CFI.co Winter 2015-2016 by CFI.co

Capital Finance International

Winter 2015 -2016

GBP 9.95 // EUR 14.95 // USD 15.95

AS WORLD ECONOMIES CONVERGE

Queen Rania of Jordan, World Economic Forum Trustee:

CANDID VOICE

ALSO IN THIS ISSUE // WORLD BANK GROUP: CLEAN-ENERGY FINANCING // IFC: CLIMATE CHANGE OTAVIANO CANUTO, IMF: EMERGING MARKETS // NASDAQ: SOMETHING NEW UNDER THE SUN US DEPARTMENT OF STATE: GLOBAL PROSPERITY // UNCTAD: INVESTMENT - IN NEED OF DIRECTION

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CHRONOMAT 44

Editor’s Column

Magic Powers Keep Poor in Their Place not only sought to topple those in power, but also curtail the influence of the clergy. As the late Christopher Hitchens pointed out in The Missionary Position: Mother Teresa in Theory and Practice (1995), Ms Bojaxhiu was very much in the business of supporting those in power, even as she tried to offer a semblance of comfort to their victims. In the 1980s, she repeatedly endorsed the communist dictatorship of Enver Hoxha in Albania and commended Haitian tyrant Jean-Claude “Baby Doc” Duvalier for his love of the poor, noting that “this love is reciprocated.” Ms Bojaxhiu was promptly awarded Haiti’s Legion d’Honneur for her kind words of understanding.

Just when he seemed without fault, one appears. Hip, vivacious, upright, and refreshingly normal, Pope Francis – one of the heroes featured in this issue – needed just shy of two years to steer the Vatican back onto the path of the righteous. Even die-hard atheists – some pun intended – could not help but join the man’s growing fan club. Sadly, even a modern and reform-minded pope must obey dogma and keep his eye on the cross. Thus it was that Pope Francis in December decided to attribute a second miracle to none other than the late Anjezë Gonxhe Bojaxhiu (19101997), aka Mother Teresa, Saint of the Gutters, Blessed Teresa of Calcutta, or Hell’s Angel – depending on one’s take and vantage point. Ms Bojaxhiu received credit for the miraculous healing of a Brazilian man who suffered from multiple brain tumours. Earlier, the Vatican attributed the remission of a Bengali woman’s abdominal tumour in 1998 to the posthumous divine intervention of Ms Bojaxhiu who, at the time she allegedly worked her magic, was no longer amongst the living.

Editor’s Column

Pope Francis has now set the stage for Ms Bojaxhiu’s canonisation into sainthood, scheduled to take place next September as part of the celebrations surrounding the extraordinary jubilee year of mercy, decreed by papal bull in April 2015. Candidate saints need at least two miracles in order to claim the title. This issue of CFI.co highlights inequality and the many ills it causes. Some of our contributors touch upon the effects of economic and social polarisation while our Long Read examines the phenomenon in detail, suggesting a number of non-cataclysmic ways in which it may be addressed. Inequality is also a staple of the World Economic Forum which has long warned of the societal damage wrought by the widening gap between haves and the have-nots. Under Pope Francis the Vatican seemed destined to, at long last, veer away from its historical tendency to actively support economic and social exclusion. Over the centuries, the Holy See has offered the poor and wretched of the earth a measure of succour to keep them from becoming restless. It is no coincidence that, throughout the ages, popular uprisings against perceived economic and political abuse 8

Few of her fans care to remember that Ms Bojaxhiu repeatedly intervened on behalf of disgraced US financier Charles Keating, a self-styled moraliser and anti-porn crusader, who played a pivotal role in the savings and loan scandal of the mid-1980s that cost taxpayers over $3bn to fix and left some 23,000 savers penniless. After the 1984 accident at the Union Carbide pesticide plant in Bophal, India, left close to 3,800 people dead, Ms Bojaxhiu refused speak out against injustice, advising desperate survivors instead to “forgive, forgive, and forgive,” and “learn how to love one another.” While traveling the world, raising untold millions in donations from cosying up to the high and mighty, Ms Bojaxhiu actually did very little to soften the plight of those who had turned to her for help. Most of the funds she raised either financed antiabortion campaigns or missionary work aimed at spreading the word. During a 1981 press conference, Ms Bojaxhiu admitted that helping improve the lives of poor people was not part of her remit: “I think it is very beautiful for the poor to accept their lot, to share it with the passion of Christ. I think the world is being much helped by the suffering of the poor people.” The idolatry of a lady with a rather curious sense of compassion contributes little to Pope Francis’ attempts to reposition his church and transform it into a beacon of light and a force for good. Inequality, and the resulting suffering of untold billions, will not wane as long as people such as Ms Bojaxhiu are kept on a pedestal for all to gape at, blissfully unaware of the misery they help perpetuate. As world economies converge, so should economic and political opposites. The participants of the World Economic Forum are well aware of this and aim to find ways to accomplish the task without upsetting the proverbial apple cart. Maybe, the WEF could consider inviting Pope Francis to Davos. The pontiff can undoubtedly offer a meaningful contribution to the discussion and may perhaps even be enticed to let go of the missionary zeal that seems to lead him astray. Miracles do happen. Wim Romeijn Editor CFI.co CFI.co | Capital Finance International

Vatican City

Editorâ&#x20AC;&#x2122;s Column

> Letters to the Editor

“ “ “ “

In your last issue, you highlight the various dimensions of the Greek drama. Whilst helpful, I still cannot quite understand how a country cannot simply be allowed to fail. Greece has a long tradition of shoddy bookkeeping and profligate spending. Living large seems etched into the nation’s very DNA. It is unreasonable to expect the Greeks to change their ways and become as thrifty as, say, Germans or Finns. Should it not be easier – on both us and them – to simply have the country revert back to its drachma which they may then devalue merrily? It worked in the past, why shouldn’t it work now? GEORGE SIMONIDES (Thessaloniki, Greece) Your article on electrotango offered a welcome reprieve from the news normally generated by Argentina. Sadly, that country’s vibrant cultural scene tends to be ignored as the shenanigans of our politicians claim centre stage. Argentina is so much more than just a collection of headline-grabbing leaders. In fact, the nation may be said to subsist not because of them, but rather despite them. In any case, electrotango reaffirms Argentine society as a great producer of innovation in the arts. Thank you for showing that. EURIPIDES ACOSTA (Salta, Argentina) I was struck by the wholly unexpected vitality of life in Hargeisa, the capital city of Somaliland. That country, in fact, seldom gets the credit it is due. Unrecognised by the international community, Somaliland offers a gleam of hope in the otherwise rather unhappy Horn of Africa. While by no means perfect, Somaliland is reasonably well-governed and has amply proved to constitute an entity quite separate from Somalia, to which it once belonged. I hope the international community, which has a tendency to forget places that do not produce news, yet takes note of Somaliland and rewards its people with the recognition they deserve. UMAR FARAH (Hargeisa, Somaliland) The quest for low-carbon energy solution is, perhaps, is a quixotic one. Instead of subsidising the quest for a holy grail, maybe we could allow the market to work its wonder and do its magic. Whilst I admit that the above may be akin to blasphemy to some, I suspect that disbursing untold billions to finance alternative energy misses the point. Some investments in research and development may be called for, but throwing vast amounts of money at the problem is unlikely to produce the desired results. More likely, a hybrid monstrosity will emerge that ill serves its purpose and costs a fortune. ANDREA KUNTZ (Rio de Janeiro, Brazil)

Switzerland: Davos

Winter 2015 - 2016 Issue

“ “ “ “

Noting that your magazine reports on economic convergence, perhaps you could take a look at Rwanda. In under a generation, that country has managed to emerge from the dark pit of genocide to become a shining example of what may be accomplished by a judicious application of common sense. Today’s Rwanda is a nation of hard-working optimists. The economy is growing sustainably without producing the sort of lopsided results that undermine the future by creating social tensions. The government’s zero-tolerance policy on corruption has succeeded to reduce the abuse of power and transformed Rwanda into one of Africa’s top performers. Rwanda is showing Africa the way forward. You may want to investigate how that broken nation put itself back together and back to work. AGATHE MBONYUMUTWA (Kigali, Rwanda) How can your magazine possibly praise Guy Ligier who lived his life leeching off the powerful? While you describe him as a flamboyant character, which he indeed was, Mr Ligier was actually more of a repeat-failure, even though he received massive government support for many of his endeavours. You describe him as someone able the wring money from a rock. That is true, although, more often than not, that rock happened to be someone in power with access to public coffers. Not someone whose career and life serves as an example for others to follow. GUILLAUME GÉROUX (Lyon, France) I never knew that my Ray-Ban shades were made famous by General MacArthur. Nor did I realise that most designer sunglasses are produced by one and the same company. What an example of corporate consolidation. I do wonder what the general would have thought of becoming the poster boy for a brand of sunglasses intended for aviators. ADRIAN COOMB (Perth, Australia)

The United Kingdom threatening to turn its back on Europe is nothing new. That island nation has always pursued its own peculiar course throughout history. However, nobody should underestimate the degree of common sense of the British people. This is, after all, a green and pleasant land inhabited by shopkeepers. As such, it knows better than most how to take care of business. Europe is good business. It offers the island-bound shopkeepers access to a market of some 440 million eager buyers whose purchasing power is fast increasing. Why you’d want to exclude your hard-working self from ready access to that many consumers is beyond me. I’d wager a tidy sum that, when push comes to shove and in the privacy of a polling booth, the British nation will let common sense prevail. PETER RESNIK (Tunbridge Wells, 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 Sebastian Svensson Columnists Otaviano Canuto Ross Jackson Tor Svensson

> COVER STORIES Otaviano Canuto, IMF: Emerging Markets (14 – 16)

US Department of State: Global Prosperity (24 – 25)

NASDAQ: Something New Under the Sun (26 – 27)

Distribution Manager Len Collingwood Subscriptions Maggie Arts Commercial Director Jon Gerben Director, Operations Marten Mark Publisher Mark Harrison

Cover Story: WEF - Beyond Davos (32 – 34)

IFC: Climate Change (120 – 122)

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

World Bank Group: Clean-Energy Financing (196 – 198)

UNCTAD: Investment - In Need of Direction Printed in the UK by The Magazine Printing Company using only paper from FSC/PEFC suppliers www.magprint.co.uk

(224 – 225)

CFI.co | Capital Finance International

FULL CONTENTS 14 – 41

As World Economies Converge Otaviano Canuto

Nouriel Roubini

Mohamed A El-Erian

Tor Svensson

Ann Low

Evan Harvey

Ross Jackson

42 – 53

Winter 2015-2016 Special: Architects of Development

54 – 89

Europe

90 – 113

Dreams ODIGEO

Nordea Asset Management

STOXX

Akerton Partners

Golden Assets

Inversis Banco

PayShop

Crédit Mutuel Group

Darren Parkin

FrieslandCampina WAMCO

IFC

FDH Financial Holdings

Rosabon Financial Services

Britam

PwC

FleetPartners

Science-Based Targets

First Registrars and Investor Services

Alliance Financial Services

Strategy&

CFI.co Awards Rewarding Global Excellence

114 – 145

146 – 163

Africa

Middle East Paris Gallery Group

CBRE Middle East

Kuwait International Bank

Elwan Group

164 – 175

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

176 – 185

Latin America Ernst & Young

186 – 199

Hidrovias do Brasil

North America Credit Value Partners

Penny Hitchin

Sebastian Svensson

UOL Group

Michael Pettis

Asia Plantation Capital

Bangladesh Building Systems

Grant Thornton

World Bank Group

200 – 225

Asia Pacific

JSW Energy

226

Micro Credit the American Way 13

> Otaviano Canuto, IMF:

Whither Emerging Markets Foreign Exchange Reserves

fter an exponential rise in foreign exchange reserves accumulation by emerging markets from 2000 onwards, the tide seems to have turned since mid-2014. Changes in capital flows and commodity prices have been major factors behind the inflection, with the new direction expected to remain given the context of the global economy. Although it is too early to gauge whether the ongoing unwinding of such reserves will lead to vulnerability in specific emerging markets, the payoff from strengthening domestic policies has broadly increased. One of the landmarks of the global economy in the new millennium has been the steep rise in foreign exchange reserves held by central banks. From a total of $1.8 trillion in 2000, global reserves reached a peak of $2 trillion by mid2014. They have declined since then (figure 1). The accumulation of foreign exchange reserves by emerging market economies has been a major factor during both upward and downward phases of the tide. Although the growth of reserves in China and other non-advanced Asian economies accounted for more than half of the expansion of reserves during the new millennium, emerging economies of other regions also experienced substantial increases. After a brief slowdown during the global financial crisis, the pace of

corresponding US Treasury-10 sudden yield rise was followed by a gradual descent over the following year. Nonetheless, interest rate spreads started climbing again after mid-2014 for emerging market economies and other risky assets – like US high-yield corporate bonds.

“One of the landmarks of the global economy in the new millennium has been the steep rise in foreign exchange reserves held by central banks.”

Sovereign spreads expanded considerably, particularly for commodity exporters and countries affected by rising geopolitical risks. While global liquidity conditions remained loose, the perception of a general growth deceleration in emerging market economies and the strengthening US economic recovery, altered investors’ relative asset demands. Although idiosyncratic, country-specific developments played a role, as the overall enthusiasm for emerging markets assets wound down.

accumulation by emerging market economies partially recovered, until the decline started around mid-2014 – this time also taking place in China (figure 2). CAPITAL FLOWS AND OIL PRICES The global decrease of foreign exchange reserves is to some extent explained by changes in the exchange rate, namely the euro and yen depreciation vis-à-vis the dollar, given the proportion of reserve assets denominated in the former currencies (figure 1). In addition, changing trends in capital flows to emerging market economies and the sustained fall of oil prices were major contributory factors behind the decline in reserves accumulation.

Changes in capital flows to China have been remarkable. The combination of a huge current account surplus, and a private sector capital surplus from 2001 onwards, led Chinese authorities to stockpile dollar reserves from $170 billion in 2000 to $4 trillion in August 2014, in order to contain what would have otherwise been a major exchange rate appreciation.

Broadly speaking, capital flows to emerging market economies slowed down after mid2014. The “taper tantrum” of 2013 and the

The real exchange rate nonetheless appreciated by around 40% after 2007, while the current

14,000 Claims in other currencies

12,000

Claims in Euros Claims in Australian dollars 8,000

Claims in Canadian dollars

6,000

Claims in Swiss francs

4,000

Claims in Japanese yen Claims in Pounds sterling

2,000

Claims in U.S. dollars

Figure 1: World Currency Composition of Official Foreign Exchange Reserves. Source: IMF

CFI.co | Capital Finance International

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CFI.co Columnist

US Dollars, Billions

10,000

Unallocated Reserves

Winter 2015 - 2016 Issue

the rouble in place till late 2014, and to a lesser extent Malaysia. As an exception to the general pattern, in Switzerland, strong capital inflows and appreciation pressure starting in late 2014 led to rising reserve holdings in the context of an exchange rate floor with respect to the euro established in 2011. The central bank removed that floor in mid-January 2015, with limited intervention after January.”

Figure 2: Changes in Foreign Exchange Reserves of Emerging Market Economies (percent of GDP).

Source: IMF, World Economic Outlook, October 2015.

VULNERABILITY IN EMERGING MARKETS? The underlying factors behind the recent reversion in capital flows and reserves accumulation by emerging markets are expected to remain in place in the near horizon. Quantitative easing (QE) policies in the Eurozone and Japan are not expected to create a liquidity push factor for capital flows to emerging markets commensurate with that of the US QE. Furthermore, global economic prospects as envisaged by the latest IMF’s World Economic Outlook point to a slight pickup in growth for advanced economies, whereas emerging market and developing economies are expected to exhibit further growth deceleration. After mid-2014, most countries facing depreciation pressures against the rising US dollar have opted to not spend reserves on a large scale to sustain their currencies, which favours the likelihood of future current-account adjustments to the new reality of capital flows. Nevertheless, the realignment of current account balances is expected to happen gradually, while it is highly possible that net capital outflows will correspond to some extent with the depletion of reserves for some time going forward.

Figure 3: Gross Capital Inflows to Emerging Markets (excluding China).

Source: IMF, 2015 External Sector Report, July 2015.

3). Such a change was not uniform – Russia suffered a collapse of flows, whereas India retained stable gross inflows – but the tide has clearly reversed since last year for most emerging markets. Given slowly changing current-account balances, shrinking capital inflows were mostly matched by the decline in net purchases of foreign assets shown in figure 2.

“In the past 12 months, private sector capital outflows have proceeded at a generally orderly pace, but have still forced China to reduce its reserves by $400 billion in order to prevent a precipitous drop in the exchange rate. It was not until the PBOC [Peoples Bank of China] announced an adjustment to its exchange rate mechanism on 11 August, triggering fears of future devaluation, that the capital outflow hit crisis proportions. During August, the reserves dropped by $94 billion on the official figures, and many analysts think that disguised intervention in futures and options markets increased the genuine figure for currency support to over $170 billion last month.”

In addition, due to the plunge in oil prices the highly concentrated group of large oil exporters – 10 countries account for 75% of world oil exports – were now confronted with shrinking current account surpluses and reduced foreign asset accumulation. Figure 4 depicts the resulting evolution of gross international reserves of the 29 large economies covered by the annual External Sector Report of the IMF. As indicated in the latest issue (IMF, July 2015, p.14):

The deceleration of gross capital inflows also happened in other emerging markets (figure

“The pattern of slowing reserve accumulation is broad based and includes declines in international reserves holdings by some oil exporters (e.g. Russia, Saudi Arabia), reflecting reduced oil export revenue as well as the riyal’s peg to the US dollar and the managed float of CFI.co | Capital Finance International

Foreign exchange reserves are stored for several reasons, as illustrated by reserve managers in their responses to a survey conducted by the IMF (Assessing Reserve Adequacy, February 2011). Apart from savings for future generations – as is the case when Sovereign Wealth Funds are added as reserves – management of exchange rate levels, bank recapitalisation costs or others – like matching domestic currency in the case of currency boards – reserves are held mostly for precautionary reasons. Monetary authorities need to keep assets readily available and liquid to address potential balance of payments needs: to serve as a buffer for liquidity needs, smooth exchange rate volatility, guard the economy against shocks and so on. Ironically, the confidence creditors place in the stability provided through the acquisition of reserves ends up reducing the spreads on the bonds issued, and therefore diminishing the negative carry trade on the invested reserves. 15

CFI.co Columnist

account surplus moved down from 11% of GDP in 2000 to 2% last year. Moreover, private capital flows turned negative since mid-2014, partially as a result of unwinding interest carry trades, given expectations of no further exchange-rate appreciation and interest rate reductions. According to Gavyn Davies, Financial Times, September 21, 2015:

What about the adequacy of emerging markets reserves? They are costly to hold, as they usually imply a negative carry trade, with yields on reserve assets typically lower than interest rates paid on outstanding long-term debt and/ or opportunity costs of frozen capital. Therefore, they must serve some purpose. Given that reserve levels are certain to fall, could this inadvertently result in inadequately low levels?

Figure 4: Gross International Reserves, 2005Q1-2015Q1

Source: IMF, 2015 External Sector Report, July 2015.

The heightened precautionary stance in some economies appears to be correlated with greater financial integration with the rest of the world, particularly if it holds a negative net international investment position. This has been a hard-won lesson learned through the multiple experiences of sudden stops in capital flows and recurring crises in emerging markets and advanced economies, since the dawn of the current era of financial globalisation over several decades. In effect, notwithstanding the necessity for reserves accumulation to avoid domestic currency appreciation in some countries, the build-up of huge piles of foreign exchange reserves depicted in figure 1 cannot be understood without being cognizant of the increasing weight attributed to precautionary motives.

CFI.co Columnist

What are the adequate levels of reserves for any given country? This remains an elusive question. The IMF (Assessing Reserve Adequacy-Specific Proposals, April 2015) proposes adequacy considerations by types of economies, differentiating them in accordance with financial and economic flexibility and degree of market access. Traditional benchmarks – import cover, ratios of reserves to short-term debt, ratios of reserves to broad measures of money, or combinations of those – are often used by analysts, but they require further country-specific considerations. Models of optimal reserve estimation attempt to balance avoided economic costs (in terms of output and consumption potentially lost) with the opportunity costs of storing reserves, and also take into consideration degrees of risk aversion. As all this remains a work in progress, precaution tends to favour the retention of reserves above such indicators to ensure there is a reasonable buffer in place. Notwithstanding the difficulties in assessing the extent to which the on-going dwindling of foreign exchange reserves will result in individual emerging economies becoming too vulnerable, one can expect a relative weakening 16

vis-à-vis the ascent phase until mid-2014. Another unambiguous takeaway is the need to be cognizant of the fact that foreign exchange reserves are not the only defence a country may have against shocks. Sound macroeconomic and prudential policies are the ultimate determinants of a country’s resilience to both endogenous and exogenous shocks. Reserves are likely not enough to counter sudden capital outflows and crises, sooner or later, in the presence of high and unsustainable public debt, persistently high inflation due to inadequate monetary policy, currency misevaluation, and deficient financial supervisory and regulatory frameworks that prove ineffective to curb contingent risks from the financial sector. High volumes of reserves may partially compensate for policy weaknesses in some of these dimensions from the standpoint of capital holders. However, the payoff for improving domestic policies has broadly risen for emerging markets in the context of the current global economic environment. i

ABOUT THE AUTHOR Otaviano Canuto is the executive director at the board of the International Monetary Fund (IMF) for Brazil, Cabo Verde, Dominican Republic, Ecuador, Guyana, Haiti, Nicaragua, Panama, Suriname, Timor Leste, and Trinidad and Tobago. Views expressed here are his own and do not necessarily reflect those of the IMF or any of the governments he represents. Mr Canuto has previously served as vice president, executive director, and senior adviser on BRICS economies at the World Bank, as well as vice president at the Inter-American Development Bank. He has also served at the Government of Brazil where he was state secretary for international affairs at the ministry of finance. He has an extensive academic background, serving as professor of economics at the University of São Paulo and University of Campinas (UNICAMP) in Brazil.

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

> Nouriel Roubini:

Europe’s Barbarians Inside the Gate

am on a two-week European tour at a time that could make one either very pessimistic or constructively optimistic about Europe’s prospects.

First the bad news: Paris is sombre, if not depressed, after the appalling terrorist attacks in November. France’s economic growth remains anaemic, the unemployed and many Muslims are disaffected, and Marine Le Pen’s far-right National Front did well in the regional elections of December 6. In Brussels, which was semi18

deserted and in lockdown, owing to the risk of terrorist attacks, the European Union institutions have yet to devise a unified strategy to manage the influx of migrants and refugees, much less address the instability and violence in the EU’s immediate neighbourhood. Outside the Eurozone, in London, there is concern about negative financial and economic spillover effects from the monetary union. The migration crisis and recent terrorist attacks mean that a referendum on continued EU membership – likely CFI.co | Capital Finance International

to be held next year – could lead the United Kingdom to withdraw. This would probably be followed by the breakup of the UK itself, as a Brexit would lead the Scots to declare independence. In Berlin, meanwhile, German Chancellor Angela Merkel’s leadership is coming under growing pressure. Her decision to keep Greece in the Eurozone, her courageous but unpopular choice to allow in a million refugees, the Volkswagen scandal, and flagging economic growth (owing to the slowdown of China and emerging markets)

have exposed her to criticism even from within her own party.

Europe’s situation to the beginning of the end of the Roman Empire.

Frankfurt is a divided city, policy-wise: the Bundesbank opposes quantitative easing and negative policy rates, while the European Central Bank is ready to do more. But Germany’s thrifty savers – households, banks, and insurance companies – are furious about ECB policies that tax them (and others in the Eurozone core) to subsidise the Eurozone periphery’s alleged reckless spenders and debtors.

But Europe is not doomed to collapse. The crises that it now confronts could lead to greater solidarity, more risk sharing, and further institutional integration. Germany could absorb more refugees (though not at the rate of a million per year). France and Germany could provide and pay for military intervention against the Islamic State. All of Europe and the rest of the world – the US, the rich Gulf States – could provide massive amounts of money for refugee support and eventually funds to rebuild failed states and provide economic opportunity to hundreds of millions of Muslims and Africans.

In this environment, the full economic, banking, fiscal, and political union that a stable monetary union eventually requires is not viable: The Eurozone core opposes more risk sharing, solidarity, and faster integration. And populist parties of the right and left – anti-EU, anti-euro, anti-migrant, anti-trade, and anti-market – are becoming stronger throughout Europe. But of all the problems Europe faces, it is the migration crisis that could become existential. In the Middle East, North Africa, and the region stretching from the Sahel to the Horn of Africa, there are about twenty million displaced people; civil wars, widespread violence, and failed states are becoming the norm. If Europe has trouble absorbing a million refugees, how will it eventually handle twenty million? Unless Europe can defend its external borders, the Schengen agreement will collapse and internal borders will return, ending freedom of movement – a key principle of European integration – within most of the EU. But the solution proposed by some – close the gates to refugees – would merely worsen the problem, by destabilising countries like Turkey, Lebanon, and Jordan, which have already absorbed millions. And paying off Turkey and others to keep the refugees would be both costly and unsustainable.

Germany: Berlin

“If economic solutions aren’t found, eventually these regions’ conflicts will destabilise Europe, as millions more desperate, hopeless people eventually become radicalised and blame the West for their misery.”

The problems of the greater Middle East (including Afghanistan and Pakistan) and Africa cannot be resolved by military and diplomatic means alone. The economic factors driving these (and other) conflicts will worsen: global climate change is accelerating desertification and depleting water resources, with disastrous effects on agriculture and other economic activities that then trigger violence across ethnic, religious, social, and other cleavages. Nothing short of a massive, Marshall Plan-style outlay of financial resources, especially to rebuild the Middle East, will ensure long-term stability. Will Europe be able and willing to pay its share of it? If economic solutions aren’t found, eventually these regions’ conflicts will destabilise Europe, as millions more desperate, hopeless people eventually become radicalised and blame the West for their misery. Even with an unlikely wall around Europe, many would find a way in – and some would terrorise Europe for decades to come. That’s why some commentators, inflaming the tensions, speak of barbarians at the gates and compare

This would be expensive fiscally for Europe and the world – and current fiscal targets would have to be bent appropriately in the Eurozone and globally. But the alternative is global chaos, if not, as Pope Francis has warned, the beginning of World War III. There is light at the end of the tunnel for the Eurozone. A cyclical recovery is underway, supported by monetary easing for years to come and increasingly flexible fiscal rules. More risk sharing will start in the banking sector (with EUwide deposit insurance up next), and eventually more ambitious proposals for a fiscal union will be adopted. Structural reforms – however slowly – will continue and gradually increase potential and actual growth. The pattern in Europe has been that crises lead – however slowly – to more integration and risk sharing. Today, with risks to the survival of both the Eurozone (starting with Greece) and the EU itself (starting with Brexit), it will take enlightened European leaders to sustain the trend toward deeper unification. In a world of existing and rising great powers (the US, China, and India) and weaker revisionist powers (such as Russia and Iran), a divided Europe is a geopolitical dwarf. Fortunately, enlightened leaders in Berlin – and there are more than a few of them, despite perceptions to the contrary – know that Germany’s future depends on a strong and more integrated Europe. They, together with wiser European leaders elsewhere, understand that this will require the appropriate forms of solidarity, including a unified foreign policy that can address the problems in Europe’s neighbourhood. But solidarity begins at home. And that means beating back the populists and nationalist barbarians within by supporting aggregate demand and pro-growth reforms that ensure a more resilient recovery of jobs and incomes. 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:

The Great Policy Divergence

ver the next few weeks, the US Federal Reserve and the European Central Bank are likely to put in place notably different policies. The Fed is set to raise interest rates for the first time in almost ten years. Meanwhile, the ECB is expected to introduce additional unconventional measures to drive rates in the opposite direction, even if that means putting further downward 20

pressure on some government bonds that are already trading at negative nominal yields. In implementing these policies, both central banks are pursuing domestic objectives mandated by their governing legislation. The problem is that there may be few, if any, orderly mechanisms to manage the international repercussions of this growing divergence. CFI.co | Capital Finance International

The Fed is responding to continued indications of robust job creation in the United States and other signs that the countryâ&#x20AC;&#x2122;s economy is recovering, albeit moderately so. Also conscious of the risk to financial stability if interest rates remain at artificially low levels, the Fed is expected to increase them. The move marks a turning point in the Fedâ&#x20AC;&#x2122;s approach to the economy. In deciding to raise interest rates, it

will be doing more than simply lifting its foot from the financial-stimulus accelerator; it will also be taking a notable step toward the multiyear normalisation of its overall policy stance. In the meantime, the ECB is facing a very different set of economic conditions, including generally sluggish growth, the risk of deflation, and worries about the impact of the terrorist attacks in Paris on business and consumer confidence. As a result, the bank’s decision-makers are giving serious consideration to pushing the discount rate further into negative territory and extending its large-scale asset-purchase program (otherwise known as quantitative easing). In other words, the ECB is likely to expand and extend experimental measures that will press even harder on the financialstimulus accelerator. In a perfect world, policymakers would have assessed the potential for international spill-overs from these divergent policies (including possible spillbacks on both sides of the Atlantic) and put in place a range of instruments to ensure a better alignment of domestic and global objectives. Unfortunately, political polarisation and general policy dysfunction in both the US and the European Union continue to inhibit such an effort. As a result, and lacking a more comprehensive policy response, the harmonisation of their central banks’ divergent policies will be left to the markets – in particular, those for fixed-income assets and currencies. Already, the interest-rate differential between “risk-free” bonds on both sides of the Atlantic – say, US Treasuries and German Bunds – has widened notably. And, at the same time, the dollar has strengthened not only against the euro, but also against most other currencies. Left unchecked, these trends are likely to persist.

ECB: Frankfurt, Germany

“The problem is that there may be few, if any, orderly mechanisms to manage the international repercussions of this growing divergence.”

If history is any guide, there are three major issues that warrant careful monitoring in the coming months. First, the US is unlikely to stand by for long if its currency appreciates significantly and its international competitiveness deteriorates substantially. Companies are already reporting earning pressures due to the rising dollar, and some are even asking their governments to play a more forceful role in countering a stealth “currency war.” Second, because the dollar is used as

a reserve currency, a rapid rise in its value could put pressure on those who have used it imprudently. At particular risk are emerging-country companies that, having borrowed overwhelmingly in dollars but generating only limited dollar earnings, might have large currency mismatches in their assets and liabilities or their incomes and expenditures. And, finally, sharp movements in interest rates and exchange rates can cause volatility in other markets, most notably for equities. Because regulatory controls and market constraints have made brokers less able to play a countercyclical role by accumulating inventory on their balance sheets, the resulting price instability is likely to be large. There is a risk that some portfolios will be forced into disordered unwinding. Furthermore, the central banks’ policy of curtailing so-called “volatile volatility” is likely to be challenged. Of course, none of these outcomes is preordained. Politicians on both sides of the Atlantic have the ability to lower the risk of instability by implementing structural reforms, ensuring more balanced aggregate demand, removing pockets of excessive indebtedness, and smoothing out the mechanisms of multilateral and regional governance. The three possible outcomes of all this include a relatively stable multispeed world, notable disruptions that undermine the US’s economic recovery, and a European revival that benefits from US growth. The good news is that the impact of the divergence will depend on how policymakers manage its pressures. The bad news is that they have yet to find the political will to act decisively to minimise the risks. As the Fed normalises its monetary policy and the ECB doubles down on extraordinary measures, we certainly should hope for the best. But we should also be planning for a substantial rise in financial and economic uncertainty. i

ABOUT THE AUTHOR Mohamed A El-Erian is chief economic adviser at Allianz, the corporate parent of PIMCO, where he served as CEO and co-CIO (2007-1014). He is also chairman of US President Barack Obama’s Global Development Council.

> Tor Svensson:

CFI.co Columnist

Quantitative Easing Falling Short

emember the unemployed? Well, it’s hard to forget that about half of the young people in Spain and Greece are out of work. Elsewhere along the northern shores of the Mediterranean job opportunities are also few and far in between. How about the underemployed? In the US about one in every six workers cannot find the job they have been trained for: college graduates are flipping burgers, stocking shelves, or pushing boxes in warehouses. Conveniently, these overqualified workers no longer populate the unemployment statistics since, after all, they do receive a pay check – of sorts. 22

The power of monetary policy was mobilised to provide succour. However, when the dust settled it appeared that, at least in the industrialised world, monetary policy had rescued only the already wellheeled: big business and banks too big to fail. The rest was left in the lurch, told to wait while trickledown economics works its magic. Taxpayers footed the bill and the reserve army of labour was kept confined to barracks. Meanwhile in Europe, more targeted longerterm refinancing operations (TLTROs) are being launched. So far, about €400 billion has been made available to European banks. The funds CFI.co | Capital Finance International

are meant to be passed on to businesses in the Eurozone with a view to prodding the economy back to life. Results, however, the results are barely visible – if at all. TLTROs allow banks to borrow at 0%-0.5% interest rate. However, an alarming number of banks fail to pick up their allotment for a dearth of corporates wishing to borrow or credit-worthy takers. The latter group includes small and medium-sized enterprises (SMEs) which are still unable to raise capital. The Financial Times recently reported that almost

Winter 2015 - 2016 Issue

none of the $13 trillion that since 2008 has been raised by corporates via the capital markets was channelled to capital expenditure. Instead, the monies were spent on share buybacks, acquisitions, tax-avoidance schemes, and – big surprise – executive pay. In the US, companies have disbursed around $5 trillion annually during the past four years buying back their own stock. In 2015, the European Central Bank (ECB) released an estimated €500 billion euro in freshly created quantitative easing (QE) funds. Nobody knows the exact amount – or what it was used for – due to the banks delayed transparency. The recently wrapped-up $4 trillion QE programme in the US managed to move t-bonds from the books of the Treasury Department that issues the debt to the Federal Reserve, which purchases the paper. The exercise resulted in a slight improvement of employment levels, though wages remained stagnant, attesting to considerable slack in the US labour market. Japan went through similar financial hoops and has also little to show for it. Empirical evidence points to QE enjoying, at best, murky effects. Officially, the policy objectives by all three central banks had been to prevent a meltdown of financial markets, stimulate growth, and boost employment levels. Avoiding deflation and underpinning consumer confidence were later added to the mix. With multiple policy objectives, QE suffered mutation and mission creep. The effort became a drawn out commitment without a clearly defined exit strategy. While ongoing, QE does manage to jack up asset prices across the board: bonds, stocks, and real estate prices went through the roof as money sloshed about and had to find some kind of safe harbour. Predictably, some of the more esoteric asset classes benefited from a spill-over effect: rare coins and stamps, paintings, vintage jewellery, and other trinkets from more innocent eras were snapped up by eager buyers, flush with cheap cash. Rather than consume in a more mundane manner, the QE-wealthy went on an asset buying spree. Growing bored with the lacklustre action on more traditional markets, these folks turned to fine art, fast cars, silly-expensive wines, and other status-defining objects.

“With trickle-down economics myths and legends, the wealth effect – when people unstring their purse as soon as things are looking up – is limited to the top 0.1% or so of society.”

Part of the QE monies has found its way onto the bond market. The additional liquidity provided a CFI.co | Capital Finance International

Then again, QE was never really meant to be a social programme, unless of course tending to the needs of executives falls in this category. Executive pay remains on the ascendancy with CEOs carting off millions in performance-based compensation. The trouble is CEO’s pay is most often linked to the company’s share price. With QE money boosting stock indices, executives saw their incomes increase without a corresponding rise in effort or competence. Meanwhile in the real world, wages and their purchasing power are moving nowhere. The aforementioned executives dispense nuggets of entrepreneurial wisdom proclaiming that their particular industry cannot possibly survive – let alone prosper – if faced with higher payrolls. So, capital and profits, expressed as a percentage of GDP, has gained the upper hand over salaries, which are in relative decline. Central bankers have been clamouring for fiscal stimulus to be used for boosting employment levels. Now it would seem that monetary policy alone does not perform this trick. It is welldocument that inequality, especially when taken to extremes, hampers growth and stunts development (see this issue’s long read). Expansionary monetary policy is impotent in a vacuum: without consumer demand, business confidence, and entrepreneurship it cannot work. During the Reagan years, the US pursued a bizarre mix of policies that combined freewheeling government spending with policies that contracted the monetary supply by maintaining interest rates sky-high. Three decades later, a reverse approach sees a relaxed attitude to money supply combined with fiscal prudency. The phenomenon is more pronounced in Europe than in the US. That goes a long way in explaining why the latter’s growth outpaces the former’s. It also helps explain why US unemployment stands at 5% versus 11% in Europe. QE does not boost employment in any discernible way. It does, however, contribute to inequality. Thomas Piketty proved that unfettered capitalism concentrates wealth into the pockets of an ever smaller group of people. Mr Piketty also showed how the inequality thus generated acts like sand in the economic engine, depressing growth rates and hampering entrepreneurial innovation. As long as fiscal expansion remains absent from the picture, any and all attempts at reinvigorating economic growth – and creating opportunities for all – remain destined to fail. i ABOUT THE AUTHOR Tor Svensson is the Chairman of Capital Finance International. 23

CFI.co Columnist

now relegated to the realm of

With trickle-down economics now relegated to the realm of myths and legends, the wealth effect – when people unstring their purse as soon as things are looking up – is limited to the top 0.1% or so of society. Nobody else feels particularly privileged right now. Curiously enough, a case could be made that, ultimately, the already longsuffering taxpayer will foot the bill – yet again. Who else is to service this debt when its true size hit home, followed by the chickens.

windfall to – mostly – big corporations which, as the FT discovered, used the monies to buy back shares or take over competitors. The latter more often than not creates synergies that usually lead to job losses – not gains.

> Ann Low, US Department of State:

Business Registrations Are Fuel for Global Prosperity

e have known for a long time that if developing countries could bring their businesses into the formal sector, there would be strong dividends in terms of providing worker protections, transparency and tax revenue generation. Now we have a tool to help all governments facilitate those results. GER. co is an Internet platform, launched in October 2014, by the Kauffman Foundation’s Global Entrepreneurship Network and the United Nations Conference on Trade and Development (UNCTAD) with input from the US Department of State. The platform contains links to all the official business registration websites in the world and a rating of each website’s user-friendliness. GER.co’s mission is to simplify business registration processes on a global scale. The site includes promotional materials for its Go Green by 2019 campaign, where governments are asked to put their processes online and make them clear and simple by 2019. It also includes educational materials on its schools page to inspire behavioural change, so future government officials see processes from the user’s standpoint, and future entrepreneurs see business registration as the first step towards business success. We hope readers will visit GER.co, link to the website, and make the site better known. WHY DO BUSINESS REGISTRATIONS MATTER? Inclusive Growth: Unregistered businesses are the elephant in the room. According to the Organization for Economic Cooperation and Development (OECD), over 60% of the global work force, or 1.8 billion of the world’s 3 billion workers, are employed informally, meaning they work for unregistered businesses. According

“As more businesses register, governments will receive more tax payments and can provide better services and infrastructure, which will help businesses grow.” to the International Labor Organization (ILO), “the informal economy comprises half to threequarters of all non-agricultural employment in developing countries. Women, migrants, and other vulnerable groups of workers who are excluded from other opportunities have little choice but to take informal low-quality jobs.” This means the majority of the world’s workers do not benefit from social safety nets and international labour standards. Their businesses have no access to new research and development funds or the global supply chain. They can’t contract with governments or most registered businesses, and they have no ability to seek justice when they are wronged. Instead, they work in uncertainty. Unregistered businesses are unable to open business bank accounts, so they can’t borrow money to grow their businesses. They don’t pay taxes, but they stay small. They are easy victims for unscrupulous officials, and their employees have no recourse to address unfair wages or unsafe working conditions. Governance – the balance between the state and the private sector: In countries where informality is high, the lack of registered businesses often contributes to governance challenges in the State-Owned Enterprise (SOE) sector. Governments that are unable to find high quality,

Stop the vicious triangle.

CFI.co | Capital Finance International

registered, local suppliers may establish more SOEs to fill the supply gap. These additional SOEs can compound existent shortcomings, such as inadequate financial disclosure by SOEs, and conflicts of interest between a government’s roles as regulator and owner. The OECD states that “experience shows that market-led development is the most efficient model for the allocation of resources.” It also notes that “structuring the complex web of accountabilities [for SOEs] in order to ensure efficient decisions and good corporate governance is a challenge and requires profound attention to the same three principles that are paramount for an attractive investment environment: transparency, evaluation, and policy coherence.” Simple online administrative procedures can facilitate the establishment of new businesses both to meet SOEs’ needs and to bring the benefits of increased competition to the market place. Transparent online procedures can also improve the business environment so that privatized, former, SOEs have a better chance of success. If a country with high informality also limits foreign investment to a minority stake, the result can increase income inequality and reinforce a lack of competition. This occurs because foreign companies cannot just fill the supply gap through direct foreign investment. Rather, an interested foreign investor must be willing to cede majority control of his company to a local partner just to enter the market. This limits the pool of willing foreign investors, thus hampering competition. If the pool of local registered businesses is tiny (and includes government-favoured SOEs), the same small group of local businesses benefit from the foreign investment, which may increase, or perpetuate, income inequality.

Fuel the Virtuous Circle: Simple omline procedures and communication fuel the virtuous circle, enabling inclusive economic growth.

The UN’s sustainable development goal number eight calls on the world to reduce informality. GER.co shows that a solution is within all governments’ reach, and the benefits of facilitating more business registration are huge. Business registrations are fuel for global prosperity. Tax Revenues: According to a 2010 report from UNCTAD, “informality narrows the fiscal space and represents considerable revenue shortfalls to state budgets in developing countries. The contribution of the informal sector to GDP is estimated at 19% in transition countries, 29.7% in Latin America, 30.6% in Asia, and 63.6% in Sub-Saharan Africa. Gradually harnessing informal activities in the formal economy would considerably increase the fiscal base and the revenue of developing countries. This additional income could certainly help cover the cost of basic infrastructure development and of investment in administrative efficiency.” HOW GER.CO PROMOTES INCLUSIVE GROWTH AND GOOD GOVERNANCE First, facilitating business registration globally stimulates entrepreneurship, saves entrepreneurs time and money, reduces corruption, increases the size of the formal sector, and generates more tax revenues to finance sustainable development. Second, presenting links to all the world’s online business registration sites in one location helps governments identify best practices and simplify procedures; this benefits entrepreneurs and investors everywhere. GER.co shows whether governments have put their business registration processes online and whether they are clear and complete. There are many challenges facing the world, including seventeen sustainable development goals to achieve by 2030. Putting administrative processes online and publicising those processes, together with other policies to facilitate investment, can be a catalyst towards achieving the sustainable development goals.

As more businesses register, governments will receive more tax payments and can provide better services and infrastructure, which will help businesses grow. This can start a virtuous circle of business registration, tax payment, improved governmental services and infrastructure, economic growth, and yet more business registration. There are innovative and entrepreneurial talents all over the world. Therefore, increasing the number of registered businesses worldwide will increase the probability that one or many of those generate new solutions to our global challenges. i

References 1 USAID. (2005, March). Removing Barriers to formalization: the case for reform and emerging best practice, 3, 4, 39. 2 OECD. (2009, March). Is informal normal? Messages, figures and data. 3 http://www.ilo.org/global/topics/employmentpromotion/informal-economy/lang--en/index.htm 4 UNCTAD. (2010, February 15). TD/B/C. II/8: The role of States: efficiency in public investment for development – sharing best practices, 6. 5 UNGA. (2015, October 21). A/RES/70/1: Transforming our world: the 2030 Agenda for Sustainable Development, 3, 14, 19. ABOUT THE AUTHOR Ann Low is Deputy Director of the Office of Investment Affairs at the U.S. Department of State, and the architect of the GER.co initiative and Go Green by 2017 campaign. She has over 25 years of experience working on multilateral and economic affairs. Ms Low has served as the US Representative to the Asia Pacific Economic Cooperation (APEC), the OECD Working Party on State Ownership and Privatization Practices, and several United Nations’ bodies (UNCTAD, UNDP, UNICEF, DHA, ECOSOC, UNGA). Ms Low graduated from Georgetown University’s School of Foreign Service and has a Masters of Management degree from Northwestern University’s Kellogg School of Management. She has served as a visiting diplomat and adjunct professor at Columbia University.

USE GER.CO: YOUR VISIT TO GER.CO TELLS GOVERNMENTS THAT SIMPLE ADMINISTRATIVE PROCEDURES MATTER. MORE SITE TRAFFIC MAKES SIMPLE PROCESSES A PRIORITY. Please link GER.co to your website, encourage site usage, and advocate for simple administrative procedures globally. Computer code for linking your website to the GER.co website is part of the “Go Green by 2019” promotional materials. The GER. co website is a great resource for chambers of commerce, any organization promoting international trade and investment, any global business, and entrepreneurs everywhere. Governments: do a self-assessment of your website to see it from the user’s point of view. If your business registration processes are not online, learn about solutions on GER.co. Businesses owners: tell us about your experiences registering a business by rating the website you used. Go to the GER homepage and click the “rate website” banner by the economy’s name. Thank you for helping the world to go green by 2019!

> Evan Harvey, Nasdaq:

Something New Under the Sun A report from the WFE annual meeting in Qatar.

tock exchange leaders, policymakers, regulators, investors, and corporates all gathered in Doha, Qatar, for the World Federation of Exchanges (WFE) annual general meeting in October. The Qatar Stock Exchange (QSE) served as host for the event, and QSE leader Rashid al-Mansoori set an ambitious tone from the opening keynote. “This event is an opportunity to exchange views and strengthen the means of cooperation between participating exchanges,” he said. “Exchanges must come together to address challenges, “especially in light of the rapid economic, social, and political changes seen throughout the world.” Mr al-Mansoori closed by highlighting “a responsibility to ensure that market participants can trade fairly and efficiently on our platform.” The WFE represents virtually every public stock, futures, and options exchange on the planet. Over 44,000 companies representing a total market cap of $64 trillion (trading value of $76 trillion) list on WFE member exchanges. That’s the equivalent of more than 75% of global GDP. Its annual meeting is the largest and most comprehensive of its kind – and this marked the first time in its 55-year history that it was held in an Arab nation.

“Perhaps the first industry attempts to take sustainability seriously came in the form of the UN Sustainable Stock Exchanges (SSE) initiative, which has been driving towards consensus on this topic for several years.” Economic vitality and market growth in the Middle East was another touchpoint for speakers, eliciting supportive comments from the Qatari Ministry of Economy & Commerce, IOSCO (International Organisation of Securities Commissions), and multiple exchange executives. EXCHANGES STEP UP SUSTAINABILITY REPORTING Nasdaq Vice Chairman Sandy Frucher, a WFE board member, presented his case for making exchanges more active in the promotion of sustainable business practices. “Stock exchanges are efficiently adapted to raise, sustain, and distribute capital,” Mr Frucher said. “We help businesses both large

CFI.co | Capital Finance International

and small innovate, build better products, serve their customers, and create jobs. We also provide investors with access to a diverse and dynamic marketplace. But stock exchanges are also change agents, responsive to market demand for new products, better services, and more transparent data. The time has come to take sustainability seriously as part of that mission.” Perhaps the first industry attempts to take sustainability seriously came in the form of the UN Sustainable Stock Exchanges (SSE) initiative, which has been driving towards consensus on this topic for several years. The SSE recently published its Model Guidance on Reporting ESG Information to Investors: A Voluntary Tool for Stock Exchanges. That document is not necessarily advocating a new listing requirement, but rather aims to provide exchanges with a globally consistent base to start from as they work to create their own, locally customised, voluntary guidance to help their issuers meet investors’ need for ESG information. And now, launched after the meeting in Qatar, we have the publication of the WFE’s own Exchange Guidance & Sustainability Recommendation. The WFE document provides a useful and necessary starting point for exchanges, because

strategic and transparent ESG practices can be as beneficial to exchanges as they are to individual companies. This document was the culmination of the work of the WFE Sustainability Working Group (full disclosure: I served as the group’s chairman for two years). The recommendation focuses on principles and data, with correlating bottom line impacts, but it also politely advocates for improvement and harmonisation in management practices. It also includes a selection of Material ESG Metrics, which call attention to 33 indicators across Environmental, Social, and Governance (ESG) categories that may well be of utmost concern for exchanges. BALANCING REGULATION AND REVENUE WFE Chairman Juan Pablo Cordoba, CEO of the Bolsa de Valores de Colombia, used the occasion of his concluding remarks to praise the Qatar venue and also highlight some of the challenges that exchanges face. “We have received strong messages from regulators,” he said, “and we look forward to the conversation moving from stability and risk mitigation to economic development and the growth of capital markets. For most exchanges, the past five to six years have been bombarded by regulation that is hampering markets in certain ways, and it is clear that we are moving towards a constructive phase.” The proper role of sustainability in this “constructive phase” is still being debated. As listing venues, exchanges must serve the needs of public companies. Overregulation tends to crush the entrepreneurial spirit and may make companies less willing or able to capitalise on opportunities. The constant churn of filings, disclosures, statements, applications, and surveys may distract businesses from meeting long-term goals, but a lack of regulatory control emboldens bad leaders to grow into bad corporate citizens. i

Direct & Indirect GhG Emissions*

Injury Rate*

Carbon Intensity

Global Health

Direct & Indirect Energy Consumption*

Child & Forced Labor

Energy Intensity

Human Rights policy

Primary Energy Source

Human Rights violations

Renewable Energy Intensity

Board - Diversity

Water Management*

Board - Separation of Powers

Waste Management*

Board - Confidential Voting

Environmental policy

Incentivized Pay

Environmental impacts

Fair Labor Practices

CEO Pay Ratio

Supplier Code (SC) of conduct

Gender Pay Ratio

Ethics Code (EC) of conduct

Employee Turnover Rate*

Bribery/Anti-Corruption Code (BAC)

Gender Diversity

Tax Transparency

Temporary Worker Rate

Sustainability Report

Non-Discrimination

Framework Disclosures

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.

WFE Recommended Sustainability Disclosures (as identified in a recent publication to exchanges).

CFI.co Columnist

> Ross Jackson:

Stemming the Flow of Refugees - An Holistic Approach

he unprecedented surge of refugees streaming into Europe is no doubt due to the ongoing wars in Syria and Iraq and the unstable situation in Libya. However, refugees were arriving in Europe long before these wars began. They will continue to do so, even when civil strife has come to an end. 28

The wars distract our attention from the fundamental causes that underlie the long-term migration pattern from Africa to Europe. This trend is partly driven by climate change. Africa will continue to be hit hard by droughts while the continent must also suffer the hypocritical policies Western powers have followed over the past seventy or so years, and continue to follow CFI.co | Capital Finance International

to this day. The major instruments of that policy are the WTO (World Trade Organisation), IMF (International Monetary Fund), and the World Bank. I call the policies hypocritical, because – in spite of all the claims made to the contrary on festive occasions – the developing countries’

Winter 2015 - 2016 Issue

role in the Orwellian world of neoliberalism is to remain undeveloped. Their role is merely to provide the West with cheap raw materials. They are allowed to compete with each other on who can best satisfy our needs at the lowest cost. However, they must not dream of building up value-added production chain for that privilege is reserved for Western powers only. The last thing the West wants to see is competition from developing countries. Thus the WTO, for example, adopts a rule that says no member country may give any advantage to a domestic producer that is not also given to a foreign company. This is the key rule that prevents developing countries from following the path that every industrialised nation, without exception, has followed: from Great Britain in the 18th century to China more recently. All have provided protection to domestic producers from more efficient foreign competitors and have done so until a more level playing field was established. This is fine for the multinational corporations that wrote this rule into the WTO in 1994 and the 0.1% wealthiest citizens who control them. It is a disaster for developing countries, not least in Africa where a growing population clamours for jobs. The World Bank has done its part by saddling the people of the developing countries with loans that can never be repaid. These loans were often extended to corrupt leaders, interested only in personal power and gain. Other credits have been awarded for large infrastructure works such as ports, roads, and railways that unlock the mineral resources on which the West is dependent. Almost none of these investments trickle down to people in the rural communities who suffer in poverty while Western billionaires reap the rewards. These poor folk had no say in the awarding of these loans, which in most cases may be labelled “odious” in the sense that they have been adopted in a conspiracy between corrupt local leaders and willing Western banks without the acceptance of the people.

Budapest: War refugees at the Keleti Railway Station in Budapest, Hungary.

“The unprecedented surge of refugees streaming into Europe is no doubt due to the ongoing wars in Syria and Iraq and the unstable situation in Libya. However, refugees were arriving in Europe long before these wars began. They will continue to do so, even when civil strife has come to an end.” CFI.co | Capital Finance International

The 2014 State of Finance for Developing Countries report published by the European Network on Debt and Development (Eurodad), concluded that developing nations are losing – through illegal activities, debt, lost profits, and loans – twice as much as they gain through aid, investment, charitable donations, and remittances. 29

CFI.co Columnist

There is no doubt that for decades, the net flow of cash has been from the developing countries to the industrialised countries. For example, the US Treasury has openly admitted that for every $1 contributed to the World Bank, more than $2 arrives back to US exporters via procurement contracts.

The World Bank’s strategy was spelled out clearly in John Perkin’s book Confessions of an Economic Hit Man. Mr Perkins was a project leader at a major US engineering firm (MAIN) working on World Bank projects. He writes that his bosses explained to him directly that his job was “to bankrupt the countries that received loans so that they would be forever beholden to their creditors, and so they would present easy targets when favours are needed, including military bases, UN votes, or access to oil and other natural resources.” Then there is the IMF, which completes the picture of developing country exploitation with its structural adjustment policies designed to accomplish the same ends as the World Bank and WTO. In order to get loans the IMF has in numerous cases insisted on the developing countries doing the following: • Lowering tariffs on Western industrial products • Depreciating their currency • Waiving all rights to capital controls, thus exposing the currency to speculators • Privatising public monopolies. • Raising interest rates, causing unemployment • Removing food and educational subsidies to the poor • Accepting the right of Western countries to dump their excess food products on their markets • Charging fees to school children • Cutting welfare programmes • Repaying debts to the IMF as first priority • Switching from import substitution to exporting raw materials

CFI.co Columnist

Of these policies, Joseph Stiglitz – former chief economist at the World Bank – said that the IMF’s forced contraction of these developing economies would have John Maynard Keynes “rolling over in his grave.” Mr Stiglitz has also called neoliberal economics “more religion than economics.” The West has created a situation whereby the people of poor countries have no chance of ever developing viable economies—not even when they enjoy a clear comparative advantage such as West African cotton. The US places tariffs on cotton imports from West Africa and even higher tariffs on value-added products like textiles. At the same time, the US government gives substantial subsidies to cotton farmers in the southern states who cannot compete otherwise. Nor will Europe allow African countries to export their very competitive agricultural products. Instead, subsidies are given to European farmers and excess produce is dumped on the developing countries, destroying local markets. The bottom line is that the surge of migrants is a direct blowback of our own policies over several decades. If we are ever to reverse the flow, we must change our attitudes toward the developing countries. We must help the rural 30

“The West has created a situation whereby the people of poor countries have no chance of ever developing viable economies— not even when they enjoy a clear comparative advantage such as West African cotton.” people there to build viable local communities and encourage them to form and run their own businesses with value-added production that they can export to the EU and the USA. We also must begin to see them as extended family rather than competitors. Moreover, we must accept that we cannot continue expanding our Western economic growth on a planet with finite resources. Quite to the contrary, we should rather use future productivity increases to cut working hours, and give Western citizens a better quality of life. Further material growth in the West can only be achieved at the cost of less material growth in the developing countries and a corresponding increase in migration to Europe. The chickens have come home to roost and it is time we acknowledged our past mistakes. An example of what is needed to reverse the flow of migrants is the type of project now being promoted by Gaia Education, a Gaia Trust project on whose board I sit. Our goal is to build the capacity of migrants in refugee camps. We do so by teaching and demonstrating the fundamental design principles of sustainable communities from a holistic point of view. This includes economical, ecological, social, and cultural dimensions, so that the migrants can get useful work in Europe as teachers of these same principles or as organic farm workers or entrepreneurs. They may also elect to return to their countries of origin where they can begin to rebuild local communities based on sustainable principles and engaged entrepreneurship. If we want to be serious about solving the refugee problem over the long-term, we must reverse the “no development” policies of the WTO, IMF, and World Bank, reverse the tariff policies of the EU and USA, and accept that we must make a real effort to help the developing countries to build viable economies that can compete with us. This is the only realistic and just solution to the refugee problem. i

ABOUT THE AUTHOR Ross Jackson, PhD, worked for 25 years in the foreign exchange world as currency adviser to international corpora-tions, currency fund manager, and research head of a team of mathematicians and IT experts. He is author of Occupy World Street: A Roadmap for Radical Economic and Political Reform (Chelsea Green, 2012). CFI.co | Capital Finance International

> A Butterfly without Excuses:

Progress Stalled By Wim Romeijn

he ways of the world are quite often more straightforward than they at first glance appear to be. Whatever happens has a cause that carries an effect – which, of course, is a cause as well, reigniting the cycle and keeping it in perpetual motion. This is a bit like Edward Lorenz’ metaphorical butterfly that flutters its wings in the forests of Madagascar, causing almost imperceptible vibrations in the air which travel – in perpetual motion – halfway across the globe to become a hurricane in the North Atlantic. While it perhaps is too much of an exercise to debate the relative merits of both linear and nonlinear views on history; attributing past, current, and future migratory trends that see Africans pushing into Europe to climate change stretches the butterfly effect to beyond the point of reason. The great northbound trek of Africans is quite simply caused by dreadful conditions in the refugees’ home countries – civil strife, enduring poverty, lack of opportunity, pestilence, etc. Africa has made great progress over the past two decades, lifting millions out of poverty. However, some pockets of misery have yet to be eliminated. If it is not climate change driving people out of their homes to undertake a perilous journey towards an uncertain future, it must surely be the evil machinations of western powers and their multilateral henchmen that cause mass migration. The thousands – millions? - of public and private initiatives to provide aid, credit, and safety – and deliver development – to nations in need was but an exercise in smoke and mirrors, essentially an elaborate hoax, deployed to draw attention away from greedy corporations as they pillaged their way to vast riches. If anything, conspiracy theories are exceedingly tiresome. If western powers indeed do not allow countries to emerge from underdevelopment, how may we explain Chile, Uruguay, South Korea, Malaysia, China, and a host of others that escaped the clutches of poverty and did so over the course of a single generation? Looking for excuses to justify a lack of progress – colonialism, imperialism, climate change, or whatnot – is doing the countries suffering underdevelopment no favour. Wherever poverty prevails, management fails.

“Good governance remains the only key to enduring success.” To blame the plight of newly-poor Venezuela on anything other than the monumental incompetence of its government borders the insane. Food and medical supplies ran out not because of odious debts or the pillaging of resources, but because the authorities proved singularly unable to run the economy. Venezuela is far from the only country to remain subjected to the yoke of poor governance. Yet some development gurus believe that the way forward is to support still more incompetence. The Brussels-based European Network on Debt and Development (Eurodad) – leeching on monies provided by the governments and development agencies of Great Britain, Sweden, and The Netherlands – is one such collective that derives its existence from peddling the obvious and juxtaposing solutions. Its stated goal is to push for development policies that support the poor (!) and are democratically-designed. Simultaneously, the rather unfortunately named network seeks the empowerment of “southern people” as they chart their way to prosperity: Daddy gives you power, now please go vote for what daddy knows is best for you. Carlos Rangel (see this issue’s Architects of Development) would have loved it. Eurodad also deplores the illicit outflow of monies from developing countries where companies dodge taxes and engage in other financially unsound practices. It has not yet occurred to the network’s members that such behaviour, whilst perhaps reprehensible, is but part of a natural tendency to maximise profits. It happens everywhere – see, for example, the tax structures pioneered by Starbucks, Amazon, and other corporate giants with little to no presence in, or exposure to, the developing world. Countries with governments that actually care for the national interest adopt all sorts of reasonable measures to counter this propensity of people and businesses to, well, take care of business.

Though there may be a kernel of truth in the allegation that the International Monetary Fund’s standard economic prescription may not always cure the patient; the fund did belatedly mend its ways and cannot really be said to act on behalf of corporate interests. Rather, the IMF urges troubled countries to let go of the economic heterodoxy and other discredited policy mongrels that caused them to appeal for help, and adopt a more pragmatic set of policies instead. To those who insist on arguing that telling the IMF to go take a hike is good for both growth and development, the obvious reply would be to have a closer look at Argentina. After reneging on its debt yet again in 2001, Argentina indeed managed to grow its economy at China-like rates for a few years. Fast forward a decade and the picture changes into one of utter destitution with faltering public services, corruption across the board, and an economy weighed down by inefficiencies on an epic scale. Notwithstanding all the protectionist barriers put in place, Argentina has moved back to the preindustrial age, becoming a mere exporter of commodities. It did so without any outside help too. Life behind a tariff wall is usually not all it is trumped up to be. Good governance remains the only key to enduring success. The exodus of refugees from Africa can only be interrupted by the embrace of sound development policies. Solutions that are more politically correct – or fashionable such as apportioning all blame to global warming – than sensible must not be hawked. Destitute people are not fleeing from a changing climate or corporate evil-doers; they are running away from uncaring governments that insist on keeping them repressed either politically or economically. If there is any hope – and luckily there is plenty – it is that venerable institutions such as the IMF and the World Bank continue to condition their aid to good governance – as they have already been doing for the past ten or so years. Late December, Uganda discovered what that policy actually means when the World Bank cancelled a $265m road project already well underway after the country’s government was found to mismanage the funds. No governance, no money. i

“While it perhaps is too much of an exercise to debate the relative merits of both linear and nonlinear views on history; attributing past, current, and future migratory trends that see Africans pushing into Europe to climate change stretches the butterfly effect to beyond the point of reason.” 31

WEF:

Beyond

Davos By Wim Romeijn

From helping China open up its economy (1976) to avoiding war between Greece and Turkey (1988) and bringing together West and East Germany (1989); few nongovernmental initiatives boast a more impressive CV than the World Economic Forum (WEF). However, most of the forum’s accomplishments are less tangible and result from setting an agenda and inviting forward-looking thinkers and doers to come up with ideas and ways to tackle the issues raised. While the WEF facilitates brainstorming on a global scale, it doesn’t often receive credit for the outcome.

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he forum has long outgrown its Alpine home in Davos, Switzerland, to morph into a globe-spanning network of groups and events that map trends, investigate policies, put out feelers, gauge moods, and produce embryonic solutions. The WEF has also gained a well-established reputation for prodding governments, private enterprise, and other agents of change into action.

press or peer pressure. Contemporary Davos has grown into a stage that enables leaders of all stripes to deliver sweeping statements on any topic that commands the world’s attention. The relaxed atmosphere of the early years has become a carefully choreographed media event where little is left to chance and pundits deconstruct every word uttered to find hidden meaning and detect shifting opinion.

Though the annual WEF summit in Davos draws most attention, the event has lost most of its original lustre as an informal venue that allowed participants to freely exchange ideas and experiences without being held to task by either

This is not what founder Klaus Schwab had in mind when he launched the European Management Forum in 1971 to offer leading business people from across the continent a venue to meet with their American counterparts and become

acquainted with the latest corporate management techniques they developed. An economist and engineer, Professor Schwab was one of the first to propose an all-inclusive approach to business management that took into account not just the interests of shareholders and customers, but also those of workers, communities, and governments. With that broader approach in mind, Prof Schwab in 1974 invited politicians to attend the annual meeting. Thirteen years later, in 1987, the event’s name was changed to World Economic Forum to better reflect the vast scope of proceedings which now also included opinion makers, academics, and leaders from civil society.

CFI.co | Capital Finance International

Spring 2015 Issue

Klaus Schwab

GOING REGIONAL While the annual meeting in Davos has outgrown its original intend, the WEF’s founding principles moved offstage to smaller regional venues. The forum’s regional meetings allow participants to discuss specific issues in close proximity to the actual scene of events. The upcoming meeting on Africa, scheduled to take place in Kigali, Rwanda (May 11-13), is set to debate the impact of digital technology on the development agenda. Leaders from the region will explore the opportunities for structural transformation presented by the advent of the digital economy. Rwanda was chosen to host the 26th WEF Africa meeting as the country symbolises the resurgence of an entire continent, boasting the highest economic growth in Sub-Saharan Africa thanks to a vastly improved business climate. Now one of Africa’s most competitive economies, Rwanda also moved to the fore with smart policies and investments aimed at encouraging the digital revolution.

The regional WEF summit in Kigali is expected to draw over 1,200 participants from around seventy countries and will be followed June 01-02 by a meeting in Kuala Lumpur, Malaysia, on the challenges faced by East Asia.

The 25th edition of WEF East Asia aims to discuss the pitfalls of economic integration and how to maximise its benefits through enhanced trust, transparency, and mutual understanding, not just between governments, but amongst all layers of society. Uniquely, participants of the Kuala Lumpur meeting will also exchange ideas on more esoteric existentialist questions such as the meaning of accelerated economic growth: what is its ultimate purpose; how can it contribute to overall societal well-being; when is it enough; and how does it impact the environment? PROBLEM-SOLVING 2.0 As the world premier organisation for fostering public-private cooperation, the World Economic Forum can afford to ask questions, and debate at length all answers, that border the abstract. While not bereft of pragmatism, the forum in its many guises is explicitly not a policy-setting instrument. “There has been a fundamental change in how global problems can be solved. New non-state networks of civil society, private sector, government, and individual stakeholders are exploring alternative forms of cooperation, social change, and the production of global public value,” says Canadian Adjunct Professor Don Tapscott who heads the Global Solutions Network (GSN) Programme at the University of Toronto. A newcomer to the World Economic Forum,

which he joined in 2015 as a senior advisor, Mr Tapscott emphasises that the new networks now emerging seek to address issues that traditional multilateral entities and groups such as the World Trade Organization, United Nations, G20 and many others have been unable to tackle, let alone solve. “Many of the world’s problems can simply not be pigeonholed or compartmentalised and do not fit neatly defined remits. Rather, they sprawl all over and resist unidimensional solutions.” Mr Tapscott explains that networks such as the World Economic Forum are enabled by the digital revolutions which allows global interconnectivity: “Global solution networks bring together a diverse array of independent parties around any given issue they perceive as important and which cannot be handled by any single group on its own. The network communicates and coordinates the activities of groups not controlled by nation states and does so in a non-competitive manner.” Within this universe of global solutions networks, the WEF occupies a singularly important place as a truly global institution that combines the capabilities of different types of GSNs. As such, it may perhaps best be thought of as a super network. There are few areas of human endeavour that the World Economic Forum does not touch upon: “The WEF addresses every conceivable issue facing humanity, from poverty, human rights, health, and the environment to economic policy, war, and Internet governance.” Mr Tapscott is particularly impressed with the forum’s Center for the Global Agenda which aims to tackle nine global issues that have been identified as the most pressing facing humanity. While an outflow of the annual meetings in Davos, the Global Agenda is not a 33

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Rwanda Finance and Economic Planning Minister Claver Gatete pointed out that his country proves that Africa may aspire to a bright future: “After losing over a million people, our most precious resource, to genocide in 1994, Rwanda is rising from the ashes and shows that a much brighter future can be built with high standards of good governance. Rwanda is now a safe place to live and to conduct business. The country is politically stable under the rule of law and with zero tolerance for corruption.”

Here, the newly launched ASEAN Economic Community (AEC) will take centre stage. The AEC aims to bundle the economic prowess of the ten ASEAN (Association of Southeast Asian Nations) member states along lines not entirely dissimilar from the original European Economic Community which in 2009 was fully absorbed into the European Union.

single, periodically returning, event, but rather a continuous technology-driven effort in realtime collaboration between stakeholders. The Global Agenda Platform allows communities to coalesce around the issues by providing a virtual space where participants can meet to formulate interdisciplinary and multi-stakeholder approaches to global challenges. The idea is not so much for the Global Agenda Platform to produce ready-made solutions, as it is to allow a way forward to be found via the unencumbered flow of ideas and experience. At any given time, the World Economic Forum is engaged in more than eighty initiatives as a facilitator. NEW VISIONS The New Vision for Agriculture Initiative, one of many, has helped bring industry, government, international institutions, civil society and academia together in a public-private effort to leverage agriculture’s potential and increase food security and environmental sustainability – and open economic opportunity. The initiative plugs into the G8 and G20, and eleven countries in Latin America, Africa, and Asia. Amongst others, it also spawned the Grow Africa partnership with the African Union Commission and NEPAD (New Partnership for Africa’s Development) that provides an investor-friendly platform to guide and mobilise funds for agricultural development in a dozen countries. Set up in 2011, Grow Africa engages over 300 companies and organisations working to implement over $10bn in investments. The network aims to develop markets by linking stakeholders in value chains. It engages with small farmers to improve their business models and promote best practices. Grow Africa also connects with financial services providers to explore holistic solutions that reduce risk and offer tailored credit solutions. On a macroeconomic scale, Grow Africa prods governments into promulgating reforms that improve the overall business climate with a view to attracting private investors.

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Another of the WEF undertakings that goes beyond discussion to deliver tangible results is the Partnering Against Corruption Initiative (PACI), started ten years ago and now one of the forum’s most successful programmes. PACI was developed by and for private companies that seek to design and adopt effective corporate policies aimed at preventing, detecting, and addressing corruption. The initiative also led to the creation of a set of global benchmarks against which individual corporates may measure their performance. PACI constitutes a textbook example of what the Davos summit can and does produce. From discussing their experiences, captains of industry gathered in the Swiss town found that they all battled the same foe: corruption. This discovery may not have been earth-shattering; it did lead to the beginnings of a consensus 34

THE WEF GLOBAL AGENDA • Agriculture and Food Security • Economic Growth and Social Inclusion • Employment, Skills, and Human Capital • Environment and Resource Security • Future of the Global Financial System • Future of the Internet • Global Gender Parity • International Trade and Investment • Long-Term Investing, Infrastructure, and Economic Development

that paying for favours was not a particularly smart way to conduct business. One thing soon led to the other, with all unanimously agreeing that a level playing field would probably serve corporate interests better than courting favours. Common ground, found in Davos, resulted in a global initiative to end the bidding war that had lined the pockets of corrupt officials. It soon transpired that governments as well showed an interest in stamping out corruption. Today, PACI comprises a number of regional programmes and strategic dialogues that involve the business community, governments, and civil society in discussions on ways to improve transparency. PACI also includes a range of industryspecific projects such as those focused on the infrastructure and real estate sectors. Building Foundation for Transparency, a multiyear collaborative programme, brings together CEOs to develop a comprehensive framework that allows participants and others access to triedand-tested tools and procedures that help increase operational transparency. ADDING IT UP Whereas it may seem, to the untrained eye, that the World Economic Forum’s annual summit can be surmised as an annual gathering of the high and mighty; in reality, Davos constitutes little more than a footnote, albeit a flashy one, to the forum’s vast universe. Though it is in the Alpine resort town that some of its ideas took flight, the hard work of “improving the state of the world” is done elsewhere. Indeed, WEF grindstones are found in most countries, often in unexpected places. A network of networks, rather than an organisational monolith, the World Economic Forum has evolved from a meeting of rather uninspiring businesspeople to become the facilitator of choice for global dialogue. Though at times bewildering, this cacophony of voices produces an output that, while tangible, is hard to grasp. Governments, corporations, and entities end up claiming credit for accomplishments that emanated from collaborative efforts initiated by the forum. Not that anybody in Switzerland really minds: The World Economic Forum is not in the business of delivering and cashing in on results. Instead, the organisation is quite content to act as a mere catalysing agent. As such, it is peerless. i CFI.co | Capital Finance International

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www.creditmutuel.com 35

> Queen Rania of Jordan:

A Royal Force for Change By Wim Romeijn

Recognising the need for change, Queen Rania of Jordan is not afraid to speak her mind: “We’ve witnessed frustrations boil over as young people grow disillusioned. Yet nothing ever changes. We’ve seen the ill-effects of increasing poverty in many countries in the MENA [Middle East and North Africa] Region. We’ve watched investments in the wrong kind of education falter all over the Arab world.”

ot content with just summarising the problems besieging the Arab World, Queen Rania displays an eagerness to get to work addressing the issues. She transcends the role normally awarded to royalty and is actively involved in the running of foundations, networks, campaigns, and other entities that cut across a vast swath of society, advocating for – and delivering – change. At the 2014 World Economic Forum regional meeting held in Jordan, Queen Rania surprised participants with a passionate plea for an Arab Renaissance to help the region gain a grip on modernity: “Most of us want to carry the latest phones, own the trendiest gadgets and stay ahead of the curve on social media. Meanwhile, our schools, and what we learn in them, lag conspicuously behind delivering people whose skills do not match those that employers need. The education young people receive is all but obsolete.”

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Since 2000, Queen Rania is one of the most active members of UNICEF’s (United Nations Children’s Fund) Global Leadership Initiative which allows her to partner and network with governments, corporates, and civil organisations to further the cause of education. In 2007, she was also named the fund’s first-ever Eminent Advocate for Children. There is a certain urgency to her work: “Education is not the only yardstick and doesn’t stand on its own. Rather, education needs to fit the society it aims to serve. All too often, educators don’t have the right skills or tools to do their job.” Queen Rania is not afraid to apportion blame either: “From shortage of resources and political instability to languishing bureaucracies and apathy, the reasons may differ but offer no excuse for delayed action. While we keep pointing out the same facts, 36

“Education is not the only yardstick and doesn’t stand on its own. Rather, education needs to fit the society it aims to serve. All too often, educators don’t have the right skills or tools to do their job.” quoting from the same reports, and drawing the same conclusions year-after-year, very little gets done.” While royals are welcome guests at the annual World Economic Forum summit meeting, few come to Davos, Switzerland, for anything besides photo-ops and the chance of being seen to care about global issues. Though most royals mean well and express genuine concern, Jordan’s Queen Rania unfailingly arrives wellprepared and ready for battle. As an advocate of the sensible and sustainable development policies that address actual problems, instead of merely obfuscating them, she is both feared and admired. Platitudes, open doors, and pundit babble fail to impress the queen who insists people talk sense and refrain from peddling sand castles or pies in the sky. Her now trademark frankness has earned the queen over 1.6 million followers on Twitter. An avid user of – and believer in – social media the Jordanian queen regularly posts videos on YouTube, maintains an active Facebook fan page, and frequently uploads snapshots to Instagram and other photo-sharing websites. CFI.co | Capital Finance International

Though regularly in the limelight, Queen Rania does not necessarily seek publicity. Often it is the other way around. Since her marriage to then-Crown Prince Abdullah bin Al-Hussein in June, 1993, and her proclamation as queen six years later, Queen Rania has been the darling of the international media with US fashion magazine Harper’s Bazaar ranking the Jordanian royal as the world’s most beautiful consort. Such silliness aside, Queen Rania is no stranger to leveraging her fame for getting things done and advancing the various worthy courses she embraced. The queen’s proactive approach – and her believe in the power of networking outside established multilateral frameworks – fits particularly well with the World Economic Forum. As the only Arab member of the WEF foundation board, she is closely involved with setting the forum’s matrices and outlining its strategies. The queen also sits on the board of the Forum of Young Global Leaders – another WEF initiative – where she advocates for closer ties between governments and the private sector in order to find synergies and form a common front between schools, skills, and the marketplace. A visionary with both feet planted firmly on the ground, Queen Rania aims high and admits that she would like to help create a New Arab World in which knowledge is readily available enabling a redesign of the value chain of skills. Entities such as the World Bank, International Labour Organization, Organisation for Economic Cooperation and Development, and McKinsey all suggest that the Arab World stands in need of rethinking its approach to the future – which involves a sustained push towards a knowledgebased society. Queen Rania agrees and proposes countries move away from prepping young

Winter 2015 - 2016 Issue

“We need our students and graduates to be innovation ready. What you know may matter less than what you can do with what you know. Soft skills are becoming essential to both personal and professional success. They are also key to

remaining relevant and employable in a fastpaced and competitive world.” Expertly working the various WEF networks and communities has allowed Queen Rania to assemble a group of entrepreneurs, CEOs, artists, and community leaders who share her vision and are willing to work towards its realisation. “What we want is an Arab World where CFI.co | Capital Finance International

entrepreneurs teach and our teachers innovate; where students learn in the playground, and dream in the classroom; where young people start-up companies, fail, get inspired by their failure, and create bigger and better ones; where the next big thing was developed by the kid next door; and where there is a revolution every day in streets and squares across the Arab world - a revolution of ideas and innovations.” i 37

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people for exams towards the dissemination of a much broader set of cognitive skills, including that of critical thinking.

> WEF:

Mission Impossible Accomplished By Wim Romeijn

redit the World Economic Forum with saving South Africa from communism.

Invited to attend the 1992 World Economic Forum, Nelson Mandela arrived in Davos armed with a speech written by dogmatic ANC (African National Congress) officials in which the future president was to announce his intention to nationalise the country’s mines, banks, and a great many other industries deemed essential to economic development. While doing the rounds, Mr Mandela met with government leaders from China and Vietnam, amongst them Chinese Prime Minister Li Peng. Excitedly detailing his plans, Mr Mandela received a reaction he had not foreseen: “Why on earth would you say such silly things,” the Chinese leader reportedly exclaimed. “We are privatising state-owned businesses by the dozen and rolling out the red carpet for investors, trying our level best to attract capitalists. We are a communist government and you are the leader of a liberation movement. Why are you even talking about nationalisation?”

