into promising a referendum on Europe as a last ditch attempt to keep the UK Independence Party from biting too deeply into the Tory vote. Fuelled by unprecedented levels

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Spring 2015 Issue

HAVING FUN AT BRUSSELS’ EXPENSE Almost daily, the European Union is blamed for promulgating silly laws aimed at stifling civic society and making people miserable. No issue seems too small for Brussels being assigned responsibility. Whenever the European Commission issues a directive, it is promptly misinterpreted and expanded to cause indignation by that part of the press appealing to the easily manipulated sentiments of the broader public. Thus it was that a proposal to revisit the directive regarding the sale of firearms in light of recent terrorist attacks was misconstrued as a broadside against the British Royal Armoury Museum and the National Army Museum. The Daily Telegraph reported (Dec 18, 2015) that both institutions would have to destroy their thousands of historic guns lest they fall into the wrong hands. However, the newspaper failed to mention that the directive does not apply to public authorities and entities recognised as serving a public purpose – such as museums. British publishers have discovered that making preposterous allegations against the European Union sells newspapers. Alas, truth does not. The papers are particularly fond of “reporting” on diktats emanating from Brussels. Here a short list of things that the EU has prohibited according to recent reports in British tabloids: double decker buses, Peter Pan, rhododendrons, firefighters’ poles, herbal remedies, milk of magnesia, coffee drinking in excess, naked cows, toy xylophones, and gin in square bottles. And this is just a sampling of euromyths peddled by some of the more exuberant newspapers. BANANARAMA The European Union is said to display an unhealthy concern for the curvature of bananas. This Brussels’ fetish is often paraded as proof of the EU’s Pythonesque love of silly rules. In truth, the union has no such obsession. Commission Regulation 2257/94 merely states that bananas admitted into the EU must be “free from malformation or abnormal curvature.” Malformed bananas or those with “slight defects of shape” may still enjoy access to the market and reach consumers but must do so as Class 1 or Class 2 bananas, instead of carrying the Extra Class label reserved for perfectly-shaped fruit. The regulation makes no attempts at defining of misinformation, the UK has worked itself into such a frenzy over Europe that the national debate has degraded to a shouting match – or, at best, a dialogue of the deaf.

BOMBAY MIX In a presumed case of political correctness gone awry, a British newspaper reported that EU officials demanded the UK change the name of Bombay Mix, a spicy snack of dried ingredients and presumed a favourite of Her Majesty, to Mumbai Mix in order to rid the delicacy of its colonial overtones. Predictably, the nation united in protest against this unwarranted meddling of EU officials in home affairs. Clueless as to the origin of the myth, the European Commission eventually tracked the story to the Brussels correspondent of the Daily Telegraph who thought it excellent fodder for the tabloids but failed to produce any evidence for his scoop. OFFAL TUBES The British have a well-document love of – what they consider – good food. Anyone daring to stand in between a Brit and his/her plate courts eternal damnation. Thus it was that many Brits have still not forgotten the EU’s attempts at rebranding the nation’s sausage as “emulsified high-fat offal tube.” Luckily, the plan was thwarted at the eleventh hour by a heroic government minister who stood up to the Brussels bullies and went on to immortality – and Number 10, Downing Street. His name was Jim Hacker and he starred in the television sitcom Yes Minister. As memories faded, the plot against the Great British Banger stuck and became one of the many euromyths driving public sentiment. However, the television show was not far off. Improved and more detailed food labelling practices introduced by the EU did force sausage makers to specify their products’ content of “mechanically recovered meat” – aka white slime recuperated by the grinding of carcasses and forcing the resulting slurry under high pressure through a sieve. Most sausage producers lost their appetite once the new labelling requirements came into force. depicting a dystopian world in his novel 1984, reached the same conclusion about the power of language: repeated ad nauseam, opposites switch sides – war becomes peace – in newspeak while doublethink leads to such monstrosities of phraseology as the “dictatorship of the proletariat” and other samples of the Marxist dialectic. Thus, heaping the cause all societal ills onto the perfidious eurocrats in Brussels, it eventually becomes an established truth that the EU lies at the root of all evil. 35

Cover Story

To quote, perhaps distastefully, Nazi Propaganda Minister Joseph Goebbels: “It would not be impossible to prove with sufficient repetition and a psychological understanding of the people concerned, that a square is, in fact, a circle. They are mere words, and words can be moulded until they clothe ideas and disguise.” George Orwell,

“abnormal curvature.” However, cucumbers are treated with considerable less leniency. As per Commission Regulation 1677/88, Extra Class and Class 1 cucumbers are allowed a bend not exceeding 10mm per 10cm length, while those falling in Class 2 may bow only twice as much.

YET MORE MYTHS EXPOSED Daniel T Griswold is one of those affable talking heads that regularly appear on talk shows to explain economics to the rest of us. As soon as the US trade deficit hits another record, Mr Griswold is called upon to soothe the national conscience and offer encouraging words to the disheartened. He has become a fixture on CNN, PBS, and C-Span. Mr Griswold is “mad about trade.” In fact, that is the title of a book1 he wrote in 2009 to promote with almost evangelical zeal the wonders of globalisation and its twin benefactor free trade. In a refreshingly straightforward way, Mr Griswold argues that big trade deficits signal good times. They represent an economy flush with investment opportunities and a whopping demand for goods and services. Offering a wealth of empirical evidence, Mr Griswold shows that whenever economic growth accelerates, deficits deepen. Whenever that happens, domestic manufacturing output jumps up and job creation reaches peak levels. But what about the poor? Fear not, for even the laggards fare much better under rising deficits. Expertly juggling the numbers, Mr Griswold “proves” that poverty rates decrease on average 0.1% in years of ballooning trade deficits while, conversely, they increase by 0.3% whenever the pendulum swings the other way. One wonders how the Germans and Dutch manage to put food on the table. Looking to find sense in old-school economics – chasing contemporary followers and heirs of Hayek, Friedman, and – why not? – Ayn Rand – leads to the Cato Institute, a collective of libertarian thinkers who disdain governments as much as they love markets. It is amongst these freedom loving souls that Daniel T Griswold habitually dwells. The Cato Institute, formerly known as Charles Koch Foundation after its ultraconservative billionaire patron, is a place of some confusion where cause and effect are both shaken and stirred until an easily digestible logic results.

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RACE TO THE BOTTOM Mr Griswold and many of his fellow researchers and essayists at the Cato Institute are adherents of supply-side economics which holds that lower taxation leads, inexorably, to higher rates of economic growth. Supply-siders argue, at first glance rather convincingly, that lower barriers to the production of goods and services encourages DIVERGENT VISIONS Back in the realm of reason, at issue is more likely a discrepancy of long-term vision: even British europhiles are seldom animated by the project’s founding ideal of economic interdependence leading to the erosion of borders as the antidote to murderous nationalism. For most, the EU constitutes merely a transactional affair – one that can do without the apparatus of political union which feels too clunky for the commercial purpose it is meant to serve. 36

competition, increases output, lowers prices, and creates jobs. What supply-side economics often fails to mention – or predict – is that the attendant free trade, also vigorously promoted, prompts a race to the bottom. Mr Griswold’s excitement seems to celebrate the inability of the US economy to meet domestic demand in boom times. Instead of adding manufacturing capacity, which would call for significant investment, production is outsourced to China, Vietnam, or other economies that combine low wages with reduced regulatory pressure in order to improve their competitiveness. Add supply-side economics to the libertarians’ aversion of government spending – as distinct from the innocuous pursuit of fiscal prudence – and a perfect storm of mutually reinforcing deficits (fiscal and trade/current account) is unleashed. Whilst most reputable economists have moved away from supply-side economics after no consistent correlation has been found to exist between low taxes and high growth, the creed has proved remarkably resilient in the face of damning evidence. On the right, economic thought seems to have stalled. Apart from repeating the old refrain, voodoo economics has changed little since its introduction by Ronald Reagan who in July 1981 famously promised to cut taxes and balance the budget while leaving overall government spending unchanged. Eight years later, the US federal debt had swollen by 189% and the budget deficit hovered around 5% of GDP – almost twice the relative size that President Reagan inherited from his predecessor. BOOM TO BUST AND BACK What Reagan showed and – to an extent – proved is that deficits do not matter. Conservatives, including the Tories in Britain and their peers elsewhere in Europe, have never been the same since, turning from frugal to profligate on the proverbial dime. In an almost too-good-to-be-true scenario, Reaganomics delivered solid growth rates not seen since the Eisenhower years (19531961) – averaging out at 3.2% annually from 1981 to 1989 and an astonishing 4.9% after discounting for the recession left by the Carter Administration. Though GDP expansion ran at a similar clip, Reagan’s boom times were financed by outside capital (mainly petrodollars and excess savings Contrast this to Germany, France, Italy, and the Low Countries where the original ideal of a Pan-European political union is still very much alive and security against national mishaps is sought in numbers. Mindful of the fact that no smaller nation stands much of a chance to get heard, let alone have its national interests respected, in a globalised world of mammoth trading blocks, the nations of continental Europe remain determined to battle the lesser odds and forge a unity considered impossible just a few generations ago. CFI.co | Capital Finance International

Spring 2015 Issue

YET MORE MYTHS EXPOSED (continued) from Europe) while Eisenhower’s happy days resulted from sound fiscal policies. Eisenhower paid down the national debt and diligently applied the wise lessons of John Maynard Keynes to his administration’s fiscal accounts, running a surplus in good years and a deficit whenever the economy showed signs of weakness. However, such subtleties were lost on Reagan and those he inspired to follow in his footsteps. A few financial shocks and recessions later it would appear that not all deficits are created equal and some do matter to the latter-day disciples of Reaganomics. Fiscal deficits, in particular, have lost their lustre and are no longer in vogue. Today, fiscal austerity rules supreme, just as the libertarians would have it. Good times or bad, governments are expected to slash and cut their way out of deficit spending. To compensate for any recessionary impulses of tight fiscal policy, monetary policy is boldly loosened. As US economist and Nobel laureate Paul Krugman insists ad nauseam: austerity is nonsense – mostly. On the opposite end of the debate, the “austerians” consider cuts in government expenditure the snake oil that cures all ills – eventually and hopefully before the patient expires. Reaganomics, boiled down to its very essence, sits squarely in the middle, poisoning both schools of thought with the promise that we can have not one but two cakes and eat them both – in a single sitting. Ignoring deficits may work out fine for a few years; it hardly constitutes an exercise in sustainability and limits policy options down the line. Except for a few holier-than-thou fiscal purists – German Minister of Finance Wolfgang Schäuble comes to mind – most conservatives only pay lip service to balancing the government’s books. Reduced expenditure is often followed by tax cuts leaving the deficit largely unaltered. Balanced budgets may be a fetish of some; it is one rarely indulged in. SMOKE AND MIRRORS Take the myths that underpins politics in Britain: Labour spends while Conservatives save. Nothing could be further from the truth. In the post-war period up to 2015, Labour called the shots for 28 years and the Conservatives retained power for 42

As it stands, and looking at economic performance,

During their 28 years in office, Labour governments managed to pay down the national debt in seven of those years (25%) for a grand total of almost £109 billion. Conversely, the self-proclaimed fiscally responsible Tory governments managed to repay barely £20 billion and did so in only 4 out of the 42 years they commandeered Whitehall. No matter how much statistics are juggled, there is no substance to the allegation that Labour is profligate and the Tories parsimonious. In fact, the opposite is true. The same discrepancy between fact and fiction occurs throughout Europe with governments professing fiscal prudency doing the exact opposite. Even Spain’s conservative government of Prime Minister Mariano Rajoy and his Partido Popular, hailed until recently as one of Europe’s most reform-minded and obedient to the Germaninspired austerity drive, had to admit it massaged the numbers and needs to cut expenditure by another €25bn in order to meet its targets. Not all is as it seems at first glance, and that holds particularly true for the European Union as a whole. The block’s predicament is not nearly as bad as usually presumed. In fact, Europe is fine – and will be much better still – if it sticks to the prudent social-democrat policies that delivered prosperity for well over fifty years. There is no need at all to embrace exotic and/ or esoteric policies concocted by supply-side economists, fiscal purists, Ayn Rand fans, deficit maniacs, or any of the other spin doctors of the business. Just keep producing healthy trade and current account surpluses – buying up a strong and lucrative overseas asset base in the process – share the wealth equitably, and stick to promoting the common good of the entire continent while watching others less fortunate and/or sensible battle the demons of their own making. Footnotes 1 Mad About Trade: Why Main Street America Should Embrace Globalization by Daniel T Griswold – Cato Institute 2009 (ISBN 978-19353-0819-5). the European Union in general, and the Eurozone in particular, are far from the basket case they are made out to be. Even those that criticise the lack of democratic accountability in Brussels are, sometimes, barking up the wrong tree. While the European project’s value transcends momentary lapses of reason, jingoism, and national stereotypes, the UK in/out referendum does nothing to further the cause of democracy. Calling a vote does not necessarily a perfect democracy make. Calling a 37

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It’s not as if there is much of a choice to make in any case: the notion, entertained by some in the UK, that a nation may prosper outside the universe of interlocking trading blocks, is usually rejected as fit only for microstates and tax havens. Then again, the UK does rely heavily on the financial services industry – bailing out banks at the first sign of trouble but refusing the ailing steel industry the same level of succour in its hour of need.

years. For each year in office, Labour borrowed on average £26.8 billion while the Conservatives had to find £33.5 billion to cover their spending (2014 prices). Even disregarding the 2008 fiscal mess, the Tories still out-borrowed Labour.

vote for party political reasons, and as a way to exert pressure on fellow EU member states, is not as much a sign of respect for vox populi as it is a cynical move to cling to power.

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TINKERING NOT ENCOURAGED Tired of the tantrums thrown by a nation twice rejected (1963, 1967) from joining the Common Market by a remarkably prescient Charles de Gaulle, who argued that Britain was incompatible with continental Europe, the modern-day EU refused – albeit nicely – to entertain the demands made by Prime Minister Cameron for treaty changes. Mr Cameron was sent home with a few fig leaves for his troubles. Even the Dutch, traditionally the UK’s closest ally on the continent, lost their composure with Prime Minister Mark Rutte wondering out loud if Mr Cameron had taken leave of his senses. Just as the Swiss did two years ago, PM Cameron sought to tinker with the treaty provision that allows for freedom of movement of both people and labour within the union. Switzerland, though not a member of the block, has signed onto nearly all EU law via ten separate treaties in return for full access to the common market. However, in early 2014 the country voted to place restrictions on the number of EU citizens arriving in Switzerland to live and work. Brussels remained stoically silent on the topic and limited its response to a brief reminder that such a move, if implemented, would invalidate all bilateral treaties and thus end the Swiss’ privileged relationship with, and access to, the union. No further discussion was allowed for. 38

That message – you’re free to go, but don’t expect any favours or parting gifts – is essentially the same one delivered to London. Still, the British do have a valuable contribution to make when it comes to pointing out deficiencies in the European edifice. The structure erected at great expense to unify a fragmented and traumatised continent, and save it from its deadly follies, is indeed far from perfect. Moreover, the EU does possess a disconcerting aptitude for shooting itself in the foot and also, quite frequently, for courting ridicule. Forget about the curvature of bananas and the cleavage displayed by buxom barmaids: why appeal to a myth if the real thing is readily available? Take Swedish Euro Commissioner for Trade Cecilia Malmström who may well be the personification of a Brussels autocrat. A political science researcher from the University of Gothenburg, Mrs Malmström is charged with negotiating the terms of the highly-controversial Transatlantic Trade and Investment Partnership (TTIP) even though she has never held a job outside academia and politics. ENTER CONTEMPT With no business or real world experience, the Swedish commissioner must now coordinate and conclude a complex deal that is expected to freeup trade and investment between the world’s two largest economies – the European Union and the United States. Asked for her take on the protests against TTIP taking place in all EU member states, Mrs Malmström coldly replied that she does not take her mandate from the European people. Ouch.

In reality, Mrs Malmström is quite right: she takes her mandate from the industry lobby groups that swarm her directorate’s office in downtown Brussels and push for the wholesale dismantling of public services and stronger clauses to protect investor rights – up to and including the right to sue governments in non-judicial tribunals over legislation deemed harmful to the pursuit of profit. Whilst officially Mrs Malmström must carry out the wishes of the EU’s 28 democratically elected governments, she is conducting the negotiations on the proposed partnership behind hermetically sealed doors, depriving both individual governments and parliaments a chance at becoming involved. British civil servants recently complained that they have been kept in the dark throughout the negotiations and thus are unable to do their job properly. By showing contempt for the European people from the comfort of her ivory tower, Mrs Malmström confirms the worst fears of many that the European project is a juggernaut running out of control. DWARF An economic giant with the political footprint of a dwarf, the European Union embodies a dichotomy of continental proportions: while its 28 member states jointly constitute the world’s largest market with a combined GDP in excess of $18.5 trillion (2014), the block stumbles from one crisis to the next, unable to assert its will for lack of one. Incident rather than vision shapes EU policy. Not

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Spring 2015 Issue

Italy: Milan

a week goes by without EU ministers of whatever portfolio hurrying to attend an emergency summit in the full knowledge that the outcome is unlikely to fully address the issue at hand. More often than not, these ministerial gatherings produce wonderfully intricate compromise solutions which may safely be ignored once the meeting has been adjourned. After much pressure from Italy and Greece, EU government leaders last September reluctantly agreed to a plan launched by commission president JeanClaude Juncker for the relocation of 160,000 refugees to ease the pressure on frontline states Greece and Italy. Apart from being too little, too late, the plan – announced with much fanfare – has come to nothing: five months in, only about 300 refugees have been moved. Even on a slow day, more than that number wash up on Greek shores.

Political correctness – always de rigueur in Brussels – turns out to be the Achilles heel of the

more forceful way, tracing clear vectors for the continent to follow. What bothers Mr Soros most is that while the European Union was conceived as a voluntary association of equals, it has now become a straightjacket that binds debtors to creditors together in a relationship that is neither equal nor voluntary.

UNRULY OCCUPANTS However ineffective its decision-making and uninspiring its leaders, the European Union remains essential to the well-being – now and into the future – of both Europe and the wider world. The edifice bears no blame for the misbehaviour of its occupants, nor for that of its neighbours and partners.

However, Mr Soros considers it a fallacy to dismiss the EU out of hand: “Recognising the existence of the problems besetting the union is the first step to doing something about them. Once you are aware of the dangers, your chances of survival increase. I trained myself to look at the dark side and that has served me well in the financial markets. In danger lies opportunity.” In that vein, Mr Soros is not at all convinced that the UK would fare better outside the EU: “The campaign for Brexit has deliberately misled the public. Britain currently has the best of all possible deals with Europe: it enjoys access to the common market while it is not weighed down by the burden of having joined the Eurozone.” Reports regarding the imminent collapse of Europe, it would seem, are greatly exaggerated.

In a recent interview with the New York Review of Books, US business magnate, philanthropist, and part-time philosopher George Soros – the man who in 1992 broke the Bank of England driving sterling out of the European Exchange Rate Mechanism – predicted the imminent collapse of the European Union. Mr Soros helpfully pointed out that the EU is facing crises on no less than six fronts: Greece, Russia, Ukraine, mass migration, terrorist attacks, and the British referendum. Mr Soros thinks that German chancellor Angela Merkel holds the key that unlocks the solutions: “She has to decide whether the German people are willing to accept the responsibilities and liabilities that derive from the country’s status as the dominant power in Europe.” So far, Mr Soros is underwhelmed. He has repeatedly urged Chancellor Merkel to assert her leadership in a

HOLD THE REQUIEM The case Mr Soros tries to argue is one of rescuing Europe’s lost vision and sense of purpose. Instead of muddling along, hopping from one crisis to the next while kicking the can down the road, the continent could benefit from a renewal of its vows. Instead of dousing fires as they ignite, Europe’s leaders may consider taking the initiative and show a measure of boldness in their approach to the union and its challenges. 39

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Instead of recognising the EU’s inability to act in a concerted fashion, officials in Brussels advocate for even grander empty gestures. Demetrios Papademetriou of the Migration Policy Institute, an entity co-funded by the European Commission, wants the EU to directly take in up to half a million additional Syrian refugees to lessen the burden on Jordan, Lebanon, and Turkey. Mr Papademetriou suggests leveraging the 2% economic growth expected this year in Europe to underwrite and implement a “sustainable” immigration policy.

union. For the sake of civility, ministers and other top officials may contradict prevailing popular sentiment, but cannot be deaf to it. Thus, EU meetings produce all the right noises. Meanwhile, back home nothing changes and the domestic agenda invariably prevails over communal concerns.

Whilst easier said than done in a forum that requires 28 nations to converge, there are signs that a core group of nations, including the original six founding member states (Germany, France, Italy, The Netherlands, Belgium, and Luxemburg), is firmly decided to press on regardless. A two-track Europe with some member states more reluctant than others to deepen their union or embrace reform does not necessarily undermine the entire project. A good place to start is to recognise that the essence of the British push for reform is a lot less controversial than it would seem at first glance. Whilst restrictions on the freedom of movement remain a no-go area, the other suggestions brought to the table by Prime Minister Cameron are more palatable, such as rethink of the relationship between Eurozone countries and non-euro member states and a debate on the topic of pursuing an “ever closer” union. Perhaps due to the haphazard way in which the British government presented its objections, most countries at first dismissed them out of hand. However, the members of the Visigrad Group (Czech Republic, Slovakia, Hungary, and Poland) now seek to engage with the UK, as do France, Denmark, Croatia, and Austria. Wary of being seen to respond to blackmail by referendum – previously tried twice by Greece – most member states misjudged the contents of the British proposals. In a bizarre twist of fate, the UK seems, in turn, to have entirely missed the message: as continental Europe slowly warms to its ideas, the British recede and fail to grasp the chance at reforming the union in their image. However, not all is lost yet. Should British voters decide to have their country remain part of the EU, Great Britain will be able to move its reform agenda forward.

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However, uneasy questions linger concerning the way in which that agenda – now deemed rather valuable – was pushed. Member states may be free to leave to union at any time; they are not free to extract concessions, opt-outs, and other advantages by the mere threat of leaving. There are words for that. To make matters worse, the British people are asked to vote on a deal that was reached outside the EU legal order – cobbled together hastily and without regard to due process. British exceptionalism is now being codified into EU law without the parliaments of the 27 other member states having had their say. As such, it is not inconceivable that the settlement reached may be challenged and invalidated since it is not part of the broader framework of EU treaties. UNLEVELLED PLAYING FIELD One of the most pressing issues revolves around the status of the City of London whose 40

banks and financial services providers, under the terms of the new deal, will no longer be expected to adhere to the union’s single rulebook. Prime Minister Cameron argued that the Eurozone should not discriminate against the non-euro UK. However, by placing the City of London outside the joint rules, the single market for financial services has effectively ceased to exist. The “fair” deal that Mr Cameron fought so hard for, now sees the UK exert influence over the monetary union, via its EU commissioner and members of parliament, whereas the Eurozone has no say whatsoever in the setting of British monetary and fiscal policy. All members, it would seem, are not created equal. By insisting his demand be met no matter what, Mr Cameron has secured a small victory – of sorts. The price is, however, steep: a deal that offers no legal certainties and places Britain on a wobbly perch removed from the continental riffraff, yet very much dependent on their continued cooperation. Rather than pander to exceptionalism and allowing Europe to fight itself, the union may reaffirm, and reassert, its raison d’être as the biggest geopolitical engineering project ever undertaken in the history of mankind – the secular rebirth of an enlarged Holy Roman Empire. The European Union is, at heart, not about money. It was not designed to impose austerity on debtors or demand largesse from creditors. It was not meant to rule the world, or as a melting pot of associated nations. Nor was the EU designed to subsidise farmers, or make up silly rules. Rather, the union was set up as carefully tuned concert of nations; a collective of peoples tired of being ruled by war-mongering and inbred despots – people who realised at long last that cooperation trumps rivalry. Working together also happens to bring prosperity. That was the promise made, and delivered, to Spain and Portugal when both nations joined in 1986 after decades of autocratic rule. The accession of Greece in 1981 had set the precedent. With the grandiose enlargement of 2004, when ten East European countries joined the union in one fell swoop, the EU may have overreached; however, it did show a boldness and vision not seen since. Without sense of purpose, the European Union soon becomes a nuisance. Nations need to be rallied for a common cause – and preferably one other than sharing the misery of austerity. With the European Central Bank pumping vast sums of money into the economy, one would think the wherewithal to reinvigorate the project is there for the taking. The only ingredient lacking is a politician who can muster the courage to lead the way. Angela? i

London: Big Ben

> UK:

How a Nation Learns to Love the Union By Kate Stanton

UK Prime Minister David Cameron claims to have negotiated a deal to give Britain special status in the European Union. It would, he argued, be a compromise – a way of getting the “best of both worlds,” while never being part of a “European super-state.”

hether or not this is the best deal remains to be argued. But why has the UK historically been so keen to distance itself from the rest of Europe?

In the late 19th century, the term “splendid isolation” was coined in regard to Britain’s preference for pretty much ignoring mainland Europe in favour of pursuing its colonial interests. Britain had neither military nor economic needs to ally itself with Europe. The much-quoted 1930s newspaper headline Fog in Channel, Continent Cut Off, summed it up. With no tunnel linking the two shores, such bad weather meant no traffic between the UK and mainland Europe. But it was the continent that was cut off, and worthy of concern, not the smaller and less productive UK. This island mentality, in which the UK sees itself as standing alone in the world, in many ways endures today, despite the demise of the empire and the nation’s reliance on others to retain significance. Geographically, of course, the British Isles are separate – they even have a moat (aka the English Channel) keeping the rest of the continent at a distance.

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European countries are used to change. Over the last century alone many have been subject to border and regime changes, countries disassembled and reformed with different names, boundaries, and leaders. Britain has enjoyed continuity for hundreds of years. Even if Scotland had opted to leave in the 2014 referendum, borders would have remained unchanged. The UK occupies a very small area compared with many individual countries in Europe, never mind in its entirety. Perhaps this has led to its fierce territorialism – along with proud history lessons that teach the empire once ruled more than 22% of the world. Yet, it has long seemed wary of others, including its European neighbours, with their many languages and different approaches to socialising, work and, romance. Even the stereotypes are vastly different. Italian culture is comfortable with men crying and expressing platonic love through kissing; in France, extra-marital affairs are supposedly accepted if not discussed, and in Germany, cleanliness and efficiency are prized above all. 42

“So Brits may move to Europe or beyond, but when foreigners move there the nation feels uneasy.” Brits, meanwhile, are linked with both emotional restraint – the stiff upper lip and emotional incontinence – the drunken football hooligan. They love to visit Europe – or even live there – and around two million call it home, a similar number to EU migrants living in Britain. But this often means – much like Mr Cameron’s thinking – taking on the good bits – the weather, cheaper living costs, better food – while rejecting the lessdesirable. Language, for example – the British are notorious for only speaking English. Spain, particularly, is full of British enclaves where Spanish is a foreign language. So Brits may move to Europe or beyond, but when foreigners move there the nation feels uneasy. The language of politicians and the media is one of invasion; of fears they will take jobs, welfare or opportunities, or bring crime, disease, or depression of wages. This threat of invasion is interesting. No foreign army has invaded since the 1066 Battle of Hastings nearly a millennium ago. Britain also has a great belief in its importance to the world. There are grounds for this – the British Empire, however ruthless and brutal, was the largest in world history. English is the most widely spoken language. The UK’s influence infiltrates cultures everywhere: Shakespeare, The Beatles, the Royal Family, and Harry Potter leave few countries untouched. Yet it is its special relationship with the USA that is viewed as most important to its security, economy, and standing. The two nations share (variations on) the same language and therefore their cultures, while markedly different, appear more easily merged and exchanged. They fought alongside each other in a number of conflicts, including World Wars One and Two, and the 2003 invasion of Iraq.

However, Britain has had periods of enthusiasm for joining Europe. In 1963 and again in 1967, ambitions were thwarted when French President Charles de Gaulle vetoed Britain’s application to join the Common Market. Belgium, The Netherlands, Luxembourg, Italy, and Germany were happy to negotiate but De Gaulle warned it would break-up the existing European Economic Community (EEC) the six countries made up. He believed Britain needed a radical transformation, and accused it of a “deep-seated hostility” towards European construction and a “lack of interest” in the common market. At the time, Westminster was disheartened, but made another application in 1969, before becoming a full member in 1973, four years after De Gaulle’s presidency ended. While in office, then Prime Minister Margaret Thatcher’s relationship with US President Reagan was famously affectionate, yet an approach to German reunification seemed beyond her. Three months after the Berlin Wall fell she brought together historians, anthropologists, and sociologists to educate her on that country’s people. They cited: “Angst, aggressiveness, egotism, and sentimentality,” as archetypical German characteristics. More recently, in her 2002 book Statecraft, Baroness Thatcher was clearer in her view of Europe as “other,” writing: “Most of the problems the world has faced have come from mainland Europe, and the solutions from outside it.” Britain is still redefining itself. Once a superpower, it is now unsure of its place on the world stage. It may count last century’s two world wars as victories but the hugely unpopular Iraq invasion was less than fifteen years ago. Its economy remains tentative. And as globalisation continues, forging stronger unions with newer and emerging market players, including the BRICS economies and Korea, Mexico, Turkey, and Iran, may prove prudent. To insist on a “special position,” somewhere between Europe and America, but able to act alone if necessary, is likely arrogant, even foolhardy. Britain will best grow international influence by adapting to the fast-changing world it is in now and building new relationships, rather than constantly dusting off the old history books. i

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> Spring 2016 Special:

Young Entrepreneurs Creating a Better World

uriosity may kill the cat; it also breeds success. The ten young entrepreneurs featured in this issue of CFI.co share an unquenchable thirst for knowledge; asking questions, probing answers, and thinking a few moves ahead of the pack in order to find the next-best-thing. As the knowledgebased economy takes hold and expands, innovation and creativity become the new drivers. No longer is value exclusively being created by forging steel or building ships; in today’s economy smarts and wits have the edge. The decline in manufacturing suffered by most industrialised countries has not produced the expected drop in prosperity. As it turns out, building and assembling things is not the most lucrative part of the production cycle. The intellectual property resulting from research and design is far more profitable as are sales and marketing where the margins are particularly wholesome. The in-between bit taking place in actual factories – the nuts and bolts phase – is much less interesting. It is why China seeks to move upstream into research and development. If that country wants to underpin its newfound prosperity, it has no choice but to move beyond being a workshop to the world. Picking ten young entrepreneurs to highlight the new ways in which value is created was both a challenge and a breeze. Whilst promising start-ups come a dime a dozen, choosing the entrepreneurs most likely to make a lasting impact proved much harder. In fact, it’s almost impossible since inventions seldom take their intended course. Thus, the selection process was entirely subjective: the bright young minds featured on the following pages represent a mere sampling of a universe dotted with exciting opportunities. Thanks to the availability of crowdfunding and other alternative forms of venture capital financing, good ideas are now easier than ever to lift off the drawing board. The Fourth Industrial Revolution now about to be unleashed is generally understood to entail a fusion of the physical, biological, and digital spheres. It is also expected to be much more disruptive than the previous

three revolutions, affecting almost every aspect of human endeavour. Contrary to previous industrial upheavals, the coming transformation is not limited to any specific locality. The First Industrial Revolution (c.1784 steam power) took place in Great Britain while the second one (c.1870 electricity, mass production) unfolded in the United States. The third and present one (c.1970 electronics, automated production) already enjoys a larger footprint and swept the entire West. However, the next industrial revolution is set to take place on a much more level playing field with disruptive technologies emerging from all continents having an immediate global impact. Some of the most exciting new technologies – and novel uses for older ones – are delivered by young entrepreneurs slogging away in the proverbial garages of Nigeria, China, India, and Bulgaria. Innovation has effectively been democratised. Large corporates can have their business model undermined in no-time flat. Eastman Kodak comes to mind, as do Sony of Walkman fame and flip-phone inventor Motorola. Amazon.com founder Jeff Bezos, a gifted and self-confessed nerd, already in the early 1990s saw an opportunity to sell goods over the Internet – then still shackled to dial-up and mostly the preserve of geeks. Mr Bezos, a disruptor avant la lettre, proceeded to put thousands of high street shops out of business while simultaneously reshaping and reinvigorating the parcel post industry. While at it, he also forced big-box retailers such as Barnes and Noble to profoundly rethink their business model and adapt to new – and often inconvenient - realities. Who the next Jeff Bezos will be, and where he/she will come from, remains a mystery. However, other great disruptors are already now refining their plans for world domination. Thankfully, there is little to fear: disruption may push us out of our comfort zone, ultimately it delivers added sparkle, convenience, and – indeed – comfort to human existence. The ten young entrepreneur profiles in this issue of CFI.co are helping to create that better world. i

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Spring 2016 Issue

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> ANN MAKOSINSKI A Beautiful Mind Inventors don’t always make the best entrepreneurs. The skills and attitudes needed to develop new ideas are not the same as those required to turn new ideas into self-sustaining, commercially successful enterprises. However, one young Canadian is set on combining the two skill sets to make her mark on the world. Ann Makosinski’s invention, the award-winning Hollow Flashlight uses body heat to provide light. She came up with the idea as a teenager after discovering that a friend in the Philippines was failing in school because she didn’t have any electricity or light to study at home during the night. The Hollow Flashlight converts excess body heat into electricity to power an LED bulb without the need for batteries, solar, or kinetic energy. The gadget uses Peltier tiles, which produce electricity when one side of the tiles is heated, and the other cooled. By heating one side of the tiles with the palm of one’s hand, and cooling the other side with a hollow aluminium tube, energy is produced. Ms Makosinski devised the gizmo and then added a transformer and a circuit so that it can supply five volts of alternating current. The flashlights work on a temperature differential basis, therefore the colder it is outside, the brighter the light will be. However, even in warmer environments the hollowed flashlight can sustain a strong beam of light for more than twenty minutes. Ms Makosinski made her prototype in her basement at home in British Columbia. The materials employed cost $26. Ms Makosinski has filed a patent for the Hollow Flashlight and is collaborating with professionals to increase the device’s brightness and further improve its efficiency. Another of her inventions is the eDrink, a phonecharging travel mug that harvests the excess heat of your hot drink while you’re waiting for it to cool down and converts it into electricity for your mobile device. This December her inventions won her a £24,000 grant from Shell Canada and Canadian Geographic. Born in October 1997, Ms Makosinski is halfPolish and half-Filipina. Both her parents are ham radio amateurs and imbued their daughter with a taste for experimenting. “I was always taking garbage from around the house, taking things apart and putting them back together again. I just wanted to make things better.” Her inventions have led to global recognition. Ms Makosinski was named one of Time Magazine’s Thirty Under Thirty: World Changers in 2013 and also won the 2013 Google Science Fair for her 46

age group. She was invited to talk at TedxTeen in London in January 2016, and is a Global Ambassador for The AAT Project. She is also a global ambassador for Uniqlo’s Heattech fleece product line that takes body heat and stores it within the fibre to keep the wearer warm. It harvests thermal energy in the same way as the Hollow Flashlight, enabling garments as thin as 0.55mm to heat the wearer. Ms Makosinski is currently a first year general arts student at the University of British Columbia in Vancouver. Talking on college radio she describes herself as “the weird inventor kid.” She is always inventing things: “It comes naturally to me. My parents didn’t give me a lot of toys. They were, CFI.co | Capital Finance International

like, go and make your own playthings.” Ms Makosinski says she has always had an interest in both talking and tinkering and enjoys fixing problems she identifies around her. As a kid she did not have a phone, game console, or other tech gadget but found plenty ways of inventing her own. While she credits this as a factor in fostering an interest in technology, she admits it made her someone who didn’t fit in all the time with other teenagers. The impressive Ms Makosinki clearly has an inquisitive mind and a keen sense for problemsolving. She will now apply that beautiful mind to running a business, working on new inventions, writing books and developing a TV show.

Spring 2016 Issue

> ADORA SVITAK Precociously Opinionated “Since the age of four, I’ve been exploring what I can do with the written word: everything from championing literacy to raising awareness about world hunger.” By the age of seven, American teenager Adora Svitak had already written more than three hundred short stories. Her early fiction ranges across time and place: one story is set in ancient Egypt, the next in the Renaissance. Her descriptive odysseys combine a childlike sense of wonder with dialogue and descriptions that demonstrate a keen insight into character. Throughout her childhood she continued to generate thousands of words of fiction, nonfiction, and poetry every week. The book Flying Fingers: Master the Tools of Learning Through the Joy of Writing was jointly written by Adora and her mother Joyce. Published when she was eight, it is a compilation of Adora’s historical fiction and adventure stories, writing tips, opinions on politics, religion, media, and education, plus a collection of her earlier poems. Mrs Svitak compiled a special “parents’ section” for each story which contains teaching tips and writing activities that parents and kids can do together. Flying Fingers was published in English and in Mandarin. Flying Fingers launched the child prodigy on the speaking circuit. As a 12-year-old, Adora Svitak gave a TED talk on What Adults Can Learn from Kids, telling her audience that the world needs childish thinking: bold ideas, wild creativity, and especially optimism. Kids’ big dreams deserve high expectations, she says, starting with grownups’ willingness to learn from children. Ms Svitak describes herself as an activist for feminism, liberal politics, and youth empowerment. Hearing someone mutter “I hate reading” spurred her promote literacy at schools and libraries which, in turn, led to her being named a Verizon Foundation Literacy Champion. Ms Svitak’s work in the youth empowerment arena has included public speaking and organising the youth-run event TEDxRedmond for four years. She has written opinion pieces for the Huffington Post and delivered speeches for audiences of girls on promoting women’s rights. Ms Svitak is the daughter of a Czech father and a Chinese mother. She was born in Oregon and raised in Redmond, Washington. Her father, a PhD in Physics, is a software engineer. Her older sister Adrianna, also a child prodigy, is now a teacher and performer playing the piano and violin. In 2008, the Svitak sisters published a book called Dancing Fingers, a collection of poems and poetry writing ideas for use in the classroom or at home. The aim of the book is

to encourage kids to explore their own writing potential.

most of the evening as well. The young Adora assures the viewers: “It’s all really fun for me.”

Perhaps one key to the Svitak girls’ achievements lies in their mother’s insistence that her children should not be stifled academically or rigidly channelled. She decided to home school both girls during their early years. However, the Svitak sisters deny that they were raised by the archetypal Chinese tiger mom. However, she has clearly been a major influence in getting the girls’ writing published while they were still pre-teens.

In the documentary, her mother insisted: “It’s not me who’s doing the pushing.” Mrs Svitak said her daughters’ success is the result of their own hard work and dedication: Adora Svitak explains that her home schooling helped her get ahead: “The local school insisted that I, being three, should go to preschool, and my sister, being five, should go to kindergarten. By that time, I was already reading chapter books.”

In 2009, the then-11-year-old Adora featured as one of only three kids in the Channel 4 documentary The World’s Cleverest Child & Me in which the director set out to explore the environment that nurtured very gifted individuals. The programme showed the Svitak girls following a timetable that consisted of working all day and

Having achieved so much at such a young age, Ms Svitak has turned to monetising her gifts. On her website, Ms Svitak offers her services as advocate, speaker, and teacher. She also continues to blog prolifically. Media savvy and commercially astute, the young Svitak sisters know how to make their mark.

CFI.co | Capital Finance International

> EDEN FULL GOH Here Comes the Sun Eden Full Goh was barely ten when she picked up a book at the neighbourhood library with detailed instructions on how to build a small solar powered car. The enquiring young Canadian then experimented to find out how it would perform under different conditions. She won an award for her presentation of this research at the Calgary Youth Science Fair 2002, launching her career as a scientist and inventor. Growing up in Calgary, the centre of Canada’s oil industry, the obvious career choice for engineers led to the oil and gas industry. However, from an early age Ms Full Goh was more interested in exploring solar power and its applications and potential. She used school science projects to find solutions to problems in solar power production and distribution. Straight away Ms Full Goh understood that the ability to track the sun is key to making solar panels more efficient. She went on to apply herself to devising a suitable low-cost tracking mechanism. In 2006, she came up with SunSaluter, a solar panel rotator that uses water and gravity to follow the sun. After high school, Ms Full Goh headed to Princeton University to study Mechanical Engineering, Computer Science, and Robotics & Intelligent Systems. At 19, she was offered a Thiel fellowship – a pioneering award of a hundred thousand dollars which enables student entrepreneurs take to two years off from their studies to focus on their start-ups. Ms Full Goh took a step back from college to set up the SunSaluter Co. The firm is now an established non-profit organisation dedicated to improving access to energy and water in the developing world. Its business model is to help local entrepreneurs establish their own not-for-profit businesses around SunSaluter technology. The company’s core manufacturing operations are located in India, but it is looking to expand operations into Malawi in order to better serve the African market. The SunSaluter device is attached to solar panels mounted on a rotating frame. A weight is suspended from one side, and a jerry can of water is suspended from the other, acting as a water clock. As the container empties and becomes lighter, the panel slowly rotates. The user can control the rate of rotation by adjusting the flow of the water clock. The device also contains a water purifier that produces four litres of clean drinking water each day. Use of the SunSaluter boosts solar panel efficiency by almost a third. It is thirty times 48

cheaper than conventional motorised rotators and consumes no electricity. The improved efficiency of the SunSaluter means that fewer solar panels are needed, reducing the overall cost of the solar energy produced. Since taking the time out to work on SunSaluter, Ms Full Goh has become much more openminded about her education and career development. She returned to Princeton at the end of the Thiel fellowship, but is now running SunSaluter full time. “Part of the reason I went back to school was to get more technical fluency. Now I feel like I have technical skills required to undertake whatever next project I decide on.” The young engineer is passionate about leveraging the power of engineering for social benefit. She wants to design and build products that solve society’s biggest problems. Currently, the SunSaluter is providing power and clean CFI.co | Capital Finance International

water in rural off-grid communities in sixteen countries. Ms Full Goh has won a host of awards for her invention and says she is constantly trying to become a better, more intentional, version of herself. Things I’m working on lately include learning Chinese, minimising my material possessions, and improving my physical fitness. The goal I am proudest of is being selected to represent Canada on Rowing Canada Aviron’s pre-Olympic development team [as coxswain], where we won two gold medals.” In Greek mythology Icarus flew too close to the sun. As the wax holding his wings together melted, he fell into the sea. High-flying Ms Full Goh may share Icarus’ fascination with the sun, but her technical knowledge and business acumen mean she need not fear the power she seeks to harness.

Spring 2016 Issue

> JOE PENNA Master of the Digital Video The recent rise of video-sharing sites such as YouTube and Vimeo have allowed low budget independent filmmakers to reach millions of viewers. The MysteryGuitarMan has used this medium to become a viral video star. The YouTube sensation is Brazilian film maker musician and animator Jônatas de Moura Penna. Now living in Los Angeles, Joe Penna is building a highly successful business as a director and writer. His net worth is now estimated at over two million dollars. His best known films are Instant Getaway (2014), Meridian (2012), and Beyond (2015). Mr Penna started using the video platform nine years ago at the dawn of YouTube. He was making movies using home video equipment. While in college studying to become a doctor, one of his hobby videos The Puzzle received almost one million hits on YouTube. This made him think that it might be possible to turn his passion for making videos into more than just a hobby. He started entering his makeshift videos into competitions. One won a $15,000 prize which enabled him to buy a better computer and camera. Although the online video-sharing era was in its infancy, it enabled him to reach a network of people through sharing, sharing, and yet more sharing. The powerful platform was beginning to bring new opportunities to worldwide home movie makers. Mr Penna quit college and set out to produce and publish a new video at least once every week in order to maintain his audience. His quirky videos combine film, special effects, and animations – his film The Puzzle involved 562 edits. Getting hold of professional software was key to speeding up the editing process and maintaining this production schedule. A turning point in Mr Penna’s career came after he started collaborating with popular YouTube channels. Six years ago, Mr Penna’s video T-Shirt War was loaded onto YouTube. This three minute 47 second film animation, a riff on the subject of T-shirts, led to contracts with advertising agencies for MacDonald’s and Coca-Cola. “That was the moment I knew I could officially stop stealing my neighbour’s Wi-Fi,” Mr Penna jokes. “It made it okay for me to make videos for a living. Before that, I was very close to moving back home and living in my parents’ basement again. I didn’t want to do that.” In 2014, New Form Digital commissioned MysteryGuitarMan to make a film as part of its Incubator Series designed to identify up-andcoming talent and provide them with resources.

New Form Digital is evidence of traditional Hollywood’s increasing interest in online video innovators and could provide them with pathways to developing projects for film and television projects. MysteryGuitarMan’s resulting film is Instant Getaway, a two-part sci-fi story about a young Mexican who, after teleporting into Texas illegally, stands trial for murder. The ten minute short received critical acclaim. GuitarMysteryMan’s next major project was Beyond, a multi-era tale of time travel and immortality. Mr Penna says he has always been very interested in both topics and he wanted to explore the weight such endeavours would inevitably carry. The project also features a transmedia graphic novel. Longer and more elaborate films require bigger and better sets. Beyond needed twelve CFI.co | Capital Finance International

sets to represent different decades. The most ambitious of these is the cabin of a 747, the plane acquired courtesy of YouTube Space LA where the film maker has been working. The film was loaded onto Mr Penna’s YouTube channel in January 2015. The development of digital video cameras has transformed the film industry and YouTube is changing the way that films are shot, viewed, and distributed. Now living in Los Angeles with his wife and young child, Mr Penna is hot property, tipped as a future potential Oscar winner. What next for the creative artist, innovator, and entrepreneur? “Everything I do, I see as practice” he says. “All the videos I make on MysteryGuitarMan I see as practice for making short films, and the shorts I see as practice for making features. And features could be practice for something bigger. Who knows?” 49

> JULIETTE BRINDAK Girl Power The information technology revolution opens the doors to a host of new businesses for tech-savvy young entrepreneurs with an eye for a market opportunity. They don’t come much younger than Juliette Brindak. She came up with the idea of providing a lifestyle website for tween and young teenage girls when she herself was a still young teenager. Ten years later, Ms Brindak’s website Miss O and Friends has become a most profitable business and is visited by millions of girls each month. Ms Brindak understood her target market, spotted a niche, and threw herself into developing a business to fill it. Missoandfriends.com – By Girls, For Girls – is an interactive site where young girls can socialise, play games, win prizes, get published, and “have tons of fun.” The look and feel of Miss O was inspired by doodles Ms Brindak did when she was a 10-year-old. Travelling home from vacation with the family, she started drawing the Cool Girls – paper characters she and her younger sister Olivia used to play with. The idea really took shape when the girls’ mother Hermine made giant foam-backed Cool Girls for Olivia’s eighth birthday party. Ms Brindak recalls her little sister’s friends walking into the house and seeing characters that looked just like them: “They went crazy for them and kept talking about how much they loved Cool Girls.” The young entrepreneur was thirteen at the time and explains how this inspired her business idea, a social space for girls: “Middle school is a really difficult time for young girls with so many new things going on; their bodies changing, cliques, boys, bullying, homework, parents, etc. I wanted to create something for my sister and her friends to help them through these difficult years since there didn’t exist anything like Miss O.” The company was launched in April 2005 and is very much a family affair. Ms Brindak’s parents had confidence in their teenage daughter’s idea and invested some of their personal money in the venture along with the money they had set aside for their daughter’s college education. They also invested their time. Her mother does all the graphic design work and dad manages the business side. He used his background in marketing to find web developers who would work for sweat equity. Miss O & Friends is a lifestyle brand for girls between the ages of 8 and 16. Currently, the site has over three million unique visitors every 50

month. The site has established a community of girls who offer advice and support to one another while also having fun and discussing the “girl world.” All of the site’s content is user generated – By Girls, For Girls. With its pink, purple, and turquoise colours and stylised graphics Miss O & Friends is designed to appeal to a specific, and very American, audience. For many years, Ms Brindak ran Miss O while she was in school. In 2008, Proctor & Gamble invested in the company and has remained its largest single investor. Miss O and Friends has become a successful social media company but, because its audience is so young, it must be COPPA (Children’s Online Privacy Protection Act) compliant. This means it cannot link to, or promote itself on, any social medium CFI.co | Capital Finance International

that doesn’t require an age to sign up. This immediately rules out Twitter, Instagram, Pinterest, and Tumblr. Instead, Ms Brindak’s company has branched out to develop a site aimed at mothers and parents. Identifying and understanding its market is key for any business. Ms Brindak was able to identify her target audience because she was part of it and understood the issues. Another key is to believe in the business model. Ms Brindak says that the passion for helping young girls came naturally as she perilously navigated her way through American adolescence. As to the entrepreneurial spirit, she says: “I think it was something I always had. I wanted to do something different and to be in charge in my own life.”

Spring 2016 Issue

> KHOA PHAN Six Life-Changing Seconds Vine has propelled Khoa Phan to fame and fortune. The young Californian explains: “I started making “vines” to bring my imagination into reality for people to see.” His vines, six second looped videos, have led to an accolade as one of Forbes 30 Under 30 for marketing and advertising: “Simply put – six seconds changed my life,” says Mr Phan. Mr Phan creates his stop motion vines by quickly tapping the screen within the associated app to create frames which he brings to life using the classic methods of animation. His quirky and creative clips piqued the interest of brands that now want him to create animated video loops optimised for use on social media marketing channels. The rise of the smart phone has seen a surge in new mobile applications and possibilities. The Vine Channel debuted three years ago, and was rapidly snapped up by Twitter. What makes the app special is that users can record short video clips with their device’s built-in camera. That camera records only while the screen is tapped, enabling users to edit on the fly or create stop motion effects. “Vine was my big take off and will always be my go-to since it’s easy and straightforward,” says its creator. Mr Phan was working in a vehicle-exporting business when Vine was launched. He had experience in storyboarding but not in making videos. He was quick to see the creative potential of the new channel and pioneered some of the techniques now widely used: “With the whole six seconds video concept, I figured there’s a lot of frames to play around with. I used that to my advantage to produce stop-motion animation.” Digital media website Mashable named Mr Phan Vine’s Most Creative Stop-Motion Animator. “Being first also allows me to test the waters of the new platform.” Mr Phan says that coming up with an idea is the hardest part of creating vines. Once the concept is in place, he will roughly frame how he wants the vine to look using a sketchbook. Then, Mr Phan sets the angle of the camera and works from there, timing each frame, filming, and minor editing, adding sounds or brightness. Flawless transitions are a hallmark of his creations. His early vines made a lot of use of construction paper - the medium that was to hand. “My vines are very laborious when you consider the amount of time that goes into the thought process. I don’t really care much about how many loops my vines get. I just want to produce videos that I’m proud of.” As it happens, Mr

Phan’s vines have clocked up over 15 million loops. That is quite impressive.

stars in some of the vines he produces, giving the dog a worldwide fan base.

His work on Vine has led to commercial collaborations with many big brands including Peanuts Worldwide, Chevrolet, CNN, Coca Cola, Samsung, Toshiba, and MTV. However, Mr Phan is keen to put his skills to work for charitable causes as well and has generated vines for Livestrong and UNICEF.

Vine has developed a lot in its three years and Mr Phan is still excited about its possibilities: “The whole fleeting captured moment concept is a big draw. It forces you to watch, since it’s time sensitive and you may never see it again.”

Mr Phan describes himself as an animating tech geek from San Diego. He shares his home with a corgi – a breed of dog also at home in Buckingham Palace. However, Mr Phan’s corgi CFI.co | Capital Finance International

Mr Phan is an optimistic and upbeat young man whose trademark message Have a Nice Day can be found in many of his vines. His advice to would-be viners is to “unlock your imagination and let it take flight.” It certainly worked for him. 51

> NICK D’ALOISIO Coding Philosopher Oxford undergraduate Nick D’Aloisio is no average student. The self-taught programmer became a teenage millionaire in 2012 when he sold an app he had built for $30 million. Summly, the monetized app, had attracted a wide range of high profile investors including a number of Hollywood stars and the wealthiest man in Asia, Hong Kong billionaire Li Ka-shing. By the time Mr D’Aloisio sold Summly, it was rated the top news app in 28 countries. The app uses algorithms to compress long pieces of text from select news sources into a few representative sentences. Summly creates up to a dozen news summaries which are released twice daily and designed to be displayed on a smart phone or tablet. At a maximum four hundred characters, the app provides more information than a tweet, but rather less than a full article. When Yahoo! bought the news aggregation app the company appointed the teenage Mr D’Aloisio as product manager charged with developing Summly into Yahoo News Digest which went on to become one of the 2014 Apple Design Award winners. Mr D’Aloisio lived in Australia until he was seven when his family moved to London. His parents – mum a corporate lawyer and dad a company executive – encouraged the kids to develop their own interests. The young Mr D’Aloisio spurned television, preferring instead to make films, build model railways, and dabble in 3D rendering. Articulate, imaginative, creative, and grounded, Mr D’Aloisio began designing iPhone apps when he was twelve years old, working in the traditional geek manner – alone in his bedroom. He taught himself the Objective C coding language with a view to building apps. “I just saw a massive opportunity and I had lots of ideas. Every app I developed was like a learning exercise and I’d became better at it through trial and error.” The first app Mr D’Aloisio uploaded to Apple’s App Store generated an income from day one. Mr D’Alsoisio’s curiosity about natural language processing led him to study Russian, Greek, Latin, and Mandarin. He became fascinated by concepts such as grammatical frameworks, morpheme parsing, and linguistics. Scanning the Internet for useful information, he soon realised that he needed a better way to determine, at a glance, what was worth reading. This prompted him to develop Summly. Mr D’Alsoisio’s focus has now switched from linguistics to computer languages. “I’m literate in a few of the latter, but less so in the modern languages used now,” he admits. 52

He has eschewed the millionaire lifestyle and stepped back from Silicon Valley in order to study Computer Science and Philosophy at Oxford: “I’m not at Oxford for the degree per se; it’s the intellectual environment I most appreciate.” “What I find refreshing at Oxford, compared to Stanford, is that computer science is seen as very theoretical and mathematical. It is not at all considered an entrepreneurial exercise. In Silicon Valley everybody only cares about making money. At Oxford it’s more the pursuit of knowledge that counts.” Mr D’Aloisio is a philosophical, self-assured, and mature young man: “Time is the new currency,” CFI.co | Capital Finance International

he concludes. With an income assured for life, Mr D’Aloisio priorities have changed: “Money is one way of measuring success but the way I prefer to gauge achievement is to discover how far I’m willing to pursue my interests and how well rounded I can become as an individual.” Mr D’Aloisio is self-assured and happy to carve out his own path in life. “I don’t feel pressure from outside. It’s all my own expectations. I saw that with Summly before it was a success; I had nothing to lose because I was enjoying it. As soon as you stop enjoying what you do, suddenly the outcomes are predicated on money, fame, success, whatever. But when you are enjoying it, they are just a bonus.”

Spring 2016 Issue

> MARK BAO Game Theory as a Business Model Mark Bao is a young man who likes to takes on big challenges and understand human behaviour in order to solve complex problems. While still at school, Mr Bao became a serial entrepreneur starting no less than eleven businesses in under a decade. He started his first company when in 5th Grade to market an app he wrote to help manage homework flows. Mr Bao sold his first brainchild for five dollars a pop to fellow students. A few years later, while dabbling with scripting languages and web design, Mr Bao created innovative software for use by high school and college debating teams. While in high school, he launched several Internet start-ups and a couple of foundations for good measure. One of the former, Genevine, helps families easily share snapshots, messages, and videos via a simple online platform. Meanwhile, the Genevine Foundation promotes family and community values and helps fight homelessness and poverty. “I want to promote positive philanthropy – that’s my main goal. I can create value to solve people’s problems.” At 17, the prolific tech innovator launched a website called threewords.me which encourages users to describe their friends in three words. The site became incredibly popular with a quarter of a million users signing up over the first three weeks, generating over 17 million unique page views. Mr Bao describes the site as a project to juxtapose two ideas: how to acquire customers through viral marketing and how to get an honest opinion of yourself. Within weeks it had become massively popular and was targeted for buy-out. Despite the popularity of the site, Mr Bao sold out to Kevin Ham, an Internet entrepreneur who peddles domain names and owns $300 million in dotcom addresses. The price of the sale is, however, not in the public domain, but Mr Bao was reportedly very happy with the deal. Mr Bao is currently based at Columbia University in New York where he secured a job as research assistant at the Centre for Decision Sciences. Here, he conducts experiments on decision-making processes with an academic emphasis on human behaviour, habits, and strategy. At Columbia, Mr Bao discovered game theory, exploring such esoteric concepts as the Nash Equilibrium and the Prisoner’s Dilemma. “I’m interested in how we can use an understanding of human behaviour as a lens through which to decipher complex systems, identify the biggest problems within them, and solve those issues with a combination of strategy and technology.”

Mr Bao is an interesting character. He reflects on his days as a teenage tech prodigy: “It’s so much easier to start a company when you’re in high school or college. You don’t have many living expenses so you don’t have to rely on your business for an income.” The most important lessons he learned include to fail fast and not to fear failure: “One of the most important things about start-ups is the concept of failing fast. If you do so and keep refining your idea, company, or business model, you’ll gain a better understanding of what is actually happening.” CFI.co | Capital Finance International

Mr Bao has packed a lot into his short life. He was born in Harbin, China, in 1992 and emigrated to the US with his parents at the age of four. He grew up in Wellesley, Massachusetts, the only child of two oncologists. As he has grown older, his interests have evolved while his entrepreneurial drive has slowed down some. However, it seems a certainty that his latest research interests will spark a few start-ups. “I am now quite interested in artificial intelligence, and how AI could assist scientific processes by helping researchers make discoveries and – who knows – adding to human knowledge all on its own.” 53

> STACEY FERREIRA The Billion Dollar Pitch Few people make their first million before they turn twenty, and fewer still can say they have penned an international best-seller to boot. Stacey Ferreira, however, has done both. And, as if that wasn’t enough, she is also the CEO and founder of one of the world’s fastest-growing recruitment companies. To say the 23-year-old entrepreneur is an enigma would be a monumental understatement. The inspirational digital media trailblazer has been hailed as possessing the technical thought processes and business acumen of the young Mark Zuckerberg. Essentially, Stacey Ferreira doesn’t just know how to find an obscure gap in the market, she also knows exactly how to use it. A future in the digital world was always on the cards for Ferreira. Born in Scottsdale, Arizona, her father Victor was VP of Sales at IBM, where her mother Patricia was an accountant. Unsurprisingly, as a student, she displayed a rare talent for understanding computer science and coding. It was while studying at high school in Phoenix that a teenage Ferreira had her first business inspiration. Her younger brother Scott’s computer crashed leaving him with no access to personal data, passwords, and files he was using for homework. What was required, she thought, was a way to create a mass personal storage area that could be made secure enough for users to keep their login details for various accounts and which they could access instantly. As a result of this epiphany, mysocialcloud.com was born. The siblings were so confident in the product that they chose to suspend their education to pursue it. Stacey left New York University, and her brother dropped out of the University of Southern California. It could be said that her genius as an entrepreneur had little to do with creating a secure, cloudbased bookmark vault. In fact, it was her muscling in on investment that paved the way to Internet stardom. Realising a substantial outlay of cash was required to take mysocialcloud to the next level, Stacey Ferreira set about plotting a way of levering funds from the top – Sir Richard Branson. The college girl tweeted her idea to the British millionaire and then found a way of attending an event where she could pitch her concept in person. It was an audacious strategy, but it worked a charm. Sir Richard and a business partner threw almost a million dollars of startup cash at Stacey and her brother, and – thanks to their clout, the cloud went on to create a 54

media storm. In 2013, mysocialcloud was sold to digital footprint tracker reputation.com for an undisclosed sum that was, however, substantial enough to make millionaires out of Stacey and Scott. The experience of dropping out of education to chase her business goals inspired Stacey Ferreira to write the book 2 Billion Under 20: How Millennials Are Breaking Down Age Barriers and Changing the World. Influenced by the Thiel fellowship – an alternative to college that encourages people to find their own educational path to self-sufficiency – the tome soon became a bestseller. Ms Ferreira went on to join the Thiel fellowship in 2015, and it was here where she developed her next digital blockbuster – Forrge. The website was designed for potential employers to be able to use a flexible talent pool of temporary and part time workers. Again, it’s an idea that few would have been able to envisage, let alone pull off. Forrge hasn’t even spent a year out in the open but already has enchanted an impressive line-up of venture capitalists eager to invest money. As CFI.co | Capital Finance International

CEO, she’s also brought her brother Scott into the development team. By the end of this year, analysts estimate Forrge will be valued in excess of a billion dollars. It’s no surprise, therefore, that Stacey Ferreira is hot. An accomplished speaker and writer, she finds herself a globetrotting sage dispensing thoughts and advice to young entrepreneurs, amongst whom she’s regarded as one of the best role models of a generation. Wherever Ms Ferreira goes, the main thrust of her counsel is to encourage young people to be confident while pitching the moneyed – particularly in this age of social media. “A tweet led to me meeting Richard Branson, and then having him invest in our first company,” she says. “It’s interesting that today those barriers of meeting high profile people have been lowered – through social media, anyone can get access to pretty much anyone in the world. And from there it’s interesting because you grow up as a young person idolising these people saying ‘oh, that’s someone I could never be like or ever be able to meet.’ But you soon realise that you actually can, and not only that, they are people too.”

Spring 2016 Issue

> JOHN AND PATRICK COLLISON Two Lads in Silicon Valley Deciding to drop out of Yale University half-way through the curriculum requires a good reason. A privileged Ivy League education is not dispensed with lightly. Thankfully, for Irish brothers John and Patrick Collison, millions of excellent reasons were at hand. Although only 27 and 25 years old, the pair of digital prodigies are on course to become two of the wealthiest college dropouts ever – and that’s saying something. They’ve already banked several millions with the sale of their start-up business Auctomatic – the reason for turning their backs on university – and are now riding the crest of a profit wave thanks to a partnership with Visa that has seen their latest venture already valued at more than $5 billion. The brothers grew up in a small hamlet, not too far from the city of Limerick. Gifted students, they were coding before hitting their teens, and had attracted potential investors for their Shuppa website before Patrick, the eldest by two years, had reached 18. The start of Auctomatic coincided with their move to the USA, purely because Enterprise Ireland – the government agency tasked with investing in home-grown businesses – was unable to allocate funding to the brothers’ Shuppa project. However, Silicon Valley-based investor Y Combinator had taken notice of the youngsters’ talents, and offered to bankroll their start-up. They teamed up with Oxford graduates Harjeet and Kulveer Taggar to merge Shuppa into a new money-spinning venture they named Auctomatic. Patrick had deferred his degree at the private Massachusetts Institute of Technology, and John’s promising studies at Yale were shelved as the brothers made the decision to throw everything they had into the online selling tool. In March 2008, aged 19 and 17, the Collisons and their partners sold Auctomatic to Canada’s Live Current Media and became overnight millionaires. Only a couple of years earlier, they had been amateur programmers messing about on home computers in their bedrooms. Suddenly, the brothers had become the darlings of Silicon Valley. They weren’t even old enough to buy a celebratory bottle of champagne. Aware that they had ditched an education envied by students the world over, Patrick and John agreed not to fritter their newfound fortune away. Wasting no time, they immediately set about working on an idea that had been ticking over

in the back of their minds – a way of creating a secure online payment system for businesses and private users designed in such a way that developers can easily build it into their sites. Whilst this niche market could have been considered too specialist to generate the same kind of value their previous enterprise had attracted, the pair never doubted the concept. Calling their payment gateway Stripe, they allowed it to grow organically. The Collisons were certainly on to something from the get-go, as investors began queuing up to be part of the venture. Y Combinator was again engaged, offering seed funding in June 2010 which led to venture capitalists Peter Thiel, Andressen Horowitz, and Sequoia Capital ploughing $2 million into the embryonic scheme. The cash injection drove the brothers to launch Stripe publically, before a further $40 million was pumped into extra development. Now 22 and 20, the brothers were heading up a massive digital project with about $60 million of other people’s money committed. However, the lads remained unfazed. Instead, from their modest detached house in San Francisco’s they CFI.co | Capital Finance International

focussed on delivering a return on the massive investment. By 2014, they exceeded their own expectations, as well as those of their benefactors, when the company was valued at a staggering $1.75 billion. Now in its sixth year, Stripe has teamed up with Visa to work on a series of developments relating to security and digital transactions. The business has attracted an additional $100 million to grow its international footprint. By the end of last year, the 2014 valuation of the company almost paled into insignificance as it was announced Stripe was now worth in excess of $5 billion. They gave up their home in Ireland, ditched glittering university places, and rose to become giants of Silicon Valley, not to mention multimillionaires. Yet, now employing dozens of gifted technical wizards, they remain as humble as they were as teenage boys in front of their computer screens in Limerick. “We were the first people to work on Stripe,” says Patrick, “and, chronologically, that’s interesting. But, for so much of the great work that we do now, we’re a part of it, but we’re certainly not the most important piece of it.” 55

> Europe:

Hiccups on the Iberian Peninsula By Darren Parkin

While Europe lurches from one crisis to the next, Spain and Portugal have been quietly going about their business, steering themselves back to stability and growth after a lengthy spell in the shadow of the recent economic crisis. Progress has been slow, and painful, but the two neighbours stuck to their guns and moved forwards with controversial austerity plans that, on the whole, seem to be paying dividends.

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Spring 2016 Issue

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pain, in particular, has seen a remarkable turnaround. In 2012, at the height of its economic crisis unemployment touched 25% – twice the European average. Although historically Spain has found it hard to create enough jobs for its people, the unemployment rate has eased and dropped to 18% as the economy rebounded. Portugal too is recovering at a steady pace. The country’s GDP expanded at a 1.5% annual clip since 2013. Both countries, however, hit a bump in the road that could yet derail their economic revival. Tired of austerity, voters have signalled that patience is running out. Five years ago, Spain’s political map was a nearmonochromatic vision of the conservative Partido Popular’s (PP) sky blue as Mariano Rajoy swept the board, save for a narrow loss to the socialists in Seville and the predictable dot of green around Bilbao where Basque separatist candidates triumphed. This time around, things looked very different after the tally came in. Whilst a shift to the left had been expected, pundits did not foresee a political universe fractured to such a degree that no government can be formed. As soon as the votes had been counted at the end of December, Spain entered 2016 as the political equivalent of a ship cast adrift because none of her senior officers could agree on who should plot a course. POLITICS DISJOINTED While Prime Minister Rajoy’s PP won the election, the party failed to secure a parliamentary majority. The appearance of two new parties – the left wing Podemos (We Can) and progressive liberal Ciudadanos (Citizens) – has left Spanish politics severely disjointed. The prime minister has been unable to find a coalition partner. In fact, none of the four major parties seem ready to compromise and join forces to govern the country. The unusual impasse has applied the brakes to an economy which, until Christmas, was hailed as one of the engines driving Europe’s return to growth. With a competitively valued euro and nearzero interest rates, Prime Minister Rajoy was on course to deliver almost a million jobs over three years. By knuckling down and steadily delivering growth, Spain was in the process of rebuilding itself as

“Although historically Spain has found it hard to create enough jobs for its people, the unemployment rate has

However, unlike Spain, the new socialist government wasted no time in tackling the country’s financial institutions. At the top of the hit-list stood the name of Bank of Portugal CEO Carlos Costa who received fierce criticism from senior figures within the new administration for his ‘excessive slowness in taking decisions.’

one of Europe’s pillars. Madrid’s lack of a clear direction has left other EU member states with the jitters. Various ratings agencies are already urging senior politicians across the continent to be wary of a country struck by political ambivalence. Potentially dangerous U-turns over economic reforms may yet cause immense harm.

The backbiting from the Socialist Party towards the bank’s governor is being viewed as a direct attempt to oust Costa. Only recently, the bank’s head of supervision, Antonio Varela, suddenly quit after coming under pressure for his role in the state’s €2.2bn bailout of Madeira’s Banif Bank. Mr Varela, who joined the central bank in 2014, had been part of Banif when the government took a 60.5% majority stake in the ailing bank. Banif was rescued in December after being unable to service its debt as the lion’s share of its healthy assets were snapped up for €150m by Spain’s Santander.

Prime Minister Rajoy made several appeals to the better judgement of his peers – so far to no avail. Fully three months after the general election the gridlock – not unlike a Gordian knot – remains in place with no solution in sight other than calling for a new election.

The sell-off did not sit well with Portugal’s socialists who now seem hell bent on forcing Mr Costa out too, after indirectly accusing him of being ‘irresponsible’ and ‘lethargic’ relating to compensation payments following the collapse of the Banco Espirito Santo in 2014.

On the face of it, it would appear that Spain’s 47 million people – voter turnout can be as much as three-quarters of the population – will indeed be heading back to the polls. The sooner the better, for many investors who have been watching Spanish stock slowly sink as people become reluctant to deal with a rudderless economy.

The attacks on Mr Costa have not gone unnoticed elsewhere in Europe where observers are wary of Portugal’s political tilt to left. It is understood that senior figures within the European Central Bank would be keen to step in and side with Costa, potentially triggering all manner of legal ramifications. After all, any attempts to influence the regulator would clash with EU legislation.

eased and dropped to 18% as the economy rebounded.”

Beyond the clear and present danger of Spain’s current predicament, it is likely that many European partners would see any narrow margin or coalition as a weak government being in place at a time when the country needs strong leadership. PORTUGUESE DISPLEASURE Meanwhile, in next door Portugal voters also expressed displeasure at seemingly neverending austerity. Like Spain, Portugal had shown that economic catastrophe may lead to new opportunities. Lisbon’s politicians worked hard at improving the country’s competitiveness. Again, similar to the Spanish approach, the country simply got on with it in a way that left many convinced the two Iberian nations constituted the antithesis of embattled Greece whose government allowed the country to drown in debt and self-pity.

Mr Costa’s stewardship of the Bank of Portugal was seen as a key element in the success of the country’s return from the brink of financial meltdown under Prime Minister Pedro Coelho and his Social Democrat Party. With the rise of discontent in parliament, there is now a genuine fear that other EU members will end up paying the price for Portugal’s apparent self-derailment. Already there is talk of the ECB not being able to purchase government debt as higher yields could see the country lose its investment-grade rating. Perhaps one lesson Europe can learn from the fortunes of Portugal and Spain is that – no matter how successful the often vexatious hard work of a country’s reformers has been – a government cannot rely on the capricious gratitude of voters. i

“Portugal too is recovering at a steady pace. The country’s GDP expanded at a 1.5% annual clip since 2013. Both countries, however, hit a bump in the road that could yet derail their economic revival. Tired of austerity, voters have signalled that patience is running out.” 58

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Spring 2016 Issue

> CFI.co Meets the President of Sage Europe:

Brendan Flattery

hampioning the interests of small and medium-sized businesses, Brendan Flattery of Sage Group PLC is happy to note that entrepreneurs are finding their voice in the debate on Britain’s future. Mr Flattery, president of Sage Europe and thirteen years at the enterprise software provider, points out that the UK is home to well over five million small businesses – often sole traders – whose opinions are not always heard. “Many of these businesses use Sage software packages to lighten the administrative burden and gain insights into performance across an array of parameters. In the ongoing process of perfecting our software, Sage maintains customers for life with businesses to better understand processes, identify new or changing requirements, and anticipate needs.” Mr Flattery explains that Sage Group has gained a deep understanding of how small and medium businesses work and can prosper in dynamic economic environments. The company’s European division, present in eleven countries and a market leader in a good number of them, aims to be more than merely a provider of software: “We offer our more than two million customers a comprehensive platform that also includes periodic events such as annual Sage Summits where clients have an opportunity to exchange ideas, discover the latest trends, and learn from keynote speakers.” Sage Group is in the business of empowering entrepreneurs. The company takes a proactive and integrated approach that aims to service clients for life. “As businesses grow, Sage is able to provide fully scalable software solutions, from accounting, payments, payroll to a complete entire business management solution, to meet and exceed expectation at each stage of corporate development.” Mr Flattery emphasises that Sage enterprise software helps businesses easily comply with all relevant rules and regulations: “As a result, the entrepreneur can concentrate on running the business and seizing opportunity.” The British tech giant stays on top market trends that point to a demand for tight integration of processes and instant access to data. “We are now seeing millennials entering business. This generation is perhaps the first one that has come of age in the era of ultrafast data processing and monitoring of performance in real-time. The young people now setting up enterprises are also used to online collaboration, data sharing, and working with parties that may be a continent removed.”

