Year: 2015

The younger the better: millennials take over business

Posted on by Ashton Wenborn

Launching a start-up before hitting the tender age of 25 seems to have become common practice. And indeed one could reasonably argue that the traditional model, in which age equals success, has been turned on its head – thrown out the window along with the quill, the typewriter and, of course, the rule book.

Now entrepreneurial success requires first and foremost a comprehensive knowledge of the latest tech, and it’s generation Y – as the only workplace cohort to have grown up in the digital age – who has that. From exploiting social media effectively to being able to code, confidence with technology is an acquired talent, and it’s one that seems to be giving millennials an entrepreneurial advantage from the word go. That’s not least driven by the fact that tech is by far providing the largest number of opportunities for those looking to launch the next big thing. As a result the classic ‘older the wiser’ gem, once taken as an incontestable truth, seems to have morphed into a new deviant – the younger the better.

Those advantages, combined with a cultural shift, seem to be giving millennials a decidedly more entrepreneurial streak than past generations; a recent study by Bentley University (The Millennial Mind Goes to Work), found that 66 percent of millennials asked wanted to start their own business. In 2012, over 500,000 people launched start-ups in the US alone, according to statistics from Harvard Business School – and of those, companies with an average age of between 26 and 34 bagged the highest level of funding. Entrepreneurialism seems to be on the rise generally; a GEM Global report found that in 2011 there were 400 million ‘early-stage entrepreneurs’ across the world, up 22 percent from the previous year in mature economies (and markedly more in the US and Australia) – and 18 to 25s accounted for a substantial 41 percent of them.

66%

of millennials want to start their own business

One need only look at the list of digital successes to see the trend – Mark Zuckerberg was a billionaire at the age of 23. David Karp, Kevin Systrom and Daniel Ek were all in their 20s when they founded Tumblr, Instagram and Spotify respectively. A quick glance at the Forbes’ 30 Under 30 2015 list shows the millennial trend continuing, with everything from beauty product lines to medical companies being created by those barely out of the pushchair. Millennials seem to be taking over, and they could be threatening to push out their older peers entirely.

Cheaper than ever
It is clear that there is an increased desire for entrepreneurialism among generation Y – what’s interesting to look at is why. One of the biggest factors seems to be the increased ease and affordability of setting up a business, and that’s largely down to advancements in technology. Thus one of the key advantages that older people might have had in past times – savings – is no longer as relevant as before. That’s true even of businesses that aren’t directly related to the digital world; social media allows start-ups to promote themselves for next to nothing, for example.

In terms of digital companies themselves, costs have dramatically declined for a number of reasons. First off, millennials often have the skills that before would have necessitated large-scale, expensive teams. And if they don’t, it doesn’t take too long to pick them up, according to 26-year-old American entrepreneur Mattan Griffel, co-founder of Y-Combinator-backed start-up One Month. A magnate on the Forbes’ 30 Under 30 list, Griffel speaks from experience – he taught himself how to create apps and websites and used that knowledge to form the basis of his current business, which teaches other students how to do the same. The consequences of that increased ease is clear: “Companies used to require a development team of six to 10 people, because the languages were so much more complicated”, he says. “Nowadays you can build a start-up with one person and they don’t even have to be that good a developer.”

The advent of new, easier coding languages has helped to drive that. Among them is Ruby on Rails, an open-source web framework that’s made it simpler and faster than ever before for budding digital geniuses to develop websites and applications. It enabled Twitter to come to fruition in the matter of months, Griffel notes – compared to what would have once been a matter of years. He adds that 15 years ago, digital businesses needed their own physical servers – costing tens of thousands and requiring trained IT staff; now they can be run on an Amazon platform. It’s no wonder millennials are getting more entrepreneurial than their parents.

Foursquare’s Dennis Crowley. Mattan Griffel, co-founder of One Month, cites Crowley as an inspiration
Foursquare’s Dennis Crowley. Mattan Griffel, co-founder of One Month, cites Crowley as an inspiration

And these advancements have certainly driven change in the entrepreneurial arena since the pioneers of the early dotcom days. Steve Jobs and Bill Gates were arguably predecessors to the millennial wave of eager business tycoons – both achieved tech success in their early twenties. But they had to fight far tougher battles according to Fred Tuffile, Management Director of Entrepreneurial Studies at Bentley University. “You take Jobs. He couldn’t write code, he had to have somebody who could do that”, he says. “The whole notion of what it took to get something like that done… was astronomical compared to what it is today.” He adds that what once required several million dollars can now be done for $5,000.

Complementing those falling costs is the fact it’s become substantially less of a challenge to get funding, according to Griffel. The statistics speak for themselves; venture capital investors backed 1,500 start-ups in 2012, while angel investors funded more than 50,000, David Rose, Gust CEO, told Forbes. Added to that is the rise of crowdfunding platforms such as Kickstarter, which offer entrepreneurs the opportunity to source funding from members of the public without having to rely on a venture capital or angel investor giving them the nod. These platforms are having a notable impact, accounting for $1.4bn of the total $2.7bn raised for start-ups in the US in 2012, according to Harvard Business School. Once again, entrepreneurialism seems to be getting cheaper, if not easier.

Millennials seem to be taking over, and they could be threatening to push out their older peers entirely

The world’s your oyster
Aside from the cost and ease factor, there’s the very significant element of opportunity. The digital age has created more occasions for entrepreneurial activity than ever before, gratifying the appetites of the most ambitious wannabe magnates. That’s partly driven by the rapid pace of the tech world; its constant state of change means innovation is a necessity, and start-ups are among the best ways of driving that. Tuffile agrees: “I think certainly 10 years from now, something like a smartphone won’t exist, computers won’t even exist as we know them today, that world is all going to change”, he says – meaning young, budding entrepreneurs looking to create new things to replace the old are living at the right time.

Moreover, because digital phenomena now tend to be embraced so quickly – a lot more quickly than, say, the laptop, according to Tuffile – such businesses can grow rapidly. That growth and success is certainly being made apparent, with start-up valuations reaching a record high in 2013, according to a New York Times report. That evident success seems to be inspiring millennials to innovate, cultivating a certain optimism and ambition that extends beyond the confines of the more traditional, nine to five job-for-life route.

Millennial idols
That optimistic spirit marks part of an intriguing culture shift, and it’s perhaps being first and foremost driven by role models; that is, by the prevalence of digital success stories barely out of puberty and hitting the billionaire jackpot.

As an entrepreneur, Griffel is well aware of, and grateful to, their influence. He says everyone from Foursquare founder Dennis Crowley to Mark Zuckerberg has helped spur on his success, and he believes it’s having an impact on the generation as a whole. “You have the Twitter guys, you have all these companies, Snapchat and so on, and I think a lot of people, maybe misguidedly, think – I can do that.”

That can-do attitude is something far more common to millennials than it was to previous generations, according to Tuffile, and it’s an essential quality for any budding business creator. Krassi Popov, founder of US mobile charging start-up Veloxity, believes Generation Y also has a level of confidence, instilled through upbringing, that their older peers might not have had. “This is especially true in the United States, where young people think they are special because they are told that they are”, she told Slideshare. “People who think they are special don’t want to sit in front of a computer from nine to five doing cubicle work.” That combination of having the confidence to take risks, a sense of being “special” and a can-do attitude, seems – along with the tech knowledge imparted from a young age – to be driving this entrepreneurialism. It’s also likely to give millennials an advantage in succeeding, inspiring them to follow through with their ideas and pursue their passions – something in itself more common among generation Y than in previous cohorts, according to Tuffile.

David Karp, founder of the micro-blogging site Tumblr, stands in Times Square, New York City
David Karp, founder of the micro-blogging site Tumblr, stands in Times Square, New York City

Cultural rift
That marks an important cultural shift that’s arguably been compounded by, and perhaps in part fuelled by, the financial crisis, when long-held trust in companies started to falter with the collapse of companies previously considered stable. “Our parents had told us our entire lives, you want to get a job as an accountant or a doctor, and then we realise there’s not necessarily that certainty out there”, says Griffel, who adds that the changing tides made becoming a young entrepreneur more culturally acceptable. The tough job market the crisis sparked seemed to fuel entrepreneurialism as a solution, with such activity peaking in 2010 in the US – the same year that unemployment rates were at their highest. Essentially, the factors that once drew young people to big businesses – namely stability and security, the gods of past generations – were damaged, and entrepreneurs’ desire to start something new and separate from what was already out there began to grow.

When that situation is considered – along with the shift in cultural attitude, a background of inspiring young entrepreneurial idols, increased affordability of starting a business and more opportunities than ever before – it seems only logical that entrepreneurialism is growing among generation Y. Tuffile is cautious of ruling out older peers completely and he has a point; experience certainly still has its place and a successful team requires balance. But he’s aware there’s been an undeniable generational shift. “I think [the average age of an entrepreneur] is a lot younger now… in the old days it was mostly much older guys.”

And indeed it seems only natural that as the digital sphere takes on an ever increasing prominence in the world of business, so too do the millennials; the very people who grew up surrounded by that technology, and the very people who are helping to create, shape and redefine it, building the future of a forever changing world, even as we speak.

Seeing is believing: SeaWorld’s struggle with bad publicity

Posted on by Ashton Wenborn

“Inaccurate reports have recently generated questions about SeaWorld and the animals in our care,” begins an open letter from SeaWorld. “The truth is in our parks and people, and it’s time to set the record straight. The men and women of SeaWorld are true animal advocates.”

The release of 2012 documentary Blackfish sent seismic reverberations first through the (albeit relatively contained) world of animal rights activists, until it was debuted on CNN in 2013 and subsequently thrust into the mainstream. The film has now been viewed by more than 20 million people worldwide and has fed the public’s growing fascination in recent years with the ‘animals in captivity’ debate. It follows the violent behaviour of orcas, commonly known as killer whales, in captivity, focusing on the deaths of three trainers who had been working with the animals.

Since the film’s release, SeaWorld’s shares have tumbled by as much as 33 percent (see Fig 1), profits have plunged 28 percent, a Consumerist poll revealed it to be the third-most-hated company in the US, and anti-SeaWorld petitions have sprung up in their hundreds. Then, in a dramatic turn of events, CEO Jim Atchison resigned in December, confirming what so many were thinking: SeaWorld is in trouble.

