Year: 2014

Banco Multiva on the strength of Mexico’s banking industry

Posted on by Ashton Wenborn

Mexico’s banking industry is strong, with private banks being mostly profitable and well capitalised. One institution that has tuned into this success is Banco Multiva. World Finance speaks to its representative Carlos Soto Manzo to find out what the bank is doing to promote, and exploit, growth.

World Finance: Well Carlos if you could start by telling me about Mexico’s banking industry, and how it’s changed of late? 

Carlos Soto Manzo: Well the Mexican banking industry has become solid and competitive over the last few years. There has been a transformation to financial groups, which offer all kinds of services and solutions to their clients.

We also can tell you that the Mexican banking capitalisation index ratio is about 15.6 percent right now: it’s very strong and healthy. We have had a very important increase in strength regulatory terms.

We also can tell you that the Mexican banking capitalisation index ratio is about 15.6 percent right now

There are changes on the long portfolio ratings. Also we have a new brand financial reform and a secondary legislation. These changes are generating important needs for the bank’s capital and research.

World Finance: Well Banco Multiva has over 30 years experience in the Mexican financial market. How has your company adapted to the recent changes to the industry?

Carlos Soto Manzo: We are looking at new opportunities. For example we have gone into government banking, private banking and also agricultural banking. The consequence of these actions is that in just seven years, we have become the 12th largest bank in Mexico, out of more than 40 domestic banks.

There is a proliferation generation of new banks in Mexico, but also 80 percent of the market is concentrated in global banks. We see an opportunity to compete by creating different business models, including personalised customer service.

We also have traditional banking lines, but we have developed strong technological channels. We have secure access to ATMs, electronic banking via PCs and laptops, and mobile devices. One product is called ‘Multiva touch’, which was the first software in the market.

World Finance: How is technology transforming Mexico’s banking environment, and why is it important for banks to embrace new technologies?

Carlos Soto Manzo: It’s very important because the market is changing a lot. Multiva has progressed to being a highly technological bank. Our core system has been implemented in over 1,800 banks worldwide. And actually we are running the latest version of this solution.

We want to be a bank with open and full services, with no limitations. It’s more than just checking balance accounts; it is about the possibility to trade, work and have a very strong banking platform.

World Finance: How important are small and medium sized enterprises for the country moving forward?

Carlos Soto Manzo: In Mexico the small and medium enterprises are very important. I can tell you that they provide more than 72 percent of employment in Mexico. And probably of the four million enterprises in Mexico, almost 99 percent are small and medium enterprises: so it’s a very important sector to us.

I can tell you that we are receiving funding from development banks to tend these sectors. Right now we are in some IT solution enterprises, and I think it’s a very good opportunity to be in that market.

World Finance: How does Banco Multiva cater to SMEs?

Carlos Soto Manzo: Well as I have told you, we have tried to get funding guaranteed for all these enterprises, through the development banking in Mexico. It’s a very liquid structure column for our economy, so it’s very important to be in that sector.

We also can tell you that the Mexican banking capitalisation index ratio is about 15.6 percent right now

World Finance: Well finally, how do you see Mexico’s banking industry developing, and what are Banco Multiva’s ambitions for the future?

Carlos Soto Manzo: We have got a lot of opportunities in Mexico. What we are seeking is to be in the top 10 banks in the near future. Over the next two years we would like to become within the top 10 banks. We want to strengthen our growth in products and channels.

We are open to mergers and acquisitions, in order to increase our market share. And also, it’s very important to strengthen our technological innovations. We are really into increasing our profit levels, market share and margins. And also it’s very important for us to maintain our capitalisation index above 15 percent.

World Finance: Carlos, thank you.

Carlos Soto Manzo: You are welcome – thank you very much.

Dunn Loren Merrifield: Nigeria’s housing problem presents opportunities

Posted on by Ashton Wenborn

Nigeria is the most populous country in Africa, making it a huge consumer market (see Fig. 1). Invariably, Nigeria remains a key investment destination, further strengthened by the recent GDP rebasing exercise as the country surpassed South Africa to become the continent’s economic powerhouse. Despite higher growth rates and a larger GDP, Nigeria has a significant infrastructure deficit – necessary to accelerate inclusive growth and development.

While the country’s ‘new status’ of being the 27th-largest economy in the world and the biggest in Africa is encouraging, one of the key socio-economic challenges is its housing deficit. As the global population continues to dramatically rise and a significant percentage of urban growth is expected to occur in developing countries, it is unsurprising that there is a significant influx of people into cities in Nigeria, given the country’s strategic position within the region and its advantageous GDP figures.

This growth in urbanisation has outpaced the capacity to deliver adequate housing and urban infrastructure, resulting in a huge housing deficit in Nigeria. However, the problem remains real, and will need addressing if the country is to continue on its upward economic trajectory. World Finance recently spoke to Kate Isabota, an analyst at Lagos-based investment house Dunn Loren Merrifield (DLM), about Nigeria’s housing deficit and the opportunities that it may present investors.

Urbanisation of the land
The rapid rate at which Nigeria is becoming urbanised mirrors the way many other developing countries are experiencing a shift towards city living. According to research by the United Nations Population Fund (UNPF) and DLM, of the 7.2 billion people in the world, more than 50 percent currently live in urban areas. In the coming years, the proportion of people living in urban areas will largely come from developing nations, as those countries accelerate towards economic prosperity. In particular, cities like New Delhi and Mumbai in India, Karachi in Pakistan, and Lagos in Nigeria, are seeing the most rapid rates of annual population growth.

The consequence of this rush towards urban living is the distinct lack of adequate housing to cater for the large influx; with people now living in slums on the outskirts of cities. According to Isabota: “We are of the opinion that rural-to-urban migration, in addition to the increase in population growth, in the face of increasing poverty and income inequality aggravates the problem of housing deficit largely reflected in the formation of slums. The absolute number of slum dwellers in the world is currently estimated at about 1 billion and has been projected to grow to about two billion by 2030.This emphasises the need for intensive action by governments around the world, particularly through the development of a deep mortgage market to increase access to low-cost housing.”

Source: World Bank, DLM Research estimates
Source: World Bank, DLM Research estimates

In Nigeria, this problem is also evident, largely due to an estimated population of about 168 million people, which has been growing at an annual rate of around 2.8 percent. According to the Population Reference Bureau, Nigeria will have around 240 million citizens in 2025, and more than 440 million by 2050, which would make it the third most populous country in the world (see Fig. 2).

Isabota says that the population growth offers Nigeria some advantages, but also presents significant concerns. “While we agree that the large population size puts the country at a comparative advantage compared to smaller markets, particularly in terms of attracting investment, we also highlight that the significant increase in population relative to economic growth has placed higher pressures on existing infrastructure. The pressures on infrastructures can be seen in the rise in number of slum dwellers due to both high natural population growth and rural-to-urban migration. This is on the back of the premise that cities offer opportunities which hold the key to escaping rural poverty.”

Indeed, the number of Nigerians currently living below the poverty line has grown sharply over the last three decades, according to Isabota. “The fact that population growth significantly outstrips “real” economic growth is further buttressed by the proportion of Nigerians living in poverty, which has been on the increase. In our analysis, we observed that the population of the poor rose significantly from 26 percent in 1980 to 71 percent as at 2011.”

Unemployment and housing shortages
As Nigeria’s population grows, so too does the number of people out of work. DLM says that while the economy grew by around seven percent between 2008 and 2011, unemployment rose significantly during the same period. All of this amounts to heightened pressure on the infrastructure of cities like Lagos, and shows the need for improved infrastructural development. “We highlight that the increase in urban growth has its attendant costs as more individuals compete for limited resources which inadvertently exacerbates unemployment, poverty and increases the housing deficit. Consequently, we expect to see an increased pressure on resources, particularly in Lagos, the commercial hub of the West African sub region, as well as Abuja and Port Harcourt. This underpins our argument for pro-growth policies to be maintained by governments to ensure urban sustainability,” says Isabota.

DLM confirms this sentiment: “Recent statistics show that Nigeria has an estimated housing deficit of about 17 million housing units. As at 2012, it was estimated that about 42 percent of its population were not living in “proper housing”. This is particularly reflected in fast-growing cities, as the high demand for housing is met by low investment on mass housing.”

With home-ownership at about 25 percent, the percentage of homes owned by their occupants in Nigeria still remains low in comparison with some developing countries, such as South Africa, Brazil and India, who all have rates upwards of 70 percent. DLM says that the reason for the low level of home-ownership is the lack of funding available to Nigerians.

“Generally, this is attributed to the fact that a large percentage of housing units is self-financed through personal savings for periods of about five to ten years. We hold the view that the non-availability of long-term funding to aid low income earners in accessing affordable formal housing has driven the growth in housing deficit in recent times. This is equally exacerbated by the high interest rate obtainable on available long term financing options, which makes mortgage an unattractive funding option for the average Nigerian worker.”

With reportedly an average of 20,000 mortgages issued in Nigeria, the market only accounts for 0.55 percent of GDP, compared to 73 percent in the US, 81 percent in the UK, 32 percent in South Africa and 5.5 percent in Brazil. DLM feel that to create effective demand for housing, it is critical to develop a strong and efficient mortgage market to provide affordable housing finance. The strengthening of the primary mortgage market creates avenues for a greater pool of funds, so primary mortgage institutions can then originate more mortgages. In addition, the intensity of housing activity is directly a function of mortgage rates. This underpins the argument for lower interest rates in a bid to aid housing affordability.

Source: World Bank, DLM Research estimates
Source: World Bank, DLM Research estimates

Delivering on the deficit
DLM suggests that the cost of financing the shortfall of housing would be about NGN85trn ($5.48bn), and the best way of getting this finance will be through foreign direct investment (FDI) and public private partnerships (PPP). “This translates to a yearly investment of about NGN 5trn, 1.83 percent higher than the current size of the national budget – NGN 4.91trn estimated for 2014. The country requires additional provision of about a million housing units per annum for the next 17 years to substantially reduce the deficit. Sole reliance on government revenues is insufficient to fund these infrastructural needs; this supports the argument for an efficient capital market to aid active private sector participation. With the wide housing gap in the country and the significant funding required, increased PPPs accompanied by FDI may just be the way forward.”

