ColombiaBanco PopularBanco Popular’s commitment is to the social and economic wellbeing of its customers, delivered through a comprehensive branch network that stretches across the country. With a number of alternative credit solutions and an unmatched commitment to customer-centricity, Banco Popular ranks among the most respected institutions in Colombia.
CanadaScotiabankScotiabank is a leading financial services provider in some 55 countries and Canada’s most international bank. The bank achieves its results through well balanced and diversified contributions from four business lines, with a clear focus on customers in select markets and high-potential businesses that enhance growth and diversification.
BrazilBanco do BrasilBanco do Brasil is one of Brazil’s oldest and most distinguished banking institutions. Founded in 1808 by the Prince Regent, John VI of Portugal, it became Brazil’s national bank soon after in 1821. Today it is 73 percent owned by the government, and is one of the four most profitable banking groups in the country.
BoliviaBanco Mercantil Santa CruzThe Mercantil Santa Cruz Bank (BMSC) is the largest financial institution in Bolivia. It has spent 108 years providing its customers with high-quality financial solutions that also contribute to the development of the country. BMSC aims to improve local communities by supporting the sports, education and health sectors, thereby generating integration and social value.
BahrainAhli United BankThe largest bank in Bahrain, Ahli United Bank has gone from strength to strength over the 14 years it has been in business. With operations across the MENA region, as well as a UK subsidiary, Ahli United Bank has established itself as a leading global provider of retail, corporate, treasury, private and investment banking services.
AustriaRZB GroupRaiffeisen Zentralbank Österreich leads Austria’s largest banking group, the Raiffeisen Banking Group, and owns the largest banking network in Central and Eastern Europe. RZB specialises in serving CEE companies dealing with M&A, privatisation and consulting, equity capital participations, real estate development, project management, and fund management needs.
AndorraMoraBancFocusing on corporate and private clients, MoraBanc Group provides a fully diversified product range of the highest standard. Although the Andorran banking sector has struggled over the past few years, MoraBanc’s managerial platform is strong enough to weather the storm and take the sector to the next level.
BelgiumKBC BankKBC Bank is a multi-channel banking group, with a retail unit focusing on private clients, SMEs, insurance and asset management activities, corporate banking, project and trade finance in Belgium, Central and Eastern Europe. The second-largest bancassurer in Belgium and a major European player, it serves 11 million customers worldwide.
AlgeriaBanque Extérieure d’AlgérieFounded in 1967 and headquartered in Bir Mourad Raïs, Banque Extérieure d’Algérie specialises in project finance, and offers a broad range of credit and depository services. The bank’s commitment to local enterprises in particular has earned it a deserved reputation as a key contributor to Algeria’s economic development.
Rankings are based on how well each country performs in leveraging information and communication technology to boost competitiveness and well-being
Finland (Rank 1)
The Nordic country continues on from 2013 as the most network-ready in the world, having climbed from third place in 2012. The country ranks highly in all areas, in part thanks to heavy investment in its ICT ecosystem in the mid 1990s. It comes first for readiness to use technology, with skills unmatched by other countries. However, its digital infrastructure, although substantial, is less affordable than in 17 other countries. The economy retains last year’s place at number two for its technology usage, with more than 90 percent of the population internet-literate. Its Nordic neighbours are performing strongly too, with Sweden and Norway in the top five and Denmark and Iceland in the top 20.
US (Rank 7)
Further developments in the US’ technology infrastructure mean it has risen this year from ninth to seventh place. The country has affordable infrastructures, which it leverages well despite its large size, with strong performances in the innovation, readiness, usage and impact categories. Businesses are using ICT well – proving the ninth best in the world – with individual usage lagging behind slightly, in 18th. The country has seen an increase in international internet bandwidth per user and uses big data systems to innovative effect; at the National Centre for Academic Transformation, for example, data mining is used to help students by predicting which ones are more likely to succeed on which courses.
Hong Kong (Rank 8)
Having hiked up six places this year, Hong Kong gains a prominent place in the top 10. It’s ranked second best in the world for innovation and entrepreneurship, and has strong infrastructure alongside a relatively sturdy environment. It seems the economy is better prepared for technologies than before, with a climb from 19th to 12th in the readiness sub-index. As a result it has improved its scores from 2013 for usage and impact (both economic and social). While government use of technologies ranks in at 24th, business use comes 16th and individual usage leads the way at number 12. Asia is doing well overall, but there is a significant digital divide between advanced economies and the continent’s emerging markets.
UAE (Rank 24)
The state’s drive to advance technologies – putting it in second place for government usage, pipped to the post by Singapore – is reflected in developments in its digital infrastructure and increased usage by individuals and businesses. There is room for improvement in terms of technological innovation with its current spot at 49th. A high proportion (85 percent) of the country’s population are internet users with a computer in their household, and a strong emphasis on business means technologies have significant economic impact. The state sits with Armenia, Georgia, Kazakhstan, Panama and Qatar as the countries whose scores are soaring at a faster rate than the average.
Chile (Rank 34)
Seemingly the most digitally in-tune Latin American economy, Chile has climbed up five places since 2013 as a result of improved ICT infrastructure, increased internet usage and more online government services. It ranks 27th in the world for the impacts its technologies have on society, but the country could further develop its offerings if skills could be better cultivated; like other Latin American countries, it comes relatively low down on the list for innovation and suffers from a limited education system. In the readiness index Chile is down by 11 places from 2013 despite a slight increase in score, reflecting a possible struggle to keep up with the rate at which competitors are becoming ever more ready for technology.