President of Sage Europe: Brendan Flattery

Sage Group has pioneered enterprise-strength cloud-based computing: “The move from desktop to cloud adds both an additional layer of convenience and functionality that is available across different devices.” Sage Group not only thoroughly understands small and medium businesses, the company also does its bit to help smaller businesses grow. Sage Group has campaigned for all small and medium businesses are paid within thirty days. The company also represents small and medium businesses as it advocates for policy initiatives that improve the business climate: “In Germany, Sage is actively CFI.co | Capital Finance International

involved in a collective effort to roll back red tape. The needs of, and challenged faced by, small and medium businesses are quite distinct from those of larger corporations. All too often policymakers overlook the interests of smaller businesses. Where is the Davos of small and medium businesses?” Before joining Sage in 2003 as managing director of the UK Accounts Segment, Mr Flattery ran a number of smaller IT businesses and start-ups. The first-hand knowledge he gathered in those years, he now leverages to help Sage help small and medium businesses. i 59

> IFC:

After Paris, Whatâ&#x20AC;&#x2122;s Next for the Private Sector? By Christian Grossmann

tâ&#x20AC;&#x2122;s been two months now since the historic climate change conference, COP21, wrapped up in Paris, concluding with 195 countries pledging to take actions to keep global warming to under two degrees Celsius. This is an unprecedented achievement in the long history of international climate policy. Compared to past negotiations, there was a different atmosphere in Paris. The negotiators were determined to find common ground rather 60

than draw insurmountable lines in the sand. Investors lined up with billions of dollars in new financial commitments in addition to the suggested roadmap for developed nations to contribute to the needed $100 billion annually for mitigation and adaptation efforts. And the private sector was more active and visible than ever before: CEOs from industries as far ranging as cement, transportation, energy, and consumer goods manufacturers announced their CFI.co | Capital Finance International

own climate commitments in Paris to decrease their carbon footprints, adopt renewable energy, and improve natural resource management. This enthusiasm was especially apparent during the CEO panel that IFC, the organization I represent, convened during the Caring for Climate Business Forum by UN Global Compact. CEOs from client companies in India, Turkey, Thailand, and South Africa discussed their innovative climate change initiatives, investments, and

Spring 2016 Issue

technologies, and the challenges of scaling up their climate business. OUTCOMES FROM PARIS COP21 in Paris witnessed a whole new level of international coalition-building with heads of state, business leaders, and the civil society ready to form a unified message and spur negotiators to action. But letâ&#x20AC;&#x2122;s be frank: The Paris Agreement is not a panacea. The emissions reductions pledged by countries so far are estimated to leave the world 2.7 degrees Celsius warmer by the end of the century, so pledges will need to be scaled up in the future to meet the 2-degree threshold. Everywhere I went, from the World Business Council for Sustainable Development Pavilion to the Caring for Climate Business Forum to the Sustainability Bonds Conference, companies large and small shared a common message: climate change is real and is affecting our businesses, we are ready to take action, but we need a global action to level the playing field and increase predictability. There are also questions that the international business community is left with following the Paris Agreement: Now what? How will this deal be implemented at the country level and how will the deal impact the private sector in various industries? As we move forward on the implementation agenda, I would like to share a few take-aways that could also shed some light on these lingering questions. First, it will be hard to achieve the ambitious goals set by the agreement unless the private sector gets involved in a substantive and meaningful manner but for this the businesses need the right policy and finance signals in place to warrant retooling their strategies. The signals need to focus on the removal of fossil fuel subsidies, the introduction of carbon pricing, green building performance standards, or guaranteed Power Purchase Agreements for renewable energy.

Paris: Eiffel Tower during COP21

â&#x20AC;&#x153;COP21 in Paris witnessed a whole new level of international coalition-building with heads of state, business leaders, and the civil society ready to form a unified message and spur negotiators to action.â&#x20AC;? CFI.co | Capital Finance International

Second, what came out loud and clear is that companies do not need convincing to become more climate-friendly. They are seeing the impacts of climate change on their businesses and are ready to respond. A recent study by We Mean Business found that companies are achieving an average IRR of 27% on low-carbon investments. What is needed is a succinct business case on opportunities that will benefit their bottom line and the right regulations in place to support them. I hope the Paris Agreement is the signal they have been looking for. Third, there is evidence that investors are beginning to shift their investments to more climate-friendly ones. As of COP 21, institutional investors with assets totalling more than $3 trillion have divested from fossil fuels in their portfolios. This could be a wise move, as researchers out of Cambridge University estimate that global 61

investment portfolios could see losses of up to 45 percent due to extreme weather events. And finally, an encouraging development was the momentum achieved in Paris on the need to put in place next steps to price carbon and get countries on a low emissions development pathway. Over 1,000 companies have joined the Carbon Pricing Leadership Coalition launched at COP 21. The call for a price on carbon came from many diverse sectors, from BP and Statoil in the energy sector to consumer goods companies like Unilever and Mars, to emerging economy giants such as Cemex, Braskem, and Mahindra Group. While a global carbon price was never expected out of Paris, over 90 country pledges submitted to the UNFCCC (called Nationally Determined Contributions, or NDCs) mention carbon pricing in some way, so the momentum is expected to increase. IFC STANDS READY And how will we as the IFC help to keep up this incredible momentum? IFC stands ready to help our client to contribute to climate change mitigation and adaptation in emerging economies – regardless of what happens with the Paris Agreement. As part of the recent World Bank Group institutional commitment to increase climaterelated investments to 28% of its long-term finance by 2020, IFC will be roughly doubling its climate investments in the next five years. Whether through direct investments in climate sectors (e.g. renewables, energy and water efficiency), development of new de-risking and aggregation mechanisms (e.g. guarantees, credit lines), or sharing our experience through participation in international fora and multistakeholder working groups, IFC is in a strong position to implement the ambitious World Bank Group targets. It is now time for action to make the Paris Agreement realize its potential. At IFC and the World Bank Group, we are committed to helping the private sector translate this momentum from COP21 into climate investments that will help put our client countries on a sustainable and resilient development path. And we expect to have some great success stories of new climate investments to share next December. i ABOUT THE AUTHOR Christian Grossmann, a German national, is the director of Climate Change, World Bank Group, a position he assumed in October 2014. In this role, he coordinates IFC’s climate change strategy and product development, embedding climate knowledge and capacity in IFC’s operational groups in support of investments in clean energy, green buildings, sustainable agriculture, manufacturing, and climate mitigation through financial markets. In 2015, IFC’s total climaterelated investments were $2.3 billion and an additional $2.2 billion was mobilised from other investors. 62

Author: Christian Grossmann

Mr Grossmann has been a director at IFC since 1998, leading a number of key positions and mostly recently managed IFC’s Corporate Strategy department. From 2002-2006, he was based in Moscow, Russia and led IFC’s Private Enterprise Partnership Advisory Facility, where he successfully introduced several new product lines, most notably in the financial markets, investment climate reform and energy efficiency. From 19982002 and 2006-2008 Mr Grossmann served as the director of IFC’s Controllers and Budgeting Department. Before joining IFC, Mr Grossmann held senior finance positions within Dresdner Bank Group

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in Paris, New York, and Frankfurt. In the earlier stages of his career he worked as an international management consultant in Europe, United States, and South Africa, and as a civil-engineer in France and North Africa. In 2011, he co-authored the joint report of 31 multilateral and bilateral development finance institutions Development through the Private Sector, as well as a discussion note on World Bank Group Innovations in Leveraging the Private Sector for Development in 2012. Mr Grossmann holds a Diploma in Engineering from TU Munich, a CES of ENPC, Paris, and a MBA from INSEAD, Fontainebleau. He is married and has a son.

Spring 2016 Issue

> CFI.co Meets the CEO of Rothschild & Cie Gestion:

Jean-Louis Laurens

isplaying a strong preference for the pursuit of returns over long investment cycles, Rothschild & Cie Gestion, one of France’s leading conviction-based asset managers, offers institutional investors, independent financial advisors, and external distributors a full suite of services extending across equities, fixed-income instruments, bonds, and other asset classes. The firm, fully owned by Rothschild & Co., also maintains offices in New York and London. “Rothschild & Cie Gestion is at heart a multispecialist firm that concentrates on three distinct areas closely related to the in-house core competencies honed to excellence over time,” explains Jean-Louis Laurens (61), CEO and global head of Asset Management, and General Partner. Mr Laurens emphasises that Rothschild & Cie Gestion does not aim to be a jack of all trades. Rather, he argues, the firm is careful to operate on the basis of its strengths: “We are an active manager in European assets and, as such, prefer to adhere to long-term strategies as opposed to tactical investing. The group also obtains solid results as a smart beta manager, extracting returns from systemic biases and perceived market inefficiencies. This, moreover, allows for prudent risk management. Our third area of expertise entails innovation and open architecture. In particular, the funds of one business has proven quite successful.” With a long history, strong values, and timehonoured principles, Rothschild & Cie Gestion remains committed to expunging volatility from its portfolio: “An asset manager should reflect the principles it lives by. We aim to be a safe haven in a dangerous world. Asset management is as much about the preservation of capital as it is about growing capital. It is with this in mind that our firm attaches great importance to risk mitigation which also includes incorporating non-financial criteria into the decision-making process.” Rothschild & Cie Gestion is a pioneer in recognising sustainability parameters as key to long-term profitability and was an early adopter of the Principles for Responsible Investment as defined by the United Nations Environment Programme’s Finance Initiative (UNEP-FI). “We are keen to include environmental, social, and governance [ESG] criteria in all our investment processes and, indeed, have been at the forefront of this development. As such, we recognise that clients may have their individual requirements for, say, decreasing their carbon footprint. At Rothschild & Cie Gestion we are able, and eager, to help investors attain their ESG goals.”

Chief Executive Officer, Global Head of Asset Management and Managing Partner: Jean-Louis Laurens

The group currently manages, or guides, around €52bn in funds. “We are, of course, specialist managers serving a, admittedly sizeable, niche by combining the pursuit of high alpha and smart beta with a high-conviction approach which, ultimately, means that we have a distinctive view of the market and are quite flexible in the way we create our portfolios.” Mr Laurens unveils that his firm is currently considering ways to increase its presence in the United States. The group already has a dynamic team working in New York and is considering bolstering its US footprint. “There is a strong demand for innovation, but one delivered with CFI.co | Capital Finance International

excellence. We already have a strong client base of institutional investors, third party distributors, and major banks. We have also established strategic partnerships such as with Pacific Life, a California-based insurance company.” In the end, it is differentiation – in both approach and results – that counts in the asset management industry. With an impeccable track record as impeccable as its pedigree, Rothschild & Cie Gestion has managed to transcend the universe of ready-made stock-in-trades to offer a mix of investment products and vehicles that do not merely respect client specifications but adjusts to individual constraints and objectives. i 63

> Land Rover Defender:

A British Icon Falls Victim to Modernity By Darren Parkin

rown men were in tears at Solihull’s Lode Lane plant when the last Land Rover Defender rolled off the production line in January. Yet, at that same moment, second-hand 4x4 dealers throughout the UK rubbed their hands together and grinned like Cheshire cats. Their joy wasn’t about seeing the back of an outdated design which has changed little since it was conceived in the 1940s, but at the realisation that every Defender in the country, roadworthy or not, just increased in value by a staggering 20%.

He and his older brother Spencer, also an automotive designer, were impressed with the agility of the US Army workhorse, and pondered the prospect of whether or not Britain needed a similar, mass-produced utility vehicle. For days the pair discussed the whys and wherefores on the shore of Red Wharf Bay before Maurice grabbed a stick and sketched his impression of what this all-purpose off-roader should look like. There, in the sand, history was made as the brothers stared down at what was effectively the first draft of one of the most successful things to ever have a set of wheels.

That remarkable statistic alone is enough to allow the casual observer to appreciate that this is no ordinary vehicle reaching the end of the line, it is in fact one of the world’s greatest four-wheeled icons, which has now taken its rightful place as a legend of British manufacturing.

It was 1947, and the pair began working night and day to produce a prototype which would soon be laying down its tyre marks on the same beach where it was first dreamt up. The following year it was launched to the world in The Netherlands at the Amsterdam Motor Show.

It’s a vehicle that has kept true to its original design and specification for nearly seventy years – a simplistic, yet genius piece of machinery which began as a sketch in the sand of a Welsh beach.

Only fifty were made in order to evaluate popularity for a market which Wilks and Rover themselves had envisaged being purely farmers. Pretty soon, the military, emergency services, landowners, and all manner of adventurers were banging on the door of what used to be the wartime factory of Bristol Hercules engines in Solihull.

Maurice Wilks had been helping jet pioneer Sir Frank Whittle to design gas turbines during the Second World War before re-joining vehicle manufacturer Rover in the Midlands when peace was declared in 1945. With a post-war slowdown in production, Wilks was spending a lot of time on his farm in Anglesey where he was using a WWII Willys Jeep to get around the hilly farmland. 64

In its first full year of sales, the order books for the Series I Land Rover were overflowing with 8,000 vehicles being assembled just to meet demand. Sales continued to rocket until the launch of the Series II in 1958, with the clamour for Land Rovers not slowing until a lull in the 1970s when the CFI.co | Capital Finance International

company’s ownership switched hands four times before coming to rest with current proprietor Tata. Despite the global economic slowdown, the last decade or so was one of the most successful periods for Land Rover’s fabled Defender (the name acquired by the series in 1983), but international legislation has left the rugged legend unable to be exported to several countries. In fact, the Defender hasn’t satisfied US safety requirements for eight years – once one of its biggest markets – notwithstanding a mass of competition and the American fondness for home-grown 4x4s. New EU regulations too meant the latest design would not pass crash safety regulations, thus leaving Jaguar Land Rover with no other choice than to cease production. But, as H166 HUE (a doff of the cap to ‘Huey’ – the first Land Rover ever made) came off the line, news spread that all may not be lost. Land Rover Design Director Gerry McGovern announced plans to continue the Defender’s bloodline in a new car set to be launched in 2019. Sadly, it is expected to bear little resemblance to the vehicle that carried the name Land Rover across fields, deserts, swamps and theatres of war throughout the world. For the rest of us mourning its loss, take heart. After all, 2,016,933 Defenders were made over seven glorious decades, and Land Rover experts say more than two thirds of all those vehicles are still being used on and off the roads today. The other 30%? Well, they’re sold for parts. All of which now fetch up 20% more than they did before January. i

Spring 2016 Issue

> CFI.co Meets the Co-Founder and CEO of Affirmative Investment Management:

Stuart Kinnersley

n 2014, Stuart Kinnersley took a leap. He left an established career in multinational asset management firms to co-found Affirmative Investment Management (AIM), the world’s first dedicated green and impact bond fund management company. After over 25 years of working within the fund management industry with just two employers and reaching a senior role, why did Mr Kinnersley take the plunge, forgoing the trappings and security of corporate life to embrace the uncertainty of a new venture? The answer begins long before AIM’s founding. Whilst at Nikko Asset Management, as CIO of the European office, Mr Kinnersley was instrumental in setting up the world’s first green bond fund in 2010 in partnership with the World Bank – back when the market was in its infancy and many were unfamiliar with the term green bond. As an early adopter, Mr Kinnersley championed the role of fixed income in promoting sustainability. Green bonds typically distinguish themselves through a use of proceeds structure, where the bond proceeds are earmarked, monitored, and reported for climate change adaptation and mitigation. Mr Kinnersley saw the potential of the world’s largest financial market, public fixed income, to meaningfully alleviate global challenges such as climate change and rising social inequality – not to exacerbate them. Co-Founder and CEO: Stuart Kinnersley

The 2008 global financial crisis exposed many fault lines in the financial system, but in the aftermath, Mr Kinnersley observed that major contributors and participants of the crisis emerged unscathed, and worryingly, unchanged. He increasingly felt a compulsion to transform the way money is invested to build a more stable, secure, and sustainable future. Amidst a growing conviction that the investment management industry is in need of change, Mr Kinnersley was encouraged to make the transition from company man to co-founder by people around him who share a common vision. The most instrumental amongst them is Stephen Fitzgerald, now Mr Kinnersley’s co-founder and AIM’s chairman. Mr Fitzgerald, a former colleague and long-term friend, had also come to a juncture in his career where the motivation to make a positive difference became increasingly important. Mr Fitzgerald has over 27 years of experience in asset management and was head of Goldman Sachs Asset Management International (GSAMI). Mr Fitzgerald encouraged Mr Kinnersley to take the plunge, and the two founded AIM with the

conviction that they could harness their vast experience and vision to establish a mainstream fund management company with a new agenda. Mr Kinnersley, an inclusive leader by nature, is always keen to emphasise that without Mr Fitzgerald’s belief and commitment, AIM would not have come into being. Mr Fitzgerald’s partnership is pivotal to AIM, but Mr Kinnersley also identified a number of key individuals who share his passion for making fixed income a powerful agent for positive change. Mr Kinnersley enlisted the help of Judith Moore, who was formerly head of the World Bank’s Corporate Responsibility Team and originated the eligibility criteria for green bonds at the World Bank to join as Head of Sustainability Policy and Research, based out of the US. He also invited Michelle Smith, former European Head of Operations at GSAM to join as Chief Operating Officer; Justin Eeles, the lead portfolio manager for the world’s first green bond fund as AIM’s Head of Portfolio Management; Lisa Wong, a sustainable fixed income investment specialist, as Head of New Strategies and Impact; and Andrew Roffey, an equities and credit portfolio manager with over thirty years’ experience as Head of Credit, to form the AIM management team. CFI.co | Capital Finance International

A start-up has many disadvantages relating to scale, many of which AIM mitigates with world class systems and an experienced team with unparalleled experience in the green bond market, boasting the longest green bond fund track record. An appealing key advantage to being a start-up, however, is that – unlike larger competitors – AIM is unencumbered by legacy issues. AIM’s corporate governance combines best practice in sustainability and portfolio management and is consistent in integrating environmental, social, and governance (ESG) factors across its corporate behaviour and all portfolios. Mr Kinnersley feels that the financial system has for too long served the interests of the very few, often at the expense of the many. At AIM, Mr Kinnersley hopes to redress this balance by developing and broadening debt markets in promoting transparency and accountability as to where bond proceeds go and the related impacts, whilst offering a fair value service. Ultimately, Mr Kinnersley hopes to provide greater awareness for investors as to where capital goes, and, through AIM, a real option for investors to mobilise debt for the benefit of the environment and society, without sacrificing financial return. i 65

> Affirmative Investment Management:

Ready for Tomorrow Sustainable investing is gaining traction and moving rapidly into the mainstream. Affirmative Investment Management (AIM), the first dedicated green and impact bond fund management company, has been formed with the conviction that sustainable fixed income plays a critical role in meeting the greatest global environmental and social challenges.

ublic equities have a longstanding history in engaging with environmental, social, and governance issues, but the largest capital market in the world – fixed income – has fallen short. As an independent and dedicated green and impact bond fund management company, AIM actively seeks to change that: reframing global challenges by exploring fixed income investment opportunities to help create a safe, secure, and sustainable future for generations to come without compromising financial performance. AIM was established in 2014 by Stephen Fitzgerald (chairman) and Stuart Kinnersley (CEO) with a shared vision of building a new fund management company, with mainstream appeal of investing for return whilst having a positive impact. Both founders enjoy distinguished careers in asset management with over 25 years of experience each. Mr Fitzgerald was formerly head of Goldman Sachs Asset Management International (GSAMI) and is a Member of the Board of Guardians of the Australian Sovereign Wealth Fund, the Future Fund. Mr Kinnersley was most recently CIO of Nikko Asset Management Europe. In addition to traditional asset management, both have been heavily involved in social and green bonds. Mr Fitzgerald is a member of the New South Wales Social Impact Investment Expert Advisory Group and Mr Kinnersley set up the world’s first green bond fund in partnership with the World Bank in 2010 at Nikko Asset Management. WORLD CLASS TEAM The two co-founders handpicked a world class team of sustainability and investment professionals to form the AIM management team. The AIM team is unique in that it holds the longest

“AIM looks beyond green themes and includes social investments in its investment universe.” track record in green bond fund management and its members have been involved in green bonds since the market’s infancy. The team includes Judith Moore, formerly head of the World Bank’s Corporate Responsibility Team, who originated the eligibility criteria for green bonds at the World Bank as Head of Sustainability Policy & Research, based in the US; Michelle Smith, former European Head of Operations at GSAM as Chief Operating Officer; Justin Eeles, the lead portfolio manager for the world’s first green bond fund as Head of Portfolio Management; Lisa Wong, a sustainable fixed income investment specialist as Head of New Strategies and Impact; and Andrew Roffey, an equities and credit portfolio manager with over thirty years’ experience, as Head of Credit. Although the team is composed of green bond market pioneers, AIM looks beyond green themes and includes social investments in its investment universe, such as bonds that support immunisation and public health in Africa and South Asia. The AIM team has devised a proprietary three dimensional investment process featuring (i) sustainability verification, actively seeking positive impact as opposed to negative screening; (ii) environmental, social, governance, and credit risk evaluation; and (iii) traditional macroeconomic market assessment.

This three dimensional analysis allows AIM to create mainstream fixed income portfolio management strategies, investing solely in bonds focussed on building resilient communities and low carbon economies. AIM is also committed to reporting the portfolio’s social and environmental impacts, pushing the boundaries of increased transparency in the sector. MAINSTREAM AIM is designed for mainstream investors: it has an investment process of institutional standard, world class portfolio management systems, and uses conventional market benchmarks – not just narrow sustainability benchmarks. AIM differentiates itself by being market competitive in financial performance whilst delivering added environmental and social benefits and increased transparency through disclosure of the use of bond proceeds. Now is clearly the right time to take sustainable investment to this next level. Investor awareness has sharpened and activism is increasing. Global challenges, such as climate change and health, are being reframed as investment opportunities and green bonds are a very useful instrument to support this aim. The steady growth of the green bond market reflects its clear advantages for both issuers and investors. The green bond model helps issuers accelerate investment into sustainable infrastructure, reach new investors, and ring-fence part of their balance sheet. Issuers report that successful green bond issuance has raised organisational morale and helped embed sustainability strategies into the core business. The model encourages greater transparency in the fixed income market and, additionally, there

“AIM was established in 2014 by Stephen Fitzgerald and Stuart Kinnersley with a shared vision of building a new fund management company, with mainstream appeal of investing for return whilst having a positive impact.” 66

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Spring 2016 Issue

AIM: Management Team

â&#x20AC;&#x153;AIM expects the green and impact bond market to continue to grow and spur similar themed use-of-proceeds issuances. Issuer-labelled education, water, health, and sustainable housing bonds are coming to market.â&#x20AC;? has been little pricing difference from comparable non-green bonds, usually because green bonds reflect the credit profile of the issuer as a whole and are not tied to the underlying projects. Fixed income investors know where the money is going and target the positive environmental and social outcomes they seek, whilst not sacrificing returns. AIM expects the green and impact bond market to continue to grow and spur similar themed useof-proceeds issuances. Issuer-labelled education, water, health, and sustainable housing bonds are coming to market. BRIDGING THE FUNDING GAP The 2015 COP 21 Climate Change Accord saw an international commitment to limit global temperature increase to two degrees Celsius. A total of 161 countries have submitted strategies thus far, outlining the actions and investments needed to build resilient low-carbon economies. To meet this global target, Ceres and Bloomberg

New Energy Finance predict rapid growth in global clean energy investment, requiring new renewable energy infrastructure investments of $12.1 trillion over the next quarter century. The funding gap for moving to a low-carbon world is huge, as is the investment opportunity. To bridge this financing gap, governments must look to private capital and public-private partnerships. Governments are actively supporting sustainable investment and promoting climate change related policies. For example, clean energy credit enhancements, and carbon risk disclosure is becoming mandatory in a number of countries. AIM expects environmental, social, and governance (ESG) related reporting requirements to increase as customers become more demanding and sovereigns endeavour to meet global development and climate change targets. Green bonds are a scalable instrument that can help issuers highlight their sustainability achievements CFI.co | Capital Finance International

and ambitions, as well as help provide data on their portfolio risks and impacts. In short, AIM seeks investment innovations that focus on building low-carbon and resilient communities, have a positive environmental and/or social ambition, possess at least some disclosure of use of proceeds, and generate a tangible impact without compromising investment performance. AIM is well positioned to provide a scalable turnkey solution for investors to address rapidly evolving global risk perceptions around climate and society. AIM allows investors to engage in sustainable investment at scale and quickly, as many of the global challenges have urgent timelines â&#x20AC;&#x201C; whether immunising against Ebola or combating climate change. Combining expertise in sustainability and investment management, AIM is a unique start-up of experienced investors, equipped to help clients today get ready for tomorrow. i 67

> European Investment Bank:

Investment Plan for Europe Paradigm Shift in the Use of Public Resources By Werner Hoyer

he Marshall Plan did much to inject life into the post-war recovery of Europe. Initially comprising $13 billion, mostly in direct aid, the plan constituted a substantial economic stimulus package for war-torn European countries. In addition, the Marshall Plan was one of the first elements of European integration, as it erased trade barriers and set up institutions to coordinate the economy on a continental level. This built the framework for the many years of almost unbroken post-war economic growth that were to follow; and for productivity gains and industrial expansion. 68

The economic success of the Marshall Plan supplied the spark to set a political chain reaction in motion. In 1957, the Treaty of Rome was signed, which launched the European Economic Community. This was followed by several waves of enlargement, the introduction of the single market, and the economic and monetary union, which became the foundation of a stable and growth-friendly economic environment that supported the success of EuropeÂ´s economy and peopleâ&#x20AC;&#x2122;s jobs for many years. However, with the advent of the digital revolution in the 1990s, productivity growth in the EU began CFI.co | Capital Finance International

to slip behind that in the US and other leading trading partners. This trend has undermined the comparative ability of European firms to compete and to provide rewarding jobs and a high standard of living. Low comparative productivity and misallocation of investment, alongside many structural weaknesses, also explain why the global crisis hit Europe so hard, and why EU-wide recovery still presents such a challenge. Principal among the causes of the continued malaise has been a massive investment shortfall, with private sector firms unwilling to commit to new spending in an unfavourable climate, and

Spring 2016 Issue

finance for economically desirable modernisation investments. This is where the Investment Plan for Europe (IPE) comes into play. It consists of three components: • Support for strategic investment without increasing public debt • Promotion of investment through improved advisory services • Removal of barriers to investment. The first and probably most prominent part of the IPE is the European Fund for Strategic Investments (EFSI). This is an EU initiative launched jointly by the European Commission and the EIB Group, comprising the European Investment Bank (EIB) and the European Investment Fund (EIF), to assist in overcoming the current investment gap by mobilising private financing for strategic investments and SMEs. Despite its name, EFSI is not a separate fund or a legal entity in its own right but a contractual arrangement between the commission and the EIB, consisting of an EU guarantee of €16 billion complemented by an EIB capital contribution of €5 billion. It is expected that EFSI support will secure around €60 billion of additional financing by the EIB Group thus further triggering a total of €315 billion in investment in the union over a period of three years. EFSI allows the EIB Group to do considerably more than it did in the past in terms of financing innovative, higher risk projects. This will enable the group to address market gaps and encourage other financers, public or private, to participate, unlocking investment that is currently slowed down or hindered by economic uncertainty. Emphasis will be put on key sectors identified under the EFSI regulation, although it needs to be stressed that no geographic or sector quotas apply. Hence the focus will be placed amongst other things on: 1. Transport, energy and the digital economy; 2. The environment and resource efficiency; 3. Human capital, culture and health; 4. Research, development and innovation; and 5. Support for SMEs and mid-caps. Luxembourg City

public expenditure dramatically slashed by years of fiscal consolidation. Added together, the investment gap, aggravated by an increasing innovation and competitiveness gap, amounts to several hundred billion euros a year – which gives a clear indication about the challenge Europe is facing today. INVESTMENT PLAN FOR EUROPE In order to regain its competitiveness, Europe’s economy requires a concerted approach that looks at enabling factors as well as direct innovation performance and sufficient access to

To achieve this, EFSI has two components: An Infrastructure and Innovation Window (IIW) to be deployed through the EIB; and an SME Window (SMEW) to be deployed through the EIF to support SMEs and mid-caps. The EIB Group will also continue to develop new tailored products to address specific market failures, based on a needs assessment. The main benefits of EFSI are that the EIB can offer: 1. New products (notably in subordinated debt/ equity-type financing); 2. Scalable risk-sharing instruments with commercial banks as well as national promotional banks; and 3. Financing for new client groups (e.g. in the field of mid-caps, turn-around financing). CFI.co | Capital Finance International

As speed is of the essence, the EIB and the EIF rapidly deployed teams to identify potential projects for EFSI support. This was possible due to the group’s decision not to wait for the EFSI governance structure to be put in place, but to start with the roll-out as quickly as possible through the so-called warehousing of projects – still complying with the legislative process, but accelerating all efforts to get the job and growth engine started. So far, the EU Bank’s governing bodies have approved 54 projects with a volume of €7.2 billion which should support total investment of around €30 billion. Of these projects, the majority consists of renewable energy, energy efficiency, and other investment that contributes to low-carbon growth. The others include investment in R&D and industrial innovation, digital and social infrastructure and transport, as well as access to finance for smaller businesses. In parallel, the European Investment Fund is delivering impressive results benefiting smaller businesses as part of the Investment Plan for Europe. The EIF has already signed more than 150 operations, with total financing under EFSI of €3.4 billion which is expected to trigger more than €45 billion of investments. Some 125,000 SMEs and mid-caps throughout the European Union are expected to benefit. This clearly demonstrates that the crowdingin of capital works. EFSI increases the EIB Group’s capacity to perform this catalytic function. Through EFSI, the EIB will encourage the launch of economically valuable projects, making them attractive for wary investors, and giving economic recovery a boost at a critical juncture. EFSI NO SILVER BULLET However, the European Fund for Strategic Investments is not a silver bullet that bridges the investment and innovation gaps. EFSI needs to work within the context of the other two strands of the Investment Plan for Europe. Europe needs to better structure projects in order to attract promoters and investors. The new European Investment Advisory Hub (EIAH), offering a single point of entry, will help identify bottlenecks and build the knowledge and capacity needed to get good projects going, in particular through reinforced use of financial instruments and improved access to finance. The other key condition for the success of the Investment Plan for Europe is, that Europe needs to improve the overall investment environment by cutting red tape, simplifying regulatory frameworks, and deepening the single market – because market integration is the backbone of Europe’s prosperity. In order to preserve its strength, Europe must return to the global innovation frontier. 69

CONCLUSION Europe has ample strengths: the diversity of its people, an abundance of intellectual, scientific and technological capacities, and a rich history of intellectual and business endeavour. To rebuild its competitiveness and return to longterm sustainable growth, Europe has no choice but to rigorously implement the Investment Plan for Europe. The EIB Group will ensure that investments are only channelled to commercially sound and economically and technically viable projects in sectors that are critical to Europe’s competitiveness. The means are there. The EU Bank is the world’s largest international public bank with a balance sheet of more than €550 billion. In 2015, EIB Group financing totalled a record €84.5 billion. The EIB alone lent €77.5 billion, supporting nearly 500 projects and catalysing almost €230 billion of investment. The EU has a powerful instrument in its hands to pursue its political goals. This is imperative because restoring Europe’s competitiveness is central to re-embarking on the EU success story of cohesion, convergence, and prosperity that began with the Marshall Plan – with the one key difference today that Europe is using public resources in a much more efficient manner, not as grants and subsidies, but as loans and guarantees. This marks a true shift of 70

paradigm in the use of scarce public resources which the EU Bank has advocated for many years and which is of truly fundamental importance.

objectives. More than 90% of the activity is focused on Europe but EIB also supports the EU’s external and development policies.

ABOUT THE AUTHOR Werner Hoyer is the president of the EIB and the chairman of its board of directors, and has been for the last four years. Prior, Mr Hoyer served as minister of state (Deputy Foreign Minister) at the German Foreign Office, responsible for Political and Security Affairs, European Affairs, United Nations and Arms Control, and as commissioner for Franco-German Cooperation. Also, he has been the deputy chairman and Foreign Affairs spokesman of the FDP (Free Democratic Party) parliamentary group in Germany.

ABOUT EIF EIF is part of the EIB group and supports Europe’s SMEs by improving their access to finance through a wide range of selected financial intermediaries. To this end, EIF designs and implements equity and debt financial instruments which specifically target SMEs. EIF fosters EU objectives in support of entrepreneurship, growth, innovation, research and development, and employment. i

Mr Hoyer holds a PhD in Economics from Cologne University where he has also been an associate lecturer in international economic relations. He has researched at UCLA in the US. He is married with two children. ABOUT EIB The EIB is the European Union’s bank. EIB is the only bank owned by and representing the interests of the European Union member states and as such works closely with other EU institutions to implement EU policy. EIB is as the largest multilateral borrower and lender by volume, a major player. EIB provides finance and expertise for sound and sustainable investment projects which contribute to furthering EU policy CFI.co | Capital Finance International

Author: Werner Hoyer

Spring 2016 Issue

> CFI.co Meets CaixaBank Asset Management:

A Fixed Income Team Designed for a Changing World

aixaBank Asset Management continues to lead the fund industry in Spain with a 17.7% market share and is a whollyowned subsidiary of CaixaBank Group.

The Fixed Income team manages around €8bn, held in a range of different mutual funds comprised of monetary funds, short-term funds, corporate funds, government funds, currency funds, and flexible funds, which are allowed to invest in any security within the fixed income spectrum, and in some cases even equity investments up to a certain limit. The seven-strong team is overseen by Guillermo Viñuales, former head of Credit Markets. Following internal restructuring both the Fixed Income and Equity teams now operate under the leadership of Carmen Lumbreras, former head of Fixed Income. The goal is to generate significant synergies between the two teams by having them work closely together, share ideas, and establish a more robust approach to the markets from both perspectives. This is important due to the complexity, volatility, and correlation of markets, thus rendering thorough analysis imperative. To this end, weekly committee meetings are held between both teams, with brain-storming sessions also ongoing on a daily basis. The entire team has extensive experience in fixed income markets and has been working together

for more than seven years, generating a selfmotivating and collaborative environment that adds value to the decision making process. Another core aspect of CaixaBank AM’s strategy is to forge close relations with clients via frequent meetings, conference calls, and written notes, allowing the professionals to share views and provide all the required information in a fully transparent manner. Duties have been organised based on a matrix system. Each team member manages a specific type of fund, while also analysing a particular sector or asset within fixed income markets. The investment approach combines top-down and bottom-up analysis based on internal and independent research grounded in a fundamental strategy.

Additionally, Mr Merino is responsible for ABS, covered bonds and the real estate sector. María Antonia Muñoz manages corporate funds and credit model portfolios tailored for other teams at CaixaBank Asset Management, while also taking charge of the utilities, telecoms, energy and auto sectors. Carmen Pinyol co-manages one of the flexible funds, FonCaixa Estrategia Flexible, and its replica in the Luxembourg Sicav, Caixabank Global Flexible Strategy Fund. In terms of analysis, she is in charge of the financial sector for both the Fixed Income and the Equity teams. The fund manager in charge of government funds is Carlos Robles, who is likewise responsible for rates and macro analysis.

Juan Manuel Blanco manages monetary funds, mainly in euros but in dollars too. The FonCaixa Monetario Rendimiento Fund is one of the biggest in the Spanish industry, with assets under management in excess of €4bn and a solid track record in a very complex market.

María Jesús Martínez Pardell plays a twofold role, performing analysis on the industrial, technology and consumer sectors in credit markets, while at the same time forming part of the Equity team covering technology and consumer staples and also managing an equity fund focused on the tech sector.

Meanwhile, Luis Merino is in charge of the shortterm fund (1 to 3 year bucket). The FonCaixa Ahorro Fund has performed very well in recent years and represents a benchmark fund for our clients, with more than €1bn in assets under management.

Finally, Guillermo Viñuales manages another flexible fund, FonCaixa Renta Fija Flexible, which stands as one of the flagships at Caixabank Asset Management, with a strong track record over the years and €1.8bn in assets under management. i

CFI.co | Capital Finance International

> CaixaBank:

Growth & Innovation Drive Expansion CaixaBank is the leading retail bank in Spain with a customer base of 13.8 million, 5,211 branches, and 9,631 ATMs. CaixaBank, overseen by Chairman Isidro Fainé and CEO Gonzalo Gortázar, is an integrated financial group that operates in banking, insurance, and asset management. It also holds stakes in international banks and prominent service sector companies.

t year-end 2015, CaixaBank reported a net attributable profit of €814 million, up 31.4% year-on-year. Customer funds stood at €296,599 million (+9.1%), while loans totalled €206,437 million (+4.7%), as a result of the incorporation of Barclays Bank, SAU, and the slowing pace of deleveraging. New loan production grew again, with mortgage lending up 57%, consumer loans rising 48%, and loans to companies up by 23%. Moreover, the bank has sustained robust capital levels, reporting a fully-loaded Common Equity Tier 1 (CET1) ratio of 11.6%. According to the phased-in implementation timetable, the regulatory CET1 ratio stands at 12.7% while the total capital ratio is 15.7%, which is better than at all other leading financial institutions in Spain. The commercial strength of the CaixaBank Group and the acquisition of Barclays Bank, SAU, have enabled consistent market share growth in all key financial products and services.

“The commercial strength of the CaixaBank Group and the acquisition of Barclays Bank, SAU, have enabled consistent market share growth in all key financial products and services.” penetration rates secured by smartphones and social networks, especially among the young adult segment. IMAGINBANK ImaginBank provides services exclusively via mobile applications and social networks. This marks a radical departure from the bank’s traditional value proposition: users are able to manage their finances in a fully independent

CaixaBank is also the leader in online and mobile banking. It has established itself as a market leader in Internet banking (Línea Abierta platform) both domestically and internationally (34% market share in June 2015 according to ComScore). Its leadership extends to quality too, according to the AQMetrix ranking, which evaluates the excellence of online banking channels in five countries – Spain, USA, Mexico, Germany, United Kingdom, and Brazil. CaixaBank is the top rated bank internationally, ahead of the leading financial institutions in each country. Meanwhile, CaixaBank recently launched imaginBank, Spain’s first mobile-only bank, which provides banking services exclusively via mobile apps and social networks. It has thus created a new fully-digital service model that leverages cutting-edge technology and the high 72

CaixaBank: Headquarters

CFI.co | Capital Finance International

manner, supported by “intelligent” tech tools to monitor their personal finances on a constant basis – budgeting, controlling and sorting expenditure, direct debit records, etc. The new bank emerges on the market with a comprehensive range of commissionfree products and services, including current accounts, debit cards, consumer loans, personal finance management tools, and the latest in mobile and P2P payment technology. CaixaBank focuses chiefly on Spain, but has also built an international network via investments in foreign banks (BPI and Erste Bank). CaixaBank’s strategy is to expand internationally into economies with strong growth potential, as well as to work closely with international partners to broaden services. CaixaBank has representative offices in Paris, Milan, Frankfurt, Beijing, Shanghai, Dubai, New Delhi, Istanbul, Singapore, Cairo, Santiago de Chile, Bogota, New York, and Johannesburg, in addition to

Spring 2016 Issue

play a major role in CaixaBank’s international growth. In 2015, CaixaBank Asset Management (mutual funds) and VidaCaixa (life insurance and pension plans), both fully-owned subsidiaries of CaixaBank, topped the tables in terms of investment and pension products, with upwards of €108,000 million under management across a wide range of investment funds, savings, insurance and pension plans. CaixaBank Asset Management is the leading fund manager in Spain with more than €50,000 million under management and advisory. CaixaBank has a market share of 17.7% in investment funds and is ranked first by assets under management and unitholders. In 2015, CaixaBank AM received net subscriptions worth €7 billion in investment funds, representing 28% of the entire sector. The fund management firm designs and manages a wide range of products, such as funds, SICAVs (open-ended collective investment schemes), and discretionary mandates, tailored to all kinds of customers. CaixaBank AM is committed to active fund management in fixed income, equity funds and asset allocation. Meanwhile, CaixaBank Global Sicav was launched in late 2013. This UCITS, set up by CaixaBank and managed by CaixaBank AM, was designed to cater to growing customer demand for asset management in Luxembourg. At year-end 2015 it had €1,479 million in assets under management. CEO: Gonzalo Gortázar (left), Chairman: IsidroFainé (right)

international branches in Warsaw, Casablanca, Tangier and London. CaixaBank couples its leadership ambitions to a commitment to the socio-economic development of the communities and regions in which it conducts business. To achieve this, the bank fosters economic growth, private sector productivity, job creation and better living standards for individuals and families. The bank’s profitability fuels important social and welfare projects in Spain via the “la Caixa” Banking Foundation, which directly oversees welfare projects and uses CriteriaCaixa to pool all “la Caixa” Group shareholdings, including CaixaBank. In 2015, there were further improvements in all business areas, while the 2016-2019 Strategic Plan was also laid out. This will guide the foundation’s actions over the coming four years. The ultimate aim: To build a better and fairer society by creating opportunities for those most in need. To accomplish this, in 2016 Welfare Projects will once again be allocated a budget of €500 million, the same allowance as provided for the past eight years, making it Spain’s leading foundation when it comes to funds invested in

social welfare projects, as well as one the largest in Europe and indeed worldwide. At the same time, CaixaBank continues to stand out from its peers thanks to its principles of promoting entrepreneurship, financial inclusion, transparency and good governance, as well as incorporating social and environmental criteria in risk analysis, products and services, and social commitment. Highlights over the last year include CaixaBank featuring in all the leading global sustainability indices, such as the Dow Jones Sustainability Index (DJSI), as well as its work with MicroBank, the number one European bank in terms of total microcredit loans approved. ASSET MANAGEMENT One key business area helping to cement CaixaBank’s leadership is the investment fund subsidiary: CaixaBank Asset Management. CaixaBank Asset Management (called InverCaixa until December 2015) was founded in 1985 and is overseen by Chairwoman Asunción Ortega and CIO Guillermo Hermida. It is the specialised asset management arm of the CaixaBank Group. The firm is one of group’s outstanding subsidiaries and is expected to CFI.co | Capital Finance International

The asset management firm’s approach is shaped by a robust understanding of client requirements in terms of time horizons, expected returns, risk tolerance and more. This hard work and dedication to good practices saw CFI.co honour CaixaBank Asset Management with the award for best fixed income team in Spain for the second year. CaixaBank Asset Management has a staff of more than 160 and an investment management team comprised of over 60 experts dedicated to evaluating and identifying investment opportunities. Each fund manager designs and oversees products that cater to their clients’ riskreturn expectations, with the emphasis placed on simplicity and transparency. At CaixaBank AM, all investment decisions are made based on a top-down approach, under the auspices of committees made up of experienced asset class managers. Ongoing portfolio monitoring and risk control is performed by an independent department. CaixaBank AM’s strategic approach is grounded firmly in the specific values and convictions that it shares with CaixaBank. These include providing added value for clients while ensuring optimal product quality, transparency, flexibility, responsibility, efficiency and security. i 73

> enso GmbH:

Investing in Hydro Power Alternative Investment Fund Manager enso manages hydropower, the most efficient form of renewable energy. Investing in hydropower signifies investing in a sustainable, environmentally friendly, and social manner.

ydropower is a well-tried, sophisticated, and economically competitive technology. While the average life span of the facilities amounts to between 60 and 90 years, many of the plants exceed this statistical lifetime with a regular professional service and to some extent replacement of electromechanical parts. Hydropower achieves an impressive efficiency rate of between 65% and 88% dwarfing all other technologies such as wind, solar, or thermal power plants showing efficiency ratios between 30% and 40% only. For power plants up to 30 MW, the impact on the environment can be kept to a minimum. Enso mainly builds high pressure facilities with electricity being predominantly generated by a head and the difference in altitude between intake and powerhouse where the turbines are located. These facilities are usually located at small waterways and carefully embedded within their natural surroundings. Substantial components of the plant are buried below ground level. Therefore, these parts of the construction are barely visible after renaturation. Enso places special emphasis on fitting the plants carefully into the environment. Powerhouses, for example, are built in a common architectural style of the region.

“Enso places special emphasis on fitting the plants carefully into the environment. Powerhouses, for example, are built in a common architectural style of the region.” as relocation of local residents do not occur in the case of small hydropower as neither massive dams nor reservoirs are necessary. A further socially positive effect of hydropower stems from employing local companies for the construction and operation of the power plants. MAKING HYDROPOWER INVESTMENTS A REALITY Enso is the ideal partner for investors in this relatively new asset class. A team of specialists, that closely cooperates with all groups of interest linked to hydropower projects such as investors, banks, public authorities, and grid

This type of power plant differs significantly from run-of-river power plants requiring vast dams along streams with a strong natural flow forming large reservoirs and thus, involving extensive changes of the river landscape and its habitat. In countries such as Albania and Turkey, investing in hydropower plants causes a significant improvement of living conditions. People in rural areas often suffer from line losses, grid instabilities, or even blackouts caused by poorly developed electric infrastructure. This situation can be improved by building decentralised hydropower plants. Feed-in in remote areas contributes to grid stability and consequently to an improvement of local security of supply. Negative impacts such 74

Powerhouse of a Norwegian hydropower plant.

CFI.co | Capital Finance International

operators is able to offer tailor-made service packages covering the complete range of tasks relating to hydropower. Depending on the client’s requirements, enso either takes on individual consulting functions or the entire range of project related activities from project selection to implementation. INVESTMENT IN DESIGN AND PLANNING PAYS OFF Despite the currently low level of electricity prices, building hydropower plants is still a reliable and – if done the right way – profitable investment. As a prerequisite, facilities need to be well designed, i.e. they have to be tailored corresponding to the expected hydrological parameters. Enso commissions comprehensive hydrological studies during preliminary stages which are consequently evaluated in terms of energy efficiency and provide the basis for a proper design of the power plant. In order to dimension the size of the power plant, at first, the flow rate is determined at which the facility achieves maximum output at the highest level of efficiency. This is always a compromise between the maximum achievable annual production and the building costs. In due consideration of possibly all even future factors of influence enso always look for the optimal solution.

Spring 2016 Issue

In some cases, possible additional output is waived in favour of operational safety or a robust dimensioning of a power plant. In return, the risk of malfunctioning or breakdown can be reduced or avoided. This focus on the right concept is the key factor of success for an efficient long-term operation. Every hydropower plant is unique. Despite the best preparations, unexpected events may happen in the course of construction. The subsoil risk, for example, is not always calculable exactly in advance. Therefore, a tightly organised construction process, operated by an experienced team, is essential to the success of a project. To ensure safety and quality, enso employs mostly international external experts who guarantee compliance with building standards as well as project specific ESAM-guidelines. ENSO UNDERTAKES M&A ACTIVITIES Enso is a specialist in acquiring and selling individual hydropower plants or entire hydropower portfolios. If requested, enso manages the complete process from start to finish. Enso analyses all data available and prepares reports in order to enable all stakeholders involved to get a clear picture and subsequently to make informed decisions. To ensure that the data basis for a buy or sell decision is reliable, enso cooperates with international experts in the fields of hydrology, geology, electro-mechanics, water management, taxation, finance, and contract design. ASSET MANAGEMENT FOR PORTFOLIOS Since 2009, enso has focussed on asset management of hydropower portfolios. For enso hydro the team of enso GmbH developed an internationally, risk-diversified portfolio. As a qualified alternative investment fund manager, enso delivers the entire range of hydropower related activities. As a first step, countries and ideal regions are selected. Then, after a detailed due diligence, the most interesting projects are acquired, some of them still in the planning stage, some under construction, and others already completed. All projects undergo a detailed analysis. In some cases, enso drafts new concepts before starting construction. During construction, the experts of enso supervise the project in technical, organisational, and financial matters. Efficiency and safety of already operating power plants are analysed and subsequently optimised. Besides water management and technical questions enso also clarifies all financial matters. For every individual project, enso arranges suitable financing options, obtains all official authorisations, and handles all administrative procedures. CFI.co | Capital Finance International

With €80 million of equity, a portfolio of 25 hydropower plants in four countries was implemented. ENSO HELPS TO GET MORE OUT OF RUNNING POWER PLANTS Hydropower plants have a very long life span and barely require major investments in maintenance for day-to-day operations. But, in the course of a general overhaul, productivity of a power plant can be increased considerably with relatively low financial expenses by, for instance, renewing the electro-mechanics. Frequently, the key to success of such an optimisation lies in the concept. Hence, enso provides new or improves existing concepts for its clients and ensures their implementation. Another important instrument for the efficient running of a plant is the definition of ideal maintenance intervals for each facility. So expensive unplanned shutdowns may often be avoided. ADDITIONAL SERVICES For smooth performance in all phases of asset management, enso follows a well-defined process breakdown structure which enables it to manage projects in an economically efficient and at the same time risk-minimising way. In addition to project selection, M&A activities, and operational management of the facilities, enso offers characteristic asset management activities such as • Reporting and controlling • Investor relations • Contacts with government authorities and financing institutions • Risk management • Performance of advisory board and supervisory roles • Accompanying measures to ensure smooth operation of a power plant • Sale of electricity • Assisting exit process KEY FACTOR FINANCING Often financing problems are the reason why projects don’t become reality. Enso has been cooperating for years with international banks and institutions and is able to arrange suitable financing of hydropower plant projects or whole portfolios. In a first step, enso calculates the ideal mix of private equity and debt financing and prepares the necessary bankable documents. Equipped with these professional documents, tailored to the respective contact person, enso assists its clients in the search of private equity investors and external finance partners and connects them with international partners such as development banks or funds financed by them. Covering the whole range of activities related to hydropower, enso bundles up a unique package for any client, who is engaged in the hydropower business or is willing to become part of it. i 75

> CFI.co Meets the CEO of enso GmbH:

Dr Georg Kühhas DR KÜHHAS, CAN YOU TELL US ABOUT THE DEVELOPMENT OF THE ECONOMIC ENVIRONMENT FOR INVESTORS IN HYDROPOWER? For quite some time now, we have been faced with rather low prices on the electricity market. As a result, short-term operative yields of a hydropower plant are not particularly high and investors should focus on a long-term investment horizon. At the same time, we have seen quite positive developments as well. Electricity demand will continue to rise. Just think of the increase of electro-mobility. There will also be a shift in energy sources with renewable energy particularly profiting from that shift.

The biggest obstacles surely have to be overcome when implementing a power plant. Vast knowhow has to be put into the planning and dimensioning the facility. Investing a lot of energy and time at this stage will pay off in the long run. Quite often a lot can be achieved with relatively small changes. Due to local conditions and the way the water flows, the construction of every power plant is unique. Therefore, every power plant is tailormade. Rock composition cannot always be determined exactly in advance. So sometimes there are surprises in one way or another when constructing a tunnel. But that’s our daily business. We are used to solving such problems with our expertise.

IS THIS A REFERENCE TO THE SIGNIFICANCE OF THE OUTCOME OF THE UN CLIMATE CHANGE CONFERENCE IN PARIS? Yes, at the Climate Change Conference participating countries agreed to further reduce greenhouse gas emissions in order to keep global warming well below two degrees compared to pre-industrial levels. In practice, this means a reduction of the use of fossil fuels and a continuous increase of the significance of renewable energy sources. We therefore expect an improvement of the legal framework and an increasing appeal to invest in hydropower. WHAT COULD BE THE ROLE OF HYDROPOWER? Hydropower is the only renewable energy source with a technology matured over decades. To date, renewable energy sources only amount to 17% of the overall energy production with hydropower generating 15% thereof. Electricity is continuously becoming more important within the energy mix. The further development of hydropower capacities is essential in the reduction of greenhouse gas emissions. WHO IS CURRENTLY INVESTING IN HYDROPOWER? At present, sustainability and a clean environment are matters of major concern for people who invest in hydropower. Economic parameters such as rather low electricity prices only allow for higher yields in the medium term. However, the market situation offers very interesting acquisition opportunities at the moment. Investors should profit from these chances. YOU HAVE DEVELOPED A HYDROPOWER PORTFOLIO OF 25 POWER PLANTS FOR ENSO HYDRO OVER THE PAST FEW YEARS. THE POWER PLANTS ARE LOCATED IN NORWAY, ALBANIA, TURKEY AND AUSTRIA. WHY HAVE YOU CHOSEN THIS SPECIFIC COUNTRY MIX? At first sight, these countries share few common characteristics. The decisive factors for our choice of location are topographic conditions as well as hydrology. That is, we choose mountain regions abundant with rain where we can make 76

SO ENSO HAS A TEAM COVERING ALL STAGES OF A HYDROPOWER PLANT PROJECT? Yes, that’s our strength, our USP if you like. We have experts covering all areas of expertise involved. Our team looks for and chooses suitable projects and covers the whole range from planning and construction to operative management of a hydropower plant. On a legal and financial level, we have experts in the fields of financing and financial engineering of investments. For years we have been cooperating closely with international institutions such as the IFC [International Finance Corporation, part of the World Bank Group] and the Green for Growth Fund and we therefore arrange suitable financing options for every project.

CEO: Dr Georg Kühhas

use of the head to generate energy. All these countries have regions with ideal conditions for the generation of electricity by hydropower. However, the implementation of these projects varies tremendously. Each project has to be evaluated carefully in the preliminary stages to avoid any unpleasant surprises. WHAT ARE SOME OF THE DIFFICULTIES INVOLVED? There are significant differences in the legal and regulatory framework. Water rights are usually owned by public authorities which then grant licences for the use of such rights. Hence, the term of a licence already constitutes an essential criterion for the evaluation of a project. The terms of off-take and sold quantities also play a key role. Is off-take/consumption ensured? Are there guaranteed or pegged prices? Some countries have renewable energy certificates that are traded on separate markets. CFI.co | Capital Finance International

That’s how we were able to develop a portfolio of 20 country-diversified power plants within only three years for the investors of DWS funds. CAN YOU GIVE US AN OUTLINE OF WHAT LIES AHEAD IN THE NEW YEAR? We have just finished one of our core projects in Albania and put it into operation. The start has been very successful and now we will focus on fine-tuning to achieve optimum performance. Then, we are consistently working on the implementation of several other projects in various stages. This year, our market entry in Chile will be an exceptional challenge for us. We decided to enter this incredibly interesting market because there are ideal conditions for hydropower in Chile. However, there are few projects implemented, yet. That is why we want to contribute our expertise there. The company has already been founded and the means for the first fund secured. So we can get started. We are looking forward to it. i

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> Inapa:

Leading the Paper Industry Inapa has extended its business to better meet customer needs. It now offers a wide portfolio of innovative solutions – paper, packaging, and visual communication – to solve problems and inspire excellence while ensuring a sustainable future for the next generations.

napa was founded in Portugal in November, 1965, as the first large-scale paper mill in the country. Much has changed since the company’s foundation. Inapa has significantly expanded its business model. The company sold its industrial assets of paper production in February 2000 in order to focus on paper distribution. Today, Inapa is a different company from the one that was founded fifty years ago. It is fully prepared to meet the challenges of the market and exceed the expectations of clients. The business focus and strategy have changed over the years. The business has grown in both volumes and sales. The corporate geographic footprint has expanded as well, positioning Inapa as one of Portugal’s most globalised companies. Inapa has been listed on the Lisbon Stock Exchange since 1980. The group currently employs 1,400 employees in nine countries and generates more than €900 million in sales annually. It is now Europe’s third largest paper merchant, serving 60,000 customers with a distinctive client-centric approach and solid environmental stewardship. Inapa has been recently distinguished by different international entities as the premier European paper merchant with best-in-class client satisfaction, best corporate governance. Inapa was also recognised as the most innovative packaging company in Europe. In 2015, the group had done 1.5 million deliveries – one every five seconds – making it a truly astonishing service machine. BUSINESS AREAS AND MARKETS Inapa’s main activity is still the sale of paper products. The company distributes more than 800,000 tonnes in nine countries – Germany, France, Switzerland, Belgium, Luxembourg, Spain, Portugal, Turkey, and Angola. It serves both the graphic and office segment. In each market, Inapa is one of the three largest players. The group presents itself as a full service provider, complementing the paper business with graphic and office supplies, packaging and visual 78

“The corporate geographic footprint has expanded as well, positioning Inapa as one of Portugal’s most globalised companies. Inapa is listed on the Lisbon Stock Exchange since 1980.” communication products, and even logistics services. The distribution of packaging solutions and materials is the second largest business area. With operations in Germany, France, and Portugal, Inapa is a full-service provider of packaging solutions for industry, packaging services, packaging development and manufacturing, with a wide range of products such as boxes, films, tapes, bags, fillings, shipping solutions, and equipment. Visual communication is the segment with the highest growth rate in the printing industry. It includes a range of products and services for the large format digital printing: printers, inks/toners, media, software, and technical support. THE INAPA VALUE PROPOSITION Inapa’s purpose is to find the best solution for the costumer. The company interacts with the customer to understand operation and requirements. This provides Inapa’s motivation: being a business partner. Inapa adjusts and reinvents its own operations to ensure full customer satisfaction and service excellence. Inapa’s main focus is to find the ideal solution for the customer, even if that means finding new partners in distant markets. The Inapa team acts more as a consultant, CFI.co | Capital Finance International

understanding the operation and the challenges of customers in order to create customised solutions without pushing the products in our catalogue. Inapa’s customer-centric philosophy is based on the following pillars: • A state-of-the-art product portfolio with innovative solutions; • A high level of competence, openness, and reliability towards every customer; • Clear and open communication; • Establishing long-term relationships with customers as well as suppliers, based on partnership and trust rather than on price. In order to do this, Inapa’s international presence strategy can be summarised as the “best of both worlds: local autonomy, global resources.” Each country has autonomy and develops its commercial strategy based on the characteristics of its market, adjusting the approach to language, culture, and expectations. However, all benefit from an international presence and shared resources through the development of the group’s integrated solution in key areas like procurement, logistics, IT, and financial services, creating a greater efficiency. ENVIRONMENTAL RESPONSIBILITY Environmental sustainability is one of the group’s commitments. Inapa has a responsible and precautionary approach to environmental challenges promoting initiatives that fully comply with all laws, and European Union and local regulations. Inapa’s environmental commitment is reflected in the following areas: • Legal compliance; • Environmental performance; • Proactive product management; • Carbon footprint of all operations. The group is fully committed to actively improve the environment, promoting ecologically sound products across its brands and committed to reaching the goal of having 90% of its assortment produced under comprehensive ecological management systems. i

Spring 2016 Issue

> CFI.co Meets Inapa Management:

The Inapa Governance Model Inapa has been recognised as the Portuguese company with the Best Corporate Governance for five consecutive years, which acknowledges the group’s efforts to implement and maintain an efficient and balanced governance structure.

Diogo Rezende

his governance structure has five different entities: (i) the general assembly, (ii) the board of directors, (iii) the executive committee, (iv) the audit committee and (v) the remuneration commission. EXECUTIVE COMMITTEE LEADING THE WAY Inapa is led by an executive committee, elected by the board of directors. This committee is the management team in charge of the execution of the board of director’s decisions regarding the company’s strategy. Each member of the executive committee is responsible for different functional areas, namely: Diogo Rezende is currently Inapa’s chief executive officer. Based in Lisbon, at Inapa’s holding, Mr Rezende has the responsibility of overseeing the group strategy, legal, human resources, and communication matters as well as the coordination of visual communications and packaging business. With more than 25 years of experience, Mr

Frederico Lupi

António Albuquerque

Rezende has held numerous key executive positions, both as CEO and managing director at different international companies. Prior to joining Inapa, he was CEO of Ford Lusitana where he led the implementation of turnaround plans, adapting business structures and market strategy to the fast-changing business cycles of growth and contraction.

the executive board of the Millennium Bank in Athens.

Graduated in Economics from the Universidade Nova de Lisboa, with a MBA from INSEAD, Fontainebleau, Mr Rezende is also founder of several start-ups, and university professor of Entrepreneurship. Frederico Lupi is chief operating officer of Inapa. He is responsible for the operational performance of all paper merchant business and the group’s IT. Prior to this role, Mr Lupi had a career in banking for more than 18 years. During this time, he has held different top management roles in the private banking and the bank assurance sector in Greece where he was designated member of CFI.co | Capital Finance International Managing Director: Abu Noman Howlader

With more than 25 years of experience in Portugal and abroad, Mr Lupi has directed loan restructuring plans and managed different roles – treasury, accounting, reporting, budget, and human resources – in different economic contexts and groups with international presence. António Albuquerque is the chief financial officer. He is responsible for the financial planning, control, and reporting of the Group Inapa. He supervises the following areas: accounting, auditing, planning and control, finance, and investor relations. Mr Albuquerque graduated in Finance Administration from the Instituto Superior de Ciências Económicas e Financeiras (now ISEG). With more than forty years of experience, before joining Inapa in 2010, Mr Albuquerque has been director at Parpública and held management positions in the banking and insurance sector. i 79

> Arca SGR:

Expertise and Independence

rca Sgr SPA, founded in 1983 by 12 “Popolari” banks, is an asset management company also authorised to manage individual portfolios of institutional clients. The distinctive feature that distinguishes Arca SGR is its independence: none of the company’s shareholders exercises full control. As of December 31, 2015, Arca SGR’s shareholder 80

structure is as follows: • BPER Banca s.c. - 32,7 % • Banca Popolare di Sondrio Soc. Coop. p.a. 21,2% • Banca Popolare di Vicenza S.c.p.a. - 20 % • Veneto Banca - 20% • Others - 6,1%

asset management companies operating in Italy. Assets under management amount to €30 billion: • €25 bn mutual funds – market share 4% • €3 bn Arca Previdenza Open Pension Fund – market share 20% • €2 bn under management for institutional clients

Today, Arca SGR is one of the leading independent

Institutional asset under management are assets

CFI.co | Capital Finance International

Spring 2016 Issue

held by pension funds (contractual and preexisting), retirement funds, foundations, banks, large companies; insurance companies, other mutual funds and Sicavs. GOVERNANCE Arca SGR was one of the first asset management companies to adopt the Protocollo di Autonomia drawn up by Assogestioni, the Italian association of asset managers. The protocol aims to implement a sound and adequate company framework to manage conflicts of interest and thus protect subscribers and safeguard management decisions. Continuity and autonomy in operations and governance serve as a guarantee that the protection of the clients’ interests will always remain Arca SGR’s objective and priority. BRAND RECOGNITION With one of the largest distribution networks in the Italian asset management industry, and a long-standing and well-established brand presence in the marketplace, Arca SGR is ranked by Italian investors as one of the Italy’s best known asset managers. Over time, the company has also developed strong ties with customers. With a highly innovative product range and the introduction of multimanager solutions, Arca SGR has succeeded in satisfying the changing needs of Italian investors, developing business with clients in numerous distinct market segments. DISTRIBUTION NETWORK Arca SGR can count on a vast distribution network – one of the most important and extensive of its kind in Italy, that allows the company to distribute its products across the entire country. The network is made up of over 120 institutions, all fully regulated by the country’s financial market authority, operating through more than 8,000 branches, and teams of independent financial advisors, in addition to on-line channels.

“Arca SGR can count on a vast distribution network – one of the most important and extensive of its kind in Italy, that allows the company to distribute its products across the entire country.” CFI.co | Capital Finance International

AWARDS In recent years, Arca SGR has received several awards in recognition of its corporate excellence. • Il Sole 24 Ore Premio Alto Rendimento – Arca SGR – Fondi Italiani BIG, Miglior Gestore, 2012, 2013, 2014, 2015 • Morningstar Fund Awards - Arca Obbligazioni Europa – Miglior fondo della categoria Bilanciati Prudenti, 2015 • European Funds Trophy – Arca SGR – Best Italian Asset Managers 8 to 15 Rated Funds, 2014, 2015 • Milano Finanza Insurance & Previdenza Awards – Arca Previdenza, Premio Tripla A 2015 ASSET GROWTH • Acquisition of OPTIMA OICRs (AuM €927 million) 81

“With a highly innovative product range and the introduction of multimanager solutions, Arca SGR has succeeded in satisfying the changing needs of Italian investors, developing business with clients in numerous distinct market segments.”

CEO: Ugo Loser

gathered experience in investment banking and management consulting at a number of companies, such as: • Promoter and sole shareholder of EigenV Partners • Director at Finlabo SIM and Banknord SIM • Partner at Bain & Company Italy (promoter of asset and risk management) • Senior strategist for the European derivatives market on fixed income at Paribas • Executive director fixed income research at Goldman Sachs International Mr Loser is a member of the executive board of Assogestioni.

Chairman: Guido Cammarano

• Acquisition of VEGAGEST OICRs (AuM €540million), BPVI OICRs (AuM €793 million), and institutional mandates (AuM €1,074 million) • Complete acquisition of CARIGE OICRs (AuM €3,260 million), pension fund (AuM €422 million), and investment advisory on segregated account. This deal added a new distributor of Arca products, Gruppo Banca Carige with more than 600 branches in Italy. Arca SGR aims to create significant addedvalue for its customers on a continuous basis. The company manages broadly style-neutral portfolios in order to deliver consistently good long-term performance comparable with benchmarks and total return portfolio according to its proprietary risk parity methodology. Arca SGR maintains a separate department for local, institutional, and pension investments. 82

Arca SGR manages: • Traditional products and mandates – the allocation involves the balancing of investments between different asset classes • Total return products and mandates – regardless of the trend of the financial markets, these products, with limited volatility, are aimed at achieving a positive return over a predefined time horizon • Products employing the multi-strategy multimanager approach – these products incorporate innovative strategies not directly correlated to the trend of the traditional equity and bond markets THE MANAGERS Ugo Loser – CEO and general manager of Arca SGR since 2011 Mr Loser obtained a degree in Economic and Social Sciences from the Bocconi University of Milan. Prior to joining Arca, he CFI.co | Capital Finance International

Guido Cammarano – Chairman of the Arca SGR board of directors (since 2008) Mr Cammarano obtained a law degree from the Sapienza University of Rome. Previously, he has worked at CNEL (State Institute of Economy and Labour), IMI, CNEN (National Nuclear Energy Commission), and the legal department of the Bank of Italy where he rose to the level of deputy chief lawyer in charge of banking supervision. Mr Cammarano has been secretary-general and president of Assogestioni and, at the term of his office, was appointed chairman emeritus. He has been member of the board of directors of the Banque Générale du Commerce (Gruppo Cassa di Risparmio di Roma), Cassa di Risparmio di Loreto, and chairman of the Cassa di Risparmio di Orvieto. i

Spring 2016 Issue

> Nova Banka:

Strong Growth with Strong Commitment Nova Banka of Banja Luka is one of leading banks in Bosnia and Herzegovina. It has been in business since 1999. The bank offers a wide portfolio of traditional banking services, including various types of loans, documentary business, deposits and savings, payment transactions, money transfers, and exchange business, amongst others.

ova Banka also conducts a large number of nonbanking activities such as brokerage operations, custody, factoring, and forfeiting. The bank’s headquarters are located in a modern and functional facility in the centre of Banja Luka. Nova Banka comprises 58 other organisational units, including 12 regional branches, a Broker Nova branch dedicated to the securities transactions, 13 branches, 19 tellers and 13 agencies. For the past several years, the bank has registered solid growth across all business segments, resulting in an exceptional level of profitability. In particular, the development of card business, loan placement, and savings and deposits have shown an accelerated pace of expansion – a certain sign that Nova bank has gained the trust of its customers. The bank managed to significantly expand its client base. The success of Nova Banka may be ascribed to the implementation of a well-thought out strategic plan, especially in the segments of capital increase, growth of assets, development of branch network, and increased quality of services. This strategy is based on a corporate vision that emphasises reliability and profitability and aims to affirm Nova Banka as the premier mid-sized bank in Bosnia and Herzegovina. Since November 2002, the bank has been listed on the Banja Luka Stock Exchange. Nova Banka boasts a very good level of liquidity, solvency, and profitability and diligently maintains a capital adequacy well above the level prescribed by law. From its foundation until the present, the bank has been recognized as a good employer. Nova Banka has over 650 employees. The bank pays great attention to motivation and the professional development of its staff and offers its employees an opportunity to participate in conferences, seminars, workshops, and other events both in the region and around the world. Key positions at the bank are entrusted to experts with substantial experience in banking. They help mentor younger colleagues. Having understood importance of internal knowledge transfer, Nova Banka regularly organises internal training sessions for its staff. Employees are also instructed on the strengthening of corporate

identity, corporate social responsibility (CSR), and the proper implementation of corporate governance standards. The effort has been recognised by the wider community in which the bank operates. Nova Banka has received a number of prestigious awards and prizes. The bank’s exemplary approach to all aspects of its business aspects has allowed Nova Banka to swiftly meet all challenges. As an institution, the bank is dedicated to following the highest ethical standards in the pursuit of its business. Nova Banka tries – and succeeds – to contribute on a daily basis to the community through diverse activities and initiatives. The bank offers financial support to projects that aim the promote local culture, a healthy lifestyle and sport, and the preservation of the environment. The bank actively supports a number of humanitarian initiatives – some of which were initiated by Nova Banka. Because of its proactive stance and approach to CSR, Nova Bank greatly appreciates the recognition it received for the best implementation of corporate governance guidelines and CSR principles in Bosnia and Herzegovina by the International Finance Corporation (IFC, part of the World Bank Group), agency Mašta, and the foundation Mozaik. Nova Banka cooperates with educational institutions in Bosnia and Herzegovina on both CFI.co | Capital Finance International

commercial and CSR projects. Currently, the bank has signed contracts on cooperation with the Economic Faculty in Banja Luka, the Economic Faculty of the University of Sarajevo, the University of Istočno (Sarajevo), and the University of Tuzla. In 2015, Nova Banka achieved a profit amounting to 12 million BAM, which represents an increase over 2014, in the amount of 644,000 BAM. According to the financial statements released by Nova Banka for 2015 – published on the website of the Banja Luka Stock Exchange – total assets of the bank amounted to 1.63 billion BAM and have also increased in comparison to 2014 when they amounted to 1.59 billion BAM. Net interest income amounted to 45.2 million BAM and increased year-on-year by approximately 4 million BAM. Net commission and fee income has also grown to 24.2 million BAM. For the current year, the bank has set an ambitious goal to increase assets by 1.75 billion BAM and obtain a net profit of 14.5 million BAM. Nova Banka fully intends to keep its leading position in the Republic of Srpska and the third position in Bosnia and Herzegovina. It is certain that goal can be reached thanks to the efforts of its dedicated staff, shareholders, and the trust of its clients. i 83

> National Bank of Greece:

Good Corporate Governance as a Guarantor of Sustainability and Long-Term Value and a Driver of Innovation National Bank of Greece (NBG) is a global financial services provider with an extensive branch network covering the entire geographical area of Greece and subsidiaries both in Greece as well as in eleven other countries in the Southeastern Europe region and elsewhere. The NBG Group offers a broad range of financial products and services to both corporate and retail clients, including banking, investment products, insurance, leasing, and factoring.

he National Bank of Greece was established in 1841 and has been listed on the Athens Stock Exchange since 1880. Throughout its 175-years history, the bank has made a decisive contribution to the economy and evolved in alignment with its changing surroundings. Nowadays, the group – with a strong global presence and having gained the trust of clients over its numerous years of presence in the market – focuses on maintaining its solid corporate governance and continuing to keep pace with developments in the rapidly evolving financial sector. The National Bank of Greece places particular emphasis on maintaining robust corporate governance arrangements, with a view to ensuring long-term sustainability and the creation of value for the benefit of shareholders, customers, and other stakeholders while maintaining its valuable contribution to society via corporate social responsibility (CSR) initiatives. The NBG Group values good corporate governance and places it at the forefront, considering the merits of constantly applying best practices and adopting a model corporate governance framework. This not only increases transparency and accountability, but improves overall efficiency and achieves results in key aspects, detailed below. EFFECTIVE STRATEGIC DIRECTION The application of efficient governance structures and processes is crucial for the NBG Group in ensuring that fully-informed and quality decision-making processes are kept in place when determining the group’s strategic direction and the setting of targets that take into account the circumstances of the economic, social, and technological environment in which 84

“The NBG Group values good corporate governance and places it at the forefront, considering the merits of constantly applying best practices and adopting a model corporate governance framework.” the group operates, besides the aspirations of shareholders, customers and employees of the group. INCREASED INVESTOR COMMUNITY CONFIDENCE The NBG Group considers its robust corporate governance framework key to attracting and retaining investors who are thus assured that the group is committed to ensuring sustainable performance and the creation and preservation of long-term value for its shareholders. INVESTMENT IN HUMAN CAPITAL A sound corporate governance model, amongst others, creates a working environment that inspires personnel and reaffirms confidence in the organisation. Staff motivation increases since employees feel part of a business that has a well-defined strategic direction and focuses on its long-term sustainability, as well as by the fact that they are working in an environment which encourages and provides them the chance to freely communicate their ideas and concerns. Such factors are not only crucial in retaining personnel, but also in further attracting and investing in human talent. CFI.co | Capital Finance International

ENHANCEMENT OF PROCEDURES AND INTERNAL CONTROLS The NBG Group firmly supports the maintenance of solid internal procedures and robust internal controls, which are deemed essential in ensuring effective governance and supervision throughout the group’s operations and activities. Focus is placed on retaining a well-organised operating environment that serves to facilitate long-term success. RESPONSIVENESS AND ADAPTABILITY TO CHANGE Considering the dynamics of the economic, social, and technological environment in which the NBG Group operates, and its wide variety of activities in a number of countries, it is of paramount importance for the group to preserve corporate governance structures which enable swift responsiveness and adaptability to change. INNOVATION Considering emerging trends in the financial sector, and the evolution in the provision of financial services – as evident in the increase in mobile and e-banking services and the expansion of financial technology – a new business environment is formed for providers of financial services to which traditional banking needs to adjust and produce innovative solutions that retain its clientele and momentum in the financial sector. A sound corporate governance framework vastly assists in this process, as it helps banks in being vigilant and enables prompt and cohesive decision-making, given that interaction between all stakeholders is encouraged, and valuable feedback received, as part of this type of communication and exchange of opinions taking place. This can be highly constructive and produce tangible results in the development of innovative solutions that will effectively correspond to consumers’ needs.

