HERALD - MAY 2018 by HERALD

Англ_Вестник_2_2018_обложка_Layout 1 11.05.2018 14:10 Page 1

IWS

Internationaler Wirtschaftssenat

Russian Union of Industrialists and Entrepreneurs

FINANCIAL & BANKING ASSOCIATION OF EURO-ASIAN COOPERATION

world economic council

O F F I C I A L P U B L I CAT I O N O F F B A E AC , I B C

eurasian financial & economic

№ 2 (4) | 2018

THE FORMAT OF F OR UM • Plenary sessions • Breakout sessions III секция

IV секция

International transfer of high technologies — new opportunities for Eurasian integration IBC Meeting «Risk assessment and its management in cross-border banking transactions»

T HE FIFT H MOSCOW INT ERNAT IONAL FINANCIAL AND ECONOMIC FORUM

Eurasian Union and the EU: search for new formats of cooperation

HE RA LD

II секция

Agribusiness: from intentions to cooperation At the speed of light — the latest trends and changes in the environment of financial technologies and regulation

THE ORGANIZING COMMITTEE 17 Kotelnicheskaya nab., Моscow, 109240, offices 400–408. +7 495 663-02-08/13/19 sgk@fbacs.com, s.arkhipova.fbacs@mail.ru, tkd@fbacs.com, office@fbacs.com

Financial forum-2018: «Financial and Banking system of Russia: New challenges and trends»

10 B. Pejaković The banking sector reform in Montenegro

27 А. Boldi Gold Italy

November 30, 2018 № 2 (4) | 2018

I секция

EUR AS IAN FNAN CI AL & E C ON OMI C

B R E A KO U T S E S S I O N S

I. Lengyel Real-time settlements raise banks competitiveness

Personality

Rajnish Kumar:

«The possibility of financial union within EAEU enhances the positive outlook of the region…»

Англ_Вестник_2_2018_обложка_Layout 1 11.05.2018 14:11 Page 2

Award «Financial and Banking Elite of Eurasia» November 30, 2018 Nominations 2018: BANKER OF THE YEAR (for personal contribution to the development of banking business) 2 STANDARD OF STABILITY (bank leader on sustainable development, stability, holder of international and country ratings) 3 TRIUMPH OF TECHNOLOGY (bank leader in the implementation of modern IT technologies) Prize: Exclusive author's statuette 1

The official award ceremony will be held on November 30, 2018 with the participation of representatives of business, political and cultural circles, national governments and banks, heads of trade unions and associations, representatives of leading mass media of the countries of Eurasia

СOMPLEX BUSINESS SOLUTIONS Services for the effective work of small and medium-sized businesses and their integration into the exchange system

Applications for participation are taken until November 1, 2018. Registration Form and Terms of participation in the competition: www.fbacs.com Organizing committee: tel.: +7 495 6630208, 6630213, email: bev@fbacs.com office@fbacs.com

Organization and preparation of documentation for stock trading Consulting on business activities and management Legal support of transactions Trust asset management Investment activities

www.salus.ru info@salus.ru

CONTENT PERSONALITY R. Kumar. The best in our relations is yet to come...

FOUNDER’S PAGE. FBA EAC

RSPP NEWS Financial forum-2018: «Financial and Banking system of Russia: New challenges and trends»

AWARD WINNER Beibut Kapyshev. From traditional banking to the digitalization of financial services

BANK. BANK. BANK D. Molomjamts. International Investment Bank goes to a new stage of its development

BANKING SYSTEM OF THE COUNTRIES OF EURASIA B. Pejaković. The banking sector reform in Montenegro

HERALD eurasian financial & economic

№ 2 (4) | 2018

FOUNDERS: Financial & Banking Association of Euro-Asian Cooperation (FBA EAC)

International Banking Council (International Coordinating Council of Banking Associations of the member states of the Commonwealth of Independent States, Central and Eastern Europe)

PUBLISHER: Financial & Banking Association of Euro-Asian Cooperation (FBA EAC)

PRACTICE А. Boldi. Gold Italy L. Камаrа. Investments and state

PARTNERS’ NEWS А. Heimonen. A week in Davos with Caspian view Association of Belarusian Banks: Digit is priority

PROJECT Industrial warehouse «Amega»

PHOTO CONTEST «The world through the eyes of a photographer»

Editor in Chief: V. Murin Executive editor: S. Kiyatkina Editorial Board: E. Berezovaya, O. Ryazanov Translators: S. Arkhipova, K. Tereshenko Page-proofs: «Granitsa Publishing House» Ltd.

PUBLISHER'S ADDRESS: 17 Kotelnicheskaya nab., Moscow, 109240, Russia +7 495 663–02–08/13 office@fbacs.com www.fbacs.com

PRINTING HOUSE: Released in the «Granitsa Publishing House» Ltd. Format 210x297 mm. 68 pages.

MATERIAL FOR THOUGHT Т. Galander. Germany — Russia: business-gravitation remains

INVESTMENTS D. Bagla. India — a country of great opportunities

ISSUE DATE: May 2018

BUSINESS IN THE COUNTRIES Foreign direct investments in the states of India

PRICE: Free

EXPERT OPINION I. Lengyel. Real-time settlements raise banks competitiveness

CONTEMPORARY VIEW А. Bespalov. The window of economic opportunities

FOUNDER’S PAGE. IBC Azerbaijan: Institute defending the interests of clients

The editorial office is not responsible for the content of the advertisements. Advertised goods and services are subject to mandatory certification. Reprint is allowed only with the written permission of the editorial office. Manuscripts are not reviewed and not sent back.

EDITORIAL BOARD

Alexander Murychev, Chairman of the Editorial Board, Chairman of Coordinating Council of FBA EAC, Executive Vice-President of the RSPP, Chairman of the IBC

Anvar Abdraev, Hakob Andreasyan, Bakhytbek Bayseitov, President of the Union Chairman of the Union President of the Associaof the Banks of Kyrgystan of the Banks of Armenia tion of Banks of the Republic of Kazakhstan

Oleg Berezovoy, General Director of FBA EAC

Andrea Boldi, Yves Pozzo di Borgo, President of the company President of the AREZZO FIERE Parliamentary Friendship E CONGRESSI SRL Group with Central Asia (Italy) In the Senate of France

Zurab Gvasalia, President of the Association of Banks of Georgia

Veroljub Dugalić, General Director of the Association of Serbian Banks

Anatoly Kazakov, Elena Korobkova, Manish Kumar, Aleksandr Kuschynski, Chairman of the Executive Director of the General Director Chairman Coordination Council of Independent Association of the Soltex Group Ltd., of the Association the Financial and Banking of Banks of Ukraine Head of the Representative of Belarusian Banks Council of the CIS office of FBA EAC in India, Sri Lanka, Bangladesh, Malaysia

Georgy Kuchkov, General Director of the Information and Publishing Center «Eurasia»

Istvan Lengyel, Secretary General of Banking Association for Central and Eastern Europe

Amirsho Miraliev, Chairman of the Board of the Association of Banks of Tajikistan

Valery Murin, Editor in Chief of the magazine «Eurasian Financial and Economic Herald»

Zakir Nuriyev, President of Azerbaijan Banks Association

Krzysztof Рietraszkiewicz, Chairman of the Polish Bank Association

Anatoly Tkachuk, Vice-President of FBA EAC

Dumitru Ursu, Chairman of the Moldovan Bankers’ League

Bakhtiyar Khamidov, General Director of Uzbekistan banking association

Bratislav Pejaković, Secretary General of the Association of Montenegrin Banks

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

A word to the readers

Dear colleagues and friends! «I’m engaged to India, I owe everything to her. I could not express my feeling for India more clearly than identify it with the feeling for my wife. She worries me like no other woman in the world. Not because she is perfect. I dare say that she has more flaws that I see. But here there is a sense of indissolubility». These words of Mahatma Gandhi, as well as possible, illustrate the attitude of our today’s authors to their country. The face of the cover is Chairman of the Board of Directors of «State Bank of India», Rajnish Kumar, whose interview is the central material of the issue. The investment opportunity of India is described by President and Managing Director of Invest India, Deepak Bagla. In this issue we continue to publish materials on the most interesting, debatable topics of the financial and banking industry, the economy as a whole, fintech. The geography of Eurasia at that point is represented besides India by such countries as Mongolia, Azerbaijan, Russia, Belarus, Kazakhstan, Hungary, Kyrgyzstan, France, Bulgaria, Montenegro, and Italy. Interesting material, in my opinion, is presented in the heading «Practice», which deals with the current state of affairs in the system of international investment agreements — the basis for liberalization and the growth of the volume of international capital flows. Currently there are more than 3000 bilateral investment agreements containing various dispute settlement mechanisms. The goal of the world community, according to the author of the article, Lai Kamara, a well-known international arbitrator, is the conclusion of a world investment agreement that could fulfill the role of an international investment code and replace existing bilateral agreement. In the heading «Expert opinion» our regular author Istvan Lengyel, Secretary general of Banking Association for Central and Eastern Europe, presents analytic material on the transformation of the world banking system due to the inevitability and development of the fintech-revolution. The latest trends and changes in the environment of financial technologies and regulation became the subject of discussion at a round table, organized by the Association of Belarusian Banks in connection with the release of Presidential Decree No. 8 «On the development of the digital economy». According to the Chairman of the Association of Belarusian Banks Alexandr Kuschynski, this document creates unprecedented conditions for the development of the IT industry and gives serious competitive advantages to the country in the creation of a digital economy of the XXI century. Today a notable feature of globalization is the movement of labor resources. The number of migrants in the world in 2017 was 258 million people, since the beginning of the century it increased by 49%. Russia is among the leaders in the number of both migrants who have been accepted and migrated from it. Andrey Bespalov, Chairman of the Coordi-

nation Council of the Eurasian Center of Human Resources, discusses that topic in his article «The window of economic opportunities». In February of this year, within the framework of the Russian Business Week, a financial forum was held, which is annually organized by the Russian Union of Industrialists A. Murychev, Chairman of the Editorial and Entrepreneurs. Board of «Eurasian Financial The theme of the fo- and Economic Herald» rum was «Financial and banking system of Russia: new challenges and risks». Distinction of this forum from previous meetings of entrepreneurs with representatives of regulatory authorities was a joint session, which addressed the most important problems of the national financial system. According to one of the representatives of the banking community, the motto of the forum could be the expression: «If everything is good, it means we don’t have full information», which indicates the degree of frankness and severity of the discussion. It seemed to me important to share with readers the impressions of what I heard. The official rewarding ceremony of the annual international public award «Financial and Banking Elite of Eurasia» was held in November of the past year. In this issue we present the owner of «Gold bee» in the nomination «Development benchmark» — Optima Bank (Kyrgyzstan), and also offer to familiarize with the nominations 2018 to all those who would like to become the next winner of our Award. FBA EAC, together with European financial and economic associations, began preparations for The Fifth Moscow International Financial and Banking Forum: «European Union and the EAEU: search for new formats of cooperation». Topics of the sectional sessions of the Forum are listed on the back cover of the magazine. More detailed information on participation in the Forum you can find on the website of the FBA EAC — www.fbacs.com. A photo contest «The world through the eyes of a photographer» continues. We are pleased with how actively nonprofessional photographers are taking part in it, what sincerity and love fill their work. We have a difficult choice. Remember in Bulgakov's novel «The Heart of a Dog» Professor Preobrazhensky taught his colleague Dr. Bormental not to read Soviet newspapers at dinner because it worsens digestion. I declare with all responsibility that our magazine has a positive influence not only on the digestive system, but also on the immune system, vision and touch. Read and write. We will be happy to your coauthorship. 3

Personality

RAJNISH KUMAR:

«THE BEST IN OUR RELATIONS IS YET TO COME...» INTERVIEW OF THE CHAIRMAN OF THE STATE BANK OF INDIA SHRI RAJNISH KUMAR

rbi.org.in

“

The possibility of financial union within EAEU enhances the positive outlook of the region.

RAJNISH KU MAR Chairman of the State Bank of India Shri Rajnish Kumar has been with the State Bank of India for over three decades, having joined the Bank as a Probationary Officer in 1980. An M.Sc. in Physics, apart from CAIIB, Rajnish Kumar has held several key assignments across various business verticals, including two overseas assignments in Canada and U.K. He has vast experience in handling large credit, project finance, foreign exchange and retail banking. Rajnish Kumar has assumed the office as Chairman State Bank of India on 7th October, 2017

ЕВРАЗИЙСКИЙ ФИНАНСОВО-ЭКОНОМИЧЕСКИЙ ВЕСТНИК | #2(4)-2018

hri Kumar, how would you estimate the prospects of cooperation between India and Eurasian Economic Union? — We pay close attention to integration processes in the post-Soviet area. The Eurasian Economic Union (Russia, Belarus, Armenia, Kazakhstan and Kyrgyzstan) is a newcomer among regional integration organizations. It has been operating as a Customs Union since 2011, and as an Economic Union since 2015. Establishing the EAEU is no doubt a landmark achievement for its members after they had repeatedly endured two integrations «false starts» in the 1990s and 2000s. EAEU is a common market of 182 million people and has an aggregate GDP of approximately $2 trillion. EAEU accounts for 3% of the world GDP. In addition to geopolitical objectives, it is based on a specific long-term economic agenda viz. free mobility of goods and services, labour and capital. EAEU is a diverse market. The Union’s largest economies are those of Russia and Kazakhstan. The making of this union has created a large common market in pharmaceuticals, a common market in power and a common market in oil and gas. Furthermore, EAEU member states are beginning consultations on a very complex matter— creation of an EAEU financial regulator by 2022–2025, a supranational financial

institution that would be responsible for enforcing common standards in the Union’s financial markets and for providing proper regulation and supervision. India has shared long historic ties with Central Asian countries and Russia. A blueprint for India, Central Asia cooperation was outlined in India’s ‘Connect Central Asia Policy’ in 2012. Connect Central Asia Policy is expected to bring numerous benefits to both the sides. India is dependent on imports for its energy requirements. EAEU with its vast oil and gas resources can no doubt emerge as a major non-OPEC player from which India can benefit. At the same time, India is in a position to offer good and affordable pharmaceutical drugs that can help in poverty alleviation measures and also is in a position to extend cooperation by setting up civil hospitals / clinics in Central Asia. There are also discussions within Connect Central Asia on setting up a Central Asian enetwork with its hub in India, to deliver tele-education and tele-medicine connectivity, thereby linking all the five Central Asian States. This will enhance the quality of human capital within the region. It, therefore, comes as no surprise that the Joint Feasibility Study Report of the Ministry of Commerce has concluded that the proposed Free Trade Agreement (FTA) is feasible and mutually beneficial. This

was based on the assessed potential in bilateral trade in goods, trade in services and investment. The study has further recommended that adequate focus may be given to the operationalization of the International North-South Transport Corridor (INSTC) and Green Corridor between India and the EAEU to take full advantage of the FTA. — Could you, please, give more details regarding financial aspects of the Free Trade Agreement? — The FTA specifically aims to increase trade and commerce between the member countries and India. However, for trade relationship to flourish, there is a need to establish basic financial arrangement for facilitating the flow of commerce. As on January 2018, there are only two major Indian banks in the region viz. Commercial Indo Bank LLC, Moscow (60% owned by State Bank of India) and JSC Tengri Bank, Kazakhstan (49% owned by Punjab National Bank). Except for Russian Banks, there is no major Central Asian bank in India. Thus, as we move closer to the FTA, the bilateral financial relationship is in its infancy. Given the complementarities between the two regions, India-EAEU member states may soon have examined possibility of cooperation in the financial sector through banking presence in both the regions. At the same time, it may

In the coming years, the bank will look at various regions of the globe including EAEU as a potential opportunity

become imperative to open offices of general insurance companies in the region to develop risk mitigation product for furthering trade and investment in the region. — And what could you tell us about the work of the State Bank of India? — State Bank of India (SBI) is one of the oldest financial institutions of India with a sterling legacy of over 200 years, SBI is now serving more than 420 million customers across the globe. The origins of SBI date back to 1806, when the Bank of Calcutta was established. In 1921, the Bank of Bengal and two other Presidency banks (Bank of Madras and Bank of Bombay) were amalgamated to form the Imperial Bank of India.

In 1955, the Reserve Bank of India acquired controlling interests of the Imperial Bank of India and SBI was created by an Act of Parliament to take over the functions of the Imperial Bank of India. SBI is the largest commercial bank in India in terms of assets, deposits, profits, branches and employee strength. As on April 1, 2017 and after the merger of five Associate Banks & Bharatiya Mahila Bank, the bank commanded a market share of around 23% in the banking industry of India. According to The Banker magazine, as on 31st March 2017, the Bank ranks 54th among global Banks in terms of assets. With 22,000 plus branches, it has the largest branch network in country catering to providing a wide gamut of financial services to its more than 420 million customers through its staff numbering 263,538. SBI has been at the forefront of Financial Inclusion initiatives in India. The Bank is the pioneer in the Business Correspondent (BC) model, an alternative mode for providing banking services to cater to both ur-

ban and rural customers, a segment which is still characterized by small value transactions. The policy of the bank on Financial Inclusion is geared towards promoting financial education and making credit available to productive sectors of the economy, including the rural and MSME sectors. This is being done at the most affordable rates and it is ensured that the benefits of all Government-run schemes reach the target population in full, without any leakages. The Bank has successfully leveraged technology for propagating Financial Inclusion by introducing internet based Kiosk Banking, Card based and Cell phone messaging channels. As a result, SBI accounted for the largest share of accounts with around 35 percent under the Pradhan Mantri Jan Dhan Yojana which led to universal bank coverage in India in 2014. Shedding the normal stereotypes, SBI today is recognized as technologically advanced bank in the country. With the launch of sbiINTOUCH in 2014, State Bank of India was the first Bank in India to introduce the concept of «Digital Banking». State of the art technology like Debit Card Printing Kiosks, Interactive Smart Tables, Interactive Digital Screens, Remote Experts through video call etc. were introduced to providing a completely different experience through online self-service mode. The key feature of these branches is that you can open your savings bank account on Account Opening Kiosk (AOK) within 15 minutes. — And what does the international activity of SBI involve? — SBI being a Government owned bank has closely aligned its business with stated development goals of the Government of India. At the same time, it has not compromised on commercial principles

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

which have made it one of the most profitable public enterprise in India. Although the major share of its revenues comes for its domestic operations, with the progressive liberalization of India economy since 1992, the Bank has developed a sizable foreign presence. Today, SBI has 207 offices in 35 countries. The International Operations of the Bank are generally guided by the overarching principle of supporting global Indian corporate, Indian Diaspora and bilateral trade spread across geographies. The Bank is also focusing on local populace to tap local business in some countries such as in Nepal. In tandem with the domestic operations of the Bank, the International Banking Group (IBG) of SBI functions with considerable autonomy and has dedicated verticals in Credit & NPA management, Compliance, Treasury Management, Human Resources, Operations and General Banking issues. The international operations of SBI have always followed a smooth course owing to its policy of zero-tolerance to non-compliance of regulatory prescriptions. Due to the global economic crisis, regulations in most countries, especially for Foreign Banks, have become very stringent leading to high compliance cost. The Bank has successfully announced the launch of its UK subsidiary, SBI (UK) Ltd in April 2018. Subsidiarisa-

tion of the retail franchise SBI UK follows after Bank had opened its doors to UK residents in 1921. In the coming years, the bank will look at various regions of the globe including EAEU as a potential opportunity. The possibility of finan-

cial union within EAEU enhances the positive outlook of the region because of its low dependence on foreign credits accompanied by considerable structural similarities within the economies. So the best in our relations is yet to come.