Greece (Rank 74)
Greece has fallen 10 places since last year, although its score is actually higher. Despite an increase in broadband subscriptions and internet users, and efforts to develop its infrastructure, economic and social impacts of technologies remain relatively low, ranked at 91st and 87th respectively. Greece is the victim of limited venture capital which prevents it from creating new products and furthering its potential for technology usage. It ranks badly – 114th out of 148 – for its political and regulatory environment, although for business and innovation environment it takes the 54th spot. Its low ranking compared to Nordic and western European countries is indicative of the digital divide within Europe.
India (Rank 83)
Ranking the lowest out of the BRIC economies, India has fallen 15 places since 2013 in the face of increasing competition from emerging markets such as China (62nd) and Brazil (69th). Its digital infrastructure is ranked the most affordable in the world, but the country needs more of it. Only 68.5 percent of the population have secondary school education and literacy rates are ranked 127th in the world, meaning India’s progress is held back by limited skills. Although placed 41st for government technology usage, individual access is a different story; 69.9 percent own a mobile phone with just 12.6 percent using the internet and only 10.9 percent having access to a personal computer at home.
Cameroon (Rank 131)
Like other west African countries such as Senegal and Gabon, Cameroon is among the lowest in the rankings due to underdeveloped technologies and innovation systems – although there has been an increase in mobile phone usage. The country dropped seven places from 2013 and has fallen slightly in terms of the environment and readiness sub-indices. It has, however, improved a little regarding the economic and social impact of ICT, and remains stable concerning technology usage, with business use ranked 95th. Cameroon and its neighbours need to develop their infrastructure before significant progress can be made, although that is of course dependent on the growth of the economy.
“It is an exciting time to be doing business in Myanmar”, says Nang Lang Kham, one of Myanmar’s brightest entrepreneurs and Executive Director of the Kanbawza Group (KBZ Group). “Over the last couple of years, the market has really begun to open up, presenting both challenges and opportunities for Myanmar’s companies.”
What is, on the face of it, an unchanging society of humble origins and one steeped in ancient tradition is, in reality, a nation capable of matching Southeast Asia’s strongest economies. Bolstered by newfound democratic freedom and a number of crucial economic reforms, the country has come to be seen as fertile ground for entrepreneurship (see Fig. 1 and Fig. 2) and host to all manner of up-and-coming talent.
Nang, in many ways, is the perfect embodiment of Myanmar’s emerging generation of business leaders, after working in a variety of positions at KBZ bank and having since made her way to the uppermost ranks of a key constituent of Myanmar’s national economy.
Charged with leading one of Myanmar’s leading conglomerates and overseeing an employee base of some 80,000 staff, Nang’s influence extends to industry leaders in the mining, banking, aviation, insurance, manufacturing, agriculture, real estate, trading, healthcare, tourism and hospitality sectors.
“We are already seeing major international companies coming into certain sectors of the market for the first time, and what started as a trickle will likely become a flood over the next few years,” says Nang, speaking to World Finance about the success and expansion of KBZ Group in the past years. “At KBZ Group, we welcome this change, as we believe a healthy competitive business environment will play a key role in supporting sustainable development in our country.”
Nang and KBZ
Born and bred in Myanmar, Nang chose to pursue undergraduate studies in Singapore and while there developed a passion for learning, going on to partake in various mentoring programmes. As a beneficiary of the prestigious Fortune/US State Department Global Women’s Mentoring Programme, Nang was mentored by Rosalind Brewer, the President and CEO of Sam’s Club, and a woman who was listed as the 39th most powerful woman in business by Fortune this year.
“I was really inspired by Roz and I am a big fan of mentoring programmes. I think learning is a life-long process and shared experience is invaluable. Throughout my life I have had key individuals who have shared their wisdom and experiences with me, including my father, who has guided me to become a leader,” says Nang. “In Myanmar, it is common for our generation to have mentors, people we look up to, aspire to – who shine guiding lights on our paths. Sharing experiences is part of our culture and tradition, and is vital for encouraging young talents. I try to be a good mentor to my team, but at the same time look to them as mentors. Many of them have experiences I can learn from and that is one of the benefits of having such a diverse workforce.”
For a country that is still very much in its infancy, in terms of economic and social development, it’s crucial that lessons are passed down from those leading the latest advances, in order for the country to learn from past mistakes and improve upon its prospects. It’s doubly important, therefore, that major economic players, such as KBZ Group, share what knowledge and wealth they’ve accumulated with a population still fresh from decades of social and political unrest. It is this willingness to communicate and take responsibility for the various communities in which it operates that has seen KBZ Group post impressive results year-on-year and build an outstanding reputation in the region and beyond.
KBZ has reached an impressive milestone and is fortunate enough to be celebrating its 20th year of sustained success in Myanmar. Established in 1994 by Aung Ko Win, a former school teacher from Shan State and Chairman of the group, the bank has been run as a family business ever since. On speaking to Nang, it’s clear that she’s both proud of the group’s heritage and excited about what prospects lie ahead. “The achievements of KBZ Group over the last 20 years have been truly remarkable, but we can’t afford to be complacent,” she says. “As our business environment is going through a significant transition, we need to make changes to take our organisation to a new level. However, this doesn’t mean that we turn our backs on our existing corporate culture and traditional values. We need to find a healthy balance, taking the best of what has made us so successful in the past, while adopting international best practices and systems.”
This same balancing act between tradition and modernity can be seen when looking at the nation at large, as those in power look to rebuild and improve upon Myanmar’s social and economic constitution and attract parties from overseas.
Taking Myanmar’s unique values and combining them with international best practices is no mean feat, and so requires an unparalleled understanding of what it takes to succeed in an ever-evolving patchwork of a global economy. “In order to achieve the right balance, I believe diversity is essential,” says Nang. “As a business, we have always embraced diversity, which is reflected in our workforce. We strongly believe in equal opportunities and our staff hail from all of Myanmar’s national races. We try hard to achieve gender balance and also engage international expertise as needs demand.”
