Year: 2015

NASDAQ penalised for blocking out potential rival

Posted on by Ashton Wenborn

According to the Swedish Competition Authority, in 2010 Nasdaq used its dominant position to inhibit a potential rival’s ability to compete in the market. Burgundy, an electronic trading firm attempted to set up its matching equipment at a data centre in Lunda, Stockholm, where the trading equipment of its customers was also located. However, NASDAQ blocked the move – which would have placed Burgundy in direct competition with it.

Until the 2007 deregulation of European markets, the NASDAQ OMX Nordic marketplace had a near monopoly

According to the Swedish watchdog, NASDAQ “used coercive methods to exclude Burgundy from the data centre… where the matching engine of NASDAQ OMX’s Nordic marketplaces is located, along with the equipment of a large number of traders.”

This weakened Burgundy’s ability to compete, as they were forced to locate their matching equipment elsewhere. Further proximity between its own matching equipment and that of its trading customers means physically longer internet cables, creating a greater time-lag between trades, even if only a fraction of a second, putting the firm in a weaker market position.

Competition Authority Director-General Dan Sjöblom said NASDAQ’s exclusion of Burgundy amounted to an “[a]buse of a dominant position by foreclosing a new entrant from the market [which] is a very serious violation of the competition rules.” As a result, the exchange operator is being fined $3.7m in penalties and fines, following an extensive investigation that began with a dawn raid in June 2011.

Until the 2007 deregulation of European markets, the Nasdaq OMX Nordic marketplace had a near monopoly. However, the NASDAQ OMX Nordic Stock Exchanges held a dominant position in Scandinavian markets. At the time of the transgression, its operations amounted to between 73 and 86 percent of equity trades in Sweden, Finland and Denmark.

African Development Bank appoints new president

Posted on by Ashton Wenborn

On May 28, Akinwumi Adesina, Nigeria’s Minister of Agriculture and Rural Development, was elected as the new president of the African Development Bank – the continent’s multilateral development finance institution. Adesina takes the helm from Rwandan economist, Donald Kaberuka, who has served in the post for the maximum period permitted – two five-year terms.

The appointment marks the growing influence of Nigeria, not only as Africa’s financial powerhouse, but also in terms of its diplomatic role and political clout in the region

Only the eighth person to be appointed to the role, the agricultural economist beat Chad’s former Finance Minister, Kordjé Bedoumra, and Cape Verde’s serving Finance Minister, Cristina Duarte, by 60 percent. Voting was carried out by the AfDB’s board of governors, which comprises 54 regional member states and 26 non-regional members. Voting powers are weighted, with Nigeria, the US and Egypt yielding the most influence in elections.

Since being established in 1963, the AfDB has held a firm position on electing individuals from smaller African economies so as to offset the balance of power in the region. By electing an individual from Africa’s largest economy, the group has made a clear shift from this norm. Moreover, the appointment marks the growing influence of Nigeria, not only as Africa’s financial powerhouse, but also in terms of its diplomatic role and political clout in the region. Adesina’s presidency will also bring Nigeria’s in closer stead, politically speaking, with the continent’s former largest economy, which still enjoys considerable power in the region, as the African Union is headed by South African Nkosazana Dlamini Zuma.

Adesina, who has served under outgoing president Goodluck Jonathan, has taken a more commercial approach to agriculture and is credited for boosting rice production in Nigeria. The 50-year-old has also been praised for improving the country’s fertiliser subsidy programme, encouraging the diversification of crops among farmers and cracking down on corruption in the sector.

Adesina was considered among the favourites during the run-up to the election, winning favour with populist rhetoric during his campaign and speaking of greater inclusion across the continent. With a PhD in agricultural economics, during his campaign, Adesina naturally has focused on the importance of agriculture in Africa’s development and lifting nations out of poverty.

Following the announcement, which was made at the group’s 50th Annual Meeting in Abidjan, Côte d’Ivoire, the group’s new president said that he was “humbled by this remarkable vote of confidence in me”. He also expressed praise to his predecessor; “I salute the excellent work of President Kaberuka. It will be a big challenge for me to step into his shoes. He leaves a solid bank behind him.”

The AfDB, which is charged to drive Africa’s economic and social development, has supported growth across the continent over the past decade in a pivotal period in the region’s economic advancement. According to the AfDB’s Annual Report, which was released just days before the group’s presidential election, the continent achieved 3.9 percent GDP growth in 2014, with the number expected to rise to 4.5 percent this year.

Adesina will assume office on September 1 this year, arguably taking to the helm at the cusp of a breakthrough in Africa’s economic development.

Freemium: you’ll pay later

Posted on by Ashton Wenborn

One of a long list of overused business buzzwords, ‘freemium’ describes a pricing strategy whereby a product or service is offered up to consumers free of charge, but then a premium is applied at some point in the future, usually in exchange for added features or functionality. Many consumers will have come into contact with the pricing strategy wile playing on their smartphones or tablets, where thousands of video game apps that use it are available for download.

Developers often employ the freemium model in an effort to eek out some cash, often for titles that, for whatever reason, tend to struggle to get consumers to pay for the app outright. The freemium model is really part of a bigger concept: one in which businesses give something away in order to get back. But, to make a success of it, companies need to navigate the strategy’s peaks and pitfalls.

Failing at the first hurdle
Tinder, an online dating app, acts as a great case study for analysing the potential problems surrounding freemium business models; mainly because, if it’s not careful, it could fail tremendously at monetising its hugely popular service.

