Brazil has been facing an enduring drought over the past quarter adding pressure to an already strained market. Surpluses over the past three years have caused prices to drop to record lows, fuelling an increasing in demand that the industry is unlikely to meet.
Though the drought in Brazil led to a brief spike in prices, complicated market conditions in the biggest exporter in the world have since caused prices to recede. High inflation in the country, as well as mounting costs for already indebted mills, have forced sugar and ethanol producers to sell stocks at below production costs.
[C]omplicated market conditions in the biggest exporter in the world have since caused prices
to recede
Brazil accounts for close to 60 percent of global sugar trade flows, and over 20 percent of the world’s supply. Over the past five years the market has become overrun with new entrants who built modern mills capable of producing both sugar and ethanol from cane.
“Following much investment into greenfields and expansion during the middle 2000s, the Brazilian sugar industry became highly indebted and vulnerable to the 2008 financial crisis,” explains James Cassidy, Head of the Sugar Desk, Newedge. “As a result, there were sharp reductions in field investment and replanting. Subsequently, there were periods of adverse weather that caused further losses in 2009 and 10. This reduced revenues and efficiencies. At the same time, rising ethanol production costs matched poorly with gas prices that were contained by government mandates. This made hydrous ethanol at the pumps uncompetitive with low priced gas.”
Since 2010, however, when a severe drought ravaged sugar cane crops, the industry has struggled to replicate low production costs. The Brazilian government, once biofuel enthusiast, has also taken the worrying step of capping fuel prices. This has left Brazilian producers at a heavy disadvantage, as producers in most other countries count on heavy government subsidies. “It is widely thought that the Brazilian government has been much more interested in re-election and preventing inflation than the consequences of hurting both Petrobras and the sugar and ethanol industry with capped gas prices,” says Cassidy.
The Brazilian producers’ exposure to the elements and market fluctuations has forced them to sell off stocks even as prices plummeted, which other producers have not had to do. As a result it can cost between $0.20 and $0.24 per pound to produce sugar in Brazil, while it is unlikely that prices will rise beyond the current $0.18 to $0.19 per pound price range.
While rising demand for biofuels could have bolstered demand for in the Brazilian industry, the government fuel cap has led to the closure of several mills instead, according to Cassidy over 50 mills have closed since 2007. Now, powerful conglomerates like Oderbrecht, who themselves have closed mills, are demanding a reversal in government policy. However, the process is likely to be long and complicated, leaving growers and producers in the lurch.
The hunt for tax evaders and money launderers has never been as far-reaching as it is now. Regulators, particularly those in the US, are cracking down on banking secrecy and tax haven practices in order to bring millions of untaxed dollars home. In the wake of the financial crisis, the practice of increased transparency has quickly come to be seen as a good thing, while the concept of keeping financial transactions private and secret is becoming more taboo. Concerns have largely been based on criminals and tax evaders taking advantage of, for example, Swiss banking laws, in order to keep illicit activity under wraps.
“When it comes to tax, yes there have been a lot of changes to laws and privacy over the past two to three years as we are moving towards more transparency. However, when it comes to the privacy of banking assets, these laws still exist. It’s important that they do, so clients who need privacy can still benefit,” says Sindy Schmiegel, spokesperson for the Swiss Bankers Association (SBA), which has played a key role in the ongoing debate on Swiss banking privacy and whether or not these laws should be changed to increase transparency.
The 1934 Federal Act on Banks and Savings Banks was implemented in Switzerland in order to protect individuals from the state at a time when large parts of Europe were occupied. As a result, the banking secrecy laws do not hide assets, but rather protect them and the individuals who own them.
As such, ‘safe havens’ and banking privacy are not something exclusively enjoyed by those on the wrong side of the law. For the wealthy in frontier markets, banking secrecy could, in extreme circumstances, prove to be the difference between life and death. On an everyday level, the ability to keep money in safe havens or places otherwise protected by banking secrecy seriously reduces risk for those high- and ultra-high-net-worth individuals (HNWI), who have to deal with corruption and crime on a daily basis.
Secrecy necessary for new wealth
This is becoming increasingly apparent as wealth in frontier markets such as Africa continues to grow. Since 2000 alone, countries such as Nigeria, Zambia, Namibia, Angola and Ethiopia have seen an explosive growth in millionaires as wealth per capita has tripled and even quadrupled in some instances. The 2013 World Wealth Report by RBC Wealth Management and Capgemini revealed that Africa had a total of 140,000 HNWIs ($1m-plus investable assets), with a combined wealth of $1.3trn. Perhaps more significantly, its growth rate in the number of such millionaires – 9.9 percent – was faster than the global growth pace of 9.2 percent.
Although Africa boasts innovative banking initiatives, with mobile banking in particular enjoying a growing following, many locals remain unbanked. In part, this is down to the lack of economic development on the continent until recently. However, it is also due to the lack of a financial infrastructure and issues concerning crime and corruption. With wealth management becoming a growing phenomenon in the region, firms have uncovered a key trend: Africa’s wealthy not only want banking privacy, they need it.
James Bennett is the Director and one of the founders of Aston Wealth Management, a firm servicing private clients across frontier markets in Africa and Asia, with the majority of its business being conducted in Nigeria. He argues that trust issues are a key challenge for anyone wanting to do business in Africa, and as such, safe havens and banking secrecy are a necessity.
Source: Tax Justice Network
“It is just the nature of life in Africa, unfortunately,” he says. “They like to keep information very secure before they give it to you, because naturally, if the nature of this information is known in the local environment it puts them at risk. Privacy is what counts above anything else for African HNWIs.” As such, the firm reiterates that its Swiss registration was not a random choice, but rather a necessary one in order to put clients at ease that this particular firm is keeping its money and details safe.
“Discretion is key. They have to be able to trust you, they want to able to see that you’re a transparent company, transparent fees, transparent operations, they want to be able to see exactly who they’re talking to. Hence the Swiss regulation – because it gives everyone that nice, warm, fuzzy feeling,” adds Bennett.
The risks of being rich
Being rich in a developing country can put you at risk. In Sierra Leone, where the amount of millionaires is expected to grow by more than 400 percent in the coming years – according to New World Wealth, a consultancy providing data on the Asian and African wealth sectors – corruption is also rampant. Kidnapping and personal threats are common occurrences and what’s more, there’s no financial infrastructure in place to service the wealth generated from the 20 percent growth Sierra Leone enjoyed in 2012 alone.
“Political instability and fewer regulations in place in most of these markets can create a need for safe havens outside of the country,” says Bennett of the need for maintaining banking secrecy now that African wealth is booming. “Local protection on deposits is not as clear-cut as in many offshore locations and exchange rate controls can make liquidity for speedy exporting of funds complicated,” he adds, noting that increased regulatory focus on the matter is making it harder for African HNWIs to secure their money in financial safe havens such as Switzerland, Mauritius and the British Virgin Islands – to name a few.
“There is a demand among the ultra HNWI crowd for secure overseas locations, but compliance processes can put off a lot of potential clients for no other reason than a perceived level of institutional discrimination,” he explains.
Banking privacy under threat
Nevertheless, regulation has been encircling banking privacy for the past few years, bringing into question national laws and rules that otherwise protect client assets in the name of fighting tax evasion and financial crime. The key move in this respect was the Swiss Government stating in October 2013 that it intended to sign an OECD agreement that, if ratified by its parliament, will align Swiss bank practices with those of many other countries, thereby putting an end to 80 years of Swiss banking secrecy.