Founder’s page. FBA EAC

ASSESSMENT CENTER GENERAL MEETING OF FBA EAC MEMBERS On March 2, 2018 the Financial and Banking Association of Euro-Asian Cooperation held the General Meeting of its members. The main topic of the discussion was Association’s activity in 2017, goals for 2018, rotation of the members of the Supervisory Board and Coordinating Council, approval of amendments to the Charter of FBA EAC and approval of the new version of the Provisions of membership in FBA EAC. FBA EAC President B.Bayseitov headed the Meeting. In his speech he underlined the importance, awareness and credibility of Association. He stated as the main task of Association the development of effective financial instruments for business demands of the members and partners of Association. «FBA EAC has shifted from the traditional concept of a banking association as a structure for protecting the professional interests of a certain pool of participants, to the build-up of a multilevel client-focused system of relations between businesses and banking society», — said FBA EAC General Director Oleg Berezovoy. The Chairman of Coordinating Council A.Murychev touched upon the joint meetings of Supervisory Board and Coordinating Council in 2017. They covered such issues as integration of SME into the common exchange system in the EAEU area; installation and development of multicurrency clearing system; launch of the international net of HR service and qualification assessment centers to serve labor migration, etc. And decisions taken at those meetings, became the basis for the report of Department of economic and financial policy of EEC, which certainly highlights the importance of the projects, carried out by FBA EAC under the auspices of EEC. For the future the Meeting approved the following focus areas for the Association: the ongoing project of common exchange area on the territory of Eurasia, development of multicurrency clearing and transferring it to blockchain technology platform, creation of the centers for personnel training and customs audit in EAEU, development of the «bank of projects» with innovative financial instruments, launch of financial and investment funds. The agenda also included program projects of FBA EAC. In 2017 FBA EAC Qualification Assessment Center was registered and the first Assessment Center in Armenia (Erevan) was launched at the premises of Russian-Armenian University. Resulting from the reports of the management and the Audit Commission of Association the Meeting recognized the work of Association acceptable, pointed out its progress and approved the focus areas for 2018.

On February 16 there was a meeting of the Council for Professional Qualifications Development where it was announced about registration of the FBA EAC Qualification Assessment Center (QAC). A. Bespalov, Chairman of the Coordination Council of the Eurasian Center of Human Resources received the Registration Certificate.

SIGNED

On March 8, 2018 a Memorandum of cooperation was signed with the Association of trade entrepreneurs of Kazakhstan. The signees of the Memorandum were the Vice-President of the Association of trade entrepreneurs of Kazakhstan Zh. Azhibaeva and the General Director of FBA EAC O. Berezovoy.

On April 5, 2018 a Memorandum of cooperation was signed with the Eurasian business union. The signees of the Memorandum were the General Director of FBA EAC O. Berezovoy and the Chairman of the Board of the Eurasian business union V. Kambolov.

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

FBA EAC DEVELOPS TIES WITH ITALIAN BUSINESS On March 22, 2018 the Chairman of Coordinating Council of FBA EAC A. Murychev and the General Director of FBA EAC O.Berezovoy had a business meeting with the President of AREZZO FIERE E CONGRESSI Srl (Italy) Andrea Boldi. The parties decided to develop cooperation and to organize a special session for jewelers, within the framework of the Fifth Moscow international financial and economic forum «Eurasian Union and the EU: search for new formats of cooperation». The Forum will be held on November 30, 2018 in Moscow.

BUSINESS TRIP TO FRANCE On March 8–10, 2018 the Association management visited Paris with a business trip. At the meeting the Association was represented by the Chairman of Coordinating Council A. Murychev and General Director Oleg Berezovoy. The French party was represented by Ive Pozzo di Borgo and the member of the Managing Board of Claresco Finance Lai Kamara, a well-known French lawyer and international mediator. The parties discussed ways to attract to FBA EAC platform the representatives of business society from Europe, Africa and the Middle East, the opportunities of interaction with the FrenchRussian Chamber of commerce and the perspectives of investment fund. The Association also offered some other projects to be fulfilled in France. The parties agreed that the work of French business on FBA EAC platform will provide for new prospects and allow to use the whole range of financial and trade instruments, available in the Association and implement them on the territory of Eurasia.

DEVELOPING BRANCH NETWORK New FBA EAC Representative offices were opened at the beginning of the year.

COURSE ON CÔTE D'IVOIRE In April, 2018 Deputy General Director of FBA EAC Egor Ivankov visited Cote d’Ivoire. On April 11, 2018, together with Marc-Olivier Tetchi, FBA EAC Head of Representative office in Cote d’Ivoire, he held a press-conference where he spoke about future business projects of FBA EAC on the territory of Cote d’Ivoire. These projects will be implemented with the help of the company SALUS, which has recently entered African market and is rapidly developing there now. Projects cover a wide range of areas such as education, scientific research and agriculture.

Jerome Clausen, Marc-Olivier Tetchi, Yaghoup Jamali, Head of Representative Head of Representative Head of Representative office in France office in Cote d’Ivoire office in the Islamic Republic of Iran

RSPP news

FINANCIAL FORUM-2018

FINANCIAL AND BANKING SYSTEM OF RUSSIA: NEW CHALLENGES AND TRENDS www.рспп.рф

IN EARLY FEBRUARY WITHIN THE RUSSIAN BUSINESS WEEK THE ANNUAL FINANCIAL FORUM WAS HELD BY THE RUSSIAN UNION OF INDUSTRIALISTS AND ENTREPRENEURS (RSPP). UNLIKE THE PREVIOUS MEETINGS BETWEEN ENTREPRENEURS AND REGULATORS, THE HALLMARK OF THIS FORUM WAS A UNITED SESSION WHICH COVERED THE MOST CRUCIAL CHALLENGES OF THE NATIONAL FINANCIAL SYSTEM. AS ONE BUSINESSMAN MENTIONED THE FORUM COULD HAVE THE SLOGAN: «IF EVERYTHING IS GOOD, IT MEANS WE DON’T HAVE FULL INFORMATION».

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

his welcoming speech the president of RSPP Alexander Shokhin pointed out that in this country there are general macroeconomic conditions for economic growth due to the Bank of Russia and its efforts. «At the same time the demand from business is still unsatisfied with regard to long-term financing and funding of investment projects, a number of business areas face the lack of working capital financing. And a logical question emerges: how to balance the interests of government, corporates and commercial banks», — said Shokhin. The forum moderators A. Murychev, the vice-president of RSPP, the Chairman of the Coordinating Council of FBA EAC defined several hot topics for discussion: — positives of 2017;

A. Shohin, President of the RSPP

A. Murychev, Executive Vice-President of RSPP, Chairman of Coordinating Council of FBA EAC

— challenges of 2018; — governmental plans for regulation update; — future of digitalization in financial intermediation and banking sector in particular.

planning and financing of business processes. Representatives of the Russian business pointed out that they support the CBR’s efforts of the recovery in banking system and financial market in general and they understand that in 2018 the trend will remain. It was mentioned that in 2015 licenses were revoked from 93 commercial banks, in 2016 there were 97 such banks, in 2017 — 47. Last year licenses were revoked from 30 insurance companies, while in 2015–2016 150 insurance companies left the market. Other segments of the Russian financial market find themselves in a similar situation. The regulator’s efforts to improve discipline and responsibility of commercial banks for adherence to prudential requirements have led to a more open financial intermediation. In future it is supposed to raise trust

Positives of 2017 First of all the forum participants underlined that the Central Bank of Russia had managed to stabilize inflation growth, to achieve and even exceed the announced target of inflation for 2017. The regulator was planning to decelerate nominal inflation down to 4 percent. But according to Rosstat, customer inflation was at the level of 2.5 percent by the end of the year. And it is the lowest level since 1992. For the current year the Bank of Russia expects the inflation of consumer prices again at the level of 4 percent. This stabilization created conditions for

in credit organizations from the part of business and individuals, to calm situation in the interbank market, reduce credit and operational risks. In spite of the drastic cut in the number of commercial banks the population and companies still trust the national banking sector. It is reflected in the rise of deposits by 7 percent from individuals and by 9 percent from legal entities. During 2017 the Bank of Russia reduced the key rate 6 times from 10 to 7.75 percent. In early 2018 the regulator keeps to this policy (on February 9 the Supervisory Board of the Bank of Russia reduced the key rate by 25 b.p. to 7.50 percent). Basically it resulted in lower rates both for corporates and individuals. And the CBR statistics con-

firm this. The interest-rate policy of the banking sector followed the interest-rate policy of the regulator (see chart). Moreover for some credit products the interest rate was decreasing faster than the CBR key rate. The biggest reduction of interest rates on loans is for the products supported by the state programs, in particular mortgage loans. Among positives of 2017 the participants stressed good profits of the sector: in spite of a drop of 15 percent in comparison to 2016, it still amounted to RUB 790 bn. According to regulator among 515 commercial banks 420 reported about profitability. It is worth mentioning that RUB 647 bn. (81.9%) from RUB 790 bn. of profits was earned by Sberbank of Russia.

Dynamics of average market interest rates on loans in 2017, % Resource: www.cbr.ru/statistics/?PrtID=int_rat

Loans

January 2017

November 2017

Average decrease, p. p.

Consumer loans, incl. up to 1 year

22,88

19,66

3,22

Consumer loans, over 1 year

16,85

14,09

2,76

SME loans, incl. up to 1 year

14,77

12,79

1,98

SME loans, over 1 year

12,78

9,94

2,84

Non-financial entities loans, incl. up to 1 year

11,61

9,67

1,94

Non-financial entities loans, over 1 year

12,46

9,74

2,72

Another positive moment of the year 2017 was a slight drop in the share of non-performing loans in the banks’ loan portfolios which also means a certain stability. According to the Bank of Russia in 2017 the share of non-performing loans reduced from 6.72 percent in the beginning of the year (after the peak of 7.39% in March) to 6.68 percent. A little bit more considerable reduction of NPL share was in the retail loans — from 8.1 to 7.3 percent. Total assets of the banking sector in 2017 showed growth of 4.9 percent or RUB 3.9 tn. after their drop in 2016. The fastest growth was in retail lending: the retail loan portfolio grew during the year almost by RUB 1.5 tn. or by 14 percent. And the retail lending contributed 38.4 percent into the growth of total assets. The main part of lending was mortgage loans.

Challenges of 2017 Share growth of public sector banks Approving the support for the Central Bank’s recovery policy, the participants expresses concerns about the policy of nationalization of financial intermediation and narrowing of space for private business. The fact that unbalances market competition seems to be the concentration of ¾ of total assets in the banks with a large share of public sector. In late 2017 only two private commercial banks were in the top 10, and five in the top 20. However experts estimate that there are only three banks, totally independent from the state, and in 2016 there were eight. The share of public credit organizations grows, while the space for private banking business narrows. State banks already dominate in the markets of the most attractive banking products. Their expansion

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

is also backed by the direct legislative acts determining the lists of banks with which the most efficient Russian companies should be. As well as the lists of credit organizations allowed to provide certain services (for example guarantees for budgetary contracts); take deposits of temporally available state funds; maintain accounts of the funds for overhaul of apartment blocks etc. Such approach of legislators on the one hand aims at the safety of budgetary funds and on the other hand gives privileges to public banks and unbalances market competition. Another challenge is that the possibility of certain services depends on the capital amount of a credit organization, and it also gives better opportunities to public sector banks. Thus the Directive of the Government of Russia #986 dd. 19.08.2017 determines the placement order of budgetary funds in the accounts of commercial banks with the following requirements: general license, equity capital not less than RUB 250 bn., ACRA credit rating not lower than A+(RU), ExpertRA rating not lower than ruA+, participation in the deposit insurance system, debt clearance. The CBR’s policy of discipline improvement in the banking sector is followed by license revocation — starting from the beginning of 2018 the regulator revoked licenses from 6 commercial banks. According to RIA Rating in the mid-run at least 4 commercial banks from top-50 might be recognized insolvent, be deprived of license and be exposed to financial rehabilitation. As a result there still remains high volatility on interbank markets and mutual mistrust of players. In particular it is in evidence with regard to the growth of funds which are mostly kept in the Bank of Russia and not put forth to interbank markets.

G.Tosunyan, President of the Association of Russian Banks

A. Aksakov, Chairman of the Council of the Association banks of Russia, Chairman of the State Duma Committee on financial market

The demand — supply mismatch in loans

ty of their collateral. Banks must stick to rules, but companies can’t ensure it. Moreover according to G.Tosunyan, the President of the Association of Russian Banks, credit organizations are more and more cooperating between each other rather than financing the real sector of economy. During the year total liquidity of the banking sector increased by 26 percent, banks’ funds on accounts — by 57 percent, corporate loans portfolio — only by 0.2 percent, consumer loans — by 7 percent.

In spite of the fact that last year the banks managed to increase their loan portfolios, their structure has negatively changed. Thus during the year there was a cut in the share of loans to non-financial organizations. The most considerable cut was seen in the share of loans longer than 3 years — from 15.88 to 9.54 percent. Corporates had sustainable demand for development loans, but not always did they have possibilities to satisfy it due to numerous problems: — non-financial organizations are not happy with high interest rates on over one year loans, while banks can’t decrease them because of expensive funding; — required additional reserves of credit organizations. Although officially the NPL level decreased in 2017, according to ACRA rating agency its actual level is much higher — 12–15 percent. According to data last year the number of bankrupt legal entities grew and in the second part of the year the growth speeded up by 12.4 percent over the same period in 2016. All together 13 557 companies were adjudged bankrupt during the year — same level as in 2009, the crisis year; — strict requirements to solvency of potential borrowers and the quali-

Governmental measures Better regulation environment In his speech A. Aksakov the President of the Association «Russia», Chairman of the State Duma Committee on financial market told about the plans of deputy corps regarding the improvement of regulation in financial intermediation. He pointed out the following steps: — amendments to the current legislation with a stress on the use of independent rating agencies, not on the capital amount of financial intermediaries when determining their access to budgetary services (there is positive experience in housing; currently the State Duma discusses different offers including the ones from the banking society);

— amendments to the legal acts aimed at deoffshorization of the Russian economy, revision of the list of financial centers which prohibit transactions for Russian residents (besides it will demand changes into the legal regulation of the idea of «foreign investor»); — preparation in the State Duma of legislation for the new tax amnesty; — the functions and responsibilities of the financial ombudsman for insurance sector have been coordinated in the committees; federal law is pending; — the State Duma has approved the spread of deposit insurance requirements to SME funds in the amount of RUB 1.4 m. (the relevant draft law is expected during the spring session); — there is also a draft law (passed the second reading) to increase the attractiveness of exchange market for private retail investors — it implies insurance of funds on individual investments accounts; — another draft law has passed the first reading in the State Duma —

S. Shetsov, the First Deputy Governor of the Bank of Russia

A. Afanasyev, Chairman of the Board of PAO «Moscow Exchange»

a draft law regarding transactions with derivatives, but a number of issues weren’t approved (including the obligatory margining of deals); — the regulation of information economy is also being actively discussed, as well as two draft laws from the Ministry of Finance of Russia and the Bank of Russia (a compromise not found yet).

offer a long-term governmental program of development of the national financial market up to 2020. The Bank of Russia believes that the medium and long-term financing demand will be satisfied due to a number of measures: 1. In 2017 the Federal Law #486 dd. 31.12.2017 «On syndicated credit (loan)» entered into force. It determines this product and allows to combine funds of credit organizations and non-banking companies for long-term development lending. 2. The regulator takes efforts to encourage companies to raise funds in the exchange market, and these efforts turned out to be successful. For example corporate bonds grew by almost 20 percent in a year. The trend is confirmed by A. Afanasyev, Chairman of the Board of PAO «Moscow Exchange». He underlined that last year Russian companies IPO peak was exceeded. He also listed some hallmarks of the process: — medium size companies have started IPOs; — there are more «double issues» (16) when issuers place securities simultaneously at the Moscow Exchange and at other foreign exchanges; — large Russian issuers leave foreign markets, list at the Moscow Exchange and shift their trades to the national trading platform.

Available development funding According to S. Shetsov, the First Deputy Governor of the Bank of Russia, this year the regulator will

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

M. Rastrigin, First Deputy Minister

D. Tulin, First Deputy Governor of the Bank of Russia

3. Banking sector recovery in the last few year lead to decrease in the number of investment banks, and as a result there is a deficit in national underwriters. The Bank of Russia is now working on the solution to the problem. At the same time, according to S.Shevtsov, the activity of issuers is restricted by the unwillingness of many Russian companies to become public and disclose information about their activities. 4. The Central Bank’s management thinks that the development of digital technologies will stipulate Russian companies to openness which will diversify funding resources. 5. In future the regulator is going to lay stress more on independent rating agencies and audit with regard to prudential requirements. But it will become fully possible only after the reform of audit. According to M.Rastrigin, First Deputy Minister, investment funding will become more available in 2018 due to a new mechanism, worked out by the Ministry of Economic Development of the Russian Federation. The mechanism is called a «factory of project finance» created at the premises of VEB. MED assumes that the «factory» will soon be launched, and later the largest Russian banks can join it, such as Sberbank, VTB and Gazprombank.

MED is responsible for budgetary transfers, while the control bodies are entrusted with a duty to control conditions, goals and the order of these transfers. VEB is «appointed» a «factory» manager, responsible for selection of investment projects, and an organizer of syndicated loans. There are several sources of funding the «factory»: asset contribution and federal budget subsidies, longterm public bond offering via special association of project finance (SAPF), syndicated loans with participation of private investors. M. Rastrigin says the bond financing is expected to cover 40 percent of the «factory’s» funding demand. MED assumes it will develop the Russian bond market, and the players will get a reliable debt instrument. Besides long-term financing gives the project another advantage — low fixed interest rates for the whole period of investment projects. The role of public sector banks D. Tulin, First Deputy Governor of the Bank of Russia underlined that the regulator has no certain plan regarding the number of banks in the country, and CBR doesn’t aim to nationalize the banking sector. It has the only task — higher quality of the banking business. According to D.Tulin the form of property doesn’t really matter if the

bank’s model is based on market principles, and the corporate management is based on an effective model. With these requirements met the work of a state bank doesn’t really differ from the privet ones, and they shouldn’t be opposed. Nationalization of the banking sector is the result of its recovery. The Central Bank doesn’t strive to become the owner of the rescued banks. At the same time the state can’t refinance insolvent commercial banks with budgetary money: if budgetary money is contributed to capital of a rescued bank, the state must become its owner. Today public sector banks start to compete with each other, and the trend is likely to develop. In the end it will improve banking market competitiveness. New market players (rescued credit organizations), well capitalized and excess liquidity will also drive the competition. Another line of regulator’s efforts for the development of fair competitiveness on the banking market is the support for small and medium credit organizations. The entry into effect of the Federal Law # 92-FZ on proportional banking regulation will allow small and medium credit organizations to get license and continue their activity and support of local economies. However G. Tosunyan says that the long list regulatory measures doesn’t include two important offers of the Association of Russian Banks: — to create a «bad debts bank» which would imply a prevention mechanism of bankruptcy or banks rehabilitation. Such bank could accumulate bad debts on a preventive base (in proportion to bank’s capital). Rehabilitation is certainly better than bankruptcy, but the best is not to allow either of them; — to decrease regulatory burden on banks. One should realize that the uprise of crypto currencies is the

O. Skorobogatova, First Deputy Governor of the Bank of Russia, member of the Supervisory Board of CBR

result of excess banking regulation which forces financial intermediation to less regulated segments.