The freemium model is really part of a bigger concept: one in which businesses give something away in order to get back

When Tinder was launched in August 2012, the developers managed to come up with a brilliantly simple and unique method of matchmaking: offering users the ability to anonymously swipe left (reject) or right (like) on an unlimited number of potential matches – a service that it offered up completely free of charge. It proved to be a big hit with consumers, which in turn created a lot of traffic.

One of the main pulls for start-ups to implement the freemium strategy is that it is a great way for them to make their mark in the highly competitive and hugely saturated mobile app market. And, if the initial offering is good enough, which in the case of Tinder it was, then it allows a large user base to be created without shelling out huge amounts of money on advertising. That extensive user base then provides the foundation for the next step in the process, which is to try and actually turn a profit. But the strength of Tinder’s initial offering, along with its lacklustre premium features, could stop it from doing so.

Striking a balance
Before the launch of Tinder’s premium service, Sean Rad, the company’s CEO, optimistically told tech site The Drum: “We are adding features users have been begging us for. They will offer so much value we think users are willing to pay for them.”

One of the premium features he was referring to lets subscribers undo ‘likes’ in the event that the user has a sudden change of heart; while another, called ‘Passport’, allows users to connect with potential matches in other cities around the world.

Evidently, however, these premium features were not enough – a supposition supported by the developers’ decision to cut back on its free offering, limiting the number of ‘likes’ for non-subscribers in a bid to make its subscription-based service more palatable.

“One of the chief purposes of freemium is to attract new users”, says Vineet Kumar, Assistant Professor of Marketing at the Harvard Business School. “If you’re not succeeding with that goal, it probably means that your free offerings are not compelling enough and you need to provide more or better features free. If you’re generating lots of traffic but few people are paying to upgrade, you may have the opposite problem: your free offerings are too rich, and it’s time to cut back.”

This balancing act between what is free and what is not, is why freemium is such a tough strategy to implement well. On the one hand, freemium businesses need to ensure non-subscribers see value from the free service so that they stay. But on the other, the difference between the free and premium must be apparent in order to entice people to pay.

In the case of Tinder, what made it successful was a uniquely simple dating mechanic, which was free. The combination initially made it a massive hit with consumers, but there was a downside: when what defines an app is its simplicity, adding lots of features actually takes away from its value.

At the moment, the only compelling reason for people to pay $9.99 for the premium version is so they get back what they once had for free. It is unclear how users will take to Tinder Plus, but it appears the developers are yet to strike the balance that will make their foray into freemium a hit.

Solving the problem of retirement in South Africa

Posted on by World Finance

South Africa’s retirement reform initiative has been postponed, but the country must still address its unemployment problem. Sentinel Retirement Fund CEO Eric Visser tells World Finance how the industry is addressing these challenges.

World Finance: The South African retirement industry is still in its infancy: with low economic growth and the high inflation environment hindering development. However, new innovative policies are starting to drive growth. With me is Eric Visser from Sentinel Retirement Fund to talk about how they are shaping the industry.

So Eric, the South African retirement industry: how is it structured exactly?

Eric Visser: Well currently we’ve got quite a few dispensations. You’ve got your commercial umbrella funds. Secondly you’ve got commercially administered stand-alone funds. You’ve also got large private funds, which are normally the outflow of bargaining councils, and they’re industry specific.

And those three dispensations are obviously for the employed, and they’re compelled to belong to those funds that are offered by their employer. And they’re normally defined-contribution based.

And then you’ve got the other one, which is commercial retirement annuity funds, which are for the self-employed, the informally employed, and for small businesses. But that’s on a voluntary basis.

Obviously the unemployed, they’re got no retirement dispensation. And then you’ve got the state old grants, which is a social pension. The state pays for them, and it’s about $80 a month. So, you know: the majority of people in South Africa are actually dependent on that.

World Finance: And how developed would you say it is in terms of transparency?

Eric Visser: South Africa rates among the top in the world when it gets to financial discipline, governance, compliance, and obviously transparency. And the retirement industry is no different. It’s well-regulated, but it’s got a small net. It’s only the employed, and because of our unemployment rate, those people aren’t participating in it.

World Finance: Well as you mentioned, South Africa is plagued by a high rate of unemployment, and many people are in debt. So what sort of impact does this have on the industry?

Eric Visser: First of all, obviously the unemployed don’t provide for retirement. And secondly, because people are indebted to such a large extent, they tend to withdraw their retirement savings just to keep alive. That’s the basis of it.

World Finance: So does the sector face any other challenges, maybe in terms of social security?

Eric Visser: The big challenge is to solve the unemployment problem. Obviously, once we’ve solved that, we need to get to preservation. You know: get people out of their debt, let them preserve for their retirement, for old age.

 

World Finance: Well let’s look at the retirement reform initiative now; and there are obviously high hopes for this, but then it’s been postponed a year, and possibly two years. Why is this? And what impact has this had?

Eric Visser: People argue, ‘Why should I make provision for retirement, but before I get to retirement I might starve of hunger?’ That is the main issue that sits behind it.

And people are saying, you know, it has been postponed, but I think we have to overcome that problem.

World Finance: So how would you say the industry is developing, and what is Sentinel doing to address the challenges?

Eric Visser: We have transformed our fund. Where we were industry-specific, we’ve actually taken our scope beyond the mining industry, and we’ve converted to a fund where other employers, other industries, can also participate in the fund.

And the way that we manage the fund is basically on a mutual society basis. We are actually in competition with the commercial umbrella funds, and if one looks at investment performance, and secondly costs, we are rated as one of the lowest-cost funds actually in the world.