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Then again, Mr Mandela had been out of circulation for quite a while and was, as a result, perhaps slightly out of touch with world events. Thankfully, the Davos Summit gave him a reality check. A day after his fateful tête-a-tête with Prime Minister Peng, Mr Mandela addressed the assembled presidents, ministers, billionaires, and other VIPs to announce that his country would be open for business and welcome foreign investors. Years later, Mr Mandela told his official biographer Anthony Sampson that he was given a simple message while in Davos: either keep nationalisation and get no investments, or let go of the idea and receive untold billions. Thus South Africa became the first country to benefit from what much later became known as the Clinton Doctrine: a strategy for the enlargement of the free world through a process of economic inclusion. The foundations of that policy were laid in Davos where in 1994 Director-General Peter Sutherland of the General Agreement on Tariffs and Trade – GATT, the forerunner of the World Trade Organisation (WTO) founded in 1995 – delivered a landmark speech in which he called for the establishment of a new high-level forum for international economic cooperation that would include the major emerging markets. In Davos, Mr Sutherland argued that the world’s balance of power had shifted with the emergence of new regional behemoths such as China, India, Nigeria, and Brazil. As a result, global economic management could no longer be the exclusive 38

“In Davos, Mr Sutherland argued that the world’s balance of power had shifted with the emergence of new regional behemoths such as China, India, Nigeria, and Brazil.” domain of the Group of Seven (G7) – the forum of major advanced economies (US, UK, France, Italy, Germany, Canada, and Japan) which until then had steered world events. In 1999, the G20 was duly formed with the aim of bringing together “systemically important” industrialised and developing countries to discuss key issues in the global economy. MULTIPOLAR WORLD As an informal gathering of leaders – government, corporate, civil, or otherwise – Davos not only played a central role in the emergence of a new multipolar world order; the annual event also sets its agenda. In 1995, the UN-backed Commission on Global Governance chose the World Economic Forum as the venue for the presentation of its Our Global Neighbourhood Report. Now largely forgotten, this document made the case for a strengthening of the United Nations as a promotor of governance standards. The commission, co-chaired by Swedish Prime Minister Ingvar Carlsson and former Commonwealth Secretary-General Shridath Ramphal, concluded that as nations become more interdependent through increased economic cooperation and trade, issues of governance also become more important and need a codified structure – or a set of benchmarks – against which to measure individual and collective performance. Addressing the Davos Summit over a satellite link, US President Bill Clinton assured the participants that he would throw his country’s weight behind the push towards this new global economic architecture. Governance soon became a buzzword, not necessarily denoting administrative competence, but rather adherence to a basic set of policies generally deemed sensible: free markets, free trade, well-defined universal rules, and democracy – or a semblance thereof. It was in the relaxed atmosphere of an Alpine resort town – as opposed to the high-octane mix of intrigue, power play, and diplomacy prevalent at UN headquarters in New York – that a global consensus emerged around the way forward. This led US political scientist Samuel Huntington (1927-2008) to coin the term Davos Man in 1997. CFI.co | Capital Finance International

“This man,” Mr Huntington wrote, “has little need for national loyalty and sees national boundaries as obstacles that are thankfully vanishing.” Mr Huntington was, however, not altogether pleased with the Davos Class and warned that it apparently considered national governments as “residues from a past era whose only function is to facilitate the elite’s global operations.” The Davos Class leveraged the Clinton Doctrine and the consensus on governance to further the neoliberal economic agenda with remarkable results. The world economy boomed and each year untold millions were lifted out of poverty as nations in Asia, Africa, and Latin America embarked on a path of accelerated development and recessions became but short-lived blips on the screens of traders the world over. Some pundits, amongst them even a few respectable ones, went so far as to predict that the triumph of the neoliberal model had relegated economic downturns to the dustbin of history – henceforward, the only way was up. However, the laws of nature state that everything that goes up, must eventually come back down. That moment came in 2008 when the financial house of cards, so carefully assembled, crashed. Rescued at the eleventh hour from extinction, governments were called back to the fore to clear the decks and save the global financial system from meltdown. At the 2009 Davos meeting, Klaus Schwab, founder of the World Economic Forum, summarised the events of the year before: “The pendulum has swung and power has moved back to governments.” PARTY OVER Down but not out, bankers toned down their presence in Davos and cancelled the extravagant parties they had hosted in previous years. Instead, more civilised soirees were organised to entertain politicians and gauge their mood. The talk was all about the outsized bonuses incompetent bankers pocketed and the idea, first floated by Bank of England Governor Mervyn King, to cut up too-bigto-fail banks into bite-sized portions. It took just two years for the Davos Class to reassert its position at the top of the food chain. Already in 2010, the bankers, with corporate leaders in tow, returned in force to Davos to remind politicians of the dangers of pestering financial markets with undesired reforms. During the 2010 WEF summit, Bloomberg newswire reported on a private meeting at which representatives of the world’s largest thirty banks plotted ways to regain their say in global economic affairs. Only one of the participants was coaxed into shedding a light on the secretive get-together.

Winter 2015 - 2016 Issue

Bank of America CEO Brian Moynihan assured that he and his fellow bankers had only tried to become “more engaged” and were in full agreement that additional regulation was inevitable and perhaps even desirable. Mr Moynihan said that the banks preferred these new rules to be channelled through the G20 – the main global forum on issues of governance and cooperation. What Mr Moynihan conveniently failed to mention was that the G20 remained a paper tiger whose take on governance did not include guidelines for the proper management of financial institutions. THE CHOSEN FEW Whereas the financial crisis that erupted in 2008 made rallying against corporate elites supremely fashionable and mainstream, protesters often ignore the fact that human society will always produce a privileged few who call the shots. The best one can aim for is a mechanism of checks and balances to keep the powers-that-be from abusing their authority. Since so far no-one has come up with a form of anarchy that actually produces anything besides utter chaos, elites seem a necessary evil to furthering the cause of humankind. The World Economic Forum – now no longer confined to economics only – offers this elite an opportunity to come together in a non-confrontational setting. They are not expected to produce any statements, sign deals, or negotiate agreements. In fact, nothing is expected of those who attend the WEF. Participants are invited to mingle, chat, and swap ideas and experiences. There is no such thing as a failed Davos Summit. More open than the Bilderberg Group and much less antagonistic than even the tamest of United Nations’ conferences, the unpretentious World Economic Forum has grown into the premier event for all those who occupy positions of power and feel a need to commiserate with their peers. While the Davos Class indeed rules the world, not all emanating from the Swiss Alpine resort town is evil. The WEF brought Israelis and Palestinians closer together with Shimon Peres and Yasser Arafat walking onto the stage holding hands in 1994; helped South Africa become a world power; put governance on the global agenda; pioneered the push towards a green economy; and helped emerging countries gain a say in world affairs.

CFI.co | Capital Finance International

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While the WEF could drop the “economic” from its name to better convey its nature, the event is without equal and indispensable as a place where, at least until recently, grandstanding by attendees was frowned upon. Davos has also shown that offstage and out of the limelight, most leaders – and that includes captains of industry – turn out to be reasonable people willing to iron out differences and reach amicable agreements that ultimately address some of the world’s most pressing problems and help identify areas of future concern. If there is any danger, it is of Davos becoming overhyped and the very thing it set out not to be: a soapbox with a worldview for leaders to climb onto in order to be seen, heard, admired, and reviled. For that, we already have the United Nations. i

> WEF:

Setting Bright Minds to Work By Wim Romeijn

As a concept, the idea of gathering together the world’s leading thinkers in a Swiss playground for a few days of eating, drinking, and skiing, interlaced with networking opportunities and healthy debate, is one which observers have struggled with since its inception in the early 1970s.

hat’s the point: What good can a group of moneyed, supercar-driving, and ego-addled business leaders do for the world’s problems by working their way through gallons of champagne and tonnes of caviar in Europe? More the point: What has the World Economic Forum accomplished? Well, and this may play into the hands of the critics (of which there are quite a few), the achievements of the WEF over the last four decades, and of its annual get-together in a Swiss resort town, are rather tricky to quantify. Put it this way, how do you measure the success of warning signs? Can one possibly make a spreadsheet with facts and figures to measure how much has, or has not, happened because of the warnings? It is not possible to put definitive figures and results against the work of the World Economic Forum. Trying to do so, is missing the point.

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Not without its doomsayers, the concept of the Davos event just doesn’t sit well with evergrumpy anti-capitalists. Simply getting an invite to attend is often regarded as a badge of honour – a sure sign that you’ve got it made in the world. Each year, 2,500 attendees – mainly rich men in their fifties – gather for four days to share their thoughts and opinions, and dispense advice. On the surface, Davos paints its own picture of what it is – an exclusive symposium for the movers and shakers, occasionally punctuated with a world leader and celebrity or two. And for that – for simply and shamelessly glorifying folks steeped in success – it can get slated, or even targeted, by the regular establishmenthaters. Digging deeper into the inner workings of this

“Can one possibly make a spreadsheet with facts and figures to measure how much has, or has not, happened because of the warnings?” exclusionary soiree and setting preconceptions aside, and taking into account the level of awareness of global issues that has been achieved through these discussions, one cannot escape the conclusion that the WEF serves a usual function. While it’s often difficult to gauge which issues and topics will make it onto the Davos agenda of the meetings and breakaway talks, the biggest challenges facing the globe usually come to the fore. Last year’s event, for instance, was dominated by financial news – with many of the industry’s big players choosing the conference to launch their views, news, and warnings onto the world stage. Bank of England Governor Mark Carney chose the venue to urge investors to be wary of low interest rates – insisting they would prove but momentary. The news promptly caused a stir among delegates. And Mr Carney’s wasn’t the only high-profile address to raise eyebrows. Governor Harhiko Kuroda of the Bank of Japan waded in with the Asian Pacific outlook; while Brazilian Finance Minister Joaquim Levy, and Benoit Coeure of the European Central Bank and Min Zhu of the International Monetary Fund, all managed to generate a few gasps with exclusive news. At times these surprise announcements can trigger a wave of excitement that travels around the world. However, Davos isn’t just about letting off financial fireworks. At its core is an ethos of fostering intelligent thinking and encouraging others to set their minds to

the task of overcoming the difficulties facing economies. Professor Klaus Schwab – the man whose idea for free-thinking among the elite started the World Economic Forum – still runs the Davos event. His original plan was to take business leaders from across Europe out of their dayto-day office environments, and corridors of power, and allow them to exchange ideas freely in relaxed surroundings. The principle is much the same today, with Prof Schwab describing the modern Davos meets as “a platform for collaborative thinking and searching for solutions, not one for making decisions.” It is the latter part of Prof Schwab’s assurances that plasters a wry smile on plenty of cynics and hands them the ammunition needed to take pot shots at an event which undeniably delivers more good to the world than they dare admit. At present, the world is still feeling the aftershocks of one of the worst economic downturns in living memory. Faced with countless difficulties, with more to come – terrorism, political corruption, mass migration, epidemics, plunging oil prices, and collapsing industries – leaders of nations and captains of industry both stand in need of a venue to swap ideas and experiences in the hope of finding common ground that allows for a collective tackling of the plethora of problems creeping up. Whether one likes the people who are invited to Davos or not, there must be some part of everyone’s reasonable mind that wants to throw the world’s problems on Swiss dinner tables and say: “Go on then, see what you can do with that.” After all, gathering 2,500 or so of the world’s brightest minds in a single place for a few days is sure to produce some ideas worth trying. i

“After all, gathering 2,500 or so of the world’s brightest minds in a single place for a few days is sure to produce some ideas worth trying.” 40

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> Winter 2015-2016 Special:

Architects of Development A Brave New World – Why Not?

here is good news out there; it is only not staring you in the face each morning. Poverty is being eradicated and the process is speeding up. While you wouldn’t know it from reading the paper, the numbers tell an interesting tale. According to World Bank data, the world attained the first of eight Millennium Development Goals – halving the 1990 poverty rate – well ahead of schedule. A quarter century ago, 37% of the world’s population was eking out a living on a daily income of $1.90 or less. In 2012, only 12.7% of people subsisted below that poverty line. Put another way, close to 900 million people were lifted out of poverty. Asia is the most eye-popping success story. In 1980, close to 80% of all Asians lived in extreme poverty while today only 7% do. Africa and Latin America have also enjoyed success with the eradication of poverty. Here results are encouraging but a bit less spectacular. There is no magic bullet to drive want out of this world. No single policy initiative, however grand, can address the ills of underdevelopment. Much as the fight against cancer, the remedy for poverty consists of a series of incremental steps – at times maddeningly small – that slowly brings the solution into focus. A buoyant world economy has helped reduce poverty, especially as African commodity producers benefitted from improved terms of trade: the value of their exports increased while imports – mostly oil and manufactured products – became noticeably cheaper. The net result was an income boost that trickled down, albeit incompletely and slowly. With the Chinese economy hitting the brakes, the slack may be picked up by stronger than expected growth in Europe and North America. However, the resources boom may

have ended. Mindful of the environment, Europe’s economic growth now requires markedly less material input although spikes in the demand for some commodities may still occur. The countries of Africa and Latin America must now turn to the pursuit of sensible policies in order to maintain growth rates. In this, some are more successful than others. Along the East African seaboard, hope no longer springs eternal for tomorrow has arrived. Mozambique, Tanzania, and Kenya have put in place model policies that provide a solid underpinning for future growth. Uganda, Rwanda, and Burundi are following suit. The East African Community is the block to watch. In Latin America, the Pacific Alliance is making a splash and setting the example. Chile, Peru, Colombia, and Mexico – four of the continent’s most dynamic and successful economies – have joined forces to show the laggards how it’s done. Opening up to the world, the Pacific Alliance makes no excuses for aspiring to join the winning team of Pacific Rim nations. While Venezuela, Brazil, and Argentina remain firmly anchored to time-honoured traditions of poor governance, others are determined to break with the past. Unless one attaches any credence to conspiracy theories – an exceedingly silly proposition indeed – there is absolutely no reason why countries cannot develop and prosper. Global markets are open for business and no-one is excluded from membership unless, of course, your country’s president happens to be named Kim. Sustained development requires but two main ingredients: good governance and originality – or, be serious and be bold. What makes development such a slow process

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is politics, or the attempts by some clans to preserve their often ill-gotten prerogatives. In the following series of profiles, CFI.co attempts to highlight the originality of a few architects of development who dare think outside the box. These architects are very much into breaking through glass ceilings and flying in the face of convention. They are people not willing to accept the status quo or the notion that some countries are just destined to fail. CFI.co will be revisiting these architects of development more often in future issues, recognising that the choir that clamours for an end to poverty and underdevelopment can never have enough voices. The emphasis will be on ways to improve governance. Interestingly enough, and often overlooked as well, Africa is the birthplace of good corporate governance: as South Africa moved away from the Apartheid Era, corporate leaders in 1993 asked retired Supreme Court Judge Mervyn E King to chair a committee charged with drawing up a comprehensive set of norms for businesses that wanted to partake in the country’s newfound freedoms. The resulting King Report on Corporate Governance was the first of its kind to establish a clear set of rules for businesses to follow in order to become good corporate citizens. Ground-breaking in both its scope and clarity, the report – now in its third revision – remains the global benchmark for corporate behaviour. By highlighting and showcasing the work of the architects of development, CFI.co hopes to offer inspiration to its readers and remind them that the world is already well on its way towards a new era in which challenges may well still exist, but from which dire poverty has been banned. A Brave New World – why not? i

> HA-JOON CHANG Guerrilla Economist After living in the UK for nearly thirty years, Ha-Joon Chang is not overly impressed by the weather or the national preoccupation with cricket. However, he does like HP sauce and Branston Pickle. Dr Chang, from South Korea, is an institutional economist at the University of Cambridge. He specialises in development economics, and his work has been described as “conducting a guerrilla campaign against economic orthodoxy.” Dr Chang is no conventional economist: he regards the “dismal science” – a derogatory term for economics coined by the Victorian historian Thomas Carlyle – as a tool for changing the world, rather than for explaining why the world is the way it is. He has collected a number of detractors amongst proponents of more orthodox economic thought who rely on mathematical models. Dr Chang is an advocate of what he calls a multidisciplinary approach: “You do need people crunching numbers, but you also need people going to factories and doing surveys and you need people to watch political change and see what’s going on.” Dr Chang was born in Seoul, South Korea, in 1963 and came to the UK in 1986 as a graduate student at the Faculty of Economics and Politics of the University of Cambridge. Here, he obtained his PhD and has been teaching economics since 1990. Dr Chang has worked with a vast collection of acronyms: UN bodies, multilateral organisations, private sector firms, NGOs, and think-tanks. He has written bestselling books on economics, including 23 Things They Don’t Tell You About Capitalism (2010) and Bad Samaritans: The Guilty Secrets of Rich Nations and the Threat to Global Prosperity (2007). His books are informative, entertaining, and controversial. His 23 Things, which claims that free markets don’t really exist and that the washing machine changed society more than the Internet, has sold close to 700,000 copies and has been translated into 32 languages. Another of his books, Kicking Away the Ladder: Development Strategy in Historical Perspective (2002), examines how rich countries really become prosperous. In the tome, Dr Chang looks at how rich countries put pressure on less fortunate nations to adopt certain “good policies” and build “good institutions” that are deemed requisites for successful development. He concludes that the economic evolution of rich countries differed dramatically from the snake oil prescriptions they now peddle to poorer nations. From this, Dr Chang infers that developed 44

countries are “kicking away the ladder” that they climbed earlier to reach the top, thus preventing developing counties from adopting the very policies and institutions with which they forged a path to prosperity. One of the tenets of economic theory is that human behaviour and decisions are based on rational choice. Rationality is the foundation upon which most microeconomic models are erected. However, Dr Chang takes a broader view. He points out that while rational thinking is an important aspect of human nature, people are also driven by imagination, ambition, and irrational fears. They are swayed by the arguments – not always rational – of others. Advertising offers a good example. Thus, leaving economic outcomes to the market may produce irrational outcomes. Dr Chang is wary of mathematical and pseudoscientific models in economics. He argues that such models are hard to grasp for people with limited mathematical and statistical skills and compares today’s impenetrable economic literature with the Bible which the church long refused to translate from Latin, fearing that offering common people access to its contents could cause misinterpretation. Dr Chang suspect that most of today’s economists are not unlike medieval clerics in their misguided reluctance to grand commoners a glimpse at the inner workings of their craft. As a result, economic CFI.co | Capital Finance International

decision-making remains the domain of a high priesthood of technocrats. “Contrary to what professional economists will typically tell you, economics is not a science. All economic theories have underlying political and ethical assumptions, which makes it impossible to prove them right or wrong in the way we can with theories in physics or chemistry. This is why there are a dozen or so schools in economics, with their respective strengths and weaknesses. Free market economics alone already comes in three flavours: classical, neoclassical, and Austrian.” Dr Chang wants to democratise economics: “It is entirely possible for people who are not technocrats to have sound judgments on economic issues, based on some knowledge of key theories and an appreciation for the underlying political and ethical assumptions. Very often, the judgments of ordinary citizens are better suited to real life scenarios than those proffered by professional economists who tend to have a rather narrow worldview.” Dr Chang argues that a willingness to challenge professional economists is a touchstone of democracy: “If all we have to do is to listen to the experts, what is the point of having democracy? Economics is just too important to be left to professional economists. As citizens, we should challenge what the professionals would have us.”

> CALESTOUS JUMA A Biotech Revolution for Africa In western countries, the genetic modification of crops is often seen as a threat to the environment. Professor Calestous Juma takes a contrarian view: he is a keen advocate of biotechnology and its potential to transform African economies. The dynamic professor believes that genetic engineering can become the engine of growth for Africa much in the way that Japan and South Korea transformed their economies forty years ago by embracing the transistor. In Africa, around three quarters of the population works the land, often struggling to make a living. Prof Juma points out that biotechnology can improve productivity in a number of ways such as controlling pests which then leads to a reduced use of pesticides. Biotechnology can also help reduce the amount of back-breaking work as it allows crops to be grown without the constant ploughing now required to keep weeds in check. Energetic, creative, and optimistic, Prof Juma is an authority on the application of science and technology towards the promotion of global sustainable development. He is regularly named as one of the most influential Africans. Prof Juma runs a course on the practice of international development at Harvard Kennedy School of Government and is director of the Agricultural Innovation in Africa Project that receives funding from the Bill and Melinda Gates Foundation. Prof Juma grew up in a farming village on the Kenyan side of Lake Victoria. When he was nine years old, the village farms were devastated by a flood. Faced with a need to eke out a living from a smaller plot, Prof Juma’s enterprising father suggested farmers switch to cassava, a starchy carbohydrate-rich tuber that was not usually grown in the area. The introduction of the new crop was controversial. Many local farmers were initially suspicious of the new plant and quite reluctant let go of more traditional crops. However, the innovators prevailed and cassava soon became a staple. Prof Juma took a life-long inspiration from his father’s foresight and willingness to innovate. As a young man, Calestous Juma gained a reputation for being an inquisitive and practical tinkerer who enjoyed experimenting. He established a small business repairing broken radios and record players. At the age of nineteen, Calestous Juma became an elementary school science teacher in Mombasa. The young educator used his spare time to write letters to local newspapers on a wide range of topics. This eventually landed him a job as a science and environment reporter at the Daily Nation.

A year later he was poached by a Nairobi-based environmental group funded by the Canadian International Development Agency to launch their new magazine. This job not only led to a wide range of new contacts, but also landed the journalist a scholarship at the University of Sussex where he gained a masters and a doctorate in science and technology policy. Once back in Nairobi, Calestous Juma established the Africa Centre for Technology Studies – the continent’s first think tank to apply science and technology to development issues. His meteoric rise to international prominence continued when in 1995 he was hired by the United Nations to become the executive secretary of the Convention on Biodiversity. The convention, a global commitment to sustainable development, came into force at the end of 1993. Key strands are the conservation of biological diversity, the sustainable use of its components, and the fair and equitable sharing of benefits arising from the use of genetic

resources. In 1996, the convention established its permanent home in Montreal and Prof Juma moved to Canada. Two years later, he moved to Boston to take up a fellowship at Harvard. Around the time that Prof Juma moved to Northern America, the first commercial GM crops were planted in the US and genetic engineering became a hot topic. Many environmentalists argued that genetic modification of crops could harm the environment and only benefitted multinationals and industrial farms. Prof Juma disagrees, decrying the “technological intolerance” that has hampered the introduction of bio-engineered crops in Africa. Prof Juma believes that, as latecomer to new technology, Africa can learn from other countries’ mistakes and move forward, merging innovation and sustainability and developing new strains of crops engineered to thrive on the continent. In the same way that much of Africa has embraced mobile phones, Prof Juma argues that biotechnology can boost growth and eradicate poverty. 45

> JAN PRONK It Takes More than Good Intentions The government of Sudan declared Jan Pronk persona non grata in October 2006, summoning the UN special envoy to pack his bags and leave the country in a hurry. His predecessor had met the same fate. Mr Pronk had been instrumental in bringing about the Comprehensive Peace Agreement (CPA) between the government of Sudan and the Peoples Liberation Movement. Signed in January 2005, the deal was intended to bring an end to a civil war which had lasted more than two decades and had become the longest lasting civil war in Africa since decolonisation. It also had the highest number of casualties. However, the agreement failed to hold and the fighting continued. Upon his expulsion from Sudan, Mr Pronk returned to The Netherlands, hoping to resume his career in politics by standing for election as chairman of the Labour Party (PvdA – Partij van de Arbeid). In the 1980s and 1990s, Mr Pronk had served in a number of cabinets of Labour-led coalitions. He lost his bid for power but was awarded a consolation prize and was named chair of the committee charged with the drafting of the party’s programme the European elections of 2009. He left the party four years later, saying that it had strayed too far from its social democratic roots. Interested in sustainable development long since before the time the concept became fashionable, Mr Pronk has made a career out of development issues and conflict resolution. Whenever his Labour Party was relegated to the opposition, Mr Pronk would pull up stakes and depart for the international scene, leveraging the power of his Rolodex. Now retired from public life, without all that much to show for it, Mr Pronk managed to secure a position as professor emeritus at the International Institute of Social Studies in The Hague where he imparts the Theory and Practice of International Development. Mr Pronk studied Economic at the Erasmus University in Rotterdam. After a short spell as a research assistant, he entered politics in the early 1970s. A rising star of the New Left, more akin to a meteorite, he was appointed Minister for Development Cooperation in 1973. Mr Pronk immediately set out to change the fundamentals of the development cooperation policies he inherited. Mr Pronk’s fata morgana was to equally distribute power and wealth in the world. The New International Economic Order he excitedly pursued would allow developing countries to become self-reliant. He awarded large chunks of his aid budget to Cuba and North Yemen. Mr Pronk was also an active supporter of the antiapartheid movement in South Africa. 46

By the early 1980s and to the relief of many, he left Dutch politics to become deputy secretary general of the United Nations Conference on Trade and Development (UNCTAD) in Geneva. He returned home in the late 1980s and by 1989 again headed the Ministry for Development Cooperation. He promptly picked a fight with Indonesia by criticising, rather loudly, that country’s human rights record. Ever since, Indonesia has refused to accept development aid from the Netherlands. Mr Pronk’s aims for international development are admirable: his work in Sudan included not just brokering peace, but also the return of displaced people; the disarmament, demobilisation, and reintegration of combatants; the clearance of landmines; the monitoring of human rights; the organisation of national elections; and, economic reconstruction and development. However, notwithstanding Mr Pronk’s many good intentions and his mastery of development theory, realities on the ground proved a nut too hard to crack. He is also the personification of a guilt and angst-driven do-gooder who failed to impress at home and was promptly dispatched far afield to flog policy ideas deemed ill-suited for domestic CFI.co | Capital Finance International

consumption. Mr Pronk departed with gusto and held a succession of prestigious posts abroad. Between 1973 and 1977, while still a member of the Dutch cabinet, he was deputy governor of the World Bank. After leaving office in 1998, Mr Pronk presided over the United Nations’ climate negotiations and from 2008 to 2011 he presided over the Society for International Development (SID). During those years, he also chaired the Ecumenical Peace Council in the Netherlands (IKV – Interkerkelijk Vredesberaad) which was later discovered to have been a front organisation of the East German Stasi secret police. Since 2009, Mr Pronk has been a visiting professor at the United Nations University for Peace in Costa Rica. In between, he also managed to push Suriname out of the Kingdom of the Netherlands, brazenly bribing that country with billions to accept the independence it did not at the time desire. A life-long left winger committed to the field of human development, Mr Pronk may now look back on a long and varied career. While he was able to exert influence both at home and abroad, his track record is a chequered one. Arguably, his political idealism outpaced his achievements.

> ILAN KAPOOR Not Easily Impressed by Do-Gooders Professor Ilan Kapoor doesn’t believe in participatory development. He considers the concept little more than a misleading slogan – harsher words have been used – that cloaks a liberal agenda which oftentimes results in authoritarian and exclusionary practices. Professor Kapoor lectures Critical Development Studies at the Faculty of Environmental Studies of York University in Toronto. His research focuses on postcolonial theory and politics, and participatory development. He is one of the first academics to bring postcolonial analysis to the field of Development Studies. His books include The Postcolonial Politics of Development (Routledge 2008) and Celebrity Humanitarianism: The Ideology of Global Charity (Routledge 2013). Prof Kapoor is currently writing on psychoanalysis and development. However, Ilan Kapoor first came to prominence in the early 2000s for his journal articles on participatory development which involving giving beneficiaries a voice in the decision-making process. In his 2008 book, Prof Kapoor argues that development workers and westernised elites are often complicit in perpetuating imperialism, albeit in contemporary form. Prof Kapoor suggests aid workers, institutions, and academics engage in a bit of radical self-reflection in order see the error of their ways and come to understand the need for greater democratic dialogue. The last two decades has seen the rise of celebrity forms of humanitarianism, spearheaded by Hollywood stars, billionaires, and activist NGOs. Think Bono, Angelina Jolie, Bill Gates, and Save Darfur). Prof Kapoor is quite unhappy with this trend and argues that the altruistic pretensions belie a tendency to promote both the celebrity’s brand and the image of caring Western nations. This form of charity is entrenched in a marketing and promotion machine that helps advance corporate interests. It also seems to rationalise the very global inequality it seeks to redress. Prof Kapoor posits that aid new-style supports a post-democratic liberal political system that is outwardly democratic and populist, yet largely conducted by unaccountable elites. It uses and abuses the developing world, making Africa a dumping ground for humanitarian ideals and fantasies. Professor Kapoor is also suspicious of media-savvy do-good organisations such as Save Darfur or Médecins Sans Frontières that seek their own celebrity status. Prof Kapoor uses the term decaf-capitalism to describe the phenomenon whereby enormous wealth accumulation and significant global

inequality coexist alongside each other, with some conspicuous charity offering a band-aid. He emphasises that it is “celebrity humanitarianism that supports decaf-capitalism by doing the bare minimum to stabilise the system, thus preventing it from spinning out of control.

Development (ICHRDD), Canadian International Development Agency (CIDA), International Development Research Centre (IDRC), and the United Nations Development Program (UNDP). As befits an opponent of celebrity charity, he keeps his personal life out of the public domain.

While Prof Kapoor is highly critical of celebrities’ charity crusades, victims of famine, war and other conflagrations probably prefer short-term aid to perishing during the waiting for long-term solutions.

Born in Mumbai in 1959 to a Hindu father and a Jewish mother, Ilan Kapoor’s family initially came from Baghdad where his grandfather was the cantor of the Pune synagogue. Prof Kapoor gained his Baccalaureate in Economic and Social Sciences in Monaco before moving to Canada where he gained a BA at the University of Waterloo in Ontario, an MA in International Affairs at Carleton University, and a PhD in Political Science, Comparative Politics, and Political Theory at the University of Toronto.

Outside academia, Prof Kapoor has worked with a number of international organisations such as the International Council for Local Environmental Initiatives (ICLEI), International Centre for Human Rights and Democratic

> MO IBRAHIM Cleaning Up a Continent Engineer, academic, expert, innovator, entrepreneur, and philanthropist: Mohammed Ibrahim is a rich and successful man who now applies his vast resources to fight corruption and improve governance in Africa. He is on a mission and wants to make a difference.

Mass communications also gave rise to new business opportunities. In 2004, Dr Ibrahim sold Celtel to Kuwait’s Mobile Telecommunications Company (MTC) for around $3.3 billion. The staff shared $500m in payouts. As a result, about a hundred people became instant millionaires. Dr Ibrahim then turned his attention to a project on improving standards of governance in Africa.

Dr Ibrahim made a fortune by bringing mobile telecommunications to Africa. The introduction of accessible, affordable mobile phones into a vast continent with a paucity of fixed landlines has accelerated and revolutionised development: “Telecom-on-the-go plays a key role in enabling civil society. As well as empowering people economically and socially, it also finds use as a political tool.”

“After the sale of Celtel, I really wanted to give the money back to society. I had a number of choices – to go and buy masses of blankets and baby milk and head for Darfur or Congo. That would have been very nice actually, but it’s just like an aspirin: it doesn’t deal with the cause of the problem.”

Dr Ibrahim has been a global telecom expert since before the days mobile phones existed. He did not set out to become an entrepreneur but went into business out of sheer frustration with his then-employer, British Telecom (now BT), which utterly failed to recognise the significance of the emerging technology and the impact that near-universal access would have on global development. Born in Sudan, Dr Ibrahim graduated from the Faculty of Engineering of Alexandria University in Egypt before getting a job at the national telecoms company in Khartoum. In 1974, he moved to the UK to study for a Master’s in Electrical Engineering. He pioneered research into multiplexing – employing a single radio frequency for the simultaneous transmission of multiple data streams. He also taught courses in the then obscure field of mobile telecommunications. In 1983, he was headhunted out of the academic world and hired by BT to become technical director of the company’s newest subsidiary Cellnet (now O2). A frustrating six-year tenure followed. Dr Ibrahim’s employers failed to grasp the potential of the new mobile technology and, as a result, starved the fledging business of investment. Before long, he quit to set up his own consultancy MSI (Mobile Systems International), designing technical specifications for operators. In these early days of mobile phone network development, MSI was able to save operators big money by using a minimum amount of hardware to produce reliable, interference-free coverage. Business boomed and within a decade MSI boasted no less than 17 international subsidiaries and over 800 employees. In 2000, Dr Ibrahim sold MSI to Marconi for $916 million dollars. However, Dr Ibrahim retained Celtel. This MSI subsidiary was an operator rather than a consultancy. At the time, mobile telecom companies were scrambling to acquire licences. 48

He tasked his daughter Hadeel Ibrahim, a graduate from Bristol University with some experience working in private equity, with the setting up the Mo Ibrahim Foundation. The entity was conceived with but a single objective in mind: to put governance at the centre of the ongoing debate on African development.

As they did, governments were busily ratcheting up fees. There remained but one place where licences could be obtained for free: Africa. Even so, most operators were reluctant to venture that far south: “Africa was perceived – and still is to some extent – as a continent that is not particularly business-friendly. But I don’t share that view at all.” Dr Ibrahim set his sights on bringing mobile communications to Africa. He was also determined to shape his own business environment and doggedly refused to pay any bribes. The company announced publically that none of its officers or representatives was authorised to spend more than $30,000 without the signatures of the entire board. Dr Ibrahim recalls that once his corporate no-bribe policy became widely known, Celtel was never asked to make irregular payments. Business boomed: the uptake of mobile phones throughout Africa grew tenfold between 1999 and 2004 to 75 million users. Mobile telecom transformed people’s lives by allowing for easy access to information previously unavailable. CFI.co | Capital Finance International

The foundation’s credo is that governance and leadership lie at the heart of any tangible improvement in the quality of life of Africans. The organisation launched a number of initiatives. The Ibrahim Index of African Governance provides a statistical assessment of the quality of governance in each African country. It ranks governments by their ability to ensure the rule of law, to sustain economic development, and to protect human rights. The index is updated and published annually. The Ibrahim Prize rewards excellence in African leadership. A sum of five million dollars and an annual stipend is awarded annually to a democratically elected former executive head of state or government by an independent prize committee. However, if no suitable winner can be found, the prize is not awarded. In 2014, the prize was awarded to Namibia’s President Hifikepunye Pohamba. The Ibrahim Forum is an annual high-level discussion platform tackling issues of critical importance to Africa. The Ibrahim Leadership Fellowships form a selective programme designed to mentor future leaders. Dr Ibrahim’s business career has made an immense contribution to furthering private enterprise in Africa. He is now redirecting both his energy and resources to handing Africans the levers they need in order to put pressure on the continent’s leaders to improve standards of governance and accountability.

> PATRICK AWUAH Educating the Future Leaders of Africa The prestigious and pioneering Ashesi University in Ghana is on a mission to educate a new generation of business leaders. Built on a hilltop in the countryside near Accra, the private-run institution has set out to develop critical thought and empathy in students – two qualities Ashesi University considers indispensable tools for a new generation of leaders. The liberal arts college is the brainchild of Patrick Awuah who abandoned a lucrative career in software development in the United States to return to his native land and build a university from scratch. As a young man, Mr Awuah left Ghana to take up a scholarship at a prestigious Little Ivy college. He double-majored in Economics and Engineering. After graduation, he joined Microsoft, where he met his future wife, and went on to make a fortune. The birth of the Awuahs first child led the young father to reflect on his own childhood: “As a parent I began reconsidering the importance of Africa for my children and future grandchildren. It is when I really started thinking about a return home in order to do something that would help foster economic development.” Mr Awuah was aware that the self-perception of Africans may be affected by the negative perception of the continent. He felt the time had come to do something about this. Mr Awuah first considered setting up a software business in Ghana. However, he was deterred by concerns about the quality and availability of local graduates. He also felt that Ghana’s educational system relied too much on committing facts to memory instead of encouraging critical thinking and developing problem-solving skills. These thoughts became the genesis of his idea to establish a university to educate Africa’s future leaders. “I felt that if I could somehow get engaged in education and focus on forming a generation of compassionate leaders with a well-rounded sense of ethics, that would have a significant long-term impact on this country.” Encouraged by his wife Rebecah, Mr Awauh quit Microsoft and enrolled at Berkeley’s Haas School of Business in order to evaluate the feasibility of his plan and gain the broader range of managerial skills needed for the founding and running of a university. His MBA thesis encompassed a detailed business plan for his university. In 1999, Mr Awuah set up the Ashesi University Foundation. The family moved to Ghana where they acquired a plot of land and started building. In 2002, the first class of thirty students enrolled. The facilities soon needed expansion and

upgrading as the student body swelled into four figures. The university’s growth has been financed through a combination of philanthropy and tuition fees. At Ashesi University, students follow an interdisciplinary liberal arts curriculum that includes courses in the humanities and social sciences, as well as mathematics and preparatory business and computer science courses. Students’ critical thinking skills are developed by exploring the connections between fields of knowledge, questioning assumptions, reflecting on the dissident views, and exploring and analysing alternative explanations to the many aspects of human existence. Graduates major in Business Administration, Computer Science, and Management Information Systems. A suite

of engineering subjects is available to the 2015 intake. The university now attracts students from across the continent. Its graduates have an excellent record in securing jobs. Mr Awuah’s vision of educating a generation of future leaders is still in its early stages. However, the university’s progress is remarkable and it has already earned a stellar reputation. In 2015, Mr Awuah was ranked by Fortune Magazine as one of the World’s 50 Greatest Leaders. Thus, Microsoft’s loss appears to be Africa’s gain. The quietly spoken, reflective, and modest Ghanaian had awards and honours heaped upon him but only time will tell if Mr Awuah’s vision will come to pass. 49

> SAMIR AMIN From Dakar with Love A self-described creative Marxist, Samir Amin (84) is a French-Egyptian economist who lives in Senegal and firmly believes that world capitalism – defined as the rule of oligopolies based in rich countries – maintains its power through five monopolies: technology, natural resources, finance, global media, and red buttons. Capitalists, Mr Amin argues, control the means of mass destruction. He concludes that real progress can only be accomplished once these monopolies have been overturned. With ideas formed in the 1950s and 1960s, a time when African liberation movements triumphed, Mr Amin’s personal development saw him move from communist activism in Nasser’s Egypt to dispensing advice to socialist leaders such as Tanzania’s Julius Nyerere, before becoming a leading voice in the World Social Forum. While Dependency Theory is out of vogue in development studies, Mr Amin remains its staunch advocate. Mainstream economics considers national economies as distinct units. Conversely, Dependency Theory views the world as a single integrated economy. As such, it is the globalism of the left. In this analysis, the system of exploitation of labour and that of states are one and the same. From this, it follows that the system of states merely reflect the global expansion of capital: rich and poor nations are inseparable twins and cannot be juxtaposed. Unsurprisingly, Mr Amin views globalisation as an extension of capitalist imperialism. He vehemently denounces the inhumanity of contemporary capitalism. He is also highly critical of political Islamism and Eurocentric Marxism which he says both marginalise the truly dispossessed. In Mr Amin’s worldview the globe is divided into a centre surrounded by a periphery. The role of the latter is to supply the former – comprised of North America, Western Europe, and Japan – with the resources needed for development. This means that the periphery is perpetually unable to develop itself as the exploitation of raw materials occurs on terms of trade favourable to the centre. In this view, underdevelopment is not a lack of development: it is the double-edged sword wielded by rich countries that depend on the active exploitation of other nations which are thus rendered underdeveloped. The theory of development for which Mr Amin is perhaps best known is “de-linking.” This scenario has peripheral countries withdrawing from the global economy. Mr Amin argues that poor countries should develop their economies via state intervention, imposing strict controls 50

on cross-border flows of capital and mandating trade with like nations as opposed to sending raw materials to already prosperous countries at the centre. Mr Amin argues that countries on the periphery must nationalise their financial sectors, strongly regulate their natural resources, and de-link internal prices from those set by the global market. This allows the periphery to break the chains that bind them to multilateral institutions such as the World Trade Organisation, the World Bank, and the International Monetary Fund. Mr Amin also says that regardless of the problems that nationalised industries present; it is the only possible foundation upon which an economy that produces social inclusion may be built. Mr Amin was born in Cairo into a family of doctors. His Egyptian father and French mother sent their son to Paris where he obtained a diploma in Political Science and one in Statistics and Economics. He soon joined the French Communist Party, but finding it too tame, switches to Maoism. In 1957, Mr Amin returned to Cairo where he worked as a researcher for the Institution for Economic Management – a state-run entity. He became an adviser to the Ministry of Planning of Mali before being offered a fellowship at the Institut Africain de Développement Économique et de Planification (IDEP) in 1963. In 1980, he left this job and became a director of the Third World Forum in Dakar. Mr Amin is a prolific writer and has authored CFI.co | Capital Finance International

more than thirty books with rousing titles such as Imperialism & Unequal Development, Spectres of Capitalism: A Critique of Current Intellectual Fashions, Obsolescent Capitalism: Contemporary Politics and Global Disorder, and The Liberal Virus. His memoirs were published in October 2006. In his most recent tome The Implosion of Capitalism (2013), Mr Amin attempts to connect major events that may signal the end of the world as we know it: the financial crisis, the travails of the euro, the emerging BRICS nations, and the rise of political Islam are all seen as heralding the beginning of the end for capitalism. Mr Amin holds the global dominance of large corporations responsible for the sorry state of affairs in the world. He sees globalisation as but the most recent of imperialism’s incarnations. But there is hope: Mr Amin holds up China as a shining model of a political economy that has evolved and integrated an alternative economic strategy. Modern-day China possesses many features Mr Amin considers essential for underdeveloped countries to emulate. Not the least bothered by empirical evidence, Mr Amin has repeatedly stated that China’s model of economic and political development still adheres to the teachings of the venerable Mao Zedong. Even at 84, Mr Amin has lost none of his revolutionary fervour. From his home in Dakar, he continues to write provocative tracts that seek to expose capitalism and the ways in which it perpetuates the periphery’s plight.

> PAUL COLLIER Studying the Causes and Effects of Mass Migration Sir Paul Collier CBE (Commander of the Most Excellent Order of the British Empire) specialises in the political, economic, and developmental plight of countries less fortunate than most. Sir Paul Collier is a professor of Economics and Public Policy at the Blavatnik School of Government, University of Oxford. He holds down a number of other jobs as well such as directorships at the International Growth Centre and the Centre for the Study of African Economies. From 1998 until 2003, Prof Collier worked at the World Bank as director of the Development Research Group. He currently serves on the advisory board of Academics Stand Against Poverty (ASAP). Foreign Policy Magazine included the British professor in its list of most eminent global thinkers. In 2008, Prof Collier was awarded a CBE for services to scholarship and development. Six years later, he was knighted for services to the promotion of research and policy change in Africa. In 2014, the professor also received the President’s Medal of the British Academy for his contribution to the translation of abstract ideas into concrete policy initiatives. Prof Collier’s research covers the causes and effects of civil strife; the real-life results of development aid, and the challenges faced by democracy in low-income countries that are endowed with significant natural resources. More recently, Prof Collier has tackled the effects of mass migration. A prolific writer, Prof Collier currently churns out a major tome every two years. His much-lauded 2007 book The Bottom Billion discusses the pro and cons of development aid. He coined the term for the mass of poor people who live in low-growth societies. In 2009, Prof Collier published Wars, Guns, and Votes: Democracy in Dangerous Places. Two years later (…), The Plundered Planet: How to Reconcile Prosperity with Nature (2011) was released. The book looks at sustainable management and geopolitics in the age of global warming. Prof Collier traces a path for continued growth that avoid the depletion of non-renewable resources and came up with a set of simple formulae:

Nature – Technology + Regulation = Starvation Nature + Technology – Regulation = Plunder Nature + Technology + Regulation = Prosperity In his latest book Exodus: Immigration and Multiculturalism in the 21st Century, Prof Collier turns his attention to migration. He emphasises the plight of those left behind and looks at how host societies deal with the arrival of newcomers.

Born on St George’s Day 1949 the son of a Sheffield butcher, Prof Collier might appear to be of yeoman English stock. However, the Collier family’s presence in Britain stretches back only about a century and started with Karl Hellenschmidt who left Germany penniless in search of a better life. Interned as an enemy alien during the First World War, Karl’s wife fell into terminal depression while the couple’s son quit school to run the family shop. The younger Karl soon changed his name to Charles Collier to facilitate the family’s absorption into mainstream English society. Prof Collier stated that Exodus is an attempt to create a new framework for the national debate about immigration rather than a prescription for a politically correct exchange on the topic. He argues that policymakers of all political stripes have been asking the wrong question. Instead of questioning the merits of immigration, they could shift the discussion to talk about the optimum degree of diversity. To better understand this parameter, it is required to determine the rate at which migrants are absorbed into mainstream society. Prof Collier has created a model to gauge

this rate. It employs a number of factors such as the size of the diaspora and its growth. Prof Collier posits that migration may increase the diaspora’s size, whereas “absorption into mainstream society” reduces it. He also argues that there exists a clear correlation between the size of the diaspora and the rate of absorption, i.e. the larger a diaspora, the less pressure is exerted on its members to embrace the host country’s values and society. Prof Collier contends that for migration to be economically positive, every country must aim to achieve an equilibrium. This enables the governments of host nations to manage concerns over competition for jobs and resources. “The consequences of uncontrolled future immigration are potentially serious. Designing controls that are effective, just, and advantageous to all will be complex and contentious.” Prof Collier’s ideas do not always meet with universal approval. However, his insightful, meticulously researched, and cogently argued contributions are of major significance. 51

> WINNIE BYANYIMA From the Bush to the Global Stage Oxfam International’s dynamic director Winnie Byanyima possesses a most extraordinary CV. Her career includes working as Uganda’s first female aeronautical engineer, living in the bush as a guerrilla fighter, roles as a diplomat and a politician, and campaigning for human rights on the international stage. In her current job, Ms Byanyima is gunning multinational tax dodgers.

this period of her life with developing a deeper understanding of human rights, democracy, and the causes of poverty. One of the rebel leaders was childhood friend Yoweri Museveni. In 1986, after the National Resistance Movement (NRA) ousted the regime, Mr Museveni became president. Three years later, Ms Byanyima joined the diplomatic service representing Uganda in France and at UNESCO in Paris. Returning home in 1994, she threw herself into the country’s reconstruction.

Increasingly, multinationals who arrange their affairs so that profits are channelled via countries with low taxation reap a whirlwind of bad publicity. Starbucks, Facebook, Amazon, and Google are among the companies criticised for paying a pittance in UK corporation tax despite raking in huge profits.

Ms Byanyima first served as a member of parliament for ten years. During that time, she created a female parliamentary caucus. She also helped found the Forum for Women in Democracy which champions gender equality in politics.

At the OECD (Organisation for Economic Cooperation and Development) meeting in Lima last October, the world’s finance ministers agreed to change the rules on taxing profits. They warned multinational corporations that they would no longer be allowed to use their size and cross-border presence to dodge taxes. The OECD estimates this could boost the global tax yield by up to $250billion annually. A recent Oxfam report concludes that the countries of Africa were cheated out of $11billion in 2010 alone via just a single of the many tricks employed by multinationals to reduce their tax exposure. This is roughly equivalent to six times the amount needed to plug the combined healthcare funding gap of Sierra Leone, Liberia, Guinea, and Guinea Bissau – countries that suffered greatly because of devastatingly inadequate healthcare systems during the recent Ebola outbreak. Oxfam International’s Executive-Director Winnie Byanyima points out that “Africa is haemorrhaging billions of dollars because multinational corporations do not pay their fair share of taxes. If this revenue were invested in education and healthcare, societies and economies would flourish across the continent.” A product of the turbulent cauldron of Ugandan post-independence politics, Ms Byanyima grew up under the brutal military dictatorship of Idi Amin. Her parents were both social activists. Her father Mzee Boniface Byanyima was a secondary school teacher who became a member of parliament and opposed the corrupt and repressive regime. In the harrowing times that followed, the legislature was dissolved and Mr Byanyima jailed. His wife Gertrude had been active in promoting women’s education, establishing women’s clubs and introducing literacy programmes. She was a 52

In 1998, Ms Byanyima married Dr Kizza Besigye who had been responsible for keeping the National Resistance Army guerrillas healthy. He was both a physician and confidante to NRA Chairman Yoweri Museveni. In 1986, as Mr Museveni assumed the presidency, he appointed the then-29-year-old Dr Besigye as minister of Internal Affairs. fervent opponent of arranged girlhood marriages, often sheltering girls in the family home. Fearing for their daughter’s safety in Uganda, the Byanyimas acquired a false passport and whisked her out of the country; first to Kenya and then on to Great Britain where she secured refugee status. Ms Byanyima continued her studies in Manchester and won a scholarship to pursue a degree in Aeronautical Engineering. By the time Ms Byanyima graduated with degrees from Manchester and Cranfield Universities, Idi Amin had been replaced by the civilian dictatorship of Milton Obote. She returned home to take up an engineering job at Uganda Airlines. Ms Byanyima’s childhood had imbued her with a keen interest in politics and a strong belief in human rights. While working at the airline, she helped the resistance movement working to undermine the government by meeting with dissidents and passing on information and messages. When the regime’s security services uncovered her links to the opposition movement, Ms Byanyima had to flee Kampala and go underground. She spent the next two years living with guerrilla fighters in the rural south of the country. The rebels had a well-defined sense of the country they wanted to build, moving Uganda away from its colonial past to become an independent and democratic state. Ms Byanyima credits CFI.co | Capital Finance International

However, by the turn of the century the couple had become disillusioned with the National Resistance Movement “no-party” system of government. They also were increasingly critical of corruption amongst ministers and other officials. In 2001, Dr Besigye contested the presidential leadership in elections ultimately won by Mr Museveni. Dr Besigye contested the results at the Supreme Court of Uganda, citing massive rigging and electoral violence. However, his petition to have the election nullified was denied despite a unanimous ruling by the Supreme Court that the vote had been marred by widespread fraud. Subsequently, Dr Besigye was arrested and detained for treason. Fearing for his life, he fled to the United States. On his return in 2005 he said: “I left in order to continue my political engagement and avoid landing behind bars or six feet under.” Despite her husband’s exile, Ms Byanyima remained a member of the Ugandan Parliament until 2004 when she quit national politics to head the Directorate of Women, Gender, and Development of the African Union in Addis Ababa. Two years later, she accepted a position at the United Nations Development Programme (UNDP). In 2013, Ms Byanyima was appointed executive-director of Oxfam International.

> CARLOS RANGEL On Savages, Revolutionaries, and Idiots Driven by nostalgia for times that never were, victimised by foes that never existed, and waiting for an enlightened leader who never arrives: most political thinkers of Latin America have perfected the art of the blame game. The continent’s permanent state of underdevelopment is everyone’s fault – from ignorant colonial powers to arrogant Yankees and heartless capitalists.

into the ranks of guerrilla armies in the 1960s and 1970s. They took up arms to try break the continent’s bonds with its colonisers and their descendants or agents. In From Noble Savage to Good Revolutionary (1976)4 Carlos Rangel credits the legend of the Noble Savage – his destruction by evil powers and the resulting yoke an entire continent was condemned to carry forever after – with keeping Latin America from joining modern times and tapping into its potential. While Mr Rangel does not dismiss the many wrongs perpetrated by the colonisers, he flatly refuses to accept these injustices as an excuse for underdevelopment. The cult of the victim, he argues, has wrought a new character – that of the good revolutionary who promotes nationalism, protectionism, authoritarianism, and “caudillismo,” the typically Latin American preference for patriarchal strongmen who set the vectors of national policy while keeping order.

The Manual of the Perfect Latin American Fool (1996)1, and The Return of the Fool (2007)2, expose the Latin American left for what it is: a collection of bleeding hearts seeking solace and refuge in a heady mix of nationalism and socialism preferably served up by a strongman such as Juan Domingo Perón, Getúlio Vargas, or Fidel Castro. Both bestselling books are the product of a counterculture that coalesced around Peruvian author and Nobel laureate Mario Vargas Llosa who has long battled to expose the internal contradictions and retrograde values of Latin America’s much-admired intellectual elite of armchair socialists. The two fool books primarily aim to debunk the collection of celebrated myths pushed by the recently deceased Uruguayan journalist and writer Eduardo Galeano whose The Open Veins of Latin America (1971)3 conveniently attributes the continent’s many ills to centuries of exploitation. The book is still considered the bible of the Latin American left. However, just before his death, Mr Galeano admitted that he was unable to revisit his magnum opus. Speaking at the II Biennial Book Fair of Brasília in 2014, the writer confessed that Open Veins was more a product of revolutionary fervour than of proper historic research: “At the time, my intellectual thought processes had not yet fully formed.” Hence, the fool. Before Mario Vargas Llosa rose to fame in the 1990s, Mr Galeano’s nemesis was the Venezuelan journalist, diplomat, and philosopher Carlos Enrique Rangel (1929-1988), an early and vocal critic of the left’s tendency to don the cloak of victimhood. In particular, Mr Rangel disassembled the myth of the noble savage whose carefree existence was swiftly brought to an end by European colonisers. In the 15th and 16th centuries, the tale of the noble savage caused furore all over Europe. Sailors returning from the New World brought with them stories of people living in earthly paradise. They spoke of societies without rulers,

soldiers, slaves, money, disease and – most importantly – want. Surrounded by natural abundance, these noble savages had no need for work and were all about play as nature readily satisfied all their needs. The myth of the noble savage resonated throughout the Old World at a time when monarchs and clerics held absolute power, hunger and pestilence decimated populations, and the life of most commoners was still largely untouched by the renaissance. Eduardo Galeano, and the generation of intellectuals he inspired, argued that European conquerors saw in the noble savage a direct threat to their rule. No society should be allowed to flourish in the absence of kings and cardinals, and of taxes and tithes. Thus, they immediately set out to destroy the noble savage and subject him to the sword and the holy book. While the myth of the noble savage was soon forgotten – or stamped out – in Europe, it lived on in Latin America where visions of paradise lost mobilised tens of thousands of young people

Carlos Rangel points out that the causes pursued by the good revolutionary are the same ones as those that motivated pre-Columbian rulers – no pussies either – colonisers, and the self-serving elites that took over when Spanish and Portuguese rule was ended in the early to mid-1800s. Mr Rangel also argued that due to its cultural background and roots, Latin America would be well-advised to recognise and assume its place amongst western nations. The notion that the continent somehow constitutes an entity onto its former self – the yearning for a return to the days of the noble savage – is an abomination that, according to Mr Rangel, has cast Latin America adrift into a cultural limbo. Not knowing what it is, results in not knowing where it wants to go – i.e. Latin America is held back by an identity crisis of continental proportions.

References 1 Manual del perfecto idiota latinoamericano by Plinio Apuleyo Mendoza, Carlos Alberto Montaner, and Álvaro Vargas Llosa (1996, Editora Plaza & Janés) – ISBN: 978-0-55306060-0). 2 El regreso del idiota by Plinio Apuleyo Mendoza, Carlos Alberto Montaner, and Álvaro Vargas Llosa with an introduction by Mario Vargas Llosa (2007, Editora Debate) – ISBN: 978-0-30739151-3) 3 Las venas abiertas de América Latina by Eduardo Galeano (2009 reprint, Editora Siglo XXI) – ISBN: 978-8-4323-1145-1) 4 Del buen salvaje al buen revolucionario by Carlos Enrique Rangel Guevara (1976, Monte Ávila Editores) – ISBN: 978-8-4377-0049-3. 53

> Europe:

Bewildered and a Little Bewitched By Darren Parkin

Much of the focus of this winter’s World Economic Forum will fall upon Europe. For it is here where commentators expect the issues that shape the world’s financial future will be defined. While the wealth on display at the World Economic Forum’s flagship event in Davos is impressive, so are the levels of indebtedness. Although it may not take pride of place at the top of the agenda, there is still one indissoluble issue which is set to dominate proceedings – Greece.

CFI.co | Capital Finance International

o colossal is this Mediterranean financial black hole that it is almost impossible to imagine a time when the woes of Greece weren’t the dominant topic for the WEF – be it for Europe or the wider world. Despite all the brainpower gathered in Davos, a lasting solution to the Greek quagmire has yet to be found. Meanwhile the country is struggling on, receiving piecemeal support that stops it from crumbling, but does not allow for Greece to prosper. However, concerns about a Grexit have now been replaced by an increasingly likely Brexit, yet another linguistic construct as abominable as the prospect it aims to encapsulate. With British Prime Minister David Cameron in December returning home from talks with fellow EU leaders with nothing more than the promise of a fig leaf, the ranks of the eurosceptics are set to swell. Keeping a stiff upper lip, Mr Cameron put on a good show and assured his nation that real progress had been made. The impression on the continent was a different one. Mr Cameron’s closet ally, Dutch Prime Minister Mark Rutte, reportedly inquired after his buddy’s state of mental health after receiving the latest British proposals for EU reforms. Trying to fit a square peg into a round hole, Prime Minister Cameron seems set on limiting the union’s sacrosanct freedom of labour without being seen to do so. Rather naively, Mr Cameron suggested the denial of in-work benefits to EU citizens who have paid less than four years into the system. His peers on the continent promptly pointed out the EU law does not allow for the discrimination between citizens. The plan can only be made to work if such benefits are also denied to British people joining the workforce – which is a non-starter for rather obvious electoral reasons. Moreover, no court in Britain is expected to uphold the limit as its also creates two classes of taxpayers – those entitled to benefits, and others who are not. The exasperation of continental leaders became palpable as the British prime minister insisted a non-issue be placed centre stage – fewer than 40,000 EU citizens claim job seekers allowance in the UK versus about 30,000 British citizens receiving usually more generous handouts elsewhere in the union. The debate did have an unexpected spinoff as it highlighted the UK’s unique and peculiar system

“In Estonia, some areas of Germany, and even in parts of the UK, women are 25% down the pay scale compared to men performing the same job.” of providing benefits to people holding down fulltime jobs. Recognising that an increasing number of workers fail to make a living wage, the UK government operates a number of tax credit schemes that aim to top-up incomes. In the 2013-2014 fiscal year, tax credits cost the exchequer an estimated £29.7bn. Most EU countries provide few, if any, in-work tax credits, insisting – either through legislation or labour unions – that employers pay fulltime workers a minimum wage that actually covers everyday expenses and provides for a decent, albeit modest, living standard. Tax credits aimed at complementing subpar wages are generally considered inefficient as they support, and ultimately subsidise, deficient business models that depend on cheap labour. The influx of migrants – described by some as a crisis – is also a topic expected to be discussed intensely at the Davos Summit with the recent €3bn deal struck between the European Union and Turkey with a view of encouraging refugees to stay closer to home. Although still awaiting approval from member states, the sweetenerladen deal will fund a programme that also entails a liberalisation of the current visa regime to which Turkish citizens travelling to the EU are subjected to. Also on the cards, and not for the first time in the last decade, is the still lingering gender pay gap across Europe. A recent study published by the WEF revealed the topic is still a major headache, despite the progress made by Italy and Poland. Although considered to have lead the world the fight for gender equality, the pay gap between the sexes within the EU still stands at a shocking 16%. In Estonia, some areas of Germany, and even

in parts of the UK, women are 25% down the pay scale compared to men performing the same job. No doubt, the delegates attending Davos this winter will be keen to see some of the countries currently languishing at the bottom of the class put in additional effort. The example has been set by Italy where perfect parity reigns and some areas have even tipped the balance in favour of women by as much as 11%. This, although commendable, has of course attracted accusations of reverse sexism. Tax avoidance has been an on-and-off hot topic since the last Davos gathering. The art of the corporate tax dodger may well be subjected to renewed scrutiny. The world-wide cost of tax dodging is estimated at around $240 billion. This is not an issue for the faint-hearted, and certainly not a comfortable discussion amongst the many WEF participants who have mastered the art of tax avoidance. One of the more delicate topics up for discussion regards the pace and volume of Chinese overseas investments. China’s boisterous economy, a shining light during the darker economic times of late, has long propped up global economic growth and provided the wherewithal that allowed other emerging markets – in Africa, Latin America, and elsewhere, to take flight. However, the powerhouse seems to be running out of steam. In Europe, China’s investment programme peaked in 2014 with more than $18 billion ploughed into various projects – benefitting troubled countries such as Greece where the Chinese snapped up a range of formerly state-owned enterprises. However, with growing domestic issues that demand attention – and money – China has already begun a slow retreat with a marked slowdown of outbound investment flows. With more than 26 million people still out of work across Europe, the continent faces a huge challenge in creating jobs. The European Central Bank’s considerable quantitative easing programme has managed to allay fears of deflation and managed to re-establish minimal economic growth – though not nearly enough to dent the unemployment rate, raising questions as to the wisdom of injecting vast amounts of cash into moribund economies. So far, the exercise has bloated asset prices more than it has managed to stimulate broad-based economic growth.i

“The influx of migrants – described by some as a crisis – is also a topic expected to be discussed intensely at the Davos Summit with the recent €3bn deal struck between the European Union and Turkey with a view of encouraging refugees to stay closer to home.” 56

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> CFI.co Meets the CEO of eDreams ODIGEO:

Dana Dunne Pushing the mobile experience beyond bookings is the next frontier to be settled by the online travel industry. One of the first to stake a claim, eDreams ODIGEO is dedicating considerable effort to further improve and enhance the experience of mobile users and ensure connectivity at each stage of a traveller’s itinerary. “We strongly believe that the industry is nowhere near extracting the full potential of the medium. While the mobile Internet has been around for ten to fifteen years; we have only just begun mapping its possibilities,” says eDreams ODIGEO CEO Dana Dunne.

r Dunne was hired by the Barcelonabased company in 2012 as chief operating officer, after a successful career at AOL Europe and EasyJet. In early 2015, Mr Dunne replaced eDream ODIGEO founder Javier Pérez-Tenessa as CEO. He was charged with broaching new international markets and deepening the company’s presence in its multiple home markets. Unveiling a 6-point strategic plan aimed at taking eDreams ODIGEO to the new heights, Mr Dunne refocused the company to fully embrace mobile technology and commit additional resources to customer service. “We are determined to offer a level of customer care second to none. In fact, everybody at eDreams ODIGEO, from developers working the back office to telephone operators interacting with clients, is aware of the need to ensure that our customers are fully satisfied. Collectively, we are pushing the boundaries on this front.” Mr Dunne points out that economies of scale tip the balance in the company’s favour. As one of the world’s largest online travel agencies, and Europe’s biggest flight retailer, we have the financial and technological wherewithal to develop innovative products and services and thus stay well ahead of the curve. “eDreams ODIGEO boasts one of largest development teams of the industry. We can – and regularly do – put ten or more highly experienced engineers on an assignment to perfect or tweak a single minute feature of our platform. This ongoing quest for perfection results in a vastly enhanced user experience which, in turn, results in more business.” Mr Dunne is optimistic and expects eDreams ODIGEO to keep increasing its market share: “More people move online each and every day. Also and increasingly, more people are comfortable conducting business over the Internet. With over seven billion people in the world, there remains plenty of room for the online space to grow.”

CEO: Dana Dunne

While Mr Dunne does not rule out any future acquisitions, he expects his company’s growth to be generated internally: “We are focused on building a great business with top-quality products and services. Since providing excellence in the delivery of customer service is key to our corporate well-being, we need to be careful in how we pursue growth in order to maintain the required level of overall quality.” eDreams ODIGEO has established a well-earned reputation for the conservation of its multiple brands as premier providers of travel-related products and services. The company operates five strong brands in different markets. “These brands are well-established in their respective

markets and maintain distinct identities, cultures, and meanings that evoke positive feelings and represent an optimum customer experience.” More than just a multinational company with a presence in 44 markets, eDreams ODIGEO is a multicultural corporation: “We are a young and highly dynamic company and a role model on how to run a global corporation. We have professionals of forty different nationalities working at our Barcelona head office, all engaged in offering customers the best travel experience in the business. By being multicultural, rather than merely multinational, eDreams ODIGEO is able to offer the best products and services, irrespective of the market targeted.” i 57

> eDreams ODIGEO:

Taking Online Travel to the Next Level

he success of eDreams ODIGEO, one of the world’s largest online travel retailers and one of Europe’s most profitable public e-commerce companies, comes down to a set of core strengths that propelled the business to a position of global leadership. With five leading brands typically ranking number one or two in their core markets – Opodo, eDreams, Go Voyages, Travellink, and Liligo – the company has acquired a strong presence in 44 markets, putting it amongst the world’s top four online travel agency (OTA) groups.

Since obtaining a listing on the Madrid Stock Exchange in April 2014, eDreams ODIGEO reported its first annual turnover at almost €4.4 billion. The company continues to see strong growth through its strategic approach that makes travel easier, more accessible, and better value for the more than 16 million customers it serves. The group maintains a total of 67 websites for both desktops and mobile devices, generating over 25 million searches per day of customers seeking to access the widest and most competitive range of travel products online. With proprietary technology that enables the company’s complex systems to conduct over seven billion pricing element calculations per hour, eDreams ODIGEO has revolutionised the way consumers search and book travel. Offering travellers over 155,000 flight routes from 450 scheduled airlines allows for a multitude of bookable combinations which give customers the ultimate in choice and flexibility. Maintaining a customer-centric approach that places the best interest of travellers centre stage has enabled eDreams ODIGEO to rapidly expand its reach, taking new markets by storm including recent forays into Russia and Japan, and new websites for customers in Australia and the US.

“Offering travellers over 155,000 flight routes from 450 scheduled airlines allows for a multitude of bookable combinations which give customers the ultimate in choice and flexibility.” Although the company’s core competency is the flight business, the eDreams ODIGEO Group is investing heavily in non-flight products including cruises, car rentals, travel insurance, and shortstay and long-term accommodation. 2015 has been a year of change for the company, with positive improvements in strategy and a stronger focus on the development of non-flight products and investments in technological innovations that offer customers a more tailored and targeted service. CEO Dana Dunne, who was appointed to spearhead the company in January 2015, has made significant progress on the set of strategic initiatives he launched in June and which aim to evolve the company’s business model in order to drive down prices, bolster margins, and increase growth and customer engagement. The new approach includes six key business priorities: • Optimising traffic sourcing by reassessing the channel mix, focusing on lower cost channels and customer retention; • Increasing the focus on the mobile web experience, which attracts a large and growing share of customers; • Enhancing the end-to-end customer experience, simplifying the user interface, and enhancing value and service delivery to customers; • Maintaining a lean and nimble business model with enhanced product quality, increasing the company’s agility when adapting to the everchanging environment in which it operates; • Diversifying revenue by delivering value-added products and services that increase the customers’ basket size while enhancing the customer experience; and,

eDreams ODIGEO has a presence in 44 markets worldwide and growing.

CFI.co | Capital Finance International

• Fostering culture and talent, building a passionate and empowered organisation that drives long-term success. eDreams ODIGEO is definitely on track and delivering results with its newly-stated strategy. The company delivered solid first-half 2015 results as the performance optimisation strategy played out, revealing stabilisation in the competitive landscape and an increased market share. For the six months to September 30, the online travel agency group delivered a good performance with a growth of 8% in bookings to 5.4 million and a 6% increase in revenue margin to almost €231 million. Adjusted net income for the half year amounted to €8.4 million – a 62% increase on the same period last year. Mr Dunne commented on the financial results: “The actions we have taken to stabilise the business are having an impact and we have delivered a good first half performance. Our booking trends are improving at a strong rate. Our growing market shares are particularly encouraging. At the same time, we are making strong progress in the strategy I set out in June. This has been particularly pronounced in the investment we have made in the customer experience, both in the overall customer interface and specifically in mobile. This activity is already translating into strong client satisfaction scores which bode well for the future.” “Looking forward, the stabilisation of our financial performance allows us to reinvest in order to up market share and revenue growth. Our strategy will continue to drive improvements across our business.” Key points that demonstrate the ongoing strategic progress include eDreams ODIGEO’s mobile channel bookings which continue improving and now represent 24% of the company’s total flight bookings. The group has seen a 44% increase in mobile app downloads over a six-month period, reaching a cumulative figure of 5.3 million downloaded and installed apps.

Offices: 15 across Europe, the USA and as far as Sydney in Australia.

Over the past few years, the company has invested significantly in its mobile offering, creating a presence in all major markets with both smartphone and tablet optimised app versions. As a tech-first company, eDreams ODIGEO embraces the pronounced trend of customers to demand easy-to-use, accessible services. Being able to book a city-break while on the move is something that makes a real difference. eDreams ODIGEO aims to provide a service that makes this, and more, a reality. The group’s mobile studio ensures customers enjoy an optimised experience on major platforms, transforming apps into veritable travel companions that offer location-specific information and services. The recently-launched app for the Apple iWatch gives customers convenient access to flight details, time zones, exchange rates, and weather forecasts. Incorporating state-of-the-art functionalities and the latest developments into its platform, eDreams ODIGEO not only manages to keep abreast of the travel industry’s trends, but drive innovation as well. Its latest-generation apps are loaded with features that memorise customers’ preferences and search details. Also outside the dynamic mobile sphere, offering the customer an unequalled experience is the number one concern for the company. eDreams ODIGEO just completed the rollout of the OneFront Platform across its three biggest OTA brands – Opodo, eDreams, and Go Voyages. This new technology system enables the company

to be more responsive still to customers’ needs by offering the best range of travel options and prices – and do so faster and more efficiently. Since its implementation, the OneFront Platform has already shown significant improvement in conversion rates across the group due to enhanced features such as improved website navigation. The OneFront Platform also includes a new visually-appealing design, faster response times, and a far superior user experience. The continued growth in customer satisfaction registered over the last twelve months is evident through recent award wins – Best Online Travel Partner Global (CFI.co), Best Flight Booking Website (The British Travel Awards), and Best Customer Service Company (German newspaper Die Welt) – and improvements in the company’s public survey scores including its Trustpilot rankings. Among other OTAs and airlines, the eDreams brand now ranks number one in Trustpilot globally, with an 8.2 average score, and GoVoyages – the company’s leading French OTA brand – comes third overall. By focusing on revenue diversification with valueadded travel products that increase customers’ basket size, eDreams ODIGEO has delivered a 54% growth in the metasearch business and a 64% growth in bookings with service options. The group is a global leader in the OTA space when it comes to the sale of ancillary services. eDreams ODIGEO will continue to extend this offer to customers by adding more airline partners.

As one of the world’s leading flight retailers, eDreams ODIGEO announced that its flight business has shown significant growth this year. The company reported a 15% year-on-year growth in airline bookings last quarter. This is the first time in seven quarters that eDreams ODIGEO has attained double-digit growth rates. In fact, one in every four flight tickets purchased through OTAs in Europe is bought through the group’s Opodo, eDreams, Go Voyages, or Travellink brands. The flight booking business is undergoing accelerated growth especially in expansion markets which now represent 45% of the company’s overall revenue - this includes big markets such as the UK and Germany. Meanwhile, the group’s international expansion strategy is also bearing fruit with strong growth rates in most of the 44 markets in which it is present. eDreams ODIGEO is performing exceptionally well. The group has maintained its guidance for the 2015-16 fiscal year and expects more than 9.7 million bookings, higher margins, and an adjusted EBITDA of €91-94 million. With over 1,700 employees spread across 15 offices in a dozen countries – including Spain, France, UK, Germany, Italy, Sweden, Finland, Norway, Hungary, Denmark, USA, and Australia –eDreams ODIGEO is well poised for sustainable growth that will propel the company to new heights. i 59

> Nordea Asset Management:

The Real Power of Money What if investments could save the world?

or Nordea’s Responsible Investments team there is no doubt that the financial sector holds a lot of influence. If used correctly, the sector’s sway could convince companies to make investments that will bring solid returns without 60

compromising the environment or allowing poor work conditions. “The financial market is a true global citizen and doesn’t have to consider national interests. If you can get the financial market to take CFI.co | Capital Finance International

responsibility then others will follow,” says Sasja Beslik who heads the Responsible Investments Team, which is part of Nordea Asset Management. Nordea Asset Management has adopted an

analysis of all its own actively managed products that considers environmental, social, and governance (ESG) risks and opportunities. For example, poor working conditions at a company’s supplier, such as massive overtime and a high staff turnover, could pose a great risk to a business and make it a risky investment. These kinds of risks may go undetected if a traditional approach to analysis is used. “This could create a problem for the company and thereby for us as investors. Our customers have entrusted us their money and we must always act in their best interest,” Mr Beslik said. Nordea Asset Management applies its method of analysis, which includes ESG parameters, to a company before an investment decision is made. This ensures that the right holding is acquired from the start. The company also prefers to work with inclusion rather than exclusion, as the latter would make it impossible to influence businesses to change for the better. In some cases, a company’s business model may, however, be regarded as having limited possibilities for change. This is the reason why Nordea Asset Management in 2015 decided to stop investing in companies that get most of their sales from coal or its related products. Other businesses that have a hard time getting on Nordea Asset Managements “maybe” list are those that are unable to demonstrate any kind of system to handle environmental and social risks. Companies that have a risk system, but use it as a form of greenwashing are also considered unattractive.

“The financial market is a true global citizen and doesn’t have to consider national interests. If you can get the financial market to take responsibility then others will follow.”

One of the things that separates Nordea Asset Management’s approach from that of many other financial services providers is that the Responsible Investments Team travels extensively to visit companies on site. That is also where many of the assessments take place. The team of twelve people makes hundreds of trips each year. If potential risks are detected, the team doesn’t hesitate to make suggestions on how to improve the situation. Since Nordea strives to be a very active owner, these travels often result in a clear action list. Nordea Asset Management applies the ESG approach to all actively managed products. In fact, one of the first things Mr Beslik did upon joining Nordea as head of Nordea Funds Sweden – part of Nordea Asset Management – was to scrap so-called ethical funds and raise

the minimum responsible-investment bar for all funds across the board. The old view on what was ethical, and thus constituted a responsible investment, was value-driven. The new approach, which has emerged over the past ten years, is focused on a much broader definition of value. An investment that takes into account environmental, social, and governance risks and opportunities should, however, still yield stellar returns. This view also emphasises the risks to the value of a company’s assets posed by its business model. As an example, oil and gas companies could be left with non-performing assets which negatively affects the value of that holding. Oil and gas companies may be forced to leave fossil fuels in the ground in order to limit global warming to the two degrees (C) set in 2010 at the UN climate meeting in Cancun. Thus, an ESG approach also provides the chance to increase both value and return over and above the results of a more traditionally analysed fund. This is a result of risks being discovered, and dealt with, early. A common perception may, however, be that funds taking into account environmental, social, and governance issues do not perform as well as other funds – a claim that Mr Beslik disputes: “The success of a fund depends on the skill and experience of the fund manager. It depends on the timing of the investment and in what kind of investment universe it is made.” To take the ESG approach one step further, Nordea Funds has created a family of funds under the Stars brand. The managers of Stars funds proactively identify companies that are tipped as tomorrow’s winners. Companies that are well-equipped to overcome the geopolitical challenges that lie ahead. The Nordea Emerging Stars Equity fund, which invests at least 2/3 in companies with exposure to growth markets, has gained 20% in value over the past three years, according to data from Morningstar. Over the same period, the Swedish Stars fund gained 45%. “People need to understand that their money works either for or against the environment even when they sleep. Imagine the force that retirement savings could exert in steering investments to environmentally and socially responsible targets. People saving for their retirement have the potential to change a lot, and do so in a very short time,” says Mr Beslik. i 61

> CFI.co Meets the Head of Responsible Investments at Nordea Asset Management:

Sasja Beslik Dreamers, idealists, and other assorted do-gooders – corporate or otherwise – generally fail to impress Sasja Beslik, head of Responsible Investment at Nordea Asset Management: “What we aim for is a solid return on our clients’ investments.” For Mr Beslik, the fight against climate change, culminating last December in the Paris Agreement, is perhaps better described as a global search for a sustainable business model: “You may reduce CO2 emissions, but if your corporate processes are still unsustainable, the long-run doesn’t hold great promise for your business.”

nstead of focusing on one, or only a few, sustainability parameters, Mr Beslik insists on taking in the whole picture: “Not fouling the environment is of course of paramount importance, but so are social and governance issues that, when left festering, will eventually affect the bottom line and thus harm the interests of investors.” Looking to pick tomorrow’s winners – companies that strive to be part of the solution rather than cause the problem – Mr Beslik and his team travels the world to evaluate corporate behaviour on-site. “While not in the consultancy business, we oftentimes are able to point in the right direction. We also need to be sure that any company we invest in, meets our strict environmental, social, and governance [ESG] standards.” Nordea Asset Management developed an internal programme, soon to be expanded, to educate the group’s 30,000-strong workforce on the benefits of pursuing responsible investment strategies. Aiming to end ESG-aware investing as a niche product – or one reserved for select activist investors – Mr Beslik and his team succeeded in applying Responsible Investment principles to the entire line of actively-managed Nordea investment funds. “We concluded that ESG awareness needs to be embedded in all the things we do. Commercially, it produces results, and it makes us – both the bank and its clients – money.” Mr Beslik and his team are now preparing to launch an e-learning tool for the wider public that aims to show why building an investment strategy and portfolio around responsible investment is not only sensible, but lucrative too. “Presumably, most investors would like to enjoy good returns, not just next year, but consistently thereafter as well. However, in order for that to happen, investments must be directed to 62

During one of his trips to India, Sasja Beslik studied the effects of the chemical industry which is a bulk provider to pharmaceuticals produced in the Western world.

companies that pursue sustainable business models.”

as an esoteric niche product and embrace the concept fully and across the board.”

In Paris for the COP21 conference, Mr Beslik was pleased to note that nearly all delegates agreed to the need for urgent action on climate change: “Reaching an agreement is only a good first step. We should have reached this point already at the 2009 COP15 in Copenhagen. Valuable time was lost. However, the hard part is yet to come. The implementation of the deal that has now been reached requires financing to bridge the transition to a carbon-neutral economy. It is therefore essential that investors the world over stop looking at responsible investments

By some estimates, the global economy will require up to $89 trillion in investments over the next fifteen years to deal with increased urbanization, energy supply, and other largescale infrastructure projects. “We need to make sure that these investments are not allocated in the traditional way that ignores the environment, but instead help address the issues the world is now facing. The money is there, and we must now make sure that it underpins sustainable development and, as such, becomes part of the solution.” i

CFI.co | Capital Finance International

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> STOXX:

Reducing Risk with Innovative Indices STOXX Ltd is a leading provider of innovative and global indices, offering various solutions to minimise risk exposure by lowering volatility. The 2015 stock market sell-off proved that these solutions can help protecting portfolios allocated to equities without capping returns.

TOXX is committed to delivering highly innovative and transparent index concepts to the market. This is acknowledged by the fact that STOXX has won the CFI.co 2015 Award under the category Most Innovative Index Provider Global 2015. STOXX is currently calculating a comprehensive index family of over 7,000 strictly rules-based indices covering 65 countries globally. STOXX is continuously expanding its global range of indices and offers a set of innovative smartbeta indices, among them index families with the aim to minimise risk by reducing volatility. To underline STOXX’s ongoing commitment to innovation, the STOXX True Exposure™ Indices (STOXX TRU™) were launched earlier in 2015. The STOXX TRU index family is a global offering that allows investors to get exposure to a predefined country or region while limiting the exposure to foreign currency and market risks, and is based on a proprietary process to estimate revenue generation.

“STOXX is continuously expanding its global range of indices and offers a set of innovative smartbeta indices, among them index families with the aim to minimise risk by reducing volatility.” A toolkit of strategies is available which can help reduce downside volatility in an equity portfolio. These range from reducing the overall equities exposure via risk-control strategies and the use of derivatives over low volatility strategies including Minimum Variance solutions, all the way to infrastructure investments and alternative approaches to controlling downside risks via solutions that allow for a better, “truer” implementation of views on relative regional performance outlooks.

THE RIGHT STRATEGY This summer’s market sell-off was a stark reminder of how swings in risky assets can wipe out a year’s gains. After developed markets, as measured by the STOXX® 1800 Global Index in the EUR gross return version, gained an impressive 20% by mid-April, all of these gains were gone by late August.

RISK CONTROL SOLUTIONS Risk-control strategies cap exposure to a given equity market segment based on the observed volatility of that equity market. As volatility goes up, which typically happens during market corrections, a portion of the equity allocation is thus placed into cash. In doing so, the strategy provides downside protection when needed most. On the flipside, the strategy delivers lessthan-full participation in market upswings after a correction.