Spring 2016 Issue

constant evaluation of performance and the timely identification of further development opportunities, the bank has put in place performance review procedures covering all personnel, while it has also established processes providing for the systematic assessment of the performance of its board of directors and board committees. Such assessments are to be carried out annually. At least every three years it shall be conducted with the assistance of an independent consultant, covering both the collective performance of the board and board committees as well as the individual performance of directors. The bank especially regards directors’ and the board’s performance assessment as being highly significant both in terms of substantially indicating areas for improvement and of setting the tone at the top. INNOVATION AND NEW TECHNOLOGIES The bank strives to continuously evolve and follow technological developments. It has proceeded with the redesign of its internet banking portal and expanding its chain of i-bank stores which are points of service the bank has established to facilitate e-banking transactions and increase the efficiency of the services provided.

National Bank of Greece

Additionally, the bank organises out special competitions in which employees, as well as anyone else wishing to partake, are invited to submit proposals and ideas for innovative solutions and technologies which could be put to use by the bank to the benefit of its customers. The bank awards winning ideas and makes relevant arrangements to adopt and apply ideas and proposals received.

Innovation: New Technologies

In this sense, aside all other advantages good corporate governance has to offer, the National Bank of Greece acknowledges good corporate governance as a key driver of innovation within the rapidly evolving financial sector. The advantages of solid corporate governance in the area of innovation are seen not only in terms of the effective identification of business ideas and innovative solutions, but also, and maybe even more importantly, in that these can be put into practice within a well-structured framework incorporating all necessary controls and safeguards for successful implementation. Keeping abreast of developments in its field of activities, while also being committed to maintaining its long-standing contribution to society, has been a priority for the National Bank of Greece. Throughout its operations, the bank has taken a number of initiatives to further enhance its corporate governance, delivering innovation and supporting contributions to the wider economy and society.

AUTOMATION IN CORPORATE GOVERNANCE With the purpose of further improving the efficiency of its board and the operation of board committees, the National Bank of Greece proceeded with procurement of specialised secretariat software which facilitates the operation of governing bodies and enhances the monitoring and review of all matters discussed at board level while enabling easy access and follow-ups on decisions reached. Additionally, the bank has developed advanced software to be used in maintaining its shareholders’ register and conducting general assemblies. The use of such software helps improve relations and communications with shareholders. The software also offers further benefits by enhancing shareholder structure monitoring and by upgrading procedures over general assemblies. CONTINUOUS DEVELOPMENT Acknowledging the importance of ensuring the CFI.co | Capital Finance International

CONTRIBUTION TO THE ECONOMY AND SOCIETY Mindful of its role in shaping the future, the National Bank of Greece demonstrated its commitment to supporting the economy and society by becoming the first Greek bank to launch crowdfunding – an innovative initiative targeted at financing and promoting important development and social activities. Moreover, the bank is particularly active in supporting start-up companies with a specialised programme specifically targeted at start-ups. This not only provides financing, but also access to business knowhow via advisory services and consultative support the companies are offered in cooperation with specialised third parties. Being conscious of its role as a leading financial institution in the Greek market with significant international presence and activities, the National Bank of Greece will continue its endeavours to ensure the bank and its group companies constantly perform in a manner that contributes to the economy and the society, and promotes long-term value and sustainability. i 85

> CFI.co Meets the CEO of TKP Investments:

Roelie van Wijk

ne of the 75 women business leaders in The Netherlands who form an informal network pushing for change, Roelie van Wijk of TKP Investments successfully deployed a framework that fosters innovation and optimises operational efficiencies at the firm she heads since 2006. Mrs Van Wijk is not one for business-as-usual: “After consulting with our clients, we decided to exclude controversial investments and incorporate strict environmental, social, and governance standards throughout the organisation.” TKP Investments, a wholly-owned subsidiary of Aegon Asset Management, is dedicated to providing investment consultancy and management services to pension funds. The firm is an offshoot of the original pension fund of state-owned Post and Telephony Company (PTT) – since dismembered and privatised. TKP Investments currently offers investment management and advice to 25 pension funds. The firm has in excess of €21bn in funds under management and provides strategic advice on an additional €1.8bn. TKP Investments is a pioneer of the multimanager approach which allows the company to easily adjust to meet customer preferences and market opportunities across the entire universe of asset classes. “TKP Investments offers economies of scale to its clients that reduce overhead expenses. Pension funds are challenged to meet all regulatory requirements and often need to hire expensive consultants to help them navigate all the rules. Those costs are charged to members and reduce the overall profitability of any given portfolio. TKP Investments helps reduce those expenses by pooling resources.” With a small team of some hundred professionals, TKP Investments is nimble enough to seize opportunities, yet large enough to ensure the consistent delivery of world class investment advice and services. “We are known for our one-on-one approach to the business. At TKP Investments we realise that each client has unique requirements or specific concerns that call for a bespoke approach. The commonality is, perhaps, to be found in the fact that our firm adheres to the principles of responsible investing as the best way of securing satisfying long-term returns.” Mrs Van Wijk welcomes the consolidation taking place in the Dutch pension fund sector: “A few years ago there were as many as a thousand pension funds in The Netherlands. This number has now been reduced to around 270 and may decrease yet further to, say, around the hundred 86

CEO: Roelie van Wijk

mark.” The sector’s consolidation may largely be ascribed to have resulted from a collective exercise in cost containment. TKP Investments has been at the forefront of developments and facilitated one of the first applications for a license to manage a pension fund under a new legislative framework that came into being on January 1 and creates a new long-term investment vehicle – the general pension fund (APF, Algemeen Pensioensfonds). The vehicle is intended to create a pool of pension funds and thus allows smaller funds to access the cost savings and increased clout associated with economies of scale. CFI.co | Capital Finance International

Mrs Van Wijk has over a quarter century of experience in the pension fund and investment industries. From 2006 to 2011 she held a seat on the board of directors of TKP Pensioen BV which serves a number of large pension funds. She led ESG Research and was head of Equity Investments at SNS Asset Management. Mrs Van Wijk also worked as portfolio manager at both the Philips and PGGM pension funds. She is a certified European financial analyst and is chairman of the non-executive board (within a 1-tier board) of the Dutch Railway Pension fund. Additionally Mrs van Wijk is member of the board of the Dutch Fund and Asset Management Association. i

Spring 2016 Issue

CFI.co | Capital Finance International

> Black Sea Trade and Development Bank:

Spreading the Power of Cooperation Across the Black Sea Region

he Black Sea Trade and Development Bank (BSTDB) is the sole regional development bank fully owned by the eleven countries of the Black Sea Rim: Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey, and Ukraine. Unlike similar multilateral development institutions, BSTDB does not have either donor or recipient shareholders: all its member countries are eligible for the bank’s financing on equal terms. The institution provides the much-needed mediumto long-term lending to both public and private sector companies and banks in member countries.

of its operations over the years. Over the period 2010-2014, BSTDB’s positively rated operations reached 71% - up from 51% in 2005-2009 and 36% in 2000-2004. BSTDB strives to take the lead in the Black Sea Region and serve as a model for commercial banks in promoting sustainable development, high environmental standards, and transparency. The bank’s achievements in these areas are recognised by the regional financial community: The two latest BSTDB annual reports for 2013 and 2014 received special regional awards for their excellent presentation, outstanding transparency, and wide scope of disclosure from the Banking Association of Central and Eastern Europe.

Looking at the list of BSTDB’s shareholders, one may deduce that the bank is operating in a very complex region, bringing together countries with diverse levels of development, cultures, and religions – countries which, moreover, share a long history of political and economic challenges. This might have led to serious issues in decisionmaking by the bank’s board of directors and its board of governors – comprised of senior government officials of member states who approve the bank’s business strategy, policy documents, and financing for all projects under consideration. However, from its very start, now 18 years ago, BSTDB’s governing bodies and management have demonstrated a remarkable and unwavering commitment to implementing the bank’s development mandate to support economic growth and regional cooperation in all member countries. Having seen periods of political tensions between some of its constituent countries in the past and facing such challenges at present, BSTDB has consistently managed to keep political considerations and disputes out of the board room. The bank’s board members have shown wisdom and professionalism in assessing business proposals exclusively on their merits, without discrimination or prejudice against any country. This constitutes the bank’s core institutional value and is a cornerstone of its successful business development. Ratings agencies have recognised this by assigning A-level credit ratings to BSTDB – A2 from Moody’s and A- from Standard and Poor’s – which are far above the sovereign ratings of the bank’s shareholding states. BSTDB is proud to remain the best-rated financial institution in the Black Sea Region, and one of 88

President and Chairman of the Board of Directors: Ihsan Ugur Delikanli

BSTDB has forged close cooperation and cofinancing ties with other development institutions active in its member countries in order to promote synergies and obtain complementary service benefits. At the same time, BSTDB seeks to make maximum use of its comparative advantages over larger peers, such as faster assessment of business proposals and lower limits for direct financing in smaller economies or in countries with particular needs for external support, such as Greece and Ukraine. i

the highest-rated in Central and Eastern Europe, despite adverse political, economic, and market conditions in its member states. BSTDB has so far disbursed over €3.7 billion for approximately 300 projects in the Black Sea Region and, indirectly, has mobilised a far greater amount of financial resources from other investors and co-financiers. Over the past ten years, BSTDB has demonstrated a sound financial position and stable profitability. The bank is currently projecting a managed annual portfolio growth of 7.5% over the period of 2015-2018. As a development institution, BSTDB does not prioritise profit maximisation. The bank’s key parameter of success is the increased development impact of its operations to promote sustainable economic growth and regional cooperation. Therefore, BSTDB has introduced a fully independent evaluation of all its operations in terms of their sustainability, effectiveness, relevance, and institutional impact according to the highest standards of International Financial Institutions (IFIs). The bank has shown a strong and steady improvement in the performance CFI.co | Capital Finance International

Headquarters: Black Sea Trade and Development Bank (Thessaloniki, Greece)

Spring 2016 Issue

> Ed Chapman:

Mosaics from Stains, Plectrums, Pennies, and Vinyl Records By Darren Parkin

overnment and public buildings the world over have been the guardians of art treasures for centuries. The British government has artwork displayed at its embassies in almost every capital city across the globe. Francis Bacon’s work hangs in the Department of Energy & Climate Change in Whitehall Place; Canova’s huge marble statue of Napoleon’s sister sits in the British Embassy in Paris; Gainsborough, Constable, and Matisse paintings are gracing Downing Street, Damien Hirst and Andy Warhol inhabit the Consulate in New York while Hockney hangs in Tokyo, and a Turner is the showpiece of the ballroom of the British Embassy in Panama. It’s a phenomenal collection which continually and quietly grows as one of the UK’s largest investment projects. Its value can barely be estimated, and its worth as a national asset is almost immeasurable as state sponsored experts strive to add to the remarkable stockpile of historic items. One such artist currently making his mark is 44-year-old Ed Chapman whose imaginative mosaics are being snapped up for display in public buildings. His work has caught the eye of collectors everywhere and most recently during the Unicef David Beckham Exhibition in London where his portrait of the former England captain had been drawing admiring glances in the weeks before being snapped up at auction. Mr Chapman’s work has attracted attention for years, mainly because of his distinctive style: “I employ rather unusual material in my work, oftentimes material that is related to the person or celebrity depicted.” Mr Chapman is currently working on a portrait of Sex Pistols frontman Johnny Rotten made from vinyl records: “Sometimes I do get a bit into trouble and wonder how on earth the material may be moulded into the right shape. In the end, it always seems to work out.” Mr Chapman’s trademark mosaics are as innovative as they are awe-inspiring. The Lancastrian’s piece, hand-picked by David Beckham himself, was created using one penny coins for the Phillips Gallery exhibition which saw him rubbing shoulders with Tracey Emin, Damien Hirst, and the mysterious Banksy. Not only did the exhibition showcase some of the world’s most sought-after artists, it also highlighted the way in which governments use art as an investment, and how major businesses acquire great works to display in their own headquarters, or use as promotional tools.

David Beckham and Ed Chapman

“I employ rather unusual material in my work, oftentimes material that is related to the person or celebrity depicted. Sometimes I do get a bit into trouble and wonder how on earth the material may be moulded into the right shape. In the end, it always seems to work out.” Ed Chapman

As well as David Beckham, several celebrities have championed Mr Chapman’s creations, including Annie Lennox and the late Lemmy, of Motorhead-fame. His recent work (www. edchapman-mosaics.co.uk) also includes David Bowie, Madonna, Margaret Thatcher, CFI.co | Capital Finance International

HM The Queen, Jim Morrison, and Jimi Hendrix – whose image was created out of thousands of Fender plectrums. “Perhaps my biggest challenge was to depict Scottish tennis player Andy Murray with – of all things – carpet stains.” i 89

> Book Review:

Why Nations Fail: The Origins of Power, Prosperity, and Poverty

The Art of Development All Down to Politics By Tony Lennox

here aren’t many contemporary works on global economics that pinpoint the Black Death as a major factor in the development of the modern world.

Economist Daron Acemoğlu and political scientist James A Robinson delved deep into the recesses of history in search of evidence to support the hypothesis – exhaustively detailed in Why Nations Fail: The Origins of Power, Prosperity, and Poverty1 – that nations succeed or fail depending on the performance of their economic and political institutions. According to the two American academics, governments may be broadly classified as either inclusive or extractive. The former type lifts the burden of state control, allowing freedom and protection in equal measure, to encourage citizens to create wealth. The latter type of government exerts excessive control in order to maintain a powerful ruling elite. Modern China, Messrs Acemoğlu and Robinson argue, falls squarely in the extractive category. To establish this notion, the authors present a large body of historical evidence, from the fall of the Roman Empire to the rise of its British successor – hence the reference to The Black Death, which not only decimated the population of Mediaeval Europe but wrecked the feudal system simultaneously which, in turn, lead to greater rights and rewards for those who managed to survive. Why Nations Fail is the culmination of fifteen years of collaborative research into the proposition that, while economic institutions are critical for determining whether a country is poor or prosperous, it is politics and political institutions that ultimately decide a country’s economic fate. NOT ALL GROWTH EQUAL Messrs Acemoğlu and Robinson suggest that while absolutist regimes with extractive economic institutions can sometimes achieve economic growth, they also stifle innovation and deploy only pre-existing technologies. Such growth is difficult to sustain and the regime is prone to collapse. The Soviet Union is an example of an extractive economy which saw rapid growth in the 1950s and 60s, but failed to encourage individualism and invention. As a result, it subsequently went into terminal decline. The authors suggest that China is heading in the same direction. When looking for answers to the question “Why are some nations poor?” conventional wisdom 90

“Why Nations Fail makes the point, however, that the common factor in failed states is the fraudulent nature of their governing institutions.” points to a variety of possible causes: geography, climate, agricultural conditions, and lack of a traditional work ethic. Why Nations Fail makes the point, however, that the common factor in failed states is the fraudulent nature of their governing institutions. When thousands of protesters took to the streets of Egyptian cities during the Arab Spring uprising of 2011-12, one word summed up the anger of the crowds – corruption. The authors illustrate the point with a comparison of British and Egyptian history; they highlight the effects of the Glorious Revolution of 1688 which transformed the political and economic rights of the individual in England (not quite a united kingdom at that point) which, in turn, shaped the stage on which Britain’s Industrial Revolution was to unfold shortly after. NO INTEREST IN DEVELOPMENT Though these industrial advancements were adopted by other nations, most notably the fledgling USA, the new technologies didn’t spread to Egypt because, at the time, it was under the control of the Ottoman Empire. The Ottomans had little interest in achieving prosperity for the peoples they ruled. As Egypt fell under the control of the British Empire, that institution also displayed little interest in extending political and economic rights to the country’s masses. When Egypt finally overthrew its colonial masters and deposed its monarch in the 1950s, it replaced them with a form of government which was just as elitist. Egypt remained poor. That story is repeated across Africa and South America, where, in many cases, colonial governments were replaced by other extraction regimes. Ruling elites gathered wealth, overexploited natural resources, and kept their people impoverished. While potentates were occasionally overthrown, they tended to be replaced with similarly egotistical rulers. The authors illustrate that political change is the only way to bring sustainable wealth to a poor CFI.co | Capital Finance International

country. They highlight the stark contrast between the twin towns of Nogales – one in Arizona and the other, just over the border, in the Mexican state of Sonora. In 1853, following the Gadsden Purchase by which the US acquired 76,800km2 from Mexico for $10m (equivalent to about $274m today), the border redrawn across the Nogales Valley. Two large settlements grew up on either side. The inhabitants share the same ancestors, culture, food, and music. What they don’t share is equal prosperity. On the Arizonan side, the average annual household income is about $30,000, most teenagers are in school, and the great majority of adults have a high school degree. The population is relatively healthy and life expectancy is well above the global average. Crime rates are low, and people can go about their daily business in relative safety. “Democracy is second nature to them,” say the authors. SOUTH OF THE BORDER South of the border in Mexican Nogales, the picture is less rosy. The average household income is about one third that of their northern neighbours. Most teenagers do not attend school, infant mortality is high, as is the crime rate. Opening a business is risky. Businesses have to “grease palms” to get off the ground. “Residents of Nogales, Sonora, live with politicians’ corruption and ineptitude every day,” the authors add. Messrs Acemoğlu and Robinson point out that the geography is the same, as are the agricultural conditions and the risk of disease. The only variances stem from two different forms of government – one inclusive and the other extractive. Some critics of the theory put forward in Why Nations Fail say the authors, though possessing vast academic experience, have dumbed down to appeal to a wider readership. They say the book’s hypothesis is too simplistic, and that the authors ignored the many other causes which shape a nation’s fate. American social scientist and author Jared Diamond2, who reviewed Why Nations Fail in the prestigious New York Review of Books3 when it was first published in 2012, took exception to what he saw as Acemoğlu and Robinson’s dismissal of his own theories on poverty, mostly relating to geography and climate, and engaged in a scholarly spat with the pair. Mr Diamond

Spring 2016 Issue

suggests that Why Nations Fail presents an argument “too neat” and thinks that the book’s authors defined their hypothesis first and then looked for examples to fit that stance. Others have questioned the idea that high taxation is no barrier to growth in an inclusive economy. Messrs Acemoğlu and Robinson maintain that there is a world of difference in, say, a 50% tax rate imposed by an inclusive democratically elected government, and paying a similar percentage of earnings to a gangster regime intent on lining the pockets of its members. Bill Gates, for example, is one who supports the argument that low tax rates don’t necessarily bring prosperity. In the 1960s, when the top income tax bracket in the US reached 90%, GDP growth averaged 4.4%, whereas in the 2000s, with top rate reduced to 38%, the economy expanded at just 1.7% annually. Modern economists too often fail to ask how markets develop. There is an apparent belief that if enough investment is ploughed into a developing nation, growth will automatically follow. The theory presented by Messrs Acemoğlu and Robinson in How Nations Fail shows that the causes of poverty are as old as civilisation itself. i Footnotes 1 Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoğlu and James A Robinson – Profile Books (2012) – ISBN 978-18466-8430-2. 2 Collapse: How Societies Choose to Fail or Survive by Jared Diamond – Penguin (2011) – ISBN 9780-2419-5868-1. 3 What Makes Countries Rich or Poor? by Jared Diamond in the New York Review of Books (volume 59, issue 10 of June 7, 2012).

CFI.co | Capital Finance International

> Zaha Hadid (1950-2016):

“I Don’t Design Nice Buildings” By Wim Romeijn

aha Hadid orphaned this world on March 31 and left it waiting for great works that now will never be. Architects bloom late in life and, while a prodigy, Ms Hadid was widely expected to pique in the years ahead. The Iraqi-born architect, credited with demolishing geometry, passed away, aged 65, in Miami. 92

Ms Hadid led a double life as a gifted painter, drawing inspiration from the Russian Suprematist School famous for celebrating art as an emotion rather than a way of depicting people or objects. Much like her buildings, Ms Hadid’s paintings defy gravity and convention with floating skyscrapers and other suspended objects hovering over cityscapes. As an architect, CFI.co | Capital Finance International

Ms Hadid confessed to a manifest lack of interest for engineering, producing curvaceous designs that were deemed impossible to erect – and often were. For almost two decades, Ms Hadid was known as a paper architect, gaining a reputation as a diva impossible to work with and liable to throw

Spring 2016 Issue

a tantrum of magnificent proportions when challenged. In 1996, her fate seemed sealed when she was summarily dismissed as the lead designer of the new opera house in Cardiff. An impromptu coalition of the bored and boring – assorted politicians, commentators, and other dullards – conspired against what would undoubtedly have become the most radical and compelling building in Britain. It was never built. In its place an adorned rock was erected which now goes by the name of Wales Millennium Centre. However, Ms Hadid did enjoy the last laugh, when her “double pebble” design for Cardiff saw light in China as the Guangzhou Opera House – hailed by the New York Times’ art critic Nicolai Ouroussoff the “most alluring opera house built anywhere in the world in decades.” That is what vindication looks like. As a structurally ambitious architect endowed with a geometrically fractious tendency, Ms Hadid followed in the footsteps of Brazil’s Oscar Niemeyer who was one of the first to become a sculptor of monuments. Attracted to free-flowing sensual curves, shunning the hard and inflexible of straight lines and sharp angles, Ms Hadid happily straddled the frontier that separates genius from madness. Quite unapologetic, she stuck to her riotous ways and before long build up a practice with over 400 staff working on close to a thousand projects in 44 countries. Not without her detractors – Guardian columnist Simon Jenkins thought her buildings more suited to deserts than urban settings – Ms Hadid in 2004 went on to bag the Pritzker Prize, architecture’s most prestigious award. In 2011, she received the Stirling Prize for her design of the Evelyn Grace Academy in Brixton. Earlier this year, Ms Hadid was presented with the Royal Gold Medal awarded annually by the Royal Institute of British Architects. To her remaining critics she answered, “as a woman, I’m expected to want everything to be nice, and to be nice myself. A very English thing. I don’t design nice buildings. I don’t like them.

“As a woman, I’m expected to want everything to be nice, and to be nice myself. A very English thing. I don’t design nice buildings. I don’t like them.”

I like architecture to have some raw, vital, earthy quality.” Funny, frank, and outrageous to a fault, Ms Hadid was hard not to like – she made sure of that, and if failed, would usually walk out. Last September, Ms Hadid exited the Today CFI.co | Capital Finance International

show prematurely after the presenter suggested her design for the Tokyo 2020 Olympic Stadium had been cancelled because of cost overruns – in the process re-establishing herself as the lovable diva of architecture. Always provided with an unmistakable wow-factor, Ms Hadid’s designs became the stock in trade for any city ambitious enough to make a splash. Frank Gehry unwittingly started that trend with his design for the Guggenheim Museum which not only turned into an instant landmark but also placed Bilbao on the map. Ms Hadid refined her trade at the Office of Metropolitan Architecture – the famed Rotterdam studio founded in 1975 by Rem Koolhaas, the Dutch architect who famously managed to transform a police station into an objet d’art (Almere 19821985). Ms Hadid caught on quickly and answered in 1993 with her now iconic fire station on the grounds of the Vitra furniture factory in Weil am Rhein in Germany. The structure, made of the cast concrete and glass walls favoured by the modernists of yore, is of a shape also found in many of her Peak Club Paintings – one of forceful fracture. Finding herself in way out front of even the most daring avant-garde did not cause Ms Hadid any discomfort; she relished not just the limelight, but also being uniquely different and – why not? – courageous. That, in fact, became her hallmark. Ms Hadid’s photogenic work attracted patrons who were less interested in substance and functionality than in high profile and impacts. Subtlety was just not her thing. However, Ms Hadid had eye for detail: the curves and breaks of her designs anticipated the visitor’s or user’s visual experience – her buildings aim towards the generation of a self-image. A lifetime of globetrotting, sleep deprivation, chain smoking, and a volatile temperament ultimately took its toll. While recovering from bronchitis at a Miami hospital, Zaha Hadid suffered a heart attack. She left just as she had become venerable, being able to pick and choose the best offers from the jobs submitted. Just as Oscar Niemeyer did before her, Ms Hadid reminded the world that modern architecture can afford to be close; to belong to a place rather than impose on it. For imparting that lesson, Ms Hadid is owed a debt of gratitude. i 93

> Umberto Eco (1932-2016):

The Model Author By John Marinus

bespectacled Italian gentleman, with a girth suggesting a rich and sedentary lifestyle, Umberto Eco was – until 23rd of February this year – a figure conforming comfortably to our idea of the quintessential European public intellectual. Professor emeritus at the University of Bologna, a polyglot based in Milan who kept a pied-a-terre in Paris, a crowd-pulling but rarely understood lecturer, bestselling author, social commentator, and onetime guest curator at the Louvre, Mr Eco’s name adorns the spines of millions of wellskimmed paperweights. Three days after his death, hundreds of mourners filled the grounds of the Sforza Castle in Milan. They held their smartphones above their heads in reverence to the author as his coffin was carried into the Rocchetta courtyard, where he was placed between two wreaths bearing the Italian tricolore. Musicians played Arcangelo Corelli’s 94

baroque sonata La Follia, a favourite of Eco’s that he used to play on the clarinet. Umberto Eco was born in the Piedmontese city of Alessandria. His grandfather had been a foundling of the city and was given the surname Eco, an acronym for ex caelis oblastus (brought from the heavens). Mr Eco studied Medieval Literature and Philosophy at the University of Turin, earning his Laurea degree in 1954. Two years later, he adapted his thesis on Thomas Aquinas into the book The Aesthetics of Thomas Aquinas (Il problema estetico in San Tommaso). It marked Mr Eco’s literary debut. He would return to the university in 1961 as a lecturer in Aesthetics. By the time he published his first novel, Umberto Eco was already an academic of high repute and professor of Semiotics at the University of CFI.co | Capital Finance International

Bologna, a position created especially for him. He had several nonfiction books to his name, most notably The Open Work (1962), Opera Aperta (laying out his ideas of multiplicity as authorial intent and role of the reader in a work) and A Theory of Semiotics (1974, published originally in English), providing a foundation for an interpretive approach to semiotics – a field Mr Eco defined as, “a general theory of all existing languages, all forms of communication.” He was a regular columnist for several newspapers in Italy including Corriere della Sera and La Repubblica and served as cultural editor of the Italian television corporation RAI. In 1980, Mr Eco published his first novel, The Name of the Rose (Il nome della rose), a historical murder mystery that tells the story of a Franciscan friar investigating a number of connected deaths in an Italian monastery against the backdrop of the turmoil that marked the Avignon Papacy. In

Spring 2016 Issue

Umberto Eco, who described himself as an academic six days a week and an author on the seventh, approached the writing of novels in the manner of an academic. He would undertake extensive research, compiling extensive bibliographies. The vast majority of his characters have a historical counterpart while the remainder are squeezed into history to facilitate a blatantly fictional but illuminating narrative. The esoteric and conspiratorial became major themes of most of his novels. This is particularly true of his second book Foucault’s Pendulum (II pendolo di Foucault), the story of three bored publishers concocting for their own amusement a fanciful complot involving a hodgepodge of secret societies. However, the publishers’ fun gets out of hand and they find themselves the target of an actual secret society. Foucault’s Pendulum is often described as the thinking man’s Da Vinci Code. This label gives the impression that Mr Eco’s novels are straightforwardly sensationalist, if better researched and with stronger prose. This would be the mistake of – to borrow the writer’s own terminology – a first level model reader. Mr Eco’s approach to literary theory is all about an openness of interpretation. His novels are exercises in the literary deconstruction of conspiracies and the interplay of different, often mutually exclusive, narratives – be they historically based or not. The power of conspiracies is not derived from any base in reality – which, like any other story, is open to countless readings – but from the convenient narratives they deliver. In his 2010 novel The Prague Cemetery (Il cimitero di Praga), Mr Eco’s protagonist – and the only fictional character in the book – is a 19th century Italian forger living in Paris who inherits from his grandfather a fervent and fashionable suspicion of Jews. The book stretches history to portray the forger as the author of the document that would become the Protocols of Zion as well as giving him a major role in the Dreyfus Affair – a sort of anti-Semitic Forrest Gump.

“Books are not meant to be believed. They must be subjected to inquiry. When we consider a book, we mustn’t ask ourselves what it says, but what it means.”

The Protagonist is simultaneously cognisant of his fabrications and careful never to deliver a lie that doesn’t confirm what his patrons already know. Being discredited is never a concern as this only proves the extent of the conspiracy. At the same time, he is wholly convinced that his inventions reveal a greater truth.

the book, Mr Eco relies on his expertise in semiotics as a medievalist and explores his ideas on literary theory and intertextuality.

Umberto Eco’s novels are not embellished with a Dan Brown-style preface, bluntly entitled Fact. This is because Mr Eco’s works are sufficiently wellinformed on history to ensure that the question of what is fact – and what is not – remains beside the point.

The Name of the Rose remained his greatest success, selling millions of copies. It has been translated into more than forty languages. In 1986, the book was made into a film.

“Books are not meant to be believed. They must be subjected to inquiry. When we consider a book, we mustn’t ask ourselves what it says, but what it means,” Mr Eco once said. Whether escaping CFI.co | Capital Finance International

to a world created by Ian Fleming or James Joyce – Mr Eco was considered an authority on both – ascertaining an academic’s musings or investigating a murder, we are interrogating a text. This, Mr Eco posits, is itself an act of creation. After finding literary success, Mr Eco’s focus remained on his academic works and he continued to publish nonfiction on both semiotics and literary theory. But his fame as an author did naturally lend these books, such as Kant and the Platypus (1997, Kant e l’Ornitorino) and Six Walks in a Fictional Wood (1994), a far greater profile than they would had garnered otherwise. Last year saw the publication of his novel Number Zero (Numero zero). Following his death in February, the release of his latest – and as it turned out – posthumous work Pape Satan Alleppe (taken from a line in Dante’s Inferno) was brought forward from its original date in homage and, sincere as the sentiment undoubtedly was, the public attention certainly didn’t hurt. Satan Pape Allepe: Cronache di una società liquida is available at fine Italian bookstores. An avid supporter of the European project, Umberto Eco, though decidedly not an economist, acknowledges that free markets, for all their faults, were likely the decisive force behind sustained peace and cooperation. However, he opined that integration would only take place once all inhabitants of the continent had become Europeans culturally. Not the monolithic culture of other super-states, rather a culture defined by its interconnected diversity: a super-culture for a super-state. The Italians have a breezier notion of what constitutes a nation – the inhabitants of each city having very strong notions of what it means to be Milanese, Florentine, or Roman – but they are all Italians. The Sforza Castle, the venue of Umberto Eco’s funeral, is now a symbol of the Italian Renaissance and only on a second consideration do we remember that it is in fact an imposing fortification. The castle is a remnant of a time of warring cities – wars that Italians now, less than a century and a half after their country’s unification, recognise as acts of fratricide. Is it such a leap of faith to extend that to all of Europe and see the seventy years of cooperation amongst its nations as a cessation of our history of fratricide? Many have tried to unite the continent through war – and all failed. In the modern paradigm, the instruments of unity are monetary and free trade whilst the most immediate symbols are rather sterile banknote designs. Still, this is probably preferable to the romantic nationalism of the 19th century but does mean that when we tell the story of Europe, the main protagonists are bankers like Mario Draghi rather than renaissance greats such as Umberto Eco. Umberto Eco (1932-2016) is survived by his wife Renate Eco and their children Stefano and Carlotta. i 95

ANNOUNCING

AWARDS 2016 SPRING HIGHLIGHTS Once again CFI.co brings you reports of individuals and organisations that our readers and the judging panel consider worthy of special recognition. We hope you find our short profiles interesting and informative. All the winners announced below were nominated by CFI.co audiences and then shortlisted for further consideration by the

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

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

Spring 2016 Issue

> COCA COLA ENTERPRISES: BEST SUSTAINABILITY FRANCE 2016

Coca Cola Enterprises (CCE) is one of the largest Coca Cola bottlers in the world, operating in eight countries of Western Europe. CCE recently became the most sustainable company in the food and beverage industry according to the latest G100 Index, announced at the Worl Economic Forum (WEF). Of CCE’s divisions, the one in France has been leading the way in sustainability after a €217 million injection to develop production capacity with a view to reducing the environmental footprint. This has helped to revamp bottling and transportation, decreasing overall CO2 emissions and keep on track with Coca Cola’s pledge to reduce the carbon footprint of the “drink in your hand” by a third by 2020.

The investment has made CCE’s French division a veritable playground for testing environmental projects; its fleet is the first to operate on compressed natural gas (CNG) and intelligent lighting systems are in operation at the Dunkirk facility. New low-energy systems for blowing PET bottles were piloted at CCE’s Grigny plant. There are now plans to implement the new method across Europe. CCE’s French division is also using the investment to sustain its own community. In addition to promoting healthy living nationwide and sponsorships of various local sports campaigns, the company has also committed to support the same number of French youths to access jobs as it has employees. Recycling for the whole country has

also improved thanks to CCE’s contribution of €8.7 million to a joint venture with France’s leading PET plastic recycler, APPE. The initiative includes the industrial project Infineo which aims to increase the production capacity of food-grade recycled PET by 70%. Infineo will also open its doors to over five thousand students a year in order to encourage the population to learn about sustainable recycling. The CFI.co judging panel commends Coca Cola Enterprises on its environmental commitments, and applauds the French division on its intelligent implementation of smart systems and community involvement. For this, the CFI.co judges decided to recognise Coca Cola Enterprises with the 2016 Best Sustainability France Award.

> DUN & BRADSTREET CREDIT BUREAU TANZANIA: BEST RISK MANAGEMENT SERVICES TEAM TANZANIA 2016

For the wheels of commerce to turn smoothly, accurate and readily-available credit information is essential. Any pioneer or emerging market aiming high, needs a trustworthy and impartial supplier of credit information on private individuals and businesses alike. Tanzania, home to one of the world’s fastest-growing economies, counts on the world class services of Dun & Bradstreet Credit Bureau which in 2013 opened a branch office in the country. Dun & Bradstreet, D&B for short, is one of the world’s premier credit bureaus with a database containing detailed information on over 235 million companies in more than 200 jurisdictions. A Fortune 500 company, D&B was one of the first to have its shares traded on the New York Stock Exchange (NYSE:DNB).

Fully-licensed by the Bank of Tanzania and headquartered at the iconic Golden Jubilee Towers in Dar es Salaam’s downtown business district, D&B aims to help develop the East African’s country credit market. Employing a team of seasoned professionals, the firm aims to leverage its global footprint and vast experience in order to become Tanzania’s preferred business information and risk management tool provider. D&B also maintains a number of programmes and initiatives to help local banks and financial institutions further improve credit analysis skills and processes. Through seminars and workshops, the company hopes to offer a tangible contribution towards Tanzania’s accelerated economic development. A number of banks have engaged CFI.co | Capital Finance International

D&B to strengthen credit management processes and reduce the incidence of nonperforming loans (NPLs). Tanzania’s National Microfinance Bank succeeded in reducing its NPL ratio to under 2.6% – the lowest in the country’s banking sector – thanks to the implementation of policies and procedures which include the use of D&B’s credit reporting platform in assessing the creditworthiness of loan applicants. The CFI.co judging panel recognises the key role assigned to credit bureaus as economies develop and become more complex. The judges applaud the forward-looking approach taken by Dun & Bradstreet in Tanzania and offer the company their 2016 Best Risk Management Services Team Tanzania Award.

> FORD MOTOR CO: BEST MOBILITY INNOVATION UNITED STATES 2016

Ford Motor Company has innovation tightly woven into its corporate fabric. Henry Ford’s invention and perfection of the assembly line ushered in mass production and the Second Industrial Revolution. However, the latest innovations coming out of Dearborn, Michigan, go even deeper. Mobility innovation is no longer just a question of producing transportation networks; it is also about tackling traffic congestion as the global population rises. By 2030, around 630 million people are expected live in cities with a population exceeding ten million inhabitants or more. The projections for 2050 are even more unsettling. With the earth’s population set to rise at least nine billion – and with increased prosperity levels, the number of vehicles in circulation is

projected to double to two billion or more. The issue stretches beyond that of productivity or the environment. Ford’s focus, some pun intended, remains on bringing viable and affordable transport to the masses. This is the business model at the root of the company’s enduring success. Amongst its many projects, Ford is now working towards lowering the affordability threshold of smart public transportation and autonomous vehicles cars, a venture which involves connecting roads, cars, parking, and most challenging of all – pedestrians. Experts predict that meeting these challenges presents a $130 billion business opportunity for the automotive industry. Ford is clearly in the running for the prize. In 2015, Ford opened a new

research and innovation centre in Palo Alto, California, right in the heart of Silicon Valley. The facility is dedicated to find radical solutions that improve connectivity, mobility, and the performance of autonomous vehicles. It has since become one of the largest automotive manufacturer research centres in the valley with a staff of more than one hundred researchers, engineers, scientists, and out-of-the-box thinkers. The CFI.co judging panel is awed by Ford’s sensible forward-thinking approach to the future of mobility. As an experienced innovator, the company has claimed its rightful place at the leading edge of innovation. The judges are delighted to offer Ford Motor Company the 2016 Best Mobility Innovation United States Award.

> CONCORD INTERNATIONAL INVESTMENTS GROUP: BEST ASSET MANAGER EGYPT 2016

Even amidst at times turbulent conditions, Egypt has started to flourish since President Abdel Fattah el-Sisi’s election in June 2014 and the launch of the well-received Egypt The Future initiative. For securities and investments, development things are racing forwards – and the solidly-established Concord International Managements group is well ahead of the game. The Concord Group has been present in Egypt since 1994. The company has been a pioneer in Egyptian investment ever since. It was the first firm to establish both closed-ended and open-ended country funds and remains the only UCITS (undertaking for collective investments in transferable securities) fund invested in Egyptian securities. Headquartered in New York, the group manages approximately $1.4 billion. Most of those funds are currently invested in Egyptian equities. Concord Group has shown an unrivalled mastery of Egyptian markets. Over the past year, 98

investment flows from public and private sector banks, multilateral institutions, development groups, and high-net-worth individuals have increased significantly. Concord Group serves that demand with up-to-date advice on asset management, real estate investment, and corporate finance. A secret to the group’s success is its global approach. The Egyptian division maintains a sharp focus on the local market and attracts the most talented and experienced professionals, including a large number of former CEOs of major corporations. However, to avoid any bias, the Egyptian team’s members must also convince their colleagues in New York before any investment decision is made. Currently Concord manages four funds invested in listed Egyptian equities and one Fund invested in listed Turkish equities. Their assets under management are currently a combined US$ 337 million. In addition, the firm has launched and managed four private equity CFI.co | Capital Finance International

funds with $200 million of combined committed capital. Concord attributes its continued success on its ability to rely on the experience, diligence and rigorous fundamental requirements applied by its management team and its market renowned in-house research department. Concord’s cohesively applied long term investment philosophy has proven over the years to be a very successful investment approach in both its listed and private equity investments, capable of withstanding market and geopolitical volatility. The CFI.co judging panel applauds the innovative strategy and the foresight Concord Group displays in the management of its investments. This unique approach deserves recognition. For the second year running, the judges are delighted to extend Concord International Investments Group the Best Asset Manager Egypt Award.

Spring 2016 Issue

> SHIEKAN INSURANCE AND REINSURANCE COMPANY: BEST INSURANCE SOLUTIONS TEAM SUDAN 2016

Attention to details, and to the interests and well-being of its policyholders, is what landed Shiekan Insurance and Reinsurance Company into a class all of its own, a good few notches above the competition. Offering a comprehensive suite of insurance and reinsurance products tailored to sector-specific requirements and demands, Shiekan caters to discerning customers that appreciate the holistic approach to risk management and mitigation as pioneered by the Sudanese company. Shiekan operates in an exceptionally dynamic environment. Sudan is home to one of the world’s fastest growing economies. The country is well on the way to diversifying its economy with industry and services expanding at an accelerated pace. Solidly grounded and

boasting unequalled local experience, Shiekan Insurance and Reinsurance Company enjoys full exposure to Sudan’s enviable upside. The company is effectively underwriting the country’s economic growth process with insurance and reinsurance products aimed at corporate, institutional, and individual customers who seek protection against risk and/ or loss. Shiekan has been at the forefront of the development of, and the broad move towards, insurance products that comply with Islamic Law. The company’s range of collective and private takaful products has met with both success and acceptance. As a result, Shiekan recently expanded its Sharia-compliant offerings with an Expatriate Security Takaful

aimed at the approximately three million Sudanese employed abroad, featuring medical and life cover. Shiekan also pioneered a takaful that provides top-up personal accident coverage for passengers using public transportation. The CFI.co judging panel congratulates Shiekan Insurance and Reinsurance Company on its corporate success. The judges are of the opinion that the company offers living proof that corporate foresight, coupled to prudence and operational excellence, produces stellar and sustainable results from which all stakeholders stand to benefit. The judges have no hesitation in extending, for the second consecutive year, the Best Insurance Solutions Team Sudan Award to Shiekan Insurance and Reinsurance Company.

> FUCHS PETROLUB SE: BEST ESG LEADERSHIP GERMANY 2015

Fuchs, the world’s leading independent supplier of lubricants, not only excels in striving for sustainability within its products, but also addresses the multifaceted sustainability issues it faces as a responsible global corporation. Through own production plants, offices, and partnerships on all continents, Fuchs underlines the group’s sustainability concept and spreads the values of its Sustainability Guideline. The company only deals with key suppliers who prescribe to the guideline and Fuchs’ strict code of conduct, or those who have proprietary ESG guidelines in place. Every year ecological targets are reviewed and – wherever necessary – new targets are set within each of the company’s

businesses. Fuchs has successfully reduced its energy usage per ton of lubricant produced since 2010. Also, the company’s vehicle fleets in Europe abide by Fuchs’ stringent countryspecific CO2 emission limits which are reviewed and readjusted annually. Fuchs consistently invests in modern and secure plants, as well as in process optimisation within those facilities with a view to reducing energy and water consumption and limit waste generation. The blending plant in Yanbu – owned by Alhamrani-Fuchs Petroleum Saudi Arabia – was the first in the Middle East and Africa region to be certified “environmentally-friendly” by ISO 14001. Fuchs’ research and development (R&D) symbolises sustainability and innovation. CFI.co | Capital Finance International

The focus in the “Advanced Biomass” project is on sustainability, whereby algae-based oils are used as components in environmentally friendly lubricants. Fuchs also successfully brought an efficiency-optimised axle fluid to market in cooperation with a leading premium vehicle manufacturer. The product supports the automotive industry in its efforts to improve fuel consumption and reduce CO2 emissions. By creating sustainable and innovative solutions, and making them globally available, companies such as Fuchs Petrolub SE are poised for enduring success. The CFI.co judging panel feels that for setting an example on sustainability in the lubricants industry, Fuchs is most deserving of the 2015 Best ESG Leadership Germany Award. 99

> TESLA MOTORS: OUTSTANDING AUTO INDUSTRY DISRUPTOR GLOBAL 2016

Elon Musk is well-known for his business skills. His ventures pave the way for the future and bring viable alternative energy options to the masses. Now Tesla Motors is poised to disrupt the automotive industry thanks to its power system. Unlike classic low-end disruptors, such as Ford cars and personal computers which brought innovation to the masses by offering low cost alternatives, Tesla Motors is pursuing a high-end disruption model. High-end disruptors are advanced innovations which are difficult to imitate and first market to a more discriminating and up-market buyer before they can then gather enough capital and momentum to produce a lower cost mass-market models using the same high-end architecture. Apple’s

iPod is a prime example of a high-end disruptor. Tesla’s $90,000 Model S is the iPod of the automotive industry. Consumer reports have called it the best overall car on the market for two years – and, as the fastest four-door production car on the market with zero emissions, it is not hard to see why. Not only that, but the Model S’ unique architecture and battery design affords the car a week’s worth of driving on just a single charge. However, the most disruptive element of the Model S is free energy. The vehicle may be recharged without a charge at any solar-powered charging station, all powered by Mr Musk’s separate venture, SolarCity. The inventor / businessman has also opened up his ground-breaking battery technology patents,

allowing competition to build cars around his design. Patents or not, competitors will still likely find it hard to imitate the quality of a Tesla; unlike other electric cars on the market, Tesla drivetrains and systems are engineered around the battery itself, instead of merely bolted onto a standard platform. Mr Musk has established a foothold in the solar-power industry; now Tesla’s gamechanging cars, power systems, and free access to Tesla’s battery technology are shaking the automotive industry into a new era. Tesla is not just disrupting technology but also sales models. For this, the CFI.co judging panel is delighted to award Tesla Motors the 2016 Outstanding Auto Industry Disruptor Global Award.

> ANANDRATHI: BEST WEALTH MANAGER INDIA 2016

Protecting, preserving, and growing wealth is not merely a science, it is an art: the art of listening to clients, understanding their goals, and gauging their tolerance for risk. By tracing all relevant client parameters and applying its inhouse expertise, AnandRathi ensures optimum results are consistently attained. Founded in 1994, AnandRathi has become one of India’s leading financial services providers. The firm offers wealth management, investment banking, corporate finance and advisory, and brokerage and distribution services, amongst others. AnandRathi maintains a vast network of branches, representative offices, and associated companies that blankets the Indian subcontinent. The firm also liaises closely with premier financial services providers in select markets such as Dubai. 100

AnandRathi employs over 2,500 professionals and is a full member of the Bombay Stock Exchange (BSE), National Stock Exchange (NSE), and a large number of other bourses and entities. The firm also benefits from the numerous synergies created by its connection with Citigroup Venture Capital International which owns a sizeable stake in AnandRathi. Across its four divisions – individuals, private clients, corporate, and institutional – AnandRathi applies the same clientfocused approach that allows for flexible and straightforward solutions to even the most complex of challenges. The company has a well-established reputation for adhering to the highest standards of service, ethics, and professionalism. With a formidable track record, CFI.co | Capital Finance International

AnandRathi is managed by experienced professionals who have earned their spurs in private enterprise and financial management. Every month, the firm’s founders organise comprehensive five-day-long training courses to disseminate their expertise throughout the organisation, believing, passionately, in the value of sharing their considerable experience. The CFI.co judging panel appreciates the bespoke approach to financial services as pioneered by AnandRathi and commends the company on its keen eye for detail. The judges are pleased to note that AnandRathi maintains – and indeed expands on – its already high topnotch performance. For the second consecutive year, the judging panel is unanimous in its decision to hand AnandRathi the Best Wealth Manager India Award.

Spring 2016 Issue

> BOUGANE GUÈYE DANI: BEST CORPORATE LEADERSHIP SENEGAL 2016

A mover and shaker par excellence, Senegalese entrepreneur Bougane Guèye Dani (38) seems firmly set on a path to success. Founder and owner of DMedia, Mr Bougane is determined to build a broad and modern media conglomerate in West Africa. To that end, Mr Bougane recently acquired 50% of Nostalgie Dakar yet another broadcasting station to add to his already substantial media holding. Mr Bougane is a self-made man. He started his foray into the hectic media world on the proverbial shoestring. He

managed to transform his first business, a modest communication agency, into a tightly interwoven network of media companies, exploring synergies to accelerate corporate growth. Mr Bougane now also operates the Joni Joni/Vitfé money transfer service that blankets West Africa and allows for the fast and hassle-free transfer of funds between Senegal, The Gambia, Niger, Ivory Coast, and other countries. The businessman also owns a number of IT service providers.

Financial Afrik Magazine recently named Mr Bougane one of the hundred people who “move” Africa and one of the continent’s Top Ten media entrepreneurs. Inspiring fellow Senegalese with his success, Mr Bougane is involved with a number of initiatives and programmes to help and encourage his fellow countrymen to follow their dreams and aim for success. The CFI.co judging panel is pleased to hand Bougane Guèye Dani the 2016 Best Corporate Leadership Senegal Award.

> CAIXABANK ASSET MANAGEMENT: BEST FIXED INCOME FUND MANAGEMENT TEAM SPAIN 2016

The largest fund manager in Spain, Caixabank Asset Management boasts a winning team of over 160 thoroughly seasoned professionals whose expertise has propelled the firm to the very top both in size and performance. A whollyowned subsidiary of Grupo CaixaBank, one of Spain’s largest financial services conglomerates, Caixabank Asset Management now claims a market share approaching 18% – towering above the competition. With well over €51 billion under management and administration, the firm has gained a well-established reputation for crafting and administrating a wide array of investment products that cater to specific market segments and investor profiles. Taking a

cue from CaixaBank, corporate strategy revolves around institutional transparency, flexibility, responsibility, efficiency, and the creation of added value without sacrificing the need for risk mitigation. Caixabank Asset Management has a particularly strong track record in the administration of fixed income instruments. Combining macro analysis with bottom-up fundamentals, the firm designed a number of highly successful and well-balanced funds that consistently outperform the broader market. In addition to its full suite of ready-made investment products, Caixabank Asset Management also offers a range of diversified solutions tailored to the requirements of high-net-worth individual,

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institutional, and corporate investors. Due to the exceptionally large number of funds in the firm’s portfolio, the professionals at Caixabank Asset Management are able to easily construct a bespoke portfolio of investment products and vehicles that responds and adapts fluidly and seamlessly to changing market dynamics, thus allowing for optimised return while maintaining the diversity needed for reducing exposure to risk. The CFI.co judging panel congratulates Caixabank Asset Management on the excellence and consistency of its performance. The judges feel obliged, and pleasantly so, to offer the firm its second consecutive win of the Best Fixed Income Fund Management Team Spain Award.

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> INSTAFOREX: BEST FOREX BROKER ASIA 2016

Delivering state-of-the-art products and services for online traders, InstaForex has become the preferred platform for those needing the best tools to extract a healthy profit from operating across global markets – cashing in on both upswings and downswings. Seasoned pros and cautious beginners alike feel right at home in the online environment created by InstaForex. The firm’s platform offers the depth and breadth demanded by experienced traders while ambitious newbies revel in its ease of use and the clear explanations provided at every turn of the trading cycle. On its vast website InstaForex provides the operational details of its most successful traders, allowing others insights into the strategies followed by the champions

of forex trading. Learning from the pros, and possibly catching a ride on their success, enables newcomers to the online trading scene an opportunity to advance to the major leagues and benefit from the accumulated experience of the trailblazers. InstaForex’ platform also publishes daily updated reviews of the sector’s leading analysts. The vast flows of data that shape global markets are presented in such a way that investor sentiment may be easily gauged and acted upon. InstaForex maintains one of the market’s largest palettes of currency pairs – 107 at last count – and over 200 contracts for difference (CFDs) on US shares besides a number of instruments for trading in precious metals such as gold. Investors

of modest means may, depending on the trading strategies employed, make use of leverages that significantly increase the profit potential. Fully regulated and licensed by the financial authorities of the Russian Federation, InstaForex offers traders worldwide a solid, well-built, and secure platform on which to access global currency markets and profit from discrepancies between them. The CFI.co judging panel is pleased to note that InstaForex maintains its sensible and straightforward approach to forex trading and wishes to recognise the company’s accomplishment for a second consecutive year, granting it the 2016 Best Forex Broker Asia Award.

> ARCA SGR: BEST EMERGING MARKETS DEBT MANAGER EUROPE 2015

Few asset managers boast a deeper reach into their home market than Arca SGR of Italy. A market leader since 1983, the company works with no less than 120 placing agencies that together operate a network of over 8,000 branches throughout the country. Arca SGR has more than 650,000 subscribers to its investment funds. Arca SGR not only serves individual savers, but also provides full-service solutions to institutional investors and corporates. The firm closely adheres to the Global Investment Performance Standards (GIPS) – a set of ethical principles that aim to improve the industry’s 102

transparency and presentation via a globally standardised approach. Arca SGR has established a solid reputation for ferreting out promising investment opportunities in emerging markets, displaying a keen sense for opportunity coupled to a sensible approach to risk mitigation. Offering investors a multitude of choices across most asset classes, Arca SGR provides its clients with a wealth of options and information that meet the requirements of even the most discerning of investors. A number of bespoke investment solutions are provided according to individual risk CFI.co | Capital Finance International

profiles. As one of Italy’s oldest asset managing companies, Arca SGR possesses the knowledge, expertise, and experience to offer investors flexible solutions that consistently match individual preferences and exceed expectations. The CFI.co judges are particularly impressed with the Arca SGR approach to emerging markets. The company’s adherence to global best practices and its firm belief in the long-term prospects of select emerging markets have propelled Arca SGR to the very apex of Italy’s asset managing sector. The judges are pleased to present Arca SGR with the 2015 Best Emerging Markets Debt Manager Europe Award.

Spring 2016 Issue

> AKSAL GROUP: BEST ESG CLOTHING CONGLOMERATE NORTH AFRICA 2016

Audacity in innovation and excellence in service: the corporate philosophy that guides Morocco’s AKSAL Group encapsulates a bold spirit. The company is no less than the instigator of a revolution that transformed Morocco’s retail sector from a rather moribund affair into a driver of progress and modernity. Operating a number of malls, department stores and other retail stores, AKSAL Group has become the go-to corporation for the world’s premier brands that want to tap into the Moroccan and West African markets. The group got its first break when it secured exclusive representation of Spanish fashion brand Zara, now eleven years ago. Showcasing its formidable retail power, AKSAL Group soon became the world’s fourth largest Zara representative by sales.

Proving irresistible for A-brands looking for high-impact partnerships, AKSAL Group managed to accumulate an enviable stable of agencies, including Gap, Banana Republic, Massimo Dutti, Uterqüe, La Martina, Ralph Lauren, Gucci, Fendi, FNAC, amongst many others. In 2016, AKSAL is enlarging its franchise portfolio with the addition of at least five strong international brands including Tati, Maisons du Monde, and Armani Collezione. AKSAL Group developed the 200,000m2 Morocco Mall in Casablanca which opened in 2011. The company is currently building two other large-scale Dubai-styled malls in the country’s other major cities. More than a retail giant, AKSAL Group aims to make a significant contribution to Morocco’s human development and, to that

end, launched the AKSAL Social Initiative to promote social, cultural, educational, and healthcare programmes. The initiative bundles and coordinates the programmes of the group’s different companies and also seeks to empower employees through professional training courses offered by the AKSAL Academy – a full-fledged business school set up by the company to recruit and train future employees and to help guide their career advancement. The CFI.co judging panel recognises AKSAL Group as a driver of progress in Morocco and commends the company on its forward looking approach and dedication to excellence. The judges are extremely pleased to offer AKSAL Group the 2016 Best ESG Clothing Conglomerate North Africa Award.

> ETHICA INSTITUTE OF ISLAMIC FINANCE: BEST ONLINE ISLAMIC FINANCE EDUCATION PROVIDER GLOBAL 2015

Islamic finance is gaining in popularity, not just in the Middle East but throughout the world. Between 2009 and 2013, Islamic banking assets grew at an annual average of 17.6%. That pace is picking up and may exceed 20% by 2018. A relatively young branch of the financial services industry, Islamic banking was first introduced on a commercial scale in the mid-1970s. After a slow start, the sector ballooned and today boasts a global asset base of well over two trillion dollars. With conventional banks scrambling to break into this buoyant market, bankers wellversed in Islamic law are much in demand. Based in Dubai and with a global network of partners, the Ethica Institute of Islamic Finance provides the training and insights to people entering the world of Sharia-compliant banking or aiming to hone their skills.

All Ethica courses follow the guidelines and standards provided by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) – a nonprofit entity in Bahrain established in 1990 to maintain and promote Sharia standards in banking. Ethica not only aims to teach interestfree Islamic banking to novices, the institute also seeks to promote financial inclusion and sustainability by suggesting alternatives to the model of fractional debt reserve banking which it holds co-responsible for social and environmental degradation. Ethica has trained banking professionals at over 160 financial services providers in 64 countries. Its 4-month long Certified Islamic Finance Executive online programme has become the premier globally CFI.co | Capital Finance International

recognised diploma for Islamic bankers and is fully sanctioned by leading scholars. Ethica offers a vast suite of certificate courses addressing all aspects of Islamic banking. The institution retains experienced and renowned scholars, legal experts, and Islamic bankers to design courses and assist students. The CFI.co judging panel notes that Ethica shies away from offering crash courses, academic shortcuts, or programmes that impart only partial compliance with Sharia law. Instead, the e-learning company opts for an approach grounded in solid academics, supplemented by real life applications of Islamic banking principles. The judges wish to congratulate the Ethica Institute of Islamic Finance with its win of the 2015 Best Online Islamic Finance Education Provider Global Award.

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> MARKS & SPENCER GROUP: BEST SUSTAINABILITY RETAIL UK 2016

Few global retailers have begun to address the multifaceted sustainability issues contained within their supply chains. Fewer still manage to successfully tackle these problems and increase their profitability – the Marks and Spencer Group are doing all of this and more. The company does not crossreference its business activities against a sustainability plan; instead, M&S has been changing its entire business model since 2007, deploying the so-called Plan A to implement the new model. Now in its third and final stage, Plan 2020, has so far generated an extra £625 million in net profit thanks to new sustainable business strategies. With seemingly endless goals ranging across every imaginable social and environmental issue, Plan A is benchmarked

every year with great success, creating associated business value along the way. Last year alone saw 47 commitments achieved, with a further 39 on plan to succeed within their given timeframes. M&S is not only working with other retailers and cogs within its own supply chain, but also engages various business coalitions and NGOs in order to help it achieve set goals and raise standards across the economy. The Marks and Spencer Group is becoming instrumental in Global Environmentalism, as the company continues to work with the World Economic Forum, the United Nations, and attended the COP21 Climate Change conference in Paris last year. Without this approach, M&S would not have enjoyed such success; it is the only

major retailer in the world with carbon-neutral operations. Almost 65% of the products M&S sells worldwide has at least one Plan A quality – surpassing the 2015 goal of 50%. M&S also maintains zero waste to landfill and avoids over 65% of food waste in its UK and Ireland stores by donating and reducing excess. Multinational corporations today are persistently critiqued on the virtue of their intentions by global audiences – and often rightfully so. However, the Marks and Spencer Group is creating a sustainable case for the discourse on economic liberalism to reopen in terms of social impact, and with that in mind, the CFI.co judging panel awards Marks and Spencer with the 2016 Best Sustainability Retail UK Award.

> MEGASTRIDE GLOBAL: BEST GLOBAL LOGISTICS TEAM NIGERIA 2016

Facilitating trade by providing excellence in logistics and energy transportation services in Nigeria, Megastride Global provides a suite of logistics services that allow the company to offer seamless intermodal transport solutions to both corporate and private customers. A customer-centric company, Megastride Global has established a peerless reputation for the on-time delivery of freight entrusted to its care. The company shows a profound understanding of customer needs and indeed consistently succeeds in anticipating hurdles before they have a chance to impact or disrupt the flow of goods. Megastride Global also offers its 104

clients custom clearance consultancy services that ensure smooth border crossings and avoid delays in the movement of goods. A highly specialised division takes care of the transport needs of energy producers such as oil companies. Megastride Global readily partners with other stakeholders and outside parties to deliver bespoke services that meet – and exceed – customer expectations. Many of Nigeria’s best known corporations have engaged Megastride Global for their toughest logistics challenges. The company has made it a point of honour to tackle any job – regardless of complexity – on-time and on-spec. At Megastride Global, going the extra CFI.co | Capital Finance International

mile is part of the corporate philosophy and the rule rather than the exception. The result of the Megastride Global approach is a portfolio of returning customers that reads like a who’s who of the Nigerian business community. Instead of merely facilitating trade, the company empowers it. The CFI.co judging panel has nothing but praise for the forward-looking approach in logistics pioneered by Megastride Global in Nigeria. The judges congratulate the company on its recent tenth anniversary and are convinced the best is yet to come. The CFI.co judging panel declares Megastride Global winner of the 2016 Best Global Logistics Team Nigeria Award.

Spring 2016 Issue

> ABÉNEX CAPITAL: BEST MID-MARKET DIRECT INVESTMENTS TEAM FRANCE 2016

PRESS RELEASE

Abénex Capital is a household name Abénex Capital is a testament boasts extensive experience in the financial for the financially initiated in France – and for to good business and smart investment management of SME’s, as well as working with good reason. As a private company managing principles. Since 2000, the team has made the global elite such as IBM, Goldman Sachs, mid-market capital investments worth over 110 acquisitions, investing €900 million in The Deloitte Group, and Orange. €450 million, Abénex Capital continues to long-term growth and optimisation projects, With an impressive portfolio of show resilience during the economy’s recent as well as management teams. This includes acquisitions, Abénex Capital has managed lacklustre performance. mid-market business coaching through the to obtain stellar results even in adverse Fully approved by the Autorité des acquisition of both minority and majority stakes market conditions, and is set to maintain its Marchés Financiers (AMF), France’s capital – investing €10 million in companies valued performance with two additional acquisitions markets regulator, Abénex Capital erected between €30-500 million. It takes more than already scheduled for 2016. an independent structure proving support for a sole financial investment to grow an SME into With its longevity in the market, a unlisted companies. With five main sectors a global entity: it takes the veteran knowhow of renowned management team, and long-term of investment – retail & consumer goods, internationally experienced stakeholders. focus, the CFI.co judging panel finds the Abénex Paris, 20, 2015 – French leader theteam food restaurants up and new financia industries & construction, business services, MayAbénex Capital is currently the in Capital peerless in France andset beyond health, and technology – the company employs number one company in France in aiding global a worthy winner of the 2016 Best Mid-Market order to refinance partially and to support its development. an extensive team of talented and widely growth to mid-market companies – and that is Direct Investments Team Award. experienced financial associates to encourage largely due to the team of financial gurus behind Convinced by direct the investments. implemented strategy and the development projects, all growth wherever they invest. the company’s The team

Abénex Capital and NiXEN Partners announce

the signing of Buffalo Grill refinancing agreement

supporting the Group since 2008 have confirmed their commitment to the com

BANSEFI: BEST SOCIAL IMPACT BANK MEXICOhave 2016joined the pool for this operation. Bank pool will finance the inve new actors for a total amount of 30 €M.

Buffalo Grill is the leader in food restaurants in France with 331 restaurants (fully franchises), total turnover of 522 €M and 5.560 employees.

The Group realized very good performance in 2014 with the increase in attendan a like-for-like basis and including opening/closing of restaurants), the gain of n shares and the improvement of financial performance.

Buffalo Grill expects to continue its growth in 2015, with an objective of 13 o

Banks can – and do – make a big Gente (The People’s Network) that provides Bansefi was an early adopter Buffalo Grill to restaurants 5 Buffalo Burger restaurants concept launched impact on their surroundings. In Mexico, Bansefi easy access both domestic and and international of technology to broaden(new its institutional proves that point with an all-inclusive approach money transfers, insurance products, and footprint. The bank develops and maintains 2015). that underwrites the nation’s development drive payment services. The network is present in a fully scalable high-tech platform that forms by empowering businesses, especially small over a thousand towns and rural localities with the backbone of its vast network. As a social Buffalo Grill was acquired in 2008 bydevelopment a consortium of financial investors led and medium-sized enterprises that all too often more than 2,700 outlets. bank, Bansefi offers microloans struggle in gaining access to premier financial (majority By bridging the banking to subsistence farmers and small traders and Capital stakeholder) andgap, NiXEN Partners. services. Bansefi has given literally millions of Mexicans businesspeople that enable people to break the Bansefi – Banco de Ahorro Nacional convenient access to formal and high-quality cycle of poverty and get ahead under their own y Servicios Financieros (National Savings and financial services. As such, the bank has been power. Financial Services Bank) – maintains a sharp instrumental in helping fight poverty and social The CFI.co judging panel is focus on communities ignored or underserved exclusion. Bansefi also operates and supports impressed by the way Bansefi fulfils its by commercial banks. The bank maintains a a number of initiatives that promote financial corporate mandate. With a solid infrastructure, a network of close to 430 branches that reaches literacy. Thus far, over a million people have dedicated and highly professional management into the farthest corner of the country and partaken in workshops and comprehensive and support team, and a nation-building which serves over eleven million customers. courses that impart the tools and knowledge mission, Bansefi transcends the financial world Bansefi pioneered a number of necessary to escape the poverty trap and avoid as it binds and unites Mexican society. The programmes aimed at extending banking costly mistakes while doing so. The bank judges are honoured to offer Bansefi the 2016 services to people of modest means. Already expects seven million people to attend its Best Social Impact Bank Mexico Award. in 2002, the bank introduced L@Red de la workshop by the middle of 2017. CFI.co | Capital Finance International

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> TRANSAVIA: BEST LOW-COST CARRIER EUROPE 2016

Transavia has enjoyed a massive year of growth; from increasing the number of passengers it serves, to updating its fleet of modern aircraft, to accomplishing new routes and airport destinations – all whilst successfully updating its brand image. Transavia, Air France KLM’s whollyowned Dutch subsidiary, presented its new brand identity and growth plans in 2015 – with its ethos of providing low-cost flights firmly rooted in its corporate aim of being “the most affordable and accessible airline company in Europe”. As well as this, the company is poised to become a leader in hospitality and online services. Since then, Transavia has been keeping true to its objectives. The airline’s recent partnership with Apigee, an intelligent

platform for digital businesses, has helped update and streamline systems and operations as drivers of accelerated business growth, enhanced customer experience, and improved processes that benefit both staff and passengers alike. Transavia also partnered up with Piksel, a global leader in video services, to modernise its in-flight entertainment whilst avoiding the cost of installing expensive gadgets on their planes – allowing the company to update services without the attendant increase in prices. Not to mention, Transavia became one of the first airlines in the world to offer onboard virtual reality entertainment, cementing its place as a digital forerunner. Transavia is set to begin turning

a profit again in 2017, with the long-term ambition of serving ten million passengers and generating a turnover in excess of one billion euros annually. To achieve this, Transavia has been expanding its exposure to target markets, adding an extra 450,000 seats to over twenty destinations this summer, and increasing the frequency of flights – also aimed at the evergrowing amount of business travellers who fly economy. The CFI.co judging panel believes that Transavia has compromised neither efficiency nor pricing in the wake of the expansion drive currently underway. As a result, the judges have selected Transavia as Best LowCost Carrier Europe 2016.

> HOME TRUST COMPANY: BEST MORTGAGE SOLUTIONS CANADA 2016

Offering mortgage and other credit products to clients shunned by larger financial services providers has allowed Home Trust Company of Canada to carve out – and claim as its own – a profitable niche in the marketplace. Whereas traditional lenders often are clueless on how to serve the credit needs of the selfemployed, or people with a checkered credit history, Home Trust Company has designed a range of products tailored to accommodate marginalised clients and help them consolidate higher-interest loans, finance homes, or renovate existing dwellings. The company also helps borrowers who have significant equity in their homes but may lack provable income or a stellar credit history. Providing a comprehensive range of alternative credit products, catering to the needs 106

of unconventional clients, has enabled Home Trust Company – a wholly-owned subsidiary of Home Capital Group (TSX:HCG) – to build up a high-performing and solid portfolio of clients with both insured and uninsured mortgages. While retail mortgage lending constitutes the core of Home Trust Company’s business, financing is also offered for office blocks, hotels, and commercial and industrial premises. Home Trust Company has deployed advanced IT systems to improve access to information and speed up the processing of applications. The company welcomed the regulatory tightening of the mortgage market decreed by the Bank of Canada, arguing that the added stability benefits the entire mortgage market. In 2013, the company launched Oaken Financial to broaden its online platform and CFI.co | Capital Finance International

allow clients access to its products and services via the Internet. Last year, Home Trust Company acquired the Oakville, Ontario-based CFF Bank (Canadian First Financial Bank), extending its geographic footprint and gaining new customers in Manitoba, Saskatchewan, Alberta, and British Columbia. The CFI.co judging panel notes that while catering to clients not served by traditional lenders, Home Trust Company does not cut corners and maintains rigorous standards throughout the organisation for issuing credit. The judges commend the company on fuelling its organic growth via innovative, yet prudent, policies and strategies. Home Trust Company is declared winner of the 2016 Best Mortgage Solutions Canada Award.