To this end, DLM is upbeat about the commencement of operations of the Nigerian Mortgage Refinance Company (NMRC); a PPP arrangement with the key role of providing funding to banks so that they can provide more mortgages to individuals with longer tenors at a more sustainable interest rate than what is currently obtainable within the domestic mortgage market. The idea is to refinance portfolios of mortgage lending institutions by raising long-term funds from both the domestic capital market and foreign markets.

The NMRC was promoted by several multi-lateral agencies, government agencies and private sector companies. The multi-laterals include the World Bank/IFC, while the government agencies include Nigeria’s Ministry of Finance, the Central Bank and the sovereign wealth fund, among others. In addition, the private sector companies include three commercial banks and 17 mortgage banks.

Housing delivery is a critical part of the country’s infrastructure base, which has the potential to accelerate economic development, says DLM. By boosting housing supply, other industries will in turn see an upswing in business. “We believe that the housing sector has the potential to be one of Nigeria’s key economic drivers. Growth in the nation’s housing sector would directly impact on the construction sector through increased demand for building materials, thereby generating employment.”

Ultimately, this will not only improve the standards of living of the population, but drive economic growth for a country with huge potential. “We hold the view that the impact of housing investment in an economy is more ‘economic’ than ‘social’ in nature. While the provision of adequate housing leads to an improvement in the standard of living of the populace, it is also a major driver of job creation, poverty reduction and increased business activities, which would have a multiplier effect on the economy.”

SGBL enhances regional presence to become flagship Lebanese bank

Posted on by Ashton Wenborn

Banking is Lebanon’s most renowned service sector and a pillar of its economy. The sector has weathered major domestic, regional and international crises over the past two decades, particularly the global financial crisis of 2008.

Société Générale de Banque au Liban (SGBL), one of Lebanon’s leading commercial banks, celebrated its 60th anniversary last year, and we are aiming to enhance our regional presence so as to become a flagship bank in the region.

Established in 1953 in Beirut, the bank has built on the successful experience of Société Générale’s long-lived universal banking model, which has proven its robustness in a challenging environment. SGBL offers an array of services under retail, corporate and private banking. The bank’s objective is to target a wide range of customers, while maintaining a balance between business lines, and promoting synergies.

Our aim is first and foremost to have clients – whether individual, professional or corporate – who are satisfied and who truly feel that their bank backs them in their endeavours. This target fits into our broader commitment to actively support sustainable economic growth in the countries where we are present.

Fuelling growth
Lebanon is a relatively small market and the banking sector is highly competitive. Nevertheless, although the domestic market still offers big opportunities that should materialise with time, leading banks have been actively developing their business abroad in a move to diversify revenues.

Regional markets such as Jordan, Iraq, and Egypt offered what could qualify as ‘natural’ market expansion opportunities. Even some countries in Europe, such as Cyprus, Turkey and even Switzerland and the UK, have also offered opportunities for expansion. Lebanon’s wide diaspora also represented development opportunities for Lebanese bankers. At the top of the list are a number of African countries with large Lebanese communities, which have been tapped by Lebanese banks seeking to broaden their business networks.

$137m

Net profit (2013)

18.9%

Return-on-equity ratio (2013)

SGBL group operates banks in Lebanon, Jordan and Cyprus, representing a retail network of 90 branches. In addition to banking, the group encompasses specialised subsidiaries in industries such as life insurance, financial brokerage, wealth management, and leasing.

The bank places a lot of focus on its client relationships, on a comprehensive offering of products and services, and on an efficient international network. And the model has been yielding good results. Getting closer to our customer is one of our main growth drivers. Customer satisfaction is at the heart of our strategy, and we believe a bank should be perceived by clients as a partner, which entails proximity as well as availability. Our clients – both retail and corporate – appreciate that, as much as they do our international network, which ensures them access to financial solutions and expertise across markets. This gives us a competitive edge that is appreciated by our clients, especially when it comes to trade finance, project finance and private banking.

Tapping new markets
The group has witnessed substantial growth over the past three years, despite a highly challenging environment in all of Lebanon, Jordan and Cyprus, and we have managed to weather the storm. SGBL’s balance sheet has grown almost three-fold over the past five years, reaching $13bn by the end of 2013. Profitability followed: net profit reached $137m in 2013, and the bank boasts a return-on-equity ratio of 18.9 percent. In conjunction with this growth, equity was strengthened both through fresh money and incorporation of profits. In the aftermath of the global crisis of 2008, clients, and stakeholders in general, became very keen on dealing with a bank whose financial strength was unquestionable. SGBL’s capital ratio of 11.18 percent at 2013 year-end exceeds Basel III’s international requirements, as well as domestic regulations.

Looking beyond 2014, our group is in a position to seize growth opportunities, particularly by expanding into new geographic markets. Despite the tough competition that characterises the Lebanese banking sector, we are confident that growth can still be achieved in some sectors in our home market. New opportunities emerge regularly and some represent huge potential. Oil and gas exploration and extraction, for instance, is a whole new market for us to tap into. Such growth opportunities will obviously depend on developments on the political and economic front, but we expect Lebanon’s economy to regain momentum in the medium term.

Looking beyond our home market, diverse opportunities are still out there in the Middle East for Lebanese banks to capitalise on.

At SGBL, we are confident that our experience, broad network and flexible business model are invaluable assets for tapping new markets and new businesses.

Portugal’s economic adjustment programme stimulates growth

Posted on by Ashton Wenborn

In June, Portugal formally concluded the three-year economic and financial adjustment programme agreed with the EU/ECB/IMF, under which it received financial assistance in the amount of €78bn, subject to a process of fiscal adjustment, economic reforms and financial sector rebalancing.

The challenges posed to the Portuguese economy were massive, and while the environment under which the adjustment took place was also far more adverse than initially envisaged, a significant improvement has taken place at all levels. Nevertheless, challenges remain, with the adjustment required to continue in the near future.

In 2011, Portugal faced massive twin deficits, fiscal and external, at around 10 percent of GDP. An unbalanced growth model meant Portugal was unable to defend itself from the impacts of the Great Recession, with the subsequent fiscal stimulus resulting in a deterioration of the situation that blocked it from acceding wholesale markets and requiring financial assistance (see Fig. 1)

There were three main objectives to be achieved under the programme:

  • contain the fiscal deficit and bring public accounts to a sustainable path;
  • implement structural reforms, in order to change the growth model and increase the growth potential;
  • deleverage and strengthen the financial system.

Repaying the debt
The conditions under which the programme was implemented were harsh, as the euro area fell into a recession, also contributing to a deeper recession in Portugal, which, in turn, had side effects on economic, financial and fiscal developments.

It should be noticed that, unlike other countries, Portugal’s financial sector was not at the heart of the crisis – even though it contributed to the overall leverage – but rather, it fell victim to the deteriorating environment: loss of market access impacting funding; worsening economic conditions resulting in deteriorating credit quality; and the need to deleverage all impacted the banking sector, which faced severe losses.

Portugal's fiscal deficit
Source: Ameco

In 2014, however, banks had reduced the loans-to-deposits ratio to 120 percent as requested, mainly through increased retention of deposits, which didn’t face any flight during this period. This eased the pressure on the banking sector, which is gradually becoming more focused on lending to the non-financial corporate sector.

Banks had to recapitalise, partly using some of the €12bn recapitalisation fund created under the programme, complying with a 10 percent core Tier 1 capital ratio (under BIS II). By the end of June 2014, a significant part of these funds had been repaid or banks had committed to repay them before year-end, as improved market conditions allowed them to raise equity from private investors.

As for the non-financial sector, the adjustment is well reflected in the correction of the external imbalance, which moved from a current account deficit of 10 percent of GDP in 2010 to a surplus of two percent of GDP in 2013. The non-financial private sector moved from an elevated borrowing requirement to a lending capacity, which more than covers the general government borrowing requirements (which have also narrowed).

Journey into external markets
Households are becoming more focused on savings, despite the impact that the crisis and the austerity measures have had on disposable income. Reforms to the unemployment benefit (implying lower benefits, for shorter periods) in the context of elevated unemployment and to the pension system (lower transformation ratio between last wage and pension, in the longer run) are forcing households to increase savings for precautionary reasons. This will likely result in a stable – yet more moderate – growth of private consumption in the future, contributing to a more sustained growth model.

Non-financial corporates also reduced their borrowing requirements, as they tried to improve their financial conditions during the crisis, by restructuring and postponing some of the investment projects until demand conditions improved. An objective of this restructuring by non-financial corporates was to improve their competitiveness, in a process that had begun already in the early 2000s, when European markets opened to Eastern European and Asian products.

This largely accounts for the Portuguese companies’ capability to expand their sales to new markets as domestic demand subsided. Apart from 2009, when export volumes fell all around the world following the Lehman bankruptcy, Portuguese exports have grown every single year, always above demand, resulting in the recovery of market shares that had been lost.

This switch into external markets, partly resulting from an already ongoing adjustment process, has contributed to the desired change in the growth model, more based on external demand. Many companies were, this way, ‘forced’ into getting exposure to external markets, which they will likely wish to hold and even reinforce.

This calls for investment, in order to expand capacity, as domestic demand begins to recover, and also to improve productive processes, reinforcing competitiveness and the differentiating products in a more competitive environment.

Source: Statistics Portugal
Source: Statistics Portugal

Putting people back to work
Some indicators show that the investment cycle may be turning. On the one hand, the more recent survey on investment, by Statistics Portugal, shows that capital expenditure is forecast to grow in 2014 in nominal terms, especially in manufacturing, and more dominantly in exporting sectors. On the other hand, investment has indeed picked up at the level of machinery and other equipment, as well as in transportation equipment. Since the early 2000s, investment as a share of GDP has fallen from almost 30 percent to around 16 percent. At these levels the economy is still reducing its capital base, in net terms.

