Month: October 2015

Britam: No end in sight for foreign acquisitions in Kenyan insurance

Posted on by World Finance

Kenya today is a growing economy, with a rising middle class and very low insurance penetration. So it’s no wonder that it has become an extremely attractive market for foreign capital. Ambrose Dabani, General Manager, Life and Pensions from British-American Insurance, discusses the consolidation of the insurance industry in Kenya, Britam’s approach to risk management, and its customers’ savings needs.

World Finance: Not long ago, many people in Kenya had little or no insurance coverage. Now however, comprehensive and innovative services are readily available to the masses – so much so, that it has become an extremely attractive market for foreign capital. With me now to discuss this potential is Ambrose Dabani from British American Insurance.

Well Ambrose, the Fitch ratings agency reported that investors’ appetite in acquisitions in the Kenyan insurance industry has pushed up valuations significantly. What would you say the driver is behind this?

Ambrose Dabani: You must realise that Kenya today is a growing economy, with very low insurance penetration. There is a growing middle class, and therefore increasing the capacity of people who can buy insurance.

We also have a regulator which is looking at increasing penetration, attracting foreign companies to come to the country. And it is encouraging them to come through acquisitions.

You can choose to come as a greenfield setup – but that has its own setup challenges and setup risks. So what the regulator prefers is that companies coming through should come through an acquisition. And therefore that has led to an increase in the demand-side.

World Finance: So the market is seeing a lot of consolidation: what do you make of this?

Ambrose Dabani: Currently, pre-consolidation, we have about 43 companies. And it is the feeling of the industry that that is too many. And therefore we’re looking at a period when there’s a lot of capital investment required – in terms of innovation, in terms of technology.

There’s also an increase in regulatory capital, and therefore the smaller companies are looking to be bought out. So therefore, that is also on the supply side in terms of insurance companies that are looking to be acquired, that has also increased.

World Finance: And compared to its African neighbours, why would you say the Kenyan insurance market is flourishing?

Ambrose Dabani: One: very low penetration. So that means definitely there’s an upside potential.

Two: a growing population, a growing economy. That means the middle class is also growing; that also increases the market.

And also at the moment there’s a lot of technological innovations that are giving room for increased innovation on products, on distribution.

Kenya is also seen as a hub to the rest of east Africa because of its geographical location, its developed financial markets, its educated labour force – and therefore, naturally anyone who wants to come to that part of the region will start with Kenya.

World Finance: Well as you mentioned, like most industries technology is changing the insurance landscape. So what innovations are coming to market?

Ambrose Dabani: Technology is changing. And specifically to Kenya there is what we call the mobile money phenomenon: you must have heard of M-Pesa. Now, that is where you can have all your money on your phone, never have to visit a bank – but you have all the banking services on your phone.

Now, that is really changing a lot of things. It’s changing the nature of products that we have. Now we have mobile phone products – now you can sign up for insurance on your mobile. We’re exchanging processes – now you can have all your customer care services on your phone.

It’s also changing the way we distribute. We have 20 million people – we’re talking 20 million out of a 45 million population. That’s a huge proportion that’s on a mobile phone. The penetration of smartphones means that you’re able to distribute insurance products through the mobile phone.

So yes, that’s creating a lot of innovation around distribution, around products, around processes.

World Finance: And how do you tailor your offerings to individual needs? And indeed, what are these needs?

Ambrose Dabani: As I said, we have diversified financial services. We offer products for any stage of life, right from the time you get out of school and get your first job. Of course, you have your short-term saving needs – either to go back to school, to get married, to start having a family, buy your first house… so we have lots of savings products.

Then we move on to the point where maybe someone has a family, and they’re thinking about education for their children, thinking about personal health and healthcare. We have all those products in Britam.

All the way to savings for retirement, and also even accommodating retirees, with all their needs around regular income, around meeting their medical requirements. We have very, very innovative products at Britam: to meet retirement needs, retirement expenses, regular income until death, and even to spouses and all other dependents thereafter.

World Finance: In terms of asset management and investments now, how do you manage risk?

Ambrose Dabani: At Britam we have a separate, full-fledged asset management company. It’s very, very rapidly growing in terms of assets under management, because of the investment philosophy that we have.

You’ve got to remember that we manage people’s money, and therefore first we’ve got to deliver the return we promised, and with certainty around that particular promise. And therefore we are not gambling with people’s money: we have processes, we have quality controls in place, we have risk management as a function right at the board.

Senior management and risk management function that reviews our processes. And we do our investment based on asset liability margin principles, so that we don’t take too much risk.

Remember that we’re also a regulated company, so we also have to have a look at what the regulator advises as correct investment principles. So yes, risk is very, very well managed.

World Finance: Finally, how do you see this industry evolving over the coming 12 months?

Ambrose Dabani: The coming 12 months are going to be busy! At an industrial level, at Britam’s level, it’s going to be busy.

We expect that consolidation will continue. We’re still hearing of new companies from Europe, from South Africa, looking for appropriate companies to buy. We expect that there’s going to be new legislation or regulatory environment in place. Currently the draft is being discussed by the industry – it’s causing a lot of excitement, as we move to risk-based supervision, in line with the rest of the world. So we expect that is going to continue.

We’re seeing more and more insurance companies are going to jump onto technology, coming up with innovative products, innovative distribution models, and innovative servicing, just to be more efficient and cut their costs, and deliver value to the client.

So therefore we expect lots of activities. It’s a very interesting time for insurance companies.

Africa shows great improvement in regulatory reform

Posted on by Ashton Wenborn

The World Bank’s annual Doing Business report, which attempts to provide a measure the costs to firms of business regulations spread over the world’s 185 countries, has been released for 2015. Through the use of a number of metrics such as red tape around starting a new business, construction permits, property laws, credit access, investment protection, taxes rates, the ease of cross border transaction, contract enforcement and access to electricity, among others.

Roughly 30 percent regulatory reforms easing burdens on business activity came from sub-Saharan Africa

In the 2015 report it was found that out of the 185 countries measured, in 122 of these, entrepreneurs said that they had seen improvements in their local regulatory framework from the following on from the previous year. The top ten countries to see improvements in business regulations were Costa Rica, Uganda, Kenya, Cyprus, Mauritania, Uzbekistan, Kazakhstan, Jamaica, Senegal and Benin. Collectively, these states instituted 39 regulatory reforms easing the ability to do business.

Roughly 30 percent regulatory reforms easing burdens on business activity came from sub-Saharan Africa. According to the World Bank report, “Members of the Organization for the Harmonization of Business Law in Africa were particularly active: 14 of the 17 economies implemented business regulation reforms in the past year—29 in total. Twenty-four of these reforms reduced the complexity and cost of regulatory processes, while the other five strengthened legal institutions.”

Despite various fears of political instability, economic nationalism and financial instability in BRICS category countries most saw an improvement in the rankings. Russia, China, India and Brazil all saw their ease of doing business deemed to have improved. India saw the biggest improvement, rising to 130th in the index – a 12 place improvement from last year. At the same time South Africa’s position slipped 30 places, although maintained at 73, second only to Russia at 51, among the BRICS.

PV Drilling promotes Vietnam’s oil and gas industry

Posted on by Ashton Wenborn

In Southeast Asia, Vietnam has emerged as one of the most attractive destinations for business investment and development, becoming the location of choice for many prestigious economic organisations. Contributing to the fast-paced transformation of the country is its rich petroleum resource. The first few preliminary oil and gas explorations took place in the early 1960s. Due to the paucity of necessary infrastructure, manpower, and technology, the industry had to depend heavily on outsourcing from foreign companies. Particularly in the oil and gas-drilling field, until the 1990s, the whole market was still a private playground of foreign drilling contractors.

In that context, PV Drilling was founded in 2001 with the strategic mission to master the drilling technology and promote the self-independence of the domestic oil and gas industry so that Vietnam could take the active role in moderating its exploration and production activities. At the early period, with limited resources and facilities, the firm only provided a small-scaled scope of services including drilling tool rental, repair and inspection, provision of manpower and oil spill control service.


Pham Tien Dung, President and CEO of PV Drilling, receives the World Finance award for Best Drilling Contractor, Asia, 2015

The first of many
However, with vision of becoming an internationally reputable and reliable drilling contractor, PV Drilling made the audacious move to sign the first rig construction contract with Keppel FELS in 2005, to build the modern jack-up PV DRILLING I. The rig was completed and towed back to Vietnam for operation in March 2007. In parallel with the rig construction, its management and staff also spent a great amount of effort to build supply base facilities, research and study the drilling technology, set up operation and management procedures and train the rig crew.