You know, as a fund we also don’t just cater to individuals from birth to retirement, but from cradle to grave. So we take people right through, into retirement as well. And we save them costs in that transition from being an active member to becoming a pensioner.

World Finance: Well of course, no one can predict the future, but how do you see the industry developing over the coming years?

Eric Visser: I think we need to get the annuitisation. Get people to preserve. So we have to push through with the current legislation that’s on the table. I don’t think it’s going to be easy, but we have to carry on with that. It’s obvious that we need to cut down on unemployment, you know: get more people into the net.

And then obviously education: that’s what we at Sentinel also do. We spend a lot of time educating our members and our pensioners.

Mauritius: A gateway financial centre for the Indian Ocean

Posted on by World Finance

James Benoit, CEO of AfrAsia Bank, tells World Finance about the latest trends in wealth management for the bank’s diverse client base.

World Finance: The Asian growth story is continuing – unlike sluggish economic performance in neighbouring regions. With this growth has also come burgeoning optimism in the wealth management sector. Here to share insight: James Benoit. James, thank you so much for joining me today, now tell me about how this sector of wealth management is evolving?

James Benoit: Wealth is not really ever destroyed, it just kind of moves, or changes shape. So total global wealth is in excess of $50tr, that’s up 14 percent year over year. Even in the markets that we’re close to in Africa, it’s up seven percent: there’s still 150,000 high-net-worth individuals in Africa, with an excess of $1.3tr of worth. So you know: wealth is still growing, no matter what’s happening in the global economy.

World Finance: You talk about sort of, this first generation that’s really had access to funds that perhaps never has existed before; tell me: how do you place your bank in this growth story?

Well, we’re a niche provider, so people expect us to have insights into Asia, into India, into Africa. Whether it’s linked to gold, or commodities, or linked to those stock markets. So we provide a lot of asset classes, funds, structured products that take advantage of what’s happening in those economies. Those are the insights that we bring: being AfrAsia Bank, sitting in the middle of Mauritius, between all those Indian Ocean economies.

So people come to us for insights in those markets, and that’s what we try to deliver.

World Finance: African-Asian consumers; they’re going to be asking for something different. What asset classes really appeal to them the most?

James Benoit: They still like gold, even though gold has been beaten down, and it’s been very volatile; but there’s a passion for gold.

They also like real estate; real estate is always very popular, so we have opportunities linked to real estate as well.

And then commodities, and also just emerging equity market stories. They’re very keen to invest in their region.

World Finance: Now Mauritius has a reputation, like some of the other islands nearby, that it could potentially be a tax haven. How does the government restore faith that they’re really taking a get-tough approach on regulation?

James Benoit: Well Mauritius always ranks among the most compliant countries in the world, whether it’s the OECD or FATF. So we have state-of-the-art legislation. Recently there’ve been some high-profile cases, where they have cracked down: quite determinedly so.

It’s never had any major convictions or offences linked to, whether it’s Indian or the markets. So it’s taken very seriously, because we don’t want to have that reputation as a tax haven, per se.

And you know: Mauritius is 1.3 million people, so it’s a real economy. It’s a financial services centre built on top of a real economy, which is linked to Asia and Africa. So we’re really serving those people who are doing business in that part of the world, rather than just the wealthy from anywhere.

So that’s our speciality, and that’s what Mauritius is doing.

World Finance: If you could advise the government tomorrow on how it could go that one step further to instil confidence in local clientele and those internationally, what would you say that the government should do?

James Benoit: Global standards are global standards now, so there really is no way to avoid that. And the faster any jurisdiction gets up to that speed is better. So Mauritius has done a good job of that, but still… probably to tailor it to our core markets: Asia, Europe, Africa. I mean, the US is the US, but we’re probably more likely to do better by tailoring our legislation to those key markets, and make sure that we’re aligned. Because really there is no way to avoid what is now a very complex and increasing global regulatory framework.

World Finance: So as you look at those particular regions, where do you place your bank in the growth story, moving in the next few years?

James Benoit: Well, I spent most of my career growing up in south-east Asia, and south-east Asia is still booming. I’m now based in Mauritius, capitalising a lot on eastern Africa. For many of us that market reminds us of Asia 20 years ago. So I’d say India, Africa, still very much in the early stages of growth. We’ve positioned AfrAsia Bank in Mauritius to be right in between Asia capital, Africa’s need for capital, and also Europeans and other people doing business in the region. So we’re really becoming a gateway financial centre for the Indian Ocean.

AFP Capital addresses Chile’s ageing dilemma

Posted on by Ashton Wenborn

Life expectancy rates in Latin America, particularly in Chile, are steadily increasing; averaging around 80 years old. Pensions have become one of the first red flags for this demographic change, as current replacement rates are not meeting the needs and expectations of people.

Today, people over 60 years old represent 16.7 percent of the total population in Chile. This is expected to be 20 percent by 2025, surpassing the percentage of those under 15. By 2015, this cohort would practically represent 30 percent of the population. This is the reality under which the Chilean pension system should be analysed (see Fig. 1).

The good news is that Chileans are living longer. However, we see that individual savings are not enough to cover the pensions required when living a longer life, which is due to several reasons. Only 10 percent of a Chilean salary is contributed to a pension with a maximum taxable amount. There are contribution gaps along working life; income has steadily increased since the inception of the system; and there is still a lot to do about the formalisation of jobs.