18m

Number of shares stockholder Delaware has sold since Blackfish’s release

$8.4bn

Dolphin and marine animal parks industry in US

$2bn

SeaWorld’s current debt

350

Job cuts announced at SeaWorld since 2010

4.7%

Decrease in attendance since Blackfish’s release

28%

Profits drop in 2014

33%

Stock price drop since Blackfish’s release

Where there’s smoke
The biggest issue faced by the theme park operator is undoubtedly from a stakeholder perspective. STA Travel, the world’s largest travel operator for young people and students, chose to stop working with SeaWorld in May 2014. The move was part of a vast withdrawal from unethical animal trips, and set the wheels of an industrywide trend in motion.

In July 2014, it was announced that Southwest Airlines’ 25-year marketing partnership with the amusement park was also being terminated following alleged pressure from animal rights activists, though SeaWorld officials were quick to maintain that the decision was mutual. Further negative publicity brought about by the documentary came in the form of proposed legislation in California, known as the Orca Welfare and Safety Act, which calls for a ban on the holding of orcas in captivity.

Take a quick glance at SeaWorld’s official Twitter page, and you’ll see that more or less every other post is a response in some way to negative publicity brought about by Blackfish. Add to that the admissions – from which SeaWorld collects 60 percent of all revenue – having dwindled by 4.7 percent in the wake of the negativity and outrage surrounding the company, and it becomes increasingly clear just how powerful a voice one filmmaker can actually have.

The only party unable to see that, it would seem, is SeaWorld itself, which points to increased competition, a later summer holiday for many US schools and negative publicity solely originating from the proposed legislation in California, all the while vehemently denying that there could be any truth to the claims made in Blackfish.

Despite this, it was announced in mid-2014 that the park operators planned to upgrade its whale tanks in three locations, in what animal rights activist group PETA described as a “drop-in-the-bucket move”, along with various other moves that looked distinctly like crisis management.

But through all of this, one party is actually increasing its stake in SeaWorld, and it’s an unlikely one. While most investors are swiftly abandoning the fallen darling of zoological-themed entertainment parks, PETA is wading in. It claims that an increased stake would give it permission to attend SeaWorld’s annual general meeting, submit formal questions and propose future strategies: keeping its enemies close, some would say.

The human approach
In terms of dealing with a public relations crisis, James Brooke, Managing Director of Rooster PR, insists “it’s not rocket science”. He told World Finance: “People talk about it being an art form, and yes, there are nuances to it, but ultimately the overriding principles are the same. Be it an airliner crash, oil leak, tsunami, whatever it might be: you respond quickly, you have a dialogue, you have senior spokespeople on site as quickly as possible, and you gauge the use of social media correctly.”

Brooke pointed to the 1989 Kegworth air disaster as an example, which, against all odds, vastly improved public perceptions of flight operator British Midland. As soon as the incident occurred, the crisis management team was assembled and CEO at the time Michael Bishop was on his way to the crash site, briefing the media with what he knew and expressing his sincere condolences to all affected. By responding immediately and with a friendly, sympathetic and fundamentally human approach, the crash ended up doing little to damage the reputation of the airline, and sales eventually ended up rising in the aftermath.

On the other end of the spectrum is a social media campaign from DHL, following Jules Bianchi’s horrific Formula 1 crash in October 2014. An update posted on DHL’s Facebook account read: “Ghastly accident in Japan. Jules Bianchi is fighting for his life. By clicking ‘like’ on this occasion, you’ll be sending Jules your best wishes for a speedy recovery #ForzaJules.” Unsurprisingly, many of the page’s 600,000 or so followers saw straight through the poorly disguised marketing campaign, and news of it quickly spread. Such is the power of social media.

While it can be an incredibly valuable medium for communicating a positive brand message and identifying with customers, it also makes it extremely difficult to contain bad press. Instead, it acts as an enabler, allowing the negativity to spread like a disease. Torrents of abuse were directed at the delivery giant in the wake of the stunt, calling it “truly inhumane”, “cheap, pathetic and tasteless” and “ghastly”.

“These issues happen because the focus on the commercial side of the business overrides any PR and communications. Those people should be at the most senior level within businesses,” said Brooke at the time. “We’re best placed and trained to inform decision-makers about how to respond in a crisis. And while we’re gradually making our way into the boardroom, we’re not quite there yet.” Fundamentally, the issue is a lack of communication between marketing and PR departments.

It’s simply not possible to talk about exemplary spin doctors without mentioning the ultimate human face of a corporate behemoth: Richard Branson, who single-handedly manages to represent thousands of staff across a multitude of brands, has been quoted saying: “The head of PR is perhaps one of the most important people in a company, and a good chairman will have them by their side… They are critical for managing the brand and save millions in advertising; people talking about your company is much more important than anything.” As opposed to many Fortune 500 companies, where the CEO is largely kept at arm’s length from both internal operations and public statements, Branson’s name is synonymous with Virgin, and he himself is arguably as famous as the brand.

SeaWorld's share priceThe corporate drawbridge
Considering the recommended course of action by PR professionals, the absolute worst thing for a company to do following a crisis is nothing. However, this is the exact strategy that has long been adopted by Apple, most notably employed following the scandal that came to be known as ‘bendgate’ in October 2014, when the brand new iPhone 6 was discovered to be bending in users’ pockets.

That approach, in actual fact, worked very well in this case. In 2014, Apple upheld its top spot on Interbrand’s best global brand ranking for the third year running (see Fig 2), which also showed its brand value to have increased by 21 percent over the year. By refusing to pander to anyone – be that its customers or the press – Apple’s PR team effectively sparked the public’s curiosity, creating an air of mystery and intrigue. Of course, plenty see straight through the facade and take it for what it is: intentional elitism, verging on the impression that it takes its customers for granted.

Aside from a small and temporary drop in its share price at the time, no impact was detected across the board. In this circumstance, Apple is the exception as opposed to the rule – ignoring public criticism may work for the most influential corporation in the world, but that is one of very few companies capable of pulling it off. Smaller businesses with a far less loyal customer base simply cannot play hard to get with consumers and the media alike, especially in times of a crisis.

If advising SeaWorld, Brooke suggested: “They have to have a dialogue. The worst thing possible would be to pull up the corporate drawbridge. They’ve got to be seen to be sympathetic to what’s being said, and putting a plan in place for the long-term development of the park, and the welfare of the animals.”

He continued: “It’s got to be seen to be addressing all of the serious concerns in the documentary, which ultimately, only they know the truth about. So some pretty frank internal discussions need to be had, with the commercial aspect left at the door, and perhaps they should bring in external consultants who won’t just tell them what they want to hear.”

Weathering the storm
While things for SeaWorld aren’t looking great right now, and the documentary is likely to have a continuing impact as animal rights movements gain traction, full park closure is unlikely in the immediate future. A mind-boggling 400 million guests have passed through SeaWorld’s doors in its 50 years of operation, and there will always be a mass market for what it has to offer.

What’s interesting about this case is SeaWorld’s lack of resilience. As evidenced, companies are on the receiving end of bad press all the time. Granted, not all companies are the subject of a feature-length documentary, but a similar situation has happened before: the 2004 documentary Super Size Me saw filmmaker Morgan Spurlock eat only McDonald’s for an entire month, during which time he gained a significant amount of weight and developed heart palpitations and depression, among various other health deteriorations. While the film provoked a global public debate on nutrition and saw McDonald’s pull all ‘super size’ meal options from its menus just six weeks after the documentary was released, the effects weren’t really felt on the fast food giant’s bottom line. An overhaul of its menus, including the addition of salads and considerable rebranding – which the chain still insists had nothing to do with the documentary – eventually saw sales rise by 7.4 percent by the close of 2008.

Of course, there are two sides to every story, and SeaWorld was relatively quick to issue a response to the Blackfish documentary, in which it argued against almost every point and vehemently denied any truth in the accusations put forward. What would boost the company’s image, and its pockets, would be to fully communicate the good SeaWorld has done for animal conservation and rehabilitation in the past.

Interbrand's best global brand ranking 2014

Its response self-proclaims it to be a “world leader in animal rescue” and “often the first to be contacted” in times of natural or man-made disasters, having rescued more than 23,000 animals “with the goal of treating and returning them to the wild’”. If there is truth in these claims, SeaWorld executives simply must confront each individual issue head-on – perhaps in a public-forum-style debate, where, as Brooke suggests, the commercial aspect is left at the door, and each claim is fully supported with evidence.

A poll posted by the Orlando Business Journal asked ‘has CNN’s Blackfish documentary changed your perception of SeaWorld?’, and initially showed overwhelming support for the theme park, with 99 percent voting no. However, an investigation by the newspaper found that 54 percent of 328 votes had come from the same IP address, belonging to none other than SeaWorld.com. With the passing of time, the results have made a complete U-turn, with 86 percent of a total 11,183 voters selecting yes.

The silver lining
A 2011 study from Stanford Graduate School of Business found that on rare occasions, bad publicity can have a positive impact on sales. It employed various examples as evidence, such as when a 300 percent increase in requests for information about the nation of Kazakhstan was reported by Hotels.com after the 2006 film Borat mocked it, or when a wine described as ‘redolent of stinky socks’ by a well-respected website saw its sales rise by five percent. The study shows that if a product or company was relatively unheard of before negative publicity, it can be thrust into the public eye simply as a result of that bad press, raising product awareness.

“Whereas the negative impression fades over time, increased awareness may remain, which can actually boost the chances that a product will be purchased,” said Alan Sorensen, a professor of economics and strategic management, who authored the study along with Jonah Berger and Scott Rasmussen. The same was not found for more established companies: when a rumour that McDonald’s was using worm meat in its hamburgers circulated in 2000, a 25 percent drop in sales was detected.

It’s clear that while Blackfish hasn’t prompted the immediate closure of any of SeaWorld’s 11 parks, it has successfully tapped into an existing issue at the forefront of public debate and attracted a global audience. In terms of the future, it’s not looking too rosy for the theme park operator, which faces the mighty uphill battle of turning around public sentiment surrounding a particularly hot topic.

What exactly is money?

Posted on by Ashton Wenborn

According to the authors Lipsey and Ragan of Canadian textbook Economics, money emerged as a replacement for barter: “If there were no money, goods would have to be exchanged by barter… The major difficulty with barter is that each transaction requires a double coincidence of wants… The use of money as a medium of exchange solves
this problem.”

Fortunately the book was free, so in this case neither barter nor money were required. The authors went on: “All sorts of commodities have been used as money at one time or another, but gold and silver proved to have great advantages… The invention of coinage eliminated the need to weigh the metal at each transaction, but it created an important role for an authority, usually a monarch, who made the coins and affixed his or her seal, guaranteeing the amount of precious metal that the coin contained.”