Though confronting numerous obstacles at the beginning, the company has gradually tackled all arising issues with unwavering determination spirit. The first drilling campaign of PV DRILLING I for its client Hoang Long Joint Operating Corporation has resulted in a remarkable success and thus, encouraged PV Drilling to move further forward.

In 2009, PV Drilling brought into operation two premium jack-up rigs PV DRILLING II and PV DRILLING III simultaneously, marking a memorable milestone in the development of the company. Amid the trend of jack-up rigs, the company also recognised the huge untouched potential of deep-water drilling in the Vietnamese market. Therefore, the project of constructing the semi-submersible tender assist drilling (TAD) PV DRILLING V was kick-started to catch up on such an opportunity. After finishing the construction in 2011, this one-of-a-kind, state-of-the-art rig was engaged in a long term, five-year contract to operate at a significant gas reservoir in Nam Con Son Basin.

The most recent member of PV Drilling’s fleet is the Keppel FELS Enhanced B-Class Jack-up Rig PV DRILLING VI, which was completed in early March 2015 and mobilised immediately for operation at Dai Hung Field, at Vietnam water. The newly built rig has performed beyond expectation with an outstanding efficiency over 98 percent and a flawless non-productive time and lost time incident record.

To support the efficient operation of the rig fleet, PV Drilling has unceasingly reinforced its infrastructure and human resource. At present, the company takes pride in its modern rig fleet and supporting facilities onshore, together with a strong capable team of approximately 1,000 skilled rig crew members. In addition, the firm deployed an integration of a modern IT-based management system with many diversified functions. The management system has ensured the coordination of all the linkages in the whole corporate mechanism to run harmoniously and effectively throughout the past years.

Beside consolidating its internal strength, PV Drilling has established a broad network of strategic partnerships and joint ventures with renowned oil and gas companies all around the world, Baker Hughes, BJ, Expro, Marubeni Itochu and Oil States Industries, to name a few. These strategic joint-ventures played a key role in bridging the company with high-tech services, latest advances in drilling technology and provided valuable experience to enhance the service quality and business efficiency.

The current market conditions have hurled all drilling contractors into the toughest competition ever in the history of
this industry

Strategic action
The past year marked the most successful period to date for the company, with remarkable business results of VND 20.88trn ($978m) in net revenue and VND 2.41trn ($107m), marking an exemplary compound annual growth rate of 38.5 percent during the past five years. The total yield-to-date asset value also reached $1.2bn. In the domestic market, PV Drilling occupied a 70 percent market share for providing drilling rigs and well technical services for oil and gas operators’ drilling campaigns.

This year, however, came with a nebulous outlook for the oil and gas industry when oil prices continuously dropped due to an imbalance of supply and demand on global scale. Oil lost almost 60 percent of its peak value in 2014, leading to a significant amount of exploration and production projects suspended and terminated. In Southeast Asia, and respectively in Vietnam, the decline of drilling activity together with the birth boom of new-built rigs have further aggravated the situation, causing huge impacts to drilling contractors. IHS’s current report estimates a release of 83 new jack up rigs by end of 2015 and 57 more to kick in by 2016, despite the halted demand. The consequence of such redundancy took significant toll on rig’s day-rate fixture, which has decreased by almost half in comparison to the apex of 2014. The current market conditions have hurled all drilling contractors into the toughest competition ever in the history of this industry.

In confronting these challenges, PV Drilling shall focus first on the domestic market. In fact, there are about 25 appraisal-exploration wells and 50 production wells anticipated to be drilled in Vietnam during 2016 and such a workload shall require 10-12 rigs on a frequent basis. Possessing the competitive edges including its available supporting infrastructure, the track-proven operational capability, the first-hand knowledge of domestic market insight, the company could offer clients with the best and cost-effective solution for their drilling operation. Under the current circumstance, operational efficiency and cost factors will be most concerned to all operators when it comes to select a contractor. Therefore, willingness to compromise the profit to share the cost impact with clients as well as maintain its premium service quality would be PV Drilling’s pragmatic approach to secure steady work for its rig fleet.

Investment and development
Additionally, PV Drilling will continue to implement its strategy of investment and development in other regional areas in Southeast Asia with great potential, particularly Malaysia, Brunei, Thailand, Myanmar and Cambodia. Focal points of this expansion strategy will be the provision of well technical services including mechanical services, fabrication, tool rental, tubular running, conductor, well testing, mud logging, wireline logging, slickline, fracturing, cementing, logging while drilling, measuring while drilling and directional drilling. The company shall deploy the special bundled service as an effective weapon to gain competitive edges over local competitors thanks to its considerable cost and time-saving benefits.

In the market downturn, PV Drilling anticipates the bounce-back of the industry within two to three years. It would be necessary to take advantage of this idle period to consolidate the inner strength and prepare to rise with the market resurgence when oil price gets back to its normal trajectory. In fact, PV Drilling shall maintain the strategic plan to acquire one to two modern jack-up rigs and one semi-submersible within the next five years. The projects could be implemented under joint-venture form and these new facilities shall enable us to venture further into the deep water areas with complex operational conditions, open up a whole new horizon for business development.

Despite the fluctuation of the market, PV Drilling is confident that it is heading toward a right direction with an appropriate strategy of investment and operation, which is in line with the long-term trend of the industry. Thus, the company shall keep pursuing its vision with great passion and exert the best effort to overcome all the challenges, improve its service quality and create more value added to better serve its clients and maintain future sustainability.

Nordea Liv becomes key player in Norway’s life insurance market

Posted on by Ashton Wenborn

Despite the impact of the financial crisis, Norway’s life insurance sector has become one of the fastest growing in the region. According to Reuters, the segment achieved a compound annual growth rate (CAGR) of 5.8 percent in gross written premium terms between 2008 and 2012. Although the economy remains stagnant due to low oil prices, the development of Norway’s life insurance industry is picking up speed, with demand forecasted to grow significantly in the coming years and an estimated CAGR of 6.4 percent between 2012 and 2017.

Moreover, ongoing technological advancements in mobile and internet platforms in the field are helping customers to meet their needs through simplified and more accessible services, which is also contributing to increasing public demand. Hoping to lead the entire Nordic region by example is Nordea Liv, one of the biggest life insurance companies in Norway. World Finance had the opportunity to speak with Jørund Vandvik, the CEO of Nordea Liv about changes in the growing sector and the mechanisms it has in place to meet new opportunities head on, both for the company and their customers across the country.

How has the market for life insurance changed in recent years?
The main development has been from complex, opaque, expensive products to simpler, transparent and less expensive products, and from infrequent to frequent sales. The market has moved away from guaranteed products, such as Defined Benefit pensions, to market return products like Defined Contribution pensions and investment return individual pension savings.

The main driver has been the pension reform, making corporate pension compulsory and increasing the need for individual pension savings. As a result the market has been growing rapidly, and the pressure is on the industry to make the products understandable, easy to buy and service – as well as tackling the increased volume – in an effective manner. Another important driver has been accounting standards, including IAS19 from the customer side, and especially the Solvency II regulations from the life insurance industry side. As a result, there is no longer a market for guaranteed products, and all competitors are now focusing on fast growing market return products. Another regulatory change affecting us is the Anti-Money Laundry and Anti-Terror Financing rules, which puts pressure on our ability to gather customer data and process it, without making life too difficult for customers.

Nordea Liv graph

What are the biggest challenges and opportunities for life insurance companies in Norway?
Looking ahead, we are expecting the demand for life and pension products to increase among our customers, which will be driven by demographic and economic developments in the coming years. At the same time, more and more customers are using new technology. Today, there are more transactions on our mobile banking app than on the internet banking portal. Therefore we are in the midst of a fundamental change, where mobile and online platforms are maturing to now create significant sales channels.

This is both a challenge and an opportunity – the key to success is to make life insurance and pension schemes relevant on these new platforms. That being said, the industry has a history of making things difficult and incomprehensible. The major challenge for life insurance companies is to engage with customers on the customers’ turf, which means keeping it simple and communicating in a way that we understand their needs and help them to achieve their future goals.