The good news is that Chileans are living longer

Three pillar system
President Michelle Bachelet introduced a new pension reform within her government programme. Consequently, the Presidential Advisory Commission on Pension Systems was set up, which should be in charge of reviewing the current pension model in order to analyse changes and improvements required to address the present and future of this ageing population. In general, in Chile we understand that improving the system requires strengthening the harmony and complementing the three pillars: solidarity, mandatory and voluntary.

AFP Capital has actively participated in discussing the improvements the system requires, presenting 11 proposals (see box out) to the Presidential Advisory Committee, which include extending the subsidy on young workers’ contributions from the current two-year limit for the first 10 years of work, and for 100 percent of the contribution. It is important to note that contributions paid in along the first 10 years of working life account for about 40 percent of the pension.

At AFP Capital, we also promote alternative fund investments in order to improve pensions by up to 15 percent. These assets include private equity, hedge funds, real estate, infrastructure and commodities, among others. It also encourages establishing a state-supported insurance, intended to guarantee a minimum replacement rate, and implemented for a number of contributing years. It has also suggested developing an insurance that guarantees a certain replacement rate based on the years paid in and the actual contribution payable in respect of the contributable income. Replacement rates guaranteed for 10, 15 and 20 years could be defined.

For middle-income people, there’s the development of the Strengthen Voluntary Pension Savings. With this, there are two ways to enable massive voluntary pension savings (APVC) for middle-income segments. The first is to strengthen the APVC, and secondly, to improve subsidies to APV – known as Scheme A. By moving towards a policy of continued employment, this would allow for the cultural changes required for this new workforce.

Getting the calculations right
This last point is significantly important, as the minimum retirement age in Chile is 65 for men and 60 for women, who, in return, have a longer life expectancy and lower pensions. While it is not a popular course of action, it is clear that with or without a law, the fact is that today Chileans must work longer in order to get better pensions. The calculation is clear: an eight percent pension increase over a working year.

Likewise, AFP Capital’s 30-year experience and knowhow in the financial asset management sector has helped to build public policies that are intended to improve the coverage, density and savings incentives for affiliates.

Therefore, this year SURA Asset Management, of which AFP Capital is a subsidiary, presented the study How to Strengthen Latin American Pension Systems: Experiences, lessons and propositions. The survey focuses on the six regional countries that made reforms in the 1980s and 1990s, introducing individual capitalisation defined contribution schemes, and where SURA Asset Management is present – Chile, Colombia, Mexico, Peru, El Salvador and Uruguay.

This document confirms that it is necessary to move towards a proper integration and complement within the pillars of the system, each meeting the objective they were created for, and strengthening the potential of the mandatory and voluntary individual capitalisation programmes.

A distinctive component of AFP Capital is its mission to be a savings guide for its affiliates, being with them to build their pensions along their life cycle through personalised and specialised advice.

The company has focused its efforts on explaining that building a good pension means saving every month, paying contributions for the total earnings, bridging the contribution gaps and considering a voluntary savings plan that will always help improve pensions and balance potential contribution gaps that one affiliate may have.

At AFP Capital we support our clients to build their ‘number’, which is the total amount of money they must have at the end of their working life in order to enjoy the future they want. Then, we analyse their risk profile and support them in defining a savings plan.

Thanks to this constant relationship, 442,200 customers have already built their number. Additionally, 548,616 clients have performed their Pension Scan, which is an innovative tool that is intended to inform our clients about their real situation and potential contribution gaps, and also foster voluntary savings.

Propositions to the Presidential Advisory Commission

Today, strengthening the client experience in all contact points has enabled them to be satisfied and better informed. In order to have significant participation, the company prepared 11 specific propositions that have already been submitted to the Presidential Advisory Commission, and which are structured around three themes:

I. Synchronising the three pillars

  • Proposition 1: to produce a strong incentive for mandatory savings of young workers in the first 10 years of a pension plan.
  • Proposition 2: establish an insurance that is supported by the state, in order to ensure a minimum replacement rate, and linked to a number of years of contributions paid in.
  • Proposition 3: strengthen voluntary pension savings for the middle-income segment.

II. Improve the mandatory pillar

  • Proposition 4: encourage alternative investments in funds in order to improve pensions by up to 15 percent.
  • Proposition 5: implement a change from the current fee scheme to a fee-per-balance scheme.
  • Proposition 6: integrate the role of the unemployment fund manager of Chile (AFC) into the pension fund managers (AFPs) in order to exploit the existing synergies between their functions.
  • Proposition 7: integrate the self-employed, withholding mandatory contributions of five percent, 7.5 percent and 10 percent for all independent workers who issue professional invoices and whose monthly income exceeds minimum wage.
  • Proposition 8: access free available money based on the minimum years of contribution in order to attach members to the system.

III. New ideas for further development

  • Proposition 9: develop a policy that encourages continued employment after the legal retirement age.
  • Proposition 10: actively promote education on and an awareness of social security through a public/private alliance.
  • Proposition 11: evaluate implementation of the reverse mortgage.

IMF: renminbi no longer undervalued

Posted on by Ashton Wenborn

There has been a broad agreement that the Chinese government, through tight monetary controls, has kept its currency undervalued. Individuals and institutions, from Ben Bernanke and economist Paul Krugman to the IMF and the US Treasury, have all in the past accused China of depressing the value of its currency to gain an unfair advantage for its exports. The IMF, however, now says that China’s currency is no longer subject to manipulation.

The issue of how China values its currency has long been a sticking point in American politics

After a consultation mission to China, officials at the IMF concluded that “[w]hile undervaluation of the renminbi was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued”.