Future digitalization of banking sector All representatives of banking society pointed out that it’s hard to plan business without certain regulation of innovative financial technologies. The CBR’s position was cleared out by O. Skorobogatova, First Deputy Governor of the Bank of Russia, member of the Supervisory Board of CBR. She stressed that the use of digital technologies positively influence the economic growth. But to take the full advantage from them the Central Banks

should tackle the following five issues: 1) normative regulation of digital economy; 2) establishment of relevant infrastructure; 3) cyber security; 4) staff training; 5) development of professional competence in digital economy and research. Today the chaotic development of the retail digital market is a real challenge for regulatory authorities. Discussions of laws showed that authorities agree on basic notions, but don’t have a consent on the possibility to exchange crypto currencies for fiat currency. The Bank of Russia considers crypto currencies as high risk for average consumers. At the same time innovative financial technologies have huge potential. So the regulator must find a compromise between the development of new technologies and protection of customers’ interests. A draft law is expected by the end of the first quarter of 2018 in the State Duma regarding digital deals and assets. The Bank of Russia is working on a number of research projects: — remote identification platform — in force from 01.06.2018 at

the premises of Ministry of Telecom and Mass Communications of the Russian Federation. The regulator estimates that it will improve competitiveness because the clients will be able to quire terms from several banks and chose the most favorable ones. Here the main challenge is personal data security without banks participations; — instant payments system. In the coming year cards are expected to remain as a means of remote access to a bank account, while new types of payments will develop. The instant payment system is expected in 2019; — a wide application of innovative financial technologies which will require profound tests and risk assessment. With this aim the Bank of Russia has initiated the so called «regulatory sandboxes». As for the digital platforms of credit organizations, the Bank of Russia believes that its product won’t push out other incentives from the market. The speech of O. Skorobogatova was added by her colleague S. Shevtsov who said that the risks of digitalization in financial intermediation are stipulated by a human factor. The Federal Law on business reputation of financial market players means that all of them should be responsible for the financial risks taken. Now the Central Bank is working out amendments and annexes to the Code on corporate governance to raise the responsibility of banks’ owners for the reliable financial figures, business decisions and negligence. Yet another task is to balance the rights of Board members to take business decisions and their responsibility for the results of these decisions. RSPP Commission on Banks and Banking

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

award winner

FROM TRADITIONAL BANKING TO THE DIGITALIZATION OF FINANCIAL SERVICES THE BANKING SECTOR PLAYS AN IMPORTANT ROLE IN THE SUCCESSFUL DEVELOPMENT OF THE COUNTRY'S ECONOMY. HOW ONE OF THE SYSTEMICALLY IMPORTANT BANKS OF KYRGYZSTAN — «OPTIMA BANK» — OPENS UP NEW DIGITAL OPPORTUNITIES FOR FINANCE, SUPPORTING TRADITIONAL BANKING PRODUCTS, BEIBUT KAPYSHEV, CHAIRMAN OF THE BOARD OF «OPTIMA BANK» OJSC SAYS. www.optimabank.kg

hat a position does «Optima Bank» hold on the market now? What is its role in the development of the banking sector and the economy of Kyrgyzstan? — Today, the situation of «Optima Bank» in the domestic banking system is truly unique. «Optima Bank» is a stable financial institution, a bank with a good balance sheet structure, a diversified loan and deposit portfolio, and a balanced geographical coverage throughout Kyrgyzstan. By the end of 2017, the market share of «Optima Bank» was 24%, the loan portfolio — 15%, the client deposit base — 16% according to net profit; these figures undoubtedly bring us to the leading position in the banking sector. The bank is one of the largest taxpayers in Kyrgyzstan. The amount of taxes paid to the budget for 2017 is KGS 333.5 mln, for 2016 — KGS 361.4 mln. About 1,000 employees in more than 52 offices across Kyrgyzstan serve more than 186,000 customers. — Who are the key customers of the bank? — Customers are our main asset. Among them — accomplished businessmen who started their entrepreneurial path at the dawn of inde-

pendent Kyrgyzstan’s formation a quarter of a century ago, and there are young students who only recently used our banking services to pay for online learning or buy a newfashioned gadget on the Internet. This is really a large scale of the activities of our bank, which allow us to offer the full range of banking services, serve the broadest customer audience, successfully implement innovations and move the economy of Kyrgyzstan forward. Since «Optima Bank» is universal, we serve a very wide range of consumers. Among the bank’s customers are the largest companies, both regional and global. The structure includes a separate unit that works with large corporate customers. A special office has been opened in the capital to work on short-, medium- and longterm loans, structured trade and project financing for corporate customers, for example, pre-export financing of commodities transactions, operations with financing of import liquid goods transactions, and imports of equipment for local producers, warehouse operations and financing of local sales. The VIP-service center of «Optima Bank» provides Private Banking services. Financial services for affluent customers are allocated in a separate line of business, since working with the HNW segment (from Eng-

lish high-net-worth-segment of private individuals with maximum incomes) provides for a number of features and an individual service system and a range of banking products. We also give full attention to the work with small and medium-sized businesses. In terms of lending, «Optima Bank» and the EBRD almost every year sign loan agreements, which are used to finance small and medium-sized businesses. Taking into account the development of Internet trading, «Optima Bank» is actively working in the field of Internet acquiring, which enables Kyrgyz trade and service enterprises to accept payment cards of international payment systems Visa International, Union Pay International and Elkart national payment system for the payment of goods and services through POS-terminals. The bank’s focus on building a digital society and transferring business to a new digital age is one of the main directions now. Therefore, we are actively developing non-cash payments, regularly conduct marketing campaigns aimed at motivating the population to switch to online payments gradually. Internet banking OPTIMA24 is just one of the main tools for digitalizing financial retail services for the Kyrgyz citizens. We are striving for digitalization to make the business more flexible,

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

adapted to the realities of the modern day, competitive in the emerging «digital world», bringing customers an excellent result and a stable profit to shareholders. — What makes the work of «Optima Bank» so successful? The main factors? — The basis of bank positioning is laid down in the slogan: «Convenience. Technologies. Reliability» For more than 25 years of active and stable work, the Bank has confidently become one of the leaders of the banking system of the country and has acquired a reputation of the most dynamically developing bank, a reliable partner that respects the interests of its customers and shareholders. The Bank was recognized as a leader in the nominations «Bank No.1 in Kyrgyzstan», Domestic Retail Bank of the Year according to the financial edition of the «Asian Banking and Finance» and Kyrgyzstan Domestic Technology & Operations Bank of the Year (award given to the financial institutions distin-

guished by using advanced technologies in conducting banking transactions) 7 times in a row. «Optima Bank» has been annually awarded a diploma «The Best Bank of Kyrgyzstan» for the 1st place in a rating of banks of the Kyrgyz Republic according to the results of the financing activity conducted by the information resource Tazabek (AKIpress) for 8 years in a row from 2010 to 2017. In 2017, «Optima Bank» became the award holder of the international prize «Financial and Banking Elite of Eurasia» established by the Financial and Banking Association of Euro-Asian Cooperation (FBA EAS), having won the «Standard of Reliability and Development» nomination. Three pillars, which the successful activity of «Optima Bank» is based on, is high professionalism of the work collective, competent management, customer-oriented approach, raised to the highest degree, modern technologies of business management and quality control.

— In what direction does the bank plan to develop in the future? What are the plans? — We are facing new challenges, and «Optima Bank» looks at the future with optimism. It is planned to significantly expand the network of ATMs and payment terminals, introduce many interesting banking products that will make our customers’ lives more comfortable, including the implementation of hightech projects in the field of payment technologies and Internet payments. «Optima Bank» is always up to speed on the situation, we understand where, how and why the market is moving, we stay one step ahead of it, and we forecast trends in the modern world where everything changes with the speed of Internet signal transmission. This particular model allows us to carry out a smooth transition from traditional banking to fintech-innovations. In addition, we carefully lead the way our customers, offering them the best service, up-to-date banking products, and a high degree of reliability.

FINANCIAL & BANKING ASSOCIATION OF EURO-ASIAN COOPERATION

WWW.UB.KG

Forum topic: Banking technologies, services and payments Green economy and sustainable financing Information Security

June 1–2, 2018 Bishkek — Issyk-Kul, Kyrgyz Republic Bishkek International Finance Forum is an annual major business event, which is an optimal platform for exchanging opinions, discussing the latest trends in the financial sector, offering ready-made solutions, announcing already begun projects, finding partners in the Kyrgyz Republic and other countries.

Rustam Sarybaev: sarybaev@ub.kg +996 312901058+108

The largest company in Kyrgyzstan operates as a multifunctional holding company, which through its subsidiaries provides services in the sphere of law, ďŹ nance, industry production, agricultural production, building construction, economics, sales and marketing www.ayuholding.kg

5000 workplaces

export of products to a number of countries

more than 30 dynamically developing companies

reliable and stable partner

distribution of food and beverages throughout Kyrgyzstan

fair and open competition

12 partner countries

new technologies in production and progressive methods of wor close-knit team of professionals

BANK. BANK. BANK

INTERNATIONAL INVESTMENT BANK GOES TO A NEW STAGE OF ITS DEVELOPMENT

www.iib.int

“

The results of the Bank's activities in 2013–2017 consolidate its new quality as a modern multilateral institution of development, demonstrate the success of the comprehensive reform

DEMC H IGJAV M O L O MJ A M T S Senior Advisor to the Board of the International Investment Bank. Doctor of Economic Sciences, Honored Economist of Mongolia Date and place of birth: September 17, 1951, Zavkhan Aimag, Mongolia. In 1975 he graduated from the Irkutsk Institute of National Economy with a specialization in «Finance and credit». From 1975 to 1982 he held a position of economist and then became the senior economist and a Head of the Foreign Exchange Policy Department in the Ministry of Finance of Mongolia. From 1982 to 1984 — Head of the Budgetary Policy Department of the Ministry of Finance of Mongolia. From 1984 to 1990 — Minister of Finance of Mongolia. From 1990 to 1992 — Minister and Head of the Government Office of Mongolia. From 1992 to 1996 he worked as Governor of the Central Bank of Mongolia (Mongolbank). From 1996 to 2016 he was a Member of the Board, Deputy Chairman of the Board at the International Bank for Economic Cooperation.

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

THE INTERNATIONAL INVESTMENT BANK (IIB) IS ONE OF THE OLDEST DEVELOPMENT BANKS IN THE POST-SOVIET SPACE. IT WAS ESTABLISHED IN 1970 BY MEMBER COUNTRIES OF THE COUNCIL FOR MUTUAL ECONOMIC ASSISTANCE (CMEA) FOR THE IMPLEMENTATION OF INVESTMENT PROJECTS OF THE MEMBER COUNTRIES OF THIS BLOC. INITIALLY, ALL FORMER SOCIALIST COUNTRIES WERE ITS FOUNDERS. THE AGREEMENT ON THE ESTABLISHMENT OF IIB AS AN INTERNATIONAL FINANCIAL INSTITUTION WAS REGISTERED IN THE UNITED NATIONS SECRETARIAT UNDER NO. 11417. IIB'S HEADQUARTERS ARE LOCATED IN MOSCOW, AND SINCE 2015 THE EUROPEAN REGIONAL OFFICE OF THE BANK OPERATES IN BRATISLAVA. IN SOVIET TIMES, IIB WAS THE LARGEST INVESTMENT BANK IN THE TERRITORY OF THE CMEA MEMBER COUNTRIES AND DUE TO ITS FINANCING MANY LARGE FACILITIES WERE BUILT AND PUT INTO OPERATION. OVER THE ENTIRE PERIOD OF ITS ACTIVITY, THE BANK TOOK PART IN LENDING TO MORE THAN 200 FACILITIES IN VARIOUS COUNTRIES AND PROVIDED LOANS WORTH MORE THAN 7 BILLION EUROS.

fter the collapse of the world socialist system a new history of the Bank's development began. From the Bank came out East Germany, Hungary and Poland, and in place of Czechoslovakia formed the Czech Republic and Slovakia, and they became members of the Bank. Hungary in 2015 returned to the IIB. Thus, today the members of the International Investment Bank are nine countries: Bulgaria, Vietnam, Hungary, Cuba, Mongolia, Russia, Romania, Slovakia and the Czech Republic. Today the bank provides three continents: Europe, Asia and Latin America. Totally, the countries-members of the bank occupy 14.4% of the Earth's territory, and their population is 4.1% of the world's population. Thus, IIB becomes an economic bridge linking countries located on these continents. Russia is the main shareholder of IIB, it owns almost 50 percent of the paid part of the authorized capital of the bank. The mission of the bank is to promote socio-economic development, increase the welfare of the population and economic cooperation of member countries. In

accordance with the mission and objectives, the main directions of the transformation and the tasks are defined, the implementation of which will enable IIB to successfully develop and actively support the sustainable development of member countries. Over the past 6 years, the Council and the Bank's Board have been carrying out purposeful work to transform the IIB into a modern financial development institute. An important stage in the Bank's reform was the decision of the 101st meeting of the Bank's Council of May 8, 2014 (Havana, Cuba) on introducing amendments to the Agreement on the formation of the International Investment Bank and its Charter. All member countries approved and signed the Protocol on Amendments to the Agreement on the Formation of the International Investment Bank and in the near future, after receiving the written consent from all member countries regarding the implementation of the internal procedures for ratification of the Protocol, the Bank passes to the application of new statutory documents. The goals and objectives of the bank are defined in a new way. The Bank, being

a multilateral development institution, has as its main objective the promotion of economic growth, the enhancement of the competitiveness of national economies, the expansion of trade and economic relations and the possibility of interaction in the investment sphere in the interests of the member countries. Refuses from the principle: one country has one vote. Henceforth, in making decisions in the Board of Governors and in the Board of Directors, each member of the Bank is vested with the number of votes, in proportion to the amount of its share in the paid share capital of the Bank. Increased authorized capital to EUR 2.0 billion and the unpaid portion of the quotas distributed among members of the Bank is capital on demand, which will be used to increase the paid authorized capital of the Bank. Based on the experience of international financial institutions, the bank moves to a three-tier

management system. The Bank's management bodies are the Board of Governors, the Board of Directors and the Management Board. The highest collegiate management body of the Bank is the Board of Governors. The Board of Directors is the collegial management body of the Bank, which exercises overall management of the Bank's activities. The IIB member countries are faced with new tasks related to ensuring not only economic growth, but also a qualitative improvement in the life of the population, formation of a favorable environment for the development of man and society, ensuring long-term prospects for socio-economic development, and deepening the development of economic cooperation among member countries of the Bank. These and other time factors are taken into account in the trans-

formation of IIB into a modern multilateral development bank. An important stage in the further development of the Bank, was the successful implementation of the IIB Development Strategy for 2013â&#x20AC;&#x201C;2017, approved by the Council of the Bank in June 2012. One of the most important directions for the implementation of the Bank's Strategy is credit and investment activity. The bank refuses from the old practice of point-to-point lending facilities and gradually shifts to new priorities of credit activity, in particular, to participate in syndicated lending and to provide investment resources to regional and national financial institutions to support small and mediumsized entrepreneurs. The spectra of the products and services provided are substantially expanded, first of all, within the

credit and investment activities of the Bank. For successful development of lending activities, the Bank pays special attention to the formation of the client base, which involves attracting more reliable borrowers and expanding the geographical diversification of the loan portfolio by strengthening the country approach, which implies greater proportionality between the share of the particular member country in the bank's capital and the amount of credit resources allocated by the bank for borrowers from this country. Within the framework of the Bank's Strategy for 2013-2017, the IIB Board together with its member countries developed and implemented country strategies that take into account the national interests of the member countries, as well as the economic situation in them. In par-

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

ticular, in determining the most important prospects for the positioning of IIB in each of the member countries, the level of development of its financial and credit system is taken into account, as well as the need to invest in certain areas of the economy. Thus, the Bank's activities are fully oriented towards the member countries and is guided by the principle of replenishment of national economies of the member countries of the Bank. This made it possible to simplify the procedure for raising funds on the world capital market on acceptable terms, including through the issue and placement of Eurobonds by the Bank. The bank received international investmentgrade credit ratings: The international rating agency Fitch Ratings has assigned IIB a long-term IDR at the level of «BBB» and a short-term IDR of «F2», a «positive» outlook. The Chinese rating agency Dagong assigned IIB a long-term IDR «A», a positive outlook. The international rating agency S&P assigned Longterm IDR at «BBB+» and Short-term IDR «A-2» to IIB a «positive» outlook,The Moody’s «Baa1» a «positive» outlook. These ratings are currently the highest among all financial institutions based in Russia. Due to the receipt of these high investment ratings, IIB, for the first time in its history, gained access to funding in the stock market, attracting resources, including from the largest international financial structures. In accordance with the implementation of the Bank's Strategy, shareholders take step-by-step measures to increase the Bank's own resource base. For the first time since the bank was founded, it was decided to capitalize on it in the amount of 176 million euros, in particular 76.0 million euros from retained earnings of previous years and 100.0 million euros from additional contributions from member countries

of the Bank. Over the past five years, the Bank's own funds, including paid-up share capital, have increased by more than 90 percent. The results of the Bank's activities in 2013 -2017 consolidate its new quality as a modern multilateral institution of development, demonstrate the success of the comprehensive reform and the first results of the implementation of the updated development strategy. The bank carries out with one party, more conservative, but with another relatively balanced credit, investment and deposit policy. In one words, the Bank began to form a balanced strategy in the credit, investment and deposit spheres. As a result of these measures, the financial position of the Bank becomes even more stable compared to 2012 and the balance sheet structure of the bank is improving. Over this period, the loan portfolio has more than doubled. As of December 31, 2015, the Bank's asset is 1.1 billion euros, and thus, compared with the end of 2014, assets increased 2.6 times. The capital adequacy ratio of CAR in accordance with the requirements of the Basel Committee on Banking Supervision (Basel II) was 37.85%, which is a very good indicator characterizing the reliability and sustainable development of the Bank. Successfully implementing the IIB Development Strategy for 2013–2017, from the year 2018, the IIB is gradually moving to a new stage of its development. The Council of the Bank in 2017 approved a new Development Strategy for the Bank for 2018–2022. and thus since this year, the Bank is moving into a new strategic cycle. In order to implement the new IIB Development Strategy for 2018–2022, in March 2018 the Bank's Management Board approved the IIB Business Plan for 2018-2020 as a target and set more ambitious tasks until the end of 2020. For example, by 2020, the

Bank's assets will increase by 2.4 times as against 2015 and by 53% compared to 2017. The loan portfolio will increase by 46.8% compared to 2017, and own funds by 10%. In accordance with the decision of the 108th meeting of the Council of December 8, 2017 (Bratislava, Slovakia), the Bank's Management Board, since 2018 launches a new IIB capitalization program, and Mongolia has already increased its share in the authorized capital in the amount of 2.0 million euros since the beginning of this year. Over the past five years, IIB has established business relationships with the main economic institutions of member countries, in particular, chambers of commerce and industry, national development banks, profile ministries and departments, as well as international financial institutions. IIB became a member of the International Development Finance Club (IDFC).

Reference Strategy implementation: larger loan portfolio The participation in syndicated lending together with the leading development institutes: > EBRD — loan to XacBank of Mongolia, the forth important bank and the leader in lending to small business in the country; > International Financial Corporation — loan to Xac Bank of Mongolia, the largest lender in the country, and to Transcapitalbank, which ranks among top 50 Russian banks by assets and capital; > The Dutch Development Bank — loan to Trade and Development Bank of Mongolia; > VTB Capital — loan to the second largest phone company of Bulgaria Vivacom; > Vnesheconombank — loan for construct completion of the third and the forth blocks of Mochovce nuclear power plant (Slovakia). Opening of credit lines to special financial intermediaries for financing of SME in member-states: Bulgarian Development Bank (Bulgaria), MSP Bank (Russia), VietinBank, Romanian leasing company BTLeasing, Trade and Development Bank of Mongolia. Opening of credit line to EXIMBANK of Russia for financing of foreign trade operations. Issuing a loan to Centrinvest Bank for SME lending.

Monetary funds Deposits in financial institutes Investment securities Loan portfolio net of reserves Investment property, capital assets and other assets

450 400 350 300

363,0

306,3

283,7

250 240,3

200

241,1

162,8

150 100

100,1

71,5 111,2 51,0

135,9

13,9

111,8

96,4 91,8

49,1

8,4

0 31.12.2011

123,2

117,7

103,7

31.12.2012

100,4

102,7

39,1 19,3

31.12.2012

65,7

31.12.2014

96,0 45,0

34,3 59,4

31.12.2015

54,0

31.12.2016

Main assets articles of IIB, million Euro Resource: www.iib.int/files/presentation/prezentaciya_mib.pdf

IIB closely follows the development of the integration process and the financial sector within the framework of the Euro-Asian Economic Union (EAEU). The situation in the banking sector of the member countries of the EAEU confirms our positive assessment of the prospects for the development of the banking sector in this region. Successfully de-

veloping business cooperation with the Eurasian Development Bank (EDB). The International Investment Bank and the Eurasian Development Bank signed on November 21. 2014,Memorandum of Understanding aimed at expanding mutually beneficial cooperation between the two development institutions and working in closer cooperation

in financial markets. The limit of credit risk is established for treasury operations on EDB. A striking example of cooperation between our two banks was the loan agreement signed in March 2017 between the IIB, the Eurasian Development Bank (EDB) and the limited liability company Nord Hydro-White Threshold (LLC NGBP) on financing the construction of small hydroelectric power stations Beloporozhskaya GES-1 «and» Beloporozhskaya HPP2 «in the Republic of Karelia at the expense of credit funds from two of our banks. In addition to Russian banks, IIB is expanding cooperation with some banks of member countries of the Eurasian Economic Union, in particular, Armenia, Belarus and Kazakhstan. The Bank established a country limit on Armenia and successfully cooperates with 3 banks — CJSC Armbusinessbank, CJSC Ameriabank, CJSC Ardshinbank on trade finance transactions. The Belarusian direction of the Bank's activity expands every year and IIB invests in the economy of this country through systemically important Belarusian banks. Development Bank of the Republic of Belarus (the DBRB), VTB Bank Belarus, and Belgazprombank of the Republic of Belarus are our main partners. The International Investment Bank is an open organization. Not only countries but also international financial organizations that share the Bank's goals and principles can be admitted to the Bank, as well as willing to assume the obligations arising from the Agreement on the formation of the bank and its charter. Participation in the IIB does not impede the implementation and development of financial and business ties between member countries among themselves, with other countries and international monetary and financial organizations.

