2015 | World Finance

Silk Road’s Ulbricht guilty of seven charges

Posted on February 5, 2015February 8, 2017 by Ashton Wenborn

Ross Ulbricht, the man responsible for creating the largest black-market on the internet, has been found guilty of operating the Silk Road website under the alias “Dread Pirate Roberts.” The illicit online marketplace was created in 2011 and facilitated the purchase of illegal narcotics through the use of Bitcoin, which made transactions untraceable.

Ulbricht escaped murder charges

On February 04, a jury in Manhattan took less than four hours to find Ulbricht culpable for seven charges brought against him; including money-laundering conspiracy, narcotics-trafficking conspiracy, computer-hacking conspiracy and running a criminal enterprise. The website creator has a legion of fans, many of which protested against his arrest throughout the trial.

The jury was told how the underground hub, which operated in multiple countries around the world, had generated $213.9m in sales and a further $13.2m in commission. Despite being accused of ordering the assassination of a Silk Road user that had blackmailed him, Ulbricht escaped murder charges as the crime had not actually been carried out.

Ulbricht’s arrest in October 2013 was made while he was logged into the website as “Dread Pirate Roberts” in a San Francisco public library. Sentencing is due to take place on May 15; some say Ulbricht may face a life sentence, which entails a compulsory 20-year term. A statement by defence lawyer, Joshua Dratel, has confirmed that an appeal will be made.

Judge Katherine Forrest prohibited Dratel from calling experts witnesses, saying that the defence had failed to give prosecutors enough time to prepare. “I think it would have been a very different outcome if the jury had been permitted to hear all the evidence,” the defendant’s mother, Lyn Ulbricht, had told Bloomberg.

Russia and China together: Europe pays price for America’s strategy

Posted on February 5, 2015 by Ashton Wenborn

World Finance speaks to Dr Marcus Papadopoulos, Editor of Politics First, on what Russia’s growing international ties mean for Europe.

World Finance: Well one of the off-shoots of the Russia-Ukraine crisis of course is the two major super-powers, Russia and China, being pushed closer together. And they’re already firming trade ties with energy. So what’s their relationship today?
Marcus Papadopoulos: Politically, relations between Russia and China are in a very, very good state. And of course you can contrast that to the 1960s onwards, when both countries fought numerous border battles, and there was a big falling out.

But since the collapse of the Soviet Union, Russia under Boris Yeltsin and under President Putin have created a very good relationship with each other. Politically there’s a lot of trust now; militarily there is an organisation between them, the Shanghai Cooperation Treaty. And also economically: Russia still supplies vast amounts of oil and gas every year to China.

[R]elations between Russia and China are in a very, very good state

And also the Chinese military, which is growing in the world. And it’s far from being a super-power, the Chinese military. But it still relies on high-tech Russian military components. So for example, the Chinese a few years ago, they managed to get a fifth-generation attack plane in the air. Well, that’s very impressive. But they don’t have the components for the cockpit, and they can’t manufacture, so they rely on Russia. So Russia earns a lot of money every year with supplying China with high-tech Russian goods.

And also there’s the potential for Russia to supply China with natural water. Because China lacks water, and water as we know is vital for industry. And the Chinese have been on at the Russians for numerous years now, to start supplying China with water.

The problem for the Russians is their lakes along the Chinese border, they go north as opposed to south. So the Russians – they’re great engineers – and no doubt one day they will be able to turn those rivers southwards into China. And if they can do that, from a revenue point of view, Moscow will be onto a winner.

World Finance: And energy-wise, how are the two countries linked?
Marcus Papadopoulos: China receives the bulk of its oil and gas from Russia, and pays a great amount of money for that.

And in 2014 we had that huge, that ground-breaking gas agreement between themselves for over 30 years. Russia’s going to supply China with natural gas, and the Chinese will pay $400bn for that: so it’s a huge amount of money there.

So China heavily relies on Russia for its energy, and Russia at the moment relies to a great extent on China for revenue.

Europe is going to suffer

World Finance: So this relationship can’t be good news for Europe.
Marcus Papadopoulos: Europe is paying the price for going along with America’s geo-strategic strategy. That’s what the crisis in the Ukraine is about: it’s been brought about because of the Americans.

If you look at a modern-day map of Europe, on the western borders of the Russian federation, from the Baltic Sea to the Black Sea, you will see its borders are littered with EU and NATO member-states; with the exception of the Ukraine. And the Americans since 1991, Ukraine’s independence, have been trying to draw Ukraine into the west’s orbit.

So the Europeans – apart from the British government – were reluctant to place sanctions against Russia. But nonetheless, the European Union is a staunch strategic ally to Washington; and when it matters, allies stick together.

But nonetheless: Europe is going to lose out. Its SMEs in particular are going to lose out, because they’re suffering at the moment. JCB in Britain has complained to Prime Minister David Cameron that its sales to Russia are going down because of the sanctions. That’s hardly conducive to the British economy.

So ultimately, from a business point of view, Europe is going to suffer. And in the future, if it doesn’t receive the amount of energy that it receives from Russia at the moment, where else is it going to receive it from?

Investment One Financial Services on Nigeria’s momentous growth

Posted on February 5, 2015 by Ashton Wenborn

After experiencing one of the most dramatic periods of economic growth ever witnessed in Africa, many wonder if Nigeria’s momentum will slow following the 2015 elections. World Finance discusses with Nicholas Nyamali of Investment One Financial Services.

World Finance: Now the maturation of the local investment sector has been something that people have been talking about, all over the world. Do you think that the progress that has been made should be pegged on government support, or has it been something the markets have created for itself?
Nicholas Nyamali: I think it’s a combination of both. The government has done a lot to provide the enabling environment, and the private sector has built on that in introducing some of the products that we currently find in the capital market today.

World Finance: So tell me about some of the most decisive issues that Nigerians are going to be thinking about, as they enter into the polls?
Nicholas Nyamali: I’ll put that in two categories: the general population will be looking out for security, looking out for more jobs, infrastructure improvement.

[T]echnically I see the government going into deficit if they do not find other sources of increasing their revenues

Those in the economic space will be looking for stability in the currency, and ensuring that the government policies, whoever is in government, will continue to drive the progressive policies that have led to the development of the market.

World Finance: The Central Bank of Nigeria says that these elections are not going to deplete its reserves. Now from a GDP perspective, do you think that is indeed going to be the case?
Nicholas Nyamali: The depletion of the reserves will not come from the election. I think the current fall in oil prices, is seen to a fall in reserves in the countries’ currency.

World Finance: Do you think that the political chaos that we are seeing in the country, is also contributing to some of that instability?
Nicholas Nyamali: The political chaos I do no think has been responsible for some of the instability. It’s more economic; the falling oil prices has led to lower FX revenues for the government which has impacted the results of the Central Bank.

World Finance: Now let’s talk about the long-term impact on crude prices.
Nicholas Nyamali: Crude oil prices have been low and recently going from $100 to about $70 a barrel, this will continue for a while. This is impacting government revenues so technically I see the government going into deficit if they do not find other sources of increasing their revenues, because the current expenditure of the government is a bit high.

In terms of the elections, chances are they will continue to spend, to bring out programme policies before the election date, so we may run into a deficit here in terms of government spending.

[I]f we get political stability, currency stability, I think the economy will just go to the second level

World Finance: We know that people will be watching to make sure that these elections are handled properly. If that is the case, if the country is able to transcend political chaos; do you think that that’s going to amp up investor confidence in the country as a whole?
Nicholas Nyamali: I think so. Politics is one, and it has a significant impact in terms of GDP, growth, foreign investment in the country.

The second issue is the stability of the currency, and I think the CBN is trying to address that currently. And if we get political stability, currency stability, I think the economy will just go to the second level.