After the rout, and with the market once again up over 15% YTD, the question naturally emerges on how best to lock in those gains and avoid similar losses, especially given that many institutional investors must maintain a minimum allocation to equities to meet their required return targets.

DERIVATIVES Hedging strategies using derivatives such as put or (short) call options can provide insurance. As with any insurance, they come with an ongoing cost, which reduces returns for the overall equity allocation. Moreover, adding or increasing

insurance coverage while equity volatility is rising, which is when insurance is most needed, also comes with a rising cost. This might further reduce the return of the equity allocation. Investors who have the ability to do so can also protect an equities portfolio by going short (or selling) index futures such as the EURO STOXX 50® Index futures. Furthermore, they can buy futures on the VSTOXX Index, arguably the most widely used Eurozone volatility index. As shares fall, the VSTOXX generally rises as it tracks implied volatility of the EURO STOXX 50 Index. Conversely, the investor will lose money with these hedges when markets rise. LOW VOLATILITY AND MINIMUM VARIANCE STRATEGIES Low volatility strategies tend to increase risk-adjusted performance by systematically overweighting stocks that have lower-thanmarket volatility as opposed to stocks with higher volatility. A common criticism of strategies labelled low volatility is that they do not typically consider correlations among the invested stocks (i.e. they assume all pairwise correlations to be identical). As a result, low volatility strategies can unintentionally build up large positions in highly correlated stocks, which can lead to large drawdowns at times of market stress. In contrast to low volatility strategies, Minimum Variance strategies explicitly take into consideration covariance among stocks and focus on the overall volatility of a portfolio rather than of individual components, thus mitigating the structural deficiencies of low volatility strategies. In 2012, STOXX partnered with Axioma, a leading provider of portfolio construction tools and risk models, to create the STOXX Minimum Variance index family.

“The STOXX TRU index family is a global offering that allows investors to get exposure to a predefined country or region while limiting the exposure to foreign currency and market risks, and is based on a proprietary process to estimate revenue generation.” 64

CFI.co | Capital Finance International

companies generate their revenues. Solutions such as STOXX TRU Indices take into account each company’s revenue exposure to single countries in the selection process and focus on companies that generate all or a significant portion of their revenues in targeted countries or regions. In using such solutions that take into account revenue exposure by geography, investors can implement their views on relative value of different regions while meeting given geographic allocation targets.

Figure 1: Performance chart. Index data is in EUR, Gross Return and normalised to 100.

Figure 2: Performance chart. Index data is in EUR, Gross Return and normalised to 100.

The STOXX Minimum Variance Indices are designed to minimise risk by reducing the volatility of the underlying index. STOXX offers two versions – constrained and unconstrained – for global and regional markets and various countries. The constrained index version optimises the benchmark index with respect to volatility and therefore possesses a lower risk profile. The unconstrained version provides an index that is minimised for volatility but not restricted to follow the underlying benchmark too closely. RETROSPECTIVE MINIMUM VARIANCE STRATEGIES So how did the Minimum Variance solutions perform in practice? In the market slump of October, 2007 to March, 2009, the STOXX Global 1800 Minimum Variance Unconstrained Index in EUR gross, for instance, fell 27%, or only half as much as its market-cap weighted benchmark, the STOXX Global 1800, which lost 54% (see figure 1). The Minimum Variance strategy was tested again more recently with the European debt crisis in the summer of 2011, and in August/ September 2015 when concerns about a

slowdown in China sent equities lower. In the first instance, the STOXX Global 1800 Minimum Variance Unconstrained Index outperformed the STOXX Global 1800 by 17 percentage points during July to September 2011 (6% vs. the benchmark’s -10% loss), and fell by 4 percentage points less than its broader benchmark between August and September this year (-7% vs -11%) (see figure 1). Fears of a Greek default and exit from the Eurozone pushed the STOXX Europe 600 Index down by 8.5 % between May 27 and July 8 this year. By comparison, the STOXX Europe 600 Minimum Variance Unconstrained fell only 5.9%. ENHANCED IMPLEMENTATION OF RELATIVE REGIONAL PERFORMANCE OUTLOOKS Often, due to strategic allocation bands, institutional investors have no choice but to buy a predetermined minimum and maximum portion of stocks in a specific region, even when having a strong view about expected out- or underperformance of that same region. Traditional equity indices bundle companies based on their country of domicile and primary listing, regardless of where the selected

Investors, for instance, who felt strongly about expected outperformance of developed over emerging markets, could implement their view via STOXX TRU Developed Markets 100%, which invests only in developed market securities which generate 100% of their revenues from clients based within developed market countries. By investing in this benchmark, these investors could have successfully reduced the drawdown of their developed market benchmark by over 2% during the China crisis in August and September of 2015. While the STOXX Global 1800, whose members rely partly on revenue streams from emerging markets clients, slumped 10% during this period, the STOXX TRU Developed Markets 100%, made up of companies that get all of their revenue in the developed world, fell only 8%. (see figure 2). INFRASTRUCTURE Another option to reduce downside volatility is to invest in asset classes that are less dependent on economic turns and thus less vulnerable to market swings. Here, infrastructure firms stand out. The predictable and inflationlinked cash flows these businesses produce protect them, to some extent, from cyclical downturns. Infrastructure investments give up the growth potential of other, more pro-cyclical investments, but avoid their drawdowns. The STOXX Global Broad Infrastructure Index is made up of about 150 companies worldwide that generate more than half of their revenue from sectors including communications, energy and utilities. It fell 30% in 2008, as investors dumped risky assets, steeply beating the 39% loss for the STOXX Global 1800 over the same period. It is possible to lower the risk in an equities portfolio without incurring additional costs or capping gains. In fact, many studies have shown that one can achieve overall performance and even return benefits from strategies that provide low volatility as well as low correlation to other equity strategies and asset classes and thereby achieving the needed diversification. This is especially relevant for long-term investors such as pension funds that must control risk to project the basis of future returns. STOXX provides strategy solutions with smartbeta characteristics that, when appropriately used, can help reduce the impact of downside volatility that is ever present with an equity allocation. i 65

> Book Review - The Magic Mountain by Thomas Mann

A Sojourn in Davos: Things Will Never Be the Same By Wim Romeijn

or all its potential as a canvas for the display of human suffering, sick-lit never quite made it as a genre. In her 1926 essay On Being Ill, Virginia Woolf expressed dismay at the nearuniversal denial to give sickness its literary due alongside love, jealousy, and battle. “But no, literature does its best to maintain that 66

its concern is with the mind; that the body is a sheet of plain glass through which the soul looks straight and clear.” Writing just seven years after the flu pandemic of 1918, which claimed fifty to hundred million lives worldwide, Mrs Woolf wondered why no novelist had dared explore the “wastes and deserts of the soul” brought to light during an attack of influenza. CFI.co | Capital Finance International

Mrs Woolf need not have worried. By the time On Being Ill was published in Criterion – the literary magazine put out by British poet, dramatist, and essayist TS Eliot – critics and readers alike in Germany had already begun to heap lavish praise on Der Zauberberg. The much-anticipated latest work of Thomas Mann – at the time the country’s greatest living writer

Mountain marked the end of a literary hibernation induced by the First World War. While the writer had initially supported the conservatism espoused by Kaiser Wilhelm II, he underwent a volte-face after the great conflagration and became the semi-official spokesperson for the Weimar Republic, appealing repeatedly to the German intelligentsia to throw its collective weight behind parliamentary democracy. When his debut novel Buddenbrooks was first published in 1901, Thomas Mann became an instant sensation. The book chronicles the slow and painful decline of a North German family of merchants over the course of four generations. Then, in his early twenties and with only a number of short stories and essays to his name, Thomas Mann set to writing in an attempt to eclipse his older brother Heinrich who enjoyed modest success as a novelist and was working on a portrayal of 19th century upper middleclass society. Egged on by brotherly rivalry, Thomas Mann produced a book that would earn him the 1929 Nobel Prize in Literature – awarded for the entire body of his work but with special mention for Buddenbrooks – and remains a beloved and much-read classic to this day. Heinrich Mann’s Im Schlaraffenland (In the Land of Cockaigne) fared less well though its author did find a small following of devoted readers. If Buddenbrooks established Thomas Mann as an author of note, and Death in Venice (1912) reaffirmed that position; The Magic Mountain dispelled any lingering doubts regarding the writer’s craftsmanship and genius. Set high in the Swiss Alps, the slow-moving yet intense story meanders through the lives of tuberculosis patients confined to the Berghof Sanatorium, nestled in the towering mountains above Davos – then also an upscale resort town catering to the well-heeled as they seek shelter from the whirlwind of human existence. Offering a spell-binding allegory of pre-war bourgeois Europe, The Magic Mountain neatly ties into Buddenbrooks as it follows Hans Castorp, scion of a family of Hamburg merchants, as he sets out on a long train journey to visit his cousin Joachim who is taking the airs at the Berghof Sanatorium. Intending to stay for only a few weeks, Hans Castorp soon falls in love with the introspective little world he encounters at the hospice. Before long, a minor bronchial infection is all he needs to gain admittance and take his place as one of the consumptive “horizontals.”

– was almost universally hailed as a tour de force for accomplishing the seemingly impossible by being both a bildungsroman – a coming-of-age story or comedy of manners – and an ingenious parody of the then-popular genre. Published in late 1924, Mann’s masterpiece took no less than five years to reach the English

language. It did so as The Magic Mountain1 in a translation by Helen Tracy Lowe-Porter that over the years accumulated perhaps more than its fair share of critics. The 1996 translation of the book by John Edwin Woods seems to attract markedly fewer detractors. For Thomas Mann, the release of the Magic

Gone native, Hans revels in his new passive status in which the hubbub of life on the “flatlands” has been replaced by a fetishised routine of thermometer readings, meals, and servings of late-night hot milk duly spiked with a shot of cognac. At the sanatorium, life revolves slowly around petty rivalries, never-ending discussions, esoteric lectures, and the cautious exploration of the snow-covered Alpine surroundings. 67

While Europe marches towards war both boldly and blindly, inextricably tied to its sorry fate, the Berghof’s inhabitants marvel at the arrival of an x-ray machine, derive intense pleasure from their gramophone player, and are thrilled by the prospect of a visit to the cinema. Time itself slows down and moves along a divergent vector. It is thus that the Magic Mountain becomes a novel of ideas, brimming with picayune details on mythological and ideological minutiae that elevates the main protagonists onto an almost surreal – or hyperreal – pane. Once properly installed, Hans Castorp falls into the orbit of long-time residents Ludovico Settembrini and Leo Naphtha who are, since time immemorial, engaged in a veritable war of words. While Thomas Mann subtly shows a preference for the former, Settembrini’s passionate humanism becomes his downfall. As Ludovico dismisses every conceivable manifestation of the metaphysical, he fails to realise that his own boundless idealism is grounded in the abstract. An intellectual titan in his own right, Leo Naphtha – Settembrini’s nemesis – displays a pronounced penchant for the extremes and can muster nothing but contempt for compromise. Essentially irrational though not without appeal, Naphtha sees death as controlling a realm of its own – independent of life and, as such, the antithesis of Settembrini’s assertion that death is merely the absence of life. Emboldened by his dualism, Leo Naphtha glorifies disease, suffering, and death. He bravely rallies to the defence of the Spanish Inquisition, Communism, and the more authoritarian orders of the Catholic Church. Gravitating first towards Settembrini, then drawn to Naphtha, before settling on seesawing between the two, Hans Castorp finds that the longer he remains non-committed, the harder it becomes to make up his mind. However, he need not bother as Mijnheer Peeperkorn arrives in all his Dionysian glory to swiftly bring the fray to an end. The Dutchman is portrayed as a non-intellectual tyrant whose mysterious, sensual, and incoherent personality soon realigns the Berghof’s patients into two camps: those who have surrendered to him, and the few poor souls who vainly try to resist the spell he casts. Intellectual argument is now reduced to an exercise in futility. However, the victory of emotion over reason is a pyrrhic one. Realising that the demands of everyday life cannot be reconciled with his total commitment to emotion, Mijnheer Peeperkorn takes a shortcut and commits suicide.

Initially distributed as samizdat in typewritten copies amongst trusted friends and literati, Cancer Ward tells the story of a group of patients undergoing crude and frightening treatments in a run-down hospital somewhere in Soviet Central Asia. Set in 1955, merely two years after the death of Joseph Stalin, Cancer Ward explores the origins and societal effects of the Great Purge of 19361938 when countless millions were shot or sent to wither away in labour camps. Solzhenitsyn tackles and charts the moral responsibilities of those implicated in the purge only to conclude that the wounds inflicted are too severe to ever fully heal. As with cancer, remissions may occur but escape is ultimately impossible. Memorably, the novel ends with its main character Oleg Kostoglotov – a victim of the infamous Article 58 and sent to a Siberian labour camp for imaginary counter-revolutionary activities – visiting a zoo upon his release from hospital. In the caged animals, he sees the people he once knew: “Deprived of their home surroundings, they had lost the idea of rational freedom. It would only make things harder for them, suddenly to set them free.” And so it is with the patients at Berghof Sanatorium. Safe in their Alpine cocoon, they are oblivious to the onset of war and the imminent demise of their rarefied way of life. Things will never be the same as Hans Castorp reluctantly prepares for his return to the flatlands to answer the call of the fatherland. i Footnotes 1 The Magic Mountain by Thomas Mann (translated by JE Woods), Vintage Classics 1996 (£10.68) – ISBN: 978-0-7493-8642-9.

A notoriously difficult read, The Magic Mountain has become much more accessible in its 1996 translation. Some ninety years later, Virginia Woolf’s lamentation on the dearth of sick-lit may still ring true, the genre has now gained considerable volume. In 1966, The Magic Mountain found a companion in Aleksandr Solzhenitsyn’s Cancer Ward which arose out of the repressed but lively grassroots literary scene of the Soviet Union to become the writer’s opus magnum. 68

CFI.co | Capital Finance International

Winter 2015 - 2016 Issue

> CFI.co Meets the CEO of STOXX:

Hartmut Graf As CEO, Hartmut Graf identifies and executes strategic business initiatives, while driving a culture of client orientation and innovation at STOXX Limited. Dr Graf has extensive experience with index products, portfolio and risk-management, portfolio theory as well as investment and derivative strategies.

rior to joining STOXX in 2010, Dr Graf spent more than five years at Deutsche Börse Group, where he most recently held the position of head of Issuer Data & Analytics. In this role he was responsible for the index business of Deutsche Börse, overseeing the development, maintenance, and marketing of their global index series. Previously, Dr Graf spent four years with Roland Berger, consulting clients from the financial services industry. He started his career in product management and research in the fixed income department at the investment banking division of Commerzbank. Dr Graf holds a PhD in Theoretical Physics and an Executive MBA from Stanford University. STOXX Ltd. is an established and leading index specialist with a European heritage. Since 2010, STOXX has extended its index universe with a broad range of global indices. Its most recent innovative index launch is the STOXX TRU™ index family. “In today’s interconnected world, having a portfolio that invests in a US, European, and Asian market-cap benchmark leads to unintended regional overlaps of economic exposures, leaving investors with allegedly diversified portfolios that could have highly correlated returns,” explains Dr Graf. “Our STOXX TRU Indices help investors create an asset allocation based on truly separated geographic buckets. These buckets are significantly less correlated amongst each other compared to standard equity indices, resulting in an improved risk profile. The STOXX TRU Indices are based on a sophisticated and innovative model to identify a company’s economic exposure to a country or region, when a such a breakdown is not available explicitly.” The recent Libor and Euribor rate-rigging scandals have resulted in new legislation being proposed at EU level to compel benchmark administrators such as STOXX to comply with a range of provisions regarding the source of their data. While welcoming all initiatives that benefit

CEO: Hartmut Graf

the end-investor, Dr Graf emphasised that the regulatory principles enforced by the International Organization of Securities Commissions (IOSCO) that are adopted by all major index providers are already delivering the legislation’s desired effect without any of the potential harm. “All major benchmark providers – including STOXX, MSCI, FTSE Russell and S&P – are currently fully compliant with IOSCO’s Principles for Financial Benchmarks.” Dr Graf explained that the compliance process involves independent auditing and, where necessary, changes to practices: “At STOXX we began the process of compliance with the IOSCO CFI.co | Capital Finance International

principles in late 2013. This required us to make some small adjustments to our controls and governance. Overall, most of our processes were already in line with what the principles required. This was followed by a full audit conducted by PwC at the end of 2014. In other words, the compliance with the IOSCO principles sets rigorous standards that are fully enforced through the compliance process.” STOXX welcomes regulation that promotes transparency and protects investors. In Dr Graf’s view, the IOSCO principles provide a level playing field globally in benchmark regulation: “National as well as regional initiatives such as the European Commission’s should be based on these.” i 69

> Book Review - Private Island: Why Britain Now Belongs to Someone Else

A Balance Disturbed for All the Wrong Reasons By Wim Romeijn

t remains somewhat of a mystery how Chancellor of the Exchequer George Osborne manages the UK government’s financial affairs. Presiding over a buoyant economy, planning the biggest privatisation exercise ever, and mandating yet another round of deep spending cuts, the Exchequer should be in robust health. Yet, 70

the summer budget unveiled in July – the first wholly conservative one in eighteen years – still manages to produce a deficit equivalent to around 4.4% of GDP, propelling Britain to the very top of profligate spenders in the European Union; outdone by none and equalled only by long-suffering Spain. Even France and Greece (both -4.1%) perform better. As is usual given CFI.co | Capital Finance International

the circumstances, Mr Osborne assures all and sundry that surpluses will materialise at some point in the future. The chancellor’s budget – and Britain’s plight – fits a pattern: while Tories are surprisingly good at sourcing money and boosting revenue, they often display a rather disconcerting ineptitude

deficit adds to the troubles. The shortfall is mostly caused by Britain’s inability to produce goods that the world wants to buy. The country’s trade balance is $195bn (£129bn/€183bn) in the red. Some mitigation is offered by the performance of the City of London, the repatriation of profits derived from overseas investments, and miscellaneous remittances, resulting in a current account deficit of about $150bn (£99bn/€141bn) for the twelve months ending October 1, 2015. This amount equals roughly 4.6% of GDP. By comparison, over the same period the euro area recorded a surplus on its current account equivalent to 2.8% of its economy with The Netherlands claiming the top spot (+10.3% of GDP) and Germany coming in a distant second (+7.8% of GDP). Underappreciated by most pundits, the current account balance simply determines if an economy is making money or losing it. Countries in the black export the extra cash in the form of investments or loans while those in the red import funds by selling assets, attracting depositors, or enticing investors. At the end of the day, the balance of payments must, per force, be in perfect equilibrium, i.e. zero. British journalist and author James Meek is deeply troubled by the realities of economic life. In Private Island: Why Britain Now Belongs to Someone Else1, Mr Meek showcases and laments the sale of his country. He fails, however, to offer a remedy. Moreover, Mr Meek seems to suffer from a rather severe bout of nostalgia as he describes the sale of Britain’s crown jewels: the waterworks, electricity generators, railway and postal services, and public housing corporations, amongst a great many others. Central to Mr Meek’s grief is his argument that water, electrical power, and others constitute essential services nobody can do without. That premise allows the writer to deduce that a water bill is akin to a tax: if payment to an authority – either public or private – is compulsory, it is a tax. From this conclusion, Mr Meek barrels on to deduct that the tax system itself has now been privatised, albeit partially. Offering a slightly disjointed read, Private Island does manage to shed light on the human dimension of the privatisation process, showing how postal workers are mercilessly driven to exhaustion and nearly all but the über-rich have been deprived of affordable housing.

at managing cash flows. Thankfully, Labour governments compensate for these idiosyncrasies on both counts, thus keeping government on an even keel. This, of course, presumes a periodic alternation of power whereby both players stay true to their respective strengths. Sadly, the equilibrium has been disturbed by New Labour’s insistence on mimicking the Tories who, in turn,

moved even further to the right in an attempt to maintain a safe distance from the hoi polloi. The result of this massive shift of the body politic to the right is an unholy disaster. The UK’s public finances have become seriously unhinged. The persistent budget deficit is but one of many woes besetting Albion. A ballooning current account

As a sales catalogue, Private Island is peerless. However, the book fails to dig a little deeper and makes no attempt to uncover the root of the problem: the failure, both surprising and monumental, of the British state to properly manage its interests. Lest anyone should jump the gun and argue that states have no business running businesses, please feel free to take a look at Saskatchewan, 71

Canada, to see how it’s done. There, the provincial government owns and operates a wide range of businesses through its highly profitable crown corporations whose contributions to state coffers keep taxes low while ensuring excellence in the delivery of public services. Or, stay closer to home and look at Germany where the state owns more assets than any other European country. It may be a somewhat dangerous argument, but German trains do run on time and its banks – the Landesbanken and Sparkassen – remain rock solid, if not rather dull.

that “sustained borrowing from abroad to consume at home is hardly a recipe for a balanced and sustainable expansion.”

In Britain, state-owned enterprises performed rather poorly and were a drain on public purse. Their sale not only bolstered the state’s finances but also plugged a gaping hole in the budget. A study by the London-based Centre for Policy Studies into the finances of 33 privatised enterprises concludes that in the twelve months leading up to March 1980 these corporations between them cost the exchequer £483m in addition to requiring almost £1.2bn in financing. British Steel earned itself a place in the Guinness Book of World Records for losing close to £1bn on a turnover of barely £3bn.

To a significantly higher degree than other major economies, the UK dependents on the trust of moneyed outsiders to keep afloat. Notorious for being herd creatures, investors usually balk and head for the exit at the first sign of trouble. If anything could cause such a stampede, it is the UK’s flirtation with an exit from the European Union – the world’s largest single market – and its possible subsequent split into three or more sovereign entities. BoE Governor Carney is fully aware of this doomsday scenario and the devastating effects it will have on Britain. Expect him to issue a number of warnings over the coming months.

In fact, British Steel offers an interesting case study of how privatisation can go awry in ways not detected by Mr Meek. In 1980, the company was indeed an economic basket case, requiring fifteen man hours to produce a single tonne of liquid steel. However, seven years later productivity had tripled and British Steel was turning a £410m profit on a turnover of £4.1bn. If Margaret Thatcher proved anything, it was that HM Government can run a business at a profit. Pursuing an ideology rather than a fiscally sensible course of action, Mrs Thatcher proceeded to sell British Steel for a paltry £2.4bn.

As long as Russian and Middle Eastern billionaires keep snapping up London townhouses and country estates, and savvy continental entrepreneurs keep ploughing money into British businesses and banks, the current account deficit causes few worries other than Mr Meek’s anxiety over Britain becoming foreign-owned. However, trouble arises when confidence evaporates.

Meanwhile, Mr Meek’s book offers a most entertaining read, though the writer has missed a wonderful opportunity to set the record straight and offer an alternative view. He is, in effect, barking up the wrong tree. i Footnotes 1 Private Island: Why Britain Now Belongs to Someone Else by James Meek, Verso Books 2015 (£8.99) – ISBN: 978-1-7847-8206-1.

Still, this is not a one-sided picture. As research from Centre for Policy Studies clearly shows, the wholesale of stateowned enterprises transformed a drain on the exchequer into a windfall. The net contribution to the government’s finances of the 33 privatised corporations went from -£483m in 1980 to +£11.561bn in 1995. Receipts in corporation tax from these companies went from £182m in 1982 to £2.612bn in 1995. When Mr Meek deplores the sale of Britain, he would be well advised to look at other statistics than the ones tracing the still ongoing privatisation process. The UK’s lack of manufacturing prowess and the resulting current account deficit represents a more serious challenge inasmuch that, as a net importer of capital, Britain slowly sells itself to “someone else.” Earlier this year, the Bank of England’s Financial Policy Committee declared the current account deficit its most pressing of domestic concerns. Bank of England Governor Mark Carney said 72

CFI.co | Capital Finance International

> CFI.co Meets Akerton Partners:

The Experience and Knowhow to Make a Difference

Francisco Camacho: Founder of Akerton Partners

Rodrigo Imaz: Member of the founding team of Akerton Partners

Antonio Moreno: Member of the founding team of Akerton Partners

FRANCISCO CAMACHO Francisco Camacho is a managing partner, and cofounder, of Akerton Partners. Mr Camacho has a degree in Economics and Business Sciences, Advanced Direction Programme, of the INSEAD business school in Fontainebleau, France. He has completed a number of postgraduate financial courses in Spain, France, and the US. Mr Camacho has been teacher, lecturer, and speaker at several universities. He is member of several professional bodies in Spain.

RODRIGO IMAZ Rodrigo is a managing partner, and cofounder, of Akerton Partners. Mr Imaz has a degree in Economics with specialisation in Finance from Pace University, US. He also completed several postgraduate courses such as Structured Finance, Corporate Finance, Cash Management, Derivatives at the IE business school of Madrid and the AFI School of Applied Finance.

cofounder, of Akerton Partners. Mr Moreno has a degree in Economics and Business Administration from Carlos III University in Madrid, and a MBA in Management and Direction from the CESMA business school. He also completed several postgraduate courses at the IE business school of Madrid.

Mr Camacho developed his professional career at Arthur Andersen. At Alstom he worked as CFO and CLO of several subsidiaries of the group in Canada, México, France, and Spain. Mr Camacho was also responsible for real estate projects in Spain and for global cash flow and project financing in different countries. At Auna and Orange Spain, he worked as CFO and purchasing director. In those roles he was responsible for various financing and debt restructuring exercises. In 2014, along with his team, he received the award for the Best Refinancing of the Year (€4.5bn) from Euromoney Magazine. In 2005, as CFO of the Auna Group, Mr Camacho participated in the sale of the group to France Telecom (the mobile phone business) and ONO (the fixed-line business) for a total of €12.8bn. In 2007, Mr Camacho was awarded Best Financier of the Year by ASSET in the financial excellence category.

Mr Imaz started his career in New York working for companies such as BEX America and Banco Santander. Later, he moved into the corporate finance area of the investment bank Warburg Dillon Read in Madrid. After his banking experience, Mr Imaz decided to join the start-up of the third mobile operator at that time in Spain, Retevisión Móvil (Amena). Here, he participated in Amena’s financing deal for €2.390 million. Amena later became part of the telecom group Auna where he held the position of financing manager and participated in numerous financing deals, including a €4.5bn refinancing transaction. In 2005, France Telecom (Orange) bought part of the group and Mr Imaz continued in his position until 2008 when together with his colleagues Francisco Camacho and Antonio Moreno, he founded Akerton Partners. ANTONIO MORENO Antonio Moreno is a managing partner, and

With an experience spanning over twenty years, Mr Moreno developed the first part of his career in the economic and financial areas of different companies. During those early years, he was in charge of payments at Viajes Marsans. He later assumed responsibility for treasury management at the Auna Group. In those years, Mr Moreno specialised in developing applications to automate the day-today business of both companies. In 2006, he joined the multinational environment of Spain Orange (France Telecom), taking responsibility for calculating and budgeting the company’s cash generation. In 2008, Mr Moreno teamed up with Francisco Camacho and Rodrigo Imaz to establish Akerton Partners where he works to this day. Over the years, Mr Moreno has participated in numerous financing and refinancing operations, advising on strategy, financing, bank negotiation, divestment of assets, business plans, amongst others. He has also helped clients with the development and implementation of treasury systems. i 73

> Akerton Partners:

Bespoke Solutions from an Independent Advisor

kerton Partners is a Spanish mid-market corporate finance adviser with specific expertise in debt advice. Founded in 2008, in a very unsecure global and local economic environment, a group of seasoned professionals started up a fullyindependent advisory firm with a different down to earth approach that sought to give clients the value added necessary in situations where specialisation, experience, compromise, and knowhow set the difference. With an extensive real business industry 74

background, Akerton has been able to understand the needs of the clients and put itself in their shoes to find the right solution that not only looks good, but works in the day-to-day postdeal life cycle. There are no magical recipes that address every situation, nor does every situation need the same approach; the goal is to consider each specific situation from all angles in order to identify and execute original solutions. Routine is not an option at Akerton. Team values are applied in every job, taking the best expertise of each individual to boost the team’s output. CFI.co | Capital Finance International

The ability to provide original approaches different from market standards and tailored to each client’s specific requirements, enables Akerton to establish long-term partnerships with them. Akerton’s independence allows the firm to put the clients’ interests ahead of all other considerations, thus eliminating barriers and creating long-lasting relationships. In difficult and complex markets, where both the providers and underwriters of debt packages tend to be larger and more financially sophisticated than

clients, Akerton provides advice that is not based on the desire to sell a financing product. Currently, Akerton offers its services through three business units: Debt Advisory to borrowers, investors, and creditors on the design, structuring, negotiation, follow up, and control of long and short-term financing, including raising and renegotiating debt: • Structured finance • Project finance • Acquisition finance • Refinancing • Expansion capital • Staple financing • Covenant resets • Recapitalisations M&A Advisory to corporates, private equity, family offices, and family businesses on all aspects of buy-side and sell-side M&A, as well as the rendering of services related to financial strategy, business plan elaboration, and business valuation: • Sell-side M&A • Buy-side M&A • Strategic alliances • Partners search • Strategy and business plans • Business valuation Expert Advice and Due Diligence on processes and transactions requiring the verification and ratification of economic, financial, and accounting information. Specialised in the elaboration of demand due diligence, market studies, and feasibility analysis of projects related with the field of public facilities and infrastructures: • Financial due diligence • Expert reports for one party and their ratification in Court • Counselling for the defence and analysis of opposing expert reports, and elaboration of adversary expert reports • Economic reports for disputes and arbitrations • Reports: justify CAPEX, economic ratios, PPA process, Impairment Test • Infrastructures: • Demand due diligence • Market studies • Operating and strategic planning and feasibility analysis

“Routine is not an option at Akerton. Team values are applied in every job, taking the best expertise of each individual to boost the team’s output. The ability to provide original approaches different from market standards and tailored to each client’s specific requirements, enables Akerton to establish long-term partnerships with them.”

Akerton has partnered with more than 200 clients in a wide range of sectors, executing more than 87 debt advisory deals worth over €1.5 billion, 27 M&A advisory engagements for over €110 million, 131 expert advice and due diligence reports, and over 53 demand due diligence reports. Born with a local focus, the internationalisation process of its clients has taken Akerton to work in 15 different countries. Keeping up to date with the needs of the clients and market innovations will be key for Akerton’s future. Clients choose Akerton due to the proximity and closeness it is able to establish with them by listening to, and understanding, their needs and drawing on the deep financial knowledge of the team to offer bespoke solutions. i 75

> Golden Assets:

Helping Clients Build a Better Future Golden Assets came into being around the turn of the millennium for a single purpose: bridging the gap between Portugal’s extremely complex investment scene and the global investor community. Over the past fifteen years, Golden Assets has expanded and strengthened its position in the Portuguese financial market by showing persistency, knowhow, method, and plain hard work. Thus, the company has become the market-leader in independent asset management.

n a globalised world – in which both the market and the investor needs and demands have changed – it is essential that companies adapt and find new solutions. The success attained by Golden Assets directly derives from the company’s ability to adapt to the characteristics and needs particular to Portuguese financial market. It has done so by pursuing a distinctive business strategy which allowed Golden Assets to predict and develop effective solutions that dovetailed with clients’ needs, ambitions, and challenges. With eighty highly skilled experts, and offices strategically located in three of the major Portuguese cities, Golden Assets advised on €850 million of assets in 2015. According to CMVM (the Portuguese Securities Market Commission), Golden Assets is now the largest independent asset manager in Portugal. However, that is not enough to satisfy corporate ambition. Golden Assets now strives to set the benchmark of the Portuguese financial advising services industry by helping clients finding the best possible investment options based on their profile and personality. The company’s integrated offer includes financial advising services – for which Golden Assets is already widely recognised – as well as asset management and brokerage services. Golden Assets builds trustworthy and longlasting relationships with its clients by providing a service based on independence (defined as the absence of conflicts of interest); quality (a central team of highly skilled experts ensures top performance); focus on the client (having in mind their profile and financial and non-financial goals); agility (understanding the challenges, seeking solutions, and achieving clients’ goals); and proximity (nurturing a long-term relationship 76

“Because the market and the investor demands have changed, Golden Assets believes that transparency, clarity, and globalised thinking are the most important components of any investment strategy.” with the clients, in the process becoming their partner and advisor). The credibility, quality, and ethics of the services provided by Golden Assets are recognised both domestically and internationally, resulting in global recognition. GOLDEN FUTURE: TIME TO WRITE IT This year is a special one in the corporate history of Golden Assets. In 2015, the company launched a new service in order to adapt to the clients’ needs, objectives, and demands and to respond to the evolution of the Portuguese financial market. Golden Assets realised that it was time to assist clients with the writing of their future by being a trusted partner in the defining of real, attainable, and personalised investment objectives leading to a safer and more satisfying future. Understanding this need, Golden innovated once again and took a step forward in the financial advising sector. This new journey led to the launch of a financial advisory service called Golden Future. Planning ahead is a challenge and the first step towards it is constituted by decisions made today. CFI.co | Capital Finance International

Helping clients manage their financial assets, aiming for sustained growth and enabling the creation of long-term value, is the big goal that Golden Assets stands for. By presenting Golden Future – a distinctive service with a unique value proposition in the Portuguese market – Golden Assets aims to strengthen its leadership and relevance in the global financial sector, positioning itself as a first-mover in the financial advisory services industry for private and upperaffluent clients in Portugal. Because the market and the investor demands have changed, Golden Assets believes that transparency, clarity, and globalised thinking are the most important components of any investment strategy. With the Golden Future service, clients now enjoy an opportunity to maintain their relationships and accounts with their current financial intermediaries, which keeps all the executive and management responsibilities, while receiving the full support of a highly specialised, experienced, and independent team of advisors. Due to the increased complexity of the financial world and plethora of solutions on offer, clients oftentimes lack the time to monitor their investments, especially if two or more financial services providers are involved. It is at this point that Golden Assets delivers an innovative solution by providing a single statement that consolidates all the client’s investments as they relate to different financial institutions. The statement calculates the profitability of the entire portfolio. With transparency and independence, Golden Assets points out eventual inefficiencies at each financial institution or operation. This service allows clients to evaluate all the products in their portfolio and immediately identify those

with subpar performance that may detract from the stated objectives or deviate from the investment profile. Through a personalised and continuous one-to-one relationship, Golden Assets ensures that the allocation of the financial assets in different asset classes is carried out in accordance to the client’s investor profile as defined by their risk tolerance, goals and restrictions. The Golden Assets team is permanently monitoring and researching both the domestic and international market in order to offer clients advice in real time, clearly showing available investment options and suggesting courses of action that may positively impact the portfolio. This constant monitoring of market conditions

helps the client to plan and make better decisions for their future. Golden Future offers the guarantees that clients have more time to think and define their investments options and goals in a way that ultimately leads to increased portfolio performance. Additionally, Golden Future ensures reduced risk and costs as clients are able to base their decisions on a personalised investor profile, market trends, and – more importantly – their long-term objectives. Through a single financial advisor, the customer now has the background and expertise of an entire team at their disposal. As such, Golden Future offers an unequalled financial advisory

service that is unique in the Portuguese market. The service is a perfect complement to Golden Assets’ comprehensive range of investment solutions and, as such, reinforces the company’s leadership position. Backed by fifteen years of history, it has been proved that Golden Assets’ success is the result of a team effort and accurate, methodical, and persistent work that allowed the company to build long-term relationships with each of its clients, thus gaining unparalleled insights into personal objectives and profiles. More than a service provider, Golden Assets is valued as a true partner, whose innovative work helps clients define their present, so they may build a better and safer future. i 77

> CFI.co Meets the CEO of Golden Assets:

António Nunes da Silva

fter a solid growth for the past fifteen years, Golden Assets has started a new and exciting journey together with its clients: the company launched Golden Future, a distinctive and client-centric financial advising service that aims to help clients build their future by protecting both assets and wealth. António Nunes da Silva was invited to join Golden Assets as CEO in October 2014. Mr Nunes da Silva was tasked with strengthening the company’s position in the Portuguese market. He eagerly accepted the challenge to enhance the reputation of Golden Assets and solidify its corporate brand by emphasising excellence in the delivery of financial services, making clients feel that Golden Assets team manages their money as if it was their own. Golden Assets soon became the largest independent asset management company in Portugal thanks to maintaining a close relationship with clients and the expertise of the team working accurately and in a transparent and independent way. The new financial advising service can make and mark the difference in the clients’ choices and thus improve their portfolio’s performance. Demonstrating a passion for sales, marketing, and innovation – and after more than twenty years working in the banking sector – Mr Nunes da Silva assumed his leadership position at a time of change and new challenges. “The market has changed. Today’s clients have different needs and therefore require new solutions that fit their objectives. At Golden Assets we recognise this need for change and have developed innovative products and services that help enhance the safety of the invested capital.” Mr Nunes da Silva has fully deployed his strategic leadership skills, and leveraged his extensive knowledge of the retail market to ensure his company’s goals are met. He boasts two decades of experience accumulated at several important financial institutions in Portugal such as Banco Pinto & Sotto Mayor, Millennium BCP, and Barclays. Married and with one daughter – the love of his life and a young basketball player who makes her father vibrate in every game he attends – the CEO of Golden Assets was born in Vila do Conde, a city in the north of Portugal. His interest in the world of finance started at an early age while helping his parents running the family restaurant. Young Mr Nunes da Silva enjoyed talking to patrons, mostly businessmen, who piqued his interest in 78

CEO: António Nunes da Silva

the way business, management, and investment decisions are taken. In addition to the degree in Economics from the University of Oporto, Mr Nunes da Silva also pursued several academic courses abroad. He studied at Harvard Business School, the University of Chicago Booth School of Business, INSEAD Business School, and AESE Business School in Portugal. These specialised courses helped Mr Nunes da Silva further hone his personal and professional skills which ultimately allowed him to succeed in business and establish an unequalled reputation in the market. Confidence, tenacity, determination, and prompt delivery of assigned goals are important characteristics of the Golden Assets CEO. He applies them on a daily basis while managing multidisciplinary and multicultural teams. Realistic and with both his feet firmly on the ground, Mr Nunes da Silva avails himself of the idea that “dreams drive our lives.” Golden Assets’ work is based on the idea that any financial advice must help clients find the best CFI.co | Capital Finance International

medium and long-term solutions for their assets portfolio’s objective. “We can only make this happen because we have a highly specialised inhouse team that boasts internationally recognised knowhow. This team can create the marketrelated situational awareness that is needed in order for the investor to reach sensible planning decisions. This, in turn, enables clients to build a safer future, together with us.” As CEO of Golden Assets, Mr Nunes da Silva is an inspirational leader who manages a team of eighty highly qualified experts. With an exceptional awareness of business and corporate strategy, deep knowledge of the global investment market, the ability to execute and deliver well-defined plans and solutions, he and his team believe that Golden Assets can help build a brighter future. Mr Nunes da Silva highlights the importance of a specialised team able to promote change and innovation: “At Golden Assets we position ourselves as partners of our clients, nurturing long-lasting relationships based on trust and on rigorous, methodical, and qualified work; in short we help our clients write their own future.” i

> Inversis Banco:

The One-Stop Shop for Institutional Investors Inversis Banco offers a unique proposition: It combines global securities transactional banking with the full outsourcing of business processes. There is currently no equivalent product on the market – just partial solutions. The scene comprises mostly traditional wholesale transactional banks that provide plain vanilla services that force institutional customers to themselves run a large part of their business flow that does not constitute a core activity. Then there are a few software providers that deliver purely technical solutions which tax the customers’ resources, knowledge, and efforts. Finally, between these two, one may find some providers covering the whole value chain but do so only for a limited product (i.e. mutual funds). This is why Inversis occupies an exceptional place in the market: It offers BPO solutions wrapped up within a regulated financial body.

A tailor-made, one-stop shop, Inversis aims at providing outsourcing to its business partners of their non-core activities which are unrelated with attracting and management of their end-clients and their investments. This is achieved under white label capabilities that take advantage of a leading-edge technology, flexibility, and scalability. Flexibility, in terms of the products and services depending on the business profile of an institutional client, and scalability in terms of the scope of solutions offered. As a service provider, Inversis adheres to the belief that transparency is its bigger asset. This means that Inversis does not manufacture its own products or market contents. Since the firm’s beginnings in 2000, Inversis decided that a key piece of its strategy is to avoid any possible conflicts of interest with institutional clients. The firm hires all content information from independent third-parties. Following the same principle, and despite of Inversis’ know-how and capabilities in the funds business, the company does not promote any kind of mutual fund. Instead, it collaborates with clients to help them to identify the most suitable products according to individual business profiles. This of course is aligned with another of the firm’s philosophies: To consider clients as partners. Given the importance of the services provided 80

“At Inversis, innovation is not just about technology; it represents a global offer that covers all client services.” to customers, who often opt for full outsourcing of their processes, Inversis understands how important the security of its proprietary systems is. This is why the firm counts on sophisticated disaster recovery sites where it runs annual tests. Twice a year, Inversis also undergoes an ethical hacking test performed by independent experts. All this would be incomplete if it was not for innovation – the true DNA of Inversis. Technological evolution and innovation is at heart of the company’s business strategy. This is why Inversis was the first Spanish provider to implement electronic ID cards as a means of logging in and why it developed a tablet app that allows bankers to service their customers as if they were present in a branch. Customers can place their signature on the tablet screen which is then captured and stored together with all relevant biometric data just as if the customer had signed the traditional paper ticket. In the world of constant change, it is a must for financial businesses to promptly and smoothly adapt to new needs and requirements. For that reason, Inversis keeps working on a number of different projects to ensure the firm keeps CFI.co | Capital Finance International

abreast of developments and is able to serve its clients. The firm has designed and implemented a revamped and repowered Internet portal that allows independent asset managers to directly distribute their mutual funds to end customers. Inversis believes this is one of the answers to the new MiFID II scenario that presents many challenges for all market players. The firm is also carrying out a “globalisation” project which will allow it to render outsourcing services to institutional clients based in jurisdictions in different time zones while still using its own data processing centre. The most common approach used by multinational corporations is to run the business through different datacentres, each covering a large geographical region. This means maintaining datacentres in, say, Asia, Europe, and the Americas. Inversis aims to finish building up its core systems to incorporate the necessary business logic that is needed to serve clients regardless of their country of origin. Finally, lots of efforts is being expended towards the development of new functionalities that directly benefit customers and removes the burden represented by the upcoming highly competitive European scenario under MiFID II. At Inversis, innovation is not just about technology; it represents a global offer that covers all client services. In line with this approach, the firm has constantly added new features and products such as ETFs (exchange traded funds) and pensions schemes. This has been widely recognised as may be gauged by the many different awards Inversis received for

â&#x20AC;&#x153;A tailor-made, one-stop shop, Inversis aims at providing outsourcing to its business partners of their non-core activities which are unrelated with attracting and management of their end-clients and their investments.â&#x20AC;? consistently delivering innovative and high-end solutions to its institutional customers. In search for global solutions, the firm organises the annual Inversis Forum of Innovation & Leadership for the promotion of an open market discussion with clients and regulators regarding industry trends and common concerns. The forum offers an open space for debate on

relevant topics within the securities business and is a way to exchange views between companies with different investment business profiles. This yearâ&#x20AC;&#x2122;s discussion centred on themes such as the future of the investment distribution business, the upcoming regulations and their impact on the traditional rules of cooperation

between product manufacturers and distribution networks, the best execution practices, and the future of execution services. Attention was also paid to the need for a strategic review in order to anticipate new paradigms, new entrants, and how to encourage companies to evolve so they may not only survive, but flourish in the present challenging scenario. i 81

> CFI.co Meets the CEO of Inversis Banco:

Javier Povedano

CEO: Javier Povedano

avier Povedano, CEO of Inversis Banco, boasts more than thirty years of experience at top-tier and highly regarded financial services providers. Mr Povedano obtained a double degree in Law and Economics and Business Administration from the prestigious Universidad Pontificia Comillas (ICADE) in Madrid and has held a number of leading positions at Arthur Andersen (currently Deloitte), March Group, and – since 2013 – Inversis Banco.

part of the Banca March Group, where he was in charge of investment decisions on both listed and unlisted companies. During that time, Mr Povedano sat on the board of administrators of companies such as COBRA (ACS Group), Antevenio - a listed company dedicated to management of Internet advertising space Airtel Móviles, and Peopletel. The common denominator that unifies these diverse companies is the dedication to develop and market new technologies.

Mr Povedano started his career at Arthur Andersen in the tax and mercantile advisory division. Here, he managed different projects related to foreign investment, mergers, and corporate restructuring.

In 2003, Mr Povedano was appointed managing director of March Asset Management, also part of the Banca March Group. During his mandate assets under management were multiplied by a factor 2.5 to reach €1.5bn.

In 1998, Mr Povedano became a member of the executive committee of Alba Corporate Finance, 82

Since 2014, Mr Povedano has been managing CFI.co | Capital Finance International

director of Inversis. This company was acquired by Banca March Group at the end of the previous year. The group is now its sole shareholder. Banca March Group has entrusted Mr Povedano with running the newly-acquired business which he knows inside out having been its chief financial officer (CFO). Mr Povedano’s strategy is to make inroads into the institutional markets both in Europe and Latin America, placing special attention on constant innovation in adopting new technological tools and on continuous improvements to further enhance personalised customer services. Mr Povedano was born in Madrid and is married. A father of three, he is a dedicated family man who loves water sports and is passionate about a job well done. i

> PayShop Management:

A Professional Team with Vision

ndré Gorjão Costa is chairman of PayShop, a position he holds jointly with that of chief financial officer (CFO) at CTT Correios de Portugal. In 1999, Mr Costa initiated his career at Santander Investment in the corporate finance field. Here, he became a vice-president responsible for cross-border mergers and acquisitions (M&A) and participated in a number of major projects. In 2000, Mr Costa joined Santander Totta as commercial director for corporate banking. As such, he headed the commercial coverage team responsible for Large Corporates in Portugal. Since 2007, and before joining CTT Group, Mr Costa was the managing director at Santander Global Banking and Markets for the credit market in Portugal with a particular responsibility for structured finance, acquisition finance, securitisation, debt capital markets, syndicated lending, and credit sales and trading. From 1998 until 2002, Mr Costa also lectured as an invited assistant professor on Competitive Strategy at the Nova School of Business and Economics. In 1996, Mr Costa obtained a BSc degree in Economics with a specialisation in business and managerial economics. He also completed several courses in investment banking, strategy, leadership, and team management. Sílvia Maria Correia is currently both director of Financial Services at CTT Correios de Portugal and executive member of the PayShop board of directors. The latter role she accepted in 2012. Ms Correia embarked on her professional career in 1996 by joining the technical staff of the Observatory of Employment and Professional Training, an organisation sponsored by the Portuguese Ministry of Qualification and Employment. She soon moved to CTT Correios de Portugal where she started as product manager at the Financial Services Department. Since then, Ms Correia has assumed additional responsibilities within this business field. Between 2004 and 2007, she worked as commercial director. From 2006 to 2012, Ms Correia was key account manager. She obtained her first college degree in Economics in 1995 at ISEG (Institute Superior de Economia e Gestão). Ms Correia went on the complete two postgraduate programmes in Advanced Marketing and General Management at the Universidade Católica Portuguesa and the Universidade Nova de Lisboa respectively. Adérito Augusto Vieira previously served as assistant of the head of the International Unit at CTT Correios de Portugal. In that role he was responsible for producing advisory reports on a multitude of the financial topics. With a BSc

Chairman: André Gorjão Costa

Executive member of board of directors: Sílvia Maria Correia

Director of Finance, Planning, and Compliance: Adérito Augusto Vieira

IT director: Pedro Pinheiro

degree in Industrial Management, a MSc degree in Finance, and a number of other academic accomplishments, Mr Vieira has the expertise and experience to excel in his current job as PayShop’s director of Finance, Planning, and Compliance. He assumed the position in 2012.

manages a small but dedicated team that develops and runs the applications which support the company’s business. Mr Pinheiro joined PayShop in 2003, while it was still a start-up, as head of software development. With a degree in computer engineering and an MBA, Mr Pinheiro has a broad range of technical and business skills. i

Pedro Pinheiro is PayShop’s IT director. He

> PayShop:

Customer-Centric Convenience

ayShop is a Portuguese company founded in 2001 by an international group of investors who conceived a model and a system for consumers to easily pay all sorts of domestic bills either in cash or by cheque at shops and other outlets throughout the country.

demand for a streamlined national payments service, over half of household bills in Portugal were settled over-the-counter. Payment points far and few in between and not always located conveniently. Moreover, their opening hours were usually restricted. An opportunity had presented itself.

According to studies that aimed to gauge

In addition to settling regular utility bills such as

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power, natural gas, water, telephone, and cable television, the PayShop network also allows for the payment of other services, including public transportation, tolls, Internet gaming vouchers, etc. The issuance of electronic money is an added service offered. The consumer just needs to take a bill to one of over 4,000 retail outlets that display the

PayShop logo. These may be found at supermarkets, grocery shops, kiosks, convenience stores, coffee shops, and services stations amongst others. Here, the retailer has been provided with a compact payment terminal. When presented with an invoice, all the operator needs to do is scan the barcode and accept payment. Processing is immediate and the customer receives a printed proof of payment. The PayShop associate may also accept payments for which no paper invoice has been issued by consulting the service catalogue. Retailers have embraced the PayShop system right from the start, helping it become the second-most prevalent means of payment used by Portuguese consumers to settle household bills. PayShop now leads the market in over-the-counter payments. Retailers soon discovered that the presence of a PayShop terminal significantly increases footfall and thus adds to sales. Ease of use for consumers and associates alike, a zero-cost approach, plus proximity and efficiency remain guiding principles that dictate PayShop’s corporate policy. Together, they constitute the core of the company’s philosophy. Today, PayShop offers its services to more than 500 businesses on whose behalf the company annually processes over fifty million transactions and collects around €900 million euros in payments. This achievement was only made possible by PayShop’s consistent delivery of first-class customer service. PayShop stands by its customers, associates, and corporate clients 24/7. Client satisfaction is more than a mere statement. Since its inception, PayShop has garnered multiple honourable mentions and coveted business awards. The most recent include the Medal of Honour for Customer Focus in the European Business Awards of 2012/13.

“Retailers have embraced the PayShop system right from the start, helping it become the second-most prevalent means of payment used by Portuguese consumers to settle household bills.”

Notwithstanding the value attached to such appreciated tokens of recognition, the main award is extended daily by PayShop customers as they make use of the payment processing network. In 2011, an independently-conducted customer survey showed that almost 90% of PayShop clients valued the services offered at 4.33 on a scale from 1 to 5. This remarkable level of customer satisfaction imposes an added level of responsibility on the company. In order to extend access to its network to small Internet-based companies,

PayShop has implemented a number of affordable payments solutions tailored to meet the needs of start-ups and small and medium-sized enterprises (SMEs). Mindful of its role as a corporate citizen, the company also offers access to its network free-of-charge to nongovernmental organisations (NGOs) and charitable entities. PayShop’s corporate social responsibility (CSR) initiatives have been shown to add to the company’s bottom line. With a staff of 26 employees, most of whom have been working for PayShop since the business’ early days, the company produces stellar economic and financial results: operating margins hover around 50% while the return on capital exceeds 100% and free cash flow (FCF) yield amounts to 75%. These results are directly attributable to the in-house development of innovative approaches to business. A relentless pursuit of operating efficiency is matched by a constant monitoring of market conditions and demand in order to anticipate the needs of present and potential clients. Over the last couple of years, this dual approach has permitted the reduction of the network’s communication costs by up to 70%. Additionally, a way was devised that allows customers of a major Portuguese power utility to settle past-due bills via the PayShop network, thus substantially increasing revenues. PayShop’s internal control processes follow best international practices. The company’s risk management framework has been progressively improved and now allows for the early detection of distressed retailers which are preemptively suspended from the network. Thus defaults are avoided which, in turn, reduces the accrued debt of affiliated retailers on the company’s balance sheet to residual levels of approximately €350,000. As a payment institution, PayShop is entitled to have its internal processes evaluated on an ongoing basis by an independent auditor. This job is currently given to a top-tier audit company of global renown. PayShop’s sole shareholder is CTT Correios de Portugal, a publically-traded company, also requests monthly reporting and disclosures on a broad range of subjects. The parent company additionally enjoys full access to PayShop’s auditing teams which also make their findings available to the Bank of Portugal, the country’s national financial regulator. i 85

> Crédit Mutuel Group:

The Power of Being Local The Crédit Mutuel Group’s investment and financing strategy is to focus on wellknown sectors whose social utility hinges on meeting basic needs such as the production of energy, means of communication, telecommunications, leisure activities, processing industries, and public service contracts.

uch attention is given to social utility criteria (how strategic a project is for a country, the alignment of the interests of the various stakeholders, and overall economic rationality), local acceptability (known opposition from environmental protection groups or the local population, noise pollution, landscape impact, etc.), and environmental criteria (compliance with current and possible future standards). Projects must comply with local regulations and the World Bank’s minimum requirements. In terms of anti-corruption, significant control measures are taken. For example, disbursement occurs only after satisfactory completion of KYC (know your customer) procedures and upon the issuance of a certificate by a trusted third party such as an independent technical expert. Compliance with these principles is fundamental for the provision of financing. Internal rating grids are used to exclude projects that do not meet these criteria. The Crédit Mutuel Group generally finances projects in countries where political and solvency risk is limited, i.e. “designated countries” within the meaning of the Equator Principles. When Crédit Mutuel operates in more fragile countries, both politically and with respect to environmental standards, it partners with banks that have signed the Equator Principles or with multilateral agencies.

“Because of its roots and values, Crédit Mutuel naturally promotes access to banking services for as many people as possible.” allow the project to withstand economic crises and span several years. Projects are generally financed over periods of 15, 20, or more years. To improve control of social and environmental risk, a special programme was launched by Crédit Mutuel’s financing bank. All new project financing is formally analysed and is the subject of an annual report. Nearly 80% of all new energy financing is currently allocated to green projects (renewable energy, etc). For example, in 2014 CIC’s project financing department, Crédit Mutuel’s financing bank, financed 23 projects, including ten in renewable energy such as solar farms in the USA and France, wind farms, etc.

After selection, the social and environmental impact of each project is taken into account and monitored throughout its existence. For example, an independent engineer may monitor construction and its environmental impact, thus ensuring that the borrower complies with the agreed-upon standards throughout the project.

CIC uses an internal evaluation methodology based on the Equator Principles classification scale. • Category A Projects: Projects with potentially significant adverse social or environmental impacts that are diverse, irreversible, or unprecedented; • Category B Projects: Projects with limited adverse social or environmental impacts that are few in number, generally site-specific, largely reversible, and readily addressed through mitigation measures; and • Category C Projects: Projects with minimal or no adverse social or environmental impact.

Projects are financed only if two principles are observed: • Alignment of the interests of the various stakeholders; • The overall economic rationality of the project: more than any other financial criterion, this will

The 23 projects financed in 2014 were as follows: one in Category A, seventeen in Category B, and five in Category C. Projects are selected on the basis of a set of parameters that include social, environmental, and ethical criteria in selected business sectors and countries.

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In its asset management policy, Crédit Mutuel Group’s methodology is based on an in-depth internal study combined with external analyses. It involves rigorous data collection in order to accurately encompass everything concerning the creation of financial and non-financial value by the company. It is based on a rigorous investment process, both in the selection of sovereign issuers and companies and in the analysis of nonfinancial information. FINANCIAL INCLUSION Because of its roots and values, Crédit Mutuel naturally promotes access to banking services for as many people as possible. As an unlisted bank, its primary goal is not to maximise profit. Rather, it offers solutions that meet the needs of various customer targets, including in terms of price. Its organisation and local network allow Crédit Mutuel to maintain close ties with its customers and understand their needs. Real efforts are made to help borrowers and to limit the risks related to business creation loans through partnerships with social integration associations such as the Association for the Right to Economic Initiative (ADIE), France Active, Boutiques de Gestion, local social integration centres, amongst others,) and with local social welfare centres (CCAS) and social organisations that dispense microloans to individuals. Thanks to the active involvement of the local bank’s customer relationship managers and volunteer directors, a great deal of credit on preferential terms, and in small amounts of less than €5,000, is issued to members and customers who are experiencing temporary difficulties. Lastly, close monitoring of the operation of its customers’ accounts and alert indicators allows the local bank to respond quickly and take all possible action before serious incidents occur. Several local banks and regional federations have introduced support mechanisms to assist borrowers in financial difficulty. For example, up to 75% of the loan payments of members

In addition, Crédit Mutuel’s local banks have their own operating account, which allows them to define a sales policy that reflects the economic realities of their environment. It also helps the banks control costs, monitor local net banking income, and empower the various players at the local bank vis-à-vis their board of directors and the regional group. ALTERNATIVE PERFORMANCE PARAMETERS First of all, Crédit Mutuel differs from listed banks because of its cooperative organisation, its values, and its governance. However, these characteristics do not prevent Crédit Mutuel from being subject to the same competitive conditions as other banks. It is supervised and controlled by the banking authorities and must comply with the same prudential rules.

who, for various reasons, are temporarily having trouble repaying their loans may be taken over for up to a year.

long term in an environment that unfortunately continues to focus on the short term; and (3) special attention given to communities.

COOPERATIVE BANK A cooperative bank is a partnership that differs from a corporation. Its values give meaning to its economic activity, which is not based solely on profit.

Crédit Mutuel has chosen to make service a priority and has therefore long endeavoured to enhance its product range and look after the front office. After personal and property insurance, Crédit Mutuel developed remote surveillance, telephony, and vehicle sales. Today, being cooperative means remaining true to one’s values of closeness to the customer and independence, while at the same time innovating and continuously assessing their embodiment.

The allocation of a large portion of income to reserves and their non-distribution are principles that favour long-term management with an emphasis on the sustainability of the company, the business, and employment. This also helps strengthen the bank’s independence and power. A cooperative bank’s development is therefore rooted in the regions. For example, whereas 90% of France’s Top 100 companies have their registered office in the Paris region, Crédit Mutuel’s decisions are made regionally. Being cooperative does not mean being subject to technological or societal changes. On the contrary, by having a large social body (members) that is broadly representative of the population, it is possible to accurately identify members’ and customers’ expectations and offer services that meet their requirements without the need for gimmicks and unnecessary services. The cooperative model is particularly well-suited to challenging economic periods. In addition to the “one-person-one vote” democratic principle, the other three values of a cooperative bank respond to the challenges of our companies: (1) no obsession with dividends, which prevents excessive risk-taking; (2) priority placed on the

SUPPORT FOR LOCAL SOCIAL AND ECONOMIC DEVELOPMENT Financing the local economy requires knowledge of local players – tradespeople, merchants, micro-businesses, SMEs, etc. – and decisionmaking at the local level. At Crédit Mutuel, the limited turnover of “specialised customer” advisors – four years on average – gives them time to become involved with players in the local economy. It ensures a precise assessment of the projects submitted to them. Advisors are authorised to make decisions by their supervisors, who themselves are authorised to respond to 80% of requests independently (90% in some Crédit Mutuel regional federations). This decentralised decision-making process at the local level means that responses to financing requests can be given in fewer than seven calendar days on average.

The cooperative status naturally leads to the development of a particular governance style that is based more on a “partnership” approach than a “shareholder value” one. The involvement of the members’ representatives in management and decision-making, alongside managers, allows a balance in value creation and sharing. It also allows for the development of a lasting relationship as part of a long-term, nonspeculative strategy. Performance is measured by compliance with cooperative principles. Each year, it is the subject of a mutualist assessment at the local banks. At Crédit Mutuel, the representativeness of volunteer directors, collegial bodies, and decision-making at the local level do not exclude the pursuit of excellent performance. Like any other company, Crédit Mutuel must perform well and generate surplus funds in order to build its future and maintain a long-term paid employment strategy. The purpose of outstanding financial results is not to pay stock options or very high dividends, but to finance its organic growth and, where relevant, external growth through acquisitions. The primary objective of its players – directors, managers, employees, and others – is the company’s long-term existence. HELP FOR SMEs Within the Crédit Mutuel Group, small enterprises are overseen by more than 4,000 specialised advisors. Each company is assigned to a portfolio managed by an advisor trained in financial, legal, and social analysis who uses an advanced decision-support IT application with which all banks are familiar. Microbusiness/SME advisors remain on the job for an average of four years, giving them time to understand the strengths and weaknesses of their area of influence and to become involved with organisations that support business creation by participating in local projects analysis committees, etc. If necessary, they can also be supported by specialised dedicated teams at the regional level for very large projects. i 87

> Helmut Schmidt (1918-2015):

Pure Genius at the Helm By Darren Parkin

hen the Cold War cast its sinister shadow over Europe, one man turned a key that opened a door for the USA, and allowed them to strategically place nuclear weapons that would keep the uncomfortable stand-off from escalating.

the name Helmut Schmidt. He would probably have liked it that way. For all his assertive dynamism, political skill, and indefatigable leadership, in private he was a modest man who liked to retreat to the side lines once the hard work was done. He died peacefully at his Hamburg home on November 10 at the age of 96.

The keeper of those keys was the same man who was instrumental in the design of the European Monetary System. To many, he was a pure genius who prevented a nuclear holocaust. To others, he was an acid-tongued meddler who put the desires of Europe ahead of the needs of his native Germany.

Mr Schmidt had an uncanny gift for politics and economics, and was outstanding at both. But they were skills he didn’t even realise he possessed until he was held as a prisoner of war by the British following the Battle of the Bulge in January 1945.

Alarmingly, few people these days will recognise

The Nazi Party had not long come to power

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in Germany when the 14-year-old Schmidt (disguising the fact he had Jewish grandparents) became a group leader in the Hitler Youth. He joined the German Army in 1937, two years before the outbreak of World War II in which he served on both the eastern and western fronts. His talents for leadership were quickly recognised as he rose to the rank of first lieutenant, earning the Iron Cross in the process, before his capture in the Ardennes – the Nazis’ last major offensive of the Second World War. The young Schmidt was as tough as they come: he was born in the deprived slums of a notorious Hamburg district where people had little work. The First World War had ended only a month

from Hamburg University (where he had been the national chairman of the Social Democrats’ student wing) in 1949, he went on to become an economic adviser to Hamburg’s regional government. By 1953, Mr Schmidt was elected to the federal parliament where he soon made a name for himself as a bit of a loudmouth upstart. Before long, his peers would brand him Schmidt-Schnauze, believing he would often be poking his nose into their work while being too outspoken. Despite the occasional run-in with party members, Helmut Schmidt was usually right in his advice and assessments leading his colleagues and adversaries to develop a deep affection for the mouthy maverick. Loyalties were, however, tested to the full when he defied his own party’s anti-rearmament stance while refusing to negotiate terms for an interim confederation with East Germany. His pragmatic and unwavering approach won the day and he was soon revered among politicians of all persuasions as a man who was a pure and uncomplicated force for the good of Germany. With hard-line opinions on rearmament, Mr Schmidt was appointed minister of Defence. In that capacity he directed the re-emergence of the arms industry in West Germany under the suspicious gaze of Britain and America. With his trademark forthright style, he revived Germany’s arms production without running afoul of other former foes and, in the process, set out his stall as a future leader of West Germany. His political success and economic acumen did not go unnoticed and, in 1972, he was appointed minister of Finance under the muchloved Willy Brandt. The chancellor’s Ostpolitik, which paved the way for a Nobel Peace Prize, was enthusiastically embraced by Helmut Schmidt who leveraged it to help strengthen West Germany’s economy. Two years later, Helmut Schmidt himself was swept into office as Chancellor Brandt’s successor.

before, and his hard-working parents struggled to put food on the table. He grew up in a crippled Germany that was tormented by social and economic hardship.

Elected in 1974, he instantly faced one of his country’s most difficult periods since the war. The world was in the grip of economic chaos and relations with the Communist East were strained. As chancellor, Helmut Schmidt continued to be robust and strong in his leadership. Some would say too strong.

It was his difficult upbringing, combined with despair over Germany’s role in the war, that channelled him into politics. While being held by the British, he and his fellow prisoners would discuss Germany’s future. His comrades persuaded him to join the centre-left Social Democrats as soon as he was demobilised in 1946.

His spirit was dominated with one overriding – to see Germany unified. His pursuit of this dream drove the Schmidt Administration to continue its dialogue with communist leaders. However, his determination could not prevent the Soviet Union from turning up the heat on an arms race that was making much of the world nervous. Chancellor Schmidt felt he had no option other than to go toe-to-toe with the Red Army.

Having grown up through great hardship, Helmut Schmidt strived to better himself. Graduating

Despite his often publically proclaimed disdain of America, Helmut Schmidt cleared the

way for the US to deploy nuclear missiles on West German territory, with warheads aimed directly at the USSR. The rationale behind his strategy was to ensure a military balance and form a stand-off with potential consequences so severe that both parties would, eventually, find an honourable way to back down. MAD (mutually assured destruction) has arrived in Germany and the Germans soon learned to love bomb. On reflection, Helmut Schmidt’s policy was the work of utter genius. Sadly, and without the benefit of hindsight, most of the West German population didn’t quite see it that way at the time. Mr Schmidt was a staunchly pro-European politician and would frequently appeal to the UK not to leave the European Community, often citing his own experiences during the Second World War to fortify his calls for a more united Europe. His fervour for uniting nations was rewarded when he became a key player in the launch of the European Monetary System with his French counterparts. It was the beginning of another of Helmut Schmidt’s dreams – a single currency for a unified continent. As with most successful leaders, their power and allure eventually wanes in the eyes of the public. And so, in 1982, the fragile coalition that supported the Schmidt Administration fell by the force of his own left-wing rebels and Helmut Kohl was made the new chancellor. Helmut Schmidt wasn’t a bitter man. He took defeat gracefully and quietly, but even his pride couldn’t prevent him from recognising he had made policy errors and displayed an all-toococky disregard for several of his peers. He’d always had a knack for rubbing people up the wrong way, and it had seemed destined to one day be his downfall. Retirement didn’t diminish Schmidt’s everpresent need to cause mischief. He was a regular columnist for the Die Zeit newspaper, of which he was also co-publisher for many years, where he was known for his outspoken views on the economy. Helmut Schmidt did live to see his two lifetime goals become reality, but they were tinged with a little heartache at the fact he wasn’t in power to help push them through. The pleasure of being the chancellor when Germany was united fell to his successor Helmut Kohl, despite Helmut Schmidt putting in most of the groundwork. It was the same when the euro was rolled out across the EU’s member states. Again, much of it had been down to Helmut Schmidt who was forced to watch the historic event from the margins of public life. Still, his legacy did not detract from the fact that Helmut Schmidt is justifiably hailed as one of the brightest economic and political minds to come out of post-war Europe. i 89

ANNOUNCING

AWARDS 2015 WINTER 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.

> NORDEA ASSET MANAGEMENT: BEST ESG INVESTMENT PROCESS EUROPE 2015

Millions of customers entrust Nordea Asset Management not only with the management of their investments, but also with ensuring that the funds are invested in a responsible fashion. Investors increasingly demand their funds be used in ways that promote the common good while still delivering stellar returns. Instead of considering these demands a conundrum, Nordea Asset Management has developed a winning investment formula that incorporates the full spectrum of environmental, social, and governance (ESG) parameters in all actively managed fund products. Nordea Asset Management is part of Nordea Bank AB, the largest financial services group in the Nordic Region that serves well over 11 million private customers and more than 700,000 corporate clients. The bank’s asset management division is currently engaged in taking the concept of Responsible Investing (RI) to the next

level by making sure that a thorough analysis of ESG values is carried out before funds are committed. Thus, ESG is no longer an add-on to the investment process, but has been relocated to its very basis. Nordea Asset Management considers the application of ESG values as a primary way to mitigate risk and maximise opportunity. As such, ESG helps improve the performance of the bank’s comprehensive palette of investment products. Nordea Asset Management has also gained a formidable reputation for its shareholder activism. Companies in which the bank has a stake are continuously monitored on their ESG performance. Should issues occur, the bank proactively offers solutions, encourages the adoption of improved corporate processes, and may even lend a helping hand in addressing potentially problematic situations. Nordea Asset Management does not shirk from tackling dodgy corporate processes

head-on. The asset manager has engaged with a number of companies in the extractive and infrastructure sectors – both often plagued by allegations of human rights violations and featuring an outsized environmental footprint – in order to gain a better understanding of prevailing practices, and their origins, with a view to offering ready-made innovative solutions that promise improved performance and compliance. The CFI.co judging panel is again impressed by the breadth of Nordea Asset Management’s approach to the implementation of ESG-driven investment models. The asset manager has consistently been at the forefront or responsible investing and has regularly taken the lead, showing the way towards a more sustainable way of managing money and obtaining consistently healthy returns. For the second year running, the judges are unanimous in handing Nordea Asset Management the Best ESG Investment Process Europe Award.

> EDREAMS ODIGEO: BEST ONLINE TRAVEL PARTNER GLOBAL 2015

Once upon a time, booking your next holiday adventure, business trip, or family visit involved many calls – in person or by phone – to airlines, travel agents, and other intermediaries. Coordinating flights and itineraries in order to obtain the best price used to be considered a dark art. All that changed as the Internet came of age and revolutionised the travel industry. Aptly-named eDreams ODIGEO has been instrumental in ushering in this new era with an online platform that allows travellers to effortlessly book trips and obtain the best prices. The group of companies has also been at the forefront of marketing new tourist destinations. eDreams ODIGEO has aggressively and successfully pursued a corporate strategy that is squarely aimed at making the company the preferred online travel agent in all the world’s major markets. The company is

currently present in 44 markets spread over five continents. eDreams ODIGEO serves more than 16 million customers from fifteen offices. The company employs over 1,700 employees and last year moved in excess of $4.3bn in bookings. With over 325 million unique page views per months, eDreams ODIGEO is Europe’s largest flight retailer and one of Europe’s most profitable ecommerce brands. eDreams ODIGEO is made up of five well-established online travel brands including eDreams, Opodo, Go Voyages, Travellink, and Liligo, and the group has expanded its palette of services to include travel insurance, hotel, cruise, and car rental bookings, thus becoming a premier provider of nearly all travel-related products. Maintaining a customer-centric approach that places the best interest of

travellers centre stage has enabled eDreams ODIGEO to expand its reach rapidly, taking new markets by storm. The company is wellknown for its technological prowess, regularly introducing innovative add-ons to its already formidable trading platform. The CFI.co judges noted that eDreams ODIGEO pays particular attention to the ergonomic dimension of the customer experience with its websites and apps offering unparalleled ease of use. The judging panel recognises that eDreams ODIGEO has introduced a number of “firsts” to the market such as apps that memorise customers’ preferences and search details. As a one-stopshop for travellers worldwide, the eDreams ODIGEO group has reinvented an entire industry. The CFI.co judging panel is pleased to offer eDreams ODIGEO the 2015 Best Online Travel Partner Global Award. 91

> CISCO CAPITAL: BEST CAPTIVE TECHNOLOGY FINANCE TEAM GLOBAL 2015

Staying up to date with technology is not so much a drain on the bottom line as it is an opportunity for improving efficiencies and expanding operations. Rather than a corporate expense, IT adds value and delivers the means that allow organisations to embrace everchanging business dynamics. Corporations that keep ahead of the curve and allow for shorter IT lifecycles typically fare better than those waiting for obsolescence to extract its toll, only to ultimately impose the inevitable upgrades. Keeping the IT initiative is key to enduring success. With that lesson borne out of corporate experience in mind, Cisco Capital has developed its Lifecycle Financing facility which recognises that how businesses acquire technology is every bit as important as what is being acquired. The approach allows corporations

to dovetail their IT policies with business plans and initiatives. Lifecycle Financing also stretches budgets while shortening deployment times and offers build-in flexibility that enables companies to adjust work styles and flows in response to shifting market conditions. Cisco Capital offers its bespoke Lifecycle Financing facility in over one hundred countries to businesses of all sizes. The company leverages its intimate knowledge of clients’ operations – gathered during the IT system design phase – to put in place customised financing solutions that take into account not just present IT requirements, but fine-tune system scalability to match corporate strategy. As a result, Cisco Capital is able to go where conventional lenders often dare not tread, maintaining non-performance risk ratios

that are the envy of the industry. Familiarity with the creditor’s business operations and managerial expertise allows Cisco Capital to effectively underwrite IT projects in emerging markets where corporate growth is usually hampered by a lack of affordable financing options. The CFI.co judging panel finds the integrated approach to IT financing pioneered by Cisco Capital refreshing. The judges fully agree that businesses aspiring to gain, or keep, their competitive advantage need to bring IT investments forward. Cisco’s Lifecycle Financing significantly shortens IT lifecycles without adding pressure to budgets. Always charmed by innovative business models, the judges have no hesitation in extending the 2015 Best Captive Technology Finance Team Global Award to Cisco Capital.

> SAGE GROUP: MOST INNOVATIVE BUSINESS MANAGEMENT SOLUTIONS EUROPE 2015

Success in business often boils down to effective management of costs, human resources, assets, and the many other components of corporate life. However, shifting market conditions, cross-border ventures, and customers demanding more, faster, and better have transformed business management into a veritable multidisciplinary science. The Sage Group, founded in 1981 and with millions of customers worldwide, takes the guesswork out of business management with a full suite of enterprise software solutions. Listed on the London Stock Exchange and a constituent of the FTSE100 since 1999, Sage Group employs over 13,000 people globally. The company is headquartered in the United Kingdom and maintains a network of offices in 23 countries. From its very start, Sage Group has kept close to its customers in order to gain a precise understanding of their particular needs, 92

wishes, and requirements. Software solutions are offered for all aspects of running a business such as payment processing, human resources, business intelligence, taxation, enterprise resource planning (ERP), customer relationship management (CRM), accounting, payroll, amongst others. Sage Group also offers fullyfeatured e-business solutions and development platforms. The company has registered steady growth, more than doubling its annual revenue over the last decade to over £1.3bn. Sage Group software is not just powering big business. The company’s products also help small and medium-sized enterprises control and manage all sides of their business. Additionally, Sage Group maintains a range of services tailored to the specific needs of start-ups. Sage Group was an early adopter of cloud-based computing, recognising the immense advantages of software solutions CFI.co | Capital Finance International

that are not chained to a specific computer or local network, but available at any time and in any place. Sage Group’s renowned software engineers regularly come up with new products that enable users to keep their business running at optimum performance levels. Sage Live, a package that handles both front and back office tasks, was developed from idea to ready-tomarket in under 27 weeks. The CFI.co judging panel has noted that Sage Group not only produces state-of-the-art enterprise software, but also leads its sector in customer satisfaction. The company proactively looks after its customers, anticipating their needs and being ever mindful not to impose solutions; preferring instead to take its cue from the demands of the market. The judges are happy to offer Sage Group the 2015 Most Innovative Business Management Solutions Europe 2015 Award.

> BRITAM: BEST INSURANCE COMPANY KENYA 2015

A diversified financial services group with interests in insurance, asset management, banking, and real estate, Britam serves a growing number of clients through offices in Kenya, Uganda, Rwanda, and South Sudan. With the acquisition, in 2014, of Real Insurance, the group also gained a presence in Tanzania, Malawi, and Mozambique. Britam can trace it roots to 1965, the year British-American Insurance Company Bahamas established a presence in Kenya. Over the past half century, the group has vastly expanded the scope of its services, following a customer-centric model that places heavy emphasis on offering products carefully crafted to fulfil the requirements and satisfy the needs of each demographic served. Britam has been at the forefront of the drive to increase insurance penetration not only in Kenya, but across Eastern Africa – one of the world’s fastest-

growing regions. As a result, the company has steadily increased its market share. The insurance arm of the group is focused on delivering world class life, health, and general insurance products while Britam’s expert asset managers help clients with unit trusts, investment and retirement planning, wealth management, property development, private equity, and a host of other specialised financial services. Earlier this year, Britam decided to leverage its unequalled expertise in planning for life’s major events in order to answer the call for retirement income alternatives. The company’s Platinum Drawdown Plan, launched in August, allows people with significant savings to reinvest benefits in order to secure higher returns and increased future pay-outs. The CFI.co judging panel commends

Britam on its resourcefulness. The company has been particularly active in exploiting the synergies between its businesses which results in significant benefits to clients. Already high, customer satisfaction levels have increased further as Britam offers a peerless value proposition. The judges recognise that the company puts great stock in market research. They noted that Britam displays a remarkable agility in its response to changing market conditions. Britam is a company that consistently keeps a few steps ahead of events and does so by leveraging its state-of-the-art IT platform. Thanks to its corporate foresight, Britam secured two earlier CFI.co award wins. In a repeat performance much appreciated by the judging panel, the company is named Best Insurance Company Kenya 2015.

> EMIRATES: BEST CORPORATE LEADERSHIP UAE 2015

Joining Star Wars mania, Emirates now offers passengers on its long haul flights a chance to binge watch the first six episodes of the epic intergalactic movie franchise on their inflight entertainment system. This is just one of the great many details Emirates lovingly tends to and that, taken together, help explain the enduring success of the UAE carrier. Taking the excellence in service pioneered by Southeast Asian airlines in the 1980s and 1990s to an entirely new level, Emirates needed barely thirty years to build a vast network spanning six continents. The airline currently serves 164 destinations in 78 countries with over 3,300 flights each week from its Dubai hub. In February, the fast-growing company is slated to launch the world’s longest non-stop flight, connecting Dubai International Airport with Panama City’s Tocumen Airport in 17 hours and 35 minutes. Emirates already is one of the

world’s most experienced – and successful – long haul carriers, operating four of the longest routes in global commercial aviation between Dubai and San Francisco, Los Angeles Dallas/Fort Worth, and Houston. As its big name competitors retrenched, Emirates forged ahead rerouting flight corridors to its Dubai hub and transforming that city’s famously modern airport into the world’s preferred gateway for intercontinental travellers. In the process, Emirates became the world’s fourth largest airline for international passengers carried and its third largest in terms of passengerkilometres. Operating a fleet of 245 mostly wide body latest generation aircraft, Emirates boasts a near impeccable safety record, consistently ranking amongst the world’s best-run and safest airlines. On other metrics, the carrier also operates at peak efficiency. Thanks to its modern fleet and state-of-the-art route optimisation

programmes, Emirates boasts one of the lowest emissions ratings in the industry, burning just shy of four litres in fuel for every hundred passengerkilometres flown. The company expects to improve fuel efficiency even further as it takes delivery of the Airbus A380-800 configured with a newly developed engine that uses up to half a million litres less fuel annually than previous models. The CFI.co judging panel praises Emirates for its corporate foresight and courage. By embracing and tracing the future, as opposed to fearing it, the company has become the master of its own destiny. Accepting the challenges faced by the airline industry as exciting opportunities for expansion, Emirates has proved that long haul carriers can still drive growth by implementing exceptional standards of quality – and maintaining a keen eye for detail – both at corporate level and in-flight. The judges are therefore pleased to offer Emirates their 2015 Best Corporate Leadership Award. 93

> INTERNATIONAL WATCH COMPANY (IWC): BEST CSR SWITZERLAND 2015

Shunning products with build-in obsolescence, International Watch Company (IWC) manufactures timepieces that are, well, timeless. Aimed squarely at upmarket clients who appreciate both exquisite design and peerless craftsmanship, IWC watches do not convey fashion statements nor flash opulence. Rather, IWC watches just aim to tell the precise time and do so by seamlessly blending traditional skills and the latest in technology. Resisting the temptation to produce mass market watches with a lifespan roughly equal to their battery charge, IWC quietly does its part towards the furthering of sustainable manufacturing. The company is an early adopter of corporate social responsibility (CSR), embracing a number of practices that aim to deliver a tangible contribution to the well-being

of all stakeholders. Adhering to a holistic approach that permeates all corporate processes, IWC ensures its long-term success. The business is run with a view to guaranteeing profitability not just for the next quarter, but over the next century. IWC expects its suppliers to follow a similar approach, preferring to establish solid long-term partnerships, as opposed to incidental touchand-go relationships. The same philosophy is applied to IWC client relations. The company stands behind its products and offers to service any of its timepieces regardless their age: an IWC watch is meant for life and, indeed, to traverse generations. The Swiss precision watchmaker has partnered with a number of entities serving

equally timeless causes such as the Charles Darwin Foundation, the leading scientific research organisation on the Galapagos Islands. IWC offers its clients an opportunity to become benefactors to the foundation and thus gain access to insights and facilities not open to the general public. The CFI.co judging panel commends IWC for not merely adhering to international best practices, but for setting the benchmark and offering others a model to follow. The company excels at fostering a corporate culture in which the bottom line is but one component in a comprehensive suite of performance parameters. The judges are delighted to offer International Watch Company the 2015 Best CSR Switzerland Award.