Part of this investment, still characterised by smaller scale projects, is self-financed, as access to credit – despite recent improvements – is still tighter and more expensive than before the crisis. A part of the adjustment by the non-financial corporate sector is reflected in the improvement in the ratio between gross operating surplus and gross value added, which has recovered to pre-crisis levels, but which is still low in relative terms.

But improvements in the credit markets are being seen also. Spreads are narrowing, and the survey on conditions in the credit markets do show that the banking sector is both easing standards on loans and reporting an improvement in demand. Data on new production of loans to the non-financial corporate sector show that there has also been an improvement, with a slight increase, to around €4bn per month, up from roughly €2.5bn during 2012.

This improvement in capital expenditure is also having some impact on the labour market, with the unemployment rate decreasing to 14.6 percent in April 2014, down from 17.5 percent in the same period in 2013. While factors such as emigration can play a role, between Q1 2013 and Q1 2014 there has been a decline in the number of unemployed and a similar increase in the number of employed people (around 100,000 people). Still, the unemployment rate is almost double of that pre-crisis and threefold that of the early 2000s.

The challenges ahead
Reducing the unemployment rate is one key challenge for the coming years. Even though GDP growth is forecast to accelerate to around 1.7 percent in 2016-17, unemployment is forecast to remain at double-digit levels, putting further strains on the economy (fiscal pressure, both from lost revenue and increased expenditure; and the destruction of human capital, as long-term unemployment lingers). Therefore, structural reforms remain fundamental so that Portugal can improve its growth potential and contribute to a steeper decline in unemployment (see Fig. 2). ­­

A second challenge is to ensure fiscal sustainability. While the deficit has been contained, it remains elevated, and further progresses are required to generate a primary surplus that contributes to reducing the debt-to-GDP ratio from the current inflated levels. This call for the continued reform of the general government should focus on the streamlining of services and processes, reducing bureaucracy and contributing to an easing of the tax burden, which has increased significantly during the crisis.

This challenge will be an ongoing process, as the operating reality and needs of public services change, but also because ageing will bring further increases in expenditure, in the form of pensions and healthcare. It should be noticed this is a Europe-wide trend, and Portugal is among the least affected countries, given past reforms of the pension system.

A reform of the tax system is under way, which aims to bring down the Corporate Income Tax rate from current levels (25 to 18 percent in 2018). Presently, the Personal Income Tax policy is being analysed, with reform due later this year, possibly in time to be adopted with the 2015 state budget.

A lesser appropriation of income by the general government would add resources for the private sector, so that it can continue to invest and reinforce its competitiveness, adding to the growth potential, to improved exports, and ultimately contributing to further improvements in the fiscal situation.

European corporates continue to falter

Posted on by Ashton Wenborn

By the standard of recent years, 2013 was a calm one in the European corporate credit arena. The first half saw the eurozone still in recession, although this was offset by a 0.3 percent increase in GDP in the second half. Meanwhile, only four long term sovereign debt ratings were downgraded, down from nine in 2012.

Indeed, on an international level, the credit quality and stability of corporates improved in 2013. The ratio of downgrades to upgrades decreased relative to 2012 and, by the end of December 2013, the global speculative-grade default rate had fallen to 2.23 percent from 2.52 at the end of 2012.

Despite this increased stability, however, the percentage of defaulters from Europe hit an all-time high with nearly 20 percent of the total global default count in 2013. Indeed while other major regions’ proportions of the total were roughly in line with 2012 levels, Europe saw 16 defaults in 2013 – an increase of nearly 80 percent from 2012, when nine corporates defaulted.

At S&P, we believe that the eurozone sovereign debt crisis, starting in 2009, played a crucial role in the faltering creditworthiness of European corporates – especially for those in the financial sector – and continues to have an impact.

Europe’s performance against international regions
For the most part, major regions saw declines in their annual speculative-grade default rates in 2013. Europe, however, was the exception. In the full year, 81 speculative grade global corporate issuers defaulted, relatively unchanged from 83 in 2012. Regionally, the default rate dropped to 2.12 percent in the U.S. and 1.96 percent in the emerging markets from 2.58 percent – against 3.33 percent in Europe, up from 2.2 percent a year earlier. Indeed, in the fourth quarter of 2013, the majority of defaults internationally stemmed from Europe.

So, while the overall global default rate fell, Europe’s default rate increased – a performance that reflects our view that there remains continued challenges in some parts of the region despite improvements in overall economic stability.

We believe that the eurozone sovereign debt crisis, starting in 2009, played a crucial role in the faltering creditworthiness of European corporates

The euro sovereign debt crisis
Despite the decline in sovereign downgrades, ripples from sovereign debt crisis remained apparent in 2013. Peripheral European countries again provided the region with most of its drama in 2013, notably Cyprus. The nation’s banking sector was eight times the size of the overall economy when it began running into financial troubles. After initial refusal, the Cypriot parliament accepted a bailout package provided by the Eurogroup, the EC, the ECB, and the IMF. The €10bn deal came in return for the country agreeing to close the second-largest bank, Cyprus Popular Bank.

Certainly, the sovereign debt crisis has had a significant impact – not least because it led to a depreciation of the euro. This had a direct influence on corporates’ ability to pay their debts, furthering our view that the prevailing sovereign debt crisis has contributed to the downward trend for corporate creditworthiness.

That said, the ECB and euro area governments moved decisively to support the single currency in 2012 – saving Europe’s economy from depression. This had a beneficial impact on corporates, helping staunch further downgrade activity in the Eurozone. Certainly, the downgrade-to-upgrade ratio across all European companies was 1.47 percent last year, which is markedly lower than the 3.25 percent ratio in 2012.

Europe is still a work in progress
Yet it is not all bad news. Despite the sharp hike in defaults, overall stability among European corporates became more apparent in 2013. The percentage of unchanged ratings increased to 72.04 percent, which is a notable improvement from 62.08 percent in 2012, and demonstrates that creditworthiness is rebalancing throughout the Eurozone. Also, the volume of debt affected by defaults has decreased. In 2013 it totalled $17.8bn, down from $19.7bn in 2012 – a considerable improvement from the $38.7bn in 2009.

What’s more, Europe’s non-financial sector experienced an impressive percentage of upgrades. The number of upgrades in the non-financial sector outstripped those in the financial sector, and the rising stars of the year – corporate entities who we have upgraded to investment grade from speculative grade – were all non-financial companies.

The inherent volatility of the financial sector
Conversely, the financial sector underperformed in 2013. We saw eight fallen angels, which are entities downgraded to speculative grade, four of which were financial institutions. Generally speaking, financial institutions are sensitive to sudden declines in investor confidence, which can result in a relatively fast descent into default – something particularly apparent since the financial crisis.

Credit ratings and their continuing significance
To date, S&P default studies have found a clear correlation between ratings and defaults: the higher the rating, the lower the observed frequency of default, and vice versa. Over each timespan, lower ratings correspond to higher default rates, which means that the ability of corporate ratings to serve as an effective measure of relative risk remains intact.

Furthermore, transition studies have repeatedly confirmed that higher ratings tend to be more stable and that speculative-grade ratings generally experience more volatility.

S&P’s ratings analytical methodology divides the task into several factors – first, analysts examine a company’s business risk profile, then its financial risk profile before combining those to determine an issuer’s so-called ‘anchor’.

To determine the assessment for a corporate issuer’s business risk profile, the criteria combine our assessments of industry risk, country risk, and competitive position. Cash flow/leverage analysis determines a company’s financial risk profile assessment.

The analysis then combines the corporate issuer’s business risk profile assessment and its financial risk profile assessment to determine its anchor. In general, the analysis weighs the business risk profile more heavily for investment-grade anchors, while the financial risk profile carries more weight for speculative-grade anchors.

After determining the preliminary anchor, analysts consider additional factors to modify it. These factors are: diversification/portfolio effect, capital structure, financial policy, liquidity, and management and governance. The assessment of each factor can raise or lower the anchor by one or more notches – or have no effect.

After that, comparable ratings analysis is the last analytical factor used to determine the final Stand-Alone Credit Profile (SACP) on a company. The SACP is then considered alongside any relevant external support – e.g. from the public sector – to determine the final Issuer Credit Rating. The full corporate ratings criteria are available here.

Corporate ratings depend on stabilisation
In conclusion, despite measures to strengthen monetary union and the region finally emerging from recession, it is clear Europe’s corporates continued to face downward pressure in 2013.

The performance of Europe’s corporate default and transitions against its international counterparts certainly demonstrates the continent’s stunted growth. In our view, it is clear that the subsequent downgrading of Europe’s sovereigns in 2013 reflects the continued challenges in some parts of the region. And despite improvements in overall economic stability, the success of its corporates – particularly in the financial sector – is closely correlated with the recovery from the sovereign debt crisis.

Electrolux and Coca-Cola press for two major deals

Posted on by Ashton Wenborn

Wanting to streamline its business, General Electric is now in talks with Sweden’s Electrolux on the sale of its home appliance business, which is now on the chopping block for the second time this year.

Electrolux confirmed ‘it is in discussions regarding a possible acquisition of the appliances business of GE,’ but that ‘no agreement has been reached, and there can be no assurances that an agreement will be reached,’ as the discussions are still in early stages.

The century-old division is up for grabs after GE Chief Executive Officer Jeffrey Immelt earlier this year announced that the firm would focus on industrial operations. If sold, the unit could fetch at least $2bn.

If sold, the unit could fetch at least $2bn

“GE is evaluating a wide range of strategic options for our appliances business including discussions with Electrolux and other interested parties,” Seth Martin, a GE spokesman told Bloomberg.

Despite GE having a strong hold on the US market with historic inventions such as the electrical toaster in 1905, the firm has been bleeding red since the financial crisis. Electrolux, on the other hand, is number two in US sales of appliances such as dishwashers, cooktops and refrigerators, according to research firm Statista and is looking to boost revenue in Europe and the US, its largest single-country market.

Coca-Cola buys Monster
In similar news, Coca-Cola, the world’s largest beverage company, agreed to swap some brands and buy a 17 percent stake in Monster Beverage Corp for about $2.15bn, increasing its focus on energy-drinks.

