2010 | World Finance

The iPod of the wallet

Posted on October 21, 2010 by

This platform has been developed to exceed all worldwide payment industry standards.

As a consumer, imagine an easy-to use wallet which can store every card in your wallet – credit, debit, loyalty, prepaid, tickets, hotel keys – everything. Anything with a magstripe or barcode can be digitised and securely placed on the iCache Digital Wallet. At point of sale or online, select what card you would like to use and iCache becomes that card. This is all accomplished without changing anything at point of sale.

As an issuer, imagine the nirvana of digitally guaranteed “top of wallet” positioning, a branded portal that the consumer’s wallet connects to, distributing cards as digital packets and significantly decreasing fraud.

As a retailer, imagine being able to geo-target consumers who have opted in for or are searching for your product or service. You can communicate and deliver offers digitally to the consumer’s wallet for immediate use. For web as well as brick and mortar retailers, you know your transactions are safe with iCache as the payment method is individually bound to the consumer’s fingerprint – all without changing the way you currently process transactions.

The payments landscape is evolving and growing. Over the past 10 years it has experienced double-digit spend and revenue growth, product proliferation and massive industry consolidation. But this growth has been mitigated by diminishing margins, primarily driven by the growing cost of customer acquisition and retention, as well as higher write-offs due to fraudulent activity. Furthermore, the market saturation of traditional payment mechanisms, such as credit and debit cards, has turned these payments into commodities with competitors focusing mainly on share shift.

Overview
The iCache Digital Wallet (IDW) is a small, intelligent portable consumer device that consolidates all the cards in a consumer’s wallet into one single card. The IDW also incorporates contactless payment cards and most barcoded cards or transaction tools, such as loyalty cards, gift cards, coupons, event tickets and airline boarding passes. The consumer manages all the data within the IDW via a computer-based interface similar to iTunes. Critical to the IDW is universal acceptance – it can be used with all the existing Point-of-Sale technology today, requiring no changes by the merchants to accept or process the transaction. The complexity of this solution occurs behind the scenes as the consumer is presented with an easy to use, intuitive device.

The set-up process is simple: consumers receive their IDW in the comfort of their home, connect it to their computer via a USB cable, register their fingerprint with the device, and insert the card data. At that point the IDW is ready for use. Intense security processes prevent the introduction of cards not owned by the IDW owner to be introduced to the IDW. The IDW is used in the same way a legacy form factor (plastic card) would in consumer transactions.

Consumers swipe their finger over the fingerprint reader and upon verification select which card they want to use. The information is then digitally encoded on the single card within the device and the card is ejected for use. In the case of a contactless card, consumers tap the contactless POS terminal with the IDW as they would with their contactless plastic card. For barcodes, the barcode is displayed on the device and can be scanned by the barcode reader.

All data, at the consumer’s discretion, is stored in secure, redundant databases with secure internet access. If the IDW is misplaced or stolen, the data will be rendered inaccessible because of the biometric and database encryption algorithms that are paired to the individual IDW owner. The consumer can download the data to their replacement IDW and have their digital identity restored in a matter of seconds from any computer with internet access. This serves two key purposes – it protects the networks from fraudulent card use in the event of loss or theft, and it protects consumers from the hassle of cancelling their credit card accounts and updating reccurring billing information. Key consumer benefits include enhanced personal security, ease of use and a slimmer wallet. Consumer intercepts performed by a third party organisation revealed an astounding consumer desire for the iCache Digital Wallet, with an 84 percent favourability rating across a wide demographic.

Real estate leaders in Asia

Posted on October 21, 2010 by

In November this year, CapitaLand will reach its 10-year milestone since its formation from the merger of Pidemco Land and DBS Land in 2000. Despite the difficult start where it found itself in the perfect storm of the 9/11 attacks, dot-com bust, SARS, war in Iraq and Bali bombing, the Singapore-listed real estate company has grown into Asia’s pre-eminent property business, with a business model that has withstood several crises and still thrived.

Today, the once Singapore-centric developer is an international player active across the real estate segment and value chain. It has presence in more than 110 cities in over 20 countries; it has established businesses in homes, offices, shopping malls, serviced residences and integrated developments; and it has built more than 20,000 homes, manages over 60 shopping malls and operates more than 26,000 serviced residence units.

Meanwhile, its financial structure has been growing from strength to strength with a net gearing ratio of just 0.28x in 1H2010 compared to 0.92x in FY2000. One key factor behind this is CapitaLand’s unique capital recycling model where emphasis is on capital productivity. With this focus, CapitaLand pioneered the Singapore REIT market and has provided many of its success stories, including CapitaMall Trust, CapitaRetail China Trust, CapitaCommercial Trust and Ascott Residence Trust. In total, CapitaLand has six listed REITs of which four are listed on the Singapore Stock Exchange and two on Bursa Malaysia. The platform enables CapitaLand to spin off many of its top-quality mature real estate assets into its sponsored REITs, releasing capital to pursue development projects in the fast growing Asian markets. This strategy has allowed the Group to double its asset base to S$60bn from S$27bn while the combined market value of the listed companies and REITs has quadrupled to S$42bn over the past 10 years.

Another less quantifiable but nonetheless important driver is the Group’s emphasis on transparency and governance. To CapitaLand, these are the cornerstones of liquidity and cost of capital. Transparency and governance are thus not merely regulatory boxes to tick, but are strategically important. Global investors trust CapitaLand to be the custodian of their investment capital and this trust should be treated with respect. Some of the initiatives that CapitaLand has undertaken in recent years include quarterly financial reporting (before it became mandatory) and always embracing prompt and thorough disclosures along international standards. A proactive approach is adopted in disseminating information and channels include not only the Singapore media but international media. CapitaLand has also been early adopters of web based technology such as webcasts, RSS feeds and auto email alerts.

Communication with stakeholders is high on CapitaLand’s agenda. Aside from timely and comprehensive disclosures, the Group strives to maintain a high level of investor access through face-to-face meetings, teleconferences, investor conferences, roadshows and site visits. Since 2009, CapitaLand met with over 1,000 investors globally and participated in investor conferences and roadshows in Singapore, Hong Kong, Shanghai, Beijing, London, Frankfurt, Zurich, New York, Boston, Denver and San Francisco.

Key stakeholder communications
Stakeholders’ education: To help investors and analysts better understand its businesses and strategic approach, CapitaLand stepped up our one-on-one discussion sessions and created data summary templates to provide more clarity and transparency.

Meeting with management: Events are organised to enable investors and analysts to engage with senior management, including forums with business units’ CEOs and the Group CFO.

Retail investors: CapitaLand has been committing more time and resources to cater to this growing pool of investors. The Group participates in retail investor conventions to cater to the needs of the investment public.

Adoption of technology: The web space is a highly efficient channel to dispense news and reference library of corporate information. Much effort has been put into the creation of CapitaLand’s website, including the adoption of automated email pushes and RSS feeds.

The trust garnered from the practice of good governance and transparency has been part of the reason behind the Group’s ability to grow the business over the past 10 years. During the recent global economic crisis, CapitaLand did not encounter any major funding challenges as the investment community understands the Group well and is confident that it will continue to maintain a proactive and disciplined approach in its business and capital management. In February 2009, CapitaLand raised S$1.8bn through a pre-emptive rights offering. This was done to increase financial flexibility should the downturn be protracted and to take advantage of opportunities that might arise. The rights issue was well-received, achieving a subscription rate of 1.22 times. More importantly, the shares were re-rated and began an upward trajectory from the date of the rights announcement.

Almost immediately, CapitaLand completed a seven year S$1.2bn convertible bond which was the largest and longest tenor convertible bond for an Asian listed issuer then, confirming its good standing in the capital markets. With the substantial liquidity, the Group deleveraged its major REITs and allocated S$1bn in capital to expand their China, Vietnam and Ascott businesses, and acquired a portfolio of prime sites in Shanghai through the US$2.2bn acquisition of Orient Overseas Developments Limited (OODL) which helped to expand its presence in China to 36 percent of the Group’s asset base.

In the next 10 years CapitaLand will continue to be guided by the same principles that have taken it so far so quickly. The Group will strive to produce good returns, be highly reputable and have a well established presence throughout Asia.

Europe’s tax divide

Posted on October 21, 2010 by

In this matter, the expression “harmful fiscal competition”, which is notably retained by the EU, is often used, though sometimes inappropriately.

The “harmful” character of fiscal competition between states is actually rather questionable and one may seriously doubt the very existence of such a harmful character, regardless of its form and the circumstances that accompany it.
I would like to demonstrate below that fiscal competition is on the contrary, both in principle and application, lawful for states, private enterprises and individuals, as well as beneficial for the economy as a whole.

Europe and it’s two main income tax systems
Europe is divided into two sides which, without recourse to caricature, can be defined as follows.

In the west – that part of Europe which has in a more controversial context been styled the “old Europe” – we find those countries which lie to the west of the old iron curtain, and which maintain a progressive tax system by bands. In a nutshell, this system implies that the more one earns, not only the more one pays in taxes, but also the higher the tax rate for the last slice of taxpayers. This progressive system is, in varying degrees, accompanied by numerous exceptions, consisting in reductions either of the amount due in taxes, or the taxable basis in itself. The pretexts invoked to justify these tax reductions are numerous: economic policy, social benefits, promotion of certain types of ecological behaviour, disguised subsidies to certain sectors of the economy or to specific companies, agreements concluded after collective actions of certain professions exercising their influence upon the state, and so on ad nauseum.

To the east of the former iron curtain, virtually every country uses a very different system, based on the idea of a “flat tax”. An enlarged tax liability is designed to include, in principle, every possible type of revenue whilst avoiding every form of exemption (apart from the bare subsistence incomes) is taxed at a relatively low rate (of about 10 to 15 percent in general).

These “new European” countries have used this flat tax system in order to revive their economies, crushed by decades of collectivism. They did so with success, in most cases.

It should be noted that the “flat tax” system has also been applied by some western European countries though, paradoxically, to certain specific types of income only. Thus, in several European countries, investment income is subject only to a flat tax which usually consists in withholding the taxed part of the revenue at the source. This flat tax system, applied only to certain types of revenue, preferred to others, is reserved for moveable income such as moveable capital and which are the ones most fit to benefit from fiscal competition by means of relocation.

Finally we find countries, such as Belgium, which generally make use of a progressive tax rate (except for investment income, which is generally subject to a flat tax at a rate of 15 percent) but in which the scale mounts so fast that the basic income of a workman reaches 42.5 percent while the rate is capped at 50 percent. This country has thus invented a new system: the semi-flat tax at rates which, elsewhere, correspond to the marginal maximum rate of the progressive tax scale.

Fiscal competition
In countries that use a flat tax, the nature of the competition is obvious. As with big businesses selling the same product, if the basis doesn’t have too many exceptions, it’s simply enough to compare the rates to understand the level of taxation. In those countries that use a progressive tax system with lots of exemptions, the comparison is a very difficult one to make – one has to compare the numerous different rates, the income levels at which those rates become applicable, and on top of that one has to keep in mind the numerous exemptions and reductions.