> ASIA PLANTATION CAPITAL: BEST SUSTAINABLE FORESTRY MANAGEMENT TEAM GLOBAL 2015

For all the trees it manages – around eight million – Asia Plantation Capital (APC) has not lost view of the forest. The company manages no less than 126 plantations on four continents and is both a global leader and trendsetter in sustainable forestry. APC has recently branched out into the production of essential oils, organics, and various bamboo by-products. Earlier this year, APC subsidiary Eco Tech Asia launched a line of bamboobased travel bags and light-weight bicycles to complement its range of bamboo flooring products. The APC Scientific Advisory Board has now joined China’s Institute of Tropical Bioscience to explore the medicinal benefits of oud oil obtained from agarwood. Fragrance 94

Du Bois, another APC sibling, already uses oud oil for its premium perfume line which is marketed through exclusive concept boutiques in Singapore, Kuala Lumpur, Bangkok, and soon in Geneva, London, Paris, and Dubai. More than just a forestry management company, Asia Plantation Capital is a fullservice, vertically-integrated stewardship business that aims to bring sustainable forestry out of its niche and into the mainstream. As such, APC is fully committed to adhere to global best practices of corporate governance in order to facilitate access to the buoyant forestry industry by institutional investors and others looking to underwrite large-scale sustainable initiatives. CFI.co | Capital Finance International

According to Forest Financing, a recent PwC report, the sector can no longer be absent from any well-balanced investment portfolio. One of the fastest-growing forestry management companies in the world, Asia Plantation Capital already has over $600m in assets under management. APC expects to pass the billion-dollar mark before long. The CFI.co judging panel is pleased to note that Asia Plantation Capital continues on a growth path without relaxing its compliance with ESG (environmental, social, and governance) standards. The judges are therefore happy to confirm, for a second consecutive year, the Best Sustainable Forestry Management Team Global Award to Asia Plantation Capital.

> JULIUS BÄR GROUP: BEST PRIVATE BANK SWITZERLAND 2015

Swiss Bank Group Julius Bär is poised for growth. A choice purveyor of both private banking and investment advisory services since 1890, Julius Bär Group has evolved into a repository of financial expertise second to none. Navigating a carefully plotted course, the bank is now expanding its geographic footprint with acquisitions in key markets. In late 2015, Julius Bär Group strengthened its presence in the Eurozone with the purchase of Commerzbank International SA Luxembourg (CISAL). Julius Bär Group also earmarked around $100m for the expansion of its operations in China mulling the acquisition of one or more financial technology (fintech) companies, or start one from scratch with local

partner Bank of China. Though a latecomer to the Chinese market, Julius Bär Group timed its arrival carefully and stands to benefit from the lessons learned by the pioneers. This year, Julius Bär Group aims to expand its interests in Brazil and Mexico as well, further adding to its already formidable reputation as a fintech powerhouse. Recognising a truth not always convenient, Julius Bär Group has not only embraced financial technology, but now proactively drives fintech innovation in order to ensure the bank can continue to excel in serving its clients’ interests and needs. Though the Julius Bär Group remains unapologetically faithful to the time-honoured ways of Swiss private banking, it intends to do so leveraging the full range of benefits derived from

advances in information technology. By allowing classic private banking to receive an infusion of modernity, Julius Bär Group has managed to keep its well-earned place at the apex of an industry known for its fierce competition. The CFI.co judging panel finds the Julius Bär Group’s corporate attitude refreshing. The bank does not strive to be the first at anything; rather, it prefers to think – long and hard – before deciding to act. This reticence, however, should not be taken for a reluctance to adapt: Julius Bär Group proves that leadership is defined by choices shaped in the fullness of time. A repeat winner, the bank has yet again claimed the top spot. The CFI.co judges confirm Julius Bär Group as winner of the 2015 Best Private Bank Switzerland Award.

> AKERTON PARTNERS: BEST CORPORATE FINANCE ADVISORY TEAM SPAIN 2015

Plotting a financial course of action to underwrite corporate success is as much an art as a science. It requires a keen sense of situational awareness to gauge market sentiment and a knack for picking the precise moment to deploy the chosen strategy. Few financial advisory firms come better equipped than Akerton Partners to design, structure, negotiate, manage, and monitor the short, medium, and long-term financing requirements of businesses. The Spanish company was set up in 2008 by a team of seasoned professionals who sought to leverage their collective experience and knowhow to offer bespoke financing and refinancing solutions to private corporations.

Akerton Partners distinguishes itself from the competition with a proposition that transforms the mundane business of addressing financing needs into an exercise that adds tangible value. Instead of looking at snippets of a client’s operations, Akerton Partners has devised and implemented a comprehensive approach to corporate finance that looks holistically at a business to determine its present and future requirements. Properly structured financing is considered as much a tool for corporate growth as marketing, quality control and human resources are. Without exception, the professionals at Akerton Partners have worked in business

before turning to financial engineering. This experience allows them to readily relate to client needs and offer solutions that ensure corporations may keep to the path of growth. The CFI.co judging panel noted that Akerton Partners is justifiably proud of its independence and boasts a peerless reputation for integrity. The judges appreciate that Akerton Partners does not pursue short-term incidental solutions and strives to establish lasting relationships. The firm aims to become a partner to industry and boasts an impressive portfolio of top-tier clients. The judges are pleased to offer Akerton Partners the 2015 Best Corporate Finance Advisory Team Spain Award.

> AGTHIA GROUP: BEST CORPORATE GOVERNANCE UAE 2015

From field to fork, food and beverage provider Agthia Group is wholeheartedly committed to serve only the best products to its customers. The best, at Agthia Group, is a concept that stretches beyond the mere mundane of marketing strategy to include responsible production, excellence in quality control, and carefully balanced nutritional values, amongst others. The Abu Dhabi-based Agthia Group, in business since 2004 and listed on the ADX securities exchange, has become a hallmark of quality not only in the countries of the Gulf Cooperation Council (GCC), but throughout the Middle East and Turkey. Agthia Group maintains a number of product lines that together provide premium food and beverage products for consumers across all age groups, enabling

healthy and progressive lifestyles. Agthia Group proactively embraces diversity both in the way it approaches consumers and in its corporate processes. Partnering with suppliers, retailers, and customers, Agthia Group has established an ongoing dialogue to identify – and meet – the needs of the wider market. Rather than just a marketing slogan or ploy, inclusiveness is considered an essential part of the company’s corporate DNA. Determined to create value through excellence, Agthia Group makes no excuse for aiming high. However, and crucially, ambition is not pursued at the expense of integrity. Convinced that innovation drives economic progress, Agthia Group has established a solid track record exploring new directions and opportunities. A

comprehensive set of corporate guidelines has been put in place to ensure that the company is able to continually monitor and assess the impact of its operations on the environment and the wider society. During the course of its investigation, the CFI.co judging panel noted that Agthia Group is exceptionally upfront and transparent in all corporate dealings. The company is consistently true to its word, eschews corporate doublespeak, and keeps promises. Agthia Group does not make much of a fuss about its strong commitment to corporate responsibility; instead it gets on with its business in a refreshingly honest, down-toearth, and genuine way. The judges have no hesitation in handing Agthia Group the 2015 Best Corporate Governance UAE Award.

> FORTRESS CAPITAL INVESTMENTS: BEST DERIVATIVE PORTFOLIO MANAGER MENA 2015

Private Banking & Wealth Management

One of the leading clearing houses in the Gulf Region, Fortress Capital Investments has applied for a banking regulation license from the UK Financial Conduct Authority (FCA) in order to become a global forex provider and make its premier brokerage services available to institutional investors in Europe and elsewhere in the world. The firm’s newly-launched Fortress Prime subsidiary is now set to commence operations in London, open an office, hire local staff, and bring in some of its experienced professionals from the Dubai head office. Fortress Prime aims to exploit the many opportunities offered on the forex markets which have seen a marked increase in volatility. The firm also expects heavy demand for gold and silver on the spot market. Fortress 96

Prime is confident that it not just meets, but amply exceeds, the strict conditions imposed and maintained by the FCA. The firm noted that the demand for banking licenses has been growing as a result of the solid regulatory framework which is considered a hallmark of quality. Fortress Prime is expanding rapidly across the Middle East, offering fully Shariacompliant financial products and services. The firm’s objective is to become the main conduit for local businesses that look to underwrite their growth. The rapid development, and diversification, of the UAE economy is providing a significant boost to local business which, in turn, opens up possibilities for investors in private equity. CFI.co | Capital Finance International

Fortress Capital Investments is intimately familiar with the UAE business environment and maintains a vast network of industry contacts that enable the company to consistently be the first to identify new opportunities. The CFI.co judging panel notes that Fortress Capital Investments is exceptionally well-poised to maximise its exposure to the buoyant markets of the Gulf Cooperation Council (GCC) member states. This is one of the most dynamic regions of the world and Fortress Capital Investments knows, as few others do, how to navigate this exciting landscape. A repeat winner, Fortress Capital Investments is offered the 2015 Best Derivative Portfolio Manager MENA Award.

> CLIFFORD CHANCE: BEST PRIVATE EQUITY TEAM UK 2015

A long-standing member of the Magic Circle, the informal collective comprised of the ten leading law firms and barristers’ offices in the UK, Clifford Chance provides clients and the general public not only with legal briefs and opinions, but also with valued thought leadership on topics as diverse as Great Britain’s place in the European Union or the travails of Greece as that country tries to get a handle on its debts. While home to celebrated expert lawyers and an exceptionally successful law practice, Clifford Chance is also an intellectual exercise: the firm is consistently looking for – and finding – ways to push the legal envelope and map yet uncharted areas of law. It is a winning formula

with Clifford Chance leading the prestigious Magic Circle firms in revenue, registering billings in excess of £1.36bn for the 2013/14 fiscal year. Mergers with the German law firm Pünder, Volhard, Weber & Axster and the American Rogers & Wells, both sealed in 1999, transformed Clifford Chance into a law practice with a truly global presence. The firm’s footprint now extends to 26 countries. It maintains 36 offices in the world’s most important cities. One of Britain’s most revered legal firms – an institution of sorts – Clifford Chance can trace its corporate roots to 1802 and a practice established in that year by Anthony Brown, a fishmonger’s son. Amongst the firm’s earlier clients was mining

tycoon and empire builder Cecil Rhodes. Employing well over 3,000 lawyers worldwide, Clifford Chance has established a peerless reputation for helping corporates get on with business. The firm operates across a large number of practice areas such as capital markets, finance, real estate, tax, and litigation, dispute resolution, and risk management. The CFI.co judging panel considers Clifford Chance a worthy and exemplary flag carrier for the British legal profession and its long and rich history. As such, the judges are pleased to name Clifford Chance winner of the 2015 Best Private Equity Team UK Award.

> STOXX: MOST INNOVATIVE INDEX PROVIDER GLOBAL 2015

Indices come in many varieties. Generated by computer algorithms, they aim to provide investors and the general public with a market snapshot. While useful, the inner workings of most indices oftentimes remains a mystery. Shrouded in near-secrecy, market indices may reinforce the notion that statistics is akin to a dark art that peddles iffy truths. Recognising the shortcomings of many – if not most – market indices, STOXX set out to produce a more transparent set of indices, leveraging the power of hard facts and verifiable data. A wholly-owned subsidiary of the Deutsche Börse Group, STOXX provides integrated indices for the world’s major markets.

The Zurich-based company maintains a roster of no less than 7,000 indices and is the marketing agent for the German DAX and Swiss SMI indices. The company was formed in 1997 as a joint venture between Deutsche Börse, SIX Swiss Exchange, and Dow Jones. The American company left the joint venture in 2009. Earlier this year Deutsche Börse Group became STOXX’s sole owner after acquiring the remaining 49.9% of the outstanding shares from SIX. STOXX indices are used not only as underlyings for financial products, such as ETFs, futures and options and structured products but also for risk and performance

measurement. STOXX has always been at the forefront of market developments and has continuously expanded its portfolio of innovative indices. STOXX now operates globally across all asset classes. The CFI.co judging panel finds that STOXX has become peerless when it comes to understanding markets and their behaviour. By providing a comprehensive set of transparent benchmarks to the industry, STOXX has made itself indispensable. As such, the CFI.co judges harbour no doubts that STOXX is the rightful owner of the 2015 Most Innovative Index Provider Award.

> AL SHAFAR GENERAL CONTRACTING (ASGC): CONSTRUCTION CONTRACTOR OF THE YEAR MIDDLE EAST 2015

In a region where large-scale construction projects – and contractors – come thirteen or more to a dozen, it takes refined sense of business acumen for a builder to survive and prosper. Al Shafar General Contracting (ASGC) has done just that: with over 280 projects completed for discerning world class clients, the UAE-based company leverages its experience and vast reservoirs of knowhow to deliver turnkey developments and one-stop solutions to clients aiming to couple their fortunes to the booming economies of the Gulf states. In business since 1989, ASGC has evolved into a vertically integrated company that aims to address all aspects of any given project – slashing the cost of both design and construction. ASGC’s aims to provide

developers with turnkey solutions where they see projects take shape and come to fruition via a single optimised channel. ASGC efficiently undertakes residential, commercial, and industrial projects of all shapes and sizes. Proactively introducing and implementing cutting edge BIM technology, ASGC is at the forefront of smart construction. Enjoying a healthy pipeline of large scale projects, the company has delivered some the most iconic structures in the UAE such as the landmark Business Central Towers along Dubai’s Sheikh Zayed Road and the Bay Square complex in Business Bay, Dubai. ASGC also built the vast aircraft maintenance wing at Dubai International Airport and a number of high-end hospitality projects such as the Dubai

Waldorf Astoria Hotel and the Marina Bloom in Abu Dhabi. In addition, ASGC is well on track to deliver the signature 2.4b AED Citywalk project in mid-2016. Attuned to the latest ESG (environmental, social, and governance) best practices and with a comprehensive CSR (corporate social responsibility) programme in place, ASGC executes its projects in a sustainable fashion. The CFI.co judging panel appreciates the company’s adoption of the most up-to-date approach to the construction business and congratulates ASGC on ensuring its workers receive the best of care. The CFI.co judges are pleased to offer Al Sharaf General Contracting the 2015 Construction Contractor of the Year Middle East Award.

> KUWAIT INTERNATIONAL BANK (KIB): BEST SHARIA-COMPLIANT BANK MIDDLE EAST 2015

In business since 1973, Kuwait International Bank (KIB, originally known as Kuwait Real Estate Bank) is a publically-traded Kuwaiti bank that in 2007 adapted all its operations and processes to fully comply with Islamic financial law. Adhering to Sharia has enabled KIB to offer a full range of traditional and innovative products and services to its clients. A committee of learned Islamic scholars monitors both KIB’s internal and external operations in order to ensure strict compliance with Sharia Law. As a premier Islamic bank which has won many accolades, KIB’s business covers all banking services including acceptance of 98

deposits, financing, investments, Murabaha (auto, real estate and commodities), Ijara Muntahia Bittamleek (lease-to-own), Istisna’a, Tawarruq, credit cards, Wakala, and other products in addition to corporate and project finance, treasury services, issuing letters of credit and letters of guarantee. KIB also encompasses a dynamic real estate division which facilitates transactions and helps manage property portfolios. KIB also maintains a modern nationwide network of 28 branches. The bank has a well-established reputation for adhering to the highest ethical standards and regulatory CFI.co | Capital Finance International

requirements. KIB is a client-centric bank primarily guided by the needs, wishes, and aspirations of its customers. KIB’s fully Shariacompliant operations have allowed it to broach new markets and expand the range of its services and products. The CFI.co judges commented on KIB’s exceptionally solid reputation both as a leading financial institution and as a partner to private and corporate clients. The judging panel is pleased to extend the 2015 Best ShariaCompliant Bank Middle East Award to Kuwait International Bank.

> CREDIT VALUE PARTNERS (CVP): BEST CORPORATE CREDIT ASSET MANAGER UNITED STATES 2015

Leveraging the power of unique market insights, Credit Value Partners (CVP) builds value for investors through the pursuit of opportunistic credit investments. The company is a specialist in high-yield corporate loans and currently has over $2.3bn in regulatory assets under management. CVP mostly serves public and private institutional investors, family offices, and high-net-worth individuals. CVP aims to generate attractive risk-adjusted returns by focusing on senior debt obligations from well-established US and European corporate borrowers. The US-based firm maintain a 26-strong staff of highlyqualified and seasoned professional analysts and deploys a proprietary valuation model that

produces company-specific credit and appraisal reports in addition to a range of secondary technical parameters that may influence pricing, trading levels, and risk. CVP grew out of an exceptionally successful asset management group that operated within Credit Suisse. In 2010, the three professionals forming the collective struck out on their own to form an independent firm. Since then, Credit Value Partners has followed a threepronged investment approach, concentrating on middle market lending, collateralised loan obligations (CLOs), and distressed corporate debt. CVP went from barely $100,000 in assets under management to handling well

over $2.3bn. The firm owes its remarkable success to outperforming – if not shattering – all applicable benchmarks. Downside risk is limited and managed by maintaining a bias towards senior-most debt instruments, portfolio diversification, and selective market hedges. The CFI.co judging panel commends Credit Value Partners for finding a winning formula by combining high-yield debt with solid risk mitigation strategies, thus registering optimal returns for its clients. The judges have named Credit Value Partners winner of the 2015 Best Corporate Credit Asset Manager United States Award.

> WHITE & CASE: BEST CAPITAL MARKETS TEAM FRANCE 2015

They actually did sell the Empire State Building – no joke. Acting on behalf of the sellers, White & Case in 1951 managed to obtain $51 million for the New York City landmark, up to then the highest price ever paid for a single structure. The White & Case law firm has been instrumental in setting records and establishing precedent. One of the first US legal firms to venture outside of North America, White & Case opened its Paris office in 1926. However, they have not – yet – brokered the sale of the Eiffel Tower. Other than that, White & Case may be found at the forefront of the legal industry serving governments, state-owned entities, and top-tier businesses with advice in no less than 27 jurisdictions.

White & Case has a particularly strong position in sovereign practice helping a number of countries get a handle on complex debt issues. Moving decisively into Eastern Europe as the Berlin Wall was crumbling, White & Case was ideally positioned to help formerly communist countries shape and implement the massive privatisation programmes required to reignite stalled economic progress. In Europe, the firm merged with the Brussels law office of Forrester, Norall & Sutton in 1998 to become one of the leading offices specialised in European Union law. Recognised as one of the premier global law firms, White & Case in 2005 passed the $1 billion annual revenue mark with more than 2,000 lawyers

under its corporate roof. In France, White & Case has become the preferred partner of large corporates operating across multiple jurisdictions. With a global reach and the resources to match, White & Case is able to address clients’ concerns across a wide range of sectors and most any legal discipline. The firm is known for establishing long-lasting relationships with its clients in order to become intimately acquainted with their operations and thus be ready to help address even the most complex and unique of challenges. The CFI.co judging panel is pleased to confirm the 2015 Best Capital Markets Team France Award for White & Case.

> COSMO FILMS: MOST INNOVATIVE PACKAGING COMPANY ASIA 2015

A global footprint and a product line brimming with innovative packaging solutions place Cosmo Films at the forefront of its industry. As the company that provides premier packaging and laminating products to some of the world’s leading brands, Cosmo Films is set to fulfil its corporate mission: becoming the world’s preferred supplier of packaging to the widest range of industries. Already a dominant player in India, its domestic stronghold, Cosmo Films is rapidly expanding across the globe. The company aims for both organic growth and expansion via acquisitions backed-up by solid investments in research and development. Established in 1981, Cosmo Films has been a customer-centric company from the get-go. It was one of the first packaging

firms to identify a sharply increased demand from environmentally-friendly packaging solutions and was able to move swiftly into this high-growth market segment. That foresight propelled Cosmo Films to the very top of the global packaging industry. Often an afterthought to endconsumers, manufacturers of fast-moving consumer goods realise that packaging can make or break their brand. The right packaging solution, delivered with originality, can strengthen brand-awareness and inspire customer loyalty. It also ensures that a product stands out from the competition and thus gets noted. Few factors contribute as much as packaging does to any given product or brand’s ultimate success. As a partner of a brand boasting

worldwide recognition, and known for its innovative approach to any challenge, Cosmo Films is set to help revolutionise the packaging industry as it moves towards ever more sustainable solutions to wrap the goods the world desires. The CFI.co judging panel noted that Cosmo Films aims to double its revenue between now and 2020. The judges have no doubt that the company will reach its goal. Cosmo Films is all about high – yet sustainable – growth, having transformed itself from a micro-business into a global behemoth in less than 35 years. Cosmo Films not only offers formulae for success, the company is the very embodiment of success. It is with particular pleasure that the CFI.co judges declare Cosmo Films winner of the 2015 Most Innovative Packaging Asia Award.

> HIDROVIAS DO BRASIL: BEST COMMODITIES LOGISTICS SOLUTIONS TEAM LATIN AMERICA 2015

With over 60,000 km of inland waterways, moving bulk cargo in Brazil by river seems a given. Yet only about a fifth of the country’s navigable waterways are currently used as transport arteries. While last year about 45 million tonnes of cargo was moved by river, the vast network of Brazilian waterways has a carrying capacity in excess of 180 million tonnes annually. Hidrovias do Brasil aims to leverage the unequalled power of Brazil’s great rivers to move bulk cargo efficiently and sustainably. One of only a handful of companies dedicated to providing logistic services over inland waterways, Hidrovias do Brasil operates a number of terminals and shipping lines across 100

the country. In the north, the company as of next year is set to move grains from upstream terminals to a newly built private port facility at Barcarena, some 1,100 km down the Tapajós and Amazon Rivers and adjacent to Belém do Pará – the gateway to the lower Amazon Basin. In the south, Hidrovias do Brasil already now exploits a number of shipping arteries on the Paraná-Paraguay twin river system, transporting iron ore, grain, and fertilizers. The company operates a large fleet of pusher tugs and barges to move bulk cargo. Hidrovias do Brasil has signed long-term contracts with customers to ensure a steady return on its sizeable investment. The company recently received a CFI.co | Capital Finance International

$300 million cash injection from a consortium of investment banks – including the International Finance Corporation, part of the World Bank Group – that enables it to both consolidate present operations and launch new initiatives. The CFI.co judging panel applauds Hidrovias do Brasil for – quite literally – choosing the route less travelled: river-based transport is not only cheap and efficient; it also has a low carbon footprint and is, as such, part of any solution towards sustainable development. The judges are unanimous in their decision to offer Hidrovias do Brasil the recognition it is due and hereby hands the company the 2015 Best Commodities Logistics Solutions Team Latin America Award.

> FDH FINANCIAL HOLDINGS: OUTSTANDING CORPORATE LEADERSHIP AFRICA 2015 - DR THOMSON F MPINGANJIRA

FDH Financial Holdings Limited

Drawing on his in-depth knowledge and experience in economics, accounting, and finance, Dr Thomson Mpinganjira may be considered representative of a new generation of African corporate leaders. Dr Mpinganjira is chief executive officer of FDH Holdings in Malawi and has attained prominence in the business world by tirelessly advocating for increased transparency, good governance, and scrupulous honesty. Dr Mpinganjira was instrumental in FDH’s recent acquisition of a 75% stake in the Malawi Savings Bank (MSB). He has set a leadership example for senior executives to follow throughout Africa. These are financially interesting

times for this particular region of Africa. People such as Dr Mpinganjira are providing both the entrepreneurial muscle and intellectual wherewithal that fuel the regional boom. He has special interest in the development of the small and medium-sized enterprises (SMEs) as an engine for growth, having himself been inspired by his father who ran a small import and export business. Diligence in corporate affairs has moved to the top of the local business agenda with Dr Mpinganjira spearheading a major investigation into the alleged systemic fraud which previously affected the MSB. Thus, the

Malawi banker has assumed a major role in the development of the country’s financial sector with his relentless pursuit of improved governance standards. The CFI.co judging panel commends Dr Mpinganjira on his efforts and readily agrees that corporate governance is singularly important to boosting development throughout Africa and attaining higher levels of prosperity. The judges are impressed by Dr Mpinganjira’s standing, not only within Malawi, but throughout the region. The judging panel is therefore most pleased to offer Dr Mpinganjira the win of the 2015 Outstanding Corporate Leadership in Africa Award.

> TRAVERS SMITH: BEST CROSS-BORDER M&A ADVISORY TEAM UK 2015

At London law firm Travers Smith, clients directly deal with the partners who monitor, advise, and offer guidance at every step of the legal process. Associates are, without exception, experienced experts in their own field, forming a solid legal value chain that ensures optimum results even with the structuring of highly complex deals covering multiple jurisdictions. The partners at Travers Smith dedicate significant effort to keeping their winning team together, eschewing the state of almost permanent flux that characterises the legal industry. No hours are lost to getting newcomers up to speed, thus avoiding the restatement of objectives and strategies ad nauseam. Maintaining peak operating efficiency has allowed Travers Smith to cut to the chase, consistently delivering clear guidance that aims

to avoid potentially costly legal wrangles down the line. Over the years, the firm has gathered a loyal following of clients who appreciate its knowledgeable no-nonsense approach that combines legal expertise with a profound understanding of the marketplace. Elevating teamwork to an integrated collaborative approach – as opposed to the combined efforts of individual professionals – enables Travers Smith to conduct its business effectively over longer timespans. Taking the long-term view, the firm seeks to establish lasting relationship with its clients. This allows Travers Smith to become intimately acquainted with any corporate idiosyncrasies that may ultimately prove of inestimable value.

Offering bespoke solutions, often outside the purview of the conventional and mundane, permits Travers Smith to plan and execute even the most complex of corporate strategies. For all their business savvy and legal acumen, the connoisseurs at Travers Smith prefer to keep things simple in order to trace and follow a straight line to the outcome desired. The CFI.co judging panel finds the approach of Travers Smith both refreshing and inspiring. In an industry plagued by over complication and the splitting of hairs, a legal firm that keeps its eye on the proverbial ball is somewhat of an oddity, albeit one highly appreciated and even indispensable. The judges gladly extend the 2015 Best Cross-Border M&A Advisory Team UK Award to Travers Smith. 101

> IPAL: BEST CORPORATE GOVERNANCE CHILE 2015

From pioneering the production of dehydrated foods in 1950s Chile, IPAL has blossomed into a diversified holding company with interests spanning the food, real estate, hospitality, agricultural and logistics sectors. Listed on the main board of the Santiago Stock Exchange, IPAL’s corporate universe encompasses nine subsidiaries that enjoy maximum exposure to Chile’s buoyant economy. Since the early 1960s, Hendaya – one of the first companies of the IPAL family – is one of the premier providers of school lunches in Chile. The firm is a preferred supplier of the Ministry of Education and in 1996 was chosen to also provide cooling and storage facilities for Chilean public schools. In 2007, Innovalim introduced the cook-and-chill technology that better conserves nutritious values and improves

the overall quality of pre-packed meals. IPAL companies have established a solid track record for innovation and corporate daring. Proalsa, one of the group’s constituent companies with a history reaching back over sixty years, produces a wide range of foodstuffs for the house brands of the country’s major supermarket chains. Proalsa also supplies large institutional consumers such as Chile’s state-run National Supplemental Nutrition Programme and industrial caterers. Seeking to diversify and amplify its corporate footprint, IPAL has moved into urban real estate with the development of both residential and industrial plots, and into logistics with a fleet of thirty modern refrigerated trucks now plying the length of the country. In Chile’s deep south – a land of towering mountains,

majestic glaciers, and nigh bottomless fjords – IPAL subsidiary Altasur maintains a network of refuges and camping sites for trekkers. The company also owns the famed Paine Grande, Grey, and Dickson mountain lodges at the feet of the landmark Torres del Paine peaks. The CFI.co judging panel notes with satisfaction that IPAL combines a pioneering spirit with sensible governance principles. This unique blend has ensured the company’s longevity – and its enduring corporate success. The judges moreover wish to commend IPAL for its strict adherence to international best practices. This, the panel feels, has enabled and powered the company’s sustained growth trajectory. The judges have no hesitation in naming IPAL as the winner of the 2015 Best Corporate Governance Chile Award.

> FRIESLAND CAMPINA: BEST CSR PROGRAMMES WEST AFRICA 2015

Providing branded high-quality dairy products throughout Nigeria and West Africa, FrieslandCampina WAMCO is a market leader on a mission to improve the lives and welfare of both its customers and the wider society. The company, an affiliate of Royal FrieslandCampina of The Netherlands – the world’s largest dairy cooperative, pioneered corporate citizenship projects in Nigeria in 2004 – long before corporate social responsibility (CSR) became fashionable. Since then, FrieslandCampina WAMCO has maintained three corporate citizenship programmes: a water project, school adoptions, and a tertiary endowment fund aimed at offering financial support to research in food science at six universities. The endowment also includes a Best Graduating Student Award. 102

To date, the company’s water project has commissioned over forty solar-powered boreholes while its school adoption programme equipped 18 public secondary schools with textbooks and computers. In addition to these three main projects, FrieslandCampina WAMCO actively supports around thirty charitable organisations across the country with both grants and products. The company also rushed to offer relief to the thousands of internally displaced people who fled the political violence of the north and now live in refugee camps. In 2010, FrieslandCampina WAMCO launched its Dairy Development Programme in a bid to support the Nigerian’s government’s initiative to further develop agriculture. The programme has gradually expanded its geographical footprint and includes provisions for the transfer of milk production technology CFI.co | Capital Finance International

to Nigerian farmers. FrieslandCampina works closely with government entities to ensure broad access to training programmes and workshops. The CFI.co judging panel understands that large multinational corporations are asked to assume an increasingly larger share of responsibility for the wellbeing of the natural and social environment they operate in. FrieslandCampina WAMCO has embraced this challenge willingly and wholeheartedly. As such, the company is a true CSR pioneer. Its trail-blazing approach has not only inspired others to follow suit, but also ensured the diary producer a place at the very top of the corporate food chain. The CFI.co judges, in turn, willingly and wholeheartedly recommend FrieslandCampina WAMCO be declared winner of the 2015 Best CSR Programmes West Africa Award.

> IKON FINANCIAL GROUP: BEST FOREX TRADING PLATFORM ASIA & EUROPE 2015

It’s the biggest financial services provider you may not have heard of – yet. Ikon Financial group, with its head office in Hong Kong, serves well over a quarter of a million clients in 95 countries. In 2014, the group registered a turnover of a staggering $1.48 trillion in forex financial derivatives. With subsidiaries in London, Melbourne, and Dubai, Ikon Financial Group is exceptionally well-poised to help its clients maximise exposure to the upside of the full breadth of forex trading. The group also maintains offices in Beijing, Kuala Lumpur, Manila, and Cairo. Operating a state-of-the-art and proprietary electronic communications network (ECN) enables Ikon Financial Group to plug its clients trading orders directly into the market, thus obtaining a true and high-definition picture

of trading activity. The ECN ensures that all orders are promptly relayed to Ikon Financial Group’s liquidity providers. Ikon Financial Group gives investors ready access to a comprehensive range of products such as precious metals, futures, nondeliverable forwards (NDFs), CFDs (contract for difference), and options, amongst others. The company deploys a fully-featured trading platform that it developed in-house to ensure a seamless connection between investors and the markets. The company has also been one of the drivers – selected after a rigorous vetting process by the Chinese government – of the country’s newest financial hub in the city of Tianjin. A testament to its corporate strength, Ikon Financial Group is regulated by regulatory agencies on four continents. The group holds

an Australian Financial Services license and is subject to the notoriously tight regulations imposed by the UK’s Financial Conduct Authority. As an added layer of security, the group guarantees deposits up to $140,000 per account and hold its customers’ funds at AAA+ rated banks. Executing close to $6bn worth of trades each day, Ikon Financial Group is a force to reckon with in the Asian, and indeed global, market. The CFI.co judging panel noted that the company has managed to fully leverage its ECN to offer near-instant, nanosecond execution and a deep liquidity pool. With a platform that offers unrivalled ease-of-use and inspires confidence, Ikon Financial Group is a most worthy winner of the 2015 Best Forex Trading Platform Asia & Europe Award.

> BLACK SEA TRADE AND DEVELOPMENT BANK: BEST REGIONAL DEVELOPMENT BANK GLOBAL 2015

As the financial pillar of the Organisation of the Black Sea Economic Cooperation (BSEC), the Black Sea Trade and Development Bank (BSTDB) proactively supports and underwrites one of the world’s most promising regions. As the eleven BSEC member states look to modernise and reinvigorate their economies, the Black Sea Trade and Development Bank stands ready to partner with both public and private entities to provide the wherewithal required to boost regional growth. With an authorised capital of almost €3.5bn, the bank has helped design structured finance deals for over 300 projects across a full range of sectors. The BSTDB has been instrumental in the realisation of largescale infrastructure undertakings and projects in transportation, telecoms, manufacturing,

energy, and other sectors. The bank offers mid to long-term loans, equity investments, and guarantees, amongst others, and also maintains a special programme aimed at providing loans to small and medium-sized enterprises (SMEs) as well as trade financing facilities. As a cross between a multilateral development bank and a commercial bank, the Black Sea Trade and Development Bank is unique in both its outlook and the scope of services offered. The BSTDB sit squarely at the crossroads of intraregional trade and economic cooperation. As such, the Thessaloniki-based bank straddles regional divides and provides an invaluable link between its members from Southeast Europe – mostly also part of the European Union – and the buoyant economies to the east and north of the Bosporus.

By fostering regional cooperation and integration, BSTDB adheres to its original mission, formulated in 1997. The bank commenced operations two years later. The Organisation of the Black Sea Economic Cooperation was set up in 1992. Its member states are Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey, and Ukraine. The CFI.co judging panel commends the Black Sea Trade and Development Bank for fulfilling its mission in stellar way, embracing – as it does – the full gamut of international best practices. The judges are please to confer on BSTDB the 2015 Best Regional Development Bank Global Award.

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> APC SECURITIZATION SA: MOST INNOVATIVE FORESTRY BOND ISSUER GLOBAL 2015

Investor interest in “alternatives” stands at an all-time high. In excess of $7.5 trillion has already been ploughed into non-traditional economic sectors such as sustainable forestry management – a relatively new endeavour that couples the large-scale approach of the forestry industry to the forward-looking stewardship principles pioneered by environmentalists. Sustainable forestry is ideally suited to satisfy the demand from institutional investors for extended time horizons, low-carbon footprints, and stable returns – trees grow and mature at predictable rates and do so regardless of market conditions. Leading investment experts are almost unanimous in their recommendation that sustainable forestry be an important, if not essential, component of any well-balanced investment portfolio. Timber is the third-most traded

commodity in the world with an aggregate annual volume of around $600bn. As an asset class, timber is tough as nails, returning an average of 15.1% annually since 1987 – more than almost any other class of investable assets. With the world economy picking up pace, along with its interest in renewables, demand for timber is expected to continue to outstrip supply well into the future. Within the forestry sector, Asia Plantation Capital is spearheading the exploitation of carefully and sustainably managed agarwood timberlands. Agarwood produces essential oils, chips, and powder. The dark resinous heartwood has been traded for thousands of years for its distinctive and highly-valued fragrance. Since the aquilaria tree was listed as a potentially threatened species in 1995, top-grade agarwood – which is obtained from the tree – has become

one of the most expensive commodities in the world. The CFI.co judging panel fully agrees that sustainable forestry presents investors with an attractive, safe, and environmentally sound option. The agarwood plantations of APC, producing a scarce – and thus highlypriced commodity – stand at, or near, the apex of the forestry sector. With the launch of both a securitised capital growth bond and a securitised fixed income and capital growth bond, APC Securitization SA – part of Asia Plantation Capital – has introduced two well-designed instruments that environmentally-aware investors may leverage to put their capital at work not just for personal gain, but for the benefit of the wider society as well. The judges declare APC Securitization SA winner of the 2015 Most Innovative Forestry Bond Issuer Global Award.

> BCR GENERAL: BEST CONSTRUCTION PROJECTS MANAGEMENT TEAM UGANDA 2015

BCR General of Uganda builds to last. For this contractor and supplier of heavy equipment, sustainability is part of its business. Since 1989, BCR General provides a full suite of logistics and construction services to government entities and private companies alike. BCR General was, and is, the leading partner in a number of large-scale infrastructure projects and has accumulated a vast reservoir of experience and expertise that now enables the company to expand its corporate footprint into neighbouring countries. BCR General offers road construction, transportation, surveying, mapping, and warehousing services to a growing client base. The company’s management is justifiably proud 104

of a stellar track record that was carefully built on excellence in the delivery of services. BCR General maintains and operates its own fleet of heavy equipment that includes modern cranes, graders, and trucks of nearly all shapes and sizes. The company tackles jobs both large and small in every part of the country. Pursuing lasting partnerships with its clients permits BCR General to gain an understanding of customers’ specific needs and requirements which, in turn, enables the company to fine tune its operations and offer the best services available in the country. Dedicated to achieving peak efficiency, BCR General also pays attention to details, ensuring the well-being CFI.co | Capital Finance International

of both its workforce and equipment to attain maximum efficiency. The significant cost savings thus obtained are passed on to customers and allow the company to outsmart – and underbid – its competitors. The CFI.co judging panel notes with satisfaction that BCR General is a company that works tirelessly to build the foundations upon which Uganda’s now prospering economy is being erected. The company has embraced – and expanded upon – international best practices to consistently deliver world class services. The judges are pleased to offer BCR General the 2015 Best Construction Project Management Team Uganda Award.

> ENSO HYDRO ENERGY: BEST HYDROELECTRIC POWER PLANT OPERATOR EUROPE 2015

Long before green energy claimed centre stage, hydropower was the preferred option for producing copious amounts of electricity without polluting the environment. Today, harnessing the power of rivers is still considered the best choice for generating abundant power cheaply and sustainably. Advances in the design of turbines and ancillary hardware have made hydropower feasible with reservoirs of reduced volume and minimal head. Enso Hydro Energy of Austria is riding the wave as hydropower finds new applications in downsized projects aimed at alleviating localised energy shortages. Fullyautomated designs that emphasise low-cost maintenance have managed to eliminate the need for economies of scale. They also ensure that smaller-scale hydropower plants may be run at a profit. Emitting no CO2, and cheap to build

and operate, small hydroelectric projects are now widely considered the way forward when it comes to greening power generation. Historically, Austria has been at the forefront of hydropower development. Enso Hydro Energy fits this tradition. Founded in 1999, the company can trace it origins to the Frizberg family which has been involved with hydropower since 1902. From 2010 onwards, Enso Hydro Energy is focussed on the portfolio management of hydroelectric projects, leveraging the company’s considerable knowhow in the planning, financing, building, and operating of hydropower plants. The Austrian firm is the sole owner of two hydroelectric plants in Turkey and a majority stakeholder in nine Norwegian hydropower generators. More recently, Enso Hydro Energy partnered with the International Finance

Corporation (IFC), a member of the World Bank Group, to build a series of smaller dams in Albania. The IFC has invested $6m for a 20% stake in the joint venture that aims to increase Albania’s electricity generating capacity and thus reduce the country’s dependency on energy imports. The CFI.co judging panel commends Enso Hydro Energy on its foresight: with high annual rainfall and a mountainous topography, Albania is ideally suited to hydropower. However, so far the country has only managed to develop less than a third of its hydroelectric potential. The judges find Enso Hydro Energy time-andagain at the leading edge of small-scale lowimpact hydroelectric projects in Europe and consider the company a most worthy winner of the 2015 Best Hydroelectric Plant Operator Europe Award.

> SLAUGHTER & MAY: BEST CORPORATE TAX TEAM UK 2015

Slaughter & May, established in 1889, differs from fellow Magic Circle law firms in several significant ways. A little on the small side in term of revenues and staffing levels, it would also seem to be without much of an international presence. However, the equity partners of this firm generate more profit per head than any other Magic Circle member. This quality UK law firm is known to be perfectly placed to advise clients in any and all jurisdictions. Slaughter & May is part of the award winning Best Friends Network that includes some of the most prestigious law firms in the world. The firm has its own offices in London, Brussels, Hong Kong, and Beijing. Theirs is a tier one corporate tax

department of eight partners and twenty specialists making up an exceptionally strong group of highly respected lawyers. The team has established a solid reputation for thoroughness and displays a very high level of commercial awareness. Whilst Slaughter & May’s tax team are very successful litigants, they are also exceptionally capable of finding resolution through other methods. The firm has successfully advised major corporations such as Sempra Holdings (2007), the Bank of Ireland (2008), and Nationwide (2012) in disputes with HMRC (Her Majesty’s Revenue & Customs). It should be pointed out that Slaughter & May provides outstanding tax support in respect of merger and acquisition

work and corporate financing. The firm also shows considerable strength in VAT and other indirect tax matters. Close to half of Slaughter & Mays staff is involved in community and pro bono work. This is much encouraged by the senior partners. The firm is one of the largest employers in Islington which is generally considered one of the more affluent parts of London but in truth has its fair share of struggling people. Community support from the firm includes work with schools and charitable organisations. The CFI.co judging panel is delighted to recognise Slaughter & May’s exemplary tax team and now awards the firm Best Corporate Tax Team UK 2015.

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> INVERSIS BANCO: BEST BANKING TECHNOLOGY INNOVATOR SPAIN 2015

Offering single-point access to all classes of investors, Inversis Banco of Spain features a vast universe of products and services that allow clients to mix and match fund management approaches to best suit individual preferences. Avoiding one-size-fits-all investment solutions, Inversis Banco tailors its products to readily adjust to the dynamics of the market. Opting for evolution and scalability rather than revolution and rigidity, the bank offers a global solution to any given challenge. Inversis Banco strongly believes that no two investors are quite alike. Bespoke methodologies, either conceived by in-house experts or designed by clients, allow for an exceptionally high degree of specificity in the setting of objectives and the management

of risk. Leveraging the power of technology, Inversis Banco is able to structure highly complex, yet flexible, investment strategies. The bank’s clients may easily monitor the performance of their portfolio, and make adjustments to its composition, via a secure Internet-based platform. At Inversis Banco, technology is considered the main driver of progress. The bank has successfully pioneered a number of innovations that enable clients to stay in touch with their investments anywhere, anytime. A fully-featured proprietary app ensures the Inversis Banco portal is available on mobile devices. The bank is currently developing a digital platform aimed at increasing its geographic footprint. Sensitive to the needs

of investors worldwide, Inversis Banco now plans to outsource its services and thus help empower asset managers elsewhere. The state-of-the-art technologies deployed by the bank are unique in that they allow investors to focus on their core business without suffering distractions. The CFI.co judging panel commends Inversis Banco for its dedication to serving investors across the world with a peerless platform that is unobtrusive yet fullyfeatured. Inversis Banco clients thus enjoy all the benefits of technology without suffering its limitations. The judges are pleased to confer upon Inversis Banco the 2015 Best Banking Technology Innovator Spain Award.

> ALLEN & OVERY: BEST CAPITAL MARKETS TEAM AUSTRALIA 2015

After 85 years in business, Allen & Overy continues to lead the market with out-of-thebox solutions to highly complex legal challenges. The firm developed a high-performance culture that is now ingrained in its corporate DNA. With a presence in 32 countries, Allen & Overy does not merely maintain offices in many of the world’s most important cities; it has managed to forge the network into an unrivalled platform that pools and unifies the firm’s vast regional and sectoral resources. Allen & Overy is one of only a select few legal firms that operate on a truly global scale and boast the institutional wherewithal to tackle even the most complex cross-border transactions with aplomb. The firm’s solutions regularly 106

establish jurisprudence, providing the legal underpinning of market-leading transactions. Established in London in early 1930 as a commercial law practice, Allen & Overy gained wide recognition for its role in advising King Edward VIII during the Abdication Crisis of 1936. One of the leading law firms in the City, Allen & Overy in 1963 structured the first-ever Eurobond, thus entering into the high-octane realm of financial advisory. The first global law firm to gain a presence in Australia, Allen & Overy’s offices in Perth and Sydney are the domain of 21 carefully selected partners, each bringing well over twenty years’ worth of experience to bear. The Australian offices offer clients a full suite of corporate, CFI.co | Capital Finance International

finance, litigation, and antitrust legal services. The Australian offices are active contributors to the Allen & Overy Global Intelligence Unit which maps trends and emerging legal and commercial issues that could impact clients’ interests. Constantly monitoring global markets, and their associated legal environments, allows Allen & Overy to stay well ahead of the proverbial curve, delivering an impressive number of “firsts” and legal solutions that are consistently innovative and costeffective. The CFI.co judging panel feels entirely confident in naming Allen & Overy the recipient of its 2015 Best Capital Markets Team Australia Award.

> FLEET PARTNERS: BEST AUTO FINANCE SOLUTIONS AFRICA 2015

Uniquely designed leasing options, with integrated high-tech fleet management, and an approach that seeks to couple innovation with excellence, have propelled Fleet Partners to the very apex of Nigeria’s dynamic leasing industry. In business for over seven years and expanding rapidly, Fleet Partners has found and mastered a winning formula thanks to the firm’s steadfast dedication to customer satisfaction. Fleet Partners does not merely provide the assets that enable businesses to flourish; the firm also offers professional management services built around cutting-edge technology. With ultrafast response times and a highly-skilled staff of dedicated professionals, Fleet Partners

serves corporate clients across Africa. Fleet Partners’ well-developed corporate philosophy holds that leasing operations are not just a profit-seeking venture, but have the ability to significantly contribute towards economic development. By offering private corporations, and especially small and medium-sized enterprises (SMEs), a viable and cost-effective financing alternative to commercial banks, leasing companies are vitally important to the maintenance of a healthy business climate. From its own beginnings, Fleet Partners has focused on providing capital assets via leasing solutions to SMEs and start-ups alike. The approach has made Fleet Partners the go-

to company for a growing number of Nigerian companies aiming to hitch their wagon onto the nation’s buoyant economy. The CFI.co judges agree that leasing is a powerful and essential tool for economic development. The judges note that an increasing number of multilateral development banks maintain programmes to provide funding to leasing companies. Fleet Partners has managed to provide tangible proof for the premise that leasing empowers growth. The CFI.co judging panel is happy to extend the 2015 Best Auto Finance Solutions Africa Award to Fleet Partners of Nigeria.

> INAPA: MOST INNOVATIVE PACKAGING COMPANY EUROPE 2015

With a corporate footprint that spans the better part of Western Europe, and a presence in Angola, Portuguese paper and packaging distributor Inapa has cornered its market through innovation and a dedication to excellence. The company has managed to work its way to the forefront of the European packaging industry with solutions that ensure clients’ brands are easily recognised and stand out from the competition and operations are more streamline and efficient. Inapa has grown from a minor paper manufacturer and merchant, established in 1965, into a market leader focused on

providing integrated paper, packaging and visual communication solutions. Corporate progress was largely driven by a judicious use of technology and ample doses of creativity. The Inapa Group boasts subsidiaries in Belgium, Luxemburg, France, Germany, Spain, Switzerland, and Angola. In all its jurisdictions, the company is one of the top three players. Inapa’s packaging business has registered double-digit growth over the last few years. The company’s palette of packaging products stretches far beyond paper and cardboard, and includes plastic bags, films, tapes, strapping, foam, file boxes, and pallets.

In order to provide solutions that meet clients’ specific demands, Inapa maintains an in-house staff of highly-qualified professionals. The CFI.co judging panel finds that Inapa’s customer-centric approach, and the company’s unwavering dedication to both quality and innovation, are nothing short of exemplary. The company leverages the powers of creativity and technology to offer remarkable out-of-the-box solutions. As such, Inapa is not merely a provider of packaging solutions, but a studio where brand identities are crafted. As such, Inapa is the winner of the 2015 Most Innovative Packaging Company Europe Award. 107

> ROSABON FINANCIAL SERVICES: BEST SME FINANCIAL ADVISORY NIGERIA 2015

Providers of the fuel that powers Africa’s largest economy, Rosabon Financial Services helps Nigeria’s small and medium-sized enterprises find the funds required for expansion. A leading financial intermediary and equipment leasing company, Rosabon Financial Services is part of the Concept Group Nigeria and closely follows international best practices to ensure its sustained growth. The company also maintains one of the industry’s most successful client development strategies which has seen Rosabon Financial Services multiply its revenue stream. The firm offers a full suite of products carefully crafted to fill the diverse needs of businesses across all sectors of the economy. Delivering readily available financial solutions to private

enterprise has allowed Rosabon Financial Services to become a top-tier player and the goto place for entrepreneurs aspiring to reach the next level. With a customer-centric approach that has set a new industry benchmark, the company has managed to expand the scope and nature of its engagements, broadening the customer base and exploring new services and financial products. While a non-banking entity, Rosabon Financial Services is regulated by the Central Bank of Nigeria and a member of the Equipment Leasing Association of Nigeria (ELAN). Relentlessly pursuing innovation and total customer satisfaction, Rosabon Financial Services aims to surpass the expectations of

all stakeholders. The firm has established an impressive track record and boasts a stellar reputation that is unequalled in Nigeria. The CFI.co judging panel is pleased to note that Rosabon Financial Services adheres to a well-defined set of risk management and internal control processes which together ensure that all transactions are conducted in a transparent and ethically sound manner. All processes are rigorously and continuously monitored and scrutinised in order to maintain operational efficiency and peak corporate performance. The CFI.co judges wish to commend Rosabon Financial Services on its world class organisation and proclaim the company winner of the 2015 Best SME Financial Advisory Nigeria.

> FBS: BEST SAFETY OF CLIENT FUNDS ASIA 2015

Equipped with a lightning-fast and fully-featured trading platform, FBS has taken the forex market by storm. Offering services that stretch far beyond the mundane, FBS enables over 700,000 traders to conveniently reap the benefits offered by the highly dynamic forex market while limiting their exposure to risk. Present in over 120 countries and with more than 130,000 industry partners, FBS has a truly global footprint. In the forex brokerage business, size matters and few come as large or lavishly-equipped as FBS. Its traders rack up on average $500m in annual profits by anticipating the ups and downs of the market and injecting their orders for the faultless and ultrafast execution that the FBS platform is widely known for. 108

FBS has perfect risk-management that allowed the company to stay still during the massive Forex collapse in January of 2015 when the Swiss National Bank pulled the plug on the Franc/Euro peg. FBS also provides an unprecedented free service of Deposit Insurance, which leaves clients on the safe side – even in case of unexpected loss. A large team of highly trained and experienced professionals in customer support as well as the financial department stand at the ready 24/5 to help forex traders obtain the best possible results in the most efficient manner. The brokerage employs a generous affiliate commission scheme that offers instant pay-outs and full transparency. FBS is causing quite a stir in the CFI.co | Capital Finance International

market, welcoming on average 600 new traders to its platform each day. Well over half of its new clients see their initial deposit multiply tenfold. Results, while not guaranteed, are so solid and consistent that almost half of FBS’ traders derive a significant part of their income from the profits generated via the brokerage. At over 80%, FBS’ client retention is also exceptionally high and a testament to the company’s strength. The CFI.co judging panel is aware that forex trading may not be everyman’s endeavour. However, the judges commented that trading couldn’t possibly be made any simpler, faster, and safer than the model designed and implemented by FBS. The judging panel feels entirely justified in handing FBS the 2015 Best Safety of Client Funds Asia Award.

> CONFIDENCE GROUP: BEST ENGINEERING INNOVATION TEAM BANGLADESH 2015

An engineering company with its eyes on the future, Confidence Group builds the very foundations of an ambitious nation. Evolving from its cement manufacturing roots, the group now comprises six distinct businesses with a combined annual turnover well in excess of $200m. Taking pride in old-fashioned determination and hard work, the companies of Confidence Group are found at the forefront of engineering with innovative solutions to common challenges. In business for over twentyfive years, Confidence Group has been an early adopter of corporate social responsibility and gained a well-earned reputation for valuing the contribution of all stakeholders to its enduring success.

Recently, the company has welcomed a new crop of bright young engineers, delivered by the country’s most prestigious universities, who are expected to significantly add to Confidence Group’s technical prowess. Confidence Steel, one of the group’s constituent members, is broaching new overseas markets with its high quality galvanised transmission towers and telescopic steel poles that have found clients in Kuwait, Bhutan, and the Maldives. Building on these first forays into foreign markets, Confidence Group now aims to leverage its accumulated knowhow and expertise to broaden and deepen its reach. The group operates across the full technological spectrum with its Digicon subsidiary becoming one of a

select few premier interconnectivity providers in the Bangladesh telecom sector thank to its Tier 1 links with major telecom operators worldwide. Digicon offers an international gateway for both voice and data communication. The CFI.co judges are hard-pressed to find fault with Confidence Group: the conglomerate has not merely introduced top quality products and services in Bangladesh, it also proactively pursues a corporate policy aimed at furthering the country’s development by locally manufacturing critical hardware that previously needed to be imported from abroad, taxing the country’s treasured foreign reserves. The judging panel is therefore pleased to confer its 2015 Best Engineering Innovation Team Bangladesh Award on Confidence Group.

> MAX MYANMAR GROUP: BEST ESG TRANSPARENCY MYANMAR 2015

Established in 1993, the Max Myanmar Group started out in business importing machinery, equipment, and commercial vehicles from Japan. The conglomerate, now a key corporate player underpinning economic progress in Myanmar (formerly Burma), is active in the energy, trading, agriculture, construction, infrastructure, hotel development, and manufacturing sectors. Management has focused on good governance since the group’s earliest days. Corporate social responsibility (CSR) has been audited since 2014. The group’s transparency has consistently found to be exemplary. Last year, the Myanmar Centre for Responsible Business – an initiative of the Danish Institute of Human Rights and other NGOs – ranked Max Myanmar second amongst the nation’s

businesses in terms of transparency and CSR – one notch up from the rank claimed last year. In granting its award, the CFI.co judging panel confirms the progress made – and improved upon - by the company. Max Myanmar Founder and Executive Chairman U Zaw Zaw, a seasoned and highly accomplished entrepreneur, philanthropist, and chairman of the country’s national football federation for the past ten years, considers the values of transparency and corporate social responsibility as the twin priorities of the group. Max Myanmar abhors gender discrimination in the workforce; is a crusader against corruption; and has an effective whistle-blower policy in place that encourages employees to freely express any concerns. The

group is guided by international best practices in all its operations and processes. The Ayeyarwady Foundation constitutes the philanthropic arm of Max Myanmar. It has reached out to help the victims of flooding and works to assist people affected by natural disasters and war. The foundation donates generously to both educational and medical programmes with a particularly focus on facilitating the plight of disadvantaged young people and communities in remote areas of the country. The CFI.co judging panel is delighted to name the Max Myanmar Group as winner of the 2015 Best ESG Transparency Myanmar Award.

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> PTA BANK: BEST ESG PRIVATE ENTERPRISE BANK, AFRICA 2015

Headquartered in Burundi and with a regional hub and corporate support centre in Kenya, besides sub-regional offices in Mauritius and Zimbabwe, the Eastern and Southern Africa Trade and Development Bank (PTA Bank) was established thirty years ago to finance and foster trade, development, and economic integration across its member states. Shareholders include seventeen African countries. PTA Bank maintains its focus on trade, project, and infrastructure finance and fund management. The COMESA Infrastructure Fund and the Eastern and Southern African Trade Fund are amongst the successful products developed by PTA Bank. The organisation, which benefits from an extremely strong and talented management team, offers both short and longterm finance options across a broad range of industries. Projects and initiatives PTA Bank helped underwrite include public-private

wind and hydro power generation projects in Kenya, Uganda, Tanzania, and Zambia; aircraft financing facilities for Ethiopia, Kenya, and Rwanda; agribusiness projects in Burundi, Malawi, and Zimbabwe; greenfield cement plants in DRC (Democratic Republic of Congo), and Ethiopia; healthcare facilities in Mauritius and Zimbabwe; and resort and infrastructure development in the Seychelles and Tanzania. Its vast experience in project financing has transformed PTA Bank into a client-focussed and a highly innovative solutions provider. The bank also rose up to help the fight against the Ebola virus and has a well-earned reputation as a champion of the environment. Trade finance at PTA Bank helps ensure security of supply of essential commodities, finances interregional trade, and enables enterprises to fund capital goods. The bank shows an unrelenting commitment to furthering social and economic

development and offers encouragement to individuals and enterprises that display the ambition to succeed. The CFI judging panel finds PTA Bank to be well governed and notes with pleasure that the institution takes its various responsibilities very seriously with environmental and social governance issues as core concerns. PTA Bank adheres to a rigid code of corporate ethics that ensures its internal and external processes are consistently conducted in accordance with the highest standards of governance and transparency. The CFI judging panel concludes that PTA Bank occupies a distinguished position in Africa as a premier financial services provider that underwrites the continent’s development. The judges have no hesitation in confirming the CFI 2015 award Best ESG Private Enterprise Bank, Africa.

> TANQIA: BEST ESG UTILITY MANAGEMENT TEAM MIDDLE EAST 2016

It should come as no surprise that water resources are scarce in the Middle East. It is one of the great challenges facing this vast region. Fifteen years ago, in an attempt to meet the challenge, the government of the Emirate of Fujairah, United Arab Emirates, called for a programme for the development of a stateof-the-art central wastewater collection and treatment system. That foresight now allows for the efficient preservation of precious water resources and has resulted in much-improved standards of public health. In 2004, TANQIA was granted a 33-year concession to design, finance, construct, own, operate, maintain, and expand the wastewater collection and treatment system for the concession area, comprised of for the City of Fujairah and its environs. The wastewater system was to be designed with the smallest environmental footprint possible and produce treated wastewater to replace higher value underground and desalinated water in 110

non-potable applications. Thus far, the results have been most impressive. As the first, and to date only, privately-owned and operated wastewater utility not just in the UAE, but in the entire Middle East, TANQIA is a unique and ground-breaking company. TANQIA operates with a clear focus on customer satisfaction and both meets and exceeds the required standards for treated wastewater. TANQIA owes its success to its experienced staff and the work of an outstanding team of international contractors cooperating with highly-qualified consultants, lenders, and guarantors. The company’s staff members are drawn from Europe as well as from other countries of the Arab World and south Asia. The benefits TANQIA delivers to the environment are easy to understand. In addition to the delivery of high quality treated effluent that replaces water which would otherwise be drawn from more valuable sources, the CFI.co | Capital Finance International

wastewater system is designed to treat the sludge in digesters that operate on the captured methane generated by digestion that is burned to maintain the temperature at 52C, thus rendering the treated sludge free of odour and pathogens. The treated sludge is usable as soil enhancer. Efficient waste water treatment is a great boon to residents of the concession area as it improves public health. TANQIA deserves praise for its adherence to high standards of corporate citizenship. In all its operations, the utility maintains an emphasis on transparency, safety, and quality while engaging all stakeholders in meaningful conversation. The CFI.co judging panel would like to offer congratulations to TANQIA for its many achievements and applauds the contribution made by the private sector to public health. The judges wish to recognise TANQIA by offering the company the 2016 Best ESG Utility Management Team Middle East Award.

> 2iQ RESEARCH: BEST INVESTMENT TOOL EUROPE 2015

To find out what corporate decision makers really think and know, it is best to analyse their behaviour. This simple, yet often overlooked, truth forms the premise that led to the founding of 2iQ Research in 2002. The firm is a product of the famed business incubator of Frankfurt’s Goethe University and received its initial backing and guidance from eminent German professors. 2iQ Research has pioneered the analysis of behavioural finance and the quantitative processing and distilling of broader capital market data. Combining the two, 2iQ Research has developed a number of complex, yet easy to use, financial applications that allow investment managers to better anticipate market moves and gauge, and correctly interpret, market sentiment. Boiled down to its very essentials, 2iQ products and services allow investors a

peek into the trades of industry insiders – those in-the-know. The firm keeps well over 40,000 companies in more than fifty countries under constant surveillance and enhances the data thus gathered by including insider equity positions and transactions driven by companyspecific events such as mergers – or indications thereof. Data, both in its raw form and refined for the detection of trends, is delivered to 2iQ Research in real time, facilitating the search for alpha – the elusive sweet spot for optimised riskadjusted performance that 2iQ’s applications manage, more often than not, to corral and capture with comforting ease. Leveraging the predictive power of insider transactions to underwrite efficient investment strategies is a notoriously timeconsuming and laborious process due to the dispersed nature of publically available

information. 2iQ Research maintains a staff of experienced professionals, and runs a number of bespoke systems, dedicated to scooping up data nuggets scattered about the vast universe of filings – spanning a multitude of markets and languages – to compose a clear picture of insider transactions that is subjected to thorough analysis and screening before being presented to the firm’s clients. The CFI.co judging panel finds, in turn, that 2iQ Research mines and distils a class of data frequently ignored or disregarded by firms pursuing more traditional ways of market analysis. The judges consider the products and services delivered by 2iQ Research both ground-breaking and unique. The panel has no hesitation in extending recognition to 2iQ Research, offering the innovative firm its 2015 Best Investment Tool Europe Award.

> BANGLADESH BUILDING SYSTEMS: BEST USE OF THE CAPITAL MARKETS BANGLADESH 2015

An economy ballooning at a clip exceeding seven percent annually needs hives to house its many activities. In buoyant Bangladesh, industrial real estate is in short supply. Traditional brick-and-mortar construction techniques take too long from design to delivery. Prefabricated steel buildings offer a much more efficient way of addressing the strong demand for industrial premises: these versatile structures may be easily adapted to fit the occupant’s requirements, are cheaper to erect, and can be delivered in record-time. Since 2003, Bangladesh Buildings Systems has designed and assembled prefabricated industrial buildings made out of steel elements manufactured at three plants employing state-of-the-art machinery and

technology such as fully-automated submerged arc welding lines imported from the US. The company has established an unequalled track record in delivering industrial buildings on time, on spec, and well within the allotted budget. BBS’ attention to detail and dedication to quality have propelled it to the very top of the country’s prefabricated building industry. The company has become the preferred partner of demanding corporate giants such as Nestlé, Unilever, Van Melle, Pran Beverage, and a host of others. Starting from a single manufacturing plant, Bangladesh Building Systems captured the market with low-cost and low-maintenance buildings of superior design. BBS boasts an inhouse staff of highly experienced engineers who

consistently produce innovative and bespoke solutions for clients. BBS is listed on the Dhaka Stock Exchange and cross listed on the Chittagong Exchange. All projects undertaken by the company are fully compliant with the most up-to-date design and building codes. From its very corporate beginnings, BBS management has adopted and adhered to international best practices of corporate governance which endears the company to both domestic and international investors. The CFI.co judging panel commends BBS on its enviable reputation and its stellar corporate performance. The judges are pleased to offer Bangladesh Building Systems the 2015 Best Use of the Capital Markets Award.

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> ABU DHABI SECURITIES EXCHANGE (ADX): MOST INNOVATIVE EXCHANGE GCC 2015

After securing its place on the influential MCSI Emerging Market Index in 2014, 1,158 foreign institutional investors opened accounts to trade on the Abu Dhabi Securities Exchange. Now, a number of regulatory changes are in the works that will facilitate the creation of new financial instruments, adding liquidity to the market and helping the exchange integrate more closely into the global marketplace. Established in 2000, the Abu Dhabi Securities Exchange has already established a well-earned reputation as a premier venue for investors aiming to catch a ride on the buoyant UAE economies. The exchange has proved

resilient in the face of low oil prices and other setbacks. Earlier this year, the exchange entered into discussions with two financial institutions to act as market makers. The National Bank of Abu Dhabi (NBAD) is currently the only ADX market maker. The exchange is proactively pursuing new listings from large and mid-sized companies for both its main board and the secondary market. Though the number of IPOs has been small, it is widely expected that 2016 will see privately-held companies reawaken to the many benefits a public listing can bring. With 71 listed securities (66 public joint stock companies, 2 private joint stock

companies, 1 ETF, 1 convertible bond, and 1 Abu Dhabi Government bond), the Abu Dhabi Securities Exchange represents most major sectors of the UAE economy and, as such, offers investors a unique – and well-diversified – picture of the local business scene. The CFI.co judging panel commends the Abu Dhabi Securities Exchange for its stalwart dedication to not just excellence in the delivery of investor services, but also to innovation. Serving investors with state-of-the art tools and platforms, the Abu Dhabi Securities Exchange is declared winner of the 2015 Most Innovative Exchange GCC Award.

> PARIS GALLERY: OUTSTANDING RETAIL LEADERSHIP UAE 2015

A hallmark of luxury living, Paris Gallery is a fixture of the vibrant UAE retail sector – and one of its most widely admired success stories. Growing out of a single shop, Paris Gallery now comprises a network of more than eighty stores with a footprint stretching across the Middle East. A trendsetter par excellence, Paris Gallery caters to the region’s most discerning shoppers which has turned the company into a byword for luxury. Offering a decidedly upscale retail experience, Paris Gallery offers an exceptionally wide range of over 500 premier brands. Its vast range of products include the most exquisite fragrances and cosmetics, precision watches, eyewear, accessories and 112

apparel. As such, Paris Gallery and its full suite of world class offerings enable patrons to pursue not only a lifestyle bathed in luxury and comfort, but also keep up-to-date with the latest trends in fashion and design. In a region that has become synonymous to upscale indulgencies, it takes a formidable retailer to stand out from the crowd of luxury purveyors. Remaining ever true to its roots, Paris Gallery proudly upholds the time-honoured Arab tradition of hospitality. Patrons may enjoy choice refreshments while personal shopping assistants dispense expert advice and help customers navigate the, at times admittedly, overwhelming range of products available. Squarely aiming to make its CFI.co | Capital Finance International

patrons feel as royalty, Paris Gallery travels the proverbial extra mile, or two, in order to ensure full customer satisfaction. The CFI.co judging panel recognises Paris Gallery as not just a pioneering business that has raised the benchmark of luxury shopping, but also as one of the UAE’s leading family businesses. It is precisely this family background that has enabled Paris Gallery to maintain its unsurpassed level of excellence in the delivery of retail services. As the company endeavours to continuously elevate the bar, the judges agree that its efforts merit recognition. Paris Gallery is hereby declared winner of the 2015 Outstanding Retail Leadership Award.

> Africa:

Life After the Resources Super Cycle By Darren Parkin

If one region has dominated the discussions at the World Economic Forum, it has been Africa. That continent’s diversity, contrasting fortunes, unique challenges, and ups-and-downs provide the world’s best minds with plenty food for thought with nearly everybody weighing in with suggestions and policy ideas – some more esoteric than others.

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anels and workshops featuring African issues are amongst the most anticipated of WEF events if for no other reason that the greatest problems usually do attract the greatest minds.

However, this year, a sizeable shadow is expected to mar the proceedings as most experts agree that Africa is on the brink of a major slowdown due to depressed commodity prices. Alarm bells began ringing about a year ago as Nigeria struggled with poor economic results and questionable investment decisions undermined confidence. With industrial productivity and output levels stagnant or declining, business leaders became more vociferous in their criticism of President Muhammadu Buhari’s administration. Nigeria is often considered the canary down the coal mine of African economic performance – detecting anything toxic before it becomes lethal to others. It is this early warning that prompted the International Monetary Fund to express concern over the state of Africa’s largest economy. To be fair, not of all of Nigeria’s woes are self-inflicted, though some may argue they could all have been averted. As Africa’s largest oil producing and exporting nation, the almost 50% drop in oil prices that occurred in 2015 could not have remained without consequences. The country’s currency, naira, lost about 10% of its value against the US dollar over the past twelve months. The Central Bank of Nigeria has moved to temporarily restrict imports in an attempt to ease the pressure on the country’s currency reserves. This, predictably, led to an explosion in black market goods flooding the country along with rogue traders seeking opportunity. WRONG TURN Meanwhile, on the rest of the continent, things are taking a wrong turn as well. Oil’s price implosion has hurt Ghana where it conspired with an already weak currency to dampen an otherwise rosy economic outlook. Growing political unrest causes some concern with the administration of President John Mahama coming under increasing fire for his management of the country. Recently, the New Patriotic Party President Nana Akufo-Addo pleaded with the outside world to take notice of Mr Mahama’s “abysmal” handling of the economy: “With every cedi that is stolen, a child is being denied an education; a farmer fails to obtain fertiliser; and a sick person is left to die. I fear for Ghana. I am frightened about the future the NDC [National Democratic Congress] is building for the young people of this country. It is a future of indebtedness; a future of hopelessness; it is a wretched future being needlessly created by a reckless government.” Strong words indeed, but the presidential hopeful appears to have struck a chord with many voters who sense unrest, not just in their wallets, but on the streets too as Ghana’s erstwhile booming economy slowly grinds to a halt. A similar scene appears to be playing out in landlocked Zambia, a copper-rich country that also finds itself beholden to the depressed market value of its natural resources. The recent boom has turned to bust, causing 116

many Zambian businesses to falter. The government’s latest attempts at arresting the slide have been welcomed, but may yet backfire with the central bank jacking up interest rates from 12.5% to 15.5% in a bid to curb runaway inflation. The consumer price index doubled in 2015, forcing the Zambian kwacha to lose half its value. The crisis is reaching such proportions that the government organised a national day of prayer to appeal to the higher powers for help in finding a way out of the country’s economic predicament. In hard times, the eyes of the continent’s business world turn to South Africa for leadership. Sadly, the continent’s southern wheelhouse has also lost its way with most of the population left wondering how little their rand is now worth. South Africa’s growth has almost come to a lumbering halt, eroding cross-border business with traditional partners in the UK and US. AREAS OF HOPE This time last year, analysts were confident that Chinese investment would keep South Africa’s economy afloat. However, China’s own domestic woes have seen imports from Africa decline by as much as 30% in a year’s time. This prompted Antoinette Sayeg, IMF regional director for Africa, to announce that the momentum of Africa’s economic growth cycle may be nearing its end. There are, however, areas of hope for the Davos delegates to explore. For instance, African countries with links to France appear to be suffering significantly less than their non-Francophone counterparts. Former French colonies using the CFA Franc have their currency pegged at a fixed rate to the euro. There is additional cause for optimism. Economist Yvette Babb from the Standard Bank said that while average growth rates are being pulled down by the South Africa, Nigeria, and Ghana, there still are more than a dozen African countries that register near double-digit growth. Ms Babb urges investors to look beyond GDP growth: “There are plenty companies that are thriving, from Burkina Faso to Malawi. Some ask whether the Africa Rising narrative is losing its shine. My standard answer is that sustainable development is much more complex than just that.” Ms Babb’s reserved optimism is shared by several other experts who point to improvements in infrastructure, expanded trade partnerships, and the telecom revolution and argues that the continent’s future may not be as sombre as some pundits now predict. They also claim the current belly flop in oil prices won’t hit Africa as hard as is being anticipated. Oil producing nations may be losing out, but others depending on oil imports are enjoying a windfall. The WEF has already labelled Ethiopia, Ivory Coast, Mozambique, and the Democratic Republic of Congo as some of the continent’s brightest stars and pacesetters for trade and investment, possibly offering a blueprint for African economic development over the next twenty or so years. While out-and-out poverty is unlikely to be eradicated, there is an expectation that Africa can maintain above-average growth rates even if commodity prices fail to revert to their historical levels. i CFI.co | Capital Finance International

> CFI.co Meets the MD of FrieslandCampina WAMCO:

Rahul Colaco The fast-moving consumer goods (FMCG) industry is an exciting world with a high rate of change, and the need to constantly meet the everyday needs of customers and consumers. It is also highly competitive, as several brands jostle to earn the share of mind and heart of the target audience. Working in this environment is no easy task. It requires stamina, an agility to formulate decisive solutions, and the ability to constantly adapt. This is what makes a career in FMCG so exciting for Rahul Colaco, managing director of FrieslandCampina WAMCO.

r Colaco started off as a management trainee at Hindustan Unilever in 1997, the largest FMCG organisation in India, well-known for its training. As part of a 12-month management programme, he was exposed to various functions. Mr Colaco fondly compared his experience there “to drinking water through a firehose. As drastic as that may sound, I say that in a positive way,” he adds.

risk, but Mr Colaco asserts: “Investing in oneself provides an invaluable payback.” At FrieslandCampina WAMCO, Mr Colaco is excited to be able to make a difference to the lives of Nigerians. His belief is that the success of an organisation revolves around answering the following four simple questions: Why (purpose), What (strategy), Who (people), and How (culture). At WAMCO, Mr Colaco and his leadership team have spent several months in defining this explicitly, and are now implementing the model.

Mr Colaco has been the managing director of FrieslandCampina WAMCO Nigeria PLC since January 2015. He has 18 years of experience in the FMCG industry covering general management, marketing, supply chain, and finance, across both developed and emerging markets. He started his career with KPMG as an auditor before joining Unilever, where he worked in India, Italy, and The Netherlands, the latter two in regional roles covering Western and Eastern Europe.

“Working in the dairy industry means we do good by default, and our CSR programmes are integral to our mission and business strategy. I am in the fortunate position to feel a strong connect between my personal value system and that of our company.” There is a significant opportunity to reach out more structurally to the emerging middle class in Nigeria and the company with its leading brands Peak, Three Crowns, and Friso is well placed to do so, bringing the goodness of milk to many. In order to achieve this, Mr Colaco is focused on investing in the brands, assets and capabilities of the organisation.

He later moved to FrieslandCampina, one of the world’s leading dairy cooperatives, and was appointed as the marketing director in Malaysia (Dutch Lady Milk Industries) in 2010. He became the managing director two years later, heading Malaysia’s leading dairy company with the additional responsibility for local operations in Singapore. Under his stewardship, Dutch Lady Milk Industries was awarded the Company of the Year Award in 2014 and Best Performing Consumer Products Stock for three years in a row. Mr Colaco believes in investing in oneself. Like a product, everyone is essentially a brand that needs to be marketed on how you want people to perceive you. One way he recommends, is to constantly learn from all experiences. For Mr Colaco, the learning journey never stops: “The moment you stop learning, your brain begins to die.” This belief was the reason he decided to take a career break in 2003 to spend a year earning

Talent development and employee engagement are a critical part of the company’s success. Several initiatives such as employee coaching, an FC WAMCO soccer tournament, increased maternity leave, team away days, capability building programmes, and awards for a wide variety of achievements make working at WAMCO a fun and rewarding experience. MD: Rahul Colaco

his MBA at the IMD (International Institute for Management Development) Business School in Switzerland. Amid questions on why he was leaving the company, he explains that he wanted a global experience and to learn more from different cultures and nationalities. It was quite a

Mr Colaco, an avid tennis player, finds inspiration from Roger Federer, whom he describes as a talent who constantly reinvents himself without losing his identity and someone who embodies great sportsmanship: “You go all out to win, while playing fair.” He is happily married. The couple has two children. i 117

> FrieslandCampina WAMCO:

Every Nigerian Deserves Healthy Nutrition

ith more than 150 years of experience in dairy leadership, FrieslandCampina has a strong footprint in Africa; proactively building its presence and increasing its scale and reach throughout the continent. Nigeria is the largest economy in Africa with a population of over 180 million people, making it a country of endless possibilities. The country’s foremost dairy company and market leader is FrieslandCampina WAMCO, an affiliate of the Royal FrieslandCampina in The Netherlands. 118

Providing branded high-quality dairy products throughout Nigeria and West Africa, FrieslandCampina WAMCO is a household name. At the heart of its operations in Nigeria is the passion to produce quality dairy nutrition accessible to Nigerians. This is strongly rooted in the company’s mission and overall strategy for product delivery. A key driver of this strategy is the concern about increasing malnutrition in the country. The Global Nutrition Report 2015 noted that children growing CFI.co | Capital Finance International

up healthy in Nigeria are in the minority and about 1.7 million Nigerian children were severely malnourished out of 17.3 million affected in the world according to the UNICEF. The scourge of malnutrition continues to fuel the resolve of FrieslandCampina WAMCO‘s mission statement of nourishing Nigerians with quality dairy products. For over sixty years, the company has deliberately positioned itself as a provider of branded high quality dairy nutrition throughout Nigeria and West Africa. With a clear strategy of providing affordable nutrition through a range of

low unit portion packs (LUPP) of its premium brands Peak and Three Crowns evaporated and powdered milk – consumers can access quality dairy for as little as a nickel. With the knowledge that through the daily consumption of milk and increased accessibility to quality dairy nutrition, consumers have the opportunity of getting up to 50% of the nutrients that they require daily for healthy living and which the body cannot make on its own. This strategy is efficiently applied via the company’s extensive distribution network that features clear territory demarcation, managed by its secondary sales force. To achieve full territorial coverage, FrieslandCampina WAMCO works with key business partners (KBPs) who work market routes and are closely involved in charting the overall business direction. Also strongly linked to its mission of nourishing Nigerians with quality dairy nutrition is a successful multi-billionnaira commercial-scale dairy farming project in Oyo state, Nigeria, where the company works with over 2,500 local dairy farmers under its Dairy Development Programme. The programme seeks to empower local dairy farmers to improve their livelihood, raise raw milk quality and safety, increase farm productivity, and help farmers develop a steady market for their milk. For generations, these farmers have milked for subsistence but now things are changing with impressive results. This is where the parent company’s 150 years of dairy expertise comes in; to provide access to the right technology and training for farmers to make sure that from the grass-to-glass good quality is maintained throughout. FrieslandCampina WAMCO wants to create a sustainable business model which will thrive for many years. Of the thousands of farmers engaged so far, many have increased their incomes by as much as 50% as they now have a steady market for their raw milk through the company and its reach into Nigeria and neighbouring countries.