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

BANKING SYSTEM OF THE COUNTRIES OF EURASIA

THE BANKING SECTOR REFORM IN MONTENEGRO THE ASSOCIATION OF MONTENEGRIN BANKS IS A NON-PROFIT ORGANISATION THAT WORKS THROUGH MEMBERSHIP FEES. THE ACTIVITIES OF THE ASSOCIATION BODIES ARE HARMONISED THROUGH THE ACTIVITIES OF THE ASSOCIATION, THEREBY ENSURING THAT THE DECISIONS REFLECTING THE PROFESSIONAL POSITION ARE EXECUTED. THESE DECISIONS MAY DIFFER FROM THE POSITIONS OF THE GENERAL PUBLIC, WHEREBY THE ASSOCIATION MUST BRIDGE MISUNDERSTANDINGS. WITH REGARD TO CREATING BETTER ENVIRONMENT FOR BUSINESS AND RAISING THE LEVEL OF COMPETITIVENESS OF THE ECONOMY IN GENERAL, THE UBCG PROMOTES QUALITY COOPERATION THROUGH CONSTANT DIALOGUE AND PARTNERSHIP WITH THE REGULATOR, THE BUSINESS SECTOR AND PUBLIC INSTITUTIONS.

www.ubcg.info

“

According to the 2017 World Bank Report for Montenegro, the growth in GDP was 4.4% and is leading in the region

BRATISLAV PEJ A KO VI Ć M. Sc., Secretary General of The Association of Montenegrin Banks

ssociation of Montenegrin Banks (the UBCG) is aimed at strengthening confidence in the banking sector. Fifteen banks licensed by the Central Bank of Montenegro, as a regulator of the banking market, operates in the banking system of Montenegro. The UBCG represents and displays the common positions of all UBCG members, and as such, it promotes co-operation with domestic institutions and participates in the design of laws and regulations related to banking business. The Association monitors the trends of modern banking and initiates adequate training of bankers. The quality of work is improved through adequate co-operation with similar foreign associations and by applying best banking practices, trends and standards of more developed banking and business systems. The activity of the Association is realised through the work of its bodies: the Assembly, the Management Board, the Secretary General, the Court of Honour and Arbitration.

Business Environment Business environment significantly improved in the past ten years in Montenegro through the adoption of strategic documents and sets of legal documents, which were aligned with the EU standards, as well as through the implementation of institutional and fiscal system reforms, improvement of the framework for the activities of the financial sector, payment systems and other key business areas. Changes and transition have their own way, structural action and speed, where shifts are evident to the market economy and better development of a private initiative. In line with the policy of openness, the competitive tax system and the evolving regulatory system, the contributions were made to

the more dynamic economic growth. The current tax regime is estimated to be one of the most competitive in Europe, with a proportional corporate income tax of 9% and various tax incentives for large investors. For the period 2016–2017, inflation is projected on the basis of inflation trends projected in the European Union, where price stabilisation is expected in 2018 with the expected annual inflation of around 2%. According to the 2017 World Bank Report for Montenegro, the growth in GDP was 4.4% and is leading in the region. Nonperforming loans fell from almost 26% at the level of the banking system in 2011 to currently around 7%, thanks to the reactions of the regulator and the commercial banks in Montenegro.

Financial Reporting The work on the reliability and comparability of financial reporting has been ongoing, since it poses, as such, the preconditions for the efficient financial market and the possibility of minimizing the risk. Financial institutions (banks, insurance companies, captain market participants, investor protection schemes etc.) manage their business risks with clients and total risks in their operations based on available financial information. It is therefore of great importance that regulators and financial market supervisors influence the quality of financial reporting of these institutions regulated and supervised by them. They should also influence these institutions to require from their clients and those that expose them to high risk to submit in the process of risk management (when approving loans, issuing shares and other financial instruments, insurance business etc.) verified, qualitative and timely financial reports.

Banks Relationships with Public Enforcement Officers The Association of Montenegrin Banks and the Chamber of Public Enforcement Officers seek to define forms of cooperation in order to achieve, in a legitimate and meaningful manner, mutual cooperation and common functioning with regard to the compliance with positive legislation regulating each of these two activities, with particular attention to: — rules and bank’s compliance with the requests of the public enforcement officers; — public enforcement officers as bank clients.

Follow up of Principles, Practices and Resources of the Deposit Guarantee Scheme The principles for the establishment of a deposit guarantee scheme in the EU are laid down in the 1994 Directive (Directive 94/19/EC) and amended Directive from March 2009 (Directive 2009/14/EC). In addition to the common reasons related to creating the conditions for the harmonised development of credit institution activities and the improvement of free movement of capital, the main reasons for proposing and adopting the Directive 94/19/EC are the establishment of a compulsory deposit guarantee scheme as an essential element for the completion of the process of establishment of the internal market and the necessary addition to the system of credit institutions supervision through the joint assistance to single market participant in case of failure of any one of them. In March 2009, due to the urgency, guaranteed deposit amounted to 50,000 euro in the EU, but there is also a possibility of considering guaranteed deposit of 100,000 euro. It is important to note that each insurance of deposit represents high-

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

er degree of safety. In addition, the new law significantly shortened the payment deadline (from 90 days to 20 days and, as drafted under the new law, to 7 days). In Montenegro, the Deposit Protection Fund pays up to 50,000.00 euro of guaranteed deposits since 1 March 2013. The Bank Resolution Law is in the process of adoption and it will be an additional guarantee for clients in banking operations. These are the processes that result from the alignment with the EU regulations. However, we had to keep in mind how this is reflected on the obligations of banks, the costs of already existing burdens on banks' operations and processes. Therefore, it was insisted on the transition period and the length of the implementation. To that end, the Association actively participates in decision making process.

External Impacts on Business The uncertainty since the beginning of the global financial crisis has become increasingly important in macroeconomics. The shocks of uncertainty are increasingly stressed as new causes of business cycles and the uncertainty spills over to the real sector through the various channels of economic entitiesâ&#x20AC;&#x2122; activities, and thus the banking sector. The fo-

cus is on the banking market, as savings and borrowings are observed from three sectors being households, corporate and the state. As a small and open economy, Montenegro is extremely vulnerable to external shocks. This is why the impact of uncertainty from the European Union is particularly observed. In general, two indicators of domestic uncertainty are defined: the volatility of the compulsory index and the uncertainty of consumers based on the survey of the Montenegrin Statistical Office â&#x20AC;&#x201D; MONSTAT. All three indicators of uncertainty correspond to basic stylized facts: uncertainty is countercyclical and is the leading variable in relation to GDP. It is shown how the growth of uncertainty affects different households and companies in relation to the state. Households and companies reduce savings and borrowings, but with a time lag of ten months. The state, on the other hand, first tries to act preventively by increasing savings and reducing borrowings. Households and companies are waiting to make decisions on savings and borrowings until uncertainty spills over to the real sector. Nevertheless, uncertainty has not proved to be a key determinant in making decisions on savings and borrowings. Namely, the shock of

uncertainty explains up to 15% of variation in savings and borrowings. It is more significant for households, while the impact on state decisions is very limited, or almost trivial (less than 5%). We are pleased to point out that the uptrend of deposits in Montenegrin banks, both corporate and retail, has steadily increased since 2006 despite lower interest rates on deposits with banks. Therefore, solvency and liquidity at the system level is significantly above the prescribed levels.

Conclusion The banking sector reform is a significant element of a country's transition process. It is due to the fact that the developed banking system is a prerequisite for the development of entire economy and a driver for many other areas of restructuring. A sound and stable banking sector ensures the confidence necessary for domestic and foreign capital investments. A quality banking sector also provides initial capital for performing business activities, especially for small and medium-sized enterprises, which are the generator of economic growth. The Association of Montenegrin Banks is dedicated to achieving these objectives through the positive practice and the ongoing process.

practice

GOLD ITALY DEVELOPMENT PROSPECTS OF PRECIOUS METALS SECTOR www.arezzofiere.it

ANDREA BOLDI President of Arezzo Fiere e Congressi srl Born on July 17, 1967 President of the Association of Jewelry Enterprises of Italy, President of the Association of Art Craft Enterprises of Italy, Counsellor of crafts in the Chamber of Trade and Industry of Arezz. Since 2006 â&#x20AC;&#x201D; Head of Jeweler Association of Arezzo, since 2013 he is the President of Art Craftsmen Association of Tuscany. Member of the Executive Council of the Association of Art Craft Enterprises of Tuscany, Co-founder of the Jeweler Council of Arezzo, which united four regional associations. President of Arezzo Fiere e Congressi since 2014 (organizer of exhibition Arezzo Gold). Today he is a member of the Supervisory Board in Nemesi SRL, engaged in jewelry.

a short period of time the following company UNOAERRE has become the largest in the world, it has generated then the filiation of other small production companies, 1,200 only in the city of Arezzo and about 10,000 in the national territory. The productive vocation has always been geared to exports so that more than 90% of the productions of jewels are destined for foreign markets, reaching levels of production in the 90s equal to more than 500 tonnes per year. The birth of this sector has then generated cascading the rise of primary reality in the field of recovery and refining of precious metals from the waste that has occupied the positions of international leadership also in the recovery of metals from the waste of mine, electronic cards, catalytic converters and other. These realities now generate a total turnover of over 6 billion euro in the city of Arezzo alone. Based on this fact, a small provincial town of 100,000 inhabitants, Andrea Boldi, creates a company Nemesis Srl, which first introduces the rapid manufacturing in the gold sector, applying the technique of 3d printing in the production of jewelry, the technique which allows the realization of artifacts directly from CAD design, and becomes a point of reference of technological innovation in the field of jewelry.

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

FROM THE BEGINNING OF THE LAST CENTURY, ITALY HAS BEEN A LEADING PRODUCER OF JEWELRY AND TRANSFORMER OF GOLD INDUSTRY IN WESTERN EUROPE. THIS IS THE FRUIT OF A SECULAR TRADITION THAT HAS ITS ROOTS IN THE HISTORY OF ITS ANCIENT INHABITANTS, FIRST THE ETRUSCANS, COMING FROM THE AREA OF CURRENT IRAQ, THEN THE ROMAN EMPIRE WHICH IN ITS PERIOD OF GREATEST SPLENDOUR HAS REPRESENTED THE MAIN ADMIRER OF PRECIOUS METAL. THE ITALIANS HAVE ALWAYS BEEN PEOPLE OF ARTISTS AND CRAFTSMEN; OVER THE CENTURIES THEY HAVE DEVELOPED INCREASINGLY REFINED WORKMANSHIP TECHNIQUES AND IN 1926 FOR THE FIRST TIME THESE TECHNIQUES WERE APPLIED TO INDUSTRIAL PRODUCTION IN THE CITY OF AREZZO, SITUATED NEAR FLORENCE IN TUSCANY, THE HOMELAND OF THE ITALIAN RENAISSANCE. Then, Andrea Boldi becomes President of the goldsmiths of Arezzo, President of the Italian goldsmiths of Italian artisans and craftsmen and President of the artistic sector of the Italian craftsmanship. In 2014 he became the President of Arezzo Fairs and Congresses which is the structure of promotion of the whole field of made in Italy jewelry with the event of world importance OROAREZZO, that takes place in the same city for 39 years, with the participation of over 600 best companies in the sector of Italian goldsmith, and with the participation of international buyers with a turnover of more than 2,5billion euro. With this background, Andrea Boldi approaches the Fair reality with the intent to join together in a coordinated manner the whole sector of precious metals in Italy, in order to provide a unique and reliable

interlocutor able to approach in an effective and concrete manner the main stakeholders in the world. The political events and the strategies of major financial groups, mainly of Anglo-Saxon countries, have led to the paradox that the international gold and precious metals market is in the hands of a few players and from the countries which do not have even the direct availability of those resources and that with unfair and unilateral regulations prevent the possibility to create stable direct relations between the raw material holders and the transformers of the same. The short-sighted greed of such groups strongly advocates careless sanctions, based on unfounded assumptions to Russia, promoters or direct supporters of governments that based on the patently false news, have destroyed Iraq and possessed more or less directly to a large

part of the gold reserves of the same country, maintaining a strongly aggressive and oppositional attitude to any right-thinking force able to break their position of power. In order to prevent the growth of world alternatives politics such financial groups have acted in various directions: 1. To limit the access of operators to the pure metal, through international regulations 2. To hold tight credit and finance for those who do not accept this system 3. To take the action with bureaucratic power directly to restrict the operation of holdings. 4. To suddenly change the dynamics of purchasing in order to weaken the entire productive systems and to prevent that any other country can go ahead of them (ex. Italy).

Table # 1 The export of pure gold of the city of Arezzo and the countries of destination Reference: data processing ISTAT-Coeweb

Countries Switzerland France USA U. K. Spain Germany World

EXP2014

EXP2015

EXP2016

Var% Var% 2014-2015 2015-2016

867 570 060 458 946 442 170 251 672 147 733 845 154 713 593 124 163 042 2 108 844 591

1 134 817 487 359 660 885 162 908 793 125 524 336 136 161 850 55 404 157 2 202 403 532

1 458 307 372 531 405 069 184 932 601 130 227 794 126 383 593 61 231 446 2 631 345 526

+30,8 –21,6 –4,3 –15,0 –12,0 –55,4 +4,4

+28,5 +47,8 +13,5 +3,7 -7,2 +10,5 +19,5

Table # 2 The export of jewelry of three main goldsmith’s districts (Arezzo, Vicenza, Valenza) and Italy in 2016 Reference: data processing ISTAT-Coeweb

Value

Var%

Vicenza

UAE Hong Kong USA World

624 612 547 223 248 380 147 622 356 1 814 702 980

–16,4 +16,8 +24,7 –1,8

USA Hong Kong UAE World

Alessandria

Value

Var%

Italy

Switzerland France USA World

846 851 640 265 278 034 83 656 574 1 548 835 099

–9,4 –6,2 +9,9 –7,5

Switzerland UAE Hong Kong World

Arezzo

Value

Var%

224 423 554 221 870 968 193 815 240 1 343 644 565

+12,3 –21,4 –15,1 –9,0

Value

Var%

1 163 463 686 663 047 620 899 376 112 5 928 179 245

–7,1 –9,2 –14,8 –4,4

Table # 3 Gold demand (tonnes) Reference: Metals Focus, GFMS, Thomson Reuters, ICE Benchmark Administration, World Gold Council

2010 Jewellery Technology • electronics • other indastrial • dentistry Investment • total bar and coin demand • Physical bar demand • official coin • medals/imitation coin • ETFs & similar products Central banks & other inst. Gold demand LMBA gold price, U$/oz. * Year-on-year% change.

2011

2012

2013

2014

2015

2016

2017 %*

2055,0 2097,3 2138,7 2498,8 2498,8 2411,6 2053,6 2135,5 +4 460,5 428,6 381,3 355,9 348,7 332,0 323,4 332,8 +3 326,6 316,1 288,3 279,2 277,5 262,1 255,6 265,3 +4 51,0 49,8 50,6 +2 51,2 53,7 76,3 64,6 88,3 18,0 18,9 19,9 36,2 28,4 23,0 45,6 16,8 –6 1633,1 1732,5 1613,8 810,9 867,8 949,6 1595,5 1231,9 –23 1203,6 1500,4 1307,7 1722,9 1052,1 1074,7 1048,7 1,029,2 –2 920,6 1188,3 195,8 228,1 84,1 87,2 429,6 232,0 79,2 480,8

1011,9 1352,1 767,8 775,3 185,4 269,8 204,8 224,3 75,1 79,5 110,4 101,1 306,1 –912,0 –184,3 –125,1

776,3 207,2 65,2 546,8

770,9 186,9 71,3 202,8

576,5

389,8

371,4 –5

569,3

623,8

583,9

–1 –10 +9 –63

4227,7 4739,2 4703,1 4492,6 4299,2 4269,8 4362,2 4071,7 –7 1224,5 1571,5 1669,0 1411,2 1266,4 1160,1 1250,8 1257,2 +1

In the light of these analyzes, the need to achieve rapidly to strategies and processes capable to change the prospects of development of the Italian goldsmith's sector and to promote the interchange with the part of the world which appears at the moment more dynamic and able to grow, Andrea Boldi has joined into a dynamic and forward-looking economic organization such as FBA EAC, able to create synergies and collaborations between operators in the various countries, to generate significant prospects for their development. Table #1 data shows the export of pure gold of the city of Arezzo and the countries of destination. Table #2 data shows the export of jewelry of three main goldsmith’s districts ( Arezzo, Vicenza, Valenza) and Italy in 2016. The plan of activities that we are going to pursue in the Association will be carried out in the following directions: • creation of stable relations between Eurasian area raw material extractors and operators/transformers from Mediterranean Europe; • technology transfer and knowhow, between the said countries with the settlement of productive realities in the former USSR countries; • promotion of Made in Italy gold and jewelry and the support for the development of Made in

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

Table # 4 Gold supply and demand in the world market Reference: Metals Focus, GFMS, Thomson Reuters, ICE Benchmark Administration, World Gold Council

2010

Russia, supporting the design schools and professionals dedicated to the jewelry production; • to bring the trade exchanges in the field of precious metals of the former USSR countries to at least 5 billion euro over the next three years; • to encourage joint ventures in companies with the creation of more productive units in various countries belonging to the Association; • to promote the creation of a financial center dedicated to the exchange of precious and of financial instruments on them structured by exploiting existing platforms in the countries participating in the Association. The cooperation will be a key instrument also from the point of view of the normative system transfer, in order to provide conditions for the development of an independent manufacturing in the acceding countries. Starting point perfectly matching with the current global needs and demand of gold, divided by sectors, which is well exemplified in the table data. The analysis of these data makes it clear how the component resulting from demand for the production of jewelry represents the most significant component of the gold request in the world markets, with over 52%

S U P P LY Mine production Net producer hedging Recycled gold Total DEMAND Jewellery Technology Total Total bar and coin demand ETFs & similar products Central banks & other inst. Gold demand Surplus/Deficit Total demand LMBA gold price, U$/oz.

2011

2012

2013

2014

2015

2016

2017 %*

2744,1 2845,6 2911,5 3072,9 3149,9 3222,6 3263,0 3268,7 0 13,4 32,8 -30,4 – 22,5 –45,3 –28,0 104,9 –108,8 1683,2 1667,7 1691,5 1262,6 1188,8 1119,7 1295,1 1160,0 –10 4318,5 4535,9 4557,6 4307,6 4443,6 4355,7 4590,9 4398,4 –4 2043,0 2090,3 2132,5 2722,4 2526,1 2455,5 1995,1 2122,0 6 460,5 428,6 381,3 355,9 348,7 332,0 323,4 332,8 3 2503,5 2518,9 2513,8 3078,4 2874,7 2787,5 2318,5 2454,8 6 1203,6 1500,4 1307,7 1722,9 1052,1 1074,7 1048,7 1,029,2 –2 429,6 232,0 79,2 480,8 4215,8 102,7 4318,5 1224,52

306,1 –912,0 –184,3 569,3 623,8 583,9

4732,1 4697,0 –196,2 –139,3 4535,9 4557,6 1571,52 1668,98

-125,1 576,5

546,8 389,8

202,8 –63 371,4 –5

4513,2 4326,4 4313,6 4303,7 4058,2 –6 42,1 287,2 340,2 18 117,2 –205,6 4307,6 4443,6 4355,7 4590,9 4398,4 –4 1411,23 1266,4 1160,06 1250,8 1257,15 1

* Year-on-year% change.