We are of the opinion that the competition in countries that apply a flat tax is healthier: firstly because the consumer – the taxpayer – is better informed of the choices that are open to him, and secondly because governments can’t favour certain groups in comparison to others by means of tax exemptions. The flat tax has the merit of being “neutral” when not accompanied by too many exemptions or reductions.

Progressive tax systems with multiple exemptions imply, on the contrary, a direct and voluntary intervention by the government, whose fiscal policy not only consists in levying the taxes and fixing the tax rates necessary for covering the state’s expenditure, but also in establishing distinctions between all kinds of taxpayers by means of exemptions, fixed rates or tax credits. Thus can appear artificially created economic sectors (such as windmill energy), based exclusively on tax exemptions and reductions, which benefit certain categories rather than others, depending on the country’s policies.

Even when they are explained by the application of economic policy, these fiscal advantages constitute a form of internal and often even international “fiscal competition”: tempting the taxpayer to adopt certain types of behaviour rather than others by means of tax benefits. Taxes cease to be neutral and to serve the one goal of dividing the cost of state, becoming a political instrument used by national governments.

Strangely enough, the processes of competition which are used, now to promote the so-called “green economy”, then to answer the demands of certain social groups (the farmers, the road transport drivers and over 200 other categories in a country like France), are criticised when their purpose is to benefit the economy as a whole such as is the case for tax reductions and, especially, tax reductions for businesses. When European countries like Romania, Bulgaria or Ireland apply significantly lower tax rates to businesses than others, critics sometimes occur, some people going as far as using the absurd notion of “fiscal dumping.”

Furthermore, when the target is to attract foreign industries or service industries by means of specific tax reductions, people start speaking of “harmful fiscal competition.” Nevertheless, the strikingly official partisans of this notion have never explained to whom this competition is supposed to be harmful.

This step is nonetheless identical to the one traditionally followed every time a fiscal exemption is accorded to a determined group or activity: during the elaboration of the budget, this “fiscal expenditure” has to be compensated by the taxpayer, yet as he doesn’t benefit from the measure, surely it is harmful to the taxpayer. A linear reduction of the tax rate, however, would grant the same advantages to all.

In reality, it has not been established that even the most extreme examples of “fiscal competition”, against which sanctions are taken at the European level, are, in fact, harmful at all to the European Union as a whole. They might be harmful for certain individual states, unable to cope with the competition, but the true question isn’t to determine whether harm is caused to “certain” states but to all of them considered together, and perhaps even more importantly to determine whether this competition is in fact harmful to the citizens and businesses of all of these states: one cannot suppose that the interest of the citizens match, de plano, to the interest of the states.

Beneficial competition
In every sector, the existence of competition can only lead to the blooming of the most efficient, and to the improvement of the condition of the consumer. In the tax field, it is important that the highest quantity of consumers, that is to say, of taxpayers, have the greatest possible amount of choices in order to avoid facing a state-run monopoly, which, like all monopolies, ends up by abusing the situation, producing mediocre products at excessive prices. This way of thinking can also be true when considering the relations between government and citizens.

The EU, one of whose principle responsibilities is to guarantee effective competition, would be well advised to do likewise in the field of taxation.

Flat taxation
As in the field of business competition, it’s always preferable that this competition is expressed in the clearest terms possible for the consumer, who will then be able to make an informed choice. In the commercial field, companies are obliged to show prices in order to allow comparison with the ones of their competitors. In the countries that operate a flat tax system, things work similarly and, in general, it’s enough to compare the tax rates in order to determine which alternative is the more advantageous. This does not work this way for the countries of Old Europe, where the multiplicity of rates and exemptions make the comparison both difficult and misleading.

Furthermore, justice is rarely to be found in a system where the fiscal benefits are generally obtained by pressure groups whose main characteristic isn’t to be representative but rather to be both powerful and well organised.
In Europe, the most heavily taxed continent in the world, the establishment of the most transparent form of fiscal competition possible is essential in order to limit the capacity of states to further increase the burden of taxation, especially since the latter is already excessively heavy in comparison to the most efficient countries.

Thierry Afschrift is a member of the Brussels, Madrid, Luxembourg and Geneva bars

Telecoms boom, gains in Turkey

Posted on October 21, 2010August 6, 2019 by

With a history of 170 years, Turk Telekom experienced one of its most important developments in 2005, when 55 percent of the company’s shares were acquired by Oger Telecom. Acquisition Monthly, read by international investors, awarded the privatisation process related to the block sale of 55 percent of Turk Telekom shares with the “Award of the year on developing markets” in the field of M&A.

As a leading communication and convergence technology company in Turkey, Turk Telekom with its group companies provide national and international communication solutions customised for its users’ requirements and also integrated telecommunication services from PSTN and GSM to broadband internet.

As of March 2010, the group has 16.4 million fixed access lines, 6.4 million ADSL Connections and 11.7 million mobile subscribers. Group companies have a modern network infrastructure covering the whole country and offer a wide variety of services to residential and commercial customers all over Turkey.

Turk Telekom gives services in all areas of telecommunication together with its group companies TTNET, Avea, Argela, Innova, Sebit, Sobee and AssisTT. In 2009, Turk Telekom’s consolidated investment reached TL2.5bn.
Turk Telekom with its subsidiaries is one of the largest employers in Turkey with 34,000 employees from all over the country. It invests in human resources aiming to achieve a qualified labour force, not only to the telecommunications sector, but to Turkey as a whole.

A Turkish superbrand
While achieving great success with its value added products and services, Turk Telekom became one of the most valuable brands of Turkey; the company has won a number of prestigious awards from around Europe and Turkey.

Turk Telekom received two awards for 13 utility model and 236 trademark applications in the context of Ankara Patent Information Day between 2000 and 2009. Turk Telekom received awards in: “the second highest corporation that made an application between the years up 2000 to 2009 in the city of Ankara in utility model”; “the third highest corporation that made an application between the years up 2000 to 2009 in the city of Ankara” and in “brand” categories.

Turk Telekom was selected as “The Most Valuable Brand in Turkey” by Brandfinance research, published by Capital magazine in 2009. The company also took place in the “Global Best of Breed” list comprising 21 companies determined by Bank of America Merrill Lynch (Merrill Lynch), among 2,973 companies in 68 countries. Turk Telekom was the first Turkish company to enter this prestigious list. The company continued to strengthen its brand value when it was chosen as The Digital Love Brand by Digital Age magazine in 2009.

Turk Telekom is now participating in Superbrands 2009 selection thanks to these successes.

Corporate citizenship
What makes Turk Telekom a superbrand is not only its innovative approach but also its strong corporate citizenship. Turk Telekom adds value to the lives of its customers thanks to its products and services and has gathered all its social responsibility activities actualised throughout Turkey under the “Türkiye’ye Deger” brand.

Besides important social responsibility projects such as Turk Telekom Schools, Turk Telekom Internet Houses, Turk Telekom Sports Schools and e-invoice forests carried out nationally, Turk Telekom has gathered approximately 150 local social responsibility activities actualised by the city directorates under the “Türkiye’ye Deger” brand. Turk Telekom carries out its social responsibility investments primarily in education, sports and environment fields and has won more than 20 awards with the projects actualised during the last year.

Turk Telekom employees can directly attend these projects that are important for the company culture. Thousands of Turk Telekom employees participate in these social responsibility projects as volunteers.

Turk Telekom believes that sports play an important role in improving the communication skills of young people, and for the last 10 years it has supported the training of approximately 28,000 young athletes in 22 disciplines, including basketball, fencing, badminton, skiing and tennis. Turk Telekom Sports Schools provide training in 15 different disciplines, and its trainees have placed in competitions in more than 10 sports nationally and internationally, and been invited to national teams many times.

The group has actualised education projects with an aim to improve education infrastructure throughout Turkey and deploy access to information by eliminating the numeric difference in education. Within the scope of Turk Telekom Schools project, 72 education buildings have been put into service all around Turkey.

This project includes the construction of 76 buildings and upon the completion of the project, more than 30,000 students will have the opportunity to receive education in modern buildings.

Turk Telecom Group
Turk Telekom develops and exports technology to markets of its region together with its group companies TTNET, Avea, Argela, Innova, Sebit, Sobee and AssisTT.

Turkey’s leading broadband internet service provider TTNET offers state-of-the-art internet access to its customers through its extensive sales network. Offering services in 81 provinces of Turkey, TTNET’s product portfolio includes ADSL/VDSL2-fast internet access; TTNET WiFi abroad access service, jointly provided with WiFi wireless internet access and iPass; 3G mobile internet access services, jointly provided with Avea; and G.SHDSL, Metro Ethernet, ATM and Frame Relay internet access services.

Avea is the youngest company of the mobile communication industry, with 81.4 percent of its shares owned by Turk Telekom. With its new generation network, Avea continues to grow by increasing its corporate and retail services and the number of subscribers. Investing continuously in technology, infrastructure, management and human resources, the company maintains its target of improving service quality.

Innova IT Solutions Corp., a pioneering company of the IT solutions and services area, uses its engineering know-how to offer innovative and value-added technology solutions that guarantee improved efficiency and lower costs for companies in all industries from telecommunications to government, and from industry and delivery to finance.

A wholly-owned subsidiary of Turk Telekom, Argela Yazılım ve Bilisim Teknolojileri A.S has been producing innovative technologies and next generation solutions for telecom operators since 2004. With products currently used by many operators across the world, Argela reaches millions of subscribers through its solutions. The company also operates in Dubai through IVEA Software Solutions FZLLC, in which it has a 50 percent stake, and in the US through Argela USA, Inc, which it fully owns. Argela’s priority markets include the Balkans, Saudi Arabia and particularly India. The company also has customers in South Africa, Ukraine, Cyprus, Kazakhstan, Moldova and Georgia.

Joining the Turk Telekom family in 2007, Sebit made substantial worldwide progress in the field of generalising and new business model development, becoming one of the leading companies of the sector to innovate in the school application of educational technologies. Sebit offered a solution to the American market with the Adaptive Curriculum brand, which turned into an international achievement. And the Vitamin brand is regarded today as a telecom product, and telecom companies see Sebit’s products as an important opportunity for offering added-value services to their customers. The education software developed by Sebit creates an opportunity of equal education for everyone. It introduced the internet to Turkey’s children and ensures its correct use, with the motto “there is no education without internet”.

Although it is Turk Telekom’s youngest company, with a history of only two years, AssisTT is now one of the largest call centres in Turkey. Aiming to become a pioneering ‘Customer Satisfaction Centre’ in call centre services in Turkey, AssisTT also aspires to become one of the top 10 companies operating in this area in the EMEA region.

Value added service
Turk Telekom presented the first examples of its convergence products with Wirofon, which brings mobility to land lines, and Vitamin, a leading online education solution.