Now, industry figures are noting that the removal of such client protection might not be entirely unproblematic. “It’s important to distinguish between bank secrecy laws regarding taxes and those which protect clients’ assets,” says Schmiegel. “There should be a certain level of discretion when it comes to client data. There are areas in the world were it is important to keep such assets safe from other persons,” she argues, pointing out that regulators can only take the probe into banking secrecy so far.
Privacy has a purpose
“Even more concerning is the suggestion that banking secrecy does not serve any other purposes than those of criminal intent,” says Bennett. “If an individual has paid the required level of tax, do they not have the right to store their assets as they see fit? For regulators to allege such things is, I feel, an infringement on the rights of private citizens to cater for their own family and circumstances. Many wealthy individuals in Africa invest in Europe and as such need European banking facilities in place to ensure quick and smooth service provisions. Keeping these assets offshore allows this, along with peace of mind and clear legal infrastructures,” he explains.
The Swiss banking act was created to protect money from the warring parties in Europe post-WWI. Now, that war is long gone in Europe; however, security issues related to personal persecution and corruption still exist beyond Europe’s borders. Bennett suggests that with wealth in frontier markets set to boom as foreign direct investment continues to further economic development in this part of the world, it is not without issue that regulators are cracking down on banking privacy. “Regulators need to understand that offshore banking serves many benign purposes and is an important part of estate planning for HNWIs the world over,” he says.
That said, the past years’ regulation for increased transparency has been much needed in order to prevent a financial meltdown similar to the magnitude of the 2008 debt crisis. As the SBA argues, regulation that forces banks to comply with authorities on tax issues is basic due diligence. The point of concern lies in the question of whether regulators will stop probing in time and realise that the fundamental need for financial privacy still exists.
2013 was the year when Neil Woodford and Richard Buxton announced their departures from Invesco Perpetual and Schroders respectively, and left an aftermath of outflows from their former funds. Both announcements made headlines across the asset management industry, as key figures questioned the impact the departures would have on the funds, stocks and firms attached.
With the full effects of Woodford’s departure still to be seen and Schroders’ only just recovering from Buxton’s departure, a key lesson is taking form. While investors should not be wary of putting their money with the stars of the asset management industry, firms would do well to think twice when hiring those with the so-called Midas touch.
‘Star’ fund managers are often those managers who, after years of experience within a certain asset or area, as well as consistently good performance, gain enough expertise and credibility that they gain a following. “These managers are high conviction managers,” says Adrian Lowcock, Senior Investment Manager at investment firm Hargreaves Lansdown. “The main reason they are star managers comes down to a mixture of experience and a track record to support it. They’ve stuck to their convictions despite what’s going on in the market and this has come out well for them.”
Aside from Woodford and Buxton, the asset management space has seen a slew of star fund managers, with names such as Anthony Bolton, Adrian Frost, Hugh Young, Roger Guy, Nigel Thomas, Mark Barnett, Alex Wright, Giles Hargreave and Harry Nimmo drawing in investors. All have distinguished themselves within a specific asset class, having generated returns that are often far beyond market averages.
Outperforming others
For instance, Anthony Bolton used a value/contrarian approach, which returned more than 14,000 percent to the investors of Fidelity Special Situations between 1979 and 2007, while Woodford managed $55.5bn in cash and saw Invesco Perpetual’s Income Fund rise by 1,723 percent from October 1990 to 2013. Similarly, Alex Wright launched the now soft-closed Fidelity UK Smaller Companies Fund in February 2008, which became the second best performer in global IMA, with returns of 252.02 percent. Their strong convictions and consistent performances are what draw investors in, especially in times of market uncertainty when solid returns are a key driver for investor money.
As such, it’s no surprise that Woodford had a market share of more than a third in UK equities, having backed businesses with strong cash flows, such as pharmaceuticals GlaxoSmithKline and AstraZeneca in recent years. Woodford’s returns have been well ahead of his peers and his funds have gained a growing following. Similarly, Buxton ran the $5.7bn Schroder UK Alpha Plus Fund, which delivered a 285 percent return over the past 10 years compared with the IMA All Companies sector average of 179 percent. With all that money under their belts, their announcements to leave Invesco and Schroders made serious waves in the investment industry.
“Woodford had been at Invesco for 25 years and was managing a lot of money, so when he said he was leaving, it came as a big surprise. It’s a move that matters to a lot of investors. Buxton had also been at Schroders for some time and his departure came completely out of the blue. He was a really successful fund manager there, so investors started asking whether he would continue to perform after he moved to Old Mutual,” said Lowcock.
Investor panic
The shock to the industry was only the immediate effect of the announcements. Since Woodford’s departure became public, the Invesco Perpetual Income Fund (see Fig. 1 and Fig. 2) has suffered. On January 29, it lost more than half a billion pounds in one day, shrinking the fund from nearly $15.3bn to around $14.3bn, according to data firm FE Analytics.
“This is clearly a big investor deciding to move their money and that’s not a good sign,” said Darius McDermott, Managing Director of Chelsea Financial Services. McDermott himself sold his holding in Woodford shortly after the announcement of his departure. “Neil is one of the most well-known, if not the most well-known, and best-performing managers over my 19 years in financial services. In this instance, I want Woodford,” McDermott told FE Trustnet when explaining why he was leaving the Invesco fund to follow Woodford to Oakley Capital.
Lowcock says that firms must prepare for the day that a fund manager leaves, and not hedge
their bets on one
manager exclusively
Similarly, Richard Buxton’s departure from Schroders sparked $3bn in outflows from his flagship UK Alpha Plus Fund, equalling half of the fund’s total assets since the announcement that he was quitting the firm in March 2013. In comparison, his new UK Alpha fund has attracted close to $1.6bn in 2013, helping to drive Old Mutual Wealth’s profits up 11 percent last year.
As such, Lowcock says that firms must prepare for the day that a fund manager leaves, and not hedge their bets on one manager exclusively. “As a company, you don’t want to put all your eggs in one basket. If you have a very successful fund manager, you don’t want to stop him either if the fund is attracting a lot of money – it’s a matter of having a portfolio of strong managers that can support and take over in the event that he does leave the firm.”
The risk of letting a fund manager control a majority of a firm’s assets is a tangible one. In 2010, fund management group Gartmore saw severe outflows following the departure of its star fund manager Roger Guy, which caused revenues to drop by more than 20 percent. The firm had put Guy in charge of $5.8bn of the group’s total assets, 17 percent of group’s total. Following Guy’s departure, the group was left so vulnerable that it was bought by Henderson in January 2011. Outflows of this magnitude primarily come down to investors pulling their cash out over concerns that the new fund managers won’t be able to live up to the star manager’s success. They can be tough acts to follow.
Next in line
Now, all eyes are on fund manager Mark Barnett, who is taking over from Neil Woodford at Invesco. Barnett currently manages five funds and trusts, of which at least one has outperformed Woodford’s income funds. When Barnett takes over in April 2014, he will manage a total of $41.5bn for savers and investors. But there can be issues when star fund managers take on a sum of this size, says Lowcock: “It can create some problems if a firm is giving a manager a lot of assets, as this can make it hard for the manager to continue their strong performance. There is always a risk of letting a fund get too big, making it impossible to run the fund in the way the manager did before,” he explained.
However, industry figures maintain that investors should not panic when a star fund manager leaves a fund or firm behind. Often, the firm in question will have an experienced team in place to take over the fund and emulate the previous investment style implemented by the star fund manager. And there’s no guarantee that your manager of choice will continue to bring in big bucks at his or her new fund.