Money is not just a facilitator for barter, but an active medium with powerful properties of
its own

Marked money
This seemed clear enough. Commodity money emerged from barter. The best commodities, for various reasons, were gold and silver. The only role of government was to come along at the end and put its stamp on the coins. I had seen the same argument made before, with minor variations, by 19th-century economists such as William Stanley Jevons and Carl Menger, and by Adam Smith in the 18th century. But to check it out, I decided to go right to the source, the origin of origin stories: the philosopher himself.

In Politics, Aristotle said: “More complex form of exchange [money] grew, as might have been inferred, out of the simpler [barter]… the various necessaries of life are not easily carried about, and hence men agreed to employ in their dealings with each other something which was intrinsically useful and easily applicable to the purposes of life, for example, iron, silver, and the like. Of this the value was at first measured simply by size and weight, but in process of time they put a stamp upon it, to save the trouble of weighing and to mark the value.”

So the official textbook story about the origins of money has remained essentially unchanged since antiquity. Which is strange, for two reasons. First, most textbooks have been updated since Aristotle’s time – we don’t still think the planets are set in crystalline spheres that rotate around the earth. Second, the theory – as a little more research showed – turns out to be wrong.

One thing that struck me about these accounts was the lack of dates, references, or supporting details. The British economist Alfred Mitchell-Innes had a similar suspicion: “So universal is the belief in these theories among economists that they have grown to be considered almost as axioms which hardly require proof, and nothing is more noticeable in economic works than the scant historical evidence on which they rest, and the absence of critical examination of their worth.” But Mitchell-Innes had more: “Modern research in the domain of commercial history and numismatics, and especially recent discoveries in Babylonia, have brought to light a mass of evidence which was not available to the earlier economists, and in the light of which it may be positively stated that none of these theories rest on a solid basis of historical proof – that in fact they are false.”

So how has this ‘modern research’ impacted the field of economics? Not much, apparently. Because Mitchell-Innes wrote that over a century ago, in 1913. According to anthropologists, economies based purely on barter don’t appear to ever have existed. Instead, money has its roots in a virtual credit system created 5,000 years ago in ancient Mesopotamia.

Coin money came later, and ever since, money has alternated between spells where it is based primarily on credit (the Middle Ages, modern fiat currencies), and on precious metals (ancient Greece and Rome, the gold standard). It is perhaps understandable that Aristotle got it wrong, since he didn’t have extensive research by anthropologists to draw on, but why are economics textbooks still repeating the same story thousands of years later?

Founding myth
One reason is that if money has emerged naturally from commerce rather than been imposed by government, then economics can be seen as a kind of natural science, divorced from its social and political context.

The economics version also reflects an inbuilt assumption that there is essentially no trust between parties, so exchange has to be immediate, in the form of goods or some form of money. Economics can therefore ignore the complex web of human relationships in which the economy is embedded.

Above all, though, the idea that money replaced barter by making it more efficient allows one to see the economy as something in which money is nothing more than an inert, passive intermediary – which means it can be ignored as a driving factor in the economy. Former Bank of England Governor Mervyn King noted: “Most economists hold conversations in which the word ‘money’ hardly appears at all”, which is particularly strange given the way the financial community hangs on every word of central bank governors.

The general equilibrium models relied on by policy makers treat the economy as a giant barter system. One reason the Bank of England failed to predict the banking crisis of 2007 was that the general equilibrium models it used to forecast the economy didn’t include banks.

The central, founding myth about the origins of money is one of the reasons why mainstream economists still, despite the countless number of books written on the subject, seem to be in denial about its true nature. Money is not just a facilitator for barter, but an active medium with powerful properties of its own. We need to start taking it more seriously – and a first step would be to update our Aristotelian textbooks.

A lack of dissenting voices holds boards back

Posted on by Ashton Wenborn

At the height of the financial crisis, the banking industry was widely condemned for its lack of leadership and the inability of boards to take responsibility. The repeated mantra of the crisis being the fault of ‘just a few bad apples’ didn’t wash, however, as many affected by the crisis saw a culture of malpractice that extended from top to bottom.

Many have criticised this apparent lack of leadership as being a consequence of groupthink – the term that explains the way in which people go with the flow as opposed to airing honest opinions and rocking the boat.

One of the primary causes of such groupthink is the distinct lack of diversity within boardrooms. Whether it is through gender, background, age or education, boardrooms throughout the world tend to be made up of very similar types of people. Certainly within the UK and US, the characteristics that make up a boardroom tend to be white, middle aged men that have been expensively educated. While a meritocratic system is obviously the most important way in which board members should be selected, sometimes those sitting within the boardroom are more likely to choose people much like themselves to join them.

Boardrooms without a diverse mix of members are unlikely to have particularly varied opinions. According to some, this is a trait that has caused many of the damaging management problems of recent years.

22.8%

Proportion of female directors in boardrooms of FTSE 100

Battling groupthink
At a recent talk at the UKs House of Commons, Helena Morrissey – leading financier, CEO of Newton Investment Management and founder of boardroom diversity group the 30 Percent Club – spoke at length about the need for boards to allow more dissenting voices into the mix.

Boardrooms around the world tend to suffer from the problems of groupthink, with members terrified of being seen as a dissenting voice within a group. However, according to Morrissey, this problem is neither a new phenomenon, nor one exclusive to the boardroom. The term itself was coined by William H Whyte in 1952 when he was writing for Fortune magazine. “It is a philosophy that holds that the group values are not only expedient but right and good as well. In a way what he [Whyte] was saying is it is something much more pernicious than people agreeing with each other and actually gets to the point where you believe any dissension is immoral and that your view as a group is the only one that is relevant and right. This self-belief that takes hold and restricts the listening and hearing of any dissenting messages is very dangerous”, said Morrissey.

“The more amiability and esprit de corps among the members of a policy-making in-group, the greater the danger that independent critical thinking will be replaced by groupthink, which is likely to result in irrational or dehumanising actions directed against out-groups. That is pretty strong stuff but it is a classic way of describing a state of mind that unfortunately can develop when people are among a group that they all know and like well and end up lacking the challenge.”

Time for change
Morrissey cited the example of the Space Shuttle Columbia accident in 2003, where all seven crewmembers of the ship were killed when it disintegrated upon re-entering the Earth’s atmosphere. “When you read the report of the accident investigation and then you read the report of the Challenger accident investigation (and of course the Challenger accident happened in 1986) it seemed then that nothing had been learned. Nasa had this strong cultural bias, an optimistic organisational thinking and, again, when one read through the analysis of what went wrong, there were engineers who were dissenting from the decisions to go ahead with both of those launches but they were overridden. No-one wanted to hear the dissenting voices.”

She adds that the financial crisis is the most obvious recent example of such groupthink. “The recent past just reinforces the point that we again lulled ourselves into a false sense of security. With hindsight now and obviously reports likes the Financial Services Authority Report into the failure of RBS which highlighted the homogeneity of that bank board, but it was not just the board, but senior management teams and, to be honest, policy-makers including, dare I say, politicians and generally speaking the in-crowd resulted in this collective delusion and arguably wilful blindness.

“Again, this is pretty strong stuff but I want to emphasise that we are not talking about just a group of people not noticing that something might be happening around them. This is behaviour that ends up excluding the dissenting voices. In the capital markets we have this problem in extremis. We had the problem in extremis and we still do. I have quoted here from a US female hedge fund manager who put it very eloquently: ‘Too many people are too similar, too connected and too insulated in this industry.’”

While the boards of financial institutions in the UK were in 2008 famously described by Lord Myners as resembling “a retirement home for the great and the good”, Morrissey believes there has been an improvement in recent years. “We have come a lot way from that, but at the time there was this compounding effect of conformity of the establishment, as it were, at every stage of the way. Also, as I mentioned, there is this penalty for dissension, the Emperor’s new clothes phenomenon, the idea that if you speak out of line you are silenced or exited.”

Eradicating these attitudes towards dissenting voices may well come through a generational shift, with a sweeping out of the old guard. “The average age of a FTSE non-executive director is still over 60”, Morrissey added. “That is lower than it is in the equivalent in the States but it is still pretty high. If you also think that companies need to work out how to get digital expertise, I would suggest that a whole other generation of potential board candidates might be something to think about. Educational backgrounds are still quite uniform.”

Gender dilemmas
Gender imbalances within boardrooms are certainly still apparent, but have gradually improved in recent times. In the UK, the proportion of female directors sitting in the boardrooms of FTSE 100 companies has jumped from 12.5 percent in 2010 to 22.8 percent currently. The aim of Morrissey’s organisation is for that number to hit 30 percent by the end of 2015, which seems more than achievable. As of October 2014, alcoholic beverage company Diageo is leading the way in the UK, with a 45.5 percent proportion of women on its board (see Fig. 1).

Morrissey says that while the issue of female representation within the boardroom will continue to need improving, it should, in time, lead to improvements in all areas of under-representation. “I think I would rather see at this stage a thoughtful discussion about how the progress on the women’s issue can evolve into other under-represented groups so you end up with some really radical thinking. We are not trying to create a rainbow of characters on a board. We are trying to create a board that will be in genuine disagreement and a real challenge to the management team.”

FTSE 100 companies with the highest proportion of women on boards

She concludes that the sort of disruption and dissent that was absent within financial boardrooms leading up to the financial crisis is still not being seen today. “With hindsight, the simple truth was that bank boards were too comfortable in the run-up to the financial crisis and therefore we need a degree of discomfort. Again, I do not see, as yet, much evidence that real out of left-field thinking, real disruption is welcomed.

“My own experience – because I have been a little bit disruptive some people might suggest in terms of trying to create change – again is sometimes people will be allowed a voice but I still do not see as yet people saying, ‘Actually we need to be keeping on questioning how we are setting ourselves up.’ So the idea of actually having a welcoming of dissension, a welcoming of challenge and time on the agenda to really challenge each other is still some way off.”

Ultimately, forcing companies to have diverse boards is not something that is likely to come about. While quotas have been discussed, few believe that people should be parachuted into senior management and board roles purely because they come from a different background to existing members. However, healthy debates invariably lead to better decisions, with people having to justify their opinions against dissenting voices. If this leads to better management decisions, then that is surely more important for companies than whether other members of the board share the same golf club membership and old school tie.

World Bank innocent in fraud case

Posted on by Ashton Wenborn

The independent review, commissioned by the World Bank’s president, Jim Yong Kim, questioned the way in which the loan was handled by Beijing after the bank’s treasurer, Madelyn Antoncic, raised concerns about its processing.