“At the heart of its operations in Nigeria is the passion to produce quality dairy nutrition accessible to Nigerians. This is strongly rooted in the company’s mission and overall strategy for product delivery.”

On a recent courtesy visit to Nigeria’s Minister of Agriculture and Rural Development, Chief Audu Ogbeh, FrieslandCampina WAMCO Managing Director and CEO Rahul Colaco, explained: “On our part, we are committed to raising dairy farming to a higher level in Nigeria and making small-scale entrepreneurs have pride in agriculture. Through our dairy development programme, we develop local farmers in three ways: through practical knowledge transfer by local FrieslandCampina dairy development officers; expert training on feeding, breeding, hygiene, disease control, and milk payment, and; financing of local infrastructure such as milk collection centres, boreholes, milk collection trucks, etc.” “Having signed an MoU with the Federal Ministry of Agriculture on Dairy Development, we want to take this partnership further, being key players in feeding Nigerians; for us this is a privilege and a responsibility that we are fully committed to. We believe this collaboration is crucial to addressing issues of nutrient security, dairy sufficiency including concerns of improving farmers’ income. We are the first dairy company in Nigeria to go into dairy development, and we plan to make it a nationwide project,” Mr Colaco noted. i 119

> IFC:

Climate Change - Threat and Opportunity for Private Sector By Dimitris Tsitsiragos

s world leaders met at the 21st Session of the Conference of the Parties to United Nations Framework Convention on Climate Change (COP21) in Paris last month to hammer out a deal to prevent global warming, one thing became clear: the private sector, with its financial clout and penchant for innovation, must play a leading role in the struggle for a greener future. The private sector was more visible and active at 120

COP21 than in any of the previous COPs. CEOs from industries as diverse as manufacturing, mining, technology, and renewables stepped up their collective efforts to address climate change, readily pledging to decrease their carbon footprint, use more renewable energy, and adhere to sustainable resource management. Meanwhile, global financial institutions pledged to release hundreds of billions of dollars in new investment over the next fifteen years in clean energy and energy efficiency. Most prominently of all, the private sector called on CFI.co | Capital Finance International

governments to put in place stable long-term regulatory regimes, including a price on carbon, that they can use to guide their companies through the transition to a low-carbon economy. No matter what kind of agreement follows Paris, arresting climate change will not come cheap. Developing countries will need about $100 billion of new investments each year over the next four decades to bolster economic resilience to the effects of climate change. Mitigation costs are

responsibility is to their shareholders, care about climate change? The answer is simple: a growing number of studies show that climate change is disastrous to their bottom line. If global temperatures jump four degrees by 2100 – the direction we’re heading in now – droughts, flooding, and ferocious storms will wreak financial havoc, upending small shops and large conglomerates alike. A study by CitiGroup found that excessive warming could shave up to $72 trillion off the world’s gross domestic product. Another report, this one published in the journal Nature, concluded that global warming may reduce average global incomes by nearly a quarter. A four-degree (C) jump would also batter sectors such as agriculture, real estate, timber, amongst a host of others. Emerging market equities would suffer as well. All told, that would produce a toxic environment for businesses of all sizes. Investors wouldn’t remain immune either. A report by Cambridge University suggests equity portfolios could tumble by up to 45% as climate-related fears ripple across global markets. Some companies are already starting to feel the pinch. Earlier this year, the CEO of Unilever – which had $52 billion in 2014 sales – turned heads when he said natural disasters linked to climate change cost his company about $330 million a year. Perhaps Dean Scarborough, the CEO of manufacturing firm Avery Dennison, put it best in a recent interview with the Harvard Business Review: “Climate change threatens (our) supply chain, our customers’ businesses, and the communities we’re part of. If we want to stay in business for the long term, contributing to the fight against climate change is just smart strategy.” For years, companies around the world bristled at the idea of going green. Their argument: we just can’t afford it. However, a dramatic plunge in the price of eco-friendly technologies – especially renewable energy – and the rise of carbon pricing – which charges firms for releasing greenhouse gases – has changed that calculus. Companies are now flocking to climate-smart investments, not only because it’s morally the right thing to do, but because it adds to the bottom line.

Chile: Mountain Landscape. Photo: Curt Carnemark / World Bank

“Developing countries will need about $100 billion of new investments each year over the next four decades to bolster economic resilience to the effects of climate change.”

expected to balloon to anywhere between $140 and $175 billion annually by 2030. This enormous burden cannot be carried by national governments alone. Many are already struggling to make ends meet and will need the buy-in and participation of the private sector in order to comply with the agreement reached in Paris. But why should businesses, whose main fiduciary

A recent study that looked at a sample of 1,700 leading international firms found that the money they put into reducing greenhouse gas emissions saw an internal rate of return of 27% – a clear indication that those investments are paying off. Other studies, like one from Harvard, have shown that companies with a reverence for environmental and social sustainability outperform firms that treat those issues with disdain. Companies also realise the concerns over regulatory risk and governments proactively managing the transition to a low-carbon economy need to be taken into account while planning business strategies. That is why the private sector has become increasingly more open to a pricing carbon 121

2030. That would undo the stunning progress the world has made in fighting poverty over the past fifteen years.

Chile: Glacier. Photo: Curt Carnemark / World Bank

Tunisia: Wind turbine farm. Photo: © Dana Smillie / World Bank

emissions and is calling for more stable regulatory regimes and long term price signals.

of a massive 510-megawatt solar plant in the Moroccan desert that will provide power to 1.1 million people. The project, worth $2.6 billion, could help turn the North African kingdom into a renewable energy powerhouse and serve as a model for future public-private partnerships. In Nepal, the first project-financed hydropower plant in the country is expected to generate about 200 GWh of electricity, helping address debilitating power shortages which underlie the country’s lack of industrial progress.

In September 2014, more than a thousand companies joined forces to speak out in support of carbon pricing. They have now signed up for the Carbon Pricing Leadership Coalition, which was formed during COP21 in Paris with the goal of expanding the use of effective carbon pricing policies in order to maintain competitiveness, create jobs, encourage innovation, and deliver a meaningful reduction in emissions. This adds to the growing corporate support for progressive climate action. Six major oil companies petitioned governments, and the United Nations, to take stronger action on carbon pricing in an open letter published in June 2015. WHERE ARE THE OPPORTUNITIES? You don’t have to be a tech giant to embrace eco-friendly technology. Just ask Lebanon’s Arab Printing Press (APP). The company, which has 130 employees, is a prime example of the growing number of small businesses that are going green. The Beirut-based firm installed solar panels at its headquarters a couple of years ago, cutting its reliance on expensive fuel oil. Like any disruptive force, climate change is creating opportunities for companies willing to innovate. A report by the International Finance Corporation (IFC), for example, found that Eastern Europe, Central Asia, the Middle East, and North Africa could support up to $1 trillion in climaterelated investments by 2020. Globally, one area especially primed for growth is renewable energy. Countries from Honduras to India have set ambitious targets for wind, solar, and hydro-power generation and they’ll need private sector investment to get there. Just how widespread is the desire for clean energy? Even Saudi Arabia, home to one of the world’s biggest oil reserves, is looking to generate the bulk of its electricity from renewables and nuclear power by 2040.

Governments must remove these barriers and create an environment in which the private sector can thrive and in which investments in renewable energy make financial sense. The private sector should play a role in pushing for these reforms, which have the potential to unlock billions of dollars’ worth of investment opportunities. It is time for the private sector to seize this opportunity by developing business strategies fit for a future without carbon. i

Renewable energy isn’t the only climate-related sector primed for growth. Companies can find opportunities in eco-friendly construction and in helping cities prepare for changes in climate. By 2050, more than six billion people will live in urban areas, creating a pressing need for a host of infrastructure services such as water and sanitation. As well, 400 million homes are expected to be built by 2020, a potential boon for construction companies that can incorporate green technology into their designs. Finally, there are great opportunities in climatesmart financial solutions. These run the gamut from green bonds issued by governments and international institutions to micro-loans for entrepreneurs. Just how much potential does the industry have? According to conservative estimates, borrowers need to invest at least $700 billion annually in infrastructure, clean energy, resource efficiency, and green construction between now and 2030. One lender that has gravitated towards that market is found in South Africa. Sasfin Bank has created a credit line to expand lending to projects that will help small businesses in South Africa become more energy efficient and sustainable. The Paris climate conference brought into sharp focus the hazards of runaway climate change. It constitutes a fundamental threat to economic development in our lifetime and, left unchecked, could push 100 million people into poverty by

We’ve already seen companies take up the mantle in Panama where a consortium is building what will become Central America’s largest wind farm. The 215-megawatt Penonome plant will prevent the release of 400,000 tonnes of carbon dioxide emissions each year – equivalent to taking some 84,000 cars off the road. Meanwhile, the private sector is playing a key role in the construction 122

SUPPORTIVE POLICIES REQUIRED The private sector can help the planet avoid its fate. However, in many parts of the developing world, corruption and excessive red tape stifle investments in renewable energy and other climate-friendly projects. At the same time, state subsidies for fossil fuels keep prices artificially low, making it hard for renewables to compete.

CFI.co | Capital Finance International

Author: Dimitris Tsitsiragos

ABOUT THE AUTHOR Dimitris Tsitsiragos is vice-president of Global Client Services at the International Finance Corporation, a member of the World Bank Group. Mr Tsitsiragos leads the investment operations and advisory services for IFC, overseeing new business development, portfolio, and client relationships with key private sector partners worldwide.

> CFI.co Meets the Group CEO of FDH Financial Holdings Limited:

Dr Thomson F Mpinganjira

r Thomson Mpinganjira is the first – and so far only individual – who owns a bank in Malawi. After six years in business, Dr Mpinganjira’s bank now ranks amongst the top of the country’s twelve banks. From a small discount house, FDH Group has grown into a major financial services provider.

inspiration, by speaking at entrepreneur forums and educational institutions secondary to postgraduate levels. With this in mind, the FDH Bank Limited in 2014 agreed to provide a multimillion Malawi Kwacha sponsorship for the Top of the Class competition organised by the country’s national broadcaster MBC. The educational quiz programme pits secondary schools against each other in several knockout rounds to reach an annual grand finale. The programme was a Malawian household staple in the 1970s before going off air in the mid-1990s. It is now again broadcast on both national radio and television platforms with FDH Bank providing sponsorship of no less than 100 million Malawi Kwacha (over $160,000) over the next five years. The Top of the Class programme was re-launched in style at Dr Mpinganjira’s former secondary school, the Zomba Catholic Boys Secondary School, which he has helped restore to its former glory.

Dr Mpinganjira is the founder of FDH Financial Holdings, the sole owner of FDH Bank and the FDH Money Bureau, the First Discount House, and FDH Stockbrokers. The group recently acquired a 75% stake in the Malawi Savings Bank (MSB). The FDH Group’s operations reach into the far corners of the country with banking services. Further expansion plans are in the works. Dr Mpinganjira graduated in 1984 from the University of Malawi and is a chartered accountant by training. He accumulated experience at Deloitte & Touche, Blantyre Printing and Publishing Group, Mandala – an automobile company currently trading as CFAO – where he served as senior accountant and group accountant. After a brief and successful stint in banking as head of operational risk and security at the National Bank of Malawi, Dr Mpinganjira seized the opportunity to become the first Malawian stockbroker and subsequently headed Stockbrokers Malawi Limited. He was tasked to set up the Malawi Stock Exchange and served as its first CEO up to May 2002 when he left to set up First Discount House. Starting with just nine employees, FDH Financial Holdings now employs 1,075 people. Dr Mpinganjira has a well-earned reputation for championing the welfare of his employees. FDH Financial Holdings is one of only a handful of Malawian companies that provides all its employees, and their spouses and up to two children, with a comprehensive health insurance scheme that fully covers the cost of their healthcare needs. In the past year, HIV/Aids work policies were launched to wide acclaim. Currently, the group is working to build a health and fitness centre to cater to the demand of its predominantly young professional workforce. Outside of the FDH Group, Dr Mpinganjira has served on, and chaired, several boards and a number of entities. He chaired the boards of both the Malawi Revenue Authority (MRA) and the Malawi Investment Promotion Agency (MIPA). In July 2014, he received an appointment as commissioner of Malawi’s Public Sector Reform Commission. In this role,

Dr Mpinganjira has a passion to see local small and medium-sized enterprises (SMEs) thrive. In 2014, FDH Bank signed a memorandum of understanding with the Ministry of Mining for the provision of loans and financial literacy training to small-scale miners. The partnership holds great promise and has already resulted in the FDH Bank organising the first Malawi symposium on Artisanal and Small-Scale Mining (ASM) – a two-day event which attracted both domestic and international stakeholders. In November, FDH Bank also signed a memorandum of understanding to support the Small and Medium Enterprise Association (SMEA) of Malawi with a credit line of over $800,000 to facilitate and underwrite the growth of businesses.

Group CEO: Dr Thomson F Mpinganjira

Dr Mpinganjira helps Vice-President Saulos Chilima and other prominent Malawians provide independent and unbiased policy guidance on the reforms necessary to reinvigorate the country’s ailing public sector. Dr Mpinganjira’s work for the government takes place on a probono basis. Dr Mpinganjira credits part of his success to his early exposure to business. His father, an accountant, owned and ran a trading company. He aims to pass on his personal experience and create awareness and offer guidance and

In December 2014, Dr Mpinganjira was one of seven entrepreneurs recognized by the SMEA for their contribution to the sector over the last fifty years. The list was based on the outcome of a vote organised by the Association of Business Journalists (ABJ). Dr Mpinganjira was awarded the top spot. Dr Mpinganjira was born in 1961 in Blantyre, Malawi, and is happily married to his wife Barbara. The couple has two children – William and Chikondi Annabel and a granddaughter Gugulethu Valerie. Dr Mpinganjira has been recognised as one of the world’s leading and most successful professionals. His name was included in Madison’s Who’s Who of professionals in March 2006. He has been listed continuously to date and also appears in Sterling Who’s Who for excellent performance and achievement. i 123

> FDH Financial Holdings:

A Diversified Financial Solutions Group

DH Financial Holdings Limited is a diversified investments and financial solutions company with interests in banking, discount house operations, stockbroking, investment management, and advisory services as well as forex bureau operations. The company was established in November 2007 as part of a restructuring exercise aimed at replacing First Discount House 124

(FDH), as the holding company of the group. FDH was incorporated in accordance with the Companies Act in March 2000 and commenced operations in April 2002. The company was established by a partnership that included Dr Thomson Mpinganjira – a local businessman and the company’s first managing director – Press Corporation, Old Mutual Life CFI.co | Capital Finance International

FDH Financial Holdings Limited

Assurance (Malawi), and Kingdom Financial Holdings of Zimbabwe. In August, 2006, Press Corporation was bought out as part of a strategic repositioning that has cemented the current structure and enabled its expansion. In January 2012, Kingdom Financial Holdings relinquished its shares following a directive by the Reserve Bank of Malawi. The group’s current shareholders are:

• M. Development Limited - 55.00% • Old Mutual (Malawi) Limited - 40.00% • FDH ESOP Limited (Employees Share Ownership) - 5.00% In October 2009, the group was granted a licence by Reserve Bank of Malawi to operate as professional investment advisory. The scope of the advisory work ranges from investment portfolio management to capital raising structures such as bond issuance, commercial paper structuring and issuance, loan syndication, due diligence, corporate valuations, public and private equity placements and initial public offer lead advisory services, amongst others. FDH Financial Holdings currently is the sole owner of the following subsidiaries: • First Discount House Limited (FDH): commenced operations April 2002 • FDH Stockbrokers Limited (FDHSL): commenced operations January 2007 • FDH Bank Limited (FDHB): Licensed 27 November 2007, operations commenced on 15 July 2008 • FDH Money Bureau Limited (FDHMBL): commenced operations February 2009 • Malawi Savings Bank Limited (MSB): acquisition of 75% shares July 2015 • MSB Bureau Limited: ownership through acquisition of 75% shares of MSB July 2015 FDH prides itself in the quality of its services. It has created a formidable reputation in all its business arms. REGULATION AND LICENSING The group strictly adheres to all regulatory regimes under which it operates. The Reserve Bank of Malawi duly licensed all the group’s operations and has never considered withdrawing any of these licenses at any point in time. By dealing with the FDH group of companies, clients are dealing with an institution whose credibility can be vouched for not only by professional and reputable external audit firms, but also by the regulator of the financial services industry in Malawi the Reserve Bank of Malawi. The FDH Group endeavours to protect its image by complying with all regulatory requirements, most of which centre on protecting investors. FDH FINANCIAL HOLDINGS SHAREHOLDERS PROFILE

“The FDH Group aims to be the leading provider of first class financial solutions in Malawi and the wider region of Southern Africa.”

M Development Limited (55%) M Development Limited (MDL) is a Malawiregistered company with interests in real estate and the financial services through the takeover of the holding previously held by the Dr Thomson Frank Mpinganjira Trust in line with the Financial Services Act of 2010. MDL became a shareholder in the FDH Group from October 2011. Both the trust and Dr Thomson Mpinganjira were shareholders from FDH’s inception. Old Mutual (Malawi) Limited (40%) Old Mutual is a leading international long-term

savings, investment, and protection Group listed on the London and Johannesburg stock exchanges with cross-listings on the national exchanges of Malawi, Zimbabwe, and Namibia. Old Mutual is part of the FTSE 100 companies. Based in London and trusted by more than 15 million customers worldwide, Old Mutual has been serving the insurance and investment needs of customers, companies, and their advisors for 168 years. The group’s businesses comprise: • Long-term savings (protection and retirement), • Asset management (including unit trusts, portfolio management, and stock broking), • Banking, and • Short-term insurance. The group’s operations cover Europe, North America, and Asia, while its African operations are centred on South Africa, its home market, with a footprint that stretches across Malawi, Zimbabwe, Namibia, Kenya, Botswana, Swaziland, Nigeria, Ghana, Uganda, Tanzania, DRC, and South Sudan. Old Mutual Malawi (OMM) is a local company 100% owned by Old Mutual Africa Holdings Ltd whose ultimate shareholder is Old Mutual Plc. OMM and one of its subsidiary companies, Old Mutual Life Assurance Company (Malawi) Limited, together own 40% of the shares of FDH Financial Holdings Limited. This investment is held on behalf of Malawian policyholders and pension funds. FDH ESOP Limited (5%) • Incorporated under the Companies Act of 1984 as a private limited company in 2009. • A special purpose vehicle created to facilitate share ownership in FDH Financial Holdings Limited, allotted under the Employee Share Ownership Scheme, and owned by eligible members of staff across the FDH Group as part of a broader ownership of the business and as a tool to attract and retain key skills in the FDH group of companies. • FDH ESOP Limited acquired its 5% ownership in FDH Financial Holdings in December 2009. CORPORATE VISION The FDH Group aims to be the leading provider of first class financial solutions in Malawi and the wider region of Southern Africa. CORPORATE MISSION To provide value to all stakeholders through superior returns, sustainable growth, secure and efficient solutions based on sound business values while being an employer of choice. CORPORATE CORE VALUES • Transparency and accountability • Respect and commitment to client • Teamwork • Innovation • Customer satisfaction • Employee development i 125

> Rosabon Financial Services:

Ambition Meets Professionalism

uly licensed by the Central Bank of Nigeria (CBN) in April 22, 1993, Rosabon Financial Services is a nonbanking financial services provider that over time has become one of the country’s leading financial intermediary and equipment leasing companies. As a member of the Concept Group, Rosabon

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Financial Services is a constituent part of the group and significantly contributes to its ability to provide a comprehensive array of financing options that dovetail with the needs and requirements of the group’s diverse range of clients in both the retail and corporate sectors.

are underway to expand the nascent network and broaden the company’s geographical footprint with new offices in other states. The Concept Group management currently mulls international expansion with a view to establishing a PanAfrican presence.

The group has its headquarters in Lagos and maintains a branch office in Port Harcourt. Plans

From wealth management to asset creation, and everything in between, Rosabon Financial

CFI.co | Capital Finance International

Services boasts a dedicated team of expert financing professionals. The company draws on over twenty years’ worth of accumulated experience in the field of finance management that allows Rosabon to tailor its lease, business loans, and wealth management service to meet the diverse needs of a large client base by creating bespoke financial plans. An integral part of its corporate mission, Rosabon Financial Services provides financial advice to small and medium-sized enterprises (SMEs) and corporates that ensures the best financial decisions are made to underwrite growth in a dynamic and challenging economic environment such as Nigeria’s. A vast array of finance products empowers both entrepreneurs and young business owners to grow their businesses with the knowledge acquired through participation in regularly organised seminars and from reports published weekly. Creating structured financial packages for SMEs is the main focus of Rosabon Financial Services. Up to 20% of the company’s portfolio centred around the development of various products for small-scale businesses. QUICK LOANS Rosabon has also pioneered the introduction of quick loans that allows individuals and small business owners to meet unexpected financial obligations via a streamlined application process. The company understands and recognises that SMEs form the bedrock of any nation’s economy. By keeping turnaround for loan applications short, Rosabon aims to help SMEs obtain the wherewithal necessary to not merely survive, but prosper. For individuals and corporates looking to grow their excess funds over either a short or long timespan, Rosabon’s wealth management services offer attractive rates of return coupled to unmatched security. By leveraging its knowhow on specific industries, and a flexible and dynamic approach to its business, Rosabon Financial Services stands out from the crowd and manages to offer its clients a distinctive, and highly successful, recipe for enduring success.

“From wealth management to asset creation, and everything in between, Rosabon Financial Services boasts a dedicated team of expert financing professionals.”

By keeping close proximity to target markets – such as financial services, manufacturing and distribution, retail, and telecommunications and technology – the company is able to consistently deliver a sophisticated range of products and services. Rosabon is one of only a select few non-banking financial services providers that operate with the flexibility needed to fully leverage the dynamic results obtained from its proximity to its clients. KEY OBJECTIVE A key objective of Rosabon Financial Services’ strategy is to expand the nature and scope of its engagement with both existing and potential 127

CEO & COO: Chukwuma Ochonogor

clients via increased business innovation and expanded services fine-tuned to serve specific regions and well-defined target segments within readily identifiable markets. As a long-standing member of the Equipment Leasing Association of Nigeria (ELAN), Rosabon Financial Services is backed by sound financial packages and offers expert advice to both corporate and non-corporate clients. As a world class organisation, the company adheres to international best practices in every aspect of its day-to-day operations. Rosabon also employs the latest and most efficient risk management and internal control systems in order to ensure that all its transactions are properly monitored and scrutinised, and meet regulatory requirements. In collaboration with strategic partners and clients – such as Samsung, Huawei, Oando, and others – Rosabon Financial Services offers integrated end-to-end solutions that ensure a seamless flow of business to reputable companies across different sectors of the Nigerian economy. Through its fleet management services, corporate clients may have corporate assets at their disposal, without suffering the loss of both time and money that results from the in-house management of equipment. Rosabon Lease offers value-added corporate lease finance options that enables companies 128

to acquire the assets required for smooth operations without putting undue pressure on their cash flow. Small, medium, and large organisations may now easily acquire different classes of equipment that serve the needs of sectors as varied as transportation, healthcare, power generation, and general offices, amongst others. All products are carefully tailored to meet the needs of specific sectors and come with added finance options such as comprehensive maintenance programmes and added services such as asset management, telematics, and fuel management. CORPORATE SOCIAL RESPONSIBILITY From inception, Rosabon Financial Services has been at the forefront of the trend towards increased corporate social responsibility (CSR). A number of initiatives have been launched that aim to give back to the society that has allowed the company to prosper. Rosabon has supported a wide range of educational programmes that offer scholarships and other benefits to institutions where tomorrow’s leaders are formed. The company has also been proactively engaged with young people to provide the basic necessities that raise academic performance, fight hunger, and address low incomes. In addition, Rosabon promotes and helps underwrite programmes aimed at the development of SMEs. Over the past decades, the company has been transformed into a progressive and bold nonbanking financial services provider supported by CFI.co | Capital Finance International

a secure financial base and guided by a strong and purposeful management team. As a result, Rosabon boasts exceptionally high customerretention rates. Throughout its corporate history, Rosabon has remained faithful to its core values: innovation, creativity, and excellence. This culture is the driving force behind the company’s business and powers its desire to become Nigeria’s largest leasing and boutique finance mediation company. Already well on its way towards the realisation of this corporate goal, Rosabon remains dedicated to continuously create dynamic and innovative financial products that fully satisfies the demands and requirements of its clients and surpasses the expectations of all stakeholders. ROSABON FINANCIAL SERVICES CEO AND COO Chukwuma Ochonogor is Rosabon Financial Services’ chief executive officer. Mr Ochonogor obtained a graduate degree in Accounting and Finance of the University of Leeds, England, and is a member of the Association of Chartered Certified Accountants (ACCA). He has held various management positions at premier organisations in both England and Nigeria. Mr Ochonogor has acquired much experience in strategy and business origination and has a passion for cultural, organisational, and leadership optimisation. Combining the duties of CEO with those of chief operating officer (COO), Mr Ochonogor is also responsible for driving and coordinating the activities of Rosabon Financial Services. i

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> Britam:

Retirement Income Plans Boost Business Diversified financial services group, British-American Investments Company (Kenya) Limited (Britam) has launched a product that will allow retirees to reinvest their retirement benefits for higher and more secure returns.

he Platinum Drawdown Plan, a first in the Kenyan insurance industry, is a flexible plan that allows retirees to reinvest their retirement money and take out a portion of the fund as an income. The product is available to individuals aged fifty and over with retirement benefit savings under a scheme registered with the Retirement Benefits Authority. Under the new plan, the pension benefits will be invested with a capital guarantee against loss for a minimum period of ten years. The plan is suited for retirees who are keen to reinvest and grow their benefits while also requiring flexibility in the frequency of income pay to suit their financial needs. It is also an option open to members of provident funds and retirees who chose not to take part – or all their benefits – as a lump sum. The scheme is registered by the Retirement Benefits Authority, following an amendment of the Retirements Benefits Act of 1997 to allow income drawdown as an alternative to annuity. Speaking during the launch event of the new product, Britam Group Managing Director Benson Wairegi said that the new plan was born out of research focused on developing products suited to the growing needs of the market. “The unveiling of this plan is in line with Britam’s quest for continuous improvement and innovation. We have noted an increased demand from the market on how retirees can make their pension income work for them after retirement, hence the diversification.” Mr Wairegi noted that there was a growing demand for retirement income alternatives from annuities driven by high-net-worth individuals

“The unveiling of this plan is in line with Britam’s quest for continuous improvement and innovation.” Benson Wairegi, Group Managing Director

with considerable retirement savings and a high tolerance for risk. The Platinum Drawdown Plan also targets retirees who intend to purchase an annuity at a later date, have other sources of income, and do not need guaranteed income from their retirement savings. Moreover, it suits those who wish to leave an inheritance to their beneficiaries. In the unfortunate event of death, the benefit can be passed on to beneficiaries as per the deceased’s wishes as long as the member has not exhausted his/her funds. The beneficiaries then have the option of converting the funds to annuity at a later date when the fund is bigger and produces more income. Additionally, if the deceased was above 65 years, beneficiaries get favourable tax treatment. In this case, benefits are not taxed. Once fully implemented, the NSSF (National Social Security Fund) Act of 2013 aims to increase the number of people saving for retirement and their contributions to the retirement benefits schemes. The conversion of NSSF from a provident fund to a pension scheme will also boost demand for retirement products that are more flexible and guarantee good returns.

PRODUCT INNOVATION Among the ground-breaking micro-insurance products developed by Britam is Kinga Ya Mkulima – a product that offers farmers of modest means, and their families, healthcare and funeral expenses coverage at affordable premiums ranging between 60 shillings and 350 shillings per month (€0.54 - €3.10). Developed in partnership with Majani Insurance Brokers, a subsidiary of the Kenya Tea Development Agency, Kinga Ya Mkulima targets the more than 560,000 small-scale tea farmers spread throughout the country’s tea growing zones. Since its launch, Kinga Ya Mkulima has been a big success and helped bring insurance to clients who previously would not have considered taking out coverage. Despite being a regional economic powerhouse, Kenya has been unable to provide universal healthcare to its people. About 97% of the population – some 39 million Kenyans – lack access to affordable healthcare and are without insurance coverage. Over the past decade, Kenya has aggressively been chasing the dream of offering all citizens universal healthcare. In its quest, the government has come up with numerous strategies. These include expanding healthcare facilities, the hiring of more medical practitioners, and structural reforms of the National Hospital Insurance Fund (NHIF). The elimination of maternity fees at public hospitals and clinics was hailed as a critical achievement and one that will help drive down significantly child mortality rates and ensure safe deliveries. This year, working in partnership with Safaricom and Changamka, an integrated health finance provider, Britam launched Linda Jamii, a

“Britam has also invested heavily in technology. The company recently rolled out an ambitious IT-powered business transformation project that will run for the next three years.” 130

CFI.co | Capital Finance International

revolutionary family health product that seamlessly complements the company’s sustained efforts to use available technologies to make affordable healthcare readily available. STRATEGY FOR GROWTH Following the company’s growth strategy, Britam last year acquired a 99% stake in the Real Insurance Company. This resulted in the creation of one of the largest insurance groups in the region with operations in seven countries: Kenya, Uganda, Tanzania, Rwanda, South Sudan, Malawi, and Mozambique. In acquiring Real Insurance, Britam is looking for opportunities to strengthen its presence in both the local and regional market and become a leader in all the businesses sectors it is involved in. The satisfactory completion of this acquisition has enabled Britam to implement a longterm strategy for the expansion of its general insurance business and for the broadening of the company’s presence in key geographical areas that include some of the most promising growth frontier markets in Africa. Britam has also invested heavily in technology. The company recently rolled out an ambitious IT-powered business transformation project that will run for the next three years. The main aim of this project is to further enhance Britam’s corporate performance and help create a high-performing, customer-centric, and intelligent organisation by 2016. Meanwhile, Britam continues to expand its presence in rural areas by maximising the use of existing synergies between distribution channels and outlets. Currently, the company boasts a countrywide agent network comprised of over 1,700 financial advisors. Britam has set up branches in various parts of the country including Kitengela, Machakos, Kitui, Nanyuki, Isiolo, Kakamega, Kericho, and others. Britam’s strategy is squarely aimed at creating a top performing financial services group that consistently delivers superior value to shareholders. BRITAM IN A NUTSHELL Britam is a leading diversified financial services group, listed on the Nairobi Securities Exchange. The group has interests across Eastern and Southern Africa and maintains offices in Kenya, Uganda, Tanzania, Rwanda, South Sudan, Mozambique, and Malawi. The company offers a wide range of financial products and services in insurance, asset management, banking, and real estate. The product range includes: life, health and general insurance, pensions, unit trusts, investment planning, wealth management, off-shore investments, retirement planning, discretionary portfolio management, property development, and private equity. i 131

> PwC:

Oil & Gas in Africa - Planning a Response to the Price Drop By Chris Bredenhann

verall, activity in the oil and gas industry across the African continent has slowed in the wake of the declining prices in late 2014. Oil production in Africa has fallen from 10.1% to 9.6% of the world’s total in 2014. This has forced successful oil producers to re-strategize and plan ahead for an enduring low price environment, employing measures such as downsizing their workforce and re-evaluating their business strategies. These are some of the highlights from PwC’s Africa Oil & Gas Review 2015.

the oil and gas industry within the major emerging markets of the continent. As oil prices declined in 2014, the industry response has been far-reaching with a significant reduction in headcount and other cost-cutting measures. Capital budgets have also been slashed, and frontier exploration activity has decreased. While a response to such a drastic price drop is necessary, we have also seen the most successful organisations taking time to reset, re-strategize, and plan for an upturn in prices, which will inevitably come. Many of the frontier exploration plays lie in Africa.

PwC’s Africa Oil & Gas Review 2015 analyses what has happened over the last 12 months in

The main challenges cited by survey respondents include uncertain regulatory frameworks,

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corruption, and the inadequate physical infrastructure. In Tanzania, more than 80% of respondents regarded regulatory framework uncertainty as one of the top challenges facing the sector. Over 50% of respondents in Nigeria, Kenya, and Angola viewed regulatory uncertainty as a major obstacle to growing their business. Organisations identified the price of oil and natural gas as the most significant factor that would affect their companies’ business over the next three years. This is not surprising given the current uncertainty around the market. Fortunately, industry players are looking beyond current prices when planning for the longer term. The results of the report show

that a high 90% of respondents expect oil prices to increase gradually over the next three years. Kenya experienced marginal success over the previous year. The attention is still set on the East African region as it develops significant gas projects, while other players are considering South Africa as hopes for favourable legislation are renewed.

The instability and the low prices have been outlined as one of the important factors that are posing problems within the sector, as more than 50% of E&P and non-E&P companies expect more price instability.

In 2014/15 merger and acquisition activity was low. Around one-fifth of respondents have been targeted, and a third of respondents has targeted, or intends to target, companies for acquisition.

Companies also do not know what to expect regarding acreage/licence acquisition costs. In Kenya and Mozambique, 36% of respondents believe that the acreage cost will increase, while those from developed markets believe the opposite as potential reserves are affected by oil prices.

While it seems that the temporary meltdown is receding, African governments have shifted into gear to promulgate and ratify oil and gas regulations that are intended to encourage the monetisation of assets, while doing away with policy uncertainties. Around 40% of E&P companies expressed interest in investing in drilling or exploration programmes. This is lower than the 70% interest recorded in 2014. Regarding concerns around fraud and corruption, 98% of organisations said that they have antifraud and anticorruption programmes in place, while 60% believe that their programme is effective at preventing and/or detecting fraud. Though a few governments have made some effort in trying to curb fraud and corruption, officials continue to be implicated in fraudulent practices throughout the continent. At the top of the list is bribery and procurement fraud.

2015

2016

Figure 1: Average expected crude price (US$)

2017

They further believe that difficult times are ahead of them as oil prices continues to decline and that the low commodity price would have a severe impact, in particular, on oilfield services (OFS) companies.

After a rush of bidding rounds in 2014, this year and the next appear to be comparatively quiet with only a handful of bidding rounds expected. This is partly due to the flurry of bidding rounds in the previous couple of years and a consolidation of these agreements together with the lower oil price and lower interest to invest.

The main driver for M&A is opportunistic investment where investors are able to buy quality assets at a good price. For instance, the deal between Shell and BG – which could see Shell acquiring BG’s assets, including those in Madagascar, Tunisia, Kenya, Egypt, and Tanzania for $86bn.

affecting the industry, with more than 50% of E&P and non-E&P companies expecting price fluctuations to have a high, or very severe, impact on their businesses.

The study also shows that the uncertain regulatory framework is partially due to African governments’ lack of understanding of the dynamics of the sector. Essentially, governments are trying to extract too much value too early, when resource bases are still to be proven as commercially viable. South Africa’s uncertain regulatory framework for the oil and gas industry is mainly due to unclear and overlapping mandates between the government and state-owned companies. Furthermore, the enforcement of the Minerals and Petroleum Resources Development Act (MPRDA) has raised a number of compliance challenges in the industry, primarily resulting from new requirements directly introduced by the act. The volatility and, in particular, low oil prices have been highlighted as the most important factors

Finally, 50% of the survey respondents believe that the competitive environment is likely to change. The decline in oil prices, and concerns around corruption and skill shortages, have further disadvantaged the industry. However, companies are encouraged to take advantage of this time and address the many challenges they are confronted with. This requires strategic planning for a continued profitable presence in Africa which includes, amongst other things, getting costs under control and attracting the strongest players within the industry that are looking for acquisition opportunities. i ABOUT THE AUTHOR Chris Bredenhann is the Energy Industry Leader for PwC in Southern Africa and the PwC Africa Advisory Oil & Gas Leader. He has more than 25 years of experience with PwC, of which more than 20 years have been in consulting, working with small companies to large national and international clients in Africa and the rest of the world to develop strategy, improve operations, processes and systems. His client base consists mainly of energy companies, ranging from international oil companies, indigenous and independent oil companies, national oil companies and ministries of energy. Chris is a regular speaker on the oil and gas industry in Africa and has been responsible for five editions of the PwC Africa Oil and Gas review, which provides insight into the industry across Africa. He also published a thought leadership piece on the potential for the development of a natural gas industry in South Africa titled “The Gas Equation”, based on his MBA thesis. He is a Chartered Accountant and holds an MBA in Oil and Gas management from the Robert Gordon University (UK). 133

> FleetPartners:

Revolutionising the Industry

n Africa, organisations have come to realise the benefits of leasing equipment instead of surmounting the many obstacles erected by commercial banks for those attempting to raise the capital required for outright purchase. Businesses and other entities have come to understand and appreciate the dynamics of lease financing and are leveraging its power to meet their operational and budgetary needs.

in 2008, Ajusecure was renamed Microtrack. FleetPartners Leasing provides training, support, and other services to Microtrack users. In 2014, FleetPartners Leasing introduced a yet another novel approach – the Net Strategy – created by Akin Ajiboyede, the company’s managing director. Net Strategy involves paying attention to every detail of the leasing business, including many facets conventional leasing companies habitually ignore such as branding, marketing, and advertising.

Leasing is a viable option for the purchase of equipment, particularly now that budgets have become smaller. It is an increasingly popular option to maximise purchasing power, largely because leasing offers a cost-effective way to obtain the newest equipment without the bottom line taking a severe hit.

Net Strategy also entails the use of state-ofthe-art technology that receives detailed input from the leased vehicle and thus allows for the automated processing of the data so obtained. FleetPartners Leasing has now fully deployed Net Strategy in all its marketing and operational processes.

For small and medium-sized enterprises (SMEs) and start-ups in particular, the dearth of financing options usually poses a major challenge which all too often results in lost business opportunities. A major advantage of equipment leasing is that the spread of its cost over a number of years. This helps the lessee (the party receiving the equipment) maintain a healthy cash flow. Leasing is, however, not the exclusive domain of SMEs. Large multinationals corporations and blue chip companies in Africa also turn to equipment leasing, and associated management services, as a way of lessening the impact of hardware purchases on their balance sheets. Indeed, many of these companies now operate large fleets and parks of leased equipment. FleetPartners Leasing started in 2007 to provide fleet management technology and consultancy services to both operators and leasing companies. The firm’s objective is to offer clients customised solutions that allow their lease equipment to operate at peak efficiency. At the time FleetPartners Leasing was founded, the market faced a number of challenges. Lessors were taking large losses in cases of transactional defaults. When lessees failed to honour their part of a lease transaction, the assets subsequently recovered had depreciated to below their book value. This made it difficult for the lessor to liquidate the assets in order to recover their investment. Many leasing companies were running at an operational loss. A lack of flexible leasing options also plagued the sector. Most lessors used the conventional monthly fixed rental system due to inadequate technology with which to monitor the equipment’s usage. It was therefore impossible to accurately charge per kilometre. In the absence of ways 134

CEO: Samuel Akinniyi Ajiboyede

to obtain a detailed cost analysis, financial management of assets suffered. FleetPartners Leasing set out to change the industry’s practices. The firm identified a sizeable demand for more up-to-date asset management and operational technologies. This was holding back the sector’s growth and development as its players had not yet grasped the importance of technology in leasing. That became FleetPartners Leasing’s stronghold. The firm soon revolutionised the leasing industry with innovative asset and fleet management technologies. FleetPartners Leasing created a solution to monitor the usage of assets through direct mileage readings. This allowed the firm to match the usage of assets with their corresponding tenure. The approach went a long way in helping the lessor recover his assets at the expected value. To improve flexibility, FleetPartners Leasing created a solution for fleet management that tracked cost per kilometre which enabled the firm to obtain a detailed picture of cost incurred, leaving no room for ambiguity. This lead to the development of Ajisecure, a technology named after the founder of Microspace Solution (now FleetPartners). First deployed CFI.co | Capital Finance International

FleetPartners Leasing has pioneered a new industry trend and is the first Nigerian leasing company to aggressively project its brand and create significant visibility both online and offline. The strategy replaced the more traditional contact-based marketing approach. Thanks to its innovative practices, FleetPartners Leasing has now become a household name, recognised as an industry leader. MANAGEMENT FleetPartners Leasing CEO and Managing Director Akinniyi Ajiboyede studied at Harvard University’s Kennedy School of Governance and is an active member of the Equipment Leasing Association of Nigeria (ELAN). An experienced and successful business executive with years of industry-based technical and commercial experience, Mr Ajiboyede has held top positions at a number of leading leasing, fleet, and logistics companies in Nigeria. He has also accumulated experience in the field of business intelligence and oil and gas management. A graduate of Harvard Business School where he studied Global Strategy Management, Mr Ajiboyede holds an MSc Degree in Electronic Circuit Design & Manufacture from the University of Dundee- Scotland, UK. He also holds a master certificate in Strategic Management and a bachelor of technology degree in Computer Engineering from the Ladoke Akintola University of Technology in Nigeria. Mr Ajiboyede is currently running his PhD programme at Dauphine University in Paris. Interested in finding novels ways to foster economic growth and empowerment, and encourage grassroots development, Mr Ajiboyede seeks to help insert and integrate Africa into the global economy. i

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> Science-Based Emissions Targets:

A New Foundation for Corporate Climate Action By Pedro Faria, CDP; Cynthia Cummis, WRI; and Alberto Carrillo Pineda, World Wildlife Fund for Nature

orporate emissions-reduction targets have become commonplace. In 2014, 80% of companies that reported their emissions to CDP, an international NGO that holds the largest collection of corporate emissions data, also reported targets for cutting their emissions. These targets vary significantly in scope, structure, and ambition. But at the COP21 climate negotiations in Paris, it was announced that many companies are taking corporate climate commitments much further.

136

The Science Based Targets initiative announced that 114 major companies committed to set science-based emissions-reduction targets. In other words, they agreed to set targets based on the global emissions cuts scientists say are necessary to prevent the worst impacts of climate change. Collectively, these companies have annual emissions of at least 476 million tonnes CO2 â&#x20AC;&#x201C; equivalent to the annual emissions of South Africa, or 125 coal-fired power plants. CFI.co | Capital Finance International

They represent approximately $932 billion in total combined profits â&#x20AC;&#x201C; greater than the GDP of Indonesia. Their commitments are unprecedented, as never before has such a large group of companies agreed to set targets with the level of ambition dictated by science. This sets a new standard for corporate climate action. SCIENCE-BASED TARGET SETTING Corporate emissions targets are considered science-based if they are in line with the level of

EXAMPLES OF SCIENCE-BASED EMISSIONS TARGETS Coca-Cola Enterprises: Coca-Cola Enterprises committed to reduce absolute greenhouse gas emissions from its core business operations 50% below 2007 levels by 2020. The company also pledged to reduce emissions from its drinks 33 percent by 2020, using a 2007 base year. Dell: Dell committed to reduce greenhouse gas emissions from their facilities and logistics operations 50% below 2010 levels by 2020, as well as decrease the energy intensity of it product portfolio 80% below 2011 levels by 2020. General Mills: General Mills committed to reduce absolute emissions 28% across its entire value chain – from farm to fork to landfill – by 2025, using a 2010 base year.

COP21 climate meeting was written to include an aspirational goal to limit warming to 1.5°C. This threshold implies a carbon budget – a total volume of greenhouse gases that can be emitted while still providing a degree of confidence that the target can be met. Research shows that the world has already used more than half of this budget, and if emissions continue unabated, we’re set to burn through the rest in only thirty years. To stay within budget, global emissions must be cut by as much as 72% by 2050. The International Energy Agency has modelled how every major emitting industrial sector must cut emissions (see figure). The model poses serious implications for companies. To do their part – and safeguard their future growth – most companies will have to radically transform their business models, energy use, and energy procurement. A long-term, science-based emissions target can be a guiding light for companies in the transition to the low-carbon economy. To create one, companies can use various existing methodologies that allocate the global carbon budget at the company level, while accounting for specific characteristics such as emissions rate and expected annual growth.

“The Science Based Targets initiative announced that 114 major companies committed to set science-based emissionsreduction targets.”

emissions reductions necessary to keep global temperature increase well below 2°C (3.6°F) compared to pre-industrial temperatures. The international community has considered 2°C to be the threshold for warming before sea rise, drought, wildfires, extreme weather events, and other effects of climate change pose catastrophic consequences for the world’s people and economies. In fact, many researchers believe that 2°C is still too risky, so the Paris Agreement that resulted from the

The Science Based Targets initiative, a joint effort of CDP, the World Resources Institute (WRI), World Wildlife Fund (WWF), and the UN Global Compact, works with companies to set science-based emissions targets. All proposed targets are reviewed for conformity with the initiative’s credibility criteria. As of December 2015, ten companies had emissions targets approved by the initiative: Coca-Cola Enterprises, Dell, Enel, General Mills, Kellogg, NRG Energy, Pfizer, Procter & Gamble, Sony, and Thalys. Combined, these companies plan to save 799 million tonnes of CO2, equal to preventing the burning of 1.86 billion barrels of oil. 137

WHY SCIENCE-BASED TARGETS? Warming above 2°C would pose serious physical danger to people, wildlife and crops, as well as pose a serious threat to the economy. The Institute for Policy Integrity recently surveyed 365 economists with knowledge of climate impacts: 42% of them said that it is “extremely likely” that climate change will have a long-term, negative impact on the growth rate of the global economy, while 36% said it is “likely.” Many business leaders are starting to see how the consequences of climate change will materialise in their own industry. For example, ten CEOs from major food and beverage brands signed a joint letter in October 2015 to advocate for a strong agreement at the COP21 climate negotiation in Paris. As the letter explained, “climate change is bad for farmers and agriculture. Drought, flooding, and hotter growing conditions threaten the world’s food supply and contribute to food insecurity.” At the same time, a growing amount of research indicates the positive impact that reducing emissions can have on financial performance. CDP analysis shows that companies with published emissionsreduction targets delivered a better return on invested capital over a 12-month period compared to those with no targets. Retail giant Wal-Mart Stores recently announced that it successfully decoupled growth from emissions after exceeding its goal to reduce emissions from its supply chain by twenty metric million tons. Many companies can enjoy significant cost savings through their low-carbon investments. WWF and CDP’s 3% Solution Report projects that by setting science-based targets, the US corporate sector alone would generate cumulative savings of up to $780 billion by 2020. In addition, ambitious emissions-reduction targets can open the door to new financial opportunities by driving innovation in products and technologies, creating unique ways to source materials, and expanding into new markets. Today, the global market for lowcarbon goods and services is worth more than $5.5 trillion and is growing at 3% per year. The smartest companies are already examining how to shrink the carbon footprint of not just their energy purchases, but also the products in their portfolio, ensuring growth in an increasingly decarbonised market. The renewable energy industry, for example, has taken root and thrived in response to the need for low-carbon energy. Twenty-five years ago, electricity from renewable sources cost three to four times more than that generated from fossil fuels. Since then, costs have dropped considerably, and most energy sources being developed today are renewable. 138

Graph 1: Emissions gap between 6DS and 2DS IEA scenarios by sector. Source: IEA ETP 2014.

The power sector faces similar opportunities. According to a joint report between Accenture and CDP, five low-carbon business models could enable the worldwide electricity sector to significantly reduce greenhouse gas emissions while enjoying €135 to €225 billion cost savings and €110 to €155 billion in new revenue by 2030. WHY NOW? Companies that commit now to meaningful emissions cuts can enjoy significant cost savings and position themselves ahead of their peers in the low-carbon economy. But delaying action would require more aggressive and costly emissions cuts in the future in order to stay within the carbon budget, posing potentially insurmountable financial shocks. Findings from the 3% Solution report show that in order to meet the carbon budget, US businesses must reduce emissions 3% annually through 2020. If they do so, they can collectively capture cost-savings of up to $190 billion in 2020, and put us on the pathway to curbing climate change. However, if companies wait until 2020 to begin making significant emissions reductions, they’ll need to cut emissions by 9.7% annually on average – requiring costly and highly disruptive operational changes. For these reasons, investors are increasingly concerned with their exposure to greenhouse gas emissions and many are already working to decarbonize their investments. The Portfolio Decarbonisation Coalition, a group of institutional investors committed to gradually decarbonising their portfolios, announced during COP21 that it had grown to 25 members, including Allianz and ABP, representing $600 billion in assets under management. The initiative explains that to decarbonise their portfolios, investors may withdraw capital from carbon-intensive companies, invest in low-carbon companies, and engage with portfolio companies to motivate emissions reductions. Also during COP21, the Financial Stability Board, an organisation that works with financial authorities to strengthen global financial systems, announced a new Task Force on Climate-related Financial Disclosures, chaired CFI.co | Capital Finance International

by former NYC Mayor Michael Bloomberg. The task force aims to improve company disclosure of climate-related risk for lenders, insurers, investors, and other stakeholders. Changing regulations and public policy provide additional compelling reasons for business leaders to pursue ambitious emissions cuts now. The Paris Agreement has asserted a global goal to limit warming to no more than 2°C and preferably no more than 1.5°C. This will require near-term peaking of global emissions followed by rapid decarbonisation, achieving carbon neutrality in the second half of the century. Nearly 200 countries representing over 90% of global greenhouse gas emissions have submitted climate action plans, many entailing significant emission reductions. The Paris Agreement mandates greater transparency of national emissions and renewed, increasingly ambitious national climate plans every five years. In order to execute the global climate agreement, world governments will employ new regulations and policies to accelerate the transition to the low-carbon economy. Some are considering putting a price on carbon; the Carbon Pricing Leadership Coalition now has 21 national and subnational government members from both the developed and developing world. For companies, planning for ambitious emissions reductions now can mean staying ahead of these future policies and regulations and enjoying a competitive edge over competitors who choose to delay action. The science is clear: We must reduce our greenhouse gas emissions significantly if we are to spare ourselves, our children, and our economies from the harshest consequences of climate change. The recent momentum around climate action from entities around the world and across sectors demonstrates a great will to decarbonise our world. In order to smoothly transition to the low-carbon economy and gain long-term competitive advantage, companies must set their course now. The methodologies exist for setting an emissions target that aligns with climate science – it’s time for visionary, forward-thinking leaders to act. i

References available in the online version at CFI.co.

> CFI.co Meets the CEO of First Registrars and Investor Services:

Bayo Olugbemi, FCIB, FCMR

hare registration is a vital plank of the investment banking industry and Bayo Olugbemi has played a vital role in redefining this important area of Nigerian national banking operations. His work has been instrumental in transforming share registration from a costly venture to a profitmaking proposition that benefits all stakeholders. The innovative approach pioneered by Mr Olugbemi is also responsible for the introduction of additional products and services which have now become de-facto industry standards. For example, in an effort to reduce unclaimed dividend to a minimum, Mr Bayo Olugbemi introduced prepaid cards so that shareholders do not necessarily need to have a bank account in order to receive their dividends. In Nigeria, as elsewhere, regulatory policies aimed at protecting the interest of investors are becoming more stringent. At the same time, the industry is fiercely competitive. Mr Olugbemi believes that only those organisations that are able to identify and deliver beyond the expectations of customers will survive the tough times. He makes it the priority for all team members, himself included, to continuously deliver on excellence in customer experience and transparency. CEO: Bayo Olugbemi

A career banker, Mr Olugbemi believes in playing by the rules and sees abundant opportunities for innovation throughout the industry. He is the pioneer Managing Director / CEO of First Registrars and Investor Services Limited (formerly First Registrars Nigeria Limited). He has held the position since January 2000. While at First Registrars, Mr Olugbemi increased client numbers six fold to well over sixty companies. He is proud of adding blue chips and multinational corporations to First Registrars’ client base. During his tenure the company reserves grew from N10 million to over N6 billion before the divestment of First Bank Group from First Registrars. In addition to his job at First Registrars and Investor Services, Mr Olugbemi currently serves as a director on the board of the Central Securities Clearing System (CSCS), the Central Securities Depository of the Nigerian Capital Market. He also sits on the board of many other Nigerian businesses and entities such as CIBN Press, Attwool Schools, and Oluyole Global Resources. A professional passion for investment banking and share registration underlies Mr Olugbemi’s impressive career. He started working in investment banking at the Registrar’s Department

of Union Bank of Nigeria (now GTL Registrars). Before his appointment as the Managing Director / CEO of First Registrars, he held the same position at NAL Registrars (now Sterling Registrars). Mr Olugbemi was instrumental in setting up a number of Registrars companies in Nigeria including United Securities Registrars, DBL Registrars (formerly Diamond Bank Registrars), Sterling Registrars (formerly NAL Registrars) and Rims Registrars.

the Certified Pension Institute of Nigeria (CPIN), the Institute of Directors (IOD), and the Nigerian Institute of Management (Chartered).

Mr Olugbemi gained a first degree (BSc Hons) in Accounting from the University of Lagos and followed this with a Master’s Degree in Business Administration (MBA) in International Business Management from Lagos State University and an MSc in Corporate Governance from Leeds Metropolitan University in the United Kingdom.

Moreover, Mr Olugbemi is a member of the Chartered Institute of Stockbrokers & Certified Institute of Investment Analysts. He is currently the President and Chairman of the governing council of the Institute of Capital Market Registrars (ICMR) and), the National Treasurer of the Chartered Institute of Bankers of Nigeria (CIBN) and the Deputy Treasurer, Lagos Chamber of Commerce and Industry (LCCI). Mr Olugbemi was a two-term Chairman of the Chartered Institute of Bankers of Nigeria (CIBN), Lagos State Branch. He also serves as the president of the Ibadan Jericho Businessmen Club (JBC), Ibadan.

Impressively well-connected, Mr Olugbemi is an alumnus of Lagos Business School, Harvard Business School, Boston, IMD Lausanne Switzerland, INSEAD Singapore, Wharton Business School, and Stanford Business School. He is a fellow of the Chartered Institute of Bankers of Nigeria (CIBN), the Institute of Capital Market Registrars (ICMR), the National Institute of Marketing of Nigeria (NIMN), the Chartered Institute of Taxation of Nigeria (CITN),

Mr Olugbemi has extensive experience in investment banking and portfolio management and is a trainer in leadership, management, corporate governance and ethics, business formation, capital market development, and share registration. He is a pastor in The Redeemed Christian Church of God (RCCG) and serves as Assistant Pastor-in-Charge of Lagos Province on Corporate Social Responsibility. He is happily married and blessed with three children. i 139

> First Registrars and Investor Services:

Strong Brand, Winning Approach

hange may be the only constant thing in the world and for organisations to keep ahead of the curve, continuous evolution is a necessity. Nigeriaâ&#x20AC;&#x2122;s First Registrars & Investor Services is no exception.

The uncertainty faced by todayâ&#x20AC;&#x2122;s business leaders poses a major threat to the existence of their organisations. At First Registrars, a new beginning 140

has dawned with the divestment of First Bank of Nigeria in line with regulatory requirements. Banks may no longer be involved with share registrar operations. The corporate repositioning of First Registrars has positively impacted the Nigerian Capital Market. First Registrars and Investor Services Limited provides a range of unique professional services CFI.co | Capital Finance International

with an emphasis on share and bondholders data management and ancillary investor services. Registered as a Capital Market Operator (CMO) with the Securities and Exchange Commission (SEC), First Registrars is dedicated to keeping and protecting the records containing the names and addresses of stock- and bondholders and their equity holdings in both quoted and unquoted companies. The company ensures the timely

payment of dividends and the distribution of documents on behalf of its clients.

experience through innovation and the delivery of superior services.

REINFORCED BRAND NAME The rebranding of First Registrars Nigeria Limited to First Registrars & Investor Services Limited symbolises the company’s renewed commitment to providing all-inclusive investor-related services to its stakeholders. The new name denotes that the progressive nature of the firm which aims high, faces a bright future, and deploys cutting-edge technology to meet the needs of its stakeholders now and in the future. While retaining its core expertise in share registration and data management, First Registrar’s horizon has been broadened to include other investor related services.

Innovative user-friendly products allow the client companies, shareholders and stockbrokers alike to easily manage and monitor their stock portfolios. Pioneering services and applications such as e-Share Notifier, M-Access, OnlineAccess, and e-Lodgment amongst others have helped the company offer vastly improved services to shareholders, bondholders, and stockbrokers.

BEYOND SHARE REGISTRATION Over the years, First Registrars has remained Nigeria’s market leader in share registration. Now, the firm’s sizeable investments in technology and infrastructure are leveraged to meet the investment needs of stakeholders. At First Registrars, the long term goal is to position the company as a hub for all share registration, data management, and other investor-related services such as know your customer (KYC), address verification, electronic voting, asset reunification services and dividend reinvestment plans (DRIPs). First Registrars aims to deliver these and other services across Africa. The company’s aims to become the clear leader in the provision of share registration and related services in Africa through innovation and excellence in the delivery of services that connect clients to their wealth. The company’s core values revolve around Fidelity, Innovation, Respect, Service excellence, and Tenacity. First Registrars promises to consistently deliver exciting opportunities for all stakeholders by helping them attain their financial and/or investment goals, providing better benefits and state-of-the-art technology and doing so in a friendly and efficient way.

“First Registrars has moved beyond merely responding to the needs of its customers, we anticipate their requirements, providing solutions tailored to exceed customers’ expectations.”

BUY-LINE: “…CONNECTING YOU TO YOUR WEALTH” The Golden Accent displayed in the new logo represents a renewed commitment to deliver greater value to stakeholders at all levels. It signifies a progressive and rewarding future. The italics of FirstRegistrars symbolises the progressive, agile, and nimble nature of the company while the boldly written Registrars connotes its leadership position and core expertise in share data management services. The firm’s name is written as a single word to convey both the team spirit and single-mindedness of the organisation. STAKEHOLDER VALUES First Registrars has moved beyond merely responding to the needs of its customers, we anticipate their requirements, providing solutions tailored to exceed customers’ expectations. As an iron rule, the company strives to challenge the status quo and create the best possible customer

In a bid to increase the scope of its value-added services, First Registrars has pioneered Electronic Voting (e-Voting) system for the casting of votes at corporate meetings. This turned elections into a seamlessly integrated part of corporate meetings. The company also pioneered the use of Prepaid Cards which carry the dividends paid out to shareholders who do not possess a bank account. To date, First Registrars is the only company that uses Prepaid Cards in the payments of dividends to shareholders who do not have a bank account. The introduction of the FirstDividend Plus Prepaid Card has helped reduce the number and volume of unclaimed dividends which had plagued the industry for a long time. CORPORATE SOCIAL RESPONSIBILITY First Registrars maintains a well-defined CSR strategy that has a measureable impact on the lives of many people and the community as a whole. The company actively supports programmes in all parts of Nigeria that improve child healthcare, education, the arts, sports, community development, and environmental sustainability. Recently, First Registrars partnered with the Youth Rescue and Care Initiative (YORCI), a non-governmental organisation (NGO), to reduce poverty levels and promote responsible behaviour amongst young people by helping them discover, nurture, and ignite their individual potential through exercises, life/leadership skills training, academic endeavours, and mentoring programmes. Results are measured with the help of tailored goal-setting worksheets, presentations, and video clips that expose youths to the benefits of planning and performance-based evaluations which help prepare them for the future and to be self-reliant. COMMITMENT First Registrars is committed to a major financial investment in not just its brand name but in technological infrastructure and people in order to reaffirm its dedication to serving the Nigerian Capital Market with both distinction and excellence. The company recently acquired a more spacious and comfortable office complex that boasts state-of-the-art facilities that will ensure equity holders may at all times conveniently connect to their wealth. This consistently-followed approach also ensures that the First Registrars brand remains strong and easily recognisable as the go-to place for all equity holders looking for a premier service experience. i 141

> CFI.co Meets the CEO of Alliance Financial Services:

Roshan Boodhoo

he youngest CEO ever of a company regulated by the Mauritius Financial Services Commission, Roshan Boodhoo of Alliance Financial Services is making his mark on the island nation’s booming offshore sector. A peerless grasp of the market’s dynamics has enabled Mr Boodhoo to respond quickly and effectively to changing conditions. Since being named CEO of Alliance Trust – the precursor to the present company – in 2010, Mr Boodhoo has managed to increase revenue by well over 800%. “I joined Alliance Trust in 2009 just as the full dimension of the global financial crisis was becoming clear. Up to then our company had focused on providing wealth management services. However, the downturn necessitated a corporate rethink in order to arrive at a more diversified palette of services.” Thus Alliance Financial Services came into being. The name change reflects the broader approach that was chosen to better serve clients and broach new markets. “Alliance Financial Services has become a onestop-shop for businesses that wish to leverage the attractive legal framework put in place by the Mauritius government for the offshore industry. We provide not just legal advice but enable interested parties to establish a corporate presence in this jurisdiction without suffering the usual hassles and hurdles. Our company takes care of all minutiae from premises and office furniture to tax structuring, accounting, human resources, and everything in between. As such we offer a service unique in its reach.” Mr Boodhoo has readied Alliance Financial Services to join up with PrimeGlobal, one of the world’s largest and most prestigious networks of independent accounting firms. Mr Boodhoo has been named PrimeGlobal’s regional officer for Sub-Saharan Africa in recognition of his efforts to develop the industry. Increasing the size of its corporate footprint and eying business opportunities, Alliance Financial Services recently opened offices in Dubai and London with a view to better serve the company’s clients in these regions. “While about 40% of our business is generated in Africa, the Middle East is increasingly important to us and now represents slightly over 30% of our revenue. Alliance Financial Services is now known as a hallmark of quality in the provision of offshore management services for companies and investors alike. This stellar reputation was hard-won and allows us to enter new markets and further expand our services.” 142

CEO: Roshan Boodhoo

After obtaining a BSc in Banking and International Finance from the Mauritius University of Technology and a MA in Finance and Investment from Nottingham University Business School, Mr Boodhoo started his career at Barclays on the corporate finance and credit finance side. “When the Mauritius government signalled its intention to develop the island nation into a financial services centre, it became abundantly clear that opportunities would arise. This realisation motivated me to jump from the banking side of the business to the operational side. I joined Alliance Trust, as the company was then called, in 2009 as chief operations officer. A year later, I was named CEO and am happy to report that last year I became an equity partner of Alliance Financial Services.”

never going to be satisfied with following the lines traced by others: “If you wish to lead and succeed, just go ahead and take the reins. You can do it.”

Traveling the world and highly motivated to meet new challenges head-on, Mr Boodhoo was

For further information, please visit: www.alliance-mauritius.com

CFI.co | Capital Finance International

In a business where personal qualities and relations determine the outcome of many business ventures, Mr Boodhoo is well-equipped to succeed. A walking and talking encyclopaedia on the Mauritius business scene and the country’s offshore legislation, the CEO has a well-earned reputation as a fast thinker and an effective mover and shaker. As a result, Alliance Financial Services is now well settled in a fast expanding niche all its own near the apex of the country’s offshore establishment. i

> Strategy&:

Gaining a Competitive Edge in Africa By Jorge Camarate

orldwide, companies have begun to make expansion across Africa a priority, recognising that – despite many problems – the continent is amongst the fastest-growing regions in the world. Africa is poised for longterm economic growth: the continent has 600 million hectares of uncultivated arable land, 40% of the world’s gold, 90% of its platinum, 8% of its oil, besides an abundance of other resources. Since 2000, Africa has been growing consistently at about one percent above the global average. Its middle-class population has tripled over the last three decades to around 400 million people. Consequently, companies around the globe – in the US, Europe, China, Japan, and even Africa itself – are looking to build powerful Pan-African enterprises. However, it is not that simple. Africa’s markets tend to be too diverse for any one business model to be successful everywhere. Companies don’t always have an understanding of local market dynamics and the skills required for success. As a result, many of these companies have destroyed value instead of benefitting from growth opportunities. Part of the problem is that many companies often embark on their expansion plans without first looking inward, examining what they can bring to these markets. We approach strategy the other way round with an approach that we call a capabilities-driven strategy. A firm’s first priority when setting strategy should be to understand its own differentiating capabilities and how they work together. In this article we analyse what is meant by a capabilities-driven strategy (CDS) and its value. A capability is the combination of people (knowledge, skills, and behaviours), processes, organisation, and tools and systems which allow you to do something of value. Capabilities tend to work together in systems of three to six mutually reinforcing, distinctive elements that are organised to support and drive a company’s strategy. To generate growth, the CDS-aware firm looks to generate as much business as possible in markets where its existing capabilities are relevant and differentiating. It also looks for ways to enhance its capabilities system to address attractive new markets. In many of our discussions with the executives leading expansion activities at major African companies, we were pleased to find a number of companies across a broad range of industries that were already using a kind of capabilities144

“Companies are usually faced with much difficulty in deciding which markets they should enter and the capabilities they will require to ensure success.” based thinking to great effect in the planning and execution of their expansion. CAPABILITIES TO OUTPERFORM BENCHMARKS The value of adopting this capabilities-driven approach was demonstrated in an analysis of major expansion deals across Africa between 2007 and 2013. Of the mergers and acquisitions (M&A) made by companies listed on the Johannesburg, Lagos, and Nairobi exchanges, a total of 82 suitable expansion deals were studied. Deals were divided into three categories: • Leverage: The acquirer applied its current capabilities system to incoming products and services. • Enhancement: The acquirer added new capabilities to fill in gaps or respond to market changes. • Limited fit: The acquirer largely ignored capabilities, doing the deal for other reasons, including diversification and control of attractive assets. According to the results of the analysis, capability deals far outperform limited fit deals and also often outperform market benchmarks. Top quartile capability enhancement deals outperformed benchmark by 6.9% and capability leverage deals outperform it by 5.5%, while limited fit deals underperformed the benchmark by 3.7%. The analysis also provides some interesting comparisons between Africa and industrialised economies. The most compelling is that of the US where leverage deals outperform enhancement deals on average. It seems the value of improving capabilities is even stronger in Africa than it is elsewhere. African markets are so diverse that enhancements to the existing capabilities system are often necessary to survive and thrive in a new geography. Companies are usually faced with much difficulty in deciding which markets they should enter and the capabilities they will require to ensure success. This is a complex question which can be overwhelming, especially when faced with the world’s second-largest and second-most populated continent. CFI.co | Capital Finance International

STARTING POINT A number of factors will have to be considered and due diligence needs to be observed. However, our experience shows that a good starting point is usually studying a market’s wealth (measured by GDP per capita) and institutional quality (measured by the World Bank Doing Business Index). Based on these criteria, and how the two are combined, African companies fall into six market types: high, medium, and low income, with either strong or weak institutions. Some of the wealthiest African markets have built strong governmental and civil institutions. They have reliable ports, roads, judiciary, police, and educational resources to draw on. Companies that may find these markets rewarding include those with world-class innovation, technology, and branding capabilities. But then there are high-income countries that have weak institutions. These markets require a host of country-specific capabilities to ensure success, and may be good places for a company with strong capabilities in managing relationships with government and other stakeholders, managing security challenges and crises, and creating supply chain resilience to ensure consistent service. In middle-income countries with strong institutions, aspirational customers demand premium products and services but need them to be delivered at a lower cost point. Middleincome countries with weaker institutions face significantly more challenges to achieve an affordable cost-to-serve, given limited infrastructure and weaker human capital. To overcome these hurdles, relationship and crisis management skills are essential. Although some low-income countries, like Mozambique and Liberia, have relatively strong institutions, all suffer from weak infrastructure. This means that successful businesses, whether exporters or serving local demand, must have strong capabilities in building and operating every component of their business independent of external support. BEWARE OF COMPLACENCY Strong institutions and a stable environment make it easier to do business everywhere. In institutionally strong countries across the income spectrum, from Ethiopia to South Africa, companies can focus on competing in the market, in much the same way as they would in developed Western markets. Conversely, companies can never be too complacent about

their ability to move capabilities from one country to a neighbouring state.

CAPABILITIES IN AFRICA EXPANSION: STUDY METHODOLOGY

Once a company has identified the African market most suited to its capabilities and the additional capabilities it will need for those markets, it can turn to execution – in particular, how to replicate home-market capabilities in other environments, add the new capabilities required, and manage a Pan-African business. A number of deployment approaches are required. These include: • Developing local talent: Capabilities are put in action by people on the ground. Since relying heavily on expatriates is not financially sustainable or positively viewed by African governments, local human capital is essential. Africa’s labour markets usually lack people with the necessary technical skills and relevant industry experience, meaning that companies must develop their own talent. Companies will need to embed a team of homecountry experts. They will need to deploy their own home-country staff as expatriates, but only for a limited period of time. In addition, companies will need to invest heavily in training and development. They will also have to focus their efforts on retaining talent. Successful companies that invest in training must find ways to prevent competitors from poaching their talent. • Forming partnerships with locals: Forming relationships and partnerships with locals is usually the fastest and least capital-intensive way to enhance capabilities for local conditions. A partnering relationship could take the form of a merger, a joint venture, or a simple supply arrangement. In Africa, enduring partnerships are founded on aligned interests and personal connections, more than on legal contracts. However, companies will need to exercise caution when selecting a local partner. • Balance central control with local entrepreneurialism: Companies should not burden local subsidiaries with ill-suited control policies and processes. But in the process companies should also ensure that they do not expose firms to any violations of ethics of breaches of law or policy. To accomplish this, they will have to oversee risk and manage it.

82 deals of significant value (>10% of buyer market cap). Acquirers listed on Johannesburg, Nairobi or Lagos stock exchange. Deals closed between 2007 and 2013: • Capability Leverage (46%): Acquirer takes advantage of its current capabilities system by applying it to incoming products and services. • Capability Enhancement (22%): Acquirer adds new capabilities to fill in gaps in its system or respond to new market requirements. • Limited Capability Fit (32%): Transaction does not improve or apply the acquirer’s capabilities system.

School and a BS in Business Administration from the Instituto Superior de Ciencias do Trabalho e da Empresa. Jorge also co-authored the 2013 Strategy& report ‘Affluent but forgotten: The demographic opportunity for wealth management in the UK’. ABOUT STRATEGY& Strategy& is a global team of practical strategists committed to helping you seize essential advantage. We do that by working alongside you to solve your toughest problems and helping you capture your greatest opportunities. These are complex and high-stakes undertakings—often game-changing transformations. We bring 100 years of strategy consulting experience and the unrivaled industry and functional capabilities of the PwC network to the task. Whether you’re charting your corporate strategy, transforming a function or business unit, or building critical capabilities, we’ll help you create the value you’re looking for with speed, confidence, and impact. We are a member of the PwC network of firms in 157 countries with more than 184,000 people committed to delivering quality in assurance, tax, and advisory services. Tell us what matters to you and find out more by visiting us at strategyand.pwc.com/me.

Companies need to pick markets carefully to fit their capabilities, and know what capabilities they need to add for success in each place. If they can navigate all of the challenges, they will have an enviable position: an architect of one of the first Pan-African powerhouses, something shareholders have been dreaming of. i ABOUT THE AUTHOR Jorge Camarate is a Partner in PwC Africa’s Financial Services practice, specialising in business strategy and operating model design for wealth management, life insurance and retail banking. With over 10 years of experience with Strategy&, Jorge has advised clients in the UK, South Africa, Continental Europe, Latin America and Australia. Jorge joined Strategy in 2005 and prior to joining the firm, spent time as a business analyst in McKinsey and Company in Portugal. Jorge has an MBA from the London Business

Author: Jorge Camarate

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> Middle East:

New Roads Leading to Teheran By Darren Parkin

There can be little doubt as to the economic importance of the Middle East and North Africa (MENA). A tide of contrasting change has swept over the region in the last decade, but reinvigorated financial models have emerged from the darkness of recession and political turmoil and now jostle for position on the world stage. Some of the MENA economies could easily propel themselves forward as pacesetters of the next decade. Others, however, seem rather stuck â&#x20AC;&#x201C; or set in their ways â&#x20AC;&#x201C; and experience prolonged stagnation. At the Davos Summit of the World Economic Forum, the region, and its destiny, remains near the top of the agenda.

Teheran: Azadi Tower

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ortunes across the MENA Region often rise and fall in tandem with the price of oil. The geographic area is home to eight of the thirteen OPEC (Organisation of the Petroleum Exporting Countries) member states. While its share of world oil production has declined to about 35% - from a high of around 55% in the mid-1970s – the cartel still holds slightly more than 80% of the world’s proven oil reserves. As such, OPEC still largely determines the price of oil on the global market. As with most products, supply and demand sets the price. This logic does, however, come with a few caveats. OPEC member states meet every two years to set production quotas based on demand forecasts. Set too low, and the world’s advanced economies end up ordering more than anticipated, pushing prices upwards. Conversely, if set too high, demand for oil tapers off, depressing prices. The futures market also has its say. Here traders go either long or short on oil, betting vast quantities of duly leveraged monies on the commodity’s ups and downs. Traders do plenty more than just gamble and have been known to buy up futures way above the going rate which then leads to producers hoarding vast quantities of oil in anticipation of higher prices. This effectively shuts the valves and drains the pipelines – inflating prices as in a self-fulfilling prophesy. It is one way of securing a princely income. As with most annual gatherings organised by the World Economic Forum, the prospects of the MENA Region draw considerable attention. This is, after all, a vast area characterised by an unusually large discrepancy between the current state of affairs and its almost limitless potential. The thinking of WEF participants more often than not centres on the region’s pivotal role as a supplier of oil and little more. Geopolitical stability is sought in order that oil may flow unobstructed onto the world market. Less attention is paid to finding ways of cashing in MENA’s demographic dividend. With a young and often well-educated population yearning to break out of chronic underdevelopment, MENA may before long comprise a large number of buoyant economies seeking to plug into the global economy. The possibilities are manifold. Should political stability be attained, the countries of North Africa – sun-drenched, sparsely populated, and welllocated – can easily provide Europe with all the solar power the continent could ever require. The blueprints of large-scale solar power projects have already been drawn up. Their deployment is held back only by fears of continued civil and religious strife. The region’s more advanced economies are already opening up to cross-border trade and investment, looking to source future growth from closer integration with the countries of both Europe and the Far East. With Iran at long last opening up for business – after Jordan, Lebanon, Egypt, and Morocco showed the way – investors from within

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“For starters, it is the richest place in the world with a per capita income that exceeds $100,000 annually or – to put it more bluntly – about twice as much as the United States.” and without the region are spoilt for choice. Gulf Cooperation Council (GCC) states have already taken the lead in underwriting Egypt’s economic and social renaissance while Morocco attracts increased volumes of investments from Europe. Finding paths to accelerated economic growth is no mere academic exercise either as most MENA countries have little choice in pursuing their demographic dividend, lest it becomes a political liability instead of an economic windfall. High youth unemployment and a lack of opportunity with little chances for upward social mobility, provide for an explosive mix of ingredients that may yet blow up and scuttle the best-laid development matrix. Iran is expected to feature prominently in both the main discussion at Davos and the various spin-off sessions. The lifting of international sanctions is expected to generate both known and unexpected effects on the future development of Iran’s standing in the world – and its oil market. The importance of the country’s return to the global oil market cannot easily be underestimated – particularly as the sudden injection of a million barrels/day could, potentially, see oil prices drop by as much as 14 per cent by mid-2016. Britain also stands to profit massively from the removal of Iran’s shackles. The country’s trade all but ceased during the sanctions with exports believed to have fallen by an astonishing $17 billion from 2012 to 2014. Leading the pack of countries set to benefit by opening new – and reopening old – trade channels is the UK, followed closely by China, Turkey, and India. Oil revenues are expected to deliver the biggest boost to Iran’s resurgence. Just the revamping of Iran’s now largely obsolete extractive infrastructure is expected to generate tens of billions of dollars in new business. As if that figure isn’t tantalising enough, there is enough foreign direct investment (FDI) looming on the horizon to give Iran possibly the biggest “welcome back” party the world has ever seen. Following the tightening of sanctions in 2012, the volume of FDI dropped close to zero. However, analysts suspect a tidal wave of investment to start flooding into Iran with the World Bank predicting up to $4 billion worth of one-way transactions to fill reach Iran before 2017 is out. i CFI.co | Capital Finance International

> CFI.co Meets the CEO of Paris Gallery Group:

Mohammed Abdul Rahim Al Fahim Named the most powerful entrepreneur in the Arab World’s retail sector for a second year running, Mohammed Abdul Rahim Al Fahim is CEO of the Paris Gallery Group of companies and a member of the Al Fahim family – the founders and owners of the conglomerate that now operates a network of retail stores and distribution channels throughout the UAE and the GCC countries. Mr Al Fahim joined the family business in 1996 soon after graduating from the University of Kentucky, US, when he moved to the Kingdom of Saudi Arabia (KSA).

e played an active role in developing the group’s overall strategic plans, helping it take its first steps into the luxury retail sector. He was instrumental in restructuring the management and rewriting company policies resulting in high employee satisfaction levels. In his ten-year stint in KSA, he held various senior leadership positions in supply chain management. He helped establish the company’s Saudi Arabian businesses by spearheading various initiatives and campaigns resulting in record growth. He is credited with having increased company foothold in the market and building brand value. Since his appointment as group CEO in 2006, Mr Al Fahim has successfully brought about important and far-reaching reforms in the organisation. He re-established a healthy bottom line. Anticipating high growth in business, Mr Al Fahim increased the number of stores, drove up profits, and expanded the workforce. He also took the plunge into further improving corporate governance standards. This brought about profound changes in policies, structures, and processes. The many awards Paris Gallery has received since then not only proved that the company was on the right track, but also recognised Mr Al Fahim’s strong leadership and his remarkable foresight. Mr Al Fahim advocates corporate governance which promotes innovation, supports creative thinking, and nurtures the creative spirit of employees. He avidly shares his experiences and expertise on the subject at business forums nationwide. Now settled in Dubai, he’s a family man that loves reading, socializing, and playing soccer.

IN WORDS “Regardless of the economic climate, our strategy has always been to remain focused on consumers because they hold the key to our success. Being customer-centric is all about understanding the customer’s needs and desires, and finding innovative ways to deliver great products and provide an outstanding, experience in our stores.”