“Many of those who have backed Woodford for years will want to follow him to his new outfit, and this could present challenges to the new manager, Mark Barnett,” said Rob Morgan of investment firm Charles Stanley. “Should a large number of investors move their money out, it will force Barnett into selling significant quantities of stock. However, this should still be a relatively orderly transition [for] a more than capable fund manager. Our view remains that Barnett’s patient long-term approach should continue to benefit investors across all his funds – so think carefully about who you want to manage your investment rather than stampede for the exit.”
What investors need to know
Lowcock emphasises that investors need to do their due diligence on a fund before investing or pulling out their money, and not follow star fund managers blindly. That said, they are still strong managers and should by no means be bypassed once leaving their flagship fund. It’s just a matter of investors doing their research and making a decision that works for them and the money invested.
“Investors need to take the size of a fund, what it’s investing in and what the style is, into account. Basically, what would drive performance at this fund? I would look at things like how many stock does this fund manager have. If he usually has 20-30 stocks, why does he all of a sudden have 80 and how will that affect performance? You want to look for consistency in their style and performance and check whether they’re drifting away from the core investment principles of the fund. Basically, has the manager changed and can he still deliver?” says Lowcock.
In this respect, investors shouldn’t be more or less wary of investing with star fund managers. The real consequences lie with the firms that must endure a certain level of outflows once star fund managers leave, just as they enjoy the inflow of money when bringing them in.
As trade in the Gulf region heats up, one country keen to spur growth and build foreign investment links is Kuwait. World Finance interviews Ahmed Al Bahar, Managing Director of Gulf Custody Company, to discuss what his company’s strategy is for the future, what types of investment are growing, and how the Kuwait start-up scene is evolving.
World Finance: Now governments across the Middle East are establishing free trade zones to make it easier for foreign investors to establish themselves locally. Can you tell me, what is Kuwait doing to attract those businesses?
Ahmed Al Bahar: Kuwait introduced the foreign investors’ laws, allowing foreign investors to establish their own companies in Kuwait with 100 percent ownership in Kuwaiti companies. Also Kuwait allowed foreign banks to work freely in Kuwait.
World Finance: What makes Kuwait such an attractive financial hub?
Ahmed Al Bahar: Kuwait is, to me, the financial hub in the region, because Kuwait has the local talent. Kuwaitis have the investment appetite that can drive the GCC.
From our experience, real estate is a big thing
World Finance: What type of local and foreign investment is in demand among your clients?
Ahmed Al Bahar: From our experience, real estate is a big thing. Local and regional equity is, especially for the big companies in the region. Private equities. These are the most attractive instruments in the regional market.
World Finance: Is there a distinction between types of investments a native Gulf financier would invest in versus a foreigner?
Ahmed Al Bahar: Mostly the foreigners are looking for the big chip companies. Let’s say the top 10 companies in each market. The local investor looks at mostly the whole market as speculation, and diversifying between his portfolio, between start-ups and established companies.
World Finance: What sort of start-ups are they looking into?
Ahmed Al Bahar: Well the small companies with small capital, just traded on the stock exchange, to speculate on the future of these companies.
World Finance: What does a diversified portfolio among your clientele usually represent?
Ahmed Al Bahar: What we see is mostly time deposits, murabaḥa transactions, bonds, plus equities.
Mostly the foreigners are looking for the big
chip companies
World Finance: Now as the Gulf region builds its reputation as a financial hub, have you seen more start-ups taking root, and if you have what types of start-ups are attracted to Kuwait and who’s running them?
Ahmed Al Bahar: We look at investment companies in Kuwait which have the leaders, for example, global investment has KMEFIC, a Shia group which are big in retail and food industry, leaders in the market in the region also.
World Finance: What do start-up clients’ investment portfolios usually consist of?
Ahmed Al Bahar: It consists form real estate, equities, private equities, it depends on the bpm of the investment fund. We have no control of our start-up portfolio, investment funds come with its own bpm. After the approval of the regulatory bodies, they choose the allocation of that portfolio.
World Finance: OK, well thank you so much for speaking with us today.
Ahmed Al Bahar: Thank you very much for the interview.
Hewlett Packard’s multi-year restructuring plan again looks to claim thousands of jobs, as the California-based IT giant struggles to overhaul its operations for a post-PC era. Revenues dipped for an 11th consecutive quarter, down one percent on the one previous at $27.3bn, and came in slightly short of expectations.
HP’s president and CEO Meg Whitman remains optimistic, however, and is confident that the company’s results fall in line with the company’s restructuring plans.
“With the first half of our fiscal year completed, I’m pleased to report that HP’s turnaround remains on track,” she said in the latest earnings report.
“With each passing quarter, HP is improving its systems, structures and core go-to-market capabilities. We’re gradually shaping HP into a more nimble, lower-cost, more customer – and partner-centric company that can successfully compete across a rapidly changing IT landscape.”
As part of the quarterly report, HP announced that it could axe as many as 16,000 jobs, equivalent to five percent of its total workforce. Whereas the company originally anticipated that it would eliminate 34,000 jobs as part of the restructuring plan, the overall figure could come close to 50,000 if the company proceeds with its planned cuts.
The restructuring plan took flight in May 2012, and the firm has since taken positive steps to reengineer its workforce
The IT giant has made cuts across its portfolio, with the only exemption being research, which HP believes to be crucial for long-term growth. Computing, networking, storage and software have all, however, been streamlined, with the underlying ambition being to reduce its reliance on PCs and shift instead to growth markets such as software services and cloud computing.
The restructuring plan took flight in May 2012, and the firm has since taken positive steps to reengineer its workforce and refocus its operations in the wake of declining PC sales. Last year represented the market’s steepest decline in history, throughout which worldwide sales of personal computers plummeted 10 percent, according to Gartner.
The economic crisis of 2008 sent waves through the investment industry, with many unsure about where to place their wealth. One institution that has successfully navigated tricky waters is Falcon Private Wealth. Key to the bank’s success has been its bespoke wealth management solutions. World Finance speaks to Nick McCall, Falcon Private Wealth’s CEO, to find out about its personalised approach to clients, and how this is helping to reduce risk and spur reward.
World Finance: Nick, what are bespoke private wealth management solutions?
Nick McCall: Bespoke management solutions are essentially products which are tailored to the client’s individual needs, such as provided by Falcon Private Bank. We offer tailored solutions to our clients in emerging markets, particularly from regions such as Eastern Europe, Middle Eastern Africa, Asia and other global emerging markets.
[W]e pride ourselves in knowing our clients’ requirements at a very detailed level
World Finance: So how does it differ from standardised solutions?
Nick McCall: The main difference is that it’s relationship driven. We undertake a deep understanding of our clients’ needs and we pride ourselves in knowing our clients’ requirements at a very detailed level. This is different from trying to sell a product to a client, which can at some times seem overly standardised, if you like.
World Finance: So does a more personalised approach remove or reduce risk?
Nick McCall: We definitely think it reduces risk. By tailoring the products that we’re selling to our clients, we can ensure that they’re suitable for the client’s risk appetite, and that way they are receiving a service which is in line with their family needs, and that way we’re not selling them inappropriate products which, with time and changes of markets, might be to their detriment.
World Finance: Now your company is global, do the needs and tastes of your clients vary by region?
Nick McCall: Very much so. This is more a question about culture, and we provide relationship management teams who understand the culture and needs of the various geographic areas that we cover. In this way, we again can provide the financial solutions that they require, which are tailored to their personal needs and are in-line with different needs from different regions of the world.