Wirofon is a system that allows users to make calls from anywhere abroad and be charged for them under their home or office line subscriptions. By using a Wi-Fi enabled mobile phone or any computer connected to the internet, customers can make calls over the web – from anywhere in the world – and be charged using their home line tariffs.

This technology is a good example of Turk Telekom’s improving service levels, aiming to provide its customers the opportunity and comfort of connecting anytime and anywhere. Wirofon has proved successful in the international arena, winning the “Best New Telecommunication Service of the Year” award in the CommsMEA Awards, which focuses on prominent Telecom operators in the Middle East and Africa region.

The video call technology of telecom, the Videofon, is developed by Turk Telekom and Argela engineers. Videofon service can be used by home or office telephones, and also payphones with multimedia. It is possible to browse the web, send e-mail and take photos during conversations when using Videofon technology.

Sebit, one of the subsidiaries of Turk Telekom, gained important successes abroad with its educational software named Vitamin. In November 2009, Sebit received for Vitamin the “Best Content Service” award at the World Communication Awards, the “Best Online Education Solution” award at the CODiE Awards with Adaptive Curriculum, the “Best Science and Mathematics Website Award” at EDDIE Awards organised by ComputED Learning Centre, and received the blue ribbon in the Best Business Development Communication Programme and Best New PR Product/Process/Service categories at the League of American Communication Professionals. Vitamin was also awarded a certificate of achievement in the Most Comprehensive Organisational Communication Programme and Best Corporate Communication / PR Programme categories.

The software has been exported to three different regions and been translated into English, Spanish and Arabic. The other subsidiary of TTNET began offering the TIVIBU Web Television service in February 2010 and reached more than 150,000 customers.

Steering a sustainable course

Posted on October 21, 2010 by

Understanding that the positive effect of good corporate governance ultimately results in a strengthened economy, Telekom Austria Group appreciates how important it is for the supervisory board, the directors and the management team to develop a model of governance that aligns the values of all corporate stakeholders, which then is evaluated periodically for its effectiveness.

The Austrian Corporate Governance Code has created the framework for the sustainable management of the Telekom Austria Group since 2003 when the firm voluntarily committed itself to complying with the Code. In January 2010, a revised and updated version of the Code was published, with the most significant changes occurring in the field of the remuneration of the Board of Directors and other executives.

Several provisions of the Code were also adjusted to comply with amendments to the Stock Corporation Act 2009. Thanks to its participation in the Austrian Working Group for Corporate Governance, Telekom Austria Group has been involved in the further development of the standards of corporate governance. In addition, the company has also implemented further corporate governance instruments such as an effective risk management system or the Code of Conduct.

The fundamental pillars of compliance management at Telekom Austria Group encompass the following:

i) The explicit and binding commitment to responsible action in the corporate values of the Group.
ii) The country-specific further development and consolidation of the group-wide behaviour guidelines and standards as set out in the company’s code of conduct.
iii) The monitoring of compliance with the relevant laws and regulations by means of management and process controls within the group-wide internal control system.
iv) The risk-oriented auditing activities of the Internal Audit department, and comprehensive risk-specific training measures at all important group companies.
v) Group-wide compliance organisation to enhance and monitor compliance instruments and strengthen comlpliance culture.

CSR strategy
Inextricably linked to the execution of sound corporate governance is the company’s CSR strategy. Core to this strategy is Telekom Austria Group’s prime strategic objective of achieving steady and sustainable increase in shareholder value, as opposed to expansion at any price. The Group looks to take forward-looking action to ensure the company’s healthy development in the long-term. Its CSR understanding is based on the triple-bottom line (people, planet and profit) with the core business infrastructure being the “glue” that binds these three pillars. The Group seeks to benefit both individuals and societies, including customers and staff, as well as all other stakeholders in the regions in which it operates.

In line with responsible corporate management, value-oriented growth also takes into account regional conditions, environmental and social aspects.

Telekom Austria Group’s CSR process was introduced in 2009 and has culminated in the reorganisation of the strategic sustainability activities and the implementation of a CSR management system on a Group level with the aim of putting in place structures that will anchor sustainability even more strongly within the company.

The responsibilities of the newly-created CSR Board, which comprises first-level managers from the relevant departments, include:

– Discussing and further developing the most important sustainability topics.
– Making strategic decisions regarding the direction sustainability should take.
– Taking responsibility for sustainability in their own departments, and;
– Adopting the annual CSR programme.

The Board is supported by the CSR core team, which is responsible for developing the annual CSR programme and defining key areas in the field of sustainability. The team also gathers ideas from within and outside the company, launches initiatives and identifies synergies between the projects, and is also responsible for evaluating the risks and challenges of CSR-relevant topics. Planning is currently underway to install local CSR structures at the foreign affiliates of the Telekom Austria Group.

The newly established CSR department is responsible for CSR management and the further development of the CSR process at Group level. It is also the relevant interface to all Telekom Austria Group companies and sets the strategic direction. Individual activities are the responsibility of the respective companies and are geared to regional regulations and requirements.

As part of the CSR process, all CSR initiatives and projects were assessed and evaluated in terms of the challenges and opportunities they present to the company and the industry. In addition to detailed benchmarking procedures, the process involved taking into account the analysis provided by ratings agencies and respecting the interests of both internal and external stakeholders, before defining key areas for the Group.

Energy efficiency
Telekom Austria Group operates a Group-wide environmental policy that ensures that it is committed to innovative and efficient energy management, the reduction of CO2 emissions and the increased use of renewable-energy sources. It aims to contribute to the low carbon economy, one which reduces CO2 in order to prevent a dramatic climate change. The company drives innovative projects in the field of e-mobility and smart grids, also entering new fields of business.

The International Energy Agency predicts that global energy demand will double by 2020 due to the need in industrialised countries for rising volumes of data, the rapid upgrading of telecoms infrastructure and increasing broadband penetration, as well as the growing use of modern technologies in emerging markets. The ICT industry therefore needs to sustainably curb energy consumption in all areas.

A1 Telekom Austria – the Austrian operation which was formed in July 2010 as a result of the merger between Telekom Austria (Fixed Net) and mobilkom austria − has embarked on a number of projects that have as their aim the reduction of CO2 emissions. In 2009 A1 Telekom Austria became an industry pioneer when it joined the WWF Climate Group, committing itself to reducing its emissions of CO2 by at least 15 percent or 15,000 tons within the next three years. This target has already been exceeded. By the end of 2009, emissions of CO2 had been reduced by approximately 40 percent to 47,781 tons compared to 80,591 tons in 2008. This is equivalent to the amount of CO2 caused by 3,300 Austrian citizens each year.

A1 Telekom Austria has implemented a pilot project “A1 Energieeffizienz” that is reducing the energy consumption and CO2 emissions of base stations by intelligently managing its resources. Network capacity is adjusted to the volume of traffic carried over the network with no negative impact on network quality. Resources that are not required – complete base stations or parts of them – are temporarily deactivated. The company is already successfully using this energy-saving mode at 303 sites in Vienna and the concept will be rolled out throughout Austria by the end of 2010.

This will make it possible to operate approximately 1,000 sites energy-efficiently, cutting consumption by 10 percent and producing total savings of 438 tonnes of CO2 or 1.2 GWh.

In early 2009 mobilkom austria launched pilot operations with a wind-powered base station, with the aim of wind power supplying up to 80 percent of the total energy requirement. The plan is now to open other such stations by the end of 2010. A further trial that uses alternative sources of energy integrates photovoltaic cells at base stations.

Embracing technology
Further steps to embrace renewable energy have been taken across Telekom Austria Group’s portfolio. Its Croatian subsidiary, Vipnet, uses solar energy to power a number of base stations and the company’s Vip operator in Macedonia is working on developing a solar power project. Telekom Austria (Fixed Net) and Si.mobil are both certified in accordance with ISO 14001 while mobilkom austria has been certified by the Ökoprofit program. In addition, in 2008, Telekom Austria (Fixed Net) became the first company in Austria to receive certification for its energy management system according to the new Austrian Standard ÖNORM EN 16001. Mobiltel has a system that is ready for certification while Vipnet and Vip mobile are on the point of receiving an ISO certification.

Telekom Austria (Fixed Net) has set itself the target of lowering the CO2 emissions generated by business travel by approximately 150 tons per annum. The use of the high-end video conference solution, Telepresence, is estimated to eliminate 25 percent of one-day business trips. This solution is available at eight company locations and involves participants sitting opposite one another with the ability to see each other in life size as if they were in the same room.

In addition, traditional video conferencing solutions, OCS clients and fixed line or mobile telephones can also be integrated. The use of the Telepresence system eliminates travelling time, and the amount of energy consumed as a result of business travel is significantly reduced.

In early 2010, Telekom Austria (Fixed Net) took into service the first prototype of a telephone booth with an integrated charging station. The charging stations model uses existing infrastructure and a convenient form of payment via mobile phone. By the end of 2010, a total of 30 charging stations should be on stream throughout Austria for e-cars, e-scooters and e-bicycles.

Going electronic
Following a campaign to promote online billing Telekom Austria (Fixed Net) increased the number of paperless customers in 2010 by 220,000 to 836,902. mobilkom austria supports the Greenpeace campaign “1,000,000 Good Deeds for Climate Protection” with information and references on its websites, with cost inquiries and online bill notifications. Together with its customers, mobilkom austria succeeded in saving 69 tons of CO2 by successively switching to online billing. Paper consumption was also reduced by nine million sheets last year. Vipnet and Si.mobil also offer their customers online billing.

In addition to Telekom Austria Group leading the way for the delivery of telecommunications systems across the CEE region, it is also leading the way to an enlightened business model with a progressive approach towards renewable energy.

“Insolvency has been like a maze”

Posted on October 21, 2010 by

Mexican history has been dynamic and rich. It comes from the ancient great Olmeca, Mayan and Aztec cultures in the prehistoric stage, through 300 years thereafter of colonialism under the Spanish Crown domination; 11 years independence war; two empires – Iturbide and Maximiliano; foreign intervention and invasion wars by the US, England and France; the Republic with Juarez; the 30 years of Porfirism dictatorship; 10 years revolution war that forced Dictator Porfirio Diaz to flee Mexico; 71 years of political party PRI’s totalitarism (Partido Revolucionario Institucional); the current lengthy and costly transitory way to democracy; war against the drug dealers and insecurity, the war against deep and extreme poverty (44.2 percent poverty as per CONEVAL Consejo Nacional de Valuacion de la Politica de Desarrollo Social. As per CEPAL Comision Economica para America Latina 34.8 percent under extreme poverty, with an increase in 2010 of 3.5 percent); having the richest man in the world ($51.5bn); and the war against demography exploitation. Mexico City is one of the most populated cities in the world (22 million).