According to a statement, the deal will include the transfer of Coca-Cola’s energy drinks NOS, Full Throttle, Burn, Mother and Play to Monster, while Monster will shift Hansen’s natural sodas and juices, Peace tea and Hubert’s lemonade to Coca-Cola. The two companies will share marketing, production and distribution. Coca-Cola, which already distributes Monster in the US and Canada, will expand the arrangement globally, helping the energy brand grow overseas, the statement said.

Coca-Cola has previously showed interest in buying a controlling stake in Monster as it looks to expand its brand into healthier drinks markets that are seemingly more profitable at a time when health trends are bringing down sales in soft drinks. Such a deal has not yet been made possible, but Coca-Cola does have the right to purchase as much as 25 percent of Monster, whose directors would have to approve any larger investment.

Earlier this year, Coca-Cola made a similar move when it said it would boost its stake in Keurig Green Mountain to 16 percent, making it the coffee brewer’s largest shareholder.

A life for a gun: can Cameron and Obama’s engagement in the global arms trade ever be justified?

Posted on by Ashton Wenborn

Conflict in Israel and recent high school shootings across America have led many to condemn the global arms trade, and governments for facilitating it. While trade in arms is a multi-billion dollar industry, many argue that the deaths caused by armed violence can never justify its existence. Is governments’ engagement in the global arms trade ethical? World Finance speaks to Andrew Feinstein, author of The Shadow World: Inside the Global Arms Trade, to hear his views.

World Finance: Andrew, let’s start with the scale of the global arms trade; what numbers are we looking at?

Andrew Feinstein: Well looking back to 2013, about $1.75trn was spent on national defence, national security, what’s sometimes called homeland security. So, business that the arms companies could get into.

That’s about $250 for every person on the planet.

The trade in what we know as conventional weapons is usually somewhere between $70bn and $120bn a year.

World Finance: And is it structured like other industries?

Andrew Feinstein: The trade is really dominated by the big players: the Lockheed Martins, the Northrop Grumanns, the BAE Systems.

I think what makes this a unique industry is that its relations with government are incredibly close

But I think what makes this a unique industry is that its relations with government are incredibly close. And there is what we call a revolving door, a movement of people, between the industry, the military, and the government.

So that creates quite a unique structure, and quite unique arrangements.

World Finance: Well to coin a phrase from Star Trek, the Ferengi said “War is good for business, and peace is good for business.” Would you say this sums up the global arms trade? And in economic slump times, how is the industry affected?

Andrew Feinstein: In times of greater peace, there does tend to be less spending on conventional weapons.

And there certainly have been accusations that the trade in some ways is involved in attempting to ensure that the world doesn’t have periods of long peace or stability, because it is bad for their business model.

World Finance: Well how political is it when a country chooses where to buy from? Or even where to sell from? Or is it always best price?

Andrew Feinstein: No, it’s not always best price. There are a number of dimensions.

One is definitely political: they tend to purchase to cement political and military alliances. Saudi Arabia, for instance, purchases an extreme amount of military equipment – far more than it has the personnel or expertise to ever use! – in order to cement political alliances.

Unfortunately, what is crucial to decisions about what is bought, and where it is bought from, is corruption.

The trade in weapons is widely regarded as the most corrupt of all trades in the world. So one estimate by a researcher at Transparency International a few years ago, puts the figure at 40 percent of all corruption in all world trade.

[T]he company that pays the biggest bribe, to the most key decision makers, is the company that often gets the business

And unfortunately, from my own experience in South Africa, the company that pays the biggest bribe, to the most key decision makers, is the company that often gets the business.

World Finance: How significant is the black market in creating inconsistencies?

Andrew Feinstein: The distinction between a legal arms and an illegal, or black market, arms trade, is extremely fuzzy.

So you would find some of the biggest defence manufacturers would also use key dealers that operate in the black market – or what’s often called the grey market, where there are aspects of legality and illegality – in transactions.

And this creates huge additional costs on purchase price, because often the costs of corruption, of what are known as ‘economic offsets’ or ‘economic incentives’, are built into the purchase price.

World Finance: So how much does business come before humanitarian principles in this industry? Because obviously we’ve seen in the UK they’ve been criticised for selling arms to Israel, despite their condemnation of what’s happening in Palestine.

Andrew Feinstein: There is often the claim that the trade intensifies and extends the life of conflicts.

This isn’t to say that the trade in arms causes those conflicts; but that once those conflicts are underway, the easy availability of weapons to all players in those conflicts is something that keeps them going for far longer than they would ordinarily do.

So I think that there is some validity to the argument that this is business ahead of concerns for peace, ahead of human safety and security.

World Finance: We often hear phrases such as ‘arms control by embarrassment’, where it takes a humanitarian catastrophe such as Palestine to stop the selling of arms to a particular country. But at the end of the day – sorry to be blunt, but – the arms are designed to kill people. So wherever they’re sold, there’ll be the same result. So surely the problem is the trade itself, not where they’re sold to?

Andrew Feinstein: There are elements of what these companies produce that can be used legitimately for self-defence, for homeland security.

However, the vast majority of what they produce is used for what is called ‘offensive warfare’.

You refer to the situation in Palestine; we have the ironic reality that someone like President Barack Obama or Prime Minister David Cameron are calling for a ceasefire in Gaza, but are still supplying Israel with enormous quantities of the weaponry that they’re using in Gaza.

[W]e have the ironic reality that someone like President Barack Obama or Prime Minister David Cameron are calling for a ceasefire in Gaza, but are still supplying Israel

And we even had a situation where during one of the ceasefires, Israel was able to replenish its weaponry from its US sources during the ceasefire.

Now clearly that is not going to lead to any sort of lasting peace in that situation. So yes, there is absolutely no doubt that a part of this warfare, and these conflicts, are being driven by the industry.

They also, crucially, influence government policy. So that we have a situation in the US today where the default position is warfare to resolve differences. And that’s reflected best by the reality that it takes more people to staff and maintain one aircraft carrier than the US has diplomats throughout the world.

And today the US has 10 aircraft carriers.

World Finance: Well institutions such as the NRA believe that gun ownership is a necessity, and if the trade is supporting economies, surely there’s an argument for it?

Andrew Feinstein: One could argue that the trade in hard drugs aids the economy. There are probably in the US hundreds and thousands, if not more, people who actually earn a living out of the trade in hard drugs.

That doesn’t mean we should regard that trade as a trade we want to encourage.

Similarly, the trade in weapons is not a trade that we should be encouraging, because it facilitates and intensifies conflict.

Where it needs to exist – and unfortunately in the world that we live in, it’s probably not the most practical solution to say that the manufacture of armaments should be brought to an end. But I think what we can say, given that we regulate the trade in alcohol, the trade in pharmaceuticals, and various other trades that have an impact on our lives; surely the most highly regulated trade on the planet should be the trade whose products result in death.

World Finance: Well finally, purely economically speaking now: such is the scale of the arms trade, would you suggest wars are beneficial for economies?

Andrew Feinstein: I think as an economic industry its importance is overstated.
I think as a job creator, it’s an incredibly bad industry.

As a generator of new technology, there could be more productive technologies generated with the R&D expense that is incurred – usually by the state.

And I do believe that the industry undermines governance by the extent of corruption in the industry. It undermines the rule of law in both buying and selling countries. And it does contribute to greater warfare and conflict than would otherwise be the case in the world we live in.

World Finance: Andrew, thank you.

Andrew Feinstein: Thank you very much.

Twin listing Seplat could seriously boost Nigeria’s energy industry

Posted on by Ashton Wenborn

Nigerian oil and gas company Seplat has set records and may seriously boost Nigeria’s energy industry after being listed in London and Lagos, in an attempt to raise much-needed capital. The move proved extremely lucrative for the firm, which is hard-pressed to buy up oil fields in the Niger Delta as international firms flee the sabotage-prone area. For Seplat, the IPO brought in more than $500m, valuing the group at $1.9bn. It was the largest IPO in London in years, and its success suggests that African firms looking for capital should venture outside of the continent’s stock exchanges, which still lack significant liquidity. In this respect, Seplat’s young story could be one of great fortune.

Founded in 2009 by two Nigerian businessmen – ABC Orjiako and Austin Avuru – the company conducts independent oil and gas exploration and production in Nigeria, having acquired a 45 percent participating interest in three on-shore producing oil and gas leases, located in the western Niger Delta basin of Edo and the Delta states, which include the Oben, Ovhor, Sapele, Okporhuru and Amukpe fields.

The area is particularly lucrative for firms to gain access to, as some two million barrels of oil a day are extracted in the Niger Delta, with an estimated 35 billion barrels of crude still residing under the delta. It is this area that has helped make Nigeria the biggest producer of petroleum in West Africa (see Fig. 1). With Seplat becoming the first indigenous oil company to acquire such assets and be awarded operatorship of the fields, the company has increased oil and gas production year-on-year and revenues and net profit continue to grow as a result.

Seplat’s young story could be one of great fortune

Boosting capital
In order to build on this, Seplat was looking to raise $500m by selling new shares, giving it a market capitalisation of more than $2bn, which it would use to further expand in the delta and pay down its million-dollar net debt. Upon listing, the IPO ranked as the largest for a sub-Saharan company since Kenya-based telecom group Safaricom’s in 2008, and the flotation is also the second largest for a Nigerian company, after the $550m of Starcomms six years ago.

“Despite a challenging market for oil and gas stocks, the response has been excellent and demonstrates strong demand in both London and at home for leading Nigerian indigenous E&P players,” said Seplat’s Chairman ABC Orjiako, in a statement at the time. The move to list on both the Lagos and London stock exchanges is not a surprising one, an analyst in the Nigerian oil industry told World Finance. IPOs on the NSE have been few and slow, with the primary market section experiencing the strongest initial public offering activity between 2006 and 2008.

“Since the financial crisis, listing activity on the Nigerian Stock Exchange has dropped dramatically, and aside from Seplat, the exchange has only seen one other listing so far this year. The NSE doesn’t offer the same potential for capitalisation as established exchanges”, the analyst said. “Seplat is still a relatively new firm and they started out with limited capital and have had to refinance since. They obviously needed to increase their capital in order to buy more oil fields and develop their current ones, and decided that an IPO would be the best way to go. When it comes to IPOs, there is no place like London and it has opened the firm up to a lot more investors and money than would have been the case had they only listed in Lagos,” the analyst, who prefers to remain anonymous, said.