Table # 5 Jewellery demand in selected countries, tonnes Reference: Metals Focus, GFMS, Thomson Reuters, ICE Benchmark Administration, World Gold Council

2010 India Pakistan China Hong Kong Taiwan Japan Indonesia Мalaysia Singapore S Korea Тhailand Vietnam Saudi Arabia UAE Kuwait Еgypt Iran Other Middle East Тurkey Russia USA Каnada Меxico Brazil France Germany Italy Spain U. K. Total above Other & stock change World total

2011

2012

2013

2014

2015

2016

2017 %*

661,7 619,3 595,2 617,4 627,5 662,3 504,5 562,7 +12 28,1 +7 21,8 26,5 23,2 24,2 26,2 26,1 23,3 461,9 557,2 599,4 938,8 806,8 753,4 630,4 646,9 +3 44,3 +7 23,0 51,4 42,3 41,4 47,6 82,6 60,0 6,3 –5 8,4 7,7 7,0 7,1 6,6 7,2 9,9 17,0 16,6 –2 16,4 20,8 16,5 15,9 16,9 16,1 41,2 36,5 38,9 38,4 38,6 +1 33,4 33,4 35,2 10,5 7,3 –6 10,2 10,5 8,4 8,2 7,8 8,4 14,3 11,8 –2 14,0 8,5 12,2 8,9 12,1 9,7 22,9 22,7 –6 22,9 17,8 25,6 18,6 24,1 16,6 11,8 14,9 11,4 –3 12,4 7,1 12,2 6,9 9,1 15,4 11,8 16,5 +7 12,5 14,2 15,6 12,8 10,5 49,4 45,7 –8 69,9 54,7 49,0 66,4 68,4 69,5 43,4 42,8 –2 64,4 56,0 66,9 51,4 56,3 49,4 12,6 11,7 13,0 +4 14,2 9,0 13,2 8,4 7,7 25,5 22,0 –14 45,6 45,1 38,3 53,0 34,1 42,1 63,7 45,4 12 39,3 41,5 45,0 37,2 40,5 45,2 21,6 21,9 +1 25,2 23,8 14,0 15,3 15,2 23,0 79,9 41,3 +1 68,1 49,0 40,8 67,9 73,6 65,9 79,7 67,0 38,0 33,8 35,0 +3 60,3 64,4 67,7 122,3 115,8 107,1 112,5 116,6 119,5 118,8 122,1 +3 13,8 13,2 14,1 +2 14,0 16,7 14,2 14,6 13,2 16,9 15,9 16,5 –2 15,8 22,8 16,6 18,9 15,3 18,9 24,2 19,2 +1 22,2 20,0 28,7 25,0 27,1 13,4 14,9 13,3 –1 14,2 20,7 13,6 19,2 15,7 10,3 10,1 10,4 +1 10,0 13,7 10,2 12,0 10,7 19,0 21,1 18,8 –1 19,9 34,2 26,9 19,2 22,6 8,3 8,6 8,3 +1 8,0 12,6 8,2 10,1 8,6 25,2 21,2 23,1 –8 25,7 26,0 25,9 21,4 20,0 1973,5 1970,6 1963,4 2480,6 2287,7 2204,4 1857,5 1937,2 +4 81,5 126,7 175,3 221,2 211,0 207,2 196,1 198,3 +1 2055,0 2097,3 2138,7 2701,9 2498,8 2411,6 2053,6 2135,5 +4

* Year-on-year% change.

Table # 6 Total bar and coin demand in selected countries, tonnes Reference: Metals Focus, GFMS, Thomson Reuters, ICE Benchmark Administration, World Gold Council

2010 India Pakistan China Hong Kong Taiwan Japan Indonesia Мalaysia Singapore S Korea Тhailand Vietnam Saudi Arabia UAE Kuwait Еgypt Iran Other Middle East Тurkey Russia USA Каnada Меxico Brazil France Germany U. K. Switzeland Austria Other Europe Total above Other & stock change World total * Year-on-year% change.

2011

2012

2013

2014

2015

2016

2017 %*

340,1 354,7 319,0 341,2 206,0 194,9 161,6 162,4 13,9 16,9 7,4 14,5 15,7 13,2 20,9 16,0 183,8 259,1 257,0 406,7 198,5 228,1 248,6 306,4 2,6 1,4 1,7 1,2 1,5 1,5 2,0 1,4 5,9 8,5 8,3 5,8 –1,4 6,4 5,8 5,0 17,1 –2,8 3,9 –2,7 –39,8 –52,3 –11,0 16,2 21,1 20,2 17,2 20,1 27,4 26,4 46,9 26,9 5,2 10,3 8,2 5,8 5,5 6,8 9,8 7,7 5,0 6,5 6,5 4,8 1,4 5,9 4,2 5,1 14,4 17,7 16,3 17,7 1,3 19,4 7,9 11,3 69,7 64,0 64,2 106,6 100,9 138,9 96,4 78,0 42,9 87,9 54,2 37,4 68,2 90,6 47,8 73,8 10,8 18,3 15,6 9,9 14,5 14,9 17,7 16,9 6,0 14,1 9,9 5,5 10,0 8,7 11,9 10,7 0,7 1,2 1,0 0,7 1,4 0,8 1,3 0,9 2,7 7,1 6,0 2,5 2,3 4,9 2,3 2,1 –4,4 36,1 18,3 43,5 30,1 53,2 57,0 64,0 3,4 3,9 3,6 3,5 1,3 3,2 2,0 2,3 29,4 52,4 40,9 23,1 71,9 48,1 104,2 48,6 3,7 0,0 7,9 3,1 0,0 4,8 0,0 0,0 75,1 47,7 39,4 104,2 82,2 71,5 93,0 53,2 3,6 5,7 3,7 2,6 3,7 2,9 5,9 3,9 2,0 2,5 2,2 2,1 4,7 2,2 2,9 3,1 1,3 1,4 1,3 1,0 0,5 1,4 0,9 1,0 –4,2 1,9 1,0 –0,5 –3,4 1,3 6,5 2,7 122,9 142,4 108,2 133,3 101,3 116,0 110,8 106,3 11,3 11,6 7,7 10,0 14,9 8,6 17,6 15,1 45,6 61,7 47,7 50,3 42,5 86,9 96,8 62,2 10,8 13,0 10,2 9,7 13,7 12,2 15,1 10,4 27,0 23,3 48,6 55,8 33,7 41,5 40,0 28,6 1164,1 1417,5 1249,5 1651,4 1013,9 1028,4 998,3 971,4 71,5 38,2 57,7 39,5 82,9 58,2 46,3 50,4 1203,6 1500,4 1307,7 1722,9 1052,1 1074,7 1048,7 1029,2

2 5 8 20 –2 — –4 11 –4 24 –8 –13 –8 –8 6 –8 — 4 78 –17 –58 –28 9 –19 — –4 –12 –7 –11 –14 –3 15 –2

of the total demand and therefore it is absolutely clear that the junction of the extractive sector with that of transformation can lead to economies of scale and stabilization of demand mining of the former USSR countries and at the same time production capacity and market penetration for the countries, in the first place Italy, which will come in this value chain. Another element of reflection is given by the reduced both the metal component absorbed from the huge mass of financial derivatives on it constructed which allow a few financial actors, as set out in the first part of this article, to distort the dynamics of price with an excessive leverage effect on a few real resources. The table #4–6 instead, shows the main components of gold supply and demand in the world market. The overall demand is basically stable between the 4,300 and the 4,600 tonnes per year, with a progressive increase of extracted gold than that from recovery, this shows how the countries holding of raw materials may gradually acquire power in determining the dynamics of the metal value itself. The same considerations on financial leverage of derivatives and a further reflection element is given by the component very low absorption by the central banks, corresponding to a moment in which is introduced into the world a lot of new currency, and this from the sense of how such an economy cannot that undergo a financial crisis in the short if this currency does not find an anchorage on shared foundations to precious metal, in innovative ways respect to the Bretton Woods Institutions. The study of the above data reflection regarding jewelry demand in Russia and in CSI countries which dropped from 167,6 tonnes to 109 tonnes (2010–2017). Overall, although falling, is an important question of

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

about 4 billion euro, on which to start building an important pole of production in Russia and other related countries through the exchange of skills and technology, where FBA EAC is doing a promoter and Italy represents the spearhead of tradition and quality. A separate chapter deserves to be dedicated to the policy adopted by the central banks in anchoring the emissions of currency to the actual physical gold reserves in the country. As it can be seen from the below table, the reserves are not proportionate to the currency circulating which is thus gradually emptied of meaning and sustained only by increasingly fragile conventions in trade. In the end, we should try to give a pragmatic view of the current framework and strategies to be put in the field, trying to identify three areas to focus on; macroeconomics, microeconomics and the one that we should define as «fluidity system». For Macroeconomics the efforts should be concentrated on the current needs of the states or better still of macro-regions to adopt development policies coordinated and integrated solutions that are focused on conquesting the market confidence and the solidity of the currency placed at the basis of the exchanges between the same. It is absolutely clear that policies designed to disrupt and discredit of economic blocs ( for example through sanctions, or media discreditation on financial markets) can only be contrasted by effective actions to generate a suitable dynamic of fundamental and therefore of the asset (gold, gas, oil, etc.) and confidence in expansionary policies with a consequent increase in internal consumption and exports. It is therefore clear that gold is the decisive tool for assessing the degree of solidity of a re-

gion combined with a policy that links the currency, whether traditional or newly created cryptocurrency, to this indicator. The proof is that in all emerging economies gold reserves are increasing. Microeconomics means supporting the manufacturing industry and therefore the need to create new potentials for the challenges faced by companies in the region and for the need to be open to a new contaminations and market dynamics. The closure of markets dictated by protectionist policies of «untouchable» balances (sanctions) and artificial monetary dynamics leads to critical issues for export-related companies, such as lack of finance project and difficulty in action. The current challenge is to live this crisis context, from the Greek crisis or change, then to maximize the opportunities that are generated, optimizing production based on new questions, with the creation of interchange between macro-regions, the exceeding of limits imposed with sanctions, and the relocation of production and know-how exchange between Made in Italy and Made in Russia. For Fluidity of system, it should be understood the ability to face the problem of the denominator of each economic «war» between macro-regions or the currency. It is necessary to access the system liquidity but also to understand that we are in a context in which the «currency» word is becoming anachronistic. Therefore, to encourage the creation of solutions that go from creating fluidity in terms of just interbank relations, to an articulated fluidity in quotations of companies with the possibility also for midrange company to access to a new potential investors on new financial markets (creation of markets exchanges) up to experimentation and opening of block chain projects with a gold

base. It is necessary to give reliability to the sector, to contaminate regions, to create excellence, to go beyond borders and to give trust and tools to all operators. This is the great challenge that FBA EAC wants to face in the coming months. Table # 7 Тоp 40 reported official gold holdings (as at Decemder 2017) Country 1 USA 2 Germany 3 IMF 4 Italy 5 France 6 China 7 Russia 8 Switzeland 9 Japan 10 Netherlands 11 Тurkey 12 India 13 ECB 14 Taiwan 15 Portugal 16 Saudi Arabia 17 U. K. 18 Kazakhstan 19 Lebanon 20 Spain 21 Austria 22 Belgium 23 Philippines 24 Venezuela 25 Algeria 26 Тhailand 27 Singapore 28 Sweden 29 South Africa 30 Меxico 31 Libya 32 Greece 33 S Korea 34 Romania 35 BIS 36 Poland 37 Iraq 38 Indonesia 39 Kuwait 40 Еgypt

Tonnes % of reserves 8133,5 3373,6 2814,0 2451,8 2436,0 1842,6 1838,8 1040,0 765,2 612,5 564,8 558,1 504,8 423,6 382,5 322,9 310,3 301,0 286,8 281,6 280,0 227,4 196,4 191,3 173,6 154,0 127,4 125,7 125,3 120,2 116,6 112,9 104,4 103,7 103,0 103,0 89,8 80,6 79,0 76,4

75 70 — 68 65 2 18 5 3 66 22 6 28 4 61 3 9 40 21 17 54 36 10 77 7 3 2 8 10 3 6 60 1 10 — 4 8 3 9 9

practice

Laï Kamara, International arbitrator, General Secretary of the World Organization of Experts, Counsels and Arbitrators (OMECA)*, EU Expert for «EU-Central Asia Rule of Law Platform»

* NGO accredited by The United Nations (Public Department of Information, Economic and Social Department)

INVESTMENTS AND STATE BILATERAL OR MULTILATERAL INVESTMENT TREATIES TOWARD A NEW SYSTEM OF ARBITRATION FOR DISPUTE SETTLEMENT THE EUROPEAN UNION APPROACH The EU approach All countries wish to be attractive for foreign investors. That is why so many investment codes and investment treaties are in force. Actually, there is in the world, more than 3000 BIT containing var-

ious kinds of mechanism for dispute settlement. Since the treaty of Lisbon, signed in 2007 by 27 European States, the negotiation and the signature of new bilateral investment treaties are reserved to the European authorities (articles 206,207 and 218 of the treaty).

That means that no member of European Union is allowed to discuss or approve an investment agreement with a non-EU country. This situation is particularly important concerning the arbitration mechanism for Investor-State Dispute Settlement (ISDS) which is

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

“

This European regulation permits to identify the real persons controlling entities and profiting from the income of private companies. The efficiency of such a policy implies a new duty for the national State of the supposed investor, inquiries and inter-States cooperation for data swap.

In Europe, in order to fight against the capital laundering and terrorism financing, the third directive 2005/60/CE has developed the notion of «effective beneficiary». This European regulation permits to identify the real persons controlling entities and profiting from the income of private companies.

Avoid fraud in international arbitration

different from commercial arbitration. In this case, the issues have to be decided in accordance with a treaty and the principles of public international law that leads to important financial and political implications, because countries may be seriously affected by an investment arbitration award. For instance, in the case of CETA treaty negotiated between EU and CANADA, the discussion about the system of arbitration is always contested by certain European States refusing the Anglo-Saxon private arbitration model. Bilateral or multilateral investment treaties main aim is the protection of investor’s substantive rights against arbitrary expropriation, nationalization, unfair and inequitable treatment and discrimination. On the other hand, a fair international arbitration system has to protect the host State national sovereignty. The host State has to be sure that an investor is definitely a real investor and not a simple speculator or middleman acting for foreign hidden illegal interests. In Europe, in order to fight against the capital laundering and terrorism financing, the third directive 2005/60/CE has developed the notion of «effective beneficiary».

Fraud in international arbitration is also to be watched. According to the fact that by investments treaties, States accepts the enforcement of the awards and do not grant their diplomatic protection to their nationals, arbitration can be sometime a handsome shelter for developing various strategies against States. That’s why it is essential to identify the real investor (end investor) and the origin of companies’ assets (money laundering, secret funds invested for State or Government destabilize ation, corruption …) As arbitration has become a real and very lucrative business, it is also necessary to know the underground relationships between third party funds, counsels and arbitrators. Recently, we have seen the emergence of a new disloyalty in international arbitration: the refusal by private companies to pay their share of arbitration costs, leaving the public institution — generally claimant — assuming all the expenses. As recent arbitration scandals have put in light the special behaviour of some arbitrators whose lack of independence and impartiality has tremendously justified to strengthen penalties for breach of truthfulness, its seems necessary to create an incrimination of «international state swindle» against arbitrators, counsels, beneficiaries, and eventually litigation funds, as ac-

complices by establish a scale of dissuasive sentences and negotiating an international prosecution agreement in the frame of international investment treaties.

Toward new international investment arbitration courts Because investment arbitration involves more financial and political implications than commercial arbitration as the contracting State, the investor’s country, the State seat of arbitration and the States where the award can be executed may be affected, a new transparent and public system must be imagined. In the new investment treaties negotiated by EU, it is proposed to create a court of arbitration, composed of qualified members with acknowledged competence and skill in arbitration, investment and public law, as the best means to insure all the parties about the seriousness of this new dispute resolution system. Clear definition of investments, of investors (stating clearly requirements regarding place of their incorporation and shareholding allowing them to benefit from the system) and of substantive rights protected under the new convention is thus established. The awards and courts decisions rendered under the auspices of that institution have to fall into the public domain, the traditional secret around arbitration decisions being no more acceptable when public interests are in balance. The eastern Euro-Asian countries could find a great interest to open discussions with European Union to replace all actual bilateral investment treaties by this new type of convention to promote European investments and economic, financial and technologic transfers. It could also involve the reverse.

Partners’ News

Andrey Heimonen, Marketing Director of Salus business solutions GmbHBerlin

A WEEK IN DAVOS WITH CASPIAN VIEW WITH THE WORLD SHIFTING TO A MULTIPOLAR ORDER A VITAL NEED ARISES FOR COOPERATION BETWEEN POLITICAL LEADERS, BUSINESSMEN AND OUTSTANDING SCIENTISTS WITH THE AIM TO BRIDGE OVER REGIONAL, POLITICAL AND NATIONAL BORDERS. THIS IS THE REASON WHY EVERY YEAR AT THE END OF WINTER FINANCIAL, POLITICAL AND BUSINESS ELITE CONCENTRATES IN A SMALL SWISS TOWN DAVOS. NO RESOLUTIONS OR ANY OTHER DOCUMENTS ARE MADE HERE, BUT DAVOS FORUM IS AN OPPORTUNITY TO MEET AND DISCUSS IN AN INFORMAL SETTING A LOT OF WORLD’S CRUCIAL ISSUES, SET BUSINESS CONTACTS, HOLD NO-TIE AND TETE-A-TETE MEETINGS. THIS YEAR THE WORLD ECONOMIC FORUM IN DAVOS WAS HELD ON JANUARY 22–26.

ne of the main events at the Forum-2018 was the CaspianWeek held with the support of the Swiss company IntegralPetroleum. CaspianWeek is a meeting of world leaders of business, politics and other societies. One of the guests of the CaspianWeek-2018 was the President of Tatarstan Rustam Nurgaliyevich Minnikhanov.

This year the partner of the CaspianWeek was SALUS in the person of Egor Ivankov. SALUS develops international exchange trades. It has 10 subsidiaries in Russia and in 15 countries of EAEU, CIS, Eastern and Western Europe, Asia and Africa. Its approach is open, and its partners network expands rapidly. SALUS is a member and strategic partner of Financial & Banking Association of Euro-Asian Cooperation

(FBA EAC), of the Universal commodity Exchange — Eurasian Cooperation, of International Bank for Economic Co-operation (IBEC), created in 1963. SALUS collaborates with the International Research Nobel Center (IRNC) and with other public organizations and associations, global development institutes, legislative and executive authorities to create and develop a balanced, no-barrier global ecosystem of com-

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

modities and funds, to protect intellectual property rights on the principle of «Trade Diplomacy» For a variety of reasons today the Caspian region is among those regions which affect world geopolitical situation. Caspian region reflects global trends in economy, ethics, confessions, social environment and culture. The slogan of the CaspianWeek is «Finisoriginependet» which means «The result depends on the start». The project CaspianWeek makes the first steps in Davos, it is organized for the second time only but it is targeting to success. 11 sessions of the CaspianWeek-2018 gathered 48 speakers, more than 1200 guests joined different events of the project.

Cooperation development between the Caspian region and the rest of the world was one the goals at the CaspianWeek-2018. With this aim there were meetings of experts in business, financial institutes, banks, logistic and transport, production and investment companies. Any business idea, no matter how bright it is, needs financing. So one of the CaspianWeek partners was VP Bank — one of the leading banks of Lichtenstein, created in 1956. Its focus area is structured assets and asset management, investment advisory for private clients and intermediaries. Today the bank is represented on Moscow, Vaduz, Zurich, Luxemburg, Tortola (BVI), Singapore and

Hong Kong. VP Bank has reliable equity capital and rating А — (S&P’s). Another important task of the CaspianWeek is to introduce innovative technologies in the region. This year much attention was paid to digital technologies in financial sector, trade and logistics. The participants discussed the implementation of the new technologies in state and commercial projects, development of financial technologies, governmental support and global cooperation in these issues. One of the most interesting discussions at the CaspianWeek was: «Bitcoin is dead! Long live crypto currencies!» involving Alexander Sloboda, Michael Hattman, Dr. Daniel Heller and Jeffrey Wernick.