Mexico has been strong enough to overcome these crises and is taking actions to surmount what has been called “the worst financial crisis ever in the world”. This 2008-09 crisis placed most economies worldwide, from developed and under-developed countries, under recession. The US is now attempting to prevent second recession. Mexico is closely linked to the US economy. This international crisis was, in essence, caused by financiers’ extreme greed, abuse and financial maneuvers as well as weak or lack of timely overview, control and reaction by regulators.

The impact of the 2008-09 US crisis caused uncertainty and volatility although governments did take monetary and tax actions to face the crisis. The Mexican peso devalued 40 percent. The growth index for services has been 2.1 percent, raw materials 3.2 percent and industrial –0.7 percent. During January and February 2010, 128,000 people lost their jobs. As per INEGI’s (Instituto Nacional de Estadistica y Geografia) statistics, consumer trust was down to 78.9, the lowest level in the last 30 years. Some 85 percent of Mexican manufacturing exports are sent to the US, where the automotive sector represents 27 percent. Annual exports had a growth of 5.1 percent; however, in January exports fell –26 percent. Unemployment in 2009 was five percent. In 2009, offer and demand of goods and services fell 9.5 percent, the worst in 28 years. Statistics of INEGI’s report that 2009 has seen the most adverse meltdown in the exchange market of goods and services since 1982, even more intense than that experienced in 1995. From the offer side, GDP fell to a 9.5 percent annual rate and imports fell 18.2 percent. From the demand side, it was affected by the 6 percent fall in private consumption, an index that is equivalent to 52 percent of the total economic activity.

Consumption of families and companies fell to –9.5 percent; export of goods and services fell 14.8 percent, the worst in 30 years; expenditure in fixed assets fell 10.1 percent; inventory fell 475 percent; and in the fourth quarter of 2009 there was an offer and demand decline of 1.7 percent, for the fifth con-secutive quarter.

In 2010 Mexico has experienced a slow general recovery, by means of a rebuttal from the economic crisis and reactivation in the US automotive sector (GDP in Q1 was 4.5 percent and 7.5 percent in Q2), gaining in employment, exports to US and having better levels of manufactures, infrastructure and services, however, Mexican economy is still weak and is shaking due to US weak and shaking economy, under the shadow of a second recession.

Insolvency has been seen like a maze, the seven heads demon or the economy evil. However, insolvency is an effect of financial distress situations, which, in turn, are the effect of economical mistakes or diseases, abuse or greed, whether from the government or private sector or both. Giants’ financial distresses show it: GM, AGI, Chrysler, Lehman Brothers, Bern Sterns, City Corp, inter alia. At the end, insolvency, most of the times, is an effect of human being behaviour, rather than an act of God.

Under financial distress situations, it is of essence to be equipped with a modern, orderly, predictable, accountably, efficient and effective legal insolvency system to protect debtors and creditors’ rights, to optimise assets and as long as possible preserve jobs and businesses. Mexico through its history has lacked such a system. Current insolvency system, concurso mercantil for merchants enacted in 2000 and concurso civil for consumers, enacted in 1932 have been, without a doubt, failed.

In the systemic financial distress situations of the XX and XXI century, Mexico has been forced to overcome distress economies, through vehicles outside insolvency proceedings. It was the case of the FICORCA in the mid 80’s, the UCABE, the FOBAPROA and the IPAB, in the high 1990’s, which were, in fact, official rescue programmes, wherein the government assumed the risks. Risks, which at the end, were paid by federal treasury with taxpayers taxes. Most individuals, consumers, holding high debts, banking debts, mortgages, credit card debts, and other debts had no option but to be forced to participate in ruinous restructuring programmes, recognising and acknowledging the full debt, principal plus interest, payable in a longer period. In other instances, financial systemic crisis have been faced with the support of the international finance institutions, foreign indebtedness and other countries financial support.

Upgrade needed
Mexico urgently requires a 21st century insolvency system. In the insolvency context, financial distress entrepreneurs and individuals look for reorganisation rather than liquidation or at least a fresh start. Debtors seek bankruptcy protection when available, whether in reorganisation, liquidation or out of court settlement. Insolvency systems should provide for timely, orderly, efficient and effective bankruptcy protection. Bankruptcy protection benefits the economy and trading chain, even with a fresh start. Major bankruptcy systems in the UK, US, Canada and Japan regulate and provide bankruptcy protection to prevent insolvency or while under economical crisis.

Even when facing a systemic financial and subprime crisis in 2008 − 2009 that spread worldwide, causing, after the great recession, international financial distress where financial titans fell – AIG, Citi, GM, Merrill Lynch, Bern Sterns, Lehman Brothers – there has been bankruptcy protection to alleviate, rescue or reorganise the bankrupt as well as to give them a fresh start – a hope – and also provide protection to creditors.

For the time being, debtors are seeking out-of court reorganisations and settlements. As the financial situation becomes worse and with rescue programmes being insufficient, in 2010–2011 it is expected that there will be an increase in insolvencies and eventual liquidations. In some cases, there may be a reorganisation plan settled by debtors and creditors to overcome a financial distress situation as a transitory vehicle. On the other hand, distressed financial entities may just close their business and runaway by fact (factual liquidation). It is also expected creditor’s foreclosures and judicial executions since concurso mercantil (insolvency) is not mandatory. In Mexico we have already seen that the Concurso Mercantil Law is not effective. Ley de Concursos Mercantiles strongly needs to be amended. Its structure was patterned in the old Spanish bankruptcies laws of the 18th century. There is an urgent need for an insolvency system that will effectively provide for the 21st century legal regime that will help debtors and creditors overcome the financial stress situation, including labour, tax, suppliers of goods, services and finance, merchants and non merchants, whether large, medium or small. For instance in Mexico, small businesses and non merchant’s (consumer) insolvency lack all bankruptcy protection.

Another feature of the Mexican insolvency system is that labour creditors and tax creditors (federal, state and municipal) are super priority creditors. Labour and tax creditors do not enter insolvency. They are enforced, recognised and paid in their special courts, outside of insolvency. When it happens, generally, there is nothing left for other creditors.

Likewise, only post-petition actions, including arbitration, enter insolvency proceedings under the concurso mercantil. Thus, pre-petition action and arbitration do not join the concurso mercantil.

On the other perspective, Sistema de Administracion Tributaria (SAT) data shows that Mexican IRS records 26.3 million active taxpayers – 16.3 million employed, nine million individuals and 831,000 legal entities. Informal sector – not under IMSS (Social Welfare) government control and non-taxpayers – 12,612,617 in April 2009 accounting for 28.3 percent of total employed people.

We consider that a 21st century insolvency system encompassing and protecting all debtors and creditors, whether merchants or consumer as well as all creditors, including labour, tax and all others may help importantly to overcome and reduce significantly the informal sector and non tax payers, based upon the fact that all of them would prefer the insolvency benefits (such as the automatic stay, discharge and tax benefits) under the formal insolvency proceedings.

Ontario makes FDI shortlist

Posted on October 21, 2010 by

The Ontario region should be on the UK’s overseas investor shortlist. It has a highly skilled workforce, its banking system is the envy of the world, it will shortly have one of the lowest rates of corporate tax and it has a first-class infrastructure system.

Clare Barnett, UK Ontario government senior economic officer, says Ontario’s benefits regularly surprise newcomers. But first, how has the region weathered the global recession? Is it still in fighting health, despite the tough financial pressure of the last two years?

“We’ve done very well,” says Ms Barnett, “which is down to our government addressing some of our original economic worries back in 2003. Ontario has seen a huge amount of economic diversification since that time and we were able to get our deficit right down.”

Welcome to the 21st century
And by some margin too. Ontario has a strong automotive presence – including several plants for Honda, Chrysler, Ford and Toyota – world-class financial services and banking sector operations, plus an increasing presence in IT and biosciences. It’s a truly 21st century blend of high tech, science and services. Ontario’s annual GDP – currently $445bn – dwarfs that of Switzerland and international trade now tops $1bn a day. It also boasts the highest GDP rate of any Canadian province.

No wonder investors – particularly UK investors − are warming to the region fast. “FDI investment doubled between 2003 and 2007. Primarily it has been US investment but now a third of our FDI investment, going on the basis of 200 projects, comes from the UK,” says Barnett.

Anyone investing seriously in Ontario will want reassurance that the local infrastructure is being upgraded. Ontario’s transport system now boasts a new airport link and a re-vamped overground rail system through large areas of Ottawa – part of an on-going $4bn project − and an Oyster card system is being planned. The government is also taking huge steps to upgrade its social housing stock, integrating this investment with cutting edge green renewable energy initiatives.

Safe and secure
A big draw for many investors is Ontario’s sound reputation for banking. As Ms Barnett notes, Ontario came though the global credit crisis in excellent shape. But that wasn’t down to good luck.

“Our regulatory system has always been very strong,” she says. “There’s been a lot of publicity around the strength of our corporate financial health and strong governance and that has attracted investors. It’s also allowed us to showcase our banking system. President Obama has been interviewed saying how strong our banking system is, and the White House has come here to take a look at how it is structured.”

The World Economic Forum backs this testimony. It named Canada as possessing the soundest banking system in the world for the third year in a row (leaving Sweden, Luxembourg and Australia trailing in its wake; the US slipped to 40th place). That’s down, it declared, to solid funding and careful and sensible lending.

A massive green push
But it’s Ontario’s green energy credentials that is really creating an impact. “Our Green Energy Act saw Ontario get its first feed-in tariff – the first in North America,” says Ms Barnett. It means renewable energy developers in the region can access generous subsidies for clean energy production.

The green energy focus is certainly a huge step away from coal reliance and an opportunity for many to diversify their energy mix. Many Ontarians have now applied for renewable energy projects, from solar to wind and other sources.

“We also have excellent energy security,” she continues. “We have a big nuclear re-build programme and renewable energy is going to be doubled. By 2014 the government is committed to close all coal-fired plants in the province. There’s a lot of public acceptance for the move, as well as for nuclear energy in general.”

The Toronto Stock Exchange is home to leading green energy players. In fact, it recently launched a new index solely to green-friendly companies – the new Standard & Poor TSX Clean Technology Index.

Rapid decision-making
Investors are also committing to the province in a big way. Samsung is a stellar example. It has invested $7bn in Ontario, creating 16,000 jobs in the region in the process, which should make Ontario the place for green energy manufacturing in North America. Already Ontario is increasingly becoming a leading producer of renewable energy hardware − wind turbines, solar inverters and solar modules.

The Samsung investment will drive more wind and solar energy projects, exporting green electricity to the fast-growing renewable energy market in the US, according to Ms Barnett. It is also transforming Ontario’s manufacturing heartland, laying deep foundations for new economic growth.

Before going to press, it was announced that Germany’s Siemens AG has also joined Samsung in a large green power deal. Siemens will supply up to 600 megawatts of energy for Ontario under an agreement with Samsung. Siemens will supply new wind turbines for many of Samsung’s new developments, creating up to 1,400 new jobs in the region.