The issue of how China values its currency has long been a sticking point in American politics, with politicians from both parties partnering up to urge President Obama to take action, alleging that the undervalued renminbi hurts American exports. In February, the New York Times reported that there was “a growing bipartisan majority in Congress” dedicated to addressing currency manipulation, which poses a danger to the passing of the Trans-Pacific Trade Partnership. No American president has ever taken action against a country to currency manipulation, China included.

The IMF repeatedly accused China of flouting the trade organisation’s rules that bar countries from manipulating their currency to gain an unfair competitive advantage, but was largely seen as powerless and unable to enforce its conventions. In the past China simply rebuffed allegations with the claim that it was controlling its currency valuations for domestic reasons.

While the undervaluing of China’s currency has boosted the country’s exports, the result has been downward pressure on the internal spending power for Chinese citizens. China is now seen as moving away from its model of a low-wage export-led model of growth as it reaches the so-called Lewis Turning Point and transitions to a more developed economy.

Global review: the 2014 Legatum Prosperity Index

Posted on by Ashton Wenborn

Countries with higher rankings commit more resources to promoting better and more equal access to opportunity across society

Global Review 1
Souce: The 2014 Legatum Prosperity Index

1. Sweden (Rank 1)
As the birthplace of Spotify, Skype, SoundCloud and a host of other groundbreaking start-ups, Sweden has a firmly rooted reputation for innovation and it keeps the crown it took in 2013 for the world’s most entrepreneurial country. The nation boasts one of the most digitally connected economies on the planet, alongside a welcoming business environment and a highly entrepreneurial culture. That combination of factors is sending start-up founders from far and wide flocking to the nation’s cities, most notably its capital Stockholm. The city has become one of the biggest start-up hubs in the world over recent years and forms a rival to Berlin as the hottest place in Europe to launch the next big thing.

2. Hong Kong (Rank 6)
It’s perhaps unsurprising that one of Asia’s biggest commercial centres is also the continent’s most popular go-to hub for entrepreneurs. Ranking sixth in the world for entrepreneurship and opportunity, Hong Kong has a vibrant tech community and the past four years have seen over 200 start-ups created there. That community has seen rapid growth over recent years, leading Hong Kong to hike up from 15th position in just two years. That’s perhaps because a large number of entrepreneurs flock from overseas; last year it ushered in a record number of UK start-ups, as founders in search of affordable rent and attractive tax incentives looked to capitalise on Hong Kong’s vast opportunities.

3. UK (Rank 8)
With the third lowest start-up costs in the world, the UK continues to draw in budding entrepreneurs looking to launch the next big thing on a shoestring. Starting a company in the UK costs an average of £66 (a little under $100), according to the index – just 0.3 percent of GNI per capita. The UK has consistently ranked in the top 10 of this index, and it is little surprise given the country’s liberal approach, wallet-friendly costs, and now fairly stable economy. This year the country improved its ranking in the sector yet further, moving up to eighth place, perhaps on the back of increased work motivation. 84 percent of those surveyed said they believe working hard is the key to getting ahead.

4. US (Rank 11)
The US just misses the mark for the top 10 most entrepreneurial nations in the world. As the home of Silicon Valley and its numerous start-up successes, supported by a strong network of investors and VCs, it is perhaps surprising that it doesn’t rank higher. The US offers diverse opportunities for keen entrepreneurs alongside a host of role models that help to inspire those looking to steal a slice of the action and leave their footprint on the business world. On the more negative side, however, the portion of those feeling free to choose their futures has fallen by four percent over the past three years (from 86 percent to 82 percent) – which is ironic given the opportunities apparently on offer.

Global Review 2
Souce: The 2014 Legatum Prosperity Index

5. New Zealand (Rank 18)
Stable economic growth over the past few years, combined with an investment-friendly climate and secure environment, make New Zealand a fairly appealing destination for entrepreneurs. That’s perhaps little surprise given the nation’s high levels of personal freedom, for which it ranks first – and which is likely conducive to creative enterprise. There’s still room for improvement, however, especially given its high rankings for the other sub-indices in the prosperity index; the country ranks second for governance and social capital, third for overall prosperity and seventh for education. Greater emphasis on entrepreneurship at an early age could help improve its ranking for the sector.

6. Brazil (Rank 51)
Brazil has fallen two places since 2013 and four since 2012, but at rank 51 it still scores higher for entrepreneurship than it does elsewhere. The country’s entrepreneurial prospects are growing, especially in the financial capital of São Paulo, where a start-up scene is starting to emerge. That could change further when Google Campus – an area for start-ups backed by the tech giant – opens there this year. As the most populated country in South America and one of the region’s highest scoring in terms of personal freedom, Brazil certainly has potential to develop its entrepreneurial scene further, but high levels of bureaucracy and low-internet coverage in certain areas continue to hold it back.

7. Mexico (Rank 83)
At 83rd, Mexico has plunged 10 places in the space of a year in terms of its entrepreneurship and opportunity. Its entrepreneurial climate is clearly lagging despite a relatively strong economy – for which it comes 34th in the index – and mid-range level of overall prosperity. Low levels of education (for which it ranks 85th) combined with security issues and an unstable political environment are all proving obstacles. Mexico City is, however, playing host to a gradually growing start-up community, with the likes of Startup México looking to encourage activity in the sector. At the end of 2014 there were 45 venture capital funds registered across the country, compared to just 14 in 2012.