World Finance: You’re an investment manager: this is your industry, your bread and butter. What do you think the government will need to do, in terms of shoring up more support in the marketplace?
Nicholas Nyamali: I think number one is FX stability. We have currently seen capital flight, because of uncertainty regarding the value of the currency. Once we can ensure that there is FX stability we think that some of the funds that have left the country would come back. And I think that is what the economy currently needs, or the capital market needs today, to ensure it gets back to the boom level that we’ve seen in the past years.

World Finance: Nicholas, you sound very optimistic about the prospects of Nigeria post election.
Nicholas Nyamali: Yes I am very optimistic.

LEXeFISCAL: the UK remains a safe bet for investment

Posted on February 5, 2015January 18, 2015 by Ashton Wenborn

In spite of the recent anti-political grumbles of its electorate, the UK remains one of the safest bets for individuals and companies looking to invest their money. A long-standing democracy with a highly respected legal system and a friendly attitude to new business, the country has come out of recession in a better state than most. That’s why the Chinese, for example, have invested twice as much in the country since 2012 as they had in the previous seven years.

Clifford Frank, Senior Partner at LEXeFISCAL in London, is used to guiding clients through the trickier elements of the UK’s tax and legal systems. He tells World Finance why Britain is the ideal place to invest and what potential investors should look out for.

Why should corporations invest in the UK?
To begin with, there is a very favourable tax regime for companies, with a 20 percent corporation tax starting rate for profits up to £300,000 ($469,992). Profits in excess of £1.5m ($2.35m) are taxed at 21 percent, but that’s being reduced to 20 percent from April 2015.

I believe the UK needs to be in the EU for the purpose of trade and for the ease of travel. Without the EU, ultimately, it will
be isolated

For companies with ring-fence profits (income and gains from oil extraction activities or oil rights in the UK and UK/continental shelf) these rates differ. The small profits rate of tax on those profits is 19 percent, and the ringfence fraction is 11/400 for financial years starting April 1st 2011, 2012, 2013 and 2014. The main rate for the aforementioned financial years is 30 percent. Indexation allowance allows for the effects of inflation when calculating the chargeable gains of companies or organisations, while in terms of personal taxation, the maximum rate for an individual is 45 percent, which can be minimised with correct planning.

With regards to the law, there’s a respected legal system, which is easy to understand, so disputes can be resolved without too many difficulties. Britain also has a well-educated workforce (60 percent of London’s workers are graduates), which means human resources are good. The infrastructure is great, too, so it’s easy to get around, and it’s well connected to the rest of the world through its air and rail hubs.

What else is there to look out for?
The UK has a large number of agreed international tax and investment treaties with the rest of the world, plus we’re a member of the ICSID, the World Bank arbitration agreement. Entrepreneurs are welcome here – setting up a company in the UK can be done in under three hours, while establishing a public limited company is straightforward too: the cost of establishment is £50,000 ($78,204) of which only £17,500 needs to be paid up before the company can commence trading.

Every country has difficulties for businesses to overcome: what are the UKs?
As you’d expect from such a well-established state, a lack of compliance can be a hazard. It may be customary in certain countries to pay an official in order to secure a contract, such as a contribution to build a hospital or school. If you come to the UK, unless law covers such payments, this could be construed as bribery, leaving the company and management liable to prosecution under the Bribery Act of 2010. This act has wide-reaching and serious consequences for companies operating with a connection to the UK.

There are strong laws regarding health and safety too, particularly in the construction industry where a lack of compliance can see you held responsible for accidents that happen on your site. This may see your company and its managing directors prosecuted under the Corporate Manslaughter Act.

Finally, the UK’s financial sector is highly regulated. It’s a criminal offence to offer investment advice here without authorisation – you could be in breach of the Financial Conduct Authority. If your company’s in financial difficulties and has to be liquidated, the corporate veil may be lifted, the limited liability protection removed and directors made liable for that debt. There are lots of traps out there, so guidance and advice is needed.

What sort of companies are made welcome in the UK at the moment?
At present, the UK is especially attractive to the film, television, IT and video-gaming sectors, as there are new rules in place that give special relief to encourage investment in these areas. Banking, as you’d expect, is always welcome too. The building industry isn’t as enticing because of proposed changes to the capital gains tax regime. At present, non-residents currently enjoy tax-free capital gains when they dispose of UK-sited properties, but this will change from April 2015. In my opinion, this will hurt the UK property sector.

Is the UK is a flexible location for investors?
Yes, it could be seen as one of the best tax havens in the world. I’ve already mentioned the 20 percent corporate tax rate, the maximum 45 percent personal tax rate and the various exemptions from capital gains tax. But there’s more for the canny investor.

The UK has entrepreneurs’ relief with a lifetime exemption, whereby capital gains on the disposal of qualifying business assets, including shares, are taxed at just 10 percent, up to £10m ($15.65m). Moreover, inheritance tax can be avoided with correct planning, too, and profits remitted to the UK from subsidiaries are not subject to further taxation, as long as qualifying conditions are satisfied. These are just a few examples that make establishing a business in the UK so attractive.

The anti-EU party UKIP is a growing presence in the UK’s political scene. What would happen if the UK left the EU?
In my opinion, the UK will not leave the EU, despite the recent success of UKIP. The UK can survive without the EU, but if it does leave, further barriers will be put up against British firms as they try to export to the continent. On its own, the UK simply isn’t a vibrant enough market.

Quitting the EU would also mean the cost of doing business would be pushed up, but on the other hand, the UK would be free to maintain its fiscal polices which could further improve its status as a favourable tax haven. However, I believe the UK needs to be in the EU for the purpose of trade and for the ease of travel. Without the EU, ultimately, it will be isolated.

Do international companies get a good deal in the UK?
Absolutely. For example, if a person has a UK company with a subsidiary in Singapore, it trades there and pays tax at 17 percent in that country – three percent less than the UK. Those profits can be repatriated back to the UK without any additional tax charge at the UK end.

The key in the UK, like any other country, is preparation. If you plan properly and use the legislation correctly, keeping track of your tax affairs can be simple.

What makes LEXeFISCAL different to its competitors?
LEXeFISCAL is a niche, boutique organisation – a one-stop shop. We’re able to offer our clients tax, legal and corporate planning in one place.

Following numerous legal challenges experienced by the Big Four consulting firms (plus the demise of Arthur Anderson and rise of Accenture) that highlighted the conflict of interest between audit and tax departments, clients want to separate their advisors. LEXeFISCAL is leading the way as a firm focusing on tax and legal advice.

By providing a combined tax and legal service we’re able to serve domestic and international clients, established in the UK, with the legal advice needed to do business here (except conveyancing or criminal defence).

Without wanting to sound morbid, we also try to get our clients to recognise that accidents can happen at any time: it may not even be a death, it could be loss of capacity. Our key clients have in place lasting power of attorney that will enable their appointed attorney to manage their business or health affairs, avoiding a meltdown. We look at the client’s position today, but also at what could happen to them in the future. It’s a life-long service.

Your headquarters are in Berkeley Square in Mayfair – how does this reflect your business values?
Indeed, we’re based in one of the most exclusive parts of London because we deal with clients who appreciate quality, service and price. Our location reflects this. We’re happy to deal with clients of every size, not just large companies. We believe that LEXeFISCAL alleviates the burden of doing business in a world littered with laws, especially tax laws. And that affects everyone, no matter how much they’re worth. Always remember that every taxpayer has a right to organise his or her affairs in the manner that results in the smallest tax burden.

The Eurasian Economic Union: a force for good?