How does the life insurance market compare to neighbouring nations?
The life insurance market in the Nordic region varies in terms of social security regulations and product structure. However, we are all facing the same challenges regarding longevity, Solvency II, low interest rate environment and asset management. Fortunately, the Nordic markets are all technologically advanced and we are seeing a growth in online and mobile platforms as service and sales channels across the board.

How has Nordea Liv come to be seen as the market leader?
We are honoured to receive the Best Life Insurance Company award in Norway. I believe we are perceived as the market leader because of the way we have grown to become the number one life insurance company in the market. Our focus is on the continuous improvement of our customer value proposition and processes, with an emphasis on leveraging the potential that is embedded in new technology.

For this reason, technology is at the forefront of everything we do, including eliminating paper and using electronic signatures, which makes life easier for everyone and it is better for the environment. As a result, advisors love us, client needs are met and we are able to attract new customers. An added benefit is increased market share and interest – I believe we lead the way in Norway and that the rest will follow.

How has the bank assurance model served Nordea Liv in its growth story?
The bank assurance model is a core component in our growth story. The model provides us with access to a large customer base. In recent years, we have managed to employ more advisors to sell our products, and we have helped them to increase their sales more than ever before. We are dedicated to this model – all our sales are done through the sales teams employed by the bank and our partners. Our goal is to be the best product to them in all segments. This requires creating outstanding products and value for our distributors and their customers. In addition, it is vital that our products are simple to understand and sell.

Simplification not only makes life easier for our advisors and customers; it also makes it possible to automate and speed up the service. Another positive effect of bank assurance is the use of the bank’s asset allocation model in our products. This means that we can leverage their global asset management expertise and integrate their recommendations so that our major fund portfolios reflect their advice every month. This is valuable for both our customers – who get actively managed portfolios aligned with their risk appetite and horizon – as well as for the advisors who have products that reflects their advice.

How has Nordea Liv used automation to realise economies of scale?
Since 2010, we have increased the company’s premium income by 104 percent (see Fig. 1), reduced our staff by six percent and kept the cost base flat. Since 2006, when corporate pension become compulsory, our mind set has been fixed on automating all of our processes to tackle the increased volumes and gain cost efficiencies. We believe this is a more viable strategy in the long term, rather than to increase staff or outsource to Eastern Europe or India.

By applying technology to make things automated, we have developed a scalable and responsive organisation. At the core of our success is an all-electronic sales and underwriting process. Advisors use the sales tool when they are in dialogue with customers and customers sign using a digital signature. The application is then sent electronically to Nordea Liv. Here, it is screened in our electronic underwriting engine, where those who are ‘clean’ are issued instantly, and those who are not are then allocated to the relevant process. In total, more than 50 percent of our sales are issued on the same day.

How important is ethical management in the life insurance business?
It is crucial, as we need customer trust to succeed, particularly as we manage their future income. Therefore, we are very committed to acting ethically in our everyday business. However, we want to go even further than that and use our skills, expertise, knowledge and relationships to make a positive difference to individuals, society and the environment. Building trust, being open and approachable, as well as acting with integrity are vital to achieving this objective.

What are some of the company’s most impressive recent achievements?
We are steadily improving our digital solutions to support our journey. Among our achievements in this area this year is the introduction of electronic signatures on all of our products. This was driven by compliance, but it also makes things easier for those who sell life and pensions over the phone, through live chat or online. We also introduced an iPad sales-app for corporate pensions, which makes sales much easier for our partner sales force. It also supports compliance by including an electronic signature and documentation of ID. Finally, we launched an online sales application for life insurance so that we can offer even more support to our partners’ online sales strategies.

What are your ambitions for the future?
Our ambition is to be the best product provider to our distributors, so they can continue creating a great customer experience. We are well positioned in the advisory channels and now online sales are evolving as a crucial sales channel too. With our proven experience and competence in making services easy to use and our all-electronic infrastructure for customer services, self-services and sales, we will continue supporting our distributors to succeed in being the best for mobile and online sales of life insurance and pensions.

IMF predicts Saudi Arabia will become bankrupt shortly

Posted on by Ashton Wenborn

A new report published in October by the IMF predicts that within five years, Saudi Arabia will have used all of its cash reserves, and so will become bankrupt. The annual Regional Economic Outlook takes an in depth look of the economic vitality of MENAP countries, including the Kingdom. In this latest edition, the IMF explains that during the ongoing period of low oil prices, exporting countries, including Saudi Arabia, are not “saving enough of their hydrocarbon wealth for intergenerational purposes”.

[T]he study does not allude to the measures that are currently being taken by the government to diversify the economy

According to the analysis, Saudi Arabia is due to experience a budget deficit of 21.6 percent this year, and a further 19.4 percent reduction in overall fiscal balance during 2016. Moreover, foreign reserves held by the Saudi Arabian central bank (Sama), have declined by around $73bn since the onset of the oil price slump last year.

Losses are attributed to the ongoing conflict in Yemen, which has led Saudi Arabia to take the number three spot in terms of global military spending. This year has also seen the government’s spending spree in terms of infrastructure development, as well as $32bn to celebrate the coronation of the new king, Salman Bin Abdulaziz Al Saud. However, it is important to note that a large majority of the reduction in foreign reserves is actually a result of huge withdrawals from Sama, which many believe is part of a strategy to reinvest capital in less risky products and ventures.

Of course, statistics give little room for debate; mounting government deficit coupled with a startling reduction in foreign reserves indicates a tumultuous time ahead for the Saudi Arabian economy. That being said, the study does not allude to the measures that are currently being taken by the government to diversify the economy. At present, 90 percent of it is reliant on oil exports, yet there are other promising industries that are beginning to emerge, such as real estate development, healthcare and plastic manufacturing. Furthermore, the government’s decision to open up its stock market to the international community earlier this year is another indication of a new approach that is now being taken by the Saudi regime.

The continued slump in oil prices is also unlikely to persist, at least, not at its current levels, meaning that it is not all doom and gloom ahead for Saudi Arabia, as the IMF’s recent report maintains.

Venezuela sues US currency tracking site DolarToday

Posted on by Ashton Wenborn

Venezuela’s Central Bank has filed a complaint in the US against financial news website DolarToday. Based in the US state of Alabama, the website has become known for providing market pricing information of the cost of Venezuelan currency, the bolivar. As a result it has been accused cyber terrorism and sowing economic disruption in the beleaguered South American nation.

Venezuela is currently in the midst of an economic crisis, with its currency in free fall

Venezuela is currently in the midst of an economic crisis, with its currency in free fall. The country’s economy, tightly controlled by the state, has a bewildering system for the pricing of its currency, making use of a three-tier system, in an attempt to subsidise imports with preferable exchange rates.

The result of this heavily controlled exchange rate and plummeting actual market value of the currency has sent many Venezuelans to the black market. DolarToday, as a result, has become one of the few places providing accurate market price of Venezuelan bolivars. Although the website itself is banned in the country, many are able to circumvent state censors through twitter or proxy websites.

The vast discrepancy between the actual market exchange rate of the bolivar and that set by the state is shown by the fact that, on October 23 2015, the price of bolivars to the dollar was 820 to one, while the three-tier system of the Venezuelan central bank had its official rates of 6.3, 13.5 and 200 bolivars to the dollar.

In the complaint DolarToday is accused of ““a form of cyberterrorism to wreak…economic and reputational harm on the Central Bank.” In a statement, Adam Fox, an attorney with US law firm Squire Patton Boggs, acting as the banks legal representation in the US said that “Arbitrarily manufacturing currency exchange rates creates further turmoil in a country that is working to overcome the obstacles it already faces in sustaining its economy,” and that by “seeking to manipulate global markets by subverting government fiscal policy, DolarToday unlawfully hinders Venezuela’s ability to manage its economic affairs.”

Lebanon becomes recognised as an economy with endurance

Posted on by Ashton Wenborn

Despite the deteriorated conditions in the Middle East, which subdued growth in Lebanon, the country’s banking sector has proven itself to be remarkably resilient to external shocks. Banks in Lebanon have, despite the adverse conditions, continued to pursue expansion.

The sector’s size is 3.6 times larger than the rest of the economy. Banks’ domestic assets reached $180bn at the end of June 2015, an increase of 49 percent over the past five years, whereas GDP has been growing at an average annual rate of 2.1 percent over the same period. Deposits have grown 50 percent between 2010 and 2015, while loans to the private sector have increased by 63 percent. Like much of Lebanese society, the country’s financial institutions have proven themselves to be remarkably resilient, weathering crisis after crisis and continuing to function in the face of adversity.