This tangled transaction was questioned by Ms Antoncic and her staff, prompting the review

Created by the International Development Association and International Finance Corporation, two arms of the World Bank, the loan was part of a 2013 fundraising exercise for the IDA to fund work with poor countries. Rather than taking the $1bn straight into the fund, a complex transaction took place with the IFC, which raised suspicion.

As the Chinese government did not have a formal system for granting concessional loans to an institution, the People’s Bank of China offered the loan at market rates. Beijing then added a $300m grant, $179m of which was to cover the interest payments for the loan, and the World Bank created a structure for the IDA by combining the Chinese funds and buying a $1.179bn bond issued by the IFC. This tangled transaction was questioned by Ms Antoncic and her staff, prompting the review.

In the report Locke Lord Edwards, the investigating law firm, wrote: “We found no evidence of fraud or dishonesty in connection with the IDA-IFC transaction or the China concessional loan, and found that IDA was authorized to enter into each of them.”

The law firm’s review only highlighted a lack of communication between the World Bank’s financial departments. They concluded: “Working to improve communications between the groups would help reduce the risk of issues such as these arising in the future.”

Bolivia’s petrochemical industry set to prosper thanks to new plant

Posted on by Ashton Wenborn

Undertaken by Yacimientos Petrolíferos Fiscales Bolivianos (YPFB), the first tests have begun for the Gran Chaco plant, a huge gas complex made up of more than 70 hectares, which aims to consolidate Bolivia as the main natural gas exporter in South America. The plant has been built to maximise the use of and diversify the country’s export offerings, and is set to be the focal point of Bolivia’s petrochemical industry as it looks towards internationalisation.

The President of the Plurinational State of Bolivia, Evo Morales Ayma, and the Vice President, Alvaro García Linera, promoted the construction of the complex, which will begin commercial operations in April 2015. Estimated business projection for the plants is $872m per annum for the commercialisation of liquefied products from natural gas in the southern cone.

“If it wasn’t for the fight and effort that the people of Bolivia put up, this plant, with which we move from the nationalisation to the industrialisation of our hydrocarbons, wouldn’t exist”, stated the re-elected Evo Morales, after last year’s elections in October – elections that ratified the direction of the new strategic policies for the development of the hydrocarbon sector in the country.

The YPFB, a Bolivian state-owned oil company, allocated $608.9m for the construction of the new plant, which is located in Tarija at the southern extreme of Bolivia, on the border with Argentina. It will process up to 32 million cubic metres of gas per day. The objective of the plant, which is the third largest in the region, is to obtain 3,140MT per day of ethane; 2,240MT per day of liquid petroleum gas, as well as additional volumes of isopentane and natural gasoline. Of the plant’s total production, Bolivia will make 82 percent of the liquid petroleum gas, made of propane and butane, available for export. The methane will be returned to Argentina as a dry gas export, in accordance with the stipulations contained in the contract between YPFB and the state-owned company YPF.

$872m

Estimated business projection of Gran Chaco

The rich gas, which contains methane, ethane, propane, butane and other liquefied compounds, comes from the biggest production fields in Bolivia, like San Alberto, San Antonio and Margarita. It will feed the complex via the Juana Azurduy de Padilla gas pipeline. The complex recovers the surplus of energy that was formally exported to Argentina as natural gas.

Spanish company Técnicas Reunidas was in charge of the construction of the Gran Chaco plant, an endeavour that also included the participation of nine contractors and 50 subcontractor companies from Bolivia, Argentina, Italy, Spain, Belgium and China. The project employed more than 5,000 workers and technicians to face the civil, mechanical, assembly and installation works.

New income
The funds invested in the plant, which underwent initial tests on October 16 last year in Yacuiba, Tarija, will be recovered within an estimated period of five years, according to Carlos Villegas, President of YPFB.

“The benefits we are going to obtain are important. We will obtain an estimate of $400m a year, that means that if the investment was $680m we can cover the investment, which was a loan given to us by the central bank, within two years”, says Villegas. “However we are not going to do that, because we need to make other investments. We are going to return it within five years – which is quite a short time period for the contracts that we have signed with the Central Bank of Bolivia.”

Villegas calculates that for the sale of the gasoline, isopentane and liquid petroleum gas, both on the internal market as well as on the external one, an estimated $872m as gross income per year will be obtained. Gran Chaco is the second plant that YPFB started up in less than two years to make maximum use of the liquefied products of the gas exported to Argentina and Brazil. The Río Grande Liquids Separation Plant has been running for over a year in the Santa Cruz de la Sierra area, and produces an average of 360 total measured depth of pressure liquefied gas (PLG), 440 million barrels per day of natural gasoline and 190 million barrels per day of isopentane.

With the total of the PLG production obtained from the Río Grande Plant, Bolivia is able to be self-sufficient and fulfil all its requirements, and is still able to export the surplus to the markets of Paraguay, Uruguay and Peru, diversifying its international export offerings in the process. From August 2013, this complex produced 86,287T of PLG, generating extraordinary utilities.

National plastics
The industrialisation of the natural gas could not be a reality in Bolivia without the Gran Chaco plant, which will treat input products like propane and ethane that will be used in future complexes for propylene/polypropylene and ethylene/polyethylene, which Bolivia intends to construct in the shortest possible time frame.

The national government decided to prioritise the construction of the propylene/polypropylene plants with an approximate investment of $1.8bn. The complex is located in the region of Tarija and from 2018 it is anticipated to process around 350,000MT per year of resins for the industrialisation of hard plastics.

In an ambitious project, Bolivia also expects to concretise the start up of the ethylene/polyethylene complex with an unprecedented historic investment in the year 2022 – to produce around 750,000MT of polyethylenes of different characteristics and applications. The second part of the project proposes the building of another three plants of high- and low-density polyethylene.

With both petrochemical plans, Bolivia, which until some years ago was considered one of the poorest countries in South America, intends to generate greater added value to natural gas, diversify its productive manufacturing matrix of plastic products, generate direct and indirect employment and export the surplus polymers to other countries in the region.

Italian company, Tecnimont, completed the first stage of the Bolivian ethylene/polyethylene project, firming up the conceptual engineering for the complex of industrialisation of the natural gas. They are also expected to be awarded the PDP and extended basic engineering contract for the second quarter of 2014. Meanwhile, Tecnimont, due to its broad and proven international experience, was also trusted with the necessary strategical support work for the propylene/polypropylene project.

Elsewhere, YPFB has been building an ammonia/urea plant with an investment of $862.5m in Cochabamba, located in the very centre of the country, where it will produce 756,000MT per annum of urea, a fertiliser that is in great demand. It is expected that it will not only improve internal food safety and the national agro-industry, but that it will also favour and diversify national exports with added value. The plant is expected to begin operation in 2015.

Greater reserves
During the last six years, YPFB increased the volume of its natural gas reserves in Bolivia by up to 10.45 trillion cubic feet of natural gas, which guarantees sufficient supplies for the internal market consumption, exports for the external market (Brazil and Argentina), as well as the industrialisation process, considered a national priority.

Bolivia is the main natural gas provider of the region, with an index of incremental production of 65 million cubic meters of natural gas per day, and it is continuing to increase its processing capacity by up to 97 cubic meters of natural gas per day, with 11 treatment plants.

The country maintains an aggressive exploration plan with the participation of national and transnational companies that have been operating for nine years on national territory. There are plans to increase the reserves and the national production of oil and natural gas even further.

With a combination of public and private investment, $7.07m was invested in the development of the whole national production chain of hydrocarbons from 2006 to 2013, and for the current management the investment was $3.02m, from which 64 percent is earmarked for greater tasks of exploration and exploitation.

With the current nationalisation process and the state administration of hydrocarbons, Bolivia managed to add $22.21m of oil income from 2006 to 2013, a historical index that is dynamising the national economy by propitiating the transfer and distribution of income in the country, as well as contributing to the growth of the international net reserves that the Central Bank of Bolivia administrate. This was up to $15.44m in October 2014, 49.8 percent of the GDP calculated as $31m.

Additionally, the development of hydrocarbon activity generates income that was designated to the financing of social policies of Bolivia, destined for vulnerable segments of society such as the elderly, children and pregnant women, including the Renta Dignidad (state funded pension scheme), Bono Juancito Pinto and Bono Juana Azurduy.

Chiliogon Asia on the Asian credit market and its risks

Posted on by Ashton Wenborn

The global investment climate is currently in the midst of a major transformation, and averting the pitfalls contained within requires a keen eye for a multitude of emerging challenges and opportunities. Nowhere else is this more the case than in Asia, where markets are subject to a sustained spat of volatility and the potential for returns is huge. World Finance spoke to Chew Heng Yong and Roger Carlsson, Portfolio Manager and CEO respectively of fund management company Chiliogon Asia, about the Asian credit market and the risks associated with it.

What is the investment climate like at the moment?
Last year was littered with geopolitical risk events, as we saw conflicts in Syria, Gaza and Iraq escalating, and tensions between the West and Russia worsened over Ukraine. Whereas over in Asia, we have ongoing China territorial disputes against Japan and Vietnam, Thailand reverting to military rule, and protests in Hong Kong brewing over China’s proposed electoral reforms.

However, geopolitical risk is generally being underestimated and volatility suppressed, largely due to the open monetary operations at the US Federal Reserve, ECB and the Bank of Japan. That said, in an ultra low interest rate environment, we have seen investors chasing lower quality risk assets and looking further down the capital structures in search of higher yield. To date, the average yield for high-yield index US dollar bonds, compiled by Bank of America Merrill Lynch, has fallen to five percent, down from 20.8 percent in early 2009.

Geopolitical risk is generally being underestimated and volatility suppressed, largely due to the open monetary operations at the US Federal Reserve, ECB and the Bank of Japan

With that in mind how has the market grown over the recent years?
The Asian credit market has seen corporate credit spreads tightening massively, due to the reasons mentioned above. Companies are taking the opportunity to lower their financing cost by issuing more to refinance existing debt. At the same time, the quality of some new issuances is getting poorer as corporates with tinted history of restructuring are back tapping the debt capital market – and with success. This goes to show that investors are either more forgiving or have a much bigger risk appetite. An example is Indonesian real estate company Pakuwon Jati (single B-rated), which managed to issue a five-year Reg S USD bond at 7.125 percent when it had a history of debt restructuring back in 2005.