Posted on February 5, 2015February 8, 2017 by Ashton Wenborn

On January 1, the Treaty of the Eurasian Economic Union came into effect for its four founding members, Russia, Belarus, Kazakhstan and Armenia. For the first time in the post-Soviet space, an economic alliance based on the principle of equal representation has been created, with claims to enable the free movement of capital, goods and labour among member states. A more integrated and evolved entity than both the Customs Union and Single Economic Space, the EEU plans to enforce a single market for oil and finance by 2025. Kyrgyzstan is expected to join the EEU in April, with other prospective members, such as Tajikistan and Vietnam, currently in talks.

The union constitutes a population of 175 million people and a total GDP that is expected to reach $3trn next year; consequently it offers a plethora of investment opportunities for the region. The EEU ranks first in the world for both oil and gas production, and third for iron production, making it a sizeable economic force to reckon with in the international arena. “Countries inside the EEU and from outside are now able to tap into a mammoth depository of industrial, agricultural and natural resources,” comments Dr Marcus Papadopoulos, Editor of Politics First magazine and expert on Russia and the former Soviet Union.

European fears of a Russian imperial takeover of former Soviet countries have been frequently voiced, particularly in light of recent events in Crimea. Disapproval has also been raised by other countries in the region, including societal pockets in the member states themselves who fear a loss of national sovereignty. Yet, Papadopoulos argues that current member states joined the union voluntarily and did so “as they are historically, culturally and linguistically tied to each other”. Whether economic integration and development is legitimate or not, the union will struggle to shake a reminiscence of the USSR and the threatening image that it has so quickly acquired.

Despite ardent cultural and linguistic links, the union faces a multiplicity of challenges, particularly if regulations are
not enforced

Quarrelling neighbours
Belarusian president Alexander Lukashenko has been a driver of Eurasian integration since the mid-nineties. Yet recent trade disagreements with neighbouring Moscow have resulted in a series of public spats, potentially jeopardising the whole project. “The dispute showed frustration of the Belarusian authorities that this institution is not actually working. All decisions are still made on political rather than technical level. Trade restrictions are used as means for political manoeuvring despite legal commitments”, Yarik Kryvoi, Director of the Minsk-based Ostrogorski Centre tells World Finance. Despite a Russian embargo on the goods of 23 companies, Belarus has not pulled out of the EEU. The dominant reason behind eager Belarusian support of the union comes down to oil; with preferential duties for exports, the country can save a considerable amount of its revenue. Presently, the rate negotiated with Russia is extremely favourable, amounting to $1.5bn and approximately two percent of Belarus’ GDP, according to the European Council on Foreign Relations. This figure can be attributed to Russia’s currently weak bargaining position, and so is far from guaranteed for future deals.

As with other countries in the region, Belarus is also facing financial crisis, with indications that mimic its economic collapse in 2011. Given Russia’s present economic climate, the same level of fiscal assistance that was granted to Belarus may not be feasible this time around. This could add to the rising tension between the two member states, as can recent efforts by Minsk to forge closer ties with Kiev. The result could be a scenario whereby Belarus is unable to draw resources from its powerful neighbour, making the union increasingly undesirable.

Challenges for Armenia
Aside from the obvious geographic impediment of Armenia’s partnership with fellow member states, there are other prominent challenges to contend with also. Despite a period of growth following Armenian independence in 1991, recent global and regional pressures have caused the economy to contract. Since December, the dram dropped to its lowest level since 2006, falling 9.4 percent against the dollar. Concerns of Russia’s economic decline spilling over into Armenia are ample now that the countries are more closely tied, particularly given the repercussions that have already rippled across the region. Furthermore, despite recent sanctions that have created a gap in Russia’s agricultural imports, Armenia did not fill this supply shortage as hoped. In fact, Armenian exports to Russia decreased by nearly $10m to $133m in the first half of last year, even though figures reaching over double that amount in 2013. This rouses further doubts of whether a positive economic impact for Armenia can actually be achieved as a result of closer ties with Russia and other member states.

Of particular concern for the Armenian economy is the sacrifice of its Association Agreement with the EU in order to join the EEU. The benefits of less stringent standards, as well as more flexibility in terms of investment opportunities, allured the economic elites in Armenia. Yet, by joining the union, the country must now engage in risky trade reorientation from Europe to Eurasia. Armenia’s traditional liberalised economy is also obligated to embrace higher tariff rates and more protectionist policies, whereby a loss of trade output is likely, particularly as the country must now renegotiate its terms with the WTO. Perhaps most at risk is Armenia’s thriving IT sector, which accounted for a third of exports in 2013 and a fifth of the country’s GDP. The EEU’s additional regulations for IT and less sophisticated intellectual rights therefore pose a threat to the promising sector, as well as to continued investment from the US. Prices are also expected to rise, indicating a further reduction in exports and making Armenia’s membership with the EEU even more questionable.

Landlocked Kazakhstan
President Nursultan Nazarbayev instigated the idea of the EEU in 1994, and has been a long-standing enthusiast for Eurasian integration. This level of support ties in with the widespread belief that Kazakhstan will benefit the most from the EEU, particularly as it enhances its position within the global market and increases cross-border trade along the 6,846km frontier it shares with Russia. Of particular fiscal significance to landlocked Kazakhstan are the transportation links that the EEU can provide; an evident incentive for membership with the union. Greater prospects for export opportunities lie ahead as the country gains access to each member state’s transport infrastructure by 2025.

In spite of consistent support for the union, Kazakhstan’s economy has developed considerably in recent years, making EEU membership less pivotal for the country. “Now, the principle of acting as an equal partner in the region most likely drives his commitment,” argues Zach Witlin, Eurasia Associate at the Eurasia Group. This is further illustrated by Nazarbayev’s devotion to the project despite growing division within Kazakh society and the creation of an anti-Eurasian Movement in 2014. This internal discord raises the question of whether membership will continue if a new regime is elected in the future; thereby presenting another channel of scepticism for the future of the EEU in the event of an exit by its second largest economy.

Russian epicentre
Accusations of the strongest member of the union attempting to revive the legacy of the Soviet Union are rife. The annexation of Crimea and tension with Ukraine fuelled such concerns over the last year, both within and outside of the region. Moscow has attempted to dispel this notion by granting equal representation to each member states. All four countries have two representatives, thereby illustrating Moscow’s endeavour to create an equal union and to arouse Eurasian integration, despite its considerably larger population.

Russia benefits economically from the union and by creating a trade bloc around itself that enhances cross-border trade with its neighbours

Of course, Russia benefits economically from the union and by creating a trade bloc around itself that enhances cross-border trade with its neighbours. Yet with Russia’s economy currently facing numerous challenges, the viability of the EEU is now under question. As a result of Western sanctions and a drastic drop in oil prices, the rouble has fallen drastically against the euro and the dollar, losing over 50 percent of its value last year. With sharp increases to interest rates and inflation, the current economic climate in Russia echoes that which induced the crisis in 1999. As a result, interest in joining the EEU has waned, for both prospective members and even current members. Another detrimental product of tension with Ukraine has resulted in Russia losing a significant trade partner and prospective member state. The idea of Eurasian integration now faces a stumbling block, thus presenting an ideological misstep in the project.

Chances for success
In theory, the EEU is a promising supranational organisation, with the potential for significantly enhancing economic cooperation within the region. Given its vast population and natural resources, the union has the capacity to become a powerful economic force, with considerable clout in the international arena. The principle of regional integration is compelling, as it is for the EU, yet with a greater historical significance to the amalgamation. Despite ardent cultural and linguistic links, the union faces a multiplicity of challenges, particularly if regulations are not enforced. “With no concrete plans for common financial regulation, and regulatory harmonisation still in progress even after the creation of the Single Economic Space in 2011, the formation of the EEU will not by itself have significant near-term impact on its members’ trade and economic output,” Witlin tells World Finance.