8. Niger (Rank 139)
Despite relatively high levels of personal freedom compared to the rest of the region – ranking 48th – Niger falls behind for entrepreneurship, coming fourth from bottom among all ranked countries. Certain parts of sub-Saharan Africa (such as Namibia, Ghana and Kenya) perform comparatively well in terms of entrepreneurship and opportunity (ranking 96th, 97th and 101st respectively), and could provide inspiring examples for the lower-ranking African nations such as Niger to follow. Micro-entrepreneurship in Niger is nevertheless still an essential source of income and employment for a number of local people, with such activity mainly centred around resource-based enterprise.

India launches cash for gold scheme

Posted on by Ashton Wenborn

India’s high demand for gold is no secret. After fuel, the precious metal is the country’s largest import, with nearly 900 tonnes of gold imported annually, making it the world’s largest gold importer, absorbing 20 percent of the market. A new scheme from the State Bank of India hopes to off-set the negative impacts of this inward-gold rush through its new Gold Deposit Scheme (GDS).

In 2013 India’s gold imports created a record current account deficit. This resulted in, according to the FT “capital flight…[in 2013], dragging the rupee down more than 15 percent.” In response, the government attempted to ban and restrict gold imports into the country, raising the import tariff numerous times.

The government’s new approach hopes to cut imports through unlocking India’s large domestic, privately-held gold

The government’s new approach hopes to cut imports through unlocking India’s large domestic, privately-held gold. Much of India’s gold is kept either in the homes of private individuals or in institutions such as religious temples. GDS will offer Indians the opportunity to deposit this gold – even if it is scrap gold or jewellery – into a bank deposit in return for interest, often tax-free. The purpose of this, according to India’s state bank, will be to “mobilize the idle gold in the country and put it into productive use.”

The gold deposited in banks will count towards the institutions cash reserve, allowing it to increase lending as well as being exchanged for foreign currency. It is also hoped that through mobilising gold, locked away in people’s homes or in temples, jewellers will have a steadier supply of bullion from within the country. The FT reports that 65 percent of imports are for jewellers to create wedding jewellery. Allowing access to internal gold supplies will lower the county’s heavy reliance upon gold imports and help close the current account deficit it causes, it is hoped.

The schemes success faces a few challenges. A similar initiative was launched in 1999, which failed due to the low level of interest rate offered; a measly 0.75 percent. According to Pradeep Unni, Senior Relationship Manager at Richcomm Global Services, the Khaleej Times reports, it “is unlikely to bring out large amounts of gold from the households unless the interest rate is over four percent,” while the GDS will offer between three and four percent returns. Also, with much of India’s idle gold also being passed down through generations, many will also be unable to prove their ownership of the metal, potentially barring many from depositing it.

Saudi Hollandi Bank puts SMEs at the core of customer focus

Posted on by Ashton Wenborn

The financial markets of any economy are critical to its overall development, and it is well documented that robust and efficient banking systems and stock markets are key drivers of growth. In this respect, Saudi Arabia’s economy is no different from any other country. A strong, well-regulated banking sector is helping the Kingdom’s companies and individuals meet their financial goals and, as in every other service sector, the competition to provide the products and services that these consumers need is intense, but essential to its continued development.

Up to this point, the Saudi banking sector has grown quickly, taking advantage of technological developments and product innovations alongside the emergence of a true service culture. But for the sector to continue on this growth path and to do so sustainably, I believe it needs to revisit the way it views its customers.

Historically, ‘customer focus’ had been the banking industry’s mantra when talking about how services are being delivered and for many, this has been an effective way of viewing relationships. However, as technology begins to open up new direct channels, this rather narrow approach needs to be challenged, not least because new customers are becoming harder to find.

More than the basics
Recent research in 27 countries found that banks formed new relationships – customers switching their primary bank and customers altogether new to banking – at an average rate of about three percent in developed markets and six percent in developing ones.

Historically, ‘customer focus’ had been the banking industry’s mantra when talking about how services are being delivered

So, winning new relationships cannot be the only approach to growing. This suggests that developing true loyalty is becoming ever more important in both attracting the few new customers there are but also, more importantly, in maintaining long-term relationships.

Customer centricity, or the act of putting the customer at the centre of everything Saudi Hollandi Bank does, has to be the new ethos in building deep, sustainable connections with customers, regardless of whether they are large companies, families or individuals. But what does it mean to be truly customer-centric?

Banks have to earn the right to build truly customer-centric relationships, and they must do this from a position of covering basic service expectations. Saudi market drivers are no different from those in international markets – for retail customers, these include accessibility in terms of branches and ATMs, fast turn-around-time, and a low error rate in handling transactions. In the Kingdom, providing sharia-compliant products is a fundamental customer requirement. But today every customer expects these services as a minimum, just allowing a bank the license to operate. Customer centricity rests on this purely as a baseline.

The form that basic services take is fairly common for all customers. However, to begin to build on that requires a depth of knowledge and understanding of the nuances of the needs and expectations of each type of customer. Not only in segmenting them for internal organisation purposes, but going beyond this to actively create new products and services that really differ by segment.

To take an example, small and medium-sized enterprises (SMEs) are important customers to Saudi Hollandi Bank (SHB) and its experience working with them over the years shows that they have their own very specific requirements, which are different from those of both large corporates and retail customers. Getting the service offering right is critical and the bank has developed specialist skills in this area to support them, viewing this as an area of strategic importance.

Face-to-face targeting
SHB understands the unique characteristics of SMEs, and acknowledge that access to financial services for many of these businesses remains severely constrained. It therefore offers easy, straightforward and quick solutions that address this segment’s specific banking needs. For example, it has developed a specialised risk acceptance framework for assessing SME credit, which helps it to better serve these customers in a prudent yet progressive way.