World Finance: How do geopolitical developments impact your clients’ decision making?
Nick McCall: It’s a very interesting question – what we have noticed lately is, with recent events in Eastern Europe and before that with the Arab Spring, clients who traditionally used to invest in their local market and business and get very, very high returns are now looking to diversify the risk and make investments into more developed markets, even at potentially slightly lower returns but seeking that security which they can gain from moving part of their family wealth outside into an institution such as Falcon Private Bank.
World Finance: Now do you think that bespoke wealth management solutions will one day dwarf standardised approaches?
Nick McCall: Probably not. However, we do anticipate a strong growth in the emerging market areas in which we operate as those regions grow their wealth. We hope to continue to grow our business and maintain the trust of the clients for our products and services as those regions become much more wealthy over time.
World Finance: Nick, thank you for joining us today.
In news that signifies the demand within the UK’s real estate market, the country’s second largest property website, Zoopla, is to float on the LSE. The online service, second to rival Rightmove, will trade on the market with a listing of more than £1bn, said majority owner Daily Mail & General Trust (DMGT).
Zoopla, which also includes other property websites like PrimeLocation, SmartNewHomes and HomesOverseas, has seen a surge in popularity in recent years as buyers try to tap in to the reliable growth of UK property. Zoopla has grown to serve 40m users each month, with 90 percent of all property listings being placed on the site.
The UK’s ever-rising property market has continued to frustrate desperate house hunters
According to a recent survey by Harris Interactive, Zoopla enjoys 76 percent national brand awareness in the UK. The influx of capital from a potential floating will allow Zoopla to expand its services further, while looking as overseas markets.
In a statement announcing the news, Zoopla founder and CEO Alex Chesterman said the listing would present new opportunities for the firm. “I am very proud of what the team has achieved to date and we are incredibly excited about the opportunities ahead to continue to grow our brands and business. We’re confident about our future as we embark on the next stage of our development as a public company on the London Stock Exchange.”
The UK’s ever-rising property market has continued to frustrate desperate house hunters, while bolstering the investment portfolios of those lucky enough to own more than one property. Such is the demand for a foot on the property ladder, online services have sprouted up in recent years that allow people to find their perfect home and see the historic prices of properties around the country.
DMGT says that it will reduce its 52.6 percent stake in the firm, although the amount it sells will depend largely on the price. Stephen Daintith, DMGT finance director, said in a statement, “The amount we do sell depends on price, valuation and demand. There has been lots of commentary around valuation, let’s see over the next few weeks when we talk to investors.”
National cultural identity is a topic that is of great concern in the GCC, with cultural stakeholders consistently warning that the states of this region run a very real risk of losing what fundamentally makes them uniquely GCC.
The growth in the GCC region over the past five decades is nothing short of remarkable. Advanced cities with state-of-the-art infrastructure have blossomed out of the desert and people from across the globe continue to flock to the countries of this region to share in and contribute to its ever-increasing growth and development – and leading the charge is the UAE.
A country with less than five decades to its name, the UAE has become the go-to destination for the internationally mobile – its cities are rich and vibrant multicultural hubs of commerce and industry. It is a country that has made no secret of the fact that it values and rewards expertise, and this influx of qualified foreign nationals has been a vital part of the country’s growth strategy.
It is, however, also a country that puts a high premium on its own cultural identity and fully appreciates the pressures a large expatriate community places on that cultural identity. Which is where entities such as Shurooq, the Sharjah Investment and Development Authority, come in.
Self-preservation is key
Established in 2009, Shurooq’s mandate is to achieve the social, cultural, environmental and economic development of Sharjah – the third largest of the UAE’s seven Emirates – on the basis of its distinct Arab and Islamic identity. It is a mandate that takes on great importance when viewed against the backdrop of Sharjah’s long standing role as the Emirates and indeed the GCC’s cultural heart.
Cultural identity is a precious and often fragile commodity, one that needs to be protected and cultivated with great care, but also one that can be an immensely profitable asset
Currently being celebrated as the Islamic Culture Capital for 2014 and previously named the Culture Capital of the Arab World, both by UNESCO, Sharjah is an emirate and a city that has actively taken up the mentality of protecting, preserving, and promoting the cultural identity of its nation – as is clearly evidenced in the infrastructure development being spearheaded by Shurooq.
Its flagship development, Al Majaz Waterfront, has quickly become the most popular outdoor leisure destination in Sharjah, and it is easy to see why. With its range of world-class restaurants and cafes that overlook the fascinating Sharjah Fountain with its spectacular music and multimedia shows, its water-themed Splash Park, state-of-the-art indoor children’s play centre – ALWAN, Mini Golf course (one of only a few in the UAE), jogging track, and outdoor play areas it is an ideal family destination. It is more than just that though.
This development also houses the newly launched Maraya Art Park, featuring a sculpture park and a children’s art park, and is a frequent host to art and culture events that celebrate both the region’s culture and pays homage to the cultures of the UAE’s many foreign residents. It is a destination that has found the balance between economic development and supplying the specific social needs of its people.
Al Majaz Waterfront’s ever-growing success has however only been a starting point. On an even larger scale there is the five-phase, 15-year historical restoration project – the Heart of Sharjah. Shurooq is developing the Heart of Sharjah project, which is considered as the first and largest ever heritage development in the region. This ambitious project 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 the 1950s and reflects what Sharjah was like over half a century ago.
Contextualising new developments
Scheduled to be completed in 2025 and situated just a few minutes from the city’s corniche and 10 minutes from the Sharjah International Airport, the Heart of Sharjah will link its heritage areas together and feature diverse commercial, cultural and residential projects, including a boutique hotel – which is already under development and will be the UAE’s first five star Emirati hotel – restaurants, retail shops, art galleries, traditional and contemporary markets, archaeological sites, museums, play areas, and commercial offices.
The Heart of Sharjah will also be realised in accordance with international standards of sustainable development and environmental principles. Work on the first of the Heart of Sharjah’s five phases is progressing well, with the most recent and extremely exciting development being the site’s registration on UNESCO’s tentative list of world heritage sites. This is a landmark achievement that clearly reflects the significance of the archaeological and historical heritage of Sharjah.
Cultural identity is a precious and often fragile commodity, one that needs to be protected and cultivated with great care, but also one that can be an immensely profitable asset. Through these developments described and many others including eco-tourism projects such and leisure destinations that are being developed throughout Sharjah, Shurooq is working to both protect Sharjah’s heritage and culture, and build an economically sustainable future for its people.
A last minute agreement over a huge gas deal has spared the blushes of Russian president Vladimir Putin and allows him to return home with a 30-year agreement with China. On Wednesday, PetroChina, the country’s state-owned subsidiary of China National Petroleum Corp, announced that it had agreed the deal with Russia that is thought to be worth well over $400bn. The firm did not reveal the exact price details, however.
A sudden delay to its signing threatened to cause embarrassment to Putin
Russia has been talking up its potential deal with China as a sign that it doesn’t need Europe’s money for its gas, but a sudden delay to its signing threatened to cause embarrassment to Putin.
Whilst he tours China on his first state visit to the country, Putin has been consistently saying that the deal will be signed, therefore offering Russia an alternative source of income for its gas after the recent troubles with Ukraine and western leaders. At the beginning of the week, Russia’s deputy energy minister, Anatoly Yanovsky, had described the negotiations as being “98 percent ready”.