In addition, each member state faces its own financial hurdles, and so banding together at this time may not result in the economic prosperity that advocates propose. The bureaucratisation of integrating the four countries may also delay economic development for each country; as could the enlargement of the union, with less developed economies drawing resources from stronger member states.

The aspect of power sharing between authoritarian leaders also raises doubts about a conducive climate for cooperation, with different objectives and outlooks for each member state potentially inducing tension in the future. The most disheartening factor regarding the viability of the project is the ongoing trade disputes currently in play within the EEU. Russia’s dispute with neighbouring Belarus shows no signs of subsiding yet, bringing to question its obligation to the union’s rules; an imperative factor for the long term success of the project. “They reflect the long shadow politics will cast over each member’s commitment to the union’s rules at any given time,” says Witlin. With indications of a readiness to default on regulations and a lack of obligation to the principles of the union from the outset, the signs of an ineffective partnership loom, making the organisation seemingly more symbolic than tangible at this present time.

Baltic Dry Index plunges into the red

Posted on February 5, 2015February 8, 2017 by Ashton Wenborn

The index, which dropped three percent to 590 points on Monday and fell an additional eight to 569 on Wednesday, is a key indicator of international economic activity. It tracks ships that carry bulk commodities – such as iron ore, thermal coal, steal and copper – which are seen as building blocks for economic growth.

An influx of new ships…is believed to have driven down market rates

According to Katie Dale, at Market Realist, the fall is, in part, due to capsize vessels whose earnings have fallen to $6,707 a day – which is not enough to cover operating expenses of $6000 to $10,000 a day.

An influx of new ships has hit the waves since the financial crisis and this is believed to have driven down market rates, despite the traded volume of commodities reaching record levels. According to George Lazaridis, Head of Market Research and Asset Valuations at Allied Shipbroking, the market is slowly declining due to these shipping rates.

In a weekly shipping market note published on Monday, he said: “The dry bulk market has seemingly gone dead silent; with worries circulating amongst many owners that there is little reason to operate vessels under the currently prevailing freight rates.”

The Baltic Dry Index has fallen 95 percent since its 2008 peak and has now dropped by more than 50 percent in less than three months, a pace that is being likened to the fall of Lehman Brothers.

Papadopoulos: IMF a formidable weapon of the American government

Posted on February 5, 2015 by Ashton Wenborn

Things are not looking good for Russia after being downgraded to junk level by Standard and Poor’s and with its GDP set to shrink three percent in 2015 – but is it all as bleak as it seems? World Finance speaks to Dr Marcus Papadopoulos, Editor of Politics First, to find out.

World Finance: Well Marcus, Russia is a very strong country, but it has had a battering of late, of course, with the Ukraine crisis and the western sanctions; so what’s the economic situation on the ground today?
Marcus Papadopoulos: Well first of all, the ruble is no longer in freefall. The ruble has now stabilised, and if we look at the Russian economy as a whole, the Russian economy is withstanding the barage of politically motivated western sanctions.

And much of that is to do with President Putin. Because when President Putin came to power in the Kremlin in 2000, he made it very clear that the two key things to do were to: one, pay out Russia’s debt to the IMF, because the IMF is a formidable weapon of the American government; and secondly, President Putin made it very clear, it is absolutely crucial to build up Russia’s oil reserves.

President Putin made it very clear, it is absolutely crucial to build up Russia’s oil reserves

So I think those two factors explain a lot as to why the Russian economy – nearly a year on, nearly approaching a year since the west placed sanctions on Russia – is still maintaining its position in the world, and is withstanding a barage of politically motivated sanctions from Washington and Brussels.

World Finance: There have been lots of murmurings though about a recession; is this likely this year?
Marcus Papadopoulos: At the moment it doesn’t look like that’s going to happen. But of course if the west was to place more sanctions on Russia, then there is the possibility that the Russian economy could go into recession.

Now, let’s not forget: the western economies are not exactly in a very healthy state themselves. So if Russia was to go into recession, then western companies – which are still allowed to trade with Russia – they would be affected. And therefore if they’re going to be affected, their respective economies are going to be affected as well.

So it wouldn’t be good news for the Russian economy to go into recession, because the Russian economy since the late 1990s has become integrated in the global economy.

World Finance: Well the western sanctions put on Russia: are they hitting people at a grassroots level, although mainly targeted at the big businesses and the oligarchs?
Marcus Papadopoulos: At the moment, if you go into Russian supermarkets, into Russian shops, you will see that the food produce is still there in abundance. Certainly some prices have gone up, and that is a concern for the Russian government. But at the moment it’s more big businesses which have been affected.

However: if the west was to place more sanctions, then those big businesses are going to suffer more. And of course, that could start to have a drip effect, whereby it’s going to filter down to ordinary people. But it’s very important to note that the Russian people are withstanding these sanctions, and are fully supportive of their president.

World Finance: I did read recently about ‘vodkanomics,’ to coin a phrase, which said that President Putin’s fix to the economic crisis was capping the cost of vodka and bread to keep people happy. Is this true? And if so, is it working?
Marcus Papadopoulos: There are a lot of misconceptions about Russia, and quite frankly there’s a great deal of ignorance of Russia. If a western commentator, a western journalist, or western politician has made such a comment, then quite frankly it’s absolutely ludicrous.

The Russian government, yes, is facing a very serious challenge in regard to the sanctions. But if anybody in the west is going to argue that all they’re doing in Moscow is putting the price down of vodka and bread to solve the problem, then they’re living in cloud cuckoo land.

Quite frankly, the Russian government is increasing its trades and its investment with its genuine friends in the world: China, India, Brazil, Argentina, South Africa, Vietnam. That’s where the bulk of Russia’s trade and investment is actually going to be in the future.

So that’s how the Russian government is confronting its difficult situation at the moment; along with using its huge amount of gold reserves.

World Finance: So the S&P downgrade: what kind of impact has that had on Russia?
Marcus Papadopoulos: That was a politically motivated act. What the Americans are trying to do is, they’re trying to stifle the Russian economy. They’re trying to prevent all possible oxygen going into the Russian economy, because the S&P downgrade was to say to other countries in the world, ‘Don’t touch Russia with a bargepole.’

There are a lot of misconceptions about Russia, and quite frankly there’s a great deal of ignorance of Russia

Well, certain countries in the world won’t; but then Russia has many friends in the world. Pretty much the whole of Latin America has very, very good bilateral relations with Russia, and very good business relations with Russia. And the same in southeast Asia as well, and the same in parts of Africa.

So those countries will not be put off. Let’s not forget last year, the Chinese were not put off doing further business with Russia, because Moscow and Beijing signed a $400bn contract for the supply of Russian natural gas. So the west can come out with these statements about downgrading Russia’s credit rating; but quite frankly Russia is pushing ahead in the world, and it’s pursuing and integrating its economy with its genuine friends in the world.

World Finance: So what’s Russia’s plan moving forward? Does it have a five year economic plan?
Marcus Papadopoulos: President Putin understands very clearly that there is no going back to the 1990s, when Russia caved in to western demands, and Russia was the recipient of IMF loans.

President Putin understands that Russia has to pursue even closer relations with the emerging economies of the world. So really, that’s why Russia’s economic future lies. Sure; Russia will keep on trading with Europe. It will keep on supplying energy, it will keep on supplying oil, and they will get a good return for that.

But ultimately, the long-term strategy for the Kremlin – and the Kremlin is quite aware of this – is to integrate itself with the emerging economies of the world.

Is Hong Kong still the best business gateway into Asia?

Posted on February 4, 2015February 5, 2015 by Ashton Wenborn

World Finance speaks to a number of experts in Hong Kong on whether the city can retain its popularity as a regional interlocutor.