As we transition into the new year, we are also seeing riskier bank issuances, as most countries have implemented new banking rules governing minimum bank capital requirements and qualifying capital criteria, hence, we saw a huge supply of Basel-III compliant debt securities. These new higher yielding bank issuances essentially have an unfriendly creditor structure in place, to such an extent that investors hold a higher risk of principle write-down and greater loss absorbency upon the point of non viability trigger.

Another trend we’re seeing in the Asian credit market is companies with weak standalone financials seeking support from Chinese banks when they tap the debt capital market. By getting a standby letter of credit from Chinese banks, these companies have managed to reduce their financing cost when they’ve issued. However, we remain cautious on such issuances, as this structure has been untested.

How has the financial climate affected your business?
As the yield compression continues, we are also looking at various alternatives and instruments that offer better risk-reward ratios. But on the public corporate bond space, we find value in selected Additional Tier 1(AT1) and Contingency Capital Security (CoCo) issues, so as to participate in this space but focus only on high quality names that have ample buffer to trigger levels and excellent asset quality.

As the Asian credit market is extremely exposed to the Chinese property market, we are keeping a very close watch on the contracted sales figures of Chinese property companies on a monthly basis. We are cautious on this sector and thus have set up shorts in under performing property companies as a hedge in the portfolio.

Where are now you positioned within the market?
We continue to maintain a balanced portfolio. Technical may stay strong and stretched valuations persist, but we believe Basel III will create significant pressure on the ability for banks to absorb volatility shocks with less capital allocated to market-making activities. We feel that, in the coming months, it is very important to be cautious and balanced in our approach to risk, as there is no way this will play out without high volatility.

Combined with thin volumes, we are seeing wider bid offer spreads when everyone rushes for the door, which could lead to large swings on the back of very tight pricing. As such, we are taking more but smaller long positions and holding some shorts as a hedge in the event of a sell off.

How successful has Chiliogon been in terms of the fixed income fund? How did you achieve that success?
The Chiliogon RSL Income Fund aims to generate above average returns with low volatility by finding value across capital structure using in-depth analysis, both fundamental and quantitative, and focusing on liquid securities. Since its inception in June 2010, the fund has posted an annualised return of 11 percent with an annualised volatility of 8.7 percent, beating the JACI Total Return benchmark, with an annualised return of seven percent, as of August 2014.

The fund management team does not take unnecessary foreign exchange and rate risks as it proactively hedges out these exposures, and the fund positions itself as a credit fund as we trade on the less volatile corporate credit spreads. The fund has been successful in calling short in some of the distressed coal producers in recent years, and the fund manager has a disciplined approach to all tenets of its functions.

Pre-investment, the fund management team has a strict investment process before investing funds. We use a top down approach, with the management team reviewing the market conditions, and specific investments are made only after running a relative valuation against appropriate peers.

The firm conducts research by speaking to sell side analysts and management teams, and direct communication with CFOs and/or investor relation managers are encouraged to receive first hand comfort and in-depth knowledge about credit. Post investment, the fund abides by a 30 percent corporate bond issuer limit to mitigate concentration risk, and the investment team will diligently monitor fund exposure and hedge risk out.

Where are your strongest areas of expertise?
To generate additional alpha, Chiliogon has maintained excellent relationships with most major underwriting banks in the region, which has given us access to research, capital markets transactions, and companies’ management. We have been successful in acquiring allocations in most heavily subscribed debt issuances, with decent new issue discounts, by meeting up with issuers during pre-deal road shows and providing pricing feedback to banks’ syndicate desks.

We have had a wide range of investors from high net-worth individuals to family offices and funds of funds. As we are based in Asia and close to the action, we are able to deliver on ad hoc requests from investors keen on research in the region. For example, we had an investor based in London who has a particular interest in an Indonesian company, and will hold occasional conference call discussions with the investment team to pick our thoughts on the company and the regional macro environment.

Who is Chiliogon regulated by?
Chiliogon is regulated by Monetary Authority of Singapore (MAS), which ensures that a comprehensive compliance framework is in place before granting a fund management licence to operate in Singapore.

The company conducted background checks on all front/mid-office employees at the end of last year, and on new joiners to ensure that all representatives meet the MAS fit and proper criteria. Besides that, Chiliogon engages the service of ComplianceAsia to ensure that stringent compliance procedures are met and new regulations adhered to.

Can you explain the structure of your company?
As a firm, we bring in-depth investment management experience, specifically buy side experience, to our investors. Given that our seed investors were from a single family, we are an investment management company with a family office ethos. Bearing in mind the importance of capital preservation for the next generation, we are also constantly looking for better yield with reasonable risk return ratios, and are therefore passionate about the alternative investment industry as well.

What other areas does the company cover?
In the alternative investment space, we believe in collaboration and teamwork, technical expertise and resources for detailed due diligence work. Our involvement in these deals ranges from fundamental research with data room access to direct contractual negotiation, before arriving at concrete solutions and actionable recommendations.

PTT boosts ASEAN’S economic potential

Posted on by Ashton Wenborn

Keeping up with the energy demands of both the developed and developing world has presented a problem for governments and the private sector. Governments want to ensure their energy security, while the private sector tries to tap into the world’s limited energy resources. One major international organisation that is a highly significant player on the global energy stage and known for its innovation and making canny investment decisions in connection to oil and gas exploration is the PTT Public Company (PTT).

PTT plays the important role in moving the economic success of the ASEAN forward. The PTT organisation is by far the largest oil and gas company in Thailand – owned by the Thai state, it derives its name from formerly being called the Petroleum Authority of Thailand. The company is the owner of liquefied petroleum gas (LPG) terminals throughout Thailand and underground gas pipelines in the Gulf of Thailand.

This is only the start of PTTs global operations. It is indeed a global company, employing more than 9,000 people worldwide and is involved in oil and gas exploration, selling gasoline, manufacturing petro-chemical products and generating electricity. PTT is one of the biggest organisations in Thailand, and is the only Thai corporation that is listed on the Fortune Global 500 list.

Natural gas in Thailand
According to the Asia Pacific Energy Research Centre (APERC), natural gas is the most rapidly growing primary energy source in Thailand, with the growth averaging about 4.4 percent per year from 2010 to 2025. The APERC also states that Thailand’s limited production of natural gas will require its imports of natural gas to expand considerably. The Thai Energy Ministry believes that natural gas production in Thailand will peak in 2017.

The PTT organisation is by far the largest oil and gas company in Thailand

The bottom line is that while in the past Thailand has had significant natural gas resources and still has substantial resources, it faces an impending gas shortage – and this needs to be solved (see Fig. 1). Some of this may be sorted by increasing oil and gas exploration in Thailand itself, taking steps to reduce declines in the gas endowment of mature fields, and promoting exploration of other gas fields that are technically challenging.

Like other countries in the Asia-Pacific area and indeed around the world, Thailand has hopes of buying some of the gas that is flowing from enormous shale gas deposits in the US. However, these measures, important as they are, are not enough to solve the fundamental flaw that Thailand’s reserves of oil and gas are depleting relatively fast.

Energy is a psychological as well as a physical asset. For industry and commerce in a nation to flourish, entire business communities need to know that access to required energy for forwarding the industry and commerce for profit and success is sound and secured for the foreseeable future. For companies in Thailand, PTT is developing energy resources and acquiring significant stakes that can be used to augment the country’s own dwindling energy endowments.

Currently, PTT is faced with a situation where regional oil and gas resources in Thailand are increasingly unable to meet the Thai demand for power. The company travels the globe to spot exciting and important opportunities for investment – for investment in oil and gas exploration, and for buying a stake in particularly promising fields. PTT has invested billions in US dollars to increase its foothold in the worldwide energy market.

ASEAN’s economic ranking
In the Association of Southeast Asian Nations (ASEAN) – that is, Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand and Vietnam – the economic success of the region and the social progress with the socio-cultural evolution in the area has led to greater demands for energy.

If ASEAN were a single entity, it would rank as the sixth largest economy in the world, behind only the US, China, India, Japan and Germany. The total population of the ASEAN is around 615 million, and its combined nominal GDP in 2013 was estimated as being around $2.4trn.

Despite this economic success, there are clearly considerable differences between the members of the ASEAN, which remains a significant challenge. But the energy and vigour of the ASEANs commitment to working together to create ever-increasing mutual prosperity is undisputed, and one of the most exciting developments is the aim of creating a single market and production base with a free flow of goods, services, investments, capital and skilled labour by the year 2020.

It’s aimed for 2015 that the ASEAN Economic Community (AEC) will create and enable the formation of a single market and production base in the region – which is a highly competitive economic area, a region that provides equitable economic development, and above all that the ASEAN will become fully integrated into the global economy.

Sustainable global connections
Today, as well as operating in the ASEAN region, PTT has operations in North America, Africa, Australia and the Middle East. It is an organisation that is active in the oil, gas, coal, bio-fuel and renewable sectors. The company has a particularly significant commitment to sustainability, and has a worldwide reputation for seeking opportunities to make use of sustainable energies wherever this is feasible.

Most of PTTs exploration and production business is carried out through the subsidiary PTT Exploration and Production Company (PTTEP). With this, it has invested in oil and gas exploration opportunities around the world. Its policy is wherever possible to undertake investments in fully integrated natural gas businesses that cover the entire chain of natural gas exploitation from exploration and production, procurement, transportation, to gas separation and the actual marketing of natural gas. PTT also invests in gas related businesses – both domestically and internationally – as well as developing new businesses that offer significant growth potential.

Today the company also plays an extremely important role in contributing towards maximising collaboration between Thailand and the other nations of the ASEAN area of energy. The entire cultural and commercial approach of PTT is to promote collaborations and to identify opportunities between energy organisations in the ASEAN, resolving problems that might otherwise inhibit the potential level of communication. PTT sees its business as not only investing in oil and gas exploration, but also in engineering cultural and commercial connections between oil and gas companies in the ASEAN region and indeed worldwide, in order to maximise good business practice.

Thailand's natural gas reserves

PTT is due to become the Secretary in Charge of the ASEAN Council on Petroleum (ASCOPE). In this role, the company will be the core leader that pushes ASCOPEs operations in line with ASEANs energy collaboration strategies, while taking every step to ensure there is energy security and sustainability throughout the ASEAN region. PTT also takes part in the financial industry in order to ensure that less developed ASEAN countries have opportunities to make crucial investments in energy resources – both within their own countries and abroad.

A dynamic organisation in the energy business within the ASEAN and worldwide, the PTT group devotes its own efforts to contributing to the development of energy and petrochemical businesses in every ASEAN country, and beyond.