General Director of SALUS Egor Ivankov with Head of Trading Integral Petroleum Dmitry Akopov (on left foto); with Project Leader, Caspian Week Maria Berezikova, Marketing Director of Salus business solutions GmbHBerlin Andrey Heimonen

Thomas Westh Olsen (Head of Private Banking Central & Eastern Europe, Member of Executive Management) Managing director of Integral Petroleum SA Murat Seitnepesov

Nevin Tevs (Client Advisor Private Banking), Enrico Muffeis (Financial Consultant)

After bitcoin the discussion shifted to other crypto currencies. The establishment of CaspianWeek Digital Award was truly important. The award aims to support the ideas of negative influence of irrational use of energy and energy reallocation. CaspianWeek Digital Award in the amount of $1 million will be presented to the one who

Guests of the Caspian Week: Member of Federation Council Committee on Foreign Affairs Igor Morozov, Sergey Dubroff and the Russian historian and politician Sergey Stankevitch [1], General Director of Virtuoz Trading Limited Olga Lisitsina [2], the Formula 1 champion Jean Robert Alesi [3], Prime Minister of Georgia Giorgi Kvirikashvili [4], Prince of Libya Idris bin Abdullah al-Senussi [5], Governor of Astana International Finance Center Kairat Kelimbetov [6]

finds the most effective and the most ecological solution. The wrap-up is expected next year at Davos-2019. Among other topics of CaspianWeek was culture. The region has a diversity of cultures and religions as a result of empires and civilizations on the shores of the Caspian Sea. The peoples of the region have a lot to show to the world, and the interesting cultural program at the CaspianWeek confirms this. There was yet another event worth mentioning at the CaspianWeek. Specifically for the CaspianWeek House Sergey Duboff, a tenor and an artist, painted pictures about the Caspian region including Russia, Turkmenistan, Kazakhstan, Azerbaijan, Iran, Georgia, Turkey, Tajikistan. All the paintings have a unique QR code, by which you can read information about a country in different languages. The paintings reflect reverential attitude of the artist to the culture and history of different countries, and attempt to

unite the past and the future, reveal to the spectators as much information about each country, as possible. 10 paintings were put on auction. Egor Ivankov, General Director of SALUS bought the picture about Russia. Now it is in the headquarters of SALUS in Moscow. SALUS has a wide regional and international branch network. It is important for the Forum and especially for the CaspianWeek, which supports cooperation of the region with the whole world. On the first day of the Davos forum the weather welcomed the participants with snow, drifts and long traffic jams. We hope that the CaspianWeek helped to melt the ice. The sun is bright in the region, and it was bright in Davos. It is pleasant to see that the CaspianWeek grows every year and gains strength in Davos. We hope for the future, and next year we plan to invite more participants to make the event one of the main at the Forum.

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

Partners’ News

DIGIT IS PRIORITY A ROUND-TABLE MEETING ON THE TOPIC «OPPORTUNITIES AND FEATURES OF APPLICATION IN THE BANKING SYSTEM DECREE NO. 8 «ON THE DEVELOPMENT OF THE DIGITAL ECONOMY» WAS HELD ON FEBRUARY 12, 2018, IN MINSK. THIS EVENT WAS ORGANIZED BY THE ASSOCIATION OF BELARUSIAN BANKS TOGETHER WITH THE LAW OFFICE «LEV, SHERSTNEV & PARTNERS». IT ASSEMBLED MORE THAN 100 PARTICIPANTS — REPRESENTATIVES OF THE NATIONAL BANK, BANKS AND NON-BANK FINANCIAL INSTITUTIONS, THE DEPUTY CORPS, THE BANKING PROGRESSING CENTER, THE HIGH TECHNOLOGY PARK, THE MINISTRY OF INTERNAL AFFAIRS, PROFILE BUSINESS ASSOCIATIONS, LEGAL AND IT-COMPANIES.

articipants of the round table discussed the opportunities and prospects opened by the Decree of the President of the Republic of Belarus of December 21, 2017 No. 8 «On the development of the digital economy» for the domestic banking system and the economy as a whole. More about this, as well as possible risks that banks should take into account when introducing innovative digital technologies, said Boris Lev, managing partner of law office «Lev, Sherstnev & Partners». The legal aspects of applying the provisions of Decree No. 8 were commented on by Ivan Zhiznevsky, Deputy Director of the Administration of the High Technologies Park. Matvei Levant, Managing Partner of the International Bar Association, acquainted the audience with

www.abbanks.by the developments in the field of international legal crypto-regulation. The head of the expert group of the company EXADEL Sergey Bondarev devoted his speech to the possibilities of using blockchain technology in banking systems. Anton Kulichkin, member of the Expert Council of the Association of Distributed Registry Technology, analyzed the world system of crypto-instruments. Aleksandr Kuschynski, Chairman of the Association of Belarusian Banks, reported that Presidential Decree No. 8 creates unprecedented conditions for the development of IT industry and gives serious competitive advantages to our country in the creation of the digital economy of the 21st century. But it depends on the heads, managers and specialists who will implement them. On the basis of High Technologies Park of

Belarus it is planned to create banks with the participation of Sectoral Council for the implementation of Decree No.8 «On the development of the digital economy». «For the banking system the implementation of this document is a great challenge. We should clearly represent the limits of our competence, have qualified specialists to work in this direction. And they will need to be trained. It is planning to develop the professional qualified standards and modern training programs aimed at implementing the document. Banks as representatives of one of the most highly-equipped sectors of the Belarusian economy are interested in this as no one else. Therefore, on behalf of the National Bank, our Association will take an active part in this work», — A. Kuschynski said. Association of Belarusian Banks 41

project

INDUSTRIAL WAREHOUSE COMPANY «AMEGA», «AMEGA» THE MEMBER OF FBA EAC, www.amega.su

OFFERS COOPERATION

THE INVESTMENT PROJECT IMPLIES A CONSTRUCTION OF A VEGETABLES WAREHOUSE TO PROCESS AND STORE 30,000 TONS OF POTATOES, WITH SPECIAL REFRIGERATE AND VENTILATING EQUIPMENT. TO IMPLEMENT THE PROJECT IT’S PLANNED TO INVOLVE THE COMPANY CONNECTED WITH «TURN-KEY» ENGINEERING OF VEGETABLE WAREHOUSES (VMT-AGRO LTD.), AND TO BUY PACKING EQUIPMENT, MATERIALS, VENTILATING EQUIPMENT FROM SPECIALIZED COMPANIES. THE OUTPUT OF THE PROJECT WILL BE THE CLEAN PACKED POTATOES OF CATEGORY 4SM +.

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

BACKGROUND. «Amega» Ltd. was created in March, 2017 in the Tula region with the aim to construct an industrial warehouse for potatoes storage. PROJECT ORIGINATOR. Group of companies «Amega». MAIN BUSINESS. Transportation. REASON. The project was triggered by the acute shortage of warehouse capacities for vegetables in the Tula region and in Russia in general. BUDGET. Total cost is RUB 1.6 billion.

SCHEDULE. Start of construction — II quarter of 2018. Entry into service — IV quarter of 2020. FIGURES. Project profitability estimated by project originator: > discount rate — 14.7%; > pay-back period — 8 years; > discount pay-back period — 10 years; > net present value (NPV) — RUB 62,6 million; > internal rate of return (IRR) — 16%. MORE FIGURES. Financial structure of the project: > owner’s funds: RUB 478.4 million (30%); > borrowed funds: RUB 1.116 billion (70%). PROJECT FEATURES. The warehouse complex will include a hightech vegetable storage to provide for fresh potatoes during the whole season. To store potatoes we will build a warehouse (container type) with capacity of 30 000 tons. The project implies three storage sheds with capacity of 10 000 tons. There will be three construction stages. The output yield will be put into storage and sold until the next June. The main sales period is the second quarter of a year. In the fourth quarter of a year (when putting into storage) spoiled potatoes will be sold (of category lower than 4+).

DISTA N CE FRO M M O S C OW . 110 km.

MARKETING. Most projects in the country do not meet modern requirements. There are only 20−25% modern warehouses. This project will create relevant microclimate in the warehouse and decrease loses of a product during storage and improve its quality, besides it will lower energy expenses. These loses will be decreased due to fast and effective classification of vegetables with the use of special equipment which will classify products by size,

ripeness, and reject spoiled and diseased yield. At the first stage the marketing strategy aims to enter the market with a totally new product and gain consumers. At the second stage the strategy aims to keep positions, improve production and sale channels, enhance its market share in the region and further.

PRODUCTION TECHNOLOGY Acceptance of fruit and vegetable products Dry cleaning

Classification Rejection of spoiled and diseased yield, besatz Container packing

Storage of fruit and vegetable products

Sales of seasonal-storage vegetables

Sales of long-storage vegetables

AGREEMENT. Supply agreements are concluded with the Defense Ministry of Russia and large trade nets in the Moscow region and in the Tula region. PROJECT ADVANTAGES: > market niche: there is shortage of warehouses; > support from the Tula region government; > demand for the product — potato is the main crop in Russia; > availability of the largest markets — Moscow, the Moscow region, the Tula region; > new technologies.

photo contest

«THE WORLD THROUGH THE EYES OF A PHOTOGRAPHER» In routine we usually don’t have a chance to see the beauty around us. To snatch a slipping moment and capture it is only possible for a photo camera in the hands of a receptive and creative person. Financial & Banking Association of Euro-Asian Cooperation launches a new project — photo contest «THE WORLD THROUGH THE EYES OF A PHOTOGRAPHER». This contest is for true lovers of their motherland’s beauty, for those who take photos not for profession but for hobby, self-expression, willingness to share joy from what they have seen and felt. V E NU E Russia, Moscow

PH OTO ST YLE «Countries and cities», «Native nature», «Self-artist», «World of emotions», «Snatch a moment», «Family album», «Package of impressions», «Incredible is close», «Proactive attitude»

TIM E L I M I T S Works are received from February to October 2018, wrap-up on November 15, 2018

C O NTAC T S :

In the photo, the world around seems brighter and more beautiful

PARTI CI PANTS Non-professional photographers from all countries without restrictions are allowed to the contest PRI ZE Each winner receives a laureate diploma and a chance to become famous. Best works will be published in the Herald

E-mail: sgk@fbacs.com, bev@fbacs.com, office@fbacs.com Теl.: +7 495 663-02-08, 663-02-13, 663-02-19

OLGA KUPCHINOVA Born in Belarus in 1960. Economist

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

A photo is the moment that will remain with me forever

Photography is a frozen instant of beauty

IRINA BELONOSOVA Born in Russia in 1989. Eeconomist

TATIANA KALINA Born in Kazakhstan in 1980. Manager

photo contest

I value photos for the opportunity to cherish lovely moments

Itâ&#x20AC;&#x2122;s a pity that I have an opportunity to relax with a camera in my hands so seldom

KSENIA TERESHCHENKO Born in Russia in 1994. Legal Counsel

MANISH KUMAR Born in India in 1971. President of the Soltex Group Ltd

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

I show my friends the places I managed to visit

I like to transfer the mood through photos

DEMCHIGJAV MOLOMJAMTS Born in 1951 in Mongolia, Economist

ELENA ALASAVICHYUTE Born in Lithuania in 1977. Translator

Material for Thought

Tatiana Galander, Head of Russian Business Group the company PricewaterhouseCoopers in Germany

GERMANY — RUSSIA:

BUSINESS-GRAVITATION REMAINS

www.pwc.de

MOST REPRESENTATIVES OF GERMAN BUSINESS IN RUSSIA ARE IN FAVOUR OF LIFTING THE EU SANCTIONS AGAINST RUSSIA AS SANCTIONS DON’T ACHIEVE THEIR POLITICAL GOALS AND CAUSE TANGIBLE FINANCIAL DAMAGE TO BUSINESS. BUSINESSMEN BELIEVE THAT THE DEVELOPMENT OF EURASIAN ECONOMIC UNION (EAEU) WHICH INCLUDES RUSSIA, BELARUS, KAZAKHSTAN, ARMENIA AND KYRGYZSTAN, DOESN’T YET GIVE ANY ADVANTAGES FOR GERMANY COMPANIES. AT THE SAME TIME, THEY AGREE WITH THE ABOLISHMENT OF CUSTOM DUTIES AND CUSTOM CONTROL AND NOTE THE GROWTH IN OUTLETS DUE TO THE EAEU, IN PARTICULAR THE RUSSIAN MARKET.

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

The current situation Since 2014, there has been a significant deterioration in the GermanRussian foreign trade relations, as well as relations with other countries of the Eurasian Economic Union: for example, the decline in German-Russian trade amounted to 30%. It is common knowledge that the European Union imposed sanctions against Russia; in response, in 2014, Russia prohibited the import of agricultural products from the European Union. This very prohibition created preconditions for a significant growth of Russian agriculture. Nevertheless, this growth could be beneficial for German and other foreign producers of agricultural machinery. Today we see the first improvement indicators of German-Russian and in general European-Russian foreign trade relations, as well as connections with the EAEU. For example, direct investments of German companies in Russia grew to € 2,05 billion in the first nine months of 2016. This is more than the entire previous year, not to mention the year 2014, when German business, according to Deutsche Bank, massively withdrew assets from the Russian Federation. In addition, the export of products of machinery sector of German to Russia increased by 22,5% in 2017 and reached €5,3 billion. The growth is solid but it is not so impressive like in 2012 with the export in € 8 billion. On January 12, 2017, a business conference was held in Düsseldorf, devoted to prospects of German business in Russia. This forum was organized by the the Düsseldorf Chamber of Commerce and was called «Russia on its way from the export market to the production site?» Pragmatic Germans are skeptical about the renewal of the export boom with Russia. Obviously, the

55,6% of the respondents have already localized production in Russia

22,0% plan to launch production in the next two years

24,4% do not plan to launch production in Russia

German-Russian Chamber of Commerce Survey among German companies on localization, October 28, 2016

problems of the world hydrocarbon market, the cheap ruble, the prospect of economic reforms in the country, mutual sanctions and, consequently, the low solvency of business and citizens are unlikely to lead to an increase in demand for German products manufactured outside the Russian Federation. That is why the conference often heard such words as «localization of production» and «import substitution». As follow from a separate survey of the import substitution and localization, conducted in October 2016, 56% of the respondents have already localized production in Russia and intend to expand it. Another 20% plan to launch its first production in the next two years. Most German companies see the potential in the Russian market: they are not going to reduce the business activity in the country, but on the contrary — they plan to expand the staff.

Working conditions Our business relations in Russia are regulated by the Federal Law No. 488 of December 31, 2014 «On industrial policy in the Russian Fed-

eration». On its basis, a number of resolutions of the Government of the Russian Federation were developed. On the one hand, the Russian Federation intends to attract foreign investors to create production in Russia. For this purpose, there are subsidies and other state guarantees. A very popular method of support is a special investment contract (SPIC) which requires the investor to establish either production or modernization of industrial production in Russia, as well as investing at least 750 million rubles. In June, 2016 the first such contract was signed by the German company CLAAS KGaA, specializing in the manufacture of machinery and equipment for agriculture. Although the sales of company after 2014 decreased by 40 %, it built a new factory in Krasnodar, worth €120 million. For CLAAS this is the largest investment outside Germany. There are also regional programs, including special investment contracts at the regional level — regional investment projects. On the other hand, the Russian Federation has imposed restrictions on foreign producers in the form of priority products and services of Russian origin for government orders. In certain cases, foreign goods are not considered at all, or Russian goods and products from the countries of Eurasian Economic Union are given preferences for prices.

“

On the one hand, the Russian Federation intends to attract foreign investors to create production in Russia. On the other hand, it has imposed restrictions on foreign producers…

Participation in large investment projects in the field of mechanic engineering is permitted only with the prior consent of the state commission for import substitution. There is a ban on provision some government subsidies to foreign companies.

Who is the Russian manufacturer? Regulation of the Government of the Russian Federation No. 719 dated July 17, 2015 «On the criteria of assigning goods to industrial production having no Russian analogues, produced in the Russian Federation», special criteria were established for Russian products «Made in Russia». In certain industries, there are rules of the former CIS countries («Rules for determining the country of origin of goods»). We could say that there are requirements to manufactures or requirements for production. The main requirement for producers is that a foreign company in Russia is necessary to have the right to manufacture, modernize and develop a corresponding product for a period of not less than 5 years, also to have the right to a certain license. With

regard to the requirement for production that is established the maximum share of a foreign commodity and the need to imply certain production processes and technological processes in Russia. These new provisions often require from foreign producers to create production in Russia in order to continue to work in the local market and participate in business, i.e. localize production in Russia. Currently, most German producers have already adopted such a decision. In Russia, a number of factories have opened or the production has expanded, for example: Wilo, Henkel, ZMS-Technology, Petkus, Horsch, ROPA, Amazone, Claas, Daimler, Nestle, etc. The Russian Federation provides certain advantages regarding the time of fulfillment of the «made in Russia» criteria, that is, the investor is granted a more flexible regime of fulfilling the terms and corresponding participation in state orders. On the basis of the SPIC, a foreign investor and its subsidiary may be granted tax benefits (reduction of income and property tax to zero) and benefits when renting an industrial site, and guarantees are provided for changing legislation in the fu-

ture. The maximum term of such a contract is 10 years. At present, four investment contracts have already been concluded with German investors (Claas, DMG Mori, Daimler, Wilo). However, it seems to me that the number of them is still small. A very complicated administrative procedure is required for the conclusion of the SPIC. It takes a long time to prepare a business plan, to agree it with all bodies and to negotiate with the Russian Federation. Accordingly, it is for small and medium-sized foreign investors such a SPIC is not the most profitable way for receiving the government support at the level of the Russian Federation.

Legal literacy The main recommendation for investing in Russia and the countries of the Eurasian Economic Union is sufficient preparation and compliance with all local requirements of the legislation. It would seem that this is self-evident, but in practice, foreign investors are often not well prepared and are not familiar with the laws in force. As a result, for a number of reasons, bureaucratic, administrative, foreign investors are committed to violations, creating serious legal and tax risks, which should always be avoided. It should be added that the legislative legal framework conditions in Russia and in other countries of Eurasian Economic Union are very developed today. Unfortunately, this is rarely recognized and published in foreign media but this is evidence from the World Bank’s rating. So Russia takes the 35th place in terms of business. Kazakhstan takes 36th place in creating conditions for the protection of minority investors and Belarus is ranked 38th by terms of granting loans. Russian corporate law is developed and even more

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

modern than the German Civil Code (BGB). (This topic is worthy of writing a whole book, in which there may be more than 500 pages). What questions are cared about foreign suppliers? These are issues of tax registration, creation of permanent representation and the need to obtain a work permit. It is in the machinery industry that manufacturers not only supply their products to Russia, but also carry out mounting when installing machines or equipment at factories of Russian, Belarusian or Kazakh customers. Often they send their specialists to Russia, who carry out mounting or provide specific services to Russian customers. If such activities of German employees continue more than 30 calendar days, there is actually a need to register with the tax authorities at the place of business in accordance with article 4, paragraph 83 of the Tax Code. But in most cases this requirement is not fulfilled. Additionally to the question of tax registration it is necessary to address the issue of establishing a permanent representation and the appearance of corresponding tax liabilities. In this sense, it is important to remember the Tax Code of the Russian Federation as well as the agreement between Russia and Germany for avoidance of double taxation. This agreement provides for an exception in clause 3 of Article 5: the construction site or installation project is a permanent establishment only in cases if the duration of their activities is more than 12 months. But: such an exception doesn’t apply to the installation supervision. Closely linked to tax issues are the issues of obtaining a work permit for employees who are sent in Russia. In this case an employment contract is concluded. But in accordance with article 16 of the Labor Code of the Russian Federation, la-

bor relations between the employee and the employer also arise on the basis of the actual admission of the employee to work with the knowledge or on behalf of the employer or his authorized representative in case the employment contract has not been duly formalized. In accordance with article 67 of the Labor Code of the Russian Federation, an employment contract that is not executed in writing is considered concluded if the employee has started working with the knowledge or on behalf of the employer or his representative authorized to do so. At the actual admission of the employee to work, the employer is obliged to formalize an employment contract with him in writing not later than three working days from the date of actual admission. Accordingly, if a foreign employee works for three days on the same construction site, it can be assumed that labor relations arise. The question arises with whom such labor relations are concluded. There is a risk not only in relation to a German or foreign investor, but also with respect to the Russian contracting party.