Spring 2016 Issue

> MEP INFRASTRUCTURE DEVELOPERS: BEST ESG ROAD OPERATOR INDIA 2016

Boasting well over 3,400 employees and managing no less than 825 traffic lanes, MEP Infrastructure Developers helps keep India on the move. Established as a family business in 2002, MEP Infrastructure Developers went from a toll management company to a fullfledged operator of major traffic arteries with a nationwide presence. The firm has accumulated a vast reservoir of experience in both BOT (buildoperate-transfer) and OMT (operate-maintaintransfer) projects. Along with its subsidiaries, MEP Infrastructure Developers has delivered on 73 projects with a total of 131 toll plazas in twelve Indian states. The company has established a peerless reputation for the maintenance of its highways which significantly contributes to increased road safety. MEP Infrastructure Developers also pays attention to the

beautification of its road network, recognising the need to blend projects with their urban or natural surroundings. Focused on innovation, intelligence, and integration, MEP Infrastructure Developers aims to find and leverage synergies in order to offer optimised results for all stakeholders while delivering world class service to its customers. Consistently building on its corporate milestones, the company prefers organic growth to the leaps and bounds approach with its attendant pitfalls. MEP Infrastructure Development maintains a fully-featured set of corporate social responsibility policies and guidelines that touch upon every aspect of its business and emphasises the need for constant vigilance and sustained operational improvements. Listed on both the Bombay Stock Exchange (BSE:MEP) and the National Stock Exchange (NSE:MEP),

the company makes no excuses for its stated goal to contribute solidly towards Indiaâ&#x20AC;&#x2122;s accelerated development via the building, upgrading, and operation of the countryâ&#x20AC;&#x2122;s most important roadways. The CFI.co judging panel recognises that a well-run highway network forms an essential part of any long-term development strategy. Nothing drives an economy forwards faster than a highway grid capable of meeting the demands of transporters, commuters, and others on the move. MEP Infrastructure Developers provides excellence across all parameters and is now well on its way to become one of only a select few premier highway operators in India. The judges wish to offer both recognition and encouragement by granting the 2016 Best ESG Road Operator India Award to MEP Infrastructure Developers.

> NATIONAL BANK OF GREECE: BEST CORPORATE GOVERNANCE GREECE 2016

National Bank of Greece (NBG) is a global financial services provider established back in 1841, with a 175-years history. NBG leads one of the largest Greek financial groups, with a strong international presence including activities in Southeastern Europe and elsewhere. With a branch network covering entire Greece and subsidiaries in Greece and 11 other countries, NBG has a strong global presence and offers a broad range of financial products and services. NBG is justifiably proud of its corporate governance record. Attaching great importance to transparency of both its operations and plans, NBG has established an approach that ensures enduring success. Throughout the years, NBG has consistently risen to challenges and proved the inestimable value of solid corporate governance. NBG Group has sound and

efficient corporate governance arrangements incorporating international best practices and centred around ensuring transparency, probity and focus on sustainable success over the longer term. A set of rules and procedures are followed, such as the Corporate Governance Code and a number of Charters and Policies, incorporating Directive 2013/36/EU (CRD IV) and principles and best practices the Group applies, like Basel Committee on Banking Supervision Corporate governance principles for banks and the G20/ OECD Principles of Corporate Governance. Mindful of its role in shaping the future, NBG revealed a ground-breaking initiative to further support the economy by becoming the first Greek bank to launch Crowdfunding, an innovative initiative targeted at financing and promoting important development and social activities. CFI.co | Capital Finance International

NBG supports start-ups, financially and by offering access to business knowhow, with a special programme for start-ups, including financing and advisory services and consulting in cooperation with specialised third parties. The Bank continuously evolves and follows technological developments, has redesigned its internet banking and expanded its chain of i-bank stores, i.e. points of service facilitating transactions and increasing the efficiency of services. CFI.co judging panel is awed by the tenacity displayed by NBG as it leverages the power of corporate governance to constantly develop and prosper. The judges are therefore very pleased to offer the 2016 Best Corporate Governance Greece Award to NBG.

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> TANDEM & STARK: BEST CONSTRUCTION PROJECTS COST SERVICES TEAM AFRICA 2016

Structuring and managing cost is of paramount importance to any successful undertaking. Complex projects in dynamic markets depend on cost engineering and consultancy to move from blueprint to greenfield. Boasting a wealth of experience on both counts, Tandem & Stark Limited of Kenya has helped clients throughout East and Central Africa manage costs. The company has accumulated an exceptionally strong portfolio of projects it helped realise via the control and rationalisation of cost structures. Tandem & Stark has provided its services to commercial and industrial projects in the housing, hospitality, healthcare, manufacturing, and

financial sectors. Tandem & Stark is not only called to lend its expertise during the design and construction phase, but also facilitates postdelivery outfitting and maintenance work. The firm deploys a full array of high-tech systems and processes to offer bespoke solutions that enhance cost efficiency and ensure adherence to pre-set timelines. Tandem & Stark takes the guesswork out of project management and thereby increases log-term profitability. The firm provides its clients with a holistic approach to both the pre- and postcontract stages that includes, amongst others, feasibility studies, cash flow projections, cost planning and control, tendering procedures,

project evaluations, and financial appraisals. The CFI.co judging panel applauds the rigorous approach followed by Tandem & Stark which includes not just state-ofthe-art technology but also vast reservoirs of in-house engineering expertise. By offering comprehensive solutions rooted in its experience as a one-stop provider of consultancy services, Tandem & Stark manages to save its clients both money and aggravation. As such, the company’s services are of inestimable value to any undertaking. The judges feel confident in their decision to grant the 2016 Best Construction Projects Cost Services Team Africa to Tandem & Stark.

> NOVA BANK: BEST SME BANK BALKANS 2015

Established in 1999 and one of the first privately-owned banks to open in the Federation of Bosnia and Herzegovina, Nova Bank has grown into one of the region’s premier financial services providers and now also boasts a presence in the Republika Srpska which jointly with the federation forms Bosnia and Herzegovina. A full-service institution, Nova Bank offers both corporate and retail clients a comprehensive suite of banking products in addition to brokerage, custody, factoring, and forfeiting services. A one-stop window for all financial services, Nova Bank maintains an unequalled regional footprint with twelve branch offices, a network of brokerage offices, agencies, and service counters, in addition to a modern head office in the heart of Banja Luka’s financial district. The bank’s multiple distribution 108

channels include an online platform that enable clients convenient access to the available palette of products and services. With unparalleled proximity to its clients, Nova Bank is exceptionally well-poised to serve the buoyant SME (small and medium-sized enterprises) sector. Lines of communication are kept short, while decisions are made locally and benefit from streamlined procedures that enable Nova Bank to quickly respond to the needs of the business community. Listed on the Banja Luka Stock Exchange since 2002, Nova Bank is one of twelve publically traded companies that compose the BIRS share index. The lion’s share of Nova Bank shares (approx. 80%) is held by domestic investors. However, the largest shareholder of the bank is the Adriatic Fund BV of The Netherlands (14.8%). CFI.co | Capital Finance International

Nova Bank maintains a fullyfeatured corporate social responsibility (CSR) programme and adheres to the highest standards of corporate governance. The bank’s efforts at increasing both transparency and governance have been recognised by a number of prestigious entities. As a result of its straightforward approach to business, Nova Bank has registered solid growth across all business segments. Its profitability is amongst the highest in the Bosnia and Herzegovina financial services industry. The CFI.co judging panel commends Nova Bank on maintaining stellar track record and underpinning the country’s economy with an approach to banking that drives the growth of local business. The judges are happy to confer the 2015 Best SME Bank Balkans Award on Nova Bank of Bosnia and Herzegovina.

Spring 2016 Issue

> AFFIRMATIVE INVESTMENT MANAGEMENT PARTNERS: BEST GREEN BOND TEAM UNITED KINGDOM 2016

Putting money to work for a better tomorrow, Affirmative Investment Management (AIM) Partners combines time-honoured portfolio management strategies and sustainability parameters to offer a range of advisory services and products that help provide solutions to global challenges. Incorporating ESG (environmental, social, and governance) considerations into the decision making process, without compromising more traditional yardsticks, allows AIM to give its clients a chance to increase the impact of their investments while generating mainstream returns. Moving beyond the hype, AIM works proactively with bond issuers to ensure they adhere to strict ESG guidelines and employ the funds raised towards sustainable business practices. The firm is recognised as a pioneer in

green bonds and has helped shape the market. Employing positive selection criteria, AIM staff boasts an exceptionally long track record in managing green bond portfolios. AIM is a data-driven firm and, as such, continuously monitors the performance and impact of its investment portfolio. Its holistic approach enables the company to quickly adapt strategies to changing circumstances without compromising returns. AIM focuses on fixed income instruments that are carefully tailored to individual investment profiles and risk tolerance. The firm offers a comprehensive product mix that stretches from low risk / high liquidity to funds and vehicles more suited to investors seeking high returns and willing to bear the attendant degree of risk. AIM also offers its

clients access to one-off special opportunities that the firm unearths while investigating the broader market. The CFI.co judging panel recognises the need for investment products tailored to dovetail with the world’s growing demand for sustainable corporate practices. As ESG values move from the esoteric to the mainstream and become embedded in corporate best practices, investors have followed suit, demanding their savings be employed in a way both meaningful and sustainable. By offering solidly designed products that meet these demands, Affirmative Investment Management is providing a sorely needed service to the investor community. The judges are pleased to offer the company their 2016 Best Green Bond Team United Kingdom Award.

> ZURICH INSURANCE GROUP: BEST SUSTAINABLE INSURER SWITZERLAND 2016

At a glance, the insurance business seems to consist of the transfer and management of risk. Whilst straightforward when merely considering the underlying essentials, today’s insurance business – marked by fierce competition and fast-moving market dynamics – involves considerations and processes that stretch far beyond the basic premise and touch upon a host of stakeholders. The insurance industry has been at the forefront of the move towards the acknowledgement of corporate social responsibility (CSR) as a driver of growth and a prerequisite for sustainability; none more so than the Zurich Insurance Group, widely recognised as a pioneer and celebrated for its

approach to CSR. Already in 2011, the Swiss insurer decided to place corporate social responsibility at the very centre of its business model and strategy. Building on the company’s considerable strength and expertise in risk and asset management, the Zurich Insurance Group set about creating a strategic pyramid of mutually reinforcing layers that include safeguarding the interests of all stakeholders, assessing the impact of business opportunities, and leveraging the company’s corporate reach, footprint, and standing to make a difference and drive development, instead of merely reacting to events – foreseen or otherwise. Zurich Insurance Group shows an CFI.co | Capital Finance International

exceptional awareness and appreciation of the company’s role in society. By shielding policy holders from risk, the insurer facilitates both the preservation and creation of resilience, stability, and wealth while simultaneously funding a pool of long-term investment capital that helps build stronger and more prosperous societies. Thus, Zurich Insurance Group, founded in 1872 and serving clients in over 170 countries and territories, manages to fully exploit its potential for creating social value. The CFI.co judging panel commends Zurich Insurance Group on its forward-looking corporate attitude and is pleased to offer the company the 2016 Best Sustainable Insurer Switzerland Award.

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> GAN DIRECT INSURANCE: BEST INSURANCE SOLUTIONS CYPRUS 2016

Gan Direct Insurance has been delivering insurance solutions in Cyprus for over 22 years. From its beginnings in 1994, the company has grown into one of Cyprus’ largest insurance providers thanks to its superb customer service. Gan Direct Insurance has been able to differentiate itself from the competition by its fair pricing and service level guarantees. The company boasts an impressive track record of settling 98% of claims within 24 hours of receipt. Gan Direct Insurance also has a range of unique services such as directly attending to the scene of the accident within 24 minutes

and offering key-to-key casualty care that only stop when the customer has fully recovered. The company’s vision is clear: to become more than just an indemnifier, and be a comprehensive service provider instead. In this, Gan Direct Insurance has been successful. Gan Direct Insurance recently introduced the SmartAssist app that allows customers instant access to all the company’s services. Clients may, for example, update insurance policies, call for immediate accident support or roadside assistance. During callouts, the SmartAssist app also locates the user through via GPS and provides an ETA for the

Assistance Task Force Team to arrive on-scene. The app also features an SOS button enabling users to notify the emergency services as well as friends and family of impending danger. The CFI.co judging panel commends Gan Direct Insurance on its unrivalled customer service and its dedication to providing and implementing fast and comprehensive solutions to unforeseen events. The judges are delighted to acknowledge this creative approach to the insurance business and are pleased to grant Gan Direct Insurance the 2016 Best Insurance Solutions Cyprus Award.

> ROTHSCHILD & CIE GESTION: BEST INSTITUTIONAL ASSET MANAGER EUROPE 2016

A hallmark of excellence, and a name that exudes timeless solidity: Rothschild & Cie Gestion stands for transcendent quality sustained over the ages. Few, if any, asset managers may boast a heritage equal to that of the Rothschild & Cie Gestion Group. However, the firm’s impeccable pedigree does not preclude it from raising the bar on innovation. Finely attuned to the demands of ever-changing times, Rothschild & Cie Gestion already in 2011 signed on to the United Nationssupported Principles of Responsible Investment (UNPRI) – a codified set of six guidelines that help investors incorporate environmental, social, and governance (ESG) concerns – and other non-financial parameters – into their decisionmaking processes. Serving institutional investors, fund 110

distributors, and financial intermediaries around the world with asset management services and advice from offices in Paris, London, Zurich, and New York, Rothschild & Cie Gestion is widely recognised – and praised – for its convictionbased approach to the preservation and growth of capital. Thus value is created through the strategic allocation of assets. The firm is particularly well-equipped to consistently extract above-market returns from stocks that perform well regardless of market sentiment while maintaining an optimised risk profile. Rothschild & Cie Gestion concentrates its efforts primarily on European equities – a segment that allows the firm’s to leverage its considerable expertise to maximise benefits for investors. Rothschild & Cie Gestion also offers CFI.co | Capital Finance International

an exceptionally comprehensive universe of open architecture investment solutions that cross asset classes and are tailored to meet the exact requirements of clients. Based in London, the firm’s Risk Based Investment Solutions Ltd provides investors an innovative way to maximise risk diversification and avoid excessive turnover and portfolio concentration. The CFI.co judging panel agrees that Rothschild & Cie Gestion has found a way to stay true to its heritage while remaining at the leading edge of innovation in asset management – effectively combining the best of both worlds to produce a palette of investment solutions that unswervingly delivers optimised results. The judges declare Rothschild & Cie Gestion the winner of the 2016 Best Institutional Asset Manager Europe Award.

Spring 2016 Issue

> ABU DHABI COMMERCIAL PROPERTIES (ADCP): BEST PROPERTY MANAGEMENT TEAM UAE 2016

Operating across the United Arab Emirates (UAE), Abu Dhabi Commercial Properties (ADCP) offers a wide array of management services to both corporate and private real estate investors. The company not only helps coordinate and execute construction plans, it also manages all aspects of post-delivery upkeep and exploitation using state-of-the-art techniques and processes that ensure optimised returns to owners and enhanced convenience to tenants. An asset management company specialised in solid brick and mortar, ADCP and its in-house team of seasoned professionals make sure that the facilities entrusted to the firm are maintained in pristine condition in order to serve the needs and requirements of

tenants. ADCP operates a one-stop streamlined approach that allows investors and tenants alike to remain fully appraised of developments. On behalf of the Abu Dhabi government, ADCP manages over 5.5 million square metres of properties and the construction of more than 750 new buildings. ADCP is one of only a select few UAE firms with the expertise and wherewithal to undertake real estate projects on such a vast scale. On the commercial side, the company ensures that rental income is leveraged to pay down construction debts, underwrite the property’s upkeep, and generate an income for owners. The CFI.co judging panel recognises that Abu Dhabi Commercial Properties

excels in the delivery of high-quality services, tailored to meet market demand, across its three business lines: property, facility, and construction management. The company has introduced a number of innovations aimed at further improving communications between all stakeholders. A handy app allows prospective tenants access to ADCP’s vast portfolio of properties, enhancing the firm’s reach and speeding up administrative procedures. The judges commend Abu Dhabi Commercial Properties on its forward looking approach to the dynamic UAE real estate market and are pleased to offer the company their 2016 Best property Management Team UAE Award.

> SEABANK: BEST SME SERVICES BANK VIETNAM 2015

As one of the first publically-listed commercial banks in Vietnam, Southeast Asia Commercial Joint Stock Bank – SeABank – has developed a full array of products and services to suit the requirements of private and corporate clients. Efforts at effectively meeting local demand for more sophisticated financial products have paid off with SeABank now claiming the top position in the sector with world class offerings marketed through a multitude of channels that include a particularly strong and inclusive online platform. SeABank, founded in 1994, has pioneered modern multifunctional banking in Vietnam and was an early adopter of the industrystandard T24 core banking platform developed in Switzerland as a scalable application that monitors, streamlines, and enables vast numbers of diverse transactions. Powered by state-of-the-

art technology and a well-defined marketing strategy, SeABank has managed to attain critical financial mass in record time. The bank currently employs over 1,500 professionals and operates a network of more than a hundred branches that reaches into the furthest corners of the country. In a rapidly growing economy, agility in the delivery of financial services is essential to sustaining momentum. With a GDP expanding at close to seven percent annually, few economies grow faster than Vietnam’s. A significant chunk of this growth is driven by small and mediumsized enterprises (SMEs) which count on SeABank to underwrite expansion plans aimed at maximising exposure to the buoyant, if not boisterous, economy. SeABank maintains a full suite of products designed to help SMEs reap both the moment and the opportunities it brings.

CFI.co | Capital Finance International

The bank offers bespoke payroll services, credit facilities, international settlements, amongst others that enable entrepreneurs to concentrate on meeting both domestic and overseas demand for their products. The CFI.co judging panel is impressed by the pace of progress in Vietnam. The country has not only shaken off its legacy, but is actively forging ahead, building and creating a solid future. The accelerated development drive currently underway cannot be sustained without world class financial institutions that provide the required wherewithal. SeABank is such an institution. In recognition of its ground-breaking work, the CFI.co judges wish to congratulate SeABank on its win of the 2015 Best SME Services Bank Vietnam.

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> BANKFÁCIL: BEST SECURED CONSUMER LENDING BANK BRAZIL 2016

BankFácil is not just an online lending start-up; it is a moderniser of Brazil’s notoriously tedious lending process and a digital underwriting platform that acts as correspondent bank to facilitate the loans hiring process. So far, more than R$100 million (€23.9m) has been borrowed from BankFácil. The company’s rapid rise to success is easily attributed to its dipping into the previously untapped market of secured consumer loans combined with a dependable risk-assessment platform. Due to the out-dated and timeconsuming processes most Brazilian banks use, loans carry on average eight to nine times

the interest had the customer been able use assets such as cars or homes as collateral. The current offers in terms of asset-secured personal loans is either not openly advertised or difficult to secure. By creating a large volume of asset-secured loans and offering them at far lower interest rates, BankFácil has been able to capture a large clientele and enjoy massive growth. With a focus on providing clear information, transparency, and offering sensibly structured loans – as well as a more recent foray into credit cards – BankFácil is a digital start-up that has already become a household name in Brazil.

Creating a system of trust has been essential to the new banking culture that BankFácil aims to build. The CFI.co judging panel applauds BankFácil on its modernised and ethical approach to lending and its keen sense of opportunity. The online bank’s launch of novel services suggest that the company is merely in its first stages of corporate evolution. As it moulds and grows to suits its customers’ needs, BankFácil is sure to become a Brazilian giant in even more walks of life. For its achievements, the judges have decided to grant BankFácil the 2016 Best Secured Consumer Lending Bank Brazil Award.

> ALTERCARGO: MOST INNOVATIVE GLOBAL LOGISTICS TEAM URUGUAY 2016

At the crossroads of South America’s vast Atlantic seaboard, Uruguay has invested heavily and decisively in state-of-the-art transport facilities, upgrading its infrastructure to cater to its vast hinterland and meet demand from eager exporters. Plugged into the world’s major markets by good air and sea connections, and home to the region’s first fully-fledged free port, Uruguay is making a splash in the highly competitive world of intercontinental and intermodal transport. Exceptionally well-poised to reap the benefits of Uruguay’s strategic position, Altercargo offers shippers access to an intricately woven mesh of logistics solutions. The company specialises in providing a one-stop window for shippers that need to efficiently move cargo into or out of the region. Altercargo combines 112

different modalities – air, sea, riverine, and road – that ensure point-to-point delivery of any freight consigned to the company. Rather than acting as an external agent, Altercargo aims to partner with clients to become an integral part of their business. Thus, the company is able to ensure a seamless and uninterrupted flow of goods and commodities. Incorporating efficiency and excellence in the delivery of its services into its operational philosophy, Altercargo is able to guarantee results that are invariably timely and predictable. Altercargo maintains a global network of agents that report to the Montevideo headquarters where experienced professionals consistently find and design the most costeffective way of shipping cargo across great CFI.co | Capital Finance International

distances. The company’s holistic approach to its business relieves customers of the need to engage a number of different parties to coordinate transhipments, warehousing, and all other aspects of freight forwarding. Altercargo provides for a single and tightly integrated solution to any and all shipping requirements. The CFI.co judging panel is pleasantly surprised by the novel rationale pioneered by Altercargo. While an integrated approach to shipping cargo may seem logical and sensible; it is still much the exception in the industry. Altercargo has set out to change all that with a clear approach and vision. The judges are pleased to offer Altercargo the 2016 Most Innovative Global Logistics Team Uruguay Award.

Spring 2016 Issue

> AXA WINTERTHUR: OUTSTANDING CONTRIBUTION TO SUSTAINABLE INSURANCE SWITZERLAND 2016

AXA Winterthur is Switzerland’s leading insurer for comprehensive financial protection, responsible for offering coverage to more than 40% of the companies in Switzerland, with a portfolio of close to 1.9 million customers. As an entity, AXA Winterthur controls two separate corporate entities in Switzerland: AXA Insurance Ltd, which represents a 13.1% market share, and AXA Life Ltd, which represents a 28.3% market share as of 2014. In 2015, AXA Winterthur generated a business volume of CHF 11.1 billion (approx. £7.96bn, €10.21bn, $11.1bn) and has become a GRESB (Global Real Estate Sustainability Benchmark) sector leader. AXA Winterthur is the only Swiss insurance company that maintains an inhouse accident research centre, AXA Accident Research, which has conducted more than one thousand crash tests and produced numerous indepth risk assessment reports. The centre also

promotes road safety. The data thus generated has encouraged a profundity of research into preventative road-safety measures from leading experts, such as Alessandro Finicelli who leveraged the findings contained in AXA Wintherthur’s reports for his presentation at the last Automechanika in Dubai, one of the world’s leading trade shows. The most effective approaches to sustainability are the ones that target causality; better road-safety means less life insurance and road claims which, in turn, translates to improved profit margins for the insurer, a safer life for the insured, and a less waste-driven economy. The focus for AXA Winterthur in 20162020 is The Future of Energy – a commitment to energy efficiency and renewable energy sources. By 2020, AXA Winterthur expects to have tripled its sustainable investments to over €3 billion. Initiatives such as the partnership

with the national Energy Challenge 2016 campaign – a renewable and energy efficiency road show which challenges the population to reduce consumption and provide solutions – are a testament to AXA Winterthur’s innovative, profitable, yet sustainable business model. The Energy Challenge 2016 is also offered as a free app which encourages the public by offering real rewards whilst helping the company to record valuable energy-driven data. Despite the challenging market environment, AXA Winterthur maintains a strong solvency ratio, which denotes the company’s ability to meet current and future obligations. Due to the company’s proven ability to balance creative innovation and science-based research within its sustainable approach to insurance, the CFI.co judging panel considers AXA Winterthur a worthy winner of the 2016 Most Outstanding Contribution to Sustainable Insurance Switzerland Award.

> MAYBANK BRUNEI: BEST SME BANK BRUNEI 2015

Serving well over 22 million customers through a network of more than 2,400 branches in 20 countries, Maybank is one of Southeast Asia’s premier financial services providers. Established in 1960, Maybank is the largest of the region’s companies on the Forbes Global 2000 list. Maybank is also the largest company by market capitalisation listed on the Bursa Malaysia (KLSE). However, Maybank’s size is not an impediment to personalised services. The bank is widely recognised as a pioneer in humanising its interaction with customers, avoiding systems and processes that replace the personal touch with a machine-generated one. As such, Maybank strives to play an active role in the

communities it serves and help contribute in a meaningful way to their success. At the heart of Maybank’s corporate strategy lies a corporate desire to serve customers according to their individual needs, rather than impose possibly superfluous products and services. This long-term approach in customer relations underwrites the bank’s enduring success. Maybank Brunei, the first overseas unit of the bank, exemplifies this corporate philosophy with its dedication to serving the kingdom’s small and medium-sized enterprises (SMEs). Home to a dynamic business community and aiming to diversify its oildependent economy, the Brunei government CFI.co | Capital Finance International

aims to actively encourage the continued growth of domestic businesses. To that end, a new entity was set up in January – Darussalam Enterprises – charged with monitoring and nurturing the expansion of SMEs. Maybank Brunei is exceptionally well-poised to help Brunei diversify its robust economy. The bank maintains a number of programmes directed at small and mediumsized businesses. Maybank’s vast expertise, coupled to its large geographical footprint, allows SMEs a window on the wider world. The CFI.co judging panel wishes to congratulate Maybank Brunei on its win of the 2015 Best SME Bank Brunei Award.

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> CITY DEVELOPMENTS: BEST SUSTAINABILITY REAL ESTATE SINGAPORE 2016

City Developments Limited (CDL) has been a pioneer of sustainable building since 1995, long before it became a major regulatory concern. Now, at the dawn of Singapore’s green future, the company champions the trend. Ever since President Lee Hsien Loong in 2014 announced a $1.5 billion initiative to transform Singapore into a zero-waste society by 2030, the country has seen a growth of competition in green industries. Nevertheless, CDL remains ahead of the pack, recently winning 10th place in the G100 Most Sustainable Corporations in the World, announced at the World Economic Forum in January. In 2015, the company ranked 34. This makes City Developments the most sustainable Real Estate Manager & Developer in the world – and the first and only Singapore company to be listed on the ranking for seven consecutive years.

CDL seems to be making a habit of shattering records in recent years; as well as breaking a number national records, the company also claimed a spot in the Guinness Book of World Records for building the largest vertical garden. The 24-storey Tree House Condominium, which won the award, also boasts an incredible 1530% reduction of energy consumption for its air conditioning systems thanks to the built-in gardens. This kind of intelligent energy-saving design is what has helped City Developments achieve world-wide recognition. The company’s portfolio is full with examples: a particularly noteworthy case is the development at Serangoon Gardens which harvests and reuses rainwater, benefitting homeowners with utility savings of up to 40%.

CDL is a proven master of innovation, becoming the first Asian developer to use advanced PPVC construction technology for largescale residential developments, and the first developer in the world to introduce a specially developed Home Energy Management System (HEMS) app for homeowners to manage and track their energy usage. CDL’s public impact is just as impressive. It opened Singapore’s first zero-energy Green Gallery and launched the world’s first Green Library in 2013. Thanks to CDL’s recurrent and innovative contributions to Singapore society, the country is quickly turning into Asia’s leading example of sustainability. As such, the CFI. co judging panel awards City Developments Limited the title of Best Sustainability Real Estate Singapore 2016.

> NATAL JOINT MUNICIPAL PENSION FUND: BEST RETIREMENT SERVICES SOUTH AFRICA 2016 & BEST CORPORATE GOVERNANCE PENSION FUNDS SOUTH AFRICA 2016

Transparency, efficiency, loyalty, diligence, and excellence: The guiding principles of, and daily practice at, the Natal Joint Municipal Pension Fund (NJMPF). Whilst some may not consider the administration of pension funds the most thrilling of financial pursuits, protecting and growing the savings of subscribers over extended timespans is one of the more exacting branches of the financial services industry. In South Africa, the Natal Joint Municipal Pension Fund has painstakingly elevated the safekeeping and growth of pension monies to a veritable science. At the NJMPF, staff are very much aware of their fiduciary duties and exemplary processes have been put in place to ensure full transparency, compliance with international best practices, and adherence to the highest standards of corporate integrity. Operating in a dynamic economic environment, the NJMPF board of trustees 114

has deftly and expertly managed to identify long-term trends and pick the winners worthy of investment. With exquisitely balanced and prudent risk profiles that blend stability to longterm growth, the fund’s experienced managers succeeded in outperforming the broader market time and again. Pension fund administration, however, entails much more than just securing consistently solid returns. Here the NJMPF also shines with sector-leading excellence in the delivery of its services. The fund maintains a number of initiatives aimed at delivering optimum communication with all stakeholders and safeguarding their vested interests. The NJMPF is one of a select few pioneers that pinpointed the need, and acted upon it, for meeting environmental, social, and governance (ESG) parameters, not just relating to its own operations, but also to CFI.co | Capital Finance International

those companies in which it holds a stake. Sustainability as a measure of predicting a given corporation’s success over the long haul has become central to the investment and management philosophies wholeheartedly adopted by the NJMPF Board of Trustees. The CFI.co judging panel is pleased, and impressed, with the all-round dedication to excellence it found at the Natal Joint Municipal Pension Fund. The judges have come away with the distinct impression that the NJMPF board of trustees, principal officer and staff are not satisfied with merely meeting relevant benchmarks, but determined to raise the bar ever higher. The panel is happy, and indeed feels obliged, to present the Natal Joint Municipal Pension Fund with a double recognition: the 2016 Best Retirement Services South Africa Award and the 2016 Best Corporate Governance Pension Funds South Africa.

Spring 2016 Issue

> BANK OF MALDIVES: MOST INNOVATIVE BANKING TEAM INDIAN OCEAN 2016

Boasting an exceptionally strong capital position well in excess of regulatory requirements, Bank of Maldives has established a solid reputation both at home and abroad. The bank has been in business since 1982 and is listed on the Maldives Stock Exchange (MSE:BML). Following the divestment of founder partner IFIC Bank of Bangladesh in 1992, the country’s government assumed a majority shareholding. Since its founding, the Bank of Maldives has driven the nation’s financial services industry with innovation and technology. The bank accumulated an impressive number of firsts such as the introduction of point of sale terminals, Internet and mobile banking, and cash and cheques deposit machines. Bank of Maldives maintains a state-of-the-art technology

platform that allows the institution to offer its around 250,000 clients both convenience and excellence in the delivery of financial services. Reaching into the far corners of the vast archipelago nation, Bank of Maldives operates a robust and fully interconnected network of branches, agents, and point of sales services that blankets the country. Bank of Maldives is the country’s largest employer in the financial sector and counts with over 850 professionals and support staff of whom one third are based outside the capital Mahé. A client-centric business, Bank of Maldives aims to – and consistently succeeds in – exceeding customers’ expectations. Since its corporate inception, Bank of Maldives has strived to reach out to clients via a multichannel

approach: account holders, and others conducting business with or at the bank, may do so in a number of convenient ways that complement, rather than detract from, their daily pursuits. The CFI.co judging panel commends Bank of Maldives on its accomplishment of a most challenging mission: to provide world class financial services in a country comprised of 1,192 coral islands in twin chains of 26 atolls dispersed over some 90,000km2 of ocean. Building a financial network that covers this unique geographic setting is a remarkable feat; doing so with aplomb and efficiency merits recognition. The judges are therefore pleased to offer Bank of Maldives the 2016 Most Innovative Banking team Indian Ocean Award.

> SALAAM AFRICAN BANK: BEST SHARIA-COMPLIANT COMMERCIAL BANK EAST AFRICA 2016

Though the country’s banking sector is well-developed and solid, Djibouti lacked a locallyowned commercial bank until 2008 when Salaam African Bank opened for business. Fully Shariacompliant and featuring a comprehensive suite of products and services, Salaam African Bank has decisively raised the benchmark by placing the needs of its clients at the centre of its corporate mission. Salaam African Bank has been ground-breaking in its approach to delivering world class financial services: the institution proactively seeks to bridge the gap between the bank and its customers. An open-door policy that emphasises inclusiveness and accessibility

has made Salaam African Bank a household name and earned it a formidable reputation for transparency and governance. The bank developed and maintains an impressive number of policies and processes that ensure adherence to the highest ethical standards. Uniquely in the region, Salaam African Bank engages closely with local entrepreneurs and diaspora communities in order to meet the strong demand for Shariacompliant financial services. Thanks to this outreach, Salaam African Bank is at the forefront of large-scale efforts to rebuild the economies of the Horn of Africa. Eying both opportunity and social responsibility, the bank CFI.co | Capital Finance International

aims to harness the considerable resources of the diaspora to make a difference in people’s lives. The CFI.co judging panel is pleased to note that Salaam African Bank not only displays an awareness of its corporate social responsibility but operates a full-featured technological platform that allows the institution the flexibility and the financial striking power to efficiently operate effectively and efficiently in one of the world’s most dynamic regions. The judges are therefore happy to confer the 2016 Best Sharia-Compliant Commercial Bank East Africa Award on Salaam African Bank.

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> QNB ALAHLI: BEST RETAIL BANK EGYPT 2016

Since its arrival in Egypt in 2013, Qatar National Bank (QNB) Group has positioned its operations squarely at the crossroads of two continents, fully leveraging the bank’s expanded geographical footprint to become the second largest bank by assets in the Middle East and Africa. Now one of the top banks in Egypt, QNB ALAHLI has aced all the stress tests it was subjected to and consolidated its position as one of the top banks in the country. As such, QNB ALAHLI is well-poised to maximise its exposure to Egypt’s buoyant economy which last year registered 4.5% GDP growth. Serving institutional, corporate, and private clients with a comprehensive suite of products and services

has enabled QNB ALAHLI to keep ahead of the competition and significantly expand its customer base. The bank maintains a network of over 180 branches that covers all of the country’s 27 governorates. A dedicated staff of almost 5,000 banking professionals, allows QNB ALAHLI to offer clients world class services across all its product lines. The bank operates a number of facilities to serve the specific needs of small and medium-sized enterprises (SMEs) which constitute the most dynamic sector of the Egyptian economy. In its day-to-day operations, QNB ALAHLI takes the long-term view, aiming to build lasting relations with clients in order to

dovetail its product line with the demands of the broader market. As a client-centric financial services provider, QNB ALAHLI has established a solid reputation for excellence which translates into increased profitability. The CFI.co judging panel wishes to congratulate QNB ALAHLI on its forward looking approach to retail banking. The bank’s growth strategy – prudent, yet determined – has allowed QNB ALAHLI to become the preferred institution to which Egyptians unfailingly turn when searching for a superior banking experience. The judges are pleased to present QNB ALAHLI with the 2016 Best Retail Bank Egypt Award.

> JORDAN DUBAI ISLAMIC BANK: BEST CORPORATE GOVERNANCE JORDAN 2016

Solid Principles, Innovative Solutions. Though its slogan sounds straightforward, Jordan Dubai Islamic Bank (JDIB) has built a comprehensive platform of processes, procedures, and guidelines that jointly ensure excellence in governance and enable the bank to deliver on the corporate promise. A number of standing committees, instituted by the JDIB board of directors, constantly monitors and evaluates adherence to, and compliance with, the Corporate Governance Guide the bank adopted in order to fully operate within all relevant regulatory boundaries. The guide outlines the relationship of the bank with all its stakeholders, including, but not limited to, clients, employees, shareholders, and regulatory entities. The guide is based on the 116

principles of corporate governance as issued by the Organisation for Economic Development and Cooperation (OECD) and includes the directions given by the Basle Committee as they pertain to the institutional behaviour of banks. As such, the JDIB and all its operations are fully governed by well-established best international practices. As a fully Islamic bank, JDIB has embedded solid Sharia principles into its core business, adapting its state-of-the-art technology platform to the requirements and wisdom of Islamic Law. As a modern and forward-looking bank, JDIB has pioneered a number of services and products that serve the needs of all society, building lasting partnerships that maximise benefits to all stakeholders. Leveraging the power of technology to CFI.co | Capital Finance International

deliver innovative solutions in a customer-centric way has enabled JDIB to become the premier Islamic bank in the Hashemite Kingdom of Jordan, raising the benchmark while delivering quality through a relentless pursuit of operational excellence. The CFI.co judging panel commends JDIB on maintaining peak efficiency and pushing the boundaries of corporate governance. At JDIB excellence in governance is not merely an issue of compliance; it constitutes the core of its business model. Reaffirming and expanding its corporate commitment to operational excellence merits a repeat win. The judges are therefore pleased to recognise the Jordan Dubai Islamic Bank for a third consecutive year as the winner of the Best Corporate Governance Jordan Award.

Spring 2016 Issue

> COMMERZBANK: BEST GLOBAL CUSTODIAN BANK GERMANY 2015

Custodian services have expanded markedly and now include a vast array of products aimed to help investors optimise the return on their equity portfolio. Just as selecting the right investment requires both expertise and access to up-to-date data, custodial services call for in-depth knowledge of markets and excellent managerial skills. With branches and offices in over fifty countries, Commerzbank boasts a truly global footprint. Germany’s second largest bank, founded in 1870 and headquartered in Frankfurt, is a choice provider of custodian services. These have been erected on a number of essential core competencies such as settlements, dividends and other income streams, proxy voting, safekeeping, and order

routing, amongst others. Commerzbank has pioneered the introduction of bespoke custodian services that correspond precisely to the needs and preferences of individual investors. Packages include both a basic set of essential services and a number of added value products that enable investors to leverage the full potential of their equity holdings. As a customer-centric bank, and with a well-established reputation for operational excellence, Commerzbank maintains a stateof-the-art fintech infrastructure that not only sets the benchmark in its twin home markets Germany and Poland, but has raised the bar globally. The bank serves private customers, small and medium-sized enterprises (SMEs),

large corporates, and institutional investors with a full range of financial products and services. In Germany, Commerzbank is the undisputed leader in financing SMEs – the famed German mittelstand responsible for the nation’s enduring economic success. The bank also finances over 30% of the country’s cross border trade. The CFI.co judging panel commends Commerzbank for its solid approach to custodial services and recognises the institution’s accomplishments in this oft neglected field of the financial services industry. The judges are unanimous in their decision to bestow the 2015 Best Global Custodian Bank Germany Award on Commerzbank.

> WORLD FREE ZONES ORGANIZATION: OUTSTANDING GLOBAL CONTRIBUTION TO FREE ZONE GROWTH 2016

At last count, the world had just over 3,500 free zones where businesses operating in a low tax and liberalised regulatory environment generate well over seventy million jobs. Stretching from Argentina to Yemen – and pretty much every country in between and beyond – free zones offer investors privileged conditions to trade and manufacture. The host economy benefits from increased employment and significant spillover opportunities. Free zones also encourage an accelerated transfer of technology and help pioneer markets find and navigate a shortcut to sustained development. Until recently, the world’s free zones lacked representation on a global scale. That changed with the launch in 2014 of the World Free Zones Organization (World FZO), a multilateral body registered in Geneva and

headquartered in Dubai that aims to function as a clearinghouse for experiences and best practices, and represent the industry. The World TZO will also strive to highlight the contributions made by free zones to global development. Their role in the building of traffic arteries, basic industrial infrastructure, and logistics networks is all too often overlooked. Ever since the first free zone was instituted at Shannon Airport in Ireland (1959) – also the airport that first offered tax-free shopping for international travellers (1947) – free zones have been instrumental, if not pivotal, in fostering economic progress. One of the main objectives pursued by the World FZO is to remind governments on the importance of free zones and help authorities put in place policies that maximise the upside of lowCFI.co | Capital Finance International

taxation, low-regulation economic enclaves and exclaves. The CFI.co judging panel applauds the initiative and wholeheartedly agrees that the full story of free zones needs to be told. The judges recognise that free zones provide a wealth of opportunity to both new investors and well-established businesses. Free zones add a significant degree of pizazz to any economy. Hence, if the World FZO did not exist, it would need to be invented. Luckily, it has been invented and it is doing a stellar job of giving the sector the voice it previously lacked. The CFI. co judging panel wishes to recognise the value of this work by offering the 2016 Outstanding Global Contribution to Free Zone Growth Award to the World Free Zones Organization.

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> AFRICAN RISK CAPACITY: MOST INNOVATIVE ESG RISK PROTECTION PROVIDER AFRICA 2016

A specialised agency of the African Union (AU), the public-private partnership African Risk Capacity (ARC) aims to improve and strengthen the resilience of the continent’s nations to extreme weather events and natural disasters. The primary mission of ARC consists of reducing the risk of loss and damage to African peoples. The agency does so by offering a comprehensive framework of targeted responses to events. ARC prioritises a timely, objective, transparent, and cost-effective approach to limit the fallout of catastrophic events. As such, ARC offers a valuable – and much needed – alternative to the often haphazard, uncoordinated, and wasteful ways in which relief was previously offered to populations affected by

extreme weather events or natural disasters. The organisation works closely with the heads of governments and finance ministers of Africa’s 54 nations in order to plan readyto-implement risk mitigation strategies and help relevant authorities prepare for disaster by offering training and sharing expertise. ARC also works with private businesses to produce sustainable models that can limit loss and damage in case disaster strikes. ARC employs satellite technology and its proprietary Africa RiskView software to detect any change, however small, in the food security outlook. The state-of-the-art software suite enables ARC to constantly monitor weather and population patterns. This early warning system has already proved invaluable in

preventing drought-related catastrophes. Even before extreme weather events occur, response models and processes can be activated to shield at-risk populations from adversity. Africa RiskView is made available to all countries of Africa that engage with ARC to mitigate and manage risk. The CFI.co judging panel commends ARC on its proactive and solidly coordinated approach to risk management in Africa. The company’s services replace the ad-hoc response hitherto given to natural disasters. That not only saves money: it saves lives. The judges are pleased indeed to count African Risk Capacity amongst their winners and offer the company the 2016 Most Innovative ESG Risk Protection Provider Africa Award.

> BANK OF NEW YORK MELLON: BEST WEALTH MANAGER USA 2016

With overall profits up from $233 million at the end of 2014 to $693 million a year later, the Bank of New York (BNY) Mellon is coming out victorious after a year of rocky market conditions, largely thanks to its clever model of client-centric wealth management. Treating every client as unique is at the heart of BNY Mellon’s approach; this allows the bank a diverse portfolio of clients – from institutions, corporations, to individuals and families. Each case is a disciplined process, whereby wealth managers can apply their best thinking in a continuous cycle, leading to BNY Mellon’s high client-retention rates. As of September 30, 2015, the bank 118

had $28.5 trillion in assets under custody and/ or administration, and a further $1.6 trillion in assets under management. With $191.8 billion in private-client assets alone, BNY Mellon is among the top ten wealth managers in the world. Financial forecasts for a market boom in 2016 have been mixed, with the last quarter of 2015 seeing a boost in equities with a resurgence in S&P 500 stock value, all while China began cutting interest rates and reserve requirements. However, the BNY Mellon giant has remained secure around the volatile market conditions that surround it and has dutifully marched to the drum, expanding its wealth CFI.co | Capital Finance International

management operation by acquiring Atherton Lane Advisors at the beginning of the year. The $2.7 billion deal with one of Silicon Valley’s most prominent wealth managers opens up valuable new markets within the tech industry for BNY Mellon. Whatever direction the stock markets take, BNY Mellon has placed itself in one of the richest centres of the US, and will no doubt be welcomed by the financial elite due to its holistic and trusted approach to wealth management. For the third year running, the CFI. co judging panel is happy to name BNY Mellon as the Best Wealth Manager in the USA for 2016.

Spring 2016 Issue

> CAPITAL MARKETS BROKERS: BEST EQUITY RESEARCH MAURITIUS 2016

Solid research makes for solid profits. This deceptively simple tenet forms the basis of Capital Markets Brokers’ Research Division – the preferred wellspring of equity research in Mauritius. CMB analysts have established a reputation for peerless in-depth research, detailing not only the performance of companies listed on the Stock Exchange of Mauritius, but also providing clear guidance on future business prospects. A testament to the firm’s resilience and superior performance, Capital Markets Brokers has successfully weathered the local market’s recent turbulence, expertly picking

the companies most likely to profit even under adverse conditions. Offering unparalleled customer service and convenience, CMB has managed to expand its client base and keep trust of all stakeholders. The firm, a member of the Stock Exchange of Mauritius, offers a full suite of brokerage services including execution, sponsoring and capital raising services and has maintained its position as one of the three dominant local brokers. By investing heavily in its equity research division, CMB was able to sustain its leadership and further improve the depth, scope, and quality of its research output. The firm

has been recognised as a provider of world class guidance to both local and overseas investors. Founded 25 years ago with a view to helping develop the Mauritius capital market, CMB has assembled a highly experienced team of traders and analysts. The CFI.co judging panel is pleased to note that CMB’s has not just managed to recruit the best professionals, but was able to minimise staff turnover, thus adding a degree of stability much appreciated by its clients. The judges commend Capital Markets Brokers on its exemplary approach to equity research and declare the firm winner of the 2016 Best Equity Research Mauritius Award.

> AFGHAN INTERNATIONAL BANK (AIB): BEST CORPORATE GOVERNANCE AFGHANISTAN 2016

Building a sustainable foundation that supports operational excellence and enables future growth requires a solid corporate governance framework. Set up as the country’s flagship financial institution in 2004, the Afghan International Bank has consistently managed to exceed expectations. The bank combines a vast reservoir of international expertise with an unrivalled knowledge of local market conditions and, in just a few years, has managed to become the most widely respected financial institution in Afghanistan. Afghan International Bank (AIB) enjoys the full backing of the Manilla-based Asian Development Bank which was instrumental in its foundation and remains a shareholder to this day. Two large and well-established Afghan

trading and investment groups also hold sizeable stakes in the bank. With a mission to help rebuild and develop Afghanistan’s battered yet dynamic economy, AIB leverages the power of solid corporate governance to attain its institutional aims. The bank enjoys a stellar international reputation, operates an up-to-date technological platform, and adheres as matter of course to international best practices. AIB holds the highest CAMEL rating (capital adequacy, asset quality, management, earnings, and liquidity) of all privately-owned Afghan banks. The institution has also repeatedly been recognised for its operational excellence, repeatedly claiming prestigious honours such as the 2012 Straight Through Processing Award presented by Commerzbank Frankfurt. Due CFI.co | Capital Finance International

to its high standards of corporate governance, AIB is also the preferred bank of international development agencies and donor organisations that maintain programmes in the country. The CFI.co judging panel is pleased to see Afghan International Bank again nominated for its Best Corporate Governance Award. After careful deliberation, the judges concur that AIB has not just managed to maintain its already high standards of corporate governance, but to enhance the scope and depth over the past year in order to further the interests of all stakeholders. The judges are therefore delighted to again declare Afghan International Bank winner of the Best Corporate Governance Afghanistan Award.

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> KIPCO: BEST CORPORATE GOVERNANCE KUWAIT 2016

Successfully managing vast investment volumes across industries and sectors requires a significant organisational wherewithal as provided by a firm and comprehensive corporate governance structure. One of the most admired companies in the Middle East and North Africa (MENA), KIPCO Group of Kuwait comprises a universe of over 60 companies in 24 countries. KIPCO Group (Kuwait Projects Company Holding) has a particularly strong presence in the financial services, media, real estate, and manufacturing sectors. With a corporate footprint that stretches from the Atlantic Ocean to the Arabian Sea, the Kuwaiti group showcases the achievements of strict adherence to prudent and sensible investment strategies. Founded in 1975, KIPCO Group now provides over 12,000 people with good jobs. The group’s

companies include Burgan Bank – one of the region’s premier financial institutions – and the Gulf Insurance Group, likewise a regional giant. KIPCO also owns a majority stake in OSN, the leading pay TV service in the Middle East broadcasting premier HD programming in Arabic, English, and Filipino. Transparency and sound corporate governance are at the very core of all KIPCO operations and processes. The group has erected a number of highly visible audits and governance structures that ensure objectives are met in a timely manner and peak corporate performance is maintained. KIPCO Group’s signatory annual Shafafiyah (transparency) Investors Forum, which takes place in the wake of the company’s yearly general assembly, allows management an opportunity to review its past performance

and offer guidance on corporate prospects. Shareholders, media representatives, and the wider public are actively encouraged to partake and ask questions or raise concerns. Broadcast live via the Internet, the forum also enables the management of KIPCO Group to gauge the reaction of analysts, shareholders, and the public to the company’s many undertakings. The event generates a valuable cache of data that is used by the group’s management to fine-tune operations and processes and thus preserve and expand the goodwill thus far generated. The CFI.co judging panel hails KIPCO Group for its forward looking and pioneering approach to corporate governance. The judges agree that a company’s reputation is its most valuable asset. KIPCO Group is the undisputed winner of the 2016 Best Corporate Governance Kuwait Award.

> LADOL: BEST OIL & GAS LOGISTICS AND ENGINEERING SERVICES WEST AFRICA 2016

The LADOL Free Zone has become West Africa’s largest base for oil rig and vessel repair and maintenance. The zone’s facilities are privately financed and Nigerian owned. LADOL – Lagos Deep Offshore Logistics Base – is now poised to change the face of logistics sector in West Africa, and with it provide added buoyancy to the region’s economy. Positioned strategically at the entrypoint to Lagos Harbour, the zone is open for business 24/7 and offers a wide range of services tailored to meet the needs of oil & gas companies and ancillary industries. Much like Dubai fifteen years ago, the free-zones of Nigeria enjoy a multitude of equity opportunities. The LADOL Free Zone is able to 120

service the largest vessels in the world. Now it can also build them. The zone’s new fabrication and integration yard – the first of its kind in Africa and a venture which required an investment upwards of $600m – heralds the beginning of large tonnage vessel building in Nigeria. By tapping into the demand for largescale logistical and engineering projects, LADOL has provided a significant boost to domestic industry. Demand generated in the free zone has already created more than 50,000 new jobs. The economic multiplier effect triggered by LADOL is being felt throughout West Africa. The industrial free zone also provides modern facilities for the training CFI.co | Capital Finance International

of professionals. Last December, LADOL inaugurated a training academy with a view to providing young Nigerians with the skills needed by industry. This way, LADOL aims to help and encourage Nigerians to seize the moment, and the many opportunities now available, as businesses actively seek to hire locally from a well-trained pool of labour. The CFI.co judging panel commends LADOL on its contribution to Nigeria’s development and is most impressed with the company’s foresight to open and shape new markets. The judges are delighted to hand LADOL the 2016 Best Oil & Gas Logistics and Engineering Services West Africa Award.

Spring 2016 Issue

> 3 STEP IT: MOST INNOVATIVE TECHNOLOGY LEASING SOLUTIONS EUROPE 2016

Usually, innovation does not come easily nor naturally. 3 Step IT, however, built its business model on this premise. Founded in 1997, the Finnish company continues to evolve alongside rapidly changing technology. 3 Step IT offers worldwide management and leasing solutions to businesses and other organisations with high-volume IT needs. The company’s services are managed in three steps – leasing, management, and replacement – in order to provide a sustainable, cost-effective process based on circular economy to its customers. Serving 3,800 customers worldwide, with almost two million devices under its supervision, 3 Step IT refurbishes and resells 95% of the equipment it replaces, and recycles the remaining 5%. Via its leasing model the company

creates a more sustainable lifecycle for the hardware, and also ensures businesses only pay for the optimum working life of assets. This lowers the need for capital IT investments, and maintenance and operational overheads. Moreover, the model increases client productivity by ensuring their equipment is always up-to-date. The company developed an impressive way of managing the IT equipment leased out: 3 Step IT creates an asset register by collecting all the necessary data on the leased equipment, making it easy for clients to track assets and generate on-demand reports for cost monitoring and budgeting purposes. This asset register has enabled clients to work efficiently with 80% less devices cluttering valuable office space. The company’s comprehensive online tools were designed around the needs of existing

customers based on prevalent business processes. The online asset management tool offers clients an option to order new devices based on preselected list of choices, establish a budget, manage inventory, and return/replace leased items. The tool also notifies customers when equipment is nearing the end of its optimised working-life; allowing clients to replace, return, or continue using the hardware. The CFI.co judging panel commends 3 Step IT’s flexible business model which has allowed the company to suit the contemporary demand for sustainable business operations. For this, and the outstanding asset management tool, the judges award 3 Step IT Group Oy with the 2016 Most Innovative Technology Leasing Solutions Europe Award.

> UBS AG: BEST GREEN BANK SWITZERLAND 2015

An increasing number of businesses, including banks, are adapting their corporate structures and processes to incorporate sustainability principles and reduce their CO2 footprint. Taking the lead, and setting an example, UBS has rewritten its entire long-term corporate strategy to fully adjust its business to the changing landscape. The UBS and Society initiative was unveiled in 2015 and aims to make the bank a global leader in sustainability within the financial services industry. UBS wants to move beyond the commitment of causing no harm to a more proactive approach where harm is fully stamped out. The bank has already requested that 44% of suppliers of newly-sourced goods and services

that carry a potentially high environmental impact, adhere to UBS’ Responsible Supply Chain Management standards. UBS and Society covers all of the bank’s activities and capabilities in sustainable investing. It seeks to reduce the bank’s own environmental footprint, as well as strengthen its human rights policies. The strategies used by the firm have not just resulted in a staggering reduction in non-sustainable investments, but also brought significant reductions in GHG emissions, waste production, water usage, and paper consumption. In 2015, UBS outperformed its energy and water consumption targets a year ahead of time with a 13% and 16% reduction, respectively. CFI.co | Capital Finance International

As a member of the RE100 – a collaborative global initiative of large businesses to fully meet their electricity requirements with renewable energy - UBS strives to source all of its electricity from renewables by 2020. Last year, an impressive 54% of UBS’s worldwide electricity consumption was sourced from renewables. The CFI.co judging panel commends UBS on both its achievements to date and its commitment to sustainability. The bank’s umbrella approach, and its strong corporate culture, ensure that targets will be met. For the second year running, the judges decide to recognise these sustained efforts by naming UBS Best Green Bank Switzerland. 121

> EMIRATES REIT: BEST DIVERSIFIED REIT GLOBAL 2015

Tapping into the dynamic Dubai real estate market, Emirates REIT (CEIC) Limited boasts a stellar track record in picking the right moment for new acquisitions. The fully Sharia-compliant fund was set up in late 2010 and listed on NASDAQ Dubai three years later, in April 2014. Emirates REIT has assembled a portfolio of eight prime properties valued at well over $650 million. Thanks to a conservative loan-to-value ratio of 31% (as of October 2015), Emirates REIT maintains a significant level of financial prowess which allows the fund to move in response to attractive prices during momentary market adjustments.

Making the most of the current buyers’ market, Emirates REIT commands about $257 million in financial firepower to add to its portfolio. Emirates REIT’s last acquisition was a soon to be completed educational complex. The firm is also the largest stakeholder in the landmark Index Tower located in DIFC – the financial hub of the city. In its biggest acquisition to date, Emirates REIT in 2014 bought 17 of the tower’s 29 office floors in addition to the building’s full retail component and close to 1,500 parking places. Emirates REIT has deftly managed to turn the current slowdown of Dubai’s property

market into an opportunity for expansion. Though demand for office space has eased, the firm was able to maintain rental rates unaltered thanks to its presence in prime locations that are markedly less susceptible to market sentiment. The CFI.co judging panel finds the strategy deployed by Emirates REIT exemplary and commends the firm on its adherence to robust management practices that are not only farsighted but also allow the trust to prosper in bull and bear markets alike. The judges are pleased to offer Emirates REIT the 2015 Best Diversified REIT Global Award.

> TKP INVESTMENTS: BEST RISK MANAGEMENT ADVISORY TEAM THE NETHERLANDS 2016

Pension fund asset manager TKP Investments, a wholly-owned subsidiary of Aegon Asset Management, has been one of the first to explore and exploit the new opportunities becoming available as an era of consolidation is about to sweep the pension fund sector in The Netherlands – a universe worth in excess of a trillion euros. As an integral asset manager for, and advisor to, mainly Dutch pension funds, TKP Investments has accumulated a vast reservoir of experience and expertise that allows pension fund boards to stay in full control and closely monitor the performance of their investments. TKP Investments offers its clients a full suite of services with methodologies and strategies carefully tailored to meet clients’ requirements. The firm adheres to structured and welldisciplined investment processes that emphasise 122

transparency and fluid communication. Its services are offered as modules in order that clients may pick and choose those that best fit their objectives and/or profiles. The investment process is based on a multi-manager approach. Recent legal changes to pension fund law, aimed at tightening up the regulatory framework while streamlining procedures and reducing overhead, introduced a new long-term investment vehicle – the general pension fund (APF). Together with Aegon and TKP Pensioen, TKP Investments jumped at the chance and announced the formation of Stap APF, intended as a pool that offers pension funds the benefits of scale. Funds currently administered directly by employers or industry associations may also join Stap APF. Interest in the newly structured CFI.co | Capital Finance International

general pension funds has been overwhelming with Stap APF being a step ahead of the competition thanks to the excellent reputation enjoyed by all parties involved. TKP Investments is charged with the fiduciary management of Stap APF. The CFI.co judging panel commends TKP Investments on its forward looking approach. The company is well-poised to leverage its considerable expertise and take the lead. The judges feel confident that TKP Investments stands to benefit more than most from the consolidation now underway in the exceptionally well-funded Dutch pension fund sector. TKP Investments is declared winner of the 2016 Best Risk Management Advisory Team The Netherlands Award.

Spring 2016 Issue

EMAAR THE ECONOMIC CITY – INDUSTRIAL VALLEY: BEST INDUSTRIAL & LOGISTICS MEGA PROJECT DEVELOPER GLOBAL 2016

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

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

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

> DUNLOP TYRES: BEST ESG CORPORATE CITIZEN UNITED STATES 2016

Dunlop Tyres, Goodyear Tire and Rubber Company’s high-end household brand, is becoming well-known for something other than tyres: it has now established a well-earned reputation for championing environmental causes and for excellence in social governance. Dunlop Tyres’ eco-strategy begins with its products. New materials are being developed, and existing ones improved, for better sustainability while supply chains are closely monitored for the same reason. Dunlop optimised its tyres with a view to decreasing their lifetime carbon footprint and increase fuel efficiency. Tyres now also more durable, requiring less frequent changes. The company’s manufacturing facilities are also closely monitored in

order to comply with the company’s global environmental, social, and governance (ESG) policies which include zero solvent use and a zero waste-to-landfill provision. Since 2009, Dunlop Tyres has achieved an astonishing 92% reduction in its environmental impact. Dunlop Tyres has also stayed ontarget with its plans to reduce water and energy usage by 15%. The company’s new headquarters in Akron, Ohio, opened in May 2013, and promptly earned the prestigious Leadership in Energy & Environmental Design (LEED) accreditation from the US Green Building Council. Akron is also home to some of Dunlop Tyres’ biggest community projects. The company is fully engaged in the promotion of CFI.co | Capital Finance International

local STEM (science, technology, engineering, and mathematics) education initiatives which it supports with both grants and employee volunteers. Some 300 Dunlop Tyres employees help plan the annual STEM Career Day which offers $40,000 in grants and scholarships to participating students. The CFI.co judging panel wishes to express its collective admiration for the environmental and social initiatives undertaken by Dunlop Tyres. The judges consider the company a true pioneer in these fields and a model for others to follow. For its exemplary corporate citizenship, Dunlop Tyres is granted the 2016 Best ESG Corporate Citizen United States Award.

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> Africa:

Tunisia - Determined and Confident By Darren Parkin

Cited five years ago as the cradle from which the Arab Spring engulfed the Middle East with protests, rebellion, and other expressions of public discontent, Tunisia has since found itself receiving the full ire of Muslim extremism. Instead of celebrating its historic role in liberating the region from brutal dictatorships, the country found itself targeted by terrorists as the freedom it once craved slowly receded into lockdown.

Tunisia: Tunis

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n the next few months, the final touches will be placed on a 125-mile barrier of trenches and sandbanks along half its 285-mile border with Libya. Tunisia’s intention is to create what officials have named an “anti-jihadi wall” in order to prevent terrorists stepping from IS-linked training camps in Libya and straight onto Tunisian soil. This curious and crude fortification is punctuated along its length with watchtowers and security posts – many of which are being paid for by the German and US governments. To the outside world, it would undoubtedly appear a sad and desperate measure to take. After all, this is the country that drew a line in the sand and declared enough was enough before facing up to its stifling regime and inspiring other Arab nations to do likewise. It now appears as though Tunisia is gouging a very different mark in its sands. Are we seeing the land that engineered its own freedom begin to slip away into the deep waters of repression, or is there more to what meets the eye in Tunisia’s prolonged battle with itself and its unruly neighbours? It’s hard to think what answer Mohamed Bouazizi would have to that question, if he were still alive. Mr Bouazizi is credited with being the trigger that started the uprising and, in turn, the Arab Spring itself. It was his dramatic and desperate protest that set off a wave of violent demonstrations over unemployment throughout the North African nation. A jobless 26-year-old, Mr Bouazizi had been searching for work most of his adult life. He chose to sell fruit and vegetables in Sidi Bouzid in an attempt to earn something of a living. His produce and cart were confiscated by the police and government officials who demanded money for a permit, issuing a 10 dinar fine in the process. It was the final straw for Mr Bouazizi – the main breadwinner in a household of eight. Like thousands of other disenchanted young men in Tunisia, he’d had his fill of being punished for trying to do something with the abject nothingness of life. Unlike his peers, however, Mr Bouazizi’s actions went beyond the shared desperation of a generation. He marched to the town hall to remonstrate with local officials who flatly refused to even speak with him. He left, but returned an hour later. Outside the lavish municipal offices, at 11.30 am on December 17, 2010, he knelt at the gates and doused himself with petrol. Without even pausing for thought, he set himself alight. The young man didn’t die in the street. Instead, he was taken to the nearest hospital, with news of his protest spreading quickly. As he lay in intensive care, public outrage was simmering 126

“Since the 2011 uprisings, several Arab Spring states have been devoured by terrorism and allowed themselves to slide back to square one. Tunisia, however, despite being the victim to some sickening atrocities, is refusing to relinquish the grip it fought so hard to wrap around its own freedom.” close to boiling point, prompting then president Zine el Abidine Ben Ali and his spin doctors to visit the stricken Mr Bouazizi’s bedside. The transparent nature of the appearance didn’t go unnoticed and did nothing to stifle the outcry that was brewing in the streets. Ten days after Mr Bouazizi passed away on January 4, Ben Ali’s dictatorial reign over Tunisia came to an abrupt end. The enraged Tunisian people had spoken and acted. The Arab Spring had begun, and the rest is history. Fast-forward to 2016 and, on the surface, it looks like little has changed. This all paints a bleak and dire picture. But then, Tunisia’s political image has never been much of an oil painting. Yet, beneath the cracks and the discoloured undulations, the canvas of this extraordinary and proud nation is remarkably undamaged by the ravages of recent history.

to the west that Tunisia is serious about its reformation. But it’s not just the visible factors like seeing giant defences being created to keep terrorists out, there’s also the guile of the Tunisian people to contend with. Particularly the younger generations who empathised and were affected by the drastic actions of Mohamed Bouazizi and everything he stood for. There’s a culture shift in this North African country that, just like the beginning of the 2011 revolution, may well indeed spill over into other Arab nations keen not to be swallowed by the creeping spread of the Islamic State. Against all the odds, Tunisia is giving its all for a proper crack at modernisation and the advancement of Islamic liberalism. There has long been a desire for a vision of Islam in harmony with modern values and science, but it has only been in the last five years that people have dared to allow their support for such new ideals float to the surface. Tunisia remains the leading light of reformation in a region where the laborious process of democratic metamorphosis is proving to be more painstaking and fragile than any observer had imagined. Yet through tenacity and dedication, the Tunisian people have risen to the challenge. Take Rachid Abdennour for example. He’s a 31-year-old computer programmer who began working in Tunis at the end of 2015 after spending six years without even a glimpse of a job. He spoke to CFI.co and explained that it was the self-sacrifice of Mohamed Bouazizi that gave him the hope of a future for his country, and delivered inspiration to thousands like him.

Scratch the surface, and the truth of what Tunisia is, and indeed intends to be, becomes apparent. Despite all the horrors, the tyranny, and shattered dreams, here lies a country that is still standing tall. Write Tunisia off at your peril.

“Tunisian people love and believe in Tunisia,” he told us. “I had a qualification and nothing else – just the same as my neighbours, their neighbours, and all the young men of our nation, but Mohamed Bouazizi gave us hope, and that’s something we’ve all had since he gave his life for the freedoms of Tunisia.”

Since the 2011 uprisings, several Arab Spring states have been devoured by terrorism and allowed themselves to slide back to square one. Tunisia, however, despite being the victim to some sickening atrocities, is refusing to relinquish the grip it fought so hard to wrap around its own freedom.

“Look how we are rebuilding. Infrastructure, jobs, opportunities – all things that were not in our path during the days of Ben Ali. We’ve built something here that will not give in to the forces of oppression, and it has given us all hope for the future which we hope will deliver hope to other Arab nations.”

Following the Bardo Museum attack in March last year, and the Sousse attacks in June, Tunisia collectively decided it was time to stand up and be counted. If it were possible that any good could possibly arise from the deaths of 38 tourists, it would be the legacy of it being the moment Tunisia embarked on what is being described as the second coming of the Arab Spring.

“We know this hope will carry us to a better future because we know that, without this hope, we are all Bouazizis.”

And with that fresh impetus comes the lengthy fortification of its border with Libya – a sign CFI.co | Capital Finance International

Throughout the Islamic world, military and religious values have spent centuries dominating science and peaceful advancement, and it took an illegal fruit seller’s suicide to start a mass uprising against both. Once again, it appears that Tunisia is proving itself as the crucible in which the ingredients for a more harmonic existence are to be mixed. i

Spring 2016 Issue

> CFI.co Meets the General Manager of Dun & Bradstreet Credit Bureau Tanzania:

Adebowale Atobatele

resent in Tanzania since 2013, Dun & Bradstreet Credit Bureau has laid the groundwork for credit reporting and business intelligence in the country. The company – the world’s largest, and oldest, credit bureau – is actively engaging with local banks and businesses to set up systems and procedures that facilitate access to commercial information. Credit reporting and business information is widely considered an engine for growth. Once lenders and businesses gain access to reliable data, trade starts flowing, risk premiums shrink and prosperity results. Adebowale Atobatele is the Dun & Bradstreet point man in Tanzania and general manager of the company’s operations in the country. Mr Atobatele brings over a decade worth of experience to the D&B Dar es Salaam office gathered in banking, marketing, project management, and communications. He has worked for Dun & Bradstreet on projects in Brunei, Qatar and Nigeria. While working for Dun & Bradstreet in Nigeria where he has represented the company on the Board of the country’s leading Credit Bureau, Mr. Atobatele was instrumental in re-dimensioning the challenges faced by the company’s clients with a view to helping them reposition for improved performance and efficient service delivery. “Our experience in Tanzania has been both challenging and interesting. Dun & Bradstreet’s ability to confront the challenges with courage, determination, integrity, hard work, and a commitment to create and deliver superior value is what has made the experience interesting.” Mr Atobatele emphasises that the prior existence of a well-defined legal framework contributed significantly to ensuring that the company had a good take-off. Speaking about their experience in Tanzania: “We are glad to be in Tanzania particularly at a time when the market is undergoing reforms. Lenders in Tanzania are beginning to appreciate the role of the credit reference bureau. In fact, we are beginning to see lenders of all categories voluntarily embrace our services. So, we believe that we came to Tanzania at a time when the financial sector is undergoing a shift in paradigm and are thankful to have an opportunity to play a crucial role.” Dun & Bradstreet is determined to help shape Tanzania’s credit reporting and business information industry by hiring, training, and retaining local talent. “We seek for excellence in the delivery of our services and are always on the lookout for opportunities to create and

General Manager: Adebowale Atobatele

deliver value to our customers. D&B also aims to establish an ecosystem where all lenders and credit grantors have a sense of belonging and easily fit into their role.” D&B CEO for Credit Bureaus and Financial Infrastructure Miguel Llenas maintains that credit bureaus are tools for economic development and the creation of prosperity. Until recently, access to credit in developing markets was often reserved for a privileged few. A large gap existed between those with access to credit, and thus able to create wealth, and the many who were shunned by the financial services industry and, as a result, lacked the wherewithal to progress and remained poor. It is one of the reasons why developing nations often lack a middle class. Says Mr Atobatele: “People were either very rich or very poor. Potentially good borrowers at the bottom of the pyramid were neither considered worthy of credit nor of being productive in any way. However, the story has consistently improved with CFI.co | Capital Finance International

the advent of credit bureaus in emerging markets. Those who were once considered unfit for credit can now get access to loans for productive purposes thereby improving the quality of their lives while at the same time contributing to the growth of the local economy.” Mr Atobatele is convinced that the existence of credit reference bureaus helped change the pace of development in emerging markets and, indeed, continues to do so. “In terms of specifics, lenders can now use a borrower’s credit information report to assess his or her creditworthiness and ascertain the borrower’s capacity and propensity to repay a loan. Credit bureaus also aid in debt recovery. We help banks in Tanzania become familiar with our skip tracing services to locate defaults and seek repayment.” Mr. Atobatele ascribes the sustained progress D&B has recorded in Tanzania to the consistent support and encouragement of the Bank of Tanzania: “We wouldn’t be here without them.” i 127

> Dun & Bradstreet Credit Bureau Tanzania:

Business Information Key to Development In Tanzania, Dun & Bradstreet Credit Bureau has helped reduce the loan losses banks are exposed to. With the inclusion of the company’s credit reporting services as an integral part of their risk management framework, commercial banks have been able to consistently reduce non-performing loans (NPLs) portfolios. The National Microfinance Bank (NMB), possibly the largest bank in Tanzania measured by credit volume, now projects a reduction of NPLs to less than 2% of its gross loans volume.

un & Bradstreet also helps lenders identify borrowers who have the ability to convert credit into wealth. As a result, these enterprising people gain improved access to credit. Additionally, borrowers with good credit profiles are now in position to negotiate interest rates. Dun & Bradstreet thus enables lenders to limit their risk exposure and simultaneously empowers good borrowers to access more funds at better rates. Dun & Bradstreet arrived in Tanzania about two and half years ago with the intention of bridging the huge gap between the required quality of credit data necessary for accurate credit reporting and what was provided by regulated institutions. D&B recognised that local banks and financial services providers were hampered in their efforts to improve business information by the data format required for submitting information to the credit reference databank built and maintained by the country’s central bank. This format differed from the one employed by the banks to keep track of outstanding credit. Transferring data from one format to the other caused errors that undermined the reliability and credibility of credit reporting services. However, D&B decided to take ownership of the situation and invested funds and human resources in the development of two tools that bridge the format divide and ensure the seamless and error-free transmission of credit data to and from the central bank’s systems. Dun & Bradstreet made both tools available without charge to all commercial banks in Tanzania.