For example, in Brunei it is currently strengthening relationships with local producers to capture crude oil export volume for trading; in Cambodia PTT is supplying LPG and petroleum products for domestic consumption; in Indonesia it is exploring growth opportunities throughout the country and taking part in new explorations; in Laos PTT is developing oil and hydropower; in Malaysia it is contributing to complete the supply chain in fuel oil trading; in Myanmar it is conducting feasibility studies of gas-fired power plants; in the Philippines PTT is implementing operation excellence in its existing oil business operations and actively growing in oil retail business; in Singapore PTT is expanding its crude oil, condensate, petroleum and petrochemical products and other commodities trading; and in Vietnam it is helping to build a large-scale petro-chemical refinery complex.

For the PTT group, the energy business is about collaboration and fostering economic growth within the ASEAN and beyond, as well as using all of its own technical skills in exploring new fields, and the opportunities to find the energy that people across the globe need for continued economic success.

Etiqa leads the Malaysian insurance market

Posted on by Ashton Wenborn

The Malaysian insurance market is characterised by competition above all else, as local players look to improve upon their core competencies and compete with increased interest from abroad. An influx of international names has brought with it a need to boost productivity, as those in the insurance business seek to cash in on the market.

The opportunities here are not without their own set of challenges, however, and those in the insurance sector must take pains to acclimatise to new regulatory requirements and keep pace with the rapid rate at which the sector is developing. Without a commitment to the customer and something to differentiate solutions from rival insurance firms, providers will struggle to make the most of opportunities in the Malaysian market. We spoke to Zaharudin Daud, CEO of Etiqa Insurance, about his firm’s place in the market.

Small print in the terms and conditions is not always well understood and can lead to a number
of problems

What does the Malaysian insurance market look like and where does Etiqa sit within it?
The insurance market for 2014 remained stable throughout the year, due to domestic demand, improved risk management and the introduction of new or enhanced innovative products. Insurance companies are expected to utilise multiple distribution options and develop alternative channels, while strengthening their agency force to establish a solid foothold in the industry.

As a true multi-channel distributor, Etiqa features a strong agency force, comprising 14,000 agents, more than 30 Etiqa branches, 400 Maybank branches, ATMs and third-party banks, and provides full accessibility and total convenience to customers. The firm is also one of the pioneers for direct sales through the internet, with its online offerings spanning both Motortakaful.com and Maybank2U.

You are established in the Malaysian insurance market, but do you have ambitions to expand elsewhere?
At this juncture, we are exploring opportunities to venture out into countries with high growth potential where Maybank is present. Our aim is to primarily focus on the ASEAN region and support the aspirations of the Maybank group.

What development plans do you have for expanding the business?
Besides supporting Maybank’s aspirations to be a leading regional player, the expansion will also provide Etiqa with attractive opportunities to develop a significant presence in high growth markets, leveraging on two main drivers: Maybank’s overseas operations and Etiqa’s expertise in bancassurance.

What is unique about your selling proposition?
Etiqa is about people. We place our customers over our policies, and caring about people is vital for our sustainability. In doing this, we’re breaking down boundaries and aim to change the face of the industry, making life easier yet tangibly richer for everyone by offering products and services that creatively answer individual specifications and are yet simple to understand.

We work together with our partners and customers to ‘humanise’ insurance; something that is also in line with Maybank’s ambition to humanise financial services across Asia. Our passion is backed by the strength, expertise and rock solid foundation of the nation’s top financial institution, and driven by the professionalism, empathy, courage and the integrity of our people. Maybank and Etiqa are two exciting organisations: born and grown in Malaysia, the group embarked on a massive transformation to become a customer centric organisation, able to face a new competitive environment. At Etiqa, we deliver quality services and go the extra mile for our customers. For our motor insurance, personal accident and home insurance, for instance, all it takes is just one phone call to receive coverage for claims below MYR 2,000 ($596), and we also send a medical officer to customers for their medical check-up if they sign up for life insurance.

Your retention rate for 2013 was 60.3 percent. What step are you taking to improve upon this impressive number?
To minimise the drop out, we send reminders to customers to renew their policies via letters, emails and SMS. From time to time, our customer care workers will also make courtesy calls to our clients, primarily to re-educate them about their policy coverage and the benefits of renewing their policies with Etiqa.

Have you developed your selling proposition and business practices as a result of customer feedback?
We have set ourselves a benchmark in the industry and our vision is to change the way things are done. This decision stems from a survey that was carried out by Etiqa some years back, which found that Malaysians had a grim perception of insurance.

The survey revealed that insurance companies were seen as low on customer focus – keen to collect premiums but reluctant to pay claims and make profits in between. They also had a reputation for inefficient administrative services, such as long waiting lines, slow policy delivery and unanswered phone calls. What’s more, small print in the terms and conditions is not always well understood and can lead to a number of problems.

In answer to these issues, we’ve done away with automated voice response, and our registration systems recognise a customer by their name and not by a mere number. We also aim to humanise our customer experience through social media, where customers can pose enquiries.

At Etiqa, we believe that we can do things differently, and our aim is to make the process easier for our clients by being both clear and transparent. We also work hand-in-hand with our customers and don’t see them as mere assets or objects to insure. We strongly believe our core competency is in helping people to protect their assets, maintain their lifestyle and build a better future. What is more, in everything we do, we keep things as simple as possible and always deliver on our promises, I am always happy to see that our employees make a difference by doing business the Etiqa way.

Looking back at 2014, what were some of the greatest achievements for Etiqa?
In 2014, Etiqa was rated ‘A’ for insurer financial strength by Fitch Ratings, which reflects Etiqa’s strong business profile in the domestic life and general insurance market, extensive distribution capacity, consistent operating performance, sound underwriting quality and prudent investment approach. The rating also acknowledges Etiqa’s solid capital position and strong shareholder support.

The acknowledgement from Fitch reflects the consistent performance of Etiqa, backed by sound underwriting and a prudent investment approach. Though what’s more impressive is the fact that the Etiqa brand has only been in the market since November 2007.

The rating will also reinforce customer confidence in Etiqa, especially with our corporate clients, and further strengthen Etiqa’s competitive position in this segment, and in covering large risks ranging from national landmarks and buildings to airplanes and oilrigs.

I believe there are many companies out there with large risk exposures, who would prefer to deal with a company with an ‘A’ rating, given that it reflects the stability of the company, the capacity of the company to cover the risk, and our ability to provide the best reinsurance covers to our clients. Being a member of the Maybank Group has also benefited us tremendously, as we can leverage Maybank’s corporate client base to better introduce our risk solutions.

The ‘A’ rating by Fitch will also bolster our image in the retail market and boost confidence among our agents. This will be an extra advantage in times where more and more foreign insurance groups are reviewing their presence in Malaysia, due largely to economic uncertainty at home. Etiqa, however, is a homegrown Malaysian leader, backed by solid shareholders and we are a safe haven for our agents to develop their business.

With the new year upon us, what does the future hold for Etiqa and the insurance industry in 2015?
The insurance industry in 2015 will face diverse changes, due to the enactment of new regulations and the risk-based capital (RBC) regime for takaful. The implementation of the Financial Services Act 2013 (FSA) and Islamic Financial Services Act (IFSA) 2013 will see composite insurers and takaful operators relinquish their composite licenses, hence splitting the life/family and general businesses into different entities, as operators are given five years to comply with the requirements.

The requirement for composite insurers to segregate their operations into separate licences for life and general businesses could lead to another round of market consolidation. Composite insurers are likely to dispose of parts of their insurance operations if the cost of additional capital becomes a burden, as a result of regulatory compliance costs outweighing the return that can be generated.

Moving forward, Etiqa is poised to face the regulatory changes and new developments in the insurance industry.

FBN Insurance on Nigeria’s growing insurance sector | Video

Posted on by Ashton Wenborn

Despite rapid economic growth in Nigeria in the last decade, the insurance sector is still deepening penetration among locals. World Finance speaks to three representatives from FBN Insurance, Adenrele Kehinde, Caleb Yaro and Val Ojumah, to find out how this process is evolving.

World Finance: Now, the growth factors in your country; the most important one in my opinion is the middle class. They have served to really get the economy going, but at the same time we have an insurance sector with only one million people ascribed to it – whereas there is a population of 170 million. Can you explain to me in your own words, why you think this is the case?
Adenrele Kehinde: Insurance is believed to belong to the big industries as well as high net worth individuals: to the extent that small companies and individuals believe that insurance is not necessary, or it’s a waste of money, until the unexpected happens.

We have a peculiarity in the social economic sector: that is that we are very religious in Nigeria, and everybody believes that God has the power to protect you, so you don’t need to take any insurance. God can protect you.

What we are trying to do is try to re-orientate the people on the advantages of insurance, because some people believe that the cost outweighs the benefits, which is not the situation.

World Finance: So how do you as a company begin the process of educating the public, given these disparities?
Caleb Yaro: In the north that is predominantly Muslim, we plan to develop awareness by introducing seminars where we will be inviting speakers from Muslim countries where insurance consciousness is deep.

One of the greatest challenges in retail business is the payment and collection system

Besides religious differences, there are educational differences. Products can be developed and marketed in the south on the web. People are educated enough to go in and see the full details of our products. But in the north, because of educational disparities, you need to approach it differently.

For example, if we are developing products for agriculture, we hire some farm extension service workers and train them to be marketers of a specific product. They will go and sit one by one with farmers, farmer groups; the farmers have confidence in them because they have been working together. When these people sell through that method, things will be quite ok.

World Finance: Can you tell me about how you’ll be able to tap into these potential life insurance purchasers, who work in the informal economy?
Val Ojumah: The real challenge in reaching them really was to find out where they are, go to where they are, and develop products that fit their requirements. What we do is, we don’t develop products as insurers: we develop products as customers. So when we do it we are doing it from your perspective, not from our perspective. So two considerations: easy access, easy payment terms, and low costs.

World Finance: So you’ve been talking about some of your successes, but if you could go in front of government officials right now, what policies would you like to see them improve upon?
Val Ojumah: They have come out with a couple of policies; there is the market development and restructuring initiative, which then prescribes certain compulsory insurances. There is also the implementation of an old leg-up provision called ‘no premium, no cover,’ and there is the national content acts.

They could do a lot more in executing provisions on these policies. But for now I think that they are moving in the right direction.