It knows that face-to-face dealings are important for the owners of these businesses, so it has broadened its outreach by opening SME business centres right in the centre of SME ‘clusters’, like those it sees in the Balad area of Jeddah, for instance. To help SMEs develop and grow, the bank provides a specialised website dedicated to SMEs called The Business Owner Toolkit. The website offers a rich source of information, market insight tools and templates to help SMEs plan, manage and develop their businesses.

Serving SMEs is now one of its key strategic pillars, and by combining a corporate banking product range with a service model deployed in retail banking, it is offering this important customer group the services they need through the channels they want, and as a result have become one of the market leaders in this crucial segment.

SHB has historically been a corporate bank, but in recent years it has grown a strong presence in the retail market by developing a comprehensive suite of award-winning products that cater to specific segments. It has also expanded its network to 55 branches and 400 ATMs in early 2015 – an almost 20 percent increase in branches – and 50 percent in ATMs over the year preceding it, and plans to continue investing in branch and ATM networks. This approach helped the bank grow its retail assets by over 46 percent in 2014. In recognition of its achievements, it was voted Best Home Finance and Personal Finance provider in Saudi Arabia by Banker Middle East magazine, and Best Personal Finance Programme, 2014 in World Finance.

It was able to achieve all this by making sure it fully understood what each customer in every segment is expecting, and then pulling together internal resources to create truly customer-centric products that are delivered by a strong team with industry knowledge and experience. It is this core ethos, combined with the bank’s multi-disciplinary approach, that has allowed it to grow so fast and it will broaden business in coming years.

Put resources close to customers
A major area of growth in the Kingdom will be in the affluent and mass affluent segments, so it is using this approach to put its resources together to build the right products and provide the services these customers need in ways which suit them best – whether in-branch or online. Every bank needs to engage with its customers and provide a continuous interaction with them. Technology will play a vital role and investment on this front is really crucial.

Beyond the obvious visibility of social media, technology is also enabling the growth of mobile banking and customers are embracing the use of their smartphones and tablets to handle transactions. The demand for applications that are both useful and easy to navigate is growing fast. Smart phone penetration in Saudi Arabia is already close to 75 percent and the potential to broaden the usage of this channel, placing it at the heart of customer relationships in retail banking is huge. When SHB launched a mobile banking app, over a quarter of existing internet banking users registered almost immediately without any direct marketing efforts. Digital transformations like this give banks an opportunity to provide customers with ever more convenient services, and can also play a major role in building customer loyalty.

Many new loyalty programmes in retail banking are now built around approaches that allow product managers to deeply understand customer behaviour and needs. Technology is allowing the analysis of data that in turn helps to formulate offers and rewards that strengthened bonds and enhance customer experience at the same time. SHB has realised the potential in this digital transformation, and has evolved its loyalty programme proposition to its customers accordingly.

Putting resources around the customer sounds logical but the practicalities of doing this are not simple. For it to work, every employee needs to think about his or her customer first in everything they do and, the organisation then has to be able to deliver the service in a way the customer wants while at the same time, rewarding the employee for taking this holistic approach.

This is where a strong internal culture is essential. Banks may put their financial assets to work for their customers, but they also need to ensure their human assets are lined up to support them. Creating a team that is clear about how to do that – articulating and measuring the behaviours that support this – are fundamental building blocks of a customer-centric culture.

SHB has identified the theme of helping its customers and employees to realise the opportunities that already exist, while creating new opportunities for the future. This has helped the bank to identify the types of values that its employees should aspire to and the behaviours that it knows its customers appreciate. As part of this the bank encourages each and every member of the team to challenge the way it does things, to innovate and to think outside the usual constructs of what it does.

So, getting the basics right by segmenting its approach and placing its resources close to its customers allows growth to be driven forward, and for the bank to become truly customer-centric. The Saudi banking sector is at an important inflection point, as the Kingdom’s economy diversifies and expands. By making sure that it puts its customers at the heart of its growth strategy, it will ensure its continued strong and sustainable expansion into the future.

Asia’s new millionaires make investments a family affair

Posted on by Ashton Wenborn

Last year fell in step with a tradition that dates back to 2012, as the Asia-Pacific market was again named the big-ticket destination for high-net-worth individuals (HNWI) – those with investable assets of at least $1m. According to the World Wealth Report 2014, jointly authored by Capgemini and RBC Wealth Management, the population of HNWI was up 17 percent to 4.32 million in 2013 (see Fig. 1), and their combined wealth increased 18 percent to a colossal $14.2trn. Spearheaded by those living in emerging Asia, this explosion of wealth could see the region overtake North America to have the highest HNWI population before the year’s end and accelerate developments in the banking industry.

The rise of the Asian self-made millionaire – aside from the clear and obvious benefits that come with increased financial clout – asks a lot of a private banking system that is today without the necessary expertise to keep pace with the rate of expansion. Looking at the last decade, the Asian continent was home to more than one third of the cumulative growth in global HNWI, yet the quality of the banking industry leaves a lot to be desired. “We believe the industry needs to aggressively pursue revolutionary change”, says one AT Kearney report entitled Asian Private Banking: Today’s Boiling Frog. “The winners of tomorrow will be those willing to make tough choices today, starting with the re-evaluation of value propositions as well as business and operating models to be able to deliver client-driven services in an economically viable manner.”