Women in business
This sense of diversity is something that has been inspired in no small part by Nang’s position at the helm, and it’s a quality that underpins much of the group’s greatest achievements in years past and present. No less than 65 percent of KBZ Bank’s employees are women, and, as of 2014, over 50 percent are in senior management roles, compared to just 27 percent in 2009. In response to a question put to her on women’s opportunities in business, Nang, an enthusiast of female empowerment, is forthright in her response. “Women make up half the population and have a hugely important role to play in Myanmar’s development,” she says. “There is no overt discrimination against women in Myanmar, although traditionally women have been brought up to be modest, humble and respectful to their male counterparts. And while there is nothing wrong with these attributes per se, I think it has inhibited women’s confidence to stand up for themselves in the business environment.”
Few reliable statistics exist on changing opportunities for women in Myanmar, though what can be said with a reasonable degree of certainty is that women are certainly more visible in prominent leadership positions today than they historically have been. Roles in the education and healthcare sectors in particular are mostly populated by women, and the country’s political sphere has welcomed a number of prominent women into its ranks. Pay for women, however, is far short of what it is for men, and there are still many steps to be taken before working conditions for women match up. “Certain professions are still heavily male dominated and there is some way to go before we achieve real gender balance,” says Nang. “The potential of women in business has not yet been fully realised and we still need to get more women into the boardroom making decisions.
“That being said, we do already have a good number of dynamic successful women entrepreneurs in many sectors and things are changing. The positive development we observe is that whereas previously women considered themselves primarily as housewives, today, more and more women are joining the labour force (see Fig. 3), indicating that people in Myanmar are changing their mindsets alongside changes to the country.”
Global localisation
KBZ’s focus on diversity extends to matters quite apart from gender. It pertains also to those with work experience in markets apart from Myanmar. It is this combination of local and global talent that has come to define much of the group’s competence when extending its influence overseas.
“The diversity of our workforce has also recently benefited from what I like to term as a reverse brain drain,” says Nang. “The exciting business opportunities in Myanmar have attracted the return of many highly skilled expatriate Myanmar with extensive international experience. When we combine this segment with Myanmar nationals who have studied abroad and those who have never left the country, we have a melting pot of talent that encompasses what’s best about Myanmar traditional business practices alongside the best in new ideas from around the globe. This helps us achieve global localisation or ‘glocalisation’, which I believe is essential for any company looking at the Myanmar market.”
Whereas globalisation in the past has often compromised local values in favour of a more global philosophy, glocalisation offers more-or-less the same business benefits of globalisation without doing away with the values that make any one particular nation unique. Without the will of those at KBZ to make this happen, it’s unlikely that the emphasis on national development would remain. With Nang at the helm and a wealth of international experience on hand, the group stands as a prime example in how best to preserve local traditions and build an international reputation – nurturing rather than neglecting local traditions.
The vision
“Our vision for the future of KBZ Group is to create a world-class company that complies with international standards while retaining the values of a family business,” says Nang. “This will be achieved through capacity building efforts, community aid programmes that help our country, dedication to transparency and integrity, and a desire to see the best of Myanmar’s traditions flourish in a free market economy.” By pursuing an intelligent and sustainable growth strategy, KBZ hopes to represent Myanmar both at home and in the ASEAN region as a model company and a responsible corporate citizen. “We are growing together with the people and the country.”
On speaking to Nang, sustainable development emerges as a recurring theme, and it’s clear that the executive director has a passion for her country and KBZ’s responsibility to make a contribution to the long-term development of Myanmar. This same philosophy is reflected in KBZ’s motto, which reads ‘Strength of Myanmar’, and rings true throughout the entirety of the company’s contributions to national economic and social development.
Again, representative of this philosophy is Nang’s position as co-founder and chair of the Brighter Future Myanmar, KBZ’s community initiative arm that supports disaster relief, youth development, health and education, microfinance and women’s empowerment. Nang is also the leading light in driving forward KBZ Group’s corporate social responsibility (CSR) initiatives as well as the company’s contributions to the various communities in which it operates.
“I was brought up in a family that was always conscious of its responsibility to the community in which we were raised,” says Nang. “We were taught to take part in community initiatives. It is part of our family values and also of our corporate family’s values. When I explain to people that KBZ is a family business, it means a lot more than being a family-owned business. We consider our employees, communities and the Myanmar people to all be part of our extended family whom we nurture and support. We are extremely fortunate that the KBZ team shares our passion in this respect and regularly volunteers to contribute to our social initiatives.”
Myanmar has previously been a highly dysfunctional economy and one starved of the potential it is so clearly capable of fulfilling. Nonetheless, by focusing on the country’s worst-hit communities, as well as those scarred by conflict in the years gone by, KBZ is fulfilling an important role in Myanmar’s domestic reconciliation efforts and stands as a benchmark for others to aspire.
KBZ’s responsibility does not stop with those in underserved communities, but applies also to those in its workforce, as the group again strives to emphasise its reputation as an upstanding corporate citizen. “CSR extends beyond philanthropy and we are seeing an increasing awareness of the importance of responsible corporate behavior in Myanmar,” says Nang. “This includes providing essential services for our people, providing jobs, paying taxes, committing to anti-corruption, organisational transparency, human rights, health and safety and the protection of the environment. At KBZ, we place a high value on all of these issues.” Determined to create a healthy and conducive environment for the entirety of its workforce, KBZ’s ambition is to ensure its employees flourish in each of their respective fields and go on to do impressive things in their lives and careers.