“Dun & Bradstreet’s efforts have helped to significantly improve the quality, timeliness, and accuracy of credit reporting in Tanzania.” The company also took ownership of the job of training designated officers at commercial banks who are fully-informed on the faultless processing of credit reference data. Dun & Bradstreet’s efforts have helped to significantly improve the quality, timeliness, and accuracy of credit reporting in Tanzania. The company has also been recognised for creating awareness as it took the lead in organising seminars and workshops for various segments of the market. Today, people and businesses in Tanzania are better informed and more aware of the role assigned to credit bureaus and their contribution to the country’s development. The challenges faced by Dun & Bradstreet as the company commenced operations in Tanzania were, in fact, rather typical. The main challenge was posed by the absence of a credit reporting ecosystem. Whereas credit bureaus had been properly licensed, very little was done to ensure that the credit market – regulated lenders, non-regulated lenders, insurance companies, telecoms, amongst others – participated in the credit reporting system from its onset.

At the time, lenders had a choice of not using credit bureaus. This defeats the purpose of licensing credit bureaus. However, Dun & Bradstreet was eventually able to build a vibrant ecosystem for credit reporting in the country. To date, the company is the only credit bureau in Tanzania able to report on all categories of lenders or credit grantors. The ecosystem D&B helped set up now includes lenders from across the full credit spectrum. While the ecosystem is not yet complete, the company did manage to erect a dynamic marketplace for credit reporting that is growing and becoming ever more inclusive. Initially, Dun & Bradstreet was told that any company that intended to operate as a credit bureau could not apply for a licence to build a credit reference data bank into which commercial banks could upload data. This state of affairs was naturally accepted. Unfortunately, the definition of who could apply for a license to operate a credit bureau was changed which allowed the vendor that had built the central bank’s credit reference data bank to operate as a licensed credit bureau ahead of D&B. This implied that the company had arrived in Tanzania as the second licensed credit bureau, thus losing the coveted first-to-market status. However, by operating at the highest level of integrity – and with a determination driven by an unquenchable thirst for excellence and a focus on innovation – Dun & Bradstreet managed to flip all negatives into positives. The company is currently witnessing the market

“However, by operating at the highest level of integrity – and with a determination driven by an unquenchable thirst for excellence and a focus on innovation – Dun & Bradstreet managed to flip all negatives into positives.” 128

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gravitate to the side of excellence. Today, Dun & Bradstreet is widely recognised as the country’s most innovative credit bureau with a well-established and entrenched reputation for value creation and the consistent delivery of stellar results. ABOUT D&B Dun & Bradstreet can trace its corporate origin to mid-19th century New York and the Mercantile Agency formed in 1841 to meet the strong demand for a centralised credit reporting system. The company built and maintained a large network of correspondents charged with gathering reliable credit information on businesses. A long series of mergers followed and created one of the world’s largest business data companies. During the second part of the 1990s, Dun & Bradstreet – now a vast conglomerate – spun off a number of division which went on to become behemoths in their own right, such as ACNielsen (data on consumers and consumer behaviour), Cognizant Technology Solutions (IT and business process outsourcing), and – perhaps the most well-known of the lot – Moody’s, the holding company of Moody’s Investor Services credit rating agency and Moody’s Analytics. Refocused on its core business, Dun & Bradstreet diligently maintains a commercial database containing well over 235 million records detailing the performance and creditworthiness of businesses in more than 200 countries and territories. D&B is a Fortune 500 company and was one of the first to have its shares traded on the New York Stock Exchange. To keep its database up-to-date, D&B uses a number of sources such as public records, trade data, information supplied by utility companies, and print and digital information. The company’s services are available to subscribers as well as on an ad-hoc basis. Dun & Bradstreet operates across three main segments: financial solutions (credit and risk management), operational solutions (supply chain management), and sales and marketing solutions via Hoover’s, its lead generation business. Companies included in the D&B commercial database may access a number of services intended to improve their credit rating while risk managers enjoy access to the D&B Business Information Report, Comprehensive Report, and D&B Direct. In addition, it is worth mentioning that D&B’s team of young and innovative professionals has been able to raise the standard of credit information services through various initiatives. The consistency of the team in recording high client satisfaction levels is commendable. i CFI.co | Capital Finance International

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> PwC:

Nigeria Prosperity Beyond Oil By Taiwo Oyedele & Kenneth Erikume

wC recently published a report in conjunction with the Lagos State Chamber of Commerce and Industry (LCCI) on the key macro-economic challenges in Nigeria. PwC reviewed the impact of low oil prices on economic indicators and also considered the question of priority sectors that Nigeria should target for diversification efforts. This analysis also points to areas rich with investment opportunities. Nigeria has the largest economy in Africa and the 22nd largest globally. Many experts have predicted that the economy has potential to 130

rise through the world rankings to top 10 by 2050 with a projected GDP of US$6.4 trillion, surpassing Germany, the United Kingdom, and France. This cannot be achieved if the country continues to rely heavily on crude oil. Diversification of the economy is required as Nigeria’s intrinsic potential lies beyond oil. The devastating impact of the slump in oil price on the economy over the past 18 months is an eye opener. Harnessing the potential of the country outside oil has become imperative and the only way the predictions can ever be achieved. CFI.co | Capital Finance International

HALF FULL OR EMPTY? Nigeria’s economy grew by 2.7% in 2015, which represents the slowest growth in the past five years – much lower than the 5-year real GDP average of 4.8% annually. Real growth decelerated sharply to 2.1% in Q4 2015, reflecting the weakest quarterly performance following a contraction in growth across industries and moderation in the services sector. The slow growth is largely due to the real growth in the crude petroleum and natural gas sector which was -5.4% in 2015, even as oil exports declined by 49% in 2015. The performance of

Spring 2016 Issue

Exchange rate Increasing inflation Economic uncertainties High cost of credit Regulatory issues Poor infrastructure Labour issues Unfavourable government policies Corruption Increased competition

8% 9% 5% 7% 4% 3% 3% 2%

25% 19%

20%

40%

Percentage of responses Top Business Challenges

the manufacturing sector was also unimpressive with real growth at -1%. This was largely due to the impact of the unavailability of foreign currency for raw materials and intermediate products. The drop in the country’s foreign currency revenues from crude oil means that the Central Bank of Nigeria (CBN) has struggled to meet the foreign currency needs. The current account is in deficit. Measures have been implemented such as limiting the products for which foreign currency can be obtained at the official rate of exchange and unplanned delays in meeting valid applications for foreign currency through formal banking channels. Many businesses have been forced to look for alternatives in the parallel market which has traded at a 30%-100% premium to the official rate of NGN199/USD since the start of 2016 due to high demand. The impact on businesses is significant costs, due to exchange rate losses on foreign loans or cost of inputs – which the market has not been able to absorb in the form of higher sales prices. Despite the negative statistics, several sectors are considered to hold huge opportunities for investment. Based on PwC research, these are agriculture, downstream petroleum, retail, and ICT. BUSINESS REACTIONS For businesses that are well established in the country, there is a common theme amongst their top executives. PwC conducted a survey to understand their assessment of the current situation and their reactions to ensure survival through these challenging times. What has happened?

“Despite the negative statistics, several sectors are considered to hold huge opportunities for investment. Based on PwC research, these are agriculture, downstream petroleum, retail, and ICT.” CFI.co | Capital Finance International

Declining sales – A significant number of companies (61%) experienced declining sales over the past 12 to 18 months with the highest impact across the healthcare, telecommunications as well as the oil and gas sectors. Investment decision – Close to half of the companies cited the delay in investment decisions as a significant implication of the current uncertain business environment. Other firms have taken a long term view and commenced investments in domestic substitutes (14.8%). Some companies have been forced to diversify across products and/ or markets whilst others have cut back on CAPEX plans. Reaction for sustainable value – Companies are 131

adapting to the current economic realities by improving operational efficiency in the face of declining, or at best sticky, revenue growth. According to the survey, 42% of respondents have embarked on cost optimisation techniques with 14% reducing dependency on imports and 16% sourcing local substitutes. About 18% of companies are retrenching staff. It is almost a knee-jerk reaction to downsize in these economic times or to delay investments. However, companies should be mindful of their short term actions not to jeopardise long term opportunities. For example, in the ICT and services industries, which rely on innovative ideas from staff for competitive advantage, it may be advisable to identify, retain, and motivate highly skilled staff rather than retrench them. Similarly, some assets and securities are currently under-priced, so it is an opportunity to consider investment decisions now given the significant discounts subject to availability of funds. GOVERNMENT RESPONSE A few reactions from the government are summarised below: Monetary easing – In the November 2015 Monetary Policy Committee meeting, the cash reserve ratio was reduced to 20% and the monetary policy rate was reduced from 13% to 11% in order to boost liquidity and credit to critical areas of the economy. Foreign exchange policies - The CBN harmonised the two existing official rates in February 2015 resulting in the closure of the Wholesale Dutch Auction System (wDAS) and the Retail Dutch Auction System (rDAS) window. As a result, there was a devaluation in the exchange rate from NGN 165/USD to NGN 199/USD. The rate has been somewhat fixed at this level since February 2015. In addition, administrative measures were 132

introduced to restrict some 41 items from official access to foreign currency. There seems to be reluctance by the CBN to further devalue and this has created some uncertainty for investors. Import substitution – Some areas have been targeted for import substitution since 2012 by imposing customs duties or special import levies on certain agriculture commodities – specifically wheat, rice, and sugar. More recently, the bucket was expanded to the manufacturing and automotive sectors. The greatest constraint in the implementation of the import substitution strategy is probably the lack of trade and logistics infrastructure. Taxation – The 2016 budget proposal anticipates government spending to increase 35% to NGN 6.08 trillion, driven largely by a 215% increase in capital expenditure and social investment programmes. The government expects to fund a large chunk of the budget by generating more revenue from taxation. Some of the activities of the government towards expanding the tax base and increasing compliance are the introduction of technology, aggressive compliance enforcement, proposed joint tax audits, use of consultants, and more collaborations amongst the various revenue authorities. The implementation of stamp duty on deposits, payment of corporate tax on interim dividends, and other similar initiatives are expected to boost government revenue while the focus on efficiency will help put cost under control. Recent developments also suggest a trend of imposing fines for noncompliance with regulations to promote respect for rule of law but also to generate revenue. THE TAKEAWAYS The Nigerian business environment is in a state of flux. But the size of the Nigerian market still provides huge opportunities for investors and CFI.co | Capital Finance International

corporates even in these challenging times. Businesses are being forced to transform themselves very quickly, not just in optimising costs but in changing the way they operate. For example, historic treasury techniques and policies have been ripped apart under the current currency situation. While businesses have to be innovative to survive, they must also pay attention to their tax and regulatory compliance as the government will be strict with noncompliance. Businesses also need to develop a tax and regulatory strategy that is embedded within their overall business strategy. Some of the opportunities that companies can consider to align with government strategy is to take advantage of incentives available for domestic production and for exports. Some of these include: • Pioneer tax holiday for the company and shareholders for five years if they qualify; • Import duty and VAT exemption for agricultural plant machinery and equipment; • Reduced import duty for completely knocked down items, • Infrastructure incentives which can grant tax relief of 30% of the cost if it is of a public nature plus rural investment allowance of up to 100% in certain cases; • Total profit exemption for exported goods under certain conditions; • The ECOWAS Common External Tariff and trade liberalisation scheme that allows flow of goods free of duty within West Africa under certain conditions and which gives manufacturers access to a larger market. Overall, preserving existing value and unlocking new ones for investors and other stakeholders will require businesses and their executives to carefully consider how best to navigate the challenging landscape while keeping potential opportunities in focus. i

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> CFI.co Meets the CEO and Principal Officer of NJMPF:

Sam Camilleri

ccording to astrologers, people born under the sign of Pisces on February 29 have unusual talents and personalities reflecting their special status. They are perhaps best known for their intuition and selflessness. Sam Camilleri, CEO and Principal Officer of the Natal Joint Municipal Pension / Provident Funds (NJMPF) in Durban, South Africa, is one such individual. While others struggle to understand the complexities of human emotion, Mr Camilleri simply seems to have a sense of what others are thinking or feeling. Because of this, he is able to display understanding and compassion to all he encounters. Mr Camilleri’s philosophy is simple: look at what constitutes best practice and then try and surpass that. It is in the fund’s DNA that staff members have to be constantly improving the way they do things. Since joining the NJMPF in July 2007 as CEO, Mr Camilleri began embedding this philosophy throughout the organisation. “I’m happy to say that staff members have internalised this thinking and I see evidence of this in my interactions with them,” he says. Whether it’s completing some periodic return or notifying members of their fund balances, staff know that they have to go beyond just the minimum regulatory requirements. It’s not just about compliance but going beyond that. Perhaps it is Mr Camilleri’s ability to empathise with others that makes him place such a high emphasis on member and other stakeholder engagements which staff members seem to have emulated. Long before it became the flavour of the day, treating customers fairly was the CEO’s mantra which he had been inculcating in his receptive staff complement of thirty-nine which he proudly calls his family. Mr Camilleri strongly advocates a TEAM (together everybody achieves more) approach to tackling the tasks at hand. Collective wisdom is always preferable to a single viewpoint. With more than 30,000 associated members and pensioners, and over one billion euros in assets under management, the focus has to be on the people and maintaining good relationships with a wide range of stakeholders in addition to providing good stewardship of the entrusted funds. There is ample evidence of the NJMPF’s member/ customer centric approach, whether one listens to telephone conversations between staff and members of the fund or by a review of the milestones

CEO and Principal Officer: Sam Camilleri

achieved in terms of the fund’s communication strategy. Servicing members and pensioners living in rural areas brings its own unique challenges but the fund prides itself in maximising use of modern technology, such as smart phones and SMS, and pasting fund communiqués at remote taxi ranks to communicate. During the past five years, the NJMPF has won twenty awards, including the Africa Investor Award for African Pension Fund Initiative of the Year in 2015. More recently, the NJMPF bagged two international awards for excellence from CFI; making it the most awarded pension fund in Africa. “It is pleasing to know we are doing something right in so many categories and this is being recognised by our industry and peers,” Mr Camilleri says. Staff and trustee training and development rank high on the CEO’s list of priorities: “South Africa has a legacy of a section of the population being disadvantaged and I am trying to address this in my area of influence.” It is compulsory for all staff members to attend courses designed to equip them with the right tools to perform their jobs more effectively. Non-attendance is frowned upon and one has CFI.co | Capital Finance International

to have a very good reason for not attending. Mr Camilleri goes the extra mile with trustees and undertakes one-on-one training with them, emphasising their fiduciary responsibilities and how they can become more effective trustees. Mr Camilleri ensures that a full board of trustees meets every month and also coordinates additional meetings for special projects. Over the past eight years, the fund has gradually reduced its reliance on service providers and now has the capacity to take on the administration of other pension funds. Mr Camilleri believes strongly that the South African government’s reforms in the retirement funds industry are well intentioned and worthy of support: “There are far too many funds and a rationalisation to a reduced number is inevitable and desirable.” The NJMPF is one of a select few pioneers that identified, and acted upon, the need for meeting environmental, social, and governance (ESG) parameters, not just relating to its own operations, but also to those companies in which it holds a stake. Sustainability as a measure of predicting a given corporation’s success over the long haul has become central to the investment and management philosophies wholeheartedly adopted by the NJMPF.” i 133

> Natal Joint Municipal Pension/Provident Funds (NJMPF):

Excellence in Governance

he Natal Joint Municipal Pension Fund (NJMPF) has been in existence for over 73 years in the retirement fund industry in the province of KwaZulu-Natal, South Africa. During this time, the NJMPF has evolved and developed to keep up with the times and the new technologies available in the financial arena. Due to its continued efforts to provide superior retirement services the NJMPF has received numerous accolades in recent years. TRAINING & DEVELOPMENT The NJMPF puts a lot of effort and emphasis on trustee training, development, and empowerment. The fund even went to the extent of drafting and approving a Trustee Training Policy in 2015. Over the years, NJMPF has partnered with institutions such as the Financial Services Board (FSB), the Council of Retirement Funds for South Africa (BATSETA), and others to provide adequate training programmes to equip its trustees for the task at hand. “As per the recent PwC Retirement Fund Survey across the 183 funds investigated, trustees spent an average of 17 hours per year on training and attending industry events. In the NJMPF’s, case trustees spend at least 56 hours per year in training. EMPOWERMENT The fund’s trustees are empowered by being given the opportunity to exercise their minds in certain platforms such as the Annual General Meeting. Once they have been elected as trustees, they meet monthly at the Committee of Management meetings to discuss general fund issues, such as payment of benefits and operational matters. Trustees also attend various conferences locally and internationally in order to keep up-to-date with trends and developments in the retirement funds industry. GOVERNANCE In order to ensure the maintenance of good governance, the fund subscribed to the Institute of Directors Governance Assessment Instrument a few years ago. The Institute of Directors in Southern Africa is the convener of the King Committee and

the custodian of the King Reports. This institute has developed the Governance Assessment Instrument, which is an automated web-based tool that serves as both a measure and an enabler of good corporate governance structures, policies and procedures. The assessment criterion is based on the principles and recommendations contained in King III. The fund in 2015 achieved an overall score of AAA – the highest score achievable. INDUSTRY ACKNOWLEDGEMENTS The NJMPF is pleased to be acknowledged and seen as one of the better funds amongst its peers, despite the poorer performers in the industry. The Institute of Retirement Funds Africa (IRFA) has previously acknowledged the fund with awards for Legal and Technical Compliance in 2013 and 2014. The NJMPF was also advised by the auditorgeneral that it had once again achieved a clean and unqualified audit of its financial statements for the year ended 31 March 2015. The fund has had more than a decade of clean audits in an environment where clean audits are rare. This is an indication of the good corporate governance practices of the trustees, management, and staff. The achievement is further evidence that the NJMPF continues to uphold its compliance requirements and positions the NJMPF amongst only a handful of municipal entities to achieve this. To maintain the fund’s standard of excellence when it comes to compliance, the NJMPF initiated a two phased project towards compliance with the Protection of Personal Information Act (PPIA) which is fairly new to South Africa. The fund has taken various measures to become PPIA compliant by undertaking a review of its business practices and to prepare an assessment on the funds current level of compliance with the PPIA. The Protection of Personal Information (PoPI) was included as one of the fund’s key performance indicators in the 2014/2015 Staff Incentive Scheme. Employees were individually rated on their contribution and efforts in the implementation of

the fund’s privacy policy. An in-house information officer assists the fund in facilitating the sessions and in the day-to-day compliance issues on PoPI. The completion of phases 1 and 2 of the project proved once again that the fund is proactive and committed to obtaining and maintaining high standards of excellence in ensuring compliance. This has made the fund become one of the early entities to implement PoPI successfully even before it was legislated and enforceable. INVESTMENT PERFORMANCE During 2015, Mosaic Investment Consultants, an independent consultant, was commissioned by the National Municipal Pension Fund with the intention to collect investment returns data for a representative sample of municipal pension funds to enable pension funds to compare their portfolio returns (and risk metrics) to that of peers. The NJMPF was the best performing fund over one, three, and five year periods compared to its peers. The NJMPF’s three funds are consistently ranked in the top quartile of the Alexander Forbes Global Best Investment View. This makes the fund one of the country’s top investment managers. BLACK ECONOMIC EMPOWERMENT In South Africa there has been a strong emphasis over the years on black economic empowerment (BEE). Black economic empowerment is a racially selective programme which was launched by the South African government to redress the inequalities of apartheid by giving certain previously disadvantaged groups (Black, Coloured and Indians who arrived before 1994) of South African citizens economic privileges previously not available to them. Although race is the overriding factor, it includes measures such as employment preference, skills development, ownership, management, socioeconomic development, and preferential procurement. More recently there has been a new government initiative known as B-BBEE. Broad-Based Black Economic Empowerment Codes of Good Practice emerged in 2007 to provide a standard framework for the measurement of BEE across all sectors of

“There has been a significant consolidation in the retirement fund industry in South Africa over the past decade. From some 13,000 registered retirement funds in 2005, the Financial Services Board (FSB) now reports that only some 3,000 active funds are registered. If one assumes that as per the Pension Funds Act, each fund has a minimum of four trustees, then there are approximately 12,000 trustees in the country. In South Africa, unlike many other areas of the world, over 60% of retirement fund members are privately administered and funded.” Industry article from 2015

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“There are pension funds and there are pension funds. Outstanding amongst the good, for receiving creditable awards in recent months, are the Natal Joint Municipal Pension Fund and the Sentinel Retirement Fund. Bottom of the class, for being censured yet again by the Pension Funds Adjudicator, is the Municipal Employees Pension Fund for its “unending noncompliance with existing registered rules when computing a withdrawal benefit.” Article from the Dec/Feb 2015 issue of Today’s Trustee Magazine

the economy. The codes require that all entities operating in the South African economy make a contribution towards the objectives of BEE. In light of the need in South Africa for meaningful transformation to occur, the trustees wanted to include a BEE manager into the current domestic investment portfolio. The objective is to facilitate, promote, and support transformation in the asset management sector in South Africa. Current levels of active BEE participation are low in this industry and need to be increased to help stimulate growth and development of BEE asset managers to allow them to build up expertise and track records. This in turn fulfils broader social objectives by building long term sustainability through job creation and skills development. It further supports and promotes entrepreneurial development and eliminates the barriers that hinder emerging BEE asset managers to progress. The trustees requested that the fund’s asset consultant Alexander Forbes review the universe of BEE managers available for inclusion. A two-day workshop was held with the trustees to facilitate this process. As there are no BEE managers that currently have a long track records with sufficient asset size in the domestic balanced space to qualify for inclusion in the funds, it was agreed to consider domestic equity managers for potential inclusion. These managers were compared to the current managers in the funds (for equity-only mandates) based on historical returns and volatility. Based on the various qualitative analyses undertaken, an asset manager will be selected soon. FINANCIAL REPORTING While financial reporting is a requirement in terms of the various laws relating to pension funds in South Africa, and is a vital tool for the management of a pension fund, the Natal Joint Municipal Pension Fund goes a step further. The fund aims to make its financial reporting a thing of importance to their various stakeholders, to really provide financial information that informs, educates and empowers all the stakeholders. During 2015, the Finance Department embarked on a project of creating and distributing the CFI.co | Capital Finance International

NJMPF’s first Financial Highlight - Annual Report Magazine. A magazine was created for each of the three funds – the Superannuation, Retirement, and Provident Funds. The magazine was published both in English and isiZulu – the most commonly spoken language in KwaZuluNatal other than English. They were distributed to all the attendees at the fund’s annual general meeting in November 2015. The Financial Highlights magazine was also handed out at the human resources and payroll officers’ training workshops held at the fund. Packs of the magazines were couriered to all the municipalities in the KZN province. This has been a huge success for the fund which has now decided to update and publish these magazines annually. INCREASES FOR PENSIONERS The Natal Joint Municipal Pension/KwaZulu-Natal Joint Municipal Provident Funds (NJMPF) strives to help its members reach their retirement goals. The NJMPF does this through prudent investment strategies that have resulted in strong investment performance in recent years. The good investment performance has resulted in improved benefits for members and pensioners over the past five years: • The Superannuation Fund benefits have improved by 78%. This means the NJMPF has been able to provide pension increases of 36,59% plus bonuses/13th cheques of 41,65%; • The Retirement Fund benefits have improved by 65% and the NJMPF has been able to give pension increases of 39.97% and bonuses/13th cheques of 24,99%; • The NJMPF in 2015 provided benefits totalling 22,73% to pensioners which consisted of a 14,40% increase as well as a 13th cheque of 8,33%; • The Provident Fund is consistently ranked in the top quartile because of the good investment performance. This makes the NJMPF Provident Fund one of the country’s top investment managers. In the Provident Fund, if one had invested an amount of R1 million in the year 2000, the investment earnings would have increased eightfold and be worth more than R 8,5 million (after costs) in the year 2015. The NJMPF wants to better the lives of its members and provide them with dignity during their retirement years. i 135

> African Risk Capacity:

Africa Takes the Lead in Managing Climate Risk Climate negotiations in Paris last year focused the world’s attention on the fact that Africa’s vulnerable populations will be shouldering most of the burden of rising temperatures despite having barely contributed to global greenhouse gas emissions.

reater rainfall extremes and higher temperatures tied directly to climate change may start impacting vulnerable countries across the continent, in the form of more frequent and severe weather-related disasters. These disasters have a devastating impact on the agricultural sector in Africa which employs about two-thirds of the continent’s labour force and a majority of the rural poor. When a natural catastrophe strikes, lives are lost, assets are depleted, and development gains are reversed, forcing more people into chronic hunger, malnutrition, and destitution. Extreme weather events can force thousands of people to leave their homes for good and to sell or slaughter the livestock on which their livelihoods depend. This deepens poverty cycles and, at worst, can reverse an entire decade of development progress. It also contributes significantly to transnational and transcontinental migration. While the international community has done much to help respond to natural disasters in Africa, funding is secured on a largely ad hoc basis and rarely matches what is required. By the time emergency relief is mobilised and actually reaches affected populations, much of the damage has been done. The World Bank Group warned that 100 million more people would be driven into poverty by 2030 if nothing is done to curb the impact of climate change. The international community

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“ARC uses weather information, such as satellite rainfall or cyclone track and intensity data, to accurately estimate the hazards associated with severe weather events and their impacts on communities.” has been repeatedly called upon to honour the differentiated responsibility for global warming and to drive the necessary adaptations to control its impact. But it is Africa itself which has taken the lead in bringing together one of the most collaborative and innovative solutions to extreme weather risk and climate change yet. The continent is harnessing the powerful tools of risk assessment, management, and transfer, already used in developed countries through insurance, to shift some of the burden of climate risk to the international financial markets, where it can be more efficiently managed. African governments have joined together through the African Risk Capacity (ARC) to create a continent-wide risk management system which includes integrated early warning, risk reduction through contingency planning, and risk transfer through a catastrophe risk pool.

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ARC was established in 2012 through a collaboration of 18 African Union member countries which has now grown to 32. It is made up of two entities, the ARC Agency, a Specialised Agency of the African Union and its financial affiliate, a mutual insurer capitalised by the UK and German governments with interest-free loans which to date total $95m. ARC uses weather information, such as satellite rainfall or cyclone track and intensity data, to accurately estimate the hazards associated with severe weather events and their impacts on communities. ARC member countries participating in the risk pool pay annual premiums based on the frequency and severity of impacts and the maximum payout amount required. An insurance pay-out is triggered when a pre-agreed level of impact is reached in a participating country, based on ARC’s early warning and risk modelling platform, Africa RiskView (ARV). The pay-out increases with the scale of the impact. The funds support the implementation of pre-certified contingency plans, a prerequisite for taking out an insurance policy, which ensure quick and direct assistance to vulnerable communities. ARV’s early warning component allows authorities

Spring 2016 Issue

to be forewarned as a crisis unfolds, and the parametric nature of the insurance policy enables pay-outs to be made within days of a disaster’s impacts being felt. With its unique public-private structure, ARC is the first of its kind in Africa and is already starting to make an impact. In September 2014, satellites detected a major rainfall deficit in the Sahel. Senegal, Mauritania, and Niger – three of the countries that formed ARC’s inaugural risk pool – were able to use ARV to determine the areas and communities that would be worst affected. The countries immediately refined their drought contingency plans and prepared to assist the identified vulnerable populations. Having paid ARC a combined premium of $8m, these countries received pay-outs totalling more than $26m at the end of their agricultural seasons in January 2015, before a UN aid appeal to finance a response had even been announced. The pay-outs were fodder and staples cash distributions, 1.3 million people livestock.

used to buy livestock and were given out as benefitting more than and over half a million

Studies have shown that every dollar spent on ARC saves over four dollars in international aid. ARC wants to spread these advantages across the continent, aiming to reach thirty countries by 2020. This target will see the transfer of more than $1.5bn of drought, flood, and cyclone risk, indirectly insuring around 150 million people in Africa – a big share of the G7 global goal of insuring an additional 400 million vulnerable people against climate risk. As ARC expands, more governments will be CFI.co | Capital Finance International

able to benefit from embedding disaster preparedness and financing in African-owned risk management systems. There are also plans for International Organisations and NGOs to participate in ARC, working together with governments to develop collaborative contingency plans. ARC is also developing a product to ensure African governments’ risk management investments are sustainable and resilient to future climate shifts. ARC’s Extreme Climate Facility (XCF) will provide climate adaptation financing to countries impacted by major climate change shifts. To do this, ARC is reaching out to donors, such as the G7, to maximise the benefits of the premium payments from African governments. Finally, ARC also wants to amplify the protection and expertise that insurers can offer in Africa by licensing its software, Africa RiskView, to support agricultural development through better climate risk management. The initiative, in partnership with broker Willis for a pilot phase, will help protect investments in the sector and provide additional innovative finance to help ARC maintain and enhance ARV and to stay financially viable in the longterm. ARC is a true partnership that brings together scientific and policy communities with private, public and mutual sectors in Africa and across international risk markets. It is a vehicle that will allow Africa to approach the challenges around climate change as an opportunity to take action. Climate change will have to be fought on multiple fronts, of which one critical tool will be helping countries move from ad hoc crisis response to risk management. Through ARC, Africa is ready to take on that challenge. i 137

> CFI.co Meets the Management of African Risk Capacity:

Mohamed Beavogui & Simon Young African Risk Capacity (ARC), an organisation helping African governments manage natural catastrophe risk, has gained major international attention in recent months. ARC was endorsed by G7 Leaders in May 2015 as the model upon which to expand climate risk insurance across developing countries.

RC received further pledges of support as a key component of addressing loss and damage from climate change at the Paris UN-FCCC COP21, and is recognised as an embodiment of the UN Secretary General’s Climate Resilience Initiative – anticipate, absorb, reshape – as highlighted in the SG’s report for the “World Humanitarian Summit One Humanity: Shared Responsibility”. Two leaders are guiding its rise, directing ARC across its two entities - ARC Agency, a specialised agency of the African Union which engages directly with its member African governments, and its financial affiliate ARC Insurance Company Limited (ARC Ltd), a mutual insurer implementing highly cost-efficient coverage for climate risk for member countries using a strong capital base and tapping the international risk markets. Mohamed Beavogui has been leading ARC Agency as Director General since September 2015 and is already applying his vast experience in agriculture finance and institution-building to shape the future of ARC. He works alongside ARC Ltd CEO Dr Simon Young who has launched and run the insurance company for the past two years after having set up a similar risk pool in the Caribbean. The management team collectively runs ARC by playing to their strengths, with Mr Beavogui tapping into his development experience and network of high-ranking African officials while Dr Young draws on his extensive natural catastrophe risk modelling skills and his experience working with reinsurance and weather markets on emerging market projects. The pair have come to ARC from very different backgrounds, both specialists in their own sector. A volcanologist by training, Dr Young first worked for the British Geological Survey after completing his PhD and was the first director and chief scientist at the Montserrat Volcano Observatory during the peak phase of the volcanic eruption which devastated large parts of the island. After years of helicoptering over active volcanoes, Dr Young moved into the natural catastrophe risk management and financing field, building a reputation as a leading expert over the subsequent fifteen years. 138

Mohamed Beavogui

Simon Young

During this time, he worked with numerous private and public sector organisations on disaster insurance and risk reduction projects in Latin America, the Caribbean, and most recently in Asia-Pacific and Africa.

Project Services as regional director for West and Central Africa.

“I was interested in helping vulnerable communities and countries better understand and manage their natural disaster risk and also wanted to explore and test how financing tools such as insurance could be used as part of the solution to dealing with catastrophe risk, particularly in light of the rapid rise in vulnerability due to economic development and climate change,” Dr Young says. Dr Young was a leading member of the consulting team which created the Caribbean Catastrophe Risk Insurance Facility (CCRIF), a natural disaster insurance pool for the Caribbean islands. He also advised CCRIF on its expansion into Central America and on structuring and placement of the CCRIF Cat Bond, the first to be placed through the World Bank Treasury, in 2014. Appointed the inaugural CEO of ARC Ltd in 2014, Dr Young has been managing the operations of ARC Ltd as well as the insurance underwriting and international risk transfer processes. Mr Beavogui, on the other hand, has been working in development for over thirty years with a focus on policy, strategy, project management and the building of public-private partnerships. An engineer and trainee of Harvard Kennedy School, the Guinean national rapidly rose through the ranks of the UN Food and Agriculture Organisation before moving to the UN Office for CFI.co | Capital Finance International

In 2001, Mr Beavogui joined the International Fund for Agricultural Development (IFAD), becoming part of the management team as director for Africa and subsequently director of Partnerships and Resource Mobilisation, where he delivered lending and grant programmes, managed IFAD’s portfolio of projects, and was senior advisor to the IFAD president. Last year, ARC’s African member countries elected Mr Beavogui to become ARC Agency’s first fixed-term director general. “I was honoured to have been chosen to join ARC, an entity which is enabling my continent, Africa, to lead in one of the most collaborative solutions to climate change yet,” says Mr Beavogui. The management duo is united in their drive to make ARC a major instrument in managing natural catastrophe risk across Africa, ranging from climate perils such as droughts and floods to potential outbreaks of disease. “ARC has been developed as an African solution to tackle African problems. The model was proven in its first year when it paid out more than $26m to countries in the Sahel following a drought, helping 1.3 million affected people,” the ARC Agency director general said. “We aim to continue the expansion of ARC across the continent, with a target of efficiently managing $2bn in climate risk by 2020, protecting more than 150 million vulnerable people in Africa.” i

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> Tandem & Stark:

An Instrument to Governments & Private Business For the past fifteen years, Tandem and Stark has been a key player on the African construction scene maintaining a sharp focus on quality cost management, and on providing quantity surveying services to both public and private sectors.

tructuring and managing cost is of paramount importance to any successful undertaking. Complex projects in dynamic markets depend on cost engineering and consultancy to move from blueprint to greenfield. Boasting a wealth of experience in the construction industry, Tandem & Stark has helped clients throughout East and Central Africa manage cost. The company has accumulated an exceptionally strong portfolio of projects it helped realise via the control and rationalization of cost structures. Tandem & Stark is not only called to lend its expertise during the design and construction phase, but also facilitates post-delivery outfitting and maintenance work. The firm deploys a full array of advanced systems and processes to offer bespoke solutions that enhance cost efficiency and ensure adherence to pre-set timelines. Tandem & Stark takes the guesswork out of project cost management and thereby increases long-term profitability. The firm provides its clients with a holistic approach to both the preand post-contract stages that includes, amongst others, feasibility studies, cash flow projections, cost planning and control, tendering procedures, project evaluations, and financial appraisals. BUSINESS STRATEGY Tandem and Stark has been an important instrument to many local governments and businesses in Africa. The firm continues to follow its current corporate strategy, supporting governments and related companies, and participating in eligible construction projects. Counting on a team of seasoned professionals, Tandem and Stark has become an integral part of Africa’s construction operations, as they pertain to quality cost management and quantity surveying. The firm has always been dedicated

“In a highly competitive market, Tandem and Stark has managed to stand out from the crowd because of its distinct approach – being flexible and adaptable enough to understand the needs of its clients.” to answering its customers’ needs by carefully analysing their objectives, and designing a path towards high-quality tailor-made solutions that enable these goals to be reached, or even exceeded. In a highly competitive market, Tandem and Stark has managed to stand out from the crowd because of its distinct approach – being flexible and adaptable enough to understand the needs of its clients. “The thrust of our strategy is technology to do things differently and more effectively,” says Timothy Manyuira, Tandem and Stark’s managing director and principal quantity surveyor.

CAISSE SOCIALE DU RWANDA – KIGALI, RWANDA Proposed Gaculiro Master Plan. A Community housing estate of 160ha that will house 2,600 residential units, a fullyfledged commercial centre, including post office, police Post, library and a transit terminus. Two dedicated recreational centres will provide structured leisure to go with the numerous green spaces. Services Provided Project costs and contract management services which involved: • Preparation of preliminary/budget cost estimates • Preparation of detailed measurements for tender documents

develop, and that by inference makes it nonsubstitutable,” says Felix Lati, Managing Partner at Lexicon+Ion Architects. ORIGINS Tandem and Stark was founded by Timothy Manyuira, and its team understands Africa’s construction industry business inside out. Since its inception, the firm has managed to contribute more than its fair share to the improvement of the quality of life not only in Kenya – where the firm bases its operations – but also in Africa.

The rigorous approach followed by Tandem & Stark, which includes not just state-of-the-art technology but also vast reservoirs of in-house engineering expertise, has also helped raise the standard of living of the African population. Whilst technology is arguably replicable, such that others can build it, this is mitigated by understanding its rarity, inimitability and nonsubstitutability.

The outlook for Tandem and Stark is very promising, given the fact that the institution continues to fully adhere to its vision and objectives, which are at the root of the firm’s excellent performance over the past fifteen years.

“Firstly, Tandem and Stark’s technology is rare because other quantity surveying firms are averse to greater technology use and efforts to

Tandem and Stark remains aware of the constant challenges presented by the global economy, thus the firm is always on the lookout

“The firm deploys a full array of advanced systems and processes to offer bespoke solutions that enhance cost efficiency and ensure adherence to pre-set timelines.” 140

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for new opportunities that might emerge. By offering comprehensive solutions rooted in its experience as a one-stop provider of project cost/contract management consultancy services, Tandem & Stark manages to save its clients both money and aggravation. As such, the company’s services are of inestimable value to any undertaking. i

ALEXANDER FORBES PENSION FUND – KITENGELA, KENYA When completed, The Riverine will be a gated community of 151 fully detached 4-bedroom own-compound town houses and 60 apartments (48 3-bedroom units and 12 2-bedroom units) set on a 30-acre prime piece of land along the Nairobi-Namanga highway. Services Provided • Project costs and contract management services which involved: • Defining the project budgets • Undertaking risk and value management exercises • Preparing cost plans, estimates and cashflow projections • Advising on procurement strategies • Preparation of Bills of Quantities, collating and issuing tender documentation • Preparation of contract documents • Cost management during the construction process • Dispute management when required • Preparing regular cost reports, including out-turn cost and cash flow • Completing the final account.

Caisse Sociale du Rwanda: Kigali, Rwanda

BROOKSIDE DAIRY LTD – RUIRU, KENYA Developers objective was expansion of their existing facilities to increase capacity and introduce new product lines. This involved construction of a new fresh milk plant and a state of the art powder plant with associated support services.

Alexander Forbes Pension Fund: Kitengela, Kenya

Services Provided • Project costs and contract management services which involved: • Defining the project budgets • Undertaking risk and value management exercises • Preparing cost plans, estimates and cash flow projections • Advising on procurement strategies • Preparation of Bills of Quantities, collating and issuing tender documentation • Preparation of contract documents • Cost management during the construction process • Dispute management when required • Preparing regular cost reports, including out-turn cost and cash flow • Completing the final account

Brookside Dairy Ltd: Ruiru, Kenya

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> CFI.co Meets:

PTA Bank Management Team

Admassu Tadesse

Catherine N Kimaryo

Admassu Tadesse is the bank’s fourth President and CEO. An economist and banker, Mr Tadesse qualified at the London School of Economics and Political Science (MSc), Wits Business School (MBA), and the University of Western Ontario (BA). He trained in advanced management and strategic banking at Harvard Business School and INSEAD. Prior to his appointment, Mr Tadesse was Executive Vice-President at the Development Bank of Southern Africa (DBSA) where he was responsible for international finance, investments, and corporate strategy. His previous work experience was obtained in various management and technical roles with international funds and specialised agencies of the United Nations. He has served on the boards of banks, funds, and industry bodies in Africa and elsewhere, and has worked, trained, and lived in Africa, Europe, and North America. He is conversant in French and Arabic, and fluent in English and Amharic. Catherine N Kimaryo is the Director for Project and Infrastructure Finance and responsible for PTA Bank’s long-term investments team (project, corporate, and equity finance), and concurrently serves as regional director for Eastern and North Africa. A seasoned professional in principal investing and development finance, she brings over 15 years’ experience in corporate and project finance, deal structuring, credit risk review, and portfolio management. Ms Kimaryo is also an accredited executive coach (Academy of Executive Coaching, United Kingdom). Ms Kimaryo’s professional experience outside PTA Bank spans work in various developing and postconflict economies. Prior to joining the bank, she 142

George Mudange

Joy Ntare

worked with the International Finance Corporation (IFC, part of the World Bank Group) where, over a period of eight years, she served in various senior investment and portfolio management capacities, with a focus on real-sector investments (manufacturing, agribusiness, and services) in Eastern Europe, South Asia, Central America and Africa. Earlier, she worked with the United Nations as an advisor on fiscal matters and prior to that in commercial banking in Tanzania, providing trade finance and other credit facilities to SMEs in that country. Ms Kimaryo holds a Bachelor of Commerce from McGill University, Canada and an MBA from Wits Business School, South Africa. She has travelled extensively and lived and worked in ten countries across Europe, North America, and Africa, including Nigeria, Senegal, South Africa, and now Kenya. George Mudange is the Senior Director of Trade Finance and Chief Trade Finance Officer. Mr Mudange has over thirteen years of corporate banking and advisory experience at senior levels with specialisation in structured trade and commodity finance. Prior to joining the PTA Bank, he worked with merchant banks in Zimbabwe and advisory firms in South Africa and Nigeria. Mr Mudange holds an MBA from the University of Zimbabwe and a BSc in Economics. He also holds a diploma in Banking from the Institute of Bankers of Zimbabwe of which he is an associate member. Joy Ntare is the Chief Risk Officer at PTA Bank. She is responsible for the overall risk function of CFI.co | Capital Finance International

Abraham Byanyima

the bank and more specifically the implementation of risk management policies and procedures, their periodic review, and monitoring of risk exposures against the bank’s prudential standards and limits. Additionally, the department houses two other key functions: compliance and internal audit. Ms Ntare’s professional experience outside PTA Bank spans over eighteen years of experience in central banking: supervision of financial institutions, particularly supervision of banks, financial markets operations, and risk management. She has an MBA degree from Cardiff Business School, Wales, (UK), and is a fellow of the Association of Chartered Certified Accountants (CCA) UK and a member of the Institute Certified Public Accountants of Rwanda (ICPAR). Prior to joining the PTA Bank team, she was director-general at the National Bank of Rwanda, and director of the African Insurance Agency Company (ATIA) and sat on various international boards. Abraham Byanyima is the Director of Treasury. Mr Byanyima has over fifteen years of diverse and progressive experience in emerging and global markets gained from working for global banks and Africa-based financial institutions. His expertise includes interest rate derivatives and global currency derivative products, forex trading, and risk management. Prior to joining the bank, Mr Byanyima worked as Vice-President of Bank of New York Mellon and as Associate Director at UBS Investment Bank, New York. Mr Byanyima holds an MBA from Fordham University and a Bachelor of Commerce from Makerere University. i

FORUM MONDIAL DE L’INVESTISSEMEN Spring 2016 Issue

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> PTA Bank:

Fostering Development and Integration The Eastern and Southern African Trade and Development Bank, commonly known as PTA Bank is an African regional development financial institution established in 1985. The bank’s mandate is to finance and foster trade, socio-economic development, and regional economic integration across its member states.

he bank is owned by member countries from the Eastern and Southern Africa region, non-regional countries, and institutional shareholders. With an authorised capital of $3 billion, the bank offers a broad range of products and services across both the private and public sectors, including debt, equity and quasi-equity, as well as guarantees. PTA Bank’s investments cut across agriculture, trade, industry, infrastructure, energy, and tourism, amongst others and are made on a commercial basis and sustainability principles. The bank is headquartered in Bujumbura (Burundi), as well as in Nairobi (Kenya) where its corporate support centre and regional office are located. The other two regional offices are in Harare (Zimbabwe) and Ebene (Mauritius). The bank’s funds management business is headquartered in Mauritius. A multilateral development bank fostering regional integration, the bank is owned by nineteen member states from the Eastern and Southern Africa region, two non-regional members, and nine institutional members. PTA Bank’s current shareholders include: Burundi, Comoros, the Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Malawi, Mauritius, Rwanda, Seychelles, Somalia, Sudan, Uganda, Zambia, Zimbabwe, and Mozambique. It also has the African Development Bank, the National Pensions Fund of Mauritius, Mauritian Eagle Insurance Company Ltd, Rwanda Social Security Board, Africa Re, ZEP RE, Seychelles Pension Fund, Banco Nacional Investimento (BNI), and the National Social Security Fund of Uganda as institutional shareholders, while the People’s Republic of China and the Republic of Belarus (Paritetbank) are non-regional member countries.

“Being at the forefront of extending development capital and financial services to the region, the bank aims to advance regional growth and itegration through its customerfocused and innovative financing instruments.” The bank is in negotiations for further subscriptions from DFIs (direct foreign investors), sovereign wealth funds, national pension funds, and private investors where their long term interests are aligned with the bank’s mission to integrate and advance the economies of the region. Significantly more capital will continue to be raised as interest in Class B shares remains strong within the region and beyond. PRODUCTS AND STRATEGIC BUSINESS INITIATIVES Being at the forefront of extending development capital and financial services to the region, the bank aims to advance regional growth and integration through its customer-focused and innovative financing instruments. The bank provides the following core products and services: Trade Finance – PTA Bank aims to promote the development of trade among the member states, furthering the aims of COMESA (Common Market for Eastern and Southern Africa) by financing projects and transactions designed to make the economies of the member states increasingly complementary to each other. Further to the provision of finance for both intra and extra regional export and import trade flows, the bank can finance transactions where the

direct economic benefit accrues to a COMESA member state. The range of products offered includes import and export financing, structured commodity finance, guarantees and bonds, pre and post shipment finance, issuance of letters of credit, receivable backed finance, and asset financing. Project and Infrastructure Finance – PTA Bank provides medium- and long-term financing on commercial terms. Target sectors are those considered as high impact such as agribusiness and infrastructure which are a catalyst for development in member states. The range of financing solutions offered includes project finance, corporate finance, leasing and guarantees, amongst others. PTA Bank provides funding to both public and private enterprises, covering almost all sectors of economy. The bank employs either one or a combination of modes of financing which are; direct financing (senior and mezzanine debt or equity), co-financing with local and/or foreign lenders, loan guarantees, and syndications. Funds Management – In 2013, by spearheading new initiatives, the bank launched a funding initiative to support the implementation of the bank’s strategy in pursuing growth, diversification and innovation. Two strategic business initiatives have been set up and registered to date: 1. The COMESA Infrastructure Fund (CIF) – This will be one of the first two funds to be established by PTA Bank as promoter following the formal transfer of the CIF by COMESA to PTA Bank. The CIF is a Mauritius based fund managed by a fund management company set up as joint venture between PTA Bank and Harith. 2. The Eastern and Southern African Trade Fund (ESATF) – This fund is a Mauritius-based open-

“Over the last few years, the bank has won several awards in recognition of the bank’s adoption of high standards of governance and performance.” 144

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ended investment fund which will undertake trade finance related investments. PTA Bank is in a unique position to act as a promoter of the Eastern and Southern African Trade Fund owing to its leadership in the industry and strong network of partners. This innovation is designed to further accelerate regional development and integration and is specifically targeted at development-orientated global investors. INTERNATIONAL RATINGS With an expanded equity base and increased mix of shareholding, the bank secured its first credit ratings upgrades, by GCR in 2012 and Fitch in 2013, with the ratings up to BB+ and BB respectively. Fitch Ratings upgraded PTA Bank’s long-term issuer default rating (IDR) to BB from BB-. The national long-term rating was upgraded to AAA (Ken) from AA+, and the short-term IDR affirmed at B. CORPORATE GOVERNANCE AND RISK MANAGEMENT The bank has made progressive efforts to strengthen its risk management practices. The bank has implemented several initiatives to align policies and procedures with best practices, namely the Enterprise Wide Risk Management (ERM) Framework. The bank also updated its environmental and social governance policy, anti-money laundering (AML) procedures, and business continuity. Corporate social responsibility is another key initiative that is ingrained in the bank’s operations to provide proactive solutions in addressing the societal and environmental challenges of the region. The bank has funded initiatives in the micro and SME sector addressing women empowerment programmes, market access for traders, supporting community based rehabilitation programmes, as well as to fight against environmental challenges that the region faced such as the Ebola virus pandemic. AWARDS Over the last few years, the bank has won several awards in recognition of the bank’s adoption of high standards of governance and performance. The bank has won the AADFI award for best performing regional DFI for 2013, 2014, and 2015. PTA Bank was presented two awards for the best local trade finance bank in Zambia and Zimbabwe for 2012 by Global Trade Review (GTR) in this year’s 7th Annual Africa Trade & Export Finance Conference. In 2014, the bank won Global Transport Finance (GTF) Award for the Best Aircraft Deal of the year in Africa. Through the improvement of E&S policies and commitment to furthering the social and economic development of the region, the bank won the Best ESG Private Enterprise Bank Africa in 2015. The Bank also won the GTR award for the Best Trade Finance Bank in East Africa 2015. i CFI.co | Capital Finance International

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Spring 2016 Issue

> CFI.co Meets the Chairman of SALAAM African Bank:

Dr Omar Ismail Egal

r Omar Ismail Egal (56) from Djibouti was appointed to the board of directors of SALAAM African Bank at the end of 2008 and has been its chairman since.

buoyancy was largely driven by the construction and logistics sectors. Taking advantage of the country’s accelerated economic growth, SALAAM African Bank has seen its business and revenue expand significantly. In 2015, the bank’s net profit increased by 25%, compared to the year before. The bank has maintained its credit lines for SMEs and is investing in construction and logistics sectors with a view of making a sizeable contribution to Djibouti’s economic development.

Dr Omar has served in public sector entities and bodies for a number of years in different capacities. In 1990 and 1991, Dr Omar represented the government of Djibouti on an import project organised by the United Nations Development Programme (UNDP). From 1991 to 2002, Dr Omar worked at Djibouti’s Ministry of Trade and Commerce where he had served as head of Information of the Department of Commercial and Economic Affairs. From 2003 to 2013, Dr Omar was assistant director to the cabinet of the country’s president. During that time, he was also general manager for the Diwan Azakat Fund. Subsequently, Dr Omar embarked on a career in the financial world which led him to become chairman of the board of SALAAM African Bank. Dr Omar holds a PhD in Human Resources Management and MA in Economics from Ummu Durman University of Sudan and Ainshan University in Egypt, respectively. Dr Omar has mastered full spoken and written fluency in several languages including Somali, Arabic, and French. He has specialised in, and become a recognised authority on, amongst others, strategic management, human resources development, and leadership. SALAAM African Bank, its founders, shareholders, senior managers, and employees welcome, and are exceptionally pleased, with the nomination and subsequent win of the 2016 Best Sharia-Compliant Commercial Bank East Africa Award extended by CFI.co. SALAAM African Bank has pioneered a full suite of Sharia-compliant products and services

Chairman: Dr Omar Ismail Egal

that has exceeded client expectations. The bank continually strives to further improve its financial services with innovative products that conform to Islamic Law. SALAAM African Bank is market-driven and is known and recognised for anticipating clients’ demands and adjusting its products and services to dovetail with market requirements. The bank is able to meet its clients banking needs both regionally and in key countries around the globe via its network of correspondent banks. Overall, Djibouti’s SALAAM African Bank performed well over the past five years. The bank targeted small and medium-sized enterprises (SMEs) and established joints business and provided asset financing on mutually beneficial terms in order to build strong long-term relationships with its customers. Djibouti has been on a trajectory of solid economic growth. The country continues to register impressive results with GDP expanding at a rate of close to 6% in 2014. The economic

The loyalty and trust of its customer base give SALAAM African Bank a decisive competitive edge. By expanding its client-centric approach and keeping its corporate focus trained on the integrity of all operations and processes, the bank maintains a strong and stellar reputation for reliability and trust. SALAAM African Banks boasts a highly qualified staff and an exceptionally experienced management team. The bank considers these key characteristics that enabled it to increase SALAAM African Bank’s market share over the last five years. The bank continues to offer and enhance its Sharia-compliant line of products and services that includes current and savings accounts, Islamic deposits, murabaha, musharakah, mudarabah, wakala, bay Salam, istissn’aa, ijara, bonds, documentary credits, bank guarantees, and documentary collections. SALAAM African Bank also offers ATM services, Master Cards, POS terminals, telephone banking, utility payments, SMS notifications, and electronic banking. Traditional services like TTs, DDs, clearing, and collections are also offered. Management thanks the entire SAB team, shareholders, and customers for their continuous support, trust, and loyalty. i

200,000.00 150,000.00 100,000.00 50,000.00 -

Y2011

Y2012

Y2013

Y2014

Y2015

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> CFI.co Meets the MD/CEO of Megastride Global:

Ebenezer Agbaje

logistics company that manages to attract a veritable who’s who in top tier customers over the course of only a few years must be doing something right. Founded in 2010 by Ebenezer Agbaje, Megastride Global is barrelling to the top deploying technology and expertise to unseat competitors and drive business. “Megastride Global is all about extracting maximum efficiency by deploying state-of-theart technology. We are, quite frankly, pushing the boundaries and help elevate Nigeria’s logistics sector to a much higher pane of operational effectiveness,” says Mr Agbaje. While customer service and knowledge take no back seat to technology, Mr Agbaje is adamant that without a proper and comprehensive IT setup, no logistics company can hope to thrive: “At Megastride Global we have organised processes in such a way that considerable savings in time – and thus money – are obtained. There is added convenience for customers too: they can now track their cargo’s progress online in real time while we, in turn, can keep shippers appraised at all stages.” Mr Agbaje is unapologetic in his aim to create a bit of order in Nigeria’s notoriously happy-golucky logistics industry: “We want customers to know that they are dealing with experienced professionals who know their business and will get the job done. We offer, essentially, a No Surprise guarantee that ensures freight is picked up and delivered on spec.” Megastride Global is currently well on its way to expand operations into neighbouring countries and further afield. “We aim to become one of Africa’s premier logistics companies and have the know-how to reach that goal.” Armed with an MBA from Lincoln University in Oakland, California, Ebenezer Agbaje returned home in 2010 to found Megastride Global. “The setting up of the company went smoothly and before long we had put in place all permits and licenses needed to work with cross-border cargo. Due to its novel and serious approach, the corporation almost immediately caught traction and has registered double-digit growth ever since.” Mr Agbaje leads a vibrant team of young, yet experienced, professionals from his modern office in Lagos’ port area. Being onsite and operating from proper premises is often not a given in Nigeria’s transport sector. “Again, we are professionals and, as such, abhor improvisation. Megastride Global leaves nothing to chance. We have both the systems and the knowledge to tackle any logistics challenge promptly and properly.” 148

MD/CEO: Ebenezer Agbaje

The company is plugged into a global network of shippers and boasts a global reach: “We can arrange pick up and shipping to Nigeria from anywhere in the world – and regularly do. Megstride Global takes a holistic approach to freight shipping. This means that we consider each job on its own merits and design a comprehensive solution based on the preferences CFI.co | Capital Finance International

and requirements of our customer.” Mr Agbaje is happy to report that Megastride Global has already managed to make a difference: “Clients are becoming more demanding and expect service excellence. Our company is one of only a select few able to deliver on that promise and meet that demand.” i

Spring 2016 Issue

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> DEG:

Financing Investments in Africa By Klaus Helsper

nternational companies have used growth in Africa for making investments on the continent. According to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report, foreign direct investment in Africa rose by over 30% between 2010 and 2014 alone. Investments in Africa offer major opportunities for enterprises from many sectors, but also entail higher risks. For this reason, sustainable financing concepts, which focus on long-term success, account adequately for risks and are viable even in economically challenging times. They are the foundation for making new and successful investments in Africa. Development financiers such as DEG – Deutsche Investitionsund Entwicklungsgesellschaft mbH in Cologne, the European Development Finance Institutions (EDFI), the African Finance Corporation (AFC) in Nigeria, and the International Finance Corporation (IFC, part of the World Bank Group) have specialised in financing sustainable investments in challenging countries. They provide enterprises with long-term loans, as well as mezzanine financing and risk capital, at market conditions and offer advisory services on all issues pertaining to the investment under consideration. For complex investments, several development financiers frequently collaborate in structuring and providing larger volumes. CHALLENGES AND OPPORTUNITIES Growth regions such as Africa are often characterised by great momentum. They open up a realm of opportunities to potential investors, but higher risks are also involved in implementing these investments. Challenges include not having sufficient knowledge of the political and legal framework, as well as local conditions and partners. Added to this, inadequate infrastructure and a lack of qualified staff mean that setting up local production facilities is difficult. Financing a transaction abroad also requires careful planning. In arranging a deal, the following should be taken into account: investment costs may be higher than expected, there may be delays in launching production due to technical reasons, or sales problems could occur in the initial phase. Yet viewing Africa simply as a risky continent is an assessment that does no longer reflects reality, and causes companies to miss real opportunities. In the past decade in particular, the framework conditions have improved markedly in many African states, and the majority of them are on a 150

“Growth regions such as Africa are often characterised by great momentum. They open up a realm of opportunities to potential investors, but higher risks are also involved in implementing these investments.” stable political footing and the path to economic success. Despite falling global growth rates, the International Monetary Fund (IMF) predicts growth rates of 6.5% respectively 5.1% for middleincome countries such as Kenya or Senegal. According to the IMF, low-income countries such as Rwanda, Mozambique, and Ethiopia can even expect GDP growth of between 6.5% and 8.7%. Companies from industrialised nations can use their know-how in Africa profitably – for instance in the area of renewable energy, or machinery and plant engineering. The consumer goods industry also offers opportunities because the growing middle class has increasing purchasing power at its disposal, and thus boosts demand for goods such as car parts, hygiene items, cosmetics, and electronics. For companies focusing on long-term success, alongside nurturing trade relations, setting up production facilities in the African markets is also important. The reason for this is that local production facilities ensure geographical closeness to customers, optimise distribution channels, and help to avoid trade barriers. Moreover, making direct investments in developing countries not only means that companies tap into new markets, they also make an important contribution to securing jobs in their home countries through the stabilising, i.e. risk diversification effect these investments afford. FACTORS OF SUCCESS The prerequisite for successfully financing direct investment in Africa is designing concepts that are specially tailored to fit the respective investment, and respond flexibly to the needs of the investing company. A bespoke and viable financing solution needs to be created for each investment that is commensurate with the risks. This allows more difficult situations to be overcome, and paves the way for further investments. Sources of finance should be spread, although this spreading can be realised by means of the choice of financing instruments, or via the regional CFI.co | Capital Finance International

diversification of the borrowing. As a general rule, the higher the diversification, the lower the corporate dependency on individual institutions. Globally active companies that channel the financing of their international companies solely via the parent company, tend not to use their local assets as securities. Financing foreign companies in developing and emerging-market countries using local financing only is, from experience, also associated with challenges – for instance a lack of long-term financing, higher interest rates for local currency loans, an uncertain legal situation and bureaucratic hurdles. To retain liquidity in the set-up phase, sufficient grace periods are important for loan-based financing. Regarding terms the following should be taken into account: loans of local banks frequently feature repayment periods that are too short. The need for financing current assets should also not be underestimated. Choosing the most suitable currency is another aspect. The loan currency should, as far as possible, correlate to the currency in which the income will be generated (e.g. from exports). AVAILABLE OPTIONS Depending on what the investment is for, longterm financing can be extended in the form of loans, guarantees, mezzanine financing, and equity participation. The term of a loan should be between four and ten years. To ensure that credit facilities in the home country are not unduly burdened, development financiers such as DEG, secure loans, if possible, in the fixed assets of the company in the investment country. Project-specific arranging can also be conducted. Depending on the investment and country risk, in addition to the market situation in the country, either a fixed or a variable interest rate should be chosen. Mezzanine financing is a special form of financing which is somewhere between equity and debt capital, and pertains to loans that only have to be serviced subordinately. Companies that select mezzanine financing pay, as a rule, a fixed interest rate and above and beyond this, a further amount that is profit-dependent. This financing form offers the advantage that the company is financed subordinately and can, at the same time, stabilise its equity capital structure. Equity participation financing is interesting for companies whose shareholders do not want to, or are unable to, shoulder the equity capital requirement alone, or would prefer to share the risk with others. Equity participation can facilitate

Spring 2016 Issue

a balanced shareholder structure for companies, for example in the case of joint ventures with a local company as a partner. How voting rights and a seat on the supervisory board are to be organised, should be decided on in each individual case. However, it is important to define clear exit rules for each investment. This can be an underwriting commitment by the entrepreneur, an initial public offering (IPO), or a sales option with other shareholders. Providing participation/equity capital sends a major signal effect for attracting further financiers, and can therefore pave the way for mobilising further external funds. In addition to financing solutions at typical market rates, development financiers such as DEG offer promotional programmes to support companies in a target-oriented way. Accordingly, feasibility studies, pilot investments and the most varying business support services such as resource and energy efficiency checks and implementing risk management systems, can be co-financed. IMPACT Companies aiming at long-term success with their investments also support Africa’s economic development. They create jobs in qualified professions, promote qualifying and training measures for their staff, and increase added value in their countries by processing locally available resources and expanding supply chains. By manufacturing competitive products, they contribute to improving the countries’ foreign exchange balances and higher state revenue from taxes. Above and beyond this, many companies uphold corporate responsibility that not only benefits their own employees, but also their employees’ families and surrounding communities. Sustainably successful companies harness renewable energy sources and commit to energy efficiency measures, which is not only favourable in terms of climate protection, but also saves costs in the long term, and thus boosts the company’s profitability. One of the key indicators which shows just how Africa is developing positively, is its growing middle class in numerous countries. These new consumers are mostly employed in the services sector, for instance in telecommunications, tourism or the financial industry, and increase domestic demand through their purchasing power. Employment is also rising in the construction sector and the gradually growing manufacturing industry, because raw materials and agricultural products are increasingly being processed locally, instead of just mined and cultivated. i ABOUT DEG DEG, a subsidiary of the KfW development bank finances investments of private companies in developing and emerging markets. As one of Europe’s largest development finance institutions, it promotes private business structures to contribute to sustainable economic growth and improved living conditions. CFI.co | Capital Finance International

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> Middle East:

Iran - Open for Business By Darren Parkin

Mention Iran to a stamp collector, and it’s quite possible you’ll witness a human being salivate like a dog being teased with a bone. For, once upon time, back when Iran was considered an exotic and mysterious land, its postage stamps were among the most highly prized adornments to any collection. Even to this day, many a philatelist will wax lyrical about the most elaborately festooned page in their collection books – some of which will stretch back to the days when Iran was known simply as Persia. The popularity and value of Iranian stamps has remained unwaveringly high since the time they were first stuck on to an envelope. Unfortunately, the same cannot be said for Iran itself.

Isfahan, Iran: Imam Square

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nlike its stamps, Iran’s relationship with the rest of the world has been, well, rather inconsistent. In fact, it’s fair to suggest that since as far back as the 6th century, the country has swayed somewhere between being a rampaging bull and a playful puppy. There’s been very little in the way of middle ground – it’s been a long and exhausting history of extremes. If it wasn’t for its location, Iran might not dominate so many agendas on the international stage, but in a game of geo-political chess, it would be one of the most significant pieces on the board. Sandwiched between Asia and Europe, it is a gateway between east and west. Today, Iran is giving the impression of a country that is very much ready to cast off its colourful and borderline schizophrenic past in order to become the economic butterfly it has promised so many times to be. Indeed, as the human race toasted its way into 2016, Iran and much of the western world began to brace itself for a new era of redefined relations. Less than a year ago, six of the world’s great powers reached a landmark agreement over Iran’s nuclear ambitions and flung open the doors to its latest incarnation – a peaceful, neighbourly place that wants to do business with the world. Well, on the face of it, that’s what Ayatollah Ali Khamenei would have us believe. He must be reasonably convincing. Already, the wealthy nations of the world are sitting up and taking notice. This July, for instance, British Airways are set to reinstate direct flights between Tehran and London – that’s not a decision taken lightly considering the service was shelved in 2012 with BA chiefs claiming the route wasn’t commercially viable. The shackles of international sanctions, now removed, have given Iran a little quiet time in which to think. The result now appears to have been a new country which is even keen to help its neighbour Iraq – a regular sparring partner for many conflicts over the decades. RAP SHEET But before we present a “welcome back” cake to the seemingly reformed bad boy of the region, let’s examine the lengthy rap sheet of this serial offender. It’s only fair to dismiss the catalogue of misdemeanours that occurred between 550BC and 1890. After all, there are precious few nations that can’t claim to have not attempted some mild form of world domination, civil war, regicide, slaughter of innocents, religious conflict, and a riot over tobacco. Instead, most of the Iranian misdemeanours which stick in the gullet of dozens of offended countries tend to have occurred during the last hundred years. After adopting the name Iran in 1935, a time of

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“The shackles of international sanctions, now removed, have given Iran a little quiet time in which to think.” relative peace blighted only by a couple of military coups and an assassination ensued until 1951 when relations with Great Britain turned sour after the Iranian government voted to nationalise the oil industry which had been largely dominated by the privately-owned Anglo-Iranian Oil Company. A blockade followed which left the economies of both nations bruised. A couple of years later, Prime Minister Mohammed Mossadeq was overthrown in a military coup which, it later transpired, was plotted by Britain and the United States. And so began decades of rumbling animosity between Iran and the West. Before even mentioning the Iran-Iraq war, uranium enrichment, terrorism, and George Bush’s shaming of Iran as being a part of the axis of evil, it is simple to understand why many observers find themselves suspicious of the country’s sudden emergence as a seemingly moderate wonderland eagerly thrusting out an arm in readiness to shake hands with anyone who offers anything more than a cursory glance its way. It seems an almost unthinkable situation to be in, but the hard facts are that Iran is, for all intents and purposes, trying hard to be taken seriously. There’s even talk of Iran becoming a major holiday destination over the next couple of years – a notion that would have been considered lunacy not too long ago. THE UPSIDE Past wrongdoings aside, there are plenty of positive issues which simply can’t be ignored. For instance, this potential regional super power has one of the best educated populations in the world. It always has. In contrast to a largely faithbased political system, which is no doubt viewed as outdated by most western economies, its approach to education is envied far and wide. As too are its financial assets. Over the years, international sanctions against Iran meant that around $100 billion in assets had been frozen – locked away and inaccessible – throughout various international financial institutions. But now those frigid assets are beginning to thaw, and the drips are slowly turning into a torrent of cash gushing back into the Iranian economy. Already, more than $30bn have been released, with the rest reportedly languishing in various banks. It is the sort of wealth explosion that would see many capitalists happy to forget their past quarrels with Tehran, and swiftly put the Open for Business sign back in the window. CFI.co | Capital Finance International

With the lifting of sanctions, and the sudden inflow of cash, it makes sense that Iran would want to quickly get back in the game of international commerce. Given the financial situation, it would also be fair to assume that the country is now brimming with economic promise. There has been some fear that the windfall would be used to fund Middle East regimes and organisations that are opposed to UK and US policy in the region – Hezbollah and Hamas, for instance. Yet, according to experts like Richard Nephew, a former sanctions chief for the US government, in all likelihood the money will be used to shore up the Iranian infrastructure by creating jobs and pumping more cash into its economy. If that’s the case, then Iran could end up being a viable investment opportunity for the long term. Such a move, given the vast postsanctions financial boost, could see Iran quickly rise to be one of the most dominant economies in the region. BEWARE However, Mr Nephew warns that dreams of rapid economic promise could remain fragile until the US builds its trust in Tehran: “We didn’t actually give them a blank cheque, and we didn’t clean the slate,” he says of releasing assets, “We still have a lot of sanctions authority that’s going to make life difficult for business people in Iran.” That being said, Iran was swift to fire up the stagnant engines of its economy earlier this year by agreeing to buy 118 new Airbus aircraft. The deal includes a dozen Super Jumbo A380s which certainly signals an intent to revive long-haul flights from Tehran. The move will restart the country’s civil aviation sector, and see Air Iran return to the skies. Another potential banana skin for Iran’s new era is the ongoing friction between Shiite and other Muslims. Iran is one of the few Islamic countries where Shiites outnumber Sunnis, therefore deep religious beliefs are showing their dominance in both political and economic decisions. Potential investors are being told this impasse is unlikely to change in the country’s seemingly bright new future. The religious stalemate isn’t helped by Iran’s Islamic Revolution Guards Corps – a viciously anti-Israel brigade of military enforcers who are, effectively, the executive arm of Ayatollah Ali Khamenei. It had been believed their imposing and sinister presence would retreat to the shadows as a friendlier version of Iran emerged, but this is proving not to be the case. Some would even argue that Khamenei – Iran’s supreme leader – is using the IRGC to aggressively target president Rouhani as part of a quiet desire to eradicate moderates and reformists. Khamenei’s wildly shifting rhetoric on the US would certainly back this theory up. That said, there is no doubt in the international community that Iran is back in business. i

Spring 2016 Issue

> CFI.co Meets the Vice-Chairman of KIPCO:

Faisal Hamad Al Ayyar

former fighter pilot of the Kuwait Air Force, Faisal Al Ayyar joined the KIPCO – Kuwait Projects Company – in 1990 when the firm was a $220 million regional investment company. Under his stewardship, KIPCO has grown into one of MENA’s leading holding companies with significant stakes in the financial services, media, real estate, manufacturing, and education sector. Currently, KIPCO maintains operations in 24 countries with consolidated assets in excess of $32 billion. Mr Al Ayyar had a leading role in the creation, setting up, and development of OSN, the region’s largest pay-television network. He was also instrumental in the development of SADAFCO, a leading dairy and foodstuff producer in Saudi Arabia, and in the expansion and subsequent sale of Wataniya Telecom, a major regional mobile operator. Mr Al Ayyar is chairman of Panther Media Group – Dubai UAE (OSN). He is vice-chairman of Gulf Insurance Group – Kuwait; United Gulf Bank – Bahrain; Jordan Kuwait Bank – Jordan; and Mashare’a Al-Khair Establishment – Kuwait. Mr Al Ayyar is a board member of Saudia Dairy & Foodstuff Company – KSA, and Gulf Egypt for Hotels & Tourism Company – Egypt. Moreover, he is a trustee of the American University of Kuwait and honorary chairman of the Kuwait Association for Learning Differences. Mr Al Ayyar’s honours include the Arab Bankers Association of North America’s 2005 Achievement Award, the Tunis Arab Economic Forum and the Beirut Arab Economic Forum 2007 Achievement Awards, and the Kuwait Economic Forum 2009 Award for his contribution to the investment sector and successes in the global financial market.

KIPCO’s success may be ascribed, in large part, to the management style Mr Al Ayyar introduced and which emphasises stability and a unified sense of purpose: “The objectives and goals of the organisation are carefully aligned with those of its management. The integrity of the organisation depends on the integrity of all senior executives. Therefore, we set a role model at the highest level.” Mr Al Ayyar is known for relentlessly raising the bar of corporate performance and search for areas that may benefit from further improvements: “It takes discipline and the right processes and procedures. We also need to watch our egos and strive for transparency throughout the group. We share our expectations with the shareholders in order to be held accountable. This allows for a clear set of goals to be achieved and enables all stakeholders to measure corporate performance.”