On the basis of migration legislation, there are certain exceptions, but it is necessary to first consider whether such exceptions are actually applicable. For example, in accordance with sub-paragraphs 4 p. 4 of Article 13of the Federal Law No.115 from July 25, 2002 «On the Legal Status of Aliens in the Russian Federation», a foreign citizen has the right to work without a work permit if he is an employee of a foreign legal entity (producer or supplier), performing installation (supervision) work, guarantee and service maintenance as well as postwarranty repair of the delivered technical equipment to the Russian Federation. In conclusion it is necessary to mention the new Customs Code of the Eurasian Economic Union, which entered into force in January 1, 2018, which includes introduction of simplified the customs legislation, transition to electronic data processing that means the speeding up the relevant processes. It also includes the automated release of goods. The existing customs procedures in principle don’t changed, they continue to operate.

INVESTMENTS

INDIA —

A COUNTRY OF GREAT OPPORTUNITIES INTERVIEW WITH DEEPAK BAGLA, CEO AND MD, INVEST INDIA

investindia.gov.in

“

This year India entered the top-100 countries of the World in the World Banks’ ease of doing business ranking. The «incredible jump» — as the World Bank CEO put it — from 130 last year is the highest for any country.

DEEPAK BAGL A CEO and MD, invest India

ЕВРАЗИЙСКИЙ EURASIAN ФИНАНСОВО-ЭКОНОМИЧЕСКИЙ FINANCIAL & ECONOMICВЕСТНИК HERALD | #2(4)-2018

light of recent protectionist measures being put in place by a select few countries, how can India continue to be an attractive destination for FDI? — While it is true that we hear certain protectionist voices, it doesn’t affect India’s attractiveness as an investment destination. India has emerged as a key investment destination for both market seeking as well as export-base seeking investments. India’s GDP is set to touch $5 tn by 2025, and with both the manufacturing and services sector expected to grow by more than 10% annually in nominal terms. India’s consumer market will be $4 tn by 2025. Today, India is one of the world’s most open economies, with a continuously improving business ecosystem, which is highlighted by the Ease of doing business rankings, where India jumped 30 places last year to break into the top 100. This massive leap means that the confidence of investors in the credibility of the system can now be taken for granted. Such ground-level changes in business-climate are likely to have a multiplier effect on the investment and the economy. An-

other great example of the progress was given by FT’s FDI intelligence, which ranks India #1 in the world as receipt n of greenfield FDI. This illustrates the long-term confidence of investors and highlights their belief to profitability execute projects in India from scratch. — What are some of the processes in the policy framework that should be made simpler for new investors? — From April 2014 till December 2017, India received $209 Bn of inward FDI, the highest in its history. In fact, India is today one of the most open economies in the world in terms of sectors that are open for foreign capital. More than 90% of this FDI came in with no approvals. Reforms have covered a wide range of topics from the country-level ground-breaking reforms such as the new GST law or the new bankruptcy and insolvency code to repeal or amendment of over 14,000 policy and procedural interventions across the central and state governments. This has dismantled the inherent complexity of rules and procedures, created over time. This year India entered the top100 countries of the World in the

World Banks’ ease of doing business ranking. The «incredible jump» — as the World Bank CEO put it — from 130 last year is the highest for any country. The improvement is even stark along some of the key parameters. For instance, India jumped from 99th position in 2014 to 29th position now on getting electricity. Going forward, India needs to continue to minimize the variation in the ease of doing business between the states to ensure a uniform experience throughout India. DIPP’s Business Reform Action Plan with 405 specific recommendations across 12 parameters is aimed to achieve this. — What role has Invest India played with facilitation of investment into the country? — At Invest India, we work with investors across their investment lifecycle and translate these investments into well-paid jobs for the nation’s emerging workforce. So far, Invest India’s efforts have created more than 100,000 jobs on the ground and we are facilitating more than 85 billion dollars of investments that are likely to create more than 1.8 million new jobs. In a relatively brief period, Invest India has been impactful

across many areas. It has been effective in increasing the competitiveness of doing business in India, supporting start-ups and facilitating pioneering investments in major sectors. The journey from its infancy in 2014 to a global winner is best reflective of the story of new India — a transformation, unprecedented in speed and scale. And all this was achieved at a fraction of the budget of global peers. India works with all the state governments across India to make this happen. To raise the bar of investment promotion and facilitation by State Governments, Invest India recently conducted an in-depth evaluation of capabilities of state IPAs across India and conducted a nation-wide workshop to help them fill the gaps and facilitate knowledge sharing. Winning FDI is a collaborative effort with multiple actors working in tandem. Recognizing the

need for increased real-time frictionless coordination, we are linking the Indian missions, central ministries, Invest India and state governments on a first-of-its kind technological platform. This will ensure that the investors have a seamless experience from the boardrooms in global capitals to the districts and blocks of the states in India. Russia Plus was conceptualized by Prime Minister Narendra Modi during the India Russia Bilateral Summit at SPIEF 2018, St Petersburg, Russia in June 2017. The Hon’ble Prime Minister of India, Mr Narendra Modi announced in the presence of President of Russia Mr Vladimir Putin during SPIEF 2017 the setting up of a dedicated Russia Desk at Invest India. This desk, christened Russia Plus, was formally launched in September 2017 by Mrs Sushma Swaraj Minister of External Affairs of India

in the presence of Mr Denis Manturov, Minister of Industry and Trade of the Russian Federation. Russia Plus is a milestone for the India-Russia relationship that has stood the test of time, and will strengthen the partnership that the two nations enjoy. Russia Plus acts as a one-stop solution for investors by providing handholding support that includes business advisory, policy guidance, location assessment, assistance with regulatory approvals, issue redressal and expansion support. We work closely with Russian companies to ensure that their investments success in India. Our team of sector and state experts work closely with investors through the entire investment cycle — from concept to implementation. With Russia Plus, Investors can benefit from Invest India’s accomplished understanding of the Indian climate.

business in countries

FOREIGN DIRECT INVESTMENTS IN THE STATES OF INDIA

BELOW IS THE INFORMATION ABOUT INVESTMENT OPPORTUNITIES IN FOUR STATES OF INDIA: A GUIDELINE FOR INVESTORS TO INDIAN ECONOMY

RAJASTHAN

MAHARASHTRA

MADHYA PRADESH

ANDHRA PRADESH

Rajasthan

ajasthan, or Abode of Kings, is the largest Indian state by area, covering 10.4 per cent of the total national land coverage. The state covers a variety of topography, ranging from vast deserts to forest hills, and has a total population of 68.9 million. The state is administered through 33 districts and recorded gross state domestic product of US$120 billion during financial year 2016–17. Rajasthan shares its borders with five major Indian states, offering great potential in terms of market access. It is one of India’s leading mineral producing states and 70% of its population is primarily dependent on agriculture. To tap into the state’s enormous potential for economic growth, the Rajasthan Government has implemented several measures and reforms to make it an attractive investment destination.

The cumulative foreign direct investment (FDI) into Rajasthan stood at US$1.5 billion in the period between 2000 to 2017. The construction of the Delhi — Mumbai Industrial Corridor is likely to drive the influx of FDI into the state, as a large part of it lies in Rajasthan. Benefits of investing in the state include — location: 24.5% of Rajasthan lies in the National Capital Region (NCR); excellent connectivity to Delhi, Mumbai, Ahmedabad, Vadodara, Bhopal and Amritsar; abundance of industrial power, relevant infrastructure, land availability, skilled manpower. The major sectors for FDI in Rajasthan include — Infrastructure; IT & ITeS; Auto & Engineering; Renewable Energy; Tourism; Healthcare; Agro & Food processing; Minerals & Ceramics; Textiles; Defence manufacturing; Electronic hardware; and MSMEs.

Success Stories Japanese Industrial Zone, Neemrana, is perhaps Rajasthan’s greatest success story. Around 1,100 acres of land near Rajasthan’s ancient historical town is set aside exclusively for Japanese corporations. This was a result of an MOU signed between Rajasthan State Industrial Development and Investment Corporation (RIICO) and Japan External Trade Organization (JETRO). The total investment in the zone stood at US$656 million in 2015. Global titans such as Toyota Motor Corp., Daikin Industries Ltd and Hitachi Ltd have clustered here. Ambuja Cements Limited, one of the biggest investors in the state, is the second largest cement manufacturing company in the world. Kajaria Ceramics, the largest manufacturer of ceramic tiles in India with markets in more than 20 countries, has production operations in India.

The state has made several progressive efforts towards attracting investors and ensuring that the state ranks high in ease of doing business: — the Government of Rajasthan has introduced a Single Window Clearance System; — the Rajasthan State Industrial Development and Investment Corporation (RIICO) has played an integral role in reforms relating to land availability and setting up of industrial areas; — labour laws have been reformed and a Labour Department Management System (LDMS) has been established. This allows filing of applications, registrations, renewals and online payments; — an e-governance platform called e-Mitra has been implemented by Department of IT and Communications to provide services related to different government work online; — speedy issuance of environmental clearances for setting up factories. Land records have been digitized, allowing investors to extract a copy of the records online.

ЕВРАЗИЙСКИЙ ФИНАНСОВО-ЭКОНОМИЧЕСКИЙ ВЕСТНИК | #2(4)-2018

Maharashtra

aharashtra is India’s second largest state located off its western coast, and is the country’s economic and industrial powerhouse. The state, divided in 36 districts, has a population of 114.2 million and gross state domestic product of US$279.3 billion in the financial year 2016–17. Consistently, one of the top five contributors to the country’s FDI pool, Maharashtra is poised to make an industrial investment of US$75.2 billion and create 2 million jobs in the state over the next five years. The state is investing heavily in developing new infrastructure, transportation and developing smart cities to hike up its growth rate. Agriculture, the services sector, infrastructure, IT and ITES, tourism and hospitality, and India’s biggest film industry — Bollywood, are major sectors in the state, which strengthens the state’s economy. With 11 airports, 18 national highways and 6,000 km of rail network, the state is well connected to all major markets. Maharashtra received a cumulative FDI inflow of US$112 billion

Success Stories Taiwanese electronics giant Foxconn has made Maharashtra its destination in India; General Motors consolidated its operations at its existing unit at Talegaon, Maharashtra, with an investment of US$1 billion. The Maharashtra government is planning to set up a 500 MW solar park in Dhule district.The entire investment in the park will come from private parties and the state will call for bids sometime in the next quarter. Electronic firms, shortlisted for incentives by the Government, for manufacturing their products in India have invested US$160 million in Maharashtra under the Modified Special Incentive Package Scheme. Microsoft is helping to develop Maharashtra’s first smart village at Harisal in Amravati; A US$769 million World Bank conservation and agriculture reforms project has been launched in Vidarbha and Marathwada.

from April 2000 to September 2017, along with Dadra & Nagar Haveli and Daman & Diu. Investor interest has been augmented by the state’s strong agricultural and industrial base, rich minerals and hydrocarbons deposit, proximity to financial markets, skilled labour availability and advanced infrastructural and connectivity setup. The US$100 billion Delhi-Mumbai Industrial Corridor billed as one of India’s mega infrastructure projects will develop new industrial cities en-route, as Smart Cities, and converge the latest technologies across infrastructure sectors. The key growth sectors in the State include auto and auto components; infrastructure support institutions; gems and jewellery; biotechnology. Bioinformatics; floriculture; and food processing. Maharashtra is ranked highest in Ease of Doing Business (EDB) metrics among the Indian states study

by the Lee Kuan Yew School of Public Policy. The state leads in obtaining approvals for infrastructure-related utilities, procedures for starting a business has been reduced. Maharashtra passed a new Electronics Policy, which promises one window clearance, offers subsidies and makes the state competitive. To aid investment, Maharashtra Industry, Trade and Investment Facilitation Cell (MAITRI), an online one-stop shop for investors has been set up; The State has also passed a revised Maritime Development Policy to focus on the PPP model and boost port infrastructure. Maharashtra Rights to Public Services Act ensures 110 essential services are delivered in a timebound manner for a nominal fee. The State Government has also offered Special Economic Zone (SEZ) policy to boost investments.

Madhya Pradesh

adhya Pradesh (MP) is considered the heart of incredible India. The state is rich in mineral resources and has the largest diamond and copper reserves in India. More than 33 percent of its area is under forest cover and the tourism industry here has seen considerable growth. The total population of Madhya Pradesh Pradesh is about 73 mn. MP is known for its robust rail network with 425 trains crossing daily, dense road network of 160,000 km, 5 airports and 5 Inland Container Depots (ICD), Madhya Pradesh offers excellent support infrastructure for industrial growth. Madhya Pradesh is one of India’s top investment destinations. According to the Department of Industry Policy and Promotion (DIPP) and World Bank report, Madhya Pradesh ranks among top 5 states in Ease of Doing Business for 2015–16. The state ranks number one, in terms of allotment of land and obtaining construction permits. Madhya Pradesh has implemented an effective Single Window System

for time-bound clearance of approvals. Madhya Pradesh is centrally located, providing easy connectivity to all the major commercial hubs of India, including New Delhi, Mumbai, Ahmedabad, Hyderabad and Kolkata. The state has 229 Notified Industrial Areas, 19 Growth Centers, four notified Special Economic Zones (SEZs) and 12 product specific industrial parks. Priority Sectors For Investment include Agri-business & Food Processing. Madhya Pradesh has been receiving ‘Krishi Karman’ award for spectacular performance in agricultural production continuously for the past 4 years. With the presence of 6 government owned modern food parks and 2 private food parks, Madhya Pradesh provides huge opportunity for food processing companies. The state has the strong presence in OEM’s and auto components companies. Madhya Pradesh is also the largest producer of radial tyres in India. Pithampur near Indore is the major auto cluster in the state. Pithampur also has National Automotive Testing Tracks (NATRAX),

which is the world’s 2nd largest auto testing track. India is the largest importer of arms in the world, accounting for about 14% of the world’s arms import. The State Government has unveiled 2 progressive policies specifically for IT sector — IT Policy and BPO Policy. There is availability of skilled technical manpower — more than 100,000 engineering graduates pass out of the state’s engineering colleges every year. Plug and play infrastructure is available for IT/ITeS companies in 4 major cities of MP — Indore, Bhopal, Jabalpur and Gwalior. Madhya Pradesh has emerged as the major pharmaceutical manufacturing destination in the country. More than 280 pharmaceutical units are operating in industrial areas of Dewas, Indore, Pithampur, Mandideep and Malanpur. Around 200 Ayurvedic and 50 Homeopathic medicine units present in the state. Madhya Pradesh is the 5th largest producer of cotton in the country, with a strong presence across all segments of textile industry. The state is the home of world-renowned Chanderi and Maheshwari sarees and Bagh handloom products.

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

Andhra Pradesh

ndhra Pradesh is known as India’s Sunrise State and the gateway to the east. It is located on the southeastern coast of the country. In 2014, the northwest portion of the state was bifurcated to form Telangana. Andhra Pradesh’s longtime capital, Hyderabad, was transferred to Telangana as part of the division, but remains the de jure capital of the state for now. Currently, Andhra Pradesh is budining its new capital city Amaravati. The economy of the state is thriving, consistently registering double digit growth. Although primarily an agrarian economy, the industrial and IT sectors have really come to the fore in recent years. The state is administered through 13 districts and has a population base of 49.4 million. The state recorded gross state domestic product of US$105 billion during financial year 2016–17. The state received more than US$14.3 billion in FDI from April 2000 to September 2017. It is creating a conducive business ecosystem by introducing favourable policies and regulatory framework, such as flexible labour laws, policy on Internet of Things and Single Desk Policy. The State Government has also prepared a land bank of around 1 million acres while developing infrastructural and connectivity projects as well as a skilled labour force base.

Three industrial corridors are coming up in the state creating a network of industrial nodes, transport linkages and support infrastructure: Visakhapatnam — Chennai Industrial Corridor (VCIC), Chennai — Bengaluru Industrial Corridor (CBIC) and Kurnool — Bengaluru Industrial Corridor (KBIC). Key growth sectors in the state include agro and food processing; aerospace and defence; automobile and auto components; electronics and IT; life sciences; mineral-based industries; petroleum, Chemicals and Petrochemicals; textiles and apparel; retail; tourism; energy and MSMEs. In 2016, Andhra Pradesh ranked first in Ease of Doing Business in India, according to a list prepared by World Bank and the Department of Industrial Policy and Promotion (DIPP).

Success Stories Mastercard has signed an MoU with Andhra Pradesh to digitally transform the State’s delivery of services to people, especially farmers, and drive financial inclusion. PepsiCo opened a new US$77 million manufacturing facility at Sri City industrial park in Chittoor district of Andhra Pradesh. It is touted to become PepsiCo's largest plant in India following a total investment of US$185 million. In 2016, Mondelez Foods has set up the first phase of its largest manufacturing facility in Asia Pacific in Sri City, Andhra Pradesh following an investment of US$190 million. Kia is investing US$1.1 billion in Andhra Pradesh in a car manufacturing unit in Andhra Pradesh. State-owned explorer Oil and Natural Gas Corp Ltd (ONGC) will invest US$12 billion in the Krishna Godavari basin for producing hydrocarbons and has signed an agreement with the Andhra Pradesh government.

Expert opinion

REAL-TIME SETTLEMENTS RAISE BANKS COMPETITIVENESS

www.bacee.com

N ISTVAN LE N G YE L Deputy Chairman of the Coordinating Council, Secretary General of BACEE

“

Banks must be ready for new challenges with regards to real-time payments. Otherwise they will lose considerable payment turnover.

ow it’s time of a fightback — banks in Europe search for the ways to defend their franchisee in the payment business. Payment monopoly of banks is unlikely, of course, but with a new strategy banks have a good chance to set back further client attrition to fin-tech. Traditional financial institutes have finally realized that it is the era of digytal commerce and payment technologies with electronic devices, where they will be active participants or outcasts. One of the main competitive weapons of banks against fin-tech rivals is the development of instant payments. It isn’t a totally new product — for many years there has been RTGS (Real-time gross settlement) for big payments with central banks as the most usual operators. The main advantage of RTGS is the speed and completeness of payments executed in the «central bank’s funds». These systems functioning in more than 100 countries originally were designed for a small number of big transactions and were considered a premium service at high price. Besides high price and «premium» status RTGS have yet another problem — they are available only during working hours. After a long sleep banks — the «Sleeping Beauties» — seem to have woken up finally, and during the last few years there was an outbreak in

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

SUPPORT OF PAYMENT OPERATIONS IS ONE OF THE KEY BANKS FUNCTIONS AND A SOURCE OF THEIR INCOME. FIN-TECH REVOLUTION HAS PUT UNDER QUESTION THE LEADING ROLE OF BANKS IN PAYMENT SERVICES — AT LEAST IN RETAIL PAYMENTS — BANKS TAKE A BACK SEAT TO PAYPAL, SAMSUNG PAY, APPLE PAY, ALIPAY, YANDEX MONEY. THESE PROVIDERS APPEARED AS A RESPOND TO HIGHER EXPECTATIONS OF CONSUMERS FROM PAYMENTS — CLIENTS DEMAND AVAILIABBLE, REAL-TIME AND CHEAP PAYMENT SERVICES. A COUPLE OF YEARS IT HAS ALREDY SEEMED THAT BANKS WOULD LOSE THIS BATTLE, AND A CONCIDERABLE SHARE OF SETTLEMENTS WOULD PASS TO COMPETITIVE FIN-TECH COMPANIES.

the development and transformation of bank payment services in accordance with the demands of the digital era. The year 2017 was a turning point and it certainly can be considered the Year of instant payments. The number of instant payments systems in the world has grown up by 11 (in 2016 — by 5), and now these systems work in 30 countries, and 18 countries are planning to introduce them. The main reasons for such a rapid development are: — pressure from clients, corporate and consumer demand for wider functions and higher speed of payments on a 24\7\365 basis; — clients expectations of online payments at a lower price; — regulatory pressure and control; — spread of mobile applications which require online payments.