Seplat pumps about 60,000 barrels a day from its three crucial fields in the Niger Delta, which it bought from a Royal Dutch Shell-led consortium in July 2010. Eager to please its major shareholders Maurel et Prom – the French oil group, and Mercuria, the Swiss-based commodities trading house – Seplat has been working hard to develop its current oil fields and acquire some of the other lucrative areas within the delta. Recently, Nigerian authorities have improved the company’s chances of dominating the local oil sector, as new laws have made it considerably harder for foreign firms to gain access to Nigerian resources.

Nigeria is the world’s 12th-largest oil producer, but major energy firms such as Shell, Total and Eni are retreating from the region by selling their Niger Delta oil fields. Despite oil in Nigeria being of a high quality and relatively easy to drill, widespread sabotage and oil theft, as well as a government drive to increase local ownership, has hampered the profitability of business for international players. Earlier this year, Shell said that it had lost around $1bn because of theft and other disruption to its Nigerian operations last year. Now Shell is actively looking for buyers to take over its oil fields.

Source: US Energy Information. Notes: 2013 figures
Source: US Energy Information. Notes: 2013 figures

The cash Seplat has raised in the IPO will put it in a stronger position to compete for the oil giants’ disposals because foreign companies must partner with Nigerian businesses to bid. The company is therefore considered one of the lead bidders for Shell’s Nigerian oilfields worth an estimated $2bn to $3bn, according to several media reports, and more fields could be available soon as other firms are leaving to concentrate on less problematic offshore operations.

Local oil boom
Seplat is not the only Nigerian firm to realise the potential for growth that lies in major corporations leaving the Niger Delta. Other local oil companies such as Oando and Shoreline Natural Resources have bought fields from the likes of Shell, ConocoPhilips and Chevron. The home- grown Nigerian oil industry has experienced dramatic growth over the past five years, buying assets worth $5bn. This has prompted industry analysts to suggest that other local Nigerian oil and gas companies are likely to seek a listing in established stock exchanges such as London and Johannesburg in the next year or two.

Despite this, Seplat’s founders are not positive that everyone will benefit from the Nigerian oil boom. There’s a reason why multinationals have dominated the local industry said Avuru at Ernst & Young’s World Entrepreneur of the year 2014 awards in Monte Carlo. “For 50 years the oil and gas industry in Nigeria was dominated by oil and gas multinationals. If it were that easy, it wouldn’t have been a 50-year dominance.

“In the past 20 years there have been several regulatory attempts to introduce indigenous participation. It didn’t work. It looks easy because we walked in, did a landmark transaction, led the way and raised half a billion dollars. It looks easy because we did it right. One of the most difficult industries to operate in is the oil and gas industry. Oil is an international commodity and you have no control over the price and you have to build a business that will survive in good times and in bad times,” the chief executive explained.

Nevertheless, Seplat’s successful listing is an indication that Nigeria’s policy of indigenisation of the oil sector might be working. The company, which is the first pure upstream player in the Nigerian Stock Exchange, sold its shares to over 300 institutional investors with Nigerian shareholders consisting of over 48 percent, and will have a combined free float of over 42 percent of its shares on the NSE and LSE. With the country’s first dual listing receiving such unprecedented interest from investors, analysts suggest that the Nigerian oil boom may only just be starting and as such, more local oil and gas companies are expected to list on the NSE.

“The Exchange made a commitment to facilitate durable wealth creation by listing and nurturing the next group of African champions. That is, companies with over $1bn in market capitalisation with operations across the continent,” said Oscar Onyema, CEO of the NSE, when speaking to the press during the Nigerian listing of Seplat. “We applaud the board and management of Seplat for their determination to be identified as a Nigerian success story. The listing of Seplat now creates a benchmark for others,” he said. It will be interesting to see whether other local resource firms will be able to follow Seplat’s strong capitalisation and enter the bidding war for key oil fields. At the moment, US oil giant Chevron is keen to divest assets in the Niger Delta, and Seplat is again considered a prime contender for what could be one of the most lucrative oil deals this year.

Ocean Bank goes from strength to strength in the retail banking sector

Posted on by Ashton Wenborn

According to the economists currently evaluating the potential of retail banks in Vietnam, this developing economy is undoubtedly attractive and prosperous, drawing the attention of a wide array of established banking institutions. To this end, the retail banking sector in Vietnam has witnessed fierce competition among commercial banks seeking to acquire greater customer numbers and an increased share of the market.

Because of today’s volatile climate, it is evident that banks are attempting to remodel themselves by improving and broadening their product-category, as well as diversifying their distribution channels in order to reinforce the change from traditional banking service provider to innovative, modern and friendly banking institution. Ocean Bank is typical in that it is rapidly adjusting its business practices to suit this aim, successfully adopting the international ‘4Ps model’: Product (outstanding products), Place (nationwide and efficient distribution channels); Process (simple processes) and People (professional, friendly, and dedicated human resources).

Ocean Bank believes that the best retail services and products are the simple ones – those which allow our customers to easily use them at low cost and with high efficiency. We hope that Ocean Bank is widely known as a simple bank that goes beyond the expectations of its customers, which is reflected in the 4Ps adjustment process.

Ocean Bank believes that the best retail services and products are the simple ones

Customers as the focus
In just a short amount of time, Ocean Bank has launched a series of rejuvenated retail products and services based on the real demands of our customers. There are now more than 10 products in the accumulative saving category, among which ‘Accumulated savings – Living in peace acceleration’, ‘Amortized Saving – Love for Children’, and ‘Flexible withdrawal of principal savings’ are considered the highlights; yet currently these options only account for 10 percent of the saving policies across the system.

The majority of our customers currently use the ‘Lộc Phát Tài’, and ‘Tỷ phú’ ATM cards, which allow customers to withdraw up to VND 1bn within the first 10 years, at no service charge from Ocean Bank, regardless of whether the customer is using an Ocean Bank ATM or a competitor’s.

The highlights among our credit card products are the ‘Credit Card VISA Food Lovers’, a product specifically targeted at food lovers, and the ‘Credit Card VISA Professors’, a specialised option for professors who have a master degree qualification or above.

Around the clock banking
Furthermore, Ocean Bank offers a wide range of personal loan products and services which are highly customised to meet the specific demands of our customer groups. Unsecured loan products that are exclusively designed for government officials and people in the military have been one of our leading lines so far, thanks to super-fast loan processing times and online tracking tools.

For a secured portfolio, our car, home improvement and mortgage loan products cover flexible borrowing options that not only allow our customers to get the right deal, but also help Ocean Bank become more and more competitive in the market. To this end, our internet banking system has also been developed using a high-technology platform, supporting our customers to make easy transactions. Our ‘Easy SMS Banking’ and ‘Easy Mobile Banking’ smartphone apps allow customers to manage their accounts twenty-four-seven.

Being the first Vietnamese bank to respond to new banking trends and the unpredictable fluctuations of the economic market, Ocean Bank has gradually strengthened its position in the retail banking sector. The long-term objective of the bank is to bring “better, easier and cheaper” experience to its customers, and is one we are pursuing with fervour.

Banca CIS on San Marino’s flourishing banking sector

Posted on by Ashton Wenborn

Bordered on all sides by Italy and dating its origins back to the 4thcentury AD, the parliamentary Republic of San Marino, with the help of some of the country’s leading names, is making waves in the international banking scene and bringing its unique brand of banking to all corners of the globe. Spearheaded by the country’s leading lenders, San Marino’s banking industry should be seen as equal to those in far larger and more developed countries in Europe and beyond.

Originally founded in 1980, Banca CIS – Credito Industriale Sammarinese (former CIS) is just one of the nation’s banks that has played an integral part in boosting the country’s international credentials and the wider restructuring process of San Marino’s financial services. Today, Banca CIS stands at the forefront of savings and investment landscape in San Marino.

The bank’s supervisory authority is the Central Bank of the Republic of San Marino (CBSM) and its anti money-laundering and terrorist financing body is the Financial Intelligence Agency (FIU). Both bodies ensure the bank’s practices are carried out in alignment with the most comprehensive international standards of compliance and transparency; the process, once completed, looks to align the country’s financial services industry with those in the principal international financial districts. With only seven banks in the country – down from 12 in 2007 – Banca CIS is the result of the merging and acquisition by a private bank, Banca Partner, of Credito Industriale Sammarinese in 2012 and the acquisition Euro Commercial Bank’s total assets in September 2013.

San Marino’s banking industry should be seen as equal to those in far larger and more developed countries in Europe and beyond

After the consolidation process was completed, Banca CIS’s total assets came to approximately €1bn and its reinforced organisational structure signalled the start of a new international development cycle in the bank’s life. On a much larger scale, however, consolidation among some of the country’s key firms has seen San Marino secure a place on the global banking stage and spread its influence beyond its borders. The recent enactment of the Foreign Account Tax Compliance Act (FATCA), the involvement of our Republic in negotiating and signing intergovernmental agreements, the opening of negotiations with the EU on the savings taxation directive, and the discussion of a possible association agreement are all good evidence of an international economic integration process.

Small state adopts globalisation
International integration has emerged as one of the single most defining characteristics of business in the 21st century, and San Marino, as has been the case with so many smaller nations, has set about following suit, focusing first on its financial services industry. In the last few years it has gained a greater degree of visibility by enforcing and being compliant with governance and regulatory international policies in accordance with the helpful suggestions given by international agencies, organisations or committees such as the IMF, OECD and MONEYVAL. By maintaining successful relationships with more than 100 countries, as well as an important network of double taxation agreements, Banca CIS is representative of the steps that have been taken to accommodate changes in today’s banking environment.

Considering the country’s size and relatively simplistic economic make up, globalisation has long seemed a distant concept for its inhabitants to grasp. And where once the global economy looked to San Marino for tourism and very little else, increasingly, businesses are passing through San Marino and beginning to grow curious of the small state’s economic and financial potential, in particular as a possible way to enter other European countries.