Vice-Chairman: Faisal Hamad Al Ayyar

This approached has allowed KIPCO to deliver profits for 24 consecutive years and expand its assets from $220 million in 1990 to $32 billion at the end of 2015. According to Mr Al Ayyar, cooperation is key: “I believe that ten minds are better than one. Thus, it is important to seek the opinions of executives in the group companies when embarking on any new project. Ultimately, I bear the full responsibility for the final decision. However, by working closely together we can be much more innovative and productive.” KIPCO’s strategy is to acquire, build, scale, and sell companies. This has worked successfully for a quarter century. The strategy has created a portfolio of companies with a primary focus on financial services, media, real estate, and manufacturing. Through its core companies, subsidiaries, and affiliates, KIPCO also has built up interests in the education sector. Despite the global economic crisis, KIPCO has continued to deliver consistent growth. The group is deeply-rooted in its core markets and comprises primarily operational companies which are not affected by stock market fluctuations. Mr Al Ayyar explains: “We have a geographically diverse banking group, a pioneering insurance network, a unique presence in the media sector through OSN, distinguished petrochemical operations CFI.co | Capital Finance International

through QPIC, and a food production operation through SADAFCO in Saudi Arabia. KAMCO, which operates in asset management, is affected by the market like all its peers but is in good shape. TAKAUD, our pensions company based in Bahrain, is our hope for the future, and URC is the most distinguished locally and regionally in the real estate sector.” Considering these positions, Mr Al Ayyar is convinced that KIPCO will continue to grow and prosper: “Despite successive crises, wars, and even the invasion of our country, we never stopped expanding. KIPCO is always on the lookout for good investment opportunities and we believe that there is a lot of untapped potential in the MENA Region.” KIPCO is working to a comprehensive investment vision that provides a detailed, yet adaptable, roadmap to the future. The insurance sector is one that has caught KIPCO’s attention with the company adding a new insurer to its portfolio every 18 months or so. Meanwhile, the United Real Estate Company (URC) is involved in a number of large-scale high-end projects in both Kuwait and abroad. “In April, we will be inaugurating the Abdali Mall in Jordan, and before that we put into operation a mall in Salalah. Also, in Egypt, KIPCO has entered the residential housing sector. We are successful in what we do and our projects have continued on track despite sometimes adverse external circumstances.” i 155

> KIPCO:

The Power of Sound Governance

n barely a quarter century, Kuwait Project Company (KIPCO), one of the premier investment and management groups in the MENA Region (Middle East and North Africa), has expanded its geographic corporate footprint to include 24 countries. The company’s operations now stretch from the Atlantic Ocean to the Arabian Sea. KIPCO has acquired sizeable holdings in the financial services, media, manufacturing, and real estate sectors. The group currently comprises over sixty companies and employs over 12,000 people. Founded in 1975, KIPCO has since become one of the MENA region’s most successful and admired companies. KIPCO’s core business is concentrated in the financial services and media industries. Group companies include Burgan Bank Group – one of the region’s largest banking groups with operations in Algeria, Iraq, Kuwait, Malta, Tunisia, and Turkey. KIPCO also has a majority stake in Gulf Insurance Group – one of MENA’s biggest insurers with operations in Bahrain, Egypt, Iraq, Jordan, Lebanon, Kuwait, the United Arab Emirates, Saudi Arabia, and Syria. In the media sector, KIPCO has majority ownership of OSN – the region’s largest and most successful pay-television network which broadcasts high quality Arabic, English, and Filipino content using the latest technology. COMMUNITIES KIPCO is committed to making a social contribution in the countries where it maintains a presence. The company has identified three particular areas for development: education, youth welfare, and healthcare. It has developed a series of initiatives to enhance the quality of community life. As part of its commitment to protecting and promoting Kuwait’s heritage, KIPCO also maintains a close working relationship with the Dar al-Athar al-Islamiyyah Museum which houses the famous Al Sabah Collection – one of the world’s finest collections of Islamic art. The collection, which includes thousands of priceless artefacts from both the pre-Islamic and Islamic periods, is drawn from countries across the Islamic world. TRANSPARENCY KIPCO is an advocate and early adopter of transparency and sound governance. The launch of the company’s Annual Shafafiyah Investors’ Forum in 2004 is a testament to this. As part of its enhanced corporate governance policies, KIPCO maintains active audit and corporate governance frameworks that jointly ensure corporate objectives are met. The policy also allows for the continuous monitoring of the performance of KIPCO’s core businesses while maintaining transparency and corporate disclosure practices.

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“As one of the region’s most successful companies, KIPCO is committed to making a social contribution in the countries where it operates.” ROBUST PERFORMANCE Earlier this year, KIPCO announced a net profit of $175 million ($11.2 cents per share) for the year ended 31 December, 2015 – an increase of 15% on the $152 million ($11 cents per share) reported in 2014. Consolidated assets in 2015 increased to $32 billion from $31 billion in 2014. KIPCO’s Q4 profit came to $53 million, an increase of 12% on the $47 million profit achieved in the same period of 2014. Faisal Al Ayyar, KIPCO’s executive vice-chairman, said the company’s positive 2015 results were achieved despite the economic and political circumstances prevalent in the region: “The results we achieved in 2015 reflect the strong performance of our core companies. Despite the political and economic circumstances affecting the region, we have delivered results in line with our targets and remain on course to double our 2014 profit by 2018.” “Our level of performance in 2015 make this KIPCO’s twenty-fourth consecutive year of profitability. The performance of our core sectors – which include banking, media, real estate, and insurance – was characterised by significant growth. In the banking sector, Burgan Bank has continued to achieve strong profitability. OSN, our pay-television company, continues to grow in revenue, while our insurance company GIG remains a leader in four of the markets in which it operates. Overall, we are pleased with our companies’ progress and results in 2015.” STRONG REPUTATION In a reflection of the strong reputation that KIPCO enjoys in the global financial community, the holding company successfully completed a $500 million bond issue in March 2016 under its $3 billion Euro Medium Term Note (EMTN) Programme. The issue was 2.5 times oversubscribed. In a volatile market, KIPCO was able to capitalise on positive investor feedback to swiftly execute an intra-day trade. The transaction serves as a leading reference point for the region, being the first corporate bond transaction in 2016 out of CEEMEA and the first from the Middle East since October 2015. Commenting on the issue, KIPCO’s executive vicechairman said that the success of the transaction reflects the strong reputation that KIPCO enjoys in CFI.co | Capital Finance International

the global financial community and its confidence in the company’s sound business model despite the difficult economic circumstances across the world: “Despite challenging market conditions, the demand for our bonds has been overwhelming. The 2.5-fold oversubscription reflects the confidence that the global financial community has in KIPCO’s strategy and ability to deliver on it.” “While KIPCO’s liquidity remains strong, the proceeds from this bond issue will serve to provide the company with further financial flexibility so that we can continue to pursue our strategic plans.” The issue attracted a wide range of investors, including leading fixed income global institutions. SECTORIAL SNAPSHOT FINANCIAL SERVICES The group’s holdings in the financial services sector include commercial banks, investment banks, asset management, and insurance and pension companies. Burgan Bank Group – One of the largest retail and corporate banking groups in the MENA Region, Burgan Bank is committed to the highest standards of corporate governance and recognises that good governance is pivotal in generating sustainable shareholder value and meeting its obligations towards all stakeholders. Gulf Insurance Group – One of region’s leading insurance companies, established in 1962, Gulf Insurance Group is amongst the largest and most diversified insurance groups in the MENA Region. The group has operations in Syria, Iraq, Lebanon, Saudi Arabia, Algeria, and the United Arab Emirates. Jordan Kuwait Bank – Founded in 1976 and a major player in the Hashemite Kingdom’s banking sector, JKB has been a cornerstone of KIPCO’s banking activities since 1997. In 1976, a number of Jordanian and Kuwaiti investors had the idea that if they brought in capital from a wealthy country – like Kuwait – and invested it wisely in a country renowned for its highly developed workforce – like Jordan – something good must result – and it did. Today, Jordan Kuwait Bank is considered one of the few successful Jordanian enterprises established with Inter-Arab interests. United Gulf Bank – KIPCO’s investment bank based in Bahrain. United Gulf Bank is a leading asset management, merchant, and investment banking group with operations spanning the MENA Region. Through its regional network of subsidiaries and affiliates, the bank engages primarily in asset and fund management, merchant banking, private equity, and corporate finance. Other financial

Spring 2016 Issue

business activities include commercial banking, proprietary investments, treasury, brokerage, and savings and pensions. Through its non-financial associate companies, the United Gulf Bank holds substantial investments in the real estate and industrial sectors. KAMCO – KIPCO’s asset and investment banking arm is a premier investment company based in Kuwait and regulated by the Capital Markets Authority. It has one of the largest private sector AUMs in the region. Established in 1998 and listed on the Kuwait Stock Exchange (KSE) in 2003, KAMCO is a subsidiary of United Gulf Bank (UGB). Takaud Savings & Pensions – The first company of its kind in the MENA Region to offer personal and corporate pension and savings products, Takaud helps savers and investors enter the world of investments by eliminating barriers to successful investing: most people do not have the time to research, the knowledge to interpret the information, or the expertise to put together a profitable, yet secure and well-balanced, portfolio. Takaud provides a solution that is cost effective and offers convenient access to mutual funds and other investment vehicles.

URC Developments: KIPCO, Shaheed and City Towers

Shaheed Tower: headquarters of KAMCO Investment Company

MEDIA AND TECHNOLOGY KIPCO’s investments in the media and technology sector include OSN – the region’s leading paytelevision broadcaster – and companies offering radio, online data, satellite, and Internet services. OSN – The leading pay-television operator in the MENA Region, OSN offers the widest choice of new and premium Western, Arabic, and Filipino entertainment. OSN is home to nearly 140 channels filled with great entertainment and offering viewers exclusive access to the latest blockbuster movies, top rated series, sports, documentaries, news, kid’s entertainment, and live talk shows. The movie offering includes over a hundred uncut and uninterrupted movie premieres a month. OSN boasts the most comprehensive portfolio of exclusive rights from all major studios including Warner Brothers, Paramount, Fox, Disney, Sony, MGM, Universal, HBO, and DreamWorks and offers access to the world’s leading television brands including Disney channel, Sky News, Discovery Network, and Nat Geo. United Networks – A premier provider of satellite, Internet, data, and radio services, United Networks serves both corporate and retail clients. REAL ESTATE KIPCO’s operations in the real estate and construction sector offer corporate clients and private investors opportunities to invest, sell, or lease commercial properties in the Middle East and North Africa, the UK, and the US.

Burgan Bank

United Real Estate Company – KIPCO’s real estate development company is currently developing properties in Kuwait, Egypt, Jordan, Lebanon, and Oman. United Real Estate Company (URC) is one of the Middle East’s leading real estate developers CFI.co | Capital Finance International

with assets of KD 540 million ($1.79 billion). Based in Kuwait, URC was founded in 1973 and listed on the Kuwait Stock Exchange in 1984. Kuwait Hotels Company – Specialised in hospitality and catering services, the Kuwait Hotel Company operates fifteen hotels in the MENA Region. Founded in 1962, the company was the result of an initiative by a group of leading companies and government institutions with a view to establish world class hospitality projects, in Kuwait and abroad. KIPCO acquired the Kuwait Hotels Company in 2003. MANUFACTURING KIPCO’s investments in the manufacturing sector include companies involved in dairy, food and beverage production, and specialised services for the energy sector. These companies operate in Kuwait, Bahrain, Egypt, Lebanon, Qatar, Saudi Arabia, and the UAE. Qurain Petrochemical Industries Company – The biggest private investor in Kuwait’s petrochemical sector, the Qurain Petrochemical Industries Company (QPIC) was established in 2004 as a holding company. Today, QPIC is one of the biggest private investors in the petrochemicals sector in Kuwait with total assets of around $1.3 billion. Saudia Diary & Foodstuff Company – One of the largest manufacturers of food and beverage products in the MENA region, the Saudia Dairy & Foodstuff Company (SADAFCO) has been a leader in the UHT (long-life) milk market in Saudi Arabia, capturing more than half of the long-life milk market. The company also manufactures tomato paste, ice cream, and snacks and drinks. During the past two years SADAFCO has expanded its product range with new launches in the breakfast cream, cheese, butter, powdered milk, ketchup, fortified children’s milk, and frozen French fries categories. United Industries Company – KIPCO’s industrial holding company, United Industries Company has holdings in a number of industrial sectors including stakes in SADAFCO and the Qurain Petrochemical Industries Company. United Industries Company was established as a closed joint stock company. In 1997, the company obtained a listing on the Kuwait Stock Exchange. KIPCO MILESTONES • In 1990, when the current management took over, KIPCO’s assets stood at $220 million. In 2015, assets came to $32 billion. • KIPCO launched its Shafafiyah (transparency) Forum in 2004. • KIPCO launched its $2 billion EMTN Programme in 2006 and was the first in the Middle East to do so. • KIPCO was awarded a BBB+ rating by S&P in 2007 – the first in the Gulf Region. • KIPCO’s $3.7 billion sale of Wataniya Telecom in 2007 was the biggest cross-border sale in the Gulf Region. • KIPCO KD 80 million bond issue in 2012 was the largest ever by a corporate in Kuwait. i 157

> Grant Thornton UAE:

Islamic Finance Oil Prices Impact By Samer Hijazi

odern banks started offering Islamic finance in the mid-1970s. At the time, there were major developments in the Muslim world such as the oil boom which coincided with a greater sense of cultural awareness and pride. Thus it was emphasised that the teachings of Islam encompass all aspects of life including how an individual conducts his/her financial and business affairs. Since then, Islamic finance has grown into a global industry with total assets

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today believed to exceed $2 trillion. Islamic financial services are available throughout most of the Islamic world as well as parts of Europe and North America. Approximately 80% of these assets are concentrated in Islamic banks or Islamic divisions of other commercial banks â&#x20AC;&#x201C; socalled Islamic windows. Sukuk, the Islamic equivalent of bonds, represent about 15% of Islamic investment funds while Takaful, Islamic insurance, makes up the remainder. CFI.co | Capital Finance International

Geographically, the vast majority of Sharia compliant assets are concentrated in the countries of the Gulf Cooperation Council (GCC) and the wider MENA Region. However, a significant amount is also found in Asia and Malaysia. The latter has been a leading industry player since the 1980s. Islamic finance really started to capture world headlines in the early years of the 2000s as annual growth rates often exceeded 15-20%, driven by rising commodity prices. Islamic

Spring 2016 Issue

Backing Down: The US oil boom has weighed on prices and cut demand for Saudi Arabia’s crude.

Source: The Wall Street Journal. FactSet (Nymex); US Energy Information Administration (imports).

finance started to attract more attention as new institutions came to the market while global players like HSBC, Deutsche Bank, JP Morgan, and others invested in Islamic finance as well. Over the last five years, Islamic finance assets have been growing at double digit annual rates. However, with declining oil prices and the looming US interest rate rise, many market commentators are questioning how sustainable this can be over the next few years and whether the growth of Islamic finance is inevitably driven by the fortunes of oil prices. Oil-exporting countries are some of the key drivers of the global Islamic finance industry. As such, those countries’ public finances are likely to be most affected by the decline in the oil prices. Governments of such countries have often used Islamic finance to diversify their funding profiles and to demonstrate support for the growth and development of what is seen as an indigenous industry with many local stakeholders. All six energy-exporting Arabian Gulf states have ambitious development plans and are likely to continue to spend in order to support overall growth. However, if oil prices fall further they may rethink their investment strategies and policies. This will inevitably have an impact on Islamic finance.

“The global economy remains in a difficult place due to the steep fall in oil prices, challenging global equity markets, high regional political tensions, and continued reform of global financial markets.”

Crude is now trading around $35 a barrel, close to its lowest level since December, 2003. While current prices are now roughly the same as they were twelve years ago, the differences in the oil market’s fundamentals between then and now are noteworthy. The last time oil was at these levels, prices were on their way up – not down. China’s oil imports were rising at a double-digit pace to fuel a rapidly expanding economy, while the Organization of the Petroleum Exporting Countries (OPEC) was restricting output to keep prices aloft. Iraq was repairing wells that had been damaged during the Second Gulf War CFI.co | Capital Finance International

and the Iranian economy was still closed off by sanctions. Fast forward to today and China’s energy demand is slowing in tandem with its economy. Saudi Arabia keeps pumping oil at an accelerated clip as it competes with new US producers while the market braces for a possible tidal wave of oil from Iran. However, a recent report by the IMF charted the correlation between oil prices and bank profitability as a result of the global credit crunch in 2008/09. The research revealed that the impact of the last oil price shock on banking profitability was indirect with only some institutions with weaker risk management frameworks, more aggressive business models, and poorer quality asset books suffering direct impact. The study’s results suggested that the impact of oil price shocks was found to be greater with (non-Islamic) investment banks due to a variety of factors, including a funding profile dependent on turbulent wholesale markets and revenues driven by trading income and transaction fees both of which are vulnerable to large market swings. Islamic banks typically have a more conservative business model and risk management framework while many source their funding from retail depositors making them less susceptible to fluctuations in the market. It should be noted though that several Islamic investment banks suffered some of the same stresses of their conventional counterparts. Similarly, the reduction in oil prices is likely to impact conventional financial institutions as well as the Islamic ones. As such, the decline in oil prices will be a challenge that the Islamic financial services industry needs to closely manage. However, while the industry is still young compared to its conventional counterparts, it is far more 159

experienced now, having had to weather several economic crises over the years. Its regulators and professionals are more seasoned as well, having more risk management and diversification tools at their disposal than twenty or thirty years ago. While many GCC states have been withdrawing global cash reserves from asset management institutions around the world, the need for this has often been driven by political developments as much as by the impact of oil prices. According to Standard & Poorâ&#x20AC;&#x2122;s Ratings Service, growth in the Islamic finance industry may moderate in 2016, growing at a slower pace. This will be counterbalanced to some extent by the opening up of Iran and by more issuance from non-core markets such Europe, Russia, CIS countries, and Africa. S&P expects growth to pick up in the next decade. At the same time, Malaysia has always been a significant player in the global Islamic finance industry and often dominates global sukuk issuance volumes. However, it would be hard to argue that the countryâ&#x20AC;&#x2122;s economy is heavily dependent on oil prices. Many non-Muslim governments also continue to study Islamic finance as an avenue to diversify budgets as they maintain their spending momentum in a low oil price environment and seek to attract inward foreign investment from new sources. The British Government made a landmark sovereign sukuk issuance in 2014 to demonstrate its commitment to Islamic finance and the fact that the British economy was open for business with Islamic finance. As for the outlook for oil prices, it seems difficult for the market to reach a consensus. Some local banks believe oil prices will reach $40-50 per barrel within a year. Other banks are more cautious and cannot see the price of oil exceeding $30 for 2016. The variation of petrol prices would not just affect the Islamic banking industry specifically, but have a systemic effect on the entire banking sector. The way in which a particular bank is run, including its type of investment portfolio, will have a large role to play in its success, rather than whether it opts or not for Islamic banking. Hence, it would be difficult, from a legal standpoint, to conclude that the Islamic banking system is in a more vulnerable position compared to the conventional one should there be a continued decline in oil prices. Most oil producing nations enjoy a stable legal framework that allows for the effective operation of Islamic banking structures side-by-side conventional institutions. If the wider banking industry suffers from declining oil prices, presumably, policies both legal and regulatory in nature would need to be formulated for the banking sector rather than just for conventional or Islamic banks specifically. On the flip side, Islamic banks are by nature, risk 160

Author: James Zhan

averse. Given their prohibition against gambling, uncertainty, and speculation, they are arguably better positioned to protect themselves against high risk and volatile investments. To conclude, the global economy remains in a difficult place due to the steep fall in oil prices, challenging global equity markets, high regional political tensions, and continued reform of global financial markets. Islamic banks seem more affected by this drop solely due to the fact that most Islamic banking takes place in oil rich regions. Conversely, the performance of Islamic banks in comparison to conventional banks during times of crisis can be considered more resilient due their more stable and conservative business models. i ABOUT THE AUTHOR Samer Hijazi is a partner and the head of Islamic Finance for Grant Thornton in the United Arab Emirates. He has extensive experience leading complex audit engagements for global investment banks, FTSE 100 banks, sovereign wealth funds, investment managers, and international banks. Mr Hijazi has directed the CFI.co | Capital Finance International

audit of a number of financial services teams of clients that have multi-location operations, in Europe, Asia, Africa, and the Middle East. He was instrumental in the formation of the UK Islamic finance practice and developed new products and solutions to deliver to all UK Islamic financial institutions, FTSE 100 banks, and global investment banks, which saw him becoming de facto UK head of Islamic Finance in 2009 and global head in 2013 for the Big Four. As global head of Islamic Finance, Mr Hijazi played a key role in the industry lobbying of the British government which resulted in the launch of the UK Government Sukuk which was oversubscribed ten times. As a result of his integral role in UK and global Islamic Finance, he was awarded Global Islamic Finance Adviser of the Year â&#x20AC;&#x201C; International 2014 by Professional Sector Network.

Spring 2016 Issue

> CFI.co Meets the CEO of Abu Dhabi Securities Exchange:

Rashed Abdul Kareem Al Balooshi

ashed Abdul Kareem Al Balooshi joined the Abu Dhabi Securities Exchange (ADX) in April 2000. Since then, he has been instrumental in the establishment and running of the exchange which opened for trading in November that year. Mr Al Balooshi started his career with ADX as manager of the Clearing, Settlement, Depositary, and Registry (CSD) Department. In 2007, Mr Al Balooshi became deputy chief executive and manager of operations of ADX. He was promoted to chief executive in 2012. In 2014, Mr Al Balooshi was the recipient of the CEO Excellence Award. Al Balooshi was the first employee of ADX, officially since 2000 though he was working on establishing the exchange before that at Saadiyat Free Zone Authority. His career has taken him from the University of South Carolina to jobs at Etisalat, and a spell in the back office of Natwest bank in London, dealing with custody accounts and settlement. The beginning of his work at ADX began when he returned from London to establish the back office system for a financial project on the Saadiyat Free Zone in Abu Dhabi. This led to his appointment to the team building ADX. He has been with the exchange ever since. Al Balooshi has not stopped studying during his career. He attained an MBA from a UAE university and is currently planning a PhD with Brunel University in the UK about a platform for renewable energy. Mr Al Balooshi has an active role in the following entities: • Vice-chairman of the South Asian Federation of Exchanges (SAFE) • Member of the board of directors of Abu Dhabi Center for Corporate Governance (ADCCG) • Member of the advisory board of New York Institute of Technology (NYIT) – UAE • Member of the advisory board of the Institute for Cultural Diplomacy (ICD) – Berlin In 2014, Mr Al Balooshi welcomed two listings on the exchange’s second market, thus making ADX the first Exchange in the GCC to list the shares of private companies. In 2015, Mr Al Balooshi announced the listing of Sharjah Group, bringing the total number of listed companies to 68. “We have an exceptionally well-developed fully functional infrastructure already in place. Investors don’t need to go to banks in order to

CEO: Rashed Abdul Kareem Al Balooshi

participate in, and benefit from, IPOs as we have an e-IPO “eKtetab” platform which they can benefit from. We want to make the life of an investor very easy by making trading available on iPads, iPhones, and other platforms. We aim to speed up and simplify the transfer of money generated via IPOs.”

more ETFs, REITS, Bonds, and Sukuk.

As per the forecast by global law firm, Baker & McKenzie, domestic IPO issuance in the UAE is projected to to peak at US$1.2 billion in 2018.

“MSCI has been a solid point for the ADX. This has given us more exposure to the international investor. There has been a huge pumping of investments into ADX, which got reflected in the value traded,” Mr Al Balooshi explains. To date, ADX has around a million investors. “We have strong plans for 2106. We will continue on developing more services that enable investors to invest on the go.” i

Mr Al Balooshi: “We continue to plan to have more than one financial instrument. We would like to have more than equities. We already have Right Issue, ETF, and a government bond and want to strengthen the trading platform by way of CFI.co | Capital Finance International

The Abu Dhabi Securities Exchange has generated much interest from investors since its upgrade to emerging market status by MSCI. Post-upgrade the exchange opened well over 1,500 new accounts for institutional investors.

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> Abu Dhabi Securities Exchange (ADX):

At the Heart of Vision 2030

he Abu Dhabi Securities Exchange (ADX) was established in 2000 as a legal entity with autonomous status, independent finance, and management. ADX is also provided with the necessary supervisory and executive powers to exercise its functions. ADX began operations on November 15, 2000. The function legally attributed to the Abu Dhabi Stock Exchange are:

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• Provide opportunities to invest savings and funds in securities in order to benefit the national economy; • Ensure the soundness and accuracy of transactions and ensure the interaction between demand and supply in order to determine prices; • Protect investors through the establishment of fair and proper dealing principles between various investors; • Impose stringent controls over securities CFI.co | Capital Finance International

transactions to ensure sound and conduct procedure; • Develop investment awareness by conducting studies and issuing recommendations in order to ensure that savings are invested in productive sectors; • Ensure financial and economic stability and develop trading methods in order to ensure liquidity and stability of prices of securities listed on the market.

Spring 2016 Issue

of Abu Dhabi to transform the emirate into one of the leading finance and services centres of the region. At the end of 2015, ADX had 71 listed securities. Those securities include 66 public joint stock companies, 2 private joint stock companies, 1 Exchange Traded Fund (ETF), 1 convertible bond, and 1 Abu Dhabi government bond. The ADX had a total market capitalization of AED 447 billion ($122 billion) as at the end of 2015. ADX allows for investors to trade through any of the registered brokerages at the exchange through advanced electronic automated services. The Exchange has signed a number of agreements with major financial institutions to provide custody services, including the National Bank of Abu Dhabi (NBAD), HSBC, Standard Chartered, Deutsche Bank, and Citi Bank. In 2009, ADX was upgraded to emerging market status by FTSE, and in 2011, Russell Investments and S&P upgraded ADX to emerging market status as well. In 2010, the ADX became the first market in the region to introduce an Exchange Traded Funds (ETFs) trading platform by listing NBAD OneShare MSCI UAE ETF, under the ticker symbol 1UAE, and established the necessary infrastructure for diversified investment vehicles. ADX was voted a full member of the World Federation of Exchanges (WFE) in October of 2012. WFE membership is considered by many governments and national asset management associations to be an important prerequisite for their recognition and support. In 2013, ADX was upgraded to emerging market status by both MSCI index (Morgan Stanley Capital International) and S&P Dow Jones, thus greatly increasing the likelihood of inward global investment flows.

“The 2030 economic plan plays a vital role in ADX strategy since it places the financial market in the context of economic and social development.”

ADX is at the centre of the Abu Dhabi government’s Economic Vision 2030. The vision, released in 2007, is a road map for the economic and social development of Abu Dhabi. The 2030 economic plan plays a vital role in ADX strategy since it places the financial market in the context of economic and social development. The development would be through diverting savings towards investment in the various economic sectors and developing the financial infrastructure CFI.co | Capital Finance International

ADX MOST NOTABLE ACHIEVEMENTS: • Launch of Smart Kiosk (SAHMI). The kiosk offers an array of electronic services that include the issuance of new investor numbers, the modification of existing investors’ details, access to financial reports and investment statements, etc. (first in MENA). • Adoption of XBRL – the global standard for exchanging business information (first in GCC). • Implementation of an automatic monitoring system (smart system) which automatically monitors and records transactions and other trading activities on the exchange (first in GCC). • The disclosure, on the ADX website, of the names of shareholders owning 5% or more of the share capital of any listed company (first in GCC). • The listing of shares of private joint stock companies (first in GCC). • The listing of ETFs (first in GCC). • Upgrade to emerging market status by MSCI (first, with Qatar, in the world since emerging market status was established by MSCI in 2007). i 163

> Paris Gallery:

A World of Haute Perfumery Scent is one of the most delicate yet strongest parts of the human sensory experience. A scent is an important part of identity and can evoke memories and create moods. Because of this, fashion brands have tied fragrances to their brand stories, creating a variety of scents to lure in customers.

efore there were commercial fragrances, there were pure perfumes made by experts for an elite clientele. Today, they are classified as niche fragrances. An alternative to mass perfumery, art and creativity always take centre stage in the creation of niche fragrances. In a world that is becoming increasingly commercial, everybody is seeking a way to express their own individuality. And, since the importance of scent to identity is already established, perfume connoisseurs are tuning into the idea of indulging in niche perfumery – the perfect remedy for conventionalism. Boasting savoir-faire and quality, niche brands strive to use only the finest choice of raw materials in order to create articulate, authentic, and exclusive perfumes. Mr Mohammed Abdul Rahim Al Fahim, CEO of the Paris Gallery Group of Companies – the conglomerate that owns the Paris Gallery luxury retail chain – is a perfume aficionado himself. He believes that his perfume should be as unique as himself. According to Mr Al Fahim, a perfume should be a way of expression. This possibly explains why he is passionate about introducing high-end niche perfume brands into the country. Mr Al Fahim considers niche or artisan perfumes as the ultimate form of adornment. Paris Gallery is home to products from a number of celebrated perfume houses well known for creating signature scents that encompass everything memorable. Throughout the region, demand for fragrances, especially exclusive ones, continues to grow

Roja Parfums

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“Our niche brands and collections evoke strong emotions, tell great stories, and represent the joys of being authentic through unique scents. With these brands, you can not only smell the luxury but feel it too.” Mr Mohammed Abdul Rahim Al Fahim, CEO

notably. Enter Paris Gallery with its fine selection of haute perfumery. “Our niche brands and collections evoke strong emotions, tell great stories, and represent the joys of being authentic through unique scents. With these brands, you can not only smell the luxury but feel it too. They never resemble any other fragrance. For the consumer that is seeking individuality through scent, it is always within reach because of these brands and their collections.” ROJA PARFUMS British master perfumer Roja Dove, creator of Roja Parfums, redefines luxury and sophistication with his collection of perfumes where true luxury is woven into every aspect. Like no other, Roja stands alone as the world’s most innovative fragrance creator and the industry’s most respected perfumer. His passion for scent is grounded in memories of love, and a love for discovering the sensuality of the world in new and surprising ways. From

Clive Christian

Kilian

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childhood, the experience of perfume would transport Roja Dove from the temporal to the fantastic – a place of perfection and of dreams that could instantly be rekindled through scent. To this day, it is this artistic magic that inspires Mr Dove to create perfumes that surprise and astonish; perfumes that encapsulate this exciting time in his life – perfumes that are, simply put, the finest fragrances in the world.

“For me, a perfumer is a poet or storyteller, who creates the tangible from the intangible – abstract images that strike at our core. We create products that become part of our clients’ lives and loves – intrinsically interwoven with their memories and those who know them. I aim to create fragrances that cast a spell over our emotions and secretly haunt our senses; fragrances that capture our hearts; fragrances that hopefully will be loved and remembered. Above all, I have tried to embody my central philosophy in my creations – ‘only the best will do.’ These are the most imaginative, creative and powerful perfumes I could ever hope to create.” Roja Dove, British master perfumer BY KILIAN Kilian Hennessy, creator of By Kilian perfumes, is heir to a long line of cognac-makers who were pioneers in luxury. He took up the torch of the family tradition in order to create a new luxury brand that reflects not only his distinct personality, but also achieves a perfect alliance between elegance and uncompromising luxury. His perfumes are built around a story, and a lot of emphasis is given to that story.

Spring 2016 Issue

“It’s one thing to be creative and do something no one else has done before that is highly original, but it’s another thing to create a perfume out of it. In the end, it’s only a combination of four or five ingredients that create the accord of the perfume.” Kilian Hennessey CLIVE CHRISTIAN British designer Clive Christian, creator of the Clive Christian brands of luxury perfumes, discovered an old perfumery that was going out of business and decided to take the reins and create a new level of luxury perfume. Clive Christian is a prolific designer with a passion for luxury and a philosophy no more complex than the desire to be “the best in class.” In 1999, Clive Christian acquired the Crown Perfumery and by applying his philosophy to design without reference to cost, became creator of

No1, the world’s most expensive perfume. Victoria Christian, his daughter, is the brand ambassador of Clive Christian perfumes. Passionate about perfumes, she is credited with discovering an original 1800s bottle from the perfumery that had been crowned by Queen Victoria in 1872 in the floorboards of the family manor house in England.

“Perfume is your invisible accessory- each drop holds a memory of a moment in your life.” Victoria Christian MORESQUE Launched in 2015 with Paris Gallery in the Middle East, before rolling out to the rest of the world, Moresque is a brand that pays tribute to the legacy of Arabic perfumery, art, and culture. The brand’s name and identity take inspiration from the

splendour of Moorish civilization and architecture. Founded by Cindy Guillemant, Moresque is a brand that can express the creativity that is essential of a Made in Italy brand. Offering a collection of evocative, exclusive, and modern fragrances, the brand creates olfactory sensations and Haute Parfumerie products that reveal subtle luxury, style and distinction.

“I met Perfumer Andrea Casotti five years ago and our common passions for modern art and for the world of perfumes led us to create Moresque. It took method, dedication, tenacity and creativity. It was a long search which I devoted myself to, from concept to launch.” Cindy Guillemant, CEO of Moresque Perfumes Within Paris Gallery’s exclusive portfolio of niche brands are Byredo, Sospiro, Cupid, Nasamat, Music De Parfum, Amorino, Blend Oud, Eisenberg, Guru and Signature, amongst others. Paris Gallery takes a strategic approach to working closely with these brands. The retailer has a proven track record of developing marketing and communication strategies for brands, taking them into new geographies, new markets, and new categories. Paris Gallery’s corporate practices protect brand reputation and strengthens their relationship with them. “Scent is an important part of people’s identity in the UAE. They look for extremely unusual and authentic products, especially in fragrances, where both the scent and the packaging play a big role. Many of our customers prefer pure perfumes that are made by experts that specialise in creating scents outside of the world of commercial perfumes. They consider Paris Gallery as the place to go to for such high-end perfumes because for years Paris Gallery has put considerable focus on catering to different segments of customers and has collaborated with international fragrance houses to fulfil their craving for perfumes, both bespoke and niche,” says Firas Al Assadi, Group Head of Fragrance & Cosmetics. i

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> QNB ALAHLI:

Peak Performance in Egypt QNB ALAHLI is one of the leading financial institutions in Egypt which was established in April 1978. The bank is ranked as the second largest private bank in Egypt. On 31 March, 2013, QNB Group acquired 97.12% of QNB AA which included the full stake of Société Générale – France amounting to 77.17% along with 19.95% acquired from free float. Upon such successful acquisition, the bank’s name was transformed into QNB ALAHLI joining the Best Brand Value in MENA Region for 2013.

NB ALAHLI is a full-service bank organized around several diversified business lines and a balanced model, serving corporate, individuals, professionals, and financial institutions through a wide range of products. The bank established a number of subsidiaries in many specialised fields, contributing to best positioning the bank in Egypt’s financial and banking activities. QNB ALAHLI Leasing is a subsidiary of QNB ALAHLI, that was founded in 1997 as one of the early entrants in the Egyptian leasing market. QNB ALAHLI Leasing is classified as one of the top companies in the market as per EFSA records. The company provides direct Leasing, covering all types of equipment, machinery, heavy equipment, heavy and light transportation vehicles (trucks, pickups, etc.), and real estate including administrative and commercial buildings. QNB ALAHLI Life Insurance Company that was established in 2003 to provide a diverse range of products to cater to the clients’ need for life insurance and saving. QNB ALAHLI Life is the 2nd bank assurer in the Egyptian market. The number of insured has reached more than 480,000 clients with coverage exceeding EGP 26 billion and a portfolio fund of more than EGP 773 million. QNB ALAHLI Factoring Company was established in 2012 and is a financial institution involved in all types of local and international factoring services. The company helps in developing Egypt’s financial services by providing world class factoring products. QNB ALAHLI enjoys a blend of local experience, based on years of confidence in the Egyptian market, and the international expertise of QNB Group.

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“The bank’s vision is based on building long-term ties with clients, providing them with a wide range of products and services, and aiming to meet the evolving needs of its valued clients.” The bank provides its services to more than 800,000 clients served by over 5,300 banking professionals and dynamic teams supported by a multinational platform with a network of 180+ branches covering all the Egyptian governorates. In addition, an expansive network of 380+ ATMs and over 13,000 point of sale machines are set to serve clients nationwide. Further, a distinctive customer service operates round the clock, seven days a week.

structure products and solutions that meet the requirements of each segment with a personalised approach and a wide variety of products. In order to achieve its goals, the bank ensures to: • Continuously Introduce new products, services, and packages that are innovative, fill a market gap or product range. • Frequently reviewing and modifying the design of existing products, services, the prices charged, services rendered, and packages offered at the levels that achieve competitiveness, customer satisfaction, and adequate returns. • Apply risk diversification to avoid concentration in a specific segment or market. QNB ALAHLI pays significant attention to how it reaches out to its valued clients, combining ease and comfort with world class professionalism. The bank also continues to selectively expand its brick and mortar branch network.

Moreover, the amount of attention and importance allotted to social responsibility, along with the bank’s thorough understanding of the interconnected relationship between societal development and organisational success, is what drove QNB ALAHI to participate in many charity projects in accordance with QNB Group values, goals, and principals.

VISION In 2015, QNB ALAHLI has achieved extraordinary results with its strategic vision that has been realised by improving and enhancing some of the existing products and launching new ones to fulfil clients’ evolving banking needs and expectations as well as to maintain its competitive edge in such a dynamic market.

The bank’s vision is based on building longterm ties with clients, providing them with a wide range of products and services, and aiming to meet the evolving needs of its valued clients. QNB ALAHLI managed to capitalise on its leading position as a pioneer in developing and implementing a world class retail banking service. It adopted a unique market segmentation approach to be able to

For example, QNB ALAHLI has enhanced its mortgage finance programme and introduced the possibility of financing the purchase of residential units in new urban communities. At the same time, QNB ALAHLI focused, and continues to focus more, on opening new branches, increasing its POS network with retailers, as well as attracting more payroll deals.

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“The bank provides its services to more than 800,000 clients served by over 5,300 banking professionals.” QNB ALAHLI was keen to be present in different venues and events to build a direct relationship channel with its diversified existing and potential clients through the sponsoring of various events in different fields, especially with educational institutions. For children and parents, QNB ALAHLI launched new products and initiatives that stress financial inclusion. For example, QNB ALAHLI launched the Agyalna Package targeted at children from seven to sixteen to make them more familiar with banks and encourage them to save. NETWORK COVERAGE QNB AA worked on expanding its branch network aiming to cover all Egyptian governorates and operate in potential areas to serve and attract the largest number of clients. Both in commercial and technical terms, QNB ALAHLI has achieved a rapid increase in its ATM network with a total of 388 ATMs in operation. Consequently, QNB AA is one of the top banks in terms of installed ATMs and has a 5% market share in the Egyptian network. In terms of transactions volumes, QNB AA represents a 16% market share (as of Q3 2015). QNB AA has a leading position in terms of POS coverage and has 13,530 POS terminals (as of November 2015) in Egypt, which makes it the 2nd bank in the market with 24% market share in terms of number of merchants. At the same time, to encourage the cashless society, the number of issued cards has broached the one million mark. SEGMENTATION AND MARKETING QNB AA continued its strategy of applying the personalised approach as being the first bank in Egypt to launch a full-fledged segmentation approach in retail. Consequently, each client has a dedicated portfolio manager offering a unique tailored commercial solution based on the client segment that is answering his/her specific banking and financial needs. High-net-worth clients have their distinct elite level of service through Safwa Universe, a dedicated set of high-end products and unique offers especially tailored to meet the needs of such specific clients. At the same time, affluent clients have their own service line with a dedicated commercial offer answering their financial needs. Finally, an attractive bundle of products and CFI.co | Capital Finance International

Chairman & Managing Director: Mr Mohamed El Dib

benefits targeting the mass market clients to make their banking experience much easier. RETAIL DEPOSITS QNB ALAHLI has a rich and diversified set of retail depository products that includes current and checking accounts, savings accounts with life insurance coverage, time deposits, and certificates of deposits that reach up to ten years. All are offered to fit specific customer preferences and savings plans. In 2015, total retail deposits reached more than EGP 42.9 billion (as of December 31, 2015) with a YTD growth rate of 21.4%. QNB ALAHLI focused on satisfying its clients’ needs by providing tailor-made credit facilities and managed to expand its retail loans portfolio to reach more than EGP 13.1 billion (as of December 31, 2015) with YTD growth rate of 25.6% as follows: • Overdrafts – EGP 1.48 billion • Credit cards – EGP 0.448 billion • Personal loans – EGP 10.5 billion • Real estate loans – EGP 0.648 billion • MANAGEMENT Mr Mohamed El Dib from Egypt began his career in 1978 with National Société Générale Bank of which 76% was owned by French bank Société Générale. In 2013, Qatar National Bank Group acquired a majority stake in the bank and subsequently changed its name to QNB ALAHLI. Mr El Dib held several positions in Corporate & Investment Banking within the bank before moving to his current position as chairman and managing director. Prior to joining NSGB, Mr El Dib worked for the National Bank of Egypt (NBE), the largest bank of the country. Due to his extensive, diversified, and comprehensive knowledge of, and experience in, corporate and individual banking services, Mr El Dib is a member of the board of the Federation of Egyptian Banks and of the Egyptian Stock Exchange. M. El Dib received a Bachelor of Commerce in 1972 and went on to obtain a higher studies diploma in 1976. i 167

> Abu Dhabi Commercial Properties:

Peerless Excellence in Property Management Founded in January 2007, Abu Dhabi Commercial Properties (ADCP) is a wholly owned subsidiary of Abu Dhabi Commercial Bank (ADCB). ADCP delivers specialised property administration services to property owners and tenants.

hrough its relationship with the government of Abu Dhabi, the Department of Finance, and Abu Dhabi Commercial Bank, ADCP has maintained its place in the Abu Dhabi real estate market as an efficient, but more importantly trustworthy, property management company. ADCP currently employs over 240 staff members, spread across nine offices in the UAE. Services include: • Commercial and residential property management • Asset (portfolio) management • Leasing and sales • Facilities management • Communities management / strata management ADCP is a one-stop shop for all property requirements of all types of clients - both property owners and tenants. The company’s highly trained and qualified team makes it easy for anyone to rent, buy, or lease a property in Abu Dhabi. What sets ADCP apart from other property managers in the area is its in-depth knowledge and unequalled experience in the UAE market and the high service standards that customers have come to expect from the company. This, combined with a portfolio of over 48,000 units spanning more than 2,500 buildings, cements ADCP’s role as a key player in the industry. At the start of 2016, ADCP launched its new Sales and Leasing Unit which offers professional real estate services to private and corporate clients. Covering a wide range of real estate sales – ranging from freehold to leasehold and from investment zones to locally owned – ADCP’s customers include anyone interested in buying or selling property in the UAE.

“What sets ADCP apart from other property managers in the area is its in-depth knowledge and unequalled experience in the UAE market and the high service standards that customers have come to expect from the company.” SPECIAL PROJECTS As one of the premier property and facilities management companies in Abu Dhabi, ADCP is in tune with the safety needs of its clients and tenants, regardless the category of property leased, bought, or rented. To enhance public security and safety, and to support the efforts of Abu Dhabi Civil Defence General Directorate, ADCP has launched a number of initiatives. Currently, ADCP implements up-to-date health and safety protocols and comprehensive fire prevention strategies across its entire portfolio. Thanks to its proactive approach to the maintenance of the highest health and safety standards, ADCP has managed to secure a reduction in property insurance premiums by over 50% over the last three years. The expansion of insurance coverage now includes additional coverage and improved conditions that affect the company’s full portfolio and has led to significant cost savings for property owners. FIRE SAFETY INITIATIVE The fire safety inspection drive, initiated in

2010 by ADCP, showcases the company’s success. The capital’s largest real estate management company launched a campaign to review the fire prevention strategy implemented for 2,500 of its buildings. The objective of the initiative was to identify, and promptly remedy, any deficiencies detected in fire safety systems. ADCP hired US-based consultant Schirmer Engineering Corporation to conduct an audit on the fire safety protocols in all of its buildings in order to be able to take additional precautionary steps with a view to further reduce the occurrence of fire-related incidents and to increase general awareness regarding fire safety throughout the UAE. ADCP has also undertaken a project that provided each tenant with a fire blanket at the time of renewing an existing, or starting a new, lease. This is an indication of ADCP’s commitment to fire safety and precautionary measures. CHILD SAFETY LOCK PROGRAMME In the recent past, ADCP has taken into account the alarming rise in the number of accidents that have occurred in Abu Dhabi and the UAE with young children falling out of open windows of high-rise buildings. The company launched an initiative to fix new locks for the doors, windows, and balconies to enhance the safety and protection of children residing in these homes, as directed by the Abu Dhabi Department of Municipal Affairs. In 2014, ADCP implemented a countrywide exercise to install child safety locks in all opening windows to stop the fatal accidents of children falling out of high-rise open windows. ADCP currently manages over 48,000 units in more than 2,500 buildings, ranging from

“ADCP is a one-stop shop for all property requirements of all types of clients - both property owners and tenants.” 168

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residential apartments and villas to commercial shops, offices, and other properties. Thus, the scope of the project is massive and widespread across Abu Dhabi and the United Arab Emirates. As of February 2015, ADCP has installed 172,864 child safety locks in 25,995 homes in the UAE. Additionally, ADCP has – after this first wave of installations – implemented systems that will check and ensure all homes have child locks installed after every lease transfer. This programme was developed to inject a sense of security and protection in the real estate market and for tenants and property owners to be less prone to accidents and subsequently, the preventable loss of life. EXCELLENCE OF SERVICE ADCP consistently strives to achieve flawless service. In its efforts to be the best property

management team in the UAE, ADCP has not only embedded quality of service in its processes but also in each of its employees’ work ethic. GROW DIGITAL ADCP believes that in order to be successful, one must be able to adapt to changing times. As such, the company has recently deployed a number of initiatives to put in place cuttingedge technology as part of its everyday systems and processes. The aim is to eliminate unnecessary procedures and equip customers with tools that enable them to make informed decisions; whether it comes to renting with ADCP or allowing ADCP to manage their properties. ABU DHABI REAL ESTATE MARKET OVERVIEW To say that the last few years have been challenging for the real estate industry would be a gross understatement. However, ADCP has CFI.co | Capital Finance International

always maintained its profitability, even in the harshest of economic climates. The company’s largest portfolio comes from the government of Abu Dhabi’s Department of Finance. This state entity lends a certain stability and credibility to the company in a market tainted by uncertainty. ADCP customers can rest assured that their properties are being managed in the most professional and transparent manner possible. ADCP’s affiliation with the government and one of the largest local banks – Abu Dhabi Commercial Bank – ensures that all its dealings are conducted with the utmost integrity. ADCP’s clients range from the royal family to the government of Abu Dhabi, high-networth individuals, financial institutions, SME businesses, and private individuals amongst others. Even with a portfolio as diverse and large as this, ADCP has been consistent in affirming its position as the preferred property management company in Abu Dhabi. i 169

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> Feature:

Trudging The Empty Quarter for Hearts and Minds By Naomi Majid

dventure, arid deserts, and diplomacy rarely go hand in hand. But in December 2015, when British explorer Mark Evans set off on an 808-mile trudge across The Empty Quarter, the world’s largest sandbox, the daring 54-year-old and his entourage were the living embodiment of Omani soft diplomacy.

After all, nothing says “let’s celebrate a shared Arabic experience,” quite like an expedition across Rub al-Khali – where the mercury frequently rises to 56 degrees Celsius. Factor in social media, and you have a veritable celebrity. Mr Evans set up Outward Bound Oman in 2009 – an offshoot of the British outdoor educational charity – and when news of this venture got out the switchboard was soon jammed by representatives of communities dotting the fringes of the itinerary clamouring for a processional visit en route. A special website set up to document the trip enabled people to tap in remotely, follow the progress on a map, and find out what had gone on each day. One of Mr Evans’ entries describes how the unruliest of his camels was sent home. Another camel was brought as a gift and became supper. Presumably it was stewed for a very long time. As well as representing the very best (or the worst, depending on the vantage point taken) that an expedition can throw up, the arduous trek from Salalah in southern Oman to Doha in Qatar was also a re-enactment of the route taken in 1930 by British civil servant Bertram Thomas. Back then, warring tribes were one of the biggest worries as well as finding watering holes. With two well-supplied vehicles and a

dedicated doctor or two, plus the pre-requisite photographer, Mr Evans faced a slightly altered set of challenges. But safety net aside, this unspeakably harsh environment is not for the fainthearted. Stretching 900 miles from the fringes of Yemen to the foothills of Oman, and 500 miles from the southern coast of Arabia to the Persian Gulf, Rub al-Khali is a vast and desolate wilderness utterly deserving of its name, which translates as the quarter of emptiness.

leaders and helped define the borders between Iraq and Jordan that still exist today. What the patriarchal Arab tribal leaders thought of her stern female influence remains a mystery. The film, sadly, was a flop. Peter Bradshaw of The Guardian gave it two out of five stars stating: “Werner Herzog’s biopic of English adventurer Gertrude Bell is impeccably mounted, competently made, entirely respectable – and a bit of a plod.” Matters of taste are not to be discussed.

In the 1940s, another Englishman, Wilfred Thesiger, captured the spirit of southern Arabia and the remarkable hospitality of the tribal Arabs – known as Bedu – in Arabian Sands, a widelyacclaimed account of his desert excursions. Mr Thesiger, who felt suffocated by the trappings of materialistic Western civilisation, documented his trip with surprisingly good photographs. These are included in his coffee table tome, The Last Nomad.

But nothing is more of a plod than a two-month 808-mile journey through Rub al-Khali. Like Bertram Thomas and Wilfred Thesiger before him, Mark Evans found the heart-warming hospitality of the desert people buoyed him on. Perhaps it is the greatest voyage of discovery of all to find that in the harshest of environments, humanity is capable of great kindness. And that the best shoes of all for desert trudging are knitted booties – double-layered sheep wool socks.

The vast and seemingly sculpted sand mountains of Rub al-Khali can reach soaring 300-metre heights. In colour photographs they look as if they were designed as movie backdrops. But despite replacing the proverbial thousand words, a photograph can never convey the unbearable intensity of desert heat or the frigidity of its bleak night-time temperatures which helps explain why Werner Herzog’s 2015 Queen of the Desert was filmed mostly in Morocco.

It must be remembered, that just 75 miles from the expedition’s starting blocks in Salalah, Yemen was being ripped apart. Oman, quietly known as the mediator of the Middle East, sent the Rub alKhali expedition as diplomatic outreach to Saudi Arabia and Qatar. The two states have been at a stand-off since they took a different stance on supporting Islamic movements.

The film tells the tale of Gertrude Bell, a formidable British lady explorer, who is essentially womankind’s answer to Lawrence of Arabia. A negotiator extraordinaire, Ms Bell went out to the desert with Winston Churchill and assorted Arab CFI.co | Capital Finance International

Sponsored by His Highness Sayyid Haitham bin Tariq Al Said and HRH Prince Charles, The Empty Quarter expedition comprised Arabs and non-Arabs of all persuasions. As a way to ease tension and broker peace, it seems an inspired choice of weapon in the battle for hearts and minds. i 171

THE EDITOR’S HEROES

Connections

n the late 1970s, British historian James Burke captivated television audiences with Connections, a series of programmes that showed how the course of history is largely determined by improbable correlations and the interplay of seemingly unrelated events. Employing dry humour and enthusiasm in equal measure, Mr Burke provoked viewers to let go of the linear teleological understanding of history whereby progress is driven towards a well-defined goal by a series of isolated events purposefully set in motion by protagonists aiming for a specific outcome. Thus, Mr Burke managed to trace the invention of plastics back to the appearance of the fluyt, the supremely efficient 16th century cargo ship that revolutionised overseas trade and enabled the Dutch to build a global empire. By showing that individuals and groups of people mostly act without a grand design, or any idea about the long-term consequences of their actions, Mr Burke paints a disjointed, yet fascinating picture, of history. Doing so also emphasises the futility of futurology – it is simply impossible to know what tomorrow will bring. If anything offers the comfort of certainty, it is that whatever we think will happen, probably won’t. Thus it is that British documentary filmmaker Adam Curtis manages to illustrate time and again how grandiose policy initiatives deployed by the powers-that-be consistently fail to produce the desired results. From vast nation building exercises to cunning plots to empower the individual produced by think tanks and based on sophisticated computer models, all these plans have failed to produce the predicted outcomes. All too often, such top-down initiatives planted the seeds of chaos by ignoring the non-linear path of history and the tendency of societies

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and individuals to respond in apparently irrational ways to enticements. Just as in Churchill’s time, the road to hell remains paved with good intentions. Only pragmatists, those acting without an ideological agenda, seem to realise the timeless truism. Former US Secretary of State Henry Kissinger, one of the heroes featured in this issue, was a pragmatist par excellence and managed to overcome prejudices and keep, so to say, his eye firmly trained on the ball whether it was extracting his country from its quagmire in Vietnam or aligning with China to tame the Soviets. Mr Kissinger was able to show that, sometimes, causes can be made to obtain the effect desired. This brings Michael Lewis into the picture. Mr Lewis gained notoriety with well-researched exposés on the world of high finance, explaining the inner workings of dark pools, high frequency trading, and all sorts of financial wizardry that, periodically, causes systemic failures but in between produces massive profits. Displaying not only a thorough knowledge of the financial services industry, Mr Lewis also reinforces the notion that its operators have little to no understanding of the consequences their intricate schemes carry. So it is that a hiccup in New York may cause indigestion at the other side of the interconnected world. The CFI.co heroes are, however, more than just one-day-wonders. Most made their lasting mark by broaching frontiers, shattering boundaries, and thinking outside the proverbial box. Those are also qualities that distinguish heroes from the rest of us; the ability to shun the conventional and embark on voyages of adventure whilst clueless about the ultimate destination – just like most of us mortals are. i

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> ADAM CURTIS Reawakening the Living Dead British television fans of a certain age will fondly remember That’s Life, a consumer protection-style show, hosted by the formidable Esther Rantzen, that became cult weekend viewing until it withered away in 1994. It’s hard to imagine that, behind the scenes – amidst the talking dogs, spaghetti trees, Lirpa Loofs, and assorted obscene-looking root vegetables – was Adam Curtis, a man who is widely regarded as, arguably (but not much), the UK’s leading documentary filmmaker. Mr Curtis went on to be showered with awards and laurels for films such as The Century of the Self (2002), The Power of Nightmares (2004), and All Watched Over by Machines of Loving Grace (2011). However, Mr Curtis began his career as a researcher for That’s Life, discovering singing animals and other esoterica. As comic as this may seem to the untrained eye, Mr Curtis was actually mastering a learning curve and would, later, reveal that he had discovered an awful lot about how to engage an audience and deploy exquisite timing techniques. He also picked up career notes from the show’s anchor, revealing: “The best lesson that Esther taught me was that people who think they are funny rarely are.” On reflection, That’s Life was an almost laughable and jumbled mess of gravely serious stories curiously buttressed against barelyappropriate slapstick. However, for all the eyebrow-raising juxtapositions of its segments, the show was both fundamental viewing and ground-breaking. In fact, ground-breaking is a word that has been flung around with abandon when it comes describing Adam Curtis’ oeuvre. Packed with improbable links and mesmerising theories, the documentaries have raised their maker dangerously close to cult status. They also landed Mr Curtis host of BAFTA awards and nominations. A good journalist is often held to be someone who can rapidly decipher any given topic and deliver the inside scoop to those watching from the outside. Mr Curtis’ style is, however, quite distinct: he doesn’t just get inside the story, he traverses it thoroughly, muscles his way to the back, and then pushes the whole dreadful thing on top of the viewer who now becomes part of the unfolding events. It’s a form of graceful brutality which envelopes a viewer’s mind and turns established truths and facts upside down.

Take one of his latest works: Bitter Lake (2015) offers a thorough examination of the way political storytelling has become twisted in the aftermath of the west’s intervention in Afghanistan. “The film shows in detail how all the foreigners who went to Afghanistan created an almost totally fictional version of the country in their minds,” Mr Curtis explains. “They couldn’t see the complex reality that was in front of them – because the stories they had been told about the world had become so simplified that they lacked the perceptual apparatus to perceive reality with.” According to Mr Curtis, it was this imposed blindness that led the west to support an undemocratic Afghan government. “It was a horrific scandal that we, in our disconnected bubble here in Britain, seem hardly aware of. And even if we are – it is usually dismissed as being just too complex to properly understand.” If any other journalist or filmmaker was to produce a similar statement, he/she would be dismissed as belonging to the loony left, espousing a goodness-knows-what hidden

agenda. But Mr Curtis delivers his monologue in such beguiling fashion that he makes even those with the most stubbornly opposing political views sit up and take notice of the message. Unfortunately, it’s a source of great frustration to Mr Curtis that many of the word’s leaders don’t share his views – a topic he addresses in The Power of Nightmares. Curiously, he points an accusatory finger at the press for failing to explain the big issues in a way the public can properly understand. And that’s why his documentaries work on so many different levels – Mr Curtis is willing to connect with the viewer on an emotional level, rather than peddling ambiguous keywords and buzz phrases. He does, however, believe journalism will rise to the challenge as consumers of news the world over begin to tire of being bombarded by self-aggrandising pundits and other know-it alls. Adam Curtis is a journalist on a mission: keeping the focus sharp and on-topic until the British public regains its ability to discern between fluff and substance.

“The film shows in detail how all the foreigners who went to Afghanistan created an almost totally fictional version of the country in their minds.They couldn’t see the complex reality that was in front of them – because the stories they had been told about the world had become so simplified that they lacked the perceptual apparatus to perceive reality with.” 174

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Spring 2016 Issue

> ADELE Authentic, Original, and Hugely Successful Saturday evening UK primetime television is dominated by competitions designed to find new singing sensations. The programmes follow the journey of wannabe stars as they are schooled, groomed, and manicured by Svengali-like impresarios to fit the pop mould. Adele Adkins did not tread this route to stardom and has resolutely retained her authenticity while becoming an artist of unsurpassed standing. A substantial figure with a powerful, mature, and original voice, Adele writes and sings about universal yet personal themes of heartbreak and sadness often accompanying herself on guitar. A self-described soul singer, she has been compared to Dusty Springfield, another of the blue-eyed soul singers, with a powerful mezzo-soprano voice. Adele writes about her own experience of love gained and lost. Music critic Paul Gambaccini says: “She’s right in the headspace of that singer song writer creativity.” Now aged 27, Adele has released three stellar albums: 19, 21 and 25. Each one is named for her age at the start of the project. In her ten-year career Adele has amassed dozens of prestigious awards. Adele attended the same school as Jessie J, Leona Lewis, Katie Melua Kate Nash, and Amy Winehouse. The BRIT School for Performing Arts and Technology is a state-funded school in Croydon, South London which has the backing of a music industry trust and has become a factory of stars. Following the success of the film Fame, the BRIT school was set up in 1991 to provide education and vocational training for talented 14 to 19-year-olds. Growing up in North London, Adele always loved singing. As a teenager she discovered Ella Fitzgerald and Etta James. She credits the two musical greats with helping her to discover her own voice: “There was a passion in their voices. I believed every word they sung. There was so much conviction.” While at school she began recording and distributing songs online. The independent label XL Records snapped her up in 2006, to add to its stable of artists which included Dizzee Rascal and White Stripes. XL’s image was edgy and cool and this reputation attached to the young Adele. In 2007, she first appeared on the Jools Holland television show by which time a buzz was already developing around her. She won a Brit award before releasing any records, which she describes as “really weird.” Her breakthrough song about growing up in London, Hometown Glory, was released in October 2007. Adele’s debut album 19 was released in January 2008 and went straight to number one. It is a remarkable album: Adele’s powerful voice

is applied to simple pared-down arrangements, accompanied by a single guitar. Her fantastic melodic gift is demonstrated with characteristic deft flipping from soul voice to falsetto. Recording engineers that worked with her describe Adele as astute, confident, and bold. She is also a “one take wonder”, able to record her songs in a single recording session. Her second album 21 was more bluesy and collaborative. She co-wrote more of the songs. In 2012, Adele released the single Skyfall, written and recorded for the James Bond film. The song won a clutch of awards. In November 2015, she released her third highly successful album 25 to great acclaim. Adele represents substance over style: her albums and performances are about music, not image. She is a lady who does not look like a pop star or feature, scantily clad, in sexy videos. Adele doesn’t need such gimmicks: “I don’t want to be

some skinny-minny with my tits out.” Curiously enough, Adele dislikes publicity. Her private life might be the inspiration for her songs, but she prefers to keep a low profile, avoiding celebrity gossip: “I’m uncomfortable with celebrity. Me being photographed in Waitrose is being famous for no reason and that is something that I am not up for and I will not stand for.” This working class London lady remains true to her Labour Party roots. She recently warned US attention-seeker Donald Trump against using her songs at campaign rallies after she found that he was using her smash hit Rolling in the Deep – with its “we could have had it all” refrain – to whip audiences into a frenzy. Perhaps her annoyance at this misappropriation will be turned into a song in her next album – not unlike Neil Young did in This Note’s for You (1988), his protest against rock stars selling out to big business and politicians.

“Adele’s debut album 19 was released in January 2008 and went straight to number one.” CFI.co | Capital Finance International

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> BERNIE SANDERS To the Rescue of Middle Class America To understand Vermont senator Bernie Sanders, ask his brother. He may be found, not in downtown New York but pottering in his garden behind the terraced streets of a quiet English town. Larry Sanders is an unassuming 81-year-old, relaxing in the living room of his modest home in Abingdon. Although a county councillor for the Green Party, his knowledge of politics extends way past the impact of light pollution in the English countryside. “Ah, Bernard,” he says with a familiar drawl barely timeworn by three decades of living in Oxfordshire. There’s a thoughtful pause as this aging gentlemen’s glassy eyes look to the distance. He fondly recalls the proud moment he saw his younger brother on the television, addressing a cheering American public with the same liberal values the brothers have shared since their early days in Brooklyn. “When I first saw him, I was close to tears, but again and again I’m seeing the warmth of the people towards him – they seem to love him,” he beams. “And that’s a great sign of his popularity, because Bill Clinton once said that, when it comes to choosing a candidate, the Republicans fall in line, and the Democrats fall in love.” It’s an interesting statement from the former US President, especially when you consider that his wife – Hillary Clinton – spent much of the presidential campaign sparring with the distinctly likeable 74-year-old. At some point, the name Bernie Sanders is likely to slip quietly into the history books and remain forever forgotten. But, for the present, he has a more significant impact on American politics than most of the also-rans encountered by the watching public over the decades. For a start, Mr Sanders commands a presence on a political stage where the backdrop has been given a markedly Conservative lick of paint. The audience was also fed a largely rightof-centre rhetoric for the past year or so, but most were quick to ensure the veteran socialist prospered at the opinion polls. As the vainglorious Donald Trump stirred up some of America’s rawest emotions with alarming takes on foreign policy, the calm steadiness of Bernie Sanders has been akin to a gentle counterbalance and a vehicle for the more moderate Americans to pin their hopes on. Bernie Sanders and Donald Trump are not polar opposites and share a surprising number of values. Social welfare, economy, gun control, foreign policy, and immigration aside, both are after the same thing. “Many of Trump’s supporters are working class people, and they’re angry,” Larry Sanders said back in January, “and I think I can make a case for their vote.”

With his understanding that the voting public of all political persuasions are irritated about the same things – job insecurity and a stalling economy heavily favouring the wealthy – Bernie Sanders was able to appeal to those disgruntled Americans who weren’t so quick to sign up to some of Trump’s more extreme views. Notoriously grumpy, although his older brother argues that his quiet nature can often be misread as sullen, Bernie Sanders should be hailed as one of the most refreshing new ingredients to the standard election cake served up every four years. It was his deeply considered thinking which grew to be the most welcome attraction of this race for the White House. For, without the calm and reasoned debate that became synonymous with his lengthy deliberations, there would be little in the way of countervail for the big-

spending campaigns that would otherwise have dominated proceedings. If there’s one lasting legacy to Bernie Sanders’ relatively low-budget campaign, it will be that he got Americans thinking about social causes, rather than the paranoid angst for Muslims, Mexicans, and Moscow. There’s also this demeanour of steadfastness that appeals to voters – while Hillary Clinton repeatedly changes her policies as a knee-jerk reaction to her rival, Bernie Sanders remains unchanged in his lifetime’s focus on health, wealth, and inequality. Staid, sullen, perhaps even grouchy, Bernie Sanders may have had to fight harder than most candidates to be taken seriously as a genuine contender, but there’s no doubt he’s been singlehandedly responsible for bringing Americans back from the brink of an unwitting lurch to the right.

“At some point, the name Bernie Sanders is likely to slip quietly into the history books and remain forever forgotten.” 176

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Spring 2016 Issue

> DR BERNARD KOURCHNER Activist of Humanitarian Intervention Humanitarian, activist, doctor, and politician: Bernard Kouchner is an outspoken advocate for the duty of states to intervene in other countries in order to prevent humanitarian crises and further the spread of human rights. Dr Kouchner is no stranger to heroism, danger, and controversy. His iconoclastic approach has won admirers and acolytes, although his promotion of le droit d’ingérence (the right to intervene) involving military assets has come under increasing scrutiny post 9/11. Dr Kouchner was born in Avignon, France, two months after the outbreak of the Second World War. His father’s parents were murdered in Auschwitz. Dr Kouchner has said that it was the Holocaust, perpetrated on the soil of supposedly civilised Europe, which fuelled a sense of urgency that brought him to humanitarian work. Seeing children starve while employed in Biafra as a young doctor during Nigeria’s 1968 civil war caused Dr Kouchner to dedicate his life to the prevention of humanitarian crises. As a student he was active in left wing politics, as per Winston Churchill’s suggestion. Dr Kouchner manned the barricades surrounding the Sorbonne University in the Quartier Latin during the May 1968 Paris student revolt. A few months later, he answered a call from the International Red Cross for medics to go to Biafra, the breakaway province that was locked in a savage battle for independence from Nigeria. The two doctors, two clinicians, and two nurses dispatched by the ICRC were shocked at the viciousness of the conflict as they set about providing medical relief at hospitals targeted by Nigerian armed forces. Since the International Committee of the Red Cross is committed to maintaining strict political and religious neutrality, Dr Kouchner and his colleague Dr Recamier felt that the world needed a more activist entity to tell the world about the systematic targeting of civilians by military forces. They openly criticised the Nigerian government – and the Red Cross – for their apparent complicity. Back in Paris, a group of doctors began to lay the foundations for a new and more proactive form of humanitarianism that would ignore political or religious boundaries and prioritise the welfare of those suffering. Dr Kouchner: “We wanted to ensure sufficient knowledge of this new type of medicine: war surgery, triage medicine, public health, education, etcetera. It’s simple really: go

where the patients are. It seems obvious, but at the time it was a revolutionary concept because borders got in the way.” Médecins sans Frontières (MSF) was created in December 1971 with a staff of 300 doctors, nurses and other professionals. Its credo was the belief that all people have the right to medical care regardless of gender, race, religion, or political affiliation, and that the needs of these people outweigh the need to respect national boundaries. MSF’s first mission was to Managua in 1972 where an earthquake had destroyed most of the city and killed tens of thousands. Two years later, it set up a relief mission in Honduras after thousands were killed by major flooding. In 1975, MSF established its first large-scale programme providing medical care for fleeing Cambodians seeking sanctuary from the genocidal Pol Pot regime. As the years went by, MSF found itself increasingly torn between the natural progression of becoming institutionalised as an organisation able to cope with large scale crises and the more romantic notion of being an agile commando unit of emergency doctors. Dr Kouchner favoured the latter, but in 1979 MSF voted in favour of formalising its structure. Dr Kouchner left to found Médecins du Monde (Doctors of the World). During the 1980s, Dr Kouchner organised a number of operations assisting refugees

across the globe. He also became increasingly involved in mainstream French politics. As a high-profile member of the Socialist Party he was the Minister of State from 1988 to 1991 and became the Minister of Health in 1992. He went on to take a seat in the European Parliament and before long was elected to the presidency of its standing committee on Development and Cooperation. In July 1999, Dr Kouchner was appointed Special Representative of the Secretary General of the United Nations and Head of the UN Mission in Kosovo. Dr Kouchner was one of only a select few French politicians to come out in favour of the US-led invasion of Iraq in 2003, saying his distaste for Saddam Hussein’s regime overcame his dislike of war. In 2007, he was made French Minister of Foreign and European Affairs in the government of President Nicolas Sarkozy, whereupon he was expelled from the Socialist Party. Dr Kourchner has led a full and fearless life, throwing himself into danger and brushing aside bureaucracy. His belief that morality cannot stop at borders – i.e. that when confronted with extreme wickedness, politics should be sans frontiers – has become widely accepted. Events in the 21st century have seen this philosophy hijacked by politicians. However, Dr Kourchner’s legacy constitutes a lasting contribution to the delivery of humanitarian aid by whatever means necessary.

“We wanted to ensure sufficient knowledge of this new type of medicine: war surgery, triage medicine, public health, education, etcetera. It’s simple really: go where the patients are. It seems obvious, but at the time it was a revolutionary concept because borders got in the way.” CFI.co | Capital Finance International

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> TRACEY CURTIS-TAYLOR Taking to the Skies in Pursuit of Dreams An intrepid aviator and adventurer, Tracey Curtis-Taylor has made a name for herself recreating the ground-breaking solo flights of the first female aviatrixes at the dawn of human flight. Ms CurtisTaylor’s latest voyage saw her fly from England to Australia in a vintage 1942 Boeing Stearman biplane, bringing Amy Johnson’s – the first woman to fly the route – achievements to the forefront of the world’s attention once again. Ms Curtis-Taylor draws her own inspiration from what she calls the greatest female role models in history – the aviators. She retraces the routes used by these aviatrixes and concludes that their courage is all the more impressive: “They were up against an exclusively male establishment which was often obstructive and dismissive.” Ms Curtis-Taylor’s first aviatrix recreation was based on a route set by Lady Mary Heath, the first woman to hold a commercial flying license in Britain. Among her many athletic and aeronautical accomplishments, Lady Heath became the first pilot – male or female – to fly solo from Cape Town to London in 1928. It was this journey that Ms Curtis-Taylor undertook in 2013; having wanted to fly across Africa since the 1980’s, she decided to turn her dreams into reality after hearing about Lady Heath’s pioneering flight. After four years of preparation, Ms CurtisTaylor was finally able to retrace and document Lady Heath’s journey in the BBC4 documentary The Lady Who Flew Africa – The Aviatrix. Two years later, Ms Curtis-Taylor and her Boeing Stearman touched down in Sydney after flying non-stop for three months; this time paying homage to Amy Johnson – the first woman to fly solo from England to Australia. Ms Curtis-Taylor developed a love for flight, history, and exploration from an early age, taking her first flying lesson at sixteen and devouring books like the three Flambards novels, and the biographies of the first African and polar explorers. However, much like the aviatrixes she admires today, her passions were anything but encouraged by the male-dominated society of the time. Ms Curtis Taylor has to put her love of flying on hold while trying to find other feasible avenues to experience the life she read about. She took a job in Whitehall working for the Foreign Office in 1981, hoping it would lead to a post in Africa. After having her future at Whitehall clearly spelt out by being told, “The best you can hope for is to marry an ambassador,” Ms CurtisTaylor decided to realise her own ambitions without diplomatic assistance: she gave up

her career at the Foreign Office and moved to Johannesburg. In 1982, after nine months of menial labour, Ms Curtis-Taylor was ready to have her first African expedition, and drove overland for five months through jungle, savannah, and desert from Johannesburg to London in a Bedford truck. Ms Curtis-Taylor then emigrated to New Zealand, where she immediately placed her focus on aviation: “I used to hang around the aero club and hitch flights with the local farmers.” She promptly completed her private pilot’s license, followed by a commercial and instructor’s license, and took a job in aerial mapping. During this time, she undertook a rafting expedition as a photographer to Papua New Guinea where she explored uncharted parts of the Watut River and became the first white woman local tribespeople had ever seen. It was in Papua New Guinea where Ms Curtis-Taylor also learnt to scuba dive, spending much of the early nineties in Australia, Vanuatu, and Fiji exploring World War 2 wrecks, finding fragments

of aircraft, and searching for abandoned military airstrips. However, she eventually left everything and everyone in New Zealand and returned to England to pursue her passion for vintage aircraft; helping to organise Duxford’s Flying Legends air shows in 1997, later becoming the first female pilot to be based at the historic Shuttleworth Collection. While at Shuttleworth, Ms Curtis-Taylor grew to love flying open-cockpit biplanes more than any other aircraft, and became obsessed with the people who flew them. The previous expedition across Africa left her aching to return to the continent. After discovering Lady Mary Heath’s inspiring flight from Cape Town to London, she knew what her next voyage had to be – the rest is history. Ms Curtis-Taylor overcame adversity in order to experience the same kind of adventure her pioneering heroes lived. There is something poetic about the pursuit of grand dreams. Ms Curtis-Taylor has done just that, and in doing so will undoubtedly inspire countless more.