“What we have achieved in the last nine years would

CEO: Mohammed Abdul Rahim Al Fahim

not have been possible if it weren’t for a visionary leadership and a team of high-performing individuals who were quick to recognize, understand and accept the transformational changes that were being made in the organisational structure to best achieve company goals.” “The main ingredient for a successful and harmoniously workforce is transparency, because by being totally transparent you make sure everyone has the right information at the right time to make the right decisions.” “Technology is in the driver’s seat. As consumers becoming increasingly tech savvy, it opens up additional channels of communication. Not only will a customer be able to purchase a product with ease anytime, anywhere, but they will also be able to make educated choices before purchasing a product.” IN ACTION • Paris Gallery, under the leadership of Mohammed Abdul Rahim Al Fahim, has evolved into a dynamic and diverse enterprise with a growing portfolio of iconic brands reaching consumers across the

region through its retail, franchising and distribution channels. • Over the past nine years, Paris Gallery’s shareholders have enjoyed steadily increasing annual returns. 2011 was the most successful year in Paris Gallery’s almost two-decade-long history of retail and distribution, with revenues crossing the 1$ billion mark. The steep growth curve of 2011 continued into 2015 with steadily growing profit margins. • 2015 Mr Mohammed Abdul Rahim Al Fahim was awarded the Degree of Honorary Doctorate from the American Institute of Education Development for his distinguished work in voluntary youth activities, and he was awarded the ‘Best Business Leader’ Award at the 2015 MENAA Awards and Paris Gallery was awarded the MENAA ‘Customer Delight’ Award. Also, earlier this month, Paris Gallery’s loyalty program Luxury Club was declared the winner of the ‘Service Olympian 2015 Customer Experience Award’ in the ‘Customer Loyalty Program’ category. • 2014 Paris Gallery was awarded the ‘Best Luxury Retail Brand, Middle East’ Award and the Best Company for Leadership (Luxury Retail, Middle East). In addition to Enterprise Agility Achiever in the Retail Sector. i 149

> CBRE Middle East:

Global Real Estate Investments Hit Record High By Simon Townsend

Global commercial real estate (CRE) investment reached $ 407 billion in the first half of 2015, the strongest H1 since 2007. This previous peak was immediately followed by a US-led slowdown in the second half of 2007. Today, we see a contrasting picture with continued growth forecasted for overall global investment activity in the second half of 2015, despite sluggish growth in Asia.

ccording to our latest report, these figures have increased 14 per cent year-on-year globally. However, at the same time and on a regional level, we have witnessed varying levels of growth. The Americas experienced growth of 31% year-on-year, while a strong dollar impacted activity in EMEA (Europe, Middle East, and Africa) and APAC (AsiaPacific). In dollar terms, EMEA witnessed a slight growth of 5% as compared to H1 2014, whereas APAC declined by 19%. However, when measured in local currency, EMEA grew by 25 per cent, whilst the decline in APAC was less severe at 9%. The considerable strengthening of US dollar over the past year or so has significantly impacted global CRE. Moreover, activity in non-US dollar denominated markets has been strongly influenced by the shift in currency exchange rates, as the strength of the dollar accentuated the fall in activity in APAC – particularly in Australia, Japan, and South Korea.

“The considerable strengthening of US dollar over the past year or so has significantly impacted global CRE.” Globally, the US, the UK, and Germany remain, by far, the three largest CRE investment markets. A combined total of $301 billion was transacted by these three countries in H1 2015, representing an unusually high (74%) share of the global market and fully 10% above the longterm average. The last time joint investment in these markets grew to this level, albeit a little higher, was during 2006-2007. Overall, we have witnessed significant growth – despite varying performances across the markets. Cross-border capital flows have also grown

in influence and have become an important driver of the CRE investment market globally, particularly over the last two years. At a regional level, the degree of influence varies from as little as 10% in the Americas to almost 50% in the EMEA region. Regardless of the current shape, the influence has grown to a point where international capital is becoming the marketmaker in setting the price of the most desired and liquid investment opportunities across the globe. The largest contributor to these flows in the first half of the year was the US, accounting for a standout $25.4 billion investment outside its home market. This was followed by Canada ($8.5 billion), Germany ($7.1 billion), and China ($6.6 billion). Their combined volume was still considerably less than that of the United States. Upon analysing the investment activity in

Figure 1: Global capital flows in H1 2015 (all commercial real estate and hotels, including multi-family sector in North America). Cross-regional capital flows reached $67.5 billion in H1 2015, a 31% increase on H1 2014. Source: CBRE Research, Real Capital Analytics, H1 2015.

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Figure 2: Top sources of cross-border capital in global CRE by buyer origin in H1, 2015 (US$ billion). Source: CBRE Research, Real Capital Analytics, H1 2015.

Figure 3: Global commercial real estate investment by region. Source: CBRE Research, Real Capital Analytics, H1 2015.

the EMEA region, we have observed that the decline in oil prices has had little impact on cross-border investment from the Middle East. Despite the drop in commodity prices, Middle Eastern purchasers remain very active in the global CRE landscape. In H1 2015, Middle Eastern buyers invested a total amount of $11.5 billion outside their home markets. The low oil prices have also contributed to the growth of non-institutional investment from the region, allowing for a surge in capital outflow from private offices and high-networth-individuals, especially in the UAE where investors are mostly investing in overseas real estate. Some $5.24 billion and $4.54 billion flowed out of Qatar and UAE respectively into direct

real estate globally in H1 2015 (see chart). While recent activity was boosted by a few large sovereign wealth fund deals, overall the investor base is growing. They are moving towards greater geographic and sector diversification, with activity spreading beyond gateway markets to second-tier locations in Europe and the Americas, and more recently towards core Asia Pacific markets.

The change is equally strong in the hotel segment which stood at 9% of the market in H1 2015 â&#x20AC;&#x201C; more than double its long-term average. Hotel assets have been particularly sought after by Middle Eastern investors and high-networth-individuals, with the typical list of safe haven locations of London, Paris, and Berlin extended to include quality assets in recovery markets such as Italy and Spain.

Out of the three main regions, the changes witnessed in the EMEA market are most pronounced, especially considering the size of this market. For example, while offices attract a reduced share of CRE investment market globally, it is in EMEA that the fall is most distinct, with the office share sliding from 53% in 2007 to 38% in H1 2015.

Other sectors, including student housing, healthcare, mixed-use, and residential properties, have also grown substantially as a destination for real estate investment, accounting for 24% of global CRE investment in H1 2015. The sector has long played an important role in the Americas due to the large multi-family sector. The growth of this sector 151

Figure 1: Key destinations - top 20 cities in H1 2015. Source: CBRE Research, Real Capital Analytics, H1 2015.

“Due to the increase in competition from newer sources of capital, especially those from Asia into London, and other traditionally popular markets, we noticed an increased appetite for second cities and alternative real estate asset classes not just in the UK but across the Eurozone.” has been most striking in the EMEA region, with an increased interest in mixed-use portfolios, student housing, and healthcare. With strong yield compression in more traditional CRE sectors, investors are turning to alternatives as they search for higher returns. In particular, the real estate interaction between Europe and Middle East has been growing steadily over time, with 52.2% of Middle Eastern capital directed towards Europe in H1 2015. Due to the increase in competition from newer sources of capital, especially those from Asia into London, and other traditionally popular markets, we noticed an increased appetite for second cities and alternative real estate asset classes not just in the UK but across the Eurozone. Capital flows into real estate are well supported. Ignoring rental value growth, real estate also offers a spread over bond rates between 200 to 300 basis points across global markets; which continues to attract capital towards the sector. The influx of new sources of capital targeting real estate as part of long-term liabilitymatching allocation strategies is helping to extend the investment cycle. At the same time, this pushes old capital into niche sectors, prompting an expansion of the investment universe. 152

The world’s leading destinations, in terms of global capital flows, comprise a balanced mix of cities across all main regions—London was the most targeted city by cross-border investors in H1 2015, followed by New York and Paris. This contrasts with the top destinations for overall investment where the bias is strongly on the US – New York was the leading city overall, followed by London, Los Angeles, San Francisco, and Chicago. Overall, markets around the world are attracted to the real estate sector as the capital flows surge and become more reliable. These crossborder investments are heavily influencing the market by driving commercial real estate on a global scale. We at CBRE can see the growth that the market has achieved, and the promise that is yet to come as globalization allows the markets to cross-invest and further develop together. A robust recovery of the US economy, lower oil prices, quantitative easing in the Eurozone, and a surge in the Chinese economy will continue to create global demand for real estate. i ABOUT THE AUTHOR Simon Townsend is director and head of Valuation and Consultancy at CBRE Middle East. CFI.co | Capital Finance International

Author: Simon Townsend

> CFI.co Meets the Chairman of Kuwait International Bank:

Sheikh Mohammed Al Jarrah Al Sabah

or over forty years, Kuwait International Bank (KIB) has been at the forefront of the drive towards innovation and excellence in banking. Recognised as a pioneer, KIB’s efforts have resulted in exponential growth and innovation. In 2007, KIB became an exclusively Islamic Bank and in just seven years it was recognised as the Best Islamic Bank of Kuwait by World Finance in 2013 and 2014. In an exclusive interview, KIB Chairman Sheikh Mohammed Al Jarrah Al Sabah details the bank’s path to success and explains his approach. KIB IS DEVELOPING AN EXTENDED STRATEGY FOR THE PERIOD 2015-2020. HOW DO YOU ENVISION THE GROWTH OF FINANCIAL INDICATORS AND RATIOS AFTER IMPLEMENTING SUCH A STRATEGY? The KIB Executive Management Team developed a five-year strategy for 2015-2020 in collaboration with a top-tier global management consulting firm. The new strategy sets high aspirations for the bank in terms of market growth, customer partnerships, and employee benefits. Our core aim is to position KIB as the Islamic bank of choice in Kuwait and the Middle East. KIB’s new strategy is customer-centric and involves a significant change in service quality and delivery of our banking and advisory services. Prior to the initiation of our new strategy development, we thoroughly restructured our core departments and launched new businesses. In addition, we diversified our revenue sources and strengthened our positioning on core customer segments. Our balance sheet is now stronger than ever and we are proud to announce that KIB is ready to reach its true potential. Chairman: Sheikh Mohammed Al Jarrah Al Sabah

DID THE ISLAMIC BANKS RECOVER FROM THE FINANCIAL CRISIS? HOW DO YOU SEE THE FUTURE OF KIB IN KUWAIT’S ISLAMIC BANKING SECTOR? Yes, to a great extent. Several factors contributed to ward off vulnerability from the global financial crisis such as the robust regulatory system in Kuwait and the efficient leadership of the Central Bank in executing effective recovery measures. The best international regulatory practices were also implemented to accelerate the process of recovery. Kuwait International Bank – thanks to its management, the staff, and the various committees – put in a concerted effort to bring down the alarming proportion of non-performing loans from 4.97% in 2014 to 4.39% in the third quarter of 2015. In addition, we have increased the distribution on depositors’ accounts from 1.2% in the first quarter of 2015 to 1.5% in

the second quarter of 2015 to 1.8% in the third quarter 2015. IN THE ANNUAL REPORT, YOU MENTIONED THAT THE BANK INTENDS TO FOCUS ON THE RETAIL SECTOR. WHAT ARE YOUR PLAN? At KIB, we have felt the need to pay special attention to the retail sector as it represents a valuable link between the bank and its customer base. So we give special attention at different levels, including, but not limited to, the expansion of the branch network which will total thirty branches by the end of 2015. This is to provide our quality services to customers throughout all governorates in the State of Kuwait. Naturally, similar increases in the number of ATMs and POS terminals are also in the works. KIB strives to further improve the quality of its e-services and social media channels. These initiatives,

we believe, will create a more appropriate and modern Islamic financial product and services in time. We also plan to classify the customers as per their particular needs and preferences so as to reach out and fulfil all our customers’ requirements. Do you think that the growth of Islamic banks will affect the conventional banks? Islamic and conventional banks vary in their method of operation and objectives. Both models managed to achieve sustainable levels of returns and growth in the past few years. This, of course, places the banking sector as one of the major pillars in Kuwait’s economy. All banks, whether of Islamic or conventional in nature, are competing to best serve their customers, nevertheless, KIB expects to see an increased demand for Islamic banking products and services in the future. i 153

> Kuwait International Bank:

Full Service Islamic Bank Kuwait International Bank KSCP is a public Kuwaiti shareholding company incorporated in the State of Kuwait on 13 May 1973 as a specialised bank and is regulated by the Central Bank of Kuwait. The Bank’s shares are listed on the Kuwait Stock Exchange.

n June 2007, CBK licensed the bank to operate as an Islamic bank from 1 July 2007. From that date, all activities are conducted in accordance with Islamic Sharia, as approved by the bank’s Fatwa and Sharia Supervisory Board. The bank is engaged principally in providing Islamic banking services, the purchase and sale of properties, leasing, and other trading activities. Trading activities are conducted on the basis of purchasing various commodities and selling them on murabaha at negotiated profit margin which can be settled in cash or on an instalment credit basis. As an Islamic bank, KIB has a dedicated group of Islamic scholars who review the bank’s internal and external operations, new products, investment transactions, and contracts in order to certify that these financial activities are compliant with Islamic Sharia rules and regulations. BEST SHARIA-COMPLIANT BANK IN THE MIDDLE EAST 2015 KIB’s continued operational excellence, outstanding performance, and unrivalled reputation have allowed it to win the 2015 Best Sharia-Compliant Bank in the Middle East Award issued by Capital Finance International. KIBs’ management is aspiring to achieve everhigher objectives related to its performance, products, and services and thus become the fastest-growing Islamic bank in Kuwait and the Middle East. The bank’s commitment to adhere to the highest ethical standards, and its unmatched customer-centric philosophy, have allowed KIB to become a leading Islamic financial institution and a financial advisor to private and corporate clients. Each year, CFI.co looks for individuals and organisations that play an important part in affecting the economies of the world and add value to stakeholders. The awards programme aims to identify and recognise businesses that exercise an outstanding influence. KIB SERVICES AND SOLUTIONS KIB maintains a solid network of 28 branches throughout Kuwait and keeps growing so as to reach all the major areas of Kuwait and meet

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“KIB has a dedicated group of Islamic scholars who review the bank’s internal and external operations, new products, investment transactions, and contracts in order to certify that these financial activities are compliant with Islamic Sharia rules and regulations.” its customers’ diverse needs. The bank provides customers with a full suite of premium and innovative financial services and products that include deposits, financing transactions, direct investments, Murabaha (auto, real estate and commodities), Ijara Muntahia Bittamleek (leaseto-own), Istisna’a, Tawarruq, credit cards, Wakala and many other products. The bank also offers services such as safety deposit boxes, travel insurance, and SMS banking. In addition, KIB operates a dedicated call centre and an aroundthe-clock online and mobile banking service. CORPORATE SERVICES AND SOLUTIONS Corporate customers benefit from treasury services, issuance of letters of credit (LCs), letters of guarantee issuance (LGs). Additionally, KIB has an in-house real estate division that attends customers’ real estate requirements such as financing the purchase of investment, commercial, and residential properties. The bank also offers various accounts that cater to the specific needs customers such as the Al Nafees, Rimas, Habboub, and Shabab Al Dawli accounts. REAL ESTATE APPRAISAL Since KIB’s inception, the Real Estate Appraisal Division (READ) has developed to such a degree that it now serves as a key reference for numerous governmental authorities, banking institutions, and investment and real estate companies. The division was approved by the Central Bank of Kuwait (CBK) to appraise real estate debts settlements. The division has recently also been approved by the CBK to undertake real estate appraisal for companies governed by Financial Stability Law. CFI.co | Capital Finance International

Moreover, the division was officially appointed as one of the entities authorised to evaluate the projects of the Partnership Technical Bureau, an affiliate of the Ministry of Finance, in accordance with Law No 7 of 2008. READ has also been approved by the Ministry of Trade and Commerce as a certified appraiser, which is attributed to the accumulated experience of the division’s technical team, as well as the credibility and expertise of dealing with customers. PROPERTY MANAGEMENT The Property Management Division offers comprehensive and integrated services for different types of properties and their management. The division offers special services at competitive rates for the marketing and managing of properties, collection of rent, online rent payment for tenants, preparing accounting reports, maintenance services, and legal services. The last service is available for recovering, via the courts, monies owed by defaulting tenants. KIB lawyers specialised in property law are experienced in pursuing the proper legal course of action or coordinating financial settlements with renters willing to reach an extrajudicial solution. INNOVATIVE SERVICES WITHIN CUSTOMERS’ REACH KIB offers a full range of services that enable clients to access their accounts anytime, anywhere. Al Dawli Weyak is a dedicated 24/7 call centre that caters exclusively to KIB customers and may be reached from anywhere in the world. Services offered through Al Dawli Weyak include obtaining account details, reporting lost or stolen credit cards or debit cards, requesting credit card account statements, acquiring information on products and services, inquiring and applying for Islamic financing facilities, requesting account statement by fax, obtaining details on Murabaha and investment accounts, besides many others. KIB has deployed a highly encrypted, industrystandard technology and infrastructure to give customers a fully-secure electronic banking experience. With Al Dawli Online, customers can enjoy the convenience of managing their accounts from anywhere around the clock. Al Dawli Online offers a host of features and

benefits such as viewing all account balances and statements including up-to-the-second details on all KIB accounts. Customers may also transfer funds between their own accounts, and to other bank accounts both domestic and international. They may also request credit card or Islamic financing, certified cheques, money orders, cheque books, increased credit card spending limits, and view currency exchange rates. The Al-Dawli Mobile service is a smart, convenient, user-friendly, safe, and secure mobile banking app. The mobile application allows for a convenient round-the-clock banking experience for any smart phone in both English and Arabic. Some of the services that may be easily accessed include account balance and transaction details, requests for printed statements of account and cheque books, credit cards payment, prepaid card payments, finance

account details, investment account details, map locations of KIBâ&#x20AC;&#x2122;s branches and ATMs, bank news and events, and the reporting of lost, stolen, or damaged cards. PAYMENT GATEWAY KIB offers its corporate clients an electronic payment service solution that allows companies to process payments for their goods and services over the Internet. This service is provided via a state-of-the-art platform which incorporates the latest IT security enhancements such as a secure payment channel that uses SLL encryption technology. This service accepts electronic payments of K-Net debit cards and verifies its validity. It is a safe and convenient way to shop and pay online for purchases. It allows for direct credit of the net amount of sales over the Internet to the account of the company and thus saves time and improves the efficiency of the sales process.

SMS BANKING SERVICES Customers can access all the information about their account using SMS on their mobile phones. To acquire the service, customers may subscribe to it by visiting their nearest branch or calling the Al Dawli Weyak telephone service. The SMS banking service subscriber will receive information on account activities and alerts that can facilitate the detection of suspicious transactions. Customers can also retrieve account details by sending a specific keyword. The response comes in the form of a text message which will be sent to the subscribed mobile phone number within seconds. Some of the services that customers can access are viewing the account balance, request a mini-account statement, transfer funds between own accounts, and inquire about the nearest KIB branch or ATM location. i 155

> CFI.co Meets the Chairman and CEO of Elwan Group:

Ibrahim I Elwan

brahim Elwan is the chairman and the chief executive officer of Elwan Group â&#x20AC;&#x201C; previously Infrastructure Capital Group â&#x20AC;&#x201C; a company created in 1995 to develop, own, and operate infrastructure and real estate projects. To date, Elwan Group has developed projects in power, wastewater, and real estate in the United States, Europe, and the UAE amounting to about AED 2 billion, including TANQIA, a privately-owned wastewater utility in the Emirate of Fujairah. Elwan Group currently has a number of projects in advanced stages of development such as real estate undertakings, privately-owned wastewater utilities, andmunicipal solid waste treatment plants. Prior to establishing the group, Mr Elwan held a number of senior positions at the World Bank during his nineteen years with the institution. His professional career was primarily focused on the development of infrastructure, energy, and the private sector in the emerging economies of Europe, the Middle East, North Africa, and South Asia. His last position at the bank was that of manager for private sector development and privatisation. In that role, Mr Elwan developed the Energy Development Fund in Pakistan. Established under the aegis of the World Bank bank to provide financing for private sector projects in the energy sector, the fund raised $600 million which, in turn, generated an additional $2.6 billion in equity and commercial debt to finance about 3,000MW of privately-owned power generation capacity. At the World Bank, Mr Elwan was also responsible for the design of Enhanced Co-Financing, the first instrument provided by the institution to support projects financed under limited recourse by guaranteeing the performance of host governments. ECO instruments successfully attracted financing for major power projects in countries such as Pakistan and China. Prior to joining the World Bank in 1976, Mr Elwan was a senior economist at Ontario Hydro and Shell Canada. Before that, he taught at a number of universities in the US and Canada. Mr Elwan has degrees in Engineering and Economics. Mr Elwan has written two books on restructuring the energy sector in former Yugoslavia and Jordan. His articles on project finance have appeared in numerous publications, including the Financial Times, Project Finance International, Infrastructure Finance, the Middle East Economic Digest (MEED), Project and Trade Finance, Power in Asia, and the Far Eastern Economic Review. i

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Chairman and CEO: Ibrahim I Elwan

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> Rich Man, Poor Man:

A Clash Foretold

By Wim Romeijn

In November, a Chinese billionaire – one not yet clipped and cuffed at the order of President Xi Ping – acquired Amedeo Modigliani’s Reclining Nude (1919) at an auction in New York for $170.4 million. It was the highest price ever paid for a painting with the sole exception of Pablo Picasso’s Women of Algiers (1955) – Picasso’s take on Eugène Delacroix’ original of 1834 – which earlier this year fetched nine million more.

iu Yiqian (52) flashed his American Express card to pay for the canvas. The businessman, owner and chairman of the Sunline Group, is worth an estimated $1.4bn and made his fortune in real estate and pharmaceuticals. He’s also a savvy stock trader and, as it turns out, a passionate art collector who recently opened his private museum in Shanghai’s historic downtown area to the public. Last year, Mr Yiqian used his credit card to purchase a small porcelain cup made during the reign of the Qing Dynasty. He paid a cool $36.3 million for the trinket. Mr Yiqian then proceeded to use his newly acquired piece of chinaware to enjoy a cup of tea. Pictures of the billionaire sipping from the 500-year-old vessel that once belonged to Emperor Qianlong went viral instantly. The cup – sans saucer – is now on display in the museum. Some people just have it and lack all compunction in flaunting their riches. New money wants to show off. Its owners, the aptly-named nouveau riche, need to assert control of their newfound station in life, near the very apex of humanity’s pyramid. Mr Yiqian, a former cabbie, is but one of an estimated 215 billionaires in China. Though undoubtedly an astute and gifted entrepreneur, Mr Yiqian has also established a reputation for thoroughly enjoying the trappings of his elevated status by pursuing an extravagant in-your-face lifestyle. He did apparently not receive President Xi Ping’s memo on the poor taste of outward displays of opulence. THE EMBARRASSMENT OF RICHES The embarrassment of riches is mostly lost on today’s billionaires. The phrase was originally coined by British historian Simon Schama to denote public morals in the 17th century Dutch Republic1. While the rich were widely admired for their accomplishments, any public display of wealth met with sharp disapproval. This Calvinistic take on the behavioural

“Last year, Mr Yiqian used his credit card to purchase a small porcelain cup made during the reign of the Qing Dynasty. He paid a cool $36.3 million for the trinket.” responsibilities of the moneyed has been replaced by a shameless voyeurism in which the have-nots drown their own misery gaping at the profligate haves as they play with expensive toys and dwell in palatial mansions while showcasing both material excess and intellectual dearth. The public’s admiration is largely reserved for the idle rich – the likes of Paris Hilton and her former sidekick Kim Kardashian – and for toorich-to-fail attention-seeking losers such as Donald Trump. Only a few really big earners, mostly self-made American billionaires, realise that money isn’t everything and give away their fortunes for the betterment of society. Facebook founder Mark Zuckerberg last November joined Bill Gates, Warren Buffett, Larry Ellison, Michael Bloomberg, and other über-rich in a pledge to donate the bulk of their wealth to noble causes. Interestingly enough, most American billionaires have no need to either hoard or flash their riches with Mr Buffett even putting in an appeal for the government to tax him more. Mr Buffett, worth an estimated $66.7bn, had noted that his secretary pays a larger percentage in taxes on her earnings than he does. Even without aggressively pursuing tax avoidance via the esoteric, though legal, fiscal structuring of deals and businesses, Mr Buffett was unable to jack up his tax bill. Where even a billionaire willing to pay society its due is stumped, there is a problem of sorts: a distributive system hijacked and derailed by less generous and/or grateful wealthy individuals

and corporations that fail to appreciate – either through malice or ignorance – the inner contradictions of capitalism. Mr Buffett is not one of them and fully understands that his gift for accumulating vast quantities of wealth would have proved of little practical use in a society unhinged by disorder, strife, lawlessness, poverty, or any other disturbance. MAO’S AXIOM Given that, ultimately, political power indeed grows out of the barrel of a gun, the few rich exist by the grace of the many poor. As long as the multitude believes there to be a reasonable chance to strike it rich – by hard work, genius, talent, or luck – a solid social equilibrium is maintained. Prospering societies recognise that not everyone is wired for success and some of its individual members will inevitably lag behind while others may only barely scrape by. The vast majority is usually able to fare relatively well leading comfortable lives without suffering great ups or downs. The meaning of life: to stay happy and carry on. The US Founding Fathers had figured as much in 1776 with their Declaration of Independence which states that all human beings have an unalienable right to life, liberty, and the pursuit of happiness. Jefferson et al also stated that governments derive authority (“are created”) from their duty to protect these rights. While legal scholars have dissected, analysed, and reinterpreted each and every word of the document ad nauseam, the US Declaration of Independence still is one of the boldest and clearest – and most revolutionary – statements ever on the function of government. However, as of late, governments have suffered from mission creep. For entire demographic swaths, the pursuit of happiness has been largely reduced to an increasingly desperate fight for survival on the periphery. Rising inequality has swelled the margins around a shrunken core of society where decisions are made, fates sealed, and wealth accumulates. Admittance to this core of plenty is now severely restricted. 157

The Pew Research Center – a non-partisan US think-tank from Washington DC that primarily conducts empirical social research – found in a 2014 study that, for the first time in history, most Americans think children will be financially worse off than their parents. Overall, close to 61% of people queried fear the next generation must take a step back or not see any gains. The findings were remarkably even across all age groups and income brackets although Tea Party members were a bit more optimistic – or in denial of reality – than most. The pessimism is not confined to the United States. Similar results were found in ten out of thirteen advanced nations polled. America’s middle class – of Bewitched and Doris Day fame – is rapidly disappearing. Its share of the nation’s aggregate income dropped from 62% in 1970 to barely 43% last year. Increasingly, Americans are either rich or poor with entrance to the upper-income echelons reserved for the asset-rich – the proverbial fortunate sons, made to wave the flag, born silver spoon in hand. Pew’s research found that a college degree is no longer the passport that ensures access to middle America. Instead, a university education provides a life-long drag on asset accumulation with young people entering the workforce burdened with student debts often exceeding $100,000. NOWHERE TO STAKE CLAIM Another reason why the up-and-coming generation cannot easily outperform the previous one is that it has nowhere to stake its claim: in most industrialised nations, affordable housing has now become a distant memory. In the UK, the average price of a single-family home in 2015 reached £272,000. According to the Halifax House Price Index, residential real estate prices have shot up by close to 400% since 1986. Unsurprisingly, wages have not kept pace. Numbers from the Office of National Statistics (ONS) show that over the past two decades average hourly earnings have only increased by about 220% – or at about half the rate homes appreciated in price. Even so, this already sour statistic nugget paints a rather distorted picture since it fails to account for sharply increased income disparities. People stuck in the bottom ten percent of the pyramid make do with an average annual net income just shy of £8,500, while the take-home pay of the top ten percent of earners amounts to a whopping £79,000 – almost ten times as much. The concentration gets worse yet, with the top one percent enjoying an average after-tax income of almost £260,000 per year. Subsisting on an exceedingly modest income that barely covers life’s basic necessities does not allow for the creation of any discernible wealth. Thus it is that the less fortunate 50% of UK households only hold 9.5% of the nation’s wealth. Life in the top decile is backed up by no less than 44% of the country’s wealth. 158

If Credit Suisse is to be believed, this polarisation in wealth levels is set to increase dramatically. In a 2014 report, the bank’s number crunchers conclude that most asset classes will undergo a 40% revaluation over the five years to 2019. Owning a house is still the path of least resistance for those who wish to become millionaires. With property prices reaching stratospheric heights, the UK between 2013 and 2014 produced well over 500,000 fresh millionaires most of whom arrived at their new station in life via the comfort of the living room chesterfield. London council houses, that once had the local gentry thumbing their noses at the presence of the uncultured masses, are now widely praised for their spaciousness and privileged location. Some have already fetched upwards of a million pounds. The dreadful Trellick Tower in North Kensington – formerly a 31-storey-high den of vice and crime, designed, appropriately enough, in the brutalist style of the late 1960s – has of late become a most fashionable address, and a cult landmark to boot. Here buyers readily shell out half a million pounds or so for a flat.

Donald Trump: Incompetent Rich

DEMOGRAPHIC CLEANSING The people for whom these estates were originally built have mostly been expelled from central London – only a few resisted the temptation to buy their homes from the local council and managed to maintain a toehold in the city. While an extreme example – or warning – London is not alone in ceding to gentrification. Starters or laggards in Amsterdam, Brussels, Paris, Frankfurt, Stockholm, and many other large cities are either unable to find housing that fits their budget, or are being prodded to make way for the movers and shakers. In some German cities, houses are now so far out of reach for the common man/woman that banks have launched a new product to address the issue: the multigenerational mortgage – a loan running for forty years or longer. Such mortgages are already common in Japan and may see their debut in the UK before long.

Robert Lucas: Oops, I’m Wrong

At the other end of the scale sit Spain and Portugal where millions of homes stand empty – the flotsam of a construction boom gone bust and a recession that failed to recede. Millions not only lost their jobs to the Great Recession but were evicted from their homes as well, unable to keep up with mortgage payments. In Spain, an archaic bankruptcy law with a large punitive element, threatens to keep an entire generation shackled to debts incurred at the height of the property boom that are now simply impossible to clear. With governments across Europe adhering to fiscal orthodoxy as if it were a state religion, and cutting social welfare programmes to the bone in the name of smart spending, the lower half of society need not expect improvements in its fate any time soon. The working poor – a demographic not seen since Victorian times – have returned with the number of jobs not providing a living wage rising exponentially. CFI.co | Capital Finance International

Trellick Tower: Brutalist Architecture for the Moneyed

Thomas Piketty: Marx 2.0

In the US, workers at hamburger restaurants and big retailers cannot make ends meet even when putting in full shifts and overtime. In an attempt to improve the financial literacy of its workers, the management of McDonald’s brought in experts from Visa to help design a model household budget only to conclude that the exercise was impossible without including income from a second job. The ideal expense budget they subsequently produced failed to include heating costs and a clothing allowance. It did contain a monthly $20 for healthcare expenses, even though the most basic of health plans offered by McDonald’s costs its employees $14 per week.

GOLDILOCKS FOUND AND LOST It took a great many revolutions and other upheavals for politicians and economists to find the goldilocks zone between capital and labour – that narrow strip of thought straddling the two extremes, able to deliver lasting prosperity to all. They called their epiphany social-democracy.

LIFE IN AN IVORY TOWER Today’s corporate and government leaders are largely confined to their ivory towers. In their self-imposed exile from the society they exploit or rule, many lose touch with reality. British Prime Minister David Cameron seems particularly estranged from real life as he merrily cuts and slashes away at the welfare state, only to wonder why public services are deteriorating at such an alarming speed.

Governments intervened forcefully to set entire societies to work and regain a modicum of prosperity. Strict limits were placed on both capital returns and wage increases. This, and the sensible approach to evening out booms and busts prescribed by British economist John Maynard Keynes4, produced a revival the likes of which had never been seen before: from the smouldering rubble of bomb-flattened cities a New Jerusalem arose. The power of austerity politics was leveraged not to rescue a few failing bankers, but to rid whole societies of want. In less than twenty years the ravage wrought by the most savage of wars had been cleared. Business was not just booming; it contributed – through comprehensive taxation – to a general state of well-being. While opulence was outlawed, so too was dire poverty via just the right amount of income distribution.

In a letter that found its way to the press, Mr Cameron chided the leader of the Tory-run Oxfordshire county council Ian Hudspeth for considering deep cuts to public services such as libraries, museums, and day care facilities for the elderly. Mr Cameron argued that the “slight fall” in government grants to the council does not justify the reduction of frontline services on the scale now proposed.

Karl Marx: Piketty Avant-la-Lettre

In his reply, Mr Hudspeth reminded the prime minister that Oxfordshire council has seen its funding reduced from £194m in 2009 to £122m in 2015 with further cuts already announced. Mr Hudspeth also noted that while the council’s grants were reduced by £72m, it also received additional responsibilities in public health and social care. “I cannot accept your description of a drop in funding of £72m, or 37%, as a slight fall,” Mr Hudspeth concluded. The growing divide between the haves and havenots breeds misunderstandings on a grand scale as both worlds drift apart and the bridge that connects them – the middle class – narrows. In his monumental Capitalism in the Twenty-First Century2, French economist Thomas Piketty needs 696 pages to show that capitalism works precisely as advertised: it creates capital by concentrating wealth into ever fewer pockets. Left to its own devices, capitalism rewards the owners of assets more than it does those who live by the sweat of their brow.

JM Keynes: Not so Bad After All

What Mr Piketty proves by distilling historical data, Karl Marx had already deduced by applying his formidable powers of reasoning and logic. In his 1847 work Wage-Labour and Capital3, Mr Marx shows how economic development deprives labour of its human dimension to become a mere commodity.

While a few countries dabbled in socialdemocracy before the Second World War, the system was wholeheartedly embraced only after the conflagration had subsided and an entire continent needed prompt rebuilding. This was no time to act out tiresome conflicts between capital and labour.

What makes Mr Piketty’s research into the relation between capital and labour so groundbreaking is that the French economist carefully charted how the post-war equilibrium – the formula of success – was slowly disassembled as memories of that era faded and capital reasserted its pre-eminence. Contemporary economists – preoccupied with maximising profits, either national or corporate – show disdain for both the work of John Maynard Keynes and anyone else daring to suggest that their science – or dark art – ought to prioritise the pursuit of human happiness and fulfilment over stats, tables, and projections. That, however, is no longer a given. Laissez-faire has returned to the fore with a vengeance. THE RETURN OF LAISSEZ-FAIRE Even a Nobel Prize winner is allowed to make a few mistakes every now and then. University of Chicago economist Robert Lucas certainly got it wrong when he proclaimed in 2003: “The central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.” Not five years later, Lehman Brothers folded; an event that triggered a prolonged global economic downturn and thus offered irrefutable proof that humanity had still not managed to extirpate the boomand-bust cycle from its collective endeavours – otherwise known as the economy. Professor Lucas, winner of the 1995 Nobel 159

Mr Stiglitz goes on to accuse the rent-seeking classes for causing inequality by exploiting monopolies, incurring favours from governments, and refusing to pay their fair share of taxes. He makes short shrift of both neoliberal Democrats and laissez-faire Republicans by pointing out that both aim to rig the market. In particular, Mr Stiglitz inveighs against the reduction of estate taxes and the deregulation of campaign financing laws. The former facilitates the formation of an aristocracy – against which the Founding Fathers had explicitly warned – while the latter allows corporations to acquire political power. This, Mr Stiglitz concludes, stifles competition and makes markets less free still. McDonald’s budget: Ends Don’t Quite Meet

Memorial Prize in Economic Sciences and hailed as one of the world’s most gifted macroeconomic thinkers, has published a number of works that question the wisdom of using policy to steer economies in the desired direction. Prof Lucas argues that historical data are a poor guide for predicting policy outcomes. In a phenomenon akin to the observer effect – whereby an object’s characteristics change merely by being subjected to scrutiny – the Lucas Critique states that the body of optimal decisions taken by economic agents constitutes a fluid econometric model: policy initiatives aim to modify the model’s structure and thus cause optimal decisions to shift. This inevitably changes the overall econometric model which now no longer corresponds to the one that served as the premise for the policy. Essentially, Prof Lucas suggests that all economic policies are destined to fail if they are inspired by historical data. With this in mind, Prof Lucas concluded that “of all tendencies that are harmful to sound economics, the most seductive, and the most poisonous, is to focus on questions of distribution.” Tinkering with the division of the pie would make it only smaller. In the face of an overwhelming body of evidence, that conclusion is no longer held to be true. While in theory Prof Lucas may be right, empirical data spanning centuries show that inequality severely undermines growth and, indeed, reduces an economy’s potential to prosper. Ensuring the equitable distribution of whatever size pie available offers a shortcut to development. IMF WEIGHS IN A study released earlier this year by the International Monetary Fund (IMF) concludes that trickle-down economics – the notion that rewarding the already rich ultimately benefits all of society – is a fallacy. In Causes and Consequences of Income Inequality, the IMF researchers find that when the rich get richer, 160

economic growth in fact slows down. Conversely, when a country’s poor manage to increase their share of national income, economic expansion speeds up noticeably. Progressive tax systems, financial inclusion, and raising human capital and skills all contribute to accelerated development and are now considered potent tools for ending world poverty. IMF Director-General Christine Lagarde tries to move the discussion regarding income inequality and wealth disparity from the realm of politics to the sphere of economics – where it belongs: “Lifting the incomes of the poor is not about altruism. Rather, it constitutes an essential element of any policy aimed at generating higher and more sustainable growth.” IMF researchers found that a one percent increase in the income share of the poor will boost GDP growth by 0.38 percentage points whereas allowing the rich a one percent larger share of national income results in a 0.08 percentage points decrease of economic growth. These figures prove what some have been proclaiming all along. Joseph Stiglitz, winner of the Nobel Memorial Prize in Economic Sciences in 2001 and professor at Columbia University, has been one of the most vociferous critics of rising inequality.

Income and wealth disparities not only undermine democratic political life; they also detract from overall prosperity. In his book, Mr Stiglitz points out that excessive inequality creates volatility, fuels crises, decreases productivity, and stuns growth. In a blog, Mr Stiglitz recently summarised his findings: “Lack of opportunity means that an economy’s most valuable asset — its people — is not being fully used. Many at the bottom, or even in the middle, are not living up to their potential, because the rich, needing few public services and worried that a strong government might redistribute income, use their political influence to cut taxes and curtail government spending.” This reduced spending on the common good, in turn, leads to systemic underinvestment in infrastructure, education, public health, justice and other public services that together form the engine for sustained growth. When that engine falters, economic expansion slows down and gaps in income and wealth widen. Despite decades of moderate growth, the purchasing power of the average wage has remained stagnant for almost fifty years. The inflation adjusted average income of the middle quintile has advanced only 23% since 1967 while labour productivity almost tripled over the same period. Worker compensation per unit of output has thus decreased a staggering 55%.

STIGLITZ TO THE RESCUE In his 2012 book The Price of Inequality, Mr Stiglitz shows that inequality is a selfperpetuating phenomenon and, while at it, exposes the myth of free markets which, he argues, do simply not exist, and never have.

The gains in productivity, derived mostly from technological innovation, flow directly into the pockets of asset owners. Even those in the top quintile of income earners only saw their purchasing power augmented by 76% over the last half century. Predictably, those in the bottom quintile fared worse of all, gaining slightly less than 18%.

Where Thomas Piketty uses historical data to underpin his conclusions, Joseph Stiglitz takes the argument a few steps further stating that wealth not only attracts more wealth, but buys political power as well. “While there may be underlying economic forces at play, politics have shaped the market, and shaped it in ways that advantage the top at the expense of the rest.”

These numbers represent a trend break. Data from the US Bureau of Statistics show that between 1947 and 1979, increased non-farm productivity was matched by a corresponding jump in average hourly compensation. However, from 1980 onwards this linkage was lost. In 2013, the last year for which data has been compiled, workers’ share of productivity gains

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amounted to less than 15%. The rising tide lifts some boats significantly more than others.

essential to break into the top management of TFSE-100 companies.

MISPERCEPTIONS Inequality is worse than most people think. Professor Michael Norton of Harvard Business School unearthed a case of mass delusion in a 2014 study5 in which he examines the public’s perception on executive pay. Prof Norton and coauthor Sorapop Kiatpongsan of the University of Chulalongkorn in Thailand first show that for most of the 1960s the typical American CEO earned about twenty times the money paid to the average Joe or Jane plugging away on the work floor or at the office. Today, the man or woman at the top hauls away anywhere between 274 and 354 times more than the median working stiff, depending on who supplies the numbers.

The Joseph Rowntree Foundation, which promotes social change through policy research, concluded in a 2013 study that more than half the intergenerational transmission of income occurs through education: “A failure to broaden access to cognitive skills is an important part of intergenerational inequality persisting across generations in highly unequal societies such as Britain.”

Now for the interesting bit. Asking some 55,000 people around the world how much they thought top executives make, most American respondents guessed that the CEO takes home around thirty times the amount paid out to average workers. They also believe a more appropriate level of compensation would hover around the 7-to-1 mark. “In sum, respondents underestimate actual pay gaps, and their ideal pay gaps are even further removed from reality than those underestimates,” write Messrs Norton and Kiatpongsan. Emboldened by his findings, Prof Norton then went on to ask Americans how they would picture the ideal distribution of wealth throughout society. When the data came back it showed that most Americans actually seem to prefer a distinctly North European model in which few get left behind and fewer still may enjoy untold riches. In fact, 92% of respondents opted for the Swedish model of income distribution. Most people also seriously underestimate the amount of wealth amassed by those at the top. Prof Norton’s research found that respondents estimated that the top 20% of US households collectively owns about 59% of the nation’s wealth while in reality that quintile claims 84% of the marbles. In an ideal world, Americans think the top fifth of society should contend itself with about 32% of all wealth. “People drastically underestimate the disparities in wealth and income and their ideals are more equal than their estimates, which are already more equal than the actual levels. People from all walks of life – progressives and conservatives, rich and poor, all over the world – have a large degree of consensus in their ideals: everyone’s ideals are more equal than they actually think they are,” concludes Prof Norton. It gets even funnier when these findings are matched to voter behaviour. Polling firm Gallup consistently reports that a majority of Americans are in favour of a more even distribution of both

Christine Lagarde: Seeing the Light

wealth and income. However, few believe that the rich should be taxed any more than they already are. While the Pew Research Center found that 45% of registered Republican would like the government to intervene and ensure a more equitable distribution of the nation’s wealth, few, if any, of them dare come out and say so openly. SOCIAL IMMOBILITY One of the main reason why taxing the rich to the hilt is such an unpopular proposition is that quite a few people aspire to join the rarefied atmosphere where the haves-all dwell. Nobody fails to get touched by a well-told rags-toriches story. The chance of reaching those great heights of vast material well-being are, however, becoming ever slimmer. Social mobility in both the UK and the US has descended to historical lows. Figures from the OECD (Organisation for Economic Cooperation and Development) show that both Britain and the United States score particularly low when it comes to lifting people out of poverty. Of late, they seem much better equipped to tilt the demographic in the opposite direction. With education being the greatest of all equalisers, restricting access to colleges and universities contributes, more than anything else, to a reduction in upward social mobility. Whereas in the 1970s, every university student from the bottom quintile studied in the company of four peers from the top fifth of the income pyramid, by the 1990s that number of affluent students had grown to six. Perhaps mirroring the decline in the quality of state schools, aspiring students from lower income groups are about half as likely to gain entrance to universities as their peers with parents in the higher income brackets are. The privileged classes do protect their domain: fully 70% of the UK’s high court judges enjoyed an education at private schools that dispense knowledge to only 7% of the country’s overall student population. A private education is also

Former British Prime Minister Sir John Major was a lone voice in the wilderness of Tory politics when in 2013 he called it “truly shocking” that the well-heeled private school educated upper echelons of society still dominate public life. The Social Mobility and Child Poverty Commission, charged with monitoring the government’s progress on both issues, discovered that lowability children from affluent households already after their first few years in school outperform high-ability kids from poor families. However, change is not impossible. Not ten years ago, London state schools were counted amongst the worst in the country, producing mostly functional illiterates. Today, after a sustained effort by council administrators, teachers, and parents, these schools have become veritable temples of learning and breeding grounds for success. EQUALITY IN MODERATION While it is satisfying to think that all are equal and, thus, nobody is inherently better than their peers; too much equality is not necessarily beneficial. Experiments at imposing equality top-down have mostly resulted in bland – and repressive – societies that stifle human ingenuity and discourage both innovation and initiative. The drab German Democratic Republic – now thankfully extinct – comes to mind as does the collective madness known as the Cultural Revolution that ruthlessly stamped out any and all bourgeois tendencies in China – and reaffirmed Chairman Mao’s power – at a cost of an estimated two to three million lives. Writing for the Cato Institute, a libertarian thinktank in Washington DC, researcher Swaminathan Aiyar warns that excessive equality is as dangerous – if not more so – than high levels of inequality. Mr Aiyar parades a host of (ex-) countries that elevated egalitarianism to almost religious-like status and saw their people leave in droves. Thousands of Cubans braved the sharkinfested water of the Florida Straits on makeshift rafts to try their luck in the land of the unequal, coincidentally also home of the brave. Thousands suffered a similar ordeal fleeing Mao Zedong’s China to reach Hong Kong – one of the most unequal places in the world. In between both extremes are a few countries that have managed to avoid the polarisation of society. For the best chance to advance in life, look at Denmark which now generates more 161

Kim Kardashian: Idle Rich

rags-to-riches stories than any other country in the world, relative to the size of its population. The streets of Copenhagen are paved with gold: A Danish child from the poorest quintile has twice as much chance (19%) at making it to the top than an American kid does from a similarly disadvantaged background. CLASHING VALUES The countries that sustained steady economic growth since the end of World War II, and delivered genuine prosperity throughout society, are precisely the ones that resisted the temptation to treat labour as a mere commodity and, by doing so, refrained from discriminating either capital or labour in the allocation of political power. What seems so simple – an economy in order to produce added value needs inputs of both capital and labour – degraded into a shouting match with all sides claiming primacy. When Karl Marx expounded on the balance between the two, he rightly surmised that capital and the forces of supply and demand would ultimately prevail – before, of course, succumbing to their inner contradictions. The latter part never did quite pan out. While Karl Marx and David Ricardo – and a few anarchist thinkers such Pierre-Joseph Proudhon – tinkered with the labour theory of value, which prices goods and services by the amount of labour required in their production, Adam Smith had already figured out that economic value is a mere function of the “toil and trouble of acquiring” the desired good or service. Put bluntly: a device that rewinds CDs and DVDs6 has no value since it serves no discernible purpose and generates no demand. The amount of labour that went into its production is irrelevant. Troubles escalated when the Austrians got involved with their methodological individualism which – amongst a great many other things – holds that value may merrily be created out of thin air. Léon Walras et al elaborated on a phenomenon already observed and described in the Middle Ages: value is added when goods pass to a buyer who attaches greater worth to it than the seller does. Such a transaction adds value although the traded goods as such are not modified in any way. These deals are mostly self-sustaining and keep adding value to any given product or commodity, pushing 162

Warren Buffett: Deservingly Rich

prices ever higher, until someone wakes up to the fact that the emperor hath no clothes. This is when the market crashes – or “corrects” in the parlance of the pundits – only to resume its upward trend before long. The Austrian School of economic thought forms the bedrock on which modern capitalism – up to and including obscurantist practices such as high frequency trading – has been erected. Expunged of its human dimension (labour), the creation of value (wealth) largely became an exercise in the abstract. With asset owners no longer in need of labour to grow their holdings, the value of work diminished – obeying the iron-clad law of supply and demand. Thus, the mutual dependency between capital and labour was broken; the former no longer needs the latter in order to prosper. Economies may now grow – if not prosper – without benefiting the masses, resulting in the stagnation of wages and unusually high levels of unemployment. This large pool of idle labour ensures fierce competition for the jobs that are created, further depressing worker compensation. Add free cross-border trade to the mix – effectively depressing wages to the lowest denominator – and a widening gap in wealth and income distribution is unavoidable. THE RETURN OF THE JACOBINS That gap is already mind-bogglingly wide. Global development aid network Oxfam last year calculated that in 2016 the richest 1% of the world population owns an amount of wealth equal to the combined possessions of the remaining 99%. Elevating this statistical mischief onto an even higher pane, Oxfam also pointed out that the world’s richest 85 individuals – a double-decker busload of billionaires – command as much wealth as much as the poorest 3.5 billion of the world’s inhabitants together. Most economists tend to agree that too much inequality harms development and undermines overall well-being by conspiring against the efficient use of human resources. Societies derive few benefits from harbouring masses of unemployed and/or undereducated people. Rather than serving purely for the accumulation of wealth – and the interests of a few – economies CFI.co | Capital Finance International

can only expect to remain sustainable if they are inclusive and further the common good. Failure to ensure a reasonably equitable distribution of both wealth and income is akin to inviting the Jacobins to return and mobilise their sans-culottes. Ultimately, a busload of whimpering billionaires is no match for 3.5 billion or so deprived people who have woken up to the fact that the system is squarely rigged against them. Inequality on the scale currently experienced cannot be sustained indefinitely. As Thomas Piketty noted and proved, more equal societies only come about after some conflagration of epic proportions – war, revolution, or natural disaster – hits home and shows all human beings to be equally frail in the face of adversity. Equipped with both knowledge and technology, and armed with plenty experience as well, class war – to use a term half-forgotten – need not again erupt. As the group of American billionaires coalescing around Warren Buffett has shown; wealth is not all it is trumped up to be if kept in a vault. Spreading it around a bit not only keeps the pitch forks in the shed, but also allows the select few to do what they do best: set an example for the rest of us to follow – and aspire to. i

Footnotes 1 The Embarrassment of Riches: An Interpretation of Dutch Culture in the Golden Age by Simon Schama (Harper Perennial, 2004) – ISBN: 978-0-0068-6136-2. 2 Capital in the Twenty-First Century by Thomas Piketty (Harvard University Press, 2014) – ISBN: 978-0-67443000-6. 3 Wage-Labour and Capital by Karl Marx (Wildside Press, reprint 2008) – ISBN: 978-1-4344-6926-7. 4 The Essential Keynes by John Maynard Keynes (Penguin Classics, 2015) – ISBN: 978-1-8461-4813-2. 5 How Much (More) Should CEOs Make? A Universal Desire for More Equal Pay by Michael I Norton and Sorapop Kiatpongsan - Perspectives on Psychological Science volume 9, issue 6 of November 2014. 6 The DVD Rewinder – “based on a centripetal velocity engine” – was actually produced and marketed by American entrepreneur Bill Wimsatt in 2009. Mr Wimsatt is no longer in business.

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THE EDITOR’S HEROES

An Antidepressant

eading the news, the glass oftentimes seems less than half full. Huddled masses seeking refuge from war, nations scrambling to join a fight, or pick one, fanatics sowing destruction in the name of a loving god, scientists depicting climate doomsday, governments disassembling the work of previous generations, and assorted millionaires and billionaires buying their way to the top: the morning read makes for a depressing start to the day. Antiheros abound. Take Delcídio Amaral, largely unknown outside his native Brazil where he lorded over the Workers Party in the senate – that is, until late November when Mr Amaral was arrested on corruption charges related to the ballooning affair festering at state-owned oil company Petrobras. Corruption in Brazil – so, what else is new? Nothing much really, save for the fact that basically everybody dwelling in the upper echelons of power was in on it, and on the take. That includes President Dilma Rousseff who, at the time the vultures descended on Petrobras, headed the company. She’s now in a pickle: if she didn’t know, she’s supremely incompetent; if she did, well let’s not go there just yet. Some time ago, the Workers Party replaced ideology with greed, thus succumbing to a well-established Brazilian tradition. Before that shift, the party was the only one in the country deemed above moral reproach. Back then, the Workers Party may have been home to a great many leftist loonies; they were – to a fault – scrupulously honest. That all changed the moment Petrobras struck oil. The siren call of vast riches proved too sweet to resist. Trotskyists, Maoists, anarchists, syndicalists, and other even more esoteric “-ists” promptly shed their ideological plumage to raid the untold billions soon expected to gush into state coffers. Alas, the bonanza never did put

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in an appearance, but the raid went ahead anyway. What this shows, if anything, is the importance of good governance. CFI.co has been an early supporter and promoter of ESG values. Governments and private enterprise are wise to adopt and embrace environmental, social, and governance standards of excellence. ESG helps further the common good. As a concept, ESG has been around for a long time but was only recently condensed into a catchall acronym. Countries and businesses that prioritise common sense over greed fare well and prosper; those that do not become basket cases or go bankrupt. Getting your priorities straight may seem like a no-brainer. As it turns out, it is the stuff heroes are made of. Mr Amaral and the many others like him who have tumbled off their perch and are now awaiting trial on corruption charges, utterly failed to observe even the most rudimentary practices and standards of good governance. These are the very people who stand in the way of progress; perpetuating the suffering of the poor, and hampering development – they are antiheroes par excellence. The sad thing is, these people do not stand alone – they come in droves and take many forms. As a species, antiheroes are nowhere near extinction. In fact, heroes seem the threatened sort. However, fear not: there are still plenty of heroes to fill our pages, but their song can barely be detected in the cacophony produced by the less dignified. On the eve of his visit to Africa, Pope Francis was asked by a reporter if he feared for a terrorist attack. He answered that he was just a tiny little bit afraid of getting bit by a malaria-carrying insect. Here is a man who has his priorities properly sorted. Pope Francis is one of our heroes. How hard can it be to see events in their proper perspective? Well, most of our heroes manage just fine and it landed them on these pages. i

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> GENEVIEVE NNAJI At Home Where Her Heart Is Genevieve Nnaji is used to being in the public eye. Her career took off at the age of eight when she appeared in Ripples, a popular Nigerian soap opera. She went on to become a household name starring in over eighty films. Ms Nnaji is one of the faces of Africa’s largest film industry and among the best paid actors in Nollywood. The Nigerian film industry – aka Nollywood – boomed in the 1990s and peaked in the mid-2000s when it became the world’s second largest film industry in the number of annual film productions, placing it well ahead of Hollywood and only slightly behind Bollywood. Nigeria turns out at least a thousand movies annually. Nollywood capital Lagos is said by locals to have produced more films than there are stars in the sky. In Nigeria, only the government employs more people than the film industry. With more than a billion Africans, 155 million of them in Nigeria, the potential audience is huge. The use of English, rather than any of Nigeria’s 521 local languages, gives Nollywood films a huge potential market across the continent. Aggressive marketing campaigns have paid off in mushrooming sales of DVDs and CDs for home consumption. Nollywood movies significantly influence culture across Africa and the Nigerian diaspora. Its actors are household names across this hinterland. In 2013, the Nigerian movie sector’s combined revenue leaped to £5.6bn. The genesis of this big business is an unlikely story. Nigeria’s film industry was born out of economic desperation during the military dictatorship of the early 1990s. Low oil prices and structural adjustment of the economy meant that the Nigerian economy was on the rocks. Budget cuts at the national television station cast actors, cameramen, and film technicians aside. Cinemas closed because the streets were dangerous, especially at night. Legend has it that the first Nollywood movie was made by a small-time electronics trader who, after an ill-advised business venture, needed to sell his large stock of blank videotapes. He decided to shift the tapes by recording a movie about a man who sells his soul for wealth. He hired a theatre director to make a cheap film and copied it onto the tapes. Living in Bondage, the story of a farmer in a big city who loses his wife and is haunted by her ghost, sold more than half a million copies. This established Nollywood’s archetypal plot elements: marital discord, greed, and conflict between Christianity and juju. Nigeria’s indigenous thriving film industry soon blossomed. From this unlikely beginning, the industry continued to explore Africa’s troubled journey to modernity.

Ms Nnaji – the Queen of Nollywood – started working as child model at a Lagos agency. She has not looked back since. In 1998, aged 19 and a student at Lagos University planning to become a lawyer, she made her debut in the burgeoning Nigerian film industry with the movie Most Wanted. A succession of roles followed. Ms Nnaji’s style and good looks have kept her in demand as a model. In 2004, she signed a recording contract with a Ghanaian record label and released her debut album with an eclectic mix of styles. Four years later, she launched her the St Genevieve fashion line which donates a

percentage of the proceeds to charity. In 2015, she turned to movie production and starred in her first self-produced movie Road to Yesterday. It tells the story of an estranged couple that tries to mend their relationship on a road trip to a relative’s funeral. The film is featured at the Africa International Film Festival. Ms Nnaji, mother of a grown up daughter, remains single and is cherished by her 1.4 million social media followers. She describes herself as Lagos born and bred and says she cannot imagine living anywhere else. Determined, focused, humble, and creative she is an influential advocate for Nigeria.

“Determined, focused, humble, and creative she is an influential advocate for Nigeria.” 166

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> HENNING WEHN The Funny German Henning Wehn has carved out the most unlikely career as a stand-up comedian in the UK. Unlikely, because most British people are convinced that Germans simply do not have a sense of humour, as evidenced in the old joke “Where would we be without humour?” to which the answer is “In Germany.” Mr Wehn’s deadpan delivery is the source of much amusement as it plays on this stereotype. In his October 2015 newsletter he writes:

Dear Friends of German Comedy, Now the dust has settled I can give you a much needed and balanced summary of the Volkswagen affair. As follows: Germany got fantastic PR for welcoming desperate refugees with open arms and presenting itself to the world as what it is: a pleasant country full of pleasant people. Obviously the masons or some other dark force (the USA, to be precise,) didn’t like it and dragged up a nonsense story about the Fatherland’s biggest car manufacturer breaking some petty rules to do with toxic fumes. Contrary to current news reports Volkswagen didn’t make their customers drive round in rolling nuclear reactors. Instead some of its cars provided marginally more emissions than they maybe should have. No big deal. Why do people buy diesel cars? Because they’re good for the environment?! Come off it! They have them because they’re cheap to run. Anyone seriously concerned about the environment takes the bus. Or cycles. Or walks. So, in a nutshell, we’re dealing with despicable anti-German slander at a global level. But rest assured it’ll blow over soon and the whole affair will be remembered as nothing more than a storm in a jerrycan. Have a great month. Henning PS: Did I tell you that on October 3 Germany celebrated the 25th anniversary of reunification, the greatest success story in the history of mankind? Mr Wehn hails from a small town in the Ruhr Valley. Working in sports marketing and fearing his employer was about to go under, Mr Wehn decided to move to England and improve his language skills. He had never visited the country and his preconceptions were largely based on

the 1980s After Eight television adverts and the unruly drunken British holidaymakers he met while vacationing in Spain. Mr Wehn approached all 92 football league clubs to ask for a contact name to whom he could send his CV. Port Vale FC told him to send his CV to Barry Bigtits. The German comic says he was pretty sure the name was made up but he went ahead as he had nothing to lose. Of course it was a joke. The happy outcome of his trawl around the football clubs was a marketing job at lower league Wycombe Wanderers FC. Mr Wehn packed his bag and moved to the UK. He found lodgings at the home of an octogenarian Wycombe Wanderers volunteer who introduced him to indigenous British culture and cooking. Mr Wehn had grown up appreciating British comedy shows such as Monty Python, Benny Hill and Mr Bean. One evening at an open mic comedy night, had had a go. After all, how hard can it be? Mr Wehn has gone on to make a successful career out of German stereotypes. His heavily accented English and earnest delivery mask a devastating humour and the insight of an outsider. “My poor English turned out to be a big advantage as I couldn’t understand the hecklers.

Also, being German got me more media attention than I deserved.” He says his nationality made it easy for him to get media exposure but rather more difficult to get gigs. World Wars and football are two arenas contested between the Brits and Germans. These two provide the source material for much of Mr Wehn’s early work. One story he tells concerns his British friends asking where they are going for lunch. The punch line is: “If Henning is coming we can’t go to the Polish place next door because he is never going to leave.” Taking the stage in Billericay, Essex, he found the entire audience wearing Hitler moustaches. He recalls: “That wasn’t menacing. That was the Great British sense of humour. I thought it was hilarious and they thought they were the first to come up with it.” Mr Wehn extracts amusement by playing up to the stereotype of efficient but humourless German: “Either I’m funny or I live up to a national stereotype — it’s win-win.” After thirteen years on the stage, the football-fan-turned-comedian is an established face on the comedy circuit, has just completed a nationwide tour, and featured in many radio and television shows.

“My poor English turned out to be a big advantage as I couldn’t understand the hecklers.” 167

> CRAIG MURRAY Our Man in Tashkent Going Rogue For nearly twenty years, Craig Murray climbed the career ladder as a UK diplomat. In 2002, Mr Murray was appointed British Ambassador to Uzbekistan. He was 43 years old at the time. One of the responsibilities of an ambassador is to report on economic and political developments in the host nation. Reporting from Tashkent, Mr Murray did not conceal his growing distaste for Uzbekistan’s dictatorship. He informed Whitehall about the Uzbek government’s many and systemic human rights abuses. At the time, the War on Terror was in full swing and this was not a message the UK government wanted to hear. Two years into his assignment, Mr Murray was suspended after a leaked report in the UK national press quoted him as claiming that MI6 used intelligence provided by Uzbek authorities through torture to help build the case for invading Iraq. Mr Murray was charged with gross misconduct by his employer. By early 2005, he agreed to resign. In the years since, Mr Murray has continued his opposition to the War on Terror. Unsurprisingly, he also became an outspoken critic of the UK’s foreign policy. Career diplomats are at the heart of the establishment and its old boys network. They are known for their tact, discretion, and urbane dissimulation. What caused this insider to abandon his comfortable career and embark on a quixotic quest, denouncing public policy as a speaker, author, and blogger? Mr Murray grew up in Norfolk and studied Modern History at the University of Dundee. After graduating in 1982 with a first class degree, he served for two years as the fulltime president of the Dundee University Students Association. He was a member of the Dundee team which won the television quiz University Challenge in 1983. In 1984, he joined the Foreign and Commonwealth Office (FCO). His career saw him move from Lagos to London to Warsaw to West Africa and back to London. In 2002, he gained his first ambassadorial posting to Uzbekistan. It was in Tashkent that his distaste for UK policy overcame his diplomatic training. This led him to overtly criticise UK government policy: a big no-no for a diplomat. Mr Murray opposed the US-British policy of supporting the brutal Karimov Regime and its less than elegant ways of discouraging political dissent. This, he pointed out to his political masters, was promoting Islamist terrorism. Back home, the message was not appreciated and the messenger was fired. Mr Murray’s book Murder in Samarkand (published in the US as Dirty Diplomacy) is a memoir of his two years in Uzbekistan. The incident-packed, dramatic, and entertaining book traces the precipitous decline of personal

freedoms and living standards since Uzbekistan gained independence from the Soviet Union in 1991. His publisher describes it thus: “When Craig Murray arrived in Uzbekistan, he was a young ambassador with a brilliant career and a taste for whisky and women. But after hearing accounts of dissident prisoners being boiled to death and innocent people being raped and murdered by agents of the state, he started to question both his role and that of his country in so-called democratising states. When Mr Murray decided to go public with his shocking findings, 1600 Pennsylvania Avenue and 10 Downing Street reached the conclusion that he had to go. But Uzbekistan had changed the high-living diplomat and there was no way he was going to go quietly.” Since quitting HM diplomatic service, Mr Murray has carved out a new career as an author, and increasingly outspoken political observer, speaker, and blogger. In the 2005 UK general election he stood as an independent candidate against the then-Foreign Secretary Jack Straw in Blackburn. Here, Mr Murray contends, he encountered more electoral fraud than he ever did in Ghana. His self-published autobiographical The Catholic Orangemen of Togo and Other Conflicts I Have Known – which reads like a Graham Greene novel – covers the period from 1998 to 2002

when he served in West Africa. It exposes links between blood diamonds, crime, and British mercenaries. It argues that the disregard Prime Minister Tony Blair showed for both British and international law in dealing with Sierra Leone set the stage for the disaster that was to follow in Iraq. Mr Murray writes: “I served as a bit-player, but one with a privileged view, during the Bush/ Blair years. I got to know many wonderful people in West Africa and Uzbekistan, and formed strong views of how to assist them in attaining progress. But I was working for governments with quite a different agenda; that of international resource acquisition. I hope that my memoirs will, taken together, entertain with their tales of a very human and colourful life. But I trust that they will also throw some light on a most shameful period of British foreign policy, viewed from some unusual and fascinating points of vantage.” Reflecting on his career in the diplomatic service he writes: “The thing that I did differently from other diplomats was that I cared. Diplomats rather pride themselves on not caring. I quit in the Bush/Blair years because I cared passionately about those values which are meant to be fundamental to British policy, whichever party happens to be in power. I care for human rights, democracy, and international development. I care for freedom.”

“The thing that I did differently from other diplomats was that I cared.” 168

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> CLIVE STAFFORD SMITH A One-Man Army for Justice Clive Stafford Smith is a British lawyer specialised in civil rights and fighting death penalty convictions. He has spent much of his working life in the US, trying to save the lives of inmates on death row. Mr Stafford Smith is the founder and director of Reprieve, a non-profit human rights organisation which focuses on legal support for those facing the death penalty or confined at secret prisons around the world. Since 1970 there were 1,411 executions in the United States. Most were carried out in the states below the Mason Dixie Line. Lethal injection was used in 1,236 cases. Today, 31 states retain the death penalty while 19 have abolished capital punishment. Over 3,000 prisoners are currently on death row with the largest numbers in California, Florida, Texas, and Alabama. Mr Stafford Smith spent over a quarter century in the US energetically campaigning against the death sentence. He represented over 300 prisoners facing the death penalty. The lawyer took on only the cases of those who could not afford to retain legal counsel. He was successful in overturning the death sentences of his clients in all but six cases. Of the five cases Mr Stafford Smith pursued all the way to the US Supreme Court, he lost none. In August 2004, Mr Stafford Smith returned to the UK with his wife – also a British lawyer. The couple now lives in rural Dorset with their young son. From his new home, Mr Stafford Smith continues his global crusade against the death penalty. Born in 1959, Mr Stafford Smith grew up in the affluent surroundings of a 365-acre stud farm near Newmarket. His father suffered from a bipolar disorder which made home life unpredictable. Barely aged seven, young Clive received £200 from his dad and the order to go find a place of his own to live. His mother managed to intervene before her son was ejected from the family home. Mr Stafford Smith owes both his sense of decency and fearless disposition to his mother. His father insisted young Clive question authority at every opportunity. The message was well received. After public school, Mr Stafford Smith turned down a place at the University of Cambridge, opting instead to leave the UK and study journalism at the University of North Carolina. After graduating, he headed to Columbia University’s Law School in New York City, gaining qualifications to practice law in Louisiana and Washington DC. Mr Stafford Smith promptly headed south and decided to go fight capital punishment. He worked for the Southern Prisoners’ Defence Committee, based in Atlanta, and participated in

a number of campaigns to aid felons convicted to die. In 1987, Mr Stafford Smith gained wide public exposure in a BBC documentary depicting the last fortnight in the life of Edward Earl Johnson – a dead man walking scheduled to die in the Mississippi State Penitentiary gas chamber. In the documentary, Mr Stafford Smith was shown desperately seeking to halt the execution. A follow-up documentary saw the lawyer conduct an investigation into the murder for which his client had been executed. The research established beyond reasonable doubt that Mr Johnson had been framed and wrongly executed for a crime he did not commit. In 1993, Mr Stafford Smith helped set up a new centre for prisoner advocacy in New Orleans. Nine years later, he became a founding member of the Gulf Region Advocacy Centre, a non-profit law office in Houston, Texas, the self-proclaimed

capital of capital punishment. He was awarded an OBE (Officer of the Most Excellent Order of the British Empire) for his contributions to the law and human rights. From 2001 onwards, the US military base at Guantánamo Bay in Cuba was used to hold prisoners beyond the reach of US courts which prompted Mr Stafford Smith to join two other lawyers to sue for access to the prisoners held there. He called the camp was an affront to democracy and the rule of law and campaigned to close it. He was rewarded with threats against his life and labelled a traitor for defending terrorists. Mr Stafford Smith’s work has helped secure the release of 69 prisoners from Guantánamo Bay (including every British prisoner). He continues to act for eight men still held at the facility. Mr Stafford Smith’s chosen career path has been a demanding one. No fat cat lawyer, he is merely a champion of human rights.

“Mr Stafford Smith’s work has helped secure the release of 69 prisoners from Guantánamo Bay” 169

> JEREMY CORBYN A Political Oddity Jeremy Corbyn is not easily whipped into toeing the party line. In the 2005-2010 Parliament, he defied his government whip no less than on 238 occasions – around a quarter of all votes called. Mr Corbyn not only sports a rebellious streak; he is also rather frugal and quite reluctant to charge his expenses to the taxpayer. He regularly ranks at or near the bottom when expense accounts of members of parliament are tabulated. A recalcitrant penny-pincher, Mr Corbyn is, perhaps, most admired for the strength of his convictions. In an era that sees politicians change colour as easily as spooked chameleons, a leader standing his ground is somewhat of an oddity. Mr Corbyn flatly refuses to adjust his opinions to the outcome of the latest opinion poll. He abhors bowing to popular pressure: love him or hate him, voters at all times know what Jeremy Corbyn stands for. A sharper contrast to Prime Minister David Cameron is hard to imagine. Whereas Mr Cameron is highly attuned to the nation’s everchanging mood, and sets his government’s policy accordingly; Mr Corbyn – leader of Her Majesty’s Most Loyal Opposition – feels no need to plot a different course each time the winds change. In 2003, Mr Corbyn consistently voted against military intervention in Iraq, repeatedly stating that the case for war had not been made. He was duly vindicated and in November of this year again declined to sanction war when the House of Commons debated the aerial bombing of territory held be the Islamist radicals of ISIS in Syria. Subjected to immense pressure from more gung-ho members of parliament, he relented only slightly and allowed them to vote according to their conscience. Predictably, a significant number of Labour Party representatives immediately joined the Tories in clamouring for war. Jeremy Corbyn was voted to lead the Labour Party, severely mangled and quartered in the May 7 general election, and not just save it from extinction, but position it as a viable alternative to the Conservatives. Instead of emulating the Tories, as New Labour long tried to do, Mr Corbyn is determined to shepherd the party back to its social democratic electoral pasture from where it strayed with disastrous results. Whereas New Labour turned its back on the party’s home constituency – the people in danger of being ground by the wheels of progress – Mr Corbyn, a trade unionist and self-described democratic socialist, wants his party to again represent, and fight for, the common man/ woman. He is most concerned about rising social inequality and increased levels of poverty amidst the plenty enjoyed by a select few. Mr Corbyn calls for the renationalisation of the railways – some of which now charge passengers a pound

for a mile of travel in clattering carriages – and all other public utilities. He also advocates the abolition of university tuition fees and the restoration of full student grants. With Mr Corbyn at the helm of the Labour Party, something akin to a clash of civilisations is brewing in the Houses of Parliament. The party leader has, however, most to fear from his own backbenchers who are often plagued by short memories, and suffer even shorter attention spans, and would rather outdo the Tories at their game in order to return to power, than stick to whatever convictions they once may have espoused. While the Labour Party has seen its membership surge since Jeremy Corbyn took over the reins, party pundits and dinosaurs insist that the new leader’s leftist platform virtually assures the Tories’ continued grip on Whitehall. A lone voice crying in the wilderness, Mr Corbyn aims to singlehandedly reacquaint voters with the phenomenon of conviction politics, i.e. proving that some politicians actually fully intend to do as they say. That is going to be a hard sell. Whole generations have grown up knowing nothing but political operators who nimbly weasel in and out of promises and consistently fail to deliver. Voter turnout has suffered as a result with most young people scarcely bothering to show even a semblance of interest in the nation’s affairs. The entire society has been reduced to a loose collective of individuals, each pursuing their slice of bliss in a race to the bottom. Meanwhile, the telly is populated by talking heads doing their utmost to convince the working

poor that trickle-down economics will usher in times of plenty for all, supplanting the expensive welfare state which may joyfully be dismantled as it now only serves as a last refuge for the workshy. Mr Corbyn makes no excuses as he argues that the neoliberal recipes cooked up by the Tories only serve to exacerbate social tensions and broaden the corporate remit. He wants none of that and is dead set on reclaiming the primacy of politics over economics. That is, however, an uphill battle with Mr Corbyn’s power-hungry peers in parliament and a generally hostile media that portrays him as a rabid and dogmatic socialist – a throwback to bad old times – and, as such, quite unfit for public office. The real test will come on May 7, 2016, when Britain goes to the polls for regional elections. The first signs are promising. A by-election in Oldham West and Royton, held on December 3, gave Labour candidate Jim McMahon an astounding 62.1% of the vote, almost ten percentage points over the local result of the last general election. A poacher turned gamekeeper, Mr Corbyn will have no trouble keeping his backbenchers in line should his time-honoured brand of conviction politics yield results at the ballot box. But that requires him to cling to power for another six or so months. Facing fierce opposition from those who will readily trade convictions for power, Mr Corbyn needs to move outside his comfort zone and whip his party into obedience. Then again, Jeremy Corbyn isn’t the type of politician for whom the end justifies the means.

“Then again, Jeremy Corbyn isn’t the type of politician for whom the end justifies the means.” 170

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> JUAN VALDEZ Marketing Coffee and a Country for Nearly 60 Years Juan Valdez, a moustachioed campesino has been featured in advertisements for Colombian coffee since 1958. He is a familiar face throughout the Americas and in Spain. Typically, the cheery peasant appears with his mule Conchita carrying sacks of coffee beans. Juan Valdez has become an icon for Colombia as well as coffee in general. The ageless coffee farmer is in fact a brand identity, carefully developed to represent coffee beans that are grown and harvested only in Colombia. Juan Valdez owes his existence to the National Federation of Coffee Growers of Colombia (Fedecafé), a cooperative representing over half a million small-scale producers which promotes the production and export of Colombian coffee. Fedecafé wanted an advertising campaign that would distinguish pure Colombian grown coffee from coffee blended with beans from other countries. Nearly 60 years later, the campaign is still going strong; its longevity a tribute to strength of the original concept. Juan Valdez is now in his third incarnation. The role of Conchita has been shared among a larger number of mules. The first Carlos Valdez was played by José F Duval until he was succeeded by Carlos Sánchez in 1969. In 2006, Señor Sánchez retired and Carlos Castañeda, a grower from the town of Andes, was awarded the coveted role. All three sported the same rugged good looks, dark moustache, sombrero, and poncho. By the 1980s, the brand, designed by advertising agency Doyle Dane Bernbach, was well-established and widely recognised throughout the Americas. Colombia’s handpicked Arabica beans, grown at high altitude on cool, shaded mountain slopes, gained a deserved reputation as a premium product, notably in the United States. However, by the late 1990s, the price of coffee had plummeted and Colombian coffee no longer had the same cachet. Fedecafé needed a new marketing strategy to ensure its members’ livelihoods. In 2002, it created the private company Procafecol to buy its coffee from the cooperatives’ members and pay royalties for using the Juan Valdez brand to a National Coffee Fund. In its early years, the Juan Valdez advertising campaign had been aimed at the export market rather than domestic consumers. Most Colombians drank tinto, a black bitter coffee made from low-quality beans. They also consumed coffee at home rather than in cafés. Procafecol set out to change this by developing a coffee house culture in Columbia. The first Juan Valdez Café at Bogota’s international airport

opened in 2002, and within a couple of years there were cafés around the country, converting Colombians from drinking reheated tinto to sipping a sophisticated selection of coffee brews. International expansion followed with modern Juan Valdez coffee shops cafés opening in North America. Between 2006 and 2008, Procafecol opened more than a hundred stores around the world. However, the international coffee shops were hit by the global financial crisis which forced many to close. A new strategy is now in place: rather than mimic Starbucks, the Juan Valdez café chain stresses its Colombian origin. Customers of the new-look Juan Valdez cafés see large photographs of the smiling campesino with the company’s key new message: “Carlos is one of the 500,000 coffee growers who owns this coffee shop.” Pictures of the Colombian mountains and coffee plants abound. The cafés décor includes traditional Colombian floor tiling while the menu features staples such as fresh

arepas, a Columbian flatbread made of ground maize dough or cooked flour. Colombia is the world’s third largest producer of coffee after Brazil and Vietnam. High-value coffee production provides a significant anchor of stability and economic diversification. Juan Valdez is one of the world’s most successful marketing campaigns. Coffee is now almost synonymous with Colombia. The campaign has succeeded in branding an entire country. Juan Valdez has become one of the most recognised icons in the Americas. It is a tribute to the original concept that the smiling smallscale coffee-grower has endured and evolved fpr six decades. By convincing consumers that there are specific benefits of Colombian-grown and harvested coffee beans; that soil components, altitude, varieties, and harvesting methods create good flavour, the Juan Valdez campaign has played a key role in ensuring the sustainability of the half a million coffee farmers who have joined forces in Fedecafé.

“A new strategy is now in place: rather than mimic Starbucks, the Juan Valdez café chain stresses its Colombian origin.” 171

> LIYA KEBEDE Millionaire with a Heart “It’s always a tricky thing, trying to make aid sustainable. It’s important that we try and help the workers become independent.”

The people of rugged, landlocked Ethiopia do not lack in natural grace and beauty. Some of the best-known modern Ethiopians are phenomenal long distance runners. Another famous Ethiopian is supermodel, designer, maternal health advocate, multimillionaire, actress, social activist, and entrepreneur Liya Kebede. Tall, graceful, elegant, and thoughtful, the mother-of-two was born in Addis Ababa in 1978. While still at school, her striking good looks were noted by a French model agency. She was signed on and moved to Paris. Now living in the United States, Liya Kebede remains an ambassador for her country. Ms Kebede’s career as a model took off around the turn of the century with a contract for the Gucci Winter 2000 fashion show. Massive exposure followed including the May 2002 issue of Vogue which was dedicated to her. By 2003, Ms Kebede attained the top of the models. com ranking. She signed a number of lucrative advertising contracts with high profile brands. In the year leading up to July 2007, Ms Kebede earned $2.5 million. Ever-vigilant when it comes 172

to discovering and dissecting top dollar makers, Forbes Magazine named her eleventh on its list of the world’s fifteen top-earning models. Two years after making the list, Ms Kebede starred in the film-adaption of the bestselling autobiography Desert Flower by supermodelturned-social-activist Warms Dirie. The film recounts Dirie’s childhood in Somalia, her rise to stardom, and subsequent involvement in the campaign to stop female circumcision. In 2005, Ms Kebede, now a United States resident, was appointed as goodwill ambassador for maternal, new-born and child health for the World Health Organisation (WHO). She also founded the Liya Kebede Foundation to help reduce child mortality in Ethiopia and around the world. The foundation funds advocacy and awareness-raising projects, and provides direct support for low-cost technologies, communitybased education, and training and medical programmes. Small-scale, low-technologies can make a big difference. Providing torches to midwives as they visit pregnant women after CFI.co | Capital Finance International

dark is one such micro-initiative that makes life a little bit easier. The foundation’s success brought the World Economic Forum to recognise Ms Kebede as a Young Global Leader. She served as a high-level adviser to the Center for Global Development’s 2009 report Start with a Girl: A New Agenda for Global Health. She is also part of the Champions for an HIV-Free Generation, an organisation of African leaders led by the former president of Botswana Festus Mogae. Writing in the Huffington Post in 2015, Ms Kebede reflected: “Much has been achieved for moms over the past decade. Today the global death rate is declining fast and many highly impacted countries have made big gains in extending care and saving lives. In Ethiopia, where my foundation works with local partners, we’ve seen amazing progress as a result of health worker training programmes.” Ethiopia is a country with a uniquely ancient culture. The then-kingdom in the horn of Africa was amongst the first independent countries to sign the United Nations’ Charter. The African Union is based in Addis Ababa. Despite a recent growth spurt, Ethiopia remains one of the world’s poorest countries, with a per capita income of barely $550. On one trip home, Ms Kebede encountered a group of local traditional weavers whose livelihood was threatened by a decline in demand. She agreed to try and help them, and in 2008 launched Lemlem (meaning “to flourish” in Amharic), a line of cotton children’s clothes hand-spun and embroidered in Ethiopia. The label has expanded and now offers womenswear, gifts, and accessories handwoven by the craftspeople using methods that have passed through many generations. In an interview with The Guardian in 2010 she explained the philosophy behind Lemlen: “It’s always a tricky thing, trying to make aid sustainable. It’s important that we try and help the workers become independent. By employing traditional weavers, we’re trying to break the cycle of poverty while at the same time preserving the art of weaving and creating modern, casual, and comfortable stuff that we really want to wear.”