Culture of responsibility
KBZ’s efforts to uphold a culture of responsibility can also be seen in its code of conduct, which is made up of several core strands and is critical in all of the group’s key decisions. In an attempt to stamp out misdemeanours of any sort, KBZ has a zero tolerance policy on corruption and actively supports any employees witness to instances of corruption to report it to management. The promise represents only one facet of the group’s code and – in a very general sense – the group promises to perform its duties with integrity, accountability and openness, and expects much the same from its employees.
Lauded for its outstanding principles of corporate governance, KBZ Group’s management quality, treatment of stakeholders, transparency and organisational structure is second-to-none in Myanmar, and equal even to some of the world’s largest multinationals. This year, KBZ Group was recognised by President Thein Sein for paying the most tax in Myanmar and later recognised as the most transparent of Myanmar’s leading 60 companies (see Fig. 4), according to a website study carried out by the Myanmar Centre for Responsible Business, a European- funded NGO.
Although Myanmar’s history of social and political unrest may seem a distant memory to some, the country still has some way to go before it adequately compensates for decades of economic isolation and oppressive leadership. Granted, the government has made impressive headway thus far by introducing sound principles of governance to the country and freeing its population from a dearth of economic opportunities, yet there remains a way to go before the state completes its transformation. Myanmar, for all intents and purposes, is a country in flux, and one in need of corporate leadership perhaps more so than many of its neighbouring south-east Asian nations.
Talking with Nang, however, it’s hard not to be impressed by her infectious enthusiasm and dedication to the future of Myanmar. It’s no coincidence that she is in many ways a product of Myanmar’s progress, and from what she has achieved so far in her career, it’s sensible to assume that under her leadership, KBZ Group will continue to make path-breaking advances in Myanmar and play a major part in the country’s bright future.
Oman’s economic growth continues to be robust. This is driven, primarily, by public sector activities backed by domestic demand and has been characterised further by the improved diversification of the economy. Moving forward, this overall growth is expected to be sustainable, with current GDP measures in alignment with potential growth (see Fig. 1).
As per IMF estimations, nominal GDP growth was at five percent in 2013 and 12 percent in 2012. A similar trend is expected to continue and could act as a risk mitigant to evolving inflationary trends. The government, meanwhile, will maintain an expansionary fiscal policy to support economic development. Oil prices are projected to remain high. Elevated oil revenues and robust government spending will be the primary drivers of Oman’s momentum over the medium term (see Fig. 2). According to the IMF, inflation is forecast to average 3.3 percent a year from 2013 to 2018 as food prices stabilise. This is much lower than inflation in 2007-2012, but still high by historical standards.
The government continues its efforts to diversify the economy and to reduce its dependence on oil revenues. The results of these efforts are likely to show improvement with increase in non-oil based economic output in the medium to long term.
Meanwhile, the banking sector in Oman continued its positive trend in 2013, consistent with the sustained growth of the real economy. Banks remained sound, resilient and profitable due to appropriate regulatory and supervisory policies adopted by the Central Bank of Oman (CBO). Thanks to stronger funding bases, solid capitalisation, sturdy liquidity buffers and a low level of non-performing loans (NPLs), financial institutions made solid growth. Furthermore, despite tough competition and higher wages, profitability for most banks remained unaffected by decent credit growth and low provision requirements. The majority of banks have enjoyed steady growth and increasing profits over the past 12 months, allowing them to expand credit availability. Economic reforms mandated by the government have served to increase transparency throughout the banking sector, while also providing more protection to customers.
Despite the past and current global economic uncertainties, Oman’s banking sector has performed well with total assets showing a growth at compound annual growth rate (CAGR) of 12 percent, loans and advances at CAGR of 11 percent, customer deposits at CAGR of 14 percent and shareholder equity at CAGR of eight percent over the last five years.
Oman’s banking industry has gone from strength to strength, largely off the back of a burgeoning group of financial institutions that are dramatically modernising the sector. Despite a turbulent few years for the MENA region’s financial industry, Oman’s banks have built up enough capital in order that they can withstand any serious shocks to the country’s economy. It is because of the prudent direction that Oman’s central bank has taken, encouraging the industry’s leading players to store up capital.
With 18 commercial banks in the country, Oman’s banking sector has become a battleground of institutions vying for the business of its three million citizens. With this competition comes a need to offer a unique and high quality service, something Ahlibank, which has been recognised by World Finance for its achievements, offers in abundance. We spoke to Ahlibank’s CEO Lloyd Maddock about how the bank is helping to transform the country’s financial services industry, and what the future holds for the industry as a whole.
Ahlibank has been awarded yet another accolade from World Finance. What accounts for this consistent performance?
Our growth and development have come together in a very positive way due to a sound strategy and careful planning. When we first established Ahlibank we also established a vision of where we wanted to be in the coming years, and our growth has been substantial. We were lucky to have an established regional player as our strategic partner, Ahli United Bank (AUB) and IFC Washington, who, between them, have acquired 45 percent of the bank. AUB has 35 percent and the IFC 9.9 percent. Our strength is the team we have built here, and the profit is there for all to see.
At Ahlibank, we emphasise the quality of our products and services on the processes and procedures that we follow to ensure the security of transactions, and this is of the greatest importance to us. Having won this prestigious award for the second year it is undoubtedly a testimony to this and the unwavering commitment of our people to the high standards we believe in.
Ahlibank has been a recipient of a number of other accolades. What does such recognition mean to the bank?
We are keenly aware that each new award brings with it the additional responsibility of continuing to better ourselves. It gives us great pride to be recognised for our achievements in such a short space of time – only six years since our inception. In a highly competitive market, to receive numerous local and international awards is indeed encouraging for our employees, who drive our customer-centric banking model. This also encourages our customers and other stakeholders to once again put their faith in us. We are firm in our resolve to meet all expectations.