With a client base of 8,000 in a state of 32,000 inhabitants, Banca CIS’s retail department exercises a sizeable degree of influence in banking matters across San Marino and offers specialised services that are suitable even for those in emerging European, Asian and the Middle Eastern markets. San Marino’s trademark attention to hospitality has been translated into highly personalised asset management services, highly capable management, and fully-integrated consulting and family office services to match.

Banca CIS’s range of private banking products and services underscores the extent by which San Marino’s banking sector has developed as a whole. The country does not shy away from the world’s most complex challenges, and, as a result, wealthy clients looking for superior services are finding themselves attracted to San Marino’s culture of client dedication and responsibility.

Funding the future
San Marino’s banking climate boasts a number of distinct advantages over much of mainland Europe, namely a lower percentage rate of taxation on capital gains, as well as interests and financial instruments for both non-EU residents and local companies, meaning that margins are not squeezed to quite the same extent they otherwise would be.

Among the bank’s impressive achievements so far is that Banca CIS was the first company in the Republic to own an asset management company, Scudo Investimenti SG, which specialises in engineering and managing funds under Sammarinese Law. Scudo Inv. SG does not only produce standard funds, composed of shares and bonds, but combines a mix of instruments to meet the specific needs of any one single client or institution. These funds are subject to governance rules similar to those applied in most famous financial platforms; despite this their competitiveness in management costs is particularly high. The company also engineers private label funds for other asset managers and financial institutions.

Banca CIS’s innovative fund strategy also plays a decisive role in the development of new products, which has been instrumental in the bank’s rise to the top of San Marino’s financial services industry. Some years ago, Scudo Investimenti SG created the Scudo Arte Fund, a fund which invests in modern and contemporary art, in particular in Italian painters through 1900-1990, representing a period of modern art that is appreciated internationally and one that has performed particularly well in global markets.

In order to meet its ambitious objectives, Banca CIS is establishing partnerships with firms in other small states in Europe and entering into strategic alliances with other business operators or financial advisors located in the new emerging countries. The bank has begun considering the  strengths and weaknesses of other consolidated financial industries all over the world and is developing a recruitment process aimed at finding international professionals. In line this new international approach, Banca CIS has recently started up a new asset management company in Monte Carlo, EFG & Partners Eurofinancière d’investissements, in a joint venture with EFG Bank (Monaco) to better develop asset and wealth management activities for top international clients.

So as to better understand these countries, and decipher the various ways in which there might be a cultural clash of sorts, Banca CIS has taken pains to interpret the market and the ways in which it might be able – or unable – to adapt in a new competitive context and for international customer needs. All things considered, Banca CIS’s speed and flexibility in adapting to perpetual market changes is unmatched, especially when considering it only has a staff of 90.

Technically and geographically gifted
Aside from the steps taken by Banca CIS to better financial services in San Marino, the country’s business landscape as a whole has gravitated towards highly personalised services, with the government having recently introduced new fiscal policies to incentivise new firms and investors looking to bring operations to the territory. What’s more, the development of the university and technology park looks capable of accommodating for a more challenging social and cultural environment, particularly for young and technologically savvy workers.

The changing complexion of San Marino’s banking system is underpinned, as with many other industries, by technology. The introduction of new high-tech enterprises to the country has brought with it a distinctly international perspective, and should aid in better integrating the small but smart society in the ever-evolving global economy.

Another facet that serves to favour San Marino is the country’s geographical positioning and opportunities outside of banking. Located only 20km from the international airport in Rimini and 100km from Bologna, with a high-speed railway network capable of reaching Milan and Rome within approximately two hours, the country boasts impressive transport links to key European cities. What’s more, the easy availability of residential and industrial buildings throughout San Marino, combined with the high standard of education and hospitality, makes the country an ideal destination for many reasons.

With globalisation in full swing, a number of smaller – though no less dynamic – countries are now beginning to discover what benefits they can offer to their far larger counterparts. Increasingly, developed and developing markets alike are looking to the Republic of San Marino to explore what economic and social opportunities are emerging there.

Puente’s expertise helps investors navigate Argentina

Posted on by Ashton Wenborn

In the last few years, Argentina’s headlines have been split between short-term challenges and medium-term opportunities. The short-term challenges have been dominated by macroeconomic imbalances and legal challenges from holdouts following 2001’s default. But despite those challenges, worldwide investors are looking for an entry point to capture medium-term opportunities. Puente has prepared itself for that point, enlarging and strengthening a structure that has the capacity and expertise to support and accompany investors’ demands.

Puente has been a pioneer in the intermediation of financial opportunities for both the public and the private sector

Argentina’s opportunities arise from the existence of high shale resources, a low level of public debt, and an unleveraged private sector in a country where investment as a share of aggregate demand has lagged in the last decade. As the leading regional investment bank, Puente has been a pioneer in the intermediation of financial opportunities for both the public and the private sector, with the most important corporations and sub-government entities in the country entrusting our business.

Puente’s expertise has let clients exploit these medium-term investment opportunities through a combination of well-designed strategies and best-in-class professionals who are trained to exceed expectations. Amid a challenging and volatile environment, Puente has made solid investment recommendations on fixed-income, equity, and exotic derivatives – such as GDP-Warrants – and has been one step ahead of its competitors in the region when providing advice. With more than $1.4bn in AUM and an annual trading volume of $10bn, the company has leveraged on local expertise and high technical skills to provide clients with strategies which allow them to profit by optimising their use of time and mitigating risk.

Vaca Muerta: a game changer
The game changer for Argentina’s medium-term prospects is Vaca Muerta, an oil and gas reservoir with the second-most extensive shale gas resources and the fourth-largest shale oil resources in the world, putting the country at the higher end of the league table for recoverable resources (see Fig. 1 and 2).

Since 2008, Argentina’s energy trade balance has turned negative, becoming a burden to external accounts. Vaca Muerta has the potential to turn the balance upside down by making the country a net exporter of both natural gas and oil in the next decade, reducing balance of payments risks. Along the way, Vaca Muerta’s potential could attract an average $25bn per year of inflows, boosting growth and domestic demand.

The investment required to fully exploit the energy potential is bound to spill over to other sectors, such as steel and transportation, creating opportunities for an array of companies. These opportunities will be particularly permeable in a low-leverage environment, for both the private and the public sector, which should naturally be accompanied by an increase in financial services and capital markets’ demand from these entities. Puente is ready to step in wherever it can create value, and has gained itself a solid reputation in the business for understanding where the demand is, making Argentina’s upside a one of a kind growth opportunity for Puente as well.

A burgeoning private sector
The government has followed markedly expansive fiscal and monetary policies in the last decade, mostly oriented towards boosting consumption and reducing income inequality. However, these policies have dramatically reduced investment rates, which have remained around 15 percent in the last decade. Domestic savings have been below international averages, and foreign inflows have been scarce, dragged by macroeconomic imbalances and legal risks around Argentina’s debt litigation case.

Argentina’s corporate sector has experienced a steady decline in leverage along higher corporate profits despite high costs of borrowing abroad, in a context of high sovereign yields. The ratio of corporate debt as a fraction of GDP has gone from 45 percent in 2003 to 24.4 perecent by 2013, half the average of Latam peers. The reduction in leverage has left the corporate sector in a favourable position to exploit an eventual reduction in sovereign yields, raising expectations for the near future of this sector’s demand for financial intermediation services. The ability to provide strategic advice, make markets, and guarantee liquidity provision and safety custody will be the determinants to fulfill the required role of financial services provider.

In the public sector, the restructuring of debt following the 2001 default drastically reduced the debt burden. After a high-growth period, the economy ended 2013 with a public debt ratio of around 45 percent, with less than a third of it owed to the private sector. In a country with infrastructure bottlenecks and growing development, the range of opportunities to boost productivity and growth will go from the construction of highways to energy projects. In this context, financial intermediation is bound to have a fundamental role by channeling both external and domestic savings into productive investment projects.

Source: EIA
Source: EIA

At Puente, we understand that the public sector requires a perfect blend of trustworthiness, efficiency, and expertise, which, having developed ourselves a reputation for serving accordingly, places us in a key role.

A sub-sovereign bookrunner
Argentine provinces have been issuing debt in the last few years to finance infrastructure projects, and Puente has collaborated with them to this aim. Puente has been the main placer of sub-sovereign debt in the domestic markets, accounting for 75 percent of the market share ($1854m) in the period 2012-13.

Puente has participated in issuances of the City of Buenos Aires, the Province of Buenos Aires, Cordoba, Chubut, Entre Ríos, Mendoza, Chaco and Neuquen, among others. Funds were used for large-scale projects that have markedly changed the economic potential of the regions, such as the Metrobus in the City of Buenos Aires, an alternative public transport solution to urban traffic, a plant for treating urban solid waste in the City, and investments to increase the transmission and distribution of electricity in Chaco.

Puente has also participated in the issuance of corporate debt, which has allowed for revenue smoothing and the financing of productive projects, some of them related to the energy sector. Some of the biggest companies in the country have trusted Puente for their debt issuances, such as YPF, Petrolera Pampa, IRSA, TGLT, Grupo Roggio, and Cresud, among others.

Staying one step ahead
Argentina’s medium-term potential will require financial intermediation to be fruitful, and that is where Puente’s expertise and its value-adding business model steps in. Puente has accompanied clients on plain-vanilla public and corporate issuances, public-private partnerships (PPP), and solid investment strategies, delivering tailormade financial solutions. The company has also launched an infrastructure division to accompany cities and states in developing infrastructure projects, making evident our contribution to economic development in the region.

In the last few months, the country has gone through a challenging macroeconomic and legal transition. On the macroeconomic side, the expansive policies of the last few years have led to imbalances that triggered exchange rate devaluation and an interest rate hike in early-2014. On the legal side, the country lost its long-standing battle with holdout creditors from the 2001 debt exchange, introducing uncertainty among investors. Those risks have increased yields and volatility, but have also left some low-hanging fruit for well-informed investment strategies. Our strategy and sales teams work daily to detect those opportunities.