> MADONNA Don’t Preach to the Material Girl Over her career, the Queen of Pop Music racked up a staggering 300 million record sales. She may claim the title of all-time best-selling female recording artist. Singer, songwriter, dancer, actor, director, businesswoman, and – most of all – performer, Madonna’s famed ability to reinvent herself time and again, not quite unlike David Bowie, ensures both freshness and a sheer endless number of surprises. More than three decades after embarking on her career, she shows no signs of flagging and continues – indefatigable – to take centre stage in spectacular shows such Rebel Heart, the latest in a string of world tours. Her net worth is estimated at well over $500m. Madonna Louise Ciccone was born in Bay City, Michigan, in 1958, the third in a family of six children. Tragedy struck at a tender age when her mother died. Not long after, her dad remarried and two new siblings were added. “The anguish of losing my mom left me with a certain kind of loneliness and an incredible longing for something undefined. If I had not experienced that emptiness, I would not have been so driven.” Still a kid, she decided to grow up fast: “I’m going to be really strong if I can’t have my mother. I’m going to take care of myself.” Thus a rebellious streak was born. Madonna’s desire to stand out from the crowd was apparent from her schooldays where she gained a certain degree of notoriety for unconventional behaviour and a refusal to conform. That, however, did not preclude her from becoming a cheerleader and a straight-A student. She enrolled at the University of Michigan with a dance scholarship and signed up for ballet. However, brighter lights beckoned. In 1978, young Miss Ciccone dropped out of college and into New York and a career in modern dance. Leaving the bucolic Mid-West for the Big Apple required oodles of guts and stamina. Initially, the former country girl supported herself by working as a waitress while taking dance classes. Madonna’s career got a boost when she started landing gigs as a backup singer and dancer for established artists. The Breakfast Club, the rock band she formed with two exboyfriends, enjoyed modest success and became her launch pad. She soon left to form the shortlived Emmy and the Emmys before taking the reins of her destiny and going solo. Madonna’s debut single Everybody, released in 1982, immediately stormed the US club circuit and took the Billboard Hot Dance Club chart by storm, peaking at the number three spot. Burning Up, the second single to come out, proved equally successful and established Madonna’s name. Now working on her first album, the contours of the future Miss Perfection were already visible. Replacing the producer in a relentless quest for a new sound, Madonna eventually delivered an instant classic. The

“I know I’m not the greatest singer or dancer, but that doesn’t interest me. I’m interested in being provocative and pushing people’s buttons.” eponymous Madonna album with its dissonant disco beat – courtesy of synthesisers, samplers, electronic drums, and other then-novel gadgets – is celebrated to this day. A second studio album was released in November 1984. Like a Virgin propelled Madonna to the top of the charts. The title track and its professionally produced music video brought her wide recognition, intense publicity, and much admiration as well. The singer also became a sensation thank to her forthright and outspoken approach to stardom and her inability to peddle platitudes. Madonna’s use of explicit religious symbolism, sexual imagery, and hard-hitting lyrics more than once ruffled clerical feathers and caused outrage amongst conservatives and parental watchdog groups. She notably incurred censure from the Catholic Church, her former religious home. However, all the protestation proved water off a ducks back and Madonna has continued unabashed, writing and performing as she sees fit. There has always been far more to Madonna than music. In the 1980s, her appearance and dress, her performances, and her music videos

were of seminal influence. Her characteristic ensemble of lace top, fishnet stockings, decorative crucifixes, bracelets, and bleached hair set the fashion trends for the decade. Two decades and twelve albums later, it has become clear that Madonna’s success was no flash in the pan. Her skill as a writer of songs with memorable hooks is peerless. Madonna’s singing and dancing skills may be slightly less stellar; her sixth sense and ability to identify talent and assemble a team more than makes up for it. Her achievements outside the music world include leading roles in films, launching the Material Girl fashion line, writing books for children, and establishing primary schools in Malawi – the nation she adopted. Madonna has been married to US actor Shaun Penn and UK director Guy Ritchie. She has four children, including two adopted from Malawi. Madonna was introduced to Jewish mysticism in 1997 and retains a strong interest in the Kabbalah. Currently on the Rebel Heart world tour, at 57 Madonna shows no lack of the energy, drive, or enthusiasm. Always innovating, her next step is hard to predict other than that there will be one. 173

> ROGER FEDERER Excellence Personified Out with friends celebrating his 18th birthday in December 2004, young Spanish tennis fan Juan Aparicio had the grievous misfortune to be involved in a serious car crash which left him in a coma lasting more than eleven years. To the amazement of medics, friends, and family alike, he suddenly awoke in August 2015. Extraordinarily, his memories of the accident were intact. In the days that followed he caught up with news of current affairs in Spain and across the world, and asked after his tennis idol Roger Federer who at the time of the accident had won four grand slam titles and thus claimed the top slot on the world ranking at the age of 23. Mr Aparicio is reported as saying: “It came like a flash to my mind and I asked about Roger. I thought he had retired. When I knew that at 34-years, he is still playing and is number two in the world, I thought they were kidding me. When I heard that he reached 17 grand slam titles, I put my hands on my face.” It is indeed phenomenal that an athlete can remain at the top of such a demanding individual sport for over a decade. Roger Federer is a Swiss professional tennis player who many commentators and players regard as the greatest tennis player of all time, a much debated designation that tennis fans abbreviate to GOAT. Mr Federer is currently ranked world number three behind the seemingly unbeatable Serb Novak Djokovic and Scotland’s Andy Murray. Now 34, he is still playing at the top level in world competition, and his appetite for the game shows no sign of abating as he sets his sights on the 2016 Rio Olympics. Mr Federer is often described as a genius of tennis and lauded for his balletic fluidity, artistic economy of movement, his gracefulness, and the ability to improvise on the court. His career has been extraordinary, and his longevity at the top level of his sport is unparalleled. Remarkably for such a physically demanding sport, he has largely avoided serious injury and continues to enthral tennis fans as he continues globetrotting, collecting titles, and accolades on the worldwide tennis circuit. Mr Federer is an instinctive and imaginative tennis player with superb reflexes. In the summer of 2015, he stunned the tennis world when he unleashed a new shot in the final of the Cincinnati Open where he beat the world’s top player Novak Djokovic in straight sets. The SABR – Sneak Attack by Roger – involves advancing on the opponent’s second serve to hit a half-volley right on the edge of the service box before rushing the net. Mr Federer has earned nearly a hundred million dollars in prize money. On top of that, his elegance, charm, and ability mean he is much sought after for corporate advertising. In

summer 2015, the London School of Marketing named him the world’s most marketable sports star. The study calculated the brand value of the athletes, taking into account their current income from sponsorships as a percentage of their total earnings, and also factored in their social media presence. Mr Federer has long-term deals with Nike, Rolex, and Credit Suisse. He recently extended his Mercedes-Benz deal for another three years, and also includes Wilson, Lindt, Jura, Moet & Chandon, National Suisse, and NetJets among his portfolio of sponsors. The 2015 Forbes list of the highest paid sports stars reports that for the ninth year the Swiss star is the top earning tennis player with a combined $67 million in prize money, endorsement deals, and appearances between in the twelve months to June 2015. Mr Federer’s trophy cabinet is packed with the biggest prizes available in tennis. On court, he has

won 24 ATP World Tour Masters 1000 titles and six Barclays ATP World Tour Finals. Off court he continues to collect awards and accolades as well. Mr Federer was born in Basel the son of a Swiss father and South African mother. He began playing tennis at age eight and was a successful junior player before taking the senior circuit by storm. The charismatic Swiss maestro is fluent in English, German, and French and can also muster some Swedish and Italian. In 2003, he set up the Roger Federer Foundation which supports disadvantaged children in South Africa and promotes sport for young people. Away from the tennis court he is a devoted family man and a father to two sets of twins. Athlete, role model, and corporate advertisers’ dream, Mr Federer is one of nature’s aristocrats. Despite years of hard grind on the international tennis circuit, his appetite for the game appears undiminished.

“Despite years of hard grind on the international tennis circuit, his appetite for the game appears undiminished.” 174

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> POPE FRANCIS Out with the Old At an age when most people would gratefully embrace retirement, Jorge Mario Bergoglio became the CEO of a high-profile global organisation facing major challenges. Elected pontiff of the Catholic Church in March 2013, Mr Bergoglio became Pope Francis and went on to shake-up the church he inherited. Without even trying, he immediately established an impressive number of firsts: first Jesuit pope, first pope from the Americas, first pope from the Southern Hemisphere, and first pope to take the name Francis in honour of St Francis of Assisi, the champion of the poor. Pope Francis succeeded Benedict XVI – aka God’s Rottweiler. Joseph Ratzinger, the first German pope for over a thousand years, made history by taking up retirement. Popes usually serve faithfully until god calls them to his/her side. Benedict XVI succeeded Pope John Paul II in 2005. A cerebral disciplinarian true to Teutonic tradition, he clung to rather conservative views and strictly enforced Catholic orthodoxy. During his time as head of the Congregation for the Doctrine of the Faith – formerly known as the Inquisition – then-Cardinal Ratzinger returned the office to its former glory. It soon became the most feared of the nine congregations of the Roman Curia, denouncing secularisation, liberation theology, radical feminism, homosexuality, religious pluralism, bioethics, and a host of other phenomena and activities deemed deviant. Ratzinger showed no mercy to liberals, dissidents, and other assorted rebel rousers: he ruthlessly ordered the unrepentant, such as Brazilian theologian Leonardo Boff, removed from their positions and silenced. In the guise of Benedict XVI, Ratzinger stuck to his theological guns, training his sight on anyone daring to question or disagree. As a result, the papacy failed to address a number of serious challenges besetting the Vatican. Outdated edicts on priestly celibacy, contraception, abortion, and homosexuality were strictly applied while wholesale child abuse by the frocked was duly swept under the carpet. The new pope, noted for his humility, has taken a radically different approach to the job. First off, he flatly refused to move into the Apostolic Palace – the official papal residence oozing grandeur and opulence (think Borgias) – choosing instead to occupy a sparsely decorated suite at the Domus Sanctae Marthae, a drab building adjacent to St Peter’s Basilica that serves as guesthouse for minor clergy having business at the Holy See. Pope Francis prefers to serve the poor rather than wield his doctrinal powers. He also made a bold fashion statement, still reverberating throughout the church, by donning supremely

simple garb rather than the ostentatious outfits his predecessors sported. Though the church’s decision-making process is a notoriously ponderous one, Pope Francis – famously impatient with the demands of protocol and sanctified due process – cut through all red tape to tackle some of the more pressing issues faced by the Vatican. If that didn’t ruffle enough feathers, he also brought in outsiders to inspect the books. The Institute for the Works of Religion, the Vatican’s own bank, has long been mired in scandal. Until recently, the bank was considered the world’s largest money laundering operation. Its books had been cooked for years while those at the top – all properly robed – were widely considered experts in creative accounting. In one of his first acts as holy father, Pope Francis brought in top US financial experts and forensic accountants to investigate all the bank’s operations and determine the extent of the malfeasance. Pope Francis ordered his team to ignore hierarchical convention and keep him directly appraised of its findings. The bank’s management has since been purged and its operational processes overhauled. The biggest skeleton Pope Francis found in the proverbial closet was, of course, the sex scandal involving hundreds, if not thousands, of priests, bishops, and other clerics who for decades on end abused their power and their congregation’s children. Pope Francis promptly

apologised for the Vatican’s past handling of the scandal and promised that all those charged with child molestation will be held accountable – here on earth rather than up there. It is an honourable, though risky, proposition for the Vatican risks exposure to lawsuits across the globe that could potentially cost the church billions in damages. In the US alone, the Catholic Church in 2013 disbursed close to $120 million to settle lawsuits brought against it by victims. In 2014, the Vatican for the first time prosecuted a former high-ranking prelate accused of sexually abusing young boys. Josef Weslowski, a former archbishop, was defrocked. He passed away while awaiting trial. Pope Francis has also jumped onto the climate change bandwagon, calling in his only encyclical to date for an ethical and economic revolution to prevent global warming and reduce inequality. In a visit to the US, he reiterated and expanded his call to action, rallying against capital punishment and the mistreatment of immigrants during a joint meeting of the US Congress that brought tears to the eyes of some of those present. The now 78-year-old pope seeks to balance tradition against the need for change in order that his church may thrive in the decades to come. He clearly envisions an institution less concerned with maintaining doctrine and more with fighting for social justice. Pope Francis is combative enough to pull it off too.

“The now 78-year-old pope seeks to balance tradition against the need for change in order that his church may thrive in the decades to come.” 175

> Latin America:

Emulating the Success of a Few By Darren Parkin

At this year’s gathering of the World Economic Forum (WEF) in Davos, Latin America is expected to claim centre stage. With some of the region’s economies fragile as porcelain – and others built like fiscal fortresses – Latin America constitutes a most fascinating collection of contrasting markets. From the rise of Chile to the collapse of Venezuela, the vast and commodity-rich continent comprises countries that maintain soaring levels of economic growth alongside nations whose macroeconomic mismanagement sets new benchmarks of failure. Yet, there is more boom than gloom: some of the continent’s star performers may soon be joined by others clamouring for a place near the top. The challenge for the WEF’s thinkers is to identify the deciding factors that bring economic success and how to replicate them. In a region which has spent decades dogged by poverty, exploitation, and crime, a few economies have managed to cast off the shackles that bound them to underdevelopment.

Chile: Santiago

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he best example of a rising star in the region is Chile. Since the demise of General Augusto Pinochet’s 17-year military rule in 1990, successive governments kept and expanded upon the regime’s economic policies in order ensure the country’s ascendancy on the world stage. Many would argue that, during the later years of Pinochet’s rule, Chile had mostly enjoyed good economic times. However, most Chileans would contest that it has been the desire to rid the nation of Pinochet’s yesterday, and create their own tomorrow, which drove them to forge a modern Chile. The country, of course, also owes its enduring success to the commodity boom that followed the economic awakening of China. One of the world’s major producers of copper, Chile profited hugely from its high prices and squirreled part of the windfall away into a sovereign wealth fund. The country now draws from this fund to compensate for copper’s precipitous price drop. This allows Chile to maintain government spending level. In its 2016 draft budget, the government of President Michelle Bachelet labelled education the national priority. In a nod to foreign investors, the Bachelet Administration also redirected national spending to support promising economic sectors. Though its historic current account surplus has vanished, Chile remains confident it can run a structural fiscal deficit for a few more years without unduly spooking the investment community. It is expected that copper prices will rebound before the country gets anywhere near trouble. President Bachelet has established a solid reputation for refraining from empty promises and calling things by their proper name. It is this honesty and integrity in governance that will appeal to the WEF as it hopes to promote Chile’s workable formula to other economies within Latin America. DRIVING IN REVERSE One country which many WEF participants hope – perhaps against their better judgment – would emulate the Chilean model is embattled Venezuela – governed by a former bus driver who has repeatedly displayed a near-total lack of economic understanding. The World Economic Forum’s army of thinkers have periodically agonised over the beleaguered nation’s many and varied misfortunes. However, the legislative elections of December 6 returned a much more moderate parliament in which the opposition to President Nicolás Maduro’s misrule holds an absolute majority for the first time since the Bolivarian Revolution was unleashed in the late 1990s. At one time, an oil-rich Caracas held all the aces as billions in petrodollars flowed into the country. But, as oil prices began to drop, the Venezuelan government insisted in sticking to its spendthrift ways. Then-president Hugo Chávez his finance minister to plough as much of Venezuela’s cash into gold as he possibly could. Remarkably, more

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“It is this honesty and integrity in governance that will appeal to the WEF as it hopes to promote Chile’s workable formula to other economies within Latin America.” than two thirds of Venezuela’s dwindling national wealth was invested in bullion. Since Chavez’s death, in March 2013, oil prices have tumbled and Venezuela lost its grip on the economy. Further trouble now awaits the country as gold prices are going down as well. With crude and bullion conspire against Venezuela’s fortunes, crime has begun to soar. This, for the WEF, is causing enough concern to warrant the country a prominent place on the Davos agenda. Crime is another focus area for WEF participants – and in particular how it relates to poverty. However, Venezuela is the odd one out. Most countries in Latin America have dramatically reduced poverty levels since 2000. The continent once had some 42% of its 580m population subsisting below the poverty line. Today, that demographic has shrunk to barely 25% of the population thanks to widespread improvements in purchasing power, healthcare, and education. WAR ZONE Worryingly, crime levels remain largely unaltered. The region is home to some of the most unpleasant statistics imaginable: a quarter of all violent killings in the world take place in just four countries – Brazil, Colombia, Venezuela, and Mexico. Eight of the ten most dangerous countries in the world are in Latin America, as are forty out of the world’s fifty most unsafe cities. This, as the WEF will no doubt be keen to digest, is not good for business or for wealth accumulation. After all, who wants to conduct business with a country where, despite lifting millions of people out of poverty, the chances of being shot while walking the street are about the same as those in a war zone. These horrifying statistics contain two additional problems which experts believe drive crime: elevated youth unemployment and a phenomenon known as aspirational crime. In Latin America, more than one in ten people between the age of 15 and 24 is currently unemployed or has never held a regular job. In other terms, there are 20 million young people not receiving an education, training, or an opportunity to work. Researchers in Brazil have found that whenever the number of unemployed males rises in by one per cent, the number of murders increases by 2.1%. Similarly, due to the dearth of opportunity many out-of-work young people see few alternatives to a life of crime and, as a result, aspire to become criminals. For many young Latin Americans, the benefits easily attainable through crime far outweigh the possible costs. A seemingly neverCFI.co | Capital Finance International

ending string of corruption scandals involving both leading politicians and captains of industry add to the notion that following the rules is the preserve of dimwits. WEF INITIATIVE The Global Agenda Council on Latin America, part of the WEF interdisciplinary knowledge network dedicated to promoting innovative thinking, has embarked on a collaborative effort to conduct a critical analysis of the economic reforms that have shaped the region’s recent past. The council aims to gauge the current state of reforms in order to determine which ones most contribute towards improvements in regional productivity. In particular, the council is looking for policies that can help reduce the continent’s dependency on extractive industries and the export of agricultural commodities. Several countries have already adopted ambitious and comprehensive structural reform agendas that include the modernisation of national fiscal, labour, energy, education, and healthcare frameworks. The council considers the effective and prompt design and implementation of structural reforms critical to the advancement of the region’s economies with a view to improving both their resilience and performance. Chair of the Global Agenda Council on Latin America, Alicia Bárcena Ibarra, stated that “institutions at the national and sub-national levels in the region have already undergone deep changes to further build their capacities for greater transparency and accountability.” Mrs Bárcena Ibarra emphasised that policy reforms can only be successfully implemented if administrative probity is observed as well: “Progress on this front is most encouraging. On the most recent Corruption Index published by Transparency International, Uruguay has become Latin America’s least corrupt country, and is now on a par with the United States. The rule of law must remain a high priority on the governance agenda for Latin America.” Mrs Bárcena Ibarra, executive-secretary of the United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC/CEPAL), also mentions Ecuador which in 2012 introduced a slew of anticorruption measures which has already boosted the country’s ranking by four points on the Corruption Index. While a problem that has long stumped the region’s economic and political development, the WEF council found that most of its interlocutors continue to consider fraud and the misuse of power the region’s biggest challenge. “Our respondents have identified corruption as the biggest concern currently facing the region, followed by education and increasing inequality,” said Mrs Bárcena Ibarra. Interestingly, government officials queried by council members usually rank corruption as their third-biggest challenge while business leaders consider it their main worry. i

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> Ernst & Young:

Argentina - New Government and Expected Tax Measures By Sergio Caveggia and Flavia Cimalando

n November 22, 2015 Argentine voters elected a new president who will hold office for the next four years as of December 10. The elected president represents the opposition to the political cycle that ruled the country for the last twelve years. The incoming administration intends to review policies

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in different government areas: economy, healthcare, security, justice, foreign relations, etc., as well as analyse the implementation of new policies. The current deteriorated macro-economic environment of the country will condition the new government and, consequently, new CFI.co | Capital Finance International

regulations are expected to be enacted aimed at promoting the local and foreign investment needed to strengthen employment and improve the countryâ&#x20AC;&#x2122;s infrastructure and thus facilitate the production of goods and services. There is also general agreement amongst politicians, scholars, and technical experts that,

in order to attract investment and foster private employment, the current tax system needs an overhaul. As of the date of this contribution important measures are still being expected by the market on the economic and tax fronts. Consequently, the purpose of this article is to mention certain general tax policies that the party now elected to govern the country mentioned during its campaign towards presidency. It is important to mention that the implementation of tax policies and rules, or pieces of legislation, depend on different circumstances such as (i) evaluation of the opportunity to implement the measures according to the national and international context and (ii) congressional approval of the initiatives presented by the executive branch.

Argentina: National Congress building

“There is also general agreement amongst politicians, scholars, and technical experts that, in order to attract investment and foster private employment, the current tax system needs an overhaul.”

SHORT TERM AND LONG TERM The current economic scenario demands specific focus on urgent matters. Some of the short term initiatives include the following: • Inflation: During the last few years, the average inflation rate in Argentina ranged from 20% to 35% (as estimated by private consultants). The lack of tax adjustment for inflation distorted federal taxation. Government efforts will be urgently required to reduce inflation as it is deemed the most harmful and regressive tax since it affects the purchasing power of all social sectors. The market disregards the implementation of the adjustment for inflation for tax purposes in the near future because such implementation may heavily impact the tax revenue of the new administration. • Export duties on grain: These duties are currently levied on the export for consumption, i.e. the definitive exit of merchandise from Argentina. The rate of duties on grain exports ranges from 20% to 35%. Immediate elimination of export duties on wheat and corn is expected, as well as the segmented reduction of export duties on soybeans. Such elimination will be gradual due to the significant impact that it will have on tax revenues. • First-job plan: According to a programme under analysis, the first 60 months in the work life of Argentine citizens would be taxexempted, i.e. compensation paid to those persons shall not be subject to Income tax, social security contributions by employers (about 23%/27% over gross salary), or contributions by employees (about 17%). • Income tax payable by salary earners: Over the last years this tax impacted significantly on salaries because government did not adjust deductible limits and income brackets for inflation. Consequently, salary increases were immediately and significantly captured by the tax. The new government intends to increase the minimum income subject to income tax for employees and taxable income brackets. It is also proposed to adjust such minimum income automatically taken into account the salary variations, so as to reduce tax pressure on workers. 181

• Tax promotion: Although generally mentioned during the campaign, it is expected that new tax promotion programmes would be encouraged for the development of certain economic activities, new investments in infrastructure works, and/or the production of capital goods. Although not specifically tax related, foreign exchange controls are also evaluated by the new administration. The last administration imposed important restrictions on the inflow and outflow of funds which triggered scarcity of foreign and local investment. The new administration proposes to deregulate Central Bank restrictions so as to again generate trust amongst different economic players. In the long term, the following strategy would need to be evaluated in order to enhance the development of local companies and individuals, and foster economic activity: Even if inflation were finally brought under control by mid-term, the tax adjustment for inflation would still need to be enacted to allow taxpayers to adjust the basis of assets, tax losses, and balances in favour. Otherwise, capital gains taxes would heavily impact gains in the future. Also, the current tax system is composed of different taxes that discourage investment or do not yield significant revenues to the government.

Sergio Caveggia

Flavia Cimalando

trade unions, and the different political sectors – are the basic principles of the elected president’s focus. We understand that the tax measures previously mentioned, and any other future tax policies, must lead to a genuine distribution of income among citizens whilst fostering economic development and investment.

frequent speaker at tax seminars. He has also written several articles dealing with Argentine tax issues.

These measures must be evaluated and eventually enacted within a context of consensus,

“Even if inflation were finally brought under control by midterm, the tax adjustment for inflation would still need to be enacted to allow taxpayers to adjust the basis of assets, tax losses, and balances in favour. Otherwise, capital gains taxes would heavily impact gains in the future.” There is a general consensus in the market place that Alternate Minimum Tax and Personal Assets Tax should be abrogated because these taxes yield little revenue whilst they do discourage investment and savings. Moreover, taxes such as the tax on bank account transactions should be converted into a payment on account of income tax in order not discourage the use of the banking system. Finally, federal and local indirect taxation needs attention. In terms of federal VAT, the need to evaluate the triggering of the taxable events on a cash basis would allow companies to improve their working capital needs. On the other hand, provincial taxes such the Tax on Gross Revenues and miscellaneous stamp taxes should be replaced by less regressive taxes such as a local VAT that would allow provinces not to lose revenue and, simultaneously, reduce the cascading of local taxation in value chains. Team work and social consensus – social agreement between the business community, 182

transparency, and legal certainty to encourage long term and productive investment in the country. This is a new opportunity for Argentina to focus on sustainable economic growth over the next years. 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 a strong expertise over 21 years in international taxation and mergers and acquisition matters. Mr Caveggia is highly experienced in acquisition structures for inbound and outbound investments, buy side, sell side, and restructuring services within the Transaction Tax Area. Mr Caveggia has served numerous clients in a variety of industries and has also been involved in practically all buy side and sell side due diligence procedures performed by the firm over the last ten years. Mr Caveggia has given lectures at Argentine universities and is a CFI.co | Capital Finance International

Mr Caveggia is a certified public accountant with a degree from the University of Belgrano in Argentina. He obtained his Tax Specialist’s Degree at the University of Belgrano and has a postgraduate certificate in Business and Management from Universidad Católica Argentina (UCA). Mr Caveggia is a member of the Professional Council of Economic Sciences of Buenos Aires and the Argentine Fiscal Association. Flavia Cimalando is a senior manager of the Transaction Tax Area in Argentina. She joined the tax division of EY Argentina in 2000. Ms Cimalando has developed strong expertise over fifteen years in tax advisory services, tax planning, and due diligence for local and international companies. She specialises in international and local business acquisitions and M&A consulting. Ms Cimalando is a certified public accountant and has a Bachelor Degree in Business Administration from the University of Buenos Aires. As to her teaching experience, Ms Cimalando worked as an assistant professor of Tax Theory and Technique I at the School of Economics of the University of Buenos Aires during the last seven years. She has also written several articles dealing with Argentine tax issues.

> CFI.co Meets the CEO and President of Hidrovias do Brasil:

Bruno Pessoa Serapião Bruno Serapião has been chief executive officer and president of Hidrovias do Brasil S/A (HBSA) since 2010. That year, Mr Serapião accepted the position of director of infrastructure at Pátria Investimentos – the alternative investment manager that owns the Brazilian inland navigation company.

r Serapião has built a successful career and obtained a degree in Aerospace Mechanical Engineering from the Technological Institute of Aeronautics (ITA) in São José dos Campos, São Paulo State. He also received a master degree in Operations Research by the Federal University of Rio de Janeiro (UFRJ) and an MBA from the INSEAD business school in France.

Before assuming the top position at Hidrovias do Brasil, Mr Serapião worked at General Electric (GE) Transportation for Latin America as director of Marketing & Services and director of Business Development from 2007 to 2009. Prior to that, Mr Serapião held positions at América Latina Logística (ALL) as director of commodities (mining and agriculture) in Argentina (2006-2007), agricultural commodities manager for the states of São Paulo and Paraná in Brazil (2005), and production planning manager (2003-2004). He also served as senior consultant at Roland Berger Strategy Consultants in Switzerland (2001-2002) and as a civil aviation department engineer at the Departamento de Aviação Civil (1996-2001) – Brazil national aeronautic authority. Accomplishments at Hidrovias do Brasil • Created the company platform that has been implemented and is now fully operational in Uruguay, Paraguay, and Brazil (Belém do Pará and São Paulo) with 100+ fulltime employees. • Lead a senior executive team, reporting to the board of directors, responsible for business development, finance, engineering, and operations. • Guides joint ventures and subsidiaries through board of director seats in all seven affiliated legal entities. • Developed, negotiated, closed, and implemented the largest international inland navigation contract ever signed – $400m investment and $2.5bn total contract value – for a 3.2m tonnes/year iron ore logistics operation. • Acquired an inland navigation pulp logistics operator in Uruguay. • Developed two ports project in Northern Brazil through port regulatory changes, interacting with government agencies, the national congress, and senior government officials.

CEO and President: Bruno Pessoa Serapião

• Led a $120m private placement with Temasek Holdings and the Alberta Investment Management Company (AIMCO) to support corporate growth based on a business plan projecting $320m in annual revenue, with 50% EBITDA (earnings before interest, taxes,and amortisation) margins. • Structured a $238m project financing facility on a 13-year term with the Inter-American Development Bank (IADB), the International Finance Corporation (IFC, part of the World Bank Group), and a number of international banks to

support the implementation of the contract with mining company Vale. • Structured a global sourcing team that enabled strategic alliances with naval architects and workboat and barge shipyards in Canada, Turkey, and China. • Delivered company development with $20m for two years – 25% below original budget. • Implemented the SAP Platform allowing for the implementation of a strong compliance structure from the pre-operational stage. i 183

> Hidrovias do Brasil:

Building Riverine Transport Corridors from Scratch Hidrovias do Brasil was created in 2010. The company became fully operational in 2013 and closed the next year with $ 38.7 million in revenue. Until the end of 2015, the company operated exclusively in the Paraná-Paraguay waterway corridor, transporting iron minerals, grains, and fertiliser.

ight pusher crafts designed in Canada and manufactured in Turkey, two convoys acquired from the United States, and one from Paraguay, are already plying this corridor. Moreover, 36 barges bought in the US, 128 in China, and 16 in Paraguay make up the powerful fleet of Hidrovias do Brasil which transports cargo via the Paraná-Paraguay corridor. This route connects the city of Cáceres, in the Brazilian state of Mato Grosso, to Nueva Palmira in Uruguay. It stretches over 3,7 kilometres through Brazil, Paraguay, Argentina, and Uruguay.

“Besides structuring an organisation from scratch, we have managed to achieve positive results in record time that, moreover, surpass initial forecasts.” Also, via the same corridor, 1.2 million tonnes of cellulose are transported annually over the Uruguay River from Nueva Palmira to Fray Bentos. Resulting from a partnership with local

companies, the Obrinel Project – a terminal constructed in a Uruguayan public port and currently known as TGM (Terminal de Grãos de Montevidéu) – became operational in December 2015 and will carry about two million tonnes of grain and wood chips each year. The company is now gearing up to commence grain transports throughout Pará State in the northern region of Brazil. It will be ready to haul the 2015/16 crop year which is expected to further improve its financial results. For this purpose, the company has signed 10-year contracts for the transport of 6.5 million tonnes of soya and maize annually, commercialised by Multigrain (1,6 million tonnes), Noble (2,7 million tonnes), and Nidera (2,2 million tonnes). Bruno Serapião – the company’s president and CEO – states that R$1.5 billion have been provided for the construction of two terminals and a fleet of barges and pusher craft. The transhipment terminal in Miritituba (Pará), located on the banks of the Tapajós River, and the private use terminal (TUP) in Barcarena (Pará), near the Vila do Conde public port, are currently under construction with completion expected in the first quarter of 2016.

Grains

In practice, the operation in the Northern Brazil will be capable of unloading 450 to 500 trucks of soya and maize per day at the transhipment terminal. Mr Serapião explains that from here the grains will be stored in metallic silos awaiting further shipment by river barge: “Pusher craft will take a convoy of barges containing 40,000 tonnes of grain along a stretch of more than 1,100 kilometres over the Tocantins River, entering the Amazon River, and through the Boiuçu Strait before docking at the TUP in Barcarena. Here, at Hidrovias do Brasil’s own port, the cargo will be stored in warehouses, each with a static capacity of 120 thousand tonnes.” Large bulk carriers of up to 122,000 DWT will dock alongside a specially constructed

Iron

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pier to load with grains for export markets. The unloaded barge convoys return upstream to Miritituba, crossing other convoys on their way downstream to Barcarena. With this infrastructure, Hidrovias do Brasil opens up a new route for the commercialisation of soya, maize, and other grains produced in Mato Grosso and Pará – offering an alternative mode of transportation that enhances competition and unlocks vast fertile areas to external markets, resulting in higher profit margins for producers. “At the same time, riverine transport will contribute to the development of a beautiful region that has great potential,” says Mr Serapião. Hidrovias do Brasil, a company controlled by Pátria Investimentos, in January 2015 agreed to a further increase of its capital to allow for the expansion of its operations in waterway logistics – most of all in the Arco Norte (Northern Arc) – a term employed to describe the riverine corridors in Northern Brazil. Besides the secondary funding of Patria Investimentos, the company obtained $300 million in private equity via Blackstone, the International Finance Corporation (IFC, part of the World Bank Group), and local development bank BNDESpar. This capital injection enables Hidrovias do Brasil to fast-track the implementation of its corporate strategy and commence with the transportation of new commodities, such as fertilisers, and the opening up of new logistics corridors. Mr Serapião states that Northern Brazil now draws the company’s attention: “More than 70% of the $300 million raised will be invested here.” According to the CEO, the remainder is destined for projects along the Paraná-Paraguay corridor. With its increase in capital base, Hidrovias do Brasil now has the financial impetus to put the second phase of its corporate project into action which is intended to be finalised in 2019/20. According to Mr Serapião, the plan involves a second transhipment terminal, also in Mirititituba, in order to expand its operational capacity by eight million tonnes of grains annually. Mr Serapião emphasises that it is impossible not to be proud of Hidrovias do Brasil, and of the people that make up the company: “Besides structuring an organisation from scratch, we have managed to achieve positive results in record time that, moreover, surpass initial forecasts. The company transported a total volume of 2.4 million tonnes in 2015.” “This exceptional trajectory has honoured the trust that our shareholders placed in us. They not only awarded Hidrovias do Brasil the necessary funds but also allowed the company the operational freedom required to seize opportunity. And the best of all: This is about a sustainable growth. We now have long-term contracts with important clients that ensure the company’s success in the years to come.” i 185

> North America:

New Canadian Realities and Assorted Trans-Oceanic Rivalries By Wim Romeijn

In October, Canadian voters declined more of the same and sent Prime Minister Stephen Harper and his Conservative Party packing, delivering a stunning victory to the telegenic Justin Trudeau â&#x20AC;&#x201C; son of the infamous Pierre â&#x20AC;&#x201C; and his Liberal Party which, not too long ago, had been written off as a force of relevance in federal politics.

Canada: Vancouver

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anadian voters have been in a rather rebellious mood since the early 2010s when voters in Saskatchewan ousted the long-ruling and progressive New Democratic Party (NDP) to bring in the home-grown Saskatchewan Party – an amalgamation of progressive conservatives (what’s in a name) and liberals. Not to be outdone, next-door Alberta - ever contrarian – in 2015 went the opposite direction. Here, voters sent home the progressive conservatives which had exercised a monopoly – or stranglehold – on provincial politics since 1971. The leftist NDP, until recently an electoral midget, was swept into power claiming 54 of the provincial legislative assembly’s 87 seats. Saskatchewan turning light blue and Alberta donning red heralded the arrival of a new era in Canadian politics, turning established wisdom on its head and paving the way for change at the top. Voters did not disappoint: tired of the incessant whining of Mr Harper and his entourage of doomsayers, Canadians awarded Trudeau’s Liberals 184 out of the 338 seats of the federal parliament seated in Ottawa. Mr Harper’s Conservatives lost 60 seats while the NDP returns with 51 less members of parliament. Just 44, Justin Trudeau became Canada’s 23rd prime minister with a platform centred on youthful optimism: “We beat fear with hope, we beat cynicism with hard work. Most of all we defeated the idea that Canadians should be satisfied with less.” The new government has set an ambitious agenda of tax reform, increased infrastructure spending, greening the economy, and reasserting Canada’s position as a global beacon of hope. During the successive governments of Stephen Harper – a man burdened with the charisma of a robot – Canada became inward looking as the country allowed its foreign policy agenda to be largely set by Washington. Those days are over as Prime Minister Trudeau seems determined to plot a course that has – as of old – humanitarianism at its core. Last December, the nation welcomed the first of 25,000 refugees from the war in Syria with a deeply touching display of care and concern. The prime minister assured the newcomers in person that they would be safe and had, at long last, arrived home.

“I’m a world leader now so I need to solve the Middle East, basically,” quipped the young prime minister – half joking, half caustic – when asked to detail his vision on the future of Syria. While part of the international coalition fighting ISIS mostly from the air, Justin Trudeau’s Canada is also determined to undermine the caliphate in non-combative ways by putting on an outsized display of compassion for the civilians caught in the crossfire. Sharp-witted, always ready with a smile, an alumnus of McGill University (Canada’s Harvard), adorned with tattoos, and oozing charisma, Justin Trudeau has not only taken Canadian politics by storm but also reignited the world’s interest in this vast landmass hemmed in between the melting Arctic and the world’s last remaining superpower. “I’m a world leader now so I need to solve the Middle East, basically,” quipped the young prime minister – half joking, half caustic – when asked to detail his vision on the future of Syria. “Obviously military action alone is not going to solve the civil war and it isn’t going to defeat ISIS. We need to understand that military action is a necessary part of it because it’s a terrible organization that’s killing and putting lives at risk every single day and oppressing people in the region and causing terrorism elsewhere in the world.” In other word, no policy other than to do good has yet been formulated. Canada’s new boy-king may be forgiven for taking some time to gather his thoughts and receive proper input on how to distinguish his country’s approach to the Middle East from that of its neighbour to the south. Traditionally a low-key participant – and nonissue – at Davos Summit meets, Canada and Canadians are not expected to kick up much snow when the World Economic Forum holds its flagship event this January. The upcoming Trans-Pacific Partnership which - if ratified by the 12 countries involved, will intensify trade amongst Pacific Rim nations - will command serious attention. The historic agreement was finalised in November, though some prominent

analysts continue to cast doubt over whether or not the deal will even be ratified, let alone implemented. Some of the seeds for that doubt were scattered months ago by presidential hopeful Hilary Clinton who once described the TPP as the gold standard of trade agreements. However, as she became a serious contender for the upcoming vacancy at the White House, Mrs Clinton publicly changed her tune on the TPP, fearful of losing the support of trade unions – much less powerful today, but still a force to be reckoned with. The United Automobile Workers Union (UAW), for example, is concerned about tariff reductions that could further increase the already sizeable market share of imported cars. Politically, Mrs Clinton needs the guaranteed votes the UAW can deliver. However, as an economist she recognises the tantalising benefits of the TPP. Under the current plan, each TPP member states must still pay tariffs on certain goods, but enjoy concessions on others. While the US could find itself being effectively penalised through its automotive industry, it will reap the benefits in other areas. In the short term, the US economy risks taking a small hit, but could win big in the long run. That’s when the UAW argues we’ll all be dead. On the back of any discussion about TPP, Europe too will undoubtedly become a talking point. Many American economists will often measure their country’s success against that of its transatlantic counterparts but, at the moment, the feeling is that Europe is having the rub of the green. Of course, any economic rivalry has always been considered friendly, but that’s an easy assumption to make when you also regard yourself as the perpetual winner in that situation – as America, quite mistakenly thinks it is, disregarding – conveniently – its gargantuan trade and current account deficits. On several economic growth measures, EU member states are combining to deliver some enviable figures where the US is still trying to make up lost ground. Not since 2003/04 has GDP per capita growth in Europe outstripped the US, and that gap appears, on paper at least, to be widening. i

“On the back of any discussion about TPP, Europe too will undoubtedly become a talking point. Many American economists will often measure their country’s success against that of its transatlantic counterparts but, at the moment, the feeling is that Europe is having the rub of the green.” 188

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> Credit Value Partners:

Riding the Credit Default Cycles

redit Value Partners, LP (CVP), is a privately held investment management firm based in Greenwich, Connecticut (US), with $2.3bn of regulatory assets under management, specialises in high-yielding and opportunistic corporate credit investments in the United States and Western Europe. CVP’s partners are Don Pollard, Grant Pothast, Mike Geroux, Howard Sullivan, Mike Keller, and Joe Matteo. The founding members of the firm joined together inside Credit Suisse Asset Management where Mr Pollard was the head of the Credit Investment Group with approximately $17bn of non-investment grade credit assets under management. The team spun-out of Credit Suisse in October of 2010 in an amicable separation to launch an independent firm. Today, CVP has twenty-three employees and manages assets for over 300 investors, including private and public pension funds, insurance companies, sovereign wealth funds, family offices, RIAs (registered investment advisors), and HNW (highnet-worth) individuals. CVP works closely with its clients to create funds and separate accounts that target income and total returns consistent with their objectives. CVP’s strength lies in its deep experience and focus on its core asset class of high yielding and opportunistic corporate loans. The partners boast an average of 25 years of experience and have worked closely together since 1991. They have built and managed market-leading corporate loan, high-yield bond and distressed debt trading and investing businesses at Credit Suisse, Donaldson, Lufkin & Jenrette, and Jefferies & Co. They successfully led these businesses through three corporate credit default cycles: 1990-94, 1999-2003, and 2008-2010. Adapting its portfolios to manage through, and capitalise on, these cycles has been important to CVP’s success. Since the inception of its track record in 2008, through September 2015, CVP’s Opportunistic Credit investment funds have generated average annual net returns more than double those of both the HFRI (Hedge Fund Research, Inc.) Distressed Hedge Fund Index and more than 50% greater than those of the Credit Suisse Leveraged Loan Index1 while having lower volatility and lower drawdowns than both these benchmarks. INVESTMENT PHILOSOPHY CVP’s investment philosophy is to seek attractive absolute and risk-adjusted returns while actively managing downside risk. CVP executes this strategy predominately through investments

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“Risk management is another key to CVP’s investment philosophy. CVP designs its Opportunistic Credit portfolios with structural safeguards using issuer and industry diversification limits to manage concentration risk.” in its core target asset class, which is senior secured corporate loans. CVP has a strong bias towards investing in secured loans as they have historically offered attractive returns as well as protection against capital losses. CVP’s investments are typically secured by all or most of the assets and a pledge of the stock of the corporate issuer. CVP explains that, unlike unsecured debt or equity, senior secured loans typically offer investors a “second way out” in a default scenario, which is the sale of these assets to repay the loan. Accordingly, CVP investments usually target “asset-rich” companies and seek to invest at reasonable advance rates relative to the asset value and enterprise value of these companies. CVP’s main focus is on middle market companies in the US with enterprise values of $50m to $500m. This sub-set of the corporate loan market has various advantages relative to the broadly syndicated loan and leveraged finance markets. There are a far greater number of middle market companies than the larger issuers found in the syndicated market. This provides a much broader addressable universe from which CVP can select its investments. In addition, the competitive dynamics in the US middle market corporate loan market today are quite favourable to lenders. Due to a consolidating universe of banks and pressure from regulators regarding unrated corporate loan exposures, traditional bank capital available to middle market companies has contracted considerably over the past two decades – and in particular since the financial crisis. In addition, other traditional middle market lenders, such as Specialised Finance Companies (e.g. GE Capital) have also experienced substantial consolidation, while Business Development Companies (BDCs) are currently finding it difficult to raise public equity capital to support their growth. This has created a significant market opportunity for private, middle market lenders such as CVP. CFI.co | Capital Finance International

ANALYTICS CVP’s investment process uses top-down as well as bottom-up analyses on every company that it invests in. The firm employs a proprietary research template that has been refined over several years to ensure all material aspects and risks of any potential investment are considered. CVP focuses on investing in companies it believes have enduring products and strong market shares, and seeks to avoid industries that are in decline and at risk of product/market obsolescence. Risk management is another key to CVP’s investment philosophy. CVP designs its Opportunistic Credit portfolios with structural safeguards using issuer and industry diversification limits to manage concentration risk. Once invested, CVP is an active risk manager. Another core tenet of CVP’s investment approach is that the firm believes in credit market cycles and in the importance of staying disciplined through these cycles. For each new investment, CVP focuses on maintaining a consistent set of investment criteria, such as target returns and (relatedly) target purchase price, and minimum asset liquidation coverage. The by-product of this approach is that the firm’s pace of making new investments tends to slow down materially when the markets are at or near cyclical tops and, conversely, usually gathers momentum as the market enters new credit spread widening and default cycles, which create an abundance of new investing opportunities. Credit default cycles typically create attractive, broad, and multiyear investment opportunities. During these cycles, the loans and bonds of hundreds of non-investment grade companies trade down to deep discounts to par (typically 20% to 50% or more) before recovering. Over a 3 to 5-year credit default cycle, cumulative default rates on high yield companies can exceed 20% of total outstanding bonds and loans, (this would equate to $700bn in today’s US markets). CVP believes these market dislocations and default cycles provide investors with the opportunity to build a diversified portfolio of secured corporate loan investments trading well below fair value and par value and to recycle capital from realised investments into similar new investments as the credit default cycle persists. This strategy positions the investor’s portfolio with the potential to generate attractive returns with a degree of downside protection from the collateral associated with the loans.

Graph 1: Prior corporate credit default cycles, invest in Early Opportunities and reinvest throughout the cycle. Source: Credit Suisse leveraged loan and high yield bond research as of 6/30/2015.

RESTRUCTURING CVP’s Opportunistic Credit portfolios frequently invest in companies that are undergoing financial restructurings or bankruptcy. These investments offer the potential for higher returns because banks typically sell these loans at very large discounts to fair/normalised value. CVP’s portfolio managers and senior analysts have extensive experience in financial restructuring and the bankruptcy process and proceedings. Over the last seven years, CVP professionals have served on the steering committees and/or boards of directors of more than sixty companies. Examples of companies in which CVP has invested and participated in the bankruptcy and/or restructuring process include American Airlines, Hostess Foods, Orion Cable, YRC Trucking, Promise Healthcare, and MGM Studios. CVP believes the next US corporate credit default cycle has the potential to be unprecedented in size because the amount of high-yield corporate

debt (loans and bonds) is at an all-time peak of $3.5tn – 40% greater than the pre-financial crisis peak of $2.5tn2. Additionally, leverage ratios for high yield companies in the US are also near all-time high levels. This combination of a large supply of outstanding high-yield debt with unusually high leverage multiples has preceded all previous corporate credit default cycles. In the prior three cycles, 15% to 39% of all high-yield debt defaulted over three to five year periods, creating broad and deep corporate debt investing opportunities before the markets and prices recovered, resulting in attractive returns3. There is increasing evidence that a new US corporate credit spread widening and default cycle may already be underway. US high-yield credit spreads have widened by over 200bps (+50%) since June of 2014 and are now trading above T+650bps. Over this same period, the amount of

Graph 2: A new U.S. corporate default cycle may already be underway. Source: Credit Suisse leveraged loan and high yield bond research

and B of A Merrill Lynch US distressed high yield index as of 11/15/2015.

distressed US high-yield bonds outstanding has more than tripled to approximately $150bn. This market deterioration has been led by the energy and natural resources sectors, where defaults are picking up momentum and appear to be in their early stages. If, in fact, the rest of the high-yield market follows (of which the beginnings appear to shows), it is likely that a new default cycle is underway and should create a very large and potentially lucrative investing opportunity. Indeed, the partners at CVP say that they are already seeing the best new investment opportunities that they’ve seen in at least four years, and they believe that this is just the beginning of a new wave of defaults. i References 1 The HFRI Event Driven Distressed/Restructuring Index is a fund-weighted aggregation of net returns of select distressed hedge funds. The HFRI Event Driven Distressed / Restructuring Index is available from Hedge Fund Research, Inc. The Credit Suisse Leveraged Loan Index is designed to mirror the investable universe of the US$denominated leveraged loan market. The Credit Suisse Leveraged Loan Index is available to subscribers from Markit. Market indices may have materially different exposure to distressed or performing credits and index results do not necessarily correlate with those of the fund. There are limitations in using financial indices for comparison purposes because, amongst other reasons, such indices exclude dividends and may have different fees, structures, volatility, strategy weighting, diversification, and other material characteristics (such as number or type of instrument or security). Returns are cumulative for the Credit Suisse Candlewood Private Finance Fund (CCVF I), Candlewood Credit Value Fund II (CCVF II), and Credit Value Fund III (CVF III) onshore funds. Returns assume a hypothetical onshore investor at launch of CCVF I reinvested all proceeds into CCVF II and CVF III. CCVF I’s track record began on 7/1/2008 while the CVP founding investment team was at Credit Suisse. Past performance is not a guaranty that future investments will have similar results. 2 Source: Credit Suisse, Leveraged Finance Strategy Weekly. 3 Source: Moody’s. 191

> Energy for the Masses:

Raiders of the Lost Promise The Holy Grail of Nuclear Fusion By Penny Hitchin

All You Ever Wanted to Know about Stellarators and Tokamaks

he vast amounts of energy released by splitting the atom has enabled scientists to produce both nuclear power and nuclear weapons, demonstrating that mankind’s amazing technical and creative ingenuity is perhaps matched only by its morbidly mad inclination towards selfdestruction.

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Just gaze at the stars to watch the nuclear fusion in action. The star at the centre of our own solar system, the sun, produces heat and light by fusing hydrogen atoms to produce helium. In fact, every second our sun – a rather puny star – produces more energy through fusion than humankind has managed to generate since the dawn of time. CFI.co | Capital Finance International

Replicating this process – a reaction set in motion by extremely high temperatures – is the holy grail of nuclear physicists. Scientists the world over are searching for a commercially viable way to fuse atoms – getting atomic nuclei to collide and join to form a new nucleus. The energy thus released could be used to generate electricity. For years, research scientists have worked to

better understand, control, and replicate nuclear fusion. However, experts within the nuclear industry wryly note that the technology remains elusive as ever and always seems some forty-odd years away from becoming commercially viable. Existing nuclear power generation is based on nuclear fission whereby the nucleus of atoms is burst apart. The technology for splitting heavy atoms to produce nuclear power has been in use since the mid-20th century. The current generation of nuclear reactors work by splitting uranium atoms. This releases energy which is controlled and used as a source of heat to produce the steam that generates electricity. Nuclear fission provides about a tenth of the world’s electricity. Nuclear fission has a number of disadvantages. For a start, the capital costs are huge: nuclear fuel is highly radioactive which necessitates an expensive safety and security infrastructure. The process also produces nuclear waste which must be somehow kept away from people for hundreds of thousands of years before it will have decayed. Nuclear fusion could, conceivably, provide the answer to the world’s apparently insatiable demand for affordable power, generated with a negligible environmental impact. EARTHBOUND SUN Massive gravitational forces create just the right conditions for fusion in the sun. These are hard to replicate on earth. The fuel, isotopes of hydrogen atoms, must be heated to extreme temperatures of around a 100 million degrees Celsius and then be kept dense enough, and confined long enough, to allow the nuclei to fuse.

“Replicating this process – a reaction set in motion by extremely high temperatures – is the holy grail of nuclear physicists. Scientists the world over are searching for a commercially viable way to fuse atoms – getting atomic nuclei to collide and join to form a new nucleus.”

The nucleus of an atom contains protons, which carry a positive charge. These nuclei strongly resist being brought close to each other. This electrostatic repulsion can be overcome by accelerating their movement to high speeds, forcing the nuclei close enough to achieve fusion. This process creates a heavier nucleus and generally releases more energy than it takes to force them to fuse. The energy–releasing process can set in motion a self-sustaining reaction. This is the very process that has fuelled the sun for over four billion years. It will continue to do so for another four billion years – give or take. The advantages of nuclear fusion are legion: abundant fuel supplies; no carbon emissions; no

radioactive waste; and a very high yield. However, scientific understanding of nuclear fusion is still in its early stages. The most pressing practical problem with nuclear fusion is that extremely high levels of heat are required to fuse the nuclei together. The facilities needed for fusion are prohibitively expensive. Materials are yet to be developed that can withstand the extremely high heat necessary for a fusion reaction to take place. Large scale production would become much more feasible if cold fusion could be developed. This, however, has progressed no further than a theoretical possibility. STELLARATORS AND TOKAMAKS Research into fusion is focused on the reaction between the nuclei of the two heavy forms of hydrogen – deuterium (D) and tritium (T) – in a hot gas plasma. Deuterium is found in seawater while tritium occurs only in trace quantities in the wild. However, it can be produced in a conventional nuclear reactor or bred in a fusion system from lithium. It is radioactive, but has a half-life of only around twelve years. One of the main experimental approaches entails the use of strong magnetic fields to contain the hot D-T plasma at a few atmospheres of pressure while it is heated to fusion temperature. The most effective magnetic configuration is doughnut-shaped with the magnetic field forming a closed loop. Current systems include tokamaks and stellarators, experimental devices used to confine hot plasma in order to sustain a nuclear fusion reaction. Soviet physicists designed the first tokamak in 1951. Since then, over 200 have been built, with more than 35 currently in operation. Research is continuing around the world, including at the Joint European Torus (JET) at Culham in the UK and the tokamak fusion test reactor (TFTR) at Princeton in the USA. The cost and complexity of the work has fostered international collaboration. Project partners China, India, Japan, Russia, South Korea, the US, and the European Union are jointly working on the ITER (International Thermonuclear Experimental Reactor) – a $20 billion machine currently under construction in Cadarache, France. When finished, it will be the world’s largest tokamak. Nuclear projects are notorious for bursting through both budgets and timelines. Predictably, the cost for the ITER (Latin for journey) has already spiralled while the completion date has slipped back several years. 193

The aim of the 35-year project is to prove that fusion can produce useful energy to the point where a full-scale demo fusion reactor can be designed. If successful, the achievement will be comparable to the moment, over seventy years ago, when the first critical nuclear fission reactions were sustained in a Chicago laboratory that was part of the top secret Manhattan Project. Stellarators are notoriously difficult to build. There have been a handful of attempts, but their completion rate is low. In the plasma community, stellarators are known as the black horse amongst nuclear fusion reactors. Originally designed by a researcher at Princeton University in 1951, the stellarator was too complex to build with the then-available materials which explains why the much more viable tokamak design became the standard for fusion research. The calculations required to ensure ultimate plasma containment and control in a stellarator have only become feasible with the advent of the computer age. In 2014, the Max Planck Institute for Plasma Physics in Griefswald, Germany, completed the world’s first large-scale optimised stellarator at a cost of over $1 billion. The Wendelstein 7-X nuclear fusion machine was more than 15 years in the making. German engineers subjected the device to a full year of tests, before they were ready fire up the machine for its maiden trip. The W7-X is claimed to be so efficient that its enormous magnetic field is able to contain the super-heated plasma for up to thirty minutes at a time. The stellarator is a massively complex structure: the containment vessel is twisted into a shape that forces the plasma into the centre of the reactor as it continuously encounters opposing magnetic fields along its entire path. The design aims to provide a more stable environment for plasma and thus offer a more promising route for nuclear fusion research. Like ITER, the W7-X is a but stepping stone in the journey towards nuclear fusion. However, at present, sustainable, self-powering nuclear fusion still remains a distant prospect. FUSION ALTERNATIVES One of the main drawback of current fission reactor designs is their uranium fuel is enriched by the same technology that produces nuclear weapons. This leads to concerns about the proliferation of nuclear weapons. Scientists have been looking for ways to break this disconcerting link. Thorium, an element named after the Norse god of thunder, may offer a fuel alternative for fission reactors. China and India are both keen to develop this technology as it may offer a number of advantages that are much easier to reap than nuclear fusion. Although thorium is not fissile – i.e. it cannot be split – bombardment by neutrons can turn it into an isotope of uranium. This can then be burned 194

“However, the nuclear renaissance failed to materialise. The global economic downturn that started in 2008 reduced demand for power and high capital deterred investors.” in a conventional reactor along with enriched uranium or plutonium to supply the necessary neutrons. An attractive alternative is to turn the element into its fluoride and mix that with fluorides of beryllium and lithium. This concoction brings the melting-point down from over 1,000 degrees C to 360 degrees C, making the mechanics of the fission process more manageable. A seed of uranium or plutonium is needed to prod the neutrons to start the reaction, but once this is underway the process becomes entirely self-sustaining. At this stage, the seed material becomes superfluous and can be flushed out of the reactor while additional liquid thorium fluoride can be fed in as needed. Unlike lightwater reactors which must be shut down for refuelling every 18 months, thorium reactors can run uninterrupted for years on end. A major advantage of a liquid fluoride thorium reactor is that it works at atmospheric pressure. Unlike conventional reactors, that use cooling water under extremely high pressure, a thorium reactor does not need these elaborate systems in order to function. As a result, the reactor can do without steel pressure vessels and does not require a large concrete containment dome that protects the environment in case the cooling system fails leading to a release of radioactive steam. Thorium reactors also produce significantly less nuclear waste. The amount is does produce is much less hazardous than the refuse light-water reactors. It also decays faster with radioactivity decreasing to safe levels in centuries rather than millennia.

are set up to eventually process molten thorium fluoride. It is not yet clear how long it will take to develop commercial thorium reactors. However, most experts expect the first ones to become operational in the next decade – years, if not eons, before nuclear fusion reaches that stage. SMALL MODULAR REACTORS In the early twenty-first century, the nuclear industry was looking forward to a nuclear renaissance: growing concerns about climate change was expected to turn the anti-nuclear tide and present a compelling case for revisiting the nuclear option. The trend in reactor design had been to develop ever bigger reactors, intended to supply large populations with base load electricity through a national high voltage transmission system. New Generation III reactors with a capacity of at least a gigawatt came onto the market. These designs featured passive safety mechanisms which are triggered without human intervention. However, the nuclear renaissance failed to materialise. The global economic downturn that started in 2008 reduced demand for power and high capital deterred investors. The tsunami that flooded Japan’s Fukushima-Daiichi nuclear plant in 2011 led to major safety reviews across the nuclear estate. Germany, Switzerland, Belgium, and Spain decided to phase out nuclear altogether. However, China, Russia, India, and the United Arab Emirates remain firmly committed to nuclear new build programmes. Potential newcomers to nuclear energy include Turkey, Jordan, Kazakhstan, Egypt, and Vietnam. Interestingly, the interest in small modular reactors (SMRs) – compact and relatively simple systems – has taken off. These mini-reactors have been used in nuclear submarines for decades. SMRs are now being adapted for terrestrial use by a desire to reduce capital costs and provide power away from large grid systems. SMRs have compact architecture and use passive safety concepts. Their modular design means they can be series-produced in factories for ready onsite installation. SMRs require less fuel and produce less radioactive waste. They can be easily removed for decommissioning and need less cooling water and less transmission capacity than their giant counterparts. If designs can be standardised, cost benefits will accrue and SMRs could find applications around the globe.

In nature, thorium is about three to four times as abundant as uranium. India, which relies on imported uranium and fossil fuel, is endowed with abundant thorium reserves and plans to use these to fuel a new generation of nuclear reactors. Currently, a small thorium research reactor is already up and running.

In 1954, at the dawn of the nuclear era, Lewis Strauss, chairman of the US Atomic Energy Commission, famously said: “It is not too much to expect that our children will enjoy in their homes nuclear generated electrical energy too cheap to meter.”

China has put a large team of scientists and engineers to work on the development of thorium reactors. A first prototype thorium reactor is due for completion soon. The Indian and Chinese experimental thorium reactors use solid fuel but

Sadly, this prophesy was wildly off the mark. However, the development of nuclear fusion could eventually lead to readily available, clean, and low-cost electricity for all. Atomic power generation could yet live up to its promise. i

CFI.co | Capital Finance International

> SpaceX:

Making a Splash in Privatised Space Exploration By Sebastian Svensson

The United States government is outsourcing its business in space at an astronomical rate. Contracts worth billions of dollars are being awarded to private enterprise. This has caused a dynamic marketplace to emerge which supplies cost-effective solutions for NASA’s routine missions.

nitially dominated by corporate titans such as Boeing and SpaceX, smaller companies like satellite manufacturer Sierra Nevada are now making inroads. As a result, the markets gain depth and becomes more competitive.

In September last year, NASA assigned $6.8bn worth of contracts for the development of shuttles to ferry personnel to and from the International Space Station (ISS). That service is currently only provided by the Russian Soyuz spacecraft. Boeing and SpaceX managed to obtain the largest contracts ever awarded by NASA to private enterprise. NASA’s new plan calls for private contractors to carry out more of the agency’s routine missions. The resulting cost-savings leave NASA more resources to focus on the next frontier in space travel, such as a human mission to Mars, or to an asteroid. Apart from an unprecedented delegation of manufacturing tasks and launch missions, NASA’s new tack also highlights something rarely seen in the United States: The co-operation across governmental institutions and private companies. SpaceX made a statement regarding their collaboration with NASA, thanking the agency for the help received. In a statement, SpaceX recognised that the company owes part of its success to NASA which freely dispensed both advice and knowhow. Before 2008, NASA never relied on third-party private companies to develop, launch, and manufacture rockets and satellites. That year, founder and CEO of SpaceX Elon Musk entered the market, suggesting he could provide both the hardware and the launch facilities at a price point that neither NASA, nor the military, could possibly match. At first, SpaceX was handed a $1.6bn contract to fly twelve resupply missions to the ISS. Currently, SpaceX receives about $166m per launch. This amount includes the development outlay for the company’s Falcon 9 rocket. By comparison, the recently-retired Space Shuttle Programme cost US tax-payers a whopping $1.5bn per bang – or about nine times as much

Dragon V2

as Mr Musk’s contraption. In fact, the Space Shuttle’s bloated operating budget caused the programme’s demise and convinced NASA to explore private sector options. Companies such as SpaceX aim even higher and are determined to further lower costs. Their holy grail is the reusable rocket. “Aircrafts are good for tens of thousands of flights,” Mr Musk told Bloomberg in January: “If rockets can be reused, costs can come down to $300,000 or less per roundtrip.” However, NASA figureheads such as Neil Armstrong believe that SpaceX is overpromising and will not be able to blast manned spacecraft into space anytime soon. Mr Armstrong fears that NASA will be left at the mercy of Russian technology for years to come. However, defenders of the plan, including President Obama, argue

that the shift to bigger more ambitious missions is needed for the agency to regain the kind of pioneering spirit it displayed during the Apollo years in the 1960s and 1970s, when it sent men to the moon and returned them safely to earth. SpaceX has recently started to generate a profit from its resupply missions. In 2014, the company accumulated over fifty launches on its manifest, representing close to $5bn in contracts, of both commercial parties and NASA. Even Internet behemoth Google is now entering the scene and awarded SpaceX a contract worth $1bn to develop and launch a satellite capable of providing Internet access to parts of the world not yet online. Until quite recently, terms such as privatisation, profits, and competition were alien to the world of space exploration industry. In the future, it may become synonymous. i 195

> World Bank Group:

Are Stars Aligning for Clean-Energy Financing? By HĂĽvard Halland, Michel Noel, and Silvana Tordo

ne of the biggest bangs on the opening day of the Paris COP21 climate summit was without doubt the dual announcements by the Breakthrough Energy Coalition, led by Bill Gates and other high-net worth individuals, and the multilateral Mission Innovation, whose signatory governments have committed to doubling their allocations to clean-energy 196

research. The two initiatives aim to increase financing for clean-energy innovation from the basic research stage, funded by governments, to the commercialisation of promising new technologies, with venture financing provided by private investors. In developing countries, where many households and companies have very limited access to energy, new clean-energy technologies will serve the dual purpose of CFI.co | Capital Finance International

expanding energy access and constraining carbon emissions. For this to happen, innovative thinking will be needed also with regard to financing the deployment of these technologies. The two initiatives announced in Paris reflect the realisation that carbon-dioxide emissions would continue to rise even if every commitment to

cut carbon emissions were fulfilled (see figure). By 2035, the concentration of carbon in the atmosphere will already exceed the estimated levels required to maintain the internationally agreed two-degree Celsius limit. In addition to further deployment of existing clean energy technology, the development of new technologies – for example to increase energy storage capacity and generation efficiency – will increase the options available to efficiently address climate change. But global public funding for clean-energy research has been only a small fraction of what governments spend on other researchincentive sectors such as biomedical. Due in part to the long lead-times from research to commercialization in the energy technology sector, private venture financing has not been sufficient to bridge the proverbial “valley of death” between basic research and commercialization of a product. Mission Innovation and the Breakthrough Energy Coalition aim to address the technology finance gap. Even if these initiatives turn out to be highly successful, the challenge still remains of substantially scaling up financing for the deployment of clean-energy technologies, including in developing countries. Pooling public funding and leveraging it with private sector capital could increase the uptake of existing and new clean-energy technologies. Indeed, a new trend is emerging in the deployment of public capital: an increasing number of governments are considering the use of investment structures that combine public and private capital, mainly for the purpose of infrastructure investment and venture financing for young firms. This trend has been underpinned by shrinking government budgets since the 2008 financial crisis, a persistent infrastructure financing gap, and a realization that the active involvement of private capital is critical for the achievement of national development goals. Global public funds are a convenient way to pool individual countries’ resources for the common purpose of addressing climate change. But multilateral funds’ resources are insufficient to meet countries’ needs for cleanenergy investment. Could national or regional government-owned strategic investment funds, or public-private hybrid funds also become important actors in financing the deployment of climate-smart energy?

“Global public funds are a convenient way to pool individual countries’ resources for the common purpose of addressing climate change. But multilateral funds’ resources are insufficient to meet countries’ needs for clean-energy investment.”

This type of funds aims to drive investment in key sectors of national economies, to support the realisation of critical infrastructure, and to “crowd in” private investors. A recent example is the Ireland Strategic Investment Fund (ISIF), established in December 2014 with a statutory mandate to invest on a commercial basis in a manner designed to support economic activity and employment in the country. ISIF uses a “double bottom line” criterion of commercial 197

return and economic impact to identify investment opportunities. Public-private hybrid funds could be another possible investment vehicle to support or fast-track the uptake of climate-smart energy infrastructure. These funds manage pools of combined public and private capital, and may offer a variety of investor return-enhancing mechanisms, including differential timing of investment draw-downs of public and private investors, leveraging the returns of private investors with publically provided debt, capping the profit entitlement of the public investor, and partial guarantee of compensation to the private investor for loss of invested capital. The model of the strategic investment fund is relatively new. But the provision of patient risk capital to finance new sectors or industries goes back in history. For example, venture capital (VC) funds, now commonly seen as entirely pertaining to corporate finance, were initially a creation of the US government to improve financing for fast-growing young firms (the UK had similar structures). The Small Business Investment Company (SBIC) programme, established in 1958, consists of federally guaranteed riskcapital pools that in the 1960s represented the bulk of venture capital raised in the US. While not all these early VC funds (called SBICs) were successful, some of the most dynamic technology companies around today – including Apple, Intel and Compaq (now part of HewlettPackard) – received support from the SBIC programme. A central issue for publically-owned or capitalised funds is the independence of investment decisions from political pressures. The SBIC, contrary to its predecessor, the American Research and Development Corporation (est. 1946), places investment decisions in the hands of private investment managers rather than government-appointed bureaucrats. This arrangement aims at solving the problem of picking winners, which has beset industrial policy initiatives where government officials make business decisions. In hybrid funds, investment decisions are left in the hands of a private general partner, with countries participating as limited partners, under an investment mandate that addresses the moral hazard issues of managing an investment portfolio that may be partially subsidised. To reduce the risk of political interference in the investment process, sovereign funds’ governance arrangements must be designed to underpin managerial independence from the government that owns the fund. Market-based checks and balances include co-investment and partnership arrangements.

Graph 1: Energy-related CO2 emissions. Source: Global Apollo Program to Combat Climate Change.

and tolerance for risk. The Breakthrough coalition aims to provide “truly patient risk capital” beyond what markets are willing to offer for clean energy venture finance. This is expected to result in higher uptakes of young government-funded green energy technologies, and fast-track the research cycle. But the efficient deployment of these technologies in developing countries and elsewhere may require the use of investment funds that have the ability to tailor risk-return combinations to different sets of public, private and impact investors – private investors that are willing to accept longer-term returns balanced by a desirable impact, for example on carbon emissions. Climate change has already generated a considerable amount of financial innovation, notably emissions trading and green bonds. Following the lead from Paris, this innovation must continue, and sovereign funds may have a significant role to play. For oil-rich countries, their sovereign wealth funds could be instrumental in enabling a transition towards clean-energy generation. With a well-defined investment mandate and strong governance, sovereign wealth funds and strategic investment funds could be well suited to provide truly patient capital for clean-energy infrastructure. i

The views expressed in this article are not necessarily those of the World Bank. ABOUT THE AUTHORS Håvard Halland is a senior economist at the World Bank’s Finance & Markets Global Practice, Investment Funds Group. His research and advisory work focus on sovereign wealth funds and strategic investment funds. In particular, his work has focused on fund mandates, governance frameworks, as well as economic and policy implications of SWFs’ domestic investment. He is an author or joint

Finance has come a long way since the days of the first SBICs, which could borrow up to half of their capital from the US federal government. Risk-sharing arrangements for today’s funds can be targeted to investors with different preferences 198

CFI.co | Capital Finance International

author of academic and policy research papers, book chapters, magazine articles and blogs, and regularly presents at international conferences and seminars. He earned a PhD in economics from the University of Cambridge. Michel Noel is currently head of Investment Funds in the Finance and Markets Global Practice, Equitable Finance and Institutions Vice-Presidency of the World Bank. Previously, Mr Noel was practice manager for non-bank financial institutions in the Finance and Markets Global Practice and lead financial sector specialist in the Africa Region and in the Europe and Central Asia Regions of the bank. He was on secondment to Dexia Asset Management in Geneva and London from 2000 to 2003 working on local infrastructure private equity funds. Previously, Mr Noel held a number of positions in the Africa and Europe and Central Asia Regions of the bank. He also consulted for the OECD Development Research Centre in Paris. Mr Noel holds a MA in Economics and Social Sciences from the University of Namur, Belgium. Silvana Tordo is a lead energy economist at the World Bank’s Energy and Extractives Global Practice, Extractives Group. She focuses on extractive sector legal and contractual frameworks, taxation, and sovereign wealth funds. Her advisory work, research, and publications include value creation by national oil companies, auction design in oil and gas, extractives-led productive policies, petroleum taxation, resource revenue frameworks, and sovereign wealth management, with particular focus on governance arrangements and policies for domestic investment. Prior to joining the World Bank in 2003, Ms Tordo held various senior management positions in new ventures, negotiations, legal affairs, finance, and mergers and acquisitions.

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> Asia Pacific:

Economic Integration Gaining Ground By Darren Parkin

Some of the worldâ&#x20AC;&#x2122;s most promising economic partnerships straddle the AsiaPacific Region. That vast spread of economies offers a contrasting landscape of competitiveness. While some markets thrive and set the agenda for global thinking, others struggle to keep afloat.

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n its 2014-15 Global Competitiveness Report, the World Economic Forum (WEF) mapped the fortunes of the region that hold three of the world’s ten most dynamic and successful economies. Conversely, the region also comprises five of the worst performers. Years ago, the WEF welcomed the rise of the Asian Tigers – a collection of economic powerhouses that drove not only regional growth, but also seemed unfazed by downturns elsewhere. The widening fiscal gap between South Asian and South-East Asian markets is, however, cause for concern. Led by the Philippines, the big five of South-East Asia are making massive strides on the world markets. Malaysia, Thailand, Indonesia, and Vietnam are all chasing Manila up the competitiveness rankings. In South Asia, only India is made the grade and that country’s economy may already have peaked. Gauging the mood across the region, the WEF Global Agenda Council on South-East Asia found that most business and civic leaders are concerned over the slow pace of structural economic reforms, management challenges resulting from increased urbanization, and simmering geopolitical conflicts such as the standoff between China and the US over the Spratly Reef in the South China Sea which now also involves Vietnam, Japan, and the Philippines. Former Australian Prime Minister Kevin Rudd ascribes the disputes, in part, to Asia’s cultural and linguistic diversity which conspires against attempts to forge a sense of community. While supply chains do not reach across borders and intraregional trade flourishes, Mr Rudd fears that the opposing forces of nationalism and globalisation may continue to fuel regional acrimonies. Unresolved territorial disputes and vague boundaries add to the mix. “We need to involve a common concept of community through the wider East Asia-Pacific.” Mr Rudd suggests more attention be paid to economic, political, security and socio-cultural concepts. He applauds initiatives such as the Regional Comprehensive Economic Partnership (RCEP): “This is an important step that provides for a stronger and more effective political mechanism within the Asia-Pacific Economic Cooperation (APEC) Forum and the ASEAN Regional Forum. The truth is, regional institutions in the Asia-Pacific are not as robust as those that have evolved in Europe. Because the Asia-Pacific region looms as being the strategic cockpit of the 21st century, we need more robust institutions than those we have at present.” ASEAN ECONOMIC COMMUNITY The Global Agenda Council on South-East Asia notes that the region is likely to keep growing at an accelerated clip. OECD (Organisation for Economic Cooperation and Development) projections see the wider region growing its economies by an average of 5.5% annually over the next two years. To underpin this expansion, a number of ASEAN (Association of Southeast

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“Years ago, the WEF welcomed the rise of the Asian Tigers – a collection of economic powerhouses that drove not only regional growth, but also seemed unfazed by downturns elsewhere.” Asian Nations) member states now mull the creation of an ASEAN Economic Community (AEC) to form a single market. In a sign of the region’s determination to create a single market, the implementation of the first AEC provisions was brought forward from 2020 to December 31, 2015. In the AEC Blueprint 2025, adopted at the 27th ASEAN Summit held in November in Kuala Lumpur, the member states pledge to fully shape their common market over the next ten years. The AEC blueprint sets out five defining characteristics for the block-in-being: a highly integrated economy; a competitive and innovative market; enhanced interconnectivity and cooperation; people-oriented inclusive structures; and, insertion into world markets. Using the blueprint as a guide, ASEAN nations will now elaborate more detailed plans through the association’s sectoral entities. The initiative also calls for the setting up of a comprehensive institutional framework that mirrors the one created by the European Union. Once formed, the ASEAN Economic Community will be a unified market of around 620 million people with a combined GDP in excess of $2.6 trillion. As such, the AEC aspires to become Asia’s third largest economy – trailing only China and India – and the seventh largest globally. During its current two-year term, the WEF Global Agenda Council on South-East Asia intends to maintain its focus on close collaboration with both the ASEAN Secretariat and the association’s business leaders. The council wholeheartedly supports the AEC implementation process and will continue to provide advice to key leaders driving this initiative. The council is particularly attentive to the pitfalls of economic integration and is working on ways to mitigate negative impacts. MEANWHILE DOWN UNDER Further to the south, New Zealand is steadily rising as one of the region’s biggest success stories. According to the WEF Global Competitiveness Index, New Zealand ascended to 17th place last year – it’s highest rank to date, and an achievement that will likely be further improved upon. Meanwhile, next door Australia in heading in the opposite direction. In 2009, Australia was one of the best performing countries globally. However, it has since slid downwards. Despite its enviable education system and solid banks, the CFI.co | Capital Finance International

country’s macroeconomic predicament appears to create a financial tripwire for many of the nation’s larger businesses. A proliferation of red tape hampers trade while its rigid labour and immigration laws cause businesses to postpone or redirect investments. Much of the attention in Davos will be directed at China and its economic outlook. A key area of discussion – besides the exchange rate – concerns the proliferation of government-backed manufacturing hubs. While some regard the state-subsidised factories a template for success, other pundits believe China’s push for more and bigger can yet bring world markets crashing down. For instance, the Chinese government pumped untold billions of yuan into steel mills which have now amassed a sizeable surplus. The country’s authorities sell off their excess steel on the cheap, effectively putting other manufacturers throughout the world out of business. This loss was felt most recently in the UK where Tata Steel scrapped hundreds of jobs which, it claimed, vanished as a direct result of cheaper imports from China. LOOMING DANGERS With its demographic dividend now mostly spent, the economies of Asia need the brace themselves for the impact ageing populations will have on their finances. “Population ageing has profound implications, not least in terms of how sufficient revenue can be generated to sustain the enormous infrastructure investment by the government,” says former Australian PM Kevin Rudd. “Parallel reforms will also be required for long-term social security insurance, as the traditional patterns of looking after older people will change as family sizes decrease.” Already now grappling with the issue, Japan’s Prime Minister Shinzo Abe has already initiated a set of bold reforms to revitalise the country’s economy that has been lingering in a state of suspended animation for close to twenty years. Adopted in 2012, Abenomics is best explained as quantitative easing on steroids. Pursuing both reflation and growth, the policy has not been without success: while they yen lost 22% of its value in 2013 alone, unemployment dropped to 3,7% and stock markets boomed with the Nikkei gaining 55% in the twelve months up to May 2013 and (mostly) pointing upwards ever since. While the weaker yen made essential imports more expensive, export rose in tandem, allowing Japan to maintain its healthy current account surplus. For all its apparent troubles, China is not a spent force. The country’s reform agenda, adopted by the Communist Party’s Central Committee in 2013 and largely underreported outside the country, aims to further empower the private sector in an attempts to vastly improve efficiencies in the allocation of assets and financial resources, and – by doing so – strengthening market forces and impulses. i

> CFI.co Meets the Group Chief Executive of UOL Group:

Gwee Lian Kheng

eeping a leading edge over the competition requires constant attention to detail and a willingness to invest in the future. UOL Group Limited (UOL) is one of Singapore’s leading publiclylisted property companies, recognised for its pioneering, innovative, and award-winning developments. The group adopts a disciplined approach to managing its diversified business portfolio of residential developments, property investments, and hotel operations. CFI.co spoke with Mr Gwee Lian Kheng, UOL group chief executive on his company’s achievements and challenges.

Awards. To date, we have received more than ten local and international FIABCI awards for both our hospitality and residential projects on top of other highly acclaimed awards such as the President’s Design and Aga Khan Awards.

HOW DID YOUR COMPANY START? UOL was founded in 1963 under the name Faber Union Limited. It was renamed United Overseas Land Limited in 1975 and subsequently to UOL Group Limited in 2006. Today, UOL has a diversified business model in residential development and hospitality and property investments.

CAN YOU PLEASE ELABORATE ON YOUR LATTER REMARK? All these qualities have helped UOL to grow. Today, our total assets stand at $11.63 billion as compared with $77.1 million in 1972. Over all these years, UOL was and continues to be managed by an independent and professional team. The board and management team share the same passion and work towards the realisation of our corporate vision. Given the trust and authority by the directors, we are able to focus in pursuing strategic moves in today’s competitive residential development landscape.