Part of the reason for the success in this sector is the result of close and prudent oversight by Lebanon’s banking authorities. The Lebanese supervisory and regulatory frameworks are being constantly upgraded to international standards, while authorities continue to monitor the sector closely, with particular focus on liquidity and solvency levels, as well as periodic risk assessments. With such safeguards and oversight, confidence in Lebanon’s banking sector has been reinforced, allowing the banking sector to build up a large depositor base, both nationally and internationally. Moreover, housing loans have continued to be in high demand despite signs of a slowdown in the real estate market. Consumption, on the other hand, in a highly dollarised economy, held strong supported by higher purchasing power thanks to subdued inflation and a stronger dollar.

$180bn

Lebanese banks’ domestic assets, 2015

Banks remained committed to financing the local economy, notwithstanding incentive programmes introduced by the Central Bank of Lebanon, whereby banks benefit from subsidised financing aimed at tradable sectors in the real economy as well as the knowledge economy by means of equity financing. Furthermore, Societe Generale de Banque au Liban’s (SGBL) CEO, Antoun Sehnaoui, told World Finance, “This package of incentives was all the more effective given the supportive monetary policy by the Central Bank in managing foreign reserves and maintaining a stable exchange rate despite rising tensions both domestically and regionally.”

Strongest cedar in the forest
SGBL, an affiliate of the French multinational banking group, Societe Generale, has seen some of the strongest growth in the Lebanese banking sector as of late. The bank’s deposits and loans book have been growing steadily, despite fierce competition in a small-size market; over the past three years, SGBL have managed to raise their deposits and loans by 44 percent and 32 percent, respectively.

The bank has had a string of successes and made a series of power moves lately. For instance, SGBL recently successfully negotiated, as appointed co-lead manager by the Lebanese Government, the largest Lebanese Republic eurobond issuance since the 90s. The confidence of the Lebanese financial authorities in the bank was further demonstrated by SGBL securing rights for synergetic M&A execution within a highly competitive financial sector under consolidation. SGBL has also advised corporate groups on capital structure and strategic restructuring, opening itself up to mandate-based transactional business. The bank has teamed up with a number of important allies lately, including local venture capitalists as well as the Spanish Mundi Ventures and Kuwaiti International Financial Advisors towards launching the Cedar Mundi Fund.

The bank has successfully structured and placed debt and hybrid instruments via local and foreign financing vehicles at competitive rates in various industries. It has also expanded its structured products offering by adding both off-the-shelf and tailor-made solutions to its product range in order to provide clients with specific investment opportunities based on identified market inefficiencies and dislocations.

Into the future
More importantly, the bank’s growth has been underpinned by a strong and growing capital base, having increased by two-fold over the last three years to reach $1.18bn by the end of June 2015, with regulatory ratios kept comfortably above international requirements. As for profitability, SGBL’s return-on-equity reached 17 percent in 2014, a more than satisfactory performance indicator. All this earned SGBL a leading position among its Lebanese peers.

With an eye on the future and a need to rise up to new challenges in a highly competitive environment, the bank has embraced technology-based banking products, increasing their appeal to Lebanon’s young population. “Specialists are constantly upgrading our e-banking system which is being very appreciated by our clients”, said Sehnaoui. “It is worth mentioning that Lebanese banks have a long history of crisis management. Operating in a small and unstable market has pushed them over the last two decades to diversify their revenue sources.”

SGBL is no exception, and is constantly looking to diversify its revenue base, by targeting untapped banking opportunities in Lebanon in particular, and the Middle East and North Africa region in general. With the Middle East and North Africa accounting for some of the lowest FDI levels in the world, SGBL is allocating resources to develop private banking and investment banking activities in the region, targeting affluent and high net worth customers as well as institutions.

SGBL is well placed to take advantage of regional and international opportunities, with such internationalism being a characteristic of Lebanese banks owing, by and large, to the huge Lebanese diaspora worldwide estimated between eight and 14 million. As a result, Lebanon is able to attract around $8bn in workers’ remittances every year, which is around 15 percent of GDP. This unfaltering support of the broad Lebanese diaspora is pivotal to the country’s economy. Strategically, the leading banks have set up regional and international subsidiaries, namely in the Middle East, the Gulf and West Africa, to cater for a sizable and influential Lebanese diaspora.

SGBL hopes to see further expansion in its investment finance activities in view of the evolving legal and regulatory frameworks (including tax codes, laws on foreign investment, decrees and regulations covering capital markets, privatisations, etc.) alongside Lebanon’s inherent aspects of competitiveness (namely, its banking secrecy and tax regime), which are all the more conducive to wealth creation. In consequence, Sehnaoui said, “It would be both natural and strategic for SGBL to establish and grow its dedicated investment finance arm to exploit such opportunities.”

Valley of value
The Lebanese banking sector looks set for a bright future, with SGBL at the forefront of its shine. Lebanon is yet to establish itself as a regional hub for institutional investors, but given its financial system that has long been distinguished as a model for the region, the bold initiatives and funding schemes by the central bank aimed at structural economic development are pushing it in the right direction. Right now, the Lebanese Central Bank is in the midst of enforcing its new 3D regulatory regime, along with the Banking Control Commission and the Capital Markets Authority. The aim of this is to provide much needed confidence and assurance for liquidity providers to direct institutional money flows to Lebanon.

Furthermore, Lebanon is slowly but surely catching up on investment finance despite the many challenges facing both country and industry. The opportunities are vast, both domestically and regionally. At the same time, the ever-evolving legal and regulatory frameworks are increasingly conducive to wealth creation. It is for these reasons, then, that SGBL is growing its dedicated investment finance arm to exploit such opportunities. SGBL is constantly on the watch for new opportunities and always looking to leverage its position as a top tier Lebanese bank with substantial means to mobilise talent, resources and capital towards building a brand of excellence and expanding locally and regionally in market segments of interest.

Martin Bellin on succeeding in treasury management

Posted on by Ashton Wenborn

Talented corporate treasurers can bring wide-ranging benefits to participating companies, yet the treasury function can also result in heavy losses if conducted improperly. It’s therefore doubly important that companies employ an effective treasury management strategy in keeping close tabs on their finances and taking a pragmatic approach to solving treasury problems.

World Finance spoke to Martin Bellin, founder and CEO of the global consulting and software provider for treasury management solutions BELLIN, and winner of one of this year’s Entrepreneur of the Year awards, about his experience as a corporate treasurer and the evolution of treasury.

How did your experience as a corporate treasurer inspire you to create BELLIN?
After finishing university I started working for a major German corporate group. The department I worked for would nowadays be called treasury, as it was responsible for handling forex trading and commercial papers, and assumed the role of an in-house bank. However, the treasury operations were not centralised. It was my responsibility to enable the daily reporting of the financial status, to collect money from the subsidiaries and to have an overview of our global banking business.

There was no alternative source of income, there was no plan B – but there was tireless energy and I was 100 percent convinced of my idea

This proved nearly impossible without an adequate system in place. At the time, fax machines were state of the art and Excel was in its early stages. What I needed to perform my job was a treasury management system that just did not exist. I encountered the same data collection problems in my next job, setting up a global treasury for a financially sound, mid-sized company. It was this experience and my background in IT from my university days that inspired me and I realised that the only way I was going to get a suitable system would be to develop my own. I had seen first hand what was needed, and founding BELLIN has allowed me to address all these needs and provide a comprehensive solution.

Tell us about the history of BELLIN, and the major challenges you’ve faced along the way
After setting out to create a tool for my treasury business while still working, I followed in the footsteps of so many successful entrepreneurs. I bought my first computer, set up a small corner in my living room where I worked after hours and at weekends to get a demo version of the application I had in mind ready to present. The major challenge was not the development of the application as such; it was getting a foot in the door with corporate treasuries.

A one-man business simply failed to impress multinational corporates with large treasury departments. And after quitting my job I was faced with the additional challenge of having to make sure my own business would provide enough income to support my family.