“Ms Curtis-Taylor overcame adversity in order to experience the same kind of adventure her pioneering heroes lived. There is something poetic about the pursuit of grand dreams. Ms Curtis-Taylor has done just that, and in doing so will undoubtedly inspire countless more.” 178

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Spring 2016 Issue

> DALIA GRYBAUSKAITĖ Marketing Coffee and a Country for Nearly 60 Years Women political leaders who make it to the top are few and far between. Those that stay in power are even more of a rarity. Indira Ghandi, Margaret Thatcher, and Angela Merkel all stayed in office for at least a decade and the indomitable German Chancellor is still going strong. Lithuania’s President Dalia Grybauskaitė is bidding to join this elite band of long-serving women politicians. Lithuania elected its first lady president in May 2009. Re-elected five years later, Ms Grybauskaitė has emerged as a powerful and determined head of state leading her country through a time of both political and economic crisis as Europe engages in its biggest standoff with Moscow since the Cold War. During her early years in office, Ms Grybauskaitė’s government focused on the economy. A regime of public expenditure cuts alongside encouragement for private enterprise was duly implemented. Lithuania and the Baltic states Estonia and Latvia all gained independence during the collapse of the Soviet Union in 1990 and subsequently joined NATO and the EU. They have an uneasy relationship with Moscow, and the political instability in Ukraine has caused reverberations in the Baltic states. Since the annexation of Crimea, and unlike other European leaders, the pugnacious Ms Grybauskaitė has been blunt and outspoken in her criticism of Russia. She says that Russian troops are present in eastern Ukraine and that a Russian missile was responsible for downing the Malaysia Airlines flight MH17 over Ukraine in July 2014. She has compared President Putin to both Josef Stalin and Adolf Hitler. She also labelled Russia a terrorist state, and warned that Moscow’s aggression could spread throughout Europe and beyond. The Russian Foreign Ministry answered the “terrorist state” accusation by suggesting that Ms Grybauskaitė “pull in her Komsomol horns.” The Komsomol was the Soviet Communist Youth League active when Ms Grybauskaitė was growing up and Lithuania was part of the Soviet Union. The young comrade studied at Zdanov University in Leningrad (now St Petersburg) and earned a doctorate in economics from the Moscow Academy of Public Sciences. Ms Grybauskaitė returned to Vilnius in 1983 to lecture at the Communist Party’s training college. After Lithuania gained independence, Ms Grybauskaitė’s career took off: she abandoned her communist past and embraced Lithuania’s European connections. She held posts at the country’s Ministry of International Economic Relations and the Ministry of Foreign Affairs. She was posted to the Lithuanian embassy in the

United States. Back in Vilnius, Ms Grybauskaitė became deputy finance minister and was Lithuania’s chief negotiator with the IMF, the World Bank, and the delegation negotiating Lithuania’s accession to the EU. She was a strong supporter of economic reform, backing privatisation and deregulation. The combination of free market views, a reputation for toughness, and blunt talk resulted in Ms Grybauskaitė being awarded the nickname Lithuania’s Iron Lady, in homage to Margaret Thatcher. In 2004, Lithuania joined the EU and Ms Grybauskaitė was appointed European commissioner responsible for financial programming and budget. The next year, she was named 2005 EU Commissioner of the Year. In 2009, Ms Grybauskaitė quit Brussels and returned home to stand as an independent candidate in Lithuania’s presidential election. She gained nearly 70 per cent of the vote, giving her the largest-ever margin of victory for a Lithuanian presidential candidate. Strong leaders attract strong criticism. Critics of Ms Grybauskaitė allege that her adversarial

speeches about Russia made Lithuania a target for conventional and unconventional attacks and that the country is on the receiving end of cyberattacks from its eastern neighbour. Others say that her rhetoric has stirred up antiRussian feelings leading to a split society and discrimination against Lithuania’s Russian and Polish minorities. Little is known about Ms Grybauskaitė’s life away from the limelight apart from the fact that she is a karate black belt and speaks several languages including Russian, Polish, English, and some French. However, her guardedness about private affairs creates plenty of opportunity for speculation: the unauthorised biography Red Dalia portrays the solitary Ms Grybauskaitė as an unscrupulous careerist lacking principles, friends, and family. Ms Grybauskaitė is clearly a tough and determined lady who is not easily intimidated. She has a clear vision of Lithuania’s place in Europe and, having grown up in the communist system, believes that the way to deal with the Russian bear is to talk its language.

“Little is known about Ms Grybauskaitė’s life away from the limelight apart from the fact that she is a karate black belt and speaks several languages.” CFI.co | Capital Finance International

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> HENRY KISSINGER A Loyal Visionary Heinz Alfred Kissinger is a creature of habit. Even though he turns 93 in May, his routine most weekends is pretty much the same: checking on the scores from the German football league and, in particular, the result for his boyhood club Greuther Fürth. Although so engrained in US politics that few Americans would even know he was originally from Germany, Mr Kissinger’s devotion to a tiny Bavarian football club playing in the second tier Bundesliga is an indication that a man who, to many, commands the status of both hero and villain, is furiously loyal. It is that loyalty – to both his adoptive country and the controversial president who once led it – which has shaped his standing as both a revered political superstar and curiously-irreproachable brigand in equal measure. No matter what your opinion of Henry Kissinger – he changed his first name from Heinz after fleeing Nazi Germany in 1938 – there can be no doubt that, as a political figure, he was a masterful strategist who orchestrated some of the world’s most historic agreements. It seems almost a shame that his name is also entwined with some of the less glorious pages of America’s history books. In 1973, at the height of his power, Mr Kissinger was awarded the joint Nobel Peace Prize, together with Vietnamese negotiator Le Duc Tho. The pair were hailed as being responsible for bringing the Vietnam War to a close. It was viewed as the pinnacle of an industrious period for Kissinger which had seen him instigate landmark agreements with the Soviet Union, broker deals that opened the door of Chairman Mao’s China, and set out the peace treaty between Israel and Egypt following the Yom Kippur War. In short, he wasn’t just instrumental in preventing catastrophic conflicts, but in doing so, he actually changed the world for the better. For instance, his remarkable ability to create dialogue with the US and China was touching on the miraculous. Mr Kissinger had been trying since late 1970 to establish some form of communication with the Chinese – it had been a long-held desire of Nixon to improve relations with Beijing in order to curtail what was regarded as a clear and present nuclear threat. Mr Kissinger, however, could see further advantages in China. In his mind, creating positive dialogue with the Chinese was also a way of gaining a potential ally over Moscow. At the time, the Sino-Soviet relationship was becoming increasingly tense. If Kissinger could get his president into discussions with the Chinese, it would open up another front for the US in the Cold War.

One of Kissinger’s great political trademarks was secrecy. Unsurprisingly, he went to Beijing to meet with his opposite number – Zhou Enlai – with only a handful of top government officials knowing about the visit. Even the US ambassador to the UN at the time – a certain Mr George Bush Senior – was unaware of the clandestine proceedings. A few months after Kissinger’s meeting, Richard Nixon landed in Beijing, had an audience with Zhou Enlai and Mao Zedong, and the course of world history took a turn. His obsession with covertness may have helped him smooth the waters on numerous occasions, but it certainly hindered his status in the eyes of his many critics. Carpet bombing in Cambodia, and the apparent collusion with some questionable regimes in Indonesia, Pakistan, and Greece all led to Mr Kissinger’s naysayers labelling him a war criminal. Add to that the

involvement of the CIA in bringing Chilean dictator Augusto Pinochet to power in 1973, and you quickly get to see why many Americans believe allegations of dark forces being controlled by Mr Kissinger may indeed be a smoking gun. But no matter how many accusations have been levelled at him, precious few have stuck. Even during Watergate, as Nixon sank, Mr Kissinger was still pulling the strings at Capitol Hill. He would continue to do so well into the presidency of Gerald Ford. Throughout all the scandals that erupted around the White House, and even those which touched his own door, Henry Kissinger’s devotion to duty on American foreign policy remained steadfast. He once famously said that “90% of politicians give the other 10% a bad reputation.” Which category Mr Kissinger falls into will remain a subject of much debate for years to come.

“In 1973, at the height of his power, Mr Kissinger was awarded the joint Nobel Peace Prize.” 180

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Spring 2016 Issue

> HELEN MIRREN No Essex Girl While female actors of a certain age bemoan the absence of suitable roles, the versatile septuagenarian Dame Helen goes from strength to strength. A star of stage and screen, the highly respected and versatile actor is much acclaimed and continues to work as energetically as ever. Her career, spanning half a century, has seen her take on many and varied roles. After training at London’s New College of Speech and Drama Dame Helen Mirren made her debut with the National Youth Theatre in 1965. She graduated to the Royal Shakespeare Company before working with Peter Brook’s theatre company Centre de Recherche Théâtral, touring Africa and America. She has gone on to play many classic roles and continues to garner stellar reviews. Television made Dame Helen Mirren a household name in the 1990s when she starred as the tough, independent-minded detective DCI Jane Tennison in the gritty, ground-breaking series Prime Suspect. Her cinema career started in 1969 and rarely a year goes by when she does not add new films to her CV. Notable successes include Hitchock (2012), Calendar Girls (2002), Last Orders (2001), Gosford Park (2001), The Cook, The Thief, His Wife and Her Lover (1989), and Mosquito Coast (1986). Now aged 70, at an age when retirement entices many to cut back on their workload, Dame Helen Mirren shows no signs of slowing down. She has taken on roles ranging from rags to royalty, from call girl to assassin. The dame describes her upbringing as antimonarchist but this has been no bar to her portrayal of British queens on screen. She played Elizabeth I in the 2005 television series of the same name, Elizabeth II in The Queen (2006), and Queen Charlotte, the wife of George III, in The Madness of King George (1994). Dame Helen Mirren’s title role in The Queen, portraying the emotionally detached head of state struggling to regain public respect after the death of Princess Diana in 1997, was much acclaimed. Two physical impersonations stood out: Dame Helen’s transformation into The Queen and Michael Sheen’s portrayal of Prime Minister Tony Blair were striking in their verisimilitude. Her performance landed Dame Helen an Oscar and a Golden Globe for Best Actress. During her acceptance speech at the Academy Award ceremony, Dame Helen praised the incumbent monarch saying that she had maintained her dignity and weathered many storms during her reign as queen. Dame Helen was reciprocating a compliment, for the queen had appointed the actor as a Dame of the British Empire in 2003. Ten years later Dame Helen stepped back into the role of queen starring in Peter Morgan’s play The Audience in London’s West End. She won an Olivier Award for Best Actress. In February 2015 the play transferred to New York

“Dame Helen Mirren is an engaging, opinionated, vivacious, and attractive character.” with Dame Helen continuing to play the title role. Dame Helen Mirren is an engaging, opinionated, vivacious, and attractive character. She was born in London, the daughter of a working-class English mother Kitty Rogers and a Russian father Vasily Petrovich Mironoff. Her paternal grandfather was an Imperial Russian Army officer who became a diplomat. He was in Britain to negotiate an arms deal when the Russian revolution took place. Rather than return to his homeland, the aristocratic Colonel Mironoff remained in exile, becoming a London taxi driver and settling with his family in England. His son, Helen’s father, changed his name to Basil Mirren when Helen was nine. In 2009, Dame Helen connected with her Russian roots when she played Tolstoy’s wife CFI.co | Capital Finance International

Sofiya in the film The Last Station, a biography of Tolstoy’s final months. Basil and Kitty moved to the Essex seaside town of Leigh-on-Sea with their three children, of whom Dame Helen was the middle child. At the age of 13, she saw an amateur production of Hamlet which determined her future career path. “We grew up without TV and never went to the cinema, so after Hamlet, all I wanted to do was get back into that world where all those fabulous things were possible,” she recalls. The term Essex girl has been used since the 1980s as a synonym for brash, sexually uninhibited, rather unintelligent young women from that county. Dame Helen Mirren may have grown up there but clearly, she is no ordinary Essex girl. 181

> MARTIN SCORSESE A Life Saved by Rock & Roll If Martin Charles Scorsese hadn’t made the momentous decision to become a film-maker, he would have joined the priesthood. A celibate life of serenity in the Roman Catholic church seems a far cry from his chosen career path, especially considering that his body of cinematographic work contains a fair measure of profanity, violence, gang culture, greed, and other decidedly sinful pursuits. Rumour has it, Mr Scorsese actually got expelled from the Upper West Side Cathedral Preparatory School and Seminary where was enrolled in 1956 at the age of 14. He’s never admitted it publically, but friends say the young Scorsese soon discovered girls and became distracted by rock and roll before taking his vows. Imagine a world without Taxi Driver, Raging Bull, The Departed, or Goodfellas. It is not unjustified to consider Father Marty’s lost contribution to civilisation somewhat less relevant than that of Martin Scorsese – father of the movie industry. Even then, with some of the most notable pictures made in the last fifty or so years, one would only be scratching the surface of Scorsese’s work. Just like one of his brooding characters – usually obsessive and haunted, looking for inner peace, and redemption as their world crumbles – there’s much more to this man than meets the eye. Mr Scorsese is not just about making thought-provoking movies packed with bleak irony and moral ambiguity; he’s also keen to make the world a better place. Unlike some of his contemporaries – those Hollywood elite types with more money than brains and always eager to embrace a cause for appearance sake – Mr Scorsese is not about spin, smoke, or mirrors. Mr Scorsese’s early life resembles a script for one of his films. His Sicilian grandparents settled in the US seeking a better life. He spent an early childhood in Queens – one of New York’s toughest boroughs – before moving to the Little Italy in Manhattan. As a youngster, Martin Scorsese was always at a disadvantage. He was the shortest in his class and was often ill. Chronic asthma would keep the young Scorsese indoors for much of his childhood, and it was this confinement away from the playgrounds and sports fields that led his father, Charles, to start taking him to the cinema every week. It is where Mr Scorsese’s love affair with the silver screen began. Aside from his short detour into theology, he graduated from NYU in 1964 with a fine collection of student films under one arm. Mr Scorsese quickly worked with the young Harvey

Keitel and Francis Ford Coppola, before a collaboration with Robert De Niro lit the blue touch-paper under his career. The rest is history. Keen not to be defined purely as a director of violent and edgy films portraying the darker side of American life, Martin Scorsese should be credited too for his humanitarian work. Few people are aware of his charitable contributions; fewer still know precisely to what causes he devotes his private time. That’s a measure of the man, in that he’s not consumed by a need to tell the world how he deploys his wealth and influence – he just gets on with it. One cause that he has proudly pinned to his sleeve, however, is trying to curtail America’s problem with gun crime. There seems to be a strangely twisted irony about a man whose movies portray so much violence wanting to help stem the tide of firearms. Mr Scorsese has thrown his weight and

wealth behind the One Less Gun charity which is committed to decommissioning firearms left behind in warzones and, closer to home, in the aftermath of crimes. Each time a gun is depicted in his films, he makes a donation, and he’s urging other directors to show the same largesse. Observers will note Mr Scorsese started leaning away from violent gang movies and is, instead, focusing more of his attention to epic music documentaries – particularly on his personal obsession with the Rolling Stones who he credits with delivering a soundtrack for almost every chapter of his life. In his own words, he wants us all to learn to love one another a little more: “Violence is not the answer, it doesn’t work anymore. We are at the end of the worst century in which the greatest atrocities in the history of the world have occurred. The nature of human beings must change. We must cultivate love and compassion.”

“Violence is not the answer, it doesn’t work anymore. We are at the end of the worst century in which the greatest atrocities in the history of the world have occurred.” 182

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> MICHAEL LEWIS Seriously Funny Michael Lewis has been called “the funniest serious writer in America” – the sort of contradictory label that has been pinned to the 55-year-old former bond seller turned financial journalist throughout his career. The film version of his 2010 book The Big Short: Inside the Doomsday Machine was described as “the feel bad movie of the year” in 2015 – leaving audiences laughing and enraged in equal measure. One of its stars, Steve Carell, described its subject matter, the credit bubble scandal of the early 2000s, as “terrifying”. Lewis has made a good living from his clever and insightful accounts of Wall Street skulduggery – telling tales of greed, panic, and stupidity which led to the global financial meltdown of 2008. His ability to describe and translate the labyrinthine machinery operated by the men and women who turn the cogs of capitalism into accessible stories has resulted in a string of non-fiction bestsellers that makes much modern fiction look limp in comparison. Moviemakers in search of box-office success frequently beat a path to his door; three of his fifteen books have been adapted for the big screen – and the studios own the rights to most of the rest. Whatever aptitude he may have had for a career in finance, it was his ability to observe which turned out to be his greatest asset. Having switched codes, he became the sort of journalist who can arrive at the scene of a big story, pick through the dross, and discover threads of gold which have been overlooked or discarded by lesser hacks. And he spins that gold into stories of such wit and style that subjects normally thought to be quite impenetrable become fast-paced thrillers. Mr Lewis, like a non-fiction John le Carré, lifts the veil on a murky world, leaving readers shaken by the alarming pictures he paints. Michael Lewis was born in New Orleans, the son of relatively wealthy parents. Though he studied the history of art at Princeton University, he knew from an early age that he wanted to make money. His quest for a berth somewhere in Wall Street is told in his first book, the semiautobiographical Liar’s Poker (1989). His early attempts at gaining employment didn’t go well. Rejection followed rejection – most notably from Lehman Brothers – after which he decided to enrol at the LSE (London School of Economics) and moved to Britain. While in London, legend has it that he used his connections to get a seat at a royal banquet next to the wife of one of the managing partners of the London office of the investment bank Salomon Brothers. He sufficiently impressed the woman with his intellect to earn an interview and

a subsequent job offer. Liar’s Poker describes what he saw while working as a raw young bond salesman. It was here that he witnessed the repugnant face of finance. He was appalled by the oafish behaviour of his fellow trainees, and the often questionable nature of the work. Disillusioned, he quit in 1988 and turned to writing. His books, whether about the world of finance or baseball (Moneyball, 2003), take incomprehensible subjects and make them intelligible to a greater audience. He recently explained that his touchstone is his mother. How could he explain credit-default swaps and collateralised debt obligations to his mother? “If (she) can’t understand what I’m saying, there’s no point in saying it,” he says. With his ability to strip away institutional

myth and legend, he reveals a terrifying truth: the guys in control of the globe’s money don’t necessarily know what they’re doing – and those who do are usually ripping it off. Of Wall Street bankers, he asks: “Where does stupidity end and corruption start?” Readers are left to gaze at an emperor with no clothes – not only is he naked, he’s incredibly stupid. These days Mr Lewis lives in California with his third wife, Tabitha Soren, a noted photographer and television journalist, with whom he has three children. He continues to write in that lively and informative fashion which earns him many bouquets and some brickbats. People say that the state of global finance would be funny if it wasn’t so petrifying. Mr Lewis knows it is chilling, but he can’t help being seriously funny about the whole thing.

“Moviemakers in search of box-office success frequently beat a path to his door; three of his fifteen books have been adapted for the big screen – and the studios own the rights to most of the rest.” CFI.co | Capital Finance International

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> Latin America:

As Nations Mature Some Are Left Behind By Wim Romeijn

Devoid of subtlety, headlines often fail to convey the real story. While the bumbling and stumbling governments of Brazil and Venezuela dominate the news out of Latin America, political life on the continent slowly and, at times, hesitantly embraces the rule of law. Corrupt leaders can no longer expect to retire into opulent obscurity. If the ongoing travails of President Dilma Rousseff of Brazil prove anything, it is that the era of impunity is drawing to a close. Of late, voters have grown impatient with the blatantly incompetent and those peddling populist solutions to the complex challenges of development. Last year, Guatemala showed how it is done. After the UN-backed International Commission against Impunity in Guatemala (CICIG – Comisión Internacional contra la Impunidad en Guatemala) uncovered a corruption ring at the customs and tax office and the public health administration, the country’s chief public prosecutor Thelma Aldana snapped into action, ordering the arrest of all officials involved. The trail soon led to Vice-President Roxana Baldetti who was forced to resign in May, unable to explain her vast wealth comprised of, amongst others, five luxury homes and a $13m helicopter. Mrs Baldetti was arrested on August 21 and, deemed a flight risk, remains in pre-trial detention. That same day, prosecutors presented evidence pointing to the involvement of President Otto Pérez Molina in the affair. In a unanimous vote on September 1, Guatemala’s national congress stripped the former army general of his immunity from prosecution. The next day, President Molina tendered his resignation. He was arrested within 24 hours. Seldom has a shorter path been plotted between palace chamber and prison cell than the one trodden by Otto Pérez Molina. While Guatemala may constitute but a footnote in the grand order of things Latin American, presidents still clinging to power as corruption affairs are brought to light now increasingly feel the heat of public indignation and prosecutorial resolve. Others who have retired from public office, gracefully or otherwise, also have cause to lose sleep. Venezuela Shrinking Fearing the worse for the day after, President Nicolás Maduro of Venezuela in December asked the outgoing national assembly to stuff the country’s supreme court with thirteen new judges sympathetic to his government. Ignoring constitutional norms, lawmakers voted to extend their expired mandate by a week in order to comply with President Maduro’s request. In January, a new national assembly was installed in which the opposition Democratic Unity Roundtable (MUD – Mesa de la Unidad Democrática) holds a super majority of 109 out of 164 seats. Seeking to dissuade parliament from any and all future attempts at dismantling his socialist experiment, President Maduro managed to replace all but three of the supreme court’s 32 members with allied magistrates, setting the stage for a political crisis as MUD leaders vow to review the appointments and threaten to rewrite the constitution if need be.

Venezuela: Angel Falls

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he proverbial beggar reclining on a bench of gold, cash-strapped Venezuela sits atop the world’s largest oil reserves – an estimated 298 billion barrels (298,000 MMbbl) – yet is unable to pay for even the most essential of imported medicines and foodstuffs. The mismanagement of the country’s finances has reached epic proportions with the Maduro Administration preferring to ignore the bad news rather than publish the dismal economic numbers. Inflation is running at an implied annual rate of approximately 480% while the economy last year shrank by an estimated six percent. The much-touted accomplishments of the Bolivarian Revolution – a rather toxic mix of nationalism, socialism, and patriarchal politics – had been undone in the process with more than 76% of the population subsisting below the poverty line. Corruption has merely shifted from the old network of discredited politicians to a new one comprised of bombastic Bolivarian leaders, now equally disgraced. Contrary to Guatemala – and Brazil – the country lacks an independent judiciary able to provide even a modicum of checks and balances. Parliamentary freedoms have been severely curtailed to the point where President Maduro may run his country into the ground without much bother. BRAZIL … RISING With the pink tide that engulfed most of Latin America in the early 2010s ebbing away as voters regain their senses, Brazilians are having seconds thoughts as well. The left-leaning Worker’s Party (PT – Partido dos Trabalhadores) that orchestrated the country’s remarkable renaissance in the 2000s has lost much of its electoral appeal now that PT officials and ministers have been exposed as ordinary crooks. Less than a year into her second term, President Dilma Rousseff leads a lame duck administration besieged by scandal that is singularly unable to tackle any of the country’s escalating problems. Two of the world’s three leading rating agencies recently demoted Brazilian government bonds to junk status. Non-resident holdings of locallyissued debt instruments have descended to their lowest level in fifteen years. Not even annual yields of up to 14.8% on the bellwether 10-year bond could stop foreign investors from exiting the market. The country is currently in the grip of the worst economic recession since the 1930s with its GDP shrivelling by 4.5% in Q3 2015 and forecast to put in a repeat performance this year. On Ms Rousseff’s watch, the budget deficit has swelled from -2.6% of GDP in 2011 – the year she took office – to -6.7% in 2015. Next year, the shortfall is expected to broach the ten percent barrier. Though the national debt seems manageable at 66% of GDP, Brazil’s exceptionally high interest rates claim fully 8% of national economic output, making the debt about as unsustainable as Greece’s.

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“On Ms Rousseff’s watch, the budget deficit has swelled from -2.6% of GDP in 2011 – the year she took office – to -6.7% in 2015. Next year, the shortfall is expected to broach the ten percent barrier.” As the economy tanks, the nation’s attention remains focused elsewhere – and for good reason. Not a day goes by without new, and often shocking, revelations in the largest corruption scandal to have hit the headlines since the resignation – followed, in a reversal of the usual order, by his impeachment – of President Fernando Collor de Mello in 1992 whose closest aide Paulo César Farias made his boss at least a billion dollars by selling favours to big business and raiding public funds. In June 1996, PC Farias was shot and killed together with his girlfriend just one week before he was scheduled to testify before a federal judge on the trafficking of power. The double murder remains unsolved though four ex-military police bodyguards were indicted. A jury absolved two of them and concluded the other two members of the security detail were off duty at the time the murder was committed. All charges were dropped. The current Lava-Jato (Carwash) scandal has so far not claimed any lives. The affair centres on kickbacks and other improprieties at national oil company Petrobras – formerly a source of immense pride to the nation – in which the state maintains a 55.7% share. The scandal first came to light in March 2014 during an antimoney laundering investigation conducted by the federal police. Tracing the origin of the vast sums of cash – now estimated at $5bn or more – through Petrobras’ network of filling stations led the investigators to the oil company where they promptly uncovered an institutionalised scheme of kickbacks. So far, police have made over a hundred arrests, detaining both Petrobras officials, politicians, and directors of sixteen large contractors such as Odebrecht, Andrade Gutierrez, Mendes Júnior, and Camargo Correa. Many remain in pre-trial detention, amongst them a number of billionaires deemed a flight risk. Administering justice in a surprisingly swift manner, 75 people have already been found guilty by the courts, amongst whom former PT treasurer João Vaccari Neto – fifteen years for passive corruption and money laundering – and former ruling party congressman André Vargas who received fourteen years on the same charges. CFI.co | Capital Finance International

The scandal is far from over. Supreme court judge Teori Zavascki last year ordered 28 investigations to be conducted into the dealings of 47 politicians who are suspected to have benefited from the kickbacks. One of the politicians under investigation is none other than disgraced former president Fernando Collor de Mello who in 2007 made a surprise comeback as senator for his home state Alagoas, a position he still holds. Meanwhile, the affair spreads like an oil spill and now – worryingly – includes misconduct at Eletronuclear, the state-owned operator of Brazil’s two nuclear power plants. The scandal also draws closer to President Dilma Rousseff who, at the time Petrobras was being bled dry from the inside, held ultimate responsibility for the company as minister for energy in the Lula administration. Pundits argue that Ms Rousseff is guilty either way: not knowing of the goings on at the company would imply incompetence, while knowledge would make her an accomplice. So far, President Rousseff has remained largely untainted. A few members of her immediate entourage were not so lucky and have been detained at the behest of investigating magistrates. While the Lava-Jato affair may seem to confirm all that is amiss with Brazil; it actually proves the country has at long last matured into a fully functional democracy that is guided by the rule of law. The last big corruption scandal – the one of 1992 that saw President Collor de Mello ousted – did not result in a single conviction. Notwithstanding the overwhelming amount of evidence against him, the impeached president was eventually cleared of all charges and free to resume his political career – and his corrupt ways. This time, the Brazilian courts and prosecutors have proved much more decisive, doggedly pursuing suspects regardless of their political connections or power. For the first time, the courts have also made full use of the farreaching authority granted them under the 1988 constitution. Lead investigating federal judge Sérgio Moro of the 13th circuit court of Curitiba has drawn criticism for ordering the detention of nearly all who come to his attention. Young and charismatic, Judge Moro has become a national celebrity and is not about to tone down. To the delight of the nation, he claims that the rich and powerful he ordered detained pose a serious threat to the country’s public and economic order. And so they do. While Judge Moro wields his power and brings those who leech off the state to justice, Brazil clears the path to its future of the debris left by a shady past. It may be the economy (…stupid!), but for now Brazilians are busy pursuing improved governance rather than accelerated development. The former will undoubtedly enable the latter. i

Spring 2016 Issue

> CFI.co Meets the Managing Director of BANSEFI:

Alejandra Del Moral Vela

rs Del Moral holds a MSc in Public Administration with a specialisation in public policy by the Instituto Tecnológico de Estudios Superiores de Monterrey (ITESM), and a BA in Law by the Universidad Iberoamericana. Currently, Mrs Del Moral is enrolled in the Master of Professional Studies in Political Communications and Governance Programme at George Washington University. From 2006 to 2009, Mrs Del Moral served as director of International Relations for Enrique Peña Nieto’s administration as governor of the State of Mexico. In 2009, she became the first woman to be elected mayor in her home city Cuautitlán Izcalli, also becoming the youngest female mayor in the history of Mexico. As mayor of Cuautitlán Izcalli she imposed an austere budget, contributing to the improvement of the city’s finances, enabling her to meet the demands of more than 800,000 inhabitants. In 2012, she was elected to congress serving in the House of Representatives for the LXII Legislature. Here, she was appointed president of the Federal District (now Mexico City) Commission and the Committee of the Centre of Law and Parliamentarian Research of the House of Representatives. She held that function until 2015. As of February 4, 2015, Mrs Del Moral served as managing director of the Banco del Ahorro Nacional y Servicios Financieros (BANSEFI), a government-owned development bank. Whilst Mrs Del Moral has many strengths, two in particular made her the perfect managing director for a development bank such as BANSEFI: 1. Her knowledge of, and empathy with, the causes of the neediest. She had the opportunity to know, identify, and understand the most pressing social problems of Mexico. First, when she participated in the campaign of Enrique Peña Nieto running for the Mexican presidency. And second, when she organised two election campaigns: one for the mayor’s office of Cuautitlán Izcalli, and the other one for the national congress. 2. Her deep knowledge of the Financial Reform Act, one of the structural reforms promoted by President Peña Nieto. Mrs Del Moral had a very active participation in the House of Representatives, when she was a congresswoman, to get legislative approval for the reforms. She also participated in the approval of other structural reforms.

Managing Director: Alejandra Del Moral Vela

Since her designation as BANSEFI managing director, Mrs Del Moral has implemented some structural and financial modifications to put in place the necessary human, material, and technological capacities that allow the bank to better fulfil its mandate. Her main concerns, and her goals, as BANSEFI managing director are the promotion of financial education and inclusion from a gender perspective. She believes in the empowerment of women as a national booster of growth. In her CFI.co | Capital Finance International

own words: “Women are the CFOs of families. We can’t further the cause of financial inclusion without also promoting financial education.” Mrs Del Moral is convinced that credit by itself is not going to end poverty. However, she remains an active supporter of, and believer in, the notion that both direct subsidies and credit have helped people emerge from poverty and reach their goals. Only when the neediest have the capacity to generate permanent incomes will they be able to overcome their challenges. i 187

> BANSEFI:

Advancing Financial Inclusion in Mexico BANSEFI (Banco Del Ahorro Nacional y Servicios Financieros) is a Mexican development bank established by law on January 2, 2002, as a national credit society in order to promote saving and financial inclusion. The bank is fully owned by the government of Mexico, with the Finance Ministry as its legal shareholder. BANSEFI is managed by a board and a managing director. The bank has 1,305 employees.

ANSEFI’s origins can be traced to the Patronato del Ahorro Nacional (PAHNAL), a public institution that promoted savings for over sixty years. The financial reform promoted by President Enrique Peña Nieto modified the Bank’s mandate, appointing BANSEFI to serve as first and second floor bank, while strengthening its commitment to financial education and financial inclusion with a gender perspective. In summary, the bank’s target customers are the people at the base of the social pyramid who are often under-served by financial institutions. BANSEFI approaches this demographic through a social banking model. After the financial reforms were enacted, in January 2014, BANSEFI became a social bank par excellence to provide financial products and services to the population excluded from the banking system and to get a larger number of Mexicans to use formal financial services and products. From January to December 2015, BANSEFI granted 1,775 million pesos in credit. The balance of direct credit reached 2,061 million pesos, a figure 56.6% higher in real terms with respect to December 2014. Currently, BANSEFI has 16 million savings accounts, two billion dollars in assets, 428 branches, and 517,000 personal loans granted. The bank disburses government programmes for an amount near to the 2,200-million-peso mark to more than eight million of beneficiaries, mostly women.

“Currently, BANSEFI has 16 million savings accounts, two billion dollars in assets, 428 branches, and 517,000 personal loans granted.” To accomplish this result, BANSEFI implemented a number of different programmes. Below are mentioned the more important ones by the impact they have on the most needy and excluded demographic. SECOND FLOOR LOANS TO THE POPULAR SAVINGS ORGANISATIONS, CREDIT UNIONS, AND THE COOPERATIVE SECTOR The support to these entities takes place in accordance with the primary and original mandate of BANSEFI. These entities offer formal financial services to the excluded and most needy population and have operations, including branches, in places where commercial banks do not. The formal entities are regulated by the correspondent act. To December 2015, the loans balance portfolio was $641.5 million pesos. PROGRAMME OF TECHNICAL ASSISTANCE TO THE RURAL MICROFINANCE (PATMIR) Through this programme, BANSEFI promotes various actions focused on the financial inclusion, through the development of financial products and services aimed at specific groups such as women and indigenous people. To December 31, 2015, the programme attended 174 entities.

From 2011, 825,404 partners and customers have been included financially in the PATMIR, complying with the standards established to determine the use of financial services. Additionally, there are 258,655 people who saved in the programme. Altogether, the two categories totalled over a million people financially included. From January to December, 2015, BANSEFI granted 374 assistances for a total amount of $151.8 million pesos. INTEGRAL PROGRAMME FOR THE FINANCIAL INCLUSION (PROIIF) Through the PROIIF, formally started in 2015, BANSEFI gives to PROSPERA beneficiaries five components of financial education and financial inclusion. PROSPERA is one of the biggest social programmes of the federal government and is focused on social inclusion in the broadest sense of the term. FINANCIAL EDUCATION WORKSHOPS From January to December 2015, BANSEFI provided workshops on financial education to 1,003,641 of the total of seven million of beneficiaries. The goal is to offer the workshop to all beneficiaries by the middle of 2017. This effort also includes the substitution of the beneficiaries’ debit cards for others with a chip that includes a free life insurance covering accidental death. CREDIT PROSPERA beneficiaries can obtain credit to a maximum amount of $2,000 pesos. The source of payments of this credit is the subsidy that beneficiaries receive. To December 2015, BANSEFI received 642,329 request for credit, of which 400,013 were disbursed for an amount of $733.3 million pesos.

“In 2015, BANSEFI obtained a certification from the Ministry of Education that allows the bank to issue certificates to other financial educators.” 188

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SAVINGS Beneficiaries can also request that a portion of the subsidy be deposited in a savings account. They may withdraw the money at any time. To December 2015, 668,113 beneficiaries requested this saving mode for an aggregate amount of $87 million pesos, representing an average of $130 pesos per beneficiary. CREDIT PLUS SAVING This is a combination of the two products mentioned above. In this modality, beneficiaries have to save $200 pesos during three bimonthly periods and which they may obtain a credit for a maximum amount of $2,500 pesos. In all, 366,425 beneficiaries have requested this product. PACKAGE OF INSURANCE AND ADDITIONAL BENEFITS Beneficiaries already enjoy a free life insurance, but may contract another package, at low cost, offering improved coverage and additional benefits such as free calls (local and international), medical and legal advice, ambulance services, funeral services, amongst others. To December 2015, 370,459 of beneficiaries opted for the product. Beneficiaries cannot receive any of the above products without first attending the financial education workshop. The popular savings organisations, credit unions, and the cooperative sector, and the people who were served by BANSEFI and L@Red de la Gente (People´s Network – an association between BANSEFI and other financial entities to market financial services), reached a national coverage of 24 million users at the end of December of 2015, with a presence in 99.8% of the nation’s municipalities. BANSEFI launched a pilot programme for the development of economic and financial intelligence of children and youngsters at the level of basic education (preschool, primary, and secondary). This programme is composed of three major components: Financial Education, Financial Inclusion (prevention and savings), and Entrepreneurial Vision. In 2015, BANSEFI obtained a certification from the Ministry of Education that allows the bank to issue certificates to other financial educators. BANSEFI is concerned that there is still a lot of work to do to in order to satisfy the needs of the excluded and neediest population. The bank is still working on the definition and design of new and better programmes, as well as on further improving the technologies deployed. The goal is simple, yet very hard to achieve: Grant the services that the targeted population requires and, prior to BANSEFI’s arrival, were met only informally. i CFI.co | Capital Finance International

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> Ernst & Young:

Argentina - Departure from Political Cycle By Sergio Caveggia, Marina Kulik and Milagros Paz

he new Argentine government holding office as from December 10, 2015, represents a departure from the political cycle that ruled the country for the last twelve years. The new administration intends to strengthen local institutions and review policies in different areas: economy, healthcare, security, justice, foreign relations, 190

etc., as well as analyse the implementation of new ones. The deteriorated macro-economic environment has conditioned the countryâ&#x20AC;&#x2122;s performance in the last years and, consequently, new regulations are expected to be enacted aimed at promoting the local and foreign investment CFI.co | Capital Finance International

needed to strengthen employment and improve the countryâ&#x20AC;&#x2122;s infrastructure and thus facilitate the production of goods and services. During the last years the general business environment in Argentina was conditioned by important regulations and restrictions that imposed significant difficulties to cement straightforward transactions.

Spring 2016 Issue

Although M&A transactions need to be viewed in a holistic way and deserve to be tackled from many angles and perspectives – regulatory matters, tax issues, macro-economic conditions, legal aspects, financial and accounting, etc. – the purpose of this contribution is to only focus on the foreign exchange restrictions experienced during the past years by investors and companies when trying to enter into a transaction locally. During the past years, in fact, one of the most important restrictions to attract foreign investments were the strict Central Bank regulations that made it difficult for local and foreign investors to actually perform, amongst other, M&A transactions. Since 2002, highly restrictive currency exchange controls were in place alongside import restrictions aimed at controlling the volatility of the exchange rate and trying to defer the outflow of funds from Argentina. After October 2011, restrictions were strengthened even further. The peso exchange rate – artificially sustained – led to the rise of multiple exchange rates such as bond swap rates, informal market rates, etc. NEW MEASURES Below is a summary of the initial measures taken by the new administration to free up the exchange market. It is important to note that foreign exchange rules were not abrogated but rather simplified. An important devaluation of the Argentine currency took place in December 2015. In fact, while the official exchange rate (selling type) published by the Argentine National Bank on December 16, 2015, was $1 = AR$ 9.835, the next day the peso had plummeted to AR$ 13.95 – a drop of almost 42%. Payments for imports of goods and services can now be made without any limit or the Central Bank’s prior consent. This disposition is applicable to new payables. For accumulated goods and service debts prior to December 17, 2015 there is a particular schedule for repayment over time. The purchase of foreign currency by individuals and companies for treasury purposes including investments abroad was reinstated, with a cap of two million dollars per month.

Buenos Aires, Argentina: Puerto Madero District

“During the last years the general business environment in Argentina was conditioned by important regulations and restrictions that imposed significant difficulties to cement straightforward transactions.” CFI.co | Capital Finance International

The mandatory deposit (30%) on currency coming into Argentina – applicable to loans granted by foreign parties as well as other transactions – was eliminated. Financial loans are not required to be settled into Argentina. However, the requirement to provide evidence showing the inflow of funds remains in effect for the subsequent payment of principal and interest through the foreign exchange market. The minimum term for repayment was reduced from 365 to 120 days and advance payment was allowed as long as the 120-day term is respected. 191

Sergio Caveggia

Marina Kulik

Milagros Paz

“An important devaluation of the Argentine currency took place in December 2015. In fact, while the official exchange rate (selling type) published by the Argentine National Bank on December 16, 2015, was $1 = AR$ 9.835, the next day the peso had plummeted to AR$ 13.95 – a drop of almost 42%.” “Blue chip swap transactions” were used by local companies and individuals during the years of restrictions to allow flow of hard currency in and out of the country through the purchase in one market and subsequent sale in the other market of public traded bonds or shares. It is no longer required that the asset transacted remain in the seller’s portfolio for at least 72 hours. Export duties on agricultural products were abrogated, except for soy where the rate was reduced from 35% to 30%. Also, export duties for industrial and mining products were eliminated. Informal restrictions on dividend and profit remittances have been eliminated as well. Accumulated profits from prior fiscal years would not face any restriction either. In terms of repatriation of foreign investment, it must be noted that in the recent past, foreign investors were required to prove the inflow of funds in order to be allowed to repatriate direct investment in the country, i.e. reduction of capital, liquidation, or participation sale. A first interpretation of current rules in force appears not to require such proof any longer. IMPACT The following preliminary conclusions for the local transactional environment may derive from the new set of rules or the amendment to the existing ones explained in previous paragraphs. 192

The devaluation of the Argentine peso implied a reduction in the value of the Argentine companies and assets in dollar terms whilst enhancing the competitive equation of export driven enterprises in areas such as agribusiness, oil and gas, mining, service industry, etc. Also, new central bank rules are freeing up the flow of capital in and out of the country reducing prior restrictions to import goods, pay for services rendered abroad, repatriate profits, leverage investments, etc. Certainly this relaxation of central bank measures was a “condition precedent” for any investor to evaluate a transaction in Argentina. However, still new regulations are necessary to complete this primary goal or objective of fostering foreign investment and enhancing local companies’ competitive landscape. i ABOUT THE AUTHORS Sergio Caveggia is a tax partner currently in charge of the Transaction Tax Area in Argentina. He joined EY Argentina in 1994 and has developed strong expertise over 21 years in international taxation and mergers and acquisitions. He is highly experienced in acquisition structures for inbound and outbound investments, buy side, sell side, and restructuring services. Mr Caveggia has served numerous clients in a variety of industries and has also been involved in many buy side and sell side due diligence CFI.co | Capital Finance International

procedures. He has given lectures at national universities and is a frequent speaker at tax seminars. He has also written several articles dealing with Argentine tax issues. Marina Kulik is a certified public accountant graduated from University of Buenos Aires. She is currently a senior manager of the Transaction Tax Area in Argentina. She joined the tax division of EY Argentina in 2000. Ms Kulik has developed a strong experience in tax advisory services, tax planning, tax free reorganisations, tax compliance, and tax audits. Milagros Paz is a certified public accountant graduated from the University of Buenos Aires. She is currently a senior manager of the Global Trade division and has over 15 years’ experience in services related with customs issues and foreign exchange rules. She worked with clients from different industries, such as pharmaceutical, automotive, retail, and consumer products.

Spring 2016 Issue

> Altercargo:

Fully-Integrated Multimodal Transport Services Altercargo SRL is a Uruguay-based company set up to provide integrated logistics solutions. The firm works in close relationship with its clients, adapting to their needs and acting as an extension of their business. Altercargo maintains a wide network of agents and boasts a remarkable experience in the industry. SERVICES Altercargo’s palette of services is characterised by quality, efficiency, and professionalism. Thus, the company transmits security and assurance to its customers, ensuring that deliveries will be handled in strict accordance with the terms agreed upon. The company aims to be a leading player in the field of integrated logistics, providing an effective and complete solution for the processing of import and export cargo through the full commitment and dedication of a group of highlytrained and experienced professionals. Altercargo has become a leader in the integrated logistics sector in the region, providing sustained growth and development with the differential value in its management, generating growth opportunities for the entire country. Altercargo’s s objective is to deliver a full service package to both national and international corporations’ needs in the processing of imports and exports, achieving development and constant growth through the continuity of the advantage offered by the company. At Altercargo the emphasis is on personalised services. By understanding that each project and each company is unique, the company easily adapts and fine tunes its procedures to achieve greater effectiveness and return on investment for customers. Through the constant training of staff, Altercargo aims to excel in order to offer to both clients and employees the necessary knowledge to carry out any project. The company strongly believes that the path to excellence is through constant training, monitoring of service quality, and team effort and dedication. Altercargo has established a well-earned reputation for its in-house expertise in the handling of air cargo. The company provide an

“By understanding that each project and each company is unique, the company easily adapts and fine tunes its procedures to achieve greater effectiveness and return on investment for customers.” integrated and comprehensive set of services characterised by the constant monitoring of customers’ consignments. Altercargo provides a thorough analysis of the most convenient routes available via its network of suppliers or customers of origin. If necessary, the company coordinates the booking of warehouses, the entry of goods at the cargo terminal, airway bill emission, amongst many others. Altercargo’s world class working model is based on effective communication with clients at all stages of the process in order to generate confidence and transparency. At all times, customers are appraised of the progress made. Altercargo is dedicated to meet and exceed its customers’ expectations. Within its terrestrial operations category, Altercargo provides all warehousing and ground transportation services. The company work in close tandem with a wide variety of warehouses in different areas of our country – including free zones and outside and inside port facilities – for both nationalised merchandise as well as transit goods. The company’s services include storage, labelling, consolidation, deconsolidation, verification of packages, and many others. Altercargo enjoys the advantage of maintaining an excellent relationship with frst class transport companies. The company is also a well-known for its excellence in the handling and processing CFI.co | Capital Finance International

of sea freight and works globally with all sorts of loads. Altercargo works with all shipping lines and provides monitoring and control 24/7. The company’s professionals always provide the most convenient, efficient, and economical alternatives to its customers, without neglecting to maintain the quality and professionalism of the services offered. Altercargo not only provides shipping services, but also offers any form of multimodal transport. Due to its exceptionally wide range of agents and international linkages that allow for the creation of perfect combinations between sea and land transportation modes. Altercargo’s services include: • FCL/FCL (full container load) • LCL/LCL (less than container load) • NVOCC (non-vessel operating common carrier) • Transportation of all types of cargo (dry, frozen, chilled, and dangerous) PROJECT CARGO For large investment projects Altercargo creates, jointly with its customers, a transportation plan according to meet all requirements. These plans are implemented in cases of oversized cargo transport for different industries. Each project will be developed according to the needs and requirements of the customer. The transport plan includes cost structures and execution processes of the highest quality, effciency, attention to detail, and personalised services maintained throughout the project, thus creating the most convenient service for any given load. Services include: • An extensive network of agents specialising in project cargo • An extensive network of chartering • Surveyors at all critical points • Escorts for land transport • Insurance i 193

> North America:

Canada - Political Upset Ushers in New Era By Darren Parkin

Around this time last year, a Canadian TV station ran a poll and found that most of the population thought the countryâ&#x20AC;&#x2122;s politics grey and dull. Then, unexpectedly, a whole new colour palette was sprayed across the Canadian Parliament as flamboyant Liberal leader Justin Trudeau swept to power, calling time on the nine-year reign of Conservative Prime Minister Stephen Harper.

Canada: Vancouver

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s election victories go, this one came out of nowhere. Up until October 2015, Canada’s attitude towards general elections had always been one of muted enthusiasm. No one expected the balance of power to swing so dramatically. If the bored electorate had asked the fairy godmother of the ballot box to liven things up with a lick of paint, she granted their wish, and then some. Justin Trudeau’s CV reads like a Boy’s Own annual. He’s been a snowboarding instructor, white water rafting enthusiast, bungee jumping coach, and once boxed a Conservative senator on live TV, winning by technical knockout. As if that wasn’t enough of a makeover of Canada’s vanilla political landscape, Trudeau’s parents bring a little glamour to the gallery as well. His father Pierre was Canada’s prime minister from 1968 to 1979, and again from 1980 to 1984. But it’s his mother Margaret who embellishes the hues. A regular at New York’s infamously hedonistic nightclub Studio 54, she once dated Jack Nicholson and Ted Kennedy, albeit not simultaneously, and enjoyed a string of close encounters with a parade of rock stars. CANADA GETS COLOURFUL The wake of Liberal victory has, in many commentators’ eyes, rocked the country’s political boat so forcefully that several provinces have apparently capsized. Saskatchewan was the first to keel over and find itself heading on a very different coarse. A traditional home to the left, the Tories swept through, taking ten of the fourteen available seats. While in next-door Alberta, the exact opposite happened. The Conservative safe seats, which have spent much of the 21st century as a bastion of blue, took an almighty swing to the left as the New Democrat Party claimed a massive 53 ridings across the erstwhile archconservative province. Saskatchewan electoral upset wasn’t entirely unexpected – the province’s voters are notoriously contrarian and often mirror national preferences. But Alberta’s radical shift to the left constituted a jaw-dropping shock that turned regional politics on its head. There was more than a little hint of understatement when NDP leader Rachel Notley declared “I think we made a little bit of history tonight” as the final results came through from the polling stations. As the various ridings and seats were claimed across Alberta’s vast prairie landscape, it became rapidly apparent that Canada would never be the same again. The conscience of a nation had collectively voted for something different to business as usual. It had been a long and drawn-out election campaign for all parties – arguably the longest in Canadian history. But, such was the size of the Liberal Party’s margin across the states, it became one of the shortest counts in history. It

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“I think it’s a case of we Canadians simply spending too much time as the quiet polite next-door neighbour to the house that has all the lights out on the lawn at Christmas and spends the rest of the year hosting the loudest parties.” Jonathan Winterburn

was announced that Justin Trudeau would be the prime minister to lead Canada’s 42nd parliament before many of his countrymen had sat down in preparation to watch the results come in on television.

emotional, and intellectual stake in organisations like Médicins sans Frontières (MSF) is impressive by any standard, and this is being cited as a driving force behind the country’s recent voting habits.

Apart from the die-hard liberals who had been swept up by Trudeau’s near-superstar status, the result came as a massive surprise to most voters, and yet the irony was that most of those voters had ticked the Liberal Party box.

HUMANITARIAN WORLD POWER You only need to speak with Clementine Olivier, MSF Canada’s Humanitarian Adviser to understand the sentiments behind this notion: “Canada has a historical reputation when it comes to pushing on humanitarian issues,” she says. “Even with a small population, this is a place that can make a difference on the international scene – when it comes to research and development of medicine, Canada can take on a real leadership role.”

WHY? Plenty of cynics all too willingly point the finger at the handsome and wealthy young candidate with the famous parents, and eagerly surmise that the housewives of Canada voted 44-year-old Trudeau into office. But there are also just as many keen to stress that a nation tired of living in the considerable shadow of its dominant neighbour was feeling ready to dare to be different. Canada is a country brimming with understated pride, both in its heritage and in its contemporary values. Given its size, the country rarely punches in its own weight division, let alone above its weight. “I think it’s a case of we Canadians simply spending too much time as the quiet polite nextdoor neighbour to the house that has all the lights out on the lawn at Christmas and spends the rest of the year hosting the loudest parties,” political analyst Jonathan Winterburn told CFI.co. “We’re the dimly lit house that everyone walks past and barely gives a sideways glance to on their way to the Washington garden party. And I guess we feel like we’ve done enough of that, we’ve been the grey house that nobody notices for long enough and I think Canada has the momentum of emotion that’s saying we’re ready to take our rightful place on the world stage.” Mr Winterburn claims that Canada has a list of aspirations that it wants to meet before enjoying a meaningful status as an international superpower. There are plenty of obvious candidates on the checklist of fast-tracking your way to becoming a superpower. Huge resources for instance will always count on the big stage, and Canada has them in spades. It is already one of the largest independent producers of natural oil and gas, and it has healthy exports of iron ore, copper, zinc, hydro-electricity, and timber. But, as the value of commodities is rather volatile, it would appear that Canada is keen to explore other avenues to set its stall out before the globe. One such direction has seen the rise of its status as a humanitarian global force. Canada’s financial, CFI.co | Capital Finance International

With such a philanthropic focus, it seems an almost cruel contrast that Canada’s normally strong Green Party was virtually cast aside by the first-past-the-post method of voting, but a happy by-product was a shakeup of seats and its resultant political balance throughout the provinces, effectively handing more devolved power to the regions. Although, it would appear that sentiment is perhaps not being felt too keenly in Canada’s French-speaking regions. As the NDP’s support dropped, the Liberal Party also stormed Québec. Much to the pundits’ surprise, the Bloc Québécois retained only ten seats and obtained a mere 4.7% of the popular vote. The inquest into the demise of the once popular PQ will continue throughout much of 2016 as party in-fighting continues unabated. A similar picture has emerged in Newfoundland and Labrador where disbelief still hangs in the air for the Tory stronghold that saw the unthinkable happen when seats began to fall into the hands of the Liberals. Newfoundland in particular has always been a happy hunting ground for the Conservatives, and had held a seemingly insurmountable Tory majority since 2003. The Tories have been accused of resting on their laurels a little, not helped by a series of retirements and resignations that deprived the party of many well-known faces. “When the voters have already got an itchy finger after growing tired of some fairly stagnant politics, the last thing you want to be doing is changing the make-up of your party’s frontline,” explains Jonathan Winterburn, himself a native of St John’s, Newfoundland. “But that’s what they did, and they handed the election to the Liberal Party on a plate. This has changed Canada.” i

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> Financing the Future:

Leveraging the Power of Investment By Penny Hitchin

Projected growth rates for emerging economies are slowing down. The International Monetary Fund (IMF) expects their convergence with more advanced economies to take place at less than two-thirds of the pace predicted ten years ago. Thus, millions of poor people will continue to struggle while the nascent middle class is unlikely to see its expectations fulfilled.

n a recent speech at the University of Maryland, IMF Managing Director Christine Lagarde said: “This is bad not only for emerging markets, but also for the advanced world which has come to rely on them as destinations for investment and as customers for its goods and services. It also carries the risk of rising inequality, protectionism, and populism.” Emerging and developing economies now account for almost 60% of global GDP, up from just 47% under half a decade ago. Together, these countries have contributed more than three-quarters of global growth since the 2008 financial crisis. However, emerging markets are about to confront a harsh new reality. Growth rates are down, capital flows have reversed, and medium-term prospects have deteriorated sharply. In 2015, emerging markets saw an estimated $531 billion in net capital outflows compared with $48 billion in net inflows the year before. The history of multilateral organisations in financing economic development dates back to the end of World War 2. The World Bank (WB) was set up in 1944 with post-war reconstruction and development as its mission. Today, its focus is on poverty reduction through providing financial and technical assistance to developing countries. It provides low-interest loans, credits, and grants to support sustainable investments in education, health, public administration, infrastructure, agriculture, and environmental management. Projects may be co-financed with governments, other institutions, or private sector investors. The International Finance Corporation (IFC, founded 1956 and part of the World Bank Group) works with the private sector in developing countries offering investment, advice, and asset management services. Regional development banks such as the African Development Bank (founded 1964), the Asian Development Bank (founded 1966), the European Bank for Reconstruction and

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“There is a widespread belief within developing countries that the major regional multilateral banks are inflexible, bureaucratic and dominated by the political interests of wealthy shareholder countries.” Development (founded 1991), and the InterAmerican Development Bank (founded 1959) provide financial assistance to developing countries to promote economic and social development. Such multilateral development banks (MDBs) primarily fund large infrastructure and other development projects, and provide loans tied to government reforms. Policies tied to loans may include commitment by the borrower government to privatise state-owned industries or reform agriculture or electricity sector policies. However, there is a widespread belief within developing countries that the major regional multilateral banks are inflexible, bureaucratic and dominated by the political interests of wealthy shareholder countries. CHINA TAKES THE INITIATIVE Regional MDBs such as the Corporación Andina de Fomento, (Development Bank of Latin America, founded 1970) and the Central American Bank for Economic Integration (founded 1960) have been in existence for years. Recently, China has taken the lead in the launch of two new MDBs: The Asian Infrastructure Investment Bank (AIIB) and the New Development Bank – aka BRICS Bank whose members include Brazil, Russia, India, China, and South Africa – are the first new MDBs created in decades. China played the leading role in the creation of the AIIB. Despite pressure from the US not to CFI.co | Capital Finance International

join, the other 56 founding members include the UK, Germany, France, and Switzerland. China retains 26% of AIIB’s voting power. This gives the country a veto on major issues such as capital structure. However, China relinquished veto power on policy and lending decisions in order to attract broad membership. The new institutions’ objectives are to address the financing needs of developing countries and increase the representation of emerging markets in the global economy. However, established agencies are worried that they could be undermined by the newcomers. Concerns are couched in terms of whether the new MDBs will adopt internationally-recognised best practices on governance, procurement, and environmental and social safeguards. INSATIABLE DEMAND The United Nations recently launched the biggest aid appeal on record. The UN Office for the Coordination of Humanitarian Affairs says that the number of people in need of aid has more than doubled in just over a decade. The escalating number of conflicts, disasters, and refugees beg the question as to whether the current approaches to aid and development are the most effective ways to prevent the suffering of millions of people. It can be argued that decisions about development aid should be taken at a local rather than global level. Moves to improve the way the richer donor countries collaborate on development have accompanied an increase in the amount of official development assistance (ODA). Between 2000 and 2014, ODA increased by two-thirds in real terms and hit a record high of $134.8bn (£80.3bn) in 2013. In 2000, UN members agreed on eight Millennium Development Goals (MDGs) to be achieved by 2015. These targeted eight key areas – poverty, education, gender equality, child mortality, maternal health, disease, environment,

Spring 2016 Issue

and global partnership. Goals included halving extreme poverty, stopping the spread of HIV/ AIDS, and giving primary education to all children. The UN’s 2015 report concluded that the goals have driven “the most successful antipoverty movement in history” and brought more than a billion people out of extreme penury. Even so, inequality remains extreme. UN Secretary General Ban Ki-moon said that while the 15-year push had yielded some astonishing results, it had left too many people behind. As the MDG programme concludes, its successor Sustainable Development Goals (SDG) has set a development agenda for the next 15 years. The UN Third International Finance for Development Conference took place in Ethiopia in July 2015. The resulting Addis Ababa Action Agenda (AAAA) aims to provide a foundation for implementing the post-2015 SDG agenda. While acclaimed by UNICEF, other NGOs were less than impressed. The proposal to set up an intergovernmental tax body was dropped from the agenda and critics say that overall the AAAA shows a weaker commitment to financing for development than previous documents. Lorna Gold of Trócaire, the Irish member organisation of CIDSE, the international alliance of Catholic development agencies, said: “More than five hundred civil society groups have expressed serious disappointment at the refusal of rich countries to grasp this historic moment to put in place a global tax body which will address serious issues around corporate tax avoidance and evasion. Without tackling tax issues, it is impossible to see how poorer countries can develop.” INVESTORS SEEK ASSURANCE Investors – be they states, NGOs, banks or companies – are risk averse and seek assurances that their projects will operate under a stable regime with effective laws. Regrettably, some of the countries most in need of development are also the ones most affected by weak government. The annual Fragile States Index 2015 assesses countries by key political, social, and economic indicators. Four countries – Sudan, Central African Republic, Somalia, and South Sudan – are flagged as very high alert, meaning that much as development is needed in these failed or quasi failed states, no sane investor would expect to see a return from projects. Over the last decade, four countries – Senegal, Syria, Mali, and Libya – have experienced a critical worsening in fragility. Racked by strife, poverty, and religious fundamentalism, the prospects for these countries look grim. Each has its own conflict dynamics, political fragmentation, and humanitarian crises, yet the deepening fragility across the four states over the past year is reshaping the whole regional landscape. For all its pious hopes, the international community seems at a loss for solutions. CFI.co | Capital Finance International

NEW SILK ROAD Traversing the deserts, steppes, and mountain ranges of Central Asia, the Silk Road historically linked the imperial dynasties of China with Europe. China is now engaged in a massive project to modernise this ancient trade route and restore its concomitant political and economic clout. The country plans to construct roads, railways, ports, and other infrastructure across Asia and beyond. The Silk Road Economic Belt, nicknamed “One Belt, One Road,” will pass overland from China to Europe through Central Asia. The new Maritime Silk Road will traverse vital sea lanes from China’s coast through the South China Sea to the Indian Ocean and Europe in a one direction, and to the South Pacific in the other. The project will see China’s state banks fund investment by Chinese companies on foreign soil. In December 2015, the country inaugurated a $40 billion Silk Road Fund. China’s state banks are already major lenders to countries along both new routes, bolstering Beijing’s bid to see greater international stature for its currency the renminbi. Beijing’s foreign ventures will present the country’s companies with new overseas markets. A study by London merchant bank Grisons Peak scrutinised loans made by the two main Chinese banks used by the government to implement policy and estimates that fully 70% of their overseas loan portfolios were contingent on the purchase of Chinese goods. Chinese state media say that to date over 900 projects are underway at a combined cost in excess of $890 billion. The American Enterprise Institute (AEI) says that about a quarter of the $246 billion in overseas investments in construction and engineering projects undertaken by Chinese companies from 2005 to 2014 have run into difficulties, which does not bode particularly well for the massive investments ahead. BUILDING INFRASTRUCTURE Infrastructure – transport, utilities, and telecommunications for example – are deemed essential to foster economic development. If they believe that the potential returns are good, then private investors may find such opportunities attractive. The exploitation of mineral wealth in Africa could herald a railway renaissance on that continent. The global commodities boom is driving growth in Africa and should help rejuvenate some of its ailing rail networks. Currently, 35 African countries have railway networks. Railways are largely state owned, and rolling stock is often obsolete and poorly maintained. Operators, financiers, and rolling stock suppliers are eyeing up the opportunities for private investment. South African firms believe that 199

their local knowledge gives them an edge over traditional European suppliers from Europe and the US, and new players from China and India. Despite the political hurdles, investments are taking place: Zambia’s Northwest Rail Company is collaborating with a South African locomotive manufacturer to build a new 590km railway from Chingola in the copper belt to the Angolan border. PETRODOLLARS FUEL DIVERSIFICATION The bulging coffers of the oil-rich emerging economies of the Gulf enable these countries to embark on transformational infrastructure investment without recourse to MDBs. Notable examples include UAE’s Masdar City and Saudi Arabia’s King Abdullah Economic City (KAEC). However, while finance may not be a major issue, other problems loom and both these two projects are behind schedule. In 2005, Saudi Arabia unveiled plans to construct a £67 billion mega city on the Red Sea. The aim was to build a metropolis with industrial, manufacturing, and tech capability so that the kingdom could diversify into a global logistics and manufacturing hub and provide housing and job opportunities for a young population, of which 65% are under the age of thirty. The city was being privately financed by Dubai developer Emaar. When it offered its first public offering in July 2006, more than half of the Saudi population bought stock. However, it has needed a government loan to see it through the global financial crisis. Plans for KAEC include four main components: the port with a projected capacity of three million containers; the industrial valley, a number of coastal communities, and the Hijaz downtown district. So far, the city has around 3,000 residents but this is expected to increase tenfold by 2020 with the ambition of eventually accommodating two million residents across seventy square miles. Attracting foreign manufacturers to the new city site is an important plank of the development. However, this is not going well: last year Jaguar Land Rover (JLR) scrapped an ambitious plan to build a KAEC factory which would use Saudi-produced aluminium in its premium lightweight vehicles. Indianowned JLR signed a letter of intent with the Saudis in December 2012 to build a facility expected to produce about 50,000 cars annually by 2017. However, discussions foundered and JLR has subsequently switched its investment to new facilities in China, Brazil, and Slovakia. CHILE: PROFITING FROM THE COMMODITY BOOM South America’s rising star, Chile is often held up as a model for economic growth. Since the demise of military rule in 1990, successive governments have kept and 200

expanded the former regime’s economic policies in order ensure the country’s success on the world stage. One of the world’s major producers of copper, the country has benefitted from the commodity boom that followed the economic awakening of China. High prices for the raw material enable Chile to fill the coffers of its sovereign wealth fund, which it is now drawing on to maintain government spending level despite copper’s recent precipitous price drop. In its 2016 draft budget, the government of President Michelle Bachelet highlighted education as the national priority. In a nod to foreign investors, the Bachelet Administration also redirected national spending to support promising economic sectors. Although its historic current account surplus has vanished, Chile remains confident it can run a structural fiscal deficit for a few more years without unnerving the investment community. It anticipates that copper prices will rebound before the coffers are emptied. Meanwhile, Bolivia is undergoing a striking economic transformation and, to the surprise of many, is now home to Latin America’s fastest growing economy. For almost a decade, Bolivia’s economy has expanded at a clip of more than five percent annually on average. Fuelled by gas and minerals, the country’s GDP has tripled to about $30 billion. Notably, Bolivia now maintains a balanced budget, a high level of international reserves, and low inflation rates. Natural resources such as hydrocarbons, minerals, and lithium are vital to Bolivia’s economic well-being. Natural gas (45%) and minerals (25%) account for around 70% of the country’s exports and have been the main drivers of its rapid economic expansion. In the eleven years that President Evo Morales has been in office, he has adopted pragmatic policies which enabled prosperity to spread via a bottom up entrepreneurial culture. This has given the marginalised and poor opportunities to create their own businesses and thrive in lightly regulated markets. His regime is characterised by a laissez-faire attitude to informal and smallto-medium enterprise, many of which are doing quite well. President Morales declined to join the US War on Drugs and summarily rejected the helping hand of the international financial system in the guise of the IMF and World Bank. In declining their loans and interventions, President Morales has opted to turn away from multinationals and instead encourage small to medium local enterprise. By standing back and letting freedom and entrepreneurialism of the people thrive, prosperity has spread, inequality has diminished, the country transformed. i CFI.co | Capital Finance International

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> Asia Pacific:

Myanmar - The Many Virtues of Patience By Wim Romeijn

Tears flowed as Htin Kyaw (70) was sworn in as the first president of Myanmar without ties to the military in over half a century on March 30. Moments after assuming power, Mr Kyaw â&#x20AC;&#x201C; a close friend of Nobel peace prize laureate Aung Suu Kyi (70) and hand-picked by her to head the incoming government â&#x20AC;&#x201C; called for national reconciliation, an end to ethnic strife, and for changes to the 2008 military-drafted constitution that barred Ms Kyi from holding the presidency because her sons are not Myanmar citizens. It is widely thought that the rule was specifically written to deny Ms Kyi the presidency. Her late husband Michael Aris, a scholar of Tibetan culture, was British as are their two children.

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s Kyi repeatedly called the constitutional provision “silly” and assured her followers in the National League for Democracy (NLD) that she would rule the country regardless. In the general election of early November 2015 the NLD claimed 255 out of the House of Representatives’ 440 seats after it won 57% of the popular vote. It took the upper house of parliament – the House of Nationalities – but two days to clear the way for Ms Kyi to become, in effect, the president’s boss by naming her state counsellor in charge of coordinating government policy and advising the executive. Ms Kyi also heads four ministries – Foreign Affairs, Education, Energy, and Presidential Office. By ushering Ms Kyi into government via the side door, and granting her sweeping powers, parliament immediately asserted its independence from the military. The Myanmar generals may have relinquished power; they still hover in the background reluctant to let go of all political reins. They are, however, a spent force. The constitution awards the armed forces a quarter of the seats in both houses of parliament. This enables the military – in theory – to frustrate attempts at undermining their legal handiwork and legacy. The armed forces also held on to three ministries – Home Affairs, Border Affairs, and Defence – and made sure one of their own was appointed second vice-president. However, President Htin Kyaw seemed unfazed as he assured the nation that his administration will work tirelessly towards achieving a constitution, “that has democratic norms and is suitable for the nation. We must try to fulfil the hope and will of the people of this country.” THREE DECADES TO FREEDOM The transition of power at the end of March concluded a political struggle for democracy that started with the 8888 Uprising – named after key events took place on August 8, 1988 – when students were joined in their protests against rising prices and political oppression by housewives, workers, Buddhist monks, and others. The unrest quickly spread throughout the country and targeted the military-backed regime of the Burma Socialist Programme Party. During the crisis, Aung Suu Kyi – daughter of the country’s independence leader Aung San who was assassinated in 1947 – rose to prominence, at one point addressing a crowd of an estimated 500,000 people from the steps of the Shwedagon Pagoda in Rangoon (Yangon), calling for freedom and an end to one-party rule. Shortly after, the State Law and Order Restoration Council – a thinly disguised military junta – took direct control of government in a coup followed by a violent crackdown that is thought to have cost thousands of lives though the official tally never exceeded 350.

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“Meanwhile, the Myanmar economy is poised for take-off. In 2013, the country managed to cancel or refinance almost two-thirds of its national debt with the Bank of Japan writing off $3bn and the Paris Club cancelling $2.2bn.” Once firmly established in power, the country’s new rulers proceeded to loosen state control over the economy, albeit at a glacial pace. Since obtaining its independence in 1948, Burma – as the country was then called – had embraced central planning. The government implemented an Eight-Year Plan that was to transform Burma into a welfare state. Instead, the economy collapsed. In their first of repeated forays into political life, the army grabbed power in 1962 and introduced the Burmese Way to Socialism, nationalising industry, restricting trade, and banning foreign ownership of economic assets. Endowed with a wealth of natural resources, and under British rule the wealthiest country in Southeast Asia, Burma was soon turned into one of the world’s most impoverished nations – awarded Least Developed Country Status by the United Nations in 1987. While the regime that took power the next year promptly distanced itself from totalitarian socialism, and allowed the private sector to stage a modest comeback, international sanctions thwarted its strenuous efforts at enticing foreign investors to return.

As one fear receded, another one took its place. In 2012, ethnic violence erupted in Rakhine State (Arakan Province), west of Rangoon, between Rohingya Muslims and Buddhist Rakhines who feared that they would soon become a minority in their home state. Both sides went on a rampage that only ended after the army intervened. By then, some 140,000 people had been driven from their homes. Ms Kyi has chosen to remain silent on the topic. In an overwhelmingly Buddhist country, taking up the defence of a widely despised and persecuted Muslim minority may not be the smartest of political moves. While Aung Suu Kyi remains the most popular political leader by far, she is not without critics. Ms Kyi removed members of the 88 Generation, a group of prominent former political prisoners, from the list of NLD’s parliamentary candidates and expelled those who complained about this from the party. She also backed the previous government in a dispute between subsistence farmers and a Chinese-financed copper mine, arguing that foreign investors need to feel welcome in Myanmar. These slight asides do not detract from the genuine joy felt across the country at the departure of the generals from power. The military may linger backstage, but even Commander-in-Chief Min Aung Hlaing admitted, in so many words, that the game is up when he stressed that constitutional reforms must not be enacted “too quickly.” Pointedly, General Hliang did not outright reject constitutional change.