However, what have been fraught and strenuous negotiations between PetroChina, and Russia’s Gazprom looked like they might have failed to be completed by the time Putin departed today. Speaking to the Financial Times earlier this morning, PetroChina spokesman Mao Zefeng said that price issues over the 30-year, $456bn had yet to be ironed out. “We won’t be signing. At the moment the import price and the domestic price are inverted. We are already losing money on imported gas, and we can’t lose more.”
Russia sees China as a crucial partner in the aftermath of its foray into Ukraine. Having upset western leaders with its annexing of the state of Crimea and apparent meddling in eastern Ukraine, sanctions and the threat of Europe turning its back on Russian gas has meant Putin has looked to China to fill the potential export gap. Europe is currently Russia’s largest buyer of gas, but it is thought that it will look to the US in the future.
Shamil Yenikeyeff, research fellow at the Oxford Institute for Energy Studies, told the Wall Street Journalthat the deal was vital for Russia’s economy. “Russia needs this China deal very badly because it needs to signal to [Brussels] and to some EU nations that it’s taking a step that’s economically profitable and that it’s found a new market for its gas.”
Negotiations between China and Russia began almost a decade ago, but have proven extremely hard to complete. China wants a cleaner source of energy to fuel its rapid growth, but is unwilling to pay Russia the roughly $12 per cubic feet of gas that the country currently charge Europe. China has been in the driving seat in terms of bargaining with a Russian administration running out of friends, but Putin will be relieved that he is able to return with an agreement sealed with Asia’s largest economy.
Such is the voracious appetite for paper of the world’s fastest-growing economy that China’s Nine Dragons – one of the most important Asian clients of French recycling group Paprec – will soon assume the mantle of the world’s biggest paper-manufacturing company. Nine Dragons has worked its way to the top by demanding the highest-quality raw material for its giant mills, something the French company is only too happy to deliver.
“Our quality must be beyond reproach, which is normal for us,” explains Stéphane Armange, Paprec’s Commercial Director for Recycled Paper. “We have never had a container returned from Asia.”
That’s quite a record for a company that first began developing links with Asian paper groups over 15 years ago, but it is exceptional in China where hawk-eyed customs officials have no hesitation in rejecting shipments of any kind of raw material they regard as sub-standard. It is by no means unknown for them to reject several thousand tonnes of recycled paper because it contains excessive levels of moisture or the slightest trace of putrescent material.
“If certain European countries sometimes sent suspect material to Asia in the past, it’s no longer the case now”, adds Armange. “The Chinese in particular have adopted western standards and will not tolerate sub-par consignments.”
Like other Chinese paper mills, Nine Dragons buys delivery contracts through Rotterdam-based agents who demand conformity to international standards. In Asia any product flaw may end in the withdrawal of that most precious of commodities, an export licence.
Exponential growth
As an operator of the most modern machinery available, Nine Dragons’ expectations mirror the goals of Paprec, which conforms to the highest benchmarks. According to Nine Dragons’ head buyer in Europe, Paul Moolenkamp, Chinese paper groups will import higher volumes of raw material from Europe provided they meet their increasingly stringent standards.
Half a billion books: Paprec’s European alliance
Nearly 15 years ago, a Europe-wide consortium of mainly privately owned book printers formed an alliance with Paprec that has endured and grown since. Known collectively as CPI, the consortium produces some 500 million books a year from 17 plants in France, UK, Germany, Switzerland, Spain, The Netherlands and the Czech Republic. All of these companies – some of which have been in business for centuries like France’s Firmin Didot group established in 1713 – have developed highly specialised, interlocking expertise that makes them unique in Europe. And they pool their expertise according to the often-challenging demands of publishers.
For example, if a publisher wants to capitalise on one of its authors winning a major literary award, it will arrange for the overnight production of 100,000 copies of a book that has been kept under wraps until the day of the announcement. If one printer cannot handle the entire contract, it will be shared out.
But in books, quality of production – and hence of the paper – is often paramount. According to Alain Cohidon, Chief Executive of CPI Aubin, the biggest book-printer in Europe, the relationship with Paprec is all about continual innovation. “As far as we are concerned, the collaboration with Paprec is built on confidence. They listen to our requirements and they understand the commitment to quality that unites all our partners in CPI”, he explains.
“Paprec was able to provide equipment and technology that was not only perfectly adapted to our needs but was capable of constant modification. That way, operating quality is guaranteed on a daily basis. The durability of our relationship is based on the fact that it has never stood still.”
“Nine Dragons operates on the highest international environmental metrics such the ISO 14001 standard”, he explains. “Logically, the company demands that the fibres it buys meet its requirements, which is to say beyond reproach and fully certified. And we know we can count on Paprec to guarantee this level of quality.”
Forget the paper-less office first espoused by Microsoft and other standard bearers for the new computer-driven world some 30 years ago. When current owner Jean-Luc Petithuguenin founded Paprec in 1994, it processed an annual total of 40,000 tonnes a year of what is technically known in France as FCR, recycled cellulose fibre. Today, after increasing volumes by a staggering 29 percent a year, the group reconstitutes no less than two million tonnes of FCR a year on top of other industrial waste.
In that time the sources of the material have multiplied. In the early days Paprec handled the paper created mainly by the printing, packaging and retail industries. Now some of its biggest clients are financial and government sectors.
The group, which is the biggest independently owned processor of industrial waste in France, operates a virtuous cycle in the case of the printed word. After the general reading public has dumped its newspapers, magazines and other written material, the Paprec truck collects the waste paper from recycling bins and other locations. All this material, mainly in the form of colour publications, is then sorted and transported by truck or barge to one of the group’s 30 processing sites in France.
There the paper is pulped, the cellulose fibres separated and the resulting mixture cleaned of all impurities in a highly technical process. Next, the ink is removed and the paper whitened. Finally, it’s cut into sheets, wound onto reels and returned to the printers in pristine condition, ready to receive the printed word all over again. Some 800,000 tonnes of the paper is exported around Europe and a further 400,000 tonnes to Asia.
Garnered development
One of the group’s not-so-secret weapons is its proprietary vacuum technology. An elaborate but robust system, it comes in the form of industrial-sized spiralled tubes, conveyer belts and elevators that are installed right alongside giant, high-speed printing machines and then lead to the outside of the plant.
The system captures vast amounts of the scrap paper that would otherwise fall by the wayside in the cutting and layout processes at the printing sites. Once the paper has been collected, it’s then compacted into space-saving packages for pick-up by trucks.
“We have no competitor at a technical level”, explains Wiliam Lebec, Paprec’s Commercial Director. “We start from the basis that the vacuums are the main element in the effective performance of the printing machines. They allow the printing companies to focus on what they do best.”
The technology is so superior in fact, that Paprec’s statistics show it wins 80 percent of bids to install the technology and as a bonus is often contracted to do the recycling too.
The technology was developed by the group’s R&D team first established a quarter century ago, and has been steadily refined ever since. It was the R&D unit that also devised a system for removing not only the air from the waste paper but the dust as well. Printing plants throw out vast amounts of dust, especially at the cutting stage; but what to do with the dust?
The team came up with another ingenious solution that compacts the dust into dense inflammable, wheel-shaped cakes. And to further speed up – and simplify – the process of reconstitution, the R&D team has refined the system further so the technology can be installed on-site. Indeed some 70 percent of the group’s French customers have opted for on-site dust separators and compactors.
The recovery of unused paper is almost an obsession with Paprec and it has found ways to collect it at every stage of the printing process. For instance, standard-sized skips often take up too much space at some of the smaller plants. The group has got around the problem by installing smaller, stackable pallets at crucial points along the printing presses. “It’s all about flexibility and robustness”, adds Lebec.