Meanwhile another 800 new jobs were recently created by Ubisoft, a French studio digital media player. “Ubisoft is a very exciting opportunity for Toronto,” says Ms Barnett, “drawing on the city’s growing gaming and film industry expertise, not to mention its strong multicultural diversity, energy and dynamism.”

The lowest rate of corporate tax in North America
What of tax incentives? It’s a good question, and another reason for putting Ontario on your FDI shortlist. “A very big government initiative is the new government harmonised sales tax [HST, equivalent to the UK-based VAT system],” says Ms Barnett. “The introduction of the HST which combines Ontario’s Retail Sales Tax with the Canadian wide General Sales tax creates a single, federally administered value added tax at a rate of just 13 percent.”

Currently corporations operating in Ontario are taxed at a rate of 33.5 percent. But the combined federal-provincial rate on income earned in Ontario will now fall to 25 percent for corporations with taxation years beginning on or after 1 July, 2013. It’s a phased-in reduction that means Ontario will be able to boast a general corporate income tax rate of 10 percent by 2013. That’s got to be a huge draw for many companies.

“That’s not all,” says Ms Barnett. “We’ve also got what’s called the Eastern Ontario Development Fund to encourage more job creation. There’s an apprenticeship tax credit from federal government and $5,000 from the Ontario government for companies heavily focused on the Knowledge Economy. That’s a $7,000 rebate in total.”

Ontario’s competitive business costs, strong record in financial services, green energy credentials and highly skilled workforce position the province as a leading destination for FDI.

Did you know?
– In an Economist survey of 90 countries, only Finland and Sweden ranked higher than Canada in the areas of honesty and reliability in business.

– Toyota’s Ontario plant is the only site outside Japan to produce the luxury Lexus.

– Messier-Dowty manufactures landing gear systems in Ontario for some of the biggest names in aerospace including Boeing, Bombardier, Dassault and Raytheon.

– GlaxoSmithKline produces medications worth billions each year in Ontario, 80 per cent of which are exported to more than 70 countries.

– In a survey by The Scientist magazine, 35,000 researchers around the world ranked the University of Toronto as the best place to work outside the US.

– More than eight million people around the world use BlackBerry wireless devices invented, manufactured and marketed by Research in Motion (RIM) of Ontario.

Be selective
Select Ontario is a business and marketing tool that enables investors and site selectors to make timely, informed decisions about where to locate their business projects in Ontario. Launched in February 2010 at the Economic Developers Council of Ontario (EDCO) annual conference, Select Ontario is Canada’s first provincial web-enabled site selection tool. Basically it’s an online geographic information system (GIS) that provides valuable business information, including detailed statistics and current data about available properties, community demographics, and workforce statistics, educational skill levels, and business clusters. “Innovative, business-friendly online marketing tools like GIS, play an important role in attracting new investment opportunities to Ontario,” says Aileen Murray, president of EDCO. “It will also help economic development professionals better promote Ontario as a premier location for sustained economic activity.”

New measures against card fraud

Posted on October 21, 2010 by

Credit and debit card fraud is the number one fear of travellers and internet users amid the current global financial crisis, according to the 2009 Unisys Security Index – beating out even terrorism, computer and health viruses, and personal safety.

It’s a startling thought, that people are more worried about their bank accounts being cleaned out than being mugged. But card fraud – which ultimately entails identity theft as well as monetary loss – accounts for the theft of tens of billions of dollars worldwide every year, and is a major problem for banks, businesses and consumers.

New measures are effective, at least temporarily. The latest addition to the anti-card fraud arsenal, chip-and-PIN cards, has for example been responsible for a large portion of a worldwide dip in card fraud in the past year. But the process of rolling out these new cards is expected to take at least another two years – by which stage fraudsters will quite possibly have figured out how to defeat this technology, too.

While you are generally protected against any financial losses stemming from card fraud, having your account attacked in any event presents you with enormous headaches around having your card stopped by your bank, replacing the card, having any losses reimbursed, and so forth.

In addition, while some security measures put in place by banks to prevent card fraud – such as automatically declining transactions that do not fit your spending profile – are worthy and laudable, they can be immensely frustrating, time-consuming to resolve, and potentially very embarrassing to you.

But no more
The Neo Africa Secure Card Solution, developed by South Africa’s Neo Africa group of companies, is an innovation that promises to revolutionise the way we all do our card transactions. Like all great ideas, its beauty lies in its simplicity: linking the card to a mobile phone, and placing control over transactions entirely in the hands of the cardholder, instead of the issuing bank.

“Neo Africa is a company that is in the business of finding innovative answers to complex problems, and we believe by giving the cardholder complete power over their own card, this South African invention will change the way people do their banking – and make credit card fraud, a multi-billion dollar problem the world over, virtually obsolete,” says Neo Africa founder and CEO Vivien Natasen.

“Worldwide card fraud continues to grow exponentially, despite the very best efforts and the use of advanced technologies. Fraudsters are highly sophisticated and find ways around even the newer, smart cards that still have a magnetic stripe on them, making the cards vulnerable – and fraudsters know all the tricks.”

Initially available to the South African market, and to visitors to South Africa, Neo Africa is currently rolling out the Neo Africa Secure Card Solution to the rest of the world.

Unlike regular cards, which are defaulted to “on”, the Neo Africa Secure Card Solution card – issued by a third-party financial institution – is defaulted to “off”. To use the card, the holder uses his or her mobile phone to switch the card on for a single transaction. The card will automatically switch off again after 30 minutes, rendering it completely unusable until it is switched on again.

The cardholder has several other options, giving even greater control over the card: for example, the cardholder can determine in which countries the card may be used, spending limits, and even the type of transactions permitted, be they online, point of sale or ATM.

Users receive text notifications of any transactions, even those that have been declined – immediately raising a red flag if a criminal has attempted to perform a fraudulent transaction. Another security feature is the ability to confirm that the user’s card and mobile phone are in the same location, indicating that a transaction is indeed legitimate.

Neo Africa currently offers two principal traveller packages: a Premium package costing R1 499 (approximately $200), and an Economy package costing R249 (approximately $35.) Special rates are also available for bulk orders. The solution can be tailored though to individual client specifications for different usage and is adaptable to many other environment such as payroll, employee allowances, managing spending for families or profiled user spend where the user authenticates each transaction according to a pre-defined rule set.

The Premium package includes a debit card and a full qwerty-keyboard handset, with built-in TV and dual-SIM capability to allow the use of a roaming GSM SIM in the same handset at the same time – as well as enjoy the benefits of paying local call rates.

The Economy package consists of a debit card and a standard handset, without the premium features but with the same protection.

In addition, Neo Africa is offering a Corporate package for companies whose employees spend a large amount of time travelling or on the road, such as sales personnel or drivers.

The Corporate package boasts spend control by employers, third-party tracking functionality – allowing employers to know where their employees are at any given time, the ability of users to top up the card from their own accounts, emergency services, and the ability to confirm that the card and handset are in the same place.

In addition, the Neo Africa Secure Card Solution offers co-branding opportunities, allowing companies to put their corporate stamp on their own bank cards.

While the Neo Africa Secure Card Solution packages at present consist of both a card and a handset, mobile applications are currently being developed to allow users to link their existing handsets with their Neo Africa cards.

“Typically, fraud prevention has been the bank’s problem and more often than not trying to identify and stop fraud has been guesswork at best. As a result, the cardholder is inconvenienced both when fraud slips through and when legitimate transactions are declined as a security precaution. Now, we’re putting the knowledge (of transactions) with the person who knows best: the cardholder.

“The Neo Africa Secure Card Solution gives cardholders complete control over their card, and eliminates card fraud problems such as skimming, cloning and card theft. Even if you fall prey to these crimes, your account cannot be cleaned out – simply because no transaction can take place without you first switching your card on, using your own mobile phone. For criminals, there is no way around this,” says Natasen.

“We are offering cardholders complete peace of mind in terms of their personal and financial security, services such as a full concierge offering, and emergency assistance – all in a one-stop, easy-to-use, very affordable package. That is, without doubt, the best kind of innovation one can get.”

For more information www.neoafricasecure.com; www.neoafrica.com

Investor targets LatAm deals

Posted on October 21, 2010 by

The purchase of Amanco in 2007 represented a challenge and an opportunity for Mexichem as it required a logistical strategy that would allow the company to optimise the supply of PVC resin, the primary raw material for piping production.

Following the acquisition of Amanco, Mexichem acquired Petroquímica Colombiana, a company located in Cartagena, Colombia, and a primary producer of PVC resin in the country. This acquisition further strengthened the synergies, as the geographic location of Colombia and the sea port allowed resin to be supplied to all Amanco plants located in the Andean region and in southern countries of the continent: Brazil, Argentina and Chile. The results have been remarkable. During the 2009 crisis, Mexichem supplied PVC resin needed for piping production to all of its plants in Latin America, sending the resin produced in Mexico to the plants in Mexico and Central America, and from Colombia to the plants located in the Andean and southern region of the continent.

Resin consumption for Amanco’s piping production accounted for more than 45 percent of Mexichem’s total resin production. Additionally, given the reduction of over 30 percent in the price of this input, Amanco’s margin increased. Colombia and Brazil also signed a free trade agreement under which resin exports from Colombia to Brazil are exempt from tariffs, giving Mexichem a competitive advantage. Resin sales also increased in that country since Mexichem’s prices are extremely competitive for a PVC resin deficit market such as Brazil.

The firm’s geographic diversification gives Mexichem a leadership position throughout all of Latin America. 55,000 points of sale in the region have created another series of synergies not only with the company’s traditional products but throughout its entire range. This geographical diversification also allows it to generate significant operating efficiencies by directing the production of different products according to the specific needs of each market and fully exploiting its logistics network.

Today, geographical diversification is a competitive advantage that is difficult to match, allowing Mexichem to be leaders in the Latin American market and to position itself as a global company exporting to virtually the entire world.

Generating efficiency
Having the pieces of a puzzle without knowing how to put them together is to lose the opportunity to create something wonderful. Mexichem has developed the ability to join these pieces and integrate them fully, in the process building a larger and more efficient company so that its operations can work together as if they were a completely synchronised timepiece in which each component is essential to the functioning of the whole.

Mexichem integrates each acquisition into the company’s operating philosophy and culture, guiding each business to its essence, identifying on a timely basis its main driving forces, and establishing an adequate strategy to make operations more efficient. Mexichem has a flat structure, under which decisions are made on the line and the outline of responsibilities and performance limits are clearly defined. Each member of the organisation knows the goals to be achieved and how to reach them. This allows the company to focus on the results and clearly monitor performance so as to make any necessary adjustments.

Furthermore, the company has created a considerable synergistic effect through integration and orientation, not only in its production operations but throughout the entire organisation. Interdependence and self-fulfillment drive productivity, raising it with each achievement. The synergies are not only visible in the results but are also created in daily operations where the integration of the different areas, from purchasing to after-sales service, takes place. At Mexichem, everyone knows the importance of fulfillment and the effect it produces throughout the entire value chain. Thus, by combining efforts, the result is much greater than the sum of the parts, and Mexichem achieves the synergies that are part of the organisation’s genetic code. The company also has an excellent technology platform which, together with its experience and structural capital, enhances its results. The SAP system has been a key tool to achieve these synergies, by standardising operations and, most importantly, providing real time information on all operations, regardless of location.