There was no alternative source of income, there was no plan B – but there was tireless energy and I was 100 percent convinced of my idea. Eventually, I found one, then a second and a third customer who in turn spread the word that there was ‘a new guy in town’. But even then, it was difficult competing with other, established providers who eyed a new player with suspicion. Consultants were reluctant to take the risk of recommending BELLIN and we were only rarely long-listed in RFPs.

Sometimes I was invited off the record and was told that I could come along to have a look at how the big boys do business. Some of these companies are now implementing my concepts, which gives me great personal satisfaction. The obstacles were high but with a family behind me sharing my vision, almost everything is possible – but it requires 24/7 work without even thinking about a day off.

What differentiates BELLIN’s treasury management system from others in the field?
The philosophy of the system is completely unique. From the very beginning I was focused on the idea of a global platform, even at times when the internet was still alien territory to most people. This is why we have been able to offer so many firsts in the last 15 years.

Our aim has always been to consolidate and connect, to reduce the number of required systems in treasury, replace spread sheets, make processes more efficient and most of all: provide added value to all group companies. We do not just benefit the highly sophisticated treasurer in central treasury but every group company, of course with the objectives of the overall business in mind. This approach forms the basis of our concepts of LOADBALANCEDTREASURY as well as AGREEMENTDRIVENNETTING, or even our five-dimensional payment processing with an integrated SWIFT connection.

How has treasury evolved, and to what degree is BELLIN a response to this?
Treasury has evolved from a highly specialised unit at headquarters to a group-wide task involving almost every subsidiary in one way or other. Topics such as Value-at-Risk have been replaced by the notion of a single bank-independent platform for all single and bulk payments released.

It is recognised by the CFO and now at the heart of the financial value chain and its key role in providing added value to hedging and funding is being acknowledged. It is an integral part of the organisation tearing down the walls between business units and legal entities. Treasury always thinks in group-wide terms and ensures the flow of communication and information between subsidiaries. In doing so, it has paved the way for global business.

A few years back, many mid-sized corporates questioned whether they could afford a dedicated treasury organisation. Nowadays, they need to ask themselves how long they can still afford not having one. BELLIN has had this group-wide role on the agenda from the outset and has been providing the tools to allow businesses to manage their treasury on a global scale – with a single platform encompassing everyone.

How is the pragmatic and efficient nature of German engineering present in BELLIN’s day-to-day operations?
Every single day we fight the temptation to ‘just fix it’. We analyse problems thoroughly and try to find an even better solution. This requires time and money but in the long run it is much more efficient and will last much longer. Today everything is fast-paced and should be applied on the spot.

We stand our ground and work on solid long-term solutions. It is not easy but our results speak for themselves and our approach has long paid off. Our customer base prefers to have a solid and thought-through solution in place, even if it may not always be what they had expected. But they know that it is going to work without any problems.

Can you tell us about this concept of Load Balanced Treasury and what it means?
A treasurer once approached me and asked for help. He was alone in his treasury and responsible for 35 group companies. The solution was simple: applying the concept of LOADBALANCEDTREASURY meant that all subsidiaries were actively involved and the treasurer went from working on his own to working as part of a team – almost like having 36 group-wide treasurers. That is what our solutions are made for. They provide functionality for all requirements to all subsidiaries in order to reflect their daily processes. This is a great help to all parties involved – from cash management to payments to financial contracts, it improves their daily work. By providing the tool to all subs, all information is available in one single database and application – in real time. The times spent on data collection can now be used for valuable treasury management tasks.

To what extent has technology featured in BELLIN’s success?
Despite starting out with the idea of spending a major part of our resources on consulting and advisory, we quickly became known for our applications. Our technology has always been the backbone of any additional services we offer and having been awarded best treasury management system at the 2015 FinTech Innovation Awards is proof of this technological excellence.

What are your ambitions for the future of the company?
We want to make a fundamental impact on treasury, to change its the role within the organisation and to be an integral part of corporate finance to delight multinational organisations with our ideas and solutions. We would like to exchange the term TMS simply with BELLIN and become an indispensable asset to any global company. We have already come a long way and will continue to pursue this goal.

Hedge Fund Personality of the Year: Maggie Rokkum-Testi

Posted on by Ashton Wenborn

An impressive summer aside, hedge funds have struggled in recent times to reach the highs of old. However, following an extended period of patchy returns, it appears that the industry can at last look forward to brighter returns in the years and months to come.

For those keeping a close eye on the market, business has proven far easier to come by, whereas those struggling for a foothold are failing to justify their high fees. We spoke to Maggie Rokkum-Testi, Chief Investment Officer and Co-founder of Thalìa Invest about what it takes to succeed in the present climate, and how it feels to be awarded World Finance’s Hedge Fund Personality of the Year.

Why are hedge funds still an important part of a diversified portfolio?
The usefulness of hedge funds in a diversified portfolio has changed over time, as have the expectations of what hedge funds should do. In the early days, when markets were less efficient and hedge funds were few and far between, hedge funds were sought-after for outsized returns, based often on a few lucky bets. The investor base was far less sophisticated than today.

In recent years, with hindsight, it may appear that hedge funds have added little to a portfolio in terms of performance, having generally underperformed the quantitative easing driven rally in equities that we have experienced. Having said that, what is often overlooked is the quality of the returns and the contribution to the risk of a portfolio. Hedge funds typically provide less correlated returns with a fraction of the volatility of markets, and that is where their real value lies. No one knows a priori what markets will bring, so taking a balanced approach is the wiser choice.

Don’t take anything for granted. Nothing is due – you have to be curious and work hard to
achieve success

We are at a turning point in global markets with rates across the globe at record low levels, the US starting to raise rates, US equities appearing toppish and the risk across international equity markets potentially on the rise. This is the perfect time for hedge funds to be included in investment portfolios. Fundamentals are starting to be reflected in securities’ prices and since the vast majority of hedge fund strategies rely on securities moving towards their fundamental values, they should finally be rewarded for their efforts. We are in a different state of the world, and return expectations across the spectrum of securities must come down, as it must for hedge fund investors.

Investing also requires patience; investing with a balanced approach, taking a multi-year view is a healthier way of investing. Being able to avoid reacting to short-term volatility or moments of under-performance is key to long-term value creation.

Could you give me a brief history of how Thalìa came to be what it is now?
Thalìa is a multiple award-winning Swiss alternative asset management company managing investment vehicles and offering advisory services in the hedge funds space. The company currently has $1.4bn under management and advisory and is currently 65 percent owned by BI-Invest, a leading alternative investment group of independently managed advisory and investment companies. BSI is a minority stakeholder.

Thalìa was founded as a spin-off of BSI’s Fund of Hedge Funds (FoHF) team in 2003 to form the Competence Centre for Hedge Fund investments of BSI and the Generali Group. In the summer of 2012 BSI increased its stake in Thalìa from 51 percent to 100 percent. The acquisition took place through the purchase of the 49 percent stake previously held by Generali Investments. The transaction took place on the back of the Generali Group’s decision to focus solely on its ‘core’ business.

In order to allow Thalìa to strengthen and broaden its current business, Thalìa’s management team, in close collaboration with BSI’s management, decided to look for a new strategic partner able to support the company in its future developments. The process was completed at the end of June 2014 when BI-Invest bought 65 percent of Thalìa, whereas BSI still retains a 35 percent minority stake in the company.

As an authorised asset management company in Switzerland (authorisation was given by the FINMA in 2007), Thalìa manages a number of funds of hedge funds, many of which have received prestigious international awards and recognitions for their performance compared to peers, and serves a number of clients, including the Generali Group, pension funds, family offices and sizeable ultra-high-net-worth private clients.

Thalìa acts as portfolio manager for two Swiss-domiciled white label funds of hedge funds (the BSI Multi-Manager Directional and BSI Yield Enhancement funds), the Thalìa Alternative Sicav (TAS), an umbrella fund domiciled in Luxembourg, composed of eight single strategy, multimanager funds of hedge funds, often used for the further construction of bespoke portfolios. Furthermore, Thalìa acts as portfolio manager for a French domiciled FoHFs managed on behalf of Generali Investments Opera and for the BSI Multinvest Alternative UCITS fund, a fund of UCITS IV funds launched in 2010. The company finally acts as advisors for the two Italian FoHFs, for the Generali Group.