World Finance: What can you learn from some of the countries that are ahead, such as South Africa for instance?
Val Ojumah: That’s quite interesting, because a major partner in this company is a South African firm. They are called Sanlam, and we have learnt and benefitted a lot from having them as partners. So we have worked with South African actuaries in product development and product pricing, distribution models; a lot of that we’ve learnt.

One of the greatest challenges in retail business is the payment and collection system. In Nigeria that is very much in its infancy, but it’s developing. So you can collect your money via mobile phones right now: you do not need to see face to face. These are things that have been existing in South Africa prior to this time. Now Nigeria is keying into that situation.

World Finance: Who wants to tell me what the insurance industry is going to look like in five or ten years down the road?
Val Ojumah: The government has done a couple of projections: we are talking about NGN 1tr in two years – that’s by 2016! – coming out of the industry. That’s a big jump going from where we are today: we are still under NGN 500m at the moment. So everybody is very optimistic about the industry.

You know that several international operators are coming into the market right now, and that means they are seeing what we are seeing: opportunities. I see that one trillion by 2016 will probably be a small figure.

A universal rejection of backhanders

Posted on by Ashton Wenborn

Backhanders and bribes – we all know they go on but we don’t expect them to happen with multi-million pound western companies. So when suggestions in the news arose that British staple Rolls Royce was accused in a reported Petrobras multi-billion kickback scheme, light was shone on how transparent respected companies really are.

World Finance: Well Graham: Rolls Royce has denied wrongdoing; so how likely would you say it is that Rolls Royce was actually involved? And if not involved, where did the story come from?
Graham Baxter: It’s been reported that the accusation comes from some papers filed in court in Brazil, in connection with the Petrobras scandal. But I’m afraid I don’t know any more than that.

World Finance: What sort of impact will this have on Rolls Royce in terms of reputation – even if they do turn out to be innocent?
Graham Baxter: When any company faces an accusation around bribery and corruption, it is a bad thing.

At this stage of course, there is absolutely no evidence to work with, so we don’t know the facts around this particular case.

I do notice however that it was reported recently that Rolls Royce, as a result of whistleblower action, has put its name forward for similar accusations in – I think – China and Indonesia.

Now that is a good and a bad thing. Of course, it’s terrible if such things occurred; but it’s good that they have a whistleblower system, and that that whistleblower system has been honoured. I think that’s an important step in getting a company on the right road towards anti-corruption measures.

World Finance: Well looking at the wider issue of backhanders and bribery now; how common are they in the west; and do authorities turn a blind eye, or is there heavy policing of this sort of thing?
Graham Baxter: Since the UK Bribery Act came into force a couple of years ago, the situation here for companies has got a lot stricter. I think we have one of the toughest regimes in the world now; even more tough than the Foreign Corrupt Practices Act, which has been in force in the US for several years.

In the UK, the UK Bribery Act has made a significant difference to the way that companies are required to comply with the law. It has resulted in much tougher compliance procedures within companies, and I’m quite sure that Rolls Royce will be no exception to that.

World Finance: What sort of companies are usually involved? I mean, in reality, everyone does it to a certain extent, don’t they?
Graham Baxter: I don’t think they do, Jenny, no. I think that for the large multinational companies, their reputations are so much on the line, public scrutiny is so intense, and the law is enforced, that it’s simply not worth their while; even if it was within the company’s ethics to do such a thing.

I think the real challenge applies to smaller companies, where they haven’t got the resources available to have compliance officers and compliance procedures. And where they are faced with very serious temptation when operating in some countries outside of the west, where corruption is frankly the norm.

It’s very tough for them to say ‘no.’ Whereas for a large company, that is what is expected, and that is largely what is done.

World Finance: But really, backhanders could be seen as a victimless crime. Is this the case?
Graham Baxter: I don’t think so at all. I think the victims of backhanders are the inefficiency that is created within the country where this occurs, which results in economic inefficiency and lower development progress than could otherwise be achieved.

No: I think the system pays for backhanders, because it siphons off economic growth from the system.

World Finance: Are our attitudes towards backhanders culturally variant?
Graham Baxter: I think there is a universal rejection of backhanders. It may be that they become commonplace in certain societies, because law is not enforced, and it becomes the norm. But I don’t think it makes them any more acceptable.

I simply don’t accept that business, responsible business, requires backhanders to operate efficiently. In fact, I would argue quite the reverse. Backhanders, as I’ve said, siphon off economic growth and efficiency.

Oman’s banking sector flourishes thanks to increased FDI

Posted on by Ashton Wenborn

The National Bank of Oman (NBO) is the second largest bank in the Sultanate of Oman. Founded in 1973, the bank plays a vital role in the economic development of the Sultanate of Oman, and offers a broad range of services focused carefully around customer needs. Its customers benefit from NBOs’ very considerable experience of looking after the requirements of domestic banking customers in Oman and also abroad.

Overall, NBOs philosophy is to run a streamlined and highly cost-efficient operation in order to pursue its core philosophy of offering premium services to its customers at competitive prices. The bank provides a wide range of accounts and deposit services to retail customers, and is renowned throughout Oman for the quality and calibre of the banking services it offers small- and medium-sized companies. As NBOs CEO, Ahmed Al Musalmi says, “With the Omani economy growing, opportunities for small- and medium-sized companies have also increased.

“The impressive rise in trade between Oman, the rest of the Gulf and the world has led to more and more entrepreneurs in Oman setting up new businesses as well as expanding existing ones.”

For large corporations, NBOs Wholesale Banking Group offers a comprehensive portfolio of banking solutions. These corporate clients operate in a highly diverse range of industries and commercial sectors including trading, manufacturing, power, infrastructure, shipping, oil and gas (see Fig. 1), construction, hospitality services, real estate and financial services. The Wholesale Banking Group has teams covering trade finance, cash management, dedicated corporate branch and core centre, specialist treasury, and transaction banking. Naturally, the most obviously significant element in the story of the Omani economy over the past half-century is the significant investments that the government has made to boost economic diversification , enhance trade flows, and the establishment of free trade zones to attract foreign investments. The steady growth of the Omani economy was attributed to an increase in oil prices, growth of non-petroleum activities and domestic demand, and a sharpened focus on improving the investment environment.

The country encourages foreign investment, and foreign investors are likely to be drawn to many factors about the nation

Oman has been pursuing a programme of modernisation, and new and improved infrastructures and industrialisation. It has also been committed to its nationalisation agenda, which seeks to increase employment opportunities for Omani nationals.

Private and public healthcare benefits
From 2009 to 2014, the Sultanate’s GDP growth has remained steady at an estimated five percent growth per year. As Musalmi comments: “This period has allowed for budget surpluses and an accumulation of reserves which will act as stabilisers during periods of potential economic stress.” The population of approximately three million benefits from free education and healthcare for its citizens. The public healthcare system in Oman is of a global standard of excellence, although private healthcare options have greatly soared in recent years, especially due to the increasing requirement for private corporations to provide private medical insurance to their employees.

Growth in infrastructure has been strong with the building of new roads and bridges, as well as hotels and affordable housing projects. The Omani government pursued a concerted agenda to increase the range and variety of downstream activity and to create jobs for Oman’s comparatively young population. There is also an ongoing programme to build a new railway under the auspices of the Omani government’s railway project promoter Oman Rail.

The country encourages foreign investment, and foreign investors are likely to be drawn to many factors about the nation, particularly as Oman’s government continues to drive its diversification strategy forward, providing more opportunities for potential investors in the country. It’s also important to observe that Oman benefits geographically from its strategic location on the east-west trade route and as a gateway for Asia, serving as a port and a commercial centre.

Naturally, a bank which seeks to offer the very best kind of services to customers must operate in harmony with awareness of key economic developments in Oman, as well as be in tune with customers from individual retail customers to the largest corporate clients. NBO is adept at doing all this, and strongly positioned to play an integral part in Oman’s continued economic development.

Concise regulation
Credit growth in Oman’s banking sector has been strong and steady, and investors both inside Oman and beyond its borders enjoy the fact that the financial market there, like all Omani markets, tends to be very well regulated. Oman’s prudent regulatory framework has enabled the nation to be well insulated from the global financial and banking crisis.

So what kind of services does NBO offer investors? Its wholesale banking group provides the widest range of services and tailor-made financial solutions through its Investment Banking Treasury, Fixed Income Group, Corporate Banking and Transaction Banking divisions. NBO recently established a wholesale distribution network in different regions across the nation to serve a bigger market segment. The investment banking team at NBO consists of highly experienced and qualified relationship managers who offer advice and hands-on assistance with mergers and acquisitions, private equity placements, asset management, structured investment products, marketable securities and fixed income, proprietary investments and brokerage services.

Oman's natural gas proved reserves

The Global Treasury and Financial Markets group offers a wide range of financial products, services and solutions that meet customers’ financial requirements. These requirements cover forex, derivatives, money markets and sharia-compliant treasury products, and also include gold and commodities. NBO enjoys a strong brand image within Oman and has a reputation for understanding economic issues, for being seen to value its relationship with its clients and to be an enthusiastic business partner, protecting their interests.

In 2006 NBO won the accolade of being chosen as the Best Bank in Oman 2006 by The Banker magazine. The following year, the bank was awarded the Best Corporate Social Responsibility Award in World Finance’s 2007 Islamic Finance Awards. As Musalmi says: “Our energy, commitment to clients, knowledge of our local market and markets beyond Oman which are also of great interest to our customers, have given us a significant edge over our competitors.

“We believe that our wide range of products and financial solutions designed to meet our customers’ banking needs helps us to build strong and long-term relationships with our customers. We also believe that the banking service NBO offers in Oman brings the bank into a real and dynamic situation of partnership with our customers, and that we will continue to prosper and grow in harmony with them to achieve our vision – to be the bank of choice.”

Modi’s tech infrastructure fervour on the back of Obamamania

Posted on by Ashton Wenborn

World Finance speaks to Nigel Eastwood, Group CEO at New Call Telecom International, on what infrastructure demands Narendra Modi must make to achieve single or even double digit growth.

World Finance: As you know, at an investment summit in Gujarat, US Secretary of State John Kerry was joined by Narendra Modi at this event. It was said by Modi that India was a land of business opportunities. We’ve all seen the Obama-mania like fervour that followed him after this election, but now the dust has settled. Do you think he’s really going to deliver from the telecoms perspective?
Nigel Eastwood: It’s not going in and doing kneejerk policy change for the sake of it. Not doing some dramatic changes immediately that could have implications for years to come. It’s about sustained policy change in a very very organised and structured way, and that came over and I do see that very much now in the way that the policy and reform changes are being delivered.