One of the most tangible results of the synergies Mexichem has achieved is the improvement made in operating margins, primarily through the systematic reduction of expenses and costs throughout the organisation. In recognition of this effort, for the past three years Mexichem has received the award for energy efficiency granted by the Comisión Federal de Electricidad (CFE), due to its significant reduction in electricity consumption in its many plants.

Mexichem has the largest production, in terms of tonnes/gallons/year, of PVC resins in the world, which puts it at the forefront of production technology for these products. Its performance levels in piping production are also among the most efficient in the world, significantly reducing production costs. During 2008 and 2009, Mexichem invested more than $144m in the modernisation, automation and efficiency of its piping plants throughout Latin America, increasing productivity and significantly improving margins.

Generating growth
Mexichem has achieved spectacular growth by following its core strategy of adding value to basic raw materials. In 2002, when sales were $283m and it generated about $29m in EBITDA, who would have imagined that in only seven years it would have sales of more than $2bn and be generating more than $500m in EBITDA.

The basis of this growth has been vertical integration, starting with salt and fluorite, in products of higher added value. This vertical integration has created a virtuous cycle of synergies by combining the various elements of the value chain to create a larger one, in which the benefits and attributes of the previous product are combined with the next.

This vertical integration favours sustainable growth and significant improvements in the performance of all the links in the chain. Mexichem established this strategic definition in 2003 and has since acquired more than a dozen companies in seven years with an investment of more than $1.9bn – of which only 50 percent has been financed through debt. The rest was financed with cash generated by the company and, at times, governed by its internal goal of maintaining a net-debt-to-EBITDA ratio of less than two to one with capital increases; this shows the control group’s commitment to the company and the contribution of stockholders to this goal.

Today the company has more than 40 production plants in 15 countries in America, including the United States. It leads in virtually all markets in which it participates. It is the largest producer of PVC resin and piping in Latin America, and the only piping producer fully integrated with its own raw-material supply. It has the largest fluorite mine in the world, with over 20 percent of the world’s production of fluorspar, and is the second largest producer of hydrofluoric acid in the world – the only one in the Americas integrated with its raw-material supply. All this positions Mexichem for greater growth and long-term viability in the fluorochemical industry. Furthermore, its purchase of Ineos Flúor positions the company as the only integrated producer of fluorocarbons.

Such growth has had a common factor: the synergies that have been a deciding factor in the acquisition process. If, when analysing a potential acquisition, Mexichem determines that it does not have the possibility of generating synergies with existing operations, the company is unlikely to proceed with it.

The best example of the results of the synergies Mexichem has generated through acquisition is the performance of the acquired companies compared with their previous performance. In 2006 Amanco registered EBITDA of $84m and, after its acquisition in February 2007, generated EBITDA of $138m; in 2008 it generated $208 and, in 2009, $207m. This proves not only Mexichem’s ability to generate productive synergies but to maintain them over time.

Private finance tackles Zambian energy

Posted on October 21, 2010 by

The Zambian energy sector demonstrates one of the cleanest carbon footprints in the world. More than 99 percent of the country’s grid electricity is generated from hydro electricity, which supports one of the largest energy intensive mining industries on the continent. While much of the grid was developed to support the mining dominated Copperbelt, the functional capital Lusaka, and the tourist capital Livingstone, the Zambian government has an ambitious plan to expand the economy beyond its previous boundaries on several fronts. There are plans to double the output of refined copper, introduce mechanised agriculture in new designated farming zones, develop new business parks, and increase rural electrification from three to 50 percent.

Copperbelt Energy Corporation (CEC) transmits and supplies energy in the Zambian Copperbelt, the economic heartland of this developing country. CEC operates around 900km of transmission lines, 38 high voltage substations and 80MW of thermal generation, and transmits and supplies around 800MW of power to Zambia’s strategic mining sector and the surrounding province. The company has also spearheaded an information revolution through the installation of optical fibre in the main commercial centres in Zambia.

The Zambian economy
The Zambian economy performed well during the international economic downturn of 2008 and 2009. This was facilitated by the significant increase in copper prices on the world market during the second quarter of 2009, and sustained growth in other sectors such as construction and agriculture. Committed capital projects in these sectors were in excess of $1bn (to be completed over different periods of time). Despite recessionary trends globally, Zambia registered real GDP growth of 6.3 percent in 2009.

Notwithstanding the steady development over the last few years, Zambia’s economy still faces challenges. In the energy sector the country has experienced power deficits due to growing demand and planned rehabilitation of units at the main hydro power stations. Further, the national levels of electrification are significantly low. As a result, the government is inviting investment in power generation and transmission projects.

The energy sector in much of Africa has relied for decades on respective African governments’ relationships with donors and development finance institutions to provide subsidised and concessionary finance for energy infrastructure investment. While this has provided competitive finance for specific projects, there has been little incentive for the respective state utilities to plan and develop projects in line with the growth potential of the host economies.

The host utilities have instead preferred to undertake projects proposed by the donors, preventing the laws of supply and demand from taking effect. The frequent load shedding and buzz of diesel generators characteristic of many African cities situated in economies endowed with abundant natural energy resources is testament to the failure of donors and African governments alike to understand the economics of energy. Keeping tariffs artificially low and failing to implement enabling legislation has crowded out private sector investment, and placed significant barriers to entry into an industry that provides a natural stimulus to economic growth, with a growth multiplier effect to the wider economy.

Thankfully, the situation is beginning to change, with a growth in the number of projects being opened up to the private sector for investment. In Zambia, the conditions for private sector involvement have gradually been falling into place with a trend towards cost reflective tariffs, the establishment of an independent regulator and the development of a grid code that will facilitate open access to the national grid. Reforms will need to go further to ensure that projects can become bankable, but the trend is clear. African countries can learn from their peers and in sub-Saharan Africa, Kenya leads the way in facilitating an attractive environment for the participation of the private sector. A number of Independent Power Producers (IPPs) are now operating in Kenya due to the proactive stance of its government in establishing a clear regulatory framework and tariffs that represent the true underlying cost of providing electricity.

Within Zambia, a number of IPPs have been allocated projects, although none have yet reached financial close. These include a 900MW hydro plant at Kafue Gorge Lower project, which is being developed by Sino Hydro using Chinese government financing; a 300MW coal fired power plant being developed by Nava Bharat and ZCCM Investments Holding; and CEC’s own Kabompo Gorge hydro plant, designed to generate 40MW.

The wider Southern African region is blessed with abundant energy potential due to its large rivers and undeveloped coal reserves. There is increasing pressure to favour regional hydro projects where possible, such as the Mphanda Nkuwa project in Mozambique: capable of generating 1,500MW when complete.

The Southern Africa Power Pool (SAPP) is an institution focused on encouraging a regional approach to investment in new power infrastructure, and promotes investment in regional power projects aimed at addressing the power deficit faced by many of its member countries. In March 2010 CEC was admitted to the full operational membership of SAPP, becoming the first private utility member of the 11-country electricity pool.

CECand the capital markets
CEC shares were listed on the Lusaka Stock Exchange in January 2008, through which 25 percent of shares were sold for a consideration of around $30m. The offer was significantly oversubscribed, with strong interest from local and international institutions and individuals. The share allocation process favoured smaller investors, resulting in a shareholder base largely comprised of Zambian residents and institutions.

There are a number of funds based in South Africa, the UK and the US with an appetite for African listed stock. As the returns in developed markets diminish, more institutional interest in African markets is expected going forward. Share prices on African exchanges are expected to match or exceed the growth in GDP, which for most African countries is likely to be higher than GDP growth in developed markets.

The majority of finance for new projects will be raised through debt, and there are a number of debt options available.

The development finance institutions such as IFC, DEG, African Development Bank, FMO and DBSA are prepared to finance infrastructure projects with amortising loans of tenors of up to 15 years (if the loan is deemed to be a public sector loan, even longer tenors are possible). Commercial banks are often able to match these terms, usually with a partially reduced tenor, provided that political risk cover is available. Perhaps the most significant development of the last five years has been the emergence of Chinese institutions such as the Industrial and Commercial Bank of China and China Exim Bank, which have been lending up to 85 percent of the total finance for projects with Chinese involvement.
The emergence of Chinese financing has certainly introduced a new element of competition into capital markets, but there has also been a trend towards bond financing as a means of financing infrastructure. This provides the investor with a marketable and tradable debt instrument, while the recipient of the funds has the benefit of a longer capital repayment holiday than is possible in a typical corporate debt structure. NamPower, the Namibian utility, recently issued a successful bond through a parallel listing on the Namibian and Johannesburg stock exchanges. Convertible bonds may be particularly attractive in today’s uncertain climate, providing the security of a guaranteed return with the possibility of upside if an investment plan achieves above expectations.

Future outlook for CEC
CEC is seeking to diversify its business model by participating in regional generation and transmission projects. CEC is developing a hydro power project in the north-western part of Zambia that will add 40MW to the national grid. This project, the Kabompo Gorge Hydro Power project, is estimated to cost about US$140m including the transmission line. Further, in July 2010 the government of Zambia granted CEC the authority to undertake feasibility studies for hydroelectric schemes on a river basin in the north-eastern part of the country.

The telecoms sector in Zambia has been developing rapidly in recent years. CEC has made investments in the sector through the installation of optic fibre on its power lines and offers broadband services to customers on the Copperbelt.

CEC has further acquired a 50 percent joint venture interest in Realtime Africa Alliance Limited, a company providing telecommunication and internet services in Zambia.

CEC prides itself in being a Zambian company, with a unique culture based around teamwork and an aspiration for excellence in its core engineering competences. CEC’s vision statement is “to be the leading Zambian investor, developer and operator of energy infrastructure in Africa by providing innovative solutions and building strategic partnerships through committed professional teams”. As the energy sector opens up, CEC will be competing for projects within the region, and the capital with which to fund them. It hopes to attract, develop and train the best indigenous talent in the region. Africa is in need of new champions and role models, and CEC aspires to be the company of choice for employees and investors alike.

For more information www.cecinvestor.com

The Eurozone’s autumn hang-over

Posted on October 21, 2010 by

A     fter a summer of Europeans forgetting their woes and tanning themselves at the beach, the time for a reality check has come. For the fundamental problems of the Eurozone remain unresolved.

First, a trillion-dollar bailout package in May prevented an immediate default by Greece and a break-up of the Eurozone. But now sovereign spreads in the peripheral eurozone countries have returned to the levels seen at the peak of the crisis in May.

Second, a fudged set of financial “stress tests” sought to persuade markets that European banks’ needed only €3.5bn in fresh capital. But now Anglo-Irish alone may have a capital hole as high as €70bn, raising serious concerns about the true health of other Irish, Spanish, Greek, and German banks.