World Finance: Another busy day begins at international recruiting firm Harvey Nash’s Asia Pacific Office, based in Hong Kong. In just three years its roster has grown five-fold.
Nick Marsh: Our clients are mostly multinational companies from Europe, the UK and the United States or North America. Those companies are currently and continually looking to invest in Asia. They do see China as still an important part of their business. At the same time ASEAN, the whole Southeast Asia region, has grown in importance during the last few years. So now China and ASEAN are seen as equally important.

They are looking to bring in better quality finance directors, sales directors, heads of operations

World Finance: Asia’s middle class has ballooned to 525 million – more than the total population of the European Union, and MNC’s are noticing.
Nick Marsh: Companies are looking to upgrade the quality of the people they hired, that they have running those regions or countries. They are looking to bring in better quality finance directors, sales directors, heads of operations.

But it’s fair to say that many or even most of the bigger multinational companies are looking for really good local talent. They don’t just want expats. They want great Chinese leaders, great Hong Kong leaders, great Malaysian leaders. They want all of those, but they want people with international mindsets and great communication skills.

World Finance: While enthusiasm abounds amongst foreigners looking to break into China through Hong Kong, experts say it’s really the next four to five years that determine whether this high level of expectation is matched with the right level of growth.
Nicholas Kwan: It is moving from an extensive type, export oriented type of development, or high growth development, to a more intensive energy reserved and environmentally friendly and sustainable type of development. Hopefully with the same type of growth but maybe slightly less.

Hong Kong needs to adapt ourselves or it will miss
the boat

This isn’t something you can change overnight, it involves a lot of changes both socially as well as economically.

World Finance: Kwan adds that this is also a decisive moment for Hong Kong. Though it topped the World Bank’s 2014 easy of doing business report, so did another formidable regional rival: Singapore.
Nicholas Kwan: During the transition, Hong Kong needs to adapt ourselves or it will miss the boat. There are new opportunities like China now that want to open up to the world in terms of services, not just trade and manufacturing.

We have to help them to connect with the rest of the world on the finance side, in the logistics side and the analyst services, the legal services, the arbitration services, all these are new development areas in China that need to be grown and expanded.

World Finance: Services the Asia Pacific region will also increasingly demand. Though Deborah Biber, a long time business interlocutor in in Hong Kong, says the regional momentum doesn’t guarantee success.
Deborah Biber: I think one of the biggest issues is the lack of research and a lack of understanding of the market. Everyone thinks China is the big game, and it is the big game. But it’s only the big game if you actually know what you’re doing.

World Finance: And in a city that never sleeps, Hong Kong remains that entry point for so many. Kumutha Ramanathan, reporting for World Finance in Hong Kong.

China’s top 5 rich list

Posted on February 4, 2015March 26, 2018 by Ashton Wenborn

Li Ka-shing
Li Ka-shing’s Cheung Kong empire amasses a wealth of $32bn, making him the richest man in Asia and the wealthiest man in Hong Kong for the 17th year in a row. The real estate tycoon is increasingly diversifying his portfolio and reach, investing heavily into transportation, technology and retail sectors around the world. In January, the billionaire bought Britain’s Eversholt Rail for $3.8bn and also announced plans to buy Telefonica’s O2 enterprise. Together with Three Mobile’s current market share, this purchase will rank his firm as the biggest mobile operator in the UK.

Lee Shau Kee
Another real estate mogul and Hong Kong resident, owner of Henderson Land, Lee Shau Kee, boasts a fortune of $26.5bn. Dr Lee, together with his two sons, runs an empire of hotels and energy groups, which include Miramar Hotel and the Hong Kong & China Gas Company. As well as multiple investments in various areas, philanthropist Lee has helped to implement a number of community initiatives in China and provides scholarships and building funds through the Lee Shau Kee Foundation.

Li Hejun
Coming up close behind the number two spot is solar energy magnate Li Hejun with a wealth of $26bn. Hanergy Holding Group Ltd is the largest solar power group in China and has been heralded for its revolutionary technology. Despite its growing success, the company has recently come under scrutiny for unconventional dealings between its subsidiary companies, namely by moving profits around in order to bolster the profits of Hanergy Thin Film Power Group Ltd.

Wang Jianlin and family
Fourth in China’s rich list are Wang Jianlin and his family, owners of Wanda Commercial Properties Co Ltd. In spite of recent losses as a result of devaluating commercial real estate in China, Wang’s $25bn wealth has allowed him to expand into new areas, such as the entertainment industry. In January, he purchased 20 percent of Spanish football club Atlético Madrid for €45mil, while in 2013 the group bought US-based AMC Entertainment Holdings Inc for $2.6bn. Currently, Dalian Wang is a majority stakeholder in Wanda Cinema Line Corp, the largest theatre chain in China and plans to invest into the film industry and theme parks.

Jack Ma and family
Despite ranking ahead of Li Hejun and Wang Jianlin last year, Jack Ma and family are down to the fifth spot with a fortune of $24bn. Founder of Alibaba Group Holding Ltd, Ma is currently contending with poor quarterly results and a drop in the company’s stock price by more than 13 percent in the past week. A dispute with a Chinese regulator has contributed to the group’s recent disappointing performance. Ma started Alibaba with a small group of friends in his one bedroom apartment in 1999; the directory website now boasts 600 million users and has opened up the global market for small businesses across China.

Covéa becomes one of France’s most trusted insurers

Posted on February 4, 2015January 18, 2015 by Ashton Wenborn

Despite a turbulent economic environment on home soil, leading French insurance group Covéa (see Fig. 1) has managed to develop its business, improving the cooperation between its three subsidiary brands – popular French insurance choices MAAF, MMA and GMF – while expanding into international markets, where 12 percent of its business now lies.

Growing its presence in the UK through its subsidiary Covéa Insurance, the group has seen substantial success across the Channel, which it has further extended through a 100 percent stake in the UK firm Swinton Insurance. Here it saw a turnover of £304.6m in 2013. Reaching France’s number one spot for property and liability insurance as well as legal protection, Covéa has become the insurer of choice for one in every five French citizens.

As the country’s third biggest player for company insurance and a market leader in individual healthcare, motor and home insurance, the group has reached a customer base of over 11 million, harnessing the talent of a global, 26,000 strong workforce. Preparing itself for Solvency II – which is likely to transform the insurance market – the company has adapted to a new regulatory framework in France, and rolling out digital services to stay on top of a rapidly changing world. Covéa can attest it has had a lot on its plate.

World Finance spoke to CEO Thierry Derez about the group’s position in the market, its focus on collaboration, ambitious restructuring plans, and what the future holds in store for one of France’s biggest insurers.

Where does Covéa’s stand in the French insurance market?
Covéa is made up of three major brands in the French market: MAAF, MMA and GMF. In France the group is number one in property and liability insurance, and had a solvency ratio of 405 percent in 2013. In the same year Covéa served over 11 million policyholders, generating €15.5bn in premiums and receiving €824m in net income. Life and non-life turnover hit €15.5bn marking a 5.8 percent year on year increase, while equity capital totalled €10.6bn.

Covéa has become the insurer of choice for one in every five French citizens

The group posted net growth across all areas of the business in terms of the number of policies taken out, with motor insurance leading at 9.4 million policies (up two percent from the year before) followed by personal property and casualty insurance (8.1 million policies). Covéa has also seen success in its home insurance division, with 7.4 million policies taken out in 2013.

The public is not familiar with the ‘Covéa’ brand name, even though it insures one in five people in France. Why is this?
The group markets its products under its three different brands, all of which are well known in France but tap into different markets. We do not therefore see a need to develop the Covéa brand in itself. The group does however wish to strengthen the collaboration between its various components in order to increase its price competitiveness and deliver additional services to its policyholders.