Publishing is a demanding industry that runs on the tightest schedule and delays in the printing process can have disastrous knock-on effects right down the distribution chain. That’s why, just in case something goes wrong, Paprec provides on-call technical service on a 24/7 basis for newspaper groups such as the Amaury Group that publishes and prints the top-selling daily Le Parisien.
“Quality of service has to be beyond reproach because the paper is printed seven days a week – and at night”, explains Lebec. “In these circumstances the equipment for capturing waste cannot suffer the slightest failure.”
In short, if the waste paper isn’t being collected, the printing machines cannot run as normal and schedules are in disarray.
Paprec has grown more or less simultaneously with the mounting pressure from government and local authorities as well as from the community at large to eliminate waste of all kinds including paper. Some of the group’s longest-standing relationships are with clients in Spain, where the Kimberly-Clark group is a shareholder, and in Germany, which practically pioneered the recycling of paper in Europe.
“The German industry had a belief in recycling before other countries and today is a producer at incredible levels,” points out Armange. As Nine Dragons’ buyer Paul Moolenkamp will vouch, Asia is following suit.
The Zürich-based financial services firm has lodged a guilty plea for helping American clients evade taxes as part of an “extensive and wide-ranging conspiracy”, so-called by Attorney General Eric Holder. As a consequence, the bank has agreed to pay a fine close to $2.6bn, although the charges stop short of revoking its banking license.
“We deeply regret the past misconduct that led to this settlement. The US cross-border matter represented the most significant and longstanding regulatory and litigation issue for Credit Suisse,” said the firm’s CEO Brady Dougan in a press statement, who went on to claim that no material impact had come as a result of the recent public attention.
US prosecutors determined after a lengthy trial that Credit Suisse had accomplished the illegal feat by concealing assets in undeclared bank accounts, some of which had been in operation for decades, and one for more than a century. What’s more, the bank was found guilty of subverting disclosure requirements, destroying bank records, and time and again failing to meet the most basic of tax compliance laws.
[T]he bank was found guilty of subverting disclosure requirements, destroying bank records, and time and again failing to meet the most basic of tax compliance laws
The criminal conviction marks an unusual state of affairs, which is understandable, given that major charges against financial firms can so often result in unrelated job losses and irrecoverable losses for the business in question.
The circumstances mark the first instance of a major bank pleading guilty to criminal charges for close to 20 years, and the repercussions look to blunt the bank’s earnings somewhat this coming quarter. In a press statement, the bank estimated that the settlement would reduce its second-quarter net profit by $1.8bn.
“This case shows that no financial institution no matter its size or global reach is above the law,” said Holder, as he called a close to the long-running case. “We will never hesitate to criminally sanction any company or individual that breaks the law. A company’s profitability or market share can never and will never be used as a shield from prosecution or penalty. And this action should put that misguided notion definitively to rest.”
All around Europe, people are fighting for unconditional basic income: a system which many believe will instill equilibrium where there is financial inequality. World Finance invites Green Party Leader Natalie Bennett and writer and mathematician David Orrell to discuss whether unconditional basic income will live up to the revolutionaries’ expectations.
World Finance: Natalie, the Green Party is committed to a basic income, and this has been your policy for quite some time. So getting straight down to business: if implemented, would it save the country money?
Natalie Bennett: What it would ensure is, every person who has the right to remain in Britain would get enough basic subsistence to live on. So what you’re doing is you’re taking away the worry, you’re taking away the insecurity that is an increasing part of people’s lives.
World Finance: Well David, as an economist, do you think that the country could afford this sort of thing?
David Orrell: The versions which are being proposed in the UK are more in the region of around £7,000 per person, and I believe that that could probably be paid for just out of replacing existing benefits – at least mostly.
[Unconditional basic income is] taking away the insecurity that is an increasing part of
people’s lives
World Finance: Natalie, do you agree with David? Is this your concept of basic income, and do you have a figure in mind?
Natalie Bennett: The problem we’ve got in Britain particularly is the issue of housing costs. It’s not possible at those kinds of levels to replace housing benefit at the moment. So you’ve really got to look at citizens’ income as part of a much broader restructuring of the way our economy works.
World Finance: So how do you propose to finance this then?
Natalie Bennett: Two things: there’s the existing benefits like Jobseeker’s Allowance, single parents support, those kinds of benefits. And there’s also the huge costs of administering those things at the moment. You take those costs away – and the Citizens Income Trust has calculated that you could administer basic income at a cost of one percent of the total benefit, which is about the same as child benefit. And you know, that gives you quite a bit of money – not the full sum – but quite a bit of money that you can put into the actual payments to people.
World Finance: Well David, do you think this is reasonable? Or do you think if it was implemented we could expect taxes to rise quite a lot?
David Orrell: I think that’s reasonable, because there are some other factors as well. I mean for example, a problem with our current benefits system is that it first of all stigmatises people for having to collect benefits. But then it also acts as an incentive often to not seek employment, because if you get a job your benefits will be cut. And that wouldn’t be a problem with the basic income scheme, because you’d just get extra money.
World Finance: Natalie, I did hear during an interview that you said ‘unconditional basic income could change people’s behaviour; that a sewer cleaner might be paid more than a banker, and maybe this is fair and reasonable’. I think that was the quote. But this seems like an interesting comparison to me, because one of these jobs is unskilled, the other takes years of study and dedication to achieve. So surely this is quite demotivational really?
Natalie Bennett: Yes, a sewer cleaner – it’s a job that maybe not many people want to do. I would perhaps question whether it’s unskilled, but that’s an extreme example. But if you take what we hear about terrible call centres: the kind of places where they time you when you go to the loo, and you know, every call has to be less than 54 seconds. We’ve all been victims of those kinds of call centres. And if people don’t want to work in those kind of work environments anymore, you very much have to improve the work environment.
World Finance: David, what do you think unconditional basic income would mean for businesses that rely on minimum wage labour?
David Orrell: If jobs are really undesirable, then they would have to pay more. Other jobs, maybe people would be willing to work for less because they would have this basic income, and they could therefore actually charge less, charge a lower wage, potentially.
The biggest trend at the moment is that a large amount of jobs are being automated. Not just in car manufacturing and things like that, but you know, it’s really accelerating a lot now. The price of automation, robots, all this kind of thing is decreasing a lot. So if you look at the trends, there’s going to be less and less of these super low-skilled jobs in the future. And then you have to ask, well, if people aren’t doing that kind of work? I mean first of all how are you going to handle the unemployment? Under our current scheme the unemployment benefits would go through the roof. With something like this I would think the impact would actually be lower.
[Britain’s benefits system] acts as an incentive often to not seek employment, because if you get a job your benefits will be cut
World Finance: Well Natalie, I want to bring you slightly back to minimum wage for a moment here. Do you think if unconditional basic income were implemented, then maybe large corporations might campaign to actually lower minimum wage?
Natalie Bennett: We need to make sure that corporations aren’t freeloading. The problem in Britain is our minimum wage is less than our living wage. You can work for 40 hours a week and not be paid enough money to basically live. And that actually means that things like housing benefit and family tax credit at the moment are actually corporate welfare, which are going straight into the profits of often very large companies that are paying too low a wage.
So what we very much need to do is actually make, now, before we get to a basic income, we need to make minimum wage a living wage. And we need to make sure that people aren’t being exploited under a system with a basic or citizens’ income.
World Finance: Well David, looking at inflation now. If unconditional basic income was introduced, surely the first thing corporations would do is raise prices, making this proposal redundant?