Finally, a temporary acceleration of growth in the Eurozone in the second quarter boosted financial markets and the euro, but it is now clear that the improvement was transitory. All of the Eurozone’s peripheral countries’ GDP is still either contracting (Spain, Ireland, and Greece) or barely growing (Italy and Portugal).

Even Germany’s temporary success is riddled with caveats. During the 2008-2009 financial crisis, GDP fell much more in Germany – because of its dependence on collapsing global trade – than in the US. A transitory rebound from such a hard fall is not surprising, and German output remains below pre-crisis levels.

Moreover, all the factors that will lead to a slowdown of growth in most advanced economies in the second half of 2010 and 2011 are at work in Germany and the rest of the Eurozone. Fiscal stimulus is turning into fiscal austerity and a drag on growth. The inventory adjustment that drove most of the GDP growth for a few quarters is complete, and tax policies that stole demand from the future (“cash for clunkers” all over Europe, etc.) have expired.

The slowdown of global growth – and actual double-dip recession risks in the US and Japan – will invariably impede export growth, even in Germany. Indeed, the latest data from Germany – declining exports, falling factory orders, anaemic industrial-production growth, and a slide in investors’ confidence – suggest that the slowdown has started.
In the periphery, the trillion-dollar bailout package and the non-stressful “stress tests” kicked the can down the road, but the fundamental problems remain: large budget deficits and stocks of public debt that will be hard to reduce sufficiently, given weak governments and public backlash against fiscal austerity and structural reforms; large current-account deficits and private-sector foreign liabilities that will be hard to rollover and service; loss of competitiveness (driven by a decade-long loss of market share in labor-intensive exports to emerging markets, rising unit labor costs, and the strength of the euro until 2008); low potential and actual growth; and massive risks to banks and financial institutions (with the exception of Italy).

This is why Greece is insolvent and a coercive restructuring of its public debt is inevitable. It is why Spain and Ireland are in serious trouble, and why even Italy – which is on relatively sounder fiscal footing, but has had flat per capita income for a decade and little structural reform – cannot be complacent.

As fiscal austerity means more recessionary and deflationary pressures in the short run, one would need more monetary stimulus to compensate and more domestic demand growth – via delayed fiscal austerity – in Germany. But the two biggest policy players in the Eurozone – the European Central Bank and the German government – want no part of that agenda, hoping that a quarter of good GDP data makes a trend.

The rest of the Eurozone is in barely better shape than the periphery: the bond vigilantes may not have woken up in France, but economic performance there has been anaemic at best – driven mostly by a mini housing boom.

Unemployment is above nine percent, the budget deficit is eight percent of GDP (larger than Italy), and public debt is rising sharply. Nicolas Sarkozy came to power with lots of talk of structural reforms; he is now weakened even within his own party and lost regional elections to the left (the only case in Europe of a shift to the left in recent elections).

Given that he will face a serious challenge from the Socialist Party candidate – most likely the formidable Dominique Strauss-Kahn – in the 2012 presidential election, Sarkozy is likely to postpone serious fiscal austerity and launch only cosmetic structural reforms.

Belgian Prime Minister Yves Leterme, as current holder of the rotating EU presidency, now speaks of greater European policy unity and coordination. But Leterme seems unable to keep his own country together, let alone unite Europe. Even Angela Merkel – in growing Germany – has been weakened within her own coalition. Other eurozone leaders face stiff political opposition: Silvio Berlusconi in Italy, whom one hopes may soon be booted out of power; José Luis Rodríguez Zapatero in Spain; George Papandreou in Greece. And politics is becoming nationalistic and nativist in many parts of Europe, reflected in an anti-immigrant backlash; raids against the Roma; Islamophobia; and the rise of extreme right-wing parties.

So a Eurozone that needs fiscal austerity, structural reforms, and appropriate macroeconomic and financial policies is weakened politically at both the EU and national levels. That is why my best-case scenario is that the Eurozone somehow muddles through in the next few years; at worst (and with a probability of more than one-third), the Eurozone will break up, owing to a combination of sovereign debt restructurings and exits by some weaker economies.

Nouriel Roubini is Chairman of Roubini Global Economics, Professor of Economics at the Stern School of Business, New York University, and co-author of the book Crisis Economics.

Central American region enters EU

Posted on October 21, 2010 by

Six years ago the Central American Region and Dominican Republic signed the Free Trade Agreement with the US (DR-CAFTA). The treaty has eliminated commercial barriers and taxes for the introduction of certain products, which certainly has brought further economic development for the participant countries.

Despite the international financial crisis there has been a considerable increment in the regional exports to the US, especially regarding agricultural and manufactured products.

Last May 2010 the Central American Region including Panama signed an Association Agreement with the European Union. The agreement is focused on three basic pillars: commerce, political dialogue and cooperation. It is expected to increase the commercial relationships between both markets and reinforce the historical ties between both regions.

Regarding this historical event, Guatemala hosted the Euro Expo 2010, at which venue Luis Medina, partner at Rusconi, Valdez & Medina Central Law El Salvador and Alessandra Magalhaes, from the Spanish law firm Garrigues participated in the forum “Legal Aspects of trade with the European Union”.

Mario Búcaro, Managing Partner at Central Law, said that working together with Garrigues in such an important event had been an achievement considering that the recent signing of the agreement enabled Central Law and Garrigues the opportunity to provide their respective clients the best legal advice combining their expertise in both jurisdictions.
“There are a lot of business opportunities between these two markets and the Central American countries are moving forward to reach it”, expressed Jesús Humberto Medina Alva, Central Law’s chairman.

Central America benefits from its geographical position: located between the Pacific and the Atlantic Ocean it is connected to the rest of the world, especially through the Panama Canal.

The Central American region offers many incentives for foreign investment. The legal framework in place is supported by regional laws and treaties.

Each country in the region makes the best efforts to attract new business opportunities worldwide.

El Salvador is best known for regulating public-private investments. The concession is the most known example of this figure and its investment structure is based on the English model of Private Finance Initiatives (“PFIs”) where the payment is accounted as Government´s current expenditure and not as a long period debt. Private public investments are the perfect tool for doing business across Central America.

Guatemala has one of the biggest financial centers in the region and is chosen for projects in real estate and tourism. Honduras, well known for agricultural, manufacturing and mining, is also famous for its amazing beaches.

Nicaragua encourages foreign investment in renewable energy projects since companies are allowed to contract directly with distributors and take advantage of a series of tax exemptions.

Central America is the home of some of the planet’s finest natural reserves. Important laws have been passed to protect the environment, as well as ensuring economic growth. Costa Rica is a leader on environmental issues and aims to be carbon-neutral by 2021.

Panama is a dollar-based economy and many companies have their headquarters there as they pay lower taxes than in their own countries. The Panama Canal and the Colon Free Zone facilitate international trade.

With its focus on tourism, many projects have been launched in the Dominican Republic attracting millions of tourists in the recent years.

Some places along the aforementioned countries, like Joya de Ceren (El Salvador), Antigua (Guatemala), Ruinas de Copán (Honduras), León Viejo (Nicaragua), Isla de Coco (Costa Rica) have been classified as World Heritage.

“Central America is more than the right choice for a tourism destination, and our firm´s knowledge of law around the region is invaluable”, adds Medina Alva.

Central Law, the leading full service law firm in Central America and Dominican Republic since 2002, has 11 offices in seven countries: Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama and Dominican Republic. It has a team of 222 individuals and its lawyers have more than 30 years of experience in the global markets.

Central Law belongs to USLAW, a network of more than 4,000 lawyers and 150 offices in some 48 US states. It is highly recommended by Martindale Hubbell, and is being ranked by Chambers and Partners and International Finance Law Review.

For more information: www.central-law.com

The happy science

Posted on October 21, 2010January 18, 2021 by Ashton Wenborn

Economics is often called the dismal science. The expression goes back to 1849, when Thomas Carlyle described the new field as “a dreary, desolate, and indeed quite abject and distressing one; what we might call, by way of eminence, the dismal science.” To the founders of neoclassical economics, though, it was actually all about happiness.

Neoclassical (ie mainstream) economics is based on the theory of utility, which Jeremy Bentham, the English philosopher and social reformer, defined as that which appears to “augment or diminish the happiness of the party whose interest is in question.” According to Bentham, the purpose of society was to satisfy the “greatest happiness principle” which meant providing the greatest happiness – ie utility – to the most people.

Neoclassical economists in the 19th century like Bentham’s follower William Stanley Jevons saw utility as a kind of quasi-physical quantity, which played a similar role in the economy as energy did in physics. Of course, while it is possible to measure energy using physical instruments, utility is a little more elusive; but Jevons argued that it can be inferred from prices: “Just as we measure gravity by its effects in the motion of a pendulum, so we may estimate the equality or inequality of feelings by the decisions of the human mind. The will is our pendulum, and its oscillations are minutely registered in the price lists of the markets.”

Relative spheres
The economy therefore came to be seen, in the words of Jevons’s contemporary Francis Edgeworth, as a machine for “realising the maximum energy of pleasure, the Divine love of the universe.” But there’s one problem with this theory. If the economy is supposed to be maximising happiness, and has been steadily growing larger – then why aren’t we getting happier?

In the US, since 1972, the General Social Survey has asked respondents: “Taken all together, how would you say things are these days, would you say that you are very happy, pretty happy, or not too happy?” The answer has been quite stable over that time – about a third say they are very happy, a little over half are pretty happy, and around 12 percent go for the last option. However the trend is slightly negative, and earlier results from the Gallup organisation showed that the number of people describing themselves as very happy peaked back in the mid-1950s at around 45 percent. Similar results have been found for other rich countries.

Over the same period, GDP has soared in real terms (in the US by about a factor three). So it seems that economic growth and happiness are not the same things. Indeed, this has to be the case, because the economy was nowhere near its present size for most of its history, so either we are the happiest generation ever, or the theory is wrong. In fact, studies of reported happiness levels show that income has a strong effect on a country’s overall happiness only if it is below a minimum level of around $15,000 per year, and there is nothing at all gained from going above $25,000 per year.

Part of the answer to the puzzle is that what counts is not absolute wealth, but relative wealth, as compared to one’s peers. As John Stuart Mill put it, “Men do not desire to be rich, but to be richer than other men.” This was illustrated by a US Gallup poll which asked “What is the smallest amount of money a family of four needs to get along in this community?” The answer simply tracked the average income. As other people get richer, we feel we must do the same just to maintain the same relative position.

New metrics
It follows that wealthy countries don’t become happier by becoming wealthier still. And because we tend to compare ourselves with those of our peers who are better off, any increase in social inequality – of the sort seen in most rich countries over the past few decades – can have the effect of decreasing overall happiness.

So what can we do about this? One proposed solution is to develop new economic metrics to replace GDP. After all, if economics is about happiness, then we should at least make sure we are measuring the right thing.