With a view to achieving that, you recently announced restructuring plans for Covéa. What changes is the group likely to see?
The group is comprised of several different structures. While these structures are important, the general idea is to build, over a two to three year period, a single business that will strengthen the group’s competitiveness and profitability by simplifying the structure of the organisation. One of the major changes is that the overall strategy will be defined at the overall group level, rather than at the level of the individual brands. Several cross-group departments will be created, all with the aim of increasing collaboration across the organisation.

How do you see the French insurance market, and what is Covéa’s strategy?
The situation in the market has been complicated for several years now. The economic environment, weak growth and higher loss ratios naturally have a direct adverse impact on all insurance branches. In addition there is a lot of uncertainty in the financial markets, particularly in terms of very low bond yields, which limits financial income.

In these conditions we consider it particularly important to keep an eye on the fundamentals and make sure our business does not suffer as a result of an uncertain climate. Covéa therefore seeks to achieve steady but reasonable growth. This strategy enabled us to post profit in excess of €800m in 2013, which marks a strong year-on-year increase from 2012.

The French insurance market is undergoing significant regulatory changes. What effect is this likely to have on the market?
Apart from Solvency II, which will affect the entire European market that we have been preparing for several years, the French market is set to undergo several significant regulatory changes.

These are happening within health insurance, for example; an inter-branch agreement requires that all employees receive supplementary health insurance from 1 January 2016, provided at the level of the employer. That means that four million people will switch from individual policies to collective insurance policies.

In property and casualty insurance, a new law has been introduced that gives policyholders the option to terminate their policies at any time, with the idea of encouraging competition in the market. However, experience in other countries where similar laws exist, such as in the UK, suggests this could result in price increases because it requires additional marketing and administrative work, which can in turn be costly.

What effect has the digital revolution had on the insurance market?
Digital developments and the emergence of new players has not had much of an impact on price competition given that this has existed for several years and is now a permanent feature. However, the big data boom and the emphasis on responding to consumers’ new needs and expectations are obviously major issues for all insurers. The customer relationship needs to be at the centre of the system. With that in mind Covéa has set up a new technology department in order to focus on digital growth. It’s a great example of an area in which collaboration between each of the group’s brands is essential, given that they all face the same challenges.

What is your international strategy?
International expansion is an important source of diversification and growth for Covéa. However, it is difficult to connect our insurance operations across different international markets together as there is not really any such thing as a European insurance market, let alone a global insurance market; each market is different and so are the products. Our international investments therefore have to be at least as, if not more, profitable than our other investments.

Which countries do you operate in?
Covéa has had a presence in a number of countries outside of France for over 30 years. Although the majority of the group’s development takes place in France, growing the business on an international scale remains an important factor. Through its majority owned subsidiaries and equity interests, Covéa is active in Europe – mainly in Italy and the UK – as well as in North America. Non-life and life insurance abroad now account for 11.7 percent of earned premiums, and that’s before taking into account the brokerage business based in the UK. In general we focus on mature markets with relatively high standards of living and, most importantly, transparent regulations.

How did the group establish its presence in the UK successfully?
Covéa’s first full accounting year was in 2013 in the UK’s highly competitive market. The UK version of the business, named Covéa Insurance, was formed from the 2012 merger of Provident and MMA Insurance. It has maintained its results despite a challenging insurance climate following the UK’s bad weather conditions at the end of last year, which made insurers vulnerable to significant losses.

Today, Covéa Insurance offers competitively priced household and motor insurance, along with a range of commercial insurance products designed to meet the needs of most businesses. As a guaranteed subsidiary of Covéa, it has a nationwide network of intermediaries and handles the insurance needs of over 1.2 million policyholders. The company has developed a strong reputation, reflected in its high A rating from Standard & Poor’s. Covea group also owns Swinton Insurance, the biggest high-street broker, which delivers personal and commercial products to more than two million customers, thanks to its 350 branches and its 4,000 staff.

Advanced Innovation Center fights to save humanity’s problems

Posted on February 3, 2015January 18, 2015 by Ashton Wenborn

In a world that faces energy shortages, we pay a great deal of attention to traditional and renewables forms of energy, but it seems that we underestimate the most powerful one: the energy of ideas.

We are at a unique point in history where scientific knowledge is a commodity and the available capacities to develop new technologies are outstanding. Then, what shall we do with all the potential accumulated by academia and industry alike?

Technology is advancing rapidly, but for the poorest people in the world life has not changed much. There are hundreds of millions of people that still live in a state of perpetual crisis. The natural evolution of society has led us to contradictions like having Nasa’s Curiosity Rover exploring Mars, while a child dies every 21 seconds due to preventable waterborne diseases.

Innovation is a tool that leads us to look forward to the future, anticipating problems by constantly seeking opportunities. It is also an invitation to take action, moved by the power of our own ideas and materialised in real solutions.

$260bn

Annual economic losses associated with inadequate water supply

Developing technical solutions alone is not enough, there are many other factors that need to be addressed from the innovation standpoint. The key to generating significant impact is pairing technologies with novel approaches to social and environmental issues. Technological progress can be connected to social improvement by establishing innovative business strategies. Through the convergence of these innovations it is possible to generate impact that is sustainable and scalable.

Obsolete models
The reason there are still so many people suffering from hunger, lack of drinking water and sanitation, pollution and a number of other old problems that still persist, regardless of the impressive technological progress nowadays, is because we rely on obsolete models. This is not just a problem for governments, but for the entire society. Large corporations will not be able to continue performing the way they do without considering the increasing social unrest. For instance, soon it will be impossible to continue producing soft drinks with a water footprint of over 600 liters of water per produced liter. It has been projected that two-thirds of the world’s population could be living under water-stressed conditions by 2025.

Similar situations can be observed in every productive sector. For example, there are huge investments projected in the mining sector – $88.5bn for the next seven years in Chile alone (according to the Chilean Copper Commission) – which is certainly needed due to the number of benefits that mining corporations generate. Benefits include the production and contributions to local economies, employment, services, infrastructure, human capital formation, technological progress, economic dynamism, and more, but the extraction of resources cannot be done at the expense of communities and the environment.

Business will not be viable in the long term if innovation is not applied to their activities, and the way corporations relate to their surroundings.

Consumption behaviour and consumer-brand relationships are not the same as they were a few years ago. Corporations cannot just ignore social and environmental issues, they need to anticipate the effects that a stressed world will have on them. This is only possible through innovation.

Today’s informed society demands solutions for a number of social, economic, political and environmental issues. Corporations can no longer simply focus their efforts on optimising their production processes and increasing profits. Regardless of current results, they need to align with the ongoing transformative social changes. To enhance their performance, and even to ensure their sustainability, companies need also to improve and strengthen the relationship with their ecosystem, through initiatives that generate social and environmental impact.

When engaging in humanitarian campaigns, corporations generally assume that their contributions will not generate direct benefits for them or, in the best case, will slightly improve their brands perception when properly communicated. Nevertheless, given the increasing social pressure for a responsible performance, corporations often are forced to carry out diverse initiatives in order to enhance their relationship with the environment around them.

Making an impact
Despite some laudable initiatives by several major corporations, their remarkable efforts have not reached the scale required to generate significant impact. Even though CSR campaigns can generate great impact for their beneficiaries, it is accepted that philanthropy is not good business for corporations. We believe that it is possible to break this paradigm.

This is not about demonising or blaming corporations, neither is it an ideological debate. It is about proposing a new effective model. When creating appropriate solutions for those billions of people in need, it is possible to generate several new billion-dollar businesses based on shared value.

In addition to their own objectives, large multinational corporations have a unique responsibility. They have the opportunity to help the poorest populations achieve major progress in human and economic development.