David Orrell: From a certain macro level, by money supply, the money supply won’t be changed by this. Because as I said, it’s being replaced by other things. It’s not printing new money the way something like quantitative easing is. It would increase the velocity of money, if you like: the speed at which money is changing hands. Because there would be more of an impact on people with low incomes, and so that could have a bit of an inflationary impact.
But I would think the effects would be kind of mixed. And as I said, I think it would be relatively small-scale to other things.
Natalie Bennett: But I think David what you’re saying there implies that much else in our economy is going to remain the same. And that’s simply not the case, because one of the other things we’ve got to bring into this is the fact that at the moment in Britain we live what’s known as the ‘Three Planet LIfestyle’; in the US it’s four. And that means that people are actually consuming the equivalent resources of three planets. And one of the things that citizens’ income can do is, because there’s a security net, you don’t have to worry so much. You can actually think about reducing your working hours, consuming less stuff, and get more time in return.
So we have to look at all of this as a package. Not just assuming that things are going to go on as they are now – because they’re not. We’re going to have to see radical changes to fit within the limits of our one planet, and to reshape our society. Because you know, inequality at the moment is at a huge, enormous level, and rising very fast. We’ve gone past Edwardian levels, and we’re heading for Victorian.
World Finance: But do you think basic income could have any dent whatsoever on the wealth gap in real terms?
Natalie Bennett: It’s a foundation, and I think we sort of got away from how we fund it. But you know, I think you do need to ensure that rich individuals and multinational corporations pay much more tax. And that has to happen, you know, anyway. Because we do have to deal with this work inequality, which even organisations like the IMF and the World Bank say are threatening our whole global economy.
World Finance: Well Natalie, my final question for you is: if unconditional basic income, there’s such a strong case for it, then why haven’t the three main political parties got on board with this?
Natalie Bennett: There’s a lot of very good ideas around whether it’s bringing the railways back into public hands, something that has something like 70 percent public support. Keeping the NHS – the National Health Service in Britain – publicly owned and publicly run. There are huge amounts of ideas that have very strong public support and are great ideas. And citizens’ or basic income is one of those. Less well-known among the public certainly, but a great idea.
But we have at the moment in Britain a politics that’s very much stuck in the 20th century. Stuck in the ideas of privatisation, neo-liberalism, globalisation. And we’re headed into a very different world in the 21st century. And I’m afraid at the moment our three largest political parties just haven’t caught up with that.
Deutsche Bank has been facing questions about its capitalisation in an increasingly challenging regulatory environment. “We are launching a package of measures designed to reinforce Deutsche Bank’s aspiration to be the leading client-centric global universal bank,” said Jürgen Fitschen and Anshu Jain, co-CEOs, in a statement. “We are decisively strengthening our capital, further improving our competitiveness, and investing in targeted growth initiatives across our core businesses.”
Deutsche Bank has been facing questions about its capitalisation in an increasingly challenging regulatory environment
The bank is issuing around 360 million new shares, 60 million of which have been picked up by Paramount Holdings, one of Qatar’s investment vehicles. The remaining shares, worth around €6.25bn will be offered to existing investors in a rights offering opportunity. This offering us underwritten by a consortium of six banks that have agreed to buy shares investors do not pick up.
Deutsche Bank has faced a number of legal probes over the past few months, chief among them was the investigation over the rigging of benchmark rates and currencies. Added to its worries is the upcoming ECB examination this year, which will assess the bank’s resilience in the face of a crisis. In preparation for these stress tests, Deutsche Bank has been endeavouring to shrink its balance sheet, as well as fortifying its finances. The bank has previously revealed plans to reach a 12 percent return on equity goal by 2016, a year earlier than previously expected.
“We remain committed to Strategy 2015+ and our results to date reinforce that commitment. The package of measures we are announcing today represents a decisive response to both the challenges and the opportunities in a changing macro-economic, competitive and regulatory environment,” said the co-CEOs. “These measures enable Deutsche Bank to position itself for long-term, sustainable success in a time of historic change in the global banking industry.”
Under the terms of the deal the Qatari royal family will pay €29.20 per share, around five percent lower than the closing price on May 16, the last trading day before the deal was finalised. When dividends have been considered, the royal family will receive a 2.5 percent discount on its purchase. It is understood that existing investors will be offered an even greater discount on the remaining 300 million shares available.
The Qatari royal family has been involved in previous deals with Deutsche Bank, most recently acquiring part of the €3bn in new shares the bank issued in 2013.
Widespread access to energy – in quantity, with quality and in a sustainable manner – is a sine qua non condition for the economic and social development of any country. And by the same token, shortfalls and deficiencies in energy production and distribution are one of the main factors that stifle and sharply restrict the growth of developing economies.
This is true for Angola, a country which, on account of its recent history (the armed conflict severely harmed its infrastructure, including countrywide energy grids), as well as the needs arising from its fast-growing economy, now faces a huge challenge to ensure the sustainability of energy supply and of the whole energy system.
According to a World Bank survey (2011), Angola’s national electrification rate (30 percent) stands significantly below the African and world averages (41 percent and 74 percent, respectively) and its consumption of energy (250 KWH per capita) is lower than the average in Africa (500 KWH) and much lower than the average for the Middle Eastern and North African countries (2,500 KWH), which are the country’s benchmark in terms of GDP.
However, Angola aims to reverse this situation and become a reference for other emerging economies. To achieve this goal, it has launched an ambitious programme with the following main objectives: i) double the electrification rate (to 60 percent) through a national plan for urban and rural electrification; ii) achieve a four-fold increase in installed capacity (from 1.9 GW to 7.9 GW) and annual production (from 7,700 GW to 34,300 GW) by expanding the share of hydro and thermal power in the energy mix (Angola has the third-largest water reserves in Africa and an abundance of oil and gas); and iii) rehabilitate and expand the national electrical energy transmission and distribution grid – to connect the north, central and south grids, creating an eastern one and making an international connection to Namibia and the Popular Republic of the Congo.
Growth surge
To reach these objectives, Angola’s National Development Plan (NDP) for 2013-17 gives a clear priority to the energy sector due to its role as a catalyst for growth and its potential for solving the bottlenecks that currently hinder the execution of projects by the private sector.
Angola has the third-largest water reserves in Africa and an abundance of oil and gas
The NDP foresees a total public investment in the private sector of $50.7bn, roughly two thirds of which ($37bn) will be in energy. In addition to this, private investment projects could reach in excess of $10bn. All in all, 390 structuring projects (public, private or in partnership) have been identified within the scope of the Public Investment Programme (PIP).
The private sector’s participation in Angola’s energy production, transmission and distribution is still negligible (roughly five percent of total capacity). The government intends to change this scenario through the Power Sector Transformation Programme (PSTP), established in 2012, which has identified the absence of incentive policies or attractive tariffs allowing for a return on investment and the lack of a clear and independent institutional and regulatory framework as the main inhibitors of private investment in the sector.
Investment incentives
The aim is to convey an incentive to investors through: the implementation of a new organisation model for the sector, with the unbundling of production, transmission and distribution (market-oriented model); a corporate restructuring involving the creation of new companies (through the split and incorporation of the present ENE, EDEL and GAMEK) with new competencies and increased efficiency; the creation of an independent transmission company with the role of unique buyer; the reinforcement of the role of the regulator (IRSE) to ensure equal competition terms to public and private production; and the revision of the tariff system, including the reduction of the currently very high level of subsidisation (about 80 percent with an annual cost of $800m) to a sustainable level.