Situation in Central Europe Today in Central Europe only Poland has a valid national system of real-time settlements (KIR/Express Elixir). The Czech Republic, Hungary, Lithuania and Slovenia are going to launch their own systems in 2018–2019. Estonia and Slovakia stick to «wait and see» position — these countries are in Eurozone, and for them it might be more favorable to join right to all-European systems of real-time settlements.

Hungary has worked out its own concept different to the European solutions by a number of items and to the current RTGS valid in the country. The Central Bank of Hungary is going to introduce a real-time settlements system on a mandatory basis for all banks of the country.

All-European systems — SEPA Instant Credit Transfer With the national systems of realtime settlements being an important step in the competition with fintech, their limited character does not allow the users to settle cross-border payments which are becoming more and more important together with the development of e-commerce. In order to compete with fin-tech companies or even with quite traditional payment cards it is necessary to unite banks into regional if not global, payment systems which provide for real-time settlements within a region.

As a respond to fin-tech challenge the Euro Retail Payments Board under the auspicies of the European Central Banks in the late 2014 announced the need for an all-European real-time settlements system. In order to develop settlements on the territory of the Single Euro Payments Area (SEPA) reference Hungary: special features of the System of real-time settlements Payment currency: Hungarian forint. Scope: obligatory for ALL Hungarian banks. Mandatory nature: ALL corporate and retail payments up to HUF 10 m. (about 33 000 Euro) must be settled through the real-time settlements system. System operator: Clearing house of FOREX exchange (KELER), 100% subsidiary of the Central Bank. Provision of liquidity: banks must place reserves in accordance with pre-funding. Reserve accounts are credited during working hours through the Hungarian RTGS (VIBER). The system will be launched on July 1, 2019.

the European Payments Council (a non-commercial association of 75 payment services providers) was established and was tasked to work out framework conditions for real-time settlements on the all-European area. In November 2016 the Council published the main document which regulates the real-time settlements through SCT Inst — a new pan-European system. According to the plan the conditions of SCT Inst will be applicable not only in Eurozone but also in other EU member-states as well as in 6 other countries (Iceland, Liechtenstein, Monaco, Norway, San-Marino, Swotzerland) — all toghether in 34 countries. SCT Inst was started in November 2017, at first with 585 payment providers from 8 countries (Austria, Germany, Holland, Spain, Italy, Latvia, Lithuania, Estonia) — they are yellow on the map. In the nearest

future other providers will join from Belgium, Malta, Portugal and Finnland, as well as from Germany and Holland. SCT Inst is not a settlement system but a set of conditions for real-time payments according to common standards.

28% in 2019

The main SCT Inst elements Openness. All recognized payments providers can join (not only banks) — like in SEPA system. Voluntariness. The participation is not obligatory for providers (unlike, for example, the Hungarian national system). Speed. Maximum settlement runtime is 10 seconds (from the payment order to the crediting of a beneficiary’s account). Maximum payment amount. At the beginning — 15 000 Euro, but later it may be increased.

1. Austria 2. Estonia 3. Germany 4. Italy 5. Latvia 6. Lithuania 7. Holland 8. Spain

27% in 2020

32% after 2020

13% in 2018

EPC poll — When do you think the critical mass os SEPA Instant Credit Transfer transactions will be reached across Europe

SCT Inst in the fourth element of SEPA supplement to the three ones exiting within the scheme of SEPA (SEPA Credit Transfer, SEPA Direct Credit Core, SEPA Direct Debit Business-to-Business). Since the participation in SCT Inst is voluntary its success will

2 5 6 7 3 1

4 8

SCT Inst was started in November 2017 in 8 countries (they are orange on the map)

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

“

In November, 2018 a new settlement system of European central banks will be launched — TIPS. It will be open 24/7/365 and will ensure additional liquidity to the participants of RT1 at any time in the of «central bank money»

depend on the «critical mass» of transactions. In 2017 most experts said it would happen before 2020, while 32% of experts believe that the system will not reach the goal in three years.

Pan-European private system of real-time payments EBA CLEARING RT1 and the settlement system of the European central As it was mentioned earlier SCT Inst is not a settlement system, but a set of standards for real-time payments. In order to achieve their aims programmers of SCT Inst have to create a relevant settlement clearing base. EBA (Euro Banking Association) decided to complete the task. It’s a non-commercial organization with three different pan-European euro settlement systems functioning under its auspices (EURO1, STEP1 and STEP2). On November 21, 2017 simultaneously with SCT Inst, ЕВА activated RT1 — the first all-European euro real-time settlement system. RT1 works 24/7/365. According to SCT Inst rules payments are settled within 10 seconds. Starting from January 1, 2018 according to PSD2 any payment services providers can join the system who comply with PSD2 (not only banks). At its launch 17 banks joined the system from 8 countries which give access to RT1 for 500 payment services providers.

Today the challenge for RT1 is liquidity supply during non-working hours. The system has a powerful support in the form of mutual credit limits for the participants and reserves. However total defense from a possible lack of liquidity during non-working hours in extreme conditions can be secured by joining through RT1 to the settlement system of Eurozone central banks (TARGET). In November, 2018 a new settlement system of European central banks will be launched — TIPS. It will be open 24/7/365 and will ensure additional liquidity to the participants of RT1 at any time in the of «central bank money».

How will a real-time payments system change preferences of users with regard to different forms of payments?

to the changes in the work of treasury of large companies. Probably in the future they will offer to their banks or partners the placement of available funds for several hours during the day... However it’s a longterm perspective. In June, 2017 EPC conducted an online poll to know the opinion of its users regarding the expected advantages of SCT Inst. Even for ЕРС it was a surprise to know that almost a half (48%) of respondents consider as the main benefit the possibility for businessmen to check the receipt of payment to their accounts immediately at the moment of selling goods or services. It also means that according to the most respondents real-time payments will compete with payment cards! About 1/3 of respondents pointed out possible advantages of SCT Inst in the person-to-person payments, and 14% — in transactions between corporations. In any case banks must be ready for new challenges with regards to real-time payments. Otherwise they will lose considerable payment turnover.

The effect of the press of real-time bank payments can be considered truly revolutionary. For banks the work on a 24\7\365 basis means huge investments into the information systems and software. The 10-second payments will un1% For goverment14% For transactions related payments between corporates precedentedly in(ex: taxes...) crease requirements 2% Other to compliance and AML, and will probably lead to further automated processes and the use of machine intelligence. For regulators such 24/7/365 banking system means the need to control it in the same mode and to ensure urgent support at any time. Of 35% For person-to-person 48% For consumer-to-business payments payments, when small course clients benefit businesses require to be paid on the spot (ex: moving comfrom such real-time pany, antique dealer...) settlements first of Online survey of EPC: advantages of SCT Inst. June 2017 all. In fact it may lead

Contemporary view

Andrey Bespalov, Chairman of Coordination Council of Eurasian Center for Human Resources

THE WINDOW OF ECONOMIC OPPORTUNITIES THE MAIN FEATURE OF THE WORLD ECONOMIC DEVELOPMENT OF THE RECENT 50 YEARS WAS THE GROWING INTEGRATION OF MARKETS LOCATED IN DIFFERENT REGIONS. WE CAN SEE IT IN THE GROWTH OF WORLD TRADE, FOREIGN DIRECT INVESTMENTS AND MIGRATION.

1950–2010 growth rate of global economy was 1.6 fold higher than the growth of global GDP. In the recent years world trade grew by 5% every year, while GDP grew only by 2.9%. The share of FDI in the world GDP increased 5 times, and recently — by 25% more. The growth of trade was followed by the changes in export structure. Since 1950s the share of in-

dustrial countries in the world export decreased steadily, and starting from 1980s it nearly tumbled. In 2010 the share of developing countries in the world export of industrial products amounted to 1/3 — twice as much as 25 years ago. Geographical and structural changes of trade affect the migration of labor. The sectoral shift from agriculture to industry and services, to the production of goods with higher

added value provide for new requirements to professional skills. The task to balance the requirements with the skills exists at all levels both on certain territories and in certain companies. Another feature of globalization is the labor flow from the south to the north, as well as from the south to the south and from the north to the north. The number of migrants steadily grows. In 2017 it reached

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

258 million, with half of them being working-age population. The growth of global migration requires special measures to recognize their professional skills and qualifications. Any obstacle to labor flow holds back economic growth and innovations especially in the countries with anticipated deficit of labor resources. As for migration in Russia, according to unofficial assessments, the accumulated number of economically active labor migrants in Russia amounts to 6-13 million people, or 7 — 15% of general employment in Russia. Many believe that immigration inflow into Russia includes only uneducated and badly qualified people. But expert researches prove it is not true. Lately the education level of migrants has become higher than of those who leave the country. Constructors, supermarket assistants, restaurant and café staff, delivery men and street cleaners — many of them came to Russia after graduation from universities and colleges. The information about education level of the entrants in Russia is distorted to a large extend. «Statistic shows that education level of entrants in Russia gradually grows», — sais Nikita Mkrtchyan, head scientist researcher at the Institute of social analysis and prognoses at RANEPA. Polls among employers and migrants themselves revealed that labor migrants in general have lower education level than most Russians, however in some professions entrants are more skilled. 2015–2016 saw intense labor flows from Ukraine, Armenia and Kyrgyzstan. And it turned out that they were much better educated than Russians. Migrants from Moldova, Ukraine, Armenia and some other countries also come after higher education while in Central Asian coun-

tries there not so many educated people, about 10–15%. Another question is how migrants’ potential is used at the Russian labor market. «Most people cant’s find job relevant to their qualification and education. They lose potential, because Russia can’t use it», — considers Julia Florinskaya, head scientist researcher at the Institute of social analysis and prognoses at RANEPA. Basically the share of migrants with higher education is 20%, however they usually work in places where only secondary-level of education is required or their functions include just servicing. Weak possibilities to use human potential result in situations, when a qualified obstetrician-gynecologist works as a waiter. It happens very often. There is a lack in medical staff in Russia, but operating medical entrants work in supermarkets. Migrants remain of the lower positions at the labor market. The higher positions are for local worker, the medium one — for domestic migrants, and the lower positions remain for migrants from other countries. During their work many migrants become more skilled, bit it is not taken into account either. We should realize that migrants carry huge potential in case of economic growth. While employing migrants only for low-technology production units and out-of-date processes, we hinder modernization and innovative development. We expect that qualified labor inflow into Russia will keep at the level of 280 000 people (illegal inflow is much bigger). The share of skilled migrants of financial and banking sector amounts to 2000–4000 people per year. And their employment is hindered by weak system of qualification recognition. Let’s look and European experience? For easier recognition of edu-

cation and easier labor migration, the Council of Europe has created a system of centers NARIC in each EU state. In 2015 4.7 million migrated to the EU countries, 2.4 million of them were not from the EU, and 2.3 million people — from different countries of the European Union (domestic migration). As of January 2016 there were 16 million entrants in the EU. There are some common rules in the EU, but each country tries to regulate the flow of professionals itself. In general the European experts admit that there is basically no automated system for recognition of professional education. The process of mutual recognition in our area is likely to meet a lot of challenges, such as economic interests of those who work in education system and try to monopolize their assessment and certification standards. What outcome do we see? Shift to complex solutions in the interest of the whole economic union. Such integration solutions should be based on joint documents, recommendations and contingence of assessment procedures. A solution can be found in a multi-agent net-centered structure, flexible for regional conditions but at the same time being a common information assessment field. In such system clients will be close to executive centers, and also can get unified services of the assessment system for qualifications in all countries of presence. Naturally the replication of such mechanisms is easy, and its launch in other countries doesn’t cost much, which makes the whole event profitable. The establishment of FBA EAC platform of an international Qualification Assessment Center at the premises of the Russian-Armenian University in Erevan is a good example.

Founderâ&#x20AC;&#x2122;s page. IBC

FINANCIAL OMBUDSMAN IN THE IBC MEMBER-COUNTRIES

AZERBAIJAN:

INSTITUTE DEFENDING THE INTERESTS OF CLIENTS www.aba.az IN RECENT YEARS THERE HAS BEEN A STEADY TREND OF GROWTH IN THE NUMBER OF COMMUNICATIONS FROM CITIZENS TO STATE BODIES ON ISSUES OF CONTRACTUAL RELATIONS WITH BANKS. IT IS OBVIOUS THAT THE LEGAL RELATIONSHIP BETWEEN BANKS AND THEIR CUSTOMERS IS CHARACTERIZED BY THE COMPLEX OF LEGAL BASIS CONNECTED WITH BANKING ACTIVITY AS WELL AS THE LOW LEVEL OF FINANCIAL LITERACY OF THE POPULATION.

IBC Meeting. Azerbaijan, Baku, October, 2017

nfortunately, today the quality of banking services leaves much to be desired. Often the clients are not satisfied with the illegal interest changes on the loan, levying a commission in the conduct of credit account, the procedure for processing a mortgage. Quite often there is a situation

where the client is not declared all the terms of the loan when signing the contract and the client makes unexpected discoveries for himself at home, when carefully read the contract already signed. However not all disappointed customers go to the law because it involves significant material, moral and time costs. This situation has a

negative impact on the image of good faith banks that conduct an open policy with respect to their clients. All this emphasizes the attention of scientists and legislators on the search for new effective ways and means of protecting the rights of individuals as participants of banking relations. The world experience indicates that the protection of the

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

Extended IBC Meeting. Kyrgyzstan, Bishkek, May, 2014

IBC Meeting. Ukraine, Kiev, November, 2016

interests of clients of credit organizations, promoting dispute settlement arising between banks or their customers, the organization of their interaction are among the most important tasks of the banking system. Under the prevailing circumstances, the banking community represented by the Azerbaijan Banks Association (ABA) has started to examine the dispute settlement arrangements between banks and their clients — physical persons abroad. It was decided to establish the Institute of Bank Ombudsman. Its goal is the establishment of confident relations between banks and clients, by resolving disputes. The decision to establish the Institute of Bank Ombudsman was taken at the meeting of the General Assembly of the Azerbaijan Banks Association (ABA) on February 3,

2017. At the same meeting, the Charter and the Provision on bank ombudsman were approved. On April 14, at the meeting of the Presidium of the ABA, Ikram Heydar oglu Karimov was elected to the above post. To the personality of the banking ombudsman, the requirements are very high. In this regard, the activity of the bank ombudsman is capable to influence the effectiveness of the system of citizens’ appeal to state and judicial bodies, freed from the need to consider minor disputes, which constitute a significant part of their workload. As a conceptual basis for the activities of the bank ombudsman, our banks have chosen a German model, according to which this institute is not a state structure. To competence of the new institute includes the resolution of civil disputes arising in

connection with the conclusion, modification, execution or termination of contracts concluded with financial organizations. The dispute could be referred to the bank ombudsman only on the initiate of the individual — the client of the credit organization. The main goal of the organization is to provide an accessible, simple, fair extra-judicial procedure for resolving civil disputes between credit organizations and their customers. The amount shall not exceed 2000 ( two thousand) US dollars on the day of filing an application in mantas or another equivalent currency in accordance with the official rate of the Central Bank of the Republic of Azerbaijan. This institute gives an opportunity of free resolution of disputes and relieves of the need to resort to costly and lengthy standard judicial procedures. The procedure for the settlement of complaints applies to all types of services, provided by banks. Accession to the institute of the bank ombudsman of the Republic of Azerbaijan for banks is voluntary. It is formalized by a special declaration on the transfer to the bank omREFERENCE International Banking Council (IBC) The International Coordinating Council of Banking Associations of the countries of the Commonwealth of Independent States, Central and Eastern Europe (IBC) is a public organization open to banking associations of all countries interested in cooperation. Creation date — September 3, 2004. The purpose of the association is to effectively coordinate the efforts of the banking associations to maximize the use of the banks' capabilities in interstate economic cooperation. Members of the IBC are banking associations of Belarus, Kazakhstan, Kyrgyzstan, Russia, Azerbaijan, Georgia, Serbia, Tajikistan, Uzbekistan, Ukraine, Moldova, Armenia, Montenegro, as well as the Financial and Banking Council of the CIS, the Banking Association of Central and Eastern Europe, the Financial and Banking Association of Euro Asian Cooperation. Currently the IBC includes 17 organizations. The Chairman of the IBC is Executive Vice-President of the Russian Union of Industrialists and Entrepreneurs, Chairman of the Coordination Council of the Financial and Banking Association of Euro Asian Cooperation Alexander Murychev.

Ikram Geygar ogly Karimov, bank ombudsman of Azerbaijan

budsman of disputes involving individuals — the bank’s clients. Thus, the consideration of disputes in accordance with the Regulation of the bank ombudsman is possible only with respect to banks that have officially joined this institute. Funding of the new activity is provided from a special fund, formed by the Azerbaijan Banks Association due to earmarked contributions of members who signed the Declaration. We would like to note that both parties, during the preparation of the declaration and application, give special consent to the processing of any personal data related to them received during the consideration of disputes, including the publication of acts and information on disputes. An important element of this system is that the application is accepted on the condition that the client has previously submitted a complaint to the bank and received a reply that didn’t satisfy him or received no response after 30 working days. Written complaints describing the essence of the case and enclosing the necessary documents are sent to the secretariat of the bank ombudsman. The complainant can do in three ways: — filling out an electronic appeal in a special section of the website; — by sending mail;

Extended IBC Meeting. Belarus, Minsk, October, 2014

Extended IBC Meeting. Serbia, Belgrade, May, 2017

— having personally come to the office of the bank ombudsman. The ombudsman, on the basis of the documents submitted, decides the question of the admissibility the complaint in accordance with the requirements of the Regulation. Financial organization must submit a written response within one month from the date of receipt of the complaint, which is sent to the client. The decisions of the bank ombudsman are voluntary for implementation only for both parties. Applicants — natural persons in case of disagreement with the decision have

the right to apply to the state court for reconsideration of the dispute. Obviously, only those banks that are interested in providing quality services to their clients will be joining the institution of the bank ombudsman, aimed at strengthening their long-term positions in the financial market through the implementation of honest, open client policy. Without a doubt, in the near future the institution of the bank ombudsman will play no less important role in banking than other relevant institutions.

EURASIAN FINANCIAL & ECONOMIC HERALD | #2(4)-2018

Англ_Вестник_2_2018_обложка_Layout 1 11.05.2018 14:11 Page 2

СOMPLEX BUSINESS SOLUTIONS Services for the effective work of small and medium-sized businesses and their integration into the exchange system

Organization and preparation of documentation for stock trading Consulting on business activities and management Legal support of transactions Trust asset management Investment activities

www.salus.ru info@salus.ru

Англ_Вестник_2_2018_обложка_Layout 1 11.05.2018 14:10 Page 1

IWS

Internationaler Wirtschaftssenat

Russian Union of Industrialists and Entrepreneurs

FINANCIAL & BANKING ASSOCIATION OF EURO-ASIAN COOPERATION

world economic council

O F F I C I A L P U B L I CAT I O N O F F B A E AC , I B C

eurasian financial & economic

№ 2 (4) | 2018

THE FORMAT OF F OR UM • Plenary sessions • Breakout sessions III секция

IV секция

International transfer of high technologies — new opportunities for Eurasian integration IBC Meeting «Risk assessment and its management in cross-border banking transactions»

T HE FIFT H MOSCOW INT ERNAT IONAL FINANCIAL AND ECONOMIC FORUM

Eurasian Union and the EU: search for new formats of cooperation

HE RA LD

II секция

Agribusiness: from intentions to cooperation At the speed of light — the latest trends and changes in the environment of financial technologies and regulation

THE ORGANIZING COMMITTEE 17 Kotelnicheskaya nab., Моscow, 109240, offices 400–408. +7 495 663-02-08/13/19 sgk@fbacs.com, s.arkhipova.fbacs@mail.ru, tkd@fbacs.com, office@fbacs.com

Financial forum-2018: «Financial and Banking system of Russia: New challenges and trends»

10 B. Pejaković The banking sector reform in Montenegro

27 А. Boldi Gold Italy

November 30, 2018 № 2 (4) | 2018

I секция

EUR AS IAN FNAN CI AL & E C ON OMI C

B R E A KO U T S E S S I O N S

I. Lengyel Real-time settlements raise banks competitiveness

Personality

Rajnish Kumar:

«The possibility of financial union within EAEU enhances the positive outlook of the region…»