At the Advanced Innovation Center (AIC) in Chile, we have demonstrated that it is possible to connect technology with poverty. Not based on philanthropy, but on sustainable business models. By linking together the interests of different parties it is possible to generate social and economic impact at the same time. The most important condition for a successful partnership is fostering mutually beneficial interdependence.

Continuing with the previous example on a social crisis that threaten the sustainability of corporations, the lack of access to clean drinking water is one of the largest drivers of extreme poverty around the world today.

Few problems cause so much damage and human suffering; few issues are as entrenched and universal as the need for reliable access to clean water. Providing safe access to clean drinking water is one of the most impactful things any organisation can focus on. For every $1 invested in safe drinking water and sanitation, the World Health Organisation estimates returns of $3-34; not to mention the positive impact it can have on issues related to education, women’s rights, and freedom. When providing clean water, beneficiaries also gain hope and dignity.

Furthermore, the World Bank has estimated the total economic losses associated with inadequate water supply and sanitation at $260bn annually. There has been an enormous amount of money spent on trying to end this horrible problem with very little to show for it. Despite the best efforts of organisations around the world, the progress made thus far has not been good enough.

Corporations and consumers
To deal with this global crisis AIC has created a new technology – the Plasma Water Sanitation System (PWSS). This has proven to be a highly efficient distributed solution for underserved communities, besides many other possible applications. In accordance to our model, we have paired this technology with innovation in the way corporations relate to their consumers and improve their sustainability. We will lead a worldwide humanitarian campaign for providing millions of people in need with access to drinking water, while reducing the corporate water footprint, all using advanced technology and guided by a global vision with local impact.

This campaign will be carried out by a worldwide network of corporations and their consumers, foundation, manufacturers, distributors and other relevant players. The impact created by these groups working together will be measured through a variety of metrics, like liters of water treated, amount of people served, reduction of waterborne diseases and even numbers of lives improved.

This joint effort will create a deep, strong, and lasting emotional bond with customers – based upon high levels of traceability and accountability – which would go far deeper than normal engagement. It would result in long-term customer loyalty. Corporations could also benefit by including this campaign in their water balance accounting, so as to offset the water footprint of their products. The result of this campaign will be greater than just one effort, it will lead to the creation of a Distribution Network for Good, which can be used to disseminate several innovations and technologies.

Convinced that the convergence of advanced technology and innovative business models leads to high social and economic impact, we have created FAZ Foundation. Instead of using outdated, traditional approaches, we use a new model that allows us to maximise our impact, accelerating the fight against poverty while establishing viable corporate objectives.

Developing innovation always involve a great amount of risk, both technical and commercial, however, the real risk is in not innovating. We believe that innovation is no longer an option, but an obligation.

Is Hong Kong China’s global “super connector”?

Posted on February 3, 2015February 3, 2015 by Ashton Wenborn

World Finance: At this year’s Asian Financial Forum Chief Executive CY Leung highlighted the “super connector” role that his city plays between China and the rest of the world, but given the recent depreciation of the RMB, one has to wonder if this role will still hold. That’s a question that World Finance posed to the highest monetary authority in the city.
Norman Chan: The exchange rate of renminbi is only one factor affecting financial market developments, but the reforming opening process will not be changed. I’ve just talked to some bankers at the seminar, and they think a two-way flow, a widened band of renminbi exchange rate is actually good for bankers, because that will create the hedging needs for a lot of companies trading and investing in China.

The point is that Hong Kong as the window or springboard for connecting the rest of the world and mainland China will continue to be strengthened, and the internationalisation of the renminbi is a key component in this process, and we are doing very will in this regard.

Reserve Bank of Australia cuts rates to record low

Posted on February 3, 2015February 8, 2017 by Ashton Wenborn

Officials at the Reserve Bank of Australia (RBA) have decided to slash the bank’s key interest rate by 25 basis points, bringing the total to 2.25 percent, effective February 4. The record-low rate has been introduced to stem the currency’s decline and boost growth at a time in which falling commodity prices are inflicting pains on the economy.

The decision to cut interest rates aligns with the steps taken by countries such as Canada, China and India

“In Australia the available information suggests that growth is continuing at a below-trend pace, with domestic demand growth overall quite weak,” said the RBA’s governor Glenn Stevens in a statement. “As a result, the unemployment rate has gradually moved higher over the past year. The fall in energy prices can be expected to offer significant support to consumer spending, but at the same time the decline in the terms of trade is reducing income growth. Overall, the bank’s assessment is that output growth will probably remain a little below trend for somewhat longer, and the rate of unemployment peak a little higher, than earlier expected. The economy is likely to be operating with a degree of spare capacity for some time yet.”

The rate cut aligns with the steps taken by countries such as Canada, China and India, which have likewise suffered at the hands of a new low-cost oil environment in recent months. Financial conditions are “very accommodative globally”, according to Stevens, in that long-term borrowing rates and overall financing costs for creditworthy borrowers are sitting at low levels.

The decision to cut interest rates marks the beginning of a sustained push to kick start domestic spending and boost business confidence, issues that have succeeded in taking a chunk out of the economy. Official figures in December showed that economic growth in the third quarter, at 0.3 percent, came in far short of expectations at 0.7 percent. “Our outlook for Australia is pretty bleak to be honest, well below what the bank expects,” says Paul Dales, a key member of the UK economics team at Capital Economics. “What’s important now is boosting investment in the non-mining sector, which is quite a trick without pumping up the housing market.

“Lower interest rates are useful but there is a need for big structural change. It’ll likely take more than one rate cut to boost the country’s outlook and we actually expect another as early as next month.”

AmInvest on Malaysia’s shifting investment landscape

Posted on February 2, 2015February 4, 2015 by Ashton Wenborn

The Malaysian investment landscape has changed significantly in the last decade. It now offers rich opportunities and is developing into an international marketplace for Islamic finance. World Finance speaks to Datin Maznah Mahbob, CEO of AmInvest, to discuss how to negotiate this market.

World Finance: Well Datin Maznah, how does the Malaysian investment landscape stand today? And what are the main opportunities it presents?
Datin Maznah Mahbob: In view of the recent correction in the financial markets along with a lot of other emerging markets, we’ve had a similar correction in our debt market as well as our equity market as a result of falling oil prices. And I believe that this actually provides longer-term investors with an opportunity to position in our market at this time.

There has been a flow of funds back to the developed markets

World Finance: Well AmInvest provides investment solutions for global investors across a full spectrum of asset classes, so what trends are you seeing?
Datin Maznah Mahbob: There has been a flow of funds back to the developed markets and the stronger currencies, as a result you can see the correction in emerging markets in Asia and there has been a correction in the fixed income markets and bond markets in general. And a trend towards equities in fact, as the global economy is showing signs of recovery.

World Finance: Well Malaysia is of course a leader when it comes to Islamic finance. So what fund management services do you offer in that sector? And how do you see the market developing?
Datin Maznah Mahbob: We have Sharia-compliant commodities, precious metals, equities, sukuks which is quite broad – not common actually – in terms of choice for the Islamic investor. For global investors we are focusing on what we can manufacture in the Islamic space, and particularly in the ethical space, focusing on our own time zone in terms of active management. So we are offering active Asian equities but for the international markets, we can actually provide global sukuks as well as global developed equities and global emerging equities.

World Finance: The fund management industry is fiercely competitive, how do you stay ahead of the game?
Datin Maznah Mahbob: Our business model is as a fund manufacturer. We deal directly with institutional clients of course, but for our retail investors we work through intermediaries which are third party distributers in that sense, because we are in a way not dependent on our in house group distribution, we have to stay relevant and competitive in terms of our product offering.