Bottom line: the aim is to promote the entry of private capital and private know-how into the engineering, construction, operation and maintenance of the energy infrastructure through the launch of public-private partnerships, and to establish attractive remuneration schemes under long-term power acquisition agreements with differentiated tariffs. The participation of private investors could thus provide a solution to currently indebted and under-capitalised public-owned energy companies, as well as to the need to raise extensive funds in order to finance the major investments that the country requires.
For a long time, whenever medical tourism was mentioned, it would conjure up extreme images – substandard facilities leaving patients deformed after botched cosmetic procedures or ultra-wealthy individuals travelling to top hospitals to undergo the latest, exclusive treatment for hitherto incurable conditions. It has long been associated with people in need or want of cosmetic surgery that have looked to other, cheaper markets, when procedures proved to be too expensive closer to home. Countries like Brazil and Thailand have been hubs for cosmetic surgery patients looking to save a few bucks; but recently many countries have started reporting a rise in the number of travellers seeking medical attention and non-cosmetic surgery.
In fact, medical tourism is increasingly less about cosmetic surgery, and more about affordable healthcare. And a number of companies – and even whole countries – have identified commercial opportunities in the burgeoning industry. In 2013, 900,000 Americans travelled aboard searching for lower costing and high-quality healthcare, according to a survey by Patients Beyond Borders, and online international medical travel resource.
Though there is a smaller number of European patients seeking medical care abroad, mostly because of the higher availability of state-sponsored healthcare systems in the region, the market is still significant, particularly for cosmetic or controversial procedures not available on national health services. It is not a surprise that countries such as Turkey, Romania and Mexico are investing significant resources in boosting their private healthcare industries that can cater for foreigners.
South of the border
Patients Beyond Borders estimates that between 200,000 and 1.1 million patients visited Mexico for healthcare in 2013. The imprecise figures are due to that potentially high number of undocumented migrants that return to the country for medical treatment. However, close to 50,000 Americans crossed the border seeking affordable dental care – many more visit for hospital stays. It has become such big business that the Mexican Tourism Board has a page dedicated exclusively to the promotion of health and medical tourism, championing many benefits American patients will find if they head south of the border for treatment.
According to Mexico’s tourism board, the International Joint Commission has accredited seven hospitals in the country, and the Mexican Federal Ministry for Health has provided special certification to an additional 105 facilities, 98 of which are “equivalent to international standard.”
[T]he nature of the [medical tourism] industry also makes it attractive to unethical professionals looking to take advantage of vulnerable customers
Mexico, however, is not the only country looking to capitalise on the influx of ailing travels. Turkey has also created a special branch for their tourism board to deal specifically with medical tourism. In Romania, it is the key aspect of President Traian Basescu’s business policies. In fact, Basescu has recently visited Turkey in an attempt to persuade Turkish-Romanian businessmen to invest in balneal tourism, following the Turkey’s successful model, but taking full advantage of the hotspots along the Black Sea known for their health spas and baths.
“Tourism is a field in which major investments can be made, but maybe it is not the best signal to tell Turkish investors to come and invest in our tourism when in Turkey there is a boom of investments in tourism,” he told gathered investors. “Romania has excellent natural conditions, resources for balneal tourism. In Romania, health springs from the earth. We have an extraordinary potential. Investments in balneal tourism ensure a guaranteed profit.
“I am inviting you to invest here as investing here is guaranteed profitability as there is no seasonal problem with health tourism. The natural resources we have make it possible to exploit such health programmes both in summer and in winter.” It might be a shrewd move by Basescu, taking advantage of his countries natural resources and using them as a way to develop the healthcare industry. The key to the President’s plan is to persuade wealthy foreign investors to stump up for local infrastructure, as well as the health facilities themselves. “Romania is extremely interested in private investments in health. The country has major drawbacks here and investments in health are welcome,” he concluded.
Other countries, like Thailand, are capitalising on already excellent healthcare and tourism facilities to attract foreign visitors. It is the case of Thailand – which has long been a popular destination for cosmetic and gender-reassignment procedures – has recently begun investing in mainstream medical care for foreign patients. According to Patients Beyond Borders, up to 1.2 million people came to the South-East Asian country in 2013 alone seeking treatment.
All-inclusive service
Bumrungrad International Hospital in Bangkok, has been seeing international patients for over two decades, and sees close to 1,000 foreign patients a year across 55 specialities. Even in this top-rated elite institution, procedures only cost around 50 to 70 percent of what they would in the US, making the lure of Thai capital almost irresistible. Most foreigners book all-inclusive medical holiday packages through online agencies to Bumrungrad, much like they would a scuba-diving jaunt to Koh Samui.
The top 25 countries with the most surgical and non-surgical procedures
2010 to 2014 figures
1 US
2 China
3 Brazil
4 India
5 Mexico
6 Japan
7 South Korea
8 Germany
9 Turkey
10 Spain
11 Argentina
12 Russia
13 Italy
14 France
15 Canada
16 Taiwan
17 UK
18 Colombia
19 Greece
20 Thailand
21 Australia
22 Venezuela
23 Saudi Arabia
24 Netherlands
25 Portugal
While many patients go abroad looking for cheaper healthcare or alternative treatments to severe conditions, the nature of the industry also makes it attractive to unethical professionals looking to take advantage of vulnerable customers. In the last five years a number of travel agencies that focus exclusively in matching patients with hospitals and doctors have cropped up all over the internet; some reliable and efficient, others less so. A cursory internet search or flicker through the pages of questionable publications will reveal countless horror stories of patients fallen victim to rogue surgeons and left without appropriate aftercare and support.
In fact, according to The British Association of Plastic, Reconstructive and Aesthetic Surgeons (BAPRAS), the NHS could be spending millions of pounds each year correcting or reversing procedures carried out aboard that led to complications. Increasingly, NHS trusts have chosen to deny treatment to correct botched cosmetic procedures carried out overseas, unless the consequences are serious or life-threatening.
But organisations like BAPRAS and Patients Beyond Borders are doing a lot of work in educating those looking to go oversees for medical care, and international standards are increasingly being held up to hospitals that receive a lot of medical tourists. Like with any services industry, customers are often looking for the cheapest possible options, and sometimes that is simply not possible when it comes to invasive procedures.
For instance, the cost of a rhinoplasty with a leading Brazilian plastic surgeon is $12,000, much higher than foreign patients will typically want to pay for surgery in a country like Brazil, but other, less reputable surgeons can cost up to 30 percent less than their American counterparts. There is also a growing market for wealthy patients from less developed countries seeking medical or cosmetic treatment abroad.
Patients Beyond Borders estimates that close to 610,000 people came to Singapore for treatment or cosmetic surgery, the vast majority of whom – 70 percent – originated from neighbouring Indonesia. Singapore has become famous for its world-class heath services, and its government and private health institutions have wasted no time in investing to attract more international patients. According to MyMedHoliday.com, in 2011 alone the Singapore international patient health industry was worth over $900m, and foreigners made up to 30 percent of the island’s patients.
Medical and cosmetic surgery tourism is an indubitably huge growth market, especially as affordable quality healthcare becomes scarcer in wealthier countries like the US and Britain. Singapore and Mexico are certainly keen to explore this burgeoning market responsibly by promoting safe and responsible practices, but like with any other unregulated, cross-border industry, customers must be vigilant, and look for more than just a bargain. But there are also wonderful and life-saving opportunities for patients to receive the care they deserve, with minimal cost. A real win-win situation.