What differentiates Ahlibank from its competitors – is it your products or services?
Our products and services are all designed to incorporate our customer requirements and address their financial needs in the best, most convenient, and smartest way possible. Our commitment to customer service is further supported through our expanded branch network, our specialised business units and the use of technology in all our offerings. This has positioned Ahlibank as one of the fastest growing banks in the region, with the exponential growth in customer deposits, loans and total assets.
Has the bank’s financial performance in the 2013 financial year been in sync with your expectations?
Ahlibank achieved a net profit of OMR23m in 2013, an increase from OMR21.7m in 2012 – registering a growth of six percent. The bank’s customer deposits have grown by 29 percent in line with our strategy to build a stable low-cost deposit base. Loan growth of over 19 percent has been established with a prudent risk management approach on a diversified sectorial basis. The loan book continues to be of a very high quality as reflected by our NPL ratio of 0.97 percent in 2013 (1.1 percent in 2012). Our cost to income ratio at 33.9 percent is best among the banks in Oman and other efficiency ratios are also comparable.
What human resources initiatives have been planned in terms of staff development and customer service?
Our training calendar is well-planned and based on the identified gaps and needs of individuals. We have recently launched a diploma and bachelor’s degree tie up programmes with the College of Banking and Financial Studies, as well as a programme that provides financial support to the staff members who want to complete their education and/or pursue higher studies. We realise that the growth of any organisation is due to a number of factors, most important of which, is the human factor.
No business can achieve sustainable growth unless the people involved in the business are given the opportunity to grow and adapt to the changes that the organisation is going through.
Ahlibank is the perfect example of business growth and job creation going hand in hand. We started off with 80-odd ‘Ahlibankers’ six years ago, and now we have over 400 in our ranks and growing. We have to focus on the competencies of our employees, train them and provide them with the opportunity to show their skills. We attempt to align our business aspirations and the aspirations of our employees to achieve our objectives.
What are the bank’s business plans going forward?
Ahlibank remains an innovative banking centre by developing a task force of dedicated professionals to fulfil customer needs. We believe in adding value through the sharing of our knowledge and expertise. Ahlibank recognises that innovation is the key to progress and as a result we are constantly upgrading our products and our services. We are in the process of launching numerous self-service banking kiosks in prominent locations in the sultanate, as well as cash deposit machines and a state of the art mobile banking application for smart devices.
The bank has also introduced a unique concept dedicated to meet the needs of the customers. This concept is known as ‘Ahlibanking’. The bank introduced this concept to create a culture of servicing our clients around five basic banking values; professional banking, smart banking, convenient banking, quality banking and responsible banking. We will extensively use technology in our product delivery.
Mexico is the world’s 11th-largest economy, with solid macroeconomic fundamentals derived from prudent government finances, moderate external deficit, low inflation and a flexible exchange rate regime. In recent years, Mexico has increased its productivity, which has been translated into gains in external competitiveness. Besides, the country is now experiencing favourable demographic dynamics, represented by a growing workforce and a falling dependency ratio.
After decades of structural reform stagnation, Mexico has found the path to reignite the process. The current administration, under President Enrique Peña Nieto’s leadership, has proposed a profound economic transformation through structural reforms in sectors such as energy, financials, economic competition, labour, telecommunications, education and fiscal reforms, among others.
Therefore, Mexico is currently experiencing a series of deep structural changes that will turn it into a more productive, competitive and dynamic country. These reforms will have a long-term impact on economic growth, while reducing inequality and increasing the opportunities of those most underprivileged.
Laying down foundations
On April 28 2014, Peña Nieto presented the National Infrastructure Programme (PNI) 2014-18, in the terms set out in the National Development Plan (PND) 2013-18. The objectives of the PNI are clear and very important: to boost the economic activity, increase competitiveness, create well-paid jobs and productivity and, consequently, promote economic growth. The rationale of this programme is that the reforms by themselves are not in sufficient condition to grow; they must be complemented with a robust infrastructure programme that fosters private and public investments in strategic sectors of the economy.
The PNI identified six strategic sectors in the economy that, through infrastructure investments, will raise the country’s economic growth capacity. Overall, it is expected that the PNI, strengthened by Mexico’s recent structural reforms, will contribute with an additional two percent (approximately) of economic growth towards the end of the current administration, and create around 350,000 additional jobs per year. It is important to highlight that for the first time in history the housing sector, which represents around 3.5 percent of total GDP, and urban development, were considered one of the six strategic sectors in the PNI. This fact reflects its importance over the economy, and its relevance as a growth enhancer.
The housing sector has undergone a major transformation as well. As part of this change, the federal government outlined the New National Housing Policy, framed by the constitutional right to adequate housing, enhancing background settings in the institutional design of the sector and the housing development model. In this context, the Institute of the National Housing Fund for Workers (Infonavit) has gained a leading role in the housing sector’s transformation.
The institute is more than a mortgage lender, it has established itself as one of the largest mortgage providers in the world. It was the first financial institution in terms of portfolio management, and the fourth largest in loan origination. With more than 70 percent of market share in the Mexican mortgage market, it is the largest player in terms of assets (with a loan portfolio of almost $70bn). It is also the largest pension-fund manager in Mexico with 23 percent of total assets (managing around $60bn).
Financial stability
The financial soundness of Infonavit has enabled it to increase the equity level during recent years. Therefore, its long-term financial stability endorses its dual function in the future to offer sustainable housing solutions, which increase workers’ quality of life and will increase the pension fund returns.