What do you think separates you and your fund of funds from the rest of the competition?
One of our most important strengths lies with our investment philosophy and investment process. Thalìa has developed its own approach based almost entirely on qualitative analysis. Our goal is to select talented fund managers who are able to produce above average risk-adjusted returns resulting from a disciplined, repeatable investment process. Conviction in the quality of any single manager is the main element for portfolio construction. Nevertheless, quantitative analysis and operational due diligence are then used to confirm or challenge the results of the qualitative analysis.

At Thalìa we do not approach investing in hedge funds in a top-down manner, nor do we allocate according to a style matrix. Our process is bottom-up driven, that is, it depends more on the quality of the managers than anything else. As a consequence, Thalìa attaches great importance to the single hedge fund managers’ capabilities and experience to adapt their portfolios to changing market conditions. Nevertheless, changes in the asset allocation of portfolios are discussed by the monthly investment committee, which decides the bottom-up allocation to individual hedge funds. More strategic changes among strategies are discussed annually or on an ad-hoc basis, very often driven by useful input from managers across strategies. Last but not least, risk management at Thalìa is involved in the due diligence process and portfolio construction at a very early stage. This allows for a very robust investment process in all phases.

What is your proudest achievement inside the office?
Inside the office, it’s hard to put my finger on one achievement. I’m proud of the results we have produced over the years, in particular how we survived 2008 without exposure to the Madoff scandal, without having to limit our investors’ redemptions through gates, or side pockets, etc.

But I would say that I am most proud of the team and the working environment we have built. The senior investment professionals on the team have been working together on average for more than 10 years, and I can proudly say that we are genuinely happy to go to the office every day. Their success is my success – I wouldn’t be having this interview without their hard work and dedication.

What advice would you give to young financiers looking to reach your level?
Don’t take anything for granted. Nothing is due – you have to be curious and work hard to achieve success. Be honest and ethical – it gets you very far. Finally – don’t pursue a career that’s expected of you. To be successful, you need passion and dedication. If you’re doing something that you don’t love, you won’t achieve success.

How does it feel to be awarded Hedge Fund Personality of the Year?
Being a woman in a male dominated world and receiving this recognition makes it quite an honour, and I am flattered. Having said that, I am extremely proud of this achievement, not so much for myself, but for my entire team – I would not be here without them.

You have achieved so much already – what motivates you to keep building on that success?
To be perfectly honest, this is an industry that keeps you on your toes and it is full of interesting, extremely intelligent personalities. The learning curve is steep and as long as I personally continue to learn and grow, there is no reason to give up yet. As a firm, there is so much more we can do. We are just getting started in getting the message across regarding our products and the quality of service that we can provide.

What is next for you and Thalìa?
We are working on strategies for growth that I hope will bear fruit in the coming months and years. The entire team deserves further success.

Diversifying in the Gulf

Posted on by Ashton Wenborn

In May 1981, the Gulf Cooperation Council (GCC) was formed, creating an economic and political alliance between Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain and Oman. The primary purpose of the union was to foster stronger ties between the member states in order to enhance their respective economies. The union was helped by the fact that all six countries already possessed strikingly similar political and cultural identities, which are heavily based on the teachings of Islam.

Together, the GCC is home to more than half of the world’s oil, with Saudi Arabia controlling the largest share out of the six member states. Possessing such a large proportion of total reserves provides GCC countries with a strong economic foundation, but in recent years the alliance has recognised that its dependence on the commodity is dangerous, and that greater diversification is needed to ensure long-term prosperity.

By working collectively, GCC member states managed to help one another weather the storm created by the economic crisis in 2008. During this period, the GCC’s common market was created, and in 2010, the alliance has even considered adopting a single currency similar to the euro, but it is yet to materialise. Since then, through increased cooperation, all member states have helped each other expand their economic activity by investing in infrastructure and other development projects, often through joint ventures, all of which have helped establish the GCC become a major player in the global market.

GCC Investment & Development 2015 Awards

Saudi Arabia
Like other GCC member states, Saudi Arabia has been in the process of diversifying its economy for some time, with the aim being to reduce its reliance on oil. For this economic plan to be a success, it has required large levels of investment in education, infrastructure, technology, science and healthcare in particular. The country’s budget reflects the government’s commitment to economic diversification. In 2015, it is projected that total revenues will reach $190bn, with total government spending estimated at $229.3bn, resulting in a $38bn deficit.

But despite the kingdom’s willingness to invest in non-oil related projects, the country has not slowed oil production. In fact, as the price of oil has declined as a consequence of lower global demand, brought about by alternative sources of energy, like shale gas, the country has been reluctant to decrease output.

Nevertheless, the country has seen non-oil GDP grow considerably in 2014, with many private sector industries benefitting from the greater investment. According to the US-Saudi Arabian Business Council, growth rates for various industry sectors, including construction (6.7 percent), transportation, storage, and communications (6.13 percent), wholesale, retail, restaurants, and hotels (5.97 percent), and finance, insurance, and real estate (4.46 percent), have been impressive.

Kuwait
Over the years, Kuwait has introduced a number of reforms to corporate legislation in an attempt to increase the amount foreign direct investment the country receives. In a similar fashion, legislators have pushed ahead with regulatory changes that have made it easier for new businesses, domestic and foreign, to enter its various markets.

The Direct Investment Promotion Law was finally finalised by the government near the end of last year. It represents a massive leap forward for the country. So far, this has helped the country to reduce is dependence on oil, fuelling the national economy and offering investors more confidence, which in turn will ensure that investment continues to flow into Kuwait.

The new legislation is one part of a wider set of reform that is comprised in the Kuwait Development Plan. The plan lays out the country’s economic future and the direction that the government wishes to take to provide its citizens with increased prosperity. Over the next three decades, the government is hoping that it can transform Kuwait into a commercial and financial hub, reducing its dependence on oil in the process.

According to a recent economic update by the Oxford Business Group, the government has allocated more than $115bn for a wide array of projects, “including 45,000 new housing units, a metro and railway system, and a new refinery”. Once completed such developments in infrastructure developments will help its burgeoning private sector to grab a larger share of its economy.

UAE
Last year, the UAE Government proudly declared 2015 as the “year of innovation” and unveiled a new strategy that seeks to make the country one of the most innovative nations in the world.

“Announcing 2015 as the year of innovation comes to support federal government efforts, attract national skills, increase distinguished research, as well as boost efforts to build a national cadre who are able to lead our future in this field towards more progress, prosperity and innovation”, said His Highness Sheikh Khalifa bin Zayed Al Nahyan, President of the UAE during a special meeting in Fujairah. “We live today in a world witnessing rapid changes and continuous developments, full of opportunities, discoveries and inventions.

“This innovation strategy is a national priority for our programme of development and progress”, he added. “It is a primary tool to achieve Vision 2021 and an engine for the growth of distinctive skills and capabilities across the nation.”

The National Innovation Strategy (NIS) seeks to cultivate a culture of innovation in some of the country’s key economic sectors, such as renewables, transport, education, health and technology. In order to make the dream a reality, the government plans to introduce new legislation, invest in its workforce, and provide industry with the right financial incentives that will drive innovation within the country.

Qatar
Qatar is one of the most successful GCC countries and boasts one of the fastest growing economies in the world right now, with GDP growth coming in at 6.3 percent in 2014 and expected to exceed expectations in 2015.

The country is a massive exporter of LNG, but the government has been keen to use the huge revenues from the sector to diversify its economy and stop it becoming a one trick pony. Its government plans to invest large amounts of capital into infrastructure projects that are essential if it is to develop a sustainable economy.

Qatar is eager to transform itself into a more modern society, with the hope that it will attract more investment. And it is particularly interested in developing its financial sector in a bid to bring more FDI. All eyes will be on the country when it hosts the FIFA World Cup in 2022 and the government will be hoping that the event will showcase the accomplishments the country has achieved so far, as well as helping to make the country a more prominent figure on the world stage.

Bahrain
Bahrain made a name for itself during the 1970s as the Middle East’s biggest financial hub. In recent years, the country has had to fend off attempts to dethrone it as the financial epicentre of the region, with economic diversification high on the agenda for many of its neighbours. But Bahrain has not rested on its laurels and invested heavily into its financial sector in a bid to stay ahead of the pack, with the country now boasting the greatest concentration of Islamic financial institutions in the world.

Its economic fortunes have been bolstered by strong population growth, which provides the impetus to invest in the development of new housing and infrastructure projects. Over the coming decade, the country plans to expand its rail and air links, which will help to make the country more appealing to tourists, and will help make the country more attractive to businesses looking to set up shop.