I would really encourage European ministers to travel more to India

World Finance: Nigel, this government as we said is very much interested in foreign direct investment, but to shore up more support it’s got to make some specific changes. Tell me about some of them that you’d like to see come into play in the next few months, in the next few years.
Nigel Eastwood: Well let me talk specifically about the fibre-optic backbone that is absolutely essential for the telecoms sector right now, that national fibre-optic network strategy. Who puts a dollar on the table is a very very critical question to be answered. We’re very reliant from our perspective that government actually funds that.

Public-private partnership is going to be some of the answer, but we’re very much hoping that the government really put that dollar to great effect now, it needs to go in now for us to see India get to the 500 million subscriber base that the government so much want.

World Finance: India, when you’ve got the Americans and Europeans looking closely on investing there, do you think that European government officials are doing enough to encourage India and other emerging markets to embrace change, infrastructure needs being just one of them?
Nigel Eastwood: I would really encourage European ministers to travel more to India. We’ve seen some great showcases very recently with the recent Obama visit and Mr Modi travelling and spending time very recently in the US. That’s been very high profile. There’s not been as much of that travel from our European counterparts.

I’d very much encourage people from Europe to travel there, understand what the opportunities are and how we can embrace them more.

World Finance: How much would Europe stand to lose if it doesn’t aggressively push for more treaties, stronger entrenched relations with Indians?
Nigel Eastwood: It’s absolutely key in Europe. We must not lose sight of what’s happening in emerging markets, and particularly in India. India is outpacing very much China in its adoption of new technologies. Mr Modi is very focused on manufacturing and manufacturing excellence in India. We need to embrace that, we’re going to miss the boat.

World Finance: Sobering reality check there, Nigel Eastwood thank you so much for joining me today.
Nigel Eastwood: Thank you.

Japanese exports are on the rise

Posted on by Ashton Wenborn

Japan’s Ministry of Finance released data on Thursday stating that exports had risen by 17 percent in January from the previous year. This boost is attributed to stronger shipments of machinery, vehicles and electronics, aided by the country’s weakened currency.

Imports experienced the largest drop in over five years of nine percent, with a significant decline of almost 25 percent for oil and gas imports contributing to this figure.

Economic growth in the US has also played a significant role in Japan’s recent export success

The marked improvement in both areas has had a considerable impact to the trade deficit, which has fallen to 1.18trn yen; despite over two years of month-on-month shortfalls, this is nearly 60 percent less than the figure recorded in January 2014.

There has been a surge in exports to China, which jumped by 20 percent from the previous year, largely resulting from the rapid demand for electronic parts used by smartphone manufacturers. Elsewhere in Asia, the demand for semiconductor components soared by 27 percent.

Economic growth in the US has also played a significant role in Japan’s recent export success, rising by 16.5 percent last month. Specifically, pick-up trucks have been a key sale to the US market, with an increase of 14 percent.

Despite recent success in the export market, the possibility of continued growth is far from certain. Although low oil prices are having a positive impact on the manufacturing sector, this is being offset by high import prices. In addition, the labour market in Japan has tightened, thereby limiting the potential for increasing production. Recent export growth has been driven by a greater demand from overseas markets and a weak yen, therefore, unless production capabilities are enhanced, it is unlikely that this trend can endure at the current rate.

Surfline powers 4G coverage in Africa

Posted on by Ashton Wenborn

The economic base of Africa has not changed, with strong raw material exports from agriculture, oil and minerals. Today, Africa’s desire is to harness the continent’s full potential, and not rely on material exports.

With better management of natural resources and up-skilled employees, companies are experiencing a wave of confidence for future projects, taking advantage of the opportunities these resources present. While challenges remain, there is a concerted effort to tackle poverty, famine, disease and corruption, even as the continent enjoys greater periods of political stability, and fewer armed conflicts.

Having established a positive environment, foreign direct investment has increased from non-Western economies including China, Brazil and Turkey. There is also a very large patronage of technology, with over 600 million mobile phone users – far more than North America or Europe.

The Ghanaian telecoms market has grown from having just one government-owned operator with approximately 70,000 fixed lines, to seven operators in 2014

This has provided a huge platform for income redistribution between the ever-increasing middle class and those situated in rural areas. The combined effect is a rise in investor confidence, especially in infrastructure, which has been woefully inadequate in the region. Africa’s GDP has grown from $0.6trn in 2000 to $2.1trn in 2013, and is projected to reach $2.2trn in 2014 (see Fig. 1).

Many countries in the continent, including Ghana, have made significant strides. They stand distinguished in their effort to promote democracy, peace and stability, which are prerequisites for development.

With new hope and a more determined effort, the continent will continue to grow. John Taylor, Executive Chairman of Surfline – Ghana’s first 4G LTE network – explains to World Finance why Africa is on the rise.

How has Africa’s influence in the global economy changed over the last 20 years?
There have been positive indicators for long-term growth by the global economy, and I believe there is much more to come. Our influence on the global stage is improving, although some negative perceptions remain. Statistics suggest that Africa has experienced 14 years of sustained growth; its attractiveness as an investment destination has improved dramatically with foreign direct investments coming into Sub-Saharan Africa, growing at a compound rate of 19.5 percent.

Our governments have continued to pass laws and set up institutions to make our economies more attractive to foreign investors. The continent has therefore become the preferred location for investors looking to penetrate new markets. The rising number of indigenous entrepreneurs, untapped natural and man-made resources, along with the influx of foreign investors, has contributed to the increase in trading with the rest of the world.

To what extent is Ghana a major part of the continent’s ongoing development?
Ghana is playing a key role in Africa’s on going development. The country has been a long time champion for intra-regional trade within Africa. Despite the huge trading opportunities available within our continent, we are yet to fully capitalise on this due to cross-border bureaucracies. Trading among neighbouring countries was therefore very minimal or non-existent.

However, the Economic Community Of West African States (ECOWAS) has resolved this issue, and currently, the citizens of these states are able to travel across sister states without visas or work permits. The next step would be to set up a free zone among the ECOWAS states.

Ghana’s contribution to the continent’s economy cannot be over emphasised. Its harbours have, for a long time, served West Africa’s landlocked countries. With the current expansion we only expect their contribution to increase.

Ghana’s recent discovery and exports of crude oil have also given a new lease to its economy. This revenue stream has impacted positively, with job creation and infrastructure development in the western region. The country has enjoyed political stability, which is a major contributing factor to the current developmental drive. Ghana is at the forefront of attempts by African countries to ensure effective usage of its economic resources. The promulgation of the petroleum revenue management act is also of importance, seeking to provide transparency in the use of the revenue. With this level of transparency from natural resources, Ghana is setting an example that should be emulated by other countries.

Have deregulation and liberalisation influenced the continent’s growth? What sectors have been influenced by this change?
Deregulation and market liberalisation have significantly bolstered the performance of various sectors of our economy, by virtue of the amount of local and foreign investments our economies have been able to attract. Sectors such as energy, finance and telecoms have benefited significantly.

The Ghanaian telecoms market has grown from having just one government-owned operator with approximately 70,000 fixed lines, to seven operators in 2014. Four of the operators are subsidiaries of multinational telecoms operators, one is a subsidiary of an African operator with a footprint within West Africa, and the other two are Ghanaian-owned operators.

Since 1992, telecoms operators have invested a cumulative capital expenditure of $6bn. In 2010, mobile operators contributed approximately 9.2 percent of government income, two percent of GDP, employed 6,000 people directly and 1.5 million people indirectly. In 2011, total investments from the telecoms sector alone contributed to seven percent of investments in Ghana, and is responsible for two percent of the country’s overall GDP.

How influential has the telecoms sector been in fuelling Africa’s growth?
Mobile technology has been an important catalyst for growth in Africa. Exponential growth in access to mobile technology and services has allowed us to leapfrog legacy technologies. This leapfrog effect has transformed not only the social, but also the economic landscape of the continent.

Over the years the telecoms sector has empowered the livelihoods and well being of our people, and has had an impact on industries including agriculture, health and finance. Today, people can access agro-market rates for their products, as well as farming and health advice from their mobile devices. With this as a starting point, we are moving into an era where we can offer our people limitless opportunities through telecommunications services.

How has the telecoms sector in Ghana changed since the early 1990s?
The deregulation of the Ghanaian telecommunications sector and subsequent entry of major players has seen the industry evolve from a period in the mid 1990s, where we had just over 70,000 fixed lines to over 24 million mobile lines today. We have moved from a period where telecom tariffs were a blackbox with minimal transparency, to a period where improved customer experience led to operators offering consumers per-second billing.

From the per-second billing period our market moved into an era where increased customer education on telecoms services and increased competition led to a reduction in price for voice services. Value added services have also become a mainstay for most consumers, and operators now offer a myriad of options. In 2010, the telecoms industry alone contributed $300m in taxes and levies to government. This formed 10 percent of government revenue collected within the period. The telecoms sector has grown to become an integral part of Ghana’s economy with most sectors depending heavily on reliable service they can always access.

How does Surfline fit into the sector’s development, and what does the company offer that others do not?
Internet connectivity is obviously very important in Ghana. This is one of the reasons why part of the government’s national broadband strategy is to increase internet penetration to 50 percent by 2015. According to the World Bank, internet penetration in Ghana has grown from as low as 0.8 percent in 2002 to 12.3 percent in 2013.

However, we have challenges in Ghana where most internet users are unhappy with the services they get mainly because of slow or unreliable connections. This is where Surfline comes in.

With the backing of our 4G LTE network, our proposition is to offer clients fast and reliable internet connectivity coupled with a superior customer experience. Surfline’s services will be the conduit that enables Ghanaian businesses to revolutionise the way they do business and maximise productivity.

We are the operator of choice for businesses that rely heavily on world class cloud computing services, working with a lot of trans-regional and continental business, government agencies looking to adopt electronic governance modules or tertiary institutions looking to offer e- learning services. Our services will offer businesses the opportunity to explore and adopt next generation solutions that will give their businesses a competitive advantage.

What are your ambitions for the future of Surfline?
With the internet’s importance, we have the vision to promote a Ghana where people and businesses experience true mobile broadband, and the possibilities it presents. We intend to position Surfline as the lead innovator within our market; the company will not only be a high-speed internet provider, but also a partner that offers consumers solutions that will positively impact how they work and play.

Our goal is to offer more than just connectivity; consumers will discover new ways of using the internet that they never imagined possible. It’s about time for a change.