Hence, it is a fundamental tool for public policy implementation that will strengthen the Mexican Government’s impact of social and economic reforms.
In the past, Infonavit faced a trade-off between expanding the housing supply and sustainability. Before the year 2000, Mexico had a substantial housing deficit. In terms of mortgage origination, from 2001 to 2012, Infonavit managed to significantly reduce the percentage of right holders’ homes in deficit. During that period, the institute originated more loans than it had done in the previous 28 years – five million compared to two million respectively.
At first, the previous housing model effectively gave individuals housing access, but later began to promote unsustainable developments far from city centres with high transportation costs and with a precarious supply of public services. In essence, the model focused on massive and inflexible financing solutions and a limited return to the Housing Savings Account.
In 2013, Infonavit actively proposed a transit from an ‘increasing the number of credits’ model to one that prioritises the Mexican quality of life, through sustainable, economic and social development. Thanks to the enormous will and decisive participation, Infonavit undertook this far-reaching change to benefit its more than 16 million right holders, through the redesign of its strategy.
Infonavit has adapted its model to the new sector’s needs. It adjusted its planning and operation dynamics in order to continue giving competitive returns and prove sustainable housing funding. In line with Mexico’s structural reforms, Infonavit, hand in hand with the federal government, developed a new strategy that promotes sustainable urban development and sets the stage for achieving three main qualities in the housing funded by the institute: quality of housing, quality of the environment and quality of the social fabric of the community in which it is located.
This way, the institute has contributed to the overall well-being and net-worth of workers by: encouraging housing solutions that will improve the quality of life through regional sustainable development; providing appropriate financial solutions throughout the workers’ lifecycle to meet their housing needs (new credit products); paying efficient returns to the Housing Savings Account to significantly contribute to the quality of life when workers retire; and finally, by providing information and advice on the savings, financial solutions and choice of housing alternatives to constitute the workers’ net-worth.
It is important to remark that the regional sustainable development and the need of appropriate financial services are two of the most important challenges that Infonavit faces today.
Sustainable development
Regarding the regional sustainable development, the institute has made huge efforts to enhance it. In terms of housing solutions that will improve the quality of life through environmental sustainability, as of July 2014, the institute has granted more than 1.6 million credits under the Green Mortgage scheme. This programme consists of allowing an additional amount of credit to an Infonavit loan, when the acquired home is equipped with eco-technologies that generate savings in household expenditure. In 2013, the Green Mortgage scheme contributed to the reduction of more than 257,000 tons of carbon dioxide emissions, equivalent to planting more than 766,000 trees. It also saved more than $60m dollars in household expenditures (electricity, water and gas etc.).
Besides the Green Mortgage scheme, Infonavit developed a mortgage product that incorporates the payment of property taxes and maintenance fee together with the monthly credit payment. This ensures the preservation and betterment of workers’ homes.
Regarding the provision of appropriate financial solutions throughout the workers’ lifecycle to meet their housing needs, Infonavit implemented a credit denominated in pesos. From May 2013, the institute’s product portfolio was complemented with the entry of the loan in pesos, for beneficiaries with incomes exceeding 5.5 times the minimum wage. In 2014, this product will be significantly expanded, offering affiliated workers better loan origination conditions, similar to private banks.
In addition, and according to international best practices, Infonavit has increased its transparency and improved its risk management processes as key elements to success. With a more effective finance, accountability and risk management, the institute reduces primary risks when conducting its core activities, including credit, market liquidity and operational risk. The latter, provides a stronger position, with a greater deal of financial strength and human capital.
Thanks to the aforementioned, Infonavit will be able to offer a mortgage model that fits the new market trends in the Mexican housing sector. As the structure of the housing sector has changed, the current administration will emphasise its efforts on three fronts:
The present administration has set ambitious goals in financial and mortgage matters. The strategic initiatives that Infonavit has implemented will yield positive outcomes in terms of improving quality of life and achieving a more prosperous country, with greater opportunities and greater economic and social welfare.
The housing sector has been identified as a strategic means to foster economic growth, in a context of a deep transformational change. Infonavit is a cornerstone of this process, where Mexico will meet the standards to ensure sustained and inclusive growth and competitiveness.
The biggest retail hack in history wasn’t particularly inventive – but it certainly was effective. In the days prior to Thanksgiving 2013, a cybercriminal installed a basic malware virus onto the security and payments system of American retail giant Target. Consequently, each time a customer’s credit card was swiped in one of the chain’s 1,800 stores, the virus would step in and store those secure numbers onto a commandeered server. By the time Target had caught on to the scheme, the damage had already been done.
Within weeks, more than 90 lawsuits had been filed against the retailer for compensation. Just two months after the holidays, Target had already been forced to shell out some $61m in order to settle those suits. However, analysts estimate it will ultimately cost the chain hundreds of millions before they are able to regain lost ground. That may take quite some time.
The cyber-attack unsurprisingly crippled consumer confidence in Target. After issuing a public warning about the breach, Christmas shoppers avoided Target like the plague. Quarterly profits plummeted by 46 percent year-on-year. Almost a year later, the firm has yet to come even remotely close towards making up the difference; however, Target is by no means the only firm to run afoul of cybercriminals in recent years.
Expect the unexpected
Cybercrime is without doubt evolving into the globe’s easiest and most lucrative method of delinquency. From phishing and cyber extortion to software piracy and the theft of intellectual property, an ever-shifting technological topography makes it nigh impossible to keep up with criminals’ intent on hacking corporate infrastructures.