Like its GCC partners, Bahrain has felt the impact of falling oil prices. But it too has managed to weather the dip with relative ease, which exemplifies the success the country has had at reducing its dependence on the commodity. And while its financial sector has flourished, growing to become the country’s second largest contributor to GDP, the government has increased spending in other areas of the economy to help those grow with similar fervour.

Oman
Oman has ploughed a lot of money into developing its infrastructure, and is hoping that by doing so; it can entice businesses from around the world to lay down roots, assisting the economic growth of the country in the process.

One of the most ambitious, and potentially fruitful development projects is the long-awaited 256km Oman-Saudi highway, which cuts through the sand of Rub al Khali, or Empty Quarter. As it stands, the project is around 85 percent complete, but once finished, the trade link will help boost their respective economies.

Oman is also near to completing two state-of-the-art airports in Salalah and Musact that will help bolster its tourism sector. But arguably the most important infrastructure project the country has planned is the Public Transport Master Plan for the nation’s capital, which is designed to reduce the strain on existing infrastructure and lower congestion on major road networks throughout the sultanate.

GCC Investment & Development 2015 Awards

Posted on by Ashton Wenborn

Saudi Arabia

Best Real Estate Investment Company
Mohammed Al Subeaei & Sons Investment Company (MASIC)

Most Socially Responsible Investment Company
Mohammed Al Subeaei & Sons Investment Company (MASIC)

Best Direct Investment Company
SEDCO Holding

Best Luxury Car Dealer
Al Ghassan Motors

Best Real Estate Development Project
Jabal Omar Development Project – Jabal Omar Development Company

Best Transport Infrastructure Development Project
GCC Railway Project – Saudi Railways Organisation

GCC Stock Exchange of the Year Award
Saudi Stock Exchange (Tadawul)

UAE

Best Investor Relations
First Gulf Bank

Best Family Owned Investment Company
Saeed & Mohammed Al Naboodah Group

Best Financial Research Firm
SHUAA Capital

Best SME Finance Provider
Gulf Finance

Best Employee Development
The Emirates Integrated Telecommunications Company

Best Securities Brokerage
MENACORP

Best Corporate Social Responsibility
MENACORP

Best Hospital Entity
NMC Health

Best Pharmaceutical Company
Neopharma

Best Fashion & Lifestyle Retailer
Chalhoub Group

Best Cultural, Sports and Recreational Infrastructure Project
Sharjah Investment and Development Authority

Best Energy Infrastructure Development Project
Al Hosn Gas Project – Abu Dhabi Gas Development Company

Best Economic Infrastructure Development Project
Dubai South, Dubai World Central

GCC Award for Innovation and Excellence
UAE General Civil Aviation Authority

Kuwait

Best Asset Management Company
Kuwait Investment Company

Best Banking & Finance IT Solutions Provider
International Turnkey Systems

Best Fund Management Company
National Investments Company

Best Custodian Company
Gulf Custody Company

Best Foreign Exchange & Remittance Company
Al Muzaini Exchange Company

Best Incestment Advisory Company
Global Investment House

GCC Chairman of the Year
Sheikh Mohammed J AI-Sabah – Kuwait International Bank

Qatar

Best Bond Issuer
Qatar Central Bank

Oman

Best Project Finance Programme
National Bank of Oman

Bahrain

Best Industrial Development Company
Aluminium Bahrain

Modi moves closer to Africa

Posted on by Ashton Wenborn

Over 40 African nations are expected to participate in the 2015 India-Africa Forum Summit (IAFS), during which Indian Prime Minister Narendra Modi hopes to secure greater economic and political cooperation. In the midst of Chinese economic slowdown, New Delhi will use the three-day event, which begins on October 26, to highlight India as an alternative for investment and trade.

Despite a long trading history between India and Africa, economic ties have declined since the Cold War era

Despite a long trading history between India and Africa, economic ties have declined since the Cold War era. Yet commonalities between the two make a stronger partnership a natural progression for their respective foreign policies; both live with a colonial past and are home to the largest concentration of people living in extreme poverty. Although they each have various challenges to contend with, they are also experiencing impressive GDP growth in a period of general global stagnation.

In fact, both India and Africa are currently undergoing a period of transition, in which an unprecedented level of economic activity is resulting in an expanding middle class and increasing urbanisation, thereby making them both drivers of global growth, a significant factor given China’s ongoing economic slowdown.

Since the IAFS was first held in 2008, the event has successfully doubled bilateral annual trade to around $72m. That being said, there is still a long way to go to reach the level at which Africa currently trades with China, which is a formidable $200m per annum. “We can’t match the Chinese in terms of resources – but any engagement we do with the Africans at least gives them a choice,” C. Raja Mohan, a representative from Observer Research Foundation, told Reuters.

This comment, among others, indicates the soft foreign policy approach that India is taking in regards to the African continent, as it attempts to consolidate a relationship that is based on development, as opposed to exploitation or extraction.

China cuts rates – again

Posted on by Ashton Wenborn

The People’s Bank of China has again chosen to cut its one-year benchmark interest rate by a quarter of a percentage point, in the hope that doing so might lend the country a hand in reaching its seven percent growth target for this year. This same policy has been employed by China’s central bank on repeated occasions this year, and the announcement marks the sixth time in only 12 months that the country has slashed its key interest rate.

Looking at the last three decades, China’s economy has grown at an average clip of 10 percent per year

News of the rate reduction hit little under a month after the IMF delivered its revised global outlook, in which it stated global growth this year would be at its lowest since the financial crisis hit, as well as 0.3 percent lower than 2014. The reduction is due primarily to a prolonged slowdown in emerging markets, and China’s changed rate feeds into widespread fears that the world’s number two economy is struggling to reach its targets.

Looking at the last three decades, China’s economy has grown at an average clip of 10 percent per year, yet the country has been forced to make do with much less recently as it makes the transition to a sustainable growth model.

The country’s new 4.35 percent benchmark interest rate received a mixed, although Asian stocks mostly rose in response. The Shanghai Composite Index closed up 0.5 percent on the same day, which bears well for the country’s fifth plenary session, beginning on the day of the announcement.

The question for the time being is not whether China’s investment-driven growth story can realise a more sustainable shape, but whether it can do so without too much of in the way of an impact on global economic growth.

The Owners’ Club: Saudi Arabia’s thriving luxury car market

Posted on by World Finance

Every year Saudi Arabia imports 600,000 cars, worth more than $20bn. Sheikh Ghassan Al Sulaiman, CEO of Al Ghassan Motors, tells World Finance that the key to the industry is creating the luxury lifestyle associated with the brands.

World Finance: Saudi Arabia’s luxury car market is booming. Every year the country imports 600,000 cars, worth more than $20bn. Luxury vehicles account for more than 18 percent of total imported cars, making it the world’s largest market in the luxury car category.

With me now is Sheikh Ghassan Al Sulaiman from Al Ghassan Motors: a leading car dealer in the country.

How does the car market differ in Saudi Arabia from the rest of the Arab world?

Ghassan Al Sulaiman: Saudi Arabia is completely different.

We have representation in the three major cities in Saudi Arabia, and the distance between each one of them and their population is equal to one of our neighbours.

We believe that Saudi Arabia has a big number of high-net-worth families; and you’ll see that some of these families will have more than one of our brands, the luxury cars.

But in general, the Saudi customer enjoys the quality and luxury that our brands offer. And that’s also in the rest of the GCC.

World Finance: So what is the key to being successful in the luxury car market in Saudi Arabia?

Ghassan Al Sulaiman: Customer care and aftersales service is the key. It’s always been the key of success: if you succeed in aftersales, you will succeed in sales.

Our customers would like to enjoy a lifestyle associated with the brands they drive. And that’s what we do. We create the owners’ club, to give them that lifestyle, and let them associate with the same people, in the same lifestyle, with the same brands.

So what we do too is, we invest a lot in aftersales, and the sales facilities and training of our people; to give our customers the best service they deserve in these luxury brands.

World Finance: Now you also deal in pre-owned cars; how much of a market is there for this? What kind of figures are we talking about?

Ghassan Al Sulaiman: For the last seven years, sales of new luxury cars has been growing. And logically there will be a lot of pre-owned cars in the market. And usually in the mature market there is a ratio of selling two used cars to one new one.