Source: EIA
Source: EIA

Along the bumpy road of short-term risks, Puente has developed strategies that have beaten emerging market returns, enhanced by accurate market timing and a precise evaluation of risks. Puente’s strategies have been grounded on solid economic analysis, looking at both short-term volatility and medium-term opportunities, and its enrooted understanding of the markets of the region. Its strategy team has covered a comprehensive array of asset allocations, with a main focus on sovereign and provincial debt issuances, both domestic and external, but has also analysed corporate credits, equity, and exotic derivatives, such as GDP-Warrants. Our recommendations have stood ahead of our competitors, providing our clients a one-of-a-kind quality service.

A partner for life
With plenty of investment opportunities on the horizon, Puente is now extending its activities toward public-private partnership (PPP) projects and infrastructure. With our interest in creating value and contributing to economic development, a new infrastructure division has been created to assist cities and states in developing projects from scratch, with the company already becoming actively involved in assisting clients in PPP projects in both Argentina and Uruguay.

Puente’s value resides in its unique ability to understand the idiosyncrasies of local Latin American markets, providing sound investment strategies and exploiting opportunities in a challenging environment. It is also steadily committed to putting its clients’ interests first, creating solid relationships that are long lasting.

As Argentina’s medium-term potential expands, Puente’s horizons in the region follow suit, making its reputation for top tier service provision and professional quality its most valuable asset.

Pacific Alliance offers rich investment opportunities, says Scotiabank

Posted on by Ashton Wenborn

Business leaders may be excused if they failed to ‘go global’ in recent years, or they appeared hesitant to increase their cross-border trade push. As economic optimism goes back and forth between developed and developing markets – including recently dampened enthusiasm for BRIC nations – it’s little wonder that some companies are less confident about international trade potential, particularly with emerging markets. With such uncertainty, it might be tempting to sequester your business within safe and familiar home markets.

While I understand business reticence about wading into new overseas risk, our experience as a Canadian-based international bank demonstrates that considerable success can be attained on the international stage. However, it takes a disciplined and very focused approach to chart the right cross-border course.

During a keynote address at Toronto’s National Club, Brian Porter, Scotiabank’s President and CEO, noted that, “Continued international growth is an important part of our strategy. In fact, many people don’t realise that, although we are a Canadian-headquartered bank, we have almost twice as many branches outside Canada as within, 50,000 of our 83,000 employees are located outside Canada, and about half of our earnings are generated internationally.”

While we see attractive growth opportunities across the bank, many of them relate to the Pacific Alliance, since we recognise that not all emerging markets are equal. With this mindset, we are focused on deploying our shareholder capital accordingly.

Success from precise focus
Our rationale for concentrating more of our international business within Latin America – specifically among the Pacific Alliance countries of Peru, Colombia, Mexico and Chile – is based on a careful, strategic review of the region. We encourage our own clients to perform this same kind of critical assessment of international markets in preparation for their own overseas ventures.

Taken together, the Pacific Alliance bloc forms the world’s sixth largest economy – when measured by purchasing power parity – and is the seventh largest exporter

Individually each of the Pacific Alliance countries has attractive economic fundamentals and growth prospects (see Fig. 1). Mexico has size, with a GDP of $1.2trn, exports of $371bn and a population of 112 million. Peru has a strong fiscal position. Its sovereign debt to GDP ratio is 16 percent, and its foreign exchange reserves have grown to $66bn. Peru and Colombia are also sizable markets with GDP of more than $200bn and $360bn respectively. Finally, Chile has a proven track record of economic growth and a $270bn dollar economy.

Taken together, the Pacific Alliance bloc forms the world’s sixth largest economy – when measured by purchasing power parity – and is the seventh largest exporter. Within Latin America, the Alliance has 208m people, and accounts for almost 40 per cent of GDP of the region, and 50 per cent of trade. Historically, some trade blocs and alliances in Latin America have taken a defensive and protectionist stance. By contrast, the strategic purpose of the Pacific Alliance is to fully leverage opportunities for increased global trade. Members of the Pacific Alliance are committed to high levels of trade liberalisation. They already have bilateral agreements with one another and they each have trade agreements with major partners such as the US, the EU, Canada and a number of Asian countries.

Many positive steps have reinforced the strength of this four-country alliance. The integration of their stock exchanges and the development of deeper capital markets and stronger central banks have resulted in a more efficient and effective economic system, which is translating into greater investor confidence. The members of the Pacific Alliance have also undergone important structural and legal reforms, which represent the general shift to a more open, free-market approach. These changes have transformed the Pacific Alliance into a very attractive place to do business.

In light of these factors, Scotiabank’s customers have an increasing commercial interest in the region, with many companies already active there, or contemplating how they can grow their business within the Pacific Alliance bloc. As a customer-centric organisation, we respond to the needs of our customers by building our network, expertise and capabilities within this high-potential market.

Focus on LatAm leaders
We have looked beyond broad investor enthusiasm for Latin America and are focusing our own strategy within those specific Pacific Alliance nations that stand above the crowd. For example, Alliance members have average GDP growth forecasts of 3.8 percent in 2014 and roughly the same in 2015. By contrast, GDP growth in Argentina, Brazil, Paraguay, Uruguay and Venezuela is expected to average just 1.5 percent this year and next.

To put a sharper point on this difference, Pacific Alliance countries are growing twice as fast as their neighbours. Even the Brazilian economy is forecasted to grow relatively modestly this year and next. As further evidence of this stability, Peru, Colombia, Mexico and Chile all have investment grade sovereign debt ratings. Brazil is the only other Latin American country with such a rating.

Source: International Monetary Fund. Notes: Figures post-2013 are IMF estimates
Source: International Monetary Fund. Notes: Figures post-2013 are IMF estimates

So our underlying message could be, ‘dig deep before you dive in,’ since not all markets are created equal, nor are all countries within a single region cut from the same cloth. While investor sentiment can shift quickly – sometimes causing them to treat emerging markets as a single asset class – it is important not to paint all countries with the same brush, whether the tone be bullish or bearish.

For Scotiabank, the economic, social, demographic and political facts have illuminated our path towards the Pacific Alliance nations. They may hold promise for other sectors too, since the factors that attract international banks like Scotiabank also create access to credit and other financial services that form the lifeblood of business and trade.

This snapshot of Scotiabank’s own international market strategy offers some useful insights for any organisation considering overseas expansion. First, regardless of solid, high promise numbers resonating from any market, it is critical to understand that investing in emerging markets is not without its risks. As a bank that has been immersed in overseas trade since 1832, we have learned that lesson first hand. We can say with certainty that any company doing business in an emerging economy should have a sound and comprehensive strategy for managing risk.

Upon review of Scotiabank’s own international playbook, there are a number of recommendations that are relevant to any company pondering a greater cross-border presence. They are:

  • Develop a deep understanding of – and respect for – cultural and historical nuances in each country;
  • Seek out trusted partners with local expertise and engage with the full range of stakeholders;
  • Put in place a strong risk management framework and develop an understanding of the local judicial system;
  • Ensure strong leadership by putting your best talent in place;
  • Enforce the highest standards of business ethics and conduct;
  • Make sure your control functions are effectively governed by mirroring corporate standards and regulatory requirements that are local and those that span across regions;
  • Finally, don’t invest everything in one country – diversify your exposure.

Managing risk
The bottom line is that companies must ensure they are being adequately compensated for the incremental risk that comes with emerging markets exposure. At Scotiabank, our long history of operating internationally, together with our disciplined approach to risk management, has provided us with the confidence to continue investing beyond our home borders. 

Speaking for our clients, including those who depend on the cross-border services of our Global Transaction Banking group, they would certainly emphasise the importance of seeking trusted partners with local expertise. That is how we deliver value to our customers, whether they are transacting within the Americas, Europe, Central or Southeast Asia.

Without a doubt, there is vast divergence in the economic prospects, monetary and fiscal policy, and social issues among the emerging markets. Each country is at a unique point in its economic development, political evolution and regulatory maturity. In light of this reality, success depends on realising that not all markets are equal, and it takes a critical eye, a carefully crafted strategy, and dedicated partners to reap the rewards of going global in uncertain times.

Sharjah is striking a chord with investors, says Shurooq

Posted on by Ashton Wenborn

The third-largest of the seven emirates that comprise the UAE, Sharjah has been pulling out all the stops to transform itself into a world-class investment hub, and its efforts have not gone unnoticed. In January of this year, Standard & Poor’s rated its long- and short-term foreign and local currency sovereign credit services A/A-1, with a stable outlook, and in the same month Moody’s assigned a first-time local and foreign-currency rating of A3 to the Government of Sharjah, also with a stable outlook. In statements released in support of their ratings decisions, both S&P and Moody’s pointed to the robust state of the government’s finances, with limited fiscal risks and low government debt, a comparatively wealthy and diverse economy, and the likelihood of support from the UAE should the need arise.

So what is it about Sharjah that is making international investors sit up and take notice? First of all the emirate has some very attractive fundamentals in place. There are no taxes, 100 percent repatriation of profits, a stable economy, and excellent infrastructure.

Sharjah’s economy is also well diversified, being the only one in the Middle East region with no single sector contributing more than 20 percent of GDP (see Fig. 1). It has the third-fastest-growing economy in the UAE, and has already attracted almost a quarter of the country’s business establishments. Sharjah is also the third-largest emirate by contribution to the UAE’s GDP and the third largest in size and population. When you add to this the relatively low cost of doing business in Sharjah – thanks to lower living costs and a well-stocked human resources pool – it becomes clear that Sharjah offers a stable investment environment that helps investors compete at a global level (see Fig. 2).

Source: Shurooq
Source: Shurooq

Attracting investment
What makes Sharjah truly noteworthy, however, is what the emirate is doing to leverage these fundamentals to attract foreign direct investment (FDI). With an eye on maximising FDI, Sharjah has identified four key growth sectors – travel and leisure, transport and logistics, health, and environmental services – and is aggressively working to attract investment in each.