PRYING THE GENERALS FROM POWER Lacklustre economic performance and an emboldened opposition forced the generals to slowly loosen their grip on power. They did so most reluctantly. The proliferation of satellite dishes – at first illegal, but eventually tolerated – and Internet cafés made it increasingly difficult for the regime to keep its people in the dark. Deemed “likely to undermine the community’s peace and stability,” the generals did keep Aung Suu Kyi under house arrest off and on for a total of 15 years over a 21year period. While she was allowed to leave the country, the government warned her that a return would be out of the question. Ms Kyi decided to stay put and be a thorn in the regime’s side.

ECONOMIC TAKE-OFF Meanwhile, the Myanmar economy is poised for take-off. In 2013, the country managed to cancel or refinance almost two-thirds of its national debt with the Bank of Japan writing off $3bn and the Paris Club cancelling $2.2bn. A fast-track liberalisation drive has removed most of the shackles that kept the economy from growing. As a result, foreign direct investment has ballooned with over $8bn flowing into the country last year. In a recent report, the McKinsey Global Institute predicts that Myanmar may easily quadruple the size of its economy between now and 2030, provided it avoids ethnic strife, controls the illegal trade in drugs, and manages to implement sensible policies.

The first larger cracks in the junta armour’s appeared in early 2011 after a carefully choreographed election, duly boycotted by the NLD, brought a pseudo-civilian administration to power. However, its president, former army general Thein Sein, failed to follow the script. Instead of enriching himself siphoning off the lucrative trade in ruby and jade, President Sein surprised friend and foe by freeing hundreds of political prisoners, easing censorship restrictions, opening up the economy – and asking Ms Kyi to join the country’s political life. It got him a lot of goodwill, and a visit from US President Barack Obama, in return.

Whilst that seems a tall order, it is not: the incoming administration may be inexperienced in the art of governing, it is not devoid of political savvy. The National League for Democracy has fought an uphill battle since its founding in 1988. On the insistence of Ms Kyi, the party stuck to its guns and defeated the junta without appealing to violence. Instead, the NLD patiently disassembled the regime’s defences until the generals had no other recourse but to hand over power – bit by bit. That resilience will stand the country’s new administration in good stead as it prepares to undo over five decades’ worth of economic mismanagement. i

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> CFI.co Meets the CEO of AnandRathi Private Wealth Management:

Rakesh Rawal ANANDRATHI HAS RECEIVED THE CFI.CO BEST WEALTH MANAGER INDIA AWARD FOR THE SECOND CONSECUTIVE YEAR. HOW DO YOU FEEL ABOUT THAT? Of course, I am immensely proud of my entire team. We have worked hard to get the organisation to where it is today. However, instead of getting complacent, I intend to let it serve as motivation for my team to keep up the great work, and ensure that the AnandRathi brand continues to be recognised for what it is – a collective of experts, committed to fearlessly delivering uncomplicated advice to clients with a view to safeguarding and growing their wealth while planning to pass it on to subsequent generations with near-to-zero transmission loss. ANANDRATHI OPERATES IN A RATHER CROWDED ENVIRONMENT OF WEALTH MANAGEMENT SERVICE PROVIDERS. WHAT INNOVATIONS HAVE YOU INTRODUCED TO REMAIN AHEAD OF THE CURVE AND THE PACK? Our primary innovation is the holistic approach to private wealth management. Rather than the typical top-down approach where the client is a passive recipient of wealth management advice, we understand that our clients are an integral part of the advisory process. Given this fact, our approach is categorically not product-driven. Instead, we are objective-driven, taking a long-term view of our clients’ intended destination, in order to appropriately advise them on their journey. We also strongly believe that simple is good – if I am able to achieve my client’s objectives by ‘uncomplicating’ the process of managing their wealth, then my own objective has been achieved. HOW HAS BUSINESS DEVELOPED FOR ANANDRATHI OVER THE LAST YEAR? Business has been excellent. Our assets-undermanagement (AuM), the number of in-house financial strategists, and our revenue have all grown by 30% or more. Our business model is solid and our methods sound. We have our sights set on a target, and are determinedly moving towards it. WHAT ARE YOUR VIEWS ON THE GROWTH OF PRIVATE WEALTH MANAGEMENT AS A BUSINESS, OVER THE NEXT FEW YEARS IN INDIA? According to a recent study by a well-known consulting firm, India is now among the key drivers of growth in the Asia-Pacific Region, with growth rates of the HNI (high-net-worthindividual) population and wealth, at 26.3% and 28.2% respectively. Usually, a single wealth management professional’s capacity to take on clients does not exceed thirty or forty

CEO: Rakesh Rawal

at the most. When this fact is considered along with a view of increasing HNI numbers in India, a clear gap emerges. At AnandRathi, we view this phenomenon as an opportunity to build our CFI.co | Capital Finance International

business. We are looking to hire more financial strategists and further strengthen our capacity to cater to the wealth management needs of a HNI population on the rise. i 205

> Max Myanmar:

Roadway to Corporate Sustainability

yanmar is rich in natural resources and one of the world’s largest exporters of teak and jewels such as jade, pearls, rubies, and sapphires. The country’s population is over 54.5 million. In 2011, GDP growth attained 5.9%, accelerating to 7.3% the following year as Myanmar implemented a development drive. The mainstay of the domestic economy is the

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services sector (42%), followed by agriculture (39%), and industry (19%). In Myanmar, reform has resulted in a stronger economic growth. For the 2015-16 fiscal year, GDP expansion is forecasted at 8.3%. Myanmar is likely to follow resource-rich frontier markets such as Mongolia and Kazakhstan where investments are channelled into commodity CFI.co | Capital Finance International

extraction and the building of infrastructure. The Dawei Special Industrial Zone is an example of that. The zone is expected to develop around $8.6 billion worth of infrastructure projects, including a deep-sea port, a resort complex, an industrial estate, a coal-fired power plant, and rail and pipeline links. Many assume that in the near future, Myanmar’s oil and gas market will be featured prominently too.

Spring 2016 Issue

During the transition period from military oppression to a full-fledged democracy, business operations are challenging but the vast potential of the country is widely recognised. Entrepreneurs and investors need to ensure that future growth remains strong and benefits the entire nation. The business community is called upon to act in a responsible and sustainable fashion. MAX MYANMAR Looking to help forge a better future for the country, Max Myanmar’s strategy aims to find better ways of doing business. The company wishes to exceed the expectations of employees, customers, and communities, thus ensuring the fruits of its growth benefit all stakeholders. The coming years will be full of tremendous opportunities and exciting challenges as Max Myanmar Group continues on its path of restructuring to become a leading institution with transparency, responsibility, and good corporate governance. Especially, reinforcement of land acquisitions policy and settlements, divestment from extractive industries and high risk business sectors, adoption of IFRS, promoting capacity building of employee, and continuing its decades long CSR activities are some key milestones of the Max Myanmar Group. With a corporate mission of Sharing and Contributing to the Community, Max Myanmar is committed to the community development in areas of financial, educational, charitable, cultural, and environmental causes. Working with local hospitals, dispensaries, the International Red Cross, and other civic associations and charities, Max Myanmar is committed to providing a significant and meaningful contribution to the social wellbeing of the nation. Community engagement also comprises the provision of structures that facilitate career development and create job opportunities for young people. Max Myanmar also invites local communities to participate in the company’s training programmes, such as fire-fighting and occupational health and safety.

“With a corporate mission of Sharing and Contributing to the Community, Max Myanmar is committed to the community development in areas of financial, educational, charitable, cultural, and environmental causes.” CFI.co | Capital Finance International

Protecting the environment is ingrained in the group’s corporate values and principles. Therefore, Max Myanmar strictly adheres to all relevant environmental laws and regulations. The company also actively seeks to partake in environment engagement and reforestation initiatives. Max Myanmar plans to adopt the ISO 14001:2004 Environmental Management System based on a solid sustainability framework in the near future in order to secure the future growth of both the corporation and the communities it operates in. Max Myanmar has been committed to corporate social responsibility (CSR) for over 207

Founder and executive chairman: U Zaw Zaw

“Mr U Zaw Zaw’s vision of Max Myanmar Group is for the companies to become the best institutions in Myanmar, especially in transparency and corporate responsibility.” twenty years since the company’s founding in 1993. In 2010, the Ayeyarwady Foundation was formed to bundle the company’s CSR efforts. The Ayeyarwady Bank and Ayeyarwady Foundation joined forces in 2010 in order to achieve the ambitious CSR goals set by Max Myanmar CEO U Zaw Zaw and his staff. Becoming a part of the UN Global Compact (UNGC) was a corporate milestone for Ayeyarwady Bank – the first Myanmar financial institution to commit to the UNGC Ten Principles. THE FUTURE In the rapidly expanding and exceptionally dynamic economy of Myanmar there are many different dimensions that businesses need to consider when investing with a view to the subsequent development of a responsible and sustainable business strategy. Despite all the difficulties suffered by the country during the transition period, social and environmental policies and procedures need to remain flexible in order to engage with all stakeholders. This is possible to achieve. 208

In a nutshell, Max Myanmar is strongly committed to excellence in both corporate sustainability and corporate governance across all its business segments – such as banking, insurance, hospitality energy, agriculture, manufacturing, and logistics. Max Myanmar’s business units proudly participate in United Nations Global Compact since 2012 and have been actively contributing in UNGC’s Myanmar network. As a pioneer of corporate sustainability in the country, Max Myanmar proactively conducted a thorough sustainability assessment with international expert firms and successfully organised a sustainability seminar with its stakeholders. In the near future, Max Myanmar aspires to become the first choice of employees and, ultimately, of all stakeholders as the benchmark for excellence in corporate identity.

connected entrepreneur and business leader in Myanmar, with twenty years of management experience. Mr U Zaw Zaw graduated from the University of Yangon in 1988 with a major in Mathematics. He worked in Japan for several years before returning to Myanmar in 1995 to assume the management of Max Myanmar Company, which is now known as Max Myanmar Group of Companies – a major conglomerate.

MAX MYANMAR CEO Founder U Zaw Zaw (48) is the executive chairman of the Max Myanmar Holding Company Limited. He is an established and well-

Mr U Zaw Zaw’s vision of Max Myanmar Group is for the companies to become the best institutions in Myanmar, especially in transparency and corporate responsibility. i

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Since 2005, Mr U Zaw Zaw is also the chairman of the Myanmar Football Federation (MFF) and is a firm believer in contributing to society and helping the needy. Through the Ayeyarwady Foundation, he has donated to various philanthropic causes and carried out numerous corporate social responsibility activities. He has also donated generously for the development of soccer in Myanmar.

> AnandRathi:

Redefining Private in India’s Wealth Management Sector THE ANANDRATHI WAY AnandRathi private wealth management’s unique approach towards its clients is reflected in its CEO, Mr Rakesh Rawal’s statement that, “private wealth management is less a business of financial services, than one of building relationships.” In this, the company has been consistent. It continues, as in previous years, to deliver fearless advisory backed by robust data, in an uncomplicated manner for high net worth individual (HNI) clients. Driven by a mandate to advise clients on their needs rather than their wants, AnandRathi has been employing some rather interesting techniques to help clients achieve their wealth management goals. The company has decisively moved towards a model that goes beyond short-term wealth creation, where a client-centric approach ensures that the needs of HNIs form the focal point of the entire wealth management process. A unique, holistic strategy is crafted for each client based on their specific requirements, and aimed at achieving the three main goals of effective wealth management: generating sensible consistent returns for creating longterm wealth; creating safety-nets to protect wealth from unforeseen circumstances; and building an estate plan to ensure near-zero transmission loss while distributing/transmitting wealth to the next generation. AnandRathi’s refreshing emphasis on simplifying wealth management can be summed up in a single statement: Why rely on English when math – a far more accurate and efficient language – gets the job done? FINANCIAL STRATEGISTS AS RELATIONSHIP MANAGERS All business endeavours begin with a vision. A businessperson knows how to set goals, evaluate risks, employ resources, and monitor progress as success is largely contingent on this

“The company has decisively moved towards a model that goes beyond short-term wealth creation, where a clientcentric approach ensures that the needs of HNIs form the focal point of the entire wealth management process.” process. Wealth management is no less detailed a process. However, one finds that wealth is seldom managed this way. While, to make a business grow, one would hire good managers; when it comes to private wealth, it is an irony that, for the most part, one does not pay much attention to the skills the manager ought to have. At AnandRathi, relationship managers consciously avoid being product-pushers, focusing instead on being strategists and planners. Over the years, and especially in the year gone by, a lot of energy has been expended towards the transition of good relationship managers into expert financial strategists. The company promotes an entrepreneurial model over the traditional top-down one, where the financial strategists are regarded as drivers of business. With the freedom to set their own targets, the number of clients they manage is up to them. They are encouraged to function as independent business units, expanding their operations, reach, and support teams as they deem fit. Furthermore, financial strategists are not limited by any norm or policy imposing geographic limitations on where they may and may not develop client relationships. Given the manner

in which the firm works, it makes perfect sense for its strategists to flexibly engage with clients across regions. Business is not allowed to govern relationships; instead, they ensure that a strategic, data-driven plan is at the heart of every relationship that defines their business. Through comprehensive strategy meets, financial strategists work with their clients, mirroring the manner in which a successful businessperson or effective CEO would – starting with a vision and going on to set a goal; defining no-regret objectives for one’s wealth over a period of time. The strategists are empowered to create their own business plans for the client’s wealth, supported by a team specialised in the areas of trust & estate planning, taxation, structured products, and mutual funds. Checks and balances are built in to maximise returns and minimise chances of loss. As the CEO himself contends, “the key for asset growth among HNIs is to let the destination decide journey, not the other way round. That is to say, why hope to do well by accident when one could do so by design?” RELATIONSHIPS THROUGH RESEARCH Unnecessary extravagance and showy flamboyance are commodities that AnandRathi prefers not to trade in. Unlike competitors, the organisation continues to maintain a low profile and avoids heavy-duty marketing. Rather, all that the company spends is directed towards strengthening relationships with clients. Recently, AnandRathi has introduced an intriguing way of connecting with HNI’s – the focus group discussion. The firm’s financial strategists reach out to clients – prospective as well as existing – inviting them for a session crafted to address some of the highest priority issues faced by the HNI community in India and touching upon some of the options available to them for the efficient and appropriate management of their wealth.

“It requires knowledge, data, and an uncomplicated approach to evoke client conviction to act. We must always be unwavering in delivering uncomplicated and fearless advice, for our clients to truly experience the unmatched value of the AnandRathi proposition.” Mr Anand Rathi, Founder and Chairperson, AnandRathi Group, on the key to building business

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“Today, AnandRathi private wealth management is forging ahead with its growing team of best-inclass financial strategists, currently counting on the expertise of over 120 professionals.” Through these interactive sessions, the participants ask questions, clarify doubts, and gain an understanding of the company’s approach to wealth management. The subsequent step is a personalised strategy meeting which could be the beginning of a long and effective relationship between client and company. For all HNIs, the wealth manager constitutes a crucial support system. Recognising and internalising this, AnandRathi has shaped itself over time to excel as a friendly, research and datadriven, trustworthy private wealth management advisory for the HNI and the ultra-HNI segment. Markets will always fluctuate and financial scenarios will keep changing in an economy where volatility is the norm and inflation, a probability. Given such conditions, the support of a professional wealth manager who is an effective financial strategist can make all the difference between blowing with the wind, and sailing above uncertain tides to arrive, stronger than ever, at one’s intended destination. ABOUT THE ANANDRATHI GROUP The AnandRathi Group was formed in 1994, stemming from Founder and Chairperson Anand Rathi’s vision to set up a financial consultancy. After some years, the group expanded to provide investment banking and investment services, equity advisory, general insurance, commodities and currency, and global finance. As the company grew, it noticed that while there was a significant number of HNIs in the country, there were not enough highly-skilled wealth managers. Recognising the immense potential in this arena, AnandRathi instituted its private wealth management services in 2001. Seven years later, Mr Rakesh Rawal joined the company as CEO. It speaks volumes, that a ten-fold growth has been seen since he took the reins. Today, AnandRathi private wealth management is forging ahead with its growing team of best-inclass financial strategists, currently counting on the expertise of over 120 professionals. i CFI.co | Capital Finance International

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> Bangladesh Building Systems (BBS):

Versatility & Quality BBS is a public limited company incorporated in 2003 and registered with the registrar of joint stock companies of Bangladesh under the Companies Act 1994. It is involved with manufacturing of pre-engineered steel buildings (PEBs) in Bangladesh to meet the growing demand especially from the industrial sector. BBS started commercial production in 2005.

BBS is always eager to seek expertise, and obtain state-of-the-art technology, to provide engineering solutions of peerless quality delivered with excellence in customer service. The company holds two world class quality certifications – ISO 9001-2000 and UKAS 018 – issued by international organisations. Usually, BBS deals with pre-engineered steel buildings such as factories, warehouses, halls, workshops, aircraft hangars, office buildings, commercial showrooms, distribution centres, supermarkets, restaurants, and residential buildings. The remarkable features of the pre-engineered buildings offered by BBS are: • High quality • Low maintenance costs • Steel (non-combustible) • Environmentally friendly • Reusable components • Strong, durable, and stable • Dimensionally stable • Fast construction compared to other materials • Resistant to termites and other destructive insects • Cost benefits compared to other construction methods BBS always gears up to exceed stakeholders’ expectation with its modern technology and well-trained professional workforce. At present, BBS’ capacity is to produce 15,000 MT steel building products, enough to cover a floor area of four million square feet annually. Simultaneously, the BBS Product Research and Development Department (PRD) works to innovate and introduce new concepts and machinery in the production line in order to meet the diversified demands of clients.

“The BBS team spirit really has enabled the company to claim, and keep, the top position in the PEB market.” Customer satisfaction, trouble-free construction, and the accurate fit of components are priorities of BBS, regardless the complexity projects undertaken. Additionally, BBS boasts a management team of exceptional expertise comprised of 25 graduate engineers and other professionals. The team is fully dedicated to meet and exceed customer expectations. The BBS team spirit really has enabled the company to claim, and keep, the top position in the PEB market. FEATURES OF BBS PRODUCTS & PROJECTS Economy / price – BBS engineers and designers are always eager to optimise designs by employing stronger materials and cut waste by using efficient technology. The savings thus obtained reduce overall project costs. High quality – With the outstanding combination of design and fabrication, BBS can provide the best quality PEB. The company is determined to maximise quality across its product line. Fast delivery – BBS maintains its own welltrained and specialised engineers who can erect the building within a very short time compared to time it takes to erect a conventional building. After confirming orders, BBS technicians chalk out a flow chart framing the required time to deliver the product.

Design and architectural flexibility – From the simplest to the most complex building, BBS provides the client with design flexibility and versatility. BBS buildings blend in with any exterior surrounding. A mixture of panels, block glasses, bricks, stones, and concrete is used to complement the surroundings. Low maintenance and long building life – BBS buildings require virtually no maintenance. The company offers a range of interior coatings to meet project needs and, on the exterior side, roof and wall panels have superior long-lasting oven-baked coatings that are maintenance free for years. Expandability – Expandability is a build-incomponent of BBS pre-engineered buildings. They are easily to scale up quickly and economically. Relocatable – BBS pre-engineered buildings are site bolted. It is therefore relatively easy and economical to dismantle and relocate the structures. MAJOR CLIENTS OF BBS British American Tobacco, Grameen Phone, OTOBI, Basundhara Group, Square Group, Partex Group, Opex Group, ICDDRB, Esquire Group, Rangs Group, Palmal Group, Standard Group, STS Group, Hamim Group, Well Group, Bengal Group, GBB Group, NR Group, Envoy Group, Youth Group, Little Group, Paragoan Group, Nasir Group, Incepta Pharmaceuticals, Seven Circle, JIT Group, Mainetty, Epic Garments, Thermax Group, Perfetti Van Melle, DADA Group, San Group, Prantik Group, Runner Group, Pran RFL Group, Lafarge Surma Cement, Meghna Group of Industries, Afil Group, and ACI Group, amongst others.

“Customer satisfaction, trouble-free construction, and the accurate fit of components are priorities of BBS, regardless the complexity projects undertaken.” 212

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Spring 2016 Issue

BBS CABLES LTD TELEHALI, SRIPUR, GAZIPUR The project envisages setting up an electric cable manufacturing factory. It is to be equipped with state-of-the-art equipment suitable for the production of copper and aluminium conductors up to 500mm2 size. The factory will have a copper wire drawing machine with an inline annealing facility. It will produce various types of cables such as: PVC insulated and PVC sheathed copper cables, armoured copper cables, copper screen cables, copper shield cables, field-limiting copper shield armoured cables, flexible cable, and flat cables, amongst others. BBS Cables will focus on industrial customers and will work as a forward linkage of Bangladesh Building Systems. XIAMEN REFLECTIVE INSULATIONS LTD The company provides products such as foil bubble insulation which is used for heat absorption in both industrial and residential

buildings. Based on the experience of BBS, Xiamen manufactures high-radiant, nonhazardous, and environmentally-friendly heat bubble insulation with technical assistance of China. Xiamen is able to provide its products as per the customers’ individual requirements, using just-in-time processes that ensure a high degree of time and cost predictability. Xiamen provides its products to various industries such as composite setup, pharmaceutical, steel plants, construction, etc. The company also provides solutions for various general purpose uses such as steel buildings, poultry farms, dairy farms, warehouses, and cold storage facilities. Xiamen’s technical capabilities give the company the opportunity to build new products or services and to implement prudent business and technological strategies in today’s dynamic environment. PRITHVI ENGINEERS LTD (PEL) PEL is a leading multi-disciplinary consulting firm in Bangladesh, specialised in solving CFI.co | Capital Finance International

civil engineering issues. PEL was established with a view to assisting Bangladesh and other developing countries help attain prosperity and progress. Amongst others, PEL’s major objectives are: • To provide technical assistance to governments, semi-governments, and the private sector. • To work in concert with government and private enterprises in identifying areas of development that are vital and crucial. • To assist in strengthening the institutional capabilities of the engineering, agricultural, industrial, energy, water, power, transport, communication, and public health sectors. • To assist in rural, urban, and regional project implementation. • To establish links with donor agencies. • To optimise the quality of output. BBS DEVELOPERS LTD BBS Developers was established to provide customers with service excellence and quality in building improvement by creating a new dimension in the Bangladesh real estate sector. i 213

> Afghanistan International Bank:

At Work, Building Afghanistan’s Future Since its foundation in 2004 at the instigation of prominent Afghan business groups and the Asian Development Bank, Afghanistan International Bank (AIB) has been recognised as a pioneering leader in the country’s banking sector. Now, more than a decade later, the bank has become firmly established as Afghanistan’s most trusted and respected financial institution.

inning the Bank of the Year award for the fourth successive time underlines the validity of AIB’s mission to remain the most reputable financial institution and the bank of choice in Afghanistan. In doing so, AIB consistently strives to adhere to international best practices in corporate governance, and financial and risk management – including anti-money laundering and knowyour-customer processes – customer service, operations, information technology, and internal controls. AIB is committed to fostering economic development in Afghanistan, acting as a catalyst for growth, and ultimately contributing to the prosperity of the country and its people. AIB’s 35 branches give the bank a presence in all main business areas and provide comprehensive coverage across the country, serving more than 100,000 customers. To meet growth requirements, the bank is building a 12-storey head office with 23,000m² of floor space and incorporating high-security protection. The new head office is scheduled for opening later this year. AIB is banker to most leading Afghan business houses and to the United Nations, American and NATO Forces, the Asian Development Bank, World Bank, Nokia Siemens, Ericsson, United States Agency for International Development, Deutsche Gesellschaft für Technische Zusammenarbeit, Japan International Cooperation Agency, Danish Committee for Aid to Afghan Refugees, the Korean International Cooperation Agency, and the embassies of the United States, the United Kingdom, and Denmark. Despite Afghanistan’s challenging environment, AIB’s financial performance and its specific

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“AIB is committed to fostering economic development in Afghanistan, acting as a catalyst for growth, and ultimately contributing to the prosperity of the country and its people.” investments in people and infrastructure have made the bank a positive emblem for achievement and transformation. This status is underlined by having two major international clearing banks as correspondents – Standard Chartered Bank in New York and Commerzbank in Germany. The bank’s repeated successes in the Best Corporate Governance award category reflects its commitment and adherence to the highest industry standards and global best practices. As AIB forges ahead into its second decade, the bank remains committed to enabling a better future for Afghanistan, proud to play a role in shaping the opportunities that lie ahead. Since its founding, the bank has built an enduring business that combines international expertise with local knowledge, giving it a deeprooted understanding of customer needs. Over the past several years the bank has undertaken a number of initiatives aimed at building and reinforcing its institutional edifice. These are focused on four areas: corporate governance, operational excellence, customer satisfaction, and financial stability. In aggregate, the objectives of these undertakings are twofold: (1) to build the leading financial CFI.co | Capital Finance International

institution in Afghanistan; and (2) to ensure that AIB possesses both the structure and competence to meet the challenges that Afghanistan and the bank might well face over the next several years. The board has instituted a number of governance improvements that include the defining of clear responsibilities for shareholders, board of supervisors and management. The board has been expanded to seven members, four of whom are independent directors. The board also created four committees to address, in depth, issues concerning compensation and succession, strategy and planning, and investments and risk. The committees are headed by board members with vast experience in each of these fields. The bank has also strengthened its planning process, which now includes specific business objectives with the corresponding assignment of responsibilities to individual executives through a goal-setting mechanism, as well as preparation of financial budgets. Bonuses paid to executives are closely tied to the bank’s overall performance and each executive meeting his own goals. REMARKABLE ACCOMPLISHMENTS AIB is now Afghanistan’s best performing and most respected financial institution. The bank has recorded substantial gains across all of the most important performance indicators with sound fundamentals in capital, liquidity, profit margins and returns. The main ratings agencies continue to assign ‘investment grade’ status to the bank’s AFN 11.8 billion bond portfolio, of which more than 63% matures in three years or less. Total capital increased from AFN 3.07 billion to AFN 3.4 billion. The bank’s capital adequacy ratio of 13.59% and 87% liquidity

Spring 2016 Issue

are still very satisfactory, both by domestic and international standards. AIB believes it scores highest of all Afghan banks in its CAMEL rating. AIB’s performance in 2015 also achieved prominent international recognition with The Banker magazine ranking AIB Best Afghan Bank for the fourth year in succession during its annual awards ceremony in London. BROAD CLIENT BASE As mentioned earlier, AIB is the only financial institution in Afghanistan to have two of the OECD country-based international banking groups – Standard Chartered Bank New York and Commerzbank Frankfurt – as correspondents to provide our customers with speedy international transfers. Julius Baer Zurich and Emirates NBD manage AIB bond portfolios. Following its acquisition of the Standard Chartered bank’s operations in Afghanistan in 2012, AIB entered into a cooperation agreement with Standard Chartered through which the onshore banking requirements of international aid agencies and global corporate clients operating in the country are now serviced. Top-quality information technology is a prerequisite for sustained growth, and AIB operations are based on platforms and systems that are recognised as global best practice for banks. The software used by AIB meets the standards established by the Wolfsberg Group of eleven international banks for antimoney laundering (AML) monitoring. To further strengthen AM and FCC compliance in 2015, the bank completed an intensive review and upgrade of know-your-customer and anti-money laundering procedures and processes to ensure that it complies with the highest international standards. The bank offers a range of retail banking products and services, such as current accounts, savings accounts, term deposits, payroll services, debit/credit cards, payment services, and online banking. AIB’s array of corporate banking services is tailor-made to meet the needs of customers in Afghanistan. These services include cash management, trade finance, loans, foreign exchange, and treasury. CONFIDENCE IN THE FUTURE AIB looks ahead with confidence in the future of the country. The release of donor funds by the International Monetary Fund and the World Bank will enable aid agency funds to flow into Afghanistan, greatly helping the economy. Against this backdrop the bank while remaining conservative in its financial outlook anticipates maintaining an ROE of over 13%. i CFI.co | Capital Finance International

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> Frontier Markets:

Mongolia’s Great Leap Forward By Darren Parkin

n eleventh-hour deal to plough $4.4 billion into a gargantuan mine in Mongolia may have dragged the country’s hand away from the selfdestruct button and placed it firmly on to the steering wheel of an economy that could become the star performer of 2016. Less than twelve months ago, and not running anywhere close to full capacity, the controversial Oyu Tolgoi mine in the Gobi Desert settled a bill of $1.3 billion owed in taxes and “miscellaneous

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costs” as dealings between the operation’s owners and the Mongolian government reached breaking point. Suddenly, however, the negotiation table is surrounded by smiles once more as the agreed upon package deal sees spending on the Oyu Tolgoi soar in excess of $10 billion. It’s a colossal sum that has whet the appetite of investors the world over. And that’s no surprise, given the fact that Oyu Tolgoi is on course to become the world’s largest mining operation. It’s already qualified as CFI.co | Capital Finance International

Mongolia’s biggest ever investment project, even though the spending is far from over. The volatility of the world’s commodity prices could yet have the final say in the success or failure of the mine which is controlled by Anglo-Australian firm Rio Tinto, but the portents are good for the extraction of an enormous amount of mineral wealth from the desert. The 1.5 million tonnes of copper concentrate already yielded from Oyu Tolgoi are being hailed as some of the purest ever mined. The entire project was, however, almost allowed to

Spring 2016 Issue

wither after the Mongolian government, which holds a 34% stake in the operation, tried its best to scupper relations with Rio Tinto. It seems only weeks ago that the two parties were dancing on the trapdoor of catastrophe as discomfiture enveloped most of their dealings. And yet, Rio Tinto and the Mongolian government are once more busily planning their future together. No doubt there will be cynics lining up to suggest the $4.4 billion now committed will have certainly sweetened the deal. COMPLEXITIES In order to properly understand the complexities of both the problems and successes around the mine, it is also necessary to grasp the complexities of Mongolia itself. To the untrained eye, it is a vast and unforgiving land populated solely by nomadic tribes battling the elements on a wind-swept plain. In fact, ask anyone to conjure up images of this enchanting and immense Asian nation, and they’re bound to talk their way through a place that has changed little since it brought forth Genghis Khan’s marauding hordes. Curiously – and this is mainly down to its 603,910 square miles of land mass – those assumptions are not necessarily inaccurate. With a population barely raising its head above the three million mark, there is a lot of space to get lost in – hence the proliferation of nomadic farmers who drive their animals across the great plains, occasionally setting up camp in yurts. Out in the wilderness, Mongolia is as clichéd as any Michael Palin documentary will already have told you. However, Mongolia is also a country whose forward thinking, and a tenacious desire to pull away from the Soviet-style one-party rule that marked most of its contemporary history, has propelled the nation into a relative economic stratosphere. Step into the capital Ulaanbaatar and you’re walking into the eye of a storm of reform. Almost half of the country’s population live and work in here, and two thirds of Mongolia’s businesses are located in this vibrant capital.

Mongolia: The Mausoleum of Sukhbaatar, Ulaanbaatar

“We can now see the dawning of a second era of strong growth. Mongolia is a young democracy where it takes time to reach balanced decisions. That said, the current government has managed to put a solid set of policy initiatives in place which caused an immediate positive impact with bond yields tumbling by 230 basis points.” Norihiko Kato, CEO of Khan Bank

CFI.co | Capital Finance International

Modern Ulaanbaatar has seemingly emerged from nowhere. A quarter of a century ago, it would have been unrecognisable as the dynamic hub of Asian commerce it has become today. In 1990, the people of Mongolia voted in favour of sweeping economic and political reforms that led to multiparty elections and gave the business people of downtown Ulaanbaatar a rare taste of something they hadn’t experienced before – outand-out capitalism. Amid the economic reforms also came a sudden wave of outside investors. Big international companies were queuing up to either be part of an economy that was about to accelerate rapidly from a standing start, or to plunder the vast 217

mineral resources scattered far and wide across this landlocked country. Fast-forward to 2016, and that growth spurt has both made – and almost broken – Mongolia. More than two decades of political power struggles, and repeated pledges to exert more control over its own destiny and resources, have provided the backdrop to the rapid growth which has played out before the world. The wrangling has taken its toll. Nonetheless, amid all this upheaval, Mongolia earned itself a place at the top table of Asian business. ULAANBAATAR It’s unlikely that the country’s emergence as an economic force will match its 13th century ambitions as a dominant realm which once commanded the largest empire in history. Nor will the togrog become one of the world’s most widely used currencies. But its fascinating ascendency as a leading frontier market makes it a noteworthy prospect all the same. Newcomers to Ulaanbaatar often say they are reminded of a modern European capital. Some even compare its architectural leanings and eager business districts to London’s frantic financial hubs. It’s a far cry from the crumbling city of yore. The nation now boasts a modern political structure to match. Adopting the French model of leadership, Mongolia has a president and a prime minister – both cutting dapper figures across the nation’s TV screens. President Tsakhiagiin Elbegdorj is particularly popular and was re-elected to a second term in 2013. Harvard-educated, he possesses a keen sense of finance, but is also critical of over-investment from foreigners muscling in on Mongolia’s mining industry. However, during the country’s recent economic wobbles, President Elbegdorj is viewed by other world leaders as a steady democratic hand on Ulaanbaatar’s purse strings. By contrast, the seat of prime minister has of late done little to endear itself to the political world. Chimed Saikhanbileg was handed the reins in November 2014 after his predecessor Norov Altankhuyag was turfed out with a vote of no confidence amid a wave of allegations and accusations of corruption and mismanagement. Despite the controversy brought about by his predecessor Prime Minister Saikhanbileg does, for many, represent a new and younger generation of democrats in Mongolia. This new generation has fully embraced democracy. This newfound liberty has manifested itself across Mongolia’s mediascape which enjoys a freedom rarely seen in Central Asia. All state-owned newspapers are now in private hands, and the country has a startling array of satellite broadcasters all competing for the attention of its TV-hungry population.

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“Newcomers to Ulaanbaatar often say they are reminded of a modern European capital. Some even compare its architectural leanings and eager business districts to London’s frantic financial hubs.” It’s this freedom – this wave of westernisation and thirst for growth – which has fanned the small flames of economic expansion. However, a few cracks have started to appear. Not too long ago, the outside world viewed Mongolia as a successful example of the transformation of a command economy into a demand economy. With a concentrated process of privatisation and deregulation, the country raised a few surprised eyebrows as it ushered in a flourishing market economy attracting worldwide investment. But that’s not all Mongolia attracted. Increasing criticism too has been levelled at Mongolia as its booming economy slowed to a worrying pace. ALL BOOM, NO BUST Two years ago, economic growth in Ulaanbaatar was an impressive 7.8%. By this time last year, it had plummeted to an alarming 3% before closing 2015 on a paltry 2.3%. However, the signs are that 2016 will be a year of both stability and growth. Some critics have accused Mongolia of holding out its cap in one hand while forgetting the other hand is grasping a fat purse. Just like Peru before it, the description of a beggar sitting on a bench of gold has been revived for Mongolia’s current plight. Much of the country’s wariness of outside financing harks back to the days of communism. Although Mongolia is straining to break free from the history it shares with its neighbours, many legacies still linger. For instance, if you wanted to access some of the distant, road-less plains, you would more than likely find yourself in an old six-wheel-drive ex-Russian army truck. In fact, thousands of former Soviet military relics are put to good use throughout the outlying hamlets and villages that sporadically punctuate the wilderness. This Russian legacy is a geopolitical throwback in itself, thanks to the snaking border which has dominated the economic landscape of these parts since Mongol raiding parties first spilled the blood of their neighbours in the 13th century. Cross-border skirmishes continued over the years, until Russia stepped in to thwart the advances of the Chinese forces who were keen to quell any CFI.co | Capital Finance International

Mongolia: Gobi desert

Spring 2016 Issue

Mongolian ideas of independence. Moscow threw its military might behind the Mongolian claim to go it alone in 1919 before helping to establish the Mongolian People’s Republic in 1921. The irony of independence, of course, was that it may well have been as a Soviet republic given the little devolution that came about from their union. Nonetheless, tight bilateral relations continued even during the Sino-Soviet split of the 1950s and 60s, and Mongolia maintained its alignment with Russia until Mikhail Gorbachev forged ahead with his policy of openness. Mongolia followed suit, discovered it could also have an international presence, and looked to making its own way in the world. By 1989, plans were finalised to see the withdrawal of Soviet troops from Mongolia, and the communist model of governance began to corrode. Prior to the demise of one-party rule, traditional economic activity throughout the country was dominated by livestock and agriculture. Yet now, some of the world’s most accessible deposits of coal, molybdenum, tungsten, tin, copper and gold can be found within its borders. But, as reform and legislation persistently leapfrog one another, it leaves many investors wondering if Mongolia is really open for business. Either way, there is enough wealth in this country to keep an army of potential investors interested. WAY UP That being said, you don’t have to look far to find investors and partners who have enjoyed a fruitful relationship with their Mongolian counterparts. The Asian Development Bank (ADB) has been involved with the government and local businesses for more than twenty years and was one of the first financiers to work with democratic Mongolia. It remains the country’s largest multilateral partner and has a grant and loan portfolio exceeding $300m. The relationship has been credited with igniting Mongolia’s rapid transformation, yet, at the same time, some suggest the ADB has been too prudent in its dealings with natural resources as the country becomes an almost entirely mineral-based economy. The International Monetary Fund (IMF), too, has enjoyed considerable influence. The IMF has played hardball with Mongolia – particularly in the build-up to the $4.4 billion investment in the Oyu Tolgoi project. In February 2015, as relations soured, the IMF was on the brink of bridging Ulaanbaatar’s faltering economy with an emergency loan. It came on the back of repeated warnings about sluggish performance and the IMF often highlighted the government’s stubbornness with outside investors. IMF chiefs urged Chimed Saikhanbileg to revisit the opportunities overlooked by his predecessor and, within weeks, Mongolia was opening negotiations to establish a trade partnership with Japan. Further deals followed before outstanding matters with Rio Tinto and Oyu Tolgoi were resolved (partly due to the influence of the IMF), CFI.co | Capital Finance International

and the future of Mongolia as an international growth opportunity became the reality it is today. BANKER TALKS Meanwhile, Norihiko Kato, CEO of Khan Bank – one of the biggest private banks in Mongolia – praises his country’s ability to get over its initial reluctance and green light the mine’s progress. He recently explained that Mongolia is now genuinely open for business, and has in place a robust legal framework that would appeal to foreign investors: “We can now see the dawning of a second era of strong growth,” he told CFI.co. “Mongolia is a young democracy where it takes time to reach balanced decisions. That said, the current government has managed to put a solid set of policy initiatives in place which caused an immediate positive impact with bond yields tumbling by 230 basis points.” Khan Bank offers a full suite of services designed to assist SMEs throughout Mongolia. In conjunction with the International Finance Corporation, part of the World Bank Group, and several other commercial organisations, Khan Bank helps provide support to small and mediumsized enterprises keen to be part of the country’s economic success. “Smaller sized businesses, often family owned and operated, are essential to the economic development of our country,” added Mr Kato. “Khan Bank does not merely provide financing to these companies but also helps with encouraging entrepreneurship and maintains a number of educational programmes aimed at arming businesspeople with the knowledge and expertise they require in order to gain competitiveness in a more dynamic economic setting.” He also cites the Mongolian government’s move to secure lucrative tomorrows for Mongolia, rather than bickering about its yesterdays with Rio Tinto, as the reason why businesses are suddenly facing the dawn of a new era: “The agreement with Rio Tinto is the cornerstone of a new policy that aims to bring foreign investors back to Mongolia so that the country may at long last unlock its vast mineral reserves.” Optimism aside, there are still one or two alarm bells ringing in the ears of investors. At the start of this year, it was calculated that more than 95% of Mongolian exports were minerals. And while this is adding a little more twinkle to the eyes of stakeholders, it also leaves Mongolia at the mercy of global commodity prices. Couple that with the country’s reliance on its Chinese neighbours – around 80% of Mongolia’s export is destined for China – and, given the current economic woes besetting Beijing, it is difficult for some experts to decide if they’re looking at a pot of gold or an accident waiting to happen. Even with the standard financial health warnings, businesses in the UK and USA are finding Mongolia hard to resist. As an emerging frontier market it certainly has its fair share of attractions. 219

With a well-educated population (97.4% adult literacy rate), more than 80% of which is under the age of 40, the young business community of Ulaanbaatar is hungry for new ideas and fresh approaches, which is one of the driving forces behind the government trying hard to relax restrictions on foreign ownership. Add to that the growing number of English language speakers, and you begin to understand what all the fuss is about. SAUDI ARABIA MISPLACED OR REPLACED But that doesn’t mean investing in Ulaanbaatar comes without its challenges. There has been plenty of frustration over the government’s constant meddling with commercial laws and regulations which leaves many businesses confused – particularly over taxes. Pure logistical issues have also seen several large companies get the jitters and pull back from the brink of big commitments – a particular problem when wishing to extract and move large quantities of mineral resources from a deeply landlocked country onto world markets. Aside from the bureaucracy and the meddling, there is no getting away from the fact that Mongolia represents a very tempting proposition, even if it comes with the risky sensation of spinning a roulette wheel, as is the current norm in several frontier economies. Only recently, celebrated investor and author Marc Faber described Mongolia as “the Saudi Arabia of Asia”, alluding to its vast mineral wealth. This is perhaps one of the most credible endorsements the country has received. Faber does, after all, have form on predicting the rise of commodities in emerging markets, and he did forecast the success of precious metals and oil in China almost fifteen years ago. Indeed, it looks like Faber is on to something. His “Saudi Arabia of Asia” tag came shortly before the owners of the Oyu Tolgoi mine agreed the huge multi-billion-dollar financing package to signal their intention to deliver Mongolia’s largest-ever investment project. It ended years of bickering and delays, and paved the way for a brighter future that should see Mongolia become the country that countless optimists hope it can be. The deal to put the green light on Oyu Tolgoi – delivered by fifteen commercial banks and investment banks in the USA, UK, Canada, and Australia – will now permit sub-surface mining work to go ahead. Once operating at full capacity, Oyu Tolgoi is expected to represent up to 30% of Mongolia’s total economic output. After years of incessant yakking about growth prospects, it looks as if Mongolia’s is now poised to embark on its own modern-day version of the great leap forward. i Mongolia: Ulaanbaatar

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CFI.co | Capital Finance International

Spring 2016 Issue

> CFI.co Meets the Management of Bank of Maldives:

Andrew Healy & Mohamed Shareef

CEO & MD: Andrew Healy

ANDREW HEALY - CEO & MANAGING DIRECTOR ndrew Healy joined Bank of Maldives in January 2014. He has over 25 years of banking experience across all sectors, including ten years at CEO and board level. Prior to joining Bank of Maldives, Mr Healy worked for two international banking groups, most recently as Irish CEO and group executive committee member of Scandinavia’s Danske Bank Group. He has also worked for Royal Bank of Scotland Group in senior roles in the United Kingdom.

Retail Banking Director: Mohamed Shareef

Mr Healy has held a number of respected industry leadership positions including chairman of the Northern Ireland Banking Association and president of the Institute of Banking in Ireland. Mr Healy holds a first class Master’s degree in Business and a Bachelor of Science degree in Financial Services as well as a number of other banking and professional qualifications. He is a fellow of the Institute of Banking in Ireland and a chartered member of the UK Institute of Personnel and Development. CFI.co | Capital Finance International

MOHAMED SHAREEF - RETAIL BANKING DIRECTOR ohamed Shareef joined Bank of Maldives in 1995. He became retail banking director in 2014. Prior to his current position, Mr Shareef served as the bank’s operations director and chief operating officer. He has also held the role of head of card centre where he successfully led the development of the bank’s fledgling card business.

Mr Shareef holds a Master of Business Administration (Finance) degree from the University of Manchester in the United Kingdom. i 221

> Bank of Maldives:

Community-Centred Pioneer of Advanced Banking Services

ank of Maldives (BML) is proud to be the leading financial institution in the Maldives. Known locally as the national bank, BML is a community-focused, full-service bank engaging across the complete spectrum of personal, business, and corporate financial services. With 265,000 customers, the bank touches the lives of almost every family and business in the country through its extensive network of 29 branches, 76 ATMs, 3,200 POS merchants, 177 cash agents, 14 self-service banking centres, and 5 dhoni banking units.

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The Maldives, located in the Indian Ocean off the south-western coast of Sri Lanka, has a relatively small population of about 400,000 dispersed amongst 198 islands. This poses significant challenges in terms of establishing a banking infrastructure to reach everyone. However, over the years, BML has driven the nationâ&#x20AC;&#x2122;s financial services industry and has accumulated many innovative firsts, such as the introduction of point of sale technology and internet banking, to ensure Maldivians are today able to enjoy convenient banking at world-class standards. CFI.co | Capital Finance International

Back in 1992, the bank introduced Dhoni Banking to address the issue of accessible banking for remote island communities. This unique service involves a team from the bank travelling on dedicated boats on a monthly basis to distribute pension payments, accept applications for products and services, and provide deposit and withdrawal services. The dhoni service continues today, although the bank has recently leveraged advances in technology to augment it. In 2014, the bankâ&#x20AC;&#x2122;s board of directors approved an ambitious strategic plan which contains the

Spring 2016 Issue

three key pillars of financial inclusion, customer service, and support for business, underpinned by BML’s declared strategic foundations of robust risk management and people excellence. With this clear roadmap, the bank has quickly been able to bring about major changes to its operations and to the way customers experience banking. A key goal on the financial inclusion agenda was to have a presence on all inhabited islands in the Maldives and to achieve this, BML established partnership arrangements with local retailers who use its advanced point-of-sale (POS) network to provide basic cash services to communities who no longer have to travel to nearby islands or wait for the dhoni service. At the end of 2015, the bank completed its rollout and with around 20,000 transactions per month, this initiative is already hugely successful, representing a significant development not only for BML but for the country as well. The bank has further plans to extend the range of services through its agents over the course of 2016. Backed by its strategic focus on improving customer service, the bank took a significant step in late 2014 when it launched self-service banking to encourage a dramatic shift in customer behaviour. BML had recognised that many of the transactions and services carried out in its branches could be conveniently conducted via self-service channels. So the bank introduced fourteen new centres containing state-ofthe-art multifunctional ATMs which allow customers to deposit and withdraw cash, deposit cheques, make payments, and transfer money. The resulting change in customer behaviour has been dramatic with some two million customer transactions conducted in just eighteen months – transactions which would otherwise have been conducted in branches with all the associated queuing and frustration. In 2015, Bank of Maldives launched BML Mobile Banking, the country’s first mobile banking app, to facilitate customers to make transfers, payments, and check account details on the move. In a country with high smartphone penetration and in which communities are very mobile, the bank has been able to enrich customer experience through this new banking channel.

Bank of Maldives Head Office

“In 2014, the bank’s board of directors approved an ambitious strategic plan which contains the three key pillars of financial inclusion, customer service, and support for business, underpinned by BML’s declared strategic foundations of robust risk management and people excellence. With this clear roadmap, the bank has quickly been able to bring about major changes to its operations and to the way customers experience banking.” CFI.co | Capital Finance International

Today Bank of Maldives is performing strongly. Profitability for 2015 is well up on the previous year and capital and liquidity ratios are healthy. The bank continues to strongly support the communities it serves and will invest much of its revenues in continuing a $20 million investment programme in opening new branches and self-service banking centres, refurbishing existing premises, upgrading technology, and extending its agent services. Seven new branches and ten new self-service banking centres are scheduled to open this year. The CFI.co judging panel commends Bank of Maldives on its accomplishment of a most challenging mission: to provide world class financial services in a country comprising 198 inhabited islands over some 90,000km2 of ocean. Building a financial network that covers this unique geographic setting and having a presence in all inhabited islands is a remarkable feat; doing so with aplomb and efficiency certainly merits recognition. i 223

> Hermès:

Corporate Savoir Vivre By Tony Lennox

orse & Hound magazine recently rated the Hermès Cavale among its top ten saddles in the world – and at almost £5,000 – if you’re looking for sturdy luxury, you would expect to pay nothing less. This particular saddle, hand-crafted by skilled artisans employing the finest leather, is highly prized among today’s most serious show jumpers. 224

It is a symbol of the longevity of Hermès, the Paris-based luxury goods business, stretching back to 1837 when young Thierry Hermès set up a small workshop in the city’s back streets, fashioning reins, bridles, harnesses, and assorted other tackle for the horse-dependent transport systems of the age. The fact that Thierry’s company still manufactures CFI.co | Capital Finance International

high-quality saddles in the 21 century might suggest that Hermès is a traditional business, able to somehow survive in a changed and turbulent world. st

In fact, if old Thierry could see what his little family firm produces these days, he would probably be bewildered. The Hermès brand, while holding fast to a commitment to quality and tradition, has

Spring 2016 Issue

and carriage is recognised across the globe as an emblem of luxury; not just in saddlery, but everything from status symbol scarves and handbags, leather goods, jewellery and accessories, footwear, perfumery, porcelain, crystal, and ready to wear fashions – an impressive 30,000 separate items in total. Throughout most of the 19th century, Hermès remained true to its origins in saddle-making, with the crucial difference that, even in the early days, it targeted the top end. Dedication to the highest ideals of craftsmanship and superior materials, meant that Hermès attracted custom from the super-rich of the times. No French nobleman worth his salt would saddle up with anything less than a Hermès. Hermès rode the choppy waves of the middle of the 20th century, finding new markets, producing new lines and exploiting the reputation of its brand. It already had a strong identity in the USA, thanks to its equestrian heritage, but now it launched an invasion, setting up iconic stores, most notably in Madison Avenue, New York. The American love affair with French chic, class, and style, helped cement the company’s dominant status in the luxury market – a position it still occupies. NO COMPROMISE In the 1970s, Hermès looked to be in a decline of its own making. Refusing to compromise on its principles of using only the highest quality, natural, and fairly sourced materials, it was being overtaken by competitors who were following the fashion for all things man-made. Fortunately, fashions change, and the Hermès star began to rise again with a change in consumer habits. As the trend for ecological awareness grew, natural goods once again became sought-after badges of greenness. Hermès also recruited, in 2003, the famed fashion designer Jean-Paul Gaultier to guide the company’s creative drive. His flair and style helped keep Hermès ahead of the game in haute couture. But underlying the glitzy façade, Hermès remained, and remains still, a very traditional operation.

Hermès Store in Hong Kong

“Not only does Hermès seek to acquire prized leather workshops, it also recruits some of the best artisans to work in them.”

another secret for success – its ability to adapt and change with the times while remaining, essentially, a family firm. So, how did a small Parisian saddlemaker become a globally renowned fashion house and high-end purveyor of luxury merchandise? The Hermès trademark of an elegant horse CFI.co | Capital Finance International

Hermès carries out its own tanning and finishing of hides and skins. It seeks out dependable sources of fine leather, including calf, buffalo, and ostrich. There’s also crocodile from Africa and alligator from the USA. Hermès owns its own tanneries: four in France, one in Italy, and a specialised reptile tannery in Louisiana. The company’s most recent tannery acquisitions, in the Rhone Valley in 2013 and the iconic Tanneries du Puy in Auvergne last year, were, according to a company statement at the time, “in line with the strategy of preservation and development of sources of supplies and knowhow related to them.” Not only does Hermès seek to acquire prized leather workshops, it also recruits some of the best artisans to work in them. The company has always rejected the mass-production ideal. 225

Birkin Bags

All items are manufactured in France; often a single artefact being created by hand by one worker, from start to finish. It is the antithesis of the modern business instinct which sees the streamlining of production methods as the best way to maximise profits. And yet, how many other luxury brands can fetch such high prices – even on the secondhand market? This is just another example of how Hermès contradicts the modern world; relatively small factories dotted across France, turning out expensively produced merchandise, using costly, ethically sourced materials, and selling at eye-wateringly high prices. THE BIRKIN BAG Somehow, this strategy has worked, through good times and bad. The company has an unerring ability to spot a trend or development, and react quickly. It also takes advantage of quirky opportunities. When, in 1981, the then chief executive, Jean-Louis Dumas, found himself seated next to Jane Birkin, the English-born actress and singer so beloved of the French, on a flight from Paris to London, he noticed she was having trouble with her hand luggage – a straw bag. Mr Dumas promptly went back to his workshops and had a leather alternative created for her, known ever since as the Birkin bag. You can’t buy that kind of publicity. And when that icon of fifties style, Princess Grace of Monaco sprained her wrist, she famously used a Hermès silk scarf as a sling. How imaginative – and what a PR gift. Quick-witted and keen-eyed, it was Jean-Louis Dumas who was responsible for turning around the fortunes of the family firm in the 1980s. Trained at Bloomingdales in New York, he decided to concentrate on silk and leather goods, and ready-to-wear, adding new product ranges, but adhering to traditional manufacturing techniques. 226

The scarf is an illustration of the company’s belief in tradition, but also of its ability to adjust. Hermès had, by the 1930s, already adjusted its operations to take account of the horse’s decline and the rise of the motor car. Saddlebags gave way to luggage, designed specifically for the adventurous new breed of motorist. Hermès designers travelled to North Africa and began a relationship with the Tuareg tribes that continues to this day. From them the company adopted, and adapted, age-old designs for its scarves, made from mulberry leaf-fed silkworms, and later applied Tuareg designs to Hermès’ silver jewellery patterns. Market analysts were not surprised when Louis Vuitton Moët Hennessy (LVMH), the world number one in luxury goods, made a move on Hermès in 2010. What began as a corporate courtship turned into something much more unpleasant. The Hermès dynasty dug in for a long siege which lasted for four years until a truce was called. Hermès complained of the apparently underhand way LVMH had secured a large stake in its company. Claim followed counter-claim, and the whole affair was heading to the courts when an agreement was finally reached, and both parties went their separate ways. Axel Dumas, the sixthgeneration Hermès chief executive, described the event as “the battle of our generation.” But the fight illustrated the precarious perch occupied by Hermès. Can an essentially family-run business maintain its independence in the shark-infested waters of 21st century big business? TIMELESS OPULENCE The luxury goods market has taken full advantage of the emerging Asian markets, particularly China, where demand has surged in recent years. But with gloom settling on China, Hermès, together with other elite brands such as LVMH, Chanel, and Dior, are braced for heavy weather. Indeed, in February this year, Hermès warned CFI.co | Capital Finance International

that the global slowdown would weigh heavily on its sales. Conventional wisdom has it that, in any economic downturn, the market for luxury items tends to hold up well, even as wealthy consumers consider the wisdom of extravagant spending. As the curve on the graph begins to climb again, opulence comes quickly back into fashion. And Hermès, among other brands, sensibly understands that trading with the Chinese is a long game. Chinese consumers want quality, and they want internationally-known brands, too – which sees Hermès well-placed. The company is already in the top twenty most searched-for luxury brands in China. Timing, as ever, is all-important. Hermès is still in the process of expending capital in China to establish itself. Holding that line in this climate may prove to be challenging. But Hermès has a reputation for adapting to the changing climate of commerce. It has recognised, for instance, that Internet trading is fast becoming the norm; the Internet’s share of the market is beginning to eclipse traditional store sales in practically all sectors. Hermès has responded with a series of internet “pop-up shops,” which have proved to be a useful and sophisticated alternative route to market. Hermès has survived almost two centuries in which turbulence has been the norm. There’s no reason to suppose that it has lost the ability to be savvy and quick to respond to changing circumstances. Not everyone is in the market for a new saddle, but they say that every 25 seconds, somewhere in the world, someone buys a Hermès scarf. If you’re looking for a measure of business success, that statistic is hard to beat. Whatever the future holds for Hermès, one imagines that the world’s silkworms are going to be kept busy munching mulberry leafs for a long time to come. i

Spring 2016 Issue

> CFI.co Meets the Vice-Chairman and Managing Director of MEP:

Jayant Mhaiskar

n a country on the move such as India, an optimised network of traffic arteries is key to maintaining high rates of growth and development. With the world’s secondlargest road network, a vast web reaching into the far corners of the subcontinent and serving well over 1.2 billion people, Indian authorities are acutely aware of the need to expand and invest in the country’s vast infrastructure in order to reach growth targets. According to a 2009 study by Goldman Sachs, India needs to invest up to $1.75tn in its national infrastructure by 2020 to keep up with demand. A significant chunk of the investment is earmarked for the building of new roads and the upgrading of existing ones. The drive has already reduced average time it takes to drive a truck between New Delhi and Bangalore – a distance of about 2,000 kilometres – dropped from eight to five days. The improvement to other vital arteries has been even more impressive with trucks plying the New Delhi to Mumbai corridor (approx. 1,400km) in under 35 hours. Private companies such as MEP Infrastructure Developers Ltd are the reason behind India’s notable success in upgrading and maintaining its road network. Starting out as a toll management company, MEP has gradually progressed into highway maintenance and, more recently, into the road building. “We have followed a path of backward compatibility,” says MEP Vice-Chairman and Managing Director Jayant D Mhaiskar, explaining that the company has leveraged its accumulated know-how and capabilities to broach new markets and undertakings. MEP Infrastructure Developers deploys stateof-the-art technology to consistently deliver optimised performance through increased efficiency: “Technology enables MEP to further improve the quality of its work, complete projects faster and help streamline internal processes.” Mr Mhaiskar emphasised that the government’s decision to significantly increase investment is what made the company deploy its experience to launch a road construction branch: “Though this is a new area for the company, we feel the timing is perfect for making such a move and are confident that road building will become one of the pillars of MEP.” Mr Mhaiskar is one of the MEP’s founders and boasts twenty years of experience in the tolling and infrastructure sector. He expects MEP to post up to 15% of growth in the current year and says that the new tolling projects from

Vice-Chairman and Managing Director: Jayant Mhaiskar

National Highways Authority of India and 3 BOT Hybrid Annuity Road building projects received from National Highways Authority of India and Ministry of Road Transport and Highways, to be constructed over next 30 months, will give impetus to the topline and profit of the Company. Last year, MEP’s net sales registered a staggering 86.4% growth. “MEP now has a suite of projects in its portfolio of pure tolling contracts ranging from 1 year to 5 years in duration, long-term OMT contracts ranging between 3 years to 16 years in duration, and BOT Hybrid Annuity Concessions having a shelf life of 15 years. This produces a mix of traffic and revenue which is destined, in turn, for a number of projects. We are now seeking to tie up with private equity or pension funds in order to put in bids for National Highways CFI.co | Capital Finance International

Authority of India projects which are now coming up. The company has made an application to the regulators for an in-principle approval for the Infrastructure Investment Trust [InvIT],” Mr Mhaiskar added. Mr Mhaiskar revealed that his company is already in talks with various funds to bid on a number of toll-operate-transfer projects shortly to be adjudicated by the NHAI. These projects come with concessionary periods of up to 15 to 25 years. Last year, MEP Infrastructure Developers obtained a public listing to have its shares traded on both the National Stock Exchange and the Bombay Stock Exchange. The proceeds of the initial public stock offering (IPO) were used to reduce the company’s debt. i 227

> UNCTAD:

Africa Rising By James Zhan, Astrit Sulstarova and Mathabo le Roux

Africa needs investment to advance sustainable development and see the continent prosper. James Zhan, Astrit Sulstarova and Mathabo le Roux argue that the nature and volume of foreign investment flows into the continent over the past fifteen years show Africa is firmly on the development track.

lobal foreign direct investment (FDI) in recent years has been anaemic. In four of the seven years since the global financial crisis, growth has been negative, and on the occasion that it swung into positive territory the level of growth has been unremarkable. The trend seems incongruous in the face of historically high levels of corporate cash on balance sheets. It is estimated that multinational corporations are flush with more than a collective $5 trillion in cash, yet they have little inclination to spend their cash. The reluctance is explained by the convergence of a set of risk-propelling factors. On the economic side, the end of the commodities super-cycle, market volatility and weak demand in mature markets are throttling investor confidence, while heightened geopolitical risk, security concerns and the migration crisis are reinforcing political insecurity, adding to the gloom. This sclerosis has raised the spectre that cross-border investment flows may well consolidate at levels that are structurally lower than those before the crisis creating a perfect storm for the global economy. Fresh figures showing strong FDI growth for 2015 therefore brought welcome respite. UNCTAD’ Global Investment Trends Monitor provisional data for 2015, released at the end of January, show global FDI flows surged 36 per cent – a pace last seen in 2007 – to an estimated $1.7 trillion. While the level stays shy of volumes scaled pre-crisis it is welcome diversion from the course investment has been on for most of the past decade.

“On the whole the data therefore gives little cause for optimism.” well as exceptional global liquidity conditions to scoop up prized assets. By contrast, greenfield project announcements, which are indicative of MNEs’ capital expenditure intentions, remained largely flat. And in developing regions where the need for expanded productive capacity is particularly pressing, project announcements in fact declined sharply, notably in Africa (-19%), and Latin America and the Caribbean (-23%). Another worrying phenomenon is the sizeable part of FDI flows last year that was related to so-called inversion deals – a strategy by which firms acquire a foreign company and the latter is transformed into new headquarters, with the aim to lower the tax burden – and to reconfigurations of corporate structures. This generally results in large movements of capital showing up in the financial account of the balance of payment but with little movement in actual resources. On the whole the data therefore gives little cause for optimism. The circular character of the predominant part of current investment is particularly troubling given the enormous financing needs for sustainable development, highlighted in UNCTAD’s World Investment Report 2014.

On closer scrutiny, however, last year’s rise in FDI flows did not translate into equivalent expansion in productive capacity because cross-border merger and acquisitions (M&As) accounted for the lion’s share of the increase, rather than greenfield investments in new productive assets.

The report quantified the annual investment shortfall in developing countries at $2.5 trillion – a gap that can only reasonably be plugged by private sector FDI. In seeking to catalyse this kind of investment UNCTAD has been driving public-private sector dialogue through its World Investment Forum. This year takes the Forum to Africa, the continent where development needs are particularly acute, beckoning the question how the continent has fared in the investment stakes.

THE WRONG KIND OF FDI GROWTH Cross-border M&As rose 61%, the highest value since 2007, with multinationals taking advantage of their record cash positions, as

Investment Sharply Down Where Most Needed Africa has been something of a shining star on the economic front in recent years, but in 2015 investment went off course. Inflows

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fell dramatically, by 31%, to an estimated $38 billion, largely spurred by an investment slump in Sub-Saharan Africa. Central Africa and Southern Africa saw the largest declines in large part as a result of falling demand and rock-bottom commodity prices. Flows into gasrich Mozambique were down 21% to $3.8 billion. Nigeria saw its FDI decline by 27% to an estimated $3.4 billion as the country was hit by the drop in oil prices. FDI into South Africa fell precipitously, down 74% to $1.5 billion. Coming in the very year the international community announced the agenda that will direct development ambitions over the next fifteen years, the slump in developing country investment figures signals bleak prospects for its delivery in regions where needs are greatest. Yet, an analysis of the longer-term investment trends on the continent discloses a more encouraging picture with pockets of real progress, giving rise for optimism. NOT ALL DOON AND GLOOM According to UNCTAD data foreign investment in Africa over the past fifteen has increased more than fivefold, reaching $54 billion in 2014 compared to an underwhelming $10 billion in 2000. This has hiked Africa’s share of global flows to 4.4%, which while still modest, is a handsome improvement on the 0.7% in 2000. With more than $700 billion worth of FDI stock, Africa’s FDI performance has, in fact, outpaced its economic expansion, growing by 5% relative to its GDP between 2000 (at 24% of GDP) to 2014 (29%). While the biggest beneficiaries of FDI historically have tended to be large economies with considerable mineral resources, in recent years, more vulnerable economies, such as Tanzania, Uganda, Madagascar, and Ethiopia, have seen investment flowing in, with intra-regional FDI a particularly significant source of foreign capital in these countries. The senders of FDI to Africa are similarly evolving. Most FDI stock on the continent are still held by developed country-based parents, but developing country multinationals have had their appetites whetted by Africa, resulting in a spate

Spring 2016 Issue

Graph 1: Africa Inward FDI stock and its share of GDP, 1995-2014. Source: UNCTAD

of investments by Asian emerging economies – notably China, Singapore, Malaysia and India – on the continent in recent years. These new players now largely target assets relinquished by developed country MNEs, as the latter continue their exit from Africa. GOING AT IT ALONE An even more arresting development has been the acceleration of intra-regional FDI, which lends concrete support to African leaders’ efforts to achieve deeper regional integration. The rapid economic growth of the last decade has underpinned the rising dynamism of African firms on the continent, both on the trade and investment front. Intra-African investments have been fast rising, spurred mostly by the growing expansion of South African firms into the continent. And since 2008 Kenyan, Nigerian, and North African firms have also started venturing cross-border. In fact, between 2009 and 2014, the share of crossborder greenfield investment projects originating from within Africa rose to 19% of the total, from less than 10% in the period 2003 - 2008. But by far the most encouraging development over the past fifteen years has been the increasingly diverse nature of the investment going into Africa. A growing chorus has been urging Africa to move beyond the mere export of raw materials pointing that manufacturing ability and technology can facilitate high value-added trade for African countries. Not only would this help create employment and raise incomes; it would also help shield developing countries better against cyclical downturns, as witnessed by the current commodity slump, which is wreaking havoc in commodity-dependent developing country markets. The good news is that FDI into Africa now is helping to drive that transition. Investment into the continent is now more diverse than ever before, driven by demographic developments, high urbanisation rates, improved macroeconomic management, and greater interest from developing economy investors. SERVICES UP Services — which increased fourfold between 2001 and 2012 — now constitute the largest part of African FDI stock (48%). Another bright CFI.co | Capital Finance International

spot is manufacturing. The sharp increase in the number of Asian manufacturers engaging in Africa, as well as new investments from North America and Europe in R&D and consumer industries, gives impetus for the development of regional value chains and the diversification of domestic economies. And, confirming that Africa is truly on the rise, consumer-oriented sectors are now beginning to drive FDI growth. Expectations for further sustained economic and population growth underlie investors’ continued interest in consumer market-oriented sectors that target the rising middle-class population. This group is estimated to have expanded 30% over the past decade, reaching 120 million people. Targeted industries include consumer products such as food, information technology, tourism, finance and retail. Similarly, driven by growing trade and consumer markets, infrastructure FDI have seen robust increases in information and communication technology and in transport. Prospects for the continent are muted in the midterm — as can only be expected in view of the current commodity downturn and a consequent depression in commodity-seeking FDI. But what has been built up over the past fifteen years will not be undone by the downturn, and the continent can expect to continue building economic muscle. Akin to the rise of Asia, which released of millions of people from the poverty trap over the time frame of the Millennium Development Goals, the aspiration is to similarly set Africa on a growth path that will deliver commensurate benefits for its population. The best way to ensure this happens, is to encourage the growth of deeper, and pro-development investment on the continent. i

ABOUT THE AUTHORS James Zhan is director of Investment and Enterprise at the United Nations Conference on Trade and Development (UNCTAD) and leads the team that produces the World Investment Report Astrit Sulstarova is chief of the division’s Investment Trends and Data Section. Mathabo le Roux is economic officer in the Office of the Director. 229

Wall Street’s Second Act By Wim Romeijn

ow is the time to get rich. The volume of money idling on the side lines for lack of yield now stands at an all-time high. It is estimated that globally anywhere between three and four trillion dollars languishes on corporate balance sheets, bloats the books of family offices, and stuffs the accounts of the too-rich-to-care. The possessors of this idle cash are not an enviable lot for they dwell in a world of zero returns. Sheer desperation already drove some down the rabbit hole to an upside down land of negative interest rates. Here, debtors demand payment for the privilege of accepting a creditor’s money. Thus, anyone offering a safe bet of modest returns is sure to get the full attention of the world’s cash hoarders. A vast new industry has come into being dedicated to the promotion of investment solutions that chip away at the stockpiles of idle cash. Its largest sector comprises the climate change doomsayers who argue that carbon-neutral investments will not only save the world from meltdown, but are likely to produce above average returns as well. Others seek to rally the world’s excess savings for the eradication of poverty.

Final Thought

Taking their cue from a handful of good-hearted American billionaires, nearly all investment solution providers appeal to the conscience of cash hoarders who are told they hold the key that unlocks a cool future of plenty. However, cash usually has few, if any, scruples and will flow to wherever risk is deemed lowest in relation to rewards. In today’s low-to-no-yield world (no rewards), money simply moves to the safest havens – those select few jurisdictions already awash in cash. As such, the world has rediscovered the perversities inherent to the Lucas Paradox which offers a twist on conventional economic theory that predicts capital should flow from developed to emerging markets due to the former’s tendency to produce diminishing returns. First observed and described in 1990 by macroeconomist Robert Lucas of the University of Chicago, the Lucas Paradox attributes the suspension of economic logic to adverse business conditions, sovereign risk, and information asymmetry in emerging markets. While the returns are significantly higher, the perceived risk of investing in these markets is higher still. Hence, the money stays at home. 230

“Anyone offering a safe bet of modest returns is sure to get the full attention of the world’s cash hoarders.” Unless the root causes of the Lucas Paradox are addressed, the vast sums of money now confined to the margins will not become available to help underwrite development or finance the fight against climate change. That is more of a problem than it would seem at first glance: the dearth of yield has set the idle hands of Wall Street financiers at work to replenish the devil’s toolkit. Their latest invention: the bespoke tranche opportunity – an exotic derivative product offering serious leverage and cobbled together from collateralised debt obligations (CDOs) backed by credit-default swaps in a mix fine-tuned to suit the buyer’s risk tolerance profile. According to data gathered by BNP Paribas, bespoke tranche opportunities are fast becoming the next big thing: in 2014, as much as $20bn worth of bespoke tranche opportunities (aka collateralised swap obligations) were issued – up from barely $5bn in the previous year. Last year’s numbers have not yet been compiled but early indicators point to a massive increase in volume. Investment bankers have fallen in love with their latest offering which produces higher profit margins than plain treasury or corporate bonds and allow them to offload almost all risk to investors on either side of the swap.

Robert Lucas

CFI.co | Capital Finance International

Late last year, a Goldman Sachs trader recommended his clients via email to take a closer look at the exciting opportunities available through the new-fangled instrument: “A tranche of a bespoke portfolio of credits can offer exposure to diversified risk with the possibility of leverage, credit enhancement, and enhanced returns.” Meanwhile Citigroup promoted the deals as “attractive for credit-savvy investors in the postQE [quantitative easing] credit picker’s market.” Collateralised debt obligations (CDOs) gained notoriety as the instrument co-responsible for the 2008-09 financial meltdown. The derivative was used to bundle and upgrade tranches of nonprime assets deemed too toxic for inclusion in slightly less complex investment products. Soon, the buoyant market for CDOs also spawned its own derivative of a derivative – the CDO Squared. Bespoke tranche opportunities take the CDO carousel a step further still, allowing investors to pick and choose the derivative bets they are willing to make. Banks then put together a oneoff product containing a single tranche that dovetails precisely with the investor’s individual preferences. As an added bonus, and due to their unique nature, bespoke tranche opportunities are exempt from most of the regulatory constraints imposed by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Realising full well that taxpayers stand ready to rescue them from any serious mishap – with the US Federal Reserve unlikely to repeat its disastrous decision to allow a major bank to fail (Lehman Brothers 2008) – Wall Street’s investment bankers are sliding back to their old, and lucrative, ways of unsurpassed financial engineering. Those skills are currently in high demand as record-high excess savings need returns beyond the paltry average of 3.3% annually generated by corporate bonds. With the Lucas Paradox firmly in place and interest rates set to remain depressingly low for the foreseeable future – notwithstanding the Fed’s brave attempts to alter this reality – exotic financial instruments promising solace to numbed investors could not have stayed behind. Their appearance merely follows a logic – one that has been observed before, and did not augur happy times. i

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