AS A DEVELOPER WITH A LONG TRACK RECORD IN SINGAPORE, WHAT ARE THE ACCOMPLISHMENTS YOU ARE PARTICULARLY PROUD OF? UOL is an integral part of the Singapore story and closely associated with the city state’s changing skyline in the last fifty years. In 2014, we commemorated our golden jubilee. The company started small but our entrepreneurial spirit quickly led us to become a forerunner in building quality private residential developments with early projects such as Faber Gardens, Mount Echo Park, and Orchard Bel Air and more recently with award-winning projects such as Nassim Park Residences and Newton Suites. The group is a leader in rejuvenating old housing estates. We were successful in acquiring several sites en bloc in the 2000s including those in Tiong Bahru, one of Singapore’s oldest estates. We also had humble beginnings in the hospitality sector with the 260-room Hotel Merlin on Beach Road in the early 1970s. We bought additional hotels and hotel brands as we became more profitable with increased cash flow. Between 1993 and 2005, we purchased several hotels in Australia, Vietnam, Malaysia, China, and Myanmar. Today, we own and manage more than thirty properties globally through our wholly-owned subsidiary Pan Pacific Hotels Group Limited (PPHG). The group has made some significant acquisitions. In 2009 during the global financial crisis, UOL increased its strategic stake in United Industrial Corporation Limited

We are very proud of the loyalty displayed by our staff. Many of them, especially from the property development and maintenance side of the business, have stayed with us through thick and thin with about 30% dedicating over a decade of service. Our achievements would not be possible without their integrity, tenacity and team spirit.

Group Chief Executive: Gwee Lian Kheng

(UIC), making it an associated company of the group. Over the years, UOL has gradually added its interest in UIC to the 44% it now owns. In turn, UIC holds more than 99% of Singapore Land Limited (SingLand) which was privatised in 2014. The increased shareholding in UIC enlarges the group’s exposure to UIC and SingLand’s quality commercial assets in the Singapore CBD [Central Business District]. In 2013, UOL decided to delist PPHG so as to allow greater management flexibility to review the running cost of the subsidiary and seize new opportunities. Good design is very much part of UOL’s DNA. UOL is behind several Singapore landmarks including PARKROYAL on Pickering and Pan Pacific Serviced Suites Beach Road which garnered the prestigious FIABCI [International Real Estate Federation] World Prix d’Excellence

WHAT WAS THE MOST CHALLENGING MOMENT YOUR COMPANY HAS FACED? The severe acute respiratory syndrome (SARS) outbreak in 2003 was one of the most challenging periods for UOL. Tourist arrivals declined and occupancy rates at our hotels fell. Our malls in the Novena area were deserted and business plunged as people were afraid to be in the vicinity of Tan Tock Seng Hospital, the treatment centre for SARS. HOW DID YOU COPE WITH THIS? We took some decisive steps to mitigate the impact of SARS. A cost containment plan was introduced. With the union’s co-operation, our staff at three Singapore hotels took no-pay leave over a period of four months. We also cut back on hiring and took advantage of the lull to intensify staff training. To restore confidence in our malls, the maintenance team stepped up its frequent cleaning of common areas such as lifts and installed hand sanitisers at entrances. We gave rental reductions to some of our tenants to cushion the drop in business. Such steps helped us ride out that very difficult period. i

Mr Gwee is a veteran in hospitality. He received the Asia Pacific Hotelier of the Year award in 2003 and the Hotel Legends Hall of Fame Award at the 11th Australian New Zealand Pacific Hotel Industry Conference in 2011. 203

> Michael Pettis:

Money Is Not Created Out of Thin Air

recurring conversation I have with clients concerns the ability of banks to create credit, and of governments to monetise debt, and whether this ability is the solution to or the cause of financial instability and economic crisis. Monetarists and structuralists have very different answers to that question as each side may assume an idealised version of an economy. We are normally taught that banks allocate credit by lending the money that savers have deposited in the banking system, but in fact banks create deposits in the banking system by creating credit, so it seems to many as if they can create demand out of nothing. Similarly, if governments are able to create money, and if they can borrow in their own currency, they can easily monetise debt, seemingly at no cost, by printing the money they need to repay the debt – or by crediting bank accounts, which amounts to the same thing. This means that when they borrow, rather than repay by raising taxes in the future, all they have to do is monetise the debt by printing the money needed to repay it. It seems that governments too can create demand out of nothing, simply by deficit spending. There is a rising consensus – correct, I think – that the misuse of these two processes – which together are what we mean by endogenous money – were at the heart of the debt surge that was mischaracterised as “the Great Moderation.” For example, in a book published earlier this month, Between Debt and the Devil, in which he provides a description of the rise of debt financing in the four decades before the 2008-09 crisis, Adair Turner specifies these two as fundamental to the rising role of finance in the global economy. He writes:

“…in modern economics we have essentially two ways to produce permanent increases in nominal demand: either government fiat money creation or private credit money creation.” I am less than half-way through this very interesting book, so I am not sure how he addresses the main characteristics of debt, nor whether he is able to explain how much debt is excessive. He invokes the work of Hyman Minsky often enough, however, to suggest that unlike traditional economists he fully recognizes the importance of debt. And it is because of this importance that the tremendous confusion about what it means to create demand out of nothing is dangerous. When banks or governments create demand “out of thin air”, either by creating bank loans, or by deficit spending, they are always doing one or more combinations of two things. In some easily specified cases they are simply transferring demand from one sector of the economy to themselves. In other equally easily 204

“...banks create deposits in the banking system by creating credit, so it seems to many as if they can create demand out of nothing.” specified cases, they are creating demand for goods and services by simultaneously creating the production of those goods and services. They never simply create demand “out of thin air”, as many analysts seem to think, as doing so would violate the basic accounting identity that equates total savings in a closed system with total investment. The questions arise in the context of a discussion of some of Steve Keen’s work among several regular commenters. Keen is an Australian post-Keynesian who heads the School of Economics, History, and Politics at Kingston University in London. I’ve known of Keen’s work for many years, and last year he spoke at a seminar on central banking. He is one of the most hard-core proponents of Hyman Minsky, and regular readers know that I think of Minsky as one of the greatest economists since Keynes. In the third chapter of my 2001 book, The Volatility Machine, I explain the ways in which developing countries designed balance sheets that systematically exacerbated volatility – and which eventually led to debt-based contractions or financial crises – in terms of a framework that emerges from the work of Minsky and Charles Kindleberger. This framework – something that many Latin American economists have no trouble understanding but which has been ignored by nearly all Chinese and foreign economists covering China – explains why three decades of economic expansion in China, underpinned by rapid growth in credit and investment, would lead almost inevitably to destabilising debt structures. HYMAN MINSKY’S BALANCE SHEETS Minsky is important not so much for the “Minsky Moment”, a phrase he never used, but rather because of his profoundly intuitive balance sheetoriented understanding of the economy. Minsky’s insights include his now well-known description of accelerating financial fragility, along with his explanation of why instability is inherent to the financial sector in a capitalist economy. Most insightful of all, Minsky characterised the economy as a system of interlocking balance sheets, and because he taught us to think of every economic entity as effectively a kind of bank, with one entity’s assets being another’s liabilities, CFI.co | Capital Finance International

it follows that economic performance is partly a function of the direction and the extent in which the two sides of each balance sheet are mismatched. Minsky’s framework made it especially easy to predict the difficulties that China would face once it began to rebalance its economy. China can be described as an extremely muscular illustration of Minsky’s famous dictum that “stability is destabilising.” Its financial system was designed to meet China’s early need for rapid credit expansion, and it evolved around what seemed like permanently high growth rates and uninterrupted access to financing. Two decades of “miracle” levels of investment-driven growth made it obvious that the interlocking balance sheets that make up the Chinese economy had added what was effectively a highly “speculative” structure onto the way economic entities financed their operations. This would sharply enhance growth rates during the expansion phase, but at the expense of sub-par performance once conditions reverse. The process is actually quite easy to describe, and the fact that it caught nearly the entire community of analysts by surprise should indicate just how unfamiliar economists are with the approach championed by Minsky. Ignoring the balance sheet framework does not always result in bad economics. When debt levels are low, and the economy close to the kind of Adam Smith described, in which there are no institutional constraints and no entities large or important enough to affect the system as a whole, it makes sense to ignore liabilities and to analyse an economy only from the asset side in order to understand and forecast growth. Evaluating only the asset side would still be conceptually wrong, because both sides of the balance sheet always matter, but the difference between analyses that ignore the liability side and analyses that incorporate the liability side are small enough to ignore. When conditions change in certain ways, however, the differences can become too large to ignore. The more deeply unbalanced an economy, the higher its debt levels, or the more highly systematically distorted its balance sheets, the more the two forecasts will diverge and the more urgent it is that economists incorporate the balance sheet in their analyses. In the early 1990s, the models that most economists used to analyse and explain Chinese economic growth were good enough. By the late 1990s, however, the sheer extent of bad debt within the banking system should have provided a warning that mismatches and imbalances might have become large enough to invalidate the old models. They clearly did invalidate the old models over the

next few years as credit misallocation accelerated, along with the depth and direction of now-unprecedented imbalances and highly self-reinforcing price changes in commodities, real estate, stock markets, and other variables – what George Soros might have cited as extreme cases of reflexivity. VIOLATING IDENTITIES To get back to the discussion, a very brisk and active debate broke out among a number of readers over Keen’s claim that next period growth is a function of both this period’s economic conditions as well as this period’s change in debt. Part of the disagreements has to do with whether Keen’s dynamic model, which incorporates changes in debt, and implies that the accounting identities I use are somehow invalid. I don’t know if Keen actually rejects the identity, but I doubt that he does because he is too good a mathematician not to know that identities cannot be “accepted” or “rejected” like hypotheses or models. More generally, I would never say that I am using this (or any other) identity as the basis for my research, because the point of research is to test hypotheses. You cannot “test” accounting identities, however, because they are not hypothetical. They are true either by definition or as a logical necessity, and there is no chance that they can be wrong. The important point about accounting identities is that they do not prove anything, nor do they create any knowledge or insight. Instead, they frame reality by limiting the number of logically possible hypotheses. Statements that violate the identities are selfcontradictory and can be safely rejected.

“[A]n essential step in [Keynes’s] train of reasoning is the proposition that investment and saving are necessarily equal. That proposition Mr Keynes never really establishes; he evades the necessity by defining investment and saving as different names for the same thing. He so defines income to be the same thing as output, and therefore, if investment is the excess of output over consumption, and saving is the excess of income over consumption, the two are identical. Identity so established cannot prove anything. The idea that a tendency for investment and saving to become different has to be counteracted by an expansion or contraction of the total of incomes is an absurdity; such a tendency cannot strain the economic system, it can only strain Mr Keynes’s vocabulary.” This is a very typical criticism of certain kinds of logical thinking in economics, and of course it misses the point because Keynes is not arguing from definition. It is certainly true that “identity so established cannot prove anything”, if by that we mean creating or supporting a hypothesis, but Keynes does not use identities to prove any creation. He uses them for at least two reasons. First, because accounting identities cannot be violated and second, even when accounting identities have not been explicitly violated, by identifying the relevant identities we can make explicit the sometimes very fuzzy assumptions that are implicit to the model an analyst is using, and focus the discussion, appropriately, on these assumptions.

Accounting identities are useful, in other words, in the same way that logic or arithmetic is useful. The relevant identities make it easier to recognise and identify assumptions that are explicitly or implicitly part of any model, and this is a far more useful quality than it might at first seem. Aside from false precision, my biggest criticism of the way economists use complex math models is that they too often fail to identify the assumptions implicit in the models they are using.

NO SURPLUSES ON CAPITAL AND CURRENT ACCOUNTS A case in point is The Economic Consequences of the Peace, the heart of whose argument rests on one of those accounting identities that are both obvious and easily ignored. When Keynes wrote the book, several members of the Entente – dominated by England, France, and the United States – were determined to force Germany to make reparations payments that were extraordinarily high relative to the economy’s productive capacity. They also demanded, especially France, conditions that would protect them from Germany’s export prowess (including the expropriation of coal mines, trains, rails, and capital equipment) while they rebuilt their shattered manufacturing capacity and infrastructure.

While economists tolerate models that are not constrained by accounting identities because, for some reason, economists do not seem constrained by the need for their models of the economy to conform to reality. Remembering always to maintain accounting identities does not lead to true statements or to brilliant insights, but it does make it easy to reject a very large class of false or muddled statements. Just as logic doesn’t create science, but it prevents us from making bad science, identities do not create models, but they protect us from useless models.

The argument Keynes made in objecting to these policies demands was based on a very simple accounting identity, namely that the balance of payments for any country must balance, i.e. it must always add to zero. The various demands made by France, Belgium, England, and the other countries that had been ravaged by war were mutually contradictory when expressed in balance of payments terms, and if this wasn’t obvious to the former belligerents, it should be once they were reminded of the identity that required outflows to be perfectly matched by inflows.

Keynes, who besides being one of the most intelligent people of the 20th century was also so ferociously logical that he was almost certainly incapable of making a logical mistake or of forgetting accounting identities. Not everyone appreciated his logic. For example, his also-brilliant contemporary, Ralph Hawtrey, was “sharply critical of Keynes’s tendency to argue from definitions rather than from causal relationships,” according to FTC economist David Glasner whose gem of a blog Uneasy Money is dedicated to reviving interest in the work of Ralph Hawtrey. In a recent entry Glasner quotes Hawtrey:

If Germany had to make substantial reparation payments, Keynes explained, Germany’s capital account would tend towards a massive deficit. The accounting identity made clear that there were only three possible ways that together could resolve the capital account imbalance. First, Germany could draw down against its gold supply, liquidate its foreign assets, and sell domestic assets to foreigners, including art, real estate, and factories. The problem here was that Germany simply did not have anywhere near enough gold or transferable assets left after it had paid for the war, and it was hard to imagine 205

any sustainable way of liquidating real estate. This option was always a non-starter. Second, Germany could run massive current account surpluses to match the reparations payments. The obvious problem here, of course, was that this was unacceptable to the belligerents, especially France, because it meant that German manufacturing would displace their own, both at home and among their export clients. Finally, Germany could borrow every year an amount equal to its annual capital and current account deficits. For a few years during the heyday of the 1920s bubble, Germany was able to do just that, borrowing more than half of its reparation payments from the US markets, but much of this borrowing occurred because the great hyperinflation of the early 1920s had wiped out the country’s debt burden. But as German debt grew once again after the hyperinflation, so did the reluctance to continue to fund reparations payments. It should have been obvious anyway that American banks would never accept funding the full amount of the reparations bill. What the Entente wanted, in other words, required an unrealistic resolution of the need to balance inflows and outflows. Keynes resorted to accounting identities not to generate a model of reparations, but rather to show that the existing model implicit in the negotiations was contradictory. The identity should have made it clear that because of assumptions about what Germany could and couldn’t do, the global economy in the 1920s was being built around a set of imbalances whose smooth resolution required a set of circumstances that were either logically inconsistent or unsustainable. For that reason, they would necessarily be resolved in a very disruptive way, one that required out of arithmetical necessity a substantial number of sovereign defaults. Of course this is what happened. FROM THEN TO NOW The same kind of exercise eight-five years later, shortly after the euro crisis, made it clear that Europe was limited by similar accounting identities to three options. First, Germany could reflate domestic demand by enough to exceed the consequent increase in its domestic production of goods and services by at least 4-5% of GDP, and probably more (i.e. it had to run a current account deficit). Second, peripheral Europe could tolerate excruciatingly high unemployment for at least a decade, and probably more. Third, peripheral Europe could leave the euro and restructure its debt with substantial debt forgiveness – or, which is nearly the same, force Germany to leave the euro, which would require much less debt forgiveness – causing losses in the German banking system at the same time that it caused Germany’s manufacturing sector to drop precipitously – a fourth option, that Europe could run huge surpluses with the rest of the world, perhaps two times or more than its current surplus, was too implausible to consider, and although Europe is certainly running irresponsibly high surpluses, they are not high enough to allow Europe to grow. So far Europe has chosen the second option, with a high probability, in my opinion, that before the end of the decade it will be forced into the third. This is why we must keep accounting identities firmly in mind. 206

CREATING DEMAND OUT OF THIN AIR Banks can fund investment by creating debt out of thin air. This statement is either highly confused or it too easily leads others into confusion. There is a related form of this question that often seems to come out of the MMT (modern monetary theory) framework, although I have no idea if this is a misreading of MMT or if it is fundamental to the theory, but while banks can create debt, they do not automatically create additional demand. According to MMT, as I understand it, there is no limit to fiscal deficits because governments who control the creation of money can repay all obligations regardless of their taxing capacity simply by monetising the debt. A lot of people seem to think that this means the state can create demand out of thin air, and so demand created by the state can be added to existing demand with no other change, including no increase in savings. If savings and investment had previously balanced, according to this argument, and the state creates new demand, either this new demand is in the form of investment, in which case investment becomes greater than savings, or the new demand is in the form of consumption, in which case savings is reduced, and so once again investment exceeds savings. This seems like a perfectly logical argument, except that it is perfectly impossible. For reasons that I will explain in the appendix to this essay, to say that investment is greater than savings is to say that the total amount of goods and services we produce is greater than the total amount of goods and services we produce, and that cannot be true. So where is the flaw in the argument? It turns out that thanks to these same identities it is pretty easy logically to work out the flaw, and in fact to extend this process of working it out to show – and maybe this is contrary to what MMT implies – that there most certainly are limits to fiscal deficits, and that the state’s ability to monetise its debt does not mean that it can borrow indefinitely without, eventually, destroying the economy and undermining the credibility that allows it to borrow in the first place. To work through the two different ways demand seems to be created, for convenience I will refer to the entity for whom demand is created out of thin air as Thin Air. Thin Air, in other words, is either the entity to whom the bank made a loan, or it is the government agency responsible for the deficit spending: In the first case, assume that we are in an economy in which there is absolutely no slack. Workers are fully employed, inventories are just high enough to allow businesses to operate normally, factories are working at capacity, and infrastructure is fully used. If Thin Air wants to spend money to buy goods and services, it must displace some other entity that is already using the goods and services that are being created by the economy, and it can only do so by bidding up the price of wages or resources. As a result, prices will rise, and these higher prices will reduce the real value of money. Because higher prices reduce the total amount of goods and services that can be acquired with a fixed amount CFI.co | Capital Finance International

of money, every economic entity that is long monetary assets – assets such as money, deposits in the bank, bonds, or most expected payments, like wages, pension receipts, etc. – loses some amount of wealth equal to the reduction in the real value of these monetary assets. Everyone who is short monetary assets – anyone who has fixed obligations, for example a borrower, or an employer who owes wages, etc. – gains some amount of wealth. The losses of the former exceed the gains of the latter, with the balance representing a net transfer of wealth to the government or to the bank that created the loan for Thin Air.

of those wages on their own consumption, and they will save 25%. Their own consumption will require the production of additional goods and services, which will require hiring more workers. In order that Thin Air acquire $100 of goods and services, it can easily be shown that the total expenditures of Thin Air and of consuming workers will be the original $100 divided by the 25% savings rate, so that in the end GDP will rise by $400, consisting of $300 additional consumption and $100 additional investment. Because the increase in GDP exceeds the increase in consumption by $100, total savings will have risen by $100.

The transfer need not occur only through inflation. In a financial system that is highly repressed, Thin Air’s actions might even be disinflationary. China’s case shows how. Until 2012, whenever credit was created by the system, it was done at extraordinarily low interest rates. These low rates represented a transfer of purchasing power from net savers, who were households for the most part. In that case the consequent growth in production exceeded the consequent growth in consumption (because it repressed household income growth) and so was disinflationary, but once again Thin Air’s spending represented a transfer because it simultaneously suppressed consumption.

In an economy with enough slack to absorb Thin Air’s investment fully, in other words, the investment creates enough of a boost in the total production of goods and services that it becomes self-financing – it increases savings by the same amount as it increases investment. Notice then, once again, that at no point is the identity between savings and investment ever violated.

Demand can only be created out of thin air, in either case, by suppressing consumption or investment elsewhere. At the moment the new demand is created, there is no change in the real value of GDP, although of course nominal GDP can rise or fall, depending on whether the transfer is inflationary or disinflationary. Either way, if the suppressed demand consisted of investment, investment in the rest of the economy declined, whereas if it consisted of consumption, savings in the rest of the economy rose. This reduction in investment, or increase in savings, is the exact obverse of the increase in investment or consumption set off by the new demand created out of thin air, so that at no point is the identity between savings and investment ever violated. In the second case, assume the other extreme, in which the economy has a tremendous amount of slack – there are plenty of unemployed workers who have all the skills we might need and can get to work at no cost, factories are operating at well below capacity and they can be mobilised at a flick of a switch, and there is enough unused infrastructure to satisfy any increase in economic activity. In this case when loan creation or deficit spending creates demand out of thin air, it also creates its own supply. When Thin Air spends money to buy certain goods or services, those goods and services are automatically created by switching on the factory equipment and putting unemployed workers to work. There is also a multiplier at work here. Assume that Thin Air’s spending is for investment, and that it plans to acquire $100 of goods and services for investment purposes. Because it has no need to build capacity or acquire inventory, the full expenditures will go towards paying wages. Let us further assume that the newly hired workers save one-quarter of their income. As Thin Air pays wages, the workers will spend 75%

REALITY In reality no economy will ever have zero slack, as in the first case, or full slack, as in the second, but instead will exist in some combination of the two. An important point that is often obscured by the intensely political discussion about savings is that in the second case, in which the demand created by Thin Air creates its own supply, it turns out that the lower the savings rate, the more GDP is created by any additional spending unleashed by Thin Air. Savings automatically rises to fund investment by causing the total amount of additional goods and services produced to rise by more than the total amount of additional goods and services consumed, with the difference between the two, savings, rising by exactly enough to fund Thin Air’s investment. What this exercise shows, among other things, is that in an economy working at full capacity, a higher savings rate is likely to increase GDP by more than a lower savings rate, whereas in an economy operating with a considerable amount of slack, a lower savings rate is likely to increase GDP more. What this also shows is that in an economy that has recently experienced a crisis, with falling output to below capacity, there is a tendency for households to raise their savings rate, and because of the multiplier, as they increase their savings rate they reinforce the downward trend in the economy. In the first case, the monetarist’s world, if Thin Air’s demand is invested in a project that increases productivity by more than the reduction in productivity caused by the transfer of wealth, it is sustainable. Otherwise it is not. If Thin Air suppresses consumption to fund productive investment, it will always lead to higher growth. If Thin Air suppresses productive investment to fund consumption, it will always lead to lower growth. If Thin Air suppresses private sector investment to fund investment, it becomes a little more complicated, and depends on which of the two “investments” is more productive. Because monetarists usually do not believe that government can ever choose investment projects that are more productive than the market can, they would argue that if Thin Air were a government agency engaged in deficit spending, GDP growth would 207

be reduced, because more productive investment by the private sector was suppressed in favour of less productive investment by Thin Air. There are however many cases of highly productive investment that the government directed in the past which the private sector was unlikely to have initiated. Today, with the private sector unwilling to fund much productive investment because of weak demand, much private sector investment consists of buying assets, which is not productive. In countries that have weak infrastructure, if Thin Air, whether a government entity or a government-encouraged entity, were to build infrastructure, it would almost certainly lead to higher growth. In the second case, the structuralist’s world, as long as there is enough slack in the economy that the new demand causes an increase in output that is equal to the sum of new demand and the marginal cost of new output, it is sustainable. Otherwise we eventually revert to the first case. Monetarists always insist that if the government is to spend money, it should not be in the form of deficit spending. The expenditure should be fully funded by tax increases. Notice, however, that in the first case, expenditures are fully funded by tax increases, but this tax consists of the inflation tax. The monetarists argue that deficit spending, aside from reducing overall productivity, is inherently inflationary and increases economic uncertainty by undermining the stability of money. This is likely to be true the closer we are to an economy that resembles the first case. ENTER CHINA Finally, one of the stranger and more incoherent arguments used by China bulls to propose that China’s large and soaring debt burden doesn’t matter is that China owes the money to itself. In that case why not simply monetise or socialise the debt, as MMT seems to suggest? One of the reasons is that in a world without an infinite amount of slack, monetising the debt is no different than paying taxes, except that the tax is borne by those who are long on monetary assets, i.e. Chinese households. If China were to monetise the debt, which is effectively what it did in the past decade to resolve the enormous amounts of bad debt it had accumulated in the 1990s, this would simply reduce the household share of GDP and with it the household consumption share. Put differently, it would force up the savings rate, which is the opposite of what China needs to do if it is to limit the growth of its debt burden. And notice that, as the savings rate rises, growth drops through the declining multiplier as the GDP impact of Thin Air’s activities increases the savings rate. This exercise shows that fiscal deficits or credit creation are good for the economy when there is enough slack that Thin Air’s expenditures do not suppress investment or consumption elsewhere in the economy, and they are good for the economy if and when Thin Air’s spending is more productive than private sector spending. Otherwise they are bad for the economy and are not sustainable. But we already knew that. Supply-siders have 208

explained why it is the case in a well-functioning economy, and Keynesians have explained why it is the case when the economy is operating far below capacity. SAVINGS EQUAL INVESTMENT While defining investment and saving as different names for the same thing might at first glance seem a useless exercise, in fact, it is a rich way of understanding the links among national economies within the global economy as a single system. Savings can be defined in a number of ways, but the most useful way is to define the supply of all the goods and services an economic entity produces in any period as consisting of two things. The first is everything currently consumed, including things that are lost, thrown away, or that rot away to nothing. What is left and stored for future use is savings. The intuition is fairly obvious: everything that the economy produces is either currently consumed or set aside for future consumption. Supply is equal to demand (another accounting identity), so that we can restate the accounting identity by saying that the demand for everything produced is either the demand for stuff we currently want to consume, or for stuff that we want to use in the future. We call the latter investment. We might find it useful to further distinguish between two kinds of investment. One, which we might call an increase in inventory, consists of taking some of the goods we consume and storing them for later consumption. The other consists of goods and services that we cannot directly consume, but we produce them anyway because they might help us produce even more goods and services for us to consume in the future. If we produce a hammer or a tractor, we will probably never want to consume either. Rather these can help us produce even more goods and services in the future. Because the supply of all the goods and services an economy produces is equal to the demand for all the goods and services that an economy produces, then as long as we are consistent in our definition of consumption, it is true by definition that investment is equal to savings. This is only the case, of course, in a closed system, like the global economy. In an open system, like a country, investment and savings are rarely equal, but the sum of the excess of savings over investment in some countries and of the excess of investment over savings in others must always equal zero – another accounting identity. This is just a way of saying that all the current account or trade surpluses in the world must add up to the same number as all of the current account or trade deficits. Because savings and investment must always balance, the idea that the savings rate in any country is determined at home is nonsense. In countries that intervene heavily in trade and capital flows, this is almost true, but in countries that do not, like the US, the truth is almost completely the opposite. The US does not determine its own savings rate, and cannot as long as it allows unlimited access by foreigners to its asset markets. Knowing the accounting identities would have made this very clear. i CFI.co | Capital Finance International

> CFI.co Meets the CEO of Asia Plantation Capital:

Barry Rawlinson Barry Rawlinson believes in strong foundations. While his first foray into the world of sustainable plantations and agroforestry wasn’t premeditated, it turned out to be a natural progression from what had gone before, putting levels of experience and areas of expertise to good use. In our existential world, sometimes it’s not a matter of choice. There are occasions when a job chooses you.

ttracted to the concept of what used to be termed an alternative investment, Mr Rawlinson perceived an opportunity to involve himself in an industry that gave back more than it took, improved people’s lives, and yet still produced the kind of financial returns that would keep all but the most avaricious stakeholder happy.

think that these remain as the qualities I bring to my role as CEO at Asia Plantation Capital, but nothing previously can compare to the immense personal satisfaction I have gained leading the company over the past few years.” Asia Plantation Capital and its parent company the Plantation Capital Group (of which Rawlinson is also CEO) pride themselves on a vertically integrated business model that is fast becoming the envy of the corporate world. They buy land, plant trees and crops, grow them using proprietary technology to facilitate successful husbandry, and harvest in a sustainable manner.

“I met a former business partner in Southeast Asia,” recounted Mr Rawlinson, “and he explained his vision for the company. The business model was intended to be eco-friendly, and one that would help rural communities that often struggle to make ends meet. Some of those communities relied on illegal logging for their livelihoods, and I couldn’t help thinking that there must be a better way of going about things.”

Certain trees – in particular the previously endangered aquilaria species – are then processed, with the rare and valuable agarwood or Oud being distilled in factories and distillation units that the company itself owns and manages. At the end of this remarkable supply chain is a luxurious and exclusive retail product in the form of a perfume house, Fragrance Du Bois, which is already making waves in the ultra-competitive cosmetics and fragrance industry.

Asia Plantation Capital (APC) has, over the years, become increasingly aware of its responsibilities to the people who work in, and live in and around, the plantations it operates. The company involves itself in infrastructure projects such as roads, schools, and medical facilities, and treats its employees with a degree of respect and understanding that cynics might describe, pejoratively, as new age. Mr Rawlinson, however, is proud of the company’s philosophy, insisting that it is the plantation workers themselves who deserve the most credit.

At every link in the chain, Mr Rawlinson insists that his credo of holistic sustainability is observed and put into practice. “We’re a business, of course,” he conceded, “but we want very much to leave a legacy. We want our employees and their families to be able to afford to live together, in their own homes, leading fulfilling lives. They need to be in an environment in which they can educate their children, receive medical treatment when required, and enjoy a good standard of living, while not only contributing to the success of the company, but also helping to get our environment back on its feet.”

“Our top management, compliance people, accountants, scientific advisors, and administration staff are all integral to the success of the company,” he said, “but for me, it’s those who are literally on the ground who have enabled us as a company to grow so well from the initial foundations that we laid.” Despite having been involved in agricultural projects in previous business incarnations, Mr Rawlinson’s involvement in the world of sustainable plantations required the scaling of a steep learning curve. It’s been hard, but also rewarding. “I had more than thirty years’ experience in

CEO: Barry Rawlinson

top level management, and would always have described my approach as down to earth and common sense,” said Mr Rawlinson. “I’d like to

Asia Plantation Capital and the Plantation Capital Group are dreaming big. Expansion plans are afoot, with investment in place and a concerted effort in mind to change the face of the global bamboo market. At the helm, Barry Rawlinson is both delighted and gratified to be part of a group of companies that’s doing its bit to prove that business and good ethical practices are not mutually exclusive. i 209

> APC:

All Politically Correct

n the current climate of frequently overstated political correctness, it’s easy to become cynical. For those of us who balked at the change from Personnel to Human Resources, and Private Banking to Wealth Management – and for whom the mere mention of the fraternal Health and Safety make us break out in a rash – our attitude to snappy little concepts such a corporate social responsibility (CSR) is often infused with a degree of mistrust. CSR, it seems, has many gradations. At the lowest level it is tantamount to no more than compliance, while at the upper levels it can almost amount to philanthropy. However, there remains little doubt that people in the business community, and the stakeholders who rely on them and entrust them with their money, are slightly fatigued at having to slap labels on almost every area of their enterprises. Corporate social responsibility is, in many ways, slightly insulting. If, as the definition suggests, it is all about best practices, respect, and consideration for the environment – and an inclusivity that reflects the interests of employees, stakeholders, and consumers alike – do we really need to be informed about it and instructed to do so? Should it not be a given that all business entities make such considerations when formulating policy, and actually want to ensure that all aspects of the corporate

“APC grows trees on sustainable plantations and harvests those trees in a likewise sustainable manner, constantly inter-planting other crops to ensure benefits to an ecosystem upon which the business model depends.” structure, and every link in the supply chain (whether it is a physical product or a service at the final link), are catered to and become part of the standard equation? We do not live in a utopian world – it would be boring if we did, let’s face it – and what is encouraging about political correctness, CSR, and even the watchword to end all watchwords transparency, is that at least it is reflective of the direction in which we seem to be headed, and a consensus on what we should be striving for in the modern business world. A lot of companies talk the talk, while far fewer make the walk towards securing a decent future, not only for the generations to come, but also for the planet. Asia Plantation Capital appears to be one of the companies that can talk and walk at the same

time, although only time will tell whether or not their occasionally quixotic philosophy reaps the rewards and affects the change that it intends. Part of the Plantation Group of companies (recently re-headquartered in Geneva, Switzerland) Asia Plantation Capital (APC) has so much going for it on the clean and green scale, that fattened cynics are rather incredulous. In many ways, APC’s vertically integrated business model – that also just happens to be saving endangered species and restoring them to their natural habitat – does appear to be too good to be true. APC grows trees on sustainable plantations and harvests those trees in a likewise sustainable manner, constantly interplanting other crops to ensure benefits to an ecosystem upon which the business model depends. The communities in and around APC’s plantations are well looked after, paid significantly above the national average wage of whichever country they find themselves in, and are provided with infrastructure projects that markedly improve their lives. Doesn’t the cynic in all of us ask: “What’s in it for them?” The fact of the matter is that while the people at APC make overtures, and even appear to find themselves a good way through the symphony’s first movement; they’re not effecting change purely out of the kindness of their hearts. All this niceness – for want of a better word – has to be part of a business model that makes sense – to the board of directors, to the stakeholders, to clients, and to the wider business community. And it does. The bottom line will, unfortunately, always have a bottom line, and while the Plantation Group of companies will handily insert the people-planet-profit triple bottom line as their guiding ethos/mantra/cause celebre. If this gets everyone where they want to be, and where the world needs them to be, should we not simply rejoice? Things are never that simple, obviously, and the weighting on the three aspects of the triple bottom line will always be skewed. What is worth celebrating, however, is the realisation that it is possible, not to say desirable. APC recently defended its title as Best Sustainable Forestry Management Team, Global in CFI.co’s annual awards programme 2015. It is yet another feather in the cap of a company

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CFI.co | Capital Finance International

that practises what it preaches, and reflects a respect and recognition among industry professionals that should be a reward in itself. Not content with that, APC also picked up another gong, winning CFI.co’s Most Innovative Forestry Bond Issuer Global Award. The perception appears to be that APC’s business model is not only working, but also worthy of expansion, with the funds garnered from a series of bond uptakes being used to plant and grow more sustainable plantations, while continuing to embrace the precepts of a business model that is receiving considerable attention around the world. Having helped to save the endangered aquilaria tree from the verge of extinction, the Plantation Capital Group now plans to invest heavily in bamboo – a seemingly ubiquitous crop that has been either overlooked, neglected, or taken for granted for an uncomfortable number of years. Bamboo is clean, green, and has a bewildering array of uses, from energy to food; from clothing to flooring; and from filtration systems to purification processes, not to mention its medicinal applications. APC appears to have tapped in to a resource that many have ignored, while the fact that bamboo is involved in carbon capture, and releases clean breathable air while reducing levels of carbon dioxide in the atmosphere, is something that should not be ignored by any of us. Somehow, APC manages to make the right decisions at the right time, in a world in which right decisions are key. It is entirely possible to make a decent profit and keep stakeholders and shareholders content, and it does not have to be done rapaciously. The bottom line doesn’t always have to be the bottom line. So much more needs to be taken into consideration in this day and age, as long as it does not merely involve paying lip service to the school of political correctness and bleeding heart liberals whose perception of the overall landscape is often misinformed and/or narrow. Can you make money while doing good things? Yes. Should you be? Absolutely. Many people will aver that winning awards and receiving recognition are not all that important. Generally speaking, these will be the opinions of people who don’t, or haven’t received such recognition. Approbation from your peers is both gratifying and rewarding, although it’s difficult to imagine APC doing things any differently, even without the positive reinforcement. This is a company that appears to have established its own identity and feels very comfortable in its own skin. Politically correct and employing sound, environmentally-aware practices it may be; that doesn’t mean it isn’t allowed to turn a profit. Just ask the stakeholders. i 211

> Bhutan:

Sustainable Happiness By Darren Parkin

t around the time Abba were raising a glass of Babycham to toast their number one chart success with Waterloo, the good folk of 1974 were settling down for their weekly helping of Rising Damp or Porridge on push-button, black and white TV sets. Meanwhile, nearly 5,000 miles away, there were some 450,000 people in a mysterious, landlocked, tiny kingdom who had never heard of Ronnie Barker or Leonard Rossiter. Nor were

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they familiar with Rising Damp, Porridge, Abba, Happy Days, The Rockford Files, The Osmond Brothers, Leeds United, Brian Clough, Harold Wilson, The Three-Day Week, or anything else that epitomised 1974 and dominated TV screens across Britain. In fact, they hadn’t even heard of television and, to be honest, it’s doubtful that there was any other reason for the people of Bhutan to know of Great Britain other than the fact that the British had intervened to free them from Chinese invaders many years before – twice over. CFI.co | Capital Finance International

Yet, 1974, in all its bell-bottomed glory, marked a significant moment in the history of Bhutan. It was the year the first tourists were allowed into the curious country sandwiched between the borders of India and China. When those visitors strode across the border, little did they know they were helping Bhutan take its first steps towards becoming a remarkably influential force on the western world. Furiously protective of its heritage and traditional way of life, there was little in the way of electricity

in Bhutan. Most of its people were happy to be cut off from the outside world. Television and the Internet were banned throughout the kingdom until as recently as 1999. Yet somehow, less than two decades later, Bhutan is not only looking out at a world it didn’t want to join for most of its history; it is actually teaching advanced economies on how to be happy and prosperous. Bhutan has some explaining to do. THE SCENE Before tourists visited Bhutan, crime was unheard of. Apart from a bit of livestock rustling from a few roguish Chinese wandering across the border, the tiny nation had not even experienced so much as a whispered mention of a Friday night drunk and disorderly. In fact, even after tourism, relative peace had existed amongst the Vajrayana Buddhists up until the turn of the millennium. No sooner had much of the world packed away its post-millennium Christmas decorations; minor infringements began to take place. Then, suddenly, three years after Bhutan became the last nation on earth to introduce television, the peace-loving Himalayan people – which by now had swollen its ranks to around 700,000 – came to know another modern-day phenomenon that quickly cast a shadow over the nation: a crime wave. The king had at long last allowed television into his realm under a plan to modernise the country. It swept the nation like wildfire. From nothing more than homemade entertainment to over fifty of Rupert Murdoch’s finest cable channels overnight – the population went mad for telly. Quite literally. By April 2002, Bhutan was awash with theft, violence, drunkenness, fraud, and even murder. There wasn’t much of a word in the Dzongkha language for corruption, but, on April 13 of that year, 42-year-old Parop Tshering – chief accountant of the State Trading Corporation – was hauled before a court charged with the embezzlement of four and a half million ngultrums (just shy of £70,000). At the same time, the suddenly overworked Royal Bhutan Police were out in force in the town of Mongar where thieves had smashed up and robbed three ancient Buddhist temples. For an entirely sedate Buddhist nation, things had become too heady. Bhutan: Taktshang Goemba (Tiger’s Nest Monastery)

“Before tourists visited Bhutan, crime was unheard of. Apart from a bit of livestock rustling from a few roguish Chinese wandering across the border, the tiny nation had not even experienced so much as a whispered mention of a Friday night drunk and disorderly.”

Yet, the final straw came a few days later. In Thimpu, Bhutan’s serene capital, a 37-year-old truck driver named Dorje was discovered by his wife as a heroin addict. Enraged at being found out, Dorje bludgeoned his wife to death. Soon after, in a nearby village, a 42-year-old farmer called Sonam was driving to his family home. His in-laws were in the car and, smelling alcohol, began complaining about Sonam’s erratic driving. The farmer became so enraged that he steered the vehicle off a cliff. The crash killed his niece and badly injured every member of his family. That, as far as the king was concerned, was quite enough. 213

BACK TO BASICS The king called upon his government to put an immediate stop to the moral decay. While taking away the phones, the televisions, and the Internet would have been relatively easy, it could have sparked the ire of the public. Instead, authorities opted for a re-education campaign. People were reminded of – if not bombarded with – the very essence of their land and the reason why it exists. The country was founded as a Buddhist sanctuary in 1616 by Shabdrung, a monk from nearby Tibet. The land was remote and, aside from a couple of invasions in the 17th and 18th centuries – duly repelled by the British – few people knew of Bhutan. In fact, it was only after the 1937 film Lost Horizon (based on a James Hilton novel) that the country’s existence even crossed people’s minds. In the book, and the film, Bhutan was portrayed as Shangri-La – a mysterious Himalayan land where the people barely aged under the mantra of a high lama who declares: “Here we shall stay with our books and our music and our meditations, conserving the frail elegancies of a dying age.” It was those words which the Druk Gyalpo – or Dragon King- Jigme Singye Wangchuck recalled as he began the process of returning Bhutan back to the peace and tranquillity it had once known. The royal mission was crowned with success. People began turning their back on television and the worldwide web which they suspected of undermining their culture. Normality soon returned, as did their way of life. The birth rate, which had slowed noticeable after television’s arrival, picked up again. Ten years ago, with peace and tranquillity restored, King Jigme Singye Wangchuck abdicated in favour of his son Jigme Khesar Namgyel Wangchuck. He charged the then 26-year-old to lead Bhutan into the modern age. Both father and son agreed that their country’s place in history was to teach the world about harmony and happiness. It was a task the youthful leader embraced with aplomb. GNH REPLACES GDP The seeds of happiness were planted in 1971 when the king and his government announced they would not recognise the gross domestic product (GDP) as a barometer for measuring progress. Instead, Bhutan had a different gauge for testing its performance – GNH, or Gross National Happiness. GNH collates information on the physical, environmental, and spiritual health of the population. The GNH – aka happiness index – works for Bhutan, a place well-suited for the pursuit of tranquillity and spiritual well-being. Of course, being a nation that flew well below the global radar, it would be years before the GNH was recognised by any of the world’s economic powerhouses. 214

“This little country’s highly original approach to commerce isn’t just generating widespread happiness for itself and its trade partners, it’s also delivering serious wealth.” It took a global economic downturn before the unique approach of this tiny Buddhist nation began to attract interest. The Netherlands was the first country to take note of Bhutan’s unique perspective. The Dutch signed a bilateral Sustainability Treaty with the country in 1994 which forged a relationship based upon equality and reciprocity. The treaty developed strongly and led to solid ties between the two countries. Amongst many other projects, Dutch engineers were largely responsible for the rural electrification programme rolled out across Bhutan, and Dutch artists helped expand and develop Thimpu’s School of Fine Arts. Heading in the opposite direction was Bhutan’s participation in the massive Zeeuwse Vlegel project which was a determined effort by The Netherlands to pioneer organic farming. Bhutan’s centuries’ old natural approach to agriculture – which remains the main livelihood for more than 60% of its population – had a big role to play in setting the benchmarks for the scheme, which continues to this day. This little country’s highly original approach to commerce isn’t just generating widespread happiness for itself and its trade partners, it’s also delivering serious wealth. While it may seem somewhat hypocritical of a nation which extols well-being over riches, it’s fair to say that Bhutan is now enjoying the best of both worlds. With a political agenda built around conservation and sustainability, and a concerted effort to write a constitution based on health and learning, the life and wealth graphs of Bhutan are remarkable. In the last 20 years, life expectancy has more than doubled; 98% of all children in the country are enrolled in school; and, as an average, almost every family is around a third better off than two decades ago. UNTIL THE END OF TIME Environmental protection – an expertise adopted early by The Netherlands and currently catching the eye of other European heavyweights – is second nature to the Bhutanese. Their government recently signed a pledge to ensure that 60% of the country’s landmass will continue to be nothing but forest “until the end of time.” CFI.co | Capital Finance International

Hand in hand with that pledge, timber exports are banned, and a monthly Pedestrian Day was introduced when all vehicles are banned from the roads. Some of the Bhutanese policies may soon be coming to the UK. A delegation of government officials and, potentially, a visit from King Jigme Khesar Namgyel Wangchuck are on the cards for late 2016 or early 2017. It is understood the monarch not only wants to promote his country’s way of life, but also wishes to revisit Oxford University where he spent several years studying politics and international relations. It was this desire for learning that has made the ruler so instrumental in getting the youth of Bhutan to actively pursue education. Leading the charge for Jigme Khesar Namgyel Wangchuck is his impassioned Minister of Education Thakur Singh Powdyel, also one of his king’s greatest advocates of the Gross National Happiness Index. “It’s easy to mine the land and fish the seas and get rich,” Mr Powdyel once declared at the height of the recession. “Yet we believe you cannot have a prosperous nation over the long run that does not conserve its natural environment or takes care of the wellbeing of its people, which is borne out by what is happening to the outside world.” Dutch ties with Bhutan have loosened a little as other economies began to develop an interest in the Buddhist nation, although Bhutan is keen to uphold trade links with the first European country it established diplomatic relations with. Since becoming involved with The Netherlands in 1985, the Himalayan outpost has kept the carefully selected group of nations with which it has diplomatic ties to a minimum. The Dutch help underwrite Bhutan’s economic development with several programmes such as the Facility for Corporate Social Responsibility and Food Security, the DevelopmentRelated Infrastructure Investment Vehicle, the Entrepreneurial Development Bank, the Centre for the Promotion of Imports from Developing Countries, the Netherlands Senior Experts Programme, and Bhutan+Partners – a non-governmental organisation based on the edge of the Veluwezoom National Park in The Netherlands that promotes the interests of Bhutanese and Dutch companies. Around €2m a year is spent through the Netherlands Development Organisation on agriculture, forestry, renewable energy, sanitation, and hygiene. The body has invested almost €25m in Bhutan since 1988. With years of investment – both financial and intellectual – from The Netherlands, Bhutan is now a well-equipped to claim a spot on the world stage. At the epicentre of happiness – the ultimate sustainability benchmark – the country has become the darling of development agencies worldwide. i

Autumn 2015 Issue

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> Billionaires’ Toys:

There Is No Point other than Bigger is Better By Darren Parkin

urn the clock back a few centuries, and all a man had to do to show off his wealth was to build a massive castle and throw the odd pageant or two on its ground to entertain visiting royalty.

Sadly, no sooner had latecomers to fortificationbuilding put the finishing touches to the 216

drawbridge, when fashions changed and stately homes became de rigueur - the more outrageous, the better. By that time, the second Earl of Rockingham had his staff scattering coloured confetti so that guests could find their suites – the place was so shamelessly huge that people often became horribly lost wandering the eight kilometres or so of corridor at Wentworth House. CFI.co | Capital Finance International

However, as the twentieth century dawned, stately homes were past their prime. Belatedly, wealth joined the Industrial Age to be expressed through machines such as lavish sports cars. Alas, cars are rather puny objects – no matter how luxuriously appointed or fast. As objects of opulence they barely make the

grade. Besides, when you’ve got half the GDP of Sweden burning a hole in your back pocket even the most outrageous motor car doesn’t make much of a dent. The post war age of jet propulsion presented new opportunities for frivolously inclined dispatching the superrich skywards. The seventies were a golden age for the private plane that allowed venerable sheiks and Hollywood’s finest to hop around the globe – jet-setting as it were. By the turn of the millennium, the rich had become vastly richer still and private airplanes became yesterday’s news. Enter seaborne affluence. By 2000, advancements in shipbuilding technology were moving on apace. Hulls of oversized yachts were being designed in ways that would have seemed impossible just a decade before. Pretty soon, billionaires turned their heads from the runway to the slipway. Behold the mega-yacht. Today, the fashion for owning the most lavish, gaudy, or grotesquely decked out boat shows no signs of abating. Spending anything less than £150m on a yacht would, these days, be considered almost rude – and certainly a sign of financial weakness. So when Russian billionaire and Chelsea FC owner Roman Abramovich splashed out a cool billion (dollars) on Eclipse, his floating toy, he set a new benchmark for those who thought they were rich. However, it would appear that Mr Abramovich outlay of cash, merely bought him a second fiddle. Right now, Yacht Island Design is putting the finishing touches on a yacht so colossal, so over-designed, so unimaginably lavish, that it will simply – well – eclipse the Russian’s yacht and make all other floating castles look like bath toys. The Streets of Monaco, as the designer’s dubbed their outlandish masterpiece, may not even be described as a superyacht or mega-yacht: the thing is so vast it warrants its own classification – the hyper-yacht. The Streets of Monaco resembles an aircraft carrier, albeit one with a few mind-boggling extras such as charming (street) cafés, a bewildering choice of swimming pools, two speedboats, vast gardens, a full-sized submarine, a cineplex, 24 guest suites, tennis courts, and a go-kart track. All those goodies populate a 550ft long deck resembling a scaled-down version of Monaco. The vessel is expected to carry a bare-bone price tag of $1.3 billion. Whatever floats your boat. Azzam

“Right now, Yacht Island Design is putting the finishing touches on a yacht so colossal, so over-designed, so unimaginably lavish, that it will simply – well – eclipse the Russian’s yacht and make all other floating castles look like bath toys.”

It’s one thing to spend many millions on a seagoing playground; real wealth is displayed in the eye-watering running costs. If you’ve got the disposable income to own the ultimate luxury, you’re going to need plenty more to keep the thing ticking over. Take the £260m superyacht A owned by Russian billionaire Andrei Melchenko: arguably lacking in imagination at 217

Eclipse

the naming ceremony, A requires an astonishing amount of maintenance. Below its teak deck lies a cornucopia of things that require a crew of about 42 people to keep running. It’s the sort of hazard you would expect when a fully-featured discotheque with an illuminated dance floor and sitting just below the glass bottom of the huge swimming pool above. Typically, the extras following the initial outlay add up, on average, to around 20% of a yacht’s original value. Fuel usage would be estimated at 500 litres per hour, which works out at about £265,000 a year. Docking costs gobble up £250,000 while ongoing repairs require an annual budget in excess of £600,000. Crew wages leave little pocket change from a million pounds. At least the insurance bill comes in at a risible £160,000. Of course, if you’re anything like Roman Abramovich, you’ll want lots of extras, such as a missile defence system slated a buy at £335m. So, assuming you’ve got a spare billion squirreled away down the back of the sofa, take some inspiration and salivate over the world’s top five super-yachts… 1) Azzam (Length: 591ft, Speed: 31kts, Cost: $600m) She’s not the priciest floating object plying the seven seas, but Azzam is certainly the biggest 218

and fastest. At 180m LOA, and with seven decks, the mysterious Azzam is larger than Roman Abramovich’s Eclipse. Little is known of the Lürssen-built ship, but it is rumoured she was made for a member of the royal family of the United Arab Emirates. The interior was designed by Christophe Leone in Imperial French style. 2) Eclipse (Length: 533ft, Speed: 21kts, Cost: $1.2bn) Manned by a crew of 70, and owned by Russian billionaire Roman Abramovich, the Eclipse took five years to design and build. She can accommodate 24 guests, comes with two helipads, and a private submarine. As well as anti-missile security system, the Eclipse also has special reflective features that block paparazzi from being able to take any useable photos. When she left the Voss shipyard in Hamburg on December 9, 2010, she sailed straight into the record books as the world’s largest super-yacht. 3) Dubai (Length: 532ft, Speed: 26kts, Cost: $350m) The appropriately-named Dubai, currently owned by the Sheikh Mohammed bin Rashid Al Maktoum, is widely considered a blueprint for classic super-yachts. As well as the usual array of swimming pools, helipads, and speedboats, up to 115 guests may enjoy one of the most lavishly decorated interiors to be found on any yacht, anywhere – much of it accessible through CFI.co | Capital Finance International

the main staircase which is constructed entirely of glass. 4) Al Said (Length: 507ft, Speed: 25kts, Cost: $300m) Few yachts are shrouded in as much mystery as the Al Said, owned by Sultan Qaboos Bin Said Al Said of Oman. What is known is that amongst the swimming pools, helipads, cinemas, bars, and exquisite suites, there is a concert hall that can accommodate fifty musicians. The ship can accommodate seventy people plus a crew of 154. The interior is believed to be one of the finest at sea, although this would be difficult to prove as it is understood no photographs of the yacht’s cabins or rooms exist. 5) Topaz (Length: 483ft, Speed: Unknown, Cost: $527m) In 2012, Topaz sailed out of the same yard that created Azzam – currently the world’s largest super-yacht. Apart from three swimming pools, a gymnasium, cinema, and helicopter pad, little is known of the Topaz other than that she has impressive corporate facilities including a large boardroom and meeting complex. Said to be owned by a member of the Saudi Royal Family – purportedly billionaire Manchester City owner Sheikh Mansour – it is thought to have seven decks. The floating conference centre plays host to some of the world’s most high-stake business meetings. i

> CFI.co Meets the Managing Director of Bangladesh Building Systems:

Abu Noman Howlader Engineer Abu Noman Howlader is a successful industrialist in Bangladesh who is the managing director of the Bangladesh Building Systems Ltd. The second of six children, Mr Howlader was born in Bhola District in 1973. His father was a teacher. He has completed his BSc in Mechanical Engineering from the Bangladesh University of Engineering Technology (BUET) - one of the most renowned institutions of higher education in Bangladesh.

fter graduating from BUET in September 1997, Mr Howlader joined in Sinha Textile - the largest textile mill in Bangladesh where he remained until June 2000 when he embarked upon his career in business. Founding his own company, Mr Howlader leveraged his strong background in manufacturing industry and engineering technology. High-tech projects in particular require leadership based on knowledge of cutting edge technology. Mr Howlader brought precisely the kind of management required to propel his company to the very apex of the local high-tech industrial sector. Mr Howlader is intimately acquainted with Bangladesh heavy industry and started his venture with a solid business plan and desired to make a sizeable contribution to the countryâ&#x20AC;&#x2122;s industrial development as well as its economy. Mr Howlader has set up a number of companies in Bangladesh which sustain the nationâ&#x20AC;&#x2122;s economy. He is the honourable managing director of BBS Cables, BBS Metallurgic Industries, Nahee Aluminum Composite Panel, Helix Wire Cables & Industries, Nahee Geo-Textile Industries, Xiamen Reflective Insulations, Speed Builders and Engineers Ltd. He is also the director of BBS Infrastructure, BBS Developers, Total Knit Composite, Nahee LPG, BBS Ready-Mix Concrete, BBS Distributions, and Nahee SS Pipes Industries Ltd. He was presented with the 2011 Kabi Nazrul Gold Medal Business Asia Award as the Best Entrepreneur of the year 2010-2011 for his remarkable contribution to green business. The Financial Mirror awarded him its National Business Award. Mr Howlader is a corporate member of the Dhaka Chamber of Commerce & Industry (DCCI), Uttara Club, Bangladesh Electrical Association, and Electrical Merchandise & Manufacturing Association. He is also a member of the Bangladesh Malaysia Chamber of Commerce

Managing Director: Abu Noman Howlader

& Industry (BMCCI), National Association of Small & Cottage Industries of Bangladesh, Turkey Bangladesh Chamber of Commerce, Steel Building Manufacturing Association of Bangladesh (SBMA), Capital Recreation Club, and Gulshan Runners Society, Banani Club, Uttara Engineering Club, Institute of Engineers Bangladesh (IEB). He is also a life member of the All Community Club in Bangladesh.

Nurani Madrasha. He is the founder of the Alhaj Abdul Hannan Howlader Scholarship.

Mr Howlader is involved in many social activities and a founding member of Abdul Hannan Howlader Secondary School. He is also a donor member of the Karimganj Secondary School, Telehati High School, and Sheora Rail Line

Engineer Howlader aspires to be a successful entrepreneur in Bangladesh and seems to have a special role in every institution that he touches. He has dedicated all his achievements in life to his beloved father and mother. i

He has visited a number of countries such as the UK, Sri Lanka, Saudi Arabia, Australia, Thailand, Singapore, India, Malaysia, China, Hong Kong, UAE, amongst others. He spends his leisure time in reading books, travelling abroad, and playing cricket.

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> Grant Thornton Hong Kong:

Mergers and Acquisitions Cultural Alignment for Successful Integration By Barry Tong and Benjamin Fong

oo often companies put together look great on paper but are fraught with management and structural problems that end up turning deals into busts. Acquiring companies often underestimate the problems that different corporate cultures can inflict on a merger. In fact, the difference between success and failure is often not a matter of strategy or money, but of relationships, culture, and politics. Putting two companies together usually gives the

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combined entity the resources and capabilities to compete with market giants. It can also create dominant positions in many markets around the world. However, that was not the case of advertising giants Publicis Groupe SA and Omnicom Group Inc. After these companies merged, the two CEOs – Publicis’s Maurice Lévy and Omnicom’s John Wren – agreed to jointly lead to the business for thirty months. While that sounded good, the reality was that they couldn’t agree on a management team; a way of splitting their duties; or even on which firm should be listed CFI.co | Capital Finance International

as the acquirer from an accounting perspective. The deal was eventually scuttled in 2003. The challenge of putting the corporations together can be further exacerbated if the two companies possess vastly different business models and cultures. For example, in Valeant Pharmaceuticals’ long-running hostile takeover campaign of Allergan Inc. – the Botox-maker – the company executives of the latter expressed their disagreement with Valeant’s proposal to slash the amount of money that the company

Winter 2015 - 2016 Issue

spends on research – a move that would probably lead to layoffs of hundreds or even thousands of its employees. As such, Allergan has disregarded Valeant Pharmaceuticals’ proposal and agreed to be sold instead to generic pharmaceutical manufacturer Actavis plc., a company that shares similar values. CULTURAL ISSUES AFFECT M&AS Integration can be defined, in general terms, as the process of combining two companies into one entity at every level. Post-merger integration is the most often-cited concern that could significantly impact the success of an M&A deal. It has to be a multi-dimensional exercise with inputs from various perspectives, including strategy, new management, organisation, business, finance and accounting, tax and legislation, information system, and human resources. Yet, studies show that plenty of M&A s fail to yield desired expectations or even erode shareholder value. The little secret about M&As is that the human dimensions and culture are at least as important, if not critical, as strategy, pricing, and positioning. Cultural incompatibilities are commonly found to have both a direct and indirect linkage to integration failures. Unsuccessful cultural integration can lead to distractions, loss of key talents, and failure to achieve critical milestones or synergies. CULTURAL INTEGRATION KEY Many studies agree that cultural alignment is critical to a successful merger. Yet, due to the intangible nature of culture, and because of time constraints, management prefers to focus on tangible and measurable aspects, such as financial data and legal matters. Cultural integration is then left unattended or, at best, postponed to the post-deal phase. Nevertheless, culture is not something that can be changed or integrated without a well-defined plan; it requires time, attention, and considerable effort to merge two distinct cultures into a new collaborative and productive environment.

Hong Kong

“Putting two companies together usually gives the combined entity the resources and capabilities to compete with market giants. It can also create dominant positions in many markets around the world.” CFI.co | Capital Finance International

APPROACHES TO CULTURAL INTEGRATION How can two different cultures be integrated to achieve full value? First of all, we have to understand the term culture. Corporate culture comprises the beliefs and behaviours that determine how a company’s management and its employees interact and handle outside business transactions. Often, corporate culture is implied – and not expressly defined – and develops organically over time from the cumulative traits of the people that the company hires. A company’s culture can be reflected in its dress code, business hours, office setup, employee benefits, turnover, hiring decisions, client satisfaction, and other operational aspects. No companies are cultural twins and thus careful attention is required in understanding the cultures of both merging companies and managing the integration process. 221

“The causes of merger failure can be complex and may vary – there is no single model that fits all. Nonetheless, cultural misalignment is commonly considered a direct and indirect hurdle to success and its mismanagement can hinder a company from obtaining synergies.” Having said that, it is highly recommended to start any cultural assessment early and make sure that the human dimension of the combination is incorporated into due diligence and integration planning from the get-go, as opposed to it being relegated to the backburner. Organisations can start with cultural assessment during the due diligence stage, which provides preliminary indications on cultural alignment or misalignment of the two merging companies and determines whether the existing cultures can be aligned with the overall business strategy. With the cultural and strategic alignment assessments ready, organisations can reach a tailored sale and purchase agreement and formulate integration strategies that facilitate a smoother transition and a more effective integration to capture post-merger synergies. The time spent on cultural assessment need not to be long but should be sufficient to obtain a basic understanding of the cultural and strategic backgrounds of both companies. Second, more time should be spent on the development and implementation of the action plan. Due to their intangible nature, culturerelated issues are likely to be unpredictable. Addressing these issues can be a challenging task. In most M&A transactions, companies focusing on cultural integration tend to achieve post-merger synergies. Apart from an analysis of cultural differences, these companies also evaluate cultural opportunities and roadblocks, which guide their efforts into the right direction. Companies also take initiatives in redesigning their organisational structure, determining leadership assignments, and modifying human resources practices such as compensation and benefits. This is then transmitted to employees who need to be aware of the company’s new direction and its meaning. Change may create frustration and cause stress amongst employees. Proper communication from management – preferably with a clear vision on the integration process – can reduce scepticism and doubt. With employee retention strategies and other team building activities, companies can establish a new culture and concentrate on post-merger business goals. VALUE OF CULTURAL ALIGNMENT “People are valuable assets to an organisation and play an integral part to the success of a business. Effective people management is the key to achieving post-merger synergies so as to maximise the optimal outcome,” says Barry Tong, 222

Transaction Advisory Services Partner of Grant Thornton in Hong Kong. As cultural integration is one of the key factors of a successful merger, it is important to have a dedicated team to manage and oversee the whole integration process. The causes of merger failure can be complex and may vary – there is no single model that fits all. Nonetheless, cultural misalignment is commonly considered a direct and indirect hurdle to success and its mismanagement can hinder a company from obtaining synergies. Cultural and strategic alignment, active management of cultural integration, as well as proper communication between management and employees, are the suggested measures that ensure smooth cultural integration and contribute to a successful merger.

ABOUT GRANT THORNTON HONG KONG Grant Thornton Hong Kong Limited is the member firm of Grant Thornton International Ltd (GTIL) in Hong Kong. We provide independent assurance, tax and advisory services to clients with a unique ‘one firm, one China’ approach, whereby we are fully integrated with Grant Thornton China with 22 offices and around 3,000 professionals across China. Our firm serves all parts of the China market and has a client base that encompasses more than 140 public companies and over 2,000 state owned enterprises (SOEs) and privately held businesses, as well as foreigninvested enterprises. Together with the wider international network, we help dynamic organisations around the globe unlock their potential for growth by providing meaningful, forward looking and actionable advice every day.

CONCLUSION Cultural compatibility can have a significant impact on the ultimate success of an M&A transaction. It is suggested that a separate cultural integration plan be studied, created, and worked upon in the early stages of a merger. Proper management of cultural issues is the key to realise successful post-merger integration, especially from a people perspective. i ABOUT THE AUTHORS Barry Tong has nearly 20 years of experience in financial due diligence, transaction supports, recovery and reorganisation, forensic investigation, assurance and initial public offerings. With ample experience, Barry has literally helped clients in every stage of a deal cycle – from pre-deal due diligence and SPA support, to purchase price negotiations and post-deal dispute resolution. Over the years, he has been advising clients from almost every industry, including consumable and industrial products, health care, energy, security solutions, logistics, luxury goods, entertainment, education, banking and securities, construction and hotels, telecommunication, airline, information technology, media, food and beverages. Benjamin Fong has extensive experience in supporting mergers and acquisitions, financial due diligence, forensic accounting, reviewing business valuation and internal control and monitoring financial forecast and cash flows. He has also provided auditing services for listed companies and multi-national corporations in Hong Kong, serving a variety of clients and industries including trading, manufacturing, retailing, construction, engineering, information technology and software solutions, logistics and service providers. CFI.co | Capital Finance International

Author: Barry Tong

Author: Benjamin Fong

> CFI.co Meets the CEO of JSW Energy:

Sanjay Sagar

r Sanjay Sagar is the Joint Managing Director and Chief Executive Officer of JSW Energy Limited. An alumnus of Modern School, Delhi, Mr Sagar also holds a Degree in Economics from the prestigious Sri Ram College of Commerce, University of Delhi. With a rich and varied experience spanning more than three decades in the energy and related sector, Mr Sagar has been instrumental in transforming JSW Energy into one of the most dynamic power companies in India. He is endowed with a keen techno-commercial acumen and has a knack for resolving complex issues related to government policies and procedures. This has helped him in converting seemingly impossible proposals into executable projects. Before assuming his position on the JSW Energy board of directors in July 2012, Mr Sagar was President (Project Development) in the company. In that role he was responsible for coordinating contacts and negotiations with governmental and statutory authorities. During this period, Mr Sagar is also credited with setting the 1080 MW RWPL (Raj WestPower Limited) Project, at Barmer in north west India, firmly back on the road to completion and with bringing the associated Kapurdi Lignite Mine into production in record time. Mr Sagar headed the Corporate Affairs Office of the JSW Group in Delhi from 2002 to 2006 before serving with Adani Enterprises between 2006 and 2008. Along with the position of Joint Managing Director and CEO, Mr Sagar holds the position of Vice-Chairman of Raj West Power Limited, a wholly-owned subsidiary of JSW Energy. Moreover, he continues to be a director with a seat on the boards of Barmer Lignite Mining Company Limited (BLMCL), JSW Power Trading Company, Jaigad Power Transco (JPTL), and a number of other associate companies. Under his leadership, JSW Energy has registered exemplary performance across various operational parameters. The company has achieved aggressive growth through organic and inorganic routes. In barely three years, the company added 1,931MW of generating capacity and enhanced net generation and turnover by 49% and 53% respectively. Mr Sagar led the successful acquisition of the 1,091MW Karcham Wangtoo and the 300MW BaspaII hydroelectric plants at Himachal Pradesh. This marked the entry of JSW Energy into the hydropower generation business. The

CEO: Sanjay Sagar

company now is the largest private sector hydropower generator in the country. Mr Sagar is also the chairman of this newly acquired Himachal Baspa Power Company Limited (HBPCL). Mr Sagar’s primary focus has been on maintaining and improving operational excellence, enhancing and streamlining corporate processes and judiciously leveraging available intellectual resources. Under his guidance, the company implemented clear and consistent processes embedded across the organisation. This contributed significantly

to the remarkable eight-fold increase in profits achieved during the past three years of his tenure. Mr Sagar has set a clear growth roadmap and devised the organisational model aligned to it. He offers a strategic direction and vision that has allowed the company to prosper even in the current uncertain environment prevailing in the Power Sector in India. The dynamism and effectiveness of Mr Sagar’s leadership is evidenced in the company’s consistently superior performance in an otherwise highly subdued sector. i 223

> UNCTAD:

Investment In Need of Direction By James Zhan

Fragmented, incoherent investment policies, and regulatory uncertainty are dampening investor confidence in an economic environment already fragile and bruised by weak global demand. Moreover, the extent to which investment and trade have become interlocked through the pervasive spread of global production networks means the reluctance to invest is also dragging down trade. James Zhan argues for a comprehensive process to improve the investment regime.

he global financial crisis has impacted heavily on trade: annual trade expansion over the past three years has averaged a tepid 3% annually, compared to an annual pace of over 5% in the pre-crisis era. The extent of the slowdown is also apparent when comparing trade with global economic output. Traditionally, there has been a strong correlation between trade and GDP growth. Bolstered by trade liberalisation, lower costs, and technology advances, trade took off in the second half of the last century, and has typically been expanding at double the pace of global GDP growth. However, this connection has become unhinged, with trade growing at roughly the same pace as GDP since 2012. Weak global demand, particular among high-income countries which account for almost two-thirds of global imports, largely explains the situation. But cyclical factors are not alone to blame. Fundamental changes in the organisation of international production have taken place over the past twenty years, which have tied investment and trade together. These structural changes, connected to the changed production landscape, are a strong influencing factor on trade performance. A look at cross-border investment growth since the onset of the financial crisis shows investment in deeper straits than trade with foreign direct investment (FDI) seesawing. In four of the seven years since it peaked in 2007, FDI has contracted. Following a rise in 2013, global FDI inflows stumbled again by 16 per cent

â&#x20AC;&#x153;In four of the seven years since it peaked in 2007, FDI has contracted.â&#x20AC;? in 2014 to an estimated $1.23 trillion. The mixed FDI performance since 2008 largely reflects the precariousness in the face of economic and policy uncertainty and rising geopolitical risk. The overall picture is lacklustre, and the prospects for a recovery are mixed. While GDP and trade have resumed modest growth since 2010, international investment flows are still a third below pre-crisis levels (see table 1). And this marked dip in investment activity, compared with activity before the crisis, has real implications for trade. The complex link is largely underpinned by the rise of global value chains. Integrated production networks, set up by multinational enterprises (MNEs) to tap into inputs from a variety of countries for the assembly of final goods and services, have ballooned over the past twenty years. These cross-border production chains have become the engine room of the global economy. According to UNCTAD figures, over 90,000 MNEs have some $27 trillion of FDI stock invested in nearly one million foreign affiliates worldwide. Together, these MNEs account for over a quarter of global GDP and some 30% of private sector value added. Their production networks also form the backbone of trade, now accounting for 80% of all cross-border sales. This development

2007

2008

2009

2010

2011

2012

2013

2014

GDP

4.0

1.5

-2.0

4.1

2.9

2.4

2.5

2.6

Trade

8.0

3.0

-10.6

12.6

6.8

2.8

3.5

3.4

FDI

34.0

-20.4

11.9

17.7

-10.3

4.6

-16.3

Memorandum: FDI value (in $trillion)

1.90

1.49

1.19

1.33

1.56

1.40

1.47

1.23

Table 1: Growth rates of global GDP, trade and investment, 2008-2014 (per cent).

Source: UNCTAD based on United Nations for GDP and FDI, and IMF for trade.

224

CFI.co | Capital Finance International

has inextricably linked international trade and investment. And the extent to which trade has become intertwined with the investment decisions of transnational corporates suggests that if constraints that throttle investment are not addressed, this may well augur an era of structurally weak growth for trade and the global economy at large. Paradoxically, MNEs have ample capacity to invest, with an estimated $5 trillion accumulated on their balance sheets. However, the fragility of the global economy and market volatility have suppressed investment appetites. This skittishness is compounded by policy uncertainty fuelled by the lack of policy coordination at the global level in investment, trade and financial policies. The dynamic interface that has been established between trade and investment suggests that a closer coordination between trade, investment and other public policies is required at the global level to oil the functioning of the world economy. But global governance has not kept pace with the fast unfolding restructuring of international production. While an internationally managed architecture governs and facilitates trade under the auspices of the World Trade Organization (WTO), no multilateral equivalent exists to give direction to investment. Instead, investment policy is fashioned piecemeal. At the national level policy making has been dichotomous: while the bulk of national investment policy measures implemented in recent years tends towards investment liberalisation, facilitation, and promotion, the overall share of regulatory or restrictive measures has been on the rise (from an average of 5% in the early 2000s to an average of 35% in the past 5 years, according to UNCTAD data). International investment policy developments have compounded the complexity, with the creation over the past fifty-odd years of thousands of investment pacts, hived off in bilateral or limited

country group contexts, creating a labyrinthine and incoherent network of investment agreements. These developments have created a vastly complex, fragmented investment policy space that is incoherent with other policies such as those for trade and finance, essentially rendering investment rudderless. The central position that investment has assumed in the global economy calls for action. The need to develop investment policy in a coordinated manner is key to enhancing predictability in the investment environment and for creating more certainty to boost confidence and reignite investment. What makes the need for intervention all the more urgent is the vast scope of global development challenges outlined by the post-2015 development agenda, which cannot reasonably be tackled without the participation of meaningful private sector investment. Investment policy action is best taken collectively. A comprehensive multilateral approach to investment policy reform would be the most sensible way to address systemic deficiencies, and provide a stable regulatory environment for investment. The dynamics of multi-stakeholder engagements ensure the interests of all involved parties are represented and can facilitate enhanced coherence. Multiparty action also helps transcend narrow interests and can more effectively ensure that wider social, economic and other developmental challenges, such as those under the aforementioned development agenda, are implanted in the new investment policy architecture. In the absence of an institutionalised investment body to spearhead change, options for concerted action have proved elusive. While good progress has been made with policy reforms at national and bilateral level, systemic fragmentation persists, which in reality has stoked up uncertainty, rather than allay it. A concerted reform effort at the global level is therefore highly desirable to facilitate greater coherence. The existing governance vacuum has prompted UNCTAD to explore ways to spur collective action to shore up investment policy making along two paths: the facilitation of coherent policy making; and consensus building to buttress policy harmonisation. In broad strokes, the reform agenda should be guided by the need to create the right balance between investor interests as well as legitimate issues of public concern: that is, to set policies that will create a climate conducive to investment, alleviate obstacles to investment, and instil a principled openness to investment on the one hand, while at the same time safeguarding the ability of countries to protect public interests through regulation on the other. This would be usefully accompanied by an effective and internationally recognised mechanism for dispute resolution. It would be a much needed improvement on the flawed existing mechanisms, the ad hoc nature of which sometimes yield conflicting rulings that detract from the evolution

of a coherent, precedent-based dispute settlement system. To further prop up investment, policy scrubbing should be complemented by proactive and clearly targeted investment promotion and facilitation strategies, supported by the requisite financial and institutional capacity, and technical assistance to ensure their effective execution. These can leverage regional cooperation for optimum impact. Given the wider sustainable development agenda context mentioned above, investment policy reforms should finally be anchored by responsible investment principles. These can be angled to proactively tap the positive contribution investors can make to achieve wider societal goals and/or to prevent their negative impact on these goals. UNCTADâ&#x20AC;&#x2122;s Investment Policy Framework supports the first avenue of investment reform by providing guidance for the formulation of both national and international investment policies. The framework has proved a useful reference for governments. The need for guidance in the investment policy realm is borne out by the extent to which a wide range of countries are consulting the Investment Policy Framework and incorporating its recommendations in policy formulation. This in itself could encourage greater coherence and harmonisation of investment policy and give impetus for collective action, albeit painstakingly slow. UNCTAD also advocates for multilateral coordination through consensus building initiatives, including by enhancing private-public dialogue on investment policy. The hope is that these efforts could help spur incremental multilateralism and bring greater predictability, stability, and transparency to the investment system to help unlock much-needed investment, which in turn can help reignite trade flows and stir global growth. An updated investment regime is long overdue. i ABOUT THE AUTHOR James Zhan is director of the Investment and Enterprise Division at the United Nations Conference on Trade and Development (UNCTAD). He leads the team that produces the World Investment Report.

Author: James Zhan

225

Micro Credit the American Way By Wim Romeijn

eing short on cash is an expensive proposition: ask the Greeks or anyone whose luck has run out. The cashstrapped often spend more on credit than on food. Conversely, in order to put food on the table, the working poor turn to payday lenders. Here, cash advances to alleviate momentary crunches are easily obtained. However, the small loans often carry interest rates of 2,000% or more. In the UK, the average annualised interest rate charged by payday lenders amounts to a staggering 1,415%. As of yet, there is no legislation that caps the rate non-bank credit providers may charge. Surprisingly, the US maintains the cowboys of the financial services industry on a somewhat tighter leash. A growing number of states limit the maximum interest rate lenders can charge while Georgia bans the payday lending altogether, slapping offenders with felony charges of, amongst others, racketeering. Only fifteen states allow lenders a free rein in setting their rates and fees.

Final Thought

Nationwide, however, payday lending remains a hugely profitable business, collecting an estimated $3.5bn in fees plus untold billions in interest. Over 22,000 payday loan outlets now line America’s main streets – more than the number of Starbucks and MacDonald’s combined – and dispense close to $45bn annually in short-term loans. Up to 70% of that volume is earmarked for return customers who churn their loans every fortnight. Nonrepeat borrowers account for barely 2% of the industry’s total business. According to research from the Center for Responsible Lending in Durham, North Carolina, a typical payday loan amounts to $325 and is flipped eight times. At the end of the exercise, the borrower owes on average $468 in interest, requiring a disbursement of $793 to repay the original amount. In the US, the average annualised interest rate payday lenders charge hovers around the 500% mark. The Federal Deposit Insurance Corporation (FDIC) estimates that around nine million US 226

“The report found that the second-most underbanked county in the US may be found in – of all places – New York City.” households have no access to mainstream banking services. Another 24 million are formally classified as underbanked – people who regularly turn to payday lenders for their financing needs. While the numbers have receded slightly from the peak they attained during the Great Recession, tens of millions of Americans are still shunned by fully-regulated financial services providers. With wages flat-lining – the Q2 2015 numbers of the Department of Labor show just a 0.2% year-on-year increase in average earnings, the smallest rise since 1982 – America’s working poor struggle to cope with the financial fallout of even the smallest of setbacks such as a car breakdown or a higher-than-expected utility bill. Government studies show that over half of US households are unable to come up with $400 to head off minor emergencies.

entities – the working poor have been excluded from the established financial services industry. Households getting by on an annual income of $25,000 or less have been disproportionally hit by the successive consolidation waves that hit the banking industry in the 1990s and early2000s which was followed by the closure of thousands of local branches. In her book, Ms Baradaran cites a 2013 Bloomberg report that proves her case: US banks have lost interest in serving the working poor. Of the almost 2,000 bank branches that were shuttered between 2008 and 2013, fully 93% were located less affluent neighbourhoods. The report found that the second-most underbanked county in the US may be found in – of all places – New York City. The 47,300 people of the Longwood neighbourhood of the Bronx must do with only two banks but are spoilt for choice when it comes to pawnshops and payday lenders. Just before the Great Recession hit in 2008, this area of the Bronx, where the median household income is just shy of the national poverty line, was prime territory for the banks. In a process aptly called reverse redlining, banks were doling out mortgages by the bucket load to just about anybody with a pulse. Bundled together and properly securitised, these no-doc and low-doc loans were peddled to unsuspecting investors in the lead-up to the financial meltdown.

It is on these deprived masses that the payday loan industry thrives. For Mehrsa Baradaran of the University of Georgia School of Law, the US currently operates two parallel financial systems: the well-regulated and governmentsupported banks that serve the well-off and a loose network of fringe operators – payday lenders, pawnshops, cheque-cashing outfits and assorted riffraff – that cater to the needs of “the other half.”

While in the years following, major financial institutions paid over $500m in fines to settle law suits initiated by financial regulators, most mortgage takers lost their slice of the American Dream and were left to fend for themselves. As banks turned their backs on the formerly lucrative poor, the payday lenders moved in. Rather than concluding, as Ms Baradaran does, that the US has two separate banking sectors each serving a distinct demographic, one may surmise that both take turns in extracting the most dollars out of those who have the least. i

In How the Other Half Banks1, a wellresearched exposé apparently written in anger, Ms Baradaran shows that since the decline of locally-owned credit unions and cooperative banks – or their absorption into larger corporate

Footnotes 1 How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy by Mehsra Baradaran, Harvard University Press 2015 (£22.95/$29.95) – ISBN: 978-0-6742-8606-1.

CFI.co | Capital Finance International

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