According to one PwC survey, almost a quarter of companies reported falling victim to some form of cybercrime in 2013. Yet the UK government reckons that figure is substantially higher, as a vast majority of security breaches among smaller firms tend to go unreported. Regardless of whether said crimes are being made public, they’re certainly costing firms a pretty penny. The average price tag of those crimes currently sits at some $4m per company. Every year, the global cost of cybercrime comes in at some $388bn – with an annual direct cash cost of $114bn.
Every year, the global cost of cybercrime comes in at some $388bn – with an annual direct cash cost of $114bn
In the UK alone, cybercrimes are estimated to cost approximately £27bn per year. Yet when taking into consideration the price of lost intellectual property and necessary expenditures to resolve cyber-attacks, experts say the annual price tag for cybercrime has already hit well over $1trn. With that in mind, it only makes sense that firms are desperately scrambling to try and mitigate those costs. One of the simplest ways to do that is to invest in corporate cybercrime insurance.
Defining the undefinable
It would be foolish for a firm to disregard investment in IT security technologies for everyday protection. Yet the very nature of cybercrime is ever-changing, and there has yet to emerge a cyber-security firm able to churn out protective software as swiftly as criminals can produce new viruses.
Corporate entities, therefore, have two realistic options with which to prepare for imminent cyber-attacks: they can assume the risk internally by self-insuring, or they can transfer that risk externally by purchasing cybercrime insurance (see Fig. 1). While the latter may certainly appear to be more costly in the long term, the cybercrime insurance market is slowly but surely proving its worth by transforming the way analysts look at corporate risk. In particular, emerging cybercrime products have recently exposed gaps in the market that insurers appear to have been ignoring for far too long.
Traditional property and business interruption policies, for example, tend not to cover damages resulting in a loss of power supply or software corruption. Likewise, most corporate theft policies are limited to the coverage of tangible assets. On the other hand, digitally stored data is classed by most insurers as intangible, even if it is instrumental to a firm’s success – such as a digital version of Coca-Cola’s coveted secret recipe.
With so many gaps to fill, global insurers have been forced to develop a number of all-encompassing plans with which to offer corporations some relative peace of mind. Firms like Chubb Group and Marsh have already found early success in the market by consolidating various coverage gaps so that firms have access to affordable options that address emerging cyber threats.
New first party plans, for example, protect against losses occurring directly to the insurance holder by mitigating asset damage pertaining to data, software and loss from business due to interruption from cyber-attack. Meanwhile, third party policies tend to include downstream network security liability that sees victims and customers receive an automatic pay out in the wake of an attack. Most products are also designed to incorporate media liability coverage and protect against IT negligence.
More important still, Chubbs’ CyberSecurity features in-built protection against lawsuits alleging unauthorised access of private information. Every month, more and more insurers are wading into the cybercrime market in a bid to provide companies with wide-ranging products they can take on to mitigate new online threats. Yet it’s worth noting that many of said insurers are already finding it exceedingly difficult to analyse incoming claims that stem from these new products.
Cybercrime is a relatively new type of commercial risk; therefore, insurers are currently faced with a whole range of dynamic challenges that may prevent the widespread availability of cybercrime insurance. First and foremost, the inherent nature of cybercrime risk means that predicting the probability of occurrence and the impact it may have on a business is flimsy at best. Because security breaches often instigate a proverbial domino effect on long-winding business chains, it’s not easy for analysts to quantify those impacts.
Despite an up-and-coming plethora of product options, firms in search of cybercrime coverage may also find themselves hard-pressed to locate an insurer that issues concrete definitions of what constitutes such a crime. Various domestic regulations on cybercrime may be inherently hindered by geographical limitations that criminals can avoid relatively easily – muddying waters further still. Additionally, the possibility of substantial losses means there is little room for reinsurance within the market.
Yet with cautionary tales of firms run aground by cybercrime becoming increasingly more commonplace, these challenges should hardly put off a company from investing in a cybercrime insurance package. First, though, there are plenty of preventative measures firms should take that will not only help to defend against the probability of cyber-attack, but will also subsequently allow insurers more confident towards extending coverage.
Prepare for the worst
When developing any IT security plan, companies should start by identifying the specific risks to their particular business. An inventory of critical electronic data such as supplier information, product specifications and employee records should be created so that adequate blanket controls can be implemented to prevent leakage.
A similar process should be followed in respect of a company’s online content. Websites, intranets and apps are easy prey for many hackers; therefore, safeguards need to be implemented so that the process for adding or removing content is tightly monitored.
Another consideration many young companies may be neglecting is whether they have plans in place for manual workarounds to mitigate the impacts of an IT crash on critical systems, such as payroll and finance. Once a company is able to come to terms with the extent of potential exposure to cybercrime, a lot of relatively simple mechanisms can mean the difference between life and death. As always, it’s worth starting with the basics. Improved physical security at operating locations can drastically improve access controls for online systems.
Meanwhile, IT departments would do well to install segregated networks that isolate critical business information and prevent cross-contamination, should a virus strike. Clear-cut legal controls also make it far easier for insurers to mitigate the risks of losing what a firm perceives to be its intellectual property. Patents and copyrights must be stringently protected where possible, and confidentiality clauses should be included in all business contracts.
With cybercrime on the rise, there are very few corporations that could ever hope to fully mitigate the risk of attack by way of self-insurance. Yet by actively pursuing viable lines of defence and prevention, firms of all shape and size are able to make it simpler than ever for insurers to be able to extend cyber coverage.
In PwC’s latest crime survey, almost half of companies said their perception of cybercrime risk had increased substantially over the past year. As concerns among those companies continue to fester, analysts are expecting a major uptake in cybercrime coverage. Only time will tell how the market will be forced to respond to those new products, and whether traditional corporate polices follow suit.