World Finance: Looking at your ‘Smart Beta’ methodology now and what are its core features? And how is it best suited to allow you to internationalise?
Datin Maznah Mahbob: We had the objective of delivering competitive risk adjusted return to the investor, in other words a lower volatility fund without sacrificing the return at a lower cost. And in a very transparent way employing strategies which would actually do its best in an economic environment of uncertainty and slow growth. So we believe that that is the situation we are in which could perpetuate for the next three to five years, so we designed strategies that would actually benefit from that.

World Finance: And finally what are your plans moving forward?
Datin Maznah Mahbob: We will be launching this fund very soon, perhaps at this time of airing it should be launched by then. And we are busy engaging with partners that will help give us the reach to the end investor in the countries that we are targeting.

World Finance: Datin Maznah, thank you.
Datin Maznah Mahbob: Thank you very much.

FBN Insurance on the potential of Nigeria’s insurance market

Posted on February 2, 2015January 18, 2015 by Ashton Wenborn

With a thriving middle class and a population of over 168 million growing at 2.5 percent per annum, Nigeria possesses demographics no investor can ignore.

The huge population presents countless opportunities for insurers, particularly in the retail space, as the National Insurance Commission (NAICOM) continues to seek viable means of improving insurance penetration, which remains below one percent. Although NAICOM has made notable progress in the restructuring and revamping of the Nigerian insurance industry since the financial market turbulence between 2008-2010, the operating environment still presents perennial challenges. These include major concerns such as security, infrastructural limitations, underemployment and unemployment, among others.

Despite such concerns, the Nigerian economy has remained resilient, delivering an estimated GDP growth of 6.8 percent, consolidating its position as the largest economy in Africa and one of the top 30 in the world, after the GDP rebasing in 2014.

Income levels and consumer behaviour will continue to shape the attractiveness of Nigeria’s retail market

While insurance penetration remains low, Nigeria’s population is growing rapidly and is forecast to reach 209 million by 2021. Half of that population will be younger than 25 years old. This presents an opportunity for underwriters in Nigeria to explore the untapped potential of a larger retail market with the largest population in Africa and the eighth-largest in the world.

Retail market
Income levels and consumer behaviour will continue to shape the attractiveness of the country’s retail market because economic growth will translate into rising disposable income for many Nigerians, which will strongly influence social classification. Nigerian consumers are becoming increasingly sophisticated and since 2000 real private consumption has grown by an average of 9.3 percent per year. While the Nigerian consumer market is growing, government efforts to improve the business environment and reduce inflation are expected to result in stronger growth in the insurance sector.

Terrorism and insurgency in the north has remained a key priority of the Nigerian Government. The security challenges, which have resulted in the destruction of key infrastructure, have the potential to disrupt business operations and reduce foreign direct investments, particularly in the affected states. The government is expected to continue in its efforts to explore all viable options in curtailing these security issues. The implication of this societal unrest for insurers in the medium- to long-term is the creation of specialised products and services that can help governments and communities minimise losses due to terrorism.

The level of competitiveness within the insurance industry is expected to increase, especially as foreign insurers have caught wind of the gaps in the Nigerian insurance space, particularly within the retail segment. They have expressed keen interest and made strides to own investing stakes in the sector, this emergence in this sector is a testament to the vast potential within the Nigerian market.

Based on the identified trends and opportunities, FBN Insurance’s go-to-market strategy is hinged on deepening our footprints in the retail insurance space and expansion into the non-life insurance segment. Our key objective is to stabilise and sustain our growth through our disciplined approach to underwriting and conservative investment strategy; this means we maintain a focused approach in the execution of our long-term strategy, while positioning ourselves to exploit emerging opportunities in the insurance industry.

Continental knowledge
We have set industry records by proffering attractive insurance packages for all Nigerians irrespective of factors such as age, occupation, income and location. Despite the sustained apathy and cautiousness of customers to the insurance industry in Nigeria, our gross premium grew by 35 percent over a period of 12 months. Our corporate, retail, credit life and alternative business lines contributed 19 percent, 59 percent, 20 percent and one percent respectively, to premium income for the year 2013 and our profit before tax grew by 22 percent. This growth is attributed to our disciplined underwriting practices, cost optimisation initiatives and improved returns on strategic investments.

FBN Insurance leverages on the knowledge of its local partner FBN Holdings and the international expertise of its foreign partner, Sanlam Emerging Markets (Sanlam EM), one of the largest financial institutions in South Africa. Sanlam EM, a subsidiary of Sanlam Group, is one of Africa’s foremost insurance providers, with over nine decades of experience managing life insurance businesses in a number of Sub-Saharan African countries, as well as Europe, Asia and the US. These partners provide technical implementation assistance and ongoing management support to the company’s operations.

Our enduring commitment to our core values, coupled with the overwhelming support of our shareholders, experienced board members, competent management team and professional employees has propelled us towards ensuring best practices are implemented and sustained across the organisation.

Furthermore, we conduct regular extensive market research that guides our business strategy and policy direction. This provides distilled insights from macroeconomic and industry trends, helps estimate the size of emerging opportunities and understand customer buying patterns and motivations; our customer centricity influences our approach to innovative product development and drives tailoring services to the key customer segments. The launch of our mobile insurance product – the first of its kind in the Nigerian Insurance Industry – is a testimony to our commitment to championing innovation in the industry and the promotion of insurance penetration through efficient and low-cost channels. We are convinced this will gradually drive financial inclusion by granting access to simple, affordable and convenient life protection plans through mobile phones.

In a highly competitive sector, such as the insurance industry, the tendency exists for key players to appear very similar in terms of product and service delivery. At FBN Insurance, we ensure that we focus on and exploit our competitive advantages in the industry. We are convinced that the brand strength of our owners and commitment to excellence and innovation are key factors that differentiate us from the rest. Particularly in an industry plagued by a persistent lack of trust and confidence from customers, the reputation of an insurer in Nigeria is critical to its success. We are proud that the brand strength of our owners echoes stability, financial strength, expertise and reliability. Consequently, we believe customers who truly want to protect the people they love will put their trust in the reliability we offer. Our products and services are competitively priced without sacrificing quality. As we design products we ensure flexibility by carefully considering the unique needs of our customers to develop fit-for-purpose products. As the pioneers of mobile insurance in Nigeria, we will continue championing innovation in the industry.

In line with our expansion strategy, FBN Insurance is finalising the acquisition of a general insurance license. This will stretch our product range to include insurance services such as household, motor, marine, oil and gas.

Consumer needs
The organisation’s existing products, which include group and individual policies, are designed to accommodate differing consumer needs. These products are categorised as risks, savings and hybrid plans.

These products are in consonance with our commitment to deepen market penetration by providing low cost insurance products through multiple distribution channels that would benefit the mass market in Nigeria.

We are particularly concerned about what happens after a death and the continuity of the living standards of a family when the breadwinner is gone. In many homes in Nigeria, the death of the breadwinner has brought about a total decline in the living standards of the dependants. Even critical illness or the permanent disability of the breadwinner has led to children dropping out of school and engaging in anti-social activities because there were no funds to continue their education or lead their once normal life.

Celebrities, as well as ordinary citizens, have had to turn to the government or the general public when hit by an unexpected illness such as stroke or a permanent disability, because they were not covered by insurance policies that could have borne such unexpected costs.

It is therefore essential that high-net-worth individuals, the political class, schools, religious organisations, professional bodies, affinity groups, open markets and market associations, cooperative societies and government institutions, embrace insurance to avoid financial upheavals and the potential disruption of lives and businesses in the wake of the unexpected.

We are carving a niche in the retail insurance market through the provision of innovative and solution-driven products that create value for all stakeholders, despite the many challenges brimming in the macro environment and the unique demands of doing business in today’s evolving economy. We will continue to stay true to our aspiration, as bastions of stability, delivering high-standard and fit-for-purpose offerings that will address every Nigerian’s insurance needs.