We’re not there yet, but the market is getting to that ratio. But it is logical for us to concentrate on the pre-owned market, and the pre-owned cars, for the reason that the customer will find cars being offered in a factory standard. And at the same time we can protect the resale value for these cars.

On this basis we opened in Jeddah the first pre-owned facility; and now, by the end of this year, we’re going to open one in Riyadh.

World Finance: So what other big projects are you working on this year? What’s next for the business?

Ghassan Al Sulaiman: As I mentioned before, the expansion in our facilities of sales and aftersales is ongoing. But we believe that with the expansion in the market, and the products coming from our partners and manufacturers – for example, the Bentley SUV – Bentayga – is coming. And that will increase, as we understand, and we forecast a 25 percent increase in our sales. So we need to improve on our facilities to accommodate this.

Also, as you know, Infinity is one of the largest growing brands in the Middle East today. And we forecast for Saudi Arabia a 30 percent growth year-on-year for the next five years.

So we believe we need to improve our facilities to accommodate all this. And our goal in this is to make our customer get the right help and the right facilities, and the right product at the end.

Our goal in this is to give our customer the best service possible, by being associated with our brands.

World Finance: Finally, how do you see the luxury car industry developing in 2015?

Ghassan Al Sulaiman: We see continuous growth, and we believe that the market is going to grow at a faster pace, because of the booming economy in Saudi Arabia. And also, all these models that are coming from the manufacturer.

And actually, like we mentioned before, there’s a lot of motors coming in the next few years. And that will make the business we’re in booming to very high levels.

And we really see that the manufacturers look at us as key players in the market. And they are really helping us and pushing us to get to our goals.

Kenya must prioritise its pension sector

Posted on by Ashton Wenborn

The level of retirement savings in Kenya is still very low, with the bulk of Kenyan workers lacking access to occupational pension schemes through which they can channel their retirement savings. According to data from the Retirement Benefits Authority (RBA), out of Kenya’s workforce of about 10 million people, less than 20 percent are saving for retirement using registered pension schemes. The bulk of these are in the formal sector.

With the majority of Kenyans not saving for their sunset years, the country is facing a potential crisis in caring for its aged population. First, it is imperative to note that Kenya has one of the highest levels of old age dependency in the world, estimated at 56 percent, while old age poverty rate stands at 55 percent. More critical however, is the low levels of retirement saving that are exerting significant pressure on the economy. Already, thousands of Kenyans who were born before the country’s independence in 1963 have hit the mandatory retirement age of 60, which the government increased in 2009 from 55.

This means that taxpayers are set to bear a whopping KES 62bn ($590m) public pension burden as the government offsets KES 45.9bn ($438m) provision for direct payment to retirees, and KES 16.9bn ($162m) that will be paid to the defined contributory pension scheme for civil servants. Since the establishment of the RBA to regulate and supervise the establishment and management of retirement benefits schemes in the country, tremendous growth has been registered in this key industry. As the regulator strives to achieve its mandate, increasing the retirement benefits coverage among the working population in the formal and informal sectors still remains a major challenge. To overcome this hurdle, RBA has rolled out awareness campaigns together with other players in the industry on the need to save for retirement, besides developing products targeting the mass market.

Kenya's GDP

Finding the right ratio
The industry is also gearing towards significant growth due to the enactment of the new National Social Security Fund (NSSF) act, which has already been assented into law. The act seeks to transform NSSF from a provident to a pension fund, a move that will widen pension coverage by making it mandatory for all Kenyan employers and employees to make mandatory contributions.

The Diversified Financial Services Group has been at the forefront of deepening penetration of retirement savings in the Kenyan market. The company is one of the major players in the retirement benefits sector in Kenya, providing retirement benefits solutions with products tailored to meet the ever-changing needs of clients in the market.

Since 1995, Britam has been a market leader in the provision and management of pension funds for individuals, private companies, parastatals, small and medium enterprises (SMEs), schools, universities, hospital and health institutions, churches and sector institutions. With a retirement fund in excess of KES 12bn ($11.4m), the company offers a wide range of products which include occupational schemes, umbrella retirement funds, individual retirement plans, pension annuity and income drawdown that are designed for different market segments.

In a market segment characterised by cut-throat competition, Britam has created a niche for itself over the years because of developing innovative products that resonate with the clients’ needs, leveraging on a wide distribution network which comprises insurance brokers and agencies, as well as a big number of financial advisers who are trained, equipped and supported to market pension products to their prospective clients. Although competition among insurance companies for the pension market segment is extremely high, Britam has maintained leadership in the sector and has invested heavily in pension management.

The company has pension products that target various sectors. Occupational schemes are group schemes offered to medium and large sized organisations in terms of staffing. A board of trustees that appoint the crucial service providers, which include fund managers run these schemes, administrators and auditors who ensure the schemes are efficient. Britam offers fund management, as well as administration services, in respect to this product.

The umbrella retirement fund on the other hand is a scheme that allows multiple employers to participate while Britam provides a complete package of trusteeship, fund management and scheme administration. It targets the SMEs with a minimum of two employees. It also offers the individual retirement plan (IPP), targeting those who wish to save for their retirement in a tax efficient, cost efficient and flexible way. The pension annuity is a retirement income product available to individuals aged 50 years and above, especially the ones retiring from a pension scheme. This product is purchased using retirement savings – its objective is to provide an income for life to the retiring person.

The final product in this line of business is the income drawdown. It is a retirement income product that serves as an alternative to the pension annuity that enables the retiree to reinvest his or her retirement savings, while drawing an income from the fund, subject to statutory requirements. Although Britam is keen on serving all market segments, the company is concentrating on the SME sector owing to the fact that it is the largest employer in the country. It is estimated that there are 30,000 registered SMEs in the country that employ 7.5 million Kenyans.

The sector contributes over 80 percent of new jobs, yet only 10 percent, or 3,000, SMEs offer their employees any form of retirement benefits. Britam is focused on reaching the SME segment of the market which has low penetration of retirement savings by providing them with a simple and cost efficient solution that allows them to focus on their core business, while we managing their retirement funds.

Getting the highest returns
Renowned for its innovation, Britam pioneered the first umbrella retirement fund in the industry back in 2006. The decision to launch the product was informed by the need to tap into the SMEs market by providing them with a simple and cost effective solution that allows them to focus on their core business.

It not only innovatively develops products that meet market needs, but the company also invests funds prudently and professionally to guarantee highly competitive returns. Considering that retirement planning is long-term in nature and investment returns are crucial in growing the fund to ensure comfortable retirement, Britam has achieved market leadership by providing strong rates of return – hence value for savings. Last year, it posted the highest returns on pension guaranteed funds among insurance companies in Kenya. This was the third time in a row that the company has posted the highest returns in the industry.

Britam is guided by an investment philosophy that ensures the preservation of capital invested and a minimum guaranteed interest rate; the smoothing of returns to customers from market volatility; as well as providing a maximum return on their retirement savings.

The company invests in a diversified portfolio of quality fixed income, equities and property assets as stipulated by RBA investment guidelines. Besides providing for the older generation and their dependents, pension funds are also effective tools of mobilising long-term savings, which are in turn used to grow GDP (see side bar).

In this regard, the government has made it mandatory for employers in formal organisations to contribute towards their non-pensionable employees’ retirement benefits through the National Social Security Fund (NSSF), which will transform the pension industry for the better. Since the new act came into effect in 2013, every employer with a minimum of one employee will be required to enrol their employees into NSSF with an option of putting part of the savings in private Pension Schemes (Tier 2 contributions).

This will result in growth of number of individuals saving for their retirement as well as the volume of savings being made to these plans as the Act increases the contributions per person. More funds available for investments will mean an enhanced role of pension funds as an institutional way of investment in the economy, with possible attraction of new players into the industry.

The eventual increased competition among the investors would result in product and system support innovation, lower prices for services rendered and better quality of service for customers. With a pension fund size of KES 10.7bn ($307m) and annual contributions of KES 2.65bn ($83m) as at 31st December 2014, Britam was the first insurance company in East Africa to be awarded Super Brands recognition in 2009 and 2011, and subsequently awarded the same recognition together with other insurance companies in 2012 and 2014.

It was also named the Best Insurance Company in Kenya 2014 and awarded the QUDAL Quality Medal, an international recognition only awarded to products and companies, which offer consumers the greatest level of quality.