One problem with the GDP is that it includes a lot of activity that doesn’t seem aimed to optimise joy. For example, if the crime rate goes up, then GDP may actually increase because we spend more on security. Higher pollution can boost GDP because we need to spend money cleaning it up. But crime and pollution have obvious and immediate detrimental effects on mental wellbeing. Simon Kuznets, who pioneered the development of GDP, warned in 1934 that “the welfare of a nation can scarcely be inferred from a measure of national income.”

A 2009 study commissioned by the French government concluded that the GDP should be replaced by new metrics which account for factors like social inequality, crime rates, resource depletion, environmental damage, and reported happiness life satisfaction. There are a number of alternatives now available, ranging from the New Economic Foundation’s Happy Planet Index – the ratio of life satisfaction to ecological footprint – to the Buddhist state of Bhutan’s Gross National Happiness.

Alternatives to GDP are certainly called for. Personally, though, I am starting to believe that one detriment to human happiness is – economic metrics. All such metrics are misleading because of all the stuff they leave out, and they quickly become an end in themselves. Fuzzy, ambiguous, and multi-dimensional concepts such as a “healthy economy” or a “good life” can never be reduced to hard numbers. And to me there’s something vaguely scary about the idea of government economists trying to optimise my happiness.

For example, it has been found that a good way to become happier is to stop watching the news. Maybe that explains why Cuba scores seventh highest in the world on the Happy Planet Index – none of those pesky writers criticising government policy.

David Orrell is a mathematician and author. His most recent book is Economyths: Ten Ways That Economics Gets It Wrong

Evidence-based economics

Posted on October 21, 2010 by

Economics needs to change. By this I do not mean that the structure of the economy itself needs to change, although reform is clearly needed on that front. Rather, I refer to the academic discipline of economics, which studies the economy and events that take place in it.

After more than two hundred years of theorising, academic economists have failed to settle any of the fundamental controversies in their subject. In microeconomics, the assumption of rational self-interest, core to the discipline at least since neoclassical economics coalesced in the 1870s, has always been open to question. Today this assumption is under fierce attack from other social scientists and from the new school of behavioural economics, which seeks to use psychology to explain economic behaviour.

Similarly, in macroeconomics, the only period of broad consensus was from the 1940s to the 1970s when Keynesian macroeconomics ruled the roost. Before that, myriad schools of thought competed, though non-interventionism dominated. And, since the 1970s, macroeconomics has fractured into various flavours of Keynesian and New Classical thinking that offer wildly different prescriptions for policy.

Not even the scope of the subject is well defined. Many economists today would agree with Lionel Robbins, the British economist who in the 1930s defined economics as ‘a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses’. Using this definition, economists have produced theoretical models that establish what people driven by rational self-interest would do under various circumstances where scarcity prevails.

This view makes economics an ‘imperial’ subject with a claim to be the theoretical foundation of all other social science – but only if its assumption of rational self-interest holds true. The result has been controversy over whether the boundaries of economics are wide, encompassing all social science, or narrow, encompassing just commercial matters.

However, if the assumption of rational self-interest is not sufficient to explain human behaviour (as seems highly likely to be the case) then economics might not even be a very good explanation of commercial matters. Without capturing more of the behavioural vagaries of the real world, it would at best only partially answer the question which originally preoccupied Adam Smith and the other classical economists of the late 18th and early 19th centuries: an ‘inquiry in to the nature and causes of the wealth of nations’. Economics might just be a remote body of ‘rational choice theory’ that needs augmentation with other ideas to be applicable to the real world.

Either way, despite centuries of investigation, everything in economics remains open to debate.

This is worth contrasting with the natural sciences. No physicist seeks to revive the theory that the sun orbits the Earth. Neither do any seek to restore the theory that heat is transmitted by a fluid called ‘caloric’ that flows invisibly and weightlessly from hot bodies to cold ones. Likewise, no biologist seeks to replace Darwin’s theory of natural selection with the earlier theory of the French naturalist Jean-Baptiste Lamarck that evolution occurs mainly through slight acquired characteristics being transmitted to offspring and cumulating to large changes over time.

Scientific controversies do occur. The present controversy over just how severe man-made climate change might become is a well-known example. But scientists are committed to settling controversies through rigorous analysis of the evidence. This is the essence of the scientific method and, once the relevant evidence has been fully explored, controversies are decisively resolved.

Not so in economics. Economic theories are established primarily by abstract reasoning and are only cursorily checked against the evidence. When contradictory evidence does become impossible to ignore, ad hoc hypotheses are often generated to keep favoured ideas alive. In the early 1980s, for example, grafting assumptions that prices are ‘sticky’ and slow to adjust onto ‘rational expectations’ models of macroeconomics re-produced Keynesian results in which the economy can overshoot on either side of full-employment equilibrium – even though the idea of rational expectations had supposedly disproven this.

It could be argued that social science is fundamentally different from natural science and that it is impossible to validate social theories to the same extent as natural ones. Certainly, given the vagaries of society, there will always be more uncertainty in the conclusions of social science. But this does not mean that we should just accept completely contradictory viewpoints sitting side by side at the head of a major discipline. We all live in the same material universe and there can only be one underlying reality.

The solution is evidence-based economics. By sticking closely to the evidence of the real world, we can eliminate theories that do not fit and narrow-down to those which best explain the evidence. It may even turn out that seemingly contradictory theories are each valid in that they apply in different circumstances, but we must still work out what these circumstances are through empirical research.

Evidence-based methods in economics can be applied at any level. On a global scale it is fruitful to compare the periods 1873-1914, 1945-1971 and 1971-2010. These were each characterised by a distinct set of international economic institutions and we can see the effects of these institutions because the world was free from global wars to confuse matters.

The first and third of these periods were economically quite unstable, while the middle period was highly stable in financial and economic matters. It could be argued that the economic stability of the post-1945 era was due to strong growth arising from favourable demographics, post-war rebuilding and the adoption of a back-log of technologies delayed in Europe by the world wars. But the period 1873-1914 had also seen strong forces for growth arising from imperial expansion and adopting the innovations of the ‘second industrial revolution’ (electricity, chemicals, the automobile and so on). In any case, there are many historical examples where strong growth has led eventually to speculation and collapse. So the view that the stability of the 1950s and 60s was due to rapid growth does not hold water.

An alternative explanation is that economic stability from the late 1940s was due to the tethering of currencies to gold and the prevalence of fixed exchange rates. But, again, the periods 1873-1914 and 1945-1971 were alike in that they featured gold-backed currencies and fixed exchange rates. Indeed, these institutions were stronger in the first period than in the second. So the gold standard does not explain stability either.

The real explanation for the impressive stability of the 1945-1971 period seems to be that it was characterised by a set of institutions that included a large share for the state in the economy, controls on cross-border capital flows and tight regulation of the financial sector. These set the period apart form others and seem to be the root of its stability. They also mitigated inequality and probably fostered growth.

But we are still left with the question of whether some elements of this framework mattered more than others. One way to answer such questions is more detailed time-series analysis examining how economic trends changed after elements of a particular economic framework were introduced or removed at different points in time. Another is to examine more closely jurisdictions with regulatory frameworks divergent from the wider consensus prevailing in a given period.

In the years prior to 2007, Australia, Canada and Brazil, with their more intrusive financial supervision, provide such cases.

Further solutions are to trace the ways in which changes to regulatory regimes and other conditions have affected specific firms and sectors in the economy, to look at the behaviour of individual economic actors and to conduct economic experiments in artificial settings.

None of these tools are perfect, but they are much better than abstract equations disembodied from the real world.

Sean Harkin is a financial risk consultant based in London. He previously worked in the field of cell and molecular biology, and is author of The 21st-Century Case for a Managed Economy.

Voice service pays dividends

Posted on October 21, 2010 by

However according to the latest earnings, released in August, a lot of work still needs to be done. It’s easy to see supporting evidence for the so-called turn-around. Sound results can be seen in the good pace of growth in the base of subscribers, an improvement on network quality metrics, skyrocketing total traffic in minutes and the substantial improvements in financials.

In the last 18 months, TIM adopted an innovative offer: moving from charging per minute to charging per call, and extinguishing the traditional long distance barrier in Brazil. “Now we can see the Brazilian market as a single market, and we are happy to enable the creation of the largest community base in the country with 44 million users”, says Luca Luciani, CEO. In fact 28 million users joined the Infinity and Liberty plans during this period.

Playing the FMS game
As the sole ‘pure-mobile’ company in the market, TIM sees voice service as the central part of its strategy; more than 85 percent of its revenue comes from this sector. The Brazilian telecommunications market is worth around R$100bn per year, and the majority of it is voice. With that vision, the company’s strategy is focusing on stimulating higher usage, especially by playing the fixed-to-mobile substitution game. Taking a look in their Q2 2010 release, outgoing traffic more than doubled in one year to 12.2bn minutes. Breaking the numbers down into users, the average minutes per customer reached 110 minutes per month in Q2 compared with 73 minutes per month a year ago – but this is still one of the lowest in the world. Looking at the long distance business the traffic performance results are astonishing, with an increase of 1500 percent compared with last year, reaching leadership position in the very traditional and monopolistic market.

Supportive network
Network quality is currently very much in the spotlight, especially following Apple’s successful iPhone launches. As such TIM made a tough decision – to take a more conservative approach to selling data services while strengthening its network. Investments this year might reach R$2.5bn, on top of the recent acquisition of Intelig (one of the largest telecoms infrastructures in Brazil), which was considered vital to support the boom in traffic.

After successfully forming a robust and proprietary network to support its ever-growing traffic, TIM has now positioned itself to firmly enter into the data sector. Avoiding the flat-fee concept (and the doubtful economic value behind it), TIM once more showed that innovation is in its DNA. For its post-paid customers the company launched an offer of charging internet access per minute instead of per megabit, as it is more convenient and easier for the user to manage. For pre-paid customers the company is pursing the as yet unexploited market of casual internet use in the lower social classes. Basically TIM offers, via a customised smartphone, a substitute for the internet café, allowing connectivity to social networks (such as Facebook and Twitter) on a pre-paid daily charge. Their offer is a quarter of the price normally spent at café-style internet points, and the company sees it as a real universalisation of internet access in Brazil.

Preserving financials
Taking a look at TIM’s financial performance, gross service revenues recorded a high single digit increase year over year. If we split the performance of the outgoing voice revenue, the growth rate reaches double digits. Despite all commercial initiatives, the company seemed to successfully manage operating expenses, yielding an EBITDA expansion of over 20 percent year over year.

The year of 2010 seemed to be a very exciting one for telecommunications in Brazil, with turn-around cases like TIM and recent M&A activities. After the corporate turmoil solved, TIM seems to be one of the few players that can act in an attacker mode, with a very clear composition of a pure-mobile company supported by a heavy infrastructure. Past almost two years, the goal to maintain good balance between growth and financial return is likely to be accomplished. After such a successful business turn-around TIM now looks ready for a new challenge.