After all, cybercrime insurance is a developing market that comes hand-in-hand with many challenges. The break-neck speed of evolutionary digital crime methods means that insurers are already being forced to regularly reassess the definitions they use in order to analyse claims. Yet growing concern among fledgling firms suggest the benefits of investing in such a policy heavily outweigh the risks. One thing is for certain, something needs to change, and soon.
The US Federal Reserve is on the cusp of something big after nearly two years of propping up the American economy’s recovery with an aggressive fiscal stimulus policy. But Janet Yellen, the new Chair of the Fed, has ruled that enough is enough. The move was announced in July, but the tapering programme is only set to kick in around October, giving markets plenty of time to prepare and adjust to what will almost certainly be a jolt to the system.
When the announcement was made in July that the stimulus programme would be tapered off in October, the headlines the following day were very fatalistic: “Fed stimulus is really going to end and nobody cares”, in The Wall Street Journal, was particularly dramatic. But the fact of the matter is that it really should not be that big of a deal.
First, to suggest that the stimulus package would end outright in October is just not correct. What is actually happening is that the Fed will stop increasing the rate at which it provides stimulus. “For the mathematically inclined, it’s the first derivative of stimulus that is going to zero, not stimulus itself,” explains Donal Marron, the American financier and entrepreneur in Forbes. “For the analogy-inclined, it’s as though the Fed had announced (in more normal times) that it would stop cutting interest rates. New stimulus is ending, not the stimulus that’s already in place.” And it is an important distinction. At the moment, the Fed is committed to purchasing $35bn in bonds – much less than the $85bn of bonds it picked up at the height of its stimulus programme in January.
Whenever there is a hint that a central bank will resort to QE, the villagers pick up their torches and stakes and march through the towns
“If the economy progresses about as much as the Committee expects… this final reduction would occur following the October meeting,” read the minutes of the Federal Open Market Committee (FOMC). The documents also suggested that if all went according to plan, the bond-buying budget would be cut by $10bn before one final snip of $15bn in October. So, though there will be no new bond purchases, the Fed remains committed to the $4trn worth of treasury bonds and mortgage-backed securities it has hoarded over the years.
Taking the plunge
The Fed has been threatening to cut off its bond buying since at least last October, so it should not have come as any surprise that Yellen finally committed. The stimulus programme, which included lowering long-term interest rates as well as aggressive bond-buying, was never meant to be a long-term solution to the US’s lumbering economy; the Fed had no option but to cut it before the crutch became a full-on extra limb. However, because talk of tapering has been on the table since last year, investors have been uncertain about how to proceed. It was the right time to make a call.
And while some, like Marron, argue that it is the “stock of assets” owned by the Fed that matters, and that, therefore, while it continues to own the bonds and securities purchased over the past two years it will continue to stimulate the economy indirectly by forcing investors to look elsewhere for desirable assets. There are some who would disagree and maintain that the rate at which the Fed purchases these assets is what matters, especially when it comes to quantitative easing (QE).
The Fed’s QE policy has been heavily criticised over the past two years. Some would argue that by keeping interest rates so low for such an extended period of time, the policy has actually pushed investors towards more risky behaviour like investing in stock and corporate debt, fuelling rumours that a bubble might be driving the recovery.
Yellen, however, has steadfastly refused to pander to critics, and has defended both the stimulus programme and the decision to taper it. In a speech at the International Monetary Fund in July she admitted that there were indeed “pockets of increased risk-taking across the financial system”, though she insisted that “the policy approach to promoting financial stability has changed dramatically in the wake of the global financial crisis”, and that the Fed had “made considerable progress in implementing a macro prudential approach in the US, and these changes have also had a significant effect on our monetary policy discussions”.
Whenever there is a hint that a central bank will resort to QE, the villagers pick up their torches and stakes and march through the towns. But QE is not the monster it is often made out to be. Ben Bernanke, Yellen’s predecessor, had already lowered interest rates significantly through conventional means, and had been stuck between a rock and a hard place. He turned to QE for the third time since the onset of the global financial crisis, but with the added boost that this time, the stimulus programme would be carried out indefinitely, for as long as necessary.
Double-checking
The last question for Yellen and the Fed to answer is when will they start to raise interest rates again. That is a much deeper issue than the tapering off of QE. Mark Carney, Governor of the Bank of England, is facing similar issues as his side eases into recovery as well. It appears that the Fed may be getting ready to step it up a gear, though, as minutes of the FOMC July meeting revealed members are increasingly restless about raising rates. “Most participants indicated that any change in their expectations for the appropriate timing of the first increase in the federal funds rate would depend on further information on the trajectories of economic activity, the labour market, and inflation,” the minutes said. It is clear the Fed will take no more concrete steps before it can be reassured that the economy is faring well without being propped up by the stimulus programme.
The signs are encouraging at the moment. Unemployment in July was down to 6.2 percent, from 7.3 percent a year before and inflation is finally on the up after remaining stubbornly below the Fed’s target of two percent for the past two years. Overall, the US economy grew four percent in the second quarter after a brief slump in the beginning of the year. If this becomes a trend, Yellen may be compelled to raise interest rates sooner rather than later.
Economists will debate for many years if the recovery was at all down to the Fed’s stimulus package or if it would have occurred regardless of those measures. However, it is unquestionable that recovery is taking place. Furthermore, when Bernanke hinted at a possible tapering off of the stimulus programme last year, the market went into panic mode, and everything from stocks to foreign currencies took a momentary but steep stumble.
When Yellen made the final announcement in July and it was finally confirmed that the bond buying would come to an end, the market barely noticed. That is an encouraging sign; players feel strong enough to withstand the removal of the stimulus without fuss. It also proves that regardless of the stimulus programme’s merits or faults, economically it served as something of a placebo, reassuring the market on a deeper level.