Why are these specific sectors so important? When considering Sharjah’s travel and leisure sector, the first factor that must be mentioned is that it is, as always, all about location, location, location. The UAE’s geographical location makes it easily accessible to numerous markets, both from the East and West, and Sharjah is strategically placed right at the UAE’s heart. Sharjah’s major tourism areas are under 20 minutes’ travel from either Sharjah International Airport or Dubai International Airport. Sharjah is also the only GCC hub with direct access to both the Arabian Gulf and Indian Ocean. This means that thanks to its excellent air connectivity, along with Port Khalid on the Gulf and Port Khorfakkan on the Indian Ocean, Sharjah offers a gateway to 160 countries.

Last year, Sharjah welcomed more than 1.9 million tourists, a number which is expected to grow significantly this year in light of the large scale celebrations – which include over a thousand international cultural, tourism, and entertainment events – planned to mark Sharjah’s year as Islamic Culture Capital for 2014. The continuing demand for different experiences, the growing expatriate population, government investment and rising disposable income in Sharjah is also creating new opportunities in the travel and leisure sector, with market potential expected to reach AED 1.49bn by 2016.

Capitalising on this growth, the Government of Sharjah is proactively working to initiate tourism and leisure projects and to open pathways to attract foreign investors. It is a drive that is being spearheaded by the Sharjah Investment and Development Authority (Shurooq). According to HE Marwan bin Jassim Al Sarkal, CEO of Shurooq, which was established in 2009 to encourage investment in Sharjah by providing facilities and incentives to help overcome obstacles facing investment activities in the emirate, this targeted approach is at the core of the upsurge in foreign investment that Sharjah has seen recently. “We understood from the get-go that if we wished to succeed and truly develop Sharjah to its full potential, we needed a clear and systematic approach,” he said. “Which is why one of the first things we did as an entity was to engage in an in-depth study of where Sharjah’s strengths lie. We then used the findings of that study, which clearly identified the four key sectors, to plan and develop a number of projects that would accelerate each sector’s growth further.”

The heart of Sharjah
Among the projects currently under development by Shurooq is the Heart of Sharjah, a five phase, 15-year historical restoration project that aims to restore and revamp the traditional heritage areas of Sharjah to create a tourist and trade destination with contemporary artistic touches that retains the feel of 1950s Sharjah. The Heart of Sharjah will also include the AED 100m Al Bait Hotel, the region’s first-ever traditional Emirati hotel, which is set for completion next year. These projects are in addition to the three leisure projects in the city of Sharjah that are already in play: Al Qasba, the Al Majaz Waterfront, and the recently opened and redeveloped Al Montazah Amusement and Water Park.

Shurooq has also taken care to ensure that its projects revitalise more than just the emirate’s urban areas. On Sharjah’s east coast, work is well underway on Al Jabal Resort, The Chedi Khorfakkan, which has been inspired by the region’s traditional architecture and way of life, and which promises to become the ultimate luxury destination in the Emirates. The emirate’s central region hasn’t been overlooked either. The development of Al Hisn Island in Dibba Al Hisn is now in the planning, design and layout phase and will, when completed, offer a large water canal, restaurants, cafes and cinemas with stunning views of the canal, as well as parks, children’s play areas and various other amenities.

Ecotourism plays a significant role. Kalba Ecotourism – the largest project of its kind in the UAE – is in its first phase. In this phase, the focus is on the redevelopment of the natural reserves at Kalba and the restoration of important archaeological sites. In its second phase, the project will develop Kalba Lake, and the final phase will see the construction of a number of new hotels and chalets, including a luxury five-star resort overlooking the Gulf of Oman, as well as a state-of-the-art activities centre – all of which will be built to eco-friendly standards.

Source: Shurooq. Notes: 2014 figure is a projection
Source: Shurooq. Notes: 2014 figure is a projection

As ambitious as that project might sound, it is soon to be overshadowed by the development of Sir Bu Nuair Island. At a cost of half a billion Emirati dirhams and set to be completed in 2017, the island will host a luxury five-star hotel and resort, hotel apartments and villas, a camping village, an amphitheatre, a museum, a mosque, an education centre, a harbour, an airport, and a number of other retail and leisure offerings. The island is of special ecological importance as it supports a high biodiversity of rare species and plants, resulting in it being registered on the list of Wetlands of International Importance under the Ramsar Convention in December of last year – one of five sites in the UAE on the list.

Access to growth
Sharjah’s transport and logistics sector is another where the UAE’s location, coupled with its excellent infrastructure and well-priced labour, makes for highly profitable investment opportunities. In the case of Sharjah specifically, its access to ports in both the Gulf and the Indian ocean, its highly successful and efficient free zones, namely the Hamriyah Free Zone and the Sharjah Airport International Free Zone, as well as its central location within the UAE – it is the only emirate to share borders with all six of the other emirates – have resulted in a fast-growing sector with a market potential expected to reach AED 6.24bn by 2016.

The UAE has also been making a name for itself as a healthcare hub in the region. Sharjah’s healthcare sector is expected to grow significantly in coming years, powered by the increased demand for specialised services that has prompted the creation of several state-of-the art medical facilities, most notably Sharjah Healthcare City. The industry is expected to grow by 9.3 percent, from AED 4.59bn this year to AED 6.55bn in 2016, which will provide numerous openings for foreign investors to enter this burgeoning market and invest in solid projects that offer excellent exit possibilities.

The ‘Green Emirate’
The UAE enjoys sunny weather all year long, making it an ideal platform for sustainable and renewable energy enterprises. Sharjah is already home to the largest waste management and treatment company in the region, Bee’ah, which is well on the way to reaching its target of a zero waste-to-landfill ratio by 2015.

This makes Sharjah an ideal market for environmental technology and equipment, in addition to innovation in green technology. Through continued collaborations with all concerned sectors, Sharjah is working to attract and establish sustainable projects that do not cause harm to the environment and ultimately establish Sharjah as the ‘Green Emirate’.

With these types of initiatives, projects, and organisations in place, it’s easy to see why Sharjah is seen as a highly tempting investment destination. Not only is there a great deal for prospective investors to choose from, but there is also ample support from the Government of Sharjah and other entities to facilitate investment.

Bank of Korea cuts interest rate as part of its measures to boost GDP

Posted on by Ashton Wenborn

In keeping with what many analysts predicted, the Bank of Korea (BoK) has cut its key lending rate in a bid to revive domestic growth and better consumer sentiment. The decision, which marks the first cut in 15 months, will see the rate reduced to 2.25 from 2.5 percent, and follows a string of measures designed to lift the country’s GDP.

“In the domestic financial markets, after having risen substantially owing chiefly to the government’s announcement of economic policies, stock prices have fallen back somewhat due for example to geopolitical risks. The Korean won has depreciated under the influence of the US dollar’s strength globally, and long-term market interest rates have fallen,” wrote the BoK in a statement.

Some argue…that the bank’s rate cut has come too soon after the government’s stimulus package

The cut is the largest of its kind since November 2010 and comes less than a month after the government unveiled a $40bn stimulus package to aid SMEs and offset rising unemployment. After quarterly GDP growth slowed to 3.6 percent in the second quarter after 3.9 percent in the first, and the annual growth forecast was revised from four to 3.8 percent by the BoK, the country’s policymakers are hoping the measures add a much needed dose of momentum in the second half of the year.

“In Korea, exports have maintained their buoyancy but the Committee judges that improvements in domestic demand, which had contracted due mainly to the impacts of the Sewol ferry accident, have been insufficient, and that the consumption and investment sentiments of economic agents also continue to show sluggishness,” according to the BoK.

Domestic demand has been sluggish since the Sewol ferry tragedy in April, which cost 304 lives, and policymakers have since rallied to boost consumer sentiment and, therefore, spending. Some argue, however, that the bank’s rate cut has come too soon after the government’s stimulus package, and that not enough time has been given before the central bank has proceeded to pile on additional measures.

Europe’s recovery on hold as conflict ensues

Posted on by Ashton Wenborn

The euro area recovery has stalled after its three biggest economies saw reported low or no growth in the second quarter, as investors continue to pull out of Europe and the deepening crisis in Ukraine casts a shadow on the region’s markets.

In a surprising report from the German statistics agency, Destatis, GDP shrank 0.2 percent, more than economists forecast, after a negative balance of imports and exports, and a significant drop in construction sent growth reeling. Adding to this, foreign trade and investment was also weak.

The slowdown in Europe’s growth engine follows a strong first quarter where a mild winter had pushed production back to earlier in the year and caused the economy to grow 0.7 percent. Similarly, data from the French national statistics bureau Insee showed that the country’s economy stagnated during the second quarter of this year after stalling in the first.

30 percent of global investors said that the 12-month profit outlook is worse in Europe than in any other region

Consequently, French Finance Minister Michel Sapin said he now expects full-year growth of 0.5 percent instead of the one percent announced previously and that the government would have to scrap this year’s deficit target of four percent of economic output agreed with the European Commission. Combined with Italy’s unexpected slide into recession, pressure is mounting on the European Central Bank to expand stimulus and combat Europe’s crippling inflation, which has reached the lowest point since 2009, at 0.4 percent.

With the Crimean-crisis clouding outlook for the coming months, Europe’s status as the world’s market darling for much of 2014 largely evaporated, with more investors currently underweight European equities as sentiment on the region continues to drop, according to the BofA Merrill Lynch Fund Manager Survey.

30 percent of global investors said that the 12-month profit outlook is worse in Europe than in any other region, with sentiment falling a staggering 24 percent since July.

“We see further de-risking to come in Europe. Negativity in this month’s survey towards Europe reflects growing softness in economic data from both the core and periphery of the region,” said Manish Kabra, European equity and quantitative strategist.

The poor economic data is an indication that Europe’s economy is still very sensitive to current political unrest and that the recovery seen earlier this year has been more fragile than expected. ECB President Mario Draghi has called for countries to implement structural reforms, arguing that nations that have done so are recovering faster. Notably, Spain’s economy expanded last quarter by 0.6 percent, resulting in the highest growth since 2007 and Greece’s economy contracted at its slowest pace in almost six years.

To this end, the ECB announced an unprecedented package of stimulus measures in June, including a negative deposit rate and targeted loans for banks, but it remains to be seen whether this will be too little too late to boost the weak European economy.