Rich potential
Fragmented yet fiercely competitive, this cocktail makes for an especially challenging marketplace, and one that HNWI are less than enthusiastic about joining. Add to that a chronic talent shortage and stringent regulatory ties, and the continent’s wealth management sector is rich in potential though lacking in numbers. According to Timothy Lo, Managing Director of CIC Investor Services, Asia is crying out for 5,000 private bankers but has only 3,400 to its name, despite a number of private banks from aboard having crashed the party.

$14.2trn

Value of high-net-worth
individuals in Asia, 2013

The rate at which Asia’s ultra-rich population is rising makes for an attractive proposition, though the risks associated with securing a slice of the pie are simply too much to stomach for many. Even the UK-based banking fixture RBS opted out of the running last year when it announced it would be selling off its overseas private banking division, Coutts International, to escape the sky-high compliance costs that come with it. Likewise, smaller banks have found it difficult to compete in a market where larger, Western giants have rushed to strangle any and all the competition. Add into the mix figures that show the opportunities in Asia are greater in theory than they are in reality, and the reasons for the struggle are clear. Both a budding real estate market and a healthy climate for SMEs have together given rise to a great many more millionaires, yet private bankers have arrived under the pretence that these assets are necessarily bankable.

Still, the talent shortage is by no means a recent phenomenon, and the issue of inadequate personnel stretches back over a decade now. In a period where private bankers have been reluctant to pick up the slack, another sector altogether has made a far better fist of the opportunities. With a growing number of HNWI choosing not to park their wealth in less-than-adequate private banking institutions, the Asian family office market is quietly emerging as a preferable alternative.

Family offices
A report put together by Credit Suisse shows that out of an estimated 3,000 single family offices worldwide, only three percent are based in Asia, which, when put alongside the scale of wealth, goes to show just how far the region is flagging behind. However, key offices in Asia are fast making a name for themselves, to the point where some of the continent’s wealthier names consider these establishments to be a key part of the wealth management conundrum.

Traditionally speaking, the family office model is in keeping with a broad-based industry-wide response to changing client behaviour, particularly those with a high-net-worth, and a desire to have their individual concerns addressed at length by a dedicated team of wealth managers. “Indeed, with continuing wealth concentration, the natural desire of families to pass on assets to the next generations and rising globalisation, there is every reason to expect more family offices to be established”, according to another Credit Suisse report. And with wealth on the up and trust between individuals and banks reaching breaking point, nowhere else are the conditions more ripe for development than on the Asian continent.

Still, while the region is home to a booming population of multi-millionaires, they are perhaps the hardest breed to crack for wealth managers. Whereas in North America and Europe, riches have often lived long in the family, and relationships with wealth managers span generations, Asian HNWI are more inclined to ask questions and tend to mistrust figures of authority. True, many of the more successful Asian businesses are family-owned, yet the roots of their success seldom run any deeper than 20 years, which makes them far more protective of their fortune.

Room for improvement
The integrated yet holistic position adopted by family offices lends itself well to HNWI in Asia, and a growing population of millionaires combined with a sharper focus on client preferences means that the family model is fast becoming the perfect fit for a much-changed continent. By honing their efforts on the twin priorities of wealth management and family support, the scope for expansion and improvement is vast – if a little different from that in mature markets.

Whereas in the developed world, family offices are well structured and follow strict procedures, the relative immaturity of the industry in Asia means that they are markedly less regimented in their ways and choose instead keep to what it is their clients require. On the other hand, as in the US and in Europe, the financial crisis has damaged the relationship between the banking public and the banks, to the point where financially savvy individuals and families are seeking alternatives to conventional banking – chief among them family offices.

Asia Pacific HNWI population

The qualities that differentiate HNWI in Asia to those in the US have also played a key part in shaping the services on offer. For example, the mere fact that wealthy individuals in Asia have largely happened upon their riches in recent years means there is a much greater level of family involvement in the everyday dealings of the family office in question. Naturally, if any one family’s wealth has been accumulated in the last 20 years, as is the case with most HNWI in Asia, these same persons are more likely to want in on the management process, if only to safeguard their recent earnings.

The point is reinforced by the recent Global Family Office Report 2014, which goes to show that the amount spent by Asia-Pacific family offices on external services is far short of their larger competitors. Where Asia Pacific offices spent 46 percent of their total budget on external offices, the same figure came to 63 and 70 percent for North America and Europe respectively, which goes to show that the market is far more independent than originally thought and that client participation lessens the burden on external parties.

While the family office market in Europe and North America is more developed than in Asia, a willingness on the part of Asian HNWI to play an active part in the wealth management process has brought certain advantages. Still, the values shared by Asian clients have also served to handicap the sector in certain departments. “In particular, high price sensitivity and a strong need for confidentiality (and hence an unwillingness to give anybody, not even family members, full disclosure about wealth) are the main reservations about setting up a family office solution”, according to a VP Bank report entitled Family Offices in Asia: The Evolution of the Asian Family Office Market.

Family offices have triumphed in the Asian market by demonstrating a commitment to the client far ahead of those in the private banking community. Many HNWI are of the opinion that private bankers are merely cashing in on the region’s newfound wealth, and not necessarily keeping the client’s best interests front and centre. Family offices, meanwhile, have gained traction in years past precisely because they promise a much sharper focus on individual family matters, and focus less so on hoarding clients.

Assuming that the number of wealthy individuals continues to pick up in the years ahead, there is reason to believe that the family office environment will ripen. And by continuing to let clients in on the process and by sharing the risks, the opportunities for family